Supreme Group shrugs off disposable vape ban fears and raises forecasts

Stretford vaping company, Supreme, shrugged off government plans to ban disposable vapes and said the development provides new opportunities going forward.

Prime Minister Rishi Sunak’s proposals are aimed at the rising number of young children drawn to vapes, often in garish packaging with flavours such as bubble gum to increase their appeal to youngsters, amid fears of long-term damage to their health.

Shares in the supplier, and brand owner of fast-moving consumer products, including vaping goods, fell by around 11% yesterday (January 29).

But by mid-afternoon they had fully recovered and were more than six per cent in positive territory after its reaction to the Government’s plans, and publication of its latest trading update.

Earlier in the day Russ Mould, investment director at Manchester-based investment platform, AJ Bell, said: “Sales of vapes have grown in recent years, with numerous manufacturers and suppliers capitalising on the trend by offering more products in as many flavours and styles as you can imagine.

“Naturally, companies caught up in the Government’s clampdown face a sharp hit to earnings if there continue to be new measures to stamp out bad habits involving vaping among consumers.”

He added: “Effectively, investors are saying there is a major risk to earnings, whether it is from Sunak’s latest announcement or the general direction of travel by the Government to stop young people getting into the vaping habit.”

But responding to the Government’s plans, Supreme said in a statement to the stock exchange this afternoon: “As a business, Supreme welcomes this clarity and as a responsible business remains ahead of the curve, having already implemented a number of proactive measures, including narrowing and re-naming of flavours and tailoring packaging, as part of an ongoing commitment to eradicate underage vaping and continuing to support adult smokers by providing an affordable, sustainable, safer alternative to smoking.

“Supreme remains confident that vaping is, and will continue to be, the most credible and effective alternative to cigarettes. Supreme has an established suite of fully compliant rechargeable pod systems, produces over 60 million 10ml bottles of e-liquid annually and has already become a principal supplier to the UK Government’s ‘Swap to Stop’ scheme.

“None of these revenue streams are expected to be adversely affected by the changes proposed by the Government earlier today.”

Chief executive, Sandy Chadha, said: “Supreme is at the forefront of the UK vape market, consistently innovating and expanding our reach.

“The UK Government’s latest proposals, many of which Supreme has already proactively embraced, support our strategic direction and focus.

“As a responsible vaping supplier, we welcome changes that help prevent underage vaping and will work with our various stakeholders to work through the proposed legislation. Our early initiatives and strong customer partnerships are testament to our resilience and long term vision.”

The group released a trading update on its nine month period, ending December 31, 2023, this afternoon.

It said it has delivered an “excellent trading performance” across the group during its historically busiest quarter.

It is now expected that FY 2024 will significantly outperform market expectations with revenue projected to be at least £225m and adjusted EBITDA anticipated to reach at least £38m – a doubling from FY 2023’s adjusted EBITDA

It said this success highlights its continued strategic development and record levels of organic growth across its core business divisions, including Vaping and Sports Nutrition & Wellness. The ElfBar distribution opportunity is now expected to significantly exceed previously issued guidance – £60m of revenue and around £7m of adjusted EBITDA in FY 2024.

Supreme also announced it will launch a £1m share buyback programme over the next three months, which reflects the board’s confidence in the company’s future value and its dedication to enhancing shareholder returns.

Looking ahead to fiscal year 2025, it said it expects to see its figures improve even more, as a result of the actions it has taken.

It has forecast that approximately £75m of its revenue (33%) and £9m of adjusted EBITDA (23%) will be derived from disposable vapes in FY 2024.

Looking to FY 2025, the board believes that the anticipated ban on disposable vapes by the end of 2025 is expected to cause a temporary increase in revenue as retailers roll-out replacement vaping devices, such as pod-system vaping devices (Pods) and refillable vape kits (10mls).

The company expects that more than half of disposable vape activity will permanently transition to alternative forms of vaping such as Pods and 10mls, and Supreme said it will work closely with its retail partners to manage this seamlessly.

It added that the board will continue to evaluate the ongoing impact of new regulations within the UK e-cigarette market as more clarity, particularly in respect of timing, is published.

Sandy Chadha said: “We remain extremely excited by the future and believe we are ideally placed to continue to expand both our operational and financial footprint across our key growth markets. The buyback proposed today reinforces the confidence we have in the business across the long term.”

Following news of the Government’s proposals this morning, the UK Vaping Industry Association (UKVIA) added its voice in protest at the move to those of former Conservative Prime Ministers, Boris Johnson and Liz Truss, who said legislation smacks of a ‘nanny state’.

A UKVIA statement said: “While action to prevent youth access to vaping is critical, this move smacks more of a desperate attempt by the Government to sacrifice vapers for votes ahead of the upcoming General Election.

“The answer to youth vaping doesn’t lie in counterproductive bans and restrictions, but rather in effective and proactive enforcement – which is woefully lacking – of the law which states that it is illegal for vapes to be sold to minors.”

It adds: “It also hands the regulated vaping market to criminals on a silver platter. It is estimated that in Australia, where vapes are now only available on difficult to obtain prescriptions, as many as 92% of vapers are buying their products through illegal channels and as many as 100 million illicit products are smuggled into the country every year.”