Fevertree lifts revenue guidance as on-trade reopens

Fevertree Drinks reported a 36% improvement in total first-half revenue in a trading update on Tuesday, to £141.8m, with constant currency growth coming in at 39%, as it lifted its revenue expectations for the year.

The AIM-traded carbonated soft drink and mixer manufacturer said UK revenue was ahead 4% at constant currency for the six months ended 30 June, at £50.3m, while United States revenue grew by 42% at constant exchange rates to £36.2m.

Total Europe revenue rocketed 104% to £41.3m at constant currency, while the rest-of-world geography saw revenue rise 71% to £14m.

In the UK, Fevertree noted that the on-trade market remained closed for the first quarter, with a gradual re-opening through the second quarter.

It reported “clear signs” of pent-up demand as bars, restaurants and pubs reopened, although that was slightly tempered by continuing social distancing and capacity restrictions.

The company’s off-trade sales remained “strong” even as on-trade re-opened, remaining at similar levels to 2020, and increasing by 17% over 2019.

Fevertree said its US result was “particularly encouraging” given the strong comparators from the first half of 2020 putting it down to its growing presence in the off-trade, its new products, and “strong” on-trade growth as hospitality began to reopen on a state-by-state basis.

In Europe, the company described an “”incredibly strong” performance, which it said reflected importers building stock in anticipation of a strong summer of trading.

Even when the impact of the importer de-stock in 2020 was taken into account, Fevertree said its underlying growth was still about 30% in the region.

In the rest-of-world market, the company said it was still driving category growth and strengthening its brand in both Australia and Canada, adding that while the second half comparators would be tough, it was expecting to extend its position in both markets.

Fevertree’s first half gross margin was impacted by “significantly elevated” costs resulting from disruptions to global logistics.

As a result, it was expecting gross margins for the period to be about 45% for the Fevertree brand, and 44% including revenue from GDP's portfolio brands.

Its overhead spend was in line with expectations, and as such it was anticipating an EBITDA margin of about 20.5% for the first half.

Looking ahead, the board said the investments made during 2020 were starting to pay dividends as markets continued to reopen.

Over the last year it said it had strengthened its brand and gained market share across its regions which, along with supportive industry trends and signs of pent-up demand in the on-trade, gave the directors confidence in the group's position as it looked ahead.

As a result of its “strong start” to the year, Fevertree hiked its revenue guidance to between £295m and £304m for the full year, but it did note that growing challenges from Covid-19-related logistics disruption and associated costs was putting pressure on its margins.

It thus was anticipating gross margins of about 44% for the 2021 financial year, or 43% including revenue from GDP's portfolio brands, delivering an EBITDA margin of about 20%.

While it was expecting some margin improvement next year, it believed logistic cost headwinds would continue alongside input cost increases on raw materials and product costs.

“Fevertree has made significant progress in the first half of 2021, delivering a strong revenue performance,” said chief executive officer Tim Warrillow.

“The last 18 months have highlighted the strength of the Fevertree brand amongst our consumers and customers as well as the fantastic team and partners we have in place.

“We continued to invest in the opportunity during the pandemic and have already started to see the benefits of our long-term outlook as the world has started to reopen.”

Warrillow said the firm’s performance in the on-trade as it reopened was “encouraging” in all of its markets, with its off-trade performance also strong, as sales “far exceeded pre-pandemic levels in the UK, the US, across Europe, and in the rest-of-world market.

“Our margins have been notably impacted by global logistics disruption.

“Despite this, we remain confident as ever in the strength of our business model and the opportunity to improve margins as we cycle out of the current period of Covid-19 disruption.”

Fevertree’s long-term opportunity was still being “enhanced” by structural trends, Warrillow explained, including growing interest in premium spirits and the popularity of long mixed drinks.

“This momentum is being supported by our retail and spirit partners, and Fevertree’s ability to capitalise and drive this opportunity is unmatched by any other premium mixer brand, giving us confidence in the future growth potential for Fevertree.”

At 0907 BST, shares in Fevertree Drinks were down 6.49% at 2,291p.