Good morning, ladies and gentlemen, and welcome to the KWS SAAT Quarterly Report, 9 months 2024-2025. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Dr. Jörn Andreas, CFO, KWS SAAT.
Good morning, everyone. Thank you for joining us today for the analyst and investor call for the first nine months of our fiscal year 2024/2025. My name is Jörn Andreas, and it's a pleasure to welcome you for the first time in my new role as CFO of KWS. The past four and a half months at KWS have been intense, exciting, and very insightful, packed with learning. I would say I'm still on a steep learning curve, but what I've seen so far has truly impressed me. To mention just a few things: the long-term perspective that runs through the entire company, the deep commitment to innovation, our strong core portfolio with leading market positions, the focus on sustainability, and of course, everything underpinned with a strong financial foundation.
That said, at the same time, when I look at KWS through a capital market lens, I'm deeply convinced this strength has not yet fully been reflected in our current valuation. I would like to point out here that increasing the attractiveness of KWS as an investment and returning to an adequate valuation that reflects our strengths and the significant future potential are one of my top priorities in my role as CFO of this company. In that context, I want to briefly mention the constructive and very encouraging feedback that we have received from a recent market perception study among a group of KWS analysts and investors. Thank you for everyone who contributed. Your insights are highly valuable and will help shape how we communicate and how we position KWS going forward.
I am very much looking forward to many more direct exchanges with you in the future. Now let's dive into our financial results and business performance of the first nine months. As always, a quick reminder that some of the statements we will be making today are forward-looking and subject to risks and uncertainties, and you can find the full disclaimer on this slide too. Reflecting on our nine-month results, I want to emphasize the resilience and adaptability of KWS that KWS has demonstrated in navigating a more challenging market environment in this fiscal year. Net sales of EUR 1.34 billion were at previous year's level, including a slight negative currency effect. This development is remarkable as we recorded significant acreage reductions in two of our major business segments, sugar b eet and corn, by 7% and 3% respectively due to a weak agricultural commodity environment.
In the corn segment, this also left a clear mark in our figures, while in sugar b eet, we were able to compensate for these headwinds through our unique and innovative product portfolio. This portfolio strength is also reflected in our gross margin, which we even were able to increase to 63.4% year to date. Despite weaker demand, we were able to maintain our pricing power, which demonstrates again the strength of our business model in the midst of a weaker agricultural cycle. EBITDA and EBIT were significantly influenced by one of the effects, and I will discuss this in more detail shortly. Without considering these effects, we were able to defend our operational profitability, which continues to allow us to invest in R&D, one of our key strategic priorities.
Our free cash flow, which is usually clearly negative at this point in our seasonality, recorded a significant improvement to nearly zero, driven mainly by operational cash flow improvements. We also expect this noticeable improvement to sustain for the full year. Our net debt remains at a very comfortable level with 0.5x EBITDA, with a tendency for further improvement by the end of the current fiscal year. All in all, I find this to be a pretty solid picture in line with the challenges that the agricultural markets are currently facing. As shown on the next slide, our financial performance for the first 9 months was heavily influenced by several one-off effects, and I want to quickly walk you through the main movements.
These include, on the positive side, the reversal of a VAT provision amounting to EUR 8 million in the sugar beet segment that we recorded in the last fiscal year. Another one-off effect is the gain from the sale of our Chinese corn business in the previous year, amounting to EUR 30 million, about EUR 14 million of which fell into the third quarter of the last fiscal year. The third one-off effect relates to the complete write-off of the remaining book value of the Pop Vriend brand, amounting to EUR 10.4 million because of the change to the KWS brand as of the end of October last year. This write-off was already booked in the first half of the current fiscal year. The adjusted EBIT reached EUR 284.5 million, corresponding to an adjusted EBIT margin of 21.2% compared to 22.7% in the previous year.
Considering that we also recorded an additional negative currency effect in the mid-single-digit million range in EBIT, this result actually impressively demonstrates our ability to achieve good results even under more adverse conditions. Let's now look into the segments, and we start with the sugar beet segment, which, despite a substantial decline in acreage, was able to achieve a slight net sales growth to EUR 693 million compared to a quite strong previous year comparable figure. The decline in global acreage in the current season of around 7% is higher than we originally expected. Given weaker sugar prices and relatively high stocks, predominantly European sugar producers have reduced their contracted areas. It is important to mention at this point that the global acreage had increased significantly in the previous season, so we're actually now returning to a more normalized level of around 4.5 million hectares globally.
The fact that we managed to slightly increase our net sales even under these conditions is again due to the strength of our innovative portfolio, especially our CONVISO SMART and CR Plus varieties. The share of these two innovations in our total business has again increased to now 57%, and we expect a slightly higher number for the full year due to certain order phasing effects. The introduction of our highly innovative combination varieties, so combining CONVISO and CR Plus in some European markets, is also very promising because it already delivered a double-digit sales contribution right from the start. The positive effects of our improved portfolio mix, combined with our sustained high pricing power also in the rest of our traditional portfolio, have significantly contributed to the expansion of the already high profitability of the segment.
Without considering the positive one-off effect from the VAT provision reversal that I already mentioned, the EBIT margin increased again from 42.2%- 43.3%. With this strong performance, our sugar beet business once again demonstrates its exceptional position in the market and underscores the high importance for the overall profitability of our group. Moving on to the corn segment, you have noticed that we were less able to compensate for the headwinds from lower acreage in Europe. Net sales declined organically by about 3%. In particular, the weakness of corn prices had a dampening overall effect on market demand. In addition, our business benefited from a weather-related shift from winter crops to corn in the previous season, while we were observing the opposite trend in this growing season. There is also a comparable topic here as well.
Our North American joint venture, on the other hand, recorded positive business development in corn with a slight increase in volume and price. The soybean business, on the other hand, declined significantly due to unfavorable commodity ratios. In total, we achieved overall net sales at the previous year's level. Our segment result declined, considering the one-off effect of the EUR 30 million from the sales of the Chinese corn business in the previous year by EUR 13 million to EUR 40 million this year. In light of this development, we've adjusted our forecast for the segment and now expect moderately declining net sales and a significantly lower EBIT margin for the full year. Let's now turn to the cereal segment, which, as you know, generates most of its business in the first half of the fiscal year.
Net sales declined, as expected, by about 3% to EUR 243 million, mainly due to weak commodities and a declining business in Russia. Looking at our different crops, our business with oilseed rape and wheat stayed at the previous year's level, while sales with rye and barley decreased. Our segment result declined by EUR 10 million to EUR 69 million, primarily due to business performance, but also due to increased expenses for certain growth initiatives, particularly in R&D as well as in selling expenses. Now let's look at the vegetable segment, where our business continued to develop very nicely. The rise in net sales of 12% is mainly due to better performance in our spinach business, where we were increasingly benefiting from a diversified customer base. The decline in earnings of EUR 10 million is largely due to the already mentioned special effect from the write-off of the Pop Vriend brand.
Higher profit contributions from our existing business, which continues to deliver attractive and accretive margins, were offset by planned higher expenses for the expansion of our breeding and business activities. Let's now move on and take a look at our income statement below EBIT, and I would like to particularly highlight the improvement in the financial result, which was mainly driven by a significantly improved interest result, which decreased by about EUR 11 million due to a substantial reduction in financial debt. In the equity accounted investments line, mainly showing our share of our joint venture AgReliant, we recorded a decline of about EUR 3 million. Our JV remains in an operationally challenging environment, but we continue to expect an improvement in earnings picture with regards to the full financial year. Considering income taxes, our net result for the continuing operations was at EUR 202.8 million and earnings per share at EUR 6.15.
Additionally, as already communicated, we report a positive one-off effect after taxes of about EUR 102 million from the sale of our South American corn and sorghum activities, which was completed in the first quarter of this fiscal year, so that earnings per share of the KWS Group were at EUR 9.24 for the reporting period. Let's now turn to cash flow, which has developed very positively in the first 9 months. The main driver for this was a significant improvement in operating cash flow, which increased significantly from EUR 66 million to EUR 155 million, mainly due to positive working capital effects. In investing cash flow, the previous year included inflows of EUR 41 million from the China transaction. Adjusted for this effect, investing cash flow was actually largely at the previous year's level.
Considering the effects mentioned, we are close to a zero line in free cash flow, which is a very strong figure for our typical cash flow development, which is strongly influenced by seasonal effects after nine months. Looking ahead and at the full year, we expect significant improvement, the significant improvement in free cash flow to continue and to sustain. Needless to say, our robust cash flow also contributes to our net debt remaining low. As already communicated, we have significantly reduced our net debt this year through the proceeds from the sale of the South American corn and sorghum activities in the mid-three-digit million EUR range. After nine months, net debt was at 0.5x EBITDA, and I expect to see further improvement towards the end of the fiscal year. With this low financial leverage, we are in a very strong position to seize market opportunities as they arise.
Finally, let's turn to our forecast for the current year. Considering the prevailing conditions with noticeable acreage reductions in corn and sugar beet, we've adjusted our net sales expectations slightly downwards. We are now expecting zero organic growth for this year. Regarding the EBIT margin, we are narrowing our expectations to the middle range of our forecast of 14%-16%, and our R&D ratio is expected to be at about 20%, which underscores our continued commitment to invest in innovation, which we maintain also in times of lower growth. Ladies and gentlemen, as we move towards the end of the fiscal year, we remain confident in our strategic direction. We have successfully navigated the lows of the agriculture cycle and have been able to deliver robust results even in these more challenging times.
With our strong crop portfolio, including market-leading positions, we are well positioned for future profitable growth. In addition, our strong balance sheet provides us with significant flexibility when it comes to market opportunities, which we are willing to seize if they fit our strategic priorities. With that, I would like to close my presentation and my prepared remarks. Thank you for your attention, and I am looking forward now to your questions, which we will address together with my colleague and Head of Investor Relations, Peter Voigt. Thank you.
Ladies and gentlemen, we come now to your questions. If you would like to ask a question, please press nine followed by the star key on your telephone keypad. If you wish to cancel your question, please press three followed by the star key. Please press nine star now to state your question.
The first question comes from Charlie Bentley-Jefferies. The floor is yours.
Hello, thank you so much for the presentation. I just want to ask in terms of seizing opportunities. I mean, if opportunities do not present themselves from a capital deployment perspective, what is the plan for cash generated? And just in terms of those opportunities, can you just give us an indication both on the organic and inorganic side what would be under consideration? Secondly, just in terms of the rollout for the kind of combined product on sugar beets, so the combined combination. I mean, how much of the market do you think you can get to? I mean, I guess if I think of it versus your 56%-57% of sales that you detail in the individual, that would be very, very helpful. Thank you.
Hi, Charlie. So good to hear you.
Very good questions indeed. First, on the capital allocation, as you rightly say, we have significantly improved our financial leverage, which puts us in a very good position to seize market opportunities. We said very clearly that we have the priority to reinvest this in organic growth. We have a lot of nice investment opportunities in front of us. First and foremost, to continue our efforts in innovation. I think we mentioned in the past that when we think about the hybridization of certain crops, particularly in the cereal segment, that is for us a very important area that we want to continue to invest into. We made already very good progress. We are actually launching our first hybrid barley varieties next year in the U.K., which is really exciting. We have actually a full pipeline of hybrid barleys already in the performance trials.
We were looking, of course, to expand this into other crops as well. That is a very important topic for us in the future. Second is the new breeding technologies, where we believe we have a lot of opportunities to improve the efficiency and also the effectiveness of our R&D program. Of course, we have a little more interesting, exciting ideas to continue to develop innovative products in the sugar beet segment. These would be our primary growth initiatives in our, let's say, traditional business. You know that we have significant plans to create a significant position in our vegetables business, where we also made already important investment in the past in breeding infrastructure, in breeding programs. I would say by now we are at 7%-80% of having this infrastructure in place.
Certain steps still to take, but quite confident about the progress we already made. At the same time, as you rightfully say, we are always looking also at opportunities for external growth. We have always a certain number of projects we are working on. We have to see if they will materialize in the future. If we are looking into external growth opportunities, for sure, vegetables will be the primary segment we are looking into. When it comes to our capital allocation, after that, I think what is fair to say is that we are always committed to also a dividend policy that is reflecting also long-term value creation. With our recent de-leveraging and higher profitability, this gives us more flexibility going forward. We're looking into this, but no decisions have been taken so far.
With regards to your other question, the combination varieties, for us, that's very exciting because the growth that we have seen in the sugar beet business has been, of course, driven by the innovative products we were able to launch in the market and which are very well received by our customers. That continues to be the case, both on the CONVISO side as well as the CR Plus side. We are able to combine these innovative traits into one product that gives us, of course, also additional value creation opportunity. We believe that we can still be able to increase also the share of these product innovations in our total revenue share. It's difficult to project because, as I said, the penetration rates differ very much also from country to country, from region to region.
We are very confident that you will see also further progress in the years ahead.
Thanks. Thanks, Jörn. I much appreciate it.
Thank you very much. We come to the next question. The next question comes from Michael Schaefer, ODDO BHF.
Yeah, thanks for taking my question. And welcome to the team, by the way, Mr. Andreas. First question is on corn. I mean, that basically AgReliant reported a pleasing performance both in volumes and prices in the US, but definitely challenging market conditions in the soybean market. If the numbers, if I'm correct, basically numbers deteriorated on the earnings level, though, still in the first nine months, but you indicated a bit of an improvement here in the full year. The general question, I think, is what's your view on AgReliant? I mean, it has been put under strategic review.
How should we think about, let's say, the outlook for the segment going forward? The second one is on sugar beet, more on the market developments. There has been a recent combination of companies, so the competitive environment changed a bit with RAGT taking over the plant. What's your view, let's say, on the midterm competitive outlook in the segment for sugar beet? This would be my two questions initially. Thanks.
Thank you. Very good questions. Thank you for the warm welcome, Michael. First on AgReliant, as you rightfully said, we communicated last year that we will also conduct a strategic review on our North American corn activities. You know that we're operating these activities together with a joint venture partner, Limagrain. You can imagine me coming in at KWS, joining KWS at the beginning of the year.
It has been also one of my focus areas to look into this and to see how we've progressed with our review. Unfortunately, at this time, I cannot, let's say, go really beyond what we already communicated last year. This review is still ongoing. We are still, of course, reviewing the topic, still on the table. As you know, and as I mentioned, we are not alone. We are operating here with a joint venture partner. The situation is, of course, a little complex. You also need to take into consideration that we are also very proud, actually, of the business that we've built over the last decade at AgReliant. It is one of the very few platforms that exists in North America where we have a broad and functioning distribution platform, at the same time also with dedicated and proprietary germplasms.
It's also a unique platform that has been built also by both joint venture partners in the last decades. We want to make sure we take a thorough and really strategic view when we look at this business platform and also the prospects going forward. This is still ongoing, but it's clear that we want to bring this to a conclusion. We will, of course, update the market accordingly. With regards to the sugar beet competitive situation, that's correct what you say. We have seen an acquisition. We've seen also further consolidation of other players, let's say, the sugar beet industry, sugar beet seed industry.
For us, I see this more as an opportunity because it means that also all the players are joining forces to put more emphasis on innovation, which I think is also one of the main drivers for the growth of the business going forward. We mentioned that there has been an acreage reduction last year. I just want to emphasize again that this is really driven by a historic high that we had last year due to certain commodity price situations. We are coming back now to the 4.5 million hectares in this area. We also project a stable to slightly increasing acreage going forward. I think that provides opportunity for all the players in the sector.
Thank you very much.
The next question is from Christian Fait, Kepler Cheuvreux. Go ahead.
Yes, thanks. Hope you can hear me.
Just one question, please, remaining. And by the way, good luck with AgReliant and talking to Limagrain. Your vegetable, or in general, vegetable seed assets are rather highly priced, not only since your own acquisition of France's. Would you be willing, as new CFO, to also pay some 4x-5x EV sales for any interesting asset? I know it depends on the asset and who's willing to sell, but what is your view on these markets being paid in the market at this point?
Yeah, thank you for your question. Yeah, and indeed, it's a, I would say, a tight market when it comes also to targets and opportunities because I think everyone understands that there's a lot of value in this segment.
That, again, I think demonstrates that it was the right decision, right strategic move from KWS to early identify also this opportunity and invest in its own infrastructure and R&D activities. Look, when I look at company valuation, I think sales multiple is probably the last indicator I look into because for me, it's important that we are able to sustain our profitability, our free cash flow also going forward. What's really beautiful about the vegetable business is that it's really accretive, let's say, to the margin situation compared to our, let's say, traditional business. I know that it's sometimes a bit blurry, let's say, when you look at our financial reporting because you see the negative earnings in the vegetable segment.
I think we can do also a better job in the future to segregate, let's say, what is the operating profitability of our existing business and what are startup investments, let's say, call this way to create the infrastructure in order to have really a critical size also in this business. Therefore, it is clearly for us that this business is accretive for our group and delivers. You see a double-digit growth also for vegetables this year, which I think is a clear testament also to the investments we made in building our customer portfolio and our sales force and our R&D activities. I am certain that you will see this then also in what we call fruity crops. All the crops that we are now expanding into: tomatoes, peppers, cucumbers, etc. This will be a very nice business for KWS in the future.
When it comes to M&A, yes, we are interested in this. We are looking into this. We are working on projects as we speak. To be quite honest, we made already quite a lot of progress, actually. I mentioned that we have built more than 70%-80% of the infrastructure that we need in vegetables. There are breeding stations in the key geographies: Italy, Spain, Mexico, etc. We are actually pretty far ahead already. I would say one-third also of the product development cycle is already behind us. We are already pretty well advanced. The need for M&A will be less relevant the more time passes because I think the additional capabilities that would join the group are then somewhat already existing.
We will be definitely always interested to look at certain market access opportunities, certain white spots, of course, that will be interesting for us to accelerate, of course, the commercial execution. I would say in terms of infrastructure innovation, we are already pretty far ahead. That is why, yes, M&A is on our agenda. We are absolutely not desperate to buy certain targets at certain crazy multiples because we believe really in the strength of our R&D, where we can leverage so much also from our R&D engine that we have built in our traditional crops. I think it will be really exciting. I think making this clearer also what our ambitions are is definitely also one priority for the discussions with all of you going forward.
Okay, thanks very much.
The next question is from Konstantin Wiechert, Baader Helvea.
The floor is yours.
Yeah, thanks. Welcome also from my side. Thank you for the presentation and taking my questions. Maybe another one on the corn segment and then more to maintenance maybe questions. I also want to ask again on the European corn segment, actually. I mean, KWS is refocusing on its core regions and more into the niche crops where you can successfully build up a moat. I know you have the solid market position in corn in Europe, and it's obviously also not a GMO market, but it remains one of the large crops where there's just massive R&D firepower also from the big players. Maybe I would just be interested in your understanding of how the crop fits in KWS portfolio. That would be my first question.
Given that we have the lower acreage and lower volumes here, is that kind of what you really expected in terms of inventories? Or should we expect some inventory write-down higher than in the previous year from corn or sugar beet to come in the last quarter? Also, should we expect further headwind from, I guess, the phase-out of corn business in Russia? Is there a change in that regard now with the lower outlook for this year? Maybe more of the revenues are already out this year, and therefore, is there still to be expected effect next year or basically all revenues in Russia phasing out this year already?
Yeah, very good questions. Thank you.
Maybe first on the general, let's say, strategic position that you mentioned, okay, how do we compare against others which maybe have a higher firepower, etc., how it fits in the portfolio? I think that's, of course, one area where I also look deeply into the first months. What I will say is that Europe is still and will remain a very attractive market for us. We, as you know, have very strong positions. We have a clear number one in the silage segment, which roughly accounts for one-third of the corn market in Europe. We are expanding, actually, our market share in the grain segment, which is basically the other two-thirds of the market where we traditionally had a lower market share historically. With the innovations we're bringing into the market, we're actually gaining market share. It is still a very attractive market for us.
I would say in terms of R&D position, R&D program, I think we're very happy, to be quite honest, that we have a much more differentiated approach. For some of our competitors, I would say Europe is more like a complicated niche market. Europe accounts for 20% of the global corn market. You have very different geographies, maturity zones, regulatory situations, country by country. The focus of the other ones is really more like running R&D programs, and then basically Europe gets what is left over, whereas we have a much more differentiated R&D strategy where we are developing or have in place several breeding programs which have a much more regional adaptation, let's call it this way, which puts us in, actually, I would say, from an R&D innovation perspective, in a clearly favorable position.
We are reviewing the performance, of course, of our products regularly. We just actually finished recently the check-up for the first quarter. I can tell you that we have clearly the leading product in the portfolio. Today, let's say, in the market, and when I look in the launch pipeline, the official performance trials, we clearly see that we are the best. Yeah, that definitely has been a drawback in demand. Of course, the lower commodity price has driven down the demand, let's say, for corn products in Europe. I would say that you should not expect any major inventory write-down, let's say, for the end of the fiscal year.
I would say it's rather the opposite because when you look at our free cash flow development, when you look at our operating cash flow development, you see actually that particularly in the corn area, we have been benefiting from a much lower increase in inventory because we've, of course, seen that coming already in the first half of the fiscal year. We have been very cautious on building up additional inventory. That has helped, of course, a lot to release cash, operating cash, which then, of course, translates to the free cash flow. I think we've anticipated this very well. I think if you look at also in the entire industry, the stock-to-use ratio in the industry is actually on a really lower level. We are also much more cautious in also multiplication and production also for the coming season.
I think that's, from my point of view, well under control. I would say we are really behind the low point, and we should see some more positive development in the future. The last question, I think, was on Russia, whether we have any phase-out in Russia. I think here clearly one can say that this has been already absorbed, this effect, let's say, last year. We had some additional sales in Russia last year, and that is not helping us this year. It's comparable, of course, because that's something we do not have anymore in revenue this fiscal year, but there's not more any significant business. Unfortunately, we do not have any quotas or significant quotas for corn. That's now managed more or less domestically in Russia, but there is no more risk, I would say, in our revenue composition.
Thank you.
We have a last question in our queue. If you have follow-up questions, please press nine followed by the star. The next question is from Michael Schaefer, ODDO BHF.
I have a follow-up question. Thanks for taking this. On vegetables, you mentioned basically there was strong growth in spinach seed in North America. I'd like to broaden this question a bit to the overall tariff situation for the way you produce seeds in the various regions and how you sell this into. Can you talk us through the various segments, how, let's say, an adverse import tariff situation would affect your business, essentially? This would be my question. Thanks.
No, thanks. That's a pretty straight and easy answer, to be quite honest, because in our business and in our industry, you basically produce locally and you sell locally.
When you go, let's say, also through, let's say, the different crops, we are not really exporting any material amount of seeds into North America. We have in the vegetables business unit, and you mentioned this, we have, of course, a significant spinach business in North America. Here, there is a certain part of the revenue that's roughly 30%-40% which we're exporting from Europe to North America. We also have the opportunity to produce domestically in North America. That is also something which actually differentiates us from our competition because we are the only one who also has a domestic US spinach production. We are very confident that we do not have a competitive disadvantage here, maybe even upside, to be quite honest.
That is really the only area where we have any, let's say, export seed business, let's say, to North America. All the rest is really produced domestically. We, of course, analyze also back and forth, left, right, and center, all the different implications and potential repercussions from the trade situation right now. For us, it is really limited, the effect. We have a little bit, let's say, of packaging, palletizing, and, let's say, treatments that we are buying in the US that come in from other geographies, of course, mainly Asia. The, let's say, overall, let's say, impact really, in the worst-case scenario, is, let's say, mid-single-digit EUR million EBIT effect. It is really immaterial. We are very confident that we will be able to pass these costs also forward as surcharges to our customers if that is necessary. Thank you.
Right now, we have no more questions. Back to KWS SAAT.
Okay, everyone. Again, thanks for taking the time today. No further questions. Thank you again for your interest in KWS. I, of course, look very much forward to meeting you in person soon and continuing our dialogue in the coming days, weeks, and months. As I said at the beginning, for me, sharpening our capital market profile and making KWS more attractive as an investment is very high on my personal agenda. I really appreciate your ongoing interest and feedback. Until then, thank you and have a good day ahead.
Your conference call has come to an end. Thank you for attending. Goodbye.