Fevertree Drinks PLC (FV8.SG) Earnings Call Transcript & Summary

Thank you for joining us to hear about Fever-Tree's performance during the first half of 2022. My name is Tim Warrillow, Co-Founder and CEO of Fever-Tree; and I'm joined in the room by Andrew Branchflower, CFO; and in the back, Director of Investor Relations; and Oli is easing around somewhere as well, our Head of Communications; and we've got Charles Gibb, who very notably has got up at 5 in the morning in North America to join us. So -- and I know we'll be talking and be very happy to answer your questions along myself and Andy at the end of the call. So this morning, turning to the presentation. I will start by taking you through a summary of the first half of the year, reminding you why the long-term opportunity for the business is so compelling. And consequently, how and why we take a longer-term view when making strategic and investment decisions. Andy will then take you through the financial review before I present our strategic update. So turning over the slide. The group delivered revenue growth of 14% in the first half of the year as we continue to extend our market-leading position across all our markets. And it's particularly encouraging to see the On-Trade channel recovering well, especially in the U.S. and Southern Europe. And whilst we've made important strategic progress so far this year, the macro backdrop has been and continues to be uncertain. And whilst we, of course, continue to be very focused on mitigating the inflationary and logistic cost headwinds we are facing, we remain absolutely focused on the long-term opportunity, which I'll come on to talk about in the next few slides. And therefore, continue to invest in the brand through marketing, product development and developing new initiatives and significant new adjacencies. Slide 4. Our long-term strategy continues to be underpinned by the strong global trend to long mixed premium drinks. As you can see from the chart on the left-hand side of this slide, spirits have been and our forecasts continue to take share from wine and beer across the world and particularly in our large growth regions of the U.S. and Europe. The chart on the right-hand side shows how the value of the global spirits market has been growing, with the most premium segments in our top 15 markets increasing from just under 1/3 of the spirit category in 2015 to 40% in 2020, significantly outperforming the standard and value segments. This trend is expected to continue for the foreseeable future. And by 2025, the most premium spirits are forecast to make up almost 50% of the global spirits market by value. And as you know, Fever-Tree sits at the very heart of these trends, with the growing popularity of spirits, especially at the premium end, fueling the growth of premium long mixed drinks and, ultimately, the premium mixer category. Slide 5. So while we are mindful of continued inflationary cost pressures and the volatile macro environment, which Andy will address a little later, the reason we remain so excited as a business is because Fever-Tree is still early on in a significant growth journey with an ever-lengthening runway ahead. As we have demonstrated in our stronghold markets, the brand has the ability to not just premiumize, but significantly expand the mixer category, as shown in the U.K., where Fever-Tree has been primarily responsible for tripling the size of the mixer category since it launched. However, there is a natural pace to developing the brand and establishing this growth by introducing the right product range, building credibility and distribution and increasing awareness. And this is the journey we're now on in our next wave markets, such as the U.S., Canada, Australia, Spain, Italy and France, which will drive the majority of our growth over the next 10 years. Beyond this, we also see good opportunities within our white space markets, including Asia and Lat Am, where we're focusing on establishing ourselves in the On-Trade within key cities to increase our brand awareness with consumers and the trade. And what's even more exciting is that we've also identified some significant adjacencies, including noncarbonated cocktail mixers and premium adult soft drinks, which I'll come on to talk about later in this presentation, but they have the potential to increase our growth opportunity even further. Over the page. Our belief in the long-term opportunity for the business has meant that despite the many unprecedented challenges we've faced over the last couple of years, we have remained focused on building the brand through consumer recruitment and retention. Our growth will come from a combination of extending our existing range and broadening our distribution of core popular premium mixes, prioritizing innovation to build the right portfolio of products for each of our markets and developing new products to pair with an ever greater number of spirit categories as well as developing adjacent opportunities. Maintaining our investment behind the brand as we scale is crucial, and we will continue to focus on multichannel campaigns across markets utilizing retail displays, above-the-line exposure, co-promotions, airport bars, pop-up bars and On-Trade activations to increase the brand's presence, trial and excitement. Slide 7. Another important aspect of our long-term strategy is how we think about price. I want to take a moment to remind everyone of the brand's substantial pricing power, which is demonstrated on the left-hand side of this slide. As you can see, depending on the market, Fever-Tree's price per liter is between 2 and 4x the price of the leading mainstream brand, a much larger delta than a typical FMCG premium brand. In fact, it's hard to find an example of another brand that has created this kind of price premium whilst achieving high market shares. So this combination of being able to command such a strong premium price at the same time as scaling the brand has been achieved through in-depth analysis, a unique understanding of the mixer market and our long-term approach to growth. As the right-hand side of this slide shows, we focus on 3 main elements: building strong relationships with our customers, which has been an important differentiating factor for the brand since the beginning; driving consumer recruitment by analyzing psychological price points and positioning our brand as an affordable premium product; and optimizing our price potential as we become more mature and command a greater share of the market, but doing so in a sensible way, so as not to disrupt our momentum. The brand's aim is to recruit and retain as many customers as possible in order to capture the global opportunity. Consequently, maintaining our momentum in our next wave markets by increasing trial, awareness and distribution is incredibly important, and this is why we take a different approach to price increases depending on the stage of growth of each of our markets. So as well as maintaining our investment in the brand, we've continued to focus on setting up our operations for the future to drive volume growth as well as improve our efficiency. Over the last 3 years, we've been building our capabilities to scale the brand by expanding our number of global production sites to 10 across the U.K., Europe and the U.S., which will reduce our reliance on sea freight and start to build economies of scale as we continue to grow. We've also been investing in our team, especially within supply chain, where we've recruited a number of new senior hires over the last year. And finally, we've been investing in technology through a new wide ranging program embedded into all our global operations to give us best-in-class ways of working, new data and insights to manage the current disruption as well as underpinning our future growth. And the final part of our long-term strategy is sustainability, an area in which we continue to make good progress with a focus on the climate and conservation branches of our strategy over the last 12 months. Last year, we were the first mixer brand to announce that all of our products sold in the U.K. were carbon neutral, highlighting this achievement with on-pack messaging and through our digital channels. We continue to work hard towards achieving global carbon neutrality by 2025 with operational changes such as localizing production in the U.S. and Australia expected to contribute to our progress. Our conservation efforts have given us opportunities to engage with our On- and Off-Trade customers as well as other stakeholders across our regions to join forces to drive awareness in sustainability. In the U.K., we've recently signed a partnership agreement with one of our largest On-Trade customers, All Bar One, to support and promote the Tiny Forest movements across the U.K. And further afield, we are finalizing a long-term agreement to help protect and conserve forest in Central Africa where we source ingredients. Our employees continue to support and to help to drive our sustainability efforts through various fundraisers, mentoring schemes or volunteering. And together, our business is committed to making a material difference with a number of exciting opportunities ahead. I will now hand over to Andy, who will take you through the financial review of the year.

Good morning, everyone. So revenue growth of 14% is a strong results in the first half in which we've seen the On-Trade recover well, and consumer demand remained strong, especially in the U.S. and Southern European markets. We've continued to make strategic progress whilst beginning to explore adjacencies beyond our core carbonated mixer opportunity whilst navigating the ongoing logistics disruption and cost headwinds prevalent across the industry. Tim will talk in more detail on the progress we've made across our regions. But turning the page, I'll talk through the components of the movement in gross margin. On the left-hand side, we begin with the gross margin we achieved on the Fever-Tree brand in 2021, which was 42.9%. And our dollar and euro spend provides a natural hedge, which is combined with our hedging policy to limit the impact on gross margin from a strengthening dollar and weakening euro in the first half. As expected, the return of the U.K. On-Trade drove a channel mix improvement, whilst Europe also improved the regional mix, although we expect this benefit to unwind in the second half as U.S. growth accelerates. Price increases in our established markets, notably the U.K., drove a 110 basis point increase. We expect this to further improve over the full year. However, as expected, the most significant impact on gross margin has been inflationary products and logistics cost pressures. Whilst the majority of these were expected based on agreed 2022 pricing with suppliers, there have been some additional increases during the year. Most notable of these are glass pricing surcharges related to underlying gas costs. Any impact on glass costs can have a marked impact on our P&L, given our sales mix is circa 80% glass bottles, which sets us apart from many of our soft drink peers. This is the first time that midyear price increases have been passed through by glass suppliers and is a reflection of the extreme volatility in gas pricing since the Russian invasion of Ukraine. We expect these surcharges to have a more marked impact in the second half, which was built into the revised guidance we gave in July. We're working with our glass suppliers to secure glass capacity for 2023. And whilst we expect glass pricing to remain elevated next year, we'll be agreeing mechanisms which allow for a degree of recalibration as and when the volatility in gas pricing begins to normalize. The other significant impact on gross margins continues to be U.S. logistics costs. As explained in July, local production in the U.S. was impacted on both cases in the first half. On the West Coast, port congestion early in the year impacted our ability to get glass into the country, which subsequently caused production disruption and reduced output. On the East Coast, we continue to import the majority of our requirements over the first half of the year as we commissioned and ramped up production on the new line. However, delays in that ramp-up, coupled with significant port congestion on the East Coast as we proceeded during the first half, resulted in inventory pinch points, which impacted our reported H1 revenue in the U.S., where the 11% reported growth does not reflect the strength of underlying demand. The results of these moving parts is that our production mix for the U.S. market continued to be skewed to U.K. production in the first half. The impact of this in the P&L was further magnified by increases in underlying transatlantic shipping rates, which increased significantly in 2021 and are up again by a further 50% since the start of the year on key routes, alongside additional disruption-related costs, such as increased U.S. road freight as we took action to balance inventory between East and West Coast to maintain continuity of supply to key customers. Turning the page. Now whilst production is now working well on the West Coast, we're working extremely closely with our bottling partner in the U.S. to improve daily output from the East Coast line. They've reinforced their senior management team, and we've co-authored a detailed plan, which addresses recruitment, training and ways of working in order to drive a continuous improvement in daily output over the coming months and hit a targeted 80% local U.S. bottling in Q4 this year. As a result of these actions and an influx of significant amounts of U.K. produced products over the past 6 weeks, U.S. inventory is reestablishing. And with it, we're seeing an upturn in sales with a record month recorded in August. Whilst we will continue to incur elevated U.S. logistics and disruption costs in the second half, our exposure to this will reduce as we increase local U.S. production through the remainder of this year and as we progress into 2023. Throughout this challenging period, we're continuing to invest in the operational capabilities that will underpin the growth opportunity. We've made new experienced hires in our global supply chain team and are working on a substantial program of activities, which will help to mitigate near-term inflation, but also sets the business up for long-term profitable growth. These actions can be broadly grouped into 4 key areas. Firstly, expanding our production footprint and establishing capacity closer to our key growth markets such as the U.S. This will minimize transport costs, such as transatlantic freight. It will allow us to optimize our inventory holdings and allow for faster reactions to market dynamics with a focus on driving U.S. bottling output, establishing U.S. canning and establishing Australian bottling during 2023. Secondly, we're working with our production partners to optimize our existing footprint and drive efficiency and effectiveness as we manage our increasing complexity. Thirdly, we're focused on driving procurement benefits, whether that's leveraging our global scale or widening and onshoring our supplier base, for instance, sourcing U.S. glass bottles for our West Coast U.S. production. We will also focus on calibrating our contracts for both the current disruptive environment, but more importantly, our longer-term growth as we scale through the regionalized production footprint we're establishing. Finally, we're investing in technology. Underpinning all of the above is a wide-ranging program to upgrade and embed technology across our global operations that will give us best-in-class ways of working, data and insights. That program of work is essential to underpin a profitable route to the significant opportunity ahead that Tim has just mapped out. In the same way, we continue to invest for growth and have increased OpEx by 15%. Marketing spend is 10.2% of Fever-Tree brand revenue, whilst we've also invested on our team, taking on more head count to deliver strategic projects, which are not only focused on driving the operational improvements I've just described, but also route-to-market changes, extensions into adjacencies and exciting innovation projects, all of which will drive growth in the coming years. Working capital improved in the first half of the year, and we expect cash conversion to also improve as the year progresses, just as we saw happen last year. Cash reduced by 25% as we paid the special dividend announced in March. However, holding GBP 100 million on balance sheet underpins our ability to both navigate uncertainty and invest behind the opportunity with confidence and purpose. Aligned with this, we continue to pursue a progressive dividend policy with an interim dividend up 2% year-on-year. So turning to the final slide of this section. This morning, we are reiterating our revenue guidance with a range of GBP 355 million to GBP 365 million. Whilst the overall range isn't moving, we are revising U.K. revenue downwards, recognizing the risk of softening consumer sentiment on sales in our most established market, albeit we believe the demographic of our consumer base and our positioning as an affordable trade will also provide a strong mitigation against this headwind. As ever, the Christmas trading period will be key for U.K. sales, with typically 20% of Off-Trade revenue made in the last 6 weeks of the year, where the potential for a first Christmas since 2019 free from restrictions and a spread of COVID variance will be balanced against this risk of softening consumer confidence. In the U.S., the inventory position is improving and the strong demand is being serviced as pipelines are refilled, and we anticipate a strong Q4. As a result of this, alongside the strengthening dollar and the acquisition of Powell & Mahoney, which Charles will talk to you later in his presentation, we're increasing our U.S. revenue range. I've talked through the headwinds that will continue to impact gross margin and intensify in the second half, and this was all built into the guidance we gave in July. Whilst we're very mindful of the current geopolitical uncertainty and the potential for further disruption in costs as we progress through the year, we remain comfortable with the gross margin range of 33% to 35%. And with OpEx at GBP 80 million to GBP 82 million, this gives the EBITDA range set out in July of GBP 37.5 million to GBP 45 million. And given the level of uncertainty with regards to inflationary cost pressures, notably relating to gas and energy, the impact this could have on glass, bottling and canning pricing, we are not providing margin guidance for 2023 at this stage. Whilst we expect significant further inflationary cost pressures, we're focused on the mitigating actions, including pricing and further onshoring of production in key markets, whilst continuing to make progress on the operational initiatives I set out earlier, which will position us for profitable growth as we exit this current period of uncertainty. With that, I'll hand back to Tim.

Thanks, Andy. So I'll now take you through some of our regional specific highlights as we continue to make great strides across the world with important strategic progress in every market -- market, I should say. Turning first to the U.K. Fever-Tree grew sales by 6% in the first half of the year driven by the On-Trade, which continues to recover as the year progresses. We remain the mixer brand of choice in the U.K. by a substantial margin with around 45% value share of the total mixer market across both the On- and Off-Trade. Our share is materially higher than the next largest competitor, our mainstream brand Schweppes, and over 20x larger than the next largest premium brand. Encouragingly, spirits continue to premiumize in the U.K. with the premium and super premium categories forecast to grow significantly over the next 5 years, supporting the growth of premium long mixed drinks. Move the page. In the On-Trade, spirits continue to perform strongly. While spirit sales value in the On-Trade grew by over 15% in H1 versus '19, driving value share increases of 3.4 percentage points, Fever-Tree continued to increase its value share in the On-Trade with over 50% value share of the mixer category, an increase of 3.1% compared to pre-COVID levels. We remain committed to our long-term relationships with our On-Trade customers, which we've demonstrated with our ongoing support for the trade. The strength of these relationships has enabled us to continue to secure new listings with large national accounts, including [ Bill's ], Wagamama's and Young's pubs, leading to a 10% increase of On-Trade accounts Fever-Tree's presenting compared to pre-COVID. In the Off-Trade, the last 2 years has seen a considerable increase in at-home consumption of long mixed drinks and Fever-Tree has been at the forefront of this. In the first half of 2022, the Off-Trade mixer category has seen value declines as it annualizes these tough comparators. However, Fever-Tree has continued to drive volume share gains with just over 14% volume share in the mixer category, up from 12% in 2018. This growth has been driven by our ever-increasing rate of sale on shelf, which is 7x higher than the average rate of sale of all other premium mixes and has been achieved despite the fact our promotional intensity remains well below other mixer brands at retail, a real demonstration of the strength of the brand. It is, therefore, no surprise that Fever-Tree continues to grow its household penetration in the U.K., reaching 15.8% of households over the last 12 months. To put this achievement in perspective, not only is this penetration higher than any other mixer brand, but it is substantially higher than any other beer brand. I think you'll agree that, as a premium brand, that this is a remarkable achievement. Slide 20. Our marketing focus in the U.K. during the first half of the year has been threefold. Firstly, we created a new above-the-line campaign, We'd say T&G, which is the first time the brand has been live on U.K. radio. We've prioritized On-Trade activations and presence across a number of U.K. events such as Royal Ascot, T20 at The Oval, creating more opportunities for the brand to be purchased and enjoyed. We've also continued to invest behind co-promotions in a number of retailers, especially around key events such as Easter, Mother's Day and Father's Day. Our team's marketing efforts have contributed to meaningful brand awareness gains. Fever-Tree's prompted awareness is now as high as 90% among spirit and mixer drinkers and 44% of spirit and mixer consumers claim to know the brand very well compared to just 9% and 12% for Double Dutch and London Essence, respectively. Over the page. For the last 2 sides on the U.K., I'd like to show you 2 notable new initiatives. The first of which is airport bars. We identified a gap in the hospitality offering at airports. Whilst the pub market is well served, and there's also a very exclusive champagne offer, there is no dedicated offering to meet the current demand and trend for cocktails. As such, this year, we opened our first branded and operated airport bar at Edinburgh Airport, giving the brand fantastic exposure and providing passengers with the premium cocktail experience before their flights. The extensive drinks menu uses a broad range of Fever-Tree products to create a range of serves to showcase the versatility of the brand. And we've created a complementary food menu with a twist on consumer favorites such as Gin cured salmon. The initial results since the bar opened in May have been overwhelmingly encouraging, with over 60,000 drinks served and revenue exceeding -- notably exceeding our initial expectations. The desire for early morning G&Ts and Moscow Mules, et cetera, have even taken us by surprise. The results have immediately confirmed our belief in the opportunity. And as such, we're already talking to other airports around the world. The second exciting opportunity we've started to explore this year is a potentially very significant one, and that is within the premium adult soft drink category. We have long understood that our product's natural ingredients, adult flavor profiles and low-calorie options, alongside the sophistication of our brand means we are ideally and uniquely positioned to extend into the premium soft drink occasion. This belief has been underpinned by initial trials we have conducted with the major U.K. retailer over the last 12 months, which has seen a small number of our products placed within the adult soft drink section of the store. The results of this trial have been extremely encouraging with one of our SKUs instantly achieving the highest rate of sale of any single unit product within the category, outselling the long-established adult soft drink competitors. Clearly, immediate proof of the unique strength of the Fever-Tree brand. And while at a relatively early stage, we believe the category presents a significant long-term adjacency for the brand. In the near term, the positive results of the trial have enabled us to secure incremental distribution equating to about 5% increase in our total number of distribution points across our grocery business, and we will see the launch of a 4x200 (sic) [ 250 ] ml can format alongside our existing 500 ml glass to support the rollout in the second half. This will then be followed by new flavors and extending into other channels as we build out the opportunity in the coming years. So as I hope you've seen from these last few slides, we have made significant strategic progress in the U.K. so far this year. We remain the market-leading brand by significant margin and continue to invest to drive trial, awareness and excitement in the category. And we are particularly excited by the opportunities in adult soft drinks to create an even bigger potential for the brand in the U.K. as well as further afield, putting us in a stronger position than ever to realize future growth. I'll now hand over to Charles to take you through our progress in the U.S.

Good morning all. I've got a slight echo on that.

I think you're good.

Okay, good. Fever-Tree delivered GBP 40.1 million of revenue in the first half of the year, an increase of 11% year-on-year and 9% on a U.S. dollar constant currency basis. The total On-Trade market has recovered very well with sales quickly surpassing pre-pandemic levels and Fever-Tree continues to increase its presence across the country, growing our total points of distribution in the On-Trade by 33% in the past 6 months, with a focus on high-quality accounts such as Marriott, Four Seasons Hotels, MGM, to name a few. We continue to outperform in the Off-Trade, growing almost 3x faster than the total mixer category over the last 3 years, with particularly strong growth in Ginger Beer and Tonic Water, which we've both grown well over 100% compared to pre-pandemic levels. We remain the largest premium mixer brand in the U.S. and continue to increase the brand's reach and influence using our multichannel approach to brand building with a focus on digital through YouTube content, social media campaigns and most recently, our first appearance on Hulu with a 30-second advert, which garnered over 2 million views in May and June alone. Fever-Tree's strong growth, along with the investment we're putting behind the brand to increase awareness, is translating into significant distribution gains, including over 6,000 new points of distribution in Walmart and Albertsons-Safeway alone and over 3,000 new points of distribution in Target compared to the first half of 2021. Moving to Slide 25. We remain committed to and very confident in the long-term opportunity in the U.S., supported by all the positive trends in the spirit category. As the left-hand side of this slide demonstrates, the U.S. spirits market is large, growing and above all, premiumizing. Tequila, in particular, is a very exciting category as it represents about 1/4 of the spirits category value, is extremely premium, the fastest-growing spirit and forecast to continue to premiumize substantially over the next 3 to 4 years. However, this is just one of the many spirit categories we're seeing good growth in and which are forecast to continue to premiumize giving Fever-Tree even more occasions to create the perfect serve for. Two examples of recent innovations are highlighted on the right-hand side. Firstly, our Sparkling Pink Grapefruit, which we launched at the start of COVID, having spotted a gap in the mixer category for a low-calorie premium breakthrough to pair with Tequila, targeting the increasingly popular Paloma cocktail. We are already driving over 50% of grapefruit category growth through a combination of strong distribution gains in the large grocery chains as well as a very high rate of sale once the product is on shelf and have achieved a 10% value share within the category in just 2 years. As recently as a week ago, we launched our first flavored Ginger Beer in the U.S., a Blood Orange Ginger Beer, replicating the success we've had adding flavors to our Tonic range in recruiting new consumers and exciting those already loyal to the brand. Partnering with Maker's Mark Kentucky Bourbon, we look forward to seeing this latest innovation performance as we continue to base our U.S. expansion on local consumption trends to elevate the mixer category. Finally, I'd like to present another very enticing opportunity for the brand as we start to explore the noncarbonated mixer category in the U.S., which includes the likes of Margarita and Bloody Mary mixers. This category is significant. It's growing and it's premiumizing. The category value is larger than either Tonic Water or Ginger Beer and has grown by 24% since 2019. This growth has been driven by the premium end, which has grown at 59% compared to 15% growth for the mainstream segment. What makes this category even more compelling is that no brand as yet has a dominant share, and we believe that Fever-Tree with our brand conventionals, our proven rack record in innovating, strong relationships within the trade, broad distribution is in an unrivaled position to take advantage of the opportunity. Therefore, to accelerate Fever-Tree's entry into this category, we've recently acquired Powell & Mahoney, a premium noncarbonated mixer brand with an attractive asset-light business model and a good track record of growth. We're excited to use their existing retail distribution as an ideal platform to launch the Fever-Tree brand into this category. As I hope you can see from the last few slides, the group's ambition and confidence in the U.S. opportunity continues to grow. We've been encouraged by our performance in the On-Trade, our continued momentum in the Off-Trade and continue to see a lot of white space in this substantial and premiumizing market. I'll hand back to Tim to talk about Europe and Rest of the World.

Thank you, Charles. So turning to Europe where we've had a strong start to the year. Fever-Tree brand revenue was GBP 46.5 million. And our total revenue, including GDP portfolio brands was GBP 52.3 million, an increase of 27% year-on-year and 31% at constant currency. This excellent performance is a testament to our increasing brand strength and the strong rebound in the On-Trade channel, particularly in the Southern European markets. The substantial amount of Fever-Tree's growth in the first half of the year came from Italy, France and Spain, with the On-Trade accelerating in every market, supported by our investment in marketing campaigns as well as our distribution gains across both channels, leading to market share increases. Over the page. This slide highlights that our growth across Europe is coming from all our key markets and how Fever-Tree continues to drive growth and premiumization of the mixer category across the region. As you can see, we're increasing our presence across Europe with especially strong retail value growth in France, Italy and Germany over the last 3 years. And as the chart on the right-hand side demonstrates, Fever-Tree is the leading premium mixer in Europe with 15% value share and has contributed to almost 1/3 of the mixer categories growth since 2019, more than 6x the contribution of any other premium mixer brand. This naturally puts us in a very strong position, not only to capitalize on the support of underlying trends as the spirit market continues to grow and premiumize, but also to drive further growth across the mixer category through premiumization and partnering with spirit brands to promote specific serves. Fever-Tree's impressive growth has been supported by a range of marketing activities that we've invested in over the last year. This slide outlines a number of initiatives we are investing behind, but I'd like to mention 1 or 2 highlights. Firstly, our fantastic TV campaign in Italy during the first half of the year. Our very first national TV campaign in Europe, following the success of a regional campaign in Spain last year. The ad aired in May and June using our 3/4 message and focusing on our quality ingredients and provenance. With a bit of good fortune, it debuted in the middle of the Italian football finals, thus reaching Italian's largest television audience. And as a result, we've already seen meaningful results from the ad with Fever-Tree's awareness increasing by 60% in Italy compared to before the campaign. We also continue to work the range of spirit partners on co-promotional activity across the Off-Trade with retail programs leading to increased sales and distribution gains as well as in the On-Trade where we've been focused on driving popular serves as the channel comes back to life. So our final region is the Rest of the World where Fever-Tree performed well, increasing our revenue by 7% year-on-year to deliver total revenue of GBP 15 million in the first half of the year. It's worth pointing out that our underlying growth was much stronger at about 15% based on depletions. Fever-Tree has made 2 significant route-to-market changes across the region. Firstly, in Canada, we have transitioned to a more heavyweight distribution partner, Tree of Life, who will support our long-term growth ambitions in this attractive market using their 70-plus years of experience in the Canadian market, their strong sales team and broad coverage across all channels and geographies. In Asia, we've also made an important change to our route to market. Having spent some years seen in the brand at the premium end of the On-Trade, the brand has agreed to take on Asahi Breweries as our new distribution partner in Japan with a 3-year exclusive deal starting in January '23. This move is reflective of Asahi's belief in the significant future opportunity in the premium mixer and adult soft drink category and their strong belief that Fever-Tree is the brand to unlock this opportunity. The Asahi is the largest beer company in Japan, and as such, has very significant reach across both the On- and Off-Trade. And to this end, we're excited about working with them in a potentially very valuable and significant market. The brand is making good progress in our 2 key Rest of the World markets, Australia and Canada. In Australia, we're driving Off-Trade category growth by a significant margin, increasing our sales value by over 50% in the last year and gaining share to become 16% of the mixer category by value at retail, an increase of 4 percentage points year-on-year. In Canada, Fever-Tree is also driving growth in premiumization in the category. The market has been growing strongly by around 30% in the last 3 years, and Fever-Tree has grown at over 5x this rate, far outpacing other mixer brands, but with plenty of white space ahead to expand further. We remain focused on driving the momentum in the premium mixer segment in both Australia and Canada, gaining incremental distribution across all channels and increasing our range in formats to appeal to a broader set of consumers, all of which provides us with a good runway growth ahead in these 2 markets. So finally, I'd like to finish by reminding you of our belief in the substantial long-term opportunity for the business and how we plan to access this. As I laid out at the beginning of the presentation, we are confident that we can replicate the brand's success in our stronghold markets around the world by expanding and premiumizing mixer categories. This growth will be driven by our next wave markets, but we see further potential in our white space markets alongside a number of new, exciting adjacencies to our core carbonated mixers, including adult soft drinks and noncarbonated cocktail mixers. We will achieve our ambitions through 5 main actions: continue to develop new products, keeping innovation at the heart of what we do; investing behind the brand using a range of promotional and marketing activities; optimizing our premium price to ensure we continue to recruit and retain customers around the world; building and improving our capabilities to set us up for future growth with a focus on efficiency; and finally, growing and supporting our team who have always been and remain the most important part of the business. And whilst we are, of course, mindful of continued inflationary cost pressures and current macro uncertainty, our strong financial position, along with the benefit of the strategic actions Andy outlined earlier, will help us to navigate the current headwinds impacting the entire industry. And I therefore remain confident that we will emerge from the sustained period of extraordinary global disruption in an even stronger position. So thank you for listening this morning. Andy and I, along with Charles in the U.S., are now happy to answer some of your questions.

I'm Ed Mundy from Jefferies. I've got 3 questions, please. Tim, first of all, let me move within the U.K., this opportunity from the mixers towards the premium adult soft drink. Could you talk about the need to reposition price points? Are you changing your pricing architecture for that in the first instance? And then second of all, could you talk about the potential total addressable market from that and your confidence of growing sales within the U.K. as part of that move? That's the first question. The second one for Charles, since he's up and has got up. Just on this acquisition and to nonsparkling mixers, clearly, there's quite a number of them out there. Why this brand? And how quickly do you think you can transition the Fever-Tree brand into that product portfolio? And then third of all, for Andy, you'd be sort of disappointed if we didn't ask about 2023 and the opportunity for logistics and cost pressures to start to ease. Any commentary you can provide without giving guidance would be very helpful.

Ed, well, let me tackle your first one. You asked about pricing architecture, very similar pricing. We're not changing our sort of price per ml that suits that adult soft drink category, which is actually a more premium category in terms of price. In terms of the size of that, I mean, that particular category currently sits at about half the size of the mixer category at retail. But we also have ambitions for the premium carbonates part of the store. That's also split into another part of the store, which, again, is about half the size of the mixer category. So overall, the 2 categories that we will be looking at are the equivalent of the mixer category in the U.K. retail. And don't forget, these have a large footprint also into not just the On-Trade, but of course, we're incredibly strong with very strong relationships, but also in time to that sort of food service category as we describe it, which is the southern nonlicense category. So it's a very considerable size category and opportunity and they're growing. There is increasing desire for premium adult soft drinks. And as I described, I think there's no better brand to tackle that than Fever-Tree. Charles?

Yes. Thanks, Ed. So in terms of Powell & Mahoney, I mean, I think the really 3 reasons why this was an attractive brand for us. Firstly is the quality of the product, the quality of the liquid is very good and it has very similar DNA to the Fever-Tree brand in the -- or product characteristics of ingredient hunting, being non-GMO and fitting into those trends within the marketplace. This brand essentially operates for us as an accelerator into this category. It's got about 10% to 15% of the current Fever-Tree distribution. Therefore, it's got a good foothold. It's got a good beachhead, if you like, in terms of distribution that we can further expand on. Secondly, it's got an established production facility that we visited that we really believe in, who produce high-quality products out of Chicago. It's very well positioned for growth over the coming years. And we believe that by integrating it and bringing it into the Fever-Tree fold, we'll be able to accelerate not only our own opportunity within this space but also really take this business to the next level. In terms of your sort of later question, I would say within the next 12 months would be a realistic time frame for the core products within this because they sell not only sort of Bloody Mary and Margarita mixers, but also have what we would term as those bar essentials, so sort of grenadines and bellinis, stuff that people use as either modifiers or additives to their cocktails, which will keep in the Powell & Mahoney brand at this stage. So within the next 12 months for the core product, I think, would be a realistic expectation. And over to you, Andy.

Thanks, Charles. Yes, '23 margins, we're not providing guidance. And the challenge is visibility on the degree of input cost, inflationary pressure and primarily that's coming from energy and gas at the moment. So bottlers, canners and particularly the glass guys aren't willing to commit. They've got to see where it settles, where they fix their hedges, the extent and degree of potentially any government support, which were at a very high level as announced last week, but there's no details clear. So until we're able to kind of get more detail on that, we're not selling out that guidance. But we expect, particularly on glass pricing there to continue to be a core price and then a gas-related surcharge. Against that, though, we do have things in our [ gift ] to drive margin improvement, and that's what we're focused on. So we're looking very closely at pricing again. We won't be taking pricing again this year necessarily, but we're looking at it across regions next year. We're driving more and more onshoring of U.S. local production. The East Coast ramp-up is delayed, but it's happening. And that gives us confidence that we should be able to underpin at least 80% of glass production in the U.S. next year. We're also identifying the opportunity to bring cans onshore next year, and we hope to do that during next year. We've also got Australian bottling, which we're in the process of sort of finalizing. And again, we want to bring that online next year. All of those things reduce exposure to these transatlantic freight costs, reduce exposure to some of these disruption costs as well, which is significant and are kind of lumpy and one-off like having to move stock from coast to coast in the U.S. because of various delays in ramp-up on the East Coast or demurrage charges at the ports, which, again, we'll be less exposed to. So that should -- that will drive a benefit. And then thirdly, these initiatives that are set out beneath them and multiple individual projects that we expect to also start to drive an improvement in underlying gross margin next year. So we're focused on that internally. On the upside, we can drive, until we can -- we've got greater visibility on what that headwind is going to be, we're not providing guidance.

It's Andrea Pistacchi from Bank of America. A couple from me, please. The first one on the U.K. You're a bit more cautious on the outlook for the U.K. for obvious reasons, consumer environment. What would be your base case of what could happen in the U.K. in the next 6 to 12 months? What are you assuming? Do we see a bit of trade down in the Off-Trade or more softness in the On-Trade? And what is happening with the pricing environment of the trading update you'd flagged that some of the smaller competitors and the large competitor were quite promotional? And then moving to glass, if I may, please. You flagged that the glass shortages would potentially be affecting you, particularly in the second half and limit the upside to demand. What kind of magnitude could -- is this impact? And where are you seeing particularly the glass shortages?

With regards to your question about the U.K., as you say, we're flagging some potential softness. But actually, we're not seeing any down trading at the moment. Interestingly, in the Off-Trade, actually, the category that's losing out is the unlabeled category, so the cheaper end of it. So we're seeing the branded Schweppes and Fever-Tree holding up strongly. So we're not seeing a direct down trading. But the On-Trade is recovering from COVID, but it's still taking time to recover. And we've been encouraged by the last 3 months where we've seen sort of stronger trading, greater frequency of people returning to the trade, but we are just cautious because we are well aware of that environment that exists at the moment and has been much talked about. Although I have to say, I think the energy cap is going to help people's sort of confidence there a little. You mentioned about pricing, yes, we're seeing some pretty aggressive discounting from the competition, specifically from Schweppes around their 1-liter product, but also from our premium competitors. And there I think that's driven by different reasons. That's out of necessity to try and get their rate-of-sale going. But as we said before, we're not being drawn into that. We've kept a very similar promotional pricing mechanism as we've had in previous years, but obviously keeping a watchful eye on it.

Yes, on glass, I mean, the glass market in U.K. and Europe is tight, particularly across our supplier base. And we're flagging in July the fact that we were made aware of the fact we can get our glass allocation for the year, but we can't. There's no upside to those -- to what we could draw down from our suppliers. That had 2 impacts. One, from a regional perspective, particularly Europe, where momentum is very strong. To a certain extent, it's capping the upside. There's only so many bottles, we're going to be able to put down our European bottling lines. And the other thing is it just brought into focus the discussions we're having around these gas surcharges. And obviously, in the context of where it becomes slightly take or pay, you have to agree to the surcharges, and hence, that got fed into our guidance in July. We expect actually the glass market will remain tight next year. There are more kind of furnaces coming online, et cetera, over time. So the job at the moment is securing allocation for 2023, which we're extremely confident of doing.

Richard Felton from Goldman Sachs. My first question is on the U.S., where it sounds like you're making very good progress across the On- and the Off-Trade. And you've notched your guidance up slightly in GBP terms. But if I think about those numbers on an organic basis, stripping out some of the FX tailwinds and revenue from the acquisition that you've just announced, that range is maybe a little bit lower than the range that you had guided to in March. And is that related to the supply chain constraints that you faced at the end of H1? Or is there one part of your business that maybe hasn't performed quite as strongly as you had expected at the beginning of the year? That's my first question. My second question, coming back to margins. I know you're not going to give guidance for '23 and given the volatility, I think it makes sense. But as you sit down with your team, Andy, and do your planning, what's sort of the key data point of development that you're looking for that's going to give you confidence and say, yes, I think margins has now troughed and we continue to grow from here? Is it gas prices coming down? Is it some of the price increases that you're planning, evidence that is going to stick? Or is there something else that you were looking for to give you that confidence that margins have kind of hit the bottom from here?

Sure. I don't know if Charles -- do you want to take the first one?

Yes, sure. Happy to. Look, obviously, the inventory challenges that Andy described absolutely hit some of our sales and with some of our business being direct with some core retailers. Clearly, that's led to inventory issues right the way through the chain. So some of those sales that we didn't make in H1 sadly are lost sales because they were physically -- there was physically not product on shelf for a period of time in some key retailers so consumers were not able to purchase the product. But there is nothing underlying in terms of the brand's performance. There's no particular part of the portfolio that is underperforming. In fact, I would say that our core areas of Ginger Beer absolutely is performing very strongly. We are the market leaders now in Ginger Beer within the U.S. by value. We are very much growing faster than Schweppes in terms of Tonic Water, and we see a huge runway there ahead to become the #1 Tonic Water over a long period of time in the U.S. market. So absolutely, we see Tonic Water growth accelerating over the second half and most importantly, into 2023. I talked about the Sparkling Pink Grapefruit, we see that as having a tremendous runway for growth. If I look at its distribution base, we still got a lot of work to do on its distribution. So we feel very confident there. But we know once the product gets into be that an On-Trade or an Off-trade account, it accelerates and performs extraordinarily well. Club Soda, which is very important for us in the On-Trade as again, as it comes back into stock, which is now, we're seeing, again, that we're refilling that pipeline and it continues its strong momentum. So there's no part of the portfolio for me that is underperforming. We simply had, if you call it, a temporary blip in terms of our supply driven by the factors that Andy described earlier, that transatlantic freight, the port blockages, the slightly slower ramp-up at UNIX in North Carolina, all of which had an impact, in particular in sort of Q2 of this year, leading into the half year. But again, as Andy said, August was our strongest month on record ever for the brand in the U.S. market, highest number of cases ever sold. Over to you Andy.

Thanks, Charles. And in terms of the key data point, I think we've got a good degree of confidence and visibility, and I think the pricing actions we intend to take next year, the benefit we can drive from an 80-20 split of local U.S. and what we can get from Australian bottling as well is relatively straightforward to map out. And we've got a good degree of confidence we can deliver those as well. The key data point at the moment is effectively glass pricing and related to gas. And the picture there has changed even in the last week with regards whether there will or won't be government support within the industry there. So that's, in the short term, the key data point that will drive where margins will land next year, but it doesn't take away from really confidence in how we can continue to drive improvements through onshoring, procurement benefits, driving scale through that U.S. system, less and less exposure to these disruptive costs, transatlantic freight, all of those things drive significant benefits over the next sort of 24 months.

Ashton Olds from Berenberg. First question, just on pricing, and I apologize if I missed it. But I seem to recall in July at the last update, you guys suggested that you're looking at potentially going or reviewing the U.S. pricing. If that's the case, could you sort of let us know if you decide to make no action? And I guess, just secondly, on the Powell & Mahoney acquisition. Just in terms of distribution, is that able to be distributed through your existing distributor? Or like could you talk us through sort of the plans to ramp up distribution there?

Charles, I think -- you're good with that?

I'm happy to take both of those, yes. Look, in terms of pricing, we're undergoing sort of reviews at present. Most of our review meetings with core retailers are in the next -- basically within the next quarter. And we're absolutely looking at wherever we could take price. Absolutely, we'll be looking at that very, very seriously. There's a balance of ensuring that we take the right amount of price, but also maintain the momentum of the business. And we have had considerable success in building momentum over the last period of time. So we want to make sure that we balance those 2 aspects of the business. But absolutely, we'll be looking at that. Really for sort of early 2023 would be the earliest point at which we would look to take price in the U.S. market, and that's driven by a lot of the meetings that we would be having in the next quarter or so to manage that through with the retail trade. In terms of Powell & Mahoney, absolutely, that's the joy of this acquisition is the fact that it fits beautifully into our current distribution network. This brand is -- can be distributed through wines and spirits distributors, so will fit perfectly into the Southern Glazers Wines and Spirits, our portfolio. So we'll be transitioning that bit of business across. Equally, we can -- it's a noncarbonated mixer, so we'll continue with our broadliner where they already have strong relationships. So that's simply adjusting that relationship from being managed by them to being managed by us. And finally, we'll be able to integrate it seamlessly into our direct sales business, such as Walmart, Target, Kroger, as where we get listings for the product in those accounts. So the joy here is that this isn't -- this doesn't require new channels or new routes to market for us to explore. It fits perfectly and in many cases, sits right alongside us on shelf or in the same aisle within a retail space. So that's what makes it particularly attractive for us. There you go.

Very good. Well, I think our time is just about up. But look, thank you very much. I mean look, there's no question that this brand is bigger, stronger, more widely distributed, further ahead of the competition than it's ever been, and the opportunity and runway ahead is bigger than it's ever been. And so I just hope that, that has come across today with this presentation. But thank you very much for coming, much appreciated.

Thank you.