TIDMTHG
RNS Number : 3785M
THG PLC
14 September 2023
14 September 2023
THG PLC
Interim results for the half-year ended 30 June 2023
Adjusted EBITDA and cash generation ahead of guidance in H1
2023
Full year adjusted EBITDA guidance reiterated
-- C ontinuing [1] adjusted EBITDA of GBP50.1m (+22.9%), above
the top end of guidance (GBP47m to GBP50m), at a margin of 5.3% (H1
2022: 4.0%). Adjusted EBITDA guidance unchanged for FY 2023.
-- Adjusted EBITDA of GBP47.1m (+45.7%), inclusive of recently
disposed loss-making OnDemand business.
-- Successful exit of loss-making discontinued categories and
non-core assets generated a one-off non-cash charge of GBP26.2m [2]
, increasing the operating loss to GBP99.5m (H1 2022: GBP89.2m).
Without this charge, operating loss improved by GBP15.9m YoY.
-- Strong LTM [3] cash performance, ahead of guidance. LTM cash
outflow [4] of GBP20.6m is after GBP163.1m of capex, mainly in THG
Ingenuity. This represents a GBP350m cash performance improvement
on the LTM year on year.
-- Strong balance sheet with GBP563m of cash and available facilities.
-- Record H1 THG Nutrition revenue of GBP340.7m (+2.6%), with
adjusted EBITDA of GBP47.1m (+71.9%).
-- THG Beauty adjusted EBITDA of GBP10.6m (H1 2022: GBP17.7m),
impacted by one-off industry de-stocking in manufacturing.
Excluding manufacturing THG Beauty adjusted EBITDA was GBP9.7m (H1
2022: GBP7.3m). Encouragingly, since the start of August, the
Beauty division has returned to growth.
-- THG Ingenuity listed in the Gartner's Magic Quadrant(TM) for
Digital Commerce. Continued focus on the Enterprise strategy with
new client wins secured (including L'Or é al US prestige brands)
and a strengthening pipeline.
-- Continued prioritisation on gross margin and adjusted EBITDA margin growth.
-- Q3 revenue exit momentum gives us confidence in full year
continuing revenue growth of 0% to -5% (H1 2023: -6.1%).
Matthew Moulding, CEO of THG, commented:
"Inflationary pressures provided significant challenges to
consumers and businesses alike over the past 18 months. Our
strategy of supporting our consumers through 2022, sacrificing
margins in the short-term, is bearing fruit. This is reflected in
the strong H1 results we've posted today, across adjusted EBITDA
and cash.
"The cash performance of the Group has been strong in H1, but
also over the last 12 months. Group cash flow performance improved
by GBP350m compared to the previous 12 months, reflecting the
completion of our global infrastructure roll-out program, with the
Group now achieving significant operating leverage from a well
invested, automated, global platform.
"Our Nutrition division delivered a record H1 revenue
performance and, with inflationary pressures easing, posted
substantially higher EBITDA margins year-on-year as we exited H1.
The early results from the Myprotein rebrand are also encouraging
as we've taken steps to further enhance the premium nature of the
world's No1 online sports nutrition brand. These actions should
provide for both increased partnership opportunities and category
expansion, supporting our ambition of building Myprotein into a
global lifestyle brand.
"Recent progress within our Beauty division has been more
encouraging, underpinned by strong performances in the Group's
Perricone MD and ESPA brands, as well as across Cult Beauty. Margin
improvements have steadily built through H1, as focus shifted to
orders that deliver immediate profitability, where we benefit from
the economies of scale associated with our local distribution
hubs.
"The Beauty division was held back in H1 by short-term global
de-stocking impacting manufacturing volumes. The situation has now
started to reverse with the Beauty division returning to growth
since August, at the same time margin progression continues.
"Finally, Ingenuity's pivot to larger, more complex Enterprise
clients is gaining momentum, reflected in some key client wins and
a strong pipeline. We were thrilled to be listed in the Gartner's
Magic Quadrant(TM) for Digital Commerce, in recognition of our
ability to provide an all-encompassing Direct-to-Consumer journey,
cementing Ingenuity as a key partner for Enterprise clients seeking
comprehensive commerce excellence."
H1 2023 Group Trading Performance
GBPm H1 2023 H1 2022 YoY [6] 2 Year
[5] change change
-------- -------- ------- -------
Revenue
THG Beauty 538.7 601.2 -10.4% +6.3%
THG Nutrition 340.7 332.1 +2.6% +3.7%
THG Ingenuity 320.0 375.9 -14.9% -3.4%
Inter-group elimination (248.8) (297.3) -16.3% -7.6%
------------------------- -------- -------- ------- -------
Group (continuing)
[7] 950.6 1,011.8 -6.1% +5.9%
Discontinued
categories 18.7 57.4 -67.4% -69.6%
------------------------- -------- -------- ------- -------
Group 969.3 1,069.2 -9.3% +1.1%
------------------------- -------- -------- ------- -------
Gross Margin 42.
% [8] (adjusted) 43.8% 4 %
------------------------- -------- -------- -------
Adjusted EBITDA
[9]
THG Beauty 10. 6 17.7 -40.4%
THG Nutrition 47.1 27.4 +71.9%
THG Ingenuity 3.4 6.8 -50.8%
Central (10.9) (11.2) +2.6%
Group (continuing)
7 50.1 40.8 +22.9%
-------- --------
Group 47.1 32.3 +45.7%
-------- -------- -------
Adjusted EBITDA
% 4.9% 3.0%
------------------------- -------- -------- -------
Adjusted items 16.3 22.3
Of which cash
adjusted items 5.2 22.9
------------------------- -------- -------- -------
Operating loss
[10] (99.5) (89.2)
Net debt [11] (268.3) (225.6)
------------------------- -------- --------
Half-year 2023 financial highlights
-- Group revenue: GBP969.3m, -9.3% YoY, driven by the strategic
exit of non-core divisions and discontinued categories, short-term
volume reductions within THG Beauty manufacturing, the previously
stated de-emphasis in certain beauty markets and the proactive
pivoting of the THG Ingenuity strategy. Total sales in the UK
broadly in line with H1 2022 for THG Beauty and THG Nutrition
combined (excluding manufacturing).
-- THG Beauty: The impact of industry-wide de-stocking has been
material within THG Beauty manufacturing, impacting both revenue
and profitability given its fixed cost base (a -GBP9.5m YoY EBITDA
impact). Excluding THG Beauty manufacturing, adjusted EBITDA margin
improvement was encouraging at +60bps relative to the prior year.
As we enter the third quarter, cost saving initiatives
predominantly within manufacturing implemented in the first half
are supporting profitability improvements.
-- THG Nutrition: Following the unwind of a period of unusually
high whey commodity prices, THG Nutrition adjusted EBITDA margins
improving substantially during the period to 13.8% (+560bps), ahead
of medium-term guidance.
-- THG Ingenuity: Revenue and adjusted EBITDA performance
considered short-term (-14.9%, -80bps respectively), due to planned
shift away from lower-value clients, reduction in volumes from
internal clients (including the exits of OnDemand and ProBikeKit),
and upfront investment in enterprise strategy which has a longer
lead time between new contract agreements and the revenue benefits
being realised.
-- Distribution costs: Reduced 150bps reflecting continued
investment in automation (with US launch in the period), and
continued focus on driving operational efficiency and cost
control.
-- Continuing Group adjusted EBITDA: Reflects the improving
profitability of THG Nutrition, effective management of costs to
offset unprecedent inflationary cost pressures, and exit of
loss-making categories and territories.
-- Reported Group adjusted EBITDA: Increased YoY to GBP47.1m (H1
2022: GBP32.3m), with losses from discontinued categories reducing
from GBP8.5m to GBP3.1m following the successful execution of the
strategic review, determining a simpler, more profitable business
for the future.
-- Operating loss: GBP99.5m (vs H1 2022: GBP89.2m) following
decisive management action to dispose of non-core assets and
loss-making discontinued categories driving a GBP26.2m one-off
charge.
-- Cash adjusted items: Reduced significantly to GBP5.2m (H1
2022: GBP22.9m) following a decrease in transportation, delivery
and fulfilment costs in relation to Covid-19 of GBP10.1m.
-- Cash generation: Significantly stronger over the last 12
months with a modest outflow of GBP20.6m, ahead of previously
stated guidance. The Group had cash on hand of GBP392.5m and an
undrawn GBP170m RCF at the period end.
Strategic and operational highlights
-- Active customers in THG Beauty (LTM: 8.6m, -10%) and THG
Nutrition (LTM: 6.8m, -5%), reflects the strategic decision to
deploy marketing investment in more profitable territories.
-- App participation continues to build with orders representing
17.0% of Group D2C H1 2023 revenue (H1 2022: 11.4%), strengthening
customer engagement and loyalty to our brands.
-- Encouraging purchasing behaviour from existing THG Beauty and
THG Nutrition customers continues, with stable order frequencies,
average order values ("AOV"), and consistently strong repeat
purchase rates of over 80%. Momentum has built throughout the half
with active customers +5% in Q2 vs Q1 2023. Overall 3-year active
customer growth +62% and 29% for THG Beauty and THG Nutrition
respectively.
-- THG Beauty continues to execute its market prioritisation
strategy, whilst delivering UK online premium market share growth
of c.4% to c.28% for Lookfantastic [12] , supported by record high
Trustpilot scores for Lookfantastic and Cult Beauty.
-- Following double-digit revenue growth for the two largest
brands in H1, THG Beauty's prestige own brand portfolio is set to
achieve further international recognition through a global
licensing partnership with luxury hotel amenities supplier Vanity
Group launching in 2024.
-- THG Nutrition continues to expand into adjacent markets
through localisation and collaboration with major brands and
influencers to amplify brand awareness. Following category
expansion within the licensing partnership with Iceland, Myprotein
is also set to partner with global confectionary brand Chupa Chups
and global spirits brand Southern Comfort to broaden flavour
options across the product portfolio.
-- THG Ingenuity: Substantial progress has been made on the
ongoing strategy to partner with larger, higher value enterprise
clients with high-quality recurring revenues, and for the first
time, has been recognised in the Gartner Magic Quadrant(TM) for
Digital Commerce.
-- New and expanded partnerships agreed year to date include:
o L'Oréal Group: Powering D2C operations for two of L'Oréal's
most prestigious brands; "Shu Uemura Art of Beauty" in the USA and
Canada, and "Biotherm" in the USA.
o L-Fashion Group: USA site launch for the European apparel
specialist, launching Rukka Pets in their next global expansion
market.
o Matalan: Following their ecommerce platform migration, Matalan
have commissioned a purpose-built environment for rapid production
of their ecommerce photography at ICON studios.
o Asda Stores Ltd: Expanding digital services partnership to
provide digital content and performance marketing for their Mobile
division in addition to existing food packaging and social media
content. As one of their Digital agencies across their Grocery,
Money and Mobile divisions, the partnership has more than doubled
in scale.
o Maximo Group: Major sites All Beauty and Fragrance Direct
migrated to the Ingenuity platform in Q2. Operational services
including fulfilment now activated, with mobile app and
subscription programme launching this year.
-- As a thought leader for digital commerce, ongoing innovation
and platform enhancement is imperative to success. Through in house
development of machine learning models, our ability to hyper
personalise how we segment customers and tailor their site
experience is constantly evolving. As a first party data collector
across a broad set of sectors and locales, Ingenuity is uniquely
positioned to deliver AI solutions to drive cost efficiencies,
innovative customer experience and incremental revenue
opportunities including the use of Generative AI technology infused
directly into the Ingenuity platform.
-- The Group executed its plan of business simplification and
operations streamlining with the full exit of both OnDemand and
ProBikeKit for consideration of c.GBP4 million.
Outlook and guidance
-- Overall sales trends, are gradually improving into the second
half, with Q3 continuing revenue anticipated to be marginally ahead
of Q2, with a notable step-on in THG Beauty and THG Ingenuity.
-- Seeing the benefit of decisive management actions to
prioritise profitable sales, and expect continuing revenue
performance for the full year of 0% to -5%.
-- The Board reiterates its expectation of FY 2023 Group
Adjusted EBITDA in line with the company consensus (as dated
29.06.23 and available at Analyst Consensus - The Hut Group (THG)
).
-- Positive free cash generation expected in H2, resulting in
free cash flow breakeven for FY 2023.
-- For FY 2024, operational leverage, incremental cost
efficiencies and commodity price improvements will support further
margin recovery, underpinning the path to positive free cash
flow.
-- All other guidance remains unchanged.
Analyst and investor conference call
THG will today host a conference call and webcast for analysts
and institutional investors at 9.00am (UK time) via the following
links:
To register for the webcast, please use the below link:
https://stream.brrmedia.co.uk/broadcast/64da2315aa74fc619cf74a1e
To ask questions, you must dial in via conference line using the
below details:
-- Confirmation password: THG Half year Results
-- UK dial in: +44 (0) 33 0551 0200
-- US dial in: +1 786 697 3501
A playback of the presentation will be available on THG's
investor website at www.thg.com/investor-relations later today.
For further information please contact:
Investor enquiries - THG PLC
Greg Feehely, SVP Investor Relations Investor.Relations@thg.com
Kate Grimoldby, Director of Investor
Relations and Strategic Projects
Media enquiries:
Powerscourt - Financial PR adviser Tel: +44 (0) 20 7250
1446
Victoria Palmer-Moore/Nick Dibden/Nick thg@powerscourt-group.com
Hayns
THG PLC
Viki Tahmasebi Viki.tahmasebi@thg.com
S
Notes to editors
THG is a vertically integrated, digital-first consumer brands
group, retailing its own brands in beauty and nutrition, plus
third-party brands, via its complete digital commerce solution,
Ingenuity, to an online and global customer base. THG's business is
operated through the following divisions:
THG Beauty: A digital-first brand owner, retailer and
manufacturer in the prestige beauty market, with a portfolio of
own-brands across skincare, haircare and cosmetics. Through its
retail websites, including Lookfantastic, Dermstore, Cult Beauty
and the beauty subscription box brand GLOSSYBOX, it is a route to
market globally for over 1,300 third-party premium brands. THG
Beauty also operates prestige spa and experience venues, in
addition to luxury clothing and homeware D2C sites.
THG Nutrition: A group of digital-first Nutrition brands, which
includes the world's largest online sports nutrition brand
Myprotein and its family of brands (Myvegan, Myvitamins, MP
Activewear and MyPRO), with a vertically-integrated business model
supported by global THG production facilities.
THG Ingenuity: Ingenuity provides a complete digital commerce
solution for consumer brand owners across its three pillars of
technology, digital marketing and operations. Being part of the THG
group, Ingenuity is uniquely placed to bring relevant, practical
and international expertise in every area of commerce.
Cautionary Statement
Certain statements included within this announcement may
constitute "forward-looking statements" in respect of the group's
operations, performance, prospects and/or financial condition.
Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words and
words of similar meaning as "anticipates", "aims", "due", "could",
"may", "will", "should", "expects", "believes", "intends", "plans",
"potential", "targets", "goal" or "estimates". By their nature,
forward-looking statements involve a number of risks, uncertainties
and assumptions and actual results or events may differ materially
from those expressed or implied by those statements. Accordingly,
no assurance can be given that any particular expectation will be
met and reliance should not be placed on any forward-looking
statement. Additionally, forward-looking statements regarding past
trends or activities should not be taken as a representation that
such trends or activities will continue in the future. No
responsibility or obligation is accepted to update or revise any
forward-looking statement resulting from new information, future
events or otherwise. Nothing in this announcement should be
construed as a profit forecast. This announcement does not
constitute or form part of any offer or invitation to sell, or any
solicitation of any offer to purchase any shares or other
securities in the Company, nor shall it or any part of it or the
fact of its distribution form the basis of, or be relied on in
connection with, any contract or commitment or investment decisions
relating thereto, nor does it constitute a recommendation regarding
the shares or other securities of the Company. Past performance
cannot be relied upon as a guide to future performance and persons
needing advice should consult an independent financial adviser.
Statements in this announcement reflect the knowledge and
information available at the time of its preparation.
THG PLC
Interim results for the half-year ending 30 June 2023
Chief Financial Officer Review
We have made good progress in the first half of 2023 delivering
improved profitability (EBITDA) supported by our programme of cost
savings and strong cash control. These included the disposal of
loss-making categories, following the successful execution of our
strategic review. Rationalisation of capex alongside improved
working capital and lower cash adjusting items have resulted in a
free cash outflow of GBP20.6m for the 12 months to 30 June 2023
(vs. GBP271.5m outflow in H1 2022), which is ahead of both
management expectations and previous market guidance.
Operating loss increased to GBP99.5m (vs H1 2022: GBP89.2m),
this was a result of positive management actions taken in the
period being the disposal of non-core assets and loss-making
discontinued categories which generated a GBP26.2m one-off
charge.
CONSOLIDATED INCOME STATEMENT
ALTERNATIVE PERFORMANCE
MEASURES [13]
Six months Six months
ended 30 ended 30
June 2023 June 2022
GBP'000 GBP'000 Movement
--------------- ------------ -----------
Adjusted gross profit 424,157 452,881
Gross margin % (adjusted) 43.8% 42.4% +140bps
Adjusted distribution costs (143,713) (174,187)
As a % of revenue 14.8% 16.3% +150bps
Adjusted administrative costs (233,349) (246,375)
As a % of revenue 24.1% 23.0% -110bps
-------------------------------------- -------------- ------------ -----------
Adjusted EBITDA 47,095 32,319
Adjusted EBITDA % 4.9% 3.0% +190bps
EBITDA losses from discontinued
categories 3,054 8,472
-------------------------------------- -------------- ------------ -----------
Adjusted EBITDA before discontinued
categories 50,149 40,791
-------------------------------------- -------------- ------------ -----------
Adjusted EBITDA before discontinued
categories % 5.3% 4.0% +130bps
-------------------------------------- -------------- ------------ -----------
STATUTORY RESULTS
Six months ended 30 Six months ended 30
June 2023 June 2022 (restated)
Before Before
Adjusted Adjusted Adjusted Adjusted
Items Items Total Items Items Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 969,260 - 969,260 1,069,207 - 1,069,207
Cost of sales (554,721) (7,174) (561,895) (626,666) - (626,666)
------------------ --------------- ----------- ---------- ---------------- ----------- -------------
Gross profit 414,539 (7,174) 407,365 442,541 - 442,541
Distribution
costs (152,504) (3,715) (156,219) (186,495) (13,418) (199,913)
Administrative
costs (330,090) (5,427) (335,517) (322,351) (9,473) (331,824)
Other operating
expense (15,081) - (15,081) - - -
------------------ --------------- ----------- ---------- ---------------- ----------- -------------
Operating loss (83,136) (16,316) (99,452) (66,305) (22,891) (89,196)
Revenue
Group revenue decreased by 9.3% to GBP969.3m in the first half
(H1 2022: GBP1,069.2m). This performance is a result of:
- A continuing uncertain macroeconomic environment;
- The Group exiting non-profitable categories and territories.
Revenue generated from the discontinued categories has declined by
GBP38.7m to GBP18.7m in H1 2023 compared to H1 2022;
- THG Beauty have consciously prioritised higher-margin sales
leading to a decline in revenue where we have actively
de-emphasised less-profitable markets;
- A one-time destocking across the beauty sector has led to a
decline in revenue of THG Beauty manufacturing (reported within THG
Beauty); and
- THG Ingenuity continues with its pre-announced strategic
re-positioning which commenced in Q3 2022, focusing on higher value
and higher margin clients which provide improved quality recurring
revenue over the mid-long term. The short-term impact is a
reduction in revenue as the re-positioning is executed.
THG Nutrition grew +2.6% , driven by the annualisation of prior
year price increases in the first half .
Excluding the impact of the discontinued categories and THG
Beauty manufacturing performance the decrease period-on-period
would reduce to 4.8% which we view as a credible performance given
the aforementioned pressures on the consumer as reflected in other
online peers performances.
Whilst the effect of the above is a decline in revenue, the
Group is pleased to report an improvement in both gross profit
margin and Adjusted EBITDA metrics which, together with cash, have
been a key management focus.
Detailed analysis is included within the segmental section later
in this report.
Gross profit
Adjusted gross profit was GBP424.2m (H1 2022: GBP452.9m)
equating to an adjusted gross profit margin of 43.8% (H1 2022:
42.4%), an improvement of 140bps compared to H1 2022.
Gross profit on a statutory basis totalled GBP407.4m (H1 2022:
GBP442.5m) also delivering an increased margin of 42.0% (H1 2022:
41.4%).
The cost environment in H1 has continued to be challenging with
high levels of inflation. Despite this, an improved margin has been
delivered from successful implementation of cost-reduction
initiatives. In addition, the Group saw a substantially better
margin within THG Nutrition, reflecting the partial unwind in the
whey commodity price. In late 2021 and throughout 2022, THG chose
to partially insulate the consumer from these increases as a
long-term customer investment strategy.
In THG Beauty - online retail (principally Look Fantastic, Cult
Beauty and Dermstore) saw gross margin expansion as a result of the
de-prioritisation of lower margin sales and subtle tweaks to
promotional strategy geographically.
Operating expenses
Pleasingly distribution costs on a statutory basis further
reduced as a percentage of sales by 260bps compared to H1 2022,
culminating in a cost of GBP156.2m (H1 2022: GBP199.9m), which is
16.1% (H1 2022: 18.7%) of revenue. Statutory distribution costs
include one off adjusted items of GBP3.7m, which has substantially
reduced from the GBP13.4m reported in H1 2022.
As expected, in line with the reopening of air channels and the
impacts of the pandemic lessening, the costs relating to
incremental delivery fees in respect of Covid-19 have significantly
decreased, totalling just GBP1.2m compared to GBP11.3m in H1
2022.
Adjusted distribution costs of GBP143.7m (H1 2022: GBP174.2m)
were 14.8% (H1 2022: 16.3%) of revenue. This 150bps underlying
improvement was driven by the Group's continued focus on network
optimisation and the expanded usage of warehouse automation which
have more than compensated for high levels of labour inflation in
the market. This included the launch of the Group's second
Autostore facility in North America in H1.
As a result of the Group's cost-reduction programme, a reduction
in headcount of over 2,500 heads from the start of 2022 has been
delivered through technology investment, automation and
simplification of operations within its core divisions across THG
Beauty, THG Nutrition and THG Ingenuity. This benefit continues to
annualise throughout the year, benefitting both distribution costs
and administrative costs.
Administrative costs on a statutory basis totalled GBP335.5m (H1
2022: GBP331.8m). A decrease from the reduction in the acquisitions
- restructuring and integration costs of GBP5.7m, and the
restructuring costs of the strategic review in H1 2023 of GBP1.9m
was offset by the increase in the share based payment charge of
GBP7.9m (H1 2022: GBP0.6m) and the one off non-cash loss on
disposal of discontinued categories of GBP4.0m (H1 2022:
GBPnil).
Adjusted administrative costs as a percentage of revenue
totalled 24.1% of revenue (H1 2022: 23.0%).
Within administrative costs, the main increases have been seen
within marketing due to intentional spend in certain areas and
general inflation in paid channels. Greater app participation has
partially mitigated rising marketing costs, with customers acquired
at lower costs through this channel typically ordering more
frequently, with higher AOV's due to regular engagement.
Other operating expense of GBP15.1m (H1 2022: GBPnil) relates to
the loss on disposal of the planned sale of three non-core freehold
assets in H1. These three disposals of assets no longer required by
the Group generated cash proceeds of GBP52.0m.
Adjusted EBITDA and Adjusted EBITDA (continuing)
Six months ended Six months
30 June 2023 ended
Reconciliation from Operating loss GBP'000 30 June 2022
to Adjusted EBITDA GBP'000
------------------------------------------ ----------------- --------------
Operating loss (99,452) (89,196)
Adjustments for:
Amortisation 35,832 26,906
Amortisation of acquired intangibles 25,503 25,413
Depreciation 45,927 45,732
Adjusted items - cash 5,192 22,891
Adjusted items - non-cash loss on 11,124 -
disposal of discontinued categories
Other operating expense - non-cash 15,081 -
loss on disposal freehold assets
Share-based payments 7,888 573
Adjusted EBITDA 47,095 32,319
-------------------------------------------- ----------------- --------------
Adjusted EBITDA % 4.9% 3.0%
-------------------------------------------- ----------------- --------------
EBITDA loss from discontinued categories 3,054 8,472
-------------------------------------------- ----------------- --------------
Adjusted EBITDA before discontinued
categories 50,149 40,791
-------------------------------------------- ----------------- --------------
Adjusted EBITDA before discontinued
categories % 5.3% 4.0%
-------------------------------------------- ----------------- --------------
Adjusted EBITDA saw a strong improvement to GBP47.1m from
GBP32.3m in H1 2022. This represents a margin of 4.9% (H1 2022:
3.0%), an improvement of 190bps, with the margin improvements
delivered through the Group's cost-reduction programme and the exit
of loss-making categories and territories.
This is an encouraging result against a tough macroeconomic
backdrop with the cost base of the business fundamentally stronger
and well positioned for operating leverage when consumer spending
pressures abate.
Discontinued categories
On 17 January 2023, the Group confirmed its intention to
simplify and streamline its operations, undertaking a strategic
review of loss-making categories and territories within the THG
OnDemand division. In July 2023, the trade and assets of THG
OnDemand have been sold to a Newco led by the OnDemand management
team. The Newco will continue to be a client of Ingenuity, with the
provision of technology, operational and digital services.
In addition, specialist provider of cycling equipment
'ProBikeKit' was sold to Frasers Group PLC in Q2 2023. The combined
consideration receivable through both transactions was c. GBP4
million.
The discontinued categories contributed GBP18.7m (H1 2022:
GBP57.4m) of revenue and an adjusted EBITDA loss of GBP3.1m (H1
2022: loss of GBP8.5m).
We note the exit doesn't meet the criteria under IFRS 5:
Discontinued operations, as these categories and territories are
not a major component of the Group as defined by the accounting
standard. However, to provide further information on the ongoing
revenue and Adjusted EBITDA of the Group these have been presented
separately.
Depreciation and amortisation
Total depreciation and amortisation costs were GBP45.9m and
GBP61.3m respectively (H1 2022: GBP45.7m and GBP52.3m). Included
within amortisation is GBP25.5m relating to acquired intangibles
(H1 2022: GBP25.4m).
Depreciation remained consistent as a result of the previous
investment made across the network.
Amortisation increased following the continued investment in our
proprietary technology platform during the period, as expected,
more projects moved from work-in-progress to live in the period
generating an increased amortisation charge. This investment is
focused on the technology to support both internal and external
customers and ensures that we continually enhance the functionality
and capability of the platform.
Operating loss
Operating loss before adjusted items totals GBP83.1m (H1 2022:
GBP66.3m). This loss was a result of the challenging macroeconomic
environment combined with the above mentioned factors. The actions
taken to exit loss-making categories and territories and a return
to consumer spending are expected to reduce this loss position in
the medium-term.
The Group incurred an operating loss in the period of GBP99.5m
(H1 2022: GBP89.2m). This is primarily driven by one-off costs
incurred during the first half, loss on disposal of loss-making
discontinued categories totalling GBP11.1m (H1 2022: GBPnil) and
share-based payment charges of GBP7.9m (H1 2022: GBP0.6m). In
addition the other operating expense of GBP15.1m (H1 2022: GBPnil)
relating to the non-cash loss on disposal following the sale of
non-core freehold assets will not recur in future years.
Finance costs net of finance income
Finance costs net of finance income have increased to GBP33.6m
(H1 2022: GBP19.0m) driven principally by higher interest rates,
which have been caused by higher market rates and an increase in
group leverage. Alongside drawing of the additional GBP156.0m
facility in H2 2022 with no comparison in the previous half.
Loss before tax and tax rate
Reported loss before tax was GBP133.0m (H1 2022: GBP108.2m). The
effective tax rate is -0.1% (H1 2022: 1.7%), based on a total tax
charge of GBP0.1m (H1 2022: tax credit GBP1.8m). The effective tax
rate differs from the average statutory rate of 23.5%. This is
primarily due to a movement in deferred tax not recognised
(-18.6%), and expenses not deductible (-5.1%). The non-deductible
expenses principally comprise of the share-based payments charge
and non-qualifying depreciation.
At 30 June 2023, the total net deferred tax liability is
GBP71.7m (H1 2022: GBP70.7m). The deferred tax liability in respect
of intangible assets recognised on consolidation was GBP142.4m (H1
2022: GBP141.6m). The deferred tax asset in respect of tax losses
recognised was GBP51.5m (H1 2022: GBP54.8m). There were GBP74.4m of
unrecognised deferred tax assets in respect of tax losses at the
balance sheet date (H1 2022: GBP32.0m). This non-recognition has an
impact on the income statement tax charge, and this is one of the
primary reasons for the effective tax rate being below the
statutory rate.
Earnings per share
Loss per share was (GBP0.10) per share (H1 2022: GBP(0.09) per
share).
Cashflow
H1 2023 LTM 2023 H1 2022
------------------------------------------- --------- --------- ----------
GBP'000 GBP'000 GBP'000
------------------------------------------- --------- --------- ----------
Adjusted EBITDA 47,095 78,890 32,319
Working capital movements (60,802) 120,043 (156,941)
Tax paid (1,595) (4,942) (1,510)
Adjusted items (5,282) (23,060) (27,293)
------------------------------------------- --------- --------- ----------
Net cash (used)/generated in operating
activities (20,584) 170,931 (153,425)
------------------------------------------- --------- --------- ----------
Purchase of property, plant and equipment (28,758) (76,966) (46,646)
Purchase of intangible assets (43,307) (86,059) (39,706)
Proceeds from sale of non-core freehold
assets 52,000 52,000 -
Other (38,084) (80,517) (31,698)
------------------------------------------- --------- --------- ----------
Free cash flow [14] (78,733) (20,611) (271,475)
------------------------------------------- --------- --------- ----------
Acquisition of subsidiaries net of
cash acquired (2,504) (8,504) 309
Proceeds from bank borrowings - 156,000 -
------------------------------------------- --------- --------- ----------
Net (decrease)/increase in cash
and cash equivalents (81,237) 126,885 (271,166)
------------------------------------------- --------- --------- ----------
Cash and cash equivalents at the
beginning of the year 473,783 265,661 536,827
------------------------------------------- --------- --------- ----------
Cash and cash equivalents at the
end of the year 392,546 392,546 265,661
------------------------------------------- --------- --------- ----------
Six month free cash flow totals an outflow of GBP78.7m (H1 2022:
GBP271.5m) and GBP20.6m for the last twelve months (LTM). The AGM
Trading statement released in June 2023 guided to a cGBP40m outflow
for LTM, therefore we are pleased to report that we are ahead of
this guidance by cGBP20m.
The total cash outflow for the period was GBP81.2m (H1 2022:
GBP271.2m) with a cash inflow for the LTM of GBP126.9m reflecting
the new senior secured facility that was drawn in October 2022.
There was a seasonal outflow from working capital movements
totalling GBP60.8m (H1 2022: outflow GBP156.9m) primarily driven by
a reduction of the group's payables , which typically relates to
the peak trading period at the end of 2022. The key driver to this
was general tighter working capital controls, particularly reducing
stock holding with no impact on availability following a period of
investment in the global fulfilment network roll out.
Total cash adjusting items has declined significantly to GBP5.3m
from GBP27.3m in H1 2022. The loss on discontinued categories in H1
2023 is non-cash. The cash reduction has been driven by lower
transportation, delivery and fulfilment cash costs in relation to
Covid-19 from GBP11.3m to GBP1.2m with air channels reopening in
Asia. Also acquisition costs decreased from GBP6.2m to less than
GBP1m.
There has been a reduction in the cash spend on the purchase of
property, plant and equipment in H1 2023, as the fitout of our
current distribution network is largely complete. This investment
continued to deliver efficiencies and a benefit reflected in lower
distribution costs. Continued investment within intangible assets,
mainly the Ingenuity platform continues at a similar rate to H1
2022 totalling GBP43.3m (H1 2022: GBP39.3m).
During H1 2023, management executed the planned sale of three
non-core freehold assets that were no longer required by the Group.
The sales proceeds generated a GBP52.0m cash inflow.
The Group ended the period with cash and cash equivalents of
GBP392.5m (H1 2022: GBP265.7m, 31 December 2022: GBP473.8m).
Segmental Summary
Overview
H1 2023 THG THG THG Central Inter-group Continuing Discontinued 30 June
GBPm Beauty Nutrition Ingenuity elimination Total categories 2023
([15]) Total
-------- ----------- ----------- -------- -------------
External
revenue 538.7 340.7 71.2 - - 950.6 18.7 969.3
Inter-segment
revenue - - 248.8 - (248.8) - - -
-------- ----------- ----------- -------- ------------- ----------- -------------
Total revenue 538.7 340.7 320.0 - (248.8) 950.6 18.7 969.3
-------- ----------- ----------- -------- ------------- ----------- -------------
Adjusted
EBITDA 10.6 47.1 3.4 (10.9) - 50.1 (3.1) 47.1
-------- ----------- ----------- -------- ------------- ----------- -------------
Adjusted
EBITDA margin 2.0% 13.8% 1.0% - - 5.3% -16.3% 4.9%
---------------- -------- ----------- ----------- -------- ------------- ----------- -------------
H1 2022 THG THG THG Central Inter-group Continuing Discontinued 30 June
GBPm Nutrition Ingenuity elimination categories 2022
Beauty Total (restated)
Total
--------- ---------- ---------- --------- --------------
External
revenue 601.2 332.1 78.5 - - 1,011.8 57.4 1,069.2
Inter-segment
revenue - - 297.3 - (297.3) - - -
--------- ---------- ---------- --------- ------------- ------------ --------------
Total revenue 601.2 332.1 375.9 - (297.3) 1,011.8 57.4 1,069.2
--------- ---------- ---------- --------- ------------- ------------ --------------
Adjusted
EBITDA 17.7 27.4 6.8 (11.2) - 40.8 (8.5) 32.3
--------- ---------- ---------- --------- ------------- ------------ --------------
Adjusted
EBITDA margin 2.9% 8.2% 1.8% - - 4.0% -14.8% 3.0%
--------------- --------- ---------- ---------- --------- ------------- ------------ --------------
THG Beauty [16]
H1 2023 H1 2022 Change
%
GBPm (restated)
------------------------------- ---- ---- --------- ------------ -------
Revenue 538.7 601.2 -10.4%
Adjusted EBITDA 10.6 17.7 -40.4%
------------------------------------------- --------- ------------ -------
Margin % 2.0% 2.9% -90bps
------------------------------------------- --------- ------------ -------
Adjusted EBITDA excluding THG
Beauty manufacturing 9.7 7.3 +32.1%
------------------------------------------- --------- ------------ -------
Margin excluding THG Beauty 1.4
manufacturing 2.0% % +60bps
------------------------------------------- --------- ------------ -------
Mainly reflecting the change in strategy to reduce low-margin
sales, THG Beauty sales declined 10.4% to GBP538.7m. THG Beauty
delivered Adjusted EBITDA of GBP10.6m (H1 2022: GBP17.7m) with a
margin of 2.0% (H1 2022: 2.9%), being a 90bps reduction on H1 2022.
The reduction in margin is entirely driven by the lower sales
within THG Beauty manufacturing, resulting from a one-time
destocking across the Beauty industry. The Adjusted EBITDA in THG
Beauty manufacturing has declined by GBP9.5m compared to H1 2022.
Excluding this result, Adjusted EBITDA margin would have improved
by 60bps. We expect this destocking activity to be short-term in
nature, and anticipate a return to previously achieved margins in
the medium-term.
Our prestige online retailing and THG owned-brands continue to
perform strongly, despite the challenging backdrop, benefitting
from the growth within the prestige beauty market alongside the
continued trend of digital channel shift and THG Ingenuity platform
services.
AOV's continue to increase totalling GBP62 per basket for 2023
(H1 2022: GBP61), arising from a focus on customer loyalty (with
the launch of LF Beauty+) and continued investment to drive
increased customer engagement in both third party and THG own
brands.
THG Nutrition
H1 2023 H1 2022 Change
GBPm %
----------------- -------- -------- --------
Revenue 340.7 332.1 +2.6%
Adjusted EBITDA 47.1 27.4 +71.9%
------------------- -------- -------- --------
Margin % 13.8% 8.2% +560bps
------------------- -------- -------- --------
THG Nutrition sales grew 2.6% in the period to GBP340.7m, driven
by the annualisation of prior year price increases in the first
half resulting from commodity inflation, despite THG partially
insulating the consumer from some of this impact. AOV's totalled
GBP50 (H1 2022: GBP48). Emerging regions of Australia and Middle
East continue to be in double-digit growth.
THG Nutrition delivered an Adjusted EBITDA of GBP47.1m (H1 2022:
GBP27.4m) with a margin of 13.8% (H1 2022: 8.2%), being a 560bps
increase reflecting the unwind of a period of unusually high whey
commodity prices which we expect to continue throughout 2023. The
Group continues to invest in its customer proposition through
partnerships and retail outlets and gyms as part of its demand
generation strategy.
Adjusted EBITDA margin is marginally above the medium-term
guidance level previously communicated.
THG Ingenuity
H1 2023 H1 2022 Change
GBPm %
------------------ -------- -------- -------
External revenue 71.2 78.5 -9.3%
Internal revenue 248.8 297.3 -16.3%
-------------------- -------- -------- -------
Total revenue 320.0 375.9 -14.9%
-------------------- -------- -------- -------
Adjusted EBITDA 3.4 6.8 -50.8%
-------------------- -------- -------- -------
Margin % 1.0% 1.8% -80bps
-------------------- -------- -------- -------
THG Ingenuity revenue from external customers decreased by 9.3%
to GBP71.2m (H1 2022: GBP78.5m). Strategic re-positioning commenced
in Q3 2022, focusing on higher value and higher margin clients
which provide improved quality recurring revenue principally
through, Software-as-a-Service licence fees, monthly brand building
fees, infrastructure service fees, revenue share, translation and
creative services.
Following an intentional phase of investment in headcount and
expertise to deliver the re-positioned strategy, new enterprise
client wins have been secured and onboarding is progressing. Due to
this pivot in strategy, as expected, THG Ingenuity delivered an
Adjusted EBITDA of GBP3.4m with a margin of 1.0% (H1 2022: GBP6.8m
with a margin of 1.8%), being a 80bps reduction compared to the
prior half. There continues to be a strategic exit of smaller
accounts which will continue throughout 2023. As revenue scales and
the revenue mix evolves towards the technology product offering we
anticipate margins will increase towards the Groups 5-year
aspirational target.
Internal revenue of GBP248.8m (H1 2022: GBP297.3m) relates to
services provided to the wider THG Group including platform fees,
customer services, fraud detection services, THG Studios,
fulfilment, postage and marketing services. This revenue is
eliminated on consolidation. Internal revenue declined due to the
wider Group exiting loss-making categories and territories along
with lower group-wide sales, this in turn generated lower volumes
for THG Ingenuity.
Central costs
H1 2023 H1 2022 Change
GBPm %
-------------------------------- -------- -------- -------
EBITDA loss from central costs (10.9) (11.2) +2.6%
---------------------------------- -------- -------- -------
Central costs relate primarily to the PLC Board remuneration,
professional services fees, group finance, M&A, risk
(insurance) and governance costs that are not recharged to the
divisions as they principally relate to the operations of the PLC
holding company. The costs reduced vs H1 2022 as the Group cost
saving initiatives continue to flow into the results, more than
offsetting increased investment in governance through new Board
appointments and record high levels of macro-inflation in the
economy.
Discontinued categories
H1 2023 H1 2022 Change
GBPm %
----------------------------------- -------- -------- --------
Revenue discontinued 18.7 57.4 -67.4%
------------------------------------- -------- -------- --------
Adjusted EBITDA from discontinued
categories (3.1) (8.5) +63.9%
------------------------------------ -------- -------- --------
Margin % -16.3% -14.8% -150bps
------------------------------------- -------- -------- --------
At the year end, certain loss-making categories and territories
primarily within THG OnDemand were placed under strategic review.
On 17 January 2023, the Group confirmed its intention to simplify
and streamline its operations, undertaking a strategic review of
loss-making categories and territories within the THG OnDemand
division. In July 2023, the trade and assets of THG OnDemand have
been sold to a Newco led by the OnDemand management team. The Newco
will continue to be a client of Ingenuity, with the provision of
technology, operational and digital services.
In addition, specialist provider of cycling equipment
'ProBikeKit' was sold to Frasers Group PLC in Q2 2023. The combined
consideration receivable through both transactions is c. GBP4
million, with the majority relating to OnDemand sale in July 2023
therefore not included within the H1 2023 cash at 30 June 2023.
The exit doesn't meet the criteria under IFRS 5: Discontinued
operations, as these categories and territories are not a major
component of the Group as defined by the accounting standard.
However, to provide further information on the ongoing revenue and
Adjusted EBITDA of the Group these have been presented separately.
The discontinued categories contributed GBP18.7m of revenue and an
Adjusted EBITDA loss of GBP3.1m in H1 2023.
Adjusted items
In order to understand the underlying performance of the Group,
certain costs included within cost of sales, distribution,
administrative and finance costs have been classified as adjusted
items. All material classes of adjusted items reduced
period-on-period.
The largest cost included within adjusted items is the non-cash
loss on discontinued categories GBP11.1m in respect of the exit of
discontinued categories.
Six months Six months
ended ended
30 June 30 June
2023 2022
------------------------------------------------ ----------- -----------
GBP'000 GBP'000
------------------------------------------------ ----------- -----------
Within Cost of sales
Non-cash loss on disposal of discontinued 7,174 -
categories
------------------------------------------------ ------------ -----------
7,174 -
Within Distribution costs
Transportation, delivery and fulfilment
costs in relation to Covid-19 1,228 11,332
Commissioning - new facilities 1,431 2,086
Decommissioning legacy facilities in relation 1,056 -
to acquisitions
3,715 13,418
Within Administrative costs
Non-cash loss on disposal of discontinued 3,950 -
categories
Acquisitions - restructuring and integration 454 6,169
Restructuring costs 1,023 2,943
Donations - 361
5,427 9,473
Total adjusted items before finance
costs 16,316 22,891
Within Finance costs
Non-cash SoftBank option - (601)
------------------------------------------------ ------------ -----------
Total adjusted items before tax 16,316 22,290
------------------------------------------------ ------------ -----------
Tax impact (1,220) (3,797)
------------------------------------------------ ------------ -----------
Total adjusted items 15,096 18,493
------------------------------------------------ ------------ -----------
Cash adjusting items before tax [17] 5,192 22,891
------------------------------------------------ ------------ -----------
For full details on each category of adjusted item see note 3 to
the financial statements.
Balance sheet
Cash and cash equivalents and net cash before lease
liabilities
30 June 30 June 31 December
2023 2022 2022
--------------------------------------------- ---------- --------- ------------
GBP'000 GBP'000 GBP'000
--------------------------------------------- ---------- --------- ------------
Loans and other borrowings (671,884) (502,099) (679,189)
Lease liabilities (321,312) (363,805) (334,376)
Cash and cash equivalents 392,546 265,661 473,783
---------------------------------------------- ---------- --------- ------------
Sub-total (600,650) (600,243) (539,782)
Adjustments:
Retranslate debt balance at swap rate where
hedged by foreign exchange derivatives 11,074 10,871 24,782
---------------------------------------------- ---------- --------- ------------
Net debt (589,576) (589,372) (515,000)
---------------------------------------------- ---------- --------- ------------
Net debt before lease liabilities (268,264) (225,567) (180,624)
---------------------------------------------- ---------- --------- ------------
The Group's balance sheet remains robust closing the period with
cash balances of GBP392.5m, GBP126.8m up on H1 2022 (H1 2022:
GBP265.7m). The EUR600m Term Loan B matures in December 2026 and
the incremental GBP156m facility matures in Q4 2025. The Group
revolving credit facility of GBP170m remains undrawn and has not
been drawn post IPO.
Net debt before lease liabilities and adjusted for the impact of
hedging was GBP268.3m (H1 2022: GBP225.6m, 31 December 2022:
GBP180.6m).
The increase in net debt period-on-period is driven by seasonal
working capital cash outflow of GBP60.8m and the net cash
investment in property, plant and equipment, leases and intangible
assets in the period totalling GBP72.1m less proceeds of GBP52.0m.
With free cash outflow of (GBP20.6m) in the last 12 months.
Non-current assets
Property, plant and equipment totalled GBP298.6m (H1 2022:
GBP359.3m, 31 December 2022: GBP360.0m). Intangible assets totalled
GBP1,224.9m (H1 2022: GBP1,557.3m, 31 December 2022: GBP1,275.8m).
The movement in the period was driven by continued investment in
the THG Ingenuity platform following new client wins within
Ingenuity Commerce and continued investment in the Group's global
warehouse expansion programme which is now nearing completion.
These were offset by the sale of the non-core freehold assets along
with depreciation and amortisation charges incurred.
Going concern
The Group remains in a strong cash position with cash and cash
equivalents totalling GBP392.5m (H1 2022: GBP265.7m). As noted
above, this is ahead of previous management guidance with a free
cash outflow of only GBP20.6m in the 12 months ended 30 June 2023.
Net debt before lease liabilities at this date totalled GBP268.3m
(H1 2022: GBP225.6m). At 30 June 2023, the Group had a total of
GBP170m in undrawn facilities.
In making their assessment of going concern, the Directors
reviewed financial projections until 30 September 2024. Stress test
scenarios were modelled to take into account severe but plausible
impacts of a combination of the principal risks occurring
simultaneously, as well as a reverse stress test.
In response to the ongoing uncertainty in the macroeconomic
market, high inflation and global recessions, Management modelled
stress tests across multiple scenarios. These included adjusting
for a reduction in revenue across all divisions, impacting both
direct to consumer and business to business markets, along with an
increase in cost base across key inputs, with the focus being on
commodity prices. The results of stress testing demonstrated that
the combination of mitigating actions available including existing
cash resources, level of discretionary spend, working capital
optimisation and ability to utilise the RCF were sufficient for the
Group to withstand such impacts.
A reverse stress test was modelled to identify the point at
which liquidity is exhausted. The model would have to see a
significant decline in revenue and margins compared with the stress
test set out above. Such a scenario, and the sequence of events
which could lead to it, is considered to be remote.
For these reasons, the Directors continue to adopt the going
concern basis in preparing these condensed interim financial
statements.
Responsibility statement of the directors in respect of the
condensed interim financial statements
We confirm that to the best of our knowledge:
-- the condensed set of financial statements for the half year
ended 30 June 2023 has been prepared in accordance with UK adopted
IAS 34 Interim Financial Reporting;
-- the interim management report includes a fair review of the information required by:
o DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the 2023 financial year and their impact on
the condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
o DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Matthew Moulding Damian Sanders
Chief Executive Officer Chief Financial Officer
13 September 2023 13 September 2023
Interim condensed consolidated statement of comprehensive income
for the six months ended 30 June 2023
30 June 30 June
2023 2022
(Restated
[18] )
--------------------------------------------- ------ ---------- -----------
Note GBP'000 GBP'000
--------------------------------------------- ------ ---------- -----------
Revenue 2 969,260 1,069,207
Cost of sales (561,895) (626,666)
--------------------------------------------- ------ ---------- -----------
Gross profit 407,365 442,541
Distribution costs (156,219) (199,913)
Administrative costs (335,517) (331,824)
Other operating expense 6 (15,081) -
-----------
Operating loss (99,452) (89,196)
--------------------------------------------- ------ ---------- -----------
Finance income 5,476 792
Finance costs (39,040) (19,782)
-----------
Loss before taxation (133,016) (108,186)
Income tax (charge)/credit 4 (67) 1,835
--------------------------------------------- ------ ---------- -----------
(133,083 (106,351
Loss for the financial period ) )
--------------------------------------------- ------ ---------- -----------
Other comprehensive expense:
Items that may be subsequently reclassified
to profit or loss:
Exchange differences on translating
foreign operations, net of tax (26,687) 76,201
Net gain on cash flow hedges 6,704 10,399
--------------------------------------------- ------ ---------- -----------
Total comprehensive expense for
the financial period (153,066) (19,751)
--------------------------------------------- ------ ---------- -----------
Loss per share (GBP's)
Basic (0.10) (0.09)
Diluted (0.10) (0.09)
Earnings before interest, taxation, depreciation, amortisation,
impairment, adjusted items and share-based payment charges
(Adjusted EBITDA)
30 June 30 June
2023 2022
--------------------------------------------- ------ ---------- -----------
Notes GBP'000 GBP'000
--------------------------------------------- ------ ---------- -----------
Operating loss (99,452) (89,196)
Adjustments for:
Amortisation 6 35,832 26,906
Amortisation of acquired intangibles 6 25,503 25,413
Depreciation 6 45,927 45,732
Adjusted items - cash 3 5,192 22,891
Adjusted items - non-cash loss on
disposal of discontinued categories 3 11,124 -
Other operating expenses -non-cash
loss on disposal of freehold assets 6 15,081 -
Share-based payments 5 7,888 573
Adjusted EBITDA 47,095 32,319
--------------------------------------------- ------ ---------- -----------
Interim condensed consolidated statement of financial position
as at 30 June 2023
30 June 30 June 31 December
2023 2022 2022 Audited
------------------------------ ----- ---------- ---------- ---------------
Note GBP'000 GBP'000 GBP'000
------------------------------ ----- ---------- ---------- ---------------
Non-current assets
Intangible assets 6 1,224,914 1,557,266 1,275,762
Property, plant and
equipment 6 298,582 359,257 360,041
Right-of-use assets 6 281,443 319,799 294,309
Investments 1,400 1,400 1,400
Other non-current financial
assets 17,988 - 21,567
------------------------------ ----- ---------- ---------- ---------------
1,824,327 2,237,722 1,953,079
------------------------------ ----- ---------- ---------- ---------------
Current assets
Assets held for sale 6.1 1,100 - 21,397
Inventories 328,983 456,443 373,271
Trade and other receivables 267,313 267,508 264,949
Other financial assets 5,222 14,451 301
Current tax asset - - 2,377
Cash and cash equivalents 7 392,546 265,661 473,783
------------------------------ ----- ---------- ---------- ---------------
995,164 1,004,063 1,136,078
------------------------------ ----- ---------- ---------- ---------------
Total assets 2,819,491 3,241,785 3,089,157
------------------------------ ----- ---------- ---------- ---------------
Equity
Ordinary shares 7,072 6,808 6,903
Share premium 2,024,824 2,023,081 2,024,452
Merger reserve 615 615 615
Capital redemption
reserve 523 523 523
Hedging reserve (3,771) (5,715) (6,221)
Cost of hedging reserve 20,958 16,844 16,704
FX Reserve 35,172 75,107 61,859
Retained earnings (927,221) (379,782) (803,096)
------------------------------ ----- ---------- ---------- ---------------
1,158,172 1,737,481 1,301,739
------------------------------ ----- ---------- ---------- ---------------
Non-current liabilities
Borrowings 631,789 500,753 648,197
Other financial liabilities - - 4,189
Lease liabilities 275,942 316,681 290,381
Provisions 9 18,087 16,772 18,840
Deferred tax 71,692 70,695 76,598
------------------------------ ----- ---------- ---------- ---------------
997,510 904,901 1,038,205
------------------------------ ----- ---------- ---------- ---------------
Current liabilities
Contract liability 25,808 39,314 34,256
Trade and other payables 531,775 493,338 636,440
Borrowings 40,095 1,346 30,992
Current tax liability 1,952 5,573 -
Lease liabilities 45,370 47,124 43,995
Other financial liabilities 15,974 10,008 -
Provisions 9 2,835 2,700 3,530
------------------------------ ----- ---------- ---------- ---------------
663,809 599,403 749,213
------------------------------ ----- ---------- ---------- ---------------
Total liabilities 1,661,319 1,504,304 1,787,418
------------------------------ ----- ---------- ---------- ---------------
Total equity and liabilities 2,819,491 3,241,785 3,089,157
------------------------------ ----- ---------- ---------- ---------------
Interim condensed consolidated statement of changes in equity
for the six months ended 30 June 2023
Ordinary Share Merger Capital FX Hedging Cost Retained Total
shares premium reserve Redemption reserve reserve of earnings equity
reserve Hedging
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------------
Balance at 1
January
2023 6,903 2,024,452 615 523 61,859 (6,221) 16,704 (803,096) 1,301,739
Loss for the
period - - - - - - - (133,083) (133,083)
Other
comprehensive
expense:
Impact of
foreign
exchange - - - - (26,687) - - - (26,687)
Movement on
hedging
instruments - - - - - 2,450 4,254 - 6,704
Total
comprehensive
expense for
the
period - - - - (26,687) 2,450 4,254 (133,083) (153,006)
Issue of
ordinary
share capital 169 372 541
Share-based
payments - - - - - - - 7,888 7,888
Deferred tax
effect
in equity - - - - - - - 1,070 1,070
Balance at 30
June 2023 7,072 2,024,824 615 523 35,172 (3,771) 20,958 (927,221) 1,158,172
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------------
Balance at 1
January
2022 6,684 2,022,311 615 523 (1,094) (12,964) 13,694 (274,015) 1,755,754
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------------
Loss for the
period - - - - - - - (106,351) (106,351)
Other
comprehensive
expense:
Impact of
foreign
exchange - - - - 76,201 - - - 76,201
Movement on
hedging
instruments - - - - - 7,249 3,150 - 10,399
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------------
Total
comprehensive
expense for
the
period 76,201 7,249 3,150 (106,351) (19,751)
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------------
Issue of
ordinary
share capital 124 770 - - - - - - 894
Deferred tax
effect
in equity - - - - - - - 11 11
Share-based
payments - - - - - - - 573 573
Balance at 30
June
2022 6,808 2,023,081 615 523 75,107 (5,715) 16,844 (379,782) 1,737,481
--------------- --------- ---------- -------- ----------- --------- --------- -------- ---------- ----------------
Interim condensed consolidated statement of cash flows for the
six months ended 30 June 2023
30 June 30 June 2022
2023
-------------------------------------- ----- --------- -------------------
Note GBP'000 GBP'000
-------------------------------------- ----- --------- -------------------
Cash flows from operating activities
before adjusted cash flows
-------------------------------------- ----- --------- -------------------
Cash used in operations 8 (13,707) (124,622)
Income tax paid (1,595) (1,510)
-------------------------------------- ----- --------- -------------------
Net cash used in operating
activities before adjusted cash
flows (15,302) (126,132)
Cash flows relating to adjusted
items (5,282) (27,293)
-------------------------------------- ----- --------- -------------------
Net cash used in operating
activities (20,584) (153,425)
-------------------------------------- ----- --------- -------------------
Cash flows from investing activities
-------------------------------------- ----- --------- -------------------
Acquisition of subsidiaries
net of cash acquired (2,504) 309
Purchase of property, plant
and equipment (28,758) (46,646)
Proceeds from sale of property,
plant and equipment 52,000 -
Purchase of intangible assets (43,307) (39,706)
Interest received 5,476 792
-------------------------------------- ----- --------- -------------------
Net cash used in investing
activities (17,093) (85,251)
-------------------------------------- ----- --------- -------------------
Cash flows from financing activities
-------------------------------------- ----- --------- -------------------
Proceeds from issuance of ordinary
shares net of fees - (18)
Interest paid (18,385) (9,183)
Repayment of lease liabilities (25,175) (23,289)
-------------------------------------- ----- --------- -------------------
Net cash flow used in from
financing activities (43,560) (32,490)
-------------------------------------- ----- --------- -------------------
Net decrease in cash and cash
equivalents (81,237) (271,166)
Cash and cash equivalents at
the beginning of the period 473,783 536,827
-------------------------------------- ----- --------- -------------------
Cash and cash equivalents at
the end of the period 392,546 265,661
-------------------------------------- ----- --------- -------------------
Notes to the interim condensed consolidated financial
statements
1. Basis of preparation
a. General information
THG PLC (company number 06539496) is a public company limited by
shares and incorporated in England and Wales. It has a standard
listing on the London Stock Exchange and is the holding company of
the Group. The address of its registered office is Icon 1 7-9,
Sunbank Lane, Ringway Altrincham, Manchester, WA15 0AF. The Company
is the parent and the ultimate parent of the Group, the financial
statements comprises the results of the Company and its
subsidiaries ("the Group").
The interim condensed consolidated financial statements of the
Group for the six months ending 30 June 2023 were authorised for
issue in accordance with a resolution of the directors on 13
September 2023.
The annual financial statements for the year ended 31 December
2023 of the Group will be prepared in accordance with UK adopted
IFRSs.
b. Basis of preparation
The interim condensed consolidated financial statements for the
six months ended 30 June 2023 have been prepared in accordance with
UK adopted International Accounting Standard 34 and the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority. The financial statements have been prepared on
the historical cost basis, except for derivatives which are held at
fair value. The Directors consider it appropriate to adopt the
going concern basis of accounting in preparing the financial
statements of the Group.
The interim condensed consolidated financial statements do not
include all the information and disclosures required in the annual
financial statements and should be read in conjunction with the
Group's annual consolidated financial statements for the year ended
31 December 2022. As disclosed in note 1a, the annual financial
statements of the Group will be prepared in accordance with UK
adopted IFRSs.
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's annual
consolidated financial statements for the year ended 31 December
2022, except for the adoption of new standards effective as of 1
January 2023. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet
effective.
Several amendments apply for the first time in 2023, but do not
have an impact on the interim condensed consolidated financial
statements of the Group.
The IASB has adopted amendments exempting entities from
accounting for deferred taxes arising from Pillar Two legislation
and these have now been endorsed by the UK Endorsement Board
(UKEB). THG PLC will apply the mandatory temporary exception from
recognising and disclosing information about deferred tax assets
and liabilities related to Pillar Two income taxes. The Pillar Two
rules are expected to apply from January 2024, at which time THG
PLC is expected to fall within scope. To date, THG PLC does not
materially operate in low tax jurisdictions and will continue to
monitor application of the rules and the potential impact on the
Group.
Total H1 2022 revenue has been restated by GBP7.6m being a
reclassification correction which had overstated revenue and cost
of sales. This relates only to the THG Beauty segment. The position
reflects the full year reported revenue figure to 31 December 2022.
Refer to note 2, segmental reporting and revenue.
Going concern
The Group remains in a strong cash position with cash and cash
equivalents totalling GBP392.5m (H1 2022: GBP265.7m, 31 December
2022 GBP473.8m). Net debt before lease liabilities at this date
totalled GBP268.3m (H1 2022: net debt before lease liabilities
GBP225.6m, 31 December 2022: GBP180.6m). At 30 June 2023, the Group
had a total of GBP170m in undrawn facilities.
In making their assessment of going concern, the Directors
reviewed financial projections until 30 September 2024. Stress test
scenarios were modelled to take into account severe but plausible
impacts of a combination of the principal risks occurring including
reducing divisional sales and gross profit margins to levels
significantly below historic actuals and current budgets. A reverse
stress test was also separately modelled. The results of stress
testing demonstrated that the combination of mitigating actions
available including existing cash resources, level of discretionary
spend and ability to utilise the RCF were sufficient for the Group
to withstand such impacts. For these reasons, the Directors
continue to adopt the going concern basis in preparing these
condensed interim financial statements.
c. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies,
management is required to make judgements (other than those
involving estimations) that have a significant impact on the
amounts recognised and to make estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. In preparing these interim financial statements, the
significant judgements made by management in applying the Group's
accounting policies and key sources of estimation uncertainty were
the same as those applied to the Group's annual consolidated
financial statements for the year ended 31 December 2022.
2. Segmental reporting and revenue
The Group's activities were divided into the following segments:
THG Beauty, THG Nutrition, THG Ingenuity, Discontinued categories
(primarily THG OnDemand) and Central PLC costs.
The results of each division are reported to the Board of
Directors and are treated as reportable operating segments. The
following table describes the main activities for each reportable
operating segment:
Segment Activities
THG Beauty A digital-first brand owner, retailer and manufacturer
in the prestige beauty market, with a portfolio of own-brands
across skincare, haircare and cosmetics. Through its retail
websites, including Lookfantastic, Dermstore, Cult Beauty
and the beauty subscription box brand GLOSSYBOX, it is
a route to market globally for over 1,300 third-party
premium brands. THG Beauty also operates prestige spa
and experience venues, in addition to luxury clothing
and homeware D2C sites.
THG Nutrition A group of digital-first nutrition brands, which includes
the world's largest online sports nutrition brand Myprotein
and its family of brands (Myvegan, Myvitamins, MP Activewear
and MyPRO), with a vertically integrated business model
supported by global THG production facilities.
THG Ingenuity THG Ingenuity provides a complete digital commerce solution
for consumer brand owners across its three pillars of
technology, digital marketing and operations. Being part
of the THG group, Ingenuity is uniquely placed to bring
relevant, practical and international expertise in every
area of commerce.
Discontinued At the year end, certain loss-making categories and territories
categories primarily within THG OnDemand were placed under strategic
review. This review is now complete and these operations
will be fully exited in 2023. The exit doesn't meet the
criteria under IFRS 5: Discontinued operations at the
balance sheet date, as these categories and territories
are not a major component of the Group as defined by the
accounting standard, however, management began to report
the financial results of these categories separately in
their reporting to the CODM, as such the result has also
been shown in the same format within this note.
--------------- ---------------------------------------------------------------------
Central costs relate primarily to the PLC Board remuneration,
professional services fees, group finance, M&A, risk
(insurance) and governance costs that are not recharged to the
divisions as they principally relate to the operations of the PLC
holding company.
The CODM is the executive Board of directors, who makes the key
operating decisions for the business. The CODM receives daily
financial information at the combined Group level, along with
monthly information at a divisional level and uses this information
to allocate resources, make operating decisions and monitor the
performance of each of the divisions.
The measure of the Group's performance used by THG's management
team is Adjusted EBITDA comprising operating loss less interest,
tax, depreciation, amortisation, shared-based payments and adjusted
items. This is reconciled to the nearest IFRS measure (loss before
tax) in the below table.
Result
H1 2023 THG THG THG Central Inter-group before Discontinued H1 2023
Beauty Nutrition Ingenuity PLC elimination discontinued categories Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 categories GBP'000 GBP'000
GBP'000
External
revenue 538,698 340,650 71,202 - - 950,550 18,710 969,260
Inter-segment
revenue - - 248,842 - (248,842) - - -
--------------- --------- ----------- ----------- --------- ------------- --------------
Total revenue 538,698 340,650 320,044 - (248,842) 950,550 18,710 969,260
--------------- --------- ----------- ----------- --------- ------------- --------------
Adjusted
EBITDA 10,561 47,103 3,353 (10,868) - 50,149 (3,054) 47,095
--------------- --------- ----------- ----------- --------- ------------- --------------
Margin % 2.0% 13.8% 1.0% - - 5.3% -16.3% 4.9%
--------------- --------- ----------- ----------- --------- ------------- ------------- -------------- ----------
Depreciation (45,927)
Amortisation (61,335)
Share-based payments (7,888)
Adjusted items (16,316)
Other operating
expense (15,081)
-------------------------- ----------- ----------- --------- ------------- ------------- -------------- ----------
Operating
loss (99,452)
--------------- --------- ----------- ----------- --------- ------------- ------------- -------------- ----------
Finance income 5,476
Finance costs (39,040)
--------------- --------- ----------- ----------- --------- ------------- ------------- -------------- ----------
Loss before
taxation (133,016)
--------------- --------- ----------- ----------- --------- ------------- ------------- -------------- ----------
Result
H1 2022 THG THG THG Central Inter-group before Discontinued H1 2022
Beauty Nutrition Ingenuity PLC elimination discontinued categories Total
[19] GBP'000 GBP'000 GBP'000 GBP'000 categories GBP'000 (restated)
GBP'000 GBP'000 [20]
GBP'000
External
revenue 601,168 332,117 78,519 - - 1,011,804 57,403 1,069,207
Inter-segment
revenue - - 297,345 - (297,345) - - -
--------------- --------- ----------- ----------- --------- ------------- --------------
Total revenue 601,168 332,117 375,864 - (297,345) 1,011,804 57,403 1,069,207
--------------- --------- ----------- ----------- --------- ------------- --------------
Adjusted
EBITDA 17,733 27,397 6,815 (11,153) - 40,792 (8,473) 32,319
--------------- --------- ----------- ----------- --------- ------------- --------------
Margin % 2.9% 8.2% 1.8% - - 4.0% -14.8% 3.0%
--------------- --------- ----------- ----------- --------- ------------- ------------- -------------- ------------
Depreciation (45,732)
Amortisation (52,319)
Share-based payments (573)
Adjusted
items (22,891)
--------------- --------- ----------- ---------------------- ------------- ------------- -------------- ------------
Operating
loss (89,196)
--------------- --------- ----------- ---------------------- ------------- ------------- -------------- ------------
Finance
income 792
Finance
costs (19,782)
--------------- --------- ----------- ---------------------- ------------- ------------- -------------- ------------
Loss before
taxation (108,186)
--------------- --------- ----------- ---------------------- ------------- ------------- -------------- ------------
Below is an analysis of revenue by region (by destination):
Six months ended Six months ended
------------------- ---------------------------------------------- -----------------------
30 June 2023 30 June 2022 (restated)
------------------- ---------------------------------------------- -----------------------
GBP'000 GBP'000
UK 429,714 457,931
USA 183,209 211,507
Europe 207,748 216,432
Rest of the world 148,589 183,337
------------------- ---------------------------------------------- -----------------------
969,260 1,069,207
------------------- ---------------------------------------------- -----------------------
Below is an analysis of revenue before discontinued categories
by region (by destination):
Six months ended Six months ended
------------------- ---------------------------------------------- --------------------
30 June 2023 30 June 2022
(restated)
------------------- ---------------------------------------------- --------------------
GBP'000 GBP'000
UK 418,536 435,808
USA 180,045 187,578
Europe 205,983 207,107
Rest of the world 145,986 171,311
------------------- ---------------------------------------------- --------------------
950,550 1,011,804
------------------- ---------------------------------------------- --------------------
3. Adjusted items
Six months ended Six months ended
30 June 30 June 2022
2023
-------------------------------------------------------------------------------- ----------------- -----------------
GBP'000 GBP'000
-------------------------------------------------------------------------------- ----------------- -----------------
Within Cost of sales 7,174 -
Non-cash loss on disposal of discontinued and loss making categories following
strategic review
7,174 -
Within Distribution costs
Transportation, delivery and fulfilment costs in relation to Covid-19 1,228 11,332
Commissioning - new facilities 1,431 2,086
Decommissioning 1,056 -
3,715 13,418
Within Administrative costs
Non-cash loss on disposal of discontinued and loss making categories following 3,950 -
strategic review
Acquisitions - restructuring and integration 454 6,169
Restructuring 1,023 2,943
Donations - 361
5,427 9,473
Total adjusted items before finance costs 16,316 22,891
Within Finance costs
Non-cash - revaluation of SBM option - (601)
-------------------------------------------------------------------------------- ----------------- -----------------
- (601)
Total adjusted items before tax 16,316 22,290
-------------------------------------------------------------------------------- ----------------- -----------------
Tax impact (1,220) (3,797)
-------------------------------------------------------------------------------- ----------------- -----------------
Total adjusted items 15,096 18,493
-------------------------------------------------------------------------------- ----------------- -----------------
Cash adjusting items before tax [21] 5,192 22,891
-------------------------------------------------------------------------------- ----------------- -----------------
Non-cash loss on disposal of discontinued and loss-making
categories following strategic review
On 17 January 2023 the Group confirmed its intention to simplify
and streamline its operations, undertaking a strategic review of
loss-making categories and territories primarily within the THG
OnDemand division. Post period end, in July 2023, the trade and
assets of THG OnDemand have been sold to a Newco led by the
existing OnDemand management team. The Newco will continue to be a
client of THG Ingenuity, with the provision of technology,
operational and digital services.
The assets sold include property, plant and equipment and
inventories. The carrying value at 30 June 2023 has been written
down to the consideration value. This has led to a loss on disposal
being recognised. This is a one-off, non-cash loss to enable the
exit of a loss making area of the business.
Transportation, delivery and fulfilment costs in relation to
Covid-19
The Group was severely impacted by high surcharges from
suppliers in respect of routes travelling through and into Asia
during the covid-19 pandemic and extended lockdown periods.
However, this impact lessened in H2 2022, with costs reducing
further throughout H1 2023. It is expected that this trend will
continue in H2 2023 as prices normalise back to pre-covid
levels.
Commissioning - new facilities
Consistent with strategic priorities which include warehouse
optimisation, the Group has continued its commissioning of the
campus at Manchester Airport, UK ("Icon") and New Jersey, US. Both
warehouses are now operational, although further automation
continues to be implemented in both sites to further efficiency
gains. The majority of the costs incurred during the period relate
to the Autostore automation of the New Jersey warehouse and the
transfer of stock to this facility. The programme is expected to be
completed in H2 2023.
Decommissioning
As part of the strategic review the Group has consolidated
acquired warehouses into the existing THG network.
The costs that have been incurred as part of this process,
include:
-- Those incurred to relocate the stock across the fulfilment network.
-- Contractual costs borne in existing leased premises.
-- Restructuring costs associated with the dual running of
facilities, severance payments and other third party costs such as
rent and utilities.
All costs recognised within adjusted items are from the point of
management's decision to exit the acquired warehouse. The costs
associated with the decommissioning of these warehouses are
considered to be one-off costs and are incremental to the ongoing
trading of the group.
Acquisitions - restructuring and integration
The costs relate to the dual running of warehouse facilities of
businesses acquired in 2021. The size and nature of acquisitions
and the complexity of the integration plan has led to costs being
incurred over an extended post-acquisition period. It is expected
that the costs will continue to reduce through H2 2023.
Restructuring
Costs within restructuring are those incurred in executing and
embedding the Group's simplification project which was previously
announced as part of the strategic review. This review is expected
to complete by the end of 2023.
Donations and Non-cash revaluation of SBM option
In H1 2022 donations totalled GBP0.4m and Non-cash revaluation
of SBM option (GBP0.6m). These items did not recur in H1 2023.
4. Income tax
The Group calculates the period income tax expense using the tax
rate that would be applicable to the expected total annual
earnings. The major components of income tax expense in the interim
condensed consolidated statement of comprehensive income are:
Six months Six months
ended ended
30 June 30 June 2022
2023
-------------------------------------------------- -------------- ----------------
GBP'000 GBP'000
-------------------------------------------------- -------------- ----------------
Current tax
Tax charge for the period 6,137 4,591
-------------------------------------------------- -------------- ----------------
Deferred tax
Origination and reversal of temporary differences (6,070) (6,426)
Total income tax charge/(credit) 67 (1,835)
-------------------------------------------------- -------------- ----------------
5. Share-based payments
The Group operates a share-based compensation plan, under which
the Group receives services from employees as consideration for
equity instruments (options) of the Company. A total of 43,352,699
shares were issued in the 12 months to 31 December 2022 across two
schemes. On 27 January 2023 a total of 35,072,376 options were
granted in relation to these schemes. The fair value of the
employee services received in exchange for the grant of the equity
instruments is recognised as an expense in the Statement of
Comprehensive Income with the corresponding increase to equity. All
awards vest in three equal tranches, with the first being 31
December following the date of grant. The second and third tranches
for each separate grant will vest on 31 December in the following
two years respectively. Of the 60,353,486 shares held at 30 June
2023, 58,970,270 will vest based on continuous employment with
1,383,216 of the shares only vesting if targets linked ESG
(Environmental, Social and Governance) matters are met.
Six months Six months
ended ended
30 June 30 June
2023 2022
--------------------------------------------------------------------- ---------- -----------------------
GBP'000 GBP'000
--------------------------------------------------------------------- ---------- -----------------------
Expense arising from equity-settled share-based payment transactions 7,888 573
--------------------------------------------------------------------- ---------- -----------------------
The following table shows the shares granted and outstanding at
the beginning of the year and at half-year:
2023
--------------------------- --------------
Number of
shares
--------------------------- --------------
As at 1 January 29,248,600
Granted during the year 35,072,376
Exercised during the year (1,522,592)
Forfeited during the year (2,444,898)
--------------------------- --------------
As at 30 June 60,353,486
--------------------------- --------------
6. Non-current assets
Intangible assets Property, plant and equipment Right-of-use asset
GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------------- ----------------------------- --------------------
1 January 2023 1,275,760 360,041 294,309
Additions 43,308 15,933 5,942
Disposals (25) (46,729) -
Non-cash loss on disposal of discontinued
categories (note 3) - (2,312) -
Depreciation / Amortisation (61,335) (26,201) (19,726)
Transfer to assets held for sale - (1,100) -
Currency translation differences (32,794) (1,050) 918
30 June 2023 1,224,914 298,582 281,443
-------------------------------------------- ------------------- ----------------------------- --------------------
Intangible assets Property, plant and equipment Right-of-use asset
GBP'000 GBP'000 GBP'000
--------------------------------- ------------------- ----------------------------- --------------------
1 January 2022 1,506,292 335,620 310,282
Additions 39,257 44,008 23,671
Business combinations 1,649 - -
Disposals - (3) -
Depreciation / Amortisation (52,319) (24,402) (21,330)
Currency translation differences 62,387 4,034 7,176
30 June 2022 1,557,266 359,257 319,799
--------------------------------- ------------------- ----------------------------- --------------------
Disposals to property, plant and equipment include the sale of
non-core freehold assets which were not consummate to the Group's
strategic priorities and resulting in a non-recurring and non-cash
loss on disposal of GBP15.1m.
IAS 36 states that an entity is required to assess at each
reporting date whether there are any indications of impairment,
with an impairment test itself being carried out if there are such
indications. Goodwill and indefinite life assets are also required
to be tested annually for impairment. The Group's impairment review
is undertaken annually in Q4. In assessing whether there are
impairment triggers at the reporting date, management has taken
into account economic performance including macroeconomic factors
that have impacted the markets in which the Group operates. Whilst
there has been a decline in overall revenues, this is largely due
to the impact of business discontinuation which was initiated as
part of the strategic review. Despite this gross profit margin,
adjusted EBITDA metrics and cash have seen substantial improvement
since on 31 December 2022. As such, management has concluded that
there are no impairment triggers at 30 June 2023.
6.1 Assets held for sale
In July 2023, the sale of trade and assets of THG OnDemand was
completed (note 11). In accordance with IFRS 5: Non-current assets
held for sale and discontinued operations, where relevant, assets
were classified as held for sale on the Group statement of
financial position at 30 June 2023. Immediately before the
classification as an asset for sale, the recoverable value was
estimated and an impairment loss of GBP2.3m was recognised to
reduce the carrying amount of the assets to their recoverable
value. This was recognised within administrative costs as an
adjusted item (note 3) - non-cash loss on disposal of discontinued
and loss making categories following strategic review as this was a
one-off charge outside the normal course of business.
7. Financial assets and liabilities
30 June 30 June 31 December
2023 2022 2022
----------------------------------------------------- ----------- ------------- ------------------
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ----------- ------------- ------------------
Assets as per balance sheet - financial
assets
Trade and other receivables excluding non-financial
assets 139,213 160,717 162,835
Cash and cash equivalents 392,546 265,661 473,783
Investments 1,400 1,400 1,400
Assets as per balance sheet - held at
fair value through OCI
Derivative financial instruments designated
as hedging instruments 22,910 14,151 21,567
Derivative financial instruments held at
fair value through profit and loss 300 300 301
------------------------------------------------------ ----------- ------------- ------------------
556,369 442,229 659,886
----------------------------------------------------- ----------- ------------- ------------------
Liabilities as per balance sheet - other
financial liabilities at amortised cost
Bank borrowings 671,884 502,099 679,189
Lease liabilities 321,312 363,805 334,376
Trade and other payables excluding non-financial
liabilities 461,115 457,824 574,994
Liabilities as per balance sheet - other
financial liabilities at fair value
Derivative financial instruments designated
as hedging instruments 15,974 10,008 4,189
1,470,285 1,333,736 1,592,748
----------------------------------------------------- ----------- ------------- ------------------
Derivative financial instruments designated
as hedging instruments
FX forwards hedging foreign exchange risk
on borrowings (15,974) (10,008) (3,377)
Interest rate swaps 17,988 12,001 21,567
FX forwards hedging foreign exchange risk
on highly probable future cash flows 4,921 2,150 (812)
------------------------------------------------------ ----------- ------------- ------------------
6,935 4,143 17,378
----------------------------------------------------- ----------- ------------- ------------------
- Financial instruments included within current assets and
liabilities, excluding borrowings, are generally short-term in
nature and accordingly their fair values approximate to their book
values. Bank borrowings are initially recorded at fair value net of
direct issue costs.
- The derivative financial instruments designated as hedging
instruments have been recognised at fair value through Other
Comprehensive Income. Hedging instruments are valued based on
significant observable inputs and have been classified at Level 2
hierarchy level in line with IFRS 13 Fair Value Measurement.
Net debt consists of loans and lease liabilities, less cash and
cash equivalents. For the purposes of the Group's net debt
calculation, loans that are denominated in foreign currency are
translated at the effective hedged rate where applicable. Net cash
is an alternative performance measure and is not defined under
IFRS. A reconciliation to the most directly comparable IFRS measure
is included below:
30 June 30 June 31 December
2023 2022 2022
--------------------------------------------- ---------- ------------- ------------------------
GBP'000 GBP'000 GBP'000
--------------------------------------------- ---------- ------------- ------------------------
Loans and other borrowings (671,884) (502,099) (679,189)
Lease liabilities (321,312) (363,805) (334,376)
Cash and cash equivalents 392,546 265,661 473,783
Sub-total (600,650) (600,243) (539,782)
Adjustments:
Retranslate debt balance at swap rate where
hedged by FX derivatives 11,074 10,871 24,782
Net debt (589,576) (589,372) (515,000)
---------------------------------------------- ---------- ------------- ------------------------
Net debt before lease liabilities (268,264) (225,567) (180,624)
---------------------------------------------- ---------- ------------- ------------------------
8. Cash flow generated from operations
Six months Six months
ended ended
30 June 30 June
2023 2022
----------------------------------------- ----- ----------- ----------------
Note GBP'000 GBP'000
----------------------------------------- ----- ----------- ----------------
Loss before taxation (133,016) (108,186)
Adjustments for:
Depreciation 6 45,927 45,732
Amortisation 6 35,832 26,906
Amortisation - acquired intangibles 6 25,503 25,413
Share-based payment 5 7,888 573
Adjusted items 3 16,316 22,290
Other operating expense 6 15,081 -
Net finance costs 33,564 19,591
----------------------------------------- ----- ----------- ----------------
Operating cash flow before adjusted
items and before movements in working
capital and provisions 47,095 32,319
----------------------------------------- ----- ----------- ----------------
Decrease in inventories 33,188 20,808
(Increase) / decrease in trade and
other receivables (5,497) 1,224
Decrease in trade and other payables (86,780) (180,341)
(Decrease) / increase in provisions (1,448) 131
Foreign exchange (loss) / gain (265) 1,237
----------------------------------------- ----- ----------- ----------------
Cash used in operations before adjusted
items (13,707) (124,622)
----------------------------------------- ----- ----------- ----------------
9. Provisions
Dilapidations Other Total
GBP'000 GBP'000 GBP'000
------------------- -------------- -------- --------
At 1 January 2023 20,805 1,565 22,370
Utilisation (380) (525) (905)
Released (333) - (333)
Discount unwind 103 - 103
FX on translation (313) - (313)
-------------------- -------------- -------- --------
At 30 June 2023 19,882 1,040 20,922
-------------------- -------------- -------- --------
Current 2,076 759 2,835
-------------------- -------------- -------- --------
Non-current 17,806 281 18,087
-------------------- -------------- -------- --------
Dilapidations provisions relate to leased properties.
Dilapidations provisions are made based on the best estimate of the
likely committed cash outflow and discounted to net present value.
Future costs are expected to be incurred over the term of the
existing lease arrangements at the reporting date, which is a
period of up to 25 years.
Other provisions relate to onerous contracts.
10. Related Party Transactions
Moulding Capital Limited ("Propco") is wholly owned by the
Group's CEO. Propco owns property assets occupied and utilised by
THG and its operating businesses.
The Group has in place an agreement on commercial terms with
Moulding Capital Limited to provide property, facilities and
project management services to the entity and its subsidiaries.
This agreement generated GBP90,693 (H1 2022: GBP134,509) for the
Group recognised within administrative expenses. This balance
reduced period-on-period as Moulding Capital Limited required less
services from THG.
The amounts recognised on the Group's balance sheet and in the
income statement in relation to the leases with Propco in the
period are as follows:
30 June 2023 30 June 2022
GBP'000 GBP'000
Right-of-use asset 156,864 160,318
Lease liability 175,297 182,022
Depreciation arising on right-of-use assets 6,673 6,499
Expense recognised in financing costs 3,687 4,354
The table below gives further detail around the leases in
place:
Number of properties Residual lease term at date of divestment H1 2023 rent (GBP'000) H1 2022 rent (GBP'000)
--------------------- ------------------------------------------ ----------------------- -----------------------
9 0-5 years 481 481
0 5-10 years - 1,580
12 10-15 years 1,643 1,643
7 15-25 years 4,961 4,961
--------------------- ------------------------------------------ ----------------------- -----------------------
28 7,085 8,665
--------------------- ------------------------------------------ ----------------------- -----------------------
The following table sets out amounts payable to related parties
which include balances in relation to lease agreements and where
the Group has paid suppliers on behalf of the Propco Group, or vice
versa. Such situations arise due to Propco suppliers using legacy
details to submit invoices or where payments are made on behalf of
THG by Propco for property-related costs rechargeable to THG as a
tenant per lease:
Amounts owed to
related parties
GBP'000
---------------------------- -----------------
Aghoco 1422 Ltd 100
Allenby Square Ltd 159
THG Alpha Propco Ltd 161
THG Gadbrook PropCo Ltd 242
THG GJS PropCo Ltd 195
THG HCC PropCo Ltd 285
THG Icon S.à.r.l 1,101
THG Icon Unit 2 PropCo Ltd 958
THG Icon Unit 4 PropCo Ltd 217
THG KS PropCo Ltd 225
3,643
---------------------------- -----------------
11. Events after the reporting period
Disposal of loss-making categories per the strategic review
On 17 January 2023 the Group confirmed its intention to simplify
and streamline its operations, undertaking a strategic review of
loss-making categories and territories within the THG OnDemand
division. The Group has continued to execute on this plan and
following an extensive market-testing process to secure optimal
value for shareholders, on 21 July 2023, the trade and assets of
THG OnDemand have been sold to a Newco led by the existing OnDemand
management team and funded by Gordon Brothers, the advisory and
investment firm. The Newco will continue to be a client of
Ingenuity, with the provision of technology, operational and
digital services.
In addition, specialist provider of cycling equipment
'ProBikeKit' was sold to Frasers Group PLC in Q2 2023. The combined
consideration payable through both transactions is c. GBP4
million.
The FY 2023 financial impact is incorporated into existing
market guidance (inclusive of one-off costs), with discontinued
revenues non-recurring after Q3 2023. Discontinued categories
collectively contributed to an EBITDA loss of GBP14.6 million in FY
2022.
The sale has resulted in a non-cash loss on disposal of GBP9.8m
which has been recognised within adjusted items - non-cash loss on
disposal of THG OnDemand. The non-current assets have been
classified as held for sale and all assets are recorded at their
recoverable value.
Acquisition of City AM
On 26 July 2023, the Group acquired the trade and assets of
London's City AM newspaper for GBP1.5m. This is considered to be a
non-adjusting post balance sheet event and has no impact on the
financial results as at 30 June 2023.
Principal risks and uncertainties
The Board considers that the principal risks and uncertainties
which could impact the Group over the remaining six months of the
financial year to 31 December 2023 to be unchanged from those set
out in the Annual Report and Accounts for the year to 31 December
2022.
The applicable risks are summarised as follows:
-- Cyber security and data privacy;
-- Third party reliance;
-- Talent;
-- Ingenuity e-commerce platform;
-- Customer needs;
-- Infrastructure and supply chain;
-- Innovation;
-- Legal and regulatory compliance;
-- Product safety and quality;
-- Health and safety;
-- Climate change, environmental and social responsibility;
-- Geopolitical and economic uncertainty;
-- Culture;
-- Liquidity and funding; and
-- Strategic optionality.
These are set out in detail on page 87 in the Group's Annual
Report and Accounts for the year to 31 December 2022, a copy of
which is available on the Group's website, www.thg.com.
INDEPENT REVIEW REPORT TO THG PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2023, which comprises: the interim
condensed consolidated statement of comprehensive income, interim
condensed consolidated statement of financial position, interim
condensed consolidated statement of changes in equity and interim
condensed consolidated statement of cashflows, along with the
supporting notes for the six months ended 30 June 2023. We have
read the other information contained in the half yearly financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" (ISRE) issued by the Financial Reporting Council. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however, future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
13 September 2023
[1] Adjusted EBITDA before discontinued categories
[2] GBP26.2m includes non-cash loss on disposal of discontinued
categories of GBP11.1m and non-cash loss on disposal freehold
assets of GBP15.1m
[3] Last twelve month period ending June 2023
[4] Group free cash flow is calculated after working capital,
net capital expenditure, adjusting items, tax and financing (prior
to debt capital repayments and deferred consideration on
acquisitions)
[5] H1 2022 THG Beauty revenue restated to reflect previously
reported restatement of revenue (see note 2)
[6] YoY change defined as year-on-year statutory sales growth. 2
Year change defined as 2 year statutory sales growth
[7] Group (continuing) refers to before discontinued categories
(see note 2). Discontinued categories do not represent a
discontinued operation under the accounting standard
[8] Gross Margin % (adjusted) is presented before the impact of
adjusted items, depreciation and amortisation. H1 2022 restated to
reflect previously reported restatement of revenue (see note 2). No
change to prior definition
[9] Adjusted EBITDA is defined as operating profit before
depreciation, amortisation, share-based payments and adjusted
items
[10] See CFO report for a reconciliation to adjusted EBITDA
[11] Net debt is cash and cash equivalents less debt before
lease liabilities, on a hedged basis (see note 7)
[12] According to management estimates and NPD, part of Circana
Group for the period H1 2020 to H1 2023
[13] 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
GBP7.2m (H1 2022: GBPnil) for adjusted items and GBP9.6m (H1 2022:
GBP10.3m) for amortisation and depreciation.
- For statutory presentation distribution costs include charges
of GBP3.7m (H1 2022: GBP13.4m) for adjusted items and GBP8.8m (H1
2022: GBP12.3m) for amortisation and depreciation.
- For statutory presentation administrative costs include
charges of GBP5.4m (H1 2022: GBP9.5m) for adjusted items and
GBP88.9m (H1 2022: GBP75.4m) for amortisation and depreciation and
GBP7.9m (H1 2022: GBP0.6m) for share-based payments.
[14] Free cash flow is defined as total cash flow before
proceeds/(repayment) from bank borrowings and acquisition of
subsidiaries net of cash acquired
[15] During 2022, certain loss-making categories and territories
within non-core divisions were placed under strategic review and
subsequently management has exited these areas. The exit doesn't
meet the criteria under IFRS 5: Discontinued operations as these
categories and territories are not a major component of the Group
as defined by the accounting standard, however, to provide further
information on the ongoing revenue and Adjusted EBITDA of the Group
the result of these operations has been presented separately in the
above table.
[16] THG Experience and THG Luxury results are reported within
the THG Beauty segment following a change in internal reporting.
These results were included within the Other segment in 2022.
[17] Cash adjusting items before tax total GBP5.2m (H1 2022:
GBP21.9m) reflect the total cash before tax expected to be paid.
This differs from the interim condensed consolidated statement of
cash flows which also reflects the timing of such payments. Cash
paid in H1 2023 totalled GBP5.3m.
[18] Total H1 2022 revenue has been restated by GBP7.6m being a
reclassification correction which had overstated revenue and cost
of sales. This relates only to the THG Beauty segment. The position
reflects the full year reported revenue figure to 31 December 2022.
For more detail refer to the Basis of Preparation in Note 1.
The results are derived from continuing activities.
[19] During FY22, THG Luxury and THG Experience were reported
separately (within 'Other') and Acheson & Acheson revenues were
reported within THG Ingenuity. From 1 January 2023, these results
are now internally reported as part of THG Beauty to the CODM. The
prior period comparative for THG Beauty has been restated to
include an additional GBP56.0m, the Other segment is no longer
reported and THG Ingenuity H1 2022 revenue restated by
GBP25.6m.
[20] Total H1 2022 revenue has been restated by GBP7.6m being a
reclassification correction which had overstated revenue and cost
of sales. This relates only to the THG Beauty segment. The position
reflects the full year reported revenue figure to 31 December
2022.
[21] Cash adjusting items before tax total GBP5.2m (H1 2022:
GBP21.9m) reflect the total cash before tax expected to be paid.
This differs from the interim condensed consolidated statement of
cash flows which also reflects the timing of such payments. Cash
paid in H1 2023 totalled GBP5.3m.
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END
IR DZGMLLFGGFZM
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