Preliminary Results

RNS Number : 4170K

Fevertree Drinks PLC

22 April 2020

 

22^nd April 2020

Fevertree Drinks plc

 ( "Fever-Tree" or the "Group")

Preliminary Results

Fever-Tree, the world's leading supplier of premium carbonated mixers, today announces its Preliminary Results for the year ended 31 December 2019 following the FCA guidance issued on 21 March 2020 requesting public companies to delay the announcement of results .

	2019	2018	Change
Revenue	£260.5m	£237.4m	+10%
Gross profit margin	50.5%	51.8%
Adj EBITDA*	£77.0m	£78.6m	(2%)
Profit After Tax	£58.5m	£61.8m	(5%)
Diluted EPS	50.26p	53.19p	(6%)
Total Dividend	15.08p	14.50p	+4%
Net cash	£128.3m	£83.6m	+53%

 * Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, share based payment charges and finance costs.

2019 Highlights

Financial

· Double digit revenue growth, driven largely by strong US growth

· Challenging UK market lapping exceptional comparators, especially in the Off-Trade, resulting in a 1% decline in revenue

· Gross profit margin of 50.5% (2018: 51.8%)

· Adjusted EBITDA* of £77.0m (2018: £78.6m) reflecting ongoing investment for future growth

· Profit after tax of £58.5m (2018: £61.8m)

· Diluted EPS of 50.26 pence (2018: 53.19 pence)

· Final dividend of 9.88 pence per share, bringing total dividend for the year to 15.08 pence per share (2018: 14.50 pence per share)

· Very strong balance sheet, debt free with net cash at year end of £128.3m (2018: £83.6m)

Operational

· Retained UK category leadership in both the On and Off-Trade channels despite a highly competitive UK market

· Increasing geographic spread, with a very positive performance in key growth markets including the US, Germany, Australia and Canada

· Further building of operational capability in the US, signing a key first bottling partner in the region

· Broadening the product portfolio, with good progress in our ginger range in multiple markets

· Continued to invest behind the brand for the longer term, most notably in our growth regions

· Asset light, outsourced business model providing a low fixed cost base and significant operational flexibility

Post Period End:

· Solid start to the new financial year, with Group trading in the first two months in line with the Board's expectations

· US pricing initiative announced in January very well received by On and Off-Trade customers with promising results from initial trials and new accounts secured

· While COVID-19 will have a material impact on FY20 trading, the Group is financially strong and has well balanced revenue streams diversified across regions, channels and customers.

Tim Warrillow, Co-founder and CEO of Fever-Tree said:

"The Group delivered good growth in 2019 despite a more subdued UK market, with double-digit growth across our international regions. We strengthened our global leadership position and in doing so continued to build a strong platform to deliver long term, sustainable growth.

We made a solid start to the new financial year, with Group trading in the first two months in line with the Board's expectations.The US in particular started the year strongly and we have been encouraged by the response from our key customers to the US price optimisation.

Clearly the scale and impact of COVID-19 has posed some significant challenges across our regions. With regards to our people, we have a strong close-knit team who are integral to the success of the business and as such o ur position since the beginning of this crisis has been to offer support and certainty to all employees and to this end we have not furloughed anyone. In fact, those that have some spare capacity we have encouraged to sign up to support their local communities through initiatives such as the NHS volunteer army, or indeed redeploy to different departments across the business. We are determined to come out the other side as an even stronger business but also one that has made a difference during the crisis.

With regards to trading, while the On-Trade sector is facing an extremely challenging period, we have seen strong sales in the Off-Trade in many of our markets both from the initial buying ahead of lockdown but also in recent weeks as at home consumption has remained robust.

While we will not be unaffected by the current situation, especially in the On-Trade, Fever-Tree is well positioned to manage our way through this situation. We are a global business with revenue diversified across regions, channels and customers. Financially the Group is very secure. We are debt free, with a strong cash position. The Group's unique asset light, outsourced business model means we have a low fixed cost base, a small, dedicated team and the flexibility to manage the current challenges. 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."

There will be an analyst conference call on Wednesday 22 April 2020 at 10:00 (BST). The call can be accessed by dialling [phone]and quoting the confirmation code '4631964'.

Additionally, the presentation can be viewed via a live webcast using the following link  https://webcasting.brrmedia.co.uk/broadcast/5e73b069f930d97ffc7b9b89

For further information:

Fevertree Drinks plc                                                                      

Analysts and Investors

Ann Hyams, Director of Investor Relations                                   [phone]

Media

Oliver Winters, Communications Director                                     [phone]

Numis Securities - Nominated Adviser and Joint Broker  [phone]

Garry Levin

Matt Lewis

Hugo Rubinstein

Investec Bank plc - Joint Broker                                               [phone]

David Flin

Alex Wright

David Anderson 

Brunswick Group                                                                         [phone]

Jonathan Glass

Fiona Micallef-Eynaud

COVID-19 Update

People & Communities

Fever-Tree has always been a small, close knit team and we value the contribution of every one of our employees and this remains integral to how we run our business. Our team has adapted well to remote working and we are in daily contact with all our employees around the globe, ensuring they have all the support they require and I am very proud of how they have responded to these unprecedented times.

Our position since the beginning of this crisis has been to offer support and certainty to all of them in terms of their jobs and we have no intention of furloughing any of our employees regardless of their role. In fact, we believe in looking at the opportunities that can come from this, whether this be through redeploying our On-Trade team to different departments across the business to broaden their knowledge and skill set or launching new projects and initiatives as we look to 2021 and beyond. We are determined to come out the other side 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 are offering support to communities and groups across our regions. This has included financial support to local charities in West London where our head office is based, encouraging staff with some capacity to volunteer to support good causes such as 'the NHS army' or through donations to initiatives supporting key workers. In the UK we are supporting  "Salute the NHS" in their mission to provide one million meals to NHS frontline staff over the next three months and have so far donated sixty thousand soft drinks to be included in their meal packs.

Operational

We have established a cross departmental team from across all our regions to focus and co-ordinate our response to the rapidly changing situation and the Board is kept up to date with any key developments.

The Group's unique asset light, outsourced business model enables agility and flexibility. We are working very closely with our production partners across the UK and Europe as they have enacted their own business contingency plans, with our key bottlers and canners continuing to operate through the crisis with segregated shift patterns.

In addition we have taken action to ensure our finished goods stock in the UK is held across separate locations within our logistics partner's estate, and in the US we hold our stock across three locations on the West Coast, East Coast and in Texas. 

Cash and liquidity

The Group is in a very strong financial position. We are debt-free, with year end cash of £128m, which has further increased post period end. Alongside this, our strong underlying cash flow conversion, our low level of capital commitments and low fixed cost base means that we are in a robust position to withstand the potential impacts of COVID-19.

Reflecting the financial strength of the business and our ongoing ability to generate significant cash, we remain committed to paying a final dividend for FY19 of 9.88p per share, which brings the total dividend for the year to 15.08p, up 4% on the prior year.

As well as a low fixed cost base, we have the ability to flex our variable cost base where required to reflect the changing channel dynamics and consumer demand as it evolves across our regions, and we will continue to keep our advertising and promotion  spend under review over the coming months.

On/Off-Trade Channels

The On-Trade channel, which makes up 45% of Group sales, continues to be challenged across many of our regions. W e are remaining in close contact with our On-Trade customers, many of whom have been severely impacted by the crisis. Our focus has been on offering support as and when it is needed most. This can be through extending payment terms to help ease near term cashflow pressure and more recently looking at ways we can support them as and when the On-Trade begins to reopen.

Within the Off-Trade channel which accounts for 55% of Group sales, the initial weeks of the crisis were characterised by periods of very strong sales in many of our key markets as consumers increased the frequency of their visits and purchased more per basket as they prepared for the implementation of social distancing orders.

We continue to work very closely with our key Off-Trade customers through the crisis and while there has been a degree of moderation in recent weeks, overall sales in the Off-Trade have remained strong.

Summary

While COVID-19 will have a material impact on FY20 trading, the Group is financially strong and has well balanced revenue streams across regions, channels and customers.

We have modelled a number of possible outcomes which consider, amongst other things, the overall length of the lockdown in key regions, trading within the Off-Trade channel during the period, as well as the rate of normalisation across the On-Trade post lockdown.

These scenarios give a broad range of outcomes on revenue, before then considering the related margin impact and approach to discretionary spend as we move through the year.

Given the level of uncertainty and the dynamic nature of the situation, it is too early to quantify COVID-19's full impact on the remainder of the financial year. However, we remain confident that the Group will be well positioned coming out of this extremely difficult period and we will continue to deliver our plans for long-term growth.

Tim Warrillow

Chief Executive

CHAIRMAN'S STATEMENT 

Before commenting on the year's performance and the Company's strategy, it is important to acknowledge the impact being seen across global markets due to the outbreak of COVID-19.  Fever-Tree's top priority is the health and safety of our employees and we have been taking precautions, in line with guidance across our markets, to protect them.  While a great deal of uncertainty remains about the overall impact of the virus, the whole Fever-Tree team will continue to work closely with our customers, suppliers and our partners to navigate through this period.

2019 Performance

The financial and operational progress seen in 2019 is testament to the Group's growing global footprint with revenue growth of 9.7% to £260.5m. The opportunity ahead remains significant and the Group has multiple long-term growth drivers both within its more mature markets, where Fever-Tree has established a market leadership position, as well in a number of regions around the world where the consumer and trade tailwinds for long mixed drinks are gathering pace. While it is disappointing that adjusted EBITDA declined year on year to £77.0m (2018: £78.6m), this reflects not only the weaker second half in the UK, but also the fact that we continued to invest in the opportunity ahead.

The challenging macroeconomic environment in the UK, coupled with the poor weather seen over the summer, meant that the Group and the wider category had a more testing year, especially when taken against the exceptional performance delivered in 2018. However, Fever-Tree remains in a strong position in its most mature market. The Group is the market leader across both the On-Trade and Off-Trade channels, reflecting the ongoing strength of the brand, with particularly encouraging underlying trading across our national accounts as well as growing regional footprint in the On-Trade in 2019. 

Fever-Tree USA now has over 40 employees and 2019 was a year of real progress across the business with the Group reporting revenue growth of 33.0% in the year and seeing a widening and deepening of its penetration across both channels while strengthening our relationships with key customers and spirits companies. There are encouraging signs that the mixer category is gaining greater attention from customers and consumers alike and the strategic steps we are taking, such as repositioning our pricing and format architecture, will ensure we are best placed to drive the continued growth of the category.

2019 was another year of strong growth in Europe with revenue up 16.0%. The Group continued to build its distribution across the region with key markets including Germany and Spain seeing significant new listings. Premium gin remains in good growth but the Group has also seen a strong performance from its ginger range in a number of markets reflecting the popularity of the "Mule" and "Highball" serves and the ability of the Group's broader range to drive further growth.  Finally, Fever-Tree remains very much a global brand with opportunities across the Rest of the World illustrated by the performance in territories such as Australia and Canada, both of which delivered very positive results and are becoming ever more notable markets for the Group.

Strategy

The Board works closely with the founder-led executive management team and as part of its responsibilities, carries out a review of the Group's strategy on an annual basis. 

While the performance in the UK in the second half was behind expectations, it should be put into context of not only the wider macroeconomic conditions and our category leadership position but also the positive performance delivered across our other regions, demonstrating the truly global platform the Group continues to build.

The Board held a three-day session in the US in 2019 dedicated to US strategy with site visits and presentations from our regional leadership team. In addition, we have received presentations from other regional and departmental heads through the year, updating us on strategy and execution across the Group. The other Board members and I continue to be deeply impressed not only by the passion and professionalism of the whole team but also the operational execution and foundations that have been established as we build a global beverage business.

The Board

An external evaluation of the Board was carried out for the first time this year. The report reflected that the Board is functioning well. The Board is characterised as transparent and collaborative with a good mix of industry knowledge which has helped add value to the executive. 

Culture

The refusal of our co-founders, Charles and Tim, to compromise in pursuit of the best remains integral to Fever-Tree's purpose to this day. This is evident in how we build long-term relationships throughout our supply chain, source the highest quality ingredients directly from our key suppliers, ensure we build meaningful relationships within the communities in which we operate and most importantly, through our culture which fosters and encourages our employees to challenge and push the boundaries.

The Board recognises its role in helping to promote our desired culture throughout the Group. 2019 saw a number of new initiatives successfully launched, reflecting the growing focus on employee engagement and development and it remains a key area of focus for the Board as we move into 2020.

Cash Position

The Group continues to enjoy strong on-going underlying cash generation and retains a very robust balance sheet, with year-end cash position of £128.3m, an increase of 53.5% (2018: net cash of £83.6m).

The Group intends to retain sufficient cash to allow for investment against the global opportunity ahead and see our strong cash position as a competitive advantage over many of our premium mixer competitors globally.  However, where the Board then considers there to be surplus cash held on the Balance Sheet it will consider additional distribution to shareholders. 

Dividend

The Group remains committed to a progressive dividend policy and reflecting the confidence in the financial strength of the business, the Board is pleased recommend a final dividend of 9.88 pence per share in respect of 2019 (2018: 10.28 pence per share) bringing the total dividend for the year to 15.08 pence per share (2018: 14.50 pence per share).  If approved by shareholders at the AGM on 4 June 2020 the final dividend will be paid on 12 June 2020 to shareholders on the register on 15 May 2020.

AGM

The AGM is due to take place on Thursday 4 June 2020. In light of the issues caused by COVID-19, unfortunately shareholders shall not be permitted to attend the AGM in person this year and shall be refused entry. However, shareholders shall be able to vote on resolutions by proxy. The AGM notice provides further information on voting by proxy and we encourage all shareholders to take advantage of this functionality. Shareholders are invited to submit any questions for the Board by sending an email to [e-mail].

Bill Ronald

Chairman

CHIEF EXECUTIVE'S REVIEW  

2019 Review

Fever-Tree has made good progress during the year and the Group began 2020 well placed across our key regions. Notwithstanding the current challenges related to the impact of COVID-19, we have the team, relationships, leadership position, portfolio and brand strength to approach the global opportunity ahead with real ambition and excitement.

The Group delivered revenue of £260.5m, representing growth of 9.7% on 2018. This revenue growth was underpinned by strong margins, with a gross profit margin of 50.5% and adjusted EBITDA margin of 29.6%, which translated to profit after tax for the year of £58.5m. 

We ended the year with a strong balance sheet and net cash of £128.3m, an increase of 53.5% on last year. 

Regional Review  

We consider our global sales across four regions, being the UK, USA, Continental Europe, and Rest of the World ("RoW"). 

Revenue by Region  

	Revenue   FY2019	Revenue   FY2018	% change
	£m	£m
United Kingdom	132.7	134.1	-1.1%
United States of America	47.6	35.8	+33.0%
Europe	64.4	55.5	+16.0%
Rest of the World	15.8	12.0	+31.7%
Total	260.5	237.4	+9.7%

UK  

After several years of exceptional growth which has seen Fever-Tree establish itself as the UK's no.1 mixer brand, 2019 was a more challenging year for the Group in the UK, reflecting a number of headwinds faced by the wider mixer category. 

The category lapped some exceptional comparators from 2018, driven by the summer heatwave, major sporting events and royal weddings. On top of this the UK experienced unseasonably poor weather over the summer months in 2019 which was followed by weaker than expected consumer confidence towards the end of the year. This all had a notable impact not only on the mixer category but the wider grocery channel, with our major retail customers seeing a deceleration in growth in the second half.

As a result, mixer category volumes declined at UK retail in 2019, with our volumes declining in line with the category. Additionally, and as expected, we saw a de-stock from our retail customers, which further reduced our sales into them, resulting in a 7% decline in Off-Trade revenue over the year.

While this performance was behind our expectations, we retained our category leadership position within mixers, holding our volume share and ending the year with 40% value share (IRI - Total UK Retail Mixer Market value share - 13 weeks to 29/12/19), testament to the brand's ongoing strength at retail. None of the competitors in the premium segment have had discernible impact on the category despite the significant incremental shelf space and the high levels of promotional activity they undertook during 2019, with their total category share remaining flat. 

In the On-Trade, despite the channel seeing a slower end to the year versus 2018, we delivered an encouraging performance with growth of 5% in 2019. We performed well across our national pub groups and continued to gain distribution, particularly regionally, strengthening our position as the clear mixer of choice across the channel. There remains white space to broaden and deepen our footprint as we continue to focus on delivering value for our customers alongside driving awareness with consumers.

Turning to innovation, our Spiced Orange and Smoky Ginger Ales both gained increased distribution across the On-Trade, reflecting a growing interest amongst our customers for our broader range of mixers. Alongside this our 500ml Spiced Orange Ginger Ale was listed in the Off-Trade during the second half of 2019 and was one of our best performing products over the Christmas period. 

Looking ahead, we have recently launched a new range of premium flavoured sodas. Using the same expertise applied to craft our tonic waters and gingers, the four flavours have been developed to perfectly pair with a variety of different premium spirits from vodkas and gins through to vermouths and Italian bitters. With the desire for longer, lighter yet simple drinks becoming ever more pronounced amongst health-conscious consumers, the new range had an extremely positive reception from our key customers. While the roll out across the On-Trade has been understandably delayed due to the current shut down, the range has gained Off-Trade listings and is an exciting addition to our broader range of mixers.

The Group continued to work closely with a broad range of spirits companies both large and small throughout the year. We undertook a number of successful co-promotional activities in the Off-Trade, notably at Easter and Christmas, across our range of tonics and broader ginger range. In addition, our pioneering approach to marketing and brand awareness continued with our G&T Gardens, long mixed drink menus and event activations, including the second year of the Fever-Tree Championships, all designed to support our On and Off-Trade partners in stimulating consumer awareness and trialling. Finally, our gifting has once again proved extremely popular with increased level of activations in the UK for our Christmas crackers which were also made available in certain European markets for the first time.

Our long-term relationship with our retail partners remains very positive and these relationships, alongside our category leadership position, remains a key strength in the current challenging times. While a lot of focus is currently on the short term category management, we are also working closely with our partners on revenue growth management plans for 2020 and are confident in our ability to continue to outperform the premium competition. Our On-Trade business is robust and, notwithstanding the challenging months ahead for the whole sector, we will continue to invest in the category and support our partners. We continued to win new accounts in 2019 and have identified clear opportunities to gain further distribution across the UK in the year ahead. 

While the UK gin category saw a year of more moderate growth when compared to 2018, it is important to remember that it is a now a £2.5bn category, firmly established as the second biggest spirits category in the UK. It remains a key focus for spirits companies and continues to be invested in and supported by both the On and Off-Trade. 

The gin & tonic will of course remain a fundamental part of our UK strategy; however, there is a growing focus across both channels and amongst our spirits partners on the wider long mixed drink occasion. As well as building on the relationships already established, our strategy remains focused on our best in class innovation, such as our recently launched soda range, and marketing expertise to ensure we have not only the right flavours and formats but are driving awareness to support this broader move.

US 

Our US business performed strongly in 2019 with sales accelerating in the second half across all channels. Fever-Tree is now the 4th largest mixer brand overall in the US, driving 2/3rds of the premium category growth. Fever Tree remains the clear premium market leader, over two and half times the size of our nearest competitor. Although the mixer category still remains relatively underdeveloped in the US, it is one of the fastest growing categories in soft drinks. 

In the On-Trade we have built on our partnership with Southern Glazers Wines and Spirits ("SGWS"), with our distribution growth accelerating in 2019. We have enjoyed success with our national accounts and secured a number of new mandates across hotels, casinos, bars and restaurant groups. In addition, the integration of Union Beer as our distributor in New York has gone well, enabling us to tackle this complex market, whilst accelerating distribution and increasing activation.

In the Off-Trade, we continued to perform strongly across our total account base, embedding the strong distribution gains across the likes of Kroger, Safeway, Target and Publix. In addition, regional chains and liquor stores also saw strong growth driven by new distribution and increased brand activation, with expanded point of sale materials and spirits partnerships securing accelerated rate of sale. 

Within the portfolio, we have seen growth across our full range of mixers, targeting multiple drinks occasions, from the mule (Ginger beer), to highballs (Ginger Ale) and spritzes (Club Soda), alongside the emergence of the premium gin & tonic, albeit at an early stage. We remain excited about the longer-term opportunity for our gingers range in the US, with innovation playing a key role. In addition, we are currently launching our Sparkling Pink Grapefruit, a low-calorie soda ideally suited for the Paloma occasion. The early signs are very encouraging, reflecting the continued focus and growth of tequila across the trade.

2019 saw a further step up in investment in the brand in the US with multiple activations across the country, focused on building brand advocacy amongst the trade through key trade shows and targeted PR and sponsorships as well as driving trial and awareness with consumers. 

When we took over our US operations in June 2018, we made it clear that our priorities were building the right team, ensuring we secured the ideal route to market, developing the relationships with key On and Off-Trade partners, widening and deepening our distribution footprint and then driving sales and awareness. I have been very encouraged with how the US team has delivered to this strategy thus far and we are establishing strong foundations from which to capitalise on the opportunity ahead. Given this progress, and as announced in January 2020, we firmly believe it is the right time to execute on the next stage of our strategy through a repositioning of our pricing and format architecture in the US. 

Whilst we have performed strongly in 2019, our detailed analysis and successful trials have shown that there is a clear opportunity to unlock a greater opportunity in the US, opening up the brand to a broader audience, more consumption occasions and further distribution. This move will ensure we are positioned at an affordable premium price as well as broadening range on shelf through a range of diverse formats. 

While the initiative will take time to be fully rolled out, the early results have been encouraging.  Implementation of the new pricing with a number of Off-Trade customers has resulted in a significant uplift in the rate of sale, in line, or in some cases ahead of, the pricing elasticity studies we carried out. Our On-Trade distribution partners such as SGWS are very supportive of the steps we are taking, and we have already seen promising new account wins resulting from the initiative. 

This approach is aligned with how we successfully built the brand in the UK and as such is a natural next step in the development of our US business. Alongside the strong network and relationships we are building with our On-Trade and Off-Trade partners, this is positioning us to deliver long-term volume and profit growth.

Europe

Sales in Europe accelerated in the second half of 2019 with a good performance across our key territories. The premiumisation trend is gaining momentum in many countries across the region and Fever-Tree is outperforming its premium competitors and driving the growth of the category.

The region continues to offer multiple opportunities for the Group across a number of different countries. In our more established markets such as Benelux, Ireland and Denmark, the last 12 months have seen the Group maintain its no. 1 premium position and reinforce its relationships across the On and Off-Trade. While we remain focused on the gin & tonic movement, these markets also offer opportunities to drive further distribution across our wider range of mixers, most notably our gingers, as we leverage our brand strength and category leadership position. 

There are also a number of markets that offer significant growth opportunities and where the Group has made very good progress in the last 12 months.  Our relationship with Grupo Damm in Spain has continued to strengthen, resulting in an encouraging uplift in listings across the On-Trade as well as significant brand activation through events in gastronomy, culture, and sport and through major trade partners. Notable success included our Vermouth & Tonic campaign in Madrid in Summer 2019 as major vermouth players begin to signal their interest in the long mixed drink.

Germany is another market that saw good growth in 2019, with national and regional listings with major retailers ReWe, Edeka, and Kaufland secured, providing good momentum in the second half.

In Italy, 2019 provided a great opportunity to further the growth of our tonics, especially our Mediterranean tonic, as gin & tonic trial begins to build momentum. Closer partnership with major national wholesalers has allowed us to develop our routes to market and build upon our notable ginger success now evident across all of Italy.

Our dedicated European team has been supplemented during the year and we have regional expertise and focus across Northern and Southern Europe as well as the Nordics and Ireland. This is complemented by in-market Fever-Tree marketing personnel, ensuring best in class marketing execution and co-promotional activities with both global and local spirits brands. 

We entered our first European market 15 years ago and I look at the markets where we have established a market leading position as a great blueprint for what can be achieved across the region.  Fever-Tree is the only premium brand with the scale, distribution footprint and track record across Europe and this gives us a clear advantage over our premium competitors who are in decline in many of these countries.  Clearly the impact of COVID-19 will be felt widely across the region in the year ahead but there remains a significant group of markets that offer real potential as we look to the medium to longer term. This is underpinned by the size of the premium spirits market in Europe that remains in strong growth. We have built an excellent platform in Europe and plan to continue to invest in the opportunity.

Rest of the World

The premium mixed drinks trend continues to spread around the world with Fever-Tree's global market leadership position growing alongside it and we have made excellent progress during 2019 in a number of key markets.

Australasia 

The region delivered a very strong performance in 2019. Growth was driven through increased rate of sale as well as further distribution wins. We ended the year with good momentum reflecting excellent trading over the Christmas period, most notably in Australia. Fever-Tree launched and hosted the inaugural G&T festival in Sydney in November which saw over 5,000 tickets sold and the brand work alongside over 80 local and global spirits brands. As well as providing numerous sampling opportunities, it provided an ideal platform to showcase the strength and quality of the brand to customers and consumers alike.

We are the clear premium category leader, responsible for the majority of the growth of the wider category. The growth of the spirits category is being driven by premium and craft brands, especially within gin which has doubled in size in the last two years. The supportive trends, growing brand awareness and distribution whitespace mean we are well positioned as we move into 2020. This market is growing in size and has real potential for the brand in the years ahead.

Canada

Alongside Australia and New Zealand, Canada continues to be an exciting market, being typically one tenth of the size of the US market across the broader drinks category. We have already established a strong position within the premium mixer category and 2019 was a year of further operational progress. We are adding further resource to this market and are working closely with our distributors to optimise our route to market.

Our Off-Trade business performed especially strongly with further distribution gains within national retailers. Notwithstanding near term COVID-19 related challenges, there remains significant potential to increase our presence within the On-Trade and liquor channels, both of which will be a key focus in 2020.

Other

Our outsourced business model and first mover advantage have enabled the brand to establish a very promising position across the globe. Asia remains a region with long term potential and scale for Fever-Tree and 2019 saw the appointment of our first Regional Director for Asia. We are already established in the premium On-Trade in a number of markets across the region and have a clear strategy focused on key cities and countries as we look to build and enhance our distribution network while working closely with spirits companies on the long-mixed drink opportunity.

Operational Review

Reflecting the Group's growing global footprint, we have continued to expand our outsourced production capabilities during the period with the appointment of a new bottling partner in Belgium to service our Northern European markets.

In November we announced the signing of a US bottling partner. Based on the West Coast, it is expected to come online in 2020 and is a further step in building out our operational capability in the region.

People

We have continued to build on the fantastic team that are already in place with further hires including a Chief Marketing Officer and Strategy and Planning Director as well as key regional hires including a Regional Director for Asia.

While we have continued to grow, we remain entrepreneurial at heart and work hard to ensure we have a culture that enables all our team, regardless of location, department or level to feel they can make real difference to the business.

Summary

While the UK has had a more challenging year in 2019, the last 12 months have seen Fever-Tree strengthen its global leadership position and in doing so establish a strong platform to deliver further growth.

While certain, longer established markets are becoming more mature, we have built a very strong position within them. We have long-standing relationships across the On and Off-Trade as well as with spirits partners and continue to work in tandem to drive further growth in the category. While our tonic range will continue to remain at the centre of our offering, reflecting the ongoing and evolving popularity of gin, our wider range of gingers and new products such as our sodas provide exciting secondary growth drivers, enabling the Group to sit across a number of spirits categories, such as whisky, rum, vodka and tequila, all of which are seeing good growth at the premium end. 

It is the long-standing success in these markets that provide us with the case studies and platform to increasingly turn towards the global opportunity ahead with real confidence. There are many markets where the opportunity for the Group, while potentially even more significant, is at an earlier stage. It is these markets where we are able and willing to invest ahead in terms of people, route to market, portfolio and marketing to ensure we are ideally positioned to realise the opportunity.

Outlook

Notwithstanding tough comparators in the UK, we made a solid start to the new financial year, with trading in the first two months in line with expectations. The US in particular performed ahead of expectations as the momentum in the second half of 2019 continued.

Given the level of uncertainty and the dynamic nature of the situation, it is too early to quantify Covid-19's full impact on the remainder of the financial year. While we will not be unaffected by the current situation, especially in the On-Trade, we are a global business with revenue diversified across regions, channels and customers.

Financially the Group is well placed. We are debt free, with a cash position of £128m underpinned by very strong cash flows. The Group's unique asset light, outsourced business model means we have a low fixed cost base, a small, dedicated team and the flexibility to manage the current challenges. 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.

Tim Warrillow  

Chief Executive 

 

FINANCIAL REVIEW 

REVENUE 

As described in the Chief Executive's report, although the Group saw a 1.1% retraction in UK revenue, the Group performed well across its international markets, with good growth delivered across the US, Europe and RoW regions. As a result, despite the retraction in the UK, overall Group revenue grew by 9.7% from £237.4m in 2018 to £260.5m. 

GROSS MARGIN AND OPERATING EXPENSES 

Gross margins decreased in the year to 50.5% (2018: 51.8%). The strengthening USD and the move to the agency model in Germany provided some upside; however, a number of other factors combined to reduce the overall gross margin. This included another year of significant underlying increases in the market price for glass bottles. Alongside this, the deceleration in UK growth through the year, coupled with uncertainty over the timing and nature of the UK's exit from the EU, resulted in elevated levels of inventory being held for much of the year, with a resultant increase in storage costs relative to revenue.  We expect a further decrease in the gross margin in 2020 as we project changes to the pricing architecture in the US. 

Underlying operating expenses are defined as all operating expenditure exclusive of depreciation, amortisation and share based payment charges and the proportion of this expenditure relative to revenue is seen as an effective indicator of changes in underlying operating activity year on year. 

On an absolute basis, underlying operating expenses increased by £10.2m, up 23.0%, reflecting a commitment to continue to invest against the longer-term opportunity despite the headwinds encountered in the UK in 2019. 

The majority of this incremental investment was in marketing spend, which increased by 7.7m, up 36.7%, reflecting upweighted investment in the US and European regions.  As a result, Group marketing spend increased to 11.0% of revenue in 2019 (2018: 8.8% of revenue). 

We remain a lean organisation but have continued to invest in our team to support our growth. Total salary costs increased by 1.0m, up 7.5%, reflecting a full year's cost of the Fever-Tree US team, alongside new senior hires made during the year, as noted in the Chief Executive's report.  This was also complemented by a strengthening of our operational teams, notably our supply chain resource which has increased alongside the broadening of our international bottling footprint. Offsetting these investments was a reduction year on year in the level of pay-out of performance-related bonuses. 

Other overheads increased by 1.5m to £11.5m; due to this, as well as the incremental marketing and staff spends, and lower than expected revenue in the latter stages of the year, underlying operating expenses as a proportion of revenue increased to 20.9% (2018: 18.7%). 

With gross margin decreasing and increased levels of investment within our key growth regions of the US and Europe, the Group's adjusted EBITDA margin decreased to 29.6% (2018: 33.1%) with adjusted EBITDA declining by 2.0% to £77.0m (2018: £78.6m). Whilst a decline in adjusted EBITDA is a disappointing result for the year, it reflects the decision to remain committed to investing behind our growth regions despite the deceleration seen in UK growth as the year progressed and reflects our outlook and belief in the significant global opportunity ahead for the Group. 

Amortisation costs were flat year on year at £0.7m, and Share Based Payment expenses increased marginally, by 5.6% to £1.9m. There was a more marked increase in depreciation to £2.2m (2018: £0.7m).  The increase of 1.5m is a reflection of IFRS 16 adjustments related to our office leases (which impact 2019 but not the 2018 comparatives) as well as the depreciation of reusable packaging in Germany, reflecting the strong growth in that market and the capitalisation of glass bottles this year, alongside the re-usable crates that hold them. As a result of these increases in depreciation charges, the 2.0% decline in adjusted EBITDA translates to a 4.2% decrease in operating profit to £72.2m (2018: £75.4m). Net finance income of £0.3m resulted in profit before tax of 72.5m, a decrease of 4.1% (2018: 75.6m). 

TAX 

The effective tax rate in 2019 was 19.3% (2018: 18.3%), which was in line with expectations.  The 2018 effective tax rate was reduced by a combination of both a current tax adjustment relating to the prior year and a deferred tax adjustment following the exercise of a significant value of staff share options, which combined to reduce the 2018 effective tax rate. 

EARNINGS PER SHARE 

The basic earnings per share for the year are 50.46 pence (2018: 53.38 pence) and the diluted earnings per share for the year are 50.26 pence (2018: 53.19 pence). 

In order to compare earnings per share year on year, 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 2019 are 51.08 pence per share and for 2018 were 53.40 pence per share, a decrease of 4.5%. 

WORKING CAPITAL 

Working capital decreased by £3.7m during 2019 to £54.2m.  This was due to a 7.5m reduction in inventory levels at year end compared to 2018, which was a reflection of both improved operational efficiencies and lower volume pre-year end production runs in 2019 lapping an elevated level of inventory at the 2018 year end, which was being held as a contingency against a potential no-deal exit from the EU in January 2019.  There was a further £2.1m reduction in trade and other receivables, the result of continued improvement in the recovery of trade debtors in 2019 as well as the settlement of 2.2m of trade debtors following the move to the agency model in Germany. Against these improvements in working capital, trade and other payables reduced by 5.5m, which was largely a reflection of lower levels of December production year on year. Working capital management will remain an area of focus in 2020. 

Due to the improvement in working capital, cash generated from operations has improved to 103.9% of adjusted EBITDA (2018: 74.3%) 

CAPITAL EXPENDITURE 

Due to the Group's outsourced business model, capital expenditure requirements remain low.  Despite this, 2019 saw an increase in capital expenditure, with additions of 6.4m (2018: 1.3m). The additions in the year included the capitalisation of the leases of the head office in London and the US offices in New York in accordance with IFRS 16, alongside continued investment in reusable packaging within Germany, reflecting the on-going strong growth in that territory and the capitalisation this year of glass bottles, alongside the reusable crates that hold them. 

CASH POSITION 

The Group delivers strong margins, with efficient operating cash flow conversion and, due to the outsourced business model, has modest capital expenditure requirements.  As such, the Group retains a very robust balance sheet, and having repaid £6.1m of bank loans during 2019, ended the year with £128.3m of cash, an increase of 53.5% (2018: net cash of £83.6m). 

CAPITAL ALLOCATION FRAMEWORK 

The Group intends to retain sufficient cash to allow for investment against the Global opportunity ahead and see our strong cash position as a competitive advantage over many of our premium mixer competitors globally. We primarily foresee this investment taking the form of operational expenditure, including upweighted marketing spend across our growth regions at the appropriate stage, and we intend to retain sufficient cash reserves to allow us to take advantage of opportunities to upweight and accelerate investment as they arise.  Whilst not a priority or essential component of the Group's plans, we also remain vigilant with regards to M&A opportunities that would further assist with the delivery of our strategy.  Where the Board then considers there to be surplus cash held on the Balance Sheet it will consider additional distribution to shareholders. 

DIVIDEND 

The Group remains committed to a progressive dividend policy and as such, the Board is recommending a final dividend of 9.88 pence per share in respect of 2019 (2018: 10.28 pence per share) bringing the total dividend for the year to 15.08 pence per share (2018: 14.50 pence per share).  If approved by shareholders at the AGM on 4 June 2020 the final dividend will be paid on 12 June 2020 to shareholders on the register on 15 May 2020. 

PERFORMANCE INDICATORS 

The Group monitors its performance through a number of key indicators. These are formulated at Board meetings and reviewed at both an operational and Board level.  Following weaker than expected trading in the final period of the year, the final result for 2019 reflected performance against these indicators which was behind Board expectations. 

Revenue growth % 

Group revenue growth was 9.7% in 2019 (2018: 39.5%). 

Gross margin % 

The Group achieved a gross margin of 50.5% in 2019 (2018: 51.8%). 

Adjusted EBITDA margin % 

The Group achieved an adjusted EBITDA margin of 29.6% in 2019 (2018: 33.1%). 

Andrew Branchflower  

Chief Financial Officer 

Fevertree Drinks plc

Consolidated statement of profit or loss and other comprehensive income

For the year ended 31 December 2019

		2019	2018
		£m	£m
Revenue		260.5	237.4
Cost of sales		(129.0)	(114.5)
Gross profit		131.5	122.9
Administrative expenses		(59.3)	(47.5)
Adjusted EBITDA		77.0	78.6
Depreciation		(2.2)	(0.7)
Amortisation		(0.7)	(0.7)
Share based payment charges		(1.9)	(1.8)
Operating profit		72.2	75.4
Finance costs
Finance income		0.5	0.3
Finance expense		(0.2)	(0.1)
Profit before tax		72.5	75.6
Tax expense		(14.0)	(13.8)
Profit for the year		58.5	61.8
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		0.2	-
Total other comprehensive income		0.3	(0.1)
Total comprehensive income for the year		58.8	61.7
Earnings per share
Basic (pence)		50.46	53.38
Diluted (pence)		50.26	53.19

Fevertree Drinks plc

Consolidated statement of financial position

At 31 December 2019		2019	2018
		£'000	£m
Non-current assets
Property, plant and equipment		6.9	2.7
Intangible assets		41.0	41.7
Deferred tax asset		0.5	-
Other financial assets		2.1	-
Total non-current assets		50.5	44.4
Current assets
Inventories		20.8	28.3
Trade and other receivables		60.8	62.9
Derivative financial instruments		0.1	-
Cash and cash equivalents		128.3	89.7
Total current assets		210.0	180.9
Total assets		260.5	225.3
Current liabilities
Trade and other payables		(27.5)	(33.0)
Loans and borrowings		-	(6.1)
Corporation tax liability		(5.1)	(2.5)
Derivative financial instruments		-	(0.3)
Lease liability		(0.6)	-
Total current liabilities		(33.2)	(41.9)
Non-current liabilities
Lease liability		(1.2)	-
Deferred tax liability		-	(0.2)
Total non-current liabilities		(1.2)	(0.2)
Total liabilities		(34.4)	(42.1)
Net assets		226.1	183.2
Equity attributable to equity holders of the company
Share capital		0.3	0.3
Share premium		54.8	54.8
Capital redemption reserve		0.1	0.1
Cash flow hedge reserve		0.2	-
Translation reserve		-	(0.1)
Retained earnings		170.7	128.1
Total equity		226.1	183.2

Fevertree Drinks plc

Consolidated statement of cash flows

For the year ended 31 December 2019

	2019	2018
	£m	£m
Operating activities
Profit before tax	72.5	75.6
Finance expense	0.2	0.1
Finance income	(0.5)	(0.3)
Depreciation of property, plant and equipment	2.2	0.7
Amortisation of intangible assets	0.7	0.7
Share based payments	1.9	1.8
	77.0	78.6
Decrease/(Increase) in trade and other receivables	1.3	(7.3)
Decrease/(Increase) in inventories	5.7	(16.4)
(Decrease)/Increase in trade and other payables	(4.0)	3.5
	3.0	(20.2)
Cash generated from operations	80.0	58.4
Income taxes paid	(12.0)	(12.7)
Net cash flows from operating activities	68.0	45.7
Investing activities
Purchase of property, plant and equipment	(2.6)	(1.5)
Interest received	0.5	0.3
Net cash used in investing activities	(2.1)	(1.2)
Financing activities
Interest paid	(0.2)	(0.1)
Issue of shares	-	1.1
Dividends paid	(18.0)	(13.7)
Repayment of loan	(6.1)	-
Issue of other financial assets	(2.2)	-
Payment of lease liabilities	(0.5)	-
Net cash used in financing activities	(27.0)	(12.7)
Net increase in cash and cash equivalents	38.9	31.8
Cash and cash equivalents at beginning of period	89.7	57.0
Effect of movements in exchange rates on cash held	(0.3)	0.9
Cash and cash equivalents at end of period	128.3	89.7

1.    Basis of preparation

The financial information presented in this preliminary announcement has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and as adopted by the EU and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The principal accounting policies adopted in the preparation of the financial information in this preliminary announcement are unchanged from those used in the company's financial statements for the year ended 31 December 2018 except for those relating to IFRS 16 Leases and are consistent with those that the company has applied in its financial statements for the year ended 31 December 2019.

The financial information set out above does not constitute the company's statutory accounts for 2019 or 2018. Statutory accounts for the years ended 31 December 2019 and 31 December 2018 have been reported on by the Independent Auditor. The Independent Auditor's Report on the Annual Report and Financial Statements for 2019 and 2018 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2019 will be delivered to the Registrar in due course. 

2.  Revenue

An analysis of turnover by geographical market is given below:
	2019	2018
	£m	£m
United Kingdom	132.7	134.1
United States of America	47.6	35.8
Europe	64.4	55.5
Rest of the World	15.8	12.0
	260.5	237.4

3.   Dividends

In the financial year ended 31 December 2019 dividends were paid with a value of £17,976,649 (being £11,937,872 at 10.28 pence per share in respect of the year ended 31 December 2018, and £6,038,778 at 5.20 pence per share in respect of the six months ended 30 June 2019). Dividends of £13,725,191 (11.86 pence per share) were paid in the prior year. The Directors are proposing a final dividend of 9.88 pence per share - £11,473,762. This dividend has not been accrued in the consolidated statement of financial position.

4.  Earnings per share

	2019	2018
	£m	£m
Profit
Profit used in calculating basic and diluted EPS	58.5	61.8
Number of shares
Weighted average number of shares for the purpose of basic earnings per share	116,126,293	115,734,845
Weighted average number of dilutive employee share options outstanding	448,508	396,350
Weighted average number of shares for the purpose of diluted earnings per share	116,574,801	116,131,195
Basic earnings per share (pence)	50.46	53.38
Diluted earnings per share (pence)	50.26	53.19

 

END

 

 

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