Supreme Plc (SUP.L) Earnings Call Transcript & Summary

Good afternoon, and thank you to those of you who are joining us today to hear from Supreme plc, who announced their results this morning. This afternoon, we're going to have an opportunity to be taken through that results presentation. And at the end, we'll have an opportunity for Q&A. If you'd like to submit questions as we go through, that would be great. And as a reminder, we have published this morning that you can also find on our website. But for now, I will hand over to Sandy Chadha, CEO.

Thank you, Hannah. Yes, I'm Sandy Chadha, I'm CEO of Supreme. And Supreme is a fast-moving consumer goods business, and we are in multiple categories, batteries, lighting, vaping, wellness, soft drinks, hot drinks and slimming products like SlimFast. So our main categories that is vaping, wellness and electrical. We sort of narrowed it down from having 7 categories into 3, just for reporting purposes makes our life a lot easier. So I'll cover off the categories as we go through the slides. Hannah, if you don't mind moving on to the next slide. Okay. So firstly, I just want to just chat a little bit about some of the brands that Supreme own. I mean a lot of companies haven't heard of Supreme as an entity, but they would have certainly heard of some of the brands like 88Vape or Typhoo, 1001. And these brands that we either license or we own are what we call disruptive brands. A lot of them are sit above or same price as private label, and they are at the bottom of the sort of price spectrum, but yet still the highest quality. And on the left side is some of the licensed brands that we own, so Energizer, in Lighting, in soft drinks, Tonino Lamborghini, which we are launching in January. And some of the drinks that we also distributed for -- sorry, some of the brands that we are also distributor for like Energizer and Duracell and other brands in terms of the branded distribution like Lost Mary and ElfBar. So the next slide, please, Hannah. Okay. Just a little bit snapshot on our customer base. So we have over 50,000, 55,000 retail points. Some of these customers are Supreme customers now since the early '90s and over the years, we are generating more and more customers and more and more penetration into retailers. We'll find that a lot of these retailers that we have, I mean, we've got 6,000 or so customers, a lot of these retailers will sell 5 or 6 of our product categories. They won't just sell one. And so we are dealing with a lot of buyers at -- we're dealing with a lot of different buyers at the same retailer. And more recently, we sort of started being a lot more senior top-to-top level with some of these big retailers in terms of a cross-category approach with joint vision across a lot of our brands. So we're getting more and more important for the retailers. And likewise, they're becoming important for us, too. Moving on to the next slide. So what sets us Supreme apart from everyone else is that our overheads across our whole business is actually split. We don't have actually a P&L per division. It's actually a shared overhead base. So we call this our vertically integrated platform is where we put products and businesses at the top and they share the overhead services. So a lot of the sales and the gross profit fall straight to the bottom line. Now some of the recent businesses that we bought, Suzanne will come to it, it's not always possible to reduce a lot of the overheads. And sometimes it takes longer to reduce the overheads than we would have [indiscernible] because of certain times of when you're buying a brand and integration times involved and costs involved in that. We like to look for brands that we can manufacture. We like to look for brands that we can -- that our customers sell that we can also license. We like to look for brands that are actually disruptive in terms of price. So we've actually done that across some of our acquisitions in the last year. We've brought brands that are well known that we can manufacture that are really disruptive on price in terms of fall at the low end of the spectrum and are really actually sort of like getting more momentum in the last 18 months in terms of some of the brands that we have owned in the company. Here is the next slide, Suzanne?

Good afternoon, everyone. Let me take you through the financial highlights and operational highlights. We'll come back to the numbers later on in the presentation and deep dive them a little bit further. But just to give you, as I said, the headlines, I am delighted to report 17% growth in revenue, it's GBP 20 million increase for the first half this year versus last, which is set against an ongoing difficult retail trading environment, we're really happy with that with GBP 20 million growth. GBP 15 million of that has come from acquisitive growth. So the acquisitions that we made in the previous year, they have annualized this year, and we've seen the benefits of those, and they are namely Clearly Drinks and Typhoo, which we'll talk about a little bit more in this presentation. And most of that volume growth in revenue has translated into gross profit. So we've increased absolute gross profit by 13% as well. And EBITDA is GBP 18.5 million, aligned to last year, demonstrating a robust performance overall. And we'll talk about later how we bridge the GBP 18.5 million year-on-year and given the increases in gross profit and where the overhead growth has come from. We've ended the year with GBP 4 million of bank borrowings, [net of any] cash in our balance sheet, which given the acquisitions that we've undertaken in the last 14 months, having spent almost GBP 27 million, and we feel this is a positive result and having spent also GBP 2.5 million of CapEx in the period, which is higher than we've seen in previous periods. And again, when we talk about the operational highlights, I'll explain what we've been spending that money on. And post period end, you'll know that we also acquired SlimFast, so that M&A spending spree carried on into the second half. And despite all of that, we will still -- we still expect to come to end the year bank debt-free, net cash neutral, which just indicates the ongoing amount of operating cash that this business generates year in, year out. So positive set of financial results, and I'll deep dive them later on. In terms of operationally, it once again has been a very busy 6 months for Supreme. We've continued to deliver on our commitment to diversify revenue, having acquired 1001, the recognized cleaning brand across the summer and we also acquired SlimFast shortly after period end, both of which were acquisitions that stuck rigidly to our M&A criteria. And collectively, they'll deliver about GBP 30 million worth of annualized revenue. So when I talk about our M&A criteria, you've heard me say it before, but it is acquiring and targeting well-known, trusted, followed, fast-moving consumer brands that are immediately earnings enhancing to Supreme that can be distributed amongst our existing network of retailers and that we can potentially manufacture ourselves currently or in the future. And both of those acquisitions stuck rigidly to that criteria. And both were good deals as well in terms of that the multiple in which we paid for them 1001, we estimate to be less than 2x EBITDA and SlimFast around just over 3x. And, yes, really pleased with the acquisitions that we've undertaken. That's 4 acquisitions in the last 18 months, so we will now focus inwards on integrating those businesses and as we have done with integrating Clearly Drinks and Typhoo that we acquired last year. And Typhoo, in particular, we have opened up our own tea factory now. We've brought manufacturing in-house. We've reformulated and rebranded Typhoo, and worked really hard in terms of turning around their financial challenges. The business had been in a prolonged loss-making position before we acquired the brand, and it has been immediately an earnings, enhancing for Supreme, which we're obviously delighted about. Another element of the last 6 months has been the transition from disposable vapes into pod vapes. You may be aware that disposable vapes were banned in this country in June earlier this year, and we have seamlessly and successfully, both financially and from a stock obsolescence perspective, transitioned that book of business away from disposable vapes and on to pod vapes. And finally, we've also been busy innovating, so we have worked really hard across our brands and actually collaborating across the group, so our soft drinks business and our wellness category have got together and borne out of that, have been a number of functional hydration drinks, vitamin drinks and most notably Juicy Protein, which is now launched in the Far East and will launch imminently in the U.K. And also our soft drinks manufacturing capabilities and talent have combined with our tea brand, Typhoo and we are now in process of launching Typhoo iced tea. So those collaborations that innovation doesn't happen overnight, it takes a lot of hard work. There's a lot of testing that has to be done to get these brands to market and we're really pleased to see some of this kind of coming to fruition. So between the M&A, the transition in vaping and the ongoing innovation that we see across the group, we've been very busy the last 6 months. And [indiscernible] move forward on to the Typhoo-side and so, in terms of Typhoo in particular, I think I just touched on it there. As I said, we bought this business 12 months ago, outside administration. In fact, as we were doing this road show this time when the news hit that the brand got into administration, we bought this business in just over three days. And [Technical Difficulty] that came along with the acquisition. So really the brand and the book of business cost us about GBP 3 million. We expect it will turn over annually upwards of GBP 50 million of revenue and will generate incremental amounts of EBITDA for the group. But really, the focus for the 6 months has been more strategically and operationally in terms of rebranding and reformulating. And the Typhoo brand what you see here on the screen is really how the brand looks many years ago, we've now brought that back to the original ooO in Typhoo tagline. It just looks much more comfortable on shelf. We've invested in innovation, having launched now a gold blend, a decaf [indiscernible] and also you see here the iced tea. And most importantly, having begun in-house manufacturing and bringing some of that supply chain onshore and opening up the supply chain. And in terms of the tea gardens in Africa that we're working with, we've managed to bring the brand back to profitability almost immediately. And in the 6-month period under review here, we have carried more costs than we would expect to on an ongoing basis. We've carried the talent and the expertise of the people that we inherited whilst we really learned our craft in the tea market and now we start to transition away from that and lean more into Supreme's existing vertically integrated platform. And that's where you really start to see the overhead synergies on an acquisition like this. On to the next slide, in terms of SlimFast. So this actually is a post-period end acquisition. We acquired SlimFast just last month. SlimFast, hopefully, you will be aware of the brand, it's been around a long time. Again, going back to our M&A criteria, it's a very recognized, well-followed brand. It has great distribution amongst our existing customers, but also has a lot of potential with other customers that we currently work with that don't stock SlimFast, the most noteworthy elements being international. So we've already had some inbound inquiries internationally from -- within Europe and further afield. And also within the convenience channel, SlimFast doesn't exist currently in the convenience channel. So there's plenty of distribution opportunities. In addition, we are a powder manufacturer, you'll know that and we've also been fitting out and kitting out a brand-new powder facility that we expect to open in the spring for which the powdered schemes within the SlimFast range will form part of that manufacturing facility. So there's plenty of elements, whether it's overhead synergies, whether it's manufacturing scale, whether it's cross-sell within distribution, but for a number of reasons, this brand fits seamlessly into the portfolio that Supreme is building. If we move on to the next slide. And then also, we talked briefly about the acquisition that we did in the summer, the acquisition of 1001. 1001 is primarily a carpet cleaning and carpet freshness brand that's been around a long time, previously owned by WD-40, again, has good distribution amongst some of our existing customers, but has some promise with other customers that it currently doesn't exist in. It's been a little bit neglected in terms of it's been a small part of a much wider portfolio at WD-40, and we can see that there's definitely innovation and opportunities within this range that just haven't been explored up to now. And 1001, we're not a manufacturer of these cleaning products. At WD-40, we're not a manufacturer of these cleaning products historically, but that is now something that we are exploring ourselves. So again, another element of diversification away from our core product portfolio and something that we see some real potential in. If we move on then to our kind of category roundup, Sandy, I'll pass to you.

Yes, sure. So vaping, as you can see, the first half where we're actually done pretty well. We're really happy with the 13% uplift in sales. The transition from disposables to parts has gone exceptionally well, better than we actually thought. You've got to bear in mind in the first half here, there's been a pipe pill for retailers. So some of this success is down to actual stores stopping up for the first time, having sold off their disposable vapes before the ban. Just to know, 88Vape still does really well and still is very strong out there and still is a lion's share of our profits. And this is an area where everyone is probably going to get a lot of questions next year around the tax, which comes in October 2026. We then have a 6-month window to sell stock through and have available stock with tax stamps ready by April 2027. I think we'll come back to this with Q&A. I'm sure there'll be lots of questions on this area. But overall, we're really, really satisfied how the transition has gone from a disposable ban into a pod system. Next slide, please. Okay. So the Drinks & Wellness category, which obviously includes Clearly Drinks, the Typhoo and also Sci-MX and now SlimFast. And I guess this area is the area where we're going to see the most growth in the next year, especially with the acquisition that we've just done with SlimFast. We're happy with the core business. So if you think about the core business being GBP 20 million before we bought SlimFast, all of a sudden, it's going to be approaching over GBP 49 million, GBP 50 million. And I think that this is an area where we believe that our future growth is going to come from. There's a lot of innovation in this area with drinks. There's a few drinks that we'll be launching in January. The Tonino Lamborghini is launching in January. There's -- that's at the higher end of the spectrum. We've also got a budget energy drink joint launching at the same time. Also in Clearly Drinks, we've had a very hot summer. So our actual contract manufacturing has done really well with the likes of some of our big contract manufacturers. And we've also done a lot of private label for the discounters like with sparkling waters or with energy drinks, which you don't really see or we don't shout about only because they are private label contracts and being confidential lot of them in nature. And also in this area, I guess, the thing to consider is the manufacturing. So we are manufacturing drinks, we're manufacturing powders in our new facility, and we are also manufacturing tea. On the tea, we inherited most of the CapEx from when we bought the business, and we've probably spent maybe GBP [800,000] on extra CapEx to make a factory. On the Clearly Drinks, we've probably invested about GBP 1.5 million, one of it being -- part of it being pilot lines in that area. And then on the powders, where we're going to obviously introduce SlimFast into our powders manufacturing, we've invested about GBP 2.5 million, GBP 3 million so far in our facility there. So overall, it's been quite a big year for CapEx. But going forward, I don't see that -- it should maybe Suzanne will say more. I don't see it will be more than a couple of million a year across the group. Again, I'll let Suzanne clarify that. Moving on to the next slide, which will be [indiscernible] so this has probably been the most disappointing for two reasons on the household. One is that Panasonic have decided to pull out of batteries. And that happened quite surprisingly, and it's left us a little bit scrambling around into replacements. And we have successfully started to integrate Eveready, Gold Seal and in certain cases, Philips into our portfolio. So likes of Vendek in Ireland, that's all they sell is batteries and lighting, and they -- and half their business was actually Panasonic. So they have transitioned to Philips in Ireland. And then the other area of disappointment was that actually lighting is slowing down in terms of the price, it has actually come down another 30% from last year. And the lights are just getting a bit better as well now. The quality is starting to last longer. So we believe in the next few years, there will be a slow decline, however, it's still cash generative and it's part of our portfolio and we can't really sell these businesses or do much with them. But I was more concerned about the lighting than the batteries in the sense that longer term batteries market itself is stable, whereas the lighting market is in decline right now. Again, disappointing, but at the same time, because we diversified so much away, we went back to 2015, actually down 10 years ago, this is all we were selling as a company. So it shows how much we've moved on in the last 10 years really. And moving on to the next slide, Suzanne?

Yes. Thanks, Sandy. So just a little more of a deep dive in terms of the different elements for revenue. Hannah, could you just skip forward two slides on to the revenue bridge. I think it's easy to talk it through there. That's it. Thank you. Okay. So this shows us how we get from GBP 113 million in the first half last year right up to GBP 132 million. As I said, that GBP 20 million is a result of the acquisitions that we made in FY '25, the full year impact of those, so GBP 8.3 million for Clearly Drinks and GBP 7.1 million for Typhoo. So spot on in terms of where we would expect those businesses to be at this time of year. And then in the red, there is electricals, as Sandy said, batteries and lighting have been declined as we've well time posted for lighting in particular, as Sandy said, lightbulbs and they've also never cost so little to buy as a consumer, which as a distributor just makes life increasingly hard to kind of keep up pace. And on batteries, as Sandy mentioned, Panasonic have exited the battery market, especially particularly in Europe. And now we're in the process of transitioning customers over from the Panasonic brand over to Eveready Gold or even to Philips. And so there's some disruption in our battery revenue there, which we see under electricals. So that means that take those elements away, that means the core business, everything else that's left has grown GBP 10.5 million. And the stars within the core business there has been within wellness. Aside from any acquisitive growth, the core kind of legacy brand within there, which is Sci-MX has grown 10% year-on-year, GBP 1 million of incremental revenue. As a reminder, that's a brand we bought back in 2021 for GBP 1.4 million. This year, Sci-MX will contribute almost GBP 10 million of revenue to the group. And most of those products are manufactured, so a really decent gross margins as well. And then the remainder of that growth really has come from vaping. So that is a standout performance in terms of the disposable vape to pod vape transition, as Sandy said, has gone better than we had expected. It's buoyed a little bit by the fact that we have this one-time pipe fill revenue. So there's probably 7, if not maybe 8 months' worth of revenue within that 6-month period because of the surge of sales that had to happen immediately before the ban. And we won't see that in the second half, obviously, but that's definitely helps with the core revenue growth. And then the rest of the vacant categories remain solid, and we've seen some growth within our cleaning category as well that we now report within electricals and household aside from the acquired cleaning revenue of GBP 1001. And so they're the building blocks that make up the revenue bridge. If we then go back to the income statement, sorry, Hannah, if you go back to 2 slides one more, that's great. So in terms of absolute amount of gross profit, you'll know that we talk more about absolute gross profit than we do about gross profit as a percentage of revenue, 13% increase year-on-year, which is largely a result of the incremental sales volume that we have reported. As a percentage, it has come down from 30% to 29%. In vaping, that's a result of the pods being a lower gross margin percentage than the disposable counterparts. Disposable vape was almost at 20% margin, a little bit higher and the pods are down at the low teens as it stands. So as we become more proficient in shipping and buying and distributing the pods, I expect that as the disposal dates that the pod margin will go on a journey of expansion over the next 1 to 2 years. And also within gross margin, we've seen the blended gross margin within Wellness reduced slightly, and that's a result of the sales mix that category has doubled, and this year to last and that's gone through a substantial amount of change. A lot of the margin that we've derived from Typhoo has been -- and diluted by fair value accounting adjustments that we're required to make on some of the acquired stock, which we'll see improved in the second half and into next year and as well as the tea manufacturing facility really finds its feet and drive scale through that facility going forward. So with incremental amounts of gross profit, profit has come incremental amounts of overheads. So we've spent GBP 4.3 million more on overheads in this half year versus last, which is quite a leap. And almost GBP 3 million of that has come from the acquired businesses. So let me just take each one in turn. So Clearly Drinks first and then Typhoo -- Typhoo first. So Typhoo’s overhead base that we inherited initially was made up of 2 key factors, people and third-party logistics, third-party storage costs. And so the people, we inherited more than 20 people from Typhoo, and we worked with a lot of those people for a prolonged period whilst we learned our craft within tea and we understood the market, we settled the customers. We reengineered manufacturing and brought that onshore. Now as we have done historically with other acquisitions, now we've leaned in more to our existing vertically integrated platform, our own back-office support functions, which means we need the people that we inherited less and less, and that's really when the synergies start to grow. And we'll see that going into FY '27 as well as we, at that point, move away from third-party logistics is the plan. And so most of the overheads that you see within Typhoo are temporary in nature. Within Clearly Drinks, however, Clearly Drinks is based up in Sunderland. It sits above three bore holes into the ground where it extracts the spring water that it uses within its soft drinks manufacturing processes. We can't move that business. We don't plan to, we physically can't. And so its cost base is largely permanent and it's centered around that independent business that operates up in the Northeast. And then in addition to the MX, the overheads that come with the acquisitions, there's also been some discrete investments into the core business. We have investments in the variable cost elements. So the things that grow in line with sales, distribution costs largely in carriage, postage. But then -- and then there's the required increases, so national insurance, increases in living wage and inflation. But then specifically, we've made some discrete one-off investments into our senior management layers, specifically within sales and within new hires to grow our business more internationally and to evolve our sales function. We have -- if you then go further down the P&L, we have some adjusted items, which, as is always the case, is our movement in forward contracts, share-based payments, all of which are routinely reported within adjusted items. And increasing amounts of depreciation and amortization, we've become more capital and CapEx heavy as a business, particularly is following the acquisition of Clearly Drinks. It's a highly automated and accredited manufacturing facility, which we have invested in this year to drive incremental revenue, particularly around the pilot line. And we've also built out and fit out a tea manufacturing facility, and we're also in the process of kitting and fitting out a brand-new wellness facility. So we are certainly in the investment phase and investment phase within our business. Is this the go-forward kind of profile of CapEx, as Sandy said, no. I think historically, we would spend about GBP 1 million on CapEx a year. It's probably closer to GBP 2 million a year now that we have more facilities, more plant and machinery. But do I expect it to be as high as it has been in the last 12 to 18 months kind of as a new norm? No, we've definitely been through an investment phase. If we move on to segmental on to the next slide. I think we've covered most of this, but just to sum up, vaping revenue grew 13%. And as I said, underpinned by the transition from disposables to pods, as Sandy said, it's gone much better than we've anticipated. And aside from that, the rest of the category has performed well. It's been a solid performance. And Drinks & Wellness, it's doubled. The category is [unrecognizable] compared to where it was last year now with the addition of soft drinks and also tea. But the underlying sort of core business also performing well, particularly in terms of Sci-MX. And then Electricals & Household, as we said, we've now had the addition of 1001, but that's been offset by reduced volumes across Lighting and Batteries. If we skip over on to the balance sheet -- actually to move to the next one, we've done the bridge on revenue. Let's have a quick look at the bridge on EBITDA. I think this just illustrates the movements year-on-year that shows that whilst we are flat year-on-year in terms of EBITDA, there are different elements to consider, which is the incremental contribution from Clearly Drinks and Typhoo, offset unfortunately by the decline in electricals, but then complemented by the growth in the core that we see fall all the way down to EBITDA, but then those discrete investments that I talked about. So national insurance specifically and the distribution and marketing costs that come along with just selling more product. Now if we move to the balance sheet. There’s not much to say specifically on the balance sheet here other than just a nod to the investment into working capital. You'll see that stock is higher this year than it was either at the end of last year or even this time -- at the end of the period or even this time last year. And we have acquired -- since this time last year, so where the GBP 10 million increase is we've got Typhoo now on top of that, which is finished goods and raw materials, not forgetting as a manufacturer of the tea now. We've acquired 1001, so there's GBP 1 million of stock there. And we've also invested in stock as a result of going into our peak season, which we do at this time every year. And we've also transitioned some of our branded vape stock from air freight to sea freight, which has benefits in terms of gross profit margin, but means that we have to invest more heavily into working capital to support it. And an IFRS 16 is a little bit higher than it was last year, and that's a result of the newly the Hive, the new Protein and Wellness facility that we are in the process of kitting out. And then over the page on to cash flow. We've seen lower levels of operating cash flow this year. Seasonally, there's always a working capital outflow, but this has been more pronounced this year than in previous years as a result of the 1001 stock coming in. And as I said, this movement that we've seen in the period from air freight to sea freight, which really just extends that working capital cycle. And we also, last year, were delayed in paying our corporation tax, which is much more normalized this year. Further down, you'll see the outflows of CapEx that we've talked about. So the investment into the Hive, the protein powder facility, the investment into Clearly Drinks, the two pilot canning lines that are already operating at good levels of capacity. And then the M&A there, the outflow in respect of 1001, everything else is as you would expect. If we move on to the next slide. So just to summarize, I know we come back to this slide each and every time we do this meeting with everyone. But I do think that sometimes there's so much going on that I think it's worth and reminding everybody of the really -- the elements that make this business really special. So we talk a lot about our unrivaled business model. And by that, we mean our vertically integrated platform, the central bank of overheads of talent, of resource, of space and capacity that means we can continue to take on these well-known consumer brands and service them, operate them almost entirely from our existing or pre-existing base of resource. And we own most of the brands that we distribute and we manufacture a lot of them or we license a lot of them. And that means that the retailers have to come to us to buy them, and our customer base and our revenue base is not transient. It's not subject to marketing spend or changes in market dynamics. And our revenue is very sticky. It's not contractually recurring revenue, but it's probably as close as you would ever see in terms of the order patterns that we see from our big customers week in, week out. The business has strong historic rates of revenue growth of good levels of gross profit and also cash generation. We'll skip over a high-quality management team. We'll let you guys decide whether you think that we are or we're not. Our M&A becomes an ever-increasing part of our growth strategy. We talk a lot about the criteria that we follow and we stick really rigidly to only going after brands that we know we can service from that platform. I just talked about that we know we can manufacture that we know will be earnings enhancing for Supreme and that we know that we can pick up for a really good price. And also, we get asked a lot about why -- what makes our products successful because we don't see that you spend a lot of money on marketing. And the answer is we don't. We stay really fixed on value, on being disruptively priced. And the way that we can offer these products at disruptively low prices comes back to all those previous elements I've just talked about, the fact that we are driving down our cost to serve on an ongoing basis that with scale of manufacturing means incrementally we are driving up -- driving down, sorry, our cost to manufacture and therefore, the prices that we can offer these products out. That means they sit on shelf with really great distribution and really disruptive, and eye-catchingly low prices, and that's really what drives the success of the business. And then diversification. This year, I think more than ever is something that's been a commitment we've really delivered on. Only about half of our revenue currently comes from vaping. And if you looked at our business 2 years ago, it would have been much more like 70%, 75%. So we've worked hard to diversify and derisk our portfolio. We don't over rely on one particular product or one particular customer. And as we've seen this year with the decline in electricals, that diversification, we're really reassured that, that is the right route for this business to follow. And if we move on to the next slide, just in terms of then looking to the future. So the next 6 months -- well, we've started the next 6 months, October and November have traded well. We've continued to do particularly well on our branded vaping category, where we have been particularly cautious in terms of our forecasting. And strategically and from an integration perspective, Typhoo and Clearly Drinks are exactly where we expected them to be at this point. And I suspect we'll follow a similar trajectory for 1001 and SlimFast. We are kind of in deep integration mode now with 1001 and SlimFast, and coming out the other side of Typhoo and Clearly Drinks. But I think you may hear less of us in terms of M&A for the next 6 months while we ensure that these businesses are seamlessly integrated and really optimally performing for the group. That being said, acquisitions will remain a core driver for growth. It has been for the entirety of this business's journey on the stock market. I don't see that changing, but of course, it comes in waves. There's a lot of change on the horizon in terms of the U.K. vaping market. We have some tax coming in this time next year, which we are well progressed in terms of making our adaptations operationally and the dialogue that we're having with retailers. And whilst just like the disposable vape ban, it does project some uncertainty into our business, but what the disposable vape ban has taught us and has kind of reinforced is actually this business is really good at navigating change. And it can manage stock, it can adjust its manufacturing and it can communicate and service that particularly well to customers. So yes, it's a big change, but we are kind of quietly confident about the impact that, that might have on our business. And then innovation just continues to be a key point of our business and will as we go into the second half. I think the acquisition of Clearly Drinks has really pushed that further having the ability to lean on that kind of talent internally into our business rather than having to deal with external parties makes that innovation process so much more slicker and makes us more agile. So a lot for us to deal with going into the second half, especially with the decline in electricals and the margin differentials between pod vapes and disposable vapes, but also lots to look forward to as well.

Great. And I guess questions, Hannah? Is Hannah not here anymore...

Should we ask? [indiscernible] ask?

Pardon I forgot to switch my camera on. Right. Yes, we have a number of questions. So let's make -- start. Can you talk a little bit more about the time line for drinks and launching new products? Obviously, FCUK and Bench announced a year ago. What's been happening over the last year with them?

Yes. So a lot of our drinks, you got to remember when you launch a drink and you put it onto the market, everyone is not going to buy it straight away. So most supermarkets only have a window twice a year, maybe once or twice a year. Discounters, again, scrambling for space in terms of Christmas coming. So we have Juicy Protein launching in both the biggest 2 discounters in the U.K., Home Bargains and B&M in January. They're going in, in FSDUs and in the fitness event. We've also launched in Hong Kong as well. In January, we're also launching Tonino Lamborghini. So far, we've got one retailer with 1,000 stores that's interested in that. We are interested in launching a budget brand again early part of next year, seeing the success of a private label we've done for another retailer. Again, that's not decided on exactly when and how much that's going to do. But you got to remember that anything that you launch and do, you just -- you won't get overnight success. It's going to take time to build, to get listings. When you're in the Far East, the decision-making process is a lot quicker and faster. In the U.K. and in Europe, their decision-making and their launch dates are a lot slower. So we just have to be patient. We're doing everything we can to get things listed as much as we can.

How has the Juicy Protein launch gone? And has it met initial expectations?

Yes. So we've only launched in Hong Kong because they were so fast in deciding and said okay at 400 stores and they said, yes, we want it straight away. It's there on sale, and it's selling exceptionally well. I think it's selling. If I'm not correct, 12 units per store per day. I think that's what it is, but I have to double check that if I got that right. In the U.K., it's launching in January. So I'll know more in terms of launching. It's available for sale for wholesalers and smaller retailers right now, but we'll only gauge EPOS by January when it goes live into 2,000 retailers. And that will be January, the first week of January. So I don't know [Technical Difficulty] but strong hope so.

Excellent. And just sticking with drinks for a moment longer. What's the strategic logic behind launching Typhoo iced tea? Obviously, it's a slightly legacy brand associated with old customers and now you have a youth targeted drink. Is this why perhaps it hasn't landed in mainstream retail?

So it's not retail because it's just more of a summer drink and we're -- unfortunately, with timing, it's here now and available now. We have got cash and carry, and wholesalers are buying this by the [pilot], but the retailers have all expressed interest for about February, March time. You got to remember, the reason for launching Typhoo iced tea, there is only one other credible brand on the market, and that's Lipton. And we will be disruptive on price. And if you talk about legacy brands and old fashion brands, Lipton is up there as well. It is well known for the older group as well as the younger. So there's no reason that it's just young gen that buying the iced tea. It's also old generation that wants an alternative drink to a Coca-Cola. So I think it actually suits itself to both markets. And the fact that we will be at a lower price than the only alternative credible brand, and we are the only really U.K. tea brand to launch an iced tea, I think it's really good. However, the proof is all in the pudding. So let's see how the sales go next summer. And I'll probably answer the question in our results next summer.

Can you elaborate a little bit on the rationale behind the new Protein facility?

Well, we maximized our current one, to be fair. And the new one was over the road, and we thought, well, let's get this [indiscernible] accredited, let's start making for other people as well. The beauty with the facility we bought, when we bought it and started putting the investment in, we had no idea about SlimFast. Now with SlimFast in there, we're going to be at 60%, 70% capacity, which on one shift when we can go to double shift, which means not only does the cost of SlimFast products come down, but Suzanne, I'll explain it better to you that our cost of everything we make will come down in terms of labor cost because it's spread over a bigger volume. So I guess the advantage now is that our products of everything we're doing will cost us less than they did before. Is that right, Suzanne?

Definitely. You've explained it perfectly.

Let's move on to SlimFast. I have a couple of questions here, which are all essentially trying to make the same point, which is that if it is a weight loss product, how does it sit alongside GLP-1 sort of assessments when perhaps you're not going to be eating if you are taking those jabs. Would it not then have a detrimental impact to its demand?

So you got to remember that you still have to eat with the jabs and you've got to come off the jabs at some point. So whilst you're on the jabs, all right. First, let me explain that SlimFast over the last 2 years or 3 years has not declined in the U.K. So even with the jab being around this last 12 months, they have not declined. The sales are still flat. So number one, whilst you're on the jab, you will need supporting products in a form of a drink or in food in terms of actually -- even though you do, the appetite is suppressed, but you still need to have nutritional products with high protein and higher fiber. And that's what SlimFast products are doing, but we are going to bring specific products that actually support the jab, number one. And then number two, when you come off the jab, you definitely do need to have the right types of food and stay off the way by reducing your calories. And then again, SlimFast comes into the mix again. So number one, we haven't declined into the jab. Number two, we are bringing things out, whether it's [gut] health or high protein or high nutritional value to support the jab. So there's a few things there we just need to consider. And I believe the brand is so strong that any products that we bring out that are slightly lower in calorie, whether it be snacks or whether it be protein bars or whatever, whatever we bring out that it's lower calorie, the brand will suit it. So I think there's a lot of opportunities there as well.

Moving on to vapes. What are the gross margin differences between core vapes, pod systems and the old disposables? And why did you decide to cut the price of liquid in pods by 50% compared to disposables?

Let me do the first -- answer the first part first. So our legacy manufactured 10-milliliter e-liquid business, of which we sell tens of millions of bottles each year. And that part of our business, the manufactured element, the margins there are upwards of 50%. So that really is kind of the jewel in our kind of gross margin crown, if you like. The branded vapes that we are simply the distributor for, we have -- that's sort of brand we own and we don't manufacture them. For disposables, the margins -- by the time we exited disposables were low 20s in terms of percentage and pods today are down at sort of 13%, 14%, albeit we hope that, that 13%, 14% will expand closer to 20% once we become more proficient at importing and distributing those products. So there's definitely a big range between the lowest margin and the highest margin part of that vaping category. The next question then was, why are we halving the price? What was the question?

Why did you decide to cut the price of the liquid in pods by 50% compared to disposables?

We're not -- the pods come with -- by the way, we don't own these brands. So we're not in control of what we sell here. We're a distributor for the brands. And the pods come two pods in a kit. And the price of a pod is obviously a lot lower than a kit. So when someone buys one pod, they're not going to buy the same price as a kit with a battery. They're just buying refillable. So it's only going to be cheaper. So I think we understand the question. We will answer the best we can.

How much of vaping revenues come from pouches?

Very little. The pouch has not been successful for us. So unfortunately, we've not managed to get a sales to a traction that's even worth talking about now. Would that change?

Less than GBP 200,000 for this period.

Yes, a few hundred thousand pounds a year. So it's not significant, and we don't know why. We've tried everything.

And 88Vape, last price increase has been a year -- more than a year ago. Why have we seen no adjustment this year given a 5p rise, would likely be demand inelastic?

Yes. No, we have put the price in, that's absolutely right and we have seen some increased revenue as a result of the price. But vaping is a big category, and there's a lot of different factors at play. So we've lost some volume in putting the price up, which we had anticipated and built into our forecast. But also there's other elements within our wider vaping category that have slowed down, which really is being displaced by the price increase. So specifically, this time last year and the year before, 88Vape had an extensive range of disposable vapes. When it's come to the transition from disposables into pods, the 88Vape brand hasn't transitioned into a pod system. We have been more encouraging of our customers to move to the more well-known brands, the ElfBar and Loss Merry brand. So within our core vaping category, putting aside branded vapes, the category is solid. It's fairly flat, and that is a mix of some of the revenue coming off of things like hardware and disposables being offset by the increase [indiscernible] increased amount of revenue from the price increase. So it is in there, but it's just one of the factors.

With the -- obviously, the change -- tax change for vaping, how large do you think the pipe fill effect was? And how much negative destocking went on? Well, I think it's -- how large do you think the pipe fill that was for vaping? Obviously, the disposable range, yes, before the ban and then negative destocking after the ban?

So we definitely had a benefit in Q1 this year as a result of pipe fill, I'd say, GBP 5 million, GBP 6 million. So I think I said earlier, we've had more like in a 6-month period had like 7, maybe even 8 months' worth of revenue in that period because we have this onetime benefit, and we won't see that again. And then what was the question, what about the impact of destocking?

Correct.

So we saw that leading up to the ban really in the very -- the last couple of months of FY '25. So sales started to slow down in February and March, which is why if you remember, I think last year's vaping revenue was something like GBP 129 million and the year before was GBP 140 million. And that was because in the last couple of months, we saw disposable vape revenue start to slow down because our retailers were then eating into their store -- their stock so that they ran down their stock by June when the disposable ban came in, but it was only really April, May when they started to buy pods from us. So yes, we're through that. We've seen that. It's not into these numbers. It was in the year before.