Distil volumes, revenues plunge amid business 'remodel'

Premium spirits company Distil said in a trading update on Wednesday that volumes were down 79% year-on-year in its first quarter, with revenues falling 81% to £0.12m.

The AIM-traded firm, which owns the brands RedLeg Spiced Rum, Blackwoods Gin and Vodka, and the vodka labels Trove, Blavod and Diva, put the falls down to the “one-off impact” of its business remodel, resulting in stock being removed from its current distributor as it prepared for “accelerated” growth.

Export sales, meanwhile, increased 84% year-on-year, as Distil expanded its existing and opened into new markets.

The company’s marketing investment rose 67% year-on-year, with the board reporting positive initial results following the launch of its first television campaign for RedLeg Spiced Rum.

“Reported year-on-year revenue and volume declines for the first quarter largely reflect the recently-announced remodelling of our UK business, which will see us handling all sales and marketing to our major UK retail customers directly rather than through a third-party distributor,” said executive chairman Don Goulding.

“Whilst this major move will result in a one-off impact to full year revenue in the current financial year, we expect the change to our business model to yield significant revenue upside from 2023 financial year onwards.

“The UK is by far our largest market and stock cover held by our outgoing distributor to service major retailers is significant.”

Goulding said the inventory was being managed down and removed from the distributor supply chain as the company prepared to shift to direct sales at the end of the second quarter.

“We anticipate this one-off reduction in inventories will result in a £0.58m adverse impact to our reported UK sales during the first half of the current financial year ending 31 March.

“However, these changes to distributor stock cover have no impact on sales at the consumer level.

“The board expects that the short-term impact of this major change on UK sales will be offset by greater benefits next year and into the future.”

The appointment of a commercial director was described by Don Goulding as a “pivotal step” in the business remodel, explaining it would enable the firm to take direct control of servicing major customers, in turn allowing it to take advantage of effective promotional activity, better manage market fluctuations, and develop business-building plans together with key customers to drive visibility and brand growth while also reducing costs.

“The overall UK spirits market in the first half of this calendar year has been challenging as it continues to recover from the impact of Covid, showing a small decline in the off-trade as consumer drinking habits adjust to being back in hospitality which has grown off a low comparison during lockdown.

“The on-trade continues to show strong signs of recovery as consumers return to hospitality, and as confidence rebuilds, we are positioned to take advantage of new listing opportunities.

“This quarter we have secured increased distribution with a major UK on-trade chain, and we are confident that working together with specialist on-trade distributor Marussia Beverages we will continue to build on this success in this financial year.”

At 1200 BST, shares in Distil were down 20.36% at 1.08p.

Reporting by Josh White at Sharecast.com.