Key Takeaways:
- AUGA Group, an organic food producer and technology developer, is initiating a restructuring plan to support financial stability and continuity of operations.
- The restructuring will involve deferring technology development projects and focusing resources on agriculture, biomethane production, and consumer product supply.
- Rising costs, increased interest rates, and reduced subsidies have impacted the group’s financial performance.
- The group plans to pursue cost optimization, potential asset sales, and additional capital to streamline operations and stabilize cash flow.
- Shareholders will convene on December 4, 2024, to vote on restructuring measures, with court approval expected by Q2 2025.
Restructuring Plan and Immediate Strategic Adjustments
AUGA Group, AB, a Lithuania-based producer of organic food and agricultural technology, is initiating a restructuring process for its parent company to secure long-term solvency and continuity of operations. The decision to begin restructuring was made by the group’s board and will be presented at an extraordinary general meeting of shareholders on December 4, 2024. According to AUGA Group’s board chair, Kęstutis Juščius, the primary goals are to sustain cash flow, meet creditor commitments, and ensure stability across AUGA’s operations.
To achieve these objectives, AUGA Group will postpone its technology development initiatives indefinitely, instead focusing on activities with immediate financial returns, namely agriculture, biomethane production, and the supply of consumer products.
“We have dedicated time and energy to seeking agreements with financial institutions regarding deferral of long-term loans and sale of some assets to avoid restructuring,” said Juščius. “As of today, though, we do not have a common agreement, and achieving these goals requires additional time. To fulfill our obligations and protect our creditors, employees, suppliers, and other stakeholders, we are starting these proceedings.”
Juščius noted that if individual subsidiaries fail to reach agreements with creditors, they may also need to undertake their own restructuring processes.
Financial Challenges and Market Pressures
Over the past five years, the group has experienced various financial challenges, notably an increase in production costs due to inflation, regulatory changes, and rising interest rates. Between 2018 and 2023, production costs for AUGA increased substantially, primarily driven by rising agricultural service expenses and salary costs. The group reports that despite keeping the number of employees stable, salary expenses rose significantly, with production employee salaries growing 63% and administrative salaries increasing by 35%.
The group’s ability to compete in European Union markets was further constrained by Lithuania’s subsidy system for organic production, which allocates 30% smaller subsidies to farms exceeding 200 hectares. According to AUGA, this policy has led to a loss of approximately €11.8 million in potential subsidies, which has further impacted financial stability.
Cost-Saving Initiatives and Operational Adjustments
In response to these financial pressures, AUGA has implemented various cost-saving initiatives, with a particular focus on its mushroom production segment. The group has also undertaken land consolidation efforts, including decisions to cease operations on unproductive land. Additionally, AUGA made the strategic decision to partially shift from organic to conventional farming, a measure intended to diversify production risks and reduce revenue volatility.
“We implemented cost-saving initiatives in the mushroom growing segment, performed land consolidation and efficiency assessments, and shifted partially from organic to conventional production,” Juščius explained. “Although this led to higher costs in the short term, it will allow us to reduce income volatility, which we experienced while focusing entirely on organic farming.”
According to AUGA, the transition to conventional production methods is expected to yield cost savings, particularly in crop growing and dairy production. However, the restructuring will still include both organic and conventional agricultural models.
Impact of Climate Change and Global Crises
AUGA also reports that climate change and recent global crises have added to the complexity of its business environment. The group cites increasingly significant crop yield losses due to changing weather patterns and a narrowing price gap between organic and conventional products. In recent years, the COVID-19 pandemic and the conflict in Ukraine have also contributed to rising costs for raw materials, fertilizers, fuel, and agricultural equipment.
“Supply chain disruptions initially increased prices for raw materials and equipment, followed by surging energy costs,” Juščius stated. “While we undertook numerous cost-saving initiatives, including a partial shift from organic to conventional production, these and other measures proved insufficient to cover losses and meet obligations in the short term.”
Efficiency Optimization and Biomethane Production
As part of its restructuring strategy, AUGA Group plans to focus on enhancing operational efficiency across production and administrative processes. Key focus areas will include crop growing, dairy, mushroom production, and fast-moving consumer goods (FMCG) supply. The group will also continue its biomethane production activities, which provide a secondary revenue source and financial benefits. The use of digestate, a by-product of biomethane production, is expected to improve crop yields on organic farms by up to 30%.
Juščius emphasized the importance of optimizing each segment’s performance and plans to simplify the group’s management structure, which he says will help reduce costs and streamline decision-making. AUGA intends to seek additional capital to support restructuring, including potential investment from strategic partners and the sale of select subsidiaries.
“Our immediate objective is to stabilize operations and ensure business continuity. To ensure a successful restructuring, we may involve strategic investors or sell some of the group’s companies,” he noted.
Indefinite Postponement of Technology Development Projects
Since 2018, AUGA Group has invested in emission-reducing technologies, including hybrid and electric tractors and sustainable feed innovations. The group reports that these technologies have demonstrated their potential to reduce CO2 emissions in agricultural production. However, due to financial constraints and a shift in priorities, AUGA is indefinitely postponing further investment in technology development until it secures external funding.
“We invested €6 million in sustainability-focused technologies, but without external support, these investments were insufficient to generate immediate returns,” Juščius explained. “While we are pausing further development of these technologies, sustainability remains a core part of our mission, and we continue to apply sustainable practices in all our operations.”
He added that AUGA may revisit its technology projects if the market becomes more supportive of sustainable agricultural practices and the company achieves financial stability.
Next Steps and Shareholder Approval Process
AUGA’s board has scheduled an extraordinary general meeting of shareholders on December 4, 2024, to discuss and vote on the proposed restructuring. If approved by shareholders, the company will submit the restructuring plan for court approval. Once court approval is granted, the restructuring plan will be negotiated with creditors, with a final decision expected by the second quarter of 2025.
Throughout the restructuring process, AUGA intends to continue its primary operations in agriculture, dairy, mushroom production, and consumer product supply. The group aims to maintain cash flow and ensure business continuity as it navigates the restructuring process.
Focus on Financial Stability and Sustainable Practices
While postponing further technology development, AUGA Group remains committed to its mission of sustainable agriculture. The group continues to apply sustainable practices across its organic and conventional operations, including biomethane production, which supports both environmental goals and cash flow stability.
According to the group, restructuring will allow AUGA to concentrate on high-priority segments and optimize resource allocation to support financial recovery. By refocusing on core activities that generate positive cash flow, the company aims to stabilize its financial position and strengthen its foundation for future growth.
