Good day, welcome to the BayWa AG financial statement Q1 2019 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, sir.
Good morning, everybody, welcome to BayWa's conference call on the results of the first quarter of 2019. With me is Andreas Helber, who will guide you today through the presentation that we sent out this morning. At the end of the presentation, as usual, we will be happy to take your questions. I hand over now to Mr. Andreas Helber.
Good morning, everybody, also from my side, thank you for dialing in at this early stage this morning for the first quarter results of BayWa AG. Due to the limited meaning or the limited importance, as you know, this is always the first quarter call is the CFO affair, I would call it. The CEO, Klaus Josef Lutz, is not with us. We just saw him at our annual conference here six weeks ago in Munich. Just giving some comment, I will keep it rather short for the time being on the first quarter results and on the start into 2019. This is done by the CFO only. I hope you would not mind, I can also answer all your questions accordingly. As Josko said, we start with the presentation, I will just go to the summary on page four, which says it mostly all.
We had a quite good start into, or what I should say, a quite normal start into 2019. Given the very negative base effect from the prior year, which is -41 on result-wise for the first three months in 2018, that was not very difficult to achieve. We have a drop in results, if you see also on the next slide on page five, in comparison to the last five year, it is, as I said, a quite normal start. The other years have been affected by results contributions from the RE business in particular, from the normal BayWa business, the agri business, the building materials, also energy, it's quite normal.
Summarize it up to all entities are ahead of the previous year, apart from our international activities in Rotterdam, the BAS business, which is slightly behind the previous year, but I will come to that fact in a minute. Year-on-year, you see that we have a EUR 4 billion sales contribution, which represents nearly 25%, and the result is as it is typically for the start into our business with a minus number, minus EUR 13.8, and we will come to that in a minute if we go into the specific entities there. The weather conditions within the first three months on those business which reflect our traditional business, agri and building materials, had been in favor, I should say, compared to the start in 2018. The winter was a normal one.
It ended up we had a lot of snow in some areas in the south of Germany and in particular in Austria. Normally the cold and frosty period ended up already in the mid of February instead of end of March last year in 2018. The business picked up earlier. The farmers went out to the plants already by the end of February throughout March. That was all in favor and as you could have read it also in the press and other publications, we needed rain. It was again too dry a little bit for the first quarter. The snow was okay for the ground dryness. At the end of the first quarter, and in particular in April, we were heavily waiting on rain, which finally came by the end of April and now through the month of May.
This is almost on the agri business, favorable conditions that we predict now. It's different from what we have seen last year, not only the first quarter, but also running through the first six months, I would already say. We are already in the mid of May again, May is a very critical month for the harvest period coming up. There's a saying in German language, if it's cold and wet and rain, this is good for the farmer income. You probably know this. I will put it on in German. [Foreign language] Ist der Mai kalt und nass, füllt's dem Bauer Scheune und Fass. [Foreign language] This is really what we can see right now. It's raining. We had a lot of rain over the last couple of days, and it's predicted to be the same weather conditions over the end, until the end of May.
That would also be in favor of our agri business so far. Looking on the renewable energy side, we have pretty much the same start as we had it last year, this is also what we predict for the rest of the year. You know that last year we had all the incomes coming at the end of the year and the final quarter. That will be quite similar this year again, apart from some projects that we will realize in the second quarter. We sold already two projects in April that will come into the accounts in the second quarter in Australia with quite impressive EBIT contribution. What we saw in the first quarter so far, that was an overlap, you might say, from 2018. One portfolio that could not have been sold in 2018, that went through the books in the beginning of February.
This is the main difference on the RE business. We are on track with all our activities, with all our businesses, and this is quite simple, the summary of the start into the first quarter 2019. Just some additional remarks on the specific entities running into the agri business. You'll be just mostly the same picture on page seven. On the overall market environment, there has not been much fluctuation from what we have told you in the end of March or our analyst conference here in Frankfurt. The picture is quite mostly the same. As I said, we are looking on the weather conditions here in our areas. What we see on the international level is that we still have a higher consumption or the consumption exceeding production. That is the same picture that we showed you six weeks ago.
The estimations coming in for the new harvest on the northern hemisphere. The southern hemisphere is quite through the harvest. The picture has not really changed. The trade war between China and the U.S., I don't have to comment on this. You can read it every day in the press. That also blocks the market a little bit. What we are lacking off in our international business is the volatility within the first three months. But as our colleagues in Rotterdam stated on our latest BAS meeting, they expect this will come back because we have quite similar, the same picture, on the trading activities as we saw it last year. Finally, demand from the European customers, mainly the European feedstock customers, will come up, and they expect it to be not as tight as it has been within the first three months throughout Q2 and Q3.
This is the whole market picture, the market sentiment, which have not been really changed to what we have seen by the end of 2018 and that we reflected on our latest analyst conference. If you look on page eight, this is what I meant on the international activities. The BAS business is, you might say, pretty much behind last year, but this is mostly a postponing effect, one can say. The only really drop back that we saw was in our U.K. business due to the mild winter in the U.K. The supply for British farmers on feedstock was weaker than the year before. That contributed for around EUR 1 million or EUR 1.5 million on EBIT, which we lost in the first quarter. The remaining EUR 2.5 behind last year's numbers, but last year, pretty strong first quarter demand.
The EUR 2.5 behind last year will, what we expect and our colleagues in Rotterdam expect, being caught up in the upcoming months, mainly starting by the end of May and June. We hope to see as well a little bit of this catching up already in the second quarter, but mainly this will come back in the final two quarters of 2019, where we expect a stronger business on the international level. What we will miss for the whole year, and also this is what we reflected in our analyst conference in March, is our Iran business. You know that we stopped the activities here, and this is more actual today than it was yesterday if you read the news. The conflict is going on, and the conflict between the U.S. and Iran is getting sharper, as we say.
We do not see any business aspects coming out from the Iran business, though at least the whole volume of contribution at around EUR 2 million that we expect. It hasn't been included in our plannings for 2019. That is obviously lost also for this financial year in total. Going to page 9, this describes a little bit, and I don't want to repeat everything, the market environment on our resources business and Global Produce and equipment. Resources is quite early to state. We have a stronger business. As I said, it started earlier and therefore also the demand on fertilizer came in earlier. The demand on crop protection will be supported by the weather condition that we have right now here. As I said, a cold and, in particular, wet May, a lot of rain coming in.
This is the ground that we need for fertilizer treatment and for crop protection treatment as well. Given the price environment and how we bought in last year, this is also favorable market conditions there. Global Produce, the harvest in the southern hemisphere is almost through. It now comes to an end. They now start with the marketing season. Therefore, we haven't seen a lot of contribution from the New Zealand business in our numbers within the first 3 months. This is the business which is now coming in the second and the third quarter so far. Also there, we saw an impact on the harvest that the apples being harvested in New Zealand were somewhat smaller than expected size-wise. This is the point this year.
It's always a point every year, as I say. This year the quality is quite good apart from the size of the apples. They also saw, obviously, some frost issues in the late of the spring season in New Zealand, which means September, October. That came only up during the harvest period when they saw that the size of the apples was smaller than expected. That results in less TCEs to be the trade created equivalents or the cartons of apples to be marketed. That will impact the volume on the New Zealand harvest. We are still confident that we could achieve what we expect from the New Zealand business. All other entities in New Zealand are running on plan or better.
Agricultural equipment, the environment, as we described it, the development of the farming income last year were good, as we described it in the latest analyst conference as well. The farming demand for technical equipment is strong, still strong also after this record year that we saw in 2018. Now we have within the start, a stronger service business. The deliveries of new tractors and new harvest machinery will be the story of the remaining months of 2019. Looking on the numbers, starting with our traditional agri business, what we call the German-Austrian Business. This is the opposite from the international part of the traditional business. You see there with slight increase in sales. This sales increase is absolutely only price-driven. We had a downturn of some 15% volume-wise on crop trading.
Overall, that reflected the lower volumes that we got from the harvest last year. This was completely overcompensated by the price effect. Remember that we have a difference of some EUR 25, EUR 30 per ton in average, compared to the 2018 marketing season. The higher price effect overcompensated the lower volumes. Nevertheless, it resulted in a drop in results. Remember that we started with a very negative soy complex last year, with the burden of some EUR 5 million already in the first quarter, which was or could be seen as a one-timer. Even if you take the one-timer out, you see that we had a somewhat stronger marketing season, and markets and margins and results on crop trading, even with lower volumes. We saw already a stronger fertilizer business, which is not included here in these EBIT contribution, is crop protection.
Crop protection is behind last year. Crop protection started earlier last year in March. It was a very short treatment season. Then, remember, we had a very dry and hot April and May also in 2018. In a follow of that, crop protection treatments were reduced on the farming side. This is a complete different picture now in 2019. This is not yet reflected, nor in bonus-wise or in the result-wise, in this first quarter result. This is the business of the second quarter, as you all know and are aware of. Looking on page 11, this is the starting number or the starting result for our Global Produce business. As I said, could be compared to our third quarter, in our agri business. This is the harvesting season. Not a lot of EBIT contribution to be expected within the first quarter from the southern hemisphere.
Picking up on the German business from the marketing season, which is still running, comes to an end now starting with the marketing season on the New Zealand apple business. Result-wise, we picked somewhat up. This is not the picture for the whole year. The contributions are to be expected in the upcoming quarters as well. With a look on the agricultural equipment, it's pretty much the same. It's a break-even business, which is good for the agricultural equipment, where we normally have two cost months, with January and February, having a little bit of service business. Service business has been stronger than the year before. Again, also here within the technical equipment business, the environment is good, the sentiment is good, the farmers' mood is getting better.
We just had a meeting with representatives from the farming business last week. They also stated that immediately with the upcoming rainfall here in our areas. This means in Germany, South Germany and Austria, the mood of the farming sector, the mood of the farmers turns again, they are happy now, I think this will also support our equipment business for the rest of the year. Summarize all these on page 13 on the result numbers. Once again, you see it has been a pretty good start compared to the previous first quarters. We also had other numbers in here. It's an average one, therefore, I would say it's a good start. It's a good basis for the next three quarters to come. Once again, that has just been the first quarter. A look on energy.
Energy on page 15, the environment, unchanged also, as I said, for the renewable energy sector, still a booming market, still a strong demand coming from all parts of the world on the international market. If it's, say, it's Australia, if it's the Asian market, our portfolio in the Netherlands supporting business and will drive business also in 2019 very strongly, and also from the U.S. market. Still unchanged there. On the conventional energy side, you see what the prices made for coming up from the end of 2018 with a peak in November and then reducing down. That really did not influence the demand and did not really influence the margins, as you will see on the results numbers.
If I turn over to page 17 first, because this on the flow now, looking on the conventional energy, you see a really strong drop in results for the first three months from an EBIT wise EUR 1.6 to EUR 5.7. Remember, we also reported a record high for the 12-month period in 2018. This continues already in 2019 with the first three months, the winter months, the stronger months. That will also continue through April. It's now getting, of course, we are starting into the summer period here, hopefully in Germany and Austria. It now reduces a little bit, but this is still a very good starting base also for a record high or a good result for 2019 full year again.
Going back on page 16 with the renewable, this is the mostly, as I said, the overlapping effect from 2018, which is biomethane portfolio, where we got the antitrust agreement or the antitrust approval only in beginning of February instead of what was expected the end of December. This was the only postponing project from 2018 that came in now in 2019 already. The higher contributions, as I mentioned also in my opening statement, should be expected within the second quarter with the Australian project and then finally in Q3 and again in Q4. But it will not be a hazard as we saw it in 2018 with the magic 27th of December. The story will be somewhat different over the year in renewable energy. Nevertheless, we stick to what we said on the overall expectations for the both conventional and renewable energy sector.
Page 18, the summary also there. Without a higher meaning, once again, you see in Q1 2016 and 2017, we had higher impacts already from the renewable energy business. You see the business in the picture to last year's first quarter. We are on track and the main part is the seasonal business on the conventional business, which had the very good start into 2019. Building materials, finally. Again, if you remember building materials, there's also a saying within BayWa, the building materials business only starts after Easter. The Easter holidays this year have been only in April, nevertheless, this business has been picking up mid-February again after the winter period. We are on track. If you look on page 21, market conditions on page 20 are unchanged to what we reported. On page 21, it's mainly the same picture of last year.
Once again, building materials business is Q2 and Q3 business. Overall, if we achieve the respective sales numbers with the bonus impact that comes in only in Q4, but you know that we always expect a somewhat EUR 30 million EBIT contribution from the building materials business. I think we are on track on this part. Finally, a word on innovation, digitalization. Nothing to mention to what we reported so far. I think I could drop over to the other activities you see on page 25. This is the cost center activities, you might say. You see an increase there in results from minus EUR 16 on the first quarter 2018 to a minus EUR 9. Minus EUR 9 is reflective what we expected on the overall level of, we say, EUR 35 to EUR 40, maybe a little bit below that number.
In this year, we had an impact on this IFRS 16 on the EBIT number. That was positive EBIT effect of some EUR 3 million. This will be an impact quarter wide, EUR 3 million at least comes up to some EUR 10 million to EUR 12 million for the 12-month period. This has been reflected here in this minus EUR 9. Another effect was the sale of our participation. You probably read the news on our, what was it? A 49% or 50% share on a company called Kartoffel-Centrum Bayern that we held together with our colleagues from the RWZ in Cologne. The Cologne guys were running this processing business.
They were running this business. They took over this share, which is of no strategic importance for our company since we left all processing activities. That was in contribution somewhat EUR 4 million coming in here in the first quarter. It is part of our strategic portfolio cleaning, where we saw this is the first thing that we saw. You heard about some announcement that we made in between, and this will continue throughout 2019. This had been the first catch, a smaller one, with an EBIT contribution of some EUR 4 million in other activities. I do not want to spend much time on the summaries here for the income statement. As I said, I repeat myself again, it is not the picture that we expect for the whole year. It is a starting quarter.
Once again, it has been a positive one compared to last year and an average one in the historical lines. I think it is a good basis for 2019 business. One picture on the balance sheet where we now see on the Q1 numbers and the full year numbers a strong increase on the total assets number, which has been reflected by two aspects. The first one is the inclusion of the IFRS 16 leasing commitments now in our assets and in our liability side, which has been reflected by an increase of some EUR 600 somewhat million, as we expected it. This will be part of our balance sheet picture for the future, as it will be in all IFRS consolidated companies. The other one is a seasonal one.
This is the increase of the current assets within the inventories, mainly reflected by a stronger RE business that has been reflected in the result numbers for the first quarter business by the end of March, reflecting higher outstanding receivables. This is a thing that only comes up by the end of the quarter and which will be released in the upcoming months accordingly. I think this is the only important thing what we report now in future on the balance sheet is the long term against the CI, that means the credit institute. This is what we had as a debt position in our balance sheet in prior periods as well. Then we have the result there included in the leasing liabilities. There you can see what the impact was on the long-term leasing liabilities.
We had some EUR 160 so far already in 2018, that was now brought up to some EUR 770 million. I think it's compared to other companies, probably an average or even a lower number if you think on asset high rented companies like Lufthansa or whoever, probably have a totally different picture on that side. This is the lease issue. The operational outlook, that should conclude now my statement. I made already the most important statements. I think for the agriculture, it's a good environment. The start was good. The environment that we see on the harvest, which you know that we're always talking about the two sides of the business, the spring business, the resource business, then we have the upcoming harvest business. If the spring business is not good, though, that's not a good basis for the harvest business as well.
We have enough from the conditional-wise weather, water conditions here in our area. That should be a good environment so far. The international business, as I said, is expecting to pick up. The market season for New Zealand products just started now. We are confident that we could stick with our plans, the basis is quite good. The start was quite good. Nothing to say on the agri business. The same on the energy side. The start was surprisingly good. Should be seen as a good basis also for the rest of the year. Environment will stay the same. We are now expecting a slightly downturn on demand for heating oil, of course, through the summer months, which will pick up traditionally end of August into the autumn and winter season again. Renewable Energy, I could only say everything is on track.
You see it on the next page where the impact will come out from some 660 megawatts to be on the table to be sold in 2019 compared to 450 megawatts last year. Everything is on track. We have no other information or no other signals from our project managers so far. Australia, the 14.4 megawatts will come now in the second quarter. They have already been through. Building materials. This is, as I said, a stable business year-on-year. The expectations I mentioned already, some EUR 30 million contribution for the overall, I think this will also be the environment stays strong in our area. There's nothing to worry about, I think this is also a good fundamental for the whole year of 2019. That should be it. Once again, a good start into 2019.
Surprisingly good on the conventional energy, also a good environment on the agribusiness. Again, compared to last year, we should expect and we could expect if we think on the total outcome from the agribusiness of EUR 5 million only, EBIT contribution last year for the full year, that should be a sharp increase being expected on the agribusiness for 2019. Renewable on track, building materials on track. I think that should be it. I hand over again to Josko, then we're happy to take your questions if there are any.
Yes. Thank you very much, Mr. Helber. As Mr. Helber stated at the beginning of the presentation, the first quarter is to a certain extent limited for us. We met recently, a month ago, for the analyst conference. I don't expect too many questions, please feel free to ask now.
There still anyone on the line?
We have 22 people on the line.
Yeah.
Hello, sir. This is the operator here. Can I open up the lines for Q&A?
Yes.
Okay. Participants, 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 the signal to reach our equipment. Again, press star one to ask a question. We will now take our first question from Anne-Margaret Crowe from Edison Group.
Good morning. Thank you for taking my question. You noted that last year there was a recovery in grain trading later in the year that was driven by demand from feed producers. Thinking back, these will have benefited from the long, dry summer and the lack of forage, which obliged farmers to buy more feed than usual. This year, we've had rain in April and May, which is good, and this suggests that farmers will be able to feed their animals on grass and silage and other farm-produced material, reducing the demand for bought-in feed. That being the case, I was wondering what was behind your confidence that there would be an upturn in grain trading later this year.
Yeah. Sorry. Thank you for your question. A very interesting one. What we expect is, firstly, we should say what we deliver into the feed sector mainly on this international business is proteins, is what we call the specialties business, and it's not the mass product that the farmers have on their own plants. The demand that is coming up, this is more the soy complex coming from South America, firstly, and it's the proteins and the specialty business. The impact that we expect and that only they saw last year an impact of some EUR 8 million that will be driven up to some EUR 12 million-EUR 15 million maybe for the full year in 2019. That's mainly the specialties business.
Oh, right.
The second thing is that we will probably benefit from. I don't know if you remember on our full year conference, we reported that this entity, the international trading entity, benefited from the trade war between China and the U.S. in a certain extent. This certain extent meant that we brought crop that was delivered not longer from the U.S. into China, but was flowing from the U.S. into South America, through South America and Europe into China. That was a part of our business that we executed last year. Having still the same environment on this trade war issue, we still strongly believe that this will support demand for the upcoming months.
Right. Oh, that's really helpful. Thank you very much.
Pleasure.
Thank you so much. We now take our next question from Christian Bruns from Pareto.
Yes, hello. I have two questions. The first one would be to have an update on the process of looking for a partner for your renewable energy business, if you can say something on this process. The second question would be on the current assets. It's clear that your asset base is increasing by IFRS 16, but the current assets also went up. Could you give us some indication in which divisions the working capital was rising?
Thank you, Mr. Bruns. First, on the RE project that we announced. I kept it out of the presentation because there is currently nothing new to be mentioned so far. I could only give you the project name. The project is called internally Emerald. This is not the only effort we made, of course. We are preparing everything on that after being public. Sorry. After being public with the news, we saw a lot of interest coming in on both parties, on BNP Paribas, also on our own address. What we are currently doing is preparing the data room, preparing the vendor due diligence. We are very confident that we will be successful with this project.
I think this is a good environment. The interest being brought up by third parties shows us that, or reflects us that it's a good timeframe, a good window frame for this project. As we said, the next process steps should be by the end of May, being ready with the data room for reviews by third parties. We have the teaser, we have the market approach, that will only start by the end of March, the beginning of June. Maybe we have further information on the second quarter conference call. Nevertheless, if there is something new, we will inform you also in between. Far on the RE capital increase process. The second question was on the current assets. You might say it's half and half driven by the activation of costs from the RE project side.
I look at my finance guys here, some EUR 250 million, EUR 300 million I would expect from the RE business. The remaining is stronger accounting of receiver business, invoice business from mainly the conventional energy, also partly building materials and agriculture. It goes through all the entities, with the main focus on the conventional energy. If you look on the EBIT results, they had a very strong business. They put the invoices out, they account for by the end of the quarter. This will come back in April already. It's mainly in invoices.
Yeah. Okay.
Through very low impact is what we call the late collecting business from the farmers. I just checked the inventory levels year-on-year on grain. They are mostly in line with what we saw last year. There was not a particular stronger business on inventory side that drove the current assets. It's mainly the short-term account receivable and the activation of the capitalization of costs on project in the RE business.
Okay. Thank you.
Thank you, sir. We do not have any further questions at this time.
It seems that my assumption was right.
You forced them not to put any further questions.
In any case, thank you very much for your participation. The next conference call will be on the 8th of August. Until then, we wish you a nice summer. A little bit rain for our region here, and also thank you for what?
For our participation. If we have further news on the other issues, as I mentioned on Mr. Bruns' question, we will of course, come up with news flow to you. Thank you so far, also from my side, and yeah. Goodbye.
Have a nice day.
Goodbye. Thanks.
Thank you, sir. This concludes today's conference call. Thank you for your participation. You may now disconnect your line.