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

Okay. Good afternoon, everyone, and welcome to the presentation of the first quarter of 2022 of the financial unaudited results of Purcari Wineries. We'll start with a quick intro slides, some of them that you know. So these are the presenters of today, myself, Eugeniu Comendant, Chief Operating Officer; we have Victor Bostan, Chief Executive Officer; Victor Arapan, Chief Financial Officer; Eugeniu Baltag, Investor Relations Manager; and Vasile Tofan, Chairman of the Board. The agenda for today is the following. So first, we'll go through -- I'll try to go quick through the section which shows an overview of our group, the vision and the strategy. Then we'll move to the first quarter operational results, after which we'll open and in fact we'll try to give more time for the Q&A session. So just a quick overview on Purcari Wineries. It's obvious from this slide that we are a leader in the industry in the region. We are the world's most awarded winery in 2021. We are the most awarded winery in Central and Eastern Europe at Decanter between the years of 2015 and 2021. We are the best premium wine brand in Romania. We are the fastest-growing in CEE, largest exporter of bottled wine for Moldova. And we are backed by top-tier investors such as yourselves and other ones listed in this slide. Our vision, of course, is to become the undisputed champion in the wine business in Central and Eastern Europe. We mention this later in the presentation. Of course, for us to achieve that, we believe that we started in the right place, which is Romania and Moldova because these 2 combined hold the largest land -- the largest area of vineyards in Central and Eastern Europe and the fourth in Europe after the 3 big ones, which are Spain, France and Italy. Looking at the EBITDA, the results in the last 5 years because I think -- we believe it's important. We as Purcari, we IPO-ed at the beginning of 2018, in February 2018. Of course, back then, there was a story, a vision that was portrayed to the investors, and we believe that we fulfilled that vision in the 4 years that Purcari has been listed. So basically, from the moment that Purcari IPO-ed, we managed to increase the revenues by 75%, and we maintained solid operating margins, gross profit margin, EBITDA margin and net profit margin. And so gross profit around 50%, EBITDA in the 30s and net profit margin in the 20s. This is solid. It proves again that the business model is a sustainable one. And we see that in the long term, we're able to sustain such a business model. Overall, we see ourselves both -- we see ourselves towards our investors both as a growth company and as a value company. Now we're putting growth through the fact that we grow double digits, we'll say a CAGR of double digits over the last 4 years and, in fact, over the last 8 years or so, even before the IPO. But we also want to be a value company, and that's why we are quite -- we want to be quite disciplined in giving away dividends. So for that, we need to generate a good earnings per share and then pay out the dividends, which we've done in 2018, the year of IPO -- for the 2018, the year of IPO, for 2020/'21 that we've approved in the last AGM. For '19, we missed it, but we all know why, because the pandemic was beginning and we decided to be prudent and stay on cash. So of course, our group has -- now we believe that the strategy that we are following is correct. We're in the right market, so we see that the -- overall, the wine market is growing, specifically the segment that we're in, which is medium to high, so more on the premium side. And we have the competitive advantage to dominate the -- this industry and specifically this segment. So as you can see, we are -- we have a strong brand, we are very appreciated by the juries at different international wine competitions and with proven growth over the years. Our business model is simple but something that works. So for us, it's important that we remain a cost-competitive winemaking business. So we are prudent on cost. We make sure that our CapEx investments are -- or we'll have a high return on that investment. We are in the region that allows us to have lower costs -- operating costs, comparing to other wine-producing regions. Then we're trying to give that affordable luxury to our consumers, and you can imagine that we are succeeding in doing that. If you were to think of a bottle of Purcari being on the shelf between -- let's say, an entry level between EUR 8 to EUR 12 or pounds, a wine that also comes from a winery that's the most awarded in the world and with various medals at renowned international wine competitions, then obviously we're able to provide that affordable luxury. And we believe that we're good at marketing. We are honest. We speak in a human language, so to speak. And we don't only sell wine, but we also stand by protecting certain values and by certain things that we believe are important. So with that -- with this combination, we are -- we see that this business model of providing this affordable luxury to our consumer works and will work. Our mission is to bring joy in people's lives by offering them high-quality, inspiring, ethical wines and excellent value for the money. And as I mentioned, our vision is to become the undisputed champion in the Central and Eastern Europe in the wine business but also through consolidating a fairly fragmented industry. And of course, we have the values that will support us in this. Again, just this combination of operational excellence on one side and clever marketing on the other side creates that low cost with a high perception on brand and quality, which allows for having the combination of being able to price high and to produce at low cost, delivering those solid margins that you've seen before. So this just shows the -- that approach of we are in the industry -- wine industry which is fairly consolidated when we compare to beer and spirits. There's obviously room for consolidation in the wine industry. Quality in wine is very important. So it's very important not only to reach consumers but also to retain them. And we're able to do that through the very high quality of the wines that we produce. And from the business perspective, it's important that as the business is growing and as the volumes grow, that the business is not only growing by volume and revenues, but it's also maintaining the quality and our promise to the consumer. And we always see that every time a consumer chooses a bottle of wine from the shelf, we have a promise to maintain to that consumer, and that has been also one of the key success factors for Purcari. We spoke about quality. This is a bit about brand and quality. So on the left side, we show that Purcari is a trendy brand. We're not just one of those older, maybe grandfathered brand. We are very -- it's an old company but a very trendy brand, and you can see that with mentions on Instagram and Vivino, which is a very important platform also for us to track or to have a pulse on the perception with customers, not with the juries at competitions. So in Vivino, we have -- for example, if we take Romania, which is our key market, we have the most votes with the highest average score. So we dominate on quality when it comes to the bulk of the consumer. And again with Vivino, we see that we -- being the dominant in the premium segment, you can see here 13 out of the first 25 on Vivino, again it shows the strength of Purcari in the premium segment. And speaking about the premium segment, which is speaking about the same thing, here in Romania, we see that we are dominating the premium segment, if you look on the right. So we are above 22% -- we're above 20% for Purcari. But as a group, we have 25% of the premium segment in Romania. But overall, if you look on the left, we are the company that keeps growing and gaining market share in the overall market. I guess the combination of the 2 slides, the one on the left and the one on the right, shows that overall we have a bit of tailwinds where the premium segment keeps growing while the lower segments, they are suffering more from, I guess, macroeconomic environment. Now we speak about Romania. So it's important that we keep growing in Romania. It's our -- a key market. But for us, what's also important is to see the presence of our wines worldwide. So here with Vivino, Vivino is that app, again, that gives us this visibility into how consumers perceive us but also where do they rank our wines. And we see that Purcari wines are scanned pretty much across all of the Northern Hemisphere with an average score of 4.24 and overall increasing in terms of number of scans, and you can see here even 96 countries across the world. Good. So I'll try to be fairly fast in going through the overview slides. Now and then we skip them, but sometimes I think it's important to just remind the investor community of the formula that makes Purcari successful, that made Purcari successful until now, and also that we believe will make Purcari -- will continue making Purcari successful in the future. So on the operational results, we are happy to report growth in revenues, EBITDA and net income. So revenue grew from RON 49.8 million in the first quarter of '21 to RON 56.2 million in the first quarter of this year. This is a 13% growth on a group level. EBITDA, solid EBITDA to RON 20.5 million. That's a 4% increase. And net income is a solid RON 12 million. That's a 17% -- 16.5%, 17% increase versus last year. So if you look at margins, we are looking at a very solid 36% EBITDA margin and a 21% net income margin. I'll cover this quickly. For perhaps the first two sections, I will leave them for the slides that follow. But not only on the financial side we are posting good results but also, let's say, on the operational side, we've been quite busy. We've been -- we've launched some new fantastic wines, Academia Purcari. These are some wines -- first one in Moldova, by the way, vinificated in amphoras, in clay amphoras. They have minimal implication from the oenologist, which make them very attractive to the wine connoisseurs. So they've been launched 2 weeks ago, and already the perception of these wines is very high. They are quite premium, so let's say shelf price or consumer price, we're looking to be somewhere between EUR 40 and EUR 50. And we are quite active in terms of being appreciated by -- or being recognized by the international wine critic community. So again, we're starting the year well with strong results at various international wine contests. Now you've probably seen also some of the media coverage. We've been very active in supporting refugees. We believe that this is something that we have to do, us being in the region and -- or just being -- providing this humanitarian support from human to human. But also as a company which is a leader of the industry, that with its position of largest exporter, one of the largest companies in the region, most awarded winery in the world, we had to also step in and do our share of supporting the Ukraine refugees. And we've done that. We've done that very well. We've helped over 5,000 refugees in terms of providing shelter for them and, in fact, over 12,000 refugees in general helped also at our other helping centers. This has gotten some media coverage. And we -- yes, we were featured on various channels and publications such as CNN, BBC, Bloomberg, Le Monde, Washington Post, New York Post and some others. With this, we also had some high-ranking visits from Samantha Power, Charles Michel from the European Council and Orlando Bloom. Now the numbers, of course. We -- I've mentioned the, let's say, the high-level revenue growth. Overall, the -- you see that the margin is very strong. So gross profit margin is at 52%. Overall, the -- we had some positive effects when it comes to margin from the sales mix. So Purcari and Bardar were the ones that showed the strongest growth comparing to Bostavan and Crama Ceptura. So with this, of course, the more premium product sales generated a strong 52% margin. It's one of the highest that we recorded in a quarter. We've managed to maintain our marketing and selling expenses at 9% of revenues, so a decline of 2% versus last year or for the same period of last year, and G&A grew at 9%. So overall, the SG&A grew at 4%, slower than revenues, which, of course, had also a positive impact further down on the bottom line. Now we did record some of the -- some provisions for loss on trade receivables. These are, of course, because of the Ukrainian situation, well, the war in Ukraine, let's say what it is. And for that, we just had to record those provisions. But again, as always, we've always been prudent in recording these provisions. We, of course, as management are optimistic, and we're looking to recover those receivables in due time. Then, of course, okay, we reached a net profit of 12% -- oh, sorry, of RON 12 million, which is a 21% net profit margin. We have a solid balance sheet. So you can see here that the cash position, the net debt and all the other ratios, they are solid ratios. Net debt-to-EBITDA at 1. We have sort of this internal limit of 1.5. You can see here that we did reach it in end of 2019. But overall, if you look at our balance sheet, it's a very solid balance sheet. And with the macroeconomic environment at the moment, whichever way the situation will progress, we believe that we are in a very solid position to weather through any, let's say, effects or any crisis impacting produce. Okay. So if you look on the figures per country, Romania grew 7%. So now it's 55% of our sales. The brands that showed the good results in Romania are Purcari and Bardar. Nocturne, which is a series or a collection of wines that was launched particularly for HORECA, is doing very well, and that's also supporting that growth. Moldova, you can see a strong result, 36% growth. Here, we have a few effects. Again, we have Bardar, which is the premium brand, showing strong growth here in Moldova but also Purcari and Bostavan. In fact, all the brands showed a positive growth, very strong growth. And one of the effect was the reopening of HORECA. So now the weather is good and the consumers are, okay, enjoying their time in the HORECA channel. And the duty free has been reopened. Well, you had a bit of closing again due to the Russian aggression against Ukraine, but the sales are starting to pick up in that channel. Poland, we see minus 1%, and there are some -- well, overall minus 1% is not necessarily a bad result because here, we have incorporated the negative effects of our cooperation with Lidl, which is -- which we're very close to reestablishing. So we're basically comparing to a higher quarter of 2021. And also, we are comparing to a quarter in the first quarter of 2021 where Biedronka was still there. Now as you know, we have -- we are reentering -- we have reentered Biedronka, but we are recovering those sales. So overall, minus 1%. We see it as a relatively good number. What's good to see there is that in Poland, the Purcari sales are picking up very well. We grew Purcari by 250% year-on-year in the first quarter of this year in Poland. So overall, we are positive -- we have a positive outlook about Poland. Asia grew 20% even though we had a bit of logistical, I wouldn't say, issues, but, okay, some frictions when it comes to logistics because the logistics moved from the Odessa port to Constanza (sic) [ Constanta ] and we had some of the deliveries, some of the orders moved for the second quarter. But overall, still plus 20% in China or Asia overall. Czech Republic/Slovakia, minus 7%. Over there, we do see a bit of effect from the market. So overall, the Moldovan segment has slightly shrunk a bit, and we look at the inflation rates and see that the Czech Republic has already seen some inflation happening there. So there are some general effects when it comes to the market. And still, TESCO -- the restructuring of TESCO is still part of the negative effect in Czechia and Slovakia. Baltic states are not here, but they overall also showed a bit of a decrease year-on-year. And that was due to the fact that it seems that in the first quarter when the war in Ukraine started, the population in that region, well, their most important purchase were basic food items such as wheat, rice and flour and these kind of things and not the hygiene products. So we saw a bit of a slowdown in the sellout of wine, a lot similar to what we saw early in the pandemic of 2020 -- when the pandemic was starting in 2020, but then sales recovered. So we are looking at how the Baltics will progress in the second quarter. Ukraine, of course, minus 48%, but that's, of course, to be understood. Overall, the sales stopped for a majority of time since the war started in Ukraine. However, the demand seems to start again. There is demand from more for deliveries in the western part of Ukraine, so we will be looking at potentially some sales recovery there. When it comes to brands, it was Purcari and Bardar that showed growth. They showed growth in Romania, in Moldova and in Poland. So for example, even Bardar in Poland has shown strong growth figures. And Bostavan and Ceptura showed a decline with primarily effects from -- for Ceptura. That's the effect of Lidl. So we are comparing a year or a quarter in 2021 with sales in Lidl and now in 2022 without those portion of sales. So this is the effect of -- when it comes to Ceptura. And Bostavan, it's all those effects of a flat Poland and the declines in the Czech Republic and Slovakia. Moldova growth, and so the growth of sales of Bostavan in Moldova, has offset the decline in those markets. This is just to put on the -- to visualize the Academia Purcari. You can see it's an interesting label. And nice, attractive bottles. So it's a different bottle with the wax capsule, overall positioned for the higher-end price and high-end consumer. And again, we are -- here is another opportunity to mention that in 2021, Purcari became the most awarded winery in the world. I was mentioning that media coverage and the attention that we've received due to our efforts to support the Ukraine refugees. Now of course, we didn't ask for -- we were clear from the start that we -- everything that we do for the refugees is unconditional. We are -- we do not want to derive any commercial gains from this crisis and from the suffering of the Ukrainian people. But some media started picking up and then it became a sort of a rolling ball, and then we got more and more of this request to appear in media, and this is this high-ranking -- this is the Chateau Purcari. Overall, look, my personal opinion is that of course it's horrible what's happening in Ukraine. It's horrible that there's human lives loss. But as difficult as this may be, we are optimistic, I'm personally optimistic in Ukraine winning this war, regaining the -- control of their country and their territory. And in fact, I believe that in time, this region, Ukraine and Moldova, will actually come out stronger than they were. So somewhere -- as bad as it may be now, it's something that will make -- what doesn't kill you makes you stronger. So something that will make this region strong. Good. So I think now we can open it for question and answers. Let me just stop share.

Hi, Mr. Comendant.

Hi, Iuliana.

A couple of questions on the sales side first. Overall, wine sales were relatively weak in the first quarter. Growth was around 4%, just 7% in Romania and some significant drops in other regions. Can you comment a bit more on this? What is the outlook? I mean I know you -- I know the guidance for this year is 10%, 15%. Do you keep that? And how do you plan to recover in the following quarters, if you plan to keep the outlook?

It is. So look, 4% is the growth of the core segment, which is the wine segment for us. There were the contribution of Ecosmart. So Ecosmart had another RON 4 million added to the revenue. So overall, the group grew this 13%. When it comes to the wine business, now we are yet to perform certain price increases. We see that overall, the prices are going up. In fact, we are slightly delayed in certain price increases when it comes to -- when comparing to our competitors. So we see that in the markets where we are, let's say, present and strong, such as Romania and Moldova, we are yet to be able to gain from those -- from that price increase. In markets where -- let me talk about markets which are a bit more difficult. So that is Czech Republic, Slovakia, Poland and the Baltics. Now first of all, here, primarily the sales are from Bostavan. In fact, some of the declines in the growth is also due to -- or declines in sales is also due to the fact that we have already, to some extent, put forward some or certain price increases. But overall -- for example, Lidl -- to us, the recovery of Lidl can create certain benefits in Romania but also in Poland and Czech Republic and even the Baltics. So the recovery of that partnership will -- let's say, it's one factor that can create that -- the growth. And overall, we're also very active in, let's say -- let's call it, business development. So we're very active in making our wines available in other markets such as the U.K., such as Japan and even Africa. So it's a combination of various -- of -- I'll say again. It's a combination of various factors that will -- that we believe that will create growth that we mentioned in our guidance. Look, overall, the guidance that we've provided is something that we put forward at the beginning of this war in Ukraine. We were thinking of revising it, but we're yet to see how the situation will progress. Hopefully, the -- depending on how long the situation in Ukraine will continue, there'll be some sentiments -- a positive sentiment coming back to countries such as Baltic states, such as Czechia and Slovakia and perhaps even in Ukraine.

So basically, for recovery, you're kind of expecting -- I mean, you would have revised the outlook, but you still have hopes that the partnership with Lidl would be resumed and that, at the end of the war in Ukraine, could possibly revive the sentiments on how -- I mean, compared with the guidance that you've offered some months ago?

Yes. Look, overall, we are maintaining the guidance. We -- for example, right now, we have been comparing with a fairly relatively strong first quarter of 2021. That's why, for example, we see that the wine has only grown by 4%. We feel China, which many orders have moved to the second quarter. We have, okay, the situation with Lidl, which we are looking to regain. So overall, it's just the beginning of the year or the start of the year, so the first quarter. We have these targets, 10% to 15% growth of the core business. And as you know, as always, we are -- we'll be looking to even overperform over this guidance.

But regarding China, I also want to ask because you've mentioned it in the presentation. You said that some deliveries were delayed into the second quarter, but then you also say in the segment presentation that there is a lockdown. Did I read that correctly?

Yes, indeed. Indeed. There is a -- yes, there's also the situation now with the lockdown in China. But nonetheless, we -- okay, we still see orders and we have -- there was the situation where we moved some of the orders from the first quarter to the second quarter.

So overall of course, in China also, there is a lockdown? I don't know. But then, when we come to -- and we had the lockdown in the second quarter of last year. Some [indiscernible] issues when comparing [indiscernible]. Okay. Okay.

No. Look, China -- indeed, China overall has been -- I think I've mentioned this a few times, that the sales in China, it's not something -- it's something that we are constantly working for. Yes, we have some stable partners in China. But overall, you do see -- if you were to look at the seasonalities and the variabilities between the quarters, you will see that durability. So very often, for example, because of the cost of transportation, many orders will be bought (sic) [ brought ] into, let's say -- because you send one container. So then, if you have multiple partners, they sort of tend to, how do you say, to condense or -- condense, yes, their orders, which normally will be spread over several periods. They tend to condense them in one period. So this is a situation that sometimes we can see in China.

It's Petar Grgasovic for InterCapital Croatia. Can you comment on how come China sales increased by 20% despite China lockdown? Can you give me more details on that, please?

I'm afraid I cannot give, let's say, consumer or end market insight because we have multiple partners that sell to multiple channels. So we have some partners that sell primarily B2B. Some are in specialized stores. We have some other partners which are more in the gift segment. So it's -- I don't think I'm able to give you some, let's say, local insights in terms of the orders in terms of why this 20% increase in sales.

Oh, okay. Okay. The next question would be, how close are Purcari's assets to Ukrainian border? Or how close are your operation from Transnistria?

Purcari is situated in the south and eastern part of Moldova. We are a few kilometers away from the border. So indeed, from the vineyards -- if you go up in the vineyards, you'll be able to see -- on the right side, you'll see Ukraine, and on the other side, you would see Transnistria. Nonetheless, we are, I should say, on the, let me call it, mainland or the mainland Moldova, which is not part of the Transnistria region. And if there's, of course, from your side a concern whether we are very close to the war, I don't think it matters whether we are close to the border or not. So -- but yes, we are fairly close to the border with Ukraine.

Okay. And on that side of the question, just two more follow-ups. Are you able to work so far and produce without any interruptions? And the second one, what is currently the scale of your operation in Ukraine and Russia?

So on the question regarding interruptions, we are operating completely without any interruptions. So in fact, on an operational level, we do not see any blockages or any bottlenecks. When it comes to sales and exposure on sales, we -- our sales exposure to Ukraine was around 3.6%, and to Belarus around 1 point -- I think another 1.6% of our group sales. Pretty much 0 exposure -- sales exposure to Russia, so there is no effect there. So it's only these 2, Ukraine and Belarus, that were impacted by -- the sales to these 2 markets were impacted by this war. But as I said, in Ukraine, we see positive signs. We see demand, so we see orders. So we'll have to monitor how the situation progresses.

And please, if I may add to this with your permission. As somebody who moved from Kyiv to Kerch, I kind of was on the front line of this attack. At the moment, I think that -- at least our subjective perception is that the risk or the complex getting over to Moldova is overblown. We have a strong indication of that. So all the official messages from the U.S. -- in the U.S. military intelligence community have been that Moldova is not in the risk at the moment. If you compare to the Ukrainian situation, the U.S. embassy moved out of Kyiv, first Lviv then Poland 4 weeks before the onset of the invasion. And as far as Moldova is concerned, which is a very small country, all embassies are here. U.S. embassy is here, U.S. ambassadors, new embassies are all -- all the embassies are here and they never considered leaving as far as we know. And that's the algorithm we have, as long as the U.S. ambassador is here. And I think we are all safe. And we're -- I think we cannot guess what's in Putin's mind, but we have to trust the U.S. intelligence. And again, all the messages we've been getting have been very, very reassuring. That's why, for example, I am -- we are proud of our employees. We're an American family. We have American [ kids ]. We moved them from Kyiv to Kerch now. Families are here on the ground, so we're kind of also voting with our feet. So it's not that we are sending reassuring messages and, at the same time, we keep our kids in Switzerland. We're -- no, our kids are here. So I think that so far, we're quite confident things are going to become [ here ] on the ground.

I'm Iustin Terciu from BT Capital Partners. Earlier, you mentioned that Purcari made some price augmentation last quarter. Can you detail how much the prices were raised in the first quarter? And also, what can we expect in the future related to pricing?

Yes. So we've increased certain prices for certain products in certain markets. It's a bit of a complicated answer. But for example, in Romania, we have made already an increase for most of the brands, and that started on the 1st of March. And the level of increase is somewhere between 5% and 7% for the various brands, for example. That's in Romania. In Moldova, we've already pushed certain price increases as well. And that's sort of is the same level of -- so it's always single digits. We stick -- average per brand. Okay, we have certain products with more than single digits. It's double digits. But overall, let's say, in Romania and Moldova, we've pushed already through some of the price increases. In Moldova, as of 1st of April, there was another, let's say, price increase, which -- on a separate set of products, not 2 times, yes. So let's say Romania and Moldova, the price increases have been pushed forward. We have other markets that are yet to have the price increases. That is Poland, Czech Republic, Slovakia and the Baltics. And they are happening. So there's a set of them that already happened on the 1st of April, so they'll take effect in the second quarter. And then the other ones will be somewhere around June.

As a follow-up question, we know that the wine market overall remains a very competitive market. How much can Purcari raise prices in the future without affecting its volumes?

Well, now I think somewhere we need to understand that there's this overall inflationary effect that allows for prices to be increased without necessarily an effect when it comes to our pricing versus competitors'. Sure, they may be in the -- in a consumer's basket, the consumer may choose perhaps less wine or -- and more basic necessities even though that's debatable because overall, the various crises have shown that, in fact, the sale of wine is, in fact, increasing during a crisis, and the coronavirus has shown that at least in the Northern Hemisphere. But when it comes to our price increases versus competitors', because of these inflationary pressures, price increases, in fact, will not detach us from competitors. Overall, we're always pursuing this premiumization approach, premiumization direction. We believe that Purcari can still sustain price increases because Purcari, it's obvious now, the level of the wine -- the level of the quality of the wines is extremely high. Consumers appreciate it. And at one point, we'll need to balance the -- to get the maximization of profits and sort of net present value from this combination of allowing volume to increase versus price to increase. Overall in the past, if we look at the share of price versus volume quota in -- or shares in our growth, it would be around 1/3 of the growth percentage would be from a price increase and 2/3 from volume increase. And we are -- we've sort of swapped it a bit in the last year and this quarter where it's half-half or maybe even a bit more price and less volume. So that's on Purcari. Bostavan, the prices of Bostavan, I can tell you, are far below where the quality of Bostavan wines are, and the same for growth for Crama Ceptura. So here, we see premiumization, one being through price increases, but the other one is through the launch of new products, new brands. So we are launching new brands. It's like we're trying to detach them from Bostavan, which may have a perception of a sort of a value -- wines in the value segment. So for Bostavan and Crama Ceptura, it will be a combination of a price increase and also launching new brands that do not have the price stickiness. They straightaway enter at a certain price point. But the quality of those wines is extremely high. We can see it through awards at various international contests, wine contests, but also through the perception of customers through Vivino and other ways that we capture the perception of the customers. So yes, for now, we see that there's still space for price increase. But to be sure -- to be sort of -- of course, we are doing this in calculated steps. Of course, we do not want to break anything onwards.

I have just one more question, also as a follow-up. You mentioned that the company keep launching new products and brands. We saw that last year, you launched Domeniile Cuza. Right now you launched a new product, Cramele Recas. I'm wondering what value they add or they are expected to add in the future. Maybe you can give some guidance regarding to what they mean in terms of sales.

Well, you can imagine that at the moment, Domeniile Cuza has a small share of sales simply because Purcari is so big, Crama Ceptura is so big, Bardar is already accelerating in Romania. But if you think from the perspective of our companies, the one that we -- what we sell -- so we have five companies. We have -- in the group, yes? We have Purcari, we have Bardar, we have Bostavan, Domeniile Cuza and Crama Ceptura. Now in Romania, if you were to go sell in Romania, we're successfully selling Purcari, we are successfully selling Crama Ceptura, we are successfully selling Bardar because it's accelerating. So now what we are doing, we are just creating -- we're generating sales for our other companies. Now Bostavan, again, as I mentioned, it's a brand that has a set of perception. The -- Bostavan products are still available on the Romanian market. But based on the segment where they're positioned, we do not expect them to just outshine and have this stellar performance in the future. But Domeniile Cuza, they are very, very good wines. They're well positioned, very good brand. We are planning to invest in this brand. So you're -- in Romania, we are -- you probably will see us in the second half of the year being fairly aggressive when it comes to communicating and building these brands or creating awareness and already giving -- creating a certain perception on positioning. And it has to be a new, how can I say, a new lane of growth. So Purcari is growing, Crama Ceptura and Bardar. And Domeniile Cuza, it's a new lane for growth. You asked me about the share of sales. It's hard to say what the share of sales will be. What we know is that we are aiming to sell in the hundreds of thousands fairly quickly when I speak about bottles, and then to reach -- to cross 1 million bottles in the near term with Domeniile Cuza.

Any chance that we will be seeing the contract with Lidl resume in the short term?

Sorry, Iuliana, I missed what -- can you...

Any chances that you -- we would be seeing the contract with Lidl resume in the short term?

Yes, there is a chance, of course. Not any chance, but there's a chance. There's a high chance. You can imagine that, look, we could have not had the issue with Lidl straight away from the start. But that doesn't mean that it's the -- well, it would have been the correct way to go forward. Because sometimes, it's more important to maintain a certain policy and a sort of positioning that you have in the market. Do not break other relationships with other big accounts such as [ Carfrond ], [ Metro ] and others. So we could have already saved it back then, but the correct way to do it is to say no to the demand of Lidl and to maintain our position. This way, protect the market and protect our positioning overall as a brand and as a company on the Romanian market. And then now that we are in discussions to reenter again, we are doing it at terms which are favorable to us. And okay, probably too little to some extent, but overall, it needs to be done in a -- overall, it needs to be a win-win and something that doesn't come in the detriment of our overall sales and our relationships with other partners. But if there's a chance, yes, there's a high chance.

It wasn't resumed yet. I mean, no final...

We are finalizing this. So soon -- I would imagine fairly soon, you'll be seeing the products on the shelf again.

Okay. This is [ Cares ] from [indiscernible]. I was wondering if you could possibly comment on the evolution of gross margin in 2022 on the back of the cost of the harvest of 2021.

Yes. So indeed, a good question [ Cares ]. The effects -- the cost effect comes from 2 years, in fact. Comes from 2020 and 2021. In 2020, if you remember, we had a fairly poor year when it comes to precipitation. So it was a very dry year. So our yield -- the yield from our vineyards was low. In 2021, we had good yield, but then some of our partner farmers had issues and the -- overall in the region, the supply for grapes was fairly low. That creates higher cost of acquisition. So first, 2020 cost of production, then cost of our acquisition. Now we -- of course, there was an effect. I cannot tell you the exact percentage when it comes to exact -- that component of the cost of grapes. But as you can see, though, we managed to offset it with the fact that we had a positive change in the sales mix. So Purcari sold well. Bardar sold well. And then with Bostavan decreasing and Ceptura being kind of flat, we see that we managed to maintain this strong gross profit margin. For this year, we are finalizing with -- so we are continuing the investment in the irrigation system at Purcari. This year, we'll be finalizing. In fact, already in a few months, the Purcari vineyards will be irrigated. Next year, we're planning to do this for Bostavan. What does it mean? Well, it means that we are already starting to hedge against this, yes, climate impact. So for example, we know that in 2022, the cost of our grapes will be -- the yield will be very strong. So in fact, the average cost per ton will be lower than in previous years, so we'll have that benefit. And next year, we're planning to do that for Bostavan. But overall, the 2020 reds are now fading, so the cost from the 2020 reds is now fading away. And we still have now some effects from the whites from 2021. But that -- again, as you can imagine, these costs -- as we sell that inventory, the impact of this cost starts to fade away in the years to come. So even though this year, because our guidance was 20% to 25% margin EBITDA and I think 10% to 15% net income margin for this year, again the prudency was from that perspective. But as you can see, we hope that during the year, we'll be able to beat those numbers.

And I had another question. It seems to me that the brand Ceptura expecting to borrow quite a lot of the imagery of Purcari. So this is like a premiumization of the look of Ceptura. Are you worried that this might actually cheapen the image of Purcari brand?

Well, no. In fact, we separate very clearly our brands. So Ceptura will never communicate on the same visual or at the same time with Purcari. We are trying to have every of our brands to look premium. That's irrespective, be it Purcari, Ceptura, Cuza or Bardar or any other brand or sub-brand that we are creating. So of course, you always want to have that component of a premium look and feel to drive the consumer buying decision. But we are never communicating at the same time or together, so we are not amalgamating the brands in any way. So for now, you see that -- we do not see any risk of one brand effect to the other or this chipping effect.

And coming back to your question of -- to the question regarding margins. So you're quite positive that on minus -- in the following quarters as well because the 52% in the first quarter is above the guidance for this year definitely. Are you optimistic that you can keep that?

Well, look, we are -- how can I put it in the correct form? We're always looking to perform in the best way that we can. We still need to be wary of two things. We need to be wary of the situation, the macroeconomic situation when it comes to -- well, let's say the geopolitical situation when it comes to the war. I mentioned that, for example, in the Baltics, in the -- when the war started and when those -- that first month or so, people rushed to the stores buying basics. It's something similar to what's happening in the pandemic. So there was that effect. We still need to see how the situation with the war will go. That's number one. And number two is we cannot ignore the inflationary effects that we're seeing both on the cost side, on the diminishing purchase power of the customers, the consumers. So on one perspective, we are optimistic and we'll do everything we can. At the same time, we want to be prudent. So it means a combination of two, I'm afraid, Iuliana. So we'll keep the guidance to what it is for now. Depending on how we end in the second quarter, we will look to revise it or not. And then, of course, we'll probably have more stats when it comes to inflations, to the sellouts or the sales of wines in different countries, and we'll see what's happening with the war. And then we'll be able to perhaps revise our guidance.

I understand. So the better -- basically, the better performance in the first quarter came from the mix, right?

Yes. To some extent, yes. To some extent, it came from the mix, yes.

But actually, that's not going to change that soon in the following quarters most likely, right? That's why...

We see strong demand for Purcari and Bardar. Of course, we're looking to recover and keep selling wines from Bostavan by all means. But at the same time, we do see high demand for Purcari and Bardar. All of these brands are growing. For example, Poland, Purcari is doing very, very well. Romania, Purcari keeps growing. Now with this media presence with Richard Quest on CNN, he was very kind in describing Purcari and the wines, giving all sorts of I don't want to say superlatives but commenting very positively on our wines. And other coverage -- we're yet to see whether and how Purcari sales will continue to grow or not. I want to be -- look, Iuliana, I want to be optimistic but not to -- by any means not to, I don't know, to misguide or -- yes.

And could you update us regarding investments? I see some comments in the media that investments for this year will be delayed in 2023. Is that true?

Well, look, we had some misquotes in a few articles, in fact, in media. One was Bloomberg where the title was a bit pessimistic. And I do not subscribe to any of those quotes or to that quote specifically, but, okay, it's not [indiscernible]. And then we had another quote with -- when it comes to investments which was mentioned, that all the investments are postponed. And that's not true. In fact, it's not what I said. So what we said is that we had -- at the beginning of the year, we've had a relatively aggressive investment plan for this year, CapEx investments. And of course, with the situation in Ukraine, we decided to temper it down a bit. So we postponed some of the investments for next year, some of the investments that were not critical and we'd not see them as very important to be done this year. We postponed them for next year. But we're -- we keep investing. One of them is, for example, the irrigation system at Purcari. That's one of the CapEx investment that we'll keep doing this year. And there are others. So it's not that we are postponing any -- like all CapEx investment. We're postponing some, which we believe that we can wait until next year. And I think it's prudent.

And you -- can you update us on the CapEx spend for this year?

Well, the initial CapEx was relatively high, but now we'll be looking to have a CapEx investment overall maybe, I would say, somewhere between RON 10 million and RON 15 million.

And M&A?

M&A. Look, it's always -- the M&A situation is -- at the surface, you do not see all the work that's done in the background because we are still not doing one of these large transactions that is more meaningful and we can present it as, hey, look, we've done have a proper transaction. Sure, we've done some acquisitions, but those are not what we would call a traditional or classical M&A. The answer is that we are working in the background. We have multiple discussions in various markets, and those markets range from Moldova, Romania, Bulgaria, Czechia, Slovakia and even Hungary. Don't think that we are totally unfocused. No, we have certain areas that are more focused. And even, we have some targets which we are very warm with. But as I have mentioned probably even before, doing a deal in the wine business is relatively difficult because usually the people that have grown a business in wine and have difficulties, they want to sell, usually they've invested a lot of money, they do not have the return on the business that they could have or should have had, they are emotionally tied to the business and they're emotionally tied to the -- to what they have invested in the business. So the concept of a sunk cost is not -- I'll say, not fully embraced by -- usually by businessmen in the wine business. So that's why for us to have negotiations, we made our -- we make our evaluations of the business based on numbers, mathematics. So we know what our business is worth or, let's say, based on the numbers. It's difficult to portray and to pass this message to the seller. So that's why negotiations are difficult. But we see that we're making progress and we would want to have a transaction by the end of the year.

So it wasn't put on hold because that was actually...

Oh, by all means not. No, no, no. By far, no. By far, no. Look, we totally understand. It's nice to see that -- and you saw the second, let's say, content slide of our presentation, the track record over the last 5 years, what the revenues of Purcari have progressed 2017 to 2021. So it's great to see that we organically can generate that growth of a CAGR above 20%. That is fantastic. So from one perspective, you're saying that, look, just keep investing in your organic growth. Keep investing in marketing, keep investing in your production facilities. If your brands can generate that growth, just keep going. So that would be one way to approach it. But of course, we also understand that we have retained earnings. So half of them -- we are close to half. We are issuing dividends with them because we want to do that. We believe it's correct. Then the other ones, we're using for CapEx investment and we need to also use for M&A to accelerate this growth. So we're happy with our organic growth. But of course, we want to accelerate the growth of the group overall. And that has to be done for M&A. So by all means, we have not postponed our efforts. Good. Well, look, if there are no other questions, you can always write to us, by the way. [email protected]. So always feel free to ask certain questions. We'll answer, of course, within the limits of what we're allowed to answer. And thank you for your attention. Thank you for being here. And I hope to actually see you live sometime soon. We'll see what the -- maybe you have some -- as you can see, Vasile also mentioned and I also mentioned that we are quite confident that we are safe here -- premise here, and -- but we can understand that maybe some other people that are not in Moldova, they do not feel the situation as we feel here, may have some reservations. So what I was going to or hinting towards is to have an investor event at Purcari. We would have liked to do that this year and to see most of you live at our chateau. But we're hoping that the situation in the region will calm relatively soon, and then we'll look forward to organize an investor event at the chateau. And then for sure, you'll be able to taste that new Academia Purcari, unless you decide to first see me for that. So look, thank you again for being here, and I wish you all a very nice day.

Thank you.

Thank you.