Financial Shenanigans
Financial Shenanigans
Supreme plc reports clean cash conversion, no auditor changes (BDO LLP since IPO), no restatements, and a consistent IFRS reporting framework. The forensic risk grade is Watch (28/100): the headline numbers are largely faithful, but three structural conditions warrant active monitoring — a 56% founder/CEO voting block on AIM, an acquisition-led FY24 receivables jump (revenue plus 42 percent vs receivables plus 70 percent), and a "bargain purchase" gain from the Typhoo Tea administration deal that flattered FY25 reported profit. None of these crosses into "earnings manipulation" on the available evidence; all three sit firmly in the "underwrite the disclosure" category. The single data point that would change the grade is independent confirmation that DSO normalises in H2 FY26 below 55 days; if it stays elevated, the reading moves to Elevated.
The Forensic Verdict
Forensic Risk Score (0-100)
Red Flags
Yellow Flags
CFO / Net Income (3y)
FCF / Net Income (3y)
Accrual Ratio FY25
Cash conversion is a clear positive: three-year cumulative CFO of £71.5M exceeds cumulative net income of £57.9M (1.23x), and FCF before acquisitions converts NI at 1.06x. The accrual ratio of negative 1.3% in FY25 is firmly in clean territory. The forensic concerns are not in the income statement itself — they sit in receivables build, the bargain-purchase gain on Typhoo, an Adjusted EBITDA-only incentive plan that paid out 93% of max for both directors, and AIM-level governance with the founder controlling 56% of voting rights.
13-Shenanigan Scorecard
Breeding Ground
Supreme has the structural profile of a founder-led AIM company: thin governance bench, concentrated voting, simplified incentive plan with high payout, and a long-tenured auditor — all individually defensible, jointly worth a yellow flag.
The breeding ground amplifies — but does not create — the accounting risks below. Sandy Chadha's 55.98% holding means M&A decisions like the £25.6M FY25 spend on Clearly Drinks and Typhoo Tea face limited shareholder pushback. The FY24 LTIP grant to the CFO was structured around Absolute TSR (lapsed, share price did not clear hurdle) and EPS (vested in full), and FY25 onward replaces this with the simpler Supreme Incentive Plan capped at 200% of salary, weighted 80% Adjusted EBITDA. EBITDA-weighted plans favour acquisitive, integration-heavy strategies — exactly the path Supreme took with three acquisitions in 18 months (Clearly Drinks June 2024, Typhoo Nov 2024, SlimFast and 1001 in H1 FY26).
The QCA Code is the lighter governance code applied by most AIM companies. It does not require the same level of independence as the UK Corporate Governance Code applied on the Main Market. This is a structural feature, not a misstep, but it raises the threshold for what counts as effective independent oversight on M&A and remuneration decisions.
Earnings Quality
Reported earnings look largely faithful. The chief concerns are a divergence between revenue and receivables in FY24 and a non-recurring £2.9M bargain-purchase gain in FY25 that boosted reported PAT.
Revenue grew 42% in FY24 while receivables grew 70%, opening a 28-percentage-point gap. The FY24 annual report attributes this to the timing of large customer orders late in the period (Clearly Drinks closed June 2024 — only 9 months of trade receivables consolidated). FY25 closes that arithmetic, but DSO has stepped up to 62 days from a 47-49 day band.
Gross margin of 31.9% in FY25 is a five-year high, supported by mix shift toward higher-margin Drinks and Wellness (Clearly Drinks manufacturing margin disclosed at near 40%) and a deliberate retreat from lower-margin disposable vape distribution ahead of the 1 June 2025 ban. Operating margin held flat at 14.1% versus 14.5%, indicating SG&A absorbed most of the gross-margin lift — consistent with overhead onboarding from acquisitions (administrative expenses up £8M YoY). The pattern is consistent with management's narrative; nothing in the income-statement structure looks engineered.
The £2.9M FY25 bargain-purchase gain on Typhoo Tea is the largest single P&L item that needs to be stripped for run-rate analysis. Per the AR, it equals £4.1M of negative goodwill on acquisition less £1.2M of "ransom payments to key Typhoo suppliers". This is a real economic gain on a distressed acquisition, but it is non-recurring and, importantly, the company itself flags it inside Adjusted items rather than burying it in operating income.
Cash Flow Quality
Operating cash flow is durable. Management reports £25.1M of CFO in FY25, almost entirely consumed by £25.6M of net acquisition spend — meaning post-acquisition free cash flow turned slightly negative.
CFO has comfortably exceeded net income in 5 of 6 years. Pre-acquisition FCF tracks net income closely (£21.9M FCF vs £23.5M NI in FY25). The forensic test that matters is acquisition-adjusted FCF: it dropped from positive £15.6M in FY24 to negative £3.7M in FY25 because the company drew down its £11.6M cash balance to part-fund Typhoo and Clearly Drinks, and closing cash dropped to £3.2M.
The FY24 working-capital story is dominated by a £14.7M receivables build. FY25 added £6.6M more receivables and £11.9M of inventory build, partly funded by £6.4M of incremental payables. Inventory at year-end of £36.3M (FY24: £24.4M) is the highest in five years — and importantly, this is just before the 1 June 2025 disposable vape ban took effect. Some of this inventory is acquired Typhoo and Clearly Drinks stock (consolidated for the first time at year-end), but the vape inventory build at year-end is worth scrutinising in the FY26 accounts.
Year-end inventory build into a known regulatory cliff (UK disposable vape ban, 1 June 2025) is a watch item, not a red flag. Management's published H1 FY26 update reports vaping revenue up 13% with disposables down to GBP 4.4M from GBP 10.0M H1 prior year, suggesting inventory was sold through rather than written down. The forensic test passes if FY26 inventory write-downs remain immaterial.
Net debt of £12.3M at FY25 (per AR) sits within HSBC's £40M asset-backed facility (£38M unutilised). The CFO disclosure that the group remains "net cash" of £1.2M on an Adjusted (ex-IFRS 16) basis is technically correct but is a reader-handling choice; on the balance sheet, the IFRS 16 lease liability of £13.4M is a real obligation.
Metric Hygiene
Supreme uses six non-GAAP measures (Adjusted EBITDA, Adjusted items, Adjusted PAT, Adjusted EPS, Adjusted net debt, Adjusted operating cash flow). The reconciliations are provided in the financial statements. The hygiene concern is the gap between Adjusted EPS and reported diluted EPS.
The Adjusted EPS premium has narrowed from 15% in FY24 to 11% in FY25 — actually a positive trend, suggesting management is not widening the non-GAAP wedge. The amortisation add-back is the largest component (acquired intangibles from Clearly Drinks and Typhoo), which is a defensible add-back for a serial acquirer. The bargain-purchase gain is correctly excluded from Adjusted PAT in FY25.
What to Underwrite Next
The forensic file does not change the thesis on Supreme. It does set five specific things to track over the next two reporting periods:
DSO normalisation in H1 FY26 and FY26 full year. FY25 DSO of 62 days (versus 47 days in FY23 and FY24) is the single biggest balance-sheet metric to watch. The H1 FY26 results are due in late November 2025; if DSO is below 55 days, the receivables jump was an acquisition timing artifact. If it stays at 60-plus, the next question is customer mix (concentration, payment terms, supplier finance) and whether the top-10 customers are paying slower.
FY26 inventory write-downs. Year-end inventory at £36.3M includes acquired Typhoo / Clearly Drinks stock and disposable vape inventory ahead of the 1 June 2025 ban. The H1 FY26 update reports vape sales up 13% to £76.9M with disposables shrinking from £10.0M to £4.4M — consistent with sell-through rather than write-down — but the FY26 annual report is the test.
Goodwill from Clearly Drinks (GBP 15.6M) and the Typhoo bargain-purchase gain. The Typhoo deal was struck out of administration with limited information; the £2.9M net bargain-purchase gain has to hold up through purchase-price allocation in the FY26 audit. Watch for any retroactive PPA adjustment or impairment trigger.
Acquisition-adjusted FCF. FY25 saw FCF after acquisitions of negative £3.7M. With H1 FY26 showing two more acquisitions (SlimFast £20.1M and 1001), FY26 acquisition-adjusted FCF needs to turn positive or the company is funding M&A through working capital and cash drawdown rather than recurring cash generation.
Independent challenge on M&A. Sandy Chadha's 55.98% voting power means deals do not meaningfully need disinterested-shareholder support. The four acquisitions in 18 months (Clearly Drinks, Typhoo, SlimFast, 1001) have all been struck quickly; the integration discipline is the test, and the early disclosure on Typhoo turnaround in the H1 FY26 update is encouraging but not yet validated by margin or returns data.
The accounting risk here is a position-sizing input, not a thesis breaker. It does not warrant a valuation haircut on its own — clean cash conversion, a long-tenured Big-Four-tier auditor (BDO LLP), and intact going-concern stress tests (the AR shows the group can absorb a 75% revenue decline before running out of cash) are real positives. But the combination of an AIM listing, founder voting control, EBITDA-weighted incentives, and a year-end balance sheet that absorbed three acquisitions does justify a watching brief: review the H1 FY26 results in late November 2025 with a focused eye on receivables, inventory, and acquisition-adjusted FCF before adding to position size. If H1 FY26 confirms DSO normalisation and clean inventory, the forensic grade can move toward Clean. If it does not, this becomes Elevated, and the next item to investigate is the customer concentration (top 10 customers are over half of revenue per AR risk factors).