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Stockpiling before tax change lifts Zwack profit 33%

After-tax profit of Zwack Unicum, Hungaryʼs best-known spirits maker, rose 33% year-on-year to HUF 3.3 billion in Q1-Q3 of the companyʼs business year, which ends March 31, as buyers stocked up before a tax rise, an earnings report released late Tuesday shows.

Gross revenue rose 19% to HUF 23.9 bln, while net revenue increased 18% to HUF 14.4 bln, according to state news wire MTI.

Zwack said that sales of pálinka, a fruit distillate that is Hungaryʼs national eau de vie, as well as its flagship herbal liqueur Unicum, were about four times higher than usual in the month of December as buyers stocked up before an exemption from the public health tax for such products ended.

Hungarian lawmakers ended the exemption from January 1, 2019, after the European Commission stepped up an infringement procedure against Hungary on the matter. The EC argued that the exemption was protectionist because such products are mostly distilled domestically.

Zwack warned that the application of the public health tax to pálinka and herbal liqueurs would raise the shelf price of these products by 20% in the premium category, and as steeply as 25% in the quality segment. Additionally, a 20% increase in the public health tax will raise the retail price of other products subject to the tax by 6-7%, it added.

Zwack noted that, in the past, sales volume shortfalls had been "nearly as big" as price hikes in the first year. Thus it projects a net sales decline of "more than 10%" in the 2019-2020 business year.

Zwack forecasts a decline of "over 40%" in after-tax profit for the coming business year as higher packaging material costs add to the impact of the tax changes.