KWS SAAT SE & Co. KGaA (KWS) Earnings Call Transcript

Ladies and gentlemen, and welcome to KWS SAAT Publication of Full Year Results 2025-2026. The conference will be recorded. [Operator Instructions] Let me now turn the floor over to your host, Dr. Jorn Andreas.

Good morning, everyone. Thank you for joining us today for our full year 25-26 results call. Before we dive into the numbers, let me start with a brief perspective on the year. So '25-'26 was certainly a challenging year for the agriculture sector. We've seen no acreage in several crops, cautious pharma sentiment and also adverse currency developments that created quite some headwinds across many of our markets. Against this backdrop, we delivered actually a very resilient performance. While sales were affected by market positions, we maintained a strong probability. We generated excellent cash flow and further strengthened our balance sheet. And at the same time, we continued investing in innovation and in executing our strategic priorities, and we're very happy about that. So in short, the year once again demonstrated the resilience of the KWS' business model and the strength of our diversified portfolio. Before we dive into more detail, as always, please note that some statements made today are forward-looking and are therefore subject to risks and uncertainties. Please refer to the disclaimer on Slide 2. Let's start with the group highlights. Sales reached EUR 1.63 billion. Organic sales declined by only 1% despite significant acreage reductions in sugarbeet and corn. In addition, currencies FFO effects each reduced reported sales by roughly 1 percentage point. EBITDA came in at EUR 343 million and remained at a strong level despite the softer market environment. Net income decreased by more than 13% to EUR 158 million, supported by a significantly improved financial results. Free cash flow remained strong at approximately EUR 123 million and was literally unchanged from last year. As a constant trend, net debt dropped declined further to less than EUR 9 million, leaving us with an exceptionally strong balance sheet. So while market conditions affected growth, profitability, cash generation and financial strength remained very solid one. Let me now put this revised into the perspective against the targets that we set at the beginning of the year. So looking at our guidance, sales development was clearly more changing than anticipated at the beginning of the year. We initially expected around 3% organic growth and later adjusted our outlook to roughly flat development. The result of minus 1 reflects weaker than expect development throughout the year that we, to a large extent, mitigated by our proposal strength. At the same time, we continue to focus on what is in our control. So we implemented efficiency measures that contributed roughly EUR 25 million savings in fiscal year '25-'26. And in addition, we also actively manage head count development, generating efficiency gains that will continue to support profitability going forward. As a result, despite an expected increase development and also adverse currency effects, but also significantly impacting our BDA, we successfully delivered an adjusted EBITDA margin within our guided range of 19% to 21%. In addition, the disposal of our North American corn license rights. With that, we've continuously successfully completed the strategic alignment of our core segments that contributed another EUR 29 million to our EBITDA, also in line with our expectations. And finally, we intend to increase the dividend to EUR 1.30 per share, reflecting our ambition to deliver stable or rising dividend every year. So taken together, we delivered 3 or 4 targets in a challenging environment. Sales, looking at the bridge, 3 factors explain the reported sales decline. First, Nova acreage, reduced organic sales by 1%. Second, currencies, they created another percentage points of headwind, mainly the U.S. dollar, the Turkish lira and the Ukrainian. And third, portfolio effects accounted for the remaining and were largely related to the absence of R&D service revenues from our former Aquiline joint venture -- driven by our portfolio. Rather, it reflects the combination of agreed reductions, currency effects and portfolio-related changes. [indiscernible] related to the disposal of our North American corn lightens rights, while the prior year included the reversal of a VAT provision. The largest year-on-year improvement came from the financial results, mainly supported by positive effects from the sale of our acreage lines against the corresponding negative effect in the previous year, including those effects, net income and earnings per share, as Bruce mentioned, increased by 13%. Let's now dive into the segments. And Sugarbeet, our largest product segment. '25 was another year in which our innovation-driven strategy clearly paid off. Global sugarbeet acreage declined by roughly 10% as high sugar inventories prompted producers to contract lower beat volumes, especially in Europe. And this reduction was higher than we anticipated at the beginning of the season last year and reduced our ability to achieve growth in the last financial year. Nevertheless, against this backdrop, and against this market construction, the organic sales decline of just 0.6% for the sugarbeet segment provides a compelling evidence of the resilience of our world-leading Sugarbeet business. Here, innovation remains the key driver. So CONVISO SMART and CR+ continue to gain in traction and now accounts for 63% of segment sales. And this ongoing shift towards more differentiated, higher-value solutions remains 1 of the most important drivers of long-term value creation in the segment. Profitability also remains exceptional. So even after this reduction in acreage, sugarbeet delivered an EBITDA margin of almost 42%. And looking ahead, high sugar prices and expected lower sugar yields in most of our sugarbeet regions this year should support a stable or even growing acreage in the upcoming season, which would allow us to generate top and bottom line growth in the Sugarbeet segment, again, and that makes us confident for accruing EUR 6 billion. Turning to our consequence. The headline sales decline primarily reflects lower equation cross markets as well as portfolio tax stemming from the agri line transaction. However, looking beneath the surface, the development was actually encouraging. So excluding Russia, comparable sales growth reached 2%, and more importantly, we continue to gain market share, both marine and silage across Europe, which confirms the competitiveness of our portfolio. Another highlight of, where sales increased 35%. And -- while still a relatively small business today, this development confirms our conviction that Sunflower can become an increasingly important growth for the years ahead. And remember, our ambition is to deliver EUR 100 million revenues by the end of the decade. Profitability improved also significantly in corn. Reported EBITDA benefited from the disposal of license rights. But even if you take this out, even excluding this more effect, segment delivered a meaningful improvement in operating profitability. And that is important because it demonstrates the quality of the remaining portfolio and also the decision behind the recent portfolio changes. Turning to. Sales remained broadly stable despite continuing pressure in several core markets. Heat was once again the clear standout performer. So sales increased 24%. Our market share continued to rise and further strengthen our position as 1 of the leading players in Europe. And I would say in this coming season, we will be the leading player in Europe. By contrast, Rice, Wheat and bareily continue to face weaker market positions, largely reflecting lower commodity prices last year ahead of par. Possibility was additionally impacted by a provision that we already flagged after the 9 months results related to any trust investigation in France. And excluding this effect, the underlying development remains broadly in line with past levels. So overall, demonstrated the value of its diversified crop portfolio. Lastly, Vegetables, sales were below prior year level, mainly reflecting developments in and timing effects into markets. Our focus remains unchanged. It remains firmly on long-term value creation, and we continued investing heavily building capabilities, infrastructure and new crops while further expanding our innovation pipeline. So this rationale remains fully intact, and we are all looking forward to providing more than 5 due next week's vegetable investor and analyst similar in unlike in the Netherlands. Let me now turn to cash flow. Despite lower sales volumes and a more challenging market environment, we once again generated free cash flow of approximately EUR 123 million. The composition of the cash flow differs, however, from last year. Operating cash flow was lower, reflecting both declines in EBITDA and higher working capital requirements. And at the same time, investing cash flows improved by the same amount, which is due to 2 reasons: first, the payment of the first tranche in the context of the client divestiture; and second, somewhat lower capital expenditures, mainly due to project phasing. So even in the year characterized by lower acreage and currency developments, KWS continued to convert earnings in cash very effectively. And that has a cost support implications. So our balance sheet improved further during the financial year and remains 1 of the key strengths of Canes. Net debt declined significantly to less than EUR 9 million as year-end. And I think few companies in our industry operate with the balance sheet as strong as ours today. And as a result, we entered the financial year with exceptional financial taxability, and this gives us considerable scope to continue investing in R&D, which will support the growth of our existing businesses and pursue additive opportunities if they create long-term value for our shareholders. So our balance sheet is stronger than ever and it provides a very solid foundation for the growth of KWS. And we make committed. We remain committed to pretable and sustainable dividend growth. Based on the results achieved, we have proposed to increase the dividend to EUR 1.30 per share, and this represents another year of similar growth and result in a payout ratio of approximately 29% is fully in line with our dividend policy. So since the financial year 2019-'20, our dividend has actually increased from EUR 0. to the proposed EUR 13 per share, which were a compounded annual growth rate of approximately 11%, and I think that's a very strong commitment to creating sustainable value for our shareholders over time, and we will continue on this path. Let me with -- outlook. For 2017, we expect organic sales growth of around 3% in the invention of data market conditions, which is what we currently see. Commodity prices have recovered substantially over the last weeks, driven by various sectors. Corn levels bode well for better acreage development and improved farm profitability in the upcoming season. And in combination with our diversified portfolio and our strong market position, we feel well prepared to return to stronger flows next year. For profitability, we expect an EBITDA margin between 19% to 20% is also remains fully licensed or midterm addition and continues to include also substantial investments in R&D. So overall, we enter the financial year with good confidence in profitable growth. So before moving to Q&A, let me briefly remind you of our vegetables and investor analyst seminar,-- we have fantastic participation, and we really look forward to discussing the development and long-term potential of the business in much greater detail, and you will see this on the side, you will get to taste and feel our products and that will be, I think, a very great event. So looking forward to. For now, let me close to 3-year takeaways. First, we delivered a resilient profitability despite significant market headwinds. Second, we generated strong cash flow and further strengthened our already very healthy balance sheet. And third, we continue to invest. We continue to invest in innovation and future growth while maintaining financial discipline. So taken together, I think these achievements leave us well positioned for the year ahead, and that makes us really confident. So thank you very much for your attention. And Peter and I am are happy to answer all the questions.

So the first question is from Michael Faitz from AudoBHF.

The first 1 would be on your sugar beet segment outlook. Jon, you mentioned the 10% decline in global acreage in the past season. And obviously, we have seen sugar prices that are in a rather strong recovery in recent months. So I wonder what you have baked into your slide organic sales growth outlook on the top line. So shall we think about some more price pressure? Or for me, it looks like a rather conservative statement on that one? This will be my first question. The second one is on your -- on cereals and grape seed. Well, you said, well, that you gained market share and you may overtake the #1 position in the next season. So can you just give us a bit of color what's the delta in terms of market share to the #1 in the segment? And last not least, on Russia, obviously, there was some setbacks in corn on a more, let's say, general or more broader terms, how should we think about your Russian business in general. Is there also a risk to the sugar beet segment? Or so what's your view on the region? And how is affecting the respective segments? This would be my 3 questions for the beginning.

So first of all, yes, sugar be outlook. So that's all about SMA on the interest reduction last year that we mentioned. And exactly because of, let's say, this , we were a bit more cautious, but we honesty might leave conservative, we say more cautious, let's say, on -- when we put together the outlook, let's say, so our current data that we have is more positive. That's what you also said, that's true. So we saw a strong increase in sugar prices, also reflecting also some million, let's say, effects in India and Thailand. So we have a here a lot great harvest, which is we are putting more bullish, let's say, factors that were on the prices. We see also not good or not great yields in Europe, talking about the heat wave and certain parts of Southern Europe or the Southern Part of Germany. So that leaves also clearly of a mark on the supply. And so that bodes well for us. So a big driver of the decrease reduction last year was the supply and demand balance, but we came from 2 years of very good harvest. So we believe that actually this year, Europe will be -- yes, continue out inventory will also be important because they not have enough. They own produced supply. It means we have rebalanced, let's say, a supply-demand situation after the season. and that provides us with a good starting point for the upcoming quarter season. So we spent a bit more conservative and stay in our outlook, we work with a stable acreage. That means we have not put in as very optimistic assumptions in our outlook in order to be also more sales side. And if that trend continues? And if we see a really the of the harvest that you see already today in the trial try to have that are very processing, then I think that gives us also some opportunities because we will also continue to further increase the penetration of CONVISO SMART, which anyway will other than help us on the gold side. Early days, has a fantastic situation for us, and you know that this is basically the first quarter of our fiscal year This is the most important quarter for KWS. That's with were planting patent's say, for the current season. And we had a fantastic start as to say, to the new fiscal year. Strong growth in all these grades. So when we say we want to become the leader, let's say, in Europe now in the upcoming road season, as I say, it actually happened. So we are now, number one, we have gained market shares in all key markets. And that is for us really a situation by and because pay-rate prices, of course, very high commodity prices are high. So that's naturally incented for farmer to move into a grade is, let's say, the corporation announced, and that's it, say, the market as a portfolio where we have the best product in market. So that helps us really good and we had a good start. Russia, yes, Russia is, of course, still a moving target, if you wanted an situation. It is largely unchanged, I would say, compared to all the previous in our calls when we're discussing the situation, so it remains for us still a revenue contributor with less than 10% let's say to the home or KS portfolio. So that has not changed, let's say. For our Sugarbeet business, I told you already that cereals, corn is anyway, any more an opportunistic business, let's say, also that anyway, very low, say, in terms of revenue contribution is at all. So Sugarbeet is the remaining key business that we have -- and we do not see, let's say, that any local production will be able to match the performance requirements necessary not to supply demand, let's say, in the domestic environment. So we don't see that currently, it's operating. So it's pretty stable. But of course, we can put it the future but so far so good.

The next question is from Christian Faitz from Kepler Cheuveruex.

Yes. on Peter and Tim. A couple of questions remaining, please. I'll ask my vege questions next week. First of all, you talked about obviously the oilseed business, which seems to be going well into the new reason. Can you talk a bit about your series business, such as, for example, winter wheat that is going also given higher wheat prices into the seating season? And second, just a minor question, but can you please elucidate a bit the antitrust investigation you seem to be facing in France?

Yes, very good. Now looking forward to your questions next week. So now for Sirius in general, I would say that now we have a very diversified portfolio intend all crops that we operate in 3 years. We are dealer in Europe. So also an #1 position, can have it anyway, we by far more #1 and simple read and for as well. So it's a really good position to be in. So for the other EBITDA crops. Last year was a bit, I would say, more challenging the cost of the low prices last year as part of the third quarter last sales so that. Our revenue was more or less stable. We were not able to increase, let's say, revenue and situation. So for the coming year, we are more provident because at some point time leads also to purchase fresh new seeds and not catch up also with the yield expectation. So on that side, we are also confident. But I would say overall, if you look at the crop rotation, the Retail business, of course, the residual rule, let's say, if you look at the overall agriculture crop protection, of course, sugar prices are going up. And anyway, if the summer would be, let's say, complete unconstrained would plant as much surely as possible, obviously very good. So that will be also a very strong drive to plan more asset rate core plans have increased. So that might also help us to move some acreage to corn, I would say. Overall, I think the other fields are the residual loser to say , but within this market, which we will deem will be stable mix and increasing. We hope that we can gain more share by our business coming from this more stronger unsafe situation last year. I think what color would describe the situation. And that's also how we see at the start of the year. The rice is pretty stable up to the decline last year, so really stabilized also slightly growing. And that's what we see for the other as well. So overall, I think a good start -- and, so that is basically unchanged to what we also discussed after the 9 months. So there is a situation that from the serious business in France. There's a certain mechanism that's also the parent and it's public. Everyone can see it on the website, where prices for royalties and the base fees are assessed. That's also done with in conjunction also with French authorities. And there is a question whether this mechanism, let's say, is let's say, compliant for future oriented or not, let's say, and be prudent, we took a provision of EUR 5 million. But we as well as all other partner participants project this claim because it's in practice since 30 years. It's been looked at many times, it's public, the failure, so -- but it is what it is. It's not on our balance sheet as a provision and then we'll see how it develops, but we're spending a position and reject this plan.

Okay. Great. If I may, 1 last question. You talked about Russia, but how is the business going for you in Ukraine at this point in time?