Fevertree Drinks Stock

Good morning, everyone, and thank you for joining us. I'm joined today by Andy Branchflower, our CFO, and I'm delighted to welcome back Ann, our Director of Investor Relations. I'll start with the highlights from the first half before talking about the progress we're seeing in the U.S. and the broader opportunity we're creating as the Fever-Tree brand continues to evolve. Andy will then take you through the financial performance and outlook before we open up for questions. So turning to the results themselves. We delivered a strong first half performance with growth across every one of our key regions. Brand revenue increased by 8% at constant currency with the U.S. up 11%, a return to growth in the U.K., supported by a strong off-trade performance.

Europe up 10% and good progress across the rest of the world. Importantly, that growth was supported by continued market share gains across our key regions, outperforming both the wider mixer category and our competitors. In terms of the financials, adjusted EBITDA margin improved by 20 basis points to 10.9%, while normalised EPS increased by 5%. Lastly, the strength of our balance sheet and cash generation also enabled us to extend the share buyback programme by a further GBP 60 million this year. Looking at the first half in a little more detail, there are 3 things that I'd like to highlight in particular. First, we're encouraged by the progress we're seeing in the U.S. The Molson Coors partnership is beginning to deliver the benefits we expected.

Distribution is growing, visibility on shelf is improving. And as a consequence, we saw momentum build through the first half. Second, our diversification strategy continues to gather pace. Whilst our core tonic range performed well, delivering growth of 3%, our wider portfolio increased by 13% in the half and now represents nearly half of group sales. We're seeing consumers embrace a broader range of Fever-Tree products than ever before, whether that's in mixed drinks, longer serves or as a premium soft drink in their own right. And third, our asset-light model continues to generate significant cash. That allows us to invest behind the long-term opportunity while continuing to return capital to shareholders through the buyback program.

When we spoke at the full year results in March, we talked about 3 trends that continue to shape the drinks market. Firstly, premiumisation. This is long established and forecast to continue, driven by consumers choosing to drink less but better alongside operators and retailers who value the stronger margins premium products generate. Secondly, longer and lighter drinks. This is driven by consumers' desire to enjoy their spirit drinks mixed as opposed to straight, thus allowing spirit drinks to be lighter in alcohol strength and longer and more refreshing, making these serves desirable across a wider range of occasions and different times of day, no longer the preserve of late nights.

This trend is clearly not being lost on spirit producers who are now pushing and promoting their spirits mix to a greater extent than ever before. And finally, but equally as importantly for our growing opportunity is moderation. This means that when people are not drinking alcohol, whether at home, eating out or socializing with friends, they're still looking for great taste and a sophisticated drinking experience. So all 3 of these trends are firmly in our favor and driving an ever greater opportunity for the Fever-Tree brand.

Of those trends, moderation is the one I'd like to spend a little more time on today. There's often an assumption that if people choose to drink less alcohol, they're somehow stepping away from those social occasions. That's not what we're seeing, and it's not what the data suggests. Across all our key markets, a significant proportion of adults say they intend to moderate their alcohol consumption. In the U.K. alone, that's around 25 million adults. However, when they're moderating, market analysis suggests that around 70% of occasions where consumers choose not to drink alcohol, they're seeking soft drinks and nonalcoholic alternatives.

And this represents a value pool of around GBP 700 million. To put that into perspective, that's larger than the entire U.K. mixer category today. Yet despite its size, much of this value pool remains underserved. Beyond nonalcoholic beer, there are still relatively few premium adult alternatives available. So meaning consumers often default into choosing water, tap water or mainstream soft drinks. And for retailers, pubs and bars, that is a growing challenge as consumers are still participating in occasion, but too often the spend attached to that occasion falls away when the choice becomes water or a standard soft drink.

As a result, we're seeing increasing interest from both retailers and hospitality operators for premium adult soft drinks that can better meet consumer needs while helping them retain the value of the occasion, thus creating a significant opportunity for Fever-Tree. We've built a brand around quality, taste and adult refreshment and increasingly, consumers are choosing our products beyond traditional mixed occasions. So whilst moderation is often discussed as a headwind for the drinks industry, we see it as creating a significant adjacent growth opportunity.

Now identifying opportunity is one thing, being able to capture it is another, and that is where we believe Fever-Tree is uniquely positioned. Over the past 20 years, we've built one of the strongest premium brands in drinks. Our products and flavours have been developed specifically for adult taste and adult drinking occasions. And we have strong distribution across both the on-trade and the off-trade in our major markets. Put that together, and we do not believe there's another brand better placed to capture this opportunity.

Before I move on to the U.S., it's worth taking a step back and reminding ourselves what makes the Fever-Tree model so attractive. We've built a premium global brand underpinned by an outsourced business model, allowing us to generate increasing amounts of cash while remaining relatively capital light. That gives us choices. First and foremost, we can continue investing behind the global opportunity for the brand, whether through marketing, innovation or where it makes strategic sense, potential acquisitions. At the same time, we're able to maintain a strong balance sheet and return surplus cash to shareholders. Put simply, it's a model that allows us to invest for growth while continuing to deliver attractive shareholder returns.

Turning now to the U.S., which remains our largest long-term growth opportunity. When we reported our full year results in March, we said that 2026 will be about moving into the execution phase. That's exactly what the team have focused on during the first half. We've seen strong engagement right across the Molson Coors system. We've launched our first national marketing campaign in the U.S., and we have achieved our highest ever retail value share in both Tonic and Ginger Beer. And importantly, we've seen sales build through the period.

As the chart shows, Off-Trade sales growth improved from 6% in Q1 to 11% in Q2 and then to 16% through July and August. It's still early days, but what we're seeing is consistent with our belief in the benefits this partnership can deliver. We spent quite a bit of time discussing the national marketing campaign at our full year results. So I won't go through all of the detail again today. The important point is that for the first time, we're supporting the brand in the U.S. with marketing investment at a significantly greater scale. The campaign remains rooted in what has always made Fever-Tree successful, our mixing credentials and our reputation for quality.

Together with Molson Coors, we now have the ability to support the brand nationally in a way we simply couldn't before, giving us a much stronger platform from which to grow the brand. And that support extends well beyond advertising. We're investing in experiential activity that gets the brand in consumers' hands while improving execution across both retail and the on-trade. And what Molson Coors brings is scale and a significantly greater execution capability. For a brand like Fever-Tree, where rate of sale is already strong, improvements in availability can make a meaningful difference over time.

So as we've discussed before, there are 3 key drivers of growth: distribution breadth, distribution depth and velocity. And we're adding accounts, improving execution and visibility in store and supporting the brand with significantly greater marketing investment. And what's encouraging is that these drivers are beginning to reinforce one another. As execution improves, distribution expands. As distribution expands, awareness and trial increase and the rates of sales strengthen, retailers are willing to give the brand more space. And together, we're beginning to see that flywheel start to work.

So let me turn now to our broader portfolio strategy. As we've discussed before, diversification has been part of the Fever-Tree strategy for many years. The starting point was to establish the brand's premium quality, taste and flavour credentials through the sophisticated positioning of cocktails and mixing. That remains the foundation of the business today. But the ambition was always to use those credentials to broaden the range of occasions in which consumers choose Fever-Tree. We have a broad portfolio serving different tastes, markets and occasions.

And within that portfolio, we're putting increased investment behind 5 key flavours where we see particularly attractive opportunities for global growth. These flavours already account for around half of group sales and contributed approximately 85% of our growth in the first half. Their strength is their versatility. They work across several major spirit categories, but they are also increasingly enjoyed as premium soft drinks in their own right. That gives them relevance across both alcoholic and nonalcoholic occasions. And we're supporting that opportunity through focused marketing and innovation.

Marketing helps us communicate the versatility of these products more effectively, while innovation enables us to respond to emerging consumer trends and specific opportunities in local markets. So while the products and priorities may differ by market, the approach is consistent. We're building on the strength of our mixer business and creating more reasons for consumers to choose Fever-Tree. In terms of marketing, our latest campaign, "Straight Up or Mixed, It's a Matter of Taste," celebrates the versatility mentioned in the previous slide, while remaining rooted in what matters most to the brand, great taste.

In the U.K., it reached around 11.5 million adults and delivered a sales uplift of 22% for the Fever-Tree flavours. We're now adapting that campaign for a number of our more mature international markets, including France, Canada, Belgium and Australia. It's a good example of how we're evolving the way we talk about the brand and supporting our key growth flavours internationally. In terms of innovation, our approach is deliberately focused. In the U.K., our nonalcoholic ready-to-drinks allow us to play a leading role in the fast-developing part of the market.

They were developed in response to retailer demand for nonalcoholic drinks with the flavour, complexity and quality consumers would expect from an alcoholic serve. We've been very pleased with how they are performing, having secured good distribution across the major grocers and are bringing new younger shoppers into the nonalcoholic category. In Australia, the opportunity is different. Lemon, Lime & Bitters is already a well-established adult soft drink in that market. Our role is to bring Fever-Tree's quality, taste and premium credentials to an occasion consumers already understand.

The product has secured good distribution in Coles and Woolworths, supported by strong retail visibility, and we're encouraged by the early momentum. So these are 2 very different products, but they reflect the same disciplined approach. In one market, we're helping shape an emerging category. In another, we're premiumising an established local favourite. Both build naturally on Fever-Tree's strengths and create more reasons for consumers to choose the brand. And with that, I'll hand over to Andy to take you through the financial performance.

Thank you, Tim, and good morning, everyone. We set out here the financial highlights with performance driven by the U.S. and the U.K. returning to growth, whilst EBITDA is growing ahead of revenue even after a step change in U.S. marketing investment. Cash conversion has remained strong with a GBP 60 million share buyback in progress, building on the GBP 100 million buyback from last year. So turning the page. U.S. revenue grew by 11% at constant currency with the Molson Coors partnership starting to deliver real benefits, as just described by Tim.

The U.K. delivered a return to growth with revenue up 3% following our successful Straight Up or Mixed marketing campaign, which launched just ahead of the good summer weather. Whilst tonic sales are broadly flat in the U.K., growth is being driven by our Beyond Tonic products, which now represent almost 1/3 of U.K. sales. Whilst wider challenges remain in the on-trade channel, we retain our market-leading distribution footprint and share there. Meanwhile, in the off-trade, we're performing well, growing strongly and extending our leadership position, gaining a further 2% value share.

In Europe, whilst reported revenue growth benefited from positive shipment phasing, underlying growth was a solid 4% year-on-year, driven by strong Ginger Beer performance, where we are delivering more than half of the category's growth at retail and now holds almost 40% value share of the Ginger Beer category across Europe. And finally, in the Rest of World, reported revenue increased by 5% with underlying growth marginally ahead of that at 6%. And whilst Tonic remains in good growth, again, our diversification strategy is gaining traction with Beyond Tonic over 40% of the sales mix and growing well.

So turning to the segmental P&L view. In the U.S., we saw a reduction in EBITDA margin as expected, largely reflecting up-weighted marketing investment. As we previously presented, we anticipate step changes in U.S. profitability over the medium term as production is onshored and the incremental marketing investment moderates to more typical levels, with these step changes underwritten by our U.S. profit guarantee. Whilst on the ground, the journey begins in earnest with the onshoring of our cans business with production trials beginning this autumn and ramping up from there.

In the rest of the group segment, we've continued to deliver margin recovery, and this is after the impact of a GBP 2.6 million provision to cover the 2026 U.K. on-trade EPR levy. And whilst nothing has changed in our position here, the legal challenge has not progressed since March. We await the next steps and as such, the provision is required under accounting rules. And whilst the geopolitical backdrop remains volatile, the significant steps we've taken in recent years to improve supply chain resilience continue to hold us in good stead, and the team are doing a fantastic job.

Whilst from a cost perspective, our bottles and cans are materially hedged for energy impacts across 2026, '27 and '28. Finally, central costs have reduced as a percentage of adjusted revenue as we leverage the technology investments implemented in recent years, providing a tailwind to group EBITDA margins as expected. On announcing the Molson Coors partnership last January, we pointed to the increasingly positive impact this would have on working capital and cash conversion. Here, we look back at the 18-month period since that announcement, highlighting the strong cash generation, working capital improvement and shareholder returns that we have delivered.

On completion of the current buyback, we will have returned GBP 160 million to shareholders and inclusive of the equity issue to Molson Coors, we will have reduced the number of shares in issue by circa 7% over this period. Turning to outlook. We've continued to trade well over summer and remain confident of delivering in line with expectations. We expect U.S. revenue growth to accelerate as the year progresses, whilst in the rest of the group, we expect to deliver good underlying growth, although reported revenue will be impacted in Europe as phasing benefits from the first half of the year unwind.

From a profitability perspective, U.S. tariff refunds received in the second half will offset the full year impact of the incremental GBP 2.6 million EPR provision, and we remain confident of delivering EBITDA in line with expectations. This year's working capital profile will be similar year-on-year and significantly below historic levels. And so just as we set out last January when announcing the Molson Coors partnership, 2025 was a transition year. And in 2026, we're investing in the U.S. opportunity, both of which have dampened earnings in the short term.

But we are drawing closer now to '27 and '28, where we expect to see a step change in U.S. and therefore, group profitability as the benefits of local U.S. production are felt followed by a normalisation in U.S. marketing investment. Consistent delivery this year provides a strong platform from which to deliver against consensus expectations of the circa 60% uplift in EBITDA over the next 2 years with the quantum of that uplift materially underpinned by guaranteed U.S. profits.

Not only this, but an improving working capital profile as U.S. production onshores means that the increase in profitability will be outstripped by further improvements in cash generation with the expectation that the group will generate at least GBP 100 million of free cash flow across '27 and '28. And whilst that can be deployed to fuel further growth, excess cash will be returned to shareholders, just as we've demonstrated through the GBP 160 million share buyback deployed over '25 and '26. With that, I'll pass back to Tim.

Thanks, Andy. So to summarize, the Molson Coors partnership is really beginning to deliver the benefits we expected with stronger execution, growing sales momentum and increasing confidence in the long-term opportunity. Secondly, our diversification strategy continues to gain traction. Our wider portfolio outside of our core tonic range now represent almost half of group sales, and we're increasingly broadening the occasions in which consumers choose Fever-Tree. And thirdly, our asset-light cash-generative business model continues to provide us with significant flexibility. It allows us to invest behind future growth while continuing to deliver attractive returns to shareholders. So with that, I'll open up to any questions.

[Operator Instructions] So our first question today comes from Anubhav Malhotra from Panmure Liberum.

Just firstly, on the U.S. growth that you have achieved in the second quarter and the third quarter. Maybe you could give us a bit of idea of breaking that down into growth in distribution in terms of number of outlets you are covering and then number of products in each outlet rate of sales? I mean you don't have to give exact numbers, but maybe some qualitative colour on what's driving or all of them are driving. And if you are already seeing some of the benefit of the advertising campaign on the rate of sales in your previous distribution, which is not newly added under Molson Coors.

And then secondly, on the EPR impact, which this year has come in the first half and last year, I think, was in the second half margin. So just looking at the underlying increase in the margin in the rest of group non-U.S. division, is that more like a 300 basis points underlying improvement in margin and not a 70 basis points if I exclude EPR? So just a confirmation on that.

And then thirdly, on the moderation trends, I mean, you mentioned the moderation trends and -- but in the U.S., you're primarily playing in the mixer category still there, which obviously does not play directly into those moderation trends, which are also happening in the U.S. market. And I believe Molson Coors is proceeding with other partnerships in canned, ready-to-drink cocktails, and I'm sure in other nonalcoholic beverages as well. So do you think there's a risk to miss out on that part of the opportunity? Or you think this is the right strategy? Or I don't know if you have any product innovation plans in that market that will play into those opportunities as well.

Thanks for those. I think I'll take the first 2. In terms of the kind of accelerating growth profile through the year, look, it's very much as Tim described. You're starting to see this combining benefit of more doors, more shelf space that we've achieved and some improving rate of sale. And like we said, sort of each month, that's building. You can see that in the Circana data quite clearly. Obviously, Circana isn't the entire picture, but it's a very good proxy for what's happening. So it is, that is the reality of it.

And if we look at the on-trade, we're seeing, last year was very much a year of transition and making sure we protected our existing footprint. This year has been about expansion and primarily focusing on, as we've spoken before, that sort of second tier of more mainstream on-trade distribution, and that's exactly what the network is doing. So that's why we continue to see it. I think in terms of the actual growth rate, obviously, it was 11% in H1, and there's an implied quite significant acceleration in H2.

One thing I'd point to as well is the balance of the comparatives. Last year was the transition year. But the first 5 months of last year, really to all intents and purposes were business as usual. And the peak sort of transition impacts fell more in Q3 and in the second half. So that's what we're lapping. If you look at the shape of U.S. revenue, the split H1 to H2 this year, it's 45 to 55. So all of that triangulates and combines to confidence in our ability to hit the expectations for the year this year.

From an EPR perspective, yes, look, you're right. In terms of the timing of making the provision, we didn't make that until the back end of last year because of how things were progressing and the filing of the legal case. So it wasn't in the on-trade EPR provision wasn't in the first half comparative. So if you strip that out, that does imply a really good healthy underlying margin improvement in rest of the group. Now there's some phasing in that, so that there's flat or some of that, but that is the story.

We're continuing to deliver good growth, good cost control. We've benefited from hedging this year that we laid down clearly last year as well as pricing actions around the group. But clearly, that's been slightly offset by that EPR provision in the first half. I think the good thing about taking that provision is the downside risk is covered now. Nothing has changed in terms of our confidence in our position. And when we do have our day in court, so to speak, should we be successful, clearly, there's risk to the upside now with a GBP 5.4 million provision sitting on the balance sheet relating to both '25 and '26. So we'll watch this space.

Yes. Look, let me take your last question about the adult soft drink opportunity in the U.S. I mean there's no question that we see opportunity for the Fever-Tree brand to participate in that growing category growing opportunity. And as the Molson Coors, when they originally approached us, this is one of the things that they cited as being a great opportunity for the Fever-Tree brand. So they will also be very focused on that opportunity.

And these are discussions we are already having with them. But what we've agreed is there's so much white space to go after with our core mixer of business for the next couple of years is that's where we want to focus their network for the next couple of years and not distract them with other opportunities. But this is very much in our discussions, very much in our planning and certainly is a very significant opportunity that we see in the future. So we are as excited about that as I know Molson Coors are.

The next question we have is from Edward Mundy from Jefferies.

Three questions from me, please. So coming back to the U.S., I think you're highlighting strong momentum in the second half. And I appreciate the comps are a little bit easier in the second half than first half, but consensus is modeling around 20% revenue growth in H2. And that slowed to about 16%, I think, in '27 and then 14% in '28. But if you think about the flywheel that's starting to build and given more investment next year, without guiding explicitly on forecasts, do you think there is upside potential to consensus expectations on the U.S. is my first question.

The second one is on onshoring of cans within the U.S., Andy. Could you talk to how this helps with both top line and bottom line delivery next year, in particular, with the profit guarantee? And then third of all, coming back to the U.K., which was a really good result in the first half. I appreciate there are some sort of some good weather and some easier comps involved here, but the fact that trading has continued to be favorable into Q3, does that give you more confidence that the combination of more investment in the U.K. and this non-tonic acceleration gives you more confidence in the U.K. starting to grow from here?

Yes. Yes, I'll take the first one in terms of, look, I think I've just spoken to the building blocks, if you like, and confidence in ability to hit this year's expectations, and that does imply the acceleration, which for sure, there's an underlying element to, but there is also an element to the comparatives there that would give us the confidence to deliver that. When we look at consensus actually for next year, it is ahead of the 16% you referenced. And look, when we announced the deal back last January, we sort of anchored, if you like, on the 26% number.

But from there, we felt confident that we could deliver high teens, 20% growth in the U.S. And we'd still absolutely be aiming to do that. So I do think there's some upside in the numbers certainly you were referencing there over the next couple of years, just predicated on what we've been speaking to. There's a significant amount of distribution white space to go for, both in the on-trade, the off-trade. Every month that goes by, the distribution network is getting their arms around the brand and driving it forward.

And then from a consumer pool perspective, we've clearly made a significant investment in marketing this year, which we expect to continue to do over the medium term. So all of those, we're confident will combine to drive really good growth over the next couple of years for us in the U.S. Now cans are an important component of that, the onshoring aspect, which is beginning imminently. I think much more though, clearly from a kind of cost perspective and from a working capital perspective, the onshoring, as we've spoken about, is a key component to driving U.S. profitability over the fullness of time.

And we're really pleased that Molson are beginning with that format. It's a fast growth format. And alongside some of the local glass production we already have in the U.S. means over half of our U.S. products are going to be locally produced next year, which is fantastic. Now there will be profitability benefits of that flowing into that partnership P&L. From Fever-Tree's perspective, we have this kind of guaranteed mechanism, which gives us a good degree of upside next year from that.

So we're very confident. We've talked about the top line trajectory. I'd say we're very, very confident about the bottom line trajectory because when you look at the step changes in consensus EBITDA from 26 to 27 to 28, that incremental amount, a very high proportion of that is covered off by our U.S. profit guarantee, which gives us obviously a great platform to deliver against those expectations.

Very good. And Ed, why don't I pick up on the U.K. As you kind of say, it's great to see the U.K. performing the way it is. It's not a surprise to us. As I think you know, we've always been pretty confident that we will get the U.K. back into growth. Whilst there's no question that good weather has been a benefit. We mustn't forget we had some pretty good weather actually last summer. So some quite tough comps there. But what's clearly also been driving it is the diversification of our range, which we have been deliberately broadening over the last few years to make the most of these growing other occasions and other opportunities, and that's really showing up.

And as you'll see, that range grew at 13% in the first half of the year, and we're optimistic that we can keep driving that kind of growth with that range going forward. And then on top of it, our confidence in that is what spurred our desire to spend more money than ever before marketing the versatility of our brand and range. And the early feedback from that campaign is very positive in terms of getting people to reappraise us as not just a mix of drink but also a soft drink business.

And clearly, we're seeing the results in the growth of those products across the portfolio. So that gives us also confidence to continue to drive that style of investment. So yes, in answer to your question, we are optimistic that we can continue this momentum in the U.K. in the medium term. And as I also tried to point out in the presentation, moderation, we think, creates an additional opportunity for the Fever-Tree brand that we're also going to be leaning into. So yes, we're delighted by the first half, and we think we can continue.

The next question is from Ashutosh Jain from Barclays.

Again, my question pins down to the U.S. And the first question is, could you just give us some color on pricing in the U.S.? Like what was last year? Because I believe, if I remember correctly, it was flattish last year. So any color on pricing for this year? And the second question is, like what gives you a high degree of confidence to deliver almost 2x of the growth in the second half? And I'm talking about fiscal year '26 to get to somewhere around GBP 150 [ million ] in the U.S. as per the consensus.

Yes. I think in terms of pricing, look, there's certainly an expectation that over time in Molson, just as we have actually in the U.S. will take, look to take inflationary pricing. But as you'd understand, we flipped into a new network halfway through last year. So there wasn't a focus on taking price from '25 into '26, 6 months into that relationship. So that's clearly going to be an aspect of future plans.

From -- in terms of confidence in '26, I think I sort of referred to this earlier. It is a combination of what we're seeing in terms of building incremental distribution and rate of sale month by month, which is coming through in the numbers, lapping some softer comparators in the second half. Like internally, we're very focused on every month, what we need to hit against plan to deliver against those expectations. And we're very comfortable we're on plan and with the year to go with everything in place that we can continue to deliver those numbers.

The next question on the line is from Matthew Ford from BNP Paribas.

So my question, I suppose, following up from what's been discussed already, just on the EBITDA margin expectation into 2027. I mean there are a lot of different moving parts, I suppose. You've got the tariff refund coming this year, which is a bit of a benefit to margin, which in theory, won't be there in -- again in '27. You mentioned you're already very well hedged from an input cost perspective, but presumably, that's at slightly higher rates. So I would expect an incrementally slightly tougher COGS impact into '27.

Conversely, you've got obviously the U.S. localized production, which will help from a margin perspective. But clearly, the marketing step-up is still going to go through into '27. So if I look at consensus margins, I think the assumption is for '27 EBITDA margins kind of close to the mid-teens level, which is quite a big sequential step-up. But just be interesting to get kind of your thoughts on those various moving parts, both positively and negatively. And if you still think that the kind of 15% in '27 is a good level.

Yes, sure. You're right. There are a number of different moving parts. In terms of inflationary cost pressures, we feel our hedging position puts us in good stead to manage the impact of that in the business next year. We'll continue to focus, particularly I'm talking here about rest of the group on taking pricing actions and other levers. So we're confident of an improvement in margin in that rest of the group segment. We're confident that our central costs will continue to allow, there will be some operational gearing from that central cost, which will provide a tailwind.

But the most significant step change in margin and getting us to that kind of mid-teens circa 15% level will be the change in profitability of that U.S. segment. Now from an underlying perspective, the tailwind to that, the improvement will be driven by local production. The headwind, if you like, to your point, will be continued and sustained incremental marketing investment. So that will offset some of that benefit.

But still, notwithstanding that, we still feel comfortable that you're going to see this movement from consensus EBITDA margin for this year is about 12.5%, moving up to high 14s, 15%. And the vast majority of that will be driven by U.S. segmental profitability driven by local production. And as I've said before, the fact we have the profit guarantee gives us great confidence in our ability as a group to deliver that step change in margin.

[Operator Instructions] Our next question is from Richard Withagen from Kepler Cheuvreux.

Three questions from me, please. First of all, it looks like the U.S. on-trade is growing ahead of the off-trade for Fever-Tree. So if you look one level deeper, where is the portfolio gaining most traction? What kind of outlets, what kind of stores, et cetera? Second question is on working capital. So how should we think about working capital in the second half of the year? And will there be any working capital impact already this year from the planned onshoring of production in the U.S.? And then the last question is perhaps taking a step back, beverage companies in mature markets are facing challenging market conditions. There's some portfolio diversification going on to improve growth. Is there an opportunity for Fever-Tree to accelerate distribution deals? And I don't mean the big ones like the Molson Coors one, but smaller country-sized or regional deals? And how material could that be?

Yes. Thanks for your questions. Let me take the first about U.S. on-trade. Yes. No, look, we're making good progress in the U.S. on-trade, no question. But what's so exciting is the size of the opportunity that lies ahead and particularly now with Molson Coors because one of the attractions of the Molson Coors network is their scale and their breadth and particularly into the sort of Tier 2 as we would describe them of the on-trade. We spent a lot of time in the U.S. building and developing our business in the Tier 1 on-trade where we have a fantastic foothold. And when I say the Tier 1, these are the top hotels, bars and restaurants. But our ambition has always been to move them from there into the tier beyond. And that is where the Molson Coors network is at its strongest.

And so that is the progress we started to make with them, but it's still very early days because there's such an opportunity ahead. And I always look at the U.K. as a good reference point because where our business in the on-trade really started to step change was when we built just as we have done in the U.S. that distribution in the top end of the trade and then move from there to the pub groups. And that is what we've done incredibly successfully here in the U.K., which has meant we now have 45% market share. And that is the journey we're starting to be on in the U.S. And so there's no question that there is an enormous amount of opportunity to go after, but it takes time. These are hundreds of thousands of accounts and call points that need to be made, sales calls that need to be made.

So it takes time, but there's no question with this extraordinarily powerful network very, very well established in that tier, and they're making good progress. So lots to go after, but exciting progress.

I'll take the working capital question. Well, look, if we go back to, say, 2024, our working capital was around 20%. We saw a step change as we went into the Molson partnership. So last year, that dropped obviously to sort of 16.6%. We anticipate staying at broadly that level this year because the next stimulus, as you say, will be local production. For obvious reasons, that will start to reduce our working capital because at the moment, the majority of our U.S.-related working capital relates to product which is either on the water to the U.S. or the invoice we raised to Molson to pay for that U.K. produced stock. So as the onshoring ramps up, our U.S. working capital reduces to very low levels.

We don't anticipate a major change at December because with production trials beginning and ramping up, the sales cutover won't really be until spring next year. So it will be 2027, where you'll start to see that improvement again in working capital into '28 as that onshoring level continues to increase, if that's helpful.

And then your final question is an interesting one. I mean, as you rightly say, I mean, the beer companies are looking increasingly beyond beer for their growth, i.e., into softs. The spirit companies are looking beyond spirits also into softs. And then the softs companies are also looking at the premium end where the more attractive margins are. So we find ourselves at the confluence of all of those interests, and so as a result, getting more approaches than ever before. And we will, of course, consider each and every one as they come. But as I think these results have demonstrated, we're growing very, very well with the distributors we currently have. So we're in no rush to make any changes, and we will only make the changes if we see a real strategic benefit. But we certainly find ourselves in an attractive position as far as the trends in the market are concerned.

Thank you. These are all the questions we have time for today. We will now conclude the conference call. Thank you for your time and participation. We appreciate you joining us today. You may now disconnect, and we wish you a pleasant rest of your day.

Thank you, and good morning, everyone, and thank you for joining us today. I am delighted to be here to share our results and some of the significant progress we've made over the first half of the year. I'm joined by Andy Branchflower, our CFO who you all know well, and also for the first time, Steve Nightingale. Steve has stepped in as our Interim Director of Investor Relations, whilst Ann is away on maternity leave. And I'm sure you'll join me in wishing Ann all the very best at this very exciting time and welcoming Steve to the team.

So looking at the agenda for today, we'll begin with a summary of the first half and then some of the global trends shaping our category. I'll then take you through an update on our Molson Coors partnership before Andy will provide a review of the financials. From there, I'll return to give you a broader business review, and then we'll wrap up with a short summary before opening up to questions.

So turning the page. It's been an encouraging period for the group, where we've combined a robust financial performance with real strategic progress. We remain the premium mix category leader across all our major regions and our growing portfolio beyond Tonics is broadening the brand into more occasions. But undoubtedly, the most significant development in the first half was signing our transformational partnership with Molson Coors in January.

The overall transition is progressing well. And as we will come on to, it's very encouraging to see how the underlying brand momentum has been maintained in the U.S. Finally, our financial performance has been robust and the combination of strong cash flow and transaction inflows received from Molson Coors have driven a significant uplift in the group's cash position. The GBP 100 million share buyback program announced earlier this year is expected to run until the end of 2025.

And today, I'm pleased to say we have announced an extension to the program by a further GBP 30 million to continue into 2026, a clear reflection of continued confidence, improved cash flow resulting from the Molson Coors partnership. So against this backdrop of resilient performance and strategic progress, it's important to step back and look at the consumer trends that are shaping our industry. These trends towards premiumization, moderation and longer, lighter drinks are being seen across the array of adult socializing occasions and have been at the forefront of our strategy as we have deliberately evolved our portfolio in recent years.

First, premiumization. Even in more challenging consumer environments, premium spirits continue to outperform as people choose quality over quantity. Consumers aren't trading down, they're trading up, and that behavior has been remarkably consistent across markets. Second, moderation. This is fundamentally reshaping how people socialize. It's not simply about drinking less. It's about having the choice. Whether you're drinking alcohol or not, there's now a clear expectation for sophisticated high-quality alternatives. And third, the rise of longer, lighter mix serves. These serves sit at the intersection of premiumization and moderation, being lower in alcohol, but crafted, flavorful and designed for social extended occasions.

And it is within these social occasions, whether that's a barbecue with friends, a night out at the bar, the sports event or a meal together that the trends are being reflected in the way consumers are choosing to drink. In the same moment, you'll see classic long spirit mixers alongside crafted cocktails, lighter spirit style serves next to sophisticated premium serves and increasingly credible alcohol-free choices. And what's unique about Fever-Tree is that we have developed our portfolio to reflect these shifts and deliberately mirror the way people actually drink today. Our Tonics anchor the classic long drink occasion where we lead the category. Cocktail mixers open up more complex serves, both at home and in the On-Trade. Our sodas and gingers support longer, lighter highballs and spirit style moments, while our growing premium soft range provide a sophisticated nonalcoholic choice without trading down on quality.

And finally, our new nonalcoholic RTDs bring bar quality flavor to 0 ABV occasions. Because the brand carries credibility with and without alcohol, we are more relevant to more consumers more often, deepening loyalty while bringing new drinkers into the brand. The breadth of our range means we're not reliant on any single serve or trend. We're ideally positioned to benefit as adult socializing continues to evolve. But over the page, it's not just about having the right portfolio, it's also about having the ideal platform to execute against this growing opportunity.

We are the clear global #1 in premium mixers with leadership across the U.K., Europe, the U.S. and beyond. And that leadership is reflected not only in share but in household penetration, showing Fever-Tree has shifted from being a premium choice to a mainstay across many markets. We also lead the category in innovation, broadening occasions for consumers and being central to customers across the on- and Off-Trade who look to engage with us when they're developing their drinks and serve strategies.

And finally, we have deliberately established a bespoke route to market with distribution that is deeply embedded across both the on- and Off-Trade throughout our regions, giving us the reach and agility to scale new formats quickly and extend the brand into new occasions without ever compromising on quality. And all of this wasn't lost on Molson Coors, who approached us recognizing as they did the unique position we've established to scale both our core mixing portfolio and new growth areas.

As a reminder, our strategic partnership was announced in January, providing Molson Coors with exclusive rights for sales, distribution and production in the U.S. And while we retain full control of our brand vision and product development. The rationale is clear, strategic alignment. Both businesses share a vision to grow Fever-Tree across alcohol and nonalcoholic occasions, aligning with Molson Coors' Beyond Beer ambitions. Scale and platform. Their national network across on and Off-Trade accelerates distribution, expands reach and drives rate of sale through stronger customer contact. Marketing investment, access to incremental funds, buying power and execution strength will boost brand awareness and category growth. Local production, over time, onshoring will cut freight costs, shorten lead times and deliver operational efficiencies.

So together, this partnership transforms our largest growth market and builds an even stronger long-term foundation for Fever-Tree in the U.S. So having set out the rationale for the partnership, this slide shows how it translates into real revenue growth for Fever-Tree. Molson Coors gives us breadth. Their distribution platform covers 400 independent distributors, servicing 0.5 million accounts and making 30,000 deliveries a day. That reach creates a huge opportunity to expand the number of accounts we are in, particularly given the white space that still exists in the core premium mixer category.

The second element is depth. By leveraging Molson Coors' senior customer relationships and category management expertise, we can increase the number of Fever-Tree products stocked per account, not just Tonic, but across our wider portfolio, which over time may also open up opportunities in adjacent categories such as non-alcohol and ready-to-drink. And third, velocity. Their ability to increase visit frequency, improve in-store execution, secure better placement and grow off-shelf space is combined with a step change in marketing investment. Together, this will drive rate of sale per product and significantly raise brand awareness.

So put simply, this partnership doesn't just give us scale, it multiplies the growth levers with breadth, depth and velocity. So as planned, our H1 results still largely reflect the legacy Fever-Tree stand-alone model, but the transition to Molson Coors is now well underway and progressing smoothly. The first stage was Molson Coors completing a full tendering process across their distributor network. Since June, the brand successfully moved into around 400 regional distributors nationwide.

The initial focus has been only on trade and liquor channels with the relevant retail customers being handed over during the second half. Organizationally, our former Fever-Tree U.S. team is now fully integrated with the Molson Coors non-alc division, while we kept a small focused team in place to oversee the partnership. And whilst the second half will remain a transition period with plenty still to do to bring all distributors fully up to speed on the brand and portfolio, we've been delighted with the progress so far. The teams are working incredibly well together, and we're excited about the long-term growth platform we're building in the U.S. I will now hand over to Andy to take you through the financials.

Thank you, Tim, and good morning, everyone. The Fever-Tree brand delivered 2% constant currency growth in the first half and a 1% increase in EBITDA as we work through the initial period of transition into the Molson Coors partnership in the U.S. Working capital, as expected, has improved significantly, driving strong cash generation. And this morning, we announced a further GBP 30 million extension of the share buyback program, which will run into 2026.

So turning the page. In the U.S., we were pleased to deliver 6% constant currency growth. Brand momentum has remained strong across channels through the initial phase of transition that Tim has just talked through. And we increased share, extending our leadership position in the Ginger Beer and Tonic categories. In the U.K., whilst we've seen improved trading over the summer months, the first half result was softer than expected. Whilst progress in the Off-Trade was solid with 1% growth at retail, conditions in the On-Trade remain challenging.

Outlets and groups facing ongoing inflationary cost pressures alongside business rates and national insurance increases have had little choice but to pass these costs through to the consumer and the resulting pricing pressure is impacting the rate of sale of the spirits, most notably Gin and mixer categories with Fever-Tree not immune to those wider headwinds. However, our U.K. innovation launched over recent years is performing well across both channels as we've diversified our product range with non-Tonic products, including our premium soft drinks and cocktail mixers growing at a 13% CAGR and now making up almost 1/3 of our U.K. sales mix, which alongside our clear leadership position in the category, strong brand awareness and broad household penetration provides the platform for an improved U.K. performance in the second half and beyond.

While sales in Europe at the half year can be impacted by the phasing of orders to our distributors, underlying depletion growth in the region was positive at 2%. We continue to drive category growth across European retail and increased value share with Ginger Beer remaining a notable growth driver, up 26% year-on-year, and we've further extended our leadership position with now over 40% share of the Ginger Beer category across Europe.

The Rest of World region is performing well. Revenue was up 17% on a constant currency basis, reflecting some benefit from order phasing. But again, looking at underlying depletion growth, that was strong at 8%, driven by Australia, where our premium soft flavors and formats are delivering strong growth alongside good performance in Canada and Japan.

As we flagged earlier in the year, the Molson Coors partnership impacts the presentation of our financials. We've included detail on these changes in both this morning's statement and within an appendix to these slides. We present here the segmental view of performance to EBITDA level, which we'll be talking to going forward. In the U.S., we delivered adjusted EBITDA of GBP 5 million. As expected, the move to the U.S. partnership has initially impacted EBITDA margins, not only because we're working through a transition this year, but also because we're now in a partnership and so share U.S. profits with Molson Coors.

As we set out earlier this year, over the medium term, we expect to drive significant improvements in U.S. EBITDA as the partnership P&L leverages Molson Coors scale with a step change expected once U.S. production is onshore. And crucially, Molson Coors have agreed to guarantee an absolute level of Fever-Tree's U.S. profits over the period from 2026 to 2030, underlining their confidence in the opportunity. Over the initial years of the partnership, these underlying profitability improvements will be partially tempered by a significant increase in U.S. marketing spend, which will run through the partnership P&L, providing the catalyst to deliver strong U.S. revenue growth in the years to come.

In the rest of the group, we've continued to drive margin recovery with the EBITDA margin improving to 23.8% as we drove underlying operational improvements and lapped the prior year revaluation adjustment. Partially offsetting these improvements has been an increase in marketing spend and the impact of the U.K. EPR levy.

Finally, Central covers the cost of our central teams and senior management alongside corporate expenditure, including IT, insurances and PLC costs. These are marginally elevated compared to the first half of 2024. However, as phasing unwinds, these costs will reduce as a percentage of revenue as we progress through the second half, whilst we're focused on delivering further efficiencies going forward as we benefit from the investments we've made in improved technology and operational processes in recent years.

We delivered a strong improvement in working capital year-on-year, reflecting a continuation of good underlying work from the second half of 2024. The improvement also reflects the impact of the U.S. partnership with local working capital relating to U.S. customer receivables and inventory now funded by Molson Coors. We still retain some U.S. working capital on our balance sheet, which relates to U.K. produced inventory in transit to the U.S. as well as receivables from Molson Coors. However, this will further reduce over the medium term as U.S. production is onshored. As a result, we've continued to drive strong cash generation with the cash position up 67% year-on-year before we take into account movements relating to the Molson Coors equity issue and share buybacks.

Turning to outlook. We've seen an improved sales performance since period end with year-to-date sales growth at the end of August increasing to 4% on a constant currency basis for the Fever-Tree brand and 2% on a reported basis. As a result, the revenue guidance we gave at the start of the year remains unchanged, and we remain comfortable with market expectations. We're confident that we'll see an improvement in EBITDA margin as we progress through the year, particularly as we leverage central costs and as such, are comfortable with market expectations for EBITDA margin this year, which as per our guidance anticipates a year-on-year reduction due to the U.S. transition.

As we look to the medium term and as we presented earlier in the year, we're confident that strong revenue growth driven by U.S. acceleration will convert to even stronger EBITDA growth driven by Molson Coors' operational capabilities and economies of scale, all underpinned by guaranteed profit levels in the U.S. and that well-underpinned EBITDA growth then converts to even stronger cash generation as U.S. working capital requirements fall away for the group. And so the Molson partnership highlights the underlying value of this business, whereby the Fever-Tree brand can combine with an asset-light business model to drive a virtuous circle from revenue growth to cash generation.

And whilst we will retain sufficient funds to fuel global growth opportunities, excess cash generated over the medium term by this cash compounding business model can be returned to shareholders as demonstrated by the announcement today of a further GBP 30 million extension to our share buyback program. With that, I'll pass back to Tim.

Thanks, Andy. So as we start the business review, it's important to highlight the ongoing strength of the Fever-Tree brand. We are firmly established as the global leader in premium mixers, holding the #1 position across all our major markets. And as we referenced over the years, we've seen hundreds of me-too copycats come and increasingly go in that time as we've continued to strengthen our leadership position.

And this isn't just about market share. Our position is underpinned by repeated recognition from the industry with multiple awards naming Fever-Tree the world's best-selling and top trending mixer brand. So that combination of market leadership, household penetration and brand equity makes Fever-Tree not only the clear category leader today, but also gives us a powerful foundation as we continue to broaden our portfolio beyond tonic and navigate shifts in the wider spirits landscape.

As we've already touched on, one of the biggest drivers of our growth has been diversification, expanding well beyond Tonic into a much broader portfolio that is delivering strong growth across categories and regions. Over the past 3 years, this part of the business has grown at a 16% CAGR and now represents 45% of group revenues, a clear reflection of both evolving consumer trends I covered earlier and the strength of our innovation globally.

And whilst we've seen a modest 2% decline globally in tonic over that period, this has been driven largely by the U.K., where the overall Gin category has come off its previous highs. And naturally, as the clear category leader, our performance in this market has mirrored those wider dynamics. However, it's important to remember that Gin remains a very large and significant category in the U.K. and the G&T an incredibly important and well-established popular drink.

And while the On-Trade has undeniably been affected by the wider category headwinds and pricing pressures, Fever-Tree is the clear #1 Tonic brand by significant distance, and we continue to invest behind the G&T and Tonic portfolio will remain a highly profitable part of our business. But stepping back to a global perspective, the picture is more encouraging. The Gin category has seen growth internationally year-on-year. And over time, we still see headroom for our Tonic business across many of our major markets, not least in the U.S., where premium Tonics is still in their relative infancy.

So this gives us a strong platform to capture future and further shares internationally even as the U.K. adjusts. But while tonic continues to anchor our business, diversification is already emerging as a key pillar of future growth. What makes this particularly exciting is the breadth of the opportunity across our broader portfolio. As I illustrated earlier, Fever-Tree is uniquely positioned to straddle all adult socializing occasions, meaning we're driving greater consumer relevance, frequency and loyalty. Take the U.K. as an example, half of the 3.6 million households that buy Fever-Tree now purchase from our broader range beyond our Tonics.

And as shown by this graph, our wider portfolio is gaining significant scale and driving meaningful growth across our whole group. And if you want one product that really brings this to life, how successful our diversification strategy is proving to be, that is our Ginger Beer. Fever-Tree is now the biggest global Ginger Beer brand by value. And most importantly, we still believe has a significant growth opportunity ahead. Its success is being driven by the fact that it straddles both alcoholic and nonalcoholic occasions. It's brilliant in a classic long mix serve and cocktail, but is equally as delicious as a sophisticated premium nonalcoholic drink.

That dual opportunity is what underpins our Ginger Beer innovation and marketing plans, creating more specific formats for both mixing and nonalcoholic occasions, opening up new retail channels to drive the nonalcoholic distribution. And furthermore, we're continuing to develop our marketing messaging to ensure people consider us for both occasions.

The results are clear. Sales have doubled over the last 5 years. Our 3-year global CAGR is 14%, and Ginger Beer is now our second largest product after Tonic. Geographically, we're seeing outstanding traction. We lead the category in the U.S., and we're building strong momentum across Europe, notably in France, where we're investing behind a sizable Ginger opportunity. In short, Ginger Beer is the blueprint for how we look at our broadening portfolio, premium, versatile and relevant, whether you're choosing mixed drink or going alcohol-free, whether you're in the On-Trade or the Off-Trade.

The first in our range is also being supported by marketing investment across our markets. Tonic remains a core focus. But alongside it, we've been highlighting the increasing relevance of our range. As an example, in the U.K., our premium serves have been featured in premium dine-in deals and broader entertaining occasions. At retail, we're opening up more channels and store facing in different nonalcoholic parts of the store. And in Europe, we're seeing new opportunities emerge in new on-the-go channels. And in the U.S., as already mentioned, our Molson Coors partnership provides significant incremental marketing funds, which will begin to deploy once the distributor transition is fully bedded in.

So to wrap up, our key messages are clear. First, product diversification is driving growth across many regions and strengthening Fever-Tree's position as the global leader in premium mixers. Second, our U.S. partnership with Molson Coors represents a step change in our biggest market with the transition progressing well. And third, our strong cash generation and financial discipline give us the resource to invest, deliver returns and build for the long term. And then finally, the guidance we gave at the start of the year remains unchanged, and we remain comfortable with market expectations. So thank you for your time, and we will now open the call to any questions.

[Operator Instructions] We have our first question from Edward Mundy from Jefferies.

Three questions, please. So the first is on the U.S. Pretty encouraging to see the delivery despite the integration and the potential disruption that might have had -- might have happened. Could you perhaps talk about what's gone better than expected? And then what the next priorities are on the integration into the second half and also into 2026? That's the first question.

The second is on the slide where you sort of mentioned you're vigilant to M&A opportunities. If you were to replicate the asset-light partnership in other markets, for instance, in Europe, what are the things you would look for in a partner? And then the third question, perhaps for Andy, is pretty interestingly split out margins of the U.S. versus non-U.S. business. I think when we look at consensus, fiscal '28 still shows U.S. margins well below non-U.S. margins. And I'm not asking for guidance. But is there any reason why over time, the U.S. cannot catch up to the non-U.S. margin of nearly 24%.

Okay. Well, thanks, Ed. Good to hear from you. I presume you've got up pretty early for this, so that's much appreciated. So first question, U.S. transition. Yes, as we said, it is progressing well. I mean, as you all know, we transitioned. There are many banana skins that you've got to be careful about.

First off, of course, that we announced the deal in January, but we were still trading with our network up until June. So in that period, it is quite typical to see your current network and distributors down tools Fortunately, on the back of the great relationship that we have and have with Southern Glazer's and also, I have to say the relationship that Molson Coors have with them because they also trade with us. We were able to keep goodwill going through that period, which we are grateful to Southern for. And so that meant that there was less disruption than can typically happen in these circumstances.

But I think also underlying it, Ed, is the fact that the brand momentum has continued. And the other thing that happens typically in periods of uncertainty is competition. start to really flex their muscles. Well, whilst they've tried, they've had little success because we've seen our brand and market share continue to grow in that period, which is very unusual. And the competition continue to struggle. I mean we've talked a lot over the years about our major competitor in the U.S. being Q Tonic. You'll remember that 4, 5 years ago, they were half our size in the U.S. Well, they're now 1/5 of our size and have been declining quite notably.

So that brand strength and momentum has really helped during this transition period. And it's something I know Molson have been very, very pleasantly surprised to see because whilst obviously, they read the statistics, now they're actually seeing this in their network and seeing the desire for the brand. I think it's given them even more confidence and belief in the potential. But we are conscious that we're still in the throes of transition. We handed over to 400 distributors in June, and you can imagine all of the education and system integration that is needed to get that working properly. So that's still very much in process.

And then we've got direct retail and broadline retail that we will start to transition to over the remainder of this year, and we will do that with Molson, of course, but when it's relevant. And so that's why we foresee this transition continuing to last for the rest of the year. But look, what I'd say in answer to your question is that it really is going well. And when I say that, our team, the majority of our team that we have now moved over, they've integrated very well in Molson, enjoying working with them.

We are really enjoying working with them. We've had a lot of interaction at senior level and throughout the organization. They really are adopting the brand as if it's their own and really seeing the potential of it. So that's been fantastically encouraging. And we're very optimistic that when they get through the transition period and get into the sales period that we're really going to see all of the benefit of their scale and muscle. So that's why we're increasingly optimistic into '26. In fact, we've got a significant moment next week. I'm off out to the U.S. because it is the Molson Coors Distributor Conference. And so I'll be presenting to 3,500 sales guys who will now be out selling the Fever-Tree brand.

And so that is going to be a significant moment because there's going to be, I hope, on the back of what we're going to be telling them a lot of excitement. So yes, so far, so good. And then your question about partnerships. Look, as you can imagine, the deal that we came to in Molson hasn't been lost on others in the trade. And clearly, there's been sort of incoming on the back of that. But I think what it's demonstrated to us is what we already knew is that we really like this idea of partnership and being able to work proactively and invest together.

And you know that we've spend a lot of time looking at our partners and ensuring we've got the right partner for the right age and the right stage of the brand. And so this is something that we will continue to do quite vigorously, but we'll also be keeping this sort of partnership structure very much in mind because we certainly think it's a great blueprint as we look to the future. Andy, I think...

Yes. In terms of your question on U.S. profitability, so in terms of the U.S. segmental profit that we're disclosing at this point in time, that's very much the start point. That represents our share of that U.S. partnership P&L, which, of course, now sits with Molson Coors. And if we think about that partnership P&L and the opportunities to drive margin improvement over the next couple of years from an underlying perspective, that really we're very confident as a Molson on the ability to leverage scale, operational efficiencies and absolutely, as U.S. production is onshore in the medium term, that will also provide a step change in the profitability of that local P&L.

As I spoke to earlier, we -- that profitability will be tempered by the decision we've taken together to really invest behind the brand. And the bulk of that investment, we expect to be deployed through '26 and '27. So it's really -- and -- but what it means is that U.S. P&L will improve in underlying profitability tempered in the short term by U.S. marketing. But as you say, by 2028, we should start to see the true underlying profitability of that U.S. partnership and then we'll take our share into our P&L. So if you look at where consensus margins sort of is moving to, it's staying around circa 12% this year and next year, but then it starts to step into sort of mid-teens and then higher teens as we get into '27 and '28. And I think our U.S. profitability should reflect that change as well over the medium term.

Our next question comes from Anubhav Malhotra from Panmure Liberum.

First on tariff, what sort of discussions have you had with Molson Coors on sharing the impact of the tariff from the supplier from the U.K. to the U.S.? And how have you been managing that impact? And is that now completely in your guidance? Then secondly, on EPR, I know -- I mean, we are in September already. You're still in discussions. It's unlikely the government moves very quickly on these things. What's the likelihood that, that GBP 3 million potential impact has to be booked in by the end of the year?

And just clarification on that as well. Is that the GBP 4.5 million that you have pointed out, is that a 9-month impact? Or is that a full 12-month impact? If you could clarify that? And just one last on the U.K. given you've been struggling in the On-Trade for a while now, I'm just trying to understand, have you been adjusting your cost base, particularly with respect to people in the U.K. market to make sure that you are not losing profitability and reflecting the reality of the On-Trade market in the U.K.

Thank you. So I'll take the first two on that in terms of the numbers. So tariffs, as I just spoke to in terms of that U.S. partnership P&L, that's where the tariff impact happens. That happens in the partnership P&L. And then we -- because we share that profitability, we take a -- we share a proportion of that impact by virtue of a lower royalty fee into our P&L. As you can imagine, we're working with Molson to mitigate the impact. The fundamental mitigation will be the onshoring of production in the U.S. And that's why structurally over the medium term, tariffs won't have a long-term impact on the business. But it is already being reflected in the partnership P&L and already being reflected in our share of U.S. profitability.

And by the time you get to our share of those tariffs, it's a relatively -- we're talking a couple of million dollars here in terms of impact. From an EPR perspective, we set out the fact that we are in scope for the Off-Trade, and that's a GBP 1.5 million full year cost impact. The GBP 3 million relates to the On-Trade, where we're very confident in terms of the fact that the levy -- our products -- the products that we sell into On-Trade aren't covered by the levy. But we are in discussions with government.

As you saI'd, these things can take time. But by virtue of the fact we haven't recognized a provision or even a contingent liability in relation to this amount, our position is clear that we're not liable for that cost. But we're just flagging that where that position to change, that would be the impact. And again, that would be something we'd look to mitigate should that occur.

And let me take the On-Trade one. I mean you say we're struggling the On-Trade. I mean let's be clear, we're not struggling in terms of the fact that our distribution remains very, very strong and within our market share. We've got 44% market share in the On-Trade. That's twice the size of our nearest competitor, Schweppes. So the position remains strong. What, of course, has happened is as reflected in the Gin category, Gin and Tonic sales have come down in line with Gin.

But it's notable that this year, whilst Gin has declined, it declined in terms of volume at half the rate of the previous year and IWSR are predicting the fact that this is now going to slow. This decline is going to slow dramatically to the point of stabilization in the next few years. So that is going to be very beneficial to us. But in terms of the resource, absolutely not. We haven't reduced our resource in the On-Trade partly because we've got still so many accounts to manage, but also because of the broader portfolio of products that we are now selling through the On-Trade and realize have even more opportunity through that channel with the fantastic distribution we have. So in many ways, we're working ever closer with our On-Trade partners to broaden the portfolio, broaden their drinks offers and also to pick up opportunities with the sort of premium soft drink portfolio we now have.

So in summary, we haven't reduced the resource looking after the On-Trade because we see future opportunity, particularly as that Gin category starts to normalize.

And can I just clarify on that EPR point, whether the impact that you have accounted for the GBP 1.5 million and the potential GBP 3 million, is that for 9 months of EPR? Because I guess it started from April this year? Or is that a full year impact?

It's a full year impact. And it's GBP 1.5 million. Yes, to be fair.

Our next question comes from Philip Spain from JPMorgan.

Just to follow up on the U.S. onshoring in terms of that helping to mitigate tariffs. Do you have a rough time line of when you expect that the onshoring to accelerate and when it will be fully complete just in terms of how many years that's likely to take? That's my first question. And my second question is just on the level, if you could give some color on the level of pricing that you took this year to help you, I suppose, support your margins.

And given particularly in the On-Trade, some of the pressures you spoke about in terms of the higher cost being passed on to consumers, how are you thinking about pricing moving forward in that channel as well? And then my final one is just focusing around the moderation or consumers moderation. You've spoken about your broad range of products that you have to hit both occasions, both alcoholic and nonalcoholic. Given the nonalcohic and particularly those premium soft drinks in terms of your penetration in outlets in the On-Trade performing. I'd just be interested to know what kind of that penetration compares On-Trade versus Off-Trade. And where you are seeing that moderation occur. Do you think that this is incremental to the sales you're already doing? Or do you think it actually -- it's more of -- it cannibalizes those mix of occasions that you have already?

Yes. In terms of the timing of onshoring, we've said over the medium term, I think if you look at the shape of consensus, there's a step-up in group EBITDA margins expected in 2027, which aligns with our current expectation of when that onshoring should occur. In terms of pricing, look, across the non-U.S. part of the business, we've continued to take inflationary price increases. In the U.S., we chose not to -- in agreement with Molson not to take price this year as we work through the transition.

And just to pick up that point about pricing in the On-Trade, as you might be aware, because this has been much discussed over the last 3 or 4 years, we've always taken a moderate sort of pricing increase to the On-Trade, unlike some of our competitor friends who have been servicing the On-Trade have taken notably higher pricing to them, particularly in times of cost inflation. And so we will continue to pursue that more moderate path. At the same time, we are working with them very proactively to ensure the pricing of their spirit-based drinks is appealing to customers.

And we've been driving hard our spirits menus to ensure that there's pricing that sits under that GBP 10 mark. And we've had some real success with them recently driving that kind of proposition. And so that's something that we're going to work on even harder with them in H2 this year and beyond. Your question about moderation, is it incremental? Absolutely, we see it as incremental because moderation, as we tried to describe, really sort of take two aspects. One is the fact that people are wanting to drink their spirits as we describe it, longer and lighter. And really what we're talking about there is mixed and we're obviously seeing the rise of these lower ABV spirits.

Obviously, alcoholic spirits is the poster boy for that. But there are many other opportunities that we're seeing that to drive those longer, lighter drinks with the spirit partners. And at the same time, in terms of moderation, there's also, of course, that opportunity for nonalcoholic drinks and soft drinks. And that's where we're seeing fantastic growth. In the U.K. we've seen that portfolio grow at over 20% in the first half of this year. We've also introduced our latest launch has been our nonalcoholic Gin & Tonic nonalcoholic spirits that's only gone in a few months ago and has had a fantastic early sales response. We are really starting to lead the category almost overnight versus the competition in that. So we see real opportunity to expand that across the Off-Trade and indeed, in answer to your question in the On-Trade as well. So definitely, we see those as incremental.

Our next question comes from Matthew Ford from BPN Paribas (sic) [ BNP Paribas ].

I've got two questions really. First one is on the U.K. Clearly, as you mentioned, the On-Trade continues to be quite tough in the U.K. business. But I just wanted to get your thoughts on H2. I think you mentioned in the release, you've seen better trends in July and August, but I know the comps are sequentially tougher in the second half. So I just want to get your view on how you see H2 playing out and what the expectations are for the full year.

And then I suppose longer term, I think if we look at '26 estimates in consensus and kind of that midterm growth profile, I think consensus has around 2% like-for-like sales growth in the U.K. from '26 onwards. Do you think that's kind of realistic at those levels given the pressures you're seeing? Would you expect those to sort of clear up near the end of the year and then for next year to be more in line with that midterm level? And then the second question is, to be honest, it's the same question on Europe. Consensus has a kind of mid-single-digit growth rate in Europe. Clearly, Q1 was impacted -- sorry, H1 was impacted by some one-offs there. But what's your expectation of the midterm growth profile in the European business as well?

Yes. So in terms of that first part on the U.K., yes, look, we have had some good summer trading, particularly in the Off-Trade. So we've seen an improvement in that U.K. position. And look, I think what we -- if you look at last year, we had a minus 6% as well in H1, but we ended the year at circa minus 3%. And we think that's probably a reasonable shape for how this year will play in the U.K. So an improvement in H2, and we've certainly seen that over summer, but still over the full year, be in sort of low single-digit decline.

And then I think you're asking about into '26. I mean, look, we are confident of returning to growth because the Tonic category, as I just mentioned, is predicted to stabilize and the wider portfolio continues to scale and will become even more meaningful part of the sales mix. So that's why we are confident of returning to the growth that consensus has.

I think in terms of Europe this year as well, we anticipate if you look at that 2% underlying depletion growth, phasing starts to catch up with that and then also recognizing that there's an FX tailwind in the second half. So you should see an improvement, if you like, an acceleration in reported revenue growth in the second half.

And then in the after years, again, consensus tends to be around mid-single digit, and it reflects many of the things Tim just spoke about in the U.K. in terms of the diversification of our sales mix. We called out in the presentation, the strong growth we're seeing in Ginger Beer particularly. And then within it, some fantastic momentum in really quite significant markets, not least France as well, which is a significant growth driver. So they are the factors that underpin our ability that there's still good growth opportunities ahead for us across Europe.

We currently have no further questions, and therefore, concludes today's call. Thank you for joining. You may now disconnect your lines.