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Zwack Net Sales Adversely Affected by Tax Hikes

D&T
May 21, 2020

Hungarian liquor producer Zwack Unicum Plc. has published the results of the company for the 2019-2020 business year: slight increase in gross sales and significant decrease in net sales.

According to audited data, total gross sales of the company were HUF 26,358 million – practically the same as in the previous business year (+HUF 17 million; +0.1%). Net sales (sales revenues excluding excise tax and public health product tax) were HUF 13,960 million, a year-on-year decrease of 11.3% (by HUF 1.8 billion). There was a year-on-year decrease of nearly HUF 2 billion in the net domestic sales (-13.7%). The net sales of premium products decreased by 15.8% and those of quality products by 17.4%.

The report notes that the amendment of the Act on Public Health Product Tax (NETA), effective as of January 1, 2019, was the cause of the considerable difference between the gross and net sales. In the wake of the amendment, each and every type of alcoholic drinks has been taxed (as from 2019, palinkas and all bitter liqueurs also), and the tax categories were raised by 20%. The Company shifted the massive tax hike into its gross prices but – just as we had predicted – that has radically reduced the volume sold. The net sales revenue of traded products had a year-on-year decrease of 5.2%.

Acting in consensus with the main shareholders, the management of the company decided to raise credits. By doing so, the company has generated a sufficient financial position even for the contingency that the COVID epidemic might last for a long period. On-trade sales, which account for a half of the company’s revenues, had practically discontinued by the end of March. That was because the dominant majority of gastronomic units suspended operation for an indefinite period after the opening hours had been officially shortened to flatten the curve of new cases of COVID-19. If those restrictive measures stay in force for several more months, the company might have to use those credits.

The inventories increased by HUF 275 million (+11.5%). Growth in the stock of own-produced goods accounted for two-third of the increase. In the middle of February 2020, when the COVID pandemic situation was becoming serious, the management of the company took various measures. A decision was made to considerably increase the stock of the Unicum finished product. That step was meant to forestall the undesirable situation where the unavailability of raw materials could bring the plant to a halt. By the end of March 2020, a considerable part of that quantity had been produced, which in turn strongly increased the closing inventory of finished products. As for the remainder of the increase in inventories: the weakening of the forint pushed up the prices of imported materials.

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