Annual Report
Transcripción
Annual Report
Front cover: winter barley KWS and its global market presence in the temperate climate zone Plant breeding means understanding and leveraging natural life processes to the benefit of mankind. It takes about ten years to develop a new plant variety. KWS has been breeding agricultural crops for the temperate climate zone since 1856 and now operates in 68 countries around the world. selection crossing official tests research Annual Report 2003/2004 Annual Report 2003 / 2004 technical Service multiplication distribution processing quality testing KWS SA AT AG Markets 2 Front cover: winter barley KWS and its global market presence in the temperate climate zone Plant breeding means understanding and leveraging natural life processes to the benefit of mankind. It takes about ten years to develop a new plant variety. KWS has been breeding agricultural crops for the temperate climate zone since 1856 and now operates in 68 countries around the world. selection crossing official tests research Annual Report 2003/2004 Annual Report 2003 / 2004 technical Service multiplication distribution processing quality testing KWS SA AT AG Markets 2 Segments of the KWS Group KWS Group at a glance Fiscal year 03/04 02/03 Million 5 01/02 Sales 443.7 424.3 433.7 392.8 333.9 Income from ordinary operations 47.3 50.9 51.3 50.8 35.8 Net income 28.3 28.9 29.7 28.1 23.0 Cash flow (after tax) 48.7 52.1 53.4 48.8 40.7 00/01 99/00 Sugar beet KWS SAAT AG and twelve subsidiaries and associated companies* Sales: 1 193.1 million Operating income: 1 28.7 million Corn KWS MAIS GMBH Average number of employees 2,516 2,336 2,233 2,106 2,060 Personnel expenses 101.7 97.0 97.8 84.1 75.8 and 13 subsidiaries and associated companies* Sales: 1 191.0 million Operating income: 1 8.9 million Fixed assets 152.5 120.7 124.0 115.3 109.2 Investments 26.1 20.7 34.2 24.9 32.8 Cereals Depreciation 19.6 21.1 18.2 17.7 17.4 LOCHOW-PETKUS GMBH and three subsidiaries and associated companies* Equity capital Equity ratio in % Balance sheet total 270.4 226.1 211.7 201.2 172.9 57.7 52.5 49.2 48.6 46.0 468.9 431.0 430.1 414.1 375.5 Sales: 1 52.7 million Operating income: 1 2.3 million Breeding & services Return on sales in % 6.4 6.8 6.9 7.2 6.9 Return on equity in % 13.0 14.2 15.4 17.0 16.2 Return on assets in % 7.0 7.2 7.8 8.2 7.1 KWS SAAT AG and twelve subsidiaries and associated companies* Sales: 1 124.7 million (external sales of 1 6.9 million) Operating income: 1 7.7 million KWS SAAT AG Performance of KWS shares in 1 *See page 64 for details of the consolidated group Lowest price 470 451 450 520 483 Highest price 684 535 540 690 575 11.00 11.00 11.00 10.00 10.00 Dividend per share Grimsehlstraße 31 • D-37555 Einbeck • P.O. Box 1463 Phone: ++49 (0)5561/311-0 • Fax: ++49 (0)5561/311-322 www.kws.com • e-mail: [email protected] Photos / illustrations: agrar press • Frank Bierstedt • Habbe-Fotografie • KWS Group archive Design: fischerAppelt Kommunikation GmbH Segments of the KWS Group KWS Group at a glance Fiscal year 03/04 02/03 Million 5 01/02 Sales 443.7 424.3 433.7 392.8 333.9 Income from ordinary operations 47.3 50.9 51.3 50.8 35.8 Net income 28.3 28.9 29.7 28.1 23.0 Cash flow (after tax) 48.7 52.1 53.4 48.8 40.7 00/01 99/00 Sugar beet KWS SAAT AG and twelve subsidiaries and associated companies* Sales: 1 193.1 million Operating income: 1 28.7 million Corn KWS MAIS GMBH Average number of employees 2,516 2,336 2,233 2,106 2,060 Personnel expenses 101.7 97.0 97.8 84.1 75.8 and 13 subsidiaries and associated companies* Sales: 1 191.0 million Operating income: 1 8.9 million Fixed assets 152.5 120.7 124.0 115.3 109.2 Investments 26.1 20.7 34.2 24.9 32.8 Cereals Depreciation 19.6 21.1 18.2 17.7 17.4 LOCHOW-PETKUS GMBH and three subsidiaries and associated companies* Equity capital Equity ratio in % Balance sheet total 270.4 226.1 211.7 201.2 172.9 57.7 52.5 49.2 48.6 46.0 468.9 431.0 430.1 414.1 375.5 Sales: 1 52.7 million Operating income: 1 2.3 million Breeding & services Return on sales in % 6.4 6.8 6.9 7.2 6.9 Return on equity in % 13.0 14.2 15.4 17.0 16.2 Return on assets in % 7.0 7.2 7.8 8.2 7.1 KWS SAAT AG and twelve subsidiaries and associated companies* Sales: 1 124.7 million (external sales of 1 6.9 million) Operating income: 1 7.7 million KWS SAAT AG Performance of KWS shares in 1 *See page 64 for details of the consolidated group Lowest price 470 451 450 520 483 Highest price 684 535 540 690 575 11.00 11.00 11.00 10.00 10.00 Dividend per share Grimsehlstraße 31 • D-37555 Einbeck • P.O. Box 1463 Phone: ++49 (0)5561/311-0 • Fax: ++49 (0)5561/311-322 www.kws.com • e-mail: [email protected] Photos / illustrations: agrar press • Frank Bierstedt • Habbe-Fotografie • KWS Group archive Design: fischerAppelt Kommunikation GmbH Table of contents Annual Report 2003 / 2004 July 1, 2003 until June 30, 2004 > KWS shares 6 > Chairman’s Foreword 8 > Spotlight Topic 10 Biomass power plants > Report of the Supervisory Board 12 > Report on the performance of the KWS Group 16 Segments Overview 22 > Sugar beet segment 22 > Corn segment 24 > Cereals segment 26 > Breeding & services segment 28 Outlook for the 2004 / 2005 fiscal year 32 Risks for future development 33 Employees 34 > Compliance declaration 36 > Annual Financial Statements of the KWS Group 37 > Auditors’ Report 66 KWS shares Seed for the future. Shares in KWS SAAT AG have shown continuous growth, even in a critical stock market climate, and they have posted a positive dividend record. The KWS Group is well positioned to tackle future challenges thanks to its strong internal financial strength and long-term strategy. The KWS Group is pursuing a market strategy that focuses on its core competences. We constantly keep our sights set on the long-term growth of the company and are thus continuing to invest in research and development. As a result, we were able to expand our strong market position in the global seed business again this year. Our good financial and earnings situation meant that we were able to fund all investments fully from our cash flow. The shareholder structure of KWS SAAT AG at the end of the fiscal year was as follows: 56.3% Families Büchting/ Oetker /Giesecke 10.6% Tessner Beteiligungs GmbH 15.0% Hypo-Vereinsbank The KWS Group’s strategy is geared to long-term growth. That gives investors an opportunity to share in the company’s success on a sustained basis. This is also reflected in the growth in dividend income over the past years. At the coming Shareholders Meeting on January 18, 2005, we intend to propose a dividend of b 11 to our shareholders. Performance of KWS shares The dismal mood in the stock markets perked up somewhat in the past fiscal year (July 1, 2003 to June 30, 2004). By the end of June 2004, the value of all companies listed on the CDAX index, a cross-section of all listed German companies, had risen by an average of 30 %. The constant upward trend up to February 2004 was interrupted by events such as unrest in Iraq and increased production costs due to the oil price shock, among other things. The consequence is a continuing sideways movement in the stock indexes. Thanks to growing diversification by the KWS Group through expansion of activities in its core markets, the KWS share was further able to bolster its reputation as a secure and profitable investment. The share was not hit as hard as many others by the past huge drops in stock market prices and is performing relatively independently of the relevant leading indexes. KWS shares were able to hold their own at b 500 in 2003, then quickly surged by over 30 % to peak at b 684 in the 1st quarter of 2004. These gains were then retained in a sideways market. KWS shares have been fluctuating between b 600 and b 650 since April 2004, approximately matching the performance of the CDAX index, a cross-section of all listed German companies. We regard transparency at our company as an important element in communicating with shareholders. That is why we have completely revised and expanded the Investor Relations part of our Internet site (www.kws.de/ir), with the aim of offering you even more extensive service relating to KWS shares. In addition, we are continuing to inform you of the latest developments and key figures of KWS SAAT AG throughout the fiscal year in our letters to shareholders. 9.9% Südzucker 8.2% Free float Data on KWS shares KWS share price, July 1, 2003, to June 30, 2004 Securities ID number WKN/ISIN Stock market symbol 140.00 707400 / DE0007074007 KWS 130.00 Stock markets 120.00 Number of shares 660,000 Opening price on July 1, 2003 (Frankfurt) 500.00 b Closing price on June 30, 2004 (Frankfurt) 600.00 b Highest (closing) price in the fiscal year (April 13, 2004) 684.00 b Lowest (closing) price in the fiscal year (October 23, 2003) 470.00 b 110.00 Xetra, Frankfurt, Hanover KWS shares, indexed 100.00 CDAX performance index, indexed 90.00 Jul. 03 6 KWS shares Aug. 03 Sep. 03 Oct. 03 Nov. 03 Dec. 03 Jan. 04 Feb. 04 Mar. 04 Apr. 04 May 04 Jun. 04 KWS shares 7 Chairman’s Foreword The Executive Board of KWS SAAT AG (left to right) > Dr. Christoph Amberger, Corn · Cereals · Marketing > Dr. Dr. h. c. Andreas J. Büchting (Chairman), Corporate Affairs · R & D > Dr. Hagen Duenbostel (Deputy), Finance · Controlling · IT > Dr. Christopher Ahrens, Sugar Beet · Eastern Europe 8 Chairman’s Foreword Your KWS is making good headway. That is how one could sum up the past fiscal year. fiscal 2004 / 2005 and report in greater detail and more frequently on the KWS Group’s development. The company has established good market positions in the product segments of sugar beet, corn and cereals and is continually expanding them. We increased sales and won new customers in fiscal 2003 /2004 – despite agricultural reform, a weak economy and negative currency effects. Consolidated sales grew by 4.6 % to b 443.7 million, a record for KWS. Excluding exchange rate effects, this figure would have been some b 459 million. Yet what counts more for us is earnings. The operating result in accordance with the HGB (German Commercial Code) was b 47.6 million, down slightly (– 4.8 %) over last year, but above our forecast. KWS’ independence means that we – unlike many competitors – are able to operate as part of a network of research partnerships. It goes without saying that choosing the right partners is particularly crucial. These partnerships brought significant successes last fiscal year. One example of the impressive synergy produced by the right partnerships is AGRELIANT – the joint venture between KWS and our French partner LIMAGRAIN in the North American market. It was able to increase corn sales by over 20 %. Our young corn hybrids are generating a high level of attention in the US market. AGRELIANT’s financial result is also well above budget. The slight decline is mainly due to statutory changes in the regulations on consolidated accounting and up-front costs for further expanding our sales structures in Southeast Europe and the US. Moreover, we launched additional breeding projects for corn and sugar beet seed that will ensure more growth in the coming years. The KWS Group’s net income remained stable year-on-year thanks to a lower tax charge of b 28.3 (28.9) million. As far as green genetic engineering is concerned, we are concerned that Germany will fall behind the international competition. Genetically modified products that require labeling are already being imported and marketed, but open land research and commercial cultivation are made as good as impossible by current changes to the law. Plant breeding companies need time and patience. Continuity, including that among shareholders, is vital to successful plant breeding. The clear majority structures were further strengthened by the fact that the shareholding families increased their majority holding and an additional long-term investor acquired a stake. This has underscored the company’s independence. Overall, there was little boost from the market, economy or exchange rates this year. Nevertheless, we have undertaken a great deal to become even more successful in the future. This was only possible thanks to the remarkable dedication of our employees. I would like to express – also on behalf of my colleagues on the Executive Board – my full appreciation and warmest thanks to all of you for your great commitment, responsibility and constructive cooperation. We see the new shareholder structure not only as an opportunity to open up further to the capital market, but also as an obligation to intensify our investor relations activities. We want to offer you, our shareholders, more than an attractive dividend. We intend to expand communications with the capital market with the introduction of consolidated accounting based on the International Financial Reporting Standards (IFRS) as of The Executive Board’s thanks also go in particular to all shareholders, customers and partners for the confidence they continued to show in KWS SAAT AG this year. We will do all we can to ensure that KWS moves ahead and hope that you will continue to put your trust in us. Dr. Dr. h. c. Andreas J. Büchting Chairman of the Executive Board Chairman’s Foreword 9 Spotlight Topic: Biomass power plants An alternative for the environment, agriculture and consumers As long as horses and ox carts provided transportation and pulling power, the “fuels” needed to power them grew in the form of fodder in the fields. Today, as we face the prospect of limited fossil fuels, increasing environmental and climate problems and political dependencies, the use of plants as a source of energy has once again begun attracting interest. As it turns out, plants offer excellent potential as a future source of power, and are a perfect example of the kind of sustainability discussed at the 1992 Earth Summit in Rio de Janeiro. renewable sources of energy. In contrast to solar or wind energy, for example, it can be stored and is thus available for use at any time. Politicians have recognized the opportunities presented by renewable raw materials. The German Renewable Energies Act requires the operators of power networks to purchase bioelectricity at fixed prices. In addition, biomass fuels benefit from a petroleum tax exemption. In addition to a basic payment of up to 11.5 euro cents /KWh, biogas plants which only ferment renewable materials and liquid manure receive a further bonus of up to 6 euro cents /KWh. Moreover, the cultivation of energy crops is recognized as set-aside without the farmer having to renounce the set-aside allowance. Corn delivers first-class biomass. The use of renewable raw materials offers a major advantage: During their vegetation phase, the plants used to provide energy bind as much CO2 as is released when they are utilized. That makes bio-energy neutral in terms of CO2, whereas the use of fossil fuels adds CO2 to the atmosphere. Bio-energy also offers considerable advantages over other 10 Spotlight Topic Conversion to usable power The extent to which targeted cultivation of energy crops is profitable depends not only on the level of government subsidies and changes in the price of fossil fuels, but also on the conversion technology used. Since science has made considerable progress in this area in recent years, experts now believe that energy crops will play a major part in supplying our energy in the future. However, the best option would be to use the biomethane created in biogas plants directly, rather than first converting it into electricity. Because biogas in purified form is the same as natural gas, it can be fed into the existing natural gas network and replace fossil-based natural gas. This has already been put into practice in Sweden and Switzerland. The KWS commitment Until today, crop rotation in farming has always focused on improving the production of food or animal feed. In the future, however, there will also be plant crop rotations aimed at improving biomass and energy production. Plant breeders stand at the beginning of this value chain and therefore face particular challenges. Maximization of energy production is a new crop-breeding objective, one that promises an impressive degree of success with a wide range of crops and that may very well significantly boost the ability of biomass to commercially compete with fossil fuels. KWS has already launched a comprehensive development project focusing on finding solutions to these issues. Together with institutes at the universities of Hohenheim, Göttingen and Kassel, KWS is working on the development of more energy crops for farming purposes. Corn is the pioneering crop Corn was the first agricultural crop bred by KWS with a view to energy production, and it demonstrates very clearly the requirements placed on energy crops. When plants are used to obtain biogas, the goal is to use the entire plant and not just individual components such as the seeds and storage organs. Through its intense vegetative growth in the summer and late summer, corn uses the high light intensity of these parts of the year. The plant is then harvested before it is actually mature, since waiting for seed formation and ripening would result in only a small increase in mass. Corn is the preferred energy crop because its breeding is so advanced. However, the future of energy crops is certain to be much more wide-ranging, with far more species to choose from. It is conceivable that energy crops could be rotated using a system in which plants that thrive in heat and grow through the summer, such as corn, sunflowers, millet and hemp, would alternate with crops that can tolerate the cold, such as rye, rape, turnip rape, winter peas, and winter vetch. These are sown in the fall and can be harvested at the end of the following May. More than one plant species will be cultivated. The diversity of species in a mixed cultivation system helps to exploit the synergies between different plant species and to stabilize yields if any of the crops are affected by pests or disease. Summary The use of renewable raw materials as a source of energy is well on its way to becoming an interesting, long-term alternative use for our agricultural landscape. By working on breeding efficient varieties of energy crops, KWS prepared itself for this development at an early stage, and innovations through new approaches to plant breeding can be expected soon in the energy sector. What can bio-energy contribute? 34 % Wood 100% Total energy requirements Germany of that 17% Bio-energypotential of that 59 % Energy crops and straw 7% other organic residues, including liquid manure Source: Fachagentur Nachwachsende Rohstoffe e. V., 2004 Spotlight Topic 11 Report of the Supervisory Board The consultations of the Supervisory Board in fiscal 2003/2004 focused on the company’s further strategic expansion, both in the US and in Europe. The international plant breeding sector was characterized in the past fiscal year above all by divestments, resulting in opportunities for KWS to make appropriate acquisitions. The opportunities to expand KWS’ activities were closely examined by the Executive Board and discussed with the Supervisory Board. However, in the final analysis, the planned targets for investment in the US and Europe were not able to be realized. Other key issues deliberated by the Supervisory Board included the following. > The possible impact and KWS’ options in the sugar beet segment were discussed intensively against the background of changes in general agricultural policy. > Its deliberations in the corn arena focused mainly on further expansion in North America and in South and Southeast Europe, as well as on optimizing processes in this segment. > It examined the feasibility of further expanding the cereals business in Europe. Possible paths for developing business in emerging markets such as China were also discussed. Finally, the Supervisory Board approved the foundation of subsidiaries in the Czech Republic and Slovenia, as well as in Sweden (to cultivate the Scandinavian market), in fiscal 2003 /2004. The Supervisory Board held five meetings with the Executive Board in the period under review. It received continuous updates on the situation of KWS SAAT AG and the KWS Group and dealt in detail with matters of corporate policy and other fundamental issues of corporate planning. On the basis of these deliberations, the Supervisory Board approved the submitted measures and business transactions requiring its consent. The Supervisory Board was furnished with regular written reports from the Executive Board on the status of business development, profitability, significant business deals and special questions. In addition to being kept up-to-date and discussing issues of importance, the Chairman of the Supervisory Board also took part in several meetings of the Executive Board on focal topics. The Supervisory Board has set up a committee for Executive Board affairs that held one meeting and reported on its work to the Supervisory Board. Deloitte & Touche GmbH, Wirtschaftsprüfungsgesellschaft, Hanover, the independent auditor chosen by the Shareholders Meeting and commissioned by the Supervisory Board, has audited the financial statements of KWS SAAT AG that were prepared by the Executive Board for fiscal 2003 /2004 and the financial statements of the KWS Group (consolidated financial statements), as well as the management report of KWS SAAT AG and the KWS Group (group management report), including bookkeeping, and awarded them its unqualified audit certificate. posal on utilization of the net profit for the year made by KWS SAAT AG and also received detailed explanations of questions on the agenda at its meeting to discuss the financial statements on November 24, 2004. Based on the findings of its examination, the Supervisory Board does not raise any objections. It gives its consent to the financial statements of KWS SAAT AG, which are thereby approved. The Supervisory Board also gives its consent to the statements of the KWS Group. It also endorses the proposal by the Executive Board on how to utilize the profits of KWS SAAT AG. The Supervisory Board received and examined the financial statements and management reports of KWS SAAT AG and the KWS Group, along with the report by the independent auditor for KWS SAAT AG and the KWS Group and the pro- The Supervisory Board expresses its recognition and thanks to the Executive Board and all employees for the work they have done. Einbeck, November 24, 2004 Dr. Guenther H. W. Stratmann Chairman of the Supervisory Board Supervisory Board Dr. Guenther H. W. Stratmann Chairman of the Supervisory Board 12 Report of the Supervisory Board Dr. Carl-Ernst Büchting Einbeck Honorary Chairman Philip Freiherr von dem Bussche Bad Essen Farmer Dr. Guenther H. W. Stratmann Düsseldorf Attorney-at-Law Chairman Eckhard Halbfaß Einbeck Deputy Chairman of the Works Committee of KWS SAAT AG Jürgen Kunze Einbeck Chairman of the Works Committee of KWS SAAT AG Prof. Dr. Ernst-Ludwig Winnacker Munich President of the “Deutsche Forschungsgemeinschaft (DFG)” Dr. Arend Oetker Berlin Deputy Chairman Report of the Supervisory Board 13 HIGH-YIELDING VARIETIES Performance backed by substance We breed varieties with strength – as the basis for your success. Report on the performance of the KWS Group Organic growth and stable financial indicators characterize the company’s current development. KWS is systematically expanding its market position and purposefully tapping new markets. This is true of our regional expansion and development of new products alike. Our expansion of the corn segment in the past years helped boost growth in fiscal 2003 /2004. In addition, the year under review saw further measures aimed at growing our markets in Southeast Europe and North America. The diversification strategy that KWS has been pursuing for many years is impressively demonstrated by the following example: for the first time, the corn and sugar beet segments are making an equal contribution to the Group’s sales. A key factor in this success is the high level of funds we devote to research and development. Our innovation rate remains high, and we will increase the number of new products even more in the future. This year, we again launched a series of new breeding projects. We have pushed ahead with transforming our licensing activities through third parties to direct sales under our own control and have established appropriate sales structures. And with success: the KWS brand is gaining visibility in South-east European markets. As a result of this transformation, we are able to cultivate the target market more efficiently and secure potential for capturing more market share. Consolidated group grows once more Apart from KWS SAAT AG, a total of 42 (41) subsidiaries and associated companies were included in the KWS Group’s financial statements. The number of fully consolidated companies rose to 37 (35) due to the formation of new subsidiaries in Slovenia and Sweden, and, as in the previous year, four companies were consolidated pro rata. Another two (three) companies are included in the KWS Group’s financial statements on an at-equity basis. Increase in sales In the year under review, the KWS Group’s sales rose to a new record level. The KWS Group posted total revenue of b 443.7 (424.3) million – an increase of 4.6 % and well above our own expectations. This growth was again curbed by negative currency effects, without which sales would have climbed to b 458.8 million. The company again recorded more revenue from abroad, with the result that the share of sales outside of Germany rose to 71 (70) %. Overview of the product segments: Stronger position in the international sugar beet market The KWS Group was able to maintain its market position in the sugar beet product segment and achieved sales of b 193.1 (196.7) million in the year under review. In view of the previous year’s extra revenue from resowing and this year’s decline in cultivation areas in Europe, the development of business was very gratifying, especially since there was also pressure on sales from changing exchange rate effects. Without these effects, KWS sales would have been b 5.3 million higher. Corn continues to drive growth The corn segment was able to match the high level of sales in the sugar beet segment for the first time in the year under review. Sales rose overall by around 11% to b 191.0 (172.0) million. Currency effects made a negative impact of b 9.0 million in this segment. KWS posted sharp growth in North America, where the US company AGRELIANT – a joint venture of KWS and LIMAGRAIN – increased corn sales by 20 %. Above all, there is strong demand in the US for genetically improved products; their share of sales at AGRELIANT is some 48 %. However, good growth was also reported in the markets of France and Southeast Europe. Greater demand for rye The cereals segment posted growth of 6.4 % on sales totaling b 52.7 million. This means that the LOCHOW-PETKUS Group boasts some of the strongest sales figures of Europe’s cereal breeders. Especially pleasing is the fact that rye cultivation area has stabilized at a good level, despite the abolition of intervention in 2004. However, all other types of cereals contributed to this growth in sales. Increased expenditure on future growth In the past fiscal year, the KWS Group undertook considerable additional efforts to help the company expand further in the coming years. This necessitated up-front costs aimed at building markets in Southeast Europe and sales structures in North America. This is especially reflected in selling costs, which rose 8.4 % year-on-year to b 75.8 (69.9) million or 17.1 (16.5) % of sales revenues. Lower margins in the new markets and additional research and development expenditures for new projects in corn and sugar beet breeding caused production costs to rise by 5.3 % to b 287.4 (273.0) million. The production cost ratio is now 64.8 (64.3) %. However, gross profit increased by 3.4 % to b 156.4 (151.3) million. Extraordinary administrative expenses were incurred in the fiscal year, among other things due to measures to prepare for adoption of the International Financial Reporting Standards and the introduction of new software versions. Administrative expenses rose by 9.5 % to b 36.8 (33.6) million, or 8.3 (7.9) % of sales. The balance from other operating income and other operating expenses was again positive this year and stood at b 3.8 (2.2) million. Other operating income was b 4.0 million higher in the previous year, mainly due to an extensive adjustment of provisions. Other operating expenses in the previous year were also b 5.7 million above the current figure as a result of special depreciation. Operating income down over the previous year KWS Group’s operating income was not quite able to match the level of previous years. The elimination of § 308 Paragraph 3 HGB (German Commercial Code) has meant a significant upward revaluation in fixed assets without effect on earnings, putting downward pressure on operating income in fiscal 2003 / 2004 as a consequence of additional depreciation of b 2.3 million. Operating income would have been around b 1 million higher adjusted for negative exchange rate effects. Nevertheless, the KWS Group has systematically continued to build its structures in South and Southeast Europe, something that likewise reduced earnings. Consequently, operating income was b 47.6 (50.0) million, around 4.8 % down year-on-year. Still, all segments made a solid contribution to earnings in the year under review. The development of the corn segment, which grew its operating income by 87.3 %, is especially gratifying. This meant that the segment accounted for a share of 18.7 (9.5) % of overall operating income. The contribution made by sugar beet to earnings fell to 60.3 (64.2) %, while the cereals segment contributed 4.9 (3.3) % and breeding & services 16.1 (23.0) %. Lower financial result The balance of income and expense from affiliates of b 1.3 (2.1) million and net of interest income of b –1.6 (–1.2) million were below last year’s figures. The KWS Group reported a total financial result of b – 0.3 (0.9) million. As a result, income from ordinary operations was b 47.3 (50.9) million. The return on sales before tax was thus 10.7 %, some 1.3 percentage points lower year-on-year. Tax ratio improved Taxes at KWS Group fell by 13.6 % to b 19.0 (22.0) million, corresponding to a ratio of 40.1 (43.3) %. This was due to lower expenses from deferred taxes and lower actual tax charges domestically. Net income remains high Despite significant burdens as a result of changes to accounting regulations under commercial law, negative currency effects and increasing fixed costs, the KWS Group was able to post net income of b 28.3 million, on a par with the previous year’s high level of b 28.9 million. The return on sales fell slightly to 6.4 (6.8) %. Previous page: KWS constantly improves the sugar yield of its varieties. An average of 10 t of sugar is now produced from one hectare of beet – twice as much as 50 years ago. 16 Report on the performance of the KWS Group Report on the performance of the KWS Group 17 Higher investments The KWS Group invested more in order to expand its global market position. In the year under review, tangible and intangible assets totaling b 24.4 (19.2) million were acquired or created. The largest single investments were the construction of a multi-purpose building for corn and rapeseed breeding, a visitor, information and employee center, completion of the new administrative building in Einbeck and development and creation of a mobile sugar beet unit to enable efficient processing of external trial series. Of the KWS Group’s total investments of b 26.1 (20.7) million, 65.3 % was committed to Germany, 13.4 % to other EU states, 15.3 % to North and South America and 6.0 % to other foreign countries. The lion’s share of this – 67 % – was channeled into breeding & services, while 13 % was made in the sugar beet segment and another 13 % in the corn segment. In the year under review, the KWS Group reported depreciation of b 19.6 million. Once again, this year’s investments exceeded depreciation. Stable balance sheet ratios Despite an increase in the balance sheet total of b 37.9 million to b 468.9 million, the Group’s equity ratio increased to 57.7 (52.5) %. As a result, the company has solid capital resources of its own to finance future growth. Most of the increase of some 9 % in the balance sheet total is due to fixed assets, which rose to b 152.5 (120.7) million and now account for 32.5 (28.0) % of total capital. This increase includes write-ups of b 28.6 million pursuant to changes in law. 18 Report on the performance of the KWS Group Current assets fell overall by b 4.3 million to b 299.7 million. Receivables rose to b 169.7 (165.3) million due to the increase in sales. This change is reflected primarily in longer collection periods for customers in Southeast Europe and Russia. On the official accounting date, the KWS Group had liquid funds, including securities, of b 58.3 (73.8) million. The decline of b 15.5 million is the result of the reduction of long-term indebtedness to banks. Equity capital rose by around 20 % to b 270.4 (226.1) million and fully covers fixed assets and inventories. Above all, surplus reserves increased year-on-year by b 41.2 million. Despite increased provisions, debt was cut by 3 % to a total of b 198.4 (204.9) million. Short-term debt was reduced by b 4.1 million on the official accounting date. Cash flow remains high The cash flow calculated in accordance with the German DVFA / SG method was b 48.7 million in the year under review, a year-on-year decline of b 3.4 million. Despite this slight drop, all investments were able to be fully funded from cash flow, and there was still b 22.6 million available for financing from internal sources. The ratio of cash flow to sales was 11.0 %, underscoring the great financial strength of the KWS Group. Proposed utilization of profits For fiscal 2002 / 2003, a dividend of b 11.00 per share was paid in January 2004, resulting in a total distribution of b 7.3 million. In the year under review, KWS SAAT AG reported net income of b 14.8 million compared to b 14.7 million in the previous year. The Executive and Supervisory Boards will propose the payment of a dividend of b 11.00 per share at the 2005 Shareholders’ Meeting. Consequently, as in the previous year, b 7.3 million is to be distributed out of the net income of b 14.8 million. b 7.4 (7.3) million has been allocated to surplus reserves. Value added at the KWS Group Creation Distribution 4% Depreciation 16% Other external services 1% Minority interests 2% Lenders 13 % Public Sector 5% Shareholders 13 % Company Total operating performance b 463.6 million 33% Value added 47% Raw materials and supplies + external services Value added In fiscal 2003 / 2004, the KWS Group posted a total result of b 463.6 (450.1) million, consisting of sales revenue of b 443.7 (424.3) million and other income of b 19.9 (25.8) million. Deducting the costs of raw materials and supplies and of external services attributable to production costs totaling b 217.1 (205.1) million, depreciation of b 19.6 (21.1) million and other external services of b 73.0 (70.5) million gives value added of b 153.9 (153.4) million. Total operating performance b 153.9 million 66 % Employees The distribution was as follows: employees received b 101.7 million, including social insurance and old-age pension contributions, compared with b 97.0 million in the previous year. Interest paid to lenders fell from b 3.8 million to b 2.9 million, and the public sector received b 21.0 (23.7) million. The distribution of value added to minority shareholders was b 1.2 (0.8). The shareholders are receiving an unchanged dividend of b 7.3 million, with the result that b 19.8 (20.8) million will remain in the company. Report on the performance of the KWS Group 19 IMPROVED PROPERTIES Quality starts on a small scale. We focus on optimization – in our crops and our processes. Sugar beet segment The sugar beet segment was again very successful in fiscal 2003 / 2004, with sales and earnings falling slightly over the extraordinarily good previous year. Sales were also on a par with the previous year in Northern Europe. Market share was lost in the Benelux states, but the Scandinavian markets made good progress. Sales revenues at the level of the previous year were generated in Central Europe. On the other hand, the general harmonization of prices in the expanded EU had a positive impact on sales. These were increased sharply again in South and Southeast Europe. Expansion of sales activities at GERSEM, a subsidiary in the Russian Federation that has not yet been consolidated, is proceeding as planned. As a result, we achieved growth in market share in Tatarstan as well. The segment’s operating income fell to b 28.7 (32.1) million and is now 14.8 (16.3) % of sales. It should be noted that the figures of the previous year were bolstered by one-time special effects. Seed production in 2003 was 10 % below planned figures due to the extremely hot weather. However, relatively favorable seed sizes meant that the number of units produced was in line with plans. As a result, we were able to supply sufficient product quantities and also live up to our high quality requirements. The performance improvements in breeding can be clearly seen from the number of newly approved products. A variety only obtains official approval if it is better in terms of at least one of its qualities than all the products already on the market. In 2004, KWS obtained 99 (104) marketing approvals for new sugar beet varieties – spread over 27 nations. Worthy of particular mention is the variety PAULETTA. It is based on completely new genetic material and has a nematode resistance that produces excellent yields, even in the absence of this pest. The particular importance of resistance breeding is also reflected in the growing share of sales from these special varieties. Resistant or multiple-tolerant varieties already account for over 50 % of sales in the segment. Sales in the sugar beet segment in millions of euros 56.1 Today over 50 % of segment sales is generated by special varieties with resistances and multiple-tolerances against diseases and pests. In North America, our subsidiary BETASEED again increased its market share which continues to exceed 60 %. The sales season in the regions of Europe went with varying degrees of success. The segment suffered slight losses in market share in Germany, while business in France stabilized. However, a decline of over 6 % was recorded in France. 204.9 2001/ 2002 52.0 140.1 141.1 Sales abroad Sales in Germany 148.8 The sugar beet segment posted sales revenues of b 193.1 (196.7) million in fiscal 2003/2004, a year-on-year decline of 1.8 %. Domestic sales contributed 27 % to this total. The other countries of the 25 states in the enlarged EU accounted for 40 % and the rest of the world 33 % to the segment total. 56.6 196.7 2002 /2003 193.1 Total sales 2003 /2004 Previous page: Crops with outstanding quality properties are identified by means of a wide range of analyses. 22 Report on the performance of the KWS Group Report on the performance of the KWS Group 23 Corn segment Sales in the corn segment increased by 11.0 % to 1 191.0 (172.0) million in the year under review and now account for 43 % of the KWS Group’s total. The relative importance of the corn segment is continuing to grow. Northern and Central Europe was stabilized at a market share of just over 20 %. Demand for KWS varieties in Germany was not always satisfied due to partial bottlenecks in supply. In contrast, sales trends at our second channel AGROMAIS SAATZUCHT GmbH were positive. Overall, KWS was able to retain its leading position in the domestic market. Business at the North American joint venture AGRELIANT, in partnership with the French breeder LIMAGRAIN, developed especially well. In what is now the fourth year of the joint ventures AGRELIANT GENETICS LLC in the US and AGRELIANT GENETICS INC in Canada, corn sales increased by some 20 % year-on-year. Despite the decline of the US dollar against the euro, sales rose 10 % to b 130.0 (116.9) million, of which 50 % is consolidated in the KWS Group. Thanks to high-yield varieties from the joint breeding activities of KWS and LIMAGRAIN in North America and a successful marketing organization, AGRELIANT has now advanced to become the fourth-largest supplier of corn seed in the North American market. The demand is still growing among North American farmers for genetically improved varieties. 48 (43) % of AGRELIANT’s sales revenues was generated from such products. Herbicide tolerance in soybeans is now a standard. Corn products with combined resistances – termed stacks – are in increasing demand. As a result, farmers can leverage several genetically created properties combined in one variety. AGRELIANT is currently developing several new stackvarieties for marketing next year. We were able to follow up the positive trends of the previous year in the field of oil and field seed. Sales of winter oil seed rape increased again. The newly approved hybrid MIKA was able to gain further market share here. Sales in the corn segment in millions of euros 43.4 42.0 43.3 147.6 24 In France, KWS was able to expand its market position further through its French subsidiary KWS MAIS FRANCE. Its share in this market is now 10%. Sales also developed very nicely in Italy. The increase in the segment’s operating income to b 8.9 (4.8) million, almost double the previous year’s, is especially gratifying. Our efforts to build structures over the past years are reaping initial positive effects in core markets. The countries of Southeast Europe are also chalking up remarkable successes following difficult initial years. These markets already contribute 7.3 % to total sales volume in Europe and have the highest growth potential. Business in the markets of Report on the performance of the KWS Group Sales in Germany 130.0 For the first time, the corn segment has caught up with the sugar beet segment in terms of sales. The corn segment includes the production and sale of corn, oil and field seed. Oil and field seed include oil seed rape, sunflowers, catch crops such as oil radish and mustard, plus lawn seed and fodder beet. Sales abroad 120.4 163.7 2001/2002 Total sales 172.0 2002/2003 191.0 2003/2004 Report on the performance of the KWS Group 25 Cereals segment In what is still a tough market environment, the cereals segment is posting increased sales and income. The 42.5 % share contributed by business abroad underscores our growing geographical diversification. Despite the difficult general conditions, LOCHOW-PETKUS was able to expand its position as one of Europe’s leading cereals breeding companies. It maintained its excellent position in rye and achieved significant growth in wheat and barley. LOCHOW-PETKUS is now the largest wheat breeder, accounting for a 25 % share of the multiplication area in Germany. High-yielding varieties such as DEKAN and CUBUS have become established in all cultivation regions, as is similarly true of the powerful variety LOMERIT in the market for winter barley. The positive development of LOCHOW-PETKUS is the consequence of our systematic expansion of activities in core European markets. Close cooperation within the Group promotes the intensive exchange of material and methods, ensuring successful breeding of environmentally friendly varieties that meet the needs of the market. These synergies are reflected in the fact that the LOCHOW-PETKUS Group obtained marketing approval for 39 (28) varieties in the calendar year 2004. The LOCHOW-PETKUS Group is also involved in international basic research through its participation in several research projects. For instance, its work on resistance to fungi (e. g. fusaria) is making a valuable contribution to meeting the growing demands placed on the quality of cereals. The segment was able to increase its income year-on-year to b 2.3 (1.6) million. This was mainly due to the recovery in the rye market, resulting in an increase in sales of hybrid rye at LOCHOW-PETKUS GmbH. The company’s high-yielding winter wheat and winter barley varieties also developed positively. While the earnings situation at the Polish subsidiary LOCHOWPETKUS POLSKA improved, the French associated company MOMONT failed to match the income it posted in the previous year. Income at the UK subsidiary CPB TWYFORD is almost on a par with last year. Sales in the cereals segment in millions of euros Sales abroad 35.1 30.3 29.3 Sales in Germany LOCHOW-PETKUS became Germany’s most successful wheat breeder thanks to high-yield varieties. Total sales KWS Group’s cereal activities are concentrated at the LOCHOW-PETKUS Group. New, healthy varieties of wheat, barley, rye, oats and triticales for the core markets of Germany, France, Great Britain and Poland are developed there. As a complement to the activities of KWS MAIS GMBH, the LOCHOW-PETKUS Group also sells winter rape. Sales in this segment in the past fiscal year were b 52.7 (49.6) million, 6.4 % above the previous year. The relatively high pro- 26 Report on the performance of the KWS Group portion of sales abroad of 42.5 (41) % underscores the importance of LOCHOW-PETKUS as a European plant breeding company. Cereal cultivation areas at the time of the 2004 harvest increased again slightly to 16.7 (16.2) million hectares in the key European markets of Germany, France and Great Britain, yet sales of certified seed – and thus the licensing business – continued to decline. The market situation is also under pressure from a strained financial situation in the agriculture and trade sectors. 57.6 52.7 49.6 22.5 2001/2002 20.3 2002 /2003 22.4 2003/2004 Report on the performance of the KWS Group 27 Breeding & services segment The core competence of KWS is in developing innovative varieties, geared to the requirements of agriculture and the food-processing industry. In the calendar year 2004, KWS was awarded 231 (233) marketing approvals for new products as part of the official international testing of varieties. This successful year saw 99 (104) approvals for sugar beet, 85 (92) for corn, 39 (28) for cereals and 8 (9) for oil and field seed. The finished varieties are made available to the product segments, which in exchange pay royalties at a market level. In addition to breeding and research, this segment includes the Group’s potato activities, central corporate functions and its farm business. The latter also accounts for the largest share of the segment’s non-Group revenues of b 6.9 (6.0) million. Including the internal royalties earned from variety development, the segment’s sales in fiscal 2003 / 2004 were b 124.7 (120.9) million. However, income was b 7.7 (11.5) million, down over the previous year due to a sharp rise in product development costs and numerous projects in the central functions. Innovative technologies in plant breeding In corn hybrid breeding, KWS has developed double haploid (DH) lines that are distinguished by complete homozygosity. Homozygous lines are the prerequisite for successful hybrid breeding. Thanks to DH technology, a large number of new lines with homozygous genetic information for developing improved hybrid varieties can be produced in a single year, whereas traditional line development required years of selffertilization (6 – 8 generations) so that the necessary homozygosity of a parent line could be achieved. DH technology speeds up the breeding process enormously. The technology for creating DH lines is more complex in wheat than in corn. Our subsidiary PLANTA ANGEWANDTE PFLANZENGENETIK UND BIOTECHNOLOGIE GmbH has nevertheless succeeded in establishing a method of producing DH lines in wheat using a line of exotic origin as crossing partner. These DH lines are made available to breeders as starting material. The advantages for breeding are in the greater genetic variance that is immediately visible due to the homozygosity and in the greater selection intensity that is possible. As a result, breeding objectives are achieved far more quickly and the time needed to develop wheat varieties is reduced significantly. 28 Report on the performance of the KWS Group Rapeseed breeding at KWS Winter rape is grown exclusively in Europe. KWS’ breeding program is thus geared to Europe and its core markets of Germany, France and Great Britain. Its objectives are to breed particularly high-yielding varieties with a high oil content, good cultivation properties and important resistances to disease. Within the KWS Group, there is close cooperation between the breeding groups of KWS SAAT AG and MOMONT, the French associated company of LOCHOW-PETKUS. In addition, our English subsidiary CPB TWYFORD has its own breeding program for the rapeseed market there. AGRELIANT breeding program. KWS has successfully started establishing new breeding programs in the growth markets of Southeast Europe. In the year under review, corn yield tests were conducted at a substatial extent in this region. As a result, the development of varieties adapted to this important corn growing region is proceeding apace. Potato activities at SAKA-RAGIS The potato harvest in Europe in 2003 was lower than in previous years as a result of lower yields due to the weather. This resulted in higher prices for consumption and processing potatoes. Seed potato business was also impacted by the short supply, with the result that SAKA-RAGIS (SARA) again reached the strong sales figures for the previous year in fiscal 2003 / 2004. Moreover, five new approvals were added to SARA’s extensive product portfolio. SARA’s PRINCESS variety continues to be one of the leading consumption potatoes on the market. Nationwide trial cultivation Initially, rapeseed breeding focused solely on pure-line varieties. For a number of years now, new breeding methods have also been used to develop higher-yielding hybrid varieties of rapeseed. These methods already have a market share of around 50 % in Germany. The oils from modern rapeseed varieties are widely used as cooking oil and for producing margarine, mayonnaise and other foodstuffs. They are also used to produce biodiesel. In addition, rapeseed can also be used as protein fodder. A special characteristic of breeding winter rape is the short time between harvesting (end of July) and then sowing it again (middle /end of August). All quality testing, seed processing and data recording activities must be carried out very quickly in this brief space of time. The success of rapeseed breeding depends on these crucial steps running smoothly. In fiscal 2003 / 2004, we gained marketing approval for our new pure-line varieties ALLURE and ALESI and for the hybrid varieties MIKA und ALKIDO. Success at AGRELIANT as well Corn breeding at AGRELIANT in North America continues to reap success, recently producing several new varieties with stable and high yields. DH technology is also used in the In the growing season 2004, KWS took part in the nationwide trial cultivation of genetically modified (GM) corn. The objective was to investigate the yields of GM corn in conventional neighboring fields under cultivation conditions in Germany, as well as to analyze the effectiveness of resistance to the European corn borer, a rapidly spreading pest. The initial results of the scientific accompanying program of the University of Halle, which was also supported by the German Ministry of Education and Research, showed that the coexistence of different forms of cultivation is possible as long as simple and practicable measures are observed, and that it does not result in significant impairment to the neighboring fields. The resistance to pests of the special varieties used also proved to be extremely effective. Under the motto “Local Transparency,” KWS informed neighboring farmers and residents of the trial location, from the time of sowing to harvesting. We encountered lively interest and a great deal of approval at the local events. In the meantime, the Ministry of Consumer Protection, Food and Agriculture has announced its intention to use the findings of the trial cultivation in 2004 and, based on these findings, approach further legislative steps. Report on the performance of the KWS Group 29 HEALTHY CROPS Vitality is a must Resistances strengthen our crops – innovative power strengthens our future. Outlook for the 2004 / 2005 fiscal year Risks for future development The expansion of KWS Group’s business activities has also proceeded positively in the current fiscal year In addition to the risks outlined in the section “Outlook for the 2004 / 2005 fiscal year,” medium- to long-term 2004/2005. This will probably result again in higher sales compared with the previous year. risks can be mentioned here. We expect to see stable development of our business in the sugar beet segment, given the good variety performances we anticipate from our products. The main reasons for this are continued positive developments in Eastern and Southeast Europe and Turkey. However, one risk is the proposals on amending the sugar market regime that have now been presented by the EU Commission, pursuant to which the Commission envisages a significant reduction in production volumes and the beet price in the sugar marketing year 2005 / 2006 (see also page 33). If these proposals are implemented before the spring of 2005, they could impact the sowing acreage in the same year. However, it can be expected that the decisionmaking process in the EU will be delayed and that cuts in acreage will not take effect until the sowing season 2006. In particular, the general agricultural policy framework will have a major influence on our sugar beet seed business. On July 14, 2004, the EU Commission published its proposals on the forthcoming reform of the EU sugar market. These envisage combining and reducing the A and B quotas by 16 %, cutting sugar prices by 33 % to b 421 a ton and reducing beet prices by 37 % to b 27.40 a ton. This process is to be completed gradually by the farming business year 2007/ 2008, but cushioned by direct payments to farmers of 60 % of their lost income. By contrast, the Commission’s proposals will probably have no significant effects on the end consumer price, since Europeans now consume – including all processed products – an average of 34 kg of sugar a year worth around 27 euros. In the corn segment, we expect continued strong growth in all regions for the current fiscal year. We aim to expand our market position in Germany further with our new generation of varieties. We will also increasingly offer corn varieties that are particularly suited for use as a source of energy, for instance generating electricity from biomass. Complete integration of the new EU states in Europe’s seed market poses a huge challenge. The Common Market demands a uniform price level for identical varieties. Our goal is to improve market share further, specifically in Italy, France, the countries of Southeast Europe and the US, where we were able to chalk up remarkable sales successes in 2003 / 2004. Our expectations here are built on a particularly competitive portfolio of varieties and continuous expansion of our sales and marketing structures. We are able to report very gratifying development of our rapeseed business for the autumn sowing period. We almost doubled our sales, primarily due to great demand for our new rapeseed hybrids in Germany. Overall, we assume that the corn segment will once again post improved sales and income in 2004 / 2005 compared with the previous year. The objective in our cereals segment is to maintain the higher level of sales in the year under review this time as well. The prime pillar of sales at LOCHOW-PETKUS is hybrid rye. Record harvests in the growing season 2004 and a drop in prices for products for consumption led to a sharp reduction in the cultivation area for this crop in the autumn of 2004. However, our winter wheat, barley and rapeseed activities offer potential for stable earnings. Overall, the cereal segment will not be able to achieve the sales it recorded in the year under review. In summary, the KWS Group expects earnings almost on a par with those of the previous year together with growing sales. There have not been any events of particular importance since the end of the last fiscal year. The necessity for reforming the sugar market is justified largely by international trade requirements. First, there is the “Everything but Arms” initiative, which envisages the wide-scale opening of EU markets to agricultural products from the poorest developing countries. The EU has announced to implement this liberalization by 2009. Second, the WTO panel has ruled that the existing practice of sugar exports from the EU contravenes WTO rules. The EU Commission has announced that it will appeal this ruling, but experts believe that this appeal will merely have a delaying effect. Regardless of whether the Commission’s proposals are put into practice or not, sugar beet cultivation in Europe must still become more efficient so that its economic and ecological advantages can be leveraged in competition with sugar-cane. These advantages include a higher yield potential, yet less use of pesticides and fertilizers, the fact that beet uses far less water, and also the possibility of annual crop rotation, which saves resources. As in the past, sugar beet breeding will make a crucial contribution here. A further long-term risk is European – especially German – reservations about the use of biotechnology in agriculture. By contrast, the worldwide cultivation area for genetically modified plants has kept up its steady growth. In 2004, the area increased from 67 to around 70 million hectares. That corresponds to the total agricultural area of the old, 15-strong EU. European market introduction, however, is not in sight to any significant extent. In Germany, this was practically ruled out by the amendment of the Genetic Engineering Act in the summer of 2004. According to the new provisions, farmers cultivating such plants are to be held liable for unavoidable cross-pollination of genetically modified constituents in neighboring fields, regardless of who is to blame and, if applicable, with joint and several liability. In addition, they must report promptly that they are cultivating such plants and be entered in a public “cultivation register.” A violation of this duty to report is even classified as a criminal offense. Such exaggerated regulations will force farmers to refrain from growing these innovative varieties. Likewise unavoidable outcrossings of research plots into neighbour production fields are regarded as illegal market introductions. This will severely impair scientific and private-enterprise research in Germany. The amended Genetic Engineering Act will therefore entail clear competitive disadvantages for research and practical use, whereas genetically modified products are increasingly being imported and have been consumed for 15 years now without any discernible risks. Weather conditions have considerable influence on the breeding and multiplication processes of a plant breeder. Where possible, the risks in question are minimized by parallel work at different locations in different countries and continents. Previous page: Fungal cultures in Petri dishes – our varieties have to prove their resistance in extensive test series, in which they are confronted with a wide range of different fungal cultures. 32 Report on the performance of the KWS Group Report on the performance of the KWS Group 33 Employees The increasingly international character of the KWS Group is primarily a reflection of the good network of its highly qualified and motivated employees. In this fiscal year too, we have been able to employ a number of trainees who passed their exams as interns at our foreign subsidiaries. Given the increasing internationalization of the KWS Group, our aim is to expand and encourage opportunities for people to acquire experience in working abroad as part of their further training and development. Apart from formal vocational training, we offer many interns a chance to familiarize themselves with practical everyday working life and our company. For a number of years now, an average of twelve graduates of technical colleges and universities of applied science have had the chance to start their career with us through our trainee program. In this way, we systematically acquire qualified junior employees with intercultural experience for all areas of the KWS Group. Performance and career discussions are a core tool in human resources management, and KWS aims to increase their num- Qualification for the future – trainees make up almost 10 % of the KWS workforce. Here is the class of 2004 with its trainers. ber and quality significantly. After all, every company needs to have the right employees at the right place to remain successful in future. These discussions are to focus on recognizing and individually fostering the potential of employees, since only in this way can every employee be assigned to reflect his or her own strengths. That also generates satisfaction and enhances productivity. So that performance and career discussions can be conducted as successfully as possible, we have created a new set of guidelines, with which a total of 120 executives have been familiarized in training workshops. These workshops focused on conveying the key objectives of the performance and career discussion sessions: mutual feedback regarding performance, sharing of views on employee potentials to be developed, training measures, and agreement on targets for the coming year. Employees of the KWS Group by function Employees of the KWS Group by age Few companies are influenced by the innovation of their products as greatly as KWS. This is reflected in the fields of activity. We are a young company with experienced colleagues. 14% Administration 37% Research and development 5% over 60 14 % 20 to 29 17% 50 to 59 In the year under review, the workforce grew again by 7.7 % to 2,516 (2,336), of which KWS SAAT AG accounted for 793 (794), i. e. around one third. Personnel expenses at KWS SAAT AG were b 38.9 (38.8) million last year and rose by 4.9 % to b 101.7 (97.0) million at KWS Group. Training KWS has 75 (75) trainees in five vocations at Einbeck and thus makes a major contribution to the training offered in the region. 34 Report on the performance of the KWS Group The proportion of the workforce undergoing training at KWS SAAT AG has remained constant at 9.5 % for several years. Apart from vocations as agricultural technical assistants, agricultural laboratory assistants, industrial clerks and industrial mechanics (focusing on machine and system engineering), trainees are also being employed again in agriculture at the farming operations in Wiebrechtshausen and Wetze. Unfortunately, it is not possible to offer all trainees permanent employment after they complete their programs. However, these young people have an excellent foundation for their further career thanks to their solid, in-depth vocational training. 31% 30 to 39 20% Sales 29% Production 33% 40 to 49 Report on the performance of the KWS Group 35 Compliance declaration I. We have complied with the practices recommended by the “Government Commission on the German Corporate Governance Code” during the year under review with the exception of the recommendations listed under II below. II. During the 2003 / 2004 fiscal year, KWS SAAT AG did not implement the following provisions of the code > The excess recommended by clause 3.8 GCCG in the D & O insurance coverage for the Supervisory and Executive Boards is still not provided for in the policy in question. > An Audit Committee in conformance with clause 5.3.2 GCCG has yet to be established. Regular and intensive discussions are conducted between the Chairman of the Supervisory Board, the Executive Board and the statutory auditors. The five other members of the Supervisory Board are also included as appropriate. > KWS has prepared the consolidated financial statements in fiscal 2003 / 2004 according to the rules of the IFRS (International Financial Reporting Standards, as recommended by clause 7.1.1 GCCG) and will publish them accordingly beginning with fiscal 2004 / 2005. Annual Financial Statements of the KWS Group 2003 / 2004 > The GCCG recommends (clause 7.1.2) that consolidated financial statements and interim reports be published within 90 days and 45 days respectively. Due to the seasonal nature of our business, observance of the recommended publication deadlines is not ensured. We will therefore refrain from preparing and publishing a shortened version of the consolidated financial statements. Einbeck, November 24, 2004 36 Compliance declaration The Supervisory Board The Executive Board Balance Sheet Income Statement at June 30, 2004 for the period from July 1, 2003 to June 30, 2004 ASSETS Note Values in 5 thousands Values in 5 thousands June 30, 2004 Prior Year Intangible assets (2) 14,378 17,467 1. Sales Property, plant and equipment Financial assets (3) (4) 118,818 19,305 83,991 19,279 2. Cost of sales Note 2003 / 04 (17) 443,713 424,276 287,352 272,977 156,361 151,299 3. Gross profit on sales Fixed assets (1) 152,501 120,737 Inventories (5) 71,694 64,853 Receivables and other assets (6) 169,672 165,297 Marketable securities (7) 7,500 18,980 Cash and cash equivalents (8) 50,819 54,852 4. Selling expenses 75,757 69,872 5. General administrative expenses 36,820 33,622 6. Other operating income (18) 17,097 21,177 7. (19) 13,305 18,960 47,576 50,022 – 267 877 47,309 50,899 Other operating expenses 8. Operating income Current assets Prepaid expenses Deferred tax assets (9) Equity and liabilities Note Subscribed capital (10) Capital reserve Retained earnings Adjusting entries from consolidation of equity Minority interests 303,982 2,864 2,578 13,874 3,745 468,924 431,042 Values in 5 thousands June 30, 2004 Prior Year 17,000 17,000 5,530 5,530 230,293 189,087 1,988 1,988 15,628 12,498 (11) 270,439 226,103 Special items with an equity portion (12) 0 669 Provisions and accruals (13) 146,105 135,004 Liabilities (14) 52,272 69,262 198,377 204,935 108 4 468,924 431,042 Deferred income 38 299,685 Equity Debt Annual Financial Statements: Balance Sheet Prior Year 9. Net financial income / expenses (20) 10. Result of ordinary activities 11. Taxes on income (21) 18,975 22,043 12. Net income for the year (23) 28,334 28,856 1.209 780 27,125 28,076 13. Minority interests 14. Net income after minority interests Annual Financial Statements: Income Statement 39 Statement of Changes in Fixed Assets 2003 / 04 Values in 1 thousands, unless otherwise specified. Balance sheet items At Cost Bal. at Currency 7/1/03 translation Additions Accumulated Depreciation Disposals Transfers Bal. at Bal. at Currency 6/30/04 7 / 1 / 03 translation Additions Write-ups Net book values Disposals Transfers Bal. at Bal. at Prior 6 / 30 / 04 6 / 30 / 04 year I. Intangible assets 1. Concessions, industrial property rights and similar rights, and licenses to such rights 11,211 – 116 384 862 0 10,617 8,650 – 56 762 14 860 0 8,482 2,135 2,561 24,465 – 228 911 47 0 25,101 9,559 – 73 3,419 0 47 0 12,858 12,243 14,906 35,676 – 344 1,295 909 0 35,718 18,209 – 129 4,181 14 907 0 21,340 14,378 17,467 including buildings on non-owned land 120,617 – 587 9,536 3,850 3,568 129,284 71,092 – 299 4,038 22,738 3,540 –1 48,552 80,732 49,525 2. Technical plant, machinery and equipment 102,061 – 510 4,083 8,296 2,197 99,535 84,673 – 310 6,016 4,275 8,035 79 78,148 21,387 17,388 51,790 – 489 4,458 4,315 542 51,986 40,702 – 308 5,332 1,530 4,147 – 78 39,971 12,015 11,088 5,990 – 48 5,049 0 – 6,307 4,684 0 0 0 0 0 0 0 4,684 5,990 280,458 – 1,634 23,126 16,461 0 285,489 196,467 – 917 15,386 28,543 15,722 0 166,671 118,818 83,991 1. Shares in affiliated companies 2,009 0 0 9 0 2,000 1,246 0 0 0 0 0 1,246 754 763 2. Investments in associated companies 8,952 0 1,281 1,749 0 8,484 142 0 71 0 0 0 213 8,271 8,810 3. Participations 5,775 0 650 0 0 6,425 20 0 0 0 0 0 20 6,405 5,755 4. Loans to companies in which participations are held 21 0 0 4 0 17 0 0 0 0 0 0 0 17 21 5. Securities held as fixed assets 319 0 0 0 0 319 1 0 0 0 0 0 1 318 318 3,631 13 836 922 0 3,558 19 0 0 1 0 0 18 3,540 3,612 20,707 13 2,767 2,684 0 20,803 1,428 0 71 1 0 0 1,498 19,305 19,279 336,841 – 1,965 27,188 20,054 0 342,010 216,104 – 1,046 19,638 16,629 0 189,509 152,501 120,737 2. Goodwill II. Property, plant and equipment 1. Land, leasehold rights and buildings, 3. Other equipment, factory and office equipment 4. Payments on account and construction in progress III. Financial assets 6. Other loans and financial assets Fixed assets 28,558* * Including not affecting income adjustments due to abrogation of § 308 Paragraph 3 HGB thousand b 28,557. 40 Annual Financial Statements: Fixed Assets Annual Financial Statements: Fixed Assets 41 Statement of Changes in Equity per DRS 7 Values in 1 thousands, unless otherwise specified. Parent Company Minority Interests Comprehensive Other Group Income Balance at June 30, 2002 Earned Adjusting entries Other transactions Subscribed Capital Group for currency not recognized capital reserve equity translation in income 17,000 5,530 158,679 4,783 13,556 Dividends paid – 7,260 Changes in consolidated group 59 Comprehensive Other Group Income Adjusting entries 28,076 Other Group income Total Group income Balance at June 30, 2003 17,000 5,530 for currency actions not Equity interests translation recognized in income Equity 199,548 11,062 1,117 0 12,179 211,727 – 7,260 – 642 – 642 – 7,902 59 250 250 309 – 20 – 20 – 20 Dividends paid 28,076 780 28,856 – 49 – 49 – 6,867 780 – 49 731 21,989 213,605 11,430 1,068 12,498 226,103 – 7,260 – 513 – 513 – 7,773 622 622 622 – 6,818 – 6,818 28,076 – 6,818 21,258 179,495 – 2,035 13,615 – 7,260 Other changes Consolidated net income 27,125 Other Group income Total Group income Balance at June 30, 2004 17,000 5,530 Other trans- Minority Other changes Consolidated net income Group equity 27,125 – 2,863 24,204 21,341 27,125 – 2,863 24,204 48,466 199,360 – 4,898 37,819 254,811 780 0 1,209 1,209 28,334 103 1,709 1,812 23,153 1,209 103 1,709 3,021 51,487 12,748 1,171 1,709 15,628 270,439 Of the earned Group equity at June 30, 2004, an amount of thousand b 7,560 (prior year thousand b 7,420) is available for distribution to the shareholders. The statutory reserve on the books of KWS SAAT AG remains unchanged at thousand b 2,666. 42 Annual Financial Statements: Equity Annual Financial Statements: Equity 43 Notes on the Cash Flow Statement Cash Flow Statement Figures in 1 thousands, unless otherwise specified; prior-year values in parentheses. Note Values in 5 Thousands 2003 / 04 Prior Year Net income for the year 28,334 28.856 Depreciation / writeups on fixed assets 19,637 21,098 Change in long-term accruals 828 2,196 Other non-cash expenses/income Accrued taxes Special items with an equity portion – 98 0 2,868 – 2,910 The cash flow statement, which has been prepared in accordance with Group in the three areas of operating activities, investing activities and The net funds are composed of cash and cash equivalents and financing activities. The effects of exchange rate changes and changes marketable securities, as they were in the previous year. in the consolidated group were eliminated from the respective balance sheet items, with the exception of those same effects on net funds. Cash flow (after taxes) 1 1,792 thousand held by a German subsidiary were not freely dis- 48,701 52,108 Income from associated companies – 1,128 – 1,716 Other income – 1,926 0 45.647 50,392 to 1 45,647 thousand. The percentage of sales represented by cash 1,620 – 2,112 earnings according to DVFA/ SG was 10.3 % (11.9 %). The cash inflow – 35 – 815 from operating activities contained interest income of 1 1,278 thousand – 14,256 – 8,557 (1 2,061 thousand) and interest expenses of 1 2,915 thousand 3,741 – 3,878 (1 3,768 thousand). Payments for income taxes amounted to 1 27,148 Cash earnings per DVFA/SG Change in short-term accruals Net gains / losses on asset disposals Change in inventories, trade receivables and other assets Change in trade payables and other liabilities (A) The cash inflow from operating activities is primarily determined by the cash earnings as per DVFA/ SG, which declined by 1 4,745 thousand Total amount of all sales prices 0 0 (B) Cash flow from investing activities Total amount of cash components of purchase prices 0 2,208 Total amount of cash components of sales prices 0 0 Total amount of all cash and cash equivalents acquired with the companies 0 0 0 0 1,270 25 – 23,126 – 17,461 Outflows for investments in intangible assets – 1,295 – 506 A net total of 1 22,600 thousand (1 17,887 thousand) was required Inflows from disposal of financial assets Outflows for investments in financial assets 2,684 – 1,639 1,832 – 1,513 to finance the investing activities. An amount of 1 24,421 thousand Outflows for acquisition of consolidated companies and other business units 0 (B) – 22,600 – 1,534 – 17,887 (1 17,967 thousand) was expended for property, plant and equipment and for intangible assets and an amount of 1 1,639 thousand (1 3,047 thousand) was expended for financial assets. Cash inflows totaling 1 3,460 thousand (1 3,127 thousand) were received on disposals of fixed assets. In the previous year, shares in companies were acquired Inflows from equity contributions Dividends and equity redemptions Loans borrowed Repayment of loan principal Cash flow from financing activities (C) Effective cash change in net funds 267 – 7,902 5,912 6,912 –26,539 –13,320 – 27,778 – 14,043 – 13,661 3,100 acquired. (C) Cash flow from financing activities Prior Year Acquired Sold 0 306 0 of KWS SAAT AG and profit distributions of 1 513 thousand (1 642 Current assets, including prepaid expenses (excluding cash and cash equivalents) 0 0 10 0 thousand) paid to other shareholders of fully consolidated subsidiaries. Provisions and accruals 0 0 0 0 0 0 92 0 sand (1 14,043 thousand). The profit distributions were the cash divi- Net funds at start of year 73,832 74,292 dend of 1 7,260 thousand (1 7,260 thousand) paid to the shareholders Net funds at end of year 58,319 73,832 Annual Financial Statements: Cash Flow Statement 2003/04 Acquired Sold 0 – 3,560 (D) Amounts of other assets and liabilities acquired or sold with the companies Fixed assets – 1,852 Net funds equivalents sold with the companies was cash. In fiscal year 2003 / 04, no shares in other companies were The financing activities gave rise to a cash outflow of 1 27,778 thou- Marketable securities Total amount of all cash and cash for a total purchase price of 1 2,208 thousand; 100 % of this amount Influence of foreign exchange and consolidated group changes on net funds Cash and cash equivalents 44 622 – 7,773 Prior Year 2,208 2 Outflows for investments in property, plant and equipment 2003 / 04 0 774 Inflows from disposal of intangible assets Notes on the acquisition and sale of companies and other business units (DRS 2 Tz. 52) Total amount of all purchase prices thousand (1 18,352 thousand). 35,030 Inflows from disposals of property, plant and equipment posable because they served as collateral for a long-term loan by this company. This loan was completely repaid in fiscal year 2003 / 2004. 36,717 Cash flow from investing activities The net funds include 1 9,185 thousand (1 4,440 thousand) from companies consolidated on a pro-rated basis. In the prior year, funds totaling (A) Cash flow from operating activities Cash flow from operating activities (D) Additional notes on the cash flow statement DRS 2 (indirect method), shows the changes in the net funds of the KWS 50,819 54,852 In addition, debts of 1 26,539 thousand (1 13,320 thousand) were Liabilities, including 7,500 18,980 repaid. deferred income 58,319 73,832 Annual Financial Statements: Cash Flow Statement 45 Segment reporting Figures in 1 thousands, unless otherwise specified; prior-year values in parentheses. In accordance with its internal reporting system, the KWS Group is Considered a core competence for the entire product portfolio of the primarily organized by the following business segments: KWS Group, plant breeding, including the related biotechnology Segment information of goodwill for SAKA-RAGIS PFLANZENZUCHT GBR, which is recognized in Net financial income/expenses. research, is essentially concentrated with the parent company in The segment sales contain both the sales to third parties (external • Sugar Beet Einbeck. All the breeding material, including the relevant information sales) and the sales between the segments (intersegment sales). The The other non-cash items relate to non-cash changes in the allo- • Corn and expertise about how to use it, is owned by KWS SAAT AG, with prices for intersegment sales are determined in accordance with the wances for inventories and for provisions and accruals. In all of the • Cereals respect to sugar beets and corn, and by LOCHOW-PETKUS GMBH, arm’s-length principle. segments, this item consisted of net expenses. • Breeding & Services with respect to cereals. Research and breeding are also performed The income from associated companies relates exclusively to the by the wholly-owned German subsidiary PLANTA ANGEWANDTE The Breeding & Services segment generates 94.5 % (95.0 %) of its The research and development function is contained in the Breeding & PFLANZENGENETIK UND BIOTECHNOLOGIE GMBH and breeding sales with the other segments. The sales of this segment represent Breeding & Services segment, which reported income of 1 1,057 thou- Services segment. Because of their subordinate importance within the activities are conducted, as in the previous year, by ten other domestic 1.5 % (1.4 %) of the external sales of the Group. sand (1 1,645 thousand) in this category. In addition, the Breeding & KWS Group, the distribution and production of oil and field seed are and foreign subsidiaries and associates. The Sugar Beet segment is the biggest contributor of sales, accounting 1 341 thousand (1 474 thousand) and the Cereals segment showed in- The breeding and distribution of potatoes in the KWS Group are for 43.5 % (46.3 %) of external sales, followed by Corn with 43.1 % come from investments in the amount of 1 6 thousand (1 4 thousand). performed by SAKA-RAGIS PFLANZENZUCHT GBR. This company is (40.6 %) and Cereals with 11.9 % (11.7%). recorded in the Cereals and Corn segments, depending on the legal entities involved. Services segment showed income from investments in the amount of The working capital of the segments is composed of intangible assets, Description of segments 45 %-owned by RAGIS KARTOFFELZUCHT- & HANDELSGESELL- Sugar Beet SCHAFT MBH, which is included by way of full consolidation. Whereas Of the Group’s total sales, 67.8 % (68.8)% were generated in the Euro- property, plant and equipment, inventories and all receivables, other The results of the multiplication, processing and distribution activities the operating income of RAGIS KARTOFFEL-ZUCHT- & HANDELSGE- pean Union (including Germany). The Rest of World figure includes assets and prepaid expenses which can be allocated directly or in- for sugar beet seed are reported under the Sugar Beet segment. Under SELLSCHAFT MBH is included in the operating income of the Breed- Eastern Europe sales (excluding the EU-25), which increased by directly by means of an appropriate allocation base to the segments. the leadership of KWS SAAT AG, twelve foreign subsidiaries and asso- ing & Services segment, the operating income figures of SAKA-RAGIS 1 1.9 million to 1 27.3 million. ciates are active in this segment, as in the previous year. PFLANZENZUCHT GBR and SAKA RAGIS AGRAR-PRODUKTE GMBH & CO. KG, in which RAGIS KARTOFFELZUCHT- & HANDELSGESELL- The operating result was selected as the segment result. The opera- Corn SCHAFT MBH holds a 36 % equity interest, are included under Net ting income figures of the segments are presented on a consolidated KWS MAIS GMBH is the lead company for the Corn segment. In addi- financial income/expenses, in the item of Income/expenses from asso- basis. tion to KWS MAIS GMBH, business activities are conducted, as in the ciated companies. The Consulting Services include the systems business of KWS SAAT thousand) allocated to the segments relates exclusively to intangible assets and property, plant and equipment. The writedowns of financial segment relate to corn for grain and silage corn and to oil and field AG and the activities of the 90 %-owned subsidiary MOD MANAGE- seed. MENT, ORGANISATION UND DATENVERARBEITUNG CONSULTING assets amounted to 1 71 thousand (1 78 thousand), of which amount GMBH. In addition, the agricultural operations of KWS SAAT AG, KWS 1 71 thousand related, as in the previous year, to the amortization Cereals KLOSTERGUT WIEBRECHTS-HAUSEN GMBH and KWS SAATFINANZ The lead company of this segment, which essentially concerns the GMBH, which mainly handles insurance for KWS, are also assigned to production and distribution of hybrid rye, wheat and barley, as well Consulting Services. Segment Sales 2003 / 04 Prior Year as oil and field seed, is LOCHOW-PETKUS GMBH, an 81%-owned subsidiary of KWS SAAT AG, with its three (three) foreign subsidiaries The Other Services performed for the KWS product segments essen- and associates in France, Great Britain and Poland. tially include all the management services of KWS SAAT AG, such as holding company and administrative functions, including strategic de- Breeding & Services velopment projects, which are not directly or indirectly allocated by This segment includes the centrally controlled corporate functions means of an appropriate allocation base to the product segments. of research and breeding, as well as services for the KWS product segments of Sugar Beets, Corn and Cereals, and consulting services 2003 / 04 Prior Year Germany 127,360 129,534 European Union 25 (excluding Germany) 173,427 162,344 The depreciation and amortization of 1 19,567 thousand (1 21,020 previous year, by one German and twelve (eleven) foreign companies of the KWS Group. The production and distribution activities of this External sales by region North and South America 95,428 94,156 Rest of World 47,498 38,242 443,713 424,276 Internal Sales 2003 / 04 Prior Year External Sales 2003 / 04 Prior Year Sugar beet 193,128 196,670 0 0 193,128 196,670 Corn 191,172 172,293 154 255 191,018 172,038 Cereals 53,460 49,638 744 73 52,716 49,565 Breeding & Services 124,706 120,874 117,855 114,871 6,851 6,003 KWS Group 562,466 539,475 118,753 115,199 443,713 424,276 both for the KWS Group and for other clients. 46 Annual Financial Statements: Segment Reporting Annual Financial Statements: Segment Reporting 47 Notes to the Annual Financial Statements Sugar beet Segment result Depreciation / Amortization Other non-cash items Assets Liabilities 2003 / 04 Prior Year 2003 / 04 Prior Year 2003 / 04 Prior Year 2003 / 04 Prior Year 32,096 4,753 4,123 11,509 11,573 129,593 118,864 18,731 18,442 Corn 8,914 4,760 3,125 2,806 25,460 20,371 127,505 127,052 44,196 36,633 Cereals 2,343 1,644 1,401 2,184 1,705 – 1,424 25,695 19,878 5,954 6,316 Breeding & Services 7,650 11,522 10,288 11,907 12,460 12,583 86,123 81,379 81,495 81,379 Total segments 368,916 347,173 150,376 142,770 Other 100,008 83,869 48,109 61,500 47,576 50,022 19,567 21,020 Cash and cash equivalents and / or marketable securities are allocated 51,134 43,103 Joint ventures are consolidated with respect to the percentage held in accounting regulations and all disclosures about the Group are dis- the equity of the companies by application of Section 310 HGB. closures about the Konzern in accordance with Sections 290 ff. HGB 2003 / 04 Prior Year 28,669 KWS Group The KWS Group is identical to the KWS Konzern for purposes of the 468,924 431,042 Investments in long-term assets, by segment 198,485 204,270 [German Commercial Code]. The consolidated financial statements The same consolidation principles apply to associated companies discharge the obligations of LOCHOW-PETKUS GMBH (Bergen) and consolidated by the equity method. Any goodwill is contained in the KWS MAIS GMBH (Einbeck) to draw up their own financial statements. equity figure. Subsidiaries and joint ventures are consolidated and associated com- General information panies are consolidated at equity only when such a consolidation is considered material for the presentation of a true and fair view of the Companies consolidated in the KWS Group assets, financial condition and earnings of the KWS Group. As part of The consolidated financial statements of the KWS Group include the the debt consolidation, loans, receivables, payables and provisions separate financial statements of KWS SAAT AG and its domestic and between the consolidated companies are netted. Intermediate profits foreign subsidiaries in which KWS SAAT AG directly or indirectly con- resulting from intragroup product and service exchanges, that have trols more than 50 % of the voting rights. In addition, joint ventures are not been realized from the perspective of the Group, are eliminated. consolidated pro rata, in accordance with the percentage held in the Revenues, income and expenses between the consolidated com- equity of these companies. Subsidiaries and joint ventures that are panies are netted. Intragroup profit distributions are eliminated. 2003 / 04 Prior Year Sugar Beet 3,497 4,346 The operating liabilities assigned to the segments include the debt Corn 3,330 3,154 Consolidation methods the accrued taxes are calculated by application of a uniform tax rate stated on the balance sheet, less accrued taxes and a portion of the Cereals 1,728 1,437 The separate financial statements of the individual subsidiaries and for the Group. These accrued taxes are aggregated with the accrued other liabilities item which cannot be allocated directly or indirectly by Breeding & Services 17,505 11,769 joint ventures included in the consolidated financial statements were taxes from the separate financial statements. 26,060 20,706 to the segments only to the extent that the allocation of operating liabilities makes it necessary to raise assets by a corresponding amount. assets, financial condition and earnings of the Group are not included. means of an appropriate allocation base to the segments. Debts are cash and cash equivalents. Assets or liabilities that have not been allocated to the segments by such means are shown as “Other”. Germany, primarily in Einbeck. solidation actions that affect the income statement; for practical reasons methods applied at KWS SAAT AG in accordance with legal require- Minority interests are recognized in the amount of the imputed per- ments and were audited and provided with unqualified audit opin- centage of equity in the consolidated companies. ions by independent auditors. For purposes of equity consolidation, Investments in long-term assets, by region 2003 / 04 Prior Year Germany 17,014 13,172 European Union of 25 (excluding Germany) 3,490 2,233 North and South America 3,979 4,061 Rest of World 1,577 1,240 & Services segment, in the amount of 1 17,505 thousand (1 11,769 thousand). Of the total investments, 65 % (64 %) were effected in Accrued taxes pursuant to Section 306 HGB are recognized for con- drawn up on the basis of the uniform accounting and valuation added to the operating liabilities only when they exceed the available Investments in long-term assets mainly relate to the Breeding considered immaterial for the presentation and evaluation of the 26,060 20,706 the Company exercised the transitional simplification option set forth in Currency translation Article 27 Para. 1 EGHGB [Introductory Law for the German Commer- In the separate financial statements, receivables denominated in for- cial Code], as the relevant HGB provisions were applicable for the first eign currency are measured, as a rule, at the exchange rate on the time. The liabilities-side consolidation difference was recognized in date of origination, unless the official mean exchange rate on the bal- retained earnings. The equity consolidation of the subsidiaries and ance sheet date is lower. Liabilities denominated in foreign currency joint ventures included in the consolidated financial statements after are measured at the exchange rate on the date of origination or the the first-time application of Section 301 HGB was performed by appli- higher liability amount on the balance sheet date. Significant foreign cation of the book value method, under which the acquisition cost exchange risks are hedged by means of suitable financial instruments. is set off against the equity accruing to the Company at the date of Currency futures and options are concluded only for the purpose of acquisition. The assets-side consolidation differences remaining after hedging sales transactions. allocation to the assets were set off against retained earnings for the period prior to July 1, 1999. Since fiscal year 1999 / 2000, the assetsside consolidation differences have been capitalized as goodwill and amortized over the standard useful life of ten years. Liabilities-side consolidation differences are recognized as such, provided that they may not be dissolved by application of Section 309 Para. 2 HGB. 48 Annual Financial Statements: Segment Reporting Notes to the Annual Financial Statements 49 The financial statements of the foreign subsidiaries and joint ventures Intangible assets Receivables and other assets Liabilities included in the consolidated financial statements are translated as Purchased intangible assets, including goodwill from the consolidation Receivables and other assets are stated at nominal value or net Liabilities are stated at their repayment amounts. follows: of equity, are valued at cost, less scheduled amortization. The useful present value, depending on the maturity. Specific allowances are Balance sheet items at the exchange rate on the balance sheet date; lives applied were three to ten years. Unscheduled writedowns are charged to account for individual risks and a general allowance for Deferred tax liabilities statement items – with the exception of depreciation and net income taken to account for impairment losses that are expected to be doubtful accounts is charged to account for the general credit risk. Deferred tax liabilities are recognized for temporary differences with for the year (exchange rate on the balance sheet date) – at the aver- permanent. age exchange rate for the year. The difference resulting from the application of different exchange rates in the income statement is Property, plant and equipment charged to the Other operating expenses. Property, plant and equipment are valued at acquisition or production respect to the tax balance sheets in the amount of the expected tax Marketable securities burden in subsequent fiscal years, on the basis of the effective income Marketable securities are valued at the lower of cost or market. tax rate. The deferred tax items have been calculated in accordance with DRS 10 for the first time this year. cost, less scheduled depreciation. Unscheduled writedowns are taken Prepaid expenses to account for impairment losses that are expected to be permanent. Only those expenditures or receipts made prior to the balance sheet Contingent liabilities Format of the balance sheet and income statement The production costs of self-produced equipment include, in addition date which represent expenses or income for a certain period after The contingent liabilities stated on the balance sheet correspond to To enhance clarity, individual items of the balance sheet and income to the directly allocable costs, also pro-rated overhead costs and the balance sheet date are recognized as prepaid expenses or defer- the loan amounts actually utilized as of the balance sheet date. statement have been aggregated on the face of the balance sheet but depreciation. Buildings are depreciated by the straight-line method red income. then broken down in the notes to the financial statements. To improve over a useful life of up to 50 years. The useful lives for Technical equip- readability, disclosures requiring explanations are contained only in the ment, plant and machinery range from 5 to 15 years and for Other Deferred tax assets notes to the financial statements. Shares in cooperative associations equipment, operational and office equipment from 3 to 10 years. As The Company has exercised the option allowed in Section 274 Para. Consolidated group and changes to the consolidated group and GmbH companies, which are immaterial in terms of their impact a rule, movable fixed assets are depreciated by application of the 2 HGB to capitalize deferred taxes. Deferred tax assets are recognized on the financial statements, are stated in the extended item of Other declining-balance method, with a changeover to the straight-line for temporary differences with respect to the tax balance sheets in the loans and other financial assets. In the consolidated financial state- method. Low-value assets are fully expensed in the year of acquisition; amount of the expected tax relief in subsequent fiscal years, on the ments, inventories are aggregated under a single item. In fiscal year they are shown in the statement of fixed assets as additions and basis of the effective income tax rate. The deferred tax assets have 2003 / 2004, personnel expenses dependent on earnings and license disposals in the year of acquisition. been calculated in accordance with DRS 10 for the first time this year. Financial assets Special items with an equity portion Including KWS SAAT AG Fully consolidated Number of Companies 2003/04 Prior Year Domestic Foreign Total Domestic Foreign Total 10 27 37 10 25 35 0 4 4 0 4 4 Equity method 10 2 31 0 41 2 10 2 29 1 39 3 Total 12 31 43 12 30 42 Consolidated pro-rata expenses were allocated to the functional costs in a more precise manner. In this regard, the prior-year figures were also recalculated and adjusted. These changes had the effect of increasing the cost Financial assets are valued at acquisition cost or, in the event of In accordance with the new Group accounting regulations (Section of goods sold by 1 1,788 thousand (1 2,769 thousand), decreasing impairment losses that are expected to be permanent, at the lower 308 HGB and Article 54 EGHGB), the special reserve with an equity the selling expenses by 1 2,648 thousand (1 3,671 thousand) and market prices. Non-interest-bearing loans, with the exception of loans portion was reversed and credited to equity and to deferred tax increasing the general administrative expenses by 1 860 thousand to employees, are stated at net present value. Securities carried as assets / liabilities. (1 902 thousand). long-term assets are valued at cost or the lower stock exchange The companies are listed on page 64. prices. The acquisition costs of investments valued by the equity Accruals for pensions and similar obligations The expenses of the functional areas include all allocable costs, method are increased or decreased by the pro-rated changes in The obligations under direct pension commitments in Germany are SEMILLAS SELECCIONADAS DE REMOLACHA S.A., Vitoria, Spain, including Other taxes and research and development expenses. equity. Any goodwill components contained in the acquisition costs valued under the going-concern method, in accordance with actuarial was liquidated in fiscal year 2002 / 03 and consolidated at equity for are amortized over the expected useful lives of ten years. principles pursuant to Section 6a EstG [German Income Tax Act], the last time. Accounting and valuation methods by application of a discount factor of six percent. The pension obliga- Continuity of accounting and valuation methods Inventories tions of foreign subsidiaries, calculated on the basis of the specific The accounting and valuation methods are basically unchanged from Inventories are valued at acquisition or production cost or at the lower accounting rules applicable in the respective country, are deemed to the previous year. New Groupwide accounting regulations (elimination market value. Allowances are charged to account for salability impair- be immaterial. of Section 308 Para. 3 HGB) no longer allow for special tax-law ments due to quality defects or quantity issues. The production costs depreciation rates and consequently the fixed assets were revalued on include, in addition to the directly allocable costs, also production and Other accruals the basis of the scheduled depreciation rates allowed by commercial material overheads, including depreciation. The accrued taxes and other provisions were formed to account for The new companies formed by the subsidiaries of KWS MAIS GMBH: KWS SEMENA D.O.O., Ljubljana, Slovenia law. The German accounting standard known as DRS 10 was applied all discernible risks and uncertain obligations, as well as deferred The new companies formed by the subsidiaries of for the first time in fiscal year 2003 / 04. maintenance expenses if they are to be performed in the first three KWS INTERSAAT GMBH: months of the subsequent fiscal year. 50 The changes in the fully consolidated companies relate to: Notes: General Information KWS SCANDINAVIA AB, Stockholm, Sweden Notes: General information 51 Notes on the Balance Sheet Figures in 1 thousands, unless otherwise specified; prior-year figures in parentheses. (1) Fixed assets (6) Receivables and other assets Receivables due from affiliated companies This item contains 1 9,224 thousand ( 1 4,816 thousand) in trade 06 / 30 / 2004 The fixed assets aggregated on the face of the balance sheet are Shares in affiliated companies itemized and the changes to these items in fiscal year 2003 / 04 are This item contains the shares in non-consolidated subsidiaries. Trade receivables detailed in the Statement of Changes in Fixed Assets. Investments in fixed assets amounted to 1 26,060 thousand (1 20,706 thousand). To Investments in associated companies this amount was added 1 1,136 thousand (1 1,716 thousand) as the The addition totaling 1 1,281 thousand comprises the percentage percentage of the fiscal year net income figures of the associated com- shares of the fiscal year net income figures of the associated companies panies accruing to the KWS Group as part of the equity consolidation accruing to the KWS Group. The disposals in the amount of 1 1,749 process, so that the additions totaled 1 27,188 thousand (1 22,422 thousand consist of a profit distribution within the consolidated group. thousand). The principal additions to fixed assets are described in the The amortization of 1 71 thousand (1 71 thousand) relates to an item of management report. Due to a change in the law (elimination of Section goodwill. Receivables due from affiliated companies Receivables due from companies in which participations are held Other assets Prior Year 142,198 144,337 10,965 5,557 Other assets This balance sheet item consists primarily of tax refund claims and 2,796 1,875 13,713 13,528 169,672 165,297 not recognized in income. Depreciation and amortization amounted to The Other loans and other financial assets mainly consist of interestbearing home building loans to employees and other interest-bearing thereof due in more than one year loans. This item also contains shares in cooperative associations and Trade receivables GmbH companies that are deemed to be immaterial. The additions Receivables due from affiliated companies 0 76 Receivables due from companies in which participations are held 842 305 Other assets 183 1,468 mainly consist of claims to benefits under employer’s pension liability insurance. This item contains purchased varieties, rights to varieties and distribution rights, software usage rights for electronic data processing applications and goodwill items from the separate financial statements and from the (5) Inventories consolidation of equity. The additions amounted to 1 1,295 thousand The inventories (excluding advance payments rendered) increased by (1 2,040 thousand), of which 1 911 thousand (1 1,582 thousand) related 1 6,845 thousand, or 10.9 %. The Other securities in the amount of 1 7,500 thousand (1 18,980 2,231 1,971 06 / 30 / 2004 3,820 (1 54,852 thousand) consist of cash in banks and cash on hand. The Prior Year The trade receivables contained in the item of Receivables and other Raw materials and supplies Work in process, incomplete services the previous year, this item contained special depreciation pursuant to (8) Cash and cash equivalents The cash and cash equivalents in the amount of 1 50,819 thousand 3,256 thousand) primarily for software. Amortization amounted to 1 4,181 depreciation amounted to 1 15,386 thousand (1 15,644 thousand). In in fixed-income securities and other readily marketable securities. change from the previous year is explained in the cash flow statement. the shares in AGRELIANT GENETICS LLC., and 1 384 thousand (1 458 Investments amounted to 1 23,126 thousand (1 17,153 thousand) and thousand) mainly consist of investment fund shares held by a German Group company. The assets of this fund are invested almost exclusively to goodwill, essentially consisting of subsequent acquisition costs for (3) Property, plant and equipment miscellaneous short-term and medium-term loans. (7) Marketable securities 1 19,638 thousand (1 21,098 thousand). thousand (1 5,376 thousand). Receivables due from companies in which participations are held This items contains 1 468 thousand (1 284 thousand) in trade receivables. 308 Para. 3 HGB), a write-up of 1 28,557 thousand was effected but (2) Intangible assets receivables. Finished goods and merchandise acquired for resale Advance payments rendered 8,449 8,413 assets increased by 1 2,453 thousand, or 1.6 %, from 1 149,437 (9) Deferred tax assets thousand to 1151,890 thousand. This increase was mainly due to the 22,285 23,317 39,037 31,196 1,923 1,927 71,694 64,853 fact that substantial sales increases were achieved in some markets. Primarily due to the first-time application of DRS 10, the deferred tax These markets, especially in eastern Europe, but also in northern assets had to be increased by 1 7,898 thousand, without being recog- Europe, are characterized by significantly longer payment terms. nized in income, effective July 1, 2003. Now presented in full, without netting, they amount to 1 13,874 thousand (1 3,745 thousand). Section 6 b EStG in the amount of 1 2,981 thousand. (4) Financial assets Important subsidiaries and associated companies are listed on page 64. A list of shareholdings will be filed with the Commercial Register of the Northeim Local Court (HR B 21007) pursuant to Section 313 HGB. 52 Notes: Notes on the Balance Sheet Notes: Notes to the Balance Sheet 53 (13) Provisions and accruals (10) Subscribed capital (14) Liabilities In total, the liabilities declined by 1 16,990 thousand to 1 52,272 thousand. Liabilities due to banks decreased by 1 20,627 thousand 06 / 30 / 2004 The subscribed capital of KWS SAAT AG at the balance sheet date Prior Year amounted to 1 17,000,000.00, unchanged from the previous year. The 660,000 bearer shares are sub-divided as follows: 21,000 certificates for 1 share each 21,000 shares 15,400 certificates for 10 share each 154,000 shares 9,700 certificates for 50 share each 485,000 shares Accruals for pensions and similar obligations 56,921 55,319 Tax accruals 19,454 25,483 Accruals for deferred taxes 11,792 0 Other accruals and provisions 57,938 54,202 146,105 135,004 (11) Changes in equity Accruals for pensions and similar obligations The equity capital increased by 1 44,336 thousand, from 1 226,103 The obligations for current pensions and vested pension rights were thousand to 1 270,439 thousand. The changes in equity capital are determined in accordance with the applicable legal provisions. Liabilities due to banks Advance payments received on account of orders thereof thereof up to up to 06/30/04 1 year Prior Year 1 year 10,368 5,015 30,995 23,316 3,860 2,586 2,586 23,559 23,559 21,528 17,846 Payables due to affiliated companies 414 414 648 648 Payables due to companies in which participations are held 107 107 720 720 13,964 12,509 12,785 11,792 52,272 45,464 69,262 56,908 Other liabilities detailed in the Statement of Changes in Equity according to DRS 7 on pages 42 /43. Tax accruals The accrued taxes contain amounts for the past fiscal year and the period not yet covered by the tax audit. Provisions for accrued taxes (12) Special items with an equity portion were formed pursuant to Section 306 HGB for the first time by appli06 / 30 / 2004 cation of DRS 10. Unlike the previous year, they were not set off against 06 / 30 / 2004 Prior Year Reserve pursuant to Section 6b EstG 0 593 Reserve pursuant to Section 7g EstG 0 76 669 the past fiscal year. (16) Other financial obligations 06 / 30 / 2004 Obligations under rental and leasing agreements due in fiscal year 2004 / 05 1,214 due 2005 / 06 to 2008 / 09 2,454 due after 2008 / 09 6,179 Prior Year 9,847 deferred tax assets. Liabilities due in more than five years Other accruals This item mainly consists of amounts for vacation obligations, gratuities, management and other bonuses, miscellaneous personnel 0 (15) Contingent liabilities As in the previous year, there were no contingent liabilities to report in 3,860 Trade payables and trade payables increased by 1 2,031 thousand. Liabilities due to banks Other liabilities 29 0 552 721 581 721 expenses, dues, commissions, consulting services, waste disposal, The obligations under incomplete investment projects and other order commitments amounted to 1 3,571 thousand (1 5,134 thousand). The order commitments relate mainly to the construction activities of KWS SAAT AG in Einbeck. warranties and other risks. The KWS Group employs standard market derivatives to hedge interest The items that had been formed in earlier years pursuant to Section Secured by land charges rate and currency risks. Adequate provisions for anticipated losses 6b EStG and Section 7g EstG had to be reversed but not recognized Liabilities due to banks 0 1,790 have been established to account for the risks of these derivatives. in income because of a change in the law (elimination of Section 308 Other liabilities 0 281 Interest rate hedging transactions concluded in fiscal year 2003 / 04, for Para. 3 HGB), pursuant to Article 54 Para. 2 EGHGB. which there is currently no risk of losses, considering the current state Other liabilities relating to of market interest rates, could lead to maximum losses of 1 783 thousand Taxes 2,919 3,144 Social security 2,284 2,191 in the future if market interest rates were to experience dramatic changes. Such losses would be at least partially offset by positive market value changes of other derivatives. 54 Notes: Notes on the Balance Sheet Notes: Notes on the Balance Sheet 55 Notes on the Income Statement Figures in 1 thousands, unless otherwise specified; prior-year values in parentheses. The following values of the income statement are highly sensitive (17) Sales (19) Other operating expenses (18) Other operating income to changes in exchange rates, especially with the USD, PLN, SKK and TRL. If the average exchange rates for the previous year with the By product group 2003 / 04 Prior Year 427,906 406,389 2003 / 04 Prior Year 2003 / 04 Prior Year above-mentioned currencies had been applied, the Group’s sales Seed sales (including licenses) revenue would have been higher by 1 15 million. Consulting and technical systems Other sales Income Statement 2003 / 04 % of 15,368 443,713 Prior Year 1 sales millions revenue 439 443,7 100,0 424,3 100,0 Cost of sales 287,3 64,8 273,0 64,3 By region 2003 / 04 424,276 156,4 35,2 151,3 35,7 75,8 17,1 69,9 16,5 Prior Year Other operating income Other operating expenses Operating result Net financial income/expenses 36,8 8,3 33,6 7,9 17,1 3,9 21,2 5,0 13,3 3,0 19,0 4,5 47,6 – 0,3 10,7 0,0 50,0 0,9 11,8 0,2 Income from reversal of special items with an equity portion 859 1 0 0 2,986 Income from reversal of provisions 2,548 7,571 1,580 1,625 Other non-period income Foreign 316,353 294,742 Reversal of allowances for receivables and recovery of receivables written off 3,774 936 Subsidies 1,093 1,424 Income from agricultural operations 1,224 1,086 Other income 6,623 4,690 17,097 21,177 Further details on sales revenue can be found in the segment report on The cost of goods sold rose by 1 14,375 thousand to 1 287,352 0 76 1,741 1,685 871 796 2,962 2,077 33 63 Expenses for exchange rate hedging and foreign exchange losses 3,307 4,991 Amortization of goodwill 3,494 4,367 897 4,905 13,305 18,960 Costs of the legal form Allowances for doubtful receivables 129,534 424,276 Expenses for funding the special items with an equity portion Non-period expenses 127,360 page 47. General administrative expenses Income from write-ups of financial assets 254 Domestic 443,713 Selling expenses 17,554 % of 1 sales millions revenue Sales Gross profit on sales 333 Income from disposal of fixed assets Losses on receivables Other expenses thousand, representing 64.8 % (64.3 %) of sales revenue. The 1 5,885 thousand increase in selling expenses, bringing this expense item to 1 75,757 thousand, was primarily due to the expansion of activities in the regions of Southern/Southeastern Europe and in France. The ratio The lower income from the reversal of provisions, which amounted to of selling expenses to sales revenue was 17.1 %, after 16.5 % in the 1 2,548 thousand after 1 7,571 thousand in the previous year, caused previous year. Heightened IT expenses and the introduction of inter- the total operating income to decrease by 1 4,080 thousand. national accounting standards caused the general administrative Result of ordinary business activities 47,3 10,7 50,9 12,0 expenses to increase by 1 3,198 thousand to 1 36,820 thousand, so Taxes on income 19,0 4,3 22,0 5,2 that this expense item now accounts for 8.3 % of sales revenue, after Net income for the year 28,3 6,4 28,9 6,8 Minority interests 1,2 0,3 0,8 0,2 Net income after minority interests 27,1 6,1 28,1 6,6 7.9 % in the previous year. 56 Notes: Notes on the Income Statement Notes: Notes on the Income Statement 57 (21) Taxes on income (20) Net financial income / expenses Income /expenses from investments Income from participations thereof from affiliated companies Expenses for loss absorption 1,645 347 478 Deferred taxes result from the following temporary differences between (– 23) 125 15 2,108 Income from disposal of financial assets and marketable securities Other interest and similar income • thereof from affiliated companies Writedowns on marketable securities Interest and similar expenses • thereof to affiliated companies 2003 / 04 Prior Year Current expenses for income taxes thereof not relating to the period Prior Year 10,704 8,369 12,179 Deferred Tax Assets 8,779 401 19,073 711 2003 / 04 Deferred taxes, Germany Deferred taxes, foreign 20,958 2,889 Prior Year Intangible assets Property, plant and equipment Inventories and receivables – 1,138 530 1,040 555 Other accruals and liabilities Securities and other 0 1,278 82 2,061 Deferred tax expenses / income Stated income tax expenses – 98 1,085 18,975 22,043 Valuation adjustments to deferred taxes 2003 / 04 Prior Year Earnings before income taxes 47,309 50,899 Expected income tax expenses* 18,025 20,105 523 0 740 0 Different foreign tax burden Tax proportion for – 2,901 – 2,160 57 0 10,411 0 • Tax-exempt income – 89 – 110 • Non-deductible expenses for tax purposes 7,295 3,395 198 0 395 1,607 830 0 236 0 • Temporary differences and losses for which no deferred taxes were recognized 4,870 350 0 0 2,125 0 0 450 0 207 0 0 Non-period taxes 711 2,889 –151 0 0 0 Other tax effects 709 – 288 13,874 3,745 11,792 0 18,975 22,043 Tax credits Stated income tax expenses Deferred taxes (12) Deferred Tax Liabilities 06/30/2004 Prior Year 06/30/2004 Prior Year Pension accruals 91 tax rates on the pre-tax earnings of the entire Group: the values appearing on the commercial balance sheet and those appearing on the tax balance sheet: Corporation tax and municipal trade tax, Germany Foreign income taxes (0) Net interest Income from other securities and loans of financial assets expenses with the stated income tax expenses. The calculation is based on expected tax expenses determined on the basis of German Prior Year 1,057 1,279 income /expenses The following table is a reconciliation of the expected income tax exempt from income taxes. The income tax expenses break down as follows: 2003 / 04 2003 / 04 Income/expenses from associated companies Under German tax laws, domestic and foreign dividends are 95 % (25) Effective tax rate 40.1% 43.3 % In Germany, a uniform corporation tax of 25.0 % (26.5 %), plus an 0 7 unchanged solidarity surtax of 5.5 % are imposed on distributed and The balance sheet contains deferred tax assets of 1 7,898 thousand 2,915 3,768 retained profits. Due to the Flood Victims Solidarity Act, the prior-year (1 0) and deferred tax liabilities of 1 11,200 thousand (1 0) which relate (31) (42) figure contained a surtax of 1.5 % on the corporation tax rate. In addition, to matters not recognized in income, but charged directly to equity. – 1,546 – 1,231 * Tax rate in Germany: Fiscal year 2003/04: 38.1 %; Prior year: 39.5 %. a municipal trade tax is payable on the corporate profits generated Net financial income/expenses in Germany. Considering the deductibility of this tax as an operating The annual result was not materially affected by the first-time applica- expense, the weighted average tax rate for this tax was unchanged at tion of DRS 10. Miscellaneous taxes, consisting mainly of land taxes, are included in the costs of the operating functional areas. 16.0 %. The total tax rate is 38.1 % (39.5 %). – 267 877 Tax loss carry-forwards of 1 5,182 thousand (1 5,632 thousand) were The profits earned by the foreign Group companies are taxed at the considered to be unusable. rates applicable in the respective countries. In total, the financial result declined by 1 1,144 thousand to If the taxable and untaxable components of equity capital were fully – 1 267 thousand. The result from investments declined by 1 829 Deferred taxes of 38.1 % were applied for the German Group companies. distributed to shareholders, an unrecognized corporation tax reduction thousand to 1 1,279 thousand. The income /expenses from asso- For the foreign Group companies, the deferred taxes are calculated on claim of 1 9,173 thousand, unchanged from the previous year, would ciated companies relates to the potato activities. The income from the basis of the tax rates applicable in the respective countries. be established. investments derived primarily from the related French company. The interest result declined by a total of 1 315 thousand. 58 Notes: Notes on the Income Statement Notes: Notes on the Income Statement 59 Other disclosures (22) Personnel expenses/Employees Personnel expenses 2003 / 04 (24) Total compensation of the Supervisory Employees (average for the year) Prior Year 2003 / 04 Prior Year Board and Executive Board and of former The total compensation of the Executive Board for fiscal year 2003 / 04 members of the Supervisory Board and amounted to 1 2,018 thousand (1 2,243 thousand). The variable com- Executive Board of KWS SAAT AG Wages and salaries 78,124 74,417 Germany Social security 16,821 15,257 Expenses for pensions and other employee benefits 6,793 7,289 101,738 96,963 1,212 1,200 Europe (excluding Germany) 619 515 North America 481 443 South America 204 178 Total 2,516 2,336 pensation of 1 1,211 thousand (1 1,360 thousand) determined on the basis of the fiscal year net income of the Group contains compen- The Supervisory Board members receive a fixed compensation and sation of 1 19 thousand (1 28 thousand) for the performance of duties a variable compensation, depending on the dividend paid. Subject to in the subsidiaries. the precondition that the annual shareholders meeting approves the proposed dividend, the total compensation of the members of the The compensation of former members of the Executive Board and of Supervisory Board will be 1 221 thousand (1 217 thousand) before surviving relatives amounted to 1 700 thousand (1 559 thousand). The value-added tax. Of the total compensation, 1 153 thousand (1 150 pension provisions for this group of persons amounted to 1 5,632 thousand) is success-dependent. thousand (1 4,126 thousand) as of June 30, 2004. The personnel expenses rose 1 4,775 thousand to 1 101,738 thousand, The employee figures stated above contain 425 (379) persons in- Dr. Guenther H. W. Stratmann is a partner of the consulting firm reflecting an increase of 4.9 %. The number of employees (including cluded on a pro-rata basis. This figure refers to 852 (760) employees Freshfields Bruckhaus Deringer (Düsseldorf). This firm charged KWS vocational apprentices, interns and trainees) increased by 180 to reach of four associated companies (unchanged from the previous year) 1 21 thousand for consulting services in fiscal year 2004 / 04. 2,516, representing an increase of 7.7%. which are included in the consolidated financial statements on a prorata basis. If these persons were included in full, the employee count The wages and salaries increased by 5.0 % to 1 78,124 thousand. Social security expenses were 1 1,564 thousand higher. Expenses for pensions and other employee benefits were 1 496 thousand For purposes of the employee share plan, shares of KWS SAAT AG less than in the previous year because of lower funding to the pension were acquired and issued to employees. These shares are treated as provisions. compensation for wage tax purposes. In January of Issuance of shares 2004 Fixed Success-dependent Total 1 1 1 Dr. Guenther H. W. Stratmann* 24,000.00 54,000.00 78,000.00 Dr. Arend Oetker** 12,000.00 27,000.00 39,000.00 of the KWS Group would be 2,943 (2,717). Shares Issued to Employees 2003 2002 2001 2000 no. 250 279 284 231 235 1 thsds 123 137 139 150 133 Supervisory Board compensation 2003 / 04 Philip Freiherr von dem Bussche 8,000.00 18,000.00 26,000.00 Eckhard Halbfaß 8,000.00 18,000.00 26,000.00 Jürgen Kunze 8,000.00 18,000.00 26,000.00 Prof. Dr. Ernst-Ludwig Winnacker 8,000.00 18,000.00 26,000.00 68,000.00 153,000.00 221,000.00 Fixed Success-dependent Total 1 1 1 Cost of acquisition of these shares Preferred price * Chairman ** Vice Chairman when purchasing one share 1 336.00 297.00 296.00 386.00 377.00 when purchasing two shares 1 826.00 748.00 746.00 925.00 907.00 (23) Net income for the year Executive Board compensation 2003 / 04 At 1 28,334 thousand, the net income for the year was 1 522 thousand Dr. Dr. h. c. Andreas J. Büchting* 278,416.04 354,544.32 632,960.36 lower than the prior-year figure. The return on sales was 6.4 %, after Dr. Christopher Ahrens 218,485.60 354,544.32 573,029.92 6.8 % in the previous year. Dr. Christoph Amberger 175,906.11 354,544.32 530,450.43 Dr. Hagen Duenbostel (stellv.) 133,929.18 147,726.79 281,655.97 806,736.93 1,211,359.75 2,018,096.68 * Speaker 60 Notes: Notes on the Income Statement Notes: Other disclosures 61 (25) Loans to members of the Supervisory Board (29) Supervisory Board and Executive Board and Executive Board of KWS SAAT AG of KWS SAAT AG Jürgen Kunze Einbeck Chairman of the Works Committee of KWS SAAT AG 06 / 30 / 2003 1 Addition 1 Repayment 1 06 / 30 / 2004 1 Interest rate % p.a. Term to maturity Employee representatives on the Supervisory Board Home building loans Automobile loans Supervisory Board Dr. Carl-Ernst Büchting Prof. Dr. Ernst-Ludwig Winnacker Einbeck Munich Honorary Chairman President of “Deutsche Forschungsgemeinschaft (DFG)” Membership in other legally mandated Supervisory Boards: Dr. Guenther H. W. Stratmann 959.37 0.00 959.37 0.00 5.00 – 1,171.47 0.00 639.24 532.23 0.00 1 Year MediGene AG, Munich Düsseldorf Attorney-at-Law Chairman 2,130.84 0.00 1,598.61 532.23 Membership in other legally mandated Supervisory Boards: Fendt GmbH, Marktoberdorf apetito AG, Rheine (Vice Chairman) There are no receivables from loans to members of the Executive Board Bayer AG, Leverkusen Executive Board Dr. Dr. h. c. Andreas J. Büchting Einbeck Chairman Corporate Affairs, Research (26) Shareholdings of members of the Supervisory Board and Executive Board (28) Declaration of compliance with the Corporate Governance Code (as of September 30, 2004) Dr. Arend Oetker Membership in legally mandated Supervisory Boards: Berlin NORD / LB Norddeutsche Landesbank, Hanover Deputy Chairman Membership in other legally mandated Supervisory Boards: Dr. Christopher Ahrens KWS SAAT AG issued the declaration of compliance with the Corporate Schwartau GmbH & Co. KGaA, Bad Schwartau (Chairman) Einbeck Dr. Arend Oetker indirectly holds a total of 165,001 shares in KWS Governance Code prescribed by Section 161 AktG [German Stock Cognos AG, Hamburg Sugar Beets, Eastern Europe SAAT AG. All together, the members of the Supervisory Board hold Corporations Act] and has made it available to the shareholders. 165,076 shares in KWS SAAT AG. Dr. Dr. h. c. Andreas J. Büchting holds 10,002 shares in KWS SAAT AG. Degussa AG, Düsseldorf Merck KGaA, Darmstadt Membership in comparable German and foreign oversight boards: Dr. Christoph Amberger Hero AG, Lenzburg (President) Northeim Baloise Holding AG, Basel TT-Line GmbH, Hamburg (Chairman) Corn, Cereals, Marketing E. Gundlach GmbH & Co. KG, Bielefeld Leipziger Messe GmbH, Leipzig (27) Audit of the annual financial statements Gerling Versicherung-Beteiligungs AG, Cologne Dr. Hagen Duenbostel (alternate) Einbeck Finance, Controlling, IT On January 21, 2004, the annual shareholders meeting of KWS SAAT Philip Freiherr von dem Bussche AG elected the accounting firm of Deloitte & Touche GmbH to be the Bad Essen auditor of the annual financial statements for fiscal year 2003 / 04. In Farmer addition to the agreed auditing activity, this firm also performed consulting services for the KWS Group in the amount of 1 543 thousand in fiscal Membership in comparable German and foreign oversight boards: VTV Vereinigte Tierversicherungsgesellschaft a. G., Wiesbaden year 2003 / 04. For fiscal year 2004 / 05, consulting services of up to 1 150 thousand are expected. Eckhard Halbfaß Einbeck Deputy Chairman of the Works Committee of KWS SAAT AG 62 Notes: Other disclosures Notes: Other disclosures 63 (30) Significant subsidiaries and associates (31) Proposal for the appropriation of fiscal year net income A list of the shareholdings of KWS SAAT AG pursuant to Section 285 No. 11 and 11a HGB will be filed with the Commercial Register of the It is proposed to the annual shareholders meeting that an amount of Northeim Local Court (HR B 21007) pursuant to Section 287 HGB. The b 7,260,000.00 from the total fiscal year net income of KWS SAAT AG in The dividend shall be paid on the dividend coupon No. 57. following subsidiaries and associated companies were included in the the amount of b 7,560,000,00 be used to distribute a cash dividend of For those shareholders who are subject to German income taxes, the consolidated group:1) b 11.00 for every one of the total 660,000 shares outstanding. 50 % exemption method shall be applied to the KWS dividend for fiscal year 2003 / 04. The balance of b 300,000.00 shall be carried forward to new account. Sugar Beets 100 % BETASEED INC.2) Bergen Einbeck 100 % KWS FRANCE S.A.R.L.3) 074 % CPB TWYFORD LTD. 8) 100 % KWS BENELUX B.V. 5) Roye /France 100 % LOCHOW-PETKUS POLSKA SP.Z O.O. 8) 100 % KWS SEMENA S.R.O. 5) Milan /Italy Zahorska Ves /Slovakia 100 % KWS POLSKA SP.Z O.O. Kondratowice / Poland 100 % KWS SEMENA D.O.O. 5) Poznan /Poland Ljubljana /Slovenia 11) Stockholm /Sweden 100 % KWS SEMILLAS IBERICA S.L. 11) Barcelona /Spain 100 % SEMILLAS KWS CHILE LTDA. Santiago de Chile /Chile 100 % KWS SEME YU D.O.O. Belgrad / Yugoslavia 100 % SEMENA AG Basel /Switzerland 100 % ACH SEEDS INC. 4) Eden Prairie, MN / USA 66,7 % KWS TÜRK TARIM TICARET 11) LIMITED SIRKETI Eskisehir / Turkey 0 51 % PAN TOHUM ISLAH VE ÜRETME A.S. Ankara / Turkey 100 % KWS MAIS FRANCE S.A.R.L. 5) 049 % SOCIETE DE MARTINVAL S.A. 9) ** Einbeck 100 % KWS INTERSAAT GMBH Einbeck Einbeck, October 22, 2004 100 % KWS SEEDS INC. 10) Shakopee, MN / USA 100 % GLH SEEDS, INC.2) KWS SAAT AG Shakopee, MN / USA Mons-en-Pévèle / France Sarreguemines / France EXECUTIVE BOARD 100 % KWS SAATFINANZ GMBH 100 % KWS AUSTRIA SAAT GMBH 5) Einbeck Linz /Austria 100 % KWS SEMENCES S.A.R.L. 100 % KWS SEMINTE S.R.L. 5) Sarreguemines / France Bucharest /Romania 100 % SOCIETE DES MAIS EUROPEENS S.A.R.L.3) 100 % KWS SJEME D.O.O. 5) Zagreb /Croatia Sarreguemines / France 100 % AGROMAIS SAATZUCHT GMBH 5) 100 % RAGIS KARTOFFELZUCHT & HANDELSGESELLSCHAFT Bad Mergentheim MBH Einbeck 99,6 % KWS ARGENTINA S. A. 5) Balcarce /Argentina 44,5 % SAKA-RAGIS PFLANZENZUCHT GBR 12) * 051 % RAZES HYBRIDES S.A.R.L.3) Alzonne /France A. Büchting C. Ahrens Ch. Amberger H. Duenbostel Hamburg 050 % AGRELIANT GENETICS LLC. 6) ** 35,8 % SAKA RAGIS AGRARPRODUKTE GMBH & CO. KG 12) * Westfield, IND / USA 050 % AGRELIANT GENETICS INC.** Hamburg Chatham, Ontario /Canada 0 100 % PLANTA ANGEWANDTE PFLANZENGENETIK UND BIOTECHNOLOGIE GMBH *** Thriplow / Great Britain Amsterdam / Netherlands 100 % KWS ITALIA S.P.A. 100 % KWS SCANDINAVIA AB 081 % LOCHOW-PETKUS GMBH 090 % KWS MAIS GMBH Shakopee, MN /USA Breeding & Services Cereals Corn 090 % MOD MANAGEMENT, ORGANISATION UND DATENVERARBEITUNG CONSULTING GMBH 050 % KWS RAGT HYBRID KFT. 7) ** Györ/ Hungary Hanover 100 % KWS KLOSTERGUT WIEBRECHTSHAUSEN GMBH Northeim-Wiebrechtshausen * Figure represents the pro-rated equity pursuant to Section 312 HGB (equity method) ** Consolidated pro rata *** Profit / loss transfer agreement 1) The stated percentages refer to the investment of the respective parent company. 6) Investment of GLH SEEDS, INC. 7) Investment of KWS MAIS GMBH 8) Subsidiary of LOCHOW-PETKUS GMBH 9) Investment of LOCHOW-PETKUS GMBH 2) Subsidiary of KWS SEEDS INC. 10) Subsidiary of KWS INTERSAAT GMBH und KWS SAAT AG 3) Subsidiary of KWS SEMENCES S.A.R.L. 11) Subsidiary of KWS INTERSAAT GMBH 4) Subsidiary of BETASEED INC. 12) Investment of RAGIS KARTOFFELZUCHT- & HANDELSGESELLSCHAFT MBH Status: June 30, 2004 5) Subsidiary of KWS MAIS GMBH 64 Notes: Other disclosures Notes: Other disclosures 65 Auditors’ Report We have audited the annual financial statements of the KWS Group economic and legal operating environment of the Group, as well (consolidated financial statements) and the management report of as the expectations of possible errors. As part of the audit, the effec- the Group for the fiscal year from July 1, 2003 to June 30, 2004, both tiveness of the internal control system, as it relates to the accounting of which prepared by KWS SAAT AG, Einbeck. The preparation of function, and substantiating evidence for the disclosures in the con- the consolidated financial statements and the management report of solidated financial statements and management report of the Group the Group in accordance with the regulations of German commercial are to be evaluated primarily on the basis of test samples. The audit law is the responsibility of the Executive Board of the Company. Our also includes an evaluation of the separate financial statements of task is to express an opinion of the consolidated financial statements the companies included in the consolidated financial statements, the and management report of the Group on the basis of the audit per- delineation of the consolidated group, the accounting and consoli- formed by us. dation principles applied and the significant estimations of the Executive Board, as well as an evaluation of the overall presentation of We performed our audit of the annual financial statements pursuant the consolidated financial statements and management report of the to Section 317 HGB in accordance with the German standards for Group. We believe that our audit provides a sufficiently certain basis auditing annual financial statements promulgated by the accounting for our opinion. standards association Institut der Wirtschaftsprüfer. According to these standards, the audit must be planned and executed in such Based on the results of our audit, we have no reservations to note. a way as to detect, with reasonable certainty, any misstatements or violations that would have a material impact on the presentation of In our belief, the consolidated financial statements of KWS SAAT AG, a true and fair view of the assets, financial condition and earnings of drawn up in accordance with required accounting principles, presents the Group in the consolidated financial statements, drawn up in a true and fair view of the assets, financial condition and earnings of accordance with required accounting principles, and the manage- the Group. Overall, the management report of the Group provides ment report of the Group. The audit activities are to be planned in an accurate impression of the situation of the Group and correctly consideration of our knowledge of the business activities and the describes the risks of future development. Hanover, November 4, 2004 DELOITTE & TOUCHE GMBH WIRTSCHAFTSPRÜFUNGSGESELLSCHAFT Dr. F. Beine WIRTSCHAFTSPRÜFER 66 Auditors’ Report Th. Römgens WIRTSCHAFTSPRÜFER Segments of the KWS Group KWS Group at a glance Fiscal year 03/04 02/03 Million 5 01/02 Sales 443.7 424.3 433.7 392.8 333.9 Income from ordinary operations 47.3 50.9 51.3 50.8 35.8 Net income 28.3 28.9 29.7 28.1 23.0 Cash flow (after tax) 48.7 52.1 53.4 48.8 40.7 00/01 99/00 Sugar beet KWS SAAT AG and twelve subsidiaries and associated companies* Sales: 1 193.1 million Operating income: 1 28.7 million Corn KWS MAIS GMBH Average number of employees 2,516 2,336 2,233 2,106 2,060 Personnel expenses 101.7 97.0 97.8 84.1 75.8 and 13 subsidiaries and associated companies* Sales: 1 191.0 million Operating income: 1 8.9 million Fixed assets 152.5 120.7 124.0 115.3 109.2 Investments 26.1 20.7 34.2 24.9 32.8 Cereals Depreciation 19.6 21.1 18.2 17.7 17.4 LOCHOW-PETKUS GMBH and three subsidiaries and associated companies* Equity capital Equity ratio in % Balance sheet total 270.4 226.1 211.7 201.2 172.9 57.7 52.5 49.2 48.6 46.0 468.9 431.0 430.1 414.1 375.5 Sales: 1 52.7 million Operating income: 1 2.3 million Breeding & services Return on sales in % 6.4 6.8 6.9 7.2 6.9 Return on equity in % 13.0 14.2 15.4 17.0 16.2 Return on assets in % 7.0 7.2 7.8 8.2 7.1 KWS SAAT AG and twelve subsidiaries and associated companies* Sales: 1 124.7 million (external sales of 1 6.9 million) Operating income: 1 7.7 million KWS SAAT AG Performance of KWS shares in 1 *See page 64 for details of the consolidated group Lowest price 470 451 450 520 483 Highest price 684 535 540 690 575 11.00 11.00 11.00 10.00 10.00 Dividend per share Grimsehlstraße 31 • D-37555 Einbeck • P.O. Box 1463 Phone: ++49 (0)5561/311-0 • Fax: ++49 (0)5561/311-322 www.kws.com • e-mail: [email protected] Photos / illustrations: agrar press • Frank Bierstedt • Habbe-Fotografie • KWS Group archive Design: fischerAppelt Kommunikation GmbH Front cover: winter barley KWS and its global market presence in the temperate climate zone Plant breeding means understanding and leveraging natural life processes to the benefit of mankind. It takes about ten years to develop a new plant variety. KWS has been breeding agricultural crops for the temperate climate zone since 1856 and now operates in 68 countries around the world. selection crossing official tests research Annual Report 2003/2004 Annual Report 2003 / 2004 technical Service multiplication distribution processing quality testing KWS SA AT AG Markets 2