See who announced their results this morning. If you have not seen it already, you can find a research note with forecasts on our website. The purpose of today is to hear from the management team and ask some questions at the end. Again, feel free to submit questions as we go through. For now, I will hand over to Sandy Chadha, CEO.
Yeah, hi, thank you for that, Hannah. Yeah, actually, I'm going to hand over to Suzanne, for a change. So if you make the introduction.
Good afternoon, everyone. As a reminder, we're Supreme. We're a manufacturer, brand owner, licensee, distributor of what is now becoming an ever-growing range of fast-moving consumer brands, spanning anything from torches to tea bags and vapes to vitamins. Any consumer good is something that we would consider. The business started out in the mid-1990s with batteries and built up an extensive customer list across discounters and supermarkets. Over the past 25 years, has scaled and added incremental product verticals and brands that we see on the next slide. If you want to move to the first slide, Hannah, thank you. Each time we've added products and brands and verticals, we've leveraged the same resource base, the same warehouse, the same sales team, the same finance team, etc., that was originally enlisted to service just batteries. Each time, selling to the same customers.
Over that same period, we simultaneously began to step back into our supply chain and become increasingly vertically integrated, starting with basic manufacturing and now, more recently, flavor development. That business model is what we know as our vertically integrated platform. That is really what Supreme represents. That is what really stands us apart. As I said, we have acquired a couple of businesses this year, and that has meant our original structure of five categories became seven. We concluded that actually seven categories, even just to take you through all of those today, becomes a little bit unwieldy. It is too much to talk about. It is too much detail. Also, we have reflected some of that consolidation internally into our business and how we manage and measure these categories.
Also wanting to make sure we're not giving our kind of competition a head start by sharing such granular data about revenue and, more specifically, margin. As you'll see here, what we've done this year in our results is we've consolidated those categories into three. What was previously known as our vaping category and our branded distribution category, collectively, they are known now just as vaping. Our sports nutrition and wellness category has now been added to our recently acquired Clearly Drinks and Typhoo Tea. That becomes our drinks and wellness category, all of which share kind of some commonality around the innovation and new product development that we're doing and also a shared management structure as well. That makes much more sense for us.
Our categories of batteries and lighting that we talk about less and less, and we've signposted for a while that aren't really very core now to our growth strategy. We have consolidated those two together, and we'll talk about them as a collection as we go through the presentation. Three categories. We'll still disclose revenue and gross profit for each of those three categories, but it's three and not seven.
Yeah, so here we are. Our biggest range of customers. We have over 50,000 retail outlets across all different sectors. We pretty much have people that know Supreme know how sort of widespread we are in terms of a distributor. I'm going to sort of move on to the next slide, if that's okay. Our people, you know, we only oversee Suzanne and myself, and we've got a great team of people that actually mean that I can spend a lot of time looking at M&A and growing the business and very little time dealing with the day-to-day stuff and saying we like Suzanne. We've added Rick recently. He's going to look at automation AI in our business and already started to make a difference in his second week.
Yeah, we've got a good team, and we're going to make sure that these guys are fully motivated to drive this business to the next level. Our platform, people have heard this many times, but we have a shared overhead base. You know that's one of the reasons we can take a business like Typhoo Tea, put it onto our platform, and be profitable within the first quarter. I mean, very few companies can do that. Just, you know, that business we bought had 12 years of extensive losses. In the first three months, we've been able to put it into our platform, reduce the overheads, leverage our customer base, leverage our distribution, and all of a sudden, we've got a loss-making business that's a profitable one within a few months.
This formula, we've done it, I think, probably over 20 times in the last 15 years. I think we've done about six or seven since IPO, maybe more. This is our, I would say, our strength and our sort of unique part of Supreme. I do not know, other than companies like maybe Procter & Gamble or Unilever, I do not know sort of companies at our level, at our scale, that do this. There are not that many. You would not be able to find many that I have seen on the listed market anyway, at least. Our distribution centers and warehouses and manufacturing, these are all the sites that we have, I mean, around the U.K. and abroad. The main thing to take away from here is that we are not just one place in Trafalgar Park. We have got distribution sites and manufacturing sites.
I think there's six different product categories we actually manufacture ourselves now. This gives you a scale of, you know, I think we've got 750,000 sq ft of space here for warehouse distribution and manufacturing. Thanks, Hannah. Thank you. Over to Suzanne.
Yeah, so financial highlights. We'll come back and revisit this as we do a deeper dive into the categories and also take a look at the income statement. The headlines are here. Revenue is up 4% year on year, driven by our acquisitions, but also some core growth in our business as well. As a result, our EBITDA is also up. It's up 6% to record levels of GBP 40.5 million. As we sat here this time last year, analysts were giving guidance of around GBP 36 million. Of course, we've done the acquisition since then. Even with the acquisitions on top, we have over-delivered on the EBITDA targets that we set ourselves and that we managed with you guys this time last year. We've also grown gross profit as a percentage of sales. Last year, gross profit was 29%. It's now 32%.
That is really a nod to some of the things that Sandy was showing you on the previous slide around our manufacturing capabilities, which have really extended, A, by the acquisitions we have done in the year, but just generally and internally in our business. Also the scale and the efficiencies that we just continue to drive year on year as a result of the top-line growth. Also, from a kind of financial highlight perspective, we have ended the year positive net cash, which, given we have invested GBP 25.5 million in acquisitions, is quite an achievement. We have announced a dividend this morning of GBP 3.4 per share. That is 10% up from the year before. Across the board, a real clean sweep of positive financial metrics. We will move to operational highlights.
It's also been a very busy year kind of operationally, as we've touched on already, and we'll come back and revisit. We've acquired two businesses in the year: Clearly Drinks, the soft drinks manufacturer, and Typhoo Tea. They are both very, very important strategic acquisitions for Supreme, namely because they fit the criteria for M&A perfectly. Both of them did. They were both earnings-enhancing from the start. They both allowed us to diversify revenue across our portfolio. They both provide products and brands in which we have the opportunity to distribute into the wider Supreme customer network. They both were either an existing manufacturer, as is the case with Clearly Drinks, a very accredited, highly automated, best-in-class manufacturer, actually, or presented the opportunity to manufacture in the future, which was more the case for Typhoo Tea.
Three months after we acquired the business, we returned the business to U.K.-based manufacturing, and we opened a plant in Gloucester. More specifically for Typhoo, we also recognized that that business could be operated from and run by the existing resource base, that shared platform of resources that Sandy was just talking about from here in Manchester, meaning that the gross margin that the business generated would largely return as net margin. Now, other than a handful of individuals who demonstrated kind of real deep sector knowledge about the tea industry, which, of course, the pre-existing Supreme business did not have, other than that, the rest of the business is operated by pre-existing resource from within our business, which means the return to profitability was almost immediate, was overnight. Two very successful earnings-enhancing acquisitions to add to our portfolio.
More generally, we've invested in the business from a manufacturing and a distribution capability as well, which will really set us in good stead for future growth and future scale, most notably the relocation to Ark. You'll know that when we talked to you this time last year, we already talked about the fact that our warehousing operations moved to our new distribution site, which is the photo you see on the bottom right here. Now so too have all of our office staff moved. The offices are brilliant. I can say that we sit here and we operate from here every day. We've got the best audio-visual equipment, which makes meetings and collaboration just so much easier. We're really proud to show all of our customers and our suppliers.
In time, it will no doubt help with retention and recruitment of our people internally as well. That was great to get that over the line in FY2025. Finally, we have refinanced all of our borrowing facilities. You will know that we do not tend to use much of these facilities, but it is nice to have them there on tap should an acquisition or an opportunity to grow present that we want to move quickly on. That is really a nod to our continued commitment and appetite for M&A or investment into the business. Oh, you are on mute, Sandy.
Sorry. It's a good way around. Yeah. So our vaping business, which is our, you know, sorry to say, about just over half our overall business. If you look at it just on the graph, it looks like we have gone backwards this year. However, there are two things to consider. One is that the vaping ban came in place 1st of June. In May and even some parts of April, we did not sell any sort of disposables or very little pods at that point because it was a transition and retailers were destocking and reducing their levels of stock. We probably missed about six weeks of sales, which is reflected here. The core business, the core 88vape liquefied business contract, I think grew about 6%. The core business grew at 6% over here.
Now, looking at the business, you can see this year, however, we've seen the transition. We have two things to consider. One is the disposable ban, which is now gone, and we have very little stock in our warehouse. The only stock we have is returned from customers, which we will export or give back to the manufacturers and get our money back for that. The other thing is we've moved into the new pod system. Now, for the first few weeks, the first few weeks of the ban after the ban, the first few weeks of May and into June, we saw a huge uptake of, number one, pipe fill into these customers. Secondly, we saw them selling a lot of kits. In the last few weeks, we've seen the sales of kits decline, and we've seen pod sales shoot up.
Overall, the volume actually is probably not dissimilar to what it was before the ban. The volumes of the sales between the two are very similar. However, there are two pods that you get for one kit. Basically, for a GBP 6 price point, you have now two pods, which is 4 ml. Basically, you're getting twice as much liquid for the same price. We actually are selling more liquid in the branded distribution side of the business than we were before. Overall, we believe that the trend is going to go more towards pods and less kits. We'll start giving more space to pods in the next few months if that trend sort of continues, which is absolutely fine.
To be honest, we did not know which way it is going to go, whether people buy the new product and throw it away or whether they buy it and get a pod. It looks like they are doing two things. One, in the independents, it looks like they are just buying the kits. In the actual multiples in the supermarkets, pod sales are definitely level or pegged to the kits now and are growing. The first half of this year, I believe, will be very strong on our vaping category and probably the same as last year. It is the second half of the year where we are not sure, and we are not sure where it will end up because it is just too soon to say.
If you remember when we first did the branded distribution and we launched into our health bar, Lost Mary, we said in our first RNS, we'll do GBP 8 million or GBP 10 million revenue. We ended the year at GBP 50 million. You know, that just gives you some idea of we are always super cautious, and we always know that we're running so many different products and verticals in this business that there can be good things in some areas, and sometimes things can go negatively in other areas. We just have to take that view as well. This is more the vaping side. The good take home here is that no customers have lost. The transition has gone superbly well. The core business is up 6%, and the volume is the same as it was before. This may change.
When I say something, and I'm saying it as I speak today, I'm looking at the latest information. In a month's time, things could be different, but I am saying as I know the information from now. Moving on to the next slide, if you don't mind. Just on the vaping, actually, I didn't finish off the tax side of it. That will be October 2026. There will be a tax of GBP 2.20 on a 10 ml and GBP 0.22 on a 2 ml. It is GBP 0.22 per ml. Sorry, GBP 0.44 for a 2 ml kit. Basically, the price of the liquid of a 10 ml is going to go up considerably. If you think our 88vape is GBP 1.25 retail, if we stuck with a 10 ml bottle, that would add another GBP 2.20 on top of that.
This is something that is going to probably come in play by March, probably, I would say it's going to be around about March 2027. October 2026 is when the tax will start, and there will be probably a six-month period before it's implemented. We're looking at March 2027. Yeah. How will that play out? You can only look at Germany, Belgium, and other countries. Over there, it doesn't seem to affect the sales of either the 10 ml liquid or their pod or disposables, which are not banned in some countries. Moving on to the drinks and wellness. This category has had two acquisitions, and that's one of the reasons why it's up to GBP 49 million. However, the Cymex, or our main wellness category, did grow GBP 1 million in this area.
We are still growing organically as well as the acquisitions that are coming in. This area, we've got other M&As possibly planned, depending on the outcome of our investigations, but it's an area where we are considering strong M&As, a similar sort of price level of what we've done in the past. Quite reasonable profit enhancing if we do buy them. That's where Supreme come into effect, you know, is the M&As that we integrate very effectively without going to shareholders for lots of money. This area is, I want to come on to manufacturing next, but this area is pretty much, all of it is manufacturing. You know, the drinks, the tea, the protein powders, it's all manufactured by ourselves across about three, four different sites. Next slide. Yeah. The electricals. Here we combine the batteries and lighting as one.
You can see it's gone backwards. The main reason for that is the lighting. Light bulbs are actually becoming cheaper and cheaper all the time. They're lasting longer. They are, I think, at a bottom end now in terms of price point. I don't think you can go any lower than GBP 0.25 for an LED bulb. I mean, when we first started selling these, you know, 15 years ago, they were at GBP 5 a light bulb. When we floated at AIM in 2018, I think they were about GBP 1 or GBP 1.20 for a light bulb. They're now at GBP 0.25. You know, considering the demise in raw material prices of bulbs and the longer they last, you know, this is a cash cow still, but not growing. It's probably going to stay at this sort of level or decline in the next few years.
It is a relatively small cash generation, small, sorry, revenue and gross profit compared to the rest of the business. For example, batteries is only combined around about 10%. The lighting is higher, but obviously that has been a bit more in decline. That is pretty much the lighting division. Obviously, I am happy to answer any questions on that later. If you look at our sort of manufacturing on Clearly Drinks, we have bought a business that had four lines. In the first year, we have added another two lines. These two lines are pilot lines where we can now make a lot smaller MOQ products for private label for people, but also for our own brands. We have got so many things in test at the moment in terms of shelf life testing.
I mean, we've never manufactured drinks before, but one of the things when you make a new drink, you've got to send it off for micro testing for any bacteria, but also testing for any shelf life. Once it's past that, you can go into full production. How that works is one week of every accelerated shelf life test is one month. To get a proper gauge to have 12 months shelf life, you need three months. That's one of the reasons why the delay to launch these, because the MPD is ready, the packaging is ready, the design is ready. It's just a frustration around we waiting for a lot of these trials that we run and then tested. We've got the Juicy Protein now that's ready to launch. That's been tested and passed.
The Typhoo Iced Tea is in its fourth week of testing, and it's passed so far. The Roll of Cola is on the shelves in Home Bargains now, and I think has sold an incredible amount in the first week, higher than we were expecting. You can see that on the shelves. The Fruit Aqua, which is in Home Bargains, is on the shelves along with the Perfectly Clear Flavored Water in B&M Bargains. We've had a combination of things already going out there. You know, this business is, a lot of it is contract manufacturing without saying any names because a lot of it's NDA, but they are multinationals. A lot of that business is on and off and on and off.
We're trying to get away from that on-off business into brands we own or brands that we make for or retailers that we make for. If we make for retailers or we make our own brands, the on-off switch will not happen as much. We are hoping that in the next two, three years, we will see that the rest of our production factory will be made up with brands that we own or brands we make for retailers rather than contract manufacturing for another brand owner. Overall, really happy with the performance. I do not know if Suzanne's going to go for the figures, but she'll highlight these, but they have performed as well as we thought. We've only owned the business for, I think, 11 months now. I think it's our 12th month this year.
Yeah, we've only just under a year now, and we've made an incredible amount of changes in that first 12 months. Okay. Typhoo Tea. Yeah. This is our acquisition in December. We've done what we've done in six months. Okay. What we've done, we've now manufactured ourselves in Gloucester. We have streamlined the range, got rid of the fear-free, and into a new blend that we're going to have across our whole portfolio. We're going to have a slightly stronger tea bag or slightly more tea for supermarkets and a slightly less one for discounts and the value channel. MPD-wise, we've brought an iced tea, which we are putting free in every box. We've got an order for six or seven containers for retailers to trial that. We've also got listings for iced tea if it passed all the tests in January in two retailers.
We've also reduced the number of heads. I think we have four people in Typhoo now. We had 40. We've streamlined the warehouse and did the distribution. We've pretty much overhauled the business. In seven months, it is now a completely different-looking business than what it was when we bought it. Suzanne will maybe share more light on that, but it is definitely profits or enhancing our bottom line this year now going forward. Yeah. If you think of all the things we make, we make vitamins, meal replacements, protein powders, nicotine pouches, baby tea, soft drinks. They're all the things we manufacture. If we go back to IPO, it was just nicotine liquid and protein. They were the only two things we made. Protein, by the way, we only just started maybe two years before the IPO. It is very, very new.
These are also like our main sort of areas of growth, the health and wellness, hopefully tea and soft drinks. Okay. Now we move on to the e-commerce. Yeah. I mean, we do not really talk about much, but we have through our website, Supreme Offers, and also through our online website. Managed by a very competent individual called Dean Lee. He manages pretty much the whole e-commerce side. This is up to now GBP 24 million in revenue and has grown well. A lot of it, we do not pay for acquisition costs because a lot of it is servicing customers. When they see our products in the store, they go on the website and they then extend by the extension of the products that is available on the website.
For example, if you're buying 88vape in a store, there's not enough space to display all the flavors and strengths. Sometimes retailers will go on to stores, buy there regularly, but then enhance their purchases by buying at our website as well. We have over 200,000 regular customers on our 88vape.com website. The business-to-business website does over GBP 12 million a year, and that's servicing our smaller sort of wholesale retail customers. Moving on now to the financials. It is you, Suzanne.
Yep. Thank you. What you're looking at here is a copy of our income statement for this year with last year's comparatives. As we've mentioned already, revenue is up 4%. Hannah, would you mind just flicking forward to the next slide? We'll come back to this in a second. Here we break down that revenue growth.
This is just really reaffirming what Sandy had said earlier. We can see that the electricals is down 6%, which we've talked about already, owing largely to the ongoing decline of our lighting category as a result of price deflation. What we've done here is we've just split out that vaping category between the disposable vape and then everything else. The disposable vapes, as Sandy said, started to slow down after Christmas and more notably as we really need the ban date in June. It has meant that year on year, disposable vape revenue fell 23%. A real conscious move away from those sales to manage stock down, help our retail customers manage their stock down, meaning that there was no kind of car crash coming on the ban date.
More importantly, our core business of vaping, so our 10 ml business, our prison contract, all of those key elements for growth, they grew in the year. They grew 8% year on year. That was a really pleasing result. Drinks and wellness doubled. It is really hard to see there that actually GBP 25 million of that was really down to acquisitions and there was a GBP 1 million underlying growth from the core. That was really the mix of how the revenue was built up. If you flick forward one more slide, Hannah, this is really just the same data but presented as a bridge as opposed to just narratively. Again, you see the big tick up for acquisitions and the big tick down on disposables thereafter, the underlying core business has grown.
If we then flick back to, sorry, Hannah, to income statements, we can call out here the gross profit as a percentage of sales that I already mentioned in the highlights. That has increased year on year due to our increased propensity for manufacturing, but then also just scale right across the business. That has also added. We have so many different categories now that the mix of sales can really influence gross margin, but 32% I think is our highest to date actually. Yes, scale increased manufacturing. There has been an investment in the overhead base of almost GBP 8 million, but most of that, almost GBP 6 million of that was in respect of acquisitions, almost all really for Clearly Drinks. The overhead base required to run their business.
It's a standalone business based in Sunderland where their boreholes are into the ground to extract the spring water. We have no funds to move that or consolidate it into our shared platform. It's a profitable business on a standalone basis, always was. We've spent a little bit more on advertising and we've spent some more money this year just keeping up with the rates of pay increases and inflation and also just invested a little more heavily in our management team. As it says here, adjusted EBITDA are up to 40.5%. I think we've looked at the segmental already, so I'm going to skip past that. Adjusted EBITDA, as it says here, we moved from GBP 38.1 million last year up to GBP 40.5 million. The biggest contributors are the acquisitions, which we've talked about, and also this incremental gross profit we've had from the core.
Not just the incremental sales, but working smarter with the existing business to get better rates of return. That is why we see an extra GBP 2.5 million of GP from the core business. In the other direction, those pockets of investments that we have seen in people and advertising. If we then move on to the balance sheet, the balance sheet year on year looks quite different actually, particularly at the top half. A greater weighting towards machinery and that property, plant, and equipment line. That is no surprise as a result of the acquisition of Clearly Drinks and also Typhoo and also investing into our core businesses' manufacturing as well. That is where when we see the CapEx outflow in the cash flow, that is where we see the result of it in property, plant, and equipment.
Similarly in intangibles, again, that relates directly to the IP and the brands that we acquired through Clearly Drinks and Typhoo. The only other thing I wanted to call out on the balance sheet was the increase in stock. It is a GBP 12 million increase year on year. If you know Supreme, you know that we run a really tight ship when it comes to cash. I thought it was just worth explaining. Some of this is acquisition. Clearly Drinks carry stock, Typhoo carry stock. Also, if you think about the timing of the transition out of disposable vapes into pods, our warehouse was full at year-end in terms of building up stock of pods and kits so that we could then begin selling them through those pipe fill orders that came through in April and May.
The final sort of GBP 4 million of that increase is really temporary. I would expect that to come back down with everything else staying equal in FY2026. Finally, onto the cash flow. I think we've said already this business is cash generative at certainly an operating level. It takes modest amounts of working capital to continue to finance growth. We've got to pay things like our tax. We've got to service our dividends. Like I said, we've invested in CapEx in the last couple of years.
Even after all of that and the M&A, which as I said was GBP 25 million, we've still ended the year on a positive net cash position, meaning that if you combine the cash we have on the balance sheet with the facilities we have, we have an extensive capacity for M&A or financing any other kind of organic growth, product innovation, whatever that might be. Having that on tap means that we can move very, very quickly. Particularly for M&A, that comes in very handy. It puts us in a real competitive position when it comes to buying new businesses.
Yeah, very proud of the kind of cash performance of the business, even investing in the office fit out, the agile pilot canning line that we've seen at Clearly Drinks, which Sandy mentioned, which really again sets us apart from the competition and our early investments into tea manufacturing that we'll really see in FY2026. If we then move on to investment highlights. These investment highlights do not change year on year. The basis upon which Supreme grows and the criteria that we set ourselves for M&A and the values that we live by, they do not change. It's just the component parts that change year on year.
Just to kind of remind people of this unrivaled business model that we talked about at the start, this shared overhead base and this ownership of our supply chain by doing increasing amounts of manufacturing and because we do it all at such scale means a new entrant into the market, into any of the categories that we're operating, just simply couldn't compete. We own the brands and we manufacture a lot of the brands that we work with. That means that, again, the retailers have to buy it from us. They can't negotiate on price and say, "Well, they're going to buy their Cymex protein powders elsewhere because we own that brand. They can only buy them from us." That just gives us a better position. That's really one of the drivers for the constantly expanding gross margin %.
We talk every year about strong financials. This year is no different. The ongoing increasing amounts of revenue and EBITDA and cash contribution. You saw our slide earlier on our what we'd like to call is our high-quality management team. It is not just Sandy and I. There is a real mix of individuals right across our business, whether it is in management roles or elsewhere, that help drive these increasing rates of return for our investors. Our M&A strategy is well verbalized. We talk about it a lot, this need and desire to buy businesses that have their own manufacturing or potential for manufacturing that own their own brands that we can sell their products to our distribution network. That criteria is something we stick by and we are very strict with.
Because we have this backing of our financing, we're able to move really quickly on the right opportunity, which often puts us in the driving seat. Diversification is the last thing I just wanted to cover. We are diversified in the customers that we deal with, the products that we sell, the brands, the routes to market. There is no major macro factor that really rules our business. Yeah, we can talk about the movements in freight rates and the movements in the dollar or the movements in key commodity prices. All of those affect our business, but none of them so substantially that they keep us awake at night. That diversity really helps to de-risk our offering. Finally, onto Outlook. As Sandy said, we've made a really positive start to FY2026.
Q1 was where we knew we would get a we would form a much greater understanding of that transition out of disposables into pods. As it stands now at the end of June, that pipe fill period has gone better than we could have expected. We are in a really great position to take the business into the next three quarters in terms of the transition to pods. We are still saying that we are trading in line with current market expectations. I know those expectations for FY2026 and FY2027 have not really moved. It would probably look like we have not revisited them for a couple of years, but I can promise you that we did as part of this process.
It would appear that actually the markers that we have for FY2026 currently are, whilst baking in an element of caution, which we always would do at this time of year, feel like a realistic place for us to aim for. As I said at the start, this time last year, we talked to you guys about a GBP 36 million EBITDA target. We went on to deliver GBP 40.5 million. I think if you were to track back and do the same exercise the year before and the year before that, it would be a similar position. There are some headwinds that we need to contend with. Poundland is one of our customers. We've got lots of change as a result of the disposable vape transition. We've got two new businesses that we're still getting to know.
I think anyone that was not exercising caution at this time of the year would be maybe a little bit reckless. We are really excited about the developments that we have made in capacity and capabilities of our manufacturing. As I said earlier, that will stand us in good stead for growth next year. Our M&A pipeline continues to be busy. We are looking at all sorts of businesses right now. Nothing is kind of off limits. We have continued to have the support of HSBC in order to finance some of those if we need to move quickly. We are in as good a position as any. Sandy, do you have anything to add to the outlook?
No, I just think the first, not only the first sort of full year, three months in, we should be very cautious.
As the year goes on and on and on, if business goes to plan and things go as we hope, then we'll be more confident to doing more. There is absolutely no advantage for anybody to try and second guess what's going to happen in eight, nine months from now. We just want to be sure that what we're delivering, we can deliver and more.
Thank you both very much for that overview. We've got a number of questions, so let's make a start. What are international plans and how will these be reported? Will vaping sales in Spain remain there, be reported in the vaping category, and tea in India in the drinks category?
I think so. That's what we plan for, isn't it, Suzanne?
Yep. Yep. Spain is vaping, so that sits within vaping. What was the other one? India tea?
India tea.
The license that we're looking at at the moment in India.
Oh, okay. Also, if we have something to report there, yeah, that would come under tea. International generally, this has always been a very U.K.-centric business, but actually some of the M&A that we're looking at the minute has some international elements to it. That might be how the business moves into foreign territories rather than setting up something from scratch. As we say, a lot of Supreme things change here really quickly and nothing is ever off limits. For the right opportunity, the right products, the right markets, then that's something we'd absolutely consider.
Okay. This is a comment on our forecasts and the fact that we've got vaping down this year and a little more in 2027. Why is that?
If refillable pods have twice as much liquid, why are you selling them for the same price?
Let me just explain the shift from 2025 to 2026 to 2027. FY2026 is virtually a full year of pods. What we anticipate is a transition of volume from disposable vapes into pods, i.e., the average consumer on the street that was vaping a disposable should, and the e-post date that we have had in the last few weeks is backing this up, is that they should by and large move to the rechargeable equivalent. From a volume perspective, we should be unaffected. The downside, however, is that when you vape rechargeable, you buy the kit once or once every few weeks or months, and in between, you are only buying the refillable pods.
Whilst, yes, they contain or two pods will contain more liquid, their retail price is much lower. Pound for pound, even when volumes stay the same, our revenue will drop. Now, we can sell more. There are other products we can sell. The kind of the bigger puff devices is where this might swing the needle and actually the gap might not be as marked as we are initially anticipating. Like for like, revenue should fall if the maths work. What we get in FY2026, however, is the benefit of pipe fill, which is the one time when retailers across the board are taking a product in for the first time. They are filling up their distribution centers, their stores, their shelves, and they will buy three months' worth of stock in a month.
For FY26, we'll get the benefit of a real spike in sales in Q1. In fact, I'm talking like it's in the future. It's already happened. We've had a very, very buoyant Q1. When we get into FY27, however, all we'll have is the full year sort of annualized normal monthly sales. We see the step change from disposables into pods in two steps, and that spans two financial years. FY27 is today where we very—and by the way, that's a year and a half by the time we get there, by the time we finish that year. That is our cautious view now of what the equivalent disposable vape revenue will be worth. As everybody knows, and we keep saying, we don't sell still for long.
That assumes no kind of significant levels of organic growth on top of that incremental brands that we could distribute, businesses we could acquire. So it's cautious, cautious, cautious.
Okay, thanks. When Typhoo Tea was acquired, the RNS said you expected to be able to do 30% gross profit in tea. Looking through the accounts, Typhoo didn't achieve above 15% over the last few years, often considerably less. Is the 30% still achievable? And has this increased now you are manufacturing in-house?
The 30% is absolutely achievable. And we would expect once we are fully scaled in manufacturing and we're manufacturing all of the black tea ourselves, we expect to be at least 30%. So it's absolutely achievable. Why couldn't the previous owners do it and we can?
You could say that about any part of our business because we're more efficient, we're more focused, we're leaner, we're smarter, whatever that, however we describe that. We wouldn't commit to doing something if we didn't think that we could deliver it. We'll definitely get to 30% gross margin now in manufacturing.
Okay, thanks. In which division are cleaning products now?
In drinks and wellness. It's a good question, actually. I should have signposted that at the start, but it's now quite small. It's not even really worth picking up on. It's kind of 4-5 million now as a run rate business. We moved away from a lot of the low margin items last year, maybe even the year before. It's a much more condensed category, but of higher margin janitorial cleaning solutions as opposed to being a more generic offering.
That sits within drinks and wellness on the basis it did not really live anywhere else.
Okay, thank you. Can you update us on the Spanish operations?
Yes, it is going fine as we expected. They turn over about EUR 800,000-EUR 1 million a month. They are distributing Elf Bar, Lost Mary disposables. There is no ban in Spain. It is run very low cost from our perspective.
The only interesting thing whilst we bought that business is it actually had the tax implemented while we were already buying it six months before. Now we are three months into the taxes. The volumes have not changed at all. This is unexpectedly the same in terms of the number of volumes. We have not been decreased because of the tax, which gives us reassurance, hopefully, in 18 months' time that it will be the same.
Okay. I have got a couple of questions here on nicotine pouches.
One just asking whether the growth is a concern, if that induces people to reduce vape consumption. Also, can you provide an update on 88 Nick alongside that?
Nicotine pouches are still very small, generally, in the U.K. I mean, it is dominated by two brands, Velo and Nordic Spirit. Overall, it is relatively small for anyone outside those two brands. It is still there, and it is still growing at a low base. We have not really put anything in our forecast for it, really. We have not really forecasted that it is going to do millions and millions of GBP because we were not sure how it is going to go and how the consumer is going to buy the product. It is growing, but from a very low base. We have now a machine that is able to do about 10,000 units a day on one shift.
We have that in place ready to go, and we can grow on that if it does grow. However, we can grow after private label in Europe if we do some trade shows and get some private label contracts. Or we can just use it in a view that it could grow if there is a big change in vaping. We are there ready to go. At the moment, it has not seen the growth signs that we would have anticipated. That is just where consumers are at the moment.
Okay. Why was tea manufacturing not set up within ARC? Why choose Gloucester given its distance from the Supreme Distribution Hub in Manchester?
That is a good question. ARC with Paul, there is nowhere to go in ARC.
It is a warehouse. It is not a manufacturing plant.
You can stop putting a manufacturing plant in a warehouse distribution center. You'll have all sorts of health and safety problems. The reason we bought it in Gloucester is two reasons. One is it was actually already being manufactured there by a third-party manufacturer. We've taken over the site and the business and two people over the staff. We've taken it as a going concern. It made sense that it was taken over as a going concern. It's in Gloucester. Funny enough, it's actually in the old Cymex warehouse that we bought and cleared out. This is completely coincidental four years ago. We know the site and we know the location, but it's only because it was already set up and it's already there.
Okay. Sticking tea, was the GBP 1.2 million ransom payment Typhoo suppliers anticipated before you acquired Typhoo?
If you buy a business in three days, it's very hard to know what you're going to pay afterwards, right? If you ask me again, I would have paid double.
Fair. Prior to Typhoo entering administration, there was talk on media of the taste having been lost as a result of the number of suppliers having been reduced from 300 to 3. What, if anything, have you done about this?
In terms of the garden, one of the reasons for failure is because they only went to three gardens that were not just ethically sourced, where it was a different level of source to do with women and women's rights. That meant that the prices they paid were extortionately high. We said we wanted to be Rainforest Alliance. We want to be the other accreditation Suzanne will tell you in a minute.
Ethical.
Yeah. The other accreditation we have is,
oh, Ethical Tea Partnership.
Right. And so basically, we've got the ones that all our competitors will do. So we are on par with all our competitors and not being above that or below that, but on par, which meant that we can open up our number of gardens, which meant that we can open up a better price supply chain, which helps maybe the 30% margin we're talking about earlier. I'm not sure.
Okay. What level of organic growth can we expect from drinks and wellness? And what is a likely mix of price versus volume?
Oh, goodness me. What should we commit to? I'd say we'd like to see that category grow 10% year on year. Next year, of course, we've got the annualization of the businesses we've acquired, so we'd expect more in the immediate.
There's lots of opportunities, as Sandy said. There's lots of brands, there's lots of licenses, lots of customers as excited as we are that we're now a drinks manufacturer. We just need to see how much of it sticks. If we're not growing that category at 10% for the next couple of years, I think we would all be disappointed.
The comment on price versus volume?
I think all three is through volume.
It is, actually.
We're not going to increase our revenues by putting up all of our prices on all of those soft drinks. That's not really our approach to anything.
Yeah.
What proportion of sales did Poundland account for, and are there any bad debts associated with them?
There's no bad debts because they've not gone bankrupt.
I understand they're doing a restructure, and we understand that restructure is going to be successful, which means then they will be in a stronger position than they were before and making money. There's a balance in that. Suzanne will tell you there's a balance in that between supplying and also being wary of the debt, of the bad debt, if there is one ever. So we've got to that balance. Maybe Suzanne share it.
Yeah, it's exactly that. We're trying to balance the commercial risk of losing revenue and profit every week if we were choosing not to work with them versus the credit risk of having credit, which no insurance will, no one will insure you on now. And so having that credit risk. I think we've struck the right balance. We are supporting them. We are talking to them weekly.
We have been very kind of connected to them whilst they have been going through their sale process. We knew about that. I think where we have got to is that we are supplying them two-thirds of what we would be supplying them typically. We are managing and mitigating some of the risk whilst also knowing that there are really big retailers. For every month that goes by that we do not supply them, that is lost revenue and profit for us. I think we have got the right balance. If the business were to go under tomorrow, would there be a bad debt exposure to Supreme? There would. As we stand now, the revenue and the profit that we have made in the five and a half months since we lost our credit insurance has more than made up for the exposure that we have today.
I think we're making the right, we're striking the right balance.
Okay, question on drinks experiments. How do you minimize risk of damage to results from failed experiments? And can you talk about how much each experiment costs if it goes poorly?
Yeah, no, it's not a lot of money. I mean, our water supply is completely free. It comes from beneath 70 meters below. An experiment that goes wrong, a couple of grand time, and that's it really. It's more just annoying that we can't launch. It's insignificant the amount we would lose on trials that don't go right.
Is Supreme looking to invest in any other segment? And what is your ROI target?
Yeah, ROI target, the two to three years to be paid back would be an ideal target. If it's a much better business, much better strong growth business, then obviously five, six years.
If there are other categories, yeah, there are other categories we are looking at, which are interesting. I think we have got maybe three or four offers on the table out there. Not saying they're confirmed or done. There are offers that we have placed to buy businesses and being considered.
Can you talk us through your divisional manager's post-reorganization?
Which division, sorry?
I imagine now that you've split into the three, perhaps.
Nothing changes in terms of that side, does it really, Suzanne?
No, we're still a category and product expert that's leading those individual categories. What we've done, however, is consolidate and streamline some of that oversight. As I said before, the drinks is probably the best example.
The hot drinks, the cold drinks, and the wellness all mix through innovation, whether it's through shared customers, whether it's because the soft drinks manufacturing part of our business is making a drink in order for the wellness guys to sell it. There is oversight for one manager across all of those elements. We have still retained the deep sector knowledge of every single one of those product owners. We do not plan to move that at all.
Okay. Follow up to Poundland. If you were supplying Poundland 100%, how much revenue would it account for?
It is in our top 10. It is our top 10 customer. In terms of revenue, I do not know whether we should share that, Suzanne. It is up to you. You want to, you can do. If you do not, it is up to you. I am not sure it is the right thing to do on this.
No, I don't think it's appropriate.
Yeah. But it's our top 10 customer. Yeah. And I can do.
Thank you. Another follow-up on nicotine pouches. Is it not possible to compete with Velo and Nordic Spirit given that they expect huge growth in the U.K.?
I mean, our prices are theirs. Yeah, I mean, it's already trying to compete. It's just that once you are used to a brand in this industry, it's really hard to get lots of change. I mean, we probably are better focusing on trying to sell these nicotine pouches in other countries like Scandinavia or places where it's really strong. In this country, it's going to get regulated as well. I promise you, if it does take off and the consumer is an upturn, we'll be there. I mean, it was in Home Bargains. It's in B&M Bargains. It's in Heron Foods.
It's in a few of the big discounters, but the rate of sale is not as good as we would have hoped.
Yeah, we're not seeing that it's any serious threat to any of the vaping products that we sell. It sits alongside it on the shelf, but it's not something that's keeping anyone awake at night.
Are you happy with the growth rates with Cymex?
Yeah. No, I mean, we bought that business for GBP 1 million, and it was turning over about GBP 6 million. And now it's turning over GBP 10 million.
Okay, thank you. I think you kind of touched on this already, Suzanne, but some persistent questions on why guidance hasn't been updated in two years. Some comments around Sandy having said that this would be the case on a few other calls and why that hasn't been updated.
I suspect what Sandy said was that we need to go back and look at it because when we're trying to deliver FY25's numbers, we're a bit like, well, we'll talk about 26 when we get there. We have done that exercise. We've done a deep exercise with the analysts this time around. Actually, whether it was by chance or by design, the forecasts overall were not dissimilar to where we would have expected to be guiding people at this point in the year. It is not that we have failed to do it. We have gone through the process, and the result is the forecasts were probably reasonable. I'll keep saying the cautious piece is still there. Just bear with us.
I think that is largely the end of the questions.
That just leaves me to thank you both for your time and our audience for joining us. We will look forward to having an update in another six months' time.
Thank you.
Thank you very much. Thank you.