Status Update

May 10, 2021

Press Release

Hello, and welcome to the THG Plc signed option and collaboration with SB Management acquisitions update agreement and proposed issue for new ordinary shares call. I will shortly be handing you over to Matthew Moulding, CEO, who will introduce the Q and A session. Matthew, please begin. Good morning, everybody, and thank you for taking the time to dial and received the update that we'd just like to take you through. The RNS that we've put out covers a few different areas. It's Quite a bit of content in there. So just to give you a flavor of the detail in there and then we'll go to Q and A. 2 real aspects, I guess. 1 relates to SoftBank and the broader collaboration that we have there and then the other relates to a piece of M and A that we've essentially completed on albeit there's a delay on due to competition clearance. The SoftBank piece is probably the area of most interest for many people. The collaboration itself is probably, for me personally, by far the most exciting area. And SoftBank, as many people will know, is probably one of the world's largest tech investors. So in our industry, Their reach is pretty much unparalleled. And through this collaboration, what we will be looking to do is to be able to offer our Ingenuity Commerce Services and other aspects of Ingenuity Services to some of their portfolio companies. We've obviously got some progress in mind in terms of specific areas where we will be deploying any collaboration. But that for us is by far the most exciting aspect of what we've announced in the RNS yesterday and again this morning. Other areas of the SoftBank collaboration relate to financial aspects as well. Because of the collaboration and the specific interest that SoftBank have around our Ingenuity platform. We've agreed an option where they are set to acquire 19.9 percent of our Ingenuity division for $1,600,000,000 Now what that means in terms of pre money valuations, that $6,300,000,000 is The pre money value that's being placed on our Ingenuity technology, which equates to about GBP 4,500,000,000 sterling value. The reason we've done an option instead of taking that investment immediately is there are there is Some internal restructuring that we need to do to make that a dedicated investable entity, Which we anticipate will take us, let's say, somewhere in the region of 6 months and but the option just to give some Flexibility there is for 15 months and then after that, it would then SoftBank would then complete the transaction. And then there's a final area of collaboration, which we've done with SoftBank, which is we announced last evening an ABB. SoftBank, obviously, have got an interest in owning some shares at the PLC level, not just in the Ingenuity level. And we agreed a place in with them for $730,000,000 was the number, And that's kind of the minimum check size that someone like SoftBank would entertain. And then for the benefit of the wider sharer, just to be able to participate, We upsized that to just over $1,000,000,000 to provide others with the opportunity of taking part in that. And that was completed at the closing share price with 0 discount as of last night. And so that's the general update On the SoftBank, I'm sure there'll be plenty of questions around that. Just one final point in the R and S, it's quite easily overlooked given the extent of the relationship and announcement with SoftBank. We did also sign a deal yesterday with to acquire Bentley Labs, And that's paying $255,000,000 Now just to remind people, we've got 4 very key trading divisions across THG, the largest of which is in beauty. We're very passionate about building those out to be world leading dominant positions. And as such, we continue to invest in each of those verticals to build them out. The Bentley Labs piece of M and A will be entirely accretive. I think we've given some numbers around for next year, it to deliver €55,000,000 of sales and €11,000,000 of EBITDA. But really importantly, It will not only be manufacturing and developing products for our own beauty brands, we are already the 2nd largest customer to Bentley, but it also does it for some of the better known household names that you might have heard of the likes of Estee Lauder, so on and so forth. And so the opportunity for Ingenuity to further progress across the U. S. In some of those clients is something else that really excites us with that Piece of M and A. And so that is, in short, the R and S that or the various pieces within the R and S. And probably now we can switch to Q and A and go into more of a deep dive. Thank 2 on your telephone keypad. There will now be a short pause while questions are being registered. Our first question is from the line of Andrew Ross from Barclays. I've got Three questions, please. First one, in the statement you talked about kind of future options for Ingenuity, one of those being an IPO So wondering if you could give us kind of more color in terms of where you see Genuity ending up. Are we thinking that a U. S. IPO is most realistic? That's the first question. The second one is, you also talked about looking at options for Beauty and Nutrition. So wondering if you could give us More color on both the types of things you're looking at and the time frame for those two divisions. And then the third question is Maybe you could just give us more color on the commercial relationship with the SoftBank companies. I mean, I don't know if there's anything you can share in how many of those companies might be interested Any kind of way of quantifying how big that might be, but any more color on that would be great. Thank you. Thanks Andrew. So look, the first two questions I can address together. In terms of what this deal demonstrates its full optionality for each of our trading divisions. It is important to note that we are super passionate about driving each of these divisions forward. And so what this isn't about is some sort of slow exit of all of our various divisions. It is actually quite the opposite. What we're intent on doing here is building each individual division in THG out to be world leaders. And the collaboration shows that direction of travel with such a strong partner such as SoftBank. Naturally then with Beauty and Nutrition, there is there are very strong optionalities there for us, We could do that in broader partnerships with other players across those industries. We can do that in a financial aspect. But what we will continue to do is to invest in each one of those verticals under THG's ownership, majority ownership of these assets and drive them forward. And but clearly, what that could entail, you've got full optionality of maybe one day, the right thing to do is to have them as listed entities, where one or some of them or maybe none of them and we continue to drive them forward in a partnership sense. So there is no Ongoing process of now pressing a button to do something in that regard. That said, there is an ongoing process of driving each division out through partnerships and the like. And we will keep optionality open, including listings and the like. So I hope that helps in answering it, Andrew, but that's they're the answers. And then the final point on the SoftBank question, which was, with who are we speaking to? I can't name anybody in that regard. What I can tell you is, obviously, through the diligence process with SoftBank, there was a particular focus on Certain aspects of our capabilities have been able to work together in various areas. So we've got a clear view of how those opportunities can unfold and the scale of them. And clearly, from our side, if any aspect of that comes to fruition, it would be utterly transformational to our Ingenuity Commerce division and hence that's why we've worked so hard to make this partnership work. But I can't name them right now, Andrew, but safe to say, the SoftBank have obviously got some pretty wide ranging serious investments that people can research. That people can research. Very helpful. Thank you. Thank you, Andrew. Our next question is from the line of James Griswick from Jefferies. James, your line is now open. Thank you. Good morning. Good morning, Matt. I just had a quick one. You've been extremely busy on the M and A side of things on the 2 e com platforms, and you signaled that you continue to be very busy. Can you perhaps give us some context of how some of the early acquisitions have been bedded down and just how the strength of the team allows you to continue to have very high levels of activity on the M and A front and then bed down these businesses pretty rapidly? Sure. I mean, one of the benefits we have because of Ingenuity and the fact we own all of our tech end to end and the platform distribution logistics platform as well is that we can pick and choose the assets to build out our respective divisions. Now if you take a step back and imagine how most of the major brand CPG type businesses have been created over the years. They've been brought together through mega mergers. The challenge in doing a mega merger is quite often there are various Assets that you otherwise wouldn't maybe choose to have together, and so you end up with divestment plans, so on and so forth. The benefit we have is, is we can do a much lower risk approach of buying smaller, more focused acquisitions and putting them onto our platform and And develop them into direct to consumer propositions. So what it can look like is actually you're quite busy, you're doing a few pieces of M and A in a given division. And does that necessarily cause you a great deal of management bandwidth stretch? It's actually quite the opposite. We can instead of doing it buying something with a lot of brands in it, by going in and picking and choosing, put them on our platform, it means that management can be free to continues to drive the rest of the group forward without dealing with legacy issues instead. And I believe that would be reflected as well, James, just in the fact of the growth figures we keep posting and of general performance of the group. In terms of answering your question around the performance of the things that we've invested in, So most notably, that will be Pericone and Dermstore. They've gone incredibly well, better than we anticipated on both counts and are very well integrated now across the group. And it's but that is something you should expect from us anyway because We have all of this technology we've invested in over the years, and we have a central infrastructure to handle these things. So I don't know if that helps you, but That's the position. That's great. Thank you, Matt. Thank you, James. Our next question is from the line of Bob Joyce from Goldman Sachs. Bob, your line is now open. Please go ahead. Hi, good morning, Matt. Thanks for taking the questions. 3 from me. Just firstly, could you give us a bit of an understanding as to how that EV of Ingenuity was calculated, how you came to that valuation? The second one is, can you just let us know exactly what kind of assets sit in Ingenuity now? For example, would Bentley as a production asset sit in beauty or in Ingenuity? And then the third one is, if Ingenuity is split out separately, would Beauty and Nutrition become Ingenuity clients in that regard with the sort of third party relationship? Thank you. Thanks, Rob. Yes, sure. What assets are in Ingenuity? It's what you would see in our reporting minus the beauty manufacturing. So beauty manufacturing will sit in beauty and we'll be adjusting that for everybody. So you will see that. And so Bentley will become THG Labs along with our current manufacturing and product development business. So it's everything you see is ingenuity minus the beauty manufacturing. In terms of would Would they become a client, the other divisions become a client? Yes. Over time, that's unquestionably going to happen. Clearly, at group level, that gets Consolidated out because we own the vast majority of Ingenuity. But as a result, that then becomes by far the biggest clients of Ingenuity, save for potentially the SoftBank collaborations. Hopefully, that will become the biggest client pretty quick. But yes, there would be that client relationship taking place, which would be transformative as well to the Ingenuity P and L. And then in terms of how do we arrive at the valuation of it, I mean, look, there's a number of ways in which you could do it. And You guys are more experts at valuing things than arguably we would be. Now but we took a few different examples. Firstly, you obviously look at things like sales multiples, not just sales multiples of where the business is today, but maybe looking at 2023 and seeing where that would sit. Obviously, looking at the scale of the opportunities of working together, what that could bring and recognizing there could be some value between us there. But ultimately, on all of these things, Rob, it's a case of, well, what do we as a board feel is Fair value that we would come to shareholders with this proposal. And from SoftBank, what do they see as fair value as well? And as you could imagine, that there was a bit of toing and froing on that, but we did quite quickly land on it. I think it's a very good deal for SoftBank and a very Fair deal for GSG shareholders today. And it's just worth reminding people that the GBP 4,500,000,000 pre money valuation is actually the value the group RPO ed at just 7 months ago. So the whole group was valued at that point. So there was a number of ways of doing it. Sales multiples is typical in this sector, and you end up with Depending on what you put into that 2023 sales multiple, it can look very cheap or it can look at a fuller price, but I think all parties feel it's very fair. Thank you very much. Our next question is from the line of Wayne Brown from Liberum. Wayne, your line is now open. Please go ahead. Thanks very much. Good morning, Matt, and congrats on a terrific deal. Just a few questions from me. Just on the and Firepower that you now have to do more M and A. Is the amount of funding that you have Both the recent fundraisers, is that enough for the medium term or just the short term? And with regards to the SoftBank Partnership. Is there any more investment that's required in your infrastructure above above what has already been planned to kind of get those partnerships up and running and just the timing of that? And then just lastly, on Nutrition and Beauty, if we had to make an assumption that you would priced those services with Ingenuity at an arms length transaction. What does the cost structure there kind of look like? What would happen to the margins of those underlying businesses? Thanks. Sure. Well, Wayne, Harry, can you and me could have an hour call on those three questions alone? All right. So on the cash investment, right, There's $1,600,000,000 going into Ingenuity when the option gets exercised. So what would happen then is, obviously, the CapEx, Which is the majority of when you take distribution planned CapEx that we've put in, No, but the normal CapEx, that's the majority of it, yes, which is probably about $100,000,000 this year of developer type CapEx as we build the technology out. That sits in Ingenuity. So there'll be $1,600,000,000 that will be an incredibly well funded Ingenuity business with optionality on how we deploy that. So the group will benefit from not having that CapEx though because that's shifted into Ingenuity. The $1,000,000,000 that we've had, we've obviously deployed 255. We also have access to significant funding through our TLB. And so there is ample capital there to fulfill All of our plans that we have, certainly in the near term as far as we're looking ahead, Especially then when you add on that Ingenuity, it's got $1,600,000,000 going into it too. So there's a lot of it's a well structured strong balance sheet is what I would say. Obviously, you can never say never, but it fulfills the plans that we have in place. And that was one of the attractions with the SoftBank deal. We don't want to be involved in frequent capital raising exercises and things like that. This was just a this delivers everything in one go. So that was I think that answers hopefully the capital points on there, but happy to go further in a second. And then the really long question, I guess, is around what would happen if you put I guess, is around what would happen if you put various charging mechanisms into the Beauty and the Nutrition divisions. We've run various scenarios on that. But you could imagine it would have a very significant impact on Ingenuity's P and L if we do that. And obviously, Ingenuity would be the revenues in Ingenuity in any tech business like that would have a very different valuation metric, very, very different. So it would be incredibly accretive to that business. Clearly, there would be some impact to the EBITDA and the cost structure of the other divisions. We're not really in a position to share that detail just yet, save for to say if we do go down that route, obviously, there should be An accretion in value, a significant accretion in value of the group, what we want to do is to make sure it's sensible and it's fair before We start to share that, but there has been awful lot of planning going on in the background. And so I don't want to be vague on that. Just want to be honest and say, look, we're not quite ready to share that with you just yet. Sure. No, no, that's very clear. Thanks, Matt. Just one follow-up. The €1,600,000,000 of funds that really will goes into ingenuity, What will the main use of that be? And can you use that or CapEx in other areas of the business? Or does it have to just purely remain within Ingenuity? That will stick within Ingenuity. It was a pre money Valuation of GBP 4,500,000,000 so the cash goes in and increases the value. We want to build that technology out. So we're aligned on that. That will be a very strong self funded tech platform. It will be incredibly well funded. So it gives us full optionality of how we want to do that. We talked at IPO about expanding certain aspects of the platform, such as across the security aspects, and maybe we'll do some investments in that regard. We also talked around payment gateway type technology, so on and so forth. So it just gives us a huge level of optionality around our technology, And it stops it from being a funding drain on the broader group. So that GBP 1,600,000,000 will It's in Ingenuity. We won't be using that elsewhere, but obviously, it consolidates into the PLC accounts because we'll own over 80% of it. So show us our cash, but the focus of that cash is to build ingenuity into a world beater. Great. Okay. Thanks a lot, Matt, and congrats again. It's been a terrific deal. Thanks. Thank you, Wayne. Our next question is from the line of Charlie Muir Sands from BNP Paribas. Charlie, your line is now open. Please go ahead. Yes. Several topics already being covered, but I just wanted to revisit, if I can. Actually, The first one relates to the option that you've granted to SoftBank. I just wanted to clarify that was a free option and there's no break on that? Or I mean, obviously, you've gone into this with very much the expectation the deal does go through, but I just wanted to understand and what risks are around that? Yes. Yes, that's my first question. Okay. So it's on that option, Charlie. So GSG is committed. Just to remind people, SoftBank wanted to deploy that capital immediately. They don't they're not the kind of organization that would want to sit around in the wings. We weren't in a position to accept that investment directly into Ingenuity. And To put that into PLC, it would have been a very big stake, so on and so forth. There were suggestions around convertibles and various things Which wouldn't have worked for GSG for us. We so it was our suggestion and our drive to put it into an option. So as a result of that, that option, we are committed. So once SoftBank once we're in a position to do it, SoftBank will be able to exercise that and that will just happen. Clearly, if there is a legal wrinkle or some sort The financial wrinkle that means we can't go ahead with it, then clearly we don't go ahead with it and we'll be allowed to stand down. Obviously, we've done some diligence on that in advance and don't anticipate that. And we anticipate this going through in 6 months' time. From SoftBank's side, They could decide, we don't want to do it anymore, which you'd expect them to have that ability to do that. Bearing in mind, It's on us to be able to sort the vehicle out and put it in. I believe I strongly believe the chances of that are going to be tiny. And so not least because they've invested 1,000,000,000 of dollars elsewhere around one particular area that we're looking at addressing for them. And similarly, they've been invested in the ABB and so on and so forth. So we are very committed together on this partnership. And I don't I think you should assume that it's going to go ahead. But clearly, from our side, we are Completely committed and can't walk away from that now. Great. That's very reassuring. And then the second bit goes back to one for Wayne's questions, which is just to understand what's the thinking around that sort of cross charge mechanism, the fact that Ingenuity will be providing services to the retailing divisions. Obviously, the valuation has been fixed, but just wondered what is it effectively what the earnings agreement is with respect to the services that the division that you won't effectively own 100% of will be providing to the bits that you do still own 100 percent off? Yes. And look, and it is worth remembering, we do still own 80.1% of it. So I think we'll consolidate out in our group numbers in any event, but we are by far the biggest owner of that. Yes. I can't give the detail on that just yet because as you can imagine, as we've been through this transaction, it's been A pretty intensive process. There is some finer bits of detail to do. Safe to say that we have been clear at IPO during the various analyst presentations, so on and so forth, that if we did introduce a charging mechanism, Ingenuity, the accretion to ingenuity into the overall group's value would be transformational. Now it's only transformational if an external party comes in and buys a stake. Now it also is worth remembering this is a very Small stake, it would be a completely different valuation in our opinion if this was a greater than 19.9% stake. So this is a small minority stake, which has one type of valuation thinking to it. Now We do aim to be able to share that level of detail with you. But what you should assume is, is it clearly will be very accretive to the wider group as if we did, as we do end up separating some of the charging systems out, But we're just not quite in a position that we'd want to share that just now. Great. And then the final question relates to to Bentley. It's a relatively high valuation lock pull that you're paying, but the statement referenced is strong historic growth and future opportunity. I just wondered if you could talk about some of the momentum that, that business has and Just elaborate a little bit more on the capacity that it's got to fuel both your own private label and third party brands businesses going forward. I mean, look, the momentum is strong in it. It's probably doubled the revenue line and profit line in the last 3 years alone. There's an element of prudence in those numbers that we put forward as you would expect us to do and as we've done with everything else we presented. Maybe one of the best things I can do is give you a case study of the beauty development business and manufacturing business in the We added that within CHG's capabilities about 3 years ago. We paid £60,000,000 for a business turnover, about 40 Revenue in Sterling and making about €5,000,000 EBITDA back then. Forward wind is where we are today, 3 years on that, That's turning over externally about GBP 60,000,000 of revenue, making probably about GBP 10,000,000 or GBP 11,000,000 of EBITDA. But importantly, It's delivering €30,000,000 of sales to THG, which obviously get canceled out and also delivering saving us GBP 6,000,000 of EBITDA, which obviously you wouldn't get visibility on group accounts. So that business has more than doubled and trebled at the bottom line for us, whilst then playing the pivot Real central role of developing our own beauty brands and all behold in the mall have done an outstanding job there. And then the final point with that UK Opportunity as is, it's been an unbelievable feeder for Ingenuity. The fastest growing area of Ingenuity for many months has been The beauty aspect of and that manufacturing development business has been key. So we expect the same here for the U. S. This is a real premium asset in that space within the U. S. The U. S. Has been a key focus area for us. So I've got no doubt that the accretion that, that business is going to bring is something now that we've got a very proven experience Fantastic. Thank you very much. Thank you, Johnny. Our next question is from the line of Simon Bola from Numis. Simon, your line is now open. Please go ahead. Hi, thank you. Just a couple of quick ones. Firstly, there's a bit of chart within the statement around refinancing. Just could you clarify whether you're considering refinancing the TLB at all and if that's what you're referencing there? And then secondly, can you just sorry, go for it. No, go ahead, Simon. Sorry, I couldn't hear you. I thought that was the question. Sorry. That was the first question. The second question was just going to be to just touch again on the use of cash Within THG Ingenuity, because I mean, I guess you had an option as to whether that SoftBank investment came in primary or secondary, And it's all coming in terms of primary. Is there an expectation that T and G Ingenuity is going to be quite acquisitive itself as an entity? And got the €100,000,000 of CapEx, can take a while to burn through the cash that's gone into the business? Sure. So on Ingenuity and The cash within there, look, it's the reason it's got $1,600,000,000 is Partly a product of the 19.9% and the valuation. So if you're going to sell someone 19.9%, you end up with the $1,600,000,000 So that's 9% wouldn't have been wouldn't have worked for SoftBank, so a smaller number, equally 49% wouldn't have worked for THG because we don't want to give that much up and it's a lot of cash to deploy. And so that's in part how the $1,600,000,000 has come about. You're absolutely right though, dollars 100,000,000 of CapEx is you're going to take quite a few years to be able to go through that and build that out. What it will do is it's incredibly well funded, as you point out. We don't have Anything specific that we're spending that money on right now, but clearly, there are aspects to the technology stack where we think we could potentially deploy capital to really further improve it for everybody. And so it might take us a bit of time before we come forward with that, Well, that's the plan. It will fund the CapEx, but also potential opportunities on top. That first the first point, I think, was around refinancing. Yes. Do we intend to do that? Look, it's just optionality. We've got a we only did the TLB, I I don't know, just before IPO, maybe in December 2019, I think it was, we IPO ed September 2020. I think it's a 5 year TLB, something like that. So we've got loads and loads of time on that. Clearly, we'll just see we'll always have that optionality that we could refinance it. Being completely frank and open, it's not on my list of things to do at all. And so if it's not on mine, I very much doubt it's on the CFOs either. So there's no plan there currently. Okay, great. And then sorry, just one final one. Isn't Genuity currently working with any of the current SoftBank affiliates? It's the other way around actually. So they do have an investment in a business called Autostore. And with Autostore in the UK, there's a 500,000 square foot a new facility that will open in probably September when first shipments come out of it. And Autostore, we've just literally given them access now to put their robotic kits in there. And so obviously, SoftBank have got A sizable holding there, probably going to be a majority holding over time, but from what I understand. So that's one where we're working together on something, but that's them kitting out one of our warehouses. Okay. So that's the warehouse that you are using or are due to use yourself? Yes. It's Our facility, where we've engaged with the SoftBank entity, we're working together on that. And I wouldn't rule out that we'll be there's a potential to do much more together in that regard. Let's see. But SoftBank has some serious investments out there and there's plenty of opportunity across all of them, but that's the one that prior to this we were working with. Okay. Thank you. Thank you. Our next question is from the line of Roland French from DV Research. Berlin, your line is now open. Please go ahead. Hi, morning and thanks and congrats on the deal guys. A couple of questions for me. Just firstly on, I guess, the Soft Bank client Canvas. Maybe some color, I know you can't get into the specifics and you've given us the example of Autostore, but can you maybe give some color around Geography around end use markets. And I guess heretofore, we've seen that ingenuity order book being scaled through TPG, Wellness and Retail. I guess my question is, does it broaden that list or does it deepen that list? And then secondly, how do you think about those potential clients in context of the services you're providing? So should we think about it more around Supply chain fulfillment or is there equal opportunity to get into GMV share arrangements? And then finally, just kind of pivoting a little bit just to Bentley. I know you've spoken before about leveraging some existing U. S. Assets For the protein division, I guess, in fulfillment, is there an ability there? I guess, on New Jersey, is there capacity at that site for the Myprotein business to benefit? I'll leave it at that. Thanks. Sure. I'll answer the last one on Bentley. It's very specific around beauty. So we wouldn't be putting nutrition in there, but you're absolutely right. We are passionate across the U. S. In extending our capabilities for nutrition, for beauty, for Ingenuity, but also here with product development. So that site will really be a beauty site and the work that we will be It will be entirely around beauty. In terms then of some of the other questions around client base and how that Canvas of SoftBank, ClientsWorks. Well, I would say the opportunity is across the whole area of ingenuity. We've We've got a whole host of services that sit in there, commerce being 1. Obviously, there's hosting, content creation. There's There's the warehouse management software solution, fulfillment, so on and so forth. In terms of territories, any specific territories, Asia is they're from Japan as a head office, so I would have thought the strength of their business across Asia and their contact base and so on and so forth, that would be a natural place for us to be able to do things at scale pretty fast. We've got A particular strength in Asia is a really key market for us. And so I can see is doing things there. But Ultimately, it's SoftBank. They're pretty huge. So the potential is pretty broad ranging, and we'll be there to service them with whatever aspect of our ingenuity stack applies to any given opportunity. Our last question is from the line of Wayne Brown from Liberum. Wayne, please go ahead. Thanks. Matt, just two follow-up questions. Firstly, around management bandwidth and with so much happening in the group, just if that's a bit of a stretch or not? And then lastly, you said that there's optionality in nutrition. I'm not sure if that's It's finished now, but I don't know if the media I think seem to have lost BRR, who are the media people who do all the questions. So I don't know if they're coming back on or We just have a follow-up question here from Wayne Brown. Can you hear me? We've lost our media people, but we're probably coming to the close in any event. So with that, I think just to wrap up, I really appreciate the support that everyone's given us. And hopefully, you'll agree, it's quite an exciting opportunity. And we look forward to being able to update on any progress we make now with SoftBank, but also in the other areas of THG. So thanks once again, and look forward to speaking soon. Cheers.