Welcome to AUGA Group meeting with investors. I'm Emilija from Nasdaq Vilnius, and I'm delighted to be the moderator for today's event.
We will start with a presentation from the management, which will be followed by the Q&A session. As always, I encourage every one of you to ask questions during or after the presentation in the question box of your screen.
With that said, I'm pleased to introduce today's presenters, CEO of AUGA Group, Kęstutis Juščius, and CFO of AUGA Group, Mindaugas Ambrasas. Dear guests, please, the floor is yours, and good luck.
Okay. Good afternoon, everyone. As always, thank you for joining this seminar and being interested in AUGA Group activities.
I will go through the presentation, and as we expect a lot of questions about our results, about our future plans, today I'm also joined by our CEO, Kęstutis.
Good afternoon.
We will answer those questions together later on. Starting with the presentation, as our reports are already published, I believe I will not surprise anyone by saying that, you know, we have quite a poor results.
These results were mainly affected by challenges in our crop growing segment, which still is the largest segment in the AUGA Group activities. Unfortunately, this segment is still dependent on weather conditions.
From time to time, we have specific weather conditions which leads to poor harvest and poor financial results. According to my preliminary calculations, I would say that this year, due to extreme heat, we generally had second worst harvest in AUGA Group history.
Unfortunately, in this situation, other segments maybe didn't step up somehow at least to compensate poor results in crop growing and to improve overall results of the group. As always, let's go and discuss every single segment, and I will try to tell in more details.
Now, what have happened, why this happened, and what we are doing to change current situation and current results.
As always, we are starting with our largest segment, crop growing. As every year, nine months results at this time of the year, then we can really review our harvest for this season. This year we already have big part of our cultures fully harvested.
There are some small part remaining for the Q4, but overall, we see main results and main trends, and we can discuss in detail results of the harvest for the season. Talking about harvest, I would say there are three key ingredients to check what is result for the year. What were the yields? What are the costs? And what are the prices of the commodities we have grown?
Let's start with the yields. As I said in the very beginning, yields or decrease of the yields, and as you can see from the name of the slide, that in average, we have 24% lower yields this year comparing to last years.
Yields, changes in yields was really quite substantial, and they heavily affected our financial results for three quarters. What had happened? I hope that everyone who is from Lithuania or from our region remembers what a nice summer we had.
Now when looking from a historical perspective, I just can say that according to official statistics, July, this year's July was the hottest July in the last 16 years in Lithuania. June, at the same time, was the second hottest month in the last 60 years in Lithuania.
When we combine those two things, generally, we had extremely hot summer, and this heat had unfortunately very bad effect on our harvest. Because what happened, cultures generally stop growing when the temperature is above 25 degrees.
At the same time, this thing called dew, which you can find in early mornings, was not present. Generally, all the crops had the situation which really limited the growth at those months and where is the largest growth during the year. This affected not all the crops. As you can see from the statistics, but in even looking at our results, legumes and other summer cultures were especially affected.
At the same time, winter crops and effects on winter crops was not that significant. I would say that similar decrease in yields we can see not only in AUGA Group's activities, but overall in agriculture in Lithuania and in this region. Unfortunately, there is one specific thing which led to this extreme heat affected organic farming and AUGA group results more.
This is really related to some of the specifics in organic farming. Because organic farming requires change of crops and requires different crop structure in order to produce normal yields. Comparing to conventional farming, we have to seed and grow much more legumes, much more summer crops.
That were exactly the same cultures which had the worst yields due to the specific weather conditions.
On a positive note, if you remember about our last year's results, we had some changes which led to reduced quality of our main culture, wheat.
It was like the first year when we had bigger proportion of feed quality wheat and which led to lower price and lower results last year.
As discussed previously, you know, we thought that this one is one time situation, and this year really proved that we got back on track.
Currently the quality is really better comparing to last year. Food quality wheat accounts for around 60% of total harvest.
Unfortunately, those positive things really didn't, you know, have that big impact on overall results as decrease of the yields had. Just to try to say, you know, what is our view of how we can mitigate this risk going forward. Because as I said, if you look at our historical results, we have poor harvest this year. We had very similar situation five years ago. Generally, what is our plan to mitigate the risk or maybe even to avoid the risk?
In the longer perspective, our plan, and we are currently working on some technologies and technical things how we can substitute legumes with leguminous grasses, which are not that sensitive to hot temperature. Because the whole idea behind that is that legumes, which are used as feed, is just a source of protein.
Generally, if we can find a way how to use leguminous grasses on the same purpose, which, as I said, you know, are less affected by these weather conditions. Generally, we could control this process and somehow at least partially minimize the risk. That's the processes and technologies we are still working on, and hopefully, you know, we will be successful on that.
Going to another segment, costs. Overall, I would say that we're able to control our cost level even in quite difficult environment. You all know about inflation we have in Lithuania and in other European countries. Generally, if we look at the statistics of our two largest cultures, you can see that for example for the wheat costs even decreased quite substantially. If you look at the numbers for all the harvest, so for fully harvested crop, as of today, we have an increase 3% comparing to the result of the last years, which I would say is really good result.
If we take into account what are our plans and what are forecasted figures for the cultures which we need to finalize. Generally, we even believe that the results could be even improved, and at the end of the year, we generally will be on very similar level of costs what we had last year. If to be a little bit more specific about different costs.
I think it's not a big secret that, you know, we had the biggest pressure coming from increasing diesel prices, labor and land rent costs. And we were able to mitigate this increase by increasing our efficiency. You know, how we are organizing our activities and work in the farms.
Also, by decrease for fertilizers due to crop rotation. The third part, prices. I think, just to start, we always showing this graph about statistic of prices of organic and conventional wheat in Germany.
This is not very specific prices which AUGA group is selling, but I think it really shows the trends how the market is going. Because first of all, Germany is like the largest consumer of organic goods, and it's also the largest market for AUGA group. I think it really gives understanding where the market is growing.
I also don't think that, you know, I will surprise everyone by saying that the trend in pricing is really very positive for growers of agricultural commodities. If we look at the graph and statistics here, it's till the end of September.
Generally, you can see that if we compare prices year to year. Conventional wheat price had risen by 50%. Organic, which is somehow a little lagging behind. The growth was lower. It grew by 8%.
At the same time, our average sales price increased by 60%. Of course, it was not affected by price only. As mentioned before, we had improved quality. This also resulted in improved average price.
Overall, there is clear tendency, positive trend and tendency of growing prices. It's not only about wheat, generally about all the cultures we are growing. I think even more importantly, although we don't have statistics here, the trend really continues, and I would say even on the larger scale, in the months after September, October, November. As just a fact, in November, we had a record price for conventional wheat. It reached EUR 311.50 per ton, which I would say is the record price, at least for the last 10 years. Similar trends are also happening with organic products as well. Here we are coming to the second problem we faced this year.
That, unfortunately, though the price tendencies are very positive, AUGA group was not able to fully utilize this opportunity, I would say. What happened? Because in organic production, we are quite a big player, and we don't have possibility, and we would face risks if we would not plan our sales through the year. We just can't sell everything we grow in one month's time to one buyer, et cetera. Generally, our sales process goes for another year from the harvest. Historically, to mitigate this risk, we always started to contract like 20%-40% of our forecasted harvest before the harvest. By the end of the Q2, that was the target, to have one-third of our forecasted harvest to be contracted.
What happened when our harvest became, you know, much lower? For some cultures where we have this largest decrease in yields, for example, beans, you know. We have a drop of yields by almost more than 60%, which leads to a situation if we in the very beginning, we planned to contract 20% of our harvest. Generally we have 100% of the harvest already contracted. If you look at the same price graph. Generally, the contracts we did in the Q2, you know, the price level is much lower to the price level we are currently having in the market.
Generally, we have a situation that for at least some of the cultures which has the largest decrease in yields and at the same time maybe has the largest improvement in prices. We really can't benefit in financial results because we really need to follow the contracts we did with our buyers in the first half of the year. As for today, we have 83% of this year's harvest contracted. Generally, yes, there is a possible positive impact in the future in the Q4 and maybe in the beginning of next year from selling cultures which are still not contracted. This will be a positive impact on financial results.
Once again, looking at overall figures, it will be not that substantial to essentially change result of AUGA Group for the financial year from another positive trend. You know, this is also one of the things which really helps us to look into the future in a more positive way and to manage our expectations for the next year's results.
Because, as I said, this trend of growing prices continues, and there are different, you know, arguments why we expect that this trend will not change and there will be no decrease of the prices we are currently having. You know, same poor harvest, not only in Lithuania, but in the region. Generally, the situation is really at this price level.
should be at least current level or can even improve in the future. More importantly, I think it's the first time in our history when we are already, you know, being contacted by different buyers, which really wants to make contracts for next year's harvest already and fix the prices, you know, our market is having at the moment.
Generally, even right now, we have some discussions and some offers to contract next year's harvest with the price, which is, as you can see from the slide, for different cultures, 2%-65% higher than we sold this year. For the major cultures, wheat, beans.
This means around 30% increase from the price level we sold those cultures this year. When you look into this is one of the reasons we could expect next year's result to be better because of this increasing price level. Not only market price level, but there is a possibility to contract that. As I said, we believe that this will tend to continue.
At the moment, we think that it's still better not to make those contracts right now, but to wait even further. Going to financial results, I would say there is not so much to add here.
Generally, we had this very substantial decrease in yields, which led to substantial decrease in this loss on revaluation of biological assets. As you can see, compared to last year results, generally we have almost EUR 10 million difference from the result we had last year, EUR 6.5 million, to the result we're having this year, EUR 3.3 million. The same EUR 10 million difference is really at the gross profit line as well. Just another comment that although sales in crop growing does not correlate with our profitability because profitability is calculated in this revaluation.
Decrease of sales, which is affected by smaller proportion of previous year's harvest sold in this financial year and of course, lower harvest this year. Generally, this leads to lower overall sales of crop growing segment and overall sales of AUGA Group, which just looking at the figures, you know, once again, leads to some conclusion.
The second segment, dairy. I maybe just if there are listeners from our previous presentations, I think they remember that we already talked about some challenges we had in production in beginning of the year. Which led to not improving our yields, milking yields, and also increase of costs.
Yeah, we were working quite hard to improve the situation, and I would say that we managed to solve those production issues. As you can see from the graph on top, yields in the Q3 already improved, and they are higher comparing to the yields we had in 2020.
Overall, yields improved by 3%, which yes, maybe it's lower growth what we had in previous years, but of course, with additional growth it's becomes more and more difficult to improve the yields. Still, the trend. The first thing, I think it's important that we managed to change this bad trend in the beginning of the year, and the Q3 already showed good developments in terms of improving yields.
Overall, this led to increased production, maybe not substantially, but the group produced almost 21,000 tons of milk in 2021. With this, I would say improved way of working and solved production issues. You know, there is, I hope that this trend and growth of the result will continue.
From the sales side, there is really not much to tell because I would say that from sales side, the segment is very stable, and stable means good because we have quite stable growth, maybe not substantial, but growth in prices. Growth in, you know, as we managed to sell all our milk as organic one and a half years ago.
Generally, we have the situation stable and all our milk is sold as organic. Average price grows a little bit. Maybe this growth accelerated in recent months. For example, in October, we had almost 2% growth in milk price comparing to September. It also correlates to the changes we are having in conventional milk market. That's generally what are the tendencies in dairy business.
I think we managed to change and improve our productivity, and at the same time, we have a stably good situation with prices. This led to financial results. I would say yes, it's a small improvement comparing to the last year.
If you check our results for the first and Q2, there is a big improvement in the results of the Q3, because in the six-month results, we generally had a negative difference comparing to the last year.
During the Q3, we managed not only to improve results this quarter, but also to improve nine months results comparing to the last year. Overall, just to comment, though we had a little larger production, sold amounts of milk, we decreased a little bit by 1%, but this is mainly related to increased usage of the milk in our own farms because, you know, we are using for heifers, and that's part of the program, how we want to improve and increase our herd.
Secondly, as I said, the price is growing stably, so it was like 4% growth during 9 months of this year. This project I already mentioned that I think for the last year, maybe we talked that, you know, we really want to increase our herd in order this segment to be more efficient. As you can see from the figures, we are doing this.
Unfortunately, we didn't reach our targets to have 3.6 thousand cows by this quarter, and it seems we will not reach this target by the end of the year for several reasons. Main being that generally there is a shortage of good quality heifers in the market.
Overall number of cows, heifers and bulls, which are like potential cows in the future, is growing and this is the trend we will continue in the future. Mushroom segment, as I mentioned in the very beginning of my presentation, that unfortunately other segments didn't help to improve overall result of the Group.
Generally, this was about our mushroom segment, which also had not, I would say, good results in the Q3. What had happened? The biggest problem we had is in production. As you can see from the graph, overall production output in the Q3 of 2021 decreased quite substantially.
If historically, we were producing and selling around a little bit more than 1,000 tons of mushroom per month. In those three months, you know, we managed to produce and sell, you know, between 800 and 900 tons of mushrooms only.
What were the reasons of this decrease in production? There are several reasons which are not related, but, you know, when they happened at the same point of time, so maybe that's why they also had worse effect on results if you could expect, you know, for one effect only. The same high temperature I already mentioned when we were talking about crop growing activities.
It also has had an effect on compost production and quality of compost, which is used for growth of the mushroom. Because once again, when you have very high temperature, some of the germs they just die and you will get lower yields from the compost you are using to grow the mushroom. Secondly, in the very beginning last year, I would say maybe we were a little bit more optimistic about our resilience to COVID.
We really hoped that we will be able to manage those risks and avoid financial maybe effects from the situation for our group. It seems that the mushroom segment is really affected, and it's for obvious reasons. This is labor-intensive segment.
You know, it employs 500-600 people who work in closed small, you know, farms. There are lots of contact between the workers. Generally we had several, I would say, several months when we had the peak in infected or quarantined workers, which led to shortage of employees. Unfortunately, when you have a shortage, you know, we have a production which you can't stop.
Generally, if the mushrooms are there, you need to collect them. If you don't have people to do that, generally you have either to throw away the mushrooms or if you collect not on the right way, you are damaging the next wave harvest, and so on.
Of course there are some other reasons, but I would say these two were the main ones which led to low production output, which led to poor financial result. Why it is so? Because in our mushroom segment, I would say majority of costs are really fixed. Because you know, maybe we have different costs which are related to collection of mushrooms, but still you need to pay for those employees.
Generally, if we are producing and planning to produce the same amount of mushrooms and our harvest is lower, we generally have the same level of costs, which obviously leads to worse financial results.
The second issue with the segment is that it's not the business where you can spot the problem and change the problem very quickly. Because overall cycle of production, it takes 6-7 weeks. Generally, if you see that there is something, you know, wrong with the compost, for example, you make some changes, you can see if this change works or not after 6-7 weeks only.
Generally, you know, there is no quick fixing of the production issues in this business. Latest results show that we managed to solve, I would say, majority of the production problems we had. You know, one is obvious. There is no heat in Lithuania anymore. This was easy to do. There were some other problems.
Overall, we expect that our production volumes will go to, let's say, normal level, 1,000 and above, in this quarter. This is also good news because usually December is really the high season for us. In some years it was very substantial if we talk about financial results for the year. You know, we believe that we will be fully ready in production if then December will come.
Just you know, showing you financial results of the segment. As I said, due to decrease in production, we generally have very similar level of costs, but revenues are lower, which leads to lower gross profit for the segment.
Talking about the future, I already mentioned that, you know, we believe that we will be able to get to the normal production levels in mushroom business. If we talk, for example, about compost sales, this decrease we had because of the COVID and the situation in our export markets, generally, we don't expect that this situation will change in the nearest future. The main focus is really on the mushroom segment and mushroom business directly. Going back to normal production, new markets is the main reason why there is a belief of improvement or going back to normal results for this segment. Fast-moving consumer goods. This is maybe a little bit different story.
I think we had very good quarter for the segment. It's generally, I think, a record quarter, at least for this year, but Q3 it was 66% growth comparing to the Q3 of 2020. Even for the year, we have 45% growth in terms of sales. I would say even more important thing that despite all this cost pressure we are having, mainly logistic cost in FMCG business, we still are able to maintain and even improve a little bit our profitability. For the Q3 we had 30% profitability. This is I think the most important if we talk about results of FMCG segment in general. As you can see, gross profit improvement is really substantial.
Increase from almost EUR 300,000 to EUR 1.5 million. Of course, there are some differences because now we have Grybų LT , the main company in the segment, fully consolidated, and it has part of the effect of the growth, but still, overall segment is really showing good growth and show good financial results for this year. Maybe also to elaborate a little bit about the challenges we are facing, because we already talked about this during our presentation of half year results. This overall situation with logistics, transportation, it has an effect on the segment as well. We now see quite a big fluctuation of sales every quarter based on the orders we are having.
Because what our customers, how they change their behavior, they generally reduce the quantity of orders but increase the average value. As you can see, even from the results this year, we had quite low growth in the Q2, and we had very good growth in the Q3. Generally, we have to say that this growth partly came from orders being moved from the Q2 to the Q3. But still, overall, it's as I mentioned, 45% growth year-on-year. I would say this is one of the segments we are really happy about. Going further, maybe graphical illustration where, like, the changes in our EBITDA came from. I think it's obvious.
We had this significant decrease in our crop growing result. This was the key or I would say the obvious reason why overall results of the group has changed. If you can see from the graph, generally other segments are doing on a similar level. Yes, maybe this decrease in mushroom segment was partly compensated by FMCG, but this huge decrease in the result of crop growing it really affected overall result of the group. At the same time, the investments we did this year also resulted in the increase of our net debt to almost EUR 65-66 million at the end of September.
Here I also maybe have to say that this year, after all this refinancing or restructuring of our credit facilities, we have like maximum leverage in the Q3. We expect our leverage at least slightly to go down because the trading lines we have for our crop growing and crop trading business generally they are decreasing the sales of the inventories we are having. That's why we believe that net debt we have for the Q3 will decrease. This is maybe somehow different situation from what we had previous years, when usually at the end of the year, there was an increase in debt just because, you know, we managed to do refinancing at the end of the last year.
We did the bond issues at the end of the year before. This really resulted in different change of leverage for the year. I think if we talk about our results, there is one maybe positive, let's say, news from the results we showed to you and discussed. I think these results is just yet another proof that climate change is a real thing, and we really need to do something about that because we see that this changes of temperature or extremes in temperature, they are more and more common. Obviously they will have more and more effect on our agricultural business and specifically our AUGA group results.
For us, it's even yet another proof that, you know, we are right on our strategy, what we want to do and what we want to change in our activities. Generally, I think this is just yet another proof that we really need to focus even more on the development projects we are currently doing and find the people, time, and resources not only to do R&D projects, but also start their commercialization. Of course, and yeah, just to add to that, I think it's not only, you know, we are talking about this. Those who, you know, read or heard about this UN Climate Change Conference, which happened recently.
I think that also was one of the key topics, effect of agriculture on CO2 emissions and global warming. You know, that's our main target, what we want to do and achieve. As I said, we really have to look at possibilities how to do it and not stop. Of course, in our current situation, you know, we have to understand that historically, all those developments were done from our own funds, mainly. Okay, partly financed by the banks or bonds. The current financial results, of course, we are in the situation that our possibilities to do those projects are, I would say, limited.
Generally, what we are doing now and what is like the key priority is we're really considering all the options to find additional funding for the company in order to have possibility to speed up as possible our development projects and also commercialization of our projects. Because you already know that, you know, we worked for those projects for a couple of years. Some of them are already finalized and presented to everyone. Others are in development or testing stages. Generally, we're really in the situation that, you know, if we want to succeed, we really need to speed up those processes as much as possible. As I said, right now all the options are under consideration, and we have different discussions.
Right now, we are not able and ready to give more details. As quickly as we will have agreements, decisions how we are moving forward in place, of course, we will share this information with our investors and everyone. Second important factor, of course, taking into account our existing or current results. We have like discussion and questions from our key financing partners, banks, because yes, we have such a decrease of our results and we have breach of several financial covenants. Here I can say that we have very productive discussions with our main financing partners.
You know, I believe we have one approval, let's say, of changes already, and we expect that we will have another in upcoming one, two weeks. Generally, we are not expecting at this point of time any changes in banks' behavior and then additional obstacles to continue with the projects what we are doing. I think here we can really say that I believe that things we went through in the previous years because you know AUGA group had better years, we had worse years.
Generally, maybe we learned some lessons from that, but also our partners, they also understand our business a little bit better, and this helps them to make decisions to help us and support us. I think the most important thing is that currently we are working with several different alternatives. As I said, when we will be ready to make some announcements and give some results of those discussions we are having, of course, we will do that. Just as a reminder, these are like key ideas what we are trying to do and try to implement. There are three key areas where our main focus is now. Biogas cycle and gases.
It's specialized feed technology and crop rotation. We had a substantial increase in investment this year. Of course, if we will solve this funding question. This is really the way to go, because if we want to be successful, we really need not only to develop those technologies, but also start to commercialize them as well. Just one of the examples, I believe a big part of you already saw and heard about this. You know, AUGA M1, our first hybrid biomethane electric tractor, which we introduced in September this year. You know, we can say that it was really interesting thing, not, you know, locally, but we had quite big interest from all over the world. You know, we had publications about this tractor.
As you can see, 140 publications in 25 different countries. For example, Forbes was one of the publications which went in quite details what we're doing here. As mentioned previously, we still have this aim that we'll start using tractors in our daily activities in at least the Q3 next year. Just recently, we signed a contract with manufacturing agreement with Rokiškio mašinų gamykla , it's Lithuanian company. As soon as we are ready with the production, you know, after certification, securing funding, so we will have resources to produce tractors for our own usage, at least for the beginning. The last information, as always, just financial information about our share performance, our annual turnover, and then the
Our bond turnover, which remains quite active. We have a few significant events I would like to mention. First of all, in September this year, our main shareholder of AUGA group, Baltic Champs Group, they increased the ownership. They bought shares for almost EUR 750,000, increasing ownership from 55% to 55.7%. I think this also proves the point that the main shareholder trusts the company and the strategy we are implementing. Secondly, what is also in the process, we are delisting AUGA shares from Warsaw Stock Exchange. We will have to finalize the process in upcoming days. Of course, we will inform about the final results.
As I think it was explained in press releases, this was done mainly from efficiency point of view. Generally, there was very small amount of shares traded in the Warsaw. Generally, we just had additional administrative tasks and costs, but no benefit. We believe that focusing on one market, you know, will benefit everyone. That was the main logic behind this move. Maybe for those who are not familiar, there are slightly different rules in Polish Stock Exchange. Instead of a company buying its own shares, we have the same largest shareholder doing the delisting. Generally, Baltic Champs Group, the largest shareholder, will increase the ownership even further by the shares, which will be delisted from the Warsaw.
As always, here are links with information. Now maybe I'll just give a short word to Kęstutis, and we will be ready to answer your questions.
Okay. Thank you very much, Mindaugas. It was great presentation and nothing to add at all about because you talked very clear what our activities are. Maybe I wanted to say in short, that numbers and the profits, we are not this year, we don't have profits. Our capacities and production units, we are not decreased. We have the same capacity we had half a year before. We have the same customer, better customer. Every day, we enlarge our customer base, not only here, locally in Baltic States, but we're also expanding our international markets in all the segments. You know, even we don't reach our goals because this was due to external factors, heat waves here in Lithuania or this COVID impact on mushroom business.
I can't blame too much my managers or segment managers because we really work hard to increase efficiency daily operations and to control the costs. This is actually we succeeded this part of the job. Let me say about was this successful or not, nine months' results. I will say yes, from a production side, this is not from a number side, but from the where the value of a future AUGA is in the food agriculture technology company. We succeeded this year very much, and we have very good achievements.
Not only in the biomethane tractor and machinery, which you've seen it already in presentations, but also in other projects related with cows' feeds, where we wanted to process the feeds in certain way that cows will substantially reduce emissions, then we will be fed by the special feeder designed by AUGA company's technologies. It's important to mention, which is actually our really specific know-how which we are creating in the company, and with some technologies we could be even patented. Like, for example, our AUGA tractor is patented technology. Nobody does it before, and no one can also to copy-paste and just implement on the market.
I believe that the targets we set for climate change till 2025 to reduce emissions we have published what percentages and so on. It looks like we can improve this data, and we make it faster. We would like to change, but maybe a little bit later, our projections in this CO₂ emissions cuts. Successful implementation of technologies allows us to produce the food with no cost to nature or carbon-neutral way. Here we see that there's this very big future for food and for this kind of food produced and for the value to the consumers.
We believe that our FMCG segment, which is now based mainly on ready meals exports to international markets, we can expand, and we can bring extra more more products and larger products with main food baskets and bring the value to the technology change by producing way that no with much less substantial emissions will create the value for our products produced. We believe that will be enough much more like enough to market here, even in our Baltic states where we are quite active here, to expand our positions on the retail segment. In general, we are on track regarding technology developing and successful implementation of carbon cutting technologies.
We have been lagging behind with the numbers, with this unsuccessful harvest. It's good. Also optimism about the adjusted prices for organic produce which will be produced for next year. We have very nice fields and crops in this autumn, and everything was done on time. We have very good soil conditions here, so I think next crop could be. It will not be 60-year bad disasters from history. It could be very good crop with much better prices than we had this year or last year. There are also questions which we need to answer. I will maybe finish with my speech, and please be open for the questions.
Okay. We are just waiting for organizers to join us because usually they are the ones who are moderating the questions. Okay.
Thank you very much.
Oh. Um.
I'm sorry for the delay. Thank you very much for the very comprehensive presentation and the final remarks. Now we will proceed with the questions, and indeed we have quite many of them. Before that, I would like to remind every one of you that you can submit your questions in the question box of your screen. With that said, let's proceed. The first question is as follows: What are the main innovations you have implemented in 2021 and intentions for innovations in 2022? Thank you.
This year, we already published about our innovation about biomethane-driven tractor, which was designed and tested on our fields this autumn in the field. This takes for us three years to develop this technology. This technology actually will be wanted to implement on commercial scale already next year. Secondly, we are working hard with this technology, feed technology, which is already in the production testing phase. We probably would like to present the technology next year, which was also published about our intentions to do so. This is the main two achievements we've done. There are many projects like biomethane cycle about this purification technologies and so on, which also will start up implementation phase next year.
Here we will start produce methane with partners here in Lithuania from our waste from our manure from our straw and residues of the farming. The total production of this methane could reach up to 7 million liters diesel equivalent, which is actually more like AUGA used for our farming operations. Next year is really year about implementation already created technologies which we've done in 2021 and the years before.
Thank you very much. Do you have any plans to broaden FMCG segment product basket or enter new markets with FMCG products in 2022? Thank you.
About FMCG segment, like I said before, we constantly, of course, opening new markets because the sales of energy segment, you've seen yourself that it's grown above 40%. Where our concentration is not looking outside of our region. We would like to implement new products, of course, on the market, but it will also come together with implementation of new technologies, much better for carbon neutrality technologies on our farms. It will not be separate, it will be coming together. As we expect to also implement technologies and also broaden up FMCG's product basket next year, second part of next year, probably.
Thank you very much for your comment. What role will play biomethane in the transition to zero emissions? Could you please comment on that too?
Biomethane, actually, 30% of our CO2 emissions from farming operations related to diesel and then other fossil fuels usage on the farms. Already next year, we have capacities to produce the same amount, even more amount, from alternative second-generation biofuels made of AUGA's agriculture residues. We don't say that we already will implement next year in full transition, but our aim next year already start implement technology on the fields and run on real solutions. Real solutions will be for cutting this fossil related emissions down. 2023 probably will be first years when we where we can do carbon neutrality regarding fossil on the farms.
It's much more early like we had in our CO2 cutting plans. Successful implementation of our R&D plans, thanks very much also for green bond issuing. We actually participated in this green bonds two years before. Part of this money is where actually come from this R&D departments. These biomethane tractors were never been developed if this green bonds will be not implemented and our institutional investors did not bought that. This is we are really on track regarding our sustainability plans and also related with also technology on the farms.
Thank you very much. Another question that we received is as follows: What is the potential market size and the total available market for AUGA group's M1 tractor? When do you think you start selling AUGA M1 tractor? Could it be in 2023 or 2024? Thank you.
Regarding the tractor, it's not 2024. Next year, we want to start operating already with a group of machinery on our fields to finally test before massive production. We have already a partner who will make this contract manufacturing for our company and make assembling lines and all that kind of things related to the production site. We don't need to invest ourselves in production premises and so on. But the capacity of this facility is huge, and we can dedicate above 10,000 sq m only for assembling purposes. These companies and we have made a strategic agreement related with the operational agreement to produce the tractors by our request, by our amount, which we can bring in next stages.
We don't say about selling the tractors. We wanted to publish later, when the production will be closer to the finalization, and then we can publish like separate public announcements.
Thank you very much. Could you please comment on why such a substantial increase was made in other cash crop cultivated area, please?
This is just specific projects we are doing because we also have specific projects to grow some specific crops with our partners. You know, for example, Orkla Foods Lietuva, this is like our long-term partner, and we're doing growing for them based on our long-term agreements. This is similar projects we are doing with other partners, and that's probably the reason why there is an increase in other cash crop land area used for that.
Thank you very much for your answer. Another question that we received is as following: Does the energy crisis substantially impact AUGA's cost of sales and operating costs?
You know, obviously, if we talk about energy, you know, crisis or increase of energy, and if we talk about including fossil fuels, of course, fossil fuels is one of the important and big factors in our cost structure. As you can see from our results, from crop growing, which is still the largest segment and has the largest impact on overall results, we've managed to compensate growth in from this cost area with other improvements in efficiency and so on.
Looking into longer perspective, you know, if we will be able to use our own machinery, of course this dependence will be even lower. What I wanted to add on this is, for our operations, sustainable fuel nature of our waste will be 20% cheaper to use it, if you compare its fossil existing prices for the farming operation. Sometimes the stability could even gain extra profits. You know, the technology was not here, we are actually created technology which could be implemented and the usage of cheaper fuels and more sustainable could be used in the future. We don't need to care about the energy prices up and down because our waste is our waste.
The transformation of waste to energy, it always will be more or less a fixed cost to the company. Another important thing regarding this, when you're doing certain contracting, we do also some contracting, also future contracts. For example, we fix some prices for energy. If so, for this year we had quite good prices for this year, energy prices fixed before. We were quite happy with what we had contracts for energy. Actually we contracted too cheap probably across, because you never know what markets will change. Sometimes you win, sometimes you lose. This is why we have less impact of energy crisis on our costs.
Thank you very much for your answer. As we already spent an hour here, I would like to inform every one of you that we still have quite a few questions remaining, so please bear with us. Another question would be as following: have any set targets for AUGA M1 production timeline changed? Thank you.
I think we already discussed this question. Generally, there is a plan to start producing and using tractors next year. Generally we just already discussed this question.
We are not changing our plans, which we've done in our presentation. We say that next year we want to start massive production. It's not one, not prototype. It's the production which will be used for any one consumer in the world. This is what we want to do in the second part of 2022.
Thank you very much. Another question would be, in Q3 2021, FMCG gross margin of 35.2% was much higher than the previous quarters. Is this a sustainable level going forward? Thank you.
I think we would love to have this level of profitability going forward. I would say, you know, if to judge about profitability level, we should look on annual results more. Because as I mentioned during presentation, we have quite big fluctuation of orders, production volumes quarter to quarter due to this logistic challenges everyone is facing now. This also has some effect, you know, how the costs are just counted and divided. This I would say looking at the profitability and forecasting profitability, of course our plan was to have it a little bit lower, and we should use annual profitability as a benchmark for future targets.
also want to add to Mindaugas that our production facility, Grybautė, which actually produce most of these products, it's highly automated. It's so many robots inside. If we have good numbers and good volumes actually, which is fluctuating quarter by quarter, by high loading capacities, we can produce very good margins. If we have lower volumes, production volumes, so the fixed costs, machinery depreciation, all these kind of things stays like a fixed cost. This is why increasing our utilization of our capacities will keep our profitability on good numbers.
Fluctuation, like Mindaugas just said, quarter to quarter, and it also will be impacted. It will not be utilized 100%. We have many still space to increase our capacities on this Grybautė facility.
Thank you very much. What would be the approximate FMCG net profit without Grybai LT consolidated? Grybai LT KB consolidated, please. Thank you.
It's really impossible to answer the question because Grybai LT cooperative company is really you know. It is our FMCG business. You know, you can't take that from the segment because this is the company which produces and which is also selling majority of the products to final consumers. The thing I mentioned in the presentation previously that the company was not fully owned by us and was not consolidated into report. Of course we had agreements and pricing agreements, you know, what is the price of their production because AUGA group was ordering production services from Grybai LT. There was like a deviation of result between the companies. Nowadays, you know, you can't divide that just because situation and volumes are completely different.
You know, it's really impossible to do.
Thank you for your comment. Could you please elaborate on much higher write-offs in Q3 2021, please?
Generally, you know, what happened, there are several things we did. We also had, like, it was already mentioned, I think in the report and in the presentation that we had specific cultures. Due to some specific situations, you know, the quality was poor, and we had to do the write-offs. What all we also did, we did the, you know, like, let's say, partial inventory of the forage crops we are having in the farms. Generally we wrote off part of that. That's where the increases come from.
Thank you. Another question that we received is as following. How is the development of biogas stations going, and when do you expect it to begin? Thank you.
Okay, great. Biomethane stations, we are planned for Q3 of next year. Probably the third and Q4 will be implementation of these facilities. Like I said before, also the Q3, we also have an aim to start with first our machinery, which will be run on our farms from in this new process at biomethane stations, yeah. We just wanna to keep everything on time for Q3 next year.
Thank you very much. Is there any interest from conventional farmers who plan to switch to organic farming, possibly approaching you for a buyout? Thank you.
Actually wanted to say that our company at the moment is not looking for growing expansion like to increase our business model like currently business models we do now. We don't buy farms. We don't expand our portfolio by buying out. You know what is important to mention that that interesting in farming in general, organic farming is probably pushed by institutions like governments and so on. We have targets to increase in Europe organic farming three times. We actually just providing new, how to say, strategies. Every country need to prepare new strategies for how we want to reach these goals. The new strategy will be 2023 to 2027.
In this new strategy probably will be resources and fundings. The farmers are waiting for this clarification, what will be funding motivation for the farmers for switch from conventional to organic. Probably this information will come later first half of the next year. Probably we see what will be regulations here. If the politicians wanna to expand farming, organic farming, we need to motivate farmers to switch to this. It's good for us because we would like to in future cooperate with farmers and bring sustainable technology to the farmers and expand our business with cooperation agreements versus growing organically in size and the same what we've done before.
Thank you very much. When-
I'm really sorry for the voice quality sound.
Sure, sure.
Thank you for your comment, and we will try to do better.
I'm sorry, the last sentences were a bit off due to the internet connection, I would say. Could you please repeat that?
No, I just saw the comment from someone that there are some issues with voice quality because we are obviously moving from the microphone. Sorry for that. We will try to do it better. Let's continue with the question. Thank you for this comment.
Okay. Thank you. We have two more questions remaining. The next one would be as follows. When other new AgTech solutions will be announced publicly? Will it be in 2023?
We started with our R&D department's work on the sustainable technologies actually three years before. The results which you see now, which is all the tractor machinery and all this, technology developments in this biomethane cycle, we can start only half a year before it will be ready after three years. What I see we can sell, we can publish at least one big achievement in technology every year looking two, three years in future. It's not only 2023. Probably next year we publish successful implementation results coming from our R&D deliverables. This is.
I think that actually we by being the largest production guys in Europe related with healthy food healthy way to produce for humans healthier food. We are professionals and understand how the food must be produced and what tools needed to produce this food and what is missing. This is why AUGA will invest in this technological solutions.
No one farming company can do it because only the largest company can bring resources for R&D developing for guys who sitting every day in the front of computer and be building future for our company. There are not any. We are only sitting now in the OPEX and the operational costs and nothing in sales and profit lines, only the cost path.
Thank you very much. The last question. It seems that the last question for today will be, what price of AUGA group share would you expect to have after five years? Thank you.
That's actually probably if you tell the exact number, so it will be guidance and so on, so probably it's not allowed to say. It's a lot of regulations here. I am listening to a lot of lawyers who constantly controlling me to tell something. You know, if you find a new way to produce a food with no cost to nature, and a healthy food for humans and also in the same time healthy for our planet, and we will be only one company which has solutions, and we can explain to consumers by brands what is the differences, why we need to support this kind of production.
We can share this technology with all the farmers in the world. We can bet 10% of market share in all the developed countries because at least 10% of consumers will not lie that we really would like to participate in better sustainable options and buy these options. 10% of these only five regions, the large, most developed countries is of the food segment EUR 240 billion in sales. There is no. If you ask anyone what could be price for the company if we reach this goal. I. You better bet yourself. I see clear vision how to get to the goal, how to make the sustainable food, how to make.
This is why I say that AUGA is, at the moment, in my opinion, an undervalued company. This is why I also invest in AUGA. If I have resources, I do this. That's why I invest in AUGA. In September, I bought shares for EUR 700,000, my personal investment in the company. I believe in AUGA so much, especially now when we found that our future and where we must be and what we must create. Our value is not to make a small profit, larger EUR 1 million or EUR 2 million. Our value to create a new brand, for which has never exist before in this planet, sustainable, healthy food and carbon neutral food.
This does not exist. This is the value of the AUGA group in the future.
Thank you very much. On that high note, thank you, dear management, for the presentation. As all the questions are answered, on behalf of AUGA Group and Nasdaq Vilnius, thank you, everyone. It was our pleasure being with you today. The recording of the presentation will be available in the Nasdaq Baltic YouTube channel. Have a good evening, everyone, and goodbye.