THG bows to the inevitable and makes moves to split the business

Matthew Moulding

THG is seeking to draw a line under its tempestuous life as a public company by splitting the business in two.

The Manchester-based ecommerce giant, founded by the often outspoken entrepreneur Matthew Moulding, has confirmed it is “undertaking detailed work” to demerge its Ingenuity ecommerce division from the rest of the business.

Post a demerger, the THG would remain a listed company but would consist of THG Beauty and THG Nutrition, two consumer businesses, which are highly profitable, cash generative and capable of paying dividends.

There are no plans to delist or come off the Stock Market, a company spokesperson insisted.

The company is also to seek a premium listing, a market strategy that had been encouraged by activist shareholder Kelso, which Moulding controversially described in a Times magazine feature as having fewer shares than his dogs. 

In a statement to the Stock Market this morning Moulding said: “Finally, after extensive discussions with shareholders over the past 12 months, THG is progressing options to demerge THG Ingenuity, leaving our highly profitable and cash generative global Beauty and Nutrition businesses within THG PLC. The appropriate tax clearances have been received, while the necessary separation work has previously been undertaken.”

The business also announced its half year results this morning. On reduced turnover of £934m (2023 HY £969m) the loss before tax was £118.0m (H1 2023: £133.0m).

Moulding highlighted beauty revenue growth of +6% and noted that “a major rebrand of our Myprotein business is nearing completion”, and despite the transitory rebrand disruption this has brought, said: “we have seen positive reactions from global consumers, major offline retailers, and licensing partners alike.”

He also pointed to new Ingenuity clients which include GNC and Meijer in the US, as well as WH Smith and Holland & Barrett in the UK.

“Within licensing, we entered into an exciting new long-term partnership with Müller, with co-branded dairy products launched across major retailers. Now the rebrand is largely complete, our innovation pipeline will reaccelerate.

“Momentum in Nutrition is especially pleasing, with an expected return to revenue growth in September, providing a strong platform for both peak trading and the year ahead.”

Commenting on the half year results, Dan Coatsworth, investment analyst at AJ Bell noted that the nutrition arm “acted as a drag” on the results.

“Nutrition margins have been hit by clearance sales on products that don’t use its new branding, as well as inflationary pressures for whey which is a key ingredient for protein powders loved by fitness fanatics. Unfavourable foreign exchange rates have also weighed on earnings.

“While THG is excited about a range of new partnerships, there is no denying that nutrition is an incredibly competitive marketplace. With protein bars now taking up more space in convenience shops and supermarkets, you know they’ve gone mainstream and that means more big players trying to get a slice of the pie.

“THG’s model is to constantly offer large discounts on its products bought direct from its Myprotein platform, sneakily presenting them as short-term offers to entice shoppers. In doing so, it creates a disconnect between prices paid directly and those charged by external shops stocking its products. Regular online shoppers with THG might baulk at the higher cost of Myprotein items such as protein bars in their local shop and end up not buying at all.

“To its credit, Myprotein is one of the better-known brands in the market and that provides an advantage when trying to get shelf space and attract customers. But other providers are flexing their muscles with great success and getting in on the game.

“Earnings growth is slowing at THG’s beauty arm which is another mark against the company. You only have to look at Warpaint London’s latest results to see the beauty market is doing incredibly well, so it’s natural to question why THG isn’t racing ahead in this market.”

Coatsworth also noted how Ingenuity was pitched as a big opportunity for THG when it first joined the stock market, offering third parties a platform to sell products online and have all their orders and fulfilment handled by THG. “It hasn’t quite lived up to the initial lofty expectations and so THG might set it free,” he said.

“Investors may be wondering if the business is worth significantly more as a standalone entity than bundled in with the broader THG group. There are plenty of unknowns regarding this separation such as how Ingenuity would be funded without the cash flow from the beauty and nutrition divisions, and whether it would be sold to a third party rather than listed on the stock market.

Where might it end up? Coatsworth suggested private equity. “THG’s miserable share price chart over the past five years would imply there may not be a big queue to own Ingenuity as a standalone entity and being sold to a private equity player with deep pockets seems a more logical route.”