THG’s problems run deeper than governance

Investing

It is a remarkable coincidence that THG has decided the “time is right” to seek premium status just as the market delivered the verdict that Matthew Moulding’s beauty and nutrition empire is anything but.

The ecommerce and technology group, whose shares are down nearly 60 per cent this year following last week’s disastrous investor presentation, said Moulding would give up his takeover-blocking golden share — perhaps the most prominent of the company’s corporate governance peculiarities that have irked investors since its float in September 2020.

And what is that worth? A 16 per cent bump in trading on relief that the company was doing something. The premium listing badge would bring with it eligibility for the FTSE indices, and ultimately perhaps some captive buying from index trackers and active funds working off that benchmark. THG said investors would get more information about related-party transactions and a say on some future dealmaking, at a company that seems in a permanent state of flux with acquisitions and restructurings.

Fair enough, THG is trying to show willingness in addressing City concerns, in particular about the influence of its co-founder, chief executive and chair (all one person). But the motivation is an absence of other near-term options, rather than a sudden conversion to the merits of proper oversight and governance.

The golden share was due to expire three years after listing in any case; it will go at some point next year, so perhaps nine to 15 months early. Its supposed rationale was to protect the fledgling company against hostile interest in its proprietary tech. Either that was gold-plated nonsense, or it is a very strange time to ditch it when the market is valuing your prize asset, the end-to-end ecommerce and logistics business Ingenuity, at approximately zero.

The next obvious step would be to install an independent, experienced chair. That looks tougher. Even running a credible process might be challenging: senior independent director Zillah Byng-Thorne, the boss of Future, strains at the corporate governance code’s definition of independence, given her earlier role as an adviser to the company and her inclusion, until last year, in THG’s share-based incentive plans.

And adding SoftBank executive Andreas Hansson to the board, as reported by Sky over the weekend, seems a mixed blessing. Yes, it might signal the Japanese group’s commitment to its Manchester-based investment (although a similar move was mooted at Wirecard, another SoftBank investment led by former Deutsche Bank trader Akshay Naheta, before its collapse).

But it does not make it more likely that SoftBank exercises its $1.6bn option to buy a 19.9 per cent stake in Ingenuity, given that the £4.5bn enterprise value it implies for the business is now well in excess of THG’s entire market capitalisation. At least Hansson might be able to clarify THG’s work with AutoStore, another SoftBank investment where he is on the board. The warehouse robotics group, which is in the process of its own listing, has been touted as a crucial partner to THG, a relationship that the Norwegian company last week played down.

The trouble is that this all feels like window dressing around the gaping hole left by the evaporation of the market’s confidence in THG’s business. As one banker put it last week, signing up to the idea that a business with little disclosure and £18.3m in first-half revenues is worth £4.5bn is pretty close to faith-based investing. That faith departed in the course of last week’s numbers-free investor presentation.

Getting it back will probably require a solid third-quarter update next week, a steady stream of Ingenuity client wins, enhanced disclosure on how revenues and costs are allocated within the business, and signs of sustainable organic growth (and cash flow) in a company that has bought and bolted on a fair chunk of its business to date.

The brief and unhappy life of Moulding’s golden share should encourage other founders to consider the value in well-worn market norms, even as London moves to relax rules around such structures. But in terms of helping his company regain its shine, it is barely a first step.

helen.thomas@ft.com
@helentbiz

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