The run of bad news for Baywa continues. The agricultural trading company recently announced a reduction of 1,300 full-time positions, primarily in administration and IT in Germany, marking the latest and most significant development in its ongoing troubles. This announcement comes after the company declared itself a restructuring case on 12 July.

The sizeable layoffs are a result of the financial difficulties and heavy debt burden of the conglomerate, for which the former management and supervisory board are responsible. Consequently, negotiations between management and the works council are expected to be difficult.

As a benchmark for the layoffs, the management of the crisis-stricken group refers to 8,000 employees who are employed full-time at the Baywa locations in its home market. The cuts would thus affect 16% of the core workforce. Excluded from the numbers are employees working abroad, and those employed in majority-owned subsidiaries. These total 15,000, bringing total group employees worldwide to 23,000 as of the end of 2023.

Given the decision made between lenders and the cooperative banking sector main shareholders to break up the diversified group, with its approximately 600 subsidiaries, the job cuts will be much more extensive than the company suggests with the recent announcement.

Deconsolidation effects will contribute to this. The solar and wind power project subsidiary Baywa r.e., which is also in financial trouble, alone employs around 4,000 people. In the restructuring, for Michael Baur, the restructuring expert from Alix Partners, who was installed by the creditor banks and the Bavarian Volks- und Raiffeisenbanks, Baywa r.e. is a peripheral activity. This means that a separation from the 51% stake is considered a settled matter, even although the management has not explicitly communicated this externally.

One factor here could be that a sale is currently difficult. The market is extremely strained due to an oversupply of cheap products from China. Liquidating it independently carries the highest risk. This would incur massive additional costs, over which even Baywa likely does not yet have a clear overview.

Regardless of this, it is certain that virtually all additional expenses will be borne by the cooperative primary banks of Bavaria, because they (also publicly) provided support guarantees for Baywa. The credit cooperatives hold almost 34% of the share capital. The liquidity aids provided by the creditor banks and the credit cooperatives, amounting to a total of 1 billion euros so far, are unlikely to be sufficient to stabilise the group in the long term.

As net losses eat away at the company’s substance, the corporate consultants from Roland Berger, who were commissioned with a restructuring report, have recommended a capital increase next year. According to calculations by Börsen-Zeitung, the group's equity is expected to be completely depleted by mid-2025 if the deficits in the current quarter and the first half of the next 12-month reporting period match the levels seen recently. At the end of September, equity had shrunk to around 1 billion euros.

For the Volks- und Raiffeisenbanks, a capital increase would be a challenging endeavour, both financially and in terms of timing. The annual general meeting scheduled for May 27, 2025, might, in the worst case, come too late to ensure a capital increase is completed on time under pressure. Moreover, the restricted registered shares of the former SDax member are currently trading below 10 euros following the price crash in recent months. This corresponds to a market value of only 358 million euros.

Whether the pace of red figures and cash burn has increased or decreased in the year-end quarter will become clear no earlier than the end of January 2025, when preliminary balance sheet data for 2024 might be available. In the first nine months of this year, Baywa accumulated a group deficit of 641 million euros. This corresponds to seven times the loss of the year 2023. Additional burdens are likely to come from provisions for personnel reductions in the form of severance payments. At the same time, a temporary interest payment deferral by the creditor banks, announced in late summer, could relieve the group. Due to the high interest expenses, Baywa recently recorded a deep red financial result.

The risks and dramatically poor figures show that Baywa will still face a bumpy road to the planned completion of the restructuring by the end of 2027. The risk of setbacks for Baur and the credit cooperatives remains high.