Shares of Manchester-based consumer brands giant THG plc rose as much as 10% after it announced an agreement in principle with wellness retailer Holland & Barrett (H&B) on a “major new partnership” for its THG Ingenuity business.
THG also published its fourth quarter (Q4) 2023 trading statement in which it reported “continued progress on its Enterprise strategy, signing major brands including L’Oreal, Access Corporate Group and PepsiCo, while broadening partnerships with Asda and Mondelez.”
The Manchester group said that together, these partnerships will add £175 million of incremental GMV (gross merchandise value) to its Ingenuity operations and technology platform during 2024.
The trading statement reported Q4 and full year trading in line with expectations and guidance and that the group “returned to continuing revenue growth in Q4, at +1.1%.”
On the Holland & Barrett agreement, THG said: “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, whilst leveraging the scale and capacity of 13 international fulfilment centres.”
THG CEO 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.”
Holland & Barrett chief operating officer Anthony Houghton 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.”
The Q4 trading statement reported: “Q4 best quarterly revenue performance of FY 2023 …
“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, 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.”
In its “outlook and guidance” the company said: “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.”
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 & 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.”