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Edited Transcript of BYW6.DE earnings conference call or presentation 8-Aug-19 6:30am GMT

Half Year 2019 BayWa AG Earnings Call

München Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Baywa AG earnings conference call or presentation Thursday, August 8, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andreas Helber

BayWa Aktiengesellschaft - CFO & Member of the Management Board

* Josko Radeljic

BayWa Aktiengesellschaft - Head of IR

* Klaus Josef Lutz

BayWa Aktiengesellschaft - Chairman of the Management Board & CEO

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Conference Call Participants

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* Anne Margaret Crow

Edison Investment Research Limited - Analyst

* Heinz Müller

Dr. Kalliwoda Research GmbH - Research Analyst

* Knud Hinkel

Pareto Securities, Research Division - Analyst

* Marc Gabriel

Bankhaus Lampe KG, Research Division - Research Analyst

* Oliver Schwarz

Warburg Research GmbH - Chemical Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the BayWa AG Half Year 2019 Financial Statements Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Josko Radeljic. Please go ahead.

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Josko Radeljic, BayWa Aktiengesellschaft - Head of IR [2]

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Good morning, everybody, and welcome to BayWa's conference call on the result of the second quarter 2019. With me are Professor Klaus Josef Lutz; and Andreas Helber, our CFO as well as the IR team.

All relevant documents for this presentation were sent this morning. Otherwise, as you know, you can download it from the Investor Relations website.

And I hand over now to Professor Lutz.

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [3]

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Good morning, ladies and gentlemen. A pleasure to have you here in our [telco] for the first half results 2019.

I would like to start with Page 4. Just a few comments on the highlights for the first 6 months in 2019, but the most important message is, of course, that we improved our operational performance significantly in 2019 in comparison to last fiscal year, where we had significant pressure on the results in the first 6, even 9 months.

So the key highlights were, first, the successful issuing of the green bond with around about EUR 500 million for our renewable energy business. That's a great success because it was an attempt. In the beginning, we were, of course, not 100% sure that we'd get enough money, but after 3 hours, our Finance department, together with the issuing bank, had to close the book because the capital market offered us EUR 760 million. So we are very proud of that because, as you might know, the renewable energy business of BayWa is still, in comparison to the very old BayWa, a new business. For 10 years, we started with this business on the basis of the acquisition of RENERCO from Babcock & Brown in Sydney.

The second highlight was, of course, the start of the process -- the proper process for the private placement for BayWa r.e. As we announced to the capital markets, besides the EUR 500 million through the green bond, we wanted to acquire another EUR 0.5 billion through a capital increase for r.e. We are in the process. There are no news at this point in time. The [teaser] has been placed in the capital market, and the feedback is really exceptional from the capital market. Especially finance, investors, infrastructure, funds and companies would like to participate in this capital increase.

Important also on the basis of our eco-strategy is the sale of TESSOL, the fuel station company, which is very successful. We plan transaction end of 2019, and that's part of the capital restructuring of our corporate portfolio, but as well as an improvement of our green image but also the green business models, which we have -- we are working on a lot of new business models, especially in the e-mobility area and some others like digital farming, smart farming, precision farming and stuff like that. So the capital restructuring is important and TESSOL will be transferred to a third party as soon as possible. I can tell you the process at this point in time is in a good shape. The feedback from the market, potential interested third parties is extremely high. So I'm very positive that the transfer will be successful -- finished until the end of this fiscal year.

And then on the digital basis, of course, that's an invitation over to speak about digital developments. So we launched our agriculture portal for BayWa, and we started on the basis of a new business concept, which is called building information modeling. We started in Borna, which is a little city close to Leipzig. We started the building process for houses.

That was the highlights picture for the first 6 months. Now we come to the real stuff, the figures. We have an increase of -- Page 5, we have an increase of 1.7% to EUR 8.4 billion revenue. And an increase on the EBIT level as well, 62.6% to EUR 52.2 million. We'll see a little bit later, that's average if I compare that with the last years. The last year, we were really under pressure. This was the statement from the capital market, and also some journalists wrote some articles about it.

But this has to do -- ladies and gentlemen, it's extremely important to understand that our business model has changed over the last years, and it's going to be changed more and more because BayWa is becoming a project company. And so far, the half year result is nice to have, so to say, but the real profit and the income increase will most -- in many fiscal years, orders in the future will come in the second half. That has to do with the renewable energy projects with the projects in Building Materials sector and also in the future for Agriculture and the digitalization projects. And we know exactly, I'm coming back to that, what we have to expect in the second half of 2019.

So the increase now in the first half year was driven by the Energy segment, especially, the conventional energy is in a good shape and performing excellently. Maybe surprising for some of you, but this has to do with the extremely high demand for heating oil here in Germany, a little bit in Austria, but especially in Germany, I'm coming back to that later, has to do with the climate change discussion in this country.

The Agriculture segment, we had a very early start in the domestic agribusiness. You will see that later, the figures are much better than in the last years. We are not negative. We are positive. And the international business, BayWa Agri Supply and Trade in Rotterdam -- handled in Rotterdam, had to suffer a little bit under the low price volatilities, and of course, the U.S.-China trading situation.

The Building Materials is stable. We have still a boom situation in Germany with regard to the construction business. And that's stable, no surprise.

And Other Activities, we sold our so-called Kartoffel-Centrum Bayern, which has to do with the capital restructuring process we are going through. And the 50%, we sold to RWZ in Cologne, which is another big cooperative, was already responsible for the operational performance of this GmbH. And of course, there are also changes in the balance sheet and the P&L segment. Andreas Helber, our CFO, is coming back to that later. The change is based on the IFRS 16. So approximately around about EUR 7 million on an EBIT level improved the performance.

So Page 6. You'll see here the overall comparison for the 6 -- first 6 months in 2019 in comparison to the other years before. And so it's important to understand that it's not an adjusted. It's not an operational. It's something else. EBIT, that's the real EBIT, EUR 52 million, and that's more or less average. And this has to do, of course, that we do not have yet a significant profit from our renewable energy segment. And then taking this in consideration, 2017, we had EUR 72.8 million; or 2016, there, we had already the sale of some wind and solar facilities, which is a part of the profits. And we don't have this yet in 2019. So the situation is comparable to 2018, where the last 6 -- 8, 6 weeks were really the most important ones to get the profits from r.e. This year, I would say, it's not so dramatic, but we will see most of the profit in the fourth quarter.

If we come to the Agriculture segment. Just some highlights on this. Market developments: international, the price trend for corn or soya is very flat. So no volatility, which means it's hard for an international trading company like Cefetra for instance, to make profit. Also to make profits with fuel shares with regard to our hedging strategy. So it's a stable business. We are profitable, you will see that. But at this point in time, an upside movement, we do not really see.

And that's also reflected in the world grain balance, the statistic you see on the right side on this chart. On the one hand, the global consumption is steady up -- there's a steady uptrend to be seen. On the other hand, the global inventory for grain decreased since last year, that's a significant change, around about 15 million, 20 million -- 15 million to 20 million tonnes. We had a decrease in the storage, which is important for the price development in principle, but all the other parameters do not show us a signal that we can expect higher commodity prices. So it's more sidewards movement to be expected in this business.

Then the picture for our international activity, BayWa Agri Supply & Trade. The revenue declined around about 8.5%, EUR 2.5 billion; and EUR 8.4 million profit, so 42% lower than last year. And as I said, what's the reason for that? The low price volatility, which is hurting us a little bit, and the oversupply of U.S. soya in the European compound food industry, feed industry. Why? Because the United States are not exporting any more soya to China, and this has been replaced by Argentina and Brazil. So far, we have pressure on the margins. We have pressure on the volumes. And this is one of the core business segments for BayWa Agri Supply & Trade, Cefetra.

Nevertheless, our specialty strategy, which is not yet completely finished, we acquired a few specialty companies over the last years. This specialty strategy is very successful and is compensating part of the decline in our international grain trading activities. So I'm very positive with regard to this new strategy. Royal Ingredients, a Dutch-based company is, this year, for the first time, completely consolidated on our balance sheet. Premium Crops as well and Thegra and some other little companies, which they are focused on vitamins, [minerals] for the [compound] feed industry, some organic products and niche products for the European market. And this seems to be very successful, and so far, this strategy is -- the right pathway will continue.

On the next page, you'll see -- Page 10, the market developments in the other Agri sectors. The input resources -- the input business is not on the level of the previous years. It has to do with the climate change, with the weather conditions we had here in Germany. It's again dry. And so for the fertilizer, crop protection business, this means we have a downturn of volume, and in -- so far, also from the profit side. But you don't see it in the figures because we are more successful with our -- especially German milling wheat, a business which is very positive this year. The only input resources area which was very positive and successful is the seed business because we benefit from the fixed demand for catch crops and substitute for rape.

Global Produce. We are a global player here, and the headquarter is in New Zealand, in Auckland. Here, we expect a very good year. Nevertheless, we don't see it at this point in time, and this has to do that we have a gap to the budget with the [TCs] for apples in New Zealand. We are missing around about 1.2 million TCs . The reason for that was a weak harvest, dry -- a very dry -- a very high -- what was it? No. We have a low volume due -- and a low quality for apples especially, and this can't be compensated completely by other varieties and fruits. So to say, we are a little bit under pressure here. In Germany, the prices are on a 5-year low because of the volume which is in the market. We have still the apples [lots, so to say,] from Poland and other European countries because we are not allowed to export the apples to Russia. No change. It's always the same story for years now. Nevertheless, we expect from Global Produce a good year, and we'll explain that later.

Agri Equipment. It's again a very, very positive development. Nevertheless, we have a decline in the figures, in the profit. Also the registration of tractors in Germany is up 22% in comparison to last year. And the liquidity situation of our farmers in Germany, and in Austria especially, the liquidity is, generally said, very stable. So the Agri Equipment business is in a good shape.

So let's go to the figures. Agri Trade and Services, so that's especially our German, Austrian and Eastern European business, you'll see an increase of revenue, nearly EUR 2 billion, and an increase of our profitability of 24 -- to EUR 24.5 million. Important is that last year, we had a loss situation in Germany. Today, or this year, the EUR 24.5 million is more or less carried by the German operation, and the revenue growth is based on volume and the price development in our country.

Next page, the Global Produce business. It's stable. It's more or less on the same level as last year. Nevertheless, we expect a significant increase of profitability in 2019. And then there will be some one-timer included because we are selling -- or we are in the sale process at this point in time for our operation in Mount Wellington, which is the headquarter of Turners & Growers.

So we come to Page 13, the Agri Equipment. We have a stable revenue. The margins are a little bit under pressure. This has to do with an increased competitive situation in the areas where we are selling tractors, harvesters and support from AGCO but especially [CLAAS.] And in Eastern Germany, the demand for harvesters is on a very low level. Nevertheless, the EUR 10.8 million is still a very good performance to EUR 15.6 million last year. This was really exceptional.

Coming to the financial statement, Page 14, for the agribusiness. Here, you'll see the revenue is a little bit lower, minus 2%, EUR 5.6 billion; EBITDA, 19% higher. And the rest of the figures will be explained later on by Andreas Helber.

The Energy segment, again, the key driver for the improvement in 2019. And at the end of the fiscal year, you will see that the energy sector is the most important pillar in the overall conglomerate picture of BayWa. So Renewable Energies, no change to my statement I made in last conference in March. We have still a very good development on a [geographic] basis for wind and solar facilities. China, of course, is leading. In China, we do not have an operation. We are only sourcing. But nevertheless, that's an interesting indicator. So I think that's enough to say it's a great business.

And the conventional energy sector, it's interesting that the heating oil prices in Germany, in average, are higher than the Brent oil on the stock exchange. Why? Because the demand is extremely high due to the discussion in our country for a CO2 tax or any climate change-related payments people have to do. And of course, heating oil is not the cleanest version of energy, so to say. That's the reason why the heating oil prices were higher, and we are -- our profits are based on that, more or less.

So we come to Page 17. Renewable Energies. We need not to discuss it at this point in time. It's more or less breakeven. But we know we will have a record high for our result in 2019 as we had it over the last year. So the process is not as tough, and we will continue to improve the profit here. And at the end of the day, I think all of you will be very happy with the performance of Renewable Energies.

The conventional energy sector, you see here. Revenue, plus 11.40%, price-driven and volume-driven; and then profit, EUR 11.6 million and positive. And I'm very happy with this development.

And you see the income statement, Page 19, increased 17% on the revenue side; then EUR 32.2 million, the EBIT and EUR 12.1 million -- the EBITDA; and EUR 12.1 million, the EBIT. So very good development.

We come to the Building Materials segment. The boom -- construction boom is stable, 77%, you'll see that on the right side of this picture. 77% of the construction companies, the -- our customers and so forth, believe that also over the next 12 months -- and there are some other studies, over the next 3 to 4 years, that the construction boom in Germany will be very stable because of the demand for new apartments, houses, flats and so forth is extremely high.

P&L. We are stable on the revenue side, EUR 775.3 million, and EUR 7 million is the EBIT profit. At the end of the day, we'll have more or less the same profit as we had it last year. The P&L segment, I do not want to comment on that. Andreas will take action on that.

Last point, the Innovation & Digitalisation segment. Well, ladies and gentlemen, of course, you see now year-by-year the big loss situation, which is the investment we make in our software portfolio for FarmFacts, our digital farming activity. And I do not want to comment on that today in depth because I think the most important message is we expect some further developments also from the profit side now during the AGRITECHNICA. The AGRITECHNICA in Hanover this year will be very important for BayWa, and FarmFacts especially, because we are going to start the so-called aag cooperation. Aag means Agri Application Group: 6 manufacturers, plus BayWa, plus FarmFacts combined in this type of cooperation agreement. It's not a real joint venture, but very strong cooperation agreement where we are delivering for the tractors and all the other technical devices of the manufacturers, the interface -- the software interface, that the machines are able to communicate with one another. And this will be then part of the proof of the pudding of all these investments.

Other Activities. Well, you see here, last year, minus EUR 23 million, this year minus EUR 14 million. And we have this EUR 7 million impact on the IFRS 16 basis, and then the sale of the shares of the Kartoffel-Centrum of Bavaria is included here with 3 -- around about EUR 3 million or EUR 3.4 million. And so far, more or less, the usual stuff.

And I would like to hand over now to Andreas Helber, our Chief Financial Officer, for the group financials.

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Andreas Helber, BayWa Aktiengesellschaft - CFO & Member of the Management Board [4]

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Yes. Klaus, thank you. And also a very, very warm welcome and good morning from my side.

Going through the group financials, on Page 28. I will keep it rather short because the most important comments was already made, and it's only the half time, the half year picture that we present here.

But one remark is needed. The -- we talked several times about the IFRS 16 effect, which is going through the numbers in all presentation, in all tables here that we present. And therefore, the numbers compared to last year are not directly being comparable if you look on the numbers. It's the one remark that I wanted to make, and I'm coming back on this in a minute.

And the other one that I want to point out is, if we go back on the slide -- you probably have seen it on the slide of Page 19, summarizing the Energy results. There's one thing that we need to explain. If you look on the EBIT number in there, which is reflected by EUR 12.1 million compared to EUR 1.3 million due to the very good performance on the conventional energy side as well improvement on the Renewable Energies side by some EUR 3 million as well. But then, if it comes to EBT, it goes down to minus EUR 8 million, and this is also reflected in the summary of the income statement in total for the group. And it seems there's a dramatic downturn, and that is not really true because this reflects the higher interest expenses that we have on one hand; and also some hedging costs that we had on various currency projects in the Renewable Energies sector, which have not been capitalized for the half year period. So they are completely in the expenses because we thought it would be sold in the second half of the year. Therefore, they have not been properly capitalized on the projects but already included in the segment income statement. And therefore, that brings the EBIT up and the EBT down by some, I would say, a EUR 10 million to EUR 12 million impact. So it's not the IFRS 16 which is reflected in here. This is a minor effect of EUR 1 million on the Energy segment, but it's mostly because of higher interest costs on the projects that we are currently working on as well as currency hedges on the various projects in different parts of the world. So this is important to understand when it comes to the Energy segment.

And now I'm going back to Page 28, just summarizing it. And we're coming back to this EBIT line of EUR 52.2 million, which is an increase by EUR 20 million compared to last year. EUR 7 million out of this increase is related to the IFRS 16 effect, which is offset in the interest again. So the total effect of IFRS 16 on the P&L statement could be related to a higher depreciation by some EUR 20 million and higher EBIT by some EUR 7 million, higher financial expenses as well, interest expenses by some EUR 9 million, which is offsetting the EBIT increase, again, in the interest. This is probably something -- an effect that you have in each and every company you are currently looking on. So it's not -- nothing unusual within the numbers. But this is the effect which is included in the half year numbers for BayWa. And this is all that I want to point out at the income statement.

Also the EBITDA, as I pointed out, some EUR 20 million probably is related to the higher depreciation, which is returned or released in the EBITDA number. Then that brings it to EUR 135 million and a EUR 40 million improvement. This is the operational improvement that we have from the EBITDA level.

On the balance sheet. Just the impact on Page 29, also [release] to the long-term lease liabilities, which we disclosed separately here in the line for clearance. If you look at the long-term debt, which has been increased from year-end number, EUR 883 million to EUR 1.4 billion, that includes now EUR 780.2 million on long-term and EUR 22.2 million on the short term leasing liabilities. So the EUR 800 million, this is the total effect on the capitalization on the IFRS 16 on the asset side and reflected by the long-term lease liabilities on the debt side. The good thing is that even with this lease effect now, our equity ratio stays more or less stable compared to half year numbers. In previous 3 year periods, if you look onto '15, '16 and '17, it's around 60% though at year-end. I'm reflecting the total effect on the lease liability capital as -- or the lease capitalization on the balance sheet and the equity ratio, about 2 to 3 percentage points. So I think we can handle it with our floating balance sheet number, pretty good also here in this half year numbers.

That should be it from the -- on the balance sheet side. The cash flow statement reflects also the higher cash earnings, the higher cash flow from operating activity, including this IFRS 16 effect. And higher investing cash-out is reflected by some real estate projects, in particular in Austria. The colleagues in RWA in Vienna are working on a new headquarter, which is under construction. This is one part which reflects here in these higher investing activities, a cash flow minus. That's all that we should point out at this time of the year. I think it becomes more important when it comes to the 12-months period to reflect these numbers, also to clearly point out the effect of IFRS 16 on these financials.

That should be it from my side on the half year numbers. And I'm returning now for the outlook to Klaus.

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [5]

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Thank you, Andreas.

So outlook. As always, the same discussion. Guidance is no and so a pretty simple no. I do not want to give you any guidance as we did in the third quarter last year because the business is too volatile. It doesn't make sense. It's not really useful. Nevertheless, I'll try to describe what can we expect from BayWa in 2019.

I think the overall statement will be that we expect a significant increase of earnings in 2019.

Agriculture segment, Page 32, as well, significant increase in earnings. I expect from the specialty strategy some positive impact on the BAST. P&L statement, I think that our Global Produce business, as I said, with some one-timers, will be on a very high earnings level in 2019. And the equipment business, well, it depends a little bit on AGRITECHNICA in November. Nevertheless, I expect a very high earnings level as well, but not on the same basis as the last year.

Energy segment will be in an excellent shape, and the result will be extremely high. And go please to Page 34. Here, you'll see what we are going to do in the last 5, 6 months now. We had a plan to sell 660 megawatts of just the projects, our project business. Don't talk about the solar module and then other devices business. That's not included here. It's just the project business. In North America, especially in the United States, 370 megawatts; in Europe, 230; and in Southeast Asia, nearly 60 megawatts. Last year, we sold around about 450. So you'll see the increase. And it's [math] to calculate what that means. So we get a very good result in this business.

And the Building Materials segment, we expect the same result as we had it over the last years. So that's a stable business. The boom is broken. And so far, I'm happy to say we will have a significant increase of profit in 2019.

Thank you.

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Josko Radeljic, BayWa Aktiengesellschaft - Head of IR [6]

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Thank you very much, Professor Lutz and Mr. Helber. We are now ready to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Marc Gabriel of Bankhaus Lampe.

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Marc Gabriel, Bankhaus Lampe KG, Research Division - Research Analyst [2]

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Two questions, if I may. First, with regards to your sales plan for the petrol or gas stations business. What kind of offers do you have? Could you give us a certain range of prices which are now quoted for that business? And I assume that you are targeting for a huge book gain on that business. If you could quantify that a little bit in detail.

And furthermore, I'd like to know how you assess the current debt situation and how the debt should be reduced going forward. Are there any other asset sales on the agenda which you could share with us?

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [3]

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Mr. Gabriel, Lutz here. Thank you for your questions. Well, it's not easy to answer, of course, the first question. And I understand what you wanted to hear, but we are really in a proper process, of course, but we are already in negotiations, final negotiations with a potential partner to take over 100% of the shares. Of course, I do not want to mention the intended price at this point in time, but maybe I can use a legal term which is maybe helpful for you. It will have on the conventional energy sector, it's a one-time and significant, really, a significant impact on the bottom line. This -- also you can't expect that I'll tell you what the profit will be, but that's not possible and legally not allowed. But it will have some significant impact on our bottom line in 2019 for the conventional energy business. So that's a one-timer, and we will report that not in the Energy segment itself. We are going to report it under [sum] figures.

That's the one thing. And the debt, Andreas?

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Andreas Helber, BayWa Aktiengesellschaft - CFO & Member of the Management Board [4]

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Yes. Mr. Gabriel, on the debt on the liability side, the -- it's the same situation as it was the years before and also last year and the year-end. The main contribution that has been made from the debt side are now in the circle of our inventories. We are, at the half year, normally on the lower point and now getting back into the financing of the harvest coming to the year-end. And the main contribution is, of course, in this project that will be released in the second half of the year. So from just a rough guess, what I will see -- what I could see so far from today's perspective, I expect another return on cash on the cash side, on the debt side by some 400 -- EUR 300 million to EUR 400 million out of [the sale of] project until last year -- in the second half of the year on the renewable energy projects. We placed this bond -- the green bond with some EUR 500 million, which has clearly been dedicated to renewable energy projects. And you could see that also if you look on the long-term debt side, which has increased by this amount; and the short-term debt side, which is relieved or declined by same -- that amount. Therefore, I do not see higher deviations within these positions, yes. But I'm expecting a downturn from half year to year-end on the renewable energy side.

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Marc Gabriel, Bankhaus Lampe KG, Research Division - Research Analyst [5]

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Okay. Maybe one question again regarding the gas stations business. I mean the book value is EUR 18.5 million somewhat. I saw deals on the market which paid roughly EUR 1 million for 1 gas station. Is that a fair assumption?

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Andreas Helber, BayWa Aktiengesellschaft - CFO & Member of the Management Board [6]

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No. Mr. Gabriel, that's pretty much too high. First thing, on what did you say, EUR 1 million for 1 gas station. We have 155, but it's only -- it's not the owning of the gas station. It's the contract on delivering fuel to these gas stations. So don't do this calculation. It's much too high, first thing.

And the second thing is what I could tell you is the book value on this part we are selling on, it's only EUR 3.5 million. Yes? This is part of the EUR 18 million. The EUR 18 million, probably, this is the whole conventional energy business, so the book value on this. But please give us the time to close this transaction. It will have a significant impact on the P&L, but I think we'll come back to this on the next analyst conference clearer. But for the time being, it's pretty much too early to give you a statement on those.

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [7]

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And then maybe, Mr. Gabriel, and also for the other colleagues, there's a misunderstanding. TESSOL, of course, is a separate legal entity as TESSOL GmbH. But it's just, let me say, a type of dispatching center with the fuel stations which are part of AVIA, the AVIA Group, which is a very big fuel station. So to say, it's a mixture of franchise and supporting unit and so forth. And TESSOL is the largest shareholder of AVIA, together with, I guess, 4 others, yes, 4 others and group -- 4 other groups. And their fuel stations are owned by private owners, entrepreneurs, and they are just part of this community, legally bounded, of course. And there's a contractual basis for the supply with fuel, with diesel and all that stuff and the lubricants, of course. But AVIA is providing the complete environment, the furniture, the technology, the hardware, software, computers, blah, blah, blah, all these stuff. And that's the reason why you see in Germany, but also in Switzerland, you see very -- a lot of AVIA fuel stations. But they are -- most of them, I would say -- I don't know exactly the figure, but I would assume around about 95% are privately owned, okay? And that's a little bit different as other competitors who are in the market. I know there were a lot of transactions over the last months with regard to the gas station business, but it's not comparable to the TESSOL structure. Nevertheless, it will be an important and significant impact.

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Andreas Helber, BayWa Aktiengesellschaft - CFO & Member of the Management Board [8]

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And if I may, just for clarification. We're talking about significant improvements on the performance, on the operation result. This excluded, of course, this TESSOL effect, yes? So we are talking about significant improvement that comes out of the agribusiness. And it comes out of the renewable energy -- also the classical energy, but the renewable energy business in particular. And this is all operational. It does not include any potential effects coming from this transaction.

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [9]

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Yes. That's what I said. It's part of [sum figures,] right?

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Andreas Helber, BayWa Aktiengesellschaft - CFO & Member of the Management Board [10]

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Yes.

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [11]

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Yes. If we have a high income for TESSOL -- and I assume it will be a good deal, of course. Otherwise, we wouldn't do it. Then you will -- it will be reflected in the miscellaneous business.

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Operator [12]

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We will take now our next question from Crow of Edison.

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Anne Margaret Crow, Edison Investment Research Limited - Analyst [13]

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I would like to ask a couple of high-level questions about the shift to project-type work in the Agriculture and building segments. So the first thing is, why was the decision taken to do this? Are the returns better? Or does it give you better growth opportunities? I was wondering about that.

The second question is, are you deploying any technology from the Innovation & Digitalisation segment in any of the Agriculture projects at the moment?

And thirdly, do you intend projects in the Agriculture and building segments to become as significant as the renewable energy activity longer term? And then as an unrelated question, which is, are there any cross-selling or -- sorry, is there any cross-selling of products from the Innovation & Digitalisation segment to your agricultural supply customers at the moment?

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [14]

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Thank you very much for your questions. We'll start with why are we doing that. So well, I can speak 1 hour about it, but I would try to summarize it on -- to a few sentences. Why we are doing that in the building and the agribusiness? So between the 2 segments, there are now synergies in principle, of course. The project business in Building Materials is, from our point of view, very important because we are -- over the last decades, we were just a general provider of Building Materials to construction companies, carpenters and other professional customers. So now the question is, what can we do to stabilize and increase, of course, the profitability and to invest money together with partners? It's [always] based on a joint venture in building and construction activities. It's an add-on and added value to our general Building Materials business and should create a higher stability for Building Materials because if we have a downturn of the boom situation in Germany or in Austria, then we will see that directly in our P&L statement. So the project business has to do to minimize the volatility of the classical Building Materials business. And of course, we expect higher profit. We have business plans, that's clear, for the next years. But you can't compare it with renewable energy. Renewable energy will have also in the future a much higher profit level than our Building Materials business.

And the -- let me say, the process we are going through for creating this project unit, we just hired people: some building engineers, some project managers on a very low level. As I said, we started now a project in Leipzig in Eastern Germany. We finalized 1 project in the southern part of Bavaria and that's -- it's more an attempt. Give it a try and we will see what's going to happen here. And I'm very positive because the first results, just small money still, but the forecast, the outlook from the management and the performance -- the operational performance of this new [staff,] this legal entity we created in Building Materials is very positive.

And in the agribusiness, why did we decide to become a project manager? This has to do with the change and the consolidation of the agribusiness not only in Germany, in Austria and so forth, but all over the world, more or less. In the future, the farmer will not ask for a special, we call it, color for a tractor, for instance. What he would like to see is a solution of his operational problems. And you can compare that maybe with the [90s], where this was one of my first or [fourth] positions I had in digital equipment and digital [tools], for instance, that we started to create a solution integration business. And that's a type of solution integration business which we have to provide to the customers, to the farmers in the future in this business as well. So software applications are playing a much higher role in the future. The processes need to be improved, changed to be more competitive in this more and more global business. And so far, what we decided is nothing else than to meet the needs of the customers and to create more solutions for them. And this has, of course, a significant change for -- means a significant change for the skill profile of this company because a normal sales rep in the future is maybe the lead generator. But in reality, you need project managers, software engineers and people who understand the needs of the customer, the problem of a farmer, and then we provide the integrated solution to the farmer. And we'll start now.

And your question was, is there any cross-selling effect? Well, of course, for the manufacturers. FarmFacts, the company owned by BayWa 100%, provides now, for instance, this type of communication software for the different devices of different manufacturers. That's an open system, not a system -- if you compare -- maybe you'll remember Nixdorf. Nixdorf had always proprietary systems in the software world. And we do not follow this way. Some manufacturers try it. I think it is extremely dangerous because then you depend on the one or the other manufacturer. So all the systems must be open, must be easy to be connected with different devices, and that's what we are doing. And so far, while it's not really cross-selling, that's the core of FarmFacts with regard to the manufacturers. And the core business with regard to the farmers is to create then an interface to the farm, the processes on the farm and then also the management software or the management system on the farm. So it's a complete open system. It's cloud-based and was developed by the way, here in Bavaria, in Forchheim, it's a little village in lower Bavaria where software developers, most of them have a farmer's background of working on all these applications. And so far, I can only recommend going to the AGRITECHNICA and get a very personal impression whether we are in a good shape or not. And you are more than invited to visit our farm -- our booth in the AGRITECHNICA. And if I'm around, you get a cup of coffee by me -- from myself personally, okay?

So what was then -- project input. What was the other question? Did I answer the questions more or less?

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Anne Margaret Crow, Edison Investment Research Limited - Analyst [15]

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Yes. Yes, you have. That's very helpful.

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [16]

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Okay. Visit us and then you'll see really there are some projects, software engineers are around. They can explain that in detail to you if this is for an investment decision or whatever important for you.

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Operator [17]

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We'll now take our next question from Knud Hinkel of Pareto.

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Knud Hinkel, Pareto Securities, Research Division - Analyst [18]

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Three questions, please. First, on the outlook. Am I mistaken that you turned more optimistic with regard to the Energy segment at the backdrop probably of the good results in conventional energy as you -- as far as I remember, last -- at the end of last year, expected a more subdued result and now expect a significant increase of earnings for 2019? That would be my first question.

Second question. You alluded a couple of times to the drought condition last year. As far as I remember, we had also in 2019 a couple of very hot days here. So my question would be -- is -- do you regard 2019 already as a normal year going forward? Or do you expect more upside to [the means,] so to speak, in the coming years or on average?

And third question, a detail. Could you help me to understand why registrations of tractors are up such a huge number? Like 22%. Is that a catch-up effect? Or what is it? And why don't we see more of that feeding through into your equipment business?

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [19]

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Well, thank you for your questions. First of all, you are right. The Energy business, and especially r.e., will provide a significant higher result in 2019. And just look at the megawatts. Last year, 450; now 660 around about. And so far, it must be higher on the basis of a, let me say, competitive similar cost structure that we had last year. And what was that?

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Andreas Helber, BayWa Aktiengesellschaft - CFO & Member of the Management Board [20]

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And conventional.

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [21]

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And in convention -- the conventional business, first of all, the fuel business is -- will be better than last year. The heating oil, and you see that -- you saw that and you see it already in the first 6 months, is much higher because there's a demand with regard to the, maybe, tax changes in Germany, and well, CO2, climate change and all these discussions we have in the country. And the same in Austria, by the way. And so far, the demand level of our customers is extremely high. That's the reason why we had these high prices in the local markets and better profitability in comparison to 2018. So Energy is one key driver for the first half year, but also for the overall outlook 2019.

Then your next question was with regard to the harvest. If -- do you mean that only locally? If you speak about Germany or Europe, we expect -- because we had some very hot days, 40 degrees and so forth, but it is not as dramatic as it was last year. We expect a higher harvest in Germany, but -- let me say, higher than 2018, but a little bit below average. But this can be changed, and we must be very careful what we are saying here as a European market leader, this can be changed within a few days, of course. It depends on the weather condition. If you have a thunderstorm or hail or whatever, then it can -- the potential harvest can be destroyed. And we had to experience that all over the world, in the areas where BayWa is an agri or a global produce company. We had to experience that over the last years again and again, that within a few days, the harvest was either destroyed or it was hard to protect the volume for the different agri products. But in general terms, I'll say that at this point in time, it's a little bit below average for Germany and Europe.

The last point has also to do with our discussion in this country with regard to climate change, CO2 output and all the stuff. The farmers are buying tractors but also other devices at this point in time to avoid any -- as they believe and think, to avoid any personal damage by new taxes and whatever. So to say, that's more psychology, I think. It's more psychology. The liquidity situation is very good -- of the German farmers because the milk price is on a reasonable level. And so far, liquidity, the fear of any additional taxes, the farmers are under pressure and they would like to protect their private wealth, so cash in tractors, harvesters and so forth, and also to -- they believe that they have a chance to avoid any further tax or whatever. In the 20th of September, by the way, the federal government in Berlin is going to take some decisions where -- I don't know whether they will decide anything, but the plan is that Mrs. Merkel, the Chancellor, and the ministers are going to make a decision on the actions to be taken to avoid further CO2 output. And this has to do with all these, let me say, activities of our customers, the farmers.

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Operator [22]

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We will now take our final question from Oliver Schwarz of Warburg.

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Oliver Schwarz, Warburg Research GmbH - Chemical Analyst [23]

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A final question hits the nail on the head. I got just one question left. And this is about the personnel expenses, which went up in first half year of 2019 by more than 8% compared to the level of last years while your number of people increased by only 3%. Is there something special going on? Or is that just a more high payroll people and -- or a higher amount of high payroll people?

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [24]

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Yes. Thanks for the question. That's r.e., renewable energy, driven. We made some little acquisitions. People are onboard, now in our balance sheet, and the average payment for renewable people are much higher than the, let me say, classic BayWa employee. That's one thing. Then we have this collective bargaining agreement with (inaudible) in Germany and a tariff agreement in Austria, where we had an increase of, what was it, nearly 3%. And unfortunately, you can't ask your customer, to be polite with my wording, to ask the customer to take part of that so easily. Nevertheless, taking in consideration what we planned for HR, below our budget in 2019. You know we don't provide you our budget plans because it's again very volatile, but we are a few percent under our original plan. And so far, it's a combination of more people, higher-paid people and the collective bargaining agreement.

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Operator [25]

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We have one last question coming to the queue from Müller Heinz of Kalliwoda Research.

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Heinz Müller, Dr. Kalliwoda Research GmbH - Research Analyst [26]

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One question. Perhaps you could give us an indication about your cooperation with unamera. So how many farmers are currently using this digital trading platform? And what do you expect will be the share of the sales of the agricultural division in the future via this platform?

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Klaus Josef Lutz, BayWa Aktiengesellschaft - Chairman of the Management Board & CEO [27]

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Mr. Müller, I'm happy to hear you. Well, it's a very good question -- a question, by the way, of my management as well, exactly with the same wording, more or less. First of all, that's on [trial], yes? The second point is nothing happened yet. It's just a cooperation with regard to create a trading platform. And we are right now in the process to get the approval for this cooperation from the antitrust office in Bonn. And I personally do not expect a very high contribution on the profit level. It's really a trial . And it was such, to be honest, it was such a hard way for my colleagues to get this cooperation agreement agreed upon with all the participants. So let's give it a try and wait a little bit. I'm not so -- you hear -- you know me enough for more than 10 years, Mr. Müller, and you hear what I'm saying. I'm not so let me say, enthusiastic about it.

But our young managers, they believe in this platform world. It's not only with the agribusiness, it's more or less in many other industries as well. And I think that it is not so easy to be very successful with that because farmers are reluctant to cooperate with platforms. They fear a high transparency. They fear abuse of data and all that stuff. That's the one thing. And the other thing is if you work together with other traders, as we try to do, they fear that you'll know too much about their margins. And so far, it's psychologically not easy. And I do not want to provide -- of course, we have a business plan, but I do not want to provide any figure for that because it's really too early, and you should not be surprised if it was a trial . It was more R&D-oriented, research and development. And at the end of the day, we'll stop it again. So -- and I'm not completely negative and pessimistic, but I'm not so optimistic. Is this useful to you?

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Heinz Müller, Dr. Kalliwoda Research GmbH - Research Analyst [28]

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Yes, of course.

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Operator [29]

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There are no further questions at this time. I'll now turn back to your host for any additional or closing remarks.

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Josko Radeljic, BayWa Aktiengesellschaft - Head of IR [30]

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Thank you very much for your participation and interest. The next conference call will take place on the 7th of November this year. And until then, especially now for the remaining weeks, we wish you hopefully a nice summer break. And we say goodbye, and thank you.

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Operator [31]

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This concludes today's call. Thank you for your participation. You may now disconnect.