TIDMTHG
RNS Number : 5258Z
THG PLC
15 September 2022
This announcement contains inside information
15 September 2022
THG PLC
Interim results for the half-year ending 30 June 2022
Substantial progress as we continue to build a strong,
sustainable global platform supporting THG brands and Ingenuity
clients
Record revenue performance of GBP1.1bn in H1, underpinned by
stable customer behaviour metrics driving market share gains in
large Beauty and Nutrition markets
Adjusted EBITDA of GBP32.3m, with operating loss of GBP89.2m
reflecting consumer price protection investment strategy. Medium
term guidance reiterated with cost efficiencies and commodity price
improvements supporting margin recovery in H2 and 2023
Robust cash on hand of GBP266m plus undrawn GBP170m RCF. GBP156m
credit approved banking facility and agreed disposal of GBP44m
non-core freehold asset will further strengthen the Group's balance
sheet
Governance progress with appointment of experienced independent
non-executives
THG PLC ("THG" or the "Group"), the proprietary technology
platform specialising in taking brands direct to consumers ("D2C")
globally, announces its interim results for the half-year ending 30
June 2022 ("H1 2022").
H1 2022 Group Trading Performance
GBPm H1 2022 H1 2021 YoY1 YoY Growth 2 Year 2 Year
Growth CCY2 Growth Growth
CCY
-------- -------- ------- ------------ ------- -------
THG Beauty 552.8 460.8 +20.0% +17.7% +87.0% +90.4%
THG Nutrition 332.1 328.4 +1.1% +3.3% +28.7% +34.8%
THG Ingenuity 104.2 85.8 +21.4% +20.2% +69.5% +72.4%
THG OnDemand 51.0 51.6 -1.0% -1.9% +44.2% +47.1%
Other 36.7 32.2 +13.4% +12.4% +45.2% +46.5%
-------- -------- ------- ------------ ------- -------
Group Revenue 1,076.8 958.8 +12.3% +11.9% +59.4% +64.0%
-------- -------- ------- ------------ ------- -------
Gross Margin
%3 42.1% 46.5%
-------- -------- -------
Adj EBITDA4 32.3 81.2 -60.2%
-------- -------- -------
Adj EBITDA% 3.0% 8.5%
-------- -------- -------
Adj EBITDA pre
SaaS costs5 36.1 81.2 -55.5%
-------- -------- -------
Adj EBITDA%
pre SaaS costs 3.4% 8.5%
Adjusted items 22.9 28.6 -5.7
Operating loss6 -89.2 -17.4 -71.8
Net Debt / Cash7 -225.6 384.6
-------- --------
Ingenuity Commerce
Revenue 22.9 18.3 +25.1% +25.1% +232.3% +232.3%
-------------------- -------- -------- ------- ------------ ------- -------
Half-year 2022 financial highlights
-- Group revenue of GBP1.1bn, +12.3% YoY and +64.0% two-year
growth (CCY). Lower growth rate vs prior period reflects lockdown
comparatives and market uncertainty across consumers and corporates
linked to macro-economic events. Beauty the key driver at +20.0%
reflecting, in part, the impact of the Cult Beauty and Bentley Labs
acquisitions.
-- A strong customer acquisition and retention engine has
powered growth in Beauty and Nutrition active customers by >110%
vs H1 2019, supporting high customer repeat rates which account for
around 80% of D2C revenue across Beauty and Nutrition.
-- Over 10 million app downloads8, with app customers
representing 11.4% of Group D2C H1 2022 revenue (H1 2021: 5.1%).
Greater app participation has partially mitigated rising marketing
costs, with customers acquired at lower costs through this channel
typically ordering more frequently, with higher average order
values 'AOV's' due to regular engagement.
-- The UK is a major territory within Beauty and Nutrition
markets globally. THG's UK revenue grew in excess of the Group rate
in H1 2022. US participation at 20% reflects the successful
integration of Dermstore and double-digit growth in Nutrition.
-- Reduced gross profit margin at 42.1% (H1 2021: 46.5%)
primarily reflects the strategy to partially shield consumers from
adverse macro-economic conditions and a period of unusually high
raw material costs (principally whey). This investment is driving
customer retention and underpinning future growth.
-- Automation, strong cost control and efficiencies across the
Group's global warehouse and fulfillment network delivered a 100bps
distribution cost reduction 9 YoY and improved customer delivery,
not withstanding significant cost inflation across global
logistics.
-- Increased administrative costs reflect temporary investment
in headcount primarily following the acquisitions made in the prior
year, plc governance costs, and industry wide marketing cost per
click inflation.
-- Adjusted EBITDA of GBP36.1m (H1 2021: GBP81.2m) before
GBP3.8m charge from adoption in H1 2022 of the IFRIC covering SaaS
costs, leaving reported adjusted EBITDA of GBP32.3m. This earning
reduction is mainly driven by the stated strategy to limit the
consumer pass through of commodity cost increases to prioritise
retention and growth in the global customer base.
-- The Group incurred an operating loss of GBP89.2m impacted by
certain non-recurring costs, which continue to reduce (20.0%
YoY):
o GBP11.3m of incremental international delivery costs,
predominantly in Asia, due to the absence of traditional delivery
routes and elevated costs
o GBP2.1m of Distribution costs relating to the commissioning of
purpose-built new fulfillment facilities
o GBP9.5m of Administrative costs (principally related to the
divisional reorganisation and acquisition integration costs).
1 YoY defined as year-on-year statutory sales growth
2 CCY defined as constant currency basis
3 Gross Margin % is presented before the impact of depreciation
and amortisation
4 Adjusted EBITDA is defined as operating profit before
depreciation, amortisation, share-based payments and adjusted
items
5 To remove Software-as-a-Service costs "SaaS" which have been
recognised within administrative expenses in H1 2022 following the
IFRIC agenda decision. Presentational change with no incremental
change to cashflow
6 See CFO report page 10 for a reconciliation to adjusted
EBITDA
7 Net (Debt) / Cash is cash and cash equivalents less debt
before lease liabilities, on a hedged basis ( see note 7)
8 Number of mobile apps downloaded since launch in 2020
9 100bps reflects the reduction in distribution costs as a
percentage of revenue
Balance sheet and cash
-- Cash on hand of GBP266m and an undrawn GBP170m RCF at the
period end. A net working capital outflow in H1 is typical, with an
additional c.GBP75m one-off cash investment principally for
inventory in the new warehouse facilities and accelerated supplier
payments in H1 2022. With seasonal peak trading ahead, H2 2022 is
expected to be cash generative as in previous years, with inventory
lower at the year-end vs prior year.
-- Year-end cash of c.GBP500m expected, including completion of
credit approved three-year term GBP156m banking facility and
non-core freehold asset disposal (GBP44m) 10 .
-- Following significant investment in its global infrastructure
network and through ongoing project delivery efficiencies, the
Group anticipates capex in FY 2023 of c.5.0% of revenue.
-- The Group therefore remains on track to becoming broadly free
cash flow neutral in FY 2023 and significantly free cash flow
positive in FY 2024.
Illustrative FY 2022 FY 2023
cash items
Working Capital Neutral Modest inflow
Adjusting Items c.GBP60m c.GBP15m - GBP20m
Capex (net of c.GBP150 - GBP160m c.5.0% of revenue
disposals)
Financing and c.100m In line with
Tax 2022
Free Cash Flow Negative Broadly neutral
-------------------
(10) See CFO report page 13
Matthew Moulding, CEO of THG, commented:
"I'm proud to report the Group achieved record H1 revenues of
GBP1.1bn, delivering +12.3% growth against a challenging global
backdrop, alongside a strong prior year performance during
lockdown. The Group continues to deliver significant infrastructure
development, which in turn has supported market share growth
through improved localised service as well as substantial
operational savings. The first half of this year saw continued
strong customer metrics, with active Beauty and Nutrition customers
now 113% higher on a three-year basis.
"Our highly engaged, global customer base, with high repeat
rates, is a key asset of the business. Recently achieving 10
million app downloads from launch in early 2020, further
strengthens the Group's relationship with consumers and our first
party data advantage.
"Against the tough macro-economic backdrop, we have prioritised
our loyal customer base, over maximising near term gross margins
focusing on retention and growth of consumers. The strength,
resilience and agility of our vertically-integrated business model,
coupled with automation, has enabled us to significantly invest in
price protection for consumers currently facing unprecedented
cost-of-living challenges.
"Supporting our consumers through 2022 has been offset through
reducing 2023 capex, with the Board viewing this investment as
yielding a better return for shareholders and consumers alike in
the near term.
"With a strong balance sheet and category leading positions
within substantial end markets that continue to benefit from
long-term structural growth, we have confidence in our ability to
deliver long-term value for shareholders and remain on track to be
cashflow positive in 2024."
Continued substantial strides towards building strong global
consumer brands
-- As pandemic restrictions have lifted across most of the
world, consumers are welcoming the return to normality, creating
increased usage occasions, despite inflationary pressures.
-- Continued demand from highly engaged customers with over one
billion visitors to the Group's websites during the last 12 months
and a 16 million strong social media community supporting AOV's
(THG Beauty +7% YoY, THG Nutrition +9% YoY).
-- THG Beauty has doubled in size since the IPO, including a 50%
increase in brand partners and successfully integrating US based
Dermstore and Cult Beauty in the UK. The addition of Bentley Labs
in the US in June 2021 enhanced the Group's new product development
and production capabilities within North America, providing a
faster product development platform to THG's own beauty brand
portfolio.
-- The Nutrition division continues to expand into adjacent
markets through localisation and category expansion, with
innovative new product ranges supporting growth in active customers
by 69% vs H1 2019.
-- The recent US launch of the 'Whey Forward', an animal-free
whey protein alternative emphasises the advantages of a
vertically-integrated model in delivering sustainable solutions
whilst mitigating exposure to commodity costs.
-- Collaborating with major brands and influencers continually
raises brand awareness, with Myprotein recently agreeing to enter
the frozen category through a major licensing partnership with
Iceland Foods initially through >1,000 stores in the UK,
international franchises and online.
-- The divisional reorganisation gives each division maximum
strategic optionality moving forward.
THG Ingenuity update
-- Despite capital hesitancy across enterprise and SMB clients
against an inflationary macro-economic backdrop, the long-term
outlook for e-commerce penetration remains very positive.
-- Ingenuity is now firmly endorsed as the partner to deliver
digital growth ambitions for enterprise clients with 44% of 2020
clients adding more services, and over 70% of live sites operating
in major territories, supported by a >30% expansion of the
global logistics network.
-- 7 out of the top 20 food and beverage brands are now
partnering with Ingenuity, demonstrating its multi-category reach
(including General Mills, Mondelez International, Kraft Heinz,
Nestle and Coca-Cola European Partners).
-- Average recurring revenue per website and Annual Revenue
Run-Rate in Q2 2022 broadly in line with prior quarter (GBP0.16m),
with seasonal uplift in Gross Merchandise Value processed over the
peak trading period elevating the Q4 2021 position.
Q2 Q1 Q4 Q3 Q2
2022 2022 2021 2021 2021
------- ------- -------
Number of live client websites
(11) 212 202 187 163 133
Average recurring revenue
per website (12) (GBPm) 0.16 0.16 0.24 0.17 0.17
Recurring Revenue % (13) 76% 76% 72% 59% 55%
Annual Revenue Run-Rate (14)
(GBPm) 49 51 61 44 37
------- ------- ------- ------- -------
-- Growth strategy remains; i) New customer growth within FMCG,
food and beverage, and retail categories, ii) Expanded share of
commerce spend from existing clients, and iii) Deployment of
productised solutions across fulfilment, fraud detection and
digital media & content.
-- New CEO of THG Ingenuity, Vivek Ganotra, who joined the Group
in Q2 2022, brings significant experience in technology, operations
and digital commerce from previous roles at Salesforce (Chief
Customer Officer, UK) and British American Tobacco over the last 20
years.
(11) Number of websites defined as website with a specific
domain name/URL live at the end of the period
12 Average recurring revenue per website is presented on an
annual basis
13 Based on total Ingenuity Commerce revenue
14 Annual Revenue Run-rate is based on annualised recurring
revenue in the quarter and trailing 12 months non-recurring
revenue
Corporate Governance
The Group's intention to step-up to the Premium segment of the
Main Market of the London Stock Exchange remains, with timing
subject to the outcome of an FCA review for reform of the listing
regime expected in 2023.
In a separate announcement today, the Board has also made
changes to its composition.
FY 2022 outlook and guidance
-- Earlier this year, the Board set out growth plans for the
Group to deliver FY 2022 revenue growth of +19.0% to +24.0% (c.1.0%
impact from Russia and Ukraine market exits), with adjusted EBITDA
broadly in-line with prior year (FY 2021 GBP161m).
-- Whilst H1 revenue growth of +12.3% and stable consumer
metrics gives us confidence for H2 sales growth, the cost of rising
interest rates and energy are expected to place pressure on
consumers.
-- Despite this outlook, the Group anticipates a strong H2, with
another period of double-digit growth. This performance is expected
to be supported by increasing growth rates in both Nutrition and
Ingenuity, comparatives easing, stable AOV's, new customer
acquisition and repeat rates.
-- Pricing power across THG's own brands allows inflation to be
partially mitigated through increased prices, albeit the Group
remains committed to raise slower and lower than inflation to
protect consumers and drive market share gains.
-- Whilst inflation is easing in core areas such as commodities,
the majority of margin benefits will be realised in the fourth
quarter due to forward buying plans. Therefore the Group now
expects FY 2022 adjusted EBITDA between a range of GBP100m to
GBP130m pre SaaS cost reclassification reflecting:
o Revenue growth of +10.0% to +15.0%;
o Stated strategy of raising prices at a lower rate to
underlying input costs to drive retention and market share
gains;
o Incremental energy cost inflation, weighted to the second half
due to phasing of market price increases;
o c.GBP8m of SaaS costs (see footnote 5).
-- Cash adjusting items continue to reduce, reflecting final
phases of warehouse commissionings and acquisition integrations,
underpinning an expected c.50% reduction in H2 vs prior year.
FY 2023 and medium term outlook
-- Global economic forecasts predict the outlook for consumers
will remain challenging. Online penetration of beauty, health and
wellness markets is c.25% globally, and we expect continued
long-term channel shift as lockdown comparatives fall away. This is
supported by data insights as to the behaviour of recently acquired
customer cohorts across the business.
-- Medium term constant currency revenue growth guidance of
between +20.0% to +25.0% is reiterated, confidence underpinned by
track record of outperformance and market share growth.
-- The Board remain confident of a return to 9.0%+ adjusted
EBITDA margins in the medium term, and strong progression into FY
2023 through:
o Operating leverage;
o Gross margin recovery as the consumer price protection
strategy in H1 2022 normalises over the next 24 months, largely
driven by lower average whey input prices;
o Over GBP30m annualised impact of infrastructure, procurement
and payroll efficiencies, largely identified and delivered through
the Group's divisional reorganisation; and
o A strong Ingenuity pipeline and continued endorsement of the
proposition through; i) an expanded enterprise client base, ii) new
vertical penetration, and iii) further share of digital spend from
existing clients.
Analyst and investor conference call
THG will today host a conference call and webcast for analysts
and institutional investors at 9.00am (UK time) via the following
links:
To register for the webcast, please use the below link:
https://stream.brrmedia.co.uk/broadcast/62fa5b12b629a70556525263
To ask questions, you must dial in via conference line using the
below details:
-- Confirmation code: 3361798
-- UK dial in: +44 (0)800 279 6877
-- US dial in: +1 800 289 0720
A playback of the presentation will be available on THG's
investor website at www.thg.com/investor-relations later today.
For further information please contact:
Investor enquiries - THG PLC
Kate Grimoldby Investor.Relations@thg.com
Media enquiries:
Powerscourt - Financial PR adviser Tel: +44 (0) 20 7250
1446
Victoria Palmer-Moore/Nick Dibden/Nick thg@powerscourt-group.com
Hayns
THG PLC
Viki Tahmasebi Viki.tahmasebi@thg.com
S
Notes to editors
THG is a vertically integrated, digital-first consumer brands
group, retailing its own brands in beauty and nutrition, plus
third-party brands, via its proprietary, end-to-end, e-commerce
technology, infrastructure and brand-building platform (THG
Ingenuity) to an online and global customer base. THG's business is
operated through the following businesses:
THG Beauty : The globally pre-eminent digital-first brand owner,
retailer and manufacturer in the prestige beauty market, combining
its prestige portfolio of eight owned brands across skincare,
haircare and cosmetics, the provision of a global route to market
for over 1,300 third-party beauty brands through its portfolio of
websites, including Lookfantastic, Dermstore, Cult Beauty and
Mankind and the beauty subscription box brand GLOSSYBOX.
THG Nutrition : A group of digital-first Nutrition brands, which
includes the world's largest online sports nutrition brand
Myprotein, and its family brands (Myvegan, Myvitamins, MP Clothing
and Myprotein Pro), with a vertically-integrated business model,
supported by six THG production facilities.
THG Ingenuity: Ingenuity Commerce provides an end-to-end direct
to consumer e-commerce solution for consumer brand owners under
'Software as a Service' (SaaS) licences. The wider Ingenuity
division provides stand-alone digital services, including hosting,
studio content, translation services and beauty product development
and manufacturing.
THG OnDemand : Personalisation and customisation is a key
offering within THG OnDemand, enabling brands to offer unique
products to a vast range of consumers across THG's global
territories through websites including Zavvi, IWOOT and Pop in a
Box.
Other : Luxury D2C websites including Coggles, AllSole and
MyBag, in addition to THG Experience. The latter comprises prestige
events locations at Hale Country Club & Spa, King Street
Townhouse Hotel and Great John Street Hotel, providing deeply
experiential brand building environments, most notably in support
of THG Society, the Group's proprietary influencer marketing
platform.
Cautionary Statement
Certain statements included within this announcement may
constitute "forward-looking statements" in respect of the group's
operations, performance, prospects and/or financial condition.
Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words and
words of similar meaning as "anticipates", "aims", "due", "could",
"may", "will", "should", "expects", "believes", "intends", "plans",
"potential", "targets", "goal" or "estimates". By their nature,
forward-looking statements involve a number of risks, uncertainties
and assumptions and actual results or events may differ materially
from those expressed or implied by those statements. Accordingly,
no assurance can be given that any particular expectation will be
met and reliance should not be placed on any forward-looking
statement. Additionally, forward-looking statements regarding past
trends or activities should not be taken as a representation that
such trends or activities will continue in the future. No
responsibility or obligation is accepted to update or revise any
forward-looking statement resulting from new information, future
events or otherwise. Nothing in this announcement should be
construed as a profit forecast. This announcement does not
constitute or form part of any offer or invitation to sell, or any
solicitation of any offer to purchase any shares or other
securities in the Company, nor shall it or any part of it or the
fact of its distribution form the basis of, or be relied on in
connection with, any contract or commitment or investment decisions
relating thereto, nor does it constitute a recommendation regarding
the shares or other securities of the Company. Past performance
cannot be relied upon as a guide to future performance and persons
needing advice should consult an independent financial adviser.
Statements in this announcement reflect the knowledge and
information available at the time of its preparation.
THG PLC
Interim results for the half-year ending 30 June 2022
Chief Financial Officer Review
The Group made substantial progress in the first half of 2022
against a challenging backdrop with half year revenue exceeding
GBP1bn for the first time. The Group delivered an increase in
revenue of 12.3% (11.9% on a constant currency basis), an
encouraging performance given prior year lockdown comparatives and
market uncertainty for consumers given the macro-economic
environment.
Six months ended 30 Six months ended 30
June 2022 June 2021
Before Before
Adjusted Adjusted Adjusted Adjusted
Items Items Total Items Items Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
CONSOLIDATED INCOME STATEMENT
-------------------------------------------- ----------- ---------- ---------- ----------- ----------
Revenue 1,076,762 - 1,076,762 958,830 - 958,830
Cost of sales (634,221) - (634,221) (521,418) - (521,418)
--------------- ----------- ---------- ---------- ----------- ----------
Gross profit 442,541 - 442,541 437,412 - 437,412
Distribution
costs (186,495) (13,418) (199,913) (171,912) (15,566) (187,478)
Administrative
costs (322,351) (9,473) (331,824) (254,284) (13,043) (267,327)
--------------- ----------- ---------- ---------- ----------- ----------
Operating (loss)/profit (66,305) (22,891) (89,196) 11,216 (28,609) (17,393)
FINANCIAL SUMMARY: Adjusted profit measures
--------------------------------------------------------------------- ---------- ----------- ----------
Gross profit
(before depreciation
and amortisation) 452,881 - 452,881 446,271 - 446,271
Distribution
costs (before
depreciation
and amortisation) (174,187) (13,418) (187,605) (164,683) (15,566) (180,249)
Administrative
costs (before
depreciation,
amortisation
and share-based
payments) (246,375) (9,473) (255,848) (200,373) (13,043) (213,416)
--------------- ----------- ---------- ---------- ----------- ----------
EBITDA 32,319 (22,891) 9,428 81,215 (28,609) 52,606
--------------- ----------- ---------- ---------- ----------- ----------
Depreciation (45,732) - (45,732) (28,554) - (28,554)
Amortisation (52,319) - (52,319) (41,445) - (41,445)
Share-based payments (573) - (573) - - -
--------------- ----------- ---------- ---------- ----------- ----------
Operating (loss)/profit (66,305) (22,891) (89,196) 11,216 (28,609) (17,393)
--------------- ----------- ---------- ---------- ----------- ----------
Note The table above shows financial results for gross profit,
distribution costs and administrative costs before the impact of
depreciation, amortisation and share-based payments, which are
shown as separate lines below EBITDA. For statutory presentation,
cost of sales includes charges of GBP10.3m (2021: GBP8.9m), while
distribution and administrative costs include GBP12.3m (2021:
GBP7.2m) and GBP76.0m (2021: GBP53.9m) of depreciation,
amortisation and share-based payment charges respectively.
Revenue
Group revenues increased 12.3% to GBP1,077m (H1 2021: GBP959m)
and 11.9% on a constant currency basis, culminating in 2-year total
sales growth of 64.0% (constant currency). THG Beauty delivered the
strongest growth at 20% year-on-year to GBP553m. THG Beauty sales
represented 51% of Group sales (H1 2021: 48%).
Growth in the first half of 2022 included the contribution of
several 2021 acquisitions including Cult Beauty and Bentley
Labs.
3-year organic sales growth [15] (which normalises the impact of
the pandemic) was over 60% in both THG Beauty, THG Nutrition and as
a Group for H1, in line with medium term guidance provided at
IPO.
THG Nutrition sales grew 1.1% year on year to GBP332m, with
challenging commodity prices and FX providing headwinds, as well as
a particularly strong comparative period due to online retail
benefitting, in H1 2021, from the closure of physical retail
stores. THG Ingenuity revenues grew 21.4% year-on year to GBP104m
in the first half, with the Ingenuity Commerce division growing
25.1%.
International sales accounted for 57% (H1 2021: 59%) of total
Group revenue. US businesses Dermstore and Bentley were acquired in
February 2021 and June 2021 respectively and have now annualised
and, along with the double digit international sales growth in THG
Nutrition, contributed to the 20% US sales participation for the
Group in H1 2022. The UK delivered sales growth in excess of the
Group growth rate reinforcing our strong position and continued
consumer demand in one of our core markets.
Ingenuity Commerce revenue of GBP22.9m (H1 2021: GBP18.3m)
includes recurring revenue of 76% (H1 2021: 55%). Recurring revenue
includes Software-as-a-Service (SaaS) licence fees, monthly brand
building fees, infrastructure service fees, revenue share and a
number of additional services such as translation and creative
services. The strong recurring revenue participation growth
illustrates the strength of the underlying model, with
non-recurring revenue impacted by clients' capital hesitancy given
the macro-economic backdrop. Non-recurring revenue includes
one-time technology fees covering the costs of the design and
development of the website along with integration fees for bringing
partners onto the Ingenuity platform. Whilst these are
non-recurring on a site-by-site basis, we consider that such fees
will be received in future periods as our clients expand their
offering and as our technology offering continues to evolve.
15 3-year organic sales growth defined as the increase in
revenue excluding all acquisitions made post June 2019
Gross profit
Gross profit increased to GBP443m from GBP437m with a margin of
41.1% (H1 2021: 45.6%) on a statutory basis. Gross profit (before
depreciation and amortisation) was GBP453m equating to a gross
profit margin of 42.1%, which was 440bps lower period on
period.
In the first half of 2022, gross margin has been impacted by the
many well-documented macro-economic factors impacting the markets
in which the Group operates. The environment in H1 2022 has been
unusual with elevated commodity pricing (both commodity whey
pricing, and other indirect raw ingredients), foreign exchange
headwinds (principally Japanese Yen) and wider inflation following
on from Covid-19 impact and subsequently the war in Ukraine. As
management considers the majority of these headwinds to be
transitional in nature, the Group has invested in margin, primarily
in consumer price protection to protect the customer as much as
possible, which is evident in the reduction in margin
delivered.
Operating expenses
Distribution costs (before adjusted items, depreciation and
amortisation) reduced as a percentage of sales by 100bps compared
to H1 2021, culminating in a cost of GBP174m (H1 2021: GBP165m),
which is 16.2% of revenue. This strong performance has been driven
by the Group's investments in automation that have driven cost
efficiencies across the global fulfilment network, including THG's
first automated robotic (AutoStore) facility in Manchester. This
reduction in distribution costs is against a market backdrop with
many peers suffering the impact of inflationary pressures in
fulfilment.
Administrative costs (before adjusted items, depreciation,
amortisation and share-based payments) as a percentage of revenue,
increased by 198bps period-on-period driven by several factors
including one-time investment in governance and infrastructure
investment that provides the foundations for future growth. The
Group has also invested in payroll to support acquisition
integration and to expand the Ingenuity Commerce offering, which
will provide operational leverage over time. Marketing paid media
costs have experienced well-documented inflationary pressures
partially offset by technology focused marketing and the Group's
influencer focused model.
Administrative expenses in H1 2022 also include GBP3.8m of costs
relating to services rendered under SaaS arrangements following the
IFRIC agenda decision. These costs were capitalised in the prior
period, so provide a complete headwind period-on-period.
Adjusted EBITDA
Adjusted EBITDA fell to GBP32m (GBP36m pre SaaS costs) from
GBP81m. This represents a margin of 3.0% (H1 2021: 8.5%) reflective
of the challenging environment that we have seen in H1 2022 and the
Group's strategy to, as far as possible, protect consumers from
these inflationary pressures, FX, together with administrative cost
inflation across payroll and marketing.
Adjusted EBITDA is an alternative performance measure, the below
table reconciles back to the nearest appropriate GAAP measure,
operating loss:
Six months Six months
ended ended
30 June 30 June 2021
GBP'000 2022
---------------------- ----------- --------------
Operating loss (89,196) (17,393)
Adjustments for:
Adjusted items 22,891 28,609
Depreciation 45,732 28,554
Amortisation 52,319 41,445
Share-based payments 573 -
Adjusted EBITDA 32,319 81,215
------------------------ ----------- --------------
Depreciation and amortisation
Total depreciation and amortisation costs were GBP46m and GBP52m
respectively (H1 2021: GBP29m and GBP41m) an increase of 40.1% on
the prior period, as THG invested GBP39m in intangible assets,
primarily its proprietary technology platform during the period and
GBP44m in its operations and state of the art warehousing
facilities included commissioning of the Autostore. Depreciation
charges increased period-on-period reflecting the full period
impact of the right of use assets acquired from business
combinations in 2021. Amortisation charges increased again
reflecting the full period impact of the additional intangible
assets that arose from the acquisitions in 2021.
Adjusted items
In order to understand the underlying performance of the Group,
certain costs included within distribution, administrative and
finance costs have been classified as adjusted items. These items
principally relate to acquisition-related restructuring and
integration costs, transportation, delivery and fulfilment cost
increases in relation to Covid-19. All material classes of adjusted
items reduced period-on-period.
The largest cost included within adjusted items is
transportation, delivery and fulfilment costs in relation to
Covid-19. The excess cost continuing across accounting periods is
driven by the continued lockdowns experienced in Asia which still
affect air traffic and key shipping lanes. As the effects of the
pandemic lessen and the lockdowns in Asia ease, the service
providers will no longer need to charge such excess costs. In
addition , integration costs of GBP6m were also incurred in
relation to the 2021 acquisitions. Cult Beauty was acquired in
August 2021 and the integration was a key focus of H1 2022.
Restructuring costs relate to the separation of the divisional
structure, with costs expected to decrease in H2 2022.
Six months Six months
ended ended
30 June 30 June
2022 2021
----------------------------------------------- ----------- -----------
GBP'000 GBP'000
----------------------------------------------- ----------- -----------
Within Distribution costs
Transportation, delivery and fulfilment
costs in relation to Covid-19 11,332 12,687
Commissioning - new facilities 2,086 2,879
13,418 15,566
Within Administrative costs
Acquisitions - legal and professional costs - 7,578
Acquisitions - restructuring and integration 6,169 2,824
Restructuring costs 2,943 1,551
Donations 361 1,090
9,473 13,043
Within Finance costs
Softbank option - non-cash (601) 38,120
----------------------------------------------- ------------ -----------
Total adjusted items before tax 22,290 66,729
----------------------------------------------- ------------ -----------
Tax impact (3,797) (2,958)
----------------------------------------------- ------------ -----------
Total adjusted items 18,493 63,771
----------------------------------------------- ------------ -----------
For full details on each category of adjusted item see note 3 to
the financial statements.
Operating loss
The Group incurred an operating loss in the period of GBP89m (H1
2021: GBP17m). The loss was as a result of the challenging
macro-economic environment, underlying cost price inflation,
commodity and foreign exchange headwinds.
Additionally, administration costs (before adjusted items,
depreciation, amortisation and share-based payments) increased from
20.9% of revenue in H1 2021 to 22.9% of revenue in H1 2022 as
explained earlier.
Operating loss before adjusted items totals GBP66m (H1 2021:
profit of GBP11m). This decrease is due to the impact of the
increase in costs and the stated strategy to limit the consumer
pass through of inflationary pressures as set out above. This is
consistent across the industries we operate in and management
considers many of these costs transitional in nature.
Finance costs
Adjusted finance costs have decreased to GBP20m (H1 2021:
GBP26m) driven by a lower effective interest rate on the Group's
principal debt, the EUR600m Term Loan B.
Statutory finance costs have decreased to GBP20m (H1 2021:
GBP64m) which is driven by the former and the non-cash adjusted
item relating to the valuation of the SBM option that has decreased
from a charge GBP38.1m in H1 2021 to a credit of GBP0.6m at the end
of the half year. The change in valuation is due to the option
being revalued to GBPnil at 30 June 2022.
Loss before tax and tax rate
Reported loss before tax was GBP108m (H1 2021: GBP81m). The
effective tax rate is 1.7% (H1 2021: -0.6%) generating a total tax
credit of GBP1.8m (H1 2021: charge GBP0.7m). The effective tax rate
differs from the average statutory rate of 19%. This is primarily
due to a movement in deferred tax not recognised (-21.8%), the
impact of the substantively enacted UK tax rate change from 19% to
25% on deferred tax (6.6%), and expenses not deductible (-1.2%).
The non-deductible expenses principally comprise of the share-based
payments charge and costs included within adjusted items associated
with the group restructure exercise.
At 30 June 2022, the total deferred tax liability is GBP71m
mainly driven by the deferred tax in respect of previous business
combinations of GBP142m. As a result, a portion of the deferred tax
assets arising in the period of GBP78m can be recognised while
GBP32m remains unrecognised at the balance sheet date. This
deferred tax asset recognition has a material impact on the income
statement tax credit and is the primary reason for the effective
tax rate falling below the statutory rate. The income statement tax
credit is a non-cash item.
Earnings per share
Loss per share was (GBP0.09) per share (H1 2021: GBP(0.08) per
share).
Balance sheet
Cash and cash equivalents and net cash before lease
liabilities
30 June 30 June 31 December
2022 2021 2021
--------------------------------------------- ---------- --------- ------------
GBP'000 GBP'000 GBP'000
--------------------------------------------- ---------- --------- ------------
Loans and other borrowings (502,099) (504,019) (489,865)
Lease liabilities (363,805) (318,352) (349,173)
Cash and cash equivalents 265,661 878,549 536,827
---------------------------------------------- ---------- --------- ------------
Sub-total (600,243) 56,178 (302,211)
Adjustments:
Retranslate debt balance at swap rate where
hedged by foreign exchange derivatives 10,871 10,046 (2,548)
---------------------------------------------- ---------- --------- ------------
Net (debt) / cash (589,372) 66,224 (304,759)
---------------------------------------------- ---------- --------- ------------
Net (debt) / cash before lease liabilities (225,567) 384,576 44,414
---------------------------------------------- ---------- --------- ------------
The Group's balance sheet remains robust closing the period with
cash balances of GBP266m (H1 2021: GBP879m, 31 December 2021:
GBP537m). All debt facilities are long-dated, with the EUR600m Term
Loan B maturing in 2026.
Net debt before lease liabilities and adjusted for the impact of
hedging was GBP226m (H1 2021 net cash: GBP385m, 31 December 2021:
net cash GBP44m). The reduction period on period is driven by the
investment in property plant and equipment, leases and intangible
assets in the period totalling GBP107m and working capital outflows
totalling GBP156m which are expected in H1 with the seasonality of
the business.
The Group revolving credit facility of GBP170m remains
undrawn.
The total cash outflow for the period was GBP271m (H1 2021:
inflow GBP105m). This outflow is driven largely by working capital
movements which generated a net cash outflow of GBP157m (H1 2021:
outflow of GBP66m). A seasonal working capital outflow in H1 is
typical for THG as the group settles peak stock purchases made in
Q4 of the previous year. The Group then typically generates a
working capital inflow in H2 with peak trading in the second half
of the year. The cash outflow in H1 2022, was higher than that of
the prior periods by c.GBP75m. This was principally driven by the
one-off cash investment in stock build in Q4 2021 to stock new
warehouses, whilst the Group has also accelerated supplier payments
both by normalising payments on acquisitions and from internal
process improvement, which has reduced creditor days. The Group
plans to exit 2022 with less stock than it held at the end of
2021.
As part of investing and growing the infrastructure of the Group
and the distribution network, there has also been investment in
property plant and equipment and intangible assets (primarily the
Ingenuity platform) totalling a cash outflow of GBP87m (H1 2021:
GBP90m). The expanded global distribution infrastructure and
automation is delivering operating efficiencies during a
substantial cost inflationary period, and further working capital
improvements over the near-term.
In H1 2021, there was a cash outflow of GBP498m for acquisition
of subsidiaries and GBP730m cash inflow from share issuance.
Neither of these items recurred in H1 2022.
In September 2022, the Group entered exclusivity upon agreed
terms for the sale of a non-core freehold asset16 for net cash
proceeds of GBP44m. The Group is also credit approved to enter a
new three-year term GBP156m banking facility provided by existing
banking partners. This new facility is in addition to the Group's
existing banking facilities.
Property plant and equipment and intangible assets
Property plant and equipment totalled GBP359m (H1 2021: GBP290m,
31 December 2021: GBP336m) with intangible assets including
goodwill increasing to GBP1,558m (H1 2021: GBP1,213m 31 December
2021: GBP1,506m). The increase was driven primarily by additional
investment in the THG Ingenuity platform and continued investment
in the group warehouse expansion programme which is now nearing
completion. These were offset by the depreciation and amortisation
charges incurred.
Going concern
The Group remains in a strong cash position with cash and cash
equivalents totalling GBP266m (H1 2021: GBP879m). Net debt before
lease liabilities at this date totalled GBP226m (H1 2021: net cash
before lease liabilities GBP385m). At 30 June 2022, the Group had a
total of GBP170m in undrawn facilities.
In making their assessment of going concern, the Directors
reviewed financial projections until 30 September 2023. Stress test
scenarios were modelled to take into account severe but plausible
impacts of a combination of the principal risks occurring
simultaneously, as well as a reverse stress test.
Given the ongoing uncertainty in the macro-economic market,
inflation, ongoing war in Ukraine and the global Covid-19 recovery,
Management modelled stress tests across multiple scenarios. These
included adjusting for decrease in revenue (both direct to consumer
and business to business markets), increase in cost base across key
inputs being commodity prices, utilities and payroll and the impact
of a decline in working capital efficiency. The results of stress
testing demonstrated that the combination of mitigating actions
available including existing cash resources, level of discretionary
spend, working capital optimisation and ability to utilise the RCF
were sufficient for the Group to withstand such impacts.
A reverse stress test was modelled to identify the point at
which liquidity is exhausted. The model would have to see a
significant decline in revenue and margins compared with the stress
test set out above. Such a scenario, and the sequence of events
which could lead to it, is considered to be extremely remote.
For these reasons, the Directors continue to adopt the going
concern basis in preparing these condensed interim financial
statements.
16 The asset will be subject to a sale and leaseback with a back
to back sub-lease of part of the demise
Responsibility statement of the directors in respect of the
condensed interim financial statements
We confirm that to the best of our knowledge:
-- the condensed set of financial statements for the half year
ended 30 June 2022 has been prepared in accordance with UK adopted
IAS 34 Interim Financial Reporting;
-- the interim management report includes a fair review of the information required by:
o DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the 2022 financial year and their impact on
the condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
a. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Matthew Moulding John Gallemore
Chief Executive Officer Chief Financial Officer
14 September 2022 14 September 2022
Interim condensed consolidated statement of comprehensive income
for the six months ended 30 June 2022
30 June 30 June
2022 2021
--------------------------------------------- ------ ---------- ----------
Note GBP'000 GBP'000
--------------------------------------------- ------ ---------- ----------
Revenue 2 1,076,762 958,830
Cost of sales (634,221) (521,418)
--------------------------------------------- ------ ---------- ----------
Gross profit 442,541 437,412
Distribution costs (199,913) (187,478)
Administrative costs (331,824) (267,327)
----------
Operating loss (89,196) (17,393)
--------------------------------------------- ------ ---------- ----------
Finance income 792 112
Finance costs (19,782) (64,058)
----------
Loss before taxation (108,186) (81,339)
Income tax credit/(charge) 4 1,835 (713)
--------------------------------------------- ------ ---------- ----------
(106,351
Loss for the financial period ) (82,052)
--------------------------------------------- ------ ---------- ----------
Other comprehensive expense:
Items that may be subsequently reclassified
to profit or loss:
Exchange differences on translating
foreign operations, net of tax 76,201 (18,637)
Net gain on cash flow hedges 10,399 7,328
--------------------------------------------- ------ ---------- ----------
Total comprehensive expense for
the financial period (19,751) (93,361)
--------------------------------------------- ------ ---------- ----------
Loss per share (GBP's)
Basic (0.09) (0.08)
Diluted (0.09) (0.08)
Earnings before interest, taxation, depreciation, amortisation,
impairment, adjusted items and share-based payment charges
(Adjusted EBITDA)
30 June 30 June
2022 2021
--------------------------------------------- ------ ---------- ----------
Notes GBP'000 GBP'000
--------------------------------------------- ------ ---------- ----------
Operating loss (89,196) (17,393)
Adjustments for:
Amortisation 6 52,319 41,445
Depreciation 6 45,732 28,554
Adjusted items 3 22,891 28,609
Share-based payments 5 573 -
--------------------------------------------- ------ ---------- ----------
Adjusted EBITDA* 32,319 81,215
--------------------------------------------- ------ ---------- ----------
(*) Adjusted EBITDA is defined as operating loss before
depreciation, amortisation, adjusted items and share-based
payments. The results for the period are derived from continuing
activities. The comprehensive expense is 100% attributable to the
owners of the Parent Company.
Interim condensed consolidated statement of financial position
as at 30 June 2022
30 June 30 June 31 December
2022 2021 2021 Audited
------------------------------ ----- ---------- ---------- ---------------
Note GBP'000 GBP'000 GBP'000
------------------------------ ----- ---------- ---------- ---------------
Non-current assets
Intangible assets 6 1,557,266 1,212,671 1,506,292
Property, plant and
equipment 6 359,257 290,055 335,620
Right-of-use assets 6 319,799 274,990 310,282
Investments 1,400 - 1,400
------------------------------ ----- ---------- ---------- ---------------
2,237,722 1,777,716 2,153,594
------------------------------ ----- ---------- ---------- ---------------
Current assets
Inventories 456,443 358,400 466,781
Trade and other receivables 267,508 263,622 263,929
Other financial assets 14,451 4,338 2,700
Cash and cash equivalents 7 265,661 878,549 536,827
------------------------------ ----- ---------- ---------- ---------------
1,004,063 1,504,909 1,270,237
------------------------------ ----- ---------- ---------- ---------------
Total assets 3,241,785 3,282,625 3,423,831
------------------------------ ----- ---------- ---------- ---------------
Equity
Ordinary shares 6,808 6,684 6,684
Share premium 2,023,081 2,022,842 2,022,311
Merger reserve 615 615 615
Capital redemption
reserve 523 523 523
Hedging reserve (5,715) (13,825) (12,964)
Cost of hedging reserve 16,844 10,492 13,694
FX Reserve 75,107 (19,459) (1,094)
Retained earnings (379,782) (217,993) (274,015)
------------------------------ ----- ---------- ---------- ---------------
1,737,481 1,789,879 1,755,754
------------------------------ ----- ---------- ---------- ---------------
Non-current liabilities
Borrowings 500,753 500,598 489,113
Derivative financial - 39,914 -
liabilities
Lease liabilities 316,681 281,395 305,831
Provisions 9 16,772 - 15,623
Deferred tax 70,695 70,218 73,766
------------------------------ ----- ---------- ---------- ---------------
904,901 892,125 884,333
------------------------------ ----- ---------- ---------- ---------------
Current liabilities
Contract liability 39,314 41,227 36,143
Trade and other payables 493,338 507,262 676,563
Borrowings 1,346 3,421 752
Current tax liability 5,573 1,092 4,118
Lease liabilities 47,124 36,957 43,342
Other financial liabilities 10,008 10,039 21,943
Provisions 9 2,700 623 883
------------------------------ ----- ---------- ---------- ---------------
599,403 600,621 783,744
------------------------------ ----- ---------- ---------- ---------------
Total liabilities 1,504,304 1,492,746 1,668,077
------------------------------ ----- ---------- ---------- ---------------
Total equity and liabilities 3,241,785 3,282,625 3,423,831
------------------------------ ----- ---------- ---------- ---------------
Interim condensed consolidated statement of changes in equity
for the six months ended 30 June 2022
Ordinary Share Merger Capital FX Hedging Cost Retained Total
shares premium reserve Redemption reserve reserve of earnings equity
reserve Hedging
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------
Balance at 1
January
2022 6,684 2,022,311 615 523 (1,094) (12,964) 13,694 (274,015) 1,755,754
Loss for the
period - - - - - - - (106,351) (106,351)
Other
comprehensive
expense:
Impact of
foreign
exchange - - - - 76,201 - - - 76,201
Movement on
hedging
instruments - - - - - 7,249 3,150 - 10,399
Total
comprehensive
expense for
the
period - - - - 76,201 7,249 3,150 (106,351) (19,751)
Issue of
ordinary
share capital 124 770 - - - - - - 894
Share-based
payments - - - - - - - 573 573
Deferred tax
effect
in equity - - - - - - - 11 11
Balance at 30
June 2022 6,808 2,023,081 615 523 75,107 (5,715) 16,844 (379,782) 1,737,481
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------
Balance at 1
January
2021 6,061 1,287,171 615 523 (822) (18,003) 7,342 (138,361) 1,144,526
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------
Loss for the
period - - - - - - - (82,052) (82,052)
Other
comprehensive
expense:
Impact of
foreign
exchange - - - - (18,637) - - - (18,637)
Movement on
hedging
instruments - - - - - 4,178 3,150 - 7,328
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------
Total
comprehensive
expense for
the
period - - - - (18,637) 4,178 3,150 (82,052) (93,361)
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------
Issue of
ordinary
share capital 623 735,671 - - - - - - 736,294
Deferred tax
effect
in equity - - - - - - - 2,420 2,420
Balance at 30
June
2021 6,684 2,022,842 615 523 (19,459) (13,825) 10,492 (217,993) 1,789,879
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------
Interim condensed consolidated statement of cash flows for the
six months ended 30 June 2022
30 June 30 June 2021
2022
-------------------------------------- ----- ---------- -------------------
Note GBP'000 GBP'000
-------------------------------------- ----- ---------- -------------------
Cash flows from operating activities
before adjusted cash flows
-------------------------------------- ----- ---------- -------------------
Cash (used in)/generated from
operations 8 (124,622) 15,267
Income tax paid (1,510) (641)
-------------------------------------- ----- ---------- -------------------
Net cash (used in)/generated
from operating activities before
adjusted cash flows (126,132) 14,626
Cash flows relating to adjusted
items (27,293) (25,144)
-------------------------------------- ----- ---------- -------------------
Net cash used in operating
activities (153,425) (10,518)
-------------------------------------- ----- ---------- -------------------
Cash flows from investing activities
-------------------------------------- ----- ---------- -------------------
Acquisition of subsidiaries
net of cash acquired 309 (497,614)
Purchase of property, plant
and equipment (46,646) (48,443)
Purchase of intangible assets (39,706) (41,183)
Interest received 792 112
-------------------------------------- ----- ---------- -------------------
Net cash used in investing
activities (85,251) (587,128)
-------------------------------------- ----- ---------- -------------------
Cash flows from financing activities
-------------------------------------- ----- ---------- -------------------
Proceeds from issuance of ordinary
shares net of fees (18) 730,261
Interest paid (9,183) (12,701)
Repayment of lease liabilities (23,289) (14,946)
-------------------------------------- ----- ---------- -------------------
Net cash flow (used in)/generated
from financing activities (32,490) 702,614
-------------------------------------- ----- ---------- -------------------
Net (decrease)/ increase in
cash and cash equivalents (271,166) 104,968
Cash and cash equivalents at
the beginning of the period 536,827 773,581
-------------------------------------- ----- ---------- -------------------
Cash and cash equivalents at
the end of the period 265,661 878,549
-------------------------------------- ----- ---------- -------------------
Notes to the interim condensed consolidated financial
statements
1. Basis of preparation
a. General information
THG PLC (company number 06539496) is a public company limited by
shares and incorporated in England and Wales. It has a standard
listing on the London Stock Exchange and is the holding company of
the Group. The address of its registered office is 5th Floor,
Voyager House, Chicago Avenue, Manchester Airport, Manchester,
England, M90 3DQ. The Company is the parent and the ultimate parent
of the Group, the financial statements comprises the results of the
Company and its subsidiaries ("the Group").
The interim condensed consolidated financial statements of the
Group for the six months ending 30 June 2022 were authorised for
issue in accordance with a resolution of the directors on 14
September 2022.
The annual financial statements for the year ended 31 December
2022 of the Group will be prepared in accordance with UK adopted
IFRSs.
b. Basis of preparation
The interim condensed consolidated financial statements for the
six months ended 30 June 2022 have been prepared in accordance with
UK adopted International Accounting Standard 34 and the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority. The financial statements have been prepared on
the historical cost basis, except for derivatives which are held at
fair value. The Directors consider it appropriate to adopt the
going concern basis of accounting in preparing the financial
statements of the Group.
The interim condensed consolidated financial statements do not
include all the information and disclosures required in the annual
financial statements and should be read in conjunction with the
Group's annual consolidated financial statements for the year ended
31 December 2021. As disclosed in note 1a, the annual financial
statements of the Group will be prepared in accordance with UK
adopted IFRSs.
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's annual
consolidated financial statements for the year ended 31 December
2021, except for the adoption of new standards effective as of 1
January 2022. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet
effective.
Several amendments apply for the first time in 2022, but do not
have an impact on the interim condensed consolidated financial
statements of the Group.
Going concern
The Group remains in a strong cash position with cash and cash
equivalents totalling GBP265.7m (H1 2021: GBP878.5m). Net debt
before lease liabilities at this date totalled GBP225.6m (H1 2021:
net cash before lease liabilities GBP384.6m). At 30 June 2022, the
Group had a total of GBP170m in undrawn facilities.
In making their assessment of going concern, the Directors
reviewed financial projections until 30 September 2023. Stress test
scenarios were modelled to take into account severe but plausible
impacts of a combination of the principal risks occurring, as well
as a reverse stress test. The results of stress testing
demonstrated that the combination of mitigating actions available
including existing cash resources, level of discretionary spend and
ability to utilise the RCF were sufficient for the Group to
withstand such impacts. For these reasons, the Directors continue
to adopt the going concern basis in preparing these condensed
interim financial statements.
c. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies,
management is required to make judgements (other than those
involving estimations) that have a significant impact on the
amounts recognised and to make estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. In preparing these interim financial statements, the
significant judgements made by management in applying the Group's
accounting policies and key sources of estimation uncertainty were
the same as those applied to the Group's annual consolidated
financial statements for the year ended 31 December 2021. The
judgement in respect of accounting for the Softbank Management
("SBM") option valuation is not applicable in the current period
given that the option value at 30 June 2022 is GBPnil.
2. Segmental reporting and revenue
The Directors have assessed the criteria and considerations
under IFRS 8 'Operating Segments', in order to identify operating
segments within the Group. In line with previous periods, the
Directors concluded that the Group had one segment as the THG
Ingenuity platform underpins the Groups operations and intra-Group
charges for the platform, fulfilment and distribution services are
not yet recharged. Given the changes in H2 2021 and H1 2022 to
strengthen the governance across the Group, the Chief Operating
Decision Maker (CODM) has been concluded to be the Board (Executive
Directors). Previously, this was the Chief Executive and Chairman.
The CODM receives regular financial information at the consolidated
Group level and uses this information to allocate resources, make
operating decisions and monitor the performance of the Group as a
whole.
On 26 July 2022, the Group announced that that the legal
structure to facilitate the divisional separation had been
completed to simplify the corporate divisional structure. The
directors have reviewed the impact of this on the operating
segments of the Group at 30 June 2022. The directors have concluded
that for H1 2022, there remains one operating segment. This will
continue to be reviewed. As the reporting to the CODM is revised in
line with the internal divisional separation, we consider that it
is likely that there will be a future change in the number of
operating segments and cash generating units across the Group.
While the Group only has one operating segment, to increase
transparency, the Group has included additional disclosure
analysing revenue split by division.
Six months ended Six months ended
--------------- --------------------------------------------------- --------------------
30 June 2022 30 June 2021
--------------- --------------------------------------------------- --------------------
GBP'000 GBP'000
THG Beauty 552,766 460,783
THG Nutrition 332,117 328,354
THG Ingenuity 104,157 85,802
THG OnDemand 51,045 51,550
Other 36,677 32,341
--------------- --------------------------------------------------- --------------------
Total revenue 1,076,762 958,830
--------------- --------------------------------------------------- --------------------
THG Beauty relates to website and business to business sales of
owned and third-party beauty brands alongside sales of subscription
boxes and business to business sales of manufactured beauty
products. THG Nutrition relates to sales of products from wholly
owned nutrition brands and business to business sales of
manufactured nutrition products to third parties. THG Ingenuity
revenue relates to the provision of services relating to
web-platform, alongside revenue generated from product development,
marketing and warehouse costs for third-party clients, and revenue
from webhosting. Additionally, THG Eco is included within Ingenuity
providing sustainability solutions and consulting services for
THG's own operations, THG's suppliers, partners and customers. THG
Eco revenue totalled GBP9.4m for H1 2022 (H1 2021: GBP2.5m). THG
OnDemand relates to e-commerce sites which offer a selection of
entertainment products and subscription services. Other relates to
revenue generated from THG Experience and THG Luxury.
Below is an analysis of revenue by region (by destination):
Six months ended Six months ended
------------------- ---------------------------------------------- --------------------
30 June 2022 30 June 2021
------------------- ---------------------------------------------- --------------------
GBP'000 GBP'000
UK 457,931 392,915
USA 219,062 177,245
Europe 216,432 211,534
Rest of the world 183,337 177,136
------------------- ---------------------------------------------- --------------------
1,076,762 958,830
------------------- ---------------------------------------------- --------------------
Rendering of services represents 6% of total revenue (H1 2021:
6%). Revenue that is not within the scope of IFRS 15 'Revenue from
Contracts with Customers' represents 1% of total revenue (H1 2021:
1%) and represents revenue from leases under the scope of IFRS
16.
As the Group operates as one segment, no measure of segmental
assets or liabilities is disclosed in this note.
3. Adjusted items
Six months ended Six months ended
30 June 30 June 2021
2022
----------------------------------------------------------------------- ----------------- -------------------
GBP'000 GBP'000
----------------------------------------------------------------------- ----------------- -------------------
Within Distribution costs
Transportation, delivery and fulfilment costs in relation to Covid-19 11,332 12,687
Commissioning - new facilities 2,086 2,879
13,418 15,566
Within Administrative costs
Acquisitions - legal and professional costs - 7,578
Acquisitions - restructuring and integration 6,169 2,824
Restructuring 2,943 1,551
Donations 361 1,090
9,473 13,043
Total adjusted items before finance costs 22,891 28,609
Within Finance costs
Non-cash - revaluation of SBM option (601) 38,120
------------------------------------------------------------------------ ----------------- -------------------
(601) 38,120
Total adjusted items before tax 22,290 66,729
------------------------------------------------------------------------ ----------------- -------------------
Tax impact (3,797) (2,958)
------------------------------------------------------------------------ ----------------- -------------------
Total adjusted items 18,493 63,771
------------------------------------------------------------------------ ----------------- -------------------
Transportation, delivery and fulfilment costs in relation to
Covid-19
In 2022, we continue to be impacted by Covid-19 surcharges from
suppliers, although at a lesser rate during H1 2022 compared to
prior periods. Covid-19 has had a direct and measurable impact on
the Group's cost to fulfil delivery of goods to customers across
its global network, through reduced commercial flights and closures
of key shipping lanes. The main driving factor of the excess cost
continuing across accounting periods is the continued lockdowns
experienced in Asia which continue to affect air traffic. The
additional cost to complete these deliveries has been recognised as
an adjusted item, and while there is uncertainty around the length
of disruption the pandemic will have on global supply chains, the
Group doesn't consider this to be a recurring part of the Group's
cost base. We expect that as the effects of the pandemic lessen and
the lockdowns in Asia ease, these costs will normalise.
The costs incurred were as a result of the following:
-- In order to maintain the Group's pre Covid-19 levels of
customer experience, the Group had to address the challenges caused
by commercial flights being reduced during the pandemic to minimal
levels. The Group secured THG exclusive chartered flights in order
to be able to uphold its service levels, generating an identifiable
increase in costs versus non-exclusive passenger flights, which
were used pre Covid-19.
-- Our delivery partners passed on to the Group additional
surcharges specifically identified on invoices as a response to
operating during the pandemic. This continues for routes relating
to Asia where the impact of the pandemic is continuing.
-- Due to the impact of Covid-19, a number of key supply routes
were disrupted or closed. This necessitated identifying and
sourcing alternative viable routes to fulfil the obligations on the
Group to serve its customers, which created identifiable external
costs relating to alternative routes that had to be taken due to
the impact of Covid-19 on the Group's courier and logistics
providers ability to operate in the pandemic.
Commissioning - new facilities
The Group has embarked on a strategic project to transform the
Group's global infrastructure footprint and capability, moving away
from the smaller sized facilities which were fit for purpose in the
past, into larger purpose-built distribution facilities to support
the strategic objectives of the Group.
Under this project, the Group has commissioned a number of these
purpose-built facilities over the years, including a campus
(inclusive of 3 warehouses) at Manchester Airport, UK ("Icon") and
New Jersey, US. Works at New Jersey, US and the Icon facility began
in August 2021 and August 2020 respectively. Both warehouses are in
operation, although further automation continues to be implemented
into both sites providing further efficiency gains including
Autostore automation in New Jersey and automated sortation in Icon
in H2 2022.
Due to the scale and complexity of these sites, commissioning of
these facilities and integration into the Group's existing
distribution network can span more than one accounting period,
taking up to 18 months in total for a specific site: a relatively
short period compared to the useful economic life of the asset.
During the commissioning and integration period, costs relating to
the set-up, integration and testing of the new facilities are
included within adjusted items as these costs are not expected to
be recurring for each specific site and do not reflect the
underlying cost base of the Group. Such costs include:
-- Additional costs are incurred relating to the period of
testing and commissioning that is required, to ensure a facility is
operating as expected. Such costs are non-underlying and therefore
included within adjusted items;
-- Costs relating to the migration of production operations and
processes to the new sites as part of this expansion of the
fulfilment network include testing of new production processes and
resolution of any commissioning protocols required before
production is fully operational;
-- Costs relating to bulk internal warehouse transfers from
existing THG facilities are often required during the set
up/commissioning period for a new facility. These costs are
non-underlying in nature; and
-- Additional shipping costs are incurred when the products
within a single customer order is fulfilled by shipping from two
different warehouses, due to stock being split across two sites
during the commissioning period for a new facility. This results in
duplicated postage costs on a single order.
The costs above are identified through internal processes and
controls which isolate the impact of commissioning new facilities.
For some of these costs, the amounts included within adjusted items
are calculated by taking the excess costs per unit versus the
normalised rate, which is set based on historical information or
third-party data.
Further material charges are anticipated as the respective
projects are completed, the quantum of which is subject to change
throughout the project as unforeseen events arise through to
completion.
Acquisitions - legal and professional costs
The Group periodically considers and analyses potential
acquisition targets and recognises there is inherent complexity and
risk associated with acquisitions. The Group manages this by
employing external professional advisors to perform legal,
financial, commercial and tax due diligence on targets. These costs
relate to opportunities the Group identifies and pursues, of which
a portion result in successful acquisitions by the Group. Such
legal and professional costs are classified as adjusting items as
they relate to significant strategic transactions and, except for
the transactions in question, the business would not have incurred
these costs and as a result these costs are deemed to be
non-recurring costs that do not relate to the underlying trading
operations of the business.
There have been no such costs incurred in H1 2022.
Acquisitions - restructuring and integration
Where the Group completes acquisitions, it derives value by
achieving synergies in the post-acquisition period by restructuring
the acquired businesses and integrating them into the Group. During
this restructuring and integration phase there are a number of
costs that are not related to the underlying trading operations of
the Group which are classified as adjusted items. The costs in H1
2022 relate to the planned integrations of the acquisitions made in
2021. Cult Beauty was acquired in August 2021 and the integration
was a key focus of H1 2022.
These costs include, but are not limited to;
-- Duplicated costs whilst the integration plan is executed.
These often relate to termination of pre-acquisition agreements
that were in place and exit costs associated (such as closure of
old facilities or head offices);
-- As part of the integration plan itself, additional
non-recurring costs may be incurred which do not relate to the
underlying trading operations of the Group, including, but are not
limited to, system integration testing and validation, costs of
moving equipment to new sites and department relocation or set up
costs; and
-- Costs of staff exiting the business, including redundancy
costs, earnouts or bonus payments relating to the integration plan.
Integration plans can often result in moving offices
geographically, a change in management structure or redefining the
roles and needs of departments or individuals. As a result, some
employee redundancy costs are incurred. Payments are also made to
employees for successful delivery of integration plans.
Depending on the size and nature of the acquisition and the
complexity of the integration plan, acquisition restructuring and
integration costs can be incurred for up to 12 months post
acquisition.
Restructuring
The Group has undertaken significant financing, restructuring
and related activities during H1 2021 and H1 2022.
As previously reported, the Group committed to undertake a
review of its corporate structure. On 26 July 2022, the Group
announced that it had legally completed the internal separation of
its key trading divisions. The directors believe that this provides
material optionality and flexibility to enter into future strategic
partnerships and to generate value accretion for its shareholders.
Therefore, to execute this separation, in H1 2022 the Group
incurred costs totalling GBP2.9m which is a material, non-recurring
event.
In H1 2021 the costs related to IPO listing related costs
following the Group's listing on the London Stock Exchange in 2020.
These were non-recurring expenses.
Donations
In 2022, the Group has donated GBP0.4m related to aid in the
form of nutrition and hygiene products to charities assisting with
the war in Ukraine. In H1 2021, as part of its Covid-19 response,
the Group made several charitable donations to the local region,
totalling GBP1.1m. This is expected to be non-recurring.
Non-cash - revaluation of SBM option
On 10 May 2021, THG entered into a call option with SB
Management Limited ("SBM"), a wholly owned subsidiary of SoftBank
Group Corp, to purchase 19.9% of the share capital of THG Ingenuity
for $1.6bn. At 30 June 2022, the option was valued at GBPnil. On 26
July 2022, the Group announced that in light of global
macro-economic conditions the SBM option agreement had been
terminated by mutual agreement. The call option granted by THG to
SBM will not therefore be, and will cease to be capable of being,
exercised.
The option had previously been classified as a derivative
instrument, an option that held value for SBM and consequently fell
under the provisions of IFRS9 (Financial Instruments). The option
was revalued to GBPnil at 30 June 2022. The impact of this is a
non-cash GBP0.6m gain recognised on the revaluation. The value of
the option as at 31 December 2021 was GBP0.6m (GBP38.12m as a 30
June 2021) meaning that the movement in H1 2022 was much lower than
a year earlier. As this was a material, non-recurring transaction
the revaluation effects of this option have been presented as an
adjusted item.
4. Income tax
The Group calculates the period income tax expense using the tax
rate that would be applicable to the expected total annual
earnings. The major components of income tax expense in the interim
condensed consolidated statement of comprehensive income are:
Six months Six months
ended ended
30 June 30 June 2021
2022
-------------------------------------------------- -------------- ----------------
GBP'000 GBP'000
-------------------------------------------------- -------------- ----------------
Current tax
Tax charge for the period 4,591 3,457
-------------------------------------------------- -------------- ----------------
Deferred tax
Origination and reversal of temporary differences (6,426) (4,882)
Adjustments in respect of prior period - 830
Change in tax rates - 1,308
-------------------------------------------------- -------------- ----------------
(6,426) (2,744)
-------------------------------------------------- -------------- ----------------
Total income tax (credit)/charge (1,835) 713
-------------------------------------------------- -------------- ----------------
5. Share-based payments
The Group operates a share-based compensation plan, under which
the Group receives services from employees as consideration for
equity instruments (options) of the Company. The options were
granted on 16 June 2022 in relation to two schemes. The fair value
of the employee services received in exchange for the grant of the
equity instruments is recognised as an expense in the Statement of
Comprehensive Income with the corresponding increase to equity. The
awards vest in three equal tranches on 31 December 2022, 31
December 2023 and 31 December 2024. The majority of the 24,213,222
shares that were granted will vest based on continuous employment.
1,875,446 of the shares will only vest if targets linked to
revenue, EBITDA and ESG (Environmental, Social and Governance)
matters are met.
Six months ended Six months ended
30 June 30 June
2022 2021
--------------------------------------------------------------------- ---------------- ----------------
GBP'000 GBP'000
--------------------------------------------------------------------- ---------------- ----------------
Expense arising from equity-settled share-based payment transactions 573 -
--------------------------------------------------------------------- ---------------- ----------------
6. Non-current assets
Intangible assets Property, plant and equipment
GBP'000 GBP'000 Right-of-use asset GBP'000
--------------------------------- ------------------- ----------------------------- ----------------------------
1 January 2022 1,506,292 335,620 310,282
Additions 39,257 44,008 23,671
Business combinations 1,649 - -
Disposals - (3) -
Depreciation / Amortisation (52,319) (24,402) (21,330)
Currency translation differences 62,387 4,034 7,176
30 June 2022 1,557,266 359,257 319,799
--------------------------------- ------------------- ----------------------------- ----------------------------
Intangible assets Property, plant and equipment
GBP'000 GBP'000 Right-of-use asset GBP'000
--------------------------------- ------------------- ----------------------------- ----------------------------
1 January 2021 674,293 240,221 193,887
Additions 34,483 54,907 94,584
Business combinations 551,318 16,068 -
Disposals - (1,758) (374)
Depreciation / Amortisation (41,445) (16,571) (11,983)
Currency translation differences (5,571) (2,816) (1,124)
Transfers (407) 4 -
--------------------------------- ------------------- ----------------------------- ----------------------------
30 June 2021 1,212,671 290,055 274,990
--------------------------------- ------------------- ----------------------------- ----------------------------
The property, plant and equipment additions were driven by major
investment in the automation of THG fulfilment centres in the UK,
Poland and the USA to increase operational efficiency. The
intangible asset additions were driven by capitalisation of
platform development costs.
During the period, the Group has concluded on the fair value of
the net assets in respect of acquisitions completed in 2021,
resulting in a decrease of GBP1.6m in net assets and a
corresponding increase in goodwill. Cash flows from investing
activities include a cash inflow of GBP0.3m relating to
acquisitions has been recognised in the statement of cash flows.
This amount relates to the finalisation of completion accounts net
of the payment of contingent consideration in the period.
IAS 36 states that an entity is required to assess at each
reporting date whether there are any indications of impairment,
with an impairment test itself being carried out if there are such
indications. Goodwill and indefinite life assets are also required
to be tested annually for impairment. The Group has taken into
account macro-economic factors that have impacted the markets in
which the Group operates as an indicator of impairment and has
performed an impairment test to assess the carrying value of
intangible and tangible assets held by the Group.
On 26 July 2022, the Group announced that the legal structure to
facilitate the divisional separation had been completed to simplify
the corporate divisional structure. The directors have considered
if there is any impact on the cash generating units (CGUs) of the
Group at 30 June 2022. The directors have concluded that for H1
2022, there is no change to the number of CGUs previously disclosed
in the 31 December 2021 annual report. The Ingenuity platform
continues to underpin the Group's operations providing the
platform, fulfilment and distribution services. Due to the timing
of the separation, the Group is not yet able to prepare future
forecasts with appropriate intra group recharges to determine
independent cashflows aligned to the new structure. Once forecasts
and internal reporting on the divisional cashflows are revised in
line with the divisional separation, it is likely that there will
be a future change in the number of cash generating units across
the Group to be aligned to the divisional structure (THG Beauty,
THG Nutrition, THG Ingenuity, THG OnDemand, THG Experience and THG
Luxury).
Consistent with the year end, the recoverable amounts of the
CGUs have been determined based on value-in-use calculations. The
value-in-use calculation uses cash flow projections from financial
budgets approved by the Board covering a five-year period. Cash
flows beyond the five -year period are extrapolated using a growth
rate which is based on the long term growth rate for the relevant
CGU.
Significant judgements, assumptions and estimates
The first half of the year has been impacted by the many
well-documented macro-economic factors impacting the markets in
which the Group operates. The environment has been extremely
unusual with elevated commodity pricing (both commodity whey
pricing, and other indirect raw ingredients), foreign exchange
headwinds (principally Japanese yen) ongoing supply chain
challenges and wider inflation (including energy) following on from
Covid-19 impact and subsequently the war in Ukraine. The whey
commodity market appears to have now peaked with prices reducing
from this peak into the second half of 2022. As a result, H1 2022
EBITDA margins and revenue growth have been impacted.
Management considers the majority of these items to be
transitional in nature, however there remains uncertainty and
volatility around the future impact, both by way of input costs but
also the impact on consumer behaviour and continued shift to online
market share. The effect of the unusual first half of the year and
management's estimate of any future impact, being continued short
term impact on growth rates, being factored into the value in use
calculation. As would be expected, this has led to lower headroom
across the CGUs than at 31 December 2021. We note that cash flows
related to any mitigating scenarios and activities are excluded
from the forecasts.
The key assumptions within the Group's forecasts are the future
revenue growth and EBITDA margin. Management consider that given
the significant investment across the Group through acquisition and
investment in people, operations and facilities, the Group is well
placed to deliver strong long term growth in both margin and
revenue. The forecasts for the five-year period assume THG
Retailing and Commerce continues to achieve strong double-digit
revenue growth and a future return to margins over the medium term
that have previously been achieved across the business. The board
has reviewed the assumptions and has confidence in growth rates
assumed based on the high repeat nature of the beauty and nutrition
customer base, the strong growth anticipated in the beauty and
sports nutrition markets, particularly in online given relatively
low levels of online penetration and further international
opportunities aided by the investment made in the Group's global
infrastructure.
If there was a shortfall in the forecast revenue growth rates,
EBITDA margin, terminal growth rate or an increase in the discount
rate this could lead to an impairment given the significant level
of investment and acquisitions the Group has recently made
increasing the asset base. Based on the current forecasts and
assumptions, no impairment charge has been identified.
7. Financial assets and liabilities
30 June 30 June 2021 31 December
2022 2021
----------------------------------------------------- ----------- -------------- ------------------
GBP'000 GBP'000 GBP'000
Assets as per balance sheet - financial
assets
Trade and other receivables excluding non-financial
assets 160,717 189,014 157,345
Cash and cash equivalents 265,661 878,549 536,827
Investments 1,400 - 1,400
Assets as per balance sheet - held at
fair value through OCI
Derivative financial instruments designated
as hedging instruments 14,151 4,338 2,400
Derivative financial instruments held at
fair value through profit and loss 300 - 300
------------------------------------------------------ ----------- -------------- ------------------
442,229 1,071,901 698,272
----------------------------------------------------- ----------- -------------- ------------------
Liabilities as per balance sheet - other
financial liabilities at amortised cost
Bank borrowings 502,099 504,019 489,865
Lease liabilities 363,805 318,352 349,173
Trade and other payables excluding non-financial
liabilities 457,824 485,616 645,712
Liabilities as per balance sheet - other
financial liabilities at fair value
Derivative financial instruments designated
as hedging instruments 10,008 11,833 21,342
Derivative financial instruments held at
fair value through profit and loss - 38,120 601
------------------------------------------------------ ----------- -------------- ------------------
1,333,736 1,357,940 1,506,693
----------------------------------------------------- ----------- -------------- ------------------
Derivative financial instruments designated
as hedging instruments
FX forwards hedging foreign exchange risk
on borrowings (10,008) (10,039) (21,342)
Interest rate swaps 12,001 (1,794) 621
FX forwards hedging foreign exchange risk
on highly probable future cash flows 2,150 4,338 1,779
4,143 (7,495) (18,942)
----------------------------------------------------- ----------- -------------- ------------------
- Financial instruments included within current assets and
liabilities, excluding borrowings, are generally short-term in
nature and accordingly their fair values approximate to their book
values. Bank borrowings are initially recorded at fair value net of
direct issue costs.
- The derivative financial instruments designated as hedging
instruments have been recognised at fair value through Other
Comprehensive Income. Hedging instruments are valued based on
significant observable inputs and have been classified at Level 2
hierarchy level in line with IFRS 13 Fair Value Measurement.
- Derivative financial instruments held at fair value through
profit and loss related solely to the option to invest in THG
Ingenuity held by SBM, announced on the 10 May 2021. The derivative
was recognised at fair value and valued in June 2021 and December
2021 using on a Black-Scholes model utilising market-corroborated
inputs and has been classified as Level 2. This was recognised
within finance costs reflecting the nature of the liability. In H1
2022, the option was revalued to GBPnil.
Net debt consists of loans and lease liabilities, less cash and
cash equivalents. For the purposes of the Group's net debt
calculation, loans that are denominated in foreign currency are
translated at the effective hedged rate where applicable. Net cash
is an alternative performance measure and is not defined under
IFRS. A reconciliation to the most directly comparable IFRS measure
is included below:
30 June 30 June 31 December
2022 2021 2021
---------------------------------------------- ---------- ------------- -----------------
GBP'000 GBP'000 GBP'000
---------------------------------------------- ---------- ------------- -----------------
Loans and other borrowings (502,099) (504,019) (489,865)
Lease liabilities (363,805) (318,352) (349,173)
Cash and cash equivalents 265,661 878,549 536,827
Sub-total (600,243) 56,178 (302,211)
Adjustments:
Retranslate debt balance at swap rate where
hedged by FX derivatives 10,871 10,046 (2,548)
Net (debt) / cash (589,372) 66,224 (304,759)
----------------------------------------------- ---------- ------------- -----------------
Net (debt) / cash before lease liabilities (225,567) 384,576 44,414
----------------------------------------------- ---------- ------------- -----------------
8. Cash flow generated from operations
Six months Six months
ended ended
30 June 30 June
2022 2021
------------------------------------------ ----- ----------- ----------------
Note GBP'000 GBP'000
------------------------------------------ ----- ----------- ----------------
Loss before taxation (108,186) (81,339)
Adjustments for:
Depreciation 6 45,732 28,554
Amortisation 6 52,319 41,445
Share-based payment 5 573 -
Adjusted items 3 22,290 66,729
Net finance costs 19,591 25,826
------------------------------------------ ----- ----------- ----------------
Operating cash flow before adjusted
items and before movements in working
capital and provisions 32,319 81,215
------------------------------------------ ----- ----------- ----------------
Decrease / (increase) in inventories 20,808 (12,383)
Decrease / (increase) in trade and
other receivables 1,224 (509)
Decrease in trade and other payables (180,341) (52,475)
Increase / (decrease) in provisions 131 (242)
Foreign exchange gain / (loss) 1,237 (339)
------------------------------------------ ----- ----------- ----------------
Cash (used in)/generated from operations
before adjusted items (124,622) 15,267
------------------------------------------ ----- ----------- ----------------
9. Provisions
Other Dilapidations Total
GBP'000 GBP'000 GBP'000
---------------------- -------- -------------- --------
At 1 January 2022 - 16,506 16,506
Utilisation - (3) (3)
Created 2,454 381 2,835
Released - (69) (69)
Currency translation
differences - 203 203
----------------------- -------- -------------- --------
At 30 June 2022 2,454 17,018 19,472
----------------------- -------- -------------- --------
Current 1,281 1,419 2,700
----------------------- -------- -------------- --------
Non-current 1,173 15,599 16,772
----------------------- -------- -------------- --------
Dilapidations provisions are expected to be used at or by the
end of the lease term. The dilapidations provision includes an
amount, which is not qualitatively material, of GBP8.8m related to
properties occupied at 30 June 2021. The provision increases the
right-of-use asset.
10. Related Party Transactions
Moulding Capital Limited ("Propco") is wholly owned by the
Group's CEO. Propco owns property assets occupied and utilised by
THG and its operating businesses.
The amounts recognised on the Group's balance sheet and in the
income statement in relation to the leases with Propco in the
period are as follows:
30 June 2022
GBP'000
Right-of-use asset 160,318
Lease liability 182,022
Depreciation arising on right-of-use assets 6,499
Expense recognised in financing costs 4,354
On 27 August 2020, the Group entered into a five-year agreement
on commercial terms with Moulding Capital Limited to provide
property, facilities and project management services to the entity
and its subsidiaries. This agreement is expected to generate annual
income of GBP635,000 for the Group.
Number of properties Residual lease term Rent per annum (GBP'000) H1 2022 rent (GBP'000)
--------------------- -------------------- ------------------------- -----------------------
9 0- 5 years 962 481
1 5- 10 years 1, 609 1,580
12 10-15 years 3,285 1,643
7 15 -25 years 9,923 4,961
--------------------- -------------------- ------------------------- -----------------------
29 1 5,779 8,665
--------------------- -------------------- ------------------------- -----------------------
Cash paid in the settlement of obligations under these related
party leases was GBP8.7m. The table below gives further detail
around the leases in place.
The following table shows the amounts recognised on the balance
sheet at 30 June 2022. These include balances in relation to lease
agreements and where the Group has paid suppliers on behalf of the
Propco Group, or vice versa. Such situations arise due to Propco
suppliers using legacy details to submit invoices or where payments
are made on behalf of THG by Propco for property-related costs
rechargeable to THG as a tenant per lease:
Amounts owed to
related parties
GBP'000
------------------------------------- -----------------
Aghoco 1422 Ltd 103
Allenby Square Ltd 169
THG Omega Propco Limited 1,243
THG A&A PropCo Ltd 241
THG Alpha Propco Ltd 171
THG Gadbrook PropCo Ltd 242
THG GJS PropCo Ltd 195
THG HCC PropCo Ltd 285
THG Icon S.à.r.l 1,101
THG Icon Unit 2 PropCo Ltd 953
THG Icon Unit 3 Propco S.à.r.l 296
THG Icon Unit 4 PropCo Ltd 217
THG KS PropCo Ltd 225
THG Wroclaw sp. Z.o.o 151
THG PV Propco Ltd 45
Moulding Capital Limited 47
-------------------------------------- -----------------
5,684
------------------------------------- -----------------
11. Events after the reporting period
There are no material post balance sheet events.
Principal risks and uncertainties
The Board considers that the principal risks and uncertainties
which could impact the Group over the remaining six months of the
financial year to 31 December 2022 to be unchanged from those set
out in the Annual Report and Accounts for the year to 31 December
2021.
The applicable risks are summarised as follows:
-- Cyber security and data privacy;
-- Third party reliance;
-- Talent;
-- Ingenuity e-commerce platform;
-- Customer needs;
-- Corporate structure;
-- Infrastructure;
-- Onboarding and integration;
-- Innovation;
-- Regulatory compliance;
-- Environmental, social and governance; and
-- Culture.
These are set out in detail on pages 109 to 116 of the Group's
Annual Report and Accounts for the year to 31 December 2021, a copy
of which is available on the Group's website, www.thg.com.
The impact of the ongoing macro-economic environment is
currently considered an emerging risk of the Group. The Board
continue to review the impact of the inflationary pressures,
elevated commodity pricing, FX headwinds and ongoing supply chain
issues regularly as part of their approach to risk management.
INDEPENT REVIEW REPORT TO THG PLC
Conclusion
We have been engaged by the Company to review the interim
condensed set of financial statements in the half-yearly financial
report for the six months ended which comprises the interim
condensed consolidated statement of comprehensive income, interim
condensed consolidated statement of financial position, the interim
condensed consolidated statement of changes in equity and interim
condensed consolidated statement of cashflows along with supporting
notes for the six months ended 30 June 2022. We have read the other
information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim
condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the interim condensed set of financial
statements in the half-yearly financial report for the six months
ended 30 June 2022 is not prepared, in all material respects, in
accordance with UK adopted International Accounting Standard 34 and
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" (ISRE) issued by the Financial Reporting Council. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The interim condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with UK adopted International Accounting
Standard 34, "Interim Financial Reporting".
Conclusions relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting or that management have identified
material uncertainties relating to going concern that are not
appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
14 September 2022
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