Newly restructured THG ditches Williams Racing while keeping a shuttered hotel

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THG, the UK-listed retailer of whey protein and lipstick, made a big noise in October 2023 when it signed “a ground-breaking multi-year partnership” with Formula 1 team Williams Racing:

The multi-dimensional agreement sees THG come onboard with Williams Racing as an Official Partner across Nutrition, Technology & Ecommerce and Sustainability.
 
The partnership embodies the shared DNA of two dynamic British organisations, each boasting a legacy of building leading global brands in their respective domains and delivering elite performance through data-driven technology and innovation.

THG and Williams Racing aim to go big on increasing performance on and off the track for drivers, team members and fans alike, leveraging the vast and growing global audience of the sport. Throughout the remainder of the 2023 season and in years to come, THG will support Williams Racing through three of its global brands, bringing world-leading sports nutrition, ecommerce solutions and sustainability expertise.

How’s that working out? Today we get a rather quieter update in the notes section on page 156 of THG’s annual report:

The Group entered into a sponsorship agreement in 2023 with Williams racing which has not delivered the expected commercial returns, as such, this has been identified as an onerous contract. Under the terms of the sponsorship agreement, the Group is contractually obligated to incur annual fees and termination costs. Notice of termination has been provided, and the contract will be exited at the earliest available opportunity; 31 December 2025. The total cost recognised within adjusting items includes the costs incurred from 1 January 2024 plus any unavoidable committed costs to 31 December 2025

The Williams sponsorship kill costs are bundled in with “unavoidable costs committed to an aborted implementation of a Human Resources enterprise reporting platform”. Those items add up to a £7mn write-off.

That’s a bit awkward, but it’s nothing compared with the bath THG takes on hotels, as explained on the same page:

The decision to pause refurbishment work on an asset within THG Experience has led to an impairment charge in the year of £14.9m, this also includes the expected cost of returning the property at the end of the term,

THG investors might have thought hotels were no longer their problem. They would have been mistaken.

Somewhat oddly for a company that primarily deals in powders and serums, pre-float THG acquired several hotels: the King Street Townhouse and Great John Street Hotel in central Manchester, as well as the Hale Country Club and Spa near Manchester airport. Hotels income post the group’s flotation in 2020 was included in the group’s Beauty segment because it was “in support of the Group’s influencer marketing”.

THG hived off its lossmaking Ingenuity logistics arm in December 2024 as part of a fundraising anchored by CEO Matt Moulding. Bundled into the deal were “certain leased assets and operational activities of THG Experience”, though the statement gave no detail.

Today’s annual report reveals that while Hale Country Club Limited and King Street Investments Limited are classed as discontinued operations, Great John Street Hotel Limited is a continuing operation.

That squares with Companies House filings, which show Moulding taking ultimate control of the country club and the townhouse while THG shareholders remain on the hook for Great John Street. (Its recently rejigged holding company ownership chain goes Thg Beauty Limited

Great John Street closed for refurbishment in 2022 post an extended pandemic shutdown and appears not to have reopened. The phone number listed on its website has been disconnected and its social media accounts have been dormant for four years.

Great John Street therefore seems likely to be what’s behind THG’s annual report note on page 162:

For those assets included within the disposal group the Directors have concluded that there are no indicators of impairment in respect of 2024 and therefore a further impairment assessment has not been undertaken. For the remaining assets within continuing operations, it was identified that for one asset a decision had been taken in the year to pause refurbishment work, as such, an impairment assessment was undertaken which led to an impairment charge in the year of £14.5m in respect of right of use assets and fixtures and fittings along with the expected cost of returning the property at the end of the term. The impairment charge has been recognised in adjusted items within the consolidated statement of comprehensive income.

For a subsidiary company whose 2023 financial statement shows a property value of £5.8mn and right-of-use assets worth £9mn, a £14.5mn writedown is a lot. And given Moulding got Hale, which posted a profit for 2023, THG shareholders might wonder why it’s their loss to wear.

THG didn’t respond immediately to a comment request.

THG’s full-year results this week were, according to its corporate brokers, a turning point in the story. “With the Ingenuity demerger completed, external headwinds having largely passed, and Nutrition having returned to growth, the attractions of the THG equity story are becoming increasingly apparent”, said Jefferies. But it seems the ghosts of misadventures past won’t be so easy to exorcise.