Annual Report & Accounts
2021
Annual Report 2021 Table of Contents
Chief Executive Officer’s Statement
Strategic Report
Company Overview
Our Business Model
THG Ingenuity
THG Beauty
THG Nutrition
THG On Demand
THG Experience
THG Eco
Chief Financial Officer Review
Our Stakeholders and s172 Statement
THG Sustainability
Risk Management
Directors’ Report
Governance Report
Governance Report
Audit Committee Report
Risk Committee Report
Nomination Committee Report
Related Party Committee Report
Sustainability Committee Report
Directors’ Remuneration Report
Financial Statements
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Page 16
Page 21
Page 39
Page 53
Page 61
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Page 65
Page 67
Page 73
Page 87
Page 105
Page 119
Page 129
Page 153
Page 161
Page 165
Page 171
Page 175
Page 179
Page 205
Key events in 2021
June
February
Regulatory approval to complete the acquisition
of Dermstore LLC, the US #1 pure-play online retailer
of prestige skincare and speciality beauty brands
for a c.1.8x 12 months’ forward revenue ($350m).
April
Announced commitment to further invest in
3.6m sq. ft. of fulfilment, manufacturing and
personalisation capacity (including ICON
Technology Campus) in the medium term
at key locations globally to support THG’s
own-brands and Ingenuity clients.
£43m investment in UK best-in-class nutrition
bar formulation and production capability,
Brighter Foods.
May
Over $1bn capital raised to support the
continuation of the Group’s disciplined
M&A strategy, alongside signed option
and collaboration agreement with
SoftBank Group Corp.
Acquisition of US-based Bentley Laboratories,
an innovative developer and manufacturer of prestige
skincare and haircare products for $255m in cash.
August
Addition of Cult Beauty to the THG Beauty
portfolio, the UK based online beauty retailer
of prestige and emerging independent brands,
for consideration of £275m (a c.2.0x FY 2022
sales multiple).
Opening of Manchester ICON Technology Campus,
comprising operational and creative expertise.
September
Launch of THG’s first automated warehouse,
powered by AutoStore’s proprietary Automated
Storage Recovery System (“AS/RS”) and THG’s
warehouse management system, Voyager.
October
Retail Week Awards winner,
Matt Moulding – Retail Leader of the Year.
THG recognised as one of the “Best Companies”
Top 25 Best Big Companies to Work for 2021.
December
Retail Risk Fraud Awards 2021,
Winner; THG Detect – Most Innovative
Online/Supply Chain Solution.
All consideration amounts are on a cash free and debt free basis.
Any reference to revenue growth throughout this document is on a constant currency basis (“CCY”) removing fluctuations arising
from translation of foreign exchange by restating prior year numbers at current year exchange rates.
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Annual Report 2021
Chief Executive Officer’s Statement
Dear Shareholder
A pivotal year for online commerce
2021 marked our first full year as a public company and
I would like to begin by expressing my gratitude to all
THG colleagues for their dedication and hard work in
helping us achieve such strong growth in the year. We
have scaled revenue and expanded our business model
well ahead of targets given at the time of our IPO back
in September 2020, and are well placed to manage
the inflationary pressures and effects of the pandemic
on global supply chains thanks to our investment in
automation and vertical integration strategy.
2021 was a pivotal year for online commerce globally,
with changes evident right across our business and key
markets as consumers and brands increasingly adopt
digital ways of engaging. The pandemic has changed
the way business is conducted and consumers behave,
creating opportunities for THG to invest in support
of our strategic growth ambitions.
2021 was a year of investment across our entire business
in the following areas:
The Group will continue to evolve and operate to the
highest standards of corporate governance. In this
regard following an international search initiated in
October 2021, we are delighted that Charles Allen,
Lord Allen of Kensington CBE, joined THG in March
2022 as independent Non-Executive Chair.
Charles has extensive boardroom experience across
a range of sectors, and chaired many similar large,
successful, dynamic companies, and his appointment
will enable me to focus my attention on delivering the
Group’s plans for growth.
During the year we also announced a number of
strategic options for 2022 and beyond, including our
plans to step up to the Premium segment of the London
Stock Exchange’s Main Market and separate THG Beauty
by way of a listing or strategic partnership. I will work
closely with Charles and the Board to continually review
these strategic options and we look forward to updating
you on progress during 2022 as our plans take shape.
At the time of our IPO we reconfirmed THG’s purpose
to reinvent how brands connect to consumers globally–
to be best in class at building, growing and accelerating
brands in order to deliver long-term sustainable growth
for our shareholders. We announced a meaningful
financial and trading partnership with SoftBank
in May 2021.
As part of the announcement, we set out our intention
to commence a separation of THG’s key business units
and we are on track to complete this during H1 2022.
The separation will simplify the corporate divisional
structure and provide the Group with material
optionality and the flexibility to enter into future
strategic partnerships to generate value accretion
for our stakeholders.
• Our infrastructure – completion of the state-of-the-
art ICON Technology campus in Manchester.
• Our Ingenuity platform – expansion of our global
distribution network including automation.
• Our global footprint - acquisition of Dermstore
to accelerate US growth; and
• Our people – we welcomed over 3,000 employees
to the Group.
E-commerce remains a winning channel with increased
convenience due to enhanced delivery and fulfilment
infrastructure, increased product and category range
and deeper engagement with brands selling direct
to consumer “D2C”.
THG Beauty, the global number one pure play online
prestige beauty retailer, saw significant growth over the
year, active customers around the world rose by 2.3m
to 9.2m. THG Nutrition, the world’s largest online D2C
sports nutrition brand, grew its active customers from
6.3m to 7.2m around the globe.
Demand in our large and high-growth consumer
and technology markets remains strong and we
have observed new and existing customer behaviour
metrics consistent with the pre-pandemic environment,
such as stable average order values and high customer
repeat rates. Revenue from returning Lookfantastic
and Myprotein customers represented c.80% of sales
in FY 2021, with influencer-led digital marketing
delivering high return on investment.
The performance and resilience of our Ingenuity
infrastructure was also a highlight, with robust
operational performance both through our websites
and our global distribution network dispatching over
one million units per day at peak periods, supporting
a frictionless customer journey.
Financial performance
We were delighted to report significant revenue
growth across all divisions during the important peak
trading period and to have delivered record annual sales
of £2.2bn (+38% revenue growth year-on-year). Organic
growth was positive in both Beauty and Nutrition, despite
challenging comparatives, with two-year organic growth in
both divisions over 50%, ahead of medium-term guidance.
The Group delivered adjusted EBITDA of £161m, alongside
a loss before tax of £(186)m. The loss was principally driven
by adjusted items, which include the excess costs for
transportation, delivery and fulfilment costs in relation to
Covid-19, alongside the commissioning of new warehouses
and non-recurring acquisition fees. Additionally, there has
been an increase in both amortisation and administrative
expenses driven by acquired intangibles and investment
in additional headcount in FY 2021 ahead of future revenue
growth, with an element of operating leverage anticipated
in FY 2022.
We retain a focus on cost discipline whilst maintaining our
strategy of investing for growth and continue to benefit
from a healthy liquidity position with net cash excluding
lease liabilities of £44m, cash on hand of over £530m
and a £170m undrawn revolving credit facility.
Scaling D2C brands through
strategic investment
To support our THG Nutrition portfolio of global,
digital-first brands, we are committed to investing
in and building best-in-class BRC AA Grade product
innovation and manufacturing facilities. The acquisition
of Brighter Foods reflects a continuation of this vertical
integration strategy, further enhancing the Group’s
new product development and in-house
manufacturing capabilities.
We have brought in-house decades of product know-how
and innovative resource in the formulation and production
of high-quality nutritional snack bars. Reducing lead times
for new product development and retail launches, while
ensuring product IP remains exclusive, supports Myprotein’s
position as the largest online D2C sports nutrition brand
globally, whilst also delivering substantial cost synergies.
Within our Beauty division, we expanded our offering in the
important US market with the acquisition of Dermstore,
the leading US pure-play online prestige and professional
skincare business. This was followed by the addition of Cult
Beauty, the favoured partner for independent brands,
into our global portfolio of destination beauty websites.
Alongside enhancing THG’s relationships with its key
global beauty partners, these acquisitions accelerate the
implementation of our strategy to be the global digital
partner of choice across the beauty industry. Our beauty
retail proposition is highly complemented by best-in-
class, in-house product innovation and manufacturing,
with a high-quality portfolio of prestige own-brands.
Ingenuity and operational excellence
In recognition of the continuing trend towards digital
commerce, we remain committed to invest in fulfilment
capacity at key locations globally to support THG’s
own-brands and Ingenuity clients. This investment
enhances the customer journey, in addition to
accessing an extended addressable market
through fulfilment-only solutions via an extended
and more efficient global warehouse network.
We also made the bold decision to bring forward
the opening of our automated warehouse at our
Manchester ICON campus which dispatched its
first order in September 2021.
Globalising a digital brand is incredibly complex and
expensive with a high failure rate, which is why so few
brand owners have ever done it successfully across
multiple territories. The migration of websites trading
substantial GMV is not without execution risk and
the Group’s experience in this regard has delivered
meaningful improvements to the all-important customer
experience. This positions Ingenuity as a partner of
choice for brands looking to invest in and develop
their digital and cross-border strategies.
Our Ingenuity operational infrastructure and technology
platform is now powering an expansive list of global
brands across a multitude of sectors, and the number
of third-party websites on the platform has more than
doubled during the year.
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Annual Report 2021 Sustainability
Our sustainability vision is to leave the world a better
place than we found it. It will take real responsibility
and commitment from every one of our people,
suppliers and stakeholders, working in partnership
to help us achieve our shared goals.
As a vertically-integrated business, we are acutely
aware of the impact that big businesses can have on
the environment, and the great responsibility and
influence we hold with our people, communities and
suppliers in the UK and internationally. Our sustainability
goals reinforce the direction in which THG is travelling,
providing a formal structure with targets underpinned
by science, data and technology, and driven by
our talented people all over the world. Integral to
this, is our commitment to offset all our historical
operational emissions by the end of 2025 (please refer
to Sustainability section); and as part of this, we were
pleased to have planted some 830,000 trees in 2021
through THG Eco.
We have always been fast-paced, agile and responsive
to changes in our markets, and our sustainability strategy
is no different – while we have our sights set on the year
2030 for the majority of our milestone targets, we will
do our best to achieve more and work in partnership
with others to accelerate the pace of positive change.
We are committed to using our global scale and
dedication to innovation, to act as a force for good.
THG in the community
In 2022, we will develop and publish a new Group-
wide Social Impact strategy to define our approach to
charitable giving and maximise THG’s impact in our local
and global communities.
Most recently, our HR teams have worked around the
clock to provide physical and mental health support
to our Ukrainian colleagues around the world and our
security teams have helped to safely relocate some of
our colleagues and their families who made the difficult
decision to leave their homes in Ukraine. We are also
continuing to support our Ukrainian colleagues here
in the UK, including assisting those who are making
arrangements for their loved ones to join them as soon
as they are able to.
While the protection and safety of our colleagues has
been our top priority, we know that urgent support
is needed beyond our immediate network. We have
been liaising with national and international partners
to determine the best way we can help them provide
practical support.
In March 2022, we confirmed that £1.2m in product
donations will be made available from our warehouse
in Poland to support those affected by the conflict and
we are working with our local partners to distribute
essential items such as food, clothing and hygiene
products to the areas in greatest need.
We also continued to support charities helping people
cope with the devastating impacts of Covid-19, including
donating funds to charities in India helping to provide
relief aid and vital oxygen facilities in struggling rural
communities.
Our culture and people
Driven by ambition, innovation, collaboration and
entrepreneurship, our culture and the people at THG
are integral to the Group’s success. From more than
95 nationalities, our colleagues bring a wealth of
experience and talent, working together to deliver
exceptional results right across the business.
This value recognition is reflected in our rapidly-evolving
people proposition, with a dedicated diversity &
inclusion committee leading on a dynamic strategy
to identify areas of opportunity and drive positive
cultural change through inclusive policies and practices.
The enhancements of our wellbeing platform are
a commitment to employee wellbeing and support,
while our investment in new staff benefits is designed
to show our people our appreciation for their
outstanding contributions.
With the implementation of a new pension scheme
to include an increased company contribution, the
opportunity to purchase additional annual leave days,
enhanced maternity and paternity packages, and our
“salary sacrifice”, Techscheme and Cycle to Work
Scheme, our employee benefits reflect our investment
in our people.
Named one of the UK’s 25 Best Big Companies to Work
For in 2021, THG fosters an environment built on the
foundations of teamwork, diligence and excellence.
I would like to thank all colleagues for their continued
contributions to the Group and welcome all new starters
to join us in achieving our ambitions.
Onwards
We are making long-term strategic decisions for THG
as we recognise the enormous opportunity that that the
structural shift to online e-commerce will bring. During
2021, we invested £1bn across infrastructure, technology
and acquisitions to further develop the long-term
growth prospects of the Group, and completed many
transformational projects on a global scale.
The investment that we have made in our global
manufacturing, fulfilment and distribution network
provides capacity and capabilities to continue to build
leading positions in our core markets across Technology,
Beauty and Nutrition, supplemented by in-housing
recycling infrastructure to support our target
of recycling more plastic than we produce.
Our vision has not changed. THG Beauty and THG
Nutrition are focused on becoming the undisputed digital
leaders in their categories. THG Ingenuity aims to be the
leading technology platform for the enterprise market,
powering digital transformation for brands globally.
Whilst we have made substantial progress and remain
committed to executing our strategic growth plans,
we are naturally disappointed that this has not translated
into tangible shareholder returns. The management team,
with our Board’s full support, remains wholly focused
on delivering our strategic growth plans in 2022 to drive
shareholder value.
Matthew Moulding
Executive Director and Chief Executive Officer
20 April 2022
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Annual Report 2021
Our vision
For Beauty and Nutrition to become undisputed
global digital leaders in their respective categories
For Ingenuity to become the leading technology
platform for the enterprise market, powering digital
transformation for brands
Our purpose
Our values
To reinvent how brands connect
digitally to consumers
Leadership, innovation, decisiveness
and ambition
Our purpose
“ THG’s purpose is to reinvent how brands connect digitally to consumers”
We are a global digital innovator revolutionising
how brands connect to a worldwide consumer base
We aim to leave the world in a more
sustainable position than we found it
We are transforming how consumer brands go
to market in the digital age. Through our proprietary
platform Ingenuity, we are providing a simpler,
integrated and frictionless retail experience for
consumers and brand owners.
• Using the visibility from our vertically integrated
end-to-end model, we are working to build and
integrate sustainability throughout our brands
and supply chain – from packaging to consumer
awareness and beyond.
We are democratising online retail – overcoming its
structural technology barriers by enabling brands and
retailers to have direct relationships with consumers,
improving accessibility.
In doing so, we are reinventing online
retail for the better:
•
•
•
•
For customers we create accessible, fast,
education-rich, highly-engaging experiences.
For brands we provide a best-in-class, unique end-
to-end global route to market, transforming their
growth potential, and enabling them to understand
and focus on meeting the developing needs of their
customers and what differentiates them.
For our employees we provide invaluable
skills as they join a disruptive, forward-looking
digital business that is creating a digital
talent bank in the UK.
For society and the environment, our end-to-end
vertical integration enables us to begin mitigating
harmful impacts of consumer goods and build
a more circular, sustainable model.
We enable a happier population, empowered
to make healthier lifestyle choices
•
Through our leading health, beauty and wellness
brands, we help consumers build the knowledge
to inform lifestyle choices and help people feel
good about themselves.
• We are positively impacting society by supporting
all forms of wellness, educating and inspiring the
population to make healthier lifestyle choices.
Our platform enhances this impact, delivering
relevant products through the right channels
for our global customer base.
•
This is supported by building inclusive online
communities, which bring people together,
regardless of where they are from, with access
to new products, brands and engaging content.
•
•
Starting with our own operations – as THG continues
to grow, it is paramount that we reduce our impact
on the environment and create and implement
innovative, new sustainability practices.
There are considerable steps to take, but we
ultimately seek to deliver on our ambition
through innovative solutions on societal and
environmental issues.
We are an ambitious global business, but a champion
of the community from which we have grown
• We greatly value our heritage as part of the
community in the North West of England, with local
world-class infrastructure, access to talent and global
supply chains.
• We are committed to the role we play for social
mobility in the UK, particularly in the North West,
proactively delivering a positive impact for employment,
developing talent and building the skills of tomorrow.
• At the same time, we have an international focus and
ambition – and are proud to be exporting insight to
all of our markets, as we build skills on a global scale.
• We are able to leverage our technology and operating
infrastructure to deliver deep local relevance in the
markets we operate in.
We will judge our success by:
•
Being regarded by brands as the enterprise solution
of choice for their D2C channels, powering e-commerce
from a sustainable e-commerce platform.
• Continuing to deliver an immersive and highly
engaging customer experience.
• Developing a technological talent bank in the UK
that is a long-term asset to THG and the wider
UK technology sector.
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Annual Report 2021
Our values
Our vision
THG Beauty and THG Nutrition are focused on becoming
the undisputed global digital leaders in their categories.
We continue to invest in developing our beauty and nutrition
brands and remain focused on delivering a best-in-class
customer experience for our global customer base.
As well as powering THG’s trading businesses,
THG Ingenuity is focused on becoming the leading
technology platform for the enterprise market,
powering digital transformation for brands globally.
We have a long-term focus on delivering this vision,
through our innovative, proprietary digital ecosystem,
that uniquely offers a single end-to-end solution to
retailers and brands consisting of a combination of
complex technology and real-world assets needed
to successfully retail online.
Brands and retailers require a complex combination
of technology and real-world assets to retail online
globally, such as the e-commerce engine, digital
marketing, localisation, payment solutions, fraud
detection, data analytics, fulfilment, courier
integrations, customer services, hosting and content.
Traditionally, brands and retailers have outsourced
each function across a number of unconnected
suppliers, resulting in significantly increased costs
and higher execution risk. THG has built and operates
each function in-house.
THG Ingenuity’s vertically-integrated solution overcomes
the structural challenges of increased costs and
execution risks faced by brand owners and retailers
outsourcing their digital services across multiple
suppliers and provides a one-business, one-data
view online, enabling both its own brands and third-
party brands to achieve digital transformations.
Having built THG Ingenuity over the last 17 years
and with tens of thousands of code updates
released annually to drive continuous improvement,
we are reinventing online retail for the better.
Leadership
Innovation
We have the courage to do things differently, and in
doing so we draw on our meritocratic culture to empower
our people to lead with confidence and conviction.
Regardless of background, age or experience, our people
are given the opportunity to lead and succeed with us
and we nurture their entrepreneurial spirit. Our value
of leadership extends to the impact we have on the
world – and we seek to use our best-in-class technology
to be the leading sustainable e-commerce platform,
and to bring our partners with us on that journey.
We believe that the way consumers and brands connect
is ever-changing and therefore it is critical to evolve
and adapt, to challenge ourselves and others to think
differently. We are pioneering innovators – who do not
defer to the well-trodden path of least resistance – and we
strive to be at the forefront of technological developments.
We foster creativity, resilience and experimentation; and
celebrate a diverse, inclusive culture to bring different
perspectives together to solve problems.
Decisiveness
Ambition
We believe that focused, evidence-based and timely
decision-making drives success in a fast-moving sector.
This is enabled by having accurate data at our fingertips
and using this to continuously learn and improve our
decision-making – balancing risk, opportunity and purpose.
We encourage accountability for decisions made,
which enables a fast-moving, high-growth business.
We believe that dreaming big in terms of scale
and quality drives our success. We are defined by
our shared ambition, seeing opportunities where
others see challenges, and we are not afraid to push
the boundaries of what is possible as an organisation.
We encourage our people to stretch goals and recognise
that while endeavours will not always succeed, we see
value in learning from our mistakes to adapt quickly,
to achieve better outcomes for stakeholders.
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Annual Report 2021 Our strategy
We are a digital-first consumer brands group, specialising in
taking brands direct to consumers globally, via our proprietary
technology platform (“Ingenuity”).
We have built a portfolio of leading digital beauty
and nutrition brands that are capitalising on the
global growth opportunities we see in these categories,
supported by the accelerating consumer shift to the
e-commerce channel.
We also provide an end-to-end e-commerce solution
(“Ingenuity Commerce”) to brand owners – a global
e-commerce solution in a box that enables some of
the world’s largest brands to sell their products direct
to consumers globally. Our end-to-end solution removes
the complexity and costs of integrating a myriad of
suppliers and technology partners to build out a global
D2C solution, instead providing brand owners with a single,
proven and already-developed solution. We continue
to invest in developing our technology platform as
we look to become the go-to enterprise partner for
brand digitalisation.
We specialise in building digital brands, as is demonstrated
by the success of our own brands and the rapid online
sales growth that they have achieved. In Nutrition, this
includes the Myprotein brand family, which was the largest
online sports nutrition brand globally in 2021. In Beauty, this
includes Lookfantastic, which in 2021 was the largest online
pure-play beauty retail platform globally. These brands
continue to deliver outstanding growth rates as we grow
their global customer bases through a network of fully-
localised, direct-to-consumer websites, powered by the
THG Ingenuity platform.
Dream big and look
for opportunity where
others see challenge.
Evolve and adapt,
challenge ourselves
and others to think
differently.
Be decisive, be guided
by data, balance risk
and opportunity.
Advance and enhance
the sustainability of
the Group and our
e-commerce platform.
11
Growth
Innovation
Execution
Be Sustainable
Long-term strategic
priorities
•
To make Ingenuity Commerce the go-to enterprise partner for brand digitalisation.
• Continue to develop our beauty and nutrition brands, while delivering a best-in-class
customer experience.
• Deliver engaging new products to the increasing global customer base across
the beauty and nutrition categories.
• Be a champion of the community from which we have grown.
• Continue to empower our staff to boldly execute.
•
To leave the world in a more sustainable position than we found it.
• Make sustainability ‘business as usual’ for THG and our customers by empowering
the brands we work with to embed sustainability throughout their business model.
12
Annual Report 2021 Strategic highlights
Key Performance Indicators
Strategy
Strategic objectives
2021 highlights
We are a digital
innovator
revolutionising how
brands connect to
consumers globally
To make Ingenuity Commerce
the go to partner for brand
digitalisation
Ingenuity Commerce revenue grew 135%
in 2021 to £45.4m (2020: 160%), driven
by new client wins and an additional 98
e-commerce websites on the platform)
We enable a happier
population, empowered
to make healthier
lifestyle choices
To deliver engaging and new
products to an ever-increasing
global customer base across
the beauty and nutrition
categories that positively
impact our customers’ lives
Act as a force for good
and leave the world in
a better place than we
found it
To make sustainability
“business as usual” for
ourselves, our suppliers
and our customers
Over 450 SKUs launched by our own
beauty and nutrition brands in 2021
2030 Sustainability Strategy published
with THG and the Ingenuity platform
reconfirming their carbon neutral status.
11% reduction in GHG Intensity from
2020 to 2021, and a 27% reduction in
GHG Intensity between 2019 and 2021
To be a champion of the
community from which
we have grown
To support our community
and have a positive impact
on the environments
in which we operate
We welcomed c.3,000 new employees
to the group in 2021, in line with the
prior year
Active customers (millions)
Number of orders (millions)
Average order value (£)
Active customers (millions)
Number of orders (millions)
Average order value (£)
2021
2020
2019
9.2
17.1
60
7.2
13.9
46
6.9
13.1
55
6.3
12.3
47
4.1
8.3
51
4.3
8.7
48
Number of websites
187
89
21
THG
Beauty
THG
Nutrition
THG
Ingenuity
Sustainability
Scope 1 CO2e emissions (Tonnes)
Scope 2 CO2e emissions (Tonnes)
Female representation on Board
and Senior Management (%)
2,309
11,605
26%
1,945
9,583
20%
Ethnic minority/BAME representation
on Board and Senior Management
6%
6%
Number of websites defined as website with a specific domain name/URL.
THG Beauty metrics exclude Glossybox beauty subscriptions.
Active customers is defined as customers who have purchased at least once within the period.
Number of orders is defined as orders fulfilled within the period.
Average Order Value is defined as the average order value per customer order on a gross revenue basis, inclusive of any shipping revenue.
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Annual Report 2021
Divisional Revenue
Territory Revenue
Other
10%
Ingenuity
9%
Nutrition
30%
Beauty
51%
RoW
18%
USA
19%
Europe
21%
UK
42%
#1 global online pure-play
specialty retailer.
-
8 owned premium brands, in-house
product innovation, range building,
BRC A-grade manufacturing.
-
Critical route to market for 1,300
prestige & luxury brands.
#1 global online D2C
sports nutrition brand.
-
In-house brand development,
content, marketing,
product innovation, BRC
AA-grade manufacturing.
Offering a selection of entertainment products and subscription
services of clothing, gadgets and vinyl, with a particular focus on licensing
arrangements with global publishing houses and personalisation.
THG Luxury comprises of a collection of websites
(Coggles, The Hut, MyBag, and Allsole) which retail over
200 fashion and lifestyle brands.
Three luxury event spaces: King Street Townhouse Hotel, Great John
Street Hotel, and Hale Country Club & Spa, providing bespoke luxury
spaces for hosting influencer and brand events.
Key:
Technology
Digital Services
Fulfilment and Operations
Ecommerce
Platform
Data
Fraud Screening
THG DETECT
Marketing
Techniques
Merchandising
Tools
Apps
THG APPS
Digital
Consultancy
Trading
Data, Analytics & ML
THG IQ
Global CS
THG ORBIT
Translation
THG FLUENTLY
Content Production
THG STUDIOS
Advertising
THG MEDIA
Performance
Marketing
THG PRECISION
Customer & Loyalty
THG PERSONIFY
Marketing
Technology
THG SOCIETY
Personalisation /
Print on Demand
Partnerships
Our business model
THG is a leading vertically-integrated, global e-commerce
technology group and brand owner, powered by its proprietary
technology platform, Ingenuity, through which it also provides
end-to-end e-commerce solutions for local and global brands
to reach a global e-commerce consumer base.
Against a backdrop of a large addressable market
with structural growth, THG has scale, digital brand-
building leadership, and a history of fast growth,
high margins, consistent profitability and cash flows,
as well as structural tailwinds supporting further growth.
The Group’s fully vertically-integrated business model
spans the entire customer journey:
• Development and manufacture of products at best-
in-class in-house BRC AA/A grade manufacturing
facilities;
•
•
End-to-end brand building and content creation,
delivered through a new state-of-the-art studio;
Retailing of products through THG owned
and operated websites, marketing and
influencer platforms ;
• Dedicated hosting infrastructure across 32 global
data centre locations ; and
• Delivery to a global customer base through THG’s
global payment, courier and warehouse network.
Across our direct-to-consumer brands we have
continued to deliver leading customer unit economics,
accompanied by exceptional sales growth:
•
Over 16.4m active THG Beauty and THG Nutrition
customers in 2021, +95% increase vs. FY19.
During 2021, THG’s business was operated through
four divisions:
1) THG Beauty – operating the world’s #1 pure-play
online specialty beauty retailer – Lookfantastic,
a further nine other popular online beauty and haircare
businesses and a portfolio of eight owned prestige
brands addressing skincare, haircare and cosmetics.
2) THG Nutrition – operating Myprotein and its brand
family – the leading D2C sport nutrition provider that
offers products across several associated categories,
including vegan, protein, vitamin, athleisure and
healthy snacks.
3) THG Ingenuity – proprietary end-to-end platform that
powers THG’s own businesses and brands combining
hosting, analytics, fraud detection, logistics and
warehousing with digital brand management, including
marketing, translation and global customer service,
which enables 187 third-party client websites at 31
December 2021 (31 December 2020: 89) utilising the
same platform solutions via Ingenuity Commerce.
4) Our remaining businesses (comprising THG
OnDemand, THG Experience and THG Luxury).
Further detail on each of these divisions is found
in the remainder of this report (pages 61-65).
All of the Group’s critical infrastructure is developed
in-house, and we continue to invest in developing this
infrastructure, for the benefit of THG’s own brands
and Ingenuity clients.
Global Data Centres
CLOUD SERVICES
Delivery & Courier
Management
THG DELIVERED
Warehouse
Management
System
VOYAGER
Checkout /
Payment
Warehouse
Automation
FIR/ST
Sustainability
THG ECO
Global
Fulfillment
Product Innovation /
Manufacture
THG LABS
• Over 6.8m app downloads by year-end (FY 2020: 2.6m).
In-depth descriptions of these business units can
be found on pages 21-65 of this Annual Report.
• Over 32,000 influencers globally.
•
•
•
Consistently high Average Order Values (”AOV”)
in Nutrition (£46) and Beauty (£60).
Consistently strong online repeat purchase rates.
Returned product represents only c.2% of sales.
THG’s ambitious growth trajectory and brand
partnerships bring opportunities but also risks to the
Group’s operating model. The Board has set out on
page 109 their assessment of principal risks and the
steps taken to manage and mitigate such risks.
THG Ingenuity Commerce
Infrastructure Services
Revenue from delivery of end-to-end e-commerce
solutions to 3rd parties.
Revenues from single services provided to 3rd parties,
along with pass-through revenues from services charged
to Ingenuity Commerce clients at nil-margin as part
of multi-service Commerce contracts.
15
16
Annual Report 2021
The need for Ingenuity
Consumer demand for digital commerce is here to stay and
accelerating. Companies need an e-commerce platform that
is flexible and scalable for today’s anywhere and everywhere
world, and this is what Ingenuity Commerce delivers to
THG’s customers regardless of size, industry or geography.
The fundamental advantage of the Ingenuity platform
is that it makes the complex simple. This enables
brand owners to focus on their go-to-market strategy,
confident that THG’s Ingenuity platform has the
integrated capabilities to deliver with the resilience,
speed and know-how, across all territories.
Ingenuity is a platform that has been built-out over the
past 17 years to manage the costs, points of friction and
complexities of globalising digital brands across a range
of product verticals. Its credentials in this respect are
clearly represented in the growth to leading positions
of THG’s beauty and nutrition brands.
As well as being a critical enabler of THG’s global brand
building and e-commerce activities, Ingenuity is rapidly
becoming a partner of choice, powering the growth
of some of the world’s largest consumer brands.
This has been achieved through continuous innovation,
development and investment in proprietary technology,
operating infrastructure and brand-building capabilities.
Ingenuity is unique in being both a peer-to-peer
e-commerce retailer and a service provider to global
cross-border e-commerce operations. The same
technology that powers the growth and success
of THG’s own brands also drives the growth of
Ingenuity’s partners. As a result, any developments
and enhancements made to THG’s technology,
operations, digital or data solutions automatically
benefits Ingenuity’s clients too.
Transforming processes from complex to simple requires
deep expertise, and valuable experience – that THG has
gained from the successful scaling of its own brands.
The process of growing and scaling these brands and
building a localised, successful, global D2C proposition
requires significant know-how as well as financial
investment, time and resource.
What is Ingenuity?
Ingenuity is the combination of complex e-commerce
technologies, real-world physical assets and infrastructure,
and importantly, brand-building capability.
Ingenuity infrastructure
• Critical infrastructure in the Ingenuity stack,
underpinning the Ingenuity Commerce offering.
•
Third-party revenues ensure that the division is
a profit centre not a cost centre, delivering key
services to THG own brands (not charged) and
Ingenuity clients at scale and with best-in-class
know-how.
• Differentiated from Ingenuity Commerce as charged
to third parties as a single service or short-term
contract, rather than bundled with multiple elements
of the Ingenuity stack on long-term contracts.
• Certain infrastructure services are also charged
as a single service to third parties: Hosting;
Translation; Manufacturing; THG Eco (encompassing
plastic recycling, carbon offsetting and tree-
planting). Within THG Eco, three businesses were
acquired in the year in the plastic recycling and
tree-planting sectors for a combined consideration
of £17.2m (net of cash acquired).
• Certain infrastructure services (e.g. postage)
can be delivered free of charge to the client,
when bundled in a Commerce contract in order
to ensure compelling pricing. Where costs are
passed through to clients at nil THG margin,
the pass-through revenues are captured in this
division. As the Ingenuity pricing model matures
all costs will be charged with a margin so reducing
the growth of this pass through at nil margin revenue.
•
100% external client revenues. No THG own-brand
or Commerce revenues are recognised in this division.
Ingenuity commerce
•
End-to-end technology services charged
to third parties for digital commerce solutions.
• Multi-year contracts (3-10 years), highly profitable
and cash generative.
•
•
Serving enterprise-scale brand owners and retailers
across the broadest cross-section of consumer
categories, across all major developed and
developing geographies.
The top 20 Ingenuity Commerce clients are powered
by Ingenuity in one or more major markets (UK, US,
China, Japan, Germany), with an average of three
website locales per client.
17
18
Annual Report 2021
Our journey to date
We have delivered consistent and profitable growth,
powered by Ingenuity, our proprietary platform.
Revenue
Adjusted EBITDA (2) (3)
%
Revenue growth (1)
2004 - Launch As
Online Retailer
__
Founded by Matthew
Moulding as an
online retailer
2005 - Launch of
Technology Platform
__
Begins providing white
label e-commerce
services for offline
retailers e.g. Tesco, WH
Smith, Dixons, Asda
2200
2100
2000
1900
1800
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
M
£
E
U
N
E
V
E
R
19
2021 - Accelerated
strategic development
of the group
__
Raised $1 billion;
Began improvements to
governance and reporting;
Strengthened Beauty and
Nutrition businesses
+35%
2020 - Largest
Tech IPO on the
London Stock
Exchange in 2020
__
Launch of THG Eco
2019 – Ingenuity
Commercialisation
__
Rapid scaling of THG
SaaS Commerce division
2018 – Investment
in Beauty Innovation
and Manufacturing
__
Acquisition of Acheson
& Acheson, a leading
Beauty product developer
and manufacturer
+41%
2017 – Ingenuity
Infrastructure
Investment
__
Addition of Hosting
(32 data centres),
Content Creation and
Translation capabilities
+25%
2016 – Step change
in warehousing
and fulfilment
__
Build 1m sq. ft.
Production and
Distribution Centre
in the UK
+25%
+47%
2015 - Moves
into beauty brand
ownership
__
Acquisition of Mio
Skincare (one of eight
own Beauty brands)
+35%
+35%
+50%
2012-20 - Platform
internationalisation
step-change
__
200+ integrated courier
services 195+ shipping
destinations, 60 languages
2011 - Move into
Nutrition D2C
brand ownership
__
Acquisition of the
UK sports nutrition
brand Myprotein
2010 - Move into
Beauty D2C
__
Acquisition of the
online beauty retailer
Lookfantastic
+69%
+10%
+17%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Source: Statutory accounts. Note: (1) Revenue growth and Adj. EBITDA margin calculated based on Group statutory accounts (2) FY18, FY19 and FY20 are on an IFRS 15 basis, prior years are pre-IFRS 15. (3) Defined as operating profit before depreciation, amortisation, share-based payments and exceptional
and other items. Adjusted EBITDA in periods FY19 onwards include IFRS 16 adjustment, prior years are pre-IFRS 16.
180
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
A
D
J
U
S
T
E
D
E
B
I
T
D
A
£
M
20
Annual Report 2021
THG Ingenuity is an end-to-end enterprise
e-commerce platform that supports the
entire consumer brand owner and retailer
market both locally and globally.
About THG Ingenuity
The THG Ingenuity platform has been developed
since 2005 and commercialised since 2018, by brand
owners for brand owners, and is the critical enabler
of THG’s brand building and e-commerce activities.
This technology and know-how is now offered to
third parties through THG Ingenuity. Success
is defined by the international leadership positions
of the Lookfantastic and Myprotein brands and the
international growth delivered for third-party brands.
The international sales growth of THG’s brands has
been driven by the unique localisation capabilities
of the vertically-integrated Ingenuity platform,
including localised content, currencies, payment
options, marketing, promotional calendars, influencers,
new product development, product catalogues, delivery
and customer service. THG’s brands are in effect the
largest customers of this division; however no charges
are currently made to THG’s brands for internal services
provided by Ingenuity.
THG Ingenuity also sells infrastructure services such
as hosting, translation, content creation, manufacturing
and other operational solutions on a standalone basis.
They are also provided to enterprise customers as part of
an end-to-end service offering “Ingenuity Commerce”.
Our vision is for THG Ingenuity to become the platform
of choice for the enterprise market, powering the digital
transformation agenda of brands at a global level. THG’s
unique offering and end-to-end capabilities ensures the
model captures a far greater share of the digital spend
of its customers than its e-commerce platform peers.
21
22
Annual Report 2021 Making the complex simple
Delivering Coca-Cola’s first
full-portfolio D2C offering
Customer & Loyalty
THG PERSONIFY
Delivery & Courier
Management
THG DELIVERED
Marketing
Techniques
Content Production
THG STUDIOS
Translation
THG FLUENTLY
Checkout /
Payment
Warehouse
Management System
THG VOYAGER
Ecommerce
Platform
Digital
Consultancy
Data
Merchandising
Tools
Personalisation /
Print on Demand
Fraud Screening
THG DETECT
Product Innovation /
Manufacture
THG LABS
Marketing Technology
THG SOCIETY
Global CS
THG ORBIT
Partnerships
Data, Analytics & ML
THG IQ
Warehouse Automation
FIR/ST &VOYAGER
Performance
Marketing
THG PRECISION
Apps
THG APPS
Trading
Global Data Centres
CLOUD SERVICES
Global fulfillment
Advertising
THG MEDIA
Sustainability
THG ECO
It is evident that building a D2C proposition that can
efficiently scale and is truly localised to its markets
requires significant financial investment, time, resources
and digital know-how. Primarily this is because current
D2C models typically require working with an off-the-
shelf SaaS platform at the core, before adding multiple
third-party plug-ins, IT vendors and agencies to knit
together an end-to-end offering. The complexity,
cost and execution risk involved with this set-up is
then further compounded by localisation requirements
as brands begin to look outward for growth and
more sites are launched in international markets.
THG Ingenuity is a proven platform that enables
frictionless end-to-end digital commerce, with all
the required components for global digital commerce
integrated into a single, digital ecosystem, thus
minimising the execution risk for the customer and
leveraging a wealth of consumer data to inform growth
strategy. Furthermore, THG’s digital brand services
span brand creation, product development, trading,
digital marketing, data analytics, end-to-end content
creation, translation and customer services, with all
of these key services delivered in-house as part of
a unified operating ecosystem. This combination of
in-house proprietary technology and digital services
offers brands a frictionless, turnkey platform to build
out the brands’ global online D2C operations through
a single SaaS relationship, enabling them to rapidly scale
across multiple countries through THG’s technology,
while also leveraging THG’s operating model.
Why THG Ingenuity:
Service composition:
• Offering a flexible and sophisticated platform
to deliver a unique and enriched customer
proposition across personalisation, bundling,
gifting, product adjacencies and more.
•
Improving accessibility of less well known brands
within their portfolio, offering an owned ‘marketplace’
shopping experience.
• Delivering accelerated GMV through Ingenuity’s
unique Ecommerce model with laser focus
on daily trade and marketing performance.
•
Eradicating friction points with seamless
integrated fulfilment and data support.
• Core Commerce platform inclusive of Checkout
& Payments, and proprietary Fraud software.
•
•
•
•
Proprietary CRM and Customer Service platform.
Personalisation capability.
E-commerce Trading and Data services.
International Fulfilment including use of Ingenuity’s
proprietary Warehouse Management System and
Order tracking software.
The partnership with Coca-Cola
Europacific Partners marked their
first full portfolio D2C offering, which
launched in October 2020 across the UK
The site has significantly improved accessibility
of lesser-known brands within their portfolio,
offering a marketplace shopping experience,
and has delivered accelerated GMV through
the support of Ingenuity’s e-commerce teams.
THG Ingenuity provided a flexible and sophisticated
core commerce platform, to deliver a unique and iterative
customer proposition, with product personalisation,
product bundling, gifting, and the launch of product
adjacencies across complementary brands.
Through the use of Ingenuity’s fulfilment network,
proprietary warehouse management system, order
tracking software and CRM software, the solution
has eradicated customer friction points, and
supported the development of a new and engaged
online customer base. In 2021, the Ingenuity platform
handled over 1bn site visits and processed orders to
customers across 195 territories.
“In the long term, this move will allow us to further
optimise our range across all of our customer channels,
strengthen consumer loyalty and help us to fulfil our
potential as category leader “
23
S T R A T E G I C P R O J E C T S
D I R E C T O R
24
Annual Report 2021
Brands choose Ingenuity as
a long-term strategic partner
The Ingenuity platform is offered externally
to a global enterprise customer base as an
end-to-end SaaS offering. THG Ingenuity
maximises the client’s chance of success by
providing an all-in-one commerce solution,
supported by internal brand-building
know-how, as demonstrated by THG’s track
record of building its own brands to global
leadership positions.
The platform integrates:
•
•
•
THG’s advanced e-commerce software technology
(including e-commerce platform, warehouse
management system, marketing platform, influencer
platform, courier platform, checkout, fraud engine,
data platform, customer service platform).
THG’s global real-world infrastructure (including
global warehousing across18 locations, c.200+
courier services, product manufacturing across
eight facilities, plastic recycling across three
facilities, 32 data centres).
THG’s digital brand building capabilities (website
trading, marketing, influencers, customer service
and end-to-end content creation).
THG’s technology and operating ecosystems are
supported by its end-to-end digital brand services
(“THG Digital”). This includes THG Studios, a state-
of-the-art creative studio, with the production facilities
and in-house team to deliver projects at scale across
everything from branding and strategy to creative
campaigns, content production and packaging
design. In 2021, despite relocating to our Manchester
campus, the team delivered more than 330,000 digital
content assets, as well as in-house website trading and
digital marketing services sold to brand owners under
recurring SaaS contracts.
Ingenuity also offers translation and localisation
capabilities through THG Fluently, which consists
of a network of over 6,000 linguists, with 35 million
words translated for THG websites in 2021, an increase
of 54% on 2020, enabling customers to fully access our
brands’ products and services. This localised content is
complemented by award-winning international customer
service capabilities, enabling customers to correspond
with our brands in the language of their choice.
The platform also incorporates in-house digital
marketing services, powered by THG’s proprietary
eCRM (customer relationship management) and
marketing and influencer platforms “THG Society”.
Key:
Technology
Digital Services
Fulfilment and Operations
Ecommerce
Platform
Data
Fraud Screening
THG DETECT
Marketing
Techniques
Merchandising
Tools
Apps
THG APPS
Digital
Consultancy
Trading
Data, Analytics
& ML
THG IQ
Global CS
THG ORBIT
Translation
THG FLUENTLY
Content
Production
THG STUDIOS
Advertising
THG MEDIA
Performance
Marketing
THG PRECISION
Customer & Loyalty
THG PERSONIFY
Marketing Tech
THG SOCIETY
Personalisation /
Print on Demand
Partnerships
Global Data Centres
CLOUD SERVICES
Delivery & Courier
Management
THG DELIVERED
Warehouse
Management System
THG VOYAGER
Checkout /
Payment
Automated /
Manual
Warehousing
FIR/ST
Sustainability
THG ECO
Global Fulfillment
Product Innovation /
Manufacture
THG LABS
25
26
Annual Report 2021 Ingenuity Commerce revenue model
Case study: William Grant & Sons (“WG&S”)
Ingenuity Commerce generated £45.4m revenue in 2021
(2020: £19.3m), with 62% of these being recurring revenue.
We monetise Ingenuity Commerce principally through three
sets of fees:
Delivering high-level strategic projects and driving
execution with cross-functional teams for Clink*
1. Technology fees
2. Brand-building fees
Why THG Ingenuity:
Service composition:
a.
b.
b.
Non-recurring technology fees: These are
charged on an upfront basis to cover the costs
of the design and development of the website
and additional international variants for clients.
While these are non-recurring, they are incurred
every time a client chooses to add new brands
to Ingenuity, and when they wish to add new
international website variants for existing brands.
Therefore, despite being non-recurring, these
technology fees may be generated from clients
across a number of years.
Recurring SaaS licences: THG charges
a monthly licence fee for access to Ingenuity
platform components (e.g. e-commerce
platform, warehouse management system,
content management system, recommendation
engine, A/B testing, marketing automation
platform, courier platform, checkout, fraud
engine, data platform).
Non-recurring integration fees are also charged
on an upfront basis for integrating partners
onto our platform across a range of services,
but initially focused on payments. This enables
Ingenuity Commerce customers to benefit from
access to a sophisticated suite of technology
and payment options that are suited to a global
market and maintain pace with innovation.
These fees can also include advertising
campaigns. Whilst this is non-recurring by
partner, we expect such fees to be received
in future periods as our technology offering
continues to evolve.
a.
b.
c.
Recurring monthly brand-building fees:
THG charges monthly fees for digital
brand-building services including trading
(THG will fully operate the websites on
behalf of brand owners), marketing services
(agency service fees for the management and
deployment of digital marketing budgets on
behalf of brand owners, which includes access
to THG’s influencer platform) and end-to-end
digital content creation services.
Revenue share: THG receives a share
of the revenue generated from each
Ingenuity website. The percentage share
varies by Ingenuity customer and is charged
as a percentage of Gross Merchandise Value
(“GMV”). This enables THG to participate
in the upside it delivers for its brand partners
in scaling their online D2C businesses.
Additional services: THG will charge for any
additional services as part of overarching
Ingenuity contracts (based on rate cards).
Fees for additional services (e.g. translation,
creative services) are charged, with a mark-up,
as and when these are provided.
.
3. Infrastructure service fees
a.
Fees for items including payments, customer
services, warehousing, fulfilment and postage,
are charged to clients. While variable with activity,
these fees have a high degree of predictability
given they are incurred on a repeat basis.
•
•
Strategic partner that will form a key part
of the WG&S digital transformation and
e-commerce journey.
Leveraged our end-to-end capabilities,
to scale internationally, capture customer
data and provide an NPD platform.
• Help enable WG&S to become
a more consumer-centric business.
•
Strategic advisory supported a range of
high-level topics based on WG&S requirements,
enabling a clear roadmap for international
expansion and a plan of action to elevate their
customer acquisition.
•
•
•
•
Following the launch, WG&S signed a strategic
retainer with the Digital Strategy team to provide
ongoing strategic support post-launch for Clink.
Advisory services to help drive execution of
key proposition initiatives by and creating
implementation roadmap.
Holistic D2C strategy focused on delivering
a long-term international growth model. Ingenuity
helped identify markets of interest and developed
a rollout plan, leveraging THG’s data insights,
learnings and capabilities.
Strategic Governance: Ingenuity involved
in the Quarterly Business Review process
to identify key strategic levers and initiatives
for the upcoming quarter.
“THG Ingenuity’s strategy consulting services
have been valuable in helping shape the strategic
direction for Clink and support driving the
execution of key initiatives.
and helped develop the holistic customer data
acquisition strategy. The ongoing support has
proved beneficial resource as part of the team.”
In particular, the strategy consulting team
supported overall D2C Strategy (where to play
and how to win), international expansion analysis
E - C O M M E R C E D I R E C T O R
27
28
Annual Report 2021
THG Production & Fulfilment Site.
Wrocław, Poland.
Launch of first automated warehouse
powered by Voyager and AutoStore
In September 2021, THG launched its first automated
warehouse, powered by AutoStore’s proprietary Automated
Storage Recovery System (“AS/RS”) and THG’s warehouse
management system, Voyager, fulfilling over 7.5m units from
the Manchester-based warehouse by year end. The project
marks the first warehouse jointly powered by Voyager and
AutoStore, ahead of the future launch of FIR/ST.
FIR/ST (Fulfilment Inventory Retrieval & Storage
Technology) is a single, cross-border productised
software solution formed through the integration
of AutoStore’s AS/RS and Voyager. Through FIR/ST,
Ingenuity assumes ownership of project delivery
and subsequent project management, removing
an intermediary integrator layer, resulting in
operational and cost efficiencies and ongoing
optimisation for the end client.
As the WMS solution provider with a direct integration
into AutoStore, Ingenuity’s software engineers and data
scientists will continually optimise the solution for the
client, driving continued efficiencies. The benefits of
this optimisation can be seen through the operating
performance of THG’s ICON warehouse, where variable
labour cost per unit (“CPU”) has reduced significantly
in each month since launch.
Due to the ongoing savings versus a manual warehouse,
ICON generates monthly recurring CPU savings, and is
forecast to breakeven on the upfront capital expenditure
(“capex”) of commissioning the AutoStore solution
within 24 months from the warehouse opening. In addition,
these savings help mitigate some labour wage inflation
seen currently due to the reduced labour intensity
of the THG Voyager operating model.
The second Voyager/AutoStore warehouse will be
located in New Jersey, providing significant cost
efficiencies to the Group’s US fulfilment business.
Our growth is supported by
a global infrastructure network
At the end of 2021, THG Ingenuity powered
over 200 localised Group websites, supporting
over 40 currencies and over 60 languages,
in addition to supporting over 180 websites
for third party brands
These websites benefit from millions of daily visitors
during peak trade periods and are delivered to
consumers through THG’s 32 global data centres,
ensuring optimised website performance in all
territories. The platform also supports more than
50 payment options, ensuring local consumers can
purchase products with the payment method of their
choice. THG Ingenuity’s operating assets include 18
warehouses and fulfilment sites across four continents,
supported by Voyager, THG’s proprietary warehouse
management system (“WMS”), with over 200 integrated
local courier services, ensuring express delivery services
in all key territories globally.
29
THG Automated Warehouse
Manchester, UK..
30
Annual Report 2021 Annual Report 2021
Global infrastructure network
MAP KEY:
Production Site
Fulfilment Site
Content Production
Office
Luxury Hotel / Spa
Hosting Locations
North America:
Europe:
Vancouver, Canada
Toronto, Canada
Montreal, Canada
Washington, DC, USA
New York City, USA
Chicago, USA
Los Angeles, USA
Seattle, USA
Miami, USA
California, USA
Phoenix, USA
Salt Lake City, USA
Nevada, USA
Texas, USA
Atlanta, USA
Dallas, USA
Kentucky, USA
Indiana, USA
San Jose, USA
New Jersey, USA
Orlando, USA
Queretaro, Mexico
South America:
São Paulo, Brazil
Chile
31
Oslo, Norway
Paris, France
Berlin, Germany
Frankfurt, Germany
Stockholm, Sweden
Lviv, Ukraine
Amsterdam, Netherlands
Milan, Italy
Wrocław, Poland
U.K:
London, UK
Luton, UK
Manchester, UK
Warrington, UK
Newcastle, UK
Hale, UK
Frome, UK
Guernsey (British Isles)
Northwich, UK
Tywyn, UK
Blackpool, UK
Middle East:
Dubai, UAE
Asia:
Delhi, India
Chennai, India
Tokyo, Japan
Seoul, South Korea
Ningbo, China
Hong Kong
Singapore
Australasia:
Sydney, Australia
Melbourne, Australia
9
Production
Facilities
18
Warehousing
& Fulfilment Sites
32
Data Centres
50++
Local & Global
Payment Methods
195
Shipping
Destinations
200++
Courier Services
intergrated
32
Annual Report 2021 THG Ingenuity addressable market
THG Detect
The demand for outsourced, direct-to-consumer technology is
increasing – as brand owners are developing their D2C strategies
in response to the accelerated consumer shift to e-commerce and
the associated benefits that the direct customer relationship offers.
The pandemic has driven an inflection point in
e-commerce adoption, meaning that more shoppers
are buying online across more categories than
ever before. As retail channels become increasingly
consolidated, the need for brand owners to develop
their digital offerings will continue to increase in
importance. Consumers are becoming increasingly
comfortable buying online and are looking to take
advantage of the greater variety, convenience and
information offered by e-commerce, which drives growth
broadly across geographies and product categories.
As a consequence, the global outsourced D2C technology
market within fast moving consumer goods is forecast to
grow to £114bn by 2023, and our track record in growing
health and beauty brands makes this the most immediately
addressable market, encompassing food and beverage
in addition to household products.
This is also a category where brands are most likely
to require support in shifting to a D2C business model,
having historically sold via traditional grocery and
beauty retailers.
Due to our increasing breadth, we believe that the
revenue opportunity across other relevant industry sectors
is considerable, which Ingenuity is able to address given
the category-agnostic nature of the platform, evidenced
by the diversity of clients we support today.
As our proposition has evolved, our addressable
market has further expanded beyond the end-to-end
services market.
Whilst the vast majority of our current clients have
partnered with Ingenuity across our full end-to-end
solution due to the convenience this offers, we see
additional opportunities to deploy many of our
products on a stand-alone basis.
These include but are not limited to:
• WMS.
• Delivery and courier services.
• Digital marketing services.
•
• Martech.
Checkout.
We expect these markets to continue to grow,
underpinned by multiple structural tailwinds.
THG Ingenuity Commerce FMCG adressable markets (2021)
Total outsourced D2C
consumer spend
Expected to
grow to
in 2021
in 2023 (+23% 2021-23
CAGR)
Core competencies addressable markets (2021)
Warehouse management
Marketing technology
Digital marketing
Payment gateways
solutions
services
Following the launch of THG Detect, our in-house fraud
detection and prevention platform, in 2020, we have
delivered significant reduction in chargebacks and false
positives for our brands, thereby minimising fraud risk
while maximising revenue.
The re-platforming of Cult Beauty and Dermstore to
Ingenuity demonstrate the tangible benefits of THG
Detect, with both exhibiting significantly improved
fraud operating metrics since acquisition, while
removing the cost of licensing a third-party solution.
The success of THG Detect has been recognised by
the fraud detection industry, with THG Detect winning
the award for Most Innovative Online Retail Risk
Management Solution at the 2021 and 2020 Retail Risk’s
Fraud Awards. This was also accompanied by individual
awards for Raphael Lawson, THG’s Fraud Director, and
Kristy Edge, THG’s Head of Fraud Operations at the
same awards in 2021.
Types of fraud
prevented
Voucher
& policy abuse
Online payment
fraud
Marketplace
fraud
Fraud rings
& networks
Account
takeover
More peak orders
processed per minute
Reduction in manual
review rate
Reduction in fraud
order held times
Looking forward
We continue to invest in further technology
developments, real-world infrastructure, our digital
talent base and partnerships, which benefit both
our own brands and our Ingenuity Commerce
customers alike.
33
Note: Company estimates based on analysis of third party information.
34
Annual Report 2021
Myprotein Ambassador
Shot by THG Studios.
Marketing
THG’s marketing ecosystem is underpinned
by fully-integrated real-time data feeds and an integrated
single customer view, enabling optimised media spend
across all brands and territories.
THG Ingenuity has an integrated marketing
ecosystem, fully operated by in-house teams,
without reliance on external marketing agencies.
THG’s integrated offering avoids the execution risk
and complexity of integrating disparate third-party
providers, and enables marketing strategies to be
optimised on a live basis through a single business
data view.
•
•
Stable marketing costs as a % of sales across
historical years due to active optimisation
of customer acquisition costs and pivots
between marketing channels.
Over 16.4m active beauty and nutrition
customers, accompanied by strong retention
dynamics (c.80% of online sales from repeat
customers), drives high Customer Lifetime
Values.
THG Ingenuity’s digital content (delivered in-
house by THG Studios), mobile apps (developed
in-house by THG Ingenuity) and 32,000+
influencers (managed through THG Society,
THG’s in-house influencer solution) are used
to drive customer engagement and retention,
enabling THG to deliver scalable and cost-
effective customer growth.
•
•
•
35
36
Annual Report 2021 Case study: THG apps
•
•
THG apps launced late 2019 and have scaled
throughout 2020 and 2021 to become an ever
increasingly important part of our ecosystem.
Exclusive campaigns, product launches,
offers and functionality designed to give
value to customers of our brands via the
app experience.
• Curated content from THG studios, influencers,
media partners, brands and our own digital
magazines with dedicated sections within the
apps help to give value add to app users
and drive stickiness.
Customer shopping
via the app on average:
•
•
•
•
Spend more.
Are more likely to repeat order.
Have higher lifetime values.
Return more frequently.
of D2C sales in FY21
(excl. Cult Beauty and Dermstore)
Over 6.8m
app downloads since launch
day reduction between
Lookfantastic orders
+12%
higher AOVs for new
customers for Lookfantastic
A 360˚ view enabling data-driven
marketing that seamlessly addresses
the needs of customers at every
touchpoint of their journey
• A centralised hub for customer data.
• Data is pooled from multiple sources
into a unified customer database.
• Designed to identify individual customers
across all channels and devices.
•
Intelligent connections between collected data
points, creating a sophisticated customer profile.
• Connected to and feeding customer/lead
acquisition platforms with data in real time.
• Data from visitor to delivery helps fuel acquisition
and retention optimisation through the ecosystem.
•
Profile used as a predictive model to determine
how to reach and retain that customer.
• Customer profiles can be assembled from
fragmentary data collected from mobile devices,
transactions, websites, emails and so on.
Customer
Personal &
Demographic
Onsite
behavioural data
Engagement
data
Transaction
data
Mobile &
device data
Data integration
Clever ID & cross device tracking
Multi-channel and data
Segmentation
Predictive
Orchestration via contour
Email
Push messaging
SMS
Social
Direct mail
Web
37
360
Consumer Database
38
Annual Report 2021
Online multi
brand retail
Ecosystem
Subscription
boxes
Production and
innovation
Owned prestige
brands
THG Beauty, the largest pure-play online beauty
retailer, brings together online multi-brand retail,
subscription boxes, owned prestige brands along
with production and innovation capability.
The THG Beauty ecosystem accelerates value creation
from data, generates superior consumer engagement
and provides deep relationships with our brand partners.
THG Beauty spans the prestige beauty value chain
from brand ownership, third-party brand retailing,
subscription boxes to in-house product innovation
and compliance. With its unique digital ecosystem
and market-leading beauty retail platform, THG
is the pre-eminent global digital beauty business
and therefore a critical strategic partner for brands
as they navigate the transition from offline to online.
In 2021, we augmented THG Beauty through the
acquisitions of Cult Beauty, Dermstore and Bentley
Laboratories, while continuing to deliver strong organic
growth and develop future relationships with leading
brand partners.
39
40
Annual Report 2021 The total addressable
market for global
beauty
x p e c t e d t o g row to £442bn by 2024
+ 3 % 2019–24 CAGR
E
y
t
u
a
e
T o t a l b
c t e
e
E x p
& p e r sonal care £374bn in 2
+ 6 % 2 0 14–19 CAGR
0
1
9
t o g row to £82bn in 2
d
+ 1 4 % 2 0 19–24 CAGR
0
2
4
Online beauty £43bn in 2019
+23% 2014–19 CAGR
About THG Beauty
Division
Brands
Capabilities
THG
Beauty Retail
THG
Beauty Brands
Subscription
Boxes
Production
Capabilities
•
Retailer of branded beauty through its wholly-
owned global online retail banner channels.
• A critical route to market for >1,300 brands.
•
•
Supported by a global network
of beauty influencers.
30+ localised websites powered by the Ingenuity
platform, with localised pricing, promotions,
content, marketing, influencers, customer service,
couriers and payment options.
•
Portfolio of eight prestige beauty brands,
seeking to exploit the trend of digital channel
shift across skincare, haircare and cosmetics.
• Acquired brands have scaled rapidly
and enjoy enhanced margins once
introduced to the Ingenuity platform.
•
Vertically integrated, with full control
over new product development.
• Acting as a gateway into THG Beauty
for consumers.
•
Subscription-based beauty boxes represent
a global sampling opportunity for brands.
• Monthly surveys generate thousands of
behavioural consumer data points, providing
valuable insights to THG and its brand partners.
• Manufactures for a number of category-leading
third-party brands.
•
In-house manufacturing of c.50% of THG’s
Beauty Brands.
• BRC Grade A and FDA-approved manufacturing,
complemented by an R&D team of 75+ employees.
41
Note: Company estimates based on analysis of third party information.
42
Annual Report 2021 About THG Beauty
THG Beauty operates leading
pure-play sites such as Lookfantastic,
Cult Beauty and Dermstore, offering
more than 1,300 premium brands
across the skincare, haircare,
cosmetics and fragrance categories,
into 195 territories, with leading
positions in the UK, US and Europe.
THG’s online multi-brand sites each have distinct
positioning, enabling the specific engagement
and targeting of customer segments and needs.
Lookfantastic is the world’s #1 online pure-play retailer
for prestige beauty products, Cult Beauty is the first-to-
market choice for independent brands, while Dermstore
is the leading US online retailer for professional skincare
brands. Given the selective online distribution of
prestige beauty brands, THG has cultivated a highly
loyal customer base complemented by continued strong
new customer acquisition, with 9.2m Active Customers
at the year end.
Leveraging its end-to-end technology platform, data
insights, digital content, performance marketing and
influencer networks and events, THG Beauty’s fully-
integrated digital model has enabled THG to create
international demand for partner brands that have
previously predominantly been sold in their country
of origin only. This makes THG Beauty a key partner
for brands spanning from small independents to large
global players. THG expects these relationships to develop
further, as the shift to online channels continues and
our retail banners continues to expand internationally.
THG Beauty has two subscription box services –
Lookfantastic Beauty Box, positioned as #3 in the UK
and Glossybox, positioned as #1 in both the UK and
Germany, based on subscription box usage, according to
a leading management consultancy consumer survey. Both
services have leading NPS scores and high conversion from
purchase to favourite. THG’s subscription boxes position
THG as a leading authority in digital beauty education and
discovery, while also acting as a highly effective customer
acquisition channel for THG Beauty’s retail sites, converting
high-spending sampling customers to full size sales on our
retail banners.
THG Beauty’s portfolio of eight prestige brands are
retailed through its own online multi-brand sites as well
as D2C websites, subscription boxes and third-party
channels, and address consumer needs across skincare,
haircare and cosmetics. THG Beauty has a track record
of successful brand acquisitions, having built a portfolio
of disruptive brands that have been scaled both online
and internationally through the THG Ingenuity platform.
THG’s beauty retail ecosystem creates a source of
advantage when acquiring brands, with sales insights
from the retail platform used to inform decisions
on brand acquisition, and its beauty retail platforms
significantly accelerate sales post-acquisition.
THG Beauty is also supporting brand partners with
their new product development (“NPD”)capabilities
informed by market and brand trend insights from
its global customer base. With in-house product
development and manufacturing capabilities,
we enable independent brands to scale, while reducing
cost and complexity for larger brand partners. Through
its integrated model, THG supports partners in building
their brands with rich consumer insights from its retail
business. THG is further able to support partners in
driving brand awareness through its leading subscription
boxes, personalised online content and global influencer
network. THG collaborates with smaller brands to
provide them with global distribution capabilities
enabling them to rapidly scale their business.
Data insights captured via THG Beauty’s growing
international active customer base of 9.2m, who visit
our retail destination sites in search of new beauty
products and content, enable us to accelerate value
creation for brand partners. By having live and
exceptional insight into rapidly changing consumer
behaviour, decision making is improved through
the combination of market knowledge and integrated
operations, which supports innovation, content
generation and brand partnerships. This results in
THG Beauty offering the most compelling beauty
products and personalised content, keeping our
beauty retail sites market-leading, and consistently
improving on superior consumer experience.
In 2021, THG Beauty generated £1.1bn in revenue,
an increase of 51.8% year-on-year on a constant currency
basis, principally driven by the continued growth of
Lookfantastic, alongside the contributions of businesses
acquired during the year (Cult Beauty, Dermstore and
Bentley Laboratories).
Due to THG’s unique combination of proprietary
technology, global infrastructure and digital brand-building
expertise, THG Beauty represents a critical route-to-market
for beauty brands seeking to grow, innovate and connect
with global audiences. THG Beauty continually refreshes
its brand portfolio to deliver unparalleled choice for its
global customer base, with additions to Lookfantastic
during 2021 including Obagi, Hourglass, Coola, Biotherm,
Viktor & Rolf, and Kate Somerville. THG Beauty’s revenue
is diversified across a wide number of brands, with no
single brand accounting for more than 10% of revenue
in any year between 2016 and 2021.
THG’s branded apps continue to be a source of strong
new customer growth, offering greater convenience
and enabling deeper customer engagement through
bespoke promotions. App users typically exhibit
enhanced average order values and repeat purchase
metrics with 2.5m app downloads since 2020 launch,
now accounting for over 6% of Lookfantastic sales.
In May 2021, Lookfantastic launched its “Digital
Magazine”, which led to increased engagement
with 30% of customers who received the digital
magazine as a “gift with purchase” returning and
making a further order within 60 days.
43
44
Annual Report 2021
Strategic investment:
Bentley Laboratories
In June 2021, THG acquired Bentley Laboratories (“Bentley”) for
$255m (on a cash-free and debt-free basis), an innovative developer
and manufacturer of prestige skincare and haircare products.
The acquisition enables THG to further enhance
the services provided to partner brands via its
in-house innovation and product development
expertise (“THG Labs”), complementing its
existing UK beauty manufacturing facilities.
THG was already an important customer of Bentley
through the development and manufacturing of award-
winning products for THG’s prestige Perricone MD
brand (“Perricone”), and the acquisition immediately
allows THG to internalise the production of Perricone
(and other THG brands) and to accelerate the
programme of new product development.
Established in 2002 in New Jersey, Bentley has
demonstrated fast and profitable growth, supported
by longstanding relationships with more than 70
leading prestige beauty brands. Bentley operates
a high-touch, end-to-end model focused on innovation,
with the expertise and production capabilities to handle
complex ingredients and formulations across a range
of product categories. This expertise is highly
valued by its customers, with over 700 new products
launched since 2017. Bentley is differentiated by its
end-to-end service, encompassing product design
and development, formulation development, turnkey
packaging solutions, international sourcing and product
testing. Bentley is FDA OTC Licensed, ISO 9001:2015
certified and holds the USDA Organic Certification
across the United States and Canada, supporting its
focus on high quality and compliance standards.
The acquisition provides THG with industry-leading in-
house skincare and haircare new product development
and manufacturing capabilities in the US, which will
be leveraged across THG’s expanding own beauty
brand portfolio as well as THG’s partner brands to
embed THG even more deeply as a strategic partner
for clients. THG intends to build upon Bentley’s success
by supporting its next phase of growth and providing
Bentley’s existing brand partners with continued
exceptional service, as well as access to THG’s Ingenuity
platform and digital brand-building capabilities.
Strategic investment:
Dermstore
Dermstore was acquired by THG in February 2021
for $350m (on a cash free and debt-free basis).
Founded in 1999, Dermstore was established to provide
online access to professional grade skincare in the US.
Through curated, expert-driven content and a focused
product assortment from c.300 longstanding prestige
and professional beauty brands, Dermstore’s strong
heritage and authority in professional skincare offers
the opportunity for THG to expand the US distribution
of its existing brands through access to Dermstore’s
US customer base. The THG Ingenuity platform also
enables Dermstore’s brands to expand internationally,
in the same way that Lookfantastic has unlocked the
international sales potential of its brand partners
in international markets.
Since acquiring Dermstore in February 2021, THG has
introduced its portfolio of eight owned beauty brands
to Dermstore’s loyal and rapidly-growing US customer
base. THG continues to scale up its beauty box business
through bringing new beauty box initiatives to the
Dermstore customer base, as has proven to be highly
successful for Lookfantastic, which will in turn unlock
incremental marketing revenue.
The migration of websites is not without execution risk
and the Group’s experience in this regard has delivered
meaningful improvements to customer experience,
including a reduction in chargeback rates from
3% to 0.1% after re-platforming Dermstore.
45
46
Annual Report 2021 Strategic investment:
Cult Beauty
In August 2021, THG acquired Cult Beauty, a leading
UK pure-play online prestige beauty retailer for £275m
(on a cash-free and debt-free basis).
The acquisition strengthens THG’s position in the UK
market, with Cult Beauty (“Cult”) retaining a very clear
identity within THG Beauty due to its distinguished
brand portfolio.
Founded in 2007, Cult is a favoured partner for
independent brands, acting as an “incubator” for
new brands with limited marketing and distribution
capabilities, which has given Cult a “first to market”
reputation. Through curated, expert-driven content and
a focused product assortment, Cult has established itself
as the UK authority for independent brands, being the
authorised online retailer of c.300 prestige brands across
skincare, haircare and cosmetics, including Charlotte
Tilbury, Drunk Elephant and Huda Beauty. Around two-
thirds of Cult’s brands were not historically listed on other
THG Beauty sites, thereby providing an opportunity
to broaden consumer choice globally. With its strong
heritage in emerging and independent skincare, Cult has
a differentiated consumer base, with less than 50% of Cult’s
sales being international at acquisition, which represents
a compelling opportunity to accelerate global growth
through the Ingenuity platform.
Cult Beauty has been successfully migrated
to the Ingenuity platform ahead of schedule,
delivering immediate improvements including
a 30% uplift in conversion rates, a 6% uplift
in average order values, a 36% improvement
in page load times and lower technology costs
to serve. A highlight post re-platforming has
been the success of the Cult Beauty Advent
calendar which sold over 11,500 units in two
hours with no website downtime.
The Cult Beauty acquisition also provides THG
with a platform to drive further growth of THG’s
portfolio of eight owned beauty brands through
access to Cult Beauty’s loyal, discerning and
rapidly-growing customer base. THG is also
increasing the scale of its beauty box business
through bringing new beauty box initiatives
to the Cult Beauty customer base.
47
48
Annual Report 2021 THG is building a disruptive portfolio of
prestige beauty brands through acquisition,
developed and manufactured in THG facilities,
and retailed online through the THG Ingenuity
platform, utilising its digital brand-building
expertise.
THG has a compelling track record of profitably scaling
D2C brands. THG acquired its first beauty brand in 2015,
with the vision of building a disruptive portfolio
of digital-first beauty brands, retailed through local D2C
websites. The Group’s beauty brands are being scaled
internationally by leveraging the reach of THG’s beauty
retail platform, powered by the unique localisation
capabilities of the Ingenuity platform. THG Ingenuity
enables brands that were previously sold mainly in their
country of origin to expand internationally at a rapid
pace. By contrast, traditional beauty brands are typically
constrained by store-based retail channels and limited
geographical reach, providing reduced opportunities
and less profitable routes to growth.
Our acquired beauty brands typically also enjoy
significantly-enhanced margins once introduced
to the Ingenuity platform, due to the substantial
operating leverage it affords and due to the
higher margin nature of D2C sales.
THG has been executing this own-brand beauty
acquisition strategy for the past seven years, with over
50% of revenues across its existing portfolio of beauty
brands now being generated from D2C sales and over
75% of revenues generated from outside of the UK.
The majority of THG’s own beauty brands are also
developed and manufactured in-house, through our
FDA and BRC A-accredited state-of-the-art product
innovation and manufacturing facilities. THG’s fully
vertically-integrated business model, with full
control over NPD branding and design capabilities,
has significantly reduced development timelines,
with innovation informed by demand insights from
THG’s global beauty retail customer base.
Evolution continues across the brand portfolio as the
product range of each brand is expanded. For ESPA,
we developed a new “Active Nutrient” collection, which
includes an expanded haircare range that is packed with
high-performance ingredients to help balance the scalp
and restore vitality.
For Christophe Robin, we released more than 30
SKUs, including innovative launches in the ”Purifying”
Range, such as the ”Purifying Mask with Thermal Mud”,
which contains an innovative combination of selected
natural ingredients. These include spirulina, which
provides cleaning and purification of oily roots while
also supporting the effectiveness of the scalp’s
barrier function.
For Grow Gorgeous, we launched a new “Booster”
range which introduces care ingredients such as Vitamin
C, AHA, CICA extract and Niacinamide into product
formulas. We also launched new scalp tonics and hair
serums that complement the traditional shampoo
and conditioner.
49
50
Annual Report 2021
Case Study:
Nature’s Resonance by ESPA
Spa Concept
Sustainability
Nature’s Resonance by ESPA
Partnership with
Created exclusively for One&Only Resorts,
Nature’s Resonance by ESPA is built upon two
pillars: eco-therapy and vibrational energy.
Everything on our planet and in our body works
and communicates via vibrations. By tapping into
the boundaries of our senses, the Nature’s Resonance
treatment series invites guests to re-tune their bodies
by introducing “healing hertz”, a method of influencing
vibrational patterns, seeking balance and restoring
harmony as found within nature.
Working in partnership with eco-tech platform (more:trees),
for every Nature’s Resonance treatment that is booked
globally, trees are planted according to the length
of treatment.
At select properties, guests who book a 90-minute
treatment are invited to plant a seed at the resort in
which they stay as an opportunity to give thanks and
support the natural surroundings celebrated during
Nature’s Resonance.
Case Study:
Grow Gorgeous
On our way to a more sustainable future
The Grow Gorgeous SENSITIVE range (launched February
2021) is delivered with a more sustainable approach, with
all Sensitive packaging being completely recyclable.
The Shampoo and Conditioner Duo tube sleeve
and tube head are made from 90% sugarcane derived
biopolymer, which means 62% of the plastic used in the
new Sensitive range is manufactured from a renewable
source. Sugarcane biopolymer provides a much lower
carbon footprint than the conventional plastic, because
growing plants removes CO2 from the atmosphere
and keeps it stored throughout the entire product life.
Biopolymer is fully recyclable at the end of life, and there
is no difference in performance or appearance to the
result. This is being rolled out across all Grow Gorgeous
packaging, as well as the addition of vegan and leaping
bunny certifications on pack.
Subscription Boxes
THG Beauty has two established subscription box services – Lookfantastic
Beauty Box and Glossybox. Both services have leading NPS scores and
high conversion rates from purchase to favourite. THG’s subscription
boxes position THG as a leading authority in digital beauty education and
discovery. In 2021, the Group expanded its leading beauty box offering to
Dermstore and Cult Beauty.
THG continues to broaden its subscription boxes
offering through incremental product launches,
such as advent calendars and one-off partnership
boxes with brands such as Too Faced, Keratase and
CeraVe, which complement the subscription business
and leverage THG’s longstanding relationships with
beauty brands. Subscription boxes bring benefits to
both THG Beauty and its brand partners – for THG
Beauty, subscription boxes act as a marketing channel
for its own beauty brands, providing identification of
market trends, leading to highly-engaged customers
giving continuous feedback and acting as an effective
customer acquisition channel from converting high-
spending sampling customers into retail banners
customers.
Brand partners benefit from access to a large and
valuable prestige audience through a recognised
retail brand, providing brand partners the opportunity
to test new products and formats on a target audience
with added influencer and celebrity coverage through
THG’s marketing programmes.
Subscription boxes also enable brand partners’
products to reach beauty consumers who are switching
from traditional forms of retail and media. Beauty
subscription therefore represents a strategically
important channel, with THG acting as a key partner
to beauty brands in the movement of marketing spend
away from offline channels, such as magazines and TV,
to online channels, such as subscription boxes, digital
media and influencers.
Looking forward
THG intends to become the undisputed global digital
partner of choice across the beauty industry, powering
channel shift from offline to online for its brand partners.
THG is uniquely placed to deliver this shift due to its
multi-faceted business model. THG engages with brands
as a retailer, a technology partner, a brand owner and
a product developer and manufacturer – the breadth
of its relationships are unique in the beauty industry,
confirming THG as the industry’s digital strategic leader.
Beauty brand
innovation and
product development
THG now has a substantial presence in the US
Beauty market through the acquisition of the US
retailers Skinstore in 2016, Perricone MD in 2020
and Dermstore in 2021. In addition, Glossybox and
Christophe Robin, two European-based businesses,
have dedicated US offices. THG’s US presence was
further enhanced through the acquisition of Bentley,
an innovative developer and manufacturer of prestige
skincare and haircare products in 2021. Given the
scale of the US beauty market and the continued
channel shift towards online sales, THG sees the US
beauty market as a key opportunity for expansion
of its beauty brands.
Finally, THG’s innovation and manufacturing facilities
produce c.48% of own-brand beauty products by
revenue in-house, providing THG Beauty with a
vertically-integrated model. These in-house facilities
ensure THG has full control over new product
development and significantly reduced product
development timelines, with innovation informed
by demand insights from THG’s global beauty retail
customer base. THG also manufactures for a number
of third-party beauty brands, further deepening
its relationships with the brands that it retails.
51
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Annual Report 2021
Myprotein is the largest
online D2C sports nutrition
brand globally, expanding
into adjacent categories
of the global wellness
market through its
family of sub-brands
53
54
Annual Report 2021 THG Nutrition comprises the Myprotein
brand family, a combination of holistic
wellbeing brands, and the weight
management and healthy lifestyle
brand, Exante. Myprotein addresses
the core sports nutrition customer,
while Myvitamins, Myvegan and MP
Clothing target the growing adjacent
markets of vitamins, vegan sports
nutrition, healthy snacks, sports apparel
and performance clothing respectively.
In 2021, THG Nutrition served more than 7m Active
Customers globally. These disruptive digital brands
continue to scale rapidly, powered by the unique
localisation capabilities of the Ingenuity platform.
THG Nutrition’s vertically-integrated model lends
itself to a fully-localised approach to brand development,
operating over 50 websites supported by fully-localised
content, product catalogues, trading, marketing,
influencers, payment options, fulfilment and customer
service. This combined technology and operating
ecosystem, powered by the THG Ingenuity platform,
has proven to be highly effective and has facilitated
rapid international growth, with Myprotein holding
leading market shares in the UK and Europe, while
rapidly scaling its presence in Asia and North America.
THG continues to invest further in technology and
logistics infrastructure to better service international
customers, while continuing to evolve its product
range in line with local tastes, replicating the success
seen in Asia in other growing markets.
Myprotein continues to evolve from a sports nutrition
brand, into a holistic lifestyle and wellbeing brand,
pushing into adjacent categories which have similar
underlying needs, and fit with the Group’s business
model. The dedicated family of brands (Myvitamins,
Myvegan, Myprotein Pro and MP Clothing), address
a wide range of wellbeing needs: sports nutrition,
healthy snacks, convenience and sports drinks, adult
vitamins, minerals and supplements (“VMS”), sports
nutrition bars, Claremont Ingredients, a flavour
developer, and David Berryman, a fruit blender and
drinks manufacturer. In addition to manufacturing for
THG Nutrition’s brands, these facilities also develop
and manufacture products for a range of third parties.
Through these facilities, Myprotein operates a vertically
integrated model, utilising consumer data and feedback
from its online customers to inform new product
development decisions, enabling Myprotein to target
local needs and bring relevant products to markets more
rapidly. Alongside this, the Group’s vertically-integrated
D2C platform has economies of scale advantages and
greater control over margins than competitors who
outsource production, use third-party technology
platforms and do not control their brand’s route
to market.
apparel and, through Exante, weight management
products and support. Each family brand is supported
by individual brand building, product development,
digital content, influencers, trading and marketing
strategies, enabling broad-based growth across all
categories of the global nutrition market.
During 2021, Myprotein launched Command, a new
family brand, targeting the fast-growing nootropics
market. This was followed by the launch of BeNu,
offering “complete nutrition”, with formulations that
support the immune system, digestion and overall
wellbeing. As with other family brand launches,
Command and BeNu leverage Myprotein’s brand
equity and consumer trust, while being supported
by an individual brand, promotion and product
innovation strategy. This multi-category approach
enables the Group to capture a much greater share
of wallet over time – with Myprotein now addressing
c.65% of households through its products, vs. c.20%
through sports nutrition-only products. Myprotein
products are manufactured to the highest production
standards, with its lead facility being a BRC Grade AA
production facility in Warrington, England. Over 80%
of non-clothing products by revenue are manufactured
in-house, through a network of seven manufacturing
facilities in the UK, US and Europe. The breadth of in-
house manufacturing has been expanded in recent
years through the acquisition of Brighter Foods,
a specialist developer of healthy snacking and
55
56
Annual Report 2021 New product
development
Strategic investment:
Brighter Foods
New product innovation decisions
are informed by millions of daily
demand insights from THG Nutrition’s
active customer base, providing
instantaneous direct feedback from
consumers to feed directly into new
product development decisions.
In addition, through manufacturing products in-house
we have been able to shorten our typical NPD timeline
from c.12–15 months to c.6-9 months. Through our
vertically-integrated business model, we are therefore
able to bring highly-targeted products to consumers
at regular intervals.
Innovation in our “Ready To Drink” (“RTD”) products
in 2021 included a range of vitamin-enhanced RTDs,
BCAA energy RTDs and sparkling vegan protein RTDs,
all manufactured in-house at David Berryman. These new
products contributed to triple-digit growth in the THG
Nutrition RTD category in 2021. Through Claremont,
our in-house flavours business, we developed and
improved over 20+ flavours across the existing product
range in 2021. This in-house capability will enable us
to continually develop and improve the flavours of our
products, providing our products with unique flavours
tailored to our customers’ taste palates.
New product development initiatives have been
accelerated since the acquisition of Brighter Foods,
with over ten innovative new bars currently in
development following the release of 2021’s
“Impact Bar”.
Functions managed in-house by
Internal and
external market
research
Concept
ideation
Formulation,
feasibility and
commercial
review
Interal and
external customer
panelling
Production
trial
Influencer
and social
trends
Product
launch
In April 2021, THG announced the acquisition of Brighter Foods,
a specialist developer and manufacturer of best-in-class nutrition
bars. The acquisition reflects a continuation of THG’s strategy of
vertical integration of its THG Nutrition division, resulting in over
80% of non-clothing products by revenue now manufactured in-
house. This strategy has transformed the speed to market and level
of product innovation across all THG Nutrition brands, while also
providing for improved long-term margins.
Founded in 2014, Brighter Foods is a BRC AA-grade
nutrition bar developer and manufacturer based in
Tywyn, Wales. It develops and manufactures a complete
range of bars and snacks for its Food and Beverage/
Nutrition customers, and is one of the UK’s largest
developers and manufacturers of pressed and cold
formed bars, the largest bar format in the UK market.
Customer orders are fulfilled either by using their
extensive existing product library, or creating a new
bespoke solution developed by the New Product
Development team. The company’s customer base
includes a number of leading food and beverage groups.
The business also has its own broad range of packaging
capabilities including cold and hot seal film, shelf-ready
packaging, food service boxes, with continued focus
on developing sustainable packaging options to meet
customer demands.
The healthy snacks market is estimated to have a total
global market size of £120bn. Expansion in this vertical
represents a highly attractive opportunity for THG
Nutrition due to Myprotein’s leading brand equity in
the sports nutrition market. New product development
initiatives have been accelerated since the acquisition
of Brighter Foods, with over ten innovative new bars
currently in development.
The Impact Bar, Myprotein’s innovative new flagship
nutrition bar, was developed and manufactured in-
house at Brighter Foods. The Impact Bar is a triple-
layered chocolate bar, with high-protein, high-fibre
and low-sugar content, and launched in seven flavours
in October 2021. The bar represents a continuation of
THG Nutrition’s strategy of developing bars and snacks
that combine the taste of traditional confectionary
products and attractive nutritional content, thereby
enabling consumers to indulge in snacking without
compromising their nutritional goals.
57
58
Annual Report 2021 Looking forward
THG Nutrition’s future growth is
underpinned by favourable structural
trends, with the overall global nutrition
market forecast to continue to grow,
with an increasing proportion from
online share.
THG Nutrition has historically delivered rapid growth
through geographic expansion, product innovation
and category extension, all powered by the Group’s
vertically integrated operating model. This D2C model
enables the Myprotein brand family to evolve its product
portfolio to capture highgrowth pockets and fill unmet
needs across the global nutrition market.
This is evidenced by successful entry into the vegan and
plant-based categories, ready-to-drink products and
premium segments – all of which have driven market
share gains and higher AOVs.
This expansion across product categories and regions
enables THG Nutrition brands to address a global
addressable market of c.£350bn across sports nutrition,
vitamins & supplements, weight management, healthy
snacks and sports apparel. Investments into in-house
production and development capabilities during the
last 18 months enables us to further accelerate our
expansion into these adjacent categories. Through
this innovation, the family of brands is continuously
developed to increase household penetration and
capture a greater share of health and wellness spend.
Emerging categories
£330bn
Adult
VMS
£67bn
Healthy
Snacks
£120bn
Weight
Management
£14bn
Sports
Apparel
£115bn
Sports
Drinks
£15bn
Nucleus
£17bn
Sports Nutrition
£17bn
Note: Company estimates based on analysis of third party information.
Connecting with
a global community
Myprotein has built a community around a brand that consumers
want to be a part of. Its global social media presence, the “Myprotein
App” and ‘The Supplement’ digital magazine, provide content to
inspire and educate consumers on proteins, supplements and
overall health and wellness, while increasing consumer engagement
Over 1m copies of The Supplement have been circulated since
January 2021. Over 3.3m consumers have downloaded THG
Nutrition’s apps since launch, contributing to 13% of Myprotein’s
online revenue as of December 2021.
The Supplement has also been used to raise awareness
around mental health, with a dedicated self-care
edition released in October 2021 to support “mental
health month”. This was supported with a large-scale,
international campaign throughout mental health
month, with additional content weaved into day-to-day
communications. Through these channels, tools and
resources are offered to support and educate audiences
on this incredibly important issue.
In addition, THG Nutrition is committed to providing
consumers with advice and education to make informed
nutritional and fitness decisions – all provided for free
to our global community. One major channel for
this education content is our YouTube ‘help content’,
where our qualified team of nutritionists and personal
trainers provide easy to follow and engaging educational
content. These videos received over 5.5m views in 2021,
an increase of +43% on the prior year.
In addition to our own content, we are supported by
an influencer network of over 10,000 nutrition influencers
that provide regular relevant content in many languages.
In addition to product promotion, influencers are an
important channel in supporting the mental health
and educational initiatives delivered through our
own channels. The influencer network was supported
by 15 localised events during 2021 as global lockdown
restrictions eased.
59
60
Annual Report 2021 The THG OnDemand division consists of the
Zavvi, IWOOT and other D2C e-commerce
sites, which offer a selection of entertainment
products and subscription services of clothing,
gadgets and vinyl, with a particular focus on
licensing arrangements with global publishing
houses and personalisation.
THG’s expertise in these categories is a consequence of
its heritage in powering entertainment websites for UK
retailers before pivoting the model into a higher margin,
licensing, subscription and personalisation-based
revenue model.
In recent years, THG OnDemand has pivoted away
from a focus on lower-margin entertainment products
(such as video games) and towards higher margin
licensed collectibles, granted by major entertainment
publishers. These licences are complemented with
an in-house product design team that produce bespoke
collections, which are exclusive to THG. This model
has been augmented further to incorporate individual
personalisation of products (“Print on Demand”),
further enhancing the range of exclusive products that
THG can offer and acting as a compelling differentiator.
Whilst THG OnDemand is modest in the overall
scale of the Group, the personalisation operational
and technology know-how first developed in this
division is now a key feature of Ingenuity contract
wins. Ingenuity’s personalisation capabilities enable
clients to create personalised products unique to their
D2C website, providing stand-out differentiation from
other retail channels, enhanced customer satisfaction
and improved margins from the value added to the
final product. THG is uniquely placed to lead in this
area of e-commerce due to its fully end-to-end model
that includes in-house product manufacturing and
fulfilment, enabling products to be personalised
on demand in THG’s manufacturing facilities.
61
62
Annual Report 2021 With the ever-growing impact of social
content creators and influencers on
consumer product choices, THG is
focused on becoming a global leader
in connecting creators with brands.
As a result, we have invested heavily in our Experience
division, enabling us to improve the quality and
immersive nature of the events we host. THG operates
three luxury event spaces (King Street Town House,
Great John Street Hotel and Hale Country Club &
Spa), which are used to host immersive influencer and
brand partnership events, in addition to operating as
standalone venues that service non-THG customers.
In parallel to the development of THG Experience,
THG has developed a highly successful influencer
marketing strategy, with influencers accounting for
a rapidly-increasing share of THG’s sales. THG’s
proprietary influencer platform uses data-driven
methodologies and predictive modelling to deliver
highly-impactful and cost-effective campaigns.
As of 2021, THG has relationships with over 32,000
influencers globally, who have helped drive the rapid
international growth of THG’s brands. This solution
is offered to THG Ingenuity clients as an additional
service offering as part of THG Society, enabling
them to benefit from access to THG’s market-
leading influencer marketing solution. Through THG
Experience, THG is able to partner with influencers
on a deeper level, complementing conventional
influencer campaigns with immersive brand events
at its Experience properties.
63
64
Annual Report 2021 Under THG Eco, the Company is developing
practical solutions that will power the Group
towards its sustainability targets. THG Eco
is both underpinned by, and the driving
force of, THG’s sustainability strategy.
Despite making progress in improving THG’s own
operations, real impact needs collaborative, coordinated
and collective action between governments, organisations
and individuals. That is why THG is leveraging its global
scale to accelerate change for others, taking the complexity
out of managing sustainability, and supporting
organisations to achieve their own goals via THG Eco’s
cost-effective, business-friendly solutions and services.
During 2021, the Company has been putting in place the
building blocks to develop THG Eco into a purposeful and
profitable proposition, helping third-party organisations
to address specific concerns as part of their own
sustainability strategies.
Net Zero
ZeroWaste
•
•
An end-to-end decarbonisation solution,
with services including carbon footprint
measurement, setting of net zero targets,
carbon offsetting and reporting.
(more:trees), acquired by THG in March 2021,
a consumer-facing tree planting platform, also sits
under the NetZero solution, enabling organisations
and individuals to plant trees in projects around
the world.
•
•
•
A waste reduction solution, focusing on plastics.
THG acquired two plastic recycling companies
in 2021, which will form key services within the
ZeroWaste solution.
THG’s recycle:me initiative is part of THG’s
ZeroWaste solution, enabling customers to return
hard-to-recycle plastic beauty packaging.
Performance
An Environmental, Social and Governance
(ESG) data management, performance and
reporting solution, enabling the collection,
input, organisation, management and
reporting of ESG data.
Transparent and accurate reporting and disclosure
of an organisation’s ESG activities are increasingly
being demanded by regulators, investors and
other stakeholders, and THG Eco will enable
organisations to better manage their ESG data
and make well-informed decisions and disclosures.
•
•
65
66
Annual Report 2021
Chief Financial
Officer review
Following an exceptional 2020 for THG, 2021 also saw a strong
performance, delivering record annual revenue of £2.2bn, an increase
of 35% (38% on a constant currency basis). The year achieved healthy
organic sales growth across all divisions with two-year group organic
growth of over 50%, robust delivery through the acquisitions integrated
throughout the year along with new contract wins in Ingenuity Commerce.
Year ended 31 December 2021
Year ended December 2020
Consolidated
Income Statement
Before
Adjusted Items
Adjusted
Items
Total
Before
Adjusted Items
Adjusted
Items
Total
£'000
£'000
£'000
£'000
£'000
£'000
Revenue
Cost of sales
Gross profit
2,179,910
(1,225,506)
954,404
-
-
-
2,179,910
1,613,625
(1,225,506)
(900,472)
954,404
713,153
-
-
-
1,613,625
(900,472)
713,153
Distribution costs
(386,928)
(43,012)
(429,940)
(295,020)
(55,240)
(350,260)
Administrative costs
(575,711)
(86,216)
(661,927)
(372,627)
(472,098)
(844,725)
Operating (loss)/profit
(8,235)
(129,228)
(137,463)
45,506
(527,338)
(481,832)
Financial summary:
Adjusted profit measures
Gross profit
(before depreciation
and amortisation)
Distribution costs
(before depreciation
and amortisation)
Administrative costs
(before depreciation
and amortisation)
EBITDA
Depreciation
Amortisation
974,767
-
974,767
729,590
-
729,590
(369,120)
(43,012)
(412,132)
(284,741)
(55,240)
(339,981)
(444,371)
(86,216)
(530,587)
(294,049)
(472,098)
(766,147)
161,276
(129,228)
32,048
150,800
(527,338)
(376,538)
(70,478)
(99,033)
-
-
(70,478)
(99,033)
(48,055)
(57,239)
-
-
(48,055)
(57,239)
Operating (loss)/profit
(8,235)
(129,228)
(137,463)
45,506
(527,338)
(481,832)
The table above shows financial results for gross profit, distribution costs and administrative costs before the impact of depreciation and amortisation,
which are shown as separate lines below EBITDA. For statutory presentation, cost of sales includes charges of £20.4m (2020: £16.4m), while distribution
and administrative costs include £17.8m (2020: £10.3m) and £131.3m (2020: £78.6m) of charges respectively.
Please note, a number of Alternative Performance
Measures (“APMs”) have been adopted to provide
additional information on the trading performance of
the Group. These measures are intended to supplement,
rather than replace, the measures provided under
IFRS and we believe provide readers with important
additional information on the business. We have
included a glossary on pages 279-281, which provides
a comprehensive list of the APMs used, including an
explanation of how they are calculated, why we use them
and a reconciliation to the nearest statutory measure.
67
The financial year in review
Revenue
Group revenues increased 35% to £2,180m (2020:
£1,614m) and 38% on a constant currency basis,
culminating in two-year total sales growth of 95%
(constant currency). All divisions delivered strong growth
as the wider consumer shift to digital channels continued
apace. THG Beauty performed particularly well with
revenues of £1,118m, representing 51% (2020: 47%) of
total revenue after delivering 49% year-on-year growth. In
Beauty, strong organic sales growth was complemented
by the acquisitions of Dermstore, Bentley and Cult
Beauty. THG Nutrition sales grew 17% to £660m whilst
THG Ingenuity revenues grew 42% year on year to £194m
with the Ingenuity Commerce division growing 135%.
International sales accounted for 58% (2020: 61%) of
total Group revenue, after very strong UK growth of
46% year on year driven by both organic growth and
the contribution of acquisitions. The most significant
acquisitions in the year were Dermstore in February,
Bentley in June and Cult Beauty in August, which
generated a combined £253m of revenue post acquisition.
These acquisitions will each further enhance the THG
Beauty offering and provide additional scale to our US
Beauty operations, with North America now contributing
19% of group revenue. The D2C websites of these
entities were successfully re-platformed to Ingenuity
ahead of schedule.
THG Beauty and THG Nutrition achieved double-digit
organic growth in 2021 despite annualising very strong
sales growth in 2020. This is reflected in organic growth
of over 50% (before acquisitions) on a two-year basis,
which is higher than the medium-term guidance of
20–25% per annum provided at IPO.
Approximately 60% of THG’s D2C revenues are not
in pounds sterling which drives currency conversion
fluctuations in both revenue and EBITDA. As the pound
has strengthened in 2021, we have seen an impact in
our reported growth of c.290 basis points in the full year.
Ingenuity Commerce revenue of £45.4m (2020: £19.3m)
includes recurring revenue of 62% (2020: 48%). Recurring
revenue includes SaaS licence fees, monthly brand-
building fees, infrastructure service fees, revenue share
and a number of additional services such as translation
and creative services.
Non-recurring revenue of £17.2m (2020: £10.0m) includes
one-time technology fees covering the costs of the
design and development of the website and integration
fees for bringing partners onto the Ingenuity platform
across a range of services enabling Ingenuity Commerce
customers to benefit from a sophisticated suite of
technology options. Whilst these are non-recurring
on a site-by-site basis, we consider that such fees will
be received in future periods as clients expand and
as our technology offering continues to evolve.
Revenue
per division
OnDemand
6%
Other
4%
Ingenuity
9%
OnDemand
6%
Other
4%
Ingenuity
8%
2021
Beauty
51%
2020
Beauty
47%
Revenue
per territory
Revenue by destination
of customer was
delivered as follows:
Nutrition
30%
RoW
18%
USA
19%
2021
Europe
21%
Nutrition
35%
RoW
24%
UK
42%
USA
13%
2020
UK
39%
Europe
25%
68
Annual Report 2021
Gross profit
Gross profit increased to £954m from £713m with
a margin of 43.8% (2020: 44.2%) on a statutory basis.
Gross profit (before depreciation and amortisation)
was £975m equating to a gross profit margin of 44.7%,
which was 50bps lower year on year. This margin
position was delivered despite the ongoing global
supply chain challenges, commodity inflation and
foreign exchange headwinds that particularly impacted
the retail sector in the second half of the year.
The Group was able to partially mitigate some
of these headwinds by utilising the strength
of the THG Ingenuity platform and its robust fulfilment
and delivery infrastructure, which limited the impact
of supply chain inflation to the Group whilst the triple-
digit growth of high-margin Ingenuity Commerce
also provided a mix benefit to gross margin.
Operating expenses
Distribution costs totalled £430m (2020: £350m), which
is 19.7% of revenue, a decrease of 200bps compared
to 2020. This reduction is driven by both lower levels
of adjusted items and cost efficiencies. Adjusted items
fell year on year reflecting lower transportation costs
in relation to Covid-19. Cost efficiencies were driven
by the continued investment in THG’s global fulfilment
network, which included the investment in THG’s
first automated AutoStore facility in Manchester.
Distribution costs (net of adjusting items, depreciation
and amortisation) as a percentage of revenue, fell
by 70bps on the comparative period totalling 16.9%
of revenue, again reflecting the Group’s ongoing
investment across several key efficiency initiatives.
Administrative costs totalled £662m (2020: £845m)
which is 30.4% of revenue, a decrease of 2200bps
on 2020. The decrease is primarily due to the one-
off share-based payment charge of £332m in 2020
following IPO, which did not recur in 2021.
Administrative costs (net of adjusting items, depreciation
and amortisation) as a percentage of revenue,
increased by 216bps year on year driven by a continued
investment in people to support acquisition integration
and to expand the Ingenuity Commerce offering,
alongside additional regulatory and compliance costs,
resulting from being a publicly-listed company.
Adjusted EBITDA
Adjusted EBITDA rose to £161m from £151m, an
increase of 7.0% year-on-year. This represents a
margin of 7.4% (2020: 9.3%) reflecting substantial cost
headwinds in the second half of the year. Consistent
with the wider market, the factors impacting H2 were
commodity inflation (notably in whey protein), foreign
exchange movements, increased costs of warehouse
labour and freight and duty. The impact of these
market headwinds trebled in H2 relative to H1 and we
believe much of this pressure is short term and will
dissipate over time, either through mitigation actions
under management control (price management and
cost control) or will normalise in the wider economy.
Adjusted EBITDA is an alternative performance measure, the table below reconciles back to the nearest appropriate
GAAP measure, operating loss:
£’m
Operating loss
Adjustments for:
Adjusted item – share-based payments
Adjusted item – impairment of assets held
for sale and sale and leaseback costs
Adjusted items – other
Depreciation
Amortisation
Adjusted EBITDA
69
Notes
2021
2020
(137,463)
(481,832)
4
4
4
12 / 22
11
-
-
129,228
70,478
99,033
331,624
105,138
90,576
48,055
57,239
161,276
150,800
Depreciation and amortisation
Adjusted items
Total depreciation and amortisation costs were
£70m and £99m respectively (2020: £48m and £57m)
an increase of 61% on the prior year, as THG invested
£48m in its proprietary technology platform during the
period. Depreciation charges increased year-on-year
reflecting the increase in right-of-use assets acquired from
business combinations in the period, while amortisation
charges increased year on year primarily driven by the
additional intangible assets that arose from the 13
acquisitions completed since 29 September 2020.
In order to understand the underlying performance
of the Group, certain costs included within distribution,
administrative and finance costs have been classified
as adjusting items. These items principally relate to
acquisition-related restructuring and integration costs,
transportation, delivery and fulfilment cost increases
in relation to Covid-19:
Within distribution costs
Transportation, delivery and fulfilment costs in relation to Covid-19
Commissioning – new facilities
Decommissioning – legacy facilities
Within administrative costs
Share-based payments
Restructuring costs
Impairment of assets within Experience, Luxury and OnDemand divisions
Impairment of certain intangible and tangible assets associated
with Software-as-a-service arrangements
Impairment on assets held for sale, and sale and leaseback charges
Donations and other Covid-19 costs
Acquisitions – restructuring and integration
Acquisitions – legal and professional costs
Within finance costs
Softbank option – non-cash
Total adjusted items before tax
Tax impact
Total adjusted items
For full details on each category of adjusted item see note 4 to the financial statements.
2021
£’000
26,628
16,384
-
43,012
-
10,233
53,008
2,981
-
1,090
5,328
13,576
86,216
601
129,829
11,901
141,730
2020
£’000
39,175
15,907
158
55,240
331,624
14,308
-
-
105,138
11,108
5,736
4,184
472,098
-
527,338
3,784
531,122
70
Annual Report 2021
The business combinations in the year give rise to
a deferred tax liability in respect of intangible assets
recognised on consolidation of £141m. At the balance
sheet date the total deferred tax liability in respect
of intangible assets recognised on consolidation of
£152m. As a result, all potential deferred tax assets
arising in the year or previously unrecognised are fully
recognised at the balance sheet date. This deferred tax
asset recognition has a material impact on the income
statement tax credit, and is the primary reason for the
effective tax rate exceeding the statutory rate. The
income statement tax credit is a non-cash item.
Earnings per share
The Group invested £768m (2020: £102m) of cash in
acquisitions to further its strategic objectives through key
vertical integration and expansionary acquisitions. The
primary share issuance in May 2021, which generated
£760m cash net of fees, replenished the available cash
resources of the Group. A further cash investment of
£112m was made in Property Plant and Equipment and
£78m in intangible assets (primarily the Ingenuity platform)
as part of investing and growing the infrastructure of the
Group. This resulted in a net decrease in cash during the
year of £237m (2020: increase £461m) with the Group
holding £537m of cash and cash equivalents at year end.
In addition the Group has an undrawn revolving credit
facility of £170m and all debt facilities are long-dated.
Loss per share was (£0.13) (2020: loss per share of £(0.66).
Balance sheet
Operating loss
The Group incurred an operating loss in the year of
£137m (2020: £482m) as a result of underlying cost price
inflation as well as adjusted items, principally: the excess
costs for transportation, delivery and fulfilment in relation
to Covid-19 (£27m non-recurring); one-off commissioning
costs of new facilities (£16m); and other restructuring and
acquisition related costs (£29m). There has also been
a non-cash impairment recognised in the year for certain
non-core divisions totalling £53m (see note 11 for more
details) and following the IFRIC agenda decision in 2021,
we have determined that £3m of SaaS-related costs no
longer meet the criteria for recognition as an asset under
IAS 38. There were no impairments identified within THG
Beauty, THG Nutrition and THG Ingenuity.
Additionally, administration costs (before adjusting
items, depreciation and amortisation) increased from
18.2% of revenue in 2020 to 20.4% of revenue in
2021. This increase was largely driven by additional
investment in headcount ahead of future revenue
growth, with an element of operating leverage
anticipated in 2022.
The lower loss in 2021 is primarily due to the one-
off share-based payment charge of £332m in 2020
following the IPO, which did not recur in 2021.
Cash flow
2021
2020
£’000
£’000
Operating loss before adjusting items totals £8m
(2020: Profit of £46m). This decrease is due to the impact
of the increase in costs as set out above. This is consistent
across the industries we operate in and this is considered
a temporary impact.
Loans and other borrowings
(489,865)
(526,159)
Lease liabilities
(349,173)
(236,185)
Cash and cash equivalents
536,827
773,581
Finance costs
Adjusted finance costs decreased to £49m (2020:
£53m) as a result of the revolving credit facility
(“RCF”) remaining undrawn for all of 2021 (partially
drawn in 2020) combined with the full-year impact of
a decreased total borrowings balance following the
divestment of Propco in H2 2020 which contributed
to a reduction of £12m year-on-year in bank charges
and interest. This was partially offset by an increase
of £8m in respect of interest on lease liabilities.
Loss before tax and tax rate
Reported loss before tax was £186m (2020: £535m).
The effective tax rate is 25.88% (2020: 0.4%), based
on a total tax credit of £48m (2020: £2m). The effective
tax rate differs from the average statutory rate of 19%.
This is primarily due to a movement in deferred tax not
recognised (13.3%), the impact of the UK corporation
tax rate change from 19% to 25% on deferred tax
(7.14%), and expenses not deductible (-11.33%).
The non-deductible expenses principally comprise
exceptional costs associated with acquisitions.
Sub-total
Adjustments
(302,211)
11,237
Retranslate debt balance at
swap rate where hedged by
foreign exchange derivatives
(2,548)
35,403
Net cash
(304,759)
46,640
Net cash before leases liabilities
44,414
282,825
THG closed 2021 with net cash of £44m with strong
liquidity available through cash on hand of £537m plus
the additional £170m undrawn revolving credit facility.
The Group generated operating cash flows of £23m
(2020: £76m), closing the year with cash generated from
operations before adjusted items of £96m (2020: £177m).
Within this, working capital movements generated
a net cash outflow of £65m (2020: inflow of £26m).
Uncertainty in global supply chains has led to the
Group holding more stock during the year to ensure
availability of key products, combined with working
capital investment to support global warehouse
expansion and acquisition integrations. We expect to
see a return in reduction in stock cover levels over 2022.
Property plant and equipment and intangible assets
Property plant and equipment increased to £336m
(2020: £240m) with intangible assets including goodwill
increasing to £1,507m (2020: £674m). This was driven
primarily by business combinations generating goodwill,
intellectual property and brands on acquisition of a
combined £888m. Additional investment was also made
in the THG Ingenuity platform totalling £48m plus fitout
of the new state-of-the-art ICON campus with property,
plant and equipment additions totalling £126m. These
were offset by the depreciation and amortisation charges
incurred.
Cash and cash equivalents and net cash before lease liabilities
The Group’s balance sheet remains robust closing the year
with cash balances of £537m (2020: £774m), positioning
the Group well to deliver long-term value. All debt
facilities are long-dated, with the €600m Term Loan B
maturing in 2026.
Year-end net cash before lease liabilities and adjusting
for the impact of hedging was £44m (31 December 2020:
£283m), a reduction of £239m year on year driven by the
investment in acquisitions, property plant and equipment
and intangible assets in the year totalling £958m which has
been offset by the primary equity raised in the year and
cash generated from trading.
The Term Loan B secured in December 2019, together
with the equity proceeds from the IPO and primary equity
raise in May 2021 has provided THG with substantial
available cash reserves, and management consider THG
is in a strong position to weather any further market
uncertainty. THG’s strong cash flow model will provide
further liquidity to re-invest in the business’s infrastructure,
most notably the proprietary Ingenuity platform.
John Gallemore
Executive Director, Ingenuity CEO
and Group Chief Financial Officer.
20 April 2022
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Annual Report 2021
THG Stakeholders
THG’s Key
stakeholders
Why they are
important to THG
How THG
engages
The Board understands the importance of active engagement
with its stakeholders across the entire organisation including
its employees, external brands and its supply partners in order
to create and sustain long-term value.
Our
shareholders
A key objective of the Board is to create value
for shareholders and our purpose, vision, values and
strategy strive to deliver long-term, sustainable growth.
THG is a global digital innovator focused on transforming
the retail experience for consumers and brand owners and
prides itself on building strong business relationships to
enable this.
long-term growth enabling the business to generate
positive and impactful change for shareholders,
customers, our people and across the local communities
where the Group’s business is conducted.
THG’s values of leadership, innovation, decisiveness and
ambition drive the engagement strategy across these
stakeholder groups. Details of these stakeholder groups
are provided below alongside why they matter to THG
and how THG has engaged with them. Through THG’s
purpose and strategy (described earlier in this section),
the Board is focused on delivering sustainable,
The Section 172 compliance statement on page 77
provides further explanation on how the directors
engage with THG’s key stakeholders, the considerations
of the Board and the impact it has had on the Board’s
approach to decision-making with a particular focus
on strategic decisions.
THG’s Key
stakeholders
Why they are
important to THG
How THG engages
D2C customers
Reinventing how brands innovate and connect
to consumers is core to THG’s purpose.
THG enables brands and retailers to have direct
relationships with consumers by providing
a high-quality user experience and establishing
a relationship of trust, and in so doing THG
is “democratising the retail sector”.
THG engages directly with customers via various social media
platforms and focuses on creating a happier population
with access to healthier lifestyle choices. This engagement
has enabled the Group to reach a much wider customer
base resulting in 10.8m new customers, which coupled with
consistently high repeat rates, creates a significant health
and wellbeing impact to society.
THG Ingenuity
customers
The THG Ingenuity platform operates a B2B model,
which relies on active engagement with customers
and participants across the supply chain. THG can
identify and anticipate evolving customer needs
and deliver them through THG Ingenuity, ultimately
reinventing retail for the better.
THG Ingenuity takes a partnership approach when
engaging with customers, engaging formulating
annual plans, reviewed quarterly, monthly, weekly and
even daily at relevant times. THG also run’s quarterly
customer satisfaction pulse surveys to ensure that the
Board is listening to customers to help prioritise investments.
THG is a people-led business, with a clear set
of values that help drive behaviours. Creative
innovation and entrepreneurial leadership are at
the heart of the Group’s people engagement, as is
talent development: building the skills of tomorrow.
The aspirations of the business encourage people
to be decisive, ambitious and to push boundaries,
focusing on their development thereby driving
the scale in success of THG’s brands, divisions and
partnerships.
The Board engages with its people regularly through
employee engagement surveys and this is evidenced
through the large investments THG has made in the
year. More details of this investment can be found
in the Our People section of this report on pages 103-104.
Most recently, our HR teams have worked around the clock
to provide physical and mental health support to our Ukrainian
colleagues around the world and our security teams have
helped to safely relocate some of the colleagues and their
families who made the difficult decision to leave their homes in
Ukraine.
Our
people
73
THG maintains an “open door” culture with shareholders.
This engagement is critical for the Board as it aids and
supports the development of strategy and ensures that
the plans set out by the Board are aligned to the interests
of all its shareholders. For example, engagement with
shareholders has highlighted to the Board that more
context around the Company’s governance
procedures is beneficial to its investors.
Since Admission, THG’s corporate governance
arrangements have been subject to ongoing review
by the Board, further details of which can be found
in the Governance Report, including the governance
enhancements actioned to date on page 129.
The Group’s Supplier Manual governs our relationships
with suppliers and ensures that THG maintains high
standards of business conduct. THG’s purpose guides the
ambitions of the business promoting environmental and
social responsibility across the supply chain, positioning
the growth of the business in a sustainable way that
enhances long-term value creation for all stakeholders.
Further details on supply chain engagement can be found
in the sustainability section of this report on page 87.
THG engages with each of its suppliers to establish
suitable payment terms with each individual supplier,
recognising that different businesses will have
different cash flow pressures.
The Board engages with the local community by providing
opportunities for developing talent in the North West and
via its charitable contributions. More details of THG in the
community can be found on page 101 of this Report.
Our
suppliers
THG partners with suppliers to ensure it can continue
to address consumer’s evolving demands. The Board
is committed to fostering and developing supplier
relationships in a way that empowers the brands we
work with to drive innovative solutions to consumer
demands while balancing the need to tackle societal
and environmental issues.
Our local
communities
THG plays a pivotal role in the local communities in
which it conducts its business, most notably in the
North West of England where THG has a sense of wider
social responsibility. The Group’s heritage is rooted in
the North West and is one of the largest businesses
in the region. Developing talent, building skills and
enabling greater social mobility, not only in the North
West, but across the UK and in the global communities
in which the Group operate is core to our purpose. Our
organisational expertise and the continual evolution of
our technology allows us to grow talent and skills locally
and globally.
In addition, the Board monitors principal and emerging risks. Where such risks impact key stakeholders, the Board
will engage with those affected accordingly.
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Annual Report 2021
Our People
The wellbeing of and engagement with
our people is a core part of delivering
THG’s purpose, strategy and values.
The Board recognises that a highly skilled, developed
and engaged workforce is essential for delivering on
THG’s purpose of reinventing how brands connect
to consumers and is a priority for the Board and the
Executive Leadership Team. THG’s values of innovation
and ambition drive the Board’s focus in investing in
a workforce that is fit for the future, attracting and
retaining innovative and inventive talent both
at home in the UK and across the globe.
In 2021, THG was recognised in the Best Companies Top 25
Best Big Companies to Work for awards, as well as winning
a special mention for Best Improver. This is representative
of the large investments we have made into our people over
the last 12 months, which included an upgraded benefits
package comprising:
• A significant investment in our pension scheme,
launching an uncapped scheme that removed the
restriction on earning thresholds.
• An upgrade to our Sickness Absence and Family
Leave policies and enhancing the Annual Leave
policy to give employees the option to purchase up
to three additional days of annual leave per year.
• A new technology salary sacrifice scheme
enabling employees to purchase electrical items at
discounted prices. The scheme was implemented
after feedback from staff that they were investing in
new technology for personal use.
• A cycle to work salary sacrifice scheme, giving
employees the option to purchase a bicycle and
accessories of up to £3,000 per year at a tax-
deductible rate.
Agile working
The global pandemic changed working habits for many
people, and the effects of this continued into 2021.
In recognition of the demand for improved flexibility
in working habits, we introduced an agile working policy
across the Group that enables all office-based teams
to request to work from home for up to two days per
week. Additionally, the introduction of core hours gave
employees greater flexibility over their working day,
allowing them to start and finish at a time to suit their
own commitments and preferences.
The introduction of the agile working policy has had
the added benefit of broadening the potential talent
pool beyond the immediate geographical areas
surrounding our sites.
Wellbeing
The Group has an in-house Wellbeing team including
a round-the-clock medical service that enables all
UK teams to book virtual or in-person appointments
with a resident GP. We understand that wellbeing
goes beyond physical health and we have continued
to build on a holistic wellbeing programme with the
addition of services to support mental health. In 2021
we implemented SilverCloud, the award-winning online
mental health platform that gives employees direct
access to training and resources. Its online modules
help people manage issues from stress to financial
worries, with proven clinical methods such as cognitive
behavioural therapy to provide the therapeutic skills to
treat anxiety, depression, panic disorder, health anxiety
and perinatal wellbeing.
THG Technology Campus:
returning to the office
Throughout the global pandemic, we were guided
by Government advice regarding our office-based
colleagues and subsequently introduced working from
home during periods of national and regional lockdown.
When Government restrictions eased and businesses
were encouraged to invite people back to offices,
we were conscious that our colleagues might find the
transition difficult. As such, we introduced a staggered
approach, where we invited people to return to work
on a voluntary basis for as little or often as they wished.
To ensure COVID-secure measures were followed at all
times, we introduced a booking system so that we could
monitor the volume of people in each area.
When restrictions and advice to work from home
were fully lifted in summer 2021, we introduced an
Agile Working policy, enabling employees to work
from home for up to two days per week. This enabled
them to maintain a work-life balance and to determine
the best routine to suit them. We hosted “welcome
back” events across all UK office locations, including
complimentary food and entertainment to encourage
teams to network and meet colleagues who joined the
Group during lockdown.
As a business, we embrace the benefits that collaborative
working brings and our new Tech Campus in Manchester
is at the heart of this culture. When the new site opened
in summer 2021, we hosted a series of welcome events,
such as complimentary food, talks from senior leaders,
entertainment and guided tours of the new facilities to
allow teams to familiarise themselves with the new
surroundings and to embrace the benefits of being
together with colleagues from across the business.
Cyber Weekend
Cyber Weekend is one of the busiest times in the
e-commerce calendar and it is an opportunity to thank,
reward and motivate all global teams by hosting a
series of internal events across all locations from 25 to
29 November. Ahead of Black Friday, the focus was on
wellbeing, with events to help employees unwind. Live
yoga sessions, free desk-drops of nutritious food and drink,
games and virtual mindfulness sessions were held from our
Manchester campus, launching a hub on our staff intranet
with practical resources and interactive event guides so
teams could plan their Cyber Weekend, their way.
Early careers
In 2021, the Company was named in the Sunday
Times Top 100 Best Graduate Employer Awards. This
prestigious accreditation was in recognition of our
industry-leading graduate programme, which welcomed
almost 400 graduates in 2021. The 12-month course
creates a community of graduates from across the entire
Group, providing opportunities to develop practical
experience and hone softer skills. The programme is
part of an Early Careers offering, which also includes
Apprenticeships and our pioneering Accelerator
programme. Participants on the Accelerator scheme
gain entry into the tech industry on a salaried six-month
programme that combines practical experience with
training and is open to candidates from all backgrounds
who are looking to start a career in tech.
75
76
Annual Report 2021
Statement by the Directors in performance
of their statutory duties in accordance with
Section 172 (1) Companies Act 2006
(the “Regulations”)
The directors of THG set out below their Section 172
compliance statement as required under the Regulations,
which require the Board to set out how they have had
regard to the matters as set out in Section 172(1)(a) to (f)
when performing their duties. THG has now completed its
first year as a public listed company, and has continued to
build on the strategy, governance and sustainability of the
Group in 2021 with plans to continue this in 2022.
THG’s Corporate Governance statement sets out on
pages 131-132 details of the Board’s commitment to
uphold strong standards of governance. At the centre of
the Board’s approach is to ensure that the requirements
and considerations of Section 172 form the basis of its
decision making and stakeholder engagement strategy
including across each of its Committees and THG’s wider
leadership teams and divisions.
THG’s purpose is to reinvent how
brands digitally connect to consumers.
In summary:
•
•
•
•
THG is a digital innovator revolutionising
how brands connect to consumers.
THG creates a happier population making
healthier lifestyle choices.
THG will leave the world in a better place by using
its unique capacity for innovation and building
sustainability into every decision we make.
THG is an ambitious business with a global
focus, but a champion of the community
from which it has grown.
This purpose sets out what THG does, the value the
Group brings to society and guides how the Board makes
decisions and trade-offs –ultimately driving the strategy. In
doing so, this supports the Group’s governance ecosystem
acting as the framework in guiding the Board’s focus, along
with its engagement and consideration of stakeholder
issues, in its decision-making protocols.
This is underpinned by THG’s four values of leadership,
innovation, decisiveness and ambition, which set out the
core beliefs but also provide a guide for our people’s
behaviours.
A critical part of THG’s stakeholder engagement framework
is established through THG’s policy infrastructure, in
particular THG’s sustainability strategy, supplier payment
policy and Modern Slavery policy guidelines. The Board’s
composition along with its combined skills and experience
enables the Board to be agile in its engagement strategies
across each of its divisions and brands. Further details are
set out in the corporate governance statement on pages
131-132.
The Board’s Committee structure is an example of the
breadth and depth of the Board’s engagement strategy,
notably the establishment of the Sustainability Committee
in 2020 with a clear remit to focus on THG’s strategy on
critical climate-related issues impacting its operating
businesses and supply chain.
This reflects THG’s heightened focus on Environmental,
Social and Governance (ESG) business-related issues and
the impact these will have on its supply chain, customers,
business partners and employees. Further details are set
out under the Sustainability Committee report on pages
175-178.
The Board is fully aware of its legal responsibilities and
statutory obligations as set out under Section 172 and have
received briefings and training from an external third-
party provider, not only on their primary duties under the
Regulations but also key regulatory obligations impacting
THG and its operating businesses. This has allowed the
Board to challenge and self-evaluate the impact and
effectiveness of its decisions, with an appreciation of the
wider environment and context in which it operates, and
the impact the decisions the Board makes will have.
The Board keeps under review its governance and
operating protocols to ensure long-term value creation
is maintained. The application of the UK Corporate
Governance Code has reinforced this position and the
underlying governance controls and processes that embed
the ethos of Section 172 across the Group. Set out below
are examples of principal decisions made by the Board and
details of how the factors set out under Section 172 along
with engagement with THG’s stakeholders have been
considered in the decision-making.
77
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Annual Report 2021
Principal Decision 1:
Acquisitions
During 2021 THG made ten acquisitions for
combined consideration (net of cash acquired)
of £770m. These acquisitions included Dermstore,
Bentley Laboratories and Cult Beauty.
Impacted
Stakeholder
Groups
Our
shareholders
Engagement
Impacts
Due to the confidential nature of M&A
(including in particular where (a) non-
disclosure agreements restrict information
dissemination to those who need to know;
and (b) prospective M&A may constitute
inside information and therefore disclosure
is statutorily restricted) and absence of
requirement for shareholder approval to
M&A, direct engagement with Shareholders
does not take place prior to acquisitions.
However, Shareholders are aware of THG’s
acquisitive nature and general strategies
are communicated to them during
investor meetings and other Shareholder
engagement methods.
The Board is consulted and updated
regularly in relation to M&A decisions and
full Board approval is sought prior to any
acquisition being signed. The Board’s NEDs
have direct dialogue with senior members
of the transactional M&A team.
THG
Ingenuity
customers
Each Ingenuity customer has a relationship
manager who collates feedback and
provides it to the CFO. The CFO and others
from the Ingenuity division report on this
and other Ingenuity customer trends to the
Board. This allows the Board to assess and
adapt the M&A target strategy to meet
customer needs.
M&A has complemented THG’s success to date
and is expected to continue to form part of THG’s
strategy in the future. Strategic M&A has driven
considerable shareholder value to date.
M&A has potential to divert resources (including
both capital and time) from other important areas
of the business. As such, prospective targets
must meet certain criteria in order to ensure
the investment will deliver value (which is not
necessarily a purely financial metric). Robust and
well-tested processes have been developed over
the last ten years, covering all aspects of the M&A
process from origination to execution. THG’s
acquisitions are implemented by a dedicated
M&A function supported by in-house legal and
operational functions (including integration) which
together manage the process including and post-
completion integration. The Board ensures M&A
activity delivers value for Shareholders. Processes
are in place whereby the M&A and legal team will
regularly report on prospective acquisition targets
to update and seek approval from THG’s Board.
The combined transactional team reports to the
Board ahead of signing.
Engagement with customers directly influences
the Board’s decision-making in relation to
M&A, particularly for brand acquisitions. THG’s
Ingenuity customers benefit from infrastructure
acquisitions that enhance the Ingenuity platform.
Where brands and/or retail websites are acquired,
they become clients of the Ingenuity platform.
The Board identifies customer continuity as key
when effecting acquisitions and ensures that
a business integration plan is put in place in
advance to mitigate any interruption resulting
from THG acquiring a target. Historical focus on
continuity has led to THG developing a strategy
that prioritises a seamless customer experience,
for instance, avoiding wherever possible the need
for customers to sign up for new accounts.
D2C
customers
In relation to beauty brand acquisitions,
target brands are typically stocked by THG’s
retail websites. In assessing targets, the
Board considers a broad spectrum of data
including customer reviews and demand.
THG’s D2C customers benefit from both
infrastructure acquisitions, through delivery
of improved retail experiences, and the
diversification of THG’s brand and retail
portfolio through other acquisitions.
79
80
Annual Report 2021 Principal Decision 2:
Sustainability – The Board approved
THG’s 2030 Sustainability Strategy
and strengthened THG Eco
The Board is conscious of THG’s role in addressing key
environmental and social issues, both within the organisation
but also beyond in how the company may impact its customer,
partners, and suppliers. In September 2021 the Board considered
and approved the 2030 Sustainability Strategy, known as
THG x Planet Earth.
The strategy comprises three overarching priorities;
Protecting Climate and Nature, Strengthening our
Supply Chain and Circularity, and Empowering People
and Communities. These are supported by eight goals
and 22 specific targets.
At the same time, THG Eco was established and
strengthened as a business within THG Ingenuity
with the goal of providing sustainability solutions
and consulting services for THG’s own operations,
THG’s suppliers, partners, and customers.
The three solutions are;
1.
2.
3.
NetZero, providing carbon footprinting services,
Net Zero target setting and reductions strategy
consulting, carbon offsetting and carbon neutral
certification.
Performance, an Environmental, Social and
Governance (ESG) Data management solution
enabling organisations to manage and track ESG
data more effectively, set targets and track KPIs
as well as enhanced reporting and disclosure
aligned to global sustainability standards.
This solution is still in the development phase.
ZeroWaste, focused on minimising waste to landfill
through offering innovative solutions to reduce
waste with a specific focus on plastics. During the
course of 2021 two plastic recycling companies
were acquired which now form part of THG Eco.
Further explanation and detail on Group 2030
Sustainability Strategy and THG Eco can be found
in the Sustainability Section on pages 87-104.
Impacted
Stakeholder
Groups
Our people
Engagement
Impacts
Sustainability is an integral part of THG’s
purpose and strategy. In early 2021, a materiality
assessment process was undertaken to identify key
material issues. As part of the process a range of
stakeholders, including employees were engaged
to input on topics that could affect the company’s
operations, both now and in the future.
This assessment was used as a key input in the
development and of the Group’s 2030 Sustainability
Strategy. It details the company’s ambitions and
focusses on three priority areas supported by eight
goals. All goals have specific, time-bound targets.
A key priority of the 2030 Sustainability Strategy
is ‘Empowering People and Communities’,
under which there are three focus areas:
•
•
•
Employee wellbeing and development.
Diversity and inclusion.
Investing in communities.
The launch of the strategy created direction and
established a framework which internal teams have
begun to adopt and work towards. In 2022, cross-
divisional teams will develop roadmaps for each
of the specific targets within the focus areas (more
details on page 102).
The Board has delegated the responsibility for
implementation of the sustainable strategy to the
Executive Leadership Team who will provide updates
to the Board on a regular basis.
THG
Ingenuity
customers
Sustainability is becoming an increasingly important
business issue for all companies, and this is evident
in the increased engagement with customers on this
topic.
Building an integrated and sustainable retail model is
fundamental to THG’s long-term future and increasingly
this requires collective action and collaboration with
partners and Ingenuity customers.
THG’s 2030 strategy specifically includes targets
for customers – these have been shared with key
customers and regular updates are shared and
available through online channels.
During 2021, THG acquired two plastic recycling
companies and a tree-planting platform as part of THG
Eco and began offering commercial services to support
Ingenuity customers deliver their sustainability goals.
These included Eco delivery options, which plant a tree
for each order placed and reduces the carbon emissions
of the order by over 40%, covering the last mile on foot,
bicycle, or electric vehicle.
Our
suppliers
The Board considered and recognised the
increasingly important role collaboration and
partnership will play between THG and its suppliers,
in addressing the significant environmental and
social challenges we collectively face.
To ensure awareness and sharing of THG’s 2030
strategy, the procurement team engaged and
shared the Strategy with suppliers.
In support and development of THG’s responsible
sourcing roadmap a supplier sustainability survey
was sent to all suppliers which resulted in substantial
feedback.
THG’s 2030 Sustainability strategy specifically
and purposefully contains targets relating to its
suppliers which are included to encourage positive
development on sustainability topics. These targets
are focused on climate change, water stewardship,
ethical supply chain, waste, and circularity
To support and enable the procurement team to
better engage suppliers, the Board endorse the
creation and appointment of a Group Sustainability
Supply Chain manager during 2021.
To ensure appropriate oversight, the Sustainability
Committee undertakes regularly reviews of key supply
chain topics.
Our local
communities
The communities in which THG works and
operates are important to THG. In recognition
of this, the 2030 sustainability strategy includes
specific targets to ensure the ongoing and
long-term commitment and engagement
with communities.
A key goal of the 2030 strategy is Investing in
Communities, supported by two specific targets,
to provide 10,000 people in the community with
technology and life skills training and allocate two
days per year for every THG employee to undertake
volunteering activities.
To ensure its community engagement activities are
relevant and effective as possible, the company will
develop a long-term social impact strategy during 2022.
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82
Annual Report 2021
Principal Decision 3:
Covid-19 decisions
Proactively responding to both home and flexible working
arrangements, continuing to implement Covid-19 safeguarding
procedures in our fulfilment centres and making ongoing support
available to employees, suppliers, customers and the local community.
Impacted
Stakeholder
Groups
Our people
D2C
customers
Our
suppliers
Engagement
Impacts
The wellbeing and safety of THG’s
workforce was and remains of paramount
importance. Detailed explanation of the
Board’s approach and engagement is
provided on page 75.
The impacts and considerations given by the
Board in the decisions it made in relation to
Covid-19 are provided on page 108.
Mitigation and delays to customer
fulfilment was an agenda item for all senior
management meetings as the pandemic
continued and the extent of its effect
on infrastructure became apparent. As a
result of pro-active Board decision making,
delays to customer orders continued to be
negligible.
Customer in-bound communications and
enquiries relating to Covid-19 effects
on stock availability or fulfilment were
prioritised by the customer services
team in order to reassure customers and
provide clear, up-to-date guidance on the
developing situation.
As with all businesses, THG’s suppliers
have had to adapt their procedures and
processes to mitigate Covid-19 related
risks. THG engaged with its supply chain
early in the pandemic to discuss potential
challenges and share knowledge to help
seek solutions.
The Board, identifying the importance
of insights and feedback from all suppliers,
required all divisions of the business
to discuss Covid-19 related effects with
all suppliers.
Various Covid-19 decisions were made at the
start of the pandemic that continued to impact
customers throughout the year, for example:
•
Contingency planning to ensure business
continuity.
• Warehouse enhancements to ensure
Covid-19 safety.
•
Continued manufacturing of hand sanitiser.
Procuring freight passage to THG’s global
distribution centres continued to be key to mitigate
any Covid-19 related delays to fulfilment. Through
focus groups set up at the start of the pandemic,
to address these challenges, the Board received
regular reports on KPIs.
Various Covid-19 decisions were made at the
start of the pandemic that continued to impact
suppliers throughout the year, for example:
•
•
Contingency planning to ensure business
continuity.
THG payment terms with suppliers
to manage cash flow.
The Board continued with supplier payments
in line with past practice and considered it to
be of paramount importance to support suppliers
and give liquidity confidence. THG held direct
conversations with key suppliers to ensure
continuity of services.
Our local
communites
83
Covid-19 continued to impact communities
all over the world. In addition to support
provided to overseas charities dealing with
Covid-19, the Board remained committed
to supporting local healthcare organisations
in the North West of England.
Following on from our pledge in 2020, which
included a £1m cash donation, PPE and hand
sanitisers, we continued to support charities helping
people cope with the devastating impacts of Covid-19
in 2021. This included donating funds to charities
in India helping to provide relief aid and vital
oxygen facilities in struggling rural communities.
Principal Decision 4:
Separation of the Group’s business units
Given the fast pace at which THG
is growing, the Board identified that
the current structure of the Group’s
legal entities did not in some cases
align with the business divisions
and brands offered today.
The decision was therefore taken to re-organise
the Group’s legal structure so that underlying reporting
companies align with business divisions and brands,
and support THG’s long term growth strategy. This process
enables each division to accelerate investment in their
individual growth plans. THG is committed to remaining
a long-term majority shareholder in each of the divisions.
The separation will involve the establishment of several
subgroups of companies to cover each division
i.e. Beauty, Nutrition, Ingenuity, and OnDemand.
Impacted
Stakeholder
Groups
Our people
Our
shareholders
Engagement
Impacts
All colleagues received communications
in regard to the proposed reorganisation.
In the UK, the TUPE process was followed
with multiple consultation meetings held
as an opportunity for colleagues to raise
any questions or challenge the legal entity
restructure proposal. Q&A from the sessions
were circulated to impacted colleagues
and consultation was closed with no open
questions remaining.
Similar processes were also followed in
other jurisdictions, in adherence to local
labour laws, with all colleagues being made
aware of the proposed re-organisation and
what it means for them.
The intention to undertake the internal
reorganisation has been communicated
to shareholders with updates on progress
provided as part of regular trading updates.
A Board sub-committee was established
to act in the interests of shareholders.
The committee receive regular updates
on progress and key developments and
report into the full Board.
Divisionally-aligned colleagues and assets will
transfer to the appropriate legal entity as part
of the re-organisation. However, these colleagues
will remain within the Group and there will not
be any changes to terms and conditions as part
of the re-organisation (other than the employing
legal entity) and benefits and other entitlements
continue unchanged.
This reorganisation aims to accelerate investment,
acquisitions and expansion. Governance is in
place for the project team to regularly report on
the progress of the transformation to THG’s Board
and to seek approvals where required. The Board
aims to ensure the transformation activity delivers
value for shareholders and provides visibility over
profitability of each division.
Our
suppliers
Suppliers were notified of the
re-organisation through regular
communication. As this is an
internal reorganisation is there
is limited impact.
As part of the re-organisation, supplier
agreements were assigned to the appropriate
legal entity. No impact on suppliers as a result
with the only change to current arrangement
being a change in contracting entity.
Our
customers
(B2B)
Customers (B2B) were notified of
the re-organisation through regular
communication. As this is an internal
reorganisation there is limited impact.
As part of the re-organisation, B2B customer
agreements were assigned to the appropriate
legal entity. No impact on customers as a result
with the only change to current arrangement
being a change in contracting entity.
84
Annual Report 2021
Non-Financial information
The table below sets out where stakeholders can find
information relating to the non-financial matters as
required under the Non-Financial Reporting Directive:
Reporting
requirements
Some of the
relevant policies
Where to read more in this report
about our impact, including the
principal risks relating to these matters
Page
Environmental
matters
Environmental policy
Sustainability
Sustainability Committee Statement
Risk – Environmental, Social and Governance
Risk – Regulatory Compliance
Employees
HR Handbook including all
people- related policies
Section 172 Statement
Employee Engagement Statement
Diversity in the Corporate
Governance Statement
Risk – Talent
Human rights
Modern slavery Policy
Health and Safety Policy
Whistleblowing Policy
HR Handbook
Culture in Corporate Governance Statement
Risk – Environmental, Social and Governance
Social matters
HR Handbook
Section 172 Statement
Employee Engagement
Diversity
Covid-19
Risk – Environmental, Social and Governance
Anti-Bribery
and Corruption
Anti-bribery Policy
Gifts and Hospitality Policy
Risk – Environmental, Social and Governance
Business model
Our business model
Non-Financial KPIs
Sustainability
Risk Management
Non-financial
KPIs
Principal risks
and uncertainties
85
87
175
115
114
73
150
149
111
138
115
73
150
161
83
115
115
16
14
87
105
Policy
Description
Environmental policy
THG is committed to doing business responsibly and reducing any adverse impacts
of our operations on the environment. Our Environmental policy was implemented
as part of our THG sustainability strategy (THG x Planet Earth) to drive positve change in
our business, supply chains, communities and for the planet.
Health and
Safety policy
THG takes a proactive approach to managing Health and Safety and our policy
outlines the commitment of THG and the expectations of managers, the leadership
team and all colleagues. Our approach is for “Zero Harm, Zero Compromise”.
Modern Slavery policy
THG has a zero-tolerance approach to modern slavery and we are committed
to acting ethically and with integrity in all our business dealings and working
relationships. THG’s Modern Slavery policy reflects its commitment to
acting ethically and with integrity in all its business relationships and to
implementing and enforcing effective systems and controls to ensure slavery
and human trafficking is not taking place anywhere in its supply chains.
Anti-Bribery policy
Gifts and
Hospitality policy
Whistleblowing policy
THG is committed to conducting its business with complete integrity and in a manner
which ensures compliance with all applicable laws and with the highest ethical standards.
As a company, we use our best endeavours to ensure that all those acting on our behalf,
whether they are employees, contractors, third-party intermediaries or agents, are aware
of and share our commitment to conducting business ethically. Our Anti-Bribery policy
summarises the Company's position in relation to ethical standards, including bribery.
THG considers the offering and receipt of corporate hospitality to be a part of
establishing and enhancing good relations with our business partners, including
suppliers, customers and other business partners. However, giving or receiving
hospitality or gifts which are excessive or inappropriate does not help to build good
relations and may create the impression of undue pressure or improper influence.
This could damage our reputation. In some cases, gifts or hospitality may be
considered to be bribes under applicable Anti-Bribery law, with consequent criminal
penalties. It is therefore essential that our employees and Directors comply with this
policy whenever giving or receiving gifts or hospitality to or from the Company's
business partners, or otherwise in the context of the Company's business.
Our aim is to operate properly, responsibly and ethically whilst encouraging
a free and open culture in dealings between employees and all people with
whom we engage. In order to protect our people, assets and information,
we recognise that effective and honest communication is essential if
concerns regarding breaches or failures are to be effectively dealt with
and the company’s success ensured. THG whistleblowing service is a free
and professional service that enables all employees to raise their concerns
confidentially. The service is available to all THG staff, agency workers
and contractors. An update on all whistleblowing cases is provided to the
Audit Committee on a quarterly basis. This updates provides details on
the investigations undertaken and the outcomes of these investigations.
A review of these policies was undertaken as part of the 2021
Internal Audit Plan. This engagement identified some opportunities
to further improve policy awareness and conformance. Subsequently,
some of these policies have been updated and translated. An
integrated training and policy platform was also introduced, to
facilitate the rollout of policies to appropriate audience. This
platform allows subsequent monitoring of completion rates for
the reading and acceptance of these policies at an individual
level, promoting awareness and conformance to our policies.
86
Annual Report 2021 Over the past 24 months,
the global business
environment has seen
unprecedented change.
The ongoing challenges of Covid-19, the growth
of e-commerce, frequency of extreme weather events,
heightened focus on climate change, increased
complexity of global trade and supply chain difficulties,
and increasingly competitive labour markets all continue
to impact the environment in which we operate.
During 2021, significant action was taken to progress
THG’s sustainability agenda. After undertaking
a materiality assessment towards the end of 2020,
this was used as a key component in the development
of the Group’s Sustainability Strategy.
In July 2021, the company appointed a Chief
Sustainability Officer and in October published its
2030 Sustainability Strategy,THG x Planet Earth,
while at the same time strengthening its THG Eco
proposition. THG Eco exists to further accelerate the
Group’s sustainability activities and support both its
suppliers and customers in the achievement of their
sustainability goals. THG is committed to the ongoing
development and expansion of sustainability into its
end-to-end model to create enduring positive change
for its suppliers, customers and Ingenuity partners. The
Group continues to focus on sustainability as a priority
and this was demonstrated through the acquisition of
two recycling companies and a tree-planting platform.
87
88
Annual Report 2021 Group materiality assessment
Given this rapidly changing environment, it is important
to assess and understand the potential challenges and
opportunities as well as the topics that are most important
to THG and its stakeholders.
This allows the issues identified to be incorporated
into business strategy and day-to-day operations,
manage risks, and access opportunities for the future.
•
Global macrotrends, industry trends,
sustainability trends.
• Corporate risk framework.
In early 2021, a materiality and stakeholder engagement
process was undertaken which led to the development
of the Company’s first Sustainability vision and strategy.
To define the material topics that are most relevant to
the business, a range of stakeholders were engaged
to gain an understanding and consensus as to the
most material issues that could affect the company’s
operations, both now and in the future.
•
•
Issues identified through our existing policies
and commitments.
Sustainability impact footprint – estimating
THG’s impacts across key impact areas,
such as greenhouse gas (GHG) emissions,
land use, employment, health.
The goal was to obtain a picture of the environmental
and social sustainability impacts, resulting in a set
of prioritised material issues. To ensure a broad
and inclusive view, the process included a review of:
• Non-governmental organisation (NGO), competitor,
regulatory and trade association concerns.
This enabled a prioritised list of material issues
to be defined.
The process followed a four-step
approach and is based on both
qualitative and quantitative inputs:
Identify
issues
04
Aggregation
and analysis
of results
Internal
stakeholder
inputs
01
03
02
External
stakeholder
inputs
01
Identification of issues
– identifying topics
of importance to the
business, stakeholders,
and the social and
environmental impact
of each topic in the
value chain.
02
Internal stakeholder inputs
– ensuring the diversity
and complexity of the
organisation’s operations
are captured, gathering
inputs from both central
and divisional business
units.
03
External stakeholder
inputs – to understand
concerns and
expectations.
04
Aggregation and analysis
of material issues – analysis
of the internal and external
context in which THG
operates, combined with
all stakeholder inputs,
resulting in the prioritisation
of THG’s most material
sustainability issues.
Materiality matrix
The results from the assessment process
identified the 15 most important issues:
High
Waste
GHG’s
(supply chain)
GHG’s
(own operations)
Health & Safety
Diversity
& inclusion
Human rights
& modern slavery
Training
& development
Water use
Water pollution
Employee
wellbeing
Air emissions
Community
Investment
Low
Low
Significance of THG’s potential impact
Environmental
Social
Privacy & data
security
Product safety
& quality
Living wage
Land use
& biodiversity
High
This materiality assessment process was facilitated by an independent third-party to enable the company to prioritise
its environmental and social material issues and it formed the basis for the Company’s 2030 sustainability strategy,
which was published in 2021. In 2022, THG will update the materiality assessment to include governance issues.
89
90
Annual Report 2021 THG’ Sustainability vision
To act as a force for good in leaving the world a better place than
we found it, by using our scale, our partnerships, our access to
capital and our unique capacity for innovation to promote and
embed sustainability into everything we do.
How Sustainability works at THG
Sustainability at THG is split between the 2030 Group
Sustainability Strategy, THG x Planet Earth, and the
Company’s Sustainability Solutions, THG Eco. THG
x Planet Earth is the Group’s plan for a better sustainable
future together, and THG Eco supports the delivery
of the strategy by powering the Group towards its
sustainability targets.
While both support delivery of THG’s Sustainability
Vision, THG x Planet Earth and THG Eco are managed
by separate teams within the business, both of which
are led by THG’s Chief Sustainability Officer.
THG’s 2030 Group Sustainability Strategy:
THG x Planet Earth
As a vertically-integrated business, THG is acutely
aware of the impact that big businesses have on the
environment and society, and the great responsibility
and influence it holds with its people, communities,
suppliers and customers both in the UK and
internationally.
THG x Planet Earth is the Group’s strategy for a better,
more sustainable future. Guided by the United Nations’
Sustainable Development Goals, THG x Planet Earth
is centered around three key priorities:
THG is still at the early stages of its sustainability
journey, and is continuing to embed the Sustainability
Vision across the business whilst investing in new data
management systems. This will enable the Company
to better report and disclose on the progress towards
the Group Sustainability Strategy and goals.
•
•
•
Protecting Climate and Nature.
Strengthening Our Supply Chain and Circularity.
Empowering People and Communities.
Each priority is built on a foundation of solid business
fundamentals: protecting data and privacy, maintaining
worker health and safety, and ensuring product quality
and safety.
THG has set ambitious goals under the key priorities,
to reinforce the direction in which the Company is
travelling, providing a formal and structured approach,
with specific targets underpinned by science, data and
technology, and driven by talented people across
the world.
When THG published its sustainability strategy
in October 2021, the Company committed to using
its global scale, world-class talent and dedication
to innovation, to act as a force for good. More
importantly, THG made a commitment to use
its access to capital to invest in and influence
environmental and societal changes that will
benefit the planet today and create a sustainable
future for the business and generations to come.
Our Sustainability Vision
To act as a force for good in leaving the world
a better place than we found it
Our 2030 Group
sustainability strategy
Our sustainability
solutions
Strengthening
supply chain
& circularity
Protecting
Climate
& Nature
Empowering
people &
communities
Performance
NetZero
ZeroWaste
THG x Planet Earth is our plan for
a better, sustainable future together.
THG Eco is powering us towards
our sustainability targets.
91
92
Annual Report 2021 Protecting climate
and nature
Recognising the urgency to take action against climate change,
Protecting Climate and Nature is the first of the Group’s three
key priorities outlined in the sustainability strategy.
At THG, growing at pace is in the Company’s nature,
and ambitious targets have been set to accelerate
sustainable changes to THG’s own operations and
throughout its supply chain.
THG has committed to setting Science-Based Targets,
in line with a 1.5°C future, by the end of 2022, aligning with
the UK Government’s target for net zero greenhouse gas
emissions by 2050, and the Paris Climate Agreement to
limit the global temperature increase to 1.5°C.
In the meantime, THG is proud to be a Carbon Neutral
company, having measured and offset its operational
carbon emissions. When THG published its sustainability
strategy, the Company included a commitment to go
one step further and offset all its historical operational
emissions since THG began and all its future operational
emissions hereafter.
During the materiality assessment, land use and
biodiversity were identified as particularly significant
issues impacted by THG’s operations. To address
the Company’s impact on the Earth’s natural resources,
THG has also set targets to eliminate deforestation
from its supply chains, to use water more sustainably
and to utilise renewable energy for 100%
of its operations.
THG sustainability goals
UN sustainable
development goals
Climate
Nature
Water
Be climate positive and offset all our
entire historical operational emissions.
Have a net positive nature impact
across our own brands.
Use water sustainably in high water
impact areas of our value chain.
THG targets
Climate
Climate
Climate
Climate
Nature
Nature
Water
Water
Publish Net Zero roadmap aligned
to science-based targets.
By 2022
Offset all of THG’s historical
operational emissions.
Transition to 100% renewable
electricity for own operations.
50% of suppliers and THG Ingenuity
partners to set carbon reduction
targets.
By 2025
By 2025
By 2025
100% sourced agricultural materials to
be deforestation-free for own brands.
By 2025
Top 20% of own-brand suppliers
(by impact) to introduce restorative
agricultural practices.
By 2030
30% reduction of water use in water
stressed and own operation sites.
By 2030
25% of product and ingredient
suppliers to disclose water usage and
adopt Water Stewardship.
By 2030
93
94
Annual Report 2021 THG’s Greenhouse Gas (GHG) emissions
Our energy use and energy efficiency action
THG has been a carbon neutral company
since 2019 and the reduction of our
energy use and related carbon footprint
continues to be an important area of
focus for the Group.
The Group’s GHG emissions reporting calculation
is undertaken in line with our obligations under The
Companies Act 2006 (Strategic Report and the Directors’
Report) Regulations 2013, and the Streamlined Energy
& Carbon Reporting regulations, March 2019. GHG
emissions are reported in accordance with the GHG
Protocol. The reporting year for GHG emissions in the
Group ran from 1 January 2021 to 31 December 2021.
The Group’s energy data, in relation to the above carbon
footprint includes energy consumption from operations
covered by the Group Financial Statements for which we
have operational control and is shown as follows.
THG’s energy use and
energy efficiency action
Tonnes of CO2 emissions
2021
2020
2019
Energy use (KWh)
2021
2020
2019
Scope 1 emissions
Generated from the gas and oil used in buildings where
the Group operates; emissions generated from Group
owned and operated vehicles for business travel
Scope 2 emissions
Generated from the use of electricity in all
buildings from which the Group operates
2,309
1,945
2,001
Natural Gas
Electricity
12,051,833
9,943,330
9,526,856
28,653,493
19,649,394
16,990,320
11,605
9,583
7,908
Diesel fuel from company vehicles
590,717
486,648
1,010,101
Total
GHG Intensity
13,914
11,528
9,909
2021
2020
2019
GHG emissions per £1m turnover
6.39
7.15
8.69
The above GHG emissions are measured in tonnes of
carbon dioxide equivalent (tCO2e), using the location-
based method. Material carbon emission sources to the
business within the disclosed footprint are from natural
gas and electricity used across our sites. Remaining
emissions, such as those arising from fugitive emissions,
are not considered material.
THG’s total emissions for 2021 increased by 2,386 tCO2e
year on year. Acquisitions during the year accounted for
50% of the increase in emissions with organic business
growth accounting for the remainder.
The Company’s intensity metric (per £1m turnover)
showed a decreased of 11%, primarily as a result of
transitioning a significant proportion the Group’s UK
operations to renewable energy during 2021,
combined with other energy savings initiatives.
Total
41,296,042
30,079,372
27,527,277
Energy use (KWh)
2021
2020
2019
UK
Overseas
Total
23,332,220
16,833,917
18,924,478
17,963,822
13,245,455
8,602,999
41,296,042
30,079,372
27,527,477
95
96
Annual Report 2021 Commitment to TCFD
A summary of the principal responsibilities of Board
members and the Company Secretary is as follows:
Customer-facing
initiatives
During 2021, THG introduced initiatives such
as Eco Deliveries, to help customers reduce
their environmental impact when they shop
with THG brands.
Working with Royal Mail and Paack, customers
selected an Eco Delivery at checkout over 137,000
times between May and December which helped
drive a 24% year-on-year reduction in the CO2
emissions per shipment in the UK.
THG is at the early stages of its sustainability journey,
but the Group is committed to reporting transparently
and in alignment with the Task Force on Climate-related
Financial Disclosures (“TCFD”). In 2022, the Company
will continue to work towards aligning with the 11 TCFD
recommendations. For areas in which we are in the
process of working towards alignment, we will provide
an explanation with actions and timelines to achieve this
in THG’s future Annual Reports. Please see below for
details on the progress made in 2021 and actions to be
taken in 2022 and beyond:
1. Governance
2. Strategy
THG’s sustainability vision and strategy was
published in October 2021, approved by
THG’s Executive Board and the Sustainability
Committee. To ensure the strategy remains
relevant, it will be reviewed by the Chief
Sustainability Officer and the Sustainability
Committee every two years, with any changes
approved by the Board.
THG published an ambition to achieve net zero
as part of its Group sustainability strategy, and
completed a materiality assessment, the results
of which are detailed on page 89.
Next steps:
Next steps:
The next step is to establish a dedicated, cross-
functional TCFD Working Group, overseen by
THG’s Executive Board and the Sustainability
Committee. The Working Group will be tasked
with aligning our reporting with the TCFD
framework, providing regular updates and
submitting proposals for approval by the Board
and Sustainability Committee. Sustainability
(including climate related risks and opportunities)
will be covered under principal risks in 2022,
and the principal risks will be approved and
reviewed by the Risk Committee and the Board.
To update and use the materiality assessment
and undertake a multiple scenario analysis to
identify and assess the Group’s climate-related
physical and transition risks and opportunities
in greater detail.
3. Risk Management
4. Metrics and Targets
A Chief Sustainability Officer has been appointed
to oversee and lead the Group’s approach to
managing sustainability risks and opportunities,
including climate change.
The Group’s sustainability targets are detailed
on page 94, which include a net zero ambition
(covering Scope 1-3), and commitments to
protect climate and nature throughout THG’s
supply chain. The Group has collated baseline
data, including GHG emissions for Scopes 1 and
2 for the years 2019-2021, detailed on page 95
Next steps:
Next steps:
The Chief Sustainability Officer will work with
the TCFD Working Group and Group Risk
Management teams to further develop and
integrate management processes for climate-
related physical and transition risks.
In 2022, the Group aims to develop and publish
approved science-based targets and produce a
climate transition roadmap detailing how THG
will reach its targets and goals. We are in the
process of collating scope 3 data, net zero targets
will be set and submitted to SBTi for validation
during 2022.
v
98
Governance
Strategy
4
1
3
2
Risk
Management
Metrics
& Targets
97
Annual Report 2021 Strengthening our supply
chain and circularity
Planet Earth cannot afford unlimited resources, and the Board
has a moral duty to ensure THG’s supply chain is responsible,
ethical and does not adversely affect people or the planet.
THG sustainability goals
UN sustainable
Development Goals
Ethical Supply Chain
Protect human rights and work
to eliminate modern slavery
in our supply chain.
Circularity
Transform all of our waste into
resources for our value chain.
Prioritising strengthening our supply chain and circularity
means ensuring that every supplier the Group works with
upholds ethical working practices, and that all parties
work together to reduce waste to zero.
on packaging innovation, ensuring packaging
is recyclable or reusable, whilst also reducing
the absolute amount of packaging in use.
THG targets
THG is committed to working closer and more
collaboratively with its suppliers to support sustainable
development throughout the Company’s supply chain,
continuing to support decent work and economic
growth in all territories in which THG operates.
The Group’s approach to circularity is primarily focused
on packaging, owing to the amount of packaging used
throughout THG’s value chain. This includes focusing
During 2021, THG also became a member of The UK
Plastics Pact initiative, which will help drive packaging
innovation across the Group, and enable the Company
to work with other members to support citizen-
engagement campaigns on waste reduction
and recycling.
99
Ethical Supply Chain
Implement a progressive Human
Rights policy.
By 2023
Ethical Supply Chain
All suppliers to commit to THG’s
ethical sourcing standards.
By 2025
Circularity
Circularity
Circularity
Circularity
100% of own-brand packaging to be
recyclable, reusable or compostable.
By 2025
Zero waste to landfill from our own
operations.
By 2030
To recycle more plastic than we
produce.
70% of packaging from third-party
brands to be recyclable, reusable or
compostable.
By 2030
By 2030
Supply chain engagement
Following the launch of THG’s sustainability strategy,
the Group revised its Ethical Code of Conduct and
engaged with its supply base on the issues of ethical
labour, carbon reduction and waste.
In Q3 2021, the Group identified 977 suppliers with
which to engage. By the end of 2021, 446 suppliers
had signed or acknowledged THG’s Ethical Code of
Conduct, an overall response rate of 47%. The Company
is continuing to engage with suppliers on this topic and
work with them to ensure that there is no modern slavery
in its supply chain.
100
Annual Report 2021
Empowering people
and communities
Our people are our greatest asset. We nurture world-class
talent from all over the globe, with more than 95 nationalities
represented within our employee base, and create life-changing
career opportunities.
Ranked as one of the UK’s Best Big Companies to Work
For, and named as one of the The Times Top 100 Graduate
Employers in 2021, THG is building the skills of the future.
Since the Group was founded in the North West of England,
THG’s teams have been pushing the boundaries of innovation
to become a global influence today. A diverse, inclusive and
supportive environment brings out the best in people,
which is why the Group is tackling inequality throughout
its workforce, supply chain and in its communities.
It is imperative that people and communities feel
empowered to make a positive difference in the world.
THG has committed to working with its suppliers and
partners to create a level playing field and fair wages
for ambitious and innovative talent, regardless of
gender, ability or ethnicity. The Group is committed
to spending time and energy to support people who
need help, and THG will invest expertise to eradicate
digital inequality and provide people with the skills
they need to excel.
Our communities and charitable giving
Throughout the year, we supported a variety of charities and good
causes that mean the most to our colleagues, and we are proud to be
making a positive difference to people and communities all over the world.
Our social impact in 2021
During the year, the Group made several charitable
donations totaling £1.3m (2020: £6.6m).
In the UK, our Beauty and Nutrition brands donated
thousands of products to several charities across the
UK, providing support for women and families in need,
and essential hygiene products and clothing for
refugees escaping international crises.
We also supported mental health campaigns across
Europe, including donating to charities based in Denmark
and Portugal for World Mental Health Day in October.
Following on from our £10m pledge in 2020, we continued
to support charities helping people cope with the
devastating impacts of Covid-19 in 2021. This included
donating funds to charities in India helping to provide
relief aid and vital oxygen facilities in struggling rural
communities.
In 2022, we will develop and publish a new Group-
wide Social Impact strategy to define our approach
to charitable giving and maximise THG’s impact in
our local and global communities. This builds on the
commitment outlined in our 2030 Sustainability Strategy
to support our communities and lead initiatives to teach
tech and life skills.
101
THG sustainability goals
UN sustainable
development goals
Employee Wellbeing
and Development
Create a workplace culture which
brings out the best in all.
Diversity and Inclusion
Promote policies and practices that
are inclusive for all at THG.
Investing in our
communities
Support our communities and lead
initiatives to teach tech and life skills.
THG targets
Employee wellbeing
and development
Achieve at least 15% improvement in
employee engagement score.
By 2025
Employee wellbeing
and development
Pay all direct staff, agency workers
and contractors a living wage.
By 2025
Employee wellbeing
and development
All Tier 1 suppliers to pay
a living wage.
Diversity & Inclusion
Achieve 50% female representation
and at least 20% ethnic minority
representation in Graduate and
Apprenticeship schemes.
By 2025
By 2025
Diversity & Inclusion
Eliminate gender and ethnicity pay
gaps across all THG divisions.
By 2030
Diversity & Inclusion
Achieve 50% gender equality
and at least 15% ethnic minority
representation on the Board and
senior leaders.
Investing in our
communities
Two days’ volunteering per year
for every THG employee.
Investing in our
communities
Provide 10,000 people in the
community with technology and
life skills training.
By 2030
By 2025
By 2030
102
Annual Report 2021 Our people
Level
Male
Female
Not disclosed
Total
Level
BAME
Non-BAME
Not disclosed
Total
Gender
Ethnicity
PLC Board
Senior
management
7
17
2
6
-
-
9
23
PLC Board
Senior
management
-
2
9
20
n/a
1
9
23
Total workforce
4,424
4,561
1,061
10,046
Total workforce
1,916
2,800
5,330
10,046
Gender: Total THG workforce
Ethnicity: Total THG workforce
Not disclosed
11%
BAME
20%
BAME
9%
2021
Male
45%
Female
49%
2020
Male
51%
Not
Disclosed
52%
2021
Not
Disclosed
42%
2020
Non-BAME
28%
Non-BAME
49%
Female
44%
Gender: Board and senior management
Ethnicity: Board and senior management
Female
25%
Female
20%
2021
2020
Male
75%
Male
80%
BAME
6%
Not
Disclosed
3%
2021
2021
Non-BAME
91%
BAME
6%
2020
Non-BAME
94%
103
104
Annual Report 2021 Risk management and informed decision making
THG’s risk management process is designed to protect the
interests of key stakeholders and enhance the quality of
decision making, enabling the effective management of
our strategic, operational, commercial, compliance, change
and emerging risks. This helps us to deliver our strategic
objectives and goals through risk-informed decisions. The
Board’s role is to maintain oversight of the key principal and
business risks, together with ensuring that the appropriate
committees are managing these risks effectively.
Additionally, the Board reviews the effectiveness of our
risk management approach and challenges our leaders to
articulate their risk management strategies and appropriate
controls. The Board has also established both Audit
and Risk Committees to support it in its responsibilities
for ensuring the adequacy of risk management. Further
explanation on the role and responsibilities of the
Committees are set out on pages 143-144.
In 2021 we continued the maturing of our approach to
risk management, including the appointment of a Chief
Risk Officer, reporting to the Chief Financial Officer,
organisational restructuring to support a three lines model
and the reshaping of our Enterprise Risk Management
Framework. We have built out parameters to support
our Group risk appetite, refreshed our Principal Risks and
underlying processes for their evaluation, measurement
and management and established a robust approach
to the identification of emerging risk. In addition, we
continue to invest in our Risk Team, our operational
risk processes and supporting technology.
How we identify risk
Using our Enterprise Risk Management Framework,
all Group entities and functions identify the risks that
could affect their strategy and operations to implement
risk mitigation plans. Our risk identification process
follows an enterprise-wide “top-down, bottom-up”
approach, which seeks to identify:
•
Principal risks that may impact our ability to and pace
by which we achieve our strategic objectives, with
these risks representing the risks that most threaten
delivery of our strategy. Strategic, commercial,
operational, compliance and change risks (“business
risks”) that occur at a divisional level. These risks are
those that pose the greatest threat to the success
of business activities across the Group and may
also feed into our principal risks.
Business risks are consolidated into a Group-wide view
and presented to a representative selection of senior
executives, who add their own input from a strategic,
functional and emerging risk perspective. Business risks
105
are then escalated in line with the Risk Management
Policy to the Risk Committee. This escalation process
provides organisational visibility to emerging, change,
strategic, commercial, operational, and compliance risks,
as well as driving action and supporting accountability
for risk management.
Our risk appetite and risk tolerances
Our risk appetite reflects our ability or desire to
accept a certain level of risk to achieve our strategy.
We recognise that eliminating risk is often not feasible
or desirable, so we use our group risk appetite statement,
parameters and metrics to support informed decisions
on the level of risk that can be taken or sought to achieve
strategic objectives. All identified risks are measured
using the pre-determined risk matrix set out in our
Risk Management Policy.
Principal risks are monitored against risk appetite targets
using supporting measures, metrics, and tolerances, which
are evaluated throughout the year to ensure they remain
aligned with our strategic objectives, and within an
acceptable risk tolerance for the Group.
Emerging risks
Emerging risks are identified through the Principal Risk
and Operational Risk processes on an ongoing basis.
Additionally, Emerging risks are identified, prioritised
and understood via an “identify, filter, prioritise,
investigate and understand” approach. The approach
utilises internal and external sources, including Business
leaders and Subject Matter Experts both Internal and
External, across a selection of categories to identify
potential emerging risks and opportunities.
By the very nature of Emerging risks, it is common to
identify false leads, conflicting signals and messages.
Therefore, the approach filters and prioritises, to support
management in helping to decide which emerging risks
should be investigated further.
Once it has been decided which emerging risks should
be investigated further, they are investigated and
understood by an allocated Emerging Risk Owner,
working with THG Risk. The work to understand
Emerging risks will vary from risk to risk, dependent
upon the risk, but ranges from basic qualitative
assessment to modelling and quantitative assessment.
How we manage risk
Figure 1 presents an overview of our process and
governance structures. We develop severe but plausible
scenarios for all risks. These scenarios not only provide
insights into possible threats and points of failure,
allowing us to react and adjust our strategy accordingly,
but are also used for the purpose of assessing our
viability. The THG Enterprise Risk Management
Framework enables us to identify, evaluate, analyse,
manage and mitigate those risks which threaten the
successful achievement of our business strategy and
objectives. Each principal risk is assigned an executive
owner who is accountable for setting the target
tolerance level. The executive owner is responsible for
confirming adequate controls are in place and that the
necessary action plans are implemented to bring the risk
profile within an acceptable tolerance. Principal
and emerging risks are supported, as appropriate,
by in-depth reviews. We continue to consider risks
both individually and collectively to fully understand
our risk landscape. By analysing the correlation between
risks, we can identify those that have the potential to
cause, impact, or increase another risk and that these
are weighted appropriately. This exercise informs our
scenario analysis, particularly in scenarios used in the
Viability Statement.
Independent assurance
3rd Line
Guide, support & challenge
2nd Line
Own & operate
1st Line
Risks that are identified and captured
at a divisional level are owned and
managed within their respective
management structures and are
reviewed on an ongoing basis.
Our Three Lines Model gives first-line employees
responsibility for management of their risk and the
subsequent deployment of risk strategies, thus
supporting risk-based decision-making.
THG Risk also manages the corporate insurance
programme, ensuring that placements are appropriate
for the risk exposure and in line with our risk appetite.
The Board recognises that culture underpins the
effectiveness of THG’s risk management, and the
operation of an effective control environment. By rolling
out our three lines governance model, this defines
clear roles and responsibilities for all employees, and
establishes accountability for actions and decisions.
It also describes how appropriate oversight, challenge
and assurance are provided over business activities,
including the ethical conduct of our operations.
Assess /
Analyse
Monitor /
Track
Identify /
Understand
Respond /
Measure
Report /
Communicate
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Annual Report 2021
Risk governance
Risk management and internal controls
Board
Chief Risk Officer
The Chief Risk Officer (CRO) is responsible for the
second and third line functions, namely THG Risk
and THG Internal Audit. The CRO is responsible
for the facilitation and implementation of the risk
management approach across THG, including the
provision of appropriate risk reporting for the Risk
Committee, Audit Committee and the Executive.
The CRO attends the Risk and Audit committee
meetings and regularly meets with respective
Chairs outside these meetings. The CRO is also
responsible for insurance, business continuity,
health and safety, food safety, facilities, security
and loss prevention.
THG Risk
THG Risk supports the effective operation of the
Enterprise Risk Management Framework and
Governance Structure, including the management
of the principal risks and providing guidance, support
and challenge to the business to effectively manage risk.
THG Internal Audit
THG Internal Audit is led by the Head of Internal Audit,
and its purpose and activities are set out in the Internal
Audit section of the Audit Committee Report on
page 157.
The Board has overall responsibility for risk management
and establishing the Group’s risk appetite. It monitors
the risk environment and reviews the relevance and
appropriateness of the principal risks to the business.
Risk Committee
The Risk Committee supports the Board in setting
the Group’s risk appetite and ensuring that processes
are in place to identify, manage and mitigate the
Group’s principal and emerging risks. At each meeting,
the Committee reviews the principal risks and their
associated appetite targets and metrics, to assess
whether they continue to be relevant, effective and
aligned to the achievement of our strategic objectives,
and within an acceptable tolerance for the Group.
Further information on the Committee’s activity
in 2021 is set out in the Risk Committee Report
on pages 161-164.
Audit Committee
The Audit Committee monitors the effectiveness of the
control environment through the review of Internal Audit
reports and other assurance activity from THG Internal
Audit and consideration of relevant reporting from
management and the external auditor.
Further information on the Committee’s activity in 2021
is set out in the Audit Committee Report on pages
153-160.
Executive
The Executive is responsible for the stewardship
of the risk management approach. It develops the
strategy and oversees the delivery of the related
operational plans that help to manage the associated
risks. Each principal risk is also owned by a member
of the Executive.
The Board retains overall responsibility for setting
group risk appetite and for risk management and
internal control systems. In accordance with principles
M, N and O of the UK Corporate Governance Code
2018 (the “Code”), in addition to Paragraph 58 of the
FRC guidance (Section 6), the Board is responsible for
reviewing the effectiveness of the risk management
and internal control systems and confirms that:
also continually increased the challenge of delivering
products to customers and protecting our employees,
with this leading to some cost increases. These primarily
related to higher transportation costs, leading to an
incremental increase in these costs of £27m in 2021.
Further costs were incurred on maintaining Covid-19
secure workplaces. For further details see note 4
to the financial statements.
THG has consistently responded decisively to the
pandemic’s challenges to provide a world leading
proposition as a digital-first consumer brands group.
Our business model is centred around non-discretionary
and recession-proof products and services across
beauty, nutrition and technology. As such, THG was
able to respond adeptly to the challenges faced by the
pandemic and build upon 2020 by delivering further
significant sales growth across all divisions in 2021.
We have continually reviewed the actual, emerging and
potential impacts of the pandemic on our principal risks
to identify any new risks or changes to existing risks
and opportunities that may have arisen, with a specific
lens on what could change the risk profile materially.
Whilst the pandemic has not created any additional
principal risks, we have amended, as appropriate, some
of our mitigating actions, as set out in the principal risks
section.
Brexit
Throughout 2021, the Brexit Steering Committee
has continued to assess the impacts, uncertainties
and inherent risks and their impact upon THG’s
ability to meet continuing consumer demand. We
continue to plan and respond to a variety of scenarios,
capturing these within our principal risks, amending,
as appropriate, our mitigating actions. These include
duty level exposures, citizenship implications, fulfilment
workforce requirements and transport logistics.
•
•
•
•
•
There is an ongoing process for identifying,
evaluating and managing the principal risks
faced by the Group.
There is an ongoing process for identifying,
evaluating and managing the emerging risks
faced by the Group.
The systems have developed throughout the
year under review and up to the date of approval
of the Annual Report and Accounts.
They are regularly reviewed by the Board.
The systems accord with the FRC guidance on risk
management, internal control and related financial
and business reporting.
There were no instances of significant control failing
or weakness in the year. You can read more about our
risk management and internal controls systems in our
Strategic Report on pages 7-128 and the associated
work of the Audit and Risk Committees on pages
153-164.
Covid-19
Throughout 2021, the global pandemic continued to
produce highly challenging conditions across all sectors
of the global economy. Throughout, THG’s priority has
been, and remains, to protect the health, safety and
wellbeing of our employees. The Board has continued
its proactive response to both home and flexible working
policies and practices and continued to oversee the
redesign of processes and procedures in our fulfilment
centres to ensure they remain Covid-19 secure.
The 2020 impact of the Covid-19 pandemic on the online
retail marketplace and the wider global economy has
continued throughout 2021, with a continuing consumer
shift onto digital platforms. Whilst the pandemic has
continued the accelerated digital shift which has
driven a proportion of the 2021 revenue growth, it has
107
108
Annual Report 2021 Principal risks
The Board and the Risk Committee carried out a robust
and ongoing assessment of the principal and emerging
risks facing the Group throughout the year. This
assessment considered those risks that would threaten
THG’s business model, future performance, solvency or
liquidity, and ensured that the risks continued to align
with our business strategy. The effective management
of strategic, financial, compliance and operational risks
is critical to the success of THG’s strategy. THG
continually assesses its principal risks to ensure
continued and enhanced alignment to our strategy
and consideration of where THG is currently on its
journey to becoming a global digital innovator.
In reviewing the principal risks, we have evolved cyber
threats to cyber security and data privacy to reflect the
continuing change in cyber security risk and address
data privacy more explicitly. Key service disruption has
evolved to reflect all aspects of third-party reliance
across the business. In addition, regulatory compliance
has broadened to reflect the breadth of regulatory
requirements potentially impacting THG and sustainability
and ethics has evolved into environment, social and
governance to reflect our continued commitment to the
wider community and the creation of THG Eco.
The refresh of our Risk Management approach has
seen the addition of Principal Risks regarding Customer
Needs, Innovation, Corporate Structure, Infrastructure,
Onboarding and Integration, Culture, Talent and
the Ingenuity e-commerce platform. In addition,
the previous principal risks in regard to Operational
Resilience, Related Parties, Liquidity risk and Currency
risk, whilst remaining strategic have been subsumed
within the revised principal risks or are being managed
out with the principal risk process.
The ongoing impact of Covid-19 and Brexit have been
reflected, as appropriate throughout our Principal Risks
rather than identified as standalone risks.
We manage principal risk in line with our risk
management policy and approach, as set out in Risk
management on pages 105-106. In 2021 we monitored
and reported against 12 principal risks. As detailed in the
following table, a range of measures are in place, or are
being deployed or developed, to manage and mitigate
our principal risks.
Principal risk
Risk context
Management and mitigation
Cyber security
and data privacy
Failure to responsibly
collect, process and store
data, together with not
ensuring an appropriate
standard of cyber security
across the business, will
result in us not meeting our
regulatory and contractual
obligations, and losing the
trust of our stakeholders.
Information is the life blood of
a digital company – protecting
the confidentiality, integrity
and accessibility of this data
is critical for a data-driven
business. Failure to do so can
have significant financial and
regulatory consequences in
the General Data Protection
Regulation (GDPR) era. In
addition, we also need to
use our data efficiently and
effectively to drive improved
business performance.
Third-party
reliance
Failure to embed our partners
as an integral and aligned
part of our infrastructure,
fulfilment and go-to-market
strategy in a timely manner,
will result in us failing to
deliver the right capabilities
and experiences to our
customers.
THG places reliance on third-
party providers to support the
delivery of our services to our
customers. Any interruption in
these services or relationships
could have a profound impact
on THG’s reputation in the
market and could result in
significant financial liabilities
and losses.
Stable
•
•
•
•
•
•
•
The Chief Information Security Officer oversees information
security. The Global Privacy Officer oversees information
protection.
Multi-year cyber security programmes driving continuous
improvement and cyber-risk reduction across technology,
business processes and culture.
Continuously improving the data protection strategy,
framework and methodology, ongoing data mapping
and impact assessment procedures.
The Information Security Risk Management Methodology
is deployed to provide objective reviews and monitoring
on our assets and systems.
Formal certification schemes maintained across
the business.
All colleagues are required to undertake awareness
training for information management and data protection,
with a focus on the GDPR requirements.
Internal and external validation of compliance through
auditing, including risk-based audits of suppliers and other
third parties (see “Third-party reliance”).
Improving
•
•
•
•
•
•
•
•
•
•
•
All new suppliers go through a rigorous selection
and onboarding process.
Procurement team monitors supplier performance
on an ongoing basis, against third-party contract SLAs.
Dual sourcing for most supply categories and in all
business units, reducing dependencies on sole suppliers.
Extensive and up-to-date knowledge of supplier base
enabling sources to be found relatively quickly.
Ongoing development of Global site standards and
conformance agreements to ensure adequate standards
are maintained in the supply chain as far as possible,
applicable both in-house and with third-party sites.
Assurance on our key third-party suppliers and service
providers through Internal and external compliance auditing.
Continuous monitoring of the supply chain activity and
news through advanced web-scraping functionality.
Continuous monitoring and forecasting of demand and
availability to adjust intake accordingly.
Multiple delivery methods, routes, ports and carrier
strategies to minimise the risk of disruptions.
Supply Chain Business Continuity strategies and planning
to respond to incidents.
Increasing our Supply Chain capacity by building new
additional fulfilment centres globally, with less reliance
on third party warehouses (see “Infrastructure”).
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110
Annual Report 2021
Principal risk
Risk context
Management and mitigation
Principal risk
Risk context
Management and mitigation
Talent
If we fail to attract at pace,
and/or retain employees
with the critical skills,
capabilities, motivation
and capacity we need
to deliver on our strategy,
we will not be successful.
Ingenuity
e-commerce platform
Failure to maintain a
reliable, scalable and
secure live services
environment, will impact
our ability to deliver the
consistent and resilient
experience expected by
our customers.
As we continue to evolve
our priorities, the capacity,
knowledge and leadership
skills we need will continue
to change. THG will not only
need to attract the talent and
experience we will need to
help navigate this change.
We will also need to provide
an environment where
employees can develop to
meet these new expectations,
an environment where
everyone can perform at
their very best. By continuing
to empower employees
and leaders to make
decisions, be innovative,
and be bold in delivering
on our commitments, THG
will continue to create
an attractive working
environment, increasing
employee engagement and
aligned high-performing
teams.
As a digital company, we
continue to focus on scaling
our current and future
Ingenuity platform services
environment in an agile and
speedy manner to ensure the
delivery of a consistent and
robust cloud platform and
associated digital network.
THG must provide the right
infrastructure and operations
for all of our customer
products, a hosting platform
together with the governance
to ensure optimal service
availability, performance,
security protection and
restoration (if required).
Improving
•
•
•
•
•
•
Reviews of our remuneration requirements and
mechanisms designed to incentivise and drive the
right behaviour with a focus on ensuring fair and
equitable pay across the business
Focused development of key staff, through dedicated
learning and development tools, to ensure they create
the environment which enables colleagues to thrive and
perform at their very best
The above, monitored via engagement surveys,
follow ups and our Performance management processes.
Ongoing focus on Policy and culture requirements.
See “Culture”
Brexit Steering Committee continues to assess how THG
should respond to the uncertainty and inherent risks,
relevant to Talent.
Throughout 2021, the focus of our Covid-19 Steering
Group was to ensure that our colleagues, were being
appropriately supported. In the second part of the year,
the focus shifted to assisting our office-based colleagues
in returning to a safe office environment.
Improving
•
•
•
•
•
•
•
Accountability across Platforms and Projects, underpinned
by ongoing risk assessments and continuous improvement
projects
Ongoing investment in our Ingenuity platform services
to ensure that the THG estate evolves to support the
business as it scales and changes.
Continuously improving data protection strategy,
framework and methodology, ongoing data mapping
and impact assessments procedures.
Robust change management processes and incident
management protocols, adhered to for all products
and services.
Service-level objectives including uptime, responsiveness,
and mean time to repair objectives.
Comprehensive disaster recovery and business
continuity plans in place across the Group.
Other key mitigation factors detailed under
“Cyber Security and Data Privacy” risk.
Customer needs
If we fail to anticipate,
understand and deliver
against the capabilities and
experiences our current
and future customers need
in a timely manner, they will
find alternative providers.
As THG continues to grow
its business and brands,
an understanding of how
to continually attract
customers whilst retaining
our existing customers is
essential. This requires
a deep and continuous flow
of insights supported by
processes and systems.
By understanding the needs
of our customers, THG will
continue to differentiate
itself from competitors,
build compelling value
propositions and offers,
leverage key drivers to identify
opportunities, decrease churn
and drive more effective
revenue generation.
Corporate structure
If we fail to successfully
co-ordinate, deliver and
execute, at pace, the
development of the THG
corporate structure, it
will impact the successful
delivery of our strategy.
As part of the continued
maturing of our business
and to support our ongoing
growth and strategic aims,
our corporate structure must
evolve to provide transparency
and clarity to the vision for
each element of THG, be it
Beauty, Nutrition, Ingenuity
or other operating divisions.
Stable
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Utilisation of customer activity and churn data,
to understand their appetite for product offerings.
Continuous Net Promoter Score (NPS) surveying allows
THG to identify customer challenges rapidly, and respond
in a timely manner to emerging trends.
Managed International Customer Service – 24/7 Customer
Service for a global audience across live chat, calls,
email and social.
Specialised Merchandising executives support the business
with brand selections.
Competitor activity and offerings are reviewed regularly
to remain abreast of market developments.
Developments in e-commerce trends are monitored to
keep abreast of the latest developments and innovations.
Consumers’ changing preferences are monitored internally
and by market research to ensure products remain relevant.
Performance targets control key deliverables (net promoter
scores, site traffic).
Highly competent buyers and merchandisers are
adept at interpreting and acquiring desirable brands.
Product range planning ensures sufficient product
offering to cover expected demand.
Buying, merchandising and marketing departments
operate cohesively, with regular cross-functional
communication.
Customer service levels and complaints are monitored
and internet sites are reviewed for customer opinion.
Investment in logistics, fulfilment, delivery, marketing,
brand and customer experience to keep our customer
appeal.
Use of technology and data to be more targeted and
strategic in how we gain new customers and maximise
the loyalty and lifetime value of existing customers.
Improving
•
•
•
•
•
Robust processes introduced for the reorganisation and legal
entity restructure progressed during 2021 and into 2022.
Ongoing advisory support from third party advisors as part
of the restructure.
Realignment and re-engineering of our business processes
resulting from the corporate restructure.
Establishment of a standalone Committee for the restructure
to oversee action tracking and risk management.
Ongoing recruitment and talent acquisition at senior level,
for new roles.
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Annual Report 2021
Principal risk
Risk context
Management and mitigation
Principal risk
Risk context
Management and mitigation
Innovation
If we fail to identify
and leverage emerging
technologies and invest
in modern practices
and supporting
tools, methods and
infrastructure in a
timely manner, we will
not meet the needs of
our customers or our
commercial goals.
Regulatory
Compliance
Failure to anticipate,
understand and
implement our numerous
regulatory requirements,
will result in us failing
to meet our regulatory
obligations, impacting
our ability to deliver our
strategy and losing the
trust of our stakeholders.
We must be able
to rapidly deploy
new innovations to
our infrastructure,
systems and customers
by introducing
technologies, services,
or new ways of working.
Innovation requires
us to address how
we drive change
and transformation
across our employees,
processes and
technology, and how
we differentiate and
drive excellence and
efficiencies.
We continue to operate
ina global market with
numerous regulatory
requirements ranging
from Health and Safety,
Food Safety and Product
Safety to Taxation and
Trading legislation.
Remaining aware of
changing regulation and
ensuring compliance
is key to ensuring we
protect both THG and
our customers and
partners.
Improving
•
•
•
•
•
•
Strategic acquisitions which further enhance the Group’s
new product development and in-house capabilities.
Strategic investments in our fulfilment infrastructure,
such as the Autostore ASRS.
A fully vertically integrated business model, with full control over
NPD, branding and design capabilities, which significantly reduces
development timelines.
Collaboration with partners to complement and enable accelerated
innovation.
Innovation informed through demand insights, consumer
data and feedback from our global retail customer base.
Attracting and retaining the most innovative and inventive
talent from across the globe. See “Talent”.
Stable
•
•
•
•
•
•
•
•
•
Divisional Compliance teams, with sector specific knowledge
and experience.
Central Compliance team overseeing and challenging the
Divisional teams.
Compliance teams with reporting lines into the Chief Risk Officer.
Defined Risk Appetite metrics and Key Risk Indicators which
are monitored and updated at each Risk Committee.
Updated Risk Management Framework and Divisional Compliance
reporting dashboards.
Horizon scanning inputs are obtained from our Legal partners
and reviewed for trends and responses required.
Ongoing planning and preparation, supported by external
advisers, to meet our responsibilities as we continue to fulfil more
customer orders direct from third party brands via our Ingenuity
division.
Group Risk Deep-dive reviews to identify gaps and vulnerabilities
See “Cyber Security and Data Privacy” for related regulatory
compliance mitigations.
Infrastructure
If we fail to scale our
infrastructure, systems and
processes at pace, whilst
maintaining service levels,
it will impact the successful
delivery of our strategy.
World-class infrastructure
from source to customer
is fundamental to the exacting
service levels that we seek
to provide to businesses
and customers alike. Our
infrastructure must be robust,
slick and secure and ensure
the THG service offering
is second to none.
Onboarding and
integration
If we fail to successfully
onboard and integrate
acquisitions whilst
continuing to drive
our core business, it may
impact the pace at which
we deliver our strategy.
Acquisitions form a critical
element of the THG strategy
alongside the continuing
organic growth of the
business. Our strategic
acquisitions add scale,
skills and breadth to our
overall service offering.
The successful integration
of the acquisitions into our
core business are fundamental
to us delivering our service
offering and achieving our
strategic aims.
Improving
•
•
•
•
•
•
•
•
•
•
•
Increasing our Supply Chain capacity directly by building
new manufacturing and fulfilment centres globally, to
ensure adequate warehouse facilities are available to keep
pace with business growth.
Increasing our Supply Chain capacity indirectly via
acquisitions.
Strategic programmes underway to ensure that all aspects
of the THG estate evolves to support the business
as it scales and changes.
THG estate planning is delivered by our in-house Capital
Projects team, supported by our Group Property Director.
Capex Committee established to work alongside
THG’s Capital Projects team to support and monitor
transformation programmes, including management
of programme risks and dependencies.
Each programme is supported by cross-functional steering
Groups, including at least one Executive Sponsor, which
meet regularly to review the programme, including status,
risks, dependencies and impact.
THG Risk representation in steering Groups to ensure
the cross-functional execution of infrastructure projects
are successful, achieving desired outcomes on time and
maximising expected benefits.
Engagement of trusted advisors, contract managers
and surveyors to support in-house expertise.
The THG estate is protected by 24-hour security,
access control and fire protection.
Comprehensive disaster recovery and business continuity
plans in place across the Group.
Brexit Steering Committee continues to assess how
THG should respond to the uncertainty and inherent
risks, including how changes to our infrastructure can
mitigate these.
Improving
•
•
•
•
•
Formal process for onboarding acquisitions,
where processes are aligned to THG standard.
Ongoing advisory support from third party advisors
in pre -acquisition due diligence and post-acquisition.
Integrations are delivered by our in-house
Integrations team.
Acquisitions and integrations are supported by
cross-functional steering Groups, including at least one
Executive Sponsor, which meet regularly to review the
programme, including status, risks, dependencies
and impact.
THG Risk representation in steering Groups to ensure
the successful cross-functional execution of acquisitions
and integrations and reduce the risk that projects do not
deliver their desired outcomes on time or fail to maximise
the expected benefits..
113
114
Annual Report 2021
Principal risk
Risk context
Management and mitigation
Principal risk
Risk context
Management and mitigation
Environment, social
and governance
Failure to achieve
our sustainability and
environmental, social and
governance-related aims,
objectives and obligations,
will impact our ability to
deliver our strategy and
result in us failing to meet our
regulatory obligations, losing
the trust of our stakeholders.
We are committed
to investing in education,
technology, and the
environment to give
individuals, businesses, and
our planet the opportunity
to thrive. Our goal is to
use our technology, time,
and experience to back
a generation of diverse,
sustainable businesses.
Improving
•
•
•
•
•
•
•
Sustainability is integral to the group ethos with a function
headed at an Executive level to focus on creating more
sustainable products and supply chain operations and reduce
environmental impact.
A Chief Sustainability Officer has been appointed to
oversee and lead the Group’s approach to sustainability,
including climate-related risks.
THG’s 2030 Sustainability strategy was launched in 2021
and sets out how we will address these challenges and
opportunities.
In support of the strategy, the provision of a formal
structure with targets underpinned by science, data and
technology.
Multiple projects designed to respond to specific ESG
risks, for example, the establishment of a dedicated,
cross-functional TCFD Working Group, overseen by THG’s
Executive Board and the Sustainability Committee.
To ensure appropriate oversight, the Sustainability
Committee undertakes regularly reviews of key supply
chain topics.
Regular updates and submitting proposals for approval
by the Board and Sustainability Committee.
• We have a materials sourcing strategy and proactive
engagement with suppliers.
•
•
•
Supply chain visibility from our vertically integrated end-to-
end model
Continuous engagement with our supply base encourages
a proactive approach, for example in addressing waste and
energy management.
Regulatory compliance across jurisdictions and activities,
from packaging and labelling, through to plastics taxation
and modern slavery, as well as TCFD, is carefully monitored
throughout the business, overseen by the Group Sustainability
Team by means of KPIs, internal policy, and tracking
progress against the published THG 2030 sustainability
strategy.
Culture
If we do not fully empower
our employees and enable
accountability in line with our
shared values and behaviours,
we will be challenged to
create a culture, that meets
THG’s business ambitions.
The development of a shared
behavioural competency that
encourages employees to
always do the right thing, put
customers at the heart of the
business and drive innovation,
is critical in THG’s success.
Devolution of decision-
making, and the acceptance
of accountability for decisions,
is fundamental to our
continued development and
sustains our shared Values and
Behaviours.THG also supports
a culture of empowered
leaders that develops ideas
and solutions, and that
provides employees with
a safe environment allowing
for honest disclosures and
discussions. Such a trusting
and empowered
environment can help
sustain innovation, enhance
customer success and drive
the engagement that results in
increased market share
Stable
•
•
•
•
•
Ongoing integration of Values and Behaviours into all our
core colleague priorities including objectives, performance
management, appraisals, talent attraction, selection and
development, leadership development and onboarding.
Establishment of a Diversity & Inclusion Committee,
a platform to further improve the employee journey
and workplace culture to ensure we are a truly inclusive
workplace.
Formal assessment against personal objectives for
each colleague as part of established performance
management process, which also considers personal
application of THG’s Values and Behaviours.
HR Handbook communicated to all colleagues, with
e-Learning modules rolled out across the workforce,
and annual refresher training.
Training including anti-bribery and corruption training
which continues to be delivered across our business
units based on assessed risk.
The above monitored by:
• Whistleblowing and Incident Reporting mechanisms
in place to allow issues to be formally reported and
investigated.
•
•
Engagement surveys & follow-ups.
KPIs and People Dashboards at a divisional level,
including DNI metrics and Attrition analysis.
115
116
Annual Report 2021
Viability assessment period
Stress tests
Assessment of the going concern
assumption
The overall financial performance of the business
has remained robust with a strong liquidity position
maintained throughout the year. In addition, as at the
balance sheet date, the Group had a total of £170m
in an undrawn Revolving credit facility (“RCF”) due to
mature in December 2024, along with £537m readily
available cash held on the balance sheet. Net debt at
this date was £302m (31 December 2020: net cash £11m),
with net cash of £44m (31 December 2020: £283m)
before the inclusion of IFRS 16 lease liabilities that
mature over a period of up to 25 years.
The Group holds a €600m seven-year loan facility
agreement due to mature in December 2026. While
there are no financial covenants attached to the €600
million loan facility, the covenants attached to the RCF are
linked to gross debt leverage, and become effective when
the facility is drawn upon. This covenant requires the Group
to maintain the ratio of gross debt over adjusted EBITDA
to below 7.60, which is reviewed regularly, although as
noted the facility is not drawn down.
The going concern assessment period is the twelve
months from the date of this report to April 2023.
In order to satisfy the going concern assumption, the
Directors of the Group review its Budget periodically,
which is revisited and revised as appropriate in response to
evolving market conditions. The Directors have considered
the Budget and forecast prepared through to April 2023.
Going concern statement
As a result of the analysis performed, including potential
severe but plausible scenarios, the Board believes that
the Group is able to adequately manage its financing
and principal risks and that the Group will be able to
operate within the level of its facilities and meet the
required covenants for the going concern assessment
period. Based on the above activity, the Directors are
satisfied that it is appropriate to prepare the financial
statements of the Group on a going concern basis.
Viability statement
The Directors have voluntarily adopted the UK
Corporate Governance Code, in which the Directors are
required to issue a Viability Statement declaring whether
they believe the Group is able to continue to operate
and meet its liabilities for the three year period to
December 2024, taking into account its current position
and principal risks. The Directors assessed the prospects
of the Group by reference to its current financial
position, its recent and historical financial performance,
its forecasts for future performance, its business model
(page 16), strategy (page 11) and its principal risks and
mitigating factors (pages 109-116). In addition, the Board
regularly reviews the financial position of the Group, its
liquidity and financial forecasts.
117
In considering the viability of the Group, the Directors
felt that an appropriate period of time was the three-
year period between 31 December 2021 to December
2024 over which to assess the Group’s prospects. This
is consistent with Group’s business model and strategic
planning period approved by the Board. A roll forward
from the three-year assessment period to five years
is performed for the purposes of impairment.
The Group has applied financial modelling to the
assessment of going concern and viability to assess
the base case and apply stress-testing.
The base case
Having experienced two years of the impact of Covid-19,
management consider the impacts on THG to be well
understood and the impact of the pandemic that was
considered in the previous budget process has continued
to be recognised this cycle. The Group’s strategic planning
cycle includes an annual Budget process, which is reviewed
by the Board. This planning process involves modelling
under a series of assumptions. Severe but plausible
downside scenarios were also modelled setting out
impacts of a combination of the principal risks, as well as
a reverse stress test to identify what would be required to
either breach covenants or run out of liquidity. This process
is led by the Group CFO, Commercial Director and Deputy
Group CFO along with the Board and Executive Chair
and CEO providing further direction to align strategic
initiatives. Focus has also been placed on forecasting
at a divisional level this year, the Group are on track
to complete the separation of the business units in
2022. The Directors of the Group review its Budget
periodically, which is revisited and revised as appropriate
in response to evolving market conditions.
In considering the Group’s financial position the
Directors have considered:
•
•
Expected future growth of trading businesses;
The committed and expected pipeline of its
Ingenuity business;
• Margins expected to be achieved in the future; and
• Wider market and industry-specific factors.
The Directors have also considered the liquidity of the
Group as well as available facilities and note that as at
the balance sheet date, the Group had a total of £170m
in undrawn facilities, along with £537m readily available
cash held on the balance sheet. Net debt at this date was
£302m (note 18) and net cash of £44m before the inclusion
of IFRS 16 lease liabilities.
In December 2019, the Group entered into a €600m seven-
year loan facility agreement due to mature in December
2026 and a £170m Revolving Credit Facility (“RCF”) due
to mature in December 2024. There are no key covenants
attached to the €600m loan facility which is drawn down,
but the covenants attached to the RCF are linked to
gross debt leverage and become effective when the
facility is drawn upon. This facility is not currently drawn
down, and not forecast to be drawn in the future period.
Several stress test scenarios have been applied to
the Group’s forecast, including but not limited to:
•
•
In light of the widely reported price increases in
commodities, specifically whey prices, an additional
increase of 5% in commodity costs that are not
passed onto the end customer has been applied
over and above those already budgeted for;
• Depression in margin for D2C businesses by 1%;
•
Inflationary costs increasing costs of sales and
decreasing margin by 50bps;
• Below budgeted contract wins in Ingenuity
Commerce of 25%; and
• A decline in the cash flow conversion rate of 10%.
Any mitigating actions available to protect working
capital and strengthen the Group balance sheet,
including deferring non-essential capex and increased
cost control, such as reducing stock levels, new customer
marketing investment and investment in the platform.
A severe but plausible downside modelled the impact
of all five scenarios above occurring simultaneously.
Further, the Directors have assessed two key metrics
to ensure that the Group has the ability to continue to
trade, alongside complying with its current banking
facilities.
•
Cash headroom: the Group’s forecast shows
material cash headroom, that management are
confident give the Group the ability to continue
Assessment of viability
to trade and capitalise on market opportunities
as they develop; and
Leverage (defined as gross debt/adjusted EBITDA.
If the Group was to draw upon its currently undrawn
RCF, it would be required to maintain a leverage
ratio of less than 7.60 times. The forecasts reviewed
suggest that while the facility is not required, if it
were there would be enough headroom to satisfy
this covenant.
The Director’s note that while the wider global economy
is suffering as a result of the Covid-19 pandemic, the
Group has a number of mitigating actions available to
it to provide suitable cash headroom in the event of a
declining sales scenario as noted above, including but
not limited to deferring non-essential capex, along with
certain cost control actions.
Reverse stress tests
A reverse stress test was modelled to identify the point
at which liquidity is exhausted. The model would have to
see a significant decline in revenue and margins compared
with the stress test set out above. Such a scenario, and the
sequence of events which could lead to it, is considered
to be extremely remote. Whilst the occurrence of one
or more of the principal risks has the potential to affect
future performance, none of them are considered likely
either individually or collectively to give rise to a trading
deterioration of the magnitude indicated by the reverse
stress testing and to threaten the viability of the Group
over the three-year assessment period.
In making the Viability Statement, the Board, supported by the Audit Committee, carried out a robust assessment of the
Group’s viability, principal risks and uncertainties facing THG for the next three years, as described on pages 109-116,
which could impact the business model taking into account:
Factor
Link to principal risks
1. Covid-19 pandemic which remains ongoing, with the main impacts
being to logistic and supply chain, which are mitigated by the Group
being vertically integrated. As a result, the Group’s cash flow forecasts,
trading Budgets and multiple models were reviewed.
Note associated impacts were considered within the following Principal
Risks review: Cyber Security & Data Privacy; Third Party Reliance; Talent;
Infrastructure; Ingenuity E-Commerce Platform; Customer Needs;
Onboarding & Integration; Regulatory Compliance; and Culture.
2. Stress test scenarios involving a depression in margin, a below
revenue performance within Ingenuity Commerce, continued increase in
commodity prices and inflation along with a decline in cash conversion
has been run together to show an unlikely but plausible worst-case
scenario including an assessment of the Group’s longer-term prospects.
We anticipate that these scenarios would include any further uncertainties
that may come from the UK leaving the EU and the ongoing situation with
Russia and Ukraine. The impact of Brexit is not expected to be material to
the Group given extensive preparations made by THG. While the Group
has no physical presence in Russia, revenue from customers within Russia
and Ukraine totalled c. 1% of revenue for the Group in FY21.
Note associated potential impacts were considered within the following
Principal Risks review: Cyber Security and Data Privacy; Third Party
Reliance; Talent; Infrastructure; Ingenuity E-Commerce Platform;
Customer Needs; Onboarding and Integration; Innovation; Regulatory
Compliance; Culture; and ESG.
The worst case scenario outlined at 2. above did not
include any mitigating actions available. There are a
number of actions that management would take to protect
working capital and strengthen the balance sheet if any
of the scenarios outlined above were encountered. These
include deferring non-essential capex and increased cost
control.
Based upon the assessment of the sensitivity built into
the scenarios tested, the Directors confirm that they have
a reasonable expectation that the Group will be able to
continue in operation to meet its liabilities as they fall due
over the three-year assessment period.
118
Annual Report 2021
Directors’ Report
Directors’ Report disclosures
The Directors present their report, together with the
audited consolidated financial statements of the
Company, for the financial year ended 31 December
2021. In accordance with section 414C(11) of the
Companies Act, the Company has chosen to provide
disclosures and information in relation to a number
of matters which are covered elsewhere in this
Annual Report.
These matters, together with those required under
The Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations
2013, are cross-referenced in the table below and
together form part of this Directors’ Report.
The Governance Report, contained on pages 129-152,
is incorporated by reference into this Directors’ Report.
Information
Section in the Annual Report
Page(s)
Risk management
(including principal and emerging risks)
Going concern statement
Post balance sheet events
Strategic Report
Strategic Report
Directors’ Report
Future developments of the Company
Strategic Report
Greenhouse gas emissions
Strategic Report
Directors’ biographies
Governance Report
Corporate governance arrangements
Governance Report
Directors’ conflicts of interest
Governance Report
Related Party Transactions
Financial Statements
Statement of engagement with employees
Strategic Report
Statement of engagement with suppliers, customers
and others in a business relationship with the Company
Strategic Report
105
117
128
Throughout the
Strategic Report
(pages 7-128)
95
133
129
147
262
75
73
Articles of Association
Annual General Meeting
In accordance with the Companies Act,
the Articles of Association may only be amended
by special resolution at a general meeting of
Shareholders. The Articles of Association are
available on the Company’s website at:
www.thg.com/leadership-and-corporate-governance/.
The AGM will be held at the Cheshire Suite at
Manchester Airport Marriott Hotel, Hale Road, Hale
Barns, Manchester WA15 8XW on 10 June 2022 at
12:30 p.m.. The Notice of Meeting, together with
explanatory notes, will be sent to Shareholders
on or around the time of this Annual Report.
Directors
Share capital
Biographies of those Directors who served during the
2021 reporting period and who were in office at 31
December 2021, and remain in office as at the date of
this Directors’ Report, are contained in the Governance
Report on pages 129-152. All of these Directors held
office throughout 2021 with the exception of Tiffany
Hall and Andreas Hansson who were appointed on 12
January 2021 and 26 October 2021 respectively and
Charles Allen who was appointed on 22 March 2022.
All Directors will offer themselves for election or re-
election (as appropriate) by Shareholders at the AGM,
with the exception of Tiffany Hall who stepped down
from office due to family reasons on 18 March 2022.
Subject to the Companies Act and the Articles of
Association, but without prejudice to the rights attached
to any existing Share, any Share may be issued with,
or have attached to it, such rights or restrictions as the
Company may decide by ordinary resolution or, if no
such resolution is in effect, as the Board may decide so
far as the resolution does not make specific provision.
No such resolution is currently in effect. No Share will,
without the prior written consent of the holder of the
Special Share, have attached to it (either at the time
of its creation or at any subsequent time) any rights in
respect of voting which are not identical in all respects
with those attached to the Ordinary Shares, D1 Shares,
D2 Shares, E Shares, F Shares, G Shares and H Shares.
Directors’ interests
Details of Directors’ beneficial and non-beneficial
interests in the Shares are detailed in the Directors’
Remuneration Report on page 198. No share awards
were granted to Executive Directors under the Company’s
share schemes during the 2021 reporting period.
Qualifying third party indemnification
and insurance
Pursuant to the Articles of Association and their service
contracts/letters of appointment (as appropriate),
Directors benefited from qualifying third-party
indemnity provisions for the purposes of section 236
of the Companies Act throughout the 2021 reporting
period and up to the date of this Directors’ Report.
The Company also maintained Directors’ and Officers’
Liability Insurance throughout the 2021 reporting period.
Appointment and replacement of Directors
The rules for appointing and replacing Directors are
set out in the Articles of Association. Directors can
be appointed by the Board or by ordinary resolution
of the Company. A Director can be removed from
office by the Company passing an ordinary resolution
or by notice being given by all other Directors.
Powers of the Directors
The Directors may exercise all the powers of the
Company subject to the provisions of the relevant
legislation, the Articles of Association and any
directions given by the Company in a general meeting.
Purchase of own Ordinary Shares
At the 2021 AGM, the Company was granted authority
by its Shareholders to purchase up to 10% of its ordinary
issued share capital, in accordance with the Articles
of Association. No Shares were bought back under
this authority during the 2021 reporting period or in
the period from 1 January 2022 to the date of this
Directors’ Report. This buyback authority will expire
at the conclusion of the AGM, when the Directors
intend to propose that the authority be renewed.
Allotment of Shares
Under the Companies Act, the Directors may only
allot Shares if authorised to do so by Shareholders
in a general meeting.
The Directors were granted authority by Shareholders
to allot securities in the Company up to an aggregate
nominal amount of £2,291,293 and to allot securities,
without the application of pre-emption rights, up to
a nominal amount of £343,694 and a further £343,694
in connection with an acquisition or other capital
investment of a kind contemplated by the Statement
of Principles on Disapplying Pre-Emption Rights.
These authorities apply until the conclusion of the AGM
when the Company will seek Shareholder approval to
renew them, with detailed explanatory notes included
within the Notice of Meeting.
119
120
Annual Report 2021
Share structure
The Company has a Standard Listing on the London
Stock Exchange and is the holding company
of the Group. The Company has ten share classes,
as set out in the table below, and as at 31 December
2021 the Shares in issue were as follows:
Share class
Number of Shares
Percentage of Company's fully
diluted issued share capital
Allotted, called up and fully paid Ordinary Shares
1,220,897,947
87.64
Allotted, issued and partly paid D1 Shares
Allotted, called up and fully paid D2 Shares
Allotted, issued and partly paid E Shares
Allotted, issued and partly paid F Shares
Allotted, issued and partly paid G Shares
Allotted, issued and partly paid H Shares
Allotted, called up and fully paid Special Share
Allotted, issued and fully paid Deferred 1 Shares
Allotted, issued and partly paid Deferred 2 Shares
Total
56,082,651
17,812
49,266,539
27,219,640
17,710,851
0
1
312,226
21,563,860
1,393,071,527
4.03
n/a
3.54
1.95
1.27
n/a
n/a
0.02
1.55
100
Rights and obligations attaching to Shares
The rights attaching to the Shares, as detailed within the
Articles of Association, are set out below.
Electronic and paper proxy appointments and
voting instructions must be received no later than
48 hours (excluding any part of a day that is not
a working day) before a general meeting.
(a)
Ordinary Shares
The Ordinary Shares rank pari passu in all respects and carry
the right to receive all dividends and distributions declared,
made or paid on or in respect of the Ordinary Shares.
Subject to the rights of the Special Share and subject
to disenfranchisement in the event of non-payment of
any call or other amount due and payable in respect
of any Share or non-compliance with any statutory
notice requiring disclosure of the beneficial ownership
of any Share, on a show of hands every Shareholder
present in person or by proxy has one vote and on a
poll every Shareholder present in person or by proxy
has one vote for every Ordinary Share that they hold.
Except as set out above and as permitted under
applicable statutes, there are no limitations on the
voting rights of holders of a given percentage, number
of votes or deadlines for exercising voting rights.
(b)
Special Share
The Special Share is (save as noted below) a non-
voting share that carries no economic rights.
Immediately on a Change of Control (as defined in the
Articles of Association) of the Company, the Special
Share will automatically carry such number of votes on
any resolution put to Shareholders as is necessary to
ensure the effective passing or defeat of that resolution.
(d)
F Shares, G Shares and H Shares
The F Shares, G Shares and H Shares are non-
voting ordinary shares and do not carry the right
to participate in dividends of the Company.
The holders of F Shares, G Shares and H Shares may
exercise put options to convert their F Shares, G Shares
and H Shares into Ordinary Shares (on the basis of
one Ordinary Share per F Share, G Share or H Share
as applicable). The put options may be exercised for
a period of 10 years from the end of the performance
period (which ends on 31 December 2022).
Some of the F Shares and G Shares are subject
to leaver provisions. If a holder of F Shares or G Shares
to which leaver provisions apply ceases to be employed
or otherwise engaged within the Company at any time
during the performance period then, at the discretion
of the Board, the consideration payable for their
F Shares and G Shares will be: (i) the market value
of the Shares at the time of leaving, if the holder
is a Good Leaver (as defined in their subscription
agreement); or (ii) an amount determined by
the Board, if the holder is a Bad Leaver (as
defined in their subscription agreement).
(e)
Deferred 1 Shares and Deferred 2 Shares
The Deferred 1 Shares and Deferred 2 Shares are
non-voting ordinary shares and do not carry the
right to participate in dividends of the Company.
The Deferred 1 Shares and Deferred 2 Shares
may be purchased by the Company, provided
it is lawful for the Company to purchase
them, for an aggregate sum of £1.00.
The rights attributable to the Special Share will cease
on the earlier of: (i) 16 September 2023 (being the
date falling three years after the date of Admission);
(ii) the transfer (in whatever manner) of the Special
Share to any person other than pursuant to article 69.7
of the Articles of Association (as explained below);
and (iii) if a person who has become the holder of
the Special Share in the event of the holder’s death
ceases to qualify as a Permitted Transferee (as defined
in the Articles of Association). In the case of (i), (ii)
and (iii), the Company may purchase or cancel the
Special Share at any time or otherwise deal with the
Special Share as permitted by the Companies Act.
Pursuant to article 69.7 of the Articles of Association,
the Special Share will retain its rights on a transfer
by transmission upon the death of its holder to a
Permitted Transferee, being any person that is not: (i) an
employee of the Company or Director or any subsidiary
undertaking of the Company; or (ii) a person acting
in concert with any person listed in (i) at the time of
transfer of the Special Share. Similarly, in the event that
the transmittee is not the holder’s intended beneficiary,
a transmittee who produces evidence of entitlement
to the Special Share to the Board may choose to have
the Special Share transferred to another person who
is the intended beneficiary of the holder’s estate, so
long as that person is also a Permitted Transferee.
The holder of the Special Share is Matthew
Moulding, the Chief Executive Officer.
As at 31 December 2021 Matthew Moulding was
also interested in 182,891,075 Ordinary Shares,
representing 14.98% of the total issued Ordinary Shares;
50,550,450 D1 Shares, representing 90.14% of the
total issued D1 Shares; 360 D2 Shares, representing
2.02% of the total issued D2 shares; 43,641,266 E
Shares, representing 88.58% of the total issued E
Shares; 20,197,808 F Shares, representing 74.20%
of the total issued F Shares; 7,733,792 G Shares,
representing 43.67% of the total issued G Shares;
and 18,346,774 Deferred 2 Shares, representing
85.08% of the total issued Deferred 2 Shares.
(c)
D1 Shares, D2 Shares and E Shares
The D1 Shares, D2 Shares and E Shares are
non-voting ordinary shares and do not carry the
right to participate in dividends of the Company.
The holders of D1 Shares, D2 Shares and E Shares
may convert their D1 Shares, D2 Shares and E
Shares into Ordinary Shares (on the basis of one
Ordinary Share per D1 Share or E Share or 185
Ordinary Shares per D2 Share as applicable).
121
122
Annual Report 2021
Restrictions on transfer or holdings of securities
in the Company
Dividends
With the exception of the following, there are
no restrictions on the transfer of, or limitations
on holding, securities in the Company:
•
•
•
•
•
The Company may, pursuant to the Articles
of Association and the Companies Act, send
out statutory notices to those it knows, or has
reasonable cause to believe, have an interest
in its Shares, asking for details of those who
have an interest in a particular holding of Shares
and the extent of their interest. When a person
receives a statutory notice and fails to provide
any information required by the notice in the
time specified within it, the Company can apply
to a court for an order directing, amongst other
things, that any transfer of the Shares which are
the subject of the statutory notice is void.
The Directors may, without giving any reason,
refuse to register the transfer of any certificated
Ordinary Shares which are not fully paid.
Transfers of uncertificated Ordinary Shares must
be carried out using CREST, the central securities
depository for markets in the UK and for Irish
stocks, and the operator of the relevant system or
the Directors can refuse to register a transfer of an
uncertificated Ordinary Share, in accordance with
the regulations governing the operation of CREST.
The Special Share is subject to transfer restrictions
as set out at paragraph (b) above.
Some of the F Shares and G Shares are subject to
leaver provisions as set out at paragraph (d) above.
Subject to the Companies Act and the Articles of
Association, the Company may, by ordinary resolution,
declare dividends and the Directors may decide to pay
interim dividends. A dividend must not be declared
unless the Directors have made a recommendation
as to its amount. Such a dividend must not exceed
the amount recommended by the Directors and
no dividend may be declared or paid unless it is
in accordance with members’ respective rights
.
No dividends were declared nor will be distributed for
the financial year ended 31 December 2021 (2020: £nil).
Return of capital
A liquidator may, on obtaining any sanction required
by law, divide amongst the members in kind the
whole or any part of the assets of the Company
and may, for that purpose, value any assets and
determine how the division is carried out as between
the members or different classes of members.
Shares held on trust
Prior to the IPO the Company had established
an employee benefit trust (“EBT”) which facilitated
an internal market for participants in employee share
schemes to sell their Ordinary Shares. Ordinary Shares
held were recognised at cost as a deduction from
shareholding equity. Subsequent consideration received
for the sale of such Ordinary Shares was also recognised
in equity. The EBT was terminated following the IPO.
Substantial shareholdings
The Company had received notice of the following
interests of 3% or more in its Ordinary Shares as at
31 December 2021 and as at 31 March 2022:
Shareholder
Matthew Moulding
Sofina Capital S.A.
Jupiter Asset Management Ltd.
Balderton Capital (UK) LLP
SoftBank Group Corp.
T. Rowe Price Group, Inc.*
BlackRock, Inc.**
Percentage of Ordinary Shares
as at 31 December 2021
Percentage of Ordinary Shares
as at 31 March 2022
14.98
9.01
8.21
7.94
7.09
5.16
4.68
14.98
9.01
7.83
7.94
7.09
3.46
n/a
*T. Rowe Price Group, Inc. incorporates the following entities: T. Rowe
Price Associates, Inc. & T. Rowe Price International Ltd..
**BlackRock, Inc. incorporates the following entities: BlackRock
Investment Management (UK) Ltd., BlackRock Advisors LLC
and BlackRock Investment Management (Australia) Ltd..
All notifications made to the Company under the DTRs are released to the market via
a Regulatory Information Service and made available on the Company’s website at:
https://www.thg.com/regulatory-news/.
Change of control
Other than the terms of the agreement between
Matthew Moulding and the Company, as detailed
under the Significant Contractual Arrangements
disclosure which follows, there are no agreements
between THG and its Directors or employees providing
for compensation for loss of office or employment
(whether through resignation, purported redundancy
or otherwise) by reason of a takeover bid.
Details concerning the impact on annual bonus in
the event of a change of control are set out in the
Remuneration Policy. Generally, any annual bonus
awards and unvested LTIP awards would be pro-
rated for time and performance in the event of a
change of control whereas any deferred elements
of bonus would not be. While the Remuneration
Committee has the discretion not to pro-rate for
time, its normal policy is to do so. The Remuneration
Committee’s discretion not to pro-rate would only
be used if there was an acknowledged business case
which would be fully explained to Shareholders.
The Company has entered into various agreements
with third parties, as well as contracts with third-
party service providers, which provide such
parties with a right to terminate the agreement
in the event of a change of control.
123
124
Annual Report 2021
Significant contractual arrangements
Overseas branches
The Company is party to a relationship agreement
with Matthew Moulding which regulates the ongoing
relationship between the two parties (the “Relationship
Agreement”). The principal purpose of the Relationship
Agreement is to ensure that the Company is capable
of carrying on its business independently of Matthew
Moulding and that all transactions and arrangements
between the Company and Matthew Moulding
are conducted on normal commercial terms.
The provisions of the Relationship Agreement imposing
certain obligations on Matthew Moulding will remain in
full force and effect, in respect of Matthew Moulding,
for so long as: (i) the rights of the Special Share
remain in force; and/or (ii) either Matthew Moulding
beneficially owns, together with any of his associates,
at least (a) 5% of the fully diluted share capital of
the Company or (b) 10% of the Ordinary Shares.
THG Intermediate Opco Limited and THG Operations
Holdings Limited are parties to a senior facilities
agreement which is subject to mandatory prepayment
provisions on a change of control or the sale of all,
or substantially all, of the assets of THG Operations
Holdings Limited and its restricted subsidiaries.
Other than as disclosed above, there are no
significant agreements to which the Company is
a party that take effect, alter or terminate upon
a change of control following a takeover bid.
The Company does not have any agreement with any
Director or employee that would provide compensation
for loss of office or employment resulting from a
change of control on a takeover, except that the
terms of the Company’s share schemes and plans
may provide for the vesting of employee options
and/or awards in the circumstances of a takeover.
Donations
During the reporting period the Group made
several charitable donations totalling £1.3m
(2020: £6.6m). THG did not make any political
donations during 2021 (2020: £nil).
Whilst the Group does not operate any overseas
branches, subsidiaries have been established in
the following countries: Australia, China, Finland,
France, Germany, Guernsey, India, Japan, Jersey,
the Netherlands, Poland, Portugal, the Republic of
Ireland, Singapore, Spain, Sweden, the United Arab
Emirates, Ukraine and the United States of America.
As a Group, we continue to assess the ongoing
situation in Ukraine and Russia, with our key focus
being to safeguard our employees. Arrangements
were put in place to support the immediate relocation
of employees where required, together with the
development of longer-term resettlement proposals
and the provision of appropriate financial support.
Welfare calls were extended to all Group employees
who have ties to the affected regions and additional
targeted monitoring groups have been established
to actively review intelligence on an ongoing basis to
ensure the Group continues to adapt accordingly.
From an operational perspective, all THG own brand
deliveries have been temporarily suspended across
Russia and Ukraine and the Group continues to work
with its courier partners as the situation develops.
Necessary actions have also been implemented
internally to ensure continued compliance with all
applicable sanctions and related notices and guidance.
Research and development
THG and its third-party commerce clients are all
powered by THG Ingenuity, the Group’s proprietary
technology platform. In addition to providing end-
to-end e-commerce functionality, THG Ingenuity
provides the Group with several important competitive
advantages. Specifically, the commercial teams review
real-time transactional and customer insight data which
informs trading decisions that are then executed within
short time frames. In order to remain competitive and to
promote innovation, investment into THG Ingenuity from
a people and capex perspective is a key Group priority.
125
THG Tech Graduate.
Media City, Manchester. UK..
126
Annual Report 2021
Directors’ Statement of Responsibility
in respect of the Annual Report
•
prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Company and /or the Group will continue
in business.
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Company’s and Group’s
transactions and disclose with reasonable
accuracy at any time the financial position of the
Company and the Group and enable them to
ensure that the Company and the Group financial
statements comply with the Companies Act.
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.
In accordance with DTR 4.1.12R, each Director
whose name and position appears on pages
133–136 of the Governance Report confirms
that, to the best of their knowledge:
•
•
•
the consolidated financial statements, prepared
in accordance with UK-adopted international
accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit
of the parent company and undertakings included
in the consolidation taken as a whole;
the Annual Report, including the Strategic Report,
includes a fair review of the development and
performance of the business and the position of
the Company and undertakings included in the
consolidation taken as a whole, together with a
description of the principal risks and uncertainties
that they face; and
they consider the Annual Report, taken as a
whole, to be fair, balanced and understandable
and provides the information necessary for
Shareholders to assess the Company’s position,
performance, business model and strategy.
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable UK law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the
Directors have elected to prepare the Group financial
statements in accordance with UK-adopted international
accounting standards (“IFRSs”) and the parent company
financial statements in accordance with UK Generally
Accepted Accounting Practice (UK Accounting
Standards and applicable law), including 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 and the Company for that period.
In preparing these financial statements,
the Directors are required to:
•
select suitable accounting policies in accordance
with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors and then
apply them consistently;
• make judgements and accounting estimates
that are reasonable and prudent;
present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information;
provide additional disclosures when compliance
with the specific requirements in IFRSs (and in
respect of the parent company financial statements
FRS 101) is insufficient to enable users to understand
the impact of particular transactions, other events
and conditions on the Group and Company
financial position and financial performance;
in respect of the Group financial statements,
state whether UK-adopted international accounting
standards have been followed, subject to any
material departures disclosed and explained
in the financial statements;
in respect of the parent company financial statements,
state whether applicable UK Accounting Standards,
including FRS 101, have been followed, subject to
any material departures disclosed and explained
in the financial statements; and
•
•
•
•
127
Outlook and market demand
Q1 2022 saw encouraging consumer demand levels
against a particularly challenging comparable global
lockdown period in 2021, with the second quarter
starting in line with expectations.
Whilst unprecedented inflationary pressures and
the geo-political environment have brought caution
to capital deployment plans, digital transformation
projects remain essential, reflected in the strength
of the THG Ingenuity new business pipeline.
Through its fully-integrated D2C model, THG has
significant pricing power given its global leadership
positions in high-repeat, large-scale Beauty and
Nutrition markets.
The Board is fully aware of the significant impact of
short-term cost inflation on both global consumers
and supply chains alike. THG intends to limit the impact
of cost pressures on our consumers by maximising
efficiencies in our operating model, absorbing some
of the pricing pressures, and raising prices at a lower
rate to underlying input costs.
The Board believes the recent and rapid inflationary
environment is largely transitory, and THG will, as far
as possible, continue to shield consumers from these
adverse macro-economic conditions. The Group has
long dated banking facilities (Term Loan B maturing
December 2026 and Revolving Credit Facility maturing
December 2024) and the Board considers THG to
be in a strong liquidity position to weather any further
uncertainty and continue to invest in the business’s
infrastructure.
The Group’s consumer first focus remains to build the
long-term, loyal base, with c.80% of revenues generated
from returning customers each year and the Board
remains confident in being able to deliver a strong level
of revenue growth in 2021.
Our commitment to building a sustainable business
for employees, consumers and Shareholders is defined
within our 2030 Sustainability Strategy.
Post balance sheet events
There are no material post balance sheet events. See
note 12 for information regarding a non-adjusting event
relating to a Freehold building asset that has been
reclassified as an asset held for sale under IFRS 5 post
year end.
Audit and Auditor
At the date of approval of this Directors’ Report
each of the Directors confirms that:
•
•
to the best of their knowledge there is no relevant
audit information that has not been brought to the
attention of the External Auditor; and
they have taken all steps required of them to make
themselves aware of any relevant audit information
and to establish that the External Auditor was aware
of that information.
This confirmation is given and should be interpreted
in accordance with the provisions of section 418 of the
Companies Act.
EY has indicated its willingness to continue in office
as External Auditor and, upon the recommendation
of the Audit Committee, a resolution to reappoint EY
as such will be proposed at the AGM. Any remuneration
received by EY for: (i) auditing this Annual Report;
and (ii) any other (non-audit) services has been disclosed
in note 5 to the Group’s financial statements.
Approval of Directors’ Report
This Directors’ Report was approved and issued
by the Board and signed on its behalf by
James Pochin
General Counsel and Company Secretary
20 April 2022
128
Annual Report 2021
Governance Report
a clear division of responsibility was established between
the leadership of the Board and the executive leadership
of the business. A comprehensive recruitment process was
thereafter initiated which culminated in my appointment to
the position on 22 March 2022 and I, together with
my fellow Directors, am delighted to be on the Board
of THG at such an exciting stage of its evolution.
While the Board is considered well-placed to continue
to deliver the Group’s strategic aims and objectives within
the appropriate governance framework (with specific
reference to its collective balance of skills, knowledge
and experience), its structure, size and composition will
remain subject to ongoing oversight throughout the 2022
reporting period. We are acutely aware of the need to have
a suitably-equipped leadership team in place to guide the
Company through the next significant stage of its corporate
governance journey and recognise that due regard must
be given to both the balance of Executive Directors/
NEDs and the need for appropriate succession planning
to be undertaken. Indeed, the Nomination Committee is
cognisant of its responsibility to implement and maintain
effective succession plans in respect of both the Board and
the Executive Leadership Team.
The departure from Code Provision 11, further details
on which follow, is acknowledged but will be rectified, to
the extent possible, during 2022 – and noting that Board
appointments will continue to be made based upon merit
and against objective criteria to secure the best individual,
who is the “right THG fit”, for the role in question – to
ensure the Company’s leadership is best placed to
effectively execute its strategic goals.
Board effectiveness
The Board believes that an annual evaluation of its
performance is a fundamental component of good
governance. Therefore, in accordance with the relevant
Principles and Provisions of the Code, a Board evaluation
was undertaken following the end of the 2021 reporting
period which considered the collective effectiveness of the
Board and the Board Committees and also the effectiveness
of individual Directors. Further information on the
evaluation, including how it was conducted, is included in
the “Board evaluation” section of this Governance Report,
whilst the specific outputs and actions flowing from the
evaluation are considered in more detail in the Nomination
Committee Report on pages 165-170. The overall
conclusion was that the Board and its Committees function
effectively and that each Director continues to contribute
effectively to both the Board and the Board Committees of
which they are a member. It is acknowledged that, in light
of the specific mandate of my appointment (as referred to
above), careful consideration must be given to the timing,
structure and content of the next such evaluation.
As the newly appointed independent Chair, I am pleased
to introduce our Governance Report for the financial year
ended 31 December 2021, including the Company’s second
Corporate Governance Statement since Admission. It is a
privilege to have joined THG in this capacity with a clear
mandate to improve governance and transparency; to
enhance Board composition by improving its independence
and diversity; to support Senior Management as it seeks
to further strengthen its talented leadership team; and
to review and develop the Group’s strategy, in relation
to which we continue to progress the strategic initiatives
previously disclosed, including our plans to apply for a
Premium Listing.
The Board recognises the importance of strong corporate
governance and remains committed to ensuring that a
robust governance framework is in place to underpin
and support the long-term prospects of the Group.
Whilst not mandatory for a company with a Standard
Listing, the Company elected to adopt the Code following
Admission, evidencing the Board’s desire to set and
achieve its strategic aims and business objectives within
the appropriate governance parameters.
2021 represented the first full year the Company applied
the Code and significant steps were taken over this period
to ensure the ongoing evolution of the Group’s governance
infrastructure and improved Code adherence. Indeed,
certain aspects of the Company’s governance practices
were subject to ongoing consideration by the Board and
Board Committees (as appropriate), culminating in a
number of key governance enhancements taking place
during the 2021 reporting period.
Board composition and succession
Following an ongoing review of corporate governance
arrangements, the need for an independent chair was
recognised to ensure that, in compliance with the Code,
129
As detailed within the “Board support and training” section
of this Governance Report, the professional development
needs of the Directors were considered during the 2021
reporting period and an independent third-party provider
engaged to develop a training programme tailored to
both individual and collective requirements. The principal
objective of this initiative is to ensure that Directors remain
apprised of applicable legislation, guidance and market
practice and that knowledge and skillsets are suitably
refreshed in light of relevant proposals and/or changes
which may be on the corporate governance landscape
and/or within the organisation itself. The intention is that
during 2022 the programme will be further enhanced and
refined to ensure the Company supports the continued
development needs of its Directors which, in turn,
will assist in the effective and efficient functioning of the
Board and Board Committees, a key element of the Code.
Board Committee composition
Pursuant to its Terms of Reference, the Nomination
Committee undertook a review of Board Committee
composition during the 2021 reporting period and
ultimately recommended that certain changes be made to
the composition of a number of Board Committees. The
Board accepted these recommendations, further details on
which can be found in the Nomination Committee Report
on pages 165-170, and the requisite membership changes
took effect immediately following the 2021 AGM. The
implementation of these changes served to both enhance
certain corporate governance arrangements, rectifying
identified departures from the Code, and ensure the
optimum utilisation of NEDs’ skillsets and experience, whilst
streamlining Board Committee commitments as considered
appropriate.
Board Committee composition has therefore been brought
in line with the Code, with the exception of the departure
from Code Provision 32 in respect of Iain McDonald’s
continued membership of the Remuneration Committee.
As outlined in further detail in the Corporate Governance
Statement, this departure is viewed as being in the best
interests of the Company and its Shareholders at the
present time, although the matter will be kept under
ongoing review during 2022.
ESG
A key focus of the Board during the 2021 reporting period
was to seek to embed the individual elements of ESG into
the DNA of the Group, an objective which was reinforced
with publication of the 2030 Sustainability Strategy (“THG
x Planet Earth”). With the launch of THG x Planet Earth,
further details of which are contained in the “Sustainability”
section of the Strategic Report on pages 87-104, the
Company publicly committed to using its global scale, its
people and its dedication to innovation to act as a force
for good and to utilise its access to capital to invest in and
influence environmental and societal changes that will
benefit our planet today and create a sustainable future for
generations to come.
In recognition of our commitment to put sustainability
at the heart of our business and ensure effective and timely
delivery of THG x Planet Earth, Executive Directors and
members of the Senior Leadership Team have been set
relevant sustainability-linked objectives from 2022 onwards
with an increased focus in personal reviews on sustainability-
related outcomes. Further, a Group Chief Sustainability
Officer was appointed during 2021 who is accountable for
the ongoing development and implementation of THG
x Planet Earth. In conjunction with the Board-constituted
Sustainability Committee (of which he is a member), the
Chief Sustainability Officer will oversee all ESG matters to
ensure the Group has appropriate and effective strategies,
policies and operational controls in place to conduct its
business in a responsible manner and to achieve its stated
goal to be climate positive and offset the Group’s historical
operational emissions by 2025.
2022 and beyond
It is anticipated that Board composition will be a prime
focus and remain subject to detailed scrutiny over the
coming months to ensure that a suitably equipped
leadership team is in place to drive and navigate the
Company through the next stage of its corporate
governance journey. The Group’s governance infrastructure
will be enhanced and refined as required and the
necessary changes effected to ensure it is suitably mature
and appropriately structured, whilst at the same time
encouraging stakeholder confidence and supporting the
long-term sustainable success of the Group. Within the
parameters of a robust governance framework and aligned
with its growth ambitions, the Company remains committed
to enhancing and developing its operations,
its business model and its businesses for the benefit of
its Shareholders, its people and all other stakeholders.
The Board recognises the importance of establishing
and maintaining open and effective communication with
its Shareholders (and other key stakeholders) and the
Company’s annual general meeting is considered a key
forum through which to engage. Subject to any restrictions
being in place at the relevant time, we look forward to
welcoming Shareholders in person to the forthcoming
AGM, further details of which are contained in the Notice
of Meeting.
Charles Allen,
Lord Allen of Kensington CBE
Independent Chair
20 April 2022
130
Annual Report 2021
Corporate Governance Statement
Aside from the following departures, the Company complied
in full with the Code during the 2021 reporting period:
Provision 9 and Provision 19:
Matthew Moulding, the co-founder of THG, has been
CEO since the incorporation of the Company in 2008
and also held the office of Company chair from 2019
until the appointment of the Independent Chair in
March 2022. It is considered that Matthew Moulding has
been instrumental in the Company’s ongoing growth
and development and retaining this dual role during
2021 ensured that the Group continued to benefit
from his entrepreneurial and dynamic leadership in
the achievement of its strategic aims and business
objectives. As a major Shareholder in the Company,
Matthew Moulding’s interests are aligned with that
of its wider Shareholder base and, together with
the other Directors, he is committed to promoting
the long-term sustainable success of the Company
whilst generating value for Shareholders.
As detailed in the 2021 Annual Report, the Board has
examined the risks associated with this departure
from the Code, namely the ability to demonstrate
appropriate levels of challenge, independence and
oversight of the Executive Directors and Executive
Leadership Team, and recognises that whilst a distinct
chair role can be highly additive to an organisation,
the wrong appointment may also be materially
destructive. The role of the SID was viewed as key in
this regard; in addition to being a trusted intermediary
for Directors and Shareholders alike, the position of
SID was considered an important safeguard in respect
of those matters where any conflict may have been
perceived to arise from Matthew Moulding’s dual role
of Company chair and CEO. The SID will continue to meet
with the other NEDs, on a one-to-one or collective basis (as
appropriate), in order to appraise the performance of the new
Independent Chair and is expected to bring an objectivity
and robust challenge to their role as and when required.
As detailed within this Governance Report, the balance
of skills, knowledge and experience on the Board is
monitored on an ongoing basis with reference to not
only the Group’s strategy and long-term sustainable
success but also to the need to promote diversity in
the boardroom. Indeed, the Nomination Committee
is acutely aware of its responsibility to ensure Board
membership remains fit for purpose and the Group’s
leadership needs are met to both drive delivery of
the strategy and to address any current and/or future
challenges of the organisation. Against this background
and further to an ongoing review of corporate governance
arrangements, the need for an independent chair was
recognised and thereafter became a principal area of
focus during the 2021 reporting period (and into 2022).
Following a comprehensive recruitment process, Charles
Allen was appointed to the Board as independent chair
on 22 March 2022 at which point the Company’s departure
from Code Provisions 9 and 19 was rectified.
Provision 11:
When Matthew Moulding, the Company’s former chair,
is included in the independence calculation, four of
the nine Directors then in office were deemed to be
independent at the end of the 2021 reporting period.
Whilst the Code states that the chair should be excluded
from the calculation, this assumes that the chair will be
independent. The Board recognises that, in the spirit
of the Code and in the context of THG – noting, in
particular, the non-independence of the former chair
– it would be best practice to include the former chair
in the independence calculation. On that basis, the
composition of the Board was considered to be
a departure from Code Provision 11 at the end
of the 2021 reporting period.
At the date of this Governance Report and noting
the appointment of the new Independent Chair, the
Company continues to depart from Code Provision 11.
As detailed above, the structure, size and composition
of the Board will be kept under ongoing review during
2022, with due regard being given to the balance
of Executive Directors/NEDs and the need for the
appropriate succession planning to be undertaken.
Provision 24 and Provision 32:
Due to his tenure of office, Iain McDonald is not deemed
to be independent by reference to the Code. During
the 2021 reporting period Iain McDonald was a member
of the Remuneration Committee (and remains so as
at the date of this Governance Report) and was also
a member of the Company’s Audit & Risk Committee
(now renamed the Audit Committee as a result of the
formation of the standalone Risk Committee during
2021) until he stepped down from membership
following the 2021 AGM. THG recognises the need
for independent membership of the Remuneration
Committee to demonstrate objective oversight of and
independent challenge to the remuneration of Executive
Directors (and the Executive Leadership Team) in
seeking to mitigate perceived conflicts of interest and
ensure reward is proportional to the performance of
the business with a view to long-term value creation.
As detailed in the 2020 Annual Report, membership
of the Remuneration Committee was reviewed
following Admission and subsequently bolstered with
the appointment of two independent NEDs, Damian
Sanders and Tiffany Hall, whose appointments were
viewed as mitigating any risk perceived as arising from
Iain McDonald’s membership. Membership of the
Remuneration Committee has been carefully considered
and the Board continues to be of the opinion that it
would not be in the best interests of the Company and
its Shareholders for Iain McDonald to step down from
the Remuneration Committee at the present time as
his remuneration background and expertise is viewed
as enhancing and adding significant value to the
composition of the Committee. While the Company
will continue to depart from Code Provision 32 in
respect of Iain McDonald’s continued membership
of the Remuneration Committee for the time being,
the matter will be kept under ongoing review.
Provision 32 :
Damian Sanders served as chair of the Remuneration
Committee prior to the 2021 AGM, although he had
not previously served on a remuneration committee
for at least 12 months. Further to a review of Board
Committee composition during the 2021 reporting
period (details of which are included in the Nomination
Committee Report), it was agreed that following the
2021 AGM, and in light of the separation of the Audit
& Risk Committee, certain changes should be effected
to enhance particular aspects of the Group’s corporate
governance arrangements and ensure the best utilisation
of NEDs’ skillsets and experience. Accordingly, Tiffany
Hall, who had extensive remuneration experience and had
served as remuneration committee chair at B&M European
Value Retail S.A. for more than 12 months, was appointed
chair of the Remuneration Committee following the 2021
AGM, replacing Damian Sanders who remained on the
Committee as a member.
When Tiffany Hall stepped down from the Board in
March 2022 for family reasons, Damian Sanders, who
has now served on a remuneration committee for at
least 12 months, reassumed the role of chair of the
Remuneration Committee on an interim basis.
It is therefore expected that, for the time being, the Company will continue to depart from Code Provision 32 due
to Iain McDonald’s continued membership of the Remuneration Committee, although, as detailed above, this will be
kept under ongoing review. Similarly, the departure from Code Provision 11 will also be subject to ongoing monitoring to
ensure the balance of Executive Directors/NEDs is appropriate and with due regard to the need for the appropriate
succession planning to be undertaken
131
132
Annual Report 2021
Board of Directors
Charles Allen,
Lord Allen of Kensington CBE
Independent Non-Executive Chair
Date of appointment: 22 March 2022
Charles has extensive corporate experience across
a number of sectors, including finance, media, hospitality
and retail. Having played a key role in the creation
of ITV, he is recognised for his significant contribution
to the television industry. Charles is currently chair
of Global Media & Entertainment Limited, Balfour Beatty
plc and the Invictus Games Foundation and also advisory
chair of Moelis & Company. He was a former chair
of Granada Media plc, chief executive of Granada Group
plc and ITV plc and chair of EMI Music, Endemol and
The British Red Cross. Charles has also served on the
boards of Tesco plc, Virgin Media and GET AS and been
Chief Adviser to the Home Office and a Senior Adviser
to Goldman Sachs.
Charles was vice chair of the London 2012 bid company,
non-executive director of the London Organising Committee
of the Olympic and Paralympic Games and chair of the
Manchester Commonwealth Games in 2002. In 2002 he
was awarded a CBE for his services to Sport and Community
and in 2012 appointed a Knight Bachelor for his services
to the 2012 Olympic and Paralympic Games.
Charles received the Freedom of the City of London in 2006
and in 2013 was awarded a peerage and sits on the Labour
benches.
Current external roles:
Chair of Global Media & Entertainment
Limited (and a director of associated
group companies)
Chair of Balfour Beatty plc
Chair of the Invictus Games Foundation
Advisory chair of Moelis & Company
Chair of Glassmoon Services Limited
Chair of Grandmet Management Ltd
Chair of Nell Homes Limited
Director of IGF Trading Limited
Director of Malch Limited
Matthew Moulding
Executive Director & CEO
Date of appointment: 24 June 2008
Matthew has been instrumental in
THG’s growth, leading its evolution
from an entertainment reseller to a
global e-commerce technology group.
Prior to founding THG, he served
an eight-year term as chief financial
officer of 20:20 Mobile (the Distribution
Division of the Caudwell Group) before
leading its sale to private equity for
£365m.
Matthew studied Industrial Economics
at the University of Nottingham before
qualifying as a Chartered Accountant
with Arthur Andersen in 1998. His
deep e-commerce knowledge and
insight, combined with his proven
entrepreneurial drive and skillset, make
him best-placed to most effectively
drive THG’s strategy whilst working in
alignment with its shareholder base.
Current external roles:
•
None
John Gallemore
Executive Director & CFO
Date of appointment: 24 June 2008
Prior to co-founding THG in 2004, John
was Head of Finance of the Caudwell
Group’s International Trading Division
from 2001 until 2004.
John studied Economics at the
University of Manchester before
qualifying as a Chartered Accountant
with Deloitte LLP in 1994. His strong
background in finance, coupled with
his financial acumen and tenure in
international trading, provide the
requisite experience to serve as the
Company’s Chief Financial Officer.
Current external roles:
•
None
133
134
Annual Report 2021
Board of Directors (continued)
Zillah Byng-Thorne
Independent NED & SID
Date of appointment: 22 November 2018
Dominic Murphy
Independent NED
Date of appointment: 7 August 2014
Edward Koopman
NED
Date of appointment: 3 May 2016
Iain McDonald
NED
Date of appointment: 27 March 2010
Damian Sanders
Independent NED
Date of appointment: 17 November 2020
Andreas Hansson
NED
Date of appointment: 26 October 2021
Zillah has broad financial experience having
served as chief financial officer of the Thresher
Group, Fitness First Clubs Limited and Trader
Media Group Limited, one of Europe’s largest
multimedia publishers. Whilst she is currently
the chief executive officer of Future plc,
Zillah has also served on numerous boards
as a non-executive director, including Mecom
Group plc and GoCo Group plc. Professionally
Zillah has qualifications with both the Chartered
Institute of Management Accountants and the
Association of Corporate Treasurers. She holds
a graduate degree from Henley Business School
and a degree from the University of Glasgow.
Zillah’s extensive business, PLC and accounting
experience and tenures served as chief financial
officer and chief executive officer ensure she
is well-equipped to act as SID and chair of the
Company’s Risk Committee.
Dominic Murphy is a Managing Partner
and Co-Head of UK Investments at CVC Capital
Partners. Prior to this Dominic was the founding
partner and chief executive officer of 8C Capital
LLP, investing in healthcare and tech-enabled
consumer and business services.
Formerly a Partner at Kohlberg Kravis Roberts
& Co. Inc., he was also a member of the firm’s
European Investment and Portfolio Management
Committees. Dominic played an influential role
in a number of KKR’s investments, including
Alliance Boots, Ambea, The Hut Group, LGC,
Mehiläinen Oy, SBS Broadcasting and Webhelp,
and currently serves on the board of Walgreens
Boots Alliance, Inc..
Dominic’s financial and investment background
make him an invaluable asset to the Board. He
is an integral member of the Audit, Risk and
Remuneration Committees and his all-round
experience ensures his effective chairship of the
Company’s Nomination Committee.
Edward is a member of the Executive
Committee of Sofina S.A. and a director of
Sofina Capital. He also sits on the board of
Nuxe Group, a French-based international
skincare brand, and GL Events S.A., a listed
global player in event management. Edward
was a founding partner at Electra Partners/
Cognetas Private Equity (now known as
Motion Equity Partners LLP) and was also
previously a Manager at Bain & Company,
having worked in investment banking at both
Baring Brothers and BNP Paribas.
Edward holds a degree from Ecole de
Management de Lyon (EM Lyon) Business
School and brings a wealth of knowledge
to the Board through his international
business experience and well-honed
management skills.
Iain is the founder and chief investment officer
of Belerion Capital Limited, established in
2018, prior to which he was chief investment
officer of the William Currie Group Limited.
Notable investments include ASOS plc,
boohoo group plc, Metapack Limited,
Eagle Eye Solutions Group PLC, Anatwine
Limited and Lifeworks Corporation Ltd..
He is also chair of the UK Digital Business
Association, non-executive chair of CentralNic
Group PLC and a non-executive director
of boohoo group plc where he chairs the
remuneration committee and is a member
of the audit and nomination committees.
Iain holds a degree in Economics and
Economic History from the London School
of Economics and Political Science. He
brings broad and robust experience to
the Board, substantiated by the deep
financial expertise gained in his CIO roles.
Damian is a member of the Institute of
Chartered Accountants and was a Senior
Audit Partner at Deloitte LLP for over 20
years, including several years as the leader of
Deloitte’s Technology Practice in the North of
England. Damian has extensive experience
advising international listed companies on
audit, accounting, corporate governance and
other regulatory and compliance matters
as well as advising on business strategy.
Having acted as an adviser and corporate
governance specialist to a number of
FTSE boards for many years, Damian
brings a wealth of experience across
audit, accounting, commercial, corporate
governance and risk matters. He is
well-placed to challenge and effectively
contribute to THG’s Risk and Related
Party Committees whilst serving as chair
of the Audit Committee and interim
chair of the Remuneration Committee.
Andreas is an investor and adviser with
experience from the entire company life
cycle. Until recently he served as a Managing
Director of SB Management, having first
joined SoftBank Group in 2017, and was a
Partner at SoftBank Investment Advisers until
August 2020. Andreas also serves on the
Board of a number of SoftBank investments,
including AutoStore, the leading automated
storage and retrieval system provider, and as
chair of the board of Kahoot! ASA, a leading
EdTech platform. Before joining SoftBank,
Andreas held multiple positions at Arm
Ltd. where he served as technical adviser to
the executive vice president and the chief
technology officer, leading strategic activities
around business development and incubation.
Andreas holds a PhD in Electrical Engineering
from Eindhoven University of Technology
and a MSc in Computer Engineering
from Lund University in Sweden.
Current external roles:
Current external roles:
Current external roles:
Current external roles:
Current external roles:
Current external roles:
•
•
Chief executive officer and
executive director of Future plc
Non-executive director of
Flutter Entertainment plc
•
•
Managing Partner and Co-Head of UK
Investments at CVC Capital Partners
Director of Walgreens Boots
Alliance, Inc.
•
•
•
•
Member of Executive
Committee of Sofina S.A.
Director of Sofina Capital
Director of Nuxe Group
Director of GL Events S.A.
•
•
•
Chief investment officer
of Belerion Capital Limited
Chair of the UK Digital
Business Association
Chair of CentralNic Group PLC
• Non-executive director
of boohoo group plc
• Non-executive director
of Cineworld Group plc
•
Senior independent director
of Victorian Plumbing Group plc
• Non-executive director of
Panther Topco Limited
• Non-executive director of
Tactus Holdings Limited
•
•
Chair of Kahoot! ASA
Director of AutoStore
• Member of the Nomination
Committee of Sinch AB
Committee membership:
A, N, R (Chair), RP (Chair)
Committee membership:
A, N (Chair), R, Rem
Committee membership:
Committee membership:
N, Rem, S (Chair)
A (Chair), Rem (Interim Chair), R, RP
135
Committee membership key:
A: Audit N: Nomination Rem: Remuneration R: Risk RP: Related Party S: Sustainability
136
Annual Report 2021
THG ICON Office.
Manchester. UK.
Role of the Board
In seeking to provide entrepreneurial and effective leadership, the
Board is cognisant of its primary duty to promote the long-term
sustainable success of the Company whilst generating value for
Shareholders and also contributing to wider society.
It is aware that its responsibilities are owed to both
Shareholders and to the wider stakeholder base and thus
seeks to understand the views of all key stakeholders
and ensure they are taken into account, to the extent
considered appropriate, in Board discussions and
decision-making processes. Further information on
the Company’s stakeholder engagement framework is
included in the “Our Stakeholders and s172 Statement”
section of the Strategic Report on pages 73-84.
The Board not only sets the strategic aims and objectives
of the Group but oversees their delivery and achievement,
monitoring financial, operational and people performance
and ensuring that the requisite resources are in place for
the successful execution of THG’s strategy. As detailed
in the Strategic Report, THG’s purpose is to reinvent how
brands connect digitally to consumers and this purpose
both drives and guides strategic decisions as THG looks
to revolutionise how brands connect to consumers
globally; as it seeks to enable a happier population,
empowered to make healthier lifestyle choices; and as
it aims to leave the world in a more sustainable position.
The Group’s purpose has been determined with reference
to the diversity of its stakeholder base and has been
formulated to support a strategy that will deliver long-
term sustainable growth, whilst simultaneously promoting
responsible and sustainable retailing.
THG’s core values of leadership, innovation, decisiveness
and ambition underpin this approach and inform a
Group culture, further details on which are included
in the Strategic Report on page 9, which provides for
ethical and inclusive decision-making and assists in the
delivery of THG’s strategic aims and objectives, thus
generating value for stakeholders. The Group’s policies
and procedures seek to embed the foundations for not
only a positive and successful organisational culture,
founded upon these core values, but also an effective
risk-management infrastructure. Indeed, with reference
to the Code requirement that prudent and effective
controls should be in place which allow risk to be
assessed and managed, the Directors are, collectively,
committed to ensuring that a robust risk-management
framework exists throughout the Group. Whilst the
Board has overall responsibility for the management of
risk, Group Internal Audit provides oversight assistance
which is further enhanced by the support provided by
the Risk Committee and the Audit Committee (details
of which, including the work undertaken during the
2021 reporting period, are contained in the respective
Committee Reports on pages 153-164).
137
138
Annual Report 2021 Board composition and responsibilities
A summary of the principal responsibilities of Board
members and the Company Secretary is as follows:
As detailed in the Nomination Committee Report on pages
165 to 170, Board composition is monitored on an ongoing
basis to ensure the Company’s leadership needs are, at all
times, met and its strategic goals effectively executed.
The NEDs are expected to bring an objective and
independent view to Board discussions, to provide
effective leadership and to constructively challenge
and contribute to, for example, the Group’s strategy
and development of its business objectives.
Following a review of the skills, knowledge and
experience on the Board and its Committees and
consideration of overall independence in the second
half of 2020, it was identified that the Board’s
composition would be enhanced by the appointment
of additional NEDs who possessed prior listed company
experience and expertise in areas such as remuneration
and governance. This led to the appointment of
independent NED Tiffany Hall on 12 January 2021.
It was also considered appropriate, in light of the
positive financial and trading collaboration developing
between the Company and Softbank and the expansive
collaboration opportunities amongst the parties
and their respective affiliates, to appoint a Softbank
representative to the Board during the 2021 reporting
period. Andreas Hansson was identified as a suitable
candidate for the position of NED and was subsequently
appointed to the Board on 26 October 2021, although,
having recently stepped down from Softbank,
his continued directorship is no longer in
a Shareholder representative capacity.
Board composition remained subject to ongoing
scrutiny throughout 2021 and remains a particular area
of focus for the Nomination Committee. Indeed, the
Board is keenly aware of the need to have a suitably
equipped leadership team in place to guide the
Company through the next stage of its corporate
governance journey and, as detailed in the Nomination
Committee Report, to ensure that, in compliance
with the Code, a clear division of responsibility
exists between the leadership of the Board and the
executive leadership of the business. Accordingly,
following an ongoing review of corporate governance
arrangements, it was recognised that the appointment
of an independent chair would further serve to enhance
Board composition. Following Board consideration and
approval, Charles Allen was appointed to the Board on
22 March 2022. The process followed by the Nomination
Committee in recommending this appointment is
detailed within the Nomination Committee Report.
During the 2021 reporting period and until the
aforementioned appointment of the Independent
Chair, the Board was led by Matthew Moulding who
was appointed chair of the Company in 2019 and who
has also served as CEO since 2008. With reference to the
Code requirement that there should be a clear division
of responsibilities between Board leadership and the
executive leadership of THG’s business, the role of the
SID has always been regarded as an integral element
of the Company’s governance infrastructure.
Acting as an alternate point of contact where other
communication channels have failed and/or are
considered inappropriate, the SID is available to both
Directors and Shareholders as and when the need arises
and is keenly aware of their responsibility to obtain
a balanced understanding of any issues or concerns
and thereafter address them appropriately.
In addition to discharging their key role as a trusted
intermediary for Directors and Shareholders alike,
the SID is expected to bring objectivity and, where
necessary, robust challenge to their role (and particularly
in respect of those matters where there may have
been any perception of a conflict arising from Matthew
Moulding’s dual role of Company chair and CEO). In
accordance with the Code, the SID will continue to meet
with the NEDs, on a one-to-one basis or collectively (as
considered appropriate), to appraise the Independent
Chair’s performance and as otherwise required.
As considered in further detail in the “Board
independence” section of this Governance Report,
the current Board comprises two Executive Directors
(i.e. the CEO and the CFO) and seven NEDs, four
of whom (including the Chair) are deemed to be
independent in character and judgement.
Chair
Lord Charles Allen
• Provides leadership to the Board
• Facilitates constructive Board relations
and the effective contribution of all NEDs
• Chairs Board meetings and promotes
a culture of openness and debate
• Ensures effective and ongoing communication
with Shareholders and other stakeholders
• Sets the agenda for Board meetings in conjunction
with the Company Secretary and ensures Directors
receive accurate and timely information
Chief Executive Officer
Matthew Moulding
• Provides leadership to the Executive
Leadership Team
• Oversees the day-to-day management
of Company and Group business
• Determines the strategic direction and
business objectives of the Group
• With the support of the Executive Leadership
Team, oversees the effective implementation
of Group strategy
• Engages with key Shareholders and stakeholders
Chief Financial Officer
John Gallemore
Senior Independent Director
Zillah Byng-Thorne
• Responsible for the Group’s financial matters
and applicable legislative and regulatory
compliance
• Acts as a sounding Board for the Chair and
supports, as required, in the discharge of their
duties and responsibilities
• Works with the CEO to develop strategic
• Acts as an intermediary for the Directors as and
objectives
when necessary
• Monitors the Group’s financial performance
• Ensures the Group remains appropriately funded
and capital structure is effectively managed
• Available to Shareholders with concerns which
have not been resolved through the normal
communication channels
• At least annually, meets with the NEDs, in the
absence of the Chair, to appraise the Chair’s
performance
Non-Executive Directors
Andreas Hansson, Edward Koopman,
Iain McDonald, Dominic Murphy, Damian Sanders
Company Secretary
James Pochin
• Provide active and constructive challenge and
contribute to the development of strategy
• Acts as Secretary to the Board and Board
Committees and provides the requisite support
• Monitor the performance of the Executive Directors
against agreed objectives and ensure robust risk
management
• Ensure the Board and Board Committees fulfil their
responsibilities and are ably equipped to do so
• Advises the Board on all relevant legislative,
regulatory and governance matters
• Ensures the Board has the appropriate policies,
procedures and resources in place to function
effectively and align with best practice
• Ensure the Board is balanced and appropriate succession
planning is undertaken, allowing it to provide clear
and effective leadership across the organisation
• Assists with communication between the Board
and Shareholders and is responsible for annual
general meeting organisation
139
140
Annual Report 2021
Board meetings and activity
The Board is scheduled to convene at least eight times a year but
additional meetings typically take place to ensure ongoing business
needs are adequately addressed and monitored, including in respect
of performance and delivery of strategic objectives.
The Board met on 12 scheduled occasions during the 2021 reporting period and the attendance
of those Directors who held office as at 31 December 2021 is set out in the following table. Individual
Director attendance at the various Board Committee meetings which took place during 2021
is detailed in each of the Board Committee Reports, contained on pages 153-204 of this Annual Report.
Director
Matthew Moulding
John Gallemore
Zillah Byng-Thorne
Dominic Murphy
Iain McDonald
Edward Koopman
Damian Sanders
Tiffany Hall*
Andreas Hansson**
Attendance
12/12
12/12
12/12
11/12
12/12
12/12
12/12
12/12
3/3
*Tiffany Hall resigned from the Board on 18 March 2022 for family reasons.
**Andreas Hansson attended all three of the Board meetings which took
place following his appointment on 26 October 2021.
The Board Schedule of Reserved Matters, available on
the Company’s website, details those items which are
reserved for the collective decision of the Board and
which relate to: the Group’s strategy and performance;
changes in respect of the Group’s status and capital
structure; certain Shareholder communications; financial
reporting and financial control items; approval of major
capital projects and contracts; and lending or borrowing
outwith the parameters of the Company’s Treasury
Policy.
In addition to overseeing the standard items of Board
business which fell within these reserved parameters,
the Board also gave specific consideration to the
following matters during the 2021 reporting period:
• Corporate activity and investments: the strategic
acquisition and integration of a number of entities
including Indigo Environmental Limited, Brighter
Foods Limited, Bentley Laboratories LLC and Cult
Beauty Limited; the diversification and extended
partnering of THG Ingenuity and investment in Civo,
an innovative cloud technology business; the partial
waiver of certain lock-up arrangements agreed at
the time of the IPO by certain Shareholders (and as
detailed in the IPO prospectus) allowing them to sell
Shares pursuant to a placing; entry into an option
and collaboration agreement with Softbank; and a
$1.05bn capital raising consisting of approximately
$730m subscription from Softbank and a $320m
placing.
• Group structure and governance: the review of
Divisional structure and associated reorganisation,
together with the commitment to separate THG
Beauty in 2022 by way of a listing or strategic
partnership; formulation of the 2030 Sustainability
Strategy, including setting relevant sustainability-
linked remuneration objectives for the CEO and
members of the Executive Leadership Team
and Senior Management from 2022 onwards;
and a review of certain corporate governance
arrangements, including the proposed cancellation
of Matthew Moulding’s Special Share rights (as
detailed within the Directors’ Report on pages
119-128) and commencement of a process
to appoint an independent chair.
• General: review of Group strategy and coverage
levels under the Group’s cyber and professional
indemnity insurance policy; the re-definition of the
Company’s employee value proposition to ensure
it satisfied both current and future business needs,
together with associated launch of a formal “ethics
charter” underpinning THG’s values and culture;
and ongoing oversight of market guidance and
consensus.
Further information on principal decisions taken
during the 2021 reporting period can be found
in the “Our Stakeholders and s172 Statement”
section of the Strategic Report on pages 73-84.
During 2021 the Company launched a new software
tool which allows for the electronic distribution of
all Board and Board Committee documentation.
This online platform not only ensures enhanced
administration and security in respect of monthly
Board and Board Committee packs but also provides
a centralised document storage facility. The agendas
for Board and Board Committee meetings are
agreed in advance with the respective chairs and,
in accordance with the relevant Terms of Reference,
circulated, together with any supporting papers,
no later than three working days prior to any meeting
to ensure an informed discussion can take place and
Directors can challenge as appropriate (although
timings may change depending on the source
and availability of the information in question).
Whilst Board Committee papers will typically vary on
a meeting-by-meeting basis, monthly Board packs will
generally include the financial results for the previous
month, on a Group and Divisional basis, together with
non-financial data relating to key areas such as People,
Investor Relations and Sustainability. The minutes of
any previous Board meeting(s) are also included in
the monthly Board packs and are tabled for approval
subject to any comments/required amendments, as
is also the case for Board Committee meetings where
the minutes of previous meetings will be circulated
with any supporting papers and tabled for approval.
Although formal communication and debate are
expected to take place within the boardroom, ensuring
that key Board matters are appropriately considered
and evaluated in a timely manner, informal debate
is also regarded as a valuable tool in aiding board
effectiveness and development and is therefore
encouraged. Indeed, throughout the 2021 reporting
period (and beyond) discussions took place between
the former Company chair and CEO and the NEDs
and the SID and the NEDs to ensure Board relations
continued to be developed and nurtured between
meetings and outwith the structured and more formal
confines of the boardroom. For example, a SID-led
discussion took place amongst the NEDs in the first
quarter of 2022 which focused on general chair and
Board performance, further information on which
can be found in the “Board Evaluation” section of the
Nomination Committee Report on pages 165-170.
141
142
Annual Report 2021 Board Committees and
governance structure
Whilst a formal schedule of matters is reserved for the Board’s
consideration and approval, the Board is supported by six
Committees which have delegated responsibility for certain items
of business.
Executive Directors are not members of these Board
Committees, although they may be invited to attend
Committee meetings. The chair of each Board
Committee reports to subsequent meetings of the
Board which also receives a copy of all Committee
meeting minutes once approved (and to the extent no
conflict of interest exists).
As detailed above and within the Nomination
Committee Report on pages 165-170, the Nomination
Committee undertook a review of Board Committee
composition during the 2021 reporting period and
ultimately recommended that changes be made to
the composition of certain of the Board Committees.
The Board accepted the recommendations of
the Nomination Committee and the requisite
membership changes took effect immediately
following the 2021 AGM, thereby enhancing certain
corporate governance arrangements whilst also
ensuring the optimum utilisation of NEDs’ skillsets
and experience and streamlining Board Committee
commitments as considered appropriate.
Please refer to page 132 for an explanation
of the departure from the Code in respect
of Remuneration Committee membership.
The Board and Board Committee governance
structure at the end of the 2021 reporting period
and as at the date of this Governance Report is
set out in the following table which also details
the principal roles and responsibilities of each
of the Board Committees.
Board
Provides effective leadership and promotes the long-term sustainable success of the Company, whilst setting
and overseeing the successful delivery of its strategic aims and objectives.
Nomination Committee
Remuneration Committee
• Regularly reviews structure, size and composition
• Sets remuneration policy for all Executive Directors
of the Board, including its balance of skills, knowledge,
experience and diversity, to ensure membership remains
fit for purpose and the Group’s leadership needs are met
• Makes appropriate recommendations with regard to any
Board changes it considers necessary and identifies
and nominates candidates for Board approval
• Oversees plans for the orderly succession of appointments
to Board and Senior Management, ensuring appointments
and succession plans are based on merit and objective
criteria
• Ensures remuneration policies and practices support
strategy and promote Group long-term success
• Approves design of and determines targets for any
performance-related pay schemes and determines
policy for and scope of pension arrangements for
each Executive Director
• Reviews and has regard to pay and employment conditions
across the Group and reviews any major changes in
employee benefit structures
Audit Committee
Risk Committee
Supports the Board in fulfilling oversight
responsibilities by reviewing and monitoring:
•
independence and effectiveness of internal/external
audit functions
Assists Board in its oversight of risk, including:
• monitoring, management and mitigation of principal
and emerging risks, including definition and execution
of risk management strategy and associated risk policies
•
integrity of financial and narrative statements
• advising on overall risk appetite, tolerance and strategy
•
internal financial controls and, as appropriate and in
conjunction with the Risk Committee, risk management
framework
•
reviewing and monitoring robustness of the Group’s risk
management framework, policies and procedures when
tested against risk strategy and appetite
Sustainability Committee
Related Party Committee
• Reviews and ensures appropriate and effective strategies,
policies and operational controls are in place to conduct
business in a responsible manner, including assessing and
monitoring performance against 2030 Sustainability Strategy
and ESG targets
• Oversees compliance with all applicable sustainability-related
legal and regulatory requirements and ensures the Group’s
standards of business reflect best practice
• Supports the Board in delivering strong, sustainable growth
across its business and supply chains, in global markets and
covering all aspects of the customer ecosystem
• Oversees and approves the terms of any transaction,
arrangement or agreement between the Propco Group
and any Group company, other than those in the ordinary
course of business
• Ensures all such transactions, arrangements or agreements
continue to be in the best interests of the Company and its
Shareholders
Executive Leadership Team
Special Advisors
• Executes delivery of agreed strategic objectives
• Oversees day-to-day management of Group operations
• Provides regular Board updates on operational
performance
Provide specialist expertise and additional Board Committee
support in areas such as:
• Tax governance
• Regulatory compliance
• Sustainability
• Cyber risk
143
144
Annual Report 2021
to represent Sofina Capital S.A. (“Sofina”), a
major Shareholder. Edward Koopman is both an
employee of Sofina and a member of its Executive
Committee although it should be highlighted that,
whilst Sofina continued to hold Ordinary Shares
following Admission, his continued directorship is
not in a Shareholder representative capacity.
At the end of the 2021 reporting period the Board
therefore comprised two Executive Directors and seven
NEDs, four of whom were regarded as independent –
namely, Dominic Murphy, Zillah Byng-Thorne, Damian
Sanders and Tiffany Hall (who stepped down from the
Board on 18 March 2022 for family reasons). On an
analysis which incorporates the strict letter of the Code
and excludes the Company’s former chair, Matthew
Moulding, from the independence calculation, at least
half the Board was deemed to be independent as at the
financial year end in compliance with Code Provision 11.
That said, the Board is of the opinion that in the particular
circumstances of the Company, with reference to the
dual role of its former chair, it would be best practice
and more aligned with the spirit of the Code to include
the former chair in the independence calculation.
As noted above and as at the date of this Governance
Report, the current Board comprises two Executive
Directors (i.e. the CEO and the CFO) and seven
NEDs, four of whom (including the Chair) are deemed
to be independent in character and judgement.
Noting the Chair’s mandate to enhance Board
composition by improving its independence and
diversity, it is the intention that the structure, size
and composition of the Board will be kept under
ongoing review during the 2022 reporting period.
Board independence
As previously detailed, the Board currently comprises
four Directors who are considered independent in
character and judgement – namely, Dominic Murphy,
Zillah Byng-Thorne, Damian Sanders and Charles Allen.
These Directors were deemed to be independent
by the Board following detailed consideration of
their individual circumstances (as at the date of
appointment through to the date of this Annual Report)
against Provision 10 of the Code, with external legal
input sought to the extent considered necessary.
As detailed in the 2020 Annual Report, a question which
has been the subject of detailed Board consideration
is whether NED independence can be viewed as
impaired in the instance where a NED holds Ordinary
Shares. Further to the relevant analysis, the Board
previously concluded that rather than impairing
independence, such direct ownership in fact serves to
align the interests of individual NEDs with the interests
of Shareholders generally and, consequently, to the
Company’s long-term success, a position supported
by a number of institutional investors. It therefore
remains the case that NEDs are permitted to purchase
Ordinary Shares at market value and via a broker
which, if required, can be facilitated by the Company.
With reference to Code Provision 10, it is noted
that an element of Dominic Murphy’s shareholding
comprises Shares which vested in 2019 pursuant to
Company-operated share schemes. As confirmed
in the 2020 Annual Report, this is also an item which
has been critically appraised by the Board. Having
given due regard to the relevant Code provisions
(including whether a NED may have had a material
business relationship with the Company in the last
three years) and taken into account assessments of
materiality and the 3% threshold under the DTRs’ major
shareholdings notification regime, the Board determined
that Dominic Murphy’s shareholding (as detailed in
the Annual Report on Remuneration on page 198
and which sits significantly below the 3% notification
threshold) does not impair his independence.
With reference to the tenure provisions of the Code,
Iain McDonald is not regarded as independent, having
served on the Board for in excess of nine years. Andreas
Hansson and Edward Koopman are also not deemed to
be independent upon an analysis of the relevant Code
provisions. Andreas Hansson formerly served
as Managing Director of Softbank which subscribed
for approximately $730m of Ordinary Shares during the
2021 reporting period and also signed a collaboration
and option agreement with the Group. The partnership
between the Company and SoftBank is regarded as
a material business relationship and, accordingly,
was viewed as impairing Andreas Hansson’s
independence. In a similar vein, Edward Koopman
was appointed to the Board prior to Admission
145
Board appointments
and time commitments
As previously detailed and also included within the
Nomination Committee Report on pages 165-170, the
composition of the Board is kept under continuous
review and its balance of skills, knowledge and
experience monitored on an ongoing basis to ensure it
comprises the necessary skillsets to both drive delivery
of the Group’s strategy and address any current and/
or future challenges of the organisation. While Board
appointments are assessed against objective criteria
and made on the basis of merit, to ensure the best
candidate is appointed to the role in question, the
broader perspectives and other advantages that a
more diverse Board can bring to the boardroom are
acknowledged; accordingly and as required by the
Code, any Board appointment is made with regard to
the need to promote, amongst other things, diversity
of gender, ethnic background and personal strengths.
Board composition was reviewed during the 2021
reporting period and, with reference to the foregoing,
Tiffany Hall and Andreas Hansson appointed as NEDs
on 12 January 2021 and 26 October 2021 respectively.
These appointments were viewed as enhancing the
skillsets and experience on the Board which, collectively,
is viewed as well-placed to deliver the Group’s strategic
objectives and generate long-term value for its
Shareholders. Additionally, the need for an independent
chair was recognised pursuant to a review of ongoing
corporate governance arrangements and, following
a recommendation from the Nomination Committee,
the Board considered and approved the appointment
of Charles Allen as independent chair, effective from
22 March 2022.
The following matrix sets out the key competencies of individual Board members:
Key competencies/
experience
Lord
Charles
Allen
Matthew
Moulding
John
Gallemore
Zillah
Byng-Thorne
Dominic
Murphy
Edward
Koopman
Iain
McDonald
Damian
Sanders
Andreas
Hansson
UK listed plc
Corporate
governance
Finance and
accounting
Risk management
Technology or
e-commerce
Marketing and
branding
Retail industries
Global operations
Strategy &
development
M&A
Audit Committee
Remuneration
Committee
Nomination
Committee
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x*
x
x
x
x
x
x
x
x
x
x*
x*
x*
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
*Dominic Murphy currently serves on the board of directors of Walgreens Boots Alliance, Inc. (“Walgreens”) and is a member of both its Finance
Committee and Nominating and Governance Committee. Whilst not a UK listed company, Walgreens is a Fortune 20 multi-national business and
Dominic Murphy’s experience on its board is therefore of comparable standing. Dominic Murphy has substantial board experience across a portfolio
of businesses bringing a wealth of expertise and skillsets to the Board and Board Committees upon which he serves.
146
Annual Report 2021 As confirmed above, all appointments are made on the
basis of merit and objective criteria and undertaken
in accordance with applicable Group policies and
processes. In making recommendations and identifying
potential appointees, the Nomination Committee has
regard to not only the balance of skills, knowledge
and experience on the Board and its Committees,
with reference to the Group’s strategy and long-term
sustainable success, but also to the need to promote
diversity in the boardroom. Indeed, the Board is
aligned with the FRC’s position that, by reducing the
risk of group think, diversity can have a positive effect
on the quality of decision-making and endorses its
view that whilst developing a more diverse executive
pipeline is key to increasing levels of diversity at
a more senior level in an organisation improving
diversity at each level of a company is necessary for
this to actually happen, all as affirmed in the FRC’s
Guidance on Board Effectiveness (July 2018).
In recognition of Code Principle H and pursuant
to their Letters of Appointment (“Appointment
Letters”), all NEDs are required to undertake that
they have sufficient time to discharge the duties and
responsibilities expected of them as members of the
Board and to use their best endeavours to promote
and advance the long-term interests of the Group.
In addition to attending Board meetings, relevant
Board Committee meetings and general meetings
of the Company, NEDs must also commit any additional
time required where the organisation is experiencing
periods of increased activity. Under the terms of their
Appointment Letters, details of any other significant
business (or other) interests must be disclosed by
NEDs, together with a broad indication of the time
expended on such interests, and the Board must be
kept apprised of any new commitments or changes
to current commitments that could have implications
on the ability of any NED to commit sufficient time
to their duties.
The Board, in conjunction with the Nomination
Committee, keeps the time commitment expected
of NEDs under ongoing consideration and is satisfied
that their current external commitments do not
compromise their effectiveness or performance.
In this regard and as detailed in the 2020 Annual
Report, the external appointments of the SID, Zillah
Byng-Thorne, have previously been the focus of detailed
consideration by the Board. The relevant external advice
was sought and guidance reviewed as appropriate and
the Board ultimately concluded that Zillah Byng-Thorne’s
performance, together with her Board and Board
Committee contribution, clearly evidenced that she had
sufficient time to devote to her role to ensure the effective
discharge of her SID and Board Committee duties.
Nonetheless, further to the Nomination Committee’s
assessment of Board Committee composition during the
2021 reporting period (further details of which are included
in the Nomination Committee Report on pages 165-170),
it was agreed that following the 2021 AGM and in light
of the separation of the Audit & Risk Committee certain
changes should be effected to ensure the best utilisation
of the NEDs’ skillsets and experience across the various
Board Committees. Accordingly, Damian Sanders was
appointed as chair of the Audit Committee and Zillah
Byng-Thorne as chair of the Risk Committee, thereby
reducing her scope of responsibilities and associated
time commitment.
Conflicts
Whilst the Directors have a statutory duty to avoid
situations where they have, or can have, an interest
that conflicts, or may possibly conflict, with the
Company’s interests, and must declare the nature and
extent of any such interest, the Articles of Association
permit non-conflicted Directors to authorise any such
conflict, on such terms and conditions as they think
fit. The Appointment Letters reinforce the fact that
any actual or potential conflicts of interest must be
declared by a NED and no NED must put themselves
in a position where their duties to any other person,
firm or company conflicts with their duties to the
Company or the Group. In the circumstances where
a NED wishes to accept a position within a company
or firm which engages in a business competing with
or similar to THG they are required to provide not
less than seven days’ written notice to the Chair.
The Propco Group owns property assets which are
occupied and utilised by the Group, while the Propco
Group itself is wholly owned by the CEO (who is also
a major Shareholder). Officers of the Propco Group are
also officers of the Company (although the intention is
that this will be rectified by 31 December 2022). In light
of this, a Board-constituted Related Party Committee
was established post-Admission to oversee and approve
Related Party Transactions and to ensure that the
appropriate governance arrangements are in place
in respect of both existing and potential conflicts of
interest. Further information on the responsibilities and
activities of the Related Party Committee can be found
in its Report on pages 171-174.
Board recruitment and succession
A key responsibility of the Nomination Committee
is, as previously stated, to ensure that the leadership
needs of the organisation are satisfied and, in doing
so, it must ensure that the appropriate succession
planning is undertaken and recommendations made
in respect of both Board and Senior Management
recruitment. Discussions on Board refreshment and
tenure factor into the Company’s ongoing succession
planning considerations and there is a keen recognition
of the fact that THG’s succession plans must not only
address current leadership needs but also those in
the medium and long-term. In acknowledging that
the strategic aims and objectives of the Group may
change over time and/or new challenges and/or
opportunities arise in the marketplace, the Nomination
Committee seeks to ensure that the depth and
breadth of experience and skillsets on the Board
are such that, at any particular time, the Group’s
strategy can be successfully executed and long-term
sustainable value generated for Shareholders.
Recruitment may take place via a variety of methods:
for example, an independent recruitment consultant
may be engaged to facilitate the search for a particular
position/candidate or the Board and Executive
Leadership Team may be asked for recommendations
from their professional networks and a shortlist of
candidates thereafter agreed upon, as was the case
with the appointments of Charles Allen and Tiffany Hall
respectively (and further details on which are included in
the Nomination Committee Report on pages 165-170).
147
148
Annual Report 2021
Diversity and inclusion
THG’s commitment to developing a robust pipeline
of diverse talent is evidenced by the establishment
of its D&I Committee towards the end of 2020. The
D&I Committee is comprised of nominated employee
representatives from around the globe, ”D&I Committee
Champions”, who join together to explore the ways in
which the Company can continue to build and support
a diverse and equal workforce, considering areas
such as gender, disability, ethnicity and racial equality.
Committee Champions are rotated on a regular basis
to encourage diversity within the Committee itself
and work with stakeholders at a local level in seeking
to continually enhance inclusivity and diversity in
the workplace. The D&I Committee also works with
Brand and Marketing teams to ensure that people
are fairly, inclusively and respectfully represented.
The D&I Committee undertook various initiatives during
the 2021 reporting period, including “in conversation”
sessions with Committee members, the publication
of insights on topics such as “Mental Health in Black
and Minority Ethnic communities” and “How can I
be an ally during Black History Month and beyond?”,
together with LGBTQ+ Society x Wellbeing interactive
discussions. Divisional activities also took place to
celebrate Mental Health Awareness Week during
which the D&I Committee, in conjunction with the
Wellbeing team, hosted short sessions to promote
conversation and focus on topics such as how to
manage stress and the importance of self-confidence.
A key objective of the D&I Committee was for the
Company to be recognised as a Disability Confident
Committed employer under the UK Government’s
Disability Confident employer scheme, a scheme which
aims to support employers to attract, develop and
retain employees with disabilities. The Company was
recognised as such during 2021 and as a result must
ensure that its recruitment processes are inclusive
and accessible, including any recruitment activity
undertaken from a Board and Senior Management
perspective. Linked to this and through an investment in
Greenhouse, the Company overhauled its talent strategy
and onboarding technology during the 2021 reporting
period to target enabling inclusive-working practices.
Greenhouse is an end-to-end recruitment platform which
seeks to improve all aspects of hiring whilst providing an
industry-leading standard for ED&I (i.e. equality, diversity
and inclusion) onboarding and candidate attraction.
Education has also been at the forefront of the D&I
Committee’s considerations and a Group-wide inclusivity
training programme continues to be implemented for
all employees, further evidencing THG’s commitment to
be a truly inclusive employer. The Group acknowledges
and champions the positive effect that diversity has
in both the workplace and within its communities and
recruitment will continue on a meritocratic basis and
founded on the principle of fairness for all.
Whilst further information on the Group’s approach to
D&I-related matters, together with information on how
the Group supports the wellbeing and development of
its workforce, can be found in the Our People section of
the Strategic Report, key Company D&I data, pursuant
to section 414C of the Companies Act, is as follows:
Level
PLC Board
Senior Management
Gender
Ethnicity
Male
Female
Not
disclosed*
BAME
Non-BAME
Not disclosed*
7
17
2
6
n/a
n/a
-
2
9
20
n/a
1
Workforce (Total)
4,424
4,561
1,061
1,916
2,800
5,330
*This refers to employees who have not disclosed this information to the Company due to either personal preference or as a result of incomplete
legacy employee records.
Workforce and employee engagement
The D&I Committee is regarded as a key mechanism
through which effective employee engagement
is encouraged and open and transparent lines of
communication bolstered between the general
workforce, the Executive Leadership Team and the
Board. Indeed, Committee Champions not only work
with stakeholders at a local level but also collaborate
with and report into the Executive Leadership Team
to ensure that key focus areas and more general
feedback and concerns are escalated to and heard
and addressed at an appropriately senior level. The
Executive Leadership Team attends the monthly
Board meetings, thereby ensuring an effective and
direct flow of information can take place between
the general workforce and the Board. Further and
as detailed in the Nomination Committee Report,
the D&I Committee has a direct reporting line into
the Group’s Chief People Officer who ultimately
oversees diversity of workforce and, in turn, attends
the monthly Board meetings and reports to the
Board collectively on relevant People initiatives.
As a people-led business, THG recognises the
importance of continually striving to enhance
the employee journey and workplace culture to
ensure an environment of inclusivity is promoted
and all employees have an equal voice; the
D&I Committee is regarded as providing the
appropriate platform for that voice to be heard.
Engagement mechanisms are kept under ongoing
review, both from a workforce and general stakeholder
perspective, to ensure they remain effective and the
Board is suitably apprised to allow it to consider relevant
interests and matters in discussions and decision-making
processes. Further information on how engagement
strategies positively impact decision-making throughout
the organisation, including at Board level, can be
found in the “Our Stakeholders and s172 Statement”
section of the Strategic Report on pages 73-84.
Board evaluation
As detailed in the 2020 Annual Report, the Board had,
collectively, only been in post for a short period of time
during the 2020 reporting period and it was therefore
considered that a formal evaluation of its effectiveness,
and that of its Committees, would be of limited worth.
After due consideration of the optimum approach to
the Company’s first evaluation exercise and recognising
the attendant benefits and significant value of its
outcomes and conclusions, the Company engaged
a third party to provide an online digital platform
through which it undertook a Board evaluation. The
evaluation was aligned with best market practice
and the content tailored, as appropriate, to the
specific requirements of the Company. As detailed
in the Nomination Committee Report, this “paper”
evaluation supplemented a SID-led discussion
on general chair and Board performance which
had previously taken place amongst the NEDs,
with consistent themes emerging from both.
The evaluation took place at the end of the 2021
reporting period, in the first quarter of 2022, and,
as required by the Code, considered not only the
effectiveness of individual Directors but also the
collective effectiveness of the Board and Board
Committees, including specific consideration of,
amongst other things, composition and diversity.
The specific outputs and actions flowing from the
evaluation are detailed in the Report of the
Nomination Committee on pages 165-170 but
the overall conclusion was that the Board and its
Committees continue to function in an effective
manner and each Director continues to contribute
effectively to both the Board and the Board
Committees of which they are a member.
Taking into account a number of factors, including
the appointment of the Independent Chair and
the practical division of duties and responsibilities
between the Independent Chair and the CEO, it
is recognised that detailed consideration requires
to be given to the timing, structure and content of
the next Board evaluation. Whilst no decisions have
been taken at the present time, the Nomination
Committee (and the Board collectively) is cognisant
of the need to keep a watching brief on the situation
and, at the relevant time, an appropriate evaluation
will be conducted to ensure Board members continue
to contribute and work together effectively.
Additionally, the Company will not only conduct
a formal and rigorous evaluation of the Board,
the Board Committees and individual Directors
on an annual basis, but will also undertake an
externally- facilitated Board evaluation within
three years of Admission and at least every three
years thereafter (as confirmed in the 2020 Annual
Report). Whilst this Code requirement is only
applicable to FTSE 350 companies, the Company
is keen to evidence its ongoing commitment to
good corporate governance and to ensuring that
the Board and its Directors continue to function
effectively, from both a collective and individual
perspective, with Board and Board Committee
membership being refreshed as required.
149
150
Annual Report 2021
Board support and training
Risk management and internal controls
THG remains committed to ensuring that the Board
and Board Committees have the requisite resources
available to them to allow the full and effective
discharge of their responsibilities and, more generally,
to ensure that the Group’s corporate governance
framework remains appropriately structured to meet
its immediate needs and support the long-term
sustainable success of the Group. Accordingly and as
has been previously announced, four independent
individuals remain appointed as THG Special Advisors
to provide specialist expertise and support to the
Board Committees in areas such as tax governance,
regulatory compliance, sustainability and cyber risk.
Furthermore, the Executive Leadership Team continues
to provide an additional layer of support when called
upon, possessing a keen knowledge and “on the
ground” awareness of the Group and its operations
and comprising a number of employees who have
progressed through the internal talent framework.
The Company Secretary also plays a key role in
supporting the Board and its Committees, advising
on governance matters and ensuring that all legal and
regulatory requirements are appropriately satisfied.
Pursuant to the relevant Code requirements, each
Director has access to the advice and assistance of the
Company Secretary on an ongoing basis to ensure they
receive the necessary support to discharge their duties
as a director of the Company and to constructively
contribute as a Board Committee member.
As referenced at the outset of this Governance
Report, consideration was given to the professional
development needs of the Board during the 2021
reporting period and it was agreed that an independent
third-party provider, namely, the Non-Executive
Director’s Association, should be engaged to develop
a training programme tailored to both individual
and collective requirements. The principal objective
of this initiative is to ensure that Directors remain
apprised of applicable legislation, guidance and
market practice and that knowledge and skillsets are
suitably refreshed in light of relevant proposals and/
or changes which may be on the corporate governance
landscape and/or within the organisation itself.
Inaugural training sessions have now taken place
covering “refresher” topics such as balancing the
duties and responsibilities of a listed company director
with increased expectations; board operation and
effective vs. high-performing boards; and what to
expect in board evaluations. The intention is that
during the 2022 reporting period the programme will
be further refined, with the input and direction of all
Board members, to ensure the Company supports
the continued professional development needs
of its Directors and this, in turn, will assist in the
effective and efficient functioning of the Board and
Board Committees, a key element of the Code.
As previously noted, the Board has overall responsibility
for the management of risk and the Directors are,
collectively, committed to ensuring that a robust
risk management framework exists throughout the
Group. In addition to determining organisational
risk appetite, the Board maintains oversight of the
Group’s principal and emerging risks and monitors
the effectiveness of its risk management framework
and systems of internal controls. Group Internal Audit
provides oversight assistance which is further enhanced
by the support provided by the Risk Committee and
the Audit Committee (details of which, including the
work undertaken during the 2021 reporting period,
are contained in the respective Committee Reports
on pages 153-164). Full details of the Group’s risk
management framework, procedures and internal
controls can be found in the “Risk Management”
section of the Strategic Report on pages 105-118.
As discussed within the Risk Management section,
the ERM framework is a key component in the
Company’s risk management infrastructure and
under this framework risks are identified, evaluated,
managed and mitigated (as appropriate). During
2021 the Company refreshed the ERM framework
and continued to enhance its approach towards risk
management, including investment in operational risk
processes and supporting technology and the further
development of the business continuity programme
through the creation of a dedicated team under the
leadership of a newly appointed Chief Risk Officer.
The Chief Risk Officer is responsible for the facilitation
and implementation of the risk management approach
across the Group, including the provision of the
necessary risk reporting to the Risk Committee, Audit
Committee and Executive Leadership Team.
As confirmed in the Risk Management section, the Board
reviewed the effectiveness of the risk management
framework and internal control systems during the
2021 reporting period and up to the date of this
Annual Report and no significant failings or weaknesses
were identified. In undertaking this review the Board
was assisted by the Audit Committee and the Risk
Committee, as appropriate and pursuant to their
respective Terms of Reference.
The Board recognises that Group culture has a
fundamental role to play from a risk management
perspective, underpinning the effectiveness of THG’s
risk management framework and the operation of an
effective control environment. The introduction of a
Three Lines of Defence assurance model (explained
in detail in the Risk Management section) is central
to ensuring that risks are managed in a tiered and
robust manner, with the roles and responsibilities of
all employees being clearly defined and accountability
for actions and decisions established. The Three Lines
model supports risk-based decision-making, with first-
line employees assuming responsibility for management
its values and strategic objectives, THG is cognisant of
the responsibility which it has towards its stakeholders
(including its people, its customers and suppliers and
the planet itself) and to this end has publicly committed
to act as a force for good and use its access to capital
to invest in and influence environmental and societal
changes which will benefit our planet today and create
a sustainable future for generations to come.
THG x Planet Earth identifies three key priorities (i.e.
(i) protecting climate and nature; (ii) strengthening the
Group’s supply chain and circularity; and (iii) empowering
people and communities) under which progressive goals
have been set to achieve THG’s aspirations to secure
a better, sustainable future for all and leave the world
in a better place than we found it. Whilst THG x Planet
Earth is comprehensively detailed in the “Sustainability”
section of the Strategic Report on pages 87-104 it
is notable that headline strategic goals include the
promotion of policies and practices that are inclusive
for all at THG, the protection of human rights and
seeking to eliminate modern slavery in our supply
chains, and the ambitious target of being climate
positive and offsetting the Group’s historical operational
emissions by 2025.
The Group appointed a Chief Sustainability Officer
during 2021 who is accountable for the ongoing
development and implementation of THG x Planet
Earth. In conjunction with the Board-constituted
Sustainability Committee (of which he is a member),
the Chief Sustainability Officer oversees all ESG matters
to ensure the Group has appropriate and effective
strategies, policies and operational controls in place
to conduct its business in a responsible manner. As
further evidence of its commitment to put sustainability
at the heart of its business and ensure effective and
timely delivery of THG x Planet Earth, Executive
Directors and members of the Senior Leadership Team
have been set relevant sustainability-linked objectives
from 2022 onwards with an increased focus in personal
reviews on sustainability-related, and not simply
commercial, outcomes.
THG x Planet Earth will be reviewed on a biennial
basis by the Chief Sustainability Officer, in conjunction
with the Sustainability Committee, to ensure it reflects
the evolving regulatory and market landscape and
the Board remains committed to supporting strong,
sustainable growth across every aspect of THG’s
“customer ecosystem”, ensuring that the Group
and its stakeholders play their part in the journey
to build a better, more sustainable future for all.
of their risk and the subsequent deployment of
appropriate risk strategies, and also describes how
appropriate oversight, challenge and assurance are
provided in respect of business activities, including
the ethical operation and conduct of the Group.
It is acknowledged that risk impacts every aspect
of the Group’s operations, including its workforce,
its customers, its assets and the communities within
which it operates, and therefore the Board regards
the management of risk as a prime responsibility. It
considers that a rigorous understanding of the Group’s
principal and emerging risks allows such risks to be
managed in the optimum way which in turn serves to
enhance decision-making processes, safeguards assets,
improves the customer experience and helps best
achieve the Group’s strategic objectives. The Board and
THG itself are committed to upholding the moral, ethical
and legal responsibilities and obligations imposed upon
them through the implementation and maintenance of
an appropriately robust risk management framework.
The Group’s policies seek to provide the appropriate
foundations for a positive and successful organisational
culture, founded upon its core values of leadership,
innovation, decisiveness and ambition, and an effective
risk management infrastructure. For example, the Board
has ultimate responsibility for the Group’s Anti-Bribery
Policy pursuant to which the Group is committed to
conducting its business with complete integrity and in
a manner which ensures compliance with all applicable
anti-bribery laws and regulations, at all times adhering
to the highest ethical standards. Similarly, the Group’s
Whistleblowing Policy restates THG’s commitment to
operate responsibly and ethically whilst encouraging a free
and open culture in dealings between THG employees
and those with whom they engage. It acknowledges that
effective and honest communication is essential if concerns
regarding breaches or failures are to be effectively
addressed and THG’s success ensured and encourages
the confidential reporting of possible improprieties,
whether financial or otherwise, detailing the means
by which individuals can anonymously raise genuine
concerns without fear of recrimination.
ESG
Through its purpose, values and strategy the Board is
focused on delivering sustainable and long-term growth
and is committed to ensuring that THG generates
positive and impactful change for all its stakeholders
across the locations and communities within which it
operates (further information on which can be found
in the ‘Our Stakeholders and s172 Statement’ section
of the Strategic Report on pages 73-84). Indeed, as
detailed at the outset of this Governance Report, a
key Board focus during 2021 was to seek to embed
the individual elements of ESG into the DNA of the
Group, an objective which was reinforced with the
publication of the 2030 Sustainability Strategy, THG x
Planet Earth, during the reporting period. As reflected in
151
152
Annual Report 2021
Audit Committee Report
“The Audit Committee plays a key
role in THG’s governance framework
and monitoring the integrity of financial
reporting and internal controls, that helps
retain and sustain long-term value”.
Damian Sanders
Chair of the Audit Committee
Members and attendance
Committee member
Position
Attendance
Damian Sanders
Zillah Byng-Thorne
Dominic Murphy
Chair
Member
Member
Iain McDonald
Former Member
6/6*
6/6*
5/6
2/3*
*Further to a review of Board Committee composition during the reporting period, the following changes took effect
following the 2021 AGM: (i) Zillah Byng-Thorne stepped down as Chair of the Audit Committee, formerly the Audit & Risk
Committee, chairing the first three meetings of 2021. Damian Sanders assumed the position of Audit Committee Chair
thereafter, chairing the final three meetings and (ii) Iain McDonald stepped down as an Audit Committee member.
Having been appointed as Chair of the Audit Committee
following the 2021 AGM, I have the pleasure in introducing
the Audit Committee Report for the financial year ending
31 December 2021. Zillah Byng-Thorne stepped down as
Audit Committee Chair during the reporting period to
assume the role of Chair of the Company’s newly-created
Risk Committee and I would like to extend my sincere
thanks to Zillah for leading the Committee during her
tenure.
Upon the establishment of the Risk Committee, further
details of which can be found in the Risk Committee
Report on pages 161-164, the existing Audit & Risk
Committee was renamed as the Audit Committee
and its Terms of Reference, including its scope of
responsibilities, amended appropriately. The revised
Terms of Reference, drafted in line with current market
practice and subject to detailed consideration by the
Company’s advisers, were approved by the Board on
30 June 2021 and took effect from 1 July 2021.
Composition and meetings
Aligned with the provisions of the Code, the revised
Terms of Reference provide that membership of the
Audit Committee must comprise of at least three
independent NEDs, one of whom shall be a member
of the Risk Committee and one of whom shall, where
possible, be a member of the Company’s Remuneration
Committee, possessing recent and relevant financial
expertise and experience. Members of the Audit
Committee are appointed by the Board upon the
recommendation of the Nomination Committee (in
consultation with myself as Audit Committee Chair)
and are required to have the skills and experience
appropriate for membership of an Audit Committee,
with the Audit Committee collectively possessing the
necessary financial and non-financial competence
relevant to the sectors in which the Company operates.
Biographies of all Committee members can be found
on pages 133-136 of the Governance Report.
At the start of the reporting period Iain McDonald,
who, due to his time in office, is not deemed to be
independent by reference to the Code, was a member
of the Audit Committee and thus the composition of
the Committee was not in line with Code requirements.
Following careful consideration by the Board of
membership across all Board Committees and in
recognition of the need for ongoing independent
challenge and oversight of the Group’s internal
financial and non-financial controls, Iain stepped down
from the Audit Committee following the 2021 AGM.
Since this time, Audit Committee membership has
satisfied Code Provision 24, comprising, as it does,
only independent NEDs – namely, myself as Chair,
together with Zillah Byng-Thorne and Dominic Murphy.
The Terms of Reference provide that at least four
meetings of the Audit Committee shall take place
annually, at appropriate times in the financial reporting
and audit cycle or as otherwise required; and any
Audit Committee member, the CFO, the Deputy
CFO, Head of Internal Audit or the Lead Partner
from the External Auditor may request a meeting
if they consider it necessary or desirable. As can be
seen from the preceding table, six Audit Committee
meetings took place during 2021. The External Auditor
attended each of these meetings and during the year
spoke with Audit Committee members in the absence
of Senior Management.
Role and responsibilities
As detailed in its revised Terms of Reference and in
accordance with the requirements of the Code, the
Audit Committee has been established to support
the Board in fulfilling its oversight responsibilities
by reviewing and monitoring:
•
•
•
•
The integrity of the Company’s financial
and narrative statements for the full year and
half year (including whether the Annual Report
is fair, balanced and understandable).
The Company’s internal financial controls, internal
controls and, as appropriate and in conjunction with
the Risk Committee, risk management framework.
The adequacy of whistleblowing arrangements that
are in place and the effectiveness of the Company’s
anti-bribery systems and its procedures for
preventing and detecting fraud.
Effectiveness of the internal audit function and the
effectiveness, independence and objectivity of the
External Auditor.
Activities of the Audit Committee
The Committee held six meetings during the
reporting period, all of which were scheduled.
A summary of the key activities undertaken
by the Audit Committee during the
reporting period is as follows:
•
•
•
•
Monitoring the key areas of focus and
significant financial reporting areas as part
of the half-year review and year-end audit.
Reviewing and monitoring the progress of the
internal audit plan, covering both financial and
non-financial assurance engagements, and including
year-round fraud risk assessment procedures.
Assessing the external audit plan and carrying out
a review of the External Auditor’s work for the half-
year review, year-end audit and regulatory reporting.
The Committee also noted the findings within
the FRC’s Audit Quality Review (“AQR”) team’s
review of last year’s audit which identified some
areas for improvement and areas of good practice
in respect of EY’s performance as auditor.
In addition to these meetings the Audit Committee
Chair met privately with the Lead Partner of the External
Auditor, as and when considered appropriate, to discuss
the scope of the audit plan, the remit of the external
audit and to challenge, as they saw fit, the findings of the
audit process, including (but not limited to) any material
issues which had been identified, areas of significant
judgement and the general effectiveness of the process.
Throughout the reporting period and pursuant to
the Terms of Reference, the Audit Committee Chair,
together with other Committee members (albeit to a
lesser extent), also remained in active conversation with
key individuals involved in the Group’s governance, such
as the Chair and CEO and the Head of Internal Audit.
153
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Annual Report 2021
Significant financial reporting areas
One of the roles of the Audit Committee is to assess
whether the judgements and estimates made by
Senior Management are reasonable and appropriate.
In order to assist in this evaluation, the CFO provided
accounting papers to the Audit Committee which
detailed the financial aspects surrounding key
accounting judgements and areas of focus for THG,
including Significant Disclosures, Acquisitions,
Adjusted Items and the Capitalisation of Platform
Development costs. As part of the year end reporting
process the Audit Committee reviewed this Annual
Report, the management papers on key accounting
estimates and judgements, updates provided by the
External Auditor, accounting and reporting matters,
and management representation letters concerning
accounting and reporting matters. The Audit Committee
assessed whether suitable accounting policies
had been adopted and the reasonableness of the
judgements and estimates that had been made by
Management. This section outlines those significant
issues which received particular focus from the Audit
Committee in relation to the financial statements for
the period and how these issues were addressed.
Significant issues which arose during the reporting period were dealt with as follows:
Area of focus
Consideration and actions taken by the Audit Committee
Revenue
recognition
Acquisition
accounting
Following the growth of THG Ingenuity in the year, the key areas
of management judgement include the classification of revenue
streams to the Groups divisions and contract accounting within
Ingenuity Commerce. The Committee reviewed and agreed with
managements classification of revenue streams and proposed
accounting treatment for Ingenuity contracts under IFRS 15.
There have been ten acquisitions in the year. Management have
engaged specialists where required. The purchase price accounting,
contingent consideration and other key judgements made as
part of this exercise were presented to the Committee.
The Audit Committee reviewed the accounting treatment and
disclosure, and the application of IFRS 3 Business Combinations.
Impact on financial
information and
disclosure
The revenue accounting
policy is included within
note 1c and note 2
within the Consolidated
Financial Statements.
See note 10 where the
business combination
accounting detail is included.
Accounting
for platform
development
costs
In 2021 there has been additions of £48m to platform development
costs. The carrying value at 31 December totals £82m. There is
management judgement applied regarding which projects relate to
capital spend. This is reviewed on a monthly basis. Such items with nil
NBV that are no longer in use have been disposed of in the year.
Intangibles note 11
within the Consolidated
Financial Statements.
The Committee reviewed and assessed the accounting treatment and
disclosure and the application of IAS 38. The effectiveness of controls
around the maintenance and tracking of platform development projects
was also considered. Both items were concluded to be appropriate.
Impairment
and cash-
generating units
The Audit Committee reviewed management’s conclusion of the number of
cash-generating units in existence at the balance sheet date. This is a judgement
as the Group has made good progress towards the separation of its key business
units. The Audit Committee agreed with managements conclusion that there was
insufficient clarity of cash flows to enable robust cashflow forecasts to be produced
for each business unit at the year end and at the date of signing the Annual Report
due to the interconnectivity of the cashflows and reliance on intra-group services.
The Intangible assets
note 11 is included
within the Consolidated
Financial Statements.
The Audit Committee reviewed the proposed impairment charge which
included a charge within THG Experience, THG OnDemand and THG
Luxury and concluded that whilst THG OnDemand and THG Luxury are
not completely separate as of today’s date, it is clear that future losses are
forecastable and as such it is appropriate to review the carrying value of the
assets allocated to THG OnDemand and THG Luxury. The Audit Committee
concluded the £53m charge recognised in the current year is appropriate.
The Audit Committee reviewed managements impairment paper, challenged
key judgements including terminal growth rate, forecast growth rate and
discount rates and concluded these to be appropriate. The Committee
also approved the disclosure for inclusion within the financial statements.
Impact on financial
information and
disclosure
See the consolidated income
statement on page 212.
The adjusted items
accounting policy is included
within note 1d and note 4
within the Consolidated
Financial Statements.
More details on related parties
are included within the Related
parties Committee Report.
The related parties’ details
are included within note
27 within the Consolidated
Financial Statements.
Area of focus
Consideration and actions taken by the Audit Committee
Presentation
of primary
statements
Presentation of Consolidated Income statement was revised
in the year to remove the adjusted items from the face of the
Primary statements. The Committee approved this change as this
ensures that statutory measures were given prominence.
Presentation
and disclosure of
adjusted items
To allow the Committee to assess the policy, presentation and disclosure
applied, Management presented a detailed category by category analysis to
the Committee in the year. The Committee challenged the classification of
costs that were included including those that were in relation to Covid-19.
The Committee also considered the presentation of APMs
including Adjusted EBITDA throughout this report and whether
this enables a clear and fair understanding of performance.
The conclusion was that the adjusted items policy was appropriate
and being applied effectively. The Covid-19 costs that were incurred
were trackable and often split separately on the face of the supplier
invoice. Management continues to review the level of these costs and
do not anticipate the Covid-19 impact to continue past H1 2022. The
Committee concluded that the use of APMs were satisfactory.
Related party
transactions
The Group leases a number of properties from a related party. A Related Party
Committee is in place to review and approve any transactions in the year.
The Audit Committee have reviewed the related party disclosure within the
financial statements to ensure this gives a true and fair view. This has included
a review of whether there are any additional Related Parties outside of those
already identified due to Board appointments and shareholdings in the year.
The Audit Committee satisfied themselves that there were no additional
related parties that had not already been identified. The Audit Committee
also approved the disclosure for inclusion within the financial statements.
The Audit Committee reviewed the progress made against recommendations
made by the Group’s auditor in 2020 and has been provided with evidence
that supports the progress management has made in all areas. The Audit
Committee is therefore satisfied that as at the date of the Annual Report
being signed, management has demonstrated good progress against all
critical recommendations, albeit recognising this work remains ongoing.
The Committee note that Officers of the Propco Group are also officers
of the Company. Cognisant of the conflict of interest that arises in such
a situation, management are in the process of resolving the shared
officers. This is planned to be complete by 31 December 2022.
The previous table is not a complete list of all the
Group’s accounting issues, judgements, estimates and
policies, but highlights the most significant ones for
the period in the opinion of the Audit Committee.
The Committee will also consider future proposals
in relation to Taskforce on Climate-Related Financial
Disclosures and challenge management to adopt
appropriate disclosures in this area from 2022.
155
156
Annual Report 2021
Fair, balanced and
understandable assessment
At the request of the Board and pursuant to its Terms
of Reference, the Audit Committee has considered
whether, in its opinion and when taken as a whole, the
Annual Report is fair, balanced and understandable and
provides the information necessary for Shareholders to
assess THG’s position and performance, business model
and strategy. THG has established internal controls in
relation to the process for preparing the Annual Report
including the following:
•
•
Senior Management regularly monitors and
considers developments in accounting regulations
and financial reporting and, where appropriate,
reflects developments in the financial statements.
The document is drafted by Senior Management
with overall coordination by a member of the
Finance team and additional support from external
advisers to ensure consistency across the relevant
sections and that the necessary information is
included for shareholders to assess the Group’s
position and performance, business model and
strategy.
• Comprehensive reviews of drafts of the document
are undertaken by Executive Directors, Senior
Management and external advisers as part of an
internal verification process which is undertaken
to ensure accuracy and to assess whether the
document is fair, balanced and understandable.
•
The final draft of the document is reviewed by the
Audit Committee prior to consideration by the Board.
Following its review, the Audit Committee advised
the Board that the Annual Report was, when taken
as a whole, considered to be fair, balanced and
understandable and provided the information
necessary for Shareholders to assess THG’s position
and performance, business model and strategy.
The Audit Committee was also satisfied that suitable
accounting policies have been adopted and appropriate
disclosures made in the financial statements.
The Viability and Going Concern Statements are
set out on pages 117-118 of the Strategic Report.
Risk management and
internal controls
In accordance with the Corporate Governance Code
ultimate responsibility for the Group’s systems of internal
controls and risk management framework rests with
the Board. However, pursuant to the provisions of the
Code and as reflected in its Terms of Reference, the
Audit Committee has delegated responsibility for the
ongoing monitoring and review of the Group’s internal
control systems, including its financial, operational and
compliance controls, while assisting the Board in its
annual review of the effectiveness of these systems and
determining their adequacy (or otherwise). The Audit
Committee has access to the Company’s independent
Special Advisors, who provide specialist expertise and
additional support in areas such as tax, risk, cyber,
regulatory compliance and governance, to ensure
the full and effective discharge of its responsibilities.
From the start of the reporting period until the 2021
AGM, the Audit Committee also worked with the
Board to ensure the effective management of risk
within the Group, including determining the Group’s
overall risk appetite and identifying and monitoring
principal and emerging risks. This became a defined
responsibility of the Risk Committee following the
2021 AGM. The Audit Committee continues to work
in support of the Board’s risk management strategy
and in conjunction with the Risk Committee as
and when it is considered appropriate to do so.
Information on the Group’s risk management
framework can be found on pages 105-118 of
the Strategic Report, together with details of
the processes and controls which were in place
throughout the reporting period to manage and
mitigate risk and provide the Board with the required
assurance that sound systems of risk management
and internal controls exist throughout the Group.
Internal Audit
The Audit Committee is responsible for reviewing
and approving the role and mandate of the Internal
Audit function while monitoring and assessing the
effectiveness of its work, including in the overall context
of the Group’s risk management systems. To ensure
the reporting line of the Internal Audit function is
independent of the Executive Leadership Team and is
suitably positioned to exercise independent judgement,
it has access to the Audit Committee as and when
necessary, and the Head of Internal Audit has a direct
reporting line into the Audit Committee Chair. Further,
the Audit Committee regularly meets with the Head of
Internal Audit, in the absence of Senior Management, to
discuss the effectiveness of the function and to consider
the actions taken by Senior Management to implement
its recommendations and support its workings.
Internal Audit plans include a range of financial and
non-financial engagements, delivered in an assurance
or advisory capacity. The Internal Audit plan is risk-based
and due consideration is given to each of the following
areas during the planning process; principal risks;
key divisions and central functions; projects
and M&A; global site audits; operations and
commerce. Audit engagements were undertaken
in each of these areas during 2021.
The annual internal audit plan is subject to detailed
review by the Audit Committee to ensure alignment
with key business needs; regular progress updates
are provided to the Committee which oversees and
approves the scope of the internal audit plan on a
quarterly basis. Following due and careful consideration
of all relevant factors, the Audit Committee is
satisfied that the Internal Audit function is equipped
to properly and effectively discharge its duties and
responsibilities in accordance with the relevant
professional standards for internal auditors and that
the internal audit plan itself provides appropriate
assurances in respect of the financial and non-financial
controls in place to manage and mitigate the principal
and emerging risks facing the business (further
details of which can be found on pages 109-116).
Independence, performance and
effectiveness of external auditor
The External Auditor confirmed its independence
and objectivity from THG during the reporting period
and both the Audit Committee and the Board are
satisfied that the External Auditor has adequate
policies and safeguards in place to ensure its objectivity
and independence is maintained. When assessing
the independence of the External Auditor, the Audit
Committee considered, amongst other things, the
value of non-audit fees provided by the External
Auditor, the relationship with the External Auditor as
a whole and the annual disclosure from the External
Auditor to discuss the threats to its independence and
the safeguards applied to mitigate those threats.
In September 2021, Karl Havers was appointed to
the position of Lead Audit Partner for EY. Karl joins
the team in reflection of the growth of the Group.
Jamie Dixon, who had been the Lead Audit Partner
until this date continues to remain an Audit Partner
on the EY team. Both audit partners have been
present at the Audit Committee meetings and met
with the Audit Committee Chair. The Committee
welcomes the addition of Karl to the EY audit team.
In overseeing the External Auditor relationship, the
Audit Committee is responsible for making formal
recommendations to the Board on its appointment,
reappointment and removal, and in this regard
seeks views from Senior Management on the quality
and effectiveness of the external audit process.
The effectiveness of the Lead Partner, the audit team,
their approach to audits, including planning and
execution, communication, support and value were
assessed and discussed, and consideration given
to whether the External Auditor had achieved the
agreed audit plan or otherwise explained the reasons
for any departures from it, including any changes
in perceived audit risks and the work undertaken
by the External Auditor to address those risks.
The content of the External Auditor’s Board report
was also reviewed and monitored, together with
other communications with the Audit Committee,
in order to assess whether there was a good
understanding of THG’s business, and establish whether
recommendations had been acted upon and, if not,
the reasons why. As part of the assessment of the
External Auditor, the Audit Committee considered
whether it had exercised professional scepticism and an
appropriate degree of challenge to Senior Management,
particularly on key accounting and audit judgements.
Additional feedback was sought from various
participants in the process (primarily the Audit
Committee itself, the CFO and the Chair and CEO).
Overall, the effectiveness of the external audit
process was assessed as performing as expected.
The Audit Committee concluded it was satisfied
with the work undertaken by the External Auditor,
including adequate levels of challenge, during the
reporting period, with further details on the External
Auditor’s performance included later in this Report.
The Audit Committee is also responsible for considering
and approving the terms of engagement and
remuneration of the External Auditor for both audit
and non-audit services, and removal of the External
Auditor. A resolution to propose the re-appointment
of EY was approved by Shareholders at the 2021
AGM. When considering whether to recommend
the re-appointment of the External Auditor, the
Committee considers a range of factors, including the
effectiveness of the external audit, the period since
the last audit tender was conducted, and the ongoing
independence and objectivity of the External Auditor.
The External Auditor has been appointed since the
2011 reporting period to the date of this Annual Report
and the lead audit partner, Karl Havers, has been in
post since the start of the audit for the 2021 reporting
period. Whilst the Audit Committee is aware that
the initial engagement period for a statutory auditor
should not exceed 10 years, the Company tenure is
counted from 1 January 2021 (the first accounting period
audited following Admission). The Audit Committee
considers that it would be appropriate to conduct
an external audit tender by no later than 2030.
During the year, the Audit Quality Review (AQR) team
from the FRC undertook a review of EY’s audit of
the Group’s 2020 financial statements. Their report
was issued in March 2022. The review identified
some areas for improvement and areas of good
practice. The Audit committee discussed the review
findings with EY, reviewed EY’s proposed actions
to address these findings and is satisfied that these
changes were implemented for the 2021 audit.
157
158
Annual Report 2021
Fees payable to the external auditor
Focus for 2022
During the current financial year, the
Audit Committee will continue to:
• Oversee the controls and governance of any
changes in THG to ensure the continued
effectiveness and integrity of THG’s systems
of internal controls and development of THG’s
internal audit function as THG continues to grow
and mature, play a key role in understanding
proposed reform of the Audit profession and
the potential impact on THG.
• Oversee the evolution of the organisation’s control
environment and the use of technology to enhance
the operation of controls and harness potential
opportunities to digitalise and automate controls
as the framework matures further.
•
Ensure the provision of training, development and
support is relevant to all Directors and the Executive
Leadership Team, particularly with respect to
applicable new legislation, regulation and guidance.
The Audit Committee has reviewed and approved a
policy regarding non-audit work and fees, in relation
to which please see Note 5 of the Group’s financial
statements. In order to ensure that the provision of
non-audit services does not impair the External Auditor’s
independence or objectivity, this policy requires that
the Audit Committee pre-authorises any non-audit
work proposed to be undertaken by the External
Auditor or, if required urgently between meetings,
the Chair of the Audit Committee is empowered to
provide such authorisation. There are certain services
which cannot be provided by the External Auditor or
members of its network without the possibility of its
independence being compromised; it is not therefore
permissible for the External Auditor to provide
such services. Non-audit services prohibited under
independence requirements will not be authorised.
Effectiveness of the Audit Committee
In accordance with the relevant Principles and Provisions
of the Code, an evaluation was undertaken following
the end of the reporting period which considered
not only the collective effectiveness of the Board
but also the effectiveness of the Board Committees,
including the Audit Committee. Further information
on the evaluation, including how it was conducted,
is included in the “Board Evaluation” section of the
Governance Report. The evaluation is a key means
by which the Company monitors and improves
Board Committee performance and effectiveness,
maximising strengths and highlighting areas for further
development. The evaluation confirmed that the Audit
Committee continues to be regarded as operating
effectively and delivers against its Terms of Reference.
On behalf of the Audit Committee
Damian Sanders
Chair of the Audit Committee
20 April 2022
159
THG Tech Offices.
Media City, Manchester. UK..
160
Annual Report 2021
Risk Committee Report
Composition and meetings
Activities of the Risk Committee
“The newly-incorporated Risk Committee plays
a key role, together with the Audit Committee,
in THG’s governance framework and the monitoring
and oversight of strategic, operational and
emerging risks, their mitigation and our overall
group risk appetite. Helping to create,
retain and sustain long-term value”.
Zillah Byng-Thorne
Chair of the Risk Committee
Members and attendance
Committee member
Z Byng-Thorne
D Sanders
D Murphy
Position
Chair
Member
Member
Attendance
3/3
3/3
2/3
Having been appointed as Chair of the Risk Committee
following the 2021 AGM, I have pleasure in introducing
the Risk Committee Report for the financial year ending
31 December 2021.
Prior to the establishment of the Risk Committee, risk
matters were reported to the Audit & Risk Committee,
further details of which can be found in the Audit
Committee Report on pages 153-160. The Terms of
Reference of the Risk Committee, including its scope
of duties and responsibilities, are drafted in line
with current market practice and subject to detailed
consideration by the Company’s advisers, the Terms
of Reference were approved by the Board on 30 June
2021 and took effect from 1 July 2021.
The Committee held three meetings during the
reporting period, all of which were scheduled.
A summary of the key activities which the Risk
Committee undertook during the reporting
period are as follows:
•
•
•
•
•
Received and challenged the refresh of
the principal risks, the THG Enterprise Risk
Management Framework and Risk Management
Policy.
Received and challenged scheduled risk updates
outlining both principal and any escalated
operational risks. The Committee also received
summary reports and supplementary briefings
on selected principal risks.
Consideration of the development of Group and
principal risk appetites with specific consideration
to the assessment of emerging risks.
Considered summary reports of escalated
incidents and instances of fraud, together with
status of investigations and, where appropriate,
management actions to remediate issues identified.
Review of the results and remedial actions arising
from the annual Fraud Risk Assessment.
In addition to these meetings the Risk Committee Chair
met privately with the Chief Risk Officer (CRO) to discuss
the continuing development, maturing and embedding
of THG enterprise risk management framework and
associated processes. Throughout the reporting
period and pursuant to the Terms of Reference, the
Risk Committee Chair, together with other Committee
members (albeit to a lesser extent), also remained
in active conversation with key individuals involved
in the Group’s governance, such as the CEO and the
Head of Internal Audit.
The Terms of Reference provide that membership of
the Risk Committee must comprise of at least three
independent Non-Executive Directors, one of whom
shall be a member of the Audit Committee and one
of whom shall, where possible, be a member of the
Company’s Remuneration Committee. Members of
the Risk Committee are appointed by the Board upon
the recommendation of the Nomination Committee
(in consultation with myself as Risk Committee Chair)
and are required to have the skills and experience
appropriate for membership of a Risk Committee,
with the Risk Committee collectively possessing the
necessary risk, financial and non-financial competence
relevant to the sectors in which the Company operates.
The Terms of Reference provide that at least four
meetings of the Risk Committee shall take place
annually, at appropriate times in the financial reporting
and internal audit cycle or as otherwise required; and
any Risk Committee member, the Chief Risk Officer
(CRO), CFO, Deputy CFO and Head of Internal Audit
(HIA) are expected to attend and the CRO may request
a meeting if they consider it necessary or desirable.
The External Auditor also attends these meetings.
As can be seen from the preceding table, three Risk
Committee meetings took place during 2021, the
Committee having only been established on 1 July
2021. Prior to 1 July 2021, three meetings of the Audit
and Risk Committee took place at which risk-related
matters and activity were debated and discussed.
Roles and responsibilites
As detailed in its Terms of Reference and in accordance
with the requirements of the Code, the Risk Committee
has been established to support the Board in fulfilling its
oversight responsibilities by reviewing and monitoring:
•
•
•
•
The principal risks and identifying the emerging
risks facing the Company and its direct and indirect
subsidiaries (the “Group”), the likelihood and
impact of such risks materialising, and the way
in which such risks are managed and mitigated,
including the definition and execution of a risk-
management strategy and associated risk policies.
The Group’s overall risk appetite, tolerance and
strategy and the principal and emerging risk
appetites the Group may be willing to accept
to achieve its long-term strategic objectives.
The robustness of the Group’s risk management
framework, policies and procedures and their
fitness for purpose when tested against the
Board’s risk strategy and appetite.
The annual Fraud Risk Assessment and
remedial actions.
161
162
Annual Report 2021
Risk management and
internal controls
In accordance with the FRC’s Guidance on “Risk
Management, Internal Control and Related Financial
and Business Reporting” (September 2014), ultimate
responsibility for the Group’s systems of internal controls
and risk management framework rests with the Board.
However, pursuant to the provisions of the Code and
as reflected in its Terms of Reference, the Risk
Committee, along with the Audit Committee, has
delegated responsibility for the ongoing monitoring
and review of the Group’s risk management and internal
control systems, including its financial, operational and
compliance controls.
The Committees have also delegated responsibility for
monitoring and review of the processes and procedures
in place to manage or mitigate principal risks and
to identify emerging risks and review and assess the
Company’s risk appetite and associated stress testing
whilst assisting the Board in its annual review of the
effectiveness of these systems and determining their
adequacy (or otherwise).
The Risk Committee has access to the Company’s
independent Special Advisors, who provide specialist
expertise and additional support in areas such as tax,
risk, cyber, regulatory compliance and governance,
to ensure the full and effective discharge of its
responsibilities.
Information on the Group’s risk management framework
can be found on pages 105-118 of the Strategic Report,
together with details of the processes and controls
which were in place throughout the reporting period
to manage and mitigate risk and provide the Board
with the required assurance that sound systems of risk
management and internal controls exist throughout
the Group.
The Viability Statement is set out on pages 117-118
of the Strategic Report.
THG risk team
The Risk Committee is responsible for reviewing and
approving the role and mandate of THG Risk Team
whilst monitoring and assessing the effectiveness of its
work, including in the overall context of the Group’s risk
management systems. To ensure the reporting line of
the CRO and THG Risk is independent of the Executive
Leadership Team and is suitably positioned to exercise
independent judgement, the CRO has access to the
Risk Committee as and when necessary.
Focus for 2022
During the current financial year, the Risk Team
Committee will continue to:
•
•
•
Oversee the continued embedding of the revised
THG Enterprise Risk Management Framework
and maturing of the management and reporting
of principal and operational risks.
Monitor the application of group risk appetite and
the identification and quantification of emerging
risks and the business response.
Working in partnership with the Audit Committee
to consider the ongoing enhancements to the
systems of internal control.
On behalf of the Risk Committee
Zillah Byng-Thorne
Chair of the Risk Committee
20 April 2022
163
THG Experience
Hale Country Club & Spa.
Manchester. UK.
164
Annual Report 2021 Nomination Committee Report
“The Nomination Committee considers the Board to be
well-placed to guide the Company through the next stage
of its corporate governance journey. However, it will continue
to monitor Board composition throughout 2022 to ensure its
balance of skills, knowledge, diversity and experience support
the effective execution of Group strategy and promote the
generation of long-term, sustainable shareholder value.”
Dominic Murphy
Chair of the Nomination Committee
Members and attendance
Co mmittee member
Position
Attendance
Dominic Murphy
Zillah Byng-Thorne
Iain McDonald
Chair
Member
Member
3/3
3/3
3/3
I am pleased to present the Nomination Committee
Report for the 2021 reporting period. As noted in
last year’s Report, the Nomination Committee was
established as part of the Company’s Admission
preparations and therefore 2021 represented the first
full year the Committee was in operation to review and
monitor those key areas of governance which fall within
its scope of responsibilities.
The Nomination Committee operates under formal
and transparent Terms of Reference which are available
on the Company’s website. In accordance with the
principles of good corporate governance, the Terms
of Reference incorporate the relevant provisions of
the Code in respect of Board composition, succession
and evaluation and reflect best practice applicable
to a company of THG’s size, nature and stage of
development.
Role and responsibilities
Composition and meetings
The Terms of Reference of the Nomination
Committee provide that, in line with the relevant
Code provision, a majority of Committee members
should be independent NEDs and the Nomination
Committee Chair should be either the chair of the
Board or an independent NED. As detailed in the
Governance Report, Dominic Murphy and Zillah Byng-
Thorne are deemed to be independent and thus
fulfil these criteria, with Dominic Murphy having been
appointed as Nomination Committee Chair on the
establishment of the Committee. Biographies of all
Committee members can be found on pages 133-136
of the Governance Report.
The Terms of Reference further provide that at least
two meetings of the Nomination Committee take
place annually and at such other times as required
by the Nomination Committee Chair or as requested
by any member of the Committee should they consider
it necessary. The Nomination Committee met on three
occasions during the 2021 reporting period, with two
scheduled meetings taking place in April and November
and a further meeting also taking place in November
to consider and approve the appointment of Andreas
Hansson to the Board (further details on which follow).
While only members are entitled to attend meetings
of the Nomination Committee, others (such as the
Independent Chair, the CEO, Chief People Officer
or relevant external advisers) may be invited to attend
as and when it is considered desirable.
The Nomination Committee is cognisant of its
responsibility to ensure that the Group’s leadership
needs are satisfied to allow it to compete effectively
in the marketplace and recognises that to properly
and fully discharge such responsibility it must be
fully apprised of the strategic direction of the Group
and the challenges, commercial and otherwise,
which THG does or could face. To ensure the
relevant insight is shared with all Board members,
comprehensive commercial and market updates are
provided by Senior Management at monthly Board
meetings, together with regular strategic briefings.
The Nomination Committee is considered well-placed
to keep the structure, size and composition of the
Board under ongoing review (with particular regard
to its balance of skills, knowledge, experience and
diversity and also the balance of Executive Directors/
NEDs) and suggest any changes which it believes are
required. In doing so the Committee has due regard
to the need for the necessary succession planning
to be undertaken and, as and when it considers
appropriate, makes recommendations to the Board
in respect of both Executive Directors and NEDs
and also from a Senior Management perspective.
As detailed in this Report, the search for an independent
chair commenced during the 2021 reporting period
to ensure that, in compliance with the Code, a clear
division of responsibility was established between
the leadership of the Board and the executive
leadership of the business and Charles Allen was
subsequently appointed to the position on 22
March 2022. In light of this appointment and the
Independent Chair’s specific mandate to, amongst
other things, enhance Board composition by improving
its independence and diversity, it is expected that
membership of the Board will be subject to ongoing
review over the coming months to ensure that
a suitably-equipped leadership team is in place
to drive and navigate the Company through the
next stage of its corporate governance journey.
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Annual Report 2021 Activities of the Nomination Committee
Board composition
Following a review of the skills, knowledge and
experience on the Board and its Committees and
consideration of overall independence in the second
half of 2020, it was identified that the appointment
of additional NEDs, possessing prior listed company
experience and expertise in areas such as remuneration
and governance, would serve to enhance the Board’s
composition. Accordingly, and as disclosed in the 2020
Annual Report, the Board and Senior Management
received a number of candidate recommendations from
their professional networks and a shortlist of potential
appointees was agreed. Extensive interviews, involving
all Board members, were undertaken and Tiffany
Hall was subsequently appointed to the Board as an
independent NED on 12 January 2021. In accordance
with the relevant Code provisions, this appointment
was made on the basis of merit and objective criteria,
including with regard to the promotion of, amongst
other things, gender diversity.
Board composition remained subject to ongoing
oversight by the Nomination Committee throughout
the 2021 reporting period to ensure the Group’s
leadership needs were met and its strategic goals
could be effectively executed. Against this background
and in light of the positive financial and trading
collaboration developing between the Company
and Softbank, it was deemed appropriate to appoint
a Softbank representative to the Board, noting that
the partnership presented expansive collaboration
opportunities amongst the parties and their respective
affiliates. Andreas Hansson was subsequently identified
as a suitable candidate for the position of NED and
appointed to the Board on 26 October 2021, although,
having recently stepped down from Softbank, his
continued directorship is no longer in a Shareholder
representative capacity.
Additionally, and further to an ongoing review of
corporate governance arrangements, the need for
an independent chair was recognised and thereafter
became a principal area of focus for the Nomination
Committee during the 2021 reporting period (and
into 2022). Russell Reynolds Associates were engaged
to assist in this process and formally appointed to
undertake the search for a new independent chair. The
Nomination Committee subsequently identified Charles
Allen as the most suitable candidate for the position
and recommended him to the Board for appointment.
In making this recommendation the Nomination
Committee had given keen consideration to candidate
shortlists while engaging in significant deliberations
around, for example, relevant experience, knowledge
and skillsets and whether shortlisted candidates could
be viewed as the “right fit” for THG. Face-to-face
interviews with shortlisted candidates were undertaken
by members of the Nomination Committee and other
NEDs and Senior Management participated in the
process to the extent considered appropriate. Following
Board consideration and approval, Charles Allen was
appointed to the Board as Independent Chair on 22
March 2022.
The Nomination Committee further reviewed Board
composition and performance in advance of the
2021 AGM and, as a result of its deliberations,
recommended to the Board that all Directors be
put forward for annual election by Shareholders.
Committee composition
Under its Terms of Reference, the Nomination
Committee is mandated to make recommendations
to the Board concerning Board Committee
membership and consideration thereof represented
a key agenda item for the Committee during the
first half of the 2021 reporting period. The time
commitment expected of Board members was
a significant factor in the Nomination Committee’s
assessment of Board Committee composition,
together with the external commitments of NEDs.
As a result of this review, the Nomination Committee
recommended that changes be made to the
composition of a number of Board Committees,
the objective of which was to enhance certain
corporate governance arrangements and also
ensure optimum utilisation of NEDs’ skillsets and
experience while streamlining Board Committee
commitments as considered appropriate. The Board
accepted the recommendations of the Nomination
Committee and the requisite membership changes
took effect immediately following the 2021 AGM.
Key changes included: Damian Sanders stepping
down as chair of the Remuneration Committee (but
remaining a member) and being replaced by Tiffany
Hall who had extensive remuneration experience and
had served as a remuneration committee chair for
more than 12 months, as required under the Code;
and Iain McDonald stepping down from membership
of the Audit Committee (previously named the
Audit and Risk Committee) to ensure independent
oversight and challenge with respect to the Group’s
risk management framework, internal controls and
financial statements and Code compliance vis-a-vis
Audit Committee membership. As disclosed in the
2020 Annual Report, it was also considered appropriate
to separate the Audit and Risk Committee into two
Board Committees during the 2021 reporting period
and a new Risk Committee was established, comprising
independent membership, to assist the Board in its
oversight of risk and to advise on overall risk appetite,
tolerance and strategy. Whilst Zillah Byng-Thorne was
appointed chair of the Risk Committee, she stood
down as chair of the Audit Committee (but remained
a member), thereby streamlining the scope of her chair
responsibilities in a manner deemed appropriate.
Board evaluation
During the 2021 reporting period the Company engaged
a third party to provide an online digital platform
through which it undertook a formal and rigorous Board
evaluation in the first quarter of 2022. This evaluation
was aligned with best market practice and the content
tailored, as appropriate, to the specific requirements
of the Company. This ‘paper’ evaluation supplemented
a SID-led discussion on general chair and Board
performance which had previously taken place amongst
the NEDs, with consistent themes emerging from both.
The current form and content of monthly Board
meetings was an area highlighted for consideration,
including a proposal to streamline and invert the
standard Board agenda by, for example, restricting
the more fulsome divisional updates to a quarterly
basis and thereby allowing increased focus on key topics
such as People, Sustainability and Investor Relations.
It was further proposed that Board meeting invitations
be extended to a broader base of external advisers,
as and when deemed fitting, to allow relevant market
and commercial knowledge and insight to be shared.
It was accepted that, from a Board meeting perspective,
the Company continues to transition from a private
company to that of a PLC and it is expected that
Board meeting content and agendas will continue to
naturally evolve as the Board collectively matures and
in light of the appointment of the Independent Chair.
It was also acknowledged that there should be more
focus on succession planning (from both a Board
and Senior Management perspective) and Group
strategy. The decision to appoint an independent
chair was viewed as a positive step at this stage in
the Company’s corporate governance journey and,
whilst it was recognised that a strong talent pool
had been developed within the business, it was
noted that recruiting, developing and retaining top
talent was key to the Group’s future success.
While the overall conclusion was that the Board and its
Committees continue to function in an effective manner,
the intention is that the results of the evaluation will
be reviewed and considered in detail by the CEO and
Independent Chair, following which the relevant actions
and decisions will be taken to address the key items
raised, as considered appropriate, and to ensure the
ongoing effectiveness of the Board and its Committees.
As detailed in the Governance Report and taking into
account a number of factors, including the appointment
of the Independent Chair and the practical division
of duties and responsibilities ongoing between the
Independent Chair and the CEO, it is recognised that
detailed consideration must be given to the timing,
structure and content of the next Board evaluation.
While no decisions have been taken at the present
time, the Nomination Committee (and the Board
collectively) is cognisant of the need to keep a
watching brief on the situation and, at the relevant
time, an appropriate evaluation will be conducted
to ensure Board members continue to contribute and
work together effectively.
The Board believes the evaluation process to be
a critical component of good governance and, in
accordance with the Code and as disclosed in the 2020
Annual Report, commits to conducting an evaluation
of the performance of the Board, its Committees,
the Independent Chair and individual Directors on
an annual basis. Further and as also disclosed in
the 2020 Annual Report, an externally facilitated
review will be undertaken within three years
of Admission (noting that the relevant Code requirement
strictly only applies to FTSE 350 companies).
167
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Annual Report 2021
Diversity
Focus for 2022
Diversity and inclusion continue to be key commitments
of THG and will remain as such in both the ongoing
evolution of THG’s corporate culture and in the
consideration of all future Board appointments. The
Nomination Committee recognises the importance and
associated benefits of diversity and takes seriously its
responsibility, pursuant to its Terms of Reference, to
ensure the promotion of, amongst other things, diversity
of gender in the context of both Board appointments
and succession planning.
The Nomination Committee will continue to closely
monitor Board composition throughout 2022.
Appointments will continue to be made based
upon merit and against objective criteria to ensure
the best individual, who is the “right fit” for THG, is
appointed to the role in question but, as required
by the Code, always with cognisance of the need
to promote, amongst other things, diversity of
gender and social and ethnic backgrounds.
As was the case in 2021, the Nomination Committee
will convene ahead of the AGM to consider overall
Board composition, including the breadth of skills,
knowledge, experience and diversity. The performance
of individual Directors will be considered as part of
this review, including the time committed to fully and
effectively discharge the duties and responsibilities
imposed upon them as Directors of the Company,
following which the Nomination Committee will
make the requisite recommendations regarding
their re-election (or otherwise) to the Board.
From a general workforce perspective, the Group’s
D&I Committee provides a platform for employees
across the entire Group and explores ways in which
the Company can further improve the employee
journey and workplace culture to ensure a truly
inclusive workplace exists, and is suitably nurtured,
within THG. The D&I Committee reports directly
into the Group’s Chief People Officer, who ultimately
oversees diversity of workforce and in turn attends
the monthly Board meetings and reports to the
Board collectively on relevant People initiatives.
Further details on the Group’s approach to D&I,
including the activities of the D&I Committee and
the gender diversity breakdown required pursuant
to section 414C of the Companies Act, can be
found in the Governance Report on page 129.
Notably, one of the headline strategic goals of the
Company’s 2030 Sustainability Strategy, launched
during the 2021 reporting period, is the promotion
of policies and practices that are inclusive for all at
THG and further information on this is contained
in the section entitled “Our Stakeholders and s172
Statement” on pages 73-86 of this Annual Report.
On behalf of the
Nomination Committee
Dominic Murphy
Chair of the Nomination Committee
20 April 2022
169
THG Staff Gym
THG ICON Campus, Manchester. UK.
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Annual Report 2021
Related Party
Committee Report
Members and attendance
Committee member
Position
Attendance
Zillah Byng-Thorne
Damian Sanders
Chair
Member
3/3
3/3
Dominic Murphy
Former Member
1/1*
*Further to a review of Board Committee composition during the reporting period, Dominic Murphy
stepped down as a member of the Related Party Committee following the 2021 AGM.
Welcome to the Related Party Committee Report for the
2021 financial year. Having now served my first full year
as Chair, I am pleased to report that throughout 2021 the
Committee continued to play a key role in the Group’s
corporate governance infrastructure and oversaw and
scrutinised those matters which fell within its scope
of responsibility (further details of which are included
below).
As disclosed in last year’s Annual Report, prior to
Admission THG divested the Propco Group, which owns
property assets occupied and utilised by the Company
and its operating businesses. As the Propco Group
is wholly owned by Matthew Moulding, CEO of and
a major shareholder in the Company, the divestment
was overseen and approved by the independent NEDs
to ensure both actual and potential conflicts of interest
arising from the transaction were properly managed
and resolved. The lease arrangements which operated
between the Propco Group and THG and its operating
businesses prior to the Propco transaction continue
to remain in place and no material changes occurred
in 2021.
Role and responsibilities
In seeking to comply with the spirit of the Code
and in accordance with the principles of good
corporate governance, the Board-constituted
Related Party Committee was established post-
Admission to oversee and approve Related Party
Transactions. In doing so and pursuant to its Terms
of Reference, the Committee is required to consider
whether any such transaction is both fair and
reasonable and in the best interests of the Group.
The general position is that no Related Party
Transaction may be authorised or implemented by
the Board unless it has been positively recommended
by the Related Party Committee. The Terms of
Reference do, however, contain a carveout which
allows the Board to resolve that in respect of
certain categories of Related Party Transactions,
and where considered to be in the best interests
of the Group, the views of the Committee are
of a recommendary nature and not binding.
The Board is cognisant of the need to demonstrate that
appropriate and stringent governance arrangements
are in place in respect of both existing and potential
conflicts of interest. Accordingly, the effectiveness of
the Related Party Committee is considered through
Board discussions and, as required under its Terms of
Reference, by the Committee itself through reviews of
both its own performance and its Terms of Reference.
Composition and meetings
Officers of the Company
Aligned with the purpose and objectives of the Related
Party Committee, its Terms of Reference provide that
membership must comprise wholly of independent
NEDs. As SID, I have been appointed as Chair of the
Related Party Committee and other members are
appointed by the Board upon the recommendation of
the Nomination Committee (and in consultation with
myself).
At the start of the reporting period Dominic Murphy,
an independent NED, was a member of the Related
Party Committee. However, following certain Board
Committee changes which sought to both enhance the
Group’s corporate governance arrangements and ensure
the most effective application of the Board’s skillsets and
experience, Dominic stepped down from the Related
Party Committee following the 2021 AGM. Current
membership of the Related Party Committee therefore
comprises myself as Chair and Damian Sanders, also an
independent NED.
The Terms of Reference further provide that meetings of
the Related Party Committee shall be held at such times
as required by myself, as Chair, or at the request of any
other Committee member. The inaugural meeting of the
Related Party Committee took place in March 2021, with
a further two meetings held in June and December.
Activities of the Related Party Committee
During the reporting period, the arrangements between
the Company and the Propco Group continued to be
subject to ongoing oversight and monitoring by the
Related Party Committee. Further, as Chair, I engaged
with Senior Management as and when I felt it necessary
to do so to ensure that arrangements in respect of
the Propco Transaction were properly considered
and understood by the Related Party Committee.
The key areas considered by the Related Party
Committee during the period are as follows:
Officers of the Propco Group are also officers
of the Company. Cognisant of the conflict of
interest that arises in such a situation, management
are in the process of resolving the shared officers.
This is planned to be complete by 31 December 2022.
Capital expenditure
Capital expenditure incurred by the Company on
properties leased from the Propco Group – the rationale
for the spend incurred in the year and the nature of the
work completed. The Committee concluded that the
nature of works and level of spend were appropriate.
Dilapidations provision
The dilapidations provision included at 31 December
2021 in respect of restoring properties to their original
condition at the end of the lease term was shared
with the Committee. Before any spend is committed
this will be approved in advance by the Committee.
Schedule of leases
The leases in place were entered into prior to
the IPO and therefore prior to the formation of the
Related Parties Committee. A summary of all such
leases and terms was presented to the Committee.
The leases and terms therein were reviewed.
A summary of the rent payable together with the
market rent at inception was also reviewed. Actual
rent at the time of inception varied when compared
with market rent at this time. The Committee
subsequently reviewed current market rent
information provided by THG Property specialists
and concluded that the actual rents were appropriate
when reviewed across the portfolio as a whole.
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Annual Report 2021 External review
Other items
The details of THG’s donation to The Moulding
Foundation were also approved by the Committee.
The donation is paid by THG in lieu of Matthew
Moulding receiving a salary.
As Chair, I am confident that the Related Party
Committee will continue to fully and effectively
discharge its responsibilities during 2022. We will
continue to rigorously evaluate all Related Party
Transactions and ensure that, as required by our
Terms of Reference, they are conducted on standard
commercial terms.
During the year management commissioned a specialist
report to review transactions between the Company
and the Propco Group. The Related Party Committee
reviewed the report and were satisfied that no items of
concern were identified. The Group are committed to
building on our governance in this area and strive for
best practice, the report will be used to further enhance
the Related Party governance already in place.
Management charge
A management charge is levied by THG to Propco
including fixed costs for several services provided.
The charge for 2021 was approved by the Committee.
Separation of the Group
In readiness for the internal separation of the Group,
the Company is looking to seek consent from the
Propco Group to reassign and sublet a number of
leases to alternative THG entities. The Related Party
Committee challenged whether there were any changes
to the previously agreed lease terms. It was confirmed
that there are no variations. The Committee approved
THG to progress with obtaining consent to alter.
On behalf of the Related
Party Committee
SIGNATURE
Zillah Byng-Thorne
Chair of the Related Party Committee
20 April 2022
173
THG Studios Reception 2
Manchester. UK.
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Annual Report 2021 Sustainability Committee Report
Iain McDonald
Chair of the Sustainability Committee
The 2030 Sustainability Strategy was subsequently
formalised and publicly disclosed at the Company’s
Capital Markets Event in October 2021. Whilst further
information on the 2030 Sustainability Strategy can be
found below and in the sustainability section on pages
87-104, key milestone targets, flowing from headline
strategic goals, were announced at this time and
included:
•
•
Members and attendance
Committee member
Position
Attendance
Iain McDonald
Chair
Tiffany Hall
P Pratt
S Whitehead
Former Member*
Member ** ***
Member ***
4/4
3/3
2/2
4/4
* Tiffany Hall was appointed to the Sustainability Committee following its first meeting in
2021 but subsequently stepped down from the Board, and as a member of the Committee,
for family reasons on 18 March 2022.
**Phil Pratt was appointed to the Sustainability Committee upon joining the Company in July 2021.
*** Phil Pratt and Steven Whitehead sit on the Sustainability Committee in their respective capacities
as Chief Sustainability Officer and Group Commercial Director.
As Chair of the Sustainability Committee, I am delighted
to once again introduce the Sustainability Committee
Report for the period under review. 2021 has been
a pivotal year for THG from a sustainability perspective
with a number of new and exciting initiatives having
been rolled-out across the business and certain
goals and targets, underpinned by science,
data and technology, validated and published.
In last year’s Annual Report & Accounts we disclosed
that a review of THG’s sustainability strategy was
underway, the principal objectives of which were to:
(i) determine the adequacy of the goals and targets
identified to address the principal risks, impacts and
opportunities facing the Group; and (ii) ensure the
Company was well-positioned to embed best practice
within its operations. I am pleased to report that
significant progress was made in this regard during
the reporting period, including robust engagement
with investors, partners and wider stakeholders, and,
following detailed consideration, it was acknowledged
that a forward-looking and progressive strategy was
required which would both serve to protect the Group’s
licence to operate and promote value creation.
•
•
•
•
•
The publication of a net zero roadmap,
aligned to science-based targets, by 2022.
The offset of all Company historical operational
emissions by 2025.
The transition to 100% renewable electricity
for all THG operations by 2025.
The implementation of a progressive Human
Rights Policy by 2023.
The commitment of all suppliers to THG’s
ethical sourcing standards by 2025.
It is anticipated that THG Eco will play a critical role
in delivery of the 2030 Sustainability Strategy – not
only providing the building blocks of the Group’s
commitment to long-term sustainable growth but
with a focus on creating long-term value for all
relevant stakeholders and the eco-systems within which
the Group operates through innovative solutions to
societal issues. Additional information on THG Eco can
be found in the sustainability section on pages 87-104
and on the Company’s website.
Role and responsibilities
The Sustainability Committee was established to
ensure that the Group has appropriate and effective
strategies, policies and operational controls in place
to conduct its business in a responsible and sustainable
manner and to ensure it is properly accountable in
respect of sustainability and ESG targets.
Pursuant to its Terms of Reference, key duties
of the Sustainability Committee include:
• Assessing the Group’s performance in implementing
the 2030 Sustainability Strategy and policy and
recommending changes, as appropriate, to reflect
both best practice and global developments
in sustainability.
Reviewing and monitoring the Group’s systems,
strategies, policies and targets in relation to,
amongst other things, energy and carbon
management, climate change, supply chain,
waste and recycling, employee wellbeing,
and diversity & inclusion.
Reviewing and monitoring the systems for
compliance with applicable sustainability-related
legislation, regulations, standards and guidance
and confirming compliance therewith.
Additionally, the Sustainability Committee is responsible
for monitoring Senior Management’s assessment of the
health, safety, security, environmental and social impacts
resulting from THG’s operations with, notably, specific
reference to the impact on the Group’s employees,
suppliers, contractors and host communities. As is the
case with the other Board Committees, the Sustainability
Committee may obtain professional advice on any
matter it deems necessary and also access any resources
required for it to properly carry out its role (including the
Company’s Special Advisors).
Composition and meetings
The Terms of Reference of the Sustainability Committee
provide that members of the Committee shall be
appointed by the Board, upon the recommendation
of the Nomination Committee, and membership
shall comprise at least three members, one of whom
shall be a NED and all of whom must possess the
skills and experience appropriate for membership.
In accordance with these requirements, membership
of the Sustainability Committee is as follows: Iain
McDonald (a NED and the Sustainability Committee
Chair), Phil Pratt (Chief Sustainability Officer) and Steven
Whitehead (Group Commercial Director), and Tiffany
Hall was a member of the Committee until she stepped
down from the Board for family reasons on 18 March
2022.
The Terms of Reference of the Sustainability Committee
provide that at least three meetings of the Committee
shall take place annually and at such other times as
the Chair may require, although any member of the
Committee may request a meeting if they consider
it necessary or desirable. As can be seen from the
foregoing table, four meetings of the Sustainability
Committee took place during the reporting period and
it is anticipated that, in recognition of the Group’s robust
sustainability commitments, it will continue to convene
in excess of the stated requirements.
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Annual Report 2021
Activities of the
Sustainability Committee
A summary of the key activities which the
Sustainability Committee undertook during
the reporting period is as follows:
• Approval of THG’s Environmental Policy.
• Approval of THG’s 2030 Group
Sustainability Strategy.
• Update on activities relating to the
company’s ethical trade initiatives.
•
Review of the development of the
THG Eco proposition.
• Delivery of strategic acquisitions under
THG Eco, including (more:trees) and
two plastic recycling companies.
Focus for 2022
During the current financial year it is anticipated
that key areas of focus for the Sustainability
Committee shall be as follows:
Sustainability roadmaps
It is expected that the Sustainability Committee
will review and approve the Company’s roadmaps
to achieving the targets set out in the sustainability
strategy, determining that THG has the correct
measures and processes in place to deliver on the
ambitions. A key priority will be the approval of
the company’s Net Zero roadmap and submission
of science based targets to SBTi for validation.
Supply chain
The committee will continue to oversee activities
relating to ethical trade and monitoring of suppliers.
THG Eco
During 2022, the Sustainability Committee will work with
the Board to establish a route to market for THG Eco,
evolving the proposition further and adding services
to the portfolio that will not only support THG to
meet its sustainability targets, but will also enable the
Company to affect positive environmental change at
scale by offering services to third-party organisations.
On behalf of the
Sustainability Committee
SIGNATURE
Iain McDonald
Chair of the Sustainability Committee
20 April 2022
177
178
Annual Report 2021
Directors’ Remuneration Report
“The Remuneration Committee recognises that as we
move into our second full year as a listed business
we need to evolve the Remuneration Policy to
ensure it is fit for purpose, future-proof and drives
long-term value creation for shareholders.”
Damian Sanders
Interim Chair of the
Remuneration Committee
Members and attendance
Committee member
Position
Attendance
Tiffany Hall
Damian Sanders
Dominic Murphy
Iain McDonald
Former Chair²
Interim Chair²
Member
Member
Zillah Byng-Thorne
Former Member
5/5¹
4/5¹
5/5
4/5
0/1¹
1 Further to a review of Board Committee composition during the
2021 reporting period, the following changes took effect immediately
following the 2021 AGM: (i) Damian Sanders stepped down as
Remuneration Committee Chair and was replaced by Tiffany Hall;
and (ii) Zillah Byng-Thorne stepped down as a member of the
Remuneration Committee.
2 Tiffany Hall subsequently stepped down from the Board and as
Remuneration Committee Chair for family reasons on 18 March 2022
and Damian Sanders became Interim Chair with effect from this date.
Role and responsibilities
The Remuneration Committee’s Terms of Reference,
available on the Company’s website, continue
to reflect current statutory requirements and
best practice applicable to a company of THG’s
size, nature and stage of development.
In addition to setting the Remuneration Policy for
Executive Directors, the Remuneration Committee has
responsibility for determining the remuneration package
of each Executive Director (and the Chair) within the
terms of the agreed Remuneration Policy. In doing
so, it must ensure that its remuneration policies and
practices not only support the Company’s strategy and
promote long-term sustainable success but also allow
the use of discretion to override formulaic outcomes.
Pursuant to its Terms of Reference, other key
duties of the Remuneration Committee include:
•
•
•
approving the design of, and determining
targets for, any performance-related pay
schemes operated by the Company and
the payments made thereunder;
reviewing the ongoing appropriateness and
relevance of the Remuneration Policy, together with
the approach to implementation, in the context
of pay policies and practices across the wider
workforce and the Group’s culture, while consulting
with, and seeking approval from, Shareholders
(and other stakeholders) as appropriate; and
reviewing and having regard to pay and
employment conditions across the Company
and/or Group as a whole, including those
of the Executive Leadership Team.
Revised Remuneration Policy
and new LTIP
The Remuneration Committee recognises that
as THG moves into its second full year as a listed
business the Remuneration Policy must evolve as
appropriate to ensure it remains fit for purpose.
Furthermore, as detailed in the Directors’ Remuneration
Report included within the 2020 Annual Report, the
Remuneration Committee has always intended to
review the appropriateness of introducing a new LTIP
with the aim of future-proofing the Remuneration Policy
for the medium term. Accordingly, we are proposing
to make an amendment to the Remuneration Policy to
incorporate a LTIP, subject to the requisite Shareholder
approval being obtained at the AGM. John Gallemore
will participate in the new LTIP under which annual
awards of up to 250% of base salary (or up to 300%
of base salary in exceptional circumstances) will
be granted. Awards will be subject to stretching
performance targets measured over a three-year period,
with a further two-year post-vesting holding period
applying in line with the relevant Code requirement
and market best practice. Matthew Moulding will not
participate in any future long-term incentives given his
material shareholding in the business.
A further amendment will be made to future-proof the
shareholding requirement element of the Remuneration
Policy for any future incoming Executive Directors who,
in line with typical market practice, will be required to
build up and subsequently retain a shareholding of at
least 200% of salary over a five-year period from the date
of their appointment to the Board.
Interim Chair’s statement
As Interim Chair of the Remuneration Committee, I
am pleased to introduce the Directors’ Remuneration
Report for the 2021 financial year. I would like to thank
Tiffany Hall for her contribution as Remuneration
Committee Chair, from the 2021 AGM until she stepped
down from the Board for family reasons on 18 March
2022, and also take this opportunity to restate the
Remuneration Committee’s ongoing commitment to
ensuring that the Company’s leadership is suitably
motivated and incentivised to deliver long-term
sustainable growth and success for Shareholders.
This Directors’ Remuneration Report has been
prepared in accordance with The Large and Medium-
sized Companies and Groups (Accounts and Reports)
Regulations 2008 (as amended), the Listing Rules
and the Code and is divided into three sections:
•
•
•
this annual statement from me, the Interim
Chair of the Remuneration Committee;
the revised Remuneration Policy which
will be put to a binding Shareholder
vote at the forthcoming AGM; and
the Annual Report on Remuneration which
sets out payments made to Directors in the
2021 reporting period and which is subject to
an advisory Shareholder vote at the AGM.
2021 remuneration outcomes
No performance-related pay awards were made
in 2021 since both Matthew Moulding and John
Gallemore waived their entitlement to participate
in the annual bonus plan for the reporting period
and no LTIP was in place.
No salary increases were awarded during the 2021
reporting period and, as was the case for the 2020
financial year, both Matthew Moulding and John
Gallemore waived as much as was legally permissible
of their base salary in return for the Group making
charitable donations of similar value.
Appointment of Independent Chair
I am delighted that Charles Allen joined the Board as
Independent Chair effective from 22 March 2022. The
Remuneration Committee was consulted in relation to
his remuneration prior to the appointment being made
and this will be operated in line with the proposed
revised Remuneration Policy.
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Annual Report 2021 Remuneration for 2022
AGM
A review of THG’s sustainability strategy was undertaken
during 2021, involving robust engagement with
investors, partners and wider stakeholders, to ensure
the Group had appropriate and effective strategies,
policies and operational controls in place to conduct
its business in a responsible manner (including
performance against the 2030 Sustainability Strategy
and in relation to ESG matters more generally). From
a remuneration perspective, a notable outcome of this
review was the setting of sustainability-linked objectives,
from 2022 onwards, for the Chief Executive Officer
and members of the Executive Leadership Team and
Senior Management Team, with such objectives directly
impacting remuneration through the annual bonus
outcome. The decision to set such sustainability-linked
objectives evidences the continued evolution of the
Group’s commitment to link remuneration with the
successful delivery of its strategy, whilst also providing
the appropriate levels of incentivisation to ensure the
long-term creation of sustainable Shareholder value.
There are no proposed changes to the structure of the
remuneration packages of Matthew Moulding and John
Gallemore for the 2022 reporting period, save for the
introduction of the LTIP for John Gallemore, details of
which are set out in the following pages.
In line with the Remuneration Policy, annual bonus
awards will be granted with a maximum opportunity of
100% of base salary for Matthew Moulding and John
Gallemore. The measures and weightings for the 2022
bonus awards will be:
• Group Sales (20%);
• Group adjusted EBITDA (30%);
•
•
•
Ingenuity Commerce Sales (15%);
Ingenuity Commerce adjusted EBITDA (15%); and
strategic objectives including ESG metrics (20%).
Subject to obtaining the requisite Shareholder approval
at the AGM, a LTIP award of up to 250% of salary will
be made to John Gallemore in 2022 under the revised
Remuneration Policy. This award will be subject to
stretching financial and strategic performance targets
which will be disclosed at the time of grant. It will vest
three years after grant and be subject to a further two-
year holding period.
On behalf of the Board, I would like to thank
Shareholders for their continued support and I
look forward to meeting with them at the forthcoming
AGM. In the meantime, I am always happy to hear
from Shareholders and can be contacted via the
Company Secretary in relation to any questions on
this Directors’ Remuneration Report or on Group
remuneration queries more generally.
On behalf of the
Remuneration Committee
Damian Sanders
Interim Chair of the Remuneration Committee
20 April 2022
181
182
Annual Report 2021
Remuneration Policy
Introduction
As previously detailed, the following Remuneration Policy will be put to a binding Shareholder vote at the AGM and
will apply for the remainder of the three-year period from the original date of approval at the 2021 AGM.
The Remuneration Committee has designed the Remuneration Policy to reflect the following six pillars:
Clarity:
The Remuneration Committee believes that the disclosure of the remuneration arrangements is
transparent with clear rationale provided on their maintenance and any changes to the Remuneration Policy.
The Remuneration Committee remains committed to consulting with Shareholders on both the
Remuneration Policy and its implementation.
Simplicity:
The Remuneration Policy and the Remuneration Committee’s approach to implementation is simple and well
understood. The performance measures used in the incentive plans are well-aligned to the Group’s strategy.
Risk:
The Remuneration Committee has ensured that remuneration arrangements do not encourage and reward excessive
risk taking by setting targets to be stretching and achievable, with discretion to adjust formulaic outcomes under
both the annual bonus and new LTIP.
Predictability and proportionality:
The linkage of the performance measures to strategy and the setting of targets balances predictability and
proportionality by ensuring outcomes do not reward poor performance.
Culture:
The Remuneration Policy is consistent with the Group’s culture as well as strategy, therefore driving behaviours that
promote the long-term success of the Group for the benefit of all stakeholders.
Proposed changes to the existing Remuneration Policy
The Remuneration Policy has been designed to support the principal objective of enabling the Group
to attract, motivate and retain the people it needs to maximise the value of the business.
As set out in the Directors’ Remuneration Report included within the 2020 Annual Report, the
Remuneration Committee always intended to review the appropriateness of introducing a new LTIP
with the aim of future-proofing the Remuneration Policy for the medium term. Matthew Moulding
will not participate in any future long-term incentives given his material shareholding in the business.
As such, the following amendments to the current Remuneration Policy are proposed:
Element
Current Remuneration Policy
Proposed amendments
Rationale
Benefits
Executive Directors may be provided
with medical insurance benefits,
permanent health insurance, life
assurance and private security cover.
Other benefits (including all employee
share schemes) may be introduced
from time to time to ensure the
benefits package is appropriately
competitive and reflects the needs
and circumstances of the Group and
each individual Executive Director.
LTIP
N/A
Removal of private security
cover from the benefits provision
for Executive Directors.
Matthew Moulding will personally
fund his private security costs
from 1 January 2022 onwards.
Introduction of a LTIP to enable awards
to be granted to Executive Directors
in order to maximise alignment with
long-term Shareholder interests.
Normally annual awards of up to
250% of base salary. In exceptional
circumstances, such as to secure an
external appointment or in specific
retention scenarios, an award of up to
300% of base salary may be made.
Awards vest at the end of the
performance period, subject
to continued employment and
performance, and are subject to a
two-year post-vesting holding period.
The majority of the awards will be
based on financial metrics, with the
balance based on strategic metrics.
The majority of the awards will be
based on financial metrics, with the
balance based on strategic metrics.
Shareholding
requirement
Executive Directors are required to retain
at least 50% of any incentive awards
that vest (net of tax) until they have
built up a personal holding of Ordinary
Shares worth at least 350% of salary.
Any future Executive Directors must
build up and subsequently retain
a shareholding of at least 200% of
salary over a five-year period from
the date of their appointment.
A post-cessation shareholding
requirement of 350% of salary to be
held for two years after an Executive
Director’s employment is terminated.
The post-cessation shareholding
requirement for any future
Executive Directors will be
200% of salary (or full actual
holding if lower).
To incorporate a market standard
shareholding requirement for any
future Executive Directors.
183
184
Annual Report 2021
Remuneration Policy table
The following table sets out each element of remuneration and details how
they support the Company’s short and long-term strategic objectives:
Component
and objective
Base salary
To enable the Group
to attract, motivate and
retain the people it
needs to maximise the
value of the business
Operation
Opportunity
Performance
measures
Generally reviewed each year, with
increases effective 1 January.
Salary levels take account of:
Salaries in respect of the year under review
(and for the following year) are disclosed
in the Annual Report on Remuneration.
N/A
– salaries at FTSE companies of
broadly similar size or sector to THG;
– salary increases across the
rest of the UK business;
– role, personal performance
and experience; and
– business performance and
the external environment.
There is no fixed maximum.
Salary increases for Executive Directors will
normally not exceed those of the wider
workforce over the period this Remuneration
Policy applies. Where increases are
awarded in excess of the wider employee
population, the Remuneration Committee
will provide the rationale in the relevant
year’s Annual Report on Remuneration
(e.g. if there is a material change in the
responsibility, size or complexity of a role).
Executive Directors receive a Company
contribution of a maximum in line with the
wider workforce for the relevant country.
This is currently set at 3% of pensionable
salary for UK Executive Directors.
Pensionable salary is determined in
line with the approach taken for the
wider workforce which is currently in
line with auto-enrolment levels.
Benefits may vary by role and the
level is determined each year to be
appropriate for the role and circumstances
of individual Executive Directors.
It is not anticipated that the cost of
benefits (as set out in the Annual Report
on Remuneration) would increase
materially over the period for which
this Remuneration Policy will apply.
The Remuneration Committee retains
the discretion to approve a higher cost in
exceptional circumstances (e.g. relocation
expenses or an expatriation allowance
on recruitment) or in circumstances
where factors outwith the Group’s
control have changed materially (e.g.
market increases in insurance costs).
Maximum opportunity: 200% of base
salary (with 50% deferred into Ordinary
Shares vesting after three years).
Target opportunity: 50% of
maximum opportunity.
Threshold opportunity: At most,
25% of maximum opportunity.
Matthew Moulding and John Gallemore
will have a reduced opportunity of 100%
of salary which will be payable fully in cash.
They also intend to waive any amounts
which become payable under the annual
bonus scheme in future years in lieu of
donations to charity of a similar amount.
Pension
To provide a level of
retirement benefit
that is competitive in
the relevant market
Executive Directors receive pension
contributions either as a direct
payment or a cash allowance.
Base salary is the only element of
remuneration that is pensionable.
Benefits
To provide a level of
benefits that is in line with
relevant market practice
Executive Directors may be
provided with medical insurance
benefits, permanent health
insurance and life assurance.
Other benefits, including all
employee share schemes, may be
introduced from time to time to ensure
the benefits package is appropriately
competitive and reflects the needs
and circumstances of the Group and
individual Executive Directors.
Annual bonus
To focus Executive
Directors on
achieving demanding
annual targets
relating to Group
performance
Performance targets are set at the
start of each financial year and aligned
with the annual budget agreed by
the Board. At the end of the financial
year in question, the Remuneration
Committee determines the extent to
which these targets have been achieved.
50% of the total bonus payable is
normally paid in cash with 50% deferred
in nil cost options over Ordinary Shares.
These options are exercisable after three
years, subject to continued employment
and malus (in whole or in part) during
the deferral period in the event of a
material misstatement in accounting
records, gross misconduct,
calculation error or corporate failure.
Cash bonuses may be subject to
clawback over the deferral period in
similar circumstances as identified above.
A payment equivalent to the
dividends that would have accrued on
deferred bonus awards that vest may
be made to participants on vesting.
N/A
N/A
The bonus will be based on the
achievement of financial and non-
financial performance targets which
may vary year-to-year but at least
50% of the total opportunity will be
based on financial performance.
Details of the measures and
weighting on which the bonus
will be based will be disclosed
in the relevant Annual Report on
Remuneration. If the Remuneration
Committee determines certain
targets to be deemed commercially
sensitive, the targets will be
disclosed retrospectively.
The Remuneration Committee
has discretion to adjust the
formulaic bonus outcomes
(including down to zero) within
the limits of the scheme if
the formulaic outcome is
not reflective of underlying
business performance.
Component
and objective
LTIP
To incentivise Executive
Directors whilst
providing alignment with
Shareholder interests
Shareholding
requirement
To align Executive Director
and Shareholder interests
and reinforce long-term
decision-making, including
for a period following
cessation of employment
Chair and NED fees
To attract and retain
NEDs of the highest
calibre with broad
commercial experience
relevant to the Group
Awards are granted annually in the form
of nil cost options or conditional awards
of Ordinary Shares. These will vest at the
end of a three-year period subject to
continued employment and satisfaction
of the performance conditions.
A further two-year holding period
will apply post-vesting.
The Remuneration Committee may
award dividend equivalents on awards
to the extent that these vest.
Malus and clawback provisions will
apply to enable the Company to recover
sums paid or withhold the payment
of any sum in the event of a material
misstatement resulting in an adjustment
to the audited consolidated accounts
of THG or action or conduct which, in
the reasonable opinion of the Board,
amounts to employee misbehaviour,
fraud or gross misconduct.
.
Matthew Moulding and John
Gallemore are required to retain at
least 50% of any incentive awards that
vest (net of tax) until they have built
up a personal holding of Ordinary
Shares worth at least 350% of salary.
Any future Executive Directors must
build up and subsequently retain a
shareholding of at least 200% of salary
over a five-year period from the date
of their appointment to the Board.
A post-cessation shareholding
requirement of 350% of salary to be
held for two years after an Executive
Director’s employment is terminated
in the case of Matthew Moulding and
John Gallemore and 200% of salary
for any future Executive Directors
(or full actual holding if lower).
NEDs are paid a basic annual fee.
Additional fees may be paid to NEDs
who chair a Board Committee and/
or sit on a Board Committee to
reflect additional responsibilities.
The fees paid to NEDs are determined
by the Board and may be paid in a
mix of cash and Ordinary Shares.
Fee levels are reviewed periodically, with
any adjustments effective 1 January.
Fees are reviewed by considering
external advice on best practice and
fee levels at other FTSE companies of
broadly similar size and sector to THG.
Time commitment and responsibility are
also considered when reviewing fees.
Operation
Opportunity
Normally annual awards of up to 250% of
base salary. In exceptional circumstances,
such as to secure an external appointment
or in specific retention scenarios, an award
of up to 300% of base salary may be made.
Matthew Moulding will not be
eligible to participate in the LTIP.
Performance
measures
The majority of the awards will be
based on financial metrics, with the
balance based on strategic metrics.
The Remuneration Committee
retains discretion, in exceptional
circumstances, to change
performance measures and
targets and the weightings
attached to performance
measures partway through a
performance period if there is
a significant and material event
which causes the Remuneration
Committee to believe the original
measures, weightings and targets
are no longer appropriate.
The Remuneration Committee
also has discretion to adjust
the formulaic vesting outcome
(including down to zero) within the
limits of the scheme if the formulaic
outcome is not reflective of
underlying business performance.
N/A
N/A
Fee increases will be applied considering
the outcome of the review.
N/A
The fees paid to NEDs in respect of
the year under review (and for the
following year) are disclosed in the
Annual Report on Remuneration.
185
186
Annual Report 2021 Recruitment policy
External appointments
In cases of hiring or appointing a new Executive Director from
outside the Group, the Remuneration Committee may make
use of all existing components of remuneration as follows:
Component
Policy
Base salary
The base salaries of new appointees will be determined by reference to relevant market data,
experience and skills of the individual, internal relativities and the current salary of the incumbent in the role.
Where a new appointee has an initial base salary set below market, the Remuneration Committee may
make phased increases which are above the average employee rate, subject to the individual’s
development and performance in the role.
Benefits
Pension
As set out in the Remuneration Policy table, benefits may include (but are not limited to) the
provision of medical insurance benefits, permanent health insurance and life assurance, and any
necessary expatriation allowances or expenses relating to an Executive Director’s relocation.
New appointees will receive pension contributions in line with the wider workforce at the time.
Annual bonus
The bonus structure described in the Remuneration Policy table will apply to new appointees.
The maximum opportunity will be 200% of salary, pro-rated in the year of joining to reflect the
proportion of that year employed.
Performance measures may include financial and non-financial performance targets, tailored to the individual in the
financial year of joining and with at least 50% of the total opportunity being based on financial performance.
At least 50% of any bonus earned will be subject to three-year deferral.
LTIP
The LTIP described in the Remuneration Policy table will apply to new appointees.
Maximum variable
remuneration
“Buyout” of incentives
forfeited on cessation
of employment
The maximum opportunity will normally be 250% of salary but in exceptional circumstances, such as to secure an
external appointment or in specific retention scenarios, an award of up to 300% of base salary may be made.
Performance measures may include financial and strategic objectives, with the
majority of the award being based on financial performance.
Awards will vest at the end of a three-year period subject to continued employment and satisfaction
of the performance conditions. A further two-year holding period will apply post-vesting.
The maximum variable remuneration which may be granted will be in line with the
Remuneration Policy which allows for variable remuneration of up to 500% of salary i.e.
the maximum annual bonus and the exceptional maximum LTIP opportunity.
Where the Remuneration Committee determines that the individual circumstances of recruitment justify
the provision of a buyout, the equivalent value of any incentives that will be forfeited on cessation of
an Executive Director’s previous employment will be calculated considering the following:
– the proportion of incentive awards forfeited upon the Executive Director’s cessation of employment;
– the performance conditions attached to the vesting of these incentives and the likelihood of them being satisfied; and
– any other terms and conditions having a material effect on their value (“lapsed value”).
The Remuneration Committee may then grant up to the same value as the lapsed value, where possible,
under the Group’s incentive plans. To the extent that it is not possible or practical to provide the buyout
within the terms of the Group’s existing incentive plans, a bespoke arrangement will be used.
In determining the appropriate remuneration structure and
level for the appointee, the Remuneration Committee will take
into considerationall relevant factors to ensure that arrangements
are in the best interests of Shareholders.
The Company’s policy when setting fees for the appointment of new
NEDs is to apply the Remuneration Policy which applies to current
NEDs. In recruiting a new NED, the Remuneration Committee will
use the Remuneration Policy as set out in the table above.
187
A base fee in line with the prevailing fee
schedulewould be payable for serving as
a Director, with additional fees payable
for chairing and/or membership of Board
Committees.
Internal promotion to the Board
In cases of appointing a new Executive Director by way
of internal promotion, the Remuneration Policy will be
consistent with that for external appointees detailed in
the preceding table (excluding the flexibility to make
“buyout” or one-off recruitment awards). Where an
individual has contractual commitments made prior
to their promotion to the Board and it is agreed that a
commitment is to continue, the Company will continue
to honour these arrangements even if there are instances
where they would not otherwise be consistent with the
prevailing Remuneration Policy at the time of promotion.
Service contracts
Executive Directors have signed rolling contracts,
terminable on 12 months’ written notice by
either the Company or the Director.
Whilst NEDs are appointed for an initial three-year
fixed term they may be invited by the Company to
serve for a further period or periods, conditional, at
all times, upon satisfactory performance and annual
re-election by Shareholders. With the exception of the
Independent Chair where six months’ written notice is
required, a NED’s appointment may be terminated at
any time by either party giving the other one month’s
written notice (or payment of fees in lieu of notice)
or in accordance with the Articles of Association.
Details of NEDs’ terms and notice periods are as follows:
NED
Charles Allen
Original date of appointment 1
Notice period
22 March 2022
6 months
Zillah Byng-Thorne
22 November 2018
Damian Sanders
Dominic Murphy
Edward Koopman
Iain McDonald
Tiffany Hall
Andreas Hansson
17 November 2020
7 August 2014
3 May 2016
27 March 2010
12 January 2021
26 October 2021
1With the exception of Damian Sanders, Tiffany Hall, Andreas
Hansson and Charles Allen, who were appointed post-Admission,
all NEDs were re-appointed under the terms of a new letter of
appointment commencing on Admission. Tiffany Hall stepped
down from the Board for family reasons on 18 March 2022.
1 month
1 month
1 month
1 month
1 month
1 month
1 month
188
Annual Report 2021 Payment for loss of office
The Remuneration Committee’s policy for Directors’
termination payments is to provide only what would
normally be due to Directors had they remained in
employment in respect of the relevant notice period, and
not to go beyond their normal contractual entitlements.
Any incentive arrangements will be dealt with subject
to the relevant rules, with any discretion exercised by
the Remuneration Committee on a case by case basis
considering the circumstances of the termination.
Termination payments will also take into account any
statutory entitlement at the appropriate level, to be
considered by the Remuneration Committee on the
same basis. The Remuneration Committee will monitor
and, where appropriate, enforce the Director’s duty
to mitigate loss. When the Remuneration Committee
believes that it is essential to protect the Group’s
interests, additional arrangements may be entered into
on appropriate terms e.g. post-termination protections
above and beyond those in the contract of employment.
Executive Directors are permitted to take up non-
executive positions on the boards of other companies,
subject to the prior approval of the Board.
Under the service contracts of each Executive
Director, the Group has the discretion to terminate
the employment lawfully without any notice by paying
to the Director a sum equal to, but no more than, the
salary and other contractual benefits of the Director.
The payment would be in respect of that part of the
period of notice which the Director has not worked, less
any appropriate tax and other statutory deductions.
The Director would be entitled to any holiday pay
which may otherwise have accrued in what would
have been the notice period. The Group may pay any
sums due under these pay in lieu of notice provisions
as one lump sum or in instalments of what would
have been the notice period. If the Group elects to
pay in instalments, the Director is under an express
contractual duty to mitigate their losses and to disclose
any third party income they have received or are due
to receive. The Group reserves the right to reduce
the amount of the instalments by the amount of such
income. The Remuneration Committee would expect
to include similar pay in lieu of notice provisions in
any future Executive Director’s service contract.
Further, if the Director’s employment is terminated for
whatever reason, they agree, pursuant to the terms of
their service contract, that they are not entitled to any
damages or compensation to recompense them for the
loss or diminution in value of any actual or prospective
rights, benefits or expectations under or in relation
to discretionary incentive schemes. This is without
prejudice to any of the rights, benefits or entitlements
which may have accrued to the Director under such
arrangements at the termination of employment.
When considering compensation for loss
of office, the Remuneration Committee will
always seek to minimise the cost to the Group
whilst applying the following philosophy:
Remuneration element
Treatment on cessation of employment
General
Salary, benefits
and pensions
Cash element
of bonus
The Remuneration Committee will honour Executive Directors’ contractual entitlements. Service contracts do not contain
liquidated damages clauses. If a contract is to be terminated, the Remuneration Committee will determine such mitigation
as it considers fair and reasonable in each case. There are no contractual arrangements that would guarantee a pension
with limited or no abatement on severance or early retirement. There is no agreement between THG and its Directors
or employees, providing for compensation for loss of office or employment that occurs because of a takeover bid. The
Remuneration Committee reserves the right to make additional payments where such payments are made in good faith in
discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement
or compromise of any claim arising in connection with the termination of an Executive Director’s office or employment.
These will be paid over the notice period. The Group has discretion to make a lump sum payment in lieu.
Good leaver reason
Good leaver reasons will include death, injury, disability, retirement and other reasons at the discretion of the
Remuneration Committee.
Performance conditions will be measured at the bonus measurement date.
Bonus will normally be pro-rated for the period worked during the financial year in question.
Other reason
No bonus payable for the financial year of cessation.
The Remuneration Committee has the following elements of discretion:
•
•
To determine that an Executive Director is a good leaver. It is the Remuneration Committee’s intention to only use this
discretion in circumstances where there is an appropriate business case which will be explained in full to Shareholders.
To determine whether to pro-rate the bonus to time. The Remuneration Committee’s normal policy is that it will pro-rate
bonus for time. It is the Remuneration Committee’s intention to use discretion to not pro-rate in circumstances where
there is an appropriate business case which will be explained in full to Shareholders.
Deferred element
of bonus
Good leaver reason
Good leaver reasons will include death, injury, disability, retirement and other
reasons at the discretion of the Remuneration Committee.
All subsisting deferred Share awards will vest.
Other reason
Lapse of any unvested deferred Share awards.
The Remuneration Committee has the following elements of discretion:
•
•
•
To determine that an Executive Director is a good leaver. It is the Remuneration Committee’s intention to only use this
discretion in circumstances where there is an appropriate business case which will be explained in full to Shareholders.
To vest deferred Shares at the end of the original deferral period or at the date of cessation. The Remuneration
Committee will make this determination depending on the type of good leaver reason resulting in the cessation.
To determine whether to time pro-rate the maximum number of Shares from the date of grant to the date of cessation.
The Remuneration Committee’s normal policy is that it will not pro-rate awards for time. The Remuneration Committee
will determine whether or not to pro-rate based on the circumstances of the Executive Director’s departure
Unvested
LTIP awards
Good leaver reason
Good leaver reasons will include death, injury, disability, retirement and other reasons at the discretion of the
Remuneration Committee.
Unvested LTIP awards will be pro-rated to time and performance.
Other reason
Lapse of any unvested LTIP awards.
The Remuneration Committee has the following elements of discretion:
•
•
•
•
To determine that an Executive Director is a good leaver. It is the Remuneration Committee’s intention to only use this
discretion in circumstances where there is an appropriate business case which will be explained in full to Shareholders.
To time pro-rate the maximum number of Shares from the date of grant to the date of cessation. The Remuneration
Committee’s policy is generally to pro-rate to time. It is the Remuneration Committee’s intention to only use this
discretion to not pro-rate in circumstances where there is an appropriate business case which will be explained in full to
Shareholders.
To reduce the level of vesting of an award from the formulaic level of vesting if, in the opinion of the Board, the
performance of the Executive Director or the Company justifies such a reduction.
The post-vesting holding period for LTIP awards will continue to apply irrespective of employment status unless the
Remuneration Committee, in exceptional circumstances, determines otherwise.
Post-cessation
shareholding
requirement
Upon departure, Executive Directors will be required to retain 100% of their
shareholding requirement for a period of two-years post-cessation.
189
190
Annual Report 2021 Change of control
The Remuneration Committee’s policy on the vesting of incentives
on a change of control is summarised as follows:
Remuneration
element
Treatment on change
of control
Discretion
Annual bonus
LTIP
Pro-rated to time and
performance to the date
of the change of control.
The Remuneration Committee has discretion
to continue the operation of the bonus
scheme to the end of the bonus year.
The number of Shares subject
to subsisting LTIP awards
vesting on a change of control
will be pro-rated to time and
performance to the date
of the change of control.
The Remuneration Committee retains absolute discretion
regarding the proportion vesting, taking into account
time and performance. There is a presumption that
the Remuneration Committee will pro-rate to time.
The Remuneration Committee will only waive pro-
rating in exceptional circumstances where it views the
change of control as an event which has provided a
material enhanced value to Shareholders and which
will be fully explained to Shareholders. In all cases the
relevant performance conditions must be satisfied.
Performance scenario charts
The following charts illustrate the remuneration that
would be paid to each of the Executive Directors on a
forward-looking basis pursuant to the Remuneration
Policy and under the following performance scenarios:
(i) minimum; (ii) on-target; (iii) maximum; and (iv)
maximum with 50% share price appreciation. The
elements of remuneration have been categorised
into three components: (i) fixed; (ii) annual bonus;
and (iii) LTIP, with the assumptions set out below:
Element
Description
Minimum
On-target
Maximum
Annual bonus
Annual bonus awards
No variable pay
LTIP
Awards under the LTIP
No variable pay
Payout of 50% of the
maximum bonus
Full payout of the
maximum bonus
Vesting of 50% of the
maximum award
Full vesting of the
maximum award
Please note that dividend equivalents have not been added to
LTIP awards for the purpose of the following illustration.
CEO
Maximum with 50%
Ordinary Share price
appreciation
Maximum
On-target
51%
51%
67%
49%
49%
33%
Minimum
100%
£1,526,500.00
£1,526,500.00
£1,151,500.00
£776,500.00
£0
£500,000
£1,000,000
£1,500,000
£2,000,000.00
Fixed pay
Bonus
LTIP
LTIP with 50% Ordinary Share price appreciation
CFO
Maximum with 50%
Ordinary Share price
appreciation
18%
17%
Maximum
23%
22%
43%
55%
22%
£2,604,000.00
£2,041,500.00
£1,366,500.00
£466,500.00
Minimum
100%
£0
£500,000
£1,000,000
£1,500,000
£2,000,000
£2,500,000
£3,000,000
Fixed pay
Bonus
LTIP
LTIP with 50% Ordinary Share price appreciation
The potential opportunities illustrated are based on the
Remuneration Policy applied to the base salary for the
2022 financial year. For the annual bonus, the amounts
illustrated are those potentially receivable in respect of
performance for the year to 31 December 2022, noting
that both Matthew Moulding and John Gallemore
intend to waive any bonus payments payable with THG
instead making donations to charity of similar value.
Matthew Moulding will not participate in
any future long-term incentive arrangements
under the Remuneration Policy.
Fixed
Salary, benefits
and pension
Included in full
Included in full
Included in full
On-target
34%
16%
49%
191
192
Annual Report 2021 Differences in Remuneration
Policy for other employees
Consideration of
Shareholder views
The Remuneration Committee will consider all
Shareholder views received, whether as part of a formal
consultation or at the Company’s annual general
meeting, together with guidance from shareholder
representative bodies more broadly. In shaping the
Remuneration Policy, the Remuneration Committee
took on board views from Shareholders both pre
and post-Admission and commits to keeping the
Remuneration Policy under regular review to ensure it
continues to reinforce the Group’s long-term strategy
and aligns the interests of Executive Directors with
those of Shareholders. The Remuneration Committee
will consult with Shareholders before making any
significant changes to the Remuneration Policy.
Discretion of Remuneration Committee
The Remuneration Committee has discretion in several
areas of the Remuneration Policy, as set out above. The
Remuneration Committee may also exercise operational
and administrative discretions under relevant plan
rules approved by Shareholders and as set out in those
rules. In addition, the Remuneration Committee has
the discretion to amend the Remuneration Policy with
regard to minor or administrative matters where, in the
opinion of the Remuneration Committee, it would be
disproportionate to seek or await Shareholder feedback.
The remuneration policy for other Group employees
is based on broadly consistent principles as
described above. Annual salary reviews across
the Group take into account Group performance,
local pay and market conditions and salary levels
for similar roles in comparable companies.
The Group operates an annual bonus scheme
for many of its employees and operates
equity-based awards for the Executive Leadership
Team and other key employees. Opportunities
and performance measures vary by organisational
level, geographical region and an individual’s role.
Consideration of employment
conditions elsewhere in the Group
Prior to annually reviewing the remuneration
of the Executive Directors, the Remuneration
Committee considers base pay and share
scheme practices across the Group.
THG aims to provide a remuneration package
for all employees that is market competitive and
operates pension provisions which are provided
on the same basis to Executive Directors and
employees alike. In addition, any salary increases
for Executive Directors are expected to be generally
in line with those for UK-based employees.
The Group seeks to promote and maintain good
relations with employees and, where relevant,
their representative bodies as part of its broader
employee engagement strategy and intends
to continue to improve remuneration-specific
engagement over the course of 2022.
193
194
Annual Report 2021 Annual Report on Remuneration
This section covers the reporting period from 1 January
2021 to 31 December 2021 and provides details of the
implementation of the Remuneration Policy during
the period, as well as the intended implementation
during the current 2022 reporting period.
Single total figure of
remuneration (audited)
The following table provides a single figure for total
remuneration of the Directors for the financial year
to 31 December 2021, together with comparative
figures for the financial year to 31 December 2020.
The values of each element of remuneration are
based on the actual value delivered, where known.
The value of the annual bonus includes both the cash
element and the element deferred into Shares.
Salary
& fees1
(£’000)
Benefits
Pension
(£’000)
(£’000)
Total
fixed pay
(£’000)
Annual
bonus1
(£’000)
LTIP
Other2
(£’000)
(£’000)
Total
variable pay
(£’000)
Total
(£’000)
Executive Directors
Matthew
Moulding
John
Gallemore
NEDs
Zillah
Byng-Thorne
Damian
Sanders5
Dominic
Murphy
Edward
Koopman
Iain
McDonald
Tiffany Hall4
Andreas
Hansson4
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
20
463
20
234
100
50
132
15
93
27
35
10
60
14
81
0
6
0
4333
3643
5
3
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
453
828
25
238
100
50
132
15
93
27
35
10
60
14
81
0
6
0
0
500
0
172
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
453
869,171
869,671
870,499
0
0
25
40,814
40,986
41,224
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
100
50
132
15
93
27
35
10
60
14
81
0
6
0
1 From Admission and subject to minimum statutory limits, Matthew
Moulding and John Gallemore have chosen to waive their salaries and
any annual bonuses due. The salaries and bonuses detailed in the table
above for these individuals are the amounts received in the periods.
For the financial year ending 31 December 2020, the salaries waived by
Matthew Moulding and John Gallemore were £182,682 and £107,682
respectively. For the financial year ending 31 December 2021, the salaries
waived by Matthew Moulding and John Gallemore were £730,414 and
£430,414 respectively. The Group made charitable donations equivalent
to these amounts which are in addition to the donations included in the
Adjusted Items set out in Note 4 to the Financial Statements. Matthew
Moulding and John Gallemore also waived their entitlement to receive
annual bonus payments for the period from Admission to 31 December
2020 and the annual bonuses waived for this period were £750,000 and
£450,000 respectively. For the financial year ending 31 December 2021,
both Matthew Moulding and John Gallemore waived their entitlement to
participate in the annual bonus plan.
2 The 2020 LTIP is shown within the “Other” column of the table as the
award was a long-term plan but performance criteria were met in the
same year as the award was made (i.e. 2020). Due to the nature of the
award, there was no value prior to vesting and therefore the figures
shown are fully attributable to appreciation in the Ordinary Share price.
3 From prior to Admission and in line with the current Remuneration
Policy, the Company has provided private security cover to Matthew
Moulding and his family to allow him to carry out his duties as
CEO. No amount was previously included in Matthew Moulding’s
total remuneration figure for this cover since it was the Company’s
understanding that this would be deductible under the provisions
of section 377 of the Income Tax (Earnings and Pensions) Act 2003.
Following finalisation of the 2020 Annual Report, the Company carried
out a review with HMRC and concluded that this is not the case. The
2020 benefits figure for Matthew Moulding has been restated in the
above table to include the cost of this cover which is also included in the
2021 benefits figure. The cost of this cover will be personally funded by
Matthew Moulding from 1 January 2022 onwards and therefore will not
be included in Matthew Moulding’s remuneration figure going forward.
4 These figures have been pro-rated to reflect Tiffany Hall’s appointment
from 12 January 2021 and Andreas Hansson’s appointment from 26
October 2021. Tiffany Hall stepped down from the Board for family
reasons on 18 March 2022.
5 Damian Sanders was appointed chair of the Separation Committee
upon its inception on 1 July 2021 and received a fee of £80,000
(pro-rated as appropriate) during the 2021 financial year in respect
of this chairship.
195
196
Annual Report 2021 Base salary (audited)
Benefits (audited)
The base salaries of the Executive Directors
are typically reviewed on an annual basis, with
any increases effective from 1 January. As detailed
in the Remuneration Policy, when determining any
increases the Remuneration Committee compares
the Group’s remuneration packages for its Executive
Directors with those of directors in FTSE companies
of similar size or sector to THG and also takes account
of salary increases across the rest of the UK business,
an individual’s role and personal performance, business
performance and the external environment.
No salary increases were awarded to Executive
Directors during the 2021 financial year. As such, at
the end of the reporting period under review salary
levels were as follows:
• Matthew Moulding: £750,000
•
John Gallemore: £450,000
As previously stated, both Matthew Moulding and John
Gallemore waived as much as was legally permissible
of their base salary in return for the Group making
charitable donations of similar value. For the financial
year ending 31 December 2021, the salaries waived by
Matthew Moulding and John Gallemore were £730,414
and £430,414 respectively.
Pension (audited)
As part of their remuneration arrangements, the
Executive Directors are entitled to receive pension
contributions from the Company. Under these
arrangements, they can elect for those contributions
to be paid in the form of taxable pension allowance or
direct payments into a personal pension plan or the
Group’s UK defined contribution scheme.
During 2021 £400 was paid into the personal pension
plans of each of Matthew Moulding and John
Gallemore. This represented 3% of pensionable salary.
In line with the current Remuneration Policy, benefits
in kind for each of Matthew Moulding and John
Gallemore comprised medical insurance benefits,
permanent health insurance, life assurance and private
security. As detailed above, Matthew Moulding will
personally fund his private security benefit from 1
January 2022 onwards.
Bonus awards (audited)
Both Matthew Moulding and John Gallemore chose
to waive their entitlement to participate in the annual
bonus plan for the 2021 financial year.
Scheme interests awarded (audited)
No such awards were made to Directors during the 2021
financial year.
Payments to past Directors (audited)
No payments were made to past Directors during the
2021 financial year.
Loss of office payments (audited)
No loss of office payments were made during the 2021
financial year.
External appointments
None of the Executive Directors receive any fees in
relation to external non-executive roles.
Directors’ shareholdings (audited)
The table below shows the shareholdings of
each Director as at 31 December 2021:
Director
Ordinary
D1 Shares
D2 Shares
Shares
Deferred
2 Shares
E Shares
F Shares
G Shares
H Shares
Executive Directors
Matthew Moulding¹,2
182,891,075
50,550,450
John Gallemore
104,237
3,533,879
NEDs
Zillah Byng-Thorne3
Damian Sanders3
69,765
21,926
Dominic Murphy3
14,566,016
Edward Koopman
0
Iain McDonald3
2,505,943
Tiffany Hall3
Andreas Hansson
33,557
0
0
0
0
0
0
0
0
360 (equivalent to
66,772 Ordinary
Shares)
3,174 (equivalent to
588,702 Ordinary
Shares)
18,346,774
43,641,266
20,197,808
7,733,792
813,345
185,476
2,666,963
4,000,537
0
0
0
0
0
0
0
25,417
0
0
0
29,047
370,953
0
0
14,524
185,476
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
¹ In addition to the Shares shown above, Matthew Moulding
holds 1 Special Share (further details on which are set out in
the Directors’ Report).
2 144,633,856 of the Ordinary Shares, 10,971,090 of the Deferred
2 Shares and all of the F Shares and G Shares owned by Matthew
Moulding are held by FIC ShareCo Limited, a corporate entity
wholly owned by Matthew Moulding. Additionally, 9,834,879
of the Ordinary Shares shown in the table above are held
by Jodie Moulding, Matthew Moulding’s wife.
3 Zillah Byng-Thorne, Damian Sanders, Dominic Murphy and Tiffany
Hall (who stepped down from the Board for family reasons on 18 March
2022) hold Shares and, in consideration of these individual shareholdings
and NED independence, the Board has applied its assessment criteria
including, but not limited to, whether a NED has held a material business
relationship with the Company in the last three years. Taking into account
assessments of materiality and the 3% notification threshold under the
DTRs’ major shareholdings notification regime, the Board acknowledges
that the shareholdings of these NEDs are significantly below the
notification threshold and therefore do not impair their independence.
There have been no changes to Directors’
shareholdings between 31 December 2021 and the
date of this Directors’ Remuneration Report.
197
198
Annual Report 2021 Directors’ share ownership
guidelines (audited)
As described in the Remuneration Policy, each Executive
Director is expected to build up a holding in Ordinary
Shares equal to 350% of their base salary over a period
of time. NEDs are not subject to any shareholding
requirements. Executive Directors’ share ownership
at the end of the 2021 reporting period was as follows:
Director
Shareholding requirement
(%age of salary)
Shareholding as at 31 December
2021 (%age of salary)
Shareholding
requirement met?
Matthew Moulding
John Gallemore
350%
350%
103,928%¹
6,369%2
Yes
Yes
Chief Executive Officer’s
historical remuneration
The following table details the Chief Executive Officer’s
remuneration for each of the last three financial years:
Single figure (£’000s)
Bonus outcome as a
percentage of maximum
Long-term incentive outcome as
a percentage of maximum
2019
4,581
n/a¹
n/a¹
2020
870,139
100%
100%
2021
453
n/a2
n/a3
¹ Matthew Moulding’s aggregated shareholding includes all Shares
(i.e. Ordinary Shares, D1 Shares, D2 Shares, E Shares, F Shares, G Shares
and Deferred 2 Shares) held by Matthew Moulding, his wife Jodie
Moulding and FIC ShareCo Limited, a corporate entity wholly
owned by Matthew Moulding.
2 John Gallemore’s aggregated shareholding includes all Shares
(i.e. Ordinary Shares, D1 Shares, D2 Shares, E Shares, F Shares,
G Shares and Deferred 2 Shares) held by him.
¹ The 2019 bonus did not have a defined maximum and no LTIP was
eligible to vest in respect of the 2019 financial year.
3 No LTIP was eligible to vest in respect of the 2021 financial year and
Matthew Moulding does not participate in any ongoing LTIP.
2 Matthew Moulding waived his entitlement to participate in the annual
bonus plan for the 2021 financial year.
Current shareholdings are based on Shares
owned outright and valued using the average
Ordinary Share price over the three months
ended 31 December 2021 i.e. £2.41.
Performance graph and table
The following graph shows the TSR performance over
the period from Admission to 31 December 2021 relative
to the FTSE 100. It illustrates the performance of a £100
investment in the Company in that period compared
with the value of £100 invested in the FTSE 100 over
the same period.
The FTSE 100 Index is considered to be an appropriate
comparator for this purpose as it is a broad equity index
into which the Company’s market cap falls.
THG PLC
FTSE100
Listed
Dec 20
Dec 21
180
160
140
120
100
80
60
40
20
0
199
Percentage change in
Directors’ remuneration
The Executive Directors are the only employees
of the Company and therefore the UK workforce
has been selected as the appropriate comparator
group to provide a meaningful comparison since
this is the geographical location in which all of the
Executive Directors and the majority of NEDs are
based. Accordingly, the following table shows the
Salary / fees
Benefits
Bonus
Executive Directors
Matthew Moulding
-95.8%
John Gallemore
-91.6%
17.0%
63.0%
-100%
-100%
NEDs
Zillah Byng-Thorne
100%
Damian Sanders3
Dominic Murphy
Edward Koopman
Iain McDonald
Tiffany Hall
Andreas Hansson
Wider workforce
780%
244%
250%
325%
n/a ¹
n/a ¹
0%
0%
0%
0%
0%
0%
0%
n/a2
n/a2
n/a2
n/a2
n/a2
n/a2
n/a2
Average employee4
10.1%
217.3%
-37.5%
percentage change in the Directors’ salaries, benefits
(excluding pension) and annual bonuses between
the 2020 and 2021 financial years compared with
the percentage change in the average of each of
these components of pay for all UK employees.
The comparison uses a per capita figure.
¹ Tiffany Hall and Andreas Hansson were not Directors during the
2020 financial year, being appointed to the Board on 12 January
2021 and 26 October 2021 respectively. Tiffany Hall stepped
down from the Board for family reasons on 18 March 2022.
2 NEDs are not entitled to participate in the annual bonus plan.
3 Damian Sanders was appointed chair of the Separation
Committee upon its inception on 1 July 2021 and received
a fee of £80,000 (pro-rated as appropriate) during the
2021 reporting period in respect of this chairship.
4 THG PLC is the Group parent company and does
not have any employees except for the Executive
Directors. Accordingly, the figures detailed here are
representative of the Group’s UK workforce.
200
Annual Report 2021
Chief Executive Officer’s pay ratio
The following table presents the pay ratio between
the Chief Executive Officer’s single total figure of
remuneration and that of the Group’s UK workforce.
The ratios compare the Chief Executive Officer’s
single total figure of remuneration with the total
remuneration of full time equivalent UK employees
at the 25th, median and 75th percentiles.
Year
2021
2020 – reported figures
2020 – without 2020 LTIP
Method
Option A
Option A
UK employees (full-time equivalents)
CEO remuneration
(£,000)
25th percentile
pay ratio
Median pay ratio
75th percentile
pay ratio
453
870,139
968
21:1
18:1
14:1
42,665:1
35,200:1
24,641:1
47:1
39:1
27:1
The total pay and benefits figures and salary figures used for
the pay ratio calculations are set out in the following table:
Year
2021
Salary
2021
Total pay and benefits
25th percentile
£21,079.04
£21,296.22
Median
£24,626.69
£25,000.00
75th percentile
£32,195.49
£32,831.28
UK employees (full-time equivalents)
The 25th percentile, median and 75th percentile figures
used to determine the above ratios were selected by
reference to the hourly pay figures for the Group’s UK
workforce. Option A, as set out under the Regulations,
was used to calculate remuneration for the 2021 financial
year as the Company believes this is the most robust
methodology for calculating these figures. The full
time equivalent annualised remuneration (comprising
salary, benefits, pension, annual bonus and long-term
incentives) was then calculated for those employees for
the 2021 financial year.
The ratio has reduced year-on-year, primarily as a result
of Matthew Moulding waiving as much as is legally
permissible of his base salary in return for the Group
making a charitable donation of similar value.
Relative importance of spend on pay
The following table details Shareholder distributions
and THG expenditure on total employee pay for
the financial year under review and the prior year,
together with the percentage change year-on-year.
2021 (£m)
2020 (£m)
%age change
Profit distributed by way of dividend
Total spend on remuneration
£0
305.3
£0
538.2
n/a
-43.3%
Shareholder dilution
Any share incentive plans (including the new LTIP)
post-IPO will be operated in line with the Investment
Association’s Principles of Remuneration which require
that commitments under all share schemes satisfied
by newly issued shares must not exceed 10% of the
issued share capital in any rolling ten-year period,
of which up to 5% may be used to satisfy options
under executive share schemes. The Group’s position
against the dilution limits at 31 December 2021 since
Admission was 0% for the all share schemes’ limit and
0% for executive schemes. Any future share awards
for employees (excluding the Executive Directors) will
be granted in relation to the previously authorised
but unissued maximum of 9,917,601 F Shares and
14,889,292 G Shares, for the purpose of making
employee incentive awards following admission of
the Ordinary Shares to trading on the London Stock
Exchange, as set out in the Company’s published
Prospectus and the 2020 Annual Report. These Shares
are, therefore, already reflected in the fully diluted
share capital of the Company and the issuance of
such Shares now will not affect dilution overall.
Shareholder voting at 2021 AGM
The resolutions to approve the Directors’
Remuneration Report and the Remuneration Policy
at the 2021 AGM were passed as follows:
Resolution
Votes for
%age of
votes cast
Votes
against
%age of
votes cast
Total
votes cast
%age of
ISC voted
Votes
withheld
To approve the Directors’
Remuneration Report (excluding the
Remuneration Policy) (2020)
741,772,628
96.83
24,320,875
3.17
766,093,503
69.67
10,448
To approve the Remuneration
Policy (2020)
761,448,375
99.39
4,645,128
0.61
766,093,503
69.67
10,448
201
202
Annual Report 2021
Implementation of Remuneration
Policy for the 2022 financial year
The Remuneration Committee proposes to implement
the Remuneration Policy for the financial year ending
31 December 2022 as set out below.
Base salary
Annual bonus
Base salaries have been reviewed considering individual
performance and competitive practice for similar roles
in the Group’s remuneration peer group, together
with remuneration awards within the Group itself, and
the Remuneration Committee has concluded there
will be no increase in the Executive Directors’ salaries.
Therefore, for the financial year ending 31 December
2022, base salaries will be as follows:
• Matthew Moulding: £750,000
John Gallemore: £450,000
•
As detailed above and in the 2020 Annual Report,
Matthew Moulding and John Gallemore have agreed
to waive as much as is legally permissible of their base
salaries in return for the Group making charitable
donations of similar value.
Pension
There is no change in the contribution percentage for
Executive Directors for the financial year ending 31
December 2022 and it remains at 3% of pensionable
salary. Pensionable salary is determined in line with the
approach taken for the Group’s wider workforce, which is
currently in line with auto-enrolment levels.
Benefits
Matthew Moulding will personally fund his private
security costs from 1 January 2022 onwards. There
are no other changes in benefits provision for
Executive Directors for the financial year
ending 31 December 2022.
In line with the Remuneration Policy, the maximum
opportunity for the financial year ending 31 December
2022 will be:
• Matthew Moulding: 100% of base salary
John Gallemore: 100% of base salary
•
The measures and weightings for the 2022 financial year
will be:
• Group Sales (20%);
• Group adjusted EBITDA (30%);
•
•
•
Ingenuity Commerce Sales (15%);
Ingenuity Commerce adjusted EBITDA (15%); and
strategic objectives including ESG metrics (20%).
The specific targets are considered commercially
sensitive and will be disclosed in next year’s Annual
Report on Remuneration.
LTIP
Subject to Shareholder approval at the forthcoming
AGM, a LTIP award will be made to John Gallemore
during the financial year ending 31 December 2022
equal to 250% of salary.
This award will vest three years after grant and will
be subject to a further two-year holding period.
The award will be subject to stretching financial and
strategic performantce targets which will be
disclosed at the time of grant.
NED Fees
A review of the fees paid to NEDs has been
undertaken and consequently no increase in fees is
proposed for the 2022 financial year. Accordingly,
annual NED fees will remain at the following levels:
NED fee type
Fee for Independent Chair
Base fee for independent NEDs
Base fee for non-independent NEDs
Additional fee for chairing each of Audit, Risk¹, Remuneration and Sustainability Committees
Additional fee for chairing each of Related Party and Nomination Committees
Additional fee for chairing Separation Committee²
Additional fee for membership of each of Audit, Risk, Related Party,
Nomination, Remuneration and Sustainability Committees
Fee
£400,000
£70,000
£35,000
£12,000
£8,000
£80,000
£5,000
¹ As detailed elsewhere in this Annual Report, a standalone Risk
Committee was established following the 2021 AGM and the existing
Audit & Risk Committee was renamed as Audit Committee.
² Damian Sanders was appointed chair of the Separation
Committee upon its inception on 1st July 2021 and received a fee
of £80,000 (pro-rated as appropriate) during the 2021 reporting
period in respect of this chairship.
Advisers to the Remuneration Committee
PricewaterhouseCoopers LLP (“PwC”) remain engaged
as the Remuneration Committee’s independent
remuneration advisers, having been appointed prior to
Admission by the then Remuneration Committee Chair.
PwC is a member of the Remuneration Consultants
Group, the professional body for remuneration
consultants, and adheres to its Code of Conduct.
The Remuneration Committee is satisfied that the
advice provided by PwC during the 2021 reporting
period was objective and independent and, whilst
separate teams within PwC also advise the Company
on matters of tax, corporate governance and
operations, the Remuneration Committee is further
satisfied that these activities do not compromise the
independence or objectivity of the advice it receives
from PwC as Remuneration Committee advisers.
During the 2021 reporting period PwC provided
general support to the Remuneration Committee
and guidance on developments in remuneration
governance and best practice, including associated
implications for THG. PwC further advised on:
•
•
•
•
The Remuneration Policy and the 2020
Directors’ Remuneration Report.
The proposed amendments to Remuneration Policy,
as presented in this Directors’ Remuneration Report.
The remuneration package for the new
Independent Chair.
The design and implementation of the new
Senior Management incentive plan.
Fees charged by PwC for advice provided to the
Remuneration Committee for the financial year ended
31 December 2021 amounted to £99,500 (excluding VAT).
On behalf of the
Remuneration Committee
Damian Sanders
Interim Chair of the Remuneration Committee
20 April 2022
SIGNATURE
203
204
Annual Report 2021
Financial
Statements
205
Independent auditor’s report
to the members of THG PLC
Opinion
In our opinion:
•
•
THG PLC’s group financial statements and parent
company financial statements (the “financial
statements”) give a true and fair view of the state
of the group’s and of the parent company’s affairs
as at 31 December 2021 and of the group’s loss
for the year then ended.
•
•
The parent company financial statements have
been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice.
The financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
The group financial statements have been
properly prepared in accordance with UK
adopted international accounting standards.
We have audited the financial statements of THG PLC (the “parent company”) and its subsidiaries (the “group”)
for the year ended 31 December 2021 which comprise:
Group
Parent company
Consolidated statement of comprehensive
income for the year ended 31 December 2021
Company balance sheet as at 31 December 2021
Consolidated statement of financial position
as at 31 December 2021
Company statement of changes in equity for the year
ended 31 December 2021
Consolidated statement of changes in equity
for the year ended 31 December 2021
Related notes 1 to 8 to the financial statements including
a summary of significant accounting policies
Consolidated statement of cash flows
for the year ended 31 December 2021
Related notes 1 to 29 to the financial statements,
including a summary of significant accounting policies
The financial reporting framework that has been
applied in their preparation is applicable law and
UK adopted international accounting standards.
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).
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. 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 as applied to listed public
interest entities, 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.
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Independent auditor’s report to the members of THG PLC (continued)
•
•
•
We evaluated THG’s ability to undertake mitigating
actions should it experience a severe downside
scenario, considering likely achievability of both
quantum and timing of those actions.
We reviewed the appropriateness of management’s
going concern disclosure in describing the risks
associated with its ability to continue to operate
as a going concern until 30 April 2023.
The audit procedures on going concern were
supervised and directed by the audit engagement
partner and senior members of the team.
Our key observations in relation to the work
performed are:
•
In management’s base case and plausible
downside scenarios the business retained
headroom on forecast cash and covenant
compliance throughout the going concern
assessment period. The lowest level of headroom
identified is £192m in management’s downside
scenario which assumes full drawdown of £155m
(total facility of £170m less amounts ringfenced
for supply chain financing) of funds from an RCF
facility which expires in December 2024 in addition
to cash balances;
•
Year end cash balances total £537m;
•
•
The business is projected to meet all of its
covenant tests (which only apply when the business
draws down on more than 40% of the RCF facilities)
throughout the forecast period after applying
sensitivities and stress testing modelled by
management except for the reverse stress testing
which was designed to identify which assumptions
would eliminate headroom in the model; and
The company continues to focus on expanding its
operations in order to scale the business up for
future growth rather than profit generation in the
short term. A proportion of these costs could be
reduced if there was a need to do so.
Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast
significant doubt on the Group and parent company’s
ability to continue as a going concern for the period
to 30 April 2023.
Our responsibilities and the responsibilities of the
Directors with respect to going concern are described
in the relevant sections of this report. However, because
not all future events or conditions can be predicted,
this statement is not a guarantee as to the Group’s
ability to continue as a going concern.
Conclusions relating to going concern
In auditing the financial statements, we have concluded
that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is
appropriate. Our evaluation of the Directors’ assessment of
the Group and parent company’s ability to continue to
adopt the going concern basis of accounting included:
We have documented and evaluated the process
followed by management to prepare the forecasts
which they have used in their going concern
assessment.
We audited the forecasts underpinning the
going concern model which are based on the
Board-approved budget, including checking the
arithmetical accuracy and appropriateness of
management’s base case forecast over the going
concern period to 30 April 2023.
We challenged the reasonableness of the key
assumptions such as the revenue growth rate,
EBITDA to cash conversation, and EBITDA margin
achieved by the group used within the scenarios
and validated to supporting documentation where
appropriate.
We read and evaluated the Group’s lending
agreements to ascertain any financial or non-
financial covenant restrictions which are in place.
We obtained management’s schedule of loan
facilities and covenants thereon for the going
concern period. We confirmed there are no loan
repayments due in the period. We assessed the
forecast compliance of each covenant throughout
the going concern period under each scenario
presented by management which included drawing
funds from the facility.
We verified the cash starting position as at
31 December 2021 to bank statements.
We performed additional stress tests using our
own projections to determine the impact of
changing some of management’s key assumptions
on the going concern assumption. These key
assumptions were in relation to: revenue growth
rate, EBITDA to cash conversion, and a reduction
in the EBITDA margin achieved by the group, all
of which would impact the liquidity headroom in
the going concern period. Covenant compliance
only becomes relevant if the business draws down
on more than 40% of the existing RCF facilities.
We performed these stress tests by sensitising for
each key assumption individually based on our
expectation of a reasonable downside scenario
for that assumption, and then prepared a reverse
stress test by sensitising multiple assumptions in
order to reduce headroom to nil. We evaluated
the likelihood of the scenario that would reduce
headroom to nil.
•
•
•
•
•
•
•
207
Overview of our audit approach
Audit scope
• We performed an audit of the complete financial
information of two components and audit procedures
on specific balances for a further 34 components.
Key audit matters
•
•
•
•
•
The components where we performed full or specific audit
procedures accounted for 106% of Loss before tax (review
scope components contained a profit), 96% of Revenue,
97% of Expenses, and 96% of Total Assets.
Revenue recognition.
Valuation of intangibles.
Significant disclosures.
Related party transactions.
Materiality
• Overall group materiality of £8.7m which represents
0.4% of Group revenue.
An overview of the scope of the parent
company and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation
of materiality and our allocation of performance
materiality determine our audit scope for each
company within the Group. Taken together, this
enables us to form an opinion on the consolidated
financial statements. We take into account size,
risk profile, the organisation of the group and
effectiveness of group-wide controls (including
centralised IT systems), changes in the business
environment and other factors such as recent internal
audit results when assessing the level of work to
be performed at each component. We assessed
the control environment and concluded that the
most effective approach to the audit was a substantive
and data analytics approach rather than a controls-
based approach.
The scope of the group audit includes all significant
trading components in the United Kingdom. Full scope
components account for 68% of the group’s revenue,
62% of the Group’s expenses, and 45% of the Group’s
total assets. Specific scope components account for
28% of the group’s revenue, 35% of the group’s
expenses, and 51% of the total assets. We performed
specified or analytical audit procedures on the other
components. All audit work (except for overseas
inventory counts, and certain procedures relating
to a newly acquired US-based component that were
performed in conjunction with the primary team)
performed for the purposes of the group audit
was undertaken by the Group audit team.
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Annual Report 2021 Independent auditor’s report to the members of THG PLC (continued)
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance
in our audit of the financial statements of the current
period and include the most significant assessed
risks of material misstatement (whether or not due
to fraud) that we identified. These matters included
those which had the greatest effect on: the overall
audit strategy, the allocation of resources in the audit;
and directing the efforts of the engagement team.
These matters were addressed in the context of our
audit of the financial statements as a whole, and in our
opinion thereon, and we do not provide a separate
opinion on these matters.
Changes from the prior year
Climate change
Risk
Our response to the risk
There are no significant changes to our scoping from
the 2020 group audit except to incorporate into our
scope an appropriate level of work on the acquisitions
that have been made during the 2021 financial year.
Involvement with integrated teams
In establishing our overall approach to the Group audit,
we determined the work that needed to be undertaken
by colleagues as part of an integrated audit team, or by
the primary audit engagement team. For the procedures
performed by colleagues as part of the wider integrated
audit team – both for the newly acquired US-based
component and for inventory counts – oversight was
undertaken by the primary engagement team in the
form of directing the work performed, holding regular
communication with the integrated team members and
performing detailed review of the work performed. This
oversight ensured sufficient audit evidence was obtained
as a basis for the opinion on the Group as a whole.
There has been increasing interest from stakeholders
as to how climate change will impact THG PLC.
The Group has determined that the most significant
future impacts from climate change on its operations
will be from the impact of protecting climate and
nature (including reducing greenhouse gas emissions),
and strengthening THG’s supply chain. These are
explained on pages 87-104 in the Sustainability
report, and on page 115 in the principal risks
and uncertainties, which form part of the “Other
information,” rather than the audited financial
statements. Our procedures on these disclosures
therefore consisted solely of considering whether
they are materially inconsistent with the financial
statements or our knowledge obtained in the course
of the audit or otherwise appear to be materially
misstated.
Our audit effort in considering climate change
was focused on ensuring that the effects of climate
risks have been appropriately considered when
modelling future cash flows. We also challenged
the Directors’ considerations of climate change
in their assessment of going concern and viability
and associated disclosures.
Whilst the group has stated its commitment to the
aspirations of the Paris Agreement to achieve net zero
emissions by 2050, the group is currently unable to
determine the full future economic impact on their
business model, operational plans and customers
to achieve this and therefore as set out above the
potential impacts are not fully incorporated
in these financial statements.
Revenue recognition
(£2,180m, 2020: £1,614m)
For the risk identified on product revenues we have
performed the following procedures:
Refer to the Audit Committee Report
(page 153); Accounting policies (page 226);
and Note 2 of the Consolidated Financial
Statements (page 235).
THG PLC has reported revenue of £2,180m
for the year ended 31 December 2021
(2020: £1,614m).
Revenue is a key metric when evaluating
the performance of the business, and
receives significant scrutiny externally and
internally, and this is particularly true with
regard to revenue from THG Ingenuity.
The risk we have identified is split across
both product revenues and other revenues
(services, hosting, experience) reported by
THG.
Product revenue (D2C/B2B revenue) is
primarily compiled of a large volume of
small value transactions which we do
not consider to be at significant risk of
manipulation. However, revenue is a key
metric when evaluating the performance
of the business, and receives significant
scrutiny externally and internally. As a result,
we identified a potential risk of bias or fraud
through management manipulation by
manual adjustments, especially in the last
quarter of the financial year.
We have identified a potential risk of bias or
fraud through management inappropriately
classifying revenue to THG Ingenuity. We
have also identified a risk of inappropriate
recognition of Ingenuity contract revenue
by manipulating the performance
obligations against which revenue is
recognised. Our procedures are responsive
to the risk that the accounting for revenue
recognition is not in line with IFRS 15.
We performed a walkthrough of the product revenue
process and assessed the design effectiveness of key controls.
We considered the presentation of revenue against
our understanding of the contractual arrangements in place.
We adopted a data analytics approach in relation to the majority
of product revenue (£1.9bn of £2.18bn) at full and specific scope
components. This involved testing a full population of transaction data
which demonstrated that materially all of the revenue recognised in the
year was received as cash. A sample of the related cash receipts were
agreed to bank statement, to ensure the transactions reflected actual
revenue related cash receipts. For any revenue not received as cash we
followed through all significant items to supporting evidence.
We tested a sample of credit notes issued by the group after the
period end but within the period of the returns policy, to identify whether
appropriate provisions for returns were in place at the year end.
For revenue not tested using the data analytics approach (£46m),
we have agreed a sample of transactions to invoice, proof of delivery
and subsequent cash receipt.
We performed an assessment of cash-in-transit balances and tested
them by agreeing a sample through to cash receipts after the year-end.
We tested material reconciling items within trade receivables and
performed a review of aged amounts within the trade receivables ledger.
We tested manual journals to revenue at in-scope components,
understanding the reasons for the transactions and corroborating them
to appropriate audit evidence. We have tested these journals throughout
the year, with increased focus on those booked in the last quarter of the
year where we consider there to be a heightened risk of manipulation.
We have also selected a sample of transactions at random for further
testing to build an element of unpredictability into our testing.
We performed analytical reviews of revenue for review scope entities
and tested trade receivables to post year end cash receipt wherever
trade receivables were material.
For the risk identified on other revenues we performed the following
procedures:
We performed a walkthrough of each significant class of revenue
transactions within “Other revenue” and assessed the design
effectiveness of key controls.
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Annual Report 2021
Independent auditor’s report to the members of THG PLC (continued)
Risk
Our response to the risk
Risk
Our response to the risk
For a sample of contracts, we reviewed the terms of business and
management’s assessment of how IFRS 15 is applied to the contract terms,
including the identification of performance obligations and allocation of
consideration to each performance obligation identified.
Our assessment included, but was not limited to:
-
-
-
Variable consideration
Services which have been rendered at nil charge
Consideration of whether any contracts contain embedded leases
(IFRS 16).
For a sample of new contracts secured in 2021 we assessed the status of
the project (and whether the relevant site has ‘gone live’). Where these
projects were yet to go live we understood the reasons and considered
whether revenue has been recognised in line with IFRS 15.
We tested a sample of other revenue transactions, agreeing the amounts
to invoice, proof of service or cash receipt. For the items selected we
tested that the correct amount of deferred revenue has been recognised at
year-end. For these items we also tested the classification of the revenue by
business unit.
We challenged management on the classification of revenue as Ingenuity
Infrastructure and Ingenuity Commerce revenue and ensured that different
elements of Ingenuity are clearly articulated given external interest in the
Ingenuity business.
We tested manual revenue journals at in-scope locations, understanding
the reasons for the transactions and corroborating to appropriate evidence.
We tested these journals throughout the year, with increased focus on
those booked in the last quarter of the year where we consider there
to be a heightened risk of manipulation. We also selected a sample of
transactions at random to build in an element of unpredictability to our
testing.
Key observations communicated to the Audit Committee
Based on the audit procedures performed, we did
not identify evidence of material misstatements in the
revenue recognised in the current year.
changes. We are satisfied that the disclosures
appropriately describe the classification of revenue
and are also in compliance with IFRS 15.
We have highlighted to the Audit Committee the
importance of ensuring that there is clear disclosure
regarding classification of revenues, including any
Valuation of intangibles
(£1,506m, 2020: £674m)
Our procedures to respond to the risk on acquired intangible assets
included:
Refer to the Audit Committee Report
(page 153); Accounting policies (page 226);
and Note 11 of the Consolidated Financial
Statements (page 248).
The carrying value of intangible assets as
at the year end was £1.5bn (2020: £0.7bn).
The Group has made 10 acquisitions in
the period (total spend: £0.8bn), leading
to additional intangibles being recognised
of £0.7bn. There is a risk these intangible
assets are inappropriately recognised
on acquisition or are carried at an
unsupportable value.
The risk also relates to capitalised platform
development costs of £82m where there
is a risk that management and other
employee time is capitalised that does
not represent incremental value/future
economic benefits.
We read sale and purchase agreements to understand the nature of each
acquisition and understand key terms and conditions.
We understood and walked through the related process and controls
around the purchase price allocation (“PPA”) process (including for the
provisional PPAs prepared for current period acquisitions), including review
and approval by management.
We performed procedures on significant opening balance sheet accounts
for each acquisition, which included cut-off procedures. Where applicable
we have also conducted predecessor auditor file reviews.
We inspected the findings of due diligence exercises performed by
management’s specialists and compared these to the nature of adjustments
recorded in the opening balance sheet.
We assessed key judgements and fair value adjustments including those
related to intangibles, contingent considerations and any provisions.
We used valuation specialists for all of the acquisitions made during the
year to assess assumptions and the underlying fair value assessment, and to
assess whether the intangible assets are appropriately recognised.
We assessed performance of new acquisitions against budgets/plan on
acquisition and the consideration of any identified synergies within the
acquisitions (and whether these have materialised).
We performed detailed testing of the fair value adjustments included in the
acquisition workings to ensure they are supported by appropriate evidence
and the underlying rationale is clear.
We considered the assets recognised within the group (such as individual
brands) and whether these continue to hold value in the current group
structure and business model.
This risk also encompasses the risk of
impairment. The Group’s legal structure
was reorganised after the year end and
as a result of this, we were alert to the
possibility that this reorganisation could
result in a change in the number of CGUs
(“Cash-Generating Units”) identified by
management for the purposes of their
year end impairment assessment.
Our procedures to respond to the risk on capitalised platform
development costs included:
We performed a walkthrough of significant classes of transactions
associated with platform development costs and understood the relevant
controls.
We interviewed members of the finance team to understand what they do
to ensure only direct costs are capitalised.
We tested a sample of employee timesheets, and made inquiries to
understand the nature of their activities and of the project to which their
time had been recorded.
We tested a sample of key projects, and made inquiries of the project
managers to understand the nature, timing and purpose of the project.
We assessed whether the capitalisation of these employees / projects was
consistent with the requirements of IAS 38 and SIC 32.
We reviewed for risk of management judgment or bias, particularly in
respect of employees who do not use timesheets.
We reviewed for any significant new projects or changes in judgments
made prior to the year end.
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Independent auditor’s report to the members of THG PLC (continued)
Risk
Our response to the risk
Risk
Our response to the risk
Our procedures to respond to the risk of impairment of intangible
assets included:
We scrutinised management’s impairment assessment as at the balance
sheet date, reviewing methodology and testing the mathematical accuracy
of the models used.
We reviewed the basis for the identification of CGUs and concluded on the
appropriateness of this against criteria set out by IAS 36, in the context of
the progress of the Group’s restructuring plans. We also concluded on the
appropriateness of the impairment recognised by management following
their review of the performance of the OnDemand, Experience and Luxury
businesses.
We assessed management’s calculation of the discount rate (for each
CGU) and agreed assumptions and peer group analysis to supporting
documentation, in order to ensure that the discount rate used is
appropriate and specific to that CGU.
We challenged the reasonableness of the forecasts used in the assessment
including key assumptions (such as growth rates, EBITDA margins and
discount rates).
We assessed the reliability of management’s forecasts by comparing
previous forecasts to actual results.
We assessed the sensitivities of the headroom to changes in assumptions.
We engaged an EY internal expert to review the discount rates applied by
management to forecast cashflows.
We considered analysts’ views on the valuation of the group with EY
internal expert input to assess if this provided contradictory evidence to
management’s assessment of the value of the group, and each of its CGUs.
We reviewed the disclosures in the financial statements to ensure adequate
disclosure in line with IAS 36.
Key observations communicated to the Audit Committee
We are satisfied with the work performed by
management regarding their provisional purchase price
allocation (PPA) exercise on the current year acquisitions.
We have considered the resulting disclosures around
the plausible downside risks and sensitivities and have
concluded that the disclosure is appropriate.
We note that there was significant judgment in the
timing of when it was appropriate to consider
separation of the Group’s existing CGUs, as well as the
process of preparing indicative forecasts for CGUs.
Based on the procedures we have performed we did
not identify material misstatements in the valuation of
intangibles carried in the statement of financial position.
Significant disclosures
Refer to the Audit Committee
Report (page 153). Accounting
policies (page 226).
We performed the following procedures on the significant
disclosure items noted:
Whether the accounts when taken as a whole are fair, balanced and
understandable
This risk focuses on the more complex
or subjective disclosure items within the
ARA (“Annual Report and Accounts”), which
we consider to be:
We understood the process that the Board and those charged with
governance implemented to ensure the ARA is fair, balanced and
understandable.
In reviewing the ARA we gave specific consideration to whether the
business model and Group’s purpose was clear to the readers of the
financial statements. We also involved a corporate governance specialist
to perform an assessment of the ARA with particular focus on whether
it is in compliance with the UK Corporate Governance code and to
enhance our audit challenge on the ARA and the adequacy of the
disclosures made.
We read the disclosures and challenged management to ensure there
was an appropriate balance between the narrative on mature businesses
and fast-growing aspects of the group’s performance, as well as giving
greater clarity on underlying organic performance.
- Whether the accounts when taken
as a whole are fair, balanced
andunderstandable.
- Adjusted profit measures.
- Narrative related to Ingenuity, and
presentation of segmental reporting.
We have considered the areas currently
focussed on by investors, analysts and
the wider market. There is a risk that the
accounts may be presented in a way
that does not give a fair reflection of
the business, transactions and/or is not
understandable to the external users of the
financial statements.
Adjusted profit measures (APMs)
Our focus was on ensuring that narrative within the ARA does not give
undue prominence to APMs.
Where APMs are disclosed we checked consistency with the group’s
accounting policy and ensured that the APM is reconciled to the nearest
GAAP measure.
We performed an assessment of the calculations prepared by management
to quantify the adjustment items. We challenged management on the
sufficiency of disclosures which describe the nature of the adjusted items
and checked they were in line with our understanding of the nature of
these items based on this assessment.
We agreed costs to invoices for all costs except warehousing charges
which were based on calculations of commissioning costs during set up
phases. We understood the approach, and reviewed the post year end run
rates achieved.
We challenged management to consider whether an alternative basis for
the calculations for facilities commissioning costs would lead to a better
understanding for the users of the financial statements.
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Independent auditor’s report to the members of THG PLC (continued)
Risk
Our response to the risk
Risk
Our response to the risk
Narrative related to the Ingenuity business, and presentation of
segmental reporting
We considered whether narrative related to the Ingenuity business was
in line with our understanding of our contract testing (see revenue section
above) and reviewed judgements on segments. We also ensured that
reportable segments were disclosed in accordance with IFRS 8.
Key observations communicated to the Audit Committee
There is significant judgment in management’s
determination of adjusted items and therefore the clarity
of the disclosure is essential for readers of the financial
statements to understand the items.
Nothing has come to our attention that would indicate
that the Annual Report and Accounts, and in particular
the disclosure of items we identified as being
more complex, judgemental or subjective,
is not Fair, Balanced and Understandable.
Related party transactions
Our procedures to respond to the risk on related party transactions:
Refer to the Audit Committee Report (page
153); Accounting policies (page 226); and
Note 27 of the Consolidated Financial
Statements (page 262).
THG has a number of related party
transactions, primarily with the Propco
business (Moulding Capital Limited, which
is controlled and owned by the CEO of
THG) which lease to THG a number of the
warehouses and other assets the group
uses to conduct their operations. THG also
incurs capex spend on the properties as the
tenant to the lease agreements.
As a result there is a risk that these
transactions, specifically those with Propco
are not carried out on an arms length basis
and not adequately disclosed.
We had identified a deficiency in controls
resulting from the conflict of interest
regarding common management and
governance between THG PLC and the
Propco business. We tailored our audit
procedures to be responsive to this
deficiency.
We considered whether Softbank was a
related party to THG, and the implications
of this conclusion on the financial
statements.
We walked through and understood the design effectiveness of the
governance and controls management and those charged with governance
have put in place to review and approve transactions with Propco.
We assessed the appropriateness of modifications made to existing related
party relationships and contracts to assess whether they were at an arms’
length.
We reconfirmed charges for rent back to external valuations obtained and
for those not covered by external valuations understood the approach
taken in arriving at the rentals agreed and ensured they had been approved
by the Related Party Committee.
We ensured capital expenditure was accounted for by the right entity
based on the terms of the leases.
We read board and committee meeting minutes (including of the Related
Party Committee) to identify related party transactions.
We inspected significant contracts with the related party.
We inquired of the related party, as part of our procedures to assess
the completeness and accuracy of disclosures around related party
transactions.
We performed journal entry testing to assess for the completeness
of related party transactions.
We assessed whether significant related party transactions are on a fair
market basis, and whether those that are not on a fair market basis are not
material to the financial statements, by referring to third-party valuation
reports which indicated appropriate market rentals are charged overall for
the portfolio of leased assets.
We reviewed other information in the public domain to assess whether this
provided evidence over the completeness of related party transactions
identified by management or contra evidence to our conclusions.
We utilised our real estate specialists to reassess the valuations of
properties and rental charges to support our work in the current period.
We made inquiries of, and held discussions with, management and those
charged with governance, to identify whether related party transactions
are in accordance with the terms and conditions of the contracts.
We reviewed the independent assessment of related party transactions,
performed by an independent accountant and considered whether
it provided contradictory evidence to our own testing.
We considered the relationship with Softbank to determine if they were
a related party to the group.
Key observations communicated to the Audit Committee
The accounting for related party transactions is appropriate.
The disclosures for related party transactions have been
made in accordance with IAS 24, the relevant accounting
standard covering related party transactions.
by the Related Party Committee which was addressed
after the year end. In addition to the CEO, there were
still common directors of both THG and Propco entities
throughout 2021.
The control deficiencies we identified during 2021 have
not been fully addressed, and whilst improvements have
been made this requires further action. This includes more
timely and robust challenge of related party transactions
These deficiencies have been acknowledged by the
Related Party Committee and a plan is in place to
address these observations as described within the
Related Party Committee report on page 171.
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Annual Report 2021
We have considered any changes made to our key audit
matters from the prior year, where our auditor’s report
included the following key audit matters:
Adjusted items - in the current year, the risk has not
been identified as a separate key audit matter but is
instead included within the significant disclosures key
audit matter, following a significant reduction in the
overall value of adjusted items and the accumulated
effort of the engagement team in auditing these
balances relative to other areas of the audit.
•
•
•
Share based payments - in the current year,
there are no share-based payments charges.
Platform development costs - in the current year,
this has been included as part of the key audit
matter we have identified on the valuation
of intangibles.
Strategic and governance reporting - in the
current year, we have articulated the key audit
matter as being significant disclosures.
Our application of materiality
We apply the concept of materiality in planning
and performing the audit, in evaluating the effect
of identified misstatements on the audit and
in forming our audit opinion.
Independent auditor’s report to the members of THG PLC (continued)
Performance materiality
The application of materiality at the individual
account or balance level. It is set at an amount to
reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Group’s overall control environment,
our judgement was that performance materiality was
50% (2020: 50%) of our planning materiality, namely
£4.8m (2020: £2.4m). We have set performance
materiality at this percentage due to the level of errors
identified through the course of the 2020 audit.
Audit work of components for the purpose of obtaining
audit coverage over significant financial statement
accounts is undertaken based on a percentage of total
performance materiality. The performance materiality
set for each component is based on the relative scale
and risk of the component to the Group as a whole
and our assessment of the risk of misstatement at
that component. In the current year, the range of
performance materiality allocated to components
was £0.7m to £3.8m (2020: £0.4m to £2.2m), excluding
performance materiality for the parent company.
Reporting threshold
Materiality
An amount below which identified misstatements are
considered as being clearly trivial.
The magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the
users of the financial statements. Materiality provides
a basis for determining the nature and extent of our
audit procedures.
We agreed with the Audit Committee that we would
report to them all uncorrected audit differences in
excess of £0.26m (2020: £0.15m), which is set at 3% (2020:
3%) of planning materiality, as well as differences below
that threshold that, in our view, warranted reporting on
qualitative grounds.
We determined materiality for the Group to be £8.7m
(2020: £4.8m), which is 0.4% (2020: 0.3%) of group
revenue. Based on our review of analysts’ commentary,
we believe that revenue is the most important
benchmark for users of the financial statements. The
increase in materiality is driven by both the increase
in revenue which is the basis for materiality, and an
increase from 0.3% to 0.4% in the percentage of revenue
we have used for materiality.
We determined materiality for the parent company to
be £7.6m (2020: 14.2m), which is 1% (2020: 1%) of equity,
capped at the materiality assigned to the parent entity
component for the audit.
During the course of our audit, we reassessed initial
materiality set at the planning stage of the audit, but did
not need to change the amount nor basis of materiality.
217
We evaluate any uncorrected misstatements against
both the quantitative measures of materiality discussed
above and in light of other relevant qualitative
considerations in forming our opinion.
Other information
The other information comprises the information
included in the annual report set out on pages 1-204,
including the strategic report and the Directors’ report,
other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the
other information contained within the annual report.
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.
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 course of audit or
otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether this gives rise to a material misstatement in
the financial themselves. 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. We refer to
the section concerning our identified key audit matter
on Significant Disclosures.
Corporate governance statement
As THG PLC have voluntarily complied with the UK
Corporate Governance Code, we are required to review
the directors’ statement in relation to going concern,
longer-term viability and that part of the Corporate
Governance Statement relating to the group and
company’s compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements
of the Corporate Governance Statement is materially
consistent with the financial statements or our
knowledge obtained during the audit:
• Directors’ statement with regards to the
appropriateness of adopting the going
concern basis of accounting and any material
uncertainties identified set out on page 117.
• Directors’ explanation as to its assessment of the
company’s prospects, the period this assessment
covers and why the period is appropriate set out
on page 117.
• Directors’ statement on fair, balanced and
understandable set out on page 157.
• Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set
out on page 105.
•
The section of the Annual Report that describes
the review of effectiveness of risk management
and internal control systems set out on pages
105-116; and;
•
The section describing the work of the Audit
and Risk Committee set out on page 153.
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 those reports have
been prepared in accordance with applicable legal
requirements;
The information about internal control and risk
management systems in relation to financial
reporting processes and about share capital
structures, given in compliance with rules 7.2.5
and 7.2.6 in the Disclosure Rules and Transparency
Rules sourcebook made by the Financial Conduct
Authority (the FCA Rules), is consistent with the
financial statements and has been prepared in
accordance with applicable legal requirements; and
Information about the company’s corporate
governance statement and practices and about its
administrative, management and supervisory bodies
and their committees complies with rules 7.2.2,
7.2.3 and 7.2.7 of the FCA Rules.
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 the directors’ report;
The information about internal control and risk
management systems in relation to financial
reporting processes and about share capital
structures, given in compliance with rules 7.2.5
and 7.2.6 of the FCA Rules.
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.
•
The parent company financial statements and the
part of the Directors’ Remuneration Report to be
audited are not in agreement with the accounting
records and returns.
Opinions on other matters prescribed
by the Companies Act 2006
• Certain disclosures of directors’ remuneration
specified by law are not made.
In our opinion, the part of the directors’ remuneration
report to be audited has been properly prepared in
accordance with the Companies Act 2006.
• We have not received all the information
and explanations we require for our audit.
• A Corporate Governance Statement has
not been prepared by the company.
218
Annual Report 2021
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement set out on page 127, 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 and 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
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.
Explanation as to what extent the
audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined
above, to detect irregularities, including fraud. The risk
of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by,
for example, forgery or intentional misrepresentations,
or through collusion. The extent to which our
procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention
and detection of fraud rests with both those charged
with governance of the company and management.
Independent auditor’s report to the members of THG PLC (continued)
• We obtained an understanding of the legal and
regulatory frameworks that are applicable to the
group and determined that the most significant
are those that relate to the reporting framework
(IFRS, Companies Act 2006, the UK Corporate
Governance Code, and the Listing Rules of the UK
Listing Authority) and the relevant tax compliance
regulations in the jurisdictions in which THG PLC
operates. In addition, we concluded that there
are certain significant laws and regulations that
may have an effect on the determination of the
amounts and disclosures in the financial statements
and those laws and regulations relating to health
and safety, employee matters, environmental, and
bribery and corruption practices.
• We understood how THG PLC is complying
with those frameworks by making enquiries of
management, internal audit, those responsible
for legal and compliance procedures and the
Company Secretary. We corroborated our enquiries
through our review of Board minutes, internal
audit reports and papers provided to the Audit
and Risk Committee and noted that there was no
contradictory evidence.
• We assessed the susceptibility of the group’s
financial statements to material misstatement,
including how fraud might occur. We identified
fraud risks in our work on adjusted items and
revenue recognition, and performed specific
procedures which were responsive to the identified
fraud risks.
• Based on this understanding we designed our audit
procedures to identify non-compliance with such
laws and regulations. Our procedures involved
journal entry testing, with a focus on manual
consolidation journals and journals indicating large
or unusual transactions based on our understanding
of the business; performing inquiries of internal and
external legal counsel; reviewing material items
the Group’s legal expenses; and reviewing media
coverage of the Group to identify whether there
were matters that had not been brought to our
attention through discussions with management.
In addition, we completed procedures to conclude
on the compliance of the disclosures in the Annual
Report and Accounts with the requirements of the
relevant accounting standards, UK legislation and
the UK Corporate Governance Code 2016. We also
engaged EY forensics specialists to assist with the
performance of our procedures around compliance
with applicable laws and regulations.
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.
Other matters we are required to address
•
•
•
Following the recommendation from the Board,
we were appointed by the company in 2021 to
audit the financial statements for the year ending 31
December 2021 and subsequent financial periods.
The period of total uninterrupted engagement
including previous renewals and reappointments is
11 years, covering the years ending 31 December
2011 to 31 December 2021.
The non-audit services prohibited by the FRC’s
Ethical Standard were not provided to the group or
the parent company and we remain independent of
the Group and the parent company in conducting
the audit.
•
The audit opinion is consistent with the additional
report to the Audit Committee.
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.
Karl Havers (Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
20 April 2022
219
220
Annual Report 2021
Consolidated statement of comprehensive income
for the year ended 31 December 2021
Consolidated statement of financial position
as at 31 December 2021
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative costs
Operating loss
Finance income
Finance costs
Loss before taxation
Income tax credit
Loss for the financial year
Other comprehensive (expense)/income
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translating foreign operations, net of tax
Net gain/(loss) on cash flow hedges
Total comprehensive expense for the financial year
2021
Total
2020
Total
Notes
£'000
£'000
2
2,179,910
1,613,625
(1,225,506)
(900,472)
954,404
713,153
(429,940)
(350,260)
(661,927)
(844,725)
(137,463)
(481,832)
623
205
(49,447)
(53,012)
(186,287)
(534,639)
48,213
2,010
(138,074)
(532,629)
3
8
8
9
(272)
11,391
(582)
(4,991)
(126,955)
(538,202)
Basic and diluted loss per share (£)
26
(0.13)
(0.66)
Earnings before interest, taxation, depreciation, amortisation, impairment and adjusted items (Adjusted EBITDA)
Operating loss
Adjustments for:
Adjusted items –
share based payments
Adjusted items – other
Depreciation
Amortisation
Adjusted EBITDA*
(137,463)
(481,832)
4
4
12,22
11
-
331,624
129,228
195,714
70,478
99,033
48,055
57,239
161,276
150,800
*Adjusted EBITDA is defined as operating profit before depreciation, amortisation and adjusted items.
The results for the year are derived from continuing activities. The comprehensive expense is 100%
attributable to the owners of the Parent Company.
221
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments
Current assets
Inventories
Trade and other receivables
Current tax asset
Other financial assets
Cash and cash equivalents
Total assets
Equity
Ordinary shares
Share premium
Merger reserve
Capital redemption reserve
Hedging reserve
Cost of hedging reserve
FX reserve
Retained earnings
Non-current liabilities
Borrowings
Derivative financial liabilities
Lease liabilities
Provisions
Deferred tax
Current liabilities
Contract liability
Trade and other payables
Borrowings
Current tax liability
Lease liabilities
Provisions
Other financial liabilities
Total liabilities
Total equity and liabilities
Notes
£'000
£’000
31 December 2021
31 December 2020
11
12
22
13
15
14
16
23
18
14
22
19
21
20
17
18
22
19
14
1,506,292
335,620
310,282
1,400
2,153,594
466,781
263,929
-
2,700
536,827
1,270,237
3,423,831
6,684
2,022,311
615
523
(12,964)
13,694
(1,094)
(274,015)
1,755,754
489,113
-
305,831
15,623
73,766
884,333
36,143
676,563
752
4,118
43,342
883
21,943
783,744
1,668,077
3,423,831
674,293
240,221
193,887
-
1,108,401
302,678
246,546
1,797
15,849
773,581
1,340,451
2,448,852
6,061
1,287,171
615
523
(18,003)
7,342
(822)
(138,361)
1,144,526
524,288
2,563
207,274
-
5,944
740,069
32,912
499,698
1,871
-
28,911
865
-
564,257
1,304,326
2,448,852
The financial statements on pages 221 to 271 were approved by the
Board of Directors on 20 April 2022 and were signed on its behalf by:
J A Gallemore
Director
Registered number: 06539496
222
Annual Report 2021
Consolidated statement of comprehensive
income for the year ended 31 December 2021
Consolidated statement of changes in equity for the
year ended 31 December 2021
Consolidated statement of cash flows for the year
ended 31 December 2021
Ordinary
shares
Share
premium
Employee
benefit
scheme
reserve
Merger
reserve
Capital
redemption
reserve
FX
reserve
Hedging
reserve
Cost of
hedging
reserve
Retained
earnings
Total
equity
Note
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£’000
£'000
£'000
Cash flows from operating activities before adjusted cash flows
4,381
230,718
175
615
523
(240)
(6,134)
464
237,183
467,685
Balance at 1
January 2020
Loss for the year
Other comprehensive expense:
Impact of foreign
exchange
Movement
on hedging
instruments
Total
comprehensive
(expense)/income
for the period
Issue of ordinary
share capital
Share buy-backs
(399)
Other comprehensive expense:
Share-based
payments
Deferred tax effect
of share-based
payments
Impact of non-
equity settlement
of previous share-
based payment
schemes
Balance at
31 December 2020
Balance at 1
January 2021
Loss for the year
Impact of foreign
exchange
Movement
on hedging
instruments
Total
comprehensive
(expense)/income
for the period
Issue of ordinary
share capital
Deferred tax effect
in equity
Balance at
31 December 2021
223
-
-
-
-
-
-
-
-
2,079 1,056,453
7
21
27
-
-
-
-
-
-
-
6,061 1,287,171
6,061 1,287,171
-
-
-
-
-
-
-
-
623
735,140
21
-
-
6,684 2,022,311
-
-
-
-
-
-
-
-
(175)
-
-
-
-
-
-
-
-
-
-
(532,629)
(532,629)
-
(582)
-
-
-
(11,869)
6,878
-
-
(582)
(4,991)
(582)
(11,869)
6,878
(532,629)
(538,202)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(100,087)
958,445
(1,506)
(1,905)
331,624
331,624
2,966
2,966
(75,912)
(76,087)
-
-
615
523
(822)
(18,003)
7,342
(138,361)
1,144,526
-
(138,074)
(138,074)
-
(272)
-
-
-
5,039
6,352
-
-
(272)
11,391
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Cash generated from operations
Income tax paid
Net cash generated from operating activities before adjusted cash flows
Cash flows relating to adjusted items
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired
Divestment of subsidiaries
Purchase of investments
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Net cash used in investing activities
Cash flows from financing activities
Share buy-backs
Interest paid
Repayment of bank borrowings
Proceeds from bank borrowings
Repayment of lease liabilities
Net cash flow from financing activities
Notes
25
10
27
2021
£'000
95,954
(7,095)
88,859
2020
£'000
176,949
(3,104)
173,845
(65,528)
(98,277)
23,331
75,568
(768,490)
(101,949)
-
(10,003)
(1,400)
-
(111,553)
(174,886)
(77,620)
(64,486)
8
323
205
(958,740)
(351,119)
760,230
905,823
-
(1,905)
(25,359)
(35,383)
-
-
(168,221)
53,791
22
(36,216)
(17,206)
698,655
736,899
615
523
(822)
(18,003)
7,342
(138,361) 1,144,526
Proceeds from issuance of ordinary shares net of fees
(272)
5,039
6,352
(138,074)
(126,955)
-
-
-
-
-
-
-
735,763
2,420
2,420
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(236,754)
461,348
773,581
312,233
Cash and cash equivalents at the end of the year
16
536,827
773,581
615
523
(1,094)
(12,964)
13,694
(274,015)
1,755,754
224
Annual Report 2021 Notes to the consolidated financial statements
Basis of preparation
The consolidated financial statements, and the Company
financial statements, have been prepared in accordance
with UK-adopted international accounting standards
(IFRS) and, as regards the parent company financial
statements, as applied in accordance with the provisions
of the Companies Act 2006. The company has taken
advantage of section 408 of the Companies Act 2006 not
to present the parent company profit and loss account.
The financial statements have been prepared on the
historical cost basis, except for derivatives which are
held at fair value.
with the Board and Executive Chair and CEO providing
further direction to align strategic initiatives. Focus has
also been placed on forecasting at a divisional level this
year, the Group are on track to complete the separation
of the business units in 2022. The Directors of the Group
review its Budget periodically, which is revisited and
revised as appropriate in response to evolving market
conditions.
In considering the Group’s financial position the
Directors have considered:
The accounting policies adopted by the Group in the
current year are consistent with those adopted during
the year ended 31 December 2020, except for the
adoption of new accounting standards and amendments
to existing standards in 2021 as set out below:
•
•
Expected future growth of trading businesses.
The committed and expected pipeline of its
Ingenuity business.
• Margins expected to be achieved in the future.
• Wider market and industry-specific factors.
•
Amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16 and
IAS 39 Interest Rate Benchmark Reform Phase 2.
The amendments noted above do not have a significant
impact on the Group’s financial statements.
There are no standards, interpretations or amendments to
IFRS that have been issued but are not yet effective that
are expected to have a material impact on the Group’s
financial statements.
Going concern
Accounting standards require that Directors satisfy
themselves that it is reasonable for them to conclude
on whether or not it is appropriate to prepare financial
statements on the going concern basis. There has
been no material uncertainty identified that would cast
significant doubt upon the Group’s ability to continue
using the going concern basis of accounting for the 12
months to April 2023.
The Group’s business activities, together with the factors
likely to affect its future development, performance and
position, are set out in the Strategic Report on pages
1-118.
Having experienced two years of the impact of
Covid-19, management consider the impacts on
THG to be well understood and the impact of the
pandemic that was considered in the previous budget
process has continued to be recognised this cycle.
The Group’s strategic planning cycle includes an
annual Budget process, which is reviewed by the
Board. This planning process involves modelling
under a series of assumptions. Severe but plausible
downside scenarios were also modelled setting out
impacts of a combination of the principal risks, as well
as a reverse stress test to identify what would be
required to either breach covenants or run out of
liquidity. This process is led by the Group CFO,
Commercial Director and Deputy Group CFO along
225
The Directors have also considered the liquidity of the
Group as well as available facilities and note that as at
the balance sheet date, the Group had a total of £170m
in undrawn facilities, along with £537m readily available
cash held on the balance sheet. Net debt at this date
was £302m (note 18) and net cash of £44m before the
inclusion of IFRS 16 lease liabilities.
In December 2019, the Group entered into a €600m
seven-year loan facility agreement due to mature in
December 2026 and an undrawn £170m Revolving Credit
Facility (“RCF”) due to mature in December 2024. There
are no key covenants attached to the €600m loan facility,
but the covenants attached to the RCF are linked to
gross debt leverage and become effective when the
facility is drawn upon. This facility is not currently drawn
down, and not forecast to be drawn in the future period.
The Directors are of the opinion that the Group’s
forecasts and projections, which they believe are based
on an appropriate assessment of the market and past
experience taking account of reasonably possible
changes in trading performance given current market
and economic conditions, show that the Group should
be able to operate within the current facility and comply
with its banking covenants in the event that the RCF
facilities are drawn upon. The Directors have modelled
a range of scenarios, including a base case which has
been stress tested to consider downside risks and a
reverse stress test, over a three-year period. Further
details of the Group’s considerations are provided in
the Viability Statement and Going Concern Statement
on page 117.
As a result of the analysis performed, including potential
severe but plausible scenarios, the Board believes that
the Group is able to adequately manage its financing
and principal risks and that the Group will be able to
operate within the level of its facilities and meet the
required covenants for the going concern assessment
period. Based on the above activity, the Directors are
satisfied that it is appropriate to prepare the financial
statements of the Group on a going concern basis.
1. 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 2021 and have been
applied to 2020 comparatives where applicable.
a. Basis of consolidation
The Group financial statements consolidate those of
the Company and all its subsidiary undertakings drawn
up to 31 December 2021. Subsidiaries are all entities
over which the Group has control. When the end of the
reporting period of a subsidiary is not 31 December,
the subsidiary prepares, for consolidation purposes,
additional financial information as of the same date as
the financial statements of the Group.
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 considers
the inputs, processes and outputs acquired in
accordance with IFRS 3.
c. Revenue
Revenue consists primarily of direct to consumer (D2C)
internet sales along with business to business (B2B) sales.
D2C and B2B sales
Identifying performance obligations: For D2C and B2B
sales the performance obligation is the delivery of the
goods purchased by the customer. Control of goods is
transferred upon delivery of the product to the customer.
Identifying the transaction price: For D2C sales,
the customer pays in full at the point of sale, with
the transaction price allocated to individual goods
purchased. A contract liability is recognised until the
related goods have been delivered. For B2B sales,
the customer pays in line with the agreed credit terms.
Revenue is shown net of returns, with expected sales
returns estimated based on historical return data applied
to sales. These returns are accounted for at the lower
of cost or net realisable value. A right of return asset
(and corresponding adjustment to cost of sales) is also
recognised for the right to recover the goods from
the customer.
Allocation of transaction price to performance
obligations: In general, the whole transaction price
is allocated to the performance obligation. Where
a customer purchases multiple goods within one
transaction, the transaction price is allocated to those
goods based on relative stand-alone selling prices.
Revenue recognition: Revenue is recognised at the
point of time when the customer receives the goods,
shown net of returns.
Revenue from contracts
Identification of performance obligations: THG
Ingenuity Commerce contracts often have multiple
performance obligations that include but are not limited
to: creation of digital assets, marketing services, stock
management, fulfilment, customer support services
and access to THG’s Ingenuity platform. Each contract
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Notes to the consolidated financial statements (continued)
Costs associated with obtaining a contract with a
customer that would not have been incurred if the
contract had not been obtained are recognised as an
asset where they are expected to be recoverable and
depreciated over the life of the contract. Costs to obtain
a contract that would have been incurred regardless of
whether the contract was obtained or not are recognised
as an expense when incurred, unless those costs are
explicitly chargeable to the customer regardless of
whether the contract is obtained.
Revenue recognised under IFRS 16
Revenues from Internet hosting contracts
are recognised under IFRS 16 as the Group
is considered a lessor in these transactions.
Income from hosting contracts is recognised on
a straight-line basis from the commencement date
over the lease term as the performance obligation
is settled over the life of the contract. Any initial
direct costs incurred in negotiating and arranging
an operating lease are added to the carrying amount
of the leased asset and recognised over the lease term
on the same basis as rental income.
Revenue from memberships
Fees recognised in respect of memberships are recorded
on a straight-line basis over the membership period.
Barter income
For some of its monthly subscription offerings, THG
receives goods for inclusion in its subscription boxes
from business partners in return for the marketing
exposure received by those products being included in
our subscription box. The goods are recognised as stock
when received and held at their fair value. When the
box is sold, the revenue for providing those marketing
services is recognised with an equal and offsetting entry
recorded in cost of goods sold.
is reviewed individually once signed and is assessed
to identify the separate performance obligations.
In a typical Ingenuity Commerce contract, all goods
and services provided are considered to be “distinct”
as the client can derive independent benefit from
each service provision and the promise to transfer
services to the customer is separately identifiable.
These contracts contain multiple performance
obligations.
Determining transaction prices: Transaction prices are
agreed in advance of the commencement of the work
and are outlined within the signed contract. The amount
agreed per service is deemed to be the fair value of the
service provision. Consideration receivable is usually
at a fixed price, however there are some elements that
will flex dependent on order volume and sales levels,
for example operations revenues made up of fulfilment
fees and revenue share income. The charging structure
for such transactions is clearly detailed within the signed
contract.
Allocation of transaction price to performance
obligations: Where contracts cover multiple performance
obligations, the transaction price is allocated on a basis
that is consistent with the sale of each performance
obligation in isolation.
Revenue recognition: Within certain Ingenuity
contracts, the amount of revenue recognised depends
on whether the Group are acting as an agent or
principal. The Group acts as principal when it has
control of the specified good or service prior to transfer
to the customer. Where the Group acts as principal,
the revenue recorded is the gross amount billed.
Where the Group is an agent, predominantly relating
to revenue share arrangements, revenue from the
customer and costs with suppliers are reported on a
net basis representing the net margin earned. Whether
the Group is acting as principal or agent depends on
management’s analysis of both legal form and substance
of the agreement between the Group and its business
partners.
The allocated transaction price is recognised from the
point at which the customer starts to benefit from the
service and over the time the service is provided. For
marketing services, stock management, fulfilment,
customer support services and access to THG’s Ingenuity
platform these are recognised when the service is
provided.
The creation of digital assets revenue is recognised on a
percentage completion basis as the work is performed
because the work does not create an asset with an
alternative use and the Group has a right to payment for
the work performed at each point in time.
Revenue which is invoiced in advance is recorded as a
contract liability on the balance sheet and released to
the statement of comprehensive income account over
the periods in which the services are provided.
d. Adjusted items
The business is managed and measured on a day-to-
day basis using underlying results (Adjusted EBITDA).
This is an important metric utilised within the business
to monitor performance and guide strategic business
decisions. The metric captures the Group’s view of
underlying trading performance after excluding non-
recurring items and initial investment/set-up costs
related to establishing the Group’s warehousing and
logistics facilities. Further details of the categories
considered as adjusting items are detailed in note 4.
Management applies judgement in determining which
items should be excluded from adjusted EBITDA. The
considerations factored into this judgement include but
are not limited to:
• Nature of the item.
•
Significance of the item on the financial results.
revision to original estimates, if any, in the statement of
comprehensive income with a corresponding adjustment
to equity. When the equity instruments are exercised or
growth shares in the Group are issued to employees, the
Company issues new shares. Of the proceeds received
on exercise or issue of growth shares, an amount equal
to the nominal value of the shares issued is credited to
the share capital account and an amount equal to the
share premium, net of directly attributable transaction
costs, is credited to the share premium account. 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 statement of comprehensive income 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
statement of comprehensive income.
• Managements expectation on the recurring
or non-recurring nature of the item.
f.
Intangible assets
These are items which are material in nature and include,
but are not limited to, costs relating to acquisitions,
disposals and significant events or projects, some of
which span multiple years.
Although categories of adjusted items may appear
across multiple periods, the underlying event driving
that cost or income is often non-recurring.
These items are excluded from adjusted EBITDA
as management believe their inclusion distorts the
underlying trading performance. This is consistent
with the way that financial performance is measured by
management and reported to the Board. For further
details, refer to note 4
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 in the statement of comprehensive
income. 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 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
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 statement
of comprehensive income.
For the purposes of impairment testing, goodwill is
reviewed by assessing the cash-generating unit that
has 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.
Platform development costs
The costs of acquiring and developing the platform
and websites is capitalised separately as an intangible
asset. Capitalised website costs include direct costs
of materials, services, directly attributable overheads,
payroll and payroll-related costs for employees who are
directly associated with website development projects.
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Annual Report 2021
Notes to the consolidated financial statements (continued)
Intellectual property
g. Property, plant and equipment
i.
Inventories
Trade and other receivables
This includes separately acquired customer lists, domain
and trade names, 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
Brands
Brands arising from business combinations are recognised
at fair value on acquisition date. An assessment is made
on the useful economic life, and the intangible asset is
subsequently amortised over that life. The useful economic
life is reviewed on an annual basis to confirm that the useful
life continues to be supportable.
Other intangible assets
Costs associated with developing new products are
capitalised as an intangible asset, including directly
associated costs.
Intangible assets are amortised on a straight-line basis
over their estimated useful economic life. Amortisation
is charged to the statement of comprehensive income,
classified in expenses depending on the nature of
the asset. The estimates of useful economic lives are
reviewed on an annual basis and any changes are
treated as changes in accounting estimates.
Where computer software is not an integral part of
a related item of computer hardware, the software is
treated as an intangible asset. Computer software is
capitalised on the basis of the costs incurred to acquire
and bring to use the specific software. Amortisation is
provided on the cost of software and is calculated on
a straight-line basis over the useful life of the software.
The following useful economic lives are applied:
Platform development costs
New product development
Brands
Intellectual property
(including customer lists, domain
and trade names)
Computer software
1-5 years
1-5 years
5-20 years
2-20 years
1-10 years
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
economic life. Depreciation is charged to the statement
of comprehensive income, classified in expenses
depending on the nature of the asset.
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 profit or loss in the period in which
it occurs.
Plant and machinery
Fixtures and fittings
5-10 years
3-20 years
Computer equipment and software
1-10 years
Freehold buildings
Motor vehicles
Leasehold improvements
20-50 years
3-7 years
Lower of lease
term or asset life
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.
The Group has a supply chain financing agreement in
place to support the cash flow of its external suppliers.
The funding is provided by two of the Group’s
relationship banks and gives certain suppliers the
flexibility to receive early payments on specific invoices.
All early payments are processed by the funding bank
and the Group settles the original invoice amount
with the funders at the original invoice due date. The
outstanding balances due to suppliers are recorded
within trade payables.
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
The following are deemed to be financial assets
and liabilities within the scope of IFRS 9.
Derivative financial instruments
The Group uses derivative financial instruments, such
as foreign currency swaps, to hedge its foreign currency
risks. The Group also values options either from a third
party to acquire shares within the Group or divisions
or where the Group holds an option to acquire shares
in a third party. Derivative financial instruments are
recognised initially and subsequently at fair value.
The gain or loss on remeasurement to fair value
is recognised immediately in the statement of
comprehensive income. However, where derivatives
qualify for hedge accounting, recognition of any
resultant gain or loss depends on the nature of the
item being hedged. The sale and purchase of
derivative financial instruments are non-speculative.
Cash flow hedges
Where a derivative financial instrument is designated
as a hedge against the variability in cash flows of
a recognised asset or liability, or a highly probable
forecast transaction, any gain or loss on the effective
part of the derivative financial instrument is recognised
in other comprehensive income and accumulated within
the hedging reserve. The gain or loss on any ineffective
portion of the hedge is recognised immediately in the
statement of comprehensive income. Hedge accounting
is discontinued when the hedging instrument no longer
meets the criteria for hedge accounting, expires, or is
sold, terminated or exercised. The cumulative gain or loss
previously recognised in the hedging reserve remains there
until the forecast transaction occurs. The cumulative gain or
loss in the hedging reserve is transferred to the statement
of comprehensive income in the same period that the
hedged item affects profit or loss.
Gain or loss on a portion of a derivative designated as
a hedging instrument that is excluded from that hedging
relationship is captured in the cost of hedging reserve.
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 loss allowance. The Group
measures the loss allowance at an amount equal to
lifetime expected credit losses.
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. Cash and cash equivalents include
amounts receivable from banks for credit and debit
card transactions which clear the bank shortly after the
transaction takes place.
For the purposes of the consolidated statement of cash
flows, cash and cash equivalents consist of cash and
short-term deposits, as defined, net of outstanding
bank overdrafts as they are repayable on demand.
Financial liabilities
Financial liabilities within the scope of IFRS 9 are classified
as financial liabilities at amortised cost. The Group has
no financial liabilities at fair value through profit and loss.
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.
Within trade and other payables, returns recognised under
IFRS 15 (representing the liability for potential returns
from customers) are captured within accruals.
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. Supplier income
Supplier income comprises retrospective rebates and
discounts. They are receivable in respect of goods which
have been sold and are initially recognised as accrued
income. The retrospective rebates are analysed per
supplier basis and accrued income is adjusted accordingly
based on quarterly assessment of variables impacting
expected rebates. All retrospective rebates and discounts
received and receivable are deducted from cost of sales
when the sale to the third party has been completed.
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Annual Report 2021
l. Contract liabilities
A contract liability is the obligation to transfer goods or
services to a customer for which the Group has received
consideration (or an amount of consideration is due)
from the customer. If a customer pays consideration
before the Group transfers goods or services to the
customer, a contract liability is recognised when the
payment is made or the payment is due (whichever is
earlier). Contract liabilities are recognised as revenue
when the Group performs under the contract.
m. Leases
The Group assesses at contract inception whether a
contract is, or contains, a lease. That is, if the contract
conveys the right to control the use of an identified asset
for a period of time in exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement
approach for all leases, except for short-term leases and
leases of low-value assets. The Group recognises lease
liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the
commencement date of the lease (i.e. the date the underlying
asset is available for use). Right-of-use assets are measured
at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities.
The cost of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred and lease
payments made at or before the commencement date,
less any lease incentives received. Right-of-use assets are
depreciated on a straight-line basis over the shorter of the
lease term and the estimated useful lives of the assets,
as follows:
Plant and machinery
Motor vehicles
Buildings
Lease liabilities
1– 6 years
3–6 years
1–28 years
At the commencement date of the lease, the Group
recognises lease liabilities measured at the present
value of lease payments to be made over the lease term.
The lease payments include fixed payments (including
in-substance fixed payments) less any lease incentives
receivable, variable lease payments that depend on an
index or a rate and amounts expected to be paid under
residual value guarantees. The lease payments also include
231
Notes to the consolidated financial statements (continued)
the exercise price of a purchase option reasonably certain
to be exercised by the Group and payments of penalties
for terminating the lease, if the lease term reflects the
Group exercising the option to terminate.
In calculating the present value of lease payments,
the Group uses its incremental borrowing rate at the
lease commencement date because the interest rate
implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced
for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in
the lease payments (e.g. changes to future payments
resulting from a change in an index or rate used to
determine such lease payments) or a change in the
assessment of an option to purchase the underlying
asset.
The Group’s lease liabilities are included in interest-
bearing loans and borrowings.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition
exemption to its short-term leases (i.e. those leases
that have a lease term of 12 months or less from the
commencement date and do not contain a purchase
option). It also applies the lease of low-value assets
recognition exemption to leases that are considered to
be low value. Lease payments on short-term leases and
leases of low-value assets are recognised as an expense
on a straight-line basis over the lease term.
Group as a lessor
Leases in which the Group does not transfer substantially
all the risks and rewards incidental to ownership of an
asset are classified as operating leases. Rental income
arising is accounted for on a straight-line basis over the
lease terms and is included in revenue in the statement
of profit or loss due to its operating nature. Initial direct
costs incurred in negotiating and arranging an operating
lease are added to the carrying amount of the leased
asset and recognised over the lease term on the same
basis as rental income. Contingent rents are recognised
as revenue in the period in which they are earned.
Sale and leaseback accounting
The Group applies sale and leaseback accounting in
accordance with IFRS 16 ‘Leases’. Specifically, the Group
recognises the gain or loss on the sale and leaseback
transaction by recognising the proportion relating to rights
transferred to the buyer directly to the income statement.
Dilapidations provisions
Dilapidations provisions relate to leased properties.
Dilapidations provisions are made based on the
best estimate of the likely committed cash outflow
and discounted to net present value. The provision,
when recognised increases the right-of-use asset.
Dilapidations provisions are expected to be used at or
by the end of the lease term.
n. Taxation
Transactions and balances
The tax expense included in the statement of
comprehensive income and statement of changes in
equity comprises current and deferred tax.
Transactions denominated in foreign currencies are
translated into the functional currency at the exchange
rates prevailing on the date of the transaction.
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, based on
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.
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
also the parent company’s functional currency.
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 statement of
comprehensive income.
Group companies
On consolidation, the assets and liabilities of foreign
operations are translated into the presentational currency
of the Group at the rate of exchange prevailing at the
reporting date and their statements of comprehensive
income are translated at exchange rates prevailing at the
dates of the transactions. The exchange differences arising
on translation for consolidation are recognised in other
comprehensive income.
On disposal of a foreign operation, the component of OCI
relating to that foreign operation is recognised in the
statement of comprehensive income.
p. Government grants
Government grants are recognised where there is
reasonable assurance that the grant will be received
and all attached conditions will be complied with. When
the grant relates to an expense item, it is recognised as
income on a systematic basis over the periods that the
related costs, for which it is intended to compensate
are expensed. When the grant relates to an asset, it
is recognised as income in equal amounts over the
expected useful life of the related asset.
q. Earnings per share
Basic earnings per share (EPS) is calculated by dividing
the profit or loss for the year attributable to ordinary
equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year.
Diluted EPS is calculated by dividing the profit or loss
attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares
outstanding during the year plus the weighted average
number of ordinary shares that would be issued on
conversion of all the dilutive potential ordinary shares
into ordinary shares, to the extent that the inclusion of
such shares is not anti-dilutive.
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Annual Report 2021 r.
Critical accounting judgements
and key sources of estimation
uncertainty
In the application of the Group’s accounting policies,
management is required to make judgements (other
than those involving estimations) that have a significant
impact on the amounts recognised and to make
estimates and assumptions about the carrying amounts
of assets and liabilities that are not readily apparent
from other sources. The estimates and associated
assumptions are based on historical experience and
other factors that are relevant. Actual results may differ
from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision
affects only that period, or in the period of the revision
and future periods if the revision affects both current and
future periods. The most critical accounting judgements
or key sources of estimation uncertainty are detailed as
follows:
Critical accounting judgements
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 IAS 38 criteria for capitalisation
as development costs, dependent on the type of cost
and the project, along with the appropriate element of
employee time capitalised. Refer to note 11 for details
of capitalised platform development costs. The useful
economic life of the platform is 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.
Adjusted items
The identification of adjusted items depends on
management judgement in identifying and quantifying
amounts deemed to be adjusting or not reflective of the
underlying performance of the Group. The key elements
management take into consideration include, but are
not limited to:
The underlying nature of the item.
•
• Whether management believe the item is recurring
in nature, or if it represents a one off distortion
of the underlying results of the business.
Size of the impact of the item.
•
Refer to note 4 for details of each class of adjusted items.
Notes to the consolidated financial statements (continued)
Impairment reviews
SBM option valuation
Revenue recognition – Principal vs. Agent
Within certain Ingenuity contracts, the amount of
revenue recognised depends on whether the Group
are acting as an agent or principal. The Group acts as
principal when it has control of the specified good or
service prior to transfer to the customer. Where the
Group acts as principal, the revenue recorded is the
gross amount billed. Where the Group is an agent,
predominantly relating to revenue share arrangements,
revenue from the customer and costs with suppliers are
reported on a net basis representing the net margin
earned. Whether the Group is acting as principal or
agent depends on management’s analysis of both legal
form and substance of the agreement between the
Group and its business partners.
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. The
identification of cash-generating units (“CGUs”) is
a judgement exercised by management, who consider
the interoperability of the Group’s asset base, along
with the ability to identify separable series of cash
flows attached to those assets.
There has been a judgement made in light of the ongoing
work to separate the business units of the Group regarding
how many CGUs are in place at 31 December 2021.
More information has been provided within note 11.
When a review for impairment is conducted, the
recoverable amount of the CGU is determined based
on value-in-use calculations and fair value less costs to sell
where appropriate. The recoverable amount is calculated
using management’s assumptions and estimates. The key
estimates are growth rates and discount rates applied.
Refer to note 11 for further details of calculations.
Key sources of estimation uncertainty
Goodwill and intangible asset valuation
The Group has made several acquisitions in the year,
and in doing so recognised a number of intangible
assets on consolidation, including Brands, Customer
Lists, and Goodwill (refer to note 11).
In valuing these intangibles assets, management are
required to use judgement to estimate their fair value.
Intangible assets identified on acquisition are brand
names, customer lists and intellectual property. The
material assumptions used include cash flow forecasts
of the entity (including growth rates and royalty rates),
customer retention rates and the contributory asset
charges. To assist in this work, the Group engages external
valuation experts for a number of acquisitions to assess
the fair values of intangible assets. Management review
the work carried out by these external valuation experts
and assess the outcome. The fair values of the acquired
entities’ balance sheets are also assessed to ensure that
the values reflect the fair value of all acquired assets
and liabilities.
The Group entered into an Option and Collaboration
agreement on 10 May 2021 with SBM. The SBM option
agreement gives SBM the opportunity to invest $1.6bn in
THG Ingenuity for a 19.9% equity interest, implying
an enterprise value of $6.3bn for Ingenuity. The option
is treated as a derivative instrument and significant
judgement is required to estimate its fair value. The Group
has used independent specialists to assist in this valuation.
This has been fair valued using a Black-Scholes model
utilising market corroborated inputs including comparable
market multiples and future revenue forecasts. Judgement
has been applied in selecting appropriate comparable
market comparators and when applying volatility and
timing assumptions. The option has been valued at £0.6m
and is included as an adjusted non-cash, finance charge
at the year. More information, including the valuation
method, is included within note 14.
Inventory provisioning
The Group holds levels of stock sufficient to meet the
forecasted demand of its customers. As part of this,
a provision is recognised to ensure that the balance
sheet value of stock held is at the lower of cost and net
realisable value in accordance with IAS 2. As part of
the provisioning process, managements consideration
includes, but is not limited to: age of stock, type
of stock, and inventory acquired through business
combinations. Refer to note 13 for further details on
inventory.
Other judgements and other
sources estimation uncertainty
Climate change
In preparing the consolidated financial statements
management has taken into consideration the impact
of climate change. Considerations include, but are not
limited to:
•
•
•
The identification of costs which have been
committed to which have been included
within forecasts where appropriate.
The impact of climate change on a number
of key estimates which the Group has included
within forecasts where appropriate.
The impact of the Group’s investments in
sustainable businesses, evidenced in the acquisition
of companies such as More Trees, Preston Plastics
and Indigo Environmental (note 10) to aid the
Group’s movement towards its sustainability targets.
These considerations have not identified any significant
impacts from our climate commitments and therefore do
not have a material impact on the financial statements or
reporting judgements and estimates.
233
234
Annual Report 2021
Notes to the consolidated financial statements (continued)
2. Segmental reporting and revenue
3. Operating loss
The Directors have assessed the criteria and considerations under IFRS 8 ‘Operating Segments’ in order to identify
operating segments within the Group. The Directors concluded that the Group has one segment, as the Ingenuity
platform underpins the Group’s operations. The Chief Operating Decision Maker (CODM) is the Chief Executive,
who makes the key operating decisions for the business. The CODM receives daily financial information at the
combined Group level, and uses this information to allocate resources, make operating decisions and monitor the
performance of the Group as a whole. While the Group only has one operating segment, to increase transparency,
the Group has included additional voluntary disclosure analysing revenue split by division.
Beauty
Nutrition
Ingenuity
Other
Total
2021
£'000
1,117,835
659,531
194,273
208,271
2020
£'000
751,621
562,327
137,275
162,402
2,179,910
1,613,625
Beauty relates to website and business to business sales of owned and third-party Beauty brands. Nutrition relates
to sales of products from wholly-owned nutrition brands. Ingenuity revenue relates to the provision of services relating
to the web platform, alongside revenue generated from product development, marketing and fulfilment for third-
party clients (revenue recognised under IFRS 15), and revenue from web hosting (revenue recognised under IFRS 16).
Additionally, THG Eco which is new in 2021, has been included within Ingenuity to provide sustainability solutions
and consulting services for THG’s own operations, THG’s suppliers, partners and customers. Other relates to revenue
generated from THG OnDemand, THG Experience and THG Luxury.
Ingenuity revenue is contract based and therefore an element is recognised over time; all other revenue streams are
recognised at a point in time. Of the total revenues recognised for THG Ingenuity, £75.6m (2020: £66.8m) is recognised
over time.
Below is an analysis of revenue by region (by destination):
UK
USA
Europe
Rest of the world
2021
£'000
909,452
406,489
458,027
405,942
2020
£'000
622,663
207,835
397,216
385,911
2,179,910
1,613,625
As the Group operates as one segment, no measure of segmental assets or liabilities is disclosed in this note.
As part of the planned separation of business units in H1 FY22, the Group are reviewing the segmental
reporting and will update this as required by IFRS 8 in 2022.
The Group’s non-current assets by geography are as follows:
UK
Europe
Rest of the world
235
2021
£'000
2020
£'000
1,891,133
1,041,405
37,966
224,495
48,894
18,102
2,153,594
1,108,401
Operating loss has been arrived at after charging/(crediting):
Employee costs
Share-based payments
Depreciation on fixed assets
Depreciation on right-of-use assets
Amortisation of intangibles
Government grants
Net foreign exchange gain
4. Adjusted items
Note
6
7
12
22
11
2021
£'000
2020
£'000
260,892
171,368
-
331,624
38,269
32,209
99,033
(1,662)
444
33,813
14,242
57,239
(1,065)
(574)
These are items which are material in nature and include, but are not limited to, costs relating to acquisitions,
disposals and significant events or programmes, some of which span multiple years. These items are excluded
from adjusted EBITDA as management believe their inclusion distorts the underlying trading performance. This
is consistent with the way that financial performance is measured by management and reported to the Board.
Within distribution costs
Transportation, delivery and fulfilment costs in relation to Covid-19
Commissioning – new facilities
Decommissioning – legacy facilities
Within administrative costs
Share-based payments
Restructuring costs
Impairment of assets within Experience, Luxury and OnDemand divisions
Impairment of certain intangible and tangible assets
associated with Software-as-a-service arrangements
Note
2021
£'000
26,628
16,384
-
2020
£'000
39,175
15,907
158
43,012
55,240
-
331,624
10,233
53,008
2,982
14,308
-
-
Impairment on assets held for sale, and sale and leaseback charges
-
105,138
Donations and other Covid-19 costs
Acquisitions – restructuring and integration
Acquisitions – legal and professional costs
Other legal and professional costs
Total adjusted items before finance costs
Within finance costs
1,090
5,328
12,225
1,350
86,216
11,108
5,736
2,529
1,655
472,098
129,228
527,338
Non-cash – revaluation of SBM option
14
601
-
Total adjusted Items before tax
Tax impact
Total adjusted items
129,829
527,338
11,901
3,784
141,730
531,122
236
Annual Report 2021
Notes to the consolidated financial statements (continued)
Transportation, delivery and fulfilment costs in relation to Covid-19
Decommissioning - legacy facilities
Covid-19 has had a direct and measurable impact on the Group’s cost to fulfil delivery of goods to customers across
its global network, through reduced commercial flights and closures of key shipping lanes. The additional cost to
complete these deliveries has been recognised as an adjusted item, and while there is uncertainty around the length
of disruption the pandemic will have on global supply chains, the Group does not consider this to be a recurring cost.
The costs incurred were as a result of the following:
•
In order to maintain the Group’s pre Covid-19 levels of customer experience, the Group had to address the
challenges caused by commercial flights being reduced during the pandemic to minimal levels. The Group
secured THG-exclusive chartered flights in order to be able to uphold its service levels, generating
an identifiable increase in costs versus non-exclusive passenger flights, which were used pre Covid-19.
• Our delivery partners passed on to the Group additional surcharges specifically identified on invoices as
a response to operating during the pandemic.
• Due to the impact of Covid-19, a number of key supply routes were disrupted or closed. This necessitated
identifying and sourcing alternative viable routes to fulfil the obligations on the Group to serve its customers,
which created identifiable external costs relating to alternative routes that had to be taken due to the impact of
Covid-19 on the Group’s courier and logistics providers ability to operate in the pandemic.
Commissioning – new facilities
The Group has embarked on a strategic project to transform the Group’s global infrastructure footprint and
capability, moving away from the smaller-sized facilities which were fit for purpose in the past, into larger purpose-
built distribution facilities to support the strategic objectives of the Group.
Under this project, the Group has commissioned a number of these purpose-built facilities over the years, including
a campus at Manchester Airport, UK (“Icon”) and New Jersey, US. Work on the Icon facility began in August 2020 and
is ongoing with an expected completion date of August 2022. The New Jersey project began in April 2021 and went
live in November 2021.
Due to the scale and complexity of these sites, commissioning of these facilities and integration into the Group’s
existing distribution network can span more than one accounting period, taking up to 18 months in total for a
specific site, a relatively short period compared to the useful economic life of the asset. During the commissioning
and integration period, costs relating to the set-up, integration and testing of the new facilities are included within
adjusted items as these costs are not expected to be recurring for each specific site and do not reflect the underlying
cost base of the Group. Such costs include:
• Additional costs are incurred relating to the period of testing and commissioning that is required to ensure
a facility is operating as expected. Such costs are non-underlying and therefore included within adjusting items.
• Costs relating to the migration of production operations and processes to the new sites as part of this expansion
of the fulfilment network include testing of new production processes and resolution of any commissioning
protocols required before production is fully operational.
• Bulk internal warehouse transfers from existing THG facilities are often required during the set up/commissioning
period for a new facility. These costs are non-underlying in nature.
• Additional shipping costs are incurred when the products within a single customer order is fulfilled by shipping
from two different warehouses, due to stock being split across two sites during the commissioning period for
a new facility. This results in duplicated postage costs on a single order.
The costs above are identified through internal processes and controls which isolate the impact of commissioning
new facilities. For some of these costs, the amounts included within adjusted items are calculated by taking the
excess costs per unit versus the normalised rate, which is set based on historical information or third-party data.
Further material charges are anticipated as the respective projects are completed, the quantum of which is subject
to change throughout the project as unforeseen events arise through to completion. Of the projects open as of year-
end, the material commissioning costs relate to the new warehouse facilities across the Group. The commissioning
costs remain ongoing and are expected to be completed in H1 of 2022. Although a cost in both 2020 and 2021,
it relates to different sites and therefore, is not deemed to be a recurring cost as these are costs incurred on new
sites in 2021.
As the Group’s larger purpose-built facilities have become fully operational, the Group has exited its legacy
warehouses swiftly to minimise excess capacity and cost. There is commonly a period of overlap of operations of
both a legacy warehouse and the new facility designed to replace it, and duplicated costs are recorded as adjusted
items as they do not reflect the underlying cost base of the Group.
The costs associated with the decommissioning and closure of these facilities, from the period they are deemed to
be surplus to the closure/exit date, are included within adjusted items. These costs are not expected to be recurring
however they can span accounting periods. There are no decommissioning costs in the current period.
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 and included within
adjusted items. Due to the nature of these schemes, they can run over multiple years and can be considered to be
recurring. The charge relating to share-based payments has been treated as an adjusting item as the underlying
driver for the share awards (e.g. the IPO) is also an adjusting item. There are no share-based payment charges in the
current period and any future charges will not be considered adjusting items.
Restructuring costs
In 2021 the Group committed to undertaking a review of its corporate structure as part of the intended separation of
its key business units. The Group incurred costs in relation to the divisional separation of £7.5m. This is expected to
be completed in H1 FY22 with costs being incurred until the end of FY22.
In 2020 the Group undertook a number of restructuring actions in order to prepare the Group for Admission onto
the London Stock Exchange. These actions were focused on simplification of the Group structure. The Group also
incurred costs in relation to the IPO listing in September 2020 which include legal and professional fees and listing
fees. The IPO related costs are material, non-recurring expenditure, as a result of the Group’s listing on the London
Stock Exchange and have therefore been presented within adjusted items.
Impairment
Impairment of assets within Experience, Luxury and OnDemand divisions
In May 2021, the Group set out its intention to commence a separation of its key business units within a timeframe of
fifteen calendar months. The separation, when complete, will involve the establishment of several subgroups of companies
to cover each business unit. At the date of signing the annual report, this exercise remains ongoing.
A one off, non-cash impairment of £53.0m has been recognised in respect of THG Experience, THG Luxury and THG
OnDemand business units. For THG Experience, this relates to sites within the portfolio which are under construction
at the year end. For THG Luxury and THG OnDemand this has arisen due to the recoverable amount being reviewed
at a more granular level than was previously possible following the commencement of the separation of the business
units. There were no impairments identified within THG Beauty, THG Nutrition and THG Ingenuity. See more
information within note 11.
Impairment of certain intangible and tangible assets associated with Software-as-a-Service arrangements
The Group hold various arrangements for SaaS solutions. Given the IFRIC agenda decision, the Group has chosen
to update its accounting treatment and policy for IAS 38 Intangible Assets accordingly.
We have determined that £3.0m of SaaS related costs no longer meet the criteria for recognition as an asset under
IAS 38. Accordingly, this amount has been expensed in full and has been disclosed as an adjusting item because
it arises from the one-off introduction of interpretations to accounting guidance.
237
238
Annual Report 2021 Notes to the consolidated financial statements (continued)
Impairment on assets held for sale and sale and leaseback charges
Acquisitions – legal and professional costs
The Group periodically considers and analyses potential acquisition targets and recognises there is inherent
complexity and risk associated with acquisitions. The Group manages this by employing external professional
advisors to perform legal, financial, commercial and tax due diligence on targets. These costs relate to opportunities
the Group identifies and pursues, of which a portion result in successful acquisitions by the Group. Such legal and
professional costs are classified as adjusting items as they relate to significant strategic transactions and, except for
the transactions in question, the business would not have incurred these costs and as a result these costs are deemed
to be non-recurring costs that do not relate to the underlying trading operations of the business.
Other legal and professional costs
The Group incurs legal and professional costs that are non-recurring, one-off in nature and not related to trading
activities. These costs are included as adjusted items and can include, but are not limited to, costs associated with
equity raises that occurred before the IPO, and other fees associated with investor activities.
Non-cash – revaluation of SBM option
In 2021, the Group has recognised a £0.6m charge in relation to the valuation of the call option entered into with
SBM, that allows them to invest directly into a 19.9% stake in THG Ingenuity for $1.6bn. This implies a value of $6.3bn
(£4.5bn) for THG Ingenuity. This is a derivative instrument, an option that holds value for SBM and consequently falls
under the provisions of IFRS 9 “Financial Instruments”. The liability represents the difference between the fair value of
the call option today, and its value at grant date. Given the upside opportunity for SBM and the value in the derivative,
the option represents an asset to SBM and a liability on the Group’s balance sheet. This is a qualitatively material, non-
recurring transaction and thus the valuation effects of this option have been presented as an adjusted item.
In the prior year Impairments of £64.5m were recognised. As the Covid-19 lockdown in the UK significantly
impacted the hospitality and leisure sector, management reviewed both the value-in-use and the market
value of King Street Hotel and Great John Street Hotel. Within 2020, a £29.4m impairment loss was
recognised in respect of these hotels. This is a non-cash charge that will not recur. Following this, these
hotels and a number of the Group’s freehold properties were being marketed for sale. These properties
were required to be treated as held for sale assets in line with IFRS 5 ‘Non-current assets held for sale
and discontinued operations’. As a result of this, the Group recognised an impairment for the difference
between the fair value of the assets held for sale and their historic carrying value.
The need for the impairment was driven by construction obligations to complete the build of some
properties to the required specification, resulting in a £35.1m impairment. Subsequently all these assets
were disposed of on 11 September 2020 as part of the Propco divestment. The remainder of the charge
relates to sale and leaseback transactions. This reflects a reduction in the right-of-use asset held in
accordance with IFRS 16 and is driven by the derecognition of freehold assets, that have been replaced
with leases which have a shorter useful economic life. These were non-cash one-off impairment charges on
these properties.
There have not been any such impairments in 2021.
Donations and other Covid-19 related costs
As part of its Covid-19 response, the Group made several charitable donations, totalling £1.1m for the year
ended 31 December 2021. In 2020, £6.6m including £1.0m in cash were donated to Manchester charities,
with the remainder relating to additional costs incurred as part of making the business Covid-19 secure
(temperature sensors, PPE etc) for its people and customers. This is expected to be non-recurring.
Acquisitions – restructuring and integration
Where the Group completes acquisitions, it derives value by achieving synergies in the post-acquisition
period by restructuring the acquired businesses and integrating them into the Group. During this
restructuring and integration phase there are a number of non-recurring costs incurred by the Group
as the businesses which are classified as adjusted items. These costs include, but are not limited to:
• Duplicated costs whilst the integration plan is executed. These often relate to termination of
pre-acquisition agreements that were in place and exit costs associated (such as closure of old
facilities or head offices).
• As part of the integration plan itself, additional non-recurring costs may be incurred which do not
relate to the underlying trading operations of the Group, including, but are not limited to, system
integration testing and validation, costs of moving equipment to new sites and department relocation
or set-up costs.
• Costs of staff exiting the business, including redundancy costs, earnouts or bonus payments relating
to the integration plan. Integration plans can often result in moving offices geographically, a change
in management structure or redefining the roles and needs of departments or individuals. As a result,
some employee redundancy costs are incurred. Payments are also made to employees for successful
delivery of integration plans.
Depending on the size and nature of the acquisition and the complexity of the integration plan,
acquisition restructuring and integration costs can be incurred for up to 12 months post acquisition.
239
240
Annual Report 2021 Notes to the consolidated financial statements (continued)
5. Auditors’ remuneration
Fees in respect of the audit of the Consolidated and Parent Company Financial Statements
Other audit fees, principally in respect of audits of accounts of subsidiaries
Total audit fees
Other services:
- non-audit advisory services relating to Admission
- other assurance services*
Total non-audit services
Total fees
2021
£'000
2,150
150
2,300
-
100
100
2,400
2020
£'000
656
95
751
1,372
38
1,410
2,161
*Fees in respect of other assurance services relate to interim procedures in accordance with International Standard for Review Engagements
(UK and Ireland) 2140.
The average number of employees (including executive directors) during the year was:
Retail
Administration
Distribution
Information technology
2021
Number
3,023
1,285
3,555
744
8,607
2020
Number
1,904
1,170
2,386
623
6,083
6. Employee costs and Directors’ remuneration
7. Share-based payments
Wages and salaries
Social security costs
Pension costs
Share-based payments
Note
2021
£'000
2020
£'000
270,063
184,254
27,615
7,606
18,856
3,509
7
-
331,624
305,284
538,243
The aggregate amount of employee costs included above that have been capitalised within platform development costs was £44.4m (2020: £35.3m).
The costs incurred in respect of the Executive Directors, who are regarded as the only key management personnel, were as follows:
Short-term employee benefits
Share-based payments
Details of the Directors’ share-based payments are included in note 27.
No retirement benefits are accruing to any of the Directors at 31 December 2021 (2020: nil).
Note
7
2021
£'000
53
-
53
2020
£'000
2,542
293,604
296,146
The Group has previously operated share-based compensation plans. Due to the strong performance of the Group
stock on the London Stock Exchange post IPO, all the share schemes detailed below vested in full during 2020. There
are no active schemes as at 31 December 2021. Prior to vesting, at each balance sheet date, the Group revised its
estimate of the number of options and shares expected to vest upon the satisfied completion of the specific vesting
conditions and the vesting period.
The fair value of the employee services received in exchange for the grant of the equity instruments was recognised
as an expense in adjusted items in 2020. All the share-based compensation plans were equity-settled and valued
by a Monte Carlo simulation.
The details of these plans are given below:
2017 growth share scheme – E ordinary shares: A Long-term Incentive Plan (LTIP) was introduced during 2018. Under
this scheme, the Group issued equity settled management shares. The scheme was only exercisable on an exit (non-
market condition), and had EPS targets based on adjusted EBITDA (non-market performance condition), had an exit
hurdle price (market condition). The scheme had a service condition requiring employees to remain in employment
for three years from grant until the date each of the EBITDA targets is met. In 2020, these shares vested fully,
triggered by the IPO.
A new scheme, across three new share classes, was issued in 2020 prior to the IPO, subject to a post IPO market
capitalisation hurdle of £6.5bn rising to £7.25bn. In 2020, the scheme shares fully vested, triggered by share price
increases achieved after the IPO.
F ordinary shares: under this scheme, the Group issued equity-settled management shares. The scheme runs over
3 years to 2022, vesting equally across those three years as EBITDA targets are met. The scheme also contained a
hurdle that vested all the shares in the event of an IPO that attained a market capitalisation of greater than £5.25bn.
G ordinary shares: this scheme represents equity- settled management shares that vest over a 3-year period to 2022
based on market capitalisation targets, starting at 75% vested at a market capitalisation of £6.5bn, and further vesting
in 8.3% increments each £0.25bn of further market capitalisation.
H ordinary shares: this scheme represents equity settled management shares, that vest based on the £6.5bn market
capitalisation hurdle noted above.
241
242
Annual Report 2021 8. Finance income and cost
Finance income
Bank interest receivable
Derivative financial instrument
Finance cost
Bank interest payable and charges
Interest on lease liabilities
Revaluation of SBM option
9.
Income tax
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
Total income tax credit
Notes to the consolidated financial statements (continued)
2021
£'000
323
300
623
36,496
12,350
601
2020
£'000
205
-
205
48,491
4,521
-
49,447
53,012
2021
£'000
10,057
4,349
14,406
2020
£'000
8,566
390
8,956
Note
(50,116)
(14,590)
795
(13,298)
(1,768)
5,392
21
(62,619)
(10,966)
(48,213)
(2,010)
The standard rate of corporation tax in the UK is 19%. The effective tax rate is 25.88% (2020: 0.4%), based on
a total tax credit of £48.2m (2020: £2.0m). The effective tax rate differs from the average statutory rate of 19%.
This is primarily due to a movement in deferred tax not recognised (13.3%), the impact of the UK corporation tax
rate change from 19% to 25% on deferred tax (7.14%), and expenses not deductible (-11.33%). The non-deductible
expenses principally comprise exceptional costs associated with acquisitions.
The business combinations in the year give rise to a deferred tax liability in respect of intangible assets recognised
on consolidation of £140.5m. At the balance sheet date the total deferred tax liability in respect of intangible assets
recognised on consolidation of £151.6m. As a result, all potential deferred tax assets arising in the year or previously
unrecognised are fully recognised at the balance sheet date. This deferred tax asset recognition has a material
impact on the P&L tax credit, and is the primary reason for the effective tax rate exceeding the statutory rate.
The P&L tax credit is a non-cash item.
10. Business combinations
Details of the acquisitions are as follows:
Business
Country of
incorporation
Nature
of activity
Date of
acquisition
Consideration
£’000
Percentage
ownership
Dermstore
USA
Professional skincare
production and online retailing
2 February 2021
260,898
100%
Indigo Environmental
England and Wales
Recycling provider
3 March 2021
6,316 a
100%
Arrow Films
England and Wales
Motion picture
distribution activities
5 March 2021
18,490 b
100%
More Trees
England and Wales
Tree planting
1 April 2021
3,227 c
100%
Private Label
Nutrition
England and Wales
Vitamin, mineral and
supplement manufacturer
16 April 2021
2,667
100%
The effective tax rate is 25.88% (2020: 0.4%) and is explained below:
Preston Plastics
England and Wales
Recycling provider
27 April 2021
18,881 d
100%
Loss before tax
Tax at statutory rate of 19% (2020: 19%)
Tax effects of:
Adjustments in respect of prior year
Non-qualifying depreciation
Expenses not deductible/non-taxable income
Share-based payment charge
State taxes
Effect of higher tax rates in other jurisdictions
Recognition of previously unrecognised losses/unrecognised in year
Effect of change in tax rate
2021
£'000
2020
£'000
(186,287)
(534,639)
(35,395)
(101,581)
Brighter Foods
England and Wales
Bentley Laboratories
USA
Manufacturing and
developing cold-pressed
and cold form snack bars
Prestige skincare and
haircare manufacturing
11 May 2021
43,800 e
100%
15 June 2021
179,956
100%
5,144
(1,379)
Cult Beauty
England and Wales
Online beauty retailer
03 August 2021
291,302
100%
-
20,387
-
(869)
1,943
(26,126)
(13,297)
(48,213)
-
28,715
63,009
-
474
3,381
5,371
(2,010)
a.
Includes £1.8m of contingent consideration dependent upon performance targets post acquisition.
b.
Includes £3.0m of contingent consideration dependent upon performance targets post acquisition.
c.
Includes £2.7m of contingent consideration dependent upon performance targets post acquisition.
d.
Includes £6.0m of contingent consideration dependent upon performance targets post acquisition.
e.
Includes £1.2m of contingent consideration dependent upon performance targets post acquisition.
The Group also paid £0.6m on 28 July 2021 for the trade and certain assets of Morvélo, a retailer of cycling clothing.
243
244
Annual Report 2021 Notes to the consolidated financial statements (continued)
Reason for business combination
Dermstore, Cult Beauty and Bentley Laboratories expand THG’s presence in the beauty sector with globally recognised
brands, including in the US market and also provide in-house skincare and haircare new product development
capabilities and manufacturing.
Brighter Foods and Private Label Nutrition enhance THG’s vertical integration strategy with the production and retail of
bars, vitamins, minerals and supplements and will accelerate future development in this area.
Indigo Environmental, Preston Plastics and More Trees form part of THG Eco and are part of THG’s strategy to offset
THG’s existing usage and footprint and to enhance THG’s processing capabilities to provide sustainability solutions and
consulting to THG’s suppliers, partners and customers.
Arrow Films will facilitate THG’s vertical integration of retail and wholesale physical film content as well as providing
digital opportunities and growth potential in this area.
Contingent consideration
The contingent consideration arrangements require the Group to pay the former owners based on performance targets
post acquisition. The potential undiscounted amount of all future payments that the Group could be required
to make under the contingent consideration arrangements is between £nil and £19.3m. The performance targets are based
on EBITDA or revenue.
The fair value of the contingent consideration arrangements of £14.7m was estimated by applying the probability
of the hurdles being reached. The fair value estimates are based on an assumed probability of 76%.
The following intangible assets were recognised at acquisition:
Dermstore
Indigo
Environmental
Arrow
Films
More
Trees
Private
Label
Nutrition
Preston
Plastics
Brighter
Foods
Bentley
Laboratories
Cult Beauty
Total
The provisional fair values of the assets and liabilities and the associated goodwill arising from the acquisitions
are as follows:
Dermstore
Indigo
Environmental
Arrow Films More Trees
Private Label
Nutrition
Preston
Plastics
Brighter
Foods
Bentley
Laboratories
Cult Beauty
Total
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Intangible
assets
Property,
plant and
equipment
Right-of-
use asset
216,949
673
8,700
-
1,439
50
3,969
1,191
136
Inventories
18,016
275
811
1,558
1,294
2,086
-
-
-
-
-
1,229
3,084
25,900
49,122
252,702
558,359
598
3,462
5,045
5,301
1,078
16,973
392
508
44
93
60
14,986
4,459
25,237
2,695
14,840
14,592
51,830
131
1,471
1,378
10,746
3,773
22,437
9,698
572
7,479
11
477
178
2,646
703
20,595
42,359
(18,819)
(1,107)
(5,178)
(32)
(611)
(520)
(2,652)
(9,703)
(27,263)
(65,885)
(3,670)
(672)
(113)
-
-
-
(320)
(44)
-
(14,263)
(3,806)
(22,888)
(72)
-
(60)
(723)
(654)
(2,348)
(290)
(1,149)
(6,630)
504
(62,757)
(129,938)
Trade
and other
receivables
Cash
and cash
equivalents
Trade
and other
payables
Lease
liabilities
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Provisions
(298)
(519)
(22)
228
488
1,200
19,989
252,702
494,736
Deferred tax
(57,142)
(396)
(2,078)
Intangible
assets - brands
Intangible assets
– customer lists
Intangibles
– other
intellectual
property
216,949
180
3,000
-
-
493
5,700
-
-
Deferred tax
(56,407)
(156)
(2,078)
Total fair value
on acquisition
160,542
517
6,622
-
-
-
-
-
1,001
2,596
24,700
26,014
-
-
-
3,119
-
-
60,504
3,119
(290)
(731)
(6,315)
(12,771)
(61,744)
(140,492)
939
2,353
19,585
36,351
190,958
417,867
Net assets
acquired
170,261
2,750
11,871
(21)
2,042
6,619
28,382
71,513
202,719
496,136
Goodwill
90,637
3,566
6,619
3,248
625
12,262
15,418
108,443
88,583
329,401
Purchase
consideration
Transactions
costs
260,898
6,316
18,490
3,227
2,667
18,881
43,800
179,956
291,302
825,537
2,430
237
336
182
198
547
781
1,245
3,518
9,474
The amounts recognised in respect of the fair value of identifiable assets acquired and liabilities assumed
are as set out in the next table. The exercise to determine the fair value of the acquired assets and liabilities
is complete, however this will continue to be reviewed within the 12-month post acquisition measurement
period and therefore remains provisional at the date of approval of these financial statements.
Purchase consideration in total was £825.5m, which comprised of cash totalling £810.8m plus contingent
consideration totalling £14.7m.
Transactions costs comprise mainly of advisor fees, financial, tax and due diligence costs and these are included in
acquisition - legal and professional costs in adjusted items in note 4.
245
246
Annual Report 2021 Notes to the consolidated financial statements (continued)
Goodwill
11.
Intangible assets
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 platform. This will support existing operations. In the case of Bentley
Laboratories, includes the expertise and skillset of the workforce which will lead to a further enhancement of our presence
in the divisions in which the Group operate. Bentley has an industry-leading research and development team of 25 who
are at the forefront of its clients’ innovation strategies, with over 650 unique formulations and over 700 new product
launches since 2017. The Goodwill for Cult Beauty and Dermstore also includes a significant amount for the expertise
and skillset of the workforce, reflecting the existence of a well-trained, organised and efficient workforce of over 200
people for Cult Beauty and approximately 100 for Dermstore. The Goodwill for all acquisitions apart from Bentley
Laboratories is not deductible for tax purposes.
Cash flows arising from the acquisitions were as follows:
Goodwill
Platform
development costs
Intellectual
property
Brands
New product
development
Total
£’000
£’000
£’000
£’000
£’000
£’000
Cost or valuation
At 1 January 2020
370,684
Additions
Business combinations (note 10)
Currency translation
differences
1,115
51,827
(1,942)
139,937
39,917
-
(112)
93,168
21,857
32,884
(1,160)
103,214
743
6,544
(331)
2,576
2,189
-
-
709,579
65,821
91,255
(3,545)
Dermstore
Indigo
Environmental
Arrow Films
More Trees
Private Label
Nutrition
Preston
Plastics
Brighter
Foods
Bentley
Laboratories
Cult Beauty
Total
At 31 December 2020
421,684
179,742
146,749
110,170
4,765
863,110
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£000
260,898
6,316
18,490
3,227
2,667
18,881
43,800
179,956
291,302
825,537
-
(1,750)
(3,000)
(2,738)
-
(6,000)
(1,200)
-
-
(14,688)
(9,698)
(572)
(7,479)
(11)
(477)
(178)
(2,646)
(703)
(20,595)
(42,359)
251,200
3,994
8,011
478
2,190
12,703
39,954
179,253
270,707 768,490
Purchase
consideration
Contingent
consideration
Cash
and cash
equivalents
acquired
Net cash
flows
Amounts of revenue and profit before tax (PBT) of the acquirees since the acquisition date included in the
consolidated statement of comprehensive income for the reporting period, and the revenue and PBT of the
combined entities for the current reporting period as though the acquisition date for all business combinations
that occurred during the year had been acquired at the beginning of the annual reporting period are as follows:
£’000
Dermstore
Arrow
THG Eco*
Private Label Nutrition
Brighter Foods
Bently Labs
Cult Beauty
Revenue contributed
in year of acquisition
Full year revenue in
year of acquisition
148,672
14,149
8,693
1,809
10,877
32,000
71,923
160,601
16,275
10,869
2,877
17,755
57,780
174,169
*THG Eco includes More Trees, Preston Plastics and Indigo Environmental.
The profit before tax contributed in the year of acquisition and in the full year of acquisition has not been disclosed.
Following acquisition, the entities are fully integrated into THG utilising the Shared Service Centre, operating platform
and supply chain. As such the profit before tax metric information is not readily available at this level.
During 2021, the Group has concluded on the fair value of the net assets in respect of acquisitions completed
in 2020, resulting in a decrease of £0.7m in net assets and a corresponding increase in goodwill.
At 1 January 2021
Additions
Business combinations
(note 10)
Transfers
Disposals
Currency translation
differences
At 31 December 2021
Accumulated amortisation
At 1 January 2020
Amortisation (note 3)
Currency translation differences
At 31 December 2020
At 1 January 2021
Amortisation (note 3)
Transfers
Impairment loss
Disposals
Currency translation differences
421,684
78
329,401
-
-
3,919
755,082
270
-
-
270
270
-
-
33,359
-
-
179,742
47,587
146,749
24,135
110,170
2,559
4,765
3,710
863,110
78,069
-
63,623
494,736
(6,919)
(1,611)
1,474
(41,249)
28
2,858
(1,474)
(566)
1,933
-
195
-
1
887,760
(6,724)
(43,426)
8,739
218,827
197,590
607,358
8,671
1,787,528
75,265
28,451
(276)
103,440
103,440
36,894
(3,438)
1,759
(1,568)
(4)
44,092
18,309
(780)
61,621
61,621
35,921
-
4,637
(41,249)
420
12,521
9,745
(145)
22,121
22,121
24,682
-
-
(566)
36
631
734
-
1,365
1,365
1,536
-
-
-
-
132,779
57,239
(1,201)
188,817
188,817
99,033
(3,438)
39,755
(43,383)
452
At 31 December 2021
33,629
137,083
61,350
46,273
2,901
281,236
NBV
At 1 January 2020
At 31 December 2020
At 31 December 2021
370,414
421,414
721,453
64,672
76,302
49,076
85,128
90,693
88,049
1,945
3,400
576,800
674,293
81,744
136,240
561,085
5,770
1,506,292
Included within Intellectual property is £3.3m (2020: £2.5m) of capitalised costs incurred to obtain a contract with
a customer. The costs relate to sales commissions paid to sales personnel upon initial acquisition of a customer
contract. Amortisation of £0.6m (2020: £0.3m) was recognised in the period in relation to these assets.
247
248
Annual Report 2021 Notes to the consolidated financial statements (continued)
Impairment tests for goodwill and other intangible assets
THG Luxury and THG OnDemand
An impairment charge of £21.6m has been recognised specifically related to assets allocated to the THG OnDemand
and THG Luxury business units. This has arisen largely due to reviewing the recoverable amount of these business
units at a more granular level than was previously possible following the commencement of the Group separation
exercise. The assets that have been impaired related to legacy goodwill and other intangibles arising on acquisitions.
At 31 December 2021, the recoverable amount of THG OnDemand is c.£16m based on fair value less costs to sell.
The recoverable amount of THG Luxury is c.£1m based on the value in use. Fair value less costs to sell are valued
using Level 2 fair value hierarchy inputs based on quoted prices on an active market. The acquisition of Arrow films,
that was completed in 2021 provides a reliable input. The consideration for this acquisition was £18.5m (note 10). Any
further decline in anticipated cashflows is not expected to lead to additional impairment due to the residual carrying
values which are based on the recoverable amounts of the assets.
The value in use is determined in line with accounting policies as required by IAS 36.
The impairment charge is recorded within administrative expenses and adjusting items within the consolidated
income statement.
The company expects to be able to determine the cashflows for the other business units over the remainder of 2022
to allow separate reporting as CGUs of THG Beauty, THG Ingenuity and THG Nutrition. From the analysis performed
to date it is clear that substantial intangible assets will be allocated to THG Beauty due to the recent acquisitions
within this division. Intangible assets are expected to be in the region of c.£1,100m for THG Beauty and c.£190m for
THG Ingenuity. Due to the recent acquisitions, THG Beauty is expected to have significantly less headroom than THG
Nutrition. THG Ingenuity will include capitalised platform costs and intangible assets from new acquisitions, including
THG Eco. Achieving the growth plans of THG Ingenuity will be important to maintain headroom as will continued
organic growth in line with previous year’s performances for THG Beauty.
Sensitivity analysis for THG Beauty, THG Nutrition and THG Ingenuity is not possible at this time due to the need to
finalise the separation of the cashflows, balance sheets and income for each standalone division. The finalisation of
the separation of these divisions is not expected to result in any further impairment.
Goodwill and intangible assets that have an indefinite useful life are subject to annual impairment testing, or more frequent
testing if there are indications of impairment.
Intangible assets and goodwill are reviewed by assessing the appropriate cash generating units (“CGUs”) annually,
which are identified based on the smallest identifiable group of assets that generate cash inflows largely
independently in relation to the specific intangible assets.
In May 2021, the Group set out the intention to commence a separation of THG’s key business units within a
timeframe of fifteen calendar months as discussed in the CEO report on page 3. The group has made good progress
towards the separation which will create distinct legal entities and enable cashflows to be identified for each of
six business units being THG Beauty, THG Nutrition, THG Ingenuity, THG OnDemand, THG Experience and THG
Luxury. Whilst good progress has been made, insufficient clarity of cashflows existed at the year end and at the date
of signing these accounts to enable robust cashflow forecasts to be produced for each proposed business unit. This
is largely due to the interconnectivity of the cashflows and reliance on intra group services between the divisions
of THG Beauty, THG Ingenuity and THG Nutrition. Whilst the remaining divisions are not completely separate as
of today’s date, it is clear that for two of the divisions, being THG OnDemand and THG Luxury, future losses are
forecastable regardless of the finalisation of intra-Group charges. As such the Group has reviewed the carrying
value of assets allocated to those newly separated CGUs, including those acquired in related business acquisitions
operating in those divisions. The assets associated to these CGUs, including goodwill have been identified according
to the businesses which generate cash inflows within each unit. This did not lead to any judgemental allocations.
An impairment charge has also arisen within the pre-existing THG Experience CGU.
THG Retailing and Commerce CGU (Net book value of goodwill totalling £721.5m (2020: £405.0m) and brands £nil (2020:
£5.5m) with indefinite lives).
The value in use calculation uses cash flow projections from financial budgets approved by the Board covering a five-year
period. The post-tax discount rate applied to cash flow projections is 9.1% (2020: 9.3%) and cash flows beyond the five-year
period are extrapolated using a 2.4% growth rate (2020: 2.0%) which is based on the long term growth rate across the
industries that the Group operate in for retailing and commerce.
Based on current cashflows, no impairment of the THG Retailing and Commerce CGU is expected but there are plausible
downside risks to the forecasts including if there was a reduction in the margin of 1.7% or an increase in discount rate
of 2.5% the value in use headroom would be eliminated. Revenue would need to decline by more than 16.8% for the
recoverable amount to be less than the carrying value which is not considered reasonably plausible.
Impairment charge
THG Experience CGU (Net book value of goodwill totalling £nil (2020: £16.4m) with indefinite lives).
An impairment charge of £31.4m has been recognised within the THG Experience CGU. The impairment is largely driven
from the re-prioritisation of capital spend being directed toward the fulfilment network across the Group. This has led to
some of the smaller sites within the Experience portfolio being under construction at the year end and work being paused.
As such an impairment has been recognised against these assets (Plant, property and machinery (note 12), right-of-use-
assets (note 22) and goodwill (note 11). We will assess in future periods whether there is any indication that any of this
impairment loss should be reversed. This may be the case once the work has been completed and the facilities reopen.
However, the impairment loss recognised against goodwill will not be reversed. Hale Country Club and Spa and King
Street Town House remain fully operational.
Any further decline in anticipated cashflows is not expected to lead to additional impairment due to the residual carrying
values which are based on the recoverable amounts of the assets. At 31 December 2021, the recoverable amount of the
CGU is £50m determined on a value in use calculation using cash flow projections from financial budgets approved by the
Board covering a five-year period and the fair value less costs to sell for specified assets. The post-tax discount rate applied
to cash flow projections is 9.7% (2020: 9.3%) and cash flows beyond the five -year period are extrapolated using a 2.0%
growth rate (2020: 2.0%) which is based on the long term growth rate for the UK experience industry. Fair value less costs
to sell are valued using Level 2 fair value hierarchy inputs based on quoted prices in an active market.The value in use is
determined in line with accounting policies as required by IAS 36.
The impairment charge is recorded within administrative expenses and adjusting items within the consolidated
income statement.
249
250
Annual Report 2021
2021
£'000
378,605
80,542
7,634
466,781
2020
£'000
247,841
46,554
8,283
302,678
Notes to the consolidated financial statements (continued)
12. Property, plant and equipment
13.
Inventories
Motor
vehicles
Plant and
machinery
Fixtures
and fittings
Computer
equipment
and software
Freehold
buildings
Total
£’000
£’000
£’000
£’000
£’000
£’000
68,136
13,609
25
(1,257)
220,225
161,653
20
1,204
441,789
216,955
1,597
(596)
(13,571)
(279,351)
(342,482)
Goods held for resale
Raw materials
Goods in transit
Cost
Cost At 1 January 2020
Additions
Business combinations
Currency translation differences
Disposals
At 31 December 2020
At 1 January 2021
Additions
Business combinations
Transfers
Currency translation differences
Disposals
2,510
320
-
-
(775)
2,055
2,055
119
213
-
(1)
(54)
79,702
27,860
1,383
(374)
(38,491)
70,080
70,080
45,277
11,877
-
(541)
(245)
71,216
13,513
169
(169)
(10,294)
74,435
74,435
36,125
765
-
(859)
66,942
66,942
28,667
738
6,722
(44)
103,751
317,263
103,751
317,263
15,991
3,380
-
131
(250)
126,179
16,973
6,722
(1,314)
(6,116)
Goods in transit relate to goods whose control is still to be transferred to the customers as of the reporting date.
The cost of inventories recognised as an expense and included in cost of sales amounted to £891.2m (2020:
£884.0m). The value of inventories written down and recognised as an expense in the statement of comprehensive
income in the year was £7.6m (2020: £3.3m). Within goods held for resale is a £3.0m (2020: £2.6m) right to recover
asset which represents the carrying value of inventory expected to be received back from customers as returns.
(3,016)
(2,551)
At 31 December 2021
2,332
126,448
107,450
100,474
123,003
459,707
Accumulated depreciation
At 1 January 2020
Depreciation (note 3)
Impairment
Currency translation differences
Disposals
At 31 December 2020
At 1 January 2021
Depreciation (note 3)
Impairment
Transfers
Currency translation differences
Disposals
At 31 December 2021
NBV
At 1 January 2020
At 31 December 2020
At 31 December 2021
1,430
317
-
-
(652)
1,095
1,095
250
-
-
-
(54)
1,291
1,080
960
1,041
32,436
13,552
-
(152)
(36,798)
9,038
9,038
11,623
5,533
-
242
(251)
19,878
7,803
-
(125)
(7,114)
20,442
20,442
6,833
2,555
-
(147)
(1,344)
26,185
28,339
24,294
8,466
-
(1,009)
(13,273)
18,478
18,478
17,174
1,224
3,438
26
(2,330)
38,010
8,052
3,675
29,367
2
(13,107)
27,989
27,989
2,389
67
-
67
(250)
86,090
33,813
29,367
(1,284)
(70,944)
77,042
77,042
38,269
9,379
3,438
188
(4,229)
30,262
124,087
47,266
61,042
51,338
53,993
43,842
48,464
100,263
79,111
62,464
212,173
75,762
92,741
355,699
240,221
335,620
Included within Freehold buildings is an asset with a NBV of £44.1m that has been reclassified post year end as an asset held for sale under IFRS 5.
The asset is no longer required by the Group for its original intended purpose. The Group are in advanced discussions with a prospective buyer and
the sale is expected to complete by the end of Q2 2022. This has not led to any adjustments to the net book value of the asset at 31 December 2021.
14. Financial assets and liabilities
Assets as per balance sheet – financial assets
Trade and other receivables excluding non-financial assets
Cash and cash equivalents
Investments
Assets as per balance sheet – held at fair value through OCI
Derivative financial instruments designated as hedging instruments
Derivative financial instruments held at fair value through profit and loss
Note
2021
2020
£'000
£'000
15
16
157,345
147,211
536,827
773,581
1,400
-
2,400
15,849
300
-
698,272
936,641
251
252
Annual Report 2021 Notes to the consolidated financial statements (continued)
Liabilities as per balance sheet – other financial liabilities at amortised cost
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
Liquidity risk
Bank borrowings
Lease liabilities
Trade and other payables excluding non-financial liabilities
Liabilities as per balance sheet – other financial liabilities at fair value
Derivative financial instruments designated as hedging instruments
Derivative financial instruments held at fair value through profit and loss
Derivative financial instruments designated as hedging instruments
FX forwards hedging foreign exchange risk on borrowings
Interest rate swaps
FX forwards hedging foreign exchange risk on highly probable future cash flows
18
22
17
489,865
526,159
349,173
236,185
645,712
478,603
21,342
2,563
601
-
1,506,693
1,243,510
(21,342)
13,405
621
(2,563)
1,779
2,444
(18,942)
13,286
Financial instruments included within current assets and liabilities, excluding borrowings, are generally short-term
in nature and accordingly their fair values approximate to their book values. Bank borrowings are initially recorded
at fair value net of direct issue costs. The derivative financial instruments designated as hedging instruments have
been recognised at fair value through Other Comprehensive Income. Hedging instruments used are measured based on
observable inputs and have been classified at Level 2 hierarchy level in line with IFRS 13 ‘Fair Value Measurement’.
Derivative financial instruments held at fair value through profit and loss relate solely to the option to invest in THG
Ingenuity held by SBM, announced on the 10 May 2021. This allows an investment of c.$1.6bn for a 19.9% of THG
Ingenuity equity once THG Ingenuity has been separated into an investable entity.
The derivative is recognised at fair value and has been valued based on a Black-Scholes model and has been classified
as Level 3. The inputs used are the valuation of THG Ingenuity using an appropriate valuation method and the expected
date and likelihood of option exercise. Fair value movements on the option have been recognised within finance costs
reflecting the nature of the liability.
The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the foreign
exchange, interest rate, and cash flow contracts are identical to the hedged risk components. To test the hedge
effectiveness, the Group uses the hypothetical derivative method and compares the changes in the fair value of the
hedging instruments against the changes in fair value of the hedged items attributable to the hedged risks. All the
hedging activities and derivatives are established to be effective. The changes in counterparty credit risk had no
material effect on the hedge effectiveness assessment for derivatives.
2021
Notional
Impact on OCI *
Derivatives hedging foreign exchange risk on borrowings
Derivatives hedging interest rate risk on borrowings
€600,000,000
€600,000,000
Derivatives hedging foreign exchange risk on future cash flows
£71,673,366
* Note impact on OCI is shown net of deferred tax.
253
£'000
(8,755)
(2,388)
499
Recycled through
statement of
comprehensive
income
£'000
(46,420)
859
(10,543)
The Group regularly forecasts cash flows and maintains an appropriate balance of cash and debt facilities to ensure
that sufficient funds are available to cover future expenses and capital expenditure. The Group held €600m notional
of forward contracts expiring in December 2022 and €600m notional of interest swaps expiring December 2022 through
to December 2026. Maturity of the Group’s all derivative and non-derivative financial liabilities are given below.
31 December 2021:
Bank borrowings
Lease liabilities
Trade payables
Carrying
amount
£'000
489,865
349,173
645,712
Total
£'000
502,962
499,770
645,712
Derivative financial liabilities
21,943
21,943
31 December 2020:
Bank borrowings
Lease liabilities
Trade payables
Derivative financial liabilities
526,159
236,185
478,603
2,563
543,139
370,672
478,603
2,563
Less than
3 months
£'000
-
10,653
615,748
-
-
7,009
460,858
-
Contractual amount
3 to 12
months
£'000
752
32,112
29,964
21,943
1,871
21,902
17,745
-
1 to 2 years
2 to 5 years
More than
5 years
£'000
£'000
£'000
-
39,353
502,210
105,567
-
312,085
-
-
-
-
-
-
27,010
68,743
-
241
-
702
-
-
541,268
246,008
-
1,620
The fair value of bank borrowings at 31 December 2021 was £503.3m (2020: £542.5m). The fair value is equal to the
carrying value.
Foreign currency risk
The Group trades internationally and is exposed to exchange rate risk on purchases (Euro, US dollars, and Polish
Zloty) and sales (primarily in Euro and US dollars). The Group’s results are presented in Sterling and are thus exposed
to exchange rate risk on translation of foreign currency assets and liabilities.
The Group’s approach to managing foreign exchange risk is to designate cash flow hedges across a combination of
forwards, swap agreements and spot transactions, whose fair value is based on the observable market value of the
respective instrument, taking into account interest rates, foreign exchange rates and market volatility at the balance
sheet date.
The Group is also exposed to EUR:GBP exchange rate risk on a €600m loan within the Group and mitigates this risk
through the use of hedging instruments such as FX forward contracts. As at 31 December 2021, the Group held €600m
notional of forward contracts expiring in December 2022.
The Group’s foreign exchange exposure is predominantly Euro, US Dollars and Polish Zloty. If the closing exchange rate
was 5% higher/lower, the Group’s statement of Comprehensive Income and Equity would be impacted as follows:
Change in foreign exchange
rate
Effect on change
in EUR rate *
Effect on change
in USD rate
Effect on change
in PLN rate
+5%
-5%
+5%
-5%
£'000
20
(22)
43
(47)
£'000
4,554
(5,034)
151
(167)
£'000
1,832
(2,025)
1,708
(1,887)
2021
2021
2020
2020
* If the closing exchange rate was 5% higher/lower, the impact on Group equity would be £11.7m reflecting the impact of the derivative hedges
associated with the €600m term loan B.
254
Annual Report 2021 Notes to the consolidated financial statements (continued)
Interest rate risk
At 31 December 2021 the ageing of trade receivables was as follows:
The Group is exposed to EURIBOR and SONIA through its loan facilities and has entered into a series of interest
rate swap agreements to mitigate this risk. As of 31 December 2021, the Group held €600m expiring December 2022
through to December 2026. Interest rate sensitivity is summarised in note 18. The Group’s financial risks are detailed
on page 109-116 in this Annual Report.
Changes in liabilities arising from financing activities
The changes in liabilities arising from financing activities are presented below:
Not due
0 to 3 months overdue
3 to 6 months overdue
1 January 2021
Cash flows
New leases
Disposals
Foreign exchange
movement
Other
31 December
2021
The movement in the loss allowance of trade receivables was as follows:
Borrowings
Lease liabilities
Total liabilities from
financing activities
Borrowings
Lease liabilities
Total liabilities from
financing activities
£’000
£’000
£’000
£’000
£’000
£’000
£’000
526,159
236,185
(25,359)
(36,216)
-
137,158
762,344
(61,575)
137,158
-
-
-
(37,867)
26,932
489,865
(304)
12,350
349,173
(38,171)
39,282
839,038
1 January 2020
Cash flows
New leases
Disposals
Foreign exchange
movement
Other
31 December
2020
£’000
750,099
38,465
£’000
£’000
£’000
£’000
£’000
£’000
(144,030)
-
(138,846)
28,668
30,268
526,159
(17,206)
225,915
(15,308)
(202)
4,521
236,185
788,564
(161,236)
225,915
(154,154)
28,466
34,789
762,344
The “Other” column includes the effect of accrued interest on interest-bearing loans and borrowings, including lease
liabilities and the effect of prepaid loan fees. The Group classifies interest paid as cash flows from financing activities.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk from its operating activities, primarily trade receivables. The Group
monitors and reviews exposure to credit risk on an ongoing basis and makes best efforts to ensure recoverability of amounts
owed to the Group. Information about the credit risk exposure on the Group’s trade receivables is disclosed in note 15.
15. Trade and other receivables
Trade receivables
Less: loss allowance
Net trade receivables
Prepayments
Accrued income
Other taxation and social security
Other receivables
2021
£'000
119,567
(2,268)
117,299
21,372
58,329
26,883
40,046
263,929
2020
£'000
76,643
(1,945)
74,698
14,757
45,414
39,164
72,513
246,546
Trade and other receivables are principally denominated in Sterling.
At 31 December 2021, there were 161,439,766 fully vested, but partly paid and unlisted Shares (31 Dec 2020: 301,321,600).
The average amount of unpaid share capital per fully vested but partly-paid and unlisted Share is £0.16 (2020: £0.19)
representing a receivable to the Group of £27.0m (2020: £57.7m). The movement in the year is all due to certain fully
vested but partly paid and unlisted Shares being paid-up and converted to Ordinary Shares.
255
2021
£'000
65,399
47,264
6,904
119,567
2020
£'000
48,483
26,377
1,783
76,643
£'000
1,945
1,773
(1,342)
(108)
2,268
At 1 January 2021
Charge for the year
Released
Utilised
At 31 December 2021
The Group’s credit risk exposure on trade receivables using a provision matrix is as follows:
Current
0 – 30
days
31 – 60
days
61 – 90
days
90+ days
Total
Expected credit loss rate
0.59%
0.49%
0.22%
0.62%
24.77%
Estimated total gross carrying amount at default
65,399
22,394
22,346
2,524
6,904
119,567
Expected credit loss
At 31 December 2021
(384)
(109)
(49)
(16)
(1,710)
(2,268)
65,015
22,285
22,297
2,508
5,194
117,229
The Group has adopted IFRS 9 applying the simplified approach to measure the expected credit losses.
This uses a lifetime expected loss allowance for all trade receivables.
16. Cash and cash equivalents
Cash and cash equivalents
2021
2020
£'000
£'000
536,827
773,581
Cash and cash equivalents includes £12.5m (2020: £26.5m) of amounts receivable from banks for credit and debit
card transactions, which clear the bank shortly after the transaction takes place.
17. Trade and other payables
Trade payables
Accruals
Other taxation and social security
Other payables
Government grants
Contingent consideration on acquisitions
2021
2020
£'000
£'000
297,539
326,957
28,259
6,160
2,592
15,056
676,563
254,637
220,415
18,577
3,001
2,518
550
499,698
256
Annual Report 2021 Notes to the consolidated financial statements (continued)
The Directors consider the carrying amount of trade and other payables approximates to their fair value when
measured by discounting cash flows at market rates of interest as at the balance sheet date.
Contingent consideration on acquisitions is measured at fair value using unobservable inputs (level 3 of the fair value
hierarchy). The unobservable inputs used in the fair value calculation include internal data such as forecasts, budgets
and actual results to date. The fair values are sensitive to changes in EBITDA or revenue given that these key metrics
are what the performance targets are based on.
Included within trade payables is £42.3m due to suppliers that participate in the Group’s supply chain financing
agreement. The agreement does not change the suppliers agreed payment terms directly with the Group.
18.
Interest-bearing loans and borrowings
19. Provisions
At 1 January 2021
Utilisation
Released
Created
Acquired
At 31 December 2021
Current
Non-current
Dilapidations
£'000
865
(351)
(200)
13,354
2,838
16,506
883
15,623
Current
Bank borrowings
Lease liabilities
Non-current
Bank borrowings
Lease liabilities
Note
22
22
2021
£'000
752
43,342
44,094
489,113
305,831
794,944
2020
£'000
1,871
28,911
30,782
524,288
207,274
731,562
Bank borrowings relate predominantly to the seven-year Euro term loan B and undrawn five-year revolving credit
facility. The revolving credit facility is provided by Barclays, HSBC, BNP Paribas, NatWest, Citibank, JPM and
Santander. The term loan B carried an interest rate of 4.50% plus EURIBOR and the revolving credit facility 3.75% plus
LIBOR. The floating element of the term loan B is hedged by interest rate derivatives. Management notes that EURIBOR
is being reformed as a benchmark rate and are in dialogue with its lending and hedging partners to minimise the impact
on the Group as transition occurs.
If interest rates moved by 10bps, the Group’s loss before tax would be c.£1.9m higher/lower, and the subsequent move
on the derivative valuation would cause equity to be c. £1.0m higher/lower as a result of the same move. Net debt consists
of loans and lease liabilities, less cash and cash equivalents, defined as referenced in note 22. For the purpose of the
Group’s net debt calculation, loans that are denominated in foreign currency are translated at the effective hedged rate
where applicable. Net cash/(debt) is an alternative performance measure and is not defined under IFRS.
A reconciliation to the most directly comparable IFRS measure is included below:
Loans and other borrowings
Lease liabilities
Cash and cash equivalents
Sub-total
Adjustments:
Retranslate debt balance at swap rate where hedged by foreign exchange derivatives
Net (debt)/cash
Net cash before leases liabilities
2021
£'000
(489,865)
(349,173)
536,827
(302,211)
(2,548)
(304,759)
44,414
2020
£'000
(526,159)
(236,185)
773,581
11,237
35,403
46,640
282,825
The contractual maturity analysis of bank borrowings and lease liabilities are given in note 14.
257
Dilapidations provisions relate to leased properties. Dilapidations provisions are made based on the best estimate
of the likely committed cash outflowand discounted to net present value. Future costs are expected to be incurred
over the term of the existing lease arrangements at the reporting date, which is a period of up to 25 years.
The following table shows the timeline in which undiscounted costs in relation to the dilapidation provision
are expected to become current:
Current
£'000
2-5 years
£’000
At 31 December 2021
883
5,144
£’000
3,663
£’000
2,367
6-10 years
11-15 years
16-20 years
21 - 25 years
£’000
£’000
Total
£’000
456
6,021
18,534
Dilapidations provisions are expected to be used at or by the end of the lease term. The dilapidations provision
created in the year totals £13.4m and includes an amount, which is not qualitatively material, of £6.2m related
to properties occupied at 31 December 2020. The provision increases the right-of-use asset.
20. Contract liabilities
Contract liabilities
2021
£'000
2020
£'000
36,143
32,912
Contract liabilities are the consideration received from the customers for sales where the Group still has an obligation
to transfer goods or services. 100% of the transaction price allocated to the unsatisfied contracts as at 31 December
2021 are recognised in the next reporting period.
21. Deferred tax
The deferred tax balance comprises:
Short-term timing differences
Accelerated capital allowances
Business combinations
Tax losses
Loan relationships
Derivatives
Other balance sheet amounts
2021
£'000
(2,446)
1,659
151,615
(60,153)
(16,601)
257
(565)
73,766
2020
£'000
3,622
(3,862)
29,091
(15,380)
(4,730)
(2,501)
(296)
5,944
258
Annual Report 2021
Notes to the consolidated financial statements (continued)
The movement on the deferred tax liability during the year is as follows:
Set out below are the carrying amounts of lease liabilities (included under note 18 interest-bearing loans and
borrowings) and the movements during the period:
Fixed assets
Temporary
differences
trading
Tax
losses
Loan
relationships
Business
combinations
Other
Total
Opening balance 1 January 2021
(3,862)
3,622
(15,380)
(4,730)
29,091
(2,797)
£’000
£’000
£’000
£’000
£’000
£’000
£’000
5,944
Charged/(credited) to the statement
of comprehensive income
Charged/(credited) to equity
Business combinations
Other
Closing balance
31 December 2021
3,549
(6,940)
(42,218)
(11,871)
(4,869)
(270)
(62,619)
-
1,856
116
-
863
9
(2,420)
-
(135)
-
-
-
-
2,759
339
127,219
174
-
-
129,938
164
1,659
(2,446)
(60,153)
(16,601)
151,615
(308)
73,766
All deferred tax assets relating to losses have been recognised in 2021.
22. Leases
Set out below are the carrying amounts of the right-of-use assets recognised and movements during the period:
Motor
vehicles
Plant and
machinery
Computer
equiptment
and software
Land and
buildings
Total
£’000
£’000
£’000
£’000
£’000
As at 1 January 2020
Additions
Depreciation (note 3)
Lease modifications
Disposals
Currency translation differences
As at 31 December 2020
As at 1 January 2021
Additions
Depreciation (note 3)
Lease modifications
Disposals
Impairment
Currency translation differences
As at 31 December 2021
259
537
179
(164)
-
-
(13)
539
539
44
(172)
-
-
-
(33)
378
845
154
(328)
-
-
(6)
665
665
-
(274)
-
-
-
(17)
374
16
-
(16)
-
-
-
-
-
6
(4)
-
-
-
-
2
36,575
37,973
183,144
183,477
(13,734)
(14,242)
2,019
2,019
(15,335)
(15,335)
14
(5)
192,683
193,887
192,683
193,887
156,467
156,517
(31,759)
(32,209)
(427)
-
(6,856)
(580)
(427)
-
(6,856)
(630)
As at 1 January
Additions
Accretion of interest
Payments
Lease modifications
Disposals
Currency translation differences
As at 31 December
Current
Non-current
2021
£'000
236,185
137,601
12,350
(36,216)
(443)
-
(304)
349,173
43,342
305,831
2020
£'000
38,465
223,896
4,521
(17,206)
2,019
(15,308)
(202)
236,185
28,911
207,274
The maturity analysis of lease liabilities is disclosed in Note 14.The Group had total cash outflows for leases
of £36.2m in 2021 (2020: £17.2m).
The following are the amounts recognised in the year in the consolidated statement of comprehensive income:
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
23. Share capital and reserves
2021
£'000
32,209
12,350
44,559
2020
£'000
14,242
4,521
18,763
THG PLC is a public company limited by shares and incorporated in England and Wales. It has a standard listing
on the London Stock Exchange and is the holding company of the Group. The Company has ten classes of shares;
Ordinary Shares of £0.005 each, all of which are fully paid; D1 Shares of £0.005 each; D2 Shares of £1 each, all of which
are fully paid; E Shares of £0.005 each; F Shares of £0.005 each; G Shares of £0.005 each; H Shares of £0.005 each;
the Special Share of £1, which is fully paid up; Deferred 1 Shares of £0.005 each; and Deferred 2 Shares of £0.005
each. As at 31 December 2021, the Company’s issued share capital comprised:
Ordinary Shares
D1 Shares
D2 Shares
E Shares
F Shares
G Shares
H Shares
Special Share
Deferred 1 Shares
Deferred 2 Shares
2021 Number
1,220,897,947
56,082,651
17,812
49,266,539
27,219,640
17,710,851
-
1
312,226
21,563,860
1,393,071,527
Nominal value £ each
0.005
0.005
1
0.005
0.005
0.005
0.005
1
0.005
0.005
260
309,528
310,282
The rights attaching to the Company’s shares are set out in the Director’s report page 121-124.
Annual Report 2021 Notes to the consolidated financial statements (continued)
Capital risk management
26. Earnings per share
The Group’s objectives when managing capital, which comprises equity, are to safeguard the Group’s ability to
continue as a going concern to provide returns for Shareholders and benefits for other stakeholders and to maintain
an optimal capital structure. 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.
During the financial year ending 31 December 2021 the following took place:
(i) 124,686,698 listed Ordinary Shares were issued for cash consideration of £743,132,720; (ii) 2,373,540 listed Ordinary
Shares were converted from 2,373,540 D1 Shares; (iii) 607,500 listed Ordinary Shares were converted from 47,500
E Shares, 470,000 F Shares and 90,000 G Shares; (iv) 375,769 E Ordinary Shares, 146,526 F Shares and 747,270 G
Shares were converted into 1,269,565 listed Ordinary Shares and 33 D2 Shares were subdivided into 6,600 D2 shares
of £0.005 each, 6,121 of which converted to 6,121 listed Ordinary Shares and 479 were reclassified as Deferred 1
Shares; (v) 21,763 listed Ordinary Shares were converted from 13,000 E Shares, 3,524 F Shares and 5,239 G Shares; (vi)
116,101,671 listed Ordinary Shares were converted from 1,570,427 F Shares, 24,918,562 G Shares and 89,612,682 H
Shares; (vii) 3,839,729 listed Ordinary Shares were converted from 959,283 D1 Shares, 370,952 E Shares, 1,003,798 F
Shares and 1,505,696 G Shares; (viii) 98,673 E Ordinary Shares were converted to listed Ordinary Shares and 750 D2
Shares were subdivided into 150,000 D2 shares of £0.005 each, 139,107 of which converted to 139,107 listed Ordinary
Shares and 10,893 were reclassified as Deferred 1 Shares; (ix) 1,707 D2 Shares were subdivided into 341,400 D2
shares of £0.005 each, 316,608 of which converted into 316,608 listed Ordinary Shares and 24,792 were reclassified as
Deferred 1 Shares; and (x) 790,418 listed Ordinary Shares were converted from 64,093 F Shares and 726,325 G Shares.
24. Pension commitments
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 and liabilities are held separately
from that of the Group. The pension charge represents the amount paid by the Group and amounted
to £7.6m (2020: £3.5m). There were no outstanding contributions due to the fund at the year end.
25. Cash flow generated from operations
Loss before taxation
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation
Share-based payments
Adjusted items
Net finance costs
Operating cash flow before adjusting items and
before movements in working capital and provisions
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables*
Decrease in provisions
Foreign exchange (loss)/gain
Cash generated from operations before adjusting items
Note
12
22
11
7
4
8
-
-
-
-
-
-
2021
£'000
2020
£'000
(186,287)
(534,639)
36,269
32,209
99,033
-
129,829
48,223
161,276
(112,535)
(27,116)
75,189
(416)
(444)
95,954
33,813
14,242
57,239
331,624
195,714
52,807
150,800
(83,404)
(66,824)
176,799
(996)
574
176,949
The following table reflects the income and share data used in the basic and diluted EPS calculations:
Loss for the financial year (£'000)
Weighted average number of ordinary shares for basic EPS
Basic and Diluted EPS (£’s)
2021
2020
(138,074)
(532,629)
1,099,043,113
804,280,441
(0.13)
(0.66)
The basic loss per share has been calculated by dividing the loss attributable to the Group by the weighted average
number of ordinary shares in issue.
The diluted loss per share has been calculated by adjusting the weighted average number of shares for the effects
of the D, E, F, G and H shares, assuming full vesting of all potentially dilutive shares. The number of these shares is
disclosed in note 23.
There was no change in the diluted earnings per share, since the effect of all potentially dilutive shares outstanding
was anti-dilutive.
27. Related party transactions
The Directors’ interests in the ordinary share capital of the Company at the balance sheet date are detailed below:
M J Moulding
M J Moulding
J A Gallemore
J A Gallemore
D P Murphy
D P Murphy
I McDonald
I McDonald
Z Byng-Thorne
Z Byng-Thorne
T Hall
D Sanders
£ per share
Ordinary
Shares 2021
Ordinary
Shares 2020
Number
Number
0.005
233,441,525
135,470,561
1
0.005
1
361
361
3,638,116
3,638,116
3,174
3,174
0.005
14,566,016
14,566,016
1
0.005
1.000
1
0.005
0.005
0.005
-
-
2,505,943
2,189,039
-
-
69,765
33,557
21,926
-
750
-
-
-
254,280,383
155,868,017
*Included within trade and other payables is an increase in contract liabilities of £3.2m (2020: £11.8m) Refer to the Chief Financial Officer’s Review
on page 72 of this report for details regarding undrawn borrowing facilities that may be available in the future for the operating activities and settling
capital commitments.
In addition to the shareholdings noted above, the Directors had the following interests in vested Shares issued
under previous incentive arrangements at the balance sheet date. These shares carry no voting rights.
261
262
Annual Report 2021
Notes to the consolidated financial statements (continued)
2021
2020
2021
2020
The charge to the Group’s statement of comprehensive income in 2021 for the settlement of obligations under these
related party leases was £20.0m (2020: £5.7m), the table below gives further detail around the leases in place:
M J Moulding
M J Moulding
M J Moulding
M J Moulding
J A Gallemore
J A Gallemore
J A Gallemore
D P Murphy
I McDonald
Z Byng-Thorne
Date of award
Subscription/
exercise price £
Subscription/
exercise price £
Dec-19
Aug-20
Aug-20
Aug-20
Dec-19
Aug-20
Aug-20
Dec-19
Dec-19
Dec-19
0.23
0.33
0.28
0.26
0.23
0.33
0.28
0.23
0.23
0.23
0.23
0.33
0.28
0.26
0.23
0.33
0.28
0.23
0.23
0.23
Number
Number
43,641,266
43,641,266
20,197,808
20,197,808
7,733,792
30,296,620
-
89,612,682
185,476
185,476
2,666,963
2,666,963
4,000,537
4,000,537
370,953
185,476
-
370,953
185,476
98,673
78,982,271
191,256,454
The Group has not provided any interest-free loans to the Directors in 2021. In 2020 the Group provided £0.3m
of interest-free loans to the Directors for them to subscribe for shares as part of the employee benefit scheme.
The share-based payments expense associated with the Directors was nil (2020: £293.6m). Full details of the
Directors’ shareholdings are detailed in the Directors’ Remuneration Report on page 191.
During the year, 89,612,682 H Shares held by M J Moulding were paid up and converted into listed Ordinary Shares,
leading to a reduction in the unpaid share capital included within other receivables (note 15) of £30.5m.
On 27 August 2020, the Group entered into a five-year agreement on commercial terms with Moulding Capital
Limited (previously named Kingsmead Holdco Limited) to provide property, facilities and project management
services to the entity and its subsidiaries. This agreement generates £635,000 for the Group per annum recognised
within administrative expenses.
Prior to the IPO which took place in September 2020, THG divested the Propco Group, an entity now wholly-
owned by the Group’s CEO. The Propco Group owns property assets occupied and utilised by THG and its
operating businesses.
The amounts recognised on the Group’s balance sheet in relation to the leases with Propco in the year are as follows:
Right-of- use asset
Lease liability
2021
£'000
218,279
262,797
The amounts recognised on the Group’s statement of comprehensive income in relation to the leases with Propco
in the year are as follows:
Depreciation arising on right-of-use assets
Expense recognised in financing costs
Impairment arising on right-of-use-assets
Impairment arising on property plant and equipment
263
12,723
10,663
6,856
8,156
Number of
properties
Residual lease
term date divestment
Rent per annum
£’000
9
1
12
8
30
0 – 5 years
7 years
13 –15 years
19 – 25 years
962
3,207
3,285
14,065
21,519
FY21 rent
£’000
962
3,207
3,288
12,589
20,046
The following table shows the amounts receivable from or payable to Propco which are outstanding at the balance
sheet date. These include balances in relation to lease agreements and where the Group has paid suppliers on behalf
of the Propco Group, or vice versa. Such situations arise due to Propco suppliers using legacy details to submit
invoices or where payments are made on behalf of THG by Propco for property-related costs rechargeable to THG
as a tenant per lease:
Related party
Amounts owed
by related parties
Amounts owed
to related parties
Amounts owed
by related parties
Amounts owed
to related parties
2021
2020
Aghoco 1442 Ltd
Icon 3 Holdco Ltd
FIC Shareco Ltd
THG HQ PropCo Ltd
Allenby Square Ltd
THG Alpha PropCo Ltd
THG Omega PropCo Ltd
THG Icon Unit 3 Propco S.à r.l.
THG Gadbrook PropCo Ltd
THG Icon Unit 4 PropCo Ltd
THG PV PropCo Ltd
THG A&A PropCo Ltd
THG GJS PropCo Ltd
THG HCC PropCo Ltd
THG KS Propco Ltd
THG Unit 3 PropCo S.à r.l.
Moulding Capital Limited
THG Wroclaw sp. Z.o.o
THG Icon S.à r.l
THG Icon Unit 2 PropCo Limited
£’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
£’000
217
-
-
-
532
192
1,243
296
242
217
-
241
465
355
225
-
47
645
1,101
953
6,971
£’000
£’000
13
253
5
30
71
-
-
-
-
-
-
-
-
-
-
2,310
-
-
-
-
98
-
-
-
302
20
1,120
267
218
195
41
217
401
315
269
-
-
-
-
-
2,682
3,463
264
Annual Report 2021
Notes to the consolidated financial statements (continued)
28. Subsidiary undertakings
These consolidated financial statements include the results of all subsidiaries owned by THG PLC as listed in the table
below. Some of these subsidiaries, which are listed below, have taken the exemption from an audit for the year ended
31 December 2021 permitted by s479A of Companies Act 2006. In order to allow these subsidiaries to take the audit
exemption, the parent company THG PLC has given a statutory guarantee, in line with s479C of Companies Act 2006.
At the balance sheet date, the following subsidiaries were controlled by theGroup (a company incorporated in England
and Wales).
Subsidiary
Registered office
Country of incorporation
Nature of business
The Hut.com Limited**
The Hut Platform Limited**
The Hut Holdings Limited**
The Hut.com (Trading) Limited**
Cend Limited**
Guco Internet Supplies Limited**
Iwantoneofthose Limited**
The Hut Entertainment SL**
Ensco 818 Limited**
Mankind Holdings Limited**
Mankind Direct Limited**
Moo Limited**
1
1
1
2
1
3
3
25
1
3
1
1
England and Wales
Online retailing
England and Wales
Provision of website development services
England and Wales
Dormant
Jersey
Online retailing
England and Wales
Online retailing
Guernsey
Guernsey
Spain
Holding company
Dormant
Dormant
England and Wales
Holding company
Guernsey
Dormant
England and Wales
Procurement company
England and Wales
Online advertising
Active Nutrition International OY**
24
Finland
Dormant
Lookfantastic Group Limited**
Lookfantastic.com.Ltd**
Lookfantastic Franchising Limited**
Lookfantastic London Limited**
Lookfantastic Salons Limited**
Exante Diet Limited**
Bike Kit Limited**
CNP Professional Holdings Limited**
MyVitamins Limited**
HQ Hair Limited**
Cend International Limited**
THGPP LLC**
THG International LLC**
Mama Mio Limited**
265
1
1
1
1
1
1
1
3
1
3
1
4
4
1
England and Wales
Holding company
England and Wales
Online retailing
England and Wales
Franchising and consultancy services
England and Wales
Dormant
England and Wales
Hairdressing salon
England and Wales
Dormant
England and Wales
Dormant
Guernsey
Procurement company
England and Wales
Dormant
Guernsey
Holding company
England and Wales
Online retailing
USA
USA
Dormant
Warehouse and distribution
England and Wales
Online retailing
Mama Mio Distribution Limited**
Mama Mio US Inc. **
Hale Country Club Limited**
Gadbrook Limited**
THG International Limited**
The Hut Group International
(Shanghai) Co Limited**
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**
Virtual Internet Holdings Limited**
Hosting Services Inc. **
UK2 Ukraine LLC**
Virtual Internet (UK) Limited**
The Hut.com (Poland) sp. z.o.o. **
RY.com.au Pty Limited**
Media Ark Limited**
THG Studios Limited (formerly known
as Hangar Seven Limited)**
H7P Portugal Unipessoal LDA**
Illamasqua (Holdings) Limited**
Illamasqua Limited**
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**
GlossyBox United Kingdom
Holding GmbH**
1
4
1
1
1
England and Wales
Dormant
USA
Online retailing
England and Wales
Retail and leisure company
England and Wales
Dormant
England and Wales
Marketing company
21
China
License holding company
4
4
4
4
5
5
4
1
1
1
6
12
1
13
5
1
1
22
1
1
7
7
7
7
11
7
14
7
USA
USA
USA
USA
Australia
Australia
USA
Holding company
Marketing company
Marketing company
Online retailing
Holding company
Online retailing
Online retailing
England and Wales
Webhosting
England and Wales
Webhosting
England and Wales
Dormant
USA
Ukraine
Webhosting
Webhosting
England and Wales
Webhosting
Poland
Australia
Warehouse and distribution
Dormant
England and Wales
Dormant
England and Wales
Visual content producer
Portugal
Visual content producer
England and Wales
Holding company
England and Wales
Online retailing
Germany
Germany
Germany
Germany
France
Germany
Sweden
Germany
Holding company
Online retailing
Online retailing
Holding company
Online retailing
Holding company
Online retailing
Holding company
266
Annual Report 2021 Beauty Trend UK Limited**
VRB GmbH & Co. B-149 KG**
Beauty Trend USA Inc.**
EI Spa Holdings (UK) Limited**
ESPA International (UK) Limited**
Primavera Aromatherapy Limited**
ESPA International (US) Inc.**
ESPA International FZE**
Make Money Limited**
M Beauty Limited**
Language Connect International Ltd**
Language Connect, Inc.**
THG Ingenuity Singapore Pte.
Limited (formerly known as Language
Connect Singapore Pte. Limited)**
Acheson & Acheson Limited**
1010 Products Limited**
Ameliorate Skincre Limited**
Eddie Rockers Limited**
Great John Street Hotel Limited**
King Street Investments Limited**
THG Trustee Limited**
THG MP, Inc. (formerly THG Nutrition
US Inc (formerly. THG MP, Inc.)**
Myprotein Japan K.K.**
Colorist Christophe Robin S.A.S.**
Colorist Christophe Robin US, Inc**
THG General Trading LLC**
David Berryman Ltd**
David Berryman Holdings Limited**
Fair Juice Limited**
Claremont Ingredients Ltd**
THG 100 KING STREET LIMITED
THG Icon CP Prop LimitedCo**
The Hut Group Limited**
THG Hangar Holdco Limited**
267
1
7
8
1
1
1
9
23
1
1
1
10
15
1
1
1
1
1
1
1
16
17
11
16
18
1
1
1
1
1
1
1
1
Notes to the consolidated financial statements (continued)
England and Wales
Online retailing
Germany
USA
Holding company
Online retailing
England and Wales
Holding company
England and Wales
Online retailing
England and Wales
Manufacturing
USA
UAE
Online retailing
Online retailing
England and Wales
Holding company
England and Wales
Online retailing
THG Hangar Limited**
THG Hangar 2 Limited**
Lion/Wrinkle Holdings, Inc**
Lion/Wrinkle Parent Corp**
Lion/Wrinkle Intermediate LLC**
N.V. Perricone LLC**
1
1
1
1
1
19
England and Wales
Holding company
England and Wales
Holding company
USA
USA
USA
USA
Holding company
Holding company
Holding company
Holding company
Perricone MD Cosmeceuticals UK Limited**
1
England and Wales
Online retailing
The Hut Group, S.L**
THG Intermediate OpCo Limited**
THG Operations Holdings Limited**
England and Wales
Translation and interpretation
THG Intermediate Holdings Limited**
USA
Translation and interpretation
Singapore
Translation and interpretation
England and Wales
Manufacturing
England and Wales
Dormant
England and Wales
Dormant
England and Wales
Holding company
England and Wales
Hotel operator
England and Wales
Hotel operator
England and Wales
Dormant
USA
Japan
France
USA
UAE
Dormant
Online retailing
Online retailing
Online retailing
Online retailing
England and Wales
Online retailing
England and Wales
Holding company
England and Wales
Dormant
England and Wales
Online retailing
England and Wales
Hotel operator
England and Wales
Holding company
England and Wales
Dormant
England and Wales
Holding company
THG Ingenuity Limited
THG Shelfco Limited**
Dermstore LLC**
Arrow Film Distributors Limited**
The Engine House Media Services Limited**
Indigo Environmental Limited**
Indigo Environmental Holdings Limited**
Indigo Polymers Limited**
Three Counties Reclamation Limited**
The Protein Lab (UK) Limited**
Preston Plastics (Holdings) Limited**
Preston Plastics Limited**
Eco Credits Limited**
Brighter Foods Limited**
Bentley Laboratories Blocker Company**
Bentley Laboratories LLC**
Cult Beauty Limited**
THG AUS Fulfilment PTY Limited**
THG AUS PP PTY Limited**
THG Eco Ltd**
THG EU PP Limited**
THG Ingenuity Germany GmbH**
THG Beauty Limited**
THG AUS Beauty PP PTY Limited**
20
1
1
1
1
1
35
1
1
1
1
1
1
1
1
1
1
1
26
27
1
28
28
1
29
30
1
28
Spain
Online retailing
England and Wales
Holding company
England and Wales
Holding company
England and Wales
Holding company
England and Wales
Web Hosting
England and Wales
Dormant
USA
Online retailer
England and Wales
Motion picture distributor
England and Wales
Film processing
England and Wales
Trading
England and Wales
Holding company
England and Wales
Dormant
England and Wales
Recovery of sorted metals
England and Wales
Manufacturing
England and Wales
Holding company
England and Wales
Recovery of sorted metals
England and Wales
Environmental consulting activities
England and Wales
Manufacturing
USA
USA
Holding company
Online retailer
England and Wales
Online retailer
Australia
Australia
Fulfilment
Online retailing
England and Wales
Holding company
Ireland
Germany
Online retailing
Web Hosting
England and Wales
Holding company
Australia
Online retailing
268
Annual Report 2021 Notes to the consolidated financial statements (continued)
Singapore
Online retailing
Ireland
USA
Online retailing
Online retailing
England and Wales
Holding company
England and Wales
Holding company
Australia
Online retailing
Ireland
USA
Online retailing
Online retailing
England and Wales
Holding company
Australia
Australia
India
Online retailing
Online retailing
Online retailing
Singapore
Online retailing
Poland
Ireland
USA
Online retailing
Online retailing
Online retailing
England and Wales
Holding company
Germany
Online retailing
Netherlands
Online retailing
Australia
Ireland
USA
USA
Online retailing
Online retailing
Online retailing
Online retailing
England and Wales
Holding company
Australia
Poland
USA
UAE
Online retailing
Online retailing
Online retailing
Online retailing
THG Beauty Singapore PTE Limited**
THG Beauty PP EU Limited**
THG Beauty PP US LLC**
THG Experience Limited**
THG Luxury Limited**
THG Luxury PP AUS PTY Limited**
THG Luxury PP EU Limited**
THG Luxury PP US LLC**
THG Nutrition Limited**
THG AUS Nutrition PP PTY Limited**
THG AUS Nutrition PTY Limited**
THG Nutrition India Private Limited
THG Nutrition Singapore PTE Limited**
THG Nutrition Poland s.p.z.o.o**
THG Nutrition PP EU Limited**
THG Nutrition PP US LLC**
THG OnDemand Limited**
THG OnDemand Germany GmbH**
THG OnDemand Netherlands B.V**
THG OnDemand PP AUS PTY Limited**
THG OnDemand PP EU Limited**
THG OnDemand PP US LLC**
THG OnDemand US LLC**
THG Shared Services Limited**
THG Shared Services AUS PTY Limited**
THG Shared Services Poland sp.z.o.o**
THG Shared Services US LLC**
THG Beauty Trading LLC
31
29
26
1
1
28
29
26
1
28
28
32
31
33
29
26
1
30
34
28
29
26
26
1
28
33
26
36
** - 100% owned by THG PLC either directly or indirectly.
5th Floor, Voyager House, Chicago Avenue, Manchester
Airport, Manchester, England M90 3DQ.
24.
c/o Tilitoimisto Simo Salonen Oy, Teknologiantie
2, 90590 OULU, Finland.
1.
2.
2nd Floor, Charter Place, 23/27 Seaton
Place, St Helier, Jersey, JE1 1JY.
3.
Sarnia House, Le Truchot, St Peter Port, Guernsey, GY1 4NA.
4.
Corporation Trust Center, 1209 Orange
Street, Wilmington, DE 19801, USA,
5.
G01/38 Atchinson Street, St Leonards, NSW 2065, Australia.
6.
517 West 100 North, Providence, UT 84332, USA.
7.
Kosterstrasse 62, 10179 Berlin, Germany.
8.
Beauty Trend USA inc, 401 Greenwich St, 3
Floor, New York, NY 10013, USA.
25. Calle Doctor Fleming 3, planta 9, 28036 Madrid (Spain).
26. 300 Creekview Road, Suite 209, Newark, New Castle, 19711.
27. 111 Fieldcrest Avenue, Edison, New Jersey, 0883.
28. Azure Group Pty Level 10, 171 Clarence Street, Sydney, NSW 2000.
29. 1st Floor, The Liffey Trust Centre, 117-
126 Sheriff Street Upper, Dublin 1
30. Maximilianstrasse 5480538 Munich.
31. 100 Tras Street, #16-01 100AM, 079027.
32. 203, 2nd floor, Time Tower, Gurgaon, Haryana, India 122002.
9.
100 SE 2nd Street, Suite 2000, Miami, FL 3313, USA.
33. Magazynowa 1 Street, 55-040, Magnice, Poland.
10.
Language Connect, Inc. 79 Madison Avenue,
Suite 205, New York, NY 10016, USA.
11. 73 rue Sainte-Anne, Paris, France.
34. Barbara Strozzilaan 2011083 HN Amsterdam, The Netherlands
35. 1960 E GRAND AVE 6TH FLOOR EL
SEGUNDO, CA 90245 United States.
12. 58 Zaliznychyna Str, Lviv, Ukraine, 79018.
36. New Mall Limited, Al Warsan First, 681-0, UAE
13. ul. Magazynowa 1, 55-040 Magnice, Poland.
14. Drottninggatan 108,113 60, Stockholm, Sweden.
15. 63 Market Street, 09-01, Bank of Singapore
Centre, Singapore, 048942.
16. 06-101, WeWork 115 Broadway, New York, NY 10006, USA.
17. DLA Piper Tokyo, 2-1-1 Marunouchi, Chiyoda-ku,
Meiji Seimei Kan 7F, Tokyo, 100-0005, Japan.
18. Office 404, Single Business Tower, Business
Bay, P.O. Box 113014, UAE.
19. 600 Montgomery St Ste 2500, San Francisco,
CA, 941111-2724, USA.
20. Calle Monte Esquinza 30, Bajo Izquierda (28010) Madrid, Spain.
21. Room 753, Level 7, Building 2, No. 155, Fu Texi 1st
Road, China (Shanghai) Pilot Free Trade Zone.
22.
Lote D, Área Empresarial de Marim, 8700-122 Olhão, Portugal.
23.
Jebel Ali Free Zone, Dubai, UAE.
269
270
Annual Report 2021 Notes to the consolidated financial statements (continued)
Subsidiary audit exemptions
The below subsidiaries have taken the exemption from an audit for the year ended 31 December 2021
permitted by s479A of Companies Act 2006. In order to allow these subsidiaries to take the audit exemption,
the parent company THG PLC has given a statutory guarantee, in line with s479C of Companies Act 2006.
Name
Company
number
Name
Company number
Name
Ensco 818 Ltd
7459909
UK-2 Ltd
Lookfantastic Group Ltd
5381562
Virtual Internet (UK) Ltd
Illamasqua (Holdings) Ltd
6116121
Beauty Trend UK Ltd
3550739
3203095
7569585
Company
number
10392135
David Berryman
Holdings Ltd
Claremont Ingredients Ltd
2817306
David Berryman Ltd
2185279
Company only
financial statements
El Spa Holdings (UK) Ltd
9317257
THG International Ltd
10523712
THG Hangar 2 Limited
12746651
Make Money Ltd
5880897
Illamasqua Ltd
6301971
Perricone MD
Cosmeceuticals UK
6471993
Eddie Rockers Ltd
3009737
Primavera Aromatherapy Ltd
2053064
THG Intermediate OpCo Ltd 12297092
Eco Credits Ltd
12933421 M Beauty Ltd
5850964
Brighter Foods Limited
08815259
THG Intermediate Holdings Ltd
12526036
THG 100 King Street Ltd
12938227
THE Eco Limited
13400476
Lookfantastic.com Ltd
3519634
Cend International Ltd
8651475
THG Studios Limited
6293681
Mankind Direct Ltd
4112104
ESPA International (UK) Ltd
2742156
Lookfantastic Franchising Ltd 5382066
Cend Ltd
4067712
Language Connect
International Ltd
7364250
Lookfantastic Salons Ltd
6310534
The Hut Platform Ltd
6473891
Acheson and Acheson Ltd
2764368
Moo Ltd
3661600
King Street Investments Ltd
8242806
Mama Mio Ltd
12699915
Great John Street Hotel Ltd
7973960
Hale Country Club Ltd
6970110
5158225
5251791
Indigo Environmental Holdings Ltd
11738557
The EngineHouse Media Ltd
10597642
Indigo Environmental Ltd
10695826
The Protein Lab (UK) Ltd
8491800
The Hangar Holdco Ltd
12698636
Three Counties
Reclamation Ltd
3792922
1340484
Preston Plastics Holdings Ltd
13265838
Preston Plastics Ltd
3377914
THG Shared Services Ltd
13515579
THG Luxury Ltd
13414244
THG Beauty Ltd
13400467
13515614
THG OnDemand Ltd
13400489
THG Experience Ltd
13515614
Another.com Ltd
THG Hangar Ltd
THG Nutrition Ltd
THG Ingenuity Ltd
THG Icon CP PropCo Limited
12940601
Arrow Film Distributors Limited
02584648
The below subsidiaries have taken the exemption from an audit for the year ended 31 December 2021 permitted
by s480 of Companies Act 2006.
Name
Company number Name
Company number
Name
Company number
Lookfantastic London Ltd
6338404
Exante Diet Ltd
7126424
Bike Kit Ltd
8317188
Mama Mio Distribution Ltd
7721655
Myvitamins Ltd
8179216
The Hut Holdings Ltd
7002848
The Hut Group Ltd
12526836
Virtual Internet
Holdings Ltd
5943486
Media Ark Ltd
6127322
Ameliorate Skincare Ltd
3427037
1010 Products Ltd
3402920
Gadbrook Ltd
9867117
Fair Juice Ltd
6494686
THG Shelfco Ltd
13120197
Indigo Polymers Ltd
11526560
THG Trustee Ltd
10511000
29. Post balance sheet events
There are no material post balance sheet events. See note 12 for information regarding a non-adjusting event relating
to a Freehold building asset that has been reclassified as an asset held for sale under IFRS 5 post year end.
271
272
Annual Report 2021 Company balance sheet as at 31 December 2021
Company statement of changes in equity for the year
ended 31 December 2021
Fixed assets
Investments
Current assets
Debtors
Cash
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium
Merger reserve
Capital redemption reserve
Loss for the year
Retained earnings
Total shareholders' funds
Note
4
5
6
2021
£'000
508,846
508,846
1,406,262
282,278
1,688,540
(3,147)
2020
£'000
508,846
508,846
891,368
93,227
984,595
(15,637)
1,685,393
968,958
2,194,239
1,477,804
2,194,239
1,477,804
6,684
6,061
2,022,311
1,287,171
615
523
(19,328)
183,434
615
523
(317,335)
500,769
2,194,239
1,477,804
The financial statements on pages 273-278 were approved by the Board of Directors on 20 April 2022 and were signed on its behalf by:
J A Gallemore
Director
Registered number: 06539496
273
Ordinary
shares
£'000
Share
premium
£'000
Merger
reserve
£'000
Capital
Redemption Reserve
£'000
Retained
earnings
£'000
Total equity
£'000
Balance at 1 January 2020
4,381
230,718
615
523
169,915
406,152
Loss for the year
-
-
Issue of ordinary share capital
2,079
1,056,453
Share buy-backs
(399)
Share-based payments
Capital contribution
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(317,335)
(317,335)
737
1,059,269
(1,506)
(1,905)
293,604
293,604
38,019
38,019
Balance at 31 December 2020
6,061
1,287,171
615
523
183,434
1,477,804
Balance at 1 January 2021
6,061
1,287,171
615
523
183,434
1,477,804
Loss for the year
-
-
Issue of ordinary share capital
623
735,140
-
-
-
-
(19,328)
(19,328)
-
735,763
Balance at 31 December 2021
6,684
2,022,311
615
523
164,106
2,194,239
274
Annual Report 2021
Notes to the Company financial statements
1. Accounting Policies
The principal 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
The consolidated financial statements, and the
Company financial statements, have been prepared in
accordance with UK-adopted international accounting
standards (IFRS) and, as regards the parent company
financial statements, as applied in accordance with the
provisions of the Companies Act 2006. The Company
has taken advantage of section 408 of the Companies
Act 2006 not to present the parent company profit
and loss account. The loss for the financial year in
the financial statements of the Company is £19.3m
(2020: £317.3m loss). The financial statements have
been prepared on the historical cost basis, except
for derivatives which are held at fair value.
In accordance with FRS 101, the Company has taken
advantage of the following disclosure exemptions:
•
•
•
Company cash flow statement and related notes.
Disclosures required by IFRS 2 Share-based
payments.
Disclosures required by IFRS 7 Financial
Instrument Disclosures.
• Disclosure of related party transactions.
The accounting policies adopted by the Company in the
current year are consistent with those adopted during
the year ended 31 December 2020, except for the
adoption of new accounting standards and amendments
to existing standards in 2021 as set out below:
•
Amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16 and
IAS 39 Interest Rate Benchmark Reform Phase 2.
The amendments noted above do not have a significant
impact on the Company’s financial statements.
There are no standards, interpretations or
amendments to IFRS that have been issued but are
not yet effective that are expected to have a material
impact on the Company’s financial statements.
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. 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.
The most significant financial asset relates to
an intercompany debtor, representing funding
requirements within the Group. Management have
considered all aspects of IFRS 9 with respect to
recognising the appropriate value of these financial
instruments at the balance sheet date, including
credit risk, and have concluded that this has not
adversely changed since initial recognition.
d.
Financial liabilities and equity
Financial liabilities and equity instruments are
classified according to the substance of the contractual
arrangements entered. An equity instrument is any
contract that evidences a residual interest in the assets
of the Company after deducting all its liabilities.
e.
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.
f.
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 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 in the
statement of comprehensive income. The total
amount to be expensed is determined by reference
to the fair value of the equity instruments granted.
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 the specified
vesting conditions are to be satisfied.
At the end of each reporting period, the entity
revises its estimates of the number of equity
instruments 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 statement of comprehensive income,
with a corresponding adjustment to equity.
When the equity instruments are exercised or growth
shares in THG are issued to employees, the Company
issues new shares. Of the proceeds received on
exercise or issue of growth shares, an amount equal to
the nominal value of the shares issued is credited to
the share capital account and an amount equal to the
share premium, net of directly attributable transaction
costs, is credited to the share premium account.
The grant by the Company of 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.
g. Critical accounting judgements and
key sources of estimation uncertainty
Impairment of investments
The carrying amounts of the Company’s investments
are reviewed at each reporting date to determine
whether there is any indication of impairment in
accordance with the accounting policy set out in
note 1 of the consolidated financial statements. The
Company considers impairment of its investments
in subsidiaries by estimating the recoverable
amounts of its investments. The impairment review
for the Company’s investments was performed
using the same projections used in the impairment
review in relation to the Group’s goodwill. Note
11 in the consolidated financial statements details
the assumptions used together with an analysis of
the sensitivity to changes in key assumptions.
Recoverability of intercompany debtors
The Company uses estimates to determine the
recoverability of amounts due from its subsidiaries.
Under IFRS 9, the carrying amounts of receivables from
other Group subsidiaries are required to be assessed
for recoverability on a forward-looking basis through the
recognition of an expected credit loss (ECL) provision.
This requires the estimation of expected loss at default
(ELD) and probability of default (PD) to compute the
ECL, which is deemed to reflect the irrecoverability
of intercompany debtors.
275
276
Annual Report 2021
Notes to the Company financial statements (continued)
2. Employee costs and numbers
The average number of employees during the year was 2 (2020: 6).
6. Creditors: amounts falling due within one year
Short term employee benefits
Social security costs
Share-based payments
3. Auditor remuneration
2021
£'000
50
3
-
53
2020
£'000
2,274
311
293,604
296,189
Amounts paid to the Company’s auditors are disclosed in note 5 of the Group’s consolidated financial statements.
4. Fixed asset investments
Fixed asset investments comprise investments in subsidiary undertakings.
At 1 January
Additions
Capital contribution
At 31 December
5. Debtors
Trade and other receivables
Amounts owed from Group undertakings
Unpaid share capital
Corporation tax asset
Other taxation and social security
Prepayments and accrued income
2021
£'000
2020
£'000
508,846
88,044
-
-
382,783
38,019
508,846
508,846
2021
£'000
596
2020
£'000
392
1,373,336
825,927
27,026
4,687
379
238
57,660
4,687
277
2,425
1,406,262
891,368
Amounts owed by Group undertakings are unsecured, non-interest bearing and repayable on demand.
At 31 December 2021, there were 161,439,766 fully vested, but partly paid and unlisted Shares (31 Dec 2020:
301,321,600). The average amount of unpaid share capital per fully vested but partly-paid and unlisted Share is £0.16
(2020: £0.19) representing a receivable to the Group of £27.0m (2020: £57.7m). The movement in the year is all due to
certain fully vested but partly paid and unlisted Shares being paid-up and converted to Ordinary Shares.
Trade creditors
Accruals and deferred income
Other creditors
7. Share capital and reserves
2021
£'000
919
2,228
-
3,147
2020
£'000
9,256
3,600
2,781
15,637
THG PLC is a public company limited by shares and incorporated in England and Wales. It has a standard listing
on the London Stock Exchange and is the holding company of the Group. The Company has ten classes of
shares; Ordinary Shares of £0.005 each, all of which are fully paid; D1 Shares of £0.005 each; D2 Shares of £1 each,
all of which are fully paid; E Shares of £0.005 each; F Shares of £0.005 each; G Shares of £0.005 each; H Shares
of £0.005 each; the Special Share of £1, which is fully paid up; Deferred 1 shares of £0.005 each; and Deferred
2 shares of £0.005 each. As at 31 December 2021 and 2020, the Company’s issued share capital comprised
Class
Ordinary Shares
D1 Shares
D2 Shares
E Shares
F Shares
G Shares
H shares
Special Share
Deferred 1 Shares
Deferred 2 Shares
2021 Number
Nominal value £ each
1,220,897,947
56,082,651
17,812
49,266,539
27,219,640
17,710,851
-
1
312,226
21,563,860
1,393,071,527
0.005
0.005
1
0.005
0.005
0.005
0.005
1
0.005
0.005
During the financial year ending 31 December 2021 the following took place:
(i) 124,686,698 listed Ordinary Shares were issued for cash consideration of £743,132,720; (ii) 2,373,540 listed Ordinary
Shares were converted from 2,373,540 D1 Shares; (iii) 607,500 listed Ordinary Shares were converted from 47,500
E Shares, 470,000 F Shares and 90,000 G Shares; (iv) 375,769 E Ordinary Shares, 146,526 F Shares and 747,270 G
Shares were converted into 1,269,565 listed Ordinary Shares and 33 D2 Shares were subdivided into 6,600 D2 shares
of £0.005 each, 6,121 of which converted to 6,121 listed Ordinary Shares and 479 were reclassified as Deferred 1
Shares; (v) 21,763 listed Ordinary Shares were converted from 13,000 E Shares, 3,524 F Shares and 5,239 G Shares; (vi)
116,101,671 listed Ordinary Shares were converted from 1,570,427 F Shares, 24,918,562 G Shares and 89,612,682 H
Shares; (vii) 3,839,729 listed Ordinary Shares were converted from 959,283 D1 Shares, 370,952 E Shares, 1,003,798 F
Shares and 1,505,696 G Shares; (viii) 98,673 E Ordinary Shares were converted to listed Ordinary Shares and 750 D2
Shares were subdivided into 150,000 D2 shares of £0.005 each, 139,107 of which converted to 139,107 listed Ordinary
Shares and 10,893 were reclassified as Deferred 1 Shares; (ix) 1,707 D2 Shares were subdivided into 341,400 D2
shares of £0.005 each, 316,608 of which converted into 316,608 listed Ordinary Shares and 24,792 were reclassified as
Deferred 1 Shares; and (x) 790,418 listed Ordinary Shares were converted from 64,093 F Shares and 726,325 G Shares.
8. Related party transactions
The Company has taken exemption under FRS 101 not to disclose transactions with wholly-owned subsidiary companies.
277
278
Annual Report 2021
Glossary
Alternative performance
measures (“APMs”)
The Group tracks a number of alternative performance
measures in managing its business, which are
not defined or specified under the requirements
of IFRS because they exclude amounts that are
included in, or include amounts that are excluded
from, the most directly comparable measure
calculated and presented in accordance with IFRS,
or are calculated using financial measures that
are not calculated in accordance with IFRS.
The Group believes that these alternative performance
measures, which are not considered to be a
substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on
the performance of the business. These alternative
performance measures are consistent with how the
business performance is planned and reported within
the internal management reporting to the Board.
These alternative performance measures should be
viewed as supplemental to, but not as a substitute
for, measures presented in the consolidated financial
information relating to the Group, which are prepared
in accordance with IFRS. The Group believes that
these alternative performance measures are useful
indicators of its performance. However, they may
not be comparable with similarly-titled measures
reported by other companies due to differences
in the way they are calculated. Profit-related APMs
frequently exclude significant recurring business
transactions (e.g., restructuring charges, acquisition-
related costs and certain share-based payments)
that impact financial performance and cash flows.
The Audit Committee have reviewed the overall
presentation of APMs to ensure that these are not
given undue prominence, challenged the nature
and amount of adjusting items and evaluated
the reconciliations used by management.
In determining whether an item should be presented
as an allowable adjustment to IFRS measures, the
Group considers items which are significant either
because of their size or their nature, and which are
non-recurring. For an item to be considered as an
allowable adjustment to IFRS measures, it must
initially meet at least one of the following criteria:
•
•
•
It is a significant item.
It has been directly incurred as a result
of acquisition related restructuring and
integration costs, transportation, delivery
or fulfilment costs in relation to Covid-19.
It is unusual in nature or linked to
a one-off agreement signed outside
of the normal course of business.
Purpose
The Group uses APMs to improve the comparability
of information between reporting periods, either
by adjusting for uncontrollable factors or special
items which impact upon IFRS measures.
Their use is driven by characteristics
particularly relevant to THG Group:
• Adjustments to operating profit – the Group has
a significant non-current asset base and consequently
incurs a high proportion of depreciation and
amortisation. APMs are used to provide adjusted
measures for users of the financial statements
to evaluate our operating performance.
• Acquisition related activity - the Group is in a
growth phase in its lifecycle and has made several
acquisitions in the current and previous reporting
periods. Consequently, a high volume of transaction,
restructuring and financing costs are incurred
within the Group which do not reflect its underlying
business. APMs are used to provide an adjusted
measure for users of the financial statements
to consider performance after such items.
279
280
Annual Report 2021
APM
Closest
equivalent
IFRS
measure
Adjustments to reconcile
to primary statements
Purpose
Glossary
The definitions set out below apply throughout this document, unless the context requires otherwise.
Gross profit (before
depreciation and
amortisation)
Gross profit
•
•
Depreciation
Amortisation
Adjusted distribution costs
Distribution
costs
Adjusted administrative
expenses
Administrative
expenses
See the Chief Financial
Officer review footnote
1 for a reconciliation.
•
•
Adjusted items
Depreciation and
amortisation
See the Chief Financial
Officer review footnote
1 for a reconciliation.
•
•
Adjusted items
Depreciation and
amortisation
See the Chief Financial
Officer review footnote
1 for a reconciliation.
Adjusted EBITDA
Operating
profit
•
•
Adjusted items
Depreciation and
amortisation
See the Chief Financial Officer
review for a reconciliation.
To show gross profit before
depreciation and amortisation
charged due to its nature to aid
comparability.
To show distribution costs before
adjusted items and depreciation
and amortisation charged due to
their nature to aid comparability.
To show administrative expenses
before adjusted items and depreciation
and amortisation charged due to their
nature to aid comparability.
EBITDA is a useful measure for investors
because it is a measure closely tracked
by management to evaluate THGs
operating performance and to make
financial, strategic and operating
decisions and may help investors to
understand and evaluate, in the same
manner as management, the underlying
trends in operational performance on
a comparable basis year on year.
Adjusted finance costs
Finance
costs
•
Adjusted items
See the Chief Financial Officer
review for a reconciliation.
To show finance costs before adjusted
items due to their nature to aid
comparability.
Net cash before
lease liabilities
Cash
Net cash
Cash
•
•
•
Loans and other
borrowings
Foreign exchange
(Retranslate debt
balance at swap rate
where hedged by foreign
exchange derivatives)
Lease liabilities
See the Chief Financial Officer
review for a reconciliation.
To show the cash balance after the
deduction of the loans and other
borrowings balances but before
lease liabilities are deducted and
after retranslation of debt balance
at swap rate. This measure is tracked
by management when reviewing
liquidity and the indebtedness of
the Group which is then used to drive
any strategic or acquisition related
decisions.
•
•
Loans and other
borrowings
Foreign exchange
(Retranslate debt balance
at swap rate where
hedged by foreign
exchange derivatives)
See the Chief Financial Officer
review for a reconciliation.
To show the cash balance after the
deduction of the loans and other
borrowings balances and after
retranslation of debt balance at
swap rate. This measure is tracked
by management when reviewing
liquidity and the indebtedness of
the Group which is then used to drive
any strategic or acquisition related
decisions.
Term
Meaning
2020 Annual Report
means the Annual Report and Accounts of the Company in respect of the financial year ending 31
December 2020
2021 AGM
means the annual general meeting of the Company held on 24 June 2021
2030 Sustainability Strategy
means the Group strategy, THG x Planet Earth, for a better, sustainable future with targets centred around
three key priorities: (i) protecting climate and nature; (ii) strengthening our supply chain and circularity; and
(iii) empowering people and communities
Active Customers
means customers who have purchased at least once in the financial year ending 31 December 2021
Adjusted EBITDA
Admission
AGM
Annual Report
means the non-GAAP measure which is defined as Earnings Before Interest, Taxes, Depreciation, and
Amortisation and adjusting items as detailed in note 4 of the financial statements contained within this
Annual Report
means the admission of all the Ordinary Shares to both the standard listing segment of the Official List of
the FCA and the London Stock Exchange’s main market for listed securities, which took place on or around
16 September 2020
means the annual general meeting of the Company that will be held on 10 June 2022
means this Annual Report and Accounts of the Company in respect of the financial year ending 31
December 2021
API
means Application Programming Interface
Articles of Association
means the Articles of Association of the Company, as adopted by special resolution on 9 September 2020
Autostore
B2B model
BCMS
Bentley
Berryman
Brighter
Board
Board Committees
Brexit
BRC
CAGR
means AutoStore AS, a warehouse robotics company
means business to business model
means Business Continuity Management System
means Bentley Laboratories LLC, an innovative developer and manufacturer of prestige skincare and
haircare products that was acquired by THG on 15 June 2021
means David Berryman Limited, the fruit-based ingredient business that was acquired by THG on 8
December 2020
means Brighter Foods Limited, a specialist developer and manufacturer of snack bars that was acquired by
THG on 11 May 2021
means the Board of Directors of the Company (or its subsidiaries as the context may require from time to
time)
means the Company’s Board-constituted Committees comprising the Audit Committee, the Risk
Committee, the Remuneration Committee, the Nomination Committee, the Related Party Committee and
the Sustainability Committee
means the UK’s decision to leave the European Union following the referendum on 23 June 2016
means the British Retail Consortium
means Compound Annual Growth Rate
Carbon Neutral
means achieving a net-zero release of carbon dioxide into the atmosphere
Chair or Independent Chair
means Charles Allen, Lord Allen of Kensington, CBE, independent non-executive chair of the Company,
appointed on 22 March 2022
Chief Executive Officer or CEO
means Matthew Moulding, the Company’s Chief Executive Officer and co-founder
Chief Financial Officer or CFO
means John Gallemore, the Company’s Chief Financial Officer and co-founder
Claremont
means Claremont Ingredients Limited, the leading independent flavour manufacturing, sports nutrition and
beverages development business that was acquired by THG on 10 December 2020
281
282
Annual Report 2021
Code
means The UK Corporate Governance Code (July 2018) published by the FRC
Companies Act
means the Companies Act 2006 (as amended from time to time)
Company
means THG PLC, a public limited company incorporated in England and Wales with registered number
06539496, whose registered office is at 5th Floor Voyager House, Chicago Avenue, Manchester Airport,
Manchester, M90 3DQ, United Kingdom
Company Secretary
means James Pochin, the Company Secretary of THG PLC
Constant currency
means without taking into account fluctuations in the exchange rate; therefore showing the figures as if the
exchange rate remained constant
Covid-19
CPG
CRM
Cult Beauty
D&I
D1 Shares
D2 Shares
D2C
Deferred 1 Shares
Deferred 2 Shares
Dermstore
Directors
means the disease caused by Severe Acute Respiratory Syndrome Coronavirus 2, responsible for the global
pandemic that has impacted the Group’s operations
means Consumer Product Groups
means Customer Relationship Management
means Cult Beauty Limited, the UK-based online beauty retailer of prestige and emerging independent
brands that was acquired by THG on 3 August 2021
means diversity and inclusion
means the D ordinary shares of £0.005 each in the capital of the Company, having the rights and being
subject to the restrictions set out in the Articles of Association
means the D ordinary shares of £1.00 each in the capital of the Company, having the rights and being
subject to the restrictions set out in the Articles of Association
means direct to customer
means the deferred 1 shares in the capital of the Company, having the rights and being subject to the
restrictions set out in the Articles of Association
means the deferred 2 shares in the capital of the Company, having the rights and being subject to the
restrictions set out in the Articles of Association
means Dermstore LLC, the pure play online prestige skincare business that was acquired by THG on
2 February 2021
means the directors of the Company from time to time and “Director” means any one of them
Disclosure Guidance and
Transparency Rules or DTRs
means the disclosure guidance and transparency rules made by the FCA under Part VI of the Financial
Services and Markets Act 2000 (as amended from time to time)
Division
EBITDA
EBT
EHO
ERM
ESG
EU
E Shares
means business units within the overall single operating segment of the Group
means the non-GAAP measure which is defined as Earnings Before Interest, Taxes, Depreciation and
Amortisation
means earnings before tax
means Environmental Health Office
means Enterprise Risk Management
means environmental, social and corporate governance factors which are non-financial and are used in
assessing the sustainability and societal impact of the Company and its operations
means the European Union
means the E ordinary shares of £0.005 each in the capital of the Company, having the rights and being
subject to the restrictions set out in the Articles of Association
Executive Leadership Team
means, collectively, those individuals holding executive management positions within
the Company
Executive Directors
means the executive directors of the Company from time to time, being the Chief Executive Officer and the
Chief Financial Officer at the date of this Annual Report,
and “Executive Director” means any one of them
EY or External Auditor
means Ernst & Young LLP, the Group’s statutory auditor and advisor in respect of non-audit services
means the Financial Conduct Authority
means the Food and Drug Administration, a US federal agency of the Department
of Health and Human Services
means fulfilment, inventory, retrieval and storage technology
FCA
FDA
FIR/ST
283
FMCG
FRC
F Shares
GAAP
GDPR
means fast moving consumer goods
means the Financial Reporting Council
means the F ordinary shares of £0.005 each in the capital of the Company, having the rights and being
subject to the restrictions set out in the Articles of Association
means Generally Accepted Accounting Principles
means the General Data Protection Regulation (EU) 2016/679
General Counsel
means James Pochin, the General Counsel of the Company
GHG
GMP
GMV
means greenhouse gases
means Greater Manchester Police
means Gross Merchandise Value
Group or THG
means the Company and its subsidiaries and subsidiary undertakings from time to time
G Shares
HMRC
H Shares
IAS
means the G ordinary shares of £0.005 each in the capital of the Company, having the rights and being
subject to the restrictions set out in the Articles of Association
means Her Majesty’s Revenue and Customs
means the H ordinary shares of £0.005 each in the capital of the Company, having the rights and being
subject to the restrictions set out in the Articles of Association
means International Accounting Standards
ICON Technology campus
means the Manchester ICON Technology Campus
IFRS
IPO
ISO
KOL
KPI
means International Financial Reporting Standards
means the initial public offering of Ordinary Shares by the Company in September 2020
means the International Organization for Standardization
means key opinion leader
means key performance indicator
Listing Rules
means the Listing Rules made by the FCA under Part VI of the Financial Services and Markets Act 2000 (as
amended from time to time)
London Stock Exchange
means the London Stock Exchange PLC or its successor
LTIP
MarTech
M&A
NEDs
NHS
means any long-term incentive plan operated by the Company from time to time
means Marketing Technology
means mergers and acquisitions
means the Non-Executive Directors of the Company and “NED” means any one of them
means the UK’s National Health Service
Notice of Meeting
means the notice of AGM circulated to Shareholders on or around the date of posting of this Annual Report
NPD
OECD
Operational emissions
Ordinary Shares
means new product development
means the Organisation for Economic Cooperation and Development
means GHG emissions associated with direct (scope 1) and indirect (scope 2) operations but excluding
scope 3 (value chain emissions)
means the voting ordinary shares of £0.005 each in the capital of the Company, having the rights and being
subject to the restrictions set out in the Articles of Association
Perricone
means Perricone MD, the US prestige skincare brand that was acquired by THG on 29 September 2020
284
Annual Report 2021 PHE
PPE
PR
means Public Health England
means personal protective equipment
means public relations
Premium Listing
means a listing where the issuer is required to comply with Chapter 6 of the Listing Rules and the other
requirements in the Listing Rules that are expressed to apply to securities with a premium listing
Propco Group
means Moulding Capital Limited (formerly Kingsmead Holdco Limited), a company incorporated in
Guernsey (registered no. 51762), whose registered office is at Sarnia House, Le Truchot, St Peter Port,
Guernsey, GY1 1GR (“Propco”), and its subsidiaries from time to time, which together hold certain property
assets that are used or occupied by THG under leases between the relevant Group company and the
relevant subsidiaries of Propco
Propco Transaction
means the sale of the Propco Group prior to Admission to Moulding Group Limited (formerly FIC Holdings
Ltd), which is wholly owned by Matthew Moulding, the CEO
RCF
means revolving credit facility
Regulations
means the Companies (Miscellaneous Reporting) Regulations 2018 (as amended from time to time)
Related Party Transaction
means a transaction, arrangement or relationship to which the Company or any of its subsidiaries will be
a participant and where any related party has a direct or indirect interest
Remuneration Policy
means the Shareholder-approved policy which sets out the remuneration arrangements for Directors
(as amended from time to time)
SaaS
Section 172
means software as a service
means section 172 of the Companies Act, which relates to the duty of a company’s directors to promote the
success of a company
Senior Management
means the Executive Leadership Team and its direct reports
Separation Committee
means the committee established to oversee the co-ordination, delivery and execution of a reorganisation
of the THG corporate structure, specifically regarding the formation of six sub-groups relating to THG
Beauty, THG Nutrition, THG Luxury, THG On Demand, THG Ingenuity and THG Experience
Shareholder
means a holder of Ordinary Shares
Shares
SID
SKU
means together the Ordinary Shares, D1 Shares, D2 Shares, E Shares, F Shares, G Shares, H Shares, Deferred
1 Shares, Deferred 2 Shares and the Special Share or any or a combination of each as the context requires
means the Board’s senior independent NED, currently Zillah Byng-Thorne
means stock-keeping unit
Softbank
means SB Management Limited, a subsidiary of SoftBank Group Corp.
Special Advisors
Special Share
means the independent special advisors appointed by the Company to provide additional resource and
specialist support to the Board Committees in respect of areas such as tax risk governance, sustainability,
cyber risk and regulatory compliance
means the “special” share of £1.00 in the capital of the Company, having the rights and being subject to the
restrictions set out in the Articles of Association
Standard Listing
means a standard listing under Chapter 14 of the Listing Rules
THG Beauty
means a key division and market of the Company relating to beauty products, commerce and distribution
means a key division and market of the Company relating to the hosting of leading third-party brands on
THG Ingenuity
means a SaaS platform feature created and used by the Company that identifies and protects against all
aspects of fraud and risk online, safeguarding business critical data and customer information
THG Commerce
THG Detect
285
THG Digital
THG (eco)
means the Company’s end-to-end digital brand services
means the Company’s sustainability solutions division
THG Experience
means a key division and market of the Company relating to influencer marketing and commerce
THG Fluently
means the Company’s proprietary translation services
THG Ingenuity
means a platform created and used by the Company to achieve global e-commerce competitive advantage
THG Luxury
means the luxury fashion retail division of the Company
THG Nutrition
means a key division and market of the Company relating to nutritional products, commerce and distribution
THG Studios
means a division of the Company which produces digital content
THG Technology
means a key division and market of the Company
THG Values
means the Company’s values, namely leadership, innovation, decisiveness and ambition
WAEP
WMS
YoY
means weighted average exercise price
means warehouse management systems
means year on year
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Annual Report 2021