Supreme reports record levels of cash generated from operations

Supreme plc (LON:SUP), a leading manufacturer, supplier and brand owner of fast-moving consumer products, has announced its audited final results for the year ended 31 March 2023.

Financial highlights

·      Revenue growth of 19%; half of which was driven by earnings-enhancing acquisitions and the remainder from strong organic growth

·      Vaping division delivered a record performance nearly doubling revenues to £76.1 million (FY22: £43.6 million) and increasing gross profit to £28.1 million (FY22: £19.5 million)

·      Highly cash-generative in the period, delivering £19.3 million cash from operations in the period (FY22: £11.8 million), resulting in an Adjusted net cash⁴ position of £3.2 million by year end (FY22: Adjusted net debt⁴ of £1.9 million).   

·      Record levels of investment in M&A and capex (“investing activities”) of £11.3 million (FY22: £3.8 million) to support future growth

·      Disposal of the T-Juice brand generated £4.0 million of cash in FY23 and the ongoing strategic partnership with the buyer means Supreme retains exclusive manufacturing rights

Operational highlights

·      Three acquisitions completed, with two having been successfully integrated and immediately Adjusted EBITDA¹ enhancing during the year and the third acquisition completed immediately prior to year-end

·      Secured a 15-year lease on a new facility in Manchester which will significantly expand the Group’s in-house distribution capabilities, with activities from the site expected in Q2 of FY24

·      Significant progress reported on the Group’s ESG strategy, with a particular focus on energy consumption and its people agenda

Dividends

·      A final dividend, subject to shareholder approval at the Annual General Meeting on the 26 September 2023, of 2.2 pence per share.

·      The Group paid an interim dividend of 0.8 pence per share, which together with the final dividend take total dividends for the year to 3.0 pence per share

Outlook / Current Trading

·      The Group has made a very solid start to FY24. The core business and the FY23 acquisitions are all performing strongly and as a result the Board expects Adjusted EBITDA¹ to be ahead of latest expectations by at least £1 million. 

·      In addition, the Group now expects to generate a further £25-30 million of revenue and around £2 million incremental Adjusted EBITDA¹ in FY24 in respect of a master distributor appointment with the UK’s leading vaping brands; Elfbar and Lost Mary.

·      As a result, the Board now anticipates that trading in FY24 will be significantly ahead of current consensus⁵  

Sandy Chadha, Chief Executive Officer of Supreme, commented:

“Supreme has delivered a strong performance across the year punctuated by an outstanding contribution from our Vaping division, which has almost doubled revenues in the year.

Our commitment to providing highly affordable but competitively priced products sits at the heart of our business and our diverse client base continues to provide a stable platform for growth.

As we look to the future, we remain committed to expanding our product set, both organically and via acquisition, which in turn creates greater opportunities to cross sell and forge ever closer bonds with our customers.

I am delighted with the strong performance of the Group so far in FY24 and to have had our vaping distribution capabilities recognised by one of the world’s biggest vaping brands is testament to our expertise and our reputation.

Lastly, I would like to thank everyone in the business who have been exceptional throughout the year and look forward to updating all our stakeholders later in the year on our continued progress.”

Retail Investor Presentation:

A presentation for retail investors covering the results for the year ended 31 March 2023 will be held at 11.00 a.m. on Thursday 6^th July 2023.

The online presentation is open to all existing and potential shareholders and registration is free. Questions can be submitted during the presentation and will be addressed at the end.

To register for the event, please go to https://www.equitydevelopment.co.uk/news-and-events/supreme-investor-presentation-6july2023

¹Adjusted EBITDA means operating profit before depreciation, amortisation and Adjusted items (as defined in Note 7 of the financial statements). Adjusted items include share-based payments charge, fair value movements on non-hedge accounted derivatives and non-recurring items

²Adjusted profit before tax means profit before tax and Adjusted items (as defined in Note 7 of the financial statements). Adjusted items include share-based payments charge, fair value movements on non-hedge accounted derivatives and non-recurring items

³Adjusted EPS means Earning per share, where Earnings are defined as profit after tax but before amortisation of acquired intangibles and Adjusted items (as defined in Note 7 of the financial statements). Adjusted items include share-based payments, fair value movements on non-hedge accounted derivatives and non-recurring items

⁴Adjusted net debt means net debt as defined in Note 29 to these financial statements excluding the impact of IFRS16

⁵Company compiled analyst consensus for the year ending 31 March 2024 prior to the release of this announcement and the vaping distribution opportunity announcement (dated 5 July 2023) was revenue of £159 million and Adjusted EBITDA¹ of £22.6 million.

Chair Statement

I am pleased to report that Supreme delivered a robust performance across the financial year ended 31 March 2023 with strong second half momentum going into FY24. This performance, achieved against a challenging macroeconomic backdrop, includes outstanding organic and acquisitive growth in our key Vaping division, and solid progress across our Batteries and Sports Nutrition & Wellness segments. Despite well-documented global supply chain and inflationary pressures, Supreme has continued to make significant operational and financial progress and is positioned strongly for future growth as we focus on delivering on our strategic aspirations.

Supreme delivered revenue of £155.6 million (FY22: £130.8 million), up 19% year-on-year, whilst Adjusted EBITDA¹ fell by 8% to £19.4 million (FY22: £21.1 million), a direct result of the temporary setback to Lighting. Supreme remains a highly cash-generative business, having generated cash from operations of £19.3 million (FY22: £11.8 million) and is further supported by a healthy balance sheet and unutilised borrowing facilities of £30 million. The Group’s vertically integrated model remains resilient and continues to facilitate the development of the business and our various interconnected functions.

In line with our strategy to expand our in-house manufacturing and distribution operations, we secured a 15-year lease on a new facility near our existing warehouse in Manchester and remain on track to commence activities from this site in FY24.

The Vaping division remains the Group’s key growth driver, and we continued our impressive trading momentum in this category throughout the financial year by delivering a 75% increase in revenue year-on-year. In addition to generating significant organic growth, largely through robust sales and complementary new product development in our market-leading 88vape brand, we delivered the immediately earnings-enhancing acquisitions of Liberty Flights, Cuts Ice and Superdragon. Liberty Flights and Cuts Ice were integrated into the wider Group, significantly scaling Supreme’s vaping offering whilst providing considerable cross-sell opportunities. These acquisitions reflect the Company’s strategy to support a tobacco-free UK by offering both credible and safer alternatives for nicotine consumption.

Acquired as part of the Cuts Ice transaction, we announced the disposal of the intellectual property of T-Juice to an associated company of leading French e-cigarette and e-liquids wholesale La Vape Professional Distribution (‘LVP’) in March 2023. This new arrangement ensures Supreme retains the exclusive manufacturing rights to T-Juice for five years, enabling the Group to focus on its core manufacturing expertise and the transaction generated £4 million of cash for the Group on completion.

Our Sports Nutrition & Wellness segment delivered a credible performance, as we continued to mitigate the effects of well-publicised inflationary raw material pressures and supply chain headwinds on the sector. Following the successful rebrand of Sci-MX in the first half of the financial year, we are well-poised to capitalise on the fast-growing global demand for sports nutrition products, including portable protein snacks and supplements, as whey prices begin to normalise.

Stabilising the Lighting division was a key priority for the Group after a temporary setback derived from customer over-stocking in FY22, and pleasingly we continued to make progress recovering the category despite its overall disappointing performance in the financial year where gross profit fell from £9.0 million in FY22 to £4.1 million in FY23. Strengthened by long-term exclusive license and distribution agreements, as well as increased networking and market expansion opportunities generated following the integration of Vendek, we continued to focus on enhancing our manufacturing of private and white label lighting products, ensuring we strive to provide the best service for brands and retailers.

As Chair I am particularly proud of the brands we have acquired this year; our extremely talented team continues to identify, execute and integrate complementary, well-priced, immediately earnings-enhancing brands into the Supreme platform, ensuring this does not detract or dilute our core business offering. It is a clear marker of the exceptional talent we have in our business.  We remain focused on exploring further M&A and partnership opportunities to extend our manufacturing and distribution capabilities, retaining a diverse offering of great value, high-quality products to our customers and ultimately the consumer. We firmly believe that Supreme will continue to play an integral role in minimising the economic impact of the cost-of-living crisis on consumers, and we look ahead with confidence as we strive to deliver affordable items to market via leading retailers and our D2C online channels.

Supreme responded quickly to the cost-of-living issues faced by our colleagues and awarded an immediate 10% pay increase to more than half of our colleagues, regardless of location, role or length of service in September 2022. The scheme was directed towards those colleagues who were particularly impacted by the cost-of-living crisis. It is testament to the culture and values within our business that Sandy, our founder and CEO, volunteered to sacrifice his entire salary from then until the end of the financial year in order to finance this in FY23. We realise that our colleagues are one of our key assets, many of whom worked tirelessly through the Covid-19 pandemic and who continue to be pivotal to the future success of the Group. 

Encouraged by the recent strong second half trading performance, the Board is pleased with the Group’s progress, and on its behalf, I would like to thank all employees for their continued diligence and support. By responding effectively and prudently to turbulent macroeconomic trading conditions, our highly experienced management team continues to drive Supreme forward, and the Board has full confidence in the Company’s ability to deliver on our medium to long term growth potential.

Paul McDonald

Non-executive Chair

4 July 2023

¹Adjusted EBITDA means operating profit before depreciation, amortisation and Adjusted items (as defined in Note 7 of the financial statements). Adjusted items include share-based payments charge, fair value movements on non-hedge accounted derivatives and non-recurring items

CEO’s Review

Introduction

I am delighted to announce our results for the year ended 31 March 2023, following a period of substantial financial and operational growth for Supreme, driven by an outstanding performance from our Vaping category.

Supreme delivered an 19% increase in revenue to £155.6 million (FY22: 130.8 million), alongside a 6% growth in gross profit to £40.9 million (FY22: £38.5 million). Adjusted EBITDA¹ was £19.4 million (FY22: £21.1 million), which despite the impact of destocking within our Lighting category, proved to be a highly credible performance. The business generated cash of £19.3 million from operations in FY23 (FY22: £11.8 million) and I am particularly proud that the Group reported a positive £3.2 million cash position net of bank borrowings at year end; a £16.1 million increase versus the half year position six months earlier. Due to the highly cash-generative nature of its core operations, the Group was able to invest record levels into M&A and capital expenditure totalling £11.3 million (FY22: £3.8 million) and paid dividends of £5.4 million (FY22: £2.5 million).  

We gained significant trading momentum in the second half of the year, driven by strong organic growth across our key categories. Our 88vape brand generated excellent sales traction to consolidate our position as a market leader in the vaping sector, alongside additional market traction generated by the acquisitions of Liberty Flights and Cuts Ice.

We cemented our approach to M&A during FY23 having acquired three more complementary, earnings-enhancing businesses in the vaping sector. Each acquisition brought its own well-recognised brands together with opportunities for synergies when integrated into the Supreme platform. Liberty Flights and Cuts Ice were acquired in the first half of the year and together contributed to £12.8 million of the Group’s revenue growth and Superdragon was acquired immediately before year end and has already made a positive start to FY24. Identifying targets that meet our non-negotiable investment criteria, our speed of deal execution and tenacity of operational and financial integration defines our M&A strategy, which remains a key pillar of growth for Supreme.  

As a business, we are actively engaged in the debate to make the UK tobacco free and welcomed the UK Government’s recent “Achieving Smoke-free 2030” initiative, particularly its recognition of vaping as “the most effective” tool for smoking cessation. We fully support the new policies adopted, including the proposed launch of a fully funded national ‘swap to stop’ scheme to provide vapes as a first-line quit aid in local stop smoking services, and are encouraged by the robust plans to penalise brands and manufacturers who actively target young vapers.

Our people remain one of the Company’s most valuable assets. Internally, we responded rapidly to the emergence of the cost-of-living crisis, announcing in September 2022 permanent and out-of-cycle pay rises for all staff earning less than £30,000. 70% of the workforce qualified, with around 50% of staff receiving 10% pay rises. To finance this scheme and simultaneously keep our profit commitments to our shareholders, I sacrificed my salary for the second half of FY23. We have an excellent track record of retaining talent, and by supporting our employee base, particularly those most affected by the crisis, I am confident we can continue to be recognised as a great place to work.

We are proud of the attractive portfolio of great value products we have developed and look forward to continuing to supply an extensive customer base extending over the private and public sectors. The Board firmly believes that the Company can achieve its strategic aspirations as we aim to continue on our upward growth trajectory in FY24 and beyond.

Operational Review

The Group has continued to evolve its business model in the period, adding new customers and brands alongside broadening the reach of our existing brands and products across our established customer base. Given the majority of our brands are either licensed, own-brand or acquired, as well as white-labelled, Supreme has established incredibly loyal and long-term customer partnerships.

During FY23, we agreed a lease for a new warehouse and office site proximal to our existing facilities, further consolidating Manchester as the focal point of our business. Once activities commence from the hub, which is projected to occur in FY24, we will be able to increase the efficiency of our overarching integrated platform, streamline both storage and distribution and accommodate future bolt-on M&A.

With this strong platform central to our business, management will continue to focus on the following strategic growth drivers, namely:

·      continue to explore and execute on complementary earnings enhancing acquisitions;

·      further leverage cross-sell opportunities to expand our customer footprint and average revenue per customer;

·      continue to explore and develop new product verticals that complement Supreme’s customer base, focused on a high quality and good value consumer proposition;

·      increase manufacturing efficiencies through further economies of scale and bringing the manufacture of certain products in-house;

·      enhance online distribution and services to further grow our B2B and D2C sales channels; and

·      expand our international footprint through existing customer relationships and strategic acquisitions.

Vaping

The Group’s Vaping division delivered a record performance in FY23, underpinned by a combination of significant organic growth and the completion and integration of a number of earnings enhancing acquisitions. The division nearly doubled revenues, generating £76.1 million (FY22: £43.6 million), an increase of 75% year-on-year, with incremental revenue from the acquisitions of Liberty Flights and Cuts Ice constituting 40% of the growth.

Our core 88vape brand delivered another outstanding performance and, as we continue to expand our product range and optimise our D2C online sales capabilities, we anticipate the brand’s growth will accelerate in the medium to long term. Driven by retailer and consumer demand, and to complement our existing hero e-liquid ranges, Supreme launched a range of disposable vapes during FY23 which has generated almost £12 million in incremental revenue in its first year. Pleasingly, our contract with UK prisons also reported growth of 25% year-on-year following further competitive displacement and increased volumes.

Following a seamless process, the Liberty Flights and Cuts Ice businesses were integrated into the wider Group, which is testament to the hard work and commitment of the Supreme team and further supports our track record of successful M&A integration. In addition, we also completed the acquisition of Superdragon in March 2023, an experienced manufacturer of e-liquids. Collectively, the vaping acquisitions have significantly scaled the Group, providing Supreme with complementary owned brands, access to new customer bases and territories, wider manufacturing know-how and state-of-the-art technology.  Most importantly, all the acquired vaping brands share Supreme’s ethos: to support a tobacco-free UK by offering adults credible, affordable and safer alternatives for nicotine consumption.

Acquired as part of the Cuts Ice transaction, we announced the disposal of the intellectual property of T-Juice to an affiliate of leading French e-cigarette and e-liquids wholesaler, LVP, in March 2023. Supreme retains the exclusive manufacturing rights to T-Juice as part of this arrangement and expects to generate around £3 million in annualised revenue. In addition to the ongoing manufacturing revenue, the deal generated £4 million of cash for the Group on completion.

Supreme has consolidated its position as a market-leading manufacturer, distributor and brand owner in the vaping sector, and continues to explore additional opportunities to grow both its market share in an ever-expanding industry boosted by increasing Government support.

Lighting

As previously reported, the Group’s Lighting category experienced a challenging year of trading, with customer overstocking issues, alongside well-documented global supply chain and transportation problems impacting numerous businesses in the industry, with a resulting 43% reduction in revenue to £15.4 million (FY22: £27.0 million). Encouragingly, Supreme has since stabilised the category, and the Company expects it to recover across FY24 and FY25.

The category has retained all its listings, whilst every existing customer relationship remains in-tact, facilitating the recovery process in the medium to long term. In addition, our largest retail customers have now provided us with access to their EPOS and stockholding data, previously prohibited, allowing us to measure stock levels and forecast demand more accurately. This initiative potentially de-risks this category going forward with the expectation that the FY23 setback was both temporary and very unlikely to reoccur without warning.

Commercially, the Group secured an extension to our existing licenses with Energizer and Eveready, which is now valid until 2030, as we proactively focused on strengthening existing license agreements with well-known global brands and retailers. A new licence agreement has also been agreed with Black and Decker, a trusted brand for retail customers seeking an alternative to their own label products, whilst the integration of Vendek has also presented significant commercial opportunities.

Looking ahead, Supreme is committed to building on the significant recovery progress made in the second half of the financial year and we anticipate the division will deliver an improved performance across FY24.

Sports Nutrition & Wellness

The Sports Nutrition & Wellness category delivered revenues of £16.7 million in FY23 (FY22: £15.9 million), which was a solid performance. During FY23, the Group unveiled a new-look Sci-MX, Supreme’s principal powders brand. Relaunching the entire range has delivered strong sales momentum, whilst the Group also brought manufacturing in-house to increase profitability in the longer term and streamline the supply chain following the acquisition of the brand in FY22.

Protein powders represent approximately 70% of the segment’s revenue and significant inflationary pressures impacting powders, particularly whey, have inevitably impacted the performance of the category. Supreme took a prudent approach to overcoming these macroeconomic headwinds by electing to support retailers through this price hike to protect long-term relationships and future trading aspirations in what is a fast-growing market.

Alongside investment in marketing and advertising initiatives, we launched exciting products across a number of our key brands, including new Battle Bites protein bars and other nutritional snacks.

Vitamins, which continue to operate from a low base, traded in line with expectations, and we continued to roll-out new vitamins pouches and supplements to expand our great value digital-only Sealions range.

As raw material price pressures ease, Supreme is focused on increasing manufacturing capacity for the category in FY24 and remains well-placed to capitalise on strong consumer demand for a diverse range of sports nutrition and wellness products.

Batteries

The Batteries category delivered another year of solid profitable growth, generating revenue of £39.5million in FY23 (FY22: £34.9 million), 13% growth. Batteries remain a sticky consumer product which, for several retailers, are essential items on their stocklists. Consequently, Supreme has been able to establish long-term customer relationships through this channel, generating opportunities to cross-sell additional products from our portfolio. This highlights not only the integral role the division plays in Supreme’s overarching growth strategy, but also the effectiveness of the Group’s vertically integrated platform in attracting customers across multiple verticals.

The backbone of the business and requiring minimal costs to serve, Supreme is focused on enhancing its battery distribution functions and bolstering existing relationships with retailers to generate increased revenues from the category.

Outlook

Supreme remains a highly cash-generative business, underpinned by a trusted vertically integrated platform that facilitates new business momentum and ensures products efficiently reach end markets. Continued investment in both our people and facilities demonstrates our commitment to our long-term growth plans, and we look ahead with confidence as we strive to deliver on our strategic priorities.

Looking at FY24, the Group expects to maintain its strong growth trajectory, delivering another strong year of profitable growth across all product categories. We have seen a very strong start to FY24 with all areas of the business performing very well.

In addition, I am delighted to have recently been appointed as master distributor for Elfbar and Lost Mary, two of the UK’s biggest vaping brands. This appointment recognises our unrivalled and scaled UK distribution capabilities as well as our expertise in the vaping sector, particularly with reference to governance and compliance.

Accelerated trading in the core business combined with this vaping distribution opportunity means that we expect trading for the year ended 31 March 2024 to be significantly ahead of previous market expectations⁵

Sandy Chadha

Chief Executive Officer

4 July 2023

¹Adjusted EBITDA means operating profit before depreciation, amortisation and Adjusted items (as defined in Note 7 of the financial statements). Adjusted items include share-based payments charge, fair value movements on non-hedge accounted derivatives and non-recurring items

⁵Company compiled analyst consensus for the year ending 31 March 2024 prior to the release of this announcement and the vaping distribution opportunity announcement (dated 5 July 2023) was revenue of £159 million and Adjusted EBITDA¹ of £22.6 million.

Chief Finance Officer’s Review

I am pleased to present these financial results for the year ended 31 March 2023. Overall, the Group delivered a robust financial performance; revenue increased, the balance sheet strengthened and the Group’s cash reserves grew. In addition to a pleasing performance from our core business, we completed and integrated two earnings-enhancing acquisitions with a third acquisition completed on the final day of the financial year. The table below summarises the key financial measures and the comparisons to prior year. The commentary in this review references alternative performance measures which are described as ‘Adjusted’, meaning they exclude share-based payment charges, fair value movements on non-hedge accounted derivatives and non-recurring items referred to in Note 7 to the Financial Statements. In addition, this review also references ‘net debt’ which is defined as closing cash, as reported on the balance sheet, net of borrowings, as defined in Note 20.

Revenue

Revenue for FY23 was £155.6 million (FY22: £130.8 million), an increase of 19%, the drivers for which have been presented in the product categories below. 52% of the growth, £12.8 million, came from acquisitions whilst the remainder of the growth, £12.0 million, came from the core business. Furthermore, this core business growth of £12.0 million was the net effect of a reduction in Lighting revenue of £11.6 million combined with revenue growth across the remainder of the core business of £23.6 million.

Revenue by product category

Revenue for Batteries was £39.5 million in FY23 (FY22: £34.9 million), growth of 13%, arising from a combination of increased volume and price. This increased volume, at a time of overall market decline, was especially pleasing and highlights the strength of Supreme’s offering as well as the resilience of its customers. This category grew significantly during COVID and was initially expected to reverse, which makes the continued growth a particularly pleasing result.

Revenue for Lighting was £15.4 million (FY22: £27.0 million), a fall of 43% in what has been a challenging year, and the first year of revenue contraction since the category commenced trading over 15 years ago. This reduction was driven from a slowdown in consumer spending and retailer overstocking in FY22. Importantly, we have retained all customers and retail listings and we are confident that our collaborative approach with customers during this period has cemented our longer-term relationships with these retailers. The category is expected to recover across FY24 and FY25.

Revenue for Vaping was £76.1 million (FY22: £43.6 million), growth of 75%. £12.8m (40% of the growth) came from the acquisitions of Liberty Flights and Cuts Ice and a third acquisition, Superdragon, was completed on the final day of FY23 and has already added to FY24 earnings. Aside from acquisitions, the category reported organic growth of £19.7 million, arising from the launch of a range of disposable vapes as well as strong growth in Supreme’s contract with UK prisons following competitive displacement and increased volumes. Importantly, the revenue from the launch of disposable vapes has not had any impact on the sale of the 10ml eliquid product, the category’s hero product, which has continued to gain market share.

Revenue for Sports Nutrition & Wellness was £16.7 million (FY22: £15.9 million), growth of 5%, a period characterised by record levels of raw material inflation. The reduction in gross profit as a percentage of sales from 22% in FY22 to 16% in FY23 arose because Supreme chose to absorb some of this price inflation into its own margin, temporarily, in the spirit of fair, honest, low pricing. Whey prices have now started to fall and the gross profit percentage is expected to recover accordingly in FY24.

Revenue from its various ‘Other’ channels came to £7.8 million (FY22: £9.4 million) a direct result of the rationalisation of the category to redeploy working capital, resource and warehouse space to more higher margin areas of the business.

Gross profit

Gross profit for FY23 was £40.9 million (FY22: £38.5 million), growth of 6%. As a percentage of revenue, gross profit was 26% (FY22: 29%). This reduction of 3% was largely a result of sales mix within categories.  In Vaping in particular this was driven by the increased focus on hardware sourced from the Far East in the form of disposable and pod vapes and in Lighting this was due to the sharp reduction in lighting sourced from the Far East and shipped direct to customers in the UK and Europe. Gross profit was also affected by the inflationary price pressures that arose in Sports Nutrition & Wellness and the temporarily lower margins arising from the acquisitions before their operations were integrated into the Supreme platform. 

Adjusted EBITDA¹

Administrative expenses, excluding depreciation (£2.2 million), amortisation (£0.9 million) and Adjusted items within administrative expenses (£3.6 million) were £21.5 million (FY22: £17.5 million), an increase of £4.0 million.

The largest contributor to this increase was the incremental overheads associated with Liberty Flights (£2.8 million), which was earnings-accretive at an EBITDA level. Secondly, selling costs (that typically increase in line with sales) contributed £0.6 million to the increase. The balance arose from inflationary increases largely in transport, utilities and people costs via the out-of-cycle pay-rise announced in September in response to the cost of living crisis.

As a result, Adjusted EBITDA¹ decreased by £1.7 million (8%) in the year to £19.4 million (FY22: £21.1 million).

Adjusted Items

Adjusted Items were £0.8 million compared to £1.1 million the year before. These costs related to share-based payment charge of £1.5 million (FY22: £1.7 million), £1.1 million charge in relation to fair value movements on financial derivatives (FY22: £1.0 million credit) and £1.0 million of non-recurring items relating to the acquisitions and subsequent integrations of the business acquired during the year, offset by a credit of £2.8 million relating to the profit on disposal of the T Juice brand. The £1.0 million of acquisition and integrations costs arose principally from the termination of all Cuts Ice staff (£0.6 million) and the closure costs relating to the two Cuts Ice London-based operating sites (£0.2 million), offset by a credit of £0.3 million in respect of accrued but unpaid contingent consideration in respect of the acquisition of Vendek that completed in FY21.

The Board believes that by adjusting these items from profitability, it is able to understand the underlying performance of the business more clearly and further information pertaining to these items can be found in Note 7 to these financial statements.

Finance costs

Finance costs were £1.0 million in the year (FY22: £0.7 million), split between interest arising from borrowings in the year of £0.8 million plus the interest relating to the lease liabilities under IFRS16 (£0.2 million).

Taxation

Total tax charge in the year was £2.5 million (FY22: £2.6 million), giving rise to an effective tax rate of 17% (FY22: 16%).

Profit after tax and Earnings per share

Profit after tax was £12.0 million compared to £13.7 million in FY22, a reduction of £1.7 million. As a result, earnings per share decreased by 13% to 10.3p (FY22: 11.8p) and on a fully diluted basis decreased from 11.4p to 9.7p.

On an adjusted profit after tax basis, which we consider to be a better measure of performance, adjusted earnings (as calculated in note 11) were £13.8 million (FY22: £15.0 million) and adjusted earnings per share³ was 11.8p (FY22: 12.8p).

Dividends

The Group’s dividend policy is to pay an annual amount equivalent to around 25% of net profit. In January 2023 the Group paid an interim dividend of 0.8p per share and the Directors will recommend a final dividend of 2.2p per share at the 2023 Annual General Meeting to be held on the 26 September 2023.  This will be paid on 29 September 2023 to shareholders on the register at the close of business on 1 September  2023. The ex-dividend date will be 31 August 2023. 

Cash flow

The Group generated £19.3 million of operating cash in FY23, nearly doubling the level of operating cash generated in FY22; the result of a tightly managed base of working capital.

Specifically in reference to the acquisitions, £7.5 million related to the acquisition of Liberty Flights (with a further £2.0 million of deferred consideration payable in FY24 plus further consideration contingent on performance, expected to be £2.2 million) and £2.6 million related to the acquisition of Cuts Ice. The T-Juice brand (acquired as part of the Cuts Ice acquisition and valued at £1.2 million at the time) was then disposed of 7 months later for £4.0 million, resulting in a profit on disposal of £2.8 million.   

In respect of financing, on 31 March 2022 the Group committed to a £25 million revolving credit facility (“RCF”) with HSBC.  Initially, the facility was used to settle existing bank and related party borrowings and then was subsequently used to finance acquisitions. At its peak, the Group had drawn £18.4 million against the facility. In the second half of the year much of this was repaid with cash generated from trading activities and at year end the balance on the facility was £4.3 million drawn with the remainder unutilised. In addition, the Group also had access to an £8.5 million working capital facility which was also entirely undrawn at year end. Together with reported cash of £7.5 million (FY22: £3.9 million) and deferred and contingent consideration of £4.1 million, the Group’s Adjusted net cash⁴ position was £3.2 million (FY22: £1.9 million Adjusted net debt⁴). The IFRS16 lease liability increased from £2.2 million to £15.0 million during the year, wholly in relation to the 15 year lease signed for ‘Ark’, the facility that will become the Group’s principal storage and distribution centre in FY24.

Across the RCF and the working capital facility, there was £30 million of undrawn borrowings facilities on 31 March 2023; providing significant liquidity to finance M&A or organic growth in the form of working capital in the future.

Net debt

Use of non-GAAP measures in the Group financial statements

Certain measures have been used to increase understanding of the Group’s Report and Accounts. These measures are not defined under IFRS and therefore may not be directly comparable with adjusted measures presented by other companies. The non-GAAP measures are not intended to be a substitute for or superior to any IFRS measure of performance; however they are considered by management to be important measures used in the business for assessing performance. The non-GAAP measures used in this strategic review and more widely in this Annual Report are defined in the footnotes below and set out in Note 7 to these financial statements.

Suzanne Smith

Chief Finance Officer

4 July 2023

¹Adjusted EBITDA means operating profit before depreciation, amortisation and Adjusted items (as defined in Note 7 of the financial statements). Adjusted items include share-based payments charge, fair value movements on non-hedge accounted derivatives and non-recurring items

²Adjusted Profit before tax means profit before tax and Adjusted items (as defined in Note 7 of the financial statements) Adjusted items include share-based payments charge, fair value movements on non-hedge accounted derivatives and non-recurring items

³Adjusted EPS means Earning per share, where Earnings are defined as profit after tax but before amortisation of acquired intangibles and Adjusted items (as defined in Note 7 of the financial statements). Adjusted items include share based payments, fair value movements on non-hedge accounted derivatives and non-recurring items.

⁴Adjusted net debt means net debt as defined in Note 29 to these financial statements excluding the impact of IFRS16.