KWS Group
Annual Report 2019

Plain-text annual report

0 2 0 2 | 9 1 0 2 t r o p e R l a u n n A Annual Report 2019 | 2020 KWS in Figures The KWS Group (in € millions) 2019/2020 2018/2019 2017/2018 2016/2017 2015/2016 2014/2015 Net sales and income Net sales EBITDA EBIT as a % of net sales (EBIT margin) Net financial income/expenses Net income for the year Other figures on earnings R&D intensity in % 1,282.6 1,113.3 1,068.0 1,075.2 1,036.8 225.5 137.4 10.7 1 –7.8 95.2 199.7 150.0 13.5 –5.5 104.0 182.7 132.6 12.4 5.4 99.7 181.0 131.6 12.2 16.6 97.7 161.0 112.8 10.9 14.8 85.3 986.0 159.3 113.4 11.5 16.7 84.0 18.4 18.5 18.5 17.7 17.6 17.7 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 debt 2 Total assets Capital employed (avg.) 3 ROCE (avg.) in % 4 Cash flow from operating activities Free cash flow 5 Employees Number of employees (avg.) 6 Personnel expenses Key figures for the share in € Earnings per share in € 7 Dividend per share in € 7, 8 Segments (in € millions) 108.0 88.2 994.5 44.5 10.1 5.3 495.7 2,235.5 1,640.5 8.4 136.2 31.5 4,414 310.1 2.89 0.70 96.6 49.7 963.5 45.5 12.1 7.6 497.9 2,115.0 1,047.1 14.3 72.9 –5.6 4,126 280.7 3.15 0.67 71.7 50.1 881.8 58.1 12.3 7.1 37.4 63.3 49.4 836.9 56.0 13.1 7.3 48.5 99.6 48.2 767.9 53.5 11.9 7.0 87.9 132.5 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 Corn Sugarbeet Cereals Vegetables Corporate +5.0% 776 739 +6.6% 461 492 +15.9% 58 67 –5.3% 180 170 +11.9% 171 191 +14.8% 23 26 Net sales EBIT Net sales EBIT Net sales EBIT 2018/2019 2019/2020 Reconciliation (in € millions) Net sales EBIT 84 0 EBIT Net sales 0 –8 +17.9% 4 5 Net sales –7.7% EBIT –97 –105 Segments Reconciliation KWS Group 1,546.8 151.3 –264.3 –14.0 1,282.6 137.4 1 13.3% excluding effects from acquisition of the Pop Vriend Seeds Group 2 Short-term + long-term borrowings – cash and cash equivalents – securities 3 Total capital employed at the end of the quarters ((intangible assets + property, plant and equipment + inventories + trade receivables – trade payables)/4) 4 EBIT/Capital Employed (avg.) 5 Adjusted for special effects from acquisition of the Pop Vriend Seeds Group 6 FTE: Full time equivalents 7 Earnings and dividend per share of previous periods adjusted due to share split 8 The dividend for 2019/2020 is subject to the consent of the 2020 Annual Shareholders‘ Meeting. l s r e d o h e r a h S r u O o T Contents 3 3 5 12 14 22 22 32 35 53 58 62 78 88 90 1. To Our Shareholders 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)) 96 3. Annual Financial Statements Spinach makes us strong Our title photo shows a spinach field in Azmoos in the canton of St. Gallen, Switzerland, shortly before the harvest. By entering the vegetables business, KWS has become the world leader in spinach seed, which accounts for around 70% of net sales in the Vegetables Segment. Felix Büchting Cereals, Oilseed Rape/Special Crops & Organic Seed, Human Resources, Farming Peter Hofmann Sugarbeet, Corn Europe, Marketing & Communications Eva Kienle Finance & Purchasing, Controlling, Global Services, IT, Legal Hagen Duenbostel (CEO) Corn North and South America, Corn China/Asia, Strategy, Compliance, and Governance & Risk Management Léon Broers Research & Breeding, Vegetables 2 To Our Shareholders | Foreword of the Executive Board Annual Report 2019/2020 | KWS GroupTo Our Share­ holders Foreword of the Executive Board It is an honor and pleasure to present you today with KWS’ latest Annual Report. Our guiding principle of “thinking long term and acting sustainably” is proving to be precisely the right recipe for success. I am able to report a strong fiscal year in every respect, one in which all product segments grew – in some cases sharply – despite the Covid-19 pandemic. We took swift and farsighted action together with our partners in the agricultural industry. We supplied farmers with seed in good time for the spring sowing season. The food supply is vital to our economy and we live up to this responsibility – and that has never been truer than now. Short-time work or even layoffs were not an issue at KWS, not least thanks to our strong economic situation and indepen- dence. With our current positioning and setup, we can also tackle the challenges ahead of us with confidence and resolve. Our responsibility also includes investing in the future of the global food supply. Even though ground-breaking breeding methods like genome editing are ob- structed by current legislation, it is essential for us to remain fully committed to them and to fair access to state-of-the-art technologies and products. We are one of the leading drivers of innovation in the industry, and digitization is therefore a key element at our company, too. Whether in the shape of innovative tools for agriculture or expansion of our own digital infrastructure – our know- how in the field of forward-looking technologies is a big benefit for us, especially in these times. I’d like to refer you in this regard to the Spotlight Topic on digital solutions for sustainable agriculture at KWS on page 14 of this Annual Report. Foreword of the Executive Board | To Our Shareholders 3 KWS Group | Annual Report 2019/2020The issue of combating climate change seems to have slipped under the radar a little due to events in the first half of 2020. And yet it remains one of our core missions. KWS has not slackened in its efforts to find cutting-edge solutions and approaches in the past months. The European Union’s Green Deal and its Farm to Fork Strategy mean we now have a roadmap, and implementing it is a key challenge facing the whole industry. Given that plant breeding stands at the very beginning of the food value chain, it bears a major responsibility in this context. The EU has now defined concrete figures and targets for reducing the use of pesticide and fertilizer, cutting green- house gas emissions and promoting organic farming and biodiversity. KWS will continue to make a crucial contribution to attaining those goals. And it’s a mission we did not just adopt overnight. Vital aspects of sustainability and environmental protection have been a focus of our work for years. We think and act in terms of generations. At the same time, we need to be responsive. We have successfully demonstrated our adaptivity, in particular this year. We will also continue to address our structural costs in a measured manner and drive projects forward prudently, but purposefully. I wish to express my sincere thanks to our more than 5,700 employees worldwide. Your efforts and dedication are magnificent! You and your commitment are crucial to KWS’ strength. I also thank you, our customers and partners, for your trust and successful working relationship. I hope you find this Annual Report both informative and interesting. Dr. Hagen Duenbostel Chief Executive Officer 4 To Our Shareholders | Foreword of the Executive Board Annual Report 2019/2020 | KWS GroupReport of the Supervisory Board Fiscal 2019/2020 was defined by the major challenges The Supervisory Board of KWS SAAT SE & Co. KGaA resulting from the outbreak of the Covid-19 pandemic discharged the duties incumbent on it in accordance immediately before the start of the spring sowing with the law, the company’s Articles of Association season, a time of the year that is important for KWS’ and the bylaws, regularly advised and monitored the business. Thanks to their great efforts, our employees personally liable partner, represented by its Executive managed to ensure that farmers in all international Board, in its activities and satisfied itself that the markets were supplied with seed in time. That is a company was run properly and in compliance with key reason for our successful performance in fiscal the law and that it was organized efficiently and 2019/2020, in which we grew in all product segments cost-effectively. The Supervisory Board extensively and achieved our main operational objectives. The discussed all significant business transactions and Supervisory Board wishes to express its particular carefully accompanied the Executive Board in all fun- thanks and recognition to all employees for that feat. damental decisions of importance to the company. The good working relationship with the Executive In fiscal 2019/2020, the period under review, the Board was continued. Among other things, this was change of legal form to KWS SAAT SE & Co. KGaA demonstrated by the fact that, as is customary, the was completed upon its registration in the commer- Supervisory Board was involved in all decisions of cial register on July 2, 2019. The company therefore vital importance to the company at an early stage. existed as a partnership limited by shares (KGaA) for The Supervisory Board was provided with the nec- a large part of the year under review. The change in essary information in written and oral form regularly, legal form means that KWS SAAT SE & Co. KGaA promptly and comprehensively. This included all key and the personally liable partner, KWS SE, both have information on relevant questions, in particular relat- a separate Supervisory Board, each with the same ing to strategy, planning, the business performance shareholder representatives serving on them. In and the situation of the company and the KWS Group, principle, all decisions on business operations and including the risk situation, risk management and on all significant business transactions are made by compliance. In the period under review, there were the personally liable partner at a partnership limited no transactions with related parties, which require by shares. The Supervisory Board of a partnership the Supervisory Board’s approval in accordance with limited by shares, which at KWS has two employee Section 111b of the German Stock Corporation Act representatives in addition to the shareholder repre- (AktG) in the version of the German Act Implementing sentatives, must be informed about such business the Second Shareholder Rights Directive (ARUG II) transactions. The reporting requirements are defined (Official Federal Gazette I 2019, page 2637). by the German Stock Corporation Act (AktG) and largely correspond to those under the Council Reg- The company’s business policy, corporate and ulation on the Statute for a European Company. The financial planning, profitability and situation, market cooperation between the shareholder and employee trends and the competitive environment, research representatives on the Supervisory Board of the and breeding and, along with important individual former KWS SAAT SE was always constructive and projects, risk management at the KWS Group, in characterized by a high degree of mutual trust, with particular in relation to preventive healthcare in the the result that the bodies also decided to mainly hold wake of the Covid-19 pandemic, were the subject of joint meetings as far as was legally permitted under detailed discussions in the year under review. the new legal form. The advantage of that is that the employee representatives can discuss upcoming The Chairman of the Supervisory Board continued decisions in advance with the shareholder represen- the direct discussions with the Chief Executive tatives and be integrated in the process early on. Officer of KWS SE and individual members of the Report of the Supervisory Board | To Our Shareholders 5 KWS Group | Annual Report 2019/2020The Supervisory Board and the Management Board continued their constructive and trusting cooperation in the year under review. Executive Board in regular talks outside the meetings potential acquisitions. The Supervisory Board held an of the Supervisory Board in the year under review. extraordinary meeting on December 3, 2019, at which In addition, there were monthly meetings between it discussed the Corn Segment’s strategic orienta- the Chairman of the Supervisory Board and the tion, and continued those deliberations on Decem- Executive Board as a whole, where the company’s ber 16 and 17, 2019. The Supervisory Board likewise current business development and, in particular, its heard reports on the status of the research projects strategy, occurrences of special importance and at KWS on December 16, 2019. The results of the individual aspects were dealt with. The Chairman breeding programs were then on the agenda on of the Supervisory Board informed the Supervisory March 16, 2020. In addition, the potential impacts of Board of the results of these meetings. The Super- the corona virus crisis on the current fiscal year were visory Board did not make use of its right to con- outlined, the biggest challenge at the time being duct an examination granted by Section 111 (2) of restrictions on cross- border trade. On June 25, 2020, the German Stock Corporation Act (AktG) since the the Executive Board then submitted a conservative reporting by the Executive Board meant there was no budget and medium-term planning to the Super visory reason to do so. Board. As part of them, many new projects and hires were deferred until the macroeconomic trends, the Focal areas of deliberations level of economic activity in the agricultural sector, and The full Supervisory Board of KWS SAAT SE & their impact on seed business were more calculable. Co. KGaA held five regular meetings and one extra- ordinary meeting in fiscal 2019/2020, each of which Corporate Governance was attended by all its members either in person The Supervisory Board discussed compliance with or, due to the pandemic, via online media. At the the recommendations of the “German Commission beginning of the year under review, the Supervisory for the Corporate Governance Code,” in particu- Board – now of KWS SAAT SE & Co. KGaA – con- lar the new aspects pursuant to the new version vened its meeting to discuss the financial statements of the German Corporate Governance Code dated on October 22, 2019. At this meeting, which was December 16, 2019, and – after the last Declaration also attended by the independent auditor for fiscal of Compliance in October 2019 – it and the per- 2018/2019, the Supervisory Board examined and sonally liable partner issued a new Declaration of pproved the financial statements of KWS SAAT SE & Compliance with the German Corporate Governance Co. KGaA ( formerly KWS SAAT SE) and approved the Code in the version dated December 16, 2019, consolidated financial statements of the KWS Group or – for the period of time until this new version as of June 30, 2019. It also addressed expansion took effect on March 20, 2020 – in the version of of the vegetables business and discussed further the German Corporate Governance Code dated 6 To Our Shareholders | Report of the Supervisory Board Annual Report 2019/2020 | KWS GroupFebruary 7, 2017, in accordance with Section 161 of the Combined Management Report and the proposal the German Stock Corporation Act (AktG). The Dec- by the Executive Board on the appropriation of the laration of Compliance can be obtained on the com- profits. The Quarterly Report Q1 for 2019/2020 was pany’s website at www.kws.com/corp/en/company/ mainly discussed during the telephone conference on investor-relations/corporate-governance. November 20, 2019. In particular, the KWS Group’s tax situation and risk management system were dis- The Supervisory Board regularly addressed the cussed in detail at the meeting on December 16, 2019. question of any conflicts of interest on the part of its The meeting on February 19, 2020, discussed members and those of the Executive Board in the and defined the focus of the audit for fiscal year year under review. In the year under review, there 2019/2020 in the presence of the appointed inde- were no such conflicts of interests that had to be pendent auditor. It also discussed the situation as disclosed immediately to the Supervisory Board and regards the KWS Group’s financing and the Semi- reported to the Annual Shareholders’ Meeting. annual Report 2019/2020 in detail. In addition, the report by Internal Auditing for fiscal 2019/2020 was The members of the Supervisory Board undertook discussed and the audit plan for fiscal 2020/2021 was the education and further training measures neces- defined and adopted at the meeting on May 13, 2020. sary for them to discharge their tasks. Events and The risk situation – in particular against the backdrop measures as part of the induction of new Supervisory of the Covid-19 pandemic – and the 9M Quarterly Board members (onboarding) were not necessary in Report for 2019/2020 were also discussed. the year under review since there were no changes to the persons serving on it. In addition, the Audit Committee obtained the state- ment of independence from the auditor, ascertained The Supervisory Board also conducted its regular and monitored the auditor’s independence and ex- efficiency review in the year under review. The review amined its qualifications. The Audit Committee also covered the fiscal years 2018/2019 and 2019/2020. satisfied itself that the regulations on internal rotation It was accompanied by the accounting firm Deloitte were observed by the independent auditor and dealt GmbH, which created a company-specific question- with the issue of any additional services rendered by naire after inspecting the minutes of the Supervisory the independent auditor. Board and Audit Committee meetings. After evaluat- ing the responses from the members of the Super- In view of the fact that all shareholder representa- visory Board and Executive Board, Deloitte came to tives had just recently been elected by the Annual the conclusion that the Supervisory Board performs Shareholders’ Meeting on December 14, 2018, for its work on the basis of sound, in-depth information a period of time up to the end of the Annual Share- and nurtures a culture of open discussion. holders’ Meeting that ratifies its acts for fiscal year 2021/2022, the Nominating Committee did not Supervisory Board committees need to convene in the year under review. In the year under review, the Supervisory Board of KWS SAAT SE & Co. KGaA had two committees: the The Supervisory Board of KWS SAAT SE & Co. KGaA Audit Committee and the Nominating Committee. no longer has a Committee for Executive Board Affairs since the change in legal form took effect, The Audit Committee convened for four joint because the Supervisory Board of KWS SAAT SE & meetings in fiscal 2019/2020 and also held one Co. KGaA does not hold personnel responsibility as telephone conference – on all occasions with regards management; authority for issues relating to all its members in attendance. In its meeting on the compensation of the Executive Board has been September 24, 2019, the Audit Committee discussed in the hands of KWS SE’s Supervisory Board since the annual financial statements and accounting of the change in legal form. It should be noted in this KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE) connection that the Supervisory Board of KWS SE and the consolidated financial statements of the endorsed the recommendation of its Committee KWS Group for the fiscal year 2018/2019, along with for Executive Board Affairs and appointed Report of the Supervisory Board | To Our Shareholders 7 KWS Group | Annual Report 2019/2020Dr. Peter Hofmann as a member of the Executive recommendations of the “German Commission for Board of KWS SE for a further three-and-a-half the Corporate Governance Code.” The Non-Financial years until June 30, 2024, with effect from January 1, Declaration (Section 289b and Section 315b of the 2021. In addition, the Committee for Executive Board German Commercial Code (HGB)) in the Combined Affairs of KWS SE dealt with the new requirements Management Report were likewise audited by the of the German Act Implementing the Second Share- independent auditor. holder Rights Directive (ARUG II), which came into force on January 1, 2020, as well as the principles The Supervisory Board received and discussed the defined in the latest version of the German Corporate financial statements of KWS SAAT SE & Co. KGaA and Governance Code relating to compensation for the the consolidated financial statements and Combined Executive Board and the Supervisory Board. The Management Report of KWS SAAT SE & Co. KGaA personally liable partner will submit a proposed res- and the KWS Group, along with the report by the olution on a compensation system for the Executive independent auditor of KWS SAAT SE & Co. KGaA Board adapted to the requirements of ARUG II at the and the KWS Group and the proposal on appropri- Annual Shareholders’ Meeting of KWS SAAT SE & ation of the net retained profit for the year made by Co. KGaA to be held in December 2021. If it is ap- KWS SAAT SE & Co. KGaA, in due time. Compre- proved, it will then apply to new contracts. Until hensive documents and drafts were submitted to the that time, a best practice for implementing the pro- members of the Supervisory Board as preparation. visions of the new ARUG II and the new version of For example, all of them were provided with the the German Corporate Governance Code will have annual financial statements, consolidated financial been established. The current compensation system statements, Combined Management Report, audit for Executive Board members was last submitted reports by the independent auditor, and the proposal for approval to the Annual Shareholders’ Meeting of by the personally liable partner on the appropriation KWS SAAT SE & Co. KGaA on December 17, 2019, of the profits. The Supervisory Board likewise re- and was ratified with a vote of 99.94% in its favor. ceived and discussed the Non-Financial Declaration (Section 289b and Section 315b of the German Com- Annual and consolidated financial statements mercial Code (HGB)), which is part of the Combined and auditing Management Report and contains disclosures on the Ernst & Young GmbH Wirtschaftsprüfungs- KWS Group and the parent company KWS SAAT SE gesellschaft, Hanover, the independent auditor & Co. KGaA, as well as the related audit report by the chosen at the Annual Shareholders’ Meeting on independent auditor (Section 111 (2) Sentence 4 of the December 17, 2019, and commissioned by the Audit German Stock Corporation Act (AktG)) as part of a Committee, has audited the financial statements of limited assurance engagement. KWS SAAT SE & Co. KGaA that were presented by the personally liable partner, KWS SE, and prepared The Audit Committee convened on Septem- in accordance with the provisions of the German ber 23, 2020, to discuss the annual financial state- Commercial Code (HGB) for fiscal 2019/2020 and the ments of KWS SAAT SE & Co. KGaA and the financial statements of the KWS Group (IFRS consol- KWS Group’s consolidated financial statements for idated financial statements), as well as the Combined the 2019/2020 fiscal year and accounting, along with Management Report of KWS SAAT SE & Co. KGaA the Combined Management Report. The independent and the KWS Group (Group Management Report), auditor for fiscal 2019/2020 explained the results of its including the accounting reports, and awarded them audit of the annual financial statements and consoli- its unqualified audit certificate. In addition, the au- dated financial statements. It pointed out that there ditor concluded that the audit of the financial state- were no grounds for assuming a lack of impartiality ments did not reveal any facts that might indicate a on the part of the independent auditor in its audit. misstatement in the declaration of compliance issued The Audit Committee dealt with the proposal by the by the personally liable partner and the Supervisory personally liable partner on the appropriation of the Board in accordance with section 161 of the German net retained profit of KWS SAAT SE & Co. KGaA and Stock Corporation Act (AktG) with respect to the recommended that the Supervisory Board approve it. 8 To Our Shareholders | Report of the Supervisory Board Annual Report 2019/2020 | KWS GroupAndreas J. Büchting, Chairman of the Supervisory Board The Supervisory Board also held detailed discussions Board also endorsed the proposal by the personally of questions on the agenda at its meeting to discuss liable partner to the Annual Shareholders’ Meeting the financial statements on October 22, 2020. The on the appropriation of the net retained profit of auditor took part in the meeting. It reported on the KWS SAAT SE & Co. KGaA after having examined it. main results of the audit and was also available to answer additional questions and provide further As stated earlier, KWS SAAT SE & Co. KGaA does not information for the Supervisory Board. According to have a Committee for Executive Board Affairs since the report of the independent auditor, there were no the change in legal form took effect. In addition, material weaknesses in the internal control and risk there were no changes to the persons serving on management system in relation to the accounting the Executive Board of the personally liable partner process. There were also no circumstances that KWS SE, the Supervisory Board of KWS SAAT SE & might raise concerns about a lack of impartiality on Co. KGaA and its committees in the year under the part of the independent auditor. As can be seen review. from the Notes, the independent auditor did not pro- vide any additional services. The Supervisory Board thanks the Executive Board and all employees of the KWS Group for their excep- In accordance with the final results of its own exam- tional efforts in the face of the additional difficulties ination, the Supervisory Board endorsed the results posed by the present pandemic. Thanks to their of the audit and of the audit of the Non-Financial great sense of personal responsibility, coupled with Declaration, among other things as a result of the their outstanding commitment, KWS has been able preliminary examination by the Audit Committee, to maintain its business activities unscathed even in and did not raise any objections. The Supervisory the time of the coronavirus, with the result that we Board gave its consent to the annual financial state- can look back on yet another successful fiscal year. ments of KWS SAAT SE & Co. KGaA submitted by the personally liable partner, and to the consolidated financial statements of the KWS Group and the Einbeck, October 22, 2020 Combined Management Report of KWS SAAT SE & Co. KGaA and the KWS Group and recom- mended that the Annual Shareholders’ Meeting on December 16, 2020, approve the annual financial statements of KWS SAAT SE & Co. KGaA prepared Dr. Drs. h. c. Andreas J. Büchting by the personally liable partner. The Supervisory Chairman of the Supervisory Board Report of the Supervisory Board | To Our Shareholders 9 KWS Group | Annual Report 2019/2020 Not everything in life stays on track all the time. Proximity sometimes means a greater risk, as we have learned all too painfully from the coronavirus. But like our farmers, we give our all rather than give up. KWS on the Capital Market Performance XETRA rose sharply from around 8,000 shares to The stock markets were extremely turbulent in more than 14,000. Two major international banks – fiscal 2019/2020. The escalation in the trade conflict Commerzbank and Exane BNP Paribas – com- between the U.S. and China and uncertainty about menced coverage of the KWS share. There was the UK’s withdrawal from the EU weighed on mar- also keen interest in the share during the market kets, while the Covid-19 pandemic gripped the global turbulence triggered by the Covid-19 pandemic: After economy and capital markets from early 2020 on. hitting its low at €39.80 in mid-March, it recovered Central banks’ continuing expansionary monetary much faster than the market as a whole and was policy and support measures by governments, some back at €66.70 at the end of June 2020. KWS’ share of which were on a large scale, helped shore up the price has increased by 183%, i.e. has almost tripled, situation. Interest rates were still low and so shares over the past ten years. remained an attractive investment. Employee Stock Purchase Plan The DAX closed at 13,249 points at the end of 2019, For more than 30 years KWS has offered its em- but then plunged to a low of 8,441 in March 2020 as ployees the chance to become shareholders in the a result of the sell-off in the wake of the pandemic. company and thus share in its success. The content Germany’s benchmark index climbed back to 12,310 of our Employee Stock Purchase Plan remained un- points, or roughly the same level as in the previous changed in the year under review. Our employees year, at the end of June 2020, in particular on the were able to buy up to 2,500 KWS shares at a price back of the extensive economic stimulus programs in of €45.92 (44.16) 1, including a 20% discount, which many countries and expectations of a rapid recovery the individual employees must pay tax on. 476 (442) in the economy. The SDAX fared much the same and employees in six (seven) European countries took up was likewise close to its level of the previous year at this offer and purchased a total of 52,315 (54,095) the balance sheet date. shares. The acquired shares are subject to a lock-up period of four years. They cannot be sold, transferred KWS’ share performed positively as a whole in or pledged during this period. As in previous years, fiscal 2019/2020 and had risen by almost 6% by the shares used for the Employee Stock Purchase its end. The average trading volume per day on Plan were acquired in accordance with Section 71 (1) The KWS share’s performance over 10 years 400% 350% 300% 250% 200% 150% 100% 50% July 1, 2010 KWS SDAX DAX +200% +183% +105% June 30, 2020 1 Unless otherwise specified, the figures in parentheses are those for the previous year. 12 To Our Shareholders | KWS on the Capital Market Annual Report 2019/2020 | KWS Group Shareholder structure at June 30, 2020 (33,000,000 shares) Free float 30.2% Tessner Beteiligungs GmbH 15.4% 54.4% Families Büchting, Arend Oetker No. 2 of the German Stock Corporation Act (AktG). A total of €3.0 (3.1) million was used to buy back the company’s own shares, giving an average purchase ISIN Share class price per share (including fees) of €57.40 (57.33). Number of shares Key figures for the KWS share (Xetra®) More details have been published in information released for the capital market and can be viewed on our website at www.kws.com/ir. Planned appropriation of profits Continuing to grow profitably is one of KWS’ core corporate goals. In the year under review, sales rose by 15.2%, with all product segments contributing to the growth. Earnings before interest, taxes, depreci- ation and amortization (EBITDA) also increased sig- nificantly by around 13%. Due to special effects from the acquisition of Pop Vriend Seeds and a positive Closing price June 30, 2020 June 30, 2019 High and low High (June 18, 2020) Low (March 19, 2020) Trading volume in shares/day 2019/2020 2018/2019 14,354 8,189 DE0007074007 Non-par 33,000,000 in € 66.70 64.20 in € 68.30 39.80 one-off effect in the previous period, earnings before Market capitalization in € million interest and taxes (EBIT) and net income declined. June 30, 2020 June 30, 2019 Earnings per share June 30, 2020 June 30, 2019 Against the background of the positive operational business development, the Management Board and the Supervisory Board will propose to the Annual General Meeting on December 16, 2020 that a dividend of €0.70 (0.67) per share be distributed for the 2019/2020 financial year. This would dis- tribute €23.1 (22.1) million to the shareholders of KWS SAAT SE & Co. KGaA. This would correspond to a payout ratio of 24.3 (21.3)%, with which KWS would continue to pay dividends of 20 to 25% of the KWS Group’s net income within the scope of its divi- dend policy, which is geared towards the company’s earnings power. 2,201 2,119 in € 2.89 3.12 KWS on the Capital Market | To Our Shareholders 13 KWS Group | Annual Report 2019/2020Spotlight Topic Satellites in space, robots in the field: What does digitization have to do with farming? Farmers all over the world now face major challenges: In times of climate change, they need to ensure the productivity of available cultivation areas, yet also make an active contribution to climate protection, reduce operating resources and use them as effi- ciently as possible, and conserve natural resources. The spread of digitization to the farming industry opens up completely new possibilities to increase yields, resource efficiency and sustainability. „ New approaches in communicating with farmers What’s more: Digitization creates new, personalized ways of interacting. Farmers all over the world are increasingly using digital channels to communicate and find information, for example. Two-thirds of all farmers in Germany already use mobile apps for their work and 80% are online every day.1 And that trend is gaining in relevance as a Tools such as computer-controlled dosing aids for result of the coronavirus pandemic. fertilizer and pesticides, models to determine the best time for harvesting crops or to predict infesta- Digital communication and distribution channels tion by diseases or pests, and sensor-aided animal also make the value chain more transparent and monitoring and data capture enable processes that bring producers and consumers closer together, for are more ecological and animal-friendly. Drone and example through forms of direct online marketing satellite technology, weather apps and algorithms or improved traceability of foods. To better leverage help identify general conditions and their dynamic this potential, we also need to deliver answers for the changes better. Autonomous machine control or issues of system and information security, infrastruc- documentation and analysis from anywhere make ture development and financing. work processes simpler and more agile. 1 Kleffmann Group, now part of Kynetec, New Media Tracker 2019/2020 14 To Our Shareholders | Spotlight Topic Annual Report 2019/2020 | KWS Group Satellite images supply data to support farmers in making decisions that affect yields Digital communication offers new approaches for immediate and customized dialogue Precision in plant protection can be increased many times over with the use of autonomous robots Image recognition helps farmers identify diseases and pests in the field QR codes protect customers against imitations and offer direct access to important information on varieties Big data enables agronomic and economic optimization of crop rotation, for example myKWS provides access to all important applications and sends real-time information on relevant events A bird’s­eye view: Drones supply extensive data and enable better controlling of the plant stand. Digital solutions assist farmers in their harvest them, which is when their dry matter con- day-to-day decisions tent is 30% to 35%. If the crops are harvested too In order to address future requirements, KWS works early or too late, their yield may be reduced by up to constantly to further develop its portfolio of digital 10% – meaning lost income for farmers. Satellites services. These services, which are bundled on the record the sunlight reflected by the corn plants – in online platform myKWS, embody decades of agri- high-definition images down to an accuracy of a cultural knowledge obtained from breeding work and few meters, with the result that differences in spe- link that knowledge with external information, such cific areas within a field can be shown. An algorithm as satellite images and weather and soil data. determines the dry matter content for the fields mapped in myKWS on the basis of the images and On the customer’s personal homepage, a map appli- the weather data, soil quality and variety information cation and customized comments provide an over- and also provides a forecast for the next six days. view of all appropriate information for each particular stage of the year. That includes stock market and Satellite images are not only used in harvesting. commodity price data, market analyses, fertilizer With the aid of apps such as Vitality Check, they recommendations tailored to the specific region, supply information on the vitality of the plant stands prompt notification about new satellite images or throughout the growing season and identify irreg- weather events, such as frost, or recommended ularities – erosion, aridity or differences in soil, for agricultural events and ways to obtain advice. The example. That enables farmers to control their fields offerings are tailored to the individual customer, the and deduce potential measures. The principle behind farm and its specific features, such as the regional the solution: Plants have different reflectance prop- situation, farm size, cultivation strategy and choice of erties, depending on the wavelength of the radiation. crop and variety. The healthier a plant, the more radiation in the near- infrared range it reflects. That is recorded by drones, The individual applications are started from an over- aircraft or satellites and evaluated in the form of view map. SAT TS-Monitoring, for example, can be vegetation indices, thus enabling conclusions to be used to determine the maturity of silage corn plants drawn about the plant’s vitality, density of vegetation and obtain a recommendation on the best time to or photosynthesis activity, among other things. 16 To Our Shareholders | Spotlight Topic Annual Report 2019/2020 | KWS GroupThe Crop Manager complements agricultural advice can then be used anywhere: Then, for instance, the by delivering business management data and helping Label Scanner will enable the seed packaging to be farmers optimize their crop rotation cycle. Multi-year read directly at the farm using a smartphone so that economic and agronomic analyses can be carried farmers obtain product-specific information, such as out and various crop rotations compared in just a few cultivation recommendations or relating to product steps. Cultivation of crops in a balanced rotation is authenticity. gaining in importance as part of sustainable agricul- ture: In the face of increasingly stringent restrictions on fertilizer and pesticides, it helps combat diseases and pests, reduces the operating resources required, The objective of digital services is not to take improves soil health and thus secures yields and decisions on how to run their business out of reduces risks long term. farmers’ hands and supplant know-how that has been acquired over generations. Instead, they So far we have implemented myKWS in different offer a means of quickly obtaining information variants in more than 35 countries, and more are to on current events, better analyzing complex follow. The digital consulting solution has already interconnections with more detailed sources of won many accolades for its customer-centric information and enabling data-driven decisions. design, simple user guidance and content concept, It will be exciting to see what further potential can such as most recently the iF Award 2020 in the be tapped by digital applications to enhance pro- category “Service Design” and the RedDot Design cesses in livestock farming and plant cultivation Award 2020. In the next step, myKWS will also be in a future-oriented way. available as an app with enhanced functions and 1 The seeding rate is calibrated precisely by means of satellite- aided soil analyses 2 Vitality maps supply valuable information on the plant stand and its health 3 Regular forecasts indicate the ideal time to harvest the plants Spotlight Topic | To Our Shareholders 17 KWS Group | Annual Report 2019/2020We know not just the newest generation of tech­ nology – but also the oldest generation of farmers. Proximity forges a strong team. And we didn’t just start nurturing that proximity to our customers yesterday – we’ve done so for almost as long as fields have been plowed. 20 Annual Report 2019/2020 | KWS Group2. Combined Management Report 2019/2020 of the KWS Group 22 22 25 26 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 38 43 53 53 54 54 58 58 58 60 60 62 62 62 62 64 74 78 78 79 88 88 88 89 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 Cor- poration Act) on the Disclo-sures in Accordance with Section 289a (1) and Section 315a (1) HGB (German Commercial Code) 2.7 Opportunity and Risk Report 2.7.1 Opportunity Management 2.7.2 Risk Management 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 90 2.9 Report on KWS SAAT SE & Co. KGaA and Non-Financial Declaration (Declaration 90 92 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 h c i r e b e g a L r e t s s a f e g n e m m a s u Z 2. Combined Management Report The Combined Management Report 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 long-term 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 “Non-Financial Declaration” on page 92. The contents of the Non- Financial Declaration were not audited as part of the audit of the annual and consolidated financial statements, but underwent a voluntary external examination by an auditor. 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 The Corn Segment is the KWS Group’s largest Since it was founded in 1856, KWS has specialized segment in terms of net sales. It covers breeding, in breeding, producing and distributing high- quality production and distribution of seed for corn, soybeans varieties for agriculture. From our beginnings and sunflowers. Its operating performance depends in sugarbeet breeding, we have evolved into an largely on the spring sowing season in the northern innovative, international supplier with a broad port- hemisphere. That means most of the segment’s net folio of crops. We cover the complete value chain sales are generated in the second half of the fiscal of a modern seed producer – from developing year (January to June). The segment generates a new varieties, multiplication and processing, to lower share of its revenue in the first two quarters, marketing of the seed and consulting for farmers. mainly from corn and soybean seed in South America. KWS’ core competence is in breeding new, high- KWS is the market leader for silage corn in Europe. performance varieties that are adapted to regional needs, such as climatic and soil conditions. Every The Sugarbeet Segment comprises sugarbeet seed new variety delivers added value for the farmer. Our breeding, production and distribution, as well as the business model is based on this added value – which development of diploid hybrid potatoes. Our high- is ultimately attributable to breeding progress, opti- quality sugarbeet varieties are consistently some of mization of seed quality and pinpointed consulting. the highest-yielding in the industry. KWS is the world market leader in sugarbeet seed, not least thanks to Organization and segments of the KWS Group many innovations, such as CONVISO® SMART, an In fiscal 2019/2020, the KWS Group’s operational innovative system for controlling weeds. Our main business consisted of five Business Units, which sales markets are the EU, Eastern Europe, North were grouped in the four product segments Corn, America and Turkey, where we offer farmers efficient Sugarbeet, Cereals and Vegetables. The Business solutions for growing sugarbeet in the shape of locally Units Sugarbeet, Cereals and Vegetables are identi- adapted, multiple-resistant varieties. Sugarbeet is cal to the segments of the same name. There are the sown in the spring, which means that net sales in this Business Unit Corn Europe/Asia and the Business segment are largely generated in the second half of Unit Corn Americas in the Corn Segment. our fiscal year (January to June). 22 Combined Management Report | 2.1 Fundamentals of the KWS Group Annual Report 2019/2020 | KWS GroupThe Cereals Segment includes breeding, for beans, Swiss chard, red beet and carrots. We production and distribution of seed for rye, wheat, generate about half of our revenue in the U.S. KWS’ barley and rapeseed. Rye accounts for the largest strategic objective is to establish a significant and share of revenue from cereals (more than 40%), lasting position in vegetable seed. Our focus apart followed by rapeseed, wheat and barley (a combined from spinach is on the world’s five most important total of around 45%). We generate the remainder crops in this segment: tomatoes, peppers, cucum- from other crops such as sorghum, peas, catch bers, watermelons and melons. crops (e.g. mustard), and oats. In our core markets for cereals seed (Germany, Poland, the UK, France Apart from the operating segments, there is also and Scandinavia), farmers predominantly sow the Corporate, a segment which by and large does crops in the fall. Consequently, we generate most not conduct any operational activities. Its relatively of our revenue in this segment in the first half of the low net sales come from the revenue from our own fiscal year (July to December). farms in Germany, France and Poland. Since the KWS Group’s basic research expenditure and costs The Vegetables Segment comprises vegetable for administrative functions are charged to the seed breeding, production and distribution. Since Corporate Segment, its income is usually negative. taking over Pop Vriend Seeds, we have occupied a leading position in the global market for spinach More details on the net sales and income contributed seed, which accounts for around 70% of the by the segments, including our joint ventures, can be segment’s net sales. Our portfolio also includes seed found in our segment reports starting on page 43. KWS is a research­intensive company. We spend more than €200 million a year to develop high­ performance, resistant varieties. Main business processes in the agricultural industry, which is strongly regulated KWS’ breeding processes are geared toward worldwide, may also impact our business. You can exploiting plants’ potential as much as possible find more details on these external factors in our op- and leveraging it to tackle the major challenges of portunity and risk report on pages 78 to 87. modern sustainable agriculture. Whether it is plants for producing food, fodder or energy, conventional, Changes to the composition and organization organic or genetically modified: We offer farmers of the KWS Group a broad portfolio of high-performance varieties. It The KWS Group acquired the Pop Vriend Seeds takes an average of ten years to breed a new variety. Group, Andijk, the Netherlands, effective July 1, 2019. Thanks to our large network of breeding and trial The number of companies consolidated in the stations in all the world’s key markets, we can test the KWS Group has thus been enlarged by the holding individual candidates under a wide range of climatic company Birika B.V., Amsterdam, the Netherlands, and local conditions to determine whether the and 11 subsidiaries in the Netherlands and Turkey. varieties are suitable for cultivation. In most markets, KWS acquired the group by taking over all of the variety development ends in an official approval shares in Birika B.V. process in which candidates have to meet high qual- ity standards, usually in three-year field trials. Seed Pop Vriend Seeds is a leading company in the multiplication in our selected cultivation regions also breeding, production and distribution of vegetable takes up to two years. Only then can the varieties be seed. The company primarily specializes in seed marketed via the various distribution channels. for spinach, beans, Swiss chard and other vege- table crops and supplies customers in more than Products, markets and external factors 100 countries. Pop Vriend Seeds is part of the new We offer our customers – farmers – a broad range of Vegetables Segment. varieties of agricultural crops that have been adapted by breeding to the conditions of their specific location. Apart from that, there were no significant changes These crops include corn, sugarbeet, the cereals in the KWS Group’s composition and organization rye, wheat and barley, oil plants such as sunflower, in fiscal 2019/2020. You can find more information soybeans and rapeseed, and catch crops. Spinach in the explanations on the companies consolidated seed and other vegetable crops have also been part in the KWS Group in the Notes to the consolidated of our portfolio since the beginning of the year under financial statements starting on page 114. review. In addition to selling seed, our consultants are also on hand to offer farmers advice on choosing and KWS is reorganizing its global administrative orga- cultivating varieties. We also offer consulting with our nization to underpin its profitable and sustainable digital services and on our website. Our breeding and growth with efficient administration. It will be geared seed multiplication activities are subject to weather in- more strongly toward functions, while processes fluences that cannot always be quickly compensated are to be harmonized and standardized worldwide. for with countermeasures. Economic policy decisions To enable that, we intend to replace our regionally 24 Combined Management Report | 2.1 Fundamentals of the KWS Group Annual Report 2019/2020 | KWS GroupBreeding and test activities of the KWS Group in over 70 countries Breeding stations Trial stations pooled administrative structures with a global 2.1.2 Branches organization. A change project launched in 2016 KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE) will gradually merge administrative services and is the parent company of the KWS Group. Strategic business processes for 70 countries by 2022. 31 of management of all of KWS’ global activities is the 58 envisaged parts of the company and sub- pooled under its roof. It is headquartered in Einbeck, sidiaries, including all of KWS’ activities in Germany, Germany, and controls breeding of the KWS Group’s have now adopted the new structures. At the same range of varieties. It conducts basic research, pro- time, more than 80% of the planned jobs in the new duces and distributes sugarbeet and corn seed, and organization, mainly at Einbeck and Berlin, have is home to a number of central functions. There are been filled. In the year under review, the new Global also currently 87 subsidiaries and associated com- Transaction Center and the Global Functions HR panies in 33 countries. You can find a detailed break- and Finance & Procurement moved into their per- down of net sales by region on page 39. An overview manent location in Berlin. 275 employees now work of our subsidiaries and associated companies can at KWS Berlin GmbH (Berlin). be found in the Notes on pages 151 to 153. 2.1 Fundamentals of the KWS Group | Combined Management Report 25 KWS Group | Annual Report 2019/20202.1.3 Objectives and Strategy Profitable growth is vital for our future development. Our strategic planning is the foundation for the Long-term profitable growth ensures we can retain KWS Group’s further development. It defines stra- our commercial independence. Key components are tegic objectives, initiatives and core measures for the good performance of our seed and a relationship existing activities and for potential new fields of of trust with farmers. We aim to increase net sales, business. The planning is based on a long-term in particular in our growth regions, both in moderate horizon (ten years) and includes an analysis and and in tropical or subtropical climatic zones. assessment of market trends, competitors and the KWS Group’s position. Strategic planning is carried Innovation drives our business model. The need for out regularly on a rolling basis. We believe that stra- innovative technology in plant breeding continues tegic success factors are in particular our intensive to increase. Climate change, significant population research, breeding of new, high-yielding varieties growth and changes in eating habits pose challenges and continuous expansion of our global footprint so for us. We devoted more than €200 million to that we can further enhance our know-how in regional research and development, and thus once again a markets with their special climatic conditions. significant share of our net sales, in the year under review. That is an investment in our future growth. Corporate objectives of the KWS Group Our corporate objectives are divided into the four core topics of profitable growth, innovation, indepen- dence and sustainability: The KWS Group’s medium- and long-term objectives Main strategic subject areas Objective achieved? Explanation of the course of the year Profitable growth „„ An average increase in consolidated net sales of at Yes 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 KWS Group’s net income for the year Innovation „„ 1% to 2% progress in yields p.a. for our customers 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 Yes Yes Page 35 et seqq. Page 35 et seqq. Page 32 et seqq. Page 149 (Notes) Page 35 et seqq. Page 35 et seqq. Page 26 et seqq. Page 92 et seq. 26 Combined Management Report | 2.1 Fundamentals of the KWS Group Annual Report 2019/2020 | KWS GroupIndependence has always been a key corporate ob- production capacities and quantities, the allocation jective for KWS, but it is gaining greater relevance in of resources (including capital spending and person- view of the process of consolidation in our industry. nel), the level of material costs and internal charge It is part of the shared values held by our employees. allocation and the resultant balance sheet data, Our independence and long-term orientation enable along with the financial budget. In principle, part of us in particular to invest in research and breeding the planning documentation is also an opportunity/ projects with an eye to the future. risk assessment which every manager must conduct for his or her unit. Sustainability means long-term economic success for us. When KWS’ founders established the company The planning is compared every quarter with the in 1856, they created the basis for its sustainable company’s actual business performance and the development that has now lasted more than 160 under lying general conditions. If necessary, we years. Principles of business ethics, a compliance initiate suitable countermeasures and make adjust- management system, internal rules, guidelines and ments. We update the forecast for the current fiscal procedures to ensure operational excellence in our year at the end of every quarter. At the end of each processes, extensive financial and non-financial risk fiscal year, all the units conduct a detailed variance management, responsible supply chain management, analysis of the planned and actual results. That open communication with our stakeholders, and serves to optimize our internal processes. transparent sustainability reporting in accordance with the Global Reporting Initiative (GRI) are now the Controlling is responsible for coordinating and docu- foundation for KWS’ sustainable development. menting all planning processes and our current expectations. It reports on compliance with adopted 2.1.4 Control System budgets and analyzes the efficiency and cost- Detailed annual and medium-term operational plans effective ness of business processes and measures. are used to control the Group and our Business Controlling also advises decision-makers on eco- Units. The medium-term plan covers the time frame nomic optimization measures. In particular the heads of the annual plan and the three subsequent fiscal of the product segments, the regional directors and years. It is derived from the strategic planning, which the heads of research and breeding activities and the covers a timescale of ten years. central functions are responsible for the content of the planning and current forecasts. The targets set in the annual and medium-term planning are arrived at on the basis of the strategic The Executive Board uses various indicators for planning, regional economic and legal situation, planning, controlling and monitoring the business anticipated market trends and assessments of the performance of the KWS Group and its operating company’s position in the market and the potential units. The main indicators for the KWS Group are net product performance. In a subsequent bottom-up sales, operating profitability (EBIT margin) and R&D process, which also includes the development of our intensity. KWS’ product segments, which are divided joint ventures, we use these premises to plan figures into Business Units, are in turn geared toward the for sales volumes and net sales, breeding activities, main indicators of net sales and EBIT margin. 2.1 Fundamentals of the KWS Group | Combined Management Report 27 KWS Group | Annual Report 2019/2020As a plant breeder, we act with vision. The decisions we make today must meet tomorrow’s challenges in agriculture. Management and control Annual Shareholders’ Meeting of a stock corporation Our company (formerly KWS SAAT SE) has been a or SE. It also adopts resolutions on whether to ap- partnership limited by shares (KGaA) since its change prove the company’s annual financial statements and in legal form became effective on July 2, 2019. The ratify the acts of the personally liable partner. Certain personally liable partner is responsible for the tasks resolutions adopted by the Annual Shareholders’ of running the business of a partnership limited by Meeting of a partnership limited by shares also shares. The company’s sole personally liable part- require the approval of the personally liable partner. ner is KWS SE, whose Executive Board is therefore The declaration on corporate governance in accor- responsible for management of the company’s dance with Section 289f of the German Commercial business. Code (HGB) contains detailed information on the extensive and close cooperation between the Execu- The rights and obligations of the Supervisory Board tive Board and the Supervisory Board and has been at a partnership limited by shares (KGaA) differ published at www.kws.com/corporate governance. greatly from those at a stock corporation (AG) or a European Company (Societas Europaea or SE). In 2.1.5 Responsible Business Activity* particular, the Supervisory Board at a partnership limited by shares does not hold personnel respon- Mission and principles sibility as regards management; moreover, it cannot As a family business, we think across generations. appoint any further personally liable partners and Apart from our corporate objectives, responsible define the contractual terms and conditions for them, business activity with regard to people and the enact bylaws for the Executive Board, or define environment (corporate social responsibility) is business transactions requiring its consent. therefore a firmly entrenched principle of how we run The Annual Shareholders’ Meeting of a partnership that is growing profitably, we are able to operate limited by shares basically has the same rights as the largely without being swayed by short-term interests. our company. As an independent family business *Not an audited part of the Combined Management Report 28 Combined Management Report | 2.1 Fundamentals of the KWS Group Annual Report 2019/2020 | KWS Group Guidelines 2.1.6 Fundamentals of Research & Development Our guiding principles define the framework for The objective of our research and development work our everyday work, so that we are able to create is to create high-performance varieties that meet sustainable and profitable growth for our customers, various environmental and application requirements employees and investors. Our strategic decisions and deliver continuous value added to farmers. They and day-to-day actions in operational business are include absolute yield, as well as issues such as yield guided by the following company principles: stability, resistance to diseases, cultivation charac- „„ We leverage genetic potential through outstanding continue to invest in expanding our research and teristics or constituent properties. We accordingly research and top-class breeding programs. breeding capacities. „„ We supply our farmers with seed of the very best quality. Plant breeding is a very research-intensive and „„ We aim to be a strong partner who earns the trust long-term business. The average time to develop a of our customers. new, high-performance variety for our international „„ We create entrepreneurial freedom and help markets is up to ten years. As part of that, our people unfold their talents. varieties are adapted to the specific environmental conditions of their target markets. Breeders are We also have a central policy framework (Group assisted in that by a global network of various breed- Standards) with which we create a common under- ing and trial stations. That means candidate varieties standing of the freedoms and decision-making pro- can be tested under the location-specific conditions cesses within the KWS Group. The Group Standards of their target markets over several years. are continuously improved by means of monitoring and feedback. They complement our existing guiding By applying leading-edge breeding methods, which principles, with the objective of preserving KWS’ are continually optimized by the use of molecular unmistakable profile, also against the backdrop of biology, IT or technical approaches, we have created the Group’s increasing internationalization. sustainable annual progress in yields of 1% to 2% for decades. We also create genetic diversity by new Stakeholder management crossings, which is vital to improving crops. That is KWS’ key stakeholder groups include our employees, why KWS has supported various gene banks in differ- our shareholders and farmers, as well as other players ent projects for years. By continuously improving yield along the food value chain (sugar companies, food and delivering new plant traits, we make a contribution processors, retailers and end consumers), as well as to resource-conserving, sustainable agriculture. policymakers, public authorities, non- governmental organizations, science, academia and the media. We address our stakeholders’ requirements not only in daily business, but also through our work in associa- tions or dialog with stakeholders on specific subjects. 2.1 Fundamentals of the KWS Group | Combined Management Report 29 KWS Group | Annual Report 2019/2020Working with us not only means you achieve your yield targets. Proximity forges strong partnerships. That means for us that we are not only on site to help our farmers, but can be reached at all times by app, e-mail, phone or a video chat. 2.2 Research & Development Report Key research & development figures R&D employees 1 avg. Share of R&D employees relative to the total workforce in % R&D expenditure R&D intensity 2 Variety approvals 1 Average headcount 2 As a % of net sales in % 2019/2020 2018/2019 2,073 36.3 236.1 18.4 484 2,053 37.0 205.6 18.5 464 +/– 1.0% – 14.8% – 4.3% In fiscal 2019/2020, our R&D expenditure totaled company’s mission is to develop its own genetically €236.1 (205.6) million. The number of variety approv- engineered traits for corn varieties. To boost efforts to als worldwide rose to 484 (464) – compelling proof of achieve that goal, we and Limagrain decided to move KWS’ innovativeness. The new Vegetables Segment the joint venture fully to the U.S. and strengthen it with was awarded 18 variety approvals in the year under its own research capacities. The company and its review. main management functions were previously located in Paris. GENECTIVE’s activities have thus been bun- New research building in Einbeck dled centrally at its new headquarters in Champaign, After around three years of planning and construc- Illinois, since the year under review. tion, we completed our new laboratory building at Einbeck in June 2020. Our plans to expand R&D We also acquired the U.S. biotech company AgBiome activities mean that additional laboratory capacities as a partner. AgBiome is one of the world’s leading are required, with the result that a new building was developers of resistance traits and offers biological needed. The three-story laboratory and office build- as well as genetically engineered solutions for crop ing has 2,350 square meters of laboratory space protection. The aim of the strategic partnership is to and offers cutting-edge workplaces for around pool the forces of both companies and to accelerate 200  employees. The volume of investment for the identification, development and commercialization of new building was around €20 million. pest control solutions. The building is particularly energy-efficient: It needs Next-generation sugarbeet varieties effective just 55% of the energy of a reference building and against Cercospora thus complies with the KFW 55 standard, which is far Leaf health is a key factor in sugarbeet cultivation. more stringent than the statutory requirements. Only a healthy foliage can convert all the sun’s energy Strategic decision for our joint venture the most widespread leaf disease and can cause the GENECTIVE highest yield losses. Cercospora has become a grow- GENECTIVE is a joint venture between KWS and ing threat in recent years, even as the use of effective the French plant breeding company Limagrain. The fungicides has been increasingly constrained. into a higher yield and sugar content. Cercospora is 32 Combined Management Report | 2.2 Research & Development Report Annual Report 2019/2020 | KWS GroupExisting varieties with conventional Cercospora the more northern regions, but also forges a bridge tolerance displayed adequate resistance to Cer- between our breeding programs for the tropical cospora, but their yield was often disappointing. and moderate climatic zones. Under the program, KWS’ breeders have discovered and tapped new the more disease-resistant breeding material for sources of resistance to Cercospora and conse- the tropical zone will be incorporated in our non- quently succeeded for the first time in developing tropical breeding programs in the coming years. By next- generation sugarbeet varieties that are highly doing that, we aim to strengthen the diversity of our resistant to Cercospora, yet also deliver better global breeding material and thereby increase our yields. Greater and more stable yields, higher sugar competitiveness. content and, in many cases, the potential to reduce the amount of fungicide used enable sustainable, The breeding program for the second sowing season eco-friendly and cost-effective sugarbeet produc- was launched two years ago with a test station in the tion in regions affected by Cercospora. Two of the province of Córdoba in central Argentina. Since then, new sugarbeet varieties were cultivated in trials in we have selected several promising disease-resistant Italy, the country with the highest Cercospora pres- lines, and the first hybrids are undergoing perfor- sure in Europe, in the past season. They are now mance tests. We expect the first competitive varieties undergoing official tests in many other countries for this important segment to be available starting and are expected to be available there next season. from the 2021 sales season. New corn breeding program in Argentina Cereal breeding in North America – With a cultivation area of some six million hectares, A  success story Argentina is one of the world’s major corn- producing We decided around ten years ago to expand our regions alongside North America, China, Brazil and cereals activities to the North American market. Europe. However, the country’s cultivation areas differ Now we have our own breeding program in the U.S. greatly as regards breeding requirements. The areas for soft red winter wheat, which has comparatively in northern Argentina’s corn belt need to be sown low protein and is mainly used to make biscuits and much later and have far higher disease pressure cakes. We have focused our activities on the Mid- than the more southeastern regions in Buenos Aires west, despite the fact that it is the largest cultivation Province, for example. Up to two years ago, material region for soybean and corn in the U.S. By offering development in KWS’ breeding program focused wheat, we can provide farmers with an important solely on conditions in the market for early sowing. crop in their rotation cycle. The first varieties are al- We now have a new breeding program in Argentina ready on the market and we are working intensively that not only addresses the specific requirements of to expand our product pipeline. 2.2 Research & Development Report | Combined Management Report 33 KWS Group | Annual Report 2019/2020Plants must be adapted as well as possible to their specific environment. In our greenhouses we examine the development of the breeding material in different weather and climatic conditions – such as here at our location in Thriplow in the UK. Our efforts in Canada are focused on rye breeding. important types of vegetable worldwide: tomatoes, The cultivation regions there demand particular peppers, cucumbers, melons and watermelons. That winter hardiness, as well as adaptation to short includes hiring initial research and development em- summers. Our European seed has proven to be very ployees and commissioning a breeding station in the adaptive to these conditions. We launched the first Spanish province of Almería, one of Europe’s largest competitive hybrid varieties on the Canadian market vegetable production regions. Further breeding sta- in 2015 and now have a broad product pipeline. As tions in Spain, Mexico and Brazil are being planned. part of our further steps, we are developing special hybrids that not only boast good adaptivity to the We have begun testing licensed-in genetic material climatic conditions, but also effective resistance to in Almeria. In order to expand our access to genetic ergot and Fusarium. material for breeding purposes, we joined the Interna- tional Licensing Platform Vegetable (ILP), an associa- Launch of vegetable breeding at KWS tion comprising companies from the field of vegetable Following the acquisition of Pop Vriend Seeds breeding, in the year under review. The members of effective July 1, 2019, initial collaboration projects the ILP give each other access to genetic material between the two companies’ breeding teams were and related patents at fair conditions and costs. initiated in fiscal 2019/2020. The focus is on crops from Pop Vriend Seeds’ portfolio, such as spinach, As a result, we have achieved important initial mile- red beet and Swiss chard. At the same time, we laid stones in implementing our strategy in the first year the groundwork in the year under review for estab- since the new Business Unit Vegetables was estab- lishing an international breeding program for the most lished – and more are to follow. 34 Combined Management Report | 2.2 Research & Development Report Annual Report 2019/2020 | KWS Group2.3 Economic Report 2.3.1 Business Performance directives of the national and international health authorities. At the same time we maintained all key General developments and business production and logistics processes so as to ensure performance of the KWS Group that farmers were supplied with seed during this crit- Up to the New Year, the general macroeconomic con- ical phase. ditions for the KWS Group remained similar to those in the same period of the previous year. The global Even without the coronavirus pandemic, the agricul- economy continued to grow only at a slow rate. There tural sector again had to contend with challenging was hardly any change in the U.S. economy’s buoy- general conditions in fiscal 2019/2020. Many farm- ancy in the second half of 2019. The pace of expan- ers faced the problems of continued high inventory sion in the eurozone was dampened by, among other levels, regulatory intervention and further weather things, uncertainty about the UK’s withdrawal from anomalies. In some cases, arable farming remained the EU. Economic growth also slowed in emerging a loss-making business as a result of relatively low countries, albeit to different degrees. While there was prices for agricultural raw materials. While sugar a pickup in Brazil, Russia and many Asian countries, prices rose moderately year over year, the prices for the recession in Argentina and Turkey continued to some crops, such as corn and wheat, were down deepen. KWS’ net sales were negatively impacted by from the previous year, in some cases sharply. the weakness of the local currencies there. Guidance versus actual business performance of The outbreak of the coronavirus pandemic gripped the KWS Group the global economy in the first half of 2020. Asia in In the course of the year, there were no significant particular was hit by it first of all. Overall economic changes to our assessment for the year as a whole. activity in China fell sharply. From the end of Feb- We only gave a more precise guidance in the Semi- ruary on, the coronavirus also spread throughout annual Report 2019/2020 to the effect that the fore- Europe and the U.S., as a result of which measures, cast EBIT margin of 11.0% to 13.0% did not include in some cases drastic ones, were taken to contain effects as part of the completed purchase price allo- the pandemic. Many countries closed their borders, cation for the acquisition of Pop Vriend Seeds. In the preventing the free movement of persons, and sus- 9M Quarterly Report for 2019/2020, we put a more pended air travel. That significantly impeded eco- precise figure on our earnings guidance by stating nomic activity. Policymakers subsequently launched that we expected an EBIT margin at the upper end of economic stimulus programs to support the affected the forecast range. companies and sectors. Central banks responded with expansionary measures. The KWS Group’s consolidated net sales rose by around 15% to €1,282.6 million and were thus above In spite of these general conditions, the KWS Group the forecast range of 8% to 12%. The deviation managed to supply farmers with seed in good time from the guidance is mainly attributable to a better- for the spring sowing season. KWS’ top priority is than-expected course of business in the fourth to protect its employees’ health. We therefore took quarter, in particular in the Sugarbeet Segment. The prompt measures at all our global locations based R&D intensity was 18.4%, within the forecast range on or even exceeding the recommendations and of 17% to 19%. 2.3 Economic Report | Combined Management Report 35 KWS Group | Annual Report 2019/2020 Guidance versus actual business performance of the KWS Group Results in 2018/2019 Guidance for 2019/2020 Adjustments to the guidance during the year Results in 2019/2020 Annual Report 2018/2019 8–12% €1,113 million 18.5% 17–19% Net sales R&D intensity EBIT margin 13.5% 11–13% Q1 Report Semiannual Report – – – – – More precise guidance (excluding the effects of the purchase price alloca- tion for Pop Vriend Seeds) 9M Report im oberen Bereich der Prognose €1,283 million 15.2% – 18.4% 13.3% At the upper end of the more precise guidance The EBIT margin (excluding the effects as part of the successful launch of our CONVISO® SMART port- completed purchase price allocation for the acquisi- folio of varieties. Cultivation area declined slightly tion of Pop Vriend Seeds) was 13.3%, at the top end as a whole. Nevertheless, we posted an increase in of the more precise guidance given in the Semian- net sales in particular in Eastern Europe and North nual Report 2019/2020 and 9M Quarterly Report for America. The segment performed positively with an 2019/2020. increase in net sales of 6.6% in line with the guid- ance (“slight increase in net sales”). The EBIT margin Summary of the segments’ course of business in the Sugarbeet Segment was 34.6% and was as and comparison with the guidance 1 expected below the figure of the previous year, which Most of the net sales in the Corn Segment is gener- was impacted by the positive special effect from the ated in the second half of our fiscal year (January to sale of our potato business. June) during the spring sowing season in the north- ern hemisphere. A lesser share of revenue is earned Every year, the fall sowing season determines the in South America in the first two quarters. main business trends of the Cereals Segment. The key crop there is hybrid rye, which accounts for a Net sales and the EBIT margin in the Corn Segment very substantial share of the segment’s net sales and were, as forecast, up slightly over the previous year. earnings. As forecast in the 9M Quarterly Report for 2019/2020, net sales rose sharply by 11.9% in the year The main sales season for the Sugarbeet Segment under review, mainly as a result of the strong growth is in the second half of our fiscal year (January to in hybrid rye seed. Slight growth in the segment’s net June). Our high-quality sugarbeet varieties were sales was originally anticipated. The EBIT margin was again some of the highest-yielding in the industry. 13.8%, a little better than originally anticipated and The segment also benefited in particular from the slightly above the figure for the previous year. 1 Including equity-accounted 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 2019/2020 | KWS Group The Vegetables Segment, in which the activities of the sale of inventories that were taken over and Pop Vriend Seeds, the vegetable seed producer we remeasured at fair value (€–11.1 million) and from acquired effective July 1, 2019, are consolidated, is amortization of intangible assets (€–21.9 million), the impacted by seasonal factors only to a small degree. segment’s income was €–7.5 million. Its business in the year under review benefited from large demand for spinach seed in North America. Net sales at the Corporate Segment were as Moreover, sales of spinach and bean seed were expected. The segment’s EBIT was €–104.6 million increasingly buoyant in Europe. The segment’s net and was below the previous year’s figure and sales were in line with expectations at €83.5 million. the guidance for the segment (“at the level of the The segment’s income (before acquisition-related previous year”) due to extra expenditure as part effects) was €25.5 million, while the EBIT margin of of our reorganization project ONEGLOBE, higher 30.5% was within the more precise guidance given expenses for central R&D activities, and lower in the Semiannual Report 2019/2020. Including the income from instruments for hedging foreign effects as part of the purchase price allocation from currency risks. Balanced crop rotation is vital in arable farming: It improves yield, reduces disease pressure and has a positive impact on the nutrient ratio in the soil. 2.3.2 Earnings, Financial Position and Assets Earnings The new Vegetables Segment accounted for 6.5% of Sharp increase in net sales total net sales. The KWS Group’s net sales rose sharply from The region where we generated most of our busi- €1,113.3 million in the previous fiscal year to ness was Europe, which accounted for 63.4% of net €1,282.6 million in the year under review, an increase sales (Germany: 18.7%), while net sales from North of 15.2%. Negative exchange rate effects, mainly and South America contributed 29.5% of the total. due to the depreciation of the Brazilian real and the Revenues from our North American and Chinese Argen tinian peso against the euro, caused net sales equity-accounted companies are only included at the to be 2.4% lower than they otherwise would have been. segment level (see our segment reporting starting on In the Corn Segment, expanding seed business in page 43). South America and Europe had a particularly pos- EBIT declines due to special effects, while itive impact on net sales. The Sugarbeet Segment EBITDA increases by around 13% posted an increase in net sales, in particular as a The KWS Group’s operating income before depre- result of growth in Eastern Europe. Net sales in the ciation and amortization (EBITDA) increased in Cereals Segment rose sharply due to higher sales fiscal 2019/2020 by 12.9% to €225.5 (199.7) million. of rye seed. The Vegetables Segment generated Operating income (EBIT) declined to €137.4 (150.0) mil- net sales of €83.5 million, mainly from spinach and lion, mainly due to special effects. In the previous bean seed. year, there was a positive effect on income from the sale of shares in KWS Potato B.V. and from The Corn and Sugarbeet Segments accounted receivables management activities. At the same for a major share of total net sales, namely 39.9% time, amortization of intangible assets as part of the and 38.3% respectively. The Cereals Segment was purchase price allocation for the acquisition of Pop almost able to maintain its share, contributing 14.9% Vriend Seeds reduced EBIT by €21.9 million in the (previous year: 15.3%) on the back of strong growth. year under review. Abridged income statement in € millions Net sales EBITDA EBIT Net financial income/expenses Result of ordinary activities Income taxes Net income for the year Earnings per share EBIT margin 2019/2020 2018/2019 1,282.6 1,113.3 225.5 137.4 –7.8 129.5 34.3 95.2 199.7 150.0 –5.5 144.5 40.4 104.0 +/– 15.2% 12.9% –8.4% – –10.4% –15.1% –8.4% in € in % 2.89 3.15 –8.4% 10.7 13.5 – 38 Combined Management Report | 2.3 Economic Report Annual Report 2019/2020 | KWS Group Net sales by region Total net sales €1,282.6 million 1 Rest of world 7.1% North and South America 29.5% 18.7% Germany 44.7% Europe (excluding Germany) Net sales by segment Total net sales €1,282.6 million 1 Corporate 0.4% Vegetables 6.5% Cereals 14.9% 39.9% Corn 38.3% Sugarbeet 1 Without capital expenditures of our at equity accounted consolidated companies The EBIT margin was 10.7% following 13.5% in fell sharply to €19.1 (38.0) million, among other things the previous year. Excluding the effects as part of due to positive non-recurring effects in the previous the purchase price allocation for the acquisition year (sale of shares in KWS Potato B.V. and income of Pop Vriend Seeds from the sale of inventories from reversal of allowances on receivables). The that were taken over and remeasured at fair value related individual items are explained in detail in the (€–11.1  million) and from amortization of intangible Notes on page 121. assets (€–21.9 million), the EBIT margin was 13.3%. The KWS Group’s cost of sales rose in the year under Net financial income/expense on a par with the review by around 20% to €549.9 (458.5) million, giving previous year – Lower net income for the year a cost of sales ratio of 42.9% (41.2%). The year-on- Our net financial income/expenses is made up of the year increase in this ratio is mainly attributable to net income from equity investments and the interest higher cost of sales ratios in the Vegetables Segment result. One component of income from equity invest- (including effects from the purchase price allocation ments is the income from equity-accounted financial for Pop Vriend Seeds) and in the Sugarbeet Segment. assets, which rose slightly to €10.8 (9.4) million. The As planned, we again increased our research and interest result fell to €–18.6 (–15.0) million, in particular development expenditure, which we see as an due to a higher gearing ratio. Net financial income/ex- investment in the future, to €236.1 (205.6) million; as penses was thus €–7.8 (–5.5) million. Earnings  before in the previous year, the R&D intensity was virtually taxes (EBT) fell by around 10% to €129.5 (144.5) mil- unchanged at 18.4% (18.5%). Administrative expenses lion. Income taxes consequently decreased to increased to €129.5 (115.4) million, mainly due to extra €34.3 (40.4) million, giving a tax rate of 26.5% (28.0%). expenditure as part of our reorgani zation project Overall, the KWS Group generated net income of ONEGLOBE and higher IT expenses (an increase in €95.2 (104.0) million in the year under review, a costs for cloud-based IT applications). The balance of decrease of 8.4%. Given that the number of shares is other operating income and other operating expenses 33,000,000, earnings per share were €2.89 (3.15). 2.3 Economic Report | Combined Management Report 39 KWS Group | Annual Report 2019/2020 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 „ 2019/2020 2018/20191 119.7 136.2 –499.9 –363.7 159.8 85.6 –91.3 –5.6 Net cash from financing activities –82.5 387.8 1 Previous year adjusted +/– –25.1% 59.1% 447.5% – – Securing the KWS Group’s financial strength, The net cash from operating activities rose to enabling its profitable growth and preserving its €136.2 (85.6) million, in particular due to the increase independence are the core tasks of our financial in earnings before depreciation and amortization and management. Among other things, we ensure that by a much lower increase in trade receivables. extensive liquidity planning, monitoring of cash flows, and hedging the risk of interest rate changes and Due to adoption of IFRS 16 “Leases” and the currency risks. The main financial instruments used KWS Group’s increased financing activities over by the Group in fiscal 2019/2020, apart from a syndi- recent years, the presentation of the cash flow state- cated credit line, were borrower’s notes and bilateral ment has changed in terms of interest income and loan agreements (commercial papers) with different interest expense. Interest income is reported under loan periods and terms. the net cash from investing activities and interest On June 26, 2020, the European Investment Bank disclosures for the previous year have been adjusted expense under net cash from financing activities. The (EIB) gave KWS an undertaking to extend a loan of accordingly. €200 million with a term of twelve years. KWS utilized €50 million of it with the same term on July 13, 2020. The net cash from investing activities totaled The funding from the EIB is specifically intended for €–499.9 (–91.3) million in fiscal 2019/2020. This research and development work by KWS in the EU. It sharp increase over the previous year was mainly ensures financing of research & development costs attributable (to an amount of almost €400 million) in the coming years and will further strengthen KWS’ to the acquisition of Pop Vriend Seeds. Our capital commitment to innovative and climate-smart agri- spending in the year under review was again con- culture. The maturity profile of the Group’s borrow- sistent with our long-term growth plans and focused ings has a broad spread, with a high proportion of on erecting and expanding production and research medium- and long-term financing. In order to secure and development capacities. Expansion of sugar- KWS’ growth, we also consider the option of a capi- beet seed production in Einbeck was continued as tal increase in exceptional cases. planned. The project, which has a total investment 40 Combined Management Report | 2.3 Economic Report Annual Report 2019/2020 | KWS Group volume of around €40 million, will be completed in the under review to €88.2 (49.7) million, mainly due to current fiscal year. The focus of our capital spending amortization as part of the purchase price allocation in the Corn Segment was on expanding production for the acquisition of Pop Vriend Seeds. In addition, and processing plants in Brazil and Argentina, which adoption of IFRS 16 impacted the amount of depre- we were able to complete in August 2019 with com- ciation and amortization. missioning of the new plants. The main focus in the Cereals Segment remained on expanding and The net cash from financing activities was €–82.5 mil- modernizing breeding stations and production plants. lion, well below the figure for the previous year Our cross-segment investments included completion (€387.8 million), and included the capital raised of the new research building in Einbeck and fitting as bridge funding for the takeover of Pop Vriend out our new Berlin location. Total capital spending in Seeds. The KWS Group’s cash and cash equiv- fiscal 2019/2020 was €108.0 (96.6)  million. Depreci- alents at the end of fiscal 2019/2020 fell to ation and amortization increased sharply in the year €119.7 (159.8) million. Capital expenditure by segment Total capital expenditure €108.0 million 1 Corporate 35.7% Vegetables 1.5% Cereals 9.3% Capital expenditure by region Total capital expenditure €108.0 million 1 23.6% Corn 29.9% Sugarbeet Rest of world 1.3% North and South America 11.6% 62.4% Germany 24.7% Europe (excluding Germany) 1 Without capital expenditures of our at equity accounted consolidated companies 2.3 Economic Report | Combined Management Report 41 KWS Group | Annual Report 2019/2020 Assets Abridged 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 6/30/2020 6/30/2019 +/– 1,273.7 961.3 0.4 994.5 795.5 445.5 0.0 760.5 1,346.8 7.6 963.5 364.4 785.3 1.8 2,235.5 2,115.0 67.5% –28.6% – 3.2% 118.3% –43.3% – 5.7% The KWS Group’s balance sheet is impacted by the and due to business expansion in South America seasonal nature of our business. In the course of the and Eastern Europe. Inventories likewise increased year, there are usually balance sheet items that differ sharply to €214.0 (177.3) million, mainly due to the significantly from the corresponding figures at the acquisition and a large harvest as part of seed balance sheet date, in particular in relation to work- multiplication. Current assets at the balance sheet ing capital. date totaled €961.3 (1,346.8) million. Last year’s figure included current liabilities relating to the bridge Total assets at June 30, 2019, were €2,235.5 funding for the acquisition of Pop Vriend Seeds. Net (2,115.0) mil lion. Noncurrent assets rose to debt was €495.5 million, on a par with the previous €1,273.7 (760.5) million, mainly due to the acquisition year’s figure of €497.9 million. of the Dutch vegetable seed producer Pop Vriend Seeds, planned investments in new production Equity increased to €994.5 (963.5) million, mainly due plants and the expansion of research and develop- to the net income for the year. Noncurrent liabilities ment capacities. Trade receivables rose sharply to rose to €795.5 (364.4) million due to the issue of bor- €432.6 million from €402.1 in the previous year, in rower’s notes to finance the acquisition of Pop Vriend particular as a result of acquisition-related effects Seeds. The equity ratio was virtually unchanged at 44.5% (45.5%). 42 Combined Management Report | 2.3 Economic Report Annual Report 2019/2020 | 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 equity-accounted companies are instead included under net financial income/ expenses. 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: Reconciliation table in € millions Net sales EBIT Number of employees Capital expenditure Total assets avg. Segments Recon ciliation KWS Group 1,546.8 151.3 6,179 113.4 2,348.9 –264.3 –14.0 –470 –5.4 –113.4 1,282.6 137.4 5,709 108.0 2,235.5 The reconciliation between the KWS Group’s the North American and Chinese corn markets. That statement of comprehensive income and the applies to all key figures in the table above, with the reporting by segments in fiscal 2019/2020 is main influences coming from North America. impacted by our equity-accounted companies in 2.3 Economic Report | Combined Management Report 43 KWS Group | Annual Report 2019/2020Corn Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2019/2020 2018/2019 775.7 67.1 8.6 30.9 744.2 9.0 739.0 57.9 7.8 27.2 750.2 7.7 +/– 5.0% 15.9% – 13.6% –0.8% – in % in % General industry-specific conditions: Stable The segment’s performance: Increase in net cultivation conditions in Europe, pressure on sales and earnings corn prices in the U.S., high demand in Brazil The Corn Segment grew its net sales by 5.0% to The general economic conditions in the Corn Segment €775.7 (739.0) million in the year under review. That varied greatly in the main cultivation regions. While increase is mainly attributable to positive business there were largely stable cultivation conditions in performance in Europe and South America. In KWS’ important regions of Europe and the Middle Europe, we posted a sharp increase in net sales. Our East/Africa, the U.S. market was hit by the negative net sales performance in France and Eastern, South- impacts of the Covid-19 pandemic. The sharp fall eastern and Southern Europe was positive, while we in oil prices and lower fuel consumption reduced in posted lower net sales in Germany and a number of particular the economic attractiveness of growing Northern European markets due to intensified com- corn for the production of the biofuel ethanol. In this petition. We aim to keep on launching new hybrid context, the price for U.S. corn fell to a multi-year low. varieties and thereby strengthen our market position in Europe. We see the greatest growth potential as In Brazil, rising domestic demand for feed and high being in Eastern and Southeastern Europe. sales prices for corn offered advantageous market conditions. Government incentives to invest in agri- We significantly expanded our business volume and culture also helped create a positive business climate. won market share in Brazil following the successful In Argentina, however, higher export taxes and strin- launch of our high-performance hybrid corn varieties. gent restrictions to combat the Covid-19 pandemic We also grew our soybean seed sales sharply. How- weighed on the market environment. ever, the continuing depreciation of the Brazilian real against the euro reduced net sales growth. In Argen- In China, an extensive lockdown in response to the tina we recorded sharp growth in volume, which partly pandemic at the beginning of 2020 led to significant compensated for the depreciation of the Argentinean temporary constraints on economic activity. However, peso against the euro. Argentina was once more clas- gradual easing of the measures in March 2020 meant sified as a hyperinflationary economy in the year under that our joint venture KENFENG/KWS was able to review and we therefore applied IAS 29 “ Financial resume business operations in Heilongjiang province Reporting in Hyperinflationary Economies” again in in time for the start of the season. order to compensate for the effects of inflation. 44 Combined Management Report | 2.3 Economic Report Annual Report 2019/2020 | KWS Group Corn In North America, net sales at our 50 : 50 joint venture AgReliant were on a par with the previous year, while corn and soybean seed business declined slightly as a result of turbulence on the commodity markets due to the pandemic. On the other hand, there were pos- itive exchange rate effects from the increase in the US dollar’s value against the euro. Our business in China performed positively against the backdrop of a challenging environment. While net sales at our Chinese joint venture KENFENG/ KWS rose sharply, we posted a fall in revenue from licensing business with third parties. The segment’s income rose by 15.9% to €67.1 (57.9) mil lion. That was aided in particular by the sharp improvement in operations in South Amer- ica. Our earnings situation in North America and Europe remained stable. The segment’s EBIT margin rose from 7.8% to 8.6%. Important capital spending projects completed in South America The segment’s capital spending was €30.9 (27.2) 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. Completion of these plants means we have roughly doubled processing capacities in the two countries. KWS Group | Annual Report 2019/2020Sugarbeet Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2019/2020 2018/2019 491.8 170.1 34.6 32.3 349.5 48.7 461.2 179.6 38.9 34.9 300.0 59.9 +/– 6.6% –5.3% – –7.4% 16.5% – in % in % General industry-specific conditions: Slight The segment’s performance: Increase in net decline in cultivation area, volatile sugar prices sales, no losses due to the coronavirus crisis Whereas sugarbeet cultivation area in the U.S. The above-described effects in the wake of the grew again slightly, they declined a bit in Europe, global Covid-19 pandemic did not have an apprecia- in particular due to a reduction in sugar production ble impact on the Sugarbeet Segment’s operational capacities and restrictions on the use of insecti- business in fiscal 2019/2020. Net sales rose by 6.6% cides. Total global cultivation area fell by around 5% to €491.8 (461.2) million. The successful launch of year on year. Prices for raw and white sugar were CONVISO® SMART, an innovative system for con- volatile in the course of the fiscal year. After a sharp trolling weeds that is now available in 24 countries, increase at the beginning of 2020, sugar prices fell and exchange rate effects related to translation to back to the level of the previous year by the balance the US dollar had a positive impact in the period sheet date, mainly due to the coronavirus crisis. under review. On the other hand, there was a neg- The Covid-19 pandemic impacted the industry in vation area in the EU 27 and in Eastern Europe. Net diverse ways. On the one hand, there was a notice- sales in Turkey and the Middle East were again up ative impact from the reduction in sugarbeet culti- able increase in demand for sugar to manufacture over the previous year. ready-made products, such as frozen pizzas. On the other hand, sugar consumption in the catering The segment’s income was €170.1 million, slightly sector fell. In addition, the drop in oil prices resulted down from the high level of the previous year in far lower demand for ethanol, which is also (€179.6 million), in which there was the positive obtained from sugar cane in Brazil, for example. That non-recurring effect from the sale of shares in our had the implicit effect of dampening sugar prices. potato business. While our net sales performance 46 Combined Management Report | 2.3 Economic Report Annual Report 2019/2020 | KWS Group Sugarbeet was positive, there was an increase in the cost of sales, in particular due to changes in the regulatory framework. While selling expenses declined slightly due to the pandemic, our research & development expenditure was higher as planned. In view of the further restrictions on pesticides in the EU, we believe that the develop ment of natural resistances will continue to grow in importance. The EBIT margin was 34.6%, as expected well down from the previous year’s figure, mainly due to the non-recurring effect last fiscal year. Continued investment in seed production We continued our multi-year capital spending projects as planned in fiscal 2019/2020. The PIA ( Production Extension and Innovation Einbeck) project, which is our most important one at present and with which we are expanding our seed pro- duction plant in Einbeck, continues to make good progress. A large section of the new production plant (packaging) started operating in 2019. The plants for pelleting seed will be completed in the current fiscal year. Further investments were made in a new seed treatment plant in France, in establishment of a new seed treatment plant in Russia, and in developing biologicals, useful microorganisms that improve seed’s stress tolerance to pests and abiotic factors such as drought. KWS Group | Annual Report 2019/2020Cereals Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2019/2020 2018/2019 191.2 26.4 13.8 10.1 145.6 18.1 170.8 23.0 13.5 7.0 133.0 17.3 +/– 11.9% 14.8% – 44.3% 9.5% – in % in % General industry-specific conditions: Situation business made a major contribution to that, largely for European cereal farmers remains strained on the back of good market conditions, rye’s The continuing low level of cereal commodity prices relatively stable yield in dry years and much higher again posed major challenges for farmers in Europe. demand for it as feed. While revenue from wheat The situation has not improved due to the restric- and barley seed was at the level of the previous year, tions on logistics and personnel in the wake of the rapeseed seed was down slightly from the previous Covid-19 pandemic that has prevailed since the year, in particular due to adverse weather conditions spring of 2020, despite the fact that the main share at the time of sowing. On the other hand, royalties of cereal seed business in the northern hemisphere from wheat were higher. Net sales from sorghum was transacted during the fall sowing season. seed also increased; in particular, sales in Brazil rose appreciably. Peas and oats also performed well as a Increasing regulation of the use of pesticides in the result of growing demand for protein from plants and EU and dry conditions at the time of sowing resulted their advantages in crop rotation. in a decline in rapeseed cultivation area. However, cultivation of rye continued to increase in the year The increase in net sales and an improved product under review, too. The main reasons for that were mix resulted in a higher gross profit. The higher better prices for rye than for wheat, rye’s acknowl- expenditure for research & development and edged high yield stability under drought stress, and distribution activities planned in line with our the increasing use of rye in feed. strategic growth objectives, as well as negative The segment’s performance: Sharp increase in receivables and inventories, resulted in an EBIT net sales, EBIT margin at the previous year’s level margin of 13.8%, just slightly above the figure for the Net sales at the Cereals Segment rose sharply by previous year (13.5%). EBIT increased in absolute 11.9% to €191.2 (170.8) million. Hybrid rye seed terms by around 15% to €26.4 (23.0) million. exchange rate effects and higher write-downs of 48 Combined Management Report | 2.3 Economic Report Annual Report 2019/2020 | KWS Group Cereals Investment activity focuses on breeding The segment’s capital spending in the year under review was €10.1 (7.0) million, well up from the previ- ous year. That is mainly attributable to the postpone- ment of some investments that had been planned for the 2018/2019 fiscal year. The main focus of our investment activity was again on expanding and modernizing breeding stations and production plants. Along with conventional breeding, long-term breeding and development projects are vital to the segment’s future. Our focus is on breeding high-performance varieties and preserving and enhancing their resource efficiency. So that we can tap further market potential in the medium term, our breeding and development projects are also aimed at tailored rye varieties for Eastern Europe and North America. The goal of the initiative aimed at promoting greater use of rye as feed and the related positive effects on animal welfare is to provide additional incentives to grow rye in Germany. Another long-term goal is to expand hybrid breeding activities for wheat and barley. Investments to renew and replace plant and equip- ment help ensure that we live up to our high stan- dards of quality 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 2019/2020Vegetables Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2019/2020 2018/2019 +/– 83.5 –7.5 –9.0 1.6 479.5 –1.6 – – – – – – – – – – – – in % in % General industry-specific conditions: Positive The outbreak of the Covid-19 pandemic initially had market environment strained by the Covid-19 only a slight impact on the segment’s net sales in pandemic the year under review. Its business in the year under The general conditions for spinach seed – the main review benefited from large demand for spinach sales driver in the segment, contributing around seed in North America. Moreover, sales of spinach 70% – were positive in the first half of the fiscal year. and bean seed were increasingly buoyant in Europe. Following low harvests in the two previous years, a China is the second-largest single market, account- far higher volume of spinach seed was produced in ing for around 12% of total net sales. 2019, enabling market demand to be satisfied. The segment’s income (before acquisition-related However, the outbreak of the Covid-19 pandemic effects) was €25.5 million, while the EBIT margin of resulted in significant adverse effects on our inter- 30.5% was within the more precise guidance given national supply chains in the second half of the fiscal in the Semiannual Report 2019/2020. Including the year. At the same time, demand in our important mar- effects as part of the purchase price allocation from ket segment of food service slumped, in particular in the sale of inventories that were taken over and the U.S. Still, the lockdown measures in many coun- remeasured at fair value (€–11.1 million) and from tries increased demand from the processing industry amortization of intangible assets (€–21.9 million), the for spinach and beans for the food retailing sector. segment’s income was €–7.5 million. The segment’s The segment’s performance: Net sales and for establishing the Business Unit and for initial income includes expenses of around €2.0 million income in line with expectations – profitability breeding activities. (before acquisition-related effects) remains high The Vegetables Segment, which includes the busi- Establishment of the Business Unit moves ness activities of the vegetable seed producer Pop forward Vriend Seeds acquired effective July 1, 2019, made Important milestones in establishing the Business a significant contribution of €83.5 million to the Unit were achieved in the course of the year under KWS Group’s increase in net sales. The most import- review. They include rounding out the management ant single market was the U.S., which accounted for team, commissioning of a new breeding station around 50% of the segment’s net sales. for tomatoes, peppers, cucumbers, melons and 50 Combined Management Report | 2.3 Economic Report Annual Report 2019/2020 | KWS Group Vegetables watermelons in Almería, Spain, and licensing in of the relevant genetic material. In addition, we pressed ahead with activities to establish the Business Unit’s headquarters in Wageningen, the Netherlands, which are scheduled for completion in the first quarter of fiscal 2020/2021. Launch of vegetable breeding at KWS Following the acquisition of Pop Vriend Seeds effective July 1, 2019, initial collaboration projects between the two companies’ breeding teams were initiated in fiscal 2019/2020. The focus is on crops from Pop Vriend Seeds’ portfolio, such as spin- ach, red beet and Swiss chard. At the same time, we laid the groundwork in the year under review for establishing an international breeding program for the most important types of vegetable world- wide: tomatoes, peppers, cucumbers, melons and watermelons. That includes hiring initial research & development employees and commissioning a breeding station in the Spanish province of Almería, one of Europe’s largest vegetable production regions. Further breeding stations in Spain and Brazil are being planned. We have begun testing licensed-in genetic material in Almería. In order to expand our access to genetic material for breeding purposes, we joined the Inter- national Licensing Platform Vegetable (ILP), an association comprising companies from the field of vegetable breeding, in the year under review. The members of the ILP give each other access to genetic material and related patents at fair conditions and costs. As a result, we have achieved important initial mile- stones in implementing our strategy in the first year since the new Business Unit Vegetables was estab- lished – and more are to follow. KWS Group | Annual Report 2019/2020Corporate We moved into the KWS branch office in Berlin­Schöneberg at the beginning of 2020. It will offer space for around 350 employ­ ees in the future. Corporate Segment Key figures in € millions Net sales EBIT Capital expenditure 2019/2020 2018/2019 4.6 –104.6 38.6 3.9 –97.1 32.1 +/– 17.9% –7.7% 20.2% Net sales in the Corporate Segment in the fiscal The segment’s EBIT was €–104.6 million and so year just ended totaled €4.6 (3.9) million. They are below the previous year’s figure (€–97.1 million) due mainly generated from our farms. Since all cross- to extra expenditure as part of our reorganization segment costs for the KWS Group’s central functions project ONEGLOBE, higher expenses for central R&D and basic research expenditure are charged to the activities, and lower income from instruments for Corporate Segment, its income is usually negative. hedging foreign currency risks. 52 Combined Management Report | 2.3 Economic Report Annual Report 2019/2020 | 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 and 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- and vegetables, sorghum, rapeseed, peas and catch mental influences. These crop-specific development crops, we can offer farmers a broad range of high- objectives are agreed annually between Research, performance 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 crops 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 Improved usability Biotic resilience Resource efficiency Abiotic resilience Higher sugar content (sugarbeet) Improved digestibility Improved processing attributes (such as baking or brewing quality) Improved resistance and tolerance to pathogens and pests Strengthening of plants by means of crop rotation and biostimulants Less pesticide usage Less fertilizer usage Lower water usage Regionally adapted crops Enhanced resistance to extreme environmental conditions One indicator of our breeding progress is annual many other countries. In Eastern and Southeastern variety approvals. Only varieties that differ signifi- Europe, we also obtained approval for ten new hybrid cantly from already approved ones and offer a clear corn varieties under our label “ClimaControl3.” They improvement in cultivation or further processing can are distinguished by increased drought tolerance. We be marketed in the EU, for example. We obtained are also in the process of registering further drought- 484 variety approvals worldwide in the year under tolerant varieties. We have also reviewed our catch review compared to 464 in the previous year. crop mixtures and adapted them further to agricul- tural requirements. We offer specific seed mixtures We launched a new sugarbeet variety on the Italian under the umbrella brand “KWS Fit4Next” that market, for example. It is a great aid for farmers in enable combating of nematodes (threadworms) or combating the fungal pathogen Cercospora since it can also be put to secondary use as a feed reserve, is equipped with highly effective resistance to this for example. In addition, we have achieved further leaf spot disease. Infestation by the disease has progress in the fields of biologicals and organic increased sharply in the past years due to environ- seed. Biologicals are an alternative or complement to mental factors, such as extreme changes in the chemical means of seed treatment. They comprise weather resulting from climate change. Approval microorganisms such as fungi and bacteria, but also processes for further varieties that have this resis- various substances that can be obtained from plants tance to Cercospora have already been initiated in or microorganisms. Seed treatment with biologicals 2.4 Environmental Report | Combined Management Report 53 KWS Group | Annual Report 2019/2020 has now been used successfully for corn and rye annual update meeting on the issue is held. If an seed in addition to sugarbeet and rapeseed seed. examination should find that the origin of the genetic For organic farming, KWS has been able to include material or the process by which it was obtained is the seed mixture of corn and beans in its product unclear, we refrain from using it. No deviations were portfolio for the corn sector. Sowing bean and corn identified as part of the above due diligence process plants in the same field offers organic farmers a new in fiscal 2019/2020. option for coordinated intercropping. There is regular dialogue during the year with the 2.4.2 Use of Genetic Resources Executive Board member responsible for research & KWS runs a broad network of worldwide stations and breeding both in the context of the semiannual meet- trial fields for seed breeding. We test different genetic ings of the ISF and also if required. An annual report material for the respective application areas there. to the Executive Board is only drawn up if specific issues or incidents have been identified as part of Where this genetic material is used, the rights of the the due diligence process. No such incidents were peoples in all regions the material originates from reported in the year under review. must be respected. KWS is aware of its obligations in this regard and supports the various international 2.4.3 Plant and Process Safety access and benefit-sharing frameworks. Of prime Running our locations and our operational processes mention in this respect are the Convention on have an impact on the environment. To minimize that Biological Diversity, the Nagoya Protocol and the impact at all locations, we are committed to using International Treaty on Plant Genetic Resources innovative processes and eco-friendly technologies. for Food and Agriculture (ITPGRFA). The latter is Core objectives of our global HSE (health, safety particularly relevant to regulating transfer of genetic and environment) management activities are to resources. KWS maintains dialogue with governments avoid negative environmental influences and ensure through industrial associations, such as Euroseeds resource-conserving operation of our locations, and the International Seed Federation (ISF). health and occupational safety, and protection of business assets. In general, a location at the indi- We have implemented a due diligence process to vidual KWS companies is run in compliance with the ensure compliance with these guidelines. All employ- applicable local statutory requirements. We defined ees who work with genetic material are obligated to fundamental requirements relating to the three pillars digitally register all materials used, whereupon our of environmental protection, work safety, and emer- Intellectual Property department instigates an exam- gency preparedness and risk prevention by intro- ination of where the genetic material has come from. ducing group guidelines in fiscal 2018/2019. In the Colleagues from our Legal department also provide future, all relevant locations in the KWS Group are assistance in more complex cases. In addition, new to undergo regular health, safety and environment employees are offered training modules, and an auditing to achieve continuous improvements. 54 Combined Management Report | 2.4 Environmental Report Annual Report 2019/2020 | KWS GroupAlongside the global HSE management system, between the specialist functions and first manage- we are also focusing on the issue of environmental ment level (N-1) on the basis of an annual Manage- protection in relation to Europe-wide certification of ment Review Report. Incidents are also reported to treatment facilities in accordance with SeedGuard. the Executive Board if necessary. Internal audits to review compliance of processes with SeedGuard were successfully held at two cer- The second half of the fiscal year was overshadowed tified locations in the year under review. Examples by the Covid-19 pandemic. HSE management has in relation to the subject area of environmental pro- collaborated with an Incident Team to implement a tection include stipulations on resource-conserving global pandemic network and draw up a guide con- operation of our locations, the handling of environ- taining consistent regulations on how to deal with mentally harmful chemicals and waste, and the use the coronavirus at the company. These regulations of exhaust air filters. are developed and communicated on an ongoing basis, also because of the large differences in the Further key aspects in plant and process safety are pandemic’s progression in the various regions. Exam- the responsible use of modern breeding methods ples that can be cited here are measures to increase and the safe use of genetically modified organisms separation among research and production employ- in the production process. To document the fact that ees (ensuring they work apart and at different times), we use genetically modified organisms responsibly mobile working arrangements, and company quaran- throughout the lifecycle of our products, our entire tine regulations. HSE management is the central point group is still certified in accordance with the industry of contact here for the KWS Group. KWS was able to standard “Excellence Through Stewardship” (ETS). maintain all core processes in the remainder of the All the audits held, records and measures are admin- fiscal year, with the result that there was no negative istered in a central database. There is also dialogue impact on its plant and process safety. As part of the expansion and modernization of our sugarbeet seed processing plant in Einbeck, KWS is setting new standards in terms of quality, flexibility and efficiency. A new packaging plant is part of the capital spending project. What do our high­ yielding varieties and our employees have in common? Both routinely excel and grow to new heights. Proximity is important for us. But because proximity was impossible in this out-of-the-ordinary year, our colleagues toiled away with enormous dedication so that life could go on everywhere. For that: thank you! 2.5 Employee and Social Report* Over the generations, our employees have made 2.5.2 Recruitment and Qualification KWS what it is today: an innovative, world-leading plant breeding company. That is due in great mea- Employer branding: Projecting our employee sure to their skills, mindsets, ideas and commitment. brand outside the company As a company with a tradition of family ownership, As an international company that continues to grow, we attach importance to a high degree of personal the KWS Group endeavors to win and keep suitable initiative, personal and professional development, employees. Apart from growing our workforce num- and a work culture marked by respect, openness, bers through recruitment, KWS is also guided by trust and team spirit. strategic objectives and aims to secure qualitative growth by enhancing the loyalty of and developing 2.5.1 Employment Trends existing staff. The status of recruiting measures and In the year under review, the KWS Group employed filling of new posts is reviewed regularly in consulta- an average of 5,709 (5,543) people, a year-on-year tion with members of the Executive Board, the first increase of around 3%. A large part of that increase management level and the Works Councils involved. is attributable to the acquisition of Pop Vriend Seeds, Andijk, the Netherlands, at the beginning of the year We continue to use digital and traditional channels under review. to reach out to potential applicants. That enables us to address each target group specifically, for 2,236 (2,141), or around 39% (39%) of the work- example on social networks such as LinkedIn, XING force, were employed in Germany. Once again, the and Facebook. Apart from using common digital area that accounted for the most employees was channels, we took part for the first time in a virtual research & development, who made up 36.3% of career fair in June 2020 due to the pandemic. It gave the total workforce. students the opportunity to listen to an online talk by us and chat directly to employees. Thanks to the position of Global Lead of Scientific Affairs we created in 2018/2019 at the Research & Development department, we were able to deepen Employees by region Number of employees 5,709 (corresponds 4.414 FTE) Rest of world 175 North- and South America 1,789 2,236 Germany 1,509 Europe (excluding Germany) Employees by function Number of employees 5,709 (corresponds 4.414 FTE) Administration 889 Distribution 1,230 2,073 Research & Development 1,517 Production * Not an audited part of the NFD or Combined Management Report 58 Combined Management Report | 2.5 Employee and Social Report Annual Report 2019/2020 | KWS Group our cooperation with universities and research insti- enhancing their personal and professional skills and tutes even further in fiscal 2019/2020. This coop- competence. The meetings were not held exclusively eration is organized in such a way that there are in person in the year under review, as is usually the various research & development colleagues who case, but instead in part virtually. act as main contact persons for the Global Lead of Scientific Affairs and so promote dialogue with Our range of education and development offerings universities and research institutes. is diverse and supports various learning objectives. We continue to award scholarships at universities as knowledge transfer in various subject areas and and offer talents without a university degree induc- international development of (junior) executive staff, Language courses and intercultural training, as well tion programs. As a result, we at the KWS Group are gaining in importance. again accompanied many young people successfully on their path to gaining vocational qualifications in We regularly hold “Orientation Centers” with the past fiscal year. Our 97 (90) trainees in Germany participants from various countries in the KWS Group. were employed in vocational training at KWS or In the International Development Program, we also enrolled in dual courses of study. give talents from all departments the chance, among other things, to gain experience in an international All the measures presented by way of example ulti- team in cross-functional project work and to develop mately help KWS enhance its attractiveness as an their management and leadership skills. The develop- employer. In the annual independent rankings by ment meetings accompanying the two programs were the consulting firm Universum, KWS came in 59th in all held virtually for the first time this fiscal year for the area of sciences in 2020 (2019: 47th) in the list of colleagues at our German locations, too. the 100 most popular employers in Germany among students and captured 36th spot among profession- We are particularly committed to having all employ- als in 2019. ees receive qualified leadership and support from their supervisors. That is why we have developed a Qualification, further training and development competence model defining the core competencies of KWS’ long-term commercial success is founded not managers at KWS and are developing it further. The only on its employees’ commitment, entrepreneurial objective is to support continuous development of the freedom and satisfaction, but also on their personal organization against the backdrop of an increasingly skills and professional qualifications. We support our agile and dynamic working world. In the second half employees with tailored education and further train- of 2018, we had also introduced “Leading Individuals,” ing measures to help them build on their expertise the first module of our newly designed management and abilities. They are held as conventional in-person development program, in which more than 200 exec- events or online. Training was suspended from mid- utives have taken part so far. On the basis of that, March 2020 due to the pandemic. In its place, we we have developed a further module called “Leading developed an online offering that has been gradually Self” to enable employees to develop their manage- made available to employees starting in May 2020. ment and leadership skills. It will be rolled out in the coming months. Alongside that, we are already work- In regular development meetings, which are part of ing on a further module for experienced managers. the annual performance and career development reviews, our employees formulate perspectives We intend to continue focusing on qualifying and for their further development together with their developing our employees and managers in the managers. They jointly define concrete continuing future and will expand our training portfolio nationally education and development measures aimed at and internationally. 2.5 Employee and Social Report | Combined Management Report 59 KWS Group | Annual Report 2019/20202.5.3 Good Working Conditions* We aim to further increase the ratio of women in We are an international, innovation-oriented com- the top two management levels at KWS. We believe pany that aims to keep on growing – and qualified we are making good progress in our efforts, as evi- and committed employees are the key to our suc- denced by the award we won in the 2020 Career cess. In order to recruit them and keep them at KWS, Atlas of Focus Money, attesting that KWS offers we position ourselves as an attractive family busi- some of the best career opportunities for women in ness that offers good working conditions. the industry. The targets for the ratio of women can be found in our declaration on corporate governance, Contracts and compensation which is published on our website at www.kws.com/ir. All employees of the KWS Group have a written con- tract of employment that complies with labor and Employee representative bodies social insurance legislation. The overall compensa- Employees’ interests are represented collectively to tion package for KWS employees takes into account management by the elected Works Councils and the their individual expertise, professional experience persons entrusted with representing young people and local market circumstances. It consists of a and trainees. We also have a European Employees’ basic salary, social benefits, performance-related Committee (EEC), a body that represents European payments (if applicable) and, locally, Employee Stock employees and is responsible for cross-border Purchase Plans where staff can buy shares in the matters within the EU. The working relationship company. Equal pay for the same activities is a fun- between the employee representative bodies and damental principle of our basic compensation policy. management is cooperative and based on trust. In Work-life balance regions where there is no collective employee rep- resentative body, we attach importance to mutual The lives our employees lead differ greatly and are respect and dialogue between regional manage- highly individual – and so they also have different ment and employees. needs as regards work and the workplace. Our dif- ferent working time models enable employees to 2.5.4 Social Commitment* strike a good life-work balance. Employees can also As an international, strongly innovation-driven com- work from home, if that can be reconciled with their pany, the issues of research and education, and activity. We also offer part-time models. Employees well as a culture founded on diversity, creativity and in Germany also have the opportunity to take leave openness, are particularly dear to our heart. Our or reduce their working hours, with an adjustment focus in the area of social commitment is therefore to their salary, if they would like to look after depen- to promote educational institutions and young scien- dents who need caring for. tific and artistic talents. We sponsor culture at the regional level, support associations, cultural institu- Equal opportunity and diversity tions and social initiatives and thereby help develop KWS is committed to equal opportunities and rights the socio-cultural infrastructure at our locations. for its employees, regardless of gender, religion or belief, ethnic origin, age, handicap, skin color, lan- We aim to support regional socio-economic develop- guage or sexual orientation. We have enshrined that ment by means of targeted initiatives and measures, in our Code of Business Ethics, which is binding such as our involvement in the German 5G Innovation on all employees. We believe that diversity of our Program with the project “5G NortNet – Optimization employees, as displayed in their individual experi- of the value chain in plant cultivation.” In cooperation ence, knowledge, skills and ideas, is a key value and with public- and private-sector partners and with a competitive advantage. It encourages creativity initial funding from the German Federal Ministry and innovativeness and strengthens our understand- of Transport and Digital Infrastructure (BMVI), a ing of markets and different cultures by fostering pilot network is to be established on the basis of intercultural skills. the 5G mobile standard in order to research and * Not an audited part of the Combined Management Report 60 Combined Management Report | 2.5 Employee and Social Report Annual Report 2019/2020 | KWS GroupWe want to create a working environment where our employees can develop their potential, including their personal and professional skills, to the fullest – whether in research & breeding, production, administration or sales. improve traceability in and the efficiency of produc- This program in Ethiopia is to be transitioned to tion chains. The common overriding objective is to a self-supporting, sustainable project in fiscal strengthen the innovativeness and future viability of 2020/2021 in cooperation with local partners and the rural regions. German Society for International Cooperation (GIZ). KWS’ international support includes our capacity Good progress has likewise been made in our development programs in Peru and Ethiopia. In capacity development activities in the Peru project: just over seven years of our activities as part of our capacity development program in Ethiopia, we have „„ The quinoa breeding program at the University of made sustained progress in achieving the objectives the Altiplano in Puno will soon obtain approval for defined in 2012: new varieties that are early-maturing and deliver a good yield. „„ The initiative has made a major contribution to „„ A Peruvian doctoral student is being trained in qui- improving the conservation and documentation of noa breeding and diversity analysis at the Univer- genetic resources at Ethiopia’s national gene bank sity of Hohenheim thanks to a KWS scholarship. and is therefore regarded as a model project for „„ We continue to support the gene bank at National bilateral benefit sharing as part of the International Agrarian University in Lima in its efforts to improve Treaty on Plant Genetic Resources for Food and documentation and understanding of genetic Agriculture (ITPGRFA). diversity in a collection of national corn genetic „„ Substantial training and the provision of urgently resources. Cutting-edge genotyping and image needed equipment at the Ethiopian Institute of analysis technologies are used in that, likewise Agricultural Research has created the basic condi- with the support of the University of Hohenheim. tions for ensuring more efficient breeding of barley for food uses and malting barley. In fiscal 2019/2020, KWS spent around €1.5 (1.0) mil- „„ Smallholders’ access to quality seed of improved lion – or approximately 1.1% of our operating income wheat and barley varieties has been significantly (EBIT) – on its social commitment worldwide. Of that, improved through direct support of nine smallholder approximately €0.75 million was donations and €0.75 seed cooperatives. million was spent on sponsorship activities. 2.5 Employee and Social Report | Combined Management Report 61 KWS Group | Annual Report 2019/2020 At our headquarters in Einbeck and at all locations worldwide: The outstanding effort by all our employees ensured that KWS achieved its objectives, even in the face of added challenges. 2.6 Corporate Governance 2.6.1 Corporate Governance Report and You can find detailed information on corporate gov- Declaration on Corporate Governance* ernance in our declaration on corporate governance Responsible corporate governance has always been in accordance with Section 289f of the German of great importance at KWS SAAT SE & Co. KGaA. Commercial Code (HGB), which is available in full Since it was founded more than 160 years ago, our on our website at www.kws.com. You can find the company’s successful development has been based Compensation Report starting on page 64. on thinking in the long term and acting in terms of sustainability. The Executive Board (or, since the com- 2.6.2 Declaration of Compliance in Accordance pany’s change in legal form in 2019/2020, the person- with Section 161 AktG (German Stock ally liable partner KWS SE, whose Executive Board is Corporation Act) since responsible for management of the company’s The final version of the Declaration of Compliance in business) and the Supervisory Board run and accom- accordance with Section 161 AktG (German Stock pany KWS with the goal of ensuring it creates sustain- Corporation Act) is available to shareholders on the able value added. They once again examined in the website https://www.kws.com/corp/en/ company/ year under review whether the company complies with investor-relations/declaration-of-corporate- the stipulations of the German Corporate Governance governance.html. Code and issued the Declaration of Compliance in Accordance with Section 161 AktG (German Stock 2.6.3 Business Ethics and Compliance Corporation Act) to the effect that the company com- The basis of our compliance concept is the imple- plies almost fully with the code’s recommendations. mentation of our corporate culture: KWS’ values are * Not an audited part of the Combined Management Report 62 Combined Management Report | 2.6 Corporate Governance Annual Report 2019/2020 | KWS Grouppracticed when the compliance rules are applied. observance. The focus is on the subjects of antitrust Compliance with basic principles of business ethics law, anti-corruption, prevention of money laundering, is vital to our license to operate. Accordingly, the data protection and capital market law. compliance rules apply to all employees in the KWS Group. The Compliance Officers regularly provide informa- tion about the compliance system and its principles, That is the foundation for KWS’ compliance as well as about the latest issues and developments, objectives, namely to gain and retain customers’ in training courses, information events and work- trust through ethical conduct and to protect the shops. Apart from this information, a broad range company’s employees, reputation and assets. of aids is also available to our employees. Check- Information, training and continuous intensive lists, instructional leaflets and other guides provide consulting help integrate compliance in business practical tips on observing compliance rules in processes and enable management to make busi- everyday work. All information and rules of conduct ness decisions rooted in our corporate culture. can be accessed by employees worldwide in the Compliance Portal on KWS’ intranet. Around 80% Our Code of Business Ethics gives our employees of the total workforce has access to the Compliance crucial guidance in their day-to-day work and con- Portal. In addition, all supervisors are obliged to tains stipulations on compliance with the law, fair inform their employees about compliance issues. competition, prevention of corruption, safety at work, Supervisors can also enroll their employees directly protection of the environment, and the need to treat in compliance training courses. In the final quarter of each other, customers, business partners, other 2019/2020, KWS began global rollout of a software third parties and public authorities with respect. All solution that gives employees access to e-learning employees undertake to comply with the code by offerings on the subject of compliance. 407 employ- signing a commitment to do so when they are hired ees have enrolled for the training to date and 216 of and are provided with generally applicable informa- them have completed it. tion on compliance, as well as related information specific to their function. Implementation and observance of individual compliance aspects is reviewed as part of audits. Our Code of Business Ethics also covers the issue In addition, the Compliance Officers conduct an of international anti-corruption management as an assessment termed risk scoring together with the integral part of our compliance management work. Risk Management and Finance functions, the results On the basis of the regulations in the code, there is a of which are used as the basis to make decisions for policy of zero tolerance toward any form of corruption the companies under analysis and derive measures at the KWS Group and that principle is stipulated as for improvement. Two violations of the International a group-wide standard in the Anti- Corruption Policy. Anti-Corruption Policy were reported to headquar- This standard applies regardless of whether bribery ters in fiscal 2019/2020. No compliance violations of is prohibited by law, tolerated or permitted in the antitrust protection legislation and money laundering country in question. The group-wide Anti- Corruption regulations and thus no related fines were reported Policy defines the responsibilities, processes and to headquarters. regulations in relation to preventing corruption and bribery at the KWS Group. If an examination or report reveals indications of suspected violations, the investigation is conducted The Compliance department is the central point of in accordance with KWS’ regulations “Procedures contact for questions on our Code of Business Ethics of Internal Compliance Notification.” KWS’ employ- and other related issues. It advises all divisions of ees are obligated to report suspected violations; the the KWS Group in complying with laws, regulations open door principle applies to that. Employees can and internal rules of conduct and controlling their supply information on them to their supervisor, to the 2.6 Corporate Governance | Combined Management Report 63 KWS Group | Annual Report 2019/2020Chief Compliance Officer or to the external compli- labor and must comply with the regulations on the ance hotline. The hotline can be contacted, including minimum age for admission to employment defined by e-mail, free of charge around the clock and in in the latest version of ILO Convention No. 138. The the language of the country in question. Reports code contains provisions on safety at work, product of suspected violations are treated anonymously if safety, protection of the environment and avoidance requested. The reported cases are investigated by of corruption, as well as on the requirement to ensure KWS. Whistleblowers do not suffer any disadvan- fair competition and protection of personal data and tages unless they have obviously abused their right third-party know-how. to report violations. After the investigation has been completed, the whistleblowers are informed of the 2.6.4 Compensation Report results, as long as there are no legal reasons or legit- The Compensation Report outlines the principles imate interests against doing so or other disadvan- and salient features of the compensation systems tages are to be feared. for the Executive Board of KWS SE, the manag- ing partner of KWS SAAT SE & Co. KGaA, and its If suspected cases prove to be violations, the system Supervisory Board. It also explains the level and of sanctions is applied. In general, it can be applied structure of their compensation. to all types of compliance violations and is also accessible to employees. The system of sanctions The Compensation Report largely takes into account defines various criteria governing the measures to the recommendations of the applicable version of be taken, such as the gravity of the violations, the the German Corporate Governance Code dated degree of the person’s breach of duty, the func- December 16, 2019. Deviations from recommen- tional level, behavior after the violation – help in dations are indicated in the Compensation Report investigating it or attempts to cover it up – as well as and in the Declaration of Compliance in Accordance consequences of the violation, such as the threat of with Section 161 AktG (German Stock Corporation damage or actually incurred damage, among other Act) dated October 22, 2020. The Compensation things. The sanctions consequently range from cau- Report also contains all the disclosures and explana- tions, warnings and reductions in bonuses to imme- tions required under the German Commercial Code diate dismissal and filing of charges. (HGB), including the relevant principles of German Accounting Standard No. 17 (GAS 17), and under the The Executive Board and the Supervisory Board’s International Financial Reporting Standards (IFRS). Audit Committee are informed once a year about In addition, it largely takes into account the require- the current status and latest developments of the ments stipulated in the German Act Implementing Compliance Management System. the Second Shareholder Rights Directive (SRD II), which would need to be applied for the first time In addition to our internal compliance regulations, to fiscal years starting on or after January 1, 2020. we also want to involve our suppliers in ensuring The Compensation Report is part of the Combined they adopt and practice our business ethics. KWS Management Report for KWS SAAT SE & KGaA and also expects its suppliers, service providers, their the Group that has been audited by the independent employees and subcontractors (jointly termed auditor; these disclosures are not additionally pre- “ suppliers”) to act ethically, responsibility and in a sented in the Notes (Section 289a (2) and Section spirit of sustainability. The conduct expected of our 315a (2) of the German Commercial Code (HGB)). suppliers is specified in our Code of Business Ethics for Suppliers; one particularly important criterion New compensation system since July 1, 2019 is that they respect human rights as fundamental The Annual Shareholders’ Meeting of KWS SAAT SE and universal. The code specifies, for example, that on December 14, 2018, adopted a resolution to our suppliers must not permit forced labor or child change the company’s legal form to a partnership 64 Combined Management Report | 2.6 Corporate Governance Annual Report 2019/2020 | KWS Grouplimited by shares bearing the name KWS SAAT SE total compensation of Executive Board members & Co. KGaA. The change in legal form became is in line with usual levels compared to other enter- effective on July 2, 2019, when it was registered in prises, the following peer group of other third-party the commercial register of Göttingen Local Court. entities was used as a benchmark. The peer group It also necessitated amendment of the contracts of was chosen based on the enterprise’s size and its employment with the Executive Board members, international orientation. since they left KWS SAAT SE and were appointed members of the Executive Board at the general partner, KWS SE. Peer group Implementation of the EU’s Shareholder Rights No. Enterprise Directive II in German law and the new version of the German Corporate Governance Code were still being discussed by the German parliament and the Government Commission for the German Corporate Governance Code, respectively, at that time. Nev- ertheless, the Supervisory Board of KWS SAAT SE largely took into account the requirements of SRD II and the new German Corporate Governance Code that were known at the time in drafting the new Executive Board compensation system. At the proposal of the Committee for Executive Board Affairs, the Supervisory Board of KWS SAAT SE and the Supervisory Board of KWS SE adopted the Executive Board compensation system, 1 2 3 4 5 6 7 8 9 10 11 12 Symrise AG Deutz AG Qiagen NV Sartorius AG Hamburger Hafen und Logistik AG Koenig & Bauer AG Carl Zeiss Meditec AG Cancom SE Vossloh AG SMA Solar Technology AG Software AG SGL Carbon SE which applies to all Executive Board members, at its The further development of the compensation meeting on June 25, 2019, effective July 1, 2019, i.e. system was also accompanied by an independent before the change in legal form came into force. compensation consultant and approximates existing market levels. In view of that, there was an increase The new compensation system for the Executive in fixed compensation, coupled with a change in the Board aimed to promote the company’s sustainable weighting of the individual components toward a development and largely comply with the anticipated long-term system, and in particular a clear separation objectives of SRD II and the German Corporate between short-term and long-term oriented com- Governance Code. The system also takes into pensation and the removal of fringe benefits from the account the fact that the Executive Board has overall variable compensation. A reinvestment of at least responsibility for managing the company’s business 35% (previously 20%) of its short-term variable com- and that the Executive Board compensation was last pensation in shares of KWS SAAT SE & Co. KGaA adjusted effective July 1, 2014. To ascertain whether is intended to ensure that the Executive Board is remuneration is in line with usual levels within the measured to a greater extent by, and has a greater company itself, the Supervisory Board took into financial stake in, the Company’s development account the relationship between the Executive geared toward long-term earnings. Board’s compensation and the compensation of senior managers and the workforce in Germany as KWS SE has conducted the business of a whole, and how compensation has developed SAAT SE & Co. KGaA since July 2, 2019. Under over time. In order to assess whether the specific Section 7 (4) of the Articles of Association of 2.6 Corporate Governance | Combined Management Report 65 KWS Group | Annual Report 2019/2020 KWS SAAT SE & Co. KGaA, the personally liable the KWS Group’s average net income for the year partner shall be compensated for all expenses in the assessment period, but at most €500,000. it incurs in connection with management of If the KWS Group’s sustained net income exceeds KWS SAAT SE & Co. KGaA’s business, including €100 million per annum in two successive years, the compensation for the members of its manage- the maximum one-year variable payment will be ment and supervisory bodies. In order to preserve increased to €600,000 as from the subsequent transparency, the new compensation system for fiscal year. The one-year variable payment is made the Executive Board of KWS SE was submitted for after submission of the consolidated financial state- approval to the Annual Shareholders’ Meeting of ments of KWS SAAT SE & Co. KGaA to the Annual KWS SAAT SE & Co. KGaA on December 17, 2019. Shareholders’ Meeting, i.e. usually in January. An The Annual Shareholders’ Meeting approved the individually determined amount for the multi-year new compensation system with a vote of 99.94% in variable payment is deducted from the total calcu- its favor. lated one-year variable payment; the remainder is paid out in cash. Salient features of the compensation system for members of the Executive Board of KWS SE, the Members of the Executive Board are obligated to managing partner of KWS SAAT SE & Co. KGaA acquire shares in KWS SAAT SE & Co. KGaA every The compensation system for Executive Board year in a freely selectable amount ranging between members is geared toward strategic planning and is 35% and 50% of their gross one-year variable pay- intended to support the company’s successful and ment (reinvestment). The acquired shares are subject sustainable development. to a holding period of five years as of when they are acquired (usually on the first stock market trading It comprises the following components: days of each January). „„ A basic fixed annual salary „„ A one-year variable payment The amount of this reinvestment by the Executive Board members forms the basis for the multi-year „„ A multi-year variable payment in the form of an variable payment. When the holding period ends, the incentive based on the stock price members of the Executive Board receive a multi-year „„ Fringe benefits (in particular pension benefits and variable payment calculated on the basis of the perfor- benefits in kind) mance of KWS SAAT SE & Co. KGaA’s stock and the KWS Group’s return on sales over the holding period. The gross basic annual salary is €375,000. The Chief Executive Officer receives an extra “CEO The following formula is used to calculate the multi- bonus” of 25% on top of the basic annual salary. year variable payment: average applicable share price of KWS SAAT SE & Co. KGaA multiplied by the The one-year variable payment is dependent on number of acquired shares, minus any markdowns the KWS Group’s earnings performance (“sustained based on the trend for average return on sales (ROS). net income”). The assessment period for that is the The goal of that is in particular to gear compensa- last three fiscal years before payment of the com- tion toward strategic planning and to support the ponent. The one-year variable payment is 0.5% of company’s successful and sustainable development. 66 Combined Management Report | 2.6 Corporate Governance Annual Report 2019/2020 | KWS Group The share price to be applied is determined on the basis of the average closing prices of KWS SAAT SE & Co. KGaA’s share in electronic trading on the Frankfurt Stock Exchange (Xetra) at the end of each quarter during the holding period. Maximum compensation in € Dr. Hagen Duenbostel Dr. Léon Broers Dr. Felix Büchting There is a markdown on the multi-year variable pay- Dr. Peter Hofmann ment if the average return on sales (ROS), i.e. the KWS Group’s operating income divided by net sales, Eva Kienle Total falls below 10% in the holding period. The segment reporting of the KWS Group (including the equity- 1,809,940.00 1,532,000.00 1,532,000.00 1,538,224.00 1,532,000.00 7,944,164.00 accounted companies) is the basis for determining Any payments made to an Executive Board member that. The markdown is 25% if the average ROS is due to early termination of their Executive Board less than 10%, 50% if the average ROS is less than activity will not exceed twice the annual compen- 9%, and 100% if the average ROS is less than 8%. sation (severance cap) and shall not constitute The multi-year variable payment is at most 150% the employment contract. If post-contractual non- of the reinvestment made by each Executive Board compete clauses apply, the severance payment will member and at most 200% in the case of the reinvest- not be taken into account in the calculation of any remuneration for more than the remaining term of ment made by the Chief Executive Officer. KWS SE compensation payments. can claim back the one-year variable payment and/or multi-year variable payment (clawback option). Significant agreements subject to the condition of a change in control pursuant to a takeover bid have Fringe benefits, such as means of transport and not been concluded. The compensation agreements communication, premiums for accident and D&O between the company and members of the Executive insurance, payments to discharge the employer’s con- Board of the personally liable partner and governing tribution to social insurance as well as various pension the case of a change in control stipulate that any commitments are granted without any modification. such compensation will be limited to the applicable maximum amounts specified by the German Applying the compensation system currently in force, Corporate Governance Code. An Executive Board the following maximum annual compensation is member is not entitled to severance payment if his or set for members of the Executive Board (given a one- her activity on the Executive Board ends by mutual year variable payment cap of €600,000). Apart from agreement at the request of the Executive Board or the basic salary and any CEO bonus, it consists of there are special grounds for the company to termi- the one-year variable payment, the multi-year variable nate the employment relationship. payment, fringe benefits and pension costs. If the contract with an Executive Board member Executive Board of KWS SE in fiscal 2019/2020 is terminated, the outstanding multi-year variable The total compensation to be reported for the payment components are calculated and disbursed Executive Board in accordance with Section 314 (1) immediately. No. 6a of the German Commercial Code (HGB) in Compensation for serving members of the 2.6 Corporate Governance | Combined Management Report 67 KWS Group | Annual Report 2019/2020conjunction with German Accounting Standard 15.6% (15.7%) by multi-year variable components. No. 17 (GAS 17) was €5,428 (4,316) thousand in fis- The tables below provide an overview of the total cal 2019/2020. 38.3% (35.2%) was accounted for compensation granted in the fiscal year on an indi- by the basic annual salary, including fringe benefits, vidualized basis (excluding pension costs) and in the 46.1% (47.1%) by one-year variable components and previous year by way of comparison: Total compensation for the Executive Board 2019/2020 in € Cash compensation LTI FV 1 Total LTI Basic compensation Fringe benefits Performance- related bonus Total Grant Cost Dr. Hagen Duenbostel 468,750.00 13,349.76 500,000.00 982,099.76 234,016.87 1,216,116.63 257,633.00 Dr. Léon Broers 375,000.00 25,801.42 500,000.00 900,801.42 235,209.96 1,136,011.38 253,567.66 Dr. Felix Büchting 375,000.00 21,923.70 500,000.00 896,923.70 47,610.13 944,533.83 5,084.50 Dr. Peter Hofmann 375,000.00 25,710.36 500,000.00 900,710.36 168,453.51 1,069,163.87 124,622.63 Eva Kienle Total 375,000.00 25,186.80 500,000.00 900,186.80 161,863.09 1,062,049.89 137,503.93 1,968,750.00 111,972.04 2,500,000.00 4,580,722.04 847,153.55 5,427,875.59 778,411.71 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 1 Long-Term-Incentive Fair Value 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 Since 2006, KWS has had a defined contribution Pension commitments plan for pensions for Executive Board members, in € which takes the form of an annual fixed contribution to a provident fund backed by a guarantee. In fiscal 2019/2020, €378 (342) thousand was paid for pension commitments to members of the Executive Board. Dr. Hagen Duenbostel Dr. Léon Broers Dr. Felix Büchting Dr. Peter Hofmann Eva Kienle Total 06/30/2020 90,000.00 72,000.00 72,000.00 72,000.00 72,000.00 378,000.00 68 Combined Management Report | 2.6 Corporate Governance Annual Report 2019/2020 | KWS Group Pension commitments in € Dr. Hagen Duenbostel Dr. Peter Hofmann Total 06/30/2020 06/30/2019 Interest expenses Revaluation effects 1,198,941.00 1,157,263.00 10,994.00 30,684.00 420,383.00 408,776.00 3,883.00 7,724.00 1,619,324.00 1,566,039.00 14,877.00 38,408.00 From when they began working for KWS, the Due to the transitional period (before mandatory Executive Board members Dr. Hagen Duenbos- application of the new SRD II for fiscal years start- tel and Dr. Peter Hofmann have also been given ing after December 31, 2020), we still refer for the a defined benefit pension commitment, which time being in the tables below to the recommenda- was concluded before 2006. The funds to cover tions in Clause 4.2.5 (3) of the German Corporate this commitment are allocated in the form of Governance Code (DCGK) in the version dated a pension provision on the basis of an expert February 7, 2017, and present the individual awards report. A  further €53 (275)  thousand was thus allo- and receipts for each member of the Executive Board. cated to the pension provisions in accordance with IAS 19 (of which €15 thousand was interest The target compensation, including the agreed expenses and €38  thousand from revaluation lower and upper limits, is shown under “Grant.” The effects). There were thus pension provisions totaling LTI grants are assessed at the present value at the €1,619 (1,566)  thousand for active members of the time of acquisition of the last tranche of shares. The Executive Board of KWS SAAT SE & Co. KGaA. details on the receipts show the same figures as under “Grant” for the fixed compensation and fringe Compensation of former members of the Executive benefits. The receipt for fiscal years 2019/2020 and Board and their surviving dependents amounted 2018/2019 (amounts paid) is stated for the one-year to €1,419 (1,479) thousand. Pension commitments variable payment (performance-related bonus), as is in accordance with IAS 19 (2011) recognized for the amount for the multi-year variable payments (LTI), this group of persons amounted to €7,140 (6,674) whose planned term ends in the year under review. In thousand as of June 30, 2020. The pension commit- turn, the pension costs are presented in accordance ments for three former members of the Executive with IAS 19 and does not constitute a receipt in the Board are backed by a guarantee. No loans were narrower sense, but serves to illustrate the overall granted to members of the Executive Board and the compensation. Supervisory Board in the year under review. 2.6 Corporate Governance | Combined Management Report 69 KWS Group | Annual Report 2019/2020Executive Board compensation in accordance with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Grant Receipt 2019/2020 2018/2019 2019/2020 2018/2019 Min. Max. Dr. Hagen Duenbostel (Chief Executive Office) Fixed payment Fringe benefits Subtotal 468,750.00 468,750.00 468,750.00 375,000.00 468,750.00 375,000.00 13,349.76 13,349.76 13,349.76 23,303.72 13,349.76 23,303.72 482,099.76 482,099.76 482,099.76 398,303.72 482,099.76 398,303.72 Performance-related bonus 500,000.00 0.00 500,000.00 476,696.28 500,000.00 476,696.28 Total cash compensation 982,099.76 482,099.76 982,099.76 875,000.00 982,099.76 875,000.00 Multi-year variable payment LTI 2012/2013 LTI 2013/2014 LTI 2017/2018 LTI 2018/2019 Subtotal Pension costs 1 240,018.58 286,808.20 226,736.74 234,016.87 0.00 474,245.18 1,216,116.63 482,099.76 1,456,344.94 1,101,736.74 1,268,907.96 1,115,018.58 100,994.00 100,994.00 100,994.00 105,492.00 100,994.00 105,492.00 Total compensation 1,317,110.63 583,093.76 1,557,338.94 1,207,228.74 1,369,901.96 1,220,510.58 Maximum compensation 2 1,609,940.00 1,765,000.00 Executive Board compensation in accordance with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Dr. Léon Broers Fixed payment Fringe benefits Subtotal Grant Receipt 2019/2020 2018/2019 2019/2020 2018/2019 Min. Max. 375,000.00 375,000.00 375,000.00 300,000.00 375,000.00 300,000.00 25,801.42 25,801.42 25,801.42 25,719.43 25,801.42 25,719.43 400,801.42 400,801.42 400,801.42 325,719.43 400,801.42 325,719.43 Performance-related bonus 500,000.00 0.00 500,000.00 474,280.57 500,000.00 474,280.57 Total cash compensation 900,801.42 400,801.42 900,801.42 800,000.00 900,801.42 800,000.00 Multi-year variable payment LTI 2012/2013 LTI 2013/2014 LTI 2017/2018 LTI 2018/2019 Subtotal Pension costs 1 238,837.67 257,461.80 225,966.40 235,209.96 0.00 357,497.28 1,136,011.38 400,801.42 1,258,298.70 1,025,966.40 1,158,263.22 1,038,837.67 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 Total compensation 1,208,011.38 472,801.42 1,330,298.70 1,097,966.40 1,230,263.22 1,110,837.67 Maximum compensation 2 1,357,000.00 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. 70 Combined Management Report | 2.6 Corporate Governance Annual Report 2019/2020 | KWS Group Executive Board compensation in accordance with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Grant Receipt 2019/2020 2018/2019 2019/2020 2018/2019 Min. Max. Dr. Felix Büchting (since 01/01/2019) Fixed payment Fringe benefits Subtotal 375,000.00 375,000.00 375,000.00 125,000.04 375,000.00 125,000.04 21,923.70 21,923.70 21,923.70 12,113.77 21,923.70 12,113.77 396,923.70 396,923.70 396,923.70 137,113.81 396,923.70 137,113.81 Performance-related bonus 500,000.00 0.00 500,000.00 137,886.23 500,000.00 137,886.23 Total cash compensation 896,923.70 396,923.70 896,923.70 275,000.04 896,923.70 275,000.04 Multi-year variable payment LTI 2012/2013 LTI 2013/2014 LTI 2017/2018 LTI 2018/2019 Subtotal Pension costs 1 0.00 0.00 0.00 47,610.13 0.00 72,362.98 944,533.83 396,923.70 969,286.68 275,000.04 896,923.70 275,000.04 72,000.00 72,000.00 72,000.00 36,000.00 72,000.00 36,000.00 Total compensation 1,016,533.83 468,923.70 1,041,286.68 311,000.04 968,923.70 311,000.04 Maximum compensation 2 1,357,000.00 423,500.00 Executive Board compensation in accordance with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Dr. Peter Hofmann Fixed payment Fringe benefits Subtotal Grant Receipt 2019/2020 2018/2019 2019/2020 2018/2019 Min. Max. 375,000.00 375,000.00 375,000.00 300,000.00 375,000.00 300,000.00 25,710.36 25,710.36 25,710.36 25,804.65 25,710.36 25,804.65 400,710.36 400,710.36 400,710.36 325,804.65 400,710.36 325,804.65 Performance-related bonus 500,000.00 0.00 500,000.00 474,195.35 500,000.00 474,195.35 Total cash compensation 900,710.36 400,710.36 900,710.36 800,000.00 900,710.36 800,000.00 Multi-year variable payment LTI 2012/2013 LTI 2013/2014 LTI 2017/2018 LTI 2018/2019 Subtotal Pension costs 1 168,453.51 0.00 256,033.68 158,176.48 1,069,163.87 400,710.36 1,156,744.04 958,176.48 900,710.36 800,000.00 75,883.00 75,883.00 75,883.00 77,810.00 75,883.00 77,810.00 0.00 0.00 Total compensation 1,145,046.87 476,593.36 1,232,627.04 1,035,986.48 976,593.36 877,810.00 Maximum compensation 2 1,363,224.00 1,247,000.00 1 In accordance with IAS 19R from commitments for pensions and other pension benefits; this relates to costs for the company, not the actual entitlement or payment. 2 The total compensation is limited individually to a maximum overall amount per fiscal year. 2.6 Corporate Governance | Combined Management Report 71 KWS Group | Annual Report 2019/2020 Executive Board compensation in accordance with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Eva Kienle Fixed payment Fringe benefits Subtotal Grant Receipt 2019/2020 2018/2019 2019/2020 2018/2019 Min. Max. 375,000.00 375,000.00 375,000.00 300,000.00 375,000.00 300,000.00 25,186.80 25,186.80 25,186.80 31,234.81 25,186.80 31,234.81 400,186.80 400,186.80 400,186.80 331,234.81 400,186.80 331,234.81 Performance-related bonus 500,000.00 0.00 500,000.00 468,765.19 500,000.00 468,765.19 Total cash compensation 900,186.80 400,186.80 900,186.80 800,000.00 900,186.80 800,000.00 Multi-year variable payment LTI 2012/2013 LTI 2013/2014 LTI 2017/2018 LTI 2018/2019 Subtotal Pension costs 1 64,743.62 155,608.68 0.00 161,863.09 0.00 246,016.85 1,062,049.89 400,186.80 1,146,203.65 955,608.68 964,930.42 800,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 Total compensation 1,134,049.89 472,186.80 1,218,203.65 1,027,608.68 1,036,930.42 872,000.00 Maximum compensation t 2 1,357,000.00 1,247,000.00 1 In accordance with IAS 19R from commitments for pensions and other pension benefits; this relates to costs for the company, not the actual entitlement or payment. 2 The total compensation is limited individually to a maximum overall amount per fiscal year. The table below shows the percentage change in for employees in Germany (per full-time equivalent the total compensation of Executive Board mem- (FTE)) over the past five fiscal years (2015/2016 to bers relative to EBIT and the average compensation 2019/2020). Development of compensation in € 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 Dr. Hagen Duenbostel 1,023,755 1,055,597 1,089,116 1,101,737 1,216,117 Change from the previous year in % 3.1% 3.2% 1.2% 10.4% Dr. Léon Broers 950,359 975,083 1,014,116 1,025,966 1,136,011 Change from the previous year in % 2.6% 4.0% Dr. Felix Büchting (from January 1, 2019) – Change from the previous year in % – – – – 1.2% 275,000 – 10.7% 944,534 243.5% Dr. Peter Hofmann 724,740 857,072 962,741 958,176 1,069,164 Change from the previous year in % 18.3% 12.3% –0.5% 11.6% Eva Kienle 831,862 884,198 949,977 955,609 1,062,050 Change from the previous year in % 6.3% 7.4% 0.6% 11.1% EBIT in € millions Change from the previous year in % Average employee compensation per FTE (Germany) 1 112.8 64,526 131.6 16.7% 67,448 132.6 0.8% 68,413 150.0 13.1% 69,039 137.4 –8.4% 72,733 Change from the previous year in % 4.5% 1.4% 0.9% 5.4% 1 Without Executive Board 72 Combined Management Report | 2.6 Corporate Governance Annual Report 2019/2020 | KWS Group Overall target compensation for the Executive performance, means that the Supervisory Board can Board in fiscal 2020/2021 better exercise its control function. The compen- The Supervisory Board has defined a specific overall sation system for the Supervisory Board complies target compensation for each member of the Executive with the recommendations of the German Corporate Board in fiscal 2020/2021. It is in reasonable propor- Governance Code. tion to the tasks and performance of the Executive Board member and the company’s situation. The The members of the Supervisory Board receive a overall target compensation includes the gross fixed annual payment of €60,000 for their work. The basic annual salary of €375,000. The Chief Executive Chairperson receives three times and the Deputy Officer receives an extra “CEO bonus” of 25% on Chairperson one-and-a-half times said amount. top of the basic annual salary. In addition, the over- Members of the Supervisory Board receive separate all compensation is to include a one-year variable payment for their work on committees; the Chair- payment of 0.5% of the KWS Group’s average net person of the Supervisory Board does not receive income for the past two fiscal years and take into additional compensation for his or her work on com- account the net income budgeted for the current mittees. Members of the Supervisory Board who are fiscal year – but at most €500,000 – if the targets members of a committee receive an additional pay- are fully achieved. The one-year variable payment ment of €10,000 therefor. The Chairperson of a com- for fiscal 2020/2021 will be limited by this maximum mittee receives two times said amount. The additional amount, taking into account the budget assump- compensation for members of the Audit Committee tions. As regards the multi-year variable payment, is €20,000. The Chairperson of the Audit Committee members of the Executive Board are obligated receives three times said amount. Additional com- to reinvest a percentage of their (gross) one-year pensation is owed only for participation in one com- variable payment in shares in KWS SAAT SE & Co. mittee, namely at the amount that is the highest to KGaA. That can be between 35% and 50% of their which the member in question is entitled for his or her (gross) one-year variable payment, which means that work on a committee. If a person is a member of the a concrete target cannot be defined here. However, Supervisory Board or a committee or holds the office the multi-year variable payment is at most 150% of of Chairperson or Deputy Chairperson of the Super- the reinvestment made by each Executive Board visory Board or Chairperson of a committee for only member and at most 200% in the case of the rein- part of the fiscal year or if a fiscal year is shorter than vestment made by the Chief Executive Officer. the calendar year, the payment is granted only on a pro rata temporis basis. Members of the Supervisory Compensation for members of the Supervisory Board also receive reimbursement of their expenses Board of KWS SAAT SE & Co. KGaA incurred in connection with exercise of their office The compensation for members of the Supervisory and, up to the end of 2019, the value-added tax due Board is governed by the Articles of Association on their payment and on their expenses. and is based on the size of the company and their duties and responsibilities. The company believes The total compensation for members of the Super- that the fixed compensation structure, which is visory Board of KWS SAAT SE & Co. KGaA in the therefore no longer linked to the company’s business year under review was €620 (620) thousand. 2.6 Corporate Governance | Combined Management Report 73 KWS Group | Annual Report 2019/2020Total compensation of the Supervisory Board of KWS SAAT SE & Co. KGaA in € Dr. Andreas J. Büchting 1 Dr. Marie Theres Schnell 2 Victor W. Balli 3 Jürgen Bolduan Cathrina Claas-Mühlhäuser Christine Coenen 1 Chairman 2 Deputy Chairwoman 3 Chairman of the Audit Committee Fixed 180,000.00 90,000.00 60,000.00 60,000.00 60,000.00 60,000.00 Work on committees 0.00 20,000.00 60,000.00 20,000.00 10,000.00 0.00 Total 2019/2020 180,000.00 110,000.00 120,000.00 80,000.00 70,000.00 60,000.00 Total 2018/2019 180,000.00 110,000.00 120,000.00 80,000.00 70,000.00 60,000.00 510,000.00 110,000.00 620,000.00 620,000.00 Total compensation of the Supervisory Board of KWS SE in € Dr. Andreas J. Büchting 1 Dr. Marie Theres Schnell 2 Victor W. Balli Cathrina Claas-Mühlhäuser 1 Chairman 2 Deputy Chairwoman Fixed Attendance fee 60,000.00 45,000.00 30,000.00 30,000.00 0.00 0.00 20,000.00 0.00 Total 2019/2020 60,000.00 45,000.00 50,000.00 30,000.00 165,000.00 20,000.00 185,000.00 The total compensation for members of the Super- 33,000,000 bearer shares. The change in the legal visory Board of KWS SE in the year under review form of KWS SAAT SE (as the company was then was €185 thousand. named) to that of a partnership limited by shares (KWS SAAT SE & Co. KGaA) took effect upon its 2.6.5 Explanatory Report of the entry in the commercial register on July 2, 2019. Personally Liable Partner (KWS SE) Pursuant to the resolution adopted by the Annual of KWS SAAT SE & Co. KGaA in Accordance Shareholders’ Meeting of KWS SAAT SE (as the with Section 176 (1) Sentence 1 AktG (Ger- company was then named), the shareholders man Stock Corporation Act) on the Disclo- received one share in KWS SAAT SE & Co. KGaA for sures in Accordance with Section 289a (1) each share they held in KWS SAAT SE. The com- and Section 315a (1) HGB (German Commer- pany’s capital stock remained unchanged, so the cial Code) subscribed capital of KWS SAAT SE & Co. KGaA The change in KWS SAAT SE’s legal form to that is still €99,000,000.00 at present. It is divided into of a partnership limited by shares (KWS SAAT SE 33,000,000 bearer shares. The pro-rata share of & Co. KGaA) took effect upon its entry in the com- each share in the capital stock is €3.00. Each share mercial register on July 2, 2019. The personally grants the holder the right to cast one vote at the liable partner of KWS SAAT SE & Co. KGaA pro- Annual Shareholders’ Meeting. The rights of share- vides the following explanation on the disclosures holders are governed by the German Stock Corpora- in accordance with Section 289a (1) and Section tion Act (AktG) and the Articles of Association. 315a (1) HGB (German Commercial Code): Composition of the subscribed capital transfer of shares At July 1, 2019, the subscribed capital of There may be restrictions relating to voting rights or KWS SAAT SE (as the company was then named) the transfer of shares as a result of statutory or con- was €99,000,000.00 and was divided into tractual provisions. For example, shareholders are Restrictions relating to voting rights or the 74 Combined Management Report | 2.6 Corporate Governance Annual Report 2019/2020 | KWS Groupbarred from voting under certain conditions pursuant „„ Annette Büchting, Germany to Section 136 of the German Stock Corporation „„ Stephan O. Büchting, Germany Act (AktG) in conjunction with Section 278 (3) of the „„ Christa Nagel, Germany German Stock Corporation Act (AktG) or Section 44 „„ Matthias Sohnemann, Germany of the German Securities Trading Act (WpHG); the „„ Malte Sohnemann, Germany bars on voting pursuant to Section 285 of the German „„ Arne Sohnemann, Germany Stock Corporation Act (AktG) must also be observed „„ AKB Stiftung, Hanover for personally liable partners at a partnership limited „„ Büchting Beteiligungsgesellschaft mbH, Hanover by shares (KGaA). In addition, no voting rights accrue „„ Zukunftsstiftung Jugend, Umwelt und Kultur, Einbeck to the company on the basis of the shares it holds „„ RETOKE Holding Vermögensverwaltungs- (Section 71b AktG). gesellschaft mbH & Co. KG, Bad Schwartau „„ Dr. Marie Th. Schnell, Germany The personally liable partner is not aware of any con- „„ Johanna Sophie Oetker, Germany tractual restrictions relating to voting rights or transfer „„ Leopold Heinrich Oetker, Germany of shares. If there are no restrictions on voting rights, „„ Clara Christina Oetker, Germany all shareholders who register for the Annual Share- „„ Ludwig August Oetker, Germany holders’ Meeting in time and have submitted proof of their authorization to participate in the Annual The voting shares of the shareholder named below, Shareholders’ Meeting and exercise their voting rights including mutual allocations, of the members, com- are authorized to exercise the voting rights conferred panies and foundations of the families Büchting and by all the shares they hold and have registered. If Arend Oetker listed above exceed 10% and total members of the Executive Board of the personally 55.3% for: liable partner or executive employees of the company have acquired shares as part of the long-term incen- „„ Dr. Arend Oetker, Germany tive programs, these shares are subject to a lock-up period until the end of the fifth year after the end of The voting shares, including mutual allocations, of the quarter in which they were acquired. The lock-up the shareholders stated below each exceed 10% and period for shares that employees have acquired as total 15.4%. part of the Employee Stock Purchase Plans runs until the end of the fourth year as of when they are posted „„ Hans-Joachim Tessner, Germany to the employee’s securities account. „„ Tessner Beteiligungs GmbH, Goslar „„ Tessner Holding KG, Goslar Direct and indirect participating interests in excess of 10% of the voting rights Shares with special rights and voting control The company has been informed by shareholders of Shares with special rights that grant powers of con- the following direct or indirect participating interests trol have not been issued by the company. There is in the capital of KWS SAAT SE & Co. KGaA in excess no special type of voting control for the participating of 10% of the voting rights in accordance with interests of employees. Employees who have an Section 33 and Section 34 of the German Securities interest in the company’s capital exercise their con- Trading Act (WpHG) or elsewhere. trol rights in the same way as other shareholders. The voting shares, including mutual allocations, of Appointment and removal of management the members, companies and foundations of the The personally liable partner, KWS SE, is responsi- families Büchting and Arend Oetker listed below ble for managing the business of KWS SAAT SE & each exceed 10% and total 54.4%: Co. KGaA under Section 7.2 of the Articles of Associ- „„ Dr. Drs. h. c. Andreas J. Büchting, Germany „„ Christiane Stratmann, Germany „„ Dorothea Schuppert, Germany ation of KWS SAAT SE & Co. KGaA. In accordance with Section 6 (3) of the Articles of Association of KWS SAAT SE & Co. KGaA, the per- „„ Michael C.-E. Büchting, Germany sonally liable partner shall leave the Company if the 2.6 Corporate Governance | Combined Management Report 75 KWS Group | Annual Report 2019/2020majority of shares in the personally liable partner can Amendments to the Articles of Association no longer be held directly and/or indirectly for a time Amendments to the company’s Articles of Associ- longer than 30 calendar days by persons who hold a ation are made pursuant to a resolution adopted by combined total of more than 15% of the Company’s the Annual Shareholders’ Meeting in accordance capital stock directly and/or indirectly through a with Section 278 (3) in conjunction with Section 179 company that is dependent in accordance with of the German Stock Corporation Act (AktG) Section Section 17 (1) of the German Stock Corporation Act 285 (2) Sentence 1 of the German Stock Corporation (AktG) or is controlled in accordance with Section Act (AktG) stipulates that amendments to the Articles 290 (2) of the German Commercial Code (HGB). This of Association require the approval of the personally shall not apply if all shares in the personally liable liable partner. partner are held by the Company. In accordance with Section 133 and Section 179 (2) Furthermore, Section 6 (4) of the Articles of Associa- of the German Stock Corporation Act (AktG) and tion of KWS SAAT SE & Co. KGaA stipulate that the Section 18 (1) of the Articles of Association of personally liable partner shall leave the Company if KWS SAAT SE & Co. KGaA, a resolution by the a person who is not a family shareholder (acquiring Annual Shareholders’ Meeting to amend the Articles party) obtains control over the personally liable partner of Association must be adopted by a simple majority directly or indirectly (acquisition of control) and does of the votes cast and a simple majority of the capital not submit to the Company’s limited partners a take- stock represented in adoption of the resolution. over or mandatory offer in accordance with this provi- sion and otherwise in accordance with the provisions The power to make amendments to the Articles of in the German Securities Acquisition and Takeover Act Association that only affect the wording (Section 179 (1) (WpÜG) within three months of acquisition of control. Sentence 2 AktG) has been conferred on the Supervi- sory Board in accordance with Section 22 of the Arti- Under Section 6.5 of the Articles of Association of cles of Association of KWS SAAT SE & Co. KGaA. KWS SAAT SE & Co. KGaA, the personally liable part- ner shall also leave the Company by means of termi- Powers of the Executive Board, in particular in nation. Notice of termination shall be given to all the relation to issuing or buying back shares limited partners at the Annual Shareholders’ Meeting. The Executive Board of the personally liable partner Outside of the Annual Shareholders’ Meeting, notice does not currently have any powers within the mean- of termination shall be given to the Chairperson of the ing of Section 289a (1) Sentence 1 No. 7 and Section Supervisory Board or his or her deputy. The notice 315a (1) Sentence 1 No. 7 of the German Commercial of termination shall be at least six months before the Code (HGB) in the version currently applicable pur- end of and effective the end of a fiscal year. suant to Article 83 (1) of the Introductory Act to the German Commercial Code (EGHGB), in particular The other statutory grounds for the personally liable any authorization to issue or buy back shares. partner leaving the Company shall remain unaffected. Significant agreements in the event of a change The members of the Executive Board of the per- of control, compensation agreements sonally liable partner, which is responsible for man- Significant agreements subject to the condition of aging the company’s business, are appointed and a change in control pursuant to a takeover bid have removed by the Supervisory Board of the personally not been concluded. The compensation agreements liable partner, KWS SE. Pursuant to Article 46 (1) between the company and members of the Executive of  Council Regulation (EC) 2157/2001 in conjunction Board of the personally liable partner and govern- with Section 6 of the Articles of Association of ing the case of a change in control stipulate that KWS SE, members of the Executive Board are any such compensation will be limited to the maxi- appointed for a maximum period of six years. Mem- mum amounts specified by the German Corporate bers may be reappointed. Governance Code (DCGK). 76 Combined Management Report | 2.6 Corporate Governance Annual Report 2019/2020 | KWS GroupHybrid rye is one of the strategic growth areas in the Cereals Segment. Our research and breeding activities focus on markets in Eastern Europe and North America. 2.6 Corporate Governance | Combined Management Report 77 KWS Group | Annual Report 2019/20202.7 Opportunity and Risk Report As an international plant breeding company, the production capacities, research & development KWS Group operates in a dynamically changing activities, and expansion of distribution. environment. That results in risks as well as opportu- nities, which we have to weigh as the foundation for We see diverse opportunities for the KWS Group to our entrepreneurial decisions. develop the company further in line with our strategy. To succeed in achieving sustainable, profitable 2.7.1 Opportunity Management growth in the future as well, our prime goal must be We understand an opportunity as a development to retain and increase our innovativeness. The plants’ that might have a positive impact on our earnings, yield potential can be increased, resource efficiency financial position and assets and has not yet been can be enhanced or their resistance to detrimental reflected fully or at all in the company’s financial influences, of whatever type, can be improved. planning. At the KWS Group, opportunity man- agement is an integral component of the estab- There are also market opportunities as a result of our lished controlling system between the subsidiaries/ activities in tropical regions. Our corn activities in associated companies and company management. Brazil and China will enable us to tap additional sales Strategic opportunities of major importance, such as potential for the KWS Group in the medium to long joint ventures and acquisitions, are jointly discussed term, including in other tropical markets, by develop- by the KWS Group’s Executive Board. ing varieties tailored to their climatic conditions. Operational opportunities are identified and Investing in expansion of our production capacities exploited in the Business Units of the segments, and modernization of our seed processing offers since they have the most extensive knowledge of opportunities in existing and adjacent markets. Fur- their markets and products. Targeted measures ther development of our variety portfolio and expan- are formulated together with the Executive Board sion of capacities are accompanied by expansion so that strengths can be leveraged and strategic of our international distribution structures to enable growth potentials tapped. Extensive strategic plan- tailored information and advice for our customers ning covering a ten-year time frame is the basis on the possible uses of our seed and so allow us to for opportunity management. In keeping with our leverage further sales potential. In addition, continu- earnings -oriented growth strategy, we exploit ous optimization of processes offers the KWS Group the industry-specific and strategic opportunities the opportunity to increase productivity, improve that arise by means of pinpointed investments in cost structures and drive digitization. 78 Combined Management Report | 2.7 Opportunity and Risk Report Annual Report 2019/2020 | KWS Group 2.7.2 Risk Management and outside the Group, that may have a negative impact on achievement of our corporate objectives Adjustments to the risk management system and have not yet been reflected fully or at all in the As announced in the previous year, we made orga- company’s financial planning. Deliberate risks can nizational adjustments to and further developed our be taken if that offers opportunities to achieve the risk management system and related processes in company’s objectives. If there are risks that do not the year under review. We now report our risks taking harbor opportunities in return, they must be avoided into account countermeasures (i.e. in terms of net or their impact must be mitigated as best possible risk) and using new risk types and categories. from the cost-benefit perspective. Our definition of risks also includes potential negative impacts The main aspects and players in risk of our business activities, products and supply management at KWS chain on the environment and society so that they Weighing up opportunities and risks is an integral can be addressed adequately in our management part of all decision-making at our company. We processes. The departments assess opportunities strive to address risks openly and proactively. as part of their everyday operations or strategic We understand the term “risks” as denoting all planning. These opportunities are not part of our events and potential developments, both inside risk management. Players and systems in managing risks at KWS Supervisory Board Executive Board Risk Committee Central Risk Management Business areas Controls and monitoring Independent controls „„ Business Units „„ Controlling „„ Internal Audits „„ Research & Development (incl. early risk warning) „„ Global and Group functions incl. „„ Control system Transaction Center Financial Reporting „„ Compliance Management „„ Risk Management „„ Other systems (e.g. Quality Management, Stewardship, etc.) KWS Governance (vision, mission, cornerstones, group standards, etc.) 2.7 Opportunity and Risk Report | Combined Management Report 79 KWS Group | Annual Report 2019/2020The Executive Board is responsible for group- Our risk management system is based on the wide risk management. The Supervisory Board or internationally recognized COSO II model (Commit- the Audit Committee review the risk management tee of Sponsoring Organizations of the Treadway system at least once a year to assess its suitabil- Commission). Its objective is to implement a consis- ity and effectiveness. It is assisted in that by the tent, continuous and group-wide risk management independent auditor of the financial statements as process in which all divisions (Business Units, Group part of the latter’s statutory audit assignment. The Functions, Global Functions, R&D, and the Managing Risk Committee consists of representatives from all Directors of significant subsidiaries) are integrated. divisions who have a good knowledge of the issue Our risk management process consists of the phases of risks. It convenes at least twice a year, discusses of identification, assessment, control, documen- and reviews the risks maintained in the risk manage- tation, monitoring of risks and risk reporting. It is ment system and measures to control them, and for- conducted regularly, but at least twice a year. As part mulates recommendations for the Executive Board, of risk identification, we record individual risks on an if necessary. Responsibility for identifying, assessing electronic platform and assess them qualitatively or and controlling risks lies with the divisions, while quantitatively on the basis of group-wide standards, central risk management coordinates the processes taking into account countermeasures. As part of that, and ensures reporting to the Executive Board. we calculate expected monetary values where pos- Other roles in our risk management are specified in sible and classify them as “moderate”, “relevant” and the chart “Players and systems in managing risks “significant.” We take into account linkages between at KWS.” risks in assessing the likelihood of their occurrence. The individual risks are classified as below as part of assessment: Scheme for assessing individual risks Likelihood of occurrence Unlikely < 10% Possible 10% – 50% Likely 50% – 90% Almost certain ≥ 90% ) Very low T B E > €0.1 million – €3.0 million  ( t c a p m i l i a c n a n F i Low €3 million – €7.5 million  Medium €7.5 million – €15 million High ≥ €15 million  80 Combined Management Report | 2.7 Opportunity and Risk Report Annual Report 2019/2020 | KWS Group Risk classification for single risks Risk classes Expected loss value Moderate < €1 million  The internal control and risk management system in relation to the accounting process is the respon- sibility of Global Finance and comprises structures and processes that enable proper and effective accounting Relevant > €1 million – ≤ €5 million and financial reporting. That includes the ensuring that Significant ≥ €5 million and/or critical health risks business transactions are included in accounting con- sistently, promptly and correctly and that all statutory accounting regulations, standards and internal guidelines are implemented throughout the Group. A consistent We decide systematically on what appropriate system that is subject to the Group’s regulations on countermeasures to take to manage risks. They may accounting makes it easier to ensure that the consoli- be measures to reduce risks, constant monitoring dated financial statements comply with the rules. The of them or taking out insurance, for example. The following are examined regularly: the completeness of KWS Group’s current risk situation is aggregated by financial reporting, the Group’s uniform accounting, mea- central risk management into risk types and cate- surement and account allocation stipulations, and the gories and reported first to the Risk Committee. On authorization and access regulations for IT systems used that basis, the Risk Committee discusses how to in accounting. Intra-Group transactions are consolidated deal with the risks and submits recommendations appropriately and in full. to the Executive Board. Central risk management coordinates the entire risk management process and The KWS Compliance Management System is used to supports the departments in their tasks. control all aspects and areas of compliance work that are the responsibility of the Group Compliance Office. The Control and monitoring systems (includes the system is based on seven criteria in accordance with IDW report in accordance with Section 315 (4) of the PS 980: culture, objectives, risks, program, organization, German Commercial Code (HGB)) communication and monitoring. In order to continuously We meet the statutory requirements for develop the system further, we primarily use findings from early  detection of risks with our controlling and risk compliance risk assessments and auditing projects. management processes. As part of its audit of the annual financial statements for fiscal year 2019/2020, Internal auditing is the responsibility of Global Finance Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft and is carried out by an external service provider. The confirmed the working order of our system for early topics in an audit are defined annually on a risk- oriented detection of risks in accordance with Section 91 (2) of and process-independent basis. Their status is the German Stock Corporation Act (AktG). reported – likewise annually – to the Audit Committee. 2.7 Opportunity and Risk Report | Combined Management Report 81 KWS Group | Annual Report 2019/2020 Risk types and categories for aggregating risks Risk type Risk category Operational risks „„ IT „„ Product quality „„ Production, business interruption „„ Health, safety, environment „„ Projects, corporate organization, process management „„ Human resources „„ Tax risks „„ Liquidity risks „„ Currency risks „„ Receivables risks Finance and capital markts Politics and legal „„ Compliance Markets and competition „„ IP „„ General legal risks „„ Political instability „„ Regulatory risks „„ Acreage and price developments „„ Competition and business partners Current Risk Classification 1 Tendency Substantial Substantial Substantial Substantial Medium Medium Noticeable Medium Medium Low Noticeable Medium Low Low Low Medium Medium Strategic risks „„ Innovation Noticeable 1 The current risk classification is no longer comparable with that of the previous year, see paragraph on the adjustment of the risk management system. The changes in the trends of the risk categories are mainly determined by the impact of the Covid-19 pandemic. Risk situation at the KWS Group Risk classification for aggregated risk categories In this section, we give a summary of significant and relevant individual risks – by type and cate- Risk classes Total expected loss values single risks gory and after mitigation measures – with at least moderate net financial damage. The sequence of Low Medium ≤ €3 million  > €3 million – €8 million  the risk types is based on the aggregated expected Noticeable > €8 million – €15 million monetary values of the identified risks. There are currently no non-financial risks whose occurrence Substantial ≥ €15 million and/or critical health risks is very likely and entail serious impacts on aspects that require reporting in accordance with the German Commercial Code. The adaptations mean that the risk categories can no longer be compared directly with those of the previ- ous year. The changes in the risk situation from the previous year are addressed in the overall statement on the risk situation by the Executive Board. 82 Combined Management Report | 2.7 Opportunity and Risk Report Annual Report 2019/2020 | KWS GroupReconciliation risk categories Risk categories 2018/2019 Included potential risks 2018/2019 (examples) Risk types 2019/2020 Risk categories 2019/2020 Market risks „„ Geo- and agricultural policy, Politics and law Regulatory risks Regulatory risks, Political instability „„ Variety performance Strategic risks Innovation „„ Competitive environment Markets and competition Markets and competition „„ Currency risks Finance and capital market Currency risks Production risks „„ Seed production Operational risks Production, „„ Business interruption Operational risks Production, business interruptions Product risks „„ Purity of the flows of goods Operational risks „„ Seed quality Operational risks business interruptions Product quality Product qualityt Legal risks „„ Official proceedings, Politics and law General legal risks „„ Access to technology Markets and competition Competition and business partners legal disputes „„ Breach of compliance Politics and law Compliance requirements Personnel risks „„ Qualified and timely filling Operational risks Human resources of vacancies IT risks „„ IT system failures/breakdown Operational risks „„ Access control Operational risks IT IT Liquidity risks „„ Liquidity risks Finance and capital market Liquidity risks Environmental and social risks „„ Environmental risks Operational risks Health, safety, environment Procurement risks „„ Procurement risks Operational risks Procurement (currently moderate) The effects of the Covid-19 pandemic are explained for optimization measures on the basis of their risk separately in the overall statement on the risk situa- assessment. Uncontrolled and/or undetected loss tion by the Executive Board. and damage as a result of hacking and malware are Operational risks IT still possible even if very good precautionary mea- sures are in place. The KWS Group’s business and production pro- Product quality cesses, as well as its internal and external commu- We have established detailed checks and tests to nications, are run on globally networked IT systems. determine the performance and quality of our seed. Attacks or outages can lead to a loss of confidenti- Quality controls, such as germination and sprouting ality, availability, integrity and/or authenticity of data, strength tests, are conducted at all stages of pro- information and systems. That harbors significant duction. These checks and tests are also intended risks, such as loss of know-how, data manipulation, to reduce risks such as claims for damages due to loss of personal data and loss of image, which we product liability, which may be significant, espe- reduce by means of organizational and technical cially in Anglo-American jurisdictions. We also have measures. IT service providers constantly examine product liability insurance to defend against unjus- our IT security so as to issue recommendations tified claims and to settle justified claims. Very strict 2.7 Opportunity and Risk Report | Combined Management Report 83 KWS Group | Annual Report 2019/2020requirements must be met regarding management Projects, company organization, of genetically modified products, in particular, to process management prevent GMOs becoming mixed with conventional So that we can continue to grow profitably and sus- seed. KWS is a member of the “Excellence Through tainably with the support of an efficient organization Stewardship” (ETS) initiative, an internationally stan- and harmonized processes, we regularly review dardized quality management program. their adequacy and realign them where necessary. A realignment may entail integration risks (M&As), for Production, interruptions to business operations example, or temporarily result in process inefficiencies KWS uses technically complex seed processing or unplanned costs. Our measures to counter these plants. Interruptions to business operations may risks include the establishment of specialized func- have a negative impact on the volumes that are tions (such as M&A experts) or a new standard pro- available for sale and represent significant risks, cess model for the transformed administrative units. especially if they occur in our sales season. In order to reduce these risks, we conduct regular risk Human Resources inspections, carry out preventive maintenance, and Our HR strategy aims to recruit and keep qualified have Group-wide property and business interruption employees at KWS long term, as well as to offer insurance. them further development opportunities that reflect our and their needs. That may result in the risk of Seed multiplication is dependent on the weather. not being able to fill vacancies promptly or of losing We reduce the risk of crop failures by multiplying employees. We counter this risk by continuously seed – depending on the crop – in separate locations further developing our HR strategy. Among other and regions in Europe, North and South America things, we are committed to growing our brand as an and Asia. We can carry out contra-seasonal multi- attractive employer, fostering talents, and expanding plication in the winter half-year in the southern hemi- the KWS Group to new locations near where appro- sphere if there are bottlenecks in the volume of seed priate resources are available (science clusters such produced. as St. Louis and urban centers like Berlin). However, short-term compensatory measures may be applied Health, safety and environment to counter personnel risks. Accidents, technical problems or misconduct in our business processes may result in injury to persons Finance and capital markets and environmental damage and are significant risks. Tax risks One measure we have taken to reduce these risks is to KWS operates in about 70 countries and is therefore implement a new global health, safety and environment subject to an array of complex national tax require- standard, which a newly created Central Function will ments and laws. Changes that are not detected in keep on developing. time and/or incomplete implementation of tax law, court rulings and interpretations by the fiscal author- The health effects of the Covid-19 pandemic are ities may have an effect on tax assets and liabilities, explained separately in the overall statement on the risk as well as on deferred tax liabilities. That can result situation by the Executive Board. in significant risks, which we counter by continuously 84 Combined Management Report | 2.7 Opportunity and Risk Report Annual Report 2019/2020 | KWS Groupidentifying and assessing the tax framework and by could suffer losses. We reduce such credit risks central coordination through our Finance depart- through conservative receivables management and, ment. If necessary, tax provisions are formed on the where possible and expedient, by means of credit basis of estimates. insurance. Liquidity Politics and the law The overriding goal of our liquidity management is Compliance to ensure we meet our payment obligations on time. We are exposed to potential compliance risks, for External factors, such as global crises, may restrict example under antitrust, competition and anti- the availability of credit lines and/or mean we can corruption law and data protection requirements. only obtain economically disadvantageous terms Violations of statutory requirements may have con- and conditions. Our central Treasury department sequences under criminal and civil law, including determines what funding we require in its liquidity fines and other financial disadvantages. Under our planning and covers those needs by providing cash, compliance policy, the Code of Business Ethics and promised credit lines and other financial instruments. our Group Standards, we obligate our managers We have agreed customary financial covenants for and employees to undertake to act in accordance part of these promised credit lines. If these cove- with laws, contracts, internal guidelines and our nants are breached, the lender has the right to termi- corporate values and raise their awareness in this nate the agreement. Currency risks regard. We rigorously investigate and prosecute fraudulent activities inside and outside the company. Our Group Standards define general security stan- Currency risks arise in particular from receivables dards and enable a prophylactic approach. Regular and liabilities denominated in foreign currency. communication, instruction and training are intended We address currency risks to a reasonable extent to ensure compliance. As is expressly pointed out, through the usual hedging instruments, to reduce sanctions are imposed if our compliance regulations the influence on the KWS Group’s earnings and are violated. assets situation. In fiscal 2019/2020, we hedged our research & development expenditure and intra-group IP loans to a large part in order to avoid currency risks. Protecting intellectual property is vital to companies We also reduce our transaction risks by means of that conduct research if they wish to preserve their natural hedging, incurring expenses in the same freedom of action and keep on generating value. The currency in which we generate revenue. seed-specific property rights under “variety protec- tion” ensure they are compensated for the years-long Risk of counterparty defaults process of research, breeding and development of We have extensive business relationships with var- new varieties and that third parties cannot market the ious customer groups – from the sugar industry, same variety at no costs to themselves. KWS uses agricultural wholesalers to individual farmers. If, patents to protect certain plant traits, in particular in particular, large customers are not able to meet if they have been developed or produced by means their contractual payment obligations to us, we of technical methods. In order to secure its freedom 2.7 Opportunity and Risk Report | Combined Management Report 85 KWS Group | Annual Report 2019/2020of action and avoid infringing third-party proprietary internationalization of our research – without reducing rights, KWS has implemented far-reaching due dili- our commitment in the EU. gence processes throughout the company. General legal risks Markets and competition Cultivation areas and price trends KWS faces risks from official proceedings and legal Slight declines and shifts in cultivation area are disputes. Legal disputes are possible with suppliers, commonplace in agriculture and usually have no licensors, customers, employees, lenders and inves- significant net impact on our business success. tors and may result in payments or other obligations. Extreme changes in cultivation area – in particular There were no legal proceedings involving significant where they affect strategically important crops and amounts in fiscal 2019/2020. markets – have the potential to impact our market Political instability success significantly. They may be caused by fac- tors such as a sudden drop in agricultural prices KWS faces political risks in many countries in the due to global crises or extreme weather events, strongly regulated international agricultural industry. or may be the consequence of high inventories Geopolitical insecurities in the Middle East and the still as a result of good harvests. We counter such strained situation in Eastern Europe may also have a risks in the medium and long term by diversifying negative impact on our business activities. Important our product portfolio and expanding our market growth countries such as China are confronted with footprint. Risks from changes in cultivation area are trade disputes. As things stand at present, the United impossible or difficult to reduce in the short term, Kingdom’s withdrawal from the EU will not have any but usually impact all market players alike. More- significant impact on our business, even if an agree- over, weather risks can often be insured against ment on the details for Brexit is not reached. only at economically unfavorable terms and condi- Regulatory risks tions, if at all. As part of modern agriculture and as an innovative Competition and business partners plant breeding company, KWS also uses state- Strong competitive pressure, such as that due of-the-art breeding technologies to develop new, to aggressive pricing strategies by other market resource-conserving varieties. There is still a negative players, may have a negative impact on our business perception of new breeding technologies among the success. In particular, good local variety perfor- general public, despite the high standards in force mance is the most effective means of protecting and scientific facts to the contrary. New breeding against that. Acquisition or licensing of technol- technologies could speed up variety develop and ogies – such as genetically modified traits – is improve its precision. The EU continues to impose customary in the industry and necessary in markets tougher regulations on important research technol- such as North or South America. We strive to reduce ogies and restrict the use of established operating the related risks by developing our own innovations, resources. We conduct an intensive dialog with all which may also be attractive to competitors, and stakeholders on this issue and are increasing the through long-term license agreements. 86 Combined Management Report | 2.7 Opportunity and Risk Report Annual Report 2019/2020 | KWS GroupStrategic risks Innovation educational work through the provision of concise information. Apart from the health risks, KWS’ busi- We pursue our key strategic objective – profitable ness could be impacted in particular in the following growth – by offering tailored, innovative products – areas: the absence of staff due to infection or quar- new plant varieties that cope with local cultivation antine measures, seed multiplication and logistics, conditions, and deliver high yields, yet help conserve demand, cultivation area and market prices, credit- resources. Our complex research and breeding worthiness of customers and suppliers, capital mar- processes are subject to risks that may result in kets and exchange rates. We assess the risks from local weakness in our portfolio. They include internal official lockdowns as being low due to the fact that factors, such as technical problems and process we operate in the food industry. delays, and external factors such as climate change, new diseases or restrictions on the use of operating The areas of the company that may potentially be resources. The varieties we develop must meet high affected are continuously monitored by the respon- quality requirements. The performance of our variet- sible functions. All developments are assessed ies is reassessed every year by management and the and reported in combined form to the Executive Supervisory Board so that we can respond immedi- Board every month. Where possible, existing risks ately to weaknesses in our portfolio if necessary. have been minimized by local and global counter- measures. Infections can still continue spreading Our strategy processes are oriented toward iden- dynamically and we have also taken prophylactic tifying future opportunities in good time and trans- measures to counter that by drawing up a conserva- lating them into innovative company processes. We tive budget for fiscal 2020/2021. conduct strategic planning regularly and across the whole group. Future trends harbor opportunities and Apart from these risks, the risk situation has not risks for KWS and we gear our activities to them. changed significantly from the previous year. We take new findings into account by adapting our administration or opening new lines of business, In view of the available assessments and counter- for example. measures we have initiated, risks that jeopardize the company’s existence are not discernible at present. Overall statement on the risk situation by the Moreover, we see at present no indications that inter- Executive Board dependencies might result in risks that could jeop- The risk situation for the KWS Group increased in ardize the company’s existence. We feel sure that, fiscal 2019/2020 as a result of the global Covid-19 thanks to our global footprint, innovative strength pandemic. We saw a sharp increase in the risks and the quality of our products, we can seize oppor- to the health of our employees and have tackled tunities and successfully counter risks as they arise. these risks with an array of measures since January However, we cannot rule out the possibility that other 2020. They include implementation of a worldwide factors that are currently unknown or which are not pandemic organization with diverse precautionary assessed as significant may jeopardize the continued measures and global standards, as well as regular existence of the KWS Group in the future. 2.7 Opportunity and Risk Report | Combined Management Report 87 KWS Group | Annual Report 2019/2020Catch crops, such as phacelia, are gaining in importance as part of sustainable farming. They improve soil quality, help suppress weeds and offer insects and soil­dwelling organisms a rich source of nutrients. 2.8 Forecast Report The expectations of management outlined here are 2.8.1 Changes in the KWS Group’s Composition based on our corporate planning and the information that are Significant for the Forecast it takes into account, including market expecta- There have not been any significant changes in the tions, strategic decisions, regulatory measures or KWS Group’s composition that are of significance exchange rate trends. They are subject to the same for the forecast for its business performance in fiscal premises as the consolidated financial statements 2020/2021. and forecast our business performance up to the end of fiscal 2020/2021 on June 30, 2021. In our forecast 2.8.2 Forecast for the KWS Group’s Statement of for the KWS Group’s statement of comprehensive Comprehensive Income income in accordance with IFRS, we deal with the The KWS Group’s economic performance will be KWS Group’s anticipated net sales, EBIT and R&D impacted by the effects of the global coronavirus pan- intensity. Our forecast for the segments contains demic in fiscal 2020/2021. High inventories worldwide comments on our net sales and EBIT expectations, and low prices for agricultural raw materials are also including the contributions made by our equity- weighing on the economic prospects for the farming accounted companies, which are included pro- sector. We also face considerable currency fluctua- portionately in the segment reports in line with our tions in important markets. Assuming that cultivation internal corporate controlling structure. area remains stable or declines slightly, we therefore expect subdued growth in fiscal 2020/2021. 88 Combined Management Report | 2.8 Forecast Report Annual Report 2019/2020 | KWS Group We nevertheless anticipate that the KWS Group will We assume that net sales in the Cereals Segment generate net sales at the level of the previous year will be at the same level as the previous year (€1,282.6 million). Assuming that net sales are stable, (€191.2 million). While our hybrid rye business should we forecast that the EBIT margin will range between continue to expand, we anticipate net sales on a 11% and 13% (after adjustment for the effects as par with the previous year for rapeseed, wheat and part of the purchase price allocation for the acqui- barley seed. The segment’s earnings will benefit from sition of Pop Vriend Seeds). Our R&D intensity is an increase in sales of rye seed; at the same time, we expected to be between 17% and 19%. Due to the are planning to expand our research & development strongly seasonal nature of our business as a result and distribution activities further. The segment’s of the great importance of the spring sowing season, EBIT margin will therefore probably be slightly down external factors that are difficult to anticipate, such from the previous year (13.8%). as the weather and fluctuations in cultivation area, and the prevailing uncertainties, we are as usual The Vegetables Segment essentially comprises providing ranges in our forecasts here, since more the net sales and earnings contributed by the veg- detailed statements on our net sales and earnings etable seed business acquired from Pop Vriend performance cannot yet be made with sufficient Seeds. Due to the impact we expect from the reliability. Covid-19 pandemic, we assume that the segment’s net sales will be slightly lower than in the previous 2.8.3 Forecast for the Segments year (€83.5 million). There are also costs for estab- In fiscal 2020/2021, we anticipate that the Corn lishing an international breeding program in the seg- Segment with grow its net sales slightly over the ment. Consequently, the number of employees will previous year (€775.7 million), in particular on the probably increase further. After adjustment for the back of rising sales volumes in South America and effects as part of the purchase price allocation for Southeastern Europe. We assume that competition the acquisition of Pop Vriend Seeds, we expect the will remain intense and cultivation area will decline EBIT margin to be in the range of 20% to 25%. slightly in North America. As far as can be seen at present, the EBIT margin is expected to be slightly Revenue (albeit slight) from our farms in Germany, up over the previous year (8.6%). France and Poland is grouped in the Corporate Segment. Since all cross-segment costs for the KWS In the Sugarbeet Segment, we assume that culti- Group’s central functions and basic research expen- vation area will remain stable or decline slightly, but diture are still charged to the Corporate Segment, its that we will grow sales of our CONVISO® SMART income is usually negative. Given the usual cost infla- seed further. The segment’s net sales will probably tion and planned efficiencies from the reorganization be on a par with the previous year (€491.8 million), as project ONEGLOBE, we expect the segment’s EBIT to will the EBIT margin (34.6%). improve over the previous year (€–104.6 million). Forecast for the 2020/2021 fiscal year Net sales EBIT margin 1 R&D intensity Statement of comprehensive income of the KWS Group At the level of the previous year 1 Adjusted for the effects as part of the purchase price allocation for the acquisition of Pop Vriend Seedss 11–13% 17–19% 2.8 Forecast Report | Combined Management Report 89 KWS Group | Annual Report 2019/20202.9 Report on KWS SAAT SE & Co. KGaA and Non­Financial Declara­ tion (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 declara- References to KWS SAAT SE & Co. KGaA in the tion in accordance with Section 161 AktG (German KWS Group’s Annual Report Stock Corporation Act), has been published in the The Management Reports of KWS SAAT SE & Internet at www.kws.com/ir. The following disclo- Co. KGaA and the KWS Group are combined. The sures are identical to those of the KWS Group and declaration on corporate governance in accordance 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 (4) of the German Commercial Code (HGB) and explanatory report of the Executive Board On business activity, corporate strategy, corporate controlling and management, as well as explanations on business performance On the dividend On research & development Page(s) 64 to 77 22 to 52 149 (Notes) 32 to 34 KWS SAAT SE & Co. KGaA has been the parent to extra expenditure as part of our reorganization company of the KWS Group since July 2, 2019. It is project ONEGLOBE, higher expenses for central responsible for strategic management and, among R&D activities, and higher IT expenses. The bal- other things, multiplies and distributes sugarbeet and ance of other operating income and other operating corn seed. It finances basic research and breeding expenses fell sharply to €4.4 (13.2) million, among of the main range of varieties at the KWS Group and other things due to positive non-recurring effects provides its subsidiaries with new varieties every year in the previous year (sale of shares in KWS Potato for the purpose of multiplication and distribution. B.V. and income from reversal of allowances on Earnings receivables). Overall, KWS SAAT SE & Co. KGaA’s operating income was €–42.1 (–33.1) million. Net Net sales at KWS SAAT SE & Co. KGaA in fiscal financial income/expenses is made up of the net 2019/2020 increased to €571.2 (529.2) million. income from equity investments and the interest Research and development expenditure, which is result. Net income from equity investments declined pooled at KWS SAAT SE & Co. KGaA, was increased to €30.8 (65.6) million due to higher dividend payouts as planned to €194.4 (180.9) million. Selling expenses by subsidiaries in the previous year. The interest rose to €75.1 (72.9) million. Most of the adminis- result was €–8.5 million, down from the previous year trative expenses at the KWS Group are incurred at (€–6.1 million). Taking into account tax expenditures, KWS SAAT SE & Co. KGaA. General and adminis- the net loss for the year was €–27.9 million (previous trative expenses in the year under review totaled year: net income of €21.9 million). €121.0 (91.3) million. That was mainly attributable 90 Combined Management Report | 2.9 Report on KWS SAAT SE & Co. KGaA and NFD Annual Report 2019/2020 | KWS GroupWith high­performance seed, sound, in­depth advice and supplementary services, we help farmers reap a good harvest. 2.9 Report on KWS SAAT SE & Co. KGaA and NFD | Combined Management Report 91 KWS Group | Annual Report 2019/2020Financial position and assets Forecast Report KWS SAAT SE & Co. KGaA’s total assets in fiscal KWS SAAT SE & Co. KGaA generates the main 2019/2020 increased to €1,554.5 (1,450.4) million. part of its net sales from sugarbeet and corn seed Fixed assets at the balance sheet date were business. The further development of sugarbeet €1,014.8 (557.9) million or 65.3% of total assets. The seed business depends, among other things, increase is mainly due to capital increases at affili- on the performance of our varieties, cultivation ated companies to increase their financial strength, areas in our key markets and developments in our new buildings and plants for sugarbeet seed pro- growth markets in Eastern Europe. In addition, duction, and research activities in Einbeck. Inven- KWS SAAT SE & Co. KGaA’s economic performance tories rose to €66.3 (59.3) million. Receivables and in fiscal 2020/2021 will probably be affected by the other assets were €462.4 (752.9) million. The high global coronavirus pandemic. We currently expect level of other current financial assets in the previ- its net sales to be at the level of the previous year. ous year was mainly due to deposit of the purchase KWS SAAT SE & Co. KGaA’s operating income is price for the acquisition of all the shares in the Pop mainly impacted by the costs of central functions Vriend Seeds Group in a trust account. Liabilities of the KWS Group and cross-segment research at the balance sheet date rose to €1,121.2 (1,011.9) and development activities. We anticipate that million, in particular due to an increase in liabilities KWS SAAT SE & Co. KGaA’s EBIT will be on a par to affiliated companies. KWS SAAT SE & Co. KGaA’s with that of the previous year. equity decreased to €233.0 (283.1) million due to the net loss for the year, giving an equity ratio of 2.9.2 Combined Non-Financial Declaration for 15.0% (19.5%). Employees the KWS Group In accordance with Sections 289b et seq. and Sec- tions 315b et seq. of the German Commercial Code An average of 1,641 (1,586) people were employed at (HGB), KWS is obliged to prepare a Non-Financial KWS SAAT SE & Co. KGaA in the year under review, Declaration for the parent company KWS SAAT SE of whom 97 (98) were trainees and interns. & Co. KGaA and the Group disclosing details of Risks and opportunities The opportunities and risks at the business model and related material corporate social responsibility (CSR) aspects (environmental issues, social issues, employee issues, human rights, KWS SAAT SE & Co. KGaA are essentially the same and prevention of corruption and bribery), where as at the KWS Group. It shares the risks of its sub- these are necessary for an understanding of the sidiaries and associated companies in accordance course of business, business results, the situation of with its respective stake in them. You can find a KWS SAAT SE & Co. KGaA and the KWS Group, and detailed description of the opportunities and risks the effects on said aspects. The disclosures in the and an explanation of the internal control and risk Combined Non-Financial Declaration relate to both management system (Section 289 (4) of the German KWS SAAT SE & Co. KGaA and the KWS Group, Commercial Code (HGB)) on pages 78 to 87. unless otherwise specified. 92 Combined Management Report | 2.9 Report on KWS SAAT SE & Co. KGaA and NFD Annual Report 2019/2020 | KWS GroupIn order to identify issues that need to be reported The table below gives an overview of the CSR report in the Non-Financial Declaration, the relevant issues aspects stipulated by law in accordance with Sec- based on a GRI materiality analysis in fiscal year tion 289c of the German Commercial Code (HGB) 2018/2019 were systematically reassessed to deter- and other associated issues that require reporting, mine their impact on the environment and society as well as references to the sections in which the and on the position of the KWS Group. On the basis required disclosures on concepts, results, risks and of this analysis, the individual issues of product key performance indicators are made. We did not innovations, plant and process safety, recruitment identify any issue that required reporting for the and qualification, and business ethics and compli- aspect of social issues. We also did not identify any ance were identified as material within the meaning risks that exceeded the statutory materiality thresh- of the statutory regulations. Since no adaptations old defined in Section 289c (3) of the German Com- were identified as being necessary after a review of mercial Code (HGB). In addition, the KWS Group has the materiality analysis in fiscal 2019/2020, the four not defined any non-financial performance indicators issues remained unchanged from the previous year. relating to controlling at present. Material effects of the Covid-19 pandemic on the non-financial issues are reported in the respective As part of preparation of the non-financial declaration, sections, where necessary. Given that we aim to we were guided by the GRI standards in conducting conduct the GRI materiality analysis every two years, the materiality analysis. We did not use any other the next one is scheduled for fiscal 2020/21. framework apart from that. Index for the Non-Financial Declaration Required HGB disclosures Business model – Environmental issues Product innovations Material issues for KWS Reference to sections 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 2019/2020, this issue was regarded as not being material, so no disclosures have to be made on it. Einbeck, September 23, 2020 KWS SE Dr. Hagen Duenbostel | Dr. Léon Broers | Dr. Felix Büchting | Dr. Peter Hofmann | Eva Kienle 2.9 Report on KWS SAAT SE & Co. KGaA and NFD | Combined Management Report 93 KWS Group | Annual Report 2019/2020 Our work only yields rewards if our seed delivers yields. Thanks to our proximity to farmers and their regional needs, our seed grows everywhere – whether in Chile, Italy or Russia. 3. Annual Financial Statements for the KWS Group 2019/2020 98 Statement of Comprehensive Income 99 Balance Sheet 100 Statement of Changes in Equity 102 Cash Flow Statement 104 Notes for the KWS Group 2019/2020 104 104 106 114 116 120 126 148 149 1. General Disclosures 2. Standards and Interpretations Applied for the First Time 3. Accounting Policies 4. Consolidated Group and Changes in the Consolidated Group 5. Segment Reporting for the KWS Group 6. Notes to the Income Statement 7. Notes to the Balance Sheet 8. Notes to the Cash Flow Statement 9. Other Notes 156 Independent Auditor’s Report 162 Independent Auditor’s Limited Assurance Report 163 Declaration by Legal Representatives 164 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 Changes in reserve for currency translation differences on foreign operations Changes on reserve for currency translation differences on at 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 €) Note no. 2019/2020 2018/2019 6.1 6.1 6.1 6.1 6.1 6.2 6.3 6.4 6.5 6.8 7.10 7.10 7.10 7.10 7.10 6.8 1,282,552 1,113,339 549,899 732,653 248,821 236,102 129,451 81,250 62,163 137,366 5,482 24,097 10,773 –7,842 129,524 34,305 95,220 –39,596 1,469 –38,127 1,313 –5,148 –3,835 –41,962 53,258 95,331 –111 95,220 53,333 –75 53,258 458,534 654,805 221,915 205,557 115,379 96,260 58,221 149,993 4,074 19,055 9,447 –5,534 144,459 40,439 104,020 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 2.89 3.15 98 Annual Financial Statements | Statement of Comprehensive Income Annual Report 2019/2020 | KWS GroupBalance Sheet Assets in € thousand Goodwill Intangible assets Right-of-use assets Property, plant and equipment Equity-accounted financial assets Financial assets Noncurrent tax assets Other non-current receivables 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 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. 06/30/2020 06/30/2019 7.1 7.1 7.16 7.2 7.3 7.5 7.17 6.5 7.6 7.6 7.7 7.8 7.9 7.7 7.7 7.7 7.7 4 7.10 7.10 7.10 7.11 7.10 7.12 7.12 7.15 6.5 7.12 7.12 7.12 7.13 7.13 7.15 7.13 7.13 7.13 4 117,290 368,361 46,349 494,179 161,960 6,230 674 8,072 70,590 1,273,705 214,053 15,869 432,569 28,266 91,472 83,409 63,391 2,553 29,741 26,190 65,885 0 444,514 154,027 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 20,671 961,321 1,346,824 441 7,602 2,235,467 2,114,953 99,000 5,530 889,830 139 994,498 140,074 521,744 264 92,265 40,103 1,014 795,465 52,467 93,663 109,747 41,840 28,536 19,191 100,059 445,504 0 1,240,969 2,235,467 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 Balance Sheet | Annual Financial Statements 99 KWS Group | Annual Report 2019/2020Statement of Changes in Equity July 1 to June 30 in € thousand Parent company Parent company Minority interest Group equity Subscribed capital Capital reserve Accumulated Group equity from earnings Comprehensive other Group income Comprehensive other Group income Total Minority interest Comprehensive other Group income Total Reserve for currency translation differences on foreign operations Reserve for currency translation differences on at equity accounted financial assets Net gain/ (loss) on Revalua- equity tion of net instru ments liabilities/ designated at fair value through other comprehen- sive income assets from defined benefit plans Other trans- actions 19,800 5,530 950,002 –56,270 2,994 0 –44,783 1,456 878,970 3,763 –93 2,813 881,783 0 0 0 0 19,800 5,530 79,200 0 99,000 0 0 5,530 –4,755 6,590 951,837 –21,120 104,134 104,134 0 –79,200 0 955,651 –22,110 95,331 0 0 0 0 –56,270 2,994 241 –44,783 1,456 880,805 3,763 –93 –857 2,813 883,618 0 0 1,589 1,589 0 0 0 0 0 2,753 2,753 0 0 0 –54,681 5,747 873 –52,731 1,456 960,845 3,649 –90 –857 2,702 963,547 –39,596 95,331 –39,596 0 0 2,256 0 0 0 1,469 1,469 0 0 0 99,000 5,530 1,031,127 –94,277 7,216 2,186 –57,879 1,456 994,360 1,050 –54 0 –857 139 994,498 Adjust- ments Revalua- tion from of defined currency translation benefit plans Other transac- tions –857 632 –7,948 632 –7,948 101,160 –114 241 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 –4,755 6,590 –21,120 104,134 –2,974 0 0 0 0 0 2,256 –114 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 3 0 0 0 36 36 0 –22,110 95,331 –41,962 –111 1,313 –5,148 1,313 –5,148 53,369 –111 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 –4,755 6,590 –21,120 –114 104,020 –2,971 –111 101,049 –22,110 –111 95,220 36 –41,926 –75 53,293 0 0 0 0 2,256 0 0 0 3 0 0 0 0 0 0 –2,488 –2,488 –2,488 06/30/2018 Adjustment due to introduction of IFRS 9 (after tax) Adjustment due to IAS 29 (hyperinflation) 07/01/2018 adjusted 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 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 06/30/2020 100 Annual Financial Statements | Statement of Changes in Equity Annual Report 2019/2020 | KWS GroupStatement of Changes in Equity July 1 to June 30 in € thousand Subscribed capital Capital reserve Comprehensive other Group income Comprehensive other Group income Total Minority interest Comprehensive other Group income Total Accumulated Group equity from earnings Parent company Parent company Minority interest Group equity Reserve for currency translation Reserve for currency translation differences differences on at on foreign equity accounted operations financial assets Net gain/ (loss) on equity instru ments designated at fair value through other comprehen- sive income Revalua- tion of net liabilities/ assets from defined benefit plans Other trans- actions Adjust- ments from currency translation Revalua- tion of defined benefit plans Other transac- tions 19,800 5,530 950,002 –56,270 2,994 0 –44,783 1,456 878,970 3,763 –93 06/30/2018 Adjustment due to introduction of IFRS 9 (after tax) Adjustment due to IAS 29 (hyperinflation) 07/01/2018 adjusted 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 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 06/30/2020 79,200 0 99,000 0 0 5,530 –4,755 6,590 951,837 –21,120 104,134 104,134 –79,200 955,651 –22,110 95,331 0 0 0 0 2,256 1,589 1,589 2,753 2,753 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 241 0 0 0 0 0 –4,755 6,590 19,800 5,530 –56,270 2,994 241 –44,783 1,456 880,805 0 0 0 0 632 –7,948 632 –7,948 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,763 0 –114 0 0 0 3,649 0 –111 –2,974 0 101,160 –114 –21,120 104,134 0 0 0 –22,110 95,331 –41,962 0 0 –93 0 0 3 3 0 0 0 –90 36 36 0 –54,681 5,747 873 –52,731 1,456 960,845 –39,596 95,331 –39,596 1,469 1,469 1,313 –5,148 1,313 –5,148 0 0 0 0 0 0 0 0 0 0 0 53,369 –111 0 0 2,256 –2,488 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 –857 2,813 881,783 0 0 0 0 –4,755 6,590 –857 2,813 883,618 0 0 0 0 0 0 0 0 –21,120 –114 104,020 3 –2,971 –111 101,049 0 0 0 0 0 0 –857 2,702 963,547 0 0 0 0 –22,110 –111 95,220 36 –41,926 –75 53,293 –2,488 –2,488 0 0 0 2,256 99,000 5,530 1,031,127 –94,277 7,216 2,186 –57,879 1,456 994,360 1,050 –54 0 –857 139 994,498 Statement of Changes in Equity | Annual Financial Statements 101 KWS Group | Annual Report 2019/2020Cash Flow Statement July 1 to June 30 in € thousand Net income for the year Depreciation/amortization and impairment on fixed assets 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 (+) Interest expense (+)/Interest income (–) 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 disposal of fixed assets Payments (–) for capital expenditures for fixed assets 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 Cash outflows (–) for the acquisition of additional interests in subsidiaries Interest received (+) Net cash from investing activities Note no. 2019/2020 2018/2019 1 95,220 88,429 –3,596 –16,949 750 –563 34,305 –33,526 17,093 104,020 48,723 17,480 –43,232 21,253 200 54,127 –63,074 12,785 –77,879 –145,506 27,464 5,408 136,157 1,852 –99,001 12 –14,939 152 –492 3,075 –395,254 4,733 –499,863 70,293 8,566 85,634 2,733 –86,728 166 –9,735 168 –711 0 –1,128 3,964 –91,270 102 Annual Financial Statements | Cash Flow Statement Annual Report 2019/2020 | KWS GroupJuly 1 to June 30 in € thousand Dividend payments (–) to owners and minority shareholders Payment (–) of principal portion of lease liabilities Payment (–) of interest portion of lease liabilities Interest paid (–) incl. transaction costs on issuance of promissory notes and borrowings 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 Plus/Minus cash deposited in a trust account for the acquisition of Pop Vriend Seeds Group Cash and cash equivalents at end of year (incl. short-term securities) Thereof restricted cash and cash equivalents at end of year Note no. 2019/2020 2018/2019 1 –22,110 –14,376 –1,184 –16,619 0 –36,500 8,304 –82,484 –446,190 –21,120 – – –15,686 405,763 –27,000 45,796 387,753 382,117 –8,501 109 159,757 –294,935 0 192,582 574,808 –379 414,672 –414,672 8 119,737 159,757 91 125 1 Previous year information changed (allocation of interest paid to cash flow from financing activities; allocation of interest received to cash flow from investing activities). Cash Flow Statement | Annual Financial Statements 103 KWS Group | Annual Report 2019/2020Notes for the KWS Group 2019/2020 1. General Disclosures 2. Standards and Interpretations Applied for the First Time The consolidated financial statements of KWS SAAT SE & Co. KGaA (until July 2, 2019: KWS SAAT SE) and its The following standards and interpretations have been ad- subsidiaries were prepared under the assumption that the opted and applied for the first time in fiscal year 2019/2020: operations of the companies will be continued and applying 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). Financial reporting standards and interpretations KWS SAAT SE & Co. KGaA, the ultimate parent company of the KWS Group, is an international company based 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 IFRS 16 – Leases Amendments to IFRS 9 – Financial Instruments: Prepayment Features with Negative Compensation Amendments to IAS 19 – Employee Benefits: Plan Amendment, Curtailment or Settlement Amendments to IAS 28 – Investments in Associates and joint Ventures: Long-term Interests in Associates and Joint Ventures IFRIC 23 – Uncertainty over Income Tax Treatments Annual Improvements to the International Financial Reporting Standards (2015–2017 cycle) that are adapted to regional needs, such as climatic and The nature and effects of first-time application of the new soil conditions. standard IFRS 16 “Leases” are presented in this note. The other standards and interpretations to be applied for the first Change in KWS SAAT SE’s legal form to that of time did not result in any significant impact on the consoli- a partnership limited by shares dated financial statements. The Annual Shareholders’ Meeting of KWS SAAT SE on December 14, 2018, adopted a resolution to convert IFRS 16 “Leases” KWS SAAT SE into a partnership limited by shares (KGaA) The KWS Group applied the regulations of the newly bearing the name KWS SAAT SE & Co. KGaA. The change published IASB standard IFRS 16 “Leases” for the first time in legal form became effective on July 2, 2019, when it was effective July 1, 2019. It superseded IAS 17 “Leases” and registered in the commercial register of Göttingen Local Court. the related interpretations. This did not result in liquidation of the company or formation of a new legal entity. The company’s legal and economic identity The KWS Group has applied IFRS 16 using the modified was retained. retrospective method, under which effects from adoption of the standard are recognized cumulatively in the revenue The Executive Board of KWS SE, the personally liable partner reserves at July 1, 2019. The comparative information for of KWS SAAT SE & Co. KGaA, prepared the consolidated 2018/2019 has therefore not been adjusted. financial statements on September 23, 2020, and released them for distribution to the Supervisory Board. The Supervisory Under the new regulation, lessees no longer have to distin- Board has the task of examining the consolidated financial guish between finance and operating leases. Consequently, statements and declaring whether it approves them. the lessee must recognize leases as right-of-use assets and 104 Annual Financial Statements | Notes for the KWS Group | 1. General Disclosures Annual Report 2019/2020 | KWS Group lease liabilities in the balance sheet. In subsequent periods, The KWS Group’s leases primarily relate to lease agree- the right-of-use asset is depreciated over the lease’s term. ments for office space, land and vehicles. This depreciation is recognized in the respective function costs. Interest expense is accrued on the lease liability in The material impacts from adoption of IFRS 16 at the course of the lease and the liability is reduced by the July 1, 2019, are presented in the table below: lease payments that have been made. The effect from the accrued interest is recognized in the interest expense under net financial income/expenses. Adjustments from adoption of IFRS 16 in € thousands 07/01/2019 There will be no significant changes for lessors as a result of IFRS 16, with the exception of subleases, which must be classified in the future as a finance or operating lease in relation to the main lease agreement. The standard was applied for the first time at the KWS Group retrospectively without any adjustment to the comparative Net operating lease commitments on 06/30/2019 (discounted) Gross operating lease commitments on 06/30/2019 (undiscounted) Application of practical expedient for short-term leases Application of practical expedient for leases of low-value assets information. In application of the practical expedient per- Others mitted under IFRS 16, the KWS Group has not reviewed Gross lease liability as of 07/01/2019 the agreements recognized in accordance with IAS 17 to Discounting determine whether a lease exists. The lease payments for Lease liability as of 07/01/2019 short-term leases and leases of low value assets are still recognized as operating expenses in accordance with the 30,889 33,541 –1,767 –124 1,009 32,660 2,368 30,293 available exemption. In addition, leases whose terms end At the date of signing, KWS Group considers all other within twelve months of the time of adoption of the standard amendments to the financial reporting standards and inter- were treated as short-term leases. pretations, applied as of 1 July 2019, will not have a signifi- cant impact on the consolidated financial statements of the At the time of adoption of the standard, the KWS Group KWS Group. In addition, early application of the “Amend- recognized the lease liabilities at the present value of ments to IFRS 16 – Covid-19-Related Rent Concessions” the outstanding lease payments using the applicable would not have an impact on the consolidated financial incremental borrowing rate. The weighted average rate of statements of the KWS Group. interest at July 1, 2019, was 2.9%. The lease liabilities are carried under the item “Other financial liabilities” depending Standards and interpretations to be applied in future on when they are due. The right-of-use assets were recog- The IASB has issued the following standards and amend- nized to the amount of the corresponding lease liabilities, ments to standards whose application was not yet man- adjusted for any prepaid or accrued lease payments if appli- datory for the 2020 fiscal year and for some of which the cable. The right-of-use assets were reported in the balance European Union had not yet completed the endorsement sheet under a separate item. Initial direct costs were not process. The following standards have not yet been applied included in measuring the right-of-use asset at the time of by KWS Group: adoption of the standard. 2. Standards and Interpretations Applied for the First Time | Notes for the KWS Group | Annual Financial Statements 105 KWS Group | Annual Report 2019/2020Standards and Interpretations to be applied in future Financial reporting standards and interpretations 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 9, IAS 39, IFRS 7 – Amendments to IFSR 9, IAS 39 and IFRS 7 Amendments to IFRS 16 Leases “Covid-19-Related Rent Concessions” Amendments to IFRS 4 “Insurance Contracts” Amendments to IAS 1 “Presentation of Financial Statements: Classification of Liabilities as Current or Non-current” Annual Improvements to IFRSs 2018-2020 Cycle Amendments to IFRS 3 “Business Combinations” Amendments to IAS 16 “Property, Plant and Equipment” Mandatory first-time application Fiscal year 2020/2021 Fiscal year 2020/2021 Fiscal year 2020/2021 Fiscal year 2020/2021 Fiscal year 2021/2022 Fiscal year 2022/2023 Fiscal year 2022/2023 Fiscal year 2022/2023 Fiscal year 2022/2023 Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” Fiscal year 2022/2023 IFRS 17 “Insurance Contracts” and amendments to IFRS 17 “Insurance Contracts” Fiscal year 2023/2024 3. Accounting Policies KWS SAAT SE & Co. KGaA has the ability to use its power to affect the amount of the variable returns. Control can 3.1 Consistency of accounting policies usually be derived from holding a majority of the voting Consistent accounting policies are applied in the annu- rights directly or indirectly. Details on the changes in the al financial statements of the companies included in the consolidated group are provided in section 4. Consolidated consolidated financial statements. There were no changes Group and Changes in the Consolidated Group. to accounting policies from the previous financial year, with the exception of the IFRS 16 standard, which was applied 3.3 Consolidation methods for the first time. The single-entity financial statements of the individual subsidiaries included in the consolidated financial state- All estimates and assessments as part of accounting and ments and the single-entity financial statements of the measurement are continually reviewed; they are based joint ventures and associated companies included using on historical patterns and expectations about the future the equity method and of the proportionately consolidated regarded as reasonable in the particular circumstances. joint operations were uniformly prepared on the basis of the accounting and measurement policies applied at 3.2 Companies consolidated in the KWS Group KWS SAAT SE & Co. KGaA. For business combinations, The consolidated financial statements of the KWS Group capital consolidation is performed according to the acqui- include the single-entity financial statements of sition method by allocating the cost of acquisition to the KWS SAAT SE & Co. KGaA and its subsidiaries in Germany Group’s interest in the subsidiary’s remeasured equity at the and other countries, as well as joint ventures and time of acquisition. Any excess of interest in equity over cost associated companies, which are carried using the equity is recognized as an asset, up to the amount by which fair method, and joint operations. A company is a subsidiary value exceeds the carrying amount. Any goodwill remaining if KWS SAAT SE & Co. KGaA currently has existing rights after first-time consolidation is recognized under intangible that give it the ability to control its relevant activities. assets. Costs incurred as part of the business combination Relevant activities are the activities that significantly affect are recognized as an expense and carried as administrative the company’s returns. Control therefore only exists if expenses. 106 Annual Financial Statements | Notes for the KWS Group | 3. Accounting Policies Annual Report 2019/2020 | KWS GroupAccording to IAS 36, goodwill is not amortized, but tested As part of the elimination of intra-Group balances, for impairment at least once a year at the end of the year borrowings, receivables, liabilities, and provisions are (impairment-only approach). Investments in affiliated netted between the consolidated companies. Intercompany companies which are not consolidated are carried at cost. profits not realized at Group level are eliminated from intra-Group transactions. Sales, income, and expenses are Joint ventures are consolidated using the equity method netted between consolidated companies, and intra-Group in application of IFRS 11 and IAS 28. The basis for a joint distributions of profit are eliminated. venture is a contractual agreement with a third party to control and manage a venture collectively. In the case of Deferred taxes on consolidation transactions recognized joint ventures, the parties who exercise joint management in income are calculated at the tax rate applicable to the have rights to the net assets of the agreement. company concerned. These deferred taxes are aggregated with the deferred taxes recognized in the separate financial In the case of joint ventures carried in accordance with the statements. equity method, the carrying amount is increased or reduced annually by the equity capital changes corresponding to the Non-controlling interests are recognized in the amount KWS Group’s share. In the case of first-time consolidation of the imputed percentage of equity in the consolidated of equity investments using the equity method, differences companies. from first-time consolidation are treated in accordance with the principles of full consolidation. The changes in the 3.4 Currency translation proportionate equity that are recognized in profit or loss Under IAS 21, the financial statements of the consolidated are included, along with impairment of goodwill, under the foreign group companies that conduct their business as item “Income from equity-accounted financial assets” in financially, economically, and organizationally independent the net financial income/expenses. Associated companies entities are translated into euros using the functional in which a stake between 20% and 50% is held are likewise currency method and rounded in accordance with standard measured using the equity method. commercial practice as follows: The basis for a joint operation is likewise a contractual „„ Income statement items at the average exchange rate for agreement with a third party to manage the company’s the year; activities jointly. In this case, the parties have rights to the „„ Balance sheet items at the exchange rate on the balance assets that can be ascribed to the agreement and obliga- sheet date. tions in respect of the liabilities. The assets and liabilities and revenue and expenses are included in the consolidated The following exchange rates were applied in the consoli- financial statements proportionately in accordance with the dated financial statements for the main foreign currencies KWS Group’s stake (50%). relative to the euro: Exchange rates for main currencies 1 EUR/ ARS ¹ BRL GBP RUB UAH USD Argentina Brazil UK Russia Ukraine USA Rate on balance sheet date Average rate 06/30/2020 06/30/2019 2019/2020 2018/2019 78.85460 48.60240 78.85460 48.60240 6.05730 0.91360 4.34750 0.89720 5.01039 0.87829 4.41256 0.88235 78.68120 71.81790 74.32688 74.91476 29.95000 29.73024 28.08884 31.27778 1.12100 1.13830 1.10569 1.14186 1 The average rate corresponds to the rate at balance sheet date due to application of IAS 29 for KWS Argentina S.A. 3. Accounting Policies | Notes for the KWS Group | Annual Financial Statements 107 KWS Group | Annual Report 2019/2020 The difference resulting from the application of annual If the contracts specify further performance obligations, average rates to the net profit for the period in the income such as granting of discount coupons, credit memos for statement is taken directly to equity. According to IAS returned goods and bonus points, in addition to seed 21, exchange differences resulting from loans to foreign delivery, they must be measured separately. The KWS Group subsidiaries are recognized in the Other comprehen- uses empirical country-specific and seasonal figures and sive income and are not reclassified to profit or loss until information on already announced returns to estimate the disposal of the net investment. The accumulated amount anticipated returns. is recognized in the income statement only when the net investment is disposed of. The level of the promised consideration is not adjusted by the effects of a financing component because the period for Argentina was still classified as a hyperinflationary economy payment is usually less than twelve months. this fiscal year, as a result of which IAS 29 “Financial Reporting in Hyperinflationary Economies” was applied The incremental costs of obtaining a contract are recognized to KWS ARGENTINA S.A. Gains and losses from current as a current expense in the period. inflation of non-monetary assets and liabilities and of equity are recognized in the income statement. Revenue from service transactions is recognized over the The IPC was 225.54 points at July 1, 2019, and rose on an output-oriented basis using the percentage of by 42.76% in the current fiscal year to 321.97 points at completion method. Other income, such as interest, royalties period of time in which the service is provided and measured June 30, 2020. and dividends, is recognized in the period in which it accrues as soon as there is a contractual or legal entitlement to it. 3.5 Classification of the statement of comprehensive income Performance-based public grants are carried under the other The KWS Group has prepared the income statement using operating income as part of profit/loss. the cost-of-sales method. The costs for the functions include all directly attributable costs, including other taxes. Operating expenses are recognized in the income statement upon the service in question being used or as of the date on 3.6 Recognition of income and expenses which they occur. Revenue from contracts with customers is primarily generated from the sale of seed. It is recognized when 3.7 Intangible assets KWS Group transfers control over products to the customer. Purchased intangible assets are carried at cost less straight- That is usually the time when risk passes to the customer. line amortization and impairment losses. It is necessary to The revenue is recognized at the amount of the consideration examine whether the useful life of intangible assets is finite promised in the contract. or indefinite. Goodwill has an indefinite useful life. Goodwill and intangible assets with an indefinite useful life are not The KWS Group’s contracts with customers do not usually amortized, but tested for impairment at least once a year. have any significant separable performance obligations apart from the delivery of seed. Consequently, splitting of the Intangible assets acquired as part of business combina- transaction price is not required for most of the KWS Group’s tions are carried separately from goodwill if they are sepa- contracts with customers. Accordingly, the total purchase rable according to the definition in IAS 38 or result from a price must be recognized at a point in time. contractual or legal right. 108 Annual Financial Statements | Notes for the KWS Group | 3. Accounting Policies Annual Report 2019/2020 | KWS GroupThe useful 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 Customer relationships Useful life 10 – 30 years 3 – 10 years 3 – 8 years 5 – 20 years 15 years 1– 5 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 recover- able 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 depreciation into account. In accordance with IAS 20, government grants for assets are deducted 3.8 Property, plant, and equipment from the costs of the asset. Any deferred income is not Property, plant, and equipment is measured at cost less recognized. straight-line depreciation over its expected useful life and impairment losses. Depreciation of an asset commences The residual values, useful economic lives and methods when the asset is at its location and is in the condition of depreciation for property, plant, and equipment are necessary for it to be capable of operating in the manner r eviewed at the end of each fiscal year and adjusted intended by management. Depreciation of an asset ends prospectively if necessary. when the asset has been fully expensed or is classified as held for sale in accordance with IFRS 5 or at the latest when In accordance with IAS 23, borrowing costs are capitalized if it is derecognized. they can be classified as qualifying assets. If property, plant, and equipment is sold or scrapped, the 3.9 Leases profit or loss from the difference between the proceeds Refer to section 2 of the Notes for details of the principles and residual carrying amount is recognized under the other and methods used in lease accounting. operating income or other operating expenses. In addition to directly attributable costs, the cost of self- 3.10 Financial instruments produced plant or equipment also includes a proportion of Classification and measurement the overheads and depreciation/amortization. Apart from equity instruments, financial instruments are Useful life of property, plant and equipment Buildings Operating equipment and other facilities Technical equipment and machinery Laboratory and research facilities Other equipment, operating and office equipment Useful life 10 – 50 years 5 – 25 years 5 –15 years 5 –13 years 3 –15 years financial assets and financial liabilities. When financial assets are initially recognized, they are assigned to one of the following three categories for the purpose of subsequent measurement: at amortized cost, at fair value through other comprehensive income, or at fair value through profit or loss. 3. Accounting Policies | Notes for the KWS Group | Annual Financial Statements 109 KWS Group | Annual Report 2019/2020Equity instruments are generally measured at fair value Impairment losses through profit or loss, unless an option to classify them The credit risk is the risk that a contractual partner does irrevocably as being measured at fair value through other not fulfill its payment obligations as part of a financial comprehensive income is exercised when they are initially instrument. The risks of default are monitored and con- recognized. Such an option is available if the financial trolled constantly and reflected by means of impairment investments in equity instruments are neither held for losses. The KWS Group ascertains the need to recognize trading nor constitute a contingent consideration as part an impairment loss for all financial assets not classified in of a company acquisition. The debt instruments are classi- the category “at fair value through profit or loss.” That is fied taking into account KWS Group’s business model for calculated on the basis of the expected losses. The expected controlling these financial assets and the contractual cash losses are in general the present value resulting from the flow characteristics for the financial instrument. A finan- difference between the cash flows defined in the contract cial asset is measured at amortized cost if it is held with and the cash flows KWS Group expects to receive. the objective of collecting contractual cash flows and the latter comprise solely payments of interest and principal. If In general, a two-stage model must be applied in calculating the financial assets are held as part of the business mod- the expected losses. If the credit risk for financial instru- el to collect contractual cash flows and sell the financial ments has not increased significantly, the risk provision is instruments, these are classified as being measured at fair recognized only on the basis of losses resulting from default value through other comprehensive income. All the other events within the next 12 months. In the case of financial financial instruments are classified in the category “at fair instruments whose credit risk has increased significantly value through profit or loss.” There is also the option of since first-time recognition, the entire remaining lifetime is designating the debt instrument as being measured at fair used to calculate the expected losses. value through profit or loss under certain conditions when it is carried for the first time. KWS Group uses a simplified approach under IFRS 9 to deter- mine the expected losses because the financial assets mainly The financial assets consist of bank balances and cash consist of short-term trade receivables. Measurement and on hand, trade receivables, loans, fund shares, securities, first-time recognition of the receivables and also their subse- derivatives and other financial assets. Regular-way purchas- quent measurement therefore take into account expectations es and sales of financial assets are recognized or derecog- of default on the item in question over its entire lifetime. nized in general at the settlement date. Because fund shares have the characteristics of equity, they are classified The KWS Group determines the expected counterparty irrevocably as being measured at fair value through other default on the basis of the probability of default and the loss comprehensive income. The changes to fair value in sub- rate in the event of default. sequent measurement are recognized as unrealized gains and losses directly in other comprehensive income. Such The probability of default is generally determined on the equity instruments are not tested for impairment. basis of customer-specific ratings. The probability of default relates to a year, which is usually the maximum lifetime of The other financial assets are measured at amortized cost. receivables at the KWS Group. Since specific ratings are not The carrying amount of receivables, money market accounts available for all customers, an average rating based on all and cash is assumed as the fair value. classified customers is calculated for each country, regard- less of the receivables per customer. It is then applied to the total amount for all the receivables in the country in question. If that information is not available for a country, the average rating of a country with a comparable risk is applied. 110 Annual Financial Statements | Notes for the KWS Group | 3. Accounting Policies Annual Report 2019/2020 | KWS GroupThe loss rate is the percentage loss in the event of default market data are used to calculate the value of level 3 and corresponds to the amount of the unpaid receivables financial instruments. less an expected recovery rate. KWS Group applies a uniform recovery rate determined regardless of customer 3.11 Derivates group, due date and country over a long period of time and The KWS Group has not designated any existing derivatives over a broad total number of company insolvencies. as a hedging instrument. Changes to the level of the risk provision must be carried in Derivative instruments are measured at fair value; they can the income statement as a reversal of an impairment loss or be assets or liabilities. Common derivative financial instru- as an impairment loss. ments are essentially used to hedge interest rate and foreign currency risks. The fair value of the financial instruments is The financial liabilities mainly comprise trade payables, measured on the basis of the market information available loans from banks, derivatives and other financial liabilities. on the balance sheet date and using recognized mathe- When financial liabilities are initially recognized, they are matical models, such as present value or Black-Scholes, classified as being measured at fair value through profit to calculate option values, taking their volatility, remaining or loss or at amortized cost. KWS Group adopts first maturity and capital market interest rates into account. The time measurement at fair value. The fair value of financial instruments must also be classified in a level of the fair value liabilities with a long-term fixed interest rate is determined hierarchy. as present values of the payments related to the liabilities, using a yield curve applicable on the balance sheet date. The changes in their market value are recognized in the income statement. Derivatives are derecognized on their All financial liabilities at the KWS Group, with the exception day of settlement. of derivative financial instruments, are measured at amortized cost using the effective interest method. The liabilities 3.12 Inventories and biological assets are derecognized at the time they are settled or when the Inventories are measured at the lower of cost or net realiz- reason why they were formed no longer exists. able value less an allowance for obsolescent or slow-moving Financial instruments in level 1 are measured using quoted sales also includes indirect labor and materials including prices in active markets for identical assets or liabilities. In depreciation under IAS 2. Under IAS 41, biological assets level 2, they are measured by directly observable market are measured at fair value less the estimated costs to sell. inputs or derived indirectly on the basis of prices for similar Immature biological assets are carried as inventories as of instruments. Finally, input factors not based on observable the time they are harvested. items. In addition to directly attributable costs, the cost of 3. Accounting Policies | Notes for the KWS Group | Annual Financial Statements 111 KWS Group | Annual Report 2019/20203.13 Deferred taxes The provisions for semi-retirement include obligations from Deferred taxes are calculated in accordance with IAS 12. concluded semi-retirement agreements. Payment arrears Deferred taxes are calculated on differences between the and top-up amounts for semi-retirement pay and for the carrying amounts of assets and liabilities in the consolidated contributions to the statutory pension insurance program balance sheet and their tax base, and on carried forward are recognized in measuring them. tax losses. Deferred tax assets are netted off against deferred tax liabilities, provided they relate to the same 3.16 Other provisions tax creditor and have the same due date. Deferred tax Provisions are recognized for present legal and constructive assets are recognized if it can be assumed that they will obligations arising from past events that will likely give rise be recoverable in the future. Deferred tax liabilities must be to a future outflow of resources, provided that a reliable accounted for all taxable temporary differences. All deferred estimate can be made of the amount of the obligations. taxes must be assessed individually at each balance sheet date. Under IAS 12, deferred taxes are calculated on the Provisions are measured at their expected amount or most basis of the applicable local income tax anticipated at the likely amount, depending on whether they comprise a large time of reversal and no discounting is carried out. Deferred number of items or constitute a single obligation. Provisions taxes and current taxes are generally recognized as an are reviewed regularly and adjusted to reflect new findings expense, unless they relate to transactions or events that or changes in circumstances. If it is no longer likely that are recognized outside of profit or loss. These are likewise economic outflow of a provision will occur, or the conditions recognized in the Other comprehensive income or directly for why it was recognized no longer apply, the provision is in equity. reversed by the corresponding amount and the resulting income recognized in the operating expense item(s) in which 3.14 Provisions for income taxes the original charge was recognized . If the reversal amount The provisions for income taxes comprise obligations from is material and so the effect not related to the period must current income taxes. They are measured on the basis of a be classified as material, the reversal is carried as income best-possible assessment of the future amount to be paid. from the reversal of provisions under other operating income not related to the period. 3.15 Provisions for pensions and other employee benefits Long-term provisions are discounted taking into account The provisions for pensions and other employee benefits future cost increases and using a market interest rate that ade- are calculated using actuarial principles in accordance quately reflects the risk, provided the interest effect is material. with the projected unit credit method. Actuarial gains and losses must be recognized directly in equity in Other 3.17 Contingent liabilities comprehensive income. The service costs, including past The contingent liabilities result from debt obligations where service costs, are recognized in operating income in ac- outflow of the resource is not probable or the level of the cordance with the employees’ assignment to the functions. obligation cannot be estimated with sufficient reliability or If there are plan assets, they are netted off against the from obligations for loan amounts drawn down by third parties associated obligations. as of the balance sheet date. 112 Annual Financial Statements | Notes for the KWS Group | 3. Accounting Policies Annual Report 2019/2020 | KWS Group3.18 Significant accounting judgements, 3.19 Effects of the coronavirus pandemic estimates and assumptions The coronavirus pandemic had a significant impact on the The measurement approaches and amounts to be carried global economy in 2020, curtailing economic activity. In spite in these IFRS financial statements are partly based on of these challenging general conditions, the KWS Group estimates and specifically defined specifications. This ensured that farmers were supplied with seed. The general relates in particular to the following discretionary decisions: macroeconomic conditions were taken into consideration in the measurement policies applied at June 30, 2020. „„ Determination of the useful life of the depreciable asset (sections 3.7 and 3.8 of the Notes) Goodwill and intangible assets with an indefinite useful life „„ Definition of measurement assumptions and future underwent an annual impairment test at June 30, 2020, results in connection with impairment tests, above all for while the changes in the market situation due to the capitalized goodwill (section 7.1 of the Notes) coronavirus pandemic were reflected in the adopted budget „„ Determination of the need to recognize impairment losses and medium-term planning. All in all, there were no impair- on inventories (section 7.6 of the Notes) ments for the cash-generating units and intangible assets „„ Definition of the parameters required for measuring with an indefinite useful life. pension provisions (section 7.12 of the Notes) „„ Determination whether there is reasonable certainty as The effect on other assets, such as trade receivables and to whether extension or termination options as a part of a inventories, was continually examined with regard to the lease will be exercised or not (section 7.16 of the Notes) impact of coronavirus on the economic environment. The „„ Determination whether tax losses carried forward can be KWS Group’s business model is seasonal in nature, which is used (section 6.5 of the Notes) why it generates most of its net sales by the end of the third „„ Determination of the fair value of intangible assets, quarter and collects a large proportion of the receivables tangible assets and liabilities acquired as part of a owed to it in the fourth quarter. As regards customers’ solven- business combination and determination of the service cy, no circumstances justifying impairment of the receivables lives of the purchased intangible assets and tangible above and beyond the existing approach were identified. assets (section 4 of the Notes) Potential industry and country specific risks were, and will „„ Measurement of other provisions (section 7.13 of the continue to be, taken into account in assessing the potential Notes) impact of the coronavirus pandemic on trade receivables. „„ Calculation of the expected returns from customers at the balance sheet date (section 3.6 of the Notes) Estimates are based on historical experience and other assumptions that are considered reasonable under given circumstances. They are continually reviewed but may vary from the actual values. 3. Accounting Policies | Notes for the KWS Group | Annual Financial Statements 113 KWS Group | Annual Report 2019/2020 4. Consolidated Group and Changes in the Consolidated Group The number of companies consolidated in the KWS Group increased from 75 at June 30, 2019, to 88 at June 30, 2020. Number of companies including KWS SAAT SE & Co. KGaA Germany Abroad Total Germany Abroad Total 06/30/2020 06/30/2019 Fully consolidated Equity method Joint operation Total 13 0 0 13 63 4 8 75 76 4 8 88 14 0 0 14 50 3 8 61 64 3 8 75 Acquisition of the POP VRIEND SEEDS Group The KWS Group acquired the POP VRIEND SEEDS Fair Value of the identifiable assets and liabilities as at the date of acquisition Group, Andijk, the Netherlands, effective July 1, 2019. The number of companies consolidated in the KWS Group has thus been enlarged by the holding company BIRIKA in € thousands Assets Intangible assets B.V., Amsterdam, the Netherlands (since July 2020: POP Right-of-use assets (IFRS 16) VRIEND SEEDS HOLDING B.V.), and eleven subsidiaries Property, plant and equipment in the Netherlands and Turkey. KWS Group acquired the Financial assets group by taking over all the shares in BIRIKA B.V. POP VRIEND SEEDS is a leading company in the breeding, production and distribution of vegetable seed. It primarily specializes in seed for spinach, beans, carrots, Swiss chard and other vegetable crops and supplies customers in more than 100 countries. POP VRIEND SEEDS has thus become part of the new Vegetables Segment. The transferred consideration less acquired cash and cash equivalents was just under €400 million and was paid in cash. The KWS Group raised bridge funding of €400 million in fiscal 2018/2019 to finance the purchase price. It was replaced at the end of August by the issue of borrower’s notes to the same amount with a term of between five and ten years. Apart from transaction costs, there was no cash outflow or inflow. Deferred tax assets Inventories Trade receivables 1 Cash and cash equivalents Other assets Liabilities Long-term financial liabilities Short-term financial liabilities Trade payables Short-term provisions Other short-term liabilities Deferred tax liabilities Total identifiable net assets at fair value Goodwill arising on acquisition 1 Gross carrying amount of trade receivables amounts to €24.499 thousand. 07/01/2019 407,300 320,276 173 10,751 160 410 30,901 23,302 19,918 1,409 87,754 111 1,353 2,793 7,062 26 76,409 319,546 95,126 114 Annual Financial Statements | Notes for the KWS Group | 4. Consolidated Group and Changes in the Consolidated Group Annual Report 2019/2020 | KWS GroupThe acquired intangible assets identified as part of the KWS Group’s pro-rata loss for the fiscal year (on the basis purchase price allocation relate to approved varieties, of its 50% stake) was €9 thousand. technology, customer relationships, and the “Pop Vriend” brand. The brand is regarded as having an indefinite useful Other changes in the consolidated group life, since the KWS Group intends to keep on using it and KWS SEMILLAS CANARIAS S.L.U., Gran Canaria, Spain, the period of time in which the brand yields an economic benefit can therefore not be determined. The carrying amount is €20,752 thousand. The goodwill of €95,126 thousand from acquisition of the was established in July 2019 and BTS TURKEY TARIM TICARET LIMITED ŞIRKETI, Eskisehir, Turkey, in October 2019. Both companies are included in the consolidated financial statements at a stake of 100%. company essentially reflects the KWS Group’s entry into the In addition, KWS INTERNATIONAL HOLDING II B.V. was strongly growing and profitable vegetable seed market. The established as a wholly-owned subsidiary of KWS INTER- goodwill is not tax-deductible. NATIONAL HOLDING B.V. in January 2020 and is included in The POP VRIEND SEEDS Group currently generates company is headquartered in Emmeloord, the Netherlands. almost all the net sales and income at the new Vegetables Segment. Please refer to the segment reporting for details. KWS SERVICES DEUTSCHLAND GMBH was merged with the consolidated financial statements at a stake of 100%. The KWS LOCHOW GMBH on April 22, 2020, retroactively The deferred tax liabilities incurred as part of the acquisition effective July 1, 2019 relate almost wholly to intangible assets and inventories. The tax liability on intangible assets at the time of the The 51% stake in the French subsidiary RAZES HYBRIDES acquisition totaled €70,735 thousand and was included at S.A.R.L. was sold on July 3, 2019. The stake’s fair value tax rates of 21.8% to 25%. The tax liability on inventories is was the same as the sales price of €3,500 thousand. €3,811 thousand and was included at a tax rate of 25%. Assets totaling €7,730 thousand (of which property, plant, and equipment accounted for €6,475 thousand) and Acquisition of a 50% stake in FARMDESK B.V. liabilities totaling €2,380 thousand) were disposed of. After The KWS Group completed the acquisition of a 50% the disposal of minority interests totaling €2,652 thousand stake in AGRIN B.V. (thereafter called FARMDESK B.V.) on and reclassification of losses of €38 thousand recog- April 15, 2020. FARMDESK B.V. is an existing limited liability nized in the Other comprehensive income, a profit of company that has been duly established under Belgian €764  thousand was made on the sales transaction and is law and is headquartered in Antwerp. The company has carried under the other operating income. developed an online/mobile application of the same name. The KWS Group sold its stake of 100% in KWS SEEDS FARMDESK B.V. is included as a joint venture in the THAILAND CO., LTD. on November 22, 2019. The sales price KWS Group’s consolidated financial statements and car- was €1. After the disposal of assets totaling €31 thousand ried using the equity method. In accordance with IAS 28, and liabilities totaling €340 thousand and reclassification the investment is initially carried at cost and adjusted in of currency losses of €169 thousand recognized in the subsequent periods to reflect the changes in KWS Group’s Other comprehensive income, a deconsolidation gain of stake in the assets of FARMDESK B.V. after the acquisi- €140 thousand resulted from sale of the shares and is tion. The acquisition costs were €1,100 thousand and the carried under the other operating income. 4. Consolidated Group and Changes in the Consolidated Group | Notes for the KWS Group | Annual Financial Statements 115 KWS Group | Annual Report 2019/20205. Segment Reporting for the KWS Group In accordance with its internal reporting and controlling The Executive Board is the main decision-making body and system, the KWS Group is primarily organized according to is responsible for allocating resources and assessing the the following business segments: earnings strength of the business segments. The segments „„ Corn „„ Sugarbeet „„ Cereals 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 adopted in line with those used for „„ Vegetables (since July 1, 2019) the KWS Group. The only exception relates to consolida- „„ Corporate tion of the equity-accounted joint ventures and associated companies that are assigned to the Corn Segment, namely The new Vegetables Segment essentially comprises the AGRELIANT GENETICS LLC., AGRELIANT GENETICS INC., business activities of the POP VRIEND SEEDS Group FARMDESK B.V. and KENFENG – KWS SEEDS CO., LTD. acquired effective July 1, 2019. The core competency for the In accordance with internal controlling practices, they are KWS Group’s entire product range, plant breeding, including included proportionately as part of segment reporting. the related biotechnology research, is essentially concen- trated at the parent company KWS SAAT SE & Co. KGaA The presentation of net sales, income, depreciation and in Einbeck. The breeding material for Sugarbeet and Corn, amortization, other noncash items, operating assets, oper- including the relevant information and expertise about how ating liabilities and capital expenditure on noncurrent assets to use it, is owned by KWS SAAT SE & Co. KGaA, and for by segment have been determined in accordance with the Cereals it is owned by KWS LOCHOW GMBH. Product- internal operational controlling structure. The allocation of related R&D costs are carried directly in the product joint ventures and associated companies are consolidated segments Corn, Sugarbeet and Cereals. Centrally controlled proportionately (management approach) on the same basis. corporate functions are grouped in the Corporate Segment. In order to permit better comparability, they have been The distribution and production of oil and field seed are reconciled with the figures in the consolidated financial reported in the Cereals and Corn Segments, in keeping with statements. the legal entities currently involved. 116 Annual Financial Statements | Notes for the KWS Group | 5. Segment Reporting for the KWS Group Annual Report 2019/2020 | KWS GroupSales per segment in € thousand Corn Sugarbeet Cereals Vegetables Corporate Segments acc. to management approach Elimination of equity-accounted financial assets Segments acc. to consolidated financial statements Segment sales Internal sales External sales 2019/2020 2018/2019 2019/2020 2018/2019 2019/2020 2018/2019 776,093 491,898 739,031 461,257 191,348 170,990 – 83,523 18,207 423 52 185 0 5 26 197 – 775,669 491,846 739,026 461,231 191,163 170,794 83,523 4,615 – 3,893 17,474 13,593 13,580 1,561,069 1,388,752 14,253 13,808 1,546,816 1,374,944 –264,264 –261,605 1,282,552 1,113,339 Segment sales contain both net sales from third parties Technology revenues from genetically modified properties (external sales) and net sales between the segments (“tech fees”) are paid as a per-unit royalty on the basis of ( intersegment sales). The prices for intersegment sales are the number of units sold, due to their growing competitive determined on an arm’s-length basis. Uniform royalty rates importance. per segment for breeding genetics are used as the basis. Earnings, depreciation and amortization and other non-cash items per segment in € thousand Segment earnings Depreciation and amortization Other noncash items Corn Sugarbeet Cereals Vegetables 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 2019/2020 2018/2019 2019/2020 2018/2019 2019/2020 2018/2019 67,072 170,062 26,357 –7,543 57,916 179,599 22,988 – –104,626 –97,110 36,143 16,897 9,917 23,083 17,489 28,703 12,762 9,200 – –36,047 1,254 –6,169 –1,135 –670 –18,260 287 – 11,868 –11,133 –8,250 151,323 163,393 103,528 62,533 –53,230 –26,893 –13,957 –13,400 –15,377 –12,238 47,922 21,578 137,366 149,993 88,151 50,295 –5,308 –5,315 –7,842 –5,534 129,524 144,459 The income statements of the consolidated companies are all directly attributable income and expenses. Items that assigned to the segments by means of profit center alloca- are not directly attributable are allocated to the segments tion. Operating income, an important internal parameter and on the basis of an appropriate formula. Depreciation and an indicator of the earnings strength in the KWS Group, is amortization charges allocated to the segments relate used as the segment result. The operating income of each exclusively to intangible assets and property, plant, and segment is reported as the segment result. The segment equipment. results are presented on a consolidated basis and include 5. Segment Reporting for the KWS Group | Notes for the KWS Group | Annual Financial Statements 117 KWS Group | Annual Report 2019/2020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 Vegetables Corporate Segments acc. to management approach Elimination of equity-accounted financial assets Segments acc. to consolidated financial statements Others Operating assets Operating liabilities 2019/2020 2018/2019 2019/2020 2018/2019 759,323 371,019 137,992 454,552 207,211 800,334 335,630 122,159 – 152,029 1,930,096 1,410,152 –232,576 –278,034 1,697,521 1,132,118 537,946 982,835 149,741 122,249 71,612 33,498 8,223 117,770 380,845 –58,066 322,779 918,190 67,459 30,260 – 106,540 326,508 –49,210 277,298 874,108 KWS Group acc. to consolidated financial statements 2,235,467 2,114,953 1,240,969 1,151,406 The operating assets of the segments are composed of In accordance with the management approach, the operating intangible assets, property, plant, and equipment, inventories, liabilities attributable to the segments include the borrow- biological assets and trade receivables that can be charged ings reported on the balance sheet, less financial liabilities, directly to the segments or indirectly allocated to them by provisions for taxes and the portion of other liabilities that means of an appropriate formula. cannot be charged directly to the segments or indirectly allocated to them by means of an appropriate formula. Investments in long-term assets by segment 1 in € thousand Corn Sugarbeet Cereals Vegetables Corporate Segments acc. to management approach Elimination of equity-accounted financial assets Segments acc. to consolidated financial statements 1 Excluding Right-of-Use assets according to IFRS 16 2019/2020 2018/2019 30,901 32,308 10,088 1,568 38,583 113,449 –5,415 108,034 27,151 34,874 7,037 – 32,061 101,123 –4,552 96,571 Capital expenditure in the Corn Segment relates mainly to location and in France. KWS Group continue to expand the drying and production capacities in South America. The laboratory capacities in these locations. Further investments Sugarbeet Segment’s capital expenditure relates to contin- have been made in the Cereals segment with additional ued expansion of sugarbeet seed production at the Einbeck greenhouse and breeding stations. 118 Annual Financial Statements | Notes for the KWS Group | 5. Segment Reporting for the KWS Group Annual Report 2019/2020 | KWS Group Disclosures by region The disclosures on the regional composition of net sales and The external net sales by sales region are broken down on the noncurrent operating assets have been made in accordance basis of the country where the customer is based. No individ- with the accounting policies to be applied to the consolidat- ual customer accounted for more than 10% of total net sales ed financial statements of the KWS Group and thus, without in the current and the previous fiscal years. proportionate consolidation of the equity-accounted financial investments. 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 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 2019/2020 2018/2019 239,835 573,205 112,449 378,527 110,187 222,410 90,985 236,226 505,867 100,982 305,749 97,989 167,547 65,497 1,282,552 1,113,339 2019/2020 2018/2019 313,829 621,712 63,820 252,110 29,921 199,521 6,719 1,194,370 267,309 169,579 55,706 252,477 36,312 192,042 6,397 695,762 5. Segment Reporting for the KWS Group | Notes for the KWS Group | Annual Financial Statements 119 KWS Group | Annual Report 2019/20206. Notes to the Income Statement 6.1 Net sales and function costs The impairment losses relate mainly to unsold seed. They Net sales are primarily generated from the sale of certified are based on, among other things, empirical values and seed. A breakdown by segments and regions is provided in expectations as to their substitution by new varieties. the segment reporting in section 5 of the Notes. Selling expenses increased by €26,906 thousand The cost of sales increased by 19.9% to €549,899 to €248,821 (221,915) thousand, or 19.4% (19.9%) of (458,534) thousand, or 42.9% (41.2%) of sales. The key sales. The selling expenses include amortization of factors in this development were higher cost of sales in €13,047 thousand from the purchase price allocation for the Sugarbeet Segment and non-recurring effects from the POP VRIEND SEEDS Group. the purchase price allocation for the POP VRIEND SEEDS Group (€11,116  thousand). The total cost of goods sold was Research & development is recognized as an expense in €357,408 (294,401) thousand. the year it is incurred; in the year under review, this amount- ed to €236,102 (205,557) thousand. Development costs for The impairment losses on inventories and the decreases in new varieties are not recognized as an asset because evi- the impairment loss, which are carried as a reduction in the dence of future economic benefit can only be provided after cost of materials in the period, are as follows: the variety has been officially certified. The research and July 1 to June 30 in € thousand Impairment losses Decreases in impairment loss 2019/2020 2018/2019 8,666 5,441 9,543 3,889 development costs include amortization of €8,820 thousand from the purchase price allocation for the POP VRIEND SEEDS Group. General and administrative expenses increased by €14,072 thousand to €129,451 (115,379) thousand, representing 10.1% of sales, after 10.4% the year before. They rose in particular due to the process of optimizing the organizational structure and our entry into vegetable seed business, including first-time consolidation of the POP VRIEND SEEDS Group. 120 Annual Financial Statements | Notes for the KWS Group | 6. Notes to the Income Statement KWS Group | Annual Report 2019/20206.2 Other operating income July 1 to June 30 in € thousand Income from sales of fixed assets Income from the reversal of provisions Foreign exchange gains Unrealised gain on derivatives measured at fair value through profit or loss Income from reversal of valuation allowance for trade receivables and recovery of written off receivables Performance-based public grants Other income related to previous periods Income from loss compensation received Gain on net monetary position (hyperinflation) Income from deconsolidation of KWS Potato B.V. Miscellaneous other operating income Total 2019/2020 2018/2019 846 1,560 42,355 1,289 6,591 8,200 2,742 400 651 0 16,615 81,250 201 4,238 30,753 – 11,317 6,797 3,240 493 1,400 15,958 21,863 96,260 The other operating income mainly comprises performance-based government grants mainly relate to foreign exchange gains, income from the reversal of breeding allowances and farm payments. allowances on receivables, and government grants. The 6.3 Other operating expenses July 1 to June 30 in € thousand Valuation allowance on receivables Foreign exchange losses Unrelaised loss on derivatives measured at fair value through profit or loss Expenses relating to previous periods Other expenses Total The other operating expenses mainly comprise foreign exchange losses and valuation allowances on receivables. 2019/2020 2018/2019 11,870 42,310 2,810 38 5,135 62,163 6,662 30,266 – 1,106 20,187 58,221 6. Notes to the Income Statement | Notes for the KWS Group | Annual Financial Statements 121 KWS Group | Annual Report 2019/2020 6.4 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 Interest expenses for lease liabilities Interest result Result from equity-accounted financial assets Net income from equity investments Net financial income/expenses 2019/2020 2018/2019 5,462 21,514 20 1,294 105 1,184 4,006 17,016 68 1,956 82 1 –18,615 –14,981 10,773 10,773 –7,842 9,447 9,447 –5,534 Net financial income/expenses was mainly reduced by income. The increase in interest expenses for lease liabilities higher interest expenses in Germany and Brazil. Factors that is attributable to adoption of IFRS 16. resulted in an increase in financial expenses included the issue of borrower’s notes in connection with the acquisition Net financial income/expenses from the equity-accounted of the POP VRIEND SEEDS Group at the beginning of the joint ventures improved slightly year on year due to higher fiscal year. The interest effects from pension provisions earnings by KENFENG – KWS SEEDS CO., LTD. comprise interest expenses (compounding) and the planned 6.5 Taxes Income tax expenses in € thousand Actual income taxes in Germany abroad thereof from previous years Deferred taxes in Germany abroad Income taxes 2019/2020 2018/2019 45,101 9,048 36,053 6,102 54,196 5,182 49,014 7,545 –10,797 –13,758 –1,981 –8,817 34,304 –5,855 –7,903 40,439 KWS Group pays tax in Germany at a rate of 29.8% (29.8%). 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 6.0% (9.0%) and 34.4% (35.0%). generated in Germany. Trade income tax is applied at a weighted average rate of 14.0% (14.0%), resulting in a total tax rate of 29.8% (29.8%). 122 Annual Financial Statements | Notes for the KWS Group | 6. Notes to the Income Statement KWS Group | Annual Report 2019/2020 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 2019/2020 2018/2019 2019/2020 2018/2019 438 826 0 2,242 11,602 19,143 47,259 23,782 22,030 103,540 10,656 0 740 0 1,350 25,920 8,215 23,941 23,156 10,289 70,454 7,213 78,452 19,254 4 3,211 4,978 20,768 6,939 0 2,265 135,871 0 2,876 18,683 4 1,180 2,003 2,016 9 0 3,903 30,675 0 –43,606 –14,259 –43,606 –14,259 70,590 63,407 92,264 16,416 Due to the use of tax loss carryforwards and temporary No deferred taxes were recognized for temporary differences on which no deferred taxes were recognized in differences amounting to €41,806 (35,633) thousand related the past, the actual tax expense fell by €332 (809) thousand. to shares in subsidiaries in keeping with IAS 12.39. There is a deferred tax expense of €3,413 (802) 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 carryforwards forwards and temporary differences in the year under totaling €46,198 (21,088) 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 of companies in question will post taxable profits in the future. €602 (584) 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 to- research & development spending. taling €5,561 (13,893) thousand that have not yet been utilized. Of these, €923 (0) thousand must be utilized within a period of The reconciliation of the expected income tax expense to five years. Loss carryforwards totaling €4,638 (13,893) thou- the reported income tax expense is derived on the basis of sand can be utilized without any time limit. the consolidated income before taxes and the nominal tax rate for the Group of 29.8% (29.8%), taking into account the Deferred taxes were formed for all deductible differences. following effects: 6. Notes to the Income Statement | Notes for the KWS Group | Annual Financial Statements 123 KWS Group | Annual Report 2019/2020 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% (29.8%) 2019/2020 2018/2019 129,524 38,637 –6,613 –73 4,203 –8,391 –435 –162 –568 7,757 –51 34,304 26.5% 144,459 43,092 –7,246 797 4,238 –12,719 497 –283 –535 12,500 99 40,439 28.0% Income taxes relating to other periods include in particu- Other taxes, primarily real estate tax, are allocated to the lar effects from field tax audits that have been completed relevant functions. worldwide and future field tax audits. 6.6 Personnel costs/employees July 1 to June 30 in € thousand Wages and salaries Social security contributions, expenses for pension plans and benefits Total Employees by region 2019/2020 2018/2019 2019/2020 2018/2019 246,215 223,298 Germany 63,858 57,358 310,073 280,656 Europe (excluding Germany) North and South America Rest of world Total 1,954 1,417 879 164 4,414 1,800 1,315 832 179 4,126 Personnel costs went up by 10.5%. The number of With our joint ventures and associated company employees increased from 4,126 to 4,414, or by 7%. Of consolidated proportionately, the number of employees was the 4,414 (4,126) employees, 4,052 (3,791) are permanent 4,877 (4,592). The reported number of employees is greatly employees, 265 (236) are temporary employees and influenced by seasonal labor. 97 (98) are trainees. 124 Annual Financial Statements | Notes for the KWS Group | 6. Notes to the Income Statement KWS Group | Annual Report 2019/2020 6.7 Share-based payment performance-related bonus. Along with that, members of the first management level below the Executive Board Employee Stock Purchase Plan likewise take part in an LTI program. As part of this program, KWS Group has established an Employee Stock Purchase they are obligated to invest in shares in KWS SAAT SE & Plan. All employees who have been with the company for Co. KGaA every year in a freely selectable amount ranging at least one year without interruption and have a permanent between 10% and 40% of the gross performance-related employment relationship that has not been terminated at a bonus. The shares acquired under the LTI program may KWS Group company that participates in the program are be sold at the earliest after a regular holding period of five eligible to take part. That also includes employees who are on years beginning at the time they are acquired (end of the maternity leave or parental leave or who are in semi-retirement. quarter in which the shares were acquired). In addition to the shares being unlocked, the entitled persons are paid a Each employee can acquire up to 2,500 shares. A bonus of long-term incentive (LTI) in the form of cash compensation 20% is deducted from the purchase price, which depends after the holding period for the tranche in question. Its level on the price applicable on the key date. The shares are is calculated on the basis of KWS SAAT SE & Co. KGaA’s subject to a lock-up period of four years beginning when share performance and on the KWS Group’s return on sales they are posted to the employee’s securities account. (ROS), measured as the ratio of operating income to net The right to a dividend, if declared by KWS SAAT SE & sales, over the holding period. For persons with contracts Co. KGaA, exists during the lock-up period. Holders can as of July 1, 2014, the cash compensation for members of also exercise their right to participate in the Annual Share- the Executive Board is a maximum of one-and-half times holders’ Meeting during the lock-up period. They can dis- (for the Chief Executive Officer two times), and for members pose freely of the shares after the lock-up period. of the first management level below the Executive Board a 52,315 (54,095) shares were repurchased for the Employee costs of this compensation are recognized in the income Stock Purchase Plan at a total price of €2,957 (3,101) thou- statement over the period and, taking the cash compensa- sand in the year under review. The total cost for issuing tion in January 2020 into account, were €1,163 (1,037) thou- shares at a reduced price was €555 thousand in the past sand in the period under review. The provision for it at June fiscal year (previous year: €715 thousand). 30, 2020, was €2,560 (2,490) thousand. The LTI fair values maximum of two times their own investment (LTI cap). The are calculated by an external expert. Long-term incentive (LTI) The stock-based compensation plans awarded at the 6.8 Net income for the year KWS Group are recognized in accordance with IFRS 2 The KWS Group’s net income for the year was “Share-based Payment.” The incentive program, which was €95,220 (104,020) thousand on operating income of launched in fiscal 2009/2010, involves stock-based payment €137,366 (149,993) thousand and net financial income/ transactions with cash compensation, which are measured expenses of €–7,842 (–5,534) thousand. The return on at fair value at every balance sheet date. Members of sales was 7.4% and so below that of the previous year the Executive Board are obligated to acquire shares in (9.3%). Net income for the year after minority interest was KWS SAAT SE & Co. KGaA every year in a freely select- €95,331 (104,134) thousand. Earnings per share in the able amount ranging between 35% and 50% of the gross year under review were €2.89. 6. Notes to the Income Statement | Notes for the KWS Group | Annual Financial Statements 125 KWS Group | Annual Report 2019/20207. Notes to the Balance Sheet 7.1 Intangible assets Reconciliation of carrying amount of intangible assets in € thousand Gross book values: 07/01/2019 Currency translation Change in consolidation scope Additions Disposals Transfers Reclassification in held for sale (IFRS 5) At 06/30/2020 Amortization and impairment: 07/01/2019 Currency translation Change in consolidation scope Amortization Impairment Disposals Transfers Reclassification in held for sale (IFRS 5) Gross book values: 06/30/2020 Net book values: 06/30/2020 Net book values: 06/30/2019 in € thousand Gross book values: 07/01/2018 Currency translation Change in consolidation scope Additions Disposals Transfers Reclassification in held for sale (IFRS 5) At 06/30/2019 Amortization and impairment: 07/01/2019 Currency translation Change in consolidation scope Amortization Impairment Disposals Transfers Reclassification in held for sale (IFRS 5) Gross book values: 06/30/2019 Net book values: 06/30/2019 Net book values: 06/30/2018 Patents, indus- trial property rights and software 139,200 –4,594 320,277 14,080 8,683 47 0 460,327 73,315 –4,306 0 31,626 0 8,671 2 0 91,966 368,361 65,885 Patents, indus- trial property rights and software 123,885 608 5,932 9,368 566 67 –94 139,200 63,535 534 0 9,720 0 400 0 –74 73,315 65,885 60,350 Goodwill 26,190 –4,027 95,126 0 0 0 0 117,289 0 –1 0 0 0 0 0 0 –1 117,290 26,190 Goodwill 25,115 520 555 0 0 0 0 26,190 0 0 0 0 0 0 0 0 0 26,190 25,115 Intangible Assets 165,390 –8,620 415,403 14,080 8,683 47 0 577,616 73,315 –4,307 0 31,626 0 8,671 2 0 91,965 485,651 92,075 Intangible assets 149,000 1,128 6,487 9,368 566 67 –94 165,390 63,535 534 0 9,720 0 400 0 –74 73,315 92,075 85,465 126 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet KWS Group | Annual Report 2019/2020 Intangible assets include purchased varieties, rights to of industry-specific market analyses and company-related varieties and distribution rights, brands, customer relation- growth perspectives into account. ships, software licenses for electronic data processing, and goodwill. The current additions of €14,080 (9,368) thousand The discount rate at the KWS Group has been derived as related to software licenses and patents. Amortization of the weighted average cost of capital (WACC). intangible assets amounted to €31,626 (9,720) thousand. The additions attributable to changes in the consolidated group related to acquisition of the POP VRIEND SEEDS Group. Further explanations can be found in section 4. One major intangible asset is the trait licensing agreement. Its carrying amount at the balance sheet date was Corn America Corn Europe/Asia Sugarbeet €17,178 (18,896) thousand. Its remaining useful life is ten years. Cereals Vegetables In order to meet the requirements of IFRS 3 in combination with IAS 36 and to determine any impairment of goodwill, WACC before taxes Business Unit in % 2019/2020 2018/2019 6.10 6.29 6.28 6.30 7.72 6.49 6.54 6.23 6.91 – cash-generating units have been defined in line with internal A growth rate of 1.5% (1.5%) has been assumed here budgeting and reporting processes. In the KWS Group, beyond the detailed planning horizon in order to allow for these are the Business Units. To test for impairment, the extrapolation in line with the expected inflation rate. carrying amount of each Business Unit is determined by allocating the assets and liabilities, including attributable The impairment tests conducted at the end of fiscal year goodwill and intangible assets. An impairment loss is 2019/2020 confirmed that the existing goodwill is not recognized if the recoverable amount of a Business Unit is impaired. less than its carrying amount. The recoverable amount is the higher of the fair value less costs to sell and the value in use of a cash-generating unit. The recoverable amount in fiscal 2019/2020 was determined on the basis of the value in use of the respective cash-generating unit excluding the Business Unit Vegetables. The impairment test uses 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 four years, have been approved by the Executive Goodwill in € thousand Vegetables Corn America Cereals Others Total 06/30/2020 06/30/2019 95,126 15,966 3,866 2,333 – 20,350 3,925 1,915 117,290 26,190 Board. They are based on historical patterns and expecta- Sensitivity analyses were also carried out for all cash- tions about future market development. generating units to which goodwill is allocated. As part For the European and American markets, the key fall by 10%, the weighted average cost of capital would assumptions on which corporate planning is based include increase by 10% and the long-term growth rate would fall assumptions about price trends for seed, in addition to the by 1 percentage point. The sensitivity analyses did not development of market shares and the regulatory frame- reveal the need to recognize an impairment loss for any work. Company-internal projections take the assumptions cash-generating unit. of that, it was assumed that the future cash flows would 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 127 KWS Group | Annual Report 2019/20207.2 Property, plant, and equipment Reconciliation of carrying amount of property, plant and equipment in € thousand Gross book values: 07/01/2019 Currency translation Adjustment for hyperinflation IAS 29 Change in consolidation scope Additions Disposals Transfers Reclassification in held for sale (IFRS 5) Technical equip- ment and machinery Operating and office equipment Prepayments and assets under construction Property, plant and equipment 253,941 –5,969 1,281 2,136 25,594 4,429 26,787 0 124,332 –4,064 739 172 12,181 4,892 1,710 0 62,318 –3,120 –806 0 36,267 7,594 –50,176 0 783,649 –18,703 4,389 10,750 93,934 18,204 –47 0 Land and buildings 343,058 –5,550 3,174 8,442 19,893 1,289 21,633 0 At 06/30/2020 389,360 299,341 130,179 36,889 855,769 Depreciation and impairment: 07/01/2019 Currency translation Adjustment for hyperinflation IAS 29 Change in consolidation scope Additions Impairment Disposals Transfers Reclassification in held for sale (IFRS 5) Status: 06/30/2020 Net book values: 06/30/2020 Net book values: 06/30/2019 102,746 –1,296 446 0 11,589 0 8,468 104 0 105,120 284,240 240,312 160,950 –3,429 541 0 20,216 0 4,060 341 0 174,559 124,782 92,991 75,439 –1,790 382 0 12,714 0 4,387 –447 0 81,912 48,267 48,893 0 0 0 0 0 0 0 0 0 0 36,889 62,318 339,135 –6,516 1,370 0 44,519 0 16,915 –2 0 361,591 494,178 444,514 128 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet KWS Group | Annual Report 2019/2020in € thousand Technical equip- ment and machinery Operating and office equipment Prepayments and assets under construction Property, plant and equipment Land and buildings Gross book values: 07/01/2018 320,754 251,271 111,217 36,581 719,823 First-time adjustment for hyperinflation (IAS29) at 07/01/2018 Currency translation Adjustment for hyperinflation IAS 29 Change in consolidation scope Depreciation Disposals Transfers Reclassification in held for sale (IFRS 5) At 06/30/2019 Depreciation and impairment: 07/01/2019 First-time adjustment for hyperinflation (IAS29) at 07/01/2018 Currency translation Adjustment for hyperinflation IAS 29 Change in consolidation scope Depreciation Impairment Adjustment not affecting profit and loss Disposals Transfers Reclassification in held for sale (IFRS 5) At 06/30/2019 Net book values: 06/30/2019 Net book values: 06/30/2018 4,075 –275 824 0 13,933 942 12,348 –7,659 343,058 1,470 –487 510 0 10,296 3,097 5,814 –11,836 253,941 779 132 692 0 13,192 6,100 4,594 –174 124,332 96,170 152,810 69,156 698 49 220 0 796 –102 281 0 448 148 160 0 9,768 18,030 11,359 45 0 345 –11 –3,848 102,746 240,312 224,584 635 0 2,171 –4 –9,325 160,950 92,991 98,461 77 0 5,788 16 –137 75,439 48,893 42,061 115 –13 601 0 49,073 1,099 –22,822 –118 62,318 0 0 0 0 0 0 0 0 0 0 0 0 62,318 36,581 6,439 –643 2,627 0 86,494 11,238 –66 –19,787 783,649 318,136 1,942 95 661 0 39,157 757 0 8,304 1 –13,310 339,135 444,514 401,687 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 129 KWS Group | Annual Report 2019/2020The main focus of the KWS Group’s capital spending in the year under review remained on erecting and expanding production and research and development capacities. There Disclosures on equity-accounted joint ventures (with the partner Vilmorin) in € thousand 06/30/2020 06/30/2019 was an expansion of the plants for sugarbeet seed produc- Stake in the joint venture tion in Germany as well as investment in the completion of Current assets the new research building in Einbeck and breeding stations. KWS Group moved into new office premises at our Berlin location and accordingly recognized the related tenant fix- tures as assets. In France, additional purchases occurred in sugarbeet harvesting technology with integrated laboratory equipment and drying and production capacities for corn seed were increased further in South America, in particular in Brazil. 7.3 Equity-accounted financial assets Equity-accounted joint ventures The joint ventures AGRELIANT GENETICS LLC. and Thereof cash and cash equivalents 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 Group operates Net sales together with its joint venture partner Vilmorin, are recog- nized at equity. In the year under review, AGRELIANT GENETICS LLC. was classified as a significant joint venture. From the group perspective, AGRELIANT GENETICS INC. and FARMDESK B.V. were classified as insignificant joint ventures. The joint ventures AGRELIANT GENETICS LLC. and AGRELIANT GENETICS INC. are operating units. The main Depreciation and amortization Net income for the year Comprehensive income (100%) Comprehensive income (50%) Group share of comprehensive income Dividend payment 50% 50% 286,724 367,892 34,605 241,357 247,475 31,696 243,626 345,058 123,398 133,564 3,971 276,634 138,317 8,802 147,119 510,621 28,707 12,664 12,664 6,332 6,332 5,936 1,294 265,166 132,583 8,802 141,385 512,748 24,523 12,886 12,886 6,443 6,443 12,224 business activity of the two joint ventures is the production Equity-accounted associated companies and sale of corn and soybean seed in North America. The following disclosures on the joint ventures are only slightly influenced by the insignificant joint venture. If individual items of the information presented are materially influenced by the insignificant joint venture, this information is presented separately. Disclosures on insignificant associated companies accounted for using the equity method in € thousand 06/30/2020 06/30/2019 Carrying amount for the stake in insignificant associated companies ( aggregated) Net income for the year Other comprehensive income Comprehensive income (100%) 13,750 9,081 0 9,081 12,601 6,069 0 6,069 In the year under review, the Chinese joint venture KENFENG – KWS SEED CO., LTD. was carried in the KWS Group’s consolidated financial statements as an asso- ciated company in accordance with the equity method. 130 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet KWS Group | Annual Report 2019/20207.4 Proportionately consolidated joint operations Inventories and biological assets increased by Joint operations are based on joint arrangements that €36,519  thousand, or 18.9%, a figure that includes cumu- always exist when the KWS Group jointly conducts lative impairment losses on the net realizable value totaling operations managed together with a third party pursuant €51,559 (63,091) thousand. Immature biological assets relate to a contractual agreement. The operation is jointly to living plants in the process of growing (before harvest). managed only if decisions on significant activities require The field inventories of the previous year have been harvest- the unanimous consent of the parties involved. The assets ed in full and the fields have been newly tilled in the year and liabilities and revenue and expenses from the joint under review. Public subsidies of €1,872 (€1,594) thousand, operations are included proportionately (at 50%) in the for which all the requirements were met at the balance sheet consolidated financial statements. The main activity of the date, were granted for agricultural activity in the fiscal year. proportionately consolidated GENECTIVE S.A., including its Future  public subsidies depend on the further development subsidiaries, is development of its own traits for genetically of European agricultural policy. improving crops. The proportionately consolidated joint operation AARDEVO B.V., including its subsidiaries, special- 7.7 Current receivables and other assets izes in developing potato seed. 7.5 Financial assets This item mainly comprises the investments in the capital investment fund MLS Capital Fund II (financing of projects/ access to biotechnology developments) totaling €5,450 (4,209) thousand, which are measured irrevocably at fair value through other comprehensive income due to the long-term nature of the investment. The remainder relates to a large number of financial investments that – taken individually – are insignificant, such as other interest-bearing Current receivables in € thousand Trade receivables Current tax assets Other current financial assets Other current assets Contractual assets IFRS 15 06/30/2020 06/30/2019 432,569 402,129 83,409 63,391 29,741 2,553 81,010 487,121 20,671 2,733 Total 611,662 993,664 loans, shares in cooperatives, and other securities. The high level of other current financial assets in the previ- ous year is mainly due to deposit of the purchase price of 7.6 Inventories and biological assets around €400 million for the acquisition of all the shares in the POP VRIEND SEEDS Group in a notary’s escrow account. Inventories and biological assets in € thousand Raw materials and consumables Work in progress Immature biological assets Finished goods Total 06/30/2020 06/30/2019 The trade receivables include €10,331 (7,318) thousand in receivables from joint ventures and joint operations. 32,990 70,843 15,869 110,219 229,922 26,642 62,528 16,087 88,146 193,403 The need to recognize impairment losses at June 30, 2020, was analyzed using the provision matrix on the basis of the expected losses. To enable that, the receivables were grouped by geographical region and the length of time they were overdue and multiplied by appropriate default rates. Receivables that are overdue by more than 360 days and are no longer subject to an enforcement measure have been classified as uncollectible and written off in full. 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 131 KWS Group | Annual Report 2019/2020The maximum exposure to the risk of default from trade receivables is the carrying amount reported on the balance sheet and is as follows at June 30, 2020: Credit risk exposure on trade receivables in € thousand 06/30/2020 Expected credit loss rate Total gross amount at default Expected credit loss 06/30/2019 Expected default rate Total gross amount at default Expected credit loss not overdue 1–180 days 181–360 days >360 days Total Overdue in days 0.83% 391,315 –3,258 1.09% 371,343 –4,039 5.15% 42,066 –2,168 4.25% 33,486 –1,422 44.86% 6,518 –2,924 50.08% 4,505 –2,256 96.15% 26,517 –25,497 98.01% 25,703 –25,192 466,417 –33,848 435,038 –32,909 The credit risks were reflected by the following allowances at June 30, 2020, and in the previous year: Change in allowances on receivables in € thousand 2019/2020 2018/2019 07/01 32,909 37,987 Changes in consolidation scope and exchange rates Addition Disposal Reversal –3,900 –1,608 12,193 6,856 1,101 68 6,252 10,258 06/30 33,848 32,909 7.8 Securities 7.9 Cash and cash equivalents Securities amounting to €28,266 (€19,944) thou- Cash and cash equivalents comprise cash on hand, checks, sand relate primarily to money market accounts of and immediately available balances at banks. our U.S. subsidiaries. For details of how securities are measured, please refer to section 7.15 “Finan- Cash and cash equivalents of €91,472 (139,813) thousand cial instruments” of the Notes. consists of balances with banks and cash on hand. The cash flow statement explains the change in this item compared with the previous year, together with the change in securities. 132 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet KWS Group | Annual Report 2019/20207.10 Equity benefit plans, the reserve for currency translation for The fully paid-up capital of KWS is still €99,000 thousand. equity-accounted financial assets, and the reserve for The no-par bearer shares are certificated by a global revaluation of at equity instruments (with changes in value in certificate for 33,000,000 shares. The company does not the other comprehensive income) are also carried here. hold any shares of its own. Differences from translation of the functional currency of for- The capital reserves essentially comprise the premium eign business operations into the currency used by the group obtained as part of share issues. in reporting (euro) are carried in the item Reserve from cur- rency translation differences on foreign operations. The item The other reserves and net retained profit essentially Revaluation of net liabilities/assets from defined benefit plans comprise the net income generated in the past by the includes the actuarial gains and losses on defined benefit companies included in the consolidated financial state- plans. Differences from translation of the functional currency ments, minus dividends paid to shareholders, and the net of equity-accounted foreign business units into the currency retained profit. The reserve for currency translation, the used by the group in reporting (euro) are carried in the reserve reserve for remeasurement gains and losses on defined for currency translation for equity-accounted financial assets. Other comprehensive income in € thousand Items that may have to be subsequently reclassified as profit or loss Changes in reserve for currency translation differences on foreign operations Changes on reserve for currency translation differences on at 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 2019/2020 2018/2019 Before taxes Tax effect After taxes Before taxes Tax effect After taxes –38,127 –39,596 1,469 –5,630 0 0 0 825 –38,127 4,345 –39,596 1,592 1,469 –3,835 2,753 –11,319 0 0 0 4,003 4,345 1,592 2,753 –7,316 1,891 –354 1,313 787 –155 632 –7,521 –43,757 1,179 825 –5,148 –12,106 –41,962 –6,974 4,158 4,003 –7,948 –2,971 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 133 KWS Group | Annual Report 2019/2020The objective of the KWS Group’s capital management activities intend to optimize the average cost of capital. activities is to pursue the interests of shareholders and Another goal is a balanced mix of equity and debt capital. employees in accordance with the corporate strategy Consolidated income (after taxes and minority interests) and earn a reasonable return on investment. One main is €95,331 (104,134) thousand. However, there was a total goal is to retain the trust of investors, lenders and the dividend payout of €22,110 (21,120) thousand in December market so as to strengthen the company’s future business 2019. This ensures the adequate financing of further operat- development. The KWS Group’s capital management ing business expansion in the long term. 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 Equity ratio 06/30/2020 06/30/2019 994,498 521,744 273,721 93,663 351,841 0 963,547 182,270 182,108 475,425 309,845 1,758 2,235,467 2,114,953 44.5% 45.5% The focus in selecting financial instruments is on financing of medium- and long-term borrower’s notes with a total with matching maturities, which is achieved by controlling volume of €400,000 thousand. The borrower’s note loans the maturities. Long-term financial borrowings increased were raised in August 2019 to replace the bridge funding for by €339,474 thousand (previous year: increase of acquisition of the POP VRIEND SEEDS Group. The liabilities €13,572  thousand). This is mainly due to the increase in from these borrower’s note loans, using the effective interest long-term loans from banks in connection with financing method, were €399,287 thousand at June 30, 2020, and of the acquisition of the POP VRIEND SEEDS Group at have remaining maturities through 2029. the beginning of the fiscal year. Raising of these long-term borrower’s note loans replaced the bridge funding and therefore resulted in a sharp fall in short-term financial Noncurrent liabilities in € thousand 06/30/2020 06/30/2019 liabilities. 7.11 Minority interests Long-term provisions Long-term borrowings 140,074 521,744 264 145,446 182,270 782 The KWS Group does not have any minority interests that Trade payables are assessed as being significant. Deferred tax liabilities 92,265 16,416 7.12 Noncurrent liabilities Noncurrent liabilities increased by €431,087 thousand (previous year: increase of €30,055 thousand). This is due Other noncurrent financial liabilities thereof lease liabilities Other noncurrent liabilities in particular to the increase in long-term financial bor- Total rowings from banks in Germany as a result of the issue 40,103 39,896 1,014 258 0 19,206 795,465 364,378 134 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet KWS Group | Annual Report 2019/2020 Long-term provisions in € thousand 06/30/ 2019 06/30/ 2020 Changes in the consoli- da ted group, currency Interest ex penses from com- pounding Pension provisions Tax provisions Other provisions Total 125,748 7,616 12,082 145,446 –295 117 –22 –200 1,345 0 148 1,493 Adjust- ment not affecting profit or loss Con- sumption Reclassi- fication Reversal 6,808 0 0 9,231 7,407 254 6,808 16,892 159 0 –4,449 –4,290 0 0 0 0 129,098 1,412 9,564 140,075 Addition 4,564 1,086 2,059 7,710 The other provisions mainly comprise provisions by 0.85% compared with 0.95% the year before, 2.85% in the the German companies for semi-retirement and loyalty U.S. compared with 3.65% the year before, and between bonuses. 0.30% and 1.40% (0.35% and 2.35%) in the rest of the world. The pension provisions are based on defined benefit The following mortality tables were used at June 30, 2020: obligations, determined by years of service and pension- able compensation. They are measured using the accrued „„ In Germany: The 2018 G mortality table of Klaus Heubeck benefit method under IAS 19, on the basis of assumptions „„ Abroad: Mainly Pri-2012 Private Retirement Plans about future development. The assumptions in detail are Mortality Table Projection Scale MP-2019 and INSEE TD/ that wages and salaries in Germany will increase by 3.00% TV 15-17. (3.00%) annually, in the U.S. by 3.50% (3.75%) annually and in the rest of the world by 2.00% to 2.40% (1.80% to 2.63%) A retirement age of 63 years is imputed for Germany, a annually. An annual increase in pensions of 2.00% (2.00%) retirement age of 65 years is imputed for the U.S., and a is assumed in Germany. The discount rate in Germany was retirement age of 66 years is imputed for France. 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 135 KWS Group | Annual Report 2019/2020 Nature and scope of the pension benefits The pension plans are mainly subject to the following risks: In Germany The following benefits are provided under a company Investment and return agreement relating to the company retirement pension The present value of the defined benefit obligation from the program: pension plan is calculated using a discount rate defined on the basis of the returns on high-quality fixed-income „„ An old-age pension at the age of 65 corporate bonds. If the income from the plan assets is „„ An early retirement pension before the age of 65, coupled below this rate of interest, the result is a shortfall in the with benefits from the early retirement pension from the plan. The corporate bonds and share funds are chosen to statutory pension insurance program ensure risk diversification and managed by an external fund „„ An invalidity pension for persons who suffer from occu- manager. pational disability or incapacity to work as defined by the statutory pension insurance program Change in interest rates „„ A widow’s or widower’s pension The fall in the returns on corporate bonds and thus the For benefit obligations backed by a guarantee which is only partly compensated for by a change in the discount rate will result in an increase in the obligations, by an insurance company toward three former value of the plan assets. members of the Executive Board, the plan assets of €10,361 (10,061)  thousand correspond to the present value Life expectancy of the obligation. In accordance with IAS 19, the pension The present value of the defined benefit obligation from the commitments are netted off against the corresponding plan is calculated on the basis of the best-possible estimate assets (plan assets). Abroad using mortality tables. An increase in the life expectancy of the entitled employees results in an increase in the plan 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 plan 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 least one year and at least 1,000 working hours to earn an the entitled employees results in an increase in the plan entitlement. liabilities. The following benefits are granted from the pension plan: In previous years, KWS Group countered the usual risks of „„ An old-age pension at the age of 65 defined benefit to defined contribution plans. As a result, „„ An early retirement pension before the age of 65 – to subsequent benefits will be provided by a provident fund be eligible, the employee must be at least 55 and the backed by a guarantee. The existing obligations, which are minimum vesting period is five years partly covered by plan assets, are funded from the operating „„ A pro-rata pension if the employee reaches the minimum cash flow and are subject to the familiar measurement risks. direct obligations by converting the pension obligations from vesting period of five years, but is below 55. 136 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet KWS Group | Annual Report 2019/2020 Changes in accrued benefit entitlements in € thousand 2019/2020 2018/2019 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 demographic assumptions of which due to experience adjustments Pension payments made Exchange rate changes Other changes in value Reclassification in liabilities hold for sale Accrued benefit entitlements from retirement obligations on June 30 Change in planned assets in € thousand Fair value of the planned assets on July 1 127,401 26,924 154,325 117,928 23,642 141,570 881 1,138 3,335 1,516 895 3,473 2,396 2,034 6,808 784 1,900 11,674 1,283 905 1,541 2,067 2,805 13,215 1,970 3,502 5,472 12,947 2,296 15,243 0 1,365 –4,994 0 0 –363 334 –778 340 –52 0 –363 0 1,700 –5,772 340 –52 0 –1,273 –4,885 0 0 –755 –690 465 –63 –159 0 –2,028 –5,575 465 –63 –159 127,760 32,318 160,078 127,401 26,924 154,325 Germany Abroad Total Germany Abroad Total 2019/2020 2018/2019 10,191 18,386 28,577 10,061 17,388 27,449 Interest income 94 646 740 161 703 864 Income from planned assets excluding amounts already recognized as interest income Pension payments made Contributions to plan assets Exchange rate changes Other changes in value Fair value of the planned assets on June 30 743 –667 0 68 –608 1,873 272 –17 811 –1,276 1,873 272 –17 614 –645 0 494 –561 0 –16 377 1,108 –1,205 0 –16 377 10,361 20,620 30,981 10,191 18,386 28,577 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 137 KWS Group | Annual Report 2019/2020In order to allow reconciliation with the figures in the bal- ance sheet, the accrued benefit must be netted off with the plan assets. Reconciliation with the balance sheet values for pensions in € thousand 2019/2020 2018/2019 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 30 127,760 32,318 160,078 127,401 26,924 154,325 10,361 117,399 20,619 11,699 30,980 129,098 10,191 117,210 18,386 28,577 8,538 125,748 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 a change in demographic assumptions Actuarial gains (–)/losses (+) due to experience adjustments Amounts recognized in other comprehensive income Total (amounts recognized in the statement of comprehensive income) 2019/2020 Germany Abroad 881 1,045 1,516 249 Total 2,396 1,294 Germany Abroad 784 1,739 1,283 202 2018/2019 Total 2,067 1,941 1,925 1,765 3,690 2,523 1,485 4,008 –743 –68 –811 –614 –494 –1,108 1,970 3,502 5,472 12,947 2,296 15,243 0 –363 –363 0 0 0 1,365 334 1,700 –1,273 –755 –2,028 2,592 3,405 5,997 11,060 1,047 12,107 4,517 5,170 9,687 13,583 2,532 16,115 The service cost is recognized in operating income in the respective functional areas by means of an appropriate formula. Net interest expenses and income are carried in the interest result. 138 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet KWS Group | Annual Report 2019/2020The fair value of the plan assets was split over the following investment categories: Breakdown of the planned assets by investment category in € thousand 2019/2020 Germany Abroad Corporate bonds Equity funds Consumer industry Finance Industry Technology Health care Other Cash and cash equivalents Reinsurance policies Planned assets on June 30 10,361 10,361 5,496 13,751 2,546 2,010 1,525 2,288 1,988 3,394 1,373 20,620 Total 5,496 13,751 2,546 2,010 1,525 2,288 1,988 3,394 1,373 10,361 30,981 Germany Abroad 4,655 12,906 2,356 1,731 1,681 2,531 1,458 3,149 825 18,386 10,191 10,191 2018/2019 Total 4,655 12,906 825 10,191 28,577 The plan assets abroad relate mainly to the U.S. The following sensitivity analysis at June 30, 2020, shows There is no active market for the reinsurance policies in a change in the actuarial assumptions. No correlations Germany. There is an active market for the other plan between the individual assumptions were taken into account assets: the fair value can be derived from their stock market in this, i.e. if an assumption varies, the other assumptions prices. 62.8% (previous year: 78.2%) of the corporate bonds were kept constant. The projected unit credit method used have an AAA rating. to calculate the balance sheet values was also used in the how the present value of the obligation would change given sensitivity analysis. Sensitivity analysis in € thousand Discount rate Anticipated annual pay increases Anticipated annual pension increase Life expectancy 1 lower limit 0% Effect on obligation in 2019/2020 Effect on obligation in 2018/2019 Change in assumption Decrease Increase Change in assumption Decrease Increase +/– 100 bps 1 +/– 50 bps +/– 25 bps +/– 1 Jahr 29,169 –22,682 –1,333 1,467 –3,762 –5,754 3,941 5,908 +/– 100 bps 1 +/– 50 bps +/– 25 bps +/– 1 Jahr 28,064 –22,111 –1,236 1,407 –3,734 –5,665 3,914 5,808 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 139 KWS Group | Annual Report 2019/2020 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 2020/2021 2021/2022 2022/2023 2023/2024 2024/2025 2025/2026 - 2029/2030 2019/2020 in € thou- sand Germany Abroad 5,070 5,038 5,070 5,110 5,079 937 917 1,050 1,050 1,229 Total 6,007 5,955 6,120 6,160 6,308 24,935 6,997 31,932 2019/2020 2020/2021 2021/2022 2022/2023 2023/2024 2024/2025 - 2028/2029 Germany 5,106 4,996 4,942 4,956 4,994 Abroad 1,020 822 925 1,124 1,088 2018/2019 Total 6,126 5,818 5,867 6,080 6,082 24,581 6,362 30,943 The weighted average time at which the pension obligations have to be recognized for them, since there are no further are due is 15.8 (16.2) years in Germany and 19.8 (18.7) years obligations above and beyond payment of the contri butions abroad. (defined contribution plans). These comprise benefits that are funded solely by the employer and allowances for Defined contribution plans conversion of earnings by employees. Apart from the above-described pension obligations, there are other old-age pension systems. However, no provisions The total pension costs for fiscal 2019/2020 were as follows: Pension costs in € thousand Germany Abroad Cost for defined contribution plans 2,925 1,011 Service cost for the defined benefit obligations Pension costs 881 3,806 1,516 2,527 2019/2020 2018/2019 Total 3,936 2,396 6,333 Germany Abroad 3,618 891 784 4,402 1,283 2,174 Total 4,509 2,067 6,576 In addition, contributions of €15,965 (14,786) thousand contributions to this pension plan were €2,718 (2,249) thou- were paid to statutory pension insurance institutions. sand. In addition, the benefit obligation from salary conver- The costs for defined contribution plans in Germany mainly present value of the obligation of €4,885 (4,462) thousand. sion was backed by a guarantee that exactly matches the related to the provident fund backed by a guarantee. The 140 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet KWS Group | Annual Report 2019/2020 7.13 Current liabilities Current liabilities in € thousand Short-term provisions Current liabilities to banks Other current financial liabilities Short-term borrowings Trade payables Tax liabilities Other current financial liabilities thereof lease liabilities Other current liabilities Contract liabilities according to IFRS 15 Total The tax liabilities of €41,840 (48,927) thousand include amounts for the year under review and the period for which the external tax audit has not yet been concluded. 06/30/2020 06/30/2019 52,467 63,074 30,589 93,663 50,192 473,789 1,636 475,425 109,747 88,495 41,840 28,536 11,404 100,059 19,191 445,504 48,927 17,392 0 86,035 18,804 785,270 Short-term provisions in € thousand 06/30/2019 Changes in the consoli- dated group, currency Addition Consump- tion Reclassifi- cation Reversal 06/30/2020 Obligations from sales transactions Obligations from purchase transactions Other obligations Total 34,205 –4,771 6,095 5,144 2,949 13,038 50,192 2,301 950 –1,520 7 4,337 10,439 2,073 2,517 9,734 0 0 4,652 4,652 1,345 29,040 3 213 1,560 3,182 20,246 52,468 The obligations from sales transactions essentially relate to relate to litigation risks and other provisions that cannot be provisions for licenses. The obligations from purchase trans- assigned to the group of sales transactions or the group of actions include provisions for procurement transactions, such purchase transactions. as compensation for breeding areas. The other obligations 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 141 KWS Group | Annual Report 2019/2020 7.14 Derivate finanical instruments Hedging transactions in € thousand Currency hedges Interest-rate hedges Total 06/30/2020 06/30/2019 Nominal volume Net book values Fair value Nominal volume Net book values Fair value 218,341 31,000 249,341 –2,616 –197 –2,812 –2,616 156,172 –197 34,000 –2,812 190,172 –621 –73 –694 –621 –73 –694 As in the previous year, all currency hedges have a remaining account transaction costs, is used. These are active and maturity of less than one year. Of the interest-rate derivatives, accessible markets for identical assets and liabilities, where hedges with a nominal volume of €10,000 (19,000) thousand the fair value results from quoted prices that are observable have a remaining maturity of less than one year and hedges (level 1 input factors). The KWS Group did not hold any with a nominal volume of €21,000 (15,000) thousand have a financial instruments that can be assigned to level 1 in the remaining maturity of between one and five years. year under review. 7.15 Financial instruments The level 2 input factors relate to derivative financial In general, the fair values of financial assets and liabilities instruments that have been concluded between KWS Group are calculated on the basis of the market data available on companies and banks. The prices can thus be derived the balance sheet date and are assigned to one of the three indirectly from active market prices for similar assets and hierarchy levels in accordance with IFRS 13. The principal liabilities. The level 3 input factors cannot be derived from market, i.e. the market with the largest volume of trading observable market information. and the greatest business activity, is used to calculate the fair value. If this market does not exist for the asset or liabil- The carrying amounts and fair values of the financial assets ities in question, the market that maximizes the amount that (financial instruments), split into the measurement cate- would be received to sell the asset or minimizes the amount gories in accordance with IFRS 9, are as follows: that would be paid to transfer the liability, after taking into 06/30/2020 in € thousand Fair values Financial assets Carrying amounts At amortized cost At fair value through other comprehensive income At fair value through profit and loss Total carrying amount Financial assets Financial assets Other non-current receivables Trade receivables Securities 1 Cash and cash equivalents Other current financial assets of which derivative financial instruments Total 6,230 8,072 432,569 28,266 91,472 63,391 849 629,999 0 8,072 432,569 28,266 91,472 62,542 0 622,921 6,230 0 0 0 0 0 0 6,230 0 0 0 0 0 849 849 849 6,230 8,072 432,569 28,266 91,472 63,391 849 629,999 142 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet Annual Report 2019/2020 | KWS Group06/30/2019 in € thousand Financial assets Financial assets Other non-current financial assets Of which derivative financial instruments Trade receivables Securities 1 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 At amortized cost At fair value through other comprehensive income At fair value through profit and loss Total carrying amount Financial assets Carrying amounts 0 0 0 402,129 19,944 139,813 486,483 0 5,146 0 0 0 0 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 Total 1,054,153 1,048,369 5,146 1 The classification has been adjusted: The deposits on money market accounts are now presented in the category "at amortized cost". The financial assets and derivative financial instruments The fair value of derivative financial instruments is the are measured and carried at fair value. The fair value of present values of the payments related to these bal- trade receivables, other current financial assets, cash and ance sheet items. These instruments are mainly forward cash equivalents, and securities is the same as the carrying exchange deals. They are measured on the basis of quoted amounts as a result of the short time in which these instru- exchange rates and yield curves available from the market ments are due. data and allowing for counterparty risks (level 2). The fair value of the long-term fund shares contained in the The carrying amounts and fair values of the financial financial assets is measured using the methods based on liabilities (financial instruments), split into the measurement directly and indirectly observable market inputs (level 2). categories in accordance with IFRS 9, are as follows: 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 143 KWS Group | Annual Report 2019/202006/30/2020 in € thousand Financial liabilities Long-term borrowings Long-term trade payables Other noncurrent financial liabilities of which derivative financial instruments thereof lease liabilities Short-term borrowings Short-term trade payables Other current financial liabilities of which derivative financial instruments thereof lease liabilities Total 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 527,379 264 40,103 207 39,896 93,663 109,747 28,536 3,661 11,404 799,693 521,745 264 39.896 0 39,896 93,663 109,747 24,875 0 11,404 790,191 0 0 207 207 0 0 0 3,661 3,661 0 3,868 Total carrying amount 521,745 264 40,103 207 39,896 93,663 109,747 28,536 3,661 11,404 794,059 Fair values Financial liabilities Carrying amounts Financial liabilities measured at amortized cost Financial liabilities held for trading 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 The fair value of long-term borrowings was calculated on the are due, it is assumed that their carrying amounts are equal basis of discounted cash flows. To enable that, interest rates to the fair value. for comparable transactions and yield curves were used. The following table shows the financial assets and liabilities Due to the generally short times by which trade payables measured at fair value: and other current financial liabilities (excluding derivatives) 144 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet Annual Report 2019/2020 | KWS Group Assets and liabilities measured at fair value in € thousand 06/30/2020 06/30/2019 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Derivative financial instruments without application of hedge accounting under IFRS 9 Financial assets 1 Financial assets Derivative financial instruments without application of hedge accounting under IFRS 9 Financial liabilities 1 Prior year figures have been adjusted: 0 0 0 0 0 849 6,230 7,078 3,868 3,868 0 0 0 0 0 849 6,230 7,078 3,868 3,868 0 1,211 1,211 0 0 638 5,145 5,783 1,333 1,333 0 0 0 0 0 638 6,357 6,995 1,333 1,333 - Deposits on money market accounts were reclassified to the category at “amortized cost” and therefore no longer measured at fair value (Level 1). - The investment in a closed investment fund was reclassified from Level 1 to Level 2. The table below presents the net gains/losses carried in the The net losses from financial liabilities measured at income statement for financial instruments in each measure- amortized cost result mainly from interest expense. ment category: Net gain/losses of financial instruments in € thousand 2019/2020 2018/2019 Financial assets measured at fair value through other com- prehensive 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 Credit risks The credit risk is the risk that a business partner does not fulfill its obligations as part of a financial instrument or contract with a customer, resulting in a financial loss. The KWS Group is exposed to credit risks in its operational 1,313 68 activities mainly in relation to trade receivables. –1,289 –4,665 In order to control the credit risks resulting from receivables 182 8,438 ducted in accordance with the credit volume. If a customer’s from customers, a regular creditworthiness analysis is con- –21,391 –18,425 2,810 1,065 credit risk is classified as high, it is reduced by means of security. This includes, in particular, credit insurance, prepay- ments, down payments, promissory notes and guarantees. Depending on the contract’s design, reservation of owner- ship of goods is agreed with our customers. Credit limits are The net gains for assets measured at fair value through defined for all customers. Credit limits, outstanding claims other comprehensive income include income from and the collection of receivables are analyzed in regular non- terminable interests in investment funds. meetings of the Credit Committee. For details of the exposure to the risk of default at June 30, 2020, please refer to section The net losses from financial assets and net gains in finan- 7.7 “Current receivables and other assets” of the Notes. cial liabilities measured at fair value through profit or loss solely comprise changes in the market value of derivative Credit risks from financial transactions are controlled financial instruments. centrally by the Treasury department. In order to minimize risks, financial transactions are exclusively conducted The net gains from financial assets measured at cost within defined limits with banks and partners who always mainly include effects from changes in the allowances for have an investment grade. Compliance with the risk limits is impairment. constantly monitored. The limits are adjusted depending on the credit volume only subject to the approval of the regional or divisional management and the Executive Board. 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 145 KWS Group | Annual Report 2019/2020Liquidity risks The table below shows the KWS Group’s liquidity analysis Liquidity risk is the risk that funds to settle due payment for non-derivative and derivative financial liabilities. The obligations cannot be obtained on time or at all. table is based on contractually agreed, undiscounted payment flows (interest and payments of principal): Liquidity is managed in the Eurozone by the central Treasury unit using a cash pooling system. Liquidity requirements are generally determined by means of cash planning and are covered by cash and promised credit lines. Fiscal year 2019/2020 in € thousand Book value Liquidity analysis of financial liabilities 06/30/2020 06/30/2020 total Financial liabilities Trade payables Other financial liabilities thereof lease liabilities Nonderivative financial liabilities Payment claim Payment obligation 615,407 625,390 110,012 110,012 68,640 51,300 794,058 71,139 54,010 806,540 165,981 172,115 Derivative financial liabilities 3,868 6,135 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 306,584 233,639 264 24,018 23,811 0 18,585 18,585 330,866 252,224 0 126 126 0 18 18 Due in < 1 year 85,166 109,747 28,536 11,614 223,450 165,981 171,971 5,991 Due in < 1 year 475,425 88,495 17,392 Due in > 1 year and < 5 years 180,820 782 258 Cash flows Due in > 5 years 1,450 0 0 Nonderivative financial liabilities 764,622 764,622 581,312 181,860 1,450 Payment claim Payment obligation Derivative financial liabilities 1,333 91,981 93,189 1,208 91,981 93,189 1,208 0 0 0 0 0 0 The cash flows of the derivative financial liabilities mainly relate to forward exchange deals and include both interest payments and redemption payments. These derivative financial instruments are settled in gross. 146 Annual Financial Statements | Notes for the KWS Group | 7. Notes to the Balance Sheet Annual Report 2019/2020 | KWS GroupCurrency risks Interest rate sensitivity is a measure for showing the Currency risks are where the fair value or future cash flows interest rate risk. The interest rate sensitivity analysis of a financial instrument are subject to fluctuations due to was conducted for the portfolio of financial instruments exchange rate changes. The KWS Group is mainly exposed with a variable interest rate at the balance sheet date and to currency risks as part of its financing activities with foreign shows the hypothetical effect on income for one year. The subsidiaries. Derivative transactions (forward exchange variable-interest components of the KWS Group’s interest deals and currency swaps) are concluded to secure the net expenses and interest income were determined to calcu- investment in subsidiaries. The company ensures that the late it. In a scenario analysis, the effects of an increase/ derivative financial instrument is commensurate with the risk reduction of one percentage point (100 base points) in to be hedged. the relevant underlying capital market interest rate on the interest result were calculated. An increase in the rate of In order to assess the currency risk, the sensitivity of a interest of 1 percentage point would result in additional currency to fluctuations was determined. The analysis shows interest expense of €0.7 million (previous year: expense of the impact on income and equity. The calculated figures €3.0  million). A reduction in the rate of interest of 1 percent- relate to the portfolio of financial instruments at the balance age point would add a further €0.3 (3.0) million in income. sheet date and show the hypothetical effect for one year. 7.16 Leases After the euro, the US dollar is the most important currency The effects from the change in lease accounting at the time in the KWS Group. All other currencies are of minor impor- of adoption of IFRS 16 are presented in section 2 of the tance. The currency risk mainly results from intra-Group Notes. receivables and liabilities from financing activity. The average USD/EUR exchange rate in the fiscal year was 1.11 (1.14). If Book values of right-of-use assets the US dollar depreciated by 10%, the extra expense would be €23,562 (10,482) thousand. If the US dollar appreciated by 10%, the extra income would be €23,562 (10,482) thousand. The net income for the year would change accordingly. Risk of changes in interest rates The risk of changes in interest rates is where the fair value in € thousands Land and buildings Technical equipment and machinery Operating and office equipment Total 06/30/2020 37,678 689 7,982 46,349 or future cash flows of a financial instrument are subject to Additions to rights of use for leased assets totaling €30,590 fluctuations due to changes in market interest rates. thousand were recognized in fiscal 2019/20 and the amorti- The risk of changes in interest rates is controlled by means of a balanced portfolio of fixed-interest and variable- interest loans. Interest rate swaps are concluded if there is a high risk of interest rate variability in the portfolio. As part of them, the KWS Group exchanges the difference between zation on them was as follows: Depreciation of right-of-use assets in € thousands Land and buildings fixed-interest and variable-interest amounts determined Technical equipment and machinery with reference to a previously agreed nominal amount with a Operating and office equipment contractual partner at defined intervals of time. Total 2019/2020 5,194 384 5,059 10,637 7. Notes to the Balance Sheet | Notes for the KWS Group | Annual Financial Statements 147 KWS Group | Annual Report 2019/2020 Expenses for short-term leases and for leases relating to low-value assets totaled €12,437 thousand in the period under review. 8. Notes to the Cash Flow Statement The cash flow statement shows the changes in cash and cash equivalents of the KWS Group in the three categories Short-term lease liabilities totaled €11,404 thousand and long- of operating activities, investing activities and financing term lease liabilities €39,896 thousand at June 30, 2020. The activities. The effects of exchange rate changes and maturity analysis of the lease liabilities is presented in section changes in the consolidated group have been eliminated 7.15 of the Notes. Lease payments totaled €14,376 thousand from the respective balance sheet items, except those in fiscal 2019/2020. Interest expenses from interest accrued affecting cash and cash equivalents. on the lease liabilities were €1,184 thousand. Due to adoption of IFRS 16 “Leases” and the KWS Group’s In general, lease agreements are concluded without increased financing activities over recent years, the pre- extension or termination options. Possible cash outflows of sentation of the cash flow statement has changed in terms €20,683 thousand for existing options to extend a property of interest income and interest expense. Interest income is rental agreement were not included in determining the lease reported under the net cash from investing activities and liabilities since there is no reasonable certainty as to whether interest expense under net cash from financing activities. the options will be exercised. The disclosures for the previous year have been changed accordingly. The KWS Group also acts as a lessor. A long-term sublease agreement was concluded in the fiscal year and has been classified as a financial lease in relation to the main lease agreement. The interest income was €25  thousand. The sublease is reported under the noncurrent receivables (€4,682 thousand) and other current receivables (€586  thousand). The annual income from the sublease is €589 thousand. The lease agreement contains a clause permitting annual adjustment of the lease payment depend- ing on market circumstances. 7.17 Contingent liabilities and other financial obligations The obligations from uncompleted capital expenditure projects, mainly relating to property, plant, and equip- Adjustment of presentation in cash flow statement in € thousands Net cashflow from operating activities Net cashflow from investing activities Net cashflow from financing activities 2018/2019 reported Adjust- ment 2018/2019 adjusted 72,850 12,784 85,634 –95,235 3,965 –91,270 404,502 –16,749 387,753 ment, and other capital commitments amount to In the previous year, the €414.7 million deposited in a notary’s €29,439 (20,636) thousand. escrow account for acquisition of the POP VRIEND SEEDS Group was deducted from the cash and cash equivalents and Other guarantees with respect to third parties amount to carried under the other financial assets. €95,537 (111,956) thousand. The likelihood that these guar- antees will be utilized is seen as slight, based on the experi- As in previous years, cash and cash equivalents are ence of previous years. No claims have yet been made. composed of cash (on hand and balances with banks) and As in the previous year, there are no contingent liabilities to report at the balance sheet date. current securities. 148 Annual Financial Statements | Notes for the KWS Group | 8. Notes to the Cash Flow Statement Annual Report 2019/2020 | KWS Group9. Other Notes 9.1 Proposal for the appropriation of net retained profits In fiscal year 2019/2020, total Executive Board compensa- The net retained profits of KWS SAAT SE & Co. KGaA are tion amounted to €5,428 (€4,316) thousand. The variable €23,100 thousand (previous year: net retained profits of compensation, which is calculated on the basis of the net €22,912 thousand). profit for the period of the KWS Group, is made up of a bonus and a long-term incentive. The bonus totals €2,500 (2,032) A proposal will be made to the Annual Shareholders’ Meet- thousand; there are contributions from the long-term incen- ing that an amount of €23,100 thousand should be used to tive tranche for 2019/2020 totaling €847 thousand (tranche pay a dividend of €0.70 (previous year: €0.67) for each of the for 2018/2019: €766 thousand). Pension provisions totaling 33,000,000 shares. €1,619 (1,566) thousand were formed for two members of the Executive Board at KWS SAAT SE & Co. KGaA. 9.2 Total remuneration of the Supervisory Board and the Executive Board and of former members of Compensation of former members of the Executive Board and the Supervisory Board and the Executive Board of their surviving dependents amounted to €1,419 (1,479) thou- KWS SAAT SE & Co. KGaA sand. Pension provisions recognized for this group of persons The compensation of the members of the Supervisory Board amounted to €7,140 (6,674) thousand as of June 30, 2020, was converted to a purely fixed compensation pursuant to before being netted off with the relevant plan assets. the resolution adopted by the Annual Shareholders’ Meet- ing in December 2017. Members of the Supervisory Board 9.3 Related party disclosures who are members of a committee – with the exception of Transactions with related parties in accordance with IAS the Chairman of the Supervisory Board – receive an addi- 24 are all business dealings that are conducted with the tional fixed payment therefor. The total compensation for reporting entity by entities or natural persons or their close members of the Supervisory Board amounts to €620 (620) family members, if the party or person in question controls thousand, excluding value-added tax. The total compensa- the reporting entity or is a member of its key management tion for members of the Supervisory Board of KWS SE, the personnel, for example. personally liable partner of KWS SAAT SE & Co. KGaA, in the year under review amounted to €185 (0) thousand, excluding Pursuant to the change in legal form to a partnership limited value- added tax. Related parties in € thousand KWS SE At equity accounted joint ventures Joint operations Other related parties by shares on July 2, 2019, the personally liable partner KWS SE provides business management services on behalf of KWS SAAT SE & Co. KGaA. Deliveries and services provided Received deliveries and services Receivables Payables 2019/2020 2018/2019 2019/2020 2018/2019 2019/2020 2018/2019 2019/2020 2018/2019 0 0 5,330 0 556 0 0 9,243 4,832 18 1,991 12,059 11,640 0 0 7,708 117 4,920 111 31,354 11,964 0 22,579 695 0 1,897 1,786 1,058 0 0 23 0 9. Other Notes | Notes for the KWS Group | Annual Financial Statements 149 KWS Group | Annual Report 2019/2020There were also no business transactions or legal trans- 9.5 Audit of the annual financial statements actions that required reporting for related parties in fiscal On December 17, 2019, the Annual Shareholders’ Meeting 2019/20. As part of its operations, KWS Group procures of KWS SAAT SE & Co. KGaA elected the accounting firm goods and services worldwide from a large number of Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, business partners. They also include companies in which Hanover, to be the Group’s auditors for fiscal year 2019/20. KWS Group has an interest and on which representatives of KWS Group’s Supervisory Board exert a significant influence. Business dealings with these companies are always conduct- ed on an arm’s length basis and are not material in terms of volume. As part of Group financing, short- and medium-term term loans are taken out from and granted to subsidiaries at market interest rates. The compensation of members of the Executive Board comprises short-term employee benefits, share-based payment benefits and post-employment benefits. Individualized disclosures on the compensation of members Fee paid to the external auditors under Section 314 (1) No. 9 HGB in € thousand 2019/2020 2018/2019 a) Audit of the consolidated financial statements b) Other certification services c) Tax consulting d) Other services Total fee paid 1,370 1,488 50 0 0 69 0 0 1,420 1,557 of the Executive Board and the Supervisory Board are The non-audit services in fiscal year 2019/2020 comprised the presen ted in the Compensation Report, which is part of the voluntary audit of the Non-Financial Declaration. audited Combined Management Report. 9.4 Disclosure 9.6 Report on events after the balance sheet date There have been no events of particular significance The following subsidiaries with the legal form of a corpora- that might have an impact on the presentation of the tion within the meaning of Section 264 (3) and 264b of the KWS Group’s earnings, financial position and assets since German Commercial Code (HGB) have utilized the exemp- the end of the fiscal year. tion provided in Section 264 (3) of the German Commercial Code (HGB) as regards preparation of financial statements 9.7 Declaration of compliance with the German and their publication: Corporate Governance Code KWS SAAT SE & Co. KGaA has issued the declaration „„ KWS LOCHOW GMBH, Bergen of compliance with the German Corporate Governance „„ KWS LANDWIRTSCHAFT GMBH, Einbeck Code required by Section 161 of the Aktiengesetz (AktG – „„ BETASEED GMBH, Frankfurt am Main German Stock Corporation Act) and made it accessible „„ KWS SAATFINANZ GMBH, Einbeck to its shareholders on the company’s home page at „„ DELITZSCH PFLANZENZUCHT GMBH, Einbeck www.kws.com. „„ KANT-HARTWIG & VOGEL GMBH, Einbeck „„ AGROMAIS GMBH, Everswinkel „„ KWS BERLIN GMBH, Berlin „„ KWS INTERSAAT GmbH, Einbeck „„ EURO-HYBRID GESELLSCHAFT FÜR „„ GETREIDEZÜCHTUNG MBH, Einbeck „„ KWS KLOSTERGUT WIEBRECHTSHAUSEN GMBH, Northeim-Wiebrechtshausen „„ RAGIS KARTOFFELZUCHT- UND HANDELSGESELLSCHAFT MBH, Einbeck KWS SAAT SE & Co. KGaA prepares the consolidated financial statements for the largest and smallest group of companies. 150 Annual Financial Statements | Notes for the KWS Group | 9. Other Notes Annual Report 2019/2020 | KWS Group9.8 List of shareholdings List of shareholdings in accordance with Section 313 (2) HGB (German Commercial Code) Fiscal year 2019/2020 Name and Company’s registered office Currency Interest held Total in % Footnote 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 GESELLSCHAFT FÜR GETREIDEZÜCHTUNG MBH, Einbeck BETASEED GMBH, Frankfurt am Main KANT-HARTWIG & VOGEL GMBH, Einbeck KWS BERLIN GMBH, Berlin Foreign KWS SRBIJA D.O.O., Neu Belgrad/Serbia SEMILLAS KWS CHILE LTDA., Rancagua/Chile KWS SEMENA S.R.O., Bratislava/Slovakia KWS BULGARIA EOOD., Sofia/Bulgaria KWS ARGENTINA S.A., Balcarce/Argentina Fully consolidated subsidiaries (indirect) Foreign KWS MAGYARORSZÁG KFT., Gyo˝ r/Hungary KWS FRANCE S.A.R.L., Roye/France KWS SUISSE S.A., Basel/Switzerland KWS ITALIA S.P.A., Forlì/Italy KWS POLSKA SP.Z O.O., Poznan´/Poland KWS OSIVA S.R.O, Velké Mezirici/Czech Republic KWS SJEME D.O.O., Osijek/Croatia KWS BENELUX B.V., Amsterdam/Netherlands 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 BETASEED FRANCE S.A.R.L., Bethune/France € € € € € € € € € € € € RSD CLP € BGN ARS HUF € CHF € PLN CZK HRK € € € € € € 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 1 1 1 1 1 1 1 27 28 3 3 3 3 3 3 3 3 3 3 3 3 3 9. Other Notes | Notes for the KWS Group | Annual Financial Statements 151 KWS Group | Annual Report 2019/2020Currency Interest held Total in % Footnote USD USD USD GBP PEN RON DKK RUB RUB € USD TRY UAH PLN USD € € € € € € € € € € TRY TRY € TRY CNY € € MAD BRL BRL USD 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 24 4 4 3 5 25 3 23 7 3 3 3 23 3 4 16 17 18 18 18 18 18 18 18 18 19 20 3 3 8 6 3 9 29 30 4 Fiscal year 2019/2020 Name and Company’s registered office BETASEED INC., Bloomington/U.S. GLH SEEDS INC., Bloomington/U.S. KWS CEREALS USA LLC, Champagne/U.S. KWS UK LTD., Thriplow/United Kingdom KWS PERU S.A.C., Lima/Peru KWS SEMINTE S.R.L., Bukarest/Romania KWS SCANDINAVIA A/S, Guldborgsund/Denmark KWS RUS O.O.O., Lipezk/Russia KWS R&D RUS LLC, Lipezk/Russia KWS SEMILLAS IBÉRICA S.L., Zaratán/Spain KWS SEEDS INC., Bloomington/U.S. KWS TÜRK TARIM TICARET A.S., Eskisehir/Turkey KWS UKRAINA T.O.V., Kiev/Ukraine KWS LOCHOW POLSKA SP.Z O.O., Kondratowice/Poland KWS GATEWAY RESEARCH CENTER LLC, St. Louis/U.S. BIRIKA B.V., Amsterdam/Netherlands CHURA B.V., Amsterdam/Netherlands POP VRIEND RESEARCH B.V., Andijk/Netherlands POP VRIEND SEEDS B.V., Andijk/Netherlands BELAMI B.V., Andijk/Netherlands POP VRIEND VEGETABLES SEEDS B.V., Andijk/Netherlands EUROPSEEDS B.V., Enkhuizen/Netherlands POP VRIEND PRODUCTION B.V., Andijk/Netherlands POP VRIEND SEEDS USA B.V., Andijk/Netherlands POP VRIEND INTERNATIONAAL B.V., Andijk/Netherlands POP VRIEND TOHUMCULUK VE TARIM ÜRÜNLERI SAN- AYI VE TICARET LIMITED ŞIRKETI , Istanbul/Turkey PV TOHUMCULUK TARIM ÜRÜNLERI SANAYI VE TICARET LIMITED ŞIRKETI, Izmir/Turkey KWS SEMILLAS CANARIAS S.L.U., Gran Canaria/Spain BTS TURKEY TARIM TICARET LIMITED ŞIRKETI, Eskisehir/Turkey KWS AGRICULTURE RESEARCH & DEVELOPMENT CENTER, 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 KWS SEMENTES LTDA., Curitiba/Brazil KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA., São Paulo/Brazil KWS SERVICES NORTH AMERICA LLC, Bloomington/U.S. 152 Annual Financial Statements | Notes for the KWS Group | 9. Other Notes Annual Report 2019/2020 | KWS GroupFiscal year 2019/2020 Name and Company’s registered office Currency Interest held Total in % Footnote KWS PODILLYA T.O.V., Kiev/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 PARAGUAY SRL, Asunción/Paraguay IMPETUS AGRICULTURE INC., Lewes/U.S. KWS KUBAN O.O.O., Krasnodar/ Russia SEED PLANT KWS O.O.O., Lipetsk/Russia KWS INTERNATIONAL HOLDING II B.V., Emmeloord/Netherlands Equity-accounted joint ventures AGRELIANT GENETICS INC., Chatham/Canada AGRELIANT GENETICS LLC, Westfield/U.S. FARMDESK B.V., Antwerpen/Belgium 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 UAH CNY € € PYG USD RUB RUB € CAD USD € CNY € CAD TWD USD JPY KRW USD USD RS RON 100.00 100.00 100.00 100.00 100.00 70.00 100.00 100.00 100.00 50.00 50.00 50.00 49.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 100.00 100.00 10 8 11 3 12 21 7 7 3 13 22 26 26 26 26 26 14 15 2 2 1 Profit and loss transfer agreement 2 In liquidation 3 Subsidiary of KWS INTERNATIONAL HOLDING B.V. 4 Subsidiary of KWS SEEDS INC. 5 Subsidiary of SEMILLAS KWS CHILE LTDA. and KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. 6 Subsidiary of KWS INTERSAAT GMBH 7 Subsidiary of KWS RUS O.O.O. 8 Subsidiary of EURO-HYBRID GMBH 9 Subsidiary of KWS BENELUX B.V. 10 Subsidiary of KWS UKRAINA T.O.V. 11 Subsidiary of KWS MOMONT S.A.S. 12 Subsidiary of KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. and KWS SEMENTES LTDA. 13 Participation of GLH SEEDS INC. 14 Participation of RAGIS RAGIS KARTOFFELZUCHT- UND HANDELSGESELLSCHAFT MBH 15 Subsidiary of AARDEVO B.V. 16 Subsidiary of KWS VEGETABLES B.V. 17 Subsidiary of BIRIKA B.V. and KWS VEGETABLES B.V. 18 Subsidiary of BIRIKA B.V. and CHURA B.V. 19 Subsidiary of POP VRIEND INTERNATIONAL B.V. 20 Subsidiary of POP VRIEND TOHUMCULUK VE TARIM ÜRÜNLERI SANAYI VE TICARET LIMITED SIRKETI 21 Subsidiary of KWS R&D INVEST B.V. 22 Participation of KWS INTERNATIONAL HOLDING B.V. 23 Subsidiary of EURO-HYBRID GMBH and KWS SAATFINANZ GMBH 24 Subsidiary of KWS SEEDS INC., from 07/01/2020 renamed as KWS SEEDS LLC 25 Subsidiary of KWS INTERSAAT GMBH and of KWS SAATFINANZ GMBH 26 Subsidiary of GENECTIVE S.A. 27 Subsidiary of KWS KLOSTERGUT WIEBRECHTSHAUSEN GMBH 28 Subsidiary of KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. 29 Subsidiary of KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. and KWS INTERSAAT GMBH 30 Participation of KWS INTERNATIONAL HOLDING B.V. and KWS SAATFINANZ GMBH 9. Other Notes | Notes for the KWS Group | Annual Financial Statements 153 KWS Group | Annual Report 2019/20209.9 Supervisory and Executive Boards of KWS SAAT SE & Co. KGaA in fiscal 2019/2020 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, Vernier (Switzerland) (member of the Board of Directors, the Audit Committee and the Compensation Committee) „„ Medacta International SA, Frauenfeld (Switzerland) (member of the Board of Directors and Chairman of the Audit Committee – since April 2019) „„ Hemro AG, Bachenbülach (Switzerland) (member of the Management Board) „„ Sika AG, Baar (Switzerland) (member of the Board of Directors and Chairman of the Audit Committee – since March 2019) „„ Louis Dreyfus Holding B.V., Amsterdam (Netherlands) (member of the Supervisory Board and Audit Committee) Membership of other legally mandated supervisory boards: „„ CLAAS KGaA mbH, Harsewinkel (Chairwoman) Membership of comparable German and foreign oversight boards: „„ CLAAS KGaA mbH, Harsewinkel (Chairwoman of the Shareholder's Committee) 9.9.1 Supervisory Board Members Dr. Drs. h. c. Andreas J. Büchting Göttingen Agricultural Biologist Chairman of the Supervisory Board of KWS SAAT SE & Co. KGaA and KWS SE Dr. Marie Theres Schnell Munich Graduate in Communications Deputy Chairman of the Supervisory Board of KWS SAAT SE & Co. KGaA and KWS SE Victor W. Balli Zurich (Switzerland) Chemical Engineer Chairman of the Audit Committee of KWS SAAT SE & Co. KGaA and KWS SE Jürgen Bolduan Einbeck Seed Breeding Employee Member of the Supervisory Board of KWS SAAT SE & Co. KGaA Chairman of the Central Works Council of KWS SAAT SE & Co. KGaA Cathrina Claas-Mühlhäuser Frankfurt am Main Businesswoman Member of the Supervisory Board of KWS SAAT SE & Co. KGaA and KWS SE Christine Coenen Einbeck Interpreter Member of the supervisory board of KWS SAAT SE & Co. KGaA 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 and KWS SE 154 Annual Financial Statements | Notes for the KWS Group | 9. Other Notes Annual Report 2019/2020 | KWS Group9.9.2 Supervisory Board Committees Committee Audit Committee Chairman/Chairwoman Members Victor W. Balli Nominating Committee Dr. Marie Theres Schnell Dr. Drs. h. c. Andreas J. Büchting Jürgen Bolduan Dr. Drs. h. c. Andreas J. Büchting Cathrina Claas-Mühlhäuser 9.9.3 Executive Board Members Dr. Hagen Duenbostel Einbeck Chief Executive Officer Corn North-/Southamerica and China/Asia, Group Compliance, Group Strategy, Group Governance & Risk Management Dr. Léon Broers Einbeck Research & Breeding, Vegetables Dr. Felix Büchting Einbeck Cereals, Oilseed Rape/Special Crops & Organic Seed, Human Resources, Farming Dr. Peter Hofmann Einbeck Sugarbeet, Corn Europe, Cereals, Marketing & Communications Eva Kienle Göttingen Global Finance & Procurement, Global Controlling, Global Transaction Center Global Legal Services & IP, IT, KWS Digital Innovation Accelerator Other seats Membership in other legally required supervisory boards: „„ Hero AG, Lenzburg (Switzerland) (member of the Board of Administration) Membership in other legally required supervisory boards: „„ Zumtobel Group AG, Dornbirn (Austria) (member of the Supervisory Board and Chairwoman of the Audit Committee) 9. Other Notes | Notes for the KWS Group | Annual Financial Statements 155 KWS Group | Annual Report 2019/2020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 state- statements and of the group management report in ac- ments and of the group management report cordance with Sec. 317 HGB and the EU Audit Regulation We conducted our audit of the consolidated financial Opinions (No 537/2014, referred to subsequently as “EU Audit Regu- lation”) and in compliance with German Generally Accepted We have audited the consolidated financial statements Standards for Financial Statement Audits promulgated by of KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE), the Institut der Wirtschaftsprüfer [Institute of Public Auditors Einbeck, and its subsidiaries (the Group), which comprise in Germany] (IDW). Our responsibilities under those require- the consolidated statement of comprehensive income ments and principles are further described in the “Auditor’s for the fiscal year from 1 July 2019 to 30 June 2020, and responsibilities for the audit of the consolidated financial the consolidated statement of financial position as at statements and of the group management report” section 30 June 2020, consolidated statement of changes in equity of our auditor’s report. We are independent of the group and consolidated statement of cash flows for the fiscal entities in accordance with the requirements of European year from 1 July 2019 to 30 June 2020, and notes to the law and German commercial and professional law, and we consolidated financial statements, including a summary of have fulfilled our other German professional responsibili- significant accounting policies. In addition, we have audited ties in accordance with these requirements. In addition, in the group management report of KWS SAAT SE & Co. KGaA accordance with Art. 10 (2) f) of the EU Audit Regulation, (formerly KWS SAAT SE), which was combined with the we declare that we have not provided non-audit services management report of the Company, for the fiscal year from prohibited under Art. 5 (1) of the EU Audit Regulation. We 1 July 2019 to 30 June 2020. In accordance with the German believe that the audit evidence we have obtained is suffi- legal requirements, we have not audited the content of the cient and appropriate to provide a basis for our opinions parts of the group management report listed in the appendix on the consolidated financial statements and on the group to the auditor’s report. management report. In our opinion, on the basis of the knowledge obtained in the Key audit matters in the audit of the consolidated audit, financial statements Key audit matters are those matters that, in our profession- „„ the accompanying consolidated financial statements al judgment, were of most significance in our audit of the comply, in all material respects, with the IFRSs as adopt- consolidated financial statements for the fiscal year from 1 ed by the EU, and the additional requirements of German July 2019 to 30 June 2020. These matters were addressed commercial law pursuant to Sec. 315e (1) HGB [“Handels- in the context of our audit of the consolidated financial gesetzbuch”: German Commercial Code] and, in compli- statements as a whole, and in forming our opinion thereon; ance with these requirements, give a true and fair view of we do not provide a separate opinion on these matters. the assets, liabilities and financial position of the Group as at 30 June 2020 and of its financial performance for the Below, we describe what we consider to be the key audit fiscal year from 1 July 2019 to 30 June 2020, and matters: „„ the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all (1) Revenue recognition from the sale of seeds material respects, this group management report is con- sistent with the consolidated financial statements, com- Reasons why the matter was determined to be a key plies with German legal requirements and appropriately audit matter presents the opportunities and risks of future develop- In the consolidated financial statements of KWS SAAT SE & ment. Our opinion on the group management report does Co. KGaA (formerly KWS SAAT SE), revenue from the sale not cover the content of the parts of the group manage- of seeds is recognized when risk passes, taking contrac- ment report listed in the appendix to the auditor’s report. tually agreed return deliveries into consideration. In light of the large number of different contractual agreements and Pursuant to Sec. 322 (3) Sentence 1 HGB, we declare that the resulting judgment exercised in assessing expected our audit has not led to any reservations relating to the legal return deliveries, we consider revenue recognition to be compliance of the consolidated financial statements and of complex and therefore to pose an elevated risk of incorrect the group management report. recognition. 156 Annual Financial Statements | Independent Auditor’s Report Annual Report 2019/2020 | KWS GroupAuditor’s response (2) Purchase price allocation from the acquisition of the During our audit, we considered, based on the criteria de- Pop Vriend Group fined in IFRS 15, the accounting policies applied in accor- dance with the internal accounting instructions in the con- Reasons why the matter was determined to be a key solidated financial statements of KWS SAAT SE & Co. KGaA audit matter (formerly KWS SAAT SE) for the recognition of revenue. In fiscal year 2019/2020, KWS SAAT SE & Co. KGaA (former- Our response included an examination of whether control ly KWS SAAT SE) acquired Birika B.V., Andjik, Netherlands, passed to the buyers upon the sale of the seeds. We ana- for a price of EUR 414.7m. lyzed the process implemented by the management board of KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE) and The assets and liabilities acquired are recognized at fair val- the accounting and valuation requirements for the recog- ue as of the acquisition date. The remaining purchase price nition of seed sales, in particular taking into account the amount that is not allocated to the acquired assets and lia- findings from actual return deliveries. Based on analytical bilities as part of the purchase price allocation is recognized procedures defined group-wide, we examined whether the as goodwill. significant revenue items for fiscal year 2019/2020 correlate with the corresponding trade receivables to identify any No observable market values are available for some of the irregularities in the development of revenue. With a view acquired assets, especially brands, technology and custom- to the recognition of revenue on an accrual basis, we also er relationships. Consequently, complex valuation models obtained balance confirmations from customers and per- based on assumptions are used to determine the relevant formed data analyses to identify any irregularities in com- fair values. The outcome of the valuation is highly dependent parison with the prior year. We analyzed the recognition of on the estimate of future cash flows and the discount rates revenue based on the contractual arrangements on a sam- used and is subject to uncertainty due to the considerable ple basis with regard to the requirements of IFRS 15. Based judgment exercised. Given the complexity of the valuation, on analytical procedures carried out on historical data and the inherent assumptions subject to judgment and the the analysis of the underlying contracts, we examined the significance of the acquisition for the consolidated financial calculation of expected return deliveries of seeds and their statements, we consider the purchase price allocation to be deduction from revenue. a key audit matter. Overall, our procedures relating to the recognition of reve- Auditor’s response nue from the sale of seeds did not lead to any reservations. With the aid of our valuation specialists, we considered the appropriateness of the valuation model and the business Reference to related disclosures plans on which the valuation was based. This included an With regard to the recognition and measurement poli- assessment of the clerical accuracy of the valuation model cies applied for the recognition of revenue from the sale and consideration of the expectations regarding future of seeds, refer to the disclosure in note 3.6 “Recording of short, medium and long-term revenue and cost develop- income and expenses” in section 3 “Accounting policies” in ments, also on the basis of external market data and inter- the notes to the consolidated financial statements. views with management. In the course of our audit, we also focused on the identifica- tion of value drivers for the identified intangible assets being valued. We analyzed whether the assumptions used to determine the value are appropriate, especially in the areas of technology, brands and customer relationships. We also focused on the assumptions and parameters used to determine the weighted cost of capital (discount rates), especially the proper determination of peer groups to derive the cost of capital, and considered the calculation method. We also considered the technical and factual appropriate- ness of the method used to account for the outcome of the purchase price allocation. Independent Auditor’s Report | Annual Financial Statements 157 KWS Group | Annual Report 2019/2020Furthermore, we considered the allocation of goodwill to the can at times have significant effects on the amount of the vegetables cash-generating unit and the completeness and business value calculated, we analyzed the inputs used to factual accuracy of the disclosures in the notes. determine the discount rates and reperformed the calcula- tion with regard to the relevant requirements of IAS 36. In Our procedures did not lead to any reservations relating to addition, we analyzed the sensitivity analyses performed by the purchase price allocation and the disclosures thereon in the executive directors of KWS SAAT SE & Co. KGaA (for- the notes to the consolidated financial statements. merly KWS SAAT SE) in order to estimate any potential im- Reference to related disclosures in one of the significant assumptions used in the valuation. With regard to the recognition and measurement policies applied for the acquisition, refer to the disclosures in section We obtained evidence that the divisions represent the low- 4. “Basis of consolidation and changes” in the notes to the est level within the Group at which independent cash inflows consolidated financial statements. are generated and goodwill and brands are monitored for pairment risk associated with a reasonably possible change (3) Impairment testing of goodwill and brands internal management purposes. Our procedures did not lead to any reservations relating to Reasons why the matter was determined to be a key the valuation of goodwill and brands. audit matter Pursuant to IAS 36, the internal management and reporting structure serves as the basis for designating cash-gener- Reference to related disclosures ating units to which the respective items of goodwill are With regard to the recognition and measurement policies allocated. applied for goodwill and brands, refer to the disclosure on intangible assets in section 3 “Accounting policies” in the At KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE), notes to the consolidated financial statements. For the relat- goodwill and brands are monitored and managed at divi- ed disclosures on judgments by the executive directors and sional level. sources of estimation uncertainty as well as the disclosures on goodwill, refer to note 7.1 “Intangible assets” in section 7 Goodwill and brands are tested for impairment as of 30 June “Notes to the statement of financial position” in the notes to each year. The result of these tests is highly dependent on the consolidated financial statements. the executive directors’ estimate of future cash flows and the respective discount rates used. Other information In light of the definition of the cash-generating units, the board report. In all other respects, the executive directors complexity of the valuation and the judgment exercised are responsible for the other information. The other informa- during valuation, the impairment tests for goodwill and tion comprises the parts of the group management report brands were a key audit matter. listed in the appendix to the auditor’s report as well as the The supervisory board is responsible for the supervisory Auditor’s response other parts of the annual report, except for the audited consolidated financial statements and group management report and our auditor’s report, in particular the responsi- During our audit, among other things, we obtained an bility statement pursuant to Sec. 297 (2) Sentence 4 HGB, understanding of the methods used to carry out the impair- the “Foreword by the management board” section of the ment tests including an examination of the suitability of the annual report and the supervisory board’s report pursuant procedure for performing an impairment test in accordance to Sec. 171 (2) AktG [“Aktiengesetz”: German Stock Corpo- with IAS 36. In doing so, we analyzed the planning process ration Act]. We obtained a version of this other information and the operating effectiveness of the controls implemented prior to issuing our auditor’s report. therein. We discussed the significant planning assumptions with the executive directors and compared these with the Our opinions on the consolidated financial statements and results and cash inflows realized in the past. Our assess- on the group management report do not cover the other ment of the results of the impairment tests as of 30 June information, and consequently we do not express an opinion was based among other things on a comparison with or any other form of assurance conclusion thereon. general and industry-specific market expectations underly- ing the expected cash inflows. Based on our understanding that even relatively small changes in the discount rates used 158 Annual Financial Statements | Independent Auditor’s Report Annual Report 2019/2020 | KWS GroupIn connection with our audit, our responsibility is to read the Auditor’s responsibilities for the audit of the consolidat- other information and, in so doing, to consider whether the ed financial statements and of the group management other information report Our objectives are to obtain reasonable assurance about „„ is materially inconsistent with the consolidated financial whether the consolidated financial statements as a whole statements, with the group management report or our are free from material misstatement, whether due to fraud or knowledge obtained in the audit, or error, and whether the group management report as a whole „„ otherwise appears to be materially misstated. provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated fi- Responsibilities of the executive directors and the nancial statements and the knowledge obtained in the audit, supervisory board for the consolidated financial state- complies with the German legal requirements and appropri- ments and the group management report ately presents the opportunities and risks of future develop- The executive directors are responsible for the preparation ment, as well as to issue an auditor’s report that includes of the consolidated financial statements that comply, in all our opinions on the consolidated financial statements and material respects, with IFRSs as adopted by the EU and the on the group management report. additional requirements of German commercial law pursu- ant to Sec. 315e (1) HGB, and that the consolidated financial Reasonable assurance is a high level of assurance, but is statements, in compliance with these requirements, give a not a guarantee that an audit conducted in accordance true and fair view of the assets, liabilities, financial position, with Sec. 317 HGB and the EU Audit Regulation and in and financial performance of the Group. In addition, the compliance with German Generally Accepted Standards executive directors are responsible for such internal control for Financial Statement Audits promulgated by the Institut as they have determined necessary to enable the prepara- der Wirtschaftsprüfer (IDW) will always detect a material tion of consolidated financial statements that are free from misstatement. Misstatements can arise from fraud or error material misstatement, whether due to fraud or error. and are considered material if, individually or in the aggre- In preparing the consolidated financial statements, the ex- economic decisions of users taken on the basis of these ecutive directors are responsible for assessing the Group’s consolidated financial statements and this group manage- gate, they could reasonably be expected to influence the ability to continue as a going concern. They also have the ment report. responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial We exercise professional judgment and maintain profession- reporting based on the going concern basis of accounting al skepticism throughout the audit. We also: unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so. „„ Identify and assess the risks of material misstatement of the consolidated financial statements and of the group Furthermore, the executive directors are responsible for management report, whether due to fraud or error, design the preparation of the group management report that, as a and perform audit procedures responsive to those risks, whole, provides an appropriate view of the Group’s position and obtain audit evidence that is sufficient and appro- and is, in all material respects, consistent with the consol- priate to provide a basis for our opinions. The risk of not idated financial statements, complies with German legal detecting a material misstatement resulting from fraud requirements, and appropriately presents the opportunities is higher than for one resulting from error, as fraud may and risks of future development. In addition, the executive involve collusion, forgery, intentional omissions, misrepre- directors are responsible for such arrangements and mea- sentations, or the override of internal control. sures (systems) as they have considered necessary to en- able 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. The supervisory board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the group man- agement report. Independent Auditor’s Report | Annual Financial Statements 159 KWS Group | Annual Report 2019/2020 „„ Obtain an understanding of internal control relevant to the „„ Obtain sufficient appropriate audit evidence regarding the audit of the consolidated financial statements and of ar- financial information of the entities or business activities rangements and measures (systems) relevant to the audit within the Group to express opinions on the consolidated of the group management report in order to design audit financial statements and on the group management re- procedures that are appropriate in the circumstances, but port. We are responsible for the direction, supervision and not for the purpose of expressing an opinion on the effec- performance of the group audit. We remain solely respon- tiveness of these systems. sible for our audit opinions. „„ Evaluate the appropriateness of accounting policies used „„ Evaluate the consistency of the group management report by the executive directors and the reasonableness of with the consolidated financial statements, its conformity estimates made by the executive directors and related with [German] law, and the view of the Group’s position it disclosures. provides. „„ Conclude on the appropriateness of the executive direc- „„ Perform audit procedures on the prospective information tors’ use of the going concern basis of accounting and, presented by the executive directors in the group man- based on the audit evidence obtained, whether a material agement report. On the basis of sufficient appropriate uncertainty exists related to events or conditions that may audit evidence we evaluate, in particular, the significant cast significant doubt on the Group’s ability to continue assumptions used by the executive directors as a basis as a going concern. If we conclude that a material un- for the prospective information, and evaluate the proper certainty exists, we are required to draw attention in the derivation of the prospective information from these as- auditor’s report to the related disclosures in the consoli- sumptions. We do not express a separate opinion on the dated financial statements and in the group management prospective information and on the assumptions used report or, if such disclosures are inadequate, to modify as a basis. There is a substantial unavoidable risk that our respective opinions. Our conclusions are based on the future events will differ materially from the prospective audit evidence obtained up to the date of our auditor’s re- information. port. However, future events or conditions may cause the Group to cease to be able to continue as a going concern. We communicate with those charged with governance „„ Evaluate the overall presentation, structure and content regarding, among other matters, the planned scope and of the consolidated financial statements, including the timing of the audit and significant audit findings, including disclosures, and whether the consolidated financial state- any significant deficiencies in internal control that we identi- ments present the underlying transactions and events in fy during our audit. a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial po- sition and financial performance of the Group in compli- ance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Sec. 315e (1) HGB. 160 Annual Financial Statements | Independent Auditor’s Report Annual Report 2019/2020 | KWS GroupWe also provide those charged with governance with a „„ The combined non-financial statement for KWS SAAT SE statement that we have complied with the relevant inde- & Co. KGaA (formerly KWS SAAT SE) and the KWS Group pendence requirements, and communicate with them all contained in section 2.9.2 “Combined non-financial state- relationships and other matters that may reasonably be ment for the KWS Group” of the group management re- thought to bear on our independence and where applicable, port, including any information in other sections referred the related safeguards. to in this statement. The respective sections are marked “NFE” in the margin. From the matters communicated with those charged with „„ The information in section 2.6.1 “Corporate governance governance, we determine those matters that were of most report and statement on corporate governance.” significance in the audit of the consolidated financial state- ments of the current period and are therefore the key audit Neither have we audited the content of the following in- matters. We describe these matters in our auditor’s report formation that is not typical or required for a group man- unless law or regulation precludes public disclosure about agement report. This relates to any information whose the matter. disclosure in the group management report is not required pursuant to Secs. 315, 315a HGB or Secs. 315b to 315d Other legal and regulatory requirements HGB. Further information pursuant to Art. 10 of the EU Audit „„ Section 2.1.5 “Responsible Business Activity,” Regulation „„ Section 2.5 “Employee and Social Report,” We were elected as group auditor by the annual gener- „„ Section 2.5.3 “Good working conditions,” al meeting on 17 December 2019. We were engaged by „„ Section 2.5.4 “Social commitment.” the supervisory board on 15 June 2020. We have been the group auditor of KWS SAAT SE & Co. KGaA (former- Hanover, 23 September 2020 ly KWS SAAT SE) without interruption since fiscal year 2016/2017. Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft We declare that the opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Art. 11 of the EU Audit Regulation (long-form audit report). Ludwig Dr. Janze Wirtschaftsprüfer Wirtschaftsprüfer German Public Auditor responsible for the engagement [German Public Auditor] [German Public Auditor] The German Public Auditor responsible for the engagement is Dr. Christian Janze. Appendix to the auditor’s report: Parts of the group management report whose content is unaudited We have not audited the content of the following parts of the group management report: Independent Auditor’s Report | Annual Financial Statements 161 KWS Group | Annual Report 2019/2020 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 2019/2020 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 und vereidigte Buchprüfer] as well as the IDW Standard on Quality Control 1: Requirements for Quality Control in audit We have performed a limited assurance engagement on firms [IDW Qualitätssicherungsstandard 1: Anforderungen the group non-financial statement of KWS SAAT SE & an die Qualitätssicherung in der Wirtschaftsprüferpraxis Co. KGaA according to § 315b HGB (“Handelsgesetzbuch”: (IDW QS 1)]. German Commercial Code), which is combined with the non- financial statement of the parent company according Auditor’s responsibility to § 289b HGB, consisting of the chapter “2.9.2 Combined Our responsibility is to express a limited assurance Non- Financial Declaration for the KWS Group” in the com- conclusion on the combined non-financial statement based bined management report and the chapters “2.1 Funda- on the assurance engagement we have performed. mentals of the KWS Group”, “2.4.1 Product Innovations”, “2.4.2 Management of Genetic Resources”, “2.4.3 Plant We conducted our assurance engagement in accordance and Process Safety”, “2.5.2 Recruitment and Qualification” with the International Standard on Assurance Engagements and “2.6.3 Business Ethics and Compliance” in the com- (ISAE) 3000 (Revised): Assurance Engagements other than bined management report being incorporated by reference Audits or Reviews of Historical Financial Information, issued ( hereafter combined non-financial statement), for the report- by the International Auditing and Assurance Standards ing period from 1 July 2019 to 30 June 2020. Board (IAASB). This Standard requires that we plan and Management’s responsibility perform the assurance engagement to obtain limited assurance about whether the combined non-financial The legal representatives of the Company are responsible statement of the Company has been prepared, in all material for the preparation of the combined non-financial respects, in accordance with §§ 315c in conjunction with statement in accordance with §§ 315c in conjunction with 289c to 289e HGB. In a limited assurance engagement 289c to 289e HGB. the assurance procedures are less in extent than for a reasonable assurance engagement and therefore a substan- This responsibility includes the selection and application of tially lower level of assurance is obtained. The assurance appropriate methods to prepare the combined non-financial procedures selected depend on the auditor's professional statement as well as making assumptions and estimates judgment. related to individual disclosures, which are reasonable in the circumstances. Furthermore, the legal representatives are Within the scope of our assurance engagement, which has responsible for such internal controls that they have con- been conducted between June and September 2020, we sidered necessary to enable the preparation of a combined performed amongst others the following assurance and non-financial statement that is free from material misstate- other procedures: ment, whether due to fraud or error. „„ Inquiries of employees and inspection of documents Auditor’s declaration relating to independence and regarding the selection of topics for the combined non- quality control financial statement, the risk assessment and the concepts We are independent from the Company in accordance of the parent company and the group for the topics that with the provisions under German commercial law and have been identified as material, professional requirements, and we have fulfilled our other „„ Inquiries of employees responsible for data capture and professional responsibilities in accordance with these consolidation as well as the preparation of the combined requirements. non-financial statement, to evaluate the reporting processes, the data capture and compilation methods Our audit firm applies the national statutory regulations as well as internal controls to the extent relevant for the and professional pronouncements for quality control, in assurance of the combined non-financial statement, particular the by-laws regulating the rights and duties of „„ Identification of likely risks of material misstatement in the Wirtschaftsprüfer and vereidigte Buchprüfer in the exercise combined non-financial statement, of their profession [Berufssatzung für Wirtschaftsprüfer 162 Annual Financial Statements | Independent Auditor’s Report Annual Report 2019/2020 | KWS Group „„ Inspection of relevant documentation of the systems and Engagement terms and liability processes for compiling, analyzing and aggregating rele- The “General Engagement Terms for Wirtschaftsprüfer vant data in the reporting period and testing such docu- and Wirtschaftsprüfungsgesellschaften [German Public mentation on a sample basis, Auditors and Public Audit Firms]” dated 1 January 2017 are „„ Analytical evaluation of disclosures in the combined applicable to this engagement and also govern our rela- non-financial statement, tions with third parties in the context of this engagement „„ Inquiries and inspection of documents on a sample basis (www.de.ey.com/general-engagement-terms). In addition, relating to the collection and reporting of selected statem- please refer to the liability provisions contained there in ents and data, no. 9 and to the exclusion of liability towards third parties. „„ Evaluation of the presentation of disclosures in the com- We assume no responsibility, liability or other obligations bined non-financial statement. towards third parties unless we have concluded a written agreement to the contrary with the respective third party or Assurance conclusion liability cannot effectively be precluded. Based on our assurance procedures performed and assurance evidence obtained, nothing has come to our We make express reference to the fact that we do not attention that causes us to believe that the combined non- update the assurance report to reflect events or circum- financial statement of KWS SAAT SE & Co. KGaA for the stances arising after it was issued unless required to do period from 1 July 2019 to 30 June 2020 has not been pre- so by law. It is the sole responsibility of anyone taking note pared, in all material respects, in accordance with §§ 315c in of the result of our assurance engagement summarized conjunction with 289c to 289e HGB. in this assurance report to decide whether and in what Intended use of the assurance report to supplement, verify or update it by means of their own way this result is useful or suitable for their purposes and We issue this report on the basis of the engagement agreed review procedures. with KWS SAAT SE & Co. KGaA. The assurance engage- ment has been performed for the purposes of the Company Munich, 23 September 2020 and the report is solely intended to inform the Company as to the results of the assurance engagement and must not be Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft used for purposes other than those intended. The report is not intended to provide third parties with support in making (financial) decisions. Nicole Richter Annette Johne Wirtschaftsprüferin Wirtschaftsprüferin (German Public Auditor) (German Public Auditor) Declaration by Legal Representatives We declare to the best of our knowledge that the consolidated financial statements give a true and fair view of the assets, financial position and earnings of the Group in compliance with the generally accepted standards of consolidated accoun- ting, 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, 23 September 2020 KWS SE Hagen Duenbostel Léon Broers Felix Büchting Peter Hofmann Eva Kienle KWS Group | Annual Report 2019/2020 Declaration by Legal Representatives 163 Additional Information Financial calendar Date November 24, 2020 December 16, 2020 February 18, 2021 May 12, 2021 October 20, 2021 November 18, 2021 December 2, 2021 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 Quarterly Report Q1 2020/2021 Annual Shareholders’ Meeting in Einbeck Semiannual Report 2020/2021 Quarterly Report 9M 2020/2021 Publication of 2020/2021 financial statements, annual press and analyst conference Quarterly Report Q1 2021/2022 Annual Shareholders’ Meeting in Einbeck 707400 DE0007074007 KWS Prime Standard SDAX Non-par 33,000,000 0.60 0.60 0.60 0.60 0.56 0.46 0.64 0.64 0.70 0.67 Dividend proposal 2020 Dividend payment in € Dividend ratio (total dividends/net income) in % 25% 20% 20.8 19.6 21.7 24.7 23.6 23.2 24.3 21.6 21.2 21.3 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 164 Additional Information Annual Report 2019/2020 | 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 Gina Wied press@kws.com Sustainability Marcel Agena Editor KWS SAAT SE & Co. KGaA sustainability@kws.com Grimsehlstrasse 31 investor.relations@kws.com Phone: +49 5561 311-1427 Phone: +49 5561 311-1393 P.O. Box 1463 Phone: +49 (0) 30 816914-490 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 Marcel Bloemendaal Paul Epp Peter Heller Frank Stefan Kimmel Karsten Koch Julia Lormis Arnoud Michelet Dominik Obertreis Sang-Kyun Park Roman Pawlowski Florian Spieker Roman Thomas Sebastian Vollmert Date of publication: October 23, 2020 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. 0 2 0 2 | 9 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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