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Edited Transcript of FEVR.L earnings conference call or presentation 23-Jul-19 10:10am GMT

Half Year 2019 Fevertree Drinks PLC Earnings Presentation

LONDON Sep 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Fevertree Drinks PLC earnings conference call or presentation Tuesday, July 23, 2019 at 10:10:00am 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

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Conference Call Participants

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* Richard Felton

Morgan Stanley - Analyst

* Ed Mundy

Jefferies LLC - Analyst

* Nicola Mallard

Investec - Analyst

* Charlie Higgs

Redburn - Analyst

* Damian Mcneela

Numis - Analyst

* Nico von Stackelberg

Liberum - Analyst

* Jemima Benstead

Citi - Analyst

* Juliana Russo

HSBC - Analyst

* Emma Letheren

RBC Capital - Analyst

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Presentation

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

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Thank you all for coming This morning. I'm joined by a couple familiar faces -- Andy Branchflower, our CFO, and Ollie Winters, Head of IR. Just to note that actually today's meeting is being recorded. So, when it comes to questions, if you wouldn't mind waiting for the microphone, and state your name, that would be extremely helpful.

So, turning to slide 1, we are encouraged with the results and performance over the first six months of 2019. It has been a positive half for the Group with all our regions seeing continued growth despite lapping some exceptional comparators. The Group delivered revenue of GBP117.3 million, which represents growth of 13% with promising momentum continuing to build in the US.

Our global footprint is becoming increasingly diversified and we continue to invest across all our regions, particularly the US and Europe, resulting in EBIT of GBP36.7 million, up 8%.

So moving down the P&L, our EPS was up 7% to GBP24.3 pence, and our balance sheet has further strengthened, finishing the period with GBP104 million of net cash. And given the Board's confidence and outlook for 2019 and beyond, we will be paying an interim dividend of GBP0.052 per share, which is 23% up on last year.

So, if we look at the regions in a little more detail starting with the UK, while clearly we've not been immune to the impact of the unseasonably poor weather in the UK in the last quarter, we still delivered positive growth of 5%. We further strengthened our market leadership position and now hold 45% value share in the on-trade and 39% in the off-trade.

This is clearly an extremely strong position, particularly bearing in mind the enormous amount of focus and competition that this category has attracted over the last 10 years. We've continued to gain distribution across the off-trade where we are very well penetrated, and win new accounts in the on-trade with the first half seeing us add another 5,000 accounts, taking us to 40,000 on-trade outlets.

We also continue to outperform the competition, not only in the off-trade where we contributed GBP45 million in terms of till sales in the first half, which is 45 times that of our nearest premium competitor. But also the on-trade where -- who've been responsible for nearly 80% of the growth in the category over the past year.

So, looking ahead we remain very well positioned in what is our largest market. The move to long mix drinks is gathering momentum, and our portfolio of flavors, our reputational relationships with the trade and spirit partners, and our innovation pipeline means we are confident in our ability to deliver growth going forward.

So, moving on to the US, it's been a very positive half which we saw growth of 31%. We've continued to build out the team and the distribution network. The latest step has been the appointment of Union Beer as a new distributor in New York. We are winning distribution across both the on- and off-trade.

Our on-trade footprint has gone from 15,000 to 19,000 accounts, including a number of new national hotel and restaurant chains, reflecting the impact of the fast start initiative that we kicked off with Southern Glazer's Wine & Spirits. And in the off-trade we've seen a significant step-up in national distribution as the wins we secured in the last quarter of 2018 have begun to land in store. This includes an additional 3,000 Walmart stores, 750 Kroger stores, 600 Safeway stores, as well as increasing our range on shelf in 2,000 Target stores.

Alongside this, we continue to build out our regional footprint with the likes of Publix in the Southeast. In total we've increased our footprint to 14,000 from 9,500 stores. We've also continued to up weight our marketing investment and are working ever closer with spirit partners and customers be it through value-added packs, events, partnerships, menus, display racks -- all reflecting the increasing interest in long mix drinks.

Fever-Tree is the number one premium mixer in what is the most significant mixer category in the world. And while the category itself remains relatively underdeveloped as with the wider spirits category, there is strong growth coming from the premium end with Fever-Tree driving over half this growth -- a fact that is not lost on our on- and off-trade partners.

So, in summary, we've been very pleased with the 12 months since FT USA was established. We are delivering against our strategy in the region and continue to invest and build a very strong platform for future success. We have a great team in place and the brand is building an awareness and recognition with both consumers and the trade.

We've established a strong national anchor distribution network across the on-trade and are building our off-trade footprint. So, for all of these reasons we are increasingly confident about the opportunity to deliver strong, steady growth over the medium- to long-term in this region.

Turning to Europe, the region saw revenue growth of 13% and, as has been the case in previous years, the rate of growth reflects phasing of sell-in with our importers' sales across the region running significantly ahead of our reported growth rate. And therefore we are confident seeing acceleration in the rate of growth in the second half.

Europe presents a significant and growing opportunity with the Group where the mixer category a similar size to that of the US. And we continue to make significant distribution strides across this all-important region, including the likes of Carrefour and Monoprix in France and now a national retail agreement with [Raver] in Germany, which will commence in the second half. So we estimate that we are in around 25,000 outlets out of a universe of 50,000 relevant accounts.

We are also very encouraged by growing market share across multiple markets such as Benelux, Denmark, Ireland, Italy, Spain and Germany. And our market-leading position and distribution footprint we have established gives us a clear advantage over our premium competitors.

Alongside this the wider trends remain very favorable with premium spirits remaining in strong growth. And while Jim continues to lead the charge with a long runway ahead, we're also seeing increasing opportunities for co-promotional activities across our wider mixer range reflecting the breadth of opportunities in this region.

And then finally on the regional review, the rest of the world. The group has delivered sales growth of 49% with the region now representing 7% of the overall sales mix. Australia and Canada being the most significant contributors and have both seem an acceleration in their growth during the period.

We now have 23% share of the tonic category in each of these markets and we are driving over two-thirds of the category growth, a further reflection of the global impact the Fever-Tree brand is having. We've notably increased our personnel resource adding dedicated senior managers in Australia and Canada. But we've also recently appointed an experienced regional director for Asia, a reflection of the significant potential we see within this region over the medium- to longer-term.

So in summary, notwithstanding the impact of tough comparisons in the UK towards the end of the period, there has been a positive half of year for the Group. As I said at the beginning, we are growing across all our four regions. We are firmly established as the number one mixer brand across both channels in the UK and continue to see opportunities for further growth.

We've delivered very encouraging operational progress and distribution gains in the US and will continue to build the team and investor hedge to reflect the size of the opportunity in this market. And our key European markets are showing good momentum and we remain at the forefront of the premium mixer movement across the region.

And finally, the rest of the world continues to perform strongly, and we are building our teams to ensure we take advantage of the opportunities ahead of us in the short-, medium- and longer-term. So, with that in mind, Andy.

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

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Thanks, Tim. So, looking at the P&L, top-line growth of 13% translates to revenue of GBP117.3 million GBP117.3 million and an EBITDA of GBP36.7 million, which is up 8% year-on-year. If we move further down the P&L, our diluted EPS is up 7% and we are paying an interim dividend of 5.2 pence per share, which is up 23% on last year reflecting the confidence we have in the full-year out turn.

If we look a little closer at the gross profit movement, there's a like-for-like analysis here where we consider the impact of the sugar tax pass-through. So, we are over a year on now from the introduction of the levy and our decision not to reformulate but to offer choice to consumers of a regular or a light variant has been very well received.

You'll remember we passed through the sugar tax on our regular products. That has no impact on our cash margin but does dilute our percentage gross margin. We've just completed a period which has included a full six months of the sugar tax and we are comparing to a period in the prior year which only included three months of the sugar tax. So, here we remove that impact and you see normalizing for that our reported gross profit margin improves to 52.3%.

We've also had some net FX benefits, though, in the first half. This is driven by a strengthening dollar. And here in a like-for-like analysis we removed that impact and we see our underlying gross profit margin retract back to 52%. So, in effect FX and sugar tax have neutralized each other in the first half.

In the same way we've seen some elevated storage costs in the first half. These have been largely offset by the release of a portion of our returnable bottle deposit provision in Germany, which we assessed following the change to an agency model with our German distributor.

This change in model reflects an evolution of our route-to-market approach in Europe. It brings us closer to an increasingly interesting market. And will also give us the opportunity to optimize the margins we make there as we scale in future.

So look, whilst there's been a number of moving parts impacting gross margin, we are left with the impact of UK glass costs which have increased year-on-year and that's driven much of the year-on-year retraction. Fundamentally though the reported margin of 51.9% is in line with where we ended the full year 2018. It is in line with where we expect it to be at the half-year. And we expect a small amount of further retraction in the second half due to the promotional phasing we tend to see towards Christmas.

If we move down to OpEx, our level of spend has stayed consistent at 20.6% of revenue. Our outsourced business model drives efficiencies on our central overheads as we scale, but we continue to reinvest these efficiencies. Our Group marketing spend has increased to 10.4% of revenue and this is driven by notable increases in our European and our US marketing budgets. Our staff costs have also increased reflecting additional headcount, again, in our US our European and, as Tim just mentioned, our rest of world regions.

There is a significant global opportunity ahead of us and we will continue to increase our investment in these areas. When appropriate we may also choose to accelerate the investment further in our growth regions. And one of the things that will allow us to do just that is our strong balance sheet.

We are holding now GBP104 million of cash following very strong cash conversion in the first half of 106%. This cash asset and a business model that provides for strong ongoing cash generation allows us to increase investment when necessary. It allows us to be agile to take advantage of opportunities, local, global opportunities, above the line distribution, co-promotional campaigns -- is something many of our local premium mixer competitors around the world just simply are not in a position to do and it gives us another great competitive advantage.

On the operational side we continue to build out our footprint. We've made progress identifying a US bottling partner. We brought online a UK canner in the first half as well as a fourth European bottling partner. They are based in Northern Europe and they further increase our capacity to bottle locally in Europe giving us further flexibility and an ability to adapt to and mitigate any potential impacts of the UK's exit from the EU.

So to summarize, we continue as a business to deliver strong margins, but at the same time those margins are accommodating increasing levels of investment in our growth regions. Our cash position is strong and it gives us a platform that will fuel the global growth opportunity ahead. Back to you, Tim.

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [3]

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So, as I know we talked about at some length in March, the significant long-term trends of spirit premiumization and the evolution of drinking habits are combining to drive the move to this simple long mix drink. And frankly allowing premium spirits to extend into multiple new occasions that were typically the preserve of beer in wind.

Hence for this reason the simple long mix drink is becoming central to the serve strategies of major spirit brands like never before. The last few months have seen myself and many of the Fever-Tree team continue to broaden our relationships with spirit companies both large and small across all our regions.

This has involved touring some of Diageo's whiskey distilleries in Scotland, trips to Dublin with Pernod, the Jameson distilleries, meeting with Bacardi's, (inaudible) team, multiple gin distillery visits as well as interesting meetings with local spirit producers such as is pictured here, the Copenhagen aquavit distillery.

And alongside this we've undertaken well over 300 co-promotion activities across the globe from vodka to whiskey from white port to vermouth and to even Jägermeister. These , conversations, relationships and activations have only gone to reinforce our belief in the long-term opportunity for Fever-Tree, not just within tonic, which of course remains an important part of our future, but also across the rest of our portfolio.

Because we are the number one and only global mix company we are uniquely positioned to partner with the spirit houses and drive this long-term trend towards this premium long mix drink.

So in summary, it's been an encouraging half for the Group with growth across all four regions, most notably in the US where we've made significant distribution gains and operational progress. While we've not been immune to the impact of the unseasonably poor weather in the UK, we've further strengthened our market leadership position within the UK and are seeing positive momentum in Europe and the rest of the world, reflecting our increasingly global footprint.

So, thank you for listening and, of course, we'll be delighted to take any questions.

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Questions and Answers

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Richard Felton, Morgan Stanley - Analyst [1]

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Richard Felton from Morgan Stanley. Two questions from me, please. So, first of all, in the UK there was clearly a moderation in H1, partly weather-related. Could you share any commentary on what your expectations are heading into H2 and whether we should see an acceleration in the [events] we had in H1?

And then secondly on Europe, you mentioned that you had some phasing in (inaudible) reported growth was slightly slower and you said depletions are running significantly ahead of that. I was wondering if you could possibly quantify that and also share some comments on your expectations into the second half. Thank you.

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

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Yes, so firstly on the UK, I think Tim talked to the fact that we expected our growth rates to moderate this year off a very strong base and established market leadership position. In the first four months of the year we saw double-digit growth in line with really where we were expecting to be this year, which was broadly 12.5% growth.

The last two months we have seen the impact both of lapping tough comparators, which we knew was going to be the case, but that's been compounded by unseasonably poor weather. And those tough comparators continue in July as well.

But we are confident of a return to the kind of growth rates we saw in those first four months of the year, because the underlying distribution gains we're making in the on-trades, our underlying rates of sale growth that we were seeing across both channels give us confidence that that will be the case as we proceed further through the year.

In Europe we talked about the fact that out in the market we are seeing, again, stronger double-digit growth than we are reporting. There's always a phasing impact, particularly as you head into a very busy summer trading period, of when the fulfillment of our orders and our shipments into importers occurs.

In 2017 we saw a very, very strong June which weighted our growth to H1. In 2018 we saw a very, very strong July which weighted our growth, you will see a strong acceleration last year in H2. And I suppose we're saying we've seen the same impact as you saw last year. The phasing has dampened our reported growth rate relative to the underlying growth we are seeing in the region. So, we see, we expect, an acceleration and full-year to return to growth of broadly 20% in that region.

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Ed Mundy, Jefferies LLC - Analyst [3]

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Good morning, everyone. Ed Mundy from Jefferies. On the UK, could you talk about the opportunity for non-tonics? I see a lot more activation around ginger. How do you see the opportunity and over what sort of time period do you see that really taking off as we've seen in other markets?

And then secondly, Andy, you talked about potential opportunities for increasing investment when appropriate. I was wondering whether you could elaborate a bit on that and where.

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

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Well look, as I mentioned, and there are a few pictures there, I've been out and about talking to a lot of the spirit companies and visiting a lot of whiskey and dark spirit distilleries. There is unquestionably the view that the trends we are seeing of younger drinkers wanting to drink spirits over and above beer and wine is just gathering momentum. And the one thing they all have in common is they want to drink this long.

Shots, neat and over ice -- these are just dying away as a way of drinking it. And as I mentioned, I know last year, this idea of complex cocktails, despite the investment that's gone into this, just really hasn't translated across the on-trade and it certainly hasn't translated in the off-trade.

So, the spirit companies almost together over the last couple of years have suddenly realized this is the way to be pushing and promoting and getting people to drink their premium spirits. So, they are increasingly of one mind. And so, we of course sit here in this wonderful position right at the heart of this developing this range of mixers to meet this need.

But, as we have said quite consistently, clearly this isn't going to happen overnight. And you've got no real way to predict when these drinking trends do develop. But what we do know is that the premium end there's increasing interest in whiskeys, in bourbons. They are in vogue not just here in the UK but internationally like never before. And all of these companies are starting to push and promote them this way.

I don't know if you recently saw, but Johnnie Walker launching this very significant global campaign to promote drinking Johnnie Walker mixed and Jameson are doing the same and many others alongside it. So, I think we're very well positioned for when this does develop and we're confident it will develop. But what we can't say is when it will develop. But nonetheless I think it's an exciting future opportunity.

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Andy Branchflower, Fever-Tree Drinks plc - CFO [5]

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And in relation to your second question, Ed, we are mindful of the fact we are relatively early in exposing the global opportunity ahead of us. I think it's clear we are focusing on the US and increasingly Europe as well in the short- to medium-term. And there's a timing of these things.

In the US we are very focused on that distribution network. We've made great strides in building out the on-trade anchor distribution network. Adding Union in New York was in many ways the final piece of the jigsaw there. We're focusing now on looking particularly closely at our retail channel as well.

And so, once that distribution is in place you then have the opportunity to look at weighting areas of investment. We are already increasing marketing spend in the US and Europe. But at the appropriate time we may look at doing that in those US and European markets. But not yet and we're not signaling it in our numbers going forward at this point in time.

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Ed Mundy, Jefferies LLC - Analyst [6]

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Is that people as well as -- advertising (multiple speakers)?

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Andy Branchflower, Fever-Tree Drinks plc - CFO [7]

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It could be people, it could be [ATL], it could be co-promotional campaigns, it can underpin distribution. So, it could take a number of different forms.

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Nicola Mallard, Investec - Analyst [8]

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Nicola Mallard, Investec. The gains you've made in retail in the US, I mean they've come quite quickly on the back of not so much as in materializing in your numbers, but you said you got them in Q4 last year, and that was quite soon after the US investment. Have you got those in advance of you increasing your weighting behind the brand? Or have you got those on the back of better rate of sale?

Because you've always said that as you get the rate of sale up then clearly the retailers get more encouraged to give you shelf space, more [stores], etc. I'm just wondering whether they are giving you a little bit upfront knowing that, as you said, you've put more investment behind the brand in the US and they are sort of ready to take advantage of that. Or is it -- are you already seeing it?

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [9]

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Well look, I think, Nicola, to be honest it's a mixture of all. There's no question that having now our dedicated team there in the US illustrating the opportunity ahead in a more professional and graphic way for these retailers has caught their interest. Clearly the evidence they are seeing in terms of the IRI data about the gains we are making and the way we as a brand are driving this category has also caught their interest and of course some rate of sale data that they've seen as well.

So, it is a mixture. And I think as we've said previously, the one thing that's always frustrating doing retail is you don't know when this distribution is going to come about. It is a well-guarded secret, it's all part of their negotiation. But we are encouraged that we are getting this distribution and I think we're going to see the benefits of it particularly in the second half.

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Charlie Higgs, Redburn - Analyst [10]

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Charlie Higgs from Redburn. A few, please. Firstly on the UK, could you talk maybe a bit about the off-trade and where you see opportunity there in the future? I think market share has been pretty flat year-on-year. So, is it more a case of defending your strong position, are you still looking for growth?

And then second question, you talked about 300-plus promotions across the world. Could you maybe talk a bit specifically on the US co-promotion side of things?

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

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Yes, look, we can divvy this up if you want. But the UK, as we said before, we've made such great gains in our distribution that there is clearly far less white space available in the UK. But we still see some opportunity in terms of convenience stores. We also see opportunity in terms of new products and new formats as the year unfolds. And there also we've got some other innovation that we're looking at probably next year which we think could be of interest for us as well.

So, we certainly still see opportunity in the UK off-trade. And as we have touched on at the beginning, this gin trend, despite conversations about peak gin, as far as we're concerned -- I'm looking at Ed very particularly (laughter) -- we see all the data we see and all the conversations we have with the trade and all the conversations we have with the consumers is that this gin trend is going to continue.

Clearly, it's not going to continue at the rates that it's been enjoying in terms of growth the last couple of years, but it's deepening and widening. So we believe that this will also be a stimulus for further growth across the off-trade.

And then of course the on-trade. We have seen really significant growth in this first half. We've driven 80% of the growth in the UK on-trade. We've now got 45% market share and I think that is a reflection of not only strength of the brand but, again, a reflection of the increasing importance of this long mixed drink movement for the on-trade as a way for them of driving margin -- all-important margin. And so, we are seeing increased appetite across our customer base for extending our activations there. So, we see opportunity in the on-trade as well.

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Andy Branchflower, Fever-Tree Drinks plc - CFO [12]

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Charlie, you asked about some specific US co-promotion activity. There's a broad range of activities. You could look at say a Publix in the Southeast where we activated around March Madness, which is a sort of college basketball tournament. And we did co-promotions with Bacardi, so mule drives with Grey Goose.

You can look at the liquor channel. We put 2,500 racks into that liquor channel in the first half. That allows us to make sure we are ranged around the liquor store but in line next to the spirits categories and then it allows for more tactical co-promotions in-store with uplifts driving further ranging.

Patron, we've driven that partnership with our citrus tonic well. It's led to significant distribution growth of our citrus tonic. And that's, again, another example of using the kind of power and muscle of Southern. And then value-added packs where you are selling at retail packs of spirits in mixes together. We've done one with Absolut. We've even, as Tim mentioned, done one with Jägermeister in the US. So, it's a really broad range of activities.

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

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I think Diageo are even calling out in their last results the success of the joint activities and they were talking about their Absolut botanics where they've been working with us, they are talking about Tanqueray they've been working with us. So, as Andy says, this is broad, hence saying there are over 300 co-promotion activities.

But they are very effective, these co-promotions. And they are important to the trade. But they are also clearly important to us as well. And it's a great way of marrying up other people's investment to help support and drive our business for mutual gain.

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Damian Mcneela, Numis - Analyst [14]

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Damian Mcneela from Numis. I'm just interested to dig a bit deeper into the balance of the US growth profile and whether that's been skewed on-trade or off-trade. And then whether that's been led by the gingers portfolio, which I suspect it is, but just to confirm that.

And then secondly, on COGs, UK glass costs -- what's behind that specifically and should we expect that in H2? And then just more broadly, what are the inflation trends across your bottler network that we should be aware of?

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

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Sure. So the first question about growth across channels in the US, I suppose in the on-trade we've been driving distribution growth in the first half, capitalizing really on the network we've put in place. So, significant growth in terms of points of distribution in the on-trade. We talked about going from 15,000 to 19,000 in that first half.

In the off-trades, when we look at the distribution growth, as we said, it was weighted very much to the second quarter. A lot of those significant wins, which we secured in the latter half of last year, didn't land in store until very recently. So, you've seen probably more on-trade led growth in the first half, but we expect that to balance out across channels in the fullness of time.

Of course in the fullness of time we expect the retail channel to be a more significant part of the sales mix than it currently is, and that would reflect what you see in the wider category.

And COGs was the other question. Yes, so UK glass costs, this is something that's been going on now for the last two years, driven fundamentally by energy cost increases in the UK. This is something that is impacting beer and wine, anyone buying their glass in the UK. And it is something we are looking very carefully at and how we source our glass and where we source our glass.

And I think it's fair to say we mitigated those cost increases relative to the underlying start point which was being passed on, because clearly we are seeing volume growth and we are able to utilize some of those scale benefits. But it's not sufficient to offset the underlying increases we've seen in the market.

If you look across more broadly, we are -- we have the benefit of -- on our flavors and ingredients of increased scale and that tends to offset any inflationary increases. Our bottling network, more interesting what's happening is the volume that we are bottling as a whole as a group is increasingly going down through more and more partners. So we are moving that footprint now.

We've got four partners in Europe, we will have partners in the US as well. So, in terms of getting the benefit of scale impacting our bottling cost, there's likely to be a slight hiatus in there as we fill that international network. And then once that is established and we grow we should see another benefit again in future, but not in the short- to medium-term.

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Nico von Stackelberg, Liberum - Analyst [16]

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Nico von Stackelberg from Liberum. Just a quick question. Could you please clarify what are the Board expectations?

And then on margins going forward I can see scope for increased investment, as you mentioned. Do you have a floor on margins that you might point us to? How far might those come down as you invest in the business? And for clarification, it's good that you are investing in the business, of course.

And then finally, just on working capital. So, you made some progress in receivables. Can you talk about some of the moving parts on inventories and receivables? Thanks.

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Andy Branchflower, Fever-Tree Drinks plc - CFO [17]

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So, first question, I mean the Board expectations are the city consensus. So Ollie can circulate that after the meeting, but that's what we are referring to in our note. So, the second part of your question was around margin expectations. Look, it's not necessarily a case that we are going to set a certain margin that we are going to target. As we said, we'll take each market, market by market, region by region and look at when the appropriate time to increase investment is.

We have been doing that and we have been able to do that within the current margin structures that we report. And we talk about in the longer-term 50% gross margin, but more importantly a 30% EBITDA margin is defendable for this business. Because genuinely as we scale the model we run means our central overheads can just decrease and decrease as a proportion of revenue and we can reinvest that in things like marketing and A&P spend.

Above and beyond that absolutely there may be opportunity for some of those regions to, I suppose, drive a lower margin in the short-term to drive that top-line growth. But at the moment we are not guiding to that, we're not suggesting that in our forecast. When the time comes clearly we will communicate that to you guys.

On the working capital, it's reduced if you look at last -- as a percentage of last 12 months revenue it's down 22% now. This time last year it was 23.5%, 24%. So, what has driven that? Absolutely our debtor. We put quite a lot of focus on that. We put some investment in the team behind that and our debtor days has reduced and our debtor [agents] improved quite significantly.

If you look at stock levels, they are up compared to halfway through last year and that impacted our gross profit margin as I described. Now look, in the US, in the first half of last year we spent most of that period moving from an agency to a wholly-owned business. And as we did that our stock levels ran down slightly under agency. Then we built them more in the second half of last year.

That's why if you look at things like our shipments to America in the first half of this year, they are significantly up year-on-year because we are replenishing that stock. And look, in the US we think it's sensible to hold good levels, healthy levels of inventory to drive that growth in the market given the lead times while we're still producing from the UK and sending it to the US.

On the UK we held elevated levels of stock. We came into the year with elevated levels of stock in Q1. That was really to allow us to produce more for Europe in the short-term because we were -- there was uncertainty around what was going to happen at the end of March. And then in [Lataly] we're just holding higher levels ready to service that UK market once the rate of sale at retail particularly improves.

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Nico von Stackelberg, Liberum - Analyst [18]

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Great and one more follow-up, please. On Coca-Cola signature mixers, what do you think that means for your cola franchise? And are you looking at new product development in that space? Just generally what do you make of one of the big elephants in the room innovating their base brand?

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

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Well look, we launched and developed cola some years ago. And we think there's no question that in the medium- to long-term we think it's a very interesting space. But the reason we haven't invested and launched it more widely is we don't think the timing is now.

And that's because, as I was saying earlier, having spent all this time talking to the spirits companies, particularly the dark spirits guys, focusing more on Ginger. They see that as more relevant for their customer base. It's a more sophisticated flavor, it's got the health and wellness trends driving it. And as a flavor profile they consider it to be much more appropriate and something that they want to associate with their products.

So, frankly speaking actually, I'm sort of quite encouraged that they're out there telling people that their cola is no good for mixing. There's something else that you need to mix, because all that is is spreading our word, as far as we're concerned, about having differentiated products to mix with spirits. But in time we will certainly be looking harder at it, but at the moment we're much more focused on that of ginger.

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Jemima Benstead, Citi - Analyst [20]

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It is Jemima Benstead from Citi. I just wanted to pick up on one of the questions earlier on the US market. And wondering if you could elaborate more on the growth split between tonics and gingers. And then also just more in detail about gingers, your strategies there given it's a much more mainstream category with a few very few established players -- whether you think the development of the premium category will just fundamentally take a bit longer there.

And then secondly on Europe, if there's any market you are pretty excited about at the moment. Any that are seeing particularly similar characteristics that we saw in the UK two years ago? Thank you.

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

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Well look, our ginger business in the US is growing strongly, but as is our tonic business. But our ginger business is just ahead of it in terms of volume, but they are both showing good growth with real potential.

Your point about the ginger ale category being a bigger mainstream category, absolutely. It's a very significant category -- in the US dwarfs that of the other mixer categories. And yes, I think as I was explaining earlier, these things will take time.

But what's quite interesting is that now the spirit companies are starting to focus and promote mixing with ginger in a way that they haven't done in the US for quite some years. And this is partly because there are now more premium, better differentiated products to be able to proudly talk about whilst talking about the merits of their spirit.

So, just as we did with tonic here in the UK, we are giving the tools to the spirit companies to be able to talk about premium mixing and differentiation. And we've been able to give these tools to the on-trade to be able to make a point of difference, to be able to charge the customer more and ultimately make margin for themselves and similarly for the off-trade.

So, until we started to develop this range and this choice this was not available to them. And so, now it is and now we've got the case studies of how we've helped resuscitate these categories in other markets around the world. It is gaining their interest. But as I said at the beginning, what's obviously very hard to predict is to when and -- when you see this acceleration point. But there's increasing amount of interest in it.

Well look, I think I mentioned in my talk is that the very encouraging thing for us in Europe is we are seeing interesting growth across multiple markets. And I know I called out Benelux, Spain, Italy, Germany, Denmark and the Nordic countries as well, they are all showing good growth and good potential.

And as I said, this long mix drink, this gin movement is far behind that that we've seen in the UK as a whole across Europe. But it's starting to be better understood and starting to grow even quicker. So, we think there's a long runway ahead in Europe and the encouraging thing is it's across multiple markets.

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Juliana Russo, HSBC - Analyst [22]

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[Juliana Russo] from HSBC. Good morning. Just following on this discussion on competition, how do you see competition evolving outside of the UK, especially in the US? Because obviously, as long as you hold 45% market share you can defend yourself. But if you are trying to grow alongside with other brands, what makes you different than the other people don't have? What do you see your competitive advantage is?

And secondly, a question on your co-promotional activities with spirits brands. You talk a lot about your ideal positioning vis-à-vis all the global spirits companies. Have you already started working on a global level or do you -- how do you work those out? Do you gain any sort of scale advantage from being -- having a foothold in, whatever the amount of countries, vis-à-vis those partners?

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Tim Warrillow, Fever-Tree Drinks plc - Co-Founder & CEO [23]

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So look, our competitive position in the US is that, as I mentioned, in the premium mixer space we are the notable market leader. Our nearest competitor is a local brand called Q Tonic who is about a third of our size in that market. And Q have been around since we've been around, frankly, in the US. They are very American, very entrepreneurial and they copied us very quickly.

And they've also tried to take their brand around the world and have failed in doing it, so they are now just very focused on the US market. And despite that, we are still notably ahead of them in all the market shares.

And I won't bore everyone now with our product differentials, but it's fair to say that we have the broadest range, we have all the credentials when it comes to product quality with a growing list of awards to support that as well as the trade realizing the fact that we have the brand that is most recognized and the market leader in this space.

And in the end the trade, as they are always quick to tell you, are not there to try and sell your product for you. They want a brand that is selling itself and that is the advantage when you are a market leader and you've got the reputation. So, it makes their life a lot easier to be able to charge that premium and get that product rotating.

So that's why this first mover advantage, this market leadership as such a difficult thing to compete with when you are playing catch-up. So, that's why we are excited and confident about the opportunity that presents itself in the US.

And your question about our work with co-promotion partners, absolutely. We have a global agreement in place with Diageo, the only one to do that, and that's on their request because of our international footprint, scale and reputation. So, this is a directive that's gone out to all of their markets to say wherever possible they want to be promoting this long mix drink and using Fever-Tree.

We have similar conversations going on with Pernod and we've got an increasing co-promotion footprint with Bacardi. So, that is the benefit of being the number one and global market leader.

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Emma Letheren, RBC Capital - Analyst [24]

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Emma Letheren from RBC. You said your Board expectations is the same as the market consensus expectations which have come down this year. So, am I right in assuming that the Board expectations have also come down? And is that just due to UK weather or is there something else going on?

Secondly, you talked about stepping up investment in the US when the time is right. You said you've established your distribution network. New York was the final piece of the puzzle, so what else are we waiting for?

And lastly, you talked about -- previously that you would expect an acceleration in the US in the second half as the deal with the SGWS really came to fruition. Is this still the case?

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Andy Branchflower, Fever-Tree Drinks plc - CFO [25]

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Yes, so the first question, we are referencing to consensus. You're right, the market expectations. They have come down. I think that maybe is a reflection that some of the expectations out there were ahead of where we were guiding to and expect them to be. So, our guidance hasn't changed.

Within that we are looking at slightly different balance of revenue and growth across the regions reflecting the fact that we've been impacted in the short-term by some of the poor weather in the UK, but we expect to return to the levels of growth we saw in certainly the first four months of this year in the second half.

Kind of really coming on to your final question, in the US our underlying growth of 24%, we do expect to see an acceleration in that in the second half, still leading to a reported growth for the full year broadly in line with what we are reporting in the first half. But that's because the FX in the second half will be much more like-for-like than it was in the first half.

So we do see -- expect an acceleration and that's a function of the fact that a lot of these retail distribution gains we talk to, 3,000 new distribution points -- 3,000 new stores at Walmart, 750 at Kroger, 600 at Safeway, more distribution on shelf at Target, at Publix. A lot of these have only really landed in the final quarter and in some cases only the last month or two. So, we do clearly expect to see acceleration in the second half there.

And then when you ask about what are we waiting for, there's ways to build a brand and we are interested in building something that's going to last for a very, very long time. And we've done it in the UK and the way you build that is, just as Tim was describing, through the trade, through points-of-sale. You have to be to a certain extent patient. At the same time you need to get your distribution footprint well-established.

We believe we've built the machine to drive that distribution footprint in the on-trade particularly now and we are already seeing the benefit of that and that will continue. At retail as well we are looking very closely at the partnerships, the relationships we have with those national retailers and also the many, the multitude of smaller but still sizable regional chains.

So, we still have a job to do to get that network in place. When that's there, then absolutely the time will be more appropriate to look at other forms of increased investment.

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

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Thank you, thank you very much, everyone.

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Andy Branchflower, Fever-Tree Drinks plc - CFO [27]

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Thank you.