CFA Institute Research Challenge Hosted by CFA Society Romania Babeș-Bolyai University of Cluj-Napoca

CFA Institute Research Challenge hosted by CFA Society Romania Babeș-Bolyai University of Cluj-Napoca

The CFA Institute Research Challenge is a global competition that tests the equity research and valuation, investment report writing, and presentation skills of university students. The following report was prepared in compliance with the Official Rules of the CFA Institute Research Challenge, is submitted by a team of university students as part of this annual educational initiative and should not be considered a professional report.

Disclosures: Ownership and material conflicts of interest The author(s), or a member of their household, of this report holds a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation Compensation of the author(s) of this report is not based on investment banking revenue. Position as an officer or a director The author(s), or a member of their household, does not serve as an officer, director, or advisory board member of the subject company. Market making The author(s) does not act as a market maker in the subject company’s securities. Disclaimer The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Society Romania, CFA Institute, or the CFA Institute Research Challenge with regard to this company’s stock.

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge BABEȘ-BOLYAI University, FSEGA Research 2020

Stock exchange: BSE Sector: Food & Beverages Current price: RON 25.80 Ticker: WINE Industry: Beverages Target price: RON 31.87 Date: February 19, 2020 Sub-industry: Distillers & Wineries Upside: 23.53% Recommendation: BUY

INVESTMENT SUMMARY Table 1 We issue a BUY recommendation with a 1-year target price of RON 31.87 representing a 23.5% upside Market snapshot from the closing price of February 19, 2020. Our target price is derived from a mix of Free Cash Flow to Closing price (RON) Firm Model (FCFF) and relative multiples valuation (P/E and EV/EBITDA), attributing equal weights to February 19, 2020 25.8 each methodology. Our recommendation is based on the following key drivers: 52 weeks high (RON) 25.8 Wine industry poised for growth amidst consumption-led economic growth 52 weeks low (RON) 18.2 The latest estimates of the European Commission put Romania as runner-up in terms of economic growth with a steady 3.8% GDP growth projection. With consumption being the chief driver of the GDP Trading volume (6 months) 3,074,231 pace, it will set up an encouraging environment for the growth in the Food & Beverages Industry. As a Outstanding shares (m.) 20 matter of fact, according to the figures provided by Euromonitor, the wine industry in Romania has Market Cap. (m. RON) 516 grown by 7.2% during 2013-2018 and it is expected that it will brisk up its pace in the future. Also, our P/E 11.56 survey conducted on the local market highlights that wine is the main alcoholic beverage preferred by Source: bvb.ro, Reuters close to 67% of our respondents. Profitability above industry levels Fig. 1 Relative share price performance Purcari Wineries managed to significantly improve its performance over the last 5 years, achieving a net profit margin above industry levels: 22.6% vs 8.8%. We assume that the Group will be able to keep higher profitability ratios given its costs advantages stemming from the favourable geographical positioning (the Republic of Moldova and Romania). These countries create the perfect environment for a wine producer: rich soil and less expensive labour force. Moreover, these advantages enable the producer to focus on premium products and earn its spot on the international competitions among world-renowned wines. More than 40 countries under the company’s umbrella WINE BET FTAWEU In the search for beating a path to wine tasters’ door, the company exports to more than 40 countries across the world. The lion’s share of the Group’s sales is represented by Romania with 41%, followed Source: bvb.ro, Reuters by Moldova and Poland with 23% and 10%, respectively. Speaking of Poland, seizing the not fully *FTAWEU – FTSE International All-World exploited niche of the Polish market, we assume the Group will try to replicate the development model regional Indices – Emerging Europe applied for Romania. Going the extra mile with an experienced team On top of revered vineyards, the company boasts with an experienced team which we perceive to be one of the Winery’s biggest assets. The BoD members as well as the executive team have valuable insights in various fields spanning from oenology, finance to marketing and entrepreneurship. Also, Victor Bostan, founder and CEO of the company, has over 35 years of experience in the wine industry and managed to build a dedicated team. Bucharest Stock Exchange promoted to emerging markets The promotion of Romania from Frontier market to Secondary Emerging Market in September 2019 according to FTSE Russell will most likely attract new capital inflows. We view it as a favourable background for the WINE’s price to continue its uptrend. On top of these, another incentive for investors is the Group’s dividend policy: a commitment to pay out 50% of the net profit. 710 RON 34 Horizon Capital returns RON 33 610 Announcement of to back Purcari RON 31 Wineries the Emergency RON 30 510 Governmental Horizon Capital seals 3.3x RON 28 Ordinance return exiting WINE 410 114/2018 Final Dividend for the year RON 27 2018 declared; RON 25 Thousands 310 Appointment of Victor Volume RON 24 Arapan as Executive 2018 Earnings RON 22 210 director Closing price guidance RON 21 110 Equity Buyback Q3 2019 results RON 19 Plan for 200,000 RON 18 10 shares RON 16

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge BABEȘ-BOLYAI University, FSEGA Research 2020 HIGHLIGHTS

Recently appointed COO committed to the Company’s growth agenda Mr. Eugen Comendant has joined the management team in May 2019 and brings in a vast experience Fig. 2 Forecasted revenue growth (m. RON) of 15 years in both corporate and entrepreneurial environment. He is keen to further implement the company’s expansion plan, which aims at making Purcari a regional leader of the Central and Eastern Revenues YoY growth 600 40% Europe (CEE) as well as at consolidating the highly fragmented wine industry.

30% 400 Acquisitions accretive to earnings 20% The latest acquisitions of Husi and Vismos wineries are expected to strengthen the company’s market share locally. Given the company’s approach to buy assets at below market prices (e.g. Husi assets were 200 10% transferred during its insolvency procedure), we expect it will translate positively into the Groups profitability margins. 0 0% Horizon Capital returns as shareholder 2020F 2021F 2022F 2023F 2024F 2019E 2017A 2018A Horizon Capital became the Company’s shareholder back in 2010. It reduced its participation in the Source: Company data, team estimates February 2018 IPO and completely divested its shares by October 2019, given the lifetime of the fund. After earning a three-fold increase to the investment made, it didn’t last too long until Horizon Capital returned with a USD 7 m. investment via the Emerging Europe Growth Fund III for a 6.8% stake in Fig. 3 Evolution of own harvest Purcari. This comeback is quite a strong sign of investors’ confidence in the Company confirming our vs 3rd party purchase BUY recommendation.

100% 28% 57% BUSINESS DESCRIPTION 56% 65% 3rd party purchases 50% Leading wine player in CEE 72% Self- 44% 35% 43% production Purcari Wineries Plc (WINE) is the top wine player in CEE and one of the most prominent figures of the 0% entire European wine industry. The Group is comprised of 3 wineries (Purcari, Crama Ceptura, Bostavan) and one distillery (Bardar) with a combined surface of 1,392 ha situated in Moldova and Romania (Appendix B-3). The deep roots of Purcari prestigious history date back to 1827. From that moment, Source: Purcari IPO, team analysis wine intensity and complexity have been its perpetual values of quality. The resemblance of the vineyard’s terroir with the one from the well-known French region, Bordeaux brought a high recognition of the brand among famous wine tasters of those times. The company is incorporated under the laws of Cyprus and is listed on the Bucharest Stock Exchange (BSE) since February 2018. Fig. 4 Production capacities Underpinning growth potential 40,000 The Group has become the fastest growing large winery in Romania, managing to triple its market share 30,000 over the last 4 years on the local market. Also, it proves to be the largest exporter of wine from Moldova

Kl wine Kl 20,000 and delivers a large variety of wines to over 40 countries in Europe (Poland, Ukraine, the Czech Republic, 10,000 Slovakia etc.), Asia (China, South Korea, Japan), and America (USA and Canada). - Steadily expanding production capacities Processing Bottling As WINE gears for long-term expansion, it managed to achieve a production hike within a 2-year time Dec-17 Dec-19 span in terms of processing and bottling stages. Some of the pillars that set the basis for this ongoing Source: Company information growth are the projected increase in wine demand and the development strategy of the Group. Yet, this expected increase was not only handled by the rise in these capacities, but also by the upsurge of 3rd party acquisitions related to own harvest. Fig. 5 Purcari medals won at Decanter 14 WINE brands cover a wide spectrum of tastes 13 The company provides consumers with a generous offer ranging from still and sparkling wine to the 11 brandy specialties. Purcari is highly appreciated in Europe for the excellent quality delivered at a very competitive price. The Group follows some key differentiation principles in the wine making process that 8 sets it apart from its competitors and provides tasters with the unique experience of savoring every drop 6 (Appendix B-6). On the wines rating app – Vivino - that has around 30 m. users, Purcari was awarded #1 in the Top 25 wines below RON 30. Also, the brand holds a majority presence with 8 out of 10 2 positions in the RON 30 – RON 60 segment and 10 such recognitions in TOP 25. WINE was granted numerous prizes, among which the rank of CEE winery of the year in 2015-2019 at Decanter, the “Wine 2014 2015 2016 2017 2018 2019 Olympics” hosted in London (more awards for all brands are detailed in Appendix B-1). Source: Decanter website, team analysis

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge BABEȘ-BOLYAI University, FSEGA Research 2020 Compelling YoY growth across the brands Fig. 6 Revenues by brands Purcari brand grasps the majority of the Group sales and is also the fastest growing segment (CAGR 2014-2018 of 47.71%). We expect it to be maintained and even extended due to the distributor shift in Moldova to Coca Cola. In what concerns Bostavan, it also experienced growth, but it was the smallest from the fellow branches because of tough price competition and key distributor reconfiguration in the Czech Republic and Slovakia. However, the effect is likely to vanish by 2020 Q2. On the other side, Bardar and Crama Ceptura show solid growth prospects considering the new launches. Having a long- term perspective, the Group focuses on both keeping and strengthening the relationship with its key suppliers. In this respect, WINE acquired 31.4% share interest in IM Glass Container Company S.A., the leading producer of glass bottles in Moldova (Appendix B-2). 2014 2015 2016 2017 2018 Innovation and premiumization as key catalysts Purcari Crama Ceptura Bostovan Bardar One of the company’s key growth strategies is premiumization across all brands within its portfolio. It Source: Company information started in 2017 with Purcari brand by adding sparkling wine to its spectrum and continued with the launch of Dor series for Bostavan. The already awarded Dominum Cervi for Crama Ceptura and the switch of Bardar from bulk to bottled divine are some other living proofs of ongoing search for innovation. Premiumization also has a notable positive impact on the margins, as the selling price for premium wines Table 2 is well above the mainstream prices. On average, a liter of premium Purcari is sold at about 4 times the List of Board of Directors price of a corresponding Bostavan. Also, the innovative products intended to bring a fresh look on the Victor Bostan market in the spring of 2020 are a new rosé for Bostavan, 2 other brands for Purcari, and clay Amphora Victor Arapan series wine (Appendix B-4). Monica Cadogan Neil McGregor CORPORATE GOVERNANCE Vasile Tofan Source: Company data Embracing the CEO-Chairman split Although the issue of CEO duality has been debated for the last couple of decades, current corporate governance trends have been pointing towards separating the roles of the board and management. We Table 3 also think it is a good practice since the separation allows each person to devote the proper time to their List of Executive role and wipes out potential conflicts of interest. Taking this into account, the Group is on the right track Position Management as it has a one-tier board structure composed of executive and non-executive directors with the Victor Bostan CEO company’s CEO (Victor Bostan) being different than its Chairman (Vasile Tofan). Another key aspect Eugen Comendant COO worth mentioning is that there are no dual-class shares, ensuring the principle of straight voting, which Victor Arapan CFO smoothens the decision-making process by granting equal rights to all shareholders. Marcel Grăjdieru General Manager Leveraging the benefits of management incentive plans Artur Marin CCO In order to retain and motivate its key personnel, the company set up a remuneration policy which is Nicolae Chiosa CPO based on three main pillars: Federico Giotto Head Wine Maker  base remuneration which offers basic income to employees; Natalia Chirca Marketing Director  annual bonus that sets a compensation scheme tailored for each employee for reaching certain Natalia Bunciuc HR Director Source: Company data prearranged KPIs;  share and stock option-based motivation plan with a 4-year delivery scheme.

Fig. 7 Worldwide revenue (billion USD) To fulfil the aforementioned share-based stock and option scheme, the company kick-started back in June, 2019 the 200,000 share buyback program. Also, at the AGM from 2019 they approved the 400 incentive program of distributing options for the top management at the strike prices of RON 20, RON 300 30 and RON 40 relying on performance criteria. Wrapping it up, we view the remuneration policy as a 200 100 straight-forward and fair incentive strategy setting the path for a highly committed team which might

0 be reflected in the share price performance.

Wearing more than one hat: The CEO has multiple roles within the company Although Mr. Bostan, the CEO, is not the Chairman of the Board, he is still a BoD member granting him Source: OIV, Statista an overweight power in the actual decision-making process of the company. Additionally, he also owns close to 20% of the company via Amboselt Universal Inc. Not only is Mr. Bostan involved in executive Fig. 8 Europe key wine industry metrics and administrative team, but he is also director of VictoriaVin, wherefrom majority of Moldovan vineyards are leased. He exerts therefore a considerable influence on the overall performance of the company and his decisions affect extended areas of the Group’s operations.

New Vektor indicator - a good gauge of Investor Relations Considering this benchmark (designed by the Romanian Investor Relations Association - ARIR to quantify the companies’ relationship with investors), the company scored 7.5 out of 10. The strongest

Source: OIV points are: transparency displayed both in investors meetings and financial reports, while the

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge BABEȘ-BOLYAI University, FSEGA Research 2020 weaknesses seem to be connected with too little information disclosure about BoD and executive Fig. 9 Wine retail sales by region 2018 (mhl) management members. Governance poised for long term success AUSTRALASIA 704 We employed a corporate governance valuation method to assign a rating for the company by taking MIDDLE EAST AND AFRICA 1180 into account CFA Principles of corporate governance and adjusting them for the BSE Governance Code LATIN AMERICA 1931 for the Committees appraisal (Appendix C-5). On the one hand, the company registered high scores for EASTERN EUROPE 2761 the composition of the Board, Committees and protection of shareholders’ rights. On the other hand, the company’s Achilles' heel when it comes to corporate governance is concerned with Mr. Bostan’s multiple NORTH AMERICA 3827 roles in the company which could lead to potential conflicts of interests. Overall, the Company reached ASIA PACIFIC 6213 a score of 86.1% which reflects that most of the required criteria by corporate governance principles are WESTERN EUROPE 11546 fulfilled by the Group.

Source: Euromonitor, team analysis INDUSTRY OVERVIEW & COMPETITIVE POSITIONING INDUSTRY OVERVIEW

Fig. 10 Total private The global wine industry is leaning towards growth expenditure/household/month (RON) The wine market is expected to grow by a steady 3.8% CAGR during 2019-2023 (Source: Statista) backed by an increased wine consumption in China, the shift in consumers’ preferences from beer and 2000 spirits to wine and the rising demand for rosé wines. Wine prices up by 33 % in the last decade While the global wine trade recorded a significant increase in recent years (from EUR 18 billion in 2007 0 to EUR 30 billion in 2017), the area of vineyards in continental Europe has shrunk by almost 11% due 2015 2016 2017 2018 to regulations imposed by EU authorities. Consequently, the average price per litre of traded wine has Source: INSE Romania, 2018 jumped from EUR 2.1 in 2006 to EUR 2.8 in 2017. Eastern Europe steps away from shaky grounds During 2014-2016, there was a significant drop in sales in Eastern Europe amidst the unfavourable Fig. 11 Production of wine in economic climate clouded by the unstable political environment in Ukraine and the gradual rise in the Moldova ('000 tonnes) excise tax in Lithuania. The picture looks brighter now as the wine sector has started to recover by a 2% growth reaching 2,761 million litres in 2018. 154.9 154.3 Private consumption fuels economic growth in Romania 152.6 The noticeable increase in wages enables Romanians to refine their preferences and choose premium 150.7 products. As in Romania private consumption is a main contributor to economic growth, we assume this 148.4 trend will continue, consumers being most likely to push the sales of premium products upwards. Winemaking - an important pillar of Moldova’s economy The main production facilities of the Group are located in the Republic of Moldova where the wine 2015 2016 2017 2018 2019 industry plays a significant role in the country’s economy, representing 3.2% of GDP and 7.5% of exports Source: Euromonitor, team analysis in 2018. About 15% of the active population is involved in wine production or adjacent industries. Thus, the wine industry represents a “business card” for Moldova motivating the state’s authorities to further develop this sector by offering subsidies and attracting foreign investments. In March 2017, the Parliament of Moldova declared wine as a food product creating fresh premises for the development of Fig. 12 Moldova’s vineyards’ density, 2019 wine segment. In the same year, Moldova has introduced an excise duty on imported still wine as a protective measure to support local wine producers that is generally favourable to the Group’s performance. TRENDS “The Asian tiger” develops a taste for wine China has earned its title of the world's fastest-growing major economy boasting a 7% GDP growth rate over the last couple of years. This stellar economic performance comes on top of a notable switch from baijiu to wine. More than that, the Chinese middle class has acquired a taste for premium wines. Chinese economy clobbered by coronavirus in 2020, yet expected to recover soon The recent outbreak of COVID-19 has sparked plenty of concerns among investors. Reuters poll points towards a lower estimate of GDP growth in 2020 from 6.1% to 5.5%. Yet, this is expected to recover in Source: OIV, team analysis the long-run. To reckon with this pessimistic outlook we lowered the sales estimates for 2020. However, we project that in the long-run the Group will continue strengthening its position on the market by

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge BABEȘ-BOLYAI University, FSEGA Research 2020 improving its distribution strategy. The company plans to open a warehouse in China in order to reduce Fig. 13 Forecast revenue growth, the delivery time from 8 to 3 weeks and set-up a local sales team. 10% by category, 2019-2023 CAGR Beer Wine industry outpaces beer and spirits in terms of projected sales growth 8% Wine The wine industry is expected to grow by 21% in 2023 compared to 2018 in terms of worldwide 6% Spirits revenue. The beer segment is estimated to lag behind with a 20% growth, followed by the spirits sector 4% with a 17% growth rate (Source: Statista). The gap in potential growth rate is even wider in the countries in which Purcari Wineries Group exports the most (Romania, Poland, the Czech Republic, Slovakia, and 2% China), creating a favourable context for increasing the revenues of wine producers as beer and spirits 0% are substitute products for wine. In addition, the per capita wine consumption in these markets is lower Romania Poland Czechia Slovakia China than in Western Europe, offering ample room for growth. Source: Euromonitor, team analysis Pink passion: rosé on the rise as it is millennials’ favourite wine “There is more philosophy in a bottle of wine than in all the books in the world” said Louis Pasteur, a Fig. 14 Wine consumption, 2018 (l/capita) 19th-century French chemist. For some consumers, wine is not just a drink or source of alcohol, it is a 60 mark of civilisation, a way of life. The latest trends unveil that in the land of fine wines, rosé is enjoying a 47 boom - mainly supported by millennials’ interest. In Romania, still rosé wine segment is expected to 40 36 26 25 register the highest contribution in the total volume growth during 2018 - 2023. The Group has caught this wave with its premium rosé wine from Purcari and we assume that it will gain even more after the 20 8 4.8 3 1.5 launch of a new rosé wine in the medium segment (Bostavan), which is expected to take place in 2020. 0 Surging demand for sparkling wines Even if the wine market is dominated by the still wine segment, sparkling wine is gaining ground. The statistics provided by the International Organization of Vine and Wine prove our point by revealing a 40% increase in less than a decade in the global output of sparkling wine. Hence, in a bid to stay ahead Source: OIV of competition, wineries are looking for diversifying their offer of sparkling wines. The Group is in line with this trend as it launched in 2016 a range of sparkling wines "Cuvée de Purcari" which has been Fig. 15 Total volume growth awarded multiple times at world-renowned competitions. 2018-2023 CAGR in Romania Premiumization - higher quality & price favoured by consumers STILL WHITE WINE 1.9% Lately, most wine markets worldwide have witnessed consumers trading up to higher value products STILL ROSE WINE 12% across a wide range of categories. This fact emphasizes the premiumization trend, which is in fact - an STILL RED WINE 3.2% increase in the average price that consumers are willing to pay for a bottle of wine coupled with a better wine quality. The Group has embraced this trend, focusing on the sale of premium wines via its Purcari SPARKLING WINE 4.3% brand that accounts for as much as 40% of total Group’s sales. Source: Euromonitor Dealing with climate change challenges – not an easy task for wine producers In recent years, one of the most debated topics in the agricultural field is the global warming, which is Fig. 16 Index of wine prices in heavily weighing on the wine industry. Hence, wine producers all over the world are facing weather- Romania related threats, such as spring frosts, flooding, hail and draughts, hotter summers, and warmer winters. These phenomena force them to be much more cautious in order to adapt to the new weather conditions and to find new solutions to deal with these adverse effects. Zooming in on the Group, in order to 121.8 117.3 withstand one of the biggest climate threats – the drought, the management is mulling to invest around 113.5113.6115.1 108.7111.1 EUR 1 million in 2020 in the irrigation system, which we accounted for in our Capex estimates. From 106 100 101.9 another point of view, the company has a geographical diversification of its vine plantations (6 areas in Moldova and 2 in Romania) which represents a natural shield to compensate the losses in a certain region with the good harvest from the other locations. Source: Euromonitor, team analysis COMPETITIVE POSITIONING Fig. 17 Market share in Romania, WINE is a leading player in the wine and brandy segments in the CEE region. With its 1,023 hectares by sales, 2018 of prime vineyards, the Group became the chief wine exporter from Moldova, number one premium wine brand in Romania and one of the most awarded wineries in Europe Recaș Cotnari Other Jidvei Net profit margin skyrockets in just three years SMEs The Group is a leader in terms of profitability and growth in the Romanian wine market, as it managed and to boost the net profit margin from 0.23% in 2015 to 24.82% in 2018 positioning itself well-above the Purcari hobbists main competitors. Even though the Group set foot on the Romanian market only several years ago, it Vincon has managed to gain significant market share and become an important player. Speaking of the Zarea Vrancea competitive environment, the Group operates in a relatively fragmented market, as the first 5 key wine SA making companies account for less than 35% of the total sales. Hence, we view it as a favourable Source: Ministry of Finance, team analysis competitive context that will motivate the company to blaze the trail for consolidating the market.

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge BABEȘ-BOLYAI University, FSEGA Research 2020

Excellent terroir adds value for the Group’s products Fig. 18 Direct competitors in The Group’s vineyards are located in the South-Eastern Europe tracing their roots in the Black Sea basin. 30% Romania, by 2018 sales Located at 46-47° latitude just like other famous regions in Europe such as the famous Bordeaux, the Purcari 25% Recas vineyards have a terroir suited for the production of high quality wines, namely: fertile soils, favourable Group terrain, perfect climate conditions and a well-established tradition of production assets which are based 20% Jidvei in a region that boasts more than 5,000 years of vine growing history soaked in a developed wine 15% culture. That being said, the terroir represents a great advantage for Purcari, adding more value to the Zarea SA 10% Group and increasing consumer confidence in its wines. Profit margin in 2018in margin Profit Vincon 5% Cotnari The Group enjoys strong reputation and high consumer confidence Vrancea On top of good quality wine, the Group has also earned a strong reputation in the eyes of its clients as 0% 0% 20% 40% well as international sommeliers. With a record of 58 medals during the period 2015-2019, the Group Sales CAGR,'15-'18 is the leading medal-winning winery in CEE at Decanter - the Wine “Olympics”, positioning itself above Source: Ministry of Finance, team analysis the renowned wineries from Germany (Fritz Waßmer) and Austria (Gsellmann). As concerns the customer appreciation, the Group enjoys the highest scores on Vivino - the world’s largest wine community. As millennials have an increasing role in shaping consumption patterns, the usage of applications such as Vivino will rise, so the existing consumer appreciation on this platform will represent Fig. 19 Highest number of ratings an advantage for the Group. and highest scores on Vivino 4.1 Low cost production platform boosts the Group’s competitiveness Cotnari Jidvei A significant strength of the Group is driven by the low cost production platform in Romania and 3.8 Budureasca Purcari Moldova, which are much lower than the rest of the wine producing countries. Just to give a glimpse, the net average monthly salary in Moldova - where the main production facilities of Purcari are located - is 3.5 the smallest one in Europe (EUR 266 in 2018) and 8 times lower than the one in France (EUR 2225).

Average Average Vivino score The cost advantage stems from lower labour, energy, packaging as well as grape costs. Also, Number of Vivino ratings transportation costs, which are meaningful in the wine distribution, are low in Romania and Poland – the 3.2 two largest regional wine markets. Benefiting from a sustainable cost advantage in the production of 1000 6000 11000 16000 21000 Source: Vivino app bottled wine, the Group can offer to its customers premium wines at affordable prices, much lower than its EU competitors. Another big advantage is that the Group operates in a generally favourable environment of zero excise duty rates for still wine in most of its core markets such as Romania, the

Table 4 Czech Republic, Slovakia and Moldova. Valuation Target price Weights method (RON/share) VALUATION DCF 31.30 50% Peer valuation 32.43 50% We arrived at a target price of RON 31.87/share employing two valuation methods: DCF, which has 31.87 yielded a target price of RON 31.30/share and relative valuation with a target price of RON 32.43/share. Source: Team estimates We assigned equal weights to the methodologies, to capture both the company’s fundamentals, and its position on the market. Intrinsic valuation – FCFF model reveals a target price of RON 31.30/share Table 5 Revenue growth assumptions We have employed the FCFF model as we expect the double-digit revenue growth rate over the Market Key revenue CAGR forecasted period to fuel a steady uptrend in the FCFFs. The method consists of a two-stage drivers 2019- growth approach: specific YoY forecasts until 2024 followed by a 3.16% constant perpetuity 2024F growth rate. To arrive at the FCFF values, we used the Group’s EBIT which is projected to register Romania 1. Increase in private 24.5% a solid yearly increase of 16.9% (CAGR) over 2020-2024. consumption Revenues – further notable growth potential 2. Recent acquisitions Group revenues are the chief driver of the aforementioned improvement in EBIT. We forecasted (increasing market WINE’s revenues using the current relative market share compared to the 6 key players in the wine share) market in Romania. We assumed a 2-stage decelerated growth for the WINE’s relative market Moldova 1. Shift to bottled wine 11.9% share, as the Group becomes more mature and consolidates its structure. Hence, we envisage a 2. Real GDP growth (higher than last 5 CAGR of 24.5% in Romania over the next 5 years. We believe the Group will temperate its previous years growth) growth rate for Moldova to 15% YoY for 2019-2021 (from 17% in 2018), after which we foresee Poland 1. Expanding business 16.9% a slowdown to 10% YoY, given the smaller market size and a more rapid saturation of the market. strategy We also see important growth potential in Poland, which is the key market in the regional 2. Shift from beer wine expansion strategy of WINE. Regarding sales in China, the revenues for the first 2 quarters 2020 (high room for wine will most probably will drop as an upshot of the Coronavirus outbreak which is expected to peak culture improvement) during this period (source: Bloomberg), thus having a short-term negative impact on the Group’s Estimated Group revenue growth 2019E – revenues. Overall, Group revenues are projected to display a CAGR of 16.8% over the next five 2024F: 16.8% years. Source:Source: Team Team assumptions estimates

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge BABEȘ-BOLYAI University, FSEGA Research 2020 Capital expenditures Table 6 WACC assumptions In 2019 the Group ended its RON 55 m. 3-phase investment plan and will further invest in work Assumptions Sources/Comments process mechanization and capillary irrigation. We expect the CAPEX to Sales ratio to remain high Yield of 10Y Romanian over the next several years in order to sustain revenues growth, but to gradually decrease Risk-free rate 4.14% T-Bonds (Reuters) converging to 5.7% - the average industry level. Equity Risk Romanian ERP 7.37% WACC Premium (Damodaran) For discounting the FCFF, we used a WACC of 7.38% estimating a cost of equity of 9.2%, cost of Computed based on Beta 0.40 comparable companies debt of 5.2% and a LTM D/E ratio of 0.63. The cost of equity was calculated by using the Capital CAPM 7.09% Asset Pricing Model adjusted with a weighted country risk premium for the main markets of the Group (Appendix E-2). The cost of debt was taken as the company’s effective interest rate of the Weighted average of Country Risk 2.1% the CRP in main projected borrowings. A more detailed breakdown of the WACC assumption is presented in Table Premium markets 6. Cost of equity 9.2% Adjusted CAPM Terminal Value Estimated effective Cost of debt 5.22% For estimating the terminal value, we computed a normalized FCFF and assumed that it will grow interest rate at a constant rate ad infinitum. We arrived at a terminal growth rate of 3.16% by weighting the Standard CIT rate in Tax rate 12.5% GDP sustainable growth rates of the main Group’s markets with the share of each market’s Cyprus After-tax cost revenues in 2024 (Appendix E-3). 4.57% of debt Relative valuation: Peer analysis Calculated based on a WACC 7.38% After a careful analysis of the business model operated by European players from the wine industry, we target D/E ratio of 0.63 Source: Reuters, Damodaran, team estimates arrived at a range of closely related companies also by considering a market capitalization and revenue proximity. We identified the P/E and EV/EBITDA as the most relevant price multiples because they both reflect the profitability of the Group against industry benchmark. Moreover, EV/EBITDA also accounts for the capital structure differentiation between the companies and allows us to consider the adjustment for debt held by the Group. Using the generally considered ratios of P/E and EV/EBITDA, we

Fig. 20 FCFF Monte Carlo simulation acknowledge that WINE trades at a discount. In our view, this fact is confirmed by the Group’s growth

that sets it apart from the more mature markets its competitors play on. Both multiples point to WINE Target price: RON 31.30 being undervalued relative to the median industry, a fact that translates into the higher target price of RON 32.43/share obtained by giving equal weights to each of them (Appendix E-5). 69.5% probability of a Monte Carlo simulation BUY We performed a Monte Carlo simulation in order to determine the sensitivity of the valuation models to variations in our assumptions. For FCFF, we took into consideration the main key drivers of the target price: terminal growth rate, cost of debt, cost of equity, debt-to-capital ratio, and normalized free cash flow. We ran 1 million simulations resulting in a probability of 69.5% sustaining the BUY recommendation. The analysis shows that the most sensitive factor for our model is the cost of equity Source: Team computation as the Group is mainly financed through equity and its deviations implies changes in WACC. When simulating the outcome of peers valuation, we included into the model the Group’s Debt, EBITDA, and Net Income reaching a 94.8% probability of BUY recommendation. Sensitivity analysis Fig. 21 Peers Monte Carlo simulation We conducted a sensitivity analysis to check the impact of changes to our WACC and terminal growth

Target price: RON 32.43 assumptions. It reflects that the WACC should increase by 62 bps before our recommendation turns 94.8% into a HOLD and by 122 bps until it becomes a SELL. The terminal growth rate should decrease by 116 probability of bps in order to issue a HOLD recommendation. a BUY

Weighted Average Cost of Capital

6.2% 6.8% 7.38% 8.0% 8.6% 4.0% 63.80 48.65 39.08 31.97 26.89

Source: Team computation 3.6% 54.01 42.57 34.94 29.04 24.71 3.16% 46.23 37.44 31.30 26.39 22.69

2.8% 41.33 34.06 28.82 24.54 21.26 Terminal growth rate growth Terminal 2.0% 36.99 30.96 26.50 22.77 19.86

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge BABEȘ-BOLYAI University, FSEGA Research 2020 FINANCIAL ANALYSIS Fig. 22 Sales split by markets, 2018 Other Our assumptions for WINE’s revenues increases are built on the following key drivers: (1) increase in 14% private expenditures for alcoholic beverages, (2) surging consumer confidence in the local markets, (3) Asia boost of millennials’ wine consumption (Appendix D-3), (4) increasing expected growth rate of premium 5% products consumption and (5) the Group’s expansion strategy for each core market. Czech Romania Rep. and Pushing sales growth both in local & foreign markets 40% Slovakia The strong financial performance over 2014-2018 was triggered by a notable increase in sales (CAGR 7% 29.6%), following the Group’s customer base shift from Russia to CEE (due to political turmoil) and large efforts to expand to new markets. Romania, Moldova and Poland all together accounted for a 74% share Poland Moldova from sales in 2018, compared to 51% in 2014 (Fig. 22). We expect Romania to remain the Group’s core 11% 23% market, outpacing the other markets (CAGR 24.5% 2019E-2024F), and expanding locally through new acquisition in 2019 (Husi winery) (Fig. 23). All these are projected to lead to an increase in the market Source: Company data, team computation share Purcari has in Romania. Considering all markets, we estimate a CAGR of 16.8% in total revenues for 2019E-2024F. Fig. 23 Sales by geographic location (m. RON) Double digit revenue growth per brand Other 450 All brands posted double digit revenue growth rates over the last 5 years, the highest one being noticed 400 at Purcari brand (47.7%), followed by Bardar (37.9%), Crama Ceptura (33.7%) and Bostavan (15.2%), Asia 350 as the Group managed to push through price increases and to boost the share of sales derived from the 300 premium Purcari brand. As of the premiumization strategy of Purcari, we expect the share of Purcari Czech Rep. 250 brand to increase, reaching 42% share of portfolio in 2024 (Fig. 24), hence the revenue growth will be and Slovakia 200 mainly driven by the premium wine consumption. Poland 150 Gross margin increases due to premiumization of product mix 100 Moldova Starting from negative gross profit in 2014, the company succeeded not only in turning the business 50 profitable, but also achieved high growth rates in the gross profit (CAGR14-18 of 42.3%). In 2018, the 0 Romania gross profit increased by 22.02% YoY in value terms, and increased its margin by 1.5%. We believe the company benefits from important cost advantages due to the fact that operational production facilities

Source: Company data, team estimates are mainly located in Moldova (a country with cheaper labour force) thus allowing the company to keep costs under control in the future and continue to deliver solid margins. Thus, we expect the Group to Fig. 24 Share of each brand in forge ahead achieving high gross margin, above the average of the sector (50%). the total sales 100% Set to unlock the potential of an excellent asset base and cost advantages The Group`s operating margin skyrocketed from 3.74% in 2014 to 27.8% in 2018. We expect this trend 80% to stabilize and the operating margin to settle around 30% as the Group benefits from an excellent asset 60% base consisting of vineyards that are in their prime age, planted during 2004-2005 and situated in favourable micro-zones for winemaking, along the 45th parallel. Additionally, proper management of 40% cheap resources in the regions where the Group operates, a stable supply chain and strong focus on 20% some non-financial aspects such as negotiation skills and proficient persuasiveness of the Sales and 0% Marketing department should support our expectation of high expected operating margin. Management incentive plan bringing additional benefits SG&A is the second largest expense-item after COGS. SG&A grew from 2014 to 2018 by 284%, mostly Purcari Crama Ceptura pushed by additional hiring in the post IPO phase coupled with higher salary costs as a result of Bostovan Bardar legislative changes in Romania and the Republic of Moldova. However, the overall share of SG&A in Source: Company data, team estimates revenue is still on par or below wine peers. The highest share of expenses within SG&A is represented by employee benefits, which comprise base salaries and related benefits.

Fig. 25 Evolution of COGS margin Superior profitability margins expected to benefit shareholders 300 100% After the February 2018 IPO on BSE, also consisting in the issue of 15.2 m. shares, we expect WINE to deliver a robust EPS growth of 16% 2018A-2024F CAGR while stabilizing its net margin (from 24.8% 200

Millions 2018A to 23.0% 2024F) despite potential tax concerns. We consider Group’s Capex initiatives, 50% strategic shift toward premiumization, and improving operational efficiency will drive net margin 100 expansion moving forward, which in turn will lead to a superior average ROE of 29.2% 2018A-2024F.

- 0% Ongoing investments in high ROI Capex to maximise process quality The Group’s primary Capex ventures are implied to altogether grow production capacities, through acquiring extra grape crushers, barrels, storage tanks, refrigeration facilities and pneumatic presses. The Revenue Cost of sales Group focused on distinguishing high payback ventures to advance optimizing the proficiency of its COGS Margin operations, to assist lower production costs without compromising the quality. Source: Company data, team estimates

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge BABEȘ-BOLYAI University, FSEGA Research 2020

Fig. 28 Depreciation of RON to EUR Counterparty credit risk under the microscope (Impact: Medium; Likelihood: Medium). Over the normal business course, the Group may encounter some bad debt expenses, which can 4.9 negatively impact financial performance. The most significant 10 customers accounted for RON 4.6 27.5 m. or 66% of the trade receivables’ carrying amount as of December 31, 2018. Additionally, as a risk control measure, Purcari enforces prepayment obligations resulting in an improved trade 4.3 receivables turnover of 84 days (from 117 in 2014). Moreover, WINE makes important efforts 4.0 aimed at limiting credit risk such as: checking the credibility of recipients, setting credit limits, and monitoring the situation of each long overdue recipient.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fig. 31 Risk Matrix Source: National Bank of Romania Natural risk Fig. 29 Appreciation of RON to MDL 0.4 Production & supply disruptions 0.3 0.3 Political Increasing 0.2

risk competition 0.2 Financing issues Credit risk FX Rate Impact 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: National Bank of Romania Consumer trends Fig. 30 Impact of 10% upside in FX on Net Income

50 NI 2018

40 NI 2017

Millions 30 NI 2016 20 Likelihood 10 0 Stages 2018 2017 2016 USD/ RON and MDL Importance Minimal Low Moderate Serious Critical

Source: Company data, team analysis Source: Team analysis

List of abbreviations

ABBREVIATION FULL TERM ABBREVIATION FULL TERM EU European Union FCFF Free Cash Flow to the Firm AGM Annual General Meeting FX Foreign Exchange ARIR Romanian Investor Relations Association GDP Gross Domestic Product BoD Board of Directors Group Purcari Wineries Public Company Limited BPS Basis Points HoReCa Hotels, Restaurants, Cafes BSE Bucharest Stock Exchange HR Human Resources CAGR Compound Annual Growth Rate IMF International Monetary Fund CAPEX Capital Expenditure INSE The National Institute of Statistics CAPM Capital Asset Pricing Model IPO Initial Public Offer CEE Central and Eastern Europe KPI Key Performance Indicator CEO Chief Executive Officer LTM Last Twelve Months CFA Chartered Financial Analyst M&A Mergers and Acquisition CFO Chief Financial Officer NWC Net Working Capital CIT Corporate Income Tax OIV International Organization of Vine and Wine COGS Cost of Goods Sold P/E Price-to-Earnings Ratio COO Chief Operating Officer PLC Public Limited Company COVID-19 Coronavirus disease 2019 PV Present Value CPO Chief Product Officer R&D Research and Development CRP Country Risk Premium ROA Return on Assets D/E Debt-to-Equity Ratio ROE Return on Equity DCF Discounted Cash Flow SG&A Sales, General & Administrative expenses EBIT Earnings Before Interest and Taxes SME Small and Medium-Sized Enterprises EBITDA Earnings Before Interest, Taxes, Depreciation T-bond Treasury Bond EPS Earningsand Amortization per Share WACC Weighted Average Cost of Capital ERP Equity Risk Premium WINE Ticker of Purcari Wineries PLC EV Enterprise Value YoY Year on Year

Appendix A: Financial Statements Appendix A-1 Income Statement In RON m. 2017A 2018A 2019E 2020F 2021F 2022F 2023F 2024F Revenue 142.3 168.1 199.1 232.2 278.6 321.2 371.9 432.4 Cost of sales (74.5) (85.5) (99.7) (115.9) (138.8) (160.0) (185.1) (215.1) Gross profit 67.7 82.6 99.4 116.3 139.8 161.2 186.8 217.3 General and administrative expenses (17.5) (23.0) (27.0) (30.9) (37.0) (42.6) (49.2) (57.1) Marketing and sales expenses (11.1) (13.9) (15.2) (17.7) (21.2) (24.5) (28.3) (33.0) Other operating income 0.5 0.3 0.6 0.9 0.9 1.0 1.1 1.2 Other operating expenses (3.6) 0.7 (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) Operating Profit 36.1 46.7 57.7 68.6 82.4 95.1 110.2 128.3 Finance/ Interest income 0.1 4.2 0.1 0.1 0.1 0.1 0.0 0.0 Finance/ Interest expense (3.0) (3.9) (5.8) (6.8) (8.2) (9.4) (10.9) (12.7) Net FX (loss)/gain 1.3 0.7 (0.4) 0.0 0.6 0.8 1.0 1.3 Result from operating activities 36.5 47.7 57.9 68.8 82.6 95.3 110.4 128.5 Equity-accounted investees, net of tax 0.4 1.0 0.2 0.2 0.2 0.2 0.2 0.3 Profit before tax 34.9 48.7 51.7 62.1 75.1 86.8 100.6 117.2 Income tax expense (5.9) (7.0) (7.8) (9.3) (11.3) (13.1) (15.2) (17.7) Profit for the year 29.0 41.7 43.9 52.7 63.8 73.7 85.4 99.5 Source: Company Data, Team forecasts Appendix A-2 Balance Sheet In RON m. 2017A 2018A 2019E 2020F 2021F 2022F 2023F 2024F ASSETS Non-current assets 96.2 147.0 170.6 207.7 234.2 269.4 301.8 339.1 Inventories 15.1 34.9 15.7 24.5 23.0 32.4 30.9 43.5 Property, plant and equipment 72.7 98.3 140.1 167.9 195.8 221.5 255.0 279.5 Intangible assets 1.1 1.1 1.2 1.5 1.5 1.4 1.7 1.8 Other investment - 12.5 12.9 12.9 12.9 12.9 12.9 12.9 Equity-accounted investees 7.3 0.3 0.5 0.5 0.5 0.5 0.5 0.5 Loans receivable 0.1 ------Other non-current assets 0.0 0.0 0.3 0.4 0.5 0.6 0.8 0.9 Current assets 134.5 163.4 177.2 232.5 251.2 315.1 314.5 413.2 Biological Assets ------Inventories 63.7 78.3 81.1 127.0 118.7 167.8 160.0 225.1 Trade and other receivables 47.2 58.9 66.8 75.0 100.9 114.5 120.3 152.6 Prepayments 0.9 3.6 3.8 4.1 4.3 4.6 4.8 5.1 Cash and cash equivalents 21.4 21.8 22.7 23.6 24.5 25.5 26.5 27.6 Income tax assets - 0.7 2.7 2.7 2.7 2.7 2.7 2.7 Loans receivable 1.2 ------Other current assets 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Total assets 230.7 310.4 347.8 440.2 485.4 584.5 616.2 752.3 EQUITY Share capital 0.0 0.7 0.7 0.7 0.7 0.7 0.7 0.7 Share premium 123.7 82.5 80.2 80.2 80.2 80.2 80.2 80.2 Contributions by owners 8.9 ------Translation reserve 5.1 9.7 9.7 9.7 9.7 9.7 9.7 9.7 Retained earnings (40.5) 47.4 69.3 95.7 127.6 164.4 207.1 256.9 Equity attributable to owners 97.2 140.3 159.9 186.3 218.2 255.0 297.7 347.5 Non-controlling interests 11.2 13.8 13.8 13.8 13.8 13.8 13.8 13.8 Total equity 108.4 154.1 173.8 200.1 232.0 268.9 311.6 361.3 LIABILITIES Long-term liabilities 16.3 77.7 96.7 82.5 55.0 107.6 117.3 135.9 Borrowings and financial lease 10.5 69.2 86.4 72.1 44.5 97.1 106.7 125.3 Deferred income 0.7 2.3 4.0 4.0 4.0 4.0 4.0 4.0 Deferred tax liability 5.1 6.2 6.3 6.4 6.4 6.5 6.6 6.7 Current liabilities 106.0 78.6 77.3 157.5 198.4 208.0 187.4 255.0 Borrowings and financial lease 63.7 28.6 31.2 75.1 123.4 93.3 102.5 120.3 Deferred income 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 Income tax liabilities 2.2 1.9 2.5 3.0 3.6 4.2 4.8 5.7 Employee benefits 1.8 2.2 2.8 3.2 3.4 3.4 3.9 4.2 Trade and other payables 32.7 38.9 32.5 67.2 58.3 96.6 64.9 112.5 Provisions 5.3 5.6 5.8 6.1 6.4 6.7 7.0 7.3 Dividend payable - 1.2 2.3 2.6 3.0 3.5 4.0 4.6 Total liabilities 122.3 156.3 174.1 240.0 253.3 315.6 304.6 390.9 Total equity and liabilities 230.7 310.4 347.8 440.2 485.4 584.5 616.2 752.3 Source: Company Data, Team forecasts

Appendix A-3 Cash Flow Statement in RON m. 2017A 2018A 2019E 2020F 2021F 2022F 2023F 2024F Profit for the year 29.0 41.7 43.9 52.7 63.8 73.7 85.4 99.5 Adjustments for: Depreciation and amortization 5.9 6.8 8.6 9.7 10.8 12.1 13.6 15.2 Net finance (income) /costs 1.6 (1.0) 6.2 6.8 7.5 8.6 9.8 11.4 Other adjustments 8.8 4.8 7.5 9.4 11.3 13.2 15.4 18.0 Operating profit before WC changes 45.3 52.2 66.2 78.5 93.4 107.6 124.2 144.1 Changes in WC (36.2) (46.0) 28.7 34.4 39.6 45.9 53.4 53.5 Net cash generated from operating activities 9.1 6.2 94.9 112.9 133.0 153.5 177.6 197.6 Acquisition of PPE and intangibles (10.3) (30.1) (42.0) (28.1) (27.9) (25.6) (21.4) (24.6) Net cash investments (4.9) 2.5 3.5 2.3 2.3 2.1 1.8 2.0 Net Investing Cash Flow (15.2) (27.7) (38.5) (25.8) (25.6) (23.5) (19.6) (22.6) Net proceeds from borrowings 14.6 23.5 43.4 72.9 93.6 116.1 122.4 158.9 Dividends paid (0.3) (0.1) (22.0) (26.4) (31.9) (36.8) (42.7) (49.8) Other financing activities (0.2) (1.9) (3.0) (5.0) (6.4) (7.9) (8.4) (10.9) Net Financing Cash Flow 14.1 21.6 18.4 41.6 55.3 71.3 71.3 98.3 Cash at beginning of the period 13.3 21.4 21.8 22.7 23.6 24.5 25.5 26.5 Cash and cash equivalents at period end 21.4 21.8 22.7 23.6 24.5 25.5 26.5 27.6 Source: Company Data, Team forecasts

Appendix B: Business Description Appendix B-1 Awards and International recognition We present in the next table 2 of the most important awards granted for each brand starting from their beginnings and coming up to the most recent accreditations. Brand Wine Awarding event Year Award Negru de Purcari Paris World Expo 1878 First awarded Golden Medal Purcari Cuvée de Purcari Alb Brut Effervescents du Monde Nomination among the TOP 10 sparklings in the 2018 world Sauvignon Blanc Excellence Awards Vinul.ro 2010 Silver Medal Crama Ceptura Dominum Cervi (newest launch) Excellence Awards Vinul.ro & GastroArt.ro 2019 Great Gold Medal Chardonnay (Via Etulia Decanter Asia Wine Awards; 2016 Silver Medal collection) International Wine & Spirit Competition Bronze Medal Bostavan Dor Roșu Rară Neagră & Decanter Asia Wine Awards & Decanter 2016 Bronze Medal Cabernet Sauvignon World Wine Awards;

International Wine & Spirit Competition Silver Medal

Bardar Silver/Divin Bardar 12 Black Sea Region & ExpoVin Moldova 2017, 2018 Golden Medal

years Bardar Bardar Gold/Divin Bardar 5 Black Sea Region & ExpoVin Moldova 2018 Bronze Medal

years Source: Company Data, Team processing

Appendix B-2 Key suppliers of the Group Besides grapes and bulk wine from various third parties, the Group also relies on other processing or storage related materials for which we identified the main suppliers: Supplier Material supplied Description IM Glass Container Wine bottles Leading producer of glass bottles in Moldova in which the Group invested 6.4 mln. to acquire Company S.A. a 31.4% share interest (through Purcari brand in 2017) Vaslin Bucher, TFG Modern equipment for processing grapes The equipment is used for all wineries of the Group to achieve a high-quality aroma and wine taste Italian suppliers (eg.: TMCI Temperature-controlling equipment for Used for all wineries Padovan) fermentation Seguin Moreau (France) Barrels for the aging of wines Expensive barrels used for premium Purcari wines (about 3,000) Amorim companies Cork stoppers Used especially for Moldovan Subsidiaries Source: Company Data

Purcari Crama Ceptura Bostavan Bardar

Appendix B-5 Distribution network WINE created its own sales operation platform in the 2 core markets Romania and Moldova, where on-trade HoReCa channel is used. However, it mainly distributes its products through international retail chains (IKA) and third parties from each country of delivery. Partner Description Ahold, Auchan, Carrefour, Lidl, Metro, Rewe, Selgros Major retailers across CEE One of the eight commercial partners in China responsible for a Chinese region or product China National Light Industrial Corporation line of the Group Largest supermarket network in Fozzy Group Ukraine Romatim LLC Largest wine distributor in Moldova that is considered a proxy for the market Kaufland, Biedronka, Eurocash and Tesco The four major Polish retail chains Source: Company Data

Appendix B-6 Wine making process and Group key differentiation principles

Harvesting Grapes treatment Fermentation Aging of wines • Grapes are harvested by • Chilling the grapes for 24 • Takes place in fully • Both high-quality barrels hand and put into small hours after harvesting for automated temperature- (Purcari) and steel tanks boxes to avoid oxidation white and rose wines controlled environment (Crama Ceptura and in transit (Purcari) (up to 14 days) Bostavan) • Close location of • Thermovinification used • 4 types of fermentation • Ageing is conducted at vineyards to processing for red wines (Purcari, tanks from a horizontal, Purcari and Etulia facilities delivery of Bostavan Etulia and gentle fermentation tank wineries within 14C-16C grapes within 2 hours Crama Ceptura) that leads (Pinot Noir) to a vertical, range from harvest so as grapes’ to a more intense color pneumatic tank (Cabernet natural properties are and fruitier flavor Sauvignon) preserved

Blending Bottling & storing Filtering • Ongoing laboratory tests • Use of oak barrels for red • Latest technological and wine inspection wines to keep an adequate devices for membrane before and after the temperature and humidity filtering under nitrogen ageing process level used at all wineries to • Blending different wine • Micro – oxygenation minimize wine oxidation specialties to create technique to deliberately unique flavors and ensure introduce oxygen so as to wine consistency across improve the balance of vintages wines

Source: Company Data, Team processing

Appendix C: Corporate Governance Appendix C-1 Corporate structure

Victor Bostan Others Fiera SEB Dealbeta Horizon Capital Investment 99.85% 0.15% Investment Capital (IOM) Management Limited Limited Limited Others Amboselt Universal Inc.

20.03% 50.23% 6.5% 6.8% 7.94% 8.5%

Purcari Wineries PLC 100% 100% 100% 99.54% Vinorum Holdings Limited

100%

28.6% West Circle Limited

23.9% Purcari Winery SRL Crama Ceptura SRL Bardar SA Bostavan Winery SRL

Source: Company Data, Team processing

Appendix C-2 Board of Directors Years of Name Position Affiliations Other position within the Group Affiliation - Founder of the Group in 2002 CEO, - More than 35 years of experience in wine industry • Executive member of Nominations, Executive, Non- - Owner and CEO of the Russian winery Kuban Vino, one of the Victor Bostan 17 independent Remuneration and Corporate largest wine companies in RU (1999-2002) Director Governance Committee - Graduate degree in oenology, from the Technical University of

Moldova - CFO of the Group since 2010 CFO, - 20 years’ experience in banking, audit and corporate finance Executive, Non- Victor Arapan 7 - Worked at Acorex Wineries and PricewaterhouseCoopers - independent - Degree in Banking at the International Management Institute, Director the Faculty of Banking and Stock Exchange - Founder and CEO of Vivre Deco, the leading CEE e-commerce platform for home & furniture products • President of the Audit Committee Monica - Over 10 years of management experience Non-executive, • Cadogan - Member of the board of directors of Neogen, a technology Member of the Nominations, - Independent group that developed BestJobs, the Romanian leading recruiting Remuneration and Corporate Director service Governance Committee - BA in Banking, Corporate, Finance and Securities Law from the Bucharest University of Economic Studies - Founder and managing partner of McGregor & Partners SCA • President of the Nominations, - Vice-president of the British Romanian Chamber of Commerce Non-executive, Remuneration and Corporate - - Over 20 years of legal experience Neil McGregor - Independent - Member of the Bucharest Bar and a registered foreign lawyer in Governance Committee Director Bulgaria • Member of the Audit Committee - Bachelor of Laws (LLB) from the University of Aberdeen - Worked as a consultant with Monitor Group and a Senior Chairman of the Manager with Philips, both in Amsterdam, in the Corporate • Member of the Audit Committee Board, Strategy department • Member of Nominations, Vasile Tofan - Non-executive, - Over 10 years’ experience in FMCG Remuneration and Corporate Non-independent - Partner of Horizon Capital Governance Committee Director - MBA from Harvard Business School and Master of Science in Public Management from Erasmus University Rotterdam Source: Company Data, Team processing

Appendix C-3 Executive Management Name Years of Position Affiliations Affiliation CEO, ● Founder of the Group in 2002 Executive, ● More than 35 years of experience in wine industry Victor Bostan 17 Non- ● Owner and CEO of the Russian winery Kuban Vino, one of the largest wine independent companies in RU (1999-2002) Director ● Graduate degree in oenology, from the Technical University of Moldova ● Over 10 years of management experience ● Director Mobile and Triple-Play with ACN, in Amsterdam Eugen Comendant 6 months COO ● Sales and Marketing Director of the FRiENDi mobile business in Oman ● International Business and Management degree at HES Amsterdam University of Applied Sciences, ESSEC Business School CFO, ● CFO of the Group since 2010 Executive, ● 20 years’ experience in banking, audit and corporate finance Victor Arapan 7 Non- ● Worked at Acorex Wineries and PricewaterhouseCoopers independent ● Degree in Banking at the International Management Institute, the Faculty of Director Banking and Stock Exchange ● Over 10 years of experience in wine sales General ● Reconstructed Group’s production sites Manager Marcel Grăjdieru 16 ● Worked at Planta-Vin, EMC-Moldova and Gazprom Romania ● Medical degree as a surgeon from the State University of

● Medicine and Pharmacy, USMF "Nicolae Testemițeanu" ● CCO of the Group since 2013 ● Over 16 years of experience in wine sales ● Worked for Dionis Club, one of the Group’s winemaking competitors Artur Marin 9 CCO ● Launched export to CEE and Baltic countries ● Bachelor’s and master’s degree at MBA from the Grenoble School of Management ● Manager of Vinaria Bostavan since 2016 ● Over 9 years of experience in wine production Nicolae Chiosa 10 CPO ● Degree in Wine Technology from the Technical University of Moldova, Faculty of Technology and Management in Food Industry ● Over 16 years of wine consulting experience Head Wine Federico Giotto 9 ● Laureate of numerous international awards in wine industry Maker ● Graduate of the University of Padova, the Faculty of Viticulture and Oenology ● Over 20 years of experience in marketing & advertising with leading consumer Marketing companies (British American Tobacco, Kraft Foods, Sun Communications, Natalia Chirca 1 Director Orange) ● Degree in Finance from Academy of Economic Studies in Chisinau and Degree in foreign languages from State University of Chisinau Human ● Over 10 years of experience in HR management & people development Natalia Bunciuc 1 Resources ● Degree in Law Director Source: Company Data, Team processing

Appendix C-4 Corporate Governance The Group goes well beyond the sales target of any business and also engages into delivering benefits to local communities. In this regard, the company took part in various charitable, social and cultural events to preserve local traditions and even encourage sport practice. Their main programs are presented briefly in the next table. Program Beneficiary CCF/HHC Moldova Orphans being given the chance to find a welcoming family to live in Hospice Angelus - Medical-social Philanthropic Foundation Incurable patients with cancer in advanced and terminal “Angelus Moldova” stages and their relatives Purcari Wine Run (annual event) Amateur and professional sportsmen who take part in a race of 10 km USM Bostavan (volleyball team) Female and male players Source: Company Data, Team processing

Appendix C-5 Evaluation of Purcari’s Quality of Corporate Governance In order to evaluate the Group’s quality of corporate governance, we followed the principles required to be fulfilled in the 2020 Legend: CFA Program, Level II. Regarding the Committees evaluation methods, the analysis was made based on the BSE Governance Code. 0 Does not comply at all The rating was calculated as a ratio between the sum of the actual scores and the expected scores for each category. The following 1 Partially complies table describes our results: 2 Totally complies

Criteria Description Rating Company Policies Board of Directors Structure 9/10

90%

The minimum number of BoD members Composition 2 Starting with the listing date, the Group has 5 members in BoD. should be 5. Majority of them has to be non-executive Independence 2 The company has 3 non-executive and 2 independent members. and at least 2 independent. There should be distinct roles for the Chief CEO & Chairman 2 The CEO is Mr. Vasile Bostan, whereas the Chairman is Mr. Vasile Tofan. Executive Officer and Chairman of the Board. Effective principles of corporate governance Elections 2 Non-executives are in charge until the next AGM. recommend annual elections of members. A rotation system of the BoD will be put into practice as of 2020. It specifies that Rotation of BoD Annual rotation of members is suggested. 1 1/3 of the non-executive members, the ones holding the longest position should retire. Board Skills and Experience 6/6

100%

Skills and experience matched with the All BoD members have a deep knowledge and expertise related to the field they Relevant background 2 company’s core operations are required. work in (more details are presented in Appendix 1). A well-preserved reputation of the members Reputation 2 No evidence to reflect the opposite, all members make proof of integrity. is essential. A member’s tenure is considered long if it There is a medium to long tenure of members with CCO having over 11 years of exceeds 10 years. Long tenure can be viewed experience, CFO over 7 years, GM Production over 9 years, GM Romania over 13 Youth vs.Tenure both as a plus due to the comprehensive 2 years, Head Wine Maker over 8 years. Despite this vast experience, the Group understanding of the business, but also as a management median age is around 40 years old. sign of reluctance to changes. Conflicts of interests 0/4

Mr. Bostan is major shareholder of Amboselt; Managers/Executive In case of a mix of these roles, potential Mr. Tofan is a partner with Horizon Capital, the shareholder of Lorimer; 0 s & Shareholders conflicts of interests might arise. Mr. Chiosa is a director of Agro Sud Invest (provides agricultural services for Moldovan subsidiaries). Other links with the company should be Besides BoD member and shareholder, Mr. Bostan is also director of VictoriaVin Connections 0 avoided. (majority of Moldovan vineyards leased from this company) Protection of shareholders rights 10/10

100%

Good principles indicate straight voting share Elections 2 One vote per one share. They can vote in person or by proxy in their names. structures. The shareholders are entitled to receive Dividend rights 2 Starting with 2018, a dividend of 0.95 RON/share is received. dividends. Besides voting, shareholders may raise Shareholders may add items on the AGM agenda with the associated reasons of AGM extra rights 2 concern of issues to be discussed at the GMS. importance. At every GMS, the shareholders are entitled to receive financial information from reports Right to information 2 It is a fulfilled criterion. directly from the external auditors of the company.

Both shareholders and investors can access Transparency 2 All information available on company’s website in the designated sections. any relevant information to them. Committees 6/6

100%

The BoD will always have both the Audit In addition to that, starting from the listing date, the second committee also Reliance on 2 Committee and the Nomination and 2 incorporates the Corporate Governance part so that its full name is the committees Remuneration Committee Nomination, Remuneration and Governance Committee. The Audit Committee must have at least 3 The Chairperson of the Audit Committee, Mrs. Monica Cadogan is the non- members out of which the majority must be Structure 2 executive independent director, whereas 2/3 committee members are independent and one has to be non- independent. executive. Compensation should be totally transparent and give details about remuneration of executive members (salaries, annual bonus, Compensation 2 In place since December 2018. long-term stock-linked incentives, pensions etc) along with their explicit performance criteria. Overall rating: 31/36 86.11% achievement

Appendix D: Industry and Competitive Positioning APPENDIX D-1: PORTER’S FIVE FORCES ANALYSIS

The wine industry is highly fragmented and can be analyzed through five competing forces: buyer power, supplier power, substitutes, new entrants and degree of rivalry: Bargaining Power of Buyers 5 4 3 2 Rivalry of Existing Competitors Bargaining Power of Suppliers 1 Legend: 0 0 No threat 1 Very Low 2 Low 3 Moderate 4 High Threat of Substitutes Threat of New Entrants 5 Very High

Porter’s Force Moderate The Group’s distribution channels consist mainly of supermarkets, specialist retailers (alcohol stores), and convenience stores. Bargaining Supermarkets have the ability to negotiate with suppliers on price, but their power is quite limited overall because they ultimately Power of must offer a large variety of wine brands, types and prices to their customers. Buyers do have one advantage, and that is - switching Buyers costs to other producers are not high, but given Purcari’s notoriety and brand recognition, they would still need to settle on a price to be able to sell their wine in the stores. Low The main suppliers in the wine industry are the grapes producers and the manufacturers of bottles, labels and corks. In the domestic markets (Moldova and Romania), the suppliers outweigh the buyers, thus giving them little or no bargaining power. Given increased plantings and favourable weather conditions in the past few years, the oversupply of grapes has been a driving force, for preventing Bargaining the wine producers from being threatened by suppliers’ power. Power of Purcari is vertically integrated (producing the grapes, wine and bottling) and is able to constantly keep track of the quality of wine, Suppliers thus leaving low power to suppliers. Still, with the increase in demand for both economy and premium wines, Purcari resorted also to third party purchases for Bostavan brand, as the volume of own grapes are not sufficient to cover the entire Group production. Because the end product is so reliant on the first stage of the value chain (grape production), independent suppliers are still having a bargain power when there is high demand on the market. Very High The threats of new entrants are very high, due to low barriers of entering the market. There are a lot of home/craft wine producers that invariably appear, and although some of them may produce wine in limited quantities, their combined output is very high. Customer switching costs is also minimal: the competition in the lower segments of the wine market (economy to premium) is Threat of New primarily driven by price, retail shelf space, and branding, while competition at the higher segments (super-premium and above) is Entrants driven by quality and brand image. The likelihood of retaliation from existing industry players is very also low. While entering the wine industry may be simple for new companies, a large barrier to entry is the distribution channel. In order to increase its market share, a company must have an active and well established connection of distributors through which they can reach a broader market in order to be competitive and attain a strong presence on the market. Moderate The substitute products like beer and spirits pose a threat to the wine industry. At the same time, people are shifting preferences in the alcoholic beverages, mostly switching to wines, as they are considered a more healthy version out of all the alcoholic beverages. As end consumers are earning a higher income, they tend to switch from economy wine & beer to premium wines. Hence, the fact Threat of that Purcari is targeting all price segments represents a safety net to its sales. Substitutes For retailers, for example, the cost of switching out of wine and into beer is not high, because they are aware they need a high variety in order to attract buyers. Yet, in HORECA, wine is a must and the costs of substituting this product may lead to a huge loss in the customers base. However, besides beer and spirits, consumers nowadays are able to find organic wines, bio wines or non-alcoholic wines, thus posing a threat to the classic still & sparkling wine industry. High In the domestic markets, rivalry is conditioned by the competitors' ability to differentiate their products. Although larger producers Rivalry of hold advantages in scale and capital, the smaller wineries are also able to compete by consistently producing high quality wine in Existing limited quantities. The fact that sales depend either on price or marketing efforts for the lower and higher segments respectively, Competitors leaves room for competitors' creative strategies of attracting new customers. Given the plethora of wine varieties, the market is far from consolidated and highly competitive. Low switching costs, the ease of access to quality wine, and the access to information about wine, lead to a higher emphasis on producers’ capacity to meet stringent demands.

APPENDIX D-2: SWOT ANALYSIS

A SWOT Analysis was prepared for assessing internal and external factors that influence the Group’s current stance. The analysis includes positive characteristics that differentiate Purcari from its competitors; factors that increase competitive disadvantage; issues beyond the company’s controls that could make it succeed or set the business at risk.

STRENGTHS WEAKNESSES

✓ Wide experience in wine ✓ Lack of hedging making arrangements for risks ✓ Strong brand recognition mitigation ✓ Attractive products and ✓ Longer receivables packaging collection period compared ✓ Constantly improving financial to peers performance ✓ Limited experience on ✓ Shift to premium wines capital market ✓ Cost advantage, due to lower ✓ Lower control over third labour costs party grapes acquisition ✓ Strong revenue growth ✓ Coverage of all price segments ✓ High social media presence SWOT

OPPORTUNITIES THREATS

✓ Increasing market share in the ✓ Competition from small premium segment businesses with craft wine ✓ Preserving product quality, ✓ Changing consumer while expanding its collection preferences ✓ Growing via acquisitions ✓ Fierce competition from ✓ Pervading new markets large players ✓ Targeting new market ✓ Climate change uncertainty segments ✓ Exchange rates risks/losses ✓ Lower marketing costs for as it operates in multiple expanding the customer base markets due to increased influence on ✓ Cyclical business social media ✓ Political risks in Moldova

Appendix D-3 Own conducted Survey Consumer preferences in alcoholic beverages As part of our competitive analysis, we developed this survey to obtain first hand insights from consumers in the domestic markets, their main preferences in alcoholic beverages, and in particular, to better understand the Group’s positioning among consumers and the drivers behind their purchase decisions. Here are the most important insights extracted of the survey:

(1) Alcoholic beverages preferances 900 (1) Wine is the most preferred (67%) alcoholic beverage in 567 Romania and Moldova, according to the survey, on behalf 600 of lower consumption of beer & spirits. Millennials align 300 116 themselves to the general preferences, drinking wine 100 58 rather than other alcoholic beverages. 0

Wine Beer Spirits Don't consume alcoholic

Total 18-24 (years old) beverages (2) Consumers in the local markets (2) FROM WHERE ARE CONSUMERS GETTING THEIR WINE? choose to buy wine primarily from supermarkets (48%), mainly for the convenience and wide Online Restaurants 1% spectrum of choices. Purcari brand excels at this part, 10% being present in the top retail supermarkets in Romania and Moldova (Auchan, Carrefour, Lidl). The spread distribution ensures that the products reach Specialized alcooholic stores the end-consumer easily. Being very active online, 16% Purcari has still room for growth in the e-commerce Supermarkets 48% field, with only 1% of respondents purchasing wine from e-shops. From own production 25% Sample of survey: 841 respondents Age range: 18-65+ (3) There is a higher versatility when choosing a Average income: wine in Romania, compared to the Moldovan market. (3) WINE PROVENIENCE - While in Moldova 57% of the consumers tend to drink MOLDOVA 3,000 RON mostly local wine, Romanians choose local wines only 88 Geographic location: in 30% of the cases. This is mostly due to the higher Romania and Moldova share of own-produced wine consumption in Moldova (although decreasing in the last years). We believe

42 42 Romania carries a high growth potential, as of the

35 Analysed criteria: diversity Purcari Group offers within the local wine 23 • Most consumed market. alcoholic beverage, if

1 ( 1 0 0 % 2 3 4 5 ( 1 0 0 % any LOCAL) FOREIGN) • The source of the (3) WINE PROVENIENCE - wine consumed (4) How often do you drink ROM A NIA wine? (local or foreign) 268 • Most consumed 7 118 378 228 wine brands Daily Every week Every month Few times a year

99 • Average price paid

53 53 per bottle 31 (4) Since wine is mostly a byproduct and is • Other qualitative & consumed with other products, its incidence in the 1 ( 1 0 0 % 2 3 4 5 ( 1 0 0 % consumers lifestyle, is lower than food products. LOCAL) FOREIGN) quantitative Drinking wine is generally associated with special measures occasions and thus consumers are focusing on buying higher quality, premium wines.

(5) Romania - From which category of price is (5) Moldova - From which category of price is the wine you consume the most? the wine you consume the most?

Under 100 MDL 1% Under 30 RON 7% 14% 21% Between 100-150 36% Between 30-60 RON MDL 26% Between 150-200 Between 60-120 RON MDL Over 200 MDL

49% Over 120 RON 46%

(5) Consumers vary a lot in terms of the prices they are willing to pay for a bottle of wine. Still, most of the respondents choose to pay on average, a price between 30 and 60 RON per bottle in Romania, while in Moldova 100-150 MDL. Although Purcari targets all price segments, its principal segment lies between this defined ranges, indicating that the Group charges a reasonable amount for its products, concurrently being consistent with the consumers financial propensity.

(6) Romania - Which wine do you consume more (6) Moldova - Which wine do you consume more often? often?

BOSTAVAN 22

GITANA 28 CHÂTEAU VARTELY 74 TIMBRUS 33 MURFATLAR 94

APRIORI 37 CRAMA CEPTURA 98 FAUTOR CRICOVA 132 39

COTNARI 145 BOSTAVAN 46

CHÂTEAU VARTELY 57 JIDVEI 185 PURCARI 220 OTHERS 74

CRAMELE RECAS 223 CRICOVA 75

OTHER 259 PURCARI 109

0 50 100 150 200 250 300 0 20 40 60 80 100 120

(6) According to our survey, Purcari brand is in the top preferences for Moldovan consumers, while Bostavan is the 5th wine preferred by the respondents. As stated by the Romanian respondents, Purcari brand is the 2nd wine in the top, a bit behind after Cramele Recaș. Nevertheless, the combined responses for Purcari, Bostavan and Crama Ceptura overcome any other winery in Romania, thus making Purcari Group the top choice.

Country GDP Growth Weights GDP*weight Romania 3% 62.4% 1.87% Republic of Moldova 3.8% 19.4% 0.74% Poland 2.5% 11.8% 0.30% Czech Republic 2.54% 1.6% 0.04% Slovakia 2.5% 1.6% 0.04% China 5.5% 3.2% 0.18%

Terminal growth 3.16% rate (6) According to our survey, Purcari brand is in the top preferences for Moldovan consumers, while Bostavan is the 5th wine preferred by the respondents. As stated by the Romanian respondents, Purcari brand is the 2nd wine in the top, a bit behind after Cramele Recaș. Nevertheless, the combined responses for Purcari, Bostavan and Crama Ceptura overcome any other 23 winery in Romania, thus making Purcari Group the top choice. Appendix E: Valuation Appendix E-1: DCF Valuation

In RON m. 2020F 2021F 2022F 2023F 2024F EBIT 68.6 82.4 95.1 110.2 128.3 After-tax EBIT 60.0 72.1 83.2 96.4 112.3 Depreciation and Amortization 9.7 10.8 12.1 13.6 15.2 Changes in NWC 28.7 34.4 39.6 45.9 53.4 Capex 27.9 27.9 25.7 21.1 24.5 FCFF 13.2 20.6 30.0 43.0 49.6 Discount Period (years) 1 2 3 4 5 Discount Factor 0.93 0.87 0.81 0.75 0.70 PV of FCFF 12.3 17.9 24.2 32.3 34.7 Source: Company Data, Team forecasts

In RON m. Normalised FCFF Equity Value Structure (In RON m.) EBIT 116.0 WACC 7.38% After-tax EBIT 101.5 Growth to perpetuity 3.16%

15.2 Terminal Value at 2024F 896.8

PV of Terminal Value Changes in NWC 53.5 628.1 Capex 25.3 Enterprise Value 749.6 FCFF 37.8 Net Debt (Cash) 123.6 WACC 7.38% Equity value 625.9

Growth to perpetuity Shares outstanding (m.) 20 3.16% Terminal Value 896.80 Implied RON/share 31.30 Discount Factor 0.70 Source: Company Data, Team forecasts

PV of Terminal Value 896.80 Source: Company Data, Team forecasts

Appendix E-2: Weighted Average Country Risk Premium

Revenue Country Risk Weighted Country Comp. We found it relevant not to neglect the country Premium Risk Premium Weight risk premium for the main Group’s exports as if Romania 46% 0.00%* 0.00% a crush breaks out on those markets, the greater Moldova 26% 6.42% 1.66% risk incurred will require a higher expected return. In order to get a weighted average Poland 11% 0.84% 0.09% country risk premium for our adjusted cost of Czech Republic 3% 0.60% 0.02% equity, we used the Group’s 2018 revenue Slovakia 3% 0.84% 0.02% composition. China 8% 0.69% 0.05% *The country risk premium for Romania is Ukraine 3% 7.39% 0.25% already included in the ERP Weighted Average Country Risk Premium 2.10%

Source: Damodaran, Team analysis

Appendix E-3 Terminal Growth Rate

Country GDP Weights GDP*weight

Growth Romania 3% 62.4% 1.87%

Republic of Moldova 3.8% 19.4% 0.74% Poland 2.5% 11.8% 0.30%

Czech Republic 2.54% 1.6% 0.04% Slovakia 2.5% 1.6% 0.04%

China 5.5% 3.2% 0.18%

Terminal growth rate 3.16% Source: World Bank, Team analysis

Appendix E-4 Beta calculation We performed a regression between the WINE’s daily prices over the last 2 years and the values of BET index for the same period and arrived at a beta of 0.388, which is exactly the result reported by Reuters (0.39). However, due to the lack of enough historical data, we computed beta based on the comparable companies. We calculated the unlevered beta for each of the peers, made an average and re-levered it with the capital structure of WINE. So, we obtained a 0.4 beta, situated above the average for the wine industry of 0.34.

IDENTIFIER (RIC) COMPANY NAME COUNTRY BETA DEBT TO EQUITY EFFECTIVE TAX UNLEVERED (FY0) RATE 2018 BETA BDL.MC Baron de Ley SA Spain 0.36 4.8% 23.4 % 0.35 VRKP.PA Vranken Pommery Monopole SA France 0.41 179.0% 1.8 % 0.15 AMB.WA Ambra SA Poland 0.22 13.6% 25.6 % 0.20 ITWB.MI Italian Wine Brands SpA Italy 0.22 50.5% 27.3 % 0.16 MASIA.MI Masi Agricola SpA Italy 0.41 12.5% 16.7 % 0.37 LAZR.AT Ktima Kostas Lazaridis SA Greece 0.52 26.9% (23.5 %) 0.39 BRIO.MC Bodegas Riojanas SA Spain 0.28 107.7% 14.4 % 0.15 Median 0.36 26.9 % 16.7% 0.20 Average 0.34 56.4% 18.2% 0.25 Source: Thomson Reuters, Team analysis

Appendix E-5 Peer Valuation IDENTIFIER (RIC) COMPANY NAME COUNTRY P/E EV / EBITDA

BDL.MC Baron de Ley SA Spain 17.60 11.24

VRKP.PA Vranken Pommery Monopole SA France 250.75 27.40

AMB.WA Ambra SA Poland 14.59 8.14

ADVI.PA Advini SA France 21.89 24.25

ITWB.MI Italian Wine Brands SpA Italy 14.35 8.98

MASIA.MI Masi Agricola SpA Italy 14.97 10.07

LAZR.AT Ktima Kostas Lazaridis SA Greece 14.79 11.10

TKVS.MKE VV Tikves AD Skopje North Macedonia 11.12 3.12

BRIO.MC Bodegas Riojanas SA Spain N/A 49.88

Median 14.88 11.10 WINE 11.56 9.12 Source: Thomson Reuters, Team analysis

Appendix F: Financial Analysis

in RON m. 2016A 2017A 2018A 2019E 2020F 2021F 2022F 2023F 2024F Gross Margin (%) 49.9 47.6 49.2 49.9 50.1 50.2 50.2 50.2 50.3 Operating Margin (%) 29.7 25.4 27.8 29.0 29.5 29.6 29.6 29.6 29.7 Interest Burden (%) 85.1 96.7 104.3 89.7 90.5 91.2 91.2 91.3 91.3 Tax Burden (%) 85.7 83.0 85.7 84.9 84.9 84.9 84.9 84.9 84.9 Net Margin (%) 21.6 20.4 24.8 22.1 22.7 22.9 22.9 23.0 23.0 Asset Turnover (x) 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 Return on Assets (%) 30.7 25.8 28.0 25.8 25.7 26.4 26.0 27.1 27.3 Financial Leverage (x) 1.2 1.2 1.4 1.4 1.6 1.5 1.5 1.4 1.4 Return on Equity (%) 36.0 31.3 31.8 26.8 28.2 29.5 29.4 29.4 29.6 Liquidity indicators Current Ratio (x) 1.2 1.3 2.1 2.3 1.5 1.3 1.5 1.7 1.7 Quick Ratio (x) 0.6 0.7 1.1 1.2 0.7 0.7 0.7 0.9 0.8 Leverage Indicators Debt/Equity (x) 0.8 0.7 0.6 0.7 0.7 0.7 0.7 0.6 0.6 Net Debt/ EBITDA (x) 1.2 1.2 1.4 1.4 1.6 1.5 1.5 1.4 1.4 Net Debt/Equity (x) 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Operating Efficiency Indicators Inventory turnover (x) 1.1 1.2 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Net Operating Cycle (days) 296 321 410 410 410 410 410 410 410 Cash Conversion Cycle (days) 221 232 262 273 278 269 269 275 287 Shareholder Indicators Basic and diluted EPS (RON/sh) 4.2 5.4 1.9 1.9 2.3 2.9 3.4 4.0 4.7

EPS growth (%) - 29.9 - 64.6 -1.6 23.4 23.8 17.3 17.4 17.8

Source: Thomson Reuters, Team forecasts