Matt’s mouldering shed: Hut Group boss must step up to save a potential UK tech champ, says ALEX BRUMMER
There is no case for schadenfreude over the dangerous slide in The Hut Group’s (THG) shares.
The fancy crop of advisors who brought THG to market, including Citigroup, Goldman Sachs and Barclays, should have recognised from the outset that governance was deeply flawed and built in better checks and balances to ensure that founder-chairman Matt Moulding was better informed on the ways of public companies.
Senior non-executive Zillah Byng-Thorne has done a good job at magazine and tech outfit Future, where she is chief executive, but her entrepreneurial instincts are too similar to Moulding’s to be an effective counterweight.
Share slump: Hut Group founder Matt Moulding (pictured with wife Jodie) has seen the value of his company crash by more than 40 per cent in the last month
That is why the board is moving urgently to bring in a respected and trusted figure who has some idea how to steady the ship.
As an online champion based in Manchester, it would be terrific if THG succeeded and became the next Amazon.
Britain is fortunate in having a great tech and entrepreneurial culture.
As the country has emerged from the pandemic and embraced a new global status, digital floats have flourished.
This year has been the best in seven for initial public offerings with online firms accounting for 43 per cent of launches.
The latest newcomer, Gloucester-based ProCook, demonstrates that with the right online platforms even the most prosaic of goods – pots and pans – can be dressed up in a digital wrapper.
At the core of what THG does is its tech platform Ingenuity.
This is the core asset as it works not just for THG’s beauty and protein sites but is also used by global partners, including Nestle and L’Oreal.
Spinning it out might appear to offer more clarity to investors, but doing so would be a bit like Ocado disposing of its logistics and robotics arm and hanging onto UK retail.
Tim Steiner chose to do precisely the opposite by switching its UK grocery arm into a joint venture with Marks & Spencer, in what has proved a useful transaction, focusing the core of the company on tech and logistics. It is that which has driven up Ocado’s market value to £18billion.
The decline in THG shares may have been shockingly rapid, but it is part of a pattern. Disappointing performances and governance tangles have also dragged down the value of Asos, Boohoo and even Ocado.
As the pandemic has dissipated, the digital revolution has become less urgent.
Having Masayoshi Son of Softbank as a cornerstone has benefited THG. The possibility of Ingenuity tapping into Softbank’s wealth through a £1.1billion option on Ingenuity, and accessing tech and other commercial partners, looks attractive.
It is assumed that Softbank is a wonderful friend to have. When it bought Arm Holdings for £24billion-plus in 2016, there was big talk about leveraging its smart-chips into telecoms and much else.
Instead, the Chinese arm was stripped out. Five years on, Arm is up for sale and in danger of being swallowed by a bigger American rival Nvidia.
Softbank was an investor in the Wework experiment and was undone by flawed governance.
Son was also accused of running a large, unaccountable hedge fund last year when Softbank took multi-billion bets on the Nasdaq rising.
Those who believe in THG argue that the subsidence in its shares is less about governance and more about a lack of understanding of the model.
The distinction is meaningless. The key problem at Matt Moulding’s get-together with City analysts and others earlier in the week was a lack of transparency. Ingenuity is being split out, but Moulding was unable to provide guidance on inter-company transactions – the price which the beauty and other arms pay for using the platform.
One might understand if such data were commercially sensitive and not to be shared. But it was more of a case of a known unknown which should have been properly defined.
It would be wonderful to see THG thriving and taking the fight to its US rival Ulta Beauty.
The barriers to that are lack of trust in a founder-chairman who hangs onto his golden share for dear life and who is, in his personal capacity, the company’s landlord.
At times he has been more transparent about his well-developed pecs than the underpinnings of the financial model.
Better governance and clarity around internal pricing might go a long way towards settling stakeholder anxiety.