REG - THG PLC - Interim results for the half-year ended 30 June 23
14/09/2023 07:15
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RNS Number : 3785M THG PLC 14 September 2023
14 September 2023
THG PLC
Interim results for the half-year ended 30 June 2023
Adjusted EBITDA and cash generation ahead of guidance in H1 2023
Full year adjusted EBITDA guidance reiterated
· Continuing 1 (#_ftn1) adjusted EBITDA of £50.1m (+22.9%), above
the top end of guidance (£47m to £50m), at a margin of 5.3% (H1 2022: 4.0%).
Adjusted EBITDA guidance unchanged for FY 2023.
· Adjusted EBITDA of £47.1m (+45.7%), inclusive of recently
disposed loss-making OnDemand business.
· Successful exit of loss-making discontinued categories and
non-core assets generated a one-off non-cash charge of £26.2m 2 (#_ftn2) ,
increasing the operating loss to £99.5m (H1 2022: £89.2m). Without this
charge, operating loss improved by £15.9m YoY.
· Strong LTM 3 (#_ftn3) cash performance, ahead of guidance. LTM
cash outflow 4 (#_ftn4) of £20.6m is after £163.1m of capex, mainly in THG
Ingenuity. This represents a £350m cash performance improvement on the LTM
year on year.
· Strong balance sheet with £563m of cash and available
facilities.
· Record H1 THG Nutrition revenue of £340.7m (+2.6%), with
adjusted EBITDA of £47.1m (+71.9%).
· THG Beauty adjusted EBITDA of £10.6m (H1 2022: £17.7m),
impacted by one-off industry de-stocking in manufacturing. Excluding
manufacturing THG Beauty adjusted EBITDA was £9.7m (H1 2022: £7.3m).
Encouragingly, since the start of August, the Beauty division has returned to
growth.
· THG Ingenuity listed in the Gartner's Magic Quadrant™ for
Digital Commerce. Continued focus on the Enterprise strategy with new client
wins secured (including L'Oréal US prestige brands) and a strengthening
pipeline.
· Continued prioritisation on gross margin and adjusted EBITDA
margin growth.
· Q3 revenue exit momentum gives us confidence in full year
continuing revenue growth of 0% to -5% (H1 2023: -6.1%).
Matthew Moulding, CEO of THG, commented:
"Inflationary pressures provided significant challenges to consumers and
businesses alike over the past 18 months. Our strategy of supporting our
consumers through 2022, sacrificing margins in the short-term, is bearing
fruit. This is reflected in the strong H1 results we've posted today, across
adjusted EBITDA and cash.
"The cash performance of the Group has been strong in H1, but also over the
last 12 months. Group cash flow performance improved by £350m compared to the
previous 12 months, reflecting the completion of our global infrastructure
roll-out program, with the Group now achieving significant operating leverage
from a well invested, automated, global platform.
"Our Nutrition division delivered a record H1 revenue performance and, with
inflationary pressures easing, posted substantially higher EBITDA margins
year-on-year as we exited H1. The early results from the Myprotein rebrand are
also encouraging as we've taken steps to further enhance the premium nature of
the world's No1 online sports nutrition brand. These actions should provide
for both increased partnership opportunities and category expansion,
supporting our ambition of building Myprotein into a global lifestyle brand.
"Recent progress within our Beauty division has been more encouraging,
underpinned by strong performances in the Group's Perricone MD and ESPA
brands, as well as across Cult Beauty. Margin improvements have steadily built
through H1, as focus shifted to orders that deliver immediate profitability,
where we benefit from the economies of scale associated with our local
distribution hubs.
"The Beauty division was held back in H1 by short-term global de-stocking
impacting manufacturing volumes. The situation has now started to reverse with
the Beauty division returning to growth since August, at the same time margin
progression continues.
"Finally, Ingenuity's pivot to larger, more complex Enterprise clients is
gaining momentum, reflected in some key client wins and a strong pipeline. We
were thrilled to be listed in the Gartner's Magic Quadrant™ for Digital
Commerce, in recognition of our ability to provide an all-encompassing
Direct-to-Consumer journey, cementing Ingenuity as a key partner for
Enterprise clients seeking comprehensive commerce excellence."
H1 2023 Group Trading Performance
£m H1 2023 H1 2022 5 (#_ftn5) YoY 6 (#_ftn6) 2 Year
change change
Revenue
THG Beauty 538.7 601.2 -10.4% +6.3%
THG Nutrition 340.7 332.1 +2.6% +3.7%
THG Ingenuity 320.0 375.9 -14.9% -3.4%
Inter-group elimination (248.8) (297.3) -16.3% -7.6%
Group (continuing) 7 (#_ftn7) 950.6 1,011.8 -6.1% +5.9%
Discontinued categories 18.7 57.4 -67.4% -69.6%
Group 969.3 1,069.2 -9.3% +1.1%
Gross Margin % 8 (#_ftn8) (adjusted) 43.8% 42.4%
Adjusted EBITDA 9 (#_ftn9)
THG Beauty 10.6 17.7 -40.4%
THG Nutrition 47.1 27.4 +71.9%
THG Ingenuity 3.4 6.8 -50.8%
Central (10.9) (11.2) +2.6%
Group (continuing)7 50.1 40.8 +22.9%
Group 47.1 32.3 +45.7%
Adjusted EBITDA % 4.9% 3.0%
Adjusted items 16.3 22.3
Of which cash adjusted items 5.2 22.9
Operating loss 10 (#_ftn10) (99.5) (89.2)
Net debt 11 (#_ftn11) (268.3) (225.6)
Half-year 2023 financial highlights
· Group revenue: £969.3m, -9.3% YoY, driven by the strategic exit
of non-core divisions and discontinued categories, short-term volume
reductions within THG Beauty manufacturing, the previously stated de-emphasis
in certain beauty markets and the proactive pivoting of the THG Ingenuity
strategy. Total sales in the UK broadly in line with H1 2022 for THG Beauty
and THG Nutrition combined (excluding manufacturing).
· THG Beauty: The impact of industry-wide de-stocking has been
material within THG Beauty manufacturing, impacting both revenue and
profitability given its fixed cost base (a -£9.5m YoY EBITDA impact).
Excluding THG Beauty manufacturing, adjusted EBITDA margin improvement was
encouraging at +60bps relative to the prior year. As we enter the third
quarter, cost saving initiatives predominantly within manufacturing
implemented in the first half are supporting profitability improvements.
· THG Nutrition: Following the unwind of a period of unusually high
whey commodity prices, THG Nutrition adjusted EBITDA margins improving
substantially during the period to 13.8% (+560bps), ahead of medium-term
guidance.
· THG Ingenuity: Revenue and adjusted EBITDA performance considered
short-term (-14.9%, -80bps respectively), due to planned shift away from
lower-value clients, reduction in volumes from internal clients (including the
exits of OnDemand and ProBikeKit), and upfront investment in enterprise
strategy which has a longer lead time between new contract agreements and the
revenue benefits being realised.
· Distribution costs: Reduced 150bps reflecting continued
investment in automation (with US launch in the period), and continued focus
on driving operational efficiency and cost control.
· Continuing Group adjusted EBITDA: Reflects the improving
profitability of THG Nutrition, effective management of costs to offset
unprecedent inflationary cost pressures, and exit of loss-making categories
and territories.
· Reported Group adjusted EBITDA: Increased YoY to £47.1m (H1
2022: £32.3m), with losses from discontinued categories reducing from £8.5m
to £3.1m following the successful execution of the strategic review,
determining a simpler, more profitable business for the future.
· Operating loss: £99.5m (vs H1 2022: £89.2m) following decisive
management action to dispose of non-core assets and loss-making discontinued
categories driving a £26.2m one-off charge.
· Cash adjusted items: Reduced significantly to £5.2m (H1 2022:
£22.9m) following a decrease in transportation, delivery and fulfilment costs
in relation to Covid-19 of £10.1m.
· Cash generation: Significantly stronger over the last 12 months
with a modest outflow of £20.6m, ahead of previously stated guidance. The
Group had cash on hand of £392.5m and an undrawn £170m RCF at the period
end.
Strategic and operational highlights
· Active customers in THG Beauty (LTM: 8.6m, -10%) and THG
Nutrition (LTM: 6.8m, -5%), reflects the strategic decision to deploy
marketing investment in more profitable territories.
· App participation continues to build with orders representing
17.0% of Group D2C H1 2023 revenue (H1 2022: 11.4%), strengthening customer
engagement and loyalty to our brands.
· Encouraging purchasing behaviour from existing THG Beauty and THG
Nutrition customers continues, with stable order frequencies, average order
values ("AOV"), and consistently strong repeat purchase rates of over 80%.
Momentum has built throughout the half with active customers +5% in Q2 vs Q1
2023. Overall 3-year active customer growth +62% and 29% for THG Beauty and
THG Nutrition respectively.
· THG Beauty continues to execute its market prioritisation
strategy, whilst delivering UK online premium market share growth of c.4% to
c.28% for Lookfantastic 12 (#_ftn12) , supported by record high Trustpilot
scores for Lookfantastic and Cult Beauty.
· Following double-digit revenue growth for the two largest brands
in H1, THG Beauty's prestige own brand portfolio is set to achieve further
international recognition through a global licensing partnership with luxury
hotel amenities supplier Vanity Group launching in 2024.
· THG Nutrition continues to expand into adjacent markets through
localisation and collaboration with major brands and influencers to amplify
brand awareness. Following category expansion within the licensing partnership
with Iceland, Myprotein is also set to partner with global confectionary brand
Chupa Chups and global spirits brand Southern Comfort to broaden flavour
options across the product portfolio.
· THG Ingenuity: Substantial progress has been made on the ongoing
strategy to partner with larger, higher value enterprise clients with
high-quality recurring revenues, and for the first time, has been recognised
in the Gartner Magic Quadrant™ for Digital Commerce.
· New and expanded partnerships agreed year to date include:
o L'Oréal Group: Powering D2C operations for two of L'Oréal's most
prestigious brands; "Shu Uemura Art of Beauty" in the USA and Canada, and
"Biotherm" in the USA.
o L-Fashion Group: USA site launch for the European apparel specialist,
launching Rukka Pets in their next global expansion market.
o Matalan: Following their ecommerce platform migration, Matalan have
commissioned a purpose-built environment for rapid production of their
ecommerce photography at ICON studios.
o Asda Stores Ltd: Expanding digital services partnership to provide digital
content and performance marketing for their Mobile division in addition to
existing food packaging and social media content. As one of their Digital
agencies across their Grocery, Money and Mobile divisions, the partnership has
more than doubled in scale.
o Maximo Group: Major sites All Beauty and Fragrance Direct migrated to the
Ingenuity platform in Q2. Operational services including fulfilment now
activated, with mobile app and subscription programme launching this year.
· As a thought leader for digital commerce, ongoing innovation and
platform enhancement is imperative to success. Through in house development of
machine learning models, our ability to hyper personalise how we segment
customers and tailor their site experience is constantly evolving. As a first
party data collector across a broad set of sectors and locales, Ingenuity is
uniquely positioned to deliver AI solutions to drive cost efficiencies,
innovative customer experience and incremental revenue opportunities including
the use of Generative AI technology infused directly into the Ingenuity
platform.
· The Group executed its plan of business simplification and
operations streamlining with the full exit of both OnDemand and ProBikeKit for
consideration of c.£4 million.
Outlook and guidance
· Overall sales trends, are gradually improving into the second
half, with Q3 continuing revenue anticipated to be marginally ahead of Q2,
with a notable step-on in THG Beauty and THG Ingenuity.
· Seeing the benefit of decisive management actions to prioritise
profitable sales, and expect continuing revenue performance for the full year
of 0% to -5%.
· The Board reiterates its expectation of FY 2023 Group Adjusted
EBITDA in line with the company consensus (as dated 29.06.23 and available at
Analyst Consensus - The Hut Group (THG)
(https://www.thg.com/investor-relations/analyst-consensus) ).
· Positive free cash generation expected in H2, resulting in free
cash flow breakeven for FY 2023.
· For FY 2024, operational leverage, incremental cost efficiencies
and commodity price improvements will support further margin recovery,
underpinning the path to positive free cash flow.
· All other guidance remains unchanged.
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/64da2315aa74fc619cf74a1e
(https://stream.brrmedia.co.uk/broadcast/64da2315aa74fc619cf74a1e)
To ask questions, you must dial in via conference line using the below
details:
· Confirmation password: THG Half year Results
· UK dial in: +44 (0) 33 0551 0200
· US dial in: +1 786 697 3501
A playback of the presentation will be available on THG's investor website at
www.thg.com/investor-relations (http://www.thg.com/investor-relations) later
today.
For further information please contact:
Investor enquiries - THG PLC
Greg Feehely, SVP Investor Relations Investor.Relations@thg.com (mailto:Investor.Relations@thg.com)
Kate Grimoldby, Director of Investor Relations and Strategic Projects
Media enquiries:
Powerscourt - Financial PR adviser Tel: +44 (0) 20 7250 1446
Victoria Palmer-Moore/Nick Dibden/Nick Hayns thg@powerscourt-group.com (mailto:thg@powerscourt-group.com)
THG PLC
Viki Tahmasebi Viki.tahmasebi@thg.com (mailto:Viki.tahmasebi@thg.com)
ENDS
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
complete digital commerce solution, Ingenuity, to an online and global
customer base. THG's business is operated through the following divisions:
THG Beauty: A digital-first brand owner, retailer and manufacturer in the
prestige beauty market, with a portfolio of own-brands across skincare,
haircare and cosmetics. Through its retail websites, including Lookfantastic,
Dermstore, Cult Beauty and the beauty subscription box brand GLOSSYBOX, it is
a route to market globally for over 1,300 third-party premium brands. THG
Beauty also operates prestige spa and experience venues, in addition to luxury
clothing and homeware D2C sites.
THG Nutrition: A group of digital-first Nutrition brands, which includes the
world's largest online sports nutrition brand Myprotein and its family of
brands (Myvegan, Myvitamins, MP Activewear and MyPRO), with a
vertically-integrated business model supported by global THG production
facilities.
THG Ingenuity: Ingenuity provides a complete digital commerce solution for
consumer brand owners across its three pillars of technology, digital
marketing and operations. Being part of the THG group, Ingenuity is uniquely
placed to bring relevant, practical and international expertise in every area
of commerce.
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 2023
Chief Financial Officer Review
We have made good progress in the first half of 2023 delivering improved
profitability (EBITDA) supported by our programme of cost savings and strong
cash control. These included the disposal of loss-making categories, following
the successful execution of our strategic review. Rationalisation of capex
alongside improved working capital and lower cash adjusting items have
resulted in a free cash outflow of £20.6m for the 12 months to 30 June 2023
(vs. £271.5m outflow in H1 2022), which is ahead of both management
expectations and previous market guidance.
Operating loss increased to £99.5m (vs H1 2022: £89.2m), this was a result
of positive management actions taken in the period being the disposal of
non-core assets and loss-making discontinued categories which generated a
£26.2m one-off charge.
CONSOLIDATED INCOME STATEMENT
ALTERNATIVE PERFORMANCE MEASURES 13 (#_ftn13)
Six months ended 30 June 2023 Six months ended 30
£'000 June 2022
£'000
Movement
Adjusted gross profit 424,157 452,881
Gross margin % (adjusted) 43.8% 42.4% +140bps
Adjusted distribution costs (143,713) (174,187)
As a % of revenue 14.8% 16.3% +150bps
Adjusted administrative costs (233,349) (246,375)
As a % of revenue 24.1% 23.0% -110bps
Adjusted EBITDA 47,095 32,319
Adjusted EBITDA % 4.9% 3.0% +190bps
EBITDA losses from discontinued categories 3,054 8,472
Adjusted EBITDA before discontinued categories 50,149 40,791
Adjusted EBITDA before discontinued categories % 5.3% 4.0% +130bps
STATUTORY RESULTS
Six months ended 30 June 2023 Six months ended 30 June 2022 (restated)
Before Adjusted Items Before Adjusted Items
Adjusted Items Adjusted Items
Total Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 969,260 - 969,260 1,069,207 - 1,069,207
Cost of sales (554,721) (7,174) (561,895) (626,666) - (626,666)
Gross profit 414,539 (7,174) 407,365 442,541 - 442,541
Distribution costs (152,504) (3,715) (156,219) (186,495) (13,418) (199,913)
Administrative costs (330,090) (5,427) (335,517) (322,351) (9,473) (331,824)
Other operating expense (15,081) - (15,081) - - -
Operating loss (83,136) (16,316) (99,452) (66,305) (22,891) (89,196)
Revenue
Group revenue decreased by 9.3% to £969.3m in the first half (H1 2022:
£1,069.2m). This performance is a result of:
- A continuing uncertain macroeconomic environment;
- The Group exiting non-profitable categories and territories.
Revenue generated from the discontinued categories has declined by £38.7m to
£18.7m in H1 2023 compared to H1 2022;
- THG Beauty have consciously prioritised higher-margin sales
leading to a decline in revenue where we have actively de-emphasised
less-profitable markets;
- A one-time destocking across the beauty sector has led to a
decline in revenue of THG Beauty manufacturing (reported within THG Beauty);
and
- THG Ingenuity continues with its pre-announced strategic
re-positioning which commenced in Q3 2022, focusing on higher value and higher
margin clients which provide improved quality recurring revenue over the
mid-long term. The short-term impact is a reduction in revenue as the
re-positioning is executed.
THG Nutrition grew +2.6%, driven by the annualisation of prior year price
increases in the first half.
Excluding the impact of the discontinued categories and THG Beauty
manufacturing performance the decrease period-on-period would reduce to 4.8%
which we view as a credible performance given the aforementioned pressures on
the consumer as reflected in other online peers performances.
Whilst the effect of the above is a decline in revenue, the Group is pleased
to report an improvement in both gross profit margin and Adjusted EBITDA
metrics which, together with cash, have been a key management focus.
Detailed analysis is included within the segmental section later in this
report.
Gross profit
Adjusted gross profit was £424.2m (H1 2022: £452.9m) equating to an adjusted
gross profit margin of 43.8% (H1 2022: 42.4%), an improvement of 140bps
compared to H1 2022.
Gross profit on a statutory basis totalled £407.4m (H1 2022: £442.5m) also
delivering an increased margin of 42.0% (H1 2022: 41.4%).
The cost environment in H1 has continued to be challenging with high levels of
inflation. Despite this, an improved margin has been delivered from successful
implementation of cost-reduction initiatives. In addition, the Group saw a
substantially better margin within THG Nutrition, reflecting the partial
unwind in the whey commodity price. In late 2021 and throughout 2022, THG
chose to partially insulate the consumer from these increases as a long-term
customer investment strategy.
In THG Beauty - online retail (principally Look Fantastic, Cult Beauty and
Dermstore) saw gross margin expansion as a result of the de-prioritisation of
lower margin sales and subtle tweaks to promotional strategy geographically.
Operating expenses
Pleasingly distribution costs on a statutory basis further reduced as a
percentage of sales by 260bps compared to H1 2022, culminating in a cost of
£156.2m (H1 2022: £199.9m), which is 16.1% (H1 2022: 18.7%) of revenue.
Statutory distribution costs include one off adjusted items of £3.7m, which
has substantially reduced from the £13.4m reported in H1 2022.
As expected, in line with the reopening of air channels and the impacts of the
pandemic lessening, the costs relating to incremental delivery fees in respect
of Covid-19 have significantly decreased, totalling just £1.2m compared to
£11.3m in H1 2022.
Adjusted distribution costs of £143.7m (H1 2022: £174.2m) were 14.8% (H1
2022: 16.3%) of revenue. This 150bps underlying improvement was driven by the
Group's continued focus on network optimisation and the expanded usage of
warehouse automation which have more than compensated for high levels of
labour inflation in the market. This included the launch of the Group's second
Autostore facility in North America in H1.
As a result of the Group's cost-reduction programme, a reduction in headcount
of over 2,500 heads from the start of 2022 has been delivered through
technology investment, automation and simplification of operations within its
core divisions across THG Beauty, THG Nutrition and THG Ingenuity. This
benefit continues to annualise throughout the year, benefitting both
distribution costs and administrative costs.
Administrative costs on a statutory basis totalled £335.5m (H1 2022:
£331.8m). A decrease from the reduction in the acquisitions - restructuring
and integration costs of £5.7m, and the restructuring costs of the strategic
review in H1 2023 of £1.9m was offset by the increase in the share based
payment charge of £7.9m (H1 2022: £0.6m) and the one off non-cash loss on
disposal of discontinued categories of £4.0m (H1 2022: £nil).
Adjusted administrative costs as a percentage of revenue totalled 24.1% of
revenue (H1 2022: 23.0%).
Within administrative costs, the main increases have been seen within
marketing due to intentional spend in certain areas and general inflation in
paid channels. Greater app participation has partially mitigated rising
marketing costs, with customers acquired at lower costs through this channel
typically ordering more frequently, with higher AOV's due to regular
engagement.
Other operating expense of £15.1m (H1 2022: £nil) relates to the loss on
disposal of the planned sale of three non-core freehold assets in H1. These
three disposals of assets no longer required by the Group generated cash
proceeds of £52.0m.
Adjusted EBITDA and Adjusted EBITDA (continuing)
Reconciliation from Operating loss to Adjusted EBITDA Six months ended Six months
30 June 2023 ended
£'000 30 June 2022
£'000
Operating loss (99,452) (89,196)
Adjustments for:
Amortisation 35,832 26,906
Amortisation of acquired intangibles 25,503 25,413
Depreciation 45,927 45,732
Adjusted items - cash 5,192 22,891
Adjusted items - non-cash loss on disposal of discontinued categories 11,124 -
Other operating expense - non-cash loss on disposal freehold assets 15,081 -
Share-based payments 7,888 573
Adjusted EBITDA 47,095 32,319
Adjusted EBITDA % 4.9% 3.0%
EBITDA loss from discontinued categories 3,054 8,472
Adjusted EBITDA before discontinued categories 50,149 40,791
Adjusted EBITDA before discontinued categories % 5.3% 4.0%
Adjusted EBITDA saw a strong improvement to £47.1m from £32.3m in H1 2022.
This represents a margin of 4.9% (H1 2022: 3.0%), an improvement of 190bps,
with the margin improvements delivered through the Group's cost-reduction
programme and the exit of loss-making categories and territories.
This is an encouraging result against a tough macroeconomic backdrop with the
cost base of the business fundamentally stronger and well positioned for
operating leverage when consumer spending pressures abate.
Discontinued categories
On 17 January 2023, the Group confirmed its intention to simplify and
streamline its operations, undertaking a strategic review of loss-making
categories and territories within the THG OnDemand division. In July 2023, the
trade and assets of THG OnDemand have been sold to a Newco led by the
OnDemand management team. The Newco will continue to be a client of Ingenuity,
with the provision of technology, operational and digital services.
In addition, specialist provider of cycling equipment 'ProBikeKit' was sold to
Frasers Group PLC in Q2 2023. The combined consideration receivable through
both transactions was c. £4 million.
The discontinued categories contributed £18.7m (H1 2022: £57.4m) of revenue
and an adjusted EBITDA loss of £3.1m (H1 2022: loss of £8.5m).
We note the exit doesn't meet the criteria under IFRS 5: Discontinued
operations, as these categories and territories are not a major component of
the Group as defined by the accounting standard. However, to provide further
information on the ongoing revenue and Adjusted EBITDA of the Group these have
been presented separately.
Depreciation and amortisation
Total depreciation and amortisation costs were £45.9m and £61.3m
respectively (H1 2022: £45.7m and £52.3m). Included within amortisation is
£25.5m relating to acquired intangibles (H1 2022: £25.4m).
Depreciation remained consistent as a result of the previous investment made
across the network.
Amortisation increased following the continued investment in our proprietary
technology platform during the period, as expected, more projects moved from
work-in-progress to live in the period generating an increased amortisation
charge. This investment is focused on the technology to support both internal
and external customers and ensures that we continually enhance the
functionality and capability of the platform.
Operating loss
Operating loss before adjusted items totals £83.1m (H1 2022: £66.3m). This
loss was a result of the challenging macroeconomic environment combined with
the above mentioned factors. The actions taken to exit loss-making categories
and territories and a return to consumer spending are expected to reduce this
loss position in the medium-term.
The Group incurred an operating loss in the period of £99.5m (H1 2022:
£89.2m). This is primarily driven by one-off costs incurred during the first
half, loss on disposal of loss-making discontinued categories totalling
£11.1m (H1 2022: £nil) and share-based payment charges of £7.9m (H1 2022:
£0.6m). In addition the other operating expense of £15.1m (H1 2022: £nil)
relating to the non-cash loss on disposal following the sale of non-core
freehold assets will not recur in future years.
Finance costs net of finance income
Finance costs net of finance income have increased to £33.6m (H1 2022:
£19.0m) driven principally by higher interest rates, which have been caused
by higher market rates and an increase in group leverage. Alongside drawing of
the additional £156.0m facility in H2 2022 with no comparison in the previous
half.
Loss before tax and tax rate
Reported loss before tax was £133.0m (H1 2022: £108.2m). The effective tax
rate is -0.1% (H1 2022: 1.7%), based on a total tax charge of £0.1m (H1 2022:
tax credit £1.8m). The effective tax rate differs from the average statutory
rate of 23.5%. This is primarily due to a movement in deferred tax not
recognised (-18.6%), and expenses not deductible (-5.1%). The non-deductible
expenses principally comprise of the share-based payments charge and
non-qualifying depreciation.
At 30 June 2023, the total net deferred tax liability is £71.7m (H1 2022:
£70.7m). The deferred tax liability in respect of intangible assets
recognised on consolidation was £142.4m (H1 2022: £141.6m). The deferred tax
asset in respect of tax losses recognised was £51.5m (H1 2022: £54.8m).
There were £74.4m of unrecognised deferred tax assets in respect of tax
losses at the balance sheet date (H1 2022: £32.0m). This non-recognition has
an impact on the income statement tax charge, and this is one of the primary
reasons for the effective tax rate being below the statutory rate.
Earnings per share
Loss per share was (£0.10) per share (H1 2022: £(0.09) per share).
Cashflow
H1 2023 LTM 2023 H1 2022
£'000 £'000 £'000
Adjusted EBITDA 47,095 78,890 32,319
Working capital movements (60,802) 120,043 (156,941)
Tax paid (1,595) (4,942) (1,510)
Adjusted items (5,282) (23,060) (27,293)
Net cash (used)/generated in operating activities (20,584) 170,931 (153,425)
Purchase of property, plant and equipment (28,758) (76,966) (46,646)
Purchase of intangible assets (43,307) (86,059) (39,706)
Proceeds from sale of non-core freehold assets 52,000 52,000 -
Other (38,084) (80,517) (31,698)
Free cash flow 14 (#_ftn14) (78,733) (20,611) (271,475)
Acquisition of subsidiaries net of cash acquired (2,504) (8,504) 309
Proceeds from bank borrowings - 156,000 -
Net (decrease)/increase in cash and cash equivalents (81,237) 126,885 (271,166)
Cash and cash equivalents at the beginning of the year 473,783 265,661 536,827
Cash and cash equivalents at the end of the year 392,546 392,546 265,661
Six month free cash flow totals an outflow of £78.7m (H1 2022: £271.5m) and
£20.6m for the last twelve months (LTM). The AGM Trading statement released
in June 2023 guided to a c£40m outflow for LTM, therefore we are pleased to
report that we are ahead of this guidance by c£20m.
The total cash outflow for the period was £81.2m (H1 2022: £271.2m) with a
cash inflow for the LTM of £126.9m reflecting the new senior secured facility
that was drawn in October 2022.
There was a seasonal outflow from working capital movements totalling £60.8m
(H1 2022: outflow £156.9m) primarily driven by a reduction of the group's
payables , which typically relates to the peak trading period at the end of
2022. The key driver to this was general tighter working capital controls,
particularly reducing stock holding with no impact on availability following a
period of investment in the global fulfilment network roll out.
Total cash adjusting items has declined significantly to £5.3m from £27.3m
in H1 2022. The loss on discontinued categories in H1 2023 is non-cash. The
cash reduction has been driven by lower transportation, delivery and
fulfilment cash costs in relation to Covid-19 from £11.3m to £1.2m with air
channels reopening in Asia. Also acquisition costs decreased from £6.2m to
less than £1m.
There has been a reduction in the cash spend on the purchase of property,
plant and equipment in H1 2023, as the fitout of our current distribution
network is largely complete. This investment continued to deliver efficiencies
and a benefit reflected in lower distribution costs. Continued investment
within intangible assets, mainly the Ingenuity platform continues at a similar
rate to H1 2022 totalling £43.3m (H1 2022: £39.3m).
During H1 2023, management executed the planned sale of three non-core
freehold assets that were no longer required by the Group. The sales proceeds
generated a £52.0m cash inflow.
The Group ended the period with cash and cash equivalents of £392.5m (H1
2022: £265.7m, 31 December 2022: £473.8m).
Segmental Summary
Overview
H1 2023 £m THG THG Nutrition THG Ingenuity Central Inter-group elimination Continuing Discontinued categories 30 June 2023
Beauty Total(( 15 (#_ftn15) )) Total
External revenue 538.7 340.7 71.2 - - 950.6 18.7 969.3
Inter-segment revenue - - 248.8 - (248.8) - - -
Total revenue 538.7 340.7 320.0 - (248.8) 950.6 18.7 969.3
Adjusted EBITDA 10.6 47.1 3.4 (10.9) - 50.1 (3.1) 47.1
Adjusted EBITDA margin 2.0% 13.8% 1.0% - - 5.3% -16.3% 4.9%
H1 2022 £m THG THG Nutrition THG Ingenuity Central Inter-group elimination Continuing Discontinued categories 30 June 2022
Beauty Total (restated)
Total
External revenue 601.2 332.1 78.5 - - 1,011.8 57.4 1,069.2
Inter-segment revenue - - 297.3 - (297.3) - - -
Total revenue 601.2 332.1 375.9 - (297.3) 1,011.8 57.4 1,069.2
Adjusted EBITDA 17.7 27.4 6.8 (11.2) - 40.8 (8.5) 32.3
Adjusted EBITDA margin 2.9% 8.2% 1.8% - - 4.0% -14.8% 3.0%
THG Beauty 16 (#_ftn16)
£m H1 2023 H1 2022 Change %
(restated)
Revenue 538.7 601.2 -10.4%
Adjusted EBITDA 10.6 17.7 -40.4%
Margin % 2.0% 2.9% -90bps
Adjusted EBITDA excluding THG Beauty manufacturing 9.7 7.3 +32.1%
Margin excluding THG Beauty manufacturing 2.0% 1.4% +60bps
Mainly reflecting the change in strategy to reduce low-margin sales, THG
Beauty sales declined 10.4% to £538.7m. THG Beauty delivered Adjusted EBITDA
of £10.6m (H1 2022: £17.7m) with a margin of 2.0% (H1 2022: 2.9%), being a
90bps reduction on H1 2022. The reduction in margin is entirely driven by the
lower sales within THG Beauty manufacturing, resulting from a one-time
destocking across the Beauty industry. The Adjusted EBITDA in THG Beauty
manufacturing has declined by £9.5m compared to H1 2022. Excluding this
result, Adjusted EBITDA margin would have improved by 60bps. We expect this
destocking activity to be short-term in nature, and anticipate a return to
previously achieved margins in the medium-term.
Our prestige online retailing and THG owned-brands continue to perform
strongly, despite the challenging backdrop, benefitting from the growth within
the prestige beauty market alongside the continued trend of digital channel
shift and THG Ingenuity platform services.
AOV's continue to increase totalling £62 per basket for 2023 (H1 2022: £61),
arising from a focus on customer loyalty (with the launch of LF Beauty+) and
continued investment to drive increased customer engagement in both third
party and THG own brands.
THG Nutrition
£m H1 2023 H1 2022 Change %
Revenue 340.7 332.1 +2.6%
Adjusted EBITDA 47.1 27.4 +71.9%
Margin % 13.8% 8.2% +560bps
THG Nutrition sales grew 2.6% in the period to £340.7m, driven by the
annualisation of prior year price increases in the first half resulting from
commodity inflation, despite THG partially insulating the consumer from some
of this impact. AOV's totalled £50 (H1 2022: £48). Emerging regions of
Australia and Middle East continue to be in double-digit growth.
THG Nutrition delivered an Adjusted EBITDA of £47.1m (H1 2022: £27.4m) with
a margin of 13.8% (H1 2022: 8.2%), being a 560bps increase reflecting the
unwind of a period of unusually high whey commodity prices which we expect to
continue throughout 2023. The Group continues to invest in its customer
proposition through partnerships and retail outlets and gyms as part of its
demand generation strategy.
Adjusted EBITDA margin is marginally above the medium-term guidance level
previously communicated.
THG Ingenuity
£m H1 2023 H1 2022 Change %
External revenue 71.2 78.5 -9.3%
Internal revenue 248.8 297.3 -16.3%
Total revenue 320.0 375.9 -14.9%
Adjusted EBITDA 3.4 6.8 -50.8%
Margin % 1.0% 1.8% -80bps
THG Ingenuity revenue from external customers decreased by 9.3% to £71.2m (H1
2022: £78.5m). Strategic re-positioning commenced in Q3 2022, focusing on
higher value and higher margin clients which provide improved quality
recurring revenue principally through, Software-as-a-Service licence fees,
monthly brand building fees, infrastructure service fees, revenue share,
translation and creative services.
Following an intentional phase of investment in headcount and expertise to
deliver the re-positioned strategy, new enterprise client wins have been
secured and onboarding is progressing. Due to this pivot in strategy, as
expected, THG Ingenuity delivered an Adjusted EBITDA of £3.4m with a margin
of 1.0% (H1 2022: £6.8m with a margin of 1.8%), being a 80bps reduction
compared to the prior half. There continues to be a strategic exit of smaller
accounts which will continue throughout 2023. As revenue scales and the
revenue mix evolves towards the technology product offering we anticipate
margins will increase towards the Groups 5-year aspirational target.
Internal revenue of £248.8m (H1 2022: £297.3m) relates to services provided
to the wider THG Group including platform fees, customer services, fraud
detection services, THG Studios, fulfilment, postage and marketing services.
This revenue is eliminated on consolidation. Internal revenue declined due to
the wider Group exiting loss-making categories and territories along with
lower group-wide sales, this in turn generated lower volumes for THG
Ingenuity.
Central costs
£m H1 2023 H1 2022 Change %
EBITDA loss from central costs (10.9) (11.2) +2.6%
Central costs relate primarily to the PLC Board remuneration, professional
services fees, group finance, M&A, risk (insurance) and governance costs
that are not recharged to the divisions as they principally relate to the
operations of the PLC holding company. The costs reduced vs H1 2022 as the
Group cost saving initiatives continue to flow into the results, more than
offsetting increased investment in governance through new Board appointments
and record high levels of macro-inflation in the economy.
Discontinued categories
H1 2023 H1 2022 Change %
£m
Revenue discontinued 18.7 57.4 -67.4%
Adjusted EBITDA from discontinued categories (3.1) (8.5) +63.9%
Margin % -16.3% -14.8% -150bps
At the year end, certain loss-making categories and territories primarily
within THG OnDemand were placed under strategic review. On 17 January 2023,
the Group confirmed its intention to simplify and streamline its operations,
undertaking a strategic review of loss-making categories and territories
within the THG OnDemand division. In July 2023, the trade and assets of THG
OnDemand have been sold to a Newco led by the OnDemand management team. The
Newco will continue to be a client of Ingenuity, with the provision of
technology, operational and digital services.
In addition, specialist provider of cycling equipment 'ProBikeKit' was sold to
Frasers Group PLC in Q2 2023. The combined consideration receivable through
both transactions is c. £4 million, with the majority relating to OnDemand
sale in July 2023 therefore not included within the H1 2023 cash at 30 June
2023.
The exit doesn't meet the criteria under IFRS 5: Discontinued operations, as
these categories and territories are not a major component of the Group as
defined by the accounting standard. However, to provide further information on
the ongoing revenue and Adjusted EBITDA of the Group these have been presented
separately. The discontinued categories contributed £18.7m of revenue and an
Adjusted EBITDA loss of £3.1m in H1 2023.
Adjusted items
In order to understand the underlying performance of the Group, certain costs
included within cost of sales, distribution, administrative and finance costs
have been classified as adjusted items. All material classes of adjusted items
reduced period-on-period.
The largest cost included within adjusted items is the non-cash loss on
discontinued categories £11.1m in respect of the exit of discontinued
categories.
Six months ended Six months
30 June 2023 ended
30 June 2022
£'000 £'000
Within Cost of sales
Non-cash loss on disposal of discontinued categories 7,174 -
7,174 -
Within Distribution costs
Transportation, delivery and fulfilment costs in relation to Covid-19 1,228 11,332
Commissioning - new facilities 1,431 2,086
Decommissioning legacy facilities in relation to acquisitions 1,056 -
3,715 13,418
Within Administrative costs
Non-cash loss on disposal of discontinued categories 3,950 -
Acquisitions - restructuring and integration 454 6,169
Restructuring costs 1,023 2,943
Donations - 361
5,427 9,473
Total adjusted items before finance costs 16,316 22,891
Within Finance costs
Non-cash SoftBank option - (601)
Total adjusted items before tax 16,316 22,290
Tax impact (1,220) (3,797)
Total adjusted items 15,096 18,493
Cash adjusting items before tax 17 (#_ftn17) 5,192 22,891
For full details on each category of adjusted item see note 3 to the financial
statements.
Balance sheet
Cash and cash equivalents and net cash before lease liabilities
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Loans and other borrowings (671,884) (502,099) (679,189)
Lease liabilities (321,312) (363,805) (334,376)
Cash and cash equivalents 392,546 265,661 473,783
Sub-total (600,650) (600,243) (539,782)
Adjustments:
Retranslate debt balance at swap rate where hedged by foreign exchange 11,074 10,871 24,782
derivatives
Net debt (589,576) (589,372) (515,000)
Net debt before lease liabilities (268,264) (225,567) (180,624)
The Group's balance sheet remains robust closing the period with cash balances
of £392.5m, £126.8m up on H1 2022 (H1 2022: £265.7m). The €600m Term Loan
B matures in December 2026 and the incremental £156m facility matures in Q4
2025. The Group revolving credit facility of £170m remains undrawn and has
not been drawn post IPO.
Net debt before lease liabilities and adjusted for the impact of hedging was
£268.3m (H1 2022: £225.6m, 31 December 2022: £180.6m).
The increase in net debt period-on-period is driven by seasonal working
capital cash outflow of £60.8m and the net cash investment in property, plant
and equipment, leases and intangible assets in the period totalling £72.1m
less proceeds of £52.0m. With free cash outflow of (£20.6m) in the last 12
months.
Non-current assets
Property, plant and equipment totalled £298.6m (H1 2022: £359.3m, 31
December 2022: £360.0m). Intangible assets totalled £1,224.9m (H1 2022:
£1,557.3m, 31 December 2022: £1,275.8m). The movement in the period was
driven by continued investment in the THG Ingenuity platform following new
client wins within Ingenuity Commerce and continued investment in the Group's
global warehouse expansion programme which is now nearing completion. These
were offset by the sale of the non-core freehold assets along with
depreciation and amortisation charges incurred.
Going concern
The Group remains in a strong cash position with cash and cash equivalents
totalling £392.5m (H1 2022: £265.7m). As noted above, this is ahead of
previous management guidance with a free cash outflow of only £20.6m in the
12 months ended 30 June 2023. Net debt before lease liabilities at this date
totalled £268.3m (H1 2022: £225.6m). At 30 June 2023, the Group had a total
of £170m in undrawn facilities.
In making their assessment of going concern, the Directors reviewed financial
projections until 30 September 2024. 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.
In response to the ongoing uncertainty in the macroeconomic market, high
inflation and global recessions, Management modelled stress tests across
multiple scenarios. These included adjusting for a reduction in revenue across
all divisions, impacting both direct to consumer and business to business
markets, along with an increase in cost base across key inputs, with the focus
being on commodity prices. 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 remote.
For these reasons, the Directors continue to adopt the going concern basis in
preparing these condensed interim financial statements.
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 2023 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 2023 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
o 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
Damian Sanders
Chief Executive
Officer
Chief Financial Officer
13 September
2023
13 September 2023
Interim condensed consolidated statement of comprehensive income for the six
months ended 30 June 2023
30 June 2023 30 June 2022
(Restated 18 (#_ftn18) )
Note £'000 £'000
Revenue 2 969,260 1,069,207
Cost of sales (561,895) (626,666)
Gross profit 407,365 442,541
Distribution costs (156,219) (199,913)
Administrative costs (335,517) (331,824)
Other operating expense 6 (15,081) -
Operating loss (99,452) (89,196)
Finance income 5,476 792
Finance costs (39,040) (19,782)
Loss before taxation (133,016) (108,186)
Income tax (charge)/credit 4 (67) 1,835
Loss for the financial period (133,083) (106,351)
Other comprehensive expense:
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translating foreign operations, net of tax (26,687) 76,201
Net gain on cash flow hedges 6,704 10,399
Total comprehensive expense for the financial period (153,066) (19,751)
Loss per share (£'s)
Basic (0.10) (0.09)
Diluted (0.10) (0.09)
Earnings before interest, taxation, depreciation, amortisation, impairment,
adjusted items and share-based payment charges (Adjusted EBITDA)
30 June 2023 30 June 2022
Notes £'000 £'000
Operating loss (99,452) (89,196)
Adjustments for:
Amortisation 6 35,832 26,906
Amortisation of acquired intangibles 6 25,503 25,413
Depreciation 6 45,927 45,732
Adjusted items - cash 3 5,192 22,891
Adjusted items - non-cash loss on disposal of discontinued categories 3 11,124 -
Other operating expenses -non-cash loss on disposal of freehold assets 6 15,081 -
Share-based payments 5 7,888 573
Adjusted EBITDA 47,095 32,319
Interim condensed consolidated statement of financial position as at 30 June
2023
30 June 2023 30 June 2022 31 December 2022 Audited
Note £'000 £'000 £'000
Non-current assets
Intangible assets 6 1,224,914 1,557,266 1,275,762
Property, plant and equipment 6 298,582 359,257 360,041
Right-of-use assets 6 281,443 319,799 294,309
Investments 1,400 1,400 1,400
Other non-current financial assets 17,988 - 21,567
1,824,327 2,237,722 1,953,079
Current assets
Assets held for sale 6.1 1,100 - 21,397
Inventories 328,983 456,443 373,271
Trade and other receivables 267,313 267,508 264,949
Other financial assets 5,222 14,451 301
Current tax asset - - 2,377
Cash and cash equivalents 7 392,546 265,661 473,783
995,164 1,004,063 1,136,078
Total assets 2,819,491 3,241,785 3,089,157
Equity
Ordinary shares 7,072 6,808 6,903
Share premium 2,024,824 2,023,081 2,024,452
Merger reserve 615 615 615
Capital redemption reserve 523 523 523
Hedging reserve (3,771) (5,715) (6,221)
Cost of hedging reserve 20,958 16,844 16,704
FX Reserve 35,172 75,107 61,859
Retained earnings (927,221) (379,782) (803,096)
1,158,172 1,737,481 1,301,739
Non-current liabilities
Borrowings 631,789 500,753 648,197
Other financial liabilities - - 4,189
Lease liabilities 275,942 316,681 290,381
Provisions 9 18,087 16,772 18,840
Deferred tax 71,692 70,695 76,598
997,510 904,901 1,038,205
Current liabilities
Contract liability 25,808 39,314 34,256
Trade and other payables 531,775 493,338 636,440
Borrowings 40,095 1,346 30,992
Current tax liability 1,952 5,573 -
Lease liabilities 45,370 47,124 43,995
Other financial liabilities 15,974 10,008 -
Provisions 9 2,835 2,700 3,530
663,809 599,403 749,213
Total liabilities 1,661,319 1,504,304 1,787,418
Total equity and liabilities 2,819,491 3,241,785 3,089,157
Interim condensed consolidated statement of changes in equity for the six
months ended 30 June 2023
Ordinary shares Share premium Merger reserve Capital Redemption reserve FX reserve Hedging reserve Cost of Hedging reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2023 6,903 2,024,452 615 523 61,859 (6,221) 16,704 (803,096) 1,301,739
Loss for the period - - - - - - - (133,083) (133,083)
Other comprehensive expense:
Impact of foreign exchange - - - - (26,687) - - - (26,687)
Movement on hedging instruments - - - - - 2,450 4,254 - 6,704
Total comprehensive expense for the period - - - - (26,687) 2,450 4,254 (133,083) (153,006)
Issue of ordinary share capital 169 372 541
Share-based payments - - - - - - - 7,888 7,888
Deferred tax effect in equity - - - - - - - 1,070 1,070
Balance at 30 June 2023 7,072 2,024,824 615 523 35,172 (3,771) 20,958 (927,221) 1,158,172
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
Deferred tax effect in equity - - - - - - - 11 11
Share-based payments - - - - - - - 573 573
Balance at 30 June 2022 6,808 2,023,081 615 523 75,107 (5,715) 16,844 (379,782) 1,737,481
Interim condensed consolidated statement of cash flows for the six months
ended 30 June 2023
30 June 2023 30 June 2022
Note £'000 £'000
Cash flows from operating activities before adjusted cash flows
Cash used in operations 8 (13,707) (124,622)
Income tax paid (1,595) (1,510)
Net cash used in operating activities before adjusted cash flows (15,302) (126,132)
Cash flows relating to adjusted items (5,282) (27,293)
Net cash used in operating activities (20,584) (153,425)
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired (2,504) 309
Purchase of property, plant and equipment (28,758) (46,646)
Proceeds from sale of property, plant and equipment 52,000 -
Purchase of intangible assets (43,307) (39,706)
Interest received 5,476 792
Net cash used in investing activities (17,093) (85,251)
Cash flows from financing activities
Proceeds from issuance of ordinary shares net of fees - (18)
Interest paid (18,385) (9,183)
Repayment of lease liabilities (25,175) (23,289)
Net cash flow used in from financing activities (43,560) (32,490)
Net decrease in cash and cash equivalents (81,237) (271,166)
Cash and cash equivalents at the beginning of the period 473,783 536,827
Cash and cash equivalents at the end of the period 392,546 265,661
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 Icon 1 7-9, Sunbank Lane, Ringway Altrincham, Manchester,
WA15 0AF. 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 2023 were authorised for issue in accordance with a
resolution of the directors on 13 September 2023.
The annual financial statements for the year ended 31 December 2023 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 2023 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 2022. 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 2022, except for the adoption of new standards
effective as of 1 January 2023. 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 2023, but do not have an impact
on the interim condensed consolidated financial statements of the Group.
The IASB has adopted amendments exempting entities from accounting for
deferred taxes arising from Pillar Two legislation and these have now been
endorsed by the UK Endorsement Board (UKEB). THG PLC will apply the mandatory
temporary exception from recognising and disclosing information about deferred
tax assets and liabilities related to Pillar Two income taxes. The Pillar Two
rules are expected to apply from January 2024, at which time THG PLC is
expected to fall within scope. To date, THG PLC does not materially operate in
low tax jurisdictions and will continue to monitor application of the rules
and the potential impact on the Group.
Total H1 2022 revenue has been restated by £7.6m being a reclassification
correction which had overstated revenue and cost of sales. This relates only
to the THG Beauty segment. The position reflects the full year reported
revenue figure to 31 December 2022. Refer to note 2, segmental reporting and
revenue.
Going concern
The Group remains in a strong cash position with cash and cash equivalents
totalling £392.5m (H1 2022: £265.7m, 31 December 2022 £473.8m). Net debt
before lease liabilities at this date totalled £268.3m (H1 2022: net debt
before lease liabilities £225.6m, 31 December 2022: £180.6m). At 30 June
2023, the Group had a total of £170m in undrawn facilities.
In making their assessment of going concern, the Directors reviewed financial
projections until 30 September 2024. Stress test scenarios were modelled to
take into account severe but plausible impacts of a combination of the
principal risks occurring including reducing divisional sales and gross profit
margins to levels significantly below historic actuals and current budgets. A
reverse stress test was also separately modelled. 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 2022.
2. Segmental reporting and revenue
The Group's activities were divided into the following segments: THG Beauty,
THG Nutrition, THG Ingenuity, Discontinued categories (primarily THG OnDemand)
and Central PLC costs.
The results of each division are reported to the Board of Directors and are
treated as reportable operating segments. The following table describes the
main activities for each reportable operating segment:
Segment Activities
THG Beauty A digital-first brand owner, retailer and manufacturer in the prestige beauty
market, with a portfolio of own-brands across skincare, haircare and
cosmetics. Through its retail websites, including Lookfantastic, Dermstore,
Cult Beauty and the beauty subscription box brand GLOSSYBOX, it is a route to
market globally for over 1,300 third-party premium brands. THG Beauty also
operates prestige spa and experience venues, in addition to luxury clothing
and homeware D2C sites.
THG Nutrition A group of digital-first nutrition brands, which includes the world's largest
online sports nutrition brand Myprotein and its family of brands (Myvegan,
Myvitamins, MP Activewear and MyPRO), with a vertically integrated business
model supported by global THG production facilities.
THG Ingenuity THG Ingenuity provides a complete digital commerce solution for consumer brand
owners across its three pillars of technology, digital marketing and
operations. Being part of the THG group, Ingenuity is uniquely placed to bring
relevant, practical and international expertise in every area of commerce.
Discontinued categories At the year end, certain loss-making categories and territories primarily
within THG OnDemand were placed under strategic review. This review is now
complete and these operations will be fully exited in 2023. The exit doesn't
meet the criteria under IFRS 5: Discontinued operations at the balance sheet
date, as these categories and territories are not a major component of the
Group as defined by the accounting standard, however, management began to
report the financial results of these categories separately in their reporting
to the CODM, as such the result has also been shown in the same format within
this note.
Central costs relate primarily to the PLC Board remuneration, professional
services fees, group finance, M&A, risk (insurance) and governance costs
that are not recharged to the divisions as they principally relate to the
operations of the PLC holding company.
The CODM is the executive Board of directors, who makes the key operating
decisions for the business. The CODM receives daily financial information at
the combined Group level, along with monthly information at a divisional level
and uses this information to allocate resources, make operating decisions and
monitor the performance of each of the divisions.
The measure of the Group's performance used by THG's management team is
Adjusted EBITDA comprising operating loss less interest, tax, depreciation,
amortisation, shared-based payments and adjusted items. This is reconciled
to the nearest IFRS measure (loss before tax) in the below table.
Result before discontinued categories
H1 2023 THG Beauty THG Nutrition THG Ingenuity Central PLC Inter-group elimination £'000 Discontinued categories H1 2023
£'000 £'000 £'000 £'000 £'000 £'000 Total
£'000
External revenue 538,698 340,650 71,202 - - 950,550 18,710 969,260
Inter-segment revenue - - 248,842 - (248,842) - - -
Total revenue 538,698 340,650 320,044 - (248,842) 950,550 18,710 969,260
Adjusted EBITDA 10,561 47,103 3,353 (10,868) 50,149 (3,054) 47,095
-
Margin % 2.0% 13.8% 1.0% - - 5.3% -16.3% 4.9%
Depreciation (45,927)
Amortisation (61,335)
Share-based payments (7,888)
Adjusted items (16,316)
Other operating expense (15,081)
Operating loss (99,452)
Finance income 5,476
Finance costs (39,040)
Loss before taxation (133,016)
Result before discontinued categories
H1 2022 THG Beauty 19 (#_ftn19) THG Nutrition THG Ingenuity Central PLC Inter-group elimination £'000 Discontinued categories H1 2022
£'000 £'000 £'000 £'000 £'000 £'000 Total
(restated) 20 (#_ftn20)
£'000
External revenue 601,168 332,117 78,519 - - 1,011,804 57,403 1,069,207
Inter-segment revenue - - 297,345 - (297,345) - - -
Total revenue 601,168 332,117 375,864 - (297,345) 1,011,804 57,403 1,069,207
Adjusted EBITDA 17,733 27,397 6,815 (11,153) 40,792 (8,473) 32,319
-
Margin % 2.9% 8.2% 1.8% - - 4.0% -14.8% 3.0%
Depreciation (45,732)
Amortisation (52,319)
Share-based payments (573)
Adjusted items (22,891)
Operating loss (89,196)
Finance income 792
Finance costs (19,782)
Loss before taxation (108,186)
Below is an analysis of revenue by region (by destination):
Six months ended Six months ended
30 June 2023 30 June 2022 (restated)
£'000 £'000
UK 429,714 457,931
USA 183,209 211,507
Europe 207,748 216,432
Rest of the world 148,589 183,337
969,260 1,069,207
Below is an analysis of revenue before discontinued categories by region (by
destination):
Six months ended Six months ended
30 June 2023 30 June 2022
(restated)
£'000 £'000
UK 418,536 435,808
USA 180,045 187,578
Europe 205,983 207,107
Rest of the world 145,986 171,311
950,550 1,011,804
3. Adjusted items
Six months ended Six months ended
30 June 30 June 2022
2023
£'000 £'000
Within Cost of sales 7,174 -
Non-cash loss on disposal of discontinued and loss making categories following
strategic review
7,174 -
Within Distribution costs
Transportation, delivery and fulfilment costs in relation to Covid-19 1,228 11,332
Commissioning - new facilities 1,431 2,086
Decommissioning 1,056 -
3,715 13,418
Within Administrative costs
Non-cash loss on disposal of discontinued and loss making categories following 3,950 -
strategic review
Acquisitions - restructuring and integration 454 6,169
Restructuring 1,023 2,943
Donations - 361
5,427 9,473
Total adjusted items before finance costs 16,316 22,891
Within Finance costs
Non-cash - revaluation of SBM option - (601)
- (601)
Total adjusted items before tax 16,316 22,290
Tax impact (1,220) (3,797)
Total adjusted items 15,096 18,493
Cash adjusting items before tax 21 (#_ftn21) 5,192 22,891
Non-cash loss on disposal of discontinued and loss-making categories
following strategic review
On 17 January 2023 the Group confirmed its intention to simplify and
streamline its operations, undertaking a strategic review of loss-making
categories and territories primarily within the THG OnDemand division. Post
period end, in July 2023, the trade and assets of THG OnDemand have been sold
to a Newco led by the existing OnDemand management team. The Newco will
continue to be a client of THG Ingenuity, with the provision of technology,
operational and digital services.
The assets sold include property, plant and equipment and inventories. The
carrying value at 30 June 2023 has been written down to the consideration
value. This has led to a loss on disposal being recognised. This is a one-off,
non-cash loss to enable the exit of a loss making area of the business.
Transportation, delivery and fulfilment costs in relation to Covid-19
The Group was severely impacted by high surcharges from suppliers in respect
of routes travelling through and into Asia during the covid-19 pandemic and
extended lockdown periods. However, this impact lessened in H2 2022, with
costs reducing further throughout H1 2023. It is expected that this trend will
continue in H2 2023 as prices normalise back to pre-covid levels.
Commissioning - new facilities
Consistent with strategic priorities which include warehouse optimisation, the
Group has continued its commissioning of the campus at Manchester Airport, UK
("Icon") and New Jersey, US. Both warehouses are now operational, although
further automation continues to be implemented in both sites to further
efficiency gains. The majority of the costs incurred during the period relate
to the Autostore automation of the New Jersey warehouse and the transfer of
stock to this facility. The programme is expected to be completed in H2
2023.
Decommissioning
As part of the strategic review the Group has consolidated acquired
warehouses into the existing THG network.
The costs that have been incurred as part of this process, include:
· Those incurred to relocate the stock across the fulfilment
network.
· Contractual costs borne in existing leased premises.
· Restructuring costs associated with the dual running of
facilities, severance payments and other third party costs such as rent and
utilities.
All costs recognised within adjusted items are from the point of management's
decision to exit the acquired warehouse. The costs associated with the
decommissioning of these warehouses are considered to be one-off costs and are
incremental to the ongoing trading of the group.
Acquisitions - restructuring and integration
The costs relate to the dual running of warehouse facilities of businesses
acquired in 2021. The size and nature of acquisitions and the complexity of
the integration plan has led to costs being incurred over an extended
post-acquisition period. It is expected that the costs will continue to reduce
through H2 2023.
Restructuring
Costs within restructuring are those incurred in executing and embedding the
Group's simplification project which was previously announced as part of the
strategic review. This review is expected to complete by the end of 2023.
Donations and Non-cash revaluation of SBM option
In H1 2022 donations totalled £0.4m and Non-cash revaluation of SBM option
(£0.6m). These items did not recur in H1 2023.
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 ended Six months ended
30 June 2023 30 June 2022
£'000 £'000
Current tax
Tax charge for the period 6,137 4,591
Deferred tax
Origination and reversal of temporary differences (6,070) (6,426)
Total income tax charge/(credit) 67 (1,835)
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. A total of 43,352,699 shares were issued in the 12
months to 31 December 2022 across two schemes. On 27 January 2023 a total of
35,072,376 options were granted in relation to these 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. All awards vest in three
equal tranches, with the first being 31 December following the date of grant.
The second and third tranches for each separate grant will vest on 31 December
in the following two years respectively. Of the 60,353,486 shares held at 30
June 2023, 58,970,270 will vest based on continuous employment with 1,383,216
of the shares only vesting if targets linked ESG (Environmental, Social and
Governance) matters are met.
Six months Six months
ended ended
30 June 30 June
2023 2022
£'000 £'000
Expense arising from equity-settled share-based payment transactions 7,888 573
The following table shows the shares granted and outstanding at the beginning
of the year and at half-year:
2023
Number of
shares
As at 1 January 29,248,600
Granted during the year 35,072,376
Exercised during the year (1,522,592)
Forfeited during the year (2,444,898)
As at 30 June 60,353,486
6. Non-current assets
Property, plant and equipment
Intangible assets £'000 Right-of-use asset
£'000 £'000
1 January 2023 1,275,760 360,041 294,309
Additions 43,308 15,933 5,942
Disposals (25) (46,729) -
Non-cash loss on disposal of discontinued categories (note 3) - (2,312) -
Depreciation / Amortisation (61,335) (26,201) (19,726)
Transfer to assets held for sale - (1,100) -
Currency translation differences (32,794) (1,050) 918
30 June 2023 1,224,914 298,582 281,443
Property, plant and equipment
Intangible assets £'000 Right-of-use asset
£'000 £'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
Disposals to property, plant and equipment include the sale of non-core
freehold assets which were not consummate to the Group's strategic priorities
and resulting in a non-recurring and non-cash loss on disposal of £15.1m.
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's impairment review is undertaken annually in Q4. In assessing
whether there are impairment triggers at the reporting date, management has
taken into account economic performance including macroeconomic factors that
have impacted the markets in which the Group operates. Whilst there has been a
decline in overall revenues, this is largely due to the impact of business
discontinuation which was initiated as part of the strategic review. Despite
this gross profit margin, adjusted EBITDA metrics and cash have seen
substantial improvement since on 31 December 2022. As such, management has
concluded that there are no impairment triggers at 30 June 2023.
6.1 Assets held for sale
In July 2023, the sale of trade and assets of THG OnDemand was completed (note
11). In accordance with IFRS 5: Non-current assets held for sale and
discontinued operations, where relevant, assets were classified as held for
sale on the Group statement of financial position at 30 June 2023. Immediately
before the classification as an asset for sale, the recoverable value was
estimated and an impairment loss of £2.3m was recognised to reduce the
carrying amount of the assets to their recoverable value. This was recognised
within administrative costs as an adjusted item (note 3) - non-cash loss on
disposal of discontinued and loss making categories following strategic review
as this was a one-off charge outside the normal course of business.
7. Financial assets and liabilities
30 June 2023 30 June 2022 31 December
2022
£'000 £'000 £'000
Assets as per balance sheet - financial assets
Trade and other receivables excluding non-financial assets 139,213 160,717 162,835
Cash and cash equivalents 392,546 265,661 473,783
Investments 1,400 1,400 1,400
Assets as per balance sheet - held at fair value through OCI
Derivative financial instruments designated as hedging instruments 22,910 14,151 21,567
Derivative financial instruments held at fair value through profit and loss 300 300 301
556,369 442,229 659,886
Liabilities as per balance sheet - other financial liabilities at amortised
cost
Bank borrowings 671,884 502,099 679,189
Lease liabilities 321,312 363,805 334,376
Trade and other payables excluding non-financial liabilities 461,115 457,824 574,994
Liabilities as per balance sheet - other financial liabilities at fair value
Derivative financial instruments designated as hedging instruments 15,974 10,008 4,189
1,470,285 1,333,736 1,592,748
Derivative financial instruments designated as hedging instruments
FX forwards hedging foreign exchange risk on borrowings (15,974) (10,008) (3,377)
Interest rate swaps 17,988 12,001 21,567
FX forwards hedging foreign exchange risk on highly probable future cash flows 4,921 2,150 (812)
6,935 4,143 17,378
- 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.
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 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Loans and other borrowings (671,884) (502,099) (679,189)
Lease liabilities (321,312) (363,805) (334,376)
Cash and cash equivalents 392,546 265,661 473,783
Sub-total (600,650) (600,243) (539,782)
Adjustments:
Retranslate debt balance at swap rate where hedged by FX derivatives 11,074 10,871 24,782
Net debt (589,576) (589,372) (515,000)
Net debt before lease liabilities (268,264) (225,567) (180,624)
8. Cash flow generated from operations
Six months ended Six months ended
30 June 30 June
2023 2022
Note £'000 £'000
Loss before taxation (133,016) (108,186)
Adjustments for:
Depreciation 6 45,927 45,732
Amortisation 6 35,832 26,906
Amortisation - acquired intangibles 6 25,503 25,413
Share-based payment 5 7,888 573
Adjusted items 3 16,316 22,290
Other operating expense 6 15,081 -
Net finance costs 33,564 19,591
Operating cash flow before adjusted items and before movements in working 47,095 32,319
capital and provisions
Decrease in inventories 33,188 20,808
(Increase) / decrease in trade and other receivables (5,497) 1,224
Decrease in trade and other payables (86,780) (180,341)
(Decrease) / increase in provisions (1,448) 131
Foreign exchange (loss) / gain (265) 1,237
Cash used in operations before adjusted items (13,707) (124,622)
9. Provisions
Dilapidations Other Total
£'000 £'000 £'000
At 1 January 2023 20,805 1,565 22,370
Utilisation (380) (525) (905)
Released (333) - (333)
Discount unwind 103 - 103
FX on translation (313) - (313)
At 30 June 2023 19,882 1,040 20,922
Current 2,076 759 2,835
Non-current 17,806 281 18,087
Dilapidations provisions relate to leased properties. Dilapidations provisions
are made based on the best estimate of the likely committed cash outflow and
discounted to net present value. Future costs are expected to be incurred over
the term of the existing lease arrangements at the reporting date, which is a
period of up to 25 years.
Other provisions relate to onerous contracts.
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 Group has in place an agreement on commercial terms with Moulding Capital
Limited to provide property, facilities and project management services to the
entity and its subsidiaries. This agreement generated £90,693 (H1 2022:
£134,509) for the Group recognised within administrative expenses. This
balance reduced period-on-period as Moulding Capital Limited required less
services from THG.
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 2023 30 June 2022
£'000 £'000
Right-of-use asset 156,864 160,318
Lease liability 175,297 182,022
Depreciation arising on right-of-use assets 6,673 6,499
Expense recognised in financing costs 3,687 4,354
The table below gives further detail around the leases in place:
Number of properties Residual lease term at date of divestment H1 2023 rent (£'000) H1 2022 rent (£'000)
9 0-5 years 481 481
0 5-10 years - 1,580
12 10-15 years 1,643 1,643
7 15-25 years 4,961 4,961
28 7,085 8,665
The following table sets out amounts payable to related parties which 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
£'000
Aghoco 1422 Ltd 100
Allenby Square Ltd 159
THG Alpha Propco Ltd 161
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 958
THG Icon Unit 4 PropCo Ltd 217
THG KS PropCo Ltd 225
3,643
11. Events after the reporting period
Disposal of loss-making categories per the strategic review
On 17 January 2023 the Group confirmed its intention to simplify and
streamline its operations, undertaking a strategic review of loss-making
categories and territories within the THG OnDemand division. The Group has
continued to execute on this plan and following an extensive market-testing
process to secure optimal value for shareholders, on 21 July 2023, the trade
and assets of THG OnDemand have been sold to a Newco led by the existing
OnDemand management team and funded by Gordon Brothers, the advisory and
investment firm. The Newco will continue to be a client of Ingenuity, with the
provision of technology, operational and digital services.
In addition, specialist provider of cycling equipment 'ProBikeKit' was sold
to Frasers Group PLC in Q2 2023. The combined consideration payable through
both transactions is c. £4 million.
The FY 2023 financial impact is incorporated into existing market guidance
(inclusive of one-off costs), with discontinued revenues non-recurring after
Q3 2023. Discontinued categories collectively contributed to an EBITDA loss of
£14.6 million in FY 2022.
The sale has resulted in a non-cash loss on disposal of £9.8m which has been
recognised within adjusted items - non-cash loss on disposal of THG OnDemand.
The non-current assets have been classified as held for sale and all assets
are recorded at their recoverable value.
Acquisition of City AM
On 26 July 2023, the Group acquired the trade and assets of London's City AM
newspaper for £1.5m. This is considered to be a non-adjusting post balance
sheet event and has no impact on the financial results as at 30 June 2023.
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 2023 to be unchanged from those set out in the Annual Report and
Accounts for the year to 31 December 2022.
The applicable risks are summarised as follows:
· Cyber security and data privacy;
· Third party reliance;
· Talent;
· Ingenuity e-commerce platform;
· Customer needs;
· Infrastructure and supply chain;
· Innovation;
· Legal and regulatory compliance;
· Product safety and quality;
· Health and safety;
· Climate change, environmental and social responsibility;
· Geopolitical and economic uncertainty;
· Culture;
· Liquidity and funding; and
· Strategic optionality.
These are set out in detail on page 87 in the Group's Annual Report and
Accounts for the year to 31 December 2022, a copy of which is available on the
Group's website, www.thg.com.
INDEPENDENT REVIEW REPORT TO THG PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023, which comprises: the interim condensed consolidated statement of
comprehensive income, interim condensed consolidated statement of financial
position, interim condensed consolidated statement of changes in equity and
interim condensed consolidated statement of cashflows, along with the
supporting notes for the six months ended 30 June 2023. 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 condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 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
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 for 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
13 September 2023
1 (#_ftnref1) Adjusted EBITDA before discontinued categories
2 (#_ftnref2) £26.2m includes non-cash loss on disposal of discontinued
categories of £11.1m and non-cash loss on disposal freehold assets of £15.1m
3 (#_ftnref3) Last twelve month period ending June 2023
4 (#_ftnref4) Group free cash flow is calculated after working capital, net
capital expenditure, adjusting items, tax and financing (prior to debt capital
repayments and deferred consideration on acquisitions)
5 (#_ftnref5) H1 2022 THG Beauty revenue restated to reflect previously
reported restatement of revenue (see note 2)
6 (#_ftnref6) YoY change defined as year-on-year statutory sales growth. 2
Year change defined as 2 year statutory sales growth
7 (#_ftnref7) Group (continuing) refers to before discontinued categories
(see note 2). Discontinued categories do not represent a discontinued
operation under the accounting standard
8 (#_ftnref8) Gross Margin % (adjusted) is presented before the impact of
adjusted items, depreciation and amortisation. H1 2022 restated to reflect
previously reported restatement of revenue (see note 2). No change to prior
definition
9 (#_ftnref9) Adjusted EBITDA is defined as operating profit before
depreciation, amortisation, share-based payments and adjusted items
10 (#_ftnref10) See CFO report for a reconciliation to adjusted EBITDA
11 (#_ftnref11) Net debt is cash and cash equivalents less debt before lease
liabilities, on a hedged basis (see note 7)
12 (#_ftnref12) According to management estimates and NPD, part of Circana
Group for the period H1 2020 to H1 2023
13 (#_ftnref13) The table shows financial results for gross profit,
distribution costs and administrative costs before the impact of adjusted
items, depreciation, amortisation and share-based payments. The impact is as
follows:
- For statutory presentation gross profit includes charges of £7.2m
(H1 2022: £nil) for adjusted items and £9.6m (H1 2022: £10.3m) for
amortisation and depreciation.
- For statutory presentation distribution costs include charges of
£3.7m (H1 2022: £13.4m) for adjusted items and £8.8m (H1 2022: £12.3m)
for amortisation and depreciation.
- For statutory presentation administrative costs include charges of
£5.4m (H1 2022: £9.5m) for adjusted items and £88.9m (H1 2022: £75.4m) for
amortisation and depreciation and £7.9m (H1 2022: £0.6m) for share-based
payments.
14 (#_ftnref14) Free cash flow is defined as total cash flow before
proceeds/(repayment) from bank borrowings and acquisition of subsidiaries net
of cash acquired
15 (#_ftnref15) During 2022, certain loss-making categories and territories
within non-core divisions were placed under strategic review and subsequently
management has exited these areas. The exit doesn't meet the criteria under
IFRS 5: Discontinued operations as these categories and territories are not a
major component of the Group as defined by the accounting standard, however,
to provide further information on the ongoing revenue and Adjusted EBITDA of
the Group the result of these operations has been presented separately in the
above table.
16 (#_ftnref16) THG Experience and THG Luxury results are reported within
the THG Beauty segment following a change in internal reporting. These results
were included within the Other segment in 2022.
17 (#_ftnref17) Cash adjusting items before tax total £5.2m (H1 2022:
£21.9m) reflect the total cash before tax expected to be paid. This differs
from the interim condensed consolidated statement of cash flows which also
reflects the timing of such payments. Cash paid in H1 2023 totalled £5.3m.
18 (#_ftnref18) Total H1 2022 revenue has been restated by £7.6m being a
reclassification correction which had overstated revenue and cost of sales.
This relates only to the THG Beauty segment. The position reflects the full
year reported revenue figure to 31 December 2022. For more detail refer to the
Basis of Preparation in Note 1.
The results are derived from continuing activities.
19 (#_ftnref19) During FY22, THG Luxury and THG Experience were reported
separately (within 'Other') and Acheson & Acheson revenues were reported
within THG Ingenuity. From 1 January 2023, these results are now internally
reported as part of THG Beauty to the CODM. The prior period comparative for
THG Beauty has been restated to include an additional £56.0m, the Other
segment is no longer reported and THG Ingenuity H1 2022 revenue restated by
£25.6m.
20 (#_ftnref20) Total H1 2022 revenue has been restated by £7.6m being a
reclassification correction which had overstated revenue and cost of sales.
This relates only to the THG Beauty segment. The position reflects the full
year reported revenue figure to 31 December 2022.
21 (#_ftnref21) Cash adjusting items before tax total £5.2m (H1 2022:
£21.9m) reflect the total cash before tax expected to be paid. This differs
from the interim condensed consolidated statement of cash flows which also
reflects the timing of such payments. Cash paid in H1 2023 totalled £5.3m.
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