The international trading and services group BayWa AG brought the financial year 2017 to a successful conclusion with increased revenues and EBIT. Revenues rose to €16.1 billion (2016: €15.4 billion), while earnings before interest and tax (EBIT) increased to €171.3 million (2016: €144.7 million).
All operating segments improved their earnings year on year. A non-recurring effect from the sale of BayWa Group headquarters in Munich, completed in the past year, also contributed to the EBIT increase in 2017. The Energy Segment set another record high compared to 2016, and the Building Materials Segment continued to develop favourably. The Agriculture Segment also improved significantly year on year. “This is due mainly to our successful turnaround with BAST and the positive development concerning agricultural equipment,” said Klaus Josef Lutz, Chief Executive Officer of BayWa. The Agri Supply & Trade (BAST) business unit closed 2017 with EBIT firmly in the positive. In 2016, EBIT had been in the negative. Lutz emphasised that this is particularly noteworthy considering the difficult challenges that German agricultural traders had to contend with in 2017 as well. He also announced that BayWa will propose a 5 cent dividend increase to 90 euro cents per share to the Annual General Meeting in June 2018.
BayWa hopes to achieve EBIT in 2018 that is at least on a level similar to 2017. This means that earnings improvements will have to offset or even slightly exceed the non-recurring effect from the 2017 sale of Group headquarters. Lutz takes a highly positive view of the operating sections’ development in the current year. With regard to agricultural trade, for example, he expects to see significantly higher EBIT than in 2017 due to increases in profitability and the expansion of the higher-margin speciality business. In New Zealand, the harvest and marketing expectations for pome fruit are extremely high, and Lutz also anticipates further increases regarding trade in tropical fruits. In addition, the first harvests from the Greenhouse project in the United Arab Emirates are set to make positive contributions to earnings in 2018.
Lutz expects the share of BayWa’s total earnings accounted for by project business from the Renewable Energies and Global Produce (formerly: Fruit) business units to soar in the years ahead. “We have shown through the construction and sale of wind and solar farms that this is a sustainably growing and profitable business for us,” Lutz said. The recently concluded acquisition of the biggest solar PV project pipeline in the Netherlands will further boost earnings in this business unit from 2019, he added. “In Global Produce, we are targeting the expansion of our value creation through the construction of greenhouses for specific vegetables, the sale of installations to investors and subsequent marketing of the products by us. We are planning more projects in this area in Australia and the United States, beginning in 2019 at the latest,” Lutz explained. BayWa will also pursue further development of the building materials business in Germany. In order to safeguard sales, it plans to step up collaboration with developers in 2018 concerning the execution of projects. “By taking these steps, we seek to strengthen the company overall against volatility risks, which agricultural trade in particular entails, and put BayWa in a good position for the future,” the Chief Executive Officer explained.
Agriculture Segment sees substantial earnings improvement
The Agriculture Segment generated revenues of €10.8 billion in 2017 (2016: €10.9 billion). EBIT improved significantly to €82.1 million (2016: €70.1 million).
Even though 2017 was marked by a further drop in grain prices due to higher harvest yields, particularly in the Black Sea area, BayWa’s agricultural trade in the BAST business unit showed strong improvement. As a result, BAST − together with Agricultural Equipment − made substantial contributions to the EBIT increase. Among other things, the expansion of the international speciality business and continued structural optimisation of trading activities in Southern and Eastern Europe made a positive impact. “The trade business in Germany will continue to face pressure as long as harvests and the supply situation remain so favourable,” Lutz said, noting that he expects to see stagnant global grain prices in 2018 as well. He explained that BayWa will counter this development through efforts to optimise processes and the network of locations, among other measures.
The fruit trade faced an altogether difficult year in 2017. In New Zealand and above all in Germany, the effects of disastrous weather conditions in some cases resulted in a significant loss in produce quality and quantity, which ultimately led to lower EBIT than in 2016. Positive trends in the pome fruit business in New Zealand and the full-year inclusion of the tropical fruit trade in consolidated earnings were unable to offset this development. In addition, earnings in Global Produce had benefited in 2016 from a non-recurring effect from the sale of a logistics affiliate in New Zealand.
In contrast, the agricultural equipment business turned in a particularly pleasing performance in 2017, especially in Germany. The greater willingness among farmers to make investments enabled BayWa to increase its used equipment business by almost 13 percent. Stables and stable equipment also benefited from this development. Furthermore, business at the Group company Agrimec in the Netherlands was so good that the Agricultural Equipment business unit almost doubled EBIT in 2017.
Energy Segment sets new earnings record
Revenues in the Energy Segment increased to €3.6 billion in 2017 primarily due to oil prices (2016: €3.0 billion). EBIT also rose year on year and stood at €85.0 million (2016: €83.1 million).
EBIT increased with regard to conventional energy mainly due to improved margins for fuels and volume growth for heating and lubricants. Renewable energies also turned in an excellent performance and nearly matched the exceptionally high level seen in 2016. The past financial year saw global sales of wind turbines and solar installations with an output of 414.5 megawatts (MW). For most of the turbines and installations sold, BayWa r.e. renewable energy, which handles BayWa AG’s entire renewable energies business, also took over operational management. As a result, BayWa r.e. further strengthened its service activities in 2017, including through the purchase of Energy Systems Services in Italy. The capacity of the turbines and installations overseen by BayWa r.e. now stands at more than 3 gigawatts (GW). In 2018, BayWa r.e. will enhance focus on the construction of turbines and installations, which will then be sold beginning in 2019. This applies in particular to the recently acquired rights regarding the construction of solar PV systems with a capacity of 2 GW in the Netherlands.
Building Materials Segment sees positive earnings development
Despite continued price pressure in the industry, the Building Materials Segment, which mainly comprises trade in building materials in Germany and Austria, increased revenues due to volume factors to €1.6 billion (2016: €1.5 billion) and raised EBIT to €30.1 million (2016: €28.5 million).
The positive trend came on the back of sustained good development in the construction sector and the high-margin private brand concept, which was successfully expanded. The establishment of special sales teams and the ongoing optimisation of the network of locations also played a role in the segment’s favourable performance.
Innovation & Digitalisation Segment develops as planned
The Innovation & Digitalisation Segment pools all of the BayWa Group’s activities in the fields of digital farming and e-business. Its range includes various software products such as NEXT Farming, digital map material, analyses, advisory services and hardware components. E-business encompasses BayWa’s online activities. However, the revenues and income from the activities are attributed to the respective business unit responsible for the respective sold product. In line with expectations, the segment recorded negative EBIT, which was due above all to the large investments necessary for the development of digital farming solutions. This also includes the development of an open machine data management software. Plans call for the joint launch of this software in the current financial year with six leading agricultural equipment manufacturers. The software is meant to serve as a uniform basis for the cross-vendor implementation of digital farming.
Please note: For your coverage you can download a video statement from CEO Klaus Josef Lutz by the following link: