Tax changes weigh on Zwack profit
After-tax profit of Zwack Unicum, Hungaryʼs biggest spirits company, plunged 53% to HUF 231 million in the first quarter of its business year starting April 1, compared to the corresponding period of 2018, an earnings report published late Tuesday shows.
A 20% increase in the public health product tax from the start of the calendar year fed into prices, causing sales to fall, according to a report by state news agency MTI.
"After shelf prices jumped, consumption plummeted... as expected," the management said in the report.
Gross sales fell 4% to HUF 5.72 billion, while net sales dropped 15% to HUF 3.07 bln, showing the impact of the higher tax.
Not only was the public health product tax raised, but it was applied to Zwackʼs flagship herbal liqueur Unicum, as well as to pálinka, the Hungarian fruit brandy, after the European Commission ruled that exemption from the tax for those products was unfair. The EC argued that the exemption was protectionist because such products are mostly distilled domestically.
Previously, Zwack had 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.
For the rest of the year, Zwackʼs management augurs sales volume will "somewhat climb back" and stands by its earlier guidance for a more than 10% decline in net sales and after-tax profit of HUF 1.4 bln, a 46% drop from the 2018-2019 business year.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.