Hello, and welcome to the Fever-Tree pre-close trading update. My name is Courtney, and I'll be your coordinator for today's event. Please note that this call is being recorded, and for the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions, and this can be done by pressing star one on your telephone keypad. If you require assistance at any time, please press star zero and you will be connected to an operator. I will now hand you over to your host, Tim Warrillow, to begin today's conference. Thank you. Thank you, and good morning, everyone. Thank you for joining us today. My name is Tim Warrillow, Co-Founder and CEO of Fever-Tree, and I'm joined on today's call by Andy Branchflower, CFO, and Ann Hynes, Director of Investor Relations. This morning, we published a trading update for the six months of the year ahead of releasing our half-year results in September. As outlined in the announcement, we delivered a solid revenue performance in the first half of 2022, with a particularly strong performance in Europe. While we're seeing positive top-line growth and have maintained our revenue guidance for the full year, the challenging logistical and cost headwinds we highlighted previously were significantly worse in recent months. We now expect this to continue to impact the business during the second half. I'll hand over to Andy, who'll go into more detail on these challenges, how we expect them to impact our full-year margin, and the steps we are taking to mitigate those impacts. Thank you and good morning, everyone. Firstly, as Tim said, we delivered a solid revenue performance in the first half of 2022. We recognized some softness in our U.K. off-trade revenue, but expect this to be partially offset by upside from our strong momentum in Europe. As such, have reiterated our revenue range of GBP 355 million-GBP 365 million. However, clearly this morning we've updated our margin guidance, reflecting a significant worsening in recent months of logistical and cost headwinds, leading us to revise our outlook for the full year. The situation has materially changed with regards to three specific areas. Firstly, labor shortages are slowing our East Coast production ramp up. As a result, there will be greater reliance on U.K. production, and with it, more exposure to sea freight, where rates have increased by up to 50% since the start of the year on key routes. That's on top of the significant increases we saw last year. Secondly, the availability of glass across the industry has become restricted, which has removed the opportunity to deliver upside to revenue despite strong demand. Thirdly, significant further inflationary cost increases are now crystallizing, which will impact the second half, most notably with regards to glass costs, but we're also seeing this across other categories. Let's give a little more detail on these. The availability of glass across the industry has become restricted. Due to the strength of our relationships with our suppliers, we've been able to secure sufficient glass to deliver against our revenue forecasts. However, the opportunity to upside to those forecasts has been limited by the lack of availability of additional glass. As a result of this, we've had no choice but to agree to significant double-digit cost increases from our glass providers for the remainder of the year. The variance of costs have been elevated, most notably with respect to glass. Glass is not the only source of inflationary increase. Across the supply chain, suppliers are struggling to cope with significant increases to their cost base and are now passing these on. While logistic costs remain elevated by fuel surcharges and inefficiencies, as we're forced to work around delays and disruption. Alongside these cost pressures, our U.S. production output has been impacted on two fronts. On the West Coast, port congestion in the first half impacted our ability to deliver glass to the production site, which resulted in production delays and reduced inventory holdings. The congestion on the West Coast is finally subsiding, and we're confident of delivering our plant production output on the West Coast in the second half of the year. Our East Coast bottling line has now been commissioned. However, the subsequent ramp up to the required levels of monthly output has been impacted in the last two months by unexpected labor shortages in the market, with recruitment and retention extremely challenging, causing us to revise our expectations for the speed of ramp-up of the facility. The result of these challenges in the U.S., especially the delay in East Coast ramp-up, is that we suffered from inventory shortages, which has meant we haven't been able to fulfill against the strong demand that exists in the U.S., particularly in June. We're correcting the inventory position by increasing U.K. production to the U.S., which will result in significant additional sea freight costs through the second half, exacerbated by further underlying rate increases, as well as additional internal freight costs, as we look to balance inventory between the East and West Coasts over the coming months. The result of this exceptionally challenging operating environment, alongside some limited sales mix and FX hedging impacts, is that we expect a further 450-500 basis points of margin dilution, and as such, expect gross margin in the range of 33%-35% for the full year. This change in outlook for the year is extremely frustrating, but a reflection of the changeability and challenges presented by the current environment, which we're navigating as a growth business operating in multiple markets around the world. While many of these factors are driven by the wider macro environment, we have taken steps to mitigate their ongoing impact, while balancing the need to continue to strive for growth across our regions. We are looking very closely at pricing on a market by market basis. While we do not expect to take price again this year, we're midway through in-depth analysis surrounding potential increases for 2023. In response to recent shifts in our glass availability, we're engaging proactively with our glass suppliers to secure 2023 volume requirements. It should allow for recalibration of costing as and when the underlying commodity pricing rebalances in future. In the U.S., we have members of our team permanently on site at our East Coast bottler, and are working with them on an action plan to recruit and train new staff members to allow us to ramp up output to the required levels over the remainder of the year, therefore position us to benefit in 2023 and greatly reduce exposure to trans-Atlantic freight costs. We are working on a range of projects, which include the onshoring of glass for our West Coast production facility and local bottling in Australia, which will further reduce our exposure to seaway costs in 2023 and beyond. Coupled with this, we are up-taking our end-to-end operational processes and investing in new IT systems, which will allow us to scale and continue to improve our planning capabilities, our procurement efficiency and allow for inventory optimization, all of which will drive improvements in the bottom line. Consequently, despite the current challenges impacting gross margin, we remain confident in the long-term opportunity and are continuing to invest in the brand and our capabilities to equip the business for the great opportunity ahead. We are planning for marketing spend of 10% of revenue and are building a good team to deliver against the large number of projects and programs across the organization, which will drive operational efficiency and cost savings over the coming year. As a result, we're increasing our guidance on operating expenditure to 22.5% of revenue, resulting in an EBITDA range of GBP 37.5 million-GBP 45 million for the year. I'll now hand back to Tim. Thanks, Andy. I want to make it clear and remind everyone that despite the myriad of challenges across the business, we continue to make excellent progress across our regions, underpinned by strong and growing demand. As such, we have more belief than ever for the future opportunity of the brand. However, to reiterate what Andy just outlined, while we are acutely focused on tackling the cost headwinds, many of these are transitory due to the proactive steps we've taken to ensure that we're not exposed to these issues in the medium to long term. The most significant of these is onshoring production in the U.S., Australia, and further afield as we continue to grow. Of course, we recognize that certain inflationary impacts will remain, and we will continue to address them over time through pricing and economies of scale. What we will absolutely not do is pull back investment in the brand or our people, and as a result, jeopardize the significant opportunity we have created. Thank you all for listening, and Andy and I are now happy to answer some of your questions. Thank you. As a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad. Please ensure your line is unmuted locally, and you will be advised when to ask your question. That was star one on your telephone keypad. Our first question comes in from the line of Nicola Mallard calling from Investec. Please go ahead. Morning, guys. Thanks very much. A couple of questions from me, if I may. You mentioned some softness in U.K. retail, and I just wondered if you could give us a little bit more feeling as to why you think that's coming through. Is it early signs of recession, or is there something more specific? And secondly, around the glass issue, could you give us a bit of idea as to what exposure your glass costs are in terms of your total cost? And also, how easy do you think it will be to onboard glass in the U.S.? I mean, what sort of timeframe should we be looking at for that? I mean, you say you've got enough for this year's production, but do we think it might limit next year's ability to, drive the growth in the U.S. as well? Thank you. Morning, Nicola. Let me tackle your first question about U.K. retail. Look, I mean, clearly there are lots of moving parts here. Not least, you know, the return to the on-trade. However, I think, you know, we think there are three, I suppose, main drivers. You know, firstly, the early part of the year was impacted by Omicron, which, you know, prevented people from entertaining at home, which of course, as you know, are very closely linked with. Secondly, and probably most significantly, we're seeing very aggressive price promotional activity from other brands. You know, certainly in the case of Schweppes, but also, some of the small premium brands who have been discounting very deeply. While, of course, you know, this will give them a short-term boost, we don't believe this is sustainable, and it's not something that, you know, we have purposefully been drawn into. You know, those really are, you know, the sort of two key factors. Also, we're seeing gin has recalibrated back really to sort of 2019 levels. But you know, that's sort of stabilizing. You know, those are, I think, the issues that, you know, have had a bit of an impact. You know, make no mistake, you know, in the U.K. off trade, you know, we're still in line with our 2019 levels. You know, looking ahead, looking to the second half, you know, we're confident against delivering against our revised expectations. You know, partly the 2019 comp that we track against is, you know, noticeably softer in the second half. Also, we've got some new distribution coming through this autumn. You know, whilst as I mentioned that, you know, gin is stabilizing, you know, spirits in general are in strong and rude health. As you well know, you know, we've been diversifying our range to work with not just gin, but more beloved spirits. While as we've always said that would take time for that to come through, we're really seeing some, you know, very positive signs in our ginger and soda ranges. Then the other aspect is that, you know, we've got very strong off-shelf promotional planning to Christmas, you know, the sort of best ever. We're also quite optimistic that, you know, this is gonna be the first Christmas without restrictions since 2019. We think, you know, as a result of all those things, we're gonna be very well placed in this second half. Can I just. Yeah. Sorry. Could I just interpose on one quick question there. Have you lost market share in U.K. retail? Cause obviously you've been, you know, holding fairly firm at sort of high 39%. Is that correct? Yeah. In the first half, Schweppes have gained a couple of percent. I mean, we're still ahead of the last Nielsen read, but their gain is really coming from winning from own label, because own label has you know notably reduced their share. We are still ahead. In the on-trade, we have grown you know yet further ahead. We're now well over 50% in terms of market share in on-trade. The brand overall is still by far the market leader. Okay. Thank you. Nick, picking up on your question on glass. Firstly, the proportion of our cost card that relates to glass. Well, in the context of our glass business, the actual underlying glass is about 40% of the product cost. Obviously in the context of our entire business, which includes canning and aluminum, it's about 30% of our total product cost. When we look at the kind of U.S. glass situation, we've onboarded glass on the East Coast of the U.S., and we've got good security of supply there to supply our East Coast production site locally. As I said, you know, one of the challenges has been that we still have to import glass over to the West Coast. In the first half, we've had severe port congestion on the West Coast of the U.S., as has been well reported, and the inability to get glass into the port has, at times, halted our production line. Not only that, we've also had to incur significantly increased freight costs to deliver that glass. One of the key projects we're working on is onshoring glass for the West Coast of the U.S. We've got a number of options we're looking at. It's progressing well, and we'd expect during next year to have that set up and coming online. Look, we're working hard at it and we're confident in being able to onshore, as I say, both East and West Coast glass during next year. Brilliant. Thank you. The next question comes in from the line of Ashton Olds calling from Berenberg. Please go ahead. Hi, guys. Ashton here. Thanks for taking my questions. First one, just on that, you know, 400-600 basis points. You know, how do you break that down among the different cost buckets? So say glass, freight rates, and maybe mix impacts from a softer U.K. I guess the second question, obviously there's lots of moving parts, but, you know, what should we be expecting the gross margin trajectory to look like maybe next year? And yeah, I guess maybe just in Europe, can you just unpick some of the trends which are driving the strength here? Sure. Morning, Ashton. Of course. Look, on gross margin, if we take, I suppose, the midpoint of the movement we've guided to today, it's 500 basis points. The way it breaks down from our previous guidance is there's a 300 basis point movement related to effectively U.S. logistics. We previously had expected a 150 basis point tailwind from local production in the U.S. this year. We are anticipating over the fullness of the year, sourcing about 60% of our requirements locally and 40% in the U.K. That's now flipping to sort of 40% locally in the U.S. and 60% in the U.K. Now, on top of that, as I mentioned, the freight rates have increased significantly again. That's driving an underlying cost increase. On top of that as well, as I mentioned, there's other costs that relate to this disruption, significant element of which is internal freight costs, cause over the next couple of months, we're having to balance inventory between the West and East Coast. That 150- basis points tailwind has become 150 basis points headwinds, and as such, it's a 300 basis points hit. If we then consider the rest of the bridge of the 500- basis points reduction, about 150 basis points is coming through from inflation. Look, we've spoken about glass, that's clearly a significant part of that, given that glass overall is 30% of our total product cost card. There're other elements as well. You know, this is across the board. Sugar pricing is gonna be increasing significantly in Q4, just to take one category. We're seeing this across other suppliers as well. We're building in fifth degree prudence into this guidance. Finally, there's 50 basis points, which is a bit of regional mix. The U.K. is coming off a little bit, as we just talked about. With it, we've got a little bit of a headwind on gross margin because of the way the regional mix is going to recalibrate. We've got a very minor FX headwind, which is all baked into our hedging contracts unwinding in broadly speaking in the first half. That's how we bridge to the 500-basis point. Question is next year. Look, as I say today we're working on a number of initiatives focused on driving improvement from where we are now. There's no question the biggest factor of that is gonna be getting local production in the U.S. with locally sourced glass operating effectively. That's really where we're driving the second half of the year. We expect that to give us some significant upside. On top of that, as I mentioned, we're looking hard at price. We won't be taking price later this year, but we'll be looking at it on a region-by-region basis in early next year as well. There're other factors as well. We're confident we can drive improvement in gross margin. At this point, as the last couple of months have proved, you know, the inflationary backdrop and the extent to which different elements of our cost card are particularly exposed to things like gas price increases, it's incredibly volatile and hard to predict. That's why we're holding our guidance to margin next year until there's more visibility on what that inflationary backdrop will look like as we go into 2023. As I say, from our perspective, we're confident we can still drive improvements with the factors that are under our control. Just to answer your question on Europe, look, I think there are a couple of key factors. You know, one is really the strengthening of the brand, that the investments that we have made over the last couple of years, where others were pulling back, I think is really paying dividends. The brand is better known, stronger, more widely distributed, than ever in Europe. As a result, with this on-trade returning, the brand is much more sort of front of mind. We're really benefiting from that, particularly in those southern European markets where the on-trade has really bounced back, Italy, Spain, to name a couple. Also, you know, that gin and tonic movement. You know, when we talk about gin stabilizing in the U.K., you know, gin is in rude health around the world, and is projected to continue to grow very strongly and of course the driver of this is gin and tonic. You know, this is where, you know, we're seeing, you know, great excitement and opportunity in Europe. And then also, you know, we're seeing some, you know, very interesting other markets where, you know, gin continues to grow. So yeah, we're delighted by the performance in Europe, and we're optimistic about the future of it. Thanks, Ashton Olds. The next question comes in from the line of Damian McNeela calling from Numis. Please go ahead. Hi. Morning, everybody. Damian here. Just in terms of, I think you mentioned on the call that you sort of didn't have sufficient product to meet demand at certain parts of the first half. Can you give us an indication of the sort of the kind of sales that you feel that you had to let go because you've not had the product? I don't know if you can sort of help us think about that. Also just on some of the. Can you give us a bit more sort of details on the initiatives that you're doing? I think you mentioned a new IT system. Are there any costs associated with that that we should be aware of? Sure. Damian, yeah, look, we spoke about particularly inventory shortages or restrictions and pinch points in the U.S. that particularly, I suppose, culminated in June, particularly. Look, when we look at our U.S. business, year-to-date growth at the end of May was 20%. And then we had a shortfall in June relative to demand. Look, I think we're very confident that the underlying growth as represented by the demand we're seeing in that U.S. market is greater than the 11% we reported in the first half. We're also confident of the fact that we're gonna have a big July and catch up on that shortfall in June. As I said, we've taken these steps to ensure the inventory builds over the coming months and with it, unfortunately, additional costs. you know, we're not moving our U.S. guidance range. We're very comfortable with our ability to hit that. there's no question the underlying demand in the U.S. is extremely strong. The second question in terms of the you know the projects we're working on, you know, there are a number of different areas. yeah, look, specifically in relation to our sort of IT project, I suppose. I mean, first and foremost, we're really overhauling and rebuilding our end-to-end operational processes throughout the business. with that, we're then adding to that with upgraded, improved IT systems, particularly around things like supply chain planning. and it does require significant investment. It was built into our original guidance, and we are also taking on some additional heads to make sure we can deliver that in a timely manner because we see the benefit that it's gonna drive. Yeah, look, we're very focused on making sure A, we can mitigate the kind of headwinds we're seeing, but also fundamentally be prepared for the great opportunity ahead and be able to scale this business as it comes through in the coming years. Okay, thank you. The next question comes in from the line of Fintan Ryan calling from JP Morgan. Please go ahead. Good morning. Good morning, guys, Tim, Andy, and Ann Hynes. I have two questions for me, please. Yes. Firstly, you said that given the costs headroom that you'd be considering price actions from into 2023. The number of companies with European exposure have talked some time ago for incremental pricing during this year. Just wondering why maybe you're holding off and taking some of the pricing to offset the headwinds. Then just with regards to the U.S. pricing specifically, do you feel that you don't have the pricing power to take pricing to offset the pressures that you're facing currently? Or how should we think around the ability to take price in the premium mixer segment in the U.S. market compared to these other peers like Q Mixers? Yeah, look, let me answer that. I mean, just to be clear, here in the U.K., you know, we have taken price this year. We've taken 8% price, so you know, very noticeable price increase. As Andy mentioned, you know, we are then looking hard at the merits of taking price again next year. With regards to the U.S., you know, make no mistake, we really do have pricing power because, you know, we're already sitting at, you know, twice the price and more of our major competitor in Schweppes and Canada Dry. You know, despite that very high price point, as we're here discussing, you know, demand is very strong for the brand. You know, that is a reflection of the pricing power we have. what we don't want to do is just, you know, pass price through and destabilize, you know, this fantastic momentum and growth, you know, that we're seeing and rate of sale we're seeing with the brand. That is what is allowing us to, you know, win new distribution, which we're optimistic is gonna keep coming our way. you know, there's I think, you know, no greater mistake than undermining that momentum at this point in such an exciting and significant market and opportunity for the brand. we will look absolutely in the U.S. next year at the merits of it, but we're not sitting here saying that we are absolutely gonna raise price at this point. Great. Just the second question, just with regards to the full year guidance in terms of revenues. Mm-hmm. You keep getting the high level numbers unchanged. I think you said as well that the U.S., at least from the EBITDA standpoint, is gonna be unchanged. How should we think around, the U.K., your expectations for U.K., Europe and the rest of world in terms of revenue outlook? Just into that. Just reasonably. Sorry. We're just breaking up a little bit as we're coming through. Broadly speaking, I think when we think about our guidance range and how we positioned it in March, where we see, as we say, some softness in the U.K. We would expect that to come down by broadly GBP 5 million from our original kind of range. We see that being offset predominantly in Europe. You can see from that first half fantastic momentum we've got, which is great on a very, very strong first half last year where we've got confidence of upside opportunity, particularly in that region. Great. Thank you very much. The next question comes in from the line of Doriana Russo, calling from HSBC. Please go ahead. Yes. Good morning, everyone. I've got a couple of questions. The first one is really to try and understand at what point in time did you started to realize that you did not have enough production to fill demand in the U.S.? You said that you expect to be able to offset some of the shortfall in June in July, how you're going to do that exactly? What's the likelihood of further sort of disruption that we may see in the second half with regards to the U.S.? The second question is really in terms of exposure to Europe and what sort of consequences, if any, you could have with regards to the shortages of gas, you know, in Germany and the neighboring countries. Finally, your exposure to the U.S. dollar, is that fully hedged or are you possibly going to benefit from a much stronger dollar, as in the latest period that we are observing? Sure. Doriana, in terms of like the U.S. share, as you're saying, there's been a number of factors that have been. Impacting ultimately our inventory levels, whether it's port congestion, whether it's this slower ramp up than expected on the East Coast. Still, frankly, the unpredictability of lead times on transatlantic freight. Because don't forget, we always anticipated making significant amounts of products still in the first half of this year and shipping that to the U.S. It was more in the second half where we anticipated that East Coast production line picking up the battle. Look, these things interact and overlap and for consideration in June, for instance, we had two factors. One, our East Coast production wasn't at the required levels of output, and secondly, we frankly had a huge amount of product sitting outside the ports in New Jersey waiting to sort of dock and be delivered. That's happened now in the last couple of weeks. There's a huge influx of inventory, which is why we're confident we can replenish in July. The decision we've made recently is to de-risk this ramp up on the East Coast. We will be working incredibly hard with the bottlers to ensure they do ramp up quickly now as we progress through the year. We've taken the decision to increase U.K. production to de-risk that. We see inventory building now over the next couple of months, getting back to a very strong position. Then certainly as we get into the key kind of holiday season in the U.S., you know, we're forecasting to have good levels of inventory that should ultimately offset or de-risk the likelihood of any further disruption. On Europe, look, you're highlighting one of the areas of unpredictability we're all dealing with currently across multiple different industries. We have a network of three different bottlers in Europe, and of course we have two in the U.K. as well. If there are pinch points, for instance, in Germany on gas, we'd be able to shift production around our network. But it illustrates the kind of environment our supply chain teams are dealing with and having to constantly work around. We think we've got the redundancy in our European production systems to be able to cope with that. On the dollar FX question, yeah, look, there's been FX upside, I suppose, this year in terms of the movement in the exchange rate. We were well naturally hedged with the U.S., and now with these incremental costs, particularly these transatlantic freight costs, our natural hedges improved more to the extent that FX upside doesn't have any effect on gross margin. It just, it kind of washes through. Where we've actually got a slight headwind is the fact that our hedging contracts were placed before our natural hedge increased, if you like. The contracts were placed in order to bridge the gap with the natural hedge we had in our exposure. Now given the natural hedge has increased, the contracts have crystallized, particularly in recent months, to give us a slight headwind. From a margin perspective, there's no upside from the U.S. strengthening this year. From a reported revenue perspective, there is some of that upside in the data. Okay. Thank you. That was the final question in the queue. With that does conclude today's conference. Thank you for joining. You may now disconnect your handsets. Hosts, please remain connected and await further instructions. Thank you.