Vilmorin & Cie - Annual report 2017-2018

1 ANNUAL REPORT Vilmorin & Cie 53 2017-2018 Risks related to the low prices of agricultural raw materials Identification of the risk The prices of agricultural produce have an impact on the profitability of farms. For example, when prices of major agricultural produce (corn, wheat) are low, this affects farmers’ cash flow, and so they are more vigilant about their investment in inputs*. However, there is no direct correlation between commodity prices and seed prices. Over the past few years, the operating margin level of Vilmorin & Cie’s Field Seeds business has been impacted by the low prices of agricultural produce. Managing the risk The distribution of Vilmorin & Cie’s activities, both in terms of business segments and geographical areas, limits the impact of this risk. But while there is no direct correlation between agricultural production prices and seed prices, in a context of significant price decreases, or even stagnation, customer pressure to obtain price reductions for field seeds increases. This situation also affects Vilmorin & Cie's competitors. Finally, the prices of agricultural produce have no impact whatsoever on the Vegetable Seeds business. 1.7.2.2. Risks related to the strategy for growth and development Identification of the risk Vilmorin & Cie’s strategy is based on a combination of organic growth and external growth. Working within a seed industry that is continually growing more concentrated, the risk would be to make an external growth operation that turned out to be inappropriate or, on the contrary, to be incapable of achieving operations that turned out to be the most promising, particularly in a context where potential targets are rare, and where there is strong competition between players with very different scales of financial resources. Moreover, failure in the acquisition process (analysis, structuring and integration) might also affect the interest of an external growth operation. Managing the risk In order to deal with these risks, Vilmorin & Cie has set down a specific process for mergers and acquisitions, from the identification of targets right up to their integration, in which several functions are involved, both at group level and Business Unit level. Each stage in the acquisition process is reviewed and validated by Vilmorin & Cie’s management bodies; the integration of targets is the subject of operational collaboration between the Business Units concerned and the holding services, adapted to each target. Acquisitions form part of the mid-term strategic plan which is reviewed every year, so that funding needs can be anticipated, and funding sources diversified. 1.7.2.3. Risks related to research Identification of the risk In order to develop tomorrow’s seed varieties and ensure its future growth, Vilmorin & Cie permanently invests in research and development projects. Today these investments represent 16.2% of sales of seeds intended for professional markets (1) . Vilmorin & Cie’s competitiveness could be affected in cases of: a mismatch between the research projects launched and future market needs, bearing in mind the long duration of research cycles (7 to 10 years to create a new seed; 10 to 15 years to develop a new trait*), an imbalance between the distribution of investments granted to different research and development projects, the targets being insufficiently diversified, or markets being targeted with no potential growth or inappropriate timelines, late identification of emerging technologies that might have an impact on seed improvement processes. Managing the risk Vilmorin & Cie has adopted several measures in order to secure its investments in research. On the one hand, permanent work on scientific, technological and competitive intelligence is carried out, and several international partnerships provide information on the identification of emerging trends and breakthroughs that Vilmorin & Cie and its environment will be confronted with tomorrow. Moreover, Vilmorin & Cie relies on research focus committees for each activity and the management of project portfolios to assess research programs and make sure the balance of investment fits in with market trends and ensures current programs will be profitable. (1) Integrating 50% of AgReliant (North America. Field Seeds). 1.7. Risk factors PRESENTATION of Vilmorin & Cie