Fevertree warns over cost pressures

Fever-Tree shares fell on Thursday after the posh tonic maker warned over ongoing cost pressures.

In an update for the year to the end of December, the company said total revenues rose 11% to £344.3m. Revenues in the US rose 23% to £95.6m despite the impact of industry-wide port congestion and logistics disruption, without which Fever-Tree said underlying demand for the brand would have translated to an even stronger sales performance.

In Europe, revenue was ahead 15% at £101m, driven by a strong performance in Southern Europe, and slightly offset by softening consumer sentiment in Germany.

In the UK, meanwhile, revenue dipped 2% to £116.2m, but Fever-Tree said the brand continues to gain distribution and market share, "remaining the clear leader of the UK mixer category". Within that, on-trade revenue rose by around 28%, but widespread industrial action across the rail network in the run-up to Christmas had "a notable impact" on sales.

The group expects to deliver adjusted EBITDA of around £39m for the year, in line with expectations. In addition, it introduced a 2023 revenue guidance range of between £390m and £405m, which would represent growth of 13% to 18%. For 2023 EBITDA, it guided to between £36m and £42m.

It said the impact of elevated European energy costs into glass bottle pricing will be "material" this year.

"Whilst energy pricing has recently reduced, it remains volatile and at least three times higher than 2021 levels, impacting both the cost of raw materials and the direct energy cost in glass manufacture," the company said.

Chief executive Tim Warrillow said: "2022 has seen the Fever-Tree brand continue to gain traction and prominence across the globe resulting in double digit revenue growth and profits in line with expectations.

"Looking ahead to 2023, we remain very confident in delivering strong top line growth, most notably in the US. Whilst the initiatives we are implementing would have driven margin improvement during the year, the energy related cost increases, which are particularly acute across the glass industry, mean we expect to deliver absolute EBITDA in-line with 2022."

Warrillow said these temporary additional costs will unwind significantly as the energy price recalibrates.

At 0915 GMT, the shares were down 5.7% at 1,053.66p.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: "Fever-Tree’s latest trading update was as mixed as the drinks it supplies. The top line grew but was still below market consensus. The group blamed train strikes in the run-up to Christmas for putting a lid on revenue in the UK. In the US, revenue bubbled up by double-digits compared to last year. Impressive, but again, this growth didn’t live up to the market’s demanding expectations.

"Inflationary cost pressures are taking their toll on the group too. Energy prices are a big input cost in making glass bottles. And when 80% of your sales are bottled in glass, any fluctuation in energy prices is bound to have a material impact on your costs. While European energy prices have recently pulled back, they’re still at least three times higher than back in 2021.

"Despite the revenue shortfall, there is a silver lining. Cutting costs on things like marketing spend have meant Fever-Tree still expect to hit its full-year profit targets. But with such high expectations already built into its price, we think it’s going to be hard for the group to sparkle."