SUP Supreme Plc

26 November 2024

Supreme plc

("Supreme," the "Company" or the "Group")

Unaudited Results for the Half Year Ended 30 September 2024

-      Revenue up 8% and Adjusted EBITDA¹ up 22%

-      New 'soft drinks' product vertical, increasing diversification

-      Business remains bank-debt free with the interim dividend up 20% to 1.8p per share

-      Results for FY 2025 expected to be ahead of market expectations with an Adjusted EBITDA¹ upgrade to at least £40 million⁵

Supreme (AIM:SUP), a leading manufacturer, distributor and brand owner of fast-moving consumer products, announces its unaudited results for the six-month period ended 30 September 2024 ("H1 2025" or the "Period").

Financial Highlights

·    Revenue growth of 8% to £113.0 million (H1 2024: 105.1 million), underpinned by growth in the core business and revenue from the acquisition of Clearly Drinks Limited ("Clearly Drinks")

·    Adjusted EBITDA¹ up 22% to £18.5 million (H1 2024: £15.2 million), driven by higher gross margins in all categories and a continued tight control on overheads.

·    Adjusted pre-tax profit up 25% to £14.7 million (H1 2024: £11.8 million).

·    Operating cash flow of £11.3 million (H1 2024: £0.4 million).

·    Interim dividend of 1.8 pence per share declared (H1 2024: 1.5 pence per share).

·    Earnings-enhancing acquisition of Clearly Drinks for £15.6 million, financed entirely from the Company's own cash reserves.

·    The Company remains bank-debt free and with more than £50 million of unutilised borrowing facilities at the Period end.

The increase in Adjusted items relates entirely to the fair value movements on financial derivatives from a credit of £1.6 million in H1 2024 to a charge of £1 million in H1 2025.

Operational Highlights

·      Acquired Clearly Drinks, a UK manufacturer and brand owner of specialised canned and bottled-at-source spring water and soft drinks, for a total net cash consideration of £15.6 million.

o  The acquisition is expected to generate around £3.5 million of annualised incremental EBITDA and will provide cross-sell opportunities across our network and innovation opportunities for our Sports Nutrition & Wellness division.

o  As a result, non-vape annualised revenue now exceeds £100 million (around 45% of Group revenue).

·      Following the successful relocation of the warehouse operations to 'Ark' last year, the administrative headquarters were also relocated there during the Period, the final phase of the relocation plan.

Outlook

·      Supreme has developed a stable, highly profitable and growing core business, is currently pursuing a buoyant and diverse M&A pipeline, has a healthy balance sheet and has more than £50 million of unutilised borrowing facilities, providing the Company with a strong base for further growth in the long term.

·      The Company is well positioned to deal with the recently announced budgetary measures, including the vape tax planned for October 2026 which may generate a consolidation of the UK vaping market in which well-financed, agile businesses should benefit.  In reference to National Insurance and the National Living Wage, the Company estimates an annualised increase of around £0.9 million to its people costs.

·      The Group has made a strong start to the second half of FY 2025 and expects trading for FY 2025 to be ahead of expectations, with revenue guidance of around £240 million and Adjusted EBITDA¹ guidance of at least £40 million⁵.

Sandy Chadha, Chief Executive Officer of Supreme, commented:

"I am pleased to report another strong period of trading for Supreme. We have experienced steady growth across our categories whilst seamlessly diversifying our portfolio through the acquisition of Clearly Drinks. Adding well-recognised and trusted brands into Supreme's unrivalled distribution network across UK retail is central to our long-term growth strategy, and this acquisition reaffirms our ability to identify and execute quickly on M&A opportunities.

The strength of our strategy and the proactivity of our teams means we are well-positioned for upcoming changes in the UK vaping sector. Non-disposable vapes account for the majority of our vaping revenue, and we continue to report growth in 10ml e-liquid refills.

Looking forward, we are expecting trading to be ahead of market expectations⁵ for the current financial year and the Board is confident that Supreme is well positioned to deliver ongoing profit growth and shareholder value."

Investor Presentation

Management will be hosting a presentation for investors in relation to the Company's interim results today at 2.00 p.m. GMT.

To register for the event, please go to:

https://www.equitydevelopment.co.uk/news-and-events/supreme-investor-presentation-26november2024

¹ Adjusted EBITDA means operating profit before depreciation, amortisation and Adjusted items (as defined in the financial statements).

² Adjusted Profit before tax means profit before tax and Adjusted items (as defined in the financial statements).

³ Adjusted EPS means Earning per share, where Earnings are defined as profit after tax but before amortisation of acquired intangibles and Adjusted items (as defined in the financial statements).

⁴ Adjusted net debt (excluding IFRS 16 leases) means net debt as defined in the year-end financial statements but excluding the impact of IFRS16.

⁵ Company-issued guidance immediately before this announcement for the year ending 31 March 2025 was revenue of £240 million and Adjusted EBITDA¹ of £37 million.

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 which is part of UK law by virtue of the European Union (withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Enquiries:

About Supreme

Supreme supplies products across six categories; Batteries, Lighting, Vaping, Sports Nutrition & Wellness, Branded Distribution and Soft Drinks. The Company's capabilities span from product development and manufacturing through to its extensive retail distribution network and direct to consumer capabilities. This vertically integrated platform provides an excellent route to market for well-known brands and products.

The Group has over 3,000 active business accounts with retail customers who manage over 20,000 branded retail outlets. Customers include B&M, Home Bargains, Poundland, Tesco, Sainsburys, Morrisons, Amazon, The Range, Costcutter, Asda, Halfords, Iceland, Waitrose, Aldi and HM Prison & Probation Service.

In addition to distributing globally-recognised brands such as Duracell, Energizer and Panasonic, and supplying lighting products exclusively under the Energizer, Eveready, Black & Decker and JCB licences across 45 countries, Supreme has also developed brands in-house, most notably 88Vape, has a growing footprint in Sports Nutrition & Wellness via its principal brands Sci-MX and Battle Bites, and has recently expanded into the soft drinks market with the acquisition of Clearly Drinks, adding established brands such as Perfectly Clear and Northumbria Spring to its portfolio.

https://investors.supreme.co.uk/

Chief Executive Officer's Review

Introduction

I am pleased to report that Supreme traded strongly during H1 2025, delivering solid organic growth supported by continued consumer demand for our own, private label and licensed brands, as well as our entry into the soft drinks market following the acquisition of Clearly Drinks.

Pleasingly, we increased Group revenues by 8% to £113.0 million (H1 2024: £105.1 million), alongside a 22% increase in Adjusted EBIDTA¹ which grew to £18.5 million (H1 2024: £15.2 million). This growth in the Period reflects the strength of our strategy, the resilience of our business model, and also the depth of our retail market knowledge which has helped guide the business at a time of well-reported headwinds for consumers. To this end, we continue to provide retailers with high quality everyday items at affordable price points for customers. 

As evidenced by the acquisition and integration of Clearly Drinks during the Period, we remain focused on investing in all areas of the business and believe that we can continue to benefit from our strategic and opportunistic approach to M&A.

Alongside planning for anticipated regulatory changes to the UK vaping market, we have continued to launch new products and explore new partnership opportunities, further enhancing our reputation as a leading manufacturer, brand owner and distributor of fast-moving consumer products across multiple verticals.

We are confident in our long-term growth prospects and remain committed to delivering on our key strategic targets as we continue to work proactively rather than reactively to an evolving retail market.

Operational Review

During the Period, we moved our administrative headquarters to our new Ark facility, the final phase of our relocation plan following the commencement of distribution and warehousing operations at the site last year. Our new office centre includes a state-of-the-art showroom and multiple meeting rooms to facilitate increased customer engagement. Located in Manchester's Trafford Park, one of Europe's largest business hubs, Ark epitomises Supreme's growth as a business, as well as our continued commitment to providing the best possible working environment for our team. Manufacturing operations will continue as usual at our nearby Beacon Road site which will continue to play an important role in supporting Supreme's development.

Our manufacturing capacity has also grown during the Period. As part of our acquisition of Clearly Drinks, we now have access to a 150,000 sq. ft., fully-automated drinks manufacturing facility. While we are continuing to produce Clearly Drinks' existing product range, this site also provides us with the opportunity to diversify our product offering and enhance our manufacturing capabilities across our Sports Nutrition & Wellness category. We are focused on upgrading this already highly sophisticated facility and plan to introduce new machinery and processes so that it can accommodate smaller scale customers and exciting nascent brands that provide an opportunity for further growth.

We have also continued to develop new products across the wider Supreme portfolio, bolstering our offering and cementing our status as a go-to manufacturer, distributor and brand owner of fast-moving consumer goods. From a product development perspective, we continue to consider environmental factors in line with our ESG initiatives outlined in our latest Annual Report.

Vaping

The Vaping division continued to perform robustly in H1 2025, generating revenues of £36.6 million (H1 2024: £42.1 million), reflecting an anticipated decline in sales of own brand disposable products as consumers prepare to switch devices ahead of the forthcoming ban. Excluding disposable vapes in the Period, the category delivered revenues of £32.2 million (H1 2024 Vaping excluding disposables: £32.1 million), reflecting the resilience and importance of our non-disposable own brand and white label products.

Ahead of the ban on disposable vapes coming into effect in June 2025, Supreme has consciously de-emphasised 88Vape disposables during the Period, reducing our stock holding and tightening our SKU discipline to minimise any inventory risk, which has led to predictably lower sales. We have also transitioned some of the volume away from 88Vape and towards the ElfBar brand ahead of the ban. Sales of own brand disposables for the Period, which account for a small minority of our Vaping category revenues, were £4.4 million (H1 2024: £10.0 million).

We believe that Supreme is well positioned to smoothly manage the forthcoming changes to the UK vaping market and have, for over a year now, been adapting our strategy accordingly to ensure we are fully prepared. As outlined above, the majority of revenue for the Vaping category comes from non-disposable vapes and, importantly, revenue of 10ml e-liquids has continued to grow at a healthy rate. Additionally, we have continued to invest in rechargeable pod system vaping devices and have diversified into manufacturing nicotine pouches, launching our 88Nic nicotine pouches.

The revenue for third-party disposable vapes, ElfBar and Lost Mary, is reported separately in our Branded Distribution category and totalled £30.3 million for the Period (H1 2024: £26.4 million), an increase of 15% as a result of having this distribution for the entirety of the Period versus only three months last year.

Supreme is proud to be setting the industry benchmark with our proactive measures across our 88Vape range to discourage underage vaping, which include: the introduction of plain packaging, reduced hardware colour, age-appropriate product names, and recommendations to retailers that vapes are positioned away from confectionary. Supreme supports the UK Government's ambition to eliminate underage vaping and we are confident that it will seek to strike a sensible balance between addressing underage vaping concerns whilst also not slowing down their efforts to become a smoke-free country by 2030, which was a cross-party objective of the UK Government announced in 2019.

Supreme's overriding goal is to support the widespread use of vaping as a smoking cessation device in line with the UK Government's conclusion that vaping remains the most effective tool to transition smokers away from cigarettes.

Sports Nutrition & Wellness

The Sports Nutrition & Wellness category delivered a strong performance with revenues up 7% to £9.5 million (H1 2024: £8.9 million). Our Sci-MX brand continues to perform well and has benefitted from targeted influencer and community marketing campaigns, including a partnership with leading fitness influencer and Sculpt Gym founder, Adam Collard. By leveraging our newly acquired drinks manufacturing expertise and directing this to the Sports Nutrition & Wellness market, we now have a buoyant product innovation pipeline. In addition, we have new talent in the category and, with input prices stabilising, we are able to have a renewed focus on top line growth. In 2023, we estimate that the UK protein powder market was valued at approximately $1.1 billion and we believe is projected to reach around $1.9 billion by 2030. We remain committed to occupying a growing share of this market in the medium and long term.

Post period end, we signed a partnership with Boots which now lists 27 Sci-MX and Battle Bites products on the Boots UK's website. Boots is a UK household name trusted for only stocking high-quality health and wellbeing products, making this another great retail partnership for Supreme.

We are pleased with the consistent growth of this category and, with sticky UK retail relationships in place, we are well positioned to expand our presence across the industry, especially in the protein powders market with Sci-MX already a well-established and highly credible value brand.

Soft Drinks

In June 2024, our acquisition of Clearly Drinks for a total net cash consideration of £15.6 million (after adjustments for completion mechanics) marked Supreme's entry into the beverage industry. Clearly Drinks is a brand owner of Perfectly Clear amongst other well-known brands and is also a contract manufacturer for a number of the world's largest soft drinks companies. Following this acquisition, Supreme now has control of a 150,000 sq. ft. site containing three onsite natural spring water boreholes as well as cutting-edge manufacturing technology such as a new can line that is able to produce 350 million canned drinks per year.

The launch of our Soft Drinks category is part of Supreme's broader diversification strategy, bringing non-vape annualised sales to over £100 million. With Clearly Drinks servicing c.70 customers nationwide, including major UK supermarkets Waitrose, Aldi, and Tesco, we have already started to capitalise on cross-sell opportunities generated by the transaction and have several more in the pipeline as we assess which products from our other categories - in particular Sports Nutrition & Wellness - may be of interest to retailers across Clearly Drinks' existing footprint. Within weeks of the acquisition, we converted an existing Supreme customer to the Perfectly Clear brand, illustrating the value of combining the Supreme distribution network with great consumer brands.

Six months on from the acquisition of Clearly Drinks, Supreme's Soft Drinks division is performing well and is projected to deliver £2 million of Adjusted EBITDA¹ in FY 2025 and around £3.5 million on an annualised basis.

Clearly Drinks' manufacturing processes are best-in-class, highly automated and accredited to the highest standard. In line with our vision, we are now working on making the facility more agile - introducing new machinery and processes to help accommodate smaller scale and more embryonic brands and customers. This will open an entirely new channel of opportunity for Clearly Drinks.

We are pleased with how well this business has integrated into the Supreme group and are excited by the multiple growth opportunities this acquisition has created.

Branded Distribution

The Branded Distribution category delivered revenues of £34.4 million, up 12% (H1 2024: £30.6 million), and gross profit for the category experienced growth of 56%. Our distribution of vape brands ElfBar and Lost Mary contributed 92% of the division's revenue in H1 2025 (H1 2024: 86%) and we continued to experience strong sales traction for both brands across our UK retail footprint.

The distribution of ElfBar and Lost Mary forms part of this division rather than our Vaping division as the brands are not owned nor manufactured by Supreme, so have a significantly different financial profile to the Group's Vaping business.  As with our core vaping activities, we are working closely with our key partners to manage the transition from disposable vaping products to rechargeable alternatives, in line with the forthcoming legislative changes.

Lighting and Batteries

The Lighting division delivered revenues of £8.1 million, up 8% (H1 2024: £7.5 million). During the Period, we expanded the range of licensed-brand products we manufacture and distribute, including LED Energizer Holdings A-Rated lamps, upholding our commitment to offering our retail network the best products from the best global brands. We also launched our brand-new lighting brochure to help facilitate new commercial opportunities, showcasing 580 lighting and fittings products covering the Energizer, Eveready and Lumilife brands. Our extensive range and unrivalled service means that thousands of retail outlets, electricians, wholesalers and independent retailers continue to rely on Supreme for their lighting product needs.

The Batteries division generated revenues of £17.4 million (H1 2024: £15.9 million), up 9%, a solid increase in revenue growth in comparison to the 1% revenue growth reported between H1 2023 and H1 2024. This growth is a result of considerable volume increases and our expanded distribution operations, with new B&M listings bolstering the division's performance. Batteries continue to be a dependable, profitable division for Supreme and we are continually assessing opportunities to further broaden our distribution footprint and renew licensing agreements with some of the industry's leading brands.

Lighting and Batteries activities remain robust as we continue to experience solid demand across both divisions ahead of the key seasonal trading period.

Dividend

The Board proposes an interim dividend of 1.8 pence per share in line with the Company's stated annual dividend policy of 25% of profit after tax. This dividend will be payable on 10 January 2025 to shareholders on the register at 6 December 2024. The ex-dividend date is 5 December 2024.

Outlook

Supreme has an increasingly diversified portfolio thanks to new product launches across categories and the establishment of the Soft Drinks division, a key pillar of our long-term growth strategy. Alongside a continued focus on organic growth initiatives, we are continuing to target bolt-on acquisitions which are compatible with our wider growth ambitions, from opportunities in markets we're familiar with, to chances to establish a presence in new or fast-growing verticals.

Whilst vaping continues to be the key source of revenue for the Company, we are prepared for the upcoming change in legislation banning disposable vapes; we have invested in new non-disposable vaping technology, and the majority of revenue for the category comes from non-disposable vapes. We are fully supportive of any proactive measures that the UK Government is taking to combat underage vaping, and are also a firm believer in the effectiveness of vaping as a smoking cessation tool for adults as the UK Government embarks on its mission to achieve a tobacco-free country. The addition of taxation in 2026 shall continue to move the market in the direction of legitimate, reputable market players such as Supreme.

Supreme continues to put the end consumer at the forefront of its strategy. We are committed to manufacturing and distributing high-quality, low-cost household goods, supporting families across the country as they navigate this ongoing period of economic uncertainty.

The Group has made a strong start to the second half of FY 2025 and consequently expects trading for the full year to be ahead of market expectations, with revenue guidance of around £240 million and Adjusted EBITDA¹ guidance of at least £40 million, an increase of around £3 million compared to the previous guidance⁵.

The Board continues to be pleased with the Group's continued financial and operational strategic progress and believes that Supreme is well positioned for the future. Supreme is an agile, opportunistic, cost-conscious and consumer-centric business with a very healthy balance sheet and a long track record of delivering growth and cash. Supreme has consistently demonstrated that it can adapt its strategy when consumer sentiment or legislation changes. In the long term, we will continue to deliver a multitude of well-priced, branded consumer goods to the mass market at scale.

Sandy Chadha

Chief Executive Officer

25 November 2024

Chief Finance Officer's Review

I am delighted to present the financial results for the Period, which reflect solid trading and continued discipline within our cost base and cashflow. 

Revenue

Revenue grew by £7.9 million (+8%) to £113.0 million (H1 2024: £105.1 million) in the Period. The core business grew by £2.6 million (+4%), disposables (across Vaping and Branded Distribution) reduced by £1.7 million (-5%) and the addition of Clearly Drinks, acquired during the Period, contributed £7.0 million of incremental revenue year-on-year.

Gross profit

Gross profit for the Period was £34.1 million (H1 2024: £28.5 million), growth of 20%. Gross profit as a percentage of sales was 30%, an increase of 3 percentage points on last year, driven by the increase in margin on Branded Distribution where margins were initially lower on the opening orders and the addition of the Soft Drinks category. In fact, we have seen increases in gross margins across the Group. In Vaping in particular, we have the full year impact of consolidating three manufacturing sites last year as well as increased volume and scale. Reduced dependency on disposables has also benefitted the blended margin % in the category. 

Adjusted EBITDA¹

Adjusted EBITDA¹ was £18.5 million in the Period (H1 2024: £15.2 million), an increase of 22%; owing to the increase in blended gross profit % from 27% to 30% and lower selling costs (specifically with reference to listing fees which were high last year in relation to ElfBar), offset by an investment in the overhead base in respect of people costs. Adjusted EBITDA¹ also benefitted from the addition of Clearly Drinks.

Finance costs

Finance costs were £0.6 million (H1 2024: £0.8 million) with most of the interest arising from IFRS16 lease liabilities with only £0.2 million attributed to bank interest.

Dividends

The Board has declared an interim dividend of 1.8 pence per share in line with the Company's stated dividend policy of 25% of profit after tax. The dividend will be payable on 10 January 2025 to shareholders on the register at 6 December 2024. The ex-dividend date is 5 December 2024.

Cash flow

Operating cash flow was £11.3 million for the Period. The movement in working capital was related to the Company's seasonal trends within inventory (inventory is always at its peak on 30 September each year as we enter our busiest trading quarter and by year-end inventory is typically at its lowest point). Capital expenditure was £1.1 million in the Period but was offset by £1 million income generated from the sale of a property that was inherited by the Group as part of the Liberty Flights acquisition. M&A of £15.6 million was entirely related to the acquisition of Clearly Drinks; there are no further amounts payable in respect of this transaction.

Net debt

Despite the £15.6 million acquisition, paid for entirely from the Company's cash reserves, the Company remained debt-free during the Period. The Company had unutilised borrowing facilities of more than £50 million at the Period end. The strength of Supreme's balance sheet of course provides firepower for acquisitions and organic growth but also provides flexibility to allow the Company to adapt calmy and strategically to legislative changes in the future.

Suzanne Smith

Chief Finance Officer

25 November 2024

CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION OF SUPREME PLC

Consolidated Statement of Comprehensive Income

¹Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation and adjusted items is a non-GAAP metric used by management and is not an IFRS disclosure

All results derive from continuing operations.

Consolidated Statement of Financial Position