Fevertree hails 'solid' start to year; buys German sales agent

(Sharecast News) - Posh tonics maker Fevertree hailed a "solid" start to the year on Tuesday, underpinned by strength in the off-trade segment, as it announced the acquisition of its sales agent in Germany.
In an update ahead of its interim results in September, the company said trading in the first two months of the year was in line with expectations. From March onwards, trading across its regions was dominated by the coronavirus pandemic, which led to the widespread closure of the on-trade business - bars and restaurants - but a "consistently strong" performance through the off-trade channels.

In the 12 weeks to 14 June, UK off-trade sales rose 34% year-on-year. "The popularity of long mixed drinks as an everyday affordable treat continues to resonate with consumers," the company said.

In the US, meanwhile, the off-trade business saw sales grow "very strongly". Nielsen data, which covers just under half of Fevertree's US off-trade sales, reported 89% year-on-year sales increases for the 12 weeks to 13 June as people drank at home during lockdown.

In Continental Europe, off-trade sales have been robust, Fevertree said, but the Covid-19 outbreak had a bigger impact in the South, which is more reliant on the on-trade business than Northern Europe. The company said some of its importers had de-stocked in the last few months amid increased uncertainty, denting its European sales over the first half.

"The on-trade is gradually re-opening across many of our regions, although the easing of restrictions and the extent to which outlets are re-opening has varied, with ongoing short-term uncertainty.

"While the off-trade continues to see good momentum in many regions, we expect some of the off-trade demand to switch to the on-trade as it begins to re-open. However, the pace and quantum at which this will occur is likely to be gradual as the on-trade still has to contend with cautious consumers, social distancing and therefore lower capacities."

Fevertree also announced the acquisition of Global Drinks Partnership, its sales agent in Germany, for €9.5m.

Chief executive officer Tim Warrillow said: "The completion of the GDP acquisition is an important step as we execute our growth plans in Germany, providing us with an ideal platform to take advantage of the opportunity within the German market and accelerate our growth."

William Ryder, equity analyst at Hargreaves Lansdown, said: "Fevertree's trading has been largely as expected - growth in shops as bars and restaurants closed. The strength of the brand is encouraging, but we wonder how much of this growth will shift back to bars now that society is starting to reopen.

"The GDP acquisition is more interesting. Management thinks it will be cheaper to buy their current distributor rather than build out their own capacity, which makes sense. It does increase the size and organisational complexity of Fevertree a little, but that's to be expected as the group grows.

"However, GDP also generated €10m in 2019 distributing third party premium beers and spirits. Fevertree intends to keep doing this, which marks a departure from the existing business model. It's only a small bolt on at the moment and to be honest we hope it stays small. We may look back on this as the beginning of a larger strategic shift, but it can be risky when businesses divert their attention away from core competencies."