Earnings Transcript for FEVR.L - Q4 Fiscal Year 2020

Operator: Ladies and gentlemen, welcome to today's Fevertree Full Year 2020 Results Presentation. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions]. I'm now going to hand over to Tim Warrillow to begin. Tim, please go ahead.

Tim Warrillow: Thank you, and good morning, everyone. Thank you for joining us to hear about Fever-Tree's performance during 2020. My name is Tim Warrillow, co-Founder and CEO of Fever-Tree. I'm joined on the call by Andy Branchflower, our CFO; Charles Gibb, our North American CEO, who I have to say has nobly got up at the crack of dawn to be with us; Ann Hyams, our Director of Investor Relations; and Oli Winters, our Head of Communications. So turning over to Slide 2. This morning, I'll start by taking you through how our proactive actions have led to a resilient performance during the year, how we've built an even stronger business during 2020 and I'll remind you of why the long-term opportunity is so compelling. I will also introduce our sustainability agenda, which I'm extremely excited to share with you all. And Andy will then take you through the financial review before I present our strategic update, along with Charles, who will update you on our performance in the U.S. So over the page, we entered 2020 with a strong financial position, which, along with our asset light, flexible business model enabled us to act on the front foot and maintain our investment during the year to ensure that our revenues only marginally declined and, in fact, increased over the second half of the year. At the start of pandemic, we set up a cross departmental team to coordinate the group's response, reacting quickly to changing channel dynamics and consumer demand, redeploying marketing budgets and dealing with the ongoing challenges posed by the pandemic. The way our team across the globe adapted to working remotely and the commitment they have demonstrated through the period is a testament to the talent and dedication of our employees. While our strong business model enabled us to do with the challenges of 2020, our actions over the year have further strengthened our business and long-term growth opportunity around the world. We will all go into more detail throughout the presentation about how we've not only been able to support our team and our customers during uncertain times, but also helped to stimulate and take advantage of growing consumer interest in making long mixed drinks. And most importantly, the phenomenal off-trade growth across all our regions has seen Fever-Tree in more people's fridges around the world than ever before. We've increased our penetration in the U.K., consolidating our #1 position and driven significant value share gains in the U.S., Europe and as far afield as Canada and Australia. So turning over the page. While we continue to act quickly and dynamically in the face of the current situation, our long-term strategy remains unchanged and as it continues to be underpinned by the global trends on long mixed drinks, as well as our excellent track record against the competition. As you can see from the slide, spirits have been growing ahead of beer and wine over the last few years, and this is expected to continue. Moreover, not only has the premium segment of the market been growing the fastest in our key markets, but Fever-Tree has almost doubled the growth of the rest of the premium segment between 2012 and 2019. We are the number one global premium mixer brand and have built an enviable track record in our ability to drive the growth and premiumize the mix of category across the world. And over the page, even more encouragingly, these supportive trends have not only continued but accelerated over the course of 2020 as people have consumed more at home. They're preferring spirits to beer and wine, and many have been trying to create their own long mixed drinks for the first time at home, a trend we believe will remain even as the On-Trade reopens. In addition, premiumization has also continued at pace across spirits as consumers continue to treat themselves to affordable luxuries. And what is increasingly evident is that Fever-Tree sits at the heart of this fast-growing global movement to premium long mixed drinks. No one else is better placed. We have the first mover advantage, a strong track record against competition and international footprint, tools, range, global brand recognition and relationships to continue to benefit from and drive this trend forward. Before I hand over to Andy to take us through the financial review, I wanted to focus on sustainability at Fever-Tree. This is something that has been part of our DNA right from the start when Charles and I founded the brand, and remains a consideration in everything we do, whether it be the selection of our ingredients and our focus on working direct with our long-standing suppliers, our commitment not to use PET bottles, our partnership with Malaria No More, that is CMS contribute over £1 million of the fight over the last 3 years, as well as our support for local communities during the COVID-19 pandemic. We have always wanted to create a positive long-lasting impact, and over the last 12 months, we've been working hard to establish a clear framework for our sustainability initiatives focused on 5 branches as set out in the slide. These branches guide our approach and ensure all our teams has sustainability considerations as part of their overall decision-making and strategy. As a senior team, we are excited about the initiatives that are underway. We have a strong direction of travel in this area, and I look forward to talking in much more detail about them in the coming months. I will now hand over to Andy, who will take you through a financial review of the year.

Andrew Branchflower: Thank you, Tim, and good morning, everyone. Revenue of £252 million represents a very resilient performance. The On-Trade, which had made up 45% of our business, was impacted by lockdowns and restrictions across our regions throughout the year. And so for total revenue to decline by only 3% really is testament to our strong performance across the off-trade channel globally, and in particular, a strong performance in our key growth markets. Tim and Charles will talk in more detail on that performance and progress across our regions. But on Slide 9, we break out the components of the move in gross margin. Now we did this at the half year, and this is now the full year picture. Now firstly, we expected to see some dilution in gross margin this year to circa 49%, which is broadly what we saw, driven by the U.S. price optimization and the lapping of some one-off adjustments in 2019. And you can then see that gross margin was impacted by 3 further elements. Firstly, there were FX headwinds, largely driven by U.S. dollar weakness in the second half; secondly, we see the impact of COVID related sales mix changes. Now some of these impacts began to unwind in the second half of 2020, driven by regional mix changes rather than changes in channel mix. But overall, across the year, they still had a significant impact on gross margin in 2020. As we look forward to the second half of 2021, we expect to see this impact unwind further, particularly as the U.K. On-Trade begins to recover in the overall sales mix. Therefore, on a constant currency basis and after these sales mix movements, we would have reported a 46.9% margin for the Fever-Tree business. Then we bring in the GDP portfolio brand revenue. In the second half, this equated to £6.4 million of incremental revenue, but running at a 20% gross margin. This incremental portfolio brand revenue provides contribution towards the cost of the GDP sales team, but it dilutes the group's percentage gross margin, bringing it down to the reported 46.2%. Turning to Slide 10. As Tim set out, 2020 was a year in which we continue to invest behind the brand and our people. Marketing spend was 9.9% of Fever-Tree revenue. And whilst we naturally made savings against On-Trade plans, we redeployed the majority of those savings across the Off-Trade towards digital spend in the U.S. and our first national television advertising campaign in the U.K. We also ensured we continue to up-weight investment in our key growth markets, with notable increases in marketing spend in the U.S., Canada and Australia. We increased headcount, welcoming 51 new members of the team following the acquisition of GDP and a further 35 new hires as we built capability in central functions such as marketing, innovation and our technical teams while also adding to regional teams in the U.S., Europe and Australia. The results of these continued investments in the brand and our people was a 9% increase in operating expenses, which, alongside the movement in gross margin, meant our EBITDA margins reduced to 22.6%. Turning the page, as we look to the balance sheet, working capital marginally improved in the year to 20.7% of revenue. We placed real focus on credit control throughout 2020, working closely with our U.K. On-Trade customers and our international distributors. We reached out proactively in the initial lockdowns, offering payment freezes and extended terms. And as restrictions eased, we agreed payment plans to support their return to trading. This approach was successful in terms of collecting sowed, but also in helping to further strengthen those key relationships. Operating cash flow conversion remained very strong at 96%, and despite all the challenges faced in 2020, our cash increased by 12% this year to £143 million, further testament to our outsourced flexible asset-light business model. The Board are recommending a full year dividend of 15.68p per share, which is up 4% year-on-year and is a reflection of our confidence in our financial position despite the short-term impacts of COVID-19 on our profitability. Turning to Slide 12, we reintroduced guidance for 2021 this morning based on the following assumptions. Firstly, we're now 10 weeks into 2021. And in that period, we've seen our own trade sales severely impacted. With lockdowns in force across most of our regions, and these accept to continue until at least mid-April. Meanwhile, our Off-Trade sales have been very strong. In the U.K., our January Nielsen read was plus 38%. In the U.S., the January and February reads were plus 62% and plus 55%, respectively. However strong as that performance is, the off-trade doesn't -- hasn't fully offset the absence of On-Trade sales in the year-to-date. From mid-April onwards though, the picture begins to improve. As we look to the U.K. roadmap, we expect a small recovery initially as restrictions are eased over Q2, but with more substantial improvements as we proceed through the second half following the lifting of restrictions on June the 21st. We expect a similar phasing of recovery in the U.S. given the progress they're making with their vaccination program, whilst in Europe, it's a slightly different picture, with a vaccination rollout not as well-advanced and inflections again on the rise. And so we expect the On-Trade recovery there to be delayed by 1 to 2 months. As the On-Trade recovers, we expect our Off-Trade growth to moderate, particularly in Q2 as we lap those initial stockpiling periods from last year. But in all instances, we expect the level of our off-trade sales to remain strong and ahead of those 2019 pre-COVID levels. Clearly, in our key growth markets, such as the U.S., Germany, Australia and Canada, we expect to remain considerably ahead of that baseline, given the strong progress we've made in rate of sale and distribution in the last 12 months. So taking this all into account, we're guiding to a revenue range of £283 million to £293 million, growth of 12% to 16%, with the regional ranges as set out in this slide. This range reflects the severe impact of On-Trade closures and restrictions across regions for the first half of the year and reflects the fact that the pace of the on-trade recovery over the remaining half of the year will be influenced by the exact timing and nature in which restrictions are lifted across regions, countries and states. And the extent to which any social distancing regulations may continue to be applied. Whilst we anticipate a release of pent-up demand over summer, we also recognize the other key elements to trading, such as international travel and tourism, the return to office working, the staging of large events and business conventions may take longer to reestablish this year. But while the pace of the On-Trade recovery is difficult to predict, we are very confident in the strength of our position across both on and off-trade channels. And based on the progress we have made in 2020, are fully prepared and poised to maximize the opportunity as the recovery unfolds. We expect momentum to build month-by-month as we progress through 2021, and we look forward to 2022 and beyond with a real confidence. From a margin perspective, we expect gross margins and EBITDA margins to remain consistent with 2020. As the year progresses, there will be underlying improvements in the gross margin as the On-Trade recovers. However, these will be offset in 2021 by continued FX headwinds and the impact of the full 12 months of GDP portfolio brand revenue this year. We will be focused on driving improvements in gross margin over the coming years as channel and territory mixes recalibrate further, but also as we drive efficiencies as we scale, including the benefits of local bottling in the U.S. and the commissioning of a further East Coast bottling line later this year will be key to driving those improvements. We expect our overheads to increase this year in line with revenue growth as we continue to invest and as we annualize the investment we made in our team in 2020. As we look ahead to 2022 and a more complete year of On-Trade revenue, we'd expect to generate leverage from our overhead base, which will drive an improvement in EBITDA margins going forward. With that, I'll pass back to Tim.

Tim Warrillow: Thank you, Andy. On Slide 13, our strategic update, so I'll now take you through the strategic progress we have made during 2020 in the U.K. before handing over to Charles, who will provide highlights from the U.S., and finally, I'll take you through our performance in both Europe and the rest of the world. So over the page, all our regions delivered strong performance in the off-trade during the year, demonstrating the strength of the brand in our more mature markets and how we continue to gain traction in our growth markets. The most notable strategic steps we took over the course of the year with the acquisition of GDP, our sales and marketing partner in Germany, along with the establishment of our first local bottling partner in the West Coast in America which started production at the end of December, I'm also pleased to announce that we have secured a second bottling site in the U.S. on the use case and aim to start bottling here during the second half of 2021. So turning to the U.K. we delivered a strong Off-Trade performance in the U.K., generating £76.9 million revenue through this channel, an increase of 20% year-on-year, which exceeded our expectations. There's been considerable increase in at-home consumption of both spirits and mixes as consumers' interest in making long mixed drinks gain traction. All the major spirit categories saw sales increase well into double digits during the year, with more retailers dedicating shelf space to spirit promotions. Alongside this, the mixer market also performed very strongly, and premiumization accelerated. Fever-Tree grew ahead of the premium mix category, ending the year with 40.1% value share to retain our position as the clear #1 mixer brand at retail. Most pleasingly, we increased our household penetration by more than 3x the mixed category, which means that Fever-Tree is being added to more shopping baskets than any other mixer brand, which I think is a remarkable achievement for a premium brand. The chart in the bottom right-hand corner of the slide highlights our strong Off-Trade performance during 2020 versus 2019. And while we benefited from elevated purchases during lockdown, what you can also see is that our strong outperformances maintained even during periods when the on traders opened, giving us confidence in the brand's strength in this channel, even when life returns to normal. Over the page, as we all know, a number of lockdown periods closed the On-Trade for a substantial part of the year. Consequently, our focus for this channel was to proactively support our customers through credit extension and payment plans. We also offer to help our customers as they prepare to manage the new ways of trading once the first lockdown was lifted at the start of July. This included providing stock and point-of-sale materials to support the focus on using outdoor space. This level of ongoing support was greatly received and has strengthened our relationships with many of our long-term customers. During the summer period when the On-Trade was open, the market saw an encouraging few months of trading, supported by government schemes such as Eat Out to Help Out. Fever-Tree maintained its value share of 48% during this period. And interestingly, consumers seem to be placing even more emphasis on exactly what's going to their long mixed drinks than before the pandemic, with quality and type of mixer gaining in importance as people have experimented at home often with more premium brands. Fever-Tree association with high-quality ingredients and as a mixer for good quality spirits, along with the strength of our relationships across all our accounts, sets us apart from the competition and puts us in a strong position with both consumers and the trade. This has been reinforced by our industry awards, such as being voted the #1 best-selling and top trending tonic water by the world's best bar for the seventh year running. All these factors make us even more optimistic when the On-Trade reopens. Over the page. Turning now to our strategic progress during the year, while of course the impact of COVID caused many challenges, we've been able to not only adapt to short-term changes to consumer habits, but also continue to deliver against our long-term strategy of producing innovative new products, flavors, distribution approaches and marketing campaigns. Our premium soda range was launched in March and has seen a very positive response in On-Trade with new listings secured and very encouraging rate of sale performance across retailers. Perhaps most encouragingly, this new range is specifically targeting the very large vodka category, and with it, early signs are showing it it's already attracting a new, younger consumer to the brand. Alongside this, we continue to see very strong growth in our gingers and encouraging early traction of our rhubarb and raspberry tonic which was launched in October. As well as our new launches, we've also gained distribution across grocery and convenience channels, with significant gains in Sainsburys with our new sodas and in Tesco with our can formats. One of the biggest shifts in consumer behavior was acceleration in online purchases, which we have capitalized on by building and strengthening our online distribution channels, particularly with the Ocado and Morrisons, driving e-commerce sales. And finally, our proactive actions around our marketing spend mean that we were able to take advantage of price effective opportunities and continue to increase awareness of the brand and reinforce our superior quality credentials. Not only did we launch our very first national TV campaign, but we're also delighted to work along Sainsbury's and spirit partners to bring to life our Fever-Tree gin and tonic bay, the first mixer-led spirits co-promotion of its kind at U.K. retail, encouraging shoppers to find that perfect pairing across the Fever-Tree range with recommended gin partners. This not only emphasized the brand strength at retail, but also our position as the enabler for consumers to explore and experiment across the category. So in summary, as you can see from these slides, despite the short-term disruption of COVID, we remain very confident in the long-term success of the U.K. business. As we remain the market-leading premium brand by significant margin in both the On and Off-Trade. We continue to win new distribution with a rate to sell well ahead of our competitors and continue to invest across the whole business. From innovation and NPD to customer support and marketing, putting us in an unrivaled position as we return to more normal trading conditions. So with that, I'll now hand over to Charles. To take you through our progress in the U.S.

Charles Gibb: Good morning, everybody. I'm delighted to be speaking to you from New York this morning, where the local team have delivered a strong performance over 2020, and I'm extremely proud of all the growth we've achieved here. We've continued to build momentum in the U.S. despite the impacts of COVID on the on-trade sales and have delivered £55.5 million worth of revenue, 23% increase year-on-year and 26% increase on a constant currency basis. We've seen the continued growth in premium spirits, outpacing the growth of both beer and wine, led primarily by tequila and U.S. whiskeys. This gives us great confidence in the future health of the mixer category and Fever-Tree's prospects within this. Our partnership with Southern Glazers Wines and Spirits has only strengthened during the past year, expanding now to over 30 states with the liquor channel itself delivering excellent growth through 2020, thanks to numerous spirits partnerships executed brilliantly at retail. During 2020, our retail Nielsen sales increased by plus 57% with over plus 50% growth in every one of our core 4 drinks categories. We were the leading contributor to premium mixer growth delivering 44% of the growth in this segment, whilst gaining share in both tonic and ginger beer. And I'm proud to say we're now the leading ginger beer in 14 cities around the country and the #2 mixer brand nationally across the categories of ginger beer, tonic and club soda. So moving to Slide 19 and looking in more detail on our off-trade performance in 2020. We outperformed the mixer category by an average of 40 percentage points over the year. This was driven by a multitude of factors throughout the year, which I'm going to go on in detail on that. Firstly, we entered lockdown in a very good position after positive trading in January and February, primarily driven by our strong distribution gains during the second half of 2019. Performance then accelerated further, thanks to the substantial pantry loading during March, instigating a shift to at-home consumption when the On-Trade was closed. Simultaneously, we were implementing our price optimization, which became visible on-shelf from March through to June. From March onwards, we also benefited from significant investment in our targeted online media campaign focused on educating consumers on how to make great-tasting drinks at home and then driving these consumers to their local retail accounts for purchase. In H2, whilst we started to annualize our 2019 distribution gains, performance was robust with the price optimization helped to drive growth by encouraging new consumers to try the brand, as well as enabling current users to adopt it as their primary mixer. A combination of all the above has ensured that we've consistently outperformed the mixer category, and consequently, we remain the clear market leader in the premium segment and are driving premiumization across the whole category. Moving on to Slide 20, on top of navigating the COVID impacted trading environment, we've maintained our focus on building the long-term success of the brand as we continue to grow and gain traction in this market. With a strong team now in place, our expanding distribution footprint, and our ever strengthening relationships across our distributors, customers and the trade, the focus at the start of the year was on the price optimization, enhancing our format availability. We've been very encouraged by the initial results and the price change, which allows us to be perceived as an everyday affordable treat rather than an occasional luxury product, broadening our consumer reach, encouraging trial and, of course, increasing consumption. We also launched our new Sparkling Pink Grapefruit to pair with tequila and create this lower -- the perfect lower calorie Paloma, leveraging the exceptional growth of this spirit, which has continued to accelerate during 2020. This has been our most successful new product launch in the U.S. already gaining significant attention from retailers and consumers, and we're very excited about the pink grapefruit potential going forward. Alongside, our recent launch of our Sparkling Lime & Yuzu ahead of this summer, which is targeting both the vodka and tequila occasions. We increased our marketing investment but redirected this from the on-trade to online with a targeted campaign across 10 major cities, thanks to our partnership with the Google Accelerator program. We also work closely with liquor delivery platforms, built additional content on the e-commerce sites of major retailers, increasing our online sales penetration with Amazon, Target and Walmart, all up by more than 100% during the year. Finally, we used our increasing brand traction and strong performance throughout the year to demonstrate the benefits of selling Fever-Tree to retailers and continue to win new distribution, increasing the number of stores, our points of distribution, as well as number of facings per account. Although many short resets were delayed toward the end of the year, we were still able to make some gains during 2020, with many more secured for 2021, which will start to appear in Q2 and Q3. Equally, and in the On-Trade and despite COVID, we won multiple new long-term agreements with national accounts, thanks to the strength of our portfolio, the full benefit of which will be felt in H2 2021 as this channel reopens and domestic/international tourism starts to return. Moving to Slide 21 and looking at the longer-term opportunity, our confidence in the long-term growth in the U.S. is underpinned by the size of the market opportunity, which we've outlined on the left of the slide. Premium spirits are extremely healthy, growing strongly with substantial runway still ahead. And increasing appreciation of craft alongside the general consumer trend of longer mixed drinks and lower calorie drinking are all played to Fever-Tree's strength. In this regard, the U.S. has -- still has tremendous opportunity ahead, and we're increasingly well poised to take advantage of these trends, in particular, as the On-Trade returns. This is because of Fever-Tree's unique strength as a brand, our ability to tackle a variety of drinking occasions through our 4 drink strategy, along with a fantastic team and unique distribution network we have built. In addition, we will continue to invest in marketing to drive trial and awareness, as well as tiering our innovations to meet the U.S. drinking habits, expanding our reach into every popular drinking occasion. Sparkling Pink Grapefruit's initial success is a testament to both our consumer understanding as well as our ability to leverage our network and flex our marketing muscle. As I trust you see from this few slides, we've not only delivered a strong performance during 2020, but we remain as confident as ever in the long-term opportunity, with the medium-term potential for 5x growth from where we sit today. Thank you again for your time. I will now hand you back to Tim to talk about Europe and the Rest of the World.

Tim Warrillow: Thanks, Charles. So turning to Slide 22 and turning to Europe. Our revenue for the year was £65.3 million, an increase of 1% year-on-year after strong growth of 27% in the second half of the year due to a good Off-Trade performance across the region. A promising On-Trade performance during Q3 where many outlets were open and good contribution from GDP's portfolio of brands, all of which exceeded our expectations. Despite the impact of COVID, we continue to invest in the region as we look to the long-term opportunity which we remain very optimistic about. Mirroring in the U.K. and U.S., we refocused spend from the On-Trade to focus on channels, which could drive spend over the period, including co-promotions and shelf presence at retail, as well as online communications to enhance the brand's visibility. We also demonstrated our confidence in the European opportunity, and specifically in Germany by acquiring GDP, our long-term partner and well-established sales agent in Germany, to provide us with a strong operational footprint with which to continue to drive our growth. Germany represents a notable opportunity for the group. It's one of the largest mixer markets in Europe and is underpinned by emerging premiumization trends, evident in both the mixer and the spirit categories. The acquisition of GDP with established management, distribution relationships and sales channels already in place allows the group to accelerate the strength and depth of its presence in Germany, much faster than could have been achieved by building the same capabilities from scratch. They have a strong record of growing premium brands using a portfolio approach, which is highly suited to the size and outlet fragmentation of the German market. Moreover, having a portfolio of premium brands will give us more influence with wholesalers and key accounts, making it more cost-efficient to have a large sales team and will deliver approximately £13 million incremental brand revenue during 2021. So over the page. Our long-term strategic approach to Europe, where we break down the region to core markets. So next wave markets and earlier-stage markets remain the lens we use to take advantage of the opportunities across the region. Core markets, including Belgium, Denmark and Ireland, contributed to about 1/3 of our European revenue during 2019, which we are still using as a baseline after an unprecedented year during 2020. Fever-Tree has a strong position in these markets, where premium tonics achieved a large or market-leading share, providing a blueprint for what can be achieved elsewhere in the region. Our focus is on maintaining the position we have established in the tonic category whilst driving growth through a range and format extensions, such as the introduction of can formats in Denmark and refreshingly light ranges in Belgium, meeting consumer demand for increased convenience and lighter drink options. Next wave markets, including Germany, Spain and Italy, contributed about 45% of our European revenue in 2019. These are countries where Fever-Tree currently has relatively low penetration in sizable mixer markets and where significant growth opportunities exist. Our focus this year has been making sure we have the right portfolios in the right markets, building strong co-promotional campaigns and being visible in the On-Trade during times when it was open. Consequently, in Germany, we ran a co-promotion with Bombay Sapphire as well as launching and rebranding our refreshing light tonic to dry tonic to meet consumers' preference for lighter options. We also upweighted our presence and visibility in outdoor terraces over the summer in Italy and Spain. Earlier stage markets, such as France and Netherlands, contributed about 1/4 of our European revenue in 2019. In these markets, we focus on establishing the conditions and infrastructure we need for growth within currently immature mixer categories, such as working with large retailers and spirit partners to promote long mixed drinks and premiumization. So over the page, this final European slide demonstrates that despite the uncertainties and short-term disruption COVID has brought, Fever-Tree's growth remains strong and ahead of the market in almost every country, increasing our confidence and optimism about the medium and long-term opportunity in Europe. Importantly, the trend in long mixed drinks is growing in most European countries with healthy mixed category growth, and Fever-Tree as the largest premium mixer by value across the region. This puts us in a very strong position. Not only is it capitalized in the supportive underlying trends, but also to drive use further by premiumizing the mixed category and partnering with spirit brands to promote specific serves. While we have a good and growing presence across the region, there is still a significant amount of white space in both the On and the Off-Trade. We are confident that we can exploit this through our strong relationships with key partners, such as Grupo Damm in Spain. Overall, there are a good number of markets of varying stages in maturity that offer good potential for Fever-Tree going forward, and we continue to invest and focus on the opportunity that they present. So Slide 25, Rest of the World. Our final region is the Rest of the World, where we had another strong performance, especially during the second half of the year. We increased our revenue by 58% year-on-year to deliver total revenues of £25 million for the region, 80% of which comes from Australia and Canada. Both Australia and Canada continue to win significant distribution gains and increase the rate of sale in outlets where Fever-Tree is present as the brand starts to gain traction in key On-Trade and Off-Trade accounts. We are the premium category leader in both markets, driving category growth at the premium end. In Asia, we continue to optimize our rich market and build our distribution, with important new distribution partnerships in both China and Hong Kong. In addition, we signed a significant deal with Accor Hotels, the largest hotel group in the region, to become their preferred supplier across their premium plus portfolio in Asia Pacific, gaining a foothold in this important channel. We remain very optimistic about the medium-term opportunities in a number of territories across Asia Pacific. Slide 26. Looking at a bit more detail in Canada. The mixer market continues to grow and premiumize at pace. The premium segment grew by over 50% during 2020, well ahead of the total market, which grew at 24%. And within the premium segment, Fever-Tree is growing even faster at 61% as we continue to increase trial and awareness and secure new distribution with a number of key accounts. Fever-Tree is particularly driving growth in the tonic category, contributing to almost half of the total tonic categories growth during the year, more than any other brand. We now have about 1/3 of the category share by value at retail and continue to increase our rate of sale in major retailers as well as winning new distribution, both in terms of a number of accounts and facings in store. As well as continue to increase our distribution, our priorities for the coming year to introduce new formats, such as cans and 500 ml bottles and drive consumer engagement using new product launches and educating the market on perfect pairings. Over the page and moving to Australia, in Australia, long mixed drinks continue to gain popularity and premiumized, led by the gin and tonic with a total mix of market growing at 29% year-on-year, the premium segment growing at 51% and premium tonics growing at 75%. Fever-Tree continues to be the clear premium market category leader and responsible for driving growth within this segment, growing an impressive 108% year-on-year at grocery. Furthermore, we've also had huge success in the important liquor channel with 80% growth during 2020. Spirits must be purchased by liquor stores in the off-trade in Australia as they can't be purchased at grocery. So presence and growth in this channel is crucial to drive cross purchase by increasing ease of shopping, selling complete drinks and suggesting new pairings. As we look forward to 2021, our priorities in this exciting market are to continue to drive the momentum in premium gin and tonic segment, drive incremental distribution across all channels and increase our range and format to appeal to a broader set of consumers. So over the page, the final slide. So in summary, I'd like to finish with the same important messages that I started with this morning. Fever-Tree entered the crisis in a strong position as a business with a diversified channel mix, a strong net cash position and operational flexibility. Consequently, we've been able to act on the front foot taking proactive steps, not only to mitigate the short-term impacts of COVID, but also to take advantage of the growing interest in around the world in long mixed drinks. Our long-term strategy remains unchanged and continues to be underpinned by a number of well-established long-term global trends, namely, strong growth in premium spirits, consumers increasingly choosing spirits ahead of beer and wine and consumers' increasing desire to drink their spirits long and mixed. Fever-Tree's proposition clearly sits at the epicenter of these trends. And as these results demonstrate, we have seen these trends, not only continue throughout the pandemic, but in many cases, accelerate, which gives us even more confidence in the future growth potential for the business. I continue to be very proud of our fantastic team and our ability and willingness to invest ahead in terms of people, route to market, portfolio and marketing. And while the current crisis has created challenges, it has also created opportunities. And I have great confidence that we will exit the crisis in an even stronger position than we entered it. So thank you for listening this morning. Andy, Charles and I are now happy to answer your questions.

Operator: [Operator Instructions]. First question comes from Edward Mundy of Jefferies.

Edward Mundy: I've got three questions, please. The first is for Charles, fantastic momentum in the U.S. last year. Could you talk a little bit about some of these opportunities for much more new penetration -- new distribution to come in 2021, and also the comments around this will be supported by new pricing? The second question is actually, again, also for Charles. I think there's a slide in there, I think Slide 23, where you talk about the premium spirits market within the U.S. being 11.5x the size of the U.K., yet the opportunity in the U.S. for you is 5x that versus what you've currently got within the U.S.. Could you talk about why there is a difference there, given that your level of penetration is lower? Is it something to do with how Americans drink premium spirits possibly more neat than necessarily in the mixer? And then the third question is for Andy, just around margins, very useful margin bridge you've provided. I was wondering whether you could talk about this margin outlook in 2022. I think you talked to some optimism on margin expansion. Perhaps, in particular, the point around channel mix being positive versus regional mix being negative.

Andrew Branchflower: I'll kick off there. Thanks, Ed, for those. Firstly, just to talk about kind of the -- I think you're talking -- your first question really is about growth in pricing in the U.S. and obviously, we implemented our price repositioning, our price optimization, which really took place between March and June last year. I think what you're getting is what was the impact of that. It's very, very hard, obviously in H1, to be able to disaggregate price from the kind of white noise of COVID, the huge distribution expansion that we'd seen. But as things started to normalize for 2020 in the second half of the year, what we were able to see was the price repositioning has allowed us to do I think a number of things. One is accelerate growth well ahead of the category. We're growing 40 percentage points ahead of the category right the way through the second half of the year. And a lot of that was driven by the price repositioning. We saw increased rate of sale in accounts, increased rate of sale by pod and also sales into new accounts that we haven't really seen before, which was -- which obviously shows expanded reach and new consumers coming into the brand, particularly as we were visible in more places and more stores, not only in the sort of national grocery, but also in the local liquor store channel. Because that became, if you like, the second -- people went to the grocery store, and then they went to the liquor store to go buy their -- to buy their booze during lockdown. And our sales in that channel grew sort of exponentially over this time.

Charles Gibb: So we certainly can see and we can feel the benefit of that in terms of consumer offtake. But equally, it's also stimulating a very different approach from our retail base with regards to the brand. People who were looking at listing, maybe only had us in the 6 by -- sorry, the 4 by 200 ml pack are now taking on the 500 milliliter. And obviously, as we're launching the cans, which we did really -- during last year are really going to gain pace this year. They're suddenly seeing Fever-Tree as having an offer on multiple consumer occasions. So cans and 500 ml are getting incremental distribution. We were also, one simple example, a major national retailer, increased our facings by 60%. So they took us from having about 12,000 facings, just under 20,000 facings during the second half of the year or off the back of the price repositioning. So this gives us great confidence that, that was the right move at the right time. And that's what's going to help fuel growth going forward. In terms of where distribution sits going forward, which I think was the other part of that first question, distribution for us, we're very well-established now in the grocery chains, the major grocery chains. We've got very good penetration overall. However, what we're now looking at is how do we expand our points of distribution per account and our facings per account. So points of distribution, how do we expand the range, but also how do we expand the range, not only in flavors, but also in formats to capture different consumer occasions with 500ml and cans being the lead there. And secondly, obviously, facings and secondary points of visibility and then obviously supporting that promotional programming. That's how I see the growth coming through. We've got some fantastic wins coming through in the next 3 to 4 months with a number of the major retailers, from Walmart, Target, Kroger, Publix, all expanding their Fever-Tree presence on shelf.

Edward Mundy: Charles, just to be clear, there's not new -- there's not another set of pricing optimization coming through in 2021?

Charles Gibb: No, there's none. No, we believe we're actually at the right -- we're in a very good -- we're really at a sweet spot at the moment, which is really capturing, remaining the leading premium mixer but really capturing that consumer who's looking to trade up and elevate and enhance their drinking experience. In terms of the opportunity in the U.S., look, we've said a midterm. I didn't say a long-term, so a midterm opportunity of 5x growth. I think that's a realistic horizon for the medium term. And to your point, on the way that the U.S. consumer consumes, absolutely, there's many more cocktails consumed in the U.S., obviously, than anywhere else in the world. As the On-Trade returns, cocktails form a part of that On-Trade experience. We play a strong role in that cocktail business. But yes, the U.S. consumer drinks more cocktails than anywhere else. And I would say the new consumption is probably slightly higher here than in other parts of the world, particularly when you look at categories such as vodka, gin -- sorry, vodka, tequila and whiskey, which are consumed significantly more neat. So that's why we set ourselves this midterm opportunity. But for me, it's more about looking at what the U.S. consumer is drinking and then how we tap into those occasions. So we know, for example, the tequila drinker drinks margaritas. Yes, they drink it neat, they drink it as margaritas. But actually, they really enjoy it as a Mule and as a Paloma, and we've seen the Paloma really rise up over the last summer. So we want to take advantage of that. The tequila lime and soda is a very popular drink, hence, the launch of the Sparkling Lime & Yuzu, which is going live this summer and already getting some fantastic press and, in fact, was featured in the New York Times yesterday as we launched the product in the U.S. So capturing those drinking occasions, but understanding, obviously, that we've got a medium-term goal and then obviously, longer-term goals, to that part of the question. Over to you, Andy.

Andrew Branchflower: Yes. Look, in terms of margin evolution, it's probably just helpful to kind of walk through where we ended 2020 and how we're seeing things move over the next couple of years. So if you look at the bridge, if you think just about the Fever-Tree business first and foremost, at the end of 2020, you can see that Fever-Tree business was running at 46.9%, so basically, 47%. If we think about what's happening in 2021, the main sort of underlying movement that we're expecting to see is some unwind of the U.K. channel mix. We spoke at half year about in terms of on/off splits, there's only really 1 country where we're exposed to movements in channel mix, and that's the U.K. because of our route to market. We sell into distributors, we sell into the On-Trade and directly into retail. Elsewhere around the world, differences in channel mix don't impact our gross margin as directly. So when we think about 2021 and we think about the guidance, we think about the guidance being underpinned by this gradual return of the On-Trade we are expecting to see some benefit to gross margin in 2021. I think it's really important to make that point. So if you imagine Fever-Tree running at 47% in 2020, we're expecting to see some upside really coming from that U.K. on trade coming back through later in the year. However, that's going to be pulled back by the reality of FX this year. The dollar's moved out to £1.39. That's almost an 8% weakening. So that upside will get pulled back to broadly, we believe, about 47.5%. So we'll be running at 47.5% for the Fever-Tree business. You then bring in a full year of the GDP portfolio brand revenue. So we've been guiding to £13 million of GDP portfolio revenue at a 20% margin. So that's actually 130 basis points of dilution when we consolidate that in. So that's how you get from 47.5% for Fever-Tree to a consistent stable 46.2% group margin in 2021. We then think ahead to 2022 and beyond, and we go back to that Fever-Tree margin of 47.5%. We expect to see further upside from that U.K. channel mix, okay? In the U.K. channel mix in 2020 went from 50/50 to 75/25 weighted to the off trade. Because of the gradual reintroduction of the On-Trade in 2021, we only expect that to recalibrate probably more to 2/3, 1/3 in 2021. And then we see more opportunity for a recalibration in '22 onwards. So we're going to see further benefit to that Fever-Tree gross margin in 2010 and beyond as the U.K. On-Trade recalibrates. And then we think about our regional mix. And as we spoke at the half year, the drag on gross margin from regional mix comes from the U.S. Now from a cash margin perspective, every case of Fever-Tree we sell in the U.S. is -- we make just as good a cash margin in the U.S. as we do in our other regions. But that divides into a slightly higher revenue number, which is why it's dilutive from a percentage gross margin. Now the progress we're making in terms of now starting to bottle on the West Coast and announcing today the fact that we're extending that to the East Coast, and we'll be commissioning that line later in the year means that as we progress through 2022 and 2023 and beyond, we're going to be able to improve that underlying U.S. percentage gross margin because we're taking out quite significant logistics costs of transporting our products over the Atlantic, and replacing it with local production, and we can scale that local production as we execute against that significant U.S. opportunity that Charles has just been speaking about. So when we think about 22, we can take that underlying 47.5% Fever-Tree gross margin and start to really improve it back up to where we've been historically, not necessarily all in 1 year, but certainly over the coming 2 to 3 years. The other thing we just always have to now appreciate is the fact that following the acquisition of GDP, there's incremental revenue, right, from this portfolio brand, but they run at 20%. So in 2021, we're saying that's going to be dilutive to the extent of about 130 basis points. In '22 and beyond, depending on obviously how Fever-Tree grows relative to that portfolio, it could still be 100 basis points of dilution when we talk about the reported Fever-Tree gross margin. But I hope that's helpful, Ed. And just -- there's lots of moving parts, but we're very confident that, frankly, the U.K. channel mix, local U.S. production, plus frankly, the ability to scale through our network and really drive improvements can lead to that gross margin appreciating back up to historic levels over the coming sort of 2 to 3 years.

Edward Mundy: And the GDP, the £13 million, is that the first time impact in 2021? Or do you think that's the annualized 12 months impact?

Andrew Branchflower: Yes, so that's the annualized. So obviously, acquisition right at the beginning of H2 last year, and we added £6.4 million of revenue in the second half of '20. This year, '21, we're looking to £13 million of revenue. So those 130 basis points are the full year impact. Last year, we had about a 70 basis point impact just from that GDP portfolio of brand revenue.

Edward Mundy: So the impact to 2021 should be more like 60 -- 60 to 70, not...

Andrew Branchflower: Exactly that, yes, just because we've got that extra 6 months. But then going forward, that will all annualize.

Operator: Our next question comes from Jemima Benstead of Citi.

Jemima Benstead: I've got -- three questions from me, please. Firstly, if you're on the U.S. so just to pick up on Ed's question, you're obviously guiding to about 20% growth in 2021, but I just want to get a bit more detail on how we're thinking about that midterm growth. You're talking about a run rate to grow over 5x. And previously, you've been speaking about growing 30% after the price readjustment. I just want to come back to that 30%. Is this still sort of an ambition in the midterm or kind of from 2022 onwards? And then secondly, on the U.S., I just wanted to pick up on your confidence in premiumization in the U.S., expecting consumers to adopt Fever-Tree products in the On-Trade as it reopens. I was just wondering, is this what you've seen in some of the states that have started to open up or have bar owners been a bit more reluctant to add Fever-Tree into their portfolios if they are carrying a narrower range of SKUs, or being more cautious or cash constrained? And then finally, one on e-commerce. I was just wondering if you could talk about how online penetration has developed through the last sort of 12 months. And for the U.K., you speak about creating branded pages on retailers' websites. So I'm just wondering if growth through e-commerce impacts your margins at all.

Andrew Branchflower: Should I just very quickly, just the first part of your first question, I'll pass back to Charles around those longer-term growth prospects, which we remain very confident of. But just on that 20% guidance for 2021, that's building in the impact of these FX headwinds. And in absolute terms, you've got that 8% movement on U.S. dollar, which, even with hedging, takes £4 million to £5 million of reported U.S. revenue on a sterling basis out of the equation. So when you look through that 20% growth rate and look at the underlying, our range is close to sort of 26% to 28% underlying growth. So, so much closer to that previous kind of 30% expectation, if that's helpful. I'll pass back to Charles about ultimately confidence in executing against that fivefold opportunity.

Charles Gibb: Sure. Yes, and I think I'll just say that with regards to last year, you already saw it at the end of last year, 23% reported, 26% constant currency. And that was obviously after the price repositioning, which meant that the actual consumption growth was even ahead of that. Where do I look at for the long term? I think it's threefold. Firstly, it's innovation. I took a little thought about our 4-drink strategy because this is key to actually unlocking different consumer -- unlocking every drinking occasion. So we look at our tonic business and how we unlock tonic, through gin, through vodka, through a pair of key of those, we look at ginger beer and how we unlock that through vodka, but also through tequila and through whiskeys. And then the most dynamic part of the category at the moment is this lower calorie drinking, so spritz category. Spritz, low calorie Paloma, which is why I'm really excited about the launch of Sparkling Pink Grapefruit. The rate of sale on that product is already rocketing up the charts internally. And the initial reception to our, again, lower calorie lime yuzu soda product is fantastic because, again, this is something that really fits this low-calorie drinking, but adding a Fever-Tree twist and enhancing the drinking experience. So innovation, and as we look at more and more drinking occasions, we're going to continue to innovate. Secondly is distribution. I've spoken a little bit about that before when sort of answering Ed's question, but absolutely, it's about distribution, yes, getting into more accounts. But equally importantly now is depth per account and being able to hit consumers on different occasions. The best and the simplest example to give you is that about 55% of all tonic water in the U.S. is consumed in 1 liter PET bottles. We are dominated by the 4 by 200 ml. So that's our image SKU. We don't really target that -- we haven't really tapped that occasions yet. And that we do through our 500 ml bottle. So expanding the distribution, getting more availability of that, the people who've now tried it as a single-serve bottle is key. And obviously, cans is for those people who really adopted the brand and a pantry stocking, but also play a very useful role for us in the On-Trade. And finally, you asked a question about the On-Trade. The fun fact from us from last year was we actually signed up more On-Trade national account business during 2020 that we had during 2019. Now obviously, that was because we made a very bold decision not to follow anybody. We've stayed in close contact with our customers. And they really respected the fact that we did so. As such, we picked up a lot of very big national account business. I mean, I'll give you 2 examples. One is MGM casinos. That's about 30 casinos, about 200 outlets in total, are all going to be Fever-Tree outlets. And what we're seeing is outlets are reopening. This gives us a really good opportunity to attack the gun, because the gun is known to be -- it's not particularly sanitary. It's actually very expensive if you're opening and closing your bar every couple of weeks because you've got cases in and cases out. Because then to throw away those horrible bags of syrup that they use, whereas Fever-Tree can be left in the fridge, stay fresh, and consumers are valuing that and, therefore, the freshness of serve is something that we're really being able to play on, along with hygiene, cleanliness and all the rest of it. So we are seeing outlets continue to premiumize. And our On-Trade business is very robust as we come back, and we're very confident against H2 this year once it returns. And finally, on e-commerce, Drizly, Amazon, all these people have been fantastic partners for us, and it's just a great way of aligning our brand alongside spirits when we're selling, and that's growing very strongly.

Tim Warrillow: And just -- it's Tim here, just, I think to pick up on that e-commerce, you asked about margin. And the majority of our e-commerce go through our existing retail partners at the same price point. So no, there is little to no impact on margin. And in fact, we're very excited about this e-commerce channel. I mean, we've grown very strongly through it in the last year, and we see it with great opportunity to communicate more about the brand, to educate people more about the brand. And the one thing we've seen time and again with the e-commerce is it's strong brands that win. And our people have less propensity to browse online as they do in-store. So it's the strong, well-known recognized brands that really benefit and prosper. So I think, for the reasons, I labored it in the presentation. I think we're incredibly well set for that.

Operator: Our next question comes from Doriana Russo of HSBC.

Doriana Russo: I just wanted to go back...

Tim Warrillow: Doriana, I'm sorry, we can't hear at this end. Could -- would you be kind enough to speak up?

Andrew Branchflower: Doriana, you're very faint. I don't know if you...

Doriana Russo: Hello?

Andrew Branchflower: That's slightly better. Yes, we'll go back to that.

Doriana Russo: I am trying to push the volume up. Okay I'm going to turn it back. I just wanted to go back to the opportunity in the U.S. in the On-Trade. I remember, historically, you said that the addressable market was being along the lines of 100,000 accounts, if I'm not wrong. Where are you at the moment and how do you see these develop vis-à-vis...

Andrew Branchflower: I'm sorry Doriana, I'm really sorry. I'm afraid the reception. We just can't hear the question, very sorry.

Charles Gibb: I got that first question. I'm happy to answer that one. Doriana, I'll answer that first one which was in terms of the On-Trade, absolutely, we benchmark, if you like, the addressable universe as being about 100,000 accounts. And we benchmark that off a kind of leading super premium vodka brand, which gives you a kind of good scale because that type of account will be carrying premium spirits. In 2019, we were talking about approximately 24,000 accounts. And at the end of last year, absolutely, clearly, that dipped over that period. What are we looking in terms of the midterm target? We're looking at about 60,000 accounts that we believe are the kind of correct midterm addressable universe for Fever-Tree. And that basically gives us a good premium, sort of a realistic premium account basis from which to operate. And for us, at the moment, the key is winning, really, these national accounts back which are so fundamental. Believe it or not, we call on 400 different national account groups here in the U.S. and winning those back. And as they return, absolutely, we're very confident. We're starting off normally in these accounts with our ginger beer. But they're adoring the Pink Grapefruit. We believe the line and users got a real potential there. And then obviously, the flavored tonic waters, which generally don't appear on the gun, are a great way for us to start infiltrating with our tonic water portfolio, particularly the elderflower tonic water, which is very popular here in the U.S. So hopefully, that answers that for you.

Operator: Our next question comes from Nicola Mallard.

Nicola Mallard: Just a couple of questions. Spain, I was surprised to see that in your -- I can't quite remember the title, but it was the middle sort of channel in Europe. I'd have thought that would have been more mature, but perhaps you could give us a little bit more detail on the opportunity in Spain. Because I know it's a big tonic market, and I assumed it was a good market for you historically. And also on margin, I appreciate the mix changes, and Andy, you've been brilliantly clear on what's been sort of moving that margin. But can we just confirm that if you look solely at the retail margin in the U.K. that there wasn't any deterioration in that through the course of the year. I mean, clearly, you've had superb growth. Did that come at a price in terms of extra promotion or sort of cost in that regard?

Tim Warrillow: Nicola, good morning, Tim here. Just to be very quick on Spain, is that no, it's in that next wave group because we really do see the potential of the opportunity in Spain. As you will remember, that was one of our first international markets. And it really helped seed and develop the brand. But it's been relatively slow compared to some of their European counterparts in the way that, that market has premiumized. But we actually think the conditions now are more favorable for us to invest our time and money in that market. And we really do see some significant potential. So that is why we put it in the next wave, and that's why we're going to be focusing on it. And particularly now, we're working with our partner, Grupo Damm, who have real strength and influence in that market. They've got a very strong sales team and sales force. And they themselves believe now is a great time to really start to invest more into that market. So that's why it sits there in the next wave, and we're quite optimistic about it.

Andrew Branchflower: And Nicola, on the U.K., on the underlying U.K. retail margin, no deterioration 2020 versus 2019, promotional intensity, relatively similar year-on-year. And yes, it held up very consistently. So it really is all around mix rather than underlying.

Operator: With that, we will conclude the Q&A session. I'll hand back to the team for any closing remarks.

Tim Warrillow: No, other than just to thank everyone for listening, and to encourage everyone to get out to that On-Trade as soon as it reopens.