THG Plc

Good morning everybody and thank you for joining us this morning for our interim results. We're going to do things slightly different today than the previous presentations that we've done. We've kept away from doing a walkthrough on a video of our presentation. Instead, what we've done, we've put the presentation online early along with the detailed R&S and then with a lot going on in the group at the moment, we think that a lengthier Q&A section will probably provide more value for everybody. In terms of the H1 itself, I think what I would say is it's been a solid half in general, but the makeup of that half has been somewhat a bit different than maybe we would have anticipated six or 12 months ago. Following the business model changes that we've made through 2022 and 2023, The beauty and ingenuity divisions have delivered record performances. So we're really pleased with the progress that we've made through those business model changes. And we see good momentum there as well coming into the second half and thereafter. So that's been a particularly pleasing performance. We've also got more contract wins with great success. positivity feeding through in terms of the ingenuity progress so again that's that's been solid we've faced some headwinds in the nutrition division probably the the biggest factor that you'll note in there has been through FX we've taken in excess of five million pounds with a profit hit from from FX principally around the Asia and and the well-documented volatility in the Japanese yen. I think one of the things to note from there is whilst that volatility is still there today, as we look forward to 2025, it's probably the first time now for a few years that we've been able to look forward to 2025 or the year ahead with some form of positivity around the FX there. So we're pleased with the direction of travel there, but that has been a frustration for us. One of the things that we've been able to do to handle that FX is we've launched our own manufacturing. So in the sense of being able to manufacture within territory. So that will steadily now start to be able to scale. And that does reduce our reliance and impact from FX volatility in the region. It's certainly done that across Europe and the US and other territories where we've done that through the years. And that's why we don't particularly ever note any volatility in those regions. I think the other area to really bring to everyone's attention is obviously the rebrand. It's been a major rebrand, probably the most, well, certainly the most complex brand rebrand we've ever done. The last time we did a rebrand for MyProtein was in 2018. To give you some idea of the complexity, you're probably looking at thousands and thousands of product lines across different countries in the world in different distribution centers, which compared back to 2018 would have been a fraction of that. And so this has really stepped up the complexity. When you do do a rebrand, obviously what we've chosen to do is we've chosen to limit that disruption to our online business. And if you look at the growth that we're seeing in the offline piece of the nutrition business, that's been particularly strong, minimal disruption there. And our average selling prices going into the offline market are actually in growth. But as we have pushed through the brand changes, we've done that to allowing our own customers to be able to partake in the discounts that you have to put in place to be able to drive through those product changes. Now, as a result, if you were to look back at 2018 at the last rebrand, We took our growth backwards from 24%, I think it was, in 2017 down to 6% in 2018 when we took that rebrand on. And then as we move forward into 2019, that growth then reaccelerated to 20% before then we had the explosive growth that you would have seen through the COVID period, etc., So the key thing that pulls back that growth when we did that rebrand in 2018 is the average selling prices as you implement discounts across the websites to transition the brand from old to new. And that's very similar to what you've seen in this year and in the first half of this year. where average selling prices across the websites have been down around, on a constant currency basis, around 12%. And that's pulled back the revenue in that nutrition division to about 7.5%, I think it is, that we've reported for half one. But what I'm pleased to say is obviously that rebrand is now largely behind us. We started that rebrand in September last year, so we start to comp those numbers. And actually for September this year, as we've stated in the R&S, we're expecting a return to growth for MyProtein, which Given the extent of changes we've put that business through, that's been somewhat of a relief. I don't mind saying that. The summer itself, it never seemed like it was ever-ending, but finally it feels like we've come through with the progress there. I think in terms of the output from the rebrand, just to remind people why we've done this, we've done this to be able to attack a significantly bigger offline market, which we've never really addressed in the past. And through the listings that you've seen of the brand and some of the licensing deals we've done most recently, the Muller and MyProtein partnership together, you can see some real success there. And you're seeing really, really strong growth. So, you know... In half one, I think the number would be in excess of 40% growth in our online retail sales. And so we're seeing great success, and that strategy should pay off for us as we then start to grow that segment quite considerably. I think a few other things to touch on from the half one, touching on the outlook. So we stated in there that we'd expect to be within consensus, albeit at the lower end of consensus. And just to remind people that we took a 5 million plus FX hit just in Asia with the Japanese yen in the first half, and that volatility still lingers for us for this year. um so naturally we'd expect that to be a key factor there's not a lot we can do with fx particularly other than localized which is something we've been working on for the last couple of years but hopefully that will become a a good tailwind for us next year and then and and and and then We can put all that behind us. I think other things to note, obviously, we're very aware that there's been a spike in the way pricing in the markets at the moment on the commodity side of things. We've got a good history of how to navigate that for those that have been involved or a stakeholder in THG through 2022. You will see that we stood firm on pricing. providing and helping our customers with support through the cost of living crisis. And we really dug deep in there. And then the following year we delivered record profitability ever in the nutrition division. as that was rewarded. So we've got a good plan of attack in terms of how we do that and we'll respond in the market depending on how that volatility sits. But we don't expect that to be a long-term volatility in any event. So it's obviously worth noting that. i think the other things to note is obviously around things like the balance sheet so you'll see an increase in the net debt at the half year which is transitory a few items in there you know the underlying free cash generation the business is actually stronger than the prior year in the prior year we had a some freehold disposals of 55 million and then also in this last 12 months we've made 20 million pounds worth of acquisitions All of that said, what we're expecting is, well, we had some VAT balances that are set to unwind by the end of this quarter, which is material, and that comes back our way. Also, the mix in our creditors, where nutrition creditors are worth double the creditor days. So from a working cap perspective, as you pull back from your nutrition division, you'll see less working capital benefit temporarily now as we return to growth that reverses. So that's quite a material point. And then I think the final point I would say is naturally the capex is continually reducing. So we'd expect a materially lower capex in the second half and also through to next year. So lots of positives for us there in terms of the outlook, in terms of that performance. But, you know, clearly there's plenty of work to do for us to make sure we're on a really strong footing for 2025. I think some other things that we've got in the update today, which obviously of key interest to people, we have the step up that we've been waiting for the FCA to finalise the rules and the guidance there. So that's now there and clearly we'll be making the step up in due course. And if there's any Q&A on that, I'm sure Damien can help with that. And then at the same time, we've outlined our work that we're doing on the Ingenuity demerger. So I'd expect, naturally, quite a few questions. And I know the team have been speaking with the analysts this morning and running them through that. I think, look, taking a step back, we have three very sizable businesses two of which are very cash generative, highly profitable businesses. And then we have the Ingenuity business, which is an infrastructure play where we invest our surplus cash into Ingenuity to build an asset for the future. Maybe something you might see similar to when Sky was building out its network and Sky dishes across or many other infrastructure plays that people would know about. what's clear for us is that in an environment of high interest rates, that cash-generative businesses are valued quite different than businesses that are doing an infrastructure play. We've had extensive discussions now with shareholders over the past year, and what is clear is I think we're all aligned that Having an infrastructure business as part of the group is probably, as a listed business, something that shareholders would prefer to see more value in other uses of capital than building that asset. So obviously, we are super passionate about that asset and see incredible value and opportunity with it. And so that's something that we've been exploring in great detail. We've obviously done a lot of work over the summer on this project and before. We've now received all the necessary tax clearances from HMRC to be able to go forwards and do this. We obviously did extensive separation work across the group throughout 2021 and 2022 on an £8 million project to basically rewire the group's operating system so they can operate independently. That's all been successfully done. And so that's something that the board and stakeholders are looking at in terms of the right steps in which we should look at potentially doing that demerger. I think, you know, save, there'll obviously be quite a bit of questions. So rather than me just keep going on around any of those points and trying to guess what the Q&A is, we'll probably leave that for the next section. But just to give everyone a few moments to make any notes and come back with any further thoughts, what we've now got is a brief business video just touching on some of those points from H1, touching on the rebrand and things like that. and then we'll move into Q&A and go in much more detail.

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