REG - THG PLC - Q4 Trading Statement

THGAnnouncement

16/01/2024 07:16

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RNS Number : 7697Z  THG PLC  16 January 2024

16 January 2024

 

 

THG PLC

Fourth quarter trading statement for the period ended 31 December 2023

 

 

Q4 and full year trading in line with expectations and guidance

 

Group returned to continuing revenue growth in Q4, at +1.1%

 

Free cash flow breakeven achieved for FY 2023

 

Strong balance sheet and liquidity, with c.£600m of cash and available
facilities

 

New and expanded Ingenuity partnerships contributing c.£175m incremental GMV

 

 

Q4 2023 Group Trading Performance 1 

 

Following the sale of the THG OnDemand division earlier in 2023, the Group
completed its strategic review of non-core categories in H2, 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 (See Appendix for
further details).

 

                                 Q4 2023                  FY 2023
 £m                              Q4     YoY 2    CCY 3    FY       YoY      CCY

                                 2023   change   change   2023     change   change
 THG Beauty                      387.1  +0.5%    +2.6%    1,173.5  -4.6%    -4.3%
 THG Nutrition                   166.5  -6.0%    -3.9%    658.0    -0.7%    +0.0%
 THG Ingenuity (external)        44.3   +5.8%    +8.1%    153.7    -3.7%    -3.3%
 Group (continuing) revenue      597.9  -1.0%    +1.1%    1,985.3  -3.3%    -2.9%
 Discontinued revenue 4          9.9    -80.1%   -80.4%   58.9     -68.5%   -68.6%
 Total revenue                   607.8  -7.1%    -5.4%    2,044.2  -8.7%    -8.4%

 THG Ingenuity internal revenue  153.4  -9.1%    -9.1%    519.7    -13.0%   -13.0%
 THG Ingenuity total             197.7  -6.1%    -5.7%    673.4    -11.0%   -11.0%

 

 

All comparative figures are continuing CCY unless otherwise stated.

 

·      Q4 best quarterly revenue performance of FY 2023: +1.1%.

 

·      Pleasing Cyber performance, especially across THG Beauty, supported
by accelerating growth in App penetration driving valuable first party
customer data, reducing reliance on paid marketing channels.

 

·     The Group 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.

·    Q4 was another quarter of positive cash performance 5 , supporting
free cash flow breakeven for the year (FY 2022 outflow: -£213m). Cashflow
breakeven was delivered alongside c.£125m of capex investments, reflecting
the Group's stronger profitability, improved inventory efficiency, and
substantially lower cash adjusting items YoY.

 

·      The Group has strong liquidity with c.£600m of cash and available
facilities at the period end.

 

 

THG Beauty Q4 and FY 2023 highlights

 

 Key Performance Indicators     FY     FY     FY       FY       FY       YoY change  CCY change  4 Yr change

                                2019   2020   2021     2022     2023
 Total revenue (£m)             565.3  832.4  1,227.5  1,285.8  1,206.7  -6.2%       -6.0%       +113.5%
 Continuing revenue (£m)        506.4  745.9  1,152.8  1,230.1  1,173.5  -4.6 %      -4.3%       +131.8%
 Active customers 6 (, 7 ) (m)  4.1    6.9    9.2      9.2      8.5      -7.6%                   +107.3%
 Total orders (m)               8.3    13.1   17.1     17.5     16.8     -4.0%                   +102.4%
 Average order values (£)       51     55     60       63       64       +1.6%                   +25.5%

·      The Group's Beauty business built on positive Q3 exit momentum,
delivering Q4 revenue growth of +2.6%. Some of the best performances came from
THG's own beauty brands Perricone MD and ESPA, as well as our retail platform
Cult Beauty.

 

·     Performance in the UK (over half of total Beauty revenue) was
especially strong, delivering c.+9% revenue growth in Q4. Continued
improvements in delivery times through fulfilment automation, along with
significant growth in both App participation (14.7% vs 10.8% Q4 2023) and new
users (+95% YoY), have driven growth in our retail fascias, ahead of that of
the total prestige beauty market in the UK in Q4. 8 

 

·   2023's strategy of focusing on higher margin sales, reducing order
volumes that do not deliver target profitability, continued into Q4. This has
reduced some international order volumes in territories furthest away from
local distribution hubs, where delivery costs are higher, but has supported a
stronger Beauty margin performance.

 

·      H1 challenges in Beauty manufacturing from industry-wide
de-stocking faded in H2, with a return to growth achieved in the quarter
(+11.6%).

 

·      A combination of gross margin improvements, a return to growth in
Beauty manufacturing, and significant cost savings from automation, resulted
in a much-improved H2 EBITDA margin performance.

 

·   The Group's $20m acquisition of US beauty brand Biossance completed in
late December 2023. The brand was successfully re-platformed onto Ingenuity
technology on 10(th) January.

 

 

THG Nutrition Q4 and FY 2023 highlights

 

 Key Performance Indicators  FY     FY     FY     FY     FY     YoY change  CCY change  4 Yr change

                             2019   2020   2021   2022   2023
 Total revenue (£m)          412.9  562.3  659.5  675.1  664.4  -1.6%       -0.9%       +60.9%
 Continuing revenue (£m)     399.8  544.1  641.2  662.7  658.0  -0.7%       +0.0%       +64.6%
 Active customers (m)        4.3    6.3    7.2    7.0    6.7    -4.3%                   +55.8%
 Total orders (m)            8.7    12.3   13.9   13.2   12.8   -3.0%                   +47.1%
 Average order values (£)    48     47     46     50     49     -2.0%                   +2.1%

 

·      Full year revenue growth was flat as we managed the business
throughout the year with a focus on profit margins. Following the
normalisation of global commodity prices, strong margin progression has been
delivered through the year with FY 2023 set to be a record THG Nutrition
EBITDA performance, reaping the rewards from the prior year investment in
pricing strategy.

 

·      The margin potential of the business was further enhanced by
expanding a royalty model with carefully chosen partners in key territories.
Targeted offline Myprotein licensing deals were launched in our two largest
markets: UK (with major grocer, Iceland), and Japan (with leading distributor,
Itochu). THG Nutrition is extensively involved in all aspects of the
development of products being ranged.

 

·      These offline partnerships have increased customer touchpoints and
broadened the brand appeal of Myprotein, with further partnerships and
category expansion planned in 2024 (including high protein pancakes, yoghurts
and ready to drink chilled coffee).

 

·      Revenue from Myprotein products sold under licensing arrangements
scaled rapidly to over £36m (FY 2022: c.£2m). Under these arrangements, our
licensing partners record the revenue from products sold i.e. £36m, with THG
Nutrition receiving a royalty payment.

 

·      Accordingly, the total global GMV of THG Nutrition brand sales in
2023 increased +5% YoY in 2023 (UK +22%, Japan -1%).

 

·      Currency was something of a headwind during the financial year and
this peaked in Q4 2023. More specifically the 13% decline in the Japanese Yen
vs GBP impacted revenue in the Japanese market, which is c.15% of THG
Nutrition revenue. However, at current rates, this negative revenue impact
will begin to annualise in H2 2024 and should represent less of a headwind.

 

·      Performance in the UK (over 30% of THG Nutrition revenue) remained
strong in Q4, delivering c.+10% revenue growth.  While c.86% of FY 2023
revenue was generated through direct-to-consumer channels, an increasing focus
on offline partnerships led to Myprotein also being recognised as the fastest
growing sports nutrition brand in the UK retail market. Recent launches
include Sainsbury's, Asda & Iceland, whilst existing partnerships with
Boots, Morrisons & Tesco have been extended.

 

·      After a 2-year process, local manufacturing will launch in both
Japan and India in 2024, improving delivery timelines, local product range
development and securing significant cost savings. Local manufacturing in
Japan will also largely eliminate future risk from Yen FX volatility and
reverse the estimated impact of prolonged Yen weakness on EBITDA (estimated
c.£20m negative impact in 2023 vs 2020).

 

 

THG Ingenuity Q4 and FY 2023 highlights

 

                              Q4 2023                  FY 2023
 £m                           Q4     YoY      CCY      FY     YoY      CCY

                              2023   change   change   2023   change   change
 External revenue             44.3   +5.8%    +8.1%    153.7  -3.7%    -3.3%
 Internal revenue             153.4  -9.1%    -9.1%    519.7  -13.0%   -13.0%
 Total THG Ingenuity revenue  197.7  -6.1%    -5.7%    673.4  -11.0%   -11.0%

 

·      Q4 2023 was the first quarter to see the benefits of the decision
taken in 2022 to pivot to more complex, higher margin Enterprise clients, with
external clients delivering double-digit revenue growth in November and
December).

 

·    Progress in onboarding Enterprise clients continued throughout 2023,
signing major brands including L'Oreal, Access Corporate Group and PepsiCo,
while broadening partnerships with Asda and Mondelez.

 

·     Today the Group also announces an agreement in principle to partner
with the UK's leading wellness retailer Holland & Barrett to provide D2C
operational services, taking advantage of THG's automated distribution
facilities and extensive fulfilment and courier management services to support
their rapidly scaling ecommerce business.

 

·     Together these partnerships will add c.£175m of incremental GMV to
the Ingenuity operations and technology platform during 2024.

 

·      Monthly recurring revenue 9  continued to build in December at
+14.7% YoY, an acceleration on September's +7.6%.

 

·   THG's Beauty and Nutrition divisions implemented profitability
improvement plans through 2022 and 2023, which included the discontinuation of
non-profitable categories. As these divisions return to growth, inter-group
revenue will also benefit.

 

 

Outlook and guidance

 

·      FY 2023 continuing adjusted EBITDA expected to be above £117m,
with Group adjusted EBITDA over 75% higher YoY.

 

·    Exit momentum from 2023 underpins our confidence in all divisions
delivering growth in FY 2024. A more detailed update on the outlook for FY
2024 will be provided alongside the Group's Preliminary results in April.

 

·     FY 2024 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 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.

 

 

Strategic update

 

The Group operates 3 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 c.9%
adjusted EBITDA margins in the medium term.

 

 

Matthew Moulding, CEO of THG commented:

 

"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 & 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 1 day. These widespread service improvements were
achieved alongside a meaningful reduction in the cost of fulfilment.

 

"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."

 

 

Corporate governance update

 

THG also today announces 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).

 

We continue to monitor the FCA listing regime review in respect of the move to
the Premium segment.

 

 

Analyst and Institutional investor conference call

 

THG will today host a conference call for analysts and institutional investors
at 8:30am (UK time) via the following link:

 

https://stream.brrmedia.co.uk/broadcast/6581acb1eefadbc2f3e42521
(https://stream.brrmedia.co.uk/broadcast/6581acb1eefadbc2f3e42521)

 

To ask questions, you must dial in via conference line using the below
details:

 

·     Confirmation password: THG Q4 Update

·     UK dial in: +44 (0) 33 0551 0200

·      US dial in: +1 786 697 3501

 

 

For further information please contact:

 

 Investor enquiries - THG PLC
 Greg Feehely, SVP Investor Relations                                    Investor.Relations@thg.com (mailto:Investor.Relations@thg.com)

 Kate Grimoldby, Director of Investor Relations and Strategic Projects

 Media enquiries:
 Powerscourt - Financial PR adviser                                      Tel: +44 (0) 20 7250 1446
 Victoria Palmer-Moore/Nick Dibden/Nick Hayns/Russ Lynch                 thg@powerscourt-group.com (mailto:thg@powerscourt-group.com)

 THG PLC

 Viki Tahmasebi                                                          Viki.tahmasebi@thg.com (mailto:Viki.tahmasebi@thg.com)

 

APPENDIX

 

Quarterly reported revenue growth rates, adjusted for additional discontinued
categories

                             Q1 2022  Q2 2022  Q3 2022  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q4 2023  FY

                                                                                                     2023
 THG Beauty                  +20.8%   +21.9%   +4.1%    -8.2%    -9.3%    -8.6%    -2.8%    +0.5%    -4.6%
 THG Nutrition               +11.3%   -5.0%    +4.0%    +4.9%    +5.7%    +1.3%    -3.8%    -6.0%    -0.7%
 THG Ingenuity               +17.9%   +11.1%   -2.5%    -14.1%   -14.3%   -15.4%   -8.8%    -6.1%    -11.0%
 Inter-group elimination     +10.6%   +10.2%   -4.2%    -14.0%   -15.5%   -17.1%   -10.5%   -9.1%    -13.0%
 Group (continuing) revenue  +19.6%   +11.0%   +4.0%    -5.2%    -4.3%    -5.1%    -3.2%    -1.0%    -3.3%
 Other (discontinued)        -18.8%   -10.8%   -18.5%   -34.2%   -51.8%   -63.8%   -77.8%   -80.2%   -68.5%
 Group revenue               +14.9%   +8.6%    +1.6%    -8.3%    -8.3%    -10.3%   -9.5%    -7.1%    -8.7%

 

 Quarterly constant currency revenue growth rates, adjusted for additional
discontinued categories

                             Q1 2022  Q2 2022  Q3 2022  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q4 2023  FY

                                                                                                     2023
 THG Beauty                  +16.1%   +9.2%    -10.0%   -18.7%   -12.8%   -8.8%    +0.1%    +2.6%    -4.3%
 THG Nutrition               +9.8%    -10.5%   -4.9%    -1.8%    +4.2%    +1.4%    -1.4%    -3.9%    +0.0%
 THG Ingenuity               +18.2%   +10.7%   -3.4%    -14.9%   -14.6%   -15.4%   -8.4%    -5.7%    -11.0%
 Inter-group elimination     +10.6%   +10.2%   -4.2%    -14.0%   -15.5%   -17.1%   -10.5%   -9.1%    -13.0%
 Group (continuing) revenue  +16.4%   +2.1%    -7.5%    -14.4%   -7.1%    -5.5%    -0.5%    +1.1%    -2.9%
 Other (discontinued)        +40.9%   +70.6%   +37.9%   +6.0%    -50.7%   -63.8%   -78.3%   -80.4%   -68.6%
 Group revenue               +18.2%   +5.7%    -4.8%    -13.1%   -10.9%   -10.4%   -7.4%    -5.4%    -8.4%

 

Quarterly revenue growth rates (as per Q3 2023 trading statement
discontinuation)

 

                             Q1 2022  Q2 2022  Q3 2022  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q4 2023  FY

                                                                                                     2023
 THG Beauty                  +16.7%   +19.2%   +3.0%    -9.4%    -10.7%   -10.2%   -4.4%    -1.0%    -6.2%
 THG Nutrition               +9.8%    -5.8%    +3.0%    +4.2%    +4.5%    +0.2%    -4.6%    -6.5%    -1.6%
 THG Ingenuity               +17.9%   +11.1%   -2.5%    -14.1%   -14.3%   -15.4%   -8.8%    -6.1%    -11.0%
 Inter-group elimination     +10.6%   +10.2%   -4.2%    -14.0%   -15.5%   -17.1%   -10.5%   -9.1%    -13.0%
 Group (continuing) revenue  +16.6%   +9.4%    +3.0%    -6.3%    -5.6%    -6.5%    -4.4%    -2.1%    -4.5%
 Other (discontinued)        -10.1%   -2.7%    -17.6%   -34.9%   -58.8%   -76.3%   -97.6%   -100.0%  -83.7%
 Group revenue               +14.9%   +8.6%    +1.6%    -8.3%    -8.3%    -10.3%   -9.5%    -7.1%    -8.7%

 

Quarterly constant currency revenue growth rates (as per Q3 2023 trading
statement discontinuation)

 

                             Q1 2022  Q2 2022  Q3 2022  Q4 2022  Q1 2023  Q2 2023  Q3 2023  Q4 2023  FY

                                                                                                     2023
 THG Beauty                  +21.5%   +15.2%   -4.7%    -14.8%   -13.8%   -10.5%   -2.0%    +0.7%    -6.0%
 THG Nutrition               +12.4%   -8.5%    -3.1%    -0.5%    +3.1%    +0.3%    -2.3%    -4.5%    -0.9%
 THG Ingenuity               +18.2%   +10.7%   -3.4%    -14.9%   -14.6%   -15.4%   -8.4%    -5.7%    -11.0%
 Inter-group elimination     +10.6%   +10.2%   -4.2%    -14.0%   -15.5%   -17.1%   -10.5%   -9.1%    -13.0%
 Group (continuing) revenue  +20.5%   +6.1%    -3.9%    -11.3%   -8.1%    -6.9%    -2.1%    -0.2%    -4.2%
 Other (discontinued)        -10.9%   -2.7%    -17.9%   -35.0%   -58.8%   -76.3%   -97.6%   -99.9%   -83.7%
 Group revenue               +18.2%   +5.7%    -4.8%    -13.1%   -10.9%   -10.4%   -7.4%    -5.4%    -8.4%

 

 

ENDS

 

Notes to editors

THG PLC operates 3 distinct businesses in Beauty, Nutrition and Ingenuity,
each scaled from the UK to hold global leading positions in their respective
sectors.

 

Cautionary Statement

 

Certain statements included within this announcement may constitute
"forward-looking statements" in respect of the group's operations,
performance, prospects and/or financial condition. Forward-looking statements
are sometimes, but not always, identified by their use of a date in the future
or such words and words of similar meaning as "anticipates", "aims", "due",
"could", "may", "will", "should", "expects", "believes", "intends", "plans",
"potential", "targets", "goal" or "estimates". By their nature,
forward-looking statements involve a number of risks, uncertainties and
assumptions and actual results or events may differ materially from those
expressed or implied by those statements. Accordingly, no assurance can be
given that any particular expectation will be met and reliance should not be
placed on any forward-looking statement. Additionally, forward-looking
statements regarding past trends or activities should not be taken as a
representation that such trends or activities will continue in the future. No
responsibility or obligation is accepted to update or revise any
forward-looking statement resulting from new information, future events or
otherwise. Nothing in this announcement should be construed as a profit
forecast. This announcement does not constitute or form part of any offer or
invitation to sell, or any solicitation of any offer to purchase any shares or
other securities in the Company, nor shall it or any part of it or the fact of
its distribution form the basis of, or be relied on in connection with, any
contract or commitment or investment decisions relating thereto, nor does it
constitute a recommendation regarding the shares or other securities of the
Company. Past performance cannot be relied upon as a guide to future
performance and persons needing advice should consult an independent financial
adviser. Statements in this announcement reflect the knowledge and information
available at the time of its preparation.

(( 1 )) All figures throughout this release are presented on an unaudited
basis.

 2  YoY defined as year-on-year statutory sales growth.

(( 3 )) CCY defined as constant currency basis.

 4  Discontinued revenue also comprises OnDemand and ProBikeKit (2023
disposals)

 5  Group free cash flow is calculated after working capital, net capital
expenditure, adjusting items, tax and financing (prior to debt capital
repayments and consideration on acquisitions).

 6  THG Beauty KPIs exclude Glossybox beauty subscriptions and THG Luxury.

 7  Active customers is defined as customers who have purchased at least once
within the period.

 8  As per third-party data and management estimates.

 9  Monthly Recurring Revenue comprises software-as-a-Service license fees,
monthly brand building fees, infrastructure service fees, revenue share,
translation and creative services.

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