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Re proportion of Whey input costs
On last weeks Conf call THG made a big deal about Whey prices and the effect on the cash flow - well worth a listen, link on their web site
It must be something substantial percentage wise

Mouldings Golden Share expires next September, he has to do a deal by then - sell nutrition or more than likely sell the lot

If he doesn’t there is a good chance he gets booted out but that takes time and I guess he’s brought on board friendly NED’s so he can retain majority support

He could get caught out by an EGM being called and he loses the floor /vote

He won’t want to risk all of the above, he’s a serial dealmaker, he has demonstrated that, a deal out the blue is my take.

HH, if we take the view Nutrition is around 35% GP and Whey drops to €750T we nick a nice bit of extra bunce cash - which we need

In an ideal world if we could be in smaller distribution units and Nutrition / beauty were fully separated operationally then THG would be ripe for someone buying nutrition standalone

A big player to buy out THG, in meantime Moulding reduces his risk - like todays news - is where we are today in my opinion

Just on the value at Northwich
£800k rent ? 7% yield at best , 12 year lease
who knows but it’s all Mouldings less any debt / before tax

Suggest this is where we are today - open for debate

Know we touched base on this the last few days but it’s pretty clear now THG is a kind of proxy position in Whey Protein futures prices - operationally

It’s has a few £B invested in web sites / leases on super sheds
and generates £2B plus a year, 20% in the USA and growing,30% of its handling of goods via automation/ robotics/ 70% 24hr delivery / 80% retention rates via their Apps

It’s punt at the moment because of the whey price and it may be difficult to sell Nutrition stand alone due to them sharing all of above, Ingenuity was a top hard sell by Moulding to raise £2B cash to supercharge the above, it’s pretty much sub letting the 85% of the super shed space that is empty and using the same kit/ space Nutrition / Beauty use and delivery network etc

So if it’s cost £Billions to put this together and you can buy in today at just £500M m/cap on the punt whey price drops to a level Nutrition makes serious ££ or more than likely a big player comes in for the plug and play Multi £Billion set up above.

Moulding has less than 12 months to pull off something big die to expiry of his Golden share , based on his track record pulling deals off he may just get a sale away

You have to be in it to win it and it could be a treble bagger from here but there is risk.

I am in for that buy out at these levels and prepared to take that risk , it could happen any time and I think Moulding will pull it off - a sale

Nb Moulding won’t be selling as Vacant - VP
He will be selling based on the coupon value of THG paying rent of £800K plus for the next 12 years
‘

My take - for what’s it worth

THG are still on the hook for the rent until 2034, from a cash prospective nothing in it for THG
Moulding takes the capital from the assets - he owns them
a new owner owns the real estate and THG pays the rent to them

Guess we will see the same with the Health Club /SPA and Hotel , Moulding sells these same as above over time but THG on the hook for the rent unless they can sell the lease/ convert to management contract - operating management contract

Small article on Moulding considering selling THG offices in Northwich

Property agents from OBi have been approaching potential buyers on behalf of Moulding, who is said to have initiated the process after receiving an unsolicited offer for the group of five offices on a business park on the outskirts of Northwich.

Moulding sold a distribution centre he leased to THG for £100 million this year. He charges THG £806,220 a year to rent the Northwich offices on leases to 2034, according to its IPO prospectus.

THG shares closed at 40p on Friday, down 95 per cent since the float, after soaring inflation and a slowdown in spending forced the troubled online retailer to slash its guidance. THG expects sales growth of 10-15 per cent and underlying earnings of between £100 million and £130 million. Net debt stood at £226 million.

The clocks ticking for Moulding, the Golden Share runs out next 12 months then he’s out

The City knows that and are positioning for a deal / take over within that period

If Moulding doesn’t do a deal he loses control of the terms and narrative, one will happen

These guys

https://www.haleon.com/

Wishful thing by me but how about Unilever ?
Or the Glaxo spin off that recently IPO’d - health and well being business ?

We are a decent fit for either ?

We either become a proxy investment for the commodity being Whey …

Or we sell out to a big boy who wants the plug and play infrastructure and utilise same and ideally in beauty / nutrition and can expand sales / bolt into existing structure

Suggest that’s where we sit today.

So unless THG can come up with a solution to split the distribution centres they get stuck with the ‘ fixed ‘ costs on selling nutrition ? Rule of thumb …. nutrition is 30% of core revenue so requires 5% of the space - we know they have £19B capacity and they currently generate £2B

Matt was in a catch 22 … he needed a story to grab the £2B
chicken and egg stuff, I get that
Bummer if your SoftBank or funded IPO though

2phev , good post, think your spot on .

Ingenuity is a decent service, it sells THG empty space / utilises capacity to 3rd party multinationals who are happy to give up margin to THG to manage their goods/deliver

I’ve got my head around that this week, it is providing ‘ Tech ‘ - but it’s not a standalone ‘ going concern ‘- to THG group

SoftBank bought a pup when they handed over £800M but it’s worked for Matt to invest in more distribution centres.

Imagine if we only had distribution centres 20% of the current size ? The effect on Capex plus the efficiency of the fixed assets - We are only utilising 11% of the space (2B over £19B) for THG direct but I guess paying Matt the rent on 100%

Ditto … point 3

It’s all above Whey costs - already down from €1400 to €900 2nd half

80% of sales are repeat customers

However Matt did it he nicked £800M from Son and £1B plus from the IPO to invest in THG , if he hadn’t of ‘ faked it to make it ‘ he just wouldn’t have raised that capital

It would cost £2B cash minimum to replicate THG infrastructure/ websites maybe more

Agree though … it’s time for cards on the table

We can see why Matt won’t let the Golden Share go he’s history went that expires without a big deal

Any views on below thoughts ?

Overall gross margin is now 45% - Group level so they told us on conf call

Ball park
Beauty doing £1.2B full year
Nutrition. £600M Rev

So nutrition raw material costs say £300M pro rata - let’s go extreme and say it’s all whey for the example

If 2023 wr move from €900 to €600 we save 33% so it’s £100M benefit at very best - not to be sniffed at but it’s top end €100M unless we get €450 but how long to fall back to its mean average ?
So we need a big drop in whey prices and it works the other way if we head back to €1200 ( we know the high was €1400)
We have a serious problem

However as the gross margin was at group level could the G/P be lower in nutrition and higher in Beauty ( than 45% ) I would say yes
ELF are 67% gross for example
That makes the cost savings higher if Nutrition G/P was say
35% ?

Matt was happy to focus on this commodity turning around the fortunes of THG he skipped being heavily questioned on margins within Beauty which is far more important and not effected by commodity prices the same way .

To de risk THG group from Whey / commodities IF there was any way they could sell Nutrition standalone at even 3X Rev
looks like a no brainer
It just comes back to the distribution centres then, how do they split away the Nutrition element?

Does demonstrate the tricky situation they find themselves in, the must want out of Nutrition at the right price but how do they do it?

Hi Golden
But what Tech ? It’s usually software and developers, Tech companies generally don’t do Capex they do R&D, ok under IFRS IP can be capitalised but THG are not claiming £100M’s of tax credits

Then we are back to fitting out a shed, I agree there is cost there but not £400M this year / next
As SP said if it was £10M a shed for racks as a figure and they said same then that can measured

The lack of R@D credits is telling, that’s driven by HMRC, from experience it works out at 14% of a developers cost
You can’t claim for web sites, it’s a tight line tbh.
Maybe they are capitalising their web sites? We just don’t know , it’s some £cost dump each year into Capex plus exceptionals, no idea why they don’t explain ?

Either way little PI like myseif having a view makes no odds the City has made its mind up on the above but it’s good to debate / be challenged by yourself / SP

Fingers crossed we get a serious Bid and Moulding takes it.

Have a good weekend

Hi SP
Sorry late reply - just logged on
Still in here, good debates/opinions on the BB since the Conf call l, it was an eye opener for me, still can’t fathom why our chairman wasn’t present ?

Re capex £210M this year £130M next year is a lot capex
I don’t disagree they spend money on the fit out of the buildings but not nearly £400M this year and next combined - put aside previous years

This is the gripe with the investment houses , they can’t see the spend, ditto big single lines of exceptional costs each year
no real break down as such
Put aside what MM promised , giving up the Golden Share / something with Beauty etc we can look past that …

The problem is the accounts are so opaque so the Analysts are marking the shares down to 45p/50p , no one has a clue with the numbers

Ingenuity is valued at £zero by the City and you can see why, it’s sub letting empty space off THG within their distribution centre and delivering 3rd party goods on behalf of others

It’s a service THG provides, like manufacturing Nutrition for 3rd parties, it’s what we do to use spare capacity it’s not a separate business - if we had a separate set of accounts and there was a matrix of costs like how did Ingenuity pay towards utilities / rent/ management we could measure something but it’s not a standalone entity as such and the City has seen through that

There are 2 serious businesses with Beauty/ Nutrition, can they split and sell one off ? Again how do you share the warehouses etc ? I don’t know , so again the Analysts are not prepared to do a sum of the parts valuation

Look I think Moulding will pull a rabbit out the hat and sell the lot together to a player who can use these massive distribution centres and bolt beauty / nutrition into their model, he has 12 months to pull off a deal, I am here for that day.