REG - THG PLC - Preliminary FY 2023 results
10/04/2024 07:00
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RNS Number : 9583J THG PLC 10 April 2024
10 April 2024
THG PLC
Preliminary FY 2023 results
Continuing adjusted EBITDA of £120.4m (+6.1% margin), vs. January 2024
guidance of above £117.0m
Group adjusted EBITDA £114.1m, +78% YoY (FY 2022: £64.1m)
Free cash flow breakeven achieved
Strong balance sheet, with c.£600m of cash and facilities
Q4 2023 Group revenue growth (+1.1%) accelerated in Q1 2024, Group guidance
unchanged
THG PLC ("THG" or the "Group"), announces its preliminary results for the
financial year ended 31 December 2023 ("FY 2023").
FY 2023 Group trading
performance
£m FY 2023 FY 2022 YoY 1 (#_ftn1) CCY Change 2 (#_ftn2)
Growth
THG Beauty 1,171.7 1,226.0 -4.4% -4.2%
THG Nutrition 657.9 662.7 -0.7% 0.0%
THG Ingenuity (external) 154.1 159.6 -3.4% -3.1%
Group (continuing) revenue 1,983.7 2,048.3 -3.2% -2.8%
Discontinued revenue 61.7 191.0 -67.7% -67.6%
Total revenue 2,045.4 2,239.2 -8.7% -8.4%
Gross Margin % 3 (#_ftn3) 42.8% 41.3% +150bps
Continuing adj EBITDA 120.4 81.2 +48.4%
Continuing adj EBITDA % 6.1% 4.0% +210bps
Adj EBITDA 114.1 64.1 +78.0%
Adj EBITDA % 5.6% 2.9% +270bps
Adjusted items - Cash 15.8 40.1
Adjusted items - Non-cash 34.8 305.1
Operating loss 4 (#_ftn4) 185.4 495.6
Net Cash / (Debt) 5 (#_ftn5) (218.2) (180.6)
( )
All comparative figures are continuing CCY unless otherwise stated, all
numbers and tables subject to rounding
Matthew Moulding, CEO of THG, commented:
"In 2023, we made material progress against our strategic priorities,
delivering significant profit growth following the support for our consumers
through the cost-of-living crisis in 2022. This focus led to the Group
delivering record EBITDA after cash-adjusting items in 2023, higher than at
the peak of the pandemic.
"Having completed our recent infrastructure investment programme, the Group is
now delivering operating leverage. Our fulfilment network is becoming
increasingly optimised through a combination of robotics automation, AI and
the onboarding of new Ingenuity clients utilising existing capacity.
"The return to Group revenue growth in Q4 was especially pleasing, and this
momentum has continued into 2024."
Current trading and FY 2024 guidance
· As we enter FY 2024, overall Group revenue trends continue to
improve, with notable momentum in Beauty following the strategic changes made
during 2023. Whilst the Yen has weakened further in Q1 2024 impacting THG
Nutrition, the Group's start to the year provides us with confidence in
delivering in accordance with market consensus.
· Operating cashflow is expected to remain strong, supported by
profit growth and lower capex (c.£100m to £110m), which will drive further
free cash flow 6 (#_ftn6) progress.
Medium-term guidance unchanged
· The decisive actions taken as a business during 2022 and 2023 have
provided a solid foundation supporting further margin recovery to our
medium-term Group adjusted EBITDA margin target of c.9.0%.
FY 2023 segmental summary
£m THG THG Nutrition THG Ingenuity Other Central Inter-group elimination Continuing Discontinued categories FY 2023
Beauty Total Total
Revenue 1,171.7 657.9 154.1 - - - 1,983.7 61.7 2,045.4
Inter-segment revenue - - 519.9 - - (519.9) - - -
Total revenue 1,171.7 657.9 673.9 - - (519.9) 1,983.7 61.7 2,045.4
adj EBITDA 44.2 88.9 9.0 - (21.8) - 120.4 (6.3) 114.1
adj EBITDA % 3.8% 13.5% 1.3% - - 6.1% -10.3% 5.6%
FY 2022 segmental summary
£m THG THG Nutrition THG Ingenuity Other Central Inter-group elimination Continuing Discontinued categories FY 2022
Beauty Total Total
Revenue 1,226.0 662.7 159.6 - - - 2,048.3 191.0 2,239.2
Inter-segment revenue - - 597.4 - - (597.4) - - -
Total revenue 1,226.0 662.7 757.0 - - (597.4) 2,048.3 191.0 2,239.2
adj EBITDA 33.6 51.6 19.1 - (23.2) - 81.2 (17.1) 64.1
adj EBITDA % 2.7% 7.8% 2.5% - - 4.0% -8.9% 2.9%
FY 2023 financial highlights
· Total Group revenue declined 8.4% YoY primarily driven by the
positive action to discontinue loss making categories. Group continuing
revenue of £1,983.7m declined 2.8% as the Group prioritised profitable sales
and territories reflected in the higher quality EBITDA.
· UK was our key growth market, although international sales remain a
significant portion of Group sales at 54.2% (2022: 57.1%), and represent a
material growth opportunity supported by our global fulfilment network.
· Adjusted gross margin expanded to 42.8% (FY 2022: 41.3%), despite
high levels of inflation and currency headwinds.
· Improvements in distribution costs were driven primarily by the
Group's use of automation, which will continue to annualise in FY 2024.
Adjusted distribution costs substantially reduced year-on-year to 13.2% of
revenue (FY 2022: 15.8%).
· Increased administrative costs primarily reflect marketing cost
inflation. Greater app participation has partially mitigated this and we
expect this ratio to continue to improve.
· Continuing adjusted EBITDA improved substantially to £120.4m (FY
2022: £81.2m), with a margin of 6.1% (FY 2022: 4.0%). The cost base of the
business is well-positioned for further operational leverage.
· On a reported basis, adjusted EBITDA increased to £114.1m (2022:
£64.1m), with a margin of 5.6% (2022: 2.9%).
· Group operating loss has also seen a substantial improvement to
£185.4m (2022: £495.6m), primarily due to the one-off non-cash impairment
charge of £275.4m in 2022 that did not reoccur in 2023.
· Free cash flow breakeven was achieved, reflecting improved
profitability, well-controlled working capital driven by reduced stock cover
and lower cash adjusting items.
· With the support of our banking partners, we extended our
Revolving Credit Facility until May 2026.
· Liquidity position remains exceptionally strong with c.£600m of
cash and available facilities at year end.
Business operational and strategic overview
THG Beauty
· The leading pureplay in online prestige beauty, one of the
fastest growing categories in retail. A key partner for over 1,300 beauty
brands through its retail sites including Lookfantastic, Cult Beauty and
Dermstore, c.60% of sales are from the high-repeat skincare and haircare
categories.
· THG Beauty generated revenue of £1.2bn in FY 2023, comprising
online retail (c.80% of revenue), prestige own brand (c.10%) and manufacturing
(c.10%). Within the online retail channel, over 50% of revenue is generated in
the UK, with c. 20% in the US.
· Active customers have more than doubled since 2019 to 8.5m.
Revenue from returning customers has increased to c.85% of online D2C revenue.
· Brand awareness continues to build, with 3.3m new app downloads in
2023 (+32% YOY) and a social media following of 9.5m. In the UK, app
participation grew +4.9% YoY to 20.7%, with this expected to continue to grow
across all geographies. App customers notably exhibit preferable behaviour,
namely AOV and order frequency.
· In December, we strengthened our proposition with the acquisition
of prestige skincare brand, Biossance. We will use our expertise and
capabilities to leverage the brand's strong awareness and presence in offline
beauty retailers to further drive growth.
· Through targeted curation, building out our higher margin retail media
proposition and growing our beauty community, we firmly remain as the industry
partner of choice.
THG Nutrition
· Premium sports nutrition brand with category leadership in both
online (c.90% of revenue) and offline spaces across key markets such as UK,
Europe and Asia. Its proven localisation model allows for rapid scaling
internationally, with c.70% of online revenue overseas.
· D2C brand Myprotein is the world's largest online sports
nutrition brand, now spanning performance and wellness. The market is
underpinned by prominent tailwinds as health and wellness becomes an
increasingly integral part of consumer lifestyles, with ecommerce becoming the
winning channel due to breadth of range, convenience and advice.
· Vertically integrated manufacturing capabilities power
innovation, new product development and speed to market. Local manufacturing
will expand from UK, Europe and US into India and Japan in the second half of
2024, eliminating in part the future risk from FX volatility.
· Carefully curated licensing partnerships have unlocked incremental
value through brand awareness, reaffirming Myprotein as one of the leading
authorities in the market, at the forefront of innovation as trends and
customer needs evolve.
· There remains a significant opportunity to build out the licensed
product base and scale total brand sales through collaborations with major
grocers and food and beverage brands. In the UK, we have delivered further
retail penetration across over 2,500 stores, and you can now find Myprotein
products on shelves in every major UK grocer.
· It is this expertise in entering new channels that has driven the
brand to becoming the fastest growing sports nutrition brand in the UK retail
market, further demonstrating our ability to scale, innovate and diversify -
and ultimately tap into new audiences.
THG Ingenuity
· Comprising leading digital marketing, technology and fulfilment
capabilities, Ingenuity utilises its experience in building category-leading
brands to offer global ecommerce solutions for brand owners and retailers.
· The critical components of successful, profitable ecommerce
include attracting new customers and driving traffic, a frictionless on-site
experience and speed of delivery. Bringing together multiple suppliers in
numerous territories is costly and complex. Our position as a brand owner
offers a rare advantage as our infrastructure has been built through a
customer-first lens.
· Through repositioning our focus towards clients seeking multi-service,
longer-term solutions, monthly recurring revenue is building, underpinning our
future growth.
· Since IPO we have built and monetised a fulfilment and courier
management proposition to rival established players. Following investment in a
best-in-class, automated distribution network, we are using our customer
advantage to support brands and retailers to cost effectively acquire and
retain customers with a market-leading delivery service.
· A selection of new clients and expanded partnerships announced
during the year included: Holland & Barrett (UK ecommerce fulfilment and
courier management services), Disney (media content for Shop Disney), L'Oreal
(US D2C for prestige beauty brands) and Coca-Cola (UK D2C and fulfilment).
Financial reporting calendar
· The Group intends to issue a Q1 2024 trading update by the end of
April.
Analyst and investor conference call
THG will today host a conference call and webcast for analysts and 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/660be0e32eae5d4dcf2e63e5
(https://stream.brrmedia.co.uk/broadcast/660be0e32eae5d4dcf2e63e5)
To ask questions, you must dial in via conference line using the below
details:
· UK dial in: +44 (0) 330 551 0200
· Password: THG Results
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/Russ Lynch 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 PLC operates 3 distinct businesses in Beauty, Nutrition and Ingenuity,
each scaled from the UK to hold global leading positions in their respective
sectors.
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.
Chief Executive Officer's Statement
2023 was a year of material operational progress and execution for THG, as we
continued to grow our category-leading, global brands through digital
transformation, innovation and impactful partnerships. It was certainly not
without its headwinds, but the Group responded proactively, and emerged
stronger.
Following the challenging global environment in 2022, we repositioned our
three businesses to focus our resources onto margin recovery and a return to
sustainable revenue growth. Overall, the performance was highly encouraging,
and although we have more work to do in 2024, I am confident we have the right
people, capabilities and expertise to make further progress.
· We achieved a Group record EBITDA performance after cash adjusting
items and anticipate further progress towards our medium-term targets during
2024, in line with historical performance.
· Our Beauty business displayed incredible resilience, despite the first
half being affected by short-term global de-stocking affecting manufacturing
volumes. Our focus on orders that delivered immediate profitability over ones
with a longer payback, meant we fulfilled more orders closer to our global
distribution hubs, driving further economies of scale.
· THG Nutrition achieved an impressive performance, and with
inflationary pressures easing, posted substantially higher margin growth
year-on-year. The early results from the major Myprotein rebrand are also
encouraging as we've taken steps to further enhance the premium nature of the
world's No.1 online sports nutrition brand.
· These actions should strengthen partnership opportunities as we
expand our licensing and offline strategy. The new branding also lays the
groundwork for selective category expansion, supporting our plan of building
Myprotein into a truly global lifestyle brand.
· Across both our consumer businesses, our customer health remains
robust with repeat purchase rates
of above 80%.
· Ingenuity's pivot to larger, multi-service 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.
· In line with our guidance, substantial growth in Group
profitability, along with improved inventory efficiency, led to the Group
delivering £174m of operating cashflow 7 (#_ftn7) in 2023.
· This strong operating cash performance allowed the Group to
continue to make £128m of Capex investments in the year, principally into the
UK, while still delivering overall free cash flow breakeven for the year.
· Following the Group's solid adjusted EBITDA and operating cash
performance, closing net leverage for FY 2023 was c.1.9x, compared to 2.8x for
FY 2022. Continued positive momentum into FY 2024 provides confidence of
further degearing.
· With the support of our long-term banking partners, we extended
our revolving credit facility until May 2026. Whilst we haven't used this
facility since IPO, it affords us continued significant financial flexibility
during uncertain geo-political times.
· As noted in the Chair's Statement, we were delighted to welcome two
further independent NEDs, Sue Farr and Helen Jones, as we expanded our
independent Board, while thanking Iain McDonald for the significant
contribution he made to the Company over many years.
· We celebrated our meritocratic culture in our Annual Awards,
awarding £150,000 equity to Newcomer of the Year, Employee of the Year, and
Outstanding Contribution, in addition to supporting many well-deserved
promotions across the Group.
· Following the Group's strong performance, the Executive Directors
would have been eligible for a bonus opportunity totalling in excess of £1m
in 2023. It is likely that a material proportion of this would have been
payable to me, however, in line with each financial year since IPO, the
Executive Directors unanimously decided to waive their entitlement to a 2023
bonus. In recognition of this, the Group intends to make a charitable donation
of £500,000 targeting homelessness in Manchester. I also waived my £750k
salary in return for the Group making a charitable donation to The Moulding
Foundation.
Business operational performance
As an authority in Beauty, we continue to attract, retain and develop our
customer relationships, with our proposition refined and elevated by new
technology and a best-in-class delivery service that enhances the customer
experience.
Myprotein has evolved beyond sports and performance to broader health and
wellness categories, expanding its addressable markets and catering for
increased consumption occasions. Pivotal to this strategy has been creating
ranges with prominent partners in distribution, grocery and chilled goods -
expanding the reach of the brand into offline channels and, in turn, building
awareness and engagement. Commodity challenges abated during the year and we
were able to achieve significant profitability while undergoing an ambitious
brand repositioning.
Our proprietary technology and operations platform, THG Ingenuity, is a
multi-year development story, with our fulfilment and operational solutions
business now winning clients in its own right, as the business accelerates the
returns on investment in distribution capacity.
Finally we actively managed our portfolio through the exit of small legacy
brands within Beauty and Nutrition, and through the sale of OnDemand and
ProBikeKit delivering a cash return.
Financial performance
Much like the previous year, 2023 presented challenges for all businesses in
the markets we operate in. Nevertheless, we are very pleased with how the
Group has responded, making substantial progress towards the targets we
communicated at the outset of the year.
We achieved revenue of £2bn, reflecting our efforts in executing our
strategic review, as we repositioned several loss-making categories across the
Group. This created strong momentum heading into 2024, and we expect to return
to progressive revenue growth throughout the year.
We repositioned Beauty to materially improve profitability, with the
businesses finishing the year in constant currency growth. In Nutrition, we
set out to recapture the significant investment we made in margin during 2022,
subsequently achieving an EBITDA margin in excess of our medium-term guidance.
Ingenuity continued to execute its strategic pivot towards higher value
clients, with new client wins and expanded partnerships accelerating monthly
recurring revenue throughout the year.
We made notable margin improvements, in part due to the Group's excellent
operational performance. Distribution costs were lower year-on-year, through
an optimised fulfilment network consisting of increased automation and an
improved delivery offering. We will continue to increase automation in our
major hubs to further offset lingering inflation and move towards our goal of
around half of customer orders being touched by automation.
Operational leverage also supported improvements in profitability, achieving
continuing adjusted EBITDA of £120m - ahead of our previous guidance.
Our business has nearly doubled in revenue since IPO, with our growth capex
investment phase already paying back. Investment in future years will remain
at comparatively modest levels, though still extending and enhancing our
proposition and competitive advantage while the market growth opportunity
remains significant.
Following our strong operating cash performance in the second half of the year
and our recently extended Revolving Credit Facility, we have a healthy
liquidity position with c. £600m in cash and undrawn facilities providing
substantial liquidity and flexibility, to capitalise on growth opportunities.
People and purpose
2023 was a year of transformation for our people as we prioritised attracting
top talent, as well as retaining and nurturing our existing teams. From
introducing wraparound support for working families, to increasing
compassionate leave, we made significant investment in our people, their
wellbeing, and their long-term development at THG.
We launched our social impact strategy, THG in the Community; our plan for
creating positive social change and making an impact in our local communities.
The strategy is underpinned by three pillars - championing inclusion,
disrupting inequality, and creating opportunities - and revolves around three
key initiatives, all of which have been introduced to give our people an
opportunity to get involved and give back.
All businesses are accountable for maintaining a focus on closing the
emissions gap. THG is rising to this challenge by committing a greater number
of resources to its sustainability agenda, ensuring compliance with the
ever-increasing legislative demands and making progress on our 2030
Sustainability Strategy.
Outlook
We expect long-term channel shift across our consumer markets to continue,
supported by a track-record of consistently taking market share, and a global,
expanding, high-repeat customer base.
We remain confident of a return to 9% adjusted EBITDA margins in the medium
term, and progression into 2024 through:
· a return to revenue growth across the Group;
· operating leverage improvements across the fixed infrastructure,
including automation; and
· further free cashflow progress.
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.
Chief Financial Officer Review
We delivered substantial progress in our key focus areas in 2023 whilst
responding well to challenging conditions across the globe, notably cash
generation, profitability, with a significant reduction in distribution costs.
In 2023, we delivered free cash flow breakeven alongside a 78.0% improvement
in Adjusted EBITDA to £114.1m (2022: £64.1m) as we rebuild margins to their
historic levels. Following completion of the strategic review, we report a
higher quality result, with significantly lower adjusting items year-on-year
(£50.6m vs 2022: £345.8m) and an improvement in statutory operating loss of
+62.6% to £185.4m (2022: £495.6m).
CONSOLIDATED INCOME STATEMENT
ALTERNATIVE PERFORMANCE MEASURES 8 (#_ftn8)
The following table provides adjusted measures. The Group believes that these
alternative performance measures, which are not considered to be a substitute
for IFRS measures, provide stakeholders with additional helpful information on
the performance of the business. These alternative performance measures are
consistent with how the business performance is monitored and reported through
internal management reporting to the Board.
Year ended 31 December 2023 Year ended 31 December 2022 Movement
£'000 £'000
Adjusted gross profit 876,096 925,488
Gross margin % (adjusted) 42.8% 41.3% +150bps
Adjusted distribution costs (270,694) (353,412)
As a % of revenue 13.2% 15.8% +260bps
Adjusted administrative costs (491,296) (507,962)
As a % of revenue 24.0% 22.7% -130bps
Adjusted EBITDA 114,106 64,114
Adjusted EBITDA % 5.6% 2.9% +270bps
EBITDA losses from discontinued categories 6,343 17,061
Adjusted EBITDA (continuing) 120,449 81,175
Adjusted EBITDA (continuing) % 6.1% 4.0% +210bps
STATUTORY RESULTS
Year ended 31 December 2023 Year ended 31 December 2022
Before Adjusted Items Adjusted Items Total Before Adjusted Items Adjusted Items Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 2,045,378 - 2,045,378 2,239,229 - 2,239,229
Cost of sales (1,189,837) (15,251) (1,205,088) (1,333,737) (25,517) (1,359,254)
Gross profit 855,541 (15,251) 840,290 905,492 (25,517) 879,975
Distribution costs (293,910) (5,061) (298,971) (380,652) (22,117) (402,769)
Administrative costs (678,733) (30,315) (709,048) (674,626) (298,145) (972,771)
Other operating expense (17,664) - (17,664) - - -
Operating loss (134,766) (50,627) (185,393) (149,786) (345,779) (495,565)
Revenue
During 2023, two key factors impacted our headline sales performance, firstly
the decision to exit several categories as part of the strategic review and
secondly, the conscious prioritisation of higher margin sales.
Following the completion of the strategic review, we successfully executed our
plan to exit several loss-making categories including the sale of THG
OnDemand. With continuing sales declining by only 3.2% in the current
macroeconomic environment and with margin pivot, this is particularly pleasing
when considered against the backdrop of the total Group reported revenue which
has decreased by 8.7% to £2,045.4m (2022: £2,239.2m).
Importantly, we continue to benefit from strong underlying customer metrics
and behaviours (Active customers, total orders and average order values),
positioning the group well for the future.
The revenue decrease is driven by:
- the Group exiting non-profitable categories. Discontinued categories
has resulted in a reduction in revenue of £129.3m;
- THG Beauty and THG Nutrition have consciously prioritised
higher-margin sales and reduced order volumes that do not deliver target
profitability leading to a decline in revenues, however we have benefitted
from a stronger margin performance. This has focussed on reducing sales in
territories furthest away from local distribution hubs, where delivery costs
are higher;
- a one-time destocking across the beauty sector led to a decline in
revenue of THG Beauty manufacturing (reported within THG Beauty) within the
first half of the year which has faded in the second half and is not expected
to recur in 2024;
- THG Ingenuity continues with its pre-announced strategic
re-positioning that commenced in Q3 2022, focusing on higher value and higher
margin clients which provide improved quality recurring revenue over the mid
to long term. The short-term impact has been a reduction in non-recurring
revenue as the re-positioning is executed; and
- a continuing uncertainty in the macroeconomic environment
throughout the year.
Whilst the above has impacted revenue, the Group is pleased to report an
improvement in both gross profit margin and absolute Adjusted EBITDA which,
together with cash generation, have been a key management focus.
Detailed analysis is included within the segmental section later in this
report.
Gross profit
Adjusted gross profit was £876.1m (2022: £925.5m) equating to an adjusted
gross profit margin of 42.8% (2022: 41.3%), an improvement of 150bps compared
to 2022.
Gross profit on a statutory basis totalled £840.3m (2022: £880.0m) also
delivering an increased margin of 41.1% (2022: 39.3%) and 180bps stronger than
2022.
The cost environment in 2023 has continued to be challenging with high levels
of inflation combined with the currency headwinds, which continued to develop
as we progressed through the year. More specifically the 13% decline in the
Japanese Yen vs GBP impacted revenue and margin in the Japanese market within
THG Nutrition. Overall, despite the decline in Japanese Yen, the Group saw a
substantially better margin within THG Nutrition, reflecting the unwind of the
price investment made in 2022 for customers and movements in the whey
commodity price, which closed the year at below normalised levels. These
commodity prices are expected to rise to normalised levels during 2024.
Japan is THG Nutrition's' second largest market and the devaluation in the Yen
(from 135 Yen/£ at IPO in September 2020, to c. 180 Yen/£ at the close of
2023) has had a material impact on margins. Had the exchange rate been
comparable in 2023 to that at IPO, THG would have made c. £20m more profit in
the year. The Group also has continued to progress plans for in territory
manufacturing in Japan to provide a longer-term hedge.
In THG Beauty, online retail (principally Look Fantastic, Cult Beauty and
Dermstore) saw gross profit margin expansion as a result of the
de-prioritisation of lower margin sales and subtle changes to promotional and
geographic strategy. Manufacturing sales were also impacted by well documented
de-stocking in the first half of the year, which also adversely impacted gross
profit margins.
Pleasingly, the result of the factors above, alongside proactive
implementation of cost saving initiatives, has led to the Group delivering a
much improved margin year-on-year whilst exiting the year in constant currency
sales growth.
Operating expenses
Distribution costs on a statutory basis further reduced as a percentage of
sales by 340bps compared to 2022, culminating in a cost of £299.0m (2022:
£402.8m), which is 14.6% (2022: 18.0%) of revenue, with total statutory costs
improving by 25.8%. This is testimony to the benefits of the fulfilment
automation deployed and is despite the adverse impact of national minimum wage
increases and labour inflation in general.
Statutory distribution costs include one off adjusted items of £5.1m, which
has substantially reduced from the £22.1m reported in 2022. As expected, in
line with the reopening of air channels (specifically in Asia) and the impact
of the pandemic lessening, the costs relating to incremental delivery fees in
respect of Covid-19 have fallen away in 2023, totalling just £2.5m compared
to £18.5m in 2022.
Adjusted distribution costs of £270.7m (2022: £353.4m) were 13.2% (2022:
15.8%) of revenue. This 260bps underlying improvement was driven by the
Group's continued focus on network optimisation and the expanded use of
warehouse automation, which has 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 during 2023. We continue to review the
cost base and plan to continue with the roll out of further automation (all be
it lighter touch) during 2024.
Administrative costs on a statutory basis totalled £709.0m (2022: £972.8m),
an improvement year-on-year following the one-off non-cash impairment charge
of £275.4m incurred in 2022.
Adjusted administrative costs as a percentage of revenue totalled 24.0% of
revenue (2022: 22.7%). Within administrative costs, the main increases have
been seen within marketing due to increased spend in certain areas, primarily
brand investment and general media 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 £17.7m (2022: £nil) relates to the loss on
disposal of three non-core freehold assets, as planned and completed in the
first half of the year. These three disposals of assets, no longer required by
the Group, generated cash proceeds of £55.5m.
Adjusted EBITDA and Adjusted EBITDA (continuing)
Reconciliation from Operating loss to Adjusted EBITDA Year ended 31 December 2023 Year ended 31 December 2022
£'000 £'000
Operating loss (185,393) (495,565)
Adjustments for:
Amortisation 68,829 58,581
Amortisation of acquired intangibles 50,543 50,394
Depreciation 95,113 94,191
Adjusted items - cash 15,824 40,090
Adjusted items - non-cash 34,803 305,689
Other operating expense - non-cash loss on disposal freehold assets 17,664 -
Share-based payments 16,723 10,734
Adjusted EBITDA 114,106 64,114
Adjusted EBITDA % 5.6% 2.9%
EBITDA loss from discontinued categories 6,343 17,061
Adjusted EBITDA (continuing) 120,449 81,175
Adjusted EBITDA (continuing) % 6.1% 4.0%
Adjusted EBITDA saw a strong improvement to £114.1m from £64.1m in 2022.
This represents a margin of 5.6% (2022: 2.9%), an improvement of 270bps
year-on-year, delivered through the Group's profit improvement 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 stripping out the EBITDA loss from discontinued categories, Adjusted
EBITDA (continuing) totalled £120.4m (2022: £81.2m) with a margin of 6.1%
(2022: 4.0%), an improvement of 210bps.
Depreciation and amortisation
Total depreciation and amortisation costs were £95.1m and £119.4m
respectively (2022: £94.2m and £109.0m). Included within amortisation is
£50.5m relating to acquired intangibles (2022: £50.4m). This is non-cash and
is principally the depreciation of historic acquisition consideration through
the Income Statement.
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, with more projects moving
from work-in-progress (WIP) 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 £134.8m (2022: £149.8m). 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 combined with a return to sales growth are expected to reduce
this loss position in the medium-term.
The Group incurred a much decreased operating loss in the year of £185.4m
(2022: £495.6m). The decrease is largely as a result of the one-off non-cash
impairment charge of £275.4m in 2022 that has not recurred in 2023.
The loss in 2023 includes one-off charges incurred during the year, being the
loss on disposal of loss-making discontinued categories totalling £16.4m
(2022: £29.3m) and share-based payment charges of £16.7m (2022: £10.7m). In
addition, the other operating expense of £17.7m (2022: £nil) relates to the
non-cash loss on disposal following the planned sale of non-core freehold
assets which will not recur in future years, but which generated c.£55.5m of
cash for the Group.
Finance costs net of finance income
Finance costs net of finance income have increased to £66.6m (2022: £54.2m).
This is principally the result of the additional £156.0m facility obtained in
September 2022 with the interest annualising in 2023.
Loss before tax and tax rate
Reported loss before tax was £252.0m (2022: £549.7m). The effective tax rate
is 1.4% (2022: 1.8%), based on a total tax credit of £3.6m (2022: tax credit
£9.8m). 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
(-16.2%), and the impact of expenses not deductible (-5.2%).
At the balance sheet date the total net deferred tax liability is £55.7m
(2022: £76.6m). The deferred tax liability in respect of intangible assets
recognised on consolidation was £135.3m (2022: £150.8). The deferred tax
asset in respect of tax losses recognised was £29.8m (2022: £54.8m). There
were £96.2m of unrecognised deferred tax assets in respect of tax losses at
the balance sheet date (2022: £57.8m). This non-recognition has an impact on
the income statement tax credit, 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 (£0.19) per share (2022: £(0.44) per share). Note that in
the prior year, if the non-cash impairment charge was removed, the loss per
share for 2022 would have been (£0.21) per share.
Cashflow
2023 2022
£'000 £'000
Adjusted EBITDA 114,106 64,114
Working capital movements 48,152 23,528
Tax paid (5,411) (4,857)
Net cash generated in operating activities before adjusted items 156,847 82,785
Adjusted items (15,040) (45,071)
Net cash generated in operating activities 141,807 37,714
Purchase of property, plant and equipment (46,289) (94,854)
Purchase of intangible assets (79,369) (81,564)
Proceeds from sale of non-core freehold assets 55,450 -
Other (primarily interest and lease repayments) (83,961) (74,649)
Acquisition of trade and assets and subsidiaries net of cash acquired (20,259) (5,691)
(Repayments)/proceeds of/from bank borrowings (25,000) 156,000
Net decrease in cash and cash equivalents (57,621) (63,044)
Cash and cash equivalents at the beginning of the year 473,783 536,827
Cash and cash equivalents at the end of the year 416,162 473,783
Free cash flow 9 (#_ftn9) (1,135) (213,353)
The total cash outflow for the year was £57.6m (2022: £63.0m) driven by a
cash inflow from operating activities of £141.8m (2022: £37.7m) due to
increased Adjusted EBITDA, lower adjusting items, a well-controlled working
capital cycle and the proceeds from the sale of non-core freehold assets. The
improvements in working capital were seen through general tighter stock
controls, reducing stock holding with no impact on availability as the stock
portfolio normalises following a period of investment which supported the
global warehousing rollout in previous periods.
Total cash adjusting items before tax have declined significantly to £15.8m
from £40.1m in 2022. The cash reduction has been driven by lower
transportation and delivery cash costs in relation to Covid-19 from £18.5m to
£2.5m with air channels reopening in Asia. Also, acquisition costs in respect
of restructuring and integration has decreased from £8.0m to less than £1m.
Through conscious, controlled, capital expenditure, there has been a reduction
in the cash spend on the purchase of property, plant and equipment in 2023 to
£46.3m compared to £94.9m in 2022. The deployment of our distribution
network is now largely complete and continues to deliver efficiencies and
benefits, reflected in lower distribution costs. Continued investment within
intangible assets, mainly the Ingenuity platform continues at a similar rate
to 2022 totalling £79.4m (2022: £81.6m). In 2023, £55.5m (2022: £nil) cash
was received in relation to the sale of non-core freehold assets.
The combination of these cashflow improvements, has culminated in the group's
ability to report free cash flow breakeven for 2023 (2022: outflow of
£213.4m). This improvement of over £200m has come from strong operating
cashflow improvements, and normalisation of capex expenditure.
During the year, some small, well considered acquisitions were undertaken to
complement the THG Beauty and THG Ingenuity strategies. This generated a cash
outflow of £20.3m (£5.7m) in 2023, primarily related to the acquisition of
Biossance in December 2023 and City AM in July 2023.
In respect of loans and borrowings, a scheduled capital repayment of £25.0m
(2022: £nil) was made in relation to the Group's bank borrowings. In 2022,
cash inflows included £156.0m in respect of the new senior secured facility
that was drawn in October 2022.
The Group ended the period with cash and cash equivalents of £416.2m (2022:
£473.8m).
Segmental Summary
Overview
2023 £m THG THG Nutrition THG Ingenuity Central Inter-group elimination Continuing Discontinued categories FY 2023
Beauty Total(( 10 (#_ftn10) )) Total
External revenue 1,171.7 657.9 154.1 - - 1,983.7 61.7 2,045.4
Inter-segment revenue - - 519.9 - (519.9) - - -
Total revenue 1,171.7 657.9 673.9 - (519.9) 1,983.7 61.7 2,045.4
Adjusted EBITDA 44.2 88.9 9.0 (21.8) - 120.4 (6.3) 114.1
Adjusted EBITDA margin 3.8% 13.5% 1.3% - - 6.1% -10.3% 5.6%
2022 £m THG THG Nutrition THG Ingenuity Central Inter-group elimination Continuing Discontinued categories FY 2022
Beauty Total (Restated)
Total
External revenue 1,226.0 662.7 159.6 - - 2,048.3 191.0 2,239.2
Inter-segment revenue - - 597.4 - (597.4) - - -
Total revenue 1,226.0 662.7 757.0 - (597.4) 2,048.3 191.0 2,239.2
Adjusted EBITDA pre SaaS costs 33.6 51.6 29.3 (23.2) - 91.4 (17.1) 74.3
Adjusted EBITDA 33.6 51.6 19.1 (23.2) - 81.2 (17.1) 64.1
Adjusted EBITDA margin 2.7% 7.8% 2.5% - - 4.0% -8.9% 2.9%
THG Beauty 11 (#_ftn11)
£m 2023 2022 Change %
(Restated)
Revenue 1,207.5 1,285.9 -6.1%
Revenue (continuing) 1,171.7 1,226.0 -4.4%
Adjusted EBITDA (continuing) 44.2 33.6 31.7%
Adjusted EBITDA Margin % 3.8% 2.7% +110bps
THG Beauty results mainly reflect the change in strategy to focus on higher
margin sales and reducing order volumes that do not deliver target
profitability. THG Beauty sales declined 6.1% to £1,207.5m, THG Beauty
generated an increased Adjusted EBITDA (continuing) of £44.2m (2022: £33.6m)
an 110bps improvement on margin to 3.8% (2022: 2.7%). This improvement was
delivered by better quality sales improving gross margin, which more than
offset the adverse impact from the one time destocking event seen in THG
Beauty manufacturing in H1 2023. Following the completion of the strategic
review, some small legacy brands within THG Beauty were discontinued, which
will continue to improve the margin into 2024.
Challenges in THG Beauty manufacturing from industry-wide de-stocking reported
in H1 2023, faded in H2, with a return to more normalised order levels being
experienced into 2024.
Our prestige online retailing and THG owned-brands continued 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 aiding conversion, with a strong app
participation.
AOV's continue to increase totalling £64 per basket for 2023 (2022: £63),
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.
In late December 2023, THG Beauty completed the acquisition of Biossance. The
brand was successfully re-platformed onto Ingenuity technology in January
2024. This acquisition provides further opportunity for THG Beauty to embed
new strategic partnerships and benefit from the significant levels of
investment into the brand that were made under the previous ownership. Since
inception in 2015, Biossance has generated global revenues of c. $300m and is
currently stocked in over 1,600 stores globally including Sephora, Harrods,
Space NK, Douglas and Selfridges plus online through www.biossance.com,
Lookfantastic and Cult Beauty.
THG Nutrition
£m 2023 2022 Change %
Revenue 664.3 675.1 -1.6%
Revenue (continuing) 657.9 662.7 -0.7%
Adjusted EBITDA (continuing) 88.9 51.7 72.2%
Adjusted EBITDA Margin % 13.5% 7.8% +570bps
THG Nutrition sales marginally decreased by 1.6% to £664.3m (2022: £675.1m)
as we managed the business throughout the year with a focus on profit margins.
An Adjusted EBITDA of £88.9m (2022: £51.7m) was delivered. This 570bps
improvement on margin of 13.5% (2022: 7.8%) is a record THG Nutrition Adjusted
EBITDA performance, reaping the rewards from the prior year investment in
pricing strategy and, the effect of the decrease in whey commodity pricing.
The whey commodity prices saw substantial decreases in the year from
abnormally high levels in 2022, these commodity prices are expected to rise
initially then normalise during 2024.
Licensing arrangements continue to be a high-growth focus area of the business
during 2023 and beyond, with revenue from Myprotein products sold under
licensing arrangements scaling rapidly during the year. During 2023, targeted
offline Myprotein licensing deals were launched in our two largest markets: UK
(with major grocer, Iceland), and Japan (with leading distributor, Itochu).
Such arrangements provide future enhanced margin potential for the business.
After a 2-year process, local manufacturing will launch in both Japan and
India in 2024, improving delivery timelines, local product range development
and securing significant cost savings. Local manufacturing in Japan will also
largely eliminate future risk from Yen FX volatility and reverse the estimated
impact of prolonged Yen weakness on EBITDA (estimated c.£20m negative impact
in 2023 vs 2020).
2023 was a significant year in the evolution of the Myprotein brand, with a
global rebrand launched in the second half of the year. The rebrand represents
the latest step we've made in developing the brand and making it accessible to
an increasingly broad audience since we acquired the brand in 2011.
AOV's marginally decreased to £49 (2022: £50).
Adjusted EBITDA margin is marginally above the medium-term guidance level
previously communicated. Reflecting the recouping of investment consumer price
protection in 2022.
THG Ingenuity
£m 2023 2022 Change %
External revenue 154.1 159.6 -3.4%
Internal revenue 519.9 597.4 -13.0%
Total revenue 673.9 757.0 -11.0%
Adjusted EBITDA 9.0 19.1 -52.7%
Adjusted EBITDA Margin % 1.3% 2.5% -120bps
THG Ingenuity revenue from external customers decreased by 3.4% to £154.1m
(2022: £159.6m). 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 multi-service 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 £9.0m
with a margin of 1.3% (2022: £19.1m with a margin of 2.5%), being a 120bps
reduction. There continued to be a strategic exit of smaller accounts and
onboarding of multi-service enterprise clients throughout 2023. As revenue
scales and the revenue mix evolves towards the technology product offering we
anticipate margins will increase towards the Group's five-year aspirational
target of 5%.
Cost-saving initiatives continue to remain on the agenda with a continued
focus on automation rollout to implement further savings across the cost base
into 2024 without impacting service delivery.
Internal revenue of £519.9m (2022: £597.4m) 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. As these businesses return to growth, inter-group revenue will also
benefit.
Central costs
£m 2023 2022 Change %
EBITDA loss from central costs (21.8) (23.2) +6.1%
Central costs relate primarily to the PLC Board remuneration, professional
services fees, group finance, M&A, and governance costs that are not
recharged to the businesses as they principally relate to the operations of
the PLC holding company. The costs reduced in comparison to 2022 as the Group
continued to focus on cost saving initiatives, more than offsetting increased
investment in governance through new Board appointments and record high levels
of macro-inflation in the economy.
Discontinued categories
2023 2022 Change %
£m
Revenue discontinued 61.7 191.0 -67.7%
Adjusted EBITDA from discontinued categories (6.3) (17.1) +62.8%
Adjusted EBITDA Margin % -10.3% -8.9% -140bps
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 THG OnDemand. In July 2023, the trade and
assets of THG OnDemand were sold to a Newco led by the OnDemand management
team. The Newco continues 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. £4m.
During H2, the Group completed its strategic review of non-core categories
resulting in the discontinuation of small legacy brands within THG Beauty and
THG Nutrition.
The discontinued categories contributed £61.7m (2022: £191.0m) of revenue
and an adjusted EBITDA loss of £6.3m (2022: loss of £17.1m). Included within
adjusted items are the losses on disposal of these categories including any
write down of assets to their disposal value totalling £16.4m (2022:
£29.3m).
We note the exits don't meet the criteria under IFRS 5: Non-current assets
held for sale and 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 continuing revenue and Adjusted
EBITDA of the Group these have been presented separately.
The prior year discontinued categories have been restated to include
consistent categories disclosed in 2023 to provide a like-for-like comparison.
(See note 2 within the financial statements).
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 costs relate to the non-cash loss on disposal of discontinued and
loss making categories following the strategic review. Following the sale of
the trade and assets of THG OnDemand in July 2023, along with the completion
of the strategic review leading to the discontinuation of small legacy brands
within THG Beauty and THG Nutrition, all assets have been written down to
their recoverable amount expected on exit. This has led to inventory
provisions (within cost of sales) and impairment of other assets, primarily
property, plant and equipment (within administrative costs) being recognised.
2023 2022
£'000 £'000
Within Cost of sales
Non-cash loss on disposal of discontinued and loss making categories 10,465 25,517
Inventory provision following strategic review 4,786 -
15,251 25,517
Within Distribution costs
Transportation and delivery costs in relation to Covid-19 2,456 18,504
Commissioning - new facilities 2,605 3,613
5,061 22,117
Within Administrative costs
Non-cash loss on property portfolio restructure 18,369 -
Loss on property portfolio restructure 851 -
Non-cash loss on disposal of (or exit from) discontinued and loss making 5,969 3,763
categories
Other costs following the outcome of strategic review 1,515 6,942
Restructuring costs 2,708 6,803
Acquisitions - restructuring and integration 703 8,046
Other legal and professional costs 200 570
Donations - 362
Non- cash impairment of assets - 269,828
Non-cash impairment of non-core assets held for sale - 1,831
30,315 298,145
Within Finance costs
Non-cash - revaluation of SBM option - (601)
Total adjusted items before tax 50,627 345,178
Tax impact (2,835) (11,634)
Total adjusted items 47,792 333,544
Cash adjusting items before tax 12 (#_ftn12) 15,824 40,090
For full details on each category of adjusted item see note 4 to the financial
statements.
Balance sheet
Cash and cash equivalents and net cash before lease liabilities
2023 2022
£'000 £'000
Loans and other borrowings (650,037) (679,189)
Lease liabilities (344,977) (334,376)
Cash and cash equivalents 416,162 473,783
Sub-total (578,852) (539,782)
Adjustments:
Retranslate debt balance at swap rate where hedged by foreign exchange 15,653 24,782
derivatives
Net debt (563,199) (515,000)
Net debt before lease liabilities (218,222) (180,624)
The Group's balance sheet remains robust closing the period with cash balances
of £416.2m (2022 at £473.8m). 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. Post year end, the Group extended its Revolving Credit Facility by
17 months to May 2026. There will be no changes to the financial covenants or
interest margin beyond the existing maturity date. From December 2024, the
facility will be £150 million. The extension affords the Group continued
significant financial flexibility during uncertain geo-political times.
Net debt before lease liabilities and adjusted for the impact of hedging was
£218.2m (2022: £180.6m) driven by movements in the loans and other
borrowings balance and cash balance.
Net debt was £563.2m (2022: £515.0m). The increase in net debt year-on-year
includes an increase in lease liabilities, following the restructure of the
property portfolio in the year, with non-core assets being sold via a sale and
leaseback arrangement and subsequently sublet, generating positive cash flow
for the Group.
Non-current assets
Property, plant and equipment totalled £273.2m (2022: £360.0m). Intangible
assets totalled £1,207.4m (2022: £1,275.8m). The movement in the period was
driven by continued investment in the THG Ingenuity platform and 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.
Consolidated statement of comprehensive income
2023 2022
Total Total
Note £'000 £'000
Revenue 2 2,045,378 2,239,229
Cost of sales (1,205,088) (1,359,254)
Gross profit 840,290 879,975
Distribution costs (298,971) (402,769)
Administrative costs (709,048) (972,771)
Other operating expense (17,664) -
Operating loss 3 (185,393) (495,565)
Finance income 6 13,329 2,359
Finance costs 6 (79,900) (56,522)
Loss before taxation (251,964) (549,728)
Income tax credit 3,592 9,771
Loss for the financial year (248,372) (539,957)
Other comprehensive (expense)/income
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translating foreign operations, net of tax (46,255) 62,953
Net (loss) / gain on cash flow hedges (5,220) 9,753
Total comprehensive expense for the financial year (299,847) (467,251)
Basic and diluted loss per share (£) (0.19) (0.44)
Adjusted EBITDA
2023 2022
Note £'000 £'000
Operating loss (185,393) (495,565)
Adjustments for:
Amortisation 7 68,829 58,581
Amortisation of acquired intangibles 7 50,543 50,394
Depreciation 8, 14 95,113 94,191
Adjusted items - cash 4 15,824 40,090
Adjusted items - non-cash 4 34,803 305,689
Other operating expense - non-cash loss on disposal freehold assets 17,664 -
Share-based payments 5 16,723 10,734
Adjusted EBITDA 13 (#_ftn13) 114,106 64,114
Consolidated statement of financial position
2023 2022
Note £'000 £'000
Non-current assets
Intangible assets 7 1,207,383 1,275,762
Property, plant and equipment 8 273,171 360,041
Right-of-use assets 14 303,635 294,309
Investments 1,400 1,400
Other financial assets 7,999 21,567
1,793,588 1,953,079
Current assets
Assets held for sale 8.2 - 21,397
Inventories 9 297,143 373,271
Trade and other receivables 10 271,782 264,949
Other financial assets 1,915 301
Current tax asset - 2,377
Cash and cash equivalents 11 416,162 473,783
987,002 1,136,078
Total assets 2,780,590 3,089,157
Equity
Ordinary shares 7,072 6,903
Share premium 2,024,824 2,024,452
Merger reserve 615 615
Capital redemption reserve 523 523
Hedging reserve (20,020) (6,221)
Cost of hedging reserve 25,283 16,704
FX reserve 15,604 61,859
Retained earnings (1,032,234) (803,096)
1,021,667 1,301,739
Non-current liabilities
Borrowings 13 621,011 648,197
Other financial liabilities - 4,189
Lease liabilities 14 301,440 290,381
Provisions 22,130 18,840
Deferred tax 55,698 76,598
1,000,279 1,038,205
Current liabilities
Contract liability 22,864 34,256
Trade and other payables 12 638,350 636,440
Borrowings 13 29,026 30,992
Current tax liability 1,266 -
Lease liabilities 14 43,537 43,995
Provisions 3,838 3,530
Other financial liabilities 19,763 -
758,644 749,213
Total liabilities 1,758,923 1,787,418
Total equity and liabilities 2,780,590 3,089,157
Consolidated statement of changes in equity
Ordinary shares Share premium Merger reserve Capital Redemption reserve FX Hedging reserve Cost of Hedging reserve Retained earnings Total equity
reserve
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'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 year - - - - - - - (539,957) (539,957)
Other comprehensive income:
Impact of foreign exchange - - - - 62,953 - - - 62,953
Movement on hedging instruments - - - - - 6,743 3,010 - 9,753
Total comprehensive (expense)/ income for the period - - - - 62,953 6,743 3,010 (539,957) (467,251)
Issue of ordinary share capital 219 2,141 - - - - - - 2,360
Share-based payments 5 - - - - - - - 10,734 10,734
Deferred tax effect in equity - - - - - - - 142 142
Balance at 31 December 2022 6,903 2,024,452 615 523 61,859 (6,221) 16,704 (803,096) 1,301,739
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 year - - - - - - - (248,372) (248,372)
Other comprehensive income:
Impact of foreign exchange - - - - (46,255) - - - (46,255)
Movement on hedging instruments - - - - - (13,799) 8,579 - (5,220)
Total comprehensive (expense)/ income for the period - - - - (46,255) (13,799) 8,579 (248,372) (299,847)
Issue of ordinary share capital 169 372 - - - - - - 541
Share-based payments 5 - - - - - - - 16,723 16,723
Deferred tax effect in equity - - - - - - - 2,511 2,511
Balance at 31 December 2023 7,072 2,024,824 615 523 15,604 (20,020) 25,283 (1,032,234) 1,021,667
Consolidated statement of cash flows
2023 2022
Note £'000 £'000
Cash flows from operating activities before adjusted cash flows
Cash generated from operations 162,258 87,642
Income tax paid (5,411) (4,857)
Net cash generated from operating activities before adjusted cash flows 156,847 82,785
Cash flows relating to adjusted items (15,040) (45,071)
Net cash generated from operating activities 141,807 37,714
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired (20,259) (5,691)
Proceeds from sale of non-core freehold assets 55,450 -
Purchase of property, plant and equipment (46,289) (94,854)
Purchase of intangible assets (79,369) (81,564)
Interest received 6 13,329 2,359
Net cash used in investing activities (77,138) (179,750)
Cash flows from financing activities
Proceeds from issuance of ordinary shares net of fees - (73)
Interest paid (47,803) (27,923)
(Repayment of) / proceeds from bank borrowings (25,000) 156,000
Repayment of lease liabilities 14 (49,487) (49,012)
Net cash flow from financing activities (122,290) 78,992
Net decrease in cash and cash equivalents (57,621) (63,044)
Cash and cash equivalents at the beginning of the year 473,783 536,827
Cash and cash equivalents at the end of the year 11 416,162 473,783
Notes to the 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, United
Kingdom, 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 financial period presented here is for the 12
months ending 31 December 2023, and a prior period comparative of the 12
months ending 31 December 2022.
b. Basis of preparation
The consolidated financial statements, have been prepared in accordance with
UK-adopted international accounting standards ("IFRS") and, as regards the
parent company financial statements, as applied in accordance with the
provisions of the Companies Act 2006. The financial statements have been
prepared on the historical cost basis, except for derivatives which are held
at fair value.
The financial information included in this preliminary statement of results
does not constitute statutory accounts within the meaning of section 435 of
the Companies Act (the "Act"). These Condensed Consolidated Financial
Statements of THG PLC and its subsidiaries apply the same accounting policies,
presentation and methods of calculation as those followed in the preparation
of the Group's consolidated financial statements for the year ended 31
December 2022, which were prepared in accordance with International Financial
Reporting Standards ('IFRS') as issued by the International Accounting
Standards Board and were also prepared in accordance with IFRS adopted by the
European Union ('EU'), the Companies Act 2006 and Article 4 of the EU IAS
Regulations.
The statutory accounts for the 12 months ending 31 December 2023 were approved
by the Board of Directors on 09 April 2024. The Auditors of the Group made a
report thereon under Chapter 3 or part 16 of the Act. This report was
unqualified and does not contain a statement under sections 498 (2) or (3) of
the Act.
The statutory accounts for the 12 months ending 31 December 2022 have been
delivered to the registrar of Companies, and the Independent Auditors of the
Group made a report thereon under Chapter 3 or part 16 of the Act. This report
was unqualified and does not contain a statement under sections 498 (2) or (3)
of the Act.
The financial statements are presented in pounds sterling, rounded to the
nearest hundred thousand unless otherwise stated. The Directors consider it
appropriate to adopt the going concern basis of accounting in preparing the
financial statements of the Group.
The accounting policies adopted by the Group in the current year are
consistent with those adopted during the year ended 31 December 2022.
There have been no new or amended accounting standards or interpretations
adopted during the year that have had a significant impact on the Group's
financial statements.
There are no standards, interpretations or amendments to IFRS that have been
issued but are not yet effective that are expected to have a material impact
on the Group's financial statements.
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.
For the year to 31 December 2022, the Group's activities were divided into the
following segments THG Beauty, THG Nutrition, THG Ingenuity, THG OnDemand
(disclosed under the discontinued categories segment), THG Luxury and THG
Experience. The THG Luxury and THG Experience segments were aggregated due to
being below the quantitative thresholds as set out in IFRS 8 and were reported
separately under Other Central costs.
During 2023, THG Luxury and THG Experience have been reported to the Chief
Operating Decision Maker (CODM) as part of the THG Beauty segment. On this
basis, the Directors have concluded that for 2023, the Group has four
operating segments. The prior year segmental analysis has been represented to
provide a like-for-like comparison.
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. THG
Ingenuity also includes media related services.
Discontinued categories During the year, certain loss-making categories and territories primarily
within THG OnDemand along with some additional small legacy brands within THG
Beauty and THG Nutrition have been approved for disposal, or exited. These
exits do not 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 directors, who makes key operating decisions
for the business. The CODM receives daily financial information at the
combined Group level, along with monthly information at a business level and
uses this information to allocate resources, make operating decisions and
monitor the performance of each of the businesses.
The measure of the Group's profit or loss 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 (1)
2023 THG Beauty THG Nutrition THG Ingenuity Central PLC Inter-group elimination £'000 Discontinued categories 2023
£'000 £'000 £'000 £'000 £'000 £'000 Total
£'000
External revenue 1,171,742 657,911 154,052 - - 1,983,705 61,673 2,045,378
Internal revenue - - 519,871 - (519,871) - - -
Total revenue 1,171,742 657,911 673,923 - (519,871) 1,983,705 61,673 2,045,378
Adjusted EBITDA 44,238 88,929 9,039 (21,757) - 120,449 (6,343) 114,106
Margin % 3.8% 13.5% 1.3% - - 6.1% -10.3% 5.6%
Depreciation (95,113)
Amortisation (119,372)
Share-based payments (16,723)
Adjusted items (50,627)
Other operating expense (17,664)
Operating loss (185,393)
Finance income 13,329
Finance costs (79,900)
Loss before taxation (251,964)
1. During 2022, and 2023 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.
An element of THG Ingenuity revenue is contract based and therefore is
recognised over time; all other revenue streams are recognised at a point in
time. Of the total revenues recognised for THG Ingenuity, £67.7m (2022:
£73.8m) is recognised over time.
Segment assets and liabilities are not disclosed because they are not
regularly reported or reviewed by the Board.
(Restated) (Restated) THG Ingenuity Central PLC Inter-group elimination Result before discontinued categories (Restated)
2022 THG Beauty THG Nutrition £'000 £'000 £'000 £'000 Discontinued categories 2022
£'000 £'000 £'000 Total
£'000
External revenue 1,225,977 662,737 159,541 - - 2,048,255 190,974 2,239,229
Internal revenue - - 597,420 - (597,420) - - -
Total revenue 1,225,977 662,737 756,961 - (597,420) 2,048,255 190,974 2,239,229
Adjusted EBITDA pre SaaS costs 33,585 51,647 29,304 (23,178) - 91,358 (17,061) 74,297
Adjusted EBITDA 33,585 51,647 19,121 (23,178) - 81,175 (17,061) 64,114
Margin % 2.7% 7.8% 2.5% - - 4.0% -8.9% 2.9%
Depreciation (94,191)
Amortisation (108,975)
Share-based payments (10,734)
Adjusted items (345,779)
Operating loss (495,565)
Finance income 2,359
Finance costs (56,522)
Loss before taxation (549,728)
The segmental result for 2022 has been restated within the above table. There
is no change to the previously reported Total revenue, Adjusted EBITDA,
Operating loss or Loss before taxation. During FY22, THG Luxury and THG
Experience were reported separately (within 'Other'). From 1 January 2023,
these results have been internally reported as part of THG Beauty. The results
for THG Beauty and THG Nutrition have also been restated for the discontinued
categories to show a like-for-like comparison for all categories reported
internally as discontinued in 2023.
The result of both of these adjustments is that for 2022, segmental revenue
has been restated as follows; THG Beauty £(9.0)m, THG Nutrition £(12.4)m,
Other £(50.9)m and discontinued categories £72.3m. Segmental Adjusted
EBITDA has been restated as follows; THG Beauty £0.7m, THG Nutrition
£(0.1)m, Other £1.9m and discontinued categories £(2.5)m.
The Group has provided an analysis of external revenue by region (by
destination):
2023 2022
£'000 £'000
UK 937,125 960,535
USA 379,977 446,542
Europe 427,713 449,783
Rest of the world 300,563 382,369
2,045,378 2,239,229
The Group has provided an analysis of external continued revenue by region (by
destination):
2023 2022
£'000 £'000
UK 918,351 899,656
USA 348,414 370,330
Europe 421,032 423,905
Rest of the world 295,908 354,364
1,983,705 2,048,255
The Group's non-current assets by geography are as follows:
2023 2022
£'000 £'000
UK 1,189,386 1,257,689
Europe 120,459 145,057
Rest of the world 475,744 550,333
1,785,589 1,953,079
3. Operating loss
2023 2022
Note £'000 £'000
Operating loss has been arrived at after charging /
(crediting):
Adjusted items - cash 4 15,824 40,090
Adjusted items - non-cash 4 34,803 305,689
Other operating expense - non-cash loss on disposal freehold assets 8 17,664 -
Employee costs 253,446 275,145
Share-based payments 5 16,723 10,734
Depreciation on fixed assets 8 55,691 50,896
Depreciation on right-of-use assets 14 39,422 43,295
Amortisation 7 68,829 58,581
Amortisation of acquired intangibles 7 50,543 50,394
Government grants (1,598) (1,752)
Net foreign exchange (loss) / gain (201) 1,424
4. Adjusted items
These are items which are material in nature and include, but are not limited
to, costs relating to acquisitions, disposals and significant events or
programmes, some of which span multiple years. These items are excluded from
adjusted EBITDA as management believe their inclusion distorts the underlying
trading performance. This is consistent with the way that financial
performance is measured by management and reported to the Board.
2023 2022
£'000 £'000
Within Cost of sales
Non-cash loss on disposal of discontinued and the exiting of loss making 10,465 25,517
categories
Inventory provision following strategic review 4,786 -
15,251 25,517
Within Distribution costs
Transportation and delivery costs in relation to Covid-19 2,456 18,504
Commissioning - new facilities 2,605 3,613
5,061 22,117
Within Administrative costs
Non-cash loss on property portfolio restructure 18,369 -
Loss on property portfolio restructure 851 -
Non-cash loss on disposal of (or exit from) discontinued and loss making 5,969 3,763
categories
Other costs following the outcome of strategic review 1,515 6,942
Restructuring costs 2,708 6,803
Acquisitions - restructuring and integration 703 8,046
Other legal and professional costs 200 570
Donations - 362
Non- cash impairment of assets - 269,828
Non-cash impairment of non-core assets held for sale - 1,831
30,315 298,145
Total adjusted items before finance costs 50,627 345,779
Within Finance costs
Non-cash - revaluation of SBM option - (601)
Total adjusted items before tax 50,627 345,178
Tax impact (2,835) (11,634)
Total adjusted items 47,792 333,544
Cash adjusting items before tax 14 (#_ftn14) 15,824 40,090
Non-cash loss on disposal of (or exit from) discontinued and loss making
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 primarily within THG OnDemand. In July 2023, the
trade and assets of THG OnDemand were sold to a Newco led by the existing
OnDemand management team. This resulted in adjustments in respect of inventory
provisions recognised within cost of sales and impairment of other assets,
primarily property, plant and equipment included within administrative costs
being recognised, and therefore an overall loss on disposal, to reflect the
recoverable value of the associated assets.
During the second half of the year, the Group completed its strategic review
of non-core categories. As a result in January 2024, approval was obtained for
further discontinuation of some additional small legacy brands within THG
Beauty and THG Nutrition.
This resulted in adjustments in respect of inventory provisions recognised
within cost of sales and impairment of other assets, primarily property, plant
and equipment within administrative costs being recognised to reflect the
recoverable value of the associated assets.
The total costs incurred regarding these loss making categories are £16.4m
(2022: £29.3m) recognised within cost of sales and administrative costs
respectively at £10.5m (2022: £25.5m) and £5.9m (2022: £3.8m).
These costs are deemed to be one-off, non-cash losses to enable and complete
the exit of loss making areas of the business.
Associated income in respect of costs arising for discontinued categories has
been set out in note 2.
Inventory provision following strategic review of business operations
Following the strategic review including THG Beauty manufacturing,
efficiencies were identified that would support long-term cost savings.
Consistent with this a one-off provision was recognised in respect of
inventory that is no longer required to drive forward the operations. This is
a one-off item that will not recur following the completion of this review.
Transportation and delivery 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 during 2022, with
costs reducing further throughout 2023 as prices have normalised back to
pre-covid levels. This item will not continue into 2024.
The impact of rising costs was not fully passed on to customers. On this
basis, it is not possible to reliably measure any associated revenues
associated with the operational costs.
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. Associated costs are expected to have been fully
incurred by the end of the first half of 2024.
Loss on property portfolio restructure
During the year, as part of the cost reduction programme, the Group completed
a review of the properties held within its portfolio, streamlining space where
possible to gain efficiencies. Following consolidation of warehousing and
offices across the Group, some properties across the portfolio are now vacant
and not currently being utilised to generate economic benefits for the group.
Where possible assets held in leased properties have been sold or repurposed.
However, residual leasehold improvement assets in respect of vacated
properties have been fully impaired, being a one- off loss arising from the
streamlining exercise undertaken. A provision has also been included for such
unavoidable costs that are expected on these vacant leased properties over the
remaining life of the lease.
Other costs following the outcome of strategic review
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.
· 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.
Restructuring costs
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. Current year costs relate directly to one-off costs arising
following the decision to discontinue certain categories which are not
expected to recur.
Acquisitions - restructuring and integration
On 26 July 2023 the Group purchased City AM. The costs incurred during the
year relate to the integration of the acquisition within the wider THG Group
and the dual running of warehouse facilities of businesses acquired in recent
years. 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
further reduce in 2024.
Other legal and professional costs
The Group incurs legal and professional costs that are non-recurring, one off
in nature and not related to trading activities. These costs are included as
adjusted items and can include, but are not limited to, legal costs for one
off matters and other fees associated with investor activities. The legal and
professional costs incurred during 2023 relate directly to the purchase of
City AM and Biossance.
Donations
There has been no donations recognised in adjusted items within 2023.
Whilst there have been donations in 2023 totalling £0.3m, these items have
been included within the normal course of trade and therefore recognised
outside of adjusted items. In 2022, in addition to donations made in the
normal course of trade, the Group donated £0.4m related to aid in the form of
nutrition and hygiene products to charities assisting with the war in Ukraine
which was deemed to be a one off item and was therefore recorded in adjusted
items and have not recurred.
Impairment of assets
In 2022, an impact of the divisional reorganisation was that the assets and
cash flows of each division were separately identifiable. The result being the
identification of additional cash-generating-units ('CGUs'). This more
granular review, combined with significant acquisitions within THG Beauty
division generating a substantial amount of intangible assets; the market
price for many technology businesses falling; and the macroeconomic,
inflationary and interest rate pressures in the wider market generated one-off
impairment charges of £183m within the THG Beauty CGU and £87m within the
THG Ingenuity CGU.
No impairment has occurred in 2023.
Impairment of non-core assets held for sale
No impairment of non-core assets held for sale has occurred in 2023.
In 2022, an impairment charge of £1.8m was recognised against non-core assets
that met the criteria to be classified as held for sale under IFRS 5. The net
book value of these assets was reclassified to current assets and an
impairment charge has been recognised for the difference between the selling
price and the carrying value.
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 35,529,895 shares were issued in the 12
months to 31 December 2023. The shares issued during the year are as follows:
- On 27 January 2023 a total of 34,969,541 options were granted
with 234,929 of these shares only vesting if targets linked to ESG are met.
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.
o 1,410,209 shares vested on 31 December 2023;
o The remaining awards vest in two equal tranches. The second and third
tranches for each separate grant will vest on 31 December in the following two
years respectively.
- On 1 December 2023 a further 560,283 options were granted. The
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.
2023 2022
£'000 £'000
Expense arising from equity-settled share-based payment transactions 16,723 10,734
The following table shows the shares granted and outstanding at the beginning
and end of the year:
2023 2023 2022 2022
Number of shares
Number of shares
Weighted average exercise price Weighted average exercise price
As at 1 January 41,796,012 £0.06 - £0.00
Granted during the year 35,529,824 £0.01 43,352,699 £0.05
Forfeited during the year (5,324,678) £0.00 (1,556,687) £0.02
Exercised during the year (3,283,098) £0.00 - £0.00
As at 31 December 68,718,060 £0.03 41,796,012 £0.06
Exercisable as at 31 December 19,975,803 £0.00 12,308,805 £0.10
The key inputs to calculate the charge are the share price at the date of
grant and an assumption around those not remaining in continued employment,
spread across the vesting period. Achievement of performance conditions have
been considered where appropriate. The range of exercise prices are £0.00 to
£0.10, and the weighted average remaining contractual life is 8.8 years. The
weighted average share price at date of exercise of shares exercised during
the year was £0.75.
6. Finance income and cost
2022
2023
£'000 £'000
Finance income
Bank interest receivable 13,329 2,359
Finance costs
Bank interest payable and charges 65,140 42,791
Interest on lease liabilities 14,760 14,332
Revaluation of SBM option - (601)
79,900 56,522
7. Intangible assets
Goodwill Platform development costs Intellectual property Brands New Product Development £'000 Total
£'000 £'000 £'000 £'000 £'000
Cost or valuation
At 1 January 2022 755,082 218,827 197,590 607,358 8,671 1,787,528
Transfers - 2,592 - - - 2,592
Additions - 55,513 20,736 353 4,513 81,115
Business combinations 2,375 - - - - 2,375
Currency translation 33,520 348 6,110 33,045 29 73,052
Disposals - (9,031) (464) - - (9,495)
At 31 December 2022 790,977 268,249 223,972 640,756 13,213 1,937,167
At 1 January 2023 790,977 268,249 223,972 640,756 13,213 1,937,167
Transfers - - (1,627) 103 1,524 -
Additions - 60,775 19,988 83 798 81,644
Business combinations 2,318 - 1,816 4,329 - 8,463
Currency translation (18,901) (199) (8,730) (17,606) (8) (45,444)
Disposals (1,175) (31,226) (24,078) (376) (310) (57,165)
At 31 December 2023 773,219 297,599 211,341 627,289 15,217 1,924,665
Accumulated amortisation
At 1 January 2022 33,629 137,083 61,350 46,273 2,901 281,236
Transfers - - - - - -
Amortisation - 39,837 28,980 38,274 1,884 108,975
Impairment loss 271,003 - 2,194 20 373 273,590
Currency translation - 443 3,263 3,386 7 7,099
Disposals - (9,031) (464) - - (9,495)
At 31 December 2022 304,632 168,332 95,323 87,953 5,165 661,405
At 1 January 2023 304,632 168,332 95,323 87,953 5,165 661,405
Transfers - 97 (130) 33 - -
Amortisation - 38,520 26,893 52,474 1,485 119,372
Impairment loss - 240 - - - 240
Currency translation (1,651) 766 (5,418) (2,437) (2) (8,742)
Disposals - (30,853) (23,468) (362) (310) (54,993)
At 31 December 2023 302,981 177,102 93,200 137,661 6,338 717,282
NBV
At 1 January 2022 721,453 81,744 136,240 561,085 5,770 1,506,292
At 31 December 2022 486,345 99,917 128,649 552,803 8,048 1,275,762
At 31 December 2023 470,238 120,497 118,141 489,628 8,879 1,207,383
Included within intellectual property is £5.4m (2022: £4.4m) of capitalised
costs incurred to obtain a contract with a customer. The costs relate to sales
commissions paid to sales personnel upon initial acquisition of a customer
contract. Amortisation of £1.0m (2022: £0.8m) was recognised in the period
in relation to these assets.
No impairment has been recognised during the year.
8. Property, plant and equipment
Computer equipment and software Leasehold improvements and freehold buildings
Motor vehicles Plant and machinery Fixtures and fittings £'000 £'000
£'000 £'000 £'000 Total
£'000
Cost
At 1 January 2022 2,332 126,448 107,450 100,474 123,003 459,707
Additions 12 16,370 40,461 21,446 17,309 95,598
Transfers to assets held for sale - - (6,831) - (17,071) (23,902)
Transfers - (2,592) - - - (2,592)
Currency translation differences - 3,137 2,461 2,031 478 8,107
Disposals (27) (263) (2,148) (5,232) - (7,670)
At 31 December 2022 2,317 143,100 141,393 118,719 123,719 529,248
At 1 January 2023 2,317 143,100 141,393 118,719 123,719 529,248
Additions 111 11,209 6,707 12,224 2,829 33,080
Business combinations - - 8 11 19 38
Transfers - 5,430 (37,869) 3,009 29,430 -
Currency translation differences - (302) 743 (532) (515) (606)
Disposals (165) (6,474) (4,117) (281) (45,875) (56,912)
At 31 December 2023 2,263 152,963 106,865 133,150 109,607 504,848
Accumulated depreciation
At 1 January 2022 1,291 26,185 28,339 38,010 30,262 124,087
Depreciation (note 3) 323 16,238 9,799 21,018 3,518 50,896
Impairment of assets held for sale - - 1,831 - - 1,831
Transfers to assets held for sale (note 8.2) - (1,831) - (674) (2,505)
Currency translation differences - 840 409 1,083 131 2,463
Disposals (27) (160) (2,148) (5,230) - (7,565)
At 31 December 2022 1,587 43,103 36,399 54,881 33,237 169,207
At 1 January 2023 1,587 43,103 36,399 54,881 33,237 169,207
Depreciation (note 3) 340 14,494 13,489 21,310 6,058 55,691
Impairment loss - 1,064 987 115 10,950 13,116
Currency translation differences - (342) 232 (581) (187) (878)
Disposals (170) (1,949) (51) (257) (3,032) (5,459)
At 31 December 2023 1,757 56,370 51,056 75,468 47,026 231,677
NBV
At 1 January 2022 1,041 100,263 79,111 62,464 92,741 335,620
At 31 December 2022 730 99,997 104,994 63,838 90,482 360,041
At 31 December 2023 506 96,593 55,809 57,682 62,581 273,171
8.2 Assets held for sale
During 2022, the Group committed to a plan to sell some non-core freehold
buildings that were no longer in use by the Group and not required to execute
its future strategy. In accordance with IFRS 5: Non-current assets held for
sale and discontinued operations, the assets were classified as held for sale
on the Groups statement of financial position at 31 December 2022.
During 2023, the assets held for sale were sold generating cash proceeds of
£13.5m.
There were no assets held for sale as at 31 December 2023.
2023 2022
Assets classified as held for sale £'000 £'000
Transfer from property, plant and equipment (note 8) - 21,397
- 21,397
9. Inventories
2023 2022
£'000 £'000
Goods held for resale 225,600 296,133
Raw materials 67,427 72,327
Goods in transit 4,116 4,811
297,143 373,271
Goods in transit relate to goods whose control is still to be transferred to
the customers as of the reporting date. The cost of inventories recognised as
an expense and included in cost of sales amounted to £1,079.9m (2022:
£1,272.9m). The value of inventories written down and recognised as an
expense in the statement of comprehensive income in the year was £5.1m (2022:
£8.6m). Within goods held for resale is a £2.4m (2022: £3.0m) right to
recover asset which represents the carrying value of inventory expected to be
received back from customers as returns.
10. Trade and other receivables
2023 2022
£'000 £'000
Trade receivables 110,912 121,122
Less: loss allowance (2,056) (1,805)
Net trade receivables 108,856 119,317
Prepayments 28,483 28,362
Accrued income 36,428 40,004
Other taxation and social security 59,185 33,748
Other receivables 38,830 43,518
271,782 264,949
Trade and other receivables are principally denominated in Sterling.
11. Cash and cash equivalents
2023 2022
£'000 £'000
Cash and cash equivalents 416,162 473,783
Cash and cash equivalents includes amounts receivable of £3.5m (2022: £3.1m)
from banks and £16.7m (2022: £17.4m) from payment providers, for credit and
debit card transactions. Such amounts clear the bank shortly after the
transaction takes place.
12. Trade and other payables
2023 2022
£'000 £'000
Trade payables 368,855 321,709
Accruals 182,922 244,553
Other taxation and social security 82,351 58,811
Other payables - 1,880
Government grants 2,343 2,635
Contingent consideration on acquisitions 1,879 6,852
638,350 636,440
The Directors consider the carrying amount of trade and other payables
approximates to their fair value when measured by discounting cash flows at
market rates of interest as at the balance sheet date.
Contingent consideration on acquisitions is measured at fair value using
unobservable inputs (level 3 of the fair value hierarchy). The unobservable
inputs used in the fair value calculation include internal data such as
forecasts, budgets and actual results to date. The fair values are sensitive
to changes in EBITDA or revenue given that these key metrics are what the
performance targets are based on. The reduction year-on-year is driven by
payments made of £3.4m.
Included within trade payables is £43.1m (2022: £53.7m) due to suppliers
that participate in the Group's supply chain financing agreement. The
agreement does not change the suppliers agreed payment terms directly with the
Group.
13. Interest bearing loans and borrowings
2023 2022
Note £'000 £'000
Current
Bank borrowings 29,026 30,992
Lease liabilities 14 43,537 43,995
72,563 74,987
Non-current
Bank borrowings 621,011 648,197
Lease liabilities 14 301,440 290,381
922,451 938,578
Bank borrowings relate predominantly to the 7-year Euro term loan B, undrawn
5-year revolving credit facility and an incremental facility obtained during
the prior year. The revolving credit facility is provided by Barclays, HSBC,
Santander, Citibank, NatWest and JPM. The term loan B carried an interest rate
of 4.50% plus EURIBOR and the revolving credit facility interest rate is
SONIA. The Group increased its bank borrowings in 2022 with an incremental
facility obtained plus Commercial Facility Loan. This loan is provided by the
Groups existing lenders and carries a base rate of Daily RFR (SONIA). The
floating element of the term loan B is hedged by interest rate derivatives.
Management note that EURIBOR is being reformed as a benchmark rate and are in
dialogue with its lending and hedging partners to minimise the impact on the
Group as transition occurs. If interest rates moved by 100bps, the Group's
loss before tax would be c.£7.3m higher / lower (2022: c.£3.7m) and the
subsequent move on the derivative valuation would cause equity to be c.£15.5m
higher / lower (2022: c.£18.5m) as a result of the same move.
Net debt consists of loans and lease liabilities, less cash and cash
equivalents, defined as referenced in note 14. For the purpose of the Group's
net debt calculation, loans that are denominated in foreign currency are
translated at the effective hedged rate where applicable. Net (debt)/cash is
an alternative performance measure and is not defined under IFRS. A
reconciliation to the most directly comparable IFRS measure is included below:
2023 2022
£'000 £'000
Loans and other borrowings (650,037) (679,189)
Lease liabilities (344,977) (334,376)
Cash and cash equivalents 416,162 473,783
Sub-total (578,852) (539,782)
Adjustments:
Retranslate debt balance at swap rate where hedged by foreign exchange 15,653 24,782
derivatives
Net debt (563,199) (515,000)
Net (debt)/cash before lease liabilities (218,222) (180,624)
14. Leases
Set out below are the carrying amounts of the right-of-use assets recognised
and movements during the period:
Computer equipment and software
Motor vehicles Plant and machinery £'000 Land and buildings Total
£'000 £'000 £'000 £'000
As at 1 January 2022 378 374 2 309,528 310,282
Additions - - - 13,608 13,608
Depreciation (note 3) (173) (213) (1) (42,908) (43,295)
Lease modifications - - (1) 17,856 17,855
Disposals - - - (11,426) (11,426)
Currency translation differences 5 3 - 7,277 7,285
As at 31 December 2022 210 164 - 293,935 294,309
As at 1 January 2023 210 164 - 293,935 294,309
Additions 1,920 (3) - 59,475 61,392
Depreciation (note 3) (568) (45) - (38,809) (39,422)
Lease modifications 98 - - (10,377) (10,279)
Disposals - - - - -
Currency translation differences (4) (3) - (2,358) (2,365)
As at 31 December 2023 1,656 113 - 301,866 303,635
Set out below are the carrying amounts of lease liabilities and the movements
during the period:
2023 2022
£'000 £'000
As at 1 January 334,376 349,173
Additions 56,708 6,620
Accretion of interest 14,641 14,130
Payments (49,487) (49,012)
Lease modifications (8,864) 17,820
Disposals - (13,510)
Currency translation differences (2,397) 9,155
As at 31 December 344,977 334,376
Current 43,537 43,995
Non-current 301,440 290,381
The Group had total cash outflows for leases of £49.5m in 2023 (2022:
£49.0m).
The following are the amounts recognised in the year in the consolidated
statement of comprehensive income:
2023 2022
£'000 £'000
Depreciation expense on right-of-use assets 39,422 43,295
Interest expense on lease liabilities 14,641 14,130
54,063 57,425
15. Earnings per share
The following table reflects the income and share data used in the basic and
diluted EPS calculations:
2023 2022
Loss for the financial year (£'000) (248,372) (539,957)
Weighted average number of ordinary shares for basic EPS 1,296,925,602 1,239,485,253
Basic and Diluted EPS (£'s) (0.19) (0.44)
In 2022, if the impact of impairment charges in the year was removed, the
Basic and Diluted EPS would have been £(0.21).
The basic loss per share has been calculated by dividing the loss attributable
to the Group by the weighted average number of ordinary shares in issue.
The diluted loss per share has been calculated by adjusting the weighted
average number of shares for the effects of the D, E, F, G and H shares,
assuming full vesting of all potentially dilutive shares.
Basic and diluted earnings per share are equal since the effect of all
potentially dilutive shares outstanding was anti-dilutive.
16. Related Party Transactions
The Directors' interests in the ordinary share capital of the Company at the
balance sheet date are detailed below:
£ per share Ordinary Shares 2023 Ordinary Shares 2022
Number Number
M J Moulding 0.005 249,294,545 249,294,545
M J Moulding 1 360 361
J A Gallemore 0.005 4,216,826 3,638,116
J A Gallemore 1 3,174 3,174
I McDonald 0.005 2,505,943 2,505,943
D Sanders 0.005 21,926 21,926
C Allen 0.005 2,400,000 2,400,000
S Farr 0.005 67,397 n/a
258,510,171 257,864,065
In addition to the shareholdings noted above, the Directors had the following
interests in vested Shares issued under previous incentive arrangements at the
balance sheet date. These shares carry no voting rights.
2023 2022 2023 2022
Date of award Subscription/exercise price £ Subscription/exercise price £ Number Number
M J Moulding Dec-19 0.23 0.23 43,641,266 43,641,266
M J Moulding Aug-20 0.33 0.33 20,197,808 20,197,808
M J Moulding Aug-20 0.28 0.28 7,733,792 7,733,792
M J Moulding Aug-20 0.26 0.26 - -
J A Gallemore Dec-19 0.23 0.23 185,476 185,476
J A Gallemore Aug-20 0.33 0.33 2,666,963 2,666,963
J A Gallemore Aug-20 0.28 0.28 4,000,537 4,000,537
I McDonald Dec-19 0.23 0.23 185,476 185,476
78,611,318 78,611,318
The Group has not provided any interest free loans to the Directors in 2023
(2022: none). In previous years the Group provided £0.3m of interest free
loans to the Directors for them to subscribe for shares as part of the
employee benefit scheme which remain outstanding at the balance sheet date.
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 £307,720 (2022:
£269,017) for the Group recognised within administrative expenses.
Prior to the IPO which took place in September 2020, THG divested the Propco
Group, an entity now wholly owned by the Group's CEO. The Propco Group owns
property assets occupied and utilised by THG and its operating businesses.
The amounts recognised on the Group's balance sheet in relation to the leases
with Propco in the year are as follows:
2023 2022
£'000 £'000
Right-of-use asset 154,682 159,000
Lease liability 174,457 178,694
The amounts recognised on the Group's statement of comprehensive income in
relation to the leases with Propco in the year are as follows:
2023 2022
£'000 £'000
Depreciation arising on right-of-use assets 10,066 11,277
Expense recognised in financing costs 7,198 8,182
Impairment arising on property plant and equipment 9,663 -
The table below gives further detail around the leases in place:
Number of properties Residual lease term date divestment FY23 rent
£'000
9 0-4 years 962
12 12-14 years 3,285
7 18-24 years 9,923
28 14,170
The following table shows the amounts receivable from or payable to Propco
which are outstanding at the balance sheet date. 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.
2023 2022
Related party Amounts owed by related parties Amounts owed to related parties Amounts owed by related parties Amounts owed to related parties
£'000 £'000 £'000 £'000
Aghoco 1442 Ltd - 29 - 100
Allenby Square Ltd - 7 - 190
MCL Alpha PropCo Ltd - - - 161
MCL Icon Unit 3 PropCo S.à r.l. - 74 - 296
MCL Gadbrook PropCo Ltd - 34 - 242
MCL Icon Unit 4 PropCo Ltd - 45 - 217
MCL PV PropCo Ltd - - - 45
MCL A&A PropCo Ltd - - - 241
MCL GJS PropCo Ltd - 35 - 195
MCL HCC PropCo Ltd - 75 - 285
MCL KS PropCo Ltd - 63 - 225
Moulding Capital Limited - - - 10,454
MCL Wroclaw sp. Z.o.o - 1 - -
MCL ICON S.à r.l - 170 - 1,101
MCL Icon Unit 2 PropCo Limited - 292 - 953
- 825 - 14,705
1 (#_ftnref1) YoY defined as year-on-year statutory sales growth
2 (#_ftnref2) CCY defined as constant currency basis
3 (#_ftnref3) Gross Margin % is presented before the impact of depreciation
and amortisation
4 (#_ftnref4) See CFO report for a reconciliation to adjusted EBITDA
5 (#_ftnref5) Net Cash / (Debt) is cash and cash equivalents less debt
before lease liabilities, on a hedged basis (see note 13)
6 (#_ftnref6) Free cash flow is defined as total cash flow for the group
adjusting for debt (repayments) / proceeds and acquisitions cash flows and in
respect of FY 2023 the inclusion of a cash receipt of £11.2m from HMRC which
was remitted to the Group in December 2023 but physically cleared the bank on
the first working day of 2024. For presentation purposes, this is considered
to be free cash flow as at 31 December 2023 as a result of the remittance
advice received
7 (#_ftnref7) Defined as cash generated from operations including a cash
receipt of £11.2m from HMRC which was remitted to the Group, but physically
cleared the bank on the first working day of 2024
8 (#_ftnref8) 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 £15.3m (2022: £25.5m) for adjusted items and £20.6m (2022:
£20.0m) for amortisation and depreciation
- For statutory presentation, distribution costs include
charges of £5.1m (2022: £22.1m) for adjusted items and £23.2m (2022:
£27.2m) for amortisation and depreciation
- For statutory presentation, administrative costs include charges of
£30.3m (2022: £298.1m) for adjusted items and £170.7m (2022: £155.9m) for
amortisation and depreciation and £16.7m (2022: £10.7m) for share-based
payments
9 (#_ftnref9) Free cash flow is defined as total cash flow for the group
adjusting for debt (repayments) / proceeds and acquisitions cash flows and in
respect of FY23 the inclusion of a cash receipt of £11.2m from HMRC which was
remitted to the Group in December 2023 but physically cleared the bank on the
first working day of 2024. For presentation purposes, this is considered to be
free cash flow as at 31 December 2023 as a result of the remittance advice
received
10 (#_ftnref10) During 2022, and 2023 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
11 (#_ftnref11) 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. The 2022 result for THG Beauty
has been restated to provide a like-for-like comparison to 2023
12 (#_ftnref12) Cash adjusting items before tax total £15.8m (2022:
£40.1m), reflecting the total cash before tax expected to be paid. This
differs from the Consolidated statement of cash flows which also reflects the
timing of such payments. Cash paid in 2023 totalled £15.0m
13 (#_ftnref13) Adjusted EBITDA is defined as operating profit before
depreciation, amortisation, share-based payments, other operating expense -
non-cash loss on disposal freehold assets and adjusted items. The
comprehensive expense is 100% attributable to the owners of the Parent Company
14 (#_ftnref14) Cash adjusting items before tax total £15.8m (2022:
£40.1m) reflecting the total cash before tax expected to be paid. This
differs from the Consolidated statement of cash flows which also reflects the
timing of such payments. Cash paid in 2023 totalled £15.0m
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. END FR XKLLBZZLZBBDRecent news on THG
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Announcement