Supreme enjoys strong growth, but warns on current year trading

Sandy Chadha

Supreme, the Stretford-based manufacturer, supplier, and brand owner of fast-moving consumer products, reported a strong year of trading today, with both revenues and profits making good progress.

During the year to March 31, 2022, Supreme, which floated on AIM in February last year, saw revenues increase seven per cent to £130.8m, and pre-tax profits jump by 25% to £16.3m. Net debt reduced from £7.6m to £4m.

The group said sales growth was underpinned by new customer momentum and earnings enhancing acquisitions. Sports nutrition and wellness revenues grew by 132% to £9m and vaping grew by 10% to £4.1m.

The balance sheet remains strong with net assets of £32.3m, compared with £18.8m the previous year. Supreme also has a new £25m rolling credit facility with HSBC, agreed in March 2022, for acquisitions.

During the reporting period the group completed two acquisitions, in Vendek, one of Ireland’s leading distributors of batteries and lighting products, providing a cost-effective shelter from export challenges generated by Brexit, as well as the stock and brands of Sci-MX, a sports nutrition and supplements business.

The group said it expects to deliver another solid, profitable year in 2023 but revenue and EBITDA are both expected to be below 2022 levels and below previous market expectations, driven by a recent marked decline in the Lighting category following a slow-down in sales compounded by customer overstocking in 2022.

However, following discussions with its key customers the group believes this slowdown in sales and profitability will be temporary and limited to the group’s Lighting category.

Vaping, the group’s largest and most profitable category, continues to perform very strongly and is expected to deliver revenue growth of around 30% in 2023 – half of which driven by new product development, continued market growth and further distribution expansion and the other half from the Liberty Flights acquisition.

Management said it remains committed to investing in organic growth opportunities alongside pursuing an active acquisition pipeline, particularly in the vaping division. It also said the board has reviewed its capital allocation policy and believes that M&A can drive better rates of shareholder return compared with servicing its existing dividend commitments.

Accordingly, the board proposes to revise its dividend policy from a pay-out ratio of 50% of net profits to a minimum of 25% in respect of financial year 2023 onwards.

In spite of the short term trading challenges in Lighting, the board remains confident that the group has a long runway of growth ahead and is increasingly excited by the prospects for growth in the vaping division.

Chief executive, Sandy Chadha, said: “Batteries and Lighting have performed strongly and although customer inventory levels within Lighting will hold back our progress in the short term, I believe this minor setback should not detract from our operational progress to date.

“We are more excited than ever about the potential for Vaping. Our 88vape range is now well established across our discount channel and has now started to penetrate grocery and convenience retail as well. With increasing levels of government support for vaping, we expect the revenue growth to continue.”

He added: “Whilst there remains considerable opportunity for Sports Nutrition & Wellness, short term commodity price increases are expected to affect demand and profitability, although we have taken steps to mitigate our exposure. I am particularly proud of the results of both Vendek and Sci-MX which were both earnings enhancing in FY22 and seamlessly integrated into our core business.

“M&A continues to be a key feature of our strategy as we seek to complement our organic growth initiatives and remain confident in the group’s trading prospects for the current financial year and beyond.”

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