The data are not audited (either those prepared according to the IFRS standards or those according to the Hungarian accounting rules).

The present report has the same structure as the one closing the 2012–2013 business year however it differs from earlier interim management reports in the following items:

– Accounting of software standard support fees: the Company regularly pays these fees to its suppliers which enables the Company to download and install patch upgrades. The Company recognizes software support fees as other operating expenses. In previous years the Company capitalized these fees as intangible assets and recognized a regular depreciation through the useful lifetime of three years.

– Accounting the Company’s stake in Morello LLC. In 2013 Zwack Unicum Plc. recognizes its stake of 35.43% in Morello (which it has had for a long time) in the line “Investments in associates.” The value of the capital interest is assessed with the equity method. In earlier reports the Company recognized the investment at cost in the line of Available-for-sale financial assets.

In this report both the figures of the year in review and those of the previous year are shown in this new structure.

Total gross sales of the Company stood at HUF 4,637 million, a year-on-year decrease of 4.7%. Net sales were HUF 2,727 million, a year-on-year decrease of 8.8% (HUF 2,991 million).

Net domestic sales were down by 8.5% (a year-on-year decrease from HUF 2,650 million to HUF 2,426 million). Within domestic sales, the turnover of own-produced goods decreased by 7.2%. Domestic sales of premium products decreased by 4.6%, the net sale of quality products decreased by 10.7% and that of non-branded products decreased by 44.9%.

The net earnings from traded products decreased by 13.1%. Within that portfolio the net sale of products of Diageo decreased by 17.1% and that of other distributed products decreased by 3.9%.

Market research for April–May 2013 indicates that in the Hungarian market the volume of the consumption of spirits decreased by 9.1%. The shrinking of the market slightly slowed down (this time last year the decrease in volume was at 11.4%). It is also promising that the volume of the premium segment has slightly increased (+0.8%). However the volume of quality products considerably decreased (-13.1%). This change is unexpected because earlier that segment overperformed the market average. In the non-branded segment the considerable decrease continued (-11.9%). The figures vary greatly in the two main channels of sales (off trade and on trade). In off trade, the decrease continued in every product category. This year Easter must have played a role as it fell on March whereas last year it fell on April. In on trade, the decrease was just 1.5% and there was increase in the premium segment. But those figures only apply to two months and we can only speak of a marked change in market tendencies if the above processes continue at least until the end of the year.

Export earnings amounted to HUF 301 million, by 11.8% lower than a year before (HUF 341 million). The export of Unicum is on the same level as a year before; the decrease was due mainly to  medium-margin products (pálinka and rum).

The gross margin considerably increased (by 6.7 percentage points). This is mainly due to the fact that as of the beginning of the calendar year we have managed to secure more favourable purchase prices for a part of the products that we distribute. That has reduced our cost of goods sold. Meantime, the received funds available for the marketing support of the same brands also decreased – as can be seen in the Other operating incomes line. Another factor in the growth of the gross margin was that the weight of own-produced premium products with the highest profit content further increased in the Company’s revenues. As a result, the gross margin increased by HUF 47 million.

Overall, the operating expenses went up by HUF 45 million (3.6%). The increase of 11.8% in the other operating costs and expenses is attributable to the fact that certain one-off expenses were incurred in the first quarter whereas last year they were incurred in a later part of the business year.

Because of the above mentioned reasons the other operating incomes decreased by HUF 75 million (by 47%).

The net financial income decreased by 21.5% (HUF 14 million). In April–June 2013 the base rate of the central bank was lower than in the corresponding period of the previous year by a third. The deposit interests shrank accordingly, which in turn led to decrease in the Company’s net financial income.

The Company’s profit after taxation according to the International Financial Reporting Standards (IFRS) stood at HUF 344 million, a year-on-year decrease of 10.9% (previous: HUF 386 million) but it is higher than the target projected onto this part of the year.

Concerning balance sheet lines, there has been considerable decrease in Inventories and Trade and other receivables (10%). As from the autumn of last year, the Management was able to further improve its inventory management processes which will soon bring the welcomed results.

During the first quarter Zwack Unicum Plc. spent HUF 104 million on fixed assets. The investments were of a supplementary character and complied with the plan.

The Company has 242 employees (at the end of the 2012/2013 business year the figure was 237 and in the corresponding period of last year it was 240.

This Interim Management Report for the first quarter of the business year has been made according to the relevant accounting regulations and the financial statements made on the basis of our best knowledge, and they are in accordance with both the Hungarian and the international standards. It gives a truthful and reliable account of the assets, liabilities, financial standing and profits of Zwack Unicum Plc. This business report gives a reliable picture about the Company’s situation, development and performance and it includes the major risks and factors of uncertainties. To make this report comparable with earlier ones, it carries figures in compliance with the International Financial Reporting Standards.

Additional information:

–        There was no change in the ownership structure of the Company.

–        During the first quarter of the 2013–2014 business year there was no change in the organization of the Company.

–        The Company does not possess shares of its own, just as before.

5 August 2013

On behalf of the Board of Directors of the Zwack Unicum Plc.,

Frank Odzuck                         Tibor Dörnyei

Chief Executive Officer       Deputy CEO