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The Hut Group has lured millions of new customers to its stable of brands as demand for the company's beauty products and protein powders soared - but its much-hyped technology platform has failed to notch up quite the same stellar growth as its other divisions.
The retailer-cum-technology company posted record sales of £1.6bn, up 41pc for 2020. Underlying profits jumped more than a third to £151m, although one-off costs pushed it to a loss of more than half a billion pounds.
Those charges relate to its blockbuster £5bn stock market listing in September, including bankers’ fees of £14.3m, and paying employees in full while on furlough. The company also owns a handful of swanky hotels that it had to close during lockdowns.
Investors bought heavily into the Hut Group because of high hopes for its white-label technology arm, THG Ingenuity, which helps other firms to sell online. However, this division lagged behind other operations with growth of only 7pc.
Matthew Moulding, the company's self-effacing boss and co-founder, said he was “feeling a bit frazzled” after updating the City. The billionaire is still adjusting to life as a listed company.
“The market was expecting everything we had in those results, strong underlying profit, cash generation was strong, our tech services were really strong,” he said.
Moulding set up the firm with John Gallemore in 2004, originally selling DVDs online. It has since grown to run more than 300 separate websites, with more than 10,000 employees and 18 depots worldwide.
A major Conservative Party donor, Moulding raked in at least £830m-worth of stock after its shares hit targets in the float. He and his wife own 319m shares and have a 25pc stake worth £2.2bn. They will own slightly less after their decision to transfer £100m worth of shares to charity.
The 49-year-old said that there had been some questions in the run-up to the results about whether he would dump some shares to “buy lots of expensive things”, but he added: “I’ve confirmed I’m not selling shares, that's not what I’ve done this [IPO] for.”
Moulding said that soon after the listing, Bill Gates got in touch after businessman Sir Tom Hunter told the Microsoft co-founder about him.
“He mentioned that Tom had spoken to him," he said. "He basically said, ‘what are you doing about philanthropy’. He doesn’t mess around. Yesterday [Wednesday] I got an email from his PA following up.”
Hut Group also said it would raise the annual budget for acquisitions to £250m to acquire more complementary businesses. It bought a "web-based tree planting and carbon offset platform" for about £4m during the period.
He told analysts that its beauty division, which accounts for 47pc of total sales, is the primary focus but added that the group's tech is a key pillar for growing the business. Ingenuity accounted for 8pc of overall sales.
Moulding is betting big on offering other firms the software and a vast logistics network to turbocharge their websites. The move is similar to what Ocado boss Tim Steiner and more recently Next’s Lord Wolfson are hoping to achieve, all for a regular fee. “Every year the projects get bigger and more numerous and we aim to further build it out,” he said.
Hut Group declined to say how many Ingenuity customers it has. It recently added Homebase and UK’s Pentland brands to its roster of clients.
Co-founder Gallemore, who runs Ingenuity, told analysts it signed 31 new clients in the first three months of this year compared with just three in the same period in 2020. A year ago, the fledgling arm had “just three people” compared with 60-odd staff now, he added.
The platform’s first client was the Daily Mail back in 2011. Companies including Hotel Chocolat, L’Occitane, Burt’s Bees and Lulu Guinness now use the platform to bolster their e-commerce offering.
“The pipeline is looking very strong,” Moulding told analysts who asked management for more details about the platform.
But Ingenuity was nonetheless the laggard of the four main divisions during 2020.
Moulding said that this was because many companies it worked with paused or had to overhaul their operations due to the pandemic, which had a knock-on effect on its services.
The reassurances echo Steiner’s long-standing argument that Ocado was more than just an online supermarket.
He previously struggled to convince retailers it was worth taking a punt on its "customer fulfilment centres" that use robots rather than workers to collect products for online orders.
Ocado is now worth £16bn after signing a string of high-profile deals with Kroger in the US, Casino in France and Sobeys in Canada.
James Grzinic, a retail analyst at Jefferies, was bullish about Hut Group's tech ambitions. “Homebase, which launched in March has delivered initial results ahead of expectations," he said.
"Meanwhile, the partnership with L'Occitane was expanded following the successful Elemis global roll out, with THG now also providing the online infrastructure for L'Occitane's organic beauty brand Melvita.
“This has helped secure a variety of new clients for Ingenuity, with the most notable being Pentland, owner of Berghaus, Speedo and Ellesse.”
Jefferies expects Ingenuity's e-commerce sales to be £58m this year, slightly ahead of analyst predictions.
The shares closed down 5.8pc at 663p despite strong growth, suggesting Moulding has more work to do to get bears to back his vision.
However, he remains confident in his plan: "We’ve done three upgrades in the six months since the IPO. We can’t keep upgrading, we have to be sensible. Let’s go and deliver more than three months first, then we come back and then we upgrade. That’s how we operate."