Good morning everybody, welcome to BayWa's Conference Call on the Result of the Second Quarter of the Fiscal Year 2020. Professor Klaus Josef Lutz , our CEO, and Andreas Helber , our CFO, are sitting next to me, or to be more precise, they keep a distance of 1.5 m. As usual, they will guide you through the presentation. At the end of the presentation, we'll be happy to take your questions. All relevant documents have been sent out this morning, and I hand over now to Professor Klaus Josef Lutz.
Good morning, everyone. Lutz speaking. First of all, Mr. Radeljic is called or pronounced Radeljic, our IR Manager. We come to the figures of the first half year. Our interim report is here presented in the conference call. Some statements are out already, what I read just a few minutes ago, very positive. Thank you for this nice comment on the development of BayWa, which is, of course, unusual due to the coronavirus crisis and all the problems we are faced with all over the world. The most important thing is we are an essential service company announced by the federal government in Germany, but also other governments all over the world. For instance, in New Zealand, in Australia, Austria, and so forth. This is very positive.
With other words, the Corona crisis had an impact on our internal organization, also on the business a little bit, but nevertheless, bottom line, as you can see, the first half-year was positive, and especially the second quarter was extremely positive, much better than the previous fiscal year. I don't know whether I have to go through all the measures and all the actions we had taken, and we took very early, in a very early stage. In February, we started with our crisis management internally and globally, with regard to the coronavirus, because for me, it was absolutely clear that we will be confronted with a pandemic development all over the world. So far, I think we were well-prepared. The figures you can figure yourself out because I'm not sure whether you are really interested in.
Most important thing is we had 96 people at this point in time infected, more or less all are recovered. We are very happy and of course, we are more than grateful that no one passed away due to this crisis. We come to the development of the group. Page five, you see the revenue is a little decline. Why? Because of price development, but also the volumes, especially in the International Agribusiness, the commodities had a decline due to a lack of demand in the compound feed industry, sorry. Compound feed industry, not food. At the end, it's food, of course. Feed industry, some restrictions regarding the vessels, because the possibility to charter all the necessary vessels to ship the volumes from Latin America to Europe and to our customers was not always easy. This is one thing.
The other thing is you see a positive development in the EBIT result, EUR 53.8 million. It's a little bit higher, 3.1% comparison to the previous year. What is the reason for that? As I said, very strong second quarter. Also, we don't have yet a positive result in our Renewable Energies sector, which is the most important one, as you know. So far, I'm very happy and very pleased with the development over the last six months. Also taking into consideration comparison to the previous year, that we do not have one-timers included in the real EBIT. This is the real EBIT. It's not the operational EBIT, by the way. Some commented today, this morning, that the operational performance is better than the last one and is referring to the EBIT figure EUR 53.8 million. This is the real EBIT.
It's not the operational one, because the operational one is much better than last year, due to the operational performance of our different business segments. It's more or less all over a positive development. We are a little bit behind in the Agriculture Segment in Germany, especially due to the legislation and restrictions and also the price development in the fertilizer business. I'm coming back to that later. Page six, you see the comparison of the EBIT over the last years in Q2. You see it's a very strong second quarter with EUR 80.6 million. The last strong was in 2020. Well, every quarter is more or less strong than us, and you can't compare the quarters if you go in the depths of our business models, but as some of you would like to see it, so you see it.
It's EUR 81 million. The last one, which was above the average, was in 2018 with EUR 73 million. We come to the Energy Segment, page eight. If you turn to page eight, please. Nothing new. I don't know whether you want to hear a comment on that. The market perspective for the renewable energy, solar and wind is in good shape, still in the good shape. We have a plus in comparison to 2019 of 4.2% of the global investments expected in 2020. If you split the onshore wind energy activities and the solar energy. The solar has a much higher growth rate than wind, but nevertheless, bottom line, it's a great development which we are expecting all over the world, with a very positive impact on our business as well.
The conventional sector was in favor of the significant decrease of the oil prices on the stock exchanges. So far, our customers ordered a lot of heating oil. This is one of the reasons that we show such a great result in 2020 for the first half year. Energy in a good shape. What does it mean? Turn to page nine, Renewables. Well, I don't care about this at this point in time, to be honest, because we expect the sale of all our wind and solar facilities, especially in the last quarter, if not in quarter three, but in the last quarter. Here again, over the last weeks in 2020, it's getting interesting again. It's always the same. It's the normal circle of our sales activities in the project business. The last weeks are crucial for the overall result of RE.
You see here minus of, what is it? EUR - 1.3 million. Forget about it. That's not the case. The pipeline is full. We know exactly how many projects we have. We do not expect a significant impact on the bottom line due to the corona crisis. We expect a more or less similar development compared to 2019. Turn, please, to page 10. You see great year, half year in the conventional sector. Why? Because of the heating oil especially, but also lubricants were in a good shape. Nevertheless, this is insofar very important if you compare the figure 11.6 with 2018, 2019 to 2020. Last year, we had still Tessol, our fuel station company included, which we sold, as you know, last year. This is really operationally a great development. It's more market-driven, of course, brilliant management as well, but especially market-driven.
Page 11, you see the summary of our income statement. I think I need not to go through the figures. It's a positive, more or less, development. We come to page 12. What is this? The comparison. Income statement, revenue, revenue. Okay. If you have questions, please ask our CFO. I'm not prepared, obviously, for this. We come to agriculture. Turn to page 14, please. You see here, it's a very complicated development with the commodities in the first half year. The prices are under pressure. We don't have an upside potential at this point in time. Interesting, the second chart on the left side, the development of the soy meal and the rapeseed. It's really interesting. The rapeseed declined significantly in MATIF. Soy meal, we had an upside in the Chicago Board of Trade. Why soy meal?
It's pretty simple, because the volume which the compound feed industry asked for was not really available, and this was the reason for this short rally in this business. That's an overall picture. You see on the right side the global grain balance, as always, though, the storage increased in 2019, 2020, and also the forecast for 2021, the next season, is that the storage is higher and we don't have a real consumption and decline in the storage, which will have an impact on the price development as well. We do not expect in the commodities a real significant upside. Page 15, our international trading and supply activities. That's especially Cefetra and Rotterdam. By the way, we are going to change the name. BAST will be called in the future as it was in the past, Cefetra B.V. , located, of course, in Rotterdam.
It's not a change in the management, nothing else. It's just coming back to the brand roots of Cefetra because Cefetra is much more well-known to the customers than BAST. You see a decline of 12% here in the revenue. The reason for that I explained already, has to do with the commodities, the price development, a little bit lower volume. Nevertheless, we are stable in the EBIT, EUR 8.6 million was more or less the same. A smaller figure, I know. Nevertheless, the reason for this development is our specialty strategy. It's year by year since we invested a lot of money in smaller companies with specialties, vitamins, minerals, and stuff like that for the compound feed industry, especially. This is a very special and stable business for us, and our intention is to increase this share of the overall commodity Cefetra business in the future on top.
We said always split is 50/50. Maybe we can turn it in, let me say, 60-40, 70-40. Specialties for the commodity trading. We are going to be a little bit more independent on all these stock exchanges. We come to page 16, the overall Agri Segments. The different businesses and business units. First of all, one of our strategic fields, the Global Produce. We expect very good 2020 without significant one-timers. The operational development of the first six months, you see it in the figures, is very positive, and the overall market development is interesting as well. There is not really an impact on the Global Produce business from the Corona crisis. It's the other way around, because a lot of people are looking for food, for fruits, vegetables, which are full of vitamins and minerals to fight the virus.
Our input resources is suffering in 2020 because of the low energy costs, which led to a decline in the price of the ferti— fertilizers. We have a lack of a few million EUR, just in Germany in our P&L statement due to the fertilizer price development. Of course, the new regulations of the European Union, also the local German, local legislation due to sustainability, environmental protection, and the fight against chemicals on the soil. This has an impact on the business, of course, and we are involved in all these political discussions as well, by the way, our German Raiffeisen Association, but also some other lobby groups try to smooth this process a little bit.
It's not easy because especially the citizens in the cities, in the metropoles, they do not really understand what is necessary to have the yield on the field to make the farmer safer, but also to keep the prices for food very low, especially in Germany. It's interesting what's coming up here, especially for our customers. Interesting, the agriculture equipment is still in a good shape. Nevertheless, we had a decline of new tractor registrations in the first half year. -2.7%. Our figures show exactly the other way around. We come to page 17. You see here the first report on Global Produce for the six months. It's an increase in revenue and a very positive, as I said, operational development, EUR 18.2 million on the EBIT side. We do not have, as I said, any significant, let me say, one-timers included.
We are working on the Freshmax consolidation and integration in our alternative growth activity in New Zealand. And Freshmax was for the first time consolidated as of May, with around about EUR 500,000. Well, this is not yet such a significant amount of money. Interesting is we were always, due to the crisis, some of the competitors were not able to deliver the goods to the retailers. We were, because our stock inventory was sufficient. So far, also our tropical food division showed an excellent performance in the first six months. Coming to page 18, our Agri Trade & Service revenue. What is this? This is the German and Austrian and Eastern European agribusiness.
You see an increase, a little increase. That's the most positive message I have in the revenue, up to EUR 1.987 billion, but a decline of 22.9% on the EBIT side, 18.9%. We need not to discuss whether I'm happy with this or not. Of course, we are not. The key reasons are the fertilizers. The second one, the origination and also the supply chain management, the logistics situation, and so forth, the consolidation process. We go through a very strict and, let me say, clear and tough and straightforward restructuring process for the agribusiness in Germany. What is the goal? First of all, to reduce the capital employed. Secondly, to reduce the workforce. Thirdly, to reduce the sites significantly. We now speed up with this restructuring process.
I mentioned that in the last conferences already, but I'm not happy with the speed, so we have to speed up. And I expect a similar turnaround as we proved and showed a few years ago in the building material business. Nevertheless, due to the legislations and the restrictions, we need also to redefine and reinvent a new kind of agribusiness for BayWa. I think with our digital farming, smart farming, precision farming, participations and companies and all the product portfolios we have in our portfolio, I think we are in a good shape and in a good pole position in comparison to the competitors. Nevertheless, we need time for this. This is not a action from one day to the other, and we see a positive result. It will take another, let me say, around about two years till we can show some better figures.
Coming to page 19, the other way around here, exactly the opposite picture. Increase of revenue for the equipment, so our technology business, 9.8+%. We have also an increase on the EBIT level of EUR 15.9 million, which is really interesting. It shows that the farmers are still willing to invest in technology, because uncertainty is normal in our conservative client base. Farmers are investing. If they don't know, is our money, the currency stable, what does it mean for my personal future? So forth. They see investment in technology as a kind of rescue action to be taken for the family. Nevertheless, also the consolidation process within the small farmers' community, the consolidation process is speeding up as well. In so far, the new created bigger farms, they need to invest money in technology, stable technology and so forth.
You'll see on page 20 the income statement. Andreas can comment on that. We turn to page 22. This is the market overview regarding building materials in the first half year. The construction industry overall picture is still positive in Germany, 9.6+%. The overall picture is good. The only interesting thing is also we need more apartments and buildings for the citizens in our country. The building permissions are a little bit declined, 4.3%. Interesting. Maybe this has to do with the Corona crisis. You see on page 23, nevertheless, that we have a very good first half year. Plus of 13.1% in the revenue and the EBIT is 17.2%. This is really exceptional because normally the first half year is not really the strongest one. So far, a positive development.
We had this shutdown in Austria where DIY and especially also the Building Material sites were not allowed to be opened. So far, a very positive signal also regarding the market development and for the next years. Page 24, you'll see again the Income Statement, there's a picture or the chart in page 25, which I do not like anymore. This means we have to take action as well, because Innovation & Digitalisation segment shows again a negative result of EUR - 6.8 million compared to the - 6.5 million. This is not really all operational. These are the investments in our future, especially the software portfolio, the applications, vertical, horizontal applications for the farmers, also the investment in the Agri Application Group, AAG.
The investment in Vista, the satellite company, where we get all the necessary data for the farmers to make an evaluation with weather forecast, the soil productivity forecast and stuff like that. All these things. Due to this negative figure, we are starting also an internal restructuring program. I come to page 26. I would like to hand over to Andreas because he is the real specialist for other activities.
Yes. Good morning, ladies and gentlemen. Also from my side, commenting on the other activities. You see the gap between last year, EUR 14 million and 35 million for 2020. That needs to be explained. There are some effects which are already mentioned on the first quarter call, which are postponing effects or effects which will be offsetted through the later quarters of the year, but also some effects which will be permanent.
Starting with the permanent effects is the burden that we took from the Corona, from the COVID-19 crisis, was some EUR 6 million overall here in the other activities, reflecting on measures against COVID-19 on the personal side, on masks and things that need to get onboarded, and also the IT infrastructure set up for the home office activities. That all was reflected in the EUR 6 million burden that we took in the first six months.
We had last year a sale already on one of our participations in the Kartoffel-Centrum Bayern . You remind of this. This had a positive effect on EUR 4 million in last year's numbers. The most impacting thing that we are facing now through the six-month period is the missing of the bank dividends, which did not came in yet. That is mainly in Austria from the Raiffeisen Bank International, but also from the DZ Bank here in Germany via our participation in the [Foreign language] . This amounts to some EUR 7 billion income from bank dividends that has been flown last year already. We are still waiting for a later stage of the year if they can pay it this year or not. We just received a message.
You also received the message from the [ECB] in Brussels that they intend not to allow banks paying dividends throughout 2020, which would mean that would be a postponing into 2021. This is something we cannot influence, and we have to look how it goes through a later stage of the year. Next, what we are missing is the dividends from our equity investment in Austria Juice. They came up with a very good result, very positive result in the first half year. Last year already with some EUR 4.5 million. For the time being, we only have EUR 2 million accounted for, so there's a gap of EUR 2.5 million . And finally, and that is also that I pointed out in the first quarter, there was an effect on the exchange rate issue, which came in for the first quarter with some EUR 7 million.
We said that will be offsetted through the later stage of the year, it's now down to EUR 3 million, but it's also a gap effect compared year-on-year in the other activities. Looking on this number, at the year-end, we're expecting some income, as I said, from some participations, maybe from the bank dividends. We will have already also an offsetting effect from sales of real estate, which we expect to come in the third quarter with an amount of EUR 9 million. That will partly offsetting this gap. We think that we can close it towards the year-end. We finally leave it on a level as it was last year for the full year. Last year, we had this effect from external lawyers' costs. You remind that on the various activities we took last year.
I think this will now be replaced for the full year period on the COVID-19 effect. We have to consider this in mind. Some comments, very short on the group financials. Overall, the income statement, the most important thing for me is that we have breakeven after six months. This is always important that we have breakeven. Even we have not the income yet from the renewable energy activities. Klaus pointed out on this. I think that second quarter was a very strong quarter on the operational businesses. Remind that we had a shortfall from Q1 2019 to Q1 2020 by 50%, which already has been caught up in the second quarter. That was a very strong one. It seems to be that it even will be continued throughout the third quarter. On the balance sheet on 29, just some comments on the total asset.
We are back on level year-end, which is unusual for the course of the year. Remind that we had after the first period, Q1, a level of EUR 9.2 billion. It's leveled out throughout year-end numbers. That mainly is reflected in a decrease in the current assets following the seasonal sale of our harvest products from last year, but also on a reduction of some EUR 300 million on our debt position, which has been managed very well throughout the Corona period. Liquidity is not an issue. We are safe. We have backup lines. We have no governmental aid needed from the KfW or other activities. I think this is very positive how the company went through this COVID crisis financially and also reflected here in the balance sheet. Equity is back on EUR 40.8 from 36 after the first quarter.
The main effect that we still have in there in the decrease of equity is the valuation of our shares in Raiffeisen Bank International, which did not perform very well throughout the second quarter in 2020. Finally, cash flow. This is just a pickup here for the first half year. The cash flow from operating activity is pretty strong. The cash flow, it has been used mainly to reduce the cash flow from financing activities on our debt position towards the bank. I mentioned these 300 cut down in our short-term bank debts. That was it from the financial side. Then I hand over back to Klaus for the operation outlook for 2020.
Thank you, Andreas. As always, we don't give you a concrete guideline or guidance. Guideline, I hope, but a guidance. I try to explain what we expect in 2020. First, turn to page 32, but also page 33, please. The Energy Segment, which is going to be very successful in 2020 as well. You'll see on page 33 the planned Renewable Energy Projects to be sold in 2020. It's 1.2 GW, which is really the highest volume, excuse me, we ever sold in one fiscal year. The key area is North America with 683 MW, then Europe. Asia is becoming bigger and bigger. Here, especially Japan, Malaysia, Indonesia, and so forth. While this is very positive, we believe also that sales trend for the trading company for PV components will continue.
We expect also an additional approach or a stimulus for our local solar business in Germany due to the removal of the so-called solar cap. The Conventional or classic energy business had already an extraordinary first half year. Well, it depends a little bit on the winter season, as always. The trend is still not yet broken, so positive development. We have a greater demand for lubricants and fuels in the second half year. Also positive, our investment in BayWa Mobile Solutions business with LNG fuel stations. We put in the market, I think, 10 or 11 fuel stations for LNG for the big trucks. Turn please to 34. agribusiness, the operational outlook. We expect bottom line that we will have some higher result despite the corona crisis in our overall agribusiness. As I said, Global Produce is in a very good shape.
Sorry for the noise in the background. People are working here. Our craftsmen have to, I don't know what they are doing. If you hear something like that, it's not here. Not we are doing something. What did I say? Global Produce is a very positive development. We see also a slight recovery in the origination collection of grain and oilseed, especially in Germany. Maybe we have a chance to reduce the losses in Germany, especially, then we expect also more sideways, but from an operational performance point of view, positive development in our international CV trading and supply chain activity. The Agri Equipment is going, let me say, more on a normal level in the second half. The end result will be very positive as well. Building Material, I showed you we had a great first half year.
The outlook from the market and the markets in which we are is positive as well. We anticipate the further increase of our earnings. Bottom line, I'm happy if we have the real EBIT, not the operational or something else EBIT. The real bottom line EBIT, if we are a little bit higher than in the previous fiscal year, or be more or less on the same level, I'm happy due to the crisis situation. This was my comment on 2020, and I hand over to Mr. Radeljic. Thanks.
Yes. Thank you very much, Professor Lutz and Mr. Helber. We are now ready and happy to take your questions.
We will take a question from [inaudible ] with [Pareto Securities] . Please go ahead.
Yeah, good morning. Thank you for taking my question. Great results. Congrats to that. I have a couple questions. First of all, on the heating oil market. So it seems that it decoupled partially from the crude oil market. Maybe you can share your thoughts on that. Why is that happening and help us to understand that trend. Secondly, again, on heating oil market, so if you see a strong stocking of consumers in that market, what do you expect for the second half? Should we expect a sharp drop of volumes and earnings in the second half, or do you expect that to continue? Thirdly, I would like come to the Agricultural Equipment market. It seems that you have a very strong result here. Also, I've seen on one slide that registries of tractors seem to be down in the first half of the year.
Maybe you can give a little bit color why you are doing so much better than that market. Lastly, my fourth question is on BayWa r.e. Maybe you can update on the negotiation with the potential minority shareholder. Thank you.
Okay, thanks for the question. Start with the last one. We are still in the process. It's not yet finalized. The only thing I can tell you is the interest of potential investors is very high. We are a little bit delayed due to Corona crisis. That's for sure, because people are not really willing to invest, let's say, several hundred million Euros over a video conference, Teams and Skype and so forth. That's the reason why we are a little bit behind. Nevertheless, at this point in time, I can say the discussions and the negotiations are still in a positive mode and mood. So far, I don't have. At this point in time, can always be changed maybe this afternoon or in one week or so.
At this point in time, I can say that I'm optimistic and positive that this is still done. That's my comment on r.e., and technical equipment, your third question. Well, it depends a little bit where we are. Our key market is South Germany. South Germany, Bavaria, and Baden-Württemberg. You have this decline, especially in Eastern Germany. We feel that, for instance, in the order intake in CLAAS, the CLAAS operation is normally very strong in Eastern Germany, and here we have a decline. The small and fragmented market in Bavaria especially, shows us, and also the comments of our customers, that they are willing to rescue, so to say, rescue money due to the crisis and the uncertainty in the currency market, and rescue money means for farmers to invest money in technology.
In Northern Germany, this trend is not anymore as stable as it is in the south of Germany. It's a more local, it is a local, local view or local development. Your question on the heating oil. First of all, of course, the heating oil depends on the crude oil price on the stock exchange. That's clear. The price was very low, so that consumers used this opportunity to fulfill the tanks. The question is now, of course, what does it mean for the second half? At this point in time, we still have a very high order intake. That's the one thing on the heating oil. The second point is we have a high order intake in the lubricant business because some manufacturers have to catch up due to the crisis, so this is positive for us.
The last one is also the few fuel stations we have still in Germany, in BayWa AG. But in Austria, where we are very strong in the fuel station business, let me say, Carinthia, Tyrol, Vienna, Lower Austria, Upper Austria, and so forth. Here we are very strong and we expect also a positive development in the second half. The likelihood that we will have a decline, I wouldn't say crash or so, but a decline is in the first half year 2021. 2020 trend is okay. 2021, I have doubts whether we can continue this great result also in 2021, because we cannot ignore that we sold Tessol, our fuel station company, to AVIA with a great positive impact last year. Now, of course, we have a gap here. What we are doing, maybe you didn't ask a question, maybe one comment.
We are, of course, preparing a new strategy for our Conventional Energy sector. Here we see especially the mobility and the e-mobility is one of the key cornerstones in the future of our business model in the Conventional Energy sector. Is this okay for you? Yeah. Did I answer your questions?
Absolutely. [crosstalk]. Thanks.
Welcome.
We will now take our next question from Anne Margaret Crow with Edison Group. Please go ahead.
Good morning, gentlemen. Thank you very much for taking my questions.
Yeah, of course, My pleasure .
Thank you, thank you. I have three questions. One's a follow-up question on heating oil, and I was wondering if you had had any benefit from oil price volatility. I was listening to NWS Group results earlier in the week. They had been able to extract higher average margins from heating oil over the last six months. I think they were getting GBP 0.016 per liter, rather than GBP 0.010, which they usually do. That was simply because of very good management through the volatility in pricing. Wondering if you'd seen any of that. The second question was on fertilizer. I'm wondering whether there'd been any influence of weather on the low fertilizer demand. Certainly, in the U.K. and Ireland, the wet weathers earlier in the year reduced the amount of winter wheat that was being planted, and that this was impacting demand for fertilizer.
The third question relates to the digitalization business. In previous presentations, you had noted that you were looking for distributors in the U.K. for the software for farmers, and I was wondering if you still were?
Okay, last question. Distributors U.K., not only U.K., but all over Europe. I said several times we need a rollout process and rollout approach for all over Europe because due to the market niche for all these Agri-Digital Applications , let me say in Germany or any other single European country, the market is like a niche and you never will materialize your investments. So far, it must be an international approach. Here we are now in some countries, like in some smaller Eastern European countries, we started, we created the first steps. Nevertheless, I'm personally, as I try to express myself, not really happy with the development over the last two years. We have to speed up here, and you can expect some changes also in the management. It must be a minimum in a European rollout process, otherwise it's hard to justify these investments.
With regard to the fertilizer and the low performance, or let me say the small contribution from an EBIT point of view, it's not only the regulatory legislation and all the restrictions we have in Europe and the European Union implemented by the national governments. This is demand side. The other side is indeed that the first demands normally in the first quarter of the year by the farmers due to the weather situation, the warm weather and so forth, the fertilizer was not really demanded on a similar high level as we were used to over the last year. It's indeed a combination. The legislation, the European CAP Policy on the one side, but on the other side, of course, the weather situation, and then the third aspect is the link between fertilizer price development and the oil price development.
Then, your first question, the heating oil margins. As you know, we don't speak about margins with regard to individual products because this is top secret. Nevertheless, it's obvious. We bought on a very cheap level, some stock inventory heating oil, and we sold it. This was the decrease. We had a decrease, and afterwards again an increase. In this situation, we used a little bit, let me say, smarter than it was maybe in previous years.
The volatility, the downside and the upside. We sold our position to the customers, and we made the next step and bought again heating oil for our stock inventory, which is a little bit unusual. This was the forecast from our management, because normally our stock inventory is extremely low. It's buying on demand or trading or supply chain management on demand. And then, in this situation, we changed a little bit our strategy. This is the reason for this positive development in the first half year.
Right. This is going back to your reference to, quote, "brilliant management" as well.
Yes.
Some taking advantage of the situation. That's great.
Thank you.
Thank you. That's really helpful.
Thank you, thank you. If you need an interview, you get it personally. Thanks.
Thank you.
Thanks. All the best. Bye.
Bye.
Next one.
Yes, we will now take our next question from Roland Pfänder with ODDO. Please go ahead.
Yes, good morning. Two questions from my side. The first one on your BAST operation. Could you give us maybe a normalized run rate, what you expect for EBIT in the segment currently in the current environment, maybe linked to the specialty business and then on top of the wheat trading or others. What is your outlook for this business for the next some years? The first question. Second, Renewable Energy. If I understood it correctly, you will be selling the most projects in North America. Do you see there any risk of project delays due to the current health crisis? Thank you.
Thanks for the question. So, BAST, we said— we always said, that's an official figure of the management here, that in BAST, in a normalized fifth year, we expect EUR 40 million EBIT, and the split was 50/50. Now it's changing 70/30. 70 specialties, 30 commodities. Overall will be round about 40. Sometimes less and hopefully more than sometimes in the future, more than 40. Round about EUR 40 million. 70/30. U.S., you said this is the highest volume on projects in RE. That's right, 683 MW we plan in North America, so e specially the United States. Do we expect delays? Well, we do not expect, but there is a risk, of course, that we will have one or two delays, which is only postpone— postponing the projects to the first half year 2021.
If there is the case, but at this point, you can't say it because it's another three, four, five months to run. If this is the case, most of it can be compen— compensated by other activities. So, we do not expect, let me say, a serious decline in r.e. due to that. But it's not lost. That's project business. Project business is always hard to predict a quarter a quarterly result on the basis of projects, because you need always the contractual partner to sign and all the prerequisites to get a closing of the signing. It's not always in our hands, so to say. Bottom line, as I said, r.e. will have a very good result again in 2020.
Okay, thank you.
We will now take the next question from Oliver Schwarz with Warburg. Please go ahead.
Good morning, gentlemen. Thank you for taking my questions. Congratulations on the good operational performance of the group in Q2. It seems that the positive development doesn't really affect so much the equity ratio and the level of net financial debt. Given that we are now heading into the harvesting season and, obviously, your inventories will increase within the first part of the second half of this year, I'm wondering to which extent this development can continue until something's got to give, maybe the growth in r.e. can't be supported as much as it could in the past and things like that. How low, basically, can we go in regards to the equity ratio? How high can we go in regards to net financial debt before the first strains really kick in, and you've got to adjust your growth to the capital requirements that you face?
That would be my first question. Second question to Mr. Lutz. Going back to the Innovation & Digitalisation segment , obviously not the most important segment in the overall scheme of things, but still, you're talking about restructuring and so, and seem to blame management for the development that is unsatisfactory. However, looking on the presentations and the bullet point here, it says according to plan, positive, things like that.
Basically, what is amiss here? Are the plans that were fulfilled, were they not valid, or were they not checked by top management? If you say we've got to accelerate the business and restructure it, if we are talking about acceleration and this seems to mean more investments and restructuring also indicates additional costs. Can you talk about the magnitude the measures will have in regard to financial impact on P&L that you alluded to?
Third question is on Austria Juice. Mr. Helber stated that the dividend from Austria Juice has not yet been received by BayWa. Why is that the case? Agrana did pay its dividend already some time ago. Why didn't you receive your fair share from Austria Juice yet in comparison to last year? Last question, I think I've been over this before, but I'm still puzzled about that. In the half-year report, we see two lines. Give me a sec, please, here. On page 12 of the report. Sorry about that. That are financial liabilities and financial assets. Then, I am wondering what's the definition of the one line financial liabilities is compared to the other line, which is also called financial liabilities. Is this a misprint?
Is that non-financial liabilities in the seconds— in the second line, or should that read non-financial liabilities, or are those financial liabilities treated differently, or what's the difference between It's a bit difficult to process what the difference between financial liabilities and financial liabilities actually is. Thank you. That would be my questions.
Okay , Mr. Schwarz. Lutz speaking here. Coming back to that smart farming. It's FarmFacts a nd all the activities. The figure you see here is not only FarmFacts , it's our digitalization project, the e-procurement project, the online sales platforms we have in the different business segments and so forth. We are in the plans, that's true. The budget is as it is, but I'm not happy with the permanent negative figure we have to present to you. That's my point. FarmFacts, as a market leader in Germany with all the applications for the farmers, and you show permanently negative figures, this is an unpleasant situation. Speaking about restructuring. So, the first restructuring is our German agribusiness, where we have already achieved EUR 5 million cost reduction for the agribusiness as a whole.
The smart farming activity is part of our agribusiness, so is reported internally in the agribusiness as well. What I am missing here, honestly, is that what our U.K. colleague, the nice lady asked me just a few minutes ago, is that our European distribution rollout is behind my expectation, and my expectation means behind the official timetable, and we need a much better sales and marketing focus on all this as we had it in the past. The company was driven by too many engineers. What we now need, and we are searching for guys with marketing and sales experience on an international level, is exactly a better distribution and sales approach. In this sector, also the combination with Vista GmbH, our satellite company, where we acquired a few years, when was it?
I think two years ago or so, we acquired 51% from the founders of the company. The cooperation is not in, let me say, on a level which I expected. Last point is, and we just had a meeting yesterday for this, the blockchain technology, which is going to be much, much more important in the agribusiness as maybe some experts thought. At this point, I'm not really yet so happy with the development for the blockchain technology because there are some startups in the market, there are some opportunities, and we need to combine our application portfolio for the farmers, which is more an internal process optimization program.
To say for the farmers, we need more also an external approach, and the blockchain technology can be part of this external approach to prove to the customers, the retailers, but also the end consumers, where the goods, where the resources, where the specialties and where all these agri goods are coming from with the certainty that organic preconditions are fulfilled, that all the legal preconditions and requirements are met and so forth. That is a very complex issue. If you talked to the management, they would say, "Well, we are in the plan," but year by year, a negative figure is not acceptable anymore. This would be my comment on the digitalization. Now I hand over to Andreas for the rest of your questions.
Mr. Schwarz. Hello. Relating to the Austria Juice question, I guess that was a kind of misunderstanding. The dividends I reflect on, that was only the bank dividends coming from Raiffeisen Austria and coming from DZ Bank. The Austria Juice, this is an equity participation, and the result, it was last year at half year included with some EUR 3.3 million or 3.5 million compared to a loss for the first six-month period of EUR 1 million this year. But they expect the turning in the results coming in the second half of the year. I hope that makes it clearer. Coming to your first question on the financial KPIs, the equity ratio.
I mean, It's quite clear talking about the half year with just a result on break even that we cannot show throughout the year an improvement in these KPIs. What we reflected in prior conversations and also the Q1 call. We are working on this situation on the equity ratio to improve the equity ratio. One step on this is, of course, the planned transaction in the r.e. business. This is very clear that we have a growth potential in there, which we like to keep up and which we like to bring forward. Therefore we need resources. This is the most important trigger why taking an investor in on this r.e business. That will improve automatically the most important KPIs you mentioned, the equity ratio, the debt position.
Just make it one time very, very clear, I have no problem with our debt position or nor with the leverage of this. You know that we have an important financing function in our markets compared to Agriculture Business. This is historical and the DNA of the company, this is how we are working like a little bank. And then, the other side, we have this r.e. business, which is very successful and which we are working on taking investor in, we are working on taking assets out on the traditional Agriculture Business. You know all about that.
That's nothing that we can achieve within months. It's more or less a path that we walk on over a couple of years or whatever. I think we will see already improvements in this year's financials due to the measures we took. I expect the equity ratio to be back at year-end at a level of over or nearby 20% compared to the 15% that we had last year.
May I add something, please, Mr. Schwarz? Look. In Eastern Germany, we started this project internally called Triangle, where we are really reducing the capital employed due to the sale of all these sites. I guess 33 sites we are closing, and we are going to sell. The same process will take place in Western Germany. We did that already over the last years, but not as aggressive and fast as we are doing it now. As you know, we have new Head of Agriculture, Building Material and Technology. That's Marcus Pöllinger . He has a complete new team. We know, and I always said I'm not at all happy. It's not a pleasant situation with this capital employed, and the return rate is out of any discussion. No one would invest private money in this business segment with these low returns.
Insofar, this is one of the key priorities of the top management. Nevertheless, it takes time, and the time is of essence also with regard to the customers. Because if you are too fast and you leave some local areas without a local, it's always very local, without a local concept to provide the farmers with the necessary services. So you are really losing market share and ground. For instance, one example, we are in a complete restructuring process for the logistics and the supply chain management. What does this in concreto mean? This means, for instance, for crop protection and for the fertilizers, that we do not have any more in any little site, all these chemicals available.
We will have, I guess, two or three big storage areas and storage sites, in especially southern Germany, to provide the goods or to deliver and to ship the goods to the farmers. I think this is very important to understand. It's not a revolution. It's an evolutionary process, step by step, and we will significantly reduce our capital employed. What is the headline? The headline is, we want to be in the German agribusiness, asset-light oriented, as we are in Cefetra, BAST, and all the other European countries. We do not own any more sites, but we want to rent them and all these things to be much more flexible on the cost side as we were in the past. Is this understandable? I hope. It's very detailed. It's not sexy.
For the management, also for Marcus Pöllinger , our young guy in the Executive Board, this is really a challenge because it's a day-by-day work, very detailed. It's nitty-gritty. You have to step in in very small pieces of issues to solve them and so forth. This is really a very complex task, and it takes time, and he gets the time from my side. I said, you have two years, and then I would like to see positive results.
Mr. Schwarz, finally, from the question on the financial liabilities issue. I think this is a misleading translation in the English version. The financial liabilities, which are in the short and the long-term position, these are the bank financing. It should better be, obviously, financing liabilities. This is what we have on the bank debt. The other portion that you mentioned on financial liabilities, which is also named financial liabilities in the translation, this reflects to our [foreign language], the forward security net on, on the.. Yeah.
My suggestion is for the next analyst conference, video conference, or Telco, we switch then to avoid any misunderstandings from the translation point of view in the Bavarian language. And who is not able to understand Bavarian, then this is your cup of tea. That's not my problem.
Great. Let's do that. Okay. I go back to the queue. Thank you for the answers to my questions.
Yeah. [foreign language] .
We will now take our next question from Hans Müller with Kalliwoda. Please go ahead.
Good morning. Hans Müller speaking, Kalliwoda Research. I have three questions. The first is, perhaps could you give us an indication about the financial impact regarding your planned reorganization of your agricultural business in Northern and Eastern Germany? Second, do you think that the reduction of sites can be compensated by increasing online orders of your BayWa portal? Perhaps the last question, do you see noteworthy impacts, positive impacts of the reduction of the value-added tax with regard to your ag equipment business? Thank you.
Hi, Müller, good morning. By the way, welcome. I start with the last one. Yes, the VAT reduction has an impact on our overall agri-equipment business. That's especially the case here. Besides the rescue approach of the farmers regarding the money, their cash position at home, so to say, the VAT has a positive impact. Nevertheless, it's not easy to handle, it's very complex from a software point of view and internally, but it's more an internal process. That's an impact, but I can't quantify it at this point in time. If you ask what is the concrete result, I don't know. It's just an assumption, and I think it's plausible. The financial impact, Andreas is coming back to that. The online activity, if we reduce the sites, the first thing is we are for years now in many sites in a loss situation.
BayWa, for many decades now, Mr. Müller, that we are not in a hire and fire and very aggressive restructuring mode and mood normally because most of it will be compensated by new businesses. That's one thing. The other thing is we take time to restructure as we did it in building material. Now, in the agri sector, we have additionally to obey changes in legislation. And this makes a restructuring program more complicated as we have it in other businesses like building material. And insofar, the complexity is much higher than in other businesses. So, of course, reducing the crowd of sites has to be in parallel with new either business ideas or with new structures and processes, and especially with the digitalization. An this is nothing brand new. I always said reducing the sites means also to increase our online activity.
Now we have this BayWa online portal, as you said, and we have an increase, yes, but the big but is that farmers are not really, let me say, not really yet well prepared to use that. Well, I always say we are market leader in all these segments in Germany. That's true. We can prove it. On the other hand, on a very low revenue level. If some of you have the imagination and you compare it with Amazon and Alibaba, something like that, so this is far, far away from it because the farmers are still very reluctant to buy something online, and we have also legal restrictions. You can't sell so easily crop protection, so chemicals via our online portal.
This is a little bit the problem, a catch-22 in which we are, and this makes our restructuring process, again, more complex and the timing is always an issue here. Of course, the online system is part of the restructuring program, but we are far behind the development you see, for instance, in the United States, also in Canada or in some African countries like South Africa. That's a little bit the problem and the challenge for the management to handle that. Now the question one was, what is the financial impact of this restructuring, Andreas?
Yes, Mr. Müller. I mean, there are a couple of financial impacts, of course, on this restructuring in the East German businesses. The direct impact on restructuring costs amounts to some EUR 5 million for 2020, these 5 million will be offsetted and compensated by results from, or cutting down losses in East Germany and using real estate that we set free, to offset these restructuring costs partly. We just sold the first location successfully with a result impact of roughly a million. These effects will be offsetting partly these restructuring costs. The other financial impacts, which is too early to say, is what does it mean on the restructuring on total assets? We once said that we have a billion on capital tied up in this business in agriculture, and part of this now is offset.
We said that we expect to reduce it by some EUR 500 million over time. This is part of it, of this reduction, the first step on the East German locations. It's too early to say what it will mean for the overall asset impact.
Okay. Thank you.
We will now take our next question from Michael Schaefer with Commerzbank. Please go ahead.
Yeah. Thanks for taking my three questions. I keep it quick here, basically. On the first, and you mentioned on the ag trading services side, higher logistics costs affecting basically the second quarter. I wonder whether you can quantify what you had as an extra expense there and how we should think about the second half now with lockdowns easing and potentially trade flows improving as well. This would be my first one. Second, on your input business, given that you have suffered on the margin side in the second quarter, and in the first half in general, so I wonder, how do you position basically in some of the programs now for the second half, looking into the new season, with your buying and stocking behavior, in fertilizers?
This would be my second one. The third one, last not least, on Global Produce, so the close to 14% revenue increase you've shown in the first half. I wonder whether you can split this up into volume and price components, and how do you see basically price levels heading into the second half? Whether you can sustain those price levels, and how do you see volumes evolving on the back of the 4% New Zealand apple acreage expansion basically in the next season? Thank you.
Thanks for the question. Global Produce, we have an average 30% price increase on the apple business in Germany. Due to the harvest, it is not always a volume issue, by the way. It's a quality issue. We expect also higher prices, especially in Asia, in China for Jazz and Envy, in the New Zealand apples, these two varieties we own. The third one is TFC, Tropical Food Company, Mustek. We have also, it's still the case, but it can change within a few days, by the way, because it's a very volatile business for avocados, papayas, [foreign language], peas.
Ginger.
Ginger. We are organic ginger market leader, are we? I guess in Europe or Germany, I don't know. Especially the organic-oriented females are buying ginger. So, the margins are high because in comparison to other competitors, we were able to create low-key stock inventory, let me say in Latin America, for instance, to be able to ship immediately to the retailers on the basis of a higher demand in the first six months. This trend is still valid. We don't have any signals that is going to change. As you know, in the details of the single product productivity, we don't jump in here because this is not to be published. Okay? Fertilizer, the question, what is the volume? Do we have any..
Maybe just from my side about your fertilizer question. What my colleagues told me already is that in the first six months, they sold all their inventories. Of course, the price development was not very favorable for us. Now they are stocking up the inventories again because they do expect a higher demand now in the second half of the year because of the prices. The tax reduction and also the very low prices right now should push the demand. For that reason, they will prepare for that.
If the background of your question is whether we have a significant increase on our stock inventory, you know exactly I'm 12 years on board here as CEO, and the very first year in 2008, we paid really our due because it was a disaster. In so far, we did not yet take the decision how much volume we are going to put on our stock because it's too dangerous. This business is meanwhile so volatile, in 2008, we lost, I guess within a few weeks, three or four weeks, we lost nearly EUR 30 million real profit due to the fertilizer, the volume we had in our inventory. In so far, I'm very careful. The management was not yet with Andreas and myself, then we take a decision.
I'm very conservative here, and I think it's much better to have a lower inventory than a higher, even if the demand is significantly increasing. I would prefer a What does it mean in English? I forgot it.
Stretching.
I can understand Bavarian. No worries. That's all fine.
No, thanks. I prefer a because the direct shipment from the.
Production.
From the production side to the farmers, just that we minimize our financial exposure in the fertilizer business. This is so extremely risky. What happened over the last years, we are more or less not only the shipment company for the production companies, the chemicals especially, we are also the stock inventory. At the end of the day, we pay the due. That can't be the future. We need to change this business model, and we are working on this, and we are discussing that with the chemical industry. It's not easy, because otherwise I would have announced something. It's not easy to change this old structure, but this is not the future, to be honest.
Also, due to the always the attempts by the chemical companies to have a direct connection to the, especially the big farms in Europe and Eastern Germany, for instance, a few thousand hectares and so forth, a direct link to the farmers and to try to exclude the distribution company like BayWa. So it's a low-margin business, and we have all the costs. We have the capital employed. We have the sites and so forth. These need to be changed dramatically. That's part also of our restructuring program for the agribusiness. In other words, small volume and permanent ongoing process and ongoing discussion with the chemical industry. What was the third one?
Mr. Schaefer, on the logistic costs.
Yeah.
The only area where I saw higher logistic costs were our business in New Zealand. They secured logistic capacities, shipments to Europe for their crop and into Asia. That was a one-timer, let's say they only did it one time, secured ships on their own costs, but that was a very low number of higher logistic costs. On the other business, I did not see it, and I do not expect it also for the second half of the year. Look for the issues that we always had at that time of the year on the agribusiness with the harvesting business, and l ow water on the river and things like that. That will not be the case this year for the time being.
Well, we don't know, we don't know.
We don't know, we had enough rain in these days now. Therefore, I do not expect it, in particular, to see higher costs coming up on the logistics side.
But it's the vessels, it's the vessels. I spoke in my little presentation, I spoke about the vessels for the Cefetra business, and here we had a problem because of the, first of all, lower demand due to the Corona crisis. That's the one thing. Secondly, we didn't get all the charter contracts for the vessels because the crowd of vessels shipping over the seas was limited due to the crisis, and now there was a run on new charter contracts in the second half or after, let me say, the high corona crisis or the high season of the corona crisis. There was a run on vessels and charter ships, and you don't see that yet in the figures. We will maybe see it in the second half.
Okay. Thank you very much.
Okay.
We will now take the follow-up question from Oliver Schwarz with Warburg. Please go ahead.
Thank you for taking my follow-up questions. I try to be brief here. Agri Equipments, as you said, you're going from strength to strength here. That doesn't really mirror the picture drawn by CLAAS or [inaudible] . I'm wondering, is that a product mix thing here included? Is this more, let's say, stable technology or things like that, or non-mobile devices in the Agricultural Equipment part of the business? Is this more likely service-driven and hence more, let's say, recurring business that you are now generating, especially with digitalization that needs perhaps more updating and more up-to-date tuning? That would be my first one. The cost reductions in the others parts compensate.
Mr. Schwarz.
Yeah.
Sorry. Can I answer immediately question one? Then it's complex. We really love to answer your questions, but it's easier to go through step by step, please, if this is possible.
Yes, sure.
To answer your question for the agri technology. There are three, four elements. The first one is a very successful service business. As you know, over the last years, we changed our strategy. We invested a lot of money in the skill profile of our employees, the workers, the craftsmen. We invested a lot of money in new technology and in new sites. The service business was one part, which is very successful and the driver of this good result. The second point is the consolidation of the smaller farms, and especially in the grassland area, is becoming faster and faster. Why? Well, just read the newspapers and so forth. It has to do with the consolidation in the dairy business and the up and down of the dairy pricing, which is always affecting directly the farmers' families. Here we have new DeLaval, for instance, and other stable technology.
We had a higher demand for stable equipment. The most important aspect of the first six months was the following. Fendt and CLAAS, Massey Ferguson and so forth, they closed the manufacturing plants because of the Corona crisis. Here you see the typical dilemma. In this situation, it was very positive. We were able to ship the tractors and harvesters, but especially the tractors to the farmers because our stock inventory was high. We were able to deliver. If we had depended completely on the manufacturers, our result would be very negative. If you compare our result with others, our colleagues in the German market, who are Fendt oriented, or especially Fendt oriented, or have a distribution license from Fendt, you will see that normally the result is not as positive as ours.
Okay. Thank you very much for that explanation. The cost reductions in the others part of the segments seem to have more than compensated for the EUR 6 million in Corona costs that you, Mr. Helber, alluded to. So I'm wondering whether some of that is sustainable, because you seem to be in a very favorable position here and having a splendid business despite the cut in travels, despite cut in expenses for fares and the like. I'm wondering if some of those expenses are gone for good or whether, let's say, in one or two years' time, you expect to be on the same expenses level as before the Corona crisis.
Yeah, this is a very interesting question. Mr. Schwarz, the EUR 6 million on Corona costs that I mentioned, they are kept in other activities, while the cost reductions that we have on the normal businesses are reflected in the operating activities. You know that, for example, traveling costs, whatever, whatever training costs, personal costs, things like that. You are absolutely right. I would say, looking on the traveling costs, looking on the HR costs, that would probably offsetting the EUR 6 million effect on Corona mainly or partly or whatever.
I don't know, have the exact figure now in mind. Will a couple of that be stable for the future? Yes, of course. We also here in the management learned, and I think that is what you experience as well, that the travel things and how we work, that has changed throughout the last couple of months. I think this will have an impact also on our future business, on our future operations.
Agreed.
And how we work. I think part of them, but it's too early to say how much will we return to normal life as it was before, but definitely will have an impact on the future cost side.
Thank you for that.
Take my example.
Oh, sorry.
I was really the, I would say, traveler-
Super traveler
Flying guy.
Super traveler.
Super traveler.
No super spread.
No.
The super traveler here all over the world, three, four times a year, once around the world and so forth. It's not only not healthy, it's exhausting and so forth. I, for instance, for 2021, I gave to my office management the wish that. Well, I'm begging here normally. It's not an order. We don't have orders in BayWa. I begged her to reduce my usual travel activity roundabout to cut it 60%. I will do that, believe me. I turned 62 now. Why should I travel so much? So far, this will have a cost impact. Others are doing it as well. This is not only a showcase. No, it's I would say 60% is realistic.
Okay, thank you. Perhaps another one on the heating oil inventories that seem to have helped to propagate the margin in Q2. Are we talking physical inventories here, so did you rent a storage space and put some of those fuels in there?
No.
Are we talking future trading here?
No, it's just contracts.
We are not a physical storage company, as you know, for heating oil.
Yeah.
This is too costly. You wouldn't make any margin if you have this capital cost load as well or on top. It's contracts. You make a contract, and it's like you compare it with the open positions in the commodity business.
Like a future on heating oil?
Yeah, it's not really a future, but it's similar, I would say. It's a virtual contract, yeah.
Is that something you're doing anyways and you just increased the volume of that, or is that something that was, let's say, extraordinary?
We do that anyway, but the volume was extraordinary.
Okay.
Because the forecast from the management was the demand is going to increase significantly. Maybe we have this FoxOil. Do you know what that is? FoxOil gives us the exact stand of the tank fulfillment, and on this basis, we can calculate a forecast whether there is the likelihood that the demand is going to increase or will be increased. If the prices are low, the stand is low. The likelihood that you make more revenue or you sell more volume on heating oil is very high.
Okay.
With that, I wanted to show you that we use some technical expertise and some tools to make these kinds of forecasts.
Understood. Perhaps just another one on the building materials business that's performed rather nicely also in Q2, essentially in the first half of this year. Is there mixed effects included that are sustainable? Because you alluded to becoming a system provider in some areas of that business. Is that higher, let's say, margins that is significant from these activities, or is this just, let's say, general pick up in demands due to the various reasons we discussed already in the call?
It is always a mixture. It's an increase of demand, that's one thing. The self-branded products, where the margins are much higher than the distributed normal standard products, which we have in the portfolio. This is going to be more and more important for our overall building material business. The third one, the first bit, but it's just a little part of the overall picture. Our project development company, where I expect over the next years, a much higher part of the EBIT. At this point in time, I think it was EUR 2 million. EUR 2 or 3 million.
At the end. For the three end, roughly another.
EUR 2 million or EUR 3 million in 2020. So, we are still in the building process, but if we are through, I think next year and two years from now, this will be a significant part of the profit.
Okay. Thank you so much. That concludes my question.
Okay. Bye.
We will now take our next question from Marc Gabriel with Bankhaus Lampe. Please go ahead.
Yes, thank you very much. Congrats to the strong development in Q2 despite the challenging environment. Well done. I have four questions, if I may. First of all, can you explain how your greenhouse activities are going in the Middle East, and what you expect from that business on the EBIT contribution for the current fiscal year, or if it's too early to state that? Whether you are planning to expand that business to other regions like Africa or whatever you have in mind there. The third question would be on the Conventional Energy business, which was quite stunning. The ambition was always to sell that business. Given the good results and the good development, do you still wanted to sell that, if there is a interested party, or would you keep that in the current status? The fourth question was, or is regarding that digitalization.
I thought it was always a problem of the farmers that they rarely had access to the grid on their fields, and you wanted to intervene politically. With what success have you done that? Thank you very much for the questions.
Okay. Mr. Gabriel, welcome. First of all, last question, digital farming. It's not only the grip on the farmers, it has to do, of course, with the CAP, the Common Agri- Policy of the European Union. We are through our Deutscher Raiffeisenverband association and the Interco and all these pressure groups. I'm vice president of this. We are deeply involved in the discussion, and for us, for the digitalization, I think it is absolutely important. If you want to reduce the chemicals on the soil, if you want to reduce the cost for the farmers, if you want to improve the processes for the farmer, that they can do something differently, either leisure or whatever, I don't know, then you need to change the subsidy structure in Europe.
And the key element will be and must be in the CAP to use part of the subsidies for the farmers to invest in new digitalization and new technology. This is our aim as well. It's quite simple. The European agriculture sector is highly subsidized, still. Different business pillars or different subsidy pillars, three, as you maybe know, and this is very complex. Normally, you get a direct payment. It's like a salary replacement or enrichment or whatever. What we ask the politicians, the German Agri Minister, and also the local ministers in the different national states, we are in close contact with them, that a part of the CAP subsidies will be used for the support of the farmers to introduce to the farms these digital applications and the digital farming or smart farming projects. The farmers are very reluctant still.
It has to do with the tradition, with the conservatism. It has to do with the age, it has to do with a lot of aspects. They fear the transparency. They do not like to have all the figures on the table, so to say. So far, this is very important for the success in Europe. It's not only a German issue for the success of the smart farming project. Is this fine for you for the last question? I come to the next one.
Yes.
Okay. Heating oil. We don't have plans at this point in time to sell heating oil or commercial energy sector. We are trying to create a transformation process. I said we are working on a new strategy where e-mobility is playing a significant part of it in the future. LNG, for instance, we just decided another five or six fuel stations all over Germany. We are one of three competitors in Germany, for the LNG station business. Whether this will be a success or not, I can't tell you, to be honest, because it depends how many trucks are transformed to LNG. At this point in time, it's still just a small part of the overall diesel business, and whether it's really successful replacement for diesel, we will see.
I know that in the past-- well, I know because I was personally involved, of course, we tried to create a joint venture or a sale for the Conventional Energy sector. The synergies were not really obvious. It was a similar process as we had that in the building material business. Finally, we said we keep it, we keep it going internally as part of the business portfolio of BayWa, but we have to go through a transformation process, because the Conventional Energy, especially the heating oil, if you look to the overall market of the last, let me say, 10 years, more than 50% of the market disappeared, more or less, due to the changes of the heating technology in our houses. So far, there is not really a positive perspective for heating oil.
The most important thing and the challenge for the management is to reduce the cost in the heating oil and to make the transformation to something new, which is e-mobility at this point in time, and LNG. Answer?
Okay, thanks.
I come to greenhouse.
Finally, the greenhouse.
Yes, the greenhouse. We had this flood catastrophe in Al Ain in the Emirates, which was so unusual, it is unbelievable. Normally we are really in the desert there, and it has around about 40 to 50 degrees Celsius. Unbelievable. I was there twice to have a site visit and to look also for the people. What is the concrete outcome? First of all, we have a settlement with our insurance company. I do not want to speak about the content, because I am not allowed. Second one is, we expect in 2020 an operational profit, an EBIT contribution of EUR 3.5 million. In 2021, this is very seldom, by the way, for the others on the phone, that I communicate a single figure regarding a single operation.
In this case, I think it's worthwhile because it's an interesting new business model for BayWa in the Global Produce business, and we want to continue. We expect an overall profit in 2021. At this point, it's a very early stage and we are not through the budget process yet, but we expect around about EUR 7 million-8 million EBIT profit in 2021. So, greenhouse business is back on track. And what is now the plan, the strategy for the future? What we do not want to do is, insofar we changed our original strategy. We do not want to build, like our BOOT strategy in Renewable Energy, greenhouse plants, and we take it on the balance sheet, and then we try to sell it. If you remember a few years ago, it was before IFRS 16 destroyed this business model.
We said we are going to invest over time EUR 300 million in greenhouses, well, it's a working capital of EUR 300 million for greenhouses, where we can sell them, these greenhouses, to third parties, like wind or solar facilities. This is not possible anymore due to this IFRS 16, because someone has to run this operation. If you run this operation, you have it in the balance sheet. That's a little bit the problem due to this agriculture structure, and this is part of agriculture. With other words, this is not the plan. The management, under the leadership of Benedikt Mangold and Georg Czerny. Mr. Czerny is our CEO of the Al Dahra BayWa joint venture. He is working on a plan how we can roll out this greenhouse plant strategy to other countries, for instance, like Germany.
This is astonishing maybe, and a little bit surprising, but we said we can use this technology and the experience and the know-how, we have now also for other countries, but not as the owner of the plant. We are selling services and we are selling our skill profile, which we created, so to say, in the Emirates. This is a new strategy, but in a very first stage. At this point in time, we did not have any presentation here to the management and to Andreas and myself, especially from the guys in the Emirates, but I expect something.
Okay. Very helpful. Thank you very much, and good luck. Bye-bye.
Yeah, same for you. Thanks. I think that was the last question.
There are no further questions.
Okay. Thank you very much. First of all, thank you Mr. Lutz, thank you Mr. Helber for taking all the questions. Of course, thank you to all participants and for your interest. The next conference call will take place on the 12th of November. Until then, please stay healthy and if you can, enjoy the summer. Thank you very much.