BayWa AG makes up significant ground in second quarter

WindSolarBioenergyServicesSolar DistributionEnergy TradeEnergy Solutions

08-09-2018

The international trade and services group BayWa AG, Munich, made up significant ground in its earnings in the second quarter of 2018 and ended the first half of 2018 according to plan.

As of 30 June 2018, revenues had climbed to €8.3 billion (2017: around €8.0 billion). As the first half of 2018 drew to a close, earnings before interest and taxes (EBIT) amounted to roughly €32.1 million (2017: €72.8 million). This result was mainly due to the fact that the majority of planned renewable energy plant sales will not be taking place until the second half of 2018, unlike last year, when the Group subsidiary BayWa r.e. renewable energy GmbH sold a huge number of wind farms and solar parks in the first half of 2017.

In the first half of 2018, global agricultural trade activities in the BayWa Agri Supply & Trade business unit (BAST), the global fruit trade in the Global Produce business unit and the Agricultural Equipment business unit recorded very pleasing developments. After the beginning of the season was delayed due to bad weather, the Building 
Materials Segment was also able to gain ground on the previous year.

“Once more, BayWa is benefiting from its diversification and internationality,” explained Chief Executive Officer of BayWa AG, Klaus Josef Lutz. He cited the example of difficult weather conditions in Germany, which had a negative impact on the domestic agricultural trade business in 2018: a long winter was followed by just a short vegetation phase, which was once again curbed by increasing heat and persistent drought. The result, said Lutz, was a decline in the operating resources business above all in northern and eastern Germany. Together with ongoing pressure on margins in the agricultural produce trade, this had led to lower earnings year on year in the Agri Trade & Service business unit as at 30 June 2018. By contrast, the international trade in oilseed and grain achieved a much better half-year result than in 2017, as in the soya business, for example, prices developed favourably due to factors such as the punitive tariffs imposed on US soya by China.

Another example, said Lutz, was the fruit trade business. In 2017, there were considerable crop losses in the fruit business due to frost and hail damage in southern and south-western Germany. As a result, BayWa was lacking substantial marketing volumes and the corresponding earnings contributions in the first half of 2018. Although
global activities with the Group subsidiaries T&G Global Limited (T&G) and TFC Holland B.V. were not quite fully able to compensate for these effects in the first half of 2018, Lutz believed that the global business together with good prospects for this year’s apple harvest in Germany will have led to better earnings in the Global Produce business unit by the end of the year.

BayWa has also provided a similarly positive outlook for the BAST business unit, which wants to continue benefiting from high price volatility in the grain trade. Lutz also saw opportunities for the domestic agricultural business, even though lower grain throughput is to be expected: “The weather conditions have affected the regions in Germany in very different ways. This provides an opportunity to benefit from higher demand and rising producer prices,” Lutz explained. Lutz also perceived positive developments in the Building Materials Segment due to ongoing favourable conditions in the construction industry.

Very strong final quarter of 2018 for BayWa r.e.

“In the Renewable Energy business unit, we will see very noticeable catch-up effects in the project business, especially in the final quarter, which means that we are on track in this regard and that the annual result will be on par with that of 2017,” Lutz reaffirmed. Overall, he confirmed expectations that a Group result (EBIT) at the
same level of 2017 would be achieved at the end of 2018: the one-off effect of the previous year from the sale of the Group headquarters in the amount of around €20 million would be compensated for by improved operating results.

Agriculture Segment: Positive development continues in international business and Agricultural Equipment business unit

In the first half of 2018, the Agriculture Segment was shaped by positive developments in its international trade activities with grain and oilseed (BAST) and in the Global Produce business unit, which benefited from T&G’s strong marketing of New Zealand apples. The Agricultural Equipment business unit continued to expand its market share and bucked the general market trend, increasing its tractor sales above all. The provision of services also increased.

Overall, the Agriculture Segment finished the first half of 2018 by slightly increasing its revenues year on year to €5.8 billion (2017: €5.6 billion), with EBIT jumping to €52.4 million (2017: €48.3 million). The main reason why earnings were not higher was the Agri Trade & Service business unit, which brings together trade activities involving domestic agricultural produce and operating resources, where difficult weather conditions and strong pressure on margins had a considerable adverse effect on the operating resources business. Following the positive development in the Agricultural Equipment business unit in the first half of the year, BayWa expects business to continue running well in the second half of the year: order intake is still at a higher level than it was in the same period in 2017, and rising producer prices, especially for milk, point to an ongoing willingness to invest.

Energy Segment: Conventional Energy influenced by higher oil prices – BayWa r.e. sets up large project portfolio for strong final quarter

In the first half of the year, the Energy Segment was shaped by rising heating oil prices in the field of conventional energy and the continued construction of wind and solar energy plants, most of which will be sold in the final quarter of 2018. As expected, this meant that EBIT in the first half of 2018 did not reach the level of the same period last year, which benefited from exceptionally strong sales in the project business. Whereas plants with total output of over 145 megawatts (MW) were sold in the first half of 2017, plants with total output of 25 MW had been sold as at 30 June 2018. Revenues for the Energy Segment ran to around €1.64 billion as at 30 June 2018 (2017: €1.66 billion). EBIT was at €1.3 million (2017: €49.1 million).

In the Conventional Energy business unit, revenues increased in the first half of 2018 as the oil price was much higher than last year. At the same time, a higher heating oil price led to demand decreasing by over 20%, which meant that it was not possible to achieve the excellent half-year result of 2017. The mobility business remained at a similar level year on year. In the lubricants sector, growing consumption of AdBlue in freight and commercial traffic in particular led to an increase in sales.

The Renewable Energy business unit continued to expand its wind and solar project portfolio in the US and Europe in the first half of 2018. For the first time, BayWa r.e. realised a solar farm with around 174 MW of output in Spain independently of government subsidies. The commercial and technical operations business was also expanded to a total of 5 gigawatts (GW). In addition, the project business is increasingly focusing on the Asia-Pacific region. Wind farms and solar parks with output of around 245 MW are under construction in the region. By the end of 2018, BayWa r.e. will have sold plants with a total output of 415 MW, 75% of which will be sold in the final quarter.

Building Materials Segment benefits from good positioning and economic conditions

The warm spring meant that the Building Materials Segment was able to compensate for the shortfall in sales from the first quarter of 2018 and also led to a year-on-year boost in revenues and EBIT in the first half of 2018.

Increasing demand was recorded in all product areas. There was also a rise in sales in the special distribution of construction timber, and the pooling of competencies in the “Zuhause von BayWa Baustoffe” brand had a noticeable positive impact on the private customer business. Revenues in the Building Materials Segment rose to €797.7 million in the first half of 2018 (2017: €753.6 million). In the same period, EBIT grew to €7.4 million (2017: €6.8 million).

Innovation & Digitalisation Segment

Strong new customer growth was recorded in the Innovation & Digitalisation Segment in the first half of 2018. In particular, there was strong demand for Next Farming software modules, and new digital farming solutions for grassland farms are gaining in significance due to the German Fertiliser Ordinance, which has now taken effect. Overall, the segment was able to significantly increase its revenues in the first half of 2018 to €4.9 million (2017: €3.0 million). However, this growth was not reflected in EBIT due to investments that needed to be made, above all in software development. For this reason, at €–6.0 million, EBIT remained at a similar level to that of the first half of 2017 (€–5.4 million).

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