Fevertree half-year revenue grew by 6% to £175.6m, ignoring the impact of exchange rates. This was largely driven by 32% growth in the US, which has now overtaken the UK as the biggest contributor to the top line.
Underlying cash profit (EBITDA) fell from £22.0m to £10m as margins were squeezed by higher costs, most notably for glass, which were not fully offset by price hikes.
Net cash fell from £99.9m to £75.8m as the group increased inventory levels to help mitigate the impact of any potential future supply chain disruptions. Free cash flow worsened from an outflow of £5.1m to an outflow of £7.3m.
Due to unseasonably poor weather in the UK impacting the key summer trading period, full-year guidance has been lowered. Revenue is now expected to be between £380-£390m, down from £390-£405m. Cash profit guidance has been lowered to £30-£36m, down from £36-£42m.
A dividend of 5.74p per share has been announced, up 2%.
The shares fell 3.4% following the announcement.
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Our view
Fevertree delivered a mixed set of half-year results. Revenue bubbled higher thanks to strong growth in the US. But profits lost their fizz as price hikes weren't enough to offset ballooning glass costs.
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 costs. That's eating into profitability and is expected to remain a challenge across the second half.
Outsourcing most of its operations (think bottlers and distributors) is a benefit in normal times and a large portion of profits drop straight through to operating cash flow. However, a significant increase in inventory to combat supply chain pressures, particularly in the US, has been a drain on cash and we saw group cash levels take a big hit as a result.
Explosive UK growth seems to be over too. It turns out there's a limit to how much premium tonic you can sell, and it looks like Fevertree is approaching it. And an unseasonably wet summer has led to lower levels of trading, dampening full-year guidance. Successful international expansion will be critical to continued growth, particularly in the US and Europe.
Looking at the broader picture, there are some positives to consider.
Delays in ramping up production at its US East Coast bottling plant last year meant the group relied on shipping to serve its US customers. This left Fevertree at the mercy of port congestion and heavily inflated shipping costs. These production problems look to have been ironed out, and we're beginning to see the benefits as US bottling production ramps up.
New flavoured soda launches, marketing tie-ups with spirit manufacturers, and the addition of new corporate customers are helping sales in the US and Europe to surpass pre-covid levels. Underlying growth outside of the UK looks healthy. However, a prolonged period of economic weakness and an increasingly embattled consumer could put a stop to that. Especially as budgets get squeezed, we could see consumers trade down to cheaper alternatives if further price hikes aren't managed delicately.
Despite the increased inventory spend, the balance sheet is still in good shape thanks to low levels of debt. But the group needs to get a tighter grip on costs so margins can start to move in the right direction again. Currently, the mammoth valuation is hard for us to stomach. We'd like concrete signs that overseas expansion is boosting the bottom line before we get excited about this mixer maker.
Fevertree key facts
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