REG - Supreme PLC - Half-year Results
29/11/2022 07:00
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RNS Number : 8464H Supreme PLC 29 November 2022
29 November 2022
Supreme plc
("Supreme," the "Company" or the "Group")
Unaudited Results for the Half Year Ended 30 September 2022
Outstanding trading performance from Vaping category underpins growth
aspirations
Trading for the year ended 31 March 2023 now expected to be ahead of market
expectations
Supreme (AIM:SUP), a leading manufacturer, distributor and brand owner of
fast-moving consumer products, announces its unaudited results for the
six-month period ended 30 September 2022 ("H1 2023" or the "Period").
Financial Highlights
· Revenues increased by 6% to £64.6 million (H1 2022: £61.1
million), supported by outstanding performance from Vaping category mitigating
one-off declines in Lighting category
· 47% increase in Vaping category fuelled by organic growth and
bolt-on acquisitions
· Revenue and profitability impacted largely by the temporary slowdown in
Lighting category, which is now starting to recover
· Solid revenue growth of 19% and 5% for Sports Nutrition &
Wellness and Batteries respectively
· Gross profit margin 28% (H1 2022: 30%)
· Investment in overheads broadly a result of acquisitions and
expanded revenue base
· Strong balance sheet and optimal allocation of working capital
H1 2023 H1 2022 Change
£m £m %
Revenue 64.6 61.1 +6%
Gross profit 18.2 18.1 +1%
Gross profit % 28% 30% -2%
Adjusted EBITDA(1) 8.1 10.1 -20%
Profit before tax 4.4 8.5 -48%
Adjusted profit before tax(2) 5.8 8.4 -31%
EPS 2.8p 5.8p -52%
Adjusted EPS(3) 4.5p 5.9p -24%
Net debt 19.6 8.4 -133%
Adjusted net debt(4) 17.9 5.7 -212%
Dividend 0.8p 2.2p -64%
Operational Highlights
· Completed two strategic bolt-on acquisitions within Vaping
category, delivering incremental Adjusted EBITDA alongside the following
strategic benefits:
o Delivers highly complementary product and customer sets, whilst providing
additional cross-sell opportunities;
o Increased synergies, facilitating the extension of Supreme's market reach
both domestically and in Europe; and
o Provides immediate access to a European base of distributors and
retailers, alongside entry into the "pod" market, a new segment which de-risks
Supreme's overall Vaping proposition
· Sci-MX brand now delivering encouraging sales momentum, with the
demand for protein supplements, particularly powders, growing
· Lighting category now stabilising, with early signs of recovery in
retail sales, likely to be reflected in FY 2024 orders
· Signed a 15-year lease on a new warehouse facility in Manchester,
capable of housing much of the Group's manufacturing and distribution
activities from one principal location
Outlook
· Positive start to H2 2023, with trading now ahead of market
expectations for FY 2023
· Vaping category expected to deliver a robust performance in H2 2023,
reflecting positive impact of both organic and acquisitive growth
· The business continues to navigate global trading challenges
arising from raw material cost price increases, and inflationary increases to
its overhead base
· The Board remains confident in the future growth prospects for
Supreme in the medium to long term, with the Group focusing on generating
organic growth whilst fully integrating its recent Vaping acquisitions
Sandy Chadha, Chief Executive Officer of Supreme, commented:
"Pleasingly, the business has delivered a solid trading performance in the
period, buoyed by excellent sales growth from within our Vaping category. The
additional expansion of our Vaping and Sports Nutrition & Wellness product
portfolios, combined with our enhanced retail and online footprint and the
rationalisation of our manufacturing operations, continues to support our
value consumer proposition.
With our Lighting division stabilising after a temporary setback, and pricing
pressures beginning to ease, the Board's confidence in the Group's future
growth prospects remains high, and we look forward to a productive second half
of the financial year."
Investor Presentation
Management will be hosting a presentation for investors in relation to the
Company's results on Tuesday, 29 November 2022 at 3.00 p.m. BST. To register
for the event, please go to:
https://www.equitydevelopment.co.uk/news-and-events/supreme-investor-presentation-29nov2022
(https://www.equitydevelopment.co.uk/news-and-events/supreme-investor-presentation-29nov2022)
(1) Adjusted EBITDA means operating profit before depreciation, amortisation
and Adjusted items (as defined in Note 4 of the financial statements).
Adjusted items include share-based payments charge, fair value movements on
non-hedge accounted derivatives and other non-recurring items (including all
IPO-related costs)
(2) Adjusted Profit before tax means profit before tax and Adjusted items (as
defined in Note 4 of the financial statements). Adjusted Items include
share-based payments charge, fair value movements on non-hedge accounted
derivatives and other non-recurring items
(3)Adjusted EPS means Earning per share, where Earnings are defined as profit
after tax but before amortisation of acquired intangibles and Adjusted items
(as defined in Note 4 of the financial statements). Adjusted items include
share-based payments, fair value movements on non-hedge accounted derivatives
and other non-recurring items (including all IPO-related costs).
(4)Adjusted net debt means net debt as defined in the year-end financial
statements (Note 29) excluding the impact of IFRS16.
The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulation (EU) No.
596/2014 which is part of UK law by virtue of the European Union (withdrawal)
Act 2018. Upon the publication of this announcement, this inside information
is now considered to be in the public domain.
Enquiries:
Supreme plc via Vigo Consulting
Sandy Chadha, Chief Executive Officer
Suzanne Smith, Chief Finance Officer
Grant Thornton UK LLP (Nominated Adviser) +44 (0)20 7383 5100
Samantha Harrison / Harrison Clarke / Daphne Zhang / Samuel Littler
Berenberg (Broker) +44 (0)20 3207 7800
Chris Bowman / Mark Whitmore / Mara Grasso
Vigo Consulting (Financial Public Relations) +44 (0)20 7390 0230
Jeremy Garcia / Kendall Hill
supreme@vigoconsulting.com (mailto:supreme@vigoconsulting.com)
About Supreme
Supreme supplies products across five key categories; batteries, lighting,
vaping, sports nutrition & wellness, and branded household consumer goods.
The Company's capabilities span from product development and manufacturing
through to its extensive retail distribution network and direct to consumer
capabilities. This vertically integrated platform provides an excellent route
to market for well-known brands and products.
The Group has over 3,300 active business accounts with retail customers who
manage over 10,000 branded retail outlets. Customers include B&M, Home
Bargains, Poundland, The Range, Sports Direct, Londis, SPAR, Costcutter, Asda,
Halfords, Iceland and HM Prison & Probation Service.
In addition to distributing globally-recognised brands such as Duracell,
Energizer and Panasonic, and supplying lighting products exclusively under the
Energizer, Eveready and JCB licences across 45 countries, Supreme has also
developed brands in-house, most notably 88Vape and has a growing footprint in
Sports Nutrition and Wellness.
(http://www.investors.supreme.co.uk) investors.supreme.co.uk
(https://investors.supreme.co.uk/)
Chief Executive Officer's Review
Introduction
The Group delivered a credible trading performance across H1 2023, which has
been undoubtedly impacted by a temporary slowdown within the Lighting category
and which pleasingly is now normalising. Elsewhere within the business, our
Vaping category continues to grow at pace, with record sales underpinned by
strong organic growth alongside strategic acquisitions in the Period.
In H1 2023, Supreme delivered a modest increase in revenues of 6% to £64.6
million (H1 2022: £61.1 million), alongside Adjusted EBIDTA(1) of £8.1
million (H1 2022: £10.1 million). Regardless of this modest start to the
year, sales momentum continues to build, and we now expect to be ahead of
market expectations for FY 2023.
With our significant retail footprint, focused product mix, and enhanced
manufacturing and distribution capabilities, Supreme is ideally positioned to
capitalise on market opportunities whilst maximising our profit growth.
Operational Review
We remain focused on our established growth strategy, utilising our vertically
integrated platform to deliver great value, high quality products to market,
which in turn helps us to mitigate the impact of the cost-of-living crisis on
consumers.
Investment in our warehousing facilities has elevated the Group's
manufacturing capabilities, further strengthening our operating model. To this
end, we have now signed a 15-year lease on a new facility in Manchester,
capable of housing much of our manufacturing and distribution activities from
one principal location. We are pleased to have secured this facility which
allows us to plan for the Group's growth and which is in the vicinity of our
current warehouse, and we will be commencing planning for fit-out and
transition during FY24. Bringing the manufacturing of more products in-house
has been integral to the growth of our core Vaping and Sports Nutrition &
Wellness categories, enhancing the efficiency of our distribution platform and
minimising distances between production and our core end markets, with 90% of
our customers UK-based.
Despite challenging trading conditions, we successfully completed two bolt-on
acquisitions in the Period, which have generated significant opportunities to
increase our overseas footprint, one of the Group's key strategic growth
drivers. In line with our company ethos, we remain focused on 'affordability',
and will continue to deploy our expert R&D and distribution capabilities
to both maintain and grow our loyal customer base.
Vaping
Our Vaping division delivered an exceptional performance in the Period,
underpinned by a combination of strong organic and acquisitive growth.
Revenues grew to £31.8 million (H1 2022: £21.7 million), a substantial
increase of 47%, whilst the division's growth profit margin has marginally
reduced to 38% (H1 2022: 41%) owing to changes in sales mix, with consumers
purchasing a higher proportion of disposables and pods sourced from the Far
East where margins are lower.
We enhanced our market position by securing additional distribution across the
grocery, discount, and retail spaces, further increasing our UK footprint.
After extending our contract in H1 2022, we further increased our penetration
of the HMPPS market in the Period, providing a greater range of bespoke vaping
products to facilitate safe and controlled vaping within the prison system.
We completed the immediately earnings-enhancing acquisitions of Liberty
Flights and Cuts Ice & Flavour Core, which constituted £3.4 million of
the division's revenues growth (16%), with the remainder of growth (31%)
arising organically. Pleasingly, we have successfully integrated the Cuts Ice
business into the Group within three months of the acquisition, and there has
been strong interest in Cuts Ice from retailers and distributors since the
assets were acquired. Given the business' European platform and its extensive
manufacturing and flavour development operations, the rapid integration was a
significant achievement for Supreme and presents a sizeable commercial
opportunity for the business.
The continued expansion of our product offering is generating additional
cross-sell opportunities, with the ongoing demand for our 10ml "hero" product
from the 88vape range driving increasing rates of return. As the demand for
disposable vaping products continues to rise, we focused on enhancing our
existing product offering with the launch of new 88vape disposables in July
2022 and a Zillion Plus disposable nicotine-free range in September 2022.
Simultaneously, the acquisition of Liberty Flights, which predominantly
operates in the "pod" market, has enabled us to establish a foothold in the
closed system vaping market as well as convenience retail.
As the UK Government and global health experts continue to endorse vaping as
an effective smoking cessation tool, Supreme recognises the significant role
the Group will play in supporting a tobacco free UK by continuing to offer
both credible and safer alternatives for nicotine consumption, and will
continue to pursue opportunities to further grow our already robust market
presence.
Sports Nutrition & Wellness
Our Sports Nutrition & Wellness category increased revenues by 19% to
£7.6 million (H1 2022: £6.4 million), a pleasing performance given the
impact of well-documented price pressures on the market. Gross profit as a
percentage of revenue fell to 18% (HY 2022: 33%) driven by raw material price
increases most notably in whey protein concentrate, the principal component of
most of our powder products.
Acquired in July 2021, Sci-MX has traded well following its seamless
integration into the Group. Alongside retaining Sci-MX's key customers, we
completed a prudent rebrand in the Period, which included the roll out of
plastic-free packaging and enhanced sales and marketing initiatives. By
retaining a disruptively affordable price point, the brand is well positioned
to deliver further sales growth. Vitamins traded in line with expectations,
remaining a minor revenue contributor in the overall category, and was also
subject to cost pressures depressing demand.
We continue to monitor opportunities to expand our footprint in fast-growing
markets, from protein powders to protein bars, and remain focused on
augmenting our existing product stack. As anticipated, margins will be
squeezed for FY 2023, but the category is poised to return to an improved
profitability profile in the medium term as inflationary pressures impacting
whey prices ease.
Lighting
As previously highlighted, the Group's Lighting category generated revenues of
£6.1 million (H1 2022: £13.2 million), with the category slowing down during
the Period in line with the slowdown across the market. In addition, gross
profit decreased 58% to £1.8 million (H1 2022: £4.5 million).
This downturn was attributed to the overstocking by retailers in FY 2021 and
FY 2022, as well as the widely publicised slowdown in consumer spending across
the market.
Since late September, we have begun to see early signs of recovery,
reaffirming the temporary nature of this slowdown, and, significantly, Supreme
has retained all listings and all customers during the slowdown, with the
category expected to make a full recovery. Leveraging Vendek's distribution
platform and extensive customer network, the Group will continue to explore
strategic opportunities to bolster the division and grow its international
presence in the medium to long term.
Batteries
Revenues of £15.7 million (H1 2022: £15.0 million) were achieved by the
Group's Batteries division, up 5% which is ahead of underlying market growth.
The division delivered a solid performance and has benefitted significantly
from the integration of Vendek, completed in FY 2022, with the expansion of
our distribution capabilities cementing Supreme's position as a leading UK
batteries provider.
Branded Household Consumer Goods
The division experienced a 31% reduction in revenues to £3.4 million in the
Period (H1 2022: £4.9 million), but has now stabilised, increased in gross
margin and significantly reduced its investment into stock. Consequently, the
category continues to provide a pleasing return for management.
Dividend
The Board proposes an interim dividend of 0.8 pence per share. This dividend
will be payable on 13 January 2023 to shareholders on the register at 16
December 2022. The ex-dividend date is 15 December 2022.
Outlook
The Group has made a positive start to H2 2023 and is now expected to trade
ahead of expectations for FY 2023, driven by the incremental EBITDA from
acquisitions and further gains in the core business.
New product roll outs, together with the completion of three strategic
acquisitions and our upgraded manufacturing capabilities, ensures the Group
has the strong foundations in place to explore further opportunities to
accelerate our growth.
Prudent management of our key categories, including buying forward whey to
mitigate the impact of inflationary pressures and existing long-term Lighting
licensing contracts, has put the Group in a stable position to further
mitigate macroeconomic headwinds and lingering pandemic pressures, and enables
us to continue to advance potential growth opportunities, particularly across
Vaping.
Whilst the current cost of living crisis represents a substantial challenge to
all consumer-facing businesses, our proven resilience and adaptability,
together with the quality and value of our products, ensures Supreme remains
well placed to continue delivering future growth.
Sandy Chadha
Chief Executive Officer
28 November 2022
Chief Finance Officer's Review
The Group delivered a credible financial performance for the Period,
underpinned by record growth and profitability for Vaping, the Group's
dominant category, a marked but temporary decline in Lighting, and a stable
performance for the remainder of the Group.
As noted at the time, last year was a particularly strong six months with a
more favourable weighting towards the first half, in terms of revenue and
profitability, than the business has reported historically, owing to
regulatory changes in Lighting which meant sales were brought forward to
summer, whereas sales for this category are typically stronger during the
darker winter months.
H1 2023 H1 2022 Change
£m £m %
Revenue 64.6 61.1 +6%
Gross profit 18.2 18.1 +1%
Gross profit % 28% 30% -2%
Adjusted EBITDA(1) 8.1 10.1 -20%
Adjusted EBITDA(1) % 13% 16% -3%
Profit before tax 4.4 8.5 -48%
Adjusted profit before tax(2) 5.8 8.4 -31%
EPS 2.8p 5.8p -52%
Adjusted EPS(3) 4.5p 5.9p -24%
Net debt 19.6 8.4 -133%
Adjusted net debt(4) 17.9 5.7 -212%
Operating cash flow 4.9 4.2 +15%
Net assets 31.0 26.4 +17%
Revenue
Revenue for the Period was £64.6 million (H1 2022: £61.1 million),
representing an increase of 6%. The increase was driven by a £10.1 million,
or 47%, increase from Vaping, £3.4 million of which arose from the businesses
acquired in the Period, with the remaining £6.7 million coming from organic
growth in the form of new product launches and increased distribution. This
growth was offset by a £7.0 million, or 53%, reduction in Lighting revenues,
driven by a slowdown in consumer spending and retailer overstocking in FY
2022. Revenue also grew for Sports Nutrition & Wellness by 19% and
Batteries increased 5%, whilst Branded Household Consumer Goods revenues fell,
as expected, despite the division still generating the same amount of cash
gross profit.
Gross profit
Gross profit for the Period was £18.2 million (H1 2022: £18.1 million) and
gross profit as a percentage of revenue was 28% (H1 2022: 30%). This reduction
of 2% was a result of a change in sales mix within categories. For instance,
the slowdown in Lighting revenue was largely that sourced for customers on an
FOB basis (i.e. shipped directly from China by the customer), where margins
were the highest for the category. Within Vaping, new product launches have
focused on Far East-sourced technology, where margins are lower than the
UK-manufactured lines. Gross margin as a percentage of sales was also affected
by raw material price pressure, particularly for Sports Nutrition &
Wellness where whey protein concentrate (the principal component for most
powders) has increased around 2.5x since last year.
Adjusted EBITDA(1)
Administrative expenses reported within Adjusted EBITDA(1) were £10.0 million
(H1 2022: £8.0 million), an increase of £2.0 million. This increase was a
result of the overheads associated with the acquired businesses (£1.2
million) neither of which were fully integrated by the end of the Period. The
remainder of the increase related to increased direct selling costs on the
incremental domestic sales, the impact of the people investments made in FY22
and general inflationary increases in the cost base largely relating to
utilities and transport. As a result, Adjusted EBITDA(1) for the Period was
£8.1 million (H1 2022: £10.1 million).
Lighting contributed £2.6 million less to gross profit in the Period compared
to the first half of FY22. Most of this was product shipped on an FOB basis
where the costs to serve are negligible meaning that the vast majority of the
lost gross profit translated directly to lost EBITDA.
Depreciation and amortisation
The total charge for the Period was £1.9 million (H1 2022: £1.4 million).
The £0.5 million increase was attributable to the intangibles acquired as
part of the Liberty Flights acquisition.
Adjusted items
In total, £1.4 million was adjusted from Administrative expenses in the
Period. As set out in Note 4, these comprise the share-based payment charge of
£0.7 million (H1 2022: £0.7 million) relating largely to the awards made at
IPO, the fair value movement of open forward USD currency contracts at Period
end of £0.4 million credit (H1 2022: £0.9 million credit), adviser fees
relating to the acquisitions undertaken during the period of £0.2 million (H1
2022: £0.1 million), and finally the costs associated with the integration of
the Cuts Ice and Flavour Core businesses into Supreme's core platform of £0.9
million, £0.6 million of which related to the redundancy costs.
Finance costs
Finance costs were £0.4 million (H1 2022: £0.3 million). The increase
related to the debt associated with the Liberty Flights and Cuts Ice
acquisitions which was financed using the revolving credit facility.
Dividends
In July 2022, Supreme announced that it was revising its dividend policy to
25% of profit after tax. As a result, the proposed interim dividend declared
by the Board is 0.8p per share. This will be payable on 13 January 2023 to all
shareholders on the register on the 16 December 2022.
Cash flow
HY 2023 HY 2022 FY 2022
£m £m £m
Adjusted EBITDA(1) 8.1 10.1 21.1
Movement in working capital (0.5) (4.5) (3.9)
Tax paid (1.7) (1.3) (4.2)
Cash-impacting Adjusted items (1.1) (0.1) (0.4)
Operating cash flow 4.9 4.2 12.6
Debt (servicing) / raising 12.3 (3.7) (8.4)
Lease payments (0.5) (0.4) (1.0)
Capex (0.6) (2.4) (2.4)
M&A (10.1) (1.0) (1.9)
Dividends (4.4) - (2.6)
Net cash flow 1.5 (3.3) (3.7)
Cash generated from trading activities was £6.0 million in the Period (before
the adjusted items), an increase of 40% on last year. Supreme remained focused
on carrying the optimal levels of working capital, to ensure high levels of
customer servicing, cost-effective shipping rates, and to avoid any disruption
to supply arising from the shipping crisis whilst simultaneously ensuring an
optimal use of space in our warehouses and appropriate allocation of financial
capital.
Capital expenditure (on plant and machinery or property improvements) was
minimal in the Period, and we expect this to continue for the foreseeable
future whilst we focus efforts on the new property fit-out which will commence
in early 2023.
On 31 March 2022 the Group committed to a £25 million revolving credit
facility ("RCF") with HSBC. The facility has since been utilised to settle the
existing senior debt and then finance the acquisitions that have taken place
in the Period. The benefit of the facility is that the Group can repay this as
soon as there are adequate cash reserves to do so. £3 million has been repaid
post Period end. Net debt equates approximately to 1x EBITDA.
Net debt
H1 FY23 H1 FY22 FY22
£m £m £m
Cash (5.4) (4.3) (3.9)
Borrows 18.3 6.3 4
Deferred & contingent consideration 5.0 - 0
Related party borrows - 1.7 1.8
Other - 1.9 0
Adjusted net debt(4) 17.9 5.7 1.9
IFRS 16 (leases) 1.7 2.6 2.1
Net debt 19.6 8.4 4.0
(1) Adjusted EBITDA means operating profit before depreciation, amortisation
and Adjusted items (as defined in Note 4 of the financial statements).
Adjusted items include share-based payments charge, fair value movements on
non-hedge accounted derivatives and other non-recurring items (including all
IPO-related costs)
(2) Adjusted Profit before tax means profit before tax and Adjusted items (as
defined in Note 4 of the financial statements). Adjusted Items include
share-based payments charge, fair value movements on non-hedge accounted
derivatives and other non-recurring items
(3)Adjusted EPS means Earning per share, where Earnings are defined as profit
after tax but before amortisation of acquired intangibles and Adjusted items
(as defined in Note 4 of the financial statements). Adjusted items include
share-based payments, fair value movements on non-hedge accounted derivatives
and other non-recurring items (including all IPO-related costs).
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION OF SUPREME PLC
Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months ended 6 months ended Year ended 31 March 2022
30 September 2022 30 September 2021
Note £'000 £'000 £'000
Revenue 3 64,636 61,082 130,789
Cost of sales (46,468) (42,956) (92,272)
Gross profit 18,168 18,126 38,517
Administration expenses (13,370) (9,371) (21,498)
Operating profit 4,798 8,755 17,019
Adjusted EBITDA(1) 8,119 10,078 21,055
Depreciation (1,372) (1,219) (2,563)
Amortisation (511) (146) (378)
Adjusted items 4 (1,438) 42 (1,095)
Operating profit 4,798 8,755 17,019
Finance costs (400) (278) (693)
Profit before taxation 4,398 8,477 16,326
Income tax 5 (1,109) (1,659) (2,579)
Profit for the period/year 3,289 6,818 13,747
Other comprehensive income
Currency translation differences (4) (4) (32)
Total comprehensive income for the period/year 3,285 6,814 13,715
Earnings per share - basic 6 2.8p 5.8p 11.8p
Earnings per share - diluted 6 2.7p 5.5p 11.4p
Note 1: Adjusted EBITDA, which is defined as profit before finance costs, tax,
depreciation, amortisation and adjusted items is a non-GAAP metric used by
management and is not an IFRS disclosure.
All results derive from continuing operations.
Consolidated Statement of Financial Position
Unaudited Unaudited Audited
As at As at As at
30 September 2022 30 September 2021 31 March 2022
£'000 £'000 £'000
Assets
Goodwill and other intangibles 14,113 3,796 3,704
Property, plant and equipment 3,636 2,578 2,557
Right of use asset 1,688 2,544 2,116
Deferred tax asset 624 - 1,312
Investments 7 7 7
Total non-current assets 20,068 8,925 9,696
Current assets
Inventories 30,628 26,711 25,898
Trade and other receivables 26,913 21,465 19,035
Derivative financial instruments 833 293 467
Cash and cash equivalents 5,386 4,259 3,926
Total current assets 63,760 52,728 49,326
Total assets 83,828 61,653 59,022
Liabilities
Current liabilities
Borrowings 443 9,403 6,665
Trade and other payables 31,803 19,640 17,296
Income tax payable 780 2,820 1,299
Total current liabilities 33,026 31,863 25,260
Net current assets 30,734 20,865 24,066
Borrowings 19,575 3,239 1,294
Deferred tax liability 263 141 156
Total non-current liabilities 19,838 3,380 1,450
Total liabilities 52,864 35,243 26,710
Net assets 30,964 26,410 32,312
Equity
Share capital 11,663 11,663 11,663
Share premium 7,231 7,231 7,231
Merger reserve (22,000) (22,000) (22,000)
Share-based payments reserve 2,167 801 2,368
Retained earnings 31,903 28,715 33,050
Total equity 30,964 26,410 32,312
Unaudited Consolidated Statement of Changes in Equity
Share capital Merger reserve Share-based payments reserve Retained earnings Total
equity
Share premium
£'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2021 11,650 7,195 (22,000) 75 21,901 18,821
Profit for the year - - - - 13,747 13,747
Other comprehensive expense - - - - (32) (32)
Total comprehensive income for the year - - - - 13,715 13,715
Transactions with shareholders:
Issue of shares 13 36 - - - 49
Employee share schemes - value of employee services - - - 1,452 - 1,452
Deferred tax on share-based payment charge - - - 841 - 841
Dividends - - - - (2,566) (2,566)
13 36 - 2,293 (2,566) (224)
As at 31 March 2022 11,663 7,231 (22,000) 2,368 33,050 32,312
As at 1 April 2021 11,650 7,195 (22,000) 75 21,901 18,821
Profit for the period - - - - 6,818 6,818
Other comprehensive income - - - - (4) (4)
Total comprehensive income for the period - - - - 6,814 6,814
Transactions with shareholders:
Issue of shares - options exercised 13 36 - - - 49
Employee share schemes - value of employee services - - - 726 - 726
As at 30 September 2021 11,663 7,231 (22,000) 801 28,715 26,410
As at 1 April 2022 11,663 7,231 (22,000) 2,368 33,050 32,312
Profit for the period - - - - 3,289 3,289
Other comprehensive income - - - - (4) (4)
Total comprehensive income for the period - - - - 3,285 3,285
Transactions with shareholders:
Employee share schemes - value of employee services - - - 644 - 644
Deferred tax on share-based payment charge - - - (845) - (845)
Dividends - - - - (4,432) (4,432)
As at 30 September 2022 11,663 7,231 (22,000) 2,167 31,903 30,964
Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
6 months ended 6 months ended Year ended 31 March 2022
30 September 2022 30 September 2021
£'000 £'000 £'000
Net cash flow from operating activities
Profit for the period 3,289 6,818 13,747
Adjustments for:
Amortisation of intangible assets 510 146 378
Depreciation of tangible assets 1,372 1,219 2,563
Finance costs 372 197 404
Amortisation of capitalised finance costs 28 81 289
Loss on disposal of fixed assets 54 25 -
Income tax expense 1,109 1,659 2,579
Movement on forward foreign exchange contracts (366) (852) (1,026)
Share based payments expense 644 726 1,663
Working capital adjustments
(Increase)/decrease in inventories (2,166) (4,764) (4,937)
(Increase)/decrease in trade and other receivables (6,689) (4,741) (2,226)
Increase in trade and other payables 8,354 4,997 2,498
Taxation (paid)/received (1,652) (1,271) (4,161)
Net cash (used in)/generated from operations 4,859 4,240 11,771
Cash flows used in investing activities
Purchase of intangible fixed assets - (2,300) (1,454)
Purchase of property, plant and equipment (526) (426) (1,296)
Purchase of Cuts Ice net of cash acquired (2,571) (1,040) (1,040)
Purchase of Liberty Flights Holdings Limited net of cash acquired (7,566) - -
Proceeds from sale of property, plant, and equipment - 378 378
Directors loan account movement (68) (3) -
Net cash used in investing activities (10,731) (3,391) (3,412)
Cash flows used in financing activities
Drawdown of loans 18,252 771 -
Repayment of loans (5,769) (4,365) (8,083)
Proceeds from issue of options - 49 49
Payment of deferred consideration - - (66)
Dividends paid (4,432) - (2,566)
Finance costs paid (218) (101) (285)
Lease payments (501) (449) (955)
Net cash used in financing activities 7,332 (4,095) (11,906)
Net increase/(decrease) in cash and cash equivalents 1,460 (3,246) (3,547)
Cash and cash equivalents brought forward 3,926 7,505 7,505
Foreign exchange - - (32)
Cash and cash equivalents carried forward 5,386 4,259 3,926
Notes to the condensed consolidated interim financial information
1. Basis of preparation
Supreme PLC ("the Company") is a public company limited by shares, registered
in England and Wales and domiciled in the UK, with company registration number
05844527. The principal activity is the manufacture (vaping and sports
nutrition & wellness only) and wholesale distribution of batteries,
lighting, vaping, sports nutrition & wellness and branded household
consumer goods. The registered office is 4 Beacon Road, Ashburton Park,
Trafford Park, Manchester, M17 1AF.
These condensed consolidated interim financial statements of the Group are for
the period ended 30 September 2022. They have been prepared on the basis of
the policies set out in the 2022 annual financial statements and in accordance
with UK adopted IAS 34.
The condensed consolidated interim financial statements have not been reviewed
or audited, nor do they comprise statutory accounts for the purpose of Section
434 of the Companies Act 2006, and do not include all of the information or
disclosures required in the annual financial statements and should therefore
be read in conjunction with the Group's 2022 annual financial statements,
which were prepared in accordance with UK adopted international accounting
standards in conformity with the requirements of the Companies Act 2006.
Financial information for the year ended 31 March 2022 included herein is
derived from the statutory accounts for that year, which have been filed with
the Registrar of Companies. The auditors' report on those accounts was
unqualified, did not contain an emphasis of matter paragraph and did not
contain a statement under Section 498 of the Companies Act 2006.
The interim condensed consolidated financial statements are presented in the
Group's functional currency of pounds Sterling and all values are rounded to
the nearest thousand (£'000) except when otherwise indicated.
2. Summary of significant accounting
policies
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
March 2022 as described in the Group's Annual Report and full financial
statements for that year and as available on the Company's website
(www.supreme.co.uk (http://www.supreme.co.uk) ).
2.1 Taxation
Taxes on income in the interim periods are accrued using management's best
estimate of the weighted average annual tax rate that would be applicable to
expected total annual earnings.
2.2 Forward looking statements
Certain statements in these condensed consolidated interim financial
statements are forward looking with respect to the operations, strategy,
performance, financial condition and growth opportunities of the Group. The
terms "expect", "anticipate", "should be", "will be", "is likely to" and
similar expressions identify forward-looking statements. Although the Board
believes that the expectations reflected in these forward-looking statements
are reasonable, by their nature these statements are based on assumptions and
are subject to a number of risks and uncertainties. Actual events could differ
materially from those expressed or implied by these forward-looking
statements. Factors which may cause future outcomes to differ from those
foreseen in forward-looking statements include, without limitation: general
economic conditions and business conditions in the Group's markets; customers'
expectations and behaviours; supply chain developments; technology changes;
the actions of competitors; exchange rate fluctuations; and legislative,
fiscal and regulatory developments. Information contained in these condensed
consolidated interim financial statements relating to the Group should not be
relied upon as a guide to future performance.
2.3 Key risks and uncertainties
The Group has in place a structured risk management process which identifies
key risks and uncertainties along with their associated mitigants. The key
risks and uncertainties that could affect the Group's medium-term performance,
and the factors that mitigate those risks have not substantially changed from
those set out in the Group's Annual Report which can be found on the Group's
website (www.supreme.co.uk).
2.4 Going concern
Supreme PLC provides essential products to well-established retailers. The
nature and price point of the products offered means that the Group is well
positioned to navigate the current uncertainty in the economic climate.
The Group is funded by external facilities; firstly a £25 million revolving
credit facility ("RCF") until March 2025 and a £8.5 million invoice financing
facility, both of which are provided by HSBC. The Group also utilises credit
insurance to mitigate any credit risk, and foreign exchange forward contracts
to mitigate foreign currency risk. The Board and senior management regularly
review revenue, profitability and cash flows across the short, medium and
longer term.
In assessing the appropriateness of adopting the going concern basis in the
preparation of these financial statements, the Directors have prepared cash
flow forecasts and projections for the 18-month period to 31 March 2024. The
forecasts and projections, which the Directors consider to be prudent, have
been further sensitised by applying reductions to revenue and profitability,
to consider downside risk. Under both the base and sensitised case the Group
is expected to have headroom against covenants, which are based on interest
cover and net leverage, and a sufficient level of financial resources
available through existing facilities when the future funding requirements of
the Group are compared with the level of committed available facilities.
Based on this, the Directors are satisfied that the Group has adequate
resources to continue in operational existence for the foreseeable future. For
this reason, they continue to adopt the going concern basis in preparing the
Group and Company financial statements.
3. Segmental analysis
The Chief Operating Decision Maker ("CODM") has been identified as the Board
of Directors. The Board reviews the Company's internal reporting in order to
assess performance and allocate resources. No balance sheet analysis is
available by segment or reviewed by the CODM. The Board has determined that
the operating segments, based on these reports, are the sale of:
· batteries;
· lighting;
· vaping;
· sports nutrition & wellness; and
· branded household consumer goods.
Batteries Lighting Vaping Sports nutrition & wellness Branded household consumer goods Unaudited
6 months ended
30 September 2022
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 15,660 6,161 31,796 7,615 3,404 64,636
Cost of sales (13,844) (4,278) (19,666) (6,273) (2,956) (47,017)
Gross profit before foreign exchange 1,816 1,883 12,130 1,342 448 17,619
Foreign exchange 549
Gross profit 18,168
Administration expenses (13,370)
Operating profit 4,798
Adjusted earnings before tax, depreciation, amortisation and adjusted items 8,119
Depreciation (1,372)
Amortisation (511)
Adjusted items (1,438)
Operating profit 4,798
Finance income -
Finance costs (400)
Profit before taxation 4,398
Income tax (1,109)
Profit for the period 3,289
Batteries Lighting Vaping Sports nutrition & wellness Branded household consumer goods Unaudited
6 months ended
30 September 2021
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 14,959 13,157 21,658 6,367 4,941 61,082
Cost of sales (13,427) (8,674) (12,803) (4,249) (4,420) (43,573)
Gross profit before foreign exchange 1,532 4,483 8,855 2,118 521 17,509
Foreign exchange 617
Gross profit 18,126
Administration expenses (9,371)
Operating profit 8,755
Adjusted earnings before tax, depreciation, amortisation and adjusted items 10,078
Depreciation (1,219)
Amortisation (146)
Adjusted items 42
Operating profit 8,755
Finance income -
Finance costs (278)
Profit before taxation 8,477
Income tax (1,659)
Profit for the period 6,818
Analysis of revenue by geographical destination
Unaudited Unaudited
6 months ended 6 months ended
30 September 2022 30 September 2021
£'000 £'000
United Kingdom 59,624 56,127
Rest of Europe 4,756 4,663
Rest of the World 256 292
64,636 61,082
The above revenues are all generated from contracts with customers and are
recognised at a point in time. All assets of the Group reside in the UK.
4. Adjusted items
Unaudited Unaudited
6 months ended 6 months ended
30 September 2022 30 September 2021
£'000 £'000
Share based payments charge 733 726
Fair value movements on financial derivatives (366) (852)
Transaction related costs 162 78
Restructuring costs - 6
Integration costs 909 -
1,438 (42)
The charge for share-based payments is made up of £89,000 related to
Employers National Insurance Contributions and £644,000 related to the
share-based payments charge.
The financial derivatives relate to open foreign exchange forward contracts
(the Group typically holds 1 years' worth of USD-denominated purchases on open
forward contracts). The credit in the period reflects the movement in the fair
value of these open forward contracts at the balance sheet date since the year
end.
Transaction related costs represent adviser fees for acquisitions performed to
date.
Integration costs are related to the integration of businesses following
acquisition. In particular, these relate to the integration and streamlining
of operations of Cuts Ice, which was based primarily in London but has been
transferred up to Supreme's HQ in Trafford Park.
5. Taxation
The income tax expense for the half year ended 30 September 2022 is based upon
management's best estimate of the weighted average annual tax rate expected
for the full year ending 31 March 2023. The income tax expense is higher than
the standard rate of 19%, primarily due to the non-deductible nature of
certain expenses.
6. Earnings per share
Basic earnings per share is calculated by dividing the net income for the year
attributable to ordinary equity holders after tax by the weighted average
number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated with reference to the weighted
average number of shares adjusted for the impact of dilutive instruments in
issue. For the purposes of this calculation an estimate has been made for the
share price in order to calculate the number of dilutive share
options.
The basic and diluted calculations are based on the following:
Unaudited Unaudited
6 months ended 6 months ended
30 September 2022 30 September 2021
£'000 £'000
Profit for the period after tax 3,289 6,818
No. No.
Weighted average number of shares for the purposes of basic earnings per share 116,627,074 116,584,719
Weighted average dilutive effect of conditional share awards 7,004,961 7,324,757
Weighted average number of shares for the purposes of diluted earnings per 123,632,035 123,909,476
share
Pence Pence
Basic profit per share 2.8 5.8
Diluted profit per share 2.7 5.5
Adjusted EPS
The calculation of adjusted earnings per share is based on the after tax
adjusted operating profit after adding back certain costs as detailed in the
table below. Adjusted earnings per share figures are given to exclude the
effects of depreciation, amortisation and adjusted items, all net of taxation,
and are considered to show the underlying performance of the Group.
Unaudited Unaudited
6 months ended 6 months ended
30 September 2022 30 September 2021
£'000 £'000
Adjusted earnings (see below) 5,207 6,906
No. No.
Weighted average number of shares for the purposes of basic earnings per share 116,627,074 116,584,719
Weighted average dilutive effect of conditional share awards 7,004,961 7,324,757
Weighted average number of shares for the purposes of diluted earnings per 123,632,035 123,909,476
share
Pence Pence
Adjusted basic profit per share 4.5 5.9
Adjusted diluted profit per share 4.2 5.6
The calculation of basic adjusted earnings per share is based on the following
data:
Unaudited Unaudited
6 months ended 6 months ended
30 September 2022 30 September 2021
£'000 £'000
Profit/(loss) for the period attributable to equity shareholders 3,289 6,818
Add back/(deduct):
Amortisation of acquisition related intangible assets 511 146
Adjusted items 1,438 (42)
Tax effect of the above (31) (16)
Adjusted earnings 5,207 6,906
7. Financial instruments
The fair values of all financial instruments included in the statement of
financial position are a reasonable approximation of their carrying values.
8. Business combinations
Acquisition of Cuts Ice Limited
On 8 August 2022 Supreme Imports Limited acquired the trade and assets of Cuts
Ice Limited ("Cuts Ice") and Flavour Core Limited ("Flavour Core"), for
initial consideration of £2,571,000. Cuts Ice is an independent vaping
manufacturer with major own brands as well as OEM manufacturing contracts, and
Flavour Core is a flavour development and regulatory compliance business in
e-liquids.
Management is currently in the process of performing the purchase price
allocation exercise for this acquisition and as such the consideration paid
over the fair value of the net assets acquired has initially been recorded as
goodwill. It is currently estimated that the amount to be allocated between
goodwill and other identified intangible assets is £1,389,000. Management
will finalise this exercise in time for the financial statements for the Year
Ended 31 March 2023.
Acquisition of Liberty Flights Holdings Limited
On 10 June 2022 Supreme Imports Limited acquired the entire share capital of
Liberty Flights Holdings Limited ("Liberty Flights"), a leading UK vaping
manufacturer best known for their Liberty Flights vaping brand and the
market-leading Dot Pro device, for initial consideration of £9,432,000.
Recognised amounts of identifiable assets acquired and liabilities assumed
(unaudited)
Book value Fair value adjustment Fair value
£'000 £'000 £'000
Fixed assets
Goodwill and other intangible assets 62 4,744 4,806
Property, plant and equipment 1,251 - 1,251
1,313 4,744 6,057
Current assets
Inventory 1,715 - 1,715
Debtors due within one year 1,160 - 1,160
Cash at bank and in hand 1,866 - 1,866
4,741 - 4,741
Total assets 6,054 4,744 10,798
Creditors
Trade and other payables (894) - (894)
Corporation tax (77) - (77)
(971) - (971)
Total identifiable net assets 4,964 4,744 9,708
Goodwill 4,724
Total purchase consideration 14,432
Consideration
Cash 9,350
Stamp duty 82
Deferred consideration 2,000
Contingent consideration 3,000
Total purchase consideration 14,432
Cash outflow on acquisition
Purchase consideration settled in cash, as above 9,432
Less: cash and cash equivalents acquired (1,866)
Net cash outflow on acquisition 7,566
Following a purchase price allocation exercise the company identified further
acquired intangible assets. The fair value adjustments reflect the recognition
of Customer Relationships of £1,647,000 and the Trade name of £3,097,000.
The additional consideration paid over the fair value of the net assets
acquired is recognised as goodwill.
9. Dividends
Dividends of £4,432,000 were declared in the 6 months ended 30 September 2022
(2021: £nil). This amounted to £0.038 per share (2021: £nil).
10. Post balance date events
On 21 November 2022, the Group signed a 15-year property lease for a 167,000
sq ft facility in Trafford Park (Manchester). The facility will become the
principal site for the Group, housing manufacturing and distribution
operations and will allow for consolidation of existing facilities that
currently span four separate locations. The fit-out of the new facility will
begin immediately and management expect to be in occupation by summer 2023.
Following the consolidation of operations, the facility is expected to cost
around £0.5 million p.a. more than the existing facilities and will allow the
Group to fulfil its growth ambitions both organically and by-acquisition.
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