Vilmorin & Cie - Annual report 2017-2018

PRESENTATION of Vilmorin & Cie 1 ANNUAL REPORT Vilmorin & Cie 52 2017-2018 Managing the risk Vilmorin & Cie cannot affirm that its results would not be affected by an upheaval in the economic, political or regulatory conditions, or by a crisis in certain countries in which it is present. However, Vilmorin & Cie’s international development has created a diversified geographical spread, limiting the concentration of this risk in a given country. Accordingly, Vilmorin & Cie achieved 60% of its sales for fiscal year 2017-2018 in Europe, 20% in the Americas, 10% in Asia/Oceania and 10% in Africa/Middle East. In addition, potential risks in a country are considered when choosing investments and locating industrial, scientific and commercial assets: trade facilitation, political stability, intellectual property protection, etc. Vilmorin & Cie’s strategic monitoring and crisis management system, which it has set up in recent years, also makes it possible to anticipate and manage the impact of risks related to the geopolitical environment of its activities. Risks related to a sudden change in the competitive environment: concentration of players Identification of the risk During fiscal year 2017-2018 concentration involving major operators in the seed and agrochemical sector was completed: the American company Monsanto was acquired by the German company Bayer, the American companies Dow and Dupont Pioneer merged to create the world's second largest seed company (Corteva Agriscience); the Swiss company Syngenta was acquired by the Chinese company Chemchina. These megamergers highlight a tendency for companies in the agrochemical sector to consolidate their portfolio of assets by integrating or strengthening seeds, in response to the difficulties of an agrochemical market affected by farmers' economic difficulties and by the growing reluctance to use plant protection products in several countries. In this new global seed landscape, Vilmorin & Cie has maintained its competitive position and remains a solid world No. 4. As for the geopolitical distribution of the main players in the sector, it has been significantly modified, revealing in particular China's growing importance in world agriculture. Of the world's ten largest seed companies, three are German, two are Chinese, and one is American. The emergence of major companies, active in both agrochemicals and seeds, could lead them to try to “lock in” the market with integrated offers, and thus compromise Vilmorin & Cie's ability to pursue its development on its markets. Managing the risk The spread of Vilmorin & Cie’s business, both in terms of business segments and geographical zones helps to limit these risks. For example, in 2017-2018 Vilmorin & Cie made 50% of its sales in Vegetable Seeds and 46% in Field Seeds. Furthermore, the Development Department is responsible for working with the General Management and the operational entities to build a forward vision and explore new topics to accompany Vilmorin & Cie’s growth, in terms of activities and products. Within the Development Department, the strategic and competitive intelligence department analyzes market trends, follows the evolution of the strategy of competitors and detects any weak signals. In this respect, the changes in Vilmorin & Cie’s competitive environment do not alter Vilmorin & Cie’s competitive positions or strategy. Besides, the main operators will maintain their size in their seed business. Finally, Vilmorin & Cie is convinced that an integrated model, covering all the farmer's needs, will not be universal, as agriculture is diverse and varied, and that a seed specialist such as Vilmorin & Cie will continue to have its full place in the market. The competitive landscape is presented in detail on page 20. Risks related to the launch of a disruptive innovation coming from a competitor Identification of the risk A competitor could introduce a disruptive innovation in plant breeding research, technology or more broadly in its business model, and thus expose Vilmorin & Cie to the loss of a competitive advantage in one of its business segments. The success of integrated offers, new agri-food production technologies such as 3D printing or a sudden revolution in the seed distribution model, via highly digitalized processes or the entry of new competitors (GAFAM) are examples of innovations that could cause disruptions for Vilmorin & Cie's activities. Managing the risk Vilmorin & Cie reinforces its positions on vegetable seeds and field seeds markets by making strong investment in research, by launching several hundred new varieties every year, and by developing numerous collaboration agreements with research institutes with a world-reaching reputation. The research and partnership agreements developed by Vilmorin & Cie are presented in detail on page 38. 1.7. Risk factors