Fever-Tree hit hard by cost headwinds

Tonic and mixer producer Fever-Tree saw revenue rise by 14% in the first six months of 2022, however the firm was affected by rising logistics prices and labour shortages.

The British firm released a trading update for the six months to 30 June 2022, with revenue reaching £160.9 million (US$190.5m).

In 2021, Fever-Tree saw revenue growth of 23%, boosted by ‘significant momentum’ in the US.

The company said it would maintain its full-year revenue guidance range of £355m (US$420m) to £365m (US$432).

Tim Warrillow, CEO of Fever-Tree, said the firm reported a “solid revenue performance in the first half of 2022, with a particularly strong performance in Europe and demand continuing to build in the US”.

However, the firm noted that over the last eight weeks it had experienced ‘rapid shifts’ in its operation and costs.

As a result of the ‘exceptionally challenging environment’, Fever-Tree revised its guidance for earnings before interest, taxes, depreciation, and amortisation (EBITDA) to be within a range of £37.5m (US$44.4m) and £45m (US$53m) for the full year. This is significantly down from the company’s previous forecast of £63m-£66m (US$74m-US$78m).

Fever-Tree cited labour shortages that have affected the ramp up in production at the firm’s plant on the East Coast of the US.

As such, the firm explained it had increased its UK production to meet the ‘strong demand’ in the States, but this led to more exposure to sea freight rates that have risen by up to 50% since of the start of 2022.

Fever-Tree also warned that the availability of glass has become ‘severely restricted’, with ‘industry-wide cost pressures’ increasing, most notably on glass. The company said it will experience a double-digit surge in prices for the second half of 2022, as well as ‘continued logistic costs increases and disruption’.

The company expects that ‘a number of significant cost impacts, including our exposure to sea freight, will be transitory in nature’.

Warrilow continued: “Whilst we are seeing positive top-line performance and expect to deliver good revenue growth for the full year, the challenging logistical and cost headwinds we highlighted previously have significantly worsened in recent months and we now expect them to notably impact our full-year margins.”

He added that the firm was “working on a large number of initiatives and more closely than ever with suppliers throughout our supply chain, to mitigate the transitory headwinds”.

Market performance

In the UK, Fever-Tree reported revenue growth of 6% for the six-month period, after the on-trade was affected by the Omnicron variant. On-trade sales soared by 73% in the market, while off-trade sales plunged by 21% due to the lockdown period in 2021 as sales shifted back to bars.

The company’s US revenue rose by 11%, despite inventory shortages affecting sales at the end of the period, the firm said.

Fever-Tree highlighted that its off-trade sales in the US climbed by 144% when compared to the pre-pandemic year of 2019.

Total European revenue for the first half of the year was up by 27%, led by the return of the on-trade and growth in key southern Europe markets.

Revenue in the rest-of-the-world region increased by 7%, with the firm increasing its ‘market-leading position’ in Australia and Canada.

Warrillow added: “Despite the current challenges of the volatile logistical and cost environment, we continue to make good progress across our regions.

“The strong and growing consumer demand for the brand, our exciting pipeline of innovation, and the growing interest in long-mixed drinks, gives us more confidence than ever in the long-term opportunity.”