In compliance with the accounting rules currently in force, as from 1 April 2017, the Company prepares its reports only in accordance with the IFRS standards.
The data are not audited.
Half year report analysis
Total gross sales of the Company amounted to HUF 10 625 million, a year-on-year decrease of 3.6%. Net sales (sales revenues excluding excise tax and public health product tax) were HUF 6 462 million – a year-on-year increase of 0.2% (HUF 10 million).
There was no tangible year-on-year change in the net domestic sales (HUF -7 million; -0.1%). The net sales of own-produced goods decreased in the domestic market by HUF 200 million (4.3%) (that is, it reached HUF 4 424 million instead of HUF 4 624 million). Broken down however, the sales of premium products rose by 8.6%. We are pleased to report that the sales of each of our major brands (Unicum, Fütyülős and Vilmos) grew. Unicum Riserva super premium liqueur, which was introduced in the on-trade channel at the beginning of the year, had a good start in the market: it contributed to the growth of 8.6% with one percentage point. The sales of own-produced quality products showed a year-on-year decrease of nearly 30%. That was a consequence of a spike in the sale of the Kalinka vodka at the end of 2016 – which we indicated in our earlier reports. By contrast, the sale of St. Hubertus increased by 16%.
The net sales revenue of traded products had a year-on-year increase of 17.2%. Broken down, the revenue of the Diageo portfolio went up by 22.7%, whereas the revenue of the other traded products grew by 7.6%. The sales figure was favourable largely because this year a considerable part of the revenue of the Easter season was generated in April while in 2016 it occurred in March.
Market research for April–July indicate that the Hungarian market of spirits increased by 4.2% in volume. Increase was similar in the premium and the non-branded segments (5.8% and 6%, respectively) while consumption of the quality products slightly decreased (-0.6%).
Export earnings were HUF 724 million – a year-on-year increase of 2.4%. The export revenue of Unicum grew by 7.6% but the export of pálinkas decreased significantly, chiefly those supplied to Germany. Among the key export destinations, sales in Germany levelled off (because increase in the sales of Unicum compensated for decrease in the sales of pálinkas), the export revenue in Italy and in the Duty Free segment slightly increased (by 3% and 1%, respectively), while the revenue from exports to Romania grew dynamically (by 13%).
The material cost of goods sold increased by HUF 19 million (0.7%), which was slightly above the 0.2% increase in net sales. As a consequence, the gross margin ratio of sales decreased by 0.2 percentage points (it was 58.9% instead of 59.1%). Changes in the composition of products traded were the main cause of that development: the proportion of traded products with a lower gross margin ratio increased while that of the own-produced goods somewhat decreased.
Employee benefit expense increased by HUF 76 million (6.1%). The bulk of the increase (HUF 72 million) was accounted for by a bonus paid to our employees equalling two weeks’ pay. It was approved by the Board of Directors in appreciation of the employees’ part in the Company’s achievements in the previous business year. Furthermore, at the start of the current business year the Company granted an across-the-board average pay hike of 6.2%. The pay hike was differentiated according to income bands (ranging between 4 and 9%); and it was higher in the lower income bands and lower in the higher ones. By contrast, the employee benefit expense considerably decreased because the social contribution tax was reduced by 5 percentage points.
The other operating expenses rose by HUF 90 million (6.7%), which was mainly due to increase in marketing expenses. Higher marketing spending was connected to the Company’s own-produced premium products (Unicum, Unicum Riserva and Fütyülős).
The other operating income decreased by HUF 70 million (20.3%). Of that decrease HUF 61 million were related to the fact that marketing budgets of traded products went down. In the first half of the previous business year the Company posted exchange rate gain of HUF 9 million (which explains the rest of the change), whereas in the current business year the Company posted exchange rate loss of HUF 7 million (which appears in the line “Other operating expenses”).
The balance of financial income and financial expense decreased by HUF 5 million (92.5%). In the current business year the company omitted free financial assets.
The Company’s profit before taxation has thus decreased by HUF 249 million (18.8%) (HUF 1 077 million instead of HUF 1 326 million). The sale of Kalinka vodka considerably decreased but the Company has managed to compensate for that by realizing an increase in the sales of products belonging to other brands. Consequently, gross margin levelled off (‑HUF 8 million; ‑0.2%). The operating costs went up by HUF 165 million (5.8%), and the increase can be divided into two parts. Two-thirds of the increase was due to one-off expenditures (e.g.: a bonus equalling two weeks’ pay), and the effects of one third (such as the across-the-board pay hike for employees and the increase in marketing costs) can be felt throughout the business year.
The Company’s calculated tax (corporate tax, local business tax and deferred tax) decreased by HUF 128 million (40.1%), chiefly due to the lowering of the rate of corporate tax and, to a lower extent, due to a lower profit before taxation.
The Company’s profit after taxation was HUF 886 million – a year-on-year decrease of 12% (previous: HUF 1 007 million) but it is substantially higher than the plan target.
In the balance sheet the deferred tax liability is lower than in the previous business year by HUF 148 million, which is the consequence of the lowering of the corporate tax rate.
The value of the inventories showed a year-on-year increase of HUF 334 million (13.4%). That considerable increase was due to multiple causes. First, increase in the turnover of premium products always pushes up the value of inventories. Second, in forthcoming months we intend to sell a larger quantity of value-added products during the Christmas season. Because of an acute shortage of labour, our Company’s staff (and contracted partners) packed those products earlier than in previous years.
Trade and other receivables went up by HUF 297 million (10.9%). Nearly a half of the increase occurred due to the increase in the volume of accounts receivable because the proportion of prompt payment went down. Tax prepayment had a year-on-year increase of about HUF 100 million, and advance payments made towards fixed assets grew by HUF 60 million.
Cash and cash equivalents had a year-on-year decrease (-HUF 595 million; -35.7%), which was due to increase in the volume accounts receivable and that of inventories.
During the first half of the business year the Zwack Unicum Plc. spent HUF 236 million on fixed assets, and those expenditures were of a supplemental type.
2. Business Environment of the Company
The Zwack Unicum Plc. is the biggest player in Hungary’s spirits market. As nearly 90% of its revenues are domestically generated, trends in domestic consumption are crucial for its wellbeing. Domestic consumption of branded spirits has increased in Hungary in recent years and the tendency is expected to continue in the near future. See the first chapter of this report for concrete market figures.
3. Objectives and Strategy of the Company
The Company’s primary activity is producing and selling alcoholic drinks. The principal aim of Zwack Unicum Plc. is to maintain its market leading role in Hungary’s market of spirits and further strengthen its dominant presence in the premium and quality products segments.
In Hungary the Company is the exclusive distributor of the products of Diageo Plc.; Moet-Hennessy and others. Thus, in addition to the self manufactured premium brands of determining importance in the Hungarian market (Unicum, Fütyülős, Vilmos, St. Hubertus) Zwack Unicum Plc.’s portfolio is coloured by world brands such as Johnnie Walker, Baileys, Captain Morgan and Hennessy cognac and Moët&Chandon champagne.
With such a portfolio our Company offers an impressively rich assortment of branded products for consumers.
The product development and the successful product lunch are the most important means to keep and strengthen the market leader position. The Company has the objective of deriving at least 10 % of its gross sales from exports and has the ambition to increase it.
Main Resources and Risks of the Company’s Activities
Material Resources
· Production and Plant
The Company has three production plants. Unicum bulk production and early aging are done in the Unicum plant in Soroksári út. The Dunaharaszti plant takes care of additional aging and bottling of the liquor, and also the bottling of the majority of the other products produced by the Company. The fruit palinka distillary operates in Kecskemét, and this is where the small series products are bottled.
The output capacities of the plants concerned are appropriate for bulk production and bottling as well.
At the plant in Dunaharaszti a major modernization project for bottling began in 2015. Machinery of two bottling lines is being replaced by new machine units. The project is expected to run until 2020, and in that period capital expenditures will exceed annual depreciation figures.
· Financial Position
The Company’s financial position is stable, always fulfills its financial obligations on time.
Financial transactions were made by Unicredit, Erste and K&H Bank from among the largest commercial banks.
Human Resources
The Company has 238 employees (at the end of the 2016/2017 business year it had 227; and in the corresponding period of the previous business year it had 234.) The increase is mainly due to the change between the headcount of temporary and payroll workers.
In the Hungarian spirits market the Zwack Unicum Plc. has the biggest human resources for sales and marketing. Indeed, the related competitive edge in distribution and innovation are among the Company’s most important strengths.
Risk factors
The most important risk factor affecting our Company is the change of the regulatory environment that may have a negative effect on domestic consumption or on the sales volume.
Company activities are exposed to various financial risks: market risks, credit risks, and liquidity risks. Keeping in mind the unpredictability of the financial market, the Company tries to keep the possible negative implications affecting Company finances at the minimum. In line with the accounting policy, the Company applies derivative financial tools to counter certain financial risks.
Regarding its market risks, to reduce the foreign exchange risks arising from the export and import activities and from the Euro deposits, the Finance Department monitors, in line with the hedging policy, the foreign exchange liabilities, and keeps the necessary amount of forex on its bank accounts. Furthermore, the Company completes derivative transactions to reduce the same risks. Therefore the changes in exchange rate within the financial year have no significant implications on the profit and loss statement, nor on shareholders’ equity.
The Company is not exposed to significant commodity market and other price risks either, not to interest risks because the amount of liquid investments on 30 September 2017 was 16 M HUFs, and the Company also has fix interest assets whose book value is, by the order of magnitude, the same as their market value; the Company has no interest bearing loans either.
The Company has no significant credit risks, nor related to accounts receivables, due to the diversity of its customers. Also a significant portion of the accounts receivable is insured by financial institution up to 90% of single liabilities. The Company applies no other credit rating methods since this credit guarantee method is deemed to be effective enough to manage credit risks.
Company financial assets and fix deposits are mostly in HUF. The credit risk is low since Zwack Unicum Nyrt. placed its funds with reliable financial institutions.
Liquidity management of the Company covers the necessary amount of financial tools and also the necessary credit lines. The Management continuously monitors the necessary liquidity provisions (consisting of the undrawn credit line and the financial assets) based on the expected cash flow.
This Quick Report has been made according to the relevant accounting regulations and the financial statements made on the basis of our best knowledge. 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 also of the Zwack Unicum Plc.’s situation, development and performance.
Additional information:
– There was no change in the ownership structure of the Company.
– During the first half of the 2017–2018 business year there was no change in the organization of the Company.
– The Company does not possess shares of its own, just as before.
18 December 2017
On behalf of the Board of Directors of the Zwack Unicum Plc.,
Sándor Zwack, Chairman and Tibor Dörnyei, Member of the BoD
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