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

So I hope everyone can hear me. I think that's a yes. Yes. Good. Okay. So there are many slides and quite a bit of interesting information. I'll try to go quickly through the presentation. And at the end as always we'll be happy to open for questions and to have an open discussion with you at the end. So these are the people that are today presenting from Purcari Wineries. I'll be the main presenter, but everyone is here in the call. So perhaps some of them may come into a discussion later at the Q&A stage. This is the agenda, so we'll give a brief information about the Purcari Wineries. Through this I'll go very quickly because we've used these slides quite a bit, so I'll try to be quick on time. Then we'll show the results for the 9 months of this year. We'll give you a bit of an M&A update. There are a few subjects there, Angel's Estate, Ecosmart and the rest of the strategy. We'll look at the guidance that we gave at the beginning of the year and how we're doing against this guidance and a quick look at the Purcari Wineries stock. By the way, before maybe I jump in, I'd like to actually mention that right now I'm in Bulgaria, I'm at the premises of Angel's Estate and right next to me Eugeniu Baltag is also here. We are already, of course, we've dug into the operations of Angel's Estate and doing what we need to do to get this company running. But we'll get into this later. So very quickly the overview, we still see ourselves as the leading large winery in the Central and Eastern Europe. Until now we were present in 2 markets with our operations in the Republic of Moldova and Romania. As of 10th of October of this year we can also say that our footprint is now in 3 geographies, in 3 countries with the acquisition of Angel's Estate. So you can see that before this acquisition, we were in this, let's say, cluster of, let's say a large area of vineyards. The first one in the Central and Eastern Europe with 338, that's the combination of Moldova, Romania, the area of vineyards of these 2 countries. Now with Bulgaria all these countries are connected with their borders. So we are in the area which is crossing 400,000 hectares of vineyards in this area. So we always say that if we wanted to start and to follow our vision of becoming the champion in the Central and Eastern Europe, we are in the right regions to do so. It's always -- I always find it good to talk with this slide for a bit and just very quickly, of course, it's unfortunate what is happening in Ukraine, the war is still going on. And just a quick look at the correlation between or the relationship between the stock price and our revenue, we pretty much managed to double the company since the company IPO-ed in February 2018. Despite that, of course, we understand there's a certain risk component in the setting up of the price of our stock. And today the share price is lower than the time when we appealed. I'll skip these slides. Of course, you know our quality is very high. You know that we are the most awarded winery in the world in 2021 and we still keep on receiving many awards. In fact, there's a slide later in the presentation. But let me jump into the results, the personal results for 9 months. Just -- yes. One second. Good. So this is a high-level visual representation. Here we are showing the results for the group overall. In revenue, the revenue increased from RON 166 million to RON 199 million for 9 months. So it's a 20% increase year-over-year over the same period of 9 months last year. Overall, great result. You will see that it's a combination between what we call the core business. So basically it's our wine business and the chateau and the combination with the Ecosmart business which also contributes to this revenue growth. On the EBITDA side, we increased our EBITDA year-over-year to RON 60.7 million. Now it's a plus 4% increase. Again, there's an impact of Ecosmart, relatively small though, but it's a relatively small negative impact from Ecosmart on the EBITDA side. And the normalized net income has increased by 1% to 35.4%. Why we call it normalized because last year in the 9-month period, we've incurred a benefit or we've had a proceeds from the sales of the GCC stake and we received around another EUR 1 million in the period. So in order to see apples-to-apples, we've normalized it and so the 9 months of '21 was 34.9% without that contribution and we now we are at 35.4%. Just to note that in the presentation that we issued and published, we'll issue an errata, we'll adjust the graphics and the numbers with the normalized EBITDA because it was a last minute decision to introduce this normalization versus the GCC contribution of last year and deduct -- normalization has squeezed or has somehow managed to get itself to the EBITDA, but that does not how it's supposed to be. So we'll do an errata, we issue a new document over this. When we speak about the wine segment because, again, we're trying to do as much as possible apples-to-apples. And we've always mentioned that we have a commitment towards our investors to delimit and to give as much visibility as possible into the wine business and into the Ecosmart because these are in a way separate businesses and in many of the analyst models, maybe those figures can ruin a bit the model. So we are taken this commitment to give you as much visibility into the wine business and to the Ecosmart business separately so you can do your figures and calculations. So now if we were to go again to apples-to-apples, so we're comparing our wine business from 9 months of last year versus 9 months of this year. Revenue has grown 13% to RON 186.6 million. So the contribution of Ecosmart was RON 13 million. The EBITDA is up 6% now, so to 6.7% from 57.3%. And this normalized net income is up 7%. Now I'll cover this fairly quickly because we have many slides that kind of overlap with the information. But overall, you see that organic -- through organic growth, we are showing strong organic growth in fact, within the guidance and we are managing to have strong margins. Overall, we are in this period of inflation and we can call -- you also maybe an energy crisis situation, we are prioritizing to have -- we are prioritizing margins over volumes and that has -- this has shown in the numbers for various countries where overall we are growing. If you were to speak just about the third quarter, plus 27% increase, so we had a strong quarter. All the markets relatively are doing well. There is maybe the Central Europe, Czech Republic, Slovakia, the Baltics and of course Ukraine if you look at the 9 months has had an impact, even though in fact Ukraine you take just the 3 months has shown a growth versus last year. So that's encouraging. But of course, we are fully aware of the situation that's happening there. So overall, when we look at the margins, we see that we've managed to cope well. M&A, you all know we've acquired the 76% stake in Angel's Estate. It's a beautiful winery in the center of Bulgaria with a strong market share, strong sales, good positioning. It's just that there's some work there to be done to turn it around and I'll speak about this for a bit. And this year we've continued to award dividends, RON 0.51 per share. It was awarded, it was paid on the 7th -- on the 8th of September. This was a 5.51% yield on that date and in the -- through a registration we received quite a few questions about what our policy -- dividend policy will be going forward. I'll repeat, I'll repeat it. Our policies will always remain to pay up to 50% of the net profits generated by the company in the previous year. And this is something that we want to do because we measured the word disciplined. We need to make sure they create the cash flow and the profits to award our investors. And in the same way that we have a positioning to our customers, that affordable luxury, it's also that we have a positioning towards our investors. And towards our investors, we want to be seen both as a growth company that generates growth, has a large CAGR growth which we have and will generate yield through the growth of the price of the shares. But also a value company which has strong margins and generate profits to award dividends from its operations. Also on the investor side, so we've maintained high liquidity. We are the second most relative share relative stock on the Bucharest Stock Exchange. With that we've maintained our position and our presence in the FTSE Global Micro Cap Index. We've held an Investor Day at Decatur, it was great to see many of you there. I hope this was a beautiful experience for everyone that was present there. So it seemed and we hope to see many more in the future because we plan to repeat this event going forward. Going a bit more in depth here. So here we show both the 9 months and the third quarter alone. Again, top line revenue RON 199.8 million for the 9 months, RON 75.9 million for the third quarter. So over 9 months it's a growth of 20% over the third quarter, 27% growth. The gross profit, it's a gross profit margin of 45% for the 9 months, 42% for the third quarter. This, of course, also includes the business of Ecosmart which a bit pulls the gross profit margins down if we did here a quick calculation. So just for the wine for the third quarter, for example, just for the wine we had a gross profit margin of 47%. But we'll see the 9 months in the next slide where we split the core business and the Ecosmart business. So overall we're moving down. We have an EBITDA of RON 60.7 million, a 30% EBITDA, despite again the negative contribution of Ecosmart which is fairly strong. For the wine business -- for the wine business RON 60.9 million which was a gross profit margin [indiscernible]. Quarter 9, so pretty much the same EBITDA margin for the third quarter. So overall, EBITDA margin is going to be stable which is a good sign. And we are showing also very -- we believe that in the conditions that are around us, a very strong net profit margin for the 9 months at 18% when we do apples-to-apples. Of course, we removed that contribution from GCC sale of last year. So 18% of 9 months, 90% in the third quarter. So overall, it's a strong business performance. Now splitting a bit the wine business at Ecosmart, we showed here just in 9 months. So you've seen that the -- you see here that the contribution of Ecosmart to the revenue was RON 13.1 million. Gross profit of -- gross profit margin was 25%, obviously pulling down a bit the gross profit margin for the overall group results. Wine business at 47% gross margin. It's very, very solid. Then moving down we look at net profit. So Ecosmart is pulling down a bit at RON 0.9 million, but that's this negative RON 0.9 million, in fact, it will be credit to the first half. So if you mentioned that -- if you remember that we mentioned that the -- let's say, the negative impact of this cleanup that we spoke about of Ecosmart has already been done. So pretty much a line has been drawn. Sure, there may be some a bit more cost incurred with some lower because of the open cases that we have there as far as the cleanup. But overall, operationally it's strong and you'll see that we have a plan for this. And in fact, the company looking back at the track record has a good track record with very large top line revenue and with a strong net profit generation. So we're looking to bring that business back to what it can do. So just for the wine business, again, 19% net profit margin. This is a very strong number. So despite the situation in the world and in the region, we believe that this is a great -- very successful for the 9 months so far. A quick look on the balance sheet. Balance sheet looks very healthy for us. This is an important aspect. We've received quite a few questions regarding -- well, they were kind of related to the buyback and maybe we can go into this in the Q&A. But around the capital allocation, what is the plan? What would be the reason that we don't proceed with the buyback? By the way, regarding the buyback I think it's worth to mention that when the buyback was approved at the AGM, it was not necessarily the buyback itself. It was the option of buyback. So just to be clear because I have the impression that many investors have had the impression that the company has or the AGM has approved a buyback and the company has asked for the approval of an actual buyback process. No, the approach was more -- we pre-approved the option of doing a buyback should we be in the position and believe that this is the best course of action to go forward. Now being -- looking at the situation, we understand and I'm sure that you also understand that having a strong balance sheet in this period can be a good thing for the resilience of the company, first of all. But secondly it's also to take opportunities or to make use of certain opportunities that arise in the market, perhaps also on the M&A side. So that's why we believe that having that ability to finance transactions and M&A transaction is important in the period to come. So looking now at the numbers with -- when it comes to the growth of revenue per each country, so Romania plus 11%. Romania overall doing very well. All the brands are doing very well. Ceptura also contributed now with double-digit growth, Purcari with a single digit, but continuing its growth in Romania and Bardar almost doubling over 9 months in Romania which is encouraging because now Bardar is actually -- Bardar in Romania is actually becoming quite a strong revenue and profit generator. Moldova now at 29% growth. So here, all the brands are performing very well. We've reported I think in the first quarter plus 40%, plus 40-something percent, I don't remember exactly the number. In the third quarter there was still growth, okay, maybe not as strong as in the first and the second quarter. But overall, very, very solid growth of plus 29% across all brands. So Purcari was the one, Bardar the all -- showing a strong performance in Moldova. Poland, plus 11%. Here again, we see very strong -- very strong performance for both Bostavan and Purcari. Of course, Bostavan is the large revenue generator. Bostavan grew at around 7% for the 9 months. The large -- well, a good portion of this growth was in fact a price increase and a bit of the sales mix. So again, it just reiterates that approach that we prioritize margins over volume. So volume was pretty much flat at Bostavan in Poland. And Purcari grew by almost 50% in Poland. Again, this is encouraging because Poland is a large market and for us to create a new pillar of growth in Poland and especially a pillar of growth which is Purcari which also is a good margin generator is important and it's encouraging to see that overall Poland with the plus 11%. In China or Asia overall plus 56%. Here again, all brands across the board are showing a strong performance. Purcari nearly doubled versus last year. Bostavan plus around 30%. Bardar also nearly doubled versus last year, so. Sure, China -- I'm always mentioning this, the China is a continuous work. It's not that -- it's not the type of market as there are other markets where we have a few stable, very stable relationships with importers and distributors. It's a more of a market we will work with multiple distributors and it's continuous work from the sales team to generate sales over there. China perhaps has also taken a bit of a different approach in managing COVID. They had this -- they have -- I'm not sure they still have it, but they have this zero COVID approach which still meant quality restrictions. So we have to see how China will open up and how this will help or not our sales. Ukraine -- well, let's go to check on Slovakia. So minus 10%. Here the positive news is that Purcari sales nearly doubled, of course, from a much lower base. The Bostavan sales lowered. And that's again, it just shows that in this time of, I don't know, a price or perhaps even a lowering pricing power of the consumers, in fact, the price sensitivity of demand, it's more in the lower segments. We are more in the mass market in Czech Republic with Bostavan, then in the upper segment. Purcari pretty much growing across the board. And here we notice that we have a slowdown. Further maybe a drill down here is that we combined Czech Republic and Slovakia. In fact, Czech Republic has declined a bit more. That's still the Tesco, that we still get impacted by Tesco. Slovakia has in fact has shown positive here. So it's a mixed bag of performance here. Now Ukraine, it's minus 50% on a 9 months level. But the positive news is that the third quarter we've reached a plus 4% increase. That's great to see. Of course, nobody -- we're not kidding ourselves, we know that there's going to be maybe some delayed orders. There's still a war in the countries. We are still active in supporting the Ukrainian people through the creation of Purcari Foundation. We have some projects that we have donations from our partners. So despite just doing business, we also feel that we have -- we can also contribute positively to the people of Ukraine. And the rest of the world, plus 7%. Now looking at Purcari, Bostavan, Crama Ceptura and Bardar, just these brands on a brand level. Purcari plus 16%, Bostavan plus 8%, Crama Ceptura plus 3% and Bardar plus 17%. Again, it's a mixed bag of performance. I've pretty much covered this in previous slide. Good. So now also part of the operational update. We -- for us it's important to on one hand protect our assets and one of our main assets are our vineyards. As we see that more and more there's this climate change and the warming of the climate, it's far more is -- even more now important to install irrigation systems at our vineyards. So we've done that at Purcari. So as of July, all the Purcari vineyards have been irrigated and that has actually helped already with the generation of the yield and also the quality of the grapes. So just to be -- for everyone to understand, it's not only quality, but actually quality because you are able to give the plant just the right amount of humidity that it requires to be optimal in its quality as well. So we've installed the 2 large storage pools among the vineyards, 11,000 cubic meters and 24,000 cubic. This in fact allows us to irrigate another 200 hectares of vineyards as we plan to further increase our vineyards at Purcari. And due to the fact that the breakeven from this project is extremely -- the period is very low, 2 to 3 years, we are planning to do this at the Bostavan vineyards, around 600, 650 hectares of vineyards there as well. So we plan in 2023 to launch the irrigation project at that wine -- and those vineyards as well. This will give us protection. This will give us strong yield and even sort of a negotiation power in the market when we're acquiring third-party grapes. Speaking about the yield, 2022 was a fantastic year when it comes to our harvest. Over the, let's say, during the Investor Day and the 6 months reporting, this was a question. Overall, we were seeing already due in the year that the yield will be good. Here you see that we've managed to collect 12.3 million kilos of grapes from our vineyards and we also had a positive or favorable pricing for third-party grapes. So we've bought 21.8 million kilos of grapes this year. This was to supply our needs for production and sales at the winery, but also to create a stock or distillation at Bardar. So overall, the harvest was strong. With the irrigation of Bostavan vineyards next year, we should be able to almost have a reliable figure around this figure year-over-year when it comes to the yield and perhaps even larger in the future. We keep on investing in the different areas. Now energy, this energy crisis is a topic. Our investment in the solar panels come -- they become even more timely. It's an annual production of 240,000 kilowatts. It's around 50% of the needs -- electricity needs at Purcari Winery. We want to keep on doing this because, again, if you look at the ROIs and the breakeven points of this kind of investment projects, they're not necessarily towards our product, but they have this financial component or this financial return component. And given again, the good ROI and the breakeven point of this solar panel investment, we want to keep on investing and keep on installing this kind of solar panels at Purcari, but also at Bostavan. Bostavan in fact to be the roofs now are almost optimal for installing solar panels. So we want to keep on doing that. At Bostavan we have this internal target that's somewhere around maybe 5 years, we want to reach to be able to supply 80% of the electricity needs just from solar alone. And we've mentioned this a few times, but since we speak about growth and sustainability, part of the growth is to have a warehouse that can allow the logistics of large sales in Romania, but also in Europe. So we build this at Crama Ceptura. It can store around 1 million bottles and this will allow us to streamline and to be more efficient and more cost-efficient when it comes to our logistics towards Europe. We don't stop when it comes to products, we actively invest in products. We look into new categories and we -- I think we're doing very good at that. From the left side when we started to Purcari [indiscernible], it's an amazing success in the Romanian market. Now it's also on the Moldovan market. The wines are incredibly -- they are really incredible. Yes, they are a bit more costly, but they also sell a bit higher. They are more costly because the collection of the grapes is happening there early in the morning while it's still dark. Thus comes the word the name Nocturne. Nocturne also connects to the fact that it's a Horeca. So it's more an evening consumption occasion. So it's a beautiful name, but also a very successful product with a very fantastic wine inside those bottles. Academia Purcari a newly launched product, newly launched project. These are wines that are indicated in amphoras, fantastic success. It's a very limited edition wines, around 20,000 bottles. But top of the range, so relatively highly priced. Then we have Native and Prociano. Native is -- it's a new -- I cannot call it yet biological, but it's vineyards that we -- are in the process of receiving the biological certification. And next year, we are looking to have these ones already called biological. And basically, it's our new line of going into the -- this organic product which is something that's growing around the world and we're sure that this will have success as well. And Prociano also a more healthy spectrum. Prociano in fact is a 0 alcohol wine, it's very high in this flavonoid across any deals which helps the cardiovascular system of the body. So it's a 0 alcohol. It's high in this flavonoids and it's also low calorie. So the team also worked on to making sure that it's a low calorie so that we cover all the basics of calling it a healthier product. This -- we're about to launch this product. I think it's being bottled, or the first batch has been bottled. And we are targeting, of course, Western Europe and Northern Europe, which where this kind of -- the demand for these kind of products is a growing process. And then we are entering also different segments when it comes to lifestyle and the profile of the customer. This new product Wine Crime, you know about it, but now we're also launched in Moscato and we're about to launch sparkling series as well from this brand. And last but not least the 25-year Bardar, great success and an amazing branding. It is one -- the #1 spot in the world in the branded competition. So it has been awarded the taste master of the world. So this a fantastic achievement. You see all of our products are becoming #1 in the world. So Purcari had become the most awarded one in the world in 2021 and our Bardar Brandi has become the #1 in the world in this Brandi category. So I was just covering this, how fantastic we are doing at international competitions. Here you see that we keep on winning Grand Gold with the Rose. We were awarded Wine of the Week by Jancis Robinson in the U.K. She is the most known wine critic from the U.K. So to be awarded the wine of the week, this is a fantastic achievement. #1 in the world with Bardar, Best Producer from Moldova, [indiscernible], fantastic result to be mentioned with Negru de Purcari and to be awarded by the counter Negru de Purcari being the top 50 classic wines of 2021, fantastic achievement and we continue to be top 10 best sparkling wines in the world. So of course, this is important to have this recognition. We are slowly but steadily we're building our awareness and perception, not only in the regions where we're strong. We are now penetrating the world, Europe and the rest of the world. And getting this kind of recognition is important because this is how we are getting to the -- not only to the consumers, so we're getting to the world consumer, but also to the world buyer and distributor. And we're doing that with, let's say, calculated costs. So we're not -- you can imagine that to try to build brand awareness through just throwing money at it, it's quite a expensive adventure. So this is the better way of doing it. Just having good quality. We're staying relevant through different events that we're supporting and that we're doing. We've been a sponsor at the Chisinau Big Hearts Marathon. We're doing this famous Winemaker's Competition in Moldova. Our brand DOR did this flash mob at Independence Day for Republic of Moldova. We were happy to see at Investor Day earlier this year. We are supporters and we have this philanthropy through the now Purcari Foundation at Hospice Angels, but also at other charities such as [indiscernible], so is Child Community and Family which is part of the [indiscernible] maybe know it as HSC, so it's a known organization around the world. And congratulations to the team at Purcari, Purcari became the -- let's see, it was awarded the Wine of the Year at the Moldova Wine Day this year. Now moving into the M&A update. So as always promise, we want to give you as much visibility into the situation with Ecosmart. So just starting from the back, you can see the historical financials of Ecosmart. You see that revenues has reached RON 85.8 million in 2020. With that growth though, in that year the net profit has decreased. Those were the first signs that something is not going well at Ecosmart when it comes to how it's being managed. At that time, Crama Ceptura had a 27% stake in Ecosmart. The first -- the, let's say the initiation of cleanup and the investigative audit was started and then some civil and criminal cases were opened at that time against the administrator. With that situation, we decided that in order for us to be able to better protect our investment and to actually contribute to some kind of a turnaround of this company, we saw the opportunity to increase our stake in the company to 65% or 75%. Worth to mention that this investment overall in 65% or 75% of Ecosmart cost us RON 450,000. This is quite a small amount I would say for the protection of the company. So overall, we would see this as a great deal. The final cleanup was done in the first half, we saw the final cleanup being done. Back then we reported RON 8.9 million of revenue and a net loss of RON 1 million. You can see that RON 0.9 million net loss is maintained for 9 months. So basically the third quarter was pretty much flat. This already is let's say, an inflection point. And we now -- the operations are cleaned up. So the plan is not to run this company as a proper revenue and contribution generator. So the plan is -- first of all, it's recover the misappropriated funds. There are ongoing court cases for that, that's why we still have some kind of -- we're incurring some costs with lawyers. We need to regain the larger customers. We need to get that revenue to where -- to the level where it was, maybe we reach first will reach RON 20 million, maybe then -- per year, then we reach RON 50 million, then may reach back about RON 85.8 million. There's a team that is working on this. And we also need to set up a independent management team which we are in the process of doing is pretty much the process done there. And what are the options for Ecosmart in the future? Well, we have 3 options what we do with Ecosmart. Number one is we would reduce the participation of Purcari into the Purcari Group or Crama Ceptura into the Ecosmart to below 50% and below 50% stake with the independent management would mean that we would not consolidate the results of Ecosmart into our consolidated group results. This again will bring back the visibility and let's say the figures will be focused on our wine business because this would also mean that we can maintain our message to investors and perhaps also the -- what investors will be looking for when it comes to exposure to the wine business. So until now our message was that we are a fast-growing company. We have -- we're highly ambitious and we have the vision of becoming a champion in the Central and Eastern Europe while being also there a business with very high margins, 33% EBITDA and around 20% net profit margin. So doing -- reducing this contribution to 150% would get us into that maintaining that message. Number 2, or b) in this present here of the options would be to divest the business. And we can then use these proceeds to, of course, [indiscernible] first, clean up, making it an attractive business, divest it. And then use the proceeds to either invest in growth or to award extraordinary dividends to our shareholders. And the third one would be to perhaps maintain the stake because maybe the business is very good. It has a good contribution which we believe that it will do. But in the meantime to ensure that we allow full visibility into the business so that investors have a full understanding of the company and are able to segregate between the wine business and this waste recycling business. Moving on to Angel's Estate, I'm speaking today from Angel's Estate. It's a beautiful winery. It's a full cycle winery which means that it produces its own grapes, it process the grapes. It does its own [indiscernible], it does its own bottling and it has its relationship with the sales channels in Bulgaria. Here the -- it's a positive -- it's a good structure where the company has direct contracts with the key accounts. So Kaufland, Metro, [ Bila ], [ Fantastic ] and so on, these are the big key accounts here in Bulgaria. But also works with the distributors for supplying into Horeca and fragmented trade in Bulgaria. Overall, the situation is, let's say, on the top line and the fundamentals of the business, the situation is good. At the moment the business is producing -- so historically the business has been producing negative margins. Just to give you an idea because it was also one of the questions. So the 2021 revenue for Angel's Estate in RON was RON 13.5 million. For the 9 months, we -- so the Angel's Estate is now producing RON 11.5 million and that's a 38% for 9 months, the revenue grew 38% versus the same period of last year. And we are estimating that the company will finish the year with around RON 15 million in revenue. Now when it comes to net profit, so in 2021 the company generated a minus or a loss of RON 1.7 million. This was a minus 12.5% net profit margin and we're still forecasting a negative margin this year. So a loss, the company still make loss of this year. The consolidation of the results of Angel's Estate will be only for the fourth quarter results and you will see it in the unaudited financial results when we do it in the -- around February -- end of February next year when we report for the unaudited results of the group. That's when the fourth quarter will be consolidated into the group results. Overall, we do have a plan here. So even in this slide we mentioned that there are some quick wins that we've identified even in the process of the due diligence and the negotiations of -- with the sellers. And some of them are -- I can actually mention because they're -- some of them are -- how can I say, they are very clear and it's very -- we can focus on them quite quickly. So the first in efficiency was in the agriculture area where the company was producing a yield of around 2.73 tonnes per hectare. You can see that in the previous slides, we showed that we as a group we produced 12.8 million kilos. That's just under 10 tonnes per hectare. So the inefficiency when it comes to this is relatively high. So the Angel's Estate is producing 3, we need to bring it to 10 tonnes per hectare. And the cost of the operations in the vineyards are almost double of Purcari Group. Okay. We took Romania which is perhaps maybe a bit higher than Moldova when it comes to cost in the vineyards. Nonetheless it's still almost double than that. So there's a lot of efficiencies there. Now this is -- let's say, the first project that we'll be working on. This will take maybe 2 years to fully clean up the agriculture area because the work in the vineyards need to be done correctly. Anyway, I will not get into all this. But the positive news is the following, that if today -- the company would not have this inefficiency in agriculture, today the company will be profitable. And given the fact that we are -- we'll implement this, but there are also other things that we can improve with the company. For example, it's commercial agreements with key accounts that there's a lot of work to be done there and also working on the product mix, on our brands, generating faster growth, plugging Angel's Estate into the Purcari routes to market, bringing Purcari into Bulgaria through Angel's Estate under the same model that we have with Crama Ceptura in Romania. So all of these added up, we are looking to relatively quickly turn this company around, turn profit and have a new pillar for growth in separate regions. It's great for our salespeople when they go internationally. They have another region that they can bring in the portfolio and we are very confident that we can turn Angel's Estate into a national champion here in Bulgaria. Besides Fantastic Wine that it does and the good thing is that the quality is very high. The pricing is correct. So in the long term, the average prices will be between RON 25 and RON 30 or maybe between RON 25 and RON 35 on the shelf. That's good, decent pricing on the shelf. So besides all these fundamentals being in place, the company also has a very high potential to become a point of interest. It's very beautiful here where I am. It's situating the central of Bulgaria and the building allows for -- depends how present we want to go. But for sure, some Horeca component with at least a restaurant, but potentially with the hotel and need to Chateau Purcari. So of course, we are in early days. It's just over a month since we've taken over the company. We are -- we already have a strategy in place, but obviously, there's more work to be done and planning of what needs to be done in the future for this company. But overall, we are very happy with the acquisitions that we've done and to pray this new pillar of growth in Bulgaria. So now that we speak about M&A, of course, M&A is an important component of us becoming a wine champion in Central and Eastern Europe. And what is the formula, how we're going to do? The first number one is we need to make sure that we are growing both through organic and through M&A. We will always focus on the fundamentals, you know that. So the yield even to U.S. and investor must primarily come through the fact that we are generating top line growth and bottom line growth while delivering what we call affordable luxury, so we're staying true to our approach and to our strategy. An approach is to create in every country where we acquire a player to create a local champion. We have the formula for this. We have the tool for this, we have the know-how for this. We can bring this know-how to a newly acquired a company. And this is part of that route becoming champion in the CE. Of course, we need to aggressively expand in other markets through exports. So even though we do have operations in the market, we can still take it aggressively through the sales teams and if we're building local sales teams. We are very innovative in our product portfolio and we will keep on doing that. Focus will always be on premiumization. And now that we are expanding our region, but this is all rating. So for example, from here to Bucharest is a 4-hour drive. Now we can -- we -- overall, as a group we can create synergies and efficiencies when it comes to, let's say, procurement. We are not negotiating cost prices for glasses for example, for labels. We obviously have an advantage when we are large, but also at commercial management and new production. We -- this is an interesting one. So we see that -- we mentioned this a few times. There was the old world with France, Italy, Spain and Germany. Then there was a new world with Chile, South Africa, Australia, California and so on. There was a wave of adoption among consumers around the world. Now we see this as, we'll call it the new frontier world of wine which is Moldova, which is Georgia, which is Bulgaria and Romania. And we want as a group to become the leader in that category of this new frontier world. When this gets adopted and the way it is going, it's in our favor, we want to benefit from that. And of course, ultimately we want to achieve through some kind of metrics that status of champion, undisputable wine champion in the middle -- in the Central and Eastern Europe. Good. So going a bit to the guidance, we gave the following guidance at the beginning of the year for 2022. So revenue growth between 15% and 20%, revenue growth just for the wine business between 10% and 15%. EBITDA margin between 20%, 25% and net income margin between 10% and 15%. You see that we are on the top of this spectrum with 20% growth for the top line. The contribution of [indiscernible] margins there. We are in the middle of our guidance for revenue growth of just wine, so plus 13%. EBITDA, very solid EBITDA margin of 30%, so above the guidance and solid net income margin of 18% above margin. We're going to maintain this -- sorry, above guidance. We'll maintain this guidance for the rest of the year. Again, we are -- we understand the complexities of the situation. There's a potential energy crisis and I'm sure you have questions about that. There's this war in Ukraine and overall, perhaps a recession coming our way. So the percent of our consumers may further go down. We still believe in that lipstick effect that we keep referring to where in terms of prices, the consumer may perhaps forego some more expensive luxuries like buying a new car, going on an expensive holiday. But they will compensate that lack of those extensive luxuries with more affordable luxury and that's exactly what we call our positioning and our business model, affordable luxury. So somewhere perhaps the price may actually help us, but we're yet to see that. So we remain prudent and we will maintain this guidance for the rest of the year. Quickly on the Purcari Wineries stock. You see here what I mentioned. So we started with the index of 100 from our IPO, we are now below. So we are 93 out of 100. So despite the fact that, as you can see we've maintained our margins while growing the business pretty much double the business. But we understand that there is somewhere a risk component into this pricing. We've always -- we've increased our -- the share of retail -- the retail investors, I think we're around 15%. It was around 3% in 2018 or maybe the beginning of 2019. So we believe that this was important. It also makes as a company better communicating with investors. But also, in fact, it's the investors that are creating the transactions, the bulk of transactions and setting up the price. At that time, this was a good strategy because the company was going up. Of course, now with the situation in Ukraine, perhaps it worked a bit against us when the regional investor is a bit more risk-averse and now that the price is where it is. But overall, we keep on doing our business. We'll keep on growing the business. So we know that eventually the share price we have to adjust to the business performance. When it comes to liquidity, so we're still in the FTSE Russell, all cap and the micro cap. And we in terms of relative terms, we are the second most liquid company on the Bucharest Stock Exchange. And certainly when it comes to peers, we are one of the cheaper ones, peers, I mean other wine companies or wine groups that are listed on the stock exchanges. And when it comes to other companies at the Bucharest Stock Exchange, in fact, we see that I think it's probably a good time to invest in Bucharest Stock Exchange, the multiples are fairly low. So we're also on the low side when it comes to the multiples to the PE multiple on the Bucharest Stock Exchange. This is a scatter chart. Well, in combination of a price-to-earnings multiple versus the CAGR. You can see that we are showing a very strong CAGR, just down to 20% over the last 5 years or so while we're actually low priced, we are 7 point-something price range multiple. Good. This was the presentation so far. I'm opening the floor to questions, please.

Congrats for the results. I was wondering as I wrote on the chart, what do you think about the margin evolution going forward because we saw a little bit of a little problem there. So how do you look at next year?

Well, it's also in the guidance that we are giving. So we do see that we may have some certain impact on the EBITDA level. Overall, I think we are quite strong when it comes to maintaining this margin and also it comes from the fact that even when we are impacted into the lower-priced product segments that are being impacted, that's where the price sensitivity, there's more elasticity in the demand when it comes to price. But of course, we understand that it will be impacted from -- still impacted from the higher cost of energy. So I can even give you the net impact, the delta of energy cost for this year, it's looking to be at around 1% of revenue. So that's the impact of the increase in energy prices this year. So that's 1% or 1 percentage point and we're still carrying maybe some more expensive inventories from the years when we had the drought in 2020, we had a higher cost of the party grapes in 2021. But the positive side is that this year as we -- as you saw, we had a good -- very good yield and we had 2019 price levels of third-party grapes which means that already as of second half of 2023, we'll see the benefits of this improvement in COGS and we'll continue in 2024 with the grapes, so. And as we invest in irrigation, we will have that is more controlled and for customer foreseeable cost level when it comes to third-party grapes. But overall, look, in the long run we're still looking to be at around 30% EBITDA margin and 20% net profit margin, we're speaking about the wine business.

And this is a little bit more conceptual market and is actually targeted specifically to [indiscernible]. How do we feel about saturating the market versus over-saturating the market? Because whenever you look on the shelf, there is a Purcari product. This is good, but when do you see some cannibalization between the premium product and the, let's say, middle priced product or the lower-priced product because they are more or less exactly the same brand? I understand Ceptura is different. I don't know how you position this Angel. But from a marketing perspective, what do you think?

Well, here you're speaking about Romania. And in fact, I think about it this way. The Purcari Group has just around 10% market share in Romania. This is relatively small. So when it comes to the opportunity to generate further growth, the opportunity is still there. Purcari, Purcari by itself still has ample room for growth we believe. And remember that our growth comes from both the ability to increase the price and to generate volumes, but Purcari on its own. But Crama Ceptura has space for growth because -- well, Ceptura is also the brand, is quite an extended brand. So we have wines that started around maybe RON 15, 16 and that extend to even up to RON 78 with [indiscernible] the Ceptura. So even with Crama Ceptura further moving into the higher pricing with the [ Chateaus ] that alone can generate growth on the revenue side. And in addition, we are launching new pillars for growth such as Domeniile Cuza. So Domeniile Cuza is a -- the purpose of Domeniile Cuza to cover the -- a certain price segment or perhaps Purcari is leaving behind. There will not be a cannibalization because the price segments will still be different. Still Purcari is Purcari. But in the wine segment, we still see that there's ample room for growth in Romania. Just on Romania, we're not launching the -- we're now creating strong growth in Bardar. So Bardar has all its ability to grow ahead of it for the years to come. So overall, in Romania if we speak about growth, we still we have many streams where we can generate this growth. In other markets, we have -- I mean, we barely penetrated Poland. We barely penetrated Czech Republic and so like we barely penetrated the Netherlands, U.S., Canada, the Nordics. So the nice thing about the Purcari business and in fact, I'm also sometimes comparing because I'm also looking at the -- I'm also an investor, I can say I'm also an investor on the Bucharest Stock Exchange. And one thing about Purcari is that it's an export business. Sure, we make local champions in the markets where we have operations and we are good at that and we keep on doing with Bulgaria next and maybe there's some other countries coming next. But we are also an export business. So in terms of growth, it's unlimited, the growth is -- comes to the fact to how good we are at making the testing wines, making them in a cost-efficient way, market them well and sell them well. The -- there's no limit for growth because we are an export business.

And if I may add to this, Eugeniu, with your permission. So we're still #4 player in Romania. So still #4. There's 3 larger players ahead of us. So as Eugeniu said just around 10%, 11% market share and if we look at our peers in other markets, say Concha y Toro in Chile has over 20% local market share, [indiscernible] in U.S., little over 20% market share. So clearly, we're -- our intention is to become #1 market share company in Romania and the target market share is around 20-plus percent. So that's our target which means there's still ample room for growth in Romania. In some segments, for example, Horeca we are -- we've just started really with Nocturne. In traditional trade, we're still relatively weak. Yes, we are strong with key accounts, but we still have lots of room to grow in other segments.

And actually, you should know with Black Friday actually I stocked up on not in present for Christmas. What about the Angel, where are you going to position that?

Well, the great thing about Angel's Estate that, we say whether by design or whether by circumstances, it has positioned itself relatively high, what we see as the correct pricing in the market. If it's by design, then great because indeed the…

But thinking about Bulgaria or...

We're speaking about Bulgaria. So now we're speaking about Bulgaria because the previous owners which are now the minority of 24%, the intention was to create a premium brand in Bulgaria which was good. So they've done all the correct investments. So all the correct investment when it comes to the winery, when it comes to the vineyards, the Traer, it's just -- we have the -- our Italian agricultural consultants come here at Angel's Estate and I'll quote, one of them said even Italy doesn't have this. And indeed, the Traer is amazing. So they've done all the correct investments. They've positioned the company correctly as a premium player. They have been struggling with managing the business because the owners, in fact, they are -- they have many other large businesses. This was sort of a side business. And this is what usually happens with -- wine is usually being created more something for the heart and for the soul. But when you do that, of course, there's room for mismanagement and probably somewhere this happened right here. This was, of course, a good opportunity for us to build a good negotiation situation with the sellers. And we have a -- on the market, the positioning is already great. We just need to sort out the internal things at Angel's Estate, that's number one. So the positioning is good as a premium player. For the international markets, it will be -- again, it will be as a premium wine. But look in our portfolio will be like, we are the Purcari Group, so the salespeople when they go and they do their pitch to buyers around the world, we are a large group, we are solid. We can create the best wine in the world because it's -- we have the most awarded winery in the world. We have wines from Moldova, we have wines from Romania, we have wines from Bulgaria. So this is -- in fact, there's been -- if you think this way, there's no cannibalization between brands in our portfolio because this is another -- the Bulgarian wine, you can call it a different segment. For example, even in Poland, Bulgarian wine is considered as a different segment. There is a Bulgarian wine segment, there's a Moldova wine segment, there's a Georgia wine segment. So overall, the positioning will be still as a premium winery.

If I may, I may have a couple of questions also and then going on Angel's Estate. First, you're saying that they have a bottling capacity of 1 million. But how much are they selling now? And just for us to have something to look at, what do you think you'd be able to sell in a couple of years, let's say and how much Purcari bottles did you sell last year just so we know exactly where to position it?

Sorry, I missed the beginning of the question. Are you questioning about…

Angel's Estate, so. Everything is…

Angel's Estate.

Yes.

Purcari sales in Bulgaria. Okay. So first of all…

No, no, Purcari sales overall in bottles because we don't know exactly how many bottles you're selling. We see sales, we see -- but I'm not really sure about bottles.

Well, [ Idana ] look, we are trying, in fact, to not mention the volumes when it comes to our results because in our -- so there are a few audiences for our reports. Of course, there's the investors which we always trying to give as much information as possible, but there's also our competition and our distributors and our partners. Now we need to be careful in showing volumes because once we saw volume, then it's easy to calculate the average price per bottle, per liter which may be -- we may be in a disadvantage when it comes to negotiating position with the -- so apologies for this. But we're happy to disclose the breakdown of revenues per market and per brand, but we cannot go into the volumes because, yes, this will show information that we do not want to show to the markets. So that's when it comes to Purcari and to Angel's. So again, the Angel's revenue in 2021 was RON 13.5 million. In that 9 months, 2022 the revenue for Angel's was RON 11.5 million and that's a 38% increase versus 9 months last year.

And what's the capacity? I mean, what capacity are they selling at right now?

So right now they are selling it in liters, that's around 800,000 liters. I've done the thing that I'm not supposed to do, is to mention liters. But okay. So we are just starting with this, so it's fine. That's around the level that it has sold. Matter of fact, let me see whether I be a bit more specific maybe with that. Wait a second, I should tell you. More specific because if I -- if I'm not specific, I may lead you in the wrong direction. So -- sorry, in terms of -- sorry, that was the -- that was units, those quantities. So in terms of liters, in 2021, 0.5 million liters, so 500,000 liters. And in 2022, see -- let me just remove the month, 10. So it's around 600,000, 620,000 liters at 9 months 2022. So you will see that revenue is quite high. If you were to revenue per liter, so RON 11.5 million.

But that's [indiscernible] of total capacity for the vineyard. I mean, you are looking to quadruple the capacity basically?

Yes. Yes. Yes. So we're looking to quadruple the capacity from the vineyard. So what will happen in the fall when it comes to the efficiencies in the agriculture. Right now the company is producing 2 points -- yield is 2.7 per hectare when it should be 10. Obviously, the other necessities is buying adding rigs or in third-party wine, number one. So first, impairment of the cost which is not supposed to -- number 2, it has a double costs in the vineyard than what it's supposed to. So that -- again, so they're spending more -- they were spending more in the vineyard and collecting 4x less yield. So double the spend, 4x less the yields, 8x inefficiency. Yes. So that we will solve. We have the plan for this. This is something that we -- it's very controllable because it's internal. The other thing that we need to fix is the conditions with the key accounts because overall, the key accounts are generating negative contributions to the business and that's the plenty of improvement there. Of course, we know that negotiating key accounts is not an easy thing, but we have our way, we have -- we'll come with a plan which is good for the winery and for the key accounts which we've done in the past. And if we come with a plan, then we should be able to have income there as well. But overall, so the investment in the Angle's Estate where now it's production capacity is around 1 million bottles, we are looking to increase it to around 3.5 million bottles and we are looking to sell by -- in 5 years by 2027, our first initial models, we're looking to sell around 3 million liters. In -- so in 5 years, we grow to 3 million liters.

And also we are reading a lot on Moldova and the energy crisis there.

Yes.

In case of an energy shortage, what would be the impact for the wineries?

Well, the energy shortage can be on 2 sides. One is the gas and the other one is electricity. So let's take the electricity first. So with electricity shortage can mean that during the certain time there is no electricity. What we've done to counter that, we have generators that can -- for days they can or even weeks they can generate electricity, definitely if we have the diesel. We've loaded with -- so we have loaded on the diesel stock, I should say, to allow for -- to have undisrupted electricity at the wineries. That's number one. So that's from the electricity perspective. From the gas perspective, in fact only Bardar is a gas-intensive production platform because it uses the heat for distillation. The good news is that should there be, let's say, a breakout of gas, the distillation can always be delayed. So we can do the distillation in December, we can do the distillation in January, February, March. So whenever there is gas supply, we perform the distillation. So just from breakouts of, let's say or from loss of access to electricity and gas, we are protected. When it comes to costs, I've mentioned that we are foreseeing that in 2022 the impact of the increase in energy prices will have around 1%, will be 1% of the total revenue. And looking at where the prices are stabilizing, so we see that the prices have stabilized. In fact, the Moldova National Bank, there's a forecast that the inflation has reached a peak and overall the inflation will be moving down going forward. And we've seen this also from European countries. So these are the 2 aspects. One is the access to energy and the other one is the inflation of energy cost price.

And [indiscernible].

Sorry, I cannot hear, Idana.

I was going to ask one more, but that's fine.

I have an additional question in the chat.

Sure. Which is -- which was -- which is the question?

[indiscernible].

Is there any marketing sales force engaged to have wines sold in Hungary, Baltic States, a geographical specialists in Europe? So the answer is yes for Baltic States. So we have a local sales manager, it's someone that's very experienced in the market. There's an x buyer of -- in some of those chains, so very knowledgeable to the market. But this is a -- it's a longer process to create the right commercial strategy for Baltic States. So the answer is, yes, we have someone there. For Hungary, in fact, Hungary is not necessarily a market for our wines for now. Perhaps we should look at it. But it could -- Hungary could be a target for an M&A given the fact that -- I would say probably many of the wineries will have a bit of shakeups during this period. That's why it's good to have -- to be sitting on a strong balance sheet and to see whether there are certain M&A opportunities. The one thing with Hungarian wine that when you look at overall price per liter, it's actually one of the lowest in Europe. So even Bulgaria, it's higher priced has a different perception as a country produce -- wine producer in Hungary. But also there are regions that are very famous for winemaking Hungary as well. So it's a mix there. But Hungary could be a target for -- or a destination for M&A transaction. Good. Well, look, if there are no other questions, then I appreciate your time. Thank you for being here.

I believe there is a question on the chart.

Sure. Sure. Sure. One more question. Okay. On Angel's, what time line do you envision to reaching the efficiency improvement targets? 2 years. 50% of this will be done already next year. And the other one that we see that by 2024, the yield of 2024 should be in line with group figures. And in fact, during the works we are planning even to bring workers from Moldova for multiple reasons. One is to do the work properly, but also we plan to have some active instructions for the workers here in Bulgaria on how to work the vineyards. But overall, it's 2024 [ Horeca ] should be in line with our group figures. In our models, of course, we build a lot. We have internal models that are looking at where the company will look in the future. We've been far more modest. At least I try to be more modest. And with all the modesties, the company is trading profit the latest in 2025, the latest. But with assurance from Mr. Bostan and Nicolae Chiosa, the Chief Production Officer and the other team is that by 2024 we are the harvest as we're supposed to be and the costs that we're supposed to be and the agriculture which means that in 2024 we are -- I don't like to say guarantee, but that's where we are turning the company profitable. We'll try to do that even in 2023, but again we are realistic.

Congratulations on good result. I would like to ask just a quick question regarding Angel's Estate. So about gross margin, with what gross margin will this business be consolidated in the next quarter and what gross margin should we expect from this business in the long term? It will be similar to Purcari's gross margin or lower, higher?

So estimates, estimates that gross margin consolidation of only the fourth quarter in 2022, so fourth quarter of 2022 of Angel's Estate will have a gross margin of around 21%. This is early estimates. In the long run we are looking to bring the gross margin to where Purcari is at around 46%, 45% -- between 45% and 50% gross margin.

Okay. Okay. And a quick question, considering we are at the half of fourth quarter and you probably have some visibility right now. Could you please give us some overview of sales growth by country if it is possible? And if you can form any price increases during recent months?

So there is still room for price increases because we see that the competitors are moving their prices up. So in certain markets, certain segments, we see that there's a gap and we don't want to give that gap away because if we don't fill it up, we either give it to the key account or to the customer and we want to keep -- take that gap to us. So there are some, we will continue to push forward price increases. That's almost guaranteed. And I can tell you that for the 10 months for the wine business, we have solid double-digit growth.

Are you going to source grapes at wine/primary wines at Angel's for other brands?

You mean for other brands within Angel's or for other brands within the group?

Within the group.

No. So in fact the production will stay separate. So there will be a production for Bulgaria, production for Romania, production for Moldova and there will not be any, let's say, carrying of grapes for sure because that's almost impossible to do overboard and it is far -- it is too far and most probably no wines as well. So we'll look to fulfill our demand needs here in Bulgaria. Okay. Well, look again, thank you...

It was really great as always. Thank you, Eugeniu. Thank you, Vasile, thank you, Eugeniu and everybody, it was really nice and it's as always one of the highlights of the reporting.

I appreciate it. We appreciate. Look we always -- we want to be as informative as possible, we want to bring value through these presentations and also through other events where we see each other. We want to maintain our 10 out of 10 vector score. So in case -- is the voting ready for the best IR company? I'm not sure if the voting...

[indiscernible].

So we want to bring value to our investors, not only through the good business that we're doing, but also through other investor-related or investor-directed activities which is -- these reports also are a part of. So thank you again. Thank you for your trust in us and look forward to either see you all here soon.

Thank you.

Thank you, everyone. Bye-bye.