Results earlier on today. If you haven't seen it already, we do have a research note up on our website with updated forecasts, so please do go and have a look at that. But for now, we shall hear from the management team as they'll talk us through the presentation, and there'll be the opportunity for Q&A at the end. Without further ado, I will hand over to Sandy Chadha.
Hi, everyone. Thank you again, Hannah. So if we could move on to the first couple of slides, that's okay. Okay, so I mean, here we go. Yeah. So let me tell you a little bit about Supreme in terms of Supreme as a fast-moving consumer goods business. We're involved in a number of product categories: batteries, lighting, vaping, wellness, and now soft drinks. We're sort of like a vertically integrated distribution company. Maybe Hannah, you can go on to the next slide. There you go. Yeah. So what we're trying to do is try to have a shared overhead base across all our platforms. So that way, when we are competing against other products in this particular category, we have a little bit of an advantage in the sense that we have a lower overhead base compared to some of our competition.
Hence why you see some of our margins that end up at the bottom line are being quite strong. We've been established now since 1975, and I joined the business in 1990. For those that don't know that, I'd like to move on to the next slide. Hannah? Suzanne?
So just to give some of the financial highlights for this period, if you've not already seen, we've had an excellent set of financial results with all the metrics moving in the right direction. Our top-line revenue is up 8%, so GBP 113 million. And the details and drivers we'll get to when we get to the financial sections towards the end of the presentation. More significantly, Adjusted EBITDA is up 22% to GBP 18.5 million. Operating cash is also up to GBP 11.3 million. And we have announced a dividend of 1.88p per share, which is 20% higher than the dividend that we announced this time last year. So also indicating confidence in the full-year position as well.
Sticking with the financial highlights, most significantly, and the element that we are very proud of is that we've had a very busy year operationally, which we'll get to in the next slide in terms of M&A and also investment into CapEx. Despite all of that and the expansion of the business in general, we have still managed to finance all of that growth and all of that investment from our own cash reserves, and we've closed the period still free of any bank debt and with £50 million of unutilized borrowing facilities at the end of the period, so that leaves us fully charged and financed for M&A or for growing the business in another way. If we move on to operational highlights. As you can see here, and as I just mentioned, the period, the six months, is really punctuated by two very specific events.
Firstly, in June, we acquired Clearly Drinks, which is our entry into the soft drinks vertical. When we spoke to you all as part of our year-end results, we talked extensively about the strategic rationale for that acquisition. There was cross-sell in both directions. They had customers that we wanted to get our hands on, and so too we have customers that we believe were a great fit for some of the Clearly Drinks brands, particularly Perfectly Clear, which is their most recognizable brand. There was operational synergies, despite the fact the business is going to continue to run from its hub in Sunderland. It's highly accredited, highly automated, and we look to emulate a lot of that manufacturing excellence into our core business.
There was also innovation crossover with our wellness business, and that also gave it a real upside for us in terms of value add when we acquired the business, so we are several months into that acquisition. We're really pleased to say that it is performing as well as we had expected, and more importantly, the talent in their business and the talent within our business, particularly within our wellness category, is working brilliantly. And the innovation that's coming out of that combined force is truly excellent, so that really was a highlight for us in the period, and then secondly, we finalized our move to our new facility at Arc, which you'll see the picture here in the top right-hand corner. And we'll talk more about Arc later in the presentation, but yeah, operationally, we've been very busy.
The M&A pipeline continues to be buoyant, and that's been coupled by some really strong underlying trading from the core business as well.
Yeah, so big topic at the moment, I guess, vaping. So if you can see our results here, you saw a decline in our 88Vape disposable. What we've done this year is, with the view that the ban was going to come in in March next year, is that we reduced our range significantly in 88Vape disposables from about 30 SKUs to about seven or eight, a core range. That has meant that we've reduced our sales significantly, but it meant that coming towards the end of this year, we're not going to be stuck or have millions of pounds' worth of stock that we're potentially going to lose on. So it's been a conscious decision. We've not launched the pods yet.
We want to launch the pods and also the high-puff devices, which you can see on the bottom right corner, which seems to be the growing trend at the moment. We're going to launch those probably in about the next six-to-eight weeks, and we want to sort of do a gradual changeover from pods to the high-puffs and the Pro Kits. And the reason we're not launched early is because there's so much disposables on the market, and we believe that the pods and the replacements wouldn't sell very well while there was a lot of products on the market. So that was one of the reasons why there has been a decline. However, the big-puff products which we're talking about, which is a four-in-one.
So this means that it's a product that has four different pods in one device, and you can flick it around and change the flavors. In our initial launches in Morrisons, in Heron, in Asda, and now going live in B&M and Home Bargains, it's gone really well. And we believe that this should, in theory, take over a lot of the revenue that we lost last year. But again, it's early days, and I don't want to overcommit on that. The other core range, 88Vape, is solid. We grew probably 2%, 1%, 2% in EPOS. With all the clearance around the disposables, the core 88 business is still absolutely solid. And for those who know, we mentioned before we've had a price increase in October. A lot of the retailers have only just started implementing that price increase in November and in the last week or so.
I believe nobody now is on the old price. Everybody is on the new price in terms of buying from us, which is about a 15% increase in price. But the retail prices, some of them are yet to change. That'll probably happen in the course of the next few weeks. We've not noticed any change in EPOS, and the sales are absolutely solid, even with the new GBP 1.20 price growth, which is a real encouragement to the brand. That's pretty much where we are on 88Vape. We have launched the nicotine pouches, and truth be told, they are not selling as well as we would have thought. But it's early days. You've got to remember, pouches are only 5% or 6% of the overall vaping market, but it is growing at a very high rate.
So I think we're in early, and we think that as this wave starts to grow, probably with the disposable ban, we believe that the pouches may increase in sales also. That's pretty much the vaping side. I'm open to questions on that. I think we'll probably have loads. Yeah, so I guess about the ban, really. So the ban is coming in in June next year. There is now equivalents across all our brands, Elf Bar, Lost Mary, and 88Vape, where it's a direct replacement for flavor, for price, and for space. So in terms of the look, the feel, and the price and the flavors are identical to the disposable that it's replaced. The only difference is now that it's removable and rechargeable, and people have an option of buying a pod, which is obviously much more sustainable.
Now, the answer to the question is how many people would use these and use the pods or use this again as a disposable, which would not really be the purpose of the object. The purpose of the object is someone to buy the device and then keep on using the device and keep on replacing the pods. The retail price is going to be the same. So two pods are going to be a retail price of about GBP 6, and a kit, that means a battery with a pod, is going to also be GBP 6. So what does this mean in terms of the switchover? I think the switchover in the range will carry on and switch over the same. It's whether there will be any devalue of now we're giving two pods for the same price as someone bought one disposable.
Would there be a reduction, or would people vape more? And the answer is we will see over time. And that's the same question with the high-puff devices where there are four pods in one device. Does it mean that they will less frequently change device and just more frequently change the pods? Our margins are slightly greater on the pods at the moment. But again, this is all new, and it's all part of a process that we're going to go through in the next few months, and we'll be a lot more clearer. Rolling forward, though, to 2026, that's in October 2026. So just under two years' time, there's going to be a GBP 2.20 tax on every 10 ml. And to be clear, that's GBP 2.20 plus VAT. So it's quite a significant tax.
If you think about we are selling our 88 vape for GBP 1.20 retail now, and the retail price will probably end up a lot higher, maybe as high as GBP 4-GBP 5. Now, there are lots of downsides, and there are lots of upsides to this. And I'm going to be as transparent as I can about both of them. The downsides are the investment. There's going to be an investment in working capital. All our customers are going to be owing us more money. There's going to be more cash outlay. There's a potential of more pilferage in retailers because now it's a higher retail point, which lends itself to people potentially stealing the product. The margin for the retailers will probably be less in terms of percentage, whereas cash margin will probably be better, if not the same. They are probably the negatives.
On top of that, we believe it's going to be done with a stamp, a tax stamp. So every product we make will need to stamp over the products, which means that we will need to invest in new machineries to be able to do that at the speed that we do now. I mean, you've got to remember we're selling 60 million of these a year, well, 60 million plus of these a year. There's also, however, pros, and the pros are the consolidation of the vaping industry, especially the 10 ml liquid. We believe there will be a consolidation of small players. We believe there'll be an opportunity to fund, to acquire, or to merge with some of these smaller players in terms of bringing it into our facility. We believe that we can own the space more in terms of our capital investment that we have available.
Also, with the investment we have, we're able to do some very creative acquisitions potentially leading up towards the tax. The other positive, actually, is because we are the lower price point, is that you may find that there will be a downtrade of people who were happy paying GBP 3-GBP 4 for a product and now paying GBP 8-GBP 9. They're probably more inclined to say, "Well, you know what? Let me try something that's like GBP 4-GBP 5." So there could be some downtrade to 88Vape on that because we are the lowest price point entry. I guess a lot of these things are unknown. All I know is that we will be in a strong position when this happens, and we are two years away.
In these two years, Suzanne will tell you more, but we should generate a credible amount of cash in the business anyway from general trading, which we can put at use either in some of this and this, but also in acquisitions, maybe to diversify in other areas. There are other sort of pros and cons. It's very difficult for me to say. All we can do is look at what happened in other countries. So if I look at Germany, that has a similar tax structure. There was a drop-off where everyone stocked up the shelves for six months, and then it came back. So literally, if you speak to any German seller that's now post-tax, the sales are back to where they were pre-tax. Now, if the UK is the same and that goes down the same route, then we are in a very strong position.
The only other thing to bear in mind is illicit trade. We believe, even though the illicit trade should be bigger because of the tax, we believe that a lot of retailers will be very cautious when it comes to avoiding excise duty because it's more than just a slap on the wrist. It could be imprisonment, and it could certainly mean that their premises are shut down, so I think that the illicit trade, even though it is a real threat, having the tax also makes it harder for retailers to sell this openly and avoid paying these extra excise duties because of the tax stamp that's going to be applied. We don't know much more than that, and as we know more and as we are finding more, we'll update our investors and presentations in the coming months and coming years.
Health and wellness, yeah, I mean, slight increase. Again, it's been quite a volatile price structure in terms of the way prices have been quite volatile over the last few months. We believe that we are about to launch some really strong NPD in powders, but also in drinks in the health and wellness. We've got some good intake from retailers that are interested in listing these products. We don't know how well they will sell in retail yet, but we've got some good commitment on some new protein drinks that we are bringing out that have been made at Clearly Drinks that I'll come on to. I think overall, it's in a solid position, and Sci-MX seems to be the sort of lion's share of the 18 million that you see on the revenues for 2024.
I think Suzanne can share with you the forecast going forward if she wants to in her numbers for next year. That's health and wellness, Hannah. It's okay. Yeah, lighting and battery. Combine the two, you can see a slight growth in both half-year. We're still in a very strong position in batteries. I mean, if you think about our sales, we were GBP 25 million four years ago. Now it's over GBP 40 million. I think it's quite an achievement. If you would have told me that four or five years ago, I would have said that would have been very hard, but we've managed to get some good listings. We've managed to find some new brands. We've also managed to take a few new contracts from some of our competitors, so overall, we've done quite well.
The lighting has been a bit more challenging in the sense that prices of LED bulbs have come down, and they last a bit longer, so the whole market is challenging. We believe that this is an area where having gone back to many years ago, we said it's going to go back to 25, 30 million. I think it's going to be a lot more difficult to get to those figures, but we have got some encouraging conversation going on with some market-leading brands and taking over some distribution, but it's not been finalized at this stage. Moving on to soft drinks, so Clearly Drinks, we bought back about four months ago, and annualized now makes an EBITDA of about GBP 3.5 million. It makes about GBP 2 million of free cash flow profits a year, so if it's GBP 15 million, we pay for the business, another GBP 3.5 million EBITDA.
I don't think it's not too bad multiple on the basis that there is about GBP 20 million or GBP 25 million worth of equipment that potentially has been invested in this company over the last five, six years. We are producing a number of licensed brands, a number of products in our health and wellness range, from Vitamin Waters and Vitamin Drinks to protein drinks to other functional drinks. We're not only making them under our brands, we're also in very good discussions with some of the big supermarkets and discounters to make it under private label too. We believe the growth of the company should come from this area if all our contracts stay in place and we're able to add on extra business from some of our new NPD that we are doing right now. Really happy with this acquisition.
It gives us another feather in our bow when talking to retailers, and it gives us a good diversification to our product portfolio. The next question. So if you can see that before that we had lost about five million of sales on the 88Vape disposable. However, we have made it back with the extra disposable we sold in the brands. With the brands, we have got agreements in place where at the end of the ban, they would swap stock that goes back to them. So we are in a much more fortunate position that at the end of the ban, hopefully, we won't be in a position where we have to do too many write-downs. But again, these are all things that we're working through and work in progress.
The revenues on this, as you see, are up by the same level as where our 88 were down. Again, we've not really reduced the number of range. The sales seem to be quite solid still and not be declining. However, we do think there will be a dip in the early part of next year while retailers are destocking and then start to restock in Q1 of next year because we believe that most retailers will start the transition around about April next year because the hard ban is June 1st. So that gives them about five or six weeks to reduce stocks to a level where they are very, very low to nil in their stores. Overall, yeah, happy with this and happy with the way it has gone.
We've also taken on Spain as another territory for Elf Bar and Lost Mary, and our sales and profit have been quite encouraging for the first two months. Then next slide, please. Oh, and in Spain, there is no disposable ban pending that we know about at the moment. Suzanne?
Yeah, so I mentioned earlier one of the operational highlights was that we've moved, we've concluded our relocation program to Arc. Why am I telling you this? Why is it important? Well, for a couple of reasons. One, I think this is a really important statement about our commitment for growth. This is a huge warehousing facility with capacity for us to grow, and so are the offices.
If you know anything about this business and anything about Sandy, you'll know he wouldn't be signing up to a 15-year lease in such a big facility if he wasn't committed and confident about the growth prospects of the group. The move to Arc also really speaks to our kind of cost consciousness in terms of us being very disciplined and under our kind of cost and cash control, and being in one centralized facility means more streamlining. It means less touch points for products. It means one single warehouse management system, and all of that rolls into just being more cost-effective, so I think it really speaks and will enhance the disciplines we have in those areas, and then finally, I think it's a really bold statement about the kind of employer that we aim to be.
This is a facility where people are working in a clean, safe, warm, comfortable, and dare I say, enjoyable environment, and that is when you combine that with the fact that we are proud to pay above living wage. We were proud a couple of years ago to come out with a big kind of cost of living, out-of-budget pay rise across the board for many of our members of staff. What we're trying to get here is a business that people enjoy working for, that are proud to work for. Because we know in turn that that speaks to recruitment and retention and morale and all of that in turn goes back to making a business more effective, and yeah, it's a really important point that we are proud of the business that we are creating and the culture that we are nurturing internally to Supreme.
It's important to share that with you. Okay, then. Moving on to the financial statements in a little bit more detail. As I said at the start, revenues up to GBP 113 million, 8% growth versus the six-month period last year. That's arisen as a result of a setback in our own 88Vape disposable vapes, offset partly by the full-year impact of the Elf Bar and Lost Mary, but also growth in our core business. We'll see this a little bit more when we look at the segmental analysis and also the incremental revenue we've had from the acquisition of Clearly Drinks. As always, revenue arising from a few different areas. We've seen gross profit as a percentage of sales increase from 27% to 30%. That's been because of the addition of Clearly Drinks, and they are a 30%-35% margin business.
They're a manufacturer, so that really pushes up our blended gross margin. And we've also seen higher margins in our core vaping category. We consolidated three manufacturing sites last year into one. We have scaled further. We have done some quite simple changes in terms of swapping out slower machines for faster machines within our vaping manufacturing. And all of that has driven a higher rate of return and higher rate of gross margin within vaping. We've seen the costs of whey stabilize within our health and wellness category. And we've also seen an improvement in our branded distribution margins. They started from a very low base this time last year in our initial opening orders, and they've stabilized at around 15%. So all of that's contributed to a higher gross profit margin year on year.
Really, that is the driver for the increased EBITDA year on year. Yes, we have top-line revenue growth. Yes, we have an incremental category, but it's the gross profit that's really been the core driver, along with some further savings within our cost base in reference to us consolidating our sites. We had an overflow warehouse elsewhere in Trafford Park. We've now exited that property, and there are some associated savings. All in all, the adjusted EBITDA margins up from 14% last year to 16% just shows that we are working harder and smarter and getting increasing rates of return.
That comes back to when Sandy said in the first slide about the vertically integrated platform, the shared bank of talent and resource and overheads, meaning that the more revenue that comes into the top of the funnel, the more of that gross profit drops down almost really neatly into net profit. So we're just seeing increasing rates of that. And we've seen the absolute gross profit increase, EBITDA increase 22%. And the segmental slide here just breaks that down into further detail. And this just illustrates what I was saying earlier. Batteries up 9%, lighting up 8%. We'll come back to vaping in a second, but wellness up 7%, branded distribution up 12%. And then all of those gross profits all up as a percentage of their sales versus last year.
There are gains made right across the board, the vaping being the exception, but hence the table on the right-hand side that Sandy's already articulated that once you strip out the 88Vape and Liberty Flights disposable sales year on year, which was a conscious kind of move. Actually the core business has been very stable, and even within that core business, the 88Vape 10ml business, which is our 70 million of bottles, our hero product, the product that really indicates growth for the longer term for our vaping category at Supreme, that part of our business, as Sandy said, 1% to 2% growth, the EPOS, 3% growth in our own business, and so there's real strength in those numbers there. Moving on, I think we have a couple of slides which really just illustrate what I've said here, just bridging that movement year on year from revenue.
M&A and the core business up, disposables down. And then similarly on the next slide for Adjusted EBITDA, we see the contribution from Clearly Drinks. But the real biggest gain, as I said, was the increase in gross margins for everybody just working a bit harder. We've also had some helpful tailwinds, we won't lie. Forex, shipping, those kind of core kind of macro factors have been helpful this year. But really, it's the core business working harder and some savings in overheads offset by the increase of the addition of Clearly Drinks. Then on the balance sheet, not so much to say here other than you'll see that we have a noteworthy investment into our fixed assets to the right at the top of the balance sheet. And that's really as a result of Clearly Drinks.
They own their own property, and they have considerable investment in plant and machinery that we inherited as part of the acquisition, and that all sits on the balance sheet. Working capital is largely unchanged year on year, but always represents an investment from the year-end close in March up to the end of September. So we always see an outflow in working capital in this six-month period because we're gearing up for our busiest trading period going into October, November, December. And the most important takeaway on this slide and the next one, however, is that we still remain net cash. We don't have any debt to speak of other than the IFRS 16 leases debt that's formally disclosed as debt. But as far as bank debt is concerned, there is no debt on the balance sheet, just an abundance of unutilized available facilities to us.
You'll see also that we had proceeds from sale of assets, GBP 1 million on the cash flow for this period. We sold one of the properties that we inherited as part of the Liberty Flights acquisition. Again, just talking about the integration and the synergies and the cost savings of bringing these businesses together. Liberty Flights operated in its own facility. We hired that up into Supreme Imports and consolidated manufacturing, and we were able to sell off that property and generate GBP 1 million of cash for the business. So yeah, a really healthy cash flow, even in spite of the GBP 15.6 million acquisition of Clearly Drinks. We're still net cash. Okay, so what does that mean for the summary, which I've just noticed is spelled wrong? So I apologize.
I don't know why that's only just. I've only just noticed that I've instead of these slides 100 times over the last three days. We have upgraded our forecast for FY25, as I'm sure you've seen this morning. We had originally managed expectations that we would generate 37 million GBP of adjusted EBITDA. Up to 40 million GBP of adjusted EBITDA is our latest view. How has that arisen? Well, we've had a great first half, as you've just seen in the results, better than we had anticipated. We know that Clearly Drinks has, as we always do, we're cautious with these acquisitions when they first come on board, and we're really confident about their performance in the second half and really excited about what they might deliver next year. But then also the movement of the vape ban, the timing of that has moved out two months.
And so we'll get two further months of disposable sales, disposable vape sales into this financial year. We also exercise a lot of caution now with regards to Q4 when we first wrote this budget. As it gets closer, the kind of trading is more tangible and more certain. Yeah, just underlying confidence combined with the movement in the timing of the disposable vape ban. As ever, we remain cash generative. We have a healthy balance sheet, a very buoyant pipeline for M&A, an incredibly opportunistic leader, and lots of energy within our wellness and our drinks categories at the minute that puts us in a really great position for next year.
Yes, as Sandy says, we've got to exercise some caution because there is an element of uncertainty, and no one wants to be left, certainly not me, with egg on our face when we talk to you next year if we've been overly confident. So we will exercise some caution. But, and we may have said this before, you know there was a time that this business was in camera film and Woolworths was its biggest customers, and it navigated all of that change seamlessly. We've been through technology changes with lighting. We've seen consumer trends change, and Supreme always comes out winning. So we're confident, quietly confident, but we will be cautiously optimistic and cautious in our financial planning for next year.
Great. Well, thank you very much for that helpful presentation. We've got a number of questions here.
Are the gross margins in batteries and lighting divisions sustainable in the mid to long term? They're above the historic margins, and so what has driven this margin expansion?
Let's talk about them separately because it's different factors. Batteries is sales mix. So the category typically has we distribute other people's brands, and we also have SKUs in there of our own, which are brands that we license. The licensed brands, we make greater margins. And now versus this time, two, three years ago, the mix of sales in that batteries category is that we're doing more of the brands that we license. So the sales mix has just generated higher rates of return. In lighting, we've had customers who've moved, one significant customer in particular that moved from having an FOB model to a sourcing model where they've been ordering from our warehouse.
So we have been where we previously ordered full container loads for them from China and then sold them directly in, sold them on a, they then brought the stock in themselves at scale and held it in their distribution center. We now hold that stock here in Manchester, and we store, pick, and pack that stock. So at a gross margin level, that looks like that's better business for us, but there is a cost baked into our overhead base with respect to warehousing, lighting, insurance, pick and pack, dispatch costs that we just can't directly attribute to the category. So the category gross margin level is showing increasing rates of return. And yes, there's some smarter sourcing based in there. There's some better freight, but there are still costs within our overhead base that we are incurring in servicing that category.
So I don't want it to look like we've just made increasing amounts of money on a category when actually it is slightly about presentation as well.
Okay, thank you. How has the acquisition of Food IQ gone?
So Food IQ, we bought for mainly the assets of the business. I think we paid GBP 300,000 for about GBP 2 million of the kit. So a lot of that machinery, there's a part of it is already now we're using. I would say we're probably using half of it into our facility to make it bigger and more efficient. And the other half is storage where we moved to our new facility. When we do decide to move to our new facility, we would use it. So it's an asset sale, and we really bought it for the plant and machinery so that we can hopefully grow if our orders start growing.
Thank you. Spanish distribution of Elf Bar, a couple of questions on this, but sort of A, what are your forecasts for this market? And B, sort of what makes you well positioned to expand in Spain and what sort of previous experience do you have in that market?
So the answer, very good questions. The second answer is we've gone in partnership with somebody that we own 51%. They own 49%. It's a new company that's set up. We're funding it, and we are leveraging on the person's and the company experience of the person we've got in partnership with there. So he's running that business. We've known him for 15 years, someone we really trust.
And the revenues are going to be decent. And at this stage, and the reason why I'm not saying what the size is because I don't want to tell you, it's just that I don't want to portray any confidence that we've signed and agreed together. So all I can say is if you take the market, let's take the market. Let's just say if we can do, if we can do 15% or 20% of what we're doing in the U.K., I'll be very happy.
Thank you. Sandy, one for you. A few questions on why you sold down some of your holding recently, given the low multiples and your never-ending confidence in the business.
Yeah, I mean, I think I've read it somewhere.
Someone mentioned that there's always a hundred reasons why someone wants to sell some shares, but there's only one reason why you want to buy them, and I think the only reason that I sold some shares was just to get ahead of the budget, to be fair, and I don't think, I didn't think the budget would be as relaxed as it is. I thought it would be a lot more harsher on capital share sale. That's it, really. I mean, I think if you saw the timing of it, it was literally just before. Yeah. No, thank you for your transparency. I mean, I still own 56.1%. It's pretty much where I was at the IPO. Don't remember I bought shares to take to 58, and we bought some buybacks. So I'm back to where I was at the IPO.
Worth highlighting. Thank you.
Can you tell us what your market share in e-liquids is? And can you talk about the competitive landscape and the opportunities for consolidation?
So what was the first part of the question, sorry?
What is your market share in e-liquids?
Okay, so if you take the market in terms of volume, not value, we're probably about 30%-35% of the whole market in terms of number of bottles sold and liquid sold. In terms of consolidation, there are literally hundreds of small companies turning over 1-5 million, 1-10 million, that are potentially will either close down or sell or do something with these hundreds. I mean, there isn't just a few. There's a lot of manufacturers. So I mean, you need to be a bonded warehouse to go forward. You'll need to have tax labels, tax label stamps. You need to deal with the whole thing. It's going to be quite onerous for a small SME.
So the opportunity there is simply gaining further market share?
Two ways, isn't there really? One is by consumers downgrading to some of our products or secondary by consolidation of some of the brands or companies out there. We've not gone through that exercise yet and what that landscape looks like, but I know there are hundreds of small smaller companies in the U.K. that will probably want to sell or exit. Some of them will probably keep going and manage it through, but I think there'll be quite a lot of consolidation.
Okay. For you, Suzanne, you touched briefly on the cash flow impact of the October 26 tax. Can you go over it again? For example, do you need to pay the tax before you receive revenue from customers?
Oh, what a very good question. So the honest answer is that the very specifics of the legislation are still being determined. So things may change. What we anticipate is that, yes, we'll be responsible for collecting and paying over the excise duty and depending on the credit terms we have with our customers versus the credit terms that we may get on paying the duty. Now, I fully expect that there will be a deferment regime in place and how that looks and how we manage our customers, TBC. There will be almost certainly a required investment in working capital. We will get bonded warehouse status. Some of our customers may even get bonded warehouse status, which may defer some of the payment of the excise duty. Again, details to be confirmed.
I'd estimate, let's say, a £15 million investment into basically debtors to finance this, which if you, yes, that sounds like a sizable investment, but there are some levers we can pull. And oh, by the way, that assumes that demand is unwavering and that our customers don't kind of adjust their credit terms helpfully. But let's see. We've got ample facilities to support that kind of investment. And that's why having this strength in our balance sheet, it isn't just for M&A. It gives us optionality and it gives us an ability to be able to manage through transitions like this.
Okay. And just that would then cover perhaps any machinery investment required for tax stamps and any quantum of that?
No, let's say that's on top. What the extent of that is, again, I feel like I'm just plucking figures out of the air. We're a very lean business when it comes to spending money on CapEx. You'll know that we don't typically spend more than GBP 1 million a year, excluding Clearly Drinks. So if we have to make some changes to our facility, we'll make them over the course of the next two years. And I have absolute faith in the talent within our vaping manufacturing team, coupled with Sandy's commercials, that they will do that as cost-effectively as they can. What that might cost, I'd just be guessing if I gave you a number right now.
I think we can accept that. Thank you. Right. M&A, are there any categories you'd really like to get into?
Yeah, I mean, there is, but again, all work in progress. I'd rather not say too much because we are already talking to many companies in this area. So yeah, we've got some ideas. We've got some categories that we would like to get involved with. Again, owning brands, again, manufacturing.
Okay, thank you. For a non-smoker, can you please explain what the cigarette equivalent of a £4 vape pod is? Is it like half a pack? How does it compare to the cost of cigarettes? Or am I going about it in a wrong analysis?
So a bottle of 10 ml, so a bottle of 10 ml e-liquid is equivalent to about 200 cigarettes. So there's 20 in a packet, so equivalent to 10 packets. And I don't know what the cost of cigarette packets are these days, but they're about £20. So that's £200 opposed to £5. Does that hopefully answer the question?
Sounds like a good analysis to me. Right. Actually, I think is there any other color you want to give on this, Suzanne?
I think you've given a little bit there in terms of the many unknowns. But when the vape tax comes into effect, assuming demand remains the same, additional working capital required for any of this for vape duty and VAT? I think. Is there anything else on top of the numbers you've already?
No, I think I saw that question pop up when I was trying to answer those questions with the response I gave earlier. But I think, I mean, I'm saying £15 million, but let's see where this lands in terms of where demand lands, what the deferment scheme looks like. If we get bonded status, which we're almost certain we will, whether our customers do, so many unknowns. But what I'm absolutely certain of is that whatever that number ends up being, it's not a number that's out of our reach in terms of the investment that is required.
Thank you. And then perhaps just again, looking into your crystal ball in terms of the effect on demand, you've already seen vaping revenue decrease 13% as a result of reduction in disposables. What effect are you expecting the disposable ban to have on demand?
Yeah, so I think I mentioned earlier that we've got the equivalents in the branded distribution in pods. So we hopefully it's going to change over to there. In terms of what we don't know is whether people will vape less because it's two pods instead of one. So they're getting twice as much for the same price.
So does that mean they'll buy half as less, or does it mean they'll just vape more? So the answer to the question, we don't know, but we've reflected it in our figures for next year. So we've reflected what we think we're going to do next year. The 88Vape, as I said, was more conscious decision of not having, I think, our GBP 7 million of stock at one point of 88Vape disposables. And we don't forget, we've got to like, there's two liabilities on disposables when the ban comes. It's our stock in our warehouse, but it's also stock in our customers' warehouses and in their stores.
The idea was that with 88Vape is that not to have a whole range of all our customers having lots of stock in their stores, lots of stock in their DC, and us full of warehouse, and then not be able to do anything with the stock. The idea of cutting the range down was to reduce sales, but at the same time, be ready for the new influx of new product, which we haven't launched yet into those retailers until the timing will be right, which we think will be in the next six, eight weeks.
Okay, thanks. Besides Spain, are you considering entering into other markets?
Yeah, yes, we are. Again, all work in progress.
Okay. Do you think the number of flavors will be constrained with the new tobacco and vapes bill?
Yeah, I think there'll be some simplification of flavors. So it would be a blueberry flavor rather than a blueberry ice or blueberry red and lemonade. I think it'll be simplified. I think there'll be flavors there. I think fruit flavors will be allowed. I think mint, tobacco, menthol, and fruit flavors will be allowed. If you think that's pretty much the majority of our business anyway now in terms of our 88Vape products anyway.
Okay. Back with vaping, unsurprisingly. With this ban and your strategy to reduce revenue in 88Vape, and the risk is that people switch then to Elf, but when the ban comes in, rather they will switch to their rechargeable offering rather than the 88Vape offering. Do you see that as a competitive risk?
The products that we sell 88Vape disposables are different customers to where we sell the Elf and Lost Mary. It's not the same profile customer. And we found that the customers that shop in our discounters would carry on and replenish with 88Vape. In fact, our product, this new big product device, is selling really well. So I think we don't have an issue there. But again, I don't have a crystal ball, but I don't think there's an issue on that. Don't forget, the customers are very different at the moment in terms of where we sell Elf Bar and Lost Mary and where we sell 88Vape disposables.
Okay. What's the annual revenue and gross profit from the prison contracts, and when are they due for renewal?
So I don't want to really talk about the revenue and gross profit because we've signed NDAs now with them. All I can say is that a process has just gone through, and we are now on the next stage. We're carrying on. It's business as usual.
And the Elf Bar and Lost Mary contracts, what do they offer renewal?
It's not a contract. It's an ongoing supply agreement, a bit like we have with Duracell or Energizer or any of our other suppliers. It's as good as the customers want to buy from us. We are, I would say, 99% in stock for the big supermarkets with this product. We give a very good service. It's unlikely they'll want to change. But if they all wanted to change tomorrow, there is no contract stopping that. But that goes for our entire business. We don't have any contracts in place on any of our products we sell to any of our customers currently.
Okay. 88Vape sales. Do you have any plans to manufacture in-house?
Yes, we are bringing manufacturing. So we're looking at making for third party. I did say earlier that we are disappointed with the sales of the nicotine pouches. But again, at the same time, it's growing. I mean, even though it's growing from a small base, it is growing at quite a high rate. So maybe this time next year is a different story, but we have invested in some machinery to be able to make that in Manchester, which should be about April next year.
In terms of managing inventory and stock, would you be able to move excess disposables to countries where they're still legal?
Yeah, you can do that, but you've got to change the packaging and the warning signs. So there is an element of cost, but you can do. But if you think our exposure now in 88Vape is right down to bare minimum, it is only really on the branded distribution side, which we are managing with the brand owners as well as the retailers. So hopefully we won't have any big write-downs at the end of the year. Again, it's all work in progress.
Okay. And any update on position of vape products, i.e., behind the counter versus in front?
There is no clarity on that at this stage in terms of vape bill. There's been no talks about any changes yet. As they are, I'm more than happy to share.
Thank you. Is the plan to stick slavishly to a dividend payout ratio, or will you smooth the dividend growth?
Suzanne?
As in, move a bit of a fixed percentage, and you mean move it to a flat amount or a change in the absolute amount rather than percentage. No immediate plan to. I think the dividend is a 25%. It was originally 50%, which we realized straight out of the box that that was too high. We adjusted to 25%, and that feels like it's working. We're giving a decent return to the income funds and keeping enough back for ourselves for M&A. So unless someone tells us that they've got a real problem and that we're recommended to change it, I don't see why, but never say never.
Thank you. Sandy, someone has caught you somewhere saying that non-vaping revenues will have a share of 60% if all continues to plan. Can you please elaborate on that statement?
So I mean, at the moment, I think our non-vaping sales are about GBP 100 million of our GBP 240 million turnover. I believe with some of the acquisitions that we are hoping to do and with some of the diversification and some of the drinks, we're hoping that over the next three to four years that it will be a balancing of anything above 50% on non-vaping to vaping. And I don't want the vaping to go down. So I want the vaping to still grow. And I want the non-vaping products to grow faster, even more. Look, it's easier said than done. I can sit here and I can say, "Yeah, this is what I want to do." It is really hard.
The team are working really hard in a diversification so that we are in a very good position in the next two years when the tax comes in. When the tax does come in and there's consolidation and we make a lot more money because we're able to make more margin because of the tax. Because if you look at tobacco companies, they actually make more profit in the U.K. when taxes go up. If you study that, you'll understand why that happens. There is a big element there that there's an opportunity as well. Just as I said, that we've increased our price of 88Vape. We may have to look at doing it again, and that will help us with the investment. Not that we need it, but it will help us with the investment in working capital when the tax comes.
Is there an opportunity to cross-sell between 88Vape and your wellness sectors? I like the ambition here.
I am not sure. I think it's a difficult one. Yeah. Yeah. Not especially with the perceived value of vaping at the moment.
Okay.
Don't forget, we went into vaping to stop people from smoking cigarettes. That was my goal when we started. Unfortunately, in the last three years, it has a different turn of events, which was unseen at the time,
well, and just another quick one on the vaping. Obviously, you talk about expanding into other markets. Is it solely going to be via Elf? Do you see opportunities for your own brand to follow? And are you considering other verticals outside of the U.K.?
Yeah. So in the drinks industry, we're looking at a few things. We've got some license agreements that we're studying at the moment that have got worldwide rights on brands that you will go, "Wow." So look, it's all progress. I'd like to say more, but I can't, unfortunately, until I've signed these agreements. I can't. I want to share. I want to share, but I can't. So at the moment, we're still in progress with a lot of things. Nothing's been agreed, but we have got opportunities with licenses that are outside the UK to Europe and the rest of the world. We are hiring an international manager that's just going to look after the rest of the world in terms of sales outside Europe.
He's going to focus on this area in vaping, in our lighting, in our drinks, and in all our verticals, as well as any new verticals that we may add that may come about in the next year.
For all the non-vapers out there, how many does the 10 ml bottles does the average consumer use in a week?
I reckon they use about two a week, one or two a week. Again, heavy users will probably use two or three.
The final question. This investor is referring to you as the Buffett and Muncher of Manchester. So well done. And can you give us any idea where you see the company in the next five years?
I think pretty much the same, but just a bit bigger. So if you asked that question five years ago, five years ago, we were turning over about £75 million and making about £7 or £8 million. Today, we're announcing our full year results at £240 million and making EBITDA £40 and pre-tax profits of mid-30s, I'm guessing. I don't know, early 30s. So if you roll back another, if you look forward another five years, I would see the similar, hopefully, the similar sort of trend. But again, as you get bigger, it gets harder, right? It also gets easier as well in some ways, but gets harder in terms of the percentage growth gets harder. But your opportunities become more as you get upscale.
Thank you both for that really helpful response.
When we did the IPO, didn't you say you wanted to do £50 million EBITDA within five years?
I did.
It feels like we're really on, we're actually on track for that. I feel very doable.
I also said by then we should be worth one billion.
Yeah. Well, that's why I didn't want to say that bit, but yeah.
The bit I can control is the bit of the profit, right? And controlling the market cap, that's not down to me, unfortunately.
This is not a forecast. It's an ambition, but it's good to see the fire is still there. So listen, thank you both very much. We'll look forward to an update in another six months.