RE: Next 2 year THG cash flow discussion29 Jan 2023 08:14
Hi Steve
Good post, laid out well, as always our numbers are pretty close.
I have been looking at the top line a wee bit different the last week
it’s as much driven by the margin in Nutrition.
Assume £2B for the 2 core divisions, we could be closer to 9% EBITA margin
12% to 15% Nutrition, 7% Beauty
I’ve gone with 8% for the note below
Ingenuity is just 1% on GMV, only contributes £2M
On the £400M rag bag of health club / hotels / Zavvi etc it’s difficult to calculate the cash cost to restructure but I am going with £30M -,know it’s high but THG loves exceptional costs, year in year out, if they sold the lot to say for £1 and just paid the Hotel room for an ‘influencer ‘ who visits HQ but that doesn’t suit Moulding as THG pays him the rent on the same buildings
There may be a tax rebate on R&D, could be £15M but discount to £10M
Income
Core £160M, £40M disposals, £10M Tax credit, £2M Ingenuity
Less
£90M Interest / rent
£40M repay debt
£20M Restructuring /losses with On Demand ,it’s think of a number here but it’s going to cost, they are losing £20M a year as it stands, each month it’s £1.7M down the drain
They say £30M cost cutting but is that inside On Demand but let’s give them £20M
Net effect 2023 £100M to £90M top end net operating cash and they earmark that for Ingenuity SaaS
This however is the elephant in the room for the BoD
The 20% shareholder gets £20M plus rent, the capex is being driven by his vision for Ingenuity but the Core business gets starved of its FCF to fund Ingenuity, however IF THG Ingenuity lands the £1B whales it justifies the £100M capex ,
No Ingenuity SaaS we could be £80M to £100M FCF positive - like for like On Demand gone
Without these big Whales the BoD can’t sanction a massive scale up in SaaS, in any other business Ingenuity as a 3rd party concept would be closed and as a unit it folds into the Core
Must be some pressure inside Ingenuity to pull these Whale contracts off.
The £1B GMV only adds £12M EBITA - that’s over 12 months
but Ingenuity is then handling £3.2B of total goods, the market can measure vs Ocado certainly value there at this point with £14B of GMV to sell when we stand next to Ocado on a GMV model
Ingenuity showing it can handle serious 3rd party volume
It’s interesting to see how this plays out … land the whales no FCF + but Ingenuity highlights value vs no whales and £100M FCF + cash to invest in core business
Know I’ve been banging on about this point but us PI’s can’t lose whichever way it goes plus there is always the slim chance of an equity disposal
Last thoughts and one to discuss after the above playing out
Reckon THG will have total tax losses - not all come through yet as it’s depreciation - of £2B !!
That’s £500M + pure cash benefit , getting close to our market cap today , Ingenuity Whale doesn’t come off that £1/2B is going to come in very handy, the Core won’t pay Tax for years
THG
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