Baywa's (F:BYWG) management is continuing with the strategy it has followed since 2009. This has strengthened the group by developing global procurement and distribution capabilities for agricultural trading and diversifying into the renewable energy market. Additionally, the acquisition of speciality distribution capabilities like fruit reduces the impact of variations in agricultural commodity prices.
Continued progress on execution of strategy in H116
BayWa’s portfolio of speciality trading businesses was enlarged with the acquisition of Evergrain, which makes BayWa one of the top five businesses globally trading malting barley, and a 68% stake in tropical fruit trading company TFC Holland. Its agricultural supply operation was strengthened through the acquisition of c 40,000 tonnes of warehousing capacity and the outstanding 51% stake in the Agrimec JV, which distributes farm machinery. Having previously established offices in Tokyo and Singapore, the Renewable Energy business opened an office in Thailand.
Diversification supports H116 performance
During H116 group EBIT rose by €8.6m (18%) year-on-year to €55.3m, flattered by €10.7m income from currency hedges. Profits from both Energy businesses and Building Materials all rose significantly. Low oil prices supported higher margins and encouraged consumers to fill their tanks. A favourable construction environment promoted demand for materials. One UK solar park was sold in H116, none in H115. In contrast low global commodity prices adversely affected Agriculture trading margins and discouraged farmers from investing in fertilisers and equipment, though overseas apples performed well. Noting potential in H216 for high grain trading volumes, increasing demand for fertiliser, contribution from TFC and the pipeline of solar/wind park sales, management expects FY16 performance to exceed FY15. However, it is not providing more precise guidance because much depends on future commodity prices, which are inherently difficult to predict and some of the income from currency hedging may reverse.
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