THG, the struggling online beauty and nutrition company, has announced that it will spin off its technology division in order to improve its balance sheet and share performance.
The Manchester-based company said that it was “actively reviewing potential structures” to facilitate the demerger. THG Ingenuity provides ecommerce, logistics and other services to retailers.
After the demerger, THG stated that it would focus on its consumer businesses THG beauty and nutrition, which were described by the group as “highly-profitable, cash-generative, and capable of dividends”.
Retail group Cult Beauty, which owns brands such as Myprotein and Cult beauty, said that it could not give a timeframe for a demerger while they considered the options. HMRC has now approved the structuring of tax clearances. Sky News reported on this plan first last night.
THG also reported a decrease in losses, and stated that it is considering transferring shares from “transition companies” to “commercial companies”. It said the change was made to make its shares more appealing for inclusion in major indexes of stock markets. THG hopes this transfer will be completed by March of next year.
THG has been struggling ever since its listing on the London Stock Exchange in 2020. The company was valued at £5.4 billion. Since going public, the company has lost 90 percent of its market value due to poor sales and a string of disputes over corporate governance. In April, the company announced that it would be cutting 3,000 jobs from its original staff of 10,000 by 2022. It blamed this on “dramatic cost increases” and rampant inflation.
Moulding, who in January compared his life as an entrepreneur with taking part in Squid Game the South Korean dystopian thriller series — has said that running THG for the past two year had been “brutal”. He has been vocal about his dissatisfaction with the media’s coverage of his company and its challenges.
Moulding said that competing in Squid Game is similar to being an entrepreneur
THG stated that its divisions, which include beauty, nutrition, and ingenuity, would pursue “individual or partnership public market listings, with THG maintaining significant majority ownership” by 2021. This ambition was reiterated by the group in January.
Kelso Group is an activist investor who has repeatedly claimed that splitting THG’s three divisions would help boost its share price up to 225p, and result in a market value of around £3 billion.
THG had previously stated that it would wait until the London Stock Exchange replaced the standard and premium categories with a single listing before making any changes.
Analysts at Jefferies stated that a possible demerger of the ingenuity division “could unlock significant value for shareholders”. The analysts added: “We view this as a potential very interesting development which could leave a listed company consisting of high-quality, strategically relevant and cash-generating assets in Beauty and Nutrition.”
Panmure Liberum stated that the removal of a business unit which had “clouded”, its listed equity value, “should focus investors minds on [the sum-of-the parts valuation], which equates [more] than 120 per cent. No details have been given on how Ingenuity will be funded in the coming years, as it grows.
THG also announced its half-year results ending June 30, along with the announcement of the demerger.
The pre-tax loss decreased to £118 millions during the period from £133million the previous year. Revenue increased by 2.2 percent to £911 millions.
The company said that the growth of its Beauty and Ingenuity Divisions was offset with a decrease in online revenue for THG Nutrition. This was due to “stock rotation, higher than expected promotional activity tied to rebranding and continuing foreign exchange headwinds resulting from Asian currencies, volatile commodity prices and a consumer environment that remains uncertain in certain territories”.
THG shares fell 1 1/4p or 1.8 percent to 63p at the opening of early trading.
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