Interim Management Report on the results of the Zwack Unicum Plc. in the first quarter of the 2017–2018 business year

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The Board of Directors of the Zwack Unicum Plc. has approved the Management's report about the results of the Company in the first quarter of the 2017-2018 business year.

In compliance with the accounting rules currently in force, as from 1 April 2017, the Company prepares its financial statement only in accordance with the International Financial Reporting Standards (IFRS).

The data are not audited.

Total gross sales of the Company amounted to HUF 5 273 million, a year-on-year decrease of 0.6%. Net sales (sales revenues excluding excise tax and public health product tax) were HUF 3 242 million – a year-on-year increase of 2.6% (HUF 81 million).

Net domestic sales showed a year-on-year increase of 2.9% (HUF 81 million). (That is, HUF 2 885 million instead of HUF 2 804 million in the previous year.) The net sales of own-produced goods increased in the domestic market by HUF 15 million (0.7%) (that means, it reached HUF 2 266 million instead of HUF 2 251 million). Broken down, the sales of premium products rose by more than 10%. That was due, among other factors, to the fact that the sale of each of our major brands (Unicum, Fütyülős and Vilmos) grew. The sales of own-produced quality goods showed a year-on-year decrease of close to 25%. 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 nearly 20%. The net sales revenue of traded products had a year-on-year increase of 11.8%. Broken down, the revenue of the Diageo portfolio went up by 19.4%, whereas the revenue of the other traded products was identical with that a year before. 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 happened in March.

Market research for April and May indicate that the Hungarian market of spirits increased by 10.2% in volume. The sales went up in each of the segments: the premium segment by 10.5%, the quality segment by 4.9% and the non-branded segment by 13.4%.

Export earnings were HUF 357 million – exactly the same as those one year before. The export revenue of Unicum grew by 7.8% but the export of pálinka plummeted by 40.9%, chiefly in Germany. Among the key export destinations, the export revenue in Italy and in the Duty Free segment levelled off; the revenue from exports in Romania vaulted (by 76%), while the export figure for Germany was nearly halved due to the decrease in the sale of pálinka.

The material cost of goods sold increased by HUF 9 million (0.7%) – which was lower than the 2.6% rise in net sales. As a consequence, the gross margin ratio of sales rose by more than 0.7 percentage points (grew to 60.4% from 59.6%).

Employee benefit expense increased by HUF 101 million (16.5%). The bulk of the increase (HUF 72 million) was accounted for by a bonus paid to our employees equalling two weeks’ pay. Originally recommended by the Company’s major shareholders, it was approved by the Board of Directors in appreciation of the employees’ part in the Company’s achievements in the previous business year. In addition, 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 (and ranged between 4 and 9 per cent); and it was higher in the lower income bands and lower in the higher ones. The employee benefits expense was also increased by a moderate rise in the headcount but it was considerably reduced by the fact that the social contribution tax was reduced by 5 percentage points.

The other operating expenses rose by HUF 65 million (10.8%), which was mainly due to increase in marketing expenses and fees paid to consultants. Higher marketing spending was chiefly connected to the Company’s herbal liqueurs (Zwack Unicum and Unicum Riserva).

The other operating income decreased by HUF 50 million (36.3%). Of that decrease HUF 34 million was related to the fact that brand owners of traded products had reduced their year-on-year marketing expenditure. In the first quarter of the previous business year the Company posted exchange rate gain of almost HUF 17 million (which explains the rest of the change), whereas in the current business year the Company posted exchange rate loss of HUF 6 million (which appears in the line “Other operating expenses”).

The balance of financial income and financial expense decreased by HUF 3 million (95.7%). In the current business year it is not worth keeping free financial assets in fixed deposits because interest rates are actually zero. That explains why financial income has practically disappeared. The free financial assets available for the Company are sufficient for us to pay the dividend that has been approved by the Annual General Meeting (HUF 2.1 billion), to finance investment in fixed assets and ordinary daily operation.

The Company’s profit before taxation has thus decreased by HUF 141 million (20.3%) (HUF 551 million instead of HUF 691 million). The sale of Kalinka vodka considerably decreased but the Company has managed to compensate for that by realizing 10% increase in the sales of products belonging to other brands. Thus the size of the gross margin grew slightly (by 3.8%). The operating costs went up considerably (by HUF 159 million, 11.9%), and the increase can be divided into two parts. Two-thirds of the increase was due to one-off expenditures (a bonus equalling two weeks’ pay, consultants’ fees), and 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 31 million (19.2%), which means it moved in tandem with the profit before taxation (-20.3%). That was because the lowering of the rate of corporate tax was counterbalanced by the application of the minimum tax, which was necessitated by the transition to accounting in accordance with the IFRS.

The Company’s profit after taxation was HUF 422 million – a year-on-year decrease of 20.7% (previous: HUF 532 million) but it is substantially higher than the plan target.

There were no noteworthy year-on-year changes on the lines of balance sheet. The deferred tax liability is lower than in the previous business year by HUF 134 million, which is the consequence of the lowering of the corporate tax rate. Trade and other receivables went up by HUF 243 million, which was mainly because the sales figure for June was higher than that a year before. Trade and other liabilities increased by HUF 588 million, where HUF 400 million are accounted for by the fact that the dividend is higher than that in the previous business year.

During the first quarter of the business year the Zwack Unicum Plc. spent HUF 103 million on fixed assets, and those expenditures were of a supplemental type.

The Company has 237 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 230.)

This Interim Management 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 quarter 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.

3 August 2017

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

Sándor Zwack, Chairman and Tibor Dörnyei, Member of the BoD

Zwack Unicum Plc's Report is published and accessible at:

https://zwackunicum.hu/files/befektetoknek_penzugyi-jelentesek_negyedeves-jelentesek_2017_2017-18-i--quarter-interim-management-report_en_1501773563/zwk170803qr01e.pdf

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