Profit outlook dents THG as it considers separating Ingenuity arm

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Shares in THG lost more than a tenth of their value on Tuesday after the UK ecommerce company told investors that annual underlying profits would be at the lower end of expectations and it would seek to “demerge” one of its divisions.

The company, which runs websites including Lookfantastic and Myprotein, posted a 3.6 per cent fall in total revenue to £934mn in the six months to June 30 as the performance of its nutrition business weighed on its beauty division and technology services arm Ingenuity, which helps other brands, such as Coca-Cola and Elemis, sell online.

THG also said it was “progressing options to demerge THG Ingenuity”, which it said came “after extensive discussions with shareholders”.

Adjusted underlying profits were up slightly to £48.8mn from £47.1mn last year, during a period the company called its “most profitable and cash generative period”. However, it still warned that annual profits would come in towards the lower end of the analyst consensus of £133.8mn to £156.5mn. Operating losses narrowed ​​to £84.4mn from £99.5mn. 

THG shares rose initially after it shared the news about Ingenuity but the profits outlook spooked shareholders, with shares closing down 12.4 per cent at 56.30p.

The company, previously known as The Hut Group, has had a difficult time since it listed on the London stock market at a £5.4bn valuation in 2020, with its shares falling about 90 per cent since then.

Sophie Mitchell, a retail analyst at GlobalData, said: “Nutrition continued to be impacted by the weaker Japanese yen — MyProtein’s second-largest market — although the group has stated it believes its performance will start to recover in the second half.” 

Wayne Brown at Panmure Liberum said that a carve-out of Ingenuity would leave THG with its beauty and nutrition divisions, which were “highly profitable”. He said: “There is a lack of detail, but we understand the free cash flow of nutrition and beauty, which currently funds Ingenuity, will be freed up.

“It is likely Ingenuity becomes a private company but as it will be lossmaking for the next five years, funding of the business will be required.”