Good day and welcome to the BayWa AG Half-Year 2019 Financial Statement Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Josko Radeljic. Please go ahead.
Good morning, everybody, and welcome to BayWa's conference call on the results of the second quarter 2019. With me are Professor Klaus Josef Lutz and Andreas Helber, our CFO, as well as the IR team. All relevant documents for this presentation were sent out this morning. Otherwise, as you know, you can download it from the investor relations website. I hand over now to Professor Lutz.
Good morning, ladies and gentlemen. Pleasure to have you here in our telco for the first half result 2019. I would like to start with page four, just a few comments on the highlights for the first six months in 2019. The most important message is, of course, that we improved our operational performance significantly in 2019 in comparison to last fiscal year, where we had significant pressure on the result in the first six, even nine months. The key highlights were, of course, the successful issuing of the green bond with around about EUR 500 million for our renewable energy business. That's a great success because it was an attempt. In the beginning, we were, of course, not 100% sure that we'd get enough money.
After three hours, our finance department, together with the issuing bank, had to close the book because capital market offered us EUR 760 million. We're very proud of that because, as you might know, the renewable energy business of BayWa is still, in comparison to the very old BayWa, a new business. For 10 years, we started with this business on the basis of the acquisition of Renerco from Babcock & Brown in Sydney. The second highlight was, of course, the start of the process, the proper process for the private placement for BayWa r.e. As we announced to the capital market, besides the EUR 500 million through the green bond, we wanted to acquire another half a billion EUR through a capital increase for r.e. We are in the process. There are no news at this point in time.
The teaser has been placed in the capital market. The feedback is really exceptional from the capital market, especially finance investors, infrastructure funds, and companies would like to participate in this capital increase. Important also on the basis of our eco strategy is the sale of Tessol, the fuel station company, which is very successful. We plan transaction end of 2019. That's part of the capital restructuring of our corporate portfolio, as well as a improvement of our green image, also the green business models, which we have. We are working on a lot of new business models, especially in the e-mobility area and some others like digital farming, smart farming, precision farming and stuff like that. The capital restructuring is important. Tessol will be transferred to a third party as soon as possible.
I can tell you the process at this point in time is in a good shape. The feedback from the market, potential interested parties is extremely high. I'm very positive that the transfer will be successfully finished till the end of this fiscal year. On a digital basis, of course, that's innovation, always to speak about digital developments. We launched our agriculture portal for BayWa, and we started on the basis of a new business concept, which is called Building Information Modeling. We started in Borna, which is a little city close to Leipzig. We started the building process for houses. That was the highlight picture for the first six months. We come to the real stuff. The figures, we have an increase of, page five.
We have an increase of 1.7%, EUR 8.4 billion revenue and an increase on the EBIT level as well, 62.6% to EUR 52.2 million. We'll see a little bit later, that's average. If I compare that with the last years. Last year, we were really under pressure. That was the statement from the capital market and also some journalists wrote some articles about it. This has to do, ladies and gentlemen, it's extremely important to understand that our business model has changed over the last years, and it's going to be changed more and more because BayWa's becoming a project company. Insofar, the half year result is nice to have, so to say, but the real profit and income increase will, in many fiscal years, all in the future, will come in the second half.
That has to do with the renewable energy projects, with the projects in building material sector, also in the future for agriculture and the digitalization projects. We know exactly, I'm coming back to that, what we have to expect in the second half of 2019. The increase now in the first half year was driven by the energy segment, especially the conventional energy is in a good shape and performing excellently. Maybe surprising for some of you, this has to do with the extremely high demand for heating oil here in Germany, a little bit in Austria, but especially here in Germany. I'm coming back to that later. It has to do with the climate change discussion in this country. The agriculture segment, we had a very early start in the domestic agri business. You will see that later.
The figures are much better than in the last years. We are not negative, we are positive. The international business, BayWa Agri Supply & Trade handled in Rotterdam, had to suffer a little bit under the low price volatilities and, of course, the U.S.-China trading situation. The building material is stable. We have still a boom situation in Germany with regard to the construction business, and that's stable, no surprise. Other activities, we sold our so-called Kartoffelzentrum Bayern, which has to do with the capital restructuring process we are going through. The 50% we sold to RWZ in Cologne, which is another big cooperative, was already responsible for the operational performance of this GmbH. Of course, there are also changes in the balance sheet and the P&L statement. Andreas Helber, our CFO, is coming back to that later.
The change is based on the IFRS 16, so approximately around about EUR 7 million on an EBIT level improved the performance. Page six, you see here the overall comparison for the first six months in 2019 in comparison to the other years before. It's important to understand that's not an adjusted, not an operational or something else. EBIT, that's the real EBIT, EUR 52 million, and it's more or less average. This has to do, of course, that we do not have yet significant profit from our renewable energy segment. Taking this in consideration, 2017 with EUR 72.8 million or 2016, there we had already the sale of some wind and solar facilities, which is part of the profit. We don't have this yet in 2019.
The situation is comparable to 2018, where the last six weeks were really the most important one to get the profit from r.e. This year, I would say it's not so dramatic, but we will see most of the profit in the fourth quarter. We come to the agriculture segment. Just some highlights on this. Market development, international, the price trends for corn or soy is very flat, no volatility, which means it's hard for an international trading company like Cefetra, for instance, to make profit, also to make profit with future with regard to our hedging strategy. It's a stable business. We are profitable, you will see that, but at this point in time, an upside movement, we do not really see. That's also reflected in the world grain balance, the statistic you see on the right side on this chart.
The global consumption, there's a steady uptrend to be seen. The global inventory for grain decreased since last year. That's a significant change, around about 15 million-20 million tons. We have a decrease in the storage, which is important for the price development in principle, all the other parameters do not show us a signal that we can expect higher commodity prices. It's more sideways movement to be expected in this business. The picture for our international activity, BayWa Agri Supply & Trade. The revenue declined around about 8.5%, EUR 2.5 billion and EUR 8.4 million profit, 42% lower than last year. As I said, what's the reason for that? The low price volatility, which is hurting us a little bit, and the oversupply of U.S. soya in the European compound feed industry. Why?
The U.S. are not exporting any more soy to China, and this has been replaced by Argentina and Brazil. So far, we have pressure on the margins, we have pressure on the volumes, and this is one of the core business segments for BayWa Agri Supply & Trade, Cefetra. Nevertheless, our specialty strategy, which is not yet completely finished. We acquired a few specialty companies over the last years. This specialty strategy is very successful. It's compensating part of the decline in our international grain trading activity. I'm very positive with regard to this new strategy. Royal Ingredients, a Dutch-based company, is this year, for the first time, completely consolidated in our balance sheets, Premium Crops as well, and Thegra Tracomex and some other little companies.
Which they are focused on vitamins, minerals for the compound feed industry, some organic products and niche products for the European market. This seems to be very successful. So far, the strategy is the right path we will continue. On the next page, you see page 10, the market developments in the other agri sectors. The input resources, the input business is not on the level of the previous years, has to do with the climate change, with the weather conditions we had here in Germany. It's again dry. For the fertilizer crop protection business, this means we have a downturn of volume and in so far, also from the profit side. You don't see it in the figures because we are more successful with our, especially German milling wheat business, which is very positive this year.
The only input resources area which was very positive and successful is the seed business because we benefit from the big demand for catch crops and substitute for a global produce. We are a global player here, and the headquarter is in New Zealand, in Auckland. We expect a very good year. Nevertheless, you don't see it at this point in time, and this has to do that we have a gap to the budget with the TCEs for apples in New Zealand. We are missing round about 1.2 million TCEs. The reason for that was a weak harvest. We have a low volume due and a low quality for apples especially, and this can't be compensated completely by other varieties and fruits. To say we are a little bit under pressure here.
In Germany, the prices are on a five-year low because of the volume which is in the market. We have still the apple flood, so to say, from Poland and other European countries because we are not allowed to export the apples to Russia. No change, it's always the same story for years now. Nevertheless, we expect from Global Produce a good year and explain that later. Agri equipment. It's again a very positive development. Nevertheless, we have a decline in the figures, in the profit. Also, the registration of tractors in Germany is up of 22% in comparison to last year. The liquidity situation of our farmers in Germany and in Austria, especially the liquidity, is generally said very stable. The agri equipment business is in a good shape. Let's go to the figures.
Agri trade and services, that's especially our German, Austrian, and Eastern European business. You see an increase of revenue, nearly EUR 2 billion, and an increase of our profitability of EUR 24.2 million, EUR 24.5 million. Important is that last year we had a loss situation in Germany. Today or this year, the EUR 24.5 million is more or less carried by the German operation. The revenue growth is based on volume and the price development in our country. Next page, the Global Produce business is stable, more or less on the same level as last year. Nevertheless, we expect a significant increase of profitability in 2019, there will be some one-timer included because we are selling or we are in the sales process at this point in time for our operation in Mount Wellington, which is the headquarter of Jonathan Growers. We come to page 13.
The Agri equipment, we have a stable revenue. The margins are a little bit under pressure. This has to do with an increased competitive situation in the areas where we are selling tractors, harvesters, and so forth from AGCO, but especially CLAAS. In Eastern Germany, the demand for harvester is on a very low level. Nevertheless, the EUR 10.8 million is still a very good performance. The EUR 15.6 million last year, this was really exceptional. Coming to the financial statement, page 14 for the Agri business. Here you see the revenue is a little bit lower, minus 2%, EUR 5.6 billion. EBITDA, 19% higher, the rest of the figures will be explained later on by Andreas Helber. The Energy segment. Again, the key driver for the improvement in 2019.
At the end of the fifth year, you will see that the energy sector is the most important pillar in the overall conglomerate picture of BayWa. Renewable energy, no change to my statement I made in the last conference in March. We have still a very good development on available basis for wind and solar facilities. China, of course, is leading. In China, we do not have an operation. We are only sourcing. Nevertheless, that's an interesting indicator. I think that's enough to say it's a great business. The conventional energy sector, it's interesting that the heating oil prices in Germany, in average, are higher than the Brent oil on the stock exchange. Why? Because the demand is extremely high due to the discussion in our country for a CO2 tax or any climate change-related payments people have to do.
Of course, heating oil is not the cleanest version of energy, so to say. That's the reason why the heating oil prices were higher, and our profit based on that, more or less. We come to page 17. Renewable energy, we need not to discuss it at this point in time. It's more or less break even. We know we will have a record high for our results in 2019, as we had it over the last years. The process is not stopped, and we will continue to improve the profit here. At the end of the day, I think all of you will be very happy with the performance of renewable energy. The conventional energy sector, you see here, revenue plus 11.4%, price-driven, volume-driven, and then profit EUR 11.6 million. I'm positive. I'm very happy with that development.
You see the income statement, page 19, increase 70% on the revenue side, then 32.2 the EBITDA and 12.1 the EBIT, so very good development. We come to the building materials segment. The construction boom is stable, 77%. You see that on the right side of this picture, 77% of the construction companies, our customers and so forth, believe that also over the next 12 months, and there are some other studies over the next three to four years, that the construction boom in Germany will be very stable because the demand for new apartments, houses, flats, and so forth is extremely high. P&L, we are stable on the revenue side, EUR 775.3 million and EUR seven million is the EBIT profit. At the end of the day, we'll have more or less the same profit as we had it last year.
The P&L statement, I do not want to comment on that. Andreas will take action on that. Last point, the innovation and digitalization segment. Well, ladies and gentlemen, of course, you see now year by year the big loss situation, which is the investment we make in our software portfolio for FarmFacts, our digital farming activity. I do not want to comment on that today in depth because I think the most important message is we expect some further developments also from the profit side now during the Agritechnica. The Agritechnica in Hanover this year will be very important for BayWa and FarmFacts, especially because we are going to start a so-called AAG cooperation. AAG means Agri Application Group. Six manufacturers plus BayWa, plus FarmFacts are combined in this type of cooperation agreement.
It's not a real joint venture, but very strong cooperation agreement, where we are delivering for the tractors and all the other technical devices of the manufacturers, the interface, the software interface, that the machines are able to communicate with one another. This will be then part of the proof of the pudding of all these investments. Other activities. Well, you see here, last year, minus EUR 23 million. This year, minus EUR 40 million. We have this EUR 7 million impact on the IFRS 16 basis, and the sale of the shares of the Potato Center of Bavaria is included here with around about EUR 3 million or EUR 3.4 million. So far, more or less usual stuff. I would like to hand over now to Andreas Helber, our Chief Financial Officer for the group financials.
Yeah. Klaus, thank you. Also a very warm welcome and good morning from my side. Going to the group financials on page 28. I will keep it rather short because the most important comments have already made, and it's only the half time, the half year picture that we present here. One remark is needed. We talked several times about the IFRS 16 effect, which is going through the numbers in all presentations, in all tables here that we present, and therefore the numbers compared to last year are not directly being comparable if you look on the numbers. Just one remark that I want to make, and I'm coming back on this in a minute. The other one that I want to point out is, if we go back on the slide, you probably have seen it on the slide of page 19, summarizing the energy result.
There's one thing that we need to explain. If you look on the EBIT number in there, which is reflected by EUR 12.1 million compared to EUR 1.3 million, due to the very good performance on the conventional energy side as well, improvement on the renewable energy side by some EUR 3 million as well. If it comes to EBIT, it goes down to minus EUR 8 million. This is also reflected in the summary of the income statement in total for the group. That seems there's a dramatic downturn in it, which is not really true, because this reflects the higher interest expenses that we have on one hand, and also some hedging costs that we had on various currency projects in the renewable energy sector, which have not been capitalized for this half year period.
They are completely in the expenses because these projects will be sold in the second half of the year. Therefore, they have not been properly capitalized on the project, but already included in the segment income statement, and therefore, that brings the EBIT up and the EBT down by some, I would guess, EUR 10 million-EUR 12 million impact. It's not the IFRS 16 which is reflected in here. That's a minor effect of EUR 1 million on the energy segment, but it's mostly because of higher interest costs on the projects that we are currently working on, as well as currency hedges on the various projects in different parts of the world. This is important to understand when it comes to the energy segment. Now I'm going back to page 28, just summarizing it.
We're coming back to this EBIT line of EUR 52.2, which is an increase by EUR 20 million compared to last year. EUR 7 million out of this increase is related to the IFRS 16 effect, which is offsetted in the interest again. The total effect of IFRS 16 on the P&L statement could be related to a higher depreciation by some EUR 20 million, and higher EBIT by some EUR 7 million. A higher financial expenses as well, interest expenses by some EUR 9 million, which is offsetting the EBIT increase again in the interest. This is probably something, the effect that you have in each and every company you are currently looking on. It's nothing unusual within the numbers, but this is the effect which is included in the half year numbers for BayWa. This is all that I want to point out at the income statement.
The EBITDA, as I pointed out, some EUR 20 million probably is related to the higher depreciation, which is returned or released in the EBITDA number. That brings it to EUR 135 million and the EUR 40 million improvement. This is the operational improvement that we have on the EBITDA level, I guess. On the balance sheet, just the impact on page 29 also released to the long-term lease liabilities, which we disclosed separately here in a line for clearance. If you look at the long-term debt, which has been increased from year-end number EUR 883 million to EUR 1.4 billion, that includes now EUR 780.2 million on long-term and EUR 22.2 million on the short-term leasing liabilities. The EUR 800 million, this is the total effect on the capitalization on the IFRS 16 on the asset side and reflected by the long-term lease liabilities on the debt side.
The good thing is that even with this lease effect now, our equity ratio stays more or less stable compared to half year numbers in previous periods. If you look on to 2015, 2016, and 2017, it's around 16%. At year-end, I'm reflecting the total effect on the lease liability capitalization or the lease capitalization on the balance sheet and the equity ratio about two to three percentage points. I think we can handle it with our floating balance sheet number pretty good also here in this half year numbers. That should be it. On the balance sheet side, the cash flow statement reflects also the higher cash earnings, the higher cash flow from operating activities, including this IFRS 16 effect. Higher investing cash out is reflected by some real estate projects, in particular in Austria.
The colleagues in RWA in Vienna are working on a new headquarter, which is.
Under construction. This is one part which reflects here in this higher investing activities cash flow minus. That's all that we should point out at this time of the year. I think it becomes more important when it comes to the 12 months period to reflect these numbers, also to clearly point out the effect of IFRS 16 on these financials. That's repeat from my side on the half year numbers, I return now for the outlook to Klaus.
Thank you, Andreas. Outlook. As always, the same discussion. Guidance says no. Answer, pretty simple, no. I do not want to give you any guidance as we did it in the third quarter last year, because the business is too volatile and doesn't make sense. It's not really useful. Nevertheless, I tried to describe what can we expect from BayWa 2019. I think the overall statement will be that we expect a significant increase of earnings in 2019. Agriculture segment, page 32, as well, significant increase in earnings. I expect from the specialty strategy some positive impacts on the business P&L statement. I think that our Global Produce business, as I said, with some one-timers, will be on a very high earnings level in 2019. The equipment business, well, depends a little bit on Agritechnica in November.
Nevertheless, I expect a very high earning level as well, but not on the same basis as last year. Energy segment will be in an excellent shape, and the result will be extremely high. Go please to page 34. Here you see what we are going to do in the last five, six months now. We had a plan to sell 660 megawatts, just the projects. That's our project business. Don't talk about the solar module and other devices business. That's not included here. It's just the project business. In North America, especially in the United States, 370 megawatts, in Europe, 230, and in Southeast Asia, nearly 60 megawatts. Last year, we sold around about 450. You see the increase, and it's math to calculate what that means. We get a very good result in this business.
The building material segment, we expect the same result as we had it over the last years. It's a stable business. The boom is not broken, and insofar, I'm happy to say we will have a significant increase of profit in 2019. Thank you.
Yes. Thank you very much, Professor Lutz and Mr. Helber. We are now ready to take your questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Mark Gabriel of Bankhaus Lampe. Please go ahead.
Yeah. Good morning, gentlemen. Two questions, if I may. First, with regards to your sales plan for the petrol or gas stations business, what kind of offers do you have? Could you give us a certain range of prices which are now quoted for that business? I assume that you are targeting for a huge book gain on that business. If you could quantify that a little bit in detail. Furthermore, I'd like to know how you assess the current debt situation and how the debt should be reduced going forward. Are there any other asset sales on the agenda, which you could share with us? Thank you.
Mr. Gabriel, Lutz here. Thank you for your question. It's not easy to answer, of course, the first question. I understand what you wanted to hear. We are really in a proper process, of course. We are already in final negotiations with a potential partner to take over 100% of the shares. I do not want to mention the intended price at this point in time. Maybe I can use a legal term, which is maybe helpful for you. It will have on the conventional energy sector is a one-time and really a significant impact on the bottom line. Is this useful for you? You can't expect that I tell you the profit will be. That's not possible and legally not allowed. It will have a significant impact on our bottom line in 2019 for the conventional energy business.
That's a one-timer. We will report that not in the Energy segment itself, we are going to report it under Sonstiges. That's the one thing. The debt, Andreas?
Mr. Gabriel, on the debt, on the liability side, it stays the situation as it was the years before and also last year and the year-end. The main contribution that has been made from the debt side are now in the circle of our inventories. We are at the half-year, normally on the lower point, and now getting back into the financing of the harvest coming to the year-end. The main contribution is, of course, in this project that will be released in the second half of the year. From just a rough guess, what I could see so far from today's perspective, I expect another return on the cash side, on the debt side, by some EUR 300 million to EUR 400 million out of the sale of project until in the second half of the year on the renewable energy projects.
We placed this bond, the green bond, with some EUR 500 million, which has clearly been dedicated to renewable energy projects. You could see that also if you look on the long-term debt side, which is increased by this amount, and the short-term debt side, which is released or declined by that amount. Therefore, I do not see higher deviations within these positions. I'm expecting a downturn from half year to year-end on the renewable energy side.
Okay. Maybe one question again regarding the gas stations business. I mean, the book value is EUR 18.5 million, somewhat. I saw deals on the market which paid roughly EUR 1 million for one gas station. Is that a fair assumption?
No, Mr. Gabriel, that's pretty much too high. First thing, when you say EUR 1 million for one gas station, we have 155. It's not the owning of the gas station, it is the contract on delivering fuel to this gas station. Don't do this calculation.
Okay
it's much too high.
Yeah, okay.
First thing. The second thing is, what I could tell you is the book value on this part we are selling on, it's only EUR three and a half million. Yeah.
Okay.
This is only part of the 18.
Yeah.
The EUR 18 probably, this is the whole conventional energy business. The book value on this. Please give us the time to close this transaction. It will have a significant impact on the P&L. I think we'll come back to this on the next analyst conference clearer. For the time being, it's pretty much too early to give you a statement on this.
Okay.
Maybe, Mr. Gabriel, and also for the other colleagues, there is a misunderstanding. Tessol, of course, is a separate legal entity as Tessol GmbH. It's just, let me say, type of dispatching center with the fuel stations, which are part of AVIA, the AVIA group, which is a very big.
Yes
fuel station, so to say. It's a mixture of franchise and supporting unit and so forth. Tessol is the largest shareholder of AVIA, together with, I guess, four others, yes? Four others and four other groups. The fuel stations are owned by private owners, entrepreneurs, and they are just part of this community, legally bounded, of course.
Okay.
There's a contractual basis for the supply with fuel, with diesel and all that stuff and the lubricants, of course. AVIA is providing the complete environment, the furniture, the technology, the hardware, software, computers, blah, blah, all this stuff. That's the reason why you see in Germany, but also for instance, in Switzerland, you see a lot of AVIA fuel stations. Most of them, I would say, I don't know exactly the figure, but I would assume around about 95% are privately owned.
Okay.
Okay?
Yeah, very good.
That's a little bit different as other competitors who are in the market. I know there were a lot of transactions over the last months with regard to the gas station business, but it's not comparable to the Tessol structure. Nevertheless, it will be a important and significant impact.
Thanks for the explanation.
If I may, just for clarification, if we are talking about significant improvements on the performance on the operational result, this excludes, of course, this Tessol effect. If we are talking about the significant improvement that comes out of the agribusiness and it comes out of the renewable energy, also the classical energy, but the renewable energy business in particular, and this is all operational, it does not include any potential effect from.
Yeah, that's what I said. That's part of Sonstiges.
Yeah.
Yeah. If we have a high income for Tessol, and I assume it will be a good deal, of course, otherwise we wouldn't do it. It will be reflected in the miscellaneous business.
Yeah.
Thank you very much for your comments. Yeah.
You're welcome.
We will now take our next question from Crow of Edison. Please go ahead.
Good morning, gentlemen. Thank you for taking my questions. I'd like to ask a couple of high-level questions about the shift to project-type work in the agriculture and building segments. The first thing is, why was the decision taken to do this? Are the returns better? Does it give you better growth opportunities? I was wondering about that. The second question is, are you deploying any technology from the innovation and digitalization segments, in any of the agriculture projects at the moment? Thirdly, do you intend projects in the agriculture and building segments to become as significant as the renewable energy activity longer term? As an unrelated question, which is there any cross-selling of products from the innovation and digitalization segment to your agricultural supply customers at the moment?
Thank you very much for your questions. We'll start with why are we doing that? Well, I can speak one hour about it, but I would try to summarize it to a few sentences. Why are we doing that in the building and the agribusiness? Between the two segments, there are no synergies in principle, of course. The project business in building material is, from our point of view, very important because over the last decades, we were just a general provider of building materials to construction companies, carpenters, and other professional customers. Now the question is what can we do to stabilize and increase, of course, the profitability and to invest money together with partners.
It's always based on a joint venture in building and construction activities is an add-on and added value to our general building material business and should create a higher stability for building material because, if we have a downturn of the boom situation in Germany or Austria, then we will see that directly in our P&L statement. The project business has to do to minimize the volatility of the classical building material business. Of course, we expect higher profit. We have business plans that's clear for the next years, but you can't compare it with renewable energy. Renewable energy will have also in the future much higher profit levels than our building material business. Let me say, the process we are going through for creating this project unit, we just hired people, some building engineers, some project managers, is on a very low level.
As I said, we started now a project in Leipzig in Eastern Germany. We finalized one project in the southern part of Bavaria. That's more an attempt. Give it a try, and we will see what's going to happen here. I'm very positive because the first results, just small money still, but the forecast, the outlook from the management and the performance, the operational performance of this new stuff, this new little entity that we created in building material, is very positive. In the agribusiness, why did we decide to become a project manager? This has to do with the change and the consolidation of the agribusiness, not only in Germany, Austria, and so forth, but all over the world, more or less. In the future, the farmer will not ask for a special, we call it color for a tractor, for instance.
What he would like to see is a solution of his operational problems. You can compare that maybe with the '90s, where this was one of my first support positions I had in Digital Equipment and Nixdorf, for instance. There we started to create a solution integration business, and that's the type of solution integration business which we have to provide to the customers, to the farmers in the future in this business, as well. Software applications are playing a much higher role in the future. The processes need to be improved, changed to be more competitive in this more and more global business. So far what we decided is nothing else than to meet the needs of the customers and to create more solutions for them.
This has, of course, a significant change or means a significant change for the skill profile of this company because the normal sales rep in the future is maybe the lead generator. In reality, you need project managers, software engineers, and people who understand the needs of the customer, the problem of a farmer, and then we provide the integrated solution to the farmer. We start now. The question was, is there any cross-selling effect? Well, of course, for the manufacturers. FarmFacts, the company owned by BayWa 100%, provides now, for instance, this type of communication software for the different devices of different manufacturers. That's an open system, not a system. If you compare, maybe you remember Nixdorf. Nixdorf had always proprietary systems in the software world. We do not follow this way. Some manufacturer try it.
I think it is extremely dangerous, because then you depend on the one or the other manufacturer. All the systems must be open, must be easy to be connected with different devices, and that's what we are doing. So far, while it's not really cross-selling, that's the core of FarmFacts with regard to the manufacturers and the core business with regard to the farmers is to create then an interface to the farm, the processes on the farm, and also the management software or the management system on the farm. It's a complete open system. It's cloud-based and well developed, by the way, here in Bavaria, in Pfarrkirchen. It's a little village in lower Bavaria where software developers, most of them have a farmer's background, are working on all these applications.
Insofar, I can only recommend go to the Agritechnica and get a very personal impression whether we are in a good shape or not, and you are more than invited to visit our booth in the Agritechnica. If I'm around, you get a cup of coffee by me, by myself personally. Okay? What was the other question? Did I answer the questions more or less? Yes.
Yes. Yes, you have. Thank you. That's very helpful.
Okay. As I said, visit our stand and then you see really there are some project software engineers are around and can explain that in detail to you if this is for investment decisions or whatever important for you.
That's very helpful. Thank you. I look forward to it.
My pleasure.
We'll now take our next question from Knud Hinkel of Pareto. Please go ahead.
Good morning, everybody. Thank you for taking my three questions, please. First on the outlook. Am I mistaken that you've turned more optimistic with regard to the energy segment at the backdrop, probably of the good results in conventional energy as you, as far as I remember, at the end of last year, expected a more subdued result and now expect a significant increase of earnings for 2019? That was my first question. Second question, you alluded a couple of times to the drought condition last year. As far as I remember, we had also in 2019, a couple of very hot days here. My question would be, do you regard 2019 already as a normal year going forward, or do you expect more upside to the means, so to speak, in the coming years or on average? Third question, a detail.
Could you help me to understand why registrations of tractors are up such a huge number, like 22%? Is that a catch-up effect or what is it? Why don't we see more of that feeding through into your equipment business? Thank you.
Thank you for your question. First of all, you're right. The energy business, and especially RE, will provide a significant higher result in 2019. Just look at the megawatts. Last year, 450, now 660 roundabout. Insofar, it must be higher on the basis of a, let me say, competitive, similar cost structure we had last year. What? Huh?
Conventional.
The conventional business. First of all, the fuel business will be better than last year. The heating oil, and you saw that and you see it already in the first six months is much higher because there is a demand with regard to the maybe tax changes in Germany and, well, CO2, climate change, and all these discussions we have in the country, and the same in Austria, by the way. So far, the demand level of our customers is extremely high. That's the reason why we had these high prices in the local markets and the better profitability in comparison to 2018. Energy is one key driver for the first half year, but also for the overall outlook 2019. Your next question was with regard to the harvest. Do you mean that only locally?
If you speak about Germany or Europe, we expect-- Of course, we had some very hot days, 40 degrees and so forth, but it is not as dramatic as it was last year. We expect a higher harvest in Germany, but let me say higher than 2018, but a little bit below average. This can be changed, and we must be very careful what we are saying here as European market leader. This can be changed within a few days. Of course, it depends on the weather condition. If you have thunderstorm or hail or whatever, then the potential harvest can be destroyed. We had to experience that all over the world in the areas where BayWa is as a agri or a BayWa Global Produce company.
We had to experience that over the last years again and again, that within a few days, the harvest was either destroyed or it was hard to protect the volume for the different agri products. In general terms, I say that at this point in time, it's a little bit below average for Germany and Europe. The last point has also to do with our discussion in this country, with regard to climate change, CO2 output and all that stuff. The farmers are buying tractors, but also other devices at this point in time, as they believe and think, to avoid any personal damage by new taxes and whatever. To say, that's more psychology. I think it's more psychology.
The liquidity situation is very good of the German farmers because the milk price is on a reasonable level. Insofar, liquidity, the fear of any additional taxes, the farmers are under pressure, and they would like to protect their private wealth, so cash in tractors, harvesters, and so forth. Also, they believe that they have a chance to avoid any further tax or whatever. The 20th of September, by the way, the Federal Government in Berlin is going to take some decisions. I don't know whether they will decide anything. The plan is that Mrs. Merkel, the Chancellor, and the ministers are going to make a decision on the actions to be taken to avoid further CO2 output. This has to do with all these, let me say, activities of our customers, the farmers.
Okay. Thank you.
Welcome.
We will now take our final question from Livar Schwark of Warburg. Please go ahead.
Good morning, gentlemen. Final question hits the nail on the head. I have just one question left. This is about the personal expenses, which went up in first half year of 2019 by more than 8% compared to the level of last year's, while your number of people increased by only 3%. Is there something special going on, or is that just more high payroll people or a higher amount of high payroll people? Thank you.
Thanks for the question. That's our EBIT, renewable energy driven. We made some little acquisitions. People are on board, are now in our balance sheet and the average payment for renewable people are much higher than, let me say, classic BayWa employee. That's one thing. We have this collective bargaining agreement with Verdi here in Germany and a tariff agreement in Austria where we had an increase of, what was it? Nearly 3%. Unfortunately, you can't ask your customer, to be very polite in my wording, to ask the customer to take part of that so easily. Nevertheless, taking in consideration what we planned for HR, we are below our budget in 2019. We don't provide you our budget plans because it's again very volatile, but we are a few % under our original plans.
In so far, it's a combination of more people, higher-paid people, and collective bargaining agreements.
Very clear. Thank you very much.
Welcome.
We have one last question coming to the queue from Heinz Müller of Caliwado Research. Please go ahead.
Yeah, good morning, gentlemen. One question. Perhaps you could give us an indication about your cooperation with Unamera. How many farmers are currently using this digital trading platform, and what do you expect will be the share of the sales of the agricultural division in the future via this platform? Thank you.
Mr. Mueller, good morning. I'm happy to hear you. Well, it's a very good question and I question, by the way, my management as well, exactly with the same wording, more or less. First of all, that's an try. Yeah. Second point is nothing happened yet. It's just a cooperation with regard to create a trading platform, and we are right now in the process to get the approval for this cooperation from the antitrust office in Bonn. I personally do not expect a very high contribution on a profit level. It's really a try. To be honest, it was such a hard way for my colleagues to get this cooperation agreement agreed upon with all the participants. Let's give it a try and wait a little bit.
You know me now for more than 10 years, Mr. Mueller, and you hear what I'm saying. I'm not so, let me say, enthusiastic about it. There are young managers, they believe in this platform world. It's not only with the agri-business, it's more or less in many other industries as well. I think that it is not so easy to be very successful with that because farmers are reluctant to cooperate with platforms. They fear a higher transparency. They fear abuse of data and all that stuff. That's the one thing, and the other thing is, if you work together with other traders, as we try to do, they fear that you know too much about the margins. In so far, it's psychologically not easy.
I do not want to provide, of course, we have a business plan, but I do not want to provide any figure for that because it's really too early. You should not be surprised if it was a try, it was more R&D-oriented, research and development, and at the end of the day, we stop it again. I'm not completely negative and pessimistic, but I'm not so optimistic. Is this useful to you?
Yeah, of course. Thank you very much.
There are no further questions at this time. I will now turn back to your host for any additional or closing remarks.
Thank you very much for your participation and interest. The next conference call will take place on the 7th of November this year. Until then, especially now for the remaining weeks, we wish you hopefully a nice summer break and say goodbye and thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.