THG returns to growth with best quarterly performance of the year
THG, the Manchester-based online retail giant, said it has achieved its best quarter of the year, with figures for the fourth quarter published today.
Group continuing revenues for the period of £597.9m were 1.1% ahead and a return to growth.
Following the sale of the THG OnDemand division earlier in 2023, the group completed its strategic review of non-core categories in the second half, resulting in the discontinuation of small legacy brands within THG Beauty and THG Nutrition.
From Q4 2023, continuing revenue excludes the discontinuation of these brands, accounting for c.£40m (c.2%) of Group FY 2023 revenue.
THG said it has a strong balance sheet and liquidity, with around £600m of cash and available facilities
The group reported a pleasing Cyber performance, especially across THG Beauty, supported by accelerating growth in App penetration driving valuable irst party customer data, reducing reliance on paid marketing channels.
THG said it delivered an excellent operational performance, with more orders processed YoY through automated facilities delivering significant cost savings per unit. Maintaining next day delivery through Cyber was a key factor in new customer acquisition and improving customer satisfaction.
Full year continuing adjusted EBITDA is expected to be above £117m, with group adjusted EBITDA over 75% higher YoY.
Exit momentum from 2023 underpins THG’s confidence in all divisions delivering growth in FY 2024, which it said should be another year of strong operating cashflow, c.£100m to £110m of which is planned to be reinvested into capex initiatives (FY 2023: c.£125m) to underpin long term growth and competitive advantage.
The group said it continues to monitor developments in the Red Sea region and anticipates minimal impact on stock availability. To date, the financial impact is not considered to be material.
The group operates three distinct businesses in THG Beauty, THG Nutrition and THG Ingenuity, each scaled from the UK to hold global leading positions in their respective sectors. In 2021 the board set out the group’s strategy to provide each division with its own growth and capital platform, through individual public market listings or partnerships, with THG retaining significant majority ownership.
This strategy remains unchanged, with readiness work ongoing to ensure the group has full optionality. The group remains on target to deliver circa nine per cent adjusted EBITDA margins in the medium term.
CEO, Matthew Moulding, said: “2023 was a year that threw up many challenges for all businesses, and I’m delighted in how the group not only responded to these challenges, but grew stronger through the year.
“A combination of automation and significant cost initiatives delivered in 2022, in addition to a receding inflationary environment, each played a key role in the group delivering an expected record EBITDA performance after cash-adjusting items during 2023. This strong EBITDA profitability and efficient stock management generated positive operating cashflow of c.£170m.
“Despite consciously reducing capex levels from previous years, we still made significant investments in the group’s long term future and extend competitive advantages. In 2023 we reinvested c.£125m of the group’s positive operating cashflow into capex initiatives, mainly within the UK economy.
“The return to revenue growth for both our Beauty and external Ingenuity clients were clear Q4 highlights, especially given the number of changes made to their business models over the past 18 months. But arguably the most pleasing performance came from our recently automated global fulfilment network. Q4 order volumes were delivered in record times, with average global delivery times reduced by one day. These widespread service improvements were achieved alongside a meaningful reduction in the cost of fulfilment.”
He added: “The decision in 2022 to support consumers through the cost-of-living crisis, sacrificing near term profits for long term customer loyalty, bore fruit in 2023. This, and the easing of commodity inflation, will help Nutrition to deliver a record profit performance in the year, despite a 13% devaluation in the Japanese Yen in 2023 – Nutrition’s second biggest market.
“Whilst the economic background remains uncertain there are some optimistic signs, with consumer cost of living pressures set to ease further in 2024. We are confident that the investments and decisions made throughout the year position the group well to build upon the positive exit momentum.”
THG also announced an agreement in principle today with leading UK wellness retailer Holland & Barrett (H&B), regarding a major new Ingenuity partnership.
Subject to the ongoing employee consultation process, from Q2 2024, H&B will utilise THG’s automated facilities in the UK. The three-year agreement will see THG Ingenuity become H&B’s main ecommerce UK and Ireland operational partner, providing fulfilment and courier management services for H&B’s rapidly scaling digital business.
THG’s best-in-class automated facilities and proprietary software has been developed with a D2C customer first view, with clients benefiting from leading UK delivery service levels and a sophisticated courier management system, while leveraging the scale and capacity of 13 international fulfilment centres.
Today the Group also announced in its Q4 2023 trading statement, continued progress on its Enterprise strategy, signing major brands including L’Oreal, Access Corporate Group and PepsiCo, while broadening partnerships with Asda and Mondelez.
Together these partnerships will add c.£175m of incremental GMV to the Ingenuity operations and technology platform during 2024.
Matthew Moulding said: “Holland & Barrett is one of the UK’s largest health and wellness retailers, and a major online player. We’re delighted to be supporting their ecommerce ambitions through underpinning their operational efforts for D2C fulfilment and courier management services, directly into their customers hands.
“We feel this is a true demonstration of how the THG Ingenuity platform can provide incremental services to established brands, delivering operational excellence, becoming world class at a fraction of the cost and in a fraction of the time.”
Anthony Houghton, chief operating officer, Holland & Barrett, said: “Holland & Barrett’s goal is to be the trusted health and wellness partner for over 100 million people globally by 2026. We’re growing as a business, with digital sales making a significant volume of our total sales.
“Our proposed three-year partnership with THG Ingenuity will mean we can continue to grow at pace with a partner who are industry experts in D2C fulfilment, while we invest in transforming our supply chain capabilities.”
THG also today announced an update on the structure of its Remuneration Committee. Helen Jones has succeeded Dean Moore as Chair of the Committee. Helen has been a director on the THG board and a member of the Remuneration Committee since July 2023. Dean Moore remains on the Committee alongside Sue Farr (Senior Independent Director) and Gillian Kent (Independent Non-Executive Director).
THG said it continues to monitor the FCA listing regime review in respect of the move to the Premium segment.
Russ Mould, AJ Bell
Russ Mould, investment director at Manchester investment plantform, AJ Bell, said: “THG has spent a long time nursing its wounds after the bubble burst on the hype around its business. It became the laughing stock of the UK market, had to stomach large share price losses and then battled takeover interest.
“There are now tentative signs that THG is finding its feet again, which suggests braver investors might start to give it a second look. However, THG needs to show multiple consecutive periods of progress to properly win over the market and we’re still some way off that point.
“How does the scorecard look so far? In the final year just ended, it returned to group revenue growth on a constant currency basis (albeit minimal), achieved free cash flow breakeven, improved margins, won a new deal to handle the fulfilment needs of Holland & Barrett’s online operations and secured work for major brands including PepsiCo and L’Oréal.
“In the context of its earlier problems that is positive progress, yet there is a lot more work to be done to put this business into decent shape. If it cannot sustain the positive momentum, THG risks falling back into the quicksand.”
