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

So we can go live, yes. Okay. Great. Welcome to everyone, and welcome to the presentation of the unaudited results -- financial results for 2022. As you know, my name is Eugeniu Comendant, and I have here other presenters with me. We have Mr. Victor Bostan, who is the Founder and the CEO of the Purcari Group. We also have Victor Arapan, the CFO; Eugeniu Baltag, the Head of Investor Relations. We also have Victoria Moldovan and we're very happy to include her here as Investor Relations Officer. And of course, we have Vasile Tofan, Chairman of the Board. Again, happy to include Victoria and from the [Technical Difficulty] I'll take one short second to congratulate both Eugeniu and Victoria for [Technical Difficulty] while meaningful the Q4 2022 operating results. We have a -- look at how we performed versus the guidance of 2022. We look at the Purcari Wineries stock, and we'll shortly talk about the ESG impact of Purcari Group. So shortly about the Purcari Group, we continue to probably say that we are the most awarded winery in 2021. We continue to receive awards. We continue to be the most awarded winery in the Central and Eastern Europe at the country between the years of 2015 and 2022. We have -- through M&A, we've increased the area of our vineyards to 1,450 hectares. Now we have 3 countries. It's Moldova, Romania and Bulgaria. And we are proud to have among our institutional investors, yourselves, companies such as Horizon Capital, Fiera Capital and others. As I was saying, we are proud to say that we are a group now with a footprint -- with an increased footprint, which also covers Bulgaria. Because as you see here on the bottom right, we have a new acquisition, which -- it's a company that we've acquired 76% in. We've acquired it in October of 2022. This is Angel's Estate. It's one of the leading wineries in Bulgaria. It's in a fantastic location in the Central of Bulgaria, it's a known wine region. And the purpose of this M&A is -- first of all, of course, is to do a very good M&A and we'll see that actually performing a good and actually has some kind of impact on the P&L, as we'll talk later in this presentation. But ultimately, the goal of acquiring Angel's Estate, but in fact, any other winery in other geographies that we may go with M&A is to create a local champion in that region. This is a good slide because it shows the Purcari Group at a glance. The table on the top left shows the fact that we've been able to grow, consistently grow the revenues of Purcari Group, and in fact, grow the business, so not only the revenues but also EBITDA and net profit and the earnings per share. So we've IPO-ed in 2018. And if you look today, we are RON 302 million of revenue. We more than doubled the business -- since the figures that we presented for the IPO. We generated a gross profit of RON 131 million, an EBITDA of RON 95.5 million with some adjustment, which we'll talk about it later, and a net profit for 2022 of RON 57.2 million. That equates to an earnings per share of RON 1.32 per share. We also put a slide on the -- sorry, we also put a chart which shows the growth of the revenue that I've mentioned versus the share price. Unfortunately, if we look now at the share price, we are below the IPO, but we all understand the reason for this. Of course, we cannot avoid the war that's in the region. Overall, we are -- in general, we are optimistic and we are hoping that soon this word will end. And so the attitude of or, let's say, the perception of risk that investors have in our stock. You know very well the -- our business model, which is affordable luxury. So affordable actually means that we offer really top of, let's say, one of the best wines in the world because we are the most awarded winery in the world. While we still sell mostly in premium segment, premium in Central and Eastern Europe may mean different pricing segments. So overall, it's still a very affordable price level for our consumers while we offer amazing wines. And this can be seen from the fact that we continue receiving many medals. On the left, you can see that we are beating the other companies in Central and Eastern Europe when we speak about the number of medals received at Decanter. Decanter is what we call the One Olympics. So between the years of 2015, 2022, we've received 129 medals. And then if we take the top 5 most important wine competitions in the world. We've received in 2021, 97 metals, and we're yet to calculate the metals for 2022. But overall, again, what's important, we've stated this many times, what's important is that we are able to grow revenue, grow volumes, but at the same time, maintain if not even improve in fact not even, but certainly even improve quality while growing those volumes. And this is important because we want to be -- we want to be a group which is terra sized, 10x the size of what the group is today. And to be able to scale to that level, you need to be able to also maintain and grow your quality. The previous slide was the exports. This is the consumers. So we continue to, on one hand, be an appreciated wine on Vivino. Vivino is a rating app. And you can see that we are scoring 4.1 and above when it comes to the point of the wine, which is perceived by the consumers, they're important. And combined with that, we are the most mentioned brand on Instagram. So not only do we produce great wine, but we're actually a cool brand. And these combined quality and brand leads to the ability to actually price accordingly to generate the EBITDA and the net profit that U.S. investors expect from us. We continue on the Vivino. I've mentioned this is an application. You can see that when we speak about the premium segment of RON 30 to RON 60, I would take the top 25 wines that are on this application. We dominate the first -- the top 25. 14 out of this 25 actually are Purcari wine. So we dominate the Vivino app. And Vivino app, we have an agreement with them. We also do some marketing through them, but that also allows us to view this kind of graphics, which shows the geographies where Purcari wines are being scanned. So as you can see, Purcari wines, you can say pretty much we're most of the world's, at least in the Northern Hemisphere. So now we'll go to the Q4 and the 2022 operational results. So first of all, generally, we are very happy with the results. So we can announce a growth in revenues of 22%. So now we have RON 322 million. As I mentioned, we've doubled since we've IPO-ed. EBITDA rose by 27%. And here, I'll start to make the note. The note here is that we are also including a RON 14 million one-off net positive impact from a bargain purchase of Angel's Estate. This is done with the involvement of our auditors, where the way it works is that if you're buying a company, which has lower net assets than what you're paying for, usually, you try to -- you transfer that and you reflect that into goodwill. In our case, in fact, we've paid less for a company that has more net assets. So the way the auditors and the way the finance team have reflected this is a one-off positive effect through the bargain purchase of this asset. And we move to net income, you see at the top, these are all the figures that had included different things. So the note #2 is this RON 26 million is the proceeds from selling our stake in the GCC and also through the transaction that we've done with the Speed SRL, which is Beykush. Then in 2021, the RON 6 million note #3 is the -- again, some proceeds from the sale of the stake in GCC. And then now we're mentioning this RON 14 million, which is this positive impact from the bargain purchase of Angel's Estate. Below, you see the adjusted figures, so you can see that, okay, in 2020, we know it was -- pandemic year was a difficult year. We posted the RON 33 million, then we have RON 46 million. And now we are -- adjusted net income is RON 43 million. Going through some operational highlights. Again, as I mentioned, revenue is up when we speak. So 22% when we speak about the group as a whole. When we speak about the wine business, that means we exclude Ecosmart from these figures. We look at a growth of 18%, which is a very good result overall. Already telling you that this 18%, the majority is around 2/3 to 3/4 is average price per liter and the rest is growth in volume. And this is important, and this is good because it shows that we've managed to push some price increases through, though not enough more to come. But also, we are good in -- well, not that we are good, but there are many, many impacts, but we're also good at pushing more the premium segment and the premium wines versus the value segments. And actually, there's a lot of conclusion here. We look into this later, is that in this inflationary environment and maybe we can call it a crisis, the premium segments are holding up better. So demand for premium segments hold up better versus the value segments. When we speak about the -- so if you look at the fourth quarter, in fact, the fourth quarter has contributed strongly to the growth. We speak about 26% increase versus the same period of last year. And we have some positive effects in the revenue growth that comes from Angel's Estate. It's around RON 3 million. The countries that showed a very strong growth were Romania, Moldova and Asia. And then when we speak about the premium brands, these are Purcari Bardar, also, again, they showed strong growth. And then in countries such as Poland, Czechoslovakia and the Baltics, we did -- we see flat or slight decline. But this is, again, is because we are prioritizing margins over selling volumes. So we put some price increase, obviously, in this value segment, a combination of inflationary pressure -- maybe some pressure on disposable income of our consumers and with our prices, led to some lowering of demand. I want to speak about EBITDA. So on this one, I mentioned the normalized EBITDA, so we exclude that RON 14 million positive gain from Angel's Estate. We have an EBITDA of RON 81.5 million, and this is a margin of 27%, which is above the guidance that we've provided. And then we speak of them again, adjusting net profit. Again, we remove that RON 14 million from Angel's Estate. We have an adjusted net profit of RON 43.2 million, which is a net profit margin of 14%. It's on the upper level of our guidance. When we speak about M&A, we've already spoken about Angel's Estate. We've acquired 76% in this business. It's a full cycle of winery, has 100 hectares. And even though this year, Angel's Estate still contributed to our consolidated figures with a relatively small net loss contributions on a net profit. Overall, we have clarity on the actions that we do with this winery, especially actions that are focused on one hand, which is primarily is to turn it into a profitable business. And when those are clear, most of them are on the production side. And then also on scaling up the business, which is on the commercial side, that's work with improving our presence in the HoReCa and the fragmented trade, but also improving our commercial agreements with the key accounts. We've been very active on the IR agenda. And again, the team has done very well here on getting 10 out of 10 in the investor communications score. We've awarded a dividend of RON 0.51 per share. It was awarded on the 8th of September. This translated to a 5.5% yield at that time. We'll see later that we are quite a liquid stock on the Bucharest Stock Exchange. And we are also adopting shareholder-friendly tools. So for example, the AGM this year will adopt a new system, eVote, where we'll make it easier even for retail investors to vote on the AGM agenda. Now going a bit more into detail on the results. So the fourth quarter, we posted RON 102 million. This is 1/3. So the fourth quarter accounted for 1/3 of the revenue for the year. We generated gross profit in the fourth quarter of nearly RON 41 million. That's a gross profit of 40%. We can see that some of the pressure on -- the inflationary pressure when it comes to the glass, the carton and so on, it's starting to appear. But we believe that we'll manage to push price increases forward during this year to account for that and to maintain the margins that we are accustomed to in this business. So the EBITDA for the fourth quarter was RON 34.8 million with a margin of 34%. Again, this is not the adjusted EBITDA and the net profit for the quarter was RON 21.8 million, with the net profit margin of 21%. When we look at the 12 months, and this is where some things net out and cancel each other out, and this is probably a better way to look at. RON 302.5 million, that's a growth of 22%. And in fact, I can also tell you that it was the -- was positive to see that the third quarter and the fourth quarter showed strong growth. So we've posted around 27% growth year-over-year in the third quarter and 26% growth year-over-year in the fourth quarter. So overall, we see that the recent quarters showed positive growth, which is good. Gross profit for the year, RON 131.4 million. That's a gross profit margin of 3 percentage points less than in 2021. The SG&A overall grew by 18%, lower or less than the growth of revenue. So now it's 69.2%. And we have other income expenses. Here, this is where the adjustment all of the bargain -- the bargain purchase net positive effect of interest rate is included. So it's above the EBITDA so that you calculate correctly in your models. EBITDA for the year is 95.5%. That's a 32% margin and net profit for the year, 57.2%, that's a 19% margin. But then we were to look further down with the adjusted EBITDA, and we prefer that we speak about the adjusted EBITDA and adjusted net profit, so to be able to compare more apples-to-apples. We look at an adjusted EBITDA of 81.5% -- RON 81.5 million, that's 27% EBITDA margin. And we look at RON 43.2 million net profit, which is a 14% net profit margin. It's a good slide, again, probably for your models because we are trying to be as transparent as possible with the fact that we have 65% stake in Ecosmart. Separating this allows you to better see the progress that we have on the wine business versus the effect of Ecosmart. If we were to look at Ecosmart, what's positive to see is that the revenue nearly doubled. So we are -- the revenue of Ecosmart in 2022 were RON 21.4 million, with a gross profit margin of 24%, strongly improved from the 2021. Even though if we go all the way down to the net profit, we post still a negative net profit. This is because we have provisioned for some bad debt and some loss through bad contracts that were historical with Ecosmart. But overall, with Ecosmart, we do see a positive evolution of this business. This year 2023, the plan for Ecosmart is to install a completely independent team as to grow significantly the business. And eventually, if you remember in other presentations, we offered 3 possible scenarios. One scenario is that we stay a majority stakeholder in the business, and we collect dividends from this business. Option number 2 is that with an independent management and with the stake under 49%, we would be -- this would not be classified as a subsidiary. And then the figures will not be consolidated. This will be -- this will give clarity to you as investors into our figures, but also in our messages to other investors of what our business is about will become clear. And the third option would be to fully divest the business in the future when we turn it around. If we were to choose this option, of course, this we will choose it because it would give some strong contribution from divesting this business, and we would use those proceeds either to give out an extraordinary dividend or to use for our investment opportunities. If we look on the wine business. So just wine alone, excluding Ecosmart, the revenue is RON 281.1 million. Gross profit of RON 126.2 million. And you can see here the margin is 45% closer to -- well, higher because the Ecosmart business has diluted a bit the gross profit margin. Then if we go down, so EBITDA -- adjusted EBITDA is RON 81.2 million, which is a 29% EBITDA margin, again close to our 30% margin that we are always targeting to have for this business. And the net profit margin for the wine business alone is 16% with a net profit of RON 44.5 million. We are strong when it comes to balance sheet. We have a strong cash position. We have slightly increased net debt, but that's because we have -- on one hand, we've acquired the Angel's Estate winery, but also we started in -- with our CapEx program. But overall, if you look at also the current ratio, cash ratio and other metrics such as debt to equity and net debt to last 12 months EBITDA, we have a healthy balance sheet, which is important because on one hand, we always want to have a healthy balance sheet to ensure that any headwind or even a storm or hurricane we can pass easily, but also from the perspective that when -- if we come across good opportunities for M&A or for other capital allocation, we have the healthy balance sheet to be able to do so. When it comes to the performance of some countries individually, Romania is a very strong performer. The team in Romania, the sales team in Romania has done a fantastic job. Romania overall grew by 20%. And here, Purcari and Bardar are leading this growth, Bardar with a growth of around 65%. So even though, of course, from lower numbers, but it's a very strong growth. And we plan to invest further into the growth of Bardar sales in Romania because we see it as a very high potential market as we see it from the wine business. In fact, even in December, we already went above the line. If you remember the plan for Bardar was initiated to do full listing -- so presence in the channels. We've done that. Then it was below the line period, which we've done that. And now we go about the line. So now we are really full gear into building this brand and ramping up sales of Bardar and Romania. Purcari did very well with 24% growth in Romania. We launched -- so Nocturne, by the way, is doing great as a HoReCa product line. And now we've also -- we're also planning to push sales of SAPIENS. It's a product that we launched initially with one -- it was a dedicated product for one account or one partner. But now that's open. So now we have openness to push it into all channels. That's also a premium wine, which we plan to push and to grow sales in it. Ceptura grew by 9%. Solid growth. Overall, we will look to create premiumization. There are many -- well, there are certainly some price increases that are following Ceptura in 2023. Then if you look at Moldova. Moldova grew by 27%. In fact, all brands did very well in Moldova. Bostavan grew at around 31%, Purcari at 29% and Bardar at 25%. So overall, strong growth. It's -- on one hand, is the amazing job that the sales teams are doing. But on the other hand, we also consider the fact that we had some integration of Ukraine refugees that have potentially contributed to a growth in sales, even though that's perhaps more towards Purcari sales and less so to Bostavan and Bardar. Purcari, in fact, quite a known brand in Ukraine. Then Poland, we look at minus 2%. Here, we, as I mentioned, for Poland, for Czech Republic and Baltics, we focused on the margins rather than volumes. We see this minus 2%, but we also see a positive figure within this minus 2% is that the Purcari brand to carry wine sales grew by 23%. So we still have work to do in Poland going forward. We -- in fact, we also plan to have a local team because this -- overall, for the long term, it's an important market for us. Asia did very well. So it's a plus 42% growth in Asia, which is primarily for us. We look at primarily China. Purcari wines did very well. The sales nearly doubled, so with 97% growth versus 2021. We also saw growth in sales of Bardar, and that's a good sales because these are all very -- especially for Bardar, these are premium product, so more the premium range of the product line has been sold, so growth of 21%. And even Ceptura showed an increase of 15% sales in China. Ukraine, of course, it's -- we are down 42%. Overall, I think from the performance sales performance perspective, I think the sales teams overall have done an amazing job of countering the loss of the sales or whatever we lost in Ukraine and also in Belarus to compensate and to still generate growth for the wine business of 18%. Just to mention, by the way, we do not sell any wines in Russia. Moving on. It's -- again, we're happy to show that we are improving our market share in our main markets in Romania. Our market share now overall is at 10%. So we've taken over the third spot. And just to note that the first 2, the spot #1 and port #2, these are not really our competitors simply because they are players which are playing more in the value segment in the low-end price segment rather than in the medium or premium segments. And on the premium side, we are a detached leader with more than 20 percentage points difference when we combine the Purcari and the Ceptura segment shares versus the #2 of the player in this segment. Now quickly about the -- well, we looked from the countries. Now we look from the brand perspective. Overall, it's -- the picture is pretty clear. The Purcari and Bardar, which is overly premium products, they've grown Purcari 25% and Bardar with 21%. Bostavan and Ceptura grew at 4% and 5%, respectively. The growth, again, they mainly came from Romania, Moldova and Asia. And in fact, also other markets we are doing. The team have done a great job in opening up sales into United States, into Turkey, and there's some good development for the United Kingdom. Looking at the harvest, 2022 was a very good year for us. When it comes to harvest, if we were to compare with 2018, which was sort of a record harvest that year. We default with some decline with 2020, which was one of the record poorest harvest. In 2022, in fact, we also beat 2018 figures. So we had a good harvest. The other positive effect was that overall, the prices of grapes from third parties was relatively low this year. So what we've done, we've loaded on third-party grapes. Of course, we -- as a requirement for our -- for the wine production but also for distillation at Bardar in order to already prepare to have enough stocks for the future. What's important here is to say that Purcari was for the half of the year, Purcari vineyards were irrigated. So on the 1st of July of 2022, we've launched the irrigation at Purcari. It's an irrigation effect, which improves the quality. So it's a state-of-the-art irrigation system. And we are planning to do the same in 2023 for the vineyards that we have in Alexandru Ioan Cuza, around over 600 hectares of vineyards. We keep on being innovative and progressive when it comes to product development. We mentioned here Purcari Nocturne, which has proven a tremendous success. And Purcari Academia, it's an ultra-premium range of wines that are identified in clay Amphoras. This is a very limited-edition wine range -- wine collection. And in fact, it's -- we need to now potentially to increase prices to slightly reduce demand because we are running out of stock from the first edition of these wines. Then we're also going towards the more -- the organic and more health-oriented products. So we've launched the Purcari Native. This is -- these are wines coming from a plot, which -- around 25 hectares of vineyards, which in 2023, we expect to finally to receive the certification of being organic. But now they are classified in the transitionary towards organic vineyards. So Native is -- the Native Rose is launched. And in the future, we'll be looking to launch other products, otherwise from those organic vineyards. And we also launched Prociano. It's all that you can imagine, all that you can put as a healthy statement to wine. So it's 0 alcohol. It's a low calorie and it's very high in procyanidins or flavonoids, bioflavonoids. So these are antioxidants, which are healthy for the body. In fact, I do invite you to somehow to find this wine and to try this. In fact, also even though it's 0% alcohol, it's very pleasant to drink. And we're launching new ranges like now we launched initially Wine Crime rose, and now we're launching Wine Crime white. And soon, we'll be launching the Wine Crime sparkling. And of course, the 25-year-old Bardar was launched, and it received the #1 spot in the world amongst brandy. So it took the title of Tasty Master -- the most prestigious Tasty Master, most prestigious brandy competition in the world. This shows we are always speaking about the quality and here also the brandy taste market that I mentioned for Bardar is being presented. So #1 worldwide is extremely important award, but also we received awards for many other of our wines. You see that we received the Mundus Vini, the best producer for Moldova. The Decanter Negru de Purcari was included in the top 100 classical wines in the world. This is an extremely good award received from the Decanter. Decanter is the most important competition, but also the critics at Decanter are the most important in the world. We continue to -- again, we have these top 10 best sparkling wines in the world, Effervescents du Monde with our sparkling, gold -- one gold for our Rose and -- Jancis Robinson mesh and so she dedicated -- she called Freedom Blend, the wine of the week in the U.K., again, a very important nomination. We continue to be innovative when it comes to marketing as I mentioned earlier. Creating a brand is important also for the business, and we continue to do that. We see here some campaigns for Bardar. As I mentioned, Bardar was on even on TV in Romania. We started a partnership with Horia Brenciu. Whoever is from Romania knows that this is a famous -- it's a public figure in Romania, and this will be our brand ambassador. So this is a longer-term partnership that we have with Horia Brenciu, and we see that -- we foresee that this will help us ramp up the growth in sales of Domeniile Cuza. Now we look at the guidance. So first, we look at the guidance for 2022 and how we performed against it. At the beginning of 2022, we issued a guidance and we kept this guidance for the whole year. So we issued a guidance of 15% to 20% revenue growth when we speak about the group overall. We managed to beat that. So we've closed the year at 22%. Then we issued a guidance of 10% to 15% growth in the revenue of the wine business. We managed to beat that with 18% growth. When it comes to EBITDA margin, we issued a guidance of 20% to 25% for this -- for the margin. we also beat that because we have 32% when it comes to the business overall. But when we speak about wine -- when we speak about the adjustment that we have for the acquisition of Angel's Estate, we have a 27% margin, which is above our guidance. And for the net income margin, we issued guidance of 10% to 15% margin. If we were to go full accounting that we're beating this guidance, if we were to adjust for the RON 40 million, then it's 14% in the upper range of the guidance. I would like to issue today guidance for 2023. So if you notice that in 2022, the spread was 5 percentage points to our guidance. Here, we -- in 2023, we try to narrow it to 4 percentage points. So we are expecting revenue growth overall as a group 18% to 22% and the revenue growth for wine of 14% to 18%. We see this from the fact that overall, we -- first of all, we are planning to further introduce price increases into the market. So we'll have some contribution from the price increase, but also maybe from the mix. We have high ambitions for growth in Bulgaria, and we also have ambitions for growth in other markets, which are outside our home markets, but also growth in those markets as well. When we look at EBITDA margin, the guidance for 2023 is 22% to 26%. Again, we are -- we prefer to go with the principle of underpromise and overdeliver. We understand that we will have some pressures on the EBITDA in 2023, coming from cost inflation. So we believe that this is a prudent EBITDA margin guidance for 2023. Net income margin guidance, 12% to 16%, which is also driven, of course, from the fact that we have all this -- we have the EBITDA margin that I've stated here as a guidance, but also the cost inflationary pressure. Additionally, we've put into use some of the CapEx that we've done in the previous period. So that also will have some impact on the -- from the depreciation perspective. That's why the reasoning for this net income margin guidance. I'll quickly go through the Purcari stock. I mentioned that in this slide, we were -- second half at TeraPlast. Now we're slightly beating TeraPlast when it comes to this relative to market cap liquidity. So the average daily trade in terms of basis points is 10.9% for Purcari Wineries. When it comes to our margin, we remain in the top when it comes to our peers that are listed on stock exchange there with whom we can compare the EBITDA margin. So our margin is 27% versus an average EBITDA margin of 13.6% in the industry. When we look at the price to earning ratio versus our peers, we are at 8.4x price to earning ratio, which is below the average of 16.2x price to earning ratio at our peers in the wine business, which are listed on other stock exchanges. And when we compare it to the Bucharest stock exchange, again, versus the 14.3x average price to earning ratio on the main market, we are at 8.4x, which is below the average. And I always like to show this slide to investors because here we've seen in the presentation that Purcari not only is a company that is a business with relatively higher margins, but also it's a business that keeps growing. So we've shown a CAGR of around 20% over the last few years, while our price to earning multiple still remains low. Now we understand there are some other implications and some other considerations for our investors when it comes to the price of our stock. When it comes to ESG, for us, it's important. We are -- in fact, we are giving more and more attention to this. Recently, we've hired a consulting company to support us in developing the ESG strategy and to be on par with the best when it comes to nonfinancial reporting. We're using the UN SDGs, the sustainable development goals. So when it comes to the environment, the first thing to mention is that we've launched the irrigation, which is irrigation with least water waste, which is underground irrigation for our 300 hectares in Purcari. We plan to keep on doing that in the future. We've installed the 200 kilowatt capacity at Purcari with solar panels. This provides now around 10% to 50% of our needs at the Purcari winery. And we plan this year to add another 200 kilowatts capacity. So Purcari will be around 400 kilowatt capacity this year. This should give around 20% to 30%, what should cover around 20% to 30% of our needs. And in fact, we plan to do that also for Bostavan and for Badar. So in fact, all the 3 companies that we have in Moldova, we plan to install solar panels too and make strong progress in utilizing renewable energy. Through our Ecosmart Union company, we've recycled 73,811 tonnes of waste. This is a significant amount. And from the message of ESG, this is a strong point to make. And through our partners, we calculated that we sequestered around 3,566 tonnes of CO2 in 2020. And we also have one person that will be certified in the sustainable tourism with a sustainable tourism certificate. On the social side, we launched the Purcari Foundation. In fact, we're very busy now with implementing projects. The projects are directed now perhaps more towards helping Ukraine and Ukraine refugees, but also to Moldova and Romania, these regions of removing poverty and helping children and education. So it has a clear charter towards these goals. As you know, we've done a lot for the refugees. We've helped more than -- if I remember correctly, was around 4,000 refugees that we sheltered and we helped around 13,000 refugees at our supporting centers. We are contributor with CCF Moldova, which is under patronage of hope and home for children from the U.K. and we're also a contributor for the Hospice Angelus. We are a general sponsor of the Moldovan National Olympic Committee, and we've done many other projects in the communities that we support. From the governance perspective, we have a 5-member Board composed of both women and men with high skills and notable is that we've -- the Board of Purcari has been awarded best Board of Directors in 2021 by ARIR, the Romanian Investor Association. This was the presentation for today. Now we can open for questions. Unless we have something on the chat, maybe we have something on the chat as well.

I have a question on working capital, please. There was significant negative working capital during the year. Cash flow is important. So if you could allude to what was driving that? And what the trend will be next year, that would be great.

Thank you. So on working capital, overall, our business, especially growth. So growth needs to be in a way fueled by working capital. So we are constantly increasing our stock, especially with the red wines to be able to fuel the growth of -- that we are planning for the years to come. So it's part of the structure or the nature of the business to have high inventories. Additionally, since we've purchased, as you've seen in the harvest slide, we've purchased quite a bit when it comes to third-party grapes. We've loaded because the third-party grapes were at an attractive price. We've increased our purchases. So we processed more grades. And also, we distilled more at Bardar. So overall, the working capital is fueled by the necessity to positively increase our inventory to fuel future growth.

I have a question regarding the wine stock. What are you going to bottle next and what price is going to be? I mean, the expensive or the cheaper harvest? The second one is about managing these producers, third parties from which you acquire wines -- I mean, grapes. I remember that you used to have in place some quality control policies, but that would be nice to be reiterated. And also about input inflation, how do you see the beginning of the year and where are we going to get in the end?

Thank you for the questions. So on the cost of inventory, we still have some more otherwise like red wines that are coming from the harvest of 2020. So even in this 2022, we had some of the impact on the cost of goods sold from higher cost of inventory that was coming from 2020. In 2022, the harvest was one of the best harvest that we had in recent years. And the cost per kilogram of grapes was lower or was, let's say, on par with the best years that we've had in previous years. So overall, when we look at the impact of the grapes in the cost of inventory, we should have a positive impact from the harvest and the purchase of 2022. Of course, this does not avoid the cost inflation of other packaging materials, such as glass, such as carton and labels and so on. That will potentially have an impact going forward. But to cover straight away your third question, of course, we all see the situation around us. We will see the inflation rates that are happening all over Europe, but also especially in the regions that we operate. Now we are -- our plan is to push price increases to the channels to eventually match this inflation. Of course, we need to do it in such a way where we balance a few things. We need to balance a few things. So on one hand, we need to balance our relationship with the channel, such as the key accounts. They are difficult to negotiate with. We know that. And you've seen us in the future take strong stances with them. We've done one time -- we've done this with Lidl in Romania. We've done this with Biedronka in Poland. But this is all part of negotiations. So I'm not saying that we are planning to -- but what I'm saying is that this is a tough process and we're planning to push through with price increases towards the channel. That's the one hand that we need to balance. The other thing that we need to balance, of course, is the purchasing power and the elasticity of demand, the price surges of demand to our consumers. What we see from even the figures of today is that there is more sensitivity in the value segment. So any price increase in the value segments may reflect into potentially a higher delta of demand. But at the same time, it's actually we know from the market that all the wineries will actually push price increases forward. For everyone, it's a difficult process, but it will happen because there's no other way. We are, in fact, one of the companies with probably with a higher efficiency and with better margins and better economies of scale versus others. So managing the -- the demand and is looking at the product elasticity of demand in different segments is something that we also need to do. But again, as I said, more elasticity in the value, less so in the premium segment. And overall, as we saw in 2022, when we saw this shift and maybe a stagnation in the countries which primarily we sell value like from the Bostavan winery, such as Poland, Czech Republic, Slovakia and the Baltics. And-- but we saw an increase in the premium segment. This change in sales mix, in fact, give us as a positive impact on the margins overall. When it comes to the third-party management, indeed, so the way we work with the third parties, not only do we have these agreements and we monitor how they work the vineyards, but we -- in fact, we also finance them. So we will make them more -- not to say independent, but we are supporting them and we are -- we become their preferred partner because we also finance them during the year for the work that they do in the vineyards. But overall, the answer is yes, we manage them closely, because for us the quality and the quantity and the cost price for the grapes that we buy is very important. I hope I answered your questions.

Great. One more thing, you'll be sorely missed. Wish you all the best in your future endeavors.

Thank you very much. I hope to continue to contribute to Purcari by staying on the Board of Directors. I guess this will be something for the AGM on the 20th of April. But thank you very much, guys.

Okay. I have a question, please. Congratulations again for the good results. What I'm surprised, it's about what is happening really with the market of wine in Poland. I don't like wine from Moldova or from Romania. I mean yes, really, I'm surprised by a low share of sales in Poland.

It has nothing to do, by the way, with the Moldovan wine. Poland is still an incipient market. It's not a mature wine market. The average consumption per capita is around 6 liters versus 20 liter in Romania. So it still has a long way to go. It's still a market which drinks quite a good share of semi sweet wines. So it's not all primary dry. This means that it's still a price -- is still a price-led demand. So price is very important. But why Poland is important to us and why it's very important to us to maintain market share because we foresee that as other markets such as Romania and other markets have evolved and became what we call a more mature wine market where the consumption is higher per capita, above 10 or about 15 liters per capita wine consumption. And when there is a shift between -- shift from semi-sweet wines to dry wines. And we know that this shift will happen because it's pretty much all the market that has -- we see this shift in pretty much all markets when we look at even worldwide. So eventually, this market will -- this shift in the market will happen. And when it'll happen, we know that that's when we'll be able to reap the benefits of having that market share and beating the competition at the premium segment, not necessarily competing on prices of value. So at the moment, we are not trying to be overly aggressive on the price just to acquire share at the expense of the brand. We're just there to grow with the market and just to maintain our market share in the Polish market for now. And in the future, as I mentioned, we are planning to have a local team because in the same way that we've grown Romania, and we have a very strong presence in Moldova. And we've managed to do the penetration in Ukraine. Ukraine was also with the local team because we've opened for Purcari Wineries, Ukraine with local head with people in marketing, people in sales. That's how we've managed to get a good penetration in Ukraine. Okay, we know what's happening in Ukraine. But overall before that, Ukraine was showing very strong figures. So -- but probably Romania is the best model that we can compare with. The same way that we grew in Romania, we would be looking to grow Poland, of course, not necessarily with having a winery, local winery, even though this is also a subject, having a local winery. They have around 3,000 hectares of vineyards. So it's something not tell you that we are very direct promise, but it's something -- but we're looking to a local team in that market that speaks polish is Polish and the sales channels, and we'll keep growing our presence Poland. think about it this way. Right now, we have pretty much 0 presence in HoReCa, pretty much 0 presence in the American trade. We all deal with large, large accounts.

Eugeniu, playing the moderator here. We also have some questions in the chat, maybe you can answer.

Yes. Let me look.

And maybe to give you some breathing room. The last question is on our expectations in terms of the security situation of Moldova. So let me tackle that upfront, probably is on top of mind of many people. So the short answer is that we do not feel concerned now. And our source of comfort is primarily the messages we're getting from Washington, D.C. and from the U.S. local embassy. If there is one, say, part in the world that controls the situation, we believe it's them. Just to contrast it, they were out of Kyiv in early January, and they've been making warnings about the military in Ukraine since November 2021, so way before the escalation, invasion. In Moldova, [Technical Difficulty] for Moldova. That's one data point. The second, the travel advisory note as published by the state department has stayed at 2. It's the same risk level as for the last 12 months. And by the way it's not a very risk level. And so in that sense, yes, there's a lot of information war. Russia doesn't want for things to be quite in this part of the world. But I think this is more information on intimidation than real movements going wrong. Again, the message from the state department is very clear and that they don't see any risk [Technical Difficulty].

[Technical Difficulty]

So in Poland, if we speak from a RON perspective, we sell primarily Bostavan from what you see there around -- so it's around RON 20 million sales in Poland. I think that was the question, yes? What's the -- what are the...

Can you provide number of point of sales?

Number of point of sales?

Yes.

Well, this will be in the -- probably in the high hundreds because we are working with companies, our wines can be available in Biedronka, Auchan, Kaufland even now Tesco was bought in the -- new chain that bought Tesco in Poland. We are in Billa and so on. So we are present in many accounts. So I would say it's in the high 100s.

I think it's over 5,000 accounts [Technical Difficulty].

And how about their relation with Lidl?

We are yet to be included in Lidl, Poland. So the negation is still going on.

Regarding Tesco, [indiscernible]

Well, Tesco, we are present. We are more so present in Slovakia, in fact than Czechia. And we are working on improving our presence in Czechia. But overall, the Tesco sales contribute to less and less towards our sales in these countries.

Next question will be regarding the increase in excise duties in Poland and Republic of Moldova. Are you planning to increase the price of branded products? Or how do see the demand in the coming period on this product?

Based on the increase in the excise tax, we, in fact, already pushed some increase forward, is primary for Bardar. And still more to come in 2023. So we're still planning to push some price increases in '23 towards the market.

And regarding dividends, are you going to maintain the up to 50% payout ratio?

Of course, I can't make a statement now. This will be proposed by the Board at the AGM. But generally, we can -- we want to remain the company that is also growth and that also is a quality company that gives dividends. So yes, we are -- generally, we are looking to pay up to 50% of the profit generated in a year.

And regarding the level of CapEx for 2023, can you provide a level or in what segment the CapEx would be oriented? I understand that will be a significant amount in the Angel's Estate Winery. But can you detail, please?

So for 2023, it's still a relatively CapEx-intensive year because we have Angel's Estate. We're planning to install solar panels. We are planning to install the irrigation for over 600 hectares at -- in Alexandru Ioan Cuza. All of these projects have -- we, of course, are doing our ROI and breakeven analysis. So all of these are good projects that we should allocate capital towards. If you were to look for a percentage of sales, we expect this to [Technical Difficulty] double-digit on sales. We expect that following the 2023, the CapEx should normalize and should go more towards the maintenance CapEx at maybe low single digits from sales. That, of course, if we -- when there's an M&A opportunity, it will be something else.

And can you provide a guidance regarding Angel's Estate rent? What it will represent as a percent of total revenues?

Well, now if we if we look at the fourth quarter, it was RON 3 million, so it was 100 -- was 3%. So it was 3% of the fourth quarter group sales. And then this was wine. So if we were to move Ecosmart, it's probably more. But overall, now if we were to look at the 2022, if we were all -- were to take 2020 is about 5% of sales of wine. And going forward, of course, we are looking forward to increasing this and we are planning to accelerate growth pretty quickly. So now it's a 5% of total sales of wine sales and depends on how good we are in the future to make it a much higher number than that. But if I were to give you a guidance, definitely, I don't know, strong double-digit growth, maybe not if not 2023, 2024 onward. Because we -- why I believe so because we've identified clear directions where we can create improvements, clear directions when it comes to our cost base or operations, but also commercially.

Are you going to introduce Purcari brand in Bulgaria?

That's a yes. So the same way that Crama Ceptura acted as not only as a winery in Romania, but also as an importer from Moldova of Purcari and then now Bardar, which is doing great and Domeniile Cuza, which is doing great. Similarly, we want to -- we would want to do that for Bulgaria. And Bulgaria is an attractive market. That's one of the first thing that we've analyzed where the price -- the quality to price ratio of the competition is fairly low. So there's a -- so price to quality ratio is high. The pricing is attractive for us as a company. And in fact, Purcari is already available in Bulgaria, but very small. We have a small partner. But of course, now that we have a winery there, we will look to strongly enhance the distribution in Bulgaria.

And my last question will be if you can provide guidance on the long term regarding gross margin or EBITDA margin?

Yes. So the guidance we showed it in the presentation for the -- only for the long term -- not only for 2023.

Yes, on the long term you can comment.

Look, on the long term, of course, now it's a bit turbulent times with the inflation, with war and everything. So that's why we have been prudent when given the areas for the margin. But over a long term [Technical Difficulty]

[Technical Difficulty].

[Technical Difficulty]

So in conjunction with the last question, I guess the key to keep the high gross margin will be how we will manage to keep the Purcari brand as high as possible on the market. What I've seen in the last year is that at least in Romania, your biggest market by far, it's almost a household name, Purcari. You can see it everywhere. So I guess you count more and more to keep the premium on the new lines. You've just -- you've launched and I can't say that they are really premium for -- because I tasted them a lot. Yes. But how do you see this evolving? So since you have so much of the brand on the Romanian market, I don't -- I almost can't see where it can grow anymore? So how do you see this keeping the premium and also being strong in volumes on the remaining market?

Well, that's a very good question. One is Romania, but also the group overall. In fact, we've -- it's seen that you say that Purcari is almost like a household brand or household name. We didn't have the concern, but we wanted to gauge the perception and how young the brand is in Romania. And in fact, we've done a quite extensive and advanced market research on our brands and versus, of course, our competitors. And what has proven is that Purcari is still a very young brand. So we are definitely not in the risk of becoming this old brand that everybody knows always Purcari. So we are still very young. We're very fresh. We are being very perceived very positively. So definitely, we can -- there's a lot of room to keep pushing and increasing the sales of this brand. In fact from an awareness perspective, Purcari is still -- you'll be surprised, but there's still room to grow awareness in Romania, number one. And number 2 is, if you look at our share overall in the market, we only have 10% market share. So there's still room to gain market share. We want to do this through growing Purcari. But we also want to do this by growing other brands, such as Bardar, which has picked up, such as Domeniile Cuza. So on one hand, we are -- we want to grow Purcari. We want to create premiumization in Purcari. So we want to grow both volume but also price. Domeniile Cuza, in fact, the purpose of Domeniile Cuza is to come and to cover the price segment that Purcari is leaving when it moves up in price. That's where we're coming with Domeniile Cuza. We're pushing it hard because we want to grab whatever Purcari leaves behind. And Bardar, so it happens that the brandy segment in -- the brandy segment in Romania is somehow underutilized, underdeveloped. And we thought that we are actually building this category with Bardar and quite successfully. This when it comes to Romania [Technical Difficulty]. There's still premiumization that's at Crama Ceptura. Right now, for example, you will see Cervus at around RON 15. Our competitor, our direct competitor, which was [ Sauvignon ] but also [indiscernible] now moved to RON 17 or more. So we have now space to come and cover that space from behind with price increases. So overall, we still have room for growth in Romania. We've also added Angel's Estate, and Angel's Estate is a premium brand. So it sells at an average price, even slightly higher than Purcari. So overall, the -- we've acquired a company which is -- everything is -- the good thing is that we have more to fix. We bought it with a bargain. As you can also see it translated into the bargain purchase, net contribution of RON 14 million. But very importantly, the brand, Angel's Estate is perceived as a high-end brand as a premium brand in Bulgaria, and we can build on that. Overall, as a group, we have -- we have to grow in our existing markets, but also we are growing in other markets. We are -- we've exported Purcari into Hawaii in United States. We've started large partnerships with players in Turkey. We are constantly developing Asia, Japan, South Korea and even China because China is a continent. You could almost say China is Europe. So there's huge potential. Overall, as a company, we have more to grow, but even so in the home markets as we would call.

That's a very important question. So I really want to add to this. This is one thing we've be thinking a lot about, how to preserve the newness of the brand and the use of the brand, why scale and give messaging because sometimes you can't get to. So just to comment on it, the first as Eugeniu said, it's a very young brand in Romania. So the research on -- we just completed our annual research, shows still the [indiscernible] Purcari as a very kind of up and coming brand. So there's no sign of brand ageing. For example, and internationally, you understand we're still expressing service offer in global markets. So -- and it will become for as Temples. Temples is an Australian brand that has sales about $800 million a year -- you understand, $800 million. This is -- Purcari, just to put it in context, Purcari is [ $25 million and less ]. I'm telling about Purcari brand. So we have a very, very long way to go. And Temples is in a way the better for us, a premium brand with global appeal that manages to combine volume and premium perception because Temples is moving very high volumes. They are sending about 40 million bottles per year. So very high volume.

Yes. Yes, this is a good problem to have, to manage, Purcari brand. Even if I think it's somehow it makes you nervous to see that you're over relying on just a single market and a single brand with Purcari in Romania. So I would like to take the opportunity of saying Mr. Bostan here and saluting him. And I would just want to ask him a certain thing. In regard to the security in the region, in Moldova. And I guess, the energy and the energy transition is just as much a security issue like failed, full blown invasion by the Russians. I see Purcari, they started with 15% to cover its energy needs. But I think Purcari could do more than that. And I want to see if you can see Purcari as a leader in this regard and if the community -- business community, Moldova is full aware of what they could do as a business community in alleviating this threat of reliance on Russian energy? So I would like to see what Mr. Bostan has to say in this regard, yes.

[Foreign Language]

Maybe I'll take the liberty to translate. The short version is we will keep investing in renewables. We expect to increase that 15% we mentioned quite significantly, actually. The payback on that is quite high, and Mr. Bostan gave you the examples of the Bardar introducing photovoltaic panels and too the production there. And the important we will work also on recuperation technology. This is because as part of the production process, we -- in some parts of the production process we have to use heating, for example, in brandy distillation, for example, but also for [ chemical purification ] for wines. And in some parts of the production process, we have to use cooling, and energy is used in both cases. So we are looking at very advanced options of channeling some of that heating/cooling energy actually in the right direction, so that we compensate.

Sorry, do you have a target of achieving 100% of renewable or you don't yet?

I think that's our target. I think -- and that's, by the way, an easy target because at the moment, the payback from solar in Moldova is just around 3 years with the current electricity prices.

So when can you see yourself as being fully independent?

We're not ready to give an exact number. But within 5 years, we expect to have a majority of electricity being produced from local sources. That's a very safe expectation I can make. I'll say one more lastly on security because I feel our stock is beaten by security so much. I want to stress again what level 2 by the U.S. part is. So Level 2 travel advisory is the same travel advisory as port, Denmark, Germany, France, Netherlands, I'll tell you more. Hong Kong has a level of travel advisory of 3. So Hong Kong based on the U.S. Department of State travel advisory level is a riskier destination than Moldova. And so again, Level 2 is pretty safe really. I just feel we're taking too much from all these press headlines. And let's trust Americans. They know what they know, and let's not get carried by the whole security process. Okay. Maybe we should be running up. It's been going for 1 hour, 25 minutes. So look, everybody, thank you for attending this session. It has been very rich session. Eugeniu thank you for doing such a detailed presentation. And you, thank you for your interest in Purcari and thank you for backing our company. We take it with a huge degree of responsibility of betting. And our attitude is always to meet and exceed expectations. And I think we've been trying to do this over the years, exceeding our guidance, underpromising, overdeliver, and we're really set on keeping doing that. So thank you for your backing. We'll make sure not to let you down. Thank you very much.

Thank you, everyone. Thank you for being here.