The drinks maker Fever-Tree and the owner of the Wagamama and Frankie & Benny’s restaurant chains have warned of dramatic cost increases as the price of commodities and gas and electricity soars and the war in Ukraine adds pressure to their businesses.
Fever-Tree has lowered its profit guidance, blaming a “dramatic increase” in commodity prices after Russia’s invasion of Ukraine. The company, which had forecast adjusted profits of £69m to £72m this year, has downgraded its outlook to between £63m and £69m.
“There remains a global backdrop of inflationary pressures against which we are employing a range of mitigating actions,” Fever-Tree said.
“However, commodity prices have increased dramatically in recent weeks because of the terrible events in Ukraine and has created significant uncertainty in relation to input costs.”
Fever-Tree, which reported a 23% increase in revenues to £311m and an 8% rise in pre-tax profits to £55.6m last year, reassured investors that it was managing its ballooning cost base, which has hit margins.
Operating expenses increased by almost 15% to £67.9m last year, as the company’s margins shrank from 22.6% to 20.2%.
“The tragic situation in Ukraine has resulted in significant uncertainty in relation to our input costs in the short-term,” said Tim Warrillow, a co-founder and the chief executive of Fever-Tree. “[However], the long-term global opportunity for Fever-Tree remains substantial and we are as confident as ever in the brand’s ability to capitalise on this.”
The Restaurant Group (TRG) – which operates 400 restaurants and pub restaurants throughout the UK, and also runs concessions mostly in airports under brands including Garfunkel’s, the Tex-Mex chain Chiquito, Brunning & Price and Coast to Coast – expects its costs to rise by more than 5% this year because of price increases in commodities and supply chain pressures.
TRG pointed out that this was before any additional inflationary impacts from the conflict in Ukraine, as Fever-Tree has already seen.
“While we have no direct exposure to either Ukraine or Russia, it remains too early to assess the impact on supply chain costs and customer behaviour,” the company said.
“Management’s current expectations for 2022 remain unchanged, although we are mindful about the consequential inflationary impacts arising from the conflict in Ukraine. We are, however, doing everything we can to offer support and assistance to our UK-based Ukrainian and Russian employees.”
TRG said the soaring cost of gas and electricity will add an additional £6m to £7m to its expenses this year. The company has attempted to mitigate costs by hedging 95% of its gas and electricity volume for this year, and 75% in 2023 and 2024.
The company also warned on rising wage costs as the economy nears full employment with well over 1 million vacancies in the UK.
“This shortage of labour across the UK is leading to upward pressure on wage rates,” it said.
TRG’s share price rose almost 10% in early trading as the company continues to recover strongly from the pandemic, while Fever-Tree fell 2%.
In the eight weeks to 27 February, sales at Wagamama were up 21% compared with pre-pandemic levels for the same period in 2019, while its pubs operation was up 11%.
