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Stockpiling before tax changes lifts Zwack profit

After-tax profit of Zwack Unicum, Hungaryʼs best-known spirits maker, rose 20% year-on-year to HUF 2.6 billion in the firmʼs business year ending March 31, as buyers stocked up before tax changes, shows an earnings report released Wednesday.   

Gross revenue rose 14% to HUF 26.3 bln, while net revenue increased 13% to HUF 15.7 bln, state news wire MTI reported.

Zwack said that, in the month of December 2018 alone, sales of pálinka, the fruit distillate that is Hungaryʼs national spirit, as well as those of its flagship herbal liqueur Unicum, were equivalent to 3-4 months of customary sales as buyers stocked up before an exemption from the public health tax for such products was ended.

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

Zwack noted that, as management had projected, net sales dropped sharply after the stock-up, falling 24% year-on-year in January-March.

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% hike 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. It therefore 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 2019-2020 business year as higher packaging material costs add to the impact of the tax changes.

Zwack expects annual after-tax profit to rise back to the HUF 2 bln mark by the 2021-2022 business year.

In a separate statement, Zwack said its board would propose payment of a HUF 1,300 per-share dividend on 2018-2019 earnings at an annual general meeting scheduled for June 26. If approved, the dividend fund will come to HUF 2.6 bln. Zwack paid a HUF 1,050 per-share dividend last year and the previous year, MTI recalled.