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The Hut Group to spin out THG Beauty as losses widen

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WARRINGTON, ENGLAND - DECEMBER 10: Britain's Prime Minister and Conservative party leader Boris Johnson (L) is shown around by company founder Matthew Moulding (R) during a visit to a fulfillment centre for The Hut Group (THG) during a general election campaign event on December 10, 2019 in Warrington, United Kingdom. The U.K will go to the polls in a general election on December 12. (Photo by Ben Stansall - WPA Pool / Getty Images)
Britain's Prime Minister Boris Johnson (L) and The Hut Group (THG) founder Matthew Moulding (R). (Photo by Ben Stansall - WPA Pool / Getty Images)

THG (THG.L) stock dropped more than 6% in early trade in London on Thursday as investors digested the news that the e-commerce giant would publicly list its beauty division in 2022. 

The company said the move would position it for growth globally as well as expanding its own-brand portfolio. It also said it was looking at separately listing THG Nutrition. 

The news comes following a mixed set of half-year results, with the company clocking losses despite revenues heading up 45% towards £1bn ($1.4bn). Losses grew by more than £30m to £81.3m in the six months to the end of June. These compared to losses of £49.8m it reported for the same period in 2020.

“A corporate divorce looks to be on the cards at e-commerce firm THG but rather than expensive or messy, the company will be looking for this break up to generate a windfall in the form of enhanced valuations for its individual businesses," said AJ Bell investment director Russ Mould.

THG stock headed south on Thursday morning in London. Chart: Yahoo Finance UK
THG stock headed south on Thursday morning in London. Chart: Yahoo Finance UK

At the time of THG's float in 2020, it was the biggest London stock market debut by market cap since Royal Mail (RMG.L) in 2013. It net the company £920m while shareholders, led by Moulding and private equity group KKR, shared gross proceeds of £961m. KKR sold its entire shareholding.

THG also recently struck a deal with Japanese funder SoftBank, which gave it a $1bn (£0.72bn) fund for acquisitions and marked the launch of THG Ingenuity.

At the time THG said that arm of its business would be a "social media influencer" platform to promote products. The investment deal with SoftBank valued it at $6.3bn (£4.5bn).

"THG is banking on these businesses being ascribed more value by the market as separate entities and this is perhaps most pertinent to the Ingenuity arm, which has generated a lot of the excitement around the stock since its 2020 listing," said Mould.

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Alongside big moves with THG, CEO Matthew Moulding courted controversy recently, having taken out a £151m loan from Warrington council, one of the largest council loans on record.

The sum was more than 10 times the average loan taken by other local companies, and was paid to a company called Icon 3 Holdco, which is indirectly controlled by Moulding.

Last year, it was reported that many of THG's properties have been transferred to Moulding's personal ownership. He stands to bring in an estimated £19m a year in rent. 

The CEO has flouted standard corporate governance codes by taking on the role of both chairman and chief executive and granting himself a “special share” that gives him an effective veto against potential hostile takeovers.

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