TIDMFEVR
RNS Number : 2780Y
Fevertree Drinks PLC
08 September 2020
Fevertree Drinks plc
FY20 Interim Results to 30 June 2020
Resilient outcome for the half-year, further strengthening our
position as the clear global leading premium mixer brand
FY20 Interim Highlights
-- Strong Off-Trade performance and diversified revenues across
regions and channels has enabled the Group to mitigate the impact
of On-Trade closures caused by COVID-19
-- Off-Trade sales exceeded expectations across our regions
o Maintained position as number one brand in the UK mixer
category at retail
o Very strong US performance notably ahead of expectations as
the brand continues to gain traction
o Resilient underlying performance in Europe, with reported
revenue impacted by temporary importer de-stocking during
lockdown
o Very encouraging Off-Trade growth in key RoW markets of Canada
and Australia
-- Rapidly identified and reacted to evolving purchasing and consumption habits
o Upweighted marketing spend to focus on at-home consumption
with the Group's first ever national television advertisement in
the UK, driving significant growth in consumer awareness
o Successful roll out of larger pack format in UK delivering
good rate of sale growth
o Investment in online retail platforms drove significant growth
in this channel globally
-- A strong and secure financial position has enabled the Group
to remain focused on the long-term opportunity, continue to invest,
and to make strategic progress
o Successful launches of the Premium Soda range in the UK and
Sparkling Pink Grapefruit in the US
o Acquisition of GDP Global Drinks Partnership, the Group's
sales agent in Germany, just after period end, underlying the
Group's ambition in Germany and the wider European opportunity
Financial highlights
GBPm H1 FY20 H1 FY19 Change
------------------------------- -------- -------- ---------
Revenue
UK 48.3 60.7 (20)%
US 27.4 19.8 39%
Europe 20.5 29.0 (29)%
ROW 8.0 7.8 2%
Total 104.2 117.3 (11)%
Gross profit 48.7 60.8 (20)%
Gross margin 46.8% 51.9% (510)bps
Adjusted EBITDA(1) 23.8 36.7 (35)%
Adjusted EBITDA margin 22.8% 31.3% (850)bps
Diluted EPS (pence per share) 14.99 24.30 (38)%
Dividend (pence per share) 5.41 5.20 4%
Net cash 136.9 104.1 32%
------------------------------- -------- -------- ---------
(1) Adjusted EBITDA is earnings before interest, tax,
depreciation, amortisation, share based payment charges and finance
costs
-- Resilient revenue performance of GBP104.2 million in the
first half, a decrease of 11% year-on-year
-- Gross profit margin was impacted by COVID-related shift in
channel and regional sales mix, and the US price optimisation.
Excluding COVID-19 impacts, gross margin for the first half would
have been c.49.0%
-- Despite the short-term disruption of COVID-19, we continue to
upweight investment in marketing and our team to support the
long-term opportunity across all regions, maintaining previously
budgeted underlying operating costs of c.GBP60 million for the full
year
-- This increased investment and the impacts of COVID-19 on
revenue and gross margin impacted our Adjusted EBITDA margin in the
first half but we remain confident that continuing to invest in our
people and our brand will position us strongly as we emerge from
the current period of uncertainty
-- Asset light business model continues to support the Group's
secure financial position with net cash improving to GBP136.9
million at period end
-- Paying an interim dividend of 5.41 pence per share, an
increase of 4% year-on-year, reflecting the financial strength,
confidence in the business, as well as our strong cash
generation
Tim Warrillow, CEO of Fever-Tree, commented
"I am very proud of how the Fever-Tree team has responded over
the last six months and the results that we have delivered. Our
priority throughout the COVID-19 pandemic has been our close-knit
team, who are integral to the success of the business. We did not
furlough any team members and instead focused on redeploying talent
around the business. We have also continued to invest in building
the team across the globe, adding 20 new employees in the first
half of the year.
Our performance in the Off-Trade over the first half of the year
has been very encouraging with sales across our regions exceeding
our expectations. People's interest and excitement about mixing
drinks at home has really taken hold over the lockdown period,
attracting more households to the Fever-Tree brand than ever
before. Consequently, we have increased our penetration in the UK,
consolidated our number one position, and driven value share gains
in the US, Europe, and as far afield as Canada and Australia.
Despite the On-Trade closure for a large proportion of the first
half of the year, we have continued to support our On-Trade
partners across our regions and are well-placed to benefit from the
return of this important channel.
We have had an encouraging start to the second half of the year
and, while we certainly aren't immune to the ongoing challenges of
COVID-19, our performance and our investments so far this year,
coupled with the growing interest in long mixed drinks, gives me
confidence that we will exit the crisis in an even stronger
position than we entered it."
There will be live audio webcast on Tuesday 8(th) September 2020
at 10:00am BST. The webcast can be accessed
via: https://www.investis-live.com/fever-tree/5f4f4f7948ce9210001da533/temp
For more information please contact:
Investor queries
Ann Hyams, Director of Investor Relations I ann.hyams@fever-tree.com I +44 (0)7435 828 138
Media queries
Oliver Winters, Director of Communications I
oliver.winters@fever-tree.com I +44 (0)770 332 9024
Nominated Advisor and Joint Broker - Numis Securities
Garry Levin I Matt Lewis I Hugo Rubinstein I +44 (0)20 7260
1000
Joint Broker - Investec Bank plc
David Flin I Alex Wright I +44 (0)20 7597 5970
Financial PR advisers - Finsbury
Faeth Birch +44 (0)7768 943 171; Chris Ryall +44 (0)7342 713
748; Amanda Healy +44 (0)7795 051 635
COVID-19 update I Well-positioned to navigate uncertainties
The Group is in a strong financial position. We are debt-free,
with strong underlying cash flow conversion and an improved net
cash position at period end of GBP136.9m. Alongside our strong
balance sheet, we benefit from well diversified revenue streams,
generated across multiple regions, in both On-Trade and Off-Trade
channels, and across multiple end customers.
We have maintained the cross-departmental team that was
established at the start of the crisis as we continue to monitor
the changing situation and co-ordinate our response. Our asset
light, outsourced business model, with few capital commitments and
a low fixed cost base provides both resilience to withstand the
ongoing impacts of COVID-19 and the flexibility to react to
changing channel dynamics and consumer demand.
Reflecting the financial strength and long-term prospects of the
business, we will be paying an interim dividend of 5.41 pence per
share, an increase of 4% year-on-year.
COVID-19 update I Supporting our people and communities
Fever-Tree has always been a close-knit team, with every
employee valued and integral to the business. The way the Global
team has adapted to working remotely and the commitment they have
demonstrated through a challenging period is a testament to the
talent and dedication of all our employees. As we grow as a
business, we continue to strengthen our team, adding 20 new
employees during the first half of the year.
Through the crisis we have strived to provide security and
certainty to our team and therefore decided very early into the
COVID-19 pandemic not to use the UK government's furlough scheme or
receive government grants. Instead, during lockdown periods our
On-Trade teams globally have focused on new projects and
initiatives as we look to 2021 and beyond, whilst some individuals
were deployed to different departments across the business to
broaden their knowledge and skill set.
We remain determined to emerge on the other side of COVID-19 not
only as an even stronger business but also one that has made a
difference during the crisis. As well as a focus on our employees,
we have offered support to communities and groups across our
regions, including financial support to local charities,
encouraging staff with capacity to volunteer their time, and
through donations to initiatives supporting key workers. In the UK
we supported "Salute the NHS" in their mission to provide one
million meals to NHS frontline staff, donating 100,000 soft drinks
to be included in their meal packs. In addition, we have continued
to support our charitable partner, Malaria No More in keeping the
fight against Malaria in the public eye by continuing our GBP1
million commitment over three years.
Strategic update I Resilient performance as focus remains on the
long-term opportunity
Against the backdrop of disruption caused by COVID-19,
Fever-Tree has delivered a resilient performance, with revenue of
GBP104.2m representing a decline of 11% year-on-year. The On-Trade,
which typically represents approximately 45% of Group revenue, has
been severely impacted as lockdowns have led to closures in most of
our territories since March, with only limited re-openings prior to
the end of the period.
As consumption has shifted away from the On-Trade we have worked
proactively to drive growth in the Off-Trade and have delivered a
consistently strong performance in this channel globally. Alongside
this we have seen increasing evidence that the lockdown period has
provided a further catalyst to the movement towards long mixed
drinks. Spirits companies are increasingly looking to capitalise on
this trend, and as the clear pioneer and global leader of the
premium mixer category we remain very well placed to continue to
partner with them to drive this significant long-term
opportunity.
Therefore, whilst the On-Trade closures have impacted our
revenue in the short-term, we have remained focused on the
long-term opportunity, continuing to build our team and invest in
the brand across all our regions. This approach has been enabled by
our financial strength and operational agility, and whilst there
will be some inevitable impacts on our operational margins this
year, we are confident that we will emerge from this crisis in a
stronger position than we entered it, and are increasingly well
placed to deliver our plans for long term growth.
UK I Positive momentum in the Off-Trade
Fever-Tree delivered a robust performance given the challenges
posed by COVID-19, with revenue of GBP48.3m, a decline of 20%
year-on-year. The On-Trade, which typically represents half of UK
revenue, was closed from mid-March, and consequently revenue was
down 61% in this channel in the first half of the year.
In the Off-Trade, following a modest start to the year as we
continued to lap tough comparators from early 2019, we saw a strong
ramp up in sales in the weeks leading up to mid-March as consumers
increased frequency of shops and basket size in anticipation of
imminent lockdowns. During the lockdown period, the Off-Trade
performed consistently ahead of expectations, as consumers
increased their at-home consumption, seeking out long mixed drinks
as an everyday affordable treat. As a result, sales in the
Off-Trade channel increased by 24% in the first half of the year, a
strong performance which has consolidated Fever-Tree's market
leading position.
Our agile business model meant we were quick to adapt to
changing consumer purchasing habits that emerged during the period,
such as the preference for larger pack formats, encouraging us to
accelerate the roll out of our 15 x 150ml can pack which has
delivered a very strong rate of sale in the retailers where it has
been listed so far. We also increased our focus and resource in the
convenience channel, which saw strong growth as consumers shopped
closer to home, resulting in new distribution secured in Co-Op
stores during the period. In addition, we have continued to invest
for the long-term by taking advantage of cost effective marketing
opportunities in the Off-Trade, redeploying marketing funds away
from On-Trade and events into new on-shelf initiatives in retail,
as well as launching our first ever national television advertising
campaign which has driven an increase in consumer awareness.
As a result, Fever-Tree has increased volume share year-on-year,
continued to strongly outperform other premium mixer competitors
and remained the number one mixer by value at UK Off-Trade, with
37.6%(2) value share.
Alongside mixers, we have seen the spirits category perform
strongly at retail during the lockdown period, notably gin, as
consumers have sought to treat themselves with a long mixed drink
at the end of the day during lockdown. Spirits companies are
increasingly looking to capitalise on this trend, be it gin and
tonic, whisky and ginger, or vodka and soda, and are engaging on
potential co-promotion opportunities. We are, therefore, very
optimistic that the lockdown period has been a further catalyst to
the long-term trend towards long mixed drinks which Fever-Tree,
with our category leadership position, range and relationships,
remains uniquely placed to continue to drive.
The On-Trade channel remained closed from mid-March,
significantly impacting our overall performance. During this
period, our team was proactive in offering support to our On-Trade
customers through credit extensions and payment plans, as well as
working closely with our end accounts to ensure they were offered
the support required to adapt to the new ways of trading on
reopening. These were gratefully received and have strengthened our
relationships with many of our key long-term customers.
Since period end, the On-Trade has seen a gradual and cautious
reopening. There have been differences in reopening rates and
footfall between pubs, bars and restaurants, as well as regional
differences, and we expect to continue to see a very gradual
recovery as we proceed through the remainder of the year.
The Group has continued to innovate and pioneer the category
through the first half of the year. We launched our Premium Soda
range in March and have seen a very positive response in the
Off-Trade, with new listings secured and very encouraging rate of
sale performance across retailers. Our intention is to roll-out the
range across the On-Trade as it gradually reopens.
At the end of the period we were delighted to work alongside
Sainsbury's and spirits partners to bring to life our first ever
Fever-Tree Gin & Tonic Bay. This was the first mixer-led
spirits co-promotion of its kind at UK retail, encouraging shoppers
to find their perfect pairing in store across the Fever-Tree range
with recommended gin partners, underlining the brand's strength and
position as the enabler for consumers to explore and experiment
across the gin category.
In summary, notwithstanding the disruption of COVID-19 and the
short-term impact on our On-Trade sales, the Group has made good
progress in the UK in the first half of the year. We have responded
proactively to the rapid shift to at-home consumption, launched new
formats, new flavours, pioneered a new co-promotional approach, and
produced a national television advertising campaign. The
performance of the brand in the Off-Trade, along with the support
we have provided to our On-Trade partners during lockdown puts us
in a strong position as normality gradually returns to both
channels.
(2) IRI 13 weeks to 28 June 2020
US I Successful pricing optimisation contributing to a strong
Off-Trade performance
The Group performed very strongly in the US over the first half
of the year as we continue to build momentum in the region. Despite
the impact of COVID-19 on On-Trade sales, total US revenue for the
first half of the year increased by 39% to GBP27.4m (35% on a
constant currency basis).
Our priorities since we took direct control of US operations in
June 2018 have remained unchanged. Initially our focus was on
building the team, strengthening our route to market and building
strong relationships with our distributors, customers and the
trade, then using these foundations to expand our distribution
across both channels and activate our marketing agenda.
The next step was addressing the opportunity to optimise our
pricing and format architecture. Rigorous quantitative and
qualitative analysis undertaken in the second half of 2019
reaffirmed our belief that there was a significant opportunity to
unlock an affordable premium positioning similar to that achieved
by the Group in other markets, catering to a wider audience of
consumers and occasions to encourage both trial and consumption. We
engaged with our distributors and customers in the early stages of
this year and worked alongside them to successfully implement the
price optimisation over the period from March to June. These
discussions also demonstrated the potential for incremental
distribution and a broadening of our format mix, however,
implementation of these has currently been delayed by COVID-19.
Sales in the Off-Trade started the year strongly with continued
momentum and the benefit of new distribution gained in 2019. Since
lockdowns began across the US, we have seen sales accelerate
further in the Off-Trade channel, both at grocery and across liquor
stores. Fever-Tree has delivered +72% value growth(3) over the
first half of 2020 at US retail, exceeding our expectations and
ensuring we remain the clear market leader in grocery in the
premium mixer category, which itself is the fastest growing segment
in the category.
This performance is partly attributable to the switch to at-home
consumption following On-Trade closures, although just as seen in
the UK, this has been further amplified by the increased propensity
towards making long mixed drinks at home, with spirits taking share
from beer and wine during the lockdown. In addition, we have
started to see the benefit of the price optimisation which was
gradually introduced on shelf during the period, although it is too
early to isolate the exact impact of this on rate of sale given the
other factors influencing Off-Trade growth. Our strong performance
in the Off-Trade demonstrates we are significantly growing our
consumer base which will greatly enhance our On-Trade efforts when
the On-Trade channel fully opens for business.
On-Trade sales in the US have been materially affected in the
first half by closures related to lockdowns, which have varied by
state in length and extent, but overall have led to very
challenging conditions since March. Despite this, we continue to
enjoy a strong relationship with Southern Glazer's Wines and
Spirits (SGWS), with whom we have performed well, especially in the
liquor store channel. We have also continued to win new mandates
and distribution with national hotel and restaurant groups in the
first half, positioning the Group well as the On-Trade gradually
reopens.
Within the portfolio we have seen strong growth across our full
range of mixers, targeting multiple drinks occasions, from the Mule
(Ginger Beer), to tonics (Tonic Water) and spritzes (Club Soda).
Tequila continues to show very strong growth, and in the first half
of the year we launched a new Sparkling Pink Grapefruit to pair
with Tequila to create the perfect Paloma cocktail. This launch has
been a great success, already gaining significant attention from
retailers and consumers, and we are optimistic about the Pink
Grapefruit opportunity as we look forward to 2021.
Marketing and investment remain important focus areas as we grow
brand awareness with consumers and the trade. We have increased our
level of investment during the COVID-19 crisis, redeploying spend
to where it will be most impactful. Throughout lockdown this
redeployed spend was focused on digital execution to gain maximum
exposure, broadening our work with the Google Accelerator program,
working closely with partners such as TimeOut (renamed TimeIn) and
engaging with bar-tenders to create online content delivered via
social media takeovers, video and emails focused on creating simple
long mixed drinks at home. In addition, we started to build strong
relationships with a number of online retailers, including Drizly
and Minibar, with performance across Amazon especially notable as
volumes increased by 130% year-on-year over the period.
(3) Nielsen 26 weeks to 29 June 2020
Europe I Optimising the business to access the opportunity
Revenue for the first half of the year declined by 29% to
GBP20.5m (30% on a constant currency basis), impacted by importer
destocking and therefore not fully reflective of underlying
trading, especially in the Off-Trade, which performed well in many
key markets.
Due to the uncertainties related to COVID-19 many of our
European importers placed significantly reduced orders from March
to May as they chose to manage their inventory and credit risk by
depleting their existing stockholdings. This meant our reported
sales in the first half of the year are significantly behind sales
made in-market by our importers, where Fever-Tree had a good
performance in the Off-Trade. We have subsequently seen a strong
increase in orders placed in the period from June to August,
correcting the majority of the discrepancy between our sell-in and
our importers sell-out seen at June.
On the basis of underlying sales made by our importers in
Europe, volumes in the Off-Trade have been up approximately 30%
year-on year across the region. However, as with elsewhere,
On-Trade sales have been materially impacted by closures,
especially in Southern Europe which tends to rely more on the
On-Trade, as well as the tourism industry.
As outlined in our Full Year 2019 results in April, our strategy
and approach in European markets is segmented into three groups.
Core Markets, including Belgium, Denmark and Ireland, are markets
where premium tonic has achieved a strong or market-leading share
and provide a blueprint for what can be achieved elsewhere in the
region. Our focus is on maintaining the position we have
established in the tonic category whilst driving growth in new
flavours and formats.
Next Wave Markets, including Germany, Spain and Italy, are
countries where Fever-Tree currently has relatively low penetration
in sizable mixer markets and where significant growth opportunities
exist. Spain and Italy are both On-Trade led markets and as such,
sales in these countries have been more severely impacted in the
first half of the year. The relationship with our local importers
remains strong and our focus is on identifying opportunities as the
On-Trade reopens. Germany represents an exciting long-term
opportunity in a market that has performed well through COVID-19.
The acquisition of our sales agent, GDP Global Drinks Partnership
GmbH ("GDP") post period end, another example of the Group's
proactive approach during the period, will provide us with a strong
operational footprint with which to continue to drive our growth in
Germany.
Finally, in Earlier Stage markets, such as France and
Netherlands, we are focused on establishing the conditions to allow
for growth within currently immature mixer categories. This
includes building the optimum distribution and route to market, as
well as increasing headcount where appropriate.
We have continued to invest across the region despite the
disruption caused by COVID-19, however, there has been a
redeployment of spend away from the On-Trade and events activities
towards the Off-Trade. This has included investment in retail
display visibility across our Core Markets, co-promotional activity
with Lillet on a Spritz serve in Belgium, co-promotional activity
on gin and tonic with Bombay Sapphire in Germany, and in our
Earlier Stage markets, including Netherlands and France, we have
increased our distribution footprint within convenience stores.
Whilst the impact of COVID-19 will continue to be felt across
the region as the On-Trade gradually recovers, we remain confident
and optimistic about the medium and long-term opportunity in
Europe. There are a number of markets that offer real potential and
we continue to invest and focus on the opportunity that they
present, as evidenced by the post period end acquisition of
GDP.
RoW I Building momentum in Australasia and Canada
Our RoW markets have all been impacted by closures to the
On-Trade. However, our two largest markets with sizeable mixer
categories, Australasia and Canada, both delivered a very
encouraging Off-Trade performance during the first half of the
year, contributing to an overall revenue increase for the region of
2% to GBP8.0m.
In Australia, Fever-Tree continues to be the clear premium mixer
category leader and is responsible for driving growth within this
segment. Long mixed drinks continue to gain popularity, led by the
gin and tonic. Gin was the fastest growing spirit category in 2019,
with +21% value growth, and Fever-Tree is driving growth in the
tonic category. Fever-Tree's increasing brand awareness, along with
significant distribution gains, have enabled the brand to grow in
major retailers such as Coles, where our tonic sales were up just
over 100% year-on-year at the end of the half and now contribute
over a quarter of tonic sales for this major retailer. As well as
maximising the momentum in the gin and tonic serve, we also see
opportunities to premiumise other mixer categories such as gingers
going forward.
In June, Fever-Tree hosted a Gin & Tonic Festival in
Australia, an event that was brought to life online through
tastings and masterclasses, having originally been planned to take
place in Sydney. The virtual event was used to educate consumers on
the premiumisation of the gin and tonic, drive trial and awareness,
and build trade advocacy during a time when the On-Trade was
closed.
In Canada, Fever-Tree has used its strong presence in the
premium mixer category to increase trial and awareness, and secure
new distribution with a number of key accounts. We grew our tonic
sales by more than 100% year-on-year over the last 12 months to
become the largest tonic brand by value in Canada, with over a
third of the market share at retail. Based on our strong rate of
sale in major retailers, we are confident of continuing to gain new
distribution, both in terms of number of accounts and facings
in-store. This is underpinned by the premiumisation of the mixer
category, led by Fever-Tree, with premium mixers far outpacing the
growth of standard serves.
In Asia we continue to focus on key cities across the region.
The appointment of our first Regional Director for Asia last year
demonstrates our long-term ambition for the region, where we are
starting to establish ourselves by enhancing our distribution
network and building our relationships with spirits companies to
promote premium long mixed drinks.
FY20 outlook
The first half of 2020 has been a challenging period for most
companies navigating through the uncertainties created by COVID-19.
However, our diverse set of revenues, across multiple geographies
and channels, has led to a resilient first half performance.
We have now established a market leading position in a number of
key markets, with long-term relationships across the On-Trade and
Off-Trade, with our production and distribution partners, and with
various spirit partners. It is the success in our established
markets that provides us with the case studies and platform to turn
to the global opportunity with real confidence. We are in the early
stage of execution in a number of markets with significant
potential, where our focus is on investing in great people,
building the right route to market, creating an optimal portfolio
and creating a bespoke marketing strategy to ensure we are ideally
positioned to realise these opportunities.
Whilst the long-term aspirations of the Group remain unchanged,
this year's performance will be impacted by the challenges and
uncertainties COVID-19 has created, most notably the closure of the
On-Trade across our regions for a significant proportion of the
year followed by what we expect to be a gradual reopening. We are
well positioned to benefit from the reopening but remain mindful of
the impact of continued social distancing implications alongside
the risk of further local or national lockdowns as the year
progresses.
Given the level of uncertainty and the dynamic nature of the
situation, the impact of COVID-19 on the remainder of the financial
year is still hard to predict. However, on the assumption of no
further significant lockdowns in our regions as seen in the second
quarter this year, and a continued gradual recovery of the
On-Trade, and incorporating the acquisition post-period end of GDP,
we expect FY20 revenues of between GBP235m and GBP243m. The channel
and regional mix impacts on gross margin seen in the first half of
the year will continue throughout the second half, and we remain
committed to spending c.GBP60m of underlying operating
expenditure.
While we are not immune to the current situation, the Group is
financially well placed and its unique asset light outsourced
business model provides it with the agility to adapt to and
mitigate the challenges arising from the current circumstances. The
wider long-term trend towards premium spirits and premium long
mixed drinks continues and we are confident the Group will be well
placed once the current period of disruption and uncertainty
ends.
Financial review
The Group entered 2020 in a very strong financial position;
debt-free, with GBP128.3m cash on the balance sheet and strong
underlying cash flow conversion. Alongside this strong financial
position, the Group operates an asset light, outsourced business
model, which underpins a low fixed cost base, requires low levels
of capital expenditure and most importantly enables operational
agility and flexibility.
This combination of operational agility and financial strength
has informed our approach to navigating the disruption caused by
COVID-19.
Operationally we have worked very closely with our network of
five bottlers and two canners across the UK and Europe to ensure
continuity of production through the period despite multiple and
varied on-going challenges, further underlining the strength and
value of our outsourced model. Alongside this, post period end we
have completed the acquisition of our German sales agent, GDP,
giving the Group an operational footprint in a key European
market.
Our financial stability has allowed us to remain focused on
delivering against the long-term opportunity despite the impact in
the short-term that COVID-related closures have had on our On-Trade
revenues globally. We took the decision very early on not to
furlough any of our staff, and indeed have continued to build our
team. During COVID-19, we have necessarily re-deployed and
re-focused elements of our marketing spend, continued to invest and
have significant marketing activities planned for the second half
of this year. As a result of these decisions our operating margins
will temporarily be impacted in 2020 but we remain confident that
the continued investment in our people and our brand will position
us strongly as we emerge from the current period of
uncertainty.
Since the period of lockdowns began in March, we have managed
both our credit risk and working capital profile carefully.
Alongside this, we committed to pay a 2019 final dividend during
the period. Subsequently we have seen strong operating cash flow
conversion and our cash position has improved to GBP136.9m at
period end. As a reflection of the Board's confidence in the
financial strength of the business, we will pay an interim dividend
of 5.41 pence per share, an increase of 4% year-on-year.
GBPm H1 FY20 H1 FY19 Change Constant currency
-------- -------- ---------
Revenue 104.2 117.3 (11.2)% (11. 9)%
------------------- -------- -------- --------- ------------------
Gross profit 48.7 60.8 (19.9)% 48.1
------------------- -------- -------- --------- ------------------
Gross margin 46.8% 51.9% (510)bps 46.5%
------------------- -------- -------- --------- ------------------
Adjusted EBITDA 23.8 36.7 (35.2)% 23.4
------------------- -------- -------- --------- ------------------
Adjusted EBITDA
margin 22.8% 31.3% (850)bps 22.6%
------------------- -------- -------- --------- ------------------
Operating profit 21.4 34.8 (38.3)%
------------------- -------- -------- --------- ------------------
Profit before tax 21.7 35.0 (37.9)%
------------------- -------- -------- --------- ------------------
Cash 136.9 104.1 31.5%
------------------- -------- -------- --------- ------------------
Gross margin and operating expenses
Gross margin of 46.8% represents a retraction from the 51.9%
gross margin reported in the first half of 2019. Certain known
factors, including the US price optimisation implemented in the
first half of this year, would have resulted in a gross margin for
the Group in line with our expectations of c.49% for the
period.
Whilst there was some marginal upside from foreign currency
movements, the most significant impacts on gross margin beyond the
expected level of c.49% relate to the effect of COVID-19 on channel
and territory mix. In the UK, the On-Trade reduced to 26% of UK
sales in the first half of 2020 (H1 2019: 52%), whilst the US
contribution to regional sales mix for the Group increased to 26%
of Group revenue (H1 2019: 17%). We would expect the impact on
gross margin of these sudden shifts in channel and regional mix to
unwind gradually as the On-Trade recovers globally. However, in the
longer term we do expect the US to increase in the regional sales
mix given the scale of opportunity in that market. The US currently
operates at a lower gross margin than the rest of the Group. Whilst
we continue to command a strong price point in the US the lower
percentage gross margin is a function of the elevated logistics
costs related to transporting product from the UK to the US,
storing high levels of stock due to the lead time into the US, and
then transporting the product across continental US. Whilst
servicing the US from UK production has been the appropriate
approach to date as we have established the brand in the US, we
believe there will be an opportunity over time to drive
efficiencies in our US logistics costs as we move production from
the UK to the US and then scale with local production partners.
Underlying operating expenses increased by 3.4% in the first
half of the year to GBP24.9m (H1 2019: GBP24.1m) as we continued to
invest despite the impact on revenue of COVID-related closures of
the On-Trade. As a result, underlying operating expenses increased
to 24.0% of revenue (H1 2019: 20.6%).
Within this, marketing spend in the first half of the year
reduced to 8.0% of revenue (H1 2019: 10.4%), reflecting the paring
back of planned On-Trade and events-related spend from March
onwards, including most notably the cancellation of the Fever-Tree
Championships at The Queen's Club. Whilst there was a redeployment
of an element of this spend during the period, for instance with
regards our UK television advertising campaign and increased
digital spend in the US, a significant upweight in marketing spend
is planned for the second half of the year.
Staff costs and other overheads represented 16.0% of revenue in
the first half of the year (H1 2019: 10.2%). This reflected a
continued investment in building our team in in the first half of
2020, including the appointment of a Chief Marketing Officer,
combined with the annualisation of new hires made in 2019. Within
other overheads we increased our bad debt provision as a reflection
of the elevated level of credit risk associated with COVID-19's
ongoing impact on our customers and partners.
As previously disclosed, we remain committed to continue
spending against our originally budgeted levels of underlying
operating expenses of c.GBP60m for 2020. Within this, whilst there
is significant marketing activity planned for the second half, we
expect our full year spend to be weighted towards staff costs and
other overheads.
The combination of the impact on revenue of On-Trade closures
alongside the effect on gross margin of shifts in channel and
territory mix, whilst maintaining underlying operating expenditure,
has resulted temporarily in a significant retraction in Adjusted
EBITDA margin. As a result, the Group generated Adjusted EBITDA of
GBP23.8m, a 35.2% decline from the first half of 2019, at a margin
of 22.8% (H1 2019: 31.3%).
Amortisation costs were flat year-on-year at GBP0.4m, and share
based payments remained flat year-on-year whilst depreciation
increased to GBP1.2m (H1 2019: GBP0.7m). As a result of these
movements, the 35.2% decline in Adjusted EBITDA translates to a
38.3% decrease in operating profit to GBP21.4m (H1 2019:
GBP34.8m).
Tax
The effective tax rate in the first half of 2020 was 19.4% (H1
2019: 19.0%). A change in the phasing of quarterly tax instalments
required by HMRC has resulted in a net Corporation Tax debtor of
GBP4.4m at period end, which will unwind in the second half of
2020.
Earnings per share
The basic earnings per share for the period is 15.06 pence (H1
2019: 24.39 pence) and the diluted earnings per share for the
period is 14.99 pence (H1 2019: 24.30 pence), a decrease of
38.3%.
In order to compare earnings per share period on period,
earnings have been adjusted to exclude amortisation and the UK
statutory tax rates have been applied (disregarding other tax
adjusting items). On this basis, normalised earnings per share for
the first half of 2020 is 15.38 pence per share and for the first
half of 2019 was 24.63 pence per share, a decrease of 37.6%.
Balance sheet and working capital
There has been significant focus on credit control in the first
half of the year. As lockdowns were enacted the Group sought to
strike the appropriate balance between managing credit risk and
supporting our customers and distribution partners globally.
Initially we proactively extended terms with our UK On-Trade
customers and our network of international importers, which was
widely welcomed and further improved our already strong
relationships. We have since established payment plans with all
customers and are monitoring adherence very closely. The level of
outstanding debtors from March 2020 and earlier has reduced from
GBP37.2m to a current level of GBP1.1m, with payments expected
against this remaining balance over the coming months. As a
reflection of the increased credit risk related to on-going
COVID-19 uncertainty we have increased our bad debt provision to
4.3% of trade debtors (H1 2019: 2.6%).
Working capital(4) decreased to GBP41.9m (H1 2019: GBP55.8m),
with lower inventory and debtor levels largely a reflection of the
reduced level of trading whilst creditors have remained consistent
with the prior period. This reduction in working capital has
resulted in cash generated from operations improving to 146% of
Adjusted EBITDA (H1 2019: 106%).
(4) Working capital is inventory and trade receivables less
trade payables and derivative financial instruments
Cash
The Group continues to retain a strong cash position. Cash at
period end has increased to GBP136.9m (H1 2019: GBP104.1m), an
increase of 31.5% from June 2019 and 6.7% from December 2019.
Capital Allocation Framework and Dividend
The Group's Capital Allocation Framework remains unchanged. Our
financial strength and cash position has allowed us to maintain our
long-term focus despite the uncertainty relating to the impacts of
COVID-19. As such, we will continue to retain sufficient cash to
allow for investment against the Global opportunity, will remain
vigilant with regards to M&A opportunities and beyond that will
consider additional distributions to shareholders where the Board
considers there to be surplus cash held on the Balance Sheet.
As a reflection of our confidence in the financial strength of
the Group the Directors are pleased to declare an interim dividend
of 5.41 pence per share, 4% ahead of the 2019 interim dividend. The
dividend will be paid on 16 October 2020, to shareholders on the
register on 25 September 2020.
Operational review
Since March, there have been, and continue to be, multiple
challenges impacting our outsourced production model. These have
ranged from dramatic variations in demand from month to month
across regions and formats, up to threefold increases in lead times
on certain ingredients and packaging, and delays in the
commissioning of our new US bottling partner, which has now been
rescheduled to the latter stages of this year assuming conditions
allow.
We have worked very closely with our network of five bottlers
and two canners to mitigate the impacts of this disruption and have
retained continuity of production throughout the period. This has
required steps such as the early securing of significant
contingency stocks of key ingredients, establishment of secondary
warehousing in the UK to mitigate potential disruption and
granular, real-time demand forecasting and highly fluid production
planning. Whilst continuity of production has been retained through
the period, it is important to state that network capacity,
efficiency and lead times for supply into markets have all been
impacted to differing extents by the disruption caused by
COVID-19.
First and foremost, the management of bottling capacity and
changing production plans alongside our key partners has been
vital, and this period has further underlined the value of the
network of production partners we have built over recent years, the
importance and the quality of these partners and the strength of
our working relationship with them.
Post period events
In July, the Group was pleased to announce the acquisition of
GDP Global Drinks Partnership GmbH "GDP", the Group's sales agent
in Germany for a total consideration comprising EUR2.6m cash, plus
a c.EUR5m consolidation of historic balances owed to Fever-Tree by
GDP at completion.
GDP is a well-established sales agent and importer, with a
strong portfolio of premium drinks and a good track record of
growing premium brands. This portfolio approach is highly suited to
the size and outlet fragmentation of the German market and,
alongside Fever-Tree, GDP distributes complementary premium beer
and spirits brands, which generated c.EUR10m of sales in 2019.
Germany is currently Fever-Tree's second largest market in
Europe(5) and represents a notable opportunity for the Group. It is
one of the largest mixer markets in Europe and is underpinned by
emerging premiumisation trends evident in both the mixer and
spirits categories. The acquisition of GDP, with established
management, distribution relationships and sales channels already
in place allows the Group to accelerate the strength and depth of
its presence in Germany much faster than could have been achieved
by building the same capabilities from scratch.
(5) Based on depletion volumes over 2019
Consolidated statement of comprehensive income
For the six months ended 30 June 2020
(unaudited)
(unaudited) 6 months Audited year
6 months to to 30 June to 31 December
30 June 2020 2019 2019
Notes GBPm GBPm GBPm
Revenue 2 104.2 117.3 260.5
Cost of sales (55.5) (56.5) (129.0)
============== ============ ================
Gross profit 48.7 60.8 131.5
Administrative expenses (27.3) (26.0) (59.3)
Adjusted EBITDA 1 23.8 36.7 77.0
Depreciation (1.2) (0.7) (2.2)
Amortisation (0.4) (0.4) (0.7)
Share based payment charges (0.8) (0.8) (1.9)
=================================== ====== ============== ============ ================
Operating profit 21.4 34.8 72.2
Finance costs
Finance income 0.3 0.2 0.5
Finance expense - - (0.2)
Profit before tax 21.7 35.0 72.5
Tax expense (4.2) (6.7) (14.0)
============== ============ ================
Profit for the year / period 17.5 28.3 58.5
Items that may be reclassified
to profit or loss
Foreign currency translation
difference of foreign operations 0.1 - 0.1
Effective portion of cash
flow hedges (1.4) - 0.2
============== ============ ================
(1.3) - 0.3
Comprehensive income attributable
to equity holders of the parent
company 16.2 28.3 58.8
Earnings per share for profit
attributable to the owners
of the parent during the year
Basic (pence) 4 15.06 24.39 50.46
Diluted (pence) 4 14.99 24.30 50.26
Consolidated statement of financial position
30 June 2020
(unaudited) (unaudited) Audited
30 June 31 December
30 June 2020 2019 2019
Notes GBPm GBPm GBPm
Non-current assets
Property, plant & equipment 6.3 4.9 6.9
Intangible assets 40.6 41.3 41.0
Deferred tax asset 0.8 0.3 0.5
Other financial assets 2.3 2.2 2.1
============== ============ =============
Total non-current assets 50.0 48.7 50.5
============== ============ =============
Current assets
Inventories 23.6 30.4 20.8
Trade and other receivables 50.1 55.6 60.8
Corporation tax debtor 4.4 - -
Derivative financial instruments - - 0.1
Cash and cash equivalents 136.9 104.1 128.3
============== ============ =============
Total current assets 215.0 190.1 210.0
============== ============ =============
Total assets 265.0 238.8 260.5
============== ============ =============
Current liabilities
Trade and other payables (30.0) (29.9) (27.5)
Corporation tax liability - (5.9) (5.1)
Derivative financial instruments (1.8) (0.3) -
Lease liability (0.6) (0.6) (0.6)
============== ============ =============
Total current liabilities (32.4) (36.7) (33.2)
============== ============ =============
Non-current liabilities
Lease liability (1.0) (1.5) (1.2)
============== ============ =============
Total non-current liabilities (1.0) (1.5) (1.2)
============== ============ =============
Total liabilities (33.4) (38.2) (34.4)
============== ============ =============
Net assets 231.6 200.6 226.1
============== ============ =============
Equity attributable to equity
holders of the company
Share capital 0.3 0.3 0.3
Share premium 54.8 54.8 54.8
Capital Redemption Reserve 0.1 0.1 0.1
Cash Flow Hedge Reserve (1.2) - 0.2
Translation Reserve 0.1 (0.1) -
Retained earnings 177.5 145.5 170.7
Total equity 231.6 200.6 226.1
============== ============ =============
Consolidated statement of cash flows
For the six months ended 30 June 2020
(unaudited) (unaudited)
6 months 6 months Audited year
to 30 June to 30 June to 31 December
2020 2019 2019
Notes GBPm GBPm GBPm
Operating activities
Profit before tax 21.7 35.0 72.5
Finance expense - - 0.2
Finance income (0.3) (0.2) (0.5)
Depreciation of property, plant
& equipment 1.2 0.7 2.2
Amortisation of intangible
assets 0.4 0.4 0.7
Share based payments 0.8 0.8 1.9
============ ============ ================
23.8 36.7 77.0
(Increase)/ Decrease in trade
and other receivables 11.1 7.5 1.3
(Increase)/ Decrease in inventories (2.7) (2.0) 5.7
Increase/ (Decrease) in trade
and other payables 2.5 (3.1) (4.0)
10.9 2.4 3.0
Cash generated from operations 34.7 39.1 80.0
Income tax paid (14.1) (3.8) (12.0)
============ ============ ================
Net cash flows from operating
activities 20.6 35.3 68.0
============ ============ ================
Investing activities
Purchase of property, plant
and equipment (0.5) (0.7) (2.6)
Interest received 0.3 0.2 0.5
============ ============ ================
Net cash used in investing
activities (0.2) (0.5) (2.1)
============ ============ ================
Financing activities
Interest (paid) - - (0.2)
Issue of shares - - -
Dividends paid (11.5) (11.9) (18.0)
Repayment of loan - (6.1) (6.1)
Issue of other financial assets - (2.2) (2.2)
Other financing activities (0.3) (0.1) (0.5)
============ ============ ================
Net cash used in financing
activities (11.8) (20.3) (27.0)
============ ============ ================
Net increase in cash and cash
equivalents 8.6 14.5 38.9
Cash and cash equivalents at
beginning of period 128.3 89.7 89.7
============ ============ ================
Effect of movement in exchange
rates on cash held - (0.1) (0.3)
Cash and cash equivalents at
end of period 136.9 104.1 128.3
============ ============ ================
Notes to the consolidated financial information
For the six months ended 30 June 2020
1. Basis of preparation and accounting policies
The interim financial information has been prepared in
accordance with the recognition and measurement requirements of
International Financial Reporting Standards (IFRS) and IFRIC
interpretations issued by the International Accounting Standards
Board (IASB) adopted by the European Union.
The principal accounting policies adopted in the preparation of
the interim financial information are unchanged from those applied
in the Group's financial statements for the year ended 31 December
2019. The accounting policies applied herein are consistent with
those expected to be applied in the financial statements for the
year ended 31 December 2020.
This report is not prepared in accordance with IAS 34. The
financial information does not constitute statutory accounts within
the meaning of section 435 of the Companies Act 2006. Statutory
accounts for Fevertree Drinks plc for the year ended 31 December
2019 have been delivered to the Registrar of Companies. The
auditor's report on those accounts was unqualified, did not draw
attention to any matters by way of emphasis and did not contain a
statement under Section 498 (2) or (3) of the Companies Act
2006.
Adjusted EBITDA has been calculated consistently with the method
applied in the financial statements for the year ended 31 December
2019. Operating profit is adjusted for a number of non-cash items,
including amortisation of the Fever-Tree brand intangible acquired
in March 2013, depreciation, and the share-based payment charge
which recognises the fair value of share options granted. The
intention is for Adjusted EBITDA to provide a comparable,
year-on-year indicator of underlying trading and operational
performance.
The impact of COVID-19 has also been reflected in the Directors'
assessment of the going concern basis of preparation for the Group
financial statements. This has been considered by modelling the
impact on the Group's cashflow for the period to the end of
December 2021.
Whilst the Group is financially strong and has well balanced
revenue streams, it is clear that COVID-19 will have a material
impact on 2020 trading with the potential for further impacts in
2021. Sales have been strong in the Off-Trade channel across
regions, but the On-Trade channel, which makes up 45% of Group
sales, has been severely challenged, as government advice led to
the temporary closing of all On-Trade outlets across our key
regions during the first half of the year. Whilst the On-Trade is
now partially reopened in most of our key regions, we expect the
recovery to be gradual, and the risk of further local and regional
lockdowns remains as we proceed through 2020. In light of this
uncertainty and the related heightened credit risk, we have
increased our provision for bad debts to GBP2.1m.
Due to the high level of uncertainty in relation to the length,
breadth and depth of the potential impacts of COVID-19, the
Directors have modelled the impact on the Group under three
separate scenarios which consider different rates of recovery of
the On-Trade globally over the period to December 2021.
Under these differing scenarios, the forecasts for the period to
the end of December 2021 indicate that the Group continues to have
positive cashflows and significant cash balances and as a result is
able to continue operating and to meet its liabilities as they fall
due. This strong financial position and ongoing cash generation has
underpinned the Directors' decision to pay an interim dividend of
5.41 pence per share.
The Directors have therefore concluded that the Group has
adequate resources to continue in operational existence for at
least the 12 months following the publication of the interim
financial statements, that it is appropriate to continue to adopt
the going concern basis of preparation in the financial statements,
that there is
Notes to the consolidated financial information
For the six months ended 30 June 2020
not a material uncertainty in relation to going concern and that
there is no significant judgement involved in making that
assessment.
2. Revenue by region
(unaudited) (unaudited)
6 months 6 months Audited year
to 30 June to 30 June to 31 December
2020 2019 2019
GBPm GBPm GBPm
United Kingdom 48.3 60.7 132.7
United States of America 27.4 19.8 47.6
Europe 20.5 29.0 64.4
Rest of the World 8.0 7.8 15.8
============ ============ ================
Group 104.2 117.3 260.5
============ ============ ================
3. Dividend
The interim dividend of 5.41 pence per share will be paid on 16
October 2020 to shareholders on the register on 25 September
2020.
4. Earnings per share
(unaudited) (unaudited)
6 months 6 months Audited year
to 30 June to 30 June to 31 December
2020 2019 2019
GBPm GBPm GBPm
Profit
Profit used to calculate basic
and diluted EPS 17.5 28.3 58.5
Number of shares
Weighted average number of
shares for the purpose of basic
earnings per share 116,139,794 116,121,648 116,126,293
Weighted average number of
employee share options outstanding 482,873 427,211 448,508
Weighted average number of
shares for the purpose of diluted
earnings per share 116,622,667 116,548,859 116,574,801
Basic earnings per share (pence) 15.06 24.39 50.46
============ ============ ================
Diluted earnings per share
(pence) 14.99 24.30 50.26
============ ============ ================
Notes to the consolidated financial information
For the six months ended 30 June 2020
Normalised EPS (unaudited) (unaudited)
6 months 6 months Audited year
to 30 June to 30 June to 31 December
2020 2019 2019
GBPm GBPm GBPm
Profit
Reported profit before tax 21.7 35.0 72.5
Add back:
Amortisation 0.4 0.4 0.7
Adjusted profit before tax 22.1 35.4 73.2
Tax - assume standard rate
(19%) (4.2) (6.7) (13.9)
Normalised earnings 17.9 28.7 59.3
Number of shares 116,139,794 116,121,648 116,126,293
Normalised earnings per share
(pence) 15.38 24.63 51.08
============ ============ ================
Normalised EPS is an Alternative Performance Measure in which
earnings have been adjusted to exclude amortisation and the UK
statutory tax rates have been applied (disregarding other tax
adjusting items).
5. Events after the reporting period
On 1 July, the Group acquired 100% of the share capital of GDP
Global Drinks Partnership GmbH, "GDP", the Group's former sales
agent in Germany. The total consideration for the acquisition
comprises EUR2.6m cash, and c.EUR5m consolidation of historic
balances owed to Fever-Tree by GDP at the acquisition date. GDP
also distributes complementary premium beer and spirits brands,
which generated c.EUR10m of sales in 2019.
Initial acquisition accounting under IFRS 3 is on-going and will
be disclosed in the Group's financial statements for the year-ended
31 December 2020.
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END
IR BIGDCXBGDGGR
(END) Dow Jones Newswires
September 08, 2020 02:00 ET (06:00 GMT)
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