THG has this morning denied media reports that key beauty suppliers are restricting stock over concerns around discounting, as market concerns again hit its share price.
The Telegraph at the weekend reported that beauty suppliers to THG, including Unilever’s Dermalogica, are restricting the flow of stock to Matthew Moulding’s online retail empire over concerns it is too aggressively discounting to hit sales targets.
THG denied the reports to the stock market this morning, saying it “knows of no notifiable reason for the share price movement” after its shares dropped another 8.8% back to 103.4p
It said Dermalogica has not placed and is not looking to place any restrictions on its trading relationship with THG Beauty, including with regard to the supply of stock.
THG added that the Dermalogica and THG Beauty trading relationship is over 10 years in length and “whilst it remains very positive” the overall revenues generated are minimal to the group, at 0.1% of full year 2021 sales.
The troubled online empire added that it is not aware of any other key supplier to THG Beauty who has or who intends to reduce supply or take any similar steps.
It stated: “THG entered the beauty market at the end of 2010 and, as THG Beauty, has since grown into a business delivering prestige beauty sales of £1.1bn during its 2021 financial year. THG remains focused on building long-term relationships with its suppliers.”
“THG Beauty is the pre-eminent, digital-first brand owner, retailer and manufacturer in the prestige beauty market, providing a global route to market for over 1,000 third-party beauty brands. This makes THG a key partner for brands looking to deliver growth in digital sales.”
The shares have rebounded 3.9% on the news to 107.4p.
UPDATE - Since publication of The Telegraph article, the newspaper has issued a corretion and removed the online article referencing the supposed dispute.
The Telegraph said it acknowledged the statement to the stock exchange denying the story and is “happy to update the record to reflect that we are not aware of any such disputes or restrictions”.
FTSE 100 drinks group and Eastern Europe Coke bottler Coca-Cola HBC saw a strong trading recovery in 2021, with all metrics back above pre-pandemic levels.
The group, which suppliers Coca-Cola products to countries including Russia, Ukraine and Nigeria, saw FX-neutral revenue per case expanded by 5.8%, or 3.9% excluding pricing taken to pass on the Polish sugar tax.
It said price action to mitigate with inflation was taken in 95% of its markets, while market share expanded and volumes were not negatively impacted, outside of Poland. Pricing was taken throughout the year with actions in every quarter, including an additional wave in fourth quarter in response to increased COGS pressure.
2021 FX-neutral revenue increased by 20.6% on a like-for-like basis. Reported net sales revenue increased by 16.9%, negatively impacted by the weakening of the Russian Rouble and the Nigerian Naira.
Category mix also improved as it drove higher sparkling and energy penetration, while package mix improved driven by higher single-serve incidence in the at-home channel, as well as the reopening of the out-of-home channel.
Comparable gross profit grew by 11.7% while gross profit margins declined by 170 basis points to 36.2%. Gross profits were hit by headwinds from input cost inflation across key commodities of sugar, aluminium and PET resin in the second half of the year in particular. FX- neutral raw material cost per case increased by 8%, while comparable costs per case increased by 6.3% in the year.
Comparable operating costs increased by only 7.5% or €125.4 million as it retained careful cost discipline throughout the year.
Comparable EBIT increased by 23.6% to €831m, taking comparable EBIT margins up 60 basis points year on year, to 11.6%, including a 30-basis point benefit from the sale of a property in Cyprus in December.
In 2022, it expects volume growth to continue in 2022, led by ongoing good momentum in the Emerging segment. Pricing and other revenue growth management actions will drive another year of FX-neutral revenue per case expansion.
Overall, in 2022, it expects to see FX-neutral revenue growth excluding Egypt above the 5-6% average target range.
However, it continues to expect commodity cost inflation in 2022 and guided towards the upper end of its previous high-single digit COGS/case increase, with more significant headwinds in the first half than the second.
CEO Zoran Bogdanovic commented: “The business has delivered a very strong recovery in 2021, with all key metrics above pre-pandemic levels, the result of consistent and disciplined focus on our strategic priorities over the last few years.
“We finished the year with strong revenue growth, our highest ever EBIT margin and free cash flow while continuing to gain share. This performance demonstrates the strength of our 24/7 brand portfolio, revenue growth management capabilities and execution excellence in our markets.
“We are encouraged by the momentum we see in the business. We expect 2022 to be a year of strong sales supported by ongoing volume momentum, pricing actions and beneficial category mix. While mindful of inflationary headwinds and other risks, our track record and continuous focus on efficiencies give me confidence in delivering another year of EBIT growth.”
Elsewhere, McBride has posted a first half loss amid lower sales and “the most extreme inflationary cost environment to ever hit the sector”.
Half-year revenues of £323.4m in the six months to 31 December were 6.6% lower on a constant currency basis, when compared to the same period last year, which benefited from particularly strong initial Covid-19 related demand in key categories.
The influence of skewed demand from changing consumer behaviour resulting from Covid-19 through the past two years makes inter-year comparisons difficult, McBride said.
When compared to the second half of 2021, revenues were 2.6% higher at constant currency, but volumes in the period are 3% lower than first half 2020, the last reported six month period before the pandemic hit. This fall is entirely down to laundry categories which, according to external data has seen a fall in total market demand since 2019, with the group’s cleaners and dish volumes at or above the 2019 level.
Adjusted operating profit for the first half reduced by £33.8m to a loss of £14.8m, predominantly due to exceptional raw material, packaging and logistics cost increases.
McBride said it has been actively engaged with all its customers to secure “substantial” price increases to mitigate the impact of these exceptional cost rises affecting the whole industry.
Early increases in late summer have now been outpaced by further rises in input costs and hence further pricing actions have taken place.
“It is pleasing to see the support of customers to these price increase requests with the effect of these further increases starting to benefit trading in December 2021 and delivering more fully from January 2022 onwards,” it stated.
It said trading in the early part of 2022 has been slightly ahead of most recent internal expectations and our current outlook is for the second half is to show an improvement overall compared to the first half year.
For the final quarter of its financial year ending 30 June 2022, it expects to see pricing actions getting closer to maturity and the business returning close to break-even at an EBITA level before moving onto modest profits in the new financial year.
Pricing actions are still ongoing at this time across all countries, with the main focus being recovery of material input cost rises in the final quarter. “As with all pricing actions, we remain cautious on the risk to volumes as our customers manage the price positioning of their products in this period of exceptionally strong inflation,” the company said.
It anticipates input costs to broadly stay in line with our December 2021 estimate through to the early summer, although the outcome of current geo-political tensions, and ongoing supply and demand mismatches, could cause volatility in many key commodity items.
CEO Chris Smith said: “The group is experiencing the most extreme inflationary cost environment probably ever to hit this sector. As we progress through the first part of 2022 it is encouraging that we expect the final quarter of our financial year to see our pricing actions getting closer to maturity and the business returning to close to break-even at an EBITA level and cash-flow neutral.
“The outlook is of course heavily dependent on our actions to deliver the outstanding essential price increases currently in discussion with our customers, as well as other external factors such as the development of input costs and other inflationary pressures, and continuing supply chain disruptions.
“The group’s core activities remain strong and the dedication of the entire McBride team to resolve the challenges confronting us is a strong demonstration of our values and the commitment to return the group to profitability.”
On the markets this morning, the FTSE is down 0.5% to 7,449.6pts on escalating tensions in the Russia/Ukraine political situation.
Other than THG, risers include Science in Sport, up 2.7% to 60.6p, Glanbia, up 1.1% to €12.51 and Deliveroo, up 1.1% to 129p.
Fallers include McColl’s, down 11.5% to 7p, Coca-Cola HBC, down 6.8% to 2,158p and McBride, down 4.4% to 45.9p.
Yesterday in the City
The FTSE 100 started the week on the back foot, falling 0.4% to 7,484.3pts.
THG slumped a further 8.8% back to 103.4p on reports of disputes between the company and key beauty products suppliers.
Also falling were Coca-Cola HBC ahead of this morning’s results, down 4.5% to 2,315p, Finsbury Food Group, down 3.4% to 85.5p after posting a first half profits decline.
Further fallers included Just Eat Takeaway.com, down 3.3% to 2,898p, Coca-Cola Europacific Partners, down 3.3% to €47.67, C&C Group, down 3% to 212.4p, Devro, down 2.8% to 208p and Greggs, down 2.4% to 2,523p.
The day’s few risers included B&M European Value Retail, up 1.5% to 592.2p, Bakkavor, up 1.2% to 123p, McBride, up 1.1% to 48p, Associated British Foods, up 1% to 1,927p and Hilton Food Group, up 0.8% to 1,072p.