THG, a leading e-commerce group headquartered in Manchester, is contemplating the demerger of its technology services arm, Ingenuity.
- The demerger effort is part of a strategic plan by THG to potentially improve its share performance after facing challenges as a public company.
- CEO Matthew Moulding has been openly critical of investor behaviour and regulatory frameworks impacting technology firms.
- Ingenuity, although less profitable, plays a significant role in THG’s operations, serving major clients like Frasers Group.
- A successful demerger could enable THG to utilise its cash flow for dividends, highlighting its strategic financial priorities.
THG, a prominent name in the e-commerce sector based out of Manchester, is in the process of evaluating the demerger of its technological subdivision, Ingenuity. This move is a part of a broader strategy aimed at rejuvenating its stock market performance following a series of challenges encountered since becoming a public entity.
Overseen by the board under the leadership of Lord Allen of Kensington, THG is conducting detailed analyses to ascertain the viability of separating Ingenuity from the main business structure. The intent behind this exploration stems largely from frequent criticisms by CEO and founder, Matthew Moulding, regarding investor expectations and the regulatory environment that he argues limits technology enterprises.
Ingenuity, the technology division, provides services to high-profile clients, including the Frasers Group. Despite its considerable influence, this arm is less profitable and is projected not to reach a breakeven point for another three to five years. THG’s broader portfolio, however, excluding Ingenuity, has demonstrated robust cash generation potential, producing over £80 million in free cash flow.
There are strategic implications to the demerger, with THG poised to potentially pay its first dividends to shareholders. The organisation’s financial reports from the previous year illustrate the substantial cash flow excluding Ingenuity, showcasing the division’s impact on net financial metrics.
The interim financial results published recently, for the semester concluding on 30 June 2024, revealed THG’s consistent traction in fulfilling its strategic directions. These results highlighted an uptick in continued revenue and adjusted EBITDA with THG Beauty being a significant contributor, reporting a record first-half adjusted EBITDA of £32.6 million.
The proposed demerger of Ingenuity illustrates THG’s strategic efforts to enhance capital utilisation and shareholder returns.
