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Edited Transcript of FEVR.L earnings conference call or presentation 26-Mar-19 10:59am GMT

Full Year 2018 Fevertree Drinks PLC Earnings Call

LONDON Sep 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Fevertree Drinks PLC earnings conference call or presentation Tuesday, March 26, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Tim Warrillow

Fever-Tree Drinks plc - Co-Founder & CEO

* Andy Branchflower

Fever-Tree Drinks plc - CFO

* Charles Gibb

Fever-Tree Drinks plc - North America CEO

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Conference Call Participants

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* Chris Wickham

Equity Development - Analyst

* Richard Felton

Morgan Stanley - Analyst

* Nicola Mallard

Investec - Analyst

* Charlie Higgs

Redburn - Analyst

* Nico von Stackelberg

Liberum - Analyst

* Ed Mundy

Jefferies LLC - Analyst

* Ned Hammond

Berenberg - Analyst

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Presentation

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [1]

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Good morning, everyone. This is definitely our biggest attendance yet. It's not often soft drinks pulls in quite such a crowd. But anyway, thanks very much for turning up. Before starting I would just like to introduce the rest of the team. Andy, who I know the vast majority of you know, our CFO; Ollie, Head of IR; and I am delighted to have Charles Gibb, our North American CEO, with us this morning. But conscious time is tight, so let's get stuck in.

2018 was another year of strong growth for Fever-Tree. Andy will provide further detail on the numbers shortly, but the Group delivered revenue of just over GBP237 million. That's representing growth of 40% on 2017, resulting in EBIT of GBP78.6 million and growth of 34%.

Our gross profit and EBITDA margins remain robust at 51.8% and 33.1%, respectively. And we retain a strong balance sheet with net cash of just under GBP84 million. And finally, the Board remains confident in the outlook and has recommended paying a final dividend of GBP10.3 pence per share, which is up 35% on 2017.

So, moving on to the regional highlights, the UK remains our largest market and delivered another very strong performance with sales up 53% year-on-year contributing 57% of group sales. We enjoyed a really outstanding summer trading period, no doubt aided by the exceptional weather. But we also saw a strong end to the year during which time we gained further market share from our competitors.

Looking in a little more detail into the off trade, here we delivered growth of 54% and in doing so consolidated our position as market leader with 42% value share at the end of 2018. That was versus our nearest competitor, Schweppes, who finished the year with 30% share. We continue to drive the growth across the wider market category which grew at 29% with Fever-Tree contributing two-thirds of the growth.

In terms of distribution, we are very well penetrated across our major retailers. 2018 saw the brand continue to gain distribution but also broaden our range, ending the year with 58,000 distribution points.

In terms of new listings, Andy will talk in a bit more detail about the impact of the sugar levy, but it allowed us the opportunity to extend the footprint of our refreshingly light range across our retailers.

And then in terms of our existing range, flavored tonics continue to perform extremely strongly with elderflower and Mediterranean both growing at just under triple digits while our pink aromatic grew at almost 200%. Innovation, as it has from the beginning, remains a key focus with the highlights being a very successful off-trade launch of our cucumber tonic in June and the other very notable success being the reintroduction of our Clementine tonic, which once again proved to be very popular, selling nearly twice the number of bottles from the year before.

Gifting is an increasingly exciting area for us. In the run-up to Christmas we launched crackers and advent calendars in John Lewis and Waitrose. They both proved incredibly popular, demonstrating really I think the strength and appeal of the brand beyond the mixer aisle. But also illustrating Fever-Tree's unique ability to be able to be the conduit to merchandise spirit brands together.

Finally, a word on the competitive environment in the off-trade. Even during a year that has seen more competitors launch products than ever before, we have continued to drive the growth across the category. And as the IRI data shows, all the other competitors combined outside of Schweppes and [Enable] finished the year with 4% value share.

And through the tills across the whole off-trade the numbers are even more compelling. The premium expressions of the Big Three, namely Coke with their Schweppes 1783 launch, Suntory with their Merchant Heart launch and Britvic with their London Essence launch, added 2% of our till sales in 2018.

So, moving on to the on-trade. We have seen a continuation of the positive performance from last year. Growth was strong at 52% and driven by a combination of [raters] sale growth and further distribution gains with Fever-Tree gaining an additional 10,000 accounts during the year to finish in approximately 35,000 accounts with our long-standing comparator of Bombay Sapphire being now at an estimated 65,000 accounts. So, proof of the size of the opportunity that still lies ahead.

And as with the off-trade, we continue to work very closely with our on-trade partners, our growing range of point-of-sale materials, pairing wheels, long mixed drink menus alongside activation such as our Fever-Tree gin and tonic garden campaigns continues to really reaffirm Fever-Tree's brand value and unique consumer pull, and has resulted in significant uplift in sales for the trade.

2018 also saw the inaugural staging of the Fever-Tree championships at Queens Club. We were delighted with how the week went and it proves a really ideal platform to showcase the brand. For the tournament itself there was a TV audience of over 20 million across 142 markets and it was voted ATP World Tour Tournament of the Year in its category and it's just been shortlisted for Event of the Year in the UK. So, a great way to kick off our first year of sponsorship.

So in summary, the brand remains in a very strong position in the UK with Fever-Tree firmly established in the minds of consumers as the mixer of choice but across the on- and the off-trade. And we are working ever more closely with our partners across both channels to drive further growth in the mix category.

Looking ahead to 2019, we are now clear market leader in the off-trade and would naturally expect a moderation in growth rates compared to those in 2018, but nonetheless remain optimistic about the opportunity ahead in the UK.

So, moving on to the US, given the operational changes seen during 2018, we were very encouraged to report revenue of GBP35.8 million. That is growth of 21% versus 2017, which is an increase of 24% on a constant currency basis. The transition from our US agent to our wholly-owned operation took effect on June 1, with the Fever-Tree US team now directly managing marketing, sales and distribution in the territory.

Charles will talk in a little more detail about the first seven months of Fever-Tree USA, but we have been encouraged with how the transition has proceeded to date. It is inevitable during such periods that you'll see disruption, so to see growth accelerate slightly in the second half illustrates how well the team has handled the process. The brand ended the year with a 50% share of the premium mixer category and remaining 3 times the size of our nearest premium competitor.

Andy and I have been spending a significant amount of time in the US over the past year and we have to say have been very impressed with the team that Charles has built. And we remain very optimistic about the medium- and long-term opportunity in the region.

Over the page to Europe, Europe I'm pleased to report 24% growth across what is our second largest region and I often think gets overlooked as a result. This represents 23% of our total Group sales. 2018 saw the Group step up investment in the region to reflect the opportunity that we see emerging across multiple countries. We more than doubled our headcount, placing Fever-Tree people in-country to work ever closer with our committed network of distributors and key trade in retail partners across continental Europe.

Fever-Tree continues to gain market share across both the on- and off-trade. And while the whole range performed well, it is clear that the premium gin category is gaining significant momentum in a number of countries, providing the ideal platform for our tonic range with the likes of our aromatic and (inaudible) tonics performing very strongly during the year.

We now estimate we are in approximately 20,000 of what we believe to be about a 50,000-plus addressable retail market in Western Europe and we've continued to gain listings in the on-trade in many of our key markets. Our ability to activate co-promotional campaigns with key spirit partners across the region is unrivaled amongst our premium competitors. And 2018 saw the execution of a number of successful marketing activations both with spirit partners but also wholly-owned events, really reflecting the growing strength and awareness of the Fever-Tree brand.

So really, in summary, Europe remains a very exciting market for Fever-Tree. As we have talked about before, many of the same trends that have driven the growth in the UK are really beginning to emerge across many of the countries in the region with premium gin especially growing at record rates. And let's not forget it is a category that is 2.5 times the size of the premium gin category in the UK.

The Group continues to establish a strong platform in the region, and we continue to drive the value and growth in the category and our key European markets are continuing to show good momentum. All of which provides us with competence as we move through into 2019.

Rest of the world, the rest of the world region grew by 48% in 2018 with a very encouraging performance across a number of regions, reflecting the growing presence and impact of the brand across the grow.

Australia continues to lead the charge where we are driving the growth in category with excellent performance in the country's two major retailers as well as Dan Murphy's, which is their leading liquor store group. Canada has also performed strongly and showing very positive signs of future potential. In both regions we are putting in additional senior resource as we look to build on this strong momentum.

So, really looking at all the regions, in summary and before I hand to Andy, 2018 was clearly an exceptional year for the business, as well as the performance in the UK that I talked about. And the successful establishment of the (inaudible) [own] operations in the US, the Group made real progress and deepening and widening its presence in multiple European regions. And as such, is well set to drive international opportunities. The move towards the premium long mixed drink continues to gather momentum. So, to numbers.

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Andy Branchflower, Fever-Tree Drinks plc - CFO [2]

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So, looking at the financials, in 2018, we generated GBP67 million of incremental revenue, so finishing the year with GBP237.4 million of revenue. That is 40% growth on the top line. As you move down the P&L, right to the bottom you see normalized EPS growth of 33%.

The full-year dividend of GBP14.5 pence per share represents growth ahead of that EPS growth at 36% up year-on-year. And we ended the year with GBP83.6 million in net cash, that's up 64% year-on-year. So, a very strong set of financial metrics for the year. We've also made considerable operational progress, which I will touch on later as well.

If you look first at the P&L and the margins, gross margin, on the face of it we've seen a retraction from 53.5% last year to 51.8% this year. There are three factors that have driven that: firstly, the UK sugar tax consequently; secondly, foreign exchange movements; and finally, some underlying cost increases.

I think if we look at the sugar tax first, we talked at interims about the fact that in many ways the sugar tax was an opportunity for us to range our refreshingly light products and our major retail partners agreed with us. They agreed with our proposition to give consumers the choice between regular and light. That resulted in 9,000 new distribution points for us, particularly in our 500 ml range where, if you go into retailers, you can see that choice.

Now as we went through the year, the UK sales mix varied slightly between regular and light. But by the end of the year we broadly settled into 50-50 regular versus light. So, we sold a lot of our regular product still in the UK despite the imposition of the sugar tax. And that resulted in a relatively significant levy, GBP4.4 million was charged to us and we passed this on to our customers.

So, if you look at the table on the right-hand side, we've done a like-for-like analysis of what our P&L looks like without the sugar tax, without this pass-through. You can see here on that middle column, gross profit in absolute terms remains unchanged at GBP123 million. But the margin without that pass-through improves to 52.8%. So, straightaway you see the kind of cosmetic impact that the sugar tax had on our percentage gross margin.

Then looking on top of that and the impact of FX, that was relatively minimal in 2018. The dollar on average weakened by about 2% over the year; the euro strengthened by about 1%. So, doing a like-for-like improves the gross profit margin slightly to 52.9%. But that's when you start to see the true underlying gross profit margin we made this year compared to last year's 53.5%.

And that retraction there is all due to cost increases, the most significant of them is glass. UK glass costs increased in 2018. That is a trend that has continued in 2019 and it is something you will see across the drinks industry.

We go down to OpEx, the percentage spent -- the spend as a percentage of revenue has remained relatively consistent, just under 19% of revenue. Within that though the balance of spend has shifted. As you would expect, we are starting to get gearing on our central overheads and we are reinvesting that. So, our marketing spend this year went from 7.8% of revenue in 2017 to 8.8% in 2018.

Our staff costs, our people costs increased. Tim talked about the fact we've doubled our headcount this year finishing with 135 people in the business. 35 of those brand-new in the US -- in our new US operation. So, we've been able to keep the relative level of overhead spend the same, but really focus our investment in the kind of things that are going to continue to drive the business forward.

If you then move down to EBITDA, so we've had some movements in gross profit margin, but relatively consistent OpEx levels. The EBITDA margin is 33.1%, EBITDA of GBP78.6 million. That is 34% up year-on-year.

If you go down the rest of the P&L, there's relatively little really to get into. I'm very happy to take questions on it though, but you go down to normalized EPS growth of 33% for the year.

If you turn the page and quickly look at the balance sheet, we ended the year with GBP83.6 million of net cash, which is 64% up year-on-year. It's probably worth noting that post yearend in January we've repaid the very small amount of debt we were holding. So, we are debt-free now going forwards. And this balance sheet continues to be a very strong platform for the opportunities ahead, particularly those international opportunities we're looking at now.

Touching on working capital, the profile did increase slightly year-on-year. I mean, within that debtors improved significantly, lots of focus and resources put into debt collection and our debtor days came down significantly. However, our stock levels did increase quite dramatically -- a couple of different reasons. Partly our 2017 final stop position was low, lower than expected.

And then this year, as we went through the year we started to build our raw material stock levels just for general business contingency reasons. Then also as we look forward to Q1 2019 thinking ahead to any potential implications of Brexit and the same applied for our finished goods stock holdings as well.

So, when the referendum result came in we spoke at the time about the fact that fundamentally that hasn't altered our overarching strategy to bottle closer to our regions. So, if you take a look at where we are now, in Europe we have two bottling partners, one canner. We are moving very quickly towards being able to bottle the entire -- our entire European requirements in Europe.

Formerly in the UK we were importing our 150 ml cans from the Netherlands. We brought online a UK canner in 2018, so we've got the ability at the moment to dual supply. And again, if there's any Brexit issues we can bring that fully on board into the UK if needed.

In the US we made very good progress identifying bottling partners there. We are comfortable that when we need to we will be able to bottle in America. But for now we're putting a lot more volume through Europe than we were previously, and so we are happy to use our UK bottling capacity to service the US for the time being.

So, overall we've got this flexible outsourced business model which, regardless of what happens with Brexit, can adapt to any changes. I think we have to be realistic about the potential for short-term disruption as a [no deal] exit. And to that extent we've been, like many others, slightly building buffers of stock.

So, raw material stock at our European bottlers and our UK bottlers, and making sure European importers are holding elevated levels of inventory at the moment. We are comfortable it is a buffer that can absorb short-term disruption. Equally, if there's long delays to Brexit, we can unwind those buffers without too much disruption.

So, I think standing back it's been a strong year financially, strong financial metrics, but also real operational progress, building out of the team, the doubling of headcount across the business. We implemented a new ERP system, which is a significant project across the business. But we've got a financial and production operating system now that can really set us up for future growth around the world. And finally, we supported and set up a new US operation.

And so, I suppose without further ado I should hand over to Charles who can give you more detail on the first seven months of Fever-Tree USA.

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Charles Gibb, Fever-Tree Drinks plc - North America CEO [3]

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Thanks, Andy. The operational transition went very smoothly. Business was successfully moved in-house from June 1 last year. Most importantly, we finished the year with a team of 35 people, 20 of whom are in sales spread from coast-to-coast covering national and local accounts and servicing both the on- and the off-trade.

We quickly moved to finalize an anchor distribution network with Southern Glazer's Wines & Spirits at the core. And we find a national distribution agreement with them which then launched in August across 29 states in the US. In total we chose to accelerate all of our network changes in the second half of last year -- giving us access to some new states around the country, deepening our relationships in other states and, above all, giving us the ability to plan effectively for 2019 for the full year ahead.

We also went and met, and we held extensive category reviews with all the major national retailers in both on- and off-trade, so the likes of Walmart, Target, Whole Foods, Kroger or hotel groups such as Accor, Kimpton, Two Roads, etc. All these were extremely positive, and agreements have been secured for new distribution which will start to flow through in the next quarter, so in Q2 2019.

In addition, we kick started our marketing agenda with over 100 trade and taste maker events. We launched two new products, the aromatic and the citrus product, citrus being a partnership with Patron tequila, particularly significant in the US market, along with other multiple spirits partnerships which have been agreed for implementation this year.

A couple of key stats -- within our benchmark Grey Goose on-trade universe of about 100,000 outlets, we are in approximately 15,000 today. Whilst in the off-trade -- and we include liquor stores within that -- we measure against about 36,000 accounts predominantly covered by Nielsen. And today we are in about 9,800 of those accounts.

We can continue to report against these as distribution expands further. And clearly the total universe in the US is way bigger than that and that is the universe that we are focused on today.

Moving on to the next slide, the root market. Distribution in the US is absolutely fundamental and key to our success. And there are three big differences between the way the US operates and I'll say the way the UK operates.

Firstly is this fragmented customer base -- hugely fragmented customer base. There's only a few dominant national retail chains. The rest of the business is done by local, regional buying offices, regional buying chains. So, to address this we've now -- we onboarded and recruited and experienced national account team in both the on- and off-trade able to cover those accounts.

Secondly, scale and geography in the US. This requires tailored distribution solutions and different networks to address different channel needs. So, to address this we've got our newly created regional teams based around the country. These guys work with the local retail customers adapting our route-to-market to suit their needs and obviously focusing on best -- how we best service them for growth in the medium- and longer-term.

Finally, the different wines and spirits regulations state-by-state, highly complex. And these require state-by-state solutions, so that we can access and activate the critical on-trade and liquor channels where we clearly partner with our spirits partners. To address this we formed an anchor distribution network with Southern Glazer's Wine & Spirits at the core, alongside Horizon who take care of all of the New England markets based out of Boston, and United which covers Georgia and Alabama based obviously in Atlanta.

These guys ensure that we have the ability to expand distribution as well as execute our marketing platforms effectively. Our local teams also work closely with our wines and spirits network to craft programs, create menus, activations in the on-trade and in liquor stores, which leads me nicely to the next part which is our Southern Glazer's agreement and partnership.

As the leading mixer in a market which still remains in its infancy, our core need is to activate the brand in the on-trade, a hallmark of the Fever-Tree success story, and it's fundamental to the brand's positioning in this influential community.

Southern Glazer's approached us as they saw significant potential for a national exclusive mixer partnership where Fever-Tree can complement their full portfolio of spirits brands across multiple categories. Southern Glazer's is the largest single wines and spirits distributor in the US with over $18 billion in annual turnover. They represent the majority of the largest spirits company, most notably Bacardi, Patron, Diageo, Moen Hennessy, Pernod Ricoh to name but a few.

We are already working with them in 15 states around the country. As part of our agreement we have added a further 14 to the deal, most notably Texas and Florida. Texas and Florida are traditionally the numbers two and three states nationally for spirits consumption after California.

This partnership not only brings significant scale and investments, but also enables the execution of all major spirits partnerships in the on-trade as well as liquor stores on a national and local level.

So to summarize, in starting Fever-Tree USA we've integrated all the strengths of the network previously created, look to enhance these in every way possible. We work with McKinsey to create a blueprint and feel that we've created a uniquely tailored solution and optimum network, all of which are best suited to take the brand to the next level.

There are three key features of this. One is our ability to negotiate and manage the national accounts directly in both on- and off-trade. Secondly, the ability to create the ideal route-to-market per customer type, maximizing our distribution efficiency as well as enhancing our margins wherever possible.

And finally, creating an anchor wines and spirits network to broaden our on-trade presence, support our core marketing platforms enabling us to lead and influence the key bartenders and taste makers as well as partnering effectively with spirits brands, therefore driving the future of the simple premium long mixed drink in the US.

I'm going to hand back to Tim who is going to talk through the long mixed drink in more detail.

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [4]

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Very good. Thank you Charles. So, over the page, evolution of drinking habits. I talk in today's statement about 2018 being one of the most significant years for Fever-Tree since it was established. And that's not only because of our sales performance but because it's been a year that we've seen real evidence of the spirit companies evolving their serve strategies to meet the changing demands and drinking habits of consumers.

Globally over the past 10 years premium spirits growth has consistently outpaced non-premium. And this trend has accelerated in recent years with premium growing at now 11% globally where non-premium is in decline. And the reason is spirits deliver the authenticity, the engagement and the choice that consumers are increasingly looking for. Nowhere is that better evidenced by the emergence of craft distillers.

If you take the US, when we started Fever-Tree back in 2005 there were 50 registered craft distillers. At the end of last year in the US there are 1,800 registered craft distillers. This explosion is enormous and not slowing down. And so, the result of this, as you'll see from the following slide, is that all of these factors are resulting in the spirit share of throat accelerating in the last two years as it steals share from beer.

And as you can see from some of the headlines attached, there is suffering as it never has before. There's a fundamental problem in responding to these changing dynamics. Its reputation for carbs and calories and its inability to suit these new drinking occasions is causing them an issue, but spirits is as a result gaining share.

And this, I have to say, despite these headlines, this is not restricted to the US. It is a development that we are seeing beginning to emerge in many regions around the world. And despite these very positive trends, there have been barriers that have held premium spirits back from much wider adoption and that has been the serve strategies.

The picture here, shots, no longer cool. They don't align with health and wellness culture that is developing fast among younger consumers. Neat and over ice, this is a consumption that is dying. The trend is dying out as, I have to say, are quite literally the people that are consuming them that way.

And complex cocktails, there's been a huge amount of investment from the spirit companies themselves in driving the complex cocktails. But frankly, this is a trend that has struggled to go beyond the niche in the on-trade as these complex serves really require highly trained bar staff and are hard to replicate in any volume at any scale. And in the off-trade they've proven even harder to adopt.

The statistic that we came across that shows that actually just trying to get someone to make a cocktail at home using a third ingredient, the likelihood of them making that cocktail disappears by 95%. So, as a result, it leaves spirits to gather dust at the back of the drinks cabinet.

So what is the solution? The solution is the simple premium long mixed drink. The advent of the well-crafted premium mixer allows premium spirits to confidently promote serving their products simply and in a long refreshing manner, much more suited to today's consumer.

Further, as they require no bartender training, they can be rolled out at scale in the on-trade, but crucially also easily replicated at home. And due to the increasing variety of spirits and mixer flavor combinations and the use of unique glassware and garnishes, it still allows for the all-important theater and engagement in the on-trade.

It also allows for healthier choices, giving consumers more options for longer, lighter drinks with lower ABV. And as has been seen by the rise of the vodka and soda and the spritz serve. But perhaps most importantly, it allows spirits to extend into multiple new occasions which were typically the preserve of beer and wine. And this is whether it is lunch time, whether it is alfresco drinking, whether it is after work, even sporting events thus drawing in a much wider audience.

So, for this reason the simple long mixed drink is becoming central to the serve strategies of the major spirit brands -- big and small I might add. Whether it is Irish whiskey, whether it is Scotch whiskey, whether it is gin, whether it is vodka, whether it is tequila, even Jägermeister -- they are all turning their attention to driving their spirits in this simple manner.

And what is incredibly exciting, clearly, is that Fever-Tree sits at the absolute heart of this fast-growing global movement. No one else is better placed to benefit from and drive this trend forward. No one else has the same international footprint, tools, range, global brand recognition or, indeed, relationships with the spirit brands that we do.

The result being, as you can see by the next slide, that Fever-Tree is transforming the dynamics of the mixer category from mainstream to premium. Most starkly, as the graph shows on the left in the UK, but we've seen similar [racket] premiumization in other markets. We have highlighted Belgium in the past, but if you look at the graph of Denmark you'll see a similar trajectory where Fever-Tree is moving from 20% value share in 2016 to 35% by the end of last year.

But if you go over the page, what is most encouraging is we are seeing similar signs across multiple countries across the globe -- particularly in Europe with the likes of Austria, Ireland, Scandinavia, but as far afield as Australia and even we're seeing the same trend emerge in the tonic category in the US.

So, while we're not saying they will all see similar rates of premiumization, it is very clear that this trend is emerging and emerging fast. And one that provides us with excitement and conversation about the global opportunity ahead.

So, in very short conclusion, as you've heard us say a number of times, 2018 was clearly a significant year for the business as well as the performance in the UK which saw Fever-Tree strengthen its position as a leading mix brand in the off-trade. We successfully established our own operations in the US, and the business made real progress in deepening and widening its presence in multiple regions.

As the world's leading premier mix brand with a strengthening global distribution network we are well set to drive the international opportunity as the move towards this long mixed drink continues to gather momentum around the world. So, with that in mind, thank you very much for listening. And obviously delighted to take any questions. And with that in mind I think --

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Questions and Answers

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Chris Wickham, Equity Development - Analyst [1]

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Hi. It is Chris Wickham from Equity Development. First of all, congratulations on another amazing year. I just wanted to really touch on two things that come in really where you were talking about, Tim, about association with alcohol.

Number one, in the US, and I was really thinking about availability of product, because I slightly infer that the premium product is more likely to get shelf space if that same outlet is selling alcoholic drinks. So, you might go in a supermarket and you'll always get very mainstream tonic and mixer brands.

But if you go into an outlet that's maybe more like a deli that's selling some booze you're more likely then to see the Fever-Tree. And I was wondering where that association and also just simply that complex relationship that Americans have with alcohol and the complexity of their system and what barrier that is to a drink that is obviously non-alcoholic but associated with alcohol.

And then secondly, I'm just interested where craft goes. I mean you're right, obviously craft gin is exploding. What is the likelihood this association will be in craft with your product? I go to the spirit show, everybody who's showcasing a premium spirit is getting me to drink it with your product.

But then when I look at things like Craft Gin Club, they are sending out a craft bottle of gin every month, but it is always a different tonic. It is sometimes yours, it's sometimes other peoples. What is the guarantee that you're likely to get that business as people go craft they will always be wanting to pair it with one of yours?

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [2]

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I will answer the first question first and then pass it to Charles for the US. Look, quite simply, as we've seen in the UK and as we're seeing in Europe and now we're seeing in the US, the great thing about this explosion in craft is that they are all pushing the premium drinking message. And as we are saying, they are increasingly pushing the long mixed drink message.

And so, the premium end of the category gets swept up in that. And as you rightly point out, more often than not it is Fever-Tree that gets promoted alongside it. The product that you mentioned -- Chris, what was that? Your gin --?

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Chris Wickham, Equity Development - Analyst [3]

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It was about Craft Gin Club (inaudible) subscribe and you get a bottle of Craft Gin every month. Sometimes it has been yours (inaudible) feature a tonic, but quite often it is (multiple speakers).

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [4]

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Quite, but I mean their whole business model is trying to show you variety. So, that's the nature of what they are doing. But if you go to the gin and tonic shows up and down the country, as indeed if you go to the craft distillers, the vast majority of these are pushing Fever-Tree. But crucially they are all pushing the premium message, so we couldn't be more supportive of this craft movement.

When you just think about that, in the US from 50 distillers to 1,800 all with their own energies and efforts and marketing budgets pushing this message, that is an enormous wave. And that is what has been at the heart of driving this gin and tonic movement here in the UK and Europe so rapidly. So, this is what's so exciting, the way this is really developing right across the world. So, a great stimulant for Fever-Tree is the short answer.

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Charles Gibb, Fever-Tree Drinks plc - North America CEO [5]

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On the point on the US I'd make three points. Firstly, this is why having an anchor distribution network with wines and spirits distributors at the core is fundamental going forward. Because the on-trade and the ability to influence and access the on-trade is key to our success and is key to getting those influential taste makers, bartenders, etc., endorsing the brand.

Similarly in liquor stores, you are absolutely right. Our ability to co-merchandise with a spirits brand, our ability to put Fever-Tree on shelf or in a display next to spirits really associates the simple drinking occasion, the simple mixed long drink occasion at home. So, this is why we worked with Southern Glazer's to establish this big partnership.

And then alongside that, we are then able to then go and talk to Bacardi or Diageo or Pernod or Campari and look at ways in which we can partner with their brands, which is a win-win. It is a win for them and it is a win for us. When we merchandise with them their sales go up, our sales go up. So, this is -- it's a beautiful relationship because the retailer wins, the distributor wins, both suppliers win and the consumer above all wins because they get a delicious drink at home.

So, having that as our anchor network is really important. However, you are right. There are still 17 states in the country where the sale of alcohol is still controlled by the state government. In the State of New York, which is very complex, we're not allowed to be sold in liquor stores, so we can't actually work with a wines and spirits distributor, so we have to find alternative routes to market.

But I'm very optimistic in those places and also in all the states in the grocery channel because the American consumer is always looking to premiumize. They premiumize on every occasion. If you just look at water and then you look at the rise of coconut water and all these different styles that have come out, you look at the juice market, you look at any of these other markets, the American consumer is very -- has a propensity to premiumize. They love to brand.

You walk into a bar in the US and people order their drinks by name. They don't say I'll have a gin and tonic. They will order their gin and our goal is to make sure they are ordering their tonic as well because they will insist on those things and they take great pride in that.

So, I think it is complex; that's why our route-to-market isn't as simple as a wines and spirits company. And it's not as simple as a Pepsi or a Coke who can sort of carpet bomb and go in there and essentially go into every single place. We've actually got to be very selective about who we partner with, where we partner and then the activations that we put alongside that.

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Chris Wickham, Equity Development - Analyst [6]

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Sorry to follow up, but I was just thinking like where you've got so many stores, where you've got so many supermarkets which are not selling any form of alcoholic beverage and they've got a very large footprint and a very large market share. Isn't that quite a challenge then to knock the incumbents out given you're not actually -- there isn't any sort of supported liquor or alcohol offering in that place?

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Charles Gibb, Fever-Tree Drinks plc - North America CEO [7]

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I think 100%, but the American consumer is used to buying their tonic water, their ginger beer and their ginger ale in those environments. In the state of New York I can't buy them in a liquor store, so I have to go there. So again, that's about placing them in the store, that's about the adjacencies and that's about them activating the brand in those stores.

That added to the complexity of these significant number of independent or semi-independent regional chains, local chains, means there's an awful lot more people we've got to contact and communicate with to secure distribution, to get placement, to get promotions going.

But the overall argument for those guys -- and again, this is where the story very much mirrors itself, is margin. At the moment they are selling lots Schweppes and Canada Dry and low-end ginger beer and not making much margin on it. Suddenly they can start selling Fever-Tree and be making a phenomenal margin on it.

So, they are very happy to embrace change. And again, coming from meetings recently with some of the major national retail chains, they are delighted with Fever-Tree because it's breathing margin back into their business. And they are looking at ways of how do we promote more together? How can we create some of these associations?

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Richard Felton, Morgan Stanley - Analyst [8]

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Richard Felton from Morgan Stanley. Thanks very much for the presentation and, Charles, it was great to hear some more about the strategy in the US business. On the US, you mentioned the -- you talked about the Southern Wine and Spirits agreement and you mentioned the transition states where you already had some agreements before August 1. Can you provide a little bit more detail about how the relationship has evolved pre and post the signing of the exclusive agreements?

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Charles Gibb, Fever-Tree Drinks plc - North America CEO [9]

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Sure. We were present inside the distributor. I will take California as a market or take Vegas is another one. We were present with Southern Glazer's in those markets. What we are now able to do -- we were present and we were being sold. But I wouldn't necessarily say we were being sold with active KPIs with specific goals and objectives and without them investing their own money into the brand -- certainly not in a significant way.

So, all those things have changed. We've been able to go in and do trainings, we've been able to go in and secure investment from them. We've been able to go in and secure focus from them that we were not getting in the past. So, that's been a big change and some of the new states -- I'll take the market of Florida or Texas, which are the two key ones, we didn't have a distributor in Texas for wines and spirits stores.

We were actually doing all that business direct, but it was be delivered out of New Jersey. So now we've now got three, essentially, warehouses full of our product in Dallas, Houston, San Antonio, which gives us access to the local market, ensures better merchandising, less out-of-stocks, more visibility on the shelf, etc., etc., etc.

That's a couple of the ways we've been able -- and of course one of the big, big ways we were able to do it was with Patron. I'll give you that as an example. There's a brand that is exclusively with Southern Glazer's Wine & Spirits and we've launched a tonic water that pairs beautifully with Patron. We were able to go in and secure new listings, go and have different conversations with the buyers at places like BevMo! in California and secure new distribution as a result of that.

However, this is an ongoing process and Southern Glazer's, as any distributor, you have to be working with them all the time coming up with new plans, new ideas. But the unique positioning that we've got is that we are working with Bacardi one day, Diageo another day, Jameson's the next day, looking at different brands and different themes to be able to work with them year round across their full portfolio.

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Richard Felton, Morgan Stanley - Analyst [10]

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Sorry, one follow-up. Can you also just remind us what the price point that the on-trade pay for Fever-Tree product is in the US compared to the UK for example? I appreciate it might vary a little bit, but just in general terms. Is it similar or is it a slightly higher price point?

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [11]

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Do you mean in terms of our sell-in into the on-trade?

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Richard Felton, Morgan Stanley - Analyst [12]

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Yes, your sell-in to the on-trade.

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [13]

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It is a slightly elevated price point from the UK standard pricing. We don't typically go into that much detail though.

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Nicola Mallard, Investec - Analyst [14]

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Nicola Mallard, Investec. Europe seems to have come sort of not racing up the agenda but certainly more focused. Can you give us a bit more detail? We look at it as one [analogous] unit obviously in terms of the numbers. But how many separate countries are you in? What's the distribution like within those countries given there's some chance for market share?

But we know that Spain and Belgium you've always talked about historically are big. But what are the other ones coming through and how do they compare now to the big units that we -- Spain and Belgium for example?

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [15]

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Well, Nicola, as you know, we don't get into the specific detail country by country, but it's really fair to say that, as I sort of called out, we are seeing very strong and significant growth now in places like Ireland, places like Germany, places like Italy, the Nordics as a group are coming forward and growing quickly.

And I think it is well evidenced really by those graphs showing we are really starting to gain notable market share. And as a whole across Continental Europe are by far the leading in the premium -- leader in the premium mixer category.

So, the really encouraging thing, without getting into the physical numbers behind it, is we are seeing this gin and tonic rise, we are seeing this mixed drink rise across Europe and we are very well positioned at the heart of it. So, that's why we are calling it out.

Although the truth is we've also -- we're being conscious that it's been rather overlooked in our commentary to date. We've always talked about it and it's always been growing well, but it just hasn't had the sort of center of attention that I think that we think it deserves.

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Charlie Higgs, Redburn - Analyst [16]

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Good morning. Charlie Higgs, Redburn. Firstly on Europe, thank you for the extra detail, it's very useful. Just talking specifically about Spain. Could you give maybe a bit more color how the year went there and maybe an update on the DAM distribution deal?

And then secondly, just thinking about US strategy going forwards, I noted the other day the launch of the three new gingers, very exciting. Is that indicative that we are going to be targeting brown spirits mainly going forwards? Or could you give an update maybe on white spirits and gins in particular?

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [17]

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Well look, in Spain we had a good year. We grew at over 20% in the market and we are very pleased with our new distribution partner, DAM. I had a meeting with them at the end of last year and they are talking very confidently of the size of the market and the opportunity that lies ahead.

With regards to our focus on gingers, there is no question in our minds that we see medium- to long-term enormous potential with dark spirits. It is globally 10 times the size of the gin category, the dark spirit category. And what we show with a few of those pictures in the presentation is the fact that the big dark spirit companies are all waking up to the fact that the way to recruit and drive their whiskey and dark spirit sales is by promoting it as a simple mixed drink.

So, as we've said now a couple times in this presentation, find ourselves at the heart of their serve strategy plans. And so, that's why we continue to develop the range that we have to go with these dark spirits. And we will continue to develop the range out across other dark spirit mixable products going forward. It has got huge potential.

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Nico von Stackelberg, Liberum - Analyst [18]

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Nico von Stackelberg, Liberum. I was just wondering when you are going up against the gun in the US, do you know roughly how successful you are as sort of a win rate?

Secondly, for rest of world, could you give some stats around how big you think this could be? Typically you sort of reflect that by a competitor like Bacardi or what have you. So, if you could just get some color around manner. As a side note, I was in Colombia and I saw you everywhere there. And that was quite surprising for me given that you don't even call it out.

Finally, you had a slide on the 3.2 -- I think it was GBP3.2 billion -- something for 2022 or 2023. It wasn't in the slides. Could you just update us on that and where we stand? Have you had any changes to your medium- to longer-term outlook? Thanks.

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [19]

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Do you want to tackle (multiple speakers)?

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Charles Gibb, Fever-Tree Drinks plc - North America CEO [20]

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Should not be talking about guns. The NRA will be on to me. The gun has been at the forefront obviously in America for many, many years. We are starting, we are still -- as a company we are only nine months old. But I think the things that you are seeing against the gun are the following.

Firstly, the premium drink -- again, goes back to Americans care about premium drinking and premium drinking experiences. Bartenders don't like working with guns. They don't like it because they've crafted this beautiful cocktail and then they're about to pour some horrible syrups in there and it destroys their drink.

So, the movement is starting very much at the top. You're already seeing new places opening where there are no guns at all, where they are opening and they're saying, no, we are only going to serve premium mixers. So, that certainly happens.

Secondly, I'm not saying we have to embrace the gun, but again, you've got your well vodka and you've got your well gun tonic. Premiumizing the experience takes you to a Bombay or takes you to a Tanqueray or takes you to a Sipsmith with a good tonic.

And again, this is where Fever-Tree on the menu and having Fever-Tree on the menu versus a standard, say, vodka and tonic or gin and tonic, elevating that serve not only gives the bartender greater pride in their work, but more importantly can make the venue more money. They will charge a premium, and Americans are very happy to charge a premium for a premium drinking experience.

So, a $15 cocktail that maybe $10 normally on the menu, or $10 to $12 or $12 to $15, you absolutely see that happening. As soon as you order the premium spirit and premium mixer, absolutely you charge more. So, there is a sound rationale there. Are we having success? Yes, we are, but we are very much in the early days and this is a very long-term strategy to get change happening in that environment.

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [21]

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There's no question, as Charles and I discussed many times, when this builds up ahead of steam change will happen very quickly. And we are pretty confident in that. But what we can't do is tell you when that's going to be. But it's obvious, just as we've seen here is that when people start to think about the importance of the mixer they are not going to put up with a gun. It's as simple as that. And the gun providers are well aware of that as well.

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Andy Branchflower, Fever-Tree Drinks plc - CFO [22]

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To answer your other question about the market size and opportunity, the last time at interims I think we were just looking to update what we had originally always presented. When we IPO'd, EY did a study on what the opportunity could be. And we thought it was time to have another look at that.

And so, we were presenting the fact that the mix category currently is about a $10 billion global category and it's about 10% premium at the moment. And we were running a scenario, probably for the medium-term, that just was illustrating that if you get to 25%-30% premium in that medium-term you can get to a 3 billion opportunity for the premium mix category globally.

Then we are just illustrating the point that there's a long way to go. When you look at where that white space is, Europe/US absolutely in the more immediate term. And when you talk about the rest of the world countries that fall into that bracket first at the moment you've got places like Canada and Australia where you've already got quite Western their drinking habits where there is considerable opportunity.

I mean Canada -- Charles, correct me if I'm wrong -- but sort of a back of the [fact] packet approximation might be that it could be 10% of the US. That's sort of a typical approximation. Australia significant mix category there and we're very excited about how we are progressing to the extent to which we are driving growth in the mix category there.

I think then you get on to LatAm and Asia-Pacific where we'd say they're considerable opportunities but much more in the medium- to long-term. And so, we wouldn't be necessarily calling those out in the next couple of years.

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Ed Mundy, Jefferies LLC - Analyst [23]

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Good morning, everyone. Ed Mundy from Jefferies. I've got three questions. The first is on the UK, where you are flagging continued opportunities for on-trade distribution. I think you're in 35 of 65. Can you talk about maybe the geographies that you are still aiming to go after and a bit more color on how you're going to go after that?

The second is on the US and there's an interesting slide here just on the growth of the vodka sodas. Could you talk about how you balance on the one hand the far better quality product that you have versus the perception of sugar within tonics to soda?

And then the third one, Andy, just on margins. You've done a very good job on getting the operating leverage to pay for the investment. Can you talk about the margin outlook and can you sustain that model of continuing to drive growth yet not having to eat into margin?

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [24]

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On the first one about the UK on-trade is that -- the truth is we're not changing anything. We're going through all the channels that we currently go through, but we've just got the ability to resource them more. That's in terms of salespeople, that's in terms of our wholesale network.

We are using now over 100 wholesalers. And as the demand for Fever-Tree grows and grows and grows, they are putting us front and center of their plans and strategy. So, that is widening our on-trade base. And so, that is how we are going to continue to focus on the next 35,000.

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Ed Mundy, Jefferies LLC - Analyst [25]

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Is there any sort of geographic (multiple speakers)?

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [26]

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Not specifically, but we are widening across the country.

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Charles Gibb, Fever-Tree Drinks plc - North America CEO [27]

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On the vodka soda phenomenon in the US, firstly we play in that category. We have a fantastic club soda that was recently awarded Liquor.com's best club soda for mixing with alcohol and particularly for the vodka soda. But that, frankly, applies across a number of spirit categories, not just vodka, but again tequila, whiskeys, obviously Japanese whiskeys and highballs. All that has been driving a lot of growth.

You're -- so, absolutely we play in that space and absolutely that's a part of the focus of the team. In the US we talk about our core four products being ginger beer, ginger ale, tonic and club soda. And club soda is very much in that mix.

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [28]

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With innovation plans --.

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Charles Gibb, Fever-Tree Drinks plc - North America CEO [29]

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And more innovation coming in that space, because the simple clean long mixed drink -- premium long mixed drink is absolutely what the consumer is after.

I think secondarily, our refreshingly light range offering obviously lower sugar, reduced sugar options means that you can actually have a delicious drink with significantly reduced calories. And whilst the brand grew last year at 24%, the refreshingly light range really was activated in ginger beer and that's why we are just launching the ginger ale for the first time.

And so, we are seeing those growing at 30%-plus at the moment, which is the lighter range. And those apply both probably more at home, but equally in the on-trade as well. So, we see opportunity there for sure.

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Ed Mundy, Jefferies LLC - Analyst [30]

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It is not an impediment (multiple speakers)?

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Charles Gibb, Fever-Tree Drinks plc - North America CEO [31]

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No, consuming alcohol is a guilty pleasure. So, at the end of the day, consumers accept a certain amount of calories with their alcohol. And having come from the vodka side of the business, there are 65 calories in a glass of vodka and there are 65 calories in most spirits, unless you're getting into heavily sweetened flavored vodkas or whatever.

But there are 65 calories in there already. You add a light Fever-Tree and you're still below 100 calories for a drink. So absolutely, I think we can see -- we can see opportunity in there and absolutely that will drive some of the future innovations for the brand in the US.

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Andy Branchflower, Fever-Tree Drinks plc - CFO [32]

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On the margin question, Ed, I mean, yes, I think we've always said medium- to long-term we think we can protect a sort of 30% EBITDA margin, which would allow for probably around 20% of our [back] spend. We do expect that weighting to probably continue towards marketing away from other areas. That's where the gearing will go.

But that aside, particularly as we look to Europe and the US, if there are short-term opportunities to boost investment, the way we're doing it at the moment we absolutely believe is the correct way to do it, as Charles described building through the on-trade platform, which is actually quite a cost-effective way to do things as well.

If the opportunity comes on we will take it. It's one of the reasons we are holding cash on the balance sheet. So, in the short-term we might boost that investment. But longer-term absolutely we believe we can protect 30% EBITDA margin.

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Ned Hammond, Berenberg - Analyst [33]

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Ned Hammond from Berenberg, just a couple from me, please. You mentioned having employees in-country in Europe. I was just wondering whether that is with a view to potentially operate in those countries yourself at some point in the future. And then secondly, again, you mentioned bottlers in the US. Wondering whether you give any more detail on the potential timing of moving [when it comes to] manufacturing there.

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [34]

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Firstly, and very simple on Europe, no plans to change our business model; it is working very effectively for us. All we are doing is supporting it with more resource. So no is the short answer.

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Andy Branchflower, Fever-Tree Drinks plc - CFO [35]

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And on bottling timings, we know the landscape very well. We've identified partners. We don't believe we are going to bottle in the US this year, but 2020 and beyond, as we said, we've got a pretty flexible production outsource model. There's going to be some volume flow into Europe this year.

We want to retain the capacity we've currently got going through the UK at the moment so we can make it in the UK for the US. But clearly as the territory grows and in the medium- to longer-term it will be underpinned by local bottling.

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Unidentified Analyst [36]

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I was just wondering if you've seen the competitive dynamics change in each of your regions. I'm guessing with -- like you are talking about in Europe, the mix opportunities becoming much more obvious and I'm guessing other people will have noticed that. For example, Suntory in their recent conference call talked about stepping up marketing for Schweppes in the on-trade. So, have you seen any changes to competitive dynamics there?

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [37]

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I just think, as I referenced in the presentation, overall we, despite the fact there has been a lot of competition, I think at the last count, I think I've said this before, that we've had over 100 me too copycat competitors come to this category since we started. We've now grown further ahead of them than ever before.

At last count we think we were about 30 times the size of our nearest competitor. A couple years ago it was more like 15 times the size. So sure, there are more competitors coming, but we are growing well ahead of them on a global level.

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Unidentified Company Representative [38]

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Thanks very much, everyone, for coming, for listening.

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [39]

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Thank you, everyone.