BayWa AG
BayWa AG: International business bolsters third quarter – BayWa makes substantial gain

International business bolsters third quarter – BayWa makes substantial gains

BayWa AG has generated significant growth in its EBIT (earnings before interest and tax) of roughly EUR35 million since the close of the first half of 2015. EBIT rose year on year to EUR75.3 million (2014: EUR74.5 million) in the first nine months of 2015. Revenues came in at EUR11.1 billion, falling only marginally short of the previous year’s figure (2014: EUR11.4 billion), primarily due to price trends.

The Group’s positive development in the third quarter was predominantly driven by the international business of the Agriculture segment and renewable energies, which evened out the effects of problematic framework conditions in national agricultural trade in the same period. “Especially those times in which we experience a difficult situation in agriculture in Germany show how important our international growth strategy of recent years is. We are only able to post these kinds of results after the first nine months of the year thanks to the good results in international grain trading and the outstanding development in European and US renewable energies project development business,” the Chief Executive Officer of BayWa AG, Klaus Josef Lutz, explained. According to Lutz, 6 major solar and wind power projects, with a total output of 114.5 megawatts, were successfully sold in the third quarter alone. The fruit trading result also rose year on year, above all on account of growth at New Zealand Group company T & G Global Limited and its subsidiaries. International grain trading activities, in particular the Dutch subsidiary Cefetra B.V., capitalised on their opportunities and expanded their feedstuff business.

By contrast, grain trading in Germany suffered from the effects of the hot summer and the extremely volatile price trends. For example, income from grain drying services usually performed by BayWa on behalf of farmers was almost completely absent due to the extremely high temperatures. On the other hand, additional costs were incurred in grain transportation due to high low-water premiums. Grain prices were much higher at the start of the harvest than they were at the end, which meant that farmers sold less grain and processing companies held back on their buying activities. “General issues in agriculture, such as the abolition of the milk quota, dampened sentiment in the industry even further,” Lutz explained. “For BayWa, this means that we are intensifying our efforts to adjust to the structural changes here by concentrating our site network further, for example. What is more, we will continue to expand our international trade and export activities, including the planned development to turn Mukran on the Baltic coast into a deep water port,” the Chief Executive Officer said, before adding that grain trading markets are becoming increasingly volatile and therefore harder to predict. A slight rise in grain prices recently bolstered international trade and stimulated German farmers’ willingness to sell their grain, but the outlook for the year as a whole still must be more cautious than it was before the harvest. “We intend to come up to our full-year earnings in 2015 at the same level as the previous year, at the least,” Lutz added.

Agriculture: International business performs well – hot summer and volatile prices hit grain trading in Germany
Revenues in the Agriculture Segment, which comprises trading in agricultural operating resources and produce as well as the Agricultural Equipment and Fruit business units, came to EUR7.69 billion as at 30 September 2015 (2014: EUR7.70 billion). EBIT after the first nine months of 2015 stood at EUR63.9 million (2014: EUR69.8 million).

The primary reason for the dip in EBIT was the situation in the German agricultural trade. As an example, the hot summer weather almost completely eliminated the need to dry out grain after the harvest, which led to corresponding loss of income in core BayWa regions. In addition, this year’s corn harvest was significantly poorer than the previous year, particularly in Bavaria, resulting in a corresponding reduction in marketing volume for BayWa. All in all, farmers’ willingness to sell their grain dropped significantly, and processors held back on their purchases in anticipation of a further fall in prices, as the price trend was strongly downward-facing until the end of September. Prices, and therefore also sales and demand, did not rise again until the start of the fourth quarter. Sales of crop protection products were also impacted by the dry summer weather. Sales of fertilisers, on the other hand, rose due to falling prices, and seed business continued to experience stable development.

BayWa’s international Group companies in the agricultural trade business also performed well in operating terms. Amongst other things, new sales channels were opened up in North Africa and the Arab world, which are set to benefit BayWa moving forward.

Excellent development was also observed in fruit trading. Revenues after the first nine months of 2015 stood at EUR473.7 million (2014: EUR432.7 million). EBIT came to EUR22.1 million (2014: EUR15.9 million), which equates to a rise of 38.6%. In terms of international fruit business, the Group benefited from the activities and acquisitions of New Zealand subsidiary T & G Global Limited. German fruit trading was more stable than in the previous year thanks to the slight rise in apple prices, and so it is expected that the positive will continue in the current marketing season.

BayWa’s agricultural equipment business once again bucked the market trend in the third quarter, as was the case in the first half of 2015. The agricultural equipment markets in Germany and in Europe were impacted by sharp falls in sales figures of up to 10%. Despite the year-on-year rise in the sales of used equipment, the Agricultural Equipment business unit was unable to escape the market trend completely and generated revenues of EUR966.7 million (2014: EUR971.9 million) and EBIT of EUR9.1 million (2014: EUR13.6 million). The increased pressure on margins in new machinery sales and the rise in personnel costs after adjustments to collective bargaining agreements were two key factors here. The leading industry trade fair Agritechnica, which is due to open its doors in a couple of days, is expected to stimulate demand for tractors and agricultural machinery.

Energy: Conventional energy and renewable energies exceed 2014 figures
The Energy Segment developed extremely positively in the period leading up to 30 September 2015. It comprises the Group’s trading activities in fossil and renewable heating fuels, fuels and lubricants as well as its business in renewable energies. Revenues fell slightly to just under EUR2.3 billion on account of the lower price level for heating oil (2014: EUR2.5 billion), but EBIT increased compared to the same period in the previous year by 35.1% to EUR33.1 million (2014: EUR24.5 million).

Revenues with conventional energy carriers stood at EUR1.7 billion in the first nine months of the financial year (2014: EUR2.0 billion). The decline in revenues was primarily due to the extremely low oil price. This also bolstered demand for heating oil and led to a 5% increase in sales. EBIT benefited from this to the same extent as it did from increased margins in German sales regions and the positive development of the Austrian Group company. It climbed to just under EUR7.5 million (2014: EUR4.0 million).

Revenues and EBIT in the renewable energies business developed extremely well thanks to the sale of major wind and solar power projects as planned. As at 30 September 2015, BayWa r.e.’s business activities generated revenues of EUR580.9 million (2014: EUR463.9 million). EBIT increased to EUR25.6 million (2014: EUR20.5 million). This equates to a 25.3% rise year on year, even though photovoltaic (PV) component trading in Europe (with the exception of Switzerland) continued to decline, unlike business in the US. The sale of an 80 megawatt wind park in the US, BayWa r.e.’s largest wind park project to date, accounted for the lion’s share of this positive result. Further plant sales are planned in the final quarter, meaning that BayWa r.e. is very likely to exceed the 2014 result by the end of 2015.

Building Materials: Low heating-oil price delays renovation and modernisation measures
The Building Materials Segment, which primarily encompasses the Group’s building materials activities in Germany and Austria, was unable to make up the weather-related sales shortfall from the first half of the year. Revenues stood at approximately EUR1.1 billion as at 30 September 2015 (2014: EUR1.2 billion). EBIT came to EUR13.6 million (2014: EUR17.1 million). This was due to ailing demand, particularly for the energy-efficient renovation of detached and semi-detached homes, which is unpopular among consumers due to the withdrawal of subsidies by the government and the low oil prices, resulting in the frequent postponement of construction measures.
BayWa expects business to pick up as a result of the publicly funded “10,000 Homes” programme in Bavaria for innovative building and heating systems, and as a result of an increase in demand for redevelopment in detached and semi-detached homes with the onset of winter.