Vilmorin & Cie - Annual report 2017-2018

Management REPORT 3 Report of the Board of Directors to the Joint Annual General Meeting (Ordinary and Extraordinary) of December 7, 2018 ANNUAL REPORT Vilmorin & Cie 89 2017-2018 Consolidated financial statements Accounting standards, principles and methods At the close of fiscal year 2017-2018, Vilmorin & Cie’s consolidated financial statements were set out in accordance with the IFRS (International Financial Reporting Standards) reference as applied by the European Union on June 30, 2018. The international accounting standards include the IFRS (International Financial Reporting Standards), the IAS (International Accounting Standards), along with their SIC (Standing Interpretation Committee) and IFRIC (International Financial Reporting Interpretations Committee) interpretations. The accounting principles and methods used to prepare the consolidated financial statements for the year ending on June 30, 2018 are identical to those used to prepare the consolidated financial statements for the year ending on June 30, 2017. No change in accounting method or estimate was applied by Vilmorin & Cie during fiscal year 2017-2018 that might have an impact on the consolidated annual statements of Vilmorin & Cie. Comparability of data The evolution of data for fiscal year 2017-2018 is analyzed in current data and like-for-like data. Like-for-like data concern the data restated for the impact of changes to scope and currency fluctuation; accordingly, the restated financial data for fiscal year 2016-2017 take into account: the impact of currency translation, by applying the average rates of fiscal year 2017-2018, the main changes in the consolidation scope resulting from the acquisition of stakes in Prime Seed Co Botswana and Prime Seed Co Zimbabwe, aimed at developing the vegetable seed market in sub-Saharan Africa. Activity and results for the fiscal year Consolidated sales for fiscal year 2017-2018, and corresponding to revenue from ordinary activities, stood at 1,346 million euros, down 4.8% with current data. Restated for currency translation the decrease was 0.9%. Restated on a like-for-like basis (currency translation combined with the withdrawal from the distribution of agricultural supplies in Japan), sales increased slightly by 0.7% compared with the previous year. Restated for inventory write-off and depreciation, gross margin on cost of sales stood at 48.9%, an increase of 0.3 percentage points compared with 2016-2017. Net operating charges came to 561.6 million euros, as opposed to 568.7 million euros on June 30, 2017. In compliance with its strategic orientations, Vilmorin & Cie continued to increase funding of its research programs, at a moderate rate in 2017-2018, both in terms of conventional plant breeding and biotechnologies. Total research investment came to 241.4 million euros as opposed to 240.2 million euros in 2016-2017, and now represents 16.2% of seed sales intended for the professional markets, integrating the activities of the North American company AgReliant, held 50%. Consequently, the consolidated operating income stood at 97.1 million euros, down compared with the previous fiscal year, resulting in a recorded operating margin of 7.2%, down 1.2 percentage points compared with the previous fiscal year. Income from associated companies came to 23.3 million euros, including in particular AgReliant, and the African company Seed Co. The financial result showed a net charge of 38 million euros compared with 24.5 million euros in 2016-2017, this year including currency exchange losses of 12.1 million euros compared with currency exchange gains of 0.1 million euros on June 30, 2017, in monetary markets highly disturbed by certain currencies (in particular the real, the Turkish pound and the yen). Cost of funding came to 24.4 million euros compared with 22.1 million euros the previous fiscal year. The net charge of income taxes came to 5.5 million euros as against 37.6 million euros in 2016-2017. They include a net income of deferred taxes of 7.5 million euros compared with a net charge of 12.6 million euros the previous year. Finally, the total net income came to 76.9 million euros, a drop (13.2 million euros) compared with the previous fiscal year; the Group share (“attributable to the controlling Company”) stood at 74.1 million euros. Compared with the previous fiscal year, the balance sheet structure on June 30, 2018 remained solid, but was marked by an increase of the net debt to equity ratio (gearing of 58%, as opposed to 55% on June 30, 2017), particularly the result of the increase in working capital needs of Vegetable Seeds following a very good end of fiscal year 2016-2017. Net of cash and cash equivalents (196.7 million euros), total net financial indebtedness came to 765.9 million euros on June 30, 2018 compared with 713.9 million euros on June 30, 2017. The share of non-current financial indebtedness stood at 758.3 million euros. The Group’s share of equity (“attributable to the controlling Company”) stood at 1,195 million euros and minority interests (“attributable to the non-controlling minority”) at 109.7 million euros.