BayWa AG: Renewables set new EBIT record
WindSolarBioenergyServicesSolar DistributionEnergy TradeEnergy Solutions
Although fruit trading and the energy business both generated a record annual result, the persistently difficult and very volatile agricultural trading markets pushed the overall Group’s earnings before interest and tax (EBIT) to €144.7 million (2015: €158.1 million).
“Developments over the past financial year have once again shown the importance of BayWa’s broad positioning. In particular, the international fruit business and renewable energy were key to driving our Group EBIT. Optimisation measures were also introduced in the Building Materials Segment and had a positive impact on earnings,” Klaus Josef Lutz, Chief Executive Officer of BayWa AG, explained.
The underlying conditions for agricultural trade and agricultural equipment activities, on the other hand, had been very difficult for the entire industry; the ramifications of these conditions also had a significant impact on BayWa: Although a record global harvest resulted in a higher commodity trading volume of approximately 34 million tonnes for BayWa (2015: 30 million tonnes), these same record levels also brought about an overall drop in prices accompanied by a corresponding pressure on margins. Farmers’ investments in equipment and operating resources declined as a result of a drop in producer prices and lower revenues. “In particular the last year’s development of soya and soya meal prices put pressure on our activities,” Lutz emphasised. Changing forecasts for global soya harvests, some of them contradictory, led to extreme price volatility, which was then also further enhanced by technical market mechanisms in trading activities, such as by hedge funds. Lutz explained that as the impact of these mechanisms is increasing, BayWa plans to gain expertise through cooperations so as to optimise the company’s trading strategies.
BayWa plans to significantly increase earnings in the agricultural sector once again in 2017, thereby also raising Group EBIT. Lutz believes BayWa to be well prepared to do so: BayWa expects a further rise in global agricultural trade sales volumes. The company will also profit from the activities of speciality trader Thegra Tracomex Group, which was acquired at the start of the financial year 2017 and trades in organic grain, among other things. Optimising the capital invested is also expected to raise agricultural trade returns. In particular, BayWa intends to press ahead with the process of expanding the lucrative speciality business. Subject to approval by the competent authorities, BayWa entered into the cultivation and trading of premium tomatoes in the United Arab Emirates in February.
BayWa also expects higher earnings in the German agricultural business in the current year, as rising prices for agricultural produce will likely again result in more liquidity and boost farmers' willingness to invest. “We also expect renewable energy and fruit EBIT to be strong in 2017,” Lutz explained; he also forecasts stable development in the Building Materials Segment.
The Board of Management of BayWa AG will propose to the Supervisory Board keeping the Group’s dividend stable and paying €0.85 per share – the same dividend paid for 2015.
Agriculture: fruit sets new revenues and EBIT highs
Revenues for the Agriculture Segment increased to €10.9 billion in the financial year 2016 (2015: €10.1 billion). EBIT came to €70.1 million (2015: €90.1 million). This trend was primarily due to the negative effects impacting agricultural trade and agricultural equipment business activities, as well as a weaker business with operating resources.
Effective 1 January 2016, the Agricultural Trade business unit was split up into the two new BayWa Agri Supply & Trade (BAST) and BayWa Agricultural Sales (BAV) business units*. In 2016, BAST generated revenues of €6.1 billion and a negative EBIT of €11.5 million. BAV generated revenues of €2.8 billion and EBIT of €28.7 million.
While the BAST business unit had to contend with the negative impact of extreme volatility, particularly in the soya business, persistent low prices for agricultural produce put pressure on BAV margins. The operating resources business also suffered from unfavourable weather conditions and, as was also the case in 2015, from the strained liquidity situation at agricultural operations and farmers’ low propensity to invest.
As had been expected, the latter also impacted the agricultural equipment business: Sales of new and used machinery fell, as did demand for farm equipment. Revenues in the Agricultural Equipment business unit fell only slightly in the financial year 2016 to €1.26 billion. As a result of the expected difficult market situation, EBIT amounted to €10.6 million (2015: €21.5 million). EBIT was also impacted by infrastructure investments and specialisation in terms of sales activities.
BayWa’s fruit business, on the other hand, developed extremely well, reporting significant increases in revenues and EBIT in 2016; revenues climbed to €659.3 million (2015: €567.4 million), while EBIT set a new record high of €42.3 million (2015: €27.0 million). The positive development is mainly due to the expansion of the fruit business at international level to include high-margin exotic fruit by acquiring TFC as well as rising prices for New Zealand fruit. The sale of the packaging logistics unit (Fruit Case Company) of New Zealand Group company T&G Global Limited also generated a non-recurring earnings contribution of approximately €7.5 million.
BayWa expects fruit sales to rise further in 2017, due in part to an increase in trade with Asian markets. According to BayWa estimates, the agricultural equipment business will likely recover, as order intake has increased year on year since November 2016. The reorganisation of Massey Ferguson and the general rise in prices for agricultural produce are also expected to provide a boost. In the agricultural trade business of BAST and BAV, BayWa expects earnings to rise considerably compared to 2016 as a result of the optimisation of financing provided for trading in standard produce as well as the general rise in farmers’ liquidity.
Energy: Conventional and renewable energy earnings rise
Revenues for the Energy Segment amounted to €3.0 billion (2015: €3.3 billion) in 2016. This trend is due to heating oil and fuel prices being down year on year once again as well as the decline in prices for solar modules. EBIT rose to €83.1 million (2015: €77.2 million), mainly due to the successful sale of wind and solar parks in Germany and abroad as well as positive developments in the pellets and fuel businesses.
In 2016, the conventional energy business generated revenues of €2.0 billion (2015: €2.2 billion) and EBIT of €15.8 million (2015: €15.4 million). This business unit also developed positive in 2016 as a result of the rise in sales of diesel fuels, the expansion of contracting activities and the takeover of Dr. Gies Vermögensverwaltungs-Future Energies GmbH operations.
The Renewable Energy business sector recorded more gains in 2016, setting a new EBIT record of €67.3 million (2015: €61.8 million). Revenues came to €945.9 million (2015: €1.02 billion). “The international orientation of this business unit proved to be successful once again in 2016,” Klaus Josef Lutz explained. The commissioning and plant sales pipeline in the areas of wind, solar and bioenergy totals approximately 510 MW for 2017. “We feel that we are well prepared for the current year,” said the Chief Executive Officer, providing a positive outlook for this business sector for 2017.
Building Materials: EBIT and revenues up year on year
The Building Materials Segment reported gains in both revenues and EBIT in the financial year 2016: revenues climbed slightly to €1.53 billion (2015: €1.50 billion), while EBIT rose to €28.5 million (2015: €27.4 million). The BayWa Group’s building materials activities profited, in particular, from the continued favourable economic climate in Germany, as well as the optimisation of the site network and lower logistics costs. Earnings resulting from building materials trade are expected to remain stable in 2017.
New segment: Innovation & Digitalisation implemented in 2016
In the second half of 2016, the activities of the former Digital Farming business unit were transferred to newly founded development segment Innovation & Digitalisation. This segment comprises both digital farming offerings, such as specialised software products, digital maps, or consulting services, as well as all of the BayWa Group’s e-commerce activities. Revenues amounted to €6.0 million (2015: Digital Farming revenues of €5.2 million). EBIT amounted to €–8.6 million (2015: €–2.9 million), as all development and service costs for Digital Farming and e-commerce are incurred in this segment, while the earnings from online retail activities are allocated to the corresponding business unit. BayWa’s goal is to adopt a leading role as a professional partner for agriculture in terms of digital farming and farm management, and will invest in innovations, such as software programmes, accordingly in the coming years. Sales of software and the corresponding licences will generate significant revenues increases in the future.
* This change to the organisational structure means that it is not possible to directly compare the figures with those of the previous year as it was not possible to retroactively fully divide up the corresponding previous year’s figures among the two new business units.