THG has cut its profit forecast for the fourth time in 12 months and cut 2,000 jobs, underscoring the challenges facing the e-commerce group that is seen as the big hope for the UK tech sector as it floats through 2020.
The Manchester-based group, which mainly focuses on direct-to-consumer sales of beauty and nutritional products, said higher raw material costs and contract timing had hit profits last year.
As a result, THG expects adjusted earnings before interest, tax, depreciation and amortization to be between £70m and £80m for 2022, down from £100m-£130m in October and shy of the £98m forecast by analysts.
Shares in the group fell 8 per cent in early trading in London on Tuesday, down 87 per cent since the group was listed at a value of more than £5bn in September 2020.
Formerly known as The Hut Group, THG has announced it has cut 2,000 roles as part of a reorganization that will save £100 million a year. Savings of over £30 million have been identified and will be made by 2023.
“Lossmaking categories and areas within the THG OnDemand division,” which includes websites such as Zavvi and Pop In A Box, will also be reviewed, the company added in a statement.
It plans to sharpen its focus on its core beauty and nutrition e-commerce business as well as its Ingenuity division, which provides services to multinational consumer groups. Last year SoftBank canceled a deal that would have seen the Japanese group buy a $1.6bn stake in Ingenuity.
Sales for 2022 reached £2.25bn but less than the £2.37bn analysts expected. Full-year numbers show that sales in the final quarter of 2022 were 16 percent below market forecasts, analysts said.
The latest profit downgrade is the fourth in the past 12 months. This time last year, it was warned that the 2021 results would be lower than forecast. There is a second mark with full year numbers in March and a third in half year results in September.
THG did not provide guidance for the current year, but said low raw material prices, cost savings and benefits from warehouse automation in the US should support a recovery in profits.
Chief executive and co-founder Matthew Molding said the fall in the price of commodities such as whey, used in many of the group’s Nutrition products, gives the group “confidence in significant profit progress as we move through the year ahead”.
“We remain very confident of delivering an adjusted ebitda margin of more than 9 percent over the medium term,” he said.
The group said that the change in strategy at Ingenuity, with a greater focus on larger clients with stronger margins and more revenue “is now yielding tangible results” and “in continued discussions to provide long-term software solutions for some an important corporate client.”.
THG generated free cash flow of £50 million in the second half of the year to finish 2022 with net debt of £200 million, although this will drop to £160 million after £40 million resulting from “disposal of non-core assets” in the first half of 2023.