...Good morning, dear listeners. Welcome to AUGA Group Investor Conference. I'm Emilija from Nasdaq Vilnius, and I'll be moderating today's event. We'll start with the presentation from the management, which will be followed by the Q&A session. Please be informed that this webinar will be recorded and will be available on the Nasdaq Baltic YouTube channel.
I encourage everyone to submit the questions in the Q&A section at the bottom of the screen. You can submit them either anonymously or with your name. With that said, I am pleased to introduce today's presenter, the Chair of the Board, Kęstutis Juščius. Please, the floor is yours.
Good afternoon.
Recording in progress.
Good afternoon, webinar participants. I'm Kęstutis Juščius, the Chair of the Board of AUGA group, and today I will present to you AUGA group unaudited results for three months of 2024. During this webinar, we will review the overall financial results of three months of 2024, and separately, the results of each business segments of the group.
Additionally, today, I will present the outlook for 2024, and the status of AUGA group strategic and unique tech product projects, which we just recently presented this morning on our website. Since last year, the group has been reviewing the performance of the main agriculture business activities and has made strategic decisions in order to generate more gross margin and diversify high risks.
For this reason, by mid-2023, we transferred half of our arable land to conventional regenerative farming principles, and in the second quarter of this year, a third of dairy farming is done on the conventional practices already. The results of the first quarter of this year already reflect a slightly increased gross profit, with significant impact contributed by the crop growing and dairy segments. Moreover, the group operating costs decreased by 8% in the first quarter of 2024, compared to previous year.
Mainly attributed to reduced marketing expenses, which we, like a group, this year, we spent much less. Currently, the group is reviewing all cost components, specifically targeting unnecessary expenditures to align with this goal of reducing annual operating costs to EUR 12 million of 2024, which we published it in our EBITDA forecast. Now, we'll review the segment by segment.
Commodity prices show a positive trend. Wheat prices, which are rising rapidly, the wheat market has also increased, from EUR 444-496 per ton from the beginning of 2024 to May 31. It's important to note that the change in the prices of organic raw products always occur later than those of conventional ones. If high conventional prices persist for a longer period, organic prices will also rise, as long-term practice has shown.
According to the Food and Agriculture Organization of the United Nations, yield of wheat and legumes and other crops, grains, have been flat as a result of climate change. In order to feed the growing global populations, farmers will need to adopt technologies, as it is evident that existing measures to increase yields are no longer sufficient.
That's why we see increasing prices because of every turbulence on the market when storms or heat waves or droughts are coming in the different regions of the growing areas in the world. The yield of the crops grown by the group have remained the same, and in some cases, even slightly better than planned last year.
Additional early spring weather was favorable for crop growing and allowed to perform quality work. According to the current data, crop conditions are good, and better harvests can be expected from average of last three recent years. Due to lower yield of legumes previous season, which are more expensive than grains, we had a lower sales result in the crop growing segment in first quarter 2024.
In 2023, it was by lower yields, we don't have enough to sell for first quarter in 2024. That's why our sales was lower. In the second half of 2023, we had already valued the subsidies for 2024, so we will remain similar of those the group received it in 2023. But, in general, the subsidy is a little bit lower, and this is mainly because last year, in the first quarter, we already targeted full organic subsidies, and that's what we're not targeting this year. Dairy. Let's move on to the next important segment.
As is seen from the graph on this slide, milk yields improved in the first quarter of 2024, and we were the highest in the last three or even more years, that we're showing three years results, so that's why we're saying three years. But actually, the yields are higher from last, probably five or seven years... As I mentioned yearly, since the second quarter of 2024, a third of our dairy herds started operating conventionally. Farms that experienced a greater drop in milk yield due to grazing in the fields and and heat stress on cattle during the summer were transferred to the conventional on priority.
For this reason, we expect milk yields to increase in the coming quarters of the year, and we will not see so huge, big, dump like we have seen in previous years than we had a hot summer, and the cows grazing grass outside. We had dramatic reduction in productivity during summer period.
So one third of the herd now will stay in the—we have the access, outside access, but it will not keeps on the grazing, so that it will keep productivity higher and the costs will be controlled and lower, and that's how we can increase our productivity and margins. Raw milk production price rose 4% per ton, compared to the same quarter last year. Additionally, the cost of raw milk decreased by 11%.
Higher milk yields naturally reduced the cost of raw milk, as a large portion of cost in milk production are fixed. So this trend, we probably will see next second and third and fourth quarter, then production of conventional will speed up, and the results from conventional herds we will see more versus we see in the second quarter.
So we expect much improvement on the end of the year due to previously mentioned reasons. Mushroom growing. Another large and important business segment for group. From the current results for the first quarter, we can see that both production prices at the market, as well as production costs itself, are stable.
We do not see any significant deviations from the goals set for the segment, and we can say that we can keep and the forecast EBITDA for coming year 2024. The results of mushroom growing segment are in line with the planned EBITDA. But the lower gross profit in the first quarter of 2024 for the segment was due to lower sales of compost, which is actually by-product of the mushroom growing, which is fluctuate between the quarters.
And not all produced quantity was sold during first quarter of 2024, and part of the mushrooms were remained in the stock. So it's this, this fluctuation you see between mushrooms produced and mushrooms sold, and this actually is the fall in this margin of EUR 100,000, which is the we are lower comparing the year 2023.
FMCG. Segment sales and gross profit have increased, and this trend continues. It's important to mention that this segment presentation is without Grybai LT, which we spun off from our group, and we sold last summer. Without Grybai LT, sales revenues for first quarter of last year is only EUR 0.2 million, and in the first quarter this year, we have EUR 0.67 million of sales revenues.
In the first quarter of this year, the group introduced also new products to the market, which is related to the dairy segment, and flavored yogurts, aiming to expand this product range and grow the community of conscious consumers choosing for sustainable products.
Further expansions on distribution network is expected to reach a wider consumer base, and we see more and more good take-ups from the same sales areas as new products needs time to that consumers will find, and brings us to its own purchasing basket. Outlook for 2024. On the basis of currently available information and current market trends, we do not see significant changes to the forecast to generate this EBITDA EUR 20.3 million EBITDA.
We will have a clearer picture of the EBITDA after the second and third quarter, when the crop will be harvested and actual cost of production will be incurred. And more important, that real not forecasted yields that as revenues for point of harvest. Strategy implementation and tech projects.
Today, we presented publicly about a project called EUR 75 million project, where we wanted to bring to the market and to scale our technologies we developed in last five years. What kind of problem we're solving with these technologies? That we're solving problem, which is actually huge problem, world problem. So it's we need to feed.
We need to produce 56% more food, but actually two-thirds of emissions out of existing level need to be reduced. And without technologies, it's actually not possible to reduce these emissions agriculture, which presents at the moment approximately one quarter of all the CO2 emissions.
Auga is a major player in European agriculture, and we are keen to change the industry, and we started ourselves to test and to find solutions for changing this way of doing farming. But actually we can't fund it. And this is the roadmap of Auga presents where we were before five years and where will be the technologies after five years from now.
So five years before, just remembering, because I think in this webinar, most of listeners we know what Auga does and what is active in which area. But just remembering that five years before, we just started digging in trying to find emissions problems.
We find and through during this five years, we developed and tested unique but the fossil-free machinery and low methane emissions feed technology. For this technology, we have already international patents, which actually proves our uniqueness of technologies. In five years from now, Auga Tech will commercialize the existing sustainable farming technology we created already. In providing the sustainability can be both effective and profitable for farmers, which will create a snowball effect in the industry to change.
How could we become a reality? For big big changes, this the serious amount of capital needed. So Auga from its own resources, from starting from five years before and six even years before, we used our part of our equity to develop technologies which is related to the sustainable farming operations and how to change farming from to net zero.
We spent up to EUR 10 million through this period of time. What we're looking for? We're looking for a. We applied to the project, which is called Billion for Business Program, administered by INVEGA. The program, which is, we applied for EUR 60 million long-term favorable condition loans, and we're looking for also EUR 50 million equity, quasi-equity, different kind of investments, which will need to finance this own part of the business.
And, what we can do out of this project financing and what will be deliverables by 2026? First of all, we will commercialize and further development of existing sustainable farming technologies, including tractors, which is called M1 tractors, 20 units, farming platforms, 60 units, and cattle tech systems.
We will test technology on 38,000, demonstrating plots, and we allow 20% of Lithuanian farmers to use the technology we developed and to check how it works on smaller holdings. This is important to mention that this is a new activity in AUGA group, and this activity unlock our normal potential for the growth in next years. AUGA solution and technology portfolio.
So like I mentioned before, so we had already very known already product on the market, which is, we started from this developing, and this is AUGA M1 hybrid technology, methane-driven and electrical-driven tractor. And it...
AUGA E1, actually, this is a new thing which we presented today, is this, this technology, which will fills the gap between large tractor and, and will take over all the rest of the works needed in the farming operations. The big tractor, you can do only soil preparation, the largest, largest, works on the fields, and, the smaller E1 multifunctional platform, we can cover a rest of the works on no fossils, the no fossils on farm technology.
Important to mention, this is modularity of this platform. It will create unique opportunity to the farmers, to use different of, type of implements, and, and these implements will change efficiency and dramatically reduce the cost. Important to mention that these tractors are both of the tractors.
We have also electric-driven systems, and the systems and the batteries, which are major part of our electric or hybrid-driven tractors. We will not work only for the farming operations, not on the fields, but they will work also both, like, balancing and accumulating cheap energy in the moments when this is energy cheap in the market and selling back when the energy is expensive.
So this is this kind of bi-directional energy supply can cover up to 50% of tractors lifecycle costs. So the tractors income streams will be not only farming, but also energy sales and balancing. Cattle tech is a technology which we work since 5 years already, and we have statistically proven results that our feed technology works, and that we can reduce our emissions at least by one third. Important to mention, this technology also will be used on the sharing principles, and we will try to use it with local farmers here in Lithuania.
Technology will be transparent carbon footprint measurement, control, and certification systems. And this is important that this low emissions feed will allow to produce low emissions milk, raw milk, and raw less emissions dairy products. They already generating for the farmers additional incomes, which big corporations and companies we motivate to farmers to change to better practices.
What is important here, from shareholder side, to the projects we developing here in our group? First of all, it will generate a new revenue stream for breakthrough technologies, could come as technology sales to farmers or sales of IP rights to industry players. We, at the moment, open for both ways of putting technology on the market, for commercialization of technology by cooperating with big industrial companies or by doing our own way.
This is why this is a commercialization of technology could work on both of the ways. Second, improvement of business efficiency and sustainability. So agriculture operations with the new mission, no cost to nature, smart farm technology will cut operational costs.
So by designing the technology, we're not evaluating sustainability aspect and emissions aspect, but we also look through the efficiency, efficiency in numbers. And we more like, we believe that this technology will be cheaper to operate versus regular conventional technologies. And the machinery and the technology, actually, the lifecycle of the technology will be less costly to the farmers versus existing ones.
Generate the possibility to deliver commodities, creating a new sustainable category of food and and increasing revenues. So after the technology will be implemented also on Auga fields, it will be substantial reduction in the emissions from our generated agricultural commodities. And we will certify these emissions, and we believe that big agricultural commodity buyers, FMCG companies, we want to change these purchasing practices.
We want to segregate and we'll prioritize more sustainably produced raw materials, and that's where the revenues out of farming operations could be increased. Third, which is very important to mention, that new technologies will have the use cycle of 15 years, and therefore, no major reinvestment will be necessary in this segment,
which in turn will increase the free cash flow that can be allocated to Auga Group shareholders. So here I wanted to mention that Auga Group, since last 5 years, that we are concentrated on the no fossils on farms, bio-methane process and so on. We don't want to invest in fossil technology, so that's...
Now we're changing completely all the setup of technologies which we can bring to the farms, that we will succeed with this project. So it will allow us to completely reshape the new modern technologies, and this will increase efficiency, of course, on the farms. And shareholders meantime so will gain from this increase in efficiencies and cost reductions and more revenues, but also that free cash flow not anymore needed will be needed to serve reinvestments.
So we can allocate more and starting paying dividends out of free cash flow from operations. Success for the project would open the door for global expansion through franchise model to change the face of the farming.
So like we discussed before, we already presented before, AUGA's long-term goal to change the industry and to bring tech, not only technology on the market, but also how the technology will be used by smaller and middle farmers.
So this is franchise kind model will allow for global expansion, and this will increase unlimited growth potential for AUGA in the long term. The share price on the market since last four months. Contact information and disclaimers, and AUGA will be a synonym for sustainable food life, food and lifestyle. So my presentation is finished.
Thank you for the comprehensive presentation. We will proceed with the questions. Before that, I would like to remind everyone you can submit the questions in the question box below.