Fevertree sales growth slows in first half

Premium mixers maker Fevertree posted a rise in interim revenue and earnings on Tuesday but noted that sales growth in the UK was moderating.

In the six months to the end of June 2019, revenue rose 13% to £117.3m, while adjusted earnings before interest, tax, depreciation and amortisation pushed up 8% to £36.7m. Pre-tax profit came in at £35m from £32.7m in the same period a year ago and the interim dividend was lifted 23% to 5.20p a share. Diluted earnings per shares increased 7% to 24.3p.

Fevertree saw growth across all four of its regions, with revenue in the UK up 5% to £60.7m, while revenue in the US and Europe rose 31% and 13% to £19.8m and £29m, respectively. Revenue in the rest of the world was 49% higher at £7.8m during the half.

The company said that as expected, sales in the UK - its largest market at 51% of group revenue - were hit by poor weather in the past quarter, which had a "dampening effect" on growth rates in the short term. It also pointed to "incredibly strong" comparatives for summer 2018.

Gross margin came in at 51.9%, down from 53.2% in the first half of 2018 as a full six months of the pass-through of the UK sugar tax had a dilutive impact on the group's percentage gross margin compared to the first half of last year.

Chief executive officer Tim Warrillow said: "While we have not been immune to the impact of the unseasonably poor weather in the UK, we have further strengthened our market leadership position within the UK and have seen positive momentum in Europe and the rest of the world reflecting our increasingly global footprint.

"The move to long mixed drinks is gathering momentum and starting to win share from beer and wine. Our broad range of high-quality mixers, relationships with spirits companies, brand strength and our growing international distribution network provide us with confidence in the significant global opportunity that lies ahead for the group.

"Whilst we remain mindful of the tough comparators over the remainder of the summer in the UK, the board anticipates that the outcome for the full year will be in line with its expectations."

Shore Capital said the results are around 3% below its estimates, with slightly lower revenue growth than forecast and a more marked margin decline. It had been expecting revenue growth of 14.1% and EBITDA of £37.8m.

Analyst Alex Smith said: "We see recent share price weakness and the associated de-rating as a good opportunity to buy into the long term wider premium mixer global structural growth story.

"We expect the company to take the opportunity in the results presentation to help alleviate concerns over slowing growth/ increasing competition in the UK and share some soundbites on growing consumer traction in the US and Europe."

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: "For most companies, a 7% rise in cash profits would have investors singing. The problem for Fevertree is good numbers aren’t necessarily good enough, with high hopes for exponential growth mixed into a fairly lofty valuation. Today’s disappointment stems from the group’s admission it’s simply become too big a fish in the relatively small UK pond, and sales growth is duly tempering in response.

"Future growth potential lies in the US, and the size of the potential market is certainly an exciting prospect. The problem is it’s not clear if the same level of demand for premium mixers can be drummed up in our American cousins as we’ve seen in the UK. A trend towards more premium drinking habits is allegedly starting to catch on, but it’s currently more geared towards dark spirits like Whiskey and Rum that puts Fevertree’s ginger ales and colas centre stage - and the competitive landscape there is crowded. To satisfy expectations, Fevertree needs to see a taste for tonic take off stateside, and there’s no guarantee that will happen.

"In Fevertree’s favour is its stellar business model, which sees it outsource the majority of its operations, like bottling and distribution. Even as it ramps up expansion efforts, it’s a comfort to see it stick to this modus operandi - it gives the group far more flexibility and makes expansion cheaper. With the potential for short term disruption arising from Brexit, extra agility is no bad thing."

At 0825 BST, the shares were down 5.9% at 2,164.50p.