THG posts loss as private equity bid sets clock on possible market departure
THG founder Matthew Moulding presented disappointing financial results to the market this morning, but emphasised the divisional profitability and growth within the business.
Revenue increased increased 2.7% to £2,239.2m (FY 2021: £2,179.9m).
But the results revealed an operating loss of £495.6m, impacted by the non-cash impairment of £275.4m, in addition to certain non-recurring costs which the company claim will continue to reduce.
They include £32.4m of costs relating to the strategic review, stock provision and other associated costs; £18.5m of incremental international delivery costs, predominantly in Asia, due to the absence of traditional delivery routes and elevated costs associated with Covid-19; £14.8m of administrative costs; £3.6m of distribution costs relating to the commissioning of purpose-built new fulfillment facilities.
Shares in THG soared from 63p to 95p yesterday after private equity investor Apollo confirmed interest in bidding for the Manchester-based eCommerce giant. The latest expression of interest in THG from private investors has triggered a process which requires the American private equity giant to table a formal big by 15 May under takeover rules.
But the results this morning show a business still grappling with higher costs and complex divisional structures.
The business also included in the lengthy results statement a set of “alternative performance measures”, to standard IFRS measures, in order to “provide stakeholders with additional helpful information on the performance of the business”.
Moulding has made no secret of his frustration with the governance of a stock market listing since the business was valued at £5bn at the time flotation in 2020, but has since seen its value plummet and his own leadership strategy questioned.
Moulding has also agreed to relinquish his rights attached to a “Special Share” in September 2023, which could potentially veto any takeover. It would also clear another obstacle to the shares being traded on the Premium segment of the Main Market, something suggested by activist shareholder Kelso which proposed a number of measures to address the undervaluation reflected in the share price.
Moulding’s full opening statement to this morning’s results said: “We continue to make good progress on executing our strategy of building a leading digital-first consumer brands group, powered by our own technology and global fulfilment operations. I am hugely proud of the THG team who have delivered another record revenue performance.
“While FY 2022 adjusted EBITDA was not where we planned at the start of the year, this was largely the result of our strategy to minimise the impact of inflation upon our customer base. This investment in their retention, and longer term growth, was the principle driver behind the reduction in gross margin.
“The challenging macro and inflationary environment required decisive action across the business with around £100 million of efficiency savings delivered. A much-improved outlook on many key cost inputs gives us confidence in an improved financial performance as the year progresses.
“In THG Ingenuity, we appointed a highly experienced CEO to focus on long-term, higher value enterprise accounts. The repositioning of the division is on track with the strategy now paying dividends, evidenced by recent announcements and a strong 2023 pipeline.
“We are nearing completion of a three-year major infrastructure investment programme. While this has inevitably involved significant investment and transition costs, the less than 2-year return on investment is pleasing. The global capability it now provides gives us increased confidence in our ability to continue to capture market share whilst accelerating both profitability and free cash flow generation.
“We have the technology infrastructure and the global fulfilment capability which, coupled with our continuous engagement with our millions of customers worldwide who love the high-quality products we present to them leaves us well positioned to capitalise on this path of growth.”
