Purcari Wineries Public Company Limited (WINE.RO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Purcari Wineries Conference Call for the Third Quarter 2025 Financial Results. Thank you for joining us today. My name is Victoria Moldovan, Senior Investor Relations and ESG, and I will be hosting today's call. Before we begin, I will do a small disclaimer. Please note that this presentation is for information purposes only. It does not represent an offer or recommendation to buy or sell any securities of Purcari Wineries. Some statements we may discuss are forward-looking and involve risks and uncertainties, meaning actual results may differ. These statements are based on assumptions and should not be seen as predictions or guarantees of future performance. This presentation does not include all information relevant to the company, and each participant should make their own independent assessment. Additionally, if you have any questions during the presentation, please feel free to write them in the chat or address them during the Q&A session at the end. Next, today's speakers are Alexandru Filip, Chief Executive Officer; and Anatol Belibov, Chief Financial Officer. With that, I will now hand over to Alexandru.

Thank you very much, Victoria. Good afternoon, everyone. As always, starting with a few highlights, and then we'll go deeper into each of the key elements. Commercially, a very successful quarter. As you see, second consecutive quarter with sales exceeding RON 100 million, which used to be our watermark for the end of the year Q4, which is historically the strongest in the industry. Three domestic markets, Romania, Moldova and Bulgaria accounted for 82% of the sales, Romania leading in line with recent performance, roughly 60%. Purcari growing strongly across all markets, accounting for 60% of the sales. In addition to Purcari, we will show some details later, we are also continuing to innovate and extend the portfolio. We launched the group's first Prosecco, if we see on the previous page, both in Wine Crime and Motiv brands for Romania. Operationally, EBITDA reached close to RON 85 million. Net profit, RON 36 million, 28% EBITDA margin in line with our -- the range of our historical performance, 12% profit margin. Cost structure, we still experienced pressure from the higher bulk wine prices and last year's harvest. In the meantime, we have implemented some of the cost efficiency initiatives in terms of packaging and logistics. Non-monetary loss, RON 7 million. We explained it's a phenomenon that has been happening also in the previous quarters. Anatol will come back and explain it shortly. But this time, this loss has been offset by the fair value gain from the biological assets, again, an accounting concept that Anatol will explain in details shortly. In terms of Investor Relations, you might be aware that there was a voluntary takeover bid launched by MASPEX Romania. The bid concluded with MASPEX owning 72.5% of our shares. This transaction is pending final approval from the FDI approval committee in Romania. We don't have a clear date, but we hope that it will be concluded by the end of the year, but we will inform the market once this is done. Commercially, a key event, huge success for the National Wine Day in Chisinau with an enthusiastic crowd. I don't think I've seen bigger and more diverse crowd, 250,000 people came over 3 days with many foreign guests, not only from Romania, but also even beyond Europe who came specifically for this event. And I'm happy to inform that our areas were the most populated and the most sought after in the whole festival. First thing for us this year, our partnership with Electric Castle which is one of the largest music festivals in Romania, 300,000 people over 4 days. We had the exclusive wine of the festival and had many people trying our wines for the first time and hopefully converting in regular customers on a different type of music, but again, a leading festival, George Enescu International Festival took place in Buchcrest, mainly Buchcrest, but also throughout the country and even Chisinau for a month, and we were the exclusive wine also for that festival. In terms of product launches, I mentioned, Wine Crime Prosecco. We also launched the Motiv product ranges in Moldova. This is a range that we developed initially for Romania. We launched it last year. And this year, we expanded the brand to Moldova. This happened in Q3. Another innovation, we've launched a new brand of Divin called Barbu for the economy segment inspired by Romanian character called Barbu Lautaru. Otherwise, in terms of campaigns, I won't mention we -- the regular ones that we run over the summer, an important marketing effort for us was the partnership with flavors of Romania and Moldova. We were one of the main sponsors for Moldova and [indiscernible] is promoted in one of the episodes of the series, which you can find on Netflix. If we move on, Victoria. Yes, key performance. You have their numbers for 9 months and also for the third quarter alone. So you see 9-month sales, 14.7% higher than the same period of last year. You see there an acceleration versus the previous 9 months. Total revenues for the third quarter, RON 105 million, I mentioned, exceeding RON 100 million, 9.5% increase over the same quarter of 2024. Gross margin, slight erosion versus 9 months 2024, but still close to our historical average. EBITDA, I mentioned, and Anatol will explain, again, the change in accounting treatment that we've done this year that is affecting the interim period versus last year. Net profit, a lot of the impact reflected from the operational results, but also the non-monetary financial losses, largely due to foreign exchange fluctuation. But Anatol will explain this in a second. In terms of sales, what we were showing before, and this is to match the numbers that we've seen before. This is core wine core revenue growth only. The previous slide had total revenues. That's why you saw there 14.7%. This is just wine 16%. You see there the different evolution of the specific geographies and markets and brands, sorry. I think important in addition to the points I made earlier regarding the home market, one point to make, CEE, largely mix impact. We see Ukraine and Baltics growing strongly. In Baltics, we've actually changed the distributor at the beginning of the year, and we expect sustained momentum there, and we've seen it over the last 2 quarters. Poland primarily but also Czech and Slovak affected by lower stocking and fewer promotions versus previous year. We will -- we have strong ambition for this region, especially for Poland as of next year, supported by MASPEX, but we will work on that once we get the antitrust clearance so that we can prepare the plans for next year. In terms of other areas, an important point that I would make is the growth year-on-year for rest of the world. And this is becoming an important area for us, or a growth opportunity where we expect even more in the next years because some of this growth comes from the first, let's say, for initial deliveries under new agreements and new partnerships which hopefully should scale up, and we're working towards that. Otherwise, in terms of brands, you see the growth, Purcari growing nicely, Angels growing nicely, slower growth for Bardar and for Ceptura, but we're talking about relatively stable growth in very competitive markets. Divin and still wine in Romania, especially Romanian brands. If we move on. Anatol, do you want to cover from here?

Yes. So good day dear investors. So yes, I will continue with financials. So once again to mention the point that we have very strong revenue growth. And for the current year, we achieved the third in a row quarter with double-digit growth. And here is just to highlight that our CAGR 15.6%. So it's very consistent in terms of revenue growth. From gross profit margin, you can see that we managed to keep historically the same trend in gross profit. And you may know that it's very complicated to maintain and improve gross margin with such trend in revenue. From EBITDA margin, yes, we have a CAGR of 13.2%. For sure, 9 months 2025 have been affected by some one-off adjustment from, let's say, from accounting treatment, which I will explain and we cover also for the previous call. But nevertheless, we can highlight once again very strong financial performance trend for Purcari. Victoria, if we can move to the next slide. Yes. So once again, to say that we grow 9% quarter-on-quarter for the fourth quarter and approximately 15.5% in terms of 9 months. Despite of strong growth, we also managed to keep good trend in gross margin. Here, it's important to mention that we have very good pricing strategy. We execute price increase across all geographies. And for some of them, we have 2 wave of price increase. Also, we have a very good positive mix impact coming also from product and channels. For sure, 9 months have been by inflation. Despite of that, our team managed to decrease part of the packaging cost, especially for bottle, but also correction on energy price, especially in Moldova support us to improve our gross margin. So if you go to SG&A, so you can see that there is an increase approximately 38% in third quarter and 33% in Q3. There is a different trend in terms of marketing and sales and G&A, and I will propose to take one by one. So in case of marketing and sales, there is an increase of 23%, the same trend for months -- Q3 and 9 months. Here, the main impact is coming from RetuRO waste management system implemented in Romania, which we believe affect all the subsidiary company. And also for Purcari, prior year, having, let's say, lower rates for RetuRO, but also working with Ecosmart help us to have a lower base. Current year, for sure, RetuRO cost is significantly higher. The second impact represent salary, which increased in line with inflation, but also extension of our commercial sales team. And the third point is transportation in line with our, let's say, volume dynamic. It's important to mention also that we managed to decrease part of the transport fee for our customers in order to support profitability level. If you speak about general and administrative cost, yes, there is a 59% increase quarter-on-quarter and 45% for 9 months. For sure, here is important to discuss in more details during the next slide. But, high level, the main contributor, 76% it's staff-related cost. And apart from salary review and also change in FTE number, the biggest impact is coming from, let's say, management incentive plan approved and a change in accounting treatment. We already mentioned in previous quarters that we start to book in our accounting records pro rata, let's say, of accrual for management bonuses for management incentive plan to have, let's say, more accurate numbers in the P&L quarter-over-quarter. Important to mention that both marketing and general staff costs are in the budget approved by the Board of Directors. But once again, next slide, I will go more deeply to explain this one-off change year over the year. Other income, RON 6.1 million. To remind you that other income includes subsidies. Other income from different agricultural services here, more or less, we are flat year-on-year. The gain for Q3 2025 is related to [indiscernible] of loss for 2024 recognized in terms of revaluation of grapes. But current year, yes, we have better yield. That's why we recognize a gain. EBITDA-wise, yes, very strong Q3, so approximately RON 36 million, with 33.4% -- 34% EBITDA margin I would say, one of the highest level historical for Purcari. So very good EBITDA result for Q3, specifically year-on-year, mostly flat in absolute numbers and at level of RON 28 million, minus 3% versus prior year. But once again, if you speak about normalized EBITDA, for sure, this is close to 35%. Net profit, very strong Q3 with RON 20.5 million or approximately 90% net profit margin with a strong 45% increase quarter over the quarter. For 9 months, we managed to improve significantly half year result. So we increased from RON 15 million to RON 36 million, we are now at 12%. But once again, normalized profit, the performance is significantly better. I propose to move to the next slide in order to go more deeply. So this bridge, we are using already the second quarter to explain you. So once again, current year is the year of the change. And when we speak about changes, change on accounting treatment. So you can see that, yes, from -- versus prior year, in terms of gross profit, we increased by [ RON 16 million ], which account for approximately 2.5% in net profit, also OpEx increase, and this increase is driven by salary review is driven by RetuRO which I already mentioned. Operating income account for RON 7.4 million, which is approximately 1.8% in net profit. Interest rate, here, it's important to mention that from interest perspective, we are flat despite of increase in our loans balance for 27%, we managed to renegotiate with our banks the interest rates, that's why we managed to be at plus 8% in income and in absolute, it's higher by RON 0.6 million. Bad debt, once again to mention that prior year, the management take the decision to cancel a provision created for trade receivable with customers from Ukraine. So at the beginning of the war, yes, it was decided to make 100% provision for all the sales in Ukraine to be more careful after 3 years, all the receivables have been paid in approved time. That's why prior year, it was decided to reverse all this provision, making one-off RON 2.4 million gain. Current year, yes, we, let's say, have a similar approach, but this one-off gain, we cannot count on this. So Ecosmart prior year, you know that it was let's say, take decision to deconsolidate the numbers. And in 9 months, we have this one-off gain of RON 1.7 million, which currently we don't have in our accounting records. So normalized net profit for 9 months, considering all these numbers are RON 51.8 million or approximately 70%. So like-for-like, this is the real profitability. As I already mentioned, we start if prior year incentive plan bonuses for the team have been posted in Q4, in current year, we start to put accruals quarter-over-quarter. So if you consider management incentive plan pro rata bonus pro rata for 9 months, here, we, let's say, have higher base with RON 6 million. Also, for sure, current year it is highly impacted by FX. Remember that in Q4 -- in Q2, Moldovan, Romania and also Turkish lira have been significantly impacted by depreciation versus euro, which make an impact year-on-year by approximately RON 5.6 million. Bad debt provision, which I already mentioned in Ecosmart, that's why in our accounting in P&L, it's RON 36.1 million or 12%. So this is an important bridge to explain that this current year is a year of change. And let's say, at the end of the year in December, when we will have, let's say, like-for-like pictures, for sure, situation will be much more better. But once again, we are here to explain more details during the Q&A session. Victoria, if you move to the next slide. So from a balance sheet perspective, strong cash position because now we are in the high season agriculture. And for sure, we need to have cash to pay our suppliers, especially for grapes. Net debt increasing, in line with our strategy, we are focused to grow and we need to increase the debt in order to finance capital investment, but also and working capital needs. Liquidity, more or less stable versus the previous period and also debt for sure, increasing, but we feel a manageable range, ensuring the company view to strongly grow. Victoria to the next slide. Alex, over to you.

Our usual update this time of the year on how the harvest went. And you see there both own harvest and the third-party grad purchases that we've done from our partner farmers. You see there a significant recovery for our own harvest from 9.2 million kilograms last year to 13.6 million. There is a significant like-for-like improvement. In addition to that, we also have the expansion of the vineyards, additional vineyards that were recently planted or bought that had started to give additional yield. But you see there almost at the level of 2022, okay, not the record year that we had in 2023, but a good year, let's call it, a good year in line with our historical average. Also, this improvement in yield has been reflected in our ability to purchase more grapes from our partner farmers. As always, I think I've explained it several times in the past, in addition to this, we will also secure additional bulk wine as needed for specific ranges and great varieties throughout the year to ensure we can deliver on the sales plan that our sales team will come up with for 2026 and beyond. I think irrigation clearly is providing strong results for Purcari. We are working as hard as we can given the dependency on the state of the World Bank finance irrigation project to get irrigation as soon as possible. So at Cuza, we're hoping now with the new parliament, the new government in Bostavan and Moldova to approve all the necessary legislation for the public work program to be rolled out next year and to get access to water. Not sure whether in time for next year's harvest, but clearly in time for -- hopefully, in time for 2027. If we move on, final point, I think guidance, given the results for 9 months, we keep our guidance for the end of the year. We feel quite comfortable that we will reach those numbers within the range of the guidance. You see there in 9 months sales midpoint for the range EBITDA on the higher end of the interval. Net income slightly lower, but with improvement -- significant improvement in Q3. And we are also counting on the leverage effect of higher sales and also higher margin sales in Q4 over the same fixed cost basis that should help us deliver also this target for net income. Of course, the foreign exchange losses are always an unknown. But for now, the different currencies that were mainly exposed to see stable. We would not expect any short-term changes negatively affecting our performance. Anything else? In terms of we get questions, I think, Victoria. I don't know. I don't see the chat if there were...

[Operator Instructions] So we have the first question in the chat. When do you expect pressure from higher bulk wine for 2024 to diminish from Daniela...

Okay. Daniela, if we think of the sales cycle, I think for white and rose wines, it will paid out Q2 onwards, Q2 2026. For red wines, we're talking fundamentally Q4 2026 because that's when we will start bottling this year's harvest. Okay?

[Operator Instructions] So it seems we do not have any more questions. So I think this concludes today's conference. [Operator Instructions] Should anyone have any questions, please feel free to reach out to me or Eugeniu through Investor Relations. We will help your answer any questions you have or book a separate call. And as far as I'm aware, thank you all for your time and continued support. That is all from our part. Thank you, and have a productive week ahead.

Thank you. Thank you, Victoria, for organizing it a lot also for preparing it. Hopefully, we've been by now also repeating some of the templates being clear enough to explain the underlying drivers of our performance. We look forward to a strong end of the year and our next call for the full year [ unaudited ] results to deliver.