Fever-Tree cuts profit and margin forecasts as Ukraine war sparks ‘significant uncertainty’ amid surging commodity prices
- Fever-Tree said it was facing ‘significant uncertainty’ amid higher costs
- The group has trimmed its profit and margin forecasts; share price down
Drinks maker Fever-Tree has warned it is facing ‘significant uncertainty’ over costs amid Russia’s invasion of Ukraine.
The group said commodity prices had jumped ‘dramatically’ since the war started and it has been forced to cut its annual earnings forecast as a result.
It said: ‘We now expect to deliver an EBITDA range of between £63million and £66million for FY22.’
Cost woes: Drinks maker Fever-Tree has warned it is facing ‘significant uncertainty’ over costs amid Russia’s invasion of Ukraine
Fever-Tree shares fell nearly 8 per cent in early morning trading, having dropped by around 45 per cent in the past year. Its AIM-listed shares were down 1.87 per cent or 30.50p to 1,596.50p just before 9.15am.
The company reported full-year revenue of £311.1million, up 26 per cent on a year earlier.
It said supermarket sales remained above pre-pandemic levels, with sales in bars and restaurants recovering in the second half.
Strong revenue growth helped underling cash profits swell 10.3 per cent to £63million, despite a drop in margins from 22.6 per cent to 20.2 per cent. For the 12 months to 31 December, pre-tax profits were £55.6million, marking a rise of 7.7 per cent.
The group said it expects to deliver revenue growth of between 14 to 17 per cent in the new financial year.
The company’s board proposed a final dividend of 15.99p, up 2 per cent, in addition to a special dividend of 42.90p.
Tim Warrillow, co-founder and chief executive of Fever-Tree, said: ‘Whilst the tragic situation in Ukraine has resulted in significant uncertainty in relation to our input costs in the short term, the long-term global opportunity for Fever-Tree remains substantial and we are as confident as ever in the brand’s ability to capitalise on this.
‘We are excited by the growing interest in the long-mixed drink category from retailers, spirits brands and consumers, especially given the increasing focus on premium segments, which places Fever-Tree, as the largest global premium mixer brand, at the centre of these trends.’
Mark Crouch, an analyst at eToro, said: ‘The reality is that the pain is probably far from over for the tonic maker.
‘Inflation – more specifically, commodity price inflation – is proving persistent and there is little chance of that changing while Russia and Ukraine, two key commodity exports, are at war.
‘We have also seen an alarming resurgence in Covid cases in many countries, which may harm sales in pubs and restaurants. While there is no suggestion the surge will result in a new lockdown, it might keep punters out of bars, which is a key source of revenue for Fever-Tree.’
Matt Britzman, an equity analyst at Hargreaves Lansdown, said: ‘Fever-Tree warned back in January that margins would likely be impacted by rising costs, but bumper shareholder returns haven’t been able to quell further market worries about the outlook for margins.
‘Another downgrade on profit and margin guidance is disappointing, with the group expecting sales to rise 14-16 per cent next year but little to none of that dropping through to cash profits – that suggests margins of around 17.9 per cent, down from the 19.6 per cent expected.
‘Management pointed to the ongoing crisis in Ukraine and its impact on commodity prices as the cause for concern over rising costs. But a number of the ongoing margin headwinds that we saw last year should now be unwinding, mainly increased US shipping costs and the recovery of higher margin bar and restaurant sales – but that doesn’t seem to be the case.’
He added: ‘There are some positives for the longer-term investment case, growth outside of the saturated UK market looks promising and increased demand for premium alcohol and mixers looks to be stickier than first anticipated. However, when investors are expected to pay 36.6 times earnings for a slice of the pie, any miss on guidance is always going to hit the shares hard.’