Good afternoon, and thank you to those of you who are joining us today to hear from Supreme plc, who announced their results yesterday. If you haven't seen it already, we've got an up-to-date note on our website with forecasts, but the purpose of today is to hear from the management team, go through the presentation, and take Q&A at the end.

As ever, feel free to submit questions as we go along, but for now, I'm going to hand over to Sandy Chadha, CEO.

Hi. Thank you, Hannah.

Yes, I'm Sandy, CEO of Supreme, and we also have Suzanne, who's CFO. Welcome to everybody to our investor roadshow.

What is Supreme? Supreme, for those that don't know, is a fast-moving consumer goods business.

We're a manufacturer, we're a brand owner, we're a distributor, and we're a licensee of fast-moving consumer goods. Most of our products are the fastest-selling products in our retail stores with the highest margin.

Next slide, Suzanne?

Yeah.

Looking at a quick snapshot, we've been going since 1975. I started in 1990.

There was four of us. I was employee number four.

Today, we have over 450 employees in the group in total. We service about 6,000 customers into 50-- 55,000 retail outlets.

65% to 70% of our profits come from products we manufacture ourselves. We manufacture vaping, wellness products like protein powders, meal replacements, we manufacture soft drinks, tea, and shortly be manufacturing cleaning products.

We sold about 500 million products in the last year into 45-- 45 different countries. Just moving on to the next slide, Suzanne.

Yeah. We wanted to just take a quick snapshot of where the business has come since we came to market in 2021.

The results that we listed off the back of were the 2020 results, and as it says there, we were doing £92 million of revenue and £16 million of EBITDA at that time. In that period of five, six years, we've tripled revenue and profits also more than double, 2.5 times the profit that we were doing back in 2020.

Alongside that, we've bought nine businesses, we've taken on three new licenses, we've opened up a number of additional manufacturing sites, we've taken on a whole host of new customers, and also employees. There's been a huge transformation of the business in that time.

I think a cynic would say, "Oh, but you've acquired a lot of that growth. You've done a lot of acquisitions, of course your revenue has grown."

Whilst that is true, it's also important to note two things. One is that all of those acquisitions have been done from the free cash that the core business has generated.

We've taken on no debt at all during that period, and we've never gone to market to fundraise at all. That's a nod to how cash-generative the core business has been consistently through its history.

Secondly, yes, we have acquired lots of businesses, but typically we acquire businesses that have been neglected or underperforming, or even businesses that are in some kind of financial distress, or worse still, even in administration. We've not simply slotted successful businesses into our platform.

We have had to work very hard to nurture those businesses and brands, turn them around, and put them into our own platform, and ensure that they are then earnings-enhancing under our ownership. That's taken a great deal of work, a great deal of resource and expertise from our people at Supreme, and then also we've done it with our own money.

I don't think it detracts from the success of the growth just because that's acquired growth when we've done it with our own free cash. Yeah.

Moving on to the timeline, it says it all, really. Our first acquisition since the IPO was Sci-Mx and Vendex.

Sci-Mx, we only paid £1 million for. I think it makes triple that in profits a year right now.

As Suzanne said that we've done all these acquisitions from money from our existing business, rather than borrowing any money. Just so that's about £60 million worth of acquisitions there in the 5 years we've been a public company.

Moving on to the divisions. We now have actually nine different divisions, but we have to, for actually announcement purposes and making things simple, we're putting it into three different categories: so electrical and household, which includes lighting, the batteries, and now the cleaning products; vaping, which includes our 88Vape, Liberty Flights, prison contracts, it also includes our branded distribution, likes of ElfBar, Lost Mary, Hayati, and also private labels that we make for other vape companies; and then the wellness division, which now includes protein powders, tea, and soft drinks.

These are now sort of nine divisions, but streamlined into three different ones. We'll probably go through them now going into the following slides.

This just gives a sort of depth of brands that we own and license. It's over 30 brands here that we have to manage.

Most companies manage one. To manage 30, you could imagine the complexity of the business.

We do it because of our platform, which I'm going to come onto very shortly. There's some really strong household names, and as our business has developed through time, our acquisitions are with better and bigger brands, the last one being SlimFast, which is obviously a household name across the UK, rest of Europe, and even other parts of the world.

Moving on, our customers, I mentioned we have 6,000 live accounts. Our team at the credit control are busy chasing 6,000 customers for money.

Through those 6,000 customers, we reach into about 50-, 55,000 different retail outlets across the UK and e-commerce. I would say that we have probably got the largest range of customers than any company I know, just because of the sheer different product categories we're in.

That makes one of our strengths in Supreme is the broad depth of customers that we have. Our platform, this is probably the most clever part of Supreme, is that when we acquire businesses, when we acquire brands, or when we actually add a new category organically, we don't really incur many overheads with that division.

All of a sudden, we have very good economies of scale. Giving you examples, we bought SlimFast with zero employees, not one.

We've now hired a number of employees, four or five, but we actually literally integrated the whole business into Supreme. Our warehouse is one, our marketing team is one, our sales team is one, our credit control is one.

It means that when you are competing with other companies, you're somehow at advantage because you have a shared overhead resource across many divisions, which actually, most times, makes you more competitive than others. Now, the other side of the argument here is that we've got 450 employees looking after 30 brands and nine divisions.

If we had 450 employees in just one category, of course it would be bigger than the category we're in, but overall, we would not make anywhere near as much money. I guess this is the part of Supreme that is pretty unique, and I don't know many companies that have this type of platform in the UK.

Suzanne?

We'll go through the detailed financials later on in the deck, but just to call out some of the highlights. Record year for revenue growth, 17% growth year-on-year.

As the bar chart to the left shows, it's a consistent growth story year-on-year. In fact, our cumulative annual growth rate is about 20% in revenue.

It's 17% in EBITDA as well, we're equally focused on profit as we are on cash and revenue. Standout performers within the group have been our newly acquired SlimFast, and also our vaping category, and we'll deep dive into that a little bit deeper, posting profits of over £40 million comparable with the previous year.

The other kind of call-out early on is cash. We've done all of this, as I said earlier, without any assistance from the bank, and we've closed the year with £7.5 million cash positive, which given it's been a year of substantial expenditure on acquisitions and capital expenditure, £30 million on acquiring other brands and £6 million investing in our manufacturing facilities, as well as servicing our dividend, paying our corporation tax, all the usual things, we've still generated net cash in the year and closed the year with 7.5 million in the bank.

Operationally, it's been another extremely busy year for Supreme, as hopefully you've come to expect. We acquired SlimFast and 1001 in that period, and we'll cover those in a bit more detail on the next slide, both of which immediately earnings-enhancing for Supreme, which, as you'll know, is one of our key M&A criteria.

We've spent £6 million upgrading and expanding our manufacturing facilities. In particular, we have moved into a brand new wellness manufacturing site in the last month, and we've also opened our tea manufacturing facility at the start of this financial year.

We've also invested into our InterContinental Brands, which is our soft drinks manufacturing site up in the North East. We are gearing the business up for growth and adding further capacity and allowing for more complexity in our manufacturing to enable long-term growth.

Vaping revenue is up 15%. Sandy will cover that in a little bit more detail, but yeah, well, a standout performance for the year, especially given the backdrop of the disposable vape ban that we were kind of facing into this time last year.

Then internationally as well, we've made some real progress internationally. We won't focus on it too much this year, but hopefully this forms a really significant and interesting part of our presentation to you next year.

We spent this year exploring territories including, and specifically, Hong Kong, and also the Middle East, where we've had exceptionally pleasing progress, particularly in Hong Kong, where we now have more than 1,500 retail points signed up in Hong Kong, and we're seeing a very similar story sort of unfold in the Middle East. That's very exciting for the group because we have largely been a UK-centric business up to this point, but this is really proving the model that our brands travel well, and they resonate with consumers, not just in the UK.

We've signed two more license agreements this year, Carabao and Lamborghini, both of which we will work with them in an energy and sports drinks perspective, but that's yet adding another string to our bow. As Sandy said at the start, we now have a strong portfolio of brands, most of which we own, and or we exclusively license, almost 30 now, meaning that gives us real diversification in our product offering, which in the midst of a lot of vaping legislation, is definitely de-risking our overall opportunity and our overall proposition.

An extremely busy year, but a very successful year operationally. Then if we talk specifically about the two businesses we have acquired this year, we started with 1001 back in August.

Whilst that for us is a small acquisition, the business cost us £1.7 million, strategically, it's a very important acquisition for the group. Sandy a while ago had identified that cleaning as a sector is a sector that is in growth, and is particularly interesting at the discount level right now, and that was a category that we thought Supreme had a real place in.

So 1001 represents our kind of step into that market. We expect annually the business to turn over somewhere between £4 [million?]

and £5 million, and there's a lot of innovation already happening across the brand today. 1001 is a carpet care brand.

We see in the future it being more of a general household cleaning brand, and there's lots of innovations to come in that area. Then secondly, SlimFast, which was a much bigger acquisition.

In fact, our biggest acquisition to date. We acquired SlimFast back in October, we've had about 5 months of revenue of that brand in these numbers here.

Again, really strategically important acquisition for us. We were able to acquire Boots and Superdrug as two brand new customers to the group, which is very helpful for us in terms of a cross-sell perspective, and always good to get two kind of cornerstone UK retailers onto your roster.

Also, around 40% of their business is powders. We have a powder manufacturing facility, we knew that there would be vertical integration and a manufacturing opportunity for Supreme, which we know helps expand gross margins and gives us more ownership of our supply chain.

That's another kind of key criteria when it comes to M&A. Together, they have contributed just shy of £11 million of revenue for the group, and both were immediately earnings-enhancing for the group.

That's very helpful. Two more great additions to the portfolio.

Then if we just take a snapshot of our sites, if we had looked at this just 2, 3 years ago, it would be a lot smaller, and we were much more heavily concentrated in Manchester alone. I think the most important takeaway in terms of the group's sites at the minute is the extent and abundance of manufacturing.

We manufacture soft drinks, wellness, tea, vaping. There is a multitude of disciplines within manufacturing.

We have spent around £6 million this year investing in that manufacturing, as I said earlier, setting those businesses up for further growth and giving them increased capacity and complexity to deal with new lines and innovative areas within those categories. Let's move on.

Vaping. As you can see, our revenue has grown by 15% from previous year.

Now, if you think about the previous year, it was when disposables were banned. We've done actually much better in our transition from disposables to pods, way better than we thought actually, to be fair, in terms of revenue.

However, I must add that the margins on the pods are lower than the disposables that we discontinued last June. I guess overall, it's a great performance from the vaping division.

If you just look back 5 years, it was £29 million in 2020, and it's £148 million now. It's just incredible growth in a very short space of time.

I would say most of that's been all organic, to be fair. Happy with the vaping division.

I think I'm going to move on to the next slide, which is probably the elephant in the room: vape tax, which is coming in in October. Just for those who don't know, there's a tax of 22p per 1 ml of e-liquid, a 10 ml liquid is £2.20 plus VAT of tax.

Currently, our product retails for £1.20, which will take the retail price up to £3.80 to £4. This is going to be obviously a significant increase in price for the retailer.

At the same time, everyone is in the same boat. Now, I guess this could go a few ways, and there's a few options for the consumer.

The consumer option number one is pay the new taxed price and carry on vaping. Option two is they give up cold turkey, and they stop vaping altogether.

That probably happens and lasts for maybe a few days, and then they realize it's actually really good for them to keep on taking nicotine, and they enjoy it so much, they start again. The third alternative is move to cigarettes, which is actually more expensive, and is obviously a lot worse for your health.

We don't think that's happened, and if it does, it will be a disaster for the industry, but we don't believe that's could be an alternative. The last one is to move on to another brand and pay a little bit more.

I guess our percentage changes between other brands is less, but the cash difference would still be relatively similar. I guess at the same time, we have this transition period where from October to April, we're still able to sell the product without tax, it won't be around in this year.

Next year, you should see our revenue increase substantially because of the tax, but our margins obviously will decrease. Hopefully, our cash is the same or better, but the actual percentages will decrease, because now we have to charge tax.

Just to put this in perspective, it's about £120 million a year of extra tax that would be collected for the government. This is all very big news in terms of big things to do and big things to change in our business.

In our manufacturing, we need to have the right stamps applied on to the pots, we need to have software that integrates with HMRC, we need to be apply for excise license for our factory, for our distribution center. There's a lot of things that have to happen in the next few months.

We are really busy with Vaping Products Duty and we're in the thick of it right now. It also means on opportunities where a lot of the smaller companies can't do a lot of this, and a lot of them end up either closing down or somebody ends up buying them, and there's a consolidation, which actually works in our favor.

We may also see a downtrade from people not wanting to spend as much on a bottle of liquid, and actually trade down to a lower-priced brand. These are all things and it's hard to say which way it's going to go.

In Germany and Spain, it's not affected the business there, and we're hoping to see a similar sort of outcome in the UK. Drinks and wellness: so the drinks and wellness side, mostly this is actually the reverse of vaping, is that we've acquired a lot of brands: SlimFast, Typhoo, Clearly Drinks.

The core business is probably £18, £19 million that we built organically, and the rest is sort of acquired. We still see good growth in this business, we still see opportunities in this business, and we think that this is the business where we have the sort of highest valuation for Supreme, in terms of our valuation for the company.

We think it's this area that will probably help drive the valuation of the overall business. Drinks and wellness, happy to take questions online if anyone would like to ask.

The last one is on the household and electricals, which also now we've added the cleaning products. Batteries are in flat or in slight decline.

It's the lighting that's in a bit more decline, because once you bought a light bulb, you don't need to replace it. There's obviously been a decline since the IPO on this area, and we are actively looking at the cleaning to sort of fill some of the gap, and we believe that the cleaning will grow, the lighting will probably carry on declining, and we believe the batteries will be relatively stable going forward.

There's a lot of consolidation. Some of the retailers now are not making their own private label, and we have opportunities to make that private label for them.

Same with lighting. Also, I think the opening of the cleaning factory next year, I'm hoping that we can win some private label and extend our 1001, and grow into more products away from just carpet cleaning.

Suzanne?

On the financials, we're looking at the income statement there. As I said at the start of the call, revenue has grown 17% year-on-year.

Roughly two-thirds of that has come from M&A, the acquisitions that we made this year, SlimFast and 1001, and also the full-year impact of the acquisitions from the year before. As a reminder, that was Clearly Drinks and Typhoo Tea.

The other third has come from the core business, organic growth, and that's largely come from vaping. As Sandy said earlier, a fairly seamless transition from disposable vapes into their rechargeable counterparts.

We held onto all of our key retailers, and really held their hands through that transition. You won't see any big stock write-offs in these numbers for obsolete disposable vapes of ours, or even many of our retailers.

We managed that that stock transition meticulously, and so that wasn't went with an out-and-out success. Then we supplemented the revenue within vaping by adding on the distribution of incremental brands, now not just ElfBar and Lost Mary, but also IVG, SKE, and, most interestingly, Hayati.

We also expanded our reach into Spain as well, so that's given us some geographical expansion in that category. We did see some contraction across batteries and lighting, as Sandy has said, all fairly well signposted, nothing of a surprise.

Perhaps people might ask, "Well, why aren't you if those categories are in structural decline, is that not something that you are interested to dispose of, leave enough categories?" The answer is that they both continue to be earnings-enhancing for the group overall, and they take up very minimal management bandwidth, they are still helping to keep our customers sticky, and there's there's still products there that that's in demand, we'll continue to operate those categories for for a long time yet.

Our gross profit as a percentage of sales fell from 32% to 29%. As Sandy said earlier, that is largely as a result, or exclusively as a result of the transition from disposable vapes to pod devices, and their margins are the margin profile is is simply lower, and that the volume of branded distribution that we do, that has a a meaningful impact on our blended gross margin overall.

Our admin expenses have increased year-on-year about £5 million, but mostly that as a result of the acquisitions. When we buy a business, we are we take on we we are desperate to take on the knowledge, the the history, the relationships, the resources, and that that comes at a cost.

We're we're carrying the overheads of those businesses right now. Actually, the core business increase in overheads has been very marginal year-on-year, only around £700,000 of cost increases associated with inflation, and more specifically, the NI obligations.

It's it's important to note here that you'll see that revenue is up, and EBITDA is is flat as a result of those those overheads from the acquisitions and the the blended gross margin coming down. It's more important to see that or more important for us to explain why then profit before tax is actually lower year-on-year.

You'll see that depreciation and amortization is up. It's up from £8.7 million to £11.3 million.

Now, actually, when you think about everything we've said earlier in the presentation, which is we've invested heavily in our manufacturing assets, our fixed assets, we've also acquired brands, intangible assets. They come their price tag is in depreciation and amortization, so that naturally steps up.

We've also seen a swing in adjusted items. Last year, we reported a credit of £700,000.

That was as a result of the bargain purchase reporting under Typhoo, and this year it's an £800,000 loss, which is is more how it had been in previous years. It's those items, those non-cash items, that have really triggered the the profit before tax to fall.

Our cash measure of profit, our EBITDA, is comparable year-on-year. I don't think we need to go into segmental, because I think between the color that Sandy's given in in the deck previously, and then the quick run-through I gave there, I feel like we've we've really walked through why the the various categories are up or or down for electricals.

Vaping up as a result of the transition. Then the revenue bridge really just illustrates everything we've just said.

You can see there the first two green bars represent the incremental revenue we've had from acquisitions, and then the really big green bar is the organic growth that I just talked about in vaping, offset by some contraction in batteries and lighting. Then there's the remainder of the the growth in the remainder of the the core business.

Now, that really is is our wellness business, cuz everything else has been carved up into the other bars into the bars in the chart. The same for EBITDA, if you move over to the next bridge, you see that the the increase in EBITDA comes from the acquisitions, those earnings-enhancing acquisitions, and the contraction comes again from the the drop the fall in revenue on electricals, and then some investment into the into overheads, particularly to allow us to explore the new geographical territories I talked about earlier, Hong Kong and the Middle East, and also some increased overheads associated with our new sites.

Quick look at the balance sheet: the top half of the balance sheet has got bigger, fixed assets, everything we've just talked about, more manufacturing assets, more brands, more intellectual property, more fixed assets. Our working capital is is leaner year-on-year by almost £10 million, and that's the result of a really careful management of our stock and inventory levels, and ongoing really strict discipline we have within debtors.

Our creditors are bigger this year versus last. Actually, we we highlighted last year they were unusually low last year as a result of deposit payments by our e-suppliers.

Then further down, cash: so there is no borrowings there to speak of, but we have a net cash of positive cash of £7.5 million. Then over onto cash flow to finish: we generated £32 million of operating cash from £40 million EBITDA.

That's that's an incredible level of cash conversion, I think, in any profile of business. Even at the very bottom of the cash flow, positive £4.3 [million?]

positive £4.3 [million?] , despite the fact we spent £30 million on acquisitions and £6 million on capex.

That just speaks to the the level of cash generation that this business is able to report year-on-year. Then just to summarize, key investment highlights, hopefully we draw all this out throughout the presentation.

We don't need to labor these too much, but just to summarize, this business has built its platform on brands that it owns, and most of which it manufactures, and that gives us it gives us influence and agility into our supply chain, and means that our customers really have to buy the product our products from us. They don't they don't have a choice.

That locked-in our customers makes our products super sticky. Our distribution across UK retail is unrivaled, as Sandy said at the start, 55,000 retail points.

We have been on a real journey of diversification over the last couple of years. We were looking at vaping and seeing the the the legislative changes that were coming, and and we knew that diversifying was a way to de-risk the business.

We've successfully, tremendously successfully navigated the first element, and we are now partway through the the vape tax preparation, but feeling quietly confident. Diversification was was was a way to, yeah, to protect ourselves against any potential downside risk, but that looks less and less likely.

Then outlook: so we've had a great start to the year, a positive start within Q1. Internally, we continue to bed in the acquisitions, and we are increasingly focused on gearing up the business ready for the Vaping Products Duty that begins in October.

We will keep powering on more of the same, we are very much open for business from an M&A perspective. Our customers are happy, we have a really open dialogue with them when it comes to tax, and indeed anything else strategic that that may be on the horizon.

More of the same.

Right, let me pull up some questions. Okay.

Can you update on the availability of funds should further acquisition opportunities arise?

Yes, we have £40 million of facilities with HSBC. They are there waiting in the wings ready for us if we need them.

HSBC have always been our banking partners, super supportive, we've just never needed to draw down on the facilities that we have on hand.

Great. The departures of Mike Holiday and Dean Lee, is this something to be concerned about as both have been mentioned on recent calls?

Nothing to be concerned about. It's a process in every line of business, and employees move on.

They are in completely different industries. One's online, one is vaping.

We've got already replacements in those areas, and yeah, no, we're comfortable.

Thank you. Some longer questions.

Typhoo was initially positioned as an outsourced, capital-light model targeting 30% gross margins. Can you explain the rationale for pivoting to in-house manufacturing, and quantify the total capex and working capital investment associated with that transition?

I'll let Suzanne answer that, but I'd just like to say that a lot of the times, the machinery to start the factory, we actually got it free when we bought the business. It was just there, but it wasn't being used.

Anyway, Suzanne, I'll let you...

No. We've said a couple of times in this presentation, manufacturing is something that Supreme will always look to do.

We're actually very good at it, and one of our M&A criteria when we look to buy a business is, is it a manufacturing business, or is it something that we could manufacture in the future? It was something that we were always open to.

In fact, manufacturing means that you expand the gross margin. Yes, as Sandy said, there's a capital investment.

I think in total, we will have spent about £1 million fitting out the entire facility, which, actually, considering it this year will produce something like 800 million tea bags, and will expand our gross margin 4, 5 percentage points, that is a worthy investment. We'd always look to try and manufacture something if we can, and up to this point, it's going very, very well.

See,

if we don't manufacture, we would then be buying at prices a lot higher than we are. Actually, if you think about it, brand owners normally don't manufacture, they have their own margin, 20%, 30%.

They then go to a manufacturer, and the manufacturer will make a margin of 20%, 30%. If you are the manufacturer and you own the brand, then you have both margins.

Of course, it's capex, of course, there's more complexity, but you make more margin. If you are then able to fill that factory with other products to make, your overall costs come down.

It does work for us really well.

Brilliantly, but I think taking a slightly different view on it, how should investors then look at Supreme going forward in terms of perhaps assessing ROCE versus improvements in gross margin or EBITDA?

It's a bit of a fold of a question. Say that again.

Are we looking at return on capital employed?

Yeah. What's the question?

Specifically commenting on return on capital employed, now that the business is more vertically integrated, with additional capex spend, rather than focusing solely on improvements in gross profit or EBITDA.

Right, but no, I understand the point. We should be focused on measuring our return on capital as opposed to just gross margin.

I think that's the question. Correct.

We already do. We would already always look at our returns, whether it's on an acquisition, or even on capital expenditure.

I saw one of the comments earlier that said that, "Oh, the business is too heavily focused on gross margin as a percentage of sales." No, that couldn't be further from the truth.

Actually, cash margin, cash profit, cash return is the fundamental measure of the business, and you can pick that up whether it's measured by a return on capital, or even a headline profit, or cash in the bank, but effectively, that is the KPI that this business lives and breathes by.

Great. Let's take a look at drinks and wellness category.

Revenue last year, 48.8; this year, 43.2. Which product lines moved?

Oh, good question. Before we bought 1001, we had a small revenue stream within the cleaning category.

We are a distributor of Procter & Gamble professional range. It's a sub-£4 million revenue stream for us, and so it sat quietly within drinks and wellness, really because there was no other obvious place for it.

When we acquired 1001 and we put the revenue, the existing revenue of P&G, together with 1001, it then became a substantial enough part of our business that then didn't sit in drinks and wellness, because it isn't a drink. It felt that the better home for it within the categories was in household within electricals.

We renamed electricals to electricals and household, and we moved that small bit of cleaning revenue over there, you can see it more transparently.

Is Supreme actively advising the online consumer about vape tax, giving them the opportunity to bulk buy pre-tax?

Good question. There's very limited amount of advertising you can do to a person, but we send out lots and lots of questionnaires to customers, and we want to understand their behavior post-tax.

We've got a really good understanding from over 1,000 participants on how they will possibly behave running to the tax and running after the tax. Just so the tax goes up from 1st of 1st of October.

We have bought stock in our premises all the way up to January, February next year, maybe even March, depending on how fast it all goes. We believe that as soon as the media, the newspapers, they start shouting that tax is coming on your vape, because they love talking about vaping in any negative way they feel that's negative.

As soon as they start shouting about that in September, end of September, I think there'll be a mad rush for people to go out and buy vaping before the tax comes in, and then it will settle down. That's our view.

I think the media will do that for us. It's very hard for us to do it, because there's very strong restrictions on what we can't say.

We can talk to our customers, that's about it.

Can you talk through the working capital impact on the vape duty? When does Supreme need to start paying it, and what's the lag on receiving the duty by the retailer?

We'll start paying it probably February, March next year, when we start selling taxed products, and the lag is about 15 days, we anticipate, between when we have to pay it and when our customers will pay us. We have applied for an excise warehouse status, which means we suspend the payment of any taxes until the point that we sell the product, rather than actually when it's occurred naturally, which is the legislation says you should pay it when you manufacture or import it, but we will apply to suspend it.

It's

about £10 million of extra working capital. That's all good.

Tell that, Suzanne. About £10 million of the working capital extra we'll need for next year.

Yes, correct. Yeah.

You mentioned that 88Vape doesn't really have competition within the discount segment because of how competitively priced the products are. Given how competitive the vaping market is overall, why do you think more competitors haven't tried to replicate the model, especially given its profitability and scalability?

The answer is they have. Tens of companies have tried.

There's two things. Obviously, low price, but that isn't the only driver.

If you ask me, a bigger driver is the brand loyalty, because we were the first company to introduce the low-priced product. We inherited millions, probably 1.5 million vapers.

Those vapers are mostly loyal to 88Vape, even when a product comes on half the price of 88Vape in the same retailers, they don't go for it, which tells me I'm more confident post-tax. Let's see how it goes.

That's the answer. It's not just price, it's price, loyalty.

If you're used to a flavor and when you vape this product, and it gives you a type of sensation, taste, and feeling, you will stick with it, and if it's priced even cheaper, sometimes you'll stay with what you know.

Can you explain the phrase "doubling of your factory's tea output in FY 2027"?

The factory now has the capacity to double its output. Last year it manufactured just shy of 400 million tea bags, and next year it now has the capacity-- I'm not promising that it will or it will need to, but it can make nearer to 800 million tea bags, and that's as a result of the investment that we've made in the facility over the course of the year.

Thank you. A congratulations to you both, and some questions.

Net profit dropped this year because of depreciation from the recent factory purchases. Is this lower profit the new normal, or will operating cash flow conversion stay strong?

Those increased depreciation rates are here to stay, at least for a couple of years whilst we unwind the capex that we have been spending. Ideally, EBITDA will increase, so that will offset some of the increases in depreciation, amortization.

I would assume if someone's trying to model it, that the rates that we've seen this year will be higher again next year, because we'll have the full year of the SlimFast intellectual property amortization, and the full-year depreciation of assets we've acquired this year. Thereafter, we'll return back to spending more like a baseline of £2 million of capex a year, as opposed to the £6 million that was really quite unusually high for Supreme this year.

I'd assume that those rates are going to stick around.

Given the range of products that you do have, how do you ensure that the management team isn't spread too thin? How are the teams below you structured?

We have a head of each division, and they have their own people and team. A lot of the people within Supreme have grown the way up from grassroots, they've been here from early days.

We look at divisions and we'll look where somebody or a division is struggling with resource, we solve the issues of any resources are short of. We make sure that we try and solve that with a middle layer of management.

Okay. Thank you.

Suzanne, are you suggesting that the reduction in PBT should be viewed in the context of increased depreciation and amortization arising from acquired businesses?

Correct.

Right, okay. Does this imply that the depreciation charge associated with the acquired tangibles is not expected to be broadly representative of the ongoing maintenance capex required to sustain the assets?

No. What we've spent this year, we do not have to sustain to maintain the assets.

We have spent an unusually high amount this year. I think I said earlier, our baseline capex going forward, before we bought the businesses that we've bought in the last couple of years, Supreme typically spent about £1 million on capex.

It did that year after year. We've always been fairly light, despite the fact we are a manufacturing business.

We bought Clearly Drinks 2 years ago, or FY 2025. They are a highly automated facility, and their baseline capex spend theirs alone is about £1 million to maintain that machinery.

Then our baseline group capex became £2 million. That remains our baseline level.

We might spend a little bit more this year, depending on what we need to do in terms of adaptations in our vaping facility to accommodate some of the changes needing for tax. However, I'd say £2 million is what we'd expect to continue to spend, £2 million going forward, nothing like what we spent this year.

Fine. Regarding the vape business, do you have plans to enter other markets?

Yeah. We're already looking at other areas.

We've done very well in Spain, started in Romania. We're working on country by country.

Each country has its own laws, regulations, it is a little bit tricky to just go to a market and start selling. You need to find the right partner, you need to find the right profile of products, you need to learn the legislations right.

It does take time, but we've got the resources.

Thank you. Is there an opportunity to leverage your current vaping assets into a nicotine pouch market?

Nicotine pouch market's quite tricky. A lot of the big tobacco sort of cornered the markets and their brands.

We are looking at new products, new technology products, but we won't be manufacturing that product, as of the type of technology is, but we are still looking at nicotine pouches, but in a different format.

What do you expect the gross margin uplift to be when SlimFast products are produced in-house?

5% within that category, but how that blends out into the wider drinks and wellness category, it would depend on sales mix, but absolutely certainly an uplift.

Okay. I think we answered that one.

Bear with me, I'm just having a flick through here. Some of them are asking the same thing.

Is juicy protein shipped to Hong Kong, or produced more locally to the market?

We are producing in UK at Clearly Drinks and shipping it there. Remember, the freight costs to Far East is very cheap compared to the freight cost from Far East to the UK.

It's fraction of the cost. We are looking at local suppliers in Indonesia and other areas that could potentially supply Hong Kong, but yeah, it's work in progress right

now. Are you pleased with the SlimFast acquisition, given it did £9 million in 5 months, and it now seems to indicate the turnover is down compared to performance before the acquisition?

You're right. That doesn't pro-rate up to the £25 million that we indicated the business would do, but that's as a result of seasonality.

In the 5 months that we've owned it, it's not in its highest-performing months.

We've got six or seven new products that are coming to market that are not weight management products, that are more suited for GLP-1. They're going live in all of the grocers, Boots, Superdrug, and all the discounters.

We hope to see an initially good traction, and these are all more lifestyle-based on wellness, rather than on weight management.

Thank you. Adjusted EPS for 2026 came in at 18.4, lower than forecasts from brokers at 19.6.

This was said to be due to a one-off jump in the effective tax rate to 31% on a deferred tax unwind. Can you explain this and say whether it could recur?

The deferred tax unwind was on share options that didn't vest. It won't recur.

Super, thank you. When you explained the Lost Mary distribution deal 3 years ago, you referred to an expected ROCE of circa 30%.

Given the lower margins on pods, is the ROCE on this distribution still decent?

I don't think we ever said 30%, did we, Suzanne?

It's never been 30%. If we did, we were mistaken, but I don't think we've ever quoted it.

I don't know how you define decent. I think at that volume, it's very decent, but it's not 30%.

Thank you. Do you have a medium-term pre-forex gross margin target, and is there a medium-term adjusted EBIT margin target or target range?

No, for the very reason we talked about earlier, that we are not transfixed on gross margin percentage, or even EBITDA margin percentage. If our EBITDA and our absolute gross margin are growing, then we're doing a good job.

Again, probably touched a bit on this in the presentation, Sandy, but obviously, the impact of VPD, do you think it will impact demand, given that tax will end up being 70% of total price?

It's hard to say. If they look at other countries like Germany or Spain, it hasn't done, so, but I can't answer the question.

I can tell you this time next year,

for sure. Fair.

There's a lot of reiteration around the point of, are you no longer a capex-light model?, which I think we have covered.

£2 million a year on capex on five factories isn't a lot of money when you're making so much cash, I think we're still quite capex-light, but do you think, Suzanne, in comparison with others?

No, yeah, absolutely. I suppose what we should just make clear, and I think we have done in this presentation, perhaps not in the RNS, is that the £6 million isn't a step change to a new baseline, it has been a one-off.

It's a high. It's a brand new protein facility that we've built.

We put two can lines in Clearly Drinks, and we've set Typhoo Tea up. It's all those three things all in the same year.

In terms of how investors assess the business and the metrics that they use, the historic are still useful for this?

We used to be a £1 million capex business, now we're a £2 million capex business.

You mentioned cleaning products going online next year. Can you elaborate?

I didn't say it's going online, the cleaning products. I said we're going to manufacture and sell into retailers cleaning products of 1001.

Online, we are already starting to sell. If you go to Amazon and you punch in 1001, you'll see a whole range of new, really industrial products for 1001: artificial grass cleaner, different types of disinfectants.

You'll see a whole range of new products that are starting to come out in the 1001 range slowly, slowly, but surely.

Thank you. 1015 pouches.

Bear with me, I've got about 20 odd questions here. Right.

No shortage of questions.

Here we are. This gentleman's persistent, let's go.

Can you explain the expected £9 million drop in gross profit for vaping in the equity development full-year 2027 forecast?

The £9 million drop in what? In gross margin?

We should get Mike on the call. Drop in gross profit for vaping.

Can't remember. We need to go away and check our numbers.

Possibly. We've got the tax in there, so that is definitely a bit of a distraction in terms of the numbers.

Let me take a look at that. Do you have the other half of the question?

I do. I do,

I do, I do. Suzanne, is there no change?

No, there's a small unwind of the fact we had the pipe-fill this year, so that has to unwind, and we have some slowdown in revenue assumed in and around the taxes. Retailers are unwinding their stock levels, but not to that degree, but let's check.

That makes sense. In the vape business, can you let me know if your main focus is on distributing your own proprietary brands or the in-sourced?

Where is your focus with vape brands?

Oh, where is our focus? It's both.

Wrap up in a couple more, Suzanne, if that's okay, Hannah, and then we're...

Fine, absolutely. I think, scanning through them, a lot of them are points that we've already made in terms of international expansion and moved within the statements.

I think we shall leave it there and say thank you to you both for your time, thank you to our audience for attending, and we'll look forward to hearing an update in another 6 months.

Thank you. Thank you.