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13.03.2008
Credit-Rating: Ukraine`s entering WTO will not affect major cognac producers
Credit-Rating believes that rise in excise duties and decrease of import duties on cognac and brandy accordingly to the WTO requirements will not have a significant impact on Ukraine`s major cognac producers.
According to the WTO requirements the excise duty on cognac and brandy must be equal to those on spirit products, which will rise to UAH21.5 per 1 litre of 100% spirit starting from 2008. The cognac and brandy excise duty have been rising gradually. As at 2007-end it accounted for UAH7 per 1 litre of 100% cognac spirit (UAH1.4 per 0.5 litre of the product), and starting from Jan. 1, 2008 it has been raised to UAH10. In late February 2008 the parliament has registered a bill on increase of cognac and brandy excise duty to UAH21.5 per 1 litre of 100% cognac spirit (UAH4.3 per 0.5 litre of the product). The same bill envisages decrease in import duty on cognac and cognac spirit (to ?3.5 from ?7.5 in 2008 and to zero in 2011).
Credit-Rating subscribes to the opinion that the increase in excise duties may be compensated by the producers with both price surge (by UAH2.9 per 0.5 litre of the product), which will not affect greatly the consumption rates, considering median retail price of the product at UAH30-UAH50 per bottle, and with cut profitability (which currently makes up a. 100%). The decrease in import duty (a. by UAH6 per 0.5 litre of cognac or cognac spirit) may warm up a little the competitiveness of importers and producers, which do not have own distillation facilities.
`The efficient performance of the major cognac producers on the national market in the forthcoming several years will be contingent upon in-time upgrading of their production facilities, efficient marketing, and, which is of great importance, on prudent distribution policy` Oleg Grishko, Credit-Rating`s leading analyst said.
Credit-Rating`s note:
The company rated by Credit-Rating in this sector is Odessa Cognac Factory (assigned both uaBBB issuer and issue rating to its UAH90m M series bond issue, with both ratings bearing Positive outlook). In 2007 Odessa Cognac Factory, Image Holding Sbsd. (Khortytsia Trade Mark) and Megapolis Trade House (distributing company) merged in a single holding company. Positive outlook mirrors possible upgrade of the Odessa Cognac Factory`s ratings on completion of holding`s restructuring and further analysis of its consolidated statements.
For more information, please contact:
Information and Communication Department
Sergey Rozumyak +38 044 490 25 50
SRozumyak@credit-rating.com.ua
