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THG’s bid to rebuild founders on the basics

THG founder Matthew Moulding once took to Instagram to celebrate his gym-going for 500 consecutive days in locations across the globe. The question ahead of Tuesday’s investor presentation was whether the beauty boss could lift where it counts: namely, his share price.

And the answer was no. A capital market’s day focused on technology and logistics business Ingenuity — the key to the group’s valuation — ended in disaster, with the share price plummeting by a third. The stock is down nearly 65 per cent this year.

One bad sign for an event billed as crucial to reversing the slide was a warning that it would contain “no material new information”. Why bother then?

After all, behind the gloss of Insta and influencers, the frenetic dealmaking and restructuring and the veritable forest of red flags from a governance perspective, there are plenty of fundamental questions for THG to answer. And a new sustainability strategy, while commendable, wasn’t going to do it.

Set aside some of the classic governance irritations, like the chief executive’s golden share. Or some of the issues raised in what Moulding called a “short attack” in recent weeks, like his sale-and-leaseback deal of company property on the eve of the listing, his borrowing against his stake in the business, the frequency of errors in THG’s reporting, to mention but a few.

This was meant to be about explaining the Ingenuity business that SoftBank’s free call option for a 19.9 per cent stake values at £4.5bn including debt, now more than the market value of THG altogether. No wonder SoftBank won’t be exercising the option imminently (even if THG claimed a “high degree of certainty” it would happen in the first half of next year): the Japanese investment group could buy a third of THG proper for the option’s $1.6bn price.

In the event, a largely numbers-free presentation walked through the broad range of services Ingenuity can offer from ecommerce, to payment and fraud detection, fulfilment and delivery, content and marketing — most accumulated through acquisitions. There was a suitably glowing review from client Revolution Beauty and case studies on work done for Coca-Cola Europacific Partners, Homebase and Elemis.

What was missing? No update on the global partnership with Nestlé announced last year; no new client wins; no significant new financial figures.

There was one notable number: what was described as a 2 per cent “churn rate” based on 100 new client wins and two losses in the past year. But there was little detail on the size of new revenue opportunities, such as charging for certain services previously given to clients at cost. And what revenue breakdown there was suggested the amount of recurring, software-as-a-service type sales that might underpin lofty valuations for Ingenuity were currently small.

Absent too was detail of profit margins for THG’s main divisions, beauty, nutrition and Ingenuity, or how costs and sales would be divvied up between them in the process of separating Ingenuity for SoftBank to exercise its option — or indeed figures for the mooted listing of the beauty division. One question about whether the 70 per cent ebitda margin mentioned previously for Ingenuity was sustainable or included costs allocated to THG centrally wasn’t clearly answered.

It was confusing that a business whose differentiator is meant to be offering an end-to-end service for direct-to-consumer retail kept emphasising that products for fraud detection or checkout could be bought standalone. Indeed, Ingenuity boss John Gallemore was offering some for free for a year in his presentation.

The company admitted it had “done a fairly poor job of marketing ourselves”, when asked about possibly increasing investment (another broader investor concern given the way the company runs through cash). In reality, the slick pre-recorded presentation was heavy on marketing and light on meaningful information, at a time when the business is undergoing a significant restructuring barely a year after its initial public offering.

It feels like THG, unlike its founder, just wasn’t quite fit for the public markets.


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