Investing.com -- Fitch Ratings has revised the outlook for THG PLC’s Long-Term Issuer Default Rating (IDR) from negative to stable and confirmed the IDR at ’B+’. In addition, Fitch placed THG Operations Holdings Limited’s EUR600 million term loan B’s ’BB-’ rating, which has a ’RR3’ Recovery Rating, on Rating Watch Positive (RWP). This move follows the announcement of a planned debt reduction in the amend and extend (A&E) transaction, suggesting near-term improvement in recovery prospects for the term loan B.
The outlook revision reflects Fitch’s expectations of continued EBITDA recovery in 2025, alongside the completed demerger of Ingenuity, which will help reduce debt levels in line with the rating.
THG’s rating is due to its moderate business scale in the nutrition sector and the strong market positions of its beauty products in online retail, which include both its own and third-party brands. The rating also considers the company’s lower operating profitability compared to pure consumer product manufacturers.
Fitch projects mid-to-high single-digit growth for THG’s nutrition business in 2025, stabilizing towards low to mid-single digits annually in 2026-2027. This recovery is anticipated to be driven by normalization of average selling prices and further expansion of sales in the growing offline sales channel.
Fitch also expects positive momentum in the Beauty business to continue in 2025, supported by moderate recovery in consumer sentiment in THG’s key markets and the company’s increasing focus on more resilient and faster-growing prestige skincare and specialist beauty products.
In terms of profitability, Fitch expects margin improvement toward historical levels of 5%-6% from 2025, driven by recovery in profitability of the nutrition business and THG’s strategic focus on more profitable products and markets in beauty retail.
Fitch calculates that EBITDA leverage will drop to 4.0x in 2025, mainly due to the expected recovery in EBITDA and the reduction in debt to GBP396 million (EUR475 million equivalent) following the planned capital structure refinancing.
Fitch rates THG according to the framework laid out in its Consumer Products: Ratings Navigator Companion. THG’s IDR is above that of beauty seller, Oriflame Investment Holding Plc (C) and two notches higher than Ocado Group (LON: OCDO ) PLC’s (B-/Stable), but below Natura &Co Holding S.A. and Avon Products (NYSE: AVP ), Inc.’s (BB+/Stable).
Fitch’s key assumptions for THG include a revenue decline by 9.6% in 2025 driven by Ingenuity demerger, followed by annual growth of around 3% over 2026-2027, and Fitch-adjusted EBITDA margin of 3.6% for 2024 improving towards 5.6% by FY25 and 6.1% in FY26.
In terms of recovery analysis, Fitch assumes that THG would be restructured as a going concern rather than liquidated in a default. The recovery analysis generates a ranked recovery for the senior secured loans in the ’RR3’ band, indicating a ’BB-’ instrument rating, one notch above the IDR.
Fitch outlined several factors that could lead to a negative rating action or downgrade, including more aggressive financial policy, operating underperformance, increased competition, weak pricing power, and consistently negative FCF margin. Conversely, factors that could lead to a positive rating action or upgrade include dynamic sales progression, EBITDA leverage trending permanently below 4x, EBITDA interest coverage above 4x, and maintenance of solid liquidity and visibility of sustainably positive FCF margin.
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