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

Ladies and gentlemen, it's a pleasure to welcome you to our call presenting the First Half and Second Quarter Financial Results for Pucari Wineries. I am very glad to be joined by our team here. So we have Victor Bostan, CEO on the call; we have Alex Filip, Deputy CEO; we have Anatol Belibov, the incoming CFO and also, Victor Arapan, who is transitioning his work to Anatol in a very organic way. So I am very grateful to him for this transition. We also have Victoria Moldovan, our Investor Relations Officer. We have a wide team on the call, and I’'m very excited actually that our company continues to invest in people, continues to strengthen the team. And You may have read the news over the last few weeks and months that we have made quite a step up in terms of our team. Since Alex Filip has joined us as Deputy CEO from McKinsey, he worked on bringing new, fresh blood to Purcari, new energy, new competences because we understand that 10 years ago, we were doing $10 million in revenue. Today, we'’re doing nearly $100 million in revenue, but we understand that what took us from $10 million to $100 million is not necessarily what will take us from $100 million to much bigger numbers. So, I am very excited that also today we have a much wider team, the new team. We have Bogdan Bayer, who joined us from Heineken as Commercial Director. We have, as I mentioned, Anatol Belibov, who joined us as CFO from Nestle and AkzoNobel. We have Anton Fortunatov, who joined us as Chief Informational Officer to up our digital game, who joined us also from McKinsey. We have Stefan Catrina, who joined us as the Head of Transformation and Strategy, guruing All these transformation projects together, who also joined us from McKinsey. Quite a few McKinsey people, but we negotiated very good income levels with them. I mean, very decent, not exaggerated salaries, pushing most of the compensation in stock, as we like to do. And we also have Mr. Chiritescu with us, who joined us as Marketing Director from Cotnari, McCann, Ogilvy, and other great names. So, this is a long way. So, a long way of saying that this is a new chapter in Purcari's development. We are excited about where we are as a company at the moment. And today will be a presentation of the second quarter results and first half results, but I really want you to take the bigger picture, and I hope it will give you a sense of where we want to take this company going forward. I think the pinnacle of this is going to be on October 4, when we will invite you all to our Investor Day at Purcari, where we're going to reveal in greater detail what is next for our company. You know we like setting high bars, we like setting a very high level conditions, and we're going to reveal this in much greater detail on October 4. Without further ado, and apologies for this long intro, but I just wanted to set the scene in a proper way, so that we get the big picture. I want to pass the word to Alex Filip, who's going to take us through the operational results for 2Q and first half.

Thank you, Vasile. Hello everyone, I am happy to present the results for the first half of the year. Vasile mentioned there are a lot of changes in the team and we're building bigger plans, but we're also focused on delivering day-to-day. And here, what we are about to share with you on the performance so far. We will share and we will go into further details in a second. Overall results: group revenues grew by 3% year-on-year, focusing primarily on the core business. Wine and brandy sales plus 12% for the first half. You know the situation with EcoSmart. We have discontinued the operations, and hence the overall gross revenues have grown at a slower pace than core revenues due to the fact that EcoSmart revenues are no longer contributing. So, this is an important factor. Premium brands continue to perform the best within our portfolio. Purcari is growing across the markets. Also Crama Ceptura growing quite nicely. So we are happy to see that we have multiple growth engines. Good traction across several of our key markets: Romania, Czech Republic, Slovakia, Bulgaria, where we are building an important success story for us as a Group turning around Angel's Estate, and we are happy to see that the commercial traction is there. Also, an important market for us and not an easy one, Asia, growing quite nicely as well. We have also very good profitability numbers and we're very happy, very proud of our ability to generate and continue to improve the profitability, as we have indicated in the past. Gross margin at 51%. EBITDA numbers for the second quarter, I would say, quite impressive numbers for us and a high watermark for us to observe going forward. In terms of investor relations, what we have done in recent months. We have expanded our share capital by issuing additional shares. We paid dividend at the end of July. Going forward, Vasile mentioned the Investor Day on October 4, but we will also be in Bucharest at the beginning of September. So happy to meet as many of you who will be there for the Frontier Investor Days. In terms of operational and management changes, I will not go through the changes that Vasile mentioned already. I think two more important points for our development. We have established a small digital hub, if you want a venture that is supposed to accelerate our digitization, building in-house the key competencies that we consider crucial for our development, while allowing us to manage effectively external vendors for our development. And an important piece of news that we released yesterday evening. We have just signed an acquisition for an important vineyard in Dealu Mare-51 hectares, plus land that would allow us to expand the winery that we have in Ceptura. An important element for us to continue to develop our Romanian entity. And yes, these are big developments for us. I am happy to go into details with each of them, and we'll go right away. And also we will take questions at the end. So if we go into the financial results, Anatol, if you want to go.

Thank you, Alex. So for sure, you already mentioned about plus 3% growth in H1. For sure, it is very important to go segment by segment. So yes, in the core segment in wine, yes we grew by 10% in Q2 and 12% in Q1, so overall, plus 12% year-over-year. Also, HoReCa delivering good single strong digit plus 6%. And for sure, it is very important to mention that like-for-like turnover now is highly impacted by the discontinuation of recycling segment. In H1 2023, recycling had a share of close to 10% in revenue, so for sure now, this plus 3% is highly impacted by discontinuation of the recycling business. Yes for sure, now I think it's important to mention the positive part. Here, I would like to stress your attention about gross profit. You can see that we have a very, very good journey, and now it's H1 is close to 47% and in Q2 2024 is close to one of the highest levels of 51% gross margin in revenue. In absolute, you can see that we grew by 17%. The reason are a lot. I would like to start with, let say, top-line improvement. Here, I am speaking about pricing because we managed to increase pricing in part of our geography in Bulgaria, Moldova, also export country. But also, we already told the investors that we are focusing on premiumization, and looks that we are in the right direction. So, our Purcari brand, our premium brand, increased by 16% year-over-year, and increasing the share in the total portfolio. So for sure, we make a good job in terms of pricing and premiumization. Also, the geography mix, yes, it helped us to improve gross margin profitability. Country with high price per liter, like Romania, like Central Europe have a higher path of growth versus another. And this helped us to improve also profitability. But cost of sales is also impacted by, let's say, correction of COGS rates. And here, we are speaking about cheaper bulk wine from 2022, which came into production. But also very important that already we have the positive impact coming from lower prices for packaging. And here, especially we are speaking about bottle, which is impacted by correction in energy price. So -- and for sure, and EcoSmart. So all in all, we have this positive impact on the gross margin. Going down in OpEx. So here, we are saying that marketing and selling expenses grew by 24%, but like-for-like as a percentage in revenue, they increased from 12% to 13%, so it's 1 percentage point. Here, the key impact or it's people cost, increase in people costs here. As already mentioned previously that we invest in the team. Also we invest in the new project. For sure, our focus now is to keep the growth path. That is why now we start to invest in different marketing projects. General and administrative costs grew by 7%. But as a percentage in revenue, it's mostly flat. And here, the impact is coming from people cost, taking into account review of the salary and also traveling and other professional fee. Positive impact coming from other income. Here, we have, let say that positive momentum in collection. That's why we start to reduce the provision for receivables, let say, bad debt. And also, in this line, we have this post-tax effect from EcoSmart. So, net profit for H1 ends to 18% in revenue, or RON 29.3 million. EBITDA is also delivering a very strong H1, and also Q2 ends up to RON 55 million, or 33% in revenue. In the bottom, you see that this net profit from discontinued operation, which is RON 1.7 million. It will be covered during the next slide. But, we would like to stress your attention that if this one-off, which we expect that after finalization of this procedure with EcoSmart will be reversed. That is why like-for-like, let say, normalized, our EBITDA is RON 33.3 million or 32%. And our net profit goes up from 18 to -- sorry, from net profit from RON 16 million to RON 16.5 million, 25%. So, for sure, this will be the level. So all in all, very strong performance in terms of gross margin and cost control. If no questions, I would like to pass the word to Mr. Arapan. He wanted to cover segment reporting. Thank you.

Thank you, Anatolie. First of all, the investors and analysts, let me also welcome you to this second-quarter results call. When we show this slide, you see now, we used to talk about our operational performance of our business segments. As you know, by 2020, the group had a single segment, production and sale of alcoholic beverages. And later, with the acquisition of the subsidiary EcoSmart Union in 2021, a second segment related to waste recycling management services appeared, which, over the years, has not been a significant one. Now, at the reporting date, the group do not provide anymore for waste recycling management services. So, I will talk more about the not the performance of the second segment, but on the accounting approach for this event that took place during the second quarter. As you might remember during our last calls, you may know as a Group, we are disclosing as contingencies, the potential penalty from AFM. Below, you can see a scheme of evolution in time of the litigation between the EcoSmart and the AFM. The most important event that impacted operational activity of EcoSmart during 2024 was on 16th April, when the High Court of Cassation Justice granted the appeal filed by AFM against the decision pronounced by the Bucharest Court of Appeal. As a result, on 29 of April 2024, AFM issued an enforceable title for the collection of the fine amounting RON 22 million. Since this amount was disproportionate to the revenue and profits of EcoSmart, the management decided to cease operations. The Group's management considered that under this condition, its subsidiary could not operate anymore, and on the 13th May of 2024, the AGM of EcoSmart unanimously decided to initiate a simplified bankruptcy procedure. On July 2nd, AFM submitted to the Bucharest Court a request to start the insolvency. So, what is the situation on account and treatment as of June 30th? First, the group is still holding control over the subsidiary, as there is no core decision empowering a third-party administration of the EcoSmart. This means that all assets and all liabilities of the subsidiary were consolidated as of June 30, 2024. But, the accrued debt of RON 22 million was recognized only in the individual financial statements of the subsidiary. Neither the parent company nor any subsidiary has an obligation to AFM arising from its risk of execution. The group management decided not to provide EcoSmart with any financial support. As a result at the consolidated level, the debt to AFM was not recognized, since there is no probability of an outflow of resources, including economic benefits, to settle the respective obligation. At the P&L level, the entire activity of EcoSmart during six months of 2024 were treated as discontinued activity and disclosed in the statement of comprehensive income as a single separate line, with a positive impact on the consolidated net profit amounting to RON 1.7 million. As soon as the court decide to initiate an insolvency case, and this is going to happen in November this year. The group will lose control over EcoSmart Union and will not consolidate it anymore. The group will not recognize this result from discontinued activity and will have to calculate the gain or loss from loss of control. It is important to know that in consolidated financial statements ended December 31, 2023, the group made a provision of RON 1.7 million, which is equal to the group's share in EcoSmart net assets at that time. So this provision will help the group to net against any loss from loss of control if such a loss will be. So, this is the situation about EcoSmart update. On the next slide, you can assess as usual that the group continues to maintain a very strong financial position over the years. The company managed to maintain an optimal level of liquidity, gathering cash for the dividend payment that took place on August 16. The dividend payout will not influence its liquidity only with some impact on the net debt is expected. Even the net debt increased due to more loans required to sustain the growth of the business and continuous capital expenditures, the gearing ratios and the indebtedness ratios are still at comfortable levels. Since we target a net debt-to-EBITDA indicator around 2x, there is still room to sustain continuous growth. So this being said, I give the floor to Alex for a short, overview for sales evolution by markets and by brands.

Thank you very much, Victor. Going into the commercial part, the usual picture that we provide a breakdown by country and evolution by country overview, you see we're growing across most of the markets with the exception of Poland, where we slightly decreased year-on-year for the first half and Moldova, where the growth is slightly lower than the rest. Good performance in Romania, sustained by several growth engines. It's not just Purcari; it's also Bardar, it's also Crama Ceptura, it's also Domeniile Cuza. So multiple elements support our growth and our ambition. Moldova, we are facing a specific situation. We are growing nicely double digits in key accounts, driven by Purcari primarily, but we are seeing volumes in the duty-free channel lost due to a new taxation model. And these we assume are actually volumes that are lost by the category, by the market, rather than by gain by other competitors. We see a specifically challenging situation in the brandy segment, where there is fierce competition in pricing with very aggressive promos from most competitors. And we have indications also from key accounts that large volumes of the category sales are actually happening in promo. And there we are taking a long-term perspective, trying to protect the profitability of our sales, but also the price perception and the quality perception of our brand. And we will discuss about Bardar in a second. Poland, we see pressure in the mainstream segment, which accounts for the bulk of our sales there. We see growth in the second quarter, offsetting the initial weaker start, but still, there we are pushing as hard as we can for profitability, which sometimes means that we pass on sales opportunities because we again take a mid-term perspective, that we need to build profitable brands, and we need to invest in those brands that can deliver this profitability to us. We are investing in Purcari and we are growing the premium segment in Poland, but from a smaller base compared to the mainstream segment. Bulgaria, it's a very happy development for us. We continued to develop the market both with Angel's Estate and the local brand portfolio, but also by accelerating the listing of Purcari brand, both in key accounts and HoReCa. And by now, we are happy to see that Purcari is already contributing the 10% of the local sales, which is the direction we want to take the sales mix there. Good performance in Czech Republic and Slovakia. Challenging environment in terms of pricing there. Primarily, our mainstream brands are performing there and growing despite the challenges that we have. We are happy to see, after several years of investments and uncertainty that our sales in Asia are picking up from a smaller base, but are picking up. And we have third consecutive quarter of growth, and we continue to invest in developing not only China but also South Korea and Japan are also two important markets for us. Then rest of the world, you see there is 10% sales and growing. There we having a mix of commercial efforts from Purcari, Bostavan, and Bardar, delivering nice profitability despite the small share of sales at the moment. If we move on, on a brand-by-brand basis. Strong sales for Purcari, as mentioned, not just in Romania but across several of our key markets. Bostavan, you see there a slight decline driven primarily by weaker results in Poland and the Baltics. But there we are focusing and it's going to be most likely a mid-term effort to turn around the portfolio and build stronger, more profitable brands than what we have now. Crama Ceptura, strong performance, as I mentioned before, across the different ranges that we have. We are developing further the ranges. There are price segments where we are not as competitive as we are in others, and we are investing in capturing those opportunities as well. For Bardar, as I mentioned, the bulk of the sales historically came from Moldova, where there is fierce competition for sales and the loss of the duty-free channel. The strategy there for us is to protect the profitability and the premium perception in Moldova. Also, taking into account that brandy, as opposed to -- where brandy even more than wine ages well and gains value with time. So there is no rush for us to sell cheaply now something that we should be able to sell at a higher margin next year. So, there we are carefully managing the aging of the portfolio while we're developing export markets. And I mentioned Romania, but also Nigeria and other markets where we are developing export opportunities profitable, exports avenues for Bardar. Angel's Estate strong growth year-on-year and this is due to the also investments that we've made in expanding our commercial capabilities. If we move on. Yes, in Investor Day, I don't know, Eugeniu do you want to -- because you are the master for ceremony for this. Do you want to briefly talk about it.

Hello everyone. Indeed, we are planning our second Investor Day on 4 of October 4, and you are welcome to come there. We will have a full agenda covering with different topics. First of all, you will hear about our strategy. You will be able to see with your own eyes how our wines are done. You'll see how we processing grapes. You see the vineyards where we grow our exceptional grapes. Then, of course, we will have wine tasting, so there is a lot of things to see and taste during the Investor Day. So please register. Registrations are open until 6th of September. We are welcoming all of you. On this slide, you may see some snapshots from our last event, which was held in 2022. So as I said, you'll learn more about strategy. You meet our team. You taste our wines. So, yes, we are waiting for you.

Okay. Let's move on. Otherwise, on the things that don't show up directly in the P&L, but are important for our performance, we have continued to reap recognition for our wines across multiple highly reputable competitions, and we are very proud of this. As you know, we take this very seriously, and it's part of our way of working to benchmark ourselves against the best. So we're happy to see that we have achieved this year. I think for us, also an important reflection of our work and our philosophy you see there on the top left corner of the page, the fact that we have achieved several Decanter Worldwide Awards, not just for our wines from Moldova, but also for the first time for our wines from Bulgaria. You see there Angel's Estate from Bulgaria, and this is what we aim to do across our different wineries. We are happy to see that this is working out well. If we move on, yes. I think an important topic for us, the revised guidance. Before I go into details let me tell you that we do not take this topic lightly, and we've spent quite a lot of time figuring out what is the best outlook that we have and what we can deliver for the rest of the year. And this is how it looks like. We know that we have disappointed on the revenue growth and we will explain in a second. EcoSmart is clearly something we did not expect at the beginning of the year, and we showed the revised update at the previous call when we knew that we had the negative court ruling on the revenue -- on the core wine revenue. Despite the slower start, we were hoping with the shift of the Easter holidays that second quarter will prove much stronger than it did. And hence, we had retained in the previous call, the guidance. But it turned out that the price competition was too fierce for us, and we decided not to push the sales for the sake of volumes to deteriorate the margin. And we also understood that we need to take a midterm view, as I mentioned before to the development of our brands and the profitability of our brands. And we have stopped investing additional money in trade marketing and communication behind brands that do not give us the comfort that they can grow mid-term to the profitability level that we want. And this is the reason also why we're revising the guidance for the second half of the year. We want to make sure that we grow in the markets that we grow give us a sustainable basis for profitable growth going forward. And we are confident that we can deliver the numbers that we are indicating here. In terms of profitability, we are confident that we can deliver these numbers, but there is -- we're also aware that there are several sources of uncertainty across some of our main markets affecting some of our main brands that may still deliver variations versus the current plan. So, we are confident, and for these ranges, we have a high level of confidence. I guess some of you will ask us why we have not increased the profitability guidance, given that we don't have EcoSmart anymore. We are being conservative because we do not like to disappoint you, and we believe that it's best to go for what we have certainty we can deliver. If we move on...

That being said, we have covered the first part of our meeting, and now we are moving gradually to a more dynamic part, the Q&A. So, please feel free to address your questions either directly through micing yourself or we have a chat.

I think we have the first question via the chat from Daniela [indiscernible].

Daniela, we really enjoy your voice. I propose you to read the question, and we'll answer to you straightforward.

I guess we can go also with the written question if Daniela has trouble with the microphone. Victor or Anatol, do you want to take this question?

Yes. So I think here it's a matter of how we read the numbers. So for Q2, yes, you are right with the revenue is close to RON 84.3 million, yes, but cost of goods sold for Q2, it's RON 41 million. So I'm not sure about the number of RON 86.7 million. So I think here's some technical error, Daniela. So yes, so in Q1 with the revenue is RON 81 million and RON 46 million cost of goods sold and Q2, it's RON 84 million and cost of goods sold is RON 41 million. So it's just, let's say, it's not the RON 86 million cost of goods sold. I think it's better to check the numbers once again. I hope, I covered your question. Yes, so check once again the numbers. So in Q2, yes for sure, we have a significant improvement in gross margin, driven by a correction of raw impact, but we also have the impact of putting out EcoSmart in this post-tax profit.

Okay. Thank you, Anatol. I see a hand raised by Mark. Mark, do you want to go ahead?

Yes, thank you all. So, you mentioned that you're redefining the focus on brands. Which brands have the best potential to reach your margin targets? So which brands specifically are going to be your focus, and what level of profitability can you get them to? What's your hurdle rate, sort of level of profitability? Where do they stand today? I mean, I know Purcari is by far the strongest, and I do not think you break down the profitability of just the Purcari brand, but it's much, much more profitable. So, where do the others come below it, and how far can you get them up? Which ones are you going to be focusing on? Just sort of more color, please.

Okay. I mean I think there is a point on which brands -- existing brands we focus on and which new brands we build, okay? And for us, the -- let say, the rule of thumb is that across the portfolio, we want to operate at 50% gross margin and 30% EBITDA margin. This is what we are striving for. Hence, we are looking at any combination of brands and geographies that fit within this picture. We are working towards building a brand portfolio that delivers a combination of that. Some brands might have smaller volumes, higher margins, others might have the opposite. The challenge for us is to build new brands or strengthen existing brands that have higher pricing power that allow us to increase profitability across the portfolio. So, at the moment, when we look, out of 100 units sold across different countries and markets, we see that we have some of them that are diluting the average margin. Hence, we are trying to develop either strengthen those to the point that we can also improve the pricing power that we have or build new ones and uncover new geographies where we can do that. I cannot give you a specific timeline because I think this should be an ongoing project. But throughout the next one or two years, we should see a significant revamp of the portfolio. Okay, so it's in addition to, as you can imagine, Purcari, as a premium brand, commands a higher margin. Spirits, Bardar also a category command a high margin. These are things that we will continue to develop and try to accelerate the sales. We are trying to build additional brands that have the right combination of price and cost structure that give us the profitability that we seek. I hope it was clear. Mark, let me know if not. Okay. Otherwise, I take that first Eugeniu, your name. See we go first with the raised hands so that they do not keep them up too long and then we take the chat questions?

Yes. I think Roban, please address your question.

In the beginning of your presentation, you said that you issued new stock to compensate the employees to pay the employees, but that is diluting me as a shareholder. And do you have any plans of maybe buying back stock? And in the future, also use the capital in buying more stock back? Because this is how respectable company do worldwide, which respect their shareholders. So that's my question.

Yes. With your permission, I will take the question and thank you for this. I speak here also as a shareholder. So we are the second largest shareholder in the company, so, of course, we are most of all interest to prevent, say, dilution that is destroying shareholder value. In this case, we approved at AGM, again, stock options plan for the next four years. We believe this is critical for several reasons. One, we need to attract top talent, and we need to attract top talent. we don't want to pay them big salaries. We don't want to pay them big guaranteed bonuses. So we are a company that believes in aligning incentives between shareholders and management. And we believe that the dilutive effect of that stock allocation is by far, by far inferior to the value created by these people. Because you understand when you run the numbers and you have a dilutive effect of, say, kind of low single digit percentage points, but these people can create value that has the company expanding many times over. I think these are incomparable things. And in designing our share incentive programs, we like to set high targets, meaning that the bulk of these share allocations are in form of options with high strike prices. So again, as approved by AGM, we presented the plan in great detail. There are three tiers for the stock options. The lowest one starts at RON 15 per share. This is about where the company is trading at the moment. The next tier is at RON 20 per share. The next tier is at RON 25 per share. So the management makes money only if the stock goes above and they make a lot of money if the stock goes much beyond RON 25 per share, because otherwise, they are underwater. So again, please rest assured, we are quite greedy when it comes to stock. I think we set high targets for the management, and they are going to make money only if we, as shareholders, make money. And maybe the last thing I'll say, the management on this call is witness to that. Very often -- the interest of -- very often. Ofter, the interest of shareholder and managers are misaligned. For example when a manager comes and wants to increase the salary and says, "Look, I want to increase my salary; the inflation was high, I want like 20% bump in my salary or 30% bump." My answer is always the same as Chair of the board. Think as a shareholder. Most of your value is in shares. It's not in your salary. This is the mindset we are trying to get in the company. By the way, this doesn't apply only to the top managers. This apply -- this is a deep program, we have about 30 people covered by this program. So this is heads of agricultural segments, heads of wineries, winemakers, people in the finance department, and people in the sales department. This is quite a deep program, and we want these individuals to think as shareholders, not as managers who want to take the highest salary possible. Sorry for the long answer, but I think this is key to the culture we are trying to build here. A culture where the interests of management, including middle management are aligned with the interests of shareholders. They only make money if we, as shareholders make money.

Thank you, Vasile. Moving to the next question. Are there any other live questions before we take the ones in the chat?

I think we can take a question from the chat. So Anatol, please be prepared. The question is for you. So can we expect COGS to stay low in the third quarter, assuming that the effect from the costlier bulk of 2020 and 2021 vintages are close to 0.

Thank you for the question. You are right. Our, let say, guidance for the full year include this assumption. Cost, let say, of inventory also on wine, we expect to go down because we already started to use all the stock, but in the meantime, we have other costs, including revised people salaries and also other overheads, which have, let say, driven by inflation grew up. So, all in all, net will be the same trend. COGS decreasing rates. We plan to continuously improve margins in Q3 and Q4.

Thank you, Anatol. Moving from operational performance to commercial activity. So Alex, I think this one is for you.

Yes, I can cover it.

Alex, just -- participant asked to read loud the question because this would be useful for -- best option.

So the question is following the acquisition of the distribution company in Turkey, how much did revenues in Turkey increase? What do you estimate by the end of the year? Sales in Turkey have followed historically a pattern where we have several very large deliveries throughout the year, rather than a continuous flow of smaller deliveries. This has to do with the complexity or the challenge of logistics to Turkey primarily via sea. We as such, are now preparing a new delivery of a large shipment towards Turkey in the third quarter, covering a large part of the sales for the third and fourth quarters. So far, we have not had sales in the first half of the year, but we will have a large dispatch in the third quarter. How is grape production for 2024? This is a rather complex topic because we need to define where, Bulgaria, Romania, Moldova. For everyone to take note, we operate vineyards across these three markets, and we source grapes from multiple places within these geographies. And as such, we have the benefit of hedging to a certain extent. That being said, the bulk of what we do is in Moldova, so we can focus on that. We are at the beginning of the harvest, we do understand that harvest is actually started last week, and a lot is to be done. What we see now is across Moldova, there is a challenging environment for many grape producers, primarily due to drought. We had the benefit that at Purcari, we have 300 hectares irrigated, and hence, our productivity there is to a large extent insulated against drought. We also have the benefit of a diverse base of grape suppliers, and we have also proactively expanded this network by tapping into new producers, located in more diverse geographies. So, we are confident that we can secure the supply needed for our forecasted sales for the next couple of years in a tough environment. To a certain extent, we believe that many of our competitors locally will struggle to secure enough supply. So, all in all, quite complex in Moldova, but we believe we have secured our supply, and we are investing further in expanding irrigation so we think that mid-term, we can mitigate this risk. There is a question on if we try. There is a strategy to enter the US market? The answer is yes, we have tried, and we are actually working actually with several large wholesalers in the US. We have started to list primarily Purcari products, and we are now, with a new commercial team, redefining our commercial strategy for the US market. We are also considering dedicated -- hiring a dedicated person for the US market, which we did not have in the past. This is something that we will prioritize as a development given the market potential for the next few months and years. How many hectares of vineyards do you have in each country? Eugeniu, do you have the numbers in hand or?

Using wrong numbers, we have in Romania as of yesterday because we have acquired additional 51 hectares. We have 100 hectares in Romania, circa 100 hectares in Bulgaria, and the rest of them are located in the Republic of Moldova in different sectors. We have increased our vineyards this year because, at the beginning of the year, we acquired Timbus Estate, so we have added additional 130 hectares of premium vineyards near Château Purcari. So literally now, we have around 430 hectares of mature vineyards near [indiscernible] Purcari. So we are quite well-secured. We've own grapes as well we are working with third-party partners to balance the need for grapes.

Okay. Thank you. Further questions?

If no more questions, I want to reiterate my invitation for the October 4 event. We will also arrange an online version, but I think it is really good to have you there in person. And maybe as a preview of what we plan to do. So for the first time we plan to announce a mid term strategy so not beyond the annual guidance we do. We want to share with you how we see the development of Purcari for the mid-term period. We will try to make it a tradition to share with you a mid-term guidance in addition to the annual guidance. The team is working on finalizing all the details. There is tremendous momentum at Purcari with the new team, and there's tremendous energy. I think it is a great time to be an investor in Purcari. At least we, as Horizon Capital, second largest shareholder. Mr. Victor Bostan is the largest shareholder. We believe in a very upbeat future for the company. Thank you for being with us today, and hope to see you on October 4 at Château Purcari.

Vasile, sorry to steal the thunder, but there is one final question we can take very quickly. Any plan for M&A in Europe, short term? I don't know how we define short-term, but within this horizon that Vasile described, M&A will be a growth engine for us, and we are exploring constantly several targets both, in Romania, Bulgaria, and Moldova, but also in new geographies, primarily within Central Europe. I trust this answers your question. Otherwise, on my behalf, looking forward to seeing as many of you at our Investor Day. Also an opportunity for you to meet not only me, but also the rest of the team who have joined. So, hopefully, this will intrigue you as well to see who is going to push behind the strategy that we'll present.

Sorry. It's Alex here. I just had one quick question. I just wanted to clarify on the guidance slide. The revenue or the growth year-on-year, is that excluding -- is that stripping out the EcoSmart from the 2023 base? Or is that -- does that include EcoSmart?

We do not expect any additional revenues from EcoSmart Alex.

If I may, Alex, we announced two revenue growth figures. We announced the group revenue, so say, the total of the group. So the answer to you that figure does not exclude EcoSmart from 2023 comparative base. If we would have excluded, of course, the growth would have been larger. And the second revenue target we announced is the core wine segment growth target or guidance, and that one indeed normalizes for EcoSmart because it takes EcoSmart out of the equation.

Got it, okay, that is clear. And then on the EBITDA margin, obviously the EBITDA margin in the first half is higher than this range, and then you mentioned just now that you're hoping to see sort of an incremental improvement in the gross margin in the second half. So, is it fair to assume that EBITDA margin is likely fairly conservative, or is marketing expense or some sort of SG&A expected to increase in the second half?

Okay. I think there is a certain seasonality element both in the margin and the OpEx side, Alex. But the numbers that we show there are numbers that we are confident we can deliver. There is, as we mentioned, the potential that we exceed them. We just want to avoid underdelivering again, and we'd rather make sure we deliver and perhaps even exceed expectations.

I have another question. We just saw that the Romanian economy is not performing as expected in the first semester of the year, and obviously, your largest market is Romania. How is this impacting your guidance, not only for 2024, but maybe first half of 2025?

Okay. Good. So I think the Romanian economy is growing slower than it used to. That being said, in terms of consumption, if you take a look at the different elements of the GDP, you see that consumption is actually continuing to grow. As such, we do not see in the market any reasons to be concerned about our revenue growth for Romania in the second half of the year. Overall, if we look mid-term, we believe we still have ample space to grow in the Romanian market, and we are well-positioned to do that. There are several opportunities for us, both in expanding distribution of existing brands also developing new brands for segments that we have not catered to until now, that give us enough ammunition to grow and continue to grow in Romania.

And maybe to add to this, Alex, I think you covered it, but I tend to repeat. We still -- market share-wise, we're still not very large in Romania. We're below 20%. Second, segment-wise, we are weak in sparkling, a very important segment. We are weak in brandy, a very important segment. So, there is tremendous growth opportunities in both of these segments. Third, and here I'm going to speak super speculatively, but Romania is entering an election cycle that is going to be quite long. All the signals we get, at least as let's amateur political observers is that the government will keep pumping money into -- by raising minimum salaries by pushing the budgetary expenses. So while this may be bad for some segments of the economy, making the economy less competitive, if you look at net exports and other drivers or investments, other drives of GDP. But on the consumption side, as Alex says, this is actually beneficial to us because Romanians keep buying, and the consumption numbers are still very healthy.

Should we close the session?

Thank you all for spending an hour of your precious Friday time with us. So we look forward to seeing you on October 4th or on the next calls. Thank you very much and have a great weekend.

Thank you.