THG announces plans to demerge Ingenuity arm as H1 results underwhelm

17th Sep 2024 07:59

(Sharecast News) - Ecommerce group THG announced plans on Tuesday to break up its business, demerging its tech platform Ingenuity into a separate entity and transfer its listing so the remaining company can be included in FTSE benchmarks.

The demerger plans, which it said followed "extensive shareholder engagement", would maximise shareholder value and result in a highly cash-generative group.

"The appropriate tax clearances have been received, while the necessary separation work has previously been undertaken," said chief executive Matthew Moulding.

Meanwhile, the proposed transfer of all its ordinary shares from the equity shares transition category to the equity shares commercial companies category (ESCC) - opening the doors for inclusion in the FTSE UK Index Series - is expected to "improve investment flows and liquidity".

"[The move would] afford increased protection for investors under the [UK Listing Rules] as a result of the higher standards placed on companies admitted to the ESCC category, including in relation to significant transactions and related party transactions; and benefit its shareholders by making THG's previously voluntary adherence to certain ESCC category standards of corporate governance, and regulatory and reporting compliance, compulsory."

The news, which was delivered alongside THG's interim results, received a mixed reaction from the market on Tuesday, with the stock initially rising 3.1% in early deals before dropping 3.6% by 0938 BST, as the company scaled back its profit guidance.

In the six months to 30 June, the company saw a 2.2% increase in revenues to £911m, when excluding £22.9m of discontinued revenue.

The group saw strong gains in Beauty, its biggest division, with revenues rising 6.9% to £531m, and a 14.1% increase at Ingenuity to £80.2m, offset by a 7.5% drop in the Nutrition business to £299m. However, THG reported improving momentum in Nutrition in the current third quarter, predicting a return to revenue growth in the period.

Adjusted EBITDA improved by 3.6% to £48.8m. However, the company said that, as a result of FX headwinds, full-year EBITDA will be "towards the lower end" of the current consensus range between £133.8m and £156.5m.