The premium soda and tonic brand Fever-Tree has had a 30 per cent fall in first half pretax profit after being hit by rising costs.
The London-based maker of mixers has experienced higher freight charges and labour shortages in the US, which have slowed production, while increased gas prices have pushed up the cost of glass bottles.
Fever-Tree on Tuesday reported pretax profit of £17.6 million (€20.2 million) in the six months to June 30th, down from £25.3 million in the same period last year. Revenues were up 14 per cent year on year at £161 million.
However, shares in the group jumped 12 per cent in early London trading on Tuesday to £10.69.
The rebound in the share price follows two profit downgrades this year that had dragged Fever-Tree stock from above £27 in January to below £9 in July.
The pressures of higher packaging costs and labour shortages eroded Fever-Tree’s first half gross margin by 6.7 percentage points to 37.4 per cent.
“[Higher] costs have been plaguing us, along with the rest of the industry ... but we see them as transitory,” said Tim Warrillow, Fever-Tree chief executive.
According to data released on Tuesday by Kantar, sales of cheaper own-label products are a third higher than a year ago, as soaring inflation and higher energy costs eat into households’ disposable incomes.
Mr Warrillow expected that Fever-Tree’s predominantly older and wealthier customers would continue to pay more for the group’s mixers and sodas.
How are businesses coping with rising costs across the board?
“[Fever-Tree products are] still a very affordable treat. Whilst it’s more expensive, it’s more pence rather than pounds. People appreciate a drink when there is a downturn.”
The group, which operates US facilities in North Carolina and California, has been affected by staff shortages that forced it to boost production in the UK to meet demand. Costs were exacerbated by problems with transport routes between the UK and US.
“We had an enormous amount of product sitting offshore and not being docked. But freight is now starting to land,” Mr Warrillow said.
Fever-Tree said sales in Europe and the US were up 27 per cent and 11 per cent, respectively, as the easing of Covid restrictions encouraged consumers to return to pubs and restaurants.
Andrew Branchflower, chief financial officer, reiterated the group’s full-year guidance of earnings of between £37.5 million and £45 million, from revenues of between £355 million to £365 million. The group increased its interim dividend 2 per cent to 5.63p pence per share.
Analysts at Numis said: “Overall, the tone of the statement is positive, highlighting that underlying demand in key growth markets remains strong.” — Copyright The Financial Times Limited 2022
