Quick Reporton the results of theZwack Unicum Plc.in the first half 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 half of the 2017-2018 business year.

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. 

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 slightly 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. As 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. 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 (Zwack 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 brand owners of traded products had reduced their year-on-year marketing expenditure. 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. 

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.

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.

7 November 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--feleves-jelentes_hu_1510073530/zwk171107qr01h.pdf

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