Distil delivered a breakeven result at the interim stage despite challenging trading conditions, particularly in the UK unflavoured gin market. The previous stock overhang, driven by the supply chain ahead of the previous end-March Brexit date and which also contributed to the H1 sales performance, has now been cleared. Distil has also secured the Mardi Gras trademark in Europe and the USA, which will drive further NPD (new product development) initiatives. The core spiced rum market continues to see growth and new RedLeg brand extension launches should underpin a more robust sales performance in the second half. Combined with continued cost management discipline, Distil expects FY20E operating profit to remain in line with previous forecasts. We have revised our outer year forecasts however to remain prudent in light of ongoing market headwinds.
Distil delivered a breakeven result, with operating profit of £1K, compared with last year’s £101K profit. The H1 29% revenue shortfall was attributed primarily to a weakening of the unflavoured gin market, in which Blackwoods trades, and a listing shrinkage at a retail customer. Costs were tightly managed to offset lost gross profit, enabling breakeven to be achieved, despite the challenging backdrop in the gin market.
The second half performance should be underpinned by new product launches in Q3, both of which are brand extensions for RedLeg Spiced Rum. RedLeg Caramelised Pineapple Spiced Rum will launch in five hundred retail outlets, and canned RedLeg & Cola ready-to-drink will launch in three hundred outlets. Distil has indicated its intention to launch a new product in 2020 under the Mardi Gras brand, the trademark which has been secured for the key European and US markets. This underlines the importance of NPD and product innovation.
Management has indicated that it does not expect to recover lost revenues in H2, but also that it expects operating profit to remain in line with previous guidance, courtesy of operational efficiencies and tight overhead control. While new initiatives and product launches bed down, we have taken a more conservative approach to outer year forecasts, which broadly move back previous expectations by a year.