In light of the COVID-19 pandemic’s effects on the business environment, organic producer AUGA group has taken measures to evaluate the most significant coronavirus-related risks throughout the company’s key business units, namely crop growing, dairy production, mushroom growing and fast moving consumer goods (FMCG).
Currently, all companies at AUGA group are operating at the required capacity, corresponding to the current season. Additional measures have been taken to ensure the safety of the company’s employees and the continuation of its daily activities. Office-based employees are working on a remote basis, while activities in farm fields and production facilities have been rearranged in order to minimize unnecessary contact and prevent potential ways the contagion might spread.
“At the market level, agricultural production companies stand out as some of the least affected at this point of the crisis, given the nature of their produce and increasing demand from households. Nevertheless, the company’s management is considering all the possible threats to the group’s key business areas and is working to alleviate their effects”, – says Kęstutis Juščius, CEO of the company.
The company’s management is not seeing any significant changes in the crop market, especially since all obligations are executed according to existing agreements. Nevertheless, the irregular situation in the logistics sector might pose the risk of rising transportation costs in the nearest future. Furthermore, the group could face a labour shortage if the numbers of infected or quarantined persons were to rise dramatically. Nevertheless, the management is ready to mitigate this risk with options provided by temporary employment, given that interest on the labour side is growing.
Milk production is running at regular capacity and there are no problems with product demand. It is delivered to the local market (the Baltic States and Poland) and mainly used for fresh consumer products. The management is not seeing at present nor does it forecast a decrease of demand in this segment. The expected proportion of milk to be sold as organic should amount to around 90%.
The biggest threat in the mushroom growing segment is related to production, given the labour intensity of the production operations. Therefore, the company is implementing various measures to ensure the safety of employees and to minimize contact between them. As with crop growing, the group could face a shortage of labour if the number of infected or quarantined persons were to increase dramatically. Nevertheless, the management is ready to address this matter through temporary employment.
In terms of the status of mushroom operations, production is working at regular capacity at the moment. While sales to wholesalers working with HoReCa have been negatively affected, this has been offset by an increase in retail sales. As a result, demand for packaged mushrooms is growing, which is having a positive impact on the profit margin of the segment. Under the current circumstances, the long-term goal of the business unit to increase the proportion of organic product sales could be delayed due to uncertainties in the group’s main markets.
The company could face some difficulties if international borders were closed not only for people but also for goods. Such a situation would impair the company’s ability to deliver its products in time, taking into account the fact that the majority (70-80%) of its production is exported.
The management is observing growing demand for long shelf-life packaged products (dairy products, soups, etc.) across all markets. In terms of the associated risks in this segment, these are mainly related to possible interruptions in the supply chain of raw materials that the group cannot produce in-house.
The current liquidity situation of the group is satisfactory. In order to strengthen the group’s working capital in light of some anticipated delays in customer payments, additional financing opportunities have been secured.
To conclude, the management of AUGA group does not expect significant negative effects on the results of the group due to the COVID-19 pandemic in the short-run. Nevertheless, the full impact on the group’s 2020 results cannot be fully assessed, due to the unpredictable nature of the situation. It is difficult to forecast the possible effects of decline in income and purchasing power of consumers on demand for AUGA group products.
We are closely monitoring the situation and are committed to constantly updating our stakeholders on important developments in the market and the company.