THG warns on profit margins

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UK ecommerce group THG warned that last year’s profit margins would miss forecasts, dealing another blow to investors who sent shares in the once high-flying company down 6 per cent in early trading on Tuesday.

THG, which was hailed as a rare UK tech success when it floated in 2020, said that its margins before interest, tax, depreciation and amortisation were expected to be 7.4 to 7.7 per cent in 2021, shy of analysts’ expectations of around 7.9 per cent.

The Manchester-based group pinned most of the blame on movements in exchange rates, and said it expected margins to recover this year as it ploughed money into automation and won new clients.

However, it added that the improvement would be weighted towards the second half of this year. The company said that the first few months of 2022 would be “more challenging” owing to the strong comparatives in the same period of 2021, when repeated lockdowns across major economies turbocharged online shopping.

The company, formerly known as The Hut Group, has been battling to win back investors’ confidence as prospects for Ingenuity Commerce, its end-to-end technology service that generates the strongest margins, has come under intense scrutiny.

Ingenuity should achieve sales of £108m-£112m in 2022, against £45.4m in 2021, the group said in its trading update on Tuesday.

Fourth-quarter sales at the group were £711m, up 27 per cent on last year, though this was boosted by acquisitions. Revenue at Ingenuity was up 41 per cent from a year ago.

THG shares have tumbled more than 75 per cent over the past 12 months, driven in part by concerns over governance at the company.

Founder and chief executive Matthew Moulding sought to address the worries by pledging to appoint an independent chair, providing some additional information about Ingenuity and promising to end a “special share” takeover defence earlier than scheduled.

In the trading update, THG said that overall revenues grew 35 per cent last year to £2.18bn, just missing the 36.1 per cent average of analysts’ forecasts. If exchange-rate movements are stripped out, revenues climbed 37 per cent.

Moulding said that the group had “scaled revenue and expanded our business model well ahead of expectations at the IPO”, adding that the new year had started well.

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