Annual Report & Accounts
For the year ended 31 December 2017 The Hut Group Limited.Company Number 06539496
Contents
Highlights
Group International Sales
Strategic Report
Directors' Report
Independent Auditor's Report to the
members of The Hut Group Ltd
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Company Only Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Financial Statements
2
3
4
40
44
46
47
48
49
50
78
80
81
82
Highlights
Revenue
+47%
In Strategic Investments
£228M
EBITDA
+38%
Bank Facility
£600M
From May 2018
2
3
Group International Sales
2017
70%
2016
63%
2015
50%
UK
International
Annual Report and Accounts 2017 4
5
Strategic report
Shareholders
Fully diluted shareholding of any party with a 5% or greater shareholding
in THG (as at 31 March 2018)
Name
Matthew Moulding & Controlled Management Equity1
Kohlberg Kravis Roberts & Co
Balderton Capital
Sofina Partners S.A.
Oliver Nobahar-Cookson (held via Offshore Trust)
BlackRock Funds
Old Mutual
Others
%
26.7
15.0
14.3
9.0
7.7
7.5
7.4
12.4
100.0
1 Matthew Moulding has the beneficial interest in 20% of the 26.7% shareholding,
although he has full control of the whole 26.7%
Progress in 2017
2017 has been another year of explosive growth for THG,
powered by our proprietary technology ecosystem,
Ingenuity. Revenue has grown by 47% to £736m and
EBITDA by 38% to £69m (9% of sales).
We continue to deliver on our strategy of driving
rapid internationalisation with 70% of our sales
coming from outside the UK, a year-on-year increase
of 7% and we further developed the THG Brands
business with 58% of sales from our own brands.
To accelerate the development of the THG model we
carefully selected acquisitions in key vertical markets,
investing £164m in strategic acquisitions this year.
We enhanced Ingenuity’s end-to-end capability
through acquiring Hangar Seven, a digital content
studio, and UK2, a web hosting business, as well
as continuing to build our portfolio of brands adding
ESPA and Illamasqua. We further grew our
international beauty retail footprint by acquiring
RY.com.au and became Europe's largest beauty box
provider when we added Glossybox to our growing
beauty box and advent calendar proposition.
We also continued to invest organically, spending
£25m on developing Ingenuity functionality and
internationalisation capability and £39m of capital
on infrastructure projects including manufacturing,
distribution, supply chain, and office accommodation
whilst employing a further 1,884 people this year to
take our total headcount to over 4,000 at year end.
2017 has also been a standout year for us operationally,
we commissioned our 1m sq ft warehouse, manufacturing
and fulfillment centre in Cheshire, a production facility
in Kentucky and we acquired a beauty manufacturing
plant with ESPA. We continue to invest in our
operational capability with a warehouse and
manufacturing facility in Wroclaw, Poland
opening in 2018.
+47%
Revenue
+38%
EBITDA
£228m
In Strategic
Investments
£183m
Of Equity
Raised
6
7
Revenue
Gross Profit
49%
736
42%
501
2016
2017
52%
69
49%
50
2016
2017
35%
334
2015
Revenue £m
CAGR % (3 years)
EBITDA
41%
30
2015
Adjusted EBITDA £m
CAGR % (3 years)
59%
318
53%
211
2016
2017
41%
126
2015
GP £m
CAGR % (3 years)
Operating Cashflow
88
51
2016
2017
42
2015
Operating Cashflow £m
Cash in Hand
International Sales Mix
£200m
£150m
£100m
£50m
2015
2016
2017
63%
70%
£142m
£174m
£187m
50%
2015
2016
2017
Banking Facility
Sales from Own Brands
£600m
£500m
£300m
£100m
52%
52%
58%
£210m
£345m
£515m
£600m
2015
2016
2017
2018 to date
2015
2016
2017
Annual Report and Accounts 2017 8
9
THG ideas with momentum
Our Business Model
THG is an international technology company
focussed on digital retail in the beauty and
wellbeing sectors. Founded in 2004, by CEO
Matthew Moulding, to develop an ecommerce
technology platform, THG now operates 166
localised websites retailing to customers in
164 countries.
THG is powered by Ingenuity, our proprietary
global technology ecosystem. We wholly own
and operate a globally integrated end-to-end
technology stack that spans hosting, warehousing
and fulfilment, data science and ecommerce
technologies through to integrated payment
solutions with customer service.
This seamless integration makes Ingenuity a unique
technology platform proven to power brand growth
on a global scale; our own brands and retail sites,
as well as providing platform services for some of
the world’s most innovative organisations.
By owning the whole customer journey from
manufacturing our products, selling them direct
to consumers via our own websites, and dispatching
from our warehouses, we can deliver high quality
products and experiences to customers whilst
maintaining an industry leading cost base.
We will continue to invest in our business model
to ensure we continue to be the leading global
online beauty and wellbeing provider.
Direct to Consumer
Data Driven Retail
Internationalisation
Annual Report and Accounts 2017
10
11
All of this is underpinned by our global footprint
of 29 data centres, on demand infrastructure,
and high performance network. Ingenuity
provides the ultimate hosting performance for
our brands, our retailers and our brand partners.
Our ambition for Ingenuity is to be a global
platform leader and alongside our own brands
and retailers we already power some of the
world’s leading businesses including Nintendo,
The Daily Mail Group, Honda and Hero Cycles.
THG powered by Ingenuity
Built over the last decade, Ingenuity is our proprietary
technology ecosystem that is engineered for vertically
integrated ecommerce. It powers all of our own
brands and retailers and is key to our ability to
internationalise as it supports multiple currencies
and payment methods, and provides the tools for
us to put data at the heart of our retail experience.
Ingenuity drives personalised brand experiences
and global transactions through our proprietary
algorithms. Optimised search and responsive
design help to drive transactions and post purchase
engagement is driven through automated eCRM,
product bundling, and reward and referral systems.
Ingenuity simplifies the transaction journey through
one-page checkout, integration to our fulfilment
platform and fast page load across the globe.
Powered by
70%
International
Sales Mix (in 2017)
32
Local and Global
Payment Methods
42
Currencies
Traded Worldwide
193
Shipping Destinations
22m
Worldwide Customer
Database
166
Localised
Websites
35
Languages
Supported
500m
Annual Visits to THG
Operated Websites
93%
Growth in Brand
Partner Revenue
Warehousing
& Fulfilment
Hosting
Ecomm
Tech Platform
Content &
Creative Services
29
Footprint of
Global Data Centres
>30
Courier
Integrations
10
GbE Premium
Network
Data
Science
Translation &
Language Services
Customer
Services
Transaction &
Finance Management
10
Tbps Total
Network Capacity
350k
Route Optimisations
Each month
450
Dedicated
Engineers
Annual Report and Accounts 2017 12
13
Strategic platform investments
Ingenuity facilitates digital first content and acquiring
Hangar Seven in April 2017 has allowed us to scale and
productise our content and creative services further
across the Group. We now operate an end-to-end
content production facility, from driving the strategy,
to concepting and storyboarding, to video and
photography production.
Hangar Seven delivers global digital impact with
localised content powered by data and insight.
With an integrated in-house digital studio we are able
to rapidly create content assets and videos, driving
our online marketing activities across all sites and
customer touch points.
166
Producers, Photographers,
Stylists, Designers and
Creative Directors
7
Studio Locations Across
Europe and the US
140k
Sq ft of Photographic
Studios
In May 2017, we completed our first technology
acquisition, UK2, a web hosting business, which
has allowed us to significantly develop our technology
ecosystem. We now have 29 global data centres situated
in strategic locations, with access to multiple high
quality transit and peering providers. 100TB provides
exceptionally high bandwidth allowing us to respond
to customer needs, for example video hosting.
UK2 is now a core part of our technology proposition,
and its high performance infrastructure will facilitate
our ability to increase capacity, speed and resilience
for our global brands.
29
Footprint of
Global Data Centres
10
GbE Premium
Network
10
Tbps Total
Network Capacity
Annual Report and Accounts 2017
14
15
Warehouse and fulfilment
2017 was a year of unprecedented operational
reorganisation as we built out the foundations for
our global fulfilment and manufacturing footprint.
Our wholly owned 1m sq ft Cheshire based production
and distribution facility was fully commissioned in late
summer 2017. The facility is powered by our proprietary
Warehouse Management Software, Voyager. During
the year, our onsite engineering team made over
650 service and cost enhancing software changes.
We expect investment in the software to continue
as the site moves towards maturity in 2018.
In 2017, the foundations were laid and building
commenced on our Poland based European
production and distribution facility, expected to
open in Autumn 2018. The site will also be powered
by Voyager. Ahead of the build of our European
Centre, we opened a satellite facility in a nearby
location in Poland to expedite the move into
that region.
To support our production and distribution facility
in Kentucky, USA, we opened a satellite fulfilment
centre in Reno, Nevada, to service the West Coast
and to underpin our Beauty Subscription Box
acquisition, we commissioned two European
satellite facilities in Sweden and Poland.
Post year end, we have finalised details of our new
build Content Studio facility, located in the North
West of England, with building to commence in 2018
of a 165k sq ft Content Studio. A number of our existing
content studios will be consolidated into this state
of the art facility.
In addition to the above new projects, we exited a
further 16 fulfilment facilities in the year, four legacy
UK Food production and fulfilment facilities, and we
inherited a further 12 facilities globally with M&A in the
year which were exited and absorbed within our core
infrastructure in the UK, Europe and North America.
Annual Report and Accounts 2017 16
17
THG Brands overview
The global beauty and wellbeing markets are
being transformed by digital channel shift and
the explosion of high growth, small and medium
sized independent brands. We are building a
portfolio of these brands and are uniquely
well-placed to become the global digital leader.
We have expertise in scaling brands direct
to consumer, our global retail sites provide
a platform to fuel growth, we manufacture
products in-house at our facilities around
the globe, and Ingenuity delivers operational
efficiencies while internationalising rapidly,
therefore, we are able to tackle these structural
changes at speed, something traditional brands
cannot easily respond to.
Retailing over 800 prestige brands in 164
countries provides us with unique data-driven
insights into industry trends and international
growth opportunities, helping to shape our
long-term brand strategies.
We have supplemented our brand portfolio with
the acquisition of beauty subscription business,
Glossybox, which has increased our ability to
drive brand education and adoption, test innovation,
whilst introducing new customers to our brands.
We plan to make more acquisitions in this space and
plug them into Ingenuity’s technology ecosystem to:
•
•
•
•
•
Improve efficiency and profitability;
Drive direct to consumer sales through
both own brand and reseller websites;
Improve international sales mix;
Drive education and adoption through
targeted sampling and subscription services;
Improve quality and deliver cost synergies
through vertical integration and in-house
manufacturing.
Annual Report and Accounts 2017 18
19
Strategic brand investments
In September 2017, we acquired one of the world’s
leading spa and skincare brands, ESPA. The products
are sold in over 700 luxury spas across 50 countries
and prestige retail outlets including Liberty London
and Harvey Nichols.
The ESPA treatments delivered in spas all over the
world has created strong brand awareness and affinity
which makes it an attractive brand to grow direct to
consumer, harnessing our retail websites and the
power of Ingenuity.
This acquisition complements the THG business
model, as ESPA is vertically integrated, adding
beauty manufacturing to our significant expertise
in the sports nutrition market.
We have already made significant progress by
integrating ESPA with Ingenuity, delivering cost
synergies and improving direct to consumer sales.
In 2018, we plan to internationalise the ESPA
offering further.
Uplift in Profitability
Post Acquisition
12%
34%
Increase in Direct to
Consumer Participation
Annual Report and Accounts 2017 20
21
Strategic brand investments
In October 2017, we acquired colour cosmetics
brand, Illamasqua, which is used by professional
makeup artists around the world.
It is a cult brand renowned for award-winning,
professional-grade products with rich cultural
heritage. Bringing Illamasqua into our own
brand portfolio has allowed us to increase NPD
(New Product Development) frequency, helping to
move the brand into the contemporary segment.
Through integration with Ingenuity we have
delivered efficiencies and have begun to focus
on strategic business-to-business partnerships,
as well as driving online direct to consumer sales.
Uplift in Profitability
Post Acquisition
282%
43%
<1
Increase in Direct to
Consumer Participation
Week to Integrate
to Ingenuity
Annual Report and Accounts 2017 22
23
Manufacturing
A key part of our brand portfolio strategy is vertical
integration and the ability to manufacture in-house.
At our state of the art 65k sq ft production facility
which resides inside our 1m sq ft Omega site in
Cheshire, we manufacture over 80% of our Myprotein
products in-house. These are manufactured to
British Retail Consortium standards where we have
been certified AA Grade for the last four years.
We also hold ISO 9001, Informed Sports and Soil
Association certification to allow us to manufacture
across these ranges.
We have numerous quality procedures in place
throughout the whole of our production process,
to ensure we continue to deliver the highest quality
products in Europe. As part of this, we test every
single raw material on entry into our factory and
every finished product before it leaves our site
using Near Infra-Red technology and UKAS
accredited external testing partners ALS.
We continued to invest in our manufacturing capability
with the acquisition of ESPA, which produces the majority
of its products in-house in its manufacturing facility in
Frome, Somerset which are certified to ISO 9001 2015
standards, and fully commissioning our sports nutrition
production facility in Kentucky. In 2018, we will open
another manufacturing facility in Wroclaw, Poland for
the Central European market. Our ability to invest in
global manufacturing plants is a key strategic pillar
to achieving international growth for our brands.
UK
Cheshire
Somerset
USA
Kentucky
Poland
Wrocław (2018)
8M+
Units Produced in Our
Beauty Manufacturing
Facility in 2017
82%
Of Nutrition Products
Manufactured In-House
18,367MT
Of Product Produced
in 2017
Annual Report and Accounts 2017 24
25
Since we acquired Myprotein in 2011, the THG
model has facilitated rapid growth through direct
to consumer sales and aggressive international
expansion. It is now a global leader in the direct
to consumer sports nutrition and apparel market
having harnessed the power of our technology
ecosystem. Myprotein is now available in 106
countries, across 35 languages and 74% of our
sales in 2017 came from international markets.
In 2017, we continued to drive impressive international
penetration with outstanding year-on-year growth
in Asia of almost 500% as well as continuing to
develop high growth categories such as vegan,
ready to eat and clothing.
Our business model allows us to localise our offering
for high growth international markets, for example
manufacturing our products in-house allows us to
cater to local tastes. In 2017, we launched milk tea
and matcha tea flavoured proteins for the Japanese
market, and our platform, content and language
expertise allows us to create a location specific
customer experience.
UK
19% CAGR FY14-17
Asia
961% CAGR FY14-17
Americas
174% CAGR FY14-17
Europe
57% CAGR FY14-17
Other
540% CAGR FY14-17
180International Ambassadors
112Shipping Destinations
34Local Courier Networks
29Payment Processors
Annual Report and Accounts 2017 THG Retail
Across our 45 retail sites we sell over
1,000 brands with 100% authorised supply.
Our data driven approach and end-to-end
technology ecosystem has allowed us to
become one of the world’s biggest online
resellers of branded beauty products,
with a portfolio of reseller brands across
the globe.
In 2017, we invested in our subscription
offering, acquiring Glossybox, which
enhances our ability to test innovation
and drive brand adoption.
26
27
After acquiring Lookfantastic in 2010 and
integrating the business onto our platform
in 2011, we have driven rapid internationalisation.
We have been able to leverage the THG model,
launching new markets and reaching customers
across our 22 local language sites, selling over
660 prestige brands across 26,000 SKUs.
In 2017, Lookfantastic had a 71% international
sales mix, up from 54% in 2015 and 65% in 2016.
International Sales Mix
71%
660
Prestige Brands Sold
on Site
Annual Report and Accounts 2017 28
29
Now Served
10Number of Territories
45%EBITDA Margin Increase
118People Employed at Our
Since Acquisition
New European HQ in Berlin
at the End of 2017
In 2017, our beauty boxes were a significant
contribution to our retail business, with our
Lookfantastic advent calendars having their
best ever year. Our beauty boxes provide a
great platform to grow our new customer base
along with increasing revenue through conversion
into full size products. To further scale our beauty
box business globally we acquired Glossybox in
August 2017, an international beauty box leader.
Glossybox, founded in 2011 in Berlin, is Europe’s
number one provider of beauty box subscription
services. Operating in 10 core markets, with offices
in the UK, Europe and the USA. Its business model
is a subscription service for a box of beauty products.
With strong existing foundations and infrastructure
in subscription models we were set up to accommodate
the scope of Glossybox. Our proprietary ecommerce
technology platform already underpins the successful
and growing subscription models of Lookfantastic
Beauty Box, MyGeekBox, ZBox and PopInABox.
Acquiring Glossybox’s office in Berlin, one of
Europe’s best tech and startup hubs, opened up
a strategic opportunity for us to build out another
tech-hub for the Group. We continue to invest in
talent in this market and as of December 2017
we had 118 people operating out of our Berlin HQ.
Annual Report and Accounts 2017 30
31
World class talent
Our aspiration is to be the number one destination
for ambitious talent. Our unique high performance
and meritocratic culture encourages ambition,
innovation and career growth at an exceptional rate.
The Group’s talent continues to experience major
sustained growth, with thousands of staff located
across the globe. At the end of 2017, we had over
4,000 employees and we created 1,884 new jobs
during the year.
We are building an incredibly diverse pool of talent:
•
•
•
66 nationalities
56% male to 44% female
Average age of 29
Over the course of 2017, our global footprint
has expanded significantly; we are building global
teams and now have offices in 10 cities including:
UK
London
Manchester
USA
New York
Salt Lake City
San Antonio
Europe
Berlin, Germany
Lviv, Ukraine
Stockholm, Sweden
Wrocław, Poland (2018)
Australia
Sydney
In 2017, we invested heavily in our talent function,
including internal communications, leadership
academies and office infrastructure. In 2018,
we plan to hire 2,000 more employees.
In 2017, we built up our THG Academy offering across
the Group. We have built a bench of leaders for future
acquisitions by running four senior leadership
courses, providing bespoke training, mentoring
and coaching to prepare our high potential talent
for more senior opportunities, many of which have
emerged through acquisitions. Our People team
has been heavily involved in integrating the talent
we have gained through our six acquisitions of 2017,
and we have been able to provide a number of wider
THG opportunities for high quality employees who
have joined THG. Following an employee survey in
mid-2017, we have also run compulsory manager
training to improve the performance of managers.
We also presented our first Gender Pay Report
for the Group as at 5 April 2017. Our median pay
gap of 6% is well below the national average
and we pay bonuses to a greater proportion
of our female employees, than we do men.
When our Technology Division is excluded
then our gender pay gap falls to 2%,
and in like-for-like roles, such as
Customer Services Advisor or
Warehouse Operative, the
difference is negligible
at +/- 1%.
Annual Report and Accounts 2017 Financial review
34
35
Financial review
Revenue
The Group generated total sales growth of 47%
during the year, consistent with the three year sales
CAGR of 49%, with sales increasing from £501m
to £736m.
The Rest of the World (all geographies outside of the
UK and Europe) delivered significant growth of 103%,
increasing to 41% of the total revenue in the year (2016:
29%). In the process, this has become our largest
sector, reflecting our platform driven penetration
into international markets. We have consolidated
and strengthened our positions in the US, Australia,
China, Japan and South Korea. We will consolidate
our position in Asia as we open our first fulfilment
centre in that continent in the current year.
European growth remains strong at 26%, now comprising
29% of the total revenue (2016: 34%). We expect to
further strengthen our position in this market as we
commission our new European beauty and wellbeing
production and fulfilment facility in Poland. This will
allow us to further improve our service proposition
on the continent as well as substantially increase our
capacity to produce and distribute own brand products.
The above achievements have been reflected in
a Queen's Award for Enterprise in the International
Trade category in 2018. Revenue within the UK also
continues to excel as we bring more own branded
products and technology services to that market.
This is reflected in sales growth of 21% during the year.
The Group’s returns rate from customers remains
low at 1% (2016: 1%), continuing to reflect the high
repeat, highly personalised nature of the retail
and product offering.
Gross Profitability
The gross profit margin increased by 120bps in the
year to 43.3% (2016: 42.1%).
This level of improvement in the year was driven
by a number of factors:
•
•
•
Continued evolution in the business model
leading to ongoing shift in sales mix towards more
profitable, own brand beauty and wellbeing sales;
Investment in wellbeing supply chain both in
breadth and the volume of in-house production;
Acquisition of two more beauty brands (ESPA
and Illamasqua), one beauty subscription business
(Glossybox) and a beauty reseller, (RY.com.au),
in the year; and
•
Acquisition of UK2 and Hangar Seven delivering
economies of scale across the Group with regards
to hosting and content creation respectively whilst
also enhancing Group gross margin.
Operating Expenses
Distribution costs remain well controlled at
16.8% of sales, a marginal improvement on the
prior year (17.0%). Given our strong international
mix this illustrates the benefits in having an
end-to-end fulfilment model that utilises an
extensive integrated local courier network.
Costs associated with the ongoing transition in to
Omega, our production and distribution facility,
have been recognised within exceptional items
alongside various acquisition related costs.
Underlying administrative costs (staff, marketing,
other administrative but excluding exceptional
items, share-based payments, depreciation and
amortisation) increased during the year to £126m
(17.1% on sales) from £76m in 2016 (15.2% on sales),
partially reflective of investment to support
2018 growth plans.
Marketing costs increased by 10bps in the year to
8.5% on sales (2016: 8.4%) driven by increased digital
marketing activities as we continued to invest in
own brand penetration and customer acquisition in
international territories. Over 4.7m new customers
transacted with the Group in the year, which combined
with increasing annual repeat behaviour, positions
the Group well to further accelerate growth into
international territories from this growing base.
Staff costs excluding distribution increased by
140bps to 7.1% of sales (2016: 5.7%), due to the
significant investment in scalability, international
growth and the success of the graduate talent
programme.
Other administrative costs represent just 1.5%
on sales (2016: 1.1%) which reflects the efficient
nature of the operating model, even as the
business grows.
•
•
Administration - £15m
Legal, financial and taxation due diligence
costs on the six businesses acquired in the year.
Post-acquisition reorganisation and restructuring
costs associated with the deals completed in the
year, including dual site and technology decollation
costs, redundancies, onerous lease costs and other
costs of a one-off nature including store closures.
Please refer to note 4 for further information.
Share-based Payments
Part of the strategy of attracting, retaining and
motivating talent, is a share option scheme. In total,
there are 117 participants in the Group’s share schemes.
The non-cash IFRS 2 share-based payments charge for
the year relating to the share options in issue
during the year was £1.8m (2016: £2.0m).
Share-based payments also contain a cash charge for
the year amounting to £2.3m (2016:£1.1m). A number
of employees, who met certain service criteria during
the year, were given the opportunity to benefit from
the share options they held ahead of the original
vesting date. These staff members were paid the
value of their share options early and as a result
their share options were cancelled.
The Group issued no Employee Share Scheme (ESS)
shares during 2017. As a result, there is no charge
related to share issue (2016: £0.7m).
Number of options in issue 1 January 2017
Number of share options cancelled during the year
Number of share options in issue 31 December 2017
Number of employees holding share options 31 December 2017
383,894
(38,931)
344,963
117
Finance Costs
Finance costs of £7.2m (2016: £2.4m) primarily relate
to interest on the Group’s increased £515m bank facility
and amortisation of arrangement fees. In early May 2018,
the bank facility was increased further to £600m with
maturity in May 2021.
Depreciation and Amortisation
Total depreciation and amortisation costs were
£39m (2016: £20m), a reflection of our accelerated
investment in growth projects and infrastructure:
•
•
•
The Group invested £51m in tangible assets during
the year (2016: £129m). This primarily relates to
further investment in our Omega and Kentucky
production and distribution facilities as well as
post-acquistion investment in the UK2 network
infrastructure. £13m of tangible assets were
acquired through the six business combinations
in the year. Over £125m has been invested in the
UK fulfilment and production centre (Omega)
which is freehold owned and with no operating
leases in place.
The Group continued to invest in its proprietary
technology platform during the year to facilitate
global scale and to address the ever-changing
social trends of our customers across the globe.
£25m was invested in the platform up from £19m
in 2016. The net book value of the platform is £41m.
The Group has acquired a range of brands and
intellectual property as it continues to expand
its international offering as part of the Group’s
long-term strategy. During the year these
acquisitions resulted in additional intellectual
property and brands of £3m and £24m respectively.
Further information on the Group’s acquisitions
during the year can be found in note 10.
Exceptional Items
In order to understand the underlying performance
of the Group, certain costs included within distribution
and administrative costs, have been classified as
exceptional items. These items principally relate to:
•
•
Distribution - £15m
During the year the Group fully commissioned
the 1m sq. ft. Cheshire based food production
and distribution facility (Omega). We expect that
the site will take a year to reach maturity as we
continue to develop the proprietary software
that controls the operation. Costs relating to
the ongoing integration of this facility continue
to be included within exceptional items.
As acquisitions are integrated onto the THG
platform, Ingenuity, any legacy warehouses are
exited. During the year we ceased operations in
12 such facilities on three continents. Associated
costs are non-recurring in nature.
Annual Report and Accounts 2017
Banks
The Group agreed a further significant increase
in its available corporate debt facilities in 2017,
as we added three new banks to our current facility.
The total facility increased to a £515m facility
representing an additional commitment of
£213m provided by the lenders listed here.
In May 2018, we further increased the facility with
the same lender group to £600m, including a £51m
accordion facility.
The amended facility runs to May 2021 with an
optional one-year further extension.
The facility will be used for any strategic initiatives
we may undertake. The scale and flexibility of the
facility provides us with substantial capacity to
accelerate our international expansion plans and
fund future acquisitions.
Facility From May 2018
£600m
2021
10Bank Syndicate
Maturity of the Facility
36
37
HSBC
8 Canada Square
Canary Wharf
London
E14 5HQ
Barclays Bank Plc
1 Churchill Place
London
E14 5HP
Santander UK Plc
2 Triton Square
Regent’s Place
London
NW1 3AN
The Royal Bank
of Scotland Plc
36 St Andrew Square
Edinburgh
EH2 2YB
Citibank N.A
London Branch
33 Canada Square
Canary Wharf
London
E14 5LB
Lloyds Bank Plc
25 Gresham Street
London
EC2V 7HN
JP Morgan Securities Plc
25 Bank Street
London
E14 5JP
The Governor and Company
of the Bank of Ireland
Bow Bells House
1 Bread Street
London
EC4M 9BE
Silicon Valley Bank
Alphabeta
14-18 Finsbury Square
London
EC2A 1BR
PDL Europe Holdings LP
1100-10830 Jasper Avenue
Edmonton
Alberta
T5J 2B3
Canada
Annual Report and Accounts 2017
38
39
Interest rate risk
The Group’s interest rate risk arises from therevolving
credit facilities in place. The Group reviews its
exposure to variable interest rates on a regular
basis and fixes rates.
By order of the Board
J P Pochin
Company Secretary
29 May 2018
Risk Management
Principal risks and uncertainties
The execution of the Group’s strategy and the
management of its business are subject to a number
of risks and uncertainties. The principal risks and
uncertainties include competition, supply chain
risk, technological change and employee hiring
and retention.
Competitor activities are constantly monitored
to ensure that the business can react in a timely
manner to such activity and ensure that the Group
maintains a competitive position in each market in
which it operates.
Significant effort is placed on working with suppliers to
manage the potential risk of interruptions and delays
in supply or distribution that may adversely impact
on trade. The Group has multiple delivery routes and
options, and uses multiple delivery service providers,
to reduce the level of dependency on any single provider.
There is continuous monitoring of service levels and
warehouse handling to ensure goods are delivered in
a timely manner. All products are on relatively short
lead times, with a steady flow of products into the
warehouse, enabling the supply chain to be diverted to
alternative locations if necessary within a manageable
time frame.
The Group’s technology platform provides a real time,
single data view of the business enabling trading and
operational decisions to be based on high quality
management information. On-going investment is
made in the IT systems to ensure that they are able to
continue to respond to the needs of the business and
do not become obsolete. Business recovery processes
are in place to minimise the effects of damage or
denial of access to the infrastructure of systems.
The Group is able to attract and retain high calibre
employees through a combination of competitive basic
salaries and performance based bonuses coupled with
share option schemes, which are open to individuals at
every level in the business.
Financial risk management objectives and policies
Senior management are aware of their responsibility for
managing risks within their business units. The head
of each business unit reports to the Board on the status
of these risks through management reports. Risk is
regularly reviewed at board level to ensure that risk
management is being implemented and monitored
effectively. The Board is supported by a Group Internal
Audit function which assists the Board in fulfilling its
oversight responsibilities.
The Board’s policy is to ensure that the business
units are empowered to operate effectively and
appropriately, bearing in mind the requirements
for timely decision making and commercial reality.
Through management reports, risks are highlighted
and monitored to identify potential business risk areas
and to quantify and address the risk wherever possible.
Commercial and general risk
Standard form contracts are provided by the Group’s
in-house legal team for commercial use and to ensure
the commercial functions negotiate within approved
parameters. Insurance policies are regularly reviewed
to ensure these are adequate, appropriate and in line
with the nature, size and complexity of the business.
Financial risk management
The Group’s operations involve exposure to credit risk,
liquidity risk, currency risk and interest rate risk.
The Board’s policies for managing these financial
risks are implemented by the Chief Financial Officer.
Credit risk
The majority of the Group’s customers pay in advance
for purchases. Where services are supplied without
advance payment, a credit review of the customer
is undertaken at the point the order is received and
subsequently on a periodic basis. The maximum
credit risk exposure is represented by the carrying
value as at the balance sheet date (see note 15).
The credit risk on bank balances is considered to
be low as they are held with A rated counterparties.
Liquidity risk
The Group regularly forecasts cash flow and maintains
an appropriate balance of cash and debt facilities
to ensure that sufficient funds are available from
trading to cover future expenses and capital
expenditure.
Currency risk
The Group receives an increasing proportion of its
revenue in foreign currency. In addition, certain key
suppliers invoice in euros and US dollars. The Group
aims to naturally hedge these transactions and
where appropriate uses financial instruments
in the form of foreign currency swaps to hedge
future currency cash flows. The fair value of
foreign currency swaps outstanding at the balance
sheet date is detailed in note 14 to the financial
statements.
Annual Report and Accounts 2017 40
Annual Report and Accounts 2017
41
Directors’ report
Directors, advisors and Directors’ interests
The Directors and advisors of the Group who were in office during the year from 1 January 2017 and up to the
date of signing the financial statements are listed below with the Directors’ interests detailed in note 26.
Dividends
No dividends will be distributed for the year ended 31 December 2017 (2016: £nil).
The Board returned £3.8m (2016: £17.0m) of equity to minority shareholders in a continued effort to provide
ongoing shareholder liquidity.
Directors
R J Pennycook
M J Moulding
J A Gallemore
N J M Gheysens
(appointed 5 September 2017)
D P Murphy
A Monro
I McDonald
B Liautaud
(appointed 5 September 2017)
E J Koopman
W M Evans
P J Gedman
J P Pochin
Company secretary
(appointed as a director on 18 April 2018)
A Duckworth resigned 17 April 2018
Z Byng-Thorne
Professional advisor
42
43
Research and development
The Group’s ecommerce and technology services
divisions are powered by its proprietary technology
platform. In addition to providing end-to-end
ecommerce functionality, the platform provides
the Group with a number of important competitive
advantages. Specifically, the commercial teams
review real time transactional and customer insight
data which informs trading decisions, which are then
executed within short time frames. In order to remain
competitive and to promote innovation, investment
into the technology platform in terms of people
and capital expenditure is a priority for the Group.
The Group has over 350 full time staff dedicated to
the continual enhancement of the platform.
Employees
Applications for employment by disabled persons are
always fully considered, bearing in mind the respective
aptitudes and abilities of the applicant concerned.
In the event of members of staff becoming disabled,
every effort is made to ensure that their employment
with the Group continues and the appropriate training
is arranged. It is the policy of the Group that the training,
career development and promotion of a disabled person
should, as far as possible, be identical to that of a
person who does not suffer from a disability.
The Group seeks to retain high calibre employees
through a combination of competitive basic salaries
and performance based bonuses coupled with a share
options scheme, which is open to individuals at every
level in the business.
Consultation with employees or their representatives
has continued at all levels, with the aim of ensuring
that their views are taken into account when decisions
are made that are likely to affect their interests.
Communication with all employees continues through
the Group intranet, briefing groups and distribution of
the Annual Report.
Directors’ qualifying third party and
pension indemnity provisions
There were no qualifying third party and pension
indemnity provisions during the year or in place at
the date the Directors’ Report was approved.
Donations
During the year, the Group made several charitable
donations totalling £99,630 (2016: £34,000).
Statement of directors’ responsibilities
The Directors are responsible for preparing the
Strategic Report, the Directors’ report and the
consolidated and company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law
the Directors have prepared the Group financial
statements in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by the European
Union, and the Parent Company financial statements
in accordance with Financial Reporting Standard
101 Reduced Disclosure Framework (FRS 101). Under
company law the Directors must not approve the
financial statements unless they are satisfied that
they give a true and fair view of the state of affairs
of the Group and the Company and of the profit or
loss of the Group for that period.
In preparing these financial statements, the Directors
are required to:
•
select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that
are reasonable;
•
•
•
for the consolidated accounts, state whether
IFRSs as adopted by the European Union have
been followed;
for the Parent Company accounts, state whether
applicable UK Accounting Standards have been
followed, subject to any material departures
disclosed and explained in the Parent Company
accounts; and
prepare the financial statements on the going
concern basis, unless it is inappropriate to
presume that the Group and the Company will
continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group and Parent Company’s transactions
and disclose with reasonable accuracy at any time the
financial position of the Group and Parent Company and
enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Group
and Parent Company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities.
Going concern
The Directors have prepared the cash flow forecasts
for a period of 12 months from the date of the approval
of the financial statements. On the basis of the cash
flow projections and projected headroom against the
available facilities, the Directors are satisfied that it is
appropriate to prepare the financial statements of the
Company and Group on a going concern basis.
Statement of disclosure of information to auditors
For all persons who are Directors at the time of approval
of the annual report:
•
•
so far as the Directors are aware, there is no relevant
audit information of which the Company’s auditors
are unaware; and
they have taken all the steps that they ought to have
taken as a director in order to make himself aware of
any relevant audit information and to establish that
the Company’s auditors are aware of that information.
Financial risk management
Information in respect of financial risk management for
the Group has been disclosed within the Strategic report.
2018 Outlook and post balance sheet events
Trading
The key trading trends in evidence throughout 2017
have continued in 2018, re-affirming management’s
confidence for the 2018 outlook. Management anticipate
a strong level of revenue growth in 2018, driven both
by continued growth in the UK and overseas, coupled
with selective acquisitions. The shifts in the revenue
mix in evidence over recent years are also expected to
continue in 2018 with both own brand and international
revenues expected to continually increase as a
percentage of the total Group revenues.
The gross margin progression reported over successive
recent years is also expected to continue in 2018,
through a combination of increased own brand sales
plus increased in-house production, following continued
investment in the manufacturing centre of excellence.
The Group’s strong cash flow model and continued
working capital improvements will provide further
liquidity to continue to re-invest in the business’s
infrastructure, most notably the proprietary platform.
Equity
In the first quarter of 2018, two of the Group’s largest
shareholders increased their stake in THG by £40m
each, providing additional firepower for imminent M&A,
and valuing the Group at over £2.5bn. During the same
period, the Group also took the opportunity to buy back
c.£16m of shares, at discounted pricing, providing further
value creation to shareholders.
Acquisitions
On 3 May 2018, the Group acquired the entire share
capital of M Beauty Limited and Make Money Limited
operating under the brand Eyeko, a specialist
eye cosmetic comp. Renowned for its innovative,
high quality mascaras, liquid liners and brow gels,
Eyeko takes its British heritage and utilises Korean
expertise to deliver an innovative range of products.
Eyeko products are stocked in multiple countries
including the UK, US, Australia and Europe through
notable retailers such as Selfridges, Space NK, Ulta
and Sephora. The brand is also available direct to
consumers through eyeko.com and THG-owned
lookfantastic.com.
Refinancing
In early May 2018, the Group increased its existing
corporate debt facilities to £600m. The extended facility
is with the same ten bank syndicate (see page 37) and
runs to May 2021 with an optional one year further
extension. The £600m facility is a mixture of term
loan and revolving credit facility and includes a £51m
accordion facility. The increased facility provides
up to £400m of cash for any strategic initiatives the
Group may undertake, including possible acquisitions
in beauty & wellbeing categories, as well as
infrastructure development and substantial
capacity to accelerate our expansion plans.
Auditor
Ernst & Young LLP have expressed their willingness to
continue in office in accordance with Section 487(2)
of the Companies Act 2006. The auditor’s registered
office is as follows:
Ernst & Young LLP
2 St Peter’s Square
Manchester M2 3EY
By order of the Board
J P Pochin
Company secretary
29 May 2018
Annual Report and Accounts 2017 44
45
Independent auditor’s report
to the members of The Hut Group Limited
Opinion
We have audited the financial statements of
The Hut Group Limited (‘the Parent Company’)
and its subsidiaries (the ‘Group’) for the year ended
31 December 2017 which comprise the consolidated
statement of comprehensive income, the consolidated
statement of financial position, the consolidated
statement of changes in equity, the consolidated
statement of cash flows, the related notes 1 to 28,
the Parent Company balance sheet, the Parent
Company statement of changes in equity and the
related notes to the Parent Company financial
statements 1 to 9, including a summary of significant
accounting policies. The financial reporting framework
that has been applied in the preparation of the Group
financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by
the European Union. The financial reporting framework
that has been applied in the preparation of the Parent
Company financial statements is applicable law and
United Kingdom Accounting Standards, including FRS
101 “Reduced Disclosure Framework” (United Kingdom
Generally Accepted Accounting Practice).
In our opinion:
•
•
•
•
the financial statements give a true and fair view
of the Group’s and of the Parent Company’s affairs
as at 31 December 2017 and of the Group’s loss for
the year then ended;
the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by
the European Union;
the Parent Company financial statements have
been properly prepared in accordance in with
United Kingdom Generally Accepted Accounting
Practice; and
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs (UK))
and applicable law. Our responsibilities under those
standards are further described in the Auditor’s
responsibilities for the audit of the financial
statements section of our report below. We are
independent of the Group and Parent Company in
accordance with the ethical requirements that are
relevant to our audit of the financial statements in
the UK, including the FRC’s Ethical Standard, and
we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for
our opinion.
Use of our report
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s
members those matters we are required to state to
them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the
company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we
have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following
matters in relation to which the ISAs (UK) require us to
report to you were:
•
•
the Directors’ use of the going concern basis of
accounting in the preparation of the financial
statements is not appropriate; or
the Directors have not disclosed in the financial
statements any identified material uncertainties
that may cast significant doubt about the Group’s
or the Parent Company’s ability to continue to adopt
the going concern basis of accounting for a period
of at least twelve months from the date when the
financial statements are authorised for issue.
Other information
The other information comprises the information
included in the annual report on pages 2 to 43,
other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the
other information.
Our opinion on the financial statements does not
cover the other information and, except to the extent
otherwise explicitly stated in this report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the other
information and, in doing so, consider whether the
other information is materially inconsistent with the
financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether there is a material misstatement in the
financial statements or a material misstatement of
the other information. If, based on the work we have
performed, we conclude that there is a material
misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed
by the Companies Act 2006
In our opinion, based on the work undertaken in
the course of the audit:
•
•
the information given in the strategic report
and the Directors’ report for the financial year
for which the financial statements are prepared
is consistent with the financial statements; and
the Strategic Report and Directors’ Report have
been prepared in accordance with applicable
legal requirements.
Matters on which we are required to report
by exception
In the light of the knowledge and understanding
of the Group and the Parent Company and its
environment obtained in the course of the audit,
we have not identified material misstatements in
the strategic report or Directors’ report.
We have nothing to report in respect of the following
matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
•
•
•
adequate accounting records have not been kept
by the Parent Company, or returns adequate for
our audit have not been received from branches
not visited by us; or
the Parent Company financial statements are
not in agreement with the accounting records
and returns; or
certain disclosures of Directors’ remuneration
specified by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the directors’ responsibilities
statement on page 42, the Directors are responsible
for the preparation of the financial statements and for
being satisfied that they give a true and fair view, and
for such internal control as the Directors determine
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors
are responsible for assessing the Group’s and the
Parent 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 Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for
the audit of the financial statements is located
on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Alastair John Richard Nuttall
(Senior statutory auditor)
For and on behalf of Ernst & Young LLP,
Statutory Auditor
Manchester
30 May 2018
Notes:
1. The maintenance and integrity of the The Hut Group Limited web site is
the responsibility of the Directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions.
Annual Report and Accounts 2017 Consolidated statement of comprehensive
income for the year ended 31 December 2017
Consolidated statemement of financial
position as at 31 December 2017
46
47
Before
exceptional
Items
Exceptional
Items (note 4)
2017
Total
Before
exceptional
Items
Exceptional
Items (note 4)
2016
Total
Note
£'000
£'000
£'000
£'000
£'000
£'000
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative costs
2
735,652
(417,190)
318,462
-
-
-
735,652
(417,190)
318,462
(108,331)
(15,315)
(123,646)
501,376
(290,142)
211,234
(79,721)
-
-
-
501,376
(290,142)
211,234
(5,272)
(84,993)
(183,914)
(14,944)
(198,858)
(104,970)
(4,720)
(109,690)
Operating (loss)/profit
3
26,217
(30,259)
(4,042)
26,543
(9,992)
16,551
Adjusted EBITDA*
69,116
(30,259)
50,157
(9,992)
40,165
(16,815)
(21,969)
(4,115)
-
-
-
38,857
(16,815)
(21,969)
(4,115)
(6,181)
(13,580)
(3,853)
-
-
-
(6,181)
(13,580)
(3,853)
16,551
26,217
(30,259)
(4,042)
26,543
(9,992)
315
(7,152)
-
-
315
(7,152)
61
(2,418)
-
-
61
(2,418)
19,380
(30,259)
(10,879)
24,186
(9,992)
14,194
(3,829)
4,615
786
(4,976)
1,586
(3,390)
15,551
(25,644)
(10,093)
19,210
(8,406)
10,804
(1,209)
-
(1,209)
(245)
-
(245)
12
11
7
8
8
9
Depreciation
Amortisation
Share-based payments
Operating (loss)/profit
Finance income
Finance costs
(Loss)/profit
before taxation
Income tax (charge)/credit
(Loss)/profit for the
financial year
Other
comprehensive income:
Exchange differences
on translating foreign
operations, net of tax
Total comprehensive
(expense)/income for the
financial year
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Current tax asset
Cash and cash equivalents
Total assets
Equity
Ordinary shares
Share premium
Employee benefit scheme reserve
Merger reserve
Capital redemption reserve
Retained earnings
Non-current liabilities
Borrowings
Deferred tax
Current liabilities
Trade and other payables
Borrowings
Provisions
Total liabilities
Total equity and liabilities
2017
£'000
Note
2016
£'000
11
12
13
15
16
22
22
22
22
22
22
18
20
17
18
19
434,691
186,207
620,898
84,798
43,734
2,789
186,729
318,050
938,948
3,746
277,380
175
615
518
36,792
319,226
397,467
6,768
404,235
205,432
9,230
825
215,487
619,722
221,636
152,049
373,685
58,911
17,857
1,663
174,286
252,717
626,402
3,299
94,260
175
615
518
44,666
143,533
299,999
7,493
307,492
166,456
8,156
765
175,377
482,869
938,948
626,402
22
14,342
(25,644)
(11,302)
18,965
(8,406)
10,559
The financial statements on pages 46 to 77 were approved by the Board of Directors on 29 May 2018 and were
signed on its behalf by:
*Adjusted EBITDA is defined as operating profit before depreciation, amortisation, share-based payments and exceptional items.
The results for the year are derived from continuing activities.
The comprehensive (expense)/income is 100% attributable to the owners of the Parent Company.
J A Gallemore
Director
Registered number: 06539496
Annual Report and Accounts 2017
Consolidated statement of changes in equity
for the year ended 31 December 2017
Consolidated statement of cash flows
for the year ended 31 December 2017
48
49
Ordinary
shares
Share
premium
Employee
benefit
scheme
reserve
Merger
reserve
Capital
Redemption
Reserve
Retained
earnings
Total
Equity
Note
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Balance at 1 January 2016
2,743
13,748
175
615
457
45,565
63,303
Total comprehensive income
for the year
Issue of ordinary share capital
Share buy-backs
Share-based payments
7
Bonus issue
Deferred tax effect of
share-based payments
-
483
(61)
-
134
-
-
81,882
(1,236)
-
(134)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,559
10,559
-
82,365
61
(14,557)
(15,793)
-
-
-
1,994
1,994
-
-
1,105
1,105
Balance at 31 December 2016
3,299
94,260
175
615
518
44,666
143,533
Balance at 1 January 2017
3,299
94,260
175
615
518
44,666
143,533
Total comprehensive expense
for the year
Issue of ordinary share capital
Share buy-backs
Share-based payments
Deferred tax effect of
share-based payments
22
22
22
7
20
-
-
447
183,120
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(11,302)
(11,302)
-
183,567
(2,466)
(2,466)
2,152
2,152
3,742
3,742
Balance at 31 December 2017
3,746
277,380
175
615
518
36,792
319,226
2017
£'000
Note
2016
£'000
Cash flows from operating activities
Cash generated from operations
Income tax received/(paid)
Net cash generated from operating activities before exceptional cash flows
Cash flows relating to exceptional items
Net cash generated from operating activities
Cash flows from investing activities
24
50,555
16
50,571
(34,141)
16,430
Acquisition of subsidiaries net of cash acquired
10
(164,336)
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Interest received
(38,685)
55
(32,919)
315
87,607
(2,591)
85,016
(9,992)
75,024
(73,841)
(118,561)
-
(32,551)
100
Net cash used in investing activities
(235,570)
(224,853)
Cash flows from financing activities
Proceeds from issuance of ordinary shares net of fees
Share buybacks and related costs
Interest paid
Repayment of bank borrowings
Proceeds from bank borrowings
Capital element of finance lease payments
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
183,567
(4,439)
(8,577)
81,677
(17,040)
(2,418)
(774,155)
(255,302)
837,500
(2,313)
231,583
12,443
174,286
376,577
(914)
182,580
32,751
141,535
Cash and cash equivalents at the end of the year
16
186,729
174,286
Annual Report and Accounts 2017 Notes to the financial statements
1. Accounting policies
Notes to the financial statements (continued)
50
51
Basis of preparation
The consolidated financial statements of The Hut Group
Limited (“the Company”) and its subsidiaries (together
“the Group”) have been prepared in accordance with
International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards
Board (IASB) and as adopted by the European Union
(EU). The financial statements have been prepared
on the historical cost basis except for derivatives
which are held at fair value.
The accounting policies adopted by the Group in the
current year are consistent with those adopted during
the year ended 31 December 2016. There have been
various accounting standards and amendments issued
during the year that have no impact on the current year
financial statements. IFRS 16 Leases continues to be
assessed by the Group however any impact would be
restricted to the operating leases liability as disclosed
in note 21 of these financial statements.
IFRS 15 ‘Revenue from Contracts with Customers’
replaces IAS 18 ‘Revenue’. This standard is effective
for accounting periods beginning on or after 1 January
2018. The Group expects that adoption will not have
a material impact on the results or financial position
of the Group. A detailed assessment of IFRS 15 will
be completed during the year.
The Company is a private limited company and is
incorporated and domiciled in the UK.
Going concern
The Group meets its day-to-day working capital
requirements through its banking facilities.
The Group forecasts cash projections taking
account of reasonably possible changes in trading
performance demonstrating that the Group is able
to operate within the level of its current facilities.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to
continue in operational existence for the foreseeable
future. The Group therefore continues to adopt the
going concern basis in preparing its consolidated
financial statements.
Accounting policies
The Group’s key accounting policies are set out below.
These policies have been prepared on the basis of the
recognition and measurement requirements of IFRS
standards in effect that apply to accounting periods
beginning on or after 1 January 2017, and have been
applied to 2016 comparatives.
a. Basis of consolidation
The Group financial statements consolidate those
of the Company and all of its subsidiary undertakings
drawn up to 31 December 2017. Subsidiaries are all
entities over which the Group has control.
The Group exercises control through a majority of
voting rights or board control. In the case of The Hut
Management Company Limited (“Manco”) the Company
holds a 0.01% shareholding, however the Company
has a separate class of share in Manco which gives
it the right to control the appointment of Board
Directors. Consequently, Manco has been consolidated
within the financial statements on the basis that
through Board control, the Group has the power to
control the financial and operational policies of Manco.
All subsidiaries have a reporting date of 31 December.
All transactions and balances between Group companies
are eliminated on consolidation, including unrealised
gains and losses on transactions between Group
companies. Where unrealised losses on intra-group
asset sales are reversed on consolidation, the
underlying asset is also tested for impairment from
a Group perspective.
Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary
to ensure consistency with the accounting policies
adopted by the Group. Profit or loss and other
comprehensive income of subsidiaries acquired or
disposed of during the year are recognised from the
effective date of acquisition, or up to the effective
date of disposal, as applicable.
b. Business combinations
Business combinations are accounted for using
the acquisition method under IFRS 3 ‘Business
Combinations’. The consideration transferred by the
Group to obtain control of a subsidiary is calculated
as the sum of the acquisition-date fair values of assets
transferred, liabilities incurred and the equity interests
issued by the Group, which includes the fair value of any
asset or liability arising from a contingent consideration
arrangement. Acquisition costs are expensed as incurred.
The Group recognises identifiable assets acquired,
and liabilities assumed, including contingent liabilities,
in a business combination regardless of whether they
have been previously recognised in the acquiree’s
financial statements prior to the acquisition. Assets
acquired and liabilities assumed are measured at their
acquisition-date fair values. These fair values can be
re-assessed for a period of 12 months from the date
of acquisition based on information available at the
date of acquisition.
Goodwill is stated after separate recognition of
other identifiable intangible assets. It is calculated as
the excess of the sum of a) fair value of consideration
transferred, b) the recognised amount of any non-
controlling interest in the acquiree and c) acquisition-
date fair value of any existing equity interest in the
acquiree, over the acquisition-date fair values of
identifiable net assets. If the fair values of identifiable
net assets exceed the sum calculated above, the excess
amount (i.e. gain on a bargain purchase) is recognised in
profit or loss immediately.
In determining whether a transaction is a business
combination or an asset purchase, the Group takes into
account the inputs, processes and outputs acquired in
accordance with IFRS 3.
c. Segment reporting
The Group is required to determine and present its
operating segments based on the way in which financial
information is organised and reported to the chief
operating decision-maker (CODM). The CODM has been
identified as the Board as it is the Board who makes the
key operating decisions of the Group, and is responsible
for allocating resources and assessing performance of
the operating segments.
d. Revenue
Revenue consists primarily of internet sales, which
are sales recorded net of an appropriate deduction for
actual and expected returns, fair value of loyalty points
and sales taxes and are recognised upon dispatch from
the warehouse at which point title and risk passes to
third parties.
Revenue for services provided is recognised by reference
to the stage of completion as at the balance sheet date.
Fees recognised in respect of memberships are recorded
on a straight line basis over the membership period.
Revenue for internet hosting contracts and domain
renewal services (UK2) are recognised on a straight line
basis over the relevant period. Income which is invoiced
in advance is recorded as deferred income on the balance
sheet and released to the profit and loss account over the
periods in which the services are provided.
e. Share-based payments
The Group operates share-based compensation
plans, under which the Group receives services from
employees as consideration for equity instruments
(options or growth shares) of the Company. The fair
value of the employee services received in exchange
for the grant of the equity instruments is recognised
as an expense.
Non-market vesting conditions are included in
assumptions about the number of equity instruments
that are expected to vest. The total expense
is recognised over the vesting period, which is
the period over which all of the specified vesting
conditions are to be satisfied. At the end of each
reporting period, the Group revises its estimates
of the number of equity instruments that are expected
to vest based on the non-market vesting conditions,
along with taking account of any equity instruments
that may have been cancelled or modified in the
period. It recognises the impact of the revision to
original estimates, if any, in the income statement,
with a corresponding adjustment to equity.
Share subscriptions by employees in the Company
that hold the growth shares, are included within
the employee benefit scheme reserve.
When the equity instruments are exercised, the Company
issues new shares. The proceeds received net of any
directly attributable transaction costs are credited to
share capital (nominal value) and share premium when
the equity instruments are exercised.
Where an equity-settled award is cancelled (including
when a non-vesting condition within the control of the
entity or employee is not met), it is treated as if it had
vested on the date of cancellation, and any cost not
yet recognised in the income statement for the award
is expensed immediately. Any compensation paid up
to the fair value of the award at the cancellation or
settlement date is deducted from equity, with any
excess over fair value being treated as an expense in
the income statement.
The Group has an employee benefit trust (EBT)
which facilitates an internal market for participants
in employee share schemes to sell their shares in
the Company. Shares held are recognised at cost as
a deduction from shareholding equity. Subsequent
consideration received for the sale of such shares
is also recognised in equity.
Annual Report and Accounts 2017
Notes to the financial statements (continued)
Notes to the financial statements (continued)
52
53
Intangible assets
f.
Goodwill
Goodwill represents the excess of the cost of
acquisitions over the Group’s interest in the fair value
of the identifiable assets and liabilities (including
intangible assets) of the acquired entity at the date
of acquisition. Goodwill is recognised as an asset and
assessed for any indications of impairment at least
annually. Any impairment is recognised immediately in
the income statement. For the purposes of impairment
testing, goodwill is allocated to those cash-generating
units that have benefited from the acquisition. If the
recoverable amount of the cash-generating unit is less
than its carrying amount, then the impairment loss is
allocated first to reduce the carrying amount of the
goodwill allocated to the unit and then to the other
assets of the unit on a pro rata basis.
On disposal of a subsidiary, the attributable amount
of goodwill is included in the determination of the
profit and loss on disposal.
Other intangible assets
Other intangible assets include internally developed
software, separately acquired customer lists, domain
and trade names, brands and other intellectual property,
including customer lists, acquired as part of business
combinations.
Separately acquired intangible assets are measured at
cost on initial recognition. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortisation and impairment losses.
The costs of acquiring and developing the platform
and websites is capitalised separately as an intangible
asset. Capitalised website costs include external
direct costs of material and services and overheads,
and the payroll and payroll-related costs for employees
who are directly associated with website development
projects.
Other internally generated intangible assets are not
capitalised and expenditure is reflected in the income
statement in the year in which expenditure is incurred.
Intangible assets are amortised on a straight line
basis over their estimated useful economic life.
Amortisation is included within administrative
expenses in the income statement in the period to
which it relates. The estimates of useful economic
lives are reviewed on an annual basis and any changes
are reflected as changes in amortisation period and
are treated as changes in accounting estimates.
Brands with indefinite lives are reviewed for impairment
on an annual basis. The useful economic life is reviewed
on an annual basis to confirm that the indefinite life
continues to be supportable.
The following useful economic lives are applied:
Platform development costs
Brands
Intellectual property (including customer lists,
domain and trade names)
1-5 years
5 years-indefinite
2-10 years
g. Property, plant and equipment
Property, plant and equipment are stated at historic
purchase cost less accumulated depreciation. Cost
includes the original purchase price of the asset and
the costs attributable to bringing the asset to its
working condition for its intended use. Depreciation
is provided at the following annual rates in order to
write off each asset on a systematic basis over its
estimated useful life.
Plant and machinery
Fixtures and fittings
Computer equipment and software
Freehold buildings
Motor vehicles
3-20 years
3-10 years
3-5 years
50 years
3-7 years
At each reporting date, property, plant and equipment
is reviewed for impairment if events or changes in
circumstances indicate that the carrying amount may
not be recoverable. When a review for impairment is
conducted, the recoverable amount is assessed by
reference to the net present value of expected future
pre-tax cash flows of the relevant cash-generating unit
or fair value, less costs to sell if higher. Any impairment
in value is charged to the profit or loss in the period in
which it occurs.
h. Borrowing costs
Borrowing costs incurred in relation to bringing into
use both tangible and intangible assets are capitalised
as the expenditure is incurred on such assets and
subsequently depreciated in line with the useful
economic life of the relevant asset.
Inventories
i.
Inventories are valued at the lower of cost and net
realisable value, on a weighted average cost basis.
Cost of purchase comprises the purchase price
including import duties and other taxes, transport
and handling costs and any other directly attributable
costs, less trade discounts.
A provision is made to write down any slow-moving
or obsolete inventory to net realisable value.
j. Financial instruments
Financial assets
Financial assets within the scope of IAS 39 are
classified as loans and receivables.
Derivative financial instruments
The Group uses derivative financial instruments,
such as foreign currency swaps, to hedge its foreign
currency risks. Such derivative financial instruments
are initially recognised at fair value on the date on
which a derivative contract is entered into and are
subsequently remeasured at fair value. Derivatives
are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value
is negative. Derivatives are not designated as hedges
and accordingly, any gains or losses arising from
changes in the fair value of derivatives are taken
directly to profit or loss.
Trade and other receivables
Trade and other receivables are non-interest
bearing and are initially recognised at fair value.
Subsequently they are measured at amortised cost
using the effective interest rate method less provision
for impairment. A provision for impairment of trade
receivables is established when there is objective
evidence that the Group will not be able to collect
all amounts due according to the original terms of
the receivables. Significant financial difficulties
of the debtor, probability that the debtor will enter
bankruptcy or financial reorganisation, and default
or delinquency in payments (more than 30 days
overdue) are considered indicators that the trade
receivable is impaired.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank
and in hand and short-term deposits with an original
maturity of three months or less.
Financial liabilities and equity instruments
Financial liabilities within the scope of IAS 39 are
classified as financial liabilities at amortised cost.
The Group has no financial liabilities at fair value
through profit and loss and has no derivatives
designated as hedging instruments.Equity instruments
are classified according to the substance of the
contractual arrangements entered into. An equity
instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all
of its liabilities.
Trade and other payables
Trade and other payables are non-interest bearing and
are recognised initially at fair value and subsequently
measured at amortised cost using the effective
interest method.
Bank borrowings
Interest-bearing bank loans and overdrafts are initially
recorded at fair value, which equals the proceeds
received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption
and direct issue costs, are accounted for using an
effective interest rate method and are added to the
carrying amount of the instrument to the extent that
they are not settled in the period in which they arise.
k. Leased assets
Finance leases
Where assets are financed by leasing agreements
that give rights approximating to ownership, the
amount representing the outright purchase price is
capitalised and the corresponding leasing commitments
are shown as obligations to the lessor. The relevant
assets are depreciated in accordance with the Group’s
depreciation policy or over the lease term if shorter.
Net finance charges, calculated on the reducing
balance method, are included in finance costs
Operating leases
Payments made under operating leases, net of any
incentives received from the lessor, are charged to
the profit or loss on a straight line basis over the
period of the lease.
l. Onerous contracts
A provision is made for onerous contracts, discounted
at a risk free rate. This includes provision for future
lease costs on disused warehouse space, based on
management’s best estimate of future rental costs
and, if appropriate, rental income from sub-lease
arrangements.
m. Exceptional items
The Directors apply judgement in assessing the
particular items, which by virtue of their scale and
nature should be classified as exceptional items.
Annual Report and Accounts 2017
Notes to the financial statements (continued)
Notes to the financial statements (continued)
54
55
in assessing the number of options expected to vest
and the vesting periods of the awards.
Exceptional items
The Group separately identifies and discloses
significant one-off or unusual items which can have
a material impact on the absolute amount of profit
from operations and the result for the year. These
are termed ‘exceptional items’ and are disclosed
separately in the statement of comprehensive income
in order to provide an understanding of the Group’s
underlying financial performance. Exceptional items
are judgemental in their nature and may not be
comparable to similarly titled measures used by
other companies. Further details of the exceptional
items are provided on note 4.
The Directors consider that separate disclosure of
these items is relevant to an understanding of the
Group’s financial performance.
Items deemed to be exceptional include certain
items which are considered to be one-off and not
representative of the underlying trading of the Group,
including integration costs.
n. Taxation
The tax expense included in the statement of
comprehensive income and statement of changes
in equity comprises current and deferred tax.
Current tax is the expected tax payable based on
the taxable profit for the period, and the tax laws that
have been enacted or substantively enacted by the
reporting date. Management periodically evaluates
positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to
interpretation. It establishes provisions where
appropriate on the basis of amounts expected to
be paid to the tax authorities.
Current and deferred tax is charged or credited in the
statement of comprehensive income, except when it
relates to items charged or credited directly to equity,
in which case the current or deferred tax is also
recognised directly in equity.
Deferred tax is recognised on differences between
the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases
used in the computation of taxable profit, and is
accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for
all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable
that taxable profits will be available against which
deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or
from the initial recognition (other than in a business
combination) of other assets and liabilities in a
transaction that affects neither the tax profit
nor the accounting profit.
The carrying amount of deferred tax assets is reviewed
at each reporting date and reduced to the extent that
it is no longer probable that sufficient taxable profits
will be available to allow all or part of the asset to be
recovered. Deferred tax is calculated at the tax rates
(and laws) that are expected to apply in the period when
the liability is settled or the asset is realised.
Deferred tax assets and liabilities are offset where
there is a legally enforceable right to offset current
tax assets against current tax liabilities and when the
deferred tax assets and liabilities relate to income
taxes levied by the same taxation authority on either
the taxable entity or different taxable entities and
where there is an intention to settle the balances
on a net basis.
o. Foreign currency translation
Functional and presentational currency
Items included in the financial statements of each
of the Group’s entities are measured using the
currency of the primary economic environment in
which the entity operates (“the functional currency”).
The consolidated financial statements are presented
in Sterling, which is the functional and presentational
currency of the majority of entities in the Group
Transactions and balances
Transactions denominated in foreign currencies
are translated into the functional currency at
the exchange rates prevailing on the date of
the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated
into Sterling at the rates of exchange at the reporting
date. Exchange differences on monetary items are
taken to the income statement.
Group companies
On consolidation, the assets and liabilities of foreign
operations are translated into the functional currency
of the Group at the rate of exchange prevailing at the
reporting date and their statements of profit or loss
are translated at exchange rates prevailing at the dates
of the transactions. The exchange differences arising
on translation for consolidation are recognised in OCI.
On disposal of a foreign operation, the component
of OCI relating to that particular foreign operation is
recognised in profit or loss.
p. Significant estimates and judgements
The preparation of financial statements in conformity
with International Financial Reporting Standards as
adopted by the EU requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure
of contingent assets and liabilities. Actual results
could differ from these estimates and any subsequent
changes are accounted for with an effect on the
financial statements at the time such updated
information becomes available.
The most critical accounting policies in determining
the financial position and results of the Group are
those requiring the greatest degree of subjective
or complex judgement and are detailed as follows:
Goodwill and intangible asset impairment reviews
The Group is required to review goodwill, brands
and intellectual property with indefinite lives annually
to determine if any impairment has occurred. Intangible
assets with finite lives are reviewed for impairment
if events or changes in circumstances indicate
that the carrying amount may not be recoverable.
When a review for impairment is conducted, the
recoverable amount of an asset or a cash-generating
unit is determined based on value-in-use calculations
prepared on the basis of management’s assumptions
and estimates. Refer to note 11 for further details of
the value-in-use calculations.
Valuation of intangible assets arising from
business combinations and assessment of brands
with indefinite lives
Business combinations may result in intangible assets
such as customer lists and brands being recognised.
These are valued using discounted cash flow methods
which require judgements and estimates to be made in
respect of future cash flows and discount rates. Refer
to note 10 for customer lists and brands that have been
recognised during the year. Furthermore, judgement is
applied in assessing whether acquired brands have an
indefinite useful economic life. Note 11 contains details
of intangible assets with indefinite lives.
Capitalisation and amortisation of platform
development costs
Costs capitalised as platform development costs
include direct external costs, such as consultancy
costs and internal payroll costs. The capitalisation of
internal costs is based on the amount of time spent by
employees on capital projects. Judgement is applied
in determining which costs meet the criteria for
capitalisation as development costs. Refer to note 11
for details of capitalised platform development costs.
The useful economic life of the platform is considered
to be between one and five years dependent on the
type of development work capitalised. The estimate
of useful economic life is reviewed on a regular basis
to ensure that this continues to be appropriate.
Share-based payments
Critical estimates and assumptions are made in
particular with regard to the calculation of the fair
value of employee share options using appropriate
valuation models. In addition, estimation is required
Annual Report and Accounts 2017
56
57
Notes to the financial statements (continued)
Notes to the financial statements (continued)
2. Segment information
3. Operating (loss)/profit
The Group’s principal activity is that of online retailing. The Group has made the following considerations in
arriving at the disclosure in these financial statements.
IFRS 8 requires consideration of the Chief Operating Decision Maker (CODM) within the Group. In line with the
Group’s internal reporting framework and management structure, the key operating decisions and resource
allocations are made by the Board. The Directors therefore consider the Board to be the CODM. Key internal
reports reviewed by the CODM, primarily the Board management accounts, focus on the performance of the
product categories.
Operations of the majority of the business are driven by the retail sales environment and hence have fundamentally
the same economic characteristics. All operational decisions are focused on the performance of websites
and the ability to utilise the technology platform that has been developed to drive profitability. The results
of non-retail activities are not considered to be significant to those of the Group as a whole and have not
been separately reported. The CODM reviews the Group results to Adjusted EBITDA level and therefore no
reconciliation is required between the operating information and the information presented within these
financial statements.
Below is an analysis of revenue by destination of delivery to customers:
UK
Europe
Rest of the world
2017
£'000
223,017
214,020
298,615
735,652
2016
£'000
184,539
169,828
147,009
501,376
All material non-current assets are based in the UK (95%) and the USA (5%) (2016: UK 100%).
Rendering of services represents 6% of total revenue (2016: 2%)
Operating (loss) / profit has been arrived at after charging:
Employee costs
Share-based payments
Depreciation
Loss/(profit) on disposal of property, plant and equipment
Amortisation
Operating lease rentals:
Motor vehicles
Land and buildings
2017
£'000
2016
£'000
Note
6
7
12
11
97,376
4,115
16,815
10
49,704
3,853
6,181
(7)
21,969
13,580
-
3,302
20
5,527
The non-cash IFRS two share-based payments charge for the year relating to the share options in issue during
the year was £1.8m (2016: £2.0m).
Share-based payments also contain a cash charge for the year amounting to £2.3m (2016: £1.2m) as a result of
payments that were made to employees in return for the cancellation of their share options. 38,931 share options
were cancelled in total.
The Group issued no Employee Share Scheme (ESS) shares during 2017. As a result, there is no charge related
to a share issue (2016: £0.7m).
Total depreciation and amortisation costs have increased by 96% year-on-year, in line with gross profit, which
is a reflection of the continued investment in the future growth of the Group, through expanding the physical
infrastructure throughout the Group’s warehouses and through investing in the development of the Group’s
proprietary technology platform to create an ever improving user experience, which in turn will generate
higher levels of consumer loyalty.
Annual Report and Accounts 2017 58
59
Notes to the financial statements (continued)
Notes to the financial statements (continued)
4. Exceptional items
6. Employee costs and directors’ remuneration
Production and distribution facility
Acquisition, legal and professional costs
Tax effect
2017
£'000
2016
£'000
15,315
5,272
14,944
4,720
30,259
(4,615)
25,644
9,992
(1,586)
8,406
Wages and salaries
Social security costs
Pension costs
Share-based payments
Note
2017
£'000
2016
£'000
107,717
59,549
10,401
483
1,758
5,506
324
1,995
120,359
67,374
7
Production and distribution facility
During the year the Group fully commissioned the 1m sq. ft. Cheshire based food production and distribution facility
(Omega). It is expected that the site will take a year to reach maturity as the Group continues to develop the proprietary
software that controls the operation. Costs relating to the ongoing integration of this facility continue to be included
within exceptional items.
As acquisitions are integrated onto the THG Platform, Ingenuity, any legacy warehouses are exited. During the year
operations ceased in 12 such facilities on three continents. Associated costs are non-recurring in nature.
Acquisition, legal and professional costs
Legal, financial and taxation due diligence costs on the six businesses acquired in the year are included within
exceptional items.
Post-acquisition reorganisation and restructuring costs associated with the deals completed in the year, include
dual site and technology decollation costs, redundancies, onerous lease costs and other costs of a one-off nature
including store closures.
5. Auditors remuneration
Audit of the Company and consolidated financial statements
Other services:
Audit of the Company's subsidiaries
Corporate finance services
2017
£'000
2016
£'000
115
105
672
892
115
45
221
381
The aggregate amount of employee costs included above that have been capitalised within platform development
costs was £21.2m (2016: £15.7m).
The costs incurred in respect of the Directors, who are regarded as the only key management personnel,
were as follows:
Directors' emoluments
Highest paid director
Details of the Directors’ share-based payments are included in note 26.
No retirement benefits are accruing to any of the Directors at 31 December 2017 (2016: nil).
The average number of employees (including executive directors) during the year was:
Retail
Administration
Distribution
Information technology
2017
£'000
1,364
488
2016
£'000
1,440
595
2017
2016
Number
Number
873
563
1,261
525
689
376
475
293
3,222
1,833
Annual Report and Accounts 2017 Notes to the financial statements (continued)
Notes to the financial statements (continued)
7. Share-based payments
9. Income tax
60
61
During the prior year, the Group issued equity settled unapproved options to its employees. The options were valued
using the Black-Scholes model with the following inputs:
Exercise price £
Expected volatility %
Option life (years)
Risk-free interest rate %
Fair value per option £
Unapproved February 2016
1.00
31.8
n/a
0.5
199.05
The Group also continues to operate both of its equity settled EMI and Growth Share schemes. Both schemes were
valued using the Black-Scholes model at the grant date which takes into account the terms and conditions upon
which the options were granted
At each balance sheet date, the Group revises its estimate of the number of options expected to vest upon the
satisfied completion of the specific vesting conditions and the vesting period, being the expected date of a listing
or sale of the Group.
A reconciliation of option movements, and weighted average exercise price (”WAEP”) over the year is shown below:
Outstanding at 1 January
Granted
Cancelled
Outstanding at 31 December
Number 2017 WAEP 2017
Number 2016 WAEP 2016
£
5.19
-
4.25
5.29
383,894
-
(38,930)
344,964
£
5.41
1.00
4.52
5.19
386,904
19,123
(22,133)
383,894
The IFRS 2 share-based payment charge for the current year is £1.8m (2016: £2.0m). Included within the
share-based payment charge in the consolidated statement of comprehensive income is £2.3m (2016: £1.2m)
in relation to options bought back by the Company from qualifying staff. There was no charge in relation to the
issues of ESS shares to qualifying staff (2016: £0.7m).
The lowest exercise price of share options outstanding at the end of the period was £1.00 (2016: £1.00) and the
highest exercise price was £8.25 (2016: £8.25).
Current tax
Tax charge for the year
Adjustments in respect of prior year
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of prior year
Change in tax rates
Note
20
2017
£'000
730
(651)
79
(1,237)
372
–
(865)
2016
£'000
2,622
(393)
2,229
1,194
(11)
(22)
1,161
Total income tax (credit)/charge
(786)
3,390
The tax on the Group’s (loss)/profit before tax differs from the theoretical amount that would arise using the
weighted average tax rate as follows:
(Loss)/profit before tax
(Loss)/profit before tax at 19.25% (2016: 20%)
Tax effects of:
Adjustments in respect of prior year
Non-qualifying depreciation
Expenses not deductible / non-taxable income
R&D enhanced deductions
Effect of higher tax rates in other jurisdictions
Losses not recognised
Effect of change in tax rate
2017
£'000
(10,879)
(2,094)
(284)
643
1,416
-
307
(1,026)
252
(786)
2016
£'000
14,194
2,839
(405)
-
1,631
(712)
111
(52)
(22)
3,390
8. Finance income and cost
Finance income
Bank interest receivable
Finance costs
Bank interest payable and charges
Finance lease interest
2017
£'000
315
7,133
19
7,152
2016
£'000
61
2,370
48
2,418
The standard rate of Corporation Tax in the UK changed to 19% (previously 20%) with effect from 1 April 2017.
Accordingly, the Group’s (loss)/profits for this accounting period are taxed at an effective rate of 19.25%.
The reduction of the main rate of Corporation Tax from 19% to 17% from 1 April 2020 was included within the 2016
Finance Bill, as substantively enacted on 6 September 2016. Future profits will be taxed at the appropriate rate.
Substantially all deferred tax balances as at 31 December 2017 have been calculated at 17% (2016: 17%), being the
enacted rate at which the deferred tax is expected to reverse.
Regarding US tax reform, (being a substantial reduction in the US corporate tax rate, from the existing tax rate
of 35% to 21%, with effect from 1 January 2018), this is substantively enacted for accounting purposes in 2017.
As such, for US deferred tax balances the impact of the tax law change is reflected in the Group’s financial
statements as at 31 December 2017, with these balances calculated at 21%.
Annual Report and Accounts 2017 62
63
Notes to the financial statements (continued)
Notes to the financial statements (continued)
10. Business combinations
Continuing the Group’s focus on international expansion, a number of companies based in both the UK and
internationally were acquired during the year. Details of these acquisitions are as follows:
Hangar Seven
UK2 Limited
RY.com.au
Glossybox
ESPA
Illamasqua
Country of
incorporation
UK
UK
Australia
Germany
UK
UK
Nature of
activity
Date of
acquisition
Consideration
('000)
Percentage
ownership
Producer of Visual Content
12 April 2017
Webhosting
24 May 2017
Online retailing
22 August 2017
Online retailing
11 August 2017
Online retailing 6 September 2017
Online retailing
5 October 2017
9,191
58,036
6,842
17,467
68,191
16,926
100%
100%
100%
100%
100%
100%
The provisional fair values of the assets and liabilities and the associated goodwill arising from the acquisitions
are as follows:
Hangar Seven
£'000
Note
UK2
£'000
RY
£'000
Glossybox
£'000
ESPA
£'000
Illamasqua
£'000
Total
£'000
Intangible assets
11
2,205
18,595
1,264
1,242
2,321
2,441
28,068
Property, plant
and equipment
Inventories
Trade and other
receivables
Cash and cash
equivalents
364
8,205
5
223
3,449
503
12,749
-
-
663
1,122
4,246
1,251
7,282
2,342
7,194
376
2,872
55
21
1,761
4,338
1,779
17,469
3,475
4,903
174
11,821
The carrying amount of assets and liabilities in the books of the acquirees at the dates of acquisition were as follows:
Trade and other payables
(3,109)
(14,472)
(1,106)
(12,886)
(32,374)
(4,461)
(68,408)
Hangar Seven
£'000
Intangible assets
Property, plant
and equipment
Other long term assets
Inventories
189
364
-
90
UK2
£'000
1,201
8,205
371
-
Other receivables
2,564
13,778
Cash and
cash equivalents
Trade and
other payables
Non-current payables
Deferred tax
Total carrying amount
376
2,918
-
(19)
781
(3,811)
1,026
9,326
RY
£'000
Glossybox
£'000
ESPA
£'000
Illamasqua
£'000
Total
£'000
119
215
-
826
73
372
-
40,466
279
2,922
-
2,803
2,998
-
4,246
5,490
194
503
-
1,323
1,779
42,169
12,488
371
9,288
26,682
3,479
4,903
174
12,222
(2,783)
(14,362)
(920)
(9,977)
(30,412)
(3,550)
(62,004)
-
-
-
-
-
(30)
(658)
(4,469)
-
977
Non-current payables
-
(3,811)
-
-
-
Deferred tax
Net assets acquired
Goodwill
20
11
(420)
(2,139)
(230)
(226)
(442)
1,758
16,444
672
(5,289)
(13,559)
(658)
(425)
604
(4,469)
(3,882)
630
7,433
41,592
6,170
22,756
81,750
16,322
176,023
Purchase consideration
9,191
58,036
6,842
17,467
68,191
16,926
176,653
The goodwill is attributable to the cost synergies and cross-selling opportunities that are expected to be achieved
from incorporating the businesses into the Group’s IT platform and supporting operations.
Cash flows arising from the acquisitions were as follows:
Hangar Seven
£'000
UK2
£'000
RY
£'000
Glossybox
£'000
ESPA
£'000
Illamasqua
£'000
9,191
(496)
58,036
6,842
17,467
68,191
16,926
-
-
-
-
-
Total
£'000
176,653
(496)
(376)
(2,872)
(21)
(3,475)
(4,903)
(174)
(11,821)
Purchase consideration
Deferred consideration
Cash and cash
equivalents acquired
685
(418)
27,585
(235)
37,724
Total cash outflow
8,319
55,164
6,821
13,992
63,288
16,752
164,336
The following intangible assets were recognised at acquisition:
Hangar Seven
£'000
UK2
£'000
RY
£'000
Glossybox
£'000
ESPA
£'000
Illamasqua
£'000
Total
£'000
Intangible assets -
brands
Intangible assets -
customer lists
Deferred tax
Total carrying
amount
1,976
15,628
1,082
1,063
2,029
2,102
23,880
229
1,766
182
179
(401)
(3,165)
(230)
(226)
226
(412)
238
2,820
(425)
(4,859)
1,804
14,229
1,034
1,016
1,843
1,915
21,841
From the dates of acquisition to 31 December 2017 the newly acquired companies contributed the following to
Group revenues and loss before tax:
Hangar Seven
£'000
UK2
£'000
RY
£'000
Glossybox
£'000
ESPA
£'000
Illamasqua
£'000
Total
£'000
Revenue
Adjusted EBITDA
11,082
24,574
2,797
16,994
6,892
1,457
63,796
1,243
6,257
(69)
3,403
1,709
186
12,729
Net profit/(loss) before tax
348
670
(227)
422
801
(1,997)
17
If the acquisitions had occurred on 1 January 2017, the Group’s revenue and loss before tax for the year would have
been £884m and £30m respectively.
Annual Report and Accounts 2017
Notes to the financial statements (continued)
Notes to the financial statements (continued)
64
65
11. Intangible assets
Cost or valuation
At 1 January 2016
Additions
Disposals
Business combinations
Note
Goodwill
£'000
Platform
development
costs £'000
Intellectual
property
£'000
Brands
£'000
Total
£'000
95,679
-
(32)
51,478
35,648
18,899
-
-
10,797
12,806
-
5,662
12,154
154,278
-
-
16,967
29,121
31,705
(32)
74,107
260,058
At 31 December 2016
147,125
54,547
29,265
At 1 January 2017
Additions
147,125
-
Business combinations
10
176,023
Currency translation
differences
Recognised on acquisition
of businesses
(1,069)
(480)
54,547
24,528
1,201
(20)
-
29,265
29,121
260,058
7,507
2,987
74
-
-
23,880
254
-
32,035
204,091
(761)
(480)
At 31 December 2017
321,599
80,256
39,833
53,255
494,943
Accumulated amortisation
At 1 January 2016
Amortisation
At 31 December 2016
At 1 January 2017
Amortisation
Currency translation differences
At 31 December 2017
3
3
Net book amount
At 1 January 2016
At 31 December 2016
At 31 December 2017
270
-
270
16,275
8,970
6,492
3,811
25,245
10,303
270
25,245
-
-
13,816
4
270
39,065
10,303
6,903
(18)
17,188
1,805
799
2,604
2,604
1,250
(125)
3,729
24,842
13,580
38,422
38,422
21,969
(139)
60,252
95,409
146,855
321,329
19,373
29,302
4,305
18,962
10,349
26,517
41,191
22,645
49,526
129,436
221,636
434,691
Included within platform development costs additions there is a credit for £0.9m (2016: £0.9m) in respect of
qualifying R&D expenditure.
Impairment tests for goodwill and other intangible assets
The Group’s intangible assets include acquired brands and intellectual property, some of which are deemed to
have indefinite lives as there are no foreseeable limits to the periods over which they are expected to generate
cash inflows. The assessment of an indefinite life takes into account the market position and the Group’s commitment
to maintaining the brand.
Goodwill, brands and intellectual property that have indefinite useful lives are subject to annual impairment testing,
or more frequent testing if there are indications of impairment. Intangible assets and goodwill are allocated to the
appropriate cash-generating units (“CGUs”) based on the smallest identifiable group of assets that generates cash
inflows independently in relation to the specific intangible asset.
The recoverable amounts of the CGUs are determined from value-in-use calculations that use amounts from
approved budgets, and projections over an initial period of 3-5 years (2016: 3-5 years) and pre-tax cash flows
projected forward assuming a perpetual growth rate of 2% (2016: 2%). The discount rate applied to the cash flow
projections was 8.3% on a pre-tax basis (2016: 7.5%). The average per-annum growth rate applied to the initial period
ranged from 2% to 25% dependent on the maturity of the CGU (2016: 2% to 25%) and is based on recent actual and
expected performance of the Group. The net book value of goodwill, brands and intellectual property with indefinite
lives allocated to CGUs for the purposes of impairment testing is as follows:
MyProtein
LookFantastic
Mankind
HQHair
Iwantoneofthose
The Hut
ProBikeKit
Exante
Preloved
ANI
Mio
PIAB / MGB
Skinstore
Hale CC
Ideal Shape
Skincare RX
Hangar Seven
UK2
RY.com
Glossybox
ESPA
Illamasqua
Goodwill
£'000
50,464
19,860
2,456
319
1,965
2,568
8,475
1,406
4,267
1,723
2,069
42
6,216
16,424
26,126
1,656
7,433
41,592
5,866
22,330
81,750
16,322
2017
Brands
£'000
5,527
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Note
10
10
10
10
10
10
Goodwill
£'000
50,464
19,860
2,456
319
1,965
2,568
8,475
1,406
4,267
1,609
1,946
42
5,738
16,412
27,342
1,986
-
-
-
-
-
-
2016
Brands
£'000
5,527
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
321,329
5,527
146,855
5,527
A sensitivity analysis has been performed around the base assumptions, being operating profit and sales growth,
with the conclusion that no reasonable possible changes in key assumptions would cause the recoverable
amount of the goodwill and brands with indefinite lives to be less than the carrying value. A 10% reduction in the
discounted cash flows would not result in an impairment being required.
Annual Report and Accounts 2017 Notes to the financial statements (continued)
12. Property, plant and equipment
Notes to the financial statements (continued)
Included within property, plant and equipment are assets held under finance lease as follows:
66
67
Motor
vehicles
£'000
Plant and
machinery
£'000
Fixtures
and fittings
£'000
Note
Computer
equipment
and software
£'000
Freehold
buildings
£'000
Cost
At 1 January 2016
Additions
Business combinations
Currency translation differences
Disposals
337
1,604
25
2
(86)
25,748
34,937
395
-
-
3,710
15,958
197
11
-
5,092
6,123
299
140
-
3,506
59,884
9,296
17
-
Total
£'000
38,393
118,506
10,212
170
(86)
At 31 December 2016
1,882
61,080
19,876
11,654
72,703
167,195
At 1 January 2017
Additions
Business combinations
10
Currency translation differences
Disposals
1,882
124
31
(4)
-
61,080
10,262
163
(162)
(64)
19,876
19,894
836
(106)
-
11,654
72,703
7,170
6,746
(86)
-
1,228
4,973
(80)
-
167,195
38,678
12,749
(438)
(64)
At 31 December 2017
2,033
71,279
40,500
25,484
78,824
218,120
Accumulated depreciation
At 1 January 2016
Depreciation
Currency translation differences
Disposals
At 31 December 2016
At 1 January 2017
Depreciation
Currency translation differences
3
3
Disposals
At 31 December 2017
Net book amount
At 1 January 2016
At 31 December 2016
At 31 December 2017
189
172
1
(79)
283
283
334
(1)
-
616
148
1,599
1,417
3,784
3,130
-
-
1,050
1,167
4
-
3,524
1,389
108
-
380
323
4
-
8,927
6,181
117
(79)
6,914
2,221
5,021
707
15,146
6,914
3,898
(12)
(9)
2,221
4,424
(10)
-
5,021
6,723
(14)
-
707
1,436
(2)
-
15,146
16,815
(39)
(9)
10,791
6,635
11,730
2,141
31,913
21,964
54,166
2,660
17,655
1,568
6,633
3,126
71,996
29,466
152,049
60,488
33,865
13,754
76,683
186,207
As at 31 December 2016
Cost
Accumulated depreciation
Net book value
As at 31 December 2017
Cost
Accumulated depreciation
Net book value
13. Inventories
Goods held for resale
Motor vehicles
£'000
Plant and machinery
£'000
Total
£'000
291
(199)
92
291
(246)
45
3,617
(2,055)
1,562
10,412
(7,340)
3,072
2017
£'000
84,798
3,908
(2,254)
1,654
10,703
(7,586)
3,117
2016
£'000
58,911
The cost of inventories recognised as an expense and included in cost of sales amounted to
£417.2m (2016: £290.1m).
14. Financial assets and liabilities
Assets as per balance sheet – loans and receivables
Trade and other receivables excluding prepayments
Cash and cash equivalents
Liabilities as per balance sheet - other financial liabilities at amortised cost
Bank borrowings
Finance leases
Trade and other payables excluding non-financial liabilities
Note
2017
£'000
2016
£'000
15
16
18
21
17
20,786
186,729
207,515
404,043
2,654
205,432
612,129
5,685
174,286
179,971
306,881
1,274
152,311
460,466
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. The contractual maturity of bank
borrowings and finance lease liabilities is provided in note 18.
Trade and other payables excluding non-financial liabilities include a liability of £53k (2016: £35k liability) in relation
to the fair value of foreign currency swaps as at the balance sheet date, that have been measured using observable
inputs and are not designated as hedges.
The Group had committed capital expenditure of £3.6m (2016: £25.8m) as at 31 December 2017.
The Group’s financial risks are detailed on page 38 of the Strategic report.
Annual Report and Accounts 2017 Notes to the financial statements (continued)
Notes to the financial statements (continued)
68
69
15. Trade and other receivables
Trade receivables
Less provision for impairment
Prepayments and accrued income
Other tax and social security
Other receivables
Trade and other receivables are principally denominated in sterling.
At 31 December 2017 the ageing of trade receivables was as follows:
Not due
0 to 3 months overdue
3 to 6 months overdue
Over 6 months overdue
The movement in the provision for impairment of trade receivables was as follows:
At 1 January 2017
Released
Business combinations
Charge for the year
At 31 December 2017
16. Cash and cash equivalents
2017
£'000
14,370
(1,131)
13,239
22,841
107
7,547
43,734
2017
£'000
7,141
3,751
2,254
1,224
14,370
2017
£'000
2016
£'000
3,617
(58)
3,559
12,172
-
2,126
17,857
2016
£'000
2,631
800
96
90
3,617
£'000
58
(96)
1,080
89
1,131
2016
£'000
Cash at bank and on hand
186,729
174,286
17. Trade and other payables
Trade creditors
Accruals and deferred income
Other taxation and social security
Other creditors
2017
£'000
103,645
96,278
1,800
3,709
205,432
2016
£'000
111,976
52,186
1,752
542
166,456
The Directors consider the carrying amount of trade and other payables approximates to their fair value when
measured by discounting cash flows at market rates of interest as at the balance sheet date.
18. Borrowings
Current
Bank borrowings
Finance leases
Non-current
Bank borrowings
Finance leases
Note
21
2017
£'000
7,140
2,090
9,230
2016
£'000
7,189
967
8,156
396,903
299,692
21
564
307
397,467
299,999
Bank borrowings relate predominantly to the amended facility provided by Barclays, HSBC, RBS, Lloyds Bank,
Bank of Ireland, Santander, Citibank, JP Morgan, Silicon Valley Bank and PDL Europe referred to on pages 36 and 37.
The contractual terms of the non-amortising facility were amended on 8th May 2018 and cover a 3-year period
and allows the Group to draw down and repay throughout the duration of the arrangement. Finance leases relate
to loans funding asset purchases payable over three years and are secured by charges over the assets to which
they relate. Bank borrowings carried an interest rate of 2.35% (2016: 1.65%) plus LIBOR. All material companies
registered in England and Wales have granted a debenture to Barclays Bank plc (as security agent). Share charges
and, where relevant, a charge over bank accounts have been granted to Barclays Bank plc in respect of material
Guernsey and Jersey registered companies.
If interest rates during the year had been 100 basis points higher/lower with all other variables held constant,
post-tax profit for the year would have been £2.4m (2016: £0.9m) lower/higher as a result of the higher/lower
interest expense which would have been payable.
The contractual maturity of bank borrowings is as follows:
Within one year
Between two and five years
2017
£'000
2016
£'000
7,140
7,189
396,903
299,692
404,043
306,881
The fair value measured by reference to contractual future cash flows discounted at market rates of interest at
the balance sheet date approximates to book value.
Annual Report and Accounts 2017 Notes to the financial statements (continued)
Notes to the financial statements (continued)
19. Provisions
21. Leases
70
71
Current
Onerous leases
Customer loyalty points
2017
£'000
41
784
825
The onerous lease provisions relate to vacant warehouses or properties acquired as part of acquisitions.
The majority of the provisions have now been utilised or released as no longer required.
The loyalty points provision relates to unredeemed points which entitle customers to discounts on future
purchases to the extent the Group believe that they will be redeemed.
Onerous leases
£'000
Customer loyalty
points £'000
2016
£'000
41
724
765
Total
£'000
765
At 1 January 2017
Utilisation
Created
At 31 December 2017
20. Deferred tax
Short term timing differences
Accelerated capital allowances
Business combinations
Tax losses
Other balance sheet amounts
The movement on the deferred tax liability during the year is as follows:
At 1 January 2017
Business combinations
Consolidated statement of
comprehensive income
Recognised in equity
At 31 December 2017
41
-
-
41
2017
£ '000
(3,735)
(93)
10,535
(309)
370
6,768
Note
10
9
724
(650)
(650)
710
784
710
825
2016
£'000
(224)
1,729
5,988
-
-
7,493
£'000
7,493
3,882
(865)
(3,742)
6,768
The Group has unrecognised deferred tax assets relating to losses of £6.1m (2016: £0.5m), which have not been
recognised due to the unpredictability of when these assets will be realised.
Operating leases
At 31 December 2017, the Group had future aggregate minimum lease payments under non-cancellable operating
leases as follows:
Within one year
Between two and five years
After five years
Land and buildings 2017
£'000
Land and buildings 2016
£'000
4,117
8,291
980
13,388
3,036
5,170
467
8,673
Finance leases
The Group uses finance leases to acquire motor vehicles, plant and machinery, computer equipment and software.
The minimum lease payments under finance leases fall due as follows:
Minimum
lease payments
Present value of
future minimum lease payments
Note
Expiring within one year
Expiring between two and
five years
Less interest payable
Finance lease liability
14
2017
£'000
2,152
577
2,729
(75)
2,654
2016
£'000
988
309
1,297
(23)
1,274
2017
£'000
2,090
564
2,654
-
2,654
2016
£'000
967
307
1,274
-
1,274
The fair value when measured by discounting cash flows at market rates of interest as at the balance sheet date
approximates to book value.
Annual Report and Accounts 2017 Notes to the financial statements (continued)
Notes to the financial statements (continued)
72
73
22. Share capital and reserves
The Company has the following authorised, allotted, issued, fully paid and partly-paid ordinary share capital:
Class
A ordinary
B ordinary
C ordinary
D ordinary
A shares
A1 shares
A2 shares
A3 shares
A4 shares
A5 shares
A6 shares
Deferred shares
2017
2016
Number
Number
461,620
2,856,746
3,289
459,118
-
-
52,068
-
153,904
-
-
33,515
520,645
519,013
-
483,704
80,654
213,419
605,660
254,037
153,904
113,596
594,884
33,515
£1 nominal value ordinary shares*
4,020,260
3,573,031
*Included within this number is 364,455 partly-paid shares (2016: 390,535).
On 13 April 2017, 53,612 A5 shares were converted into and re-designated as B ordinary shares.
On 5 September 2017, the following shares were converted into and re-designated as B ordinary shares: (i) 80,654
A shares; (ii) 213,419 A1 shares; (iii) 553,592 A2 shares; (iv) 254,037 A3 shares; (v) 59,984 A5 shares; and (vi) 594,884
A6 shares.
A2 shares, A4 shares, A ordinary shares and B ordinary shares
The holders of A2 shares, A4 shares, A ordinary shares and B ordinary shares are entitled to receive dividends pro
rata according to the number of shares held by them respectively as if they constituted one class of share. The A2
shares, A4 shares, A ordinary shares and B ordinary shares are non-redeemable. The holders of such shares have,
on a show of hands one vote, and, on a poll have one vote for each such share held by them. On a return of capital,
the holders of such shares have different rights to receive any surplus assets remaining after the payment of
liabilities (“net proceeds”).
C ordinary shares
The holders of C ordinary shares are not entitled to receive dividends. The shares do not carry any voting rights
and are non-redeemable. On a return of capital, the holders of such shares are entitled to receive surplus assets
remaining after the payment of liabilities (“net proceeds”).
D ordinary shares
The holders of D ordinary shares are not entitled to receive dividends. The shares do not carry any voting rights
and are non-redeemable. On a return of capital, the holders of such shares are not entitled to receive any surplus
assets remaining after the payment of liabilities (“net proceeds”) unless a hurdle is achieved.
Deferred shares
The holders of deferred shares have no right to receive a dividend and no voting rights. The deferred shares are non-
redeemable. On a return of capital, the holders of deferred shares are entitled to receive the amount paid up or credited
as paid up on such shares once the holders of all the other shares have received the sum of £100,000 per share.
Capital risk management
The Group’s objectives when managing capital, which comprises equity, are to safeguard the Group’s ability to
continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and
to maintain an optimal capital structure.
Ordinary
shares
£'000
Share
premium
£'000
Employee benefit
scheme reserve
£'000
Merger
reserve
£'000
Capital
redemption reserve
£'000
Retained
earnings
£'000
Total
equity
£'000
Note
Balance at 1 January 2017
3,299 94,260
175
615
518
44,666
143,533
Total comprehensive
expense for the year
Issue of ordinary
share capital
Share buy-backs
Share-based payments
7
Deferred tax effect of
share-based payments
Balance at
31 December 2017
-
-
447 183,120
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(11,302)
(11,302)
-
183,567
(2,466)
(2,466)
2,152
2,152
3,742
3,742
3,746 277,380
175
615
518
36,792
319,226
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.
On 31 May 2017, 197,662 B ordinary shares were issued at a nominal value of £1 per share for cash consideration
of £75m net of fees directly related to the share issue.
On 19 July 2017, 26,117 B ordinary shares were issued at a nominal value of £1 per share for cash consideration
of £10m net of fees directly related to the share issue.
On 5 September 2017, 220,201 B ordinary shares were issued at a nominal value of £1 per share for cash consideration
of £99m net of fees directly related to the share issue.
The Employee Benefit Trust (EBT) facilitates an internal market for participants in employee share schemes to sell
their shares in the Company. As at 31 December 2017, the EBT had purchased a total of 9,104 shares for aggregate
consideration of £1.8m which is deducted from retained earnings.
During the year the Group (including its EBT) bought back shares for an aggregate cash consideration of £1.5m
and related costs of £1.0m.
The non-cash IFRS 2 share-based payments charge for the year relating to the share options in issue during the
year was £1.8m (2016: £2.0m). Share-based payment costs of £0.3m were included in employee costs capitalised
within platform development costs in respect of options issued to software engineers (note 11) (2016: £nil).
Share-based payments also contain a cash charge for the year amounting to £2.3m (2016: £1.2m) as a result of
payments that were made to employees in return for the cancellation of their share options, 38,931 share options
were cancelled in total.
The Group issued no Employee Share Scheme (ESS) shares during 2017. As a result, there is nil charge related
to share issue (2016: £0.7m).
Annual Report and Accounts 2017
Notes to the financial statements (continued)
Notes to the financial statements (continued)
23. Pension commitments
The Directors’ interests in the share capital of the Company at the balance sheet date are detailed below:
74
75
During the year, the Group operated an auto-enrolment pension scheme. The scheme is managed by independent
fund managers and the Group contributes in accordance with the statutory requirements. In addition to the
auto enrolment scheme, a subsidiary company operates a defined contribution pension scheme which is also
managed by independent fund managers and its assets/liabilities are held separately from that of the Group.
The pension charge represents the amount paid by the Group and amounted to £482,954 (2016: £312,500).
There were no outstanding contributions due to the fund at the year end.
24. Cash flow generated from operations
Note
2017
£'000
2016
£'000
M J Moulding
J A Gallemore
A Monro
I McDonald
Ordinary shares
2017 Number
Ordinary shares
2016 Number
553,071
24,678
11,577
17,300
606,626
678,768
24,678
26,992
22,467
752,905
(Loss)/profit before taxation
(10,879)
14,194
The Directors had the following interests in shares under incentive arrangements (see note 7 for details of the scheme).
Adjustments for :
Depreciation
Amortisation
Share-based payments
Exceptional items
Net finance costs
Operating cashflow before exceptional items and before
movements in working capital and provisions
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Increase in provisions
Foreign exchange loss
12
11
7
4
8
16,815
21,969
4,115
30,259
6,837
6,181
13,580
3,853
9,992
2,357
69,116
50,157
(18,606)
(6,801)
6,974
60
(188)
(15,727)
(4,602)
57,674
350
(245)
Cash generated from operations before exceptional cash flows
50,555
87,607
25. Ultimate parent company
The ultimate parent company and controlling party of the Group is The Hut Group Limited.
26. Related party transactions
The Directors of the Company who were in office during the year from 1 January 2017 and up to the date of signing
the financial statements are:
M J Moulding
J A Gallemore
A Monro
I McDonald
W M Evans
E J Koopman
P J Gedman
R J Pennycook
D P Murphy
A J Duckworth (resigned on 17 April 2018)
J P Pochin (appointed on 18 April 2018)
N J M Gheysens (appointed on 5 September 2017)
B Liautaud (appointed on 5 September 2017)
Date of award
Subscription/exercise price £
Number
Number
2017
2016
M J Moulding
M J Moulding
J A Gallemore
J A Gallemore
A Monro
R Pennycook
P J Gedman
P J Gedman
P J Gedman
A J Duckworth
Oct-10
Nov-13
Oct-10
Nov-13
Nov-13
Nov-13
Jan-10
Oct-10
Nov-13
Nov-13
7.50
5.00
7.50
5.00
5.00
5.00
8.25
7.50
5.00
5.00
29,090
87,920
14,545
15,154
35,168
35,168
1,339
1,950
9,858
7,024
29,090
87,920
14,545
17,584
35,168
35,168
1,339
1,950
9,858
7,024
237,216
239,646
The Group has provided interest free loans of £0.9m (2016: £0.7m) to the Directors in order for them to subscribe for
shares as part of the employee benefit scheme. The loans are repayable in the event of a sale or listing of the Group.
The share-based payments expense associated with the Directors was £0.7m (2016: £1.0m).
At 31 March 2018, Matthew Moulding controlled 26.7% of THG shares. This comprised shares held outright and
under incentive arrangements, a proportion of which were issued post year end. The controlled management
equity represents less than 7% of THG fully diluted share capital.
27. Post balance sheet events
For further details on events after the balance sheet date see the Directors’ report on page 43.
Annual Report and Accounts 2017
Notes to the financial statements (continued)
Notes to the financial statements (continued)
76
77
28. Subsidiary undertakings
At the balance sheet date the following subsidiaries were controlled by the Group, a company incorporated in
England and Wales:
Subsidiary
The Hut.com Limited**
The Hut Platform Limited**
The Hut Holdings Limited**
Country of incorporation
Nature of business
England and Wales
Online retailing
England and Wales
Provision of website development services
England and Wales
Dormant
The Hut.com (Trading) Limited**
Jersey
Online retailing
Cend Limited**
England and Wales
Online retailing
Guco Internet Supplies Limited**
Iwantoneofthose Limited**
The Hut Entertainment SL**
Zone Limited**
Allenby Square Limited**
Ensco 818 Limited**
Mankind Holdings Limited**
Mankind Direct Limited**
Moo Limited**
Guernsey
Guernsey
Spain
Guernsey
Holding company
Dormant
Dormant
Holding company
England and Wales
Property holding company
England and Wales
Holding company
Guernsey
Holding company
England and Wales
Procurement company
England and Wales
Online advertising
Active Nutrition International OY**
Finland
Online retailing
Lookfantastic Group Limited**
England and Wales
Holding company
Lookfantastic.com Limited**
England and Wales
Online retailing
Lookfantastic Franchising Limited**
England and Wales
Franchising and consultancy services
Lookfantastic London Limited**
England and Wales
Dormant
Lookfantastic Salons Limited**
England and Wales
Hairdressing salon
The Hut IHC Limited*
England and Wales
Holding company
The Hut Management Company Limited***
England and Wales
Activities of Head Office
Exante Diet Limited**
Bike Kit Limited**
England and Wales
England and Wales
Dormant
Dormant
CNP Professional Holdings Limited**
Guernsey
Procurement company
MyVitamins Limited**
HQ Hair Limited**
England and Wales
Dormant
Guernsey
Holding company
Cend International Limited**
England and Wales
Online retailing
THGPP LLC**
THG International LLC**
Mama Mio Limited**
USA
USA
Dormant
Warehouse and distribution
England and Wales
Online retailing
Mama Mio Distribution Limited**
England and Wales
Dormant
Mama Mio US Inc.**
LMP Omega I Limited**
USA
Guernsey
Online retailing
Property holding company
Hale Country Club Limited**
England and Wales
Retail and leisure company
Subsidiary
Country of incorporation
Nature of business
The Hut Group International (Shanghai) Co Limited** China
License holding company
PC Beauty Inc.**
Ideal Shape LLC**
Performance Supplements LLC**
Inteladerm LLC**
Salu Australia PTY Limited**
Skincarestore Australia PTY Limited**
Salu Beauty Inc.**
UK2 Limited**
Another.com Limited**
USA
USA
USA
USA
Australia
Australia
USA
Holding company
Marketing company
Marketing company
Online retailing
Holding company
Online retailing
Online retailing
England and Wales
England and Wales
Webhosting
Webhosting
Virtual Internet Holdings Limited**
England and Wales
Holding company
Hosting Services Inc.**
UK2 Ukraine LLC**
USA
Ukraine
Virtual Internet (UK) Limited**
England and Wales
Webhosting
Webhosting
Webhosting
The Hut.com (Poland)**
RY.com.au Pty Limited**
Hangar Seven Limited**
Media Ark Limited**
Poland
Australia
Warehouse and distribution
Online retailing
England and Wales
Visual content producer
England and Wales
Visual content producer
H7P Portugal Unipessoal LDA**
Portugal
Visual content producer
Illamasqua (Holdings) Limited**
England and Wales
Holding company
Illamasqua Limited**
England and Wales
Online retailing
Beauty Box Beteiligungen GmbH**
Beauty Trend Holding GmbH**
Beauty Trend GmbH**
Jade 1150. GmbH**
Beauty Trend S.A.S France**
GlossyBox Sweden Holding UG**
GlossyBox Sweden AB**
Germany
Germany
Germany
Germany
France
Sweden
Sweden
Holding company
Online retailing
Online retailing
Holding company
Online retailing
Holding company
Online retailing
GlossyBox United Kingdom Holding GmbH**
England and Wales
Holding company
Beauty Trend UK Limited**
VRB GmbH & Co. B-149 KG**
Beauty Trend USA Inc.**
England and Wales
Online retailing
Germany
USA
Holding company
Online retailing
EI Spa Holdings (UK) Limited**
England and Wales
Holding company
ESPA International (UK) Limited**
England and Wales
Online retailing
Aghoco 1442 Limited**
Gadbrook Limited**
THG China Limited**
England and Wales
Property holding company
Primavera Aromatherapy Limited**
England and Wales
Manufacturing
England and Wales
England and Wales
Dormant
Dormant
ESPA International (US) Inc.**
ESPA International FZE**
USA
UAE
Online retailing
Online retailing
* - 90% owned by The Hut Group Limited and 10% by The Hut Management Company Limited
** - 100% owned by The Hut IHC Limited either directly or indirectly.
*** - 0.01% owned by The Hut Group Limited, however The Hut Group Limited
has a separate class of share in The Hut Management Company Limited
which gives it the right to control the appointment of Board Directors.
Majority of the Group’s subsidiaries are registered at the following address:
5th Floor, Voyager House, Chicago Avenue, Manchester Airport, Manchester,
England M90 3DQ
Annual Report and Accounts 2017
Company only
financial statements
78
79
Annual Report and Accounts 2017 80
81
Company statement of changes in equity
for the year ended 31 December 2017
Ordinary
shares
£'000
Share
premium
£'000
Merger
reserve
£'000
Capital
Redemption Reserve
£'000
Retained
earnings
£'000
Note
Total
£'000
Balance at 1 January 2017
3,299
94,260
615
518
13,042
111,734
Loss for the year
Issue of ordinary share capital
Share buy-back
Capital contribution
Share-based payments
-
-
447
183,120
-
-
-
-
-
-
-
-
-
-
-
-
(12,244)
(12,244)
-
183,567
(2,466)
(2,466)
1,164
594
1,164
594
Balance at 31 December 2017
3,746
277,380
615
518
90 282,349
Company balance sheet as
at 31 December 2017
Fixed assets
Investments
Current assets
Debtors
Cash
Creditors: amounts falling due within one year
Net current assets
Note
4
5
6
2017
£'000
89,770
89,770
518,648
80,058
598,706
2016
£'000
88,606
88,606
204,688
126,156
330,844
(9,224)
(8,024)
589,482
322,820
Total assets less current liabilities
679,252
411,426
Creditors: amounts falling due after one year
7
(396,903)
(299,692)
Net assets
282,349
111,734
Capital and reserves
Called up share capital
Share premium
Merger reserve
Capital redemption reserve
Retained earnings
Total shareholders' funds
8
8
8
8
8
3,746
277,380
615
518
90
282,349
3,299
94,260
615
518
13,042
111,734
The financial statements on pages 80 to 87 were approved by the Board of Directors on 29 May 2018 and were
signed on its behalf by:
J A Gallemore
Director
Registered number: 06539496
Annual Report and Accounts 2017 Notes to the company financial statements
Notes to the company financial statements (continued)
82
83
When the options are exercised, the Company
issues new shares. The proceeds received net
of any directly attributable transaction costs are
credited to share capital (nominal value) and share
premium when the options are exercised.
The grant by the Company of options over its
equity instruments to the employees of subsidiary
undertakings in the Group is treated as a capital
contribution. The fair value of employee services
received, measured by reference to the grant
date fair value, is recognised over the vesting
period as an increase to investment in subsidiary
undertakings, with a corresponding credit to equity.
The Group has an employee benefit trust (EBT)
which facilitates an internal market for participants
in employee share schemes to sell their shares in
the Company. Shares held are recognised at cost as
a deduction from shareholding equity. Subsequent
consideration received for the sale of such shares is
also recognised in equity.
i. Significant estimates and judgements
Share-based payments
Critical estimates and assumptions are made
in particular with regard to the calculation of
the fair value of employee share options using
appropriate valuation models. In addition,
estimation is required in assessing the number
of options expected to vest and the vesting
periods of the awards.
1. Accounting policies
The principle accounting policies have been applied
in accordance with ‘Financial Reporting Standard
101 Reduced Disclosure Framework’ (FRS 101), and
are detailed below. The policies have been applied
consistently throughout both the current and
preceding year.
a. Basis of preparation
As permitted by Section 408 of the Companies Act 2006,
an entity profit and loss account is not included as part
of the published consolidated financial statements
of The Hut Group Limited. The loss for the financial
year in the financial statements of the Company is
£12.2m (2016: £4.7m profit).
In accordance with FRS101, the Company has taken
advantage of the disclosure exemptions relating to the
preparation of a cash flow statement and disclosure of
related party transactions. The consolidated financial
statements of The Hut Group Limited have been
prepared in accordance with International Financial
Reporting Standards as adopted by the EU.
b. Taxation and deferred taxation
Current tax including UK Corporation Tax is provided
at amounts expected to be paid or recovered using
the tax rates and laws that have been enacted or
substantively enacted by the balance sheet date.
Deferred taxation is provided in full on timing
differences that result in an obligation at the balance
sheet date to pay more tax, or a right to pay less tax,
at a future date, at rates expected to apply when
they crystallise based on current tax rates and law.
Temporary differences arise from the inclusion
of items of income and expenditure in taxation
computations in periods different from those in
which they are included in the financial statements.
Deferred tax assets are recognised to the extent
that it is regarded as more likely than not that
they will be recovered. Deferred tax assets and
liabilities are not discounted.
c. Borrowing costs
Borrowing costs are not capitalised; they are
recognised in profit or loss in the period in
which they are incurred.
d. Financial instruments
Financial assets and financial liabilities are recognised
on the Company’s balance sheet when the Company
becomes a party to the contractual provisions of
the instrument.
e. Borrowings
Interest-bearing bank loans and overdrafts are
recorded at the proceeds received, net of direct issue
costs. Finance charges, including premiums payable
on settlement or redemption and direct issue costs,
are accounted for on an accruals basis through the
profit and loss account using the effective interest
method and are added to the carrying amount of the
instrument to the extent they are not settled
in the period in which they arise. The Company
has not entered into any transactions involving
derivative instruments.
f. Financial liabilities and equity
Financial liabilities and equity instruments are
classified according to the substance of the
contractual arrangements entered into. An equity
instrument is any contract that evidences a residual
interest in the assets of the Company after deducting
all of its liabilities.
g. Investments in subsidiaries
Investments in subsidiaries are held at cost, less
any provision for impairment. Where equity settled
share-based payments are granted to the employees
of subsidiary companies, the fair value of the award is
treated as a capital contribution by the Company and
the investments in subsidiaries are adjusted to reflect
this capital contribution.
h. Share-based payments
The Company operates a share-based compensation
plan, under which the Company and the Group
subsidiary entities receive services from employees
as consideration for equity instruments (options) of
the Company. The fair value of the employee services
received in exchange for the grant of the options is
recognised as an expense. The total amount to be
expensed is determined by reference to the fair
value of the options granted.
Non-market vesting conditions are included in
assumptions about the number of options that are
expected to vest. The total expense is recognised over
the vesting period, which is the period over which all of
the specified vesting conditions are to be satisfied. At
the end of each reporting period, the entity revises its
estimates of the number of options that are expected
to vest based on the non-market vesting conditions.
It recognises the impact of the revision to original
estimates, if any, in the income statement, with a
corresponding adjustment to equity.
Annual Report and Accounts 2017
Notes to the company financial statements (continued)
Notes to the company financial statements (continued)
2. Employee costs and numbers
6. Creditors: amounts falling due within one year
84
85
Wages and salaries
Social security costs
Share-based payments
The average number of employees during the year was 2 (2016: 2).
3. Auditor remuneration
2017
£'000
494
76
467
1,037
2016
£'000
601
87
570
1,258
Trade creditors
Bank borrowings
Amounts owed to group undertakings
Accruals and deferred income
2017
£'000
239
7,140
-
1,845
9,224
2016
£'000
180
7,189
287
368
8,024
Amounts paid to the Company’s auditors are disclosed in note 5 of the Group consolidated financial statements.
Amounts owed to group undertakings are unsecured, non-interest bearing and repayable on demand.
7. Creditors: amounts falling due after one year
Bank borrowings
2017
£'000
2016
£'000
396,903
299,692
Refer to note 18 of the Group financial statements for details of the bank borrowings. Bank borrowings carried an
interest rate of 2.35% (2016: 1.65%) plus LIBOR. If interest rates during the year had been 100 basis points higher/
lower with all other variables held constant, post-tax loss for the year would have been £2.4m (2016: £0.9m)
higher/lower as a result of the higher/lower interest expense which would have been payable.
4. Fixed asset investments
Fixed asset investments comprise investments in subsidiary undertakings.
At 1 January
Capital contribution
At 31 December
5. Debtors
Amounts owed by group undertakings
Corporation tax asset
Other taxation and social security
Prepayments and accrued income
Note
8
2017
£'000
88,606
1,164
89,770
2016
£'000
87,361
1,245
88,606
2017
£'000
2016
£'000
514,282
203,335
154
107
4,105
154
20
1,179
518,648
204,688
Amounts owed by group undertakings are unsecured, non-interest bearing and repayable on demand.
Annual Report and Accounts 2017 Notes to the company financial statements (continued)
Notes to the company financial statements (continued)
86
87
D ordinary shares
The holders of D ordinary shares are not entitled to receive dividends. The shares do not carry any voting
rights and are non-redeemable. On a return of capital, the holders of such shares are not entitled to receive
any surplus assets remaining after the payment of liabilities (“net proceeds”) unless a hurdle is achieved.
Deferred shares
The holders of deferred shares have no right to receive a dividend and no voting rights. The deferred shares
are non-redeemable. On a return of capital, the holders of deferred shares are entitled to receive the amount
paid up or credited as paid up on such shares once the holders of all the other shares have received the sum
of £100,000 per share.
Ordinary
shares
£'000
Share
premium
£'000
Merger
reserve
£'000
Capital
Redemption Reserve
£'000
Retained
earnings
£'000
Note
Total
£'000
Balance at 1 January 2017
3,299
94,260
615
518
13,042
111,734
Loss for the year
-
-
Issue of ordinary share capital
447
183,120
Share buy-backs
Capital contribution
Share-based payments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at 31 December 2017
3,746
277,380
615
518
(12,244)
(12,244)
-
183,567
(2,466)
(2,466)
1,164
594
90
1,164
594
282,349
£0.6m (2016: £0.8m) has been charged to the Company profit and loss account in respect of the share-based
payments. £1.2m of share-based payments is reflected in the subsidiary financial statements.
Disclosures on the share-based payment schemes can be found in note 7 of the Group financial statements.
Further information in respect of the movement in the share premium account and share buy-backs can be
found in note 22 of the Group financial statements.
9. Post balance sheet events
Disclosure on the post balance sheet events is in Directors’ report on page 43.
8. Share capital and reserves
The Company has the following authorised, allotted, issued, fully paid and partly-paid ordinary share capital:
Class
A ordinary
B ordinary
C ordinary
D ordinary
A shares
A1 shares
A2 shares
A3 shares
A4 shares
A5 shares
A6 shares
Deferred shares
£1 nominal value ordinary shares*
*Included within this number is 364,455 partly-paid shares (2016: 390,535).
2017
2016
Number
Number
461,620
520,645
2,856,746
519,013
3,289
-
459,118
483,704
-
-
80,654
213,419
52,068
605,660
-
254,037
153,904
153,904
-
-
113,596
594,884
33,515
33,515
4,020,260
3,573,031
On 13 April 2017, 53,612 A5 shares were converted into and re-designated as B ordinary shares.
On 5 September 2017, the following shares were converted into and re-designated as B ordinary shares:
(i) 80,654 A shares; (ii) 213,419 A1 shares; (iii) 553,592 A2 shares; (iv) 254,037 A3 shares; (v) 59,984 A5 shares;
and (vi) 594,884 A6 shares.
A2 shares, A4 shares, A ordinary shares and B ordinary shares
The holders of A2 shares, A4 shares, A ordinary shares and B ordinary shares are entitled to receive dividends pro
rata according to the number of shares held by them respectively as if they constituted one class of share. The A2
shares, A4 shares, A ordinary shares and B ordinary shares are non-redeemable. The holders of such shares have,
on a show of hands one vote, and, on a poll have one vote for each such share held by them. On a return of capital,
the holders of such shares have different rights to receive any surplus assets remaining after the payment of
liabilities (“net proceeds”).
C ordinary shares
The holders of C ordinary shares are not entitled to receive dividends. The shares do not carry any voting rights
and are non-redeemable. On a return of capital, the holders of such shares are entitled to receive surplus assets
remaining after the payment of liabilities (“net proceeds”).
Annual Report and Accounts 2017