"Hungarian distiller Zwack has reported HUF 1,376 million after-tax profit for the fourth quarter of 2007, which corresponds to a 5.3% year-on-year increase. Based on the earnings report we believe the company will be able to pay HUF 1,000 dividend per share on its 2007 profit, which would correspond to a dividend yield of 6.7%, calculating at Wednesday's closing price.Key points of the earnings report:
*net sales rose 6.8% yr/yr, operating profit was up 7% and after-tax profit increased by 5.3% yr/yr in Q4;
*gross and net sales, as well as the gross margin rose to never-before-seen levels, compared to Q4 in previous years;
*the ratio of export revenues within total sales continued to decrease;
*based on the performance of the company in the past three quarters, management guidance for 2007 are likely to be met
*the trial introduction of Zwack Liqueur will continue in Ohio and will be extended to Colorado in the USA.
The financial year of Zwack spans from 1 April to 31 March therefore today's earnings report is on its third financial quarter. We, however, regard this period as the company's fourth (calendar) quarter.
Zwack's net sales in Q4 rose 6.8% yr/yr and its gross profit jumped by 12.2%, an average performance considering the figures in the same period of the previous years. Gross and net sales, as well as the gross margin reached record levels, compared to the fourth quarter data in the previous years, even when we look at cumulated 12-month trailing figures.
Zwack's operating profit grew by 7% yr/yr, despite a 24% leap in other operating expenses. This can be attributed to the fact that the company spent “significantly more on the value added promotion of the premium products sold in the Christmas season" and that its “export marketing costs grew, mainly due to the test of “Fütyülõs" carried out in Berlin."
Pre-tax profit was up 8.3% yr/yr in Q4 and after-tax profit rose by 5.3% over the same period of 2006. This was consequence of the fact that Zwack was obliged to pay solidarity tax for the first time in Q4, and its payable tax rose by 18.8% in Oct-Dec.
Zwack pays close attention to its expansion on export markets. Export sales in Q4 dropped by 7% yr/yr. The company blamed the stronger forint for the decline in the first three quarters, which is suspected to have caused the fall in Q4, as well. Irrespective of this, the Q4 export performance cannot be regarded as too positive, knowing what the management wanted to see.
The ratio of export sales within total turnover came in at 4.3% in Q4, down 13% from a week earlier.
Sales in Romania, Slovakia and Germany went well, but the dynamism of Unicum sales in Italy has broken. On the other hand, management expect flat change by the end of the financial year there.
The ratio of Zwack's self-manufactured products remained dominant within sales. 3.27%. In FYQ1-Q3, sales of premium products rose by 5.58%, up from the projected 4% increase. Sales of quality products by 2.57%, while sales of non-branded products decreased by 2.9%. Among premium self-manufactured products, the outstanding growth of the “Fütyülõs" product family in the previous years has continued, with an increase of above 40%.
The turnover generated by Unicum continues to be in excess of the turnover of the same period of the previous year. In the commodity segment Zwack reported an increase in the sales revenue within the quarter, for the first time in ages (contrary to the decrease experienced in the first half). Sales for the Wine Division declined considerably in FYQ1-Q3.
Zwack's cash and cash equivalents were up by nearly 45% yr/yr at the end of December, but retreated some from the previous quarter.
We believe Zwack will be able to meet on the key lines expectations provided by the management last year. Moreover, we expect an overshoot on the pre-tax profit line, since stronger seasonal demand (Easter) will take place in the current quarter.
“The trial introduction of the Zwack Liqueur in the United States, which we mentioned in last year's Annual Report, has not supplied sufficient information for a decision to introduce it in every federal state of the USA. The trial introduction will continue in Ohio and will be extended to Colorado during 2008. It is not decided yet when to make a final decision on introducing that product in every state of the USA," Zwack said in its earnings report.
Portfolio.hu wievpoint
We regard it as a positive development that in Q4 Zwack managed to break off from the mild performance it gave in the previous quarter. We believe management plans to be met in the current financial year, and so the payment of a HUF 1,000 dividend per share seems affordable."
Source: Portfolio Online Financial Journal
08.02.2008