Good morning, everybody, and welcome to Bayer's conference call on the result of the Q2 of the fiscal year 2020. Professor Claus Jose Flux, our CEO and Andreas Heeler, our CFO are sitting next to me. To be more precise, they keep a distance of 1.5 meter. 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 Claus Disergluc. Good morning, everyone. Russel speaking. First of all, Mr.
Radilic is called or pronounced Radilic, our IR manager. So we come to the figures of the first half year. Our interim report 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 fiber, which is, of course, unusual due to the corona crisis and all the problems we are faced with all over the world.
And 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. So this is very positive. In 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. So 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 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 and so far. I think we were well prepared. And the figures, you can figure yourself out because I'm not sure whether you're really interested in it. Most important thing is we had 96 people at this point in time infected, More or less, all are recovered. And 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 5, 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 food industry and feed sorry, compound feed industry, not food.
At the end, it's food, of course, feed industry and some restrictions regarding the vessels because the possibility to charter all the necessary vessels to shift 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, euros 53,800,000. It's a little bit higher, euros 3.1 percent comparison to the previous year. What is the reason for that?
As I said, very strong second quarter. And also, we don't have yet a positive result in our Renewable Energy sector, which is the most important one, as you know. And so far, I'm very happy and very pleased with one timers included in the real EBITDA. Onetime as 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 53,800,000 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. A little 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 6, you see the comparison of the EBIT over the last years in Q2. So you see it's a very strong second quarter with SEK 80,600,000. So the last strong was in 20 well, every quarter is more or less strong than us. And you can't compare the quarters if you go to in the depths of our business models.
But some of you would like to see it, so you see it. It's 81,000,000 and the last one, which was above the average, was in 2018 with 73,000,000. We come to the Energy segment, Page 8. If you turn to Page 8, please. So nothing new.
I don't know whether you want to hear comment on that. So 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 percent of the global investments expected in 2020 and the same in if you split the onshore wind energy activities and the solar energy. So the solar has a much higher growth rate than wind. But nevertheless, bottom line, it's a great, great development, which we are expecting all over the world, so 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. And so far, our customers ordered a lot of heating oil, and this is one of the reasons that we show such a great result in 2020 for the first half year. So energy in a good shape. So what does it mean? Turn to Page 9.
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, even not in Q3, but in the last quarter and year again over the last weeks in 2020, it's getting interesting again. It's always the same. It's normal circle of our sales activities in the project business. So the last weeks are crucial for the overall result of RE. And you see here minus of what is it, minus 1.3.
But 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 more or less similar development compared to 2019. Turn please to Page 10. You see a 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. So last year, we had still sold our fuel station company included, which we sold, as you know, last year. And so far, this is really operationally a great development. But it's more market driven.
Of course, brilliant management as well, but especially market driven. Page 11, you'll see a summary of our income statement. I think I need not to go through the figures. So it's a positive, more or less, development. So we come to Page 12, financial what is this?
The comparison. Income statement, income statement, revenue or revenue. It's more than 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 in the commodities in the first half year, so the price is 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 maltiff. And 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.
And so 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. So we do not expect in the commodities real significant upside. Page 15, our international trading and supply activities, so that's especially Sifetra 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, Sifetra BV, located, of course, in Rotterdam. And it's not a change in the management, nothing else. It's just coming back to the brand roots of Zevitra because Zevitra is much more well known to the customers than BOST. You see a decline of 12% here in the revenue.
The reason for that, I explained already, has to do with the commodities and the price development, a little bit lower volume. Nevertheless, we are stable in the EBIT, euros 8,600,000,000 more or less the same, a smaller figure, I know. Nevertheless, the reason for this development is our specialty strategy. And 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 very well, special and stable business for us and that our intention is to increase this share of the overall commodity Cepheidra business in the future on top.
So with that always, split is fifty-fifty. Maybe we can turn it in, let me say, 60, 40, 70, 40. So specialties for the commodity trading. So we are going to be a little bit more independent on all these stock exchanges. We come to Page 16.
So the overall agri segment, so the different businesses and business units. First of all, our one of our strategic fields, the global produce, we expect very, very good twenty 20 without significant one timers. The operational development in the 1st 6 months, you'll see it in the figures is very positive. And the overall market development is interesting as well. So there's not really an impact on the Global Proteus 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 import resources is suffering in 2020 because of the low energy costs, which led to a decline in the price of the fertilizers. So we have a lack of a few €1,000,000 just in Germany in our P and L statement due to the fertilizer price development. Then, 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. And 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 don't really understand what is necessary to have the yield on the field to make the farmers happy, but also to keep the prices for food very low, especially in Germany. And it's interesting what's coming up here for especially for our customers. Interesting, the agriculture equipment is still in a good shape.
Nevertheless, we had a decline of new factor registrations in the first half year, so minus 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 6 months. It's an increase in revenue and a very positive, as I said, operational development, EUR 18,200,000 in on the EBIT side.
And we do not have, as I said, any significant, let me say, onetime included. And we are working on the fresh mix consolidation integration in our terms and growth activity in New Zealand. And FreshMEX was, for the first time, consolidated as of May with around about 500,000 is it 1,000? Yes, €500,000 Well, this is not yet such a significant amount of money. Interesting is we were always due to the crisis.
Our competitors some of the competitors were not able to deliver the goods to the retailers. We were because our stock inventory was sufficient. And so far, also our tropical food division showed an excellent performance in the first 6 months. Coming to Page 18, our Agri Trade and Service revenue. So what is this?
This is the German and Austrian and Eastern Europe, European Agri Business. You see an increase a little increase. So that's the most positive message I have in the revenue up to 1.98 €7,000,000,000 but a decline of 22.9 percent. On the EBIT side, 18.9%. We need notice 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. So we go through a very, very strict and, let me say, clear and tough and straightforward restructuring process for the Agri business in Germany. And what is the goal? 1st of all, to reduce the capital employed secondly, to reduce the workforce thirdly, to reduce the sites significantly.
And 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 Materials business. Nevertheless, due to the legislations and restrictions, we need also to redefine and re event a new kind of agri business for fiber. And 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 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 would take another, let me say, around about 2 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, plus 9.8 percent. And we have also an increase on the EBIT level, EUR 15,900,000, which is really interesting.
And 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, is the currency stable? What does it mean for my personal future? And so they see investment in technology as a kind of rescue action to be taken for the family.
But nevertheless, also the consolidation process in the within the small farmers community, the consolidation process is speeding up as well. And so far, the new created bigger farms, they need to invest money in technology, stable technology. And so of course, you'll see on Page 20 the income statement. Andreas can comment on that. So we turn to Page 22.
This is the market overview regarding building materials in the first half year. So the construction industry overall picture is still positive in Germany, plus 9.6%. So 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. And you see on Page 23, nevertheless, that we have a very good first half year. So plus of 13.1% in the revenue and the EBITDA is 17.2%. This is really exceptional because normally the first half year is not really the strongest one. And so far, positive development.
Also, we had this shutdown in Austria where DIY and especially also the building material sites were not allowed to be opened. And so far, very positive signal. Also regarding the market development and for the next years, Page 24, you see again the income statement and then the picture or the chart at Page 25, which I do not like anymore. And this means we have to take action as well because innovation and the digitalization segment shows again a negative result of minus 6 0.8% compared to the minus 6.5%. So this is not really all operational.
These are the investments in our future, especially the substrate portfolio, the applications, vertically horizontal applications for the farmers, also the investment in the Agri Application Group, AAG, the investment in Vistra, the satellite company where we get all the necessary data for the farmers to make an evaluation with weather forecast, the soil, the soil productivity forecast and stuff like that, all these things. And due to this negative figure, we are starting also an internal restructuring program. Now I come to Page 26, and I would like to hand over to Andreas because he is the real specialist for other activities.
Yes, good morning, Benjamin, also from my side, commenting on the other activities. You see the gap between last year, dollars 14,000,000 30 €5,000,000 for 2020 that needs to be explained. There are some effects, which I already mentioned on the Q1 call, which are postponing effects or effects which will be offset through the later quarters of the year, but also some effects which will be permanent. Starting with the permanent effect is the burden that we took from the corona, from the COVID-nineteen crisis was some SEK 6,000,000 overall here in the other activities reflecting on measures against COVID-nineteen on the personal side, on mask and things that need to be get onboarded and also the IT infrastructure set up for the home office activities. That all was reflected in the CHF 6,000,000 burden that we took in the 1st 6 months.
Next, we had last year a sale already on one of our participations in the cartographer centrum Bayern. You remind of this, it's had a positive effect on €4,000,000 in last year's numbers. But the most impacting thing that we are facing now through the 6 month period is the missing of the bank dividends, which did not came in yet. That is mainly in Austria from the Raiffeisen International Bank, but also from the Zett Bank here in Germany via our participation in the Bayerische Reifheiten Beiteligungsaki. This amounts to some SEK 7,000,000,000 income from bank dividends that has been thrown last year already and that we are still awaiting for a later stage of the year if they can pay it this year or not.
We just received you also received the method from the ECB in Brussels that they intend not to allow banks paying dividends throughout 2020, which would mean that would be postponing into 2021. So 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 dividends from our equity investment in Austria, Juss. They came up with a very good result, very positive result in the first half year. Last year already was some SEK 4,500,000.
And for the time being, we already have SEK 2,000,000 accounted for. So there's a gap of CHF 2,500,000. And finally, and that is also that I pointed out in the Q1, there was an effect on the exchange rate issue, which came in for the Q1 with some SEK 7,000,000. And we said that will be offset through the later stage of the year, and it's now down to SEK 3,000,000, but it's also a GAAP effect compared year on year in the other activities. So looking on this number at the year end, we're expecting some income, as I said, from some participations, maybe from the bank dividends.
And we will have already also an offsetting effect from sales of real estate, which we expect to come in, in the Q3 with an amount of €9,000,000 So that will partly offsetting this gap, and we think that we can close it towards the year end. We'll 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 to remind that on the various activities we took last year. But I think this will now be replaced for the full year period on the COVID-nineteen effect. We have to consider this in line.
Some comments very short on the group financials. Overall, the income statement, the most important thing for me is that we have breakeven after 6 months. This is always important that we have breakeven. We have not the income yet from the renewable energy activities, Claus pointed out on this. But I think that Q2 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 Q2. So that was a very strong one. And it seems to be that it even will be continued throughout the Q3. 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 SEK 9,200,000,000. So it's leveled out throughout year end numbers. And 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 SEK 300,000,000 on our debt position, which has been managed very well throughout the corona period, and liquidity is not an issue. We are safe. We have backup lines.
We have no governmental aid needed from the CASB or other activities. So 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 30 on 40.8% from 36% after the Q1. The main effect that we still have in there and the decrease of equity is the valuation of our shares in Riffeisen Bank International, which did not perform very well throughout the Q2 in 2020. And finally, cash flow.
This is just a pickup here for the first half year. The cash flow from operating activities is pretty strong. And the cash flow, it has been used to mainly to reduce the cash flow from financing activities on our debt position towards the bank. I mentioned these 300,000,000 cut down in our short term bank debts. That was it from the financial side.
And then I hand over back to Claus for the operational outlook for 2020.
Thank you, Andreas. As always, we don't give you a concrete guideline or guidance guideline, I hope, but the guidance, and I'll try to explain what we expect in 2020. 1st, turn to Page 32, but also 30 3, please, the Energy segment, which is going to be very successful in 2020 as well. You'll see in 30 3, the planned renewable energy projects to be sold in 2020. It's 1.2 gigawatt, which is really the highest volume excuse me, the highest volume we ever sold in 1 fiscal year.
And the key area is North America with 683 megawatt than Europe, but Asia is becoming bigger and bigger. And here, especially Japan, Malaysia, Indonesia and so forth. And while this is very positive, we believe also that sales trends for the trading company for PV components will continue. And we expect also an additional approach or a stimulus for our solar business, 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, it's still the trend is still not yet broken, so positive development. We have a greater demand for lubricants and fuels in the second half year. And also positive, our investment in Baibamobile 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. Agri business outlook, the operational outlook, we expect bottom line that we will have some higher results despite the corona crisis in our overall agri business. 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, that's and it's not here. Not we are doing something. What did I say? Yes, Global Produce is a very positive development.
We see also a slight recovery in the origination collection of grain and oilseed, especially Germany. So maybe we have a chance to reduce the losses in Germany, especially then we expect also more flat words. But from an operational performance point of view, positive development in our international civil trade trading and supply chain activity. And the agri equipment is going, let me say, more on a normal level in the second half, but the end result will be very positive as well. And Building Materials, I showed you we had a great first half year.
And outlook from the market and the markets in which we are is positive as well. So we anticipate further increase of our earnings. Bottom line, I'm happy if we have a real EBIT, not the operational or something else EBIT, the real bottom line EBIT, if you are a little bit higher than in the previous fiscal year, I'll be more or less on the same level. I'm happy due to the crisis situation. So this was my comment on 2020.
And I hand over to Mr. Ravilek Thanks. Yes. Thank you very much, Professor Luz. And Mr.
Helber, we are now ready and happy to take your questions.
We will take our question from Knut Hinkel with Pareto Securities. Please go ahead.
Good morning. Thank you for taking my question. Great results. Congrats to that. I have a couple of questions.
First of all, on the heating oil market. So it seems that it's 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 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. So 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 year first half of the year.
So maybe you can give a little bit color why you are doing so much better than that market. And lastly, my 4th question is on Bioverie. Maybe you can update on the negotiation with the potential minority shareholder? Thank you.
Okay. Thanks for the question. I'll start with the last one. We are still in the process. It's not yet finalized.
And 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 €100,000,000 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 that discussions and the negotiations are still in a positive mode and mood. And so far, I don't have at this point in time, can always be changed maybe this afternoon or in 1 week or so.
But at this point in time, I can say that I'm optimistic and positive that we get this deal done. That's my comment on RE. And technical equipment, your third question, well, it depends a little bit where we are. Our key market is South Germany, South German, Bavaria and Baden Wurttemberg. And you have this decline, especially in Eastern Germany.
We feel that, for instance, in the order intake in Claes, the Claes operation is normally very strong in Eastern Germany, and here we have a decline. And the small and fragmented markets 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. And also in Northern Germany, the trend is not anymore as stable as it is in the south of Germany. So it's a more a low key view or local development.
Then 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. And the price was very low so that consumers use this opportunity to fulfill the tanks. And 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. And the last one is also the fuel stations. We have still in Germany in Bayer AG.
But in Austria, there we are very strong in the fuel station business, let me say Canton, Tyrolia, Vienna, Lower Austria, Upper Austria and so forth. Here we are very strong, and we expect also a positive development in the second half. Where we the likelihood that we will have a decline, I wouldn't say pressure or so, but the decline is in the first half year twenty twenty one. So 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 Tesol, our fuel station company to Eylvia with a great positive impact last year.
And now, of course, we have a gap here. What we are doing, maybe you didn't ask a question, but maybe one comment. We are, of course, preparing a new strategy for our conventional energy sector. And 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?
Did I answer your questions? Yes, absolutely. Thank you. Welcome.
We will now take our next question from Anne Margareth Crow with Edison Group. Please go ahead.
Good morning, gentlemen. Thank you very much for taking my questions.
Thank you.
Thank you.
I have three questions. One's a follow-up question on heating oil. And I was wondering if you have 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 6 months.
I think they were getting 1.6p per liter rather than 1.0p, which they usually do. And 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 UK and Ireland, the wet weather earlier in the year reduced the amount of winter wheat that was being planted and that this was impacting demand for fertilizer? And then the third question relates to the digitalization business. And 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.
And so far, it must be an international approach. 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 2 years. So 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 government. This is the one side. The other side is indeed that the first demand normally in the Q1 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.
So it's indeed a combination. So the legislation, the European GAAP 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. So as you know, we don't speak about margins with regard to individual products this is top secret.
Nevertheless, it's obvious. We bought on a very cheap level some stock inventory, heating oil, and we sold it. Then this was a decrease. Then we had an increase and afterwards, again, an increase. What we used 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 saw then our position to the customers, and then we made the next step and bought again heating oil for our stock inventory, which is a little bit unusual. This was a pre 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 in this situation, we changed a little bit our strategy.
And this is the reason for this positive development in the first half year.
Right. So this is going back to your reference to brilliant management as well. There's been some taking advantage of the situation. That's great.
Thank you.
Thank you. Thank you.
Thank you.
If you need an interview, you get that personally. Thanks.
Thank you.
Thanks. All the best. Bye.
Bye.
Yes. We will now take our next question from Roland Pfander with ODDO. Please go ahead.
Yes, good morning. Two questions from my side. The first one on your bus 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, the wheat trading or others, what is your outlook for this business for the next some years?
The first question. 2nd, 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, Bas, we said we always said that's an official figure of the management here that in past in a normalized fiscal year, we expect €40,000,000 EBIT. And the split was fifty-fifty now, it's changing seventy-thirty. So 70 specialties, 30 commodities.
And overall, it will be around about €40,000,000 sometimes less and hopefully more than sometimes in the future, more than €40,000,000 roundabout €40,000,000 at seventythirty. So United States, you said this is the highest volume on projects in RE, that's right, 6 83 Megawatts we planned in North America. So especially the United States, do we expect delays? Well, we do not expect, but there is a risk, of course, that we will have 1 or 2 delays, which is only postponing the project to the first half year twenty twenty one. And if that is the case, but we are not at this point, you can't say it because it's another 3, 4, 5 months to run.
But if this is the case, most of it can be compensated by other activities. So we do not expect, let me say, a serious decline in RE due to that. But it's not lost. And it's project business. Project business, it's 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 after signing.
That's always not in it's not always in our hands, so to say. But bottom line, as I said, RE will have very good result again in 2020.
Okay. Thank you.
We will now take our 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. However, 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, obviously, your inventories will increase within the second first part of the second half of this year.
I'm wondering, which extent this development can continue until some things got to give maybe the growth in RE can't be supported as much as it could in the future in the past and things like that. So how low basically can we go in regards to the 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. 2nd question to Mr.
Lutz, going back to the Innovation and Digitalization segment, obviously, not the most important segment in the overall scheme of things. But still, you're talking about restructuring 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. So basically, what is amiss here are the plans that were fulfilled, were they not valid or were they not checked by top management? And if you say we've got to accelerate the business and restructure it, if we are talking about acceleration and these, 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 and L that you alluded to? 3rd question is on Austria Juice. Mr. Hebe, you stated that the dividend from Austria Juice has not yet been received by Baivar. Why is that the case?
Agrana did pay its dividend already some time ago. Why didn't you receive your fair share from Austria Jewels yet in comparison to last year? And last question, I think I've been over this before, but I'm still puzzled about that. In the half year report, we see 2 lines on Page give me a sec, please, here. On Page 12 of the report, which are financial sorry about that, that are financial liabilities and financial assets.
And I'm 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 nonfinancial liabilities in the second line? Or should that read non financial liabilities? Or are those financial liabilities treated differently? Or what's the difference between from it's a bit difficult to process what's the difference between financial liabilities and financial liabilities actually is?
Thank you. That would be my questions.
Okay. Mr. Fahd, Lutz speaking here. First of all, coming back to that smart farming, so it's FarmFacts and 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 with with the permanent negative figure we have to present to you.
That's my point. And 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. And speaking about restructuring, so the first restructuring is our German agribusiness, where we have already achieved €5,000,000 cost reduction for the agribusiness as a whole. And the smart farming activity is part of our agribusiness. So it is reported internally in the agribusiness as well.
And what I'm missing here, honestly, is that what our UK 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. And 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. And in this sector also, the combination with VISTA GmbH, our satellite company, where we acquired a few years, and it was, I think, 2 years ago.
So we acquired 51% from the founders of the company. The cooperation is not in, let me say, on a level which I expected. And 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. I'm not at this point, I'm not really yet so happy with the development for the blockchain technology because there are some startups in the markets. There are some opportunities.
And we need to combine our application portfolio for the farmers, which is more an internal process optimization program, so to say, for the farmers. We need more also 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 a 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 talk to the management, they would say, well, we are in the plan.
But year by year negative figure is not acceptable anymore. So this would be my comment on the digitalization. And now I hand over to Andreas for the rest of your questions.
Yes, Mr. Schwartz, 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 the Reichweissen Austria and coming from ZZ Bank. The Austria truce, this is an equity participation.
And the result, it was last year at half year included with some CHF 3,300,000 or CHF 3,500,000 compared to a loss for the 1st 6 months period of CHF 1,000,000 this year. But they expect the turning in the results coming in the second quarter second half of the year. So this is not a dividend payment from Arkana, which is included there, but this is the equity result of Austria 2. So I hope that makes it clearer. Now coming to your first question on the financial KPIs, the equity ratio.
I mean, it's year an improvement in these KPIs. But and so 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. 1 step on this is, of course, the planned transaction in the RE business. I mean, 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.
And therefore, we need resources. And this is the most important trigger while taking an investor in on this RE business. That will improve automatically the most important KPIs you mentioned, the equity ratio, the debt position. But 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 function, a financing function in our markets compared to the agricultural business.
This is historical and the DNA of the company, and this is how we are working like a little bank. And then on the other side, we have this RE business, which is very successful and which we are working on taking investor in and 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 are walking over a couple of years or whatever.
But 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.
And may I add something, please, Mr. Schwartz. 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. And as you know, we have new head of agriculture, building material and technology. That's Markus Perlinger. He has a complete new team. And we know, as I always said, I'm not at all happy.
It's not a pleasant situation with his capital employed. And the return rate is out of any discussion, right, because no one would invest private money in this business segment with this low returns. And so far, 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 and 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, what we are in a complete restructuring process for the logistics and the supply chain management, what does this incognito mean? This means, 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, 2 or 3 big storage areas and storage sites in especially Southern Germany to provide the goods to the to deliver and to ship the goods to the farmers. That's 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. And what is the headline? The headline is we want to be in the German agribusiness, asset light oriented as we are in Zevitra, BOST and all the European other European countries.
So we do not own any more than sites than 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 because it's very detailed. It's very it's not sexy, yes? And for the management and also for Markus Perlinger, 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.
It's you have to step in, in very small pieces of issues to solve them and so forth. This is really very complex, very complex task, and it takes time. And he gets the time from my side. I said, you have 2 years, and then I like to see positive results.
And Mr. Schwartz, 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 get up to 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 Wagen and demeisen demeengeschaft, the forward security nest on the yes.
My suggestion is for the next analyst conference, video conference or HELCO, switch then to avoid any misunderstandings from the translation point of view in the Bavarian language. And who is not able to understand Bavarian, that this is your cup of tea? That's not my problem.
Great. So let's do that.
Okay. I'll go back in
the queue. Thank you for the answers to my questions.
And we will now take our next question from Hans Muller with Kalevoda. Please go ahead.
Good morning. Hans Muller speaking, Kalevoda Research. I have three questions. The first is perhaps you could you give us an indication about the financial impact regarding your planned reorganization of your agricultural business in Northern and Eastern Germany? And second, do you think that the reduction of sites can be compensated by increasing online orders of your Eywa Patel?
And 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, Muller. Good morning, by the way. Welcome. I'll start with the last one. Yes, the VIT reduction has an impact on our overall agri equipment business.
That's especially the case here. And besides the rescue approach of the farmers regarding the money, the cash their cash position at home, so to say, the VAT is has a positive impact. Nevertheless, it's not easy to handle, and it's very complex from a software point of view internally, but it's more an internal process. So 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. Then 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. And you know, by the way, for many decades now, Mr. Muller, that we are not in a higher and higher and very aggressive restructuring mode and mood normally because most of it will be compensated by new businesses.
That's one thing. And 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 so far, it's 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. And this is nothing brand new. I always said reducing the sites means also to increase our online activity. Now we have this fiber 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. And well, I always say we are market leader in all these segments in Germany. That's true. We can prove it. But 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 or 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 protections or chemicals via our online And this is a little bit the problem, a catch-twenty 2 in which we are. And this makes our restructuring process, again more complex. And the timing is also is always an issue here.
So 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. So that's a little bit the problem and the challenge for the management to handle that. So now the question 1 was, what is the financial impact of this restructuring? Andreas?
Yes. 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 €5,000,000 for 2020, But these €5,000,000 will be offset 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 €1,000,000 So these effects will be offsetting partly these restructuring costs. But 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 $1,000,000,000 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 €500,000,000 over time. So this is part of it, of this reduction, the first step on the Eastern East German locations. But it's too early to say what it does mean for the overall asset impact.
Okay. Thank you.
We will now take our next question from Michael Schafer with Commerzbank. Please go ahead.
Yes. 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 aside to higher logistics costs affecting basically the Q2. 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 trading trade flows improving as well? This would be my first one. 2nd, 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. And the third one, last not least, on global produce, so that 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 what kind of 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. So global produce, we have a 30% average 30% price increase on the Apple business in Germany due to the harvest, the quality, especially 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.
And the third one is TFC, tropical food company, MasTec. We have also still 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. We're having this on the thing, nashi peas and papaya. Ginger. Yes, Ginger, yes, because organic Ginger market leader, are we?
I guess, in Europe or Germany, I don't know. It's especially the organic oriented females are buying ginger. So the margins are high because we were 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 6 months. This trend is still valid. So we don't have any signals that this is going to change.
And as you know, in the details of the product of the single product productivity, we don't jump in here because this is not to be published, okay? So then fertilizer, the question how what is the volume? Do we have any Maybe just from my side about your fertilizer question. So what my colleagues told me already is that in the 1st 6 months, they sold all their inventories. Of course, the price development was not very favorable for us.
But now they are stocking up the inventories again because they do expect 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. So for that reason, they will prepare for that. But 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 2,008, we paid really our due because was a disaster.
And 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. And in 2008, we lost, I guess, within a few weeks, 3 or 4 weeks, we lost nearly €30,000,000 real profit due to the fertilizer, the volume we had in our inventory. And so far, I'm very, very careful. And the management was not yet with Andreas and myself, and then we take decisions.
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. So then I would prefer a strekengesheft. What does it mean in English? I forgot it.
Scratching.
I can understand Bavarian. No worries. That's all fine.
No, no. Thanks. Then I prefer Spraguely ship because the direct shipment from the production side to the farmers, just that we minimize our financial exposure in the fertilizer business. This is so extremely risky. And 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.
And at the end of the day, we pay the due. That can't be the future. So 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, with a few 1,000 hectares and so forth to have a direct link to the farmers and to try to exclude the distribution company like Baiva. 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 needs to be changed dramatically.
That's part also of our restructuring program for the agribusiness. So in other words, small volume and permanent ongoing process and ongoing discussion with the chemical industry. What was the third one?
Mr. Schafer, on the logistic costs. I mean, the only area where I saw higher logistic costs were our business in New Zealand. They secured logistic They secured logistic capacities, shipments to Europe for their crop and into Asia. That was a one timer.
Let's say it was they only did it onetime, 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 low water on the river and things like that. That will not be the
case this year for the time being. We don't know, but it's just
we had enough rain had in these days now. So therefore, I do not expect it to be particularly to see higher costs coming up on the logistics
The vessels. I spoke in my little presentation, I spoke about the vessels for the Sefitra 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, didn't get all the charter contracts for the vessels because the vessels 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.
And we will now take the follow-up question from Oliver Schwartz with Warburg. Please go ahead.
Thank you for taking my follow-up questions. I'll try to be brief here. Agri Equipment, as you said, you're going from strength to strength here and that doesn't really mirror the picture drawn by Klas or Trondir. So I'm wondering is that a product mix thing here included? Is this more, let's say, stable technology or things like that, that or non mobile devices in the agricultural equipment part of the business?
Or is this more likely service driven and hence more, let's say, reoccurring 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 part compensating that? Yes.
Sorry, can I answer immediately question 1? Because 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. To answer your question for the agri technology, there are 3, 4 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. So 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 Greenland area is becoming faster, 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 Laval, for instance, and other stable technology. We had a higher demand for stable equipment.
But the most important aspect of the 1st 6 months was the following. Sandd and Klas, Masiforgersen and so forth, they closed the manufacturing plants because of the corona crisis. We had and 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.
So we were able to deliver. If we had dependent completely on the manufacturers, our result would be very negative. So if you compare our result with others, our colleagues in the German market, who are Fend oriented, especially Fend oriented, or have a distribution license from Fend, 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 other part of the segments seem to have more than compensated for the €6,000,000 in corona costs that you Mr. Heber alluded to. So I'm wondering whether some of that is sustainable, whether because you seem to be in a very favorable position here, having a splendid business despite the cut in travels, the cut in expenses for fares and the like.
So I'm wondering if some of those expenses are gone for good or whether, let's say, in 1 or 2 years' time, you expect it to be on the sale on the same expenses level as before the corona crisis?
Yes. This is a very interesting question. Mr. Huaz, the 6 1,000,000,000 on corona cost 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, training costs, personal costs, things like that.
That's you're absolutely right. I would say looking on the traveling costs, looking on the HR costs that would probably offsetting the €6,000,000 effect on corona mainly or partly or whatever. I don't know have the exact figure now in mind. And 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 experienced as well that the travel things and how we work, that has changed throughout the last couple of months.
And I think this will have an impact also on our future business, on our future operations, how we work. And I think part of them but it's too early to say how much will we and will we return to normal life as it was before, but definitely will have an impact on the future cost side.
Take my example. Take Zutphen. I was really the, I would say, traveler, flying guy. Super traveler. Super spread.
Super spread. The super traveler here all over the world, 3, 4 times a year, once around the world and so forth. This is really it's not only not healthy, it's exhausting and so forth. But 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 Baidu. I begged her to reduce my usual travel activity roundabout to cut it 60%. So and I will do that, believe me. I turned 62 now. Why should I travel so much?
And so far, this will have a cost impact. And others are doing it as well. So this is not only a showcase. No, it's, I would say, 60% is realistic.
Okay. 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 do you did you rent a salt space and put some of those fuels in there? Or are we still No contracts.
Fuel situating here?
No, no, it's just contracts. We are not a physical storage company, as you know, for heating oil. It's too costly. You wouldn't make any margin if you have this cattle cost load as well or on top. So it's contracts.
You make a contract. And it's like you compare it with the open positions in the commodity business.
Yes, like a future on the thing I like.
Yes, it's not a future. Yes, it's not really a future, but it's similar, I would say. It's similar. It's a virtual contract, yes? It's a virtual contract, yes.
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 now we do that anyway, but the volume was extraordinary because the forecast from the management was the demand is going to increase significantly. Maybe we have this FOX oil. Do you know what it is? FOX oil 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.
And 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.
So
with other words, I wanted to show you that we use some technical expertise and some tools to make these kind of forecasts.
Understood. And 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 mix 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 pickup in demand due to the various reasons we discussed already in the call?
It's always a mixture. It's an increase of demand. That's one thing. Then 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. And the third one, the first lid, but it's just a little part of the overall picture, our project development company, where I expect over the next year is a much higher part of the EBIT.
At this point in time, I think it was €2,000,000 or €3,000,000
EUR 3,000,000
in 2020. So we are still in the building process. But if we are through, I think next year and 2 years from now, this will be a significant part of the profit.
Okay. Thank you so much. That concludes my question.
Okay.
Bye. And
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 we what you expect from that business on EBIT contribution for the current fiscal year or if it's too early to state that? And 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. So given the good results and the good development, do you still wanted to sell that if there is an interested party?
Or would you keep that in the current status? And the 4th question was or is regarding that digitalization. I thought it was always a problem of the farmers that they Raleigh had access to the grid on their fields. And you wanted to intervene politically with what success have you done there? Thank you very much for the question.
Okay. Mr. Gabriel, welcome. First of all, last question is the farming. It's not only the grip on the farmers.
It has to do, of course, with the GAAP, the general agri policy of the European Union. We are through our Deutsche Reifhuizen Association and 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 gap to use part of the subsidies for the farmers to invest in new digitalization and new technology. So this is our aim as well because it's quite simple. The European agriculture sector is highly subsidized, still different business pillars or different subsidy pillars, 3 as you maybe know. And this is very, very complex. Normally, you get a direct payment.
So it's like a salary replacement or enrichment or whatever. So what we asked the politicians, the Chairman, Andre Minister and also the local ministers in the different national states. We are in a close contact with them. That a part of the GET 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 because the farmers are very reluctant still It has to do with the tradition, 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. And 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 and 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 5 or 6 fuel stations all over Germany. We are one of 3 competitors in Europe not in Europe, sorry, 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. But the synergies were not really obvious. It was a similar process as we had that in the Building Materials business. And finally, we said we'll keep it. We keep it going internally as part of the business portfolio fiber.
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's say, 10 years, more than 50% of the market disappeared more or less due to the changes of the heating technology in our houses. And so far, there is not really a positive perspective for heating oil. So they are the most important thing and the challenge for the management is to reduce the cost and the heating oil and to make the transformation to something new, which is e mobility at this point in time and LNG. And Also, then there comes the greenhouse. Yes, the greenhouse.
We had this flood catastrophe in a line in the Emirates, which is so unusual. This is unbelievable because normally we are really in the desert there and it has around, what, 40 to 50 degrees Celsius. Unbelievable. I was there twice to have a site visit and to look also for the people. Now what is the concrete outcome?
1st of all, we have a settlement with our insurance company. I do not want to speak about that. 2nd, about the content because I'm not allowed. 2nd one is we expect in 2020 an operational profit and EBIT contribution of SEK 3,500,000. And in 2021 and this is very seldom, by the way, for the others on the phone that I communicate a single figure regarding a single operation.
But in this case, I think it's worthwhile because it's an interesting new business model for Baeva and the Global Produce business, and we want to continue. And we expect an overall profit in 2021. At this point, it's a very early stage when we are not through the much of growth as yet, but we expect roundabout SEK 7,000,000 to SEK 8,000,000 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, and so far, we changed our original strategy. We do not want to build like our food 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 €300,000,000 in greenhouses like well, it's a working capital of €300,000,000 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. So 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. But the management under the leadership of Benedikt Mangold and Georg Czerny. Mr.
Czerny is our CEO of the Adagra Biovachant 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. So 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.
Yes, same for you. Thanks. So I think that's all
the questions.
Okay. Thank you very much. So first of all, thank you, Mr. Lutz. Thank you, Mr.
Heber, for taking all the questions. And of course, thank you to all participants and for your interest. The next conference call will take place on the 12th November. Until then, please stay healthy. And if you can, enjoy the summer.
Thank you very much.