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KWS restates Brazil expansion plans, despite real setback

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KWS Saat restated its plans for expanding in Brazil despite acknowledging that the dent from weakening emerging market currencies including the real had prompted the seed group to cut its profits hopes.

The German-based group - which ranks fourth among world seed companies, behind Monsanto, DuPont and Syngenta – reported a widening of 34% to E47.0m in losses for the July-to-September quarter, despite a rise of 11.3% to E117.2m in sales, swollen by takeovers.

While the period is typically seasonally weak for the group, which depends inordinately for profits on sugar beet sowings early in the calendar year, the result this time reflected "in particular… negative exchange rate influences from South America and Eastern Europe", KWS said.

"The Brazilian real dropped sharply against the euro," the group said, flagging a "perceptible recession" in the South American country.

'More negative than anticipated'

The group trimmed to "at least 10%", from "at least 10.5%" its forecast for operating profit margin in its current financial year, which ends in June 2016.

"Currency effects have had a more negative impact than anticipated to date," KWS said, following a series of other suppliers of agricultural inputs, including Syngenta to acknowledge difficulties in emerging markets such as Brazil.

However, KWS said it was ploughing on nonetheless with investment aimed at "expanding our business activities in our young sales markets of Brazil and China.

"Our objective is to secure the position we have achieved in our core markets," a drive involving extra spending on research and development, besides on modernising and expanding factories.

Geographical breakdown

In fact, while KWS reaps more than two-thirds of sales from the European Union, and is particularly renowned for its sugar beet seed, the group's takes roughly one-half of revenues from corn.

However, of that, only some E80m was achieved last year in South America, and some E26m in Africa and Asia combined, despite the importance of Argentina, Brazil and China in world corn production.

KWS claims second rank in the EU corn seed market, behind DuPont's Pioneer, and third position in the US with its AgReliant tie-up, a 50:50 joint venture with France's Vilmorin.

Market reaction

KWS's spending drive also contributed to the increased loss in the latest quarter, helping for instance take the corn operations E45.2m into the red, compared with an E34.2m loss a year before.

The group said the deterioration, despite a 5.2% rise to E50.3m in sales, was "mainly due to negative exchange rate influences and to the planned expansion of distribution".

However, investors had been prepared for widening losses, with the results coming in in line with market expectations, and seeing KWS shares stand a modest 0.6% down at E288.00 in lunchtime deals in Frankfurt.

By Mike Verdin

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