Member Info for Okehurst1

I don’t see it as ‘bad news ‘ that we have a delay

In fact it’s a win win for shareholders.

Our Bod will be looking at all options, the fact the share price is what 5p off the Offer on the Eve of the (poor) update last month indicates the market is aware something is going on that could unlock the value in THG - and we know THG is very leaky

They have to do something, whatever that is, news could drop anytime

It can’t be built or they wouldn’t need £80M to £100M a year to build it

The platform doesn’t exist - not one for the whales and to handle £Billions of GMV

They ain’t saying it’s built, they are ‘in advanced discussions ‘

‘ to provide long term software solutions ‘

‘ advanced discussions’

Nothing signed

Hi Canary

They are trying to find a solution to sort the $$
As you can see below we don’t have £cash

Hence the delay

I wouldn’t bet against Moulding sorting it one way or another

Net operating income is £20M for 2023 before restructuring costs
- based on £120M EBITA then deduct below

£20M less restricting costs

There ain’t $$ for the capex, it’s ain’t there

If anyone can show how it is?

The THG e-commerce platform for THG is good, no one disputes that

The Ingenuity SaaS platform for the Whales hasn’t been built yet - not the level they require

Hence £80M to £100M a year cost to build and for 3 to 4 years they advise brokers
although Tbf they also told us all in September ,we have £200M of debt , £60M p/a interest on the coupon, £20M losses from On Demand plus restructuring costs and Ingenuity currently contributes £2M EBITA
Take all that from £120M EBITA (to £130M they guide brokers )and of course Mouldings
£20M rent

Nowt to do with THG e-commerce platform or hosting servers
It’s about data scientists / AI/ 1000 developers, it’s a whole new business model and we ain’t got the cash, we will have to build the platform itself to provide the service

Bring whoever in to source $$ but there is no money tree anymore, we either sell
a piece of nutrition or beauty or Ingenuity spins off and raises its own cash by placing equity or the above can’t be funded the money ain’t there

Come on it’s not difficult to work out

Put the hosting to one side - we rent server space via racks
For Ref we have 27 locations, the servers are ours, we don’t use AWS or Azure
Our cost is generally driven by CPU
Park this service with respect it’s not an issue

Ok so the big cost going forward is the SaaS platform itself, it’s highly complexed , managing the API’s between our clients / their clients / end user, high volume stuff
we currently don’t have a platform that is sophisticated enough, think of this as say
Web 3 (as an example), it’s next Gen for THG
But this needs to be built out over time and developed

The 1% EBITA is on GMV, we have covered our energy establishment and blue collar costs and we get to make 1% on the clients goods, we don’t need working Capital, we don’t even have to worry about stock right downs, it’s not our problem, even the last mile is not our cost

So we do £20B GMV as a figure, we make £200M EBITA and we don’t need massive $$ for stock

It’s also reoccurring Rev , I like the model and think it’s worth a punt but we just don’t have the FCF to fund as it stands today, so we need another solution

Hope the above makes sense, not trying to be provocative here just sharing info of where we stand today - via broker reports and other research.

Hosia

This is a good debate - it’s to the crux of the problem with THG
and it’s important for us PI’s to understand, it’s not about bricks & Mortar it’s pure developers costs .

The SaaS platform needs upgrading for the Whales, as such THG say they need £80M to £100M a year for a number of years to build out the platform, it will be a highly technical spec

We just don’t have the £money within our FCF - cash is King

I agree with Canary they have brought some big hitters on board and they are looking at solutions

Think we can agree no rights issue - it’s not happening
Ditto increase in debt we are hocked to net £200M

Assume none of us by choice want to sell Nutrition ?Any of it ?

If THG sold a slice of Beauty at the right price and our new partner was in the same
Space with volume ? Think we would all go with it by choice ?

Then they are left with only 1 option to raise money, do so via Ingenuity itself, if the above doesn’t work there is no other way?

Just on margin , read across to Ocado, GMV margins are wafer thin but you go for volume

THG nail this and we are away

Good to debate stuff - this is the one big issue with the THG model

All those services can still be carried out by Ingenuity and that business can go and build its new Sass platform and Nutrition and Beauty pay the going rate for the services you list below

Ingenuity is spun off and raises its own capital to invest the £80M to £100M capex a year to fund the development of the software it requires

THG just doesn’t have the headroom on FCF to do it, you need to look at the numbers the cash ain’t there - we have £200M debt, losing £20M a year via On Demand and we have restructuring costs on the £400M none core business

It’s not just £80M to £100M for one year it’s ongoing for years

If you can explain where we get the $$ to fund Ingenuity ?
Non of the brokers can see how they can fund it, with respect if anyone has an idea?

1pencil

Ingenuity as a service to 3rd parties hasn’t worked - that’s not in dispute
Commerce has been sidelined

Am not saying Ingenuity won’t work with £80M to £100M of capex into SaaS for a number of years, but let’s use someone else’s $$ for the punt

Repay debt / invest in the core

What’s the alternative ? Punt our only FCF and hope Whey doesn’t double in price again ?

You say how we can fund the capex for the SaaS without serious risk ?
We still have £200M of debt and divisions losing £20M a year that need restructuring

Ste, in your opinion

What does he do commercially to avoid the fate below?
Or at least avoid being the subject to an EGM vote on his position ?

So in affect he retains the CEO role but pivots ?

Think you know mine , he spins out Ingenuity and de risks the core business, Ingenuity enters into a contract to provide the services it does today to the Core at the going rate
Ingenuity raises its own $$

It’s a no brainer to me

Hi Moni
Yeah mentioned months ago got a wedge 45p/ topped up 50p

All about the £numbers /data.

Comfortable about Nutrition /Beauty
Accepted On Demand is losing money but is getting restructured

Just Ingenuity funding outstanding

Hi Licker

Am on the same page as everyone else who is Long THG, I want to see us succeed with our investment, it’s just the one (big issue) of funding Ingenuity SaaS.

It’s not 1% gross profit it’s 1% EBITA on the clients GMV, it’s a partnership.
Gross profit will of course be higher
If we look at Ocado their EBITA margin is very low as well on GMV
So on £1B GMV we make £10M EBITA
On £16B GMV £160M EBITA

I think the model looks decent, Ingenuity holds no stock of their own they just handle 3rd parties - like Ocado do

The problem is the level of SaaS required to manage these high volumes for big whales, its why there is only Ocado so to speak

Think about the volume of API’s that have to be set up on multiple product ranges and on very high volume, it’s intense, THG will be looking to recruit up to 1000no engineers, bag of *** paper on £90M ( taking Steve’s number )

THG have told brokers / II investors what they need to spend, we can assume this is what internal debate is around, how do we fund the next Gen SaaS platform for the whales ?

We will have £80M maybe £90M FCF this year after repaying £40M of debt from disposals

Do THG punt the lot on this platform and same again next few years or do they split away Ingenuity, de risk THG , Nutrition and Beauty pay a fee like everyone else
they retain their FCF to grow their businesses

That’s the debate

Agree, Moulding needs this work
Plus he will have debt on the property

I feel pretty confident as the EBITA margins are decent at the moment especially Nutrition and it’s only a gut feel but I think they will find a way to fund Ingenuity’s next stage of development and by doing so unlock the value of Nutrition and Beauty and everyone wins

Licker

I don’t think the current platform cuts it for the whales

If Moulding sells a stake in Beauty it would be check mate by him and a class move

I wouldn’t bet against him, he’s a top entrepreneur

If that fails John Goold will have a plan, don’t forget this guy has raised £5B in his last life with Zeus

The whale deal is there and close, gut feel it’s just the funding of the SaaS side

I know I’ve laboured the points below but having seen broker reports I wanted to be challenged on the numbers - it got me when I first digested and I realised the risk is high punting that amount of cash on the SaaS platform

Suggest it’s helpful for the BB to consider, even if your a THG employee you don’t want THG to bet the ranch and get it wrong, we still have to work through On Demand and get rid of the £20M year losses
We pay Moulding £20M rent that comes out of EBITA
plus £60M for finance that comes out

IF they can find another way to fund Ingenuity SaaS we have decent FCF this year, as I keep banging on , repay £40M of debt a year, reinvest the rest in the Core business

Makes sense … and you can see why there has been a delay in the news whilst they work this out, it’s not doom and gloom it’s the BoD getting it right this time ( Ingenuity)

Licker thats the ‘old ‘ model

They thought they could get ARR on Commerce and it never worked
just one of those things

Golden touched on this a while …

It’s a different model, tbh took me a while to fathom it, as Golden says Ingenuity as it stands is nothing special but spending on a top draw SaaS platform gives it the final piece of the jigsaw with this new model

I quite like it and respect to Moulding wanting to put the energy in to deliver it but personally I don’t want THG bet the ranch and gut feel the II’s feel the same just in case we hit a problem

Just find another funding solution

Look at 2022 numbers - what we know

We had 3.5% margin H1 and it looks like 4.5% for the year ex On Demand losses
so £100M EBITA less £20M

That’s their numbers not mine, 4.5%

If you work that back knowing what Nutrition will have made H2 and then estimate Beauty there is no way Ingenuity is making 3%

They have told the brokers it’s 1% EBITA GMV

If they hit full capacity Ingenuity could be doing £160M EBITA (£16B ?)less rent
that’s a decent business and they could be have £3.2B of the £16N in the can

It comes off what’s that worth? £2B more ? If we are seen as Tech business we could be
15 to 20X EBITA

But we need to invest heavy in the SaaS element, that’s the gamble, we have no other spare cash coming in via trading and we are exposed to fluctuations in the price of Whey

Our ‘moat’ so to speak becomes the infrastructure and the SaaS platform, will
cost others big $ to replicate as it’s cost THG

That’s Ingenuity Commerce - didn’t work out

We are now targeting whales ( as they call them ) on a GMV model producing 1% EBITA