THG sees profit at low end, may demerge ecommerce

Manchester-based online retailer THG forecast full-year profit towards the lower end of analyst estimates, hurt by the sagging Japanese yen, and said it was pushing ahead with a plan to demerge its third-party ecommerce platform, called Ingenuity, after talks with shareholders.

“After extensive discussions with shareholders over the past 12 months, THG is progressing options to demerge THG Ingenuity, leaving our highly profitable and cash generative global Beauty and Nutrition businesses within THG plc,” said Matthew Moulding, CEO of THG. “The appropriate tax clearances have been received, while the necessary separation work has previously been undertaken.”

“At this stage no certainty can be provided on a demerger timescale whilst we consider the options to achieve this outcome,” the company said in a separate statement.

THG shares fell more than 10%.

THG, which sells beauty and nutrition goods under brands such as Lookfantastic and Myprotein, said the second half of the year remains its most profitable period, with spending on beauty and delivery expected to largely mitigate a decline in the nutrition business, which is undergoing a global rebrand. 

However, it said “a key variable beyond our control is the Japanese Yen headwind.” Overall it said “we expect to be towards the lower end of the analyst consensus EBITDA range.”

For the first six months of the year, THG reported constant currency revenue of £911.1 million, up 2.2% from a year ago, as strong growth in beauty and ecommerce services offset declines in online nutrition. 

Continuing adjusted EBITDA for the period was in line with prior year, at £52.3 million, compared with £51.5 million a year ago. 

Moulding said: “Reporting another 6-month period of continuing sales and adjusted EBITDA growth was especially pleasing given the FX headwinds suffered within our Nutrition business, which negatively impacted H1 profitability by a further c.£5m. Local manufacturing and fulfilment is now live in Japan which will steadily scale to reduce exposure.”

 “Beauty revenue growth of +6% supported a record H1 adjusted EBITDA performance, an improvement of c.170% as the business model changes we made to focus on more profitable orders located closer to our global distribution hubs, come to fruition.”

“Further contract wins within Ingenuity is underpinning a steady acceleration in external revenue growth following the repositioning of the business to focus on higher value, multi-service clients. H1 adjusted EBITDA was a record performance, up +227% YoY, almost double the previous best performance in H1 2021.” 

 “The major rebrand of our Myprotein business is nearing completion, and despite the transitory rebrand disruption this has brought, we have seen positive reactions from global consumers, major offline retailers, and licensing partners alike.

Separately, the company said it intends to transfer the listing category of all its ordinary shares to the ESCC category.

The company said: “THG plc is pleased to announce its appointment of a Sponsor in order to facilitate the transfer of all its ordinary shares of £0.005 each, from the equity shares (transition) category of the Official List maintained by the Financial Conduct Authority (FCA) (Official List), to the equity shares (commercial companies) (ESCC) category of the Official List, in accordance with UKLR 21.5R and UKLR TP 2 (the Transfer). The Group is targeting to effect the ESCC transfer for index inclusion no later than March 2025 …

“The Board believes the Transfer will … enable the Ordinary Shares to be considered for inclusion in the FTSE UK Index Series which is expected to improve passive investment flows and liquidity … support execution of the group’s strategy as detailed below, through raising its visibility … afford increased protection for investors under the UKLRs as a result of the higher standards placed on companies admitted to the ESCC category, including in relation to significant transactions and related party transactions … and … benefit its shareholders by making THG’s previously voluntary adherence to certain ESCC category standards of corporate governance, and regulatory and reporting compliance, compulsory.

It is anticipated that, subject to the Transfer becoming effective and other conditions being met, THG will be eligible to be considered for inclusion into the FTSE UK Index Series.”