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Fever-Tree profits take a hit from logistics challenges

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FeverTree
FeverTree

Profits at drinks mixer business Fever-Tree are taking a hit from ongoing rising costs of logistics, the company has said.

Bosses said the issue remains challenging as global shipping costs rise due to the Covid-19 pandemic, whilst a shortage of HGV drivers in the UK is causing delays and increased costs across the entire grocery and delivery sector.

But despite the problems, the company said sales were ahead of expectations in the first six months of the year, up 36% to £141.8 million.

As is being seen in other sectors, growing challenges from Covid-related logistics disruption and associated costs is putting pressure on the group’s (profit) margins

Fever-Tree

The company’s biggest market in the UK saw the slowest growth up just 4% to £50.4 million, although this was offset by strong sales in Europe which rose 102% to £41.3 million.

Growth in Europe was also helped by the takeover of German distributor Global Drinks Partnership a year ago.

Bosses said that in the UK there has been “clear signs of pent-up demand as bars, restaurants and pubs reopened” but they admitted it was slightly tempered by continuing social distancing and capacity restrictions.

The company added: “We remain well-positioned as the On-Trade continues to re-open, with the remaining Covid restrictions lifted in the UK on the 19 July enabling larger events to restart, nightclubs to re-open, and the removal of social distancing.”

Supermarket and convenience store sales have remained strong throughout, up 17% compared with 2019 before the pandemic in the UK.

But the ongoing logistics issues remain problematic and the company said it expects them to continue.

It said: “As is being seen in other sectors, growing challenges from Covid-related logistics disruption and associated costs is putting pressure on the group’s (profit) margins.”

The company added: “Whilst we anticipate some margin improvement next year, we believe logistic cost headwinds will continue alongside input cost increases on raw materials and product costs.”

The issues faced by Fever-Tree predominately relate to the increased logistics costs facing all businesses as shipping prices soar, with demand rising as Covid restrictions ease.

Transatlantic freight charges and US storage costs for Fever-Tree are expected to rise 40% on a year ago.

During the past six months, the cost of a container to ship to the US East Coast has increased by 35%, and to the West Coast by 60%, according to the company.

In the UK, the HGV driver shortage has not meant Fever-Tree products failing to arrive on shelves in UK supermarkets, but have contributed to rising costs.

Chief executive Tim Warrillow said: “The last 18 months have highlighted the strength of the Fever-Tree brand amongst our consumers and customers as well as the fantastic team and partners we have in place.

“We continued to invest in the opportunity during the pandemic and have already started to see the benefits of our long-term outlook as the world has started to reopen.”

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