THG plans tech services spinoff to fix balance sheet

The embattled online beauty and nutrition business THG has announced plans to spin off its technology services arm as it looks to shore up the balance sheet and improve its share performance.
The Manchester-based group said it was “actively undertaking detailed work to review potential structures to facilitate the demerger of THG Ingenuity”, which provides ecommerce and logistics to other retailers.
Following the demerger THG said it would be focused on its consumer businesses THG Beauty and Nutrition, which the group described as “highly profitable, cash-generative and capable of dividends”.
The retail group behind brands including Cult Beauty and Myprotein said: “No certainty can be provided on a demerger timescale whilst we consider the options to achieve this outcome. However, structuring tax clearances have now been approved by HMRC.” Sky News first reported the plan last night.
Separately, THG reported a narrowing of losses and said it was looking at transferring its shares from the “transition” category to the “commercial companies” category. The change is aimed at making its shares more attractive for inclusion in major stock market indexes, it said. THG hopes to complete this transfer by March next year.
THG, which was co-founded as The Hut Group by Matt Moulding in 2004, has had a tough time since it listed on the London stock market at a £5.4 billion valuation in 2020. It has lost about 90 per cent of its market valuation since going public amid disappointing sales and a series of rows about the company’s corporate governance. The company revealed in April that it had cut 3,000 roles from 2022’s staff count of 10,000, which it blamed on rampant inflation and “dramatic” cost increases.
Moulding — who in January likened his life as an entrepreneur to participating in Squid Game, the South Korean dystopian survival thriller series — said it had been “brutal” running THG over the past two years. He has long been vocal in his criticism of media coverage of his business and the challenges of running a publicly listed company.
In 2021 THG said its divisions spanning beauty, nutrition and ingenuity would likely pursue “individual public market listings or partnerships, with THG retaining significant majority ownership”. The group reiterated this ambition in January.
Kelso Group, an activist investor in THG, has repeatedly argued that splitting up its three divisions could help to lift its share price to 225p and achieve a market valuation of about £3 billion.
THG previously said it would wait to see if the standard and premium segments of the London stock market would be replaced with a single listing category before making a change.
Analysts at Jefferies said a potential demerger of its ingenuity arm “could unlock meaningful value for shareholders”. They added: “We see this as a potentially very interesting development that could leave a listed business consisting of two high quality, strategically relevant, cash-generative assets in Beauty and Nutrition.”
Panmure Liberum said that removing a business unit that had “clouded” its listed equity value “should focus investors’ minds on the [sum-of-the-parts valuation] which equates to [more than] 120 per cent upside. However, no detail has been provided on how Ingenuity, which loses significant cash every year, will be funded for the next five or so years as it scales.”
Alongside the demerger announcement, THG posted its interim results for the half-year ended June 30.
Pre-tax losses narrowed to £118 million during the period, from £133 million the year before. Revenue rose 2.2 per cent to £911 million.
It said that growth in its Beauty and Ingenuity divisions was offset by a reduction in THG Nutrition online revenue. This was driven by “stock rotation and higher than anticipated promotional activity linked to rebranding, continuing foreign exchange headwinds from Asian currencies, volatility in commodity pricing and the consumer environment remaining uncertain in specific territories”.
Shares in THG slid 1¼p, or 1.8 per cent, to 63p in early morning trading.