Investor Presentation • Jun 1, 2020
Investor Presentation
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| Vision and Mission of AUGA | 03 |
|---|---|
| Executive Summary | 04 |
| AUGA in 2020 | 05 |
| The Onset of Organic (2015-2017) | 07 |
| The Current State of Food (2017-2020) | 08 |
| Agenda for Efficiency in the Existing Business Segments (2020-2023) |
09 |
| The Road to the NEW Sustainable (2020-2025) | 10 |
Certain statements regarding future development plans are forward-looking in this document. Therefore, they are subject to risks and uncertainties. The latter statements are based on the management's current expectations and may be revised in the mid-term in the event that global business conditions change dramatically.
STRATEGY 2025 02
AUGA's vision is to operate in a world where the AUGA Community avoids compromising nature through either its daily habits of consumption or its lifestyle. Together with the Community, AUGA will sow the seeds of sustainability in our everyday practices and set new standards for the food industry. AUGA will become a synonym for sustainable food and lifestyle.
In its everyday effort to fulfil its ultimate mission, the AUGA group (AUGA, the Company, the Group) is creating a Sustainable Organic Food Architecture (SOFA) that will enable the Company to deliver organic food with no cost to nature i.e. climate (carbon and equivalent) neutral food. Sustainable Organic Food Architecture is the key driver that will enable the Company to fully realise its brand promise of producing "Organic food in the most sustainable way." The impact-driven meaning of sustainability will become an integral component in the everyday practices of all the Community members at AUGA.
VISION MISSION A Synonym for Sustainable Food and Lifestyle Deliver Organic Food with no Cost to Nature
| CONSUMERS | FARMERS | PRIVATE AND INSTITUTIONAL LENDERS |
SHAREHOLDERS |
|---|---|---|---|
| a more sustainable way to eat |
a more sustainable way to work |
a more sustainable way to invest |
a more sustainable way to receive financial returns |
AUGA group is creating a Sustainable Organic Food Architecture (SOFA).
AUGA group is the largest organic food producer in Europe from field to shelf, delivering clean food throughout the vertically integrated value chain.
Having identified greenhouse gas (GHG) emissions as the number one climate issue in agriculture and food production, the Group recognises the urgent need to bring about change. Therefore, the Company has chosen to lead by example of building a new operational model, called Sustainable Organic Food Architecture (SOFA). The Company's wide-ranging experience in agriculture and R&D enables AUGA to address the most pressing bottlenecks in the food value chain.
Through SOFA, the Group will be able to gather around itself a Community of consumers, farmers, lenders and shareholders that will express their preferences for a more sustainable life and planet via their consumption and active engagement in the food value chain. By doing so, the Company will meet the rising demand for new standards in the food industry which are being driven by consumer needs. Technology will also allow the Company to create a new category for high quality healthy food, with no cost to nature.
The new face of AUGA group will be an asset-light, agtech-driven company based on a self-sufficient circular model that presents the world with an opportunity to live more sustainably. It will demonstrate resilience in the face of any fracturing to the global supply chain that may arise from such global challenges as pandemics.
39 000 ha of farmland operations
Revenue of EUR 71 million (2019), > 70% from export
Shares of the Company are traded on the Nasdaq Vilnius and Warsaw stock exchanges
Today, AUGA group headquartered in Vilnius, Lithuania, is Europe's largest organic food producer from field to shelf, engaged in four business areas: crop growing, mushroom growing, dairy and fast moving consumer goods (FMCG).
Team AUGA of 1200 employees has been crucial to the operational excellence of the Company's development and will continue to remain so as long as AUGA delivers sustainable organic food. AUGA takes pride in its ambitious professionals who strive to make the world of food production environmentally friendly with their passion and hard work.
Lithuania is a natural location for such a company: the country is a member of the European Union (EU), the eurozone, the North Atlantic Treaty Organisation (NATO), the Organisation for Economic Cooperation and Development (OECD) and holds a strong historical connection with its land and its long-standing agricultural traditions.
On the global level, AUGA operates in a sector that is shaped by environmental degradation and a scarcity of natural resources. Therefore, the trajectory of the Company's growth must be executed in a manner that is lean and sustainable and does not compromise the environment or nature. In other words, AUGA's growth dynamics are unimaginable without the integration of responsible technology that:
Agriculture accounts for around 23% of total human activity caused GHG emissions1 .
The sheer scale of the Company means that AUGA carries a huge responsibility to bring about change in the industry. After all, this is an industry that is sometimes referred to as one of the biggest polluters of the environment. Globally, agriculture, along with the emissions from deforestation due to land conversion, accounts for around 23% of total human activity caused greenhouse gas emissions1 .
Today in 2020, AUGA group has come a long way when it comes to the adoption of a set of practices that make farming operations more The Company has implemented circular economy principles throughout its various business segments, applied min-till technology in almost 100% of the fields, and now operates the sites on certified green energy. sustainable.
The Company has also integrated Good Governance practices in its everyday operations and within the management of the Company, which also allow it to ensure transparency to its shareholders and the society at large. Its modern management techniques might be best illustrated by the structure of the Board, the system used for reporting to investors, the annual monitoring and reporting of its CO2eq footprint, and the integration of Environmental, Social and Governance (ESG) standards into AUGA's culture.
Standing on the doorstep of the Decade to Deliver,2 AUGA is inspired to greet the 2020s with an innovation agenda whose key goal is turning the Company into a CO2 eq neutral player in organic food by 2030. The key aims of the Company include:
Team AUGA also believes that the new generation of consumers will not only demand new standards of food delivery throughout the value chain but will also become active agents of change in the food industry. The new generation will become vocal in their rejection of the previously engrained logic that the path of produce has to bear a cost to nature (i.e. a considerable CO2 eq footprint on the environment).
It is, therefore, part of the strategy of AUGA group to deliver a standard for sustainable organic food production, namely one which delivers the least negative environmental effects through the help of technology. With this in mind, it should come as no surprise that AUGA's mission is to embark on a new stage in its journey to become a synonym for sustainable food and lifestyle.
2015 strategic decision to convert to organic
2016 launch of AUGA branded FMCG products
2017 completed transition to organic
The Company's strategic decision of 2015 to transition from conventional to organic production was related to concerns about the industry's environmental impact, as well as the aim to find more environmentally sustainable ways of farming and production. It came about when the visionary minded majority shareholder Kęstutis Juščius successfully undertook the reverse takeover of a previously conventional agriculture-focused entity.
The introduction of an innovative umbrella brand, alongside the first appearance of the fast moving consumer goods category in 2016, brought the Group closer to the consumer. This relationship has become particularly important to the Company since it has served as a radar on the consumer front, helping AUGA to identify the needs and expectations associated with food that are formulated by conscious and responsible sustainability promoters and consumers.
The Company's map of new competences that have come about as a result of the expansion of its business - from the launch of its consumer assortment to the formulation of messages to organic consumers - has shaped AUGA in a way that the Company is now ready to embrace continuous change. Team AUGA today understands that building an architecture of sustainability is a journey, not an endpoint.
In the current state of food awareness, it is commonplace to associate organic agriculture with positive effects on human health, the ecosystem and the soil,3 and to relate this kind of food to cleaner production4 . Nevertheless, there is a strong demand for technological solutions that can bridge the gap between levels of productivity and efficiency in organic vs. conventional types of agriculture. The demand for such technology arises from the efficiency concerns faced by organic farms when they seek to generate more comparable yields of organic produce on larger farmlands vs. conventional agriculture. Therefore, technology that addresses the productivity bottleneck in organic farming will be a key factor when it comes to solving the issue of sustainability within the current mode of food production.
What is more, there is a lack of motivation in the industry to bind key players to sustainability requirements. Such a situation allows production practices to become of secondary importance and provides little benchmark when occasional queries on the consumer side arise over the cost of production to nature (for example, the rate of CO2 eq emission per unit of produce at the production level).
It is in AUGA's strong conviction that the new generation of consumers will no longer tolerate such a loose understanding of sustainability in their everyday consumption. Not only will such a group of responsible consumers openly refuse to buy foods with a high cost to nature, they will also drive change in the food industry.
In that respect, AUGA's solid organic track record allows the Group to determine the most problematic bottlenecks in the organic food chain immediately and focus on delivering technology solutions to establish the Company's operational architecture (SOFA) as climate neutral by 2030. Moreover, AUGA will do so in a way that will satisfy the demands of the new generation and other responsible consumers via an unprecedented call for sustainability. Team AUGA will be equipped to meet the demands of the new generation of consumers and drive them to the forefront of the industry.
Therefore, the Company strongly believes that a twofold undertaking of increasing the efficiency of existing business segments in the short-term (2020-2023) and constructing a Sustainable Organic Food Architecture in the medium-term (2020-2025) is the only way to drive responsible growth in the Company and increase value to its key stakeholders (namely, consumers, partners and shareholders).
Efficiency agenda sets KPIs to evaluate the possibilities of aligning organic yields and cost structures to the level of conventional produce in the domestic market.
From AUGA's perspective, sustainability must also have an integral financial component. To put it in other words, the entire food architecture should be based on a set of operations that demonstrate such capacities in the field of organic farming; namely, becoming an economically feasible business model and delivering affordable offerings to the AUGA Community.
It is for this reason that AUGA will dedicate focus to the efficiency agenda of its key business segments (crop growing, dairy, mushroom growing and fast moving consumer goods) in order to evaluate the possibilities of aligning organic yields and cost structures to the level of conventional produce in the domestic market in the short-term.
The efficiency agenda also sets forth an entire line of KPIs. These include bringing the cost structure of milk in line with national conventional structure and ensuring wheat and pulse yield levels converge with the corresponding geographic conventional line. Reaching these targets will serve as the basis for a future consumer basket with no cost to nature.
The key strategic initiatives for efficiency include the following:
3.
Fast moving consumer goods (FMCG) undertakes a mission to consolidate its market positions with AUGA and private label brands, not only in established, but also new markets - taking the customer along on a journey to sustainability. 4.
The final question left to answer is what constitutes a Sustainable Organic Food Architecture (SOFA), and how it will take the Company to a NEW level of sustainability. AUGA foresees it as a multi-level innovation scheme that addresses the most pressing technological bottlenecks in the world of farming. These bottlenecks are all related to solving the cost to nature of the produce; namely, the ability to deliver climate neutral food under the key conditions of an incremental increase in quality, efficiency and yield productivity by 2030.
The mid-point of the decade (2025) will mark the establishment of the SOFA model and the evaluation of the progress achieved with no cost to nature.
Therefore, in line with AUGA's innovation agenda, the Company is looking to adapt three levels of technology into its Sustainable Organic Food Architecture model. This would create a new standard of farming upon the existing base of AUGA farms:
It should be noted, however, that previously cultivated synergies in the closed-loop sustainable farming model, especially those between crop growing and dairy, as well as mushroom growing with crop growing and dairy remain integral to the new model. The three levels of technology are meant to expand the operational field and incorporate the use of existing inputs into secondary cycles.
Additionally, the Company will be able to implement a practical set of standards for the consumer basket, drawing from its sustainable farming experience. Animal-based proteins will lie at the core of this design. The reason why animal proteins are to assume such a central role in the architecture is this: they bear the highest rate of CO2 eq emissions per gram of produce. AUGA will be ready to address this issue.
- 50% reduction of emissions from use of fossil fuels in farming operations; - 50% reduction of emissions per tonne of cow's milk produced;
- 30% less emissions per tonne of agricultural dry matter yield.
These standards will be accompanied by a list of CO2 eq emission reduction goals. By 2025, the Company is aiming to cut emissions from the use of fossil fuels on its farms by 40% (and by 50% decrease emissions in the consumption of fuels in its farming operations), methane emissions from enteric fermentation in livestock by at least by 33% (and by 50% decrease emissions per tonne of cow's milk produced) and emissions from managed soil by 20% (and by 30% less emissions per tonne of agricultural dry matter yield).
There may be a risk that the technology in question is unable to convert all of the CO2eq reduction indicators into reality. Nevertheless, the Company must persevere with the implementation of its goals, as this range of solutions will set the systemic foundation for an action plan for a more sustainable food value chain. Such a strategic effort is critical to AUGA becoming a synonym for sustainable food and lifestyle. It will also build up know-how and experience, helping the Company to identify the most expedient way to set its food architecture by 2030, enabling AUGA to go CO2 eq neutral.
Sustainable Organic Food Architecture (SOFA)*
Team AUGA will power the delivery of the Company's very ambitious strategy.
The new face of AUGA group will be an asset-light, agtech-driven company based on a self-sufficient circular model that presents the world with an opportunity to live more sustainably. It will demonstrate resilience in the face of any fracturing to the global supply chain that arise from such global challenges as pandemics. Certainly, the meaning of what is sustainable is different for every single group within the wide and diverse AUGA Community and the KPIs of success are also aligned for 2025 individually:
Ability to deliver consumer basket with least cost to nature.
Functionality of Sustainable Organic Food Architecture.
Resilience in business structure through long-term financing and impact-driven lenders.
Unique asset-light business model, able to demonstrate ROE ≥15%, multiply Company value x3 and retain growth dynamics in the periods to follow*.
help save the planet.
*As a direct reflection of success in the other three pillars to the left.
As the 2020s is the Decade to Deliver2 , AUGA group has five years to go with a very ambitious set of goals. However, the Company is not claiming that AUGA knows everything there is to know in the industry. That is why, if you have technological know-how, finances to be employed, or a sense of personal commitment to promote sustainability, you can be certain that you will always find a place in the AUGA Community. Team AUGA will power the delivery of the Company's very ambitious strategy and create the kind of Community that in five years will be driven by agtech. Every Community member will be proud to be part of it as sustainability is the way of the future.
Success for AUGA in 2025 will also mean to multiply Company value x3 and retain forward-looking growth dynamics on the same level throughout strategy and beyond.
1 The Intergovernmental Panel on Climate Change at the United Nations report 2019,
https://www.ipcc.ch/site/assets/uploads/2019/08/Edited-SPM_Approved_Microsite_FINAL.pdf, last accessed 13th April, 2020
2 United Nations Global Compact – Accenture Strategy, CEO STUDY ON SUSTAINABILITY 2019, The Decade to Deliver: A Call to Business Action,
https://www.unglobalcompact.org/docs/publications/2019-UNGC-Accenture-CEO-Study.pdf, last accessed 13th April, 2020
3 Chekima, B., Oswald, A.I., Wafa, S.A., Wafa, S.K., Chekima, K., 2017. Narrowing the gap: Factors driving organic food consumption. J. Clean. Prod. 166, 1438e1447., https://doi.org/10.1016/j.jclepro.2017.08.086., last accessed 13th April, 2020 via Science Direct
4 Vega-Zamora, M., Torres-Ruiz, F. J., Parras-Rosa, M., 2018. Towards sustainable consumption: Keys to communication for improving trust in organic foods. University of Jaen, Campus Las Lagunillas, s/n, 23071., https://www.sciencedirect.com/science/article/pii/S0959652618338393, last accessed 13th April, 2020 via Science Direct
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