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

Good afternoon. I can see the number ticking up, so we'll just give that a moment. But thank you for joining us today to hear from Supreme Plc, who announced their results this morning. If you haven't seen it already, you can find a research note with forecast on our website. But the purpose of today is to hear from the management team and ask some questions at the end. Again, feel free to submit questions as we go through. But for now, I will hand over to Sandy Chadha, CEO.

Yes. Thank you for that, Hannah. Yes, actually I'm going to -- actually hand over to Suzanne actually for a change to make the introduction.

Good afternoon, everyone. As a reminder, we're Supreme. We're a manufacturer, a brand owner, licensee, distributor of what is now becoming an ever-growing range of fast-moving consumer brands spanning anything from torches to tea bags and vapes to vitamins. So any consumer goods is something that we would consider. The business started out mid-'90s with batteries and built up an extensive customer list across discounters and supermarkets, and over the past 25 years has scaled and added incremental product verticals and brands that we see on the next slide, if you want to move to the first slide, Hannah, thank you. And each time, we've added products and brands and verticals. We've leveraged the same resource base, the same warehouse, the same sales team, the same finance team, et cetera, that was originally enlisted to service just batteries and each time selling to the same customers. Over that same period, we simultaneously have begun to step back into our supply chain and become increasingly vertically integrated, starting with basic manufacturing and now more recently, flavor development. And that business model is what we know as our vertically integrated platform. And that's really what Supreme represents. That's what really stands us apart. As I said, we have acquired a couple of businesses this year, and that has meant our original structure of 5 categories became 7. And we concluded that actually 7 categories, even just to take you through all of those today, becomes a little bit unwieldy. It's too much to talk about, it's too much detail. And also, we have reflected some of that consolidation internally into our business, and it's how we manage and measure these categories. And also wanting to make sure we're not giving our competition a head start by sharing such granular data about revenue and more specifically, margin. So as you'll see here, what we've done this year in our results is we've consolidated those categories into 3. So what was previously known as our Vaping category and our Branded Distribution category collectively, they are known now just as Vaping. Our Sports Nutrition & Wellness category has now been added to our recently acquired Clearly Drinks and Typhoo Tea, and that becomes our Drinks & Wellness category, all of which share kind of some commonality around the innovation and new product development that we're doing and also a shared management structure as well. So it makes much more sense for us. And then our categories of Batteries and Lighting that we talk about less and less and we've signposted for a while that aren't really very core now to our growth strategy. We have consolidated those 2 together, and we'll talk about them as a collection as we go through the presentation. So 3 categories. We'll still disclose revenue and gross profit for each of those 3 categories, but it's 3 and not 7.

Yes. So here we are with our biggest range of customers, and we have over 50,000 retail outlets across all different sectors. We are pretty much people that know Supreme know-how, sort of widespread they are in terms of their distributor. So I'm going to sort of move on to the next slide, if that's okay, Hannah? Our people, we only oversee -- Suzanne and myself, and we've got a great team of people that actually mean that I can spend a lot of time looking at M&A and growing the business and very little time dealing with the day-to-day stuff and the same with like Suzanne. We've added Rick recently. He's going to look at automation, AI in our business and already starting to make a difference in his second week, so yes. So we've got a good team, and we're going to make sure that these guys are fully motivated to drive this business to the next level. Platform. People have heard this many times, but we have a shared overhead base. So that's one of the reasons we can take a business like Typhoo Tea, put it onto our platform and be profitable within the first quarter. I mean very few companies can do that. I mean just that business we bought had 12 years of extensive losses. In the first 3 months, we're able to put it into our platform, reduce the overheads, leverage our customer base, leverage our distribution and all of a sudden, we've got a loss-making business that's a profitable one within a few months. And this formula, we've done it, I think probably over 20 times in the last 15 years, and we've done about 6 or 7 since IPO, maybe more. And yes, so this is our, I would say, our strength and our sort of unique part of Supreme. And I don't know other than companies like maybe Procter & Gamble or Unilever, I don't know sort of companies at our level, at our scale that do this. It's not that many. You wouldn't be able to find many that I've seen on the listed market anywhere at least. Our distribution centers and warehouses and manufacturing, these are all the sites that we have, I mean, around U.K. and abroad. And I guess the main thing to take away from here is that we're not just one place in Trafford Park. We have got distribution sites and manufacturing sites. I think there's 6 different product categories we actually manufacture ourselves now. And this gives you a scale of the site. I think there's 750,000 square foot of space here for warehouse distribution and manufacturing. Is that it? Thank you. Over to you, Suzanne.

Yes. So financial highlights, and we'll come back and revisit this as we do a deeper dive into the categories and also we take a look at the income statement. But the headlines are here. Revenue is up 4% year-on-year driven by our acquisitions, but also some core growth in our business as well. As a result, our EBITDA is also up. It's up 6% to record levels of GBP 40.5 million. As we sat here this time last year, analysts were guiding -- we're giving guidance of around GBP 36 million. Of course, we've done the acquisitions since then. But even with the acquisitions on top, we have over-delivered on the EBITDA targets that we set ourselves and that we managed with you guys this time last year. We've also grown gross profit as a percentage of sales. Last year, gross profit was 29%, it's now 32%. And that's really a nod to some of the things that Sandy was showing you on the previous slide around manufacturing capabilities, which have really extended, a, by the acquisitions we've done in the year, but just generally and internally in our business and also the scale and the efficiencies that we just continue to drive year-on-year as a result of the top line growth. Also from a kind of financial highlight perspective, we've ended the year positive net cash, which given we've invested GBP 25.5 million in acquisitions, that is quite an achievement. And we have announced a dividend this morning of 3.4p per share. Now that's 10% up from the year before. So across the board, a real clean sweep of positive financial metrics. Moving to operational highlights. It's also been a very busy year kind of operationally. As we touched on already, and we'll come back and revisit, we've acquired 2 businesses in the year, Clearly Drinks, the soft drinks manufacturer and Typhoo Tea. And they're both very, very important strategic acquisitions for Supreme, mainly because they fit the criteria for M&A perfectly, both of them did. They were both earnings enhancing from the start. They both allowed us to diversify our revenue across our portfolio. They both provide products and brands in which we can -- we have the opportunity to distribute into the wider Supreme customer network. And they both were either an existing manufacturer, as is the case of Clearly Drinks, a very accredited, highly automated, best-in-class manufacturer actually; or presented the opportunity to manufacture in the future, which was more the case for Typhoo Tea. Three months after we acquired the business, we returned the business to U.K.-based manufacturing and we opened a plant in Gloucester. And then more specifically for Typhoo, we also recognized that, that business could be operated from and ran by the existing resource base, that shared platform of resources that Sandy was just talking about from here in Manchester, meaning that the gross margin that the business generated would largely return as net margin. Now other than a handful of individuals who demonstrated kind of real deep sector knowledge about the tea industry, which, of course, the preexisting Supreme business didn't have. Other than that, the rest of the business is operated by preexisting resource from within our business, which means the return to profitability was almost immediate. It was overnight. So 2 very successful earnings-enhancing acquisitions to add to our portfolio. But more generally, we've invested in the business from a manufacturing and a distribution capability as well, which will really set us in good stead for future growth and future scale, most notably the relocation to Ark. So you'll know that when we talked to you this time last year, we already talked about the fact that our warehousing operations move to our new distribution side, which is the photo you see on the bottom right here, but now so too all of our office staff moved. The offices are brilliant. I can say that we sit here and we operate from here every day. We've got the best audiovisual equipment, which makes meetings and collaboration just so much easier. We're really proud to show all of our customers and our suppliers. And in time, it will no doubt help with retention and recruitment of our people internally as well. And so that was great to get that over the line in FY '25. And then finally, we've refinanced all of our borrowing facilities. Now you'll know that we don't tend to use much of these facilities, but it's nice to have them there on tap should an acquisition or an opportunity to grow present that we want to move quickly on. So yes, that's really a nod to our continued commitment and appetite for M&A or investment into the business. You're on mute, Sandy.

Sorry, I'm unaware. Yes. So the vaping business, which is our -- so I would say about just over half of our overall business. If you look at it just on the graph here, it looks like we have gone backwards this year. However, that's -- there's two things to consider. One is that the vaping ban came in place 1st of June. So in May and even some parts of April, we didn't sell any sort of disposables or very little pods at that point because it was a transition and retailers were destocking and reducing their levels of stock. So we probably missed about 6 weeks of sales, which is reflected here. The core business, the core 88Vape [indiscernible] business contract, I think, grew about 6%. So the core business grew at 6% over here. Now looking at the business, you can see this year, however, we see the transition. So we've got two things to consider. One is the disposable ban, which is now gone, and we are -- have very little stock in our warehouse. And the only stock we have is return from customers, which we will export or give it back to the manufacturers and get our money back from that. The other thing is we've moved into the new pod system. Now for the first few weeks, so the first few weeks of the ban after the ban, so the first few weeks of May and into June, we saw a huge uptake of, number one, pipe fill into these customers. Secondly, we saw a huge them selling a lot of kits. In the last few weeks, we've seen the sales of kits decline, and we've seen pod sales shoot up. So overall, the volume actually is probably not dissimilar to what it was before the ban. The volumes of the sales between the two are very similar. However, there is 2 pods that you get for 1 kit. So basically, for a GBP 6 price point, you have now 2 pods, which is 4ml. So basically, you're getting twice as much liquid for the same price. We actually are selling more liquid in the Branded Distribution side of the business than we were before. But overall, we believe that the trend is going to go more towards pods and less kits. So we'll start giving more space to pods in the next few months if that trend sort of continues, which is absolutely fine. And to be honest, we didn't know which way it's going to go, whether people who buy the new product would throw it away or whether they buy and get a pod. And it looks like they're doing two things. One in the independents, it looks like they're just buying the kits. But in the actual multiples in the supermarkets, pod sales are definitely level or pegged to the kits now and are growing. The first half of this year, I believe, will be very strong on our vaping category and probably the same as last year. It's the second half of the year where we're not sure and we are not sure where it will end up because it's just too soon to say. If you remember when we first did the Branded Distribution and we launched into our ElfBar, Lost Mary, we said in our first RNS, we'll do GBP 8 million or GBP 10 million revenue. We ended the year at GBP 50 million. So that just gives you some idea of we are always super cautious, and we always know that we're running so many different good products and verticals in this business that there can be good things in some areas and sometimes, things go negative in other areas. So we just have to have that view as well. So this is more the vape side. The good take-home here is that no customers have lost. The transition has gone superbly well. The core business is up 6% and the volume is the same as it was before. And this may change. So when I say something, and I'm saying it as I speak today, I'm looking at the latest information. In a month's time, things could be different, but I am saying as I know the information from now. So moving on to the next slide, if you don't mind. Just on the vaping, actually I didn't finish off the tax side of it. That will be October 2026. So there will be a tax of GBP 2.20 on a 10ml and 22p on a 2ml. So it's 22p per ml, so sorry, 44p for a 2ml kit. So basically, the price of the liquid of a 10ml is going to go considerably. If you think 88Vape is GBP 1.25 retail, if we stick with a 10ml bottle, that will have another GBP 2.20 on top of that. So this is something that is going to probably come in play by March -- probably I would say, it's going to be around about March '27. So October '26 is when the tax will start, and there will be probably a 6-month period before it's implemented. So we're looking at March 2027, yes. So how will that play out? You can only look at Germany, Belgium and other countries over there. It doesn't seem to affect the sales of either the 10ml liquid or their pod disposables, which are not banned in some countries. So moving on to the Drinks & Wellness. So this category has had two acquisitions, and that's one of the reasons why it's up to GBP 49 million. However, the Sci-MX, our main wellness category did grow GBP 1 million in this area. So we are still growing organically as well as the acquisitions that are coming in. This area, we've got other M&As possibly planned depending on the outcome of our investigations, but it's an area where we are considering strong M&As, a similar sort of price level of what we've done in the past. So quite reasonable, profit enhancing if we do buy them. And that's where Supreme come into effect, is the M&As that we integrate very effectively without going to shareholders for lots of money. This area is -- I'm going to come on to manufacturing next, but this area is pretty much all of it is manufacturing, the drinks, the tea, the protein powders, all manufactured by ourselves across about 3, 4 different sites. Next slide, Hannah. Yes. So the Electricals here, we combine the Batteries and Lighting as one. And you can see it's gone backwards. But the main reason for that is the lighting. So light bulbs are actually becoming cheaper and cheaper all the time. They're lasting longer. So they are, I think, at a bottom end now in terms of price point. I don't think you can go any lower than mid-20s for LED bulb. I mean when we first started selling these 15 years ago, they were at GBP 5 a light bulb. When we floated at the -- in 2018, I think they're about GBP 1 or GBP 1.20 per light bulb. They're now at 25p. So considering the demise in raw material prices of bulbs and the longer they last, this is a cash cow still, but not growing. It's probably going to stay at this sort of level of decline in the next few years, but it is a relatively small cash -- small, sorry, revenue and gross profit compared to the rest of the business. So for example, Batteries is only combined around about 10%. The Lighting is higher, but obviously, that has been a bit more in decline. So that's pretty much the Lighting division. And obviously, I'm happy to answer any questions on that later. So if you look at our sort of manufacturing on Clearly Drinks, we've bought a business that had 4 lines. We've -- in the first year, we've added another 2 lines. These 2 lines are pilot lines where we can now make a lot smaller MOQ products for private label for people, but also for our own brands. We have got so many things in test at the moment in terms of shelf life testing. So I mean, we've never manufactured drinks before. But one of the things when you make a new drink, you've got to send it off for micro testing for any bacteria, but also testing for any shelf life. And once it passed that, you can go into full production. So how that works is 1 week of every accelerated shelf life test is 1 month. So to get a proper gauge of 12-month shelf life, you need 3 months, and that's one of the reasons why the delay to launch these because the NPD is ready, the packaging is ready, the design is ready. It's just a frustration around we're waiting for a lot of these trials to be run and then tested. And we've got the juicy protein now that's ready to launch. That's been tested and passed. The Typhoo I think it's in its fourth week of testing and it's passed so far. The Rola Cola is on the shelves in home bargains now and I think has sold an incredible amount in the first week, higher than we're expecting. So you can see that on the shelves. The Fruit Aqua, which is in home bargains is on the shelves along with Perfectly Clear blend water in home bargains, B&M bargains. So we've had a combination of things already going out there. You know this business is -- a lot of it is contract manufacturing without saying any names because a lot of it is NDA, but they are multinationals. A lot of that business is on and off and on and off. So we're trying to get away from that on-off business into brands we own or brands that we make for retailers that we make for. And if we make for retailers or we make our own brands, the on-off switch will not happen as much. So we are hoping that in the next 2, 3 years that we will see the rest of our production factory will be made up with brands that we own or brands that we make for retailers rather than contract manufacturing for another brand owner. But overall, really happy with the performance. I don't know if Suzanne is going to go for the figures, but she will -- I don't know if she's going to highlight these, but they have performed as well as we thought. We've only owned the business for, I think, 11 months now. I think it's 12 months this year. So yes, we're only just under a year now. And we've made incredible amount of changes in that first 12 months. Okay. Typhoo Tea. Yes. So this is our acquisition in December. We've done -- what we've done in 6 months. Okay. So what we've done, we've now manufacture ourselves in Gloucester. We have streamlined the range and so we got rid of the Fear Free and into a new blend that we're going to have across our whole portfolio. And we're going to have a slightly stronger tea bag or slightly more tea for supermarkets and slightly less one for discounts in the value channel. With NPD-wise, we brought an iced tea, which we are putting free in every box. We've got an order for 6 or 7 containers for retailers to trial that. We've also got listings for iced tea if it pass all the tests in January in 2 retailers. We've also reduced the number of heads. I think we have 4 people in Typhoo, now we had 40. We've streamlined the warehouse and distribution. We've pretty much grown our own business. And in 7 months, it is now a completely different looking business than what it was when we bought it. And again, Suzanne will share -- maybe share more light on that, but it is definitely profit enhancing our bottom line this year now going forward. Yes. So if you think of all the things we make, we make vitamins, meal replacements, protein powders, nicotine pouches, steak, tea, soft drinks, they are all things we manufacture. If we go back to our IPO, it was just nicotine liquid and protein. They're the only 2 things we made. And protein, by the way, we just started maybe 2 years before the IPO. So it's very, very new. So now these are also sort of like our main sort of areas of growth, the health and wellness, hopefully, tea and soft drinks. Okay. And now we move on to the e-commerce. Yes, I mean, we don't really talk about much, but we have through our website, Supreme Offers, and also through our online website managed by very competent individual called Dean Lee. He manages pretty much the whole e-commerce side. And this is up to now GBP 24 million of revenue and has grown well. And a lot of it, we don't pay for acquisition costs because a lot of it is servicing customers. When they see our products in the store, they go on the website and they then extend by the extension of the products that's available on the website. For example, if you're buying 88Vape at a store, there's not enough space to display all the flavors and strength. So sometimes retailers will go to stores, buy there regularly, but then enhance their purchases by buying at our website as well. We have over 200,000 regular customers on our 88vape.com website. The business-to-business website does over GBP 12 million a year, and that's servicing our smaller sort of wholesale retail customers. Moving on now to the financial service to you, Suzanne.

Yes. Thank you. So what you're looking at here is a copy of our income statement for this year with last year's comparatives. As we've mentioned already, revenue is up 4%. Hannah, would you mind just flipping forward to the next slide? We'll come back to this in a second. Here, we break down that revenue growth, and this is just really reaffirming what Sandy had said earlier. We can see that the Electricals is down 6%, which we've talked about already, owing largely to the ongoing decline of our Lighting category as a result of price deflation. And then what we've done here is we've just split out that vaping category between the disposable vapes and also -- and then everything else. The disposable vapes, as Sandy said, started to slow down after Christmas and more notably, as we really near the ban date in June. But it's meant that year-on-year, disposable vape revenue fell 23%. So a real conscious move away from those sales to manage stock down, help our retail customers manage their stock down, meaning that there was no kind of car crash coming on the ban date. But more importantly, our core business of vaping, so our 10ml business, our Prison contract, all of those key elements for growth, they grew in the year. They grew 8% year-on-year. So that was a really pleasing result. And then Drinks & Wellness doubled. It's really hard to see there that actually GBP 25 million of that was really down to acquisitions and there was a GBP 1 million underlying growth from the core. And so that was really the mix of how the revenue was built. So if you flip forward one more slide, Hannah, this is really just the same data presented as a bridge as opposed to just narratively. So again, you see the big tick up for acquisitions and the big tick down on disposables. Thereafter, the underlying core business has grown. And so if we then flip back to -- sorry, Hannah, to income statement. We can call out here the gross profit as a percentage of sales that I already mentioned in the highlights. That's increased year-on-year due to our increased propensity for manufacturing, but then also just scale right across the business that's also added. And we have so many different categories now that the mix of sales can really influence gross margin, but 32% I think is our highest to date actually. So yes, scale, increased manufacturing. There's been an investment in the overhead base of almost GBP 8 million, but most of that, almost GBP 6 million of that was in respect of acquisitions, almost all really for Clearly Drinks. So the overhead base required to run their business. It's a stand-alone business based in Sunderland and where their boreholes are into the ground for -- to extract the spring water. We have no plans to move that or consolidate it into our shared platform. It's a profitable business on a stand-alone basis, always was. We've spent a little bit more on advertising, and we spent some more money this year, just keeping up with the rates of pay increases and inflation and also just invested a little more heavily in our management team. And so as it says here, adjusted EBITDA are up to 40.5% (sic) [ GBP 40.5 million ]. And I think we've looked at the segmental already, so I'm going to skip past that. And then adjusted EBITDA, as it says here, we moved from GBP 38.1 million last year up to GBP 40.5 million. The biggest contributors are the acquisitions, which we've talked about and also, this incremental gross profit we've had from the core. So not just the incremental sales, but working smarter with the existing business to get better rates of return, and that's why we see an extra GBP 2.5 million of GP from the core business. And then in the other direction, those pockets of investments that we've seen in people and advertising. If we then move on to the balance sheet, the balance sheet year-on-year looks quite different actually, particularly at the top half, and a greater weighting towards machinery in that property, plant and equipment line. That's no surprise as a result of the acquisition of Clearly Drinks and also Typhoo and also investing into our core businesses, manufacturing as well. So that's where when we see the CapEx outflow in the cash flow, that's where we see the result of it in property, plant and equipment. And similarly in intangibles, again, that relates directly to the IP and the brands that we acquired through Clearly Drinks and Typhoo. And the only other thing I wanted to call out on the balance sheet was the increase in stock. It's a GBP 12 million increase year-on-year. And if you know Supreme, you know that we run a really tight ship when it comes to cash. So I thought it was just worth explaining. Some of this is acquisitions. So Clearly Drinks carry stock, Typhoo carry stock. But also if you think about the timing of the transition out of disposable vapes into pods, our warehouse was full at year-end in terms of building up stock of pods and kits so that we could then begin selling them through that, those pipe fill orders that came through in April and May. So that -- the final sort of GBP 4 million of that increase is really temporary, and I would expect that to come back down with everything else staying equal in FY '26. And then finally, on to the cash flow. I think we've said already, this business is cash generative and certainly an operating level. It takes modest amounts of working capital to continue to finance growth. We've got to pay things like our tax. We've got to service our dividend. And like I said, we've invested in CapEx in the last couple of years. And even after all of that and the M&A, which as I said, was GBP 25 million, we still ended the year on a positive net cash position, meaning that if you combine the cash we have on the balance sheet with the facilities we have, we have an extensive capacity for M&A or financing any other kind of organic growth, product innovation, whatever that might be. And having that on tap means that we can move very, very quickly. And particularly for M&A, that comes in very handy and it puts us in a real competitive position when it comes to buying new businesses. So yes, very proud of the kind of the cash performance of the business, even investing in the office fit-out, the agile pilot canning line that we've seen at Clearly Drinks, which Sandy mentioned, which really again sets us apart from the competition and our early investments into tea manufacturing that we'll really see in FY '26. If we then move on to investment highlights. So these investment highlights don't change year-on-year. The basis upon which Supreme grows and the criteria that we set ourselves for M&A and the values that we live by, they don't change. It's just the component parts that change year-on-year. So just to kind of remind people of this, with this unrivaled business model that we talked about at the start, the shared overhead base and this ownership of our supply chain by doing increasing amounts of manufacturing and because we do it all at such scale means a new entrant into the market, into any of the categories that we operate in just simply couldn't compete. We own the brands and we manufacture a lot of the brands that we work with. That means that, again, the retailers have to buy it from us. They can't negotiate on price and say, well, they're going to buy their Sci-MX protein powders elsewhere because we own that brand. They can only buy them from us. So that just gives us a better position, and that's really one of the drivers for the constantly expanding gross margin percentage. We talk every year about strong financials. This year is no different. The ongoing increasing amounts of revenue and EBITDA and cash contribution. And you saw our slide earlier on our -- what we'd like to call is our high-quality management team. But it's not just Sandy and I, there is a real mix of individuals right across our business, whether it's in management roles or elsewhere that help drive these increasing rates of return for our investors. Our M&A strategy is well verbalized. We talk about it a lot, this need and desire to buy businesses that have their own manufacturing or potential for manufacturing, that own their own brands that we can sell their products to our distribution network. Though that criteria is something we stick by and we're very strict with. And then because we have this backing of our financing, we're able to move really quickly on the right opportunity, which often puts us in the driving seat. And then diversification is the last thing I just wanted to cover. We are diversified in the customers that we deal with, the products that we sell, the brands, the routes to market. There's no major macro factor that really rules our business. So yes, we can talk about the movements in freight rates and the movements in the dollar or the movements in key commodity prices. And all of those affect our business, but none of them so substantially that they keep us awake at night. So that diversity really helps to derisk our offering. And then finally, on to outlook. As Sandy said, we've made a really positive start to FY '26. Q1 was where we knew we would get -- we would form a much greater understanding of that transition out of disposables into pods. As it stands now at the end of June, that pipe fill period has gone better than we could have expected. And so we're in a really great position to take the business into the next 3 quarters in terms of the transition to pods. We are still saying that we are trading in line with current market expectations. I know those expectations for FY '26 and FY '27 haven't really moved. And it will probably look like we've not revisited them for a couple of years, but I can promise you that we did as part of this process. But it would appear that actually the markers that we have for FY '26 currently whilst baking in an element of caution, which we always would do at this time of year, feel like a realistic place for us to aim for. As I said at the start, this time last year, we talked to you guys about a GBP 36 million EBITDA target, and we went on to deliver GBP 40.5 million. And I think if you were to track back and do the same exercise the year before and the year before that, it would be a similar position. So there are some headwinds that we need to contend with. Poundland is one of our customers. We've got lots of change as a result of the disposable vape transition, and we've got 2 new businesses that we're still getting to know. So I think anyone that wasn't exercising caution at this time in the year would be maybe a little bit reckless. We're really excited about the developments that we've made in capacity and capabilities of our manufacturing. And as I said earlier, that stand us in good stead for growth next year. And our M&A pipeline continues to be busy. We're looking at all sorts of businesses right now. Nothing is kind of off-limits. We've continued to have the support of HSBC in order to finance some of those if we need to move quickly. So yes, we're in a good position as any. Sandy, do you have anything to add to the outlook?

No. I just think the first and only the first sort of full year 3 months in, we can be very cautious. And as the year goes on and on and on, if business goes to plan and things go as we hope, then we'd be more confident to doing more. Well, there's actually no advantage for anybody to try and second-guess what's going to happen in 8, 9 months from now. So yes, we just want to be sure that what we're delivering, we can deliver and more.

Super. Well, thank you both very much for that overview. We've got a number of questions, so let's make a start. What are international plans? And how will these be reported? Will vaping sales in Spain and Romania be reported in the Vaping category and tea in India in the Drinks category?

I think so. That's what we plan for, isn't it, Suzanne?

Yes, yes. So Spain is vaping, so that sits within Vaping. What was the other one, India tea?

Tea, so the license that we're looking at the moment in India.

Okay. Yes. If we have something to report there, that would come under tea. International generally, so this has always been a very U.K.-centric business. But actually, some of the M&A that we're looking at the minute has some international elements to it. So that might be how we -- how the business moves into foreign territories rather than setting up something from scratch. But as we say a lot, Supreme, things change here really quickly and nothing is ever off-limits. So for the right opportunity, the right products, the right markets, then that's something we'd absolutely consider.

Okay. This is a comment on our forecasts and the fact that we've got Vaping down this year and a little more in '27. Why is that? And if refillable pods have twice as much liquid, why are you selling them for the same price?

So let me just explain the shift from '25 to '26 to '27. So FY '26 is virtually a full year of pods. And what we anticipate is a transition of volume from disposable vapes into pods, i.e., the average consumer on the street that was vaping a disposable should and the EPOS data that we've had in the last few weeks is backing this up is that they should, by and large, move to the rechargeable equivalent. So from a volume perspective, we should be unaffected. The downside, however, is that when you vape a rechargeable, you buy the kit once or once every few weeks or months. And in between, you're only buying the refillable pods. And whilst, yes, they contain -- or 2 pods will contain more liquid, their retail price is much lower. So pound per pound, even when volumes stay the same, our revenue will drop. Now we can sell more. There are other products we can sell and the kind of the bigger puff devices is where this might swing the needle and actually the gap might not be as marked as we are initially anticipating. But like-for-like, revenue should fall if the maths work. What we get in FY '26, however, is the benefit of pipe fill, which is the onetime when retailers across the board are taking a product in for the first time. They're filling up their distribution centers, their stores, their shelves, and they will buy 3 months' worth of stock in a month. So for FY '26, we'll get the benefit of a real spike in sales in Q1. In fact, I'm talking like it's in the future, it's already happened. We've had a very, very buoyant Q1. When we get into FY '27, however, all we'll have is the full year sort of annualized normal monthly sales. So we see the step change from disposables into pods in 2 steps, and that spans 2 financial years. But FY '27 is today where we very -- and by the way, that's in 1.5 years by the time we get there. And by the time we finish that year, that is our cautious view now of what the equivalent disposable vape revenue will be worth. But as everybody knows and we keep saying, we don't sell still for long. That assumes no kind of significant levels of organic growth on top of that incremental brands that we could distribute, businesses we could acquire. So it's cautious, cautious, cautious.

Okay. Thanks. When Typhoo Tea was acquired, the RNS said you expected to be able to do 30% gross profit in tea. Looking through the accounts, Typhoo didn't achieve above 15% over the last few years, often considerably less. Is the 30% still achievable? And has this increased now, you are manufacturing in-house?

The 30% is absolutely achievable, and we would expect once we are fully scaled in manufacturing and we're manufacturing all of the black tea ourselves, we expect to be at least 30%. So it's absolutely achievable. Why couldn't they -- why couldn't the previous owners do it and we can? So you can say that by any part of our business because we are more efficient, we're more focused, we're leaner, we're smarter, whatever that -- however we describe that. But we wouldn't commit to do something if we didn't think that we could deliver it. But we'll definitely get to 30% gross margin now on manufacturing.

Okay. Thanks. In which division are cleaning products now?

In Drinks & Wellness. It's a good question actually. I should have signposted that at the start. But it's now quite small, so it's not even really worth picking up on. It's kind of GBP 4 million, GBP 5 million now as a run rate business. So we moved away from a lot of the low-margin items last year, maybe even the year before. So it's a much more condensed category but a higher-margin janitorial cleaning solutions as opposed to being a more generic offering. And that sits within Drinks & Wellness and basically, it didn't really live anywhere else.

Okay. Thank you. Can you update us on the Spanish operations?

Yes, it's going fine as we expected. They turn over about EUR 800,000 to EUR 1 million a month. They're distributing our Lost Mary disposables. There's no ban in Spain. It's run very low cost from our perspective.

Yes. The only interesting thing, whilst we bought that business, it's actually the tax implemented whilst we were exploring the it 6 months before. And now with 3 months into the taxes, the volumes have not changed at all, but this is virtually the same. In terms of the number of volumes would not be decreased because of tax, which gives us reassurance hopefully, in 18 months' time, that it will be the same.

Okay. I've got a couple of questions here on nicotine pouches. One, just asking whether the growth is a concern if that induces people to reduce vape consumption. But also can you provide an update on 88Nic alongside that?

So nicotine patches are still very small generally in the U.K. I mean it's dominated by 2 brands, VELO and Nordic Spirit. And overall, it's relatively small for anyone outside those 2 brands. It's still there and it's still growing at a low base. We've not really put anything in our forecast for it really. So we've not really forecasted that it's going to do millions and millions of pounds because we weren't sure how it's going to go and how the consumer is going to buy the product. It is growing but from a very low base, and we have now a machine that is able to do about 10,000 units a day on one shift. So we have that in place ready to go, and we can grow on that if it does grow. However, we can grow after private label in Europe if we do some trade shows and get some private label contracts, or we can just use it in a view that it could grow if there is a big change in vaping. So we're now ready to go. But at the moment, it hasn't seen the growth size that we would have anticipated, and that's just where consumers are at the moment.

Okay. Why was tea manufacturing not set up within Ark? And why choose Gloucester given its distance from the Supreme distribution hub in Manchester?

That's a good question. So Ark is full, so there's nowhere to go in Ark. So it's...

And it's a warehouse, it's not a manufacturing.

And it's not a manufacturing plant. And if you start putting a manufacturing plant in a warehouse distribution center, you'll have all sorts of health and safety problems. So the reason we brought it in Gloucester is 2 reasons. One is it was actually already being manufactured there by a third-party manufacturer. We've taken over the site and the business. And two, because of the staff. So we've taken it as a going concern. So it makes sense that it was taken over as a going concern. It's in Gloucester. Funny enough, it's actually in the old Sci-MX warehouse that we bought and cleared out. This is completely coincidental 4 years ago. So we know the site and we know the location, but it's only because it was already set up and it's already there.

Okay. Sticking -- tea, was the GBP 1.2 million ransom payment to Typhoo suppliers anticipated before you acquired Typhoo?

So if you buy a business in 3 days, it's very hard to know what you're going to pay afterwards, right? If you ask me again, I would have paid double.

Fair. Prior to Typhoo entering administration, there was talk on media of the taste having been lost as a result of the number of suppliers having been reduced from 300 to 3. What, if anything, have you done about this?

So in terms of the garden, so the old -- the reason -- one of the reasons for failure is because they only went to 3 gardens that were not just ethically sourced, where as like it was a different level of source to do with women and women's rights. And that meant that the prices they're paying were extortionately high. So we've said we'll -- we wanted to be Rainforest Alliance. We wanted the other accreditation to them, we'll tell you in a minute and...

Ethical.

Yes. The other accreditation we have instead of...