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

Good afternoon, everyone, and thank you for joining Purcari Wineries Investors Conference Call to discuss our first half 2025 results. I'm Eugeniu Baltag, Head of Investor Relations, and I'm pleased to welcome both our long-term shareholders and new investors on the line today. Before we start, please note that this conference may include some forward-looking statements subject to risks and uncertainties, which could cause actual results to differ from expectations. The financial figures are unaudited and should be reviewed together with the full reporting package, which is available on our corporate website and on the Bucharest Stock Exchange. With that, I would now like to hand over to Alexandru Filip, CEO of our group; and later on to Anatol Belibov, our CFO.

Thank you, Eugeniu. Hello, everyone. A warm welcome also from my side. Getting into the highlights for the first half of the year. Just to acknowledge, it's been focusing on Q2, our third best quarter in terms of sales, which is an important achievement given that most of our sales actually happened in the second half of the year. So we have exceeded with our growth, the seasonality factor that usually is reflected in our sales. We've exceeded RON 100 million threshold, as mentioned there, only behind the fourth quarter of 2023 and 2024, which gives us confidence for the second half of the year. In terms of new product launches, we've launched a special edition of Negru de Purcari range, a limited edition, celebrating our partnership with George Enescu International Music Festival, which started this week. We've also redesigned the Bardar Silver range with a new premium bottle and label, which has gone on the shelves in second quarter of 2024. And we're also launching an anniversary edition of the Bardar XO 6,000 bottle limited edition to celebrate Bardar's 95th anniversary. In terms of operational update, EBITDA has reached RON 49 million, net profit RON 15.6 million, 25% margin for EBITDA within the historical range for this metric, 8% for net profit, slightly below what we have usually recorded, and there are new reasons for this, which we will explain shortly. In terms of underlying drivers, we see pressure on the cost structure, especially the higher cost of the wine that was processed, both processed and acquired out of the 2024 harvest, also rising packaging costs that are impacting our margin. I think an important factor to highlight and will be reflected in the numbers, the growth that we have experienced is reflected -- fundamentally reflecting the strength of our brand and our sales force, not necessarily additional investments in the market. The margin erosion that you will see versus historical highs is fundamentally driven by higher COGS, which we hope will pass, especially the wine cost with the new harvest that we expect to be better than last year, at least the signs as of now, the harvest has just started are encouraging. We have also experienced almost a tripling of the financial cost. The most important driver is a nonmonetary foreign exchange loss due to our exposure in foreign currency and the adverse movement of the local currencies versus fundamentally the euro and also slightly higher interest expenses driven by higher debt exposure to fund the CapEx that we have undertaken for this year. In terms of Investor Relations updates, you are probably all aware that there was a voluntary takeover bid by MASPEX that ran for the second half of July, it has resulted in significant shareholding changes. Many of the investors that have been with us have decided to sell to MASPEX, and MASPEX has now acquired almost 73% of the shares. Mr. Bostan has remained as the second largest shareholder with 15%. We have also, I think, roughly 3,000 investors, institutional and retail investors that have remained as shareholders of the company, and we are grateful to everyone for their support of our company. You are probably also aware that next week, its dividend date, dividend distribution. As communicated, we're looking at a 4.3% yield on shares. Getting into the details, Eugeniu, if you move on. Yes. As I -- in addition to what I mentioned about the product launches, importantly, we hosted one of the most important events in the wine industry, the International Wine Organizations World Conference that took place in Moldova and also one of the important sessions at Purcari. We also attended the Wine Expo in Paris and also providing [indiscernible] just to talk about the largest ones in Europe. And also in China, we attended the most important drinks exhibition there. In addition to Negru de Purcari and Bardar, I would also like to mention the redesign and extension of our Nocturne HORECA range. We have now added very, I would say, unique wine in terms of have both Fumé Blanc for [indiscernible] and also Orange wine, which are quite unique on our core markets, especially Romania, but also Moldova. In terms of medals, just to highlight one, which I think it shows what Purcari has been known for over these many years, our consistency and excellence, highlighting our Saperavi Limited Edition, which has won now 3 Decanter global gold metals in a row, so 2023, 2024, 2025, which speaks highly both of our winemaking but also of our [indiscernible]. And it's a recognition that we're very happy with. In terms of financial performance, as mentioned before, an acceleration in terms of total revenue sales for the first half, you see plus 18%, plus 24% for Q2 year-on-year, so Q2 2025 versus Q4 -- Q2 2024. Gross margin, 44.6%, EBITDA 25%, net profit 8%. We will go into details shortly, and we will explain what drove each of these metrics. Moving on. Yes. In terms of revenue growth mix, we're happy to see sustained momentum in both Romania, Moldova and Bulgaria, which are our core markets. We see a deterioration or a slight reduction in sales in CEE, which, as you know, if you follow the company, it's always a challenging geography in terms of balancing growth and profitability. We're also happy, on the other hand, to see our momentum in the rest of the world, 25% increase. Important also when we look at the brands that I mentioned earlier, the strength of our brands, you see that Purcari is growing nicely. Also our Bostavan ranges linked also to the export sales growing nicely. Angel's, continuing our expansion in Bulgaria and also not to neglect Ceptura, which has a significant share of our sales. If we move on, we have good momentum across the key metrics. If you take a longer-term perspective from 2018 to now, 16% increase in sales, 14% in gross profit and 14% in EBITDA. I think there are very few companies if you look at the -- we're fundamentally almost 4x larger in sales and the margin in relative terms has remained quite solid. We are proud of this momentum, and we have strong plans to continue this. If we move on, Anatol, if you want to take over?

Thank you, Alexandru. So welcome to the investors, welcome to our call today. For sure, we have very strong momentum in terms of revenue. You can see that at least for Q2, we achieved plus 24%. This is linked to plus 18% in core wine business, and other revenue registered also strong growth. It's important to mention that prior year, Q2 was impacted by operators operating from Ecosmart. That's why, let's say, this -- the difference between plus 18% in core wine, which represent 98% of total revenue it's, linked to these levels of Ecosmart. Looking at cost of sales, yes, [indiscernible] that it's increased by 40%. Alex already mentioned that we have [ challenged ] prior year because of drop, our yield in terms of grades, it was more than 40% less and not just Purcari, for all the company that's why now we are sustaining production significantly more expensive bulk wine and this was impacting our profitability. It's important to mention that we are looking to manage the cost of the packaging and let's say, the most important component of the bottle of wine, especially bottle [indiscernible], we managed to decrease slightly the cost in order to offset the impact in gross margin. So looking at gross profit, yes, it's plus 8% Q-on-Q and plus 11% half year. So somehow, we are looking to manage the cost. But also, I think we make a good achievement in terms of change in the price and the mix of the sales, which, let's say, allow us to keep stable, let's say, net price per bottle. Now going down to SG&A. For sure, you can observe that there is a big increase, 33% in Q2 and 30% half 1. Here, for sure, you get more details in the financial statement because we present all the line and you have saw that the biggest impact in terms of marketing and sales is coming for several lines. First of all, it's salary-related costs, which increased 27% year-on-year. This is due to salary inflation, the extension of export sales team, but also implementation of this management incentive plan. It's important to mention that in Q1 2024, there was no impact from management incentive plan. Trade and marketing spend, we are looking to invest more. So we invest more 25% in H1 versus prior year, which reflects our effort to sustaining our brand awareness to improve trade execution. And I do believe that actual revenue performance, it's a good sign that we are making here a good job. Logistic cost, it's increased by 11%, which is in line with our volume dynamic. And one of the most important, let's say, trigger for increase in marketing and sales costs, it's [indiscernible]. So implementation of [ Returo ] make an impact. So from total increase in marketing and sales, approximately 28% or approximately 1/3 is due to [ Returo ] implementation, which I would say, decrease our profitability. Going down to general and administrative costs, I can observe that here the increase is higher, approximately 39% in H1. Here, let's say, the [indiscernible], but it's related cost. And here also it's linked to the review of the salary in line with the inflation. Also important to mention this is management incentive plan, which we include already in, let's say, pro rata in P&L. Also, starting with current year, we already mentioned in Q1 that we changed the application of accounting standard and include provision like accrual in a quarterly basis, the cost of the incentive plan, the cost of performance bonus of the team in order to have more consistent pictures in our P&L. Prior year, yes, all these costs have been booked in December in Q4. That's why the next slide, we will show more clear in details. Other income decreased versus prior year by approximately RON 1.5 million. Here it's important to mention that as we mentioned in financial statements for 2024, the company till June 2024 include a provision 100% for all the receivables from Ukraine because of the war in Ukraine. But considering that there was no problem with payment, it was decided to release this provision to 15%. And this makes a positive impact, let's say, positive impact in P&L for 2024 for RON 2.4 million. Currently, we -- let's say, now we keep the same provision. So there is no change. That's why current year, this other income is lower. But once again, this is of extraordinary release in 2024. EBITDA margin, already mentioned by Alex, it decreased to 25% like percentage of RON 49 million, impacted by, let's say -- most impacted by gross profit margin decrease. Net profit at a level of 8% was RON 15.6 million. For sure, it's important to go now to the next slide in order to go more deep in details to understand what specific impact so, let's say, low performance. So here is a bridge, which allow us to understand how net profit made the variance during this year. So if we start with RON 29.3 million prior year, we managed to get additional RON 8.5 million from improvement in gross profit. Additional -- OpEx made an impact of RON 8.7 million, and this is OpEx without incentive plan and bonus pro rata. Other operating income made a negative impact of RON 0.8 million. So interest, it's impacted just RON 0.6 million increase. For interest, it's important to mention that despite of increasing in loan exposure by 30%, we managed to keep interest in an increase by 12%. So here, we are doing a good job in trying to manage and negotiate better interest rate in order to reduce this impact. And taxes are lower because of the level of the profit. So normalized net profit like-for-like, let's say, should be RON 30.1 million if we compare it with a similar condition for like in H1 2024. But we decide to include pro rata incentive plan cost, performance bonus, which account for approximately RON 2.6 million. Also ForEx linked to strong depreciation of our main functional currency like Moldovan leu, Romanian leu and also Turkish lira because in the current year, we started operation in Turkey and make a significant impact RON 7.9 million, which is approximately 4% in net profit margin. So just coming from this unrealized exchange loss also bad debt provision and Ecosmart, as I already mentioned, this was extraordinary positive impact for profit 2024. And if we put like-for-like, we come to this RON 15.7 million, which is, let's say, the profit from our financial statement. Currently, already now in Moldova, there is a strong appreciation of [indiscernible] back to, let's say, Q1 level. So we expect that this RON 7.9 million will decrease at least by half till end of Q3. And about the next one slide. So in terms of financial flexibility and capital structures. So yes, our cash position is RON 22 million. We are, let's say, safe in terms of cash availability. But in the meantime, it's very important to mention that we are financing part of our CapEx investments from our own funds, and that's why we are maintaining balanced level of cash in order to reduce the interest that we pay to our banks. Net debt at level of RON 240 million, increasing because we started several important -- CapEx-important projects. One of this is expansion of the production line facility in [ Aporca ] in Moldova that's why net debt is increasing. Current ratio in the stable level and cash ratio at 0.10, which is in line with historical level. Debt-to-equity has slightly increased up to 61% and net debt-to-EBITDA at level of 2.14. In terms of financial, I'm here to answer after the presentation, all the question. And now going to the guidance. So we mentioned that our guidance for 2025 in terms of revenue is to grow in a range from 12% to 17%. Now we are under 18%, and there is not any significant risk that will, let's say, be below 12% increase. We have very strong momentum in core wine and also very strong commercial plan to deliver this number. EBITDA margin H1 at level of 25%. After our forecast, yes, we are pretty sure that we will be in this guidance between 26% and 28%. Net income, our forecast -- so once again, 8% include this extraordinary RON 7.5 million exchange rate loss, which we expect until end of the year with appreciation of Moldovan leu with Turkish lira will be lowered. So -- and also, with our budgeted cost, we are pretty sure that we will be in the target 13%, 15% net income margin. So that's why at the moment, we are keeping the previous guidance for 2025. Eugeniu?

Alexandru, thank you for this update. Definitely, we are going to have questions, and please allow me to show 2 snapshots regarding our current shareholder structure. So what you see on the right part of the slide, you may see the shareholder structure after the voluntary takeover bid. On the left side, you may see -- and you see the previous shareholder structure. So at this moment, we have MASPEX with almost 73% of shares Amboselt Universal, which is -- belongs to Mr. Bostan, the founder of our group, have around 15%. And then we have around 3,000 investors who have around 12%. So actually, the fee float for wine stake is around 12%. And that being said, I propose to go straight to the Q&A session in order to answer your, let's say, most valuable questions and not to lose time with showing just that information.

[Operator Instructions]

I hope you can hear me well.

Daniela, yes.

Congratulations on the record results. My first question is how does MASPEX plan to integrate Purcari into its portfolio? And what strategic changes should we expect in the short to medium term? And the second one is regarding SG&A expenses. I noticed that it strongly increased in this half year. And should we expect this trend to persist going forward? That's all.

Okay. Let me address the first one, and Anatol, you can prepare for the second one. Daniela, I think one important point for everyone to know, following the completion of the voluntary takeover offer, MASPEX is now in the process of getting the regulatory approvals to exercise control over Purcari. And this is a process that might extend for another month or 2. We don't know because we're talking about, I think, antitrust clearance in 3 jurisdictions, Romania, Moldova and Bulgaria. And until this process is complete, we cannot discuss about any type of integration with MASPEX. And hence, we can also not communicate publicly. I think I would relate for now to what MASPEX communicated in their public communication about their intent to support the company to deliver the 2027 strategy. So in terms of our strategy, as of now, I would not expect changes, and we continue to make the investments and to build the capabilities needed to deliver the 2027 strategy, okay? If there are changes, we will communicate them in due time. But as of now, there are no updates. Okay? Anatol [indiscernible]

So Daniela, about OpEx for sure, yes, so OpEx are increasing, and this is the trend that we saw in Q1 and Q2. I think it's important once again to highlight this change in accounting treatment, let's say, our accounting that we are looking now to book in our, let's say, expense timely rather the cost. So that's why if you compare H1 2025 to H1 2024, this change making impact, it's this RON 2.6 million. If we speak about our forecast for full year, so currently, we are in the budget and as percentage, our OpEx, it's stable at level of '27. We have '28 versus prior year. So we increased because we start to invest. We are speaking about the expansion of sales export team, implementation of this management incentive plan, which have a big cost. But let's say, this is the investment that was approved in order to deliver the growth company. But once again, as a percentage OpEx in revenue, we are stable, we are looking to decrease in 2026, 2027 by getting higher revenue. So the path of growth will be faster. So I hope I answered your question or you were more specific about OpEx. And for sure, yes, salary is one of the biggest contributor. But in this salary, it included also the cost of incentive plan.

That's clear. And regarding the ForEx loss, you mentioned that in third quarter, you're expecting to, let's say, see some recovery. How about the full year? Where it could stand?

So okay, we have several, let's say, action plans here. First is about to manage our, let's say, non-loans exposure to euro. We have to try to reduce the balance sheet item in euro. And this is our first action. If we speak about currency, yes, so now we are looking for Moldova already, which is down by 0.2%, which is good. And we expect it to be at this level, discussing with banks of Moldova. So we expect that now the situation is more stable. So we are pretty sure that for Q4 will be more or less in the current level. About Turkish lira, we speak with colleagues and also there is expectation that there will be some correction. So now our expectation is based just from Moldovan leu and Turkish lira. We can expect also from Romanian leu to be some correction. But here, let's say, it's less confidence in this. But the biggest exposure so from this RON 7.5 million, approximately RON 4 million coming from Moldova. So if the Moldovan leu will go down to up with appreciation, at least half of the amount should be in [indiscernible].

It's Adrian from [indiscernible] Partners. I have several questions for you. So will there be some favorable cost structure expected to be -- to persist in 4Q? I know that you said that the harvest last year wasn't the greatest and how -- I don't know, are there any hedging strategies or supplier negotiations in place?

Okay. You said you have more questions. Maybe we take them all and then...

The other one is related to revenues. So what contributed to the strong volume growth in the core market, Romania and Moldova? Or I don't know are there specific channels, retail or HORECA driving this growth?

Okay. Good. Anatol you want to answer the first one and I answer the revenue.

Yes, yes. Sure. So about the COGS, once again, we mentioned that we are in the wine industry, let's say, we are transferring the wine in the production for next year. So the cost, it's already in our stock. So we cannot make any, let's say, activities now. What we already did that we made some price adjustment, yes? And we know the cost of the wine beginning of 2025. Yes, we discussed with sales team, all the team. So we already put in place some action to mitigate the impact on gross margin coming from this expensive wine. What is good that already now we see a very good sign from our agriculture team that the yield will be good now and now we expect the...

Anatol, Adrian's question was focused primarily on Q3 and Q4.

Yes. So pricing should cover the cost impact. Yes, the second part, we are looking also to negotiate better price for packaging, also to mitigate the impact on gross margin. So we expect that the gross margin in Q3, Q4 will be, let's say, better than current...

I mean, Adrian, there is one more point from my side. If you look at the history of the company, due to the mix effect, Q3 and Q4 have historically had better margins. This is the time when people somehow if you want spend a bit more and buy a better wine, a better brandy for special occasions. And we see that not only in acceleration of sales, but also in acceleration of more expensive higher-margin products. So this is something to factor in as well. In terms of revenues, I think if you look at the numbers, it's been across the board, so growth in Romania, Bulgaria, Moldova, exports outside [indiscernible]. You see significant growth in Purcari, which is linked to Romania, Moldova and to a certain extent, Bulgaria. For Purcari it's a combination of more than trade, but not only modern trade because I think if you can make this experiment if you live in Romania, all the investors can do this. By now, our 18, 27 range has reached a very high numerical distribution. It's -- I believe, weighted, it's close to 95%. So it's no longer just a matter of growing in modern trade outlets but also in traditional trade also. Similarly, our Nocturne range for HORECA has performed well and continues to grow. And it's a combination for this, both of getting into more outlets, but also accelerating sales in those outlets where we're present. So this would be largely the drivers.

A lot clear. We expect better 3 or 3Q.

Okay. We know where the expectations are. Are there questions?

[indiscernible], you have raised the hands. So please proceed with your question.

My first question is regarding the fiscal changes in Romania. The VAT and excise duty, how do we expect this to impact sales, volumes and margins for Purcari? And the second one is regarding the FX impact and losses, are they mainly due to those loans in euros? And if so, what is the reason that Purcari has mainly its debt in euro given that operations are partly in Moldova, partly in Romania? Also, we can expect some natural hedging effect from the fact that Purcari sells across Europe, probably in euros. If you could please guide us a little bit here. And the third question is regarding the sales in Poland and in Central European countries in general that didn't perform very well in the last quarter. So here, my question is, is the new shareholder which has broad experience in this market will provide Purcari any support to revive growth in these markets and where we can -- and when we can see any impact?

Okay. Anatol, I'll let you address the FX question and I'll then come back. And you can also comment on the fiscal changes.

Yes. So let's start with the second one, about loans. Yes, historically, Purcari was focused to get loans in euro and we continue by doing this now. And the main reason for this is the, let's say, the interest rate, which is more stable and significantly lower versus loans in domestic currency. That's why we are keeping this focus to have loans in euro. Historically, Moldovan leu was more or less stable without such variance. And this was the second point. So yes, we are looking forward also to be credited in euro in order to have a better rate and more stable. About the action for sure, our most exposure in terms of this ForEx loss is coming from loans. Here in Moldova also, we have some loans in Turkey. About receivable, yes, we have some receivable in Moldova, but it's not so significant. So more -- big part of this loss is coming from loans in euro. About hedging, we are looking to once again to encash our receivable from export current close to 25%, 30% was paid in Moldova is export. But here in the period of storing cash [indiscernible] exports is longer. This is about loans. About fiscal, [indiscernible] let's say, it is not about perhaps the most important -- the biggest impact, it's about consumption, how much people will spend for this. So excise now in Romania, it's not so big. Until now, when we import Purcari from Moldova to Romania, we already paid excise. So for us, it's not so big like impact. For us, it's important how consumer trend will follow this change in tax in Romania. And I will allow Alex to comment on the sales.

Yes. I think on -- nothing to add on fiscal point. We believe that when consumption -- if consumption suffers, the stronger brands will suffer the least, and we believe we have a very strong brand. So I think in relative terms, we are confident that the impact will not be significant. On the sales in Poland and CEE, as mentioned before, we cannot comment on behalf of MASPEX, but common sense would indicate that shareholders who owns 73% of the company will do everything it can to support the company to succeed, especially where -- it has such a strong presence in Poland and CEE. So I can only hope, but I think it's a reasonable hope to expect such support, and then we will see what is the time line for this to materialize. I guess it will be gradual, but I would imagine already from next year, something will be visible.

And maybe a follow-up here on the consumer spending. Already 1 month has passed since the VAT has come into force. How do you see -- for example, for August, do you see an impact on sales, how customers are reacting? And one more for follow-up here is also -- so just to understand better, Purcari will pass to consumers all the tax increases that has been approved by the government. So nothing to absorb by the company. Everything is passes to customer.

I mean, we invoice, excluding VAT. There is no discussion. So it's 100%. And I think the key question is more on what the retailers will do, but this doesn't concern only Purcari, their overall pricing decision and how quickly they transfer this to consumers.

Okay. So in negotiation with retailers, there's no point to split the VAT increase between producers and retailers. Everything is passed to retailers and then they decide what they apply at the shelf.

I mean for us, it's business as usual. We invoice, we deliver as usually, prices are agreed, excluding VAT. And I would imagine that this would be a massive exercise for any retailer to renegotiate with their entire supplier base in such a short period of time. So this is not the case. Now on your other point, I think it's a bit too early to tell because what we -- for every client in every moment in time, we know only what we deliver, but we don't have view on what they actually sell and also what are their inventories between one period and another. And the difference between these 3 numbers can mean anything on a given month. If this [indiscernible] with high inventories, they might have sold a lot, but they don't necessarily need to order one and vice versa. I think for us, for now, things seem okay. We're in relatively calm situation, but of course, it's only 1 month. We will need to see a bit longer and also at a rather particular month. August with a lot of holidays, it's not necessarily the most indicative. We will see. For us, it will be important to see September and October because these are both, let's say, more stable months. Also we'll see impact on actual consumption patterns for consumers more broadly and also due to the seasonality, important for our overall year-end results. Are there questions?

It seems that we don't have any other questions. Probably, it's August and investors want to enjoy the last summer days. With that, I want to thank you to all participants and declare that this con call has ended. Thank you.

Thank you, everyone.