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Corn, vegetable growth hopes accelerate revival in KWS shares

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Shares in KWS Saat accelerated their recovery after the seeds group unveiled forecast-beating results and a “strong” sales outlook, spurred by expansion into the high-margin vegetables market.

 

Shares in the German-based group jumped 5.2% in early deals in Frankfurt, before easing back to E60.50, a gain of 4.1% on the day.

 

The headway followed the release of results showing that the corn-to-sugar beet seeds producer achieved operating profits of E150.0m for the year to the end of June, up 13.1% year on year.

 

Revenues rose by 4.2% to E1.211bn, while earnings per share of E3.15, besides being up from E3.02 a year before, exceeded market expectations of a E3.04-per-share result.

 

‘Strong increase’

KWS also forecast a “strong increase in net sales” in its current financial year, with expansion forecast at 8-12%.

 

The group’s operating profit margin was expected at 11-13%, below the 13.5% reported for the latest year, although potentially matching the 12.4% achieved for 2017-18.

 

The company’s takeover of the Pop Vriends Seeds vegetable seeds business in July, and growth in corn seed, “should make major contributions” to boosting sales, the group said.

 

The group’s new vegetables segment will achieve sales of about E80m, at an operating profit margin of about 25%.

 

Crop area outlooks

In corn, KWS said it would “likely post higher sales volumes… in most regions”, although in particular South American and Europe, with the North American market marked by “fierce” competition”.

 

In sugar beet, the group forecast some pressure from a forecast “slight decline” in global sowings, but flagged a boost from an improved seed portfolio.

 

“We anticipate a slight reduction in sugar beet cultivation area in the European Union again, and in eastern Europe.”

 

In cereals, KWS said it was expecting a “slight increase” in sales thanks to growth in rye, a key product for the group, with sales of rapeseed seen stable, with potential for small growth.

 

“Net sales for wheat and barley seed will remain stable or fall slightly,” the group said, foreseeing a “largely stable cultivation area” for cereals.

 

Rye aid

For the latest financial year, KWS achieved growth of 22% to E57.9m in operating profit at its corn division, backed by a “sharp improvement” in South America, where the group said it “significantly expanded out business volume and won market share in Brazil”, thanks to product launches.

 

In sugar beet, operating profit rose by 11.9% to E179.6m, helped by a firmer dollar, but also by the launch of a new product portfolio, which proved particularly popular in the likes of Belarus, Moldova and Ukraine.

 

“Net sales grew sharply in eastern Europe.”

 

For cereals, operating profits soared 25% to E23.0m, supported by a 13.0% gain to E170.8m in net sales, growth of which hybrid rye seed was the “main driver”.

 

KWS flagged a “strong increase in the amount of rye grown” in the EU for the 2019 harvest, backed by “better prices for rye than wheat, and rye acknowledged high yield stability in dry years”, after a 2018 when European cereal yields were depressed by dryness.

 

EU rye area grew 13.8% year on year to 2.21m hectares, according to European Commission data, with most accounted for by Germany and Poland.

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