Moulding puts shine on half year losses and revenue slide

THG has this morning reported reduced half year revenues and continued pre-tax losses at the Manchester ecommerce giant.

But attempts by founder Matthew Moulding to place “alternative” and “adjusted” results at the head of this morning’s long announcement will be sure to provoke market critics and activist investors who have urged the outspoken founder and chief executive to concentrate on strategy and performance.

On LinkedIn Moulding posted a chattier version of his formal trading statement (published below) with the opening line: “So here are the real highlights that you’re not likely to read in the media.”

Overall group revenue decreased by 9.3% to £969.3m in the first half to 30 June, a drop from £1,069.2m for the same period in 2022. 

THG made a pre-tax loss of £133, 016, 000, up from £108,186,000 the previous year.

The statement from finance director Damian Sanders put the performance down to a continuing uncertain macroeconomic environment; exiting of non-profitable product lines and territories; a focus on higher-margin sales leading to a decline in revenue where the business has actively de-emphasised less-profitable markets, and destocking across the beauty sector.

He also insisted the ecommerce engine at the heart of the business, THG Ingenuity, is undergoing “a  strategic re-positioning” focusing on higher value and higher margin clients and claims “improved quality recurring revenue over the mid-long term. The short-term impact is a reduction in revenue as the re-positioning is executed.”

He further claimed: “Whilst the effect of the above is a decline in revenue, the Group is pleased to report an improvement in both gross profit margin and Adjusted EBITDA metrics which, together with cash, have been a key management focus.”

The results also reveal that THG  acquired the trade and assets of London’s City AM newspaper for £1.5m.

City AM didn’t report the loss but led on the improved cashflow.

Moulding’s commentary focused on the challenges the business faces, but also claimed a strong pipeline of client wins for Ingenuity.

New and expanded partnerships agreed year to date include L’Oréal, L-Fashion, Matalan, Asda and Maximo.

“Inflationary pressures provided significant challenges to consumers and businesses alike over the past 18 months. Our strategy of supporting our consumers through 2022, sacrificing margins in the short-term, is bearing fruit. This is reflected in the strong H1 results we’ve posted today, across adjusted EBITDA and cash,” he said.

“The cash performance of the Group has been strong in H1, but also over the last 12 months. Group cash flow performance improved by £350m compared to the previous 12 months, reflecting the completion of our global infrastructure roll-out program, with the Group now achieving significant operating leverage from a well invested, automated, global platform.

“Our Nutrition division delivered a record H1 revenue performance and, with inflationary pressures easing, posted substantially higher EBITDA margins year-on-year as we exited H1. The early results from the Myprotein rebrand are also encouraging as we’ve taken steps to further enhance the premium nature of the world’s No1 online sports nutrition brand. These actions should provide for both increased partnership opportunities and category expansion, supporting our ambition of building Myprotein into a global lifestyle brand.

“Recent progress within our Beauty division has been more encouraging, underpinned by strong performances in the Group’s Perricone MD and ESPA brands, as well as across Cult Beauty. Margin improvements have steadily built through H1, as focus shifted to orders that deliver immediate profitability, where we benefit from the economies of scale associated with our local distribution hubs.

“The Beauty division was held back in H1 by short-term global de-stocking impacting manufacturing volumes. The situation has now started to reverse with the Beauty division returning to growth since August, at the same time margin progression continues.

“Finally, Ingenuity’s pivot to larger, more complex Enterprise clients is gaining momentum, reflected in some key client wins and a strong pipeline. We were thrilled to be listed in the Gartner’s Magic Quadrant™ for Digital Commerce, in recognition of our ability to provide an all-encompassing Direct-to-Consumer journey, cementing Ingenuity as a key partner for Enterprise clients seeking comprehensive commerce excellence.”

The markets weren’t impressed with the results, as AJ Bell investment director Russ Mould explains: “Digital commerce platform THG continues to face an uphill battle to be seen as a credible business with the market.

“Another period of operating losses and with more moving parts than a Swiss watch, it’s no wonder that investors struggle to get their head around exactly what this company is trying to do. The word ‘adjusted’ is used 118 times in the half-year results, which says it all.

“The nutrition business looks to be improving, helped by inflationary pressures easing. It wants to build sports nutrition brand Myprotein into a global lifestyle brand – notably, this part of its business has been the focus of activist investor Kelso which has called it one of THG’s undervalued assets.

“THG seems to realise that something has to change if it is to win over the market’s favour, hence the recent disposal of two loss-making businesses. That reinvention journey needs to speed up if it wants the share price to move higher. As it stands, the latest results went down like a lead balloon with the market, the shares falling nearly 18% in the first hour of trading.”