On the back of strong revenue growth of 42%, Distil has delivered interim profits at operating and pre-tax level of £101K, compared with last year’s loss of £21K. This represents an operating profit margin of just under 9%, with the company’s perennial cost control complemented by a welcome increase in gross margin driving this 11% swing at the operating margin level. The contribution margin increased by 240bps, despite the continued investment in brand marketing and promotion, which rose by 57% year-on-year. Net cash stood at £957K at the end of the period. We leave estimates unchanged ahead of the key Christmas period.
This was the most successful H1 trading period for the company since its name change to Distil and its shift to a total focus on development of its own brands. RedLeg Spiced Rum and Blackwoods gin remain the core brands and growth drivers of both revenue (+42%) and volume (+31%) growth. Gross margin expansion has further magnified the impact of operational leverage, with total operating costs increasing by some 27%. Within these, other operating cost growth was contained at just under 10%, despite some investment in staff resources to support Distil’s growth.
Distil has also achieved new listings in international markets - namely in France and Canada. We would expect further announcements over the course of time as Distil looks to build and consolidate positions within these new markets.
The development of new gift packaging for RedLeg and Blackwoods and miniature bottles will underpin on-shelf differentiation in a highly competitive market, encourages gifting purchases and introduce these core brands to new consumers.
Notwithstanding the very strong performance delivered in the first half, the full-year outturn will depend on trading in the current quarter (Q3 fiscal), which is driven by Christmas and New Year sales. In addition, the very late Easter in 2019 means there will be little benefit in the current fiscal year. We are therefore leaving our forecasts unchanged at this stage until the shape of peak trading is revealed in the post-Christmas trading update.