A certain decrease in the solvency ratio is expected but should remain at levels significantly higher than the regulatory ones and the solvency of the Company should in no way be called into question.

Croatia Osiguranje published an announcement on the implications of the Covid-19 situation on their operations. The Company has identified the following key areas that could be affected by adverse economic conditions:

• volatility of comprehensive income from investments, as a result of developments on the financial markets
• increased credit risk and increased impairment of insurance receivables,
• increased number of life insurance policy surrender.

Based on currently available information, the Company cannot reliably estimate the amount of potential losses that would result from the direct impact of COVID-19. However, as part of its own risk and solvency assessment (ORSA) process, a series of stress tests, sensitivity analysis and scenarios were conducted, and it is estimated that these analyses covered the risks that could have a significant impact on the Company also in the case of COVID-19.

Although, based on analysis performed in the ORSA process, a certain decrease in the solvency ratio is expected, the same ratio should remain at levels significantly higher than the regulatory ones and the solvency of the Company should in no way be called into question.

Purcari witnessed a solid growth in Q1 2020 of 9% YoY, despite a significant drop in China shipments (roughly 50%) and drop in Moldova (-17%).

As Purcari Wineries published an update on the Covid-19 impact, we are bringing you key takes from it. The company states that all production platforms have been running uninterrupted throughout the pandemic and there were no supply bottlenecks witnessed.

Overall, the company showed solid growth in Q1 2020 of +9% YoY, despite a significant drop in China shipments (down nearly 50%) and drop in Moldova (-17%). The drop in Moldovan market can be attributed to higher dependency on HoReCa segment. In Q1, Romanian market recorded a high growth of +36% YoY. Besides that Poland (+12%), Baltics (+66%), Ukraine (+61%) showed strong performance helped by reliance on modern trade segment.

It is important to note the due to the high level of uncertainty, Purcari suspended their 2020 guidance and initiated a broad cost and cash optimization program. OPEX wise, the program is focused on procurement excellence, elimination of all non-critical purchases, negotiations of discounts with suppliers, order size optimization, forecasting improvements.

CAPEX program was revised with all non-critical projects terminated or postponed, resulting in roughly RON 7m savings, or 31% of original CAPEX program.

Stress Tests for Downside Scenarios*

	Scenario 1	Scenario 2	Scenario 3
Revenue 2020 vs. 2019	-6%	-12%	-18%
EBITDA 2020 vs. 2019	-20%	-26%	-32%
EBITDA margin	29%	28%	28%
Net Income 2020 vs. 2019	-21%	-28%	-36%
Net Income margin	18%	17%	17%
Dividends	no	no	no
Capex	22m	17m	13m
Net Debt / EBITDA	1.2x	1.3x	1.5x
Ending cash balance	22m	22m	17m

Source: Purcari Wineries

*the downside scenarios presented here are based on multiple additional P&L, BS and CF assumptions, showing a high-level sensitivity analysis of Company’s financials, focused primarily on the liquidity impact. For avoidance of doubt, this does not represent a guidance for 2020.

Given the Board has decided not to pay a dividend for the moment, which they deem to be a sensible decision given much uncertainty, the company will propose a buyback program at the GSM. To be specific the Board proposes a broad buyback program covering up to 1.7m shares (8.5% of the shares outstanding) with the ultimate goal of cancelling them.

Besides that, the Board proposed for the approval for the Board to have the authority to issue up to 1m new shares (representing 5% of current outstanding number of shares) should this be deemed to be in Company’s and shareholders’ interest. The company notes that a capital increase may be needed both, as a defensive move – for instance, issuing new capital in case the Company will be in urgent need of additional liquidity, but also as an offensive one – for example, should Purcari want to pull the trigger on an acquisition to be paid for in part or in full with stock.