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Premium mixers suppliers Fever-Tree has posted a 36% rise in year-on-year revenues in the first half of the year, though rising cost pressures meant margins contracted.

In the six months to 30 June Fever-Tree posted revenues of £141.8m, representing growth of 36% and 39% at constant currency despite continued disruption caused by Covid.

On-trade sales continued to be impacted as restrictions remained into the second quarter, with re-openings towards the end of the period.

This led to modest 4% growth of UK sales to £50.3m given the on-trade typically accounts for half of UK revenues. Since on-trade channels re-opened performance has been “encouraging” with overall on-trade sales up 16% in the first half despite the restrictions.

UK off-trade has performed “above expectations”, with sales 24% ahead of 2019 despite lapping elevated sales in the initial lockdown period.

Overall sales growth was driven by its “very strong” performance in the US over the first half of the year. Despite the impacts of COVID-19, total US revenue for the first half of the year increased by 32% to £36.2m (42% on a constant currency basis) driven by retail sales rising 17% year-on-year and on-trade reopening during the period.

Total European revenue for the first half of the year was up 102% (104% at constant currency), which includes £4.7m of GDP portfolio brand revenue which was not included in the first half of 2020 and was also supported by a sell-in to importers as they built inventory ahead of summer trading whilst lapping a period of importer destocking in the first half of 2020. Taking these various factors into account, Fever-Tree’s underlying growth remained 30%.

Rest of the World region delivered sales of £14m, representing a 73% increase compared to H1 2020 and underlying growth across the region of around 40%.

The Group generated an adjusted EBITDA of £29.2m, a 22.7% increase on the first half of 2020 with EBITDA margin falling back to 20.6% from 22.8%.

Gross profits were up 28% to £62.5m as gross margins slid from 46.8% to 44.1%.

Fever-Tree said that whilst gross margins have been impacted by increased logistics costs and the consolidation of GDP portfolio brand revenue, it has continued to invest behind the brand and have maintained levels of underlying operating expenditure as a proportion of revenue which constrained profitability.

The most significant impact on gross margin, it said, has been an increase in logistics costs, resulting from the disruption to global logistics networks that is being experienced across the industry. There have been multiple impacts across regions, including increased UK logistics costs driven by shortages of HGV drivers.

However, the most significant driver of elevated cost has been the shipping of product to the US, both due to increased freight charges but also increased storage charges as it took the decision to build inventory in the US to mitigate the potential impact of on-going disruption.

It said it remains very focused on mitigation efforts over the medium term, but forecast logistic cost headwinds will continue alongside input cost increases on product costs, and anticipate only a marginal improvement in EBITDA margin next year.

“We remain very confident of continued strong sales momentum across our regions and will continue to invest in the business to capitalise on the longer-term structural growth opportunity ahead of us,” it stated.

However, as a result of the strong first half, its increased revenue guidance of £295m-£304m for the full year is reiterated. Gross margins are anticipated to be around 43%, delivering an EBITDA margin of 20% for 2021.

CEO Tim Warrillow commented: “Our ambition and confidence in the global opportunity continues to grow and we have been encouraged by the initial re-opening of the On-Trade, the ongoing strength of the Off-Trade with sales exceeding pre-Covid levels across all our regions, as well as the response to our new product launches, all of which is a testament to our increasing brand strength, growing presence, marketing investments, and relationships across the industry.

“We believe the Group is emerging from the pandemic in a very strong position. Throughout the last 18 months we have maintained our long-term focus and therefore continued to invest in our team, our innovation and the brand, which was enabled by the financial strength and operational agility of the business. While some material impacts of the pandemic remain, the business is increasingly well placed to deliver our plans for long-term growth.

“Whilst we are very focused on mitigation efforts over the medium term, we believe logistic cost headwinds will continue alongside input cost increases on product costs, and anticipate only a marginal improvement in EBITDA margin next year. We remain very confident of continued strong sales momentum across our regions and will continue to invest in the business to capitalise on the longer-term structural growth opportunity ahead of us.”

Fever-Tree shares are up 3% this morning to 2,203p.

Morning update

UK inflation saw its largest ever one month spike in August with the Consumer Prices Index (CPI) rising by 3.2% in the 12 months to August 2021, up from 2% in July.

The increase of 1.2 percentage points is the largest ever recorded increase in the CPI National Statistic 12-month inflation rate series, which began in January 1997.

However, the ONS said this is likely to be a temporary change because, in part, of discounted restaurant and café prices in August 2020 resulting from the government’s Eat Out to Help Out scheme and, to a lesser extent, reductions in VAT across the same sector

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.0% in the 12 months to August 2021, up from 2.1% in the 12 months to July.

The largest upward contribution to the August 2021 CPIH came from transport (0.87 percentage points) with further large upward contributions from restaurants and hotels (0.65 percentage points), housing and household services (0.65 percentage points), and recreation and culture (0.28 percentage points).

Elsewhere, Sports supplements supplier Science in Sport grew sales by 24% in the first half of its year and increased profitability as it benefitted from the easing of COVID restrictions.

Revenue for the six months to 30 June increased by 24% to £29.3m, with growth from both of its brands, PhD Nutrition and SiS despite pandemic disruptions.

Sales of PhD products increased by 15% to £13.4m (and sales of SiS products rose by 34% to £15.9m.

Overall sales were boosted by increased revenues in international markets, including the USA, with non-UK sales now account for approximately 40% of total sales.

Online sales increased by 44% to £15.7m and made up 54% of total revenue, with sales via the Group’s own digital platforms increasing by 35% to £7.7m and sales from marketplace sites rising by 53% to £8m.

The increased sales led to gross profit growth of 36% to £15.2m, while gross margin continued to improve, rising by 400bps to 52% from 48%.

This improvement was mainly driven by supply chain efficiencies, the continuing shift to digital sales and the product mix.

Underlying EBITDA of £0.6m benefited from gross margin progression as well as a tight focus on overheads, improving by £0.8m on the same period last year when it recorded a £0.2m underlying EBITDA loss.

In terms of outlook, the company said sales in July and August have performed very strongly, supported by investment in technology and brand. Online sales have accelerated and retail sales have continued to recover and it is continuing to manage input cost inflation.

“While there are still challenges and uncertainties in the current environment, the Group remains very well-positioned to exceed revenue targets for the financial year. We remain very optimistic about growth prospects over the medium and long-term,” it stated.

CEO Stephen Moon commented: “Trading over the first half of the financial year recovered well, gaining momentum as coronavirus pandemic restrictions lifted. The Group returned to over 20% revenue growth, overcoming Brexit supply chain disruptions.

“Gross margin percentage and underlying profitability continued to improve. This reflected last year’s strategic progress and continued investment in our premium brands and online capability.

“The second half has started strongly for us, and we are continuing to manage successfully input cost pressure. While uncertainties remain, we expect to exceed revenue targets for the year, and continue to be very optimistic about growth prospects over the medium and long-term.”

On the markets this morningm the FTSE 100 is flat at 7,033.4pts.

Early risers include Science in Sport, up 5.8% to 82p, Nichols, up 3.3% to 1,481.6p and Hotel Chocolat, up 1.6% to 372p.

Fallers include Just Eat Takeaway.com, down 3.4% to 6,382p, Kerry Group, down 2.9% to €122.75 and C&C Group, down 1.3% to 232.8p.

Yesterday in the City

The FTSE 100 fell back 0.5% to 7,034.1pts yesterday.

Ocado fell 1.4% back to 1,859p after sales fell 10.6% in its third quarter.

Other fallers included Coca-Cola Europacific Partners, down 4.4.% to €48.20, AG Barr, down 2.9% to 529p, Greencore, down 2.5% to 134.5p, McColl’s Retail Group, down 2.3% to 18.9p, SSP Group, down 2.3% to 258.9p, Parsley Box, down 2.2% to 100p, Premier Foods, down 1.8% to 120p and Hotel Chocolat, down 1.7% to 366p.

The day’s risers included WH Smith, which continued its strong run this week after an activist investor became its biggest shareholder, rising 4.1% to 1,628.5p.

Other risers included McBride, up 3.2% to 83p, Kerry Group, up 2.9% to €126.25, B&M European Value Retail, up 2.3% to 592p, Science in Sport, up 2% to 77.5p and Glanbia, up 1.8% to €14.66.

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