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

Welcome, ladies and gentlemen, to our fiscal year '19-'20 results press conference or analyst and investor call. My name is Eva Kienle. I'm the CFO of KWS SAAT, and I'm going to give you a short overview about our achievements concerning the last fiscal year. And at the end, we are open for a Q&A session. So again, warm welcome with this unusual virtual format. Today's publication of the results take place in a nonpersonal meeting in Frankfurt. And that is, of course, due to so much of this year to the corona restrictions. So for us, it was better clearly to not go for a physical meeting this year, and we do hope that we are going to have some more normal conditions next year, but that it's now also possible for you to hold it this way. And also, this gives more analysts and investors the opportunity to participate. So I am pleased to report to you today on a very successful year for KWS. And also especially in the course of the corona pandemic, we were clearly able to demonstrate our high level of resilience and the adaptability under very challenging conditions. This is also shown by the fact that we were able to exceed our forecast for consolidated sales and the EBIT margins. We had some negative effects in currencies, especially in Brazil, Brazilian real. But overall, we could demonstrate a nice growth. We have strong -- and coming to that a little later, we have operational growth in all our product segments. And again, this positive development, we will propose to the Annual General Meeting on December 16, which we are really also going to hold in a virtual format this year. So there, we will propose an increase in the dividend from EUR 0.67 last year to EUR 0.70 per share for the fiscal year '19-'20 result distribution. So this would be then the second increase in dividends in a row, and this shows, again, the long-term solidity of an investment into KWS stock. So let's first take a look at some key figures. Sales increased by around 15% to now EUR 1.3 billion. This, of course, includes the first time full year -- full fiscal year of the acquired vegetable business -- Vegetable seed business of Pop Vriend in the Netherlands, and this contributed with a very positive effect of EUR 84 million in sales. All other segments also showed dynamics. So the organic growth or like-for-like, including, as I mentioned, foreign exchange effects and the acquisitions, we would also have grown to a little bit above 10% for normalizing compared to prior year. EBITDA also increased significantly by 13%, driven by the very good development in sales, but also, of course, due to the contribution of the earnings from the acquired vegetable business. And in the EBIT, you can see this with a little star here, this EBIT number reflects the consequences and the effects of the purchase price allocation and the following amortization on the assets for the acquisition -- following the acquisition of Pop Vriend Seeds in the Netherlands. Total effect of amortization here is EUR 22 million. On the other hand, there is also an increase in cost of goods sold of EUR 10 million. So the overall cost effect in our current -- in our '19-'20 P&L is around EUR 33 million downside as a consequence of the purchase price allocation and the inventory step-up. Adjusted for these effects, the EBIT would also have risen significantly and then, of course, as well, net income. Earnings per share here are at EUR 2.89, so down compared to last year. And as I mentioned, the effect that it has on net income is also going through here then, of course, with regard to earnings per share. Let's now look at the development of the individual product segments and start with Corn, our largest segment by sales. The sales here rose by 5% to now a EUR 776 million. This is mainly due to very good development in Eastern Europe, but also in South America. Particularly satisfied we are with the development in Brazil, where we were really able to significantly increase our sales volumes almost around 30% with the introduction of very innovative varieties and also some rewards we achieved from the market and from marketing organizations in Brazil. In North America, we saw a slight decline in our AgReliant joint venture, U.S. dollars, on the one side, as a result, also of the commodity price directions and also the upheaval here caused by the corona pandemics. For example, ethanol to be mentioned here. Our business in China, also joint venture, has held up extremely well, especially if you consider a very early full lockdown because that's where COVID-19 started. So the sales were clearly above previous year's level. And we could also sort of go through the COVID crisis in China with almost no effect here on the top line. Segment EBIT in Corn rose by around 16% to now at EUR 67 million. And also, as I mentioned, due to higher earnings contributions from South America, the segment margin is now improved to almost 9% compared to 7.5% in -- 7.8% in '18-'19. So for the currently running year, we expect a slight growth in the segment as well -- sales as well as on the bottom line in EBIT. Looking into our Sugarbeet Segment. We were once again able to record a very positive development, sales increasing by 6.6%. And again, we have seen -- this is against the backdrop of very stagnating and sometimes reduced acreage, so decline in acreage in a lot of regions. Overall, there was a decline by roughly 3% in global acreage of sugarbeet, but we could overcompensate this with market share increase and as well as innovative varieties that -- like CONVISO SMART that will have been penetrated into more markets. So again, CONVISO SMART, a very special role. I'm not sure whether every one of you is familiar. This is a very innovative herbicide-tolerant sugarbeet cultivation, which leads to significantly lower use of herbicides in the field, so is -- thus delivering a cost-saving [ topic ] for the farmer. So that by now, CONVISO SMART is introduced into 24 of our sugarbeet countries, and we have seen very, very good acceptance for this innovative approach. And just last week, the herbicides of CONVISO was accepted or was registered in Russia, and we can execute on our rollout plan with introducing the CONVISO SMART variety for seed sowing season '21 in Russia. So in coming fiscal year, as I mentioned, the sales of CONVISO will, of course, then continue to increase. EBIT in sugarbeet is at a value of EUR 170 million now, which is below the previous year. It is to be indicated, though, that last year, there was a positive one-off effect. We sold part of our stake in our potato company to Simplot, which was a profit effect of EUR 11 million last year. So if you would normalize last year down by EUR 11 million, we would be flat compared to last year's EBIT development. So again, the EBIT margin is around 35% here. So this is, again, most important and most stable earnings provider for us and is delivering the profitability and the cash that we need to grow into the other product segments in a new market. Now we come to the Cereals Segment, which generates majority of the business in the first half of our fiscal year. So right now, the sales go out for the winter sowing season 2021. Most of our cereal crops are winter crops. Sales growth last year, sales grew by 12%, and it's currently our fastest-growing product segment. And again, as always, this is mainly due to the hybrid rye product in that segment, where we are market leaders, and we will also -- and we are constantly expanding this market. Due to its very special properties as a drought-tolerant grain, it's an increasingly attractive crop for farmers in times of changes in the climate and also in the weather patterns. And of course, it's also related to a very low amount of precipitation needed. Other crops, wheat, barley and rapeseeds sales were at the previous year's level or slightly below. This holds especially true for rapeseed, which suffered on one hand side from the second, third year in a row of -- the third consecutive year of the herbicide ban of neonics in Europe. But also due to the very dry weather conditions during the sowing season, there was less rapeseed acreage planted. Segment results improved around 15%. So now we're at EUR 26 million here. And as a result of the sales and product mix switches, the margin here also improved slightly. So for the current financial year, we are assuming sales at prior year level, and we expect the EBIT margin to be a little bit below the previous year, especially as we are now investing here clearly into marketing and R&D to expand our business growing forward, namely in overseas. So we are increasing our footprint in Canada and in the U.S. with regards to the rye product portfolio. Vegetables is our youngest product segment. And of course, this business segment clearly benefited from the good momentum in seeds, both for spinach bean seeds. The EUR 84 million that you see here is our acquired Dutch spinach seed breeder, Pop Vriend. And so the EUR 84 million sales and adjusted earnings of around EUR 26 million clearly showed that we were able to defend also in the first year post acquisition this segment's extremely high profitability of around 30% margin -- EBIT margin. As, of course, you have seen in the overall results, we show here 2 operating results. There were 2 noncash effects from purchase price allocation consequences. That's what brought the EBIT -- reported EBIT down from a substantial EUR 26 million to a reported minus EUR 8 million. This, on one hand, the inventories we had to take over, of course, at fair or market value and not at usual production costs. So there is literally on the inventory taken over, no profit margin on sales and the costs go in at a -- so to say, at a much higher cost than if they would have been produced by ourselves. There is an EUR 11 million effect in that one that increases overall the cost of goods sold. This will, of course, be reduced significantly in the coming years depending, of course, on the turnover of the acquired stock. And the second effect is the amortization of the intangible assets that we acquired overall, roughly EUR 22 million. So this amount is to be expected to continue for the next 2 financial years, decreasing in year 3. And after that, the depreciation will decrease to only high single-digit million amount. The main charge of the upcoming 2 or 3 years this year, last year -- sorry, last year and the 2 years is on the customer base that was acquired. So in terms of the outlook for the new financial year, we are assuming a slight decline in sales in the acquired business due to the consequences of the corona pandemic, mainly due to changed demand behavior, switches in the main market for spinach seeds, which is the U.S. clear switch from foodservice area with fresh and mainly organic-based spinach. All the gastronomy, restaurant, hotel demand consumption declined seriously. And there was a shift to retail and processing spinach. So this is, of course, a shift in margins but also a little more decline on the top line due to restrictions in gastronomy deliveries. So we expect the adjusted EBIT margin, so without the purchase price consequences for this year -- running year around 20%, 25%. So still on a very high level despite clearly increasing expenses because, on the other hand, in parallel to continuing to earn the profits from Pop Vriend, we spend, of course, a lot in the development of the business unit and our own breeding activities. And we built up breeding stations, we recruit people and the business unit structure in Europe and in South America. Now the Corporate Segment is mainly a cost-driven segment. So they're here, the overarching administration and research costs are summarized. The EBIT decline is EUR 105 million, so roughly EUR 10 million more than last year. And here, the main reasons are clearly increased cost for the expansion and the transition of our support organization, the project GLOBE and, of course, also higher IT costs and negative effects from currency hedging from the U.S. side. So for the current financial year, we expect an improvement in EBITDA compared to the prior year. As I mentioned, there are some restructuring costs in last time restructuring costs for the transition of our organization and also for legal advice and legal consultancy costs that we had to take. Here again, an overview on the next slide for our summarized income statement. I mentioned already to you the most important developments. And of course, especially most of the line items are affected by the purchase price allocation, consequences for the acquisition of Pop Vriend seeds that have a bottom line effect, as I mentioned, on the EBIT of EUR 33 million. And that's also explained to the biggest part, the decline in net income and earnings per share. Regarding tax, we see an improvement here to a tax rate of now 26.5%, which is 1.5% better than last year. This is due to the reason that the profitability shift more and more towards the U.S. and South American income where there is different taxation rates than in more higher-taxed European markets. So here, the markets mixed sort of towards lower-taxing countries. So all in all, a very positive development, again, if you normalize the reported numbers for the main effects I just explained. So especially given in -- under the light of the corona crisis that went almost sort of unfelt and untouched here at KWS, we are -- really would like to our shareholders to participate from the very positive operational improvements and performance. And therefore, we are going to propose at the Annual General Meeting in December a dividend increase now second year in a row to EUR 0.70 per share. And as you can see, it's within our corridor that we would like to remain between 20% and 25% of net income. But as you see here, we are again now with this, touching towards the upper end of this corridor, we have been last time, just 7 years back. And in the last years, we have trailed more around the bottom line of this corridor. So this is a very nice proposal and a very nice approach here again to be able to offer almost the maximum of our expected dividend distribution. A look at our capital expenditures, which were overall EUR 108 million. This is not including the acquisition of the Pop Vriend Seeds business. This is tangible assets mainly. So Germany, clearly remaining in the focus of the investment activities, which you can see in the left circle, with more than 60% of the activities and which basically is really 2 major projects also here in -- especially in Einbeck, which I'm going to present to you shortly, and R&D infrastructure. And in the other markets, that's mainly machinery and warehouses in France, Russia and South America. So on the next slide, this is an example of the 2 major investment projects that were finalized in 2019-'20, summer '20. So the largest project in recent years was clearly the expansion and the renewal of our central sugarbeet production here in Einbeck. Total volume of this investment was roughly EUR 50 million over several years. And with that new production and packing facility, we have now expanded, on one hand side, the capacity to the increasing -- to sort of serve the increasing demand from the market. But also, we have provided for more flexibility to implement really specific -- customer-specific requirements, coatings and also to separate the conventional sugarbeet production from the CONVISO SMART herbicide-tolerant production because, of course, you have -- we have to ensure that those seeds don't get mixed up because otherwise there will be a disaster in the field if you would mix up on the production line or in logistics these 2 different product groups. Second important project was the construction of a new research building in Einbeck. The previous capacities also here are becoming more and more scarce. And both projects has been completed are now operational. And as you can see, we have added more than 2,000 square meters now into a new lab space here with around EUR 20 million overall project cost that was completed just before the summer break. So we now have a short outlook at the expectations for this fiscal year 2021. I have already given a short outlook of the expectations of the individual segments. So overall, we expect the group sales to be at the previous year's level. And this, on one hand, is a very conservative and cautious view with regard of the uncertainties resulting from potential outcome of corona pandemic. So will we have the V-curve as it looks today? Most likely not. On the other side, we see strong ups and down, both with regards to currency. So Brazil is going more and more favorable in that regard for local costs, but the U.S. dollar is clearly giving us a headache right now, in these times. On the other currencies, we were getting some upside but not too much, so Eastern Europe is not getting so weak. So with regards to currency, there is much more caution right now. That's why we are very conservative here. EBIT margin, we expect to be around 11% to 13%. And this, of course, is not including the effects, the amortization of the purchase price allocation for acquisition of Pop Vriend Seeds. So with this, I would like to close my presentation. I'm at the end of this introductory part. I thank you very much for your attention, and I'm looking forward to your questions now.

And the first question received is from Christian Faitz of Kepler Cheuvreux.

Two questions, if I may, and then I'll just get back in line and might have a few more later on. First of all, in this morning's press call, you mentioned that you are eyeing some smaller vegetable seeds acquisitions on top of your own organic growth ambitions in veggies. Which varieties are you targeting? Do you also want to push into, let's say, the big veggie crops such as carrots, tomatoes or cucumber? And then second, can you elucidate what you mentioned in -- with regards to AgReliant that you had a negative impact from resowing, which, I guess, this was mostly on the soy side, but can you elucidate this?

Yes. Thank you, Mr. Faitz. So first question, clearly, the -- our vegetable strategy is clearly targeted at 5 main crops, which is tomato, cucumber, melon, watermelon and peppers. If there are other opportunities that do match like, for example, spinach, which was not part of the initial crops that we targeted, we evaluate those opportunities. But right now, on the forefront, there is none of the other crops. You mentioned carrots, for example. Also, we had some beans acquired with Pop Vriend. So this is not the main targets we would look for. So it's clearly focused towards tomato, pepper, cucumber, melon and watermelon. And with regards to regions, it's mainly Europe, Southern Europe, so Turkey, Spain. It's not Northern Europe. The other potential area around vegetable breeding is Netherlands, so it's not that area. And then South America, mainly Mexico and Brazil. That's what we would sort of look for targets. With regards to AgReliant, the explanation on replants, you have to be more precise, so it's about corn. It's not about soybean. And so if we have guaranteed our customers, if their plot or if their produce gets damaged due to weather conditions or drought or other indications right after sowing, that under specific circumstances they can come back and ask for replant up to a certain amount. And then they get this sort of the replant for free, which, of course, means that we have double production costs for one sales only, so to say. And that's what, of course, then brings the results down.

Okay. So that was kind of extraordinary this year, which you do whether...

It was extraordinary high level. Yes, true.

And the next question received is from Michael Schäfer of Commerzbank.

Three questions from my side. First one, the first 2 on the Sugarbeet Segment. First, looking back into the past fiscal year, I was surprised to see basically sales being up 7% on the full year and EBIT basically flat on absolute terms, if we single out basically the one-off gain from last year's disposal of the potato business. So any explanation basically what would happen there in the fourth quarter? And what you have allocated there on costs? I think today on the call this morning there were some discussions on extra production costs in France due to the neonics ban. And maybe any indication what kind of costs we shouldn't expect heading into the next fiscal year? And related to the Sugarbeet Segment, you elaborated on the approval you've received for the CONVISO herbicide from Bayer now rolling out your CONVISO SMART basically in Russia earlier potentially than initially planned. So any kind of indication you can share with us how you structure the launch basically in Russia, which is a 1 million-hectare market? Is there any kind of target you may share with us in terms of acreage? How do you address this market with your new variety? This would be helpful. And third, last not least, on the vegetables side, I would be interested to learn on the underlying greenfield approach you're running vegetables on top of the acquired Pop Vriend. Any indication what kind of extra cost for setting this business up we should factor into the next 2, 3 years in order to, let's say, develop the underlying greenfield, which is weighing on the, let's say, stand-alone profitability of Pop Vriend as we have seen it in the past? This would be very helpful.

Okay. Good. So maybe I'll start from the back. So Pop Vriend and the remark about the underlying cost with regard to the greenfield approach, now taking the Pop Vriend acquisition completely aside, our greenfield plan was to start really building up from the scratch, from 0, breeding and selling commercial activities into those 5 crops and 5 markets -- sorry, 5 crops in the regions that I mentioned. This, of course, starts very slowly. And of course, also, as you know, the usual pattern, that's not different in vegetables. So the product development, breeding cycle of established portfolio is 5 to 7 years. If you start freshly off, you need some more years. You start with cost and infrastructure, in land leases, in hiring people, so personnel costs, et cetera, at the beginning. And then at one point in time, commercial sales and profit kicks in. So our greenfield approach clearly targeted to a yearly cost rate roughly of EUR 20 million to EUR 30 million that would have been absorbed by year into our vegetable business. First -- as I mentioned, first, commercialization was expected definitely not before '27, '28, more towards the end of the '20s. Now Pop Vriend is overlaying that with a positive effect. You saw EUR 26 million EBITDA. Sooner or later, a positive profit contribution when the first 3 years of hard amortization are out. So this helps to ease the curve. But nevertheless, you see it here, it's roughly EUR 25 million, EUR 26 million, EUR 30 million EBITDA potential here. So at best, it remains with a very little profit from the vegetables before really the full-fledged speed of the current greenfield plan will kick in, in definitely 15 to 20 years' time. This goes all without additional potential acquisition. So every acquisitions with profitability we can add, the respective offers years purchase price allocation consequences adds to lower the cost and, of course, the EBIT reduction that we would have incurred anyway for our greenfield approach. I hope that elaborates a little bit on how we are going in. So we had -- without the acquisitions prepared and we are prepared to significant -- sorry, significantly invest into the next 10, 15 years into building up from the spread of vegetable business. Second question was CONVISO, CONVISO SMART in Russia. Yes, it's true. So last week, we received the approval of CONVISO, received the approval to be used in Russia. So of course, this is relevant now for our sugarbeet sales for spring 2021 sowing. That was on the plan already. So that's the usual marketing sales campaigns that we have run in all other countries where we launched it so far. So it's a very successful pattern so far that we will, of course, then also use and introduce into Russia. And we're expecting there roughly a EUR 5 million turnover to generate in this current fiscal year. The first question, if I recall, then if not, please correct me, is why is EBIT in sugarbeet is flat, even excluding the potato effect by 7% sales increase, and the topic I mentioned this morning with regards to the higher production costs. So basically, we have -- with the different pattern of neonics banned in Europe, we have moved sort of smaller production, coating and packing carts. We have built up a secondary production facility, very -- how to say, improvise in France to be able to still produce coated sugarbeet seeds there in the current fiscal year. A, the capacities weren't high enough to the increased demand; and b, as it looks now, it's even increasing because France is supposed to, again, sort of allow a circumvention of the ban for the next 3 years because the capacities: a, it was a more expensive production than, of course, the professional and really established one we have here in Einbeck, so the one that we built. And the other thing is it wasn't large enough for the volumes we needed. So we had to buy in from our external service providers, and we outsourced sort of a huge part of the French production, if you want, and that increased the cost for '19-'20. We wouldn't expect that to see that for next year because now, a, we have fixed our own capacities; and second is the quite soon, so meaning this or next week or still this month, we expect a clear decision on the French government side about how long they're going to let neonics still be accepted in Europe. And that would clearly then put ourselves into the plan of leaving the production there as it is and taking it more from a -- improvise, so to say, sorry, improvised production facility to a really more solid and sophisticated one with lower costs.

Just a quick follow-up on this one. Can you quantify what kind of extra costs you have digested basically in the past fiscal year?

No.

The next question we received is from Knud Hinkel from Pareto Securities.

Two questions from my side. One is a follow-up on the question on vegetables. So you guided for a drop in EBIT in the coming year. So you already alluded to that to some parts. But you also mentioned that you see some kind of trading down for vegetables. And my question would be, as other players in the market report just the opposite that they see consumers going for good quality in times of corona and prices up for many fruits and vegetables, so maybe you can give more color to what's going on there in your market. Second question would be on the overall EBIT guidance. You basically guide for 10% EBIT drop. If I take the midpoint of your EBIT margin guidance, so one thing you already -- it's clear, it's vegetable. And maybe you can also explain where you see other risk to EBIT, where you see other potential drop in EBIT in the coming year? And third one, on CapEx. Can you give a guidance what you expect to spend or to deploy in the coming year?

So the coming or the current one, 2021?

'21, yes.

Okay. Good. Let's start with this one also. So expectation for this year and always excluding any potential acquisition, of course, because that's not known yet, neither the targets nor the prices. That would be roughly between EUR 100 million, EUR 120 million. So the usual sort of target where we should add is between 7%, 7.5% of sales. And of course, that there might be outliers here and then, as I mentioned, due to acquisitions or also due to an opportunity we have for acquiring land and building our greenhouse and warehouse structures with regards to the vegetable business. So that would be the exception then that we would carefully consider on how to take it. On the market expectations for this year, 2021, with regards to vegetables, maybe first, why are we less -- or more conservative -- sorry, more conservative than others are, if you talk about our business and sales, it's mainly spinach. It's no other crop yet. So the main turnover in sales, yes, there is some beans. Yes, there is some chard. Yes, there is some red beets. But the main [ crop ] is spinach and it's the U.S. And this market is very much dominated by foodservice sales. So organic spinach, baby leaf spinach into hotels, gastronomy restaurants, burger shops, et cetera, which has almost completely come to standstill in between, is now slowly ticking up again. Now the second wave, we don't know what to expect. But clearly, that's why we are very conservative with regards to growing the spinach itself beyond EUR 84 million as we were this year. That would be a real challenge given the situation that tourism, et cetera, is so significantly reduced as a consequence of the corona crisis. So that's why we are much more conservative than people are with fruit or with vegetables like salad, et cetera, where you would see not such a strong focus on very specific products like really organic produce and the one thing is where literally you move salad from the restaurant to your home, which is less the case for spinach. Overall group expectation where other than what I mentioned in vegetables that is explained also by, of course, the ramp-up of the business unit here, where do we expect also conservative development. Again, in cereals, we are very carefully looking into the development of our rye segment here. We have been very positive in the last years. We do expect this to continue. However, I mentioned already rapeseed has a second difficult year in a row. We don't expect that to become better. And that's why we are very cautious here also on the profit development in the Cereals Segment. And we have taken some decisions of sales and marketing and R&D investments in Cereals Segment that why we take really some million here aside to speed up some innovative research. Again, you'll remember the story about wheat hybridization, and I'm sure you have seen about the CRISPR/Cas project that we are running now with the German government on fungal resistance in wheat. So that's where we're spending a larger amount than usual into R&D budget for cereal. That's why, for example, there, we expect a profitability below the last fiscal '19-'20. And corn and sugarbeet are expected okay so -- on prior year level. That's why overall, you say about the same and for 2 segments lower, then we come to an overall clearly lower EBIT than as we have seen it this year. That hopefully, was it? Did I forget something? Or was that mainly targeting your questions?

No, that was fine.

[Operator Instructions] And the next question received is from Andreas Heine from MainFirst.

I'd like to address 3 topics. The first is the FX impact. You mentioned in the morning that it is mainly the U.S. dollar while the profitability in AgReliant is not that big. So if you translate this, it's probably not a big issue. So am I right that if you look on FX, then it is mainly the sugarbeet business where you are concerned about the trend? And as I'm also right, you usually make all the business in the first half so the U.S. dollar you had this year was around $1.07, $1.08 and currently, it's $1.17. So the first question, is that your concern? Second, corporate line was pretty high in 2019-'20. You have outlined why. What do you think is a good level for this line? I know that there's quite a lot of ground research foretold in this line and that might increase over time. But is there any guidance you can give what we should expect for the coming years, this line to look like? The last one is on corn. Well, Bayer was pretty cautious in its outlook for 2021 in their crop science business. And one reason was the uncertainty in corn in the U.S. in acreage and also in the price environment. You sound more optimistic. So could you explain what the difference is? And the development you expect to continue in Latin America. Is that just the KWS story? Or do you think that the market in Latin America for corn and soybean will continue to grow a bit in these years?

I'm not -- I didn't get fully your last sentence for South America. You mentioned, is it just KWS?

South America, you had a very strong growth in recent years, and it had to do with the change in your varieties. Do you expect this, let's say, company-specific story to continue? Or do you need ongoing growth in the market to grow?

Yes. I'm just noting down. So good. So let's start with the dollar development here. And yes, clearly, that's our concern. You're right, depending on which results you look, whether you look at the segment reports or whether you look at the corporate IFRS 11 at equity, the one or the other, you take it. Overall, we have 2 very strong pillars in U.S. dollar, which is U.S. corn and which is U.S. sugarbeet. And as you mentioned, and you know all the dollar development from $1.05, $1.06, $1.07 to right now $1.16, $1.17, $1.18. And of course, this is exactly what matters here. And if you just now take the equity results, this can clearly have a top line effect of EUR 10 million, which is significant. We don't know where it goes. It might become lower again and go below the $1.10. We're not sure. But clearly, that's where it hits. If it hits to, as you mentioned, $1.17, $1.18, then you have the [ ag ] equity sales that is roughly reduced by EUR 10 million. Corporate line, ground research, yes. But again, there is a considerate increase year-on-year in basic research. So it's roughly between EUR 2 million, EUR 3 million, EUR 4 million per year. The main other reasons is especially the restructuring of our administration. Moving all shared services that have been located regionally over a period of 3 to 4 years into Germany. That is, of course, triggering high costs with regard to severance payments, social plant costs, legal advice, ramping down companies, merging companies, tax advice on how to do this restructuring in countries like Eastern Europe, Russia, Ukraine, Turkey. Now Eastern Europe will be finished by the end of this year. And this is, again, the high cost you will see that are not going to carry through beyond that transition phase, which is ended in '22. And the other thing is that we had quite some significant projects also in '19-'20 with regards to M&A activities post M&A, sorting out structuring things with regards to the Pop Vriend deal. Again, as I mentioned, legal consultancy costs, tax consultancy. We restructured our group into an international Dutch holding. So all that triggered extraordinary costs that lay more into strategy, M&A and corporate legal rather than they would be recurring or have -- would have to be assumed under a percentage of sales. So it's difficult to predict on are we going to have more projects or more costly projects again. So if we decide again to go for a bigger deal, so to say, then, of course, you would again incur significant cost with regards to due diligence, advisory and all that stuff. So that was clearly a very loaded project year in '19-'20. Corn U.S. -- corn U.S. Bayer first, yes. And clearly, we are, of course, then at disadvantage of being not the #1, but the #3 and much smaller with the #3 or #4 than the others are. Cautious on the prices? We don't know why. So yes, we have in our budget and our expectations also we have been cautious. One is the volumes and the other one is the prices. The prices were very depressed. We were almost -- we had almost reached $2 per bushel, and that would really have gone to bad points. But if you look now, it's over $4 again. So again, we expect definitely no reduction in acreage in corn, neither in soybean. The question is about the sort of the floor that was now reached with the reduction of the ethanol consumption, early 2020. So the question is, is there an uptake again and to what level. So the expectation that there would even be more shifting of acreage from corn to soy, we don't see now any longer, and that's why we are maybe less cautious than Bayer is. And again, our product mix is a little more favorable than Bayer's here. So clearly, all indications as of today for the U.S., especially with regards to prices, we do not see a significant reduction in acreage. So again, the 90 million has been out there. Although before, there were some 92 million acreage, we have always considered something between 85 and 87, so we were never taking the upside of the predictions that are out there from the USDA. And that's why maybe we have not been too optimistic before like Bayer and then rolling back now. So that's why we have always put ourselves at the lower end of the expected acreage development. And that's maybe why we are more positive now, especially for us, the more decisive point is the commodity price development, and this looks very good right now. Brazil, no doubt about that, that we are going to grow by market share. So we have clearly picked market share from all the other players in the market. In the last year, corn has lost market share. Bayer has significantly lost market share, almost 3%, 3.4% corn. So Syngenta is flattening out, so to say. And we have increased over the last years our market share from 5% to now over 8%. We have doubled our brand awareness. We have the highest unit growth of any brand in the safrinha season. And we have now achieved also with one of our hybrids becoming the third most planted hybrid in the safrinha season, which is a strong season. We have just won an award from the farmers -- cooperation of farmers association on the most, how you say, reputable brand or the most valued brand in last season for corn, and that also got KWS got this award. So very clearly, we have found our footprint in the market. We are now perceived by the customers, and that's why we are extremely positive that the KWS story, as you mentioned, it will continue in Brazil.

Sounds great. Is Argentina same in market share? Or have your higher market shares you're more longer presence in that area?

Argentina looks extremely different. There is more brand out there, not much more players, but both Corteva and Syngenta, they have a dual-brand strategy there with Nidera Syngenta and Pioneer and Brevant. So there is more split as by perceived brands here. But also clear, we have come from a little above 5% market share in 2 years back. We are now close to 7%, and we're expecting almost 7.5% this year. So we have made our way up to clear leading the silage market here. We gained share with new, really new own hybrids and also co-hybrids, especially traded one because they are the cliffhanger deal for the Syngenta trade deal that we made some years back is now showing full effect here. So we have a very clear push in our sales or growth strategy. And also, we -- our new triple stack is performing extremely well. Very much, again, also here, Bayer losing significantly. Bayer, the brand is out there. So they're down now from '17-'18, almost 40% to now a little bit above 30% market share, still a clear leader, but they have lost 10% points in market share. And then, of course, the 2 other big ones, Corteva, Syngenta are same up. And sort of we come third now with -- sorry, with taking market share a little bit from the other brands. But also many from small local players like [indiscernible] or ACA. So that's basically the situation in Argentina.

[Operator Instructions] And the next question is a follow-up of Christian Faitz of Kepler Cheuvreux.

Yes. Three more questions, please, Ms. Kienle. First of all, you already mentioned wheat hybridization, and I'm asking this question every year. But is there any progress in terms of marketability of hybrid wheat? And when would you expect that to hit the market, at least your varieties? Then second question, with or without your guidance, how has the winter crop season started in your new fiscal year, particularly in Europe? And then third question, final question. In the press conference call this morning, you showed some -- a digital tool. Is that digital tool you're presenting to the farmers? Is that only for seeds? Or can farmers also use it for other crop inputs such as fertilizers and chemicals? And on that, do you have any pricing points for the farmer, which you could share? And how competitive is your tool against other digital offerings from other agricultural input offers and wholesalers?

Okay. So first, first question, very easy. Hybridization wheat, any progress. They work like hell, but the progress is not hell, so to say. Now clearly, there is no huge step forward into increasing the heterosis effect. And that's, of course, why there is not any specific clarity or transparency or more touchable point in time whenever this would become marketable or when there is a go-to-market. So very tricky. We hear more and more without having an own position clearly yet is that apparently the large players, because they have spent several more billions and millions into this research than we do have, is that they await a loosening, let's say, of the biotechnology restrictions, i.e., new breeding technologies becoming less prohibited and then rather than going to the traditional way of hybridization that there might be a potential improvement tool that helps from new breeding technology. So searching or researching more into the new biotech possibilities to find out rather than DNA analytics and how you can tackle the yield trait, so to say, whether this is a feasibility through new biotech. But still, again, there's a lot of research done, and they are not really getting much further. Winter crop season has started okay. So hybrid rye is above our expectations as of today. The others are -- so wheat, barley, where we expected. As I mentioned, rapeseed is a little bit below the expectations but not yet fully delivered and not yet fully in all orders. So sales right now a little bit above our expectations. But also here, we have some concerns with regards to exchange rate, dollar, as I mentioned, the growing business in U.S. and in Canada, and also some potential write-offs in receivables with regards to Eastern Europe potentially as a consequence of the corona crisis, not yet sure. So on the profitability, not too relieved yet, but top line looks okay. Pricing points, digital tools. I think Hagen was mainly referring to myKWS, which is our digital platform to the market. So of course, we use digital tools also for ourselves, so for our own breeding, effort testing, trial plus, et cetera. You see that in our annual report, also from a lot of imaging now that is used for years now, data point are sufficient enough to use really imaging and drone flight information to speed up breeding -- outcome of breeding efforts. But with regard to the digital tools here, it's only focused on these. We do not offer anything with regard to chemicals or whatsoever here on the platform. It is specific tools designed for the -- how to say in English, so [Foreign Language] our best harvesting point in time due to humidity of the crop or so depending on clearly -- and you can have a look. You can register yourself. So you can -- what you can do is from a seed and planting perspective, you can administer your plots. You can see where is what planted. And of course, then, for example, it takes weather data. If you say I have on my plot #20, I have -- this is the size, this is where it is. So with images, this is where I have planted this sugarbeet variety this year. And of course, this tool helps you guiding you through the growing season and saying it's too cold now or it's too warm now or you should put this or that on the field or there is some insect, precipitation perceived, go out and do some spraying. So this is how the tool would proactively support farm service. And no, we are not charging for it. So it comes -- if you want, it's agro service 2.0. We have always ever since provided our agro service for free, physically. So of course, it would be very, very strange for farmers now to ask for a price tag if until recently you had been visited several times by a nice KWS colleague from agro service who help with exactly that same questions physically through. Very difficult to find out if there is a willingness to pay for such tools. And that's what the -- one of the bigger questions in the marketplace, especially for all those that work on those platforms. And as we all know, those platforms work with a concept. You can get a very decent price or sort of an attractive price if you use the data that you gather, and this is something definitely the farmers don't want. And they have understood it's about getting the data. It's about marketing the data, and that's why they're extremely reluctant to really also share all their full farming insight on those platforms.

And the next one is again a follow-up of Michael Schäfer of Commerzbank.

Three quick follow-ups. First one is coming back on the CONVISO platform. Has been a couple of years now since you signed the licensing agreements with various of your competitors. So with the recent launches and approvals, basically, how should we think about license royalties income on your side in the years to come? So when is the first meaningful contribution expected? This would be the first one. And 2 follow-ups on the corn side. This morning, you elaborated on the -- that basically your own trades and Syngenta trades make stronger inroads into your variety platform. I think you shared something like 70% on our coverage. So I wonder whether you can provide some hints on what kind of cost relief we should expect in the years to come from this angle. And lastly, on corn, you're cooperating or have a JV AgReliant in the North American market. However, stated recently, basically that they want to grow and strengthen the activities also in the South American markets, leaving aside some other regions. So how should we read this cooperating on one market and competing basically in the other than on the corn side? Any thoughts would be helpful.

Okay. Yes. I'm starting with the last one again here. So joint venture AgReliant, so the commitment for both of us for the U.S. is very, very clear. We just recently, again, have sort of confirmed our strategy into improving -- or not improving but into the -- increasing the profitability of our product assortment. As you know, this relates to the access to the Syngenta trait that we have acquired some years before. So to speed up the profitability or the product portfolio rotation in the U.S., we have clearly aligned here on the guideline how to speed that up and move that forward in the coming years. So after '22, '23, '24, we want to see a clear profit improvement to speed up the hybrid and co-hybrid development here. Also clearly, we have become more open in exchanging also own varieties with regards to sort of coming from Europe for the U.S. market, which we didn't do that much before. So there is more willingness really to speed up the product development -- the quality of the product development or the outcome in the U.S., if it helps to own varieties from other markets that are, of course, then either owned by Limagrain only or by us. So we see both very clear target in the U.S. market with a very nice potential. As I mentioned, we are very well on track here with increasing sales. So right now, we're still the third largest player here. And of course, then to integrate the Syngenta GMO corn trait technology is very, very clearly in accordance to what we wanted and what we're speeding up. And yes, we don't cooperate in other markets, and we do not cooperate in Brazil. That's where also Syngenta is present. And we are also, as of today, not planning to collaborate there any further on other terms. Both of us have entered these markets through acquisitions. And each one of us is still really busy to getting things sorted out here. And as I mentioned, our growth path now is very successful here. We do not feel a really an advantage or the need really to partner up with someone to make that really improve further. So clearly, no here. The first question was with regards to licensing income from the CONVISO out-licensing of the patent. We do see very minor license income here. That's mainly due to the reason that, of course, our competitors, we started out-licensing, I think, 2 years back -- what is it 2020, 2.5 years back, 3 years back, and of course, now they have to start convert the trait into their produce that takes also some years. So not the moment they take the license they can commercialize. So until they have converted the trait into their sugarbeet, it might take some other years. And then we would really -- once they go to market with that variety, we'll see then more significant income on the license agreement.

So basically, you're on your own in this submarket, let's say, for another 2, 3 years? Is this the right way of thinking?

Yes. It makes me guess on how good or how bad the breeding -- sugarbeet breeding of my competitors are. I would not dare saying they're taking it in 2 years or they need 7 years, but 2 to 3 years is extremely optimistic. And your last question was -- help me out on that with the cost.

The cost relief from integrating more on traits in corn. So what's kind of, let's say, percentage point turns in terms of profitability, what this may mean in the next 2, 3 years or so?

Well, let's -- and again, that's the plan. It's good to have a plan. I do think if we -- and again, one is the plan. The other thing is, if you assume a theoretical product conversion rate, it doesn't mean that you can market this product conversion. So one is you have to get the produce ready. The other thing is once it's ready, you have to bring it to the market. So we have seen so many surprises in the last year. So literally, when we were ready to offer competitive double-, triple-stack products, again the movement in the market was back from triple stack to single stack or easy products. But the upside here, if everything would fall in the normal topics here, there is -- especially in the U.S. market, of course, there is a significant upside on the margin. But again, one thing is there is 3, 4, 5 more years to convert and to really improve the hybrids and the co-hybrids also with Syngenta. And then the point is on how well is the market taking it up, what's the situation in the marketplace. If we have, like this year, a drop in ethanol market of 50%, then your stack, although you have a very competitive product. So that's very difficult to provide a number that you can put in your model, and that will tell you where the sales are going with regards to improved product qualities in corn.

And the last question for today is from Andreas Heine from MainFirst.

Some small left. Lat Am, can you confirm whether the Latin American corn EBIT is meanwhile positive? Second, a reminder to me about the China business. Very difficult for agro companies, especially in [ CE ] to do business in China. Am I right that all or most of the China sales you have is license in corn and in sugarbeet? And the last question, also remind that your market share in the U.S. has been as high as close to 10%, has fallen to 6%? What was the reason for that? And why is that going forward completely different?

So first question with regards to Lat Am and the profitability in the different markets. Again, depends on whether you take, of course, local currency or on Europe. But clearly, yes, in South America, we have positive profit contributions, also euros. Significant improvement from last year. Operationally, local currency, Brazil volume grew by almost 30%. And also from a profitability perspective, we really could increase our profits by overall Brazil, Argentina by almost EUR 4 million, EUR 5 million bottom line compared to the prior year. So very clearly, yes, they are positive, and they are doing very nicely. Argentina is less impacted by currency, as again it's been compensated the downfall here -- downside with the IAS 29 inflation-adjusted accounting. So that's why the sort of the ForEx hit, of course, does not matter that much as it does in Brazil then. China, that is not totally correct what you're saying. We do have a very successful joint venture business that is producing and marketing own commercial varieties. So we started off with a partner that we do have right now, the joint venture with that we started really 5, 6, 7 years ago. We started off with licensing -- or providing them a license for one of our corn hybrids. He is still selling that same corn hybrid very successfully, but with increasingly lower volume at the favor of our own together developed and commercialized brands. And so the joint venture in China is much bigger now than the license business is. So very clearly here, we see the uptake of the Chinese market and the Chinese industry through our joint venture and the common sales and profitabilities that we generate in our joint venture campaign and us. So clearly, it's not license income only. Again, the license income is deteriorating at the profit of the growth of the joint venture here in China. Market share U.S. AgReliant reason for decline, yes, as I mentioned, we have -- so we were running behind the market developments and the market realities with regard to the development of traded products. So while moving or shifting our product portfolio from a mainly licensed in Monsanto business to own, traded, converted produce with simple, double, triple-stack product, combination of own and Monsanto trades. And on top of that, we merged our formerly 7 brands that we had at AgReliant to a few only. So we have 3 remaining brands, and that cost us significant market share. That's one of the main reasons.

As there are no further questions, I hand back to Mrs. Kienle for closing remarks.

Well, thank you. Thank you very much also for your questions. Thank you for participating and your interest in KWS. I hope that if you had not been invested until today, you, of course, will immediately drop your purchase order at your stock dealer. Thank you very much for listening in and have a good rest of the day, a good weekend. And of course, every one of you stay healthy until we talk to each other next time. Thank you very much, and goodbye.