## Annual ## Report AMBITION LEADERSHIP DECISIVENESS INNOVATION ## COLLABORATION 2022 Annual Report 2022 ## Contents Highlights | | | | | Revenue | | Adjusted EBITDA | | | --- | --- | --- | --- | --- | --- | --- | --- | | Strategic Review | | Governance Report | | | | | | | | | | | 2022 | £2,239.2m | 2022 | £64.1m | | Chair’s Introduction | Page 3 | Governance Report | Page 105 | | | | | | Chief Executive Officer's Review | Page 5 | Audit Committee Report | Page 123 | 2021 | £2,179.9m | 2021 | £161.3m | | Company Overview | Page 8 | Risk Committee Report | Page 130 | | | | | | | | | | 2020 | £1,613.6m | 2020 | £150.8m | | Our Business Model | Page 13 | Nomination Committee Report | Page 133 | | | | | | THG Beauty | Page 21 | Related Party Committee Report | Page 138 | | | | | | THG Nutrition and Wellness | Page 26 | Sustainability Committee Report | Page 141 | | | | | | | | | | Adjusted EBITDA margin | | Reported operating loss | | | THG Ingenuity | Page 32 | Directors’ Remuneration Report | Page 144 | | | | | | Chief Financial Officer Review | Page 37 | | | 2022 | 2.9% | 2022 | £495.6m | | | | Financial Statements | Page 159 | | | | | Section 172 Statement Page 47 7.4% £137.5m 2021 2021 Stakeholder Engagement | Non-Financial Information Statement | Page 55 | | | | | | --- | --- | --- | --- | --- | --- | | | | 2020 | 9.3% | 2020 | £481.8m | | Sustainability | Page 57 | | | | | Task Force on Climate-related Page 79 Financial Disclosures | | | Strategic progress | Financial performance | | --- | --- | --- | --- | | Risk Management | Page 83 | | | | Directors’ Report | Page 97 | | | | | | • THG Ingenuity gaining momentum following the pivot to | • Record sales of £2.2 billion | focus on higher value and ultimately higher margin contracts • Significant investment in price strategy impacting • Successful completion of the divisional reorganisation gross margins to support long-term customer retention with cost savings and efficiencies implemented in FY 2022 • Lower level of profitability due to challenging ### "With a strong balance sheet and category leading • Simplification of the Group leading to a strategic review macroeconomic environment and significant positions within substantial end markets that continue of loss-making categories and territories, underpinning cost inflation across major cost lines ### to benefit from long-term structural growth, we have FY 2023 profitability improvements • New £156 million term loan further strengthened the ### confidence in our ability to deliver long-term value for • Strategic partnerships and alliances entered into across balance sheet with c. £640 million of cash and available ### shareholders. THG Beauty, THG Nutrition and THG Ingenuity facilities at year end ### Our entrepreneurial culture is prevalent across the ### organisation, with our people rising to the challenges ## THG Awards ### presented to them during the year with resilience and ### tenacity, with high-performing, diverse teams being ### Matthew Moulding ### central to our ongoing success." Chief Executive Officer th | Click here to watch our review of the year | #1 CIO in the UK | Contact Centre Support | | | Most Exciting | 10 | in Top Customer | | Winner in the | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | (Joanna Drake) | | Team of the Year | | Partnership | Service Experience, | | | Shopping App | | | | | (Silver) (Group) | (Hotel Chocolat X Myp) | | Non-Grocery Retail | | Campaign category | | CIO UK 100 Awards European Specialist (Lookfantastic) App Growth Awards 2022 Call Centre Management Sports Nutrition Alliance Association Awards KPMG Customer Experience 2022 21 Annual Report 2022 # Chair's introduction ![img-0.jpeg](img-0.jpeg) Charles Allen, Lord Allen of Kensington CBE Independent Non-Executive Chair ## Introduction Welcome to our 2022 Annual Report. Having been appointed just over a year ago, I am delighted to have had the opportunity to get to know the business over that period and remain highly impressed with the talent and culture which is evident throughout the organisation. The past year has been marked by a number of external challenges – from Covid-19 and its various impacts still lingering in certain territories, to rising inflation and the war in Ukraine. And whilst these external factors have impacted consumer confidence and added inflationary pressures to our cost base, the management team have worked hard to mitigate their effects, pivoting to focus on cash generation, strengthening the balance sheet, reducing costs and, in turn, delivering a robust set of financial results. More than that, though, these past 12 months have been one of change and development for THG. I joined the Group as Chair with a clear mandate to strengthen the governance and with Matt Moulding, the Group CEO, review and refine the Group's strategy. We have refreshed THG's Board and with Matt, developed the management team. There is still more to do but we've made significant progress as I will set out below. ## Board composition and management We continued to strengthen our Board composition during 2022, seeking to enhance the skills, experience, knowledge and diversity and were pleased to welcome Dean Moore and Gillian Kant as independent NEDs in September 2022, both of whom bring significant experience and insight from their previous industry roles. Following a review of THG's leadership needs, we announced two changes to the Executive Leadership Team at the beginning of 2023 – the appointment of Damian Sanders, former independent NED and chair of the Audit Committee, to CFO and the appointment of John Gallimore, the incumbent CFO, to COO. During 2022 we also saw Dominic Murphy, Tiffany Hall, Zillah Byng-Thorne and Dr Andreas Hansson step down from the Board and I, together with my other Board members, would like to thank them all for their valuable contributions during their tenures with THG. Further information on the Board changes which took place during 2022 can be found within the Governance Report and the Nomination Committee Report. ## Organisational development In July 2022 we announced the legal completion of the internal separation of our key trading Divisions, an important landmark in the continued development of the Group and a significant undertaking that was completed on track and on time. The Board believes that this separation provides material optionality and flexibility for our key trading Divisions to enter into future strategic partnerships, generating value accretion for all shareholders. As you will see from our published accounts for FY22, the separation allows us to report on a divisional basis (with comparative figures for FY21 provided also), adding a new level of transparency to our financial reporting, and providing the opportunity to demonstrate the true value of our three world-class businesses: THG Beauty, THG Nutrition and THG Ingenuity. ## People and diversity Our values, culture and people have, collectively, allowed us to make substantial progress against our strategic priorities. The Senior Management team has demonstrated its experience and keen ability to drive progress, and I have been pleased to see the impressive work undertaken across all our operating Divisions, as they grow and expand their respective customer and client propositions. Our ambitions to drive sustainable, profitable growth and long-term value creation are supported by a dedicated and diverse workforce. Retaining and developing talent is a key priority for THG and we empower our colleagues to make a difference. During 2022 we set out to add a fifth Company 'value' – alongside Leadership, Innovation, Decisiveness and Ambition – and were incredibly pleased with the level of engagement from our global colleagues who overwhelmingly suggested Collaboration as the value most reflective of their THG experience. This selection is testament to the central place that collaboration plays in the culture of THG, from how we view our relationships with each other as colleagues, to the partnerships we form with our clients to drive mutual success. ## Stakeholder engagement As Chair I have been fortunate to spend time with many of our shareholders, particularly consulting on their views when the Board was appraising the bid approaches received during the first half of 2022. As we announced to the market at the time, the Board was unanimous that the offers were unacceptable and significantly undervalued the Company. I have listened to Shareholder feedback and have begun to implement positive changes to our engagement and communications strategy which will continue over the course of 2023. ## Continued strategic delivery Against all this, we have continued to execute our strategy successfully and have done so whilst continuing to invest in our future growth, rolling out fulfilment and manufacturing infrastructure around the globe, ensuring we are well-placed in our key territories to meet the growth demands both of our own-brands and of our ingenuity clients. Our Divisions have established meaningful positions in their respective markets and we continue to refine their strategic focus, ensuring they are well-tuned for continued delivery for all stakeholders. THG Beauty and THG Nutrition remain relevant to a global consumer base who are living longer, more digitally connected lives than ever before. Following a change of leadership, THG Beauty is exiting certain geographies, simplifying the offer and focusing on higher margin products. THG Nutrition has undertaken a strategic reframing, further diversifying from its traditional protein-based product focus and broadening its offering to deliver for the entire 'wellness' market. This is all powered by our technology and physical infrastructure platform, THG Ingenuity, which continues to deliver for our stakeholders – whether they be customers, consumers, clients or strategic partners – working with them to support and deliver their digital commerce journeys. Throughout the year it has gained momentum as its strategic pivot to focus on higher value and higher margin contracts has begun to bear fruit. Following a detailed review of each of our divisions we have reduced the headcount and attracted and retained the best talent. ## Sustainability As a business we are committed to driving environmental and societal change, both through our own operations and as a key partner for our stakeholder groups. This is driven by our 2030 Sustainability Strategy, THG's Planet Earth, which details our goals and targets as we pledge to use our global scale, world-class talent and dedication to innovation to act as a force for good. In 2021 we invested in building our recycling capabilities, and during 2022 we broadened the services we provide to our Ingenuity clients through THG Eco. When it comes to 3 Annual Report 2022 # Chief Executive Officer's Review ![img-1.jpeg](img-1.jpeg) Matthew Moulding Executive Director and Chief Executive Officer ## Dear Shareholder 2022 was unquestionably the most challenging global environment we've seen since founding THG nearly 20 years ago. An extraordinary backdrop of runaway inflation, rapidly rising interest rates, and major geopolitical events created significant macroeconomic and consumer uncertainty. I'm incredibly proud of how THG and the team responded to these challenges. For me, there is no doubt that 2022 was our best performance to date, even given the reduction in profitability year-on-year. THG almost doubled in size during the global pandemic, capitalising on an unprecedented movement of consumers to online retail. As consumer behaviour has normalised, the Group not only held onto the growth achieved during the pandemic but went on to grow further during 2022. This growth in market share, delivered in the most trying of circumstances, is testament to the quality and dedication of our people. From the start of 2022, the Group and divisions alike undertook decisive action to adapt their business models to a very different market landscape, while maintaining revenue growth in the process. - Our Beauty and Nutrition divisions committed to shielding consumers from what we believe to be exceptional, short-term inflationary pressures. These actions temporarily reduced gross margins and profitability year-on-years with the long-term benefits to brand integrity underpinning stronger customer loyalty and financial reward. - After a careful and lengthy search, Vivek Ganotra joined as CEO of THG Ingenuity in June and was tasked with repositioning the division away from smaller, high-volume clients, to focus resources on our growing base of valuable, large scale, enterprise clients. - The previous 48 months have seen significant expansion of our global fulfilment and manufacturing infrastructure, with each facility requiring a full depth of stock holding to become fully operational – which is now rationalising as evidenced through the working capital inflow in the year. This strategy has driven an improved service for consumers in international territories. - In July 2022, we announced the completion of the divisional reorganisation, increasing strategic optionality for the future. The divisional reorganisation has also yielded improved visibility of costs, enabling savings to be made from reducing duplication and greater focus. The project was very comprehensive, and we are well on our way towards broadening our financial reporting to better reflect the divisional performance. - Group headcount reduced by almost 2,000 people during the year, largely achieved through the careful management of attrition as well as maintaining strong cost discipline and the roll-out of logistics automation. - To strengthen our liquidity, we agreed a new £156 million banking facility, resulting in the Group having over £640 million of cash and facilities at the year-end. Net debt of £181 million was better than guidance of c£200 million. - The Group's Board also underwent some changes, with the appointment of Lord Charles Allen as Non-Executive Chairman, and the subsequent appointment of two Independent Non-Executive Directors. We see the Group being well progressed to deliver positive free cash flow on a rolling 12 month basis through FY 2024, via ongoing project delivery efficiencies including driving working capital improvements, while not compromising our ability to meet growing demand and deliver top-line revenue growth. ## Market outlook Our Beauty and Nutrition divisions operate in large, resilient and expanding total addressable markets, with each holding prominent positions in many territories. There are long-term trends driving category growth in our core markets (premium beauty, health and wellness), where we have the infrastructure and capabilities to serve following investment in our fulfilment and distribution network. Both our core consumer markets continued to grow through the previous global financial crisis, and over the last decade benefited from the exceptional growth of online participation. For example, the UK online share of total retail sales has increased by more than 25% over the last three years – now accounting for around 25% of total retail sales. Our key categories are supported by favourable dynamics, such as high repeat-purchase rates, stable average order values and very low return rates. This presents THG with opportunities to grow within existing markets, and in targeted new markets where we will be able to rapidly scale up our presence. ## Customer proposition One of our greatest assets is our global customer base of over 16 million THG Beauty and THG Nutrition active customers. Our apps have been downloaded over 10 million times from a standing start in January 2020 with our first-party data advantage a core strength in our model, allowing us to hold direct relationships with our consumers. The insights gained from these customers informs our daily decision making, and we are investing in growing this network of passionate, engaged beauty and wellness enthusiasts – firmly positioning us as the market leader in this space. We are constantly striving to become more efficient as an organisation, while optimising the customer experience and minimising delivery times. Through our brands, we have reimagined how we think about beauty and nutrition – and how this integrates into our daily lives as we increasingly look to improve our overall health and wellbeing. ## Divisional highlights I'm pleased with the progress achieved within Ingenuity as we pivot towards a longer-term view for sustainable profitability, supporting major UK and international retailers across a wide range of categories, further supported by our expanding network of partners and strategic alliances. THG Beauty is now firmly established as one of the leading pure-play online retailers globally delivering over £12 billion of revenue. We have set a pathway to rebuild margins in our largest division through a focus on profitable territories, efficient marketing channels and improved localised procurement. THG Nutrition witnessed one of its most challenging periods in recent times and consequently I'm delighted that we delivered revenue and market share growth across many key territories, in addition to expanding our category reach with new and innovative partners. Our customer base has remained stable, notwithstanding a higher pricing environment and physical stores reopening, supporting the defensive position of our brand. Following the strategic investments made through acquisitions during 2021, we have continued at pace with our integration plans, prioritised customer retention, 5 Annual Report 2022 ## People and purpose As THG evolves, we recognise that we must review our purpose, vision, and values to ensure they align with our strategy and reflect who we are, what we do, and why we exist. Our purpose and vision reflect the diversity in our business model and the impact we can drive through our innovation and digital expertise. Based on our success building THG Beauty and THG Nutrition into category leaders, we remain committed to reinventing how brands connect to consumers globally and supporting them to be best-in-class at building, growing and accelerating brands. In 2022, we submitted our emissions reduction targets to the Science Based Targets initiative (SBTi) for validation - this is an important step towards our goal to achieve net zero by 2040. We also source 63% of the electricity used in our operations from renewable sources and we are on track to reach 100% by 2025. We have continued to make good progress across the people and communities pillar of our THG's Planet Earth Sustainability strategy and are proud that we have 45% female and 26% ethnic minority representation within our Graduate and Apprenticeship schemes, against a target of achieving 50% and 20% respectively by 2025. Our people are the heartbeat of THG, and I was exceptionally pleased to reward some of our loyal and talented colleagues with share awards during the year totalling £139m across 33.9 million shares, in addition to a number of promotions as we continue to invest in and develop digital talent. Finally, I'm particularly proud of THG's contribution to the communities in which we operated during 2022, in terms of both taxes and charitable efforts. In the 18th year since founding THG, the Group made a record global tax contribution of £153.4m, up from £123.4m in 2021. The contribution in 2022, from starting THG less than 18 years earlier, shows the importance of start-ups to the UK economy. ## Outlook With the completion of the divisional reorganisation, and decisive cost reduction action undertaken, the Group enters 2023 with improving momentum to achieve substantial margin expansion. Earnings recovery is supported by continued operating leverage, reducing consumer price protection, and the full-year effect of operating efficiencies and cost savings arising from the divisional reorganisation. Our vertically integrated model enhances our ability to react to periods of economic uncertainty, and the profit improvement initiatives undertaken as part of the strategic review give us added confidence in driving margin recovery in 2023 and beyond. We are well capitalised to advance our strategy of building a strong, sustainable global platform supporting THG brands and ingenuity clients, and we have outlined our core levers for driving margin accretion and positive free cash flow over the near-term. We remain confident that our business is underpinned by strong investment and strategic growth plans which will drive long-term value for our shareholders. ## Our purpose and vision As THG evolves, we recognise that we must review our purpose, vision, and values to ensure that they align with our strategy and reflect who we are, what we do, and why we exist. ![img-2.jpeg](img-2.jpeg) Our purpose is to make an impact through digital transformation, innovation, and expertise. Making an impact is what we do; it's why we exist. We strive to make an impact for our people, our customers, our ingenuity clients, our suppliers and partners, our shareholders, and our communities. ![img-3.jpeg](img-3.jpeg) ![img-4.jpeg](img-4.jpeg) We dig Th for the mr de so Fin an de Our co en bro tra C a b Our lea all for Annual Report 2022 ### We’re incredibly proud to celebrate our diverse ## Our values ### workforce and the unique experiences, skills, ## 03/ ### and qualities everyone brings to the table. ### However, there are a few attributes that ### we all share. ## Leadership ### We lead by example We inspire, motivate, and encourage each other to push the boundaries of what is possible. We set a positive example and promote a culture of meritocracy so that everyone at THG, no matter ## 01/ their background, age, or experience, has the opportunity go further, faster. ## Ambition ### We think big We set ourselves ambitious goals, seeing opportunities where others see obstacles. We take pride in our work and ## 04/ view our setbacks as valuable learning experiences. Our progressive mindset allows us to deliver better outcomes for our people, our brands, our clients, our ## Collaboration customers, and our communities. ### We work together We share ideas, insights, and skills to create a meaningful impact and drive positive results for our business. We listen to each other, we trust each other, and we strive to create an environment where ## 02/ everyone feels heard. ## 05/ ## Innovation ### We do things differently We celebrate experimentation and champion ## Decisiveness entrepreneurial thinking. We find solutions, ### not problems, and use our creativity and We make bold decisions resilience to drive continuous improvement. We use robust data to make quick, informed, and confident decisions. We take calculated risks and we’re not afraid to take accountability for our actions. 9 10 THG colleagues captured at ICON Studios. Q1 2023 Annual Report 2022 ## Our strategy Our Stakeholders We have built a strong, global business. Investments made to date support further sustainable growth, ## Strategic Priorities creating value across our key stakeholders. Build category leadership To make Ingenuity the positions in beauty, partner of choice for health and wellness commerce transformation ## and sustainability solutions Customers Our Suppliers ## and Consumers and Partners We enable brands to have direct We promote open and relationships with consumers transparent working practices by providing a high-quality retail and collaborate for mutual experience and establishing commercial success a relationship of trust Deliver engaging content Accelerate growth in core Drive positive change and innovative products to international territories, with our stakeholders, our global customer base leveraging our local through an entrepreneurial, infrastructure values-led culture ## Shareholders THG Ingenuity ## Our ## Clients We create value for ## shareholders and through Stakeholders We support clients our purpose, vision, values on their digital and strategy, deliver long- transformation journeys term, sustainable growth ## Medium-term Financial Priorities ## Our People ## Society Revenue We aim to ensure THG is a ## & Communities growth Return to historical supportive environment with career development opportunities adjusted EBITDA We aim to build skills and at all levels, focused on building develop talent to promote margin of 9%+ the skills of tomorrow greater social mobility, whilst protecting the environments Free cash flow we operate in and source from generation Strong balance sheet Market-share growth For further information please see the following sections: THG Beauty, THG Nutrition, THG Ingenuity, Chief Financial Officer Review, Section 172 Statement Stakeholder Engagement. 1211 Annual Report 2022 ## Divisional revenue Territory revenue ## Our business model Other 8% RoW THG is a leading vertically integrated, global e-commerce technology group and brand owner, Ingenuity 17% 7% powered by its proprietary technology platform, Ingenuity, through which it also provides end-to-end e-commerce solutions for brands to reach a global e-commerce consumer base. THG operates under three core divisions (THG Beauty, THG Nutrition and THG Ingenuity), UK ### each operating in resilient, growing markets. These divisions leverage the Group’s specialisms: 20222022 43% Beauty USA the development of a portfolio of leading consumer brands; and the acceleration of D2C 55% 20% growth for third-party clients. Following the simplification of the Group during the year, Nutrition 30% each division is now operated in separate and distinct legal entities. Europe 20% ## A powerful portfolio of Accelerating D2C brand growth ## category-leading consumer brands on a global scale via proprietary ## focusing on beauty and nutrition e-commerce infrastructure 13 14 Annual Report 2022 THG operates under three core divisions: THG Beauty, THG Nutrition and Wellness and THG Ingenuity. As well as being a third-party e-commerce solution, THG ## THG Operations Ingenuity is the operational infrastructure and digital hub which supports THG Beauty and THG Nutrition, delivering Encompassing global fulfilment from a network of sixteen excellence throughout the supply chain and customer warehouses in strategic locations across the world, experience. THG operates a vertically integrated model, manufacturing of nutrition and beauty products in owned allowing the Group to control the entire customer journey, and operated BRCAA/A grade facilities in the UK, US and from design, manufacturing, product education and Poland, customer services and sustainability solutions from discovery, to purchase and fulfilment. carbon offsetting and consultancy to plastic recycling. Its capabilities sit within three sub-divisions: ## THG Digital ## THG Technology THG’s integrated marketing ecosystem brings together Since inception 18 years ago, the Group has continually digital marketing, media, creative content production, invested in building its own e-commerce software translation and digital services to create a holistic, specifically designed for the retail of consumer goods data-driven digital marketing strategy across channels, globally. Solutions include the Group’s highly scalable driving scalable and cost-effective customer acquisition. enterprise platform that powers e-commerce for brands; hosting infrastructure ranging from dedicated servers and cloud hosting to managed services; fulfilment technology including warehouse and delivery management systems and warehouse automation; and fraud management and The #1 online pure-play prestige beauty retailer detection software. Lookfantastic, and several other popular online Myprotein, the world’s #1 direct-to-consumer sports prestige beauty retailers. nutrition brand and its brand family, offering products across several associated categories, including protein A portfolio of eight owned digital-first prestige and sports nutrition, vegan alternatives, health snacks, brands addressing primarily skincare, haircare vitamins and athleisure. and cosmetics. CORE COMMERCE GLOBAL FULFILMENT STUDIOS ## Other divisions PLATFORM MANUFACTURING SOCIETY THG Experience, three luxury event spaces: King Street CLOUD SERVICES Townhouse Hotel, Great John Street Hotel, and Hale FLUE NT LY ECO Country Club & Spa, providing bespoke luxury spaces VOYAGER • Climate action for hosting influencer and brand events for both THG OTHER • Warehouse • W aste reduction and third-party brands. Management System • St rategic GTM consultancy • Recycling | | | | | • | T rading services | | --- | --- | --- | --- | --- | --- | | | DELIVERED | • | E SG data & performance | | | | THG Luxury, the online retail of over 200 fashion and | | | | • | B rand partnerships | | lifestyle brands, including the websites Coggles.com, | • Courier management | • Re-forestation | | | | | | | | | • | P erformance marketing | Mybag.com and Thehut.com. FIR/ST | From 1 January 2023, THG Experience and THG Luxury | • | F ulfilment Inventory Retrieval | | --- | --- | --- | | will be reported within the THG Beauty division. | | & Storage Technology | | THG OnDemand, entertainment products and subscription | ORBIT | | | services for clothing, gadgets and vinyl, with a focus | • Customer experience | | on personalisation and licensing arrangements with Proprietary complete e-commerce platform that powers global publishing houses. THG OnDemand was under digital experience and retail for FMCG, beauty and retail strategic review at the year end. The strategic review is brands globally, creating a seamless experience for now complete and the Board has subsequently decided consumers. to discontinue the operations of this division. See more information within the CFO report. Clients can purchase end-to-end or modular services to meet their needs, drawing on the Group’s digital brand building capability, extensive proprietary e-commerce technology and physical infrastructure. 15 16 Annual Report 2022 ## Core Operating Model ## Our marketplace THG operates a vertically integrated model to deliver products and services to customers, giving greater control over revenue growth and costs to deliver profits and cash in the medium-term. THG Beauty and THG Nutrition sell products direct to consumers across ## Revenue Market description Our position the world. Revenue is generated on the sale of products and recognised when received by the customer. THG Nutrition’s total addressable market, including the The competitive landscape within sports nutrition, our sports nutrition, vitamins, weight management products primary market, is fragmented globally, comprising a very THG Ingenuity generates revenue selling services to business customers and sportswear categories, is estimated to amount to £350 small number of international brands of scale including through a combination of one-off fees for services such as initial website billion globally. THG Nutrition’s core focus is on the sports Myprotein, alongside a number of smaller brands that build, recurring fees for regular services such as marketing, fulfilment nutrition market, which is estimated to amount to £17 billion, operate principally in their local markets. or software licences, and revenue share on Ingenuity websites. however the focus has been expanded in recent years to address wider segments of the global nutrition market. Myprotein is the largest online sports nutrition brand 1 globally, and the most internationally diverse. THG Nutrition is therefore uniquely positioned to capitalise on this long- term channel shift towards e-commerce. ## Products In addition, we see THG Nutrition’s online direct to THG Nutrition’s products span a number of categories consumer model as a strategic benefit as consumers of the global nutrition market, including protein powders, increasingly turn to the internet to educate themselves Input costs relate primarily to raw materials for goods manufactured in-house supplements, vitamins & minerals, bars & snacks and ## Costs on the benefits of nutritional products. THG Nutrition’s (e.g. whey used in the manufacture of whey protein within the Nutrition division) drinks. In addition, THG Nutrition offers performance connection with consumers through its websites and apps and finished goods purchased for resale (e.g. third-party beauty products clothing through its activewear brand MP. THG Nutrition’s enables direct engagement with consumers that traditional retailed by the Beauty division). products are primarily distributed direct to consumer retail brands cannot achieve, positioning THG Nutrition as through its own websites, such as Myprotein.com. a valuable source of engaging and educational content for Distribution costs relate to the fulfilment and shipping of orders to customers. This allows for close engagement with the brand’s consumers. THG has delivered efficiencies during the year through an innovative customers, while also enabling the brands to offer warehouse automation solution, despite the inflationary cost environment. a wider assortment of products than is typically available THG Nutrition is positively differentiated from competitors through traditional retail channels, where the product through its digitally-native direct to consumer model, its global range is confined by shelf space. Administrative costs relate primarily to marketing and people costs. reach, the extent of its vertically integrated model, and its broader focus, spanning the sports nutrition, vegan products, vitamins, bars and snacks and sportswear categories. ## Key trends The global nutrition market’s growth is supported by the ## Outlook long-term trend of consumers becoming increasingly health conscious, and looking to consume more nutritional products. The total addressable market is expected to continue This is common across a wide range of product categories. THG’s core divisions of Beauty, Nutrition and Ingenuity are profitable when to grow, reaching approximately £25 billion by 2025, ## Adjusted considering Adjusted EBITDA from continuing operations. representing a 11% CAGR (2021 and 2025). The online The rate of adoption of healthier products is impacted segment of the sports nutrition market has historically ## EBITDA by income levels, with higher income countries typically The Group’s medium-term Adjusted EBITDA target is 9%+ which is supported grown faster than the overall market; the drivers of this consuming more nutritional products. As lower income structural growth include the increasing long-term trend by identified cost savings and in line with historical periods. countries develop, we would therefore expect to see higher towards healthier lifestyles, an increased awareness of consumption of nutritional products, in line with the trends nutrition, and greater online engagement of consumers, seen in higher income countries. both in terms of purchasing and educating themselves on the category. The adoption of online channels has also been increasing in the nutrition market, in line with that seen in many other retail categories. In addition, e-commerce penetration is expected to grow significantly in a number of key markets as the online channel in these markets matures. The Group is targeting to be broadly free cash flow neutral in 2023 and free ## Cash Consumers are not only turning to online channels for their cash flow positive from 2024 onwards, with the strategy to reinvest for growth. purchasing, but also using the internet to inform and educate themselves of the benefits of nutritional products. Brands that invest in producing engaging and educational content for their consumers therefore stand to benefit through offering value to consumers beyond the purchasing of products. 17 18 1. According to management estimates. Annual Report 2022 However, as 57% of B2C e-commerce sales flowed through ## Market description Our position Market description marketplaces in 2020, we expect brands to fight back and regain their customers away from marketplaces, investing The global total addressable market for beauty and Our diverse proposition across retail destination sites, THG- The total addressable market for D2C across the three Personal care was £414 billion in 2022, which grew +8% owned beauty brands, subscription services and manufacturing in their own commerce stack to make every touchpoint core categories we operate within (Beauty, FMCG and 2 year-on-year. THG Beauty is focused on the premium capabilities provides a complementary network of product and 1 a shoppable moment. Retail) is $277 billion . segment of the market, which was valued at £120 billion service offerings, creating a competitive advantage through in 2022 and grew +9% year-on-year. strong brand partner relationships and an enhanced customer Across our three solution areas of Technology Solutions, experience. Operating globally provides wide exposure, not ## Our position only for THG Beauty, but also for brands who are able to Digital Solutions and Operations, we expect double digital | | access multiple markets through one partner, supporting our | growth of 10% for fulfilment, 13% for Technology Solutions | | | | --- | --- | --- | --- | --- | | Products | | | | Ingenuity has high relevance and proven capabilities | | | leading positions in the UK, US and Europe. | | 1 | | | | | and 16% for Digital Solutions by 2025 | . | | to address these market shifts, delivering speed, scale THG Beauty’s portfolio encompasses multiple categories A broad range of 1,300 beauty brands across our sites allows and channel expansion whilst minimising execution across the beauty and personal care market through its us to capture the opportunities that lie with the emergence of risk for brands. We support our customers across ## online beauty retail destinations, vertically-integrated Products fast growing, independent beauty brands and the long-term, three main scenarios: prestige brands and subscription-based beauty boxes. sustainable growth of established global players. Technology Solutions comprises our core commerce Supported by a network of global and local influencers, and 1. Replatforming and transformation of a customer’s Consumers are increasingly looking for brands that align with platform and the infrastructure required to run and maintain over 30 localised websites powered by THG Ingenuity, our existing B2C digital commerce solution where the their personal values and allow them to express themselves, the platform; hosting, security, data and analytics. pure-play online retail destination sites provide a critical often perceiving emerging brands as exciting and relevant. customer is looking to accelerate digital brand route to market for over 1,300 brands across haircare, skin THG Beauty is well positioned to support the growth of these experience through improved platform functionality, and bodycare, cosmetics and fragrance. Digital Solutions comprises managed services that are brands through unlimited shelf space, NPD capabilities and increased scalability of the platform solution whilst designed to build and grow brands in new markets, on a unique insights into both consumer and customer trends. reducing existing technical complexity and overall THG Beauty Brands seek to capitalise on the trend of digital global-local scale: trading & marketing services, creative These emerging brands, alongside the larger, more traditional channel shift across skincare, haircare and cosmetics using the technology costs. players, create an important layer of diversity in our portfolio that strategy, content production, translation & localisation, THG Ingenuity platform to scale, and THG Labs for full control enables us to adapt to customer needs and a dynamic trend and access to Society; our global Creator network. over new product development (NPD) and supply chain. 2. Rapidly standing up a B2C digital commerce solution environment, whilst continually supporting the fundamental demands of the wider beauty and personal care consumer. to test brand and product propositions. Using our Operations includes our fulfilment capabilities and courier out-of-the-box platform capability, we can quickly management, sustainability and our customer contact solution. Key trends Acting as a gateway into THG Beauty for our customers, our execute a complete B2C digital commerce solution for beauty boxes represent global sampling opportunities for clients to have a site fully live and operational, at speed. The online global beauty and personal care market’s a range of brands, with category leadership in UK and EU ## markets. The use of monthly surveys enables us to gather vital Key trends growth is supported by increased accessibility to the 3. D2C internationalisation / new market entry supported e-commerce space and improvements in the delivery behavioural insights for THG and its brand partners to enhance by our global digital commerce capabilities and of the in-store customer experience online. the customer purchase journey and support customer retention Retail organisations are facing significant headwinds. across our sites. infrastructure (translation, product and content “Retailers and digital direct-to-consumer businesses Premiumisation is a continuing trend within the global localisation, local payments and local courier integration) are strapped for staff, forced to move faster than ever, beauty and personal care space with prestige beauty Traditional brand discovery, such as department stores and means launching into new markets with minimal cost, and heavily reliant on technology. That reliance, coupled growing c.5% per annum, faster than mass market magazines, is becoming outdated and is currently in decline risk and complexity. with lightning-fast changes to consumer expectations, at c.3% per annum. This growth is being driven by long- with consumers increasingly turning to online platforms, such as advice forums, online reviews and social media, for drives them to seek constant technological innovation.” term, increasing demand for higher quality products, as well as increasing wealth globally. information gathering and product discovery. Our leading (The Forrester Wave™: B2C Commerce Solutions, Q2 2022) ## Outlook positions in online beauty retail and subscription services Online penetration in the beauty and personal care allow THG Beauty to capitalise on this evolution. Commerce is moving beyond traditional channels to a 1 E-commerce sales are expected to reach $6.03 trillion market was 18% as of 2021 , having increased from 8% in world of everywhere, any mindset commerce. Online and 2016. Whilst the pandemic boosted global e-commerce, in 2023 with a CAGR of 11% by 2027, amounting to offline are merging, social and advertising content are it has continued its upward trajectory, supported by $9.04 trillion. fusing, and community commerce is thriving through social improvements in technology and global infrastructure. ## Outlook networks and online marketplaces as well as physical The global market for digital commerce platforms is stores and retail hubs. The global total addressable beauty and personal care market estimated at $12.8 billion in 2022 and projected to reach is estimated to grow to c. £530 billion by 2026, at a CAGR of $38 billion by 2023, growing at a CAGR of 15% from With 45% of online consumers prioritising convenience, 6% between 2022–2026, with online adoption continuing to 3 2022-2030. grow, having risen to 18% in 2021 from 8% in 2016. Premium brands will make direct shopping experiences a priority, beauty and personal care is expected to grow to £162 billion building a commerce presence in every possible moment. by 2026, representing a CAGR of +8% between 2022-2026. 1. Sources: Accenture Grow Digital Commerce, Euromonitor passport, Marketsandmarkets.com, e-commerce platform market, 2022, Globalnewswire, e-commerce fulfilment services, September 2022, Global web hosting market share, 2022, Globalnewswire, Global Content Marketing Industry, 2021, represents global content market industry. 2. Sources: THG Ingenuity; The Top Consumer Trends Impacting DTC Today, October 2022, Forrester; Digital Commerce Predictions, 2022. 19 20 1. Source: Euromonitor. 3. Source: statista, digital commerce worldwide, 2022, Digital Commerce Platform: Global Strategic Business report, 2023. Annual Report 2022 THG’s online multi-brand sites each have a unique Active engagement and educational content have market position driving growth and category leadership, enabled THG Beauty to reach a wider international not only through the delivery of prestige brands across audience and drive a strong sense of brand loyalty. skincare, haircare, cosmetics and fragrance categories, but also by retailing THG-owned brands and subscription THG Beauty’s fully integrated digital model continued THG Beauty operates leading pure-play online retailers product development and manufacturing in the UK and services alongside their direct-to-consumer sites and to be a key driver in the establishment and strengthening such as Lookfantastic, Cult Beauty and Dermstore, USA through THG Labs, which develops and manufactures third-party channels. of brand relationships throughout 2022, enhancing the providing a diverse offering of over 1,300 premium brands, products for THG-owned brands, in addition to third-party positioning of core categories such as skincare and alongside a portfolio of prestige, THG-owned beauty beauty brands. It is the distinct positioning of each of our The integration between beauty retail destination sites, haircare with continuous new brand launches on THG’s brands and subscription box services, with leading market retail sites that enable us to engage with specific segments THG-owned beauty brands and subscription services, retail sites, ensuring that THG Beauty continues to positions in core territories such as the UK, US and Europe. and address their associated needs. powered by THG Ingenuity, has allowed for a better focus address the evolving needs of its customers and stays THG Beauty’s proposition is complemented by in-house on customers’ needs through enhanced segmentation, at the forefront of the beauty market. improved targeting and more engaging content delivery. ## Our ecosystem... ## Accelerates value creation from data, and generates Operational Review superior consumer engagement Key performance indicators, which include the impact engagement and retention strategy following enhanced Online multi brand retail of the prior year acquisitions, have continued to improve new customer acquisition throughout the COVID-19 Makes us a trusted brand partner providing deeper throughout the year, illustrating the resilience of the division, pandemic. We continued to expand our beauty share relationships and enhanced offering given the challenges presented by the macroenvironment of wallet, reflected in higher average order values and in 2022. We maintained an active customer base of 9.2 increased order numbers. million, demonstrating the effectiveness of our customer Supports a highly engaged, digitally native ### Ecosystem workforce equipped with best-in-class digital tools Subscription Production and boxes innovation 1 ### Revenue Average order value Creates a source of global advantage for our retail banners and drives consumer engagement FY22 £1,235.0m £63 FY22 FY21 £1,181.5m £60 FY21 Is the enabler to value-accretive and advantaged Owned prestige beauty brand acquisitions FY20 £751.6m £55 FY20 brands FY19 £478.3m £51 FY19 2 3 ### Active customers Number of orders FY22 9.2m 1 7. 5 m FY22 FY21 9.2m 1 7.1m FY21 World’s #1 online pure- | | First-to-market choice for | US leading online | | | | | --- | --- | --- | --- | --- | --- | | play retailer for prestige | | | FY20 | 6.9m 13.1m | FY20 | | | indie brands; advice lead | retail for professional | | | | beauty products with for the beauty enthusiast skincare brands FY19 4.1m 8.3m FY19 wide range 1. Average Order Value is defined as the average order value per customer order on a gross revenue basis, inclusive of any shipping revenue. | | Broad appeal to typical | Younger, highly engaged | | Older, more affluent | | | --- | --- | --- | --- | --- | --- | | “ “ “ | | | | | 2. Active customers is defined as customers who have purchased at least once within the period. | | | prestige beauty consumer | prestige beauty consumer; | consumers who are highly | | | 3. Number of orders is defined as orders fulfilled within the period. (age, income, engagement) on-trend matters engaged in skincare ## ” ” ” 21 22 Annual Report 2022 ## Strategic Highlights ### Engagement and Retention Existing customers drive over 75% of revenue within THG Beauty and engagement and retention strategies are vital in enriching their customer experience and deepening the relationships that drive repeat purchase behaviour and enable category leadership. LF Premier, introduced in February 2022, allows customers to pay a one-off fee for a 12-month recurring subscription plan offering unlimited free delivery on most delivery options – creating a new subscription model for the site, with LF Premier customers representing over 12% of orders in December 2022. Both spend per account and average order frequency have increased over 130% when compared to non-premier customers in 2022. A further example of Lookfantastic's investment in engagement and retention is the October 2022 launch of loyalty programme 'LF Beauty Plus+. Customers are rewarded with points for engagement on site, such as purchases and reviews, exclusive access to promotional events and enhancements to personalised marketing communications through an improved customer profile. Since the launch, over 900,000 members have driven positive changes across transactional key performance indicators such as spend per account, order frequency and units ordered. In addition to the KPI improvement, our loyalty programme has driven customer engagement and is continually refining our level of customer insight and understanding, aiding in the continual improvement of value creation for our brand partners. ### Territory Expansion As well as continuing growth in our core territories, we have seen growth in new markets following investment in the Group's global distribution network. This has allowed us to identify growing market opportunities through the localisation of our proposition in the MENA (Middle East and North Africa) region. Using our ability to fulfil within the region and utilising our experience from market entry into parts of Europe, we have accelerated our brand awareness in the fast-growing region for premium beauty, resulting in double digit growth across MENA in 2022. The UK, our largest market, also delivered a robust performance in 2022, against an uncertain economic backdrop and the normalising of customer spending behaviour following the pandemic. ### Fragrance Category Expansion In 2022, fragrance continued to demonstrate its resurgence. The fragrance market is estimated to have grown 9% year-on-year, outperforming the global beauty and personal care market which grew 8% between 2021 – 2022. Growth in online penetration of the fragrance market has echoed that of the beauty and personal care market, rising from 7% in 2016 to 17% in 2021. Expansion into this growing category allows us to fulfil more of our customers' needs, as well as deepening our relationships with brand partners. Despite its sensory nature, customers are increasingly making fragrance purchases online, and we will continue to support the category's evolution through initiatives such as the Lookfantastic scent edit, which was launched using our subscription boxes to access our highly engaged beauty customers and introduce innovative ways of shopping the fragrance category online. ### THG SUBSCRIPTION BOXES THG Beauty's subscription boxes have been an important component in supporting THG x Planet Earth in 2022. Lookfantastic Beauty Box introduced an initiative to reduce excess packaging in the thousands of beauty boxes sent out monthly to our subscribers. To protect the climate and nature, delivery has been reduced to contain one reformatted outer conjugate box, and booklets featuring information and articles on the month's edition have been digitalised. This change in packaging will result in a 70% decrease in carbon footprint when compared to previous packaging, and the 100% recyclable boxes has resulted in a 61% reduction in material end-of-life waste. This has enabled us to improve customer experience as well as source the reduced packaging more locally. ![img-5.jpeg](img-5.jpeg) ## THG Brands ![img-6.jpeg](img-6.jpeg) ### ESPA Positioned at the top end of the 5-star market, with a portfolio of over 500 spas across 55 countries, ESPA have continued to lead the wellness space by creating deeply sensorial and personalised wellness experiences with leading partners, as well as in the sanctuary of the home through its expertly crafted products and treatments. In 2022, ESPA's Design and Consultancy service delivered their bespoke wellness concepts to two of the world's most luxurious spas and resorts. Overseeing everything from concept to build development and interior design, two state-of-the-art spas were brought to life in the form of ESPA Life Waldorf Astoria in Lusail, Doha and the Ritz-Carlton New York, NoMad. The pioneering concept in Qatar is the new flagship for the Middle East and represents the future of wellness, whilst at the same time reflecting the unique character of Doha, having taken inspiration from the luxury world of yachting in its elegant spa with a 180-degree view of the bay and Lusail skyline. ### PERRICONE VITAMIN C ESTER CCC + UNDER EYE CREAM Winner of Allure Beauty Expert Best of Beauty 2022 Best Brightening Eye Cream, this breakthrough product designed and manufactured by THG Labs illustrates the effectiveness of our in-house development and manufacturing capabilities. Ophthalmology-tested, its unique concept dramatically reduces under-eye discolouration and addresses concerns such as dullness, uneven texture and dark circles, with 89% of women reporting firmer-looking skin and 87% seeing brighter, more radiant skin and an improvement in the appearance of fine lines and wrinkles! 23 1. Source: The Benchmarking Company, 2022. Annual Report 2022 ## Fantastic Futures Launched in July 2022, Fantastic Futures is an initiative dedicated to supporting niche start-ups by boosting online exposure to their business. After pitching to Fantastic Futures’ experts, the successful brand then gains access to the global retail platform alongside THG’s suite of brand solutions, including THG Ingenuity’s direct to consumer technology, content and marketing, and digital strategy capabilities in order to grow, support and strengthen their brand, and THG Beauty’s product manufacturing capabilities. THG Nutrition comprises a collection of sports nutrition and by 7 manufacturing facilities), and its broader focus, spanning Aligning with THG x Planet Earth, the debut brand on wellness brands, that includes the Myprotein brand family. the sports nutrition, vegan products, vitamins, bars and the Fantastic Futures platform was Fiils, a beauty brand snacks and sportswear categories. at the forefront of the refillable beauty space since 2020, Our leading nutrition and wellness brands empower our championing sustainable beauty products and encouraging consumers to live healthier lives and deliver on their personal The brand is currently the category leader (online and more conscious consumerism. Fiils aims to overhaul nutritional goals. Our brands are delivered to our consumers offline) in the UK and Western Europe, with 2022 market bathrooms of single use plastic and minimise waste while through a network of localised direct to consumer websites, shares of approximately 18% and approximately 14% offering a luxe range of refillable, everyday essentials that are made with the best ethical, natural and organic ingredients. enabling consumers from all over the world to experience the respectively, according to Euromonitor data. In addition, nutritional benefits of our products. We continue to invest in based on the rapid sales growth THG Nutrition has delivered Since its on-site launch in July 2022, orders including Fiils localising our brands, technology and operations to bring our in Asia historically, we believe there is a significant growth products have reached over 500, demonstrating the impact opportunity in Asia, where the sports nutrition category is products to an increasingly global customer base. of Lookfantastic as an incubator for smaller brands by driving currently underpenetrated and there is rapidly increasing engagement, as well as continuing to strengthen its own Our brands are also aspirational brands, with the growth of adopting of digital channels. Our market share in the US also position by bringing relevant new brands to consumers. our activewear range, which now accounts for 8% of total remains low relative to other territories, with this representing brand sales. This is further evidenced by the increasingly a significant expansion opportunity in future years. premium focus of our Myvitamins brand, which now targets PROVENANCE X CULT BEAUTY the “beauty-from-within” category within the beauty market, Myprotein has increased its market share of the sports 2 through a range of products, such as retinol, collagen and nutrition category over recent years, with significant hyaluronic acid. headroom for further growth, particularly given the structural In response to shoppers’ demands for more transparency to drive progress through their purchasing power as when shopping for beauty online, Cult Beauty began well as encouraging brands to surface the proof of their market tailwinds supporting our growth, such as consumers using Provenance to embed sustainability badges on-site, sustainability impact claims. Our commitment to product quality is demonstrated becoming increasingly health conscious and increasing online introduce impact-focused search filters and curate best- through the investments we have made in best-in-class penetration within the category. We therefore remain highly selling edits such as the Cult Conscious beauty box. By connecting participating brands with conscious product innovation and production facilities in the UK, US confident in our ability to continue to grow market share in shoppers and improving their product page conversion, and Poland, ensuring our products remain at the forefront existing markets and further expand into new markets. Protecting long-term value relies on clearly communicating Cult Beauty is not only empowering customers to of innovation, and our manufactured to the highest quality social and environmental impact information to shoppers, shop in line with their personal values, but powerfully and in doing so, Cult Beauty aims to grow the market for standards. This is complemented by investment in more rewarding brands for their transparency and truly sustainable brands and help establish benchmarks for sustainability commitments. sustainable product and packaging forms as part of new brands joining the retailer. THG x Planet Earth. Cult Beauty X Provenance has proven successful in Provenance is a software solution that provides accessible driving key performance indicators such as increased E-commerce is the winning channel within sports nutrition, and trusted information about a product’s origin and its order numbers and higher purchase rates across more accounting for 35% of global sports nutrition sales in impact on people and the planet, empowering shoppers than 110 brands using the software. 2021. In addition, e-commerce penetration is expected to grow significantly in a number of key markets as the online channel in these markets matures. Myprotein is the ## Future Outlook 1 largest online sports nutrition brand globally, and the most internationally diverse. THG Nutrition is therefore uniquely Alongside building upon leading positions in core territories, We will continue to invest in engagement and retention positioned to capitalise on this long-term channel shift THG Beauty will utilise its global customer base to focus on strategies by focusing on our understanding of the customer towards e-commerce. driving profitable and sustainable growth in territories where and developing deeper insight to evolve our targeting and we have medium-market positions and localised infrastructure. personalisation strategy across our retail destination sites. Myprotein is positively differentiated from competitors through its digitally-native direct to consumer model, its We will continue to leverage brand relationships to be the Our diverse proposition, including our end-to-end platform, global reach (75% of the brand’s 2022 sales were outside the first-to-market with products, supported by THG Labs driving global footprint and multi-branded retail offerings will allow us UK), the extent of its vertically integrated model (supported product innovation and newness for our brands. As we maintain to leverage our competitive advantage to become the digital category leadership in haircare and skincare, there will also be partner of choice for the world’s biggest beauty brands and the a focus on the development of our fragrance and cosmetics leading digital destination for beauty consumers. categories through leading brand and product assortment, engaging content and best-in-class customer experiences. 1. According to management estimates. 25 26 2. Source: Euromonitor Annual Report 2022 brand equity in the region, establishing a footprint for future products and formats, such as with our Clear Whey protein ## Operational Performance brand partnerships and localised new product development. variants and with Multivitamin gummies. The capabilities we now have in-house continue to support incremental sales growth opportunities across a broad range of categories, enabling more consumption occasions, while enabling us ### Category expansion 1 ### Revenue Average order value to accelerate speed to market and launch new products more quickly in response to changing market conditions. Since we acquired Myprotein in 2011, we have taken it from 2022 £675.1m £50 FY22 a small UK-focused brand with a limited number of product A notable highlight in 2022 has been the development lines, to become a leading online global nutrition and lifestyle of new ranges of innovative bars through Brighter Foods 2021 £659.5m £46 FY21 brand with over £600 million revenue. (acquired in 2021), a leading product developer and manufacturer of sports nutrition bars and healthy snacking 2020 £562.3m £47 FY20 In 2023, we will deliver the next major evolution of our products. This included the development of our new Impact brand family, with the launch of a new holistic wellbeing Bar, our improved Layered Bars, and our first-to-market 2019 £412.9m £48 FY19 brand addressing the vegan, natural and organic nutrition Breakfast Layered bars. categories. The brand will build on the success of Myvegan, which is our current flagship brand in this category, while The launch of Whey Forward in the US market is an expanding its reach to the adjacent categories of organic and example of our ability to launch first-to-market products natural nutrition. As with our other Nutrition brands, the new 2 3 ### Active customers Number of orders within the sports nutrition category. This animal-free brand will sit within the Myprotein brand family, leveraging performance protein caters for a broader range of dietary the brand equity and awareness of the master Myprotein requirements, whilst not compromising on taste and FY22 7m 13.2m FY22 brand, while creating cross-selling opportunities across the performance. With Perfect Day, the creator of the world’s various brands when customers shop through the Myprotein first animal-free dairy protein, we have developed a formula FY21 7. 2 m 13.9m FY21 website. This approach enables us to catch a much greater which is identical in composition to the whey protein found share of a customer's total nutrition purchases than if we in cow’s milk. Whilst core whey products remain a growth FY20 6.3m 12.3m FY20 were to just sell a narrow product range, while also enabling category, sustainable alternatives with lower exposure to us to bring a wider range of customers into our ecosystem. commodity prices are a key development area, and we FY19 4.3m 8.7m FY19 are excited to follow our US launch with a recent launch into the Asia market. ### New product development 1. Average Order Value is defined as the average order value per customer order on a gross revenue basis, inclusive of any shipping revenue. 2. Active customers is defined as customers who have purchased at least once within the period. Our vertically integrated business model enables us to be at 3. Number of orders is defined as orders fulfilled within the period. the forefront of innovation and new product development, informed by millions of data insights from our global markets. We research, develop and manufacture ourselves, and Myprotein is renowned for being first to market with new In 2022, THG Nutrition revenue grew 2.4% YoY to £675m, product development, and partnerships, such as the recently with this growth principally driven by the performance of announced Iceland partnership. Myprotein, the largest online sports nutrition brand globally, alongside continued growth in manufacturing revenues. Myprotein takes a fully localised approach to brand development, operating over 60 localised websites Our broad customer base is evidenced by our community supported by localised content, product catalogues, trading, of over 8 million social media followers, with our multi brand marketing, influencers, payment options, fulfilment and approach enabling us to capture a much greater share of customer service. This approach has proven to be highly each consumer’s health and wellness spend, while also effective and has facilitated rapid international growth, with Functions managed in-house by encouraging cross category purchases. Regular consumer Myprotein holding leading market shares in the UK and engagement and educational content have enabled the Western Europe, while rapidly scaling its presence in Asia Group to reach an increasingly wider international audience. and North America, which represent significant opportunities THG Nutrition finished the year with 7 million Active for further market share expansion. Customers globally, reflecting the strong brand loyalty of existing customers and the successful acquisition of new We continue to invest in localising our proposition, with customers across a number of strategic markets. a notable example being the investment made in local operations in Australia in 2021, which helped drive a rapid acceleration of our sales in Australia in 2022. These investments included a new warehouse in ## Strategic highlights Melbourne, powered by THG’s proprietary WMS, Voyager. The move has led to delivery times reducing ### Territory expansion from 10 days to 3 days, and postage costs decreasing Internal and Concept Formulation, Internal and Production Influencer Product by -75%. Since the move, Myprotein has acquired and | | | external market | | ideation | feasibility and | external customer | | trial | and social | launch | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | THG Nutrition’s growth in 2022 was driven by growth | retained more customers (+47% new customers vs 2020), | | research | | commercial review | | panelling | | trends | | | across the Myprotein brand family, alongside growth of our | and observed an uplift in orders (+81% orders vs 2020) | | | | | | | | | | | manufacturing revenues. In the UK market, we remain the | and site conversion (+45% increase in site conversion | | | | | | | | | | 1 #1 brand in the market , and continue to grow sales through vs 2020). The localised operations are also complemented bringing the brand to a broader range of customers, new by the use of local influencers and affiliates to help build 27 28 1. Source: Euromonitor. Annual Report 2022 a notable example, and which demonstrates the relevance of ## PARTNERSHIPS Customer our brand to new consumers. While we look to leverage new retail and marketing channels to grow our brand awareness The THG Nutrition customer base is highly engaged, with and market share, our direct channels, such as our website, We have built Myprotein into a category-leading We have also recently launched strategic global & over 80% of revenue coming from repeat customers. app and magazine, create a hub for our community that allows brand in the 10 years since its acquisition. localised partnerships with Mike & Ike in the United In addition, in recent years an increasing share of revenue direct engagement with our customers, which is key to building The unrivalled brand equity we have developed States, Vimto in the United Kingdom, and Jelly Belly has been driven through channels that incur no or very low long-term brand equity and customer loyalty. We continue to is now being brought to new product formats globally, which bring these household brands into marketing costs. A key driver of this has been the launch of invest in strengthening our direct channels and see this as a and retail channels through a range of partnerships. the nutrition space for the first time. In 2023, we will our mobile apps in 2021; mobile apps have contributed an key source of competitive advantage for our brands. | These new partnership help move THG Nutrition | launch a further partnership with Perfetti Van Melle | increasing share of revenue and now account for 15% | | --- | --- | --- | | towards its strategic ambition of becoming | under its Chupa Chups brand, a global leading | of THG Nutrition online revenue. | | a lifestyle brand group that addresses a broad | confectionary brand. | | | range of consumers. | | Influencers remain at the heart of our customer engagement | ## Future outlook These new partnerships offer our brands opportunities strategy, and the regular and highly engaging content they A notable expansion is our partnership with Hotel to extend into new categories, sales channels, increase produce is a significant asset to our THG Nutrition brands. The We will continue to evolve the Myprotein brand through Chocolat, where we have co-developed a range brand touchpoints and engage consumers in new content they produce is regularly fed into our own marketing building out and launching new sub-brands where of premium protein bars. These bars have proven ways, while extending their purchasing of the brands channels, providing authenticity that complements our own opportunities exist for further category expansion. highly successful with our customers since they to new purchasing occasions. marketing content. Given consumers are increasingly turning Within our existing categories, we are focused on delivering were launched in November 2021, and are now to online channels to educate and inspire themselves around innovative and highly targeted new product development a top 5 best-selling bar range within THG Nutrition. nutrition and fitness, influencers play an increasingly important through our in-house capabilities with a focus on more role in engaging with and educating our customer base. sustainable ingredients and materials. By continually evolving our portfolio of products and brands to better suit consumers An example of our successful investment in content is our in- needs, we capitalise on new opportunities and expand our house The Supplement magazine, which is provided for free to addressable markets. ## Retail our online customers. Since its launch in 2021, The Supplement has proven highly popular with our customers, and is now one Our nutrition brands are accessible to a wide range of THG Nutrition brands are pursuing selective expansion into are sold across the Don Quijoite, Costco, and Family Mart of the highest circulation magazines in the UK, with our most customers, not just the regular gym goer. We intend to further retail channels, principally in the UK, Japan and USA. retail chains, with further distribution opportunities being recent issue reaching a digital circulation of over 500,000. broaden the appeal of Myprotein through a rebrand in the In the UK, Myprotein holds prominent listings in Asda, explored across a range of international territories. In the To further expand the reach and engagement of The second half of 2023 that will further strengthen our identity Tesco, Iceland and Co-Op. Our protein bars, snacks and USA, Myprotein recently launched on The Vitamin Shoppe, Supplement, we are developing a new range of “recipe” as a brand that resonates with a wider audience and drinks are also now stocked in PureGym, the largest gym one of the leading specialty nutrition retailers in the USA, as magazines in 2023. subsequent consumption occasions. chain in the UK, with expansion across further gym groups we continue to scale the reach of the Myprotein brand in the a strategic priority for 2023. In Japan, Myprotein products USA market, which is a key strategic focus going forward. Our broad customer base is evidenced by our community of over 8 million social media followers, with our multi brand In addition, continued expansion into traditional retail channels approach enabling us to capture a much greater share of each through our convenience ranges will enable us to reach consumer’s health and wellness spend and encouraging cross new customers, and drive incremental consumption, while MYPROTEIN X ICELAND category purchases. We continue to develop highly engaging continuing to raise brand awareness. Licensing partnerships and educational content to ensure high levels of customer leverage the power of the Group’s brand portfolio and digital satisfaction and brand awareness. The results of this can be In 2022, Myprotein signed a five-year partnership first business model. It offers our brands opportunities to seen through market research that shows Myprotein ranks deal with Iceland Foods to launch a range of frozen extend into new categories, increase brand touchpoints and either #1 or #2 in aided brand awareness in 8 key markets, with ready meals. The ready meals launched in 1000+ engage consumers in new ways. significant increases in aided awareness seen in the territories Iceland stores and online in January 2023. The new such as the UAE and Australia. range is jointly developed by Myprotein and Iceland We are able to leverage our D2C capabilities to elevate and will provide healthier and more nutritionally partnerships to new levels, further driving visibility and We continue to explore new ways of reaching our customers, complete versions of many popular meals, and brand equity. with our expansion onto Tiktok, where we now have more will include fully prepared meals, pizzas, wraps, than 0.5m followers and host regular shopping events, being ingredients, desserts and ice creams. Iceland, the second largest frozen food retailer by market penetration, was selected as a partner given its reputation for the highest product quality, with 96% UK coverage, and its award-winning track record as a licensing partner. Myprotein’s licensing strategy further builds non-digital channel brand awareness and product range expansion, complementing its UK and global store-based distribution network through retailers such as the Co-operative Group in UK and Don Quijote in Japan. The partnership underlines the strength of the Myprotein brand, the largest online nutrition brand globally, and the potential to further expand the brand across strategic partnerships in future periods. 29 30 ![img-7.jpeg](img-7.jpeg) # THG / INGENUITY 2022 saw an evolution in Ingenuity's growth strategy as we progressively pivoted away from small business customers to deliver transformative e-commerce solutions for larger organisations across our three focus categories of beauty, FMCG and retail. This transition has been made possible through the development of Ingenuity's headless solution (the decoupling or detaching of the user experience (front-end) layer of the website from the back-end functionality of the platform) and modular platform capabilities. This offers greater choice and flexibility to larger-sized customers looking to upgrade all, or some of their existing e-commerce technology stack, as well as offering customers the ability to design more bespoke, branded user experiences by managing the front-end of the website themselves. As we increasingly support these larger customers in the e-commerce technology decision-making process, THG Ingenuity has found itself naturally playing a more significant role right at the heart of these customers' transformation agendas, frequently broadening the project scope across all elements of digital business change. With this shift towards larger, more strategic customers comes another evolution in the form of our commercial model as we place greater focus on generating recurring revenues through platform license fees and full-service contracts where the customer adopts our suite of service offerings across our three core solutions: technology, operations and digital. ## Expanding the customer base In 2022, we confirmed new customer partnerships with brands across our core categories of beauty, FMCG and retail including Philip Morris International, Kraft Heinz and Anastasia Beverly Hills. We see customers commissioning an increasing number of services across our unified product offering including D2C website design and build, international site rollout, translation, creative and content production, performance marketing and strategy. As the number of brands live on the platform increased through 2022, we saw the positive impact of recurring revenue and uptick in GMV from these live sites. # CLIENT CASE STUDY ### Coca-Cola Europacific Partners Since launching on the Ingenuity platform in November 2020, Coca-Cola Europacific Partners (CCEP) has continued to experience strong performance across key metrics. Conversion rate increased 135 percentage points, average order value increased 17.4% and revenue increased by 92.2% year on year. This, in large part, has been achieved through the continuous collaborative testing and optimisation of trading strategies by the client and THG Ingenuity's e-commerce team. Annual Report 2022 ## Platform evolution Through 2022, we continued to invest extensively in our for a more flexible solution to build a custom, front-end platform, with one of our most significant evolutions being whilst benefiting from THG Ingenuity’s extensive back-end the release of our headless solution. capabilities and applications. Mondelēz International was THG Ingenuity’s first customer to launch a D2C website Coggles, THG’s own-brand luxury online fashion store utilising this headless solution, working with a third-party offering aspirational third-party brands access to an agency to design the front-end brand experience for international customer base, was the first site to be Mondelēz International’s Toblerone website and integrating relaunched on Ingenuity using a new headless solution. this into THG Ingenuity’s commerce capabilities. The front-end flexibility offered by the headless solution enabled greater customisation and tooling options for rich In addition, the modularisation of the THG Ingenuity platform feature creation without the need for development changes. has enabled a new type of customer to consume THG’s The relaunch resulted in higher traffic, average session breadth of microservices, all of which can be integrated duration and conversion and, in turn, greater revenue into a customer’s existing or future technology-stack, for the brand. independently. This opens up further opportunities for THG Ingenuity to be selected as the e-commerce provider by This shift in our platform strategy offers our customers larger-sized customers who are looking to upgrade certain new and greater flexibility, while extending the reach of elements of their existing e-commerce ecosystem without our addressable market to a larger network of enterprise the need of a full replatform, saving the customer cost, time customers, alliances, and partner agencies – those looking and reducing complexity. ### Web Shopper Facing - Front End Behind The Scenes - Back End Attractive & Easy Inspiring Frictionless Secured Order Fast & Reliable Helpful Customer Data-driven Resilient Secure & Navigation Engagement Checkout Processing Delivery Assistance Insights Architecture Performant THG/CLOUD ELYSIUM THG/APP THG/PERSONIFY THG/CHECKOUT THG/DETECT THG/DELIVERED THG/MMSTHG/VOYAGER THG/OMNI THG/ORBIT THG/IQ SERVICES Payments, Tax Couriers & Marketplace Order Store Order & Data, Analytics Web Commerce Mobile Commerce Customer & Loyalty F raud WH Fulfilment Customer Services Cloud & Duties Tracking Fulfilment Fulfilment & M/L • Mobile, Web & App • Email Marketing • Optimised Basket • ISO Certified • Carrier Management • Warehouse • Range Curation • Click & Collect • Multi-Channel Incl. • Real-Time Data • Global Infrastructure Management System Live Chat, Whatsapp • Special Offer Engine • Segmentation • Conversion • AI Powered • End To End Tracking • Attribute • Pick From Store • AI & ML Capabilities • Secure Global Coverage & Social | | | | | | • D2C Fulfilment & | Management | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | • AI Recommendations | • Campaign | • 50+ Payment Options | • Human Interactions | • Next Day Delivery | | | • Ship From Store | | • One Business | • High Performance | | | | | | | Returns Handling | | | • Machine Learning | | | | | Management | | For High-Risk Orders | | | • Inventory Publish | | | Data View | | | • Wishlist | | • Global Payment | | • Over 200 Courier | | | • Instore Ordering | Powered Response | | • Managed Hosting | • Multiple • Customer Loyalty Offering • 400+ Rules Services • Order Processing Tools • SKU-Level Analytics • Product Reviews Pack Types • Returns To Store • Automation Programmes • Local Alternatives • Class Leading Detection • Amazon Connector • Returns • Customer Feedback & Control • Shoppable Blog • MHE • Omnichannel • Audience Management • Tax & Duty Transaction Support • Telephone Ordering • Active-Active Sites • Returns Across Channels & Calculation Media • Share Stock Online • Global Operation Centre • Referrals • Subscriptions • Optimised Workflows To Retain & Grow • Headless Customer Base • Powerful CMS • Order Management System • Product Information Management • Marketplace 3433 Annual Report 2022 Fulfilment: We continue to build a best-in-class complete ## Product evolution CASE STUDY e-commerce fulfilment solution powered by THG’s proprietary technology, with AutoStore automation at its core. As part of our product evolution, we’ve simplified the go-to- peripheral brand-building capabilities of creative and Bringing together Voyager, THG’s Warehouse Management market proposition of our complete e-commerce platform campaign, marketing and data, strategy, translation and Brand evolution System (WMS) and Warehouse Control System (WCS), and service capabilities into three core solutions: Technology influencers, and finally; Operations, neatly bringing together THG Delivered’s courier integrations and THG Orbit’s which encompasses the core commerce platform, data, the three core offerings needed to build a digital business: In 2022, we renewed our investment in marketing omnichannel customer support solution with AutoStore’s hosting and security; Digital, which encompasses the e-commerce technology, brand experience and fulfilment. with a heightened focus on building awareness for proprietary automation hardware and software, THG FIR/ the THG Ingenuity brand in our focus markets of ST’s frictionless fulfilment environment is disrupting the the UK and Europe, the USA, Australia, India and market and bringing a highly efficient end-to-end fulfilment the Middle East. Content has been a key driver of solution to customers of all sizes. this approach, and in October we launched our first consumer trends whitepaper: “The Future Consumer Trends Impacting D2C Business.” This coincided with ## Partnership evolution our inaugural Future of Commerce Event. Throughout 2022, we continued to integrate select, strategic Day one’s agenda at The Future of Commerce Event partners such as Liveramp, Bynder and ContentSquare onto commenced with the launch of our whitepaper. the platform, increasing platform extensibility for Ingenuity Following this, headline speakers Meta, Microsoft customers looking for best-in-class solutions to data and TikTok shared their thoughts on how commerce enablement, asset management, testing and optimisation businesses can meet the heightened needs of and social integration. These partners, whilst providing today’s consumers. In addition, THG Ingenuity’s additional revenue streams, offer choice for Ingenuity own customers, Homebase and Nestlé, shared their customers looking to utilise our complete e-commerce thoughts on what D2C means for the future of their platform whilst retaining elements of flexibility. organisation. Day two’s agenda focused on the key capabilities required to accelerate change through The evolution of the Ingenuity platform into a headless digital commerce. In a fireside chat, our keynote and modularised solution has opened new opportunities speaker, Diary of a CEO’s Steven Bartlett, shared his for partnerships with technology consultancies, systems advice on leadership capabilities. Ending two fantastic integrators and development agencies looking to work with days of talks, the event culminated with a panel a proven, API-first, cloud-based e-commerce platform for discussion bringing together THG’s own perspectives their own customers’ solutions. THG Ingenuity’s alliance on the future of commerce. programme identifies like-minded partners to go to market with, selling together to enter new markets and acquire new With over 100 attendees, the event enabled guests to customers. In December 2022, THG Ingenuity announced come together, network and share their challenges its first partnership with UK-based technology consultancy; and ambitions for their own future of commerce. AND Digital. ## Future outlook Over the next three years, THG Ingenuity will transform into a multi-category and multi-channel D2C provider with a global footprint: FROM... TO... Truly global leader with increasing Business focused on domestic UK market Within this, we continue to further evolve the offering of revenues coming from outside UK partnerships with platforms such as Liveramp and individual propositions, with particular spotlight on: Qubit and further opportunities across the Customer Data and Machine Learning space being considered. Beauty specialist & emerging retail and FMCG player Strong player in beauty, retail & FMCG Data Analytics (THG IQ): The IQ data proposition has traditionally supported our THG customer base across Strategy: Our experienced strategy team has Multichannel digital commerce provider generating D2C exclusivist a number of facets including consumer insights, analytics developed go-to-market propositions for some revenues from non D2C channels & services and reporting. More recently, the team has expanded to of THG Ingenuity’s largest customers, consulting support customers across a number of additional areas on ‘where to play and how to win’ strategies in the Limited selectiveness of customer size Targeting medium, large and enterprise clients in line with the increasing necessity for data driven and e-commerce ecosystem and creating a point of programmatic digital strategies. To this effect, we have differentiation to deliver profitability in the space. In developed a more comprehensive audience insight, 2022, we evolved our strategy offering with our ‘D2C Internal capacity building Extensive partnership ecosystem segmentation and technology function as well as broader playbook’ proposition which brings together insight- consultative and data services to support customers driven and experience-based recommendations generating a better understanding of consumers and to provide customers with a step-by-step guide for Resource-intensive managed services model High-value added digital services consumer behaviour. This has included more recent successful e-commerce execution. 35 36 Annual Report 2022 # Chief Financial Officer review ![img-8.jpeg](img-8.jpeg) "We have taken decisive action over the last year, to reduce the Group cost base, provide strategic optionality and a stronger platform for growth in the context of a tough trading comparative period and a challenging macroeconomic backdrop." Damian Sanders Executive Director and Chief Financial Officer | | Year ended 31 December 2022 | | | Year ended 31 December 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Before Adjusted Items | Adjusted Items | Total | Before Adjusted Items | Adjusted Items | Total | | | €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | | **Consolidated income statement** | | | | | | | | Revenue | 2,238,229 | - | 2,238,229 | 2,278,910 | - | 2,278,910 | | Cost of sales | (1,533,737) | (25,517) | (1,558,554) | (1,225,500) | - | (1,225,500) | | Gross profit | 805,482 | (25,517) | 879,875 | 804,404 | - | 804,404 | | Distribution costs | (380,852) | (22,117) | (402,768) | (386,828) | (43,012) | (426,945) | | Administrative costs | (674,828) | (298,145) | (972,771) | (575,717) | (86,216) | (681,827) | | Operating loss | (149,788) | (345,776) | (485,583) | (8,230) | (126,228) | (130,483) | ## Alternative performance measures The following table provides adjusted measures. The Group believes that these alternative performance measures, which are not considered to be a substitute for IFRS measures, provide stakeholders with additional helpful information on the performance of the business. These alternative performance measures are consistent with how the business performance is monitored and reported through internal management reporting to the Board. The below table summarises the result from operations before depreciation, amortisation, share-based payments and SaaS change in accounting policy costs. These amounts are also reconciled back to the nearest IFRS measure within this table. | | Year ended 31 December 2022 | Year ended 31 December 2021 | | --- | --- | --- | | | €'000 | €'000 | | Adjusted gross profit | 805,488 | 974,767 | | Adjusted distribution costs | (383,492) | (380,520) | | Adjusted administrative costs | (537,862) | (444,371) | | Adjusted EBITDA | 64,674 | 161,276 | | SaaS change in accounting policy | 10,283 | - | | Adjusted EBITDA pre-SaaS change in accounting policy | 74,297 | 161,276 | | EBITDA losses from discontinued categories | 14,582 | 8,248 | | Adjusted EBITDA (continuing) | 88,879 | 161,624 | 37 Note: The table on the previous page shows financial results for gross profit, distribution, amortisation and share-based payments. The impact is as follows: - For statutory presentation gross profit includes charges of £2,000m (2021: £2,000m) for - For statutory presentation distribution costs include charges of £27.3m (2021: £27.3m) - For statutory presentation administrative costs include charges of £155.8m (2021: £155.8m) and £167.7m (2021: £167.7m) for share-based payments. ## Reconciliation from Adjusted EBITDA to | Adjusted EBITDA | | --- | | Depreciation | | Amortisation | | Share-based payments | | Operating loss before adjusted items | | Adjusted items – impairment | | Adjusted items – other | | Operating loss | ## Revenue Group revenues grew by 2.7% to £2,239m (2021: £2,180m). THG Beauty sales grew +4.5% to £1,235m (2021: £1,182m). THG Nutrition grew +2.4% to £1,176m (2021: £1,160m) and THG Ingenuity delivered +5.9% growth in external revenue to £1,159m (2021: £1,146m). The contribution from acquisitions – predominantly in the Beauty division – was in line with expectations at c£125m. Organic performance was pleasing relative to peers and against tough comparatives as the world re-opened, with stable customer metrics. International sales accounted for 57% (2021: 58%) of total Group revenue. The US continues to be a strong growth area for the Group delivering c10% revenue growth in the year with sales of £447m (2021: £406m) representing 20% of the Group, following on from the successful integrations of US acquisitions in recent years including Dermstore, Bentley Laboratories and Pericome MD. THG Nutrition continues to perform well in the US albeit from a moderate base, with the UK delivering sales growth in excess of the Group, reinforcing our strong position and continued ability to increase sales demonstrably in our more mature markets. Revenue growth was driven by a higher pricing environment, particularly in THG Nutrition, but was offset by challenges in respect of the reopening of physical retail, pressures on the consumer environment driven by the emerging cost of living crisis, along with disruption to the UK courier network in the final quarter of the year, the latter being more acute in THG Beauty. Note that during 2022, revenue generated from the discontinued categories totalled £19m (2021: £147m). More information on these categories is included later in the report. Excluding these areas, the revenues from the continuing operations delivered growth of +4.3% year on year. ## G Adjusted G Group revenue growth £50m increased the the car were con enc exp the The ele exp ac to to the con wh The sec con Annual Report 2022 ## Operating expenses Distribution costs on a statutory basis reduced as a percentage of sales by 170bps compared to 2021, culminating in a cost of £403m (2021: £430m), which is 180% (2021: 19.7%) of revenue. Included within statutory distribution costs are £22m of costs relating to incremental delivery fees in respect of Covid-19 and commissioning of new facilities. In 2021, these costs totalled £43m. The substantial decrease is due to lower incremental Covid-19 costs this year following the impacts of the pandemic lessening on the supply chain and a reduction in costs for new site commissioning as the Group network expansion programme draws to a conclusion, generating substantial capacity for growth. Adjusted distribution costs of £353m (2021: £369m) were 15.8% (2021: 16.9%) of revenue. This improvement was driven by the Group's continued focus on network optimisation, and the expanded usage of warehouse automation utilised to combat high levels of labour inflation in the market. Administrative costs on a statutory basis totalled £973m (2021: £852m) with the increase driven by three key factors. The first being a non-cash impairment charge in respect of THG Beauty of £183m (2021: £n!) and THG Ingenuity of £87m (2021: £n!). A result of the divisional reorganisation is that additional cash-generating units were identified during 2022 which has led to the impairment reviews being completed at a significantly more granular level than in prior periods. This combined with more challenging global markets where the market price of many technology businesses has fallen over the last 18 months, macroeconomic, inflationary and interest rate pressures along with the substantial amount of assets included within THG Beauty from recent acquisitions, and THG Ingenuity following the continued investment in the global infrastructure and platform has led to the impairment of historical goodwill balances. Secondly, a £19m charge (2021: £n!) for software-as-a-service has been recognised within administrative costs in 2022 compared to being capitalised within intangible assets in 2021, following the change in accounting policy during the prior year. Finally, in 2022 a share-based payment charge of £11m was also incurred following the new employee incentive schemes launched in the year which were £n! in the prior year. Adjusted administrative costs as a percentage of revenue, increased by 230bps year on year driven by well-documented global inflationary increases, primarily in respect of marketing costs driven by significant paid media and cost per click inflation. This impact was partially offset by the Group's technology-focused marketing approach and influencer model, alongside the execution of an extensive cost-reduction program across the second half of the year. The Group's cost-reduction programme delivered a reduction in headcount of almost 2,000 heads through technology investment, and simplification of operations within its core divisions across THG Beauty, THG Nutrition and THG Ingenuity. The full impact of this will continue to flow through into 2023 as it annualises. ## Adjusted EBITDA and Adjusted EBITDA (continuing) | £'000 | 2022 | 2021 | | --- | --- | --- | | Adjusted EBITDA | 64214 | 101278 | | Margin | 2.9% | 14% | | SaaS change in accounting policy | 10,083 | - | | Adjusted EBITDA pre-SaaS change in accounting policy | 74,297 | 101278 | | EBITDA loss from discontinued categories | 14,582 | 8,348 | | Adjusted EBITDA (continuing) | 88,878 | 108,623 | | Margin | 4.2% | 8.3% | Adjusted EBITDA fell to £84m with a margin of 2.9% (2021: £161m, margin of 7.4%) with adjusted EBITDA from continuing operations totalling £89m compared to £170m in 2021. Adjusted EBITDA (continuing) represents a margin of 4.2% (2021: 8.3%) reflective of the challenging environment that we have seen in 2022 and the Group's strategy to, as far as possible, protect consumers from these inflationary pressures in addition to adverse foreign exchange, together with administrative cost inflation across payroll and marketing. ## SaaS change in accounting policy Following the IFRIC agenda decision in 2021, the Group updated its accounting treatment and policy for IAS 38 intangible Assets accordingly. The impact of this was that costs in relation to SaaS solutions have been recognised within administrative costs during the year. Comparative costs were recognised within intangible assets and amortised in line with the previous accounting policy. An alternative performance measure (APM) has been presented this year to provide a like-for-like comparison reflective of the prospective treatment. This APM will not be repeated in future years. ## Discontinued categories During the year, and as previously announced, a strategic review was undertaken in the year to review our non-core operations. As a result, the Group proactively chose to discontinue certain loss-making territories and categories. A new APM has been presented this year to provide information as a result of this decision. The categories that have been discontinued – notably THG OnDemand and ProBiteKit – contributed revenue of £119m (2021: £147m) and an EBITDA loss of £15m (2021: £8m). The strategic review is now complete with these operations expected to be fully exited by the end of Q3 2023. ## Depreciation and amortisation Total depreciation and amortisation costs were £94m and £109m respectively (2021: £70m and £99m), an increase of 19.9% on the prior year. Depreciation increased as a result of the previous investment made in the global warehouse expansion program which is almost complete, with the automated beauty fulfilment facility at Manchester Airport (Icon 2) finalising its commissioning phase in early 2023. Amortisation increased primarily due to the full year impact of the charge in respect of intangibles recognised on acquisitions during 2021, plus the continued investment in our proprietary technology platform during the period which totalled £50.7m (2021: £47.6m). This investment is focused on the technology to support both internal and external customers and ensures that we continually enhance the functionality and capability of the platform. ## Operating loss Operating loss before adjusted items totals £150m (2021: £8m). This loss was a result of the challenging macroeconomic environment (principally cost inflation and commodity prices) and our focus on price protection to customers. These costs are expected to be partially transitionary in nature and are showing promising signs of abating as we move into 2023. Furthermore, the Group has responded with a number of pricing and cost initiatives during the year to ensure the cost base is appropriately rebalanced and these will continue to annualise into 2023. 39 ![img-9.jpeg](img-9.jpeg) The £40m inc gro yes cha ma No by ste The Be ints and Co ma res of i non Fi e 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 Annual Report 2022 cost of living crisis and in Q4 material disruption in the UK courier network impacting seasonal gifting and consumers ## Segmental Summary propensity to spend online. Following the completion of the divisional reorganisation during the year, the Group reports 31 December 2022 results on a Three key acquisitions being Cult Beauty, Dermstore and Bentley, were integrated in the year, with synergies beginning to be divisional basis. This is a change in the current year and the prior year has also been restated to show a comparative on a realised in the second half of 2022. Average order values continue to increase totalling £63 per basket for 2022 (2021: £60), like-for-like basis of preparation. this is driven from a focus on customer loyalty (with the launch of LF Beauty+) and continued investment to drive increased customer engagement in both third-party and THG own-brands and growth of market share in our key territories. Following the restructure, revenue is now recharged for the services that THG Ingenuity provides to the wider Group in the form of platform fees, customer services, fraud detection services, THG Studios, fulfilment, postage and marketing services. These items are eliminated on consolidation and shown separately in the following tables. ### Overview £m 2022 2021 Change % 2022 THG THG THG Inter-group Continuing Discontinued FY 2022 Revenue 675.1 659.5 +2.4% 1 £m Beauty Nutrition Ingenuity Other Central elimination Total categories Tot al Adjusted EBITDA 51.8 76.6 -32.4% External revenue 1,235.0 675.1 159.6 50.9 - - 2,120.6 118.7 2,239.2 Margin 7.7% 11.6% -390bps Inter-segment - - 597.4 - - (597.4) - - revenue THG Nutrition sales grew 2.4% year on year to £675m, with foreign exchange providing headwinds, alongside a particularly strong comparative period from the increase in online retail due to the closure of physical retail stores. Within THG Nutrition, Total revenue 1,235.0 675.1 757.0 50.9 - (59 7.4) 2 ,120.6 118.7 2,239.2 the input cost environment was one of the most challenging we have ever faced. In the context of this exceptionally challenging environment, we are encouraged by the robustness of trading to deliver revenue growth in 2022. Adjusted EBITDA 32.9 51.8 29.3 (1.9) (23.2) - 88.9 (14.6) 74.3 pre SaaS costs THG Nutrition delivered an Adjusted EBITDA of £52m (2021: £77m) with a margin of 7.7% (2021: 11.6%), being a 390bps Adjusted EBITDA 32.9 51.8 19.1 (1.9) (23.2) - 78.7 (14.6) 6 4.1 reduction year on year and considerably below medium-term norms for this division reflecting exceptional input prices. Adjusted EBITDA Measured price increases were successfully implemented during 2022, which has partially mitigated increases in whey input 2.7% 7. 7 % 2.5% -3.7% - - 3.7% -12.3% 2.9% margin prices, freight costs and foreign exchange rate movements, although we continued to support customers through these record high-cost pressures which temporarily suppressed the margin. When commodity prices normalise, which we are already 1. At the year end, certain loss-making categories and territories within non-core divisions were placed under strategic review and subsequently management has decided to exit these areas. The exit doesn’t meet the criteria under IFRS 5: Discontinued operations as these categories and territories are not a major experiencing in 2023, we expect a return to the historical EBITDA margin within THG Nutrition over the medium-term. component of the Group as defined by the accounting standard, however, to provide further information on the ongoing revenue and Adjusted EBITDA of the Group the result of these operations has been shown separately in the above table. 2021 | £m | THG | | THG | | THG | Inter-group | Continuing | | | Discontinued | FY 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | 2 | | | | £m 2022 2021 Change % | | | Beauty | Nutrition | | Ingenuity Other Central | | elimination | | Total | | categories | | Tot al | | External revenue 159.6 146.3 +9.1% External revenue 1,181.5 659.5 146.3 46.1 - - 2,033.4 146.5 2 ,179.9 1 Internal revenue 597.4 602.5 -0.9% Inter-segment 3 - - 602.5 - - (602.5) - - - revenue Total revenue 757.0 748.9 +1.1% Adjusted EBITDA pre SaaS change in accounting policy 29.3 40.4 -2 7. 5% Total revenue 1,181.5 659.5 748.8 46.1 - (602.5) 2,033.4 146.5 2,179.9 Margin % 3.9% 5.4% -150bps Adjusted EBITDA 70.2 76.6 40.4 (2.1) (15.5) - 169.6 (8.3) 161.3 Adjusted EBITDA 19.1 40.4 -52.7% Adjusted EBITDA 5.9% 11.6% 5.4% -4.6% - - 8.3% -5.7% 7.4 % margin Margin % 2.5% 5.4% -290bps 1. Internal revenue was not recharged until the completion of the divisional reorganisation, however for illustrative purposes this has been shown above for 2. For the loss-making categories and territories within non-core divisions that have been shown separately within the 2022 table under the discontinued 2021. This has been calculated using the same charging mechanisms in 2022 to provide a like-for-like comparison. categories heading, the same adjustment has been included for the 2021 result to show a comparative of continuing operations year on year. 3. Internal revenue was not recharged until the completion of the divisional reorganisation, however for illustrative purposes this has been shown above for 2021. This has been calculated using the same charging mechanisms in 2022 to provide a like-for-like comparison. THG Ingenuity revenue from external customers increased by 9.1% to £160m, with a strategic re-positioning in Q3 2022, focusing on higher value and higher margin clients which provide improved quality recurring revenue. Total Adjusted EBITDA was £19m after a £10m charge for the SaaS accounting policy change as explained earlier. THG Ingenuity delivered an Adjusted EBITDA margin of 2.5% (2021: 5.4%), being a 290bps reduction year on year. Following the decision to reposition the division, there was a strategic exit of smaller accounts to implement the new strategy which will continue £m 2022 2021 Change % throughout 2023. As revenue scales and the revenue mix evolves towards the commerce offering we consider margins will return Revenue 1,235.0 1,181.5 +4.5% to and exceed those achieved historically. Adjusted EBITDA 32.9 70.2 -53.2% Ingenuity Commerce revenue of £47m (2021: £45m) includes Software-as-a-Service licence fees, monthly brand building fees, Margin % 2.7% 5.9% -330bps infrastructure service fees, revenue share, translation and creative services, with most of this being recurring in nature, albeit complemented by non-recurring fees. FY22 revenue growth was suppressed while management execute the change in strategy, THG Beauty sales grew +4.5% year on year to £1,235m despite tough covid comparatives in 2021, due to online retail with smaller contracts paused, and the new customer base on a longer lead time from tender to live site. benefitting in H1 2021, from the closure of physical retail stores. The division successfully integrated Dermstore, Cult Beauty and Bentley Laboratories into THG Beauty in the year, which supported growth across our two key territories, the UK and Following the announcement of the divisional reorganisation during 2022, THG Ingenuity began to charge for its services to the US, with the acquisitions delivering in line with expectations. internal customers across the wider THG PLC Group. This generated revenue of £597m, relating to services provided which have previously not been recharged across the group due to the historical corporate structure in place. The revenue relates to platform THG Beauty delivered Adjusted EBITDA of £33m (2021: £70m) with a margin of 2.7% (2021: 5.9%), being a 330bps reduction fees, customer services, fraud detection services, THG Studios, fulfilment, postage and marketing services. This revenue on 2021. The reduction in margin is an effect of inflation, the consumer environment deteriorating driven by the emerging is eliminated on consolidation. 41 42 Annual Report 2022 ## Other Adjusted Items 2022 2021 £m 2022 2021 Change % £’000 £’000 Revenue 50.9 46.1 +10.5% Within Cost of sales Adjusted EBITDA (1.9) (2.1) +11.3% Inventory provision for discontinuation of loss-making categories 25,517 - and decommissioning of facilities following strategic review Margin % -3.7% -4.6% +90bps 25,517 - Other includes THG Luxury and THG Experience. Revenue growth of 10.5% has been achieved as a result of the reopening of Within Distribution costs THG Experience venues in 2022, following lockdowns in 2021 driven by the worldwide pandemic, alongside the strong growth Transportation, delivery and fulfilment costs in relation to Covid-19 18,504 26,628 achieved within THG Luxury. Commissioning – new facilities 3,613 16,384 Adjusted EBITDA loss of £2m remained consistent with the prior year with margin pressure driven by macroeconomic pressures 22 ,11 7 43,012 seen in other trading divisions. Within Administrative costs Other costs following the outcome of strategic review 6,942 - Restructuring costs to simplify the group structure 6,803 10,233 Acquisitions – legal and professional costs - 12,225 ## Central costs Acquisitions – restructuring and integration 8,046 5,328 £m 2022 2021 Change % Impairment of goodwill - 53,008 Impairment of certain intangible and tangible assets associated EBITDA loss from central PLC costs (23.2) (15.5) +49.3% - 2,982 with Software-as-a-service arrangements Impairment of assets for discontinuation of loss-making categories 3,763 - Central costs relate primarily to the PLC Board remuneration, professional services fees, group finance, M&A, risk (insurance) and governance costs that are not recharged to the divisions as they principally relate to the operations of Impairment of assets – macroeconomic impact on valuation 269,828 - the PLC holding company. The increase in FY22 was driven by an increased cost base as a result of the macroeconomic Impairment of assets held for sale 1,831 - environment, increased investment in governance, and investment in sustainability initiatives. Other legal and professional costs 569 1,350 Donations 362 1,090 298,145 86,216 ## Discontinued categories Within Finance costs Softbank option – non-cash (601) 601 1 | £m 2022 2021 | Change % | | | | --- | --- | --- | --- | | | | Total adjusted items before tax | 345,178 129,829 | | Revenue discontinued 118.7 146.5 -19.0% | | Tax impact | (53,949) (11,901) | | Adjusted EBITDA from discontinued operations (14.6) (8.3) +74.7% | | Total adjusted items | 291,229 11 7,9 28 | | Margin % -12.3% -5.7% -660bps | | For full details on each category of adjusted item see note 4 to the financial statements. | | 1. For the loss-making categories and territories within non-core divisions shown separately within the 2022 table under the discontinued categories heading, In order to understand the underlying performance of the for the unprofitable warehouse operations within Asia and the same adjustment has been included for the 2021 result to show a comparative of continued operations year on year. Group, certain costs included within cost of sales, distribution, marketing costs for pre-releases that will no longer be launched. administrative and finance costs have been classified as The full exit of the discontinued areas is expected to be At the year end, certain loss-making categories and territories primarily within THG OnDemand were placed under adjusted items. These items principally relate to acquisition- complete by the end of Q3 2023 with costs not recurring strategic review and the Group has subsequently decided to exit these areas enabling management to focus attention related restructuring and integration costs, transportation, after this date. on a simplified and streamlined group. The exit doesn’t meet the criteria under IFRS 5: Discontinued operations, delivery and fulfilment cost increases in relation to Covid-19. as these categories and territories are not a major component of the Group as defined by the accounting standard. All material classes of adjusted items reduced year-on-year. Additional restructuring charges of £7m were incurred, these However, to provide further information on the ongoing revenue and Adjusted EBITDA of the Group, these have been being the costs of executing the divisional reorganisation, shown separately. The discontinued categories contributed £118.7m of revenue and an Adjusted EBITDA loss of £14.6m Following the divisional reorganisation of the Group in the year, principally relating to professional fees. in 2022. Management are reviewing the optimal route for exit of these categories with the process expected to be the Group has undertaken a strategic review of loss-making complete by the end of Q3 2023. categories and territories. At the year end, certain loss-making Following the decision to discontinue certain categories categories and territories primarily within THG OnDemand and territories, an impairment has been charged totalling were placed under strategic review. This review is now complete £4m against affected assets. and these operations will be fully exited by the end of Q3 Inter-group elimination 2023. This has led to a one-off non-cash inventory provision A further impact of the divisional reorganisation is that the of £26m recognised within cost of sales. This one-off provision assets and cash flows of each division are now separately Intergroup eliminations relate to revenue recharged for the services that THG Ingenuity provides to the wider Group in the relates to discounting and clearance along with the disposal of identifiable. The result being the identification of additional form of platform fees, customer services, fraud detection services, THG Studios, fulfilment, postage and marketing services. impacted inventory within these non-core divisions and disposal cash-generating-units (‘CGUs’), which are reflective of the These are eliminated on consolidation. of inventory following the decision to decommission some new corporate structure. The result of more CGUs is that unprofitable warehouse operations within Asia. the impairment review has been undertaken at a more granular level than in previous years. Following the significant Other costs following the outcome of the strategic review acquisitions within the THG Beauty division in recent years, totalling £7m are included within administrative costs. These a substantial amount of intangible assets are included within costs include the impact of triggering early lease break clauses the underlying asset base whilst the market price of comparable 43 44 Annual Report 2022 assets, alongside many technology businesses, has fallen over the last 18 months. This is reflective of more challenging global markets following the macroeconomic, inflationary and interest rate pressures driven by, amongst other things, the Russia-Ukraine conflict. Against this backdrop, the impairment review has led to an impairment of £183m within the Beauty division. In addition, an impairment charge of £87m has been recognised within the THG Ingenuity cash-generating-unit. This has arisen as the impairment review has been undertaken at a more granular level than in previous years. Following the appointment of our new CEO of THG Ingenuity in 2022, the Group has repositioned its strategy. Management believes they have made conservative growth assumptions which are lower than the growth rate prospects of the sectors in which THG Ingenuity operates given the recent change in strategy. Alongside this, THG Ingenuity has made significant investment for the future in its platform and global infrastructure network. These factors, combined with the challenging macroeconomic environment impacting several of the key assumptions, particularly the discount rate, which have also had a bearing on peer valuations, has led to the impairment of the historical goodwill within this cash-generating-unit. During the year, there has been a cost incurred in respect of transportation, delivery and fulfilment costs in relation to Covid-19. The ongoing incremental excess cost across accounting periods is driven by the continued lockdowns experienced in Asia which still affect air traffic and key shipping lanes. As the effects of the pandemic lessen and the lockdowns in Asia ease, the service providers will no longer need to charge these incremental costs. In addition, restructuring and dual-running integration costs of £8m were also incurred in relation to the 2021 acquisitions as they were embedding into the Group infrastructure. These costs are expected to decrease in 2023. ## Cashflow | | 2022 | 2021 | | --- | --- | --- | | | £'000 | £'000 | | EBITDA | 64,114 | 161,276 | | Working capital movements | 23,528 | (65,322) | | Tax paid | (4,857) | (7,095) | | Adjusted items | (45,071) | (65,528) | | Net cash generated in operating activities | 37,714 | 23,331 | | Acquisition of subsidiaries net of cash acquired | (5,691) | (769,890) | | Purchase of property, plant and equipment | (94,854) | (111,553) | | Purchase of intangible assets | (81,564) | (77,820) | | Proceeds from issuance of ordinary shares net of fees | (73) | 760,230 | | Proceeds from bank borrowings | 156,000 | - | | Other | (74,576) | (61,252) | | **Net decrease in cash and cash equivalents** | **(63,044)** | **(236,754)** | | Cash and cash equivalents at the beginning of the year | 536,827 | 773,581 | | **Cash and cash equivalents at the end of the year** | **473,783** | **536,827** | The total cash outflow for the year was £63m (2021: £237m). There was an inflow from working capital movements totalling £24m (2021: outflow £65m) primarily driven by a focused reduction in inventory. This reduction followed a prolonged period of investment over recent years, to manage uncertainty around Brexit and subsequently Covid-19, on top of an increased inventory footprint required to expand our global warehouse supply chain which can now be rationalised as the expansion program is approaching completion. Cash paid on adjusting items totalled £45m (2021: £66m) driven by a reduction in transportation, delivery and fulfilment costs in relation to Covid-19. This has decreased as the effects of global lockdowns have lessened during 2022, alongside the successful integration of 2021 acquisitions, allowing synergies to begin to be realised which will annualise into 2023. In 2021, there was a cash outflow of £770m for acquisition of subsidiaries. This has reduced to £6m in 2022, solely related to the settlement of contingent consideration due on the acquisitions completed in 2021. In 2021, there was a one-off £760m cash inflow from share issuance. This did not recur in 2022. As part of investing and growing the infrastructure of the Group and the distribution network, there has also been investment in property, plant and equipment and intangible assets (primarily the Ingenuity platform) totalling a cash outflow of £176m (2021: £188m). This is lower than initially guided as the group rationalised spend in year. The expanded global distribution infrastructure and automation is delivering operating efficiencies during ## Balance sheet Cash and cash equivalents and net cash before lease liabilities. 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 Net (debt)/cash before leases liabilities The Group's balance sheet remains robust closing the period with cash balances of £474m (2021: £537m). The €600m Term Loan B matures in December 2026 and the incremental £166m facility matures in Q4 2025. The Group's revolving credit facility of £170m remains undrawn and has not been drawn post IPO. Net debt before lease liabilities and adjusted for the impact of hedging was £181m (2021 net cash: £44m). The increase in net debt year on year is driven by the investment in property, plant and equipment, leases and intangible assets in the period totalling £176m. Daniel Sanders Chief Financial Officer 17 April 2023 45 Annual Report 2022 Stakeholder How THG Engages How The Board Engages Find Out More THG Ingenuity Clients • THG Orbit proprietary customer Direct: THG Ingenuity ## Section 172 Statement | | service software | | See page 32 | | --- | --- | --- | --- | | We support clients | | • Attendance at annual Future of Commerce event | | | on their digital | • Quarterly business reviews | | | | transformation journeys | | • Engagement with clients | | • Customer satisfaction survey and net ## Stakeholder Engagement Indirect: promoter scores • Review of new and incremental business pipeline • Face-to-face meetings and site visits • Review of quarterly Ingenuity client satisfaction • Annual Future of Commerce event ## Stakeholder Engagement and net promoter scores • Quarterly webinar programme • Monthly review of key technology The Directors are collectively responsible under section 172 of THG’s purpose and strategic priorities is focused on delivering and platform developments • Monthly client newsletters | the Companies Act to act in the way they consider, in good | sustainable, long-term growth enabling the business to | | | | | | | --- | --- | --- | --- | --- | --- | --- | | faith, would be most likely to promote the success of the | generate positive and impactful change. THG is a global digital | | • eCRM campaigns | | | | | Company for the benefit of its shareholders as a whole and to | innovator focused on transforming the retail experience for | | | | | | | take into account wider stakeholder needs when doing so. In | consumers and brand owners and prides itself on building | | | | | | | | | Our Suppliers and | • Implemented a programme requiring direct | Indirect: | | THG Nutrition | | its considerations and decision-making processes the Board | strong business relationships to facilitate this. | Partners | suppliers to be signed up to Sedex from an | | | and Wellness | | therefore has regard to certain key matters including, but not | | | ethical sourcing perspective | • Regular review of key raw material prices | | See page 26 | | | | We promote open and | | | and buying strategy | | | limited to, the long-term impact of the Company’s operations | Six internal and external stakeholder groups have been | | | | | | | | | transparent working | • Risk assessment for all suppliers and a | | | Supply Chain | | on local communities and the environment and the need | identified as critical to THG’s future success. Details of these | | | • Approval of development of in-house supplier | | | | | | practices and collaborate | process for reviewing and increasing audits | | | and Circularity | onboarding platform to preserve the Company’s reputation for high standards of stakeholder groups are provided below alongside why they for mutual, sustainable, for higher-risk suppliers See page 66 and commercial success business conduct. matter to THG and how THG and its Board has engaged • Regular review of THG Procure implementation • Strategic partners and suppliers identified THG Ingenuity with them throughout the 2022 reporting period. The and engaged on carbon reduction matters See page 32 • Approval of the new Ethical Code of Conduct The Board understands the importance of active engagement values of leadership, innovation, decisiveness, ambition and with its stakeholders across the entire value chain, including collaboration drive the engagement strategy across these • Annual anti-bribery training undertaken by • Regular review of partnerships and alliances, the Procurement team its employees, external suppliers and partners, and through stakeholder groups. to maximise strategic alignment and client reach • Quarterly business reviews with Ingenuity • The Board conducted a review of the Modern partners to assess sales pipeline, conversion Slavery Policy, Gifts & Hospitality Policy and joint marketing strategies and Anti-Bribery Policy Stakeholder How THG Engages How The Board Engages Find Out More | | | | | Our People | • Launch of Leadership | Direct: | Our People | | --- | --- | --- | --- | --- | --- | --- | --- | | Customers and | • Through its brands via social media platforms | Indirect: | THG Beauty | | | | | | Consumers | | | | | & Management Academy | | See page 74 | See page 21 • Board presentations on customer satisfaction • End-of-year colleague presentation delivered • Consumer surveys with insights shared with We aim to ensure THG scores and process improvements via the by Executive Directors We enable brands to and analysed by Senior Management THG Nutrition provides a supportive • Launch of the Black Community Network Diversity and Chief Experience Officer | have direct relationships | | | and Wellness | environment with | | | inclusion | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | career development | • LGBTQ+ & Allies Society | • Annual Divisional business strategy updates | See page 72 | | with customers | • Global digital content including THG Media’s | | See page 26 | | | | | | | | • Monthly updates on key cybersecurity | | | | with Senior Management | | | and consumers by | branded magazine portfolio and mobile apps | | | opportunities at all levels, | | | | enhancements via the Chief Technology Officer providing a high-quality with a particular focus • Partnership with Change 100 Indirect: retail experience and • Award–winning customer contact centre on building the skills of • Monthly review of operational priorities in place establishing a relationship tomorrow • THG Value Awards – inviting employees to deliver a high-quality customer experience via • Approval of Group Diversity & Inclusion of trust • Rebrand strategy for THG Nutrition devised to suggest a fifth company value the Chief Operating Officer strategy and policy considering consumer and market insights, with roll out planned for 2023 • Monthly updates from Divisional chief executive • Group-wide sustainability training • Monthly review of attrition and key recruitment officers on strategic priorities, including innovation matters via the Group Talent Director • Launch of loyalty scheme LF Beauty Plus+ | and brand partnerships with a focus on | • H2 2022 launch of ‘Orbitor’ programme | | | --- | --- | --- | | understanding the benefits for customers | which encourages a culture where quality | • The Board supported the addition of the fifth | | and consumers | is as important as productivity | Company value | • Reviewed and approved the updated role profiles Shareholders • Annual report & accounts and RNS Direct: Governance Report for the CEO, Independent Chair and SID announcements See page 105 • Annual general meetings We seek to create value for Shareholders and • Scheduled investor presentations • The Chair and SID are available to meet through our purpose, and conference calls Society & Communities • Engagement with key charities to support Indirect: Sustainability Shareholders upon request vision, values and Strategy those impacted by the war in Ukraine, | strategy, deliver long-term, | • Corporate website | | | | • Updates provided to Board on charity donations | | | --- | --- | --- | --- | --- | --- | --- | | | | • The Chair has engaged with institutional | We aim to build skills and | donating food and supplies | | See page 57 | | sustainable growth | | | | | to Ukraine | | | | | Shareholders regarding Board composition | develop talent to promote | | | | • One-to-one and group investor meetings | | and continues to do so | greater social mobility, | • Support for Ukraine-based employees | | Investing in our | | --- | --- | --- | --- | --- | --- | | | | whilst protecting the | | • Sustainability Committee approved Group Social | communities | | • Site tours | | | | Impact Strategy | | | | • The CEO and CFO have an ongoing | environments we operate | • Supporting local community projects, | | See page 73 | | | programme of meetings with institutional | in and source from | including tackling homelessness, and | | | | | Shareholders, supported by relevant members | | | • Quarterly review of progress against the 2030 | Our People | women and children’s charities of Senior Management Sustainability Strategy See page 74 • Promoted THG’s Graduate Programme Indirect: • Support for submission of net zero targets to SBTi to a wide variety of universities to attract • The Board review and approves material diverse talent communication to investors, such as trading updates results announcements, the annual • Launch of Fantastic Futures report and accounts, and significant business events 47 48 Annual Report 2022 ## Stakeholder engagement: Customers and consumers Our global customer base is served through our direct-to-consumer sites across our portfolio of own-brands and retail destinations. Understanding our customers and how they like to purchase, discover new products, and be made aware of new trends and solutions is essential for developing our brands and ensuring they are relevant to the markets they operate in. We aim to enable a simplified customer journey, from product discovery to checkout and delivery, which supports our consistently strong online repeat-purchase rates within our Beauty and Nutrition Divisions. We continue to leverage our technology and operating infrastructure to deliver deep local relevance in the markets we operate in. For our customers and consumers, delivering innovative products relevant to local markets and tastes, together with a localised delivery proposition, has been key to our strategy of domestic and international growth. ![img-10.jpeg](img-10.jpeg) 49 This was demonstrated in 2022 through new product development and partnerships across Beauty (Sol de Janeiro), Nutrition (Perfect Day) and Ingenuity (Bynder). We are passionate about customer experience at THG and our CX Operations became a finalist in the European Call Centre Management Association in 2022, impressing the judges with workload management, efficiency, and process documentation. ### Brand building through THG Media We were proud to win the Shopping App Campaign category at the App Growth Awards 2022. We first launched our apps in 2019, and by the end of 2020, we had almost 2 million downloads. In 2022, we hit 10 million downloads worldwide in multiple languages across our many brands, with app sales accounting for 13% of Group D2C sales (7% in FY 2021). A huge contributor to this growth has been our marketing strategy which has focused on creating exclusivity in our apps. We also build dedicated plans around campaigns to ensure customers download our apps before key trading events to unlock exclusive offers, early access and new product launches. Our proprietary customer service solution THG Orbit facilitates effective customer communication and order management across the Group. During 2022, THG Orbit integrated with social media platforms including Facebook and Twitter, enabling brands to manage conversations via those channels all-in-one platform, while delivering an overarching view on key themes and trends. Investment in efficiencies such as artificial intelligence suggested templates and pre-populated content have driven improvements in response times, and importantly, a streamlined process for customer service agents. THG Orbit is evolving into a market-leading contact centre as a service product enabling Ingenuity clients to elevate customer management while driving efficiency gains and supporting customer retention through greater satisfaction levels. ### Key Outcomes - Over 16 million active THG Beauty and THG Nutrition customers - Improvement in customer service SLA - average customer response rate of 98%+ - CX operations were successful in being a finalist and a silver award winner in the 2022 UK Call Centre Management Association awards - Passed customer service excellence audit gaining 6 additional compliance+ marks - Integration with Apple Pay launched across 12 own-brand apps driving higher checkout rates ## Stakeholder engagement: Suppliers and partners THG partners with suppliers to ensure it can continue to address customers and consumers' evolving demands. The Board is committed to fostering and developing supplier relationships in a way that empowers the brands we own and those which we work with to drive innovative solutions to consumer demands, while balancing the need to tackle societal and environmental issues. The Group's Supplier Manual governs our relationships with suppliers and ensures THG maintains high standards of business conduct. THG's purpose guides the ambitions of the business to promote 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. 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. All suppliers go through a relevant approval process comprising: - Finance (financial security and fraud risk review) - Legal (contractual terms review) - Ethical (supply chain risk and ethical approval process) - Supplier quality assurance (technical and quality approval) - Senior Management (including Procurement director) approval In 2022, we have been working with suppliers to ensure it can continue to address customers and consumers' evolving demands. The Board is committed to fostering and developing supplier relationships in a way that empowers the brands we own and those which we work with to drive innovative solutions to consumer demands, while balancing the need to tackle societal and environmental issues. ![img-11.jpeg](img-11.jpeg) Annual Report 2022 ## Principal decisions Board discussions THG Strategic Priorities Stakeholders considered The Board keeps under review its governance and operating Detailed below are examples of the key discussions and and principal decisions protocols to ensure long-term value creation is maintained. principal decisions taken by the Board during 2022 in the The application of the Code has reinforced this approach context of the Group’s strategic priorities and the stakeholders | | | Deliver engaging content and innovative | • The Board supported the partnership | | | --- | --- | --- | --- | --- | | and the underlying governance controls and processes that | considered. In addition, the Board monitors principal and | | | Customers and Consumers | | | | products to our global customer base | between THG Nutrition and Iceland | | | embed the ethos of Section 172 across the Group. | emerging risks. Where such risks impact key stakeholders, | | | | the Board will engage with those affected accordingly. Shareholders • Regular review of the innovation and new product development pipeline THG Ingenuity Clients Board discussions THG Strategic Priorities Stakeholders considered • Development of THG Media strategy and principal decisions Our Suppliers and Partners Build category leadership positions in • Oversight of the integration strategy Customers and Consumers Society and Communities beauty, health and wellness for the acquisitions made during 2021, including Cult Beauty and Brighter Foods Shareholders • Divisional reorganisation to simplify the Our Suppliers and Partners Group’s operating and reporting structure Accelerate growth in core international • Monitoring progress of the final stages Customers and Consumers territories, leveraging our local of the expansion of the Group’s global • Support for the decision to consolidate Our People infrastructure warehouse and fulfilment network the UK warehouse network to realise Shareholders efficiencies from automation • The Board reviewed and approved the THG Ingenuity Clients updated Treasury Policy and Tax Strategy • Appointment of Lucy Gorman as Beauty Chief Executive Officer and internal • Support for investment in US warehouse Our Suppliers and Partners promotion of Neil Mistry to Nutrition automation in New Jersey Chief Executive Officer Society and Communities To make Ingenuity the partner of choice • Monitoring of the separation Customers and Consumers for commerce transformation and of the Group’s business units sustainability solutions Drive positive change with our • The Board approved the addition of the Customers and Consumers Shareholders • Appointment of Vivek Ganotra stakeholders, through an entrepreneurial, fifth Company value ‘Collaboration’ as Ingenuity chief executive officer values-led culture Shareholders THG Ingenuity Clients • The Board approved the evolution of the • Review of the ongoing enhancements Company purpose following engagement THG Ingenuity Clients to the Ingenuity platform with a particular Our Suppliers and Partners with employees across the organisation focus on cybersecurity through the employee value proposition Our Suppliers and Partners Society and Communities | • Development of THG Orbit, | • The Sustainability Committee | | | --- | --- | --- | | its integration with social media | monitored progression against the 2030 | Our People | | partners and Ingenuity clients | Sustainability Strategy and, in line with the | | Group’s climate and nature targets, during Society and Communities 2022 our baseline carbon footprint was established based on 2020 data and net zero targets were submitted to the SBTi for approval 51 52 Annual Report 2022 ## Divisional reorganisation Strategic review Investment in price £156 million term loan facility ## protection strategy agreement entered into in ## October 2022 ### Stakeholders considered Stakeholders considered ### Stakeholders considered Stakeholders considered Shareholders ShareholdersCustomers and Consumers Customers and Consumers Shareholders Customers and Consumers Shareholders Customers and Consumers Our Suppliers and Partners Our Suppliers and PartnersOur People Our People THG Ingenuity Clients Our Suppliers and Partners THG Ingenuity Clients | Principal decision by the Board | Principal decision by the Board | Principal decision by the Board | Principal decision by the Board | | --- | --- | --- | --- | | In May 2021, it was announced that the Group | In October 2022, it was announced that the Group | In September 2022 it was announced that, in | In October 2022 it was announced that, following | | was re-organising its legal structure to enable | had placed THG OnDemand under strategic review, | response to the adverse macroeconomic conditions | Board approval, the Group had entered into an | | underlying reporting companies to align with | with the objective to scale back dilutive results within | and a period of unusually high-raw material costs | incremental £156 million banking facility. | | business divisions and brands, and support | non-core divisions. This review is now complete and | (principally whey), the Group had reviewed its trading | | | THG’s long-term growth strategy. | these operations will be fully exited by the end of | strategy and a decision to partially shield consumers | | | | Q3 2023. Subsequently; the Board commenced a | from inflationary pressures was implemented. | | strategic review of trading activities outside of THG Beauty, THG Nutrition and THG Ingenuity. Board considerations and outcome Board considerations and outcome Board considerations and outcome Board considerations and outcome The Board considered that reorganisation would The Board considered that the strategic review would The decision to pass on input cost inflation at a lower The Board considered the terms and long-dated accelerate investment in divisional growth plans deliver a simplified proposition to ensure the Group can rate to consumers was considered in conjunction nature of the facility would provide the Company and support expansion over the medium-to-long focus resources and capital on delivering the largest with the strategic priority to build category leadership with considerable financial flexibility and additional term, as in some cases the current structure did opportunities available. Senior Management developed positions in beauty, health and wellness. capital to drive its strategic priorities, principally not align with the business activities. A Board a working group and presented the opportunities accelerating growth in core international territories sub-committee was established to act in the interest available to the Board for further consideration. Whilst the Board noted the decision would have an whilst leveraging our local infrastructure. of stakeholders which received regular updates impact on gross margins, as commodity prices ease, on progress and key developments. Following review, the Board approved the proposal the Group remains well positioned to expand margins The facility was drawn down in October 2022 to exit certain categories and territories which were back in line with historical periods. As cost-of-living with the proceeds to be invested for the benefit of The transformation activity which was completed delivering loss-making results. The revenue and EBITDA pressures rise, customers are continuing to prioritise customers and Ingenuity clients, in areas accelerating during 2022 delivers value for Shareholders and loss contributed from these areas has been disclosed beauty, health and wellness categories and, through growth namely investment in its capital expenditure provides visibility over the profitability of each separately within the financial results to show the investing in bringing them into and retaining them programme. The Board also considered the interests Division. The Group will disclose further financial impact of these decisions on the outlook of the Group. within the THG ecosystem, long-term value for of Shareholders and the appropriate balance of information on its segments during 2023. The exits are underway and are expected Shareholders is considered. capital allocation priorities. to be completed by the end of H1 2023. 53 54 Annual Report 2022 Policy Description ## Non-financial information Environmental policy THG is committed to doing business responsibly and reducing any adverse impacts of our operations on the The table below sets out where stakeholders can find information relating to the non-financial environment. Our Environmental Policy was implemented as part of our THG Sustainability Strategy (THG x matters as required under the Non-Financial Reporting Directive: Planet Earth) to drive positive change in our business, supply chains, communities and for the planet. Where to read more in this report about our Diversity & Inclusion policy THG strongly believes that having a diverse workforce and an inclusive workplace creates a more innovative Reporting requirements Some of the relevant policies impact, including the principal risks relating Page and successful business. In 2022, we launched our Diversity & Inclusion (D&I) strategy, implementing a to these matters range of initiatives built around our four pillars: visibility and representation, learning and development, recruitment and progression, and accessibility and inclusion. Our D&I Policy has been implemented as part Environmental matters • Environmental policy. • Sustainability Page 57 of the D&I strategy and reflects our ongoing commitment to equal opportunity. • Sustainability Committee Report Page 141 Modern Slavery policy THG has a zero-tolerance approach to modern slavery, and we are committed to acting ethically and with • Task Force on Climate-related Financial Page 79 integrity in all our business dealings and working relationships. THG’s Modern Slavery Policy reflects its Disclosures (TCFD) 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 | • Risk - Climate Change, Environmental | Page 91 | | | --- | --- | --- | | and Social Responsibility | | anywhere in its operations and supply chains. | | • Risk – Legal and Regulatory Compliance | Page 90 | | 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 | Employees • Diversity & Inclusion Policy. | | • ‘A winning culture’ - Chair’s Introduction | Page 3 | | Harm, Zero Compromise”. | | --- | --- | --- | --- | --- | --- | | | • HR Handbook including all | • ‘Our strategy’ & ‘Our People’ | Page 11, 74 | | | | | people-related policies. | | | Whistleblowing policy Our aim is to operate properly, responsibly and ethically whilst encouraging a free and open culture in | | | | | • Section 172 Statement Stakeholder Engagement | Page 47 | | | 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 • Diversity – Governance Report Page 105 breaches or failures are to be effectively dealt with and the company’s success ensured. THG whistleblowing • Risk - Talent Page 89 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 • Risk - Health & Safety Page 91 is provided to the Audit Committee on a quarterly basis. This update provides details on the investigations undertaken and the outcomes of these investigations. Human rights • Modern Slavery Policy. • Section 172 Statement Page 47 • Health and Safety Policy. • Risk - Climate Change, Environmental Page 91 Anti-Bribery policy THG is committed to conducting its business with complete integrity and in a manner which ensures and Social Responsibility compliance with all applicable laws and with the highest ethical standards. As a company, we use our best • Whistleblowing Policy. endeavours to ensure that all those acting on our behalf, whether they are employees, contractors, third- • Risk - Health & Safety Page 91 party intermediaries or agents, are aware of and share our commitment to conducting business ethically. • HR Handbook. • Risk - Product Safety and Quality Page 91 Our Anti-Bribery Policy summarises the Company's position in relation to ethical standards, including bribery. Social matters • HR Handbook. • Section 172 Statement Page 47 Gifts and Hospitality policy THG considers the offering and receipt of corporate hospitality to be a part of establishing and enhancing • Environmental Policy. • ‘Empowering people and communities’ – Page 71 good relations with our business partners, including suppliers, customers and other business partners. Sustainability However, giving or receiving hospitality or gifts which are excessive or inappropriate does not help to build • ‘Our People’ Page 74 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- • Diversity – Governance Report Page 105 Bribery law, with consequent criminal penalties. It is therefore essential that our employees and Directors Page 91 comply with this policy whenever giving or receiving gifts or hospitality to or from the Company's business • Risk - Climate Change, Environmental and Social Responsibility partners, or otherwise in the context of the Company's business. Anti-Bribery and Corruption • Anti-Bribery Policy. • Risk – Culture Page 92 • Gifts and Hospitality Policy. A review of each of the above policies is considered on an annual basis. Following our 2022 review, a number of policies were updated where appropriate. Business model • Our business model Page 13 An integrated training and policy platform continues to be maintained, which facilitates the rollout of policies to Non-financial KPIs • Non-Financial KPIs Page 22, 27 appropriate audiences. 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. • Sustainability Page 57 Principal risks and • Risk Management Page 87 uncertainties 55 56 Annual Report 2022 ## Sustainability As a global vertically integrated business, we are acutely and our dedication to innovation, to act as a force for good. aware of the impact large organisations have on the Collective action is required to address global issues such planet, and the great responsibility and influence we hold as climate change and social inequality, and in the past Our Sustainability Strategy is centred with our people, communities, suppliers and customers few years we have seen governments and corporates ## around three priorities: both in the UK and internationally. We have always been set ambitious goals to tackle such issues. At THG, we are focused on reinventing online retail for the better and are committed to do our part and work with all our partners committed to use our global scale, our world-class talent to become more sustainable, together. ## 01. 02. 03. ## Protecting Climate Strengthening our Empowering People ## and Nature Supply Chain and and Communities ## 2022 Impact ## Circularity Ethnic minority representation Renewable electricity in Apprenticeship and ## 63% use across our operations 26% Graduate schemes Female representation Ethical Audits conducted in Apprenticeship and ## 45% 390 on our supplier factories Graduate schemes ## Materiality assessment THG x Planet Earth It is important to assess and understand the potential Against the challenging external backdrop of increasing Since the launch of THG x Planet Earth in October 2021, we Throughout 2022, we strengthened our sustainability challenges and opportunities, as well as the topics, severe weather events and global economic issues, have been laying the foundations to ensure we can deliver expertise, building a wealth of skills, knowledge and passion that are most important to THG and its stakeholders. we remain committed to driving forward the Group’s the ambitious targets set under each of these priorities. to lead group-wide initiatives within our strategy, alongside Sustainability Strategy, THG x Planet Earth, to achieve We have made good progress in many areas including; the development of our sustainability reporting and data In early 2021, a materiality assessment was undertaken our sustainability vision: submitting our net zero plans to the Science Based Targets management approach. which led to the development of the Company’s first initiative (SBTi) for approval, which is detailed in the Climate Sustainability vision and strategy. To define the material To act as a force for good in leaving the world a better place than section on page 61. We have evolved our sustainability data There is still more to do, but we remain on track to deliver topics most relevant to THG, senior internal stakeholders we found it, by using our scale, our partnerships, our access to management and reporting, by building a sustainability many of our goals and targets within our THG x Planet Earth and external investors were engaged to gain an capital and our unique capacity for innovation to promote and data management and reporting platform with an external Strategy. We are proud to share the progress against the understanding and view as to the most material issues embed sustainability into everything we do. partner. This has enabled us to gain greater insight into our targets in this report. that could affect the Company’s operations, both now and sustainability performance, allowing us to not only capture in the future. The goal was to obtain a complete picture and report on data, but also track and analyse progress. As previously communicated, to ensure our strategy and of the environmental and social sustainability impacts, targets remain relevant, the targets will be reviewed, and resulting in a set of prioritised material issues. Five key issues Better sustainability data management and reporting unlocks if required, updated, at least every two years (next review were identified including: Climate, Nature, Waste, Supply the ability to report on sustainability-related disclosures scheduled for 2023). As per our sustainability governance Chain and People – these formed the foundations of our and help other parts of the business to deliver sustainability process, any changes will be reviewed by the senior Sustainability Strategy, THG x Planet Earth. programmes such as energy forecasting and site-level leadership team, the Sustainability Committee and energy efficiency plans. Our enhanced sustainability submitted to the Board for final approval. The full list of issues, and the process behind the materiality reporting capabilities have allowed us to report on new assessment, can be found in last year’s Annual Report, sustainability metrics for the first time, such as the number pages 89-90. of sites in water-stressed areas. As we develop the platform further, we will report on a greater number of metrics over time which is integral to reaching our goals and targets as set out in THG x Planet Earth. 57 58 Annual Report 2022 ## THG Eco ## Protecting Climate The challenges of taking effective climate action inspired cyclical process, we have helped our suppliers accelerate THG to establish THG Eco: a dynamic service solution change within their own supply chains to collectively based on the purpose-led proposition of ‘simplifying mitigate climate risk, while also reducing operational costs. and Nature sustainability’. THG Eco simultaneously powers THG’s wider Our support for our network starts with annual carbon sustainability targets, while also providing uncomplicated footprint measurement and analysis, life cycle assessments and cost-effective sustainability services to our clients, through to net zero target setting and SBTi submissions. Recognising the urgency to take action against climate businesses like ours where we have a global footprint. partners and suppliers. We break down the mammoth task We pave the way for emissions reduction through change, Protecting Climate and Nature is the first of the THG operates in multiple categories and across the whole of facing an opaque and misunderstood market, facilitating renewable energy certifications, carbon offsetting and net Group’s three key priorities outlined in THG x Planet Earth. value chain – which is why we have set ambitious targets investment in practical and transparent solutions that serve zero road mapping. Our priority around these issues echoes the sentiment around carbon, water and nature that apply, not only to businesses throughout their sustainability journey. shown at COP27 and the 15th Biodiversity Conference, ourselves, but also to our supply chain partners. Our recent work with Ideal Standard exemplifies how highlighting the need for everyone to take action, including The primary focus of THG Eco in 2022 has been to assist businesses gradually leverage change using our cyclical our network in taking climate action. By establishing a sustainability model: ## Targets CLIENT CASE STUDY Climate and Nature Performance in 2022 Status ## THG Eco supports Ideal Standard to improve GHG reporting Submit net zero baseline and targets Science-based targets submitted to SBTi for validation Complete for validation by SBTi by 2022 Ideal Standard is a multinational manufacturer of sought and applied, following extensive research. sanitaryware products, headquartered in Belgium. This data was included in the final GHG Report, along To align with an increasingly environmentally- with the source of each emission factor to support diligent market, Ideal Standard set out to measure calculations and highlight where further clarity could be Offset all of THG’s direct historical - On track and set meaningful actions and targets to reduce sought when completing the exercise, the following year. emissions by 2025 their greenhouse gas (GHG) emissions across their manufacturing network in 2021. THG Eco ran a series of virtual workshops for 100+ Ideal Standard employees both before and after the carbon They worked with THG Eco to collect and analyse GHG footprinting exercise. The sessions before the activity Transition to 100% renewable 63% of our electricity is from renewable sources On track data across their global network of 13 manufacturing were designed to educate and encourage participation, electricity for own operations by 2025 sites and offices. Guided by GHG Protocol requirements, while the sessions after delved into the report’s results Ideal Standard and THG Eco analysed their Scope and feasible next steps. Both were very well received. 1, 2 and partial Scope 3 emissions, covering fuel 50% of suppliers and THG Ingenuity 48% of our own-brand top 50 suppliers (by 2022 spend) are On track and energy-related activities, employee commuting, THG Eco’s final GHG report broke down Ideal 1 partners to set carbon reduction working on carbon reduction and climate-related initiatives. shipping, waste, inbound water and business travel. Standard’s emissions by location and scope. This targets by 2025 In 2023, we aim to start collecting data on suppliers who PARETO hotspot analysis pin-pointed areas of the have set carbon reduction targets specifically THG Eco worked with Ideal Standard to develop business with concentrated emission output, allowing an approach that would produce a meaningful and Ideal Standard to make strategic, operational decisions | representative GHG Report. Where data was not | to reduce their footprint. THG are now exploring next | 100% sourced agricultural materials | - Due to | | | --- | --- | --- | --- | --- | | available, THG Eco collaborated with local teams to | steps with Ideal Standard to recalculate Scope 1, 2 | to be deforestation-free for own- | | commence | | outline alternative solutions. Where this was still not | and full Scope 3 emissions across 2022 data to review | brands by 2025 | | in 2023 | | possible, industry-standard emission factors were | reduction activities and work towards carbon neutrality. | | | | | | | Top 20% of own-brand suppliers | - Due to | | 1 (by impact ) to introduce restorative commence agricultural practices by 2030 in 2023 30% reduction of water use in We identified 13 sites located in water stressed areas On track water stressed and own operation and 4 sites located in high-risk flood zones sites by 2030 25% of own-brand product and 34% of own-brand top 50 suppliers (by 2022 spend) are On track ingredient suppliers to disclose working on water reduction and stewardship initiatives water usage and adopt water stewardship by 2030 59 60 1. Measured by % spend. Annual Report 2022 # Climate ## Science-based targets At THG we have set ambitious targets to be climate positive and address the environmental impact of our greenhouse gas (GHG) emissions. Throughout 2022, we established our baseline carbon footprint, based on 2020 data, and submitted our net zero targets to the Science Based Targets initiative (SBTi) for approval. We are scheduled to receive the outcome of our submission in the second half of 2023. In the meantime, we are developing detailed divisional roadmaps to drive delivery of our carbon reduction commitments. We submitted both near-term and long-term targets, with the aim of achieving net zero emissions by 2040. This goal is a further demonstration of THG's desire to make a significant change to the world in which we operate. ## Value Chain (Scope 3) Emissions Baseline The development of science-based targets requires robust and comprehensive calculation of all greenhouse gas (GHG) emissions to identify where we need to target our efforts. GHG emissions are split into three categories: Scope 1 emissions, which are GHGs released directly from an organisation; Scope 2 are indirect emissions which are released from the energy purchased by an organisation; and Scope 3 emissions, which are also indirect GHG emissions, and aren't directly controlled by the organisation but are related to their activities. Achieving net zero requires changes across all business areas - Scope 3 emissions comprise the largest portion of our carbon footprint and account for around 98% of THG's total emissions. This is primarily driven by purchased goods and services, alongside upstream transport and distribution. It will require significant, ongoing engagement and collaboration with our suppliers to drive emissions reduction across this category. We will track our progress against all GHG emission categories, to ensure we achieve our 2040 net zero target and will report our Scope 3 emissions on a periodic basis, alongside our regulatory obligations to report Scope 1 and 2 emissions, providing increased visibility of our performance in this area. ## Value Chain (Scope 3) emissions by source for 2020 baseline ![img-12.jpeg](img-12.jpeg) ## Climate risk Given the significant risks climate change poses to the planet, it is important to understand how this may also impact THG's business activities. We are committed to report in alignment with the Taskforce on Climate-Related Financial Disclosures (TCFD) framework. Our disclosure and progress towards full TCFD alignment can be found on pages 79-82. ## Renewable electricity In 2020, we switched many of our UK sites to renewable electricity contracts. This contract was recently extended which will increase the number of sites using renewable electricity over the coming years and is a big driver behind our current figure of 63% of electricity from renewable sources. We also have solar panel installations at some of our manufacturing sites. However, we know there is much more to do. As our international operations continue to grow, we must look at ways of increasing our use of renewable electricity beyond the UK. We are actively investigating employing instruments, such as power purchase agreements and further on-site energy generation from solar, both in the UK and across our international sites as part of our target to achieve 100% renewable electricity usage by 2025. ## Electricity used to power our operations in 2022 ![img-13.jpeg](img-13.jpeg) 61 S Of Th ch su foc rep th co sig to sp em Fo ad of set We of att de en pa wit sur ne in an as un ch ha the ![img-14.jpeg](img-14.jpeg) Annual Report 2022 ## THG's GHG emissions and energy reporting The Group's GHG emissions reporting calculation is undertaken in line with our obligations within 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 2022 to 31 December 2022. | GHG emissions (Tonnes of CO2e) | 2022 | 2021 | 2020^{1} | | --- | --- | --- | --- | | Scope 1 emissions | 5,194^{2} | 2,309 | 1,946 | | 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 | 13,238^{2} | 11,605 | 9,584 | | Generated from the use of electricity in all buildings from which the Group operates. | | | | | Total | 18,432 | 13,914 | 11,530 | | GHG Intensity per £1m revenue | 8.23 | 6.39 | 7.4 | | Energy use (kWh) | 2022 | 2021 | 2020^{1} | | --- | --- | --- | --- | | Natural Gas | 23,275,342 | 12,051,833 | 9,943,330 | | Electricity | 39,358,032 | 28,653,493 | 19,649,394 | | Feet and On-Site Fuel | 3,889,419 | 590,717 | 488,578 | | Total | 66,522,793^{2} | 41,296,043 | 30,081,302 | | Energy Intensity per £1m revenue | 29,707 | 18,952 | 18,638 | | Energy use (kWh) | 2022 | 2021 | 2020 | | --- | --- | --- | --- | | UK | 42,682,049 | 23,332,220 | 16,833,917 | | Overseas | 23,840,744 | 17,963,822 | 13,245,455 | | Total | 66,522,793^{2} | 41,296,042 | 30,079,372 | We reported the above emissions on a location-based approach in line with the GHG Protocol. Following a market-based approach, our Scope 2 emissions for 2022 were 9,157 tonnes of CO2e and our total Scope 1 and 2 tonnes of CO2e were 14,351. Emissions and energy consumption figures in 2022 are higher than previous years, due to a combination of factors: 1) increase in operational activity due to business growth and 2) improvement in data-capturing processes, availability and quality. In 2022, we continued the purchase of renewable electricity certificates at several UK sites, and also installed LED lighting at our acquired sites to improve energy efficiency. By building our sustainability reporting platform we can focus on tackling energy use at our highest consuming sites, and the enhanced data capabilities mean we can also now report on our Scope 2 market-based emissions. Details on how we calculate our GHG emissions and energy can be found in our Basis of Reporting document. ![img-15.jpeg](img-15.jpeg) 63 1. Minor revisions (not material) to reflect SBT targets submission. 2. Assured by Bureau Veritas – for further details please see our Reporting Basis document. Note: Table subject to rounding. Annual Report 2022 ## Nature ## Strengthening our ## Responsible sourcing ## Supply Chain and Circularity Supporting our goal to have a net positive nature impact As we develop our deforestation strategy, there will be a across our brands, we have made the commitment to specific focus on palm oil and palm-derived products, given achieve 100% of our sourced agricultural materials for our the widely known concerns between the two. Our approach We have a duty to ensure our supply chain is responsible, We have made significant progress with our ethical own-brands to be deforestation free by 2025. Deforestation to sourcing palm oil and palm products will be reviewed and ethical and does not adversely affect people or the planet. sourcing outreach programme, reaching out to every continues to drive biodiversity loss, habitat damage and also we will develop a group-wide policy, to drive a consistent The goals we have set within our strategy focus on one of our own-brand suppliers as part of our outreach contributes to global warming, so reducing our impact on approach across all areas. protecting human rights, eliminating modern slavery within programme. We have also calculated the baseline position this devastating practice will be a key focus for THG in 2023. our supply chain, and ensuring we can transform the waste for the packaging to understand the current levels of from our operations into resources. recyclability, and developed a roadmap to drive towards 100% recyclable packaging by 2025. Supply Chain and Circularity targets Performance in 2022 Status Implement a progressive Human We are developing a standalone Human Rights Policy, and in On track Rights Policy by 2023 parallel we have implemented new ethical standards across our supply chain and are embedding the process across internal stakeholder groups. | All own-brand goods suppliers to | THG has an extensive supply chain, consisting of finished | On track | | --- | --- | --- | | commit to THG’s ethical sourcing | goods and raw materials suppliers split across THG branded | | | standards by 2025 | and third-party brands sold on our THG online platforms. | | In 2022, attention was focused on own-brands’ suppliers of finished products, and raw materials contributing to the make-up of these products. Throughout 2022, 78% of these suppliers committed to THG’s Ethical Code of Conduct which outlines the ethical sourcing standards. | | 100% of own-brand packaging | A baseline assessment of packaging across the three | On track | | --- | --- | --- | --- | | | to be recyclable, reusable or | key divisions: THG Beauty, THG Ingenuity and THG | | | Water | compostable by 2025 | Nutrition was undertaken in 2022. Roadmaps have been | | developed to identify the key milestones and actions to drive target delivery. ## Water use in our operations Supplier engagement on water use In late 2022, we began collecting data around water use Water stewardship across our supply chain is an important Zero waste to landfill from Collection of waste data across all sites began towards On track across our sites, which has enabled us to start working on area for us to tackle, especially given the growth of our our own operations by 2030 the end of 2022. Full waste data collection and analysis calculating a baseline for our water reduction target. business and global nature of our partners and suppliers. relating to all global sites will be completed in 2023. To improve water data quality, we are exploring the While we have been obtaining data across own-brand raw In 2022, our Poland facility, one of our largest manufacturing installation of automatic meter readers across several UK material and finished goods suppliers, in order to focus and fulfilment sites, sent zero waste to landfill. sites, with implementation expected to begin in 2023. our efforts on where we have maximum impact, we have We have mapped out sites which are located in water- assessed supplier performance associated with water use for We recycle more plastic than we The amount of plastic we use was collated in 2022, based on On track stressed areas using the WRI (World Resources Institute) those aforementioned Top 50 suppliers (by spend) – in 2022, produce by 2030 2021 data, as part of the data collection to assess recyclability Aqueduct tool – the results indicate 13 sites are situated 34 of those suppliers were conducting activity around water in water-stressed areas. However, we are aware that in of our own-brand packaging. This work will continue in 2023 stewardship and reduction. the future this may change, and we will continue to look to establish our baseline position as we compare this with at water efficiency measures across all sites. In addition the plastic recycled across THG’s three recycling centres. to water stress, we also looked at sites located in 100- year flood zones, with results showing that only 4 sites 70% of packaging from third-party Many of the brands THG partners with are already On track are in such zones – again we will monitor this carefully. In brands to be recyclable, reusable or taking positive action and increasing the recyclability of 2023, we will undertake climate-risk modelling as part of compostable by 2030 their packaging. During 2023, a baseline position will be TCFD recommendations which will further enhance our established to understand and determine where further understanding of climate-related risks such as water stress. engagement is required. 65 66 Annual Report 2022 ## Percentage of factories ## 16% ## Supply Chain ### OTHER ## in each country ### COUNTRIES ## Mapping In line with our Supply Chain Mapping & Ethical Outreach Programme, at the beginning of 2022, supplier outreach work started on own-brand raw materials and finished goods suppliers (excluding acquisitions). From June 2022, the programme was extended to include all THG acquisitions. ## As of 2022, we have reached out to every own-brand raw 3% materials and finished goods supplier and successfully mapped ### NETHERLANDS out production units among 62% of suppliers. A breakdown ## of manufacturing units across the top-10 sourcing countries is 8% ## 27% illustrated on the map: ### USA ### UK ## 6% ### GERMANY ## Divisional breakdown ## 2% ## by country ### POLAND Key Nutrition China United Kingdom Beauty United States ## 27% Germany ### CHINA India ## Packaging 2% Netherlands ## 2% ### FRANCE Italy ### TURKEY France 1 Poland Other ## 4% ## Turkey 3% ### INDIA ### Other Countries ITALY 67 68 1. Gifts, Luxury, Homeware & Apparel. Annual Report 2022 ## Human Rights During 2022, the supply chain sustainability team focused extensively on implementing new ethical standards across our supply chain and embedding the process across internal stakeholder groups. Legacy suppliers were engaged alongside all new suppliers. Our key areas of focus were: - Supply chain ethical sourcing process development and implementation including – due diligence and prerequisites such as new supplier validation, continuation of our SEDEX (an international ethical supply chain assessment platform) membership, capabilities and accreditation assessments, and mandatory third-party ethical audits. - Modern slavery and human rights – including development and implementation of THG's Ethical Code of Conduct and ethical requirements agreement, internal audits, a tailored labour & modern slavery audit, as well as a supply chain ethics onboarding policy for direct & indirect procurement. - Supply chain mapping and transparency programme – engaged THG branded goods and raw material suppliers in a global outreach programme designed to successfully map our supply chain. - Supplier onboarding portal – development of THG supplier portal expected to be rolled out and integrated into supplier onboarding/management in 2023. - Awareness and training – procurement teams received training on the importance of human rights across the supply chain and their role in ensuring THG responsibly source new suppliers across procurement. ## Supplier commitment to our ethical sourcing standards We have been building the foundations and outlined the principles of THG's ethical sourcing programme, an Ethical Code of Conduct, with reference to International Labour Organisation (ILO) standards. Own-brand suppliers are expected to acknowledge the values and standards set out around ethics and supply chain transparency, by signing, as well as delivering the requirements to their corresponding upstream suppliers. The programme includes the ethical sourcing onboarding process, whereby all new suppliers are required to fulfil minimum requirements. Pre-requisites comprise validation of credentials, supply chain mapping, SEDEX membership, third-party ethical audit and risk assessment. Current approved suppliers are also held to the same standards within their approved life cycle. All suppliers must adhere to the standard set out within the ethical programme on a continuous basis. Suppliers not committed to the programme are escalated to Senior Management for business review. In the first year of our ethical supply chain programme, 514 suppliers, equivalent to 78% of our own-brand raw materials and finished goods suppliers, signed up to our Ethical Code of Conduct. Looking beyond 2022, we are striving towards having 100% of our own-brand finished goods and raw material suppliers engaged in the programme and aligned to our ethical audit requirements. In 2022, we obtained and reviewed 390 ethical audits from supplier factories – 44% of our factories were audited and all new factories onboarded are now subject to audit. As our ethical supply chain programme develops, we will continue to build our audit and engagement capabilities with our suppliers. ![img-16.jpeg](img-16.jpeg) ## Zero waste ### Own-brands plastics and packaging Plastic pollution is a world-wide issue, requiring urgent and consistent action to reduce the volume of plastic waste which significantly impacts natural habitats on land and in the ocean. Around 36% of all plastic produced is in packaging and around 69% of this ends up in landfill or as unregulated waste, which isn't subject to waste controls. The issue around plastic is not only about waste; most plastic is derived from fossil fuels and therefore the continued increase in the use of plastic, and particularly virgin plastic, results in greater greenhouse gas emissions. At THG, we are committed to playing our part in addressing this global issue by ensuring our own-brand packaging is 100% recyclable by 2025. THG is a member of the UK Plastic Pact, and along with more than 120 businesses and organisations from across the entire plastics value chain, has also committed to increase the level of recycled content within our packaging to at least 36%, which will see a reduction in the amount of virgin plastic placed on the market, but also a reduction in carbon emissions. In 2022, we assessed the recyclability of all packaging across our largest divisions to establish a baseline position and have developed roadmaps to drive the delivery of the targets over the next three years. We have already made changes to our Lookfantastic Subscription Beauty Box to reduce the amount of packaging and ensure the outer box is 100% recyclable – read our case study on page 23. ### Waste in our operations The ability to manufacture products in-house gives us an edge, being able to quickly develop innovative and improved products by responding to consumer demands and changes. However, manufacturing operations produce waste, and it is important that organisations take responsibility for the waste they produce. In 2022, a group-wide waste assessment was initiated (which will be completed in 2023) to understand the total quantity of waste produced by THG, as well as where it is produced and the differing types of waste. By applying the waste hierarchy and circular economy principles, we aim to reduce the amount of waste produced across the business, reduce costs and ensure any waste that is produced does not end up in landfill – in line with our target of zero waste to landfill by 2030. An example of our commitment to achieving this target is illustrated by the fact that THG's Polish fulfilment and manufacturing facility sent zero waste to landfill in 2022. Similarly, Myprotein studied how to utilise unused protein powder which would have ended up as waste. By partnering with a specialist waste recycling company, the powder is now repurposed to become fish food used by the angling community. Innovative initiatives such as this further demonstrates our commitment of reducing waste and applying circularity principles. Our responsibility doesn't sto ad an con We con and Re Du pla 2022 thre of p inc like roa Th In c ow wit of p thin to t pro per req Annual Report 2022 ## Diversity and inclusion goals ## Empowering People The Group’s D&I vision is to further create a diverse, As part of THG x Planet Earth, we set ambitious targets inclusive and supportive work environment, reflective of the around diversity and inclusion - the performance and ## and Communities communities within which THG operates and comprising progress towards these targets can be found below: talented and motivated individuals. As a global business, we operate across many countries, development and investing in our communities. impacting not only the 8,000+ people that work within In 2022, we’ve solidified the foundations of reaching the business, but also across the whole value chain from our goals – developing our first diversity and inclusion our supply chain to local communities. The third priority strategy and social impact strategy - further details Percentage of female representation in our Percentage of female representation within our THG x Planet Earth Strategy focuses on three can be found on pages 77-78. Graduate and Apprenticeship programmes at Board and senior leadership level areas – diversity and inclusion, employee wellbeing and | | | | 2020 | | 49% | 2020 | | 20% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 2021 | | 54% | 2021 | | 25% | | Empowering People and | Performance in 2022 Status | | | | | | | | | Communities targets | | | 2022 | | | 2022 | | | | | | | | | 45% | | | 22% | | | | | | Target to 2025: | | | Target to 2030: | | | Achieve 50% female | 45% female and 26% ethnic minority representation | On track | | 50% | | | 50% | | | representation and at least 20% | in Graduate and Apprenticeship schemes | | | | | | | | ethnic minority representation in Graduate and Apprenticeship Percentage of ethnic minority representation Percentage of ethnic minority representation schemes by 2025 in our Graduate and Apprenticeship programmes at Board and senior leadership level | Achieve 50% female | 22% female and 6% ethnic minority representation on the | On track | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | 2020 | 12% | 2020 | 6% | | representation and at least 15% | board and senior leadership team | | | | | | ethnic minority representation 2021 17% 2021 6% on the Board and Senior leaders | by 2030 | | | 2022 | | 26% | 2022 | 6% | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Target to 2025: | | | Target to 2030: | | Eliminate gender and ethnicity | Gender Pay Gap information can be found on the UK | On track | | 20% | | | 15% | | pay gaps across all THG | Government online Gender Pay Gap service portal. | | | | | | | | divisions by 2030 | Ethnicity pay gap to be determined in the future as we | | | | | | | continue to improve on gathering more data in this area CASE STUDY | Achieve at least 15% | We will be undertaking our baseline for employee | Due to | | | --- | --- | --- | --- | | improvement in employee | engagement scores in 2023 | commence | Engaging our people around | | engagement score by 2025 | | in 2023 | | ## diversity and inclusion In 2022, we organised several events which aimed to | Pay all direct staff, agency | 70% of UK direct staff (excluding agency workers and | On track | bring attention and understanding to groups which | | --- | --- | --- | --- | | workers and contractors | contractors) are paid a Real Living Wage | | can face discrimination and inequality. Providing | | a living wage by 2025 | | | these engagement opportunities which celebrated | the identity and different backgrounds of our staff, we hope to increase their sense of belonging All Tier 1 suppliers to pay Primary focus in 2022 has been on direct staff and we will Due to and educate the wider workforce on being more a living wage by 2025 review this target in 2023 commence inclusive and respectful in the workplace. in 2023 Some of the events held in 2022 included panel | Provide 10,000 people in the | With the introduction of the Social Impact Strategy, we | Due to | and lunchtime sessions for International Women’s | | --- | --- | --- | --- | | community with technology | will aim to identify opportunities to support communities | commence | Day, Lunar New Year, Pride Month and Mental | | and life skills training by 2030 | through training of these important skills in 2023 | in 2023 | Health Awareness Week. We also hosted our first | Black History Month forum where external speakers shared their experience and achievements in their | Introduce two days volunteering | Our approach to colleague volunteering is outlined in our | Due to | careers. To deepen engagement and to drive impact, | | --- | --- | --- | --- | | per year for every THG employee | Social Impact Strategy. This will be rolled out in 2023 | commence | in 2022 we set up the Black Community Network | | by 2025 | | in 2023 | alongside our LGBTQIA+ and Allies Network which | was set up in 2021. 71 72 Annual Report 2022 ## Gender and ethnicity pay gap paying all THG staff a Real Living Wage by 2025. The initial ## focus around living wage is on our own staff, contractors Our people In 2022, the focus was on improving the quality of and agency workers where we have greater control and employee data including gender and ethnicity which influence. With regards to suppliers, this is significantly has helped improve our diversity target progress. Better more complex given the international nature of our supplier In 2022, we focused on developing our people and measurement of the current situation against targets base and the lack of living wage standards in many THG colleagues captured at ICON Studios. Q1 2023. reducing operational costs to future-proof the Group and development of programmes allows us to build a countries. During 2023, we will continue to assess the best and streamline our processes to benefit our global teams. workplace where all employees can thrive. We report on approach to deliver against the target. our gender pay gap via the UK government gender pay We developed our people through targeted training and gap service every year. Efforts to collect a greater range development programmes, focusing on digital skills, data ## of diversity data will continue throughout 2023 with a Investing in our communities analysis, and leadership, all of which are critical for our goal to report on our ethnicity pay gap in the near future. teams to succeed in today’s fast-paced environment. ### Training in our communities We reduced costs by streamlining our processes ## Employee wellbeing and optimising our people operations. This included Our innovation in technology and digital platforms allows ## and development implementing new technology solutions such as us to leverage our knowledge and expertise to benefit local automation in our distribution centres which helped communities. With the development of our Social Impact us to reduce manual workloads and improve efficiency. Strategy, we will aim to identify opportunities to support ### Sustainability training communities through training of these important skills. Ensuring that THG’s Sustainability Strategy remains ## In 2022, THG made significant efforts to provide aid and Supporting our people at the heart of our business and is a clear focus for all support to those affected by the conflict in Ukraine. colleagues will continue to drive successful delivery. In Our People teams worked diligently to provide physical Our goal is, and always will be, to foster a workplace culture 2022, a new induction session was introduced for all and mental health support to our Ukrainian colleagues that prioritises our people, their personal wellbeing, and colleagues so that they understand the strategy from day around the world, and our security teams helped to safely their professional development. one and are clear how they can play a part in its delivery. relocate those colleagues and their families who made the To maintain this momentum, a series of six sustainability difficult decision to leave their homes in Ukraine. We also To achieve this, our in-house doctor provides personalised learning modules were introduced, designed to supported our Ukrainian colleagues in the UK, including and virtual GP services for all THG employees globally and ## Culture enhance colleagues’ understanding and engagement assisting those who were making arrangements for their delivers initiatives to support people who are struggling in sustainability, the first of which was launched in late loved ones to join them. with their mental health. Not only does this service give our As THG evolves, we recognise that our employee value 2022. The remaining learning modules will be delivered people access to free medical support and advice, but it proposition (EVP) must evolve too, and so last year, we throughout 2023, building awareness and increasing In addition to supporting our own colleagues, we also helps us to create a culture of empathy and awareness. invited our global workforce to suggest a fifth company knowledge in various sustainability topics. recognised the urgent need for broader assistance in the value and help shape the future of THG. We received over region. Through partnering with national and international Our Employee Assistance Programme (EAP) also supports 650 suggestions, all of which gave us a fantastic insight organisations, we were able to provide product donations the wellbeing of our UK-based employees by providing into what makes THG so special, but the suggestion that ### Employee engagement 24/7 access to information, advice, and support. via our fulfilment centre in Poland. These donations seemed to resonate with our teams regardless of role, included essential items such as food, clothing and hygiene division, or location was “collaboration”. Throughout 2022, colleague engagement at a divisional products, which were distributed through local partners In response to the cost-of-living crisis, we introduced free level was measured - driving actions to improve our to the areas of greatest need. lunches for all apprentices based on our catered sites Collaboration underpins everything we do at THG; it’s why performance where necessary. The goal is to move throughout November and December. Following positive we’re a global leader that continues to challenge what is to a more consistent approach across the group and Our approach to colleague volunteering is outlined in feedback from our apprentices and their managers, we possible. Over the next 12 months, we will be embedding business-wide colleague surveys will be introduced in our Social Impact Strategy. This will be rolled out in 2023, have extended this initiative until March 2023. our newest value, collaboration, in everything we do whilst 2023, developing a deeper understanding of colleagues’ providing colleagues with a clear framework for community continuing to bring our existing values, innovation, ambition, views, to learn from our successes and take actions engagement and volunteering. Finally, we awarded £36m of shares to 564 employees in decisiveness, and leadership, to life. where we need to. Employee engagement KPIs will form 2022, reinforcing our meritocratic culture. part of our People strategy moving forward. We will continue to develop our unique and vibrant culture, THG colleagues captured at ICON Studios. Q1 2023. tracking progress against employee feedback obtained from group-wide surveys, pulse surveys, onboarding ### Living wage surveys, and exit surveys, and HR data such as attrition rate, absenteeism and employee referral rate. In 2023, we In 2022, 70% of UK THG staff (excluding contractors will establish a baseline engagement score before working and agency workers) were paid a Real Living Wage, towards our target of improving scores by at least 15% by which is an hourly rate calculated according to the cost 2025. To find out more about our sustainability goals and of living in the UK by the Living Wage Foundation. In targets, visit our Sustainability section. 2023, additional data will be collected regarding agency and contractor staff, as well as staff outside the UK. We Culture is a principal risk and the Board has overall will also build a roadmap to help achieve our target of responsibility for risk management. However, as reflected in its Terms of Reference, the Risk Committee has delegated responsibility for the monitoring and review of the processes and procedures in place to manage or mitigate principal risks, including Culture. 73 74 Annual Report 2022 ## Recruitment Learning & development Our talent team adapted to the demanding job market, We continued our commitment to creating an inclusive From our early careers talent to our senior leaders, we’re delivering a recruitment strategy that engaged both active and accessible hiring process that gives everyone an passionate about supporting and developing our people and passive candidates globally. A key part of our strategy opportunity to showcase their skills and talents, regardless at every stage of their career. In 2022, our Learning & involved utilising our network of employees and industry of their background or personal circumstances. This Development (L&D) team delivered a variety of initiatives partners to identify and attract top talent. We also invested involved delivering diversity and inclusion training to our to enhance soft skills and technical expertise across the in recruitment technology and tools to streamline the hiring talent team and entering a partnership with Change 100, Group. This training was supplemented by over 5,000 process and make it easier for top talent to apply and an award-winning internship programme of paid summer hours of self-led online learning, 2,336 LinkedIn Learning connect with us. work placements and mentoring for disabled students course completions, and 76,737 LinkedIn Learning video and recent graduates. Through Change 100, we have completions. We secured a listing in The Times Top 100 Graduate developed our knowledge and understanding of accessible Employers for a second consecutive year, reinforcing recruitment, taking learnings from genuine experts and We delivered the latest iteration of our 12-month our position as a top employer in the graduate market. applying them to our own processes. development programme, supporting the personal and We proactively engaged with students from a variety of professional development of our graduates, interns, and educational backgrounds, resulting in over 250 graduate apprentices as they navigated the transition from campus and undergraduate hires from 56 universities. to office. Underpinned by social learning, our 2022 early careers development programme consisted of in-person networking events, workshops, industry talks and online learning, giving our early careers talent access to a variety CASE STUDY of learning opportunities to help them go further, faster. THG Accelerator continues to go from strength to strength with 47 graduates joining the programme in 2022. From Computational Neuroscience with Cognitive Robotics to Journalism & Communications, our Accelerator cohort ## Meet Hannah introduces a wealth of diversity, experience and knowledge Internal mobility to our Technology division. To date, our Accelerator programme has developed over 150 graduates in-house, We know that giving our people an opportunity to grow ### Early Careers Assistant at THG giving THG access to homegrown tech talent whilst and develop with us is essential for having a productive, addressing the digital skills gap and making tech careers passionate and efficient workforce. That’s why we’re Hannah joined THG in August after successfully more accessible. committed to promoting internal mobility and providing our securing a place on Change 100, Leonard Cheshire’s employees with opportunities to move between different award-winning internship programme for university departments and roles. Not only does this benefit our Watch our THG Accelerator students and recent graduates with a long-term people as individuals, but it helps to create a more dynamic In Focus video here health condition and/or disability. and knowledgeable workforce. During her 3-month internship at THG, Hannah We launched our Leadership & Management Academy in One of the ways we support internal mobility is through shadowed our L&D team, designed training partnership with industry-leading training provider, Corndel. our professional development programmes as they give sessions, delivered workshops, and attended Through the Academy, managers at all levels across the our people the soft skills and technical knowledge that university events. She also worked with the other UK were invited to apply for a place on our Level 3, Level 5 they need to take on new roles and responsibilities. We interns we hired through Change 100 to create ‘The and Level 7 qualifications, all of which are accredited by the also have a strong culture of collaboration, evidenced by Neurodivergent Forum’, a place for people across Chartered Management Institute (CMI). Each qualification the introduction of our new company value, which helps the Group to find out more about neurodivergent blends coaching, training and personal development employees to build relationships and gain exposure to conditions, share ideas, and socialise. that is tailored to our business and the individual learner, different areas of the Group. “Invest in your personal development and say yes to giving our people a fantastic opportunity to develop the as much as possible, especially if it involves pushing After completing her internship, Hannah received an knowledge, skills and behaviours needed to become a In addition, we have a clear and transparent promotion yourself out of your comfort zone. Being open-minded offer to join THG as a permanent member of the transformational leader at THG. Our Level 7 programme, process that gives employees the chance to move up is important in any role, but it’s definitely something to Early Careers team, supporting and developing our delivered in partnership with Imperial College Business within their current department or to switch to another prioritise when you’re an intern. grads, interns, and apprentices as they navigate the School, gives our senior leaders access to world-class one that aligns better with their career goals. Our People transition from campus to office. learning opportunities and Imperial College Associate team works closely with managers to identify potential I’m so glad that I’ve been able to get involved in new Alumni status. opportunities and provide support and guidance to projects, make new connections, and really shape my We asked Hannah what advice she would give to employees throughout the process. role into something I’m incredibly passionate about. someone completing a Change 100 placement. THG/Orbit, our award-winning global customer service I can’t wait to see what the future holds for me at THG.” solution, also launched the Orbitor Programme to develop Ultimately, our focus on internal mobility helps to create their teams, encourage engagement, and recognise top a more engaged and motivated workforce, as well as a talent. The initiative has been embedded into THG/Orbit's more resilient and adaptable business. By investing in our performance management process as team leaders use employees and supporting their career growth, we can the 4-point scale each month to help agents identify areas attract and retain top talent whilst also creating a positive for improvement, develop their skills, and celebrate their and supportive work environment. success. This provides a structured and consistent measure of performance based on quality and quantity of customer responses, reinforcing THG's meritocratic culture. 75 76 Annual Report 2022 ## Creating a diverse & inclusive workforce ## Social impact We strongly believe that having a diverse workforce and an inclusive workplace creates a more innovative and successful Finally, we laid the foundations to deliver our Group Social Our commitments within each pillar will allow us to tackle business. We’re proud to have a strong gender split across our workforce with 48% of our employees identifying as female Impact strategy in 2023. complex social issues and create a bigger impact in our and 48% identifying as male (4% not disclosed), and we are continuing to improve data around the ethnicity local communities. of our workforce. Please see below. Underpinned by three key pillars, championing inclusion, disrupting inequality and creating opportunity, our strategy In 2023, we will work towards achieving our target of aims to address social issues in our communities and drive allowing all THG employees to take 2-days volunteering | | 2022 Gender | | 2022 Ethnicity | | | | --- | --- | --- | --- | --- | --- | | | | | | positive change for our people and the things that matter | leave by 2025 and providing 10,000 people in the | | | | | | most to them. | community with technology and life skills training by 2023. | | Male Female Not Disclosed Tot al | | BAME Non BAME Not Disclosed To tal | | | | To find out more about our sustainability goals and targets, Board 7 1 0 8 Board 0 2 6 8 These pillars determine which causes we focus on and visit the Sustainability section. what activities we do both at Group-level and in division. | Senior | | Senior | | | --- | --- | --- | --- | | | 18 6 0 24 | | 2 11 11 24 | | Leadership | | Leadership | | | Other 3,937 3,979 340 8,256 | | Other 941 3,752 3,563 8,256 | | | Tot al 3,962 3,986 340 8,288 | | Tot al 943 3,765 3,580 8,288 | | ## 1. 2. 3. In 2022, we launched our Diversity & Inclusion (D&I) strategy, implementing a range of initiatives built around our four pillars: visibility and representation, learning and development, recruitment and progression and accessibility and inclusion. | To find out more about our progress to date, visit page 72. | | | | | | Championing | | | Disrupting | | | | | | Creating | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | inclusion | | inequality | | | | opportunities | | | | | | | | | | We’re committed to championing | | | We’re committed to disrupting | | | | | We’re committed to creating | | | | | | | | | | digital inclusion & disability | | housing inequality and health | | | | opportunities through education | | | | | Visibility | | Learning | | | | | | | | | | | | | | | | | | | | | | inclusion. | | inequality. | | | | | and employment. | | | & Representation | | & Development | | | | | | | | | | | | | | | Recognise and celebrate the success of | | Delivering effective and relevant D&I | | | | | | | | | | | | | | | our diverse workforce and partnerships, | | training tailored to each and every | | | | | | | | | | | | | | | ensuring every employee feels | | employee to further their education | | Health and safety | | | | | | | | | | | | | represented and heard. | | or help them progress at THG. | | | | | | | | | | | | | | | | | | | Nothing is more important than the health and safety | | | | | | During 2022, we have strengthened our focus on the | | | | | | | | | | | of our people. We continue to make solid progress | | | | | | prevention of workplace accidents which includes the | | | | | | | | | | | strengthening and enhancing our workplace health | | | | | | robust reporting and investigation of workplace accidents. | | | | | | | | | | | and safety arrangements which ensure our people | | | | | | Our group-wide Lost time accident frequency rate for 2022 | | | | | | | Data | Minority | Educational | Accessible | | | | | | | | 1 | | | | | | | | | | are safe and well at work. During 2022, we invested in | | | | | | was 0.12 | . Our plan for 2023, includes continually improving | | | | | | Optimisation | Representation | Training | Content | | | | | | | | | | | | | | | | | | strengthening our Global Health and Safety support | | | | | | our processes and procedures for the reporting and | | | | | | | | | | | team to ensure our business operations have access to | | | | | | investigation of accidents along with the effective sharing | | | | | | | | | | | best-in-class competent Health, Safety and Environment | | | | | | and learning of accident causes and preventive measures | | | | | | | | | | | (HSE) support and advice to ensure we provide a safe | | | | | | across the business. | | | | | and healthy place work of work. In addition, our company | Recruitment | Accessibility | | | | --- | --- | --- | --- | | | | health and safety programme delivered: | In 2023, our focus will continue to make progress on | | & Progression | & Inclusion | | | ensuring there are common HSE standards in place across • Safety leadership refresher training for our Internal our high-risk activities and strengthen our arrangements for To hire diversity fairly, sourcing the best Providing virtual and physical experiences, Executive team the control of environmental risk and the mobilisation of our talent regardless of background and opportunities and work environments new Occupational Health Provider. supporting our employees throughout which are accessible to all. their journey at THG. • Over 90 THG Managers successfully completed the Institution of Occupational Safety and Health (IOSH) Health & Safety is a principal risk and the Board has overall Managing Safely training course responsibility for risk management. However, as reflected in its Terms of Reference, the Risk Committee has delegated • New HSE Management Standards for the control responsibility for the monitoring and review of the of contractors processes and procedures in place to manage or mitigate Diverse Progression Inclusive Accessibility Recruitment Support Benefits principal risks, including Health & Safety. Optimisation 77 78 1. Per 100,000 working hours. Annual Report 2022 ### Governance ## Task Force on Recommendation Response a) Describe the board’s oversight The Board is scheduled to convene at least eight times a year but additional meetings typically take place to Climate-related Financial of climate-related risks and ensure ongoing business needs are adequately addressed and monitored, including in respect of performance opportunities and delivery of strategic objectives. Environment, social and governance (ESG) matters (including climate change) arising from the Sustainability Committee are communicated and updated to the Board by the Chair of the Sustainability Committee in person or virtually using minutes and summarised updates from the Sustainability Committee meetings. For example our net zero science-based targets were communicated to and approved by the Board – these targets will undergo validation by SBTi (the global body enabling ## Disclosures (TCFD) businesses to set emissions reduction targets in line with climate science) in 2023. The Sustainability Committee meets at least three times annually and 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 targets. Key duties include reviewing and monitoring the Group’s systems, strategies, policies and targets in relation to, amongst The Company is required to disclose against the We set out in the table below our responses to the TCFD other things, energy and carbon management, and climate change. Further details can be found on pages 141-143. recommendations of TCFD (as required by Listing Rule recommendations and recommended disclosures - all (LR) LR 14.3.27R). disclosures are considered to be material. Although we are not The Board also 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 yet in position to align and report fully against all of the TCFD business. One of the principal risks is Climate Change, Environmental and Social Responsibility. The Risk As stated in last year’s Annual Report, we have chosen recommended disclosures, we have provided the actions 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 to adopt a phased approach to achieve full alignment taken so far and the next steps to enable full disclosure. In reviews the principal risks and their associated appetite targets and metrics, to assess whether they continue with TCFD recommendations as THG is progressing on the table below, we have summarised the Group’s ongoing to be relevant, effective and aligned to the achievement of our strategic objectives, and within an acceptable tolerance for the Group. At least four Risk Committee meetings take place annually. Further details on risk in its sustainability journey - launching the Group’s first work programme, set against the core elements of the TCFD management can be found on page 83. Sustainability Strategy, THG x Planet Earth, in late 2021. reporting recommendations and guidelines: b) Describe management’s role The Group’s Chief Sustainability Officer is accountable for the ongoing development, management and in assessing and managing implementation of THG x Planet Earth. In conjunction with the Board-constituted Sustainability Committee (of climate-related risks and which he is a member), the Chief Sustainability Officer oversees all Sustainability related matters (including opportunities climate-related risks and opportunities) to ensure the Group has appropriate and effective strategies, policies and operational controls in place to conduct its business in a responsible manner. In 2022, the TCFD governance structure and process was established. This includes a cross functional Working Group focusing on alignment with TCFD recommendations which meets at least fortnightly. The Working Group feeds into the TCFD Steering Committee, consisting of senior representatives from Sustainability, Finance, Procurement and Risk, which meets at least six times a year. The Steering Committee ensures the Working Group’s progress on TCFD alignment and manages the overall direction of the workstreams associated with TCFD. Outcomes from the TCFD Steering Committee are communicated to the Sustainability Committee. TCFD TCFD Sustainability Working Steering Board Committee Group Committee Focus and actions for 2023 and beyond We will communicate progress and outputs towards full TCFD alignment to the Board – including: 1) Outcome of climate-related risks and opportunities assessment. 2) Climate scenario modelling and analysis. 3) Progress against climate-related targets. Key Disclosure level: Full Partial Omitted 79 80 Annual Report 2022 # Strategy # Recommendation # Response a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long-term b) Describe the impact of climate-related risks and opportunities on the organisation's businesses, strategy, and financial planning c) Describe the resilience of the organisation's strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario To achieve full implementation of the reporting recommendations of the TCFD over the course of the next few years, one of the first steps we took in 2022 was the formation of the TCFD governance structure and process – details can be found in the TCFD Governance Section. This allowed us to focus and pull together resources to conduct a gap analysis to full TCFD alignment and create an action plan (summarised below in Focus for 2022 and beyond). In 2021, as part of the Group's work to develop the THG « Planet Earth Strategy, high level, material ESG issues including climate and GHG emissions were identified – details of our last materiality assessment can be found in our 2021 Annual Report (pages 69-90). This year, we reviewed those issues alongside the ESG risks and opportunities and extracted the climate-related risks and opportunities. Examples of the types of climate-related risks and opportunities that are now being considered, and which will be further reviewed, defined and input into future climate scenario modelling and analysis. In 2023 are summarised below. # Transition risks - Policy and legal – Changes in climate-related regulations may affect carbon price, carbon offset credits and carbon tax. - Markets – Increase in carbon prices may impact cost of energy and other resources/materials. # Physical risks - Chronic/Acute – Acute and chronic weather events (e.g floods and storms) may disrupt supply chains and operations, impacting prices of agricultural raw materials and commodities. # Opportunities - Products and services – Increase in demand for more sustainable product alternatives and services such as THGIS co. - Markets – Investment these for low carbon transition grows as governments and investors commit to a greener economy. To understand the impacts of climate-related risks and opportunities as identified above, we must conduct climate-related scenario modelling (using short, medium and long-term time periods which will be determined as part of the overall climate scenario modelling project in 2023). Given the expertise and software required to undertake such an exercise we must partner with external experts and therefore have not been able to undertake it this year but will plan to do so for 2023 (as detailed in the section below). As our TCFD work progresses, we will consider the extent to which these climate-related risks and opportunities are already taken into account within THGs business strategy and financial planning and how they may help to inform future decision-making. # Focus and actions for 2023 and beyond Further work on climate risks and opportunities, impacts and scenario analysis will be undertaken over the next few years. Our progress and timeliness summarised below. # Phase 1 (2022) – Complete - TCFD Gap analysis – Identifying gaps in current processes, structure and programmes against TCFD recommendations. - TCFD Action Plan – Identify the actions and resources required to achieve full alignment with TCFD recommendations. - Climate-related risk and opportunities identification – Review and extract the climate-related risks and opportunities from previous ESG materiality assessment. # Phase 2 (2023) - Climate risk and opportunities refinement and assessment – Refine, score/priontise and input the climate-related risks and opportunities. - Climate-related risk and opportunities modelling and impact analysis – Quantify the possible impacts of climate-related risks and opportunities across three time horizons using at least two different climate-related scenarios. - Fast zero roadmaps to be created for our Beauty and Nutrition divisions. # Phase 3 (2024+) - Climate risk and opportunities integration – Utilising and embedding the outputs of climate related risks and opportunities into the wider business and divisions – including business strategy, financial planning and risk management. - Working towards our GHG emissions reduction targets (which are awaiting SBT1 validation in 2023) using the net zero roadmaps for divisions. 81 Key Disclosure level: Full Partial Omitted # Risk management # Recommendation # Response a) Describe the organisation's processes for identifying and assessing climate-related risks Climate-related risk is embedded in Climate Groups principle also has further detail on the appofts and ensuring that processes are in good time. Current and emerging regulatory risks are considered when determining principle and associated appofts, targets and metrics, to be achievement of our strategic objectives, and b) Describe the organisation's processes for managing climate-related risks The Sustainability team and others across the of the Climate Change, Environmental and Soil assessment of various Climate Change. Environmental mitigation actions and workstreams for climate Risk Committee. The Impacts (financial and existing}) of existing matrix which incorporates environmental Risk Management section (pages 87-95). c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation's overall risk management In 2021 a high level ESG materiality assessment and prioritisation. The assessment took into related risks and opportunities are summarised detail of the identified climate-related risks and climate-related risks and opportunities are so (including climate) elements of the Group re As part of monthly risk updates as described meetings between the Chief Risk Officer and associated to the Risk Committee (which meet Governance section, page 60). # Focus and actions for 2023 and beyond The Group will be determining the short/medium with intent to align with existing THG framework determined in relation to other risks. This section 2023 We will also look at updating the non-financial and deliver to reflect factors and thresholds (impact perspective). # Metrics and targets # Recommendation # Response a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process In 2022, we developed our Science-based target were submitted to SBT1 Science Board and published in 2023 GHG emissions (including intensity ratios) and SEER (Streamhead Energy and Carbon Rap document. These are used to inform our THG. Other climate-related metrics (e.g water and sonic) models modeling in 2023 and further align b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3, greenhouse gas (GHG) emissions, and the related risks THG calculates and discloses Scope 1 and 2 page 63 in 2022, we also calculated our Scope 3 continue to develop our approach to Scope 3 c) Describe the targets used by the organisation to manage climate related risks and opportunities and performance against targets In late 2021, we launched THG « Planet Earth. This we have submitted Scope 1, 2 and 3 in 2023. In 2022, ESG metrics (including setting) found an page 141 in future years, specific use of executive remuneration offer our science developing an implementation plan for our Scope 1, Scope 2 emissions and energy use # Focus and actions for 2023 and beyond In 2022, we prioritised establishing the report. We also undertook limited assurance on our page 63. In 2023, we will be expanding to « Planet Earth. Furthermore, over the next few years we will is part of the plan to reduce our emissions as ![img-17.jpeg](img-17.jpeg) Annual Report 2022 ## How we assess risks Risk governance ## Risk management All identified risks are assessed for likelihood and impact THG operate a formal risk governance structure ensuring using a range of financial and non-financial criteria aligned risk management is at the forefront of decision making to the business and its respective divisions. The assessment and creating clear points of escalation. considers risk before any mitigations (inherent risk) and ## and informed after current mitigations (residual risk). The key benefit of ## assessing inherent risk is to highlight potential risk exposure Board in the event of control or mitigation failure. ## decision making 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 ## How we manage risks THG’s Enterprise Risk Management (ERM) Framework our strategic objectives and goals through risk-informed appropriateness of the principal risks to the business. is designed to protect the interests of key stakeholders decision making and the effective management of risk. Eliminating risk is often not feasible or desirable, so we use and enhance the quality of decision making, enabling risk appetite to make informed decisions on the appropriate the effective management of our strategic, operational, In 2022 we continued the maturing of our approach to risk ## Risk Committee level of risk that can be taken to support achievement of our commercial, compliance, change and emerging risks. management, including a further refresh of our principal strategic objectives. Our overall risk appetite is approved We continuously seek to embed and improve the use risks, the embedding of divisional risk management The Risk Committee supports the Board in setting the and measured by the Board. and adoption of the THG ERM Framework, to ensure it is processes and the alignment of insurance within our risk Group’s risk appetite and ensuring that processes are in integral to our day-to-day activities. This helps us to deliver function, including the creation of THG Insurance Limited. place to identify, manage and mitigate the Group’s principal All our principal risks are assigned to Executive Owners. risks. At each meeting, the Committee reviews the principal The Executive Owner is responsible for the overall risks and their associated appetite targets and metrics, management of the risk, ensuring the adequacy of control to assess whether they continue to be relevant, effective and the robustness of action plans to maintain the risk and aligned to the achievement of our strategic objectives, within appetite. Principal and emerging risks are supported, and within an acceptable tolerance for the Group. ## Figure 1 – ERM Framework as appropriate, by in-depth reviews. Further information on the Committee’s activity in 2022 is set out in the Risk Committee Report on pages 130-132. Business risks are identified and captured divisionally and functionally, being owned and managed within their respective management teams and reviewed on an ## Audit Committee ongoing basis. The Audit Committee monitors the effectiveness of the control environment through the review of Internal Audit ## Risk reporting and monitoring reports and other assurance activity from THG Internal Assess / Audit and consideration of relevant reporting from Monitor / Identify / Respond / Report / Analyse Track Understand Measure Communicate We continue to consider risks both individually and collectively management and the external auditor. to fully understand our risk landscape. By analysing the correlation between risks, we can identify those that have the Further information on the Committee’s activity in 2022 potential to cause, impact, or increase another risk and that is set out in the Audit Committee Report on pages 123-129. ## Risk appetite and risk tolerances How we identify risks these are weighted appropriately. This exercise informs our scenario analysis, particularly in scenarios used in the Viability Our risk appetite reflects our ability and desire to accept Our risk identification process follows an enterprise wide ## Statement, see pages 93-95. Executive a certain level of risk to achieve our strategy. We recognise “top-down, bottom-up” approach, which seeks to identify: that eliminating risk is often not feasible or desirable, so Business risks are consolidated and escalated in accordance The Executive is responsible for the stewardship of the we use our group risk appetite statement, parameters and • principal risks that may impact our ability to and pace with our Risk Management Policy and via the ERM Framework risk management approach. It develops the strategy and metrics to support informed decisions on the level of risk by which we achieve our strategic objectives, with these to the Risk Committee. This provides organisational visibility oversees the delivery of the related operational plans that that can be taken or sought to achieve strategic objectives. risks representing the risks that most threaten delivery to emerging, strategic, commercial, operational, financial and help to manage the associated risks. Each principal risk All identified risks are measured using the pre-determined of our strategy; and compliance risks. The risks are considered in context of our is also owned by a member of the Executive. risk matrix set out in our Risk Management Policy. existing principal risks and to drive accountability and action. • strategic, commercial, operational, compliance and Principal risks are monitored against risk appetite targets change risks (“business risks”) that occur at a divisional Principal risks are managed, mitigated and monitored against using supporting measures, metrics, and tolerances, level. These risks are those that pose the greatest threat risk appetite in line with our Risk Management Policy and which are evaluated throughout the year to ensure to the success of business activities across the Group evaluated throughout the year to ensure they remain aligned they remain aligned with our strategic objectives, and may also feed into our principal risks. to our strategic objectives. They are continually reviewed by and within an acceptable risk tolerance for the Group. our Risk Committee, who also consider the results of ‘in-depth’ testing of key controls supporting each principal risk. 83 84 Annual Report 2022 Our three lines governance model defines clear roles There were no instances of significant control failing ## Chief Risk Officer Emerging risks and responsibilities for all employees and establishes or weakness during the year. accountability for actions and decisions. It also describes The Chief Risk Officer (CRO) is responsible for the We define emerging risks as uncertainties arising from how appropriate oversight, challenge and assurance are You can read more about our risk management and internal second and third-line functions, namely THG Risk and trends that are on our radar, but whose full extent and provided over business activities, including the ethical control systems in our Strategic Report on pages 83-95 THG Internal Audit. The CRO is responsible for the associated implications are not yet completely clear. conduct of our operations. and the associated work of the Audit and Risk Committees facilitation and implementation of the risk management These types of risk continue to be identified through both on pages 123-132. approach across THG, including the provision of the Principal and Operational Risk processes. Additionally, The First Line represents all employees, giving them appropriate risk reporting for the Risk Committee, Audit emerging risks are identified, prioritised and understood responsibility for management of their risks and the Committee and the Executive. The CRO attends the Risk via an ‘identify, filter and prioritise, and investigate and ## A changing risk landscape subsequent deployment of risk strategies, thus supporting and Audit committee meetings and regularly meets with understand’ approach. This approach utilises internal and risk-based decision making. They hold the necessary respective Chairs outside these meetings. The CRO is also external sources, including business leaders and subject The current macroeconomic and geopolitical environment skills and knowledge to help with the identification and responsible for insurance, business continuity, health and matter experts, across a selection of categories to identify has created a more challenging risk landscape for all management of risks within our business. safety, food safety, facilities, security and loss prevention. potential emerging risks and opportunities. organisations. Our ERM Framework equips us to monitor, understand and respond to external uncertainties and The Second Line consists of THG Risk, who are responsible events. The external risk landscape is reviewed regularly By the very nature of emerging risks, it is common to for setting the framework, policies, tools and techniques ## THG Risk identify false leads, conflicting signals and messages. to ensure we proactively respond to external events to enable the First Line to effectively manage risk. As part with potentially material impacts. Therefore, the approach filters and prioritises, to support of this role, THG Risk are on hand to provide support and THG Risk supports the effective operation of the ERM management in helping to decide which emerging risks guidance to ensure a consistent approach to managing Framework and Governance Structure, including the should be investigated further. The war in Ukraine heightened uncertainty for our risk is maintained. THG Risk also manages the corporate management of the principal risks and providing guidance, employees, customers and investors. In response, we insurance programme, ensuring that placements are support and challenge to the business to effectively Once it has been decided which emerging risks should be rapidly evaluated the risks, determined potential impacts appropriate for the risk exposure and in line with our risk manage risk. explored further, they are investigated and understood by to our business and made changes to our business appetite. The Board recognises that culture underpins the operations and supporting processes. We also used an allocated Emerging Risk Owner, working with THG Risk. effectiveness of THG’s risk management, and the operation our existing cyber security capability to strengthen our The work to understand emerging risks will vary depending of an effective control environment. ## THG Internal Audit on the risk, but ranges from basic qualitative assessment resilience against potential cyber threats. Through our risk governance channels we continue to monitor the to modelling and quantitative assessment. THG Internal Audit is led by the Head of Internal Audit, and The Third Line is THG Internal Audit, the main role possible wider effects of the conflict. its purpose and activities are set out in the Internal Audit of which is to assess whether the first two lines are section of the Audit Committee Report on page 127. operating effectively. We also considered our wider approach to resilience and business continuity planning, with a focus on preparedness for energy supply issues, and any potential ## Risk management ## Figure 2 - Three Lines impact on employees, business operations and customers. ## and internal controls ## Governance Model Whilst the Covid-19 pandemic has stabilised, we continue The Board retains overall responsibility for setting group to monitor its long-term effects through the principal risk risk appetite and for risk management and internal control process, together with the impact of the war in Ukraine, 1st Line systems. In accordance with principles M, N and O of the energy supply issues and rising interest rates and their UK Corporate Governance Code 2018 (the “Code”), in combined impact on increasing the potential risk of All Employees addition to Paragraph 58 of the FRC guidance (Section 6), recession in key markets. Throughout 2022, the global Own & operate the Board is responsible for reviewing the effectiveness of pandemic continued to produce challenging conditions the risk management and internal control systems across many sectors of the global economy. THG’s priority and confirms that: has been, and remains, to protect the health, safety and 2nd Line wellbeing of our employees. • There is an ongoing process for identifying, evaluating THG Risk and managing the emerging risks faced by the Guide, support and challenge Company; • The systems have developed throughout the year under 3rd Line review and up to the date of approval of the Annual Report and Accounts; THG Internal Audit Independent Assurance • They are regularly reviewed by the Board; and • The systems accord with the FRC guidance on risk management, internal control and related financial and business reporting. 85 86 Annual Report 2022 Principal Risk Risk context Management and mitigation ## Principal risks The Board and the Risk Committee carry out a robust and Environmental and Social Responsibility’, better reflecting Information is the life blood of • The Chief Information Security Officer oversees information Cyber Security ongoing assessment of the principal and emerging risks our continued commitment to the wider community and a digital company – protecting security. The Global Privacy Officer oversees information and Data Privacy facing the Group throughout the year. The assessment the progression of our Sustainability Strategy. the confidentiality, integrity and protection. accessibility of this data is critical considers those risks that would threaten THG’s business Failure to responsibly collect, for a data-driven business. Failure to • Multi-year cyber security programmes driving continuous process and store data, together model, future performance, solvency or liquidity, and The continued maturing of our risk management approach do so can have significant financial improvement and cyber risk reduction across technology, with not ensuring an appropriate ensures that the risks continue to align with our business has seen the removal of ‘Corporate Structure’ given the and regulatory consequences in the business processes and culture. standard of cyber security across General Data Protection Regulation strategy. The effective management of strategic, financial, successful restructuring of the business during 2022 and the business, will result in us not (GDPR) era. In addition, we also • Continuously improving data protection strategy, framework meeting our regulatory obligations, compliance and operational risks is critical to the success of the addition of 3 new principal risks: ‘Geopolitical and need to use our data efficiently and methodology, ongoing data mapping and impact and losing the trust of our THG’s strategy. THG continually assesses its principal risks Economic Uncertainty’ reflecting the current changing stakeholders. and effectively to drive improved assessment procedures. business performance. to ensure continued and enhanced alignment. risk climate; ‘Liquidity and Funding’, to reflect external Link to strategic priority • Formally-deployed information security risk management stakeholder focus on e-commerce funding and liquidity; methodology to provide objective reviews and monitoring In reviewing the principal risks, we have split ‘Regulatory and ‘Strategic Optionality’, reflecting the importance of of our assets and systems. Compliance’ into ‘Health and Safety’, ‘Product Quality and making optimal strategic decisions to continually transform • All colleagues are required to undertake awareness training Executive Owner(s): Safety’ and ‘Legal and Regulatory Compliance’ to better our portfolio of businesses. for information management and data protection, with a focus Chief Technology Officer, reflect the complexities of our regulatory landscape and General Counsel on the GDPR requirements. the key risks that may impact our strategy. In addition, We manage principal risk in line with our risk management Direction of Travel - • Internal and external validation of compliance through auditing, our ‘Infrastructure’ and ‘Onboarding and Integration’ risks policy and approach, as set out in risk management on including risk-based audits of suppliers and other third parties have been merged to reflect the focus on exploiting our pages 83-86. In 2022, we monitored and reported on 15 (see ‘Third-Party Reliance’). significant investment over the past two years, alongside principal risks. As detailed in the following table, a range of additional focus on supply chain to become ‘Infrastructure measures are in place, or are being deployed or developed, THG places reliance on third-party • All new suppliers go through a rigorous selection and and Supply Chain’. Our ‘Environment, Social and to manage and mitigate our principal risks. Third-Party Reliance providers to support the delivery onboarding process. Governance’ risk has been refocussed as ‘Climate Change, Failure to embed our partners as of our services to our customers. an integral and aligned part of our Any interruption in these services • Procurement team monitors supplier performance on an infrastructure, fulfilment and go-to- or relationships could have ongoing basis, against third-party contract service-level market strategy in a timely manner, a profound impact on THG’s agreements. will result in us failing to deliver the reputation in the market and right capabilities and experiences could result in significant financial • Dual sourcing for most supply categories and in all business to our customers. liabilities and losses. units, reducing dependencies on sole suppliers. ## Risk heat map Link to strategic priority • Ongoing development of global site standards and monitoring to ensure adequate standards are maintained in the supply chain as far as possible, applicable both in-house and with third-party sites. ### Key Executive Owner(s): 4 1 Group Procurement Director • Assurance on our key third-party suppliers and service 1. Cyber Security & Data Privacy providers through Internal and external compliance auditing. | 2. Third Party Reliance | Direction of Travel - | | | | --- | --- | --- | --- | | 3. Talent | | • Business Continuity strategies include an assessment of | | | 4. Ingenuity e-commerce Platform | | | potential third-party impacts. | 6 9 11 5. Customer Needs • Increasing our supply chain capacity by building new additional 2 15 6. Infrastructure and Supply Chain fulfilment centres globally, with less reliance on third-party 7. Innovation warehouses (see ‘Infrastructure and Supply Chain’). 8. Legal and Regulatory Compliance 7 10 9. Product Quality and Safety 8 1213 10. Health and Safety 5 14 ### 11. Climate Change, Environmental Key and Social Responsibility Group strategic priorities 12. Geopolitical and Economic Uncertainty 13. Culture Financial / Non-Financial Impact 3 14. Liquidity and Funding | 15. Strategic optionality | Build category leadership | To make Ingenuity the | | | | | --- | --- | --- | --- | --- | --- | | | | | Deliver engaging content | Accelerate growth in core | Drive positive change with | | | positions in beauty, health | partner of choice for | | | | | | | | and innovative products to | international territories, | our stakeholders, through | | | and wellness. | commerce transformation | | | | | | | | our global customer base. | leveraging our local | an entrepreneurial, | and sustainability solutions. infrastructure. values-led culture. Direction of travel Increasing Decreasing Stable New Risk Likelihood / Frequency over 36 months 87 88 Annual Report 2022 Principal Risk Risk context Management and mitigation Principal Risk Risk context Management and mitigation As we continue to evolve our • Reviews of our remuneration requirements and mechanisms World-class infrastructure and • Operational Excellence team delivering strategic programmes Talent Infrastructure and priorities, the capacity, knowledge designed to incentivise and drive the right behaviour with a supply chain from source to to ensure all aspects of the THG estate achieve operational and leadership skills we need will Supply Chain excellence, seamless integration, conform to a unified standard If we fail to attract at pace, and/or focus on ensuring fair and equitable pay across the business. customer is fundamental to the continue to change. THG will not and evolve to support the business as it scales and changes. retain employees with the critical exacting service levels that we If we fail to scale our infrastructure, skills, capabilities, motivation and only need to attract the talent • Focused development of key staff, through dedicated learning seek to provide to businesses and systems and wider supply chain • Capex Committee oversees THG’s Capital Projects team to capacity we need to deliver on our and experience required to help and development tools, to ensure they create the environment customers alike. Our infrastructure at pace, whilst maintaining service support and monitor transformation programmes, including strategy, we will not be successful. navigate this change. We will also which enables colleagues to thrive and perform at their very must be robust, slick and secure levels, it will impact our ability to management of programme risks and dependencies. need to provide an environment best. and ensure the THG service meet demand, attract customers Link to strategic priority where employees can develop offering is second to none. The risk and support territorial expansion. • THG Risk are involved in these steering groups to ensure to meet these new expectations; • The above, monitored via engagement surveys, follow-ups is compounded by demands for the cross-functional execution of infrastructure projects are an environment where everyone and our performance management processes. Link to strategic priority incremental functionality and the successful and reduce the risk that projects do not deliver their can perform at their very best. By need to deploy this across a larger desired outcomes on time or fail to maximise the expected continuing to empower employees benefits. Executive Owner(s): footprint. Chief People Officer and leaders to make decisions, be • Comprehensive disaster recovery and business continuity plans innovative, and be bold in delivering Executive Owner(s): in place across the Group. Direction of Travel - on our commitments, THG will Chief Operating Officer continue to create an attractive • Continuous monitoring of supply chain activity and news working environment, increasing Direction of Travel - through advanced web-scraping functionality. employee engagement and aligned high-performing teams. • Continuous monitoring and forecasting of demand and availability to adjust intake accordingly. • Multiple delivery methods, routes, ports and carrier strategies to As a digital company, we continue • Ongoing investment in our Ingenuity platform services minimise the risk of disruptions. Ingenuity e-commerce to focus on scaling our current and to ensure the THG estate evolves to support the business platform • Extensive and up-to-date knowledge of supplier base to ensure future Ingenuity platform services as it scales and changes. environment in an agile and speedy we can scale our supply chain appropriately and at pace. Failure to maintain a reliable, manner to ensure the delivery • Continuous enhancement of our data protection strategy, scalable and secure live services of a consistent and robust cloud framework and methodology, ongoing data mapping and environment, will impact our platform and associated digital impact assessment procedures. ability to deliver the consistent and We must be able to rapidly • Strategic investments, alliances and partnerships network. THG must provide the Innovation resilient experience expected by deploy new innovations to in our fulfilment infrastructure, such as the Autostore. right infrastructure and operations • Robust change management processes and incident our customers. our infrastructure, systems If we fail to identify and leverage for all our customer products, a management protocols adhered to for all products and services. emerging technologies and and customers by introducing • A fully vertically integrated business model, with full control over Link to strategic priority hosting platform, together with invest in modern practices and technologies, services, or new new product development, branding and design capabilities, the governance to ensure optimal • Service-level objectives including uptime, responsiveness, supporting tools, methods and ways of working. Innovation which significantly reduces development timelines. service availability, performance, and mean time to repair objectives. infrastructure in a timely manner, requires us to address how we security protection and restoration we will not meet the needs of drive change and transformation • Collaboration with partners to complement and enable (if required). • Comprehensive disaster recovery and business continuity Executive Owner(s): our customers or our commercial across our employees, processes accelerated innovation. plans in place across the Group. Chief Technology Officer, goals. and technology, and how we Chief Executive Officer - Ingenuity differentiate and drive excellence • Innovation informed through demand insights, consumer data • Other key mitigation factors detailed under “Cyber Security Link to strategic priority and efficiencies. and feedback from our global retail customer base. Direction of Travel - and Data Privacy” risk. Executive Owner(s): Chief Operating Officer Direction of Travel - As THG continues to grow • Utilisation of customer activity and churn data, to understand Customer Needs its business and brand, their appetite for product offerings. If we fail to anticipate, understand an understanding of how to continually attract customers • Continuous Net Promoter Score (NPS) surveying allows THG and deliver against the capabilities We continue to operate in a global • Compliance teams with reporting lines into Chief Risk Officer to identify customer challenges rapidly, and respond in a timely Legal and Regulatory and experiences our current and whilst retaining our existing market with numerous legal and and Deputy General Counsel. manner to emerging trends. future customers need in a timely customers is essential. This requires Compliance regulatory requirements. Remaining manner, they will find alternative a deep and continuous flow of • Developments in e-commerce trends are monitored to keep aware of changing regulation and • Defined Risk Appetite metrics and Key Risk Indicators providers. insights supported by processes Failure to anticipate, understand abreast of the latest developments and innovations. ensuring compliance is key to which are monitored and updated at each Risk Committee. and systems. By understanding the and implement our legal and ensuring we protect both THG Link to strategic priority needs of our customers, THG will regulatory requirements, will • Use of technology and data to be more targeted and strategic and our customers and partners. • Emerging risk processes, including horizon scanning, continue to differentiate itself from result in us failing to meet our in how we gain new customers and maximise the loyalty and to anticipate potential changes in the legal and regulatory obligations, impacting our ability to competitors, build compelling value lifetime value of existing customers. deliver our strategy and losing the landscape. propositions and offers, leverage trust of our stakeholders. Executive Owner(s): key drivers to identify opportunities, • Managed International Customer Service - 24/7 Customer • Legal and regulatory compliance reviews are an embedded | Chief Marketing Officer, | decrease churn and drive more | Service for a global audience across live chat, calls, email | | | | --- | --- | --- | --- | --- | | | | | Link to strategic priority | part of the annual assurance plans delivered by our 3rd line | | Chief Experience Officer | effective revenue generation. | and social. | | | of defence. Direction of Travel - • Highly-competent buyers and merchandisers are adept • See “Cyber Security and Data Privacy” for related regulatory at interpreting and acquiring desirable brands. compliance mitigations. Executive Owner(s): • Customer service levels and complaints are monitored, General Counsel and internet sites are reviewed for customer opinion. Direction of Travel - • Investment in logistics, fulfilment, delivery, marketing, brand and customer experience to keep our customer appeal. 89 90 Annual Report 2022 Principal Risk Risk context Management and mitigation Principal Risk Risk context Management and mitigation Adverse changes to economic • Diverse product portfolio and geographic reach which mitigates Ensuring the ongoing quality and • Product safety and quality is embedded in our processes Geopolitical and Product Safety conditions could affect one or more our exposure to any localised risks and uncertainties. safety of our product portfolio and controls, from product design to customer. Economic Uncertainty and Quality countries and result in reduced is vital for our brands and our customer spending, higher interest • Adaptable portfolio of existing products and an ability to develop reputation. • Rigorous testing and regularly monitoring performance Failure to anticipate, understand Failure to manufacture and rates, adverse inflation in our cost new products that suit consumers’ and customers’ changing indicators that drive improvement activities. and successfully respond to changes provide safe, compliant and base, adverse FX movements and needs when economic conditions change. in geopolitical and economic The quality and safety of the quality products to our consumers, uncertainly on a timely basis, may limited debt refinancing options. products within our portfolio are • External certification and auditing of key suppliers. may prevent them making impact our ability to meet our strategy. • An ability to respond to the inflationary pressures on both inputs at risk of becoming compromised informed purchasing decisions, All the above could negatively and product pricing. at any stage in the supply chain if • Regular monitoring and quality controls over material received compromise their safety and Link to strategic priority impact our operating cashflows. we fail to adequately monitor the to ensure that THG product safety and quality standards result in us failing to meet our • Currency and interest rate hedging arrangements in line with obligations, negatively impacting associated processes. are met. the Group’s Treasury Policy. our brand and reputation. • Activation of incident management teams in the event of an Executive Owner(s): • Regular reforecasting of business results and cash flows, Link to strategic priority incident relating to the safety of our consumers or the quality Chief Financial Officer and rebalancing of investment priorities where necessary. of our products . Direction of Travel - • Financial resilience and liquidity with significant cash on hand • Oversight from our extensive team of product quality, regulatory at year-end and our undrawn revolving credit facilities. compliance and technical experts across each of the markets in Executive Owner(s): which we operate. Chief Operating Officer Direction of Travel - The development of a shared • Integration of Values and Behaviours into all our core colleague Culture behavioural competency that priorities including objectives, performance management, If we do not fully empower our encourages employees to always appraisals, talent attraction, selection and development, employees and enable accountability do the right thing, put customers leadership development and onboarding. in line with our shared values and at the heart of the business and behaviours, we will be challenged drive innovation, is critical in THG’s • Establishment of a Diversity & Inclusion (D&I) Committee, Health and safety is of paramount • Clear, effective and regular communications of all relevant to create a culture that meets THG’s success. Devolution of decision a platform to further improve the employee journey and Health and Safety importance and THG must safety updates. business ambitions. making, and the acceptance of workplace culture to ensure we are a truly inclusive workplace. Failure to implement and provide a safe environment accountability for decisions, is monitor appropriate policies for all stakeholders. • Regular and documented training. Link to strategic priority fundamental to our continued • Training including anti-bribery and corruption training which and procedures and support development and to sustain continues to be delivered across our business units based on a continually improving safety Failure to implement and monitor • Ongoing updates to our risk assessments and safe systems our shared Values and Behaviours. assessed risk. culture across all parts of the stringent health and safety of work by trained and competent staff to raise awareness and business could lead to accidents procedures and policies across all knowledge. Executive Owner(s): THG also supports a culture of • Whistleblowing and incident reporting mechanisms in place to or incidents resulting in loss parts of the business could lead to Chief People Officer empowered leaders that develops allow issues to be formally reported, investigated and monitored. of life or serious injury. accidents or site-related incidents • Experienced and competent health and safety professionals ideas and solutions, and provides resulting in loss of life or serious to guide, challenge and support. Direction of Travel - employees with a safe environment • Employee engagement surveys & follow ups. Link to strategic priority injury to employees, subcontractors, allowing for honest disclosures and visitors, customers or members • Ongoing monitoring of culture and regular reviews of discussions. Such a trusting and • KPIs and People Dashboards at a divisional level, including D&I of the public. compliance against relevant safety regulations, policies empowering environment can help metrics and attrition analysis. and procedures. sustain innovation, enhance customer Executive Owner(s): Our global footprint and evolving success and drive the engagement Chief Operating Officer infrastructure further compound • Oversight by the Board and regular review of safety reports that results in increased market share. this risk. and safety performance. Direction of Travel - Our ability to generate and manage • Treasury operations are managed and monitored in line Liquidity and Funding our cash, control expenditure and with a Board-approved Treasury Policy. Failure to adequately manage our other expenses underpins our ability We are committed to investing in • Sustainability is integral to the group ethos with a team, headed cash, debt and overall liquidity and to repay debt and fund working • Maintenance of cash reserves and equivalents, together Climate Change, our people, partners, technology at an Executive level, to focus on creating more sustainable funding requirements over the capital investment. with access to undrawn, revolving credit facilities. Environmental products and supply-chain operations and reduce environmental short, medium and long-term, could and communities to give individuals, impact. negatively impact our ability to deliver • Close monitoring and stress testing of projected cash, debt and Social businesses, and our planet the opportunity to thrive. Our vision is our strategy. capacity and overall liquidity, including sensitivity analysis, Responsibility • Multiple workstreams designed to respond to specific risks to act as a force for good in leaving to assess the impact of the changing economic environment. and opportunities as part of our Sustainability Strategy. Link to strategic priority Failure to achieve our sustainability the world a better place than we related aims, objectives and found it. • Sustainability data and reporting platform which allow us to • Through our Profit Improvement and Capex Committees, there is obligations, will impact our ability comply with regulations and measure performance against ongoing scrutiny and challenge of discretionary expenditure and to deliver our Sustainability If we do not act on climate change, targets. capital spend. Strategy and result in us failing to associated governmental actions Executive Owner(s): meet our regulatory obligations • Governance structures, such as the internal TCFD (Task Force and energy transition could disrupt Chief Financial Officer • Broader working capital management to continually improve and public commitments, losing on Climate-Related Financial Disclosures) Steering Committee our operations and increase our cash flow and reduce reliance on bank facilities. the trust of our stakeholders. and working group, ensure there is adequate and regular costs. Direction of Travel - oversight, with additional independent oversight via Link to strategic priority • Frequent engagement and dialogue with the market and the Sustainability Committee. rating agencies. • A series of sustainability training modules are being rolled out to all employees. In addition, all new starters undertake sustainability inductions as part of their onboarding. Executive Owner(s): Group Commercial Director • Oversight from our team of sustainability experts. Direction of Travel - • External third-party assurance of our operational energy and emissions data. 91 92 Annual Report 2022 | Principal Risk | Risk context | Management and mitigation | | --- | --- | --- | | **Strategic optionality** Failure to make the optimal strategic decisions and transform our portfolio of businesses accordingly, may limit our ability to maximise returns and value for our shareholders. **Link to strategic priority** **Executive Owner(s):** Group Commercial Director **Direction of Travel -** ✚ | As part of the continued maturing of our business and to support our ongoing growth and strategic aims, we must continue to utilise our corporate structure in a way which maximises returns and value creation for our shareholders. We must also ensure that our corporate structure continues to evolve to support the strategic decisions we may choose to make in future. | - Opportunities to optimise and streamline our portfolio are continuously monitored. - Opportunities to generate and realise value from our assets are assessed on an ongoing basis. - Acquisition and disposal activity is driven by a portfolio strategy with a clear, defined evaluation process. - Resources are prioritised towards the areas of our portfolio and markets that have the greatest potential. | ## 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 £170 million in an undrawn Revolving credit facility ("RCF") due to mature in December 2024, along with £473 million readily available cash held on the balance sheet. Net debt at this date was £516 million (31 December 2021: net cash £305 million), with net debt of £181 million (31 December 2021: net cash £44 million) before the inclusion of IFRS 16 lease liabilities that mature over a period of up to 25 years. The Group holds a €600 million seven-year loan facility agreement due to mature in December 2026 and during the year an incremental £156 million banking facility was provided by the Group's existing lenders ranking pari passu with the existing facility. This new facility expires in October 2025. While there are no financial covenants attached to the €600 million or £156 million loan facilities, 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 760, which is reviewed regularly, although as noted the facility is not drawn down. This facility is not forecast to be drawn in the future period. The going concern assessment period is the twelve months from the date of this report to 30 April 2024. 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 30 April 2024. Refer to the Viability statement for further information on the stress test scenarios that have been applied to the Group's forecast. ## 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 2025, 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 (pages 13-20), strategy (pages 11-12) and its principal risks and mitigating factors (pages 87-93). In addition, the Board regularly reviews the financial position of the Group, its liquidity and financial forecasts. ## Viability assessment period In considering the viability of the Group, the Directors felt that an appropriate period of time was the three-year period between 31 December 2022 to December 2025 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 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 The Group's strategic planning cycle includes an annual Budget process, which is reviewed by the Board. The 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 Chair and CEO providing further direction to align strategic initiatives. Following the completion of the separation of the business units in the year, more detailed granular information has also been available which has supported decision making on strategic initiatives. Forecasts have been prepared on a divisional level. 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 £473m readily available cash held on the balance sheet. Net debt at this date was £516m (note 18) and net debt of £181m 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. During the year an incremental £156 million banking facility was provided by the Group's existing lenders: 93 ran exp to t but det is d and St Se to t • • • • An and def suc inv pla ab Fur en alo • • • • • The is s rec eve eve as nor ![img-18.jpeg](img-18.jpeg) Annual Report 2022 ## Reverse stress test Assessment of viability A reverse stress test was modelled to identify the point In making the Viability Statement, the Board, at which liquidity is exhausted. The model would have to supported by the Audit and Risk Committees, see a significant decline in revenue and margins compared carried out a robust assessment of the Group’s with the stress test set out above. Such a scenario, and the viability, principal risks and uncertainties facing sequence of events which could lead to it, is considered THG for the next three years, as described on to be extremely remote. Whilst the occurrence of one pages 87-93, which could impact the or more of the principal risks has the potential to affect business model taking into account: 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. Factor Link to principal risks Stress test scenarios involving a depression in margin, Note associated potential impacts were considered a below revenue performance within Ingenuity Commerce within the following principal risks review: Cyber and Beauty, along with a decline in cash conversion has Security & Data Privacy; Third Party Reliance; been run together to show an unlikely but plausible worst Talent; Infrastructure and Supply Chain; Ingenuity case scenario including an assessment of the Group’s E-Commerce Platform; Customer Needs; Innovation; longer-term prospects. We anticipate that these scenarios Legal and Regulatory Compliance; Liquidity and would include any further uncertainties that may come from Funding, Geopolitical and Economic Uncertainty, the impact of the current macroeconomic climate (including Strategic Optionality, Culture; and Climate Change, the impact of the Russian invasion of Ukraine) with high Environmental and Social Responsibility. inflation and various global recessions. The worst case scenario outlined above did not include any Based upon the assessment of the sensitivity built into mitigating actions available. There are a number of actions the scenarios tested, the Directors confirm that they have that management would take to protect working capital a reasonable expectation that the Group will be able to and strengthen the balance sheet if any of the scenarios continue in operation to meet its liabilities as they fall outlined above were encountered. These include deferring due over the three-year assessment period. non-essential capex and increased cost control. 9695 Annual Report 2022 # 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 2022, 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 106-122, is incorporated by reference into this Directors' Report. | Information | Section in the Annual Report | Page(s) | | --- | --- | --- | | Risk management (including principal and emerging risks) | Strategic Report | Pages 83-95 | | Going concern statement | Strategic Report | Page 93 | | Post balance sheet events | Directors' Report | Page 104 | | Future developments of the Company | Strategic Report | Throughout the Strategic Report Pages 3-104 | | Greenhouse gas emissions | Strategic Report | Pages 59-64 | | Directors' biographies | Governance Report | Pages 108-110 | | Corporate governance arrangements | Governance Report | Pages 105-122 | | Directors' conflicts of interest | Governance Report | Page 120 | | Related Party Transactions | Financial Statements | Pages 213-215 | | Statement of engagement with employees | Strategic Report | Pages 47-54 | | Statement of engagement with suppliers, customers and others in a business relationship with the Company | Strategic Report | Pages 47-54 | ## Articles of Association 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: https://www.ctg.com/investor-relations/key-governance-documents. ## Annual General Meeting The AGM will be held at The Bowdon Rooms, The Fire, Bowdon, Ahrincham WA14 2TQ on 21 June 2023 at 1:00 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 Biographies of those Directors who served during the 2022 reporting period and who were in office at 31 December 2022, and remain in office as at the date of this Directors' Report, are contained in the Governance Report on pages 108-110. All of these Directors held office throughout 2022 with the exception of Charles Allen, who was appointed on 22 March 2022, and Gillian Kent and Dean Moore, who were both appointed on 15 September 2022. Further, on 24 January 2023 NED Damian Sanders was appointed to the role of CFO and John Gallimore, the incumbent CFO, was appointed to the role of COO. All Directors will offer themselves for election or re-election (as appropriate) by Shareholders at the AGM. ## Directors' interests Details of Directors' beneficial and non-beneficial interests in the Shares are detailed in the Directors' Remuneration Report on page 151. No share awards were granted to Executive Directors under the Company's share schemes during the 2022 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 2022 reporting period and up to the date of this Directors' Report. The Company also maintained Directors' and Officers' Liability Insurance throughout the 2022 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. 97 Annual Report 2022 # 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 2022 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 | 1,365,971,243 | 89.09 | | Allotted, issued and partly paid D1 Shares | 56,083,651 | 3.90 | | Allotted, called-up and fully paid D2 Shares | 1,741 | n/a | | Allotted, issued and partly paid E Shares | 48,983,787 | 3.41 | | Allotted, issued and partly paid F Shares | 2,722,287 | 1.89 | | Allotted, issued and partly paid G Shares | 17,494,614 | 1.22 | | Allotted, issued and partly paid H Shares | 0 | n/a | | Allotted, called-up and fully paid Special Share | 1 | n/a | | Allotted, issued and fully paid Deferred 1 Shares | 313,257 | 0.02 | | Allotted, issued and partly paid Deferred 2 Shares | 31,563,860 | 1.50 | | **Total** | **1,436,967,451** | **100** | # Rights and obligations attaching to Shares The rights attaching to the Shares, as detailed within the Articles of Association, are set out below. # (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. 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. 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. 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 transmittal is not the holder's intended beneficiary, a transmittal 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 2022 Matthew Moulding was also interested in 198,744,095 Ordinary Shares, representing 15.71% of the total issued Ordinary Shares; 50,550,450 D1 Shares, representing 90.14% of the total issued D1 Shares; 360 D2 Shares, representing 2.03% of the total issued D2 shares; 43,641,266 E Shares, representing 89.07% of the total issued E Shares; 20,597,808 F Shares, representing 74.47% of the total issued F Shares; 7,733,792 G Shares, representing 44.21% of the total issued G Shares; and 18,346,774 Deferred 2 Shares, representing 83.08% 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, as applicable, one Ordinary Share per D1 Share or E Share or 185 Ordinary Shares per D2 Share). # (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, as applicable, one Ordinary Share per F Share, G Share or H Share). The put options may be exercised for a period of 10 years from the end of the performance period (which ended on 31 December 2022). 99 (c) The vote The pur Re of • • • • • • • • • • • • • • • • • • • • • • • • • Annual Report 2022 ## Dividends Return of capital Significant contractual Overseas branches ## arrangements Subject to the Companies Act and the Articles of A liquidator may, on obtaining any sanction required by law, Whilst the Group does not operate any overseas branches, Association, the Company may, by ordinary resolution, divide amongst the members in kind the whole or any part of subsidiaries have been established in the following The Company is party to a relationship agreement declare dividends and the Directors may decide to pay the assets of the Company and may, for that purpose, value countries: Australia, China, France, Germany, Guernsey, interim dividends. A dividend must not be declared unless any assets and determine how the division is carried out as with Matthew Moulding which regulates the ongoing India, Japan, Jersey, the Netherlands, Poland, Portugal, the the Directors have made a recommendation as to its between the members or different classes of members. relationship between the two parties (the “Relationship Republic of Ireland, Singapore, Spain, Sweden, Ukraine, amount. Such a dividend must not exceed the amount Agreement”). The principal purpose of the Relationship the United Arab Emirates and the United States of America. recommended by the Directors and no dividend may be Agreement is to ensure that the Company is capable ## declared or paid unless it is in accordance with members' Shares held on trust of carrying on its business independently of Matthew respective rights. As a Group we continue to assess the ongoing situation in Moulding and that all transactions and arrangements The Company has established an employee benefit trust Ukraine and Russia, with our key focus being to safeguard between the Company and Matthew Moulding are No dividends were declared, nor will be distributed, (“EBT”) to hold Ordinary Shares to satisfy awards made under our employees. Arrangements were put in place to conducted on normal commercial terms. The provisions for the financial year ended 31 December 2022 (2021: £nil). the Employee Incentive Plan. At the date of this Directors’ support the immediate relocation of employees where of the Relationship Agreement imposing certain obligations Report the EBT currently holds 77,762,418 Ordinary Shares. required, together with the development of longer-term on Matthew Moulding will remain in full force and effect, resettlement proposals and the provision of appropriate in respect of Matthew Moulding, for so long as: (i) the financial support. Welfare calls were extended to all rights of the Special Share remain in force; and/or (ii) either Group employees who have ties to the affected regions Matthew Moulding beneficially owns, together with any ## Substantial shareholdings and additional targeted monitoring groups have been of his associates, at least (a) 5% of the fully diluted share established to actively review intelligence on an ongoing capital of the Company or (b) 10% of the Ordinary Shares. Disclosable interests of 3% or more in Ordinary Shares as at 31 December 2022 and 31 March 2023 were as follows: basis to ensure the Group continues to adapt accordingly. THG Intermediate Opco Limited and THG Operations Percentage of Ordinary Percentage of Ordinary From an operational perspective, all THG own-brand Shareholder Shares as at 31 December Shares as at 31 March Holdings Limited are parties to: (i) a senior facilities 2022 2023 deliveries have been temporarily suspended across agreement (Term Loan B, December 2019); and (ii) Russia and Ukraine and the Group continues to work a £156m facilities agreement (October 2022), both Matthew Moulding 15.71 15.30 with its courier partners as the situation develops. of which are subject to mandatory prepayment Necessary actions have also been implemented provisions on a change of control or the sale of all, Sofina Capital S.A. 9.13 8.89 internally to ensure continued compliance with all or substantially all, of the assets of THG Operations applicable sanctions and related notices and guidance. | Balderton Capital (UK) LLP 7.66 7.46 | Holdings Limited and its restricted subsidiaries. | | | --- | --- | --- | | Qatar Investment Authority 7.52 7.32 | Other than as disclosed above, there are | | | | no significant agreements to which the Company | Research and development | THG PLC EBT 3.47 5.90 is a party that take effect, alter or terminate upon a change of control following a takeover bid. THG and its third-party commerce clients are all powered by THG Ingenuity, the Group’s proprietary All notifications made to the Company under the DTRs are released to the market via a Regulatory Information Service The Company does not have any agreement with any technology platform. In addition to providing end-to-end and made available on the Company’s website at: https://www.thg.com/investor-relations/regulatory-news/. Director or employee that would provide compensation e-commerce functionality, THG Ingenuity provides the for loss of office or employment resulting from a Group with several important competitive advantages. change of control on a takeover, except that the terms Specifically, the commercial teams review real-time ## Change of control of the Company’s share schemes and plans may transactional and customer insight data which informs provide for the vesting of employee options and/ trading decisions that are then executed within short Other than the terms of the agreement between elements of bonus would not be. While the Remuneration or awards in the circumstances of a takeover. time frames. In order to remain competitive and to Matthew Moulding and the Company, as detailed Committee has the discretion not to pro-rate for time, promote innovation, investment into THG Ingenuity from under the Significant contractual arrangements its normal policy is to do so. The Remuneration a People and capex perspective is a key Group priority. disclosure which follows, there are no agreements Committee’s discretion not to pro-rate would only ## Donations between THG and its Directors or employees providing be used if there was an acknowledged business case for compensation for loss of office or employment which would be fully explained to Shareholders. During the 2022 reporting period the Group made several (whether through resignation, purported redundancy charitable donations totalling £0.4m (2021: £1.3m). THG did or otherwise) by reason of a takeover bid. The Company has entered into various agreements not make any political donations during 2022 (2021: £nil). with third parties, as well as contracts with third- Details concerning the impact on annual bonus in the event party service providers, which provide such of a change of control are set out in the Remuneration parties with a right to terminate their agreement Policy. Generally, any annual bonus awards and unvested in the event of a change of control. LTIP awards would be pro-rated for time and performance in the event of a change of control whereas any deferred 101 102 Annual Report 2022 ## Directors' Statement of Responsibility 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 IFRS 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 IFRS (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 financial position and financial performance of the Group and Company; - in respect of the Group financial statements, state whether UK-adopted IFRS 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 - 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 the 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. The Directors are also responsible for safeguarding the assets of the Group and parent company and thus for taking reasonable steps for the prevention and detection of fraud and other irregularities. In accordance with DTR 4130R, each Director whose name and position appears on pages 108-110 of the Governance Report confirms that, to the best of their knowledge: - the consolidated financial statements, prepared in accordance with UK-adopted IFRS, 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, providing the information necessary for Shareholders to assess the Company's position, performance, business model and strategy. ## Outlook and market demand The Board anticipates FY 2023 Group revenue growth across continuing divisions of low to mid-angle digit. Adjusted EBITDA is expected to be in line with the company consensus, with a significant weighting to the second half of the year. The profitability and cashflow improvements during the first quarter support the expectation for significant margin recovery through the year. The decision to discontinue non-core categories, coupled with ongoing deflation in whey commodity prices and business model efficiencies driving improved operating leverage, underpins the margin confidence for FY 2023. These factors provide operational leverage for the Group to rebuild towards historical adjusted EBITDA margins of around 90% over the medium-term. This is supported by the expected return to historical margins within THG Beauty and THG Nutrition. THG Ingenuity adjusted EBITDA margin will scale over time as the revenue mix evolves and all service lines are sold either individually or as a complete solution, with management targeting an aspirational 5-year margin of c.75%. Our focus over the last few years has been on investment as we scaled our infrastructure to meet the step change in demand during the pandemic. Whilst we continue to selectively scale the business, it is clear that we can begin to enjoy the benefits of past investment from a cash and profitability perspective. Capital expenditure for the Group is therefore expected to be up to £135m in FY 2023 (FY 2022: £176m), and in the range of £130m to £140m in FY 2024, remaining between 5.5% to 6.5% of revenue over the medium-term. Margin accretion, reduced capital expenditure and cash adjusting items (c.£15m in FY 2023, a 65% reduction on FY 2022) and working capital rationalisation all support a clear path to being free cash flow neutral in FY 2023, turning positive in FY 2024. ## Post balance sheet events At the year end, certain loss-making categories and territories primarily within THG OnDemand were placed under strategic review. Post year end, and following completion of the strategic review (further details on which are included in the "Section 1/2 Statement Stakeholder Engagement" section), the Board approved the exit from THG OnDemand. In Q4, the Board approved the exit of ProBikeKit. These operations will be fully exited throughout the course of 2023. The optimal exit route remains under review. The result of this decision has led to an inventory provision totalling £25.5m, other costs of £6.9m and impairment of £3.8m which have been recognised within cost of sales and administrative expenses respectively and included within Adjusted Items (note 4). This has been concluded as an adjusting post balance sheet event. On 28 February 2023, the sale completed in respect of one of the non-core freehold assets recorded within the assets held for sale category (note 12.2). The sale generated cash proceeds of £5m which reflected the carrying value of the asset. No other post balance sheet events have occurred. 103 At Dir - - Th in a Co EY Ex Au be for au fin Ap Th by Jar Ge 17 Annual Report 2022 # Governance Report ![img-19.jpeg](img-19.jpeg) ## Dear Shareholders I have pleasure in introducing this year's Governance Report, the third since Admission, which details the key governance items considered and changes implemented during 2022 (and to the date of this Governance Report). Whilst application of the Code is only mandatory for companies with a Premium Listing, the Company chose to report against it following Admission to reinforce its commitment to establish a robust governance framework that supports the successful delivery of its strategic aims and objectives. Throughout the 2022 reporting period the Group's governance standards and infrastructure remained subject to ongoing review to ensure they continued to evolve, as appropriate, for an organisation of the size, nature and stage of development of THG. ## Code compliance As you will note from the Corporate Governance Statement which follows, the Company complied in full with the Code during the 2022 reporting period with the exception of three departures, one of which has been rectified since my appointment to the Board in March 2022. This improved Code adherence evidences the Company's desire to further enhance its governance practices and it is anticipated that the remaining two Code departures will, in time, also be rectified following the appointment of additional independent NEDs (further details on which follow). ## Board and Board Committee composition The Board recognises the importance of strong corporate governance to underpin the long-term, sustainable prospects of the Group and considers that a fundamental component of this is securing a suitably skilled and experienced leadership team to oversee and guide THG through the next stage of its governance journey. Accordingly, a principal focus of the Nomination Committee during 2022 was to enhance Board composition through the appointment of suitable independent NEDs and, in this regard, we were pleased to welcome Gillian Kent and Dean Moore to the Board in September 2022. Additionally, following a review of THG's leadership needs and the balance of skills, knowledge and experience on the Board, we announced two changes to the Executive Leadership Team at the beginning of 2023 – namely, the appointment of Damian Sanders, former independent NED, to CFO and the appointment of John Giallemore, the incumbent CFO, to COO. Further information on these appointments, together with details on the other Board changes which took place during 2022, can be found within this Governance Report and the Nomination Committee Report on pages 133-137. Board Committee composition was also a key focus of the Nomination Committee during 2022 to ensure that membership remained appropriate in light of the various Board changes which took place throughout the year. These changes are detailed within the respective Board Committee Reports on pages 123-157, together with current Board Committee composition. Notably, in stepping down as an independent NED Damian Sanders simultaneously stepped down from certain Board Committees, including as Audit Committee Chair and as a member of the Risk Committee. As the Board currently comprises only two independent NEDs, Gillian Kent and Dean Moore (excluding the Chair), this has resulted in the non-satisfaction of the membership requirements of these Board Committees since the date of Damian Sanders' appointment as an Executive Director. This position is temporary and expected only to continue until the appointment of at least one new independent NED in the coming months. ## The year ahead It is anticipated that the search for suitable independent NEDs will continue throughout 2023 and, more generally, the structure, size and composition of the Board will remain subject to ongoing oversight (with specific reference to its collective balance of skills, knowledge, experience and diversity) to ensure membership is fit for purpose and the Group's leadership needs are satisfied. Further, and as noted at the outset of this Annual Report, the intention remains to seek a Premium Listing, with timing subject to the outcome of the FCA's ongoing review vis-à-vis reform of the current listing regime. Until the outcome of this review is known, we will continue to review and make further improvements to our corporate governance arrangements to ensure the Group's governance framework is suitably mature and robust and we are well-placed to make the step-up at the appropriate time. ![img-20.jpeg](img-20.jpeg) 105 Annual Report 2022 ## Corporate Governance Statement Upon Admission the Company elected to report against the Code. Whilst this is not mandatory for a company with a Standard Listing, the Company recognises the value of effective and robust corporate governance in its continued growth and development and in generating sustainable value creation for its Shareholders. Aside from the following departures, the Company complied in full with the Code during the 2022 reporting period: ### Provision 9 and Provision 19: (Departure rectified on 22 March 2022) Having been appointed as CEO upon the Company's incorporation in 2006 and serving as Company chair from 2019 until the appointment of the Independent Chair in March 2022, Matthew Moulding's dual role resulted in a departure from Code Provisions 9 and 19 during this period (and, in the current context, from 1 January 2022 until 21 March 2022). As detailed in the 2021 Annual Report, the need to demonstrate the clear division of responsibilities between the leadership of the Board and the executive leadership of the business (with respect to, for example, appropriate levels of challenge and independence) had previously been subject to detailed consideration but at the same time the Nomination Committee remained cognisant of its core responsibility to ensure that the Company's leadership needs were satisfied to oversee the effective delivery and execution of the Group's strategic aims and objectives. Indeed, the analysis undertaken recognised the instrumental role which Matthew Moulding's entrepreneurial and dynamic leadership had played in the Group's expansion and evolution into a global e-commerce technology group, together with the risks associated with the wrong appointment being made. Nevertheless, a review of the Group's corporate governance arrangements was undertaken during the 2021 reporting period which subsequently identified the need for an independent chair and, in turn, align the Company with the relevant Code Provisions. Following a comprehensive recruitment process (further details on which are contained in the Nomination Committee Report on pages 133-137), 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 II: Excluding the Independent Chair from the calculation (as required by the Code), three of the seven Directors were deemed to be independent at the end of the 2022 reporting period, thus representing a departure from Code Provision 11. Following the appointment of Damian Sanders as an Executive Director on 24 January 2023, two of the eight Directors are considered independent as at the date of this Governance Report. As detailed within this Governance Report, and as noted in the Nomination Committee Report on pages 133-137, the Nomination Committee (and the Board more generally) remains mindful of this departure and, with particular regard to the Independent Chair's mandate to, amongst other things, improve independence and diversity, hopes to rectify it during 2023 as a matter of priority. The structure, size and composition (including diversity) of the Board will remain under ongoing review, with due regard being given to the balance of Executive Directors/NEDs, overall independence and the need for appropriate succession planning to be undertaken. ### Provision 32: As detailed within the 'Board independence' section of this Governance Report, Iain McDonald is not deemed to be independent with reference to the tenure provisions of the Code. However, during the 2022 reporting period Iain McDonald was a member of the Remuneration Committee (and remains so at the date of this Governance Report), despite the Code recommendation that a company's remuneration committee should comprise only independent NEDs. The Board has considered the risks associated with this Code departure and whilst, as stated in the 2021 Annual Report, it recognises the need for independent membership of the Remuneration Committee to demonstrate objective oversight of, and independent challenge to, the remuneration of Executive Directors, it remains of the opinion that, at the present time and in the particular circumstances of THG, it would not be in the best interests of the Company and its Shareholders for Iain McDonald to step down from the Remuneration Committee. Whilst his independence may be deemed to be impaired under the Code, the Board nonetheless considers that Iain McDonald's broad remuneration experience and extensive financial expertise and investment acumen make him well-equipped to serve on the Remuneration Committee and enhance its overall balance of knowledge and skillsets. Membership of the Remuneration Committee has been carefully reviewed and, as detailed within the Remuneration Committee Report on pages 144-157, various membership changes took place during 2022 (and at the beginning of 2023) to reflect changes in Board composition. It is anticipated that 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, albeit the matter will be kept under ongoing review with regard to, for example, the timing and independence of future Board appointees. ## Board of Directors ![img-21.jpeg](img-21.jpeg) 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 IT's, 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 is a former chair of Granada Media plc, chief executive of Granada Group plc and ITV plc and chair of ISM Music, Endomet and The British Red Cross. Charles has also served on the boards of Buso 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 2002 Manchester Commonwealth Games. In 2002 he was awarded a CBE for his service to Sport and Community and in 2007 he was 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 2010 was awarded a peerage and sits on the Labour Services. ### Current external roles | Chair of Global Media & Entertainment Limited (and a director of associated group companies) | Chair of Stearnsion Services Limited | | --- | --- | | Chair of Balfour Beatty plc | Chair of Grandmet Management Ltd | | Chair of the Invictus Games Foundation | Chair of Neil Holmes Limited | | Advisory chair of Moelis & Company | Director of IGF Trading Limited | | | Director of Malch Limited | ### Committee membership Chair Committee membership key: Audit Nomination Reinvention Sustain 107 Annual Report 2022 ## Board of Directors (continued) | Damian Sanders | John Gallemore | Dean Moore | Iain McDonald | Edward Koopman | Gillian Kent | | --- | --- | --- | --- | --- | --- | | Executive Director & CFO | Executive Director & COO | Independent NED & interim SID | NED | NED | Independent NED | | Date of appointment: 24 January 2023 | Date of appointment: 24 January 2023 | Date of appointment: 15 September 2022 | Date of appointment: 27 March 2010 | Date of appointment: 3 May 2016 | Date of appointment: 15 September 2022 | | (having previously served as an independent | (having previously served as CFO from 24 June 2008) | | | | | NED from 17 November 2020) | Damian is a member of the Institute of Chartered | Prior to co-founding THG in 2004 and serving | Dean is a chartered accountant with over 35 | Iain is the founder and chief investment officer | Edward is a member of the Executive Committee | Gillian has had a far-reaching career in software, | | --- | --- | --- | --- | --- | --- | | Accountants in England and Wales and was a | as its CFO until January 2023, John was Head | years of public company experience and brings | of Belerion Capital Group Limited, established | of Sofina S.A. and a director of Sofina Capital. | internet, digital media and mobile technology | | Senior Audit Partner at Deloitte LLP for over 20 | of Finance of the Caudwell Group’s International | with him a depth of City and finance knowledge, | in 2018, prior to which he was chief investment | He also sits on the board of Nuxe Group, a | businesses and formerly held various senior | | years, including several years as the leader of | Trading Division from 2001 until 2004. | together with significant expertise in the financial | officer of the William Currie Group Limited. | French-based international skincare brand, and | roles at Microsoft, including Managing Director | | Deloitte’s Technology Practice in the North of | | services and retail sectors. | Notable investments include ASOS plc, boohoo | GL Events S.A., a listed global player in event | MSN UK, where she was responsible for | | England. Damian has extensive experience of the | John studied Economics at the University of | | group plc, Metapack Limited, Eagle Eye Solutions | management. Edward was a founding partner at | creating one of the UK’s largest online services | | retail and technology sectors and has acted as | Manchester before qualifying as a Chartered | He was previously chief financial officer at | Group PLC, Anatwine Limited and Lifeworks | Electra Partners/ Cognetas Private Equity (now | businesses. Both at Microsoft and in other roles, | | an adviser and corporate governance specialist | Accountant with Deloitte LLP in 1994. His | Cineworld Group plc, N Brown Group plc, | Corporation Ltd.. Iain is also chair of the UK | known as Motion Equity Partners LLP) and was | including as chief executive officer of the real | | to a number of international listed companies. | business and accounting background, strong | T&S Stores PLC and Graham Group plc and | Digital Business Association, non-executive chair | also previously a Manager at Bain & Company, | estate portal Propertyfinder, she established her | | | commercial acumen and tenure in international | formerly non-executive chair of Tuxedo Money | of CentralNic Group PLC and a non-executive | having worked in investment banking at both | expertise in building markets and brands for | | Damian brings a wealth of experience to the | trading provided the requisite experience to | Solutions Limited. Dean is currently the interim | director of boohoo group plc where he chairs the | Baring Brothers and BNP Paribas. | products and services. | | Board across audit, accounting, commercial | initially serve as CFO and now as COO, a role | chief financial officer of Dignity plc (having been | remuneration committee and is a member of the | | | | and risk matters and also business strategy. | which will allow him to drive the operations of the | an independent non-executive director upon | audit and nomination committees. | Edward holds a degree from Ecole de | Gillian is currently a non-executive director | | His strong financial background, depth of | Group and build on the progress he has overseen | appointment), a non-executive director of Griffin | | Management de Lyon (EM Lyon) Business | of Ascential plc, Mothercare plc, Marlowe plc | | advisory experience and knowledge of the Group | in the Group’s global fulfilment footprint. | Mining Limited, and senior independent director | Iain holds a degree in Economics and Economic | School and brings a wealth of knowledge to | and SIG plc, and former positions include | | acquired during his two-year tenure as a NED, | | at both Cineworld Group plc and Volex PLC. | History from the London School of Economics | the Board through his international business | non-executive director at NAHL Group PLC, | | including serving as interim SID and as chair | | His financial and City background make him | and Political Science. He brings broad and | experience and well-honed management skills. | Pendragon PLC and Dignity plc and a director | | and a member of various Board Committees, | | a valuable addition to the Board and suitably | robust experience to the Board, substantiated by | | of Portswigger Ltd., a leading software solution | | make him well qualified to serve as CFO. | | qualified to serve as interim SID and as chair | the deep financial expertise gained in his chief | | company within the web security industry. Her | | | | of the Remuneration Committee, interim chair | investment officer roles. | | executive career and broad PLC experience | | | | of both the Audit Committee and the Related | | | ensure Gillian is well-equipped to serve as Risk | | | | Party Committee and as a member of the Risk | | | Committee Chair and as a member of the Audit | | | | Committee. | | | Committee, Nomination Committee, Related | Party Committee and Remuneration Committee. Current external roles Current external roles Current external roles Current external roles Current external roles Current external roles Senior independent director of Victorian None Interim chief financial officer of Dignity plc Chief investment officer of Belerion Capital Member of Executive Committee Non-executive director of Ascential plc Plumbing Group plc Group Limited of Sofina S.A. Senior independent director of Cineworld Non-executive director of Marlowe plc Group plc Chair of the UK Digital Business Association Director of Sofina Capital Non-executive director of Mothercare plc Non-executive chair of CentralNic Group Director of Nuxe Group Senior independent director of Volex PLC PLC Non-executive director of SIG plc Director of GL Events S.A. Non-executive director of Griffin Mining Non-executive director of boohoo group plc Limited Committee membership: Committee membership: Committee membership Committee membership Committee membership Committee membership: A R Interim Chairn/a n/a n/aChair Chair Chair Chair Rem RP N S Rem A N R Rem RP Committee membership key: A Audit N Nomination Rem Remuneration S Sustainability R Risk RP Related Party 109 110 Annual Report 2022 ## Role of the Board As mandated by the Code, a formal Schedule of Matters Under the terms of the Schedule of Reserved Matters and Board in, respectively, March 2022 and June 2022 and, 2022 to appraise the Independent Chair’s performance Reserved to the Board (“Schedule of Reserved Matters”) in accordance with the Code, ultimate responsibility for thereafter, Zillah Byng-Thorne, former SID, and Andreas (further information on which can be found in the “Board has been published on the Company’s website detailing the management of risk within the Company rests with Hansson, a former NED, also stepped down in September evaluation” section of the Nomination Committee Report those items of business, including certain strategic items the Directors; specifically, the Board is responsible for 2022). Significant progress was made in this regard during on pages 133-137). It is expected that the current interim and corporate and capital structure approvals, which are ensuring that a sound system of internal controls and risk the year and, following a twin-track external and internal SID, Dean Moore (appointed to the position on 24 January expressly reserved for the Board’s collective consideration, management framework are in place which allow risk to be recruitment search, Gillian Kent and Dean Moore were 2023), will continue to serve as a trusted intermediary for ratification and/or oversight (as appropriate). The overriding effectively identified, assessed and managed. In discharging appointed as independent NEDs in September 2022. Directors and Shareholders alike and meet with the NEDs, responsibility of the Board is, however, to promote the its risk management responsibilities, including overseeing Additionally, in light of the in-depth understanding of the as and when considered necessary and/or appropriate, long-term, sustainable success of the Company, generating the Group’s controls framework, determining organisational Group’s businesses, People and culture which Damian throughout 2023 (until such times as a permanent SID value for Shareholders and contributing to wider society, risk appetite and undertaking a robust and ongoing Sanders had acquired during his tenure as an independent appointment is made). an obligation which sits at the core of Board discussions assessment of the principal and emerging risks facing the NED, it was considered appropriate to appoint him to the and decision-making processes. Group, the Board was supported during the 2022 reporting position of CFO at the start of 2023 and, simultaneously, More generally, Board coherence and effectiveness is period by the Audit Committee and the Risk Committee appoint John Gallemore, the incumbent CFO, to COO. The cultivated through informal debate and discussion outwith The Board seeks to discharge this primary duty through (the activities of which are contained in the respective considerations of, and process followed by, the Nomination the confines of Board and Board Committee meetings. the successful delivery of the Company’s five strategic Committee Reports on pages 123-132). Committee in recommending these appointments and Such unstructured interaction amongst Board members priorities which flow from the Company’s stated purpose, Board changes are detailed within the Nomination is considered a key means through which Board relations namely to drive impact through scale, innovation and Full details of the Group’s risk management framework, Committee Report on pages 133-137. can be developed, fostered and enhanced and it is expertise. THG’s purpose, together with its vision and values, risk appetite and risk identification process can be found encouraged through, for example, the annual Board dinner are considered within the “Our purpose, vision and values” within the “Risk management and informed decision A summary of these Board changes is as follows: and biannual NED-only sessions (as introduced by the section of the Strategic Report on pages 8-10 but, notably, the making” section of the Strategic Report on pages 83-95. annual Board planning cycle, referred to in the “Board NED/ meetings and activities” section which follows). purpose has been determined with reference to the diversity This section includes confirmation that, during the 2022 Appointment Resignation Date Former NED of the Company’s stakeholder base and formulated to guide reporting period, the Board (assisted, as appropriate, by a strategy that aims to deliver long-term, sustainable growth, the Audit Committee and the Risk Committee) reviewed 18 March Tiffany Hall x 2022 whilst promoting environmental and social responsibility. the effectiveness of the risk management framework and THG’s core values of leadership, innovation, decisiveness internal control systems and identified no instances of 22 March Charles Allen x 2022 and ambition, together with the recently launched value significant control failings or weaknesses. of collaboration, underpin this approach and inform an 8 June Dominic Murphy x | entrepreneurial and values-led Group culture that supports | | | 2022 | | --- | --- | --- | --- | | the delivery of THG’s strategic aims and objectives, thereby | | | 15 September | | | Board composition | Gillian Kent x | | | generating value for stakeholders (further details on which | | | 2022 | | are included within the “Our strategy” section of the Strategic | and responsibilities | | | 15 September Dean Moore x Report on pages 11-12). 2022 Further to a review of the Group’s corporate governance 15 September In seeking to provide the effective and entrepreneurial arrangements, the need for an independent chair was Zillah Byng-Thorne x 2022 leadership required by the Code, the Board recognises the identified during the 2021 reporting period to ensure that, 15 September importance of active stakeholder engagement to ensure in compliance with the Code, a clear division of responsibility Andreas Hansson x 2022 it remains fully apprised of the views of all relevant parties was established between the leadership of the Board and the and is therefore suitably equipped to properly discharge 24 January executive leadership of the business. Following an extensive Damian Sanders n/a n/a 1 2023 the responsibilities incumbent upon it. Six key stakeholder recruitment process, further details on which are contained categories have been identified as critical to THG’s future in the Nomination Committee Report on pages 133-137, 1. This is the date on which Damian Sanders stepped down as a NED success and further information on these categories, Charles Allen was recommended as a suitable candidate and was appointed an Executive Director. together with details of the Company’s stakeholder and thereafter appointed Independent Chair in March engagement framework, can be found within the “Section 2022. From the start of the 2022 reporting period until the In addition to discharging their mandated duties under 172 Statement Stakeholder Engagement” section of the appointment of the Independent Chair, the Board was led the Code (as reflected within the published SID role Strategic Report on pages 47-54. From a more focused by Matthew Moulding who had been appointed chair of the description), the SID is expected to provide independent, perspective, the Company maintains its “open door” policy Company in 2019 and who has continued to serve as CEO objective and robust oversight of and, where necessary, with Shareholders to allow ongoing and constructive since his appointment in 2008. challenge to all matters which come before them. Indeed, dialogue to take place throughout each calendar year, thus prior to the appointment of the Independent Chair, the SID ensuring that Shareholders’ objectives, interests and views Acknowledging the Independent Chair’s mandate to refresh function was viewed as affording a critical governance are understood and appropriately factored into the Board’s and strengthen the Board by improving its independence overlay within the Group providing, as it did, an important consideration of key financial, operational, strategic and and diversity, Board composition remained an ongoing safeguard where any conflict may have been perceived ESG matters. Additionally, the Company’s annual general focus of the Nomination Committee throughout 2022, to arise from Matthew Moulding’s dual role. meeting affords Shareholders the opportunity to engage with particular consideration being given to overall in person with Board members, whilst the maturing Investor independence and the balance of Executive Directors / During the 2022 reporting period (and noting the various Relations programme seeks to improve dialogue with NEDs (and noting that two former independent NEDs, Board changes which were enacted), ongoing discussions investors and analysts alike. Tiffany Hall and Dominic Murphy, stepped down from the took place between the SID and the NEDs to ensure Board relations were suitably fostered and Board effectiveness optimised, including a SID-led discussion in December 111 112 Annual Report 2022 The current Board comprises three Executive Directors (i.e. the CEO, the CFO and the COO) and five NEDs, three of whom Board meetings and activities (including the Chair) are deemed to be independent in character and judgement (as considered further in the “Board independence” section of this Governance Report). A minimum of eight Board meetings are scheduled per As disclosed in the 2021 Annual Report, the Company A summary of the principal responsibilities of Board members and the Company Secretary is as follows: annum, with additional meetings convened on an ad launched a new online tool during the 2021 reporting period hoc basis to ensure there is ongoing and effective Board which allows for the distribution of all Board and Board oversight of all time-sensitive and/or material Group Committee documentation via a secure electronic platform. matters throughout any financial year, including in respect This platform also serves as a centralised storage facility of key strategic, commercial and financial performance through which documentation can be stored and accessed ### Independent Chair items. During 2022 the Board met on 14 occasions, with by Directors on an ongoing basis. During 2022 the use Charles Allen Board member attendance set out in the table which of this platform became more deeply embedded within follows. Director attendance at Board Committee meetings the enhanced governance processes of the Company, is detailed within the various Board Committee Reports, providing, as it does, increased security around information • Provides leadership to the Board contained on pages 123-157 of this Annual Report. distribution and storage, and is now the standard means • Facilitates constructive Board relations and the effective contribution of all NEDs by which monthly Board packs and Board Committee • Chairs Board meetings and promotes a culture of openness and debate papers are circulated. Director 2022 Attendance • Ensures effective and ongoing communication with Shareholders and other stakeholders As detailed in the Nomination Committee Report contained 1 • Sets the agenda for Board meetings in conjunction with the Company Secretary Charles Allen 10/11 within the 2021 Annual Report, the form and content of and ensures Directors receive accurate and timely information Matthew Moulding 14/14 monthly Board meetings was an area highlighted for consideration in the 2021 Board evaluation, including the John Gallemore 14/14 proposal to streamline and invert the standard Board Damian Sanders 14/14 agenda by, for example, restricting the more fulsome ### Chief Executive Officer Chief Financial Officer Chief Operating Officer Divisional updates and thereby allowing increased focus Iain McDonald 14/14 | Matthew Moulding | Damian Sanders | John Gallemore | | | | on key topics such as People, Sustainability and Investor | | --- | --- | --- | --- | --- | --- | --- | | | | | | 2 | | Relations. Following the appointment of the Independent | | | | | Edward Koopman | | 13/14 | | Chair in March 2022 this output was given further 3 | | | | | | | Gillian Kent | 2/3 | consideration and during 2022 certain changes were | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | • Provides leadership to the Executive | | • Responsible for the Group’s financial | | • Oversees the day-to-day management | | | | | | | Leadership Team | | matters and applicable legislative | | of the Group’s global operations | | | effected vis-à-vis the format and content of Board meetings. | 4 Dean Moore 3/3 and regulatory compliance • Oversees the day-to-day management • Monitors operational performance 5 | | | | | | and provides the necessary | Zillah Byng-Thorne | | 9/11 | Whilst monthly Board packs continue to incorporate | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | of Company and Group business | • Works with the CEO to develop | | | | | | | | | | | | | | strategic advice to ensure delivery | | | | the previous month’s financial results, on a Group and | | | | | strategic objectives | | | | 6 | | | | | | | | | of operational targets | Andreas Hansson | | 11/11 | | | • Determines the strategic direction and | | | | | | | | | Divisional basis, content has been refined, as considered | | | business objectives of the Group | • Monitors the Group’s financial | | | | | 7 | | appropriate, and the agenda streamlined and inverted as | | | | | | • Ensures the implementation of | | Dominic Murphy | | 6/6 | | performance | | business strategies and operational | | | | proposed. Senior Management now present on a “taken | | --- | --- | --- | --- | --- | --- | | • With the support of Senior Management, | | | 8 | | | | | capabilities to drive operational | Tiffany Hall | | 3/3 | | as read” basis in terms of Board pack material, with a oversees the effective implementation of • Ensures the Group remains efficiencies and alignment with the | Group strategy | appropriately funded and capital | | | more focused Q&A element having been introduced into | | --- | --- | --- | --- | --- | | | | Group’s strategic aims and objectives | 1. Charles Allen attended 10 of the 11 Board meetings which took place | | | | structure is effectively managed | | | meetings. Regular “deep dives” also take place into key | following his appointment on 22 March 2022. He was unable to attend • Engages with key Shareholders and the Board meeting immediately following his appointment due to Divisional and/or Group topics on which Directors have stakeholders a prior commitment. requested further insight/discussion. This is an item which 2. Edward Koopman was unable to attend one of the 14 Board meetings remains subject to ongoing Board consideration, as detailed which took place during 2022 due to a conflicting commitment. within the “Board evaluation” section of the Nomination 3. Gillian Kent attended two of the three Board meetings which took place Committee Report on pages 133-137. ### NEDs following her appointment on 15 September 2022. She was unable to | SID | | Company Secretary | attend the Board meeting immediately following her appointment due | | | --- | --- | --- | --- | --- | | | Edward Koopman, | | to a prior commitment. | | | Dean Moore (interim) | | James Pochin | | To ensure that Directors have sufficient time to prepare for | | | Iain McDonald and Gillian Kent | | 4. Dean Moore attended the three Board meetings which took place | | meetings and read and evaluate any supporting papers, following his appointment on 15 September 2022. Board and Board Committee documentation is generally 5. Zillah Byng-Thorne attended nine of the 11 Board meetings which took • Acts as a sounding board for the • Provide active and constructive • Acts as secretary to the Board issued no later than three working days in advance of place prior to her stepping down from the Board on 15 September 2022. Chair and supports, as required, challenge and contribute to the and Board Committees and provides a meeting, together with the meeting agenda which is 6. Andreas Hansson attended the 11 Board meetings which took place in the discharge of their duties development of strategy the requisite support prior to him stepping down from the Board on 15 September 2022. agreed between the Company Secretary and relevant and responsibilities • Monitor the performance of the 7. Dominic Murphy attended the six Board meetings which took place Board Committee Chair (albeit timings may be impacted • Advises the Board on all relevant prior to him stepping down from the Board on 8 June 2022. | | | Executive Directors against agreed | | | on occasion by the volume, source and/or availability of | | --- | --- | --- | --- | --- | --- | | • Acts as an intermediary for the | | | legislative, regulatory and | | | | | | objectives and ensure robust risk | | 8. Tiffany Hall attended the three Board meetings which took place prior | | | | Directors as and when necessary | | governance matters | | information). The minutes of any previous Board meeting(s) | | | | management | | to her stepping down from the Board on 18 March 2022. | | are included within monthly Board packs and these are • Available to Shareholders with • Ensures the Board has the appropriate • Ensure the Board and Board tabled for approval (subject to any comments/required concerns which have not been policies, procedures and resources Committees fulfil their responsibilities amendments), as is the case for Board Committee minutes resolved through the normal in place to function effectively and and are ably equipped to do so which will also be circulated with supporting papers and communication channels align with best practice • Ensure the Board is balanced and tabled for approval. • At least annually, meets with the appropriate succession planning is • Assists with communication NEDs, in the absence of the Chair, undertaken, allowing it to provide between the Board and Shareholders to appraise the Chair’s performance clear and effective leadership across and is responsible for annual general the organisation meeting organisation 113 114 Annual Report 2022 In addition to addressing the standard items of business detailed within the aforementioned Schedule of Matters, the Board also considered a number of other matters during 2022 including (but not limited to): - Corporate activity and Group structure: overseeing the completion of the Internal Divisional reorganisation (including the subsequent hypercare process) resulting in a simplified Group structure and providing material optionality and flexibility to enter into future strategic partnerships and generate value accretion for stakeholders; detailed consideration of indicative third-party proposals for the Group and unanimously concluding that such proposals significantly undervalued the Group and its future prospects and should therefore be rejected; and overseeing the mutual termination of the option and collaboration agreement with Softbank in light of global macroeconomic conditions. - Governance: ongoing review of certain corporate governance arrangements including a continued focus on preparing to step up to the Premium Segment of the London Stock Exchange's Main Market at the appropriate time, with timing subject to the outcome of the FCA's ongoing review vis-a-vis reform of the current listing regime; further to the Nomination Committee's recommendations, considering and approving the appointment of Damian Sanders as CFO, John Gallemore as COO and three independent NEDs, including the Independent Chair, to the Board; and, as previously detailed, considering the format and content of Board meetings/packs to ensure enhanced Board effectiveness, together with implementation of an annual Board planning cycle incorporating monthly deep dives and certain key Board activities. - Strategy: ongoing consideration of the Group's strategic aims and objectives in light of the challenging macroeconomic backdrop including: (i) regularly reviewing the impact of inflationary pressures, elevated commodity pricing, FX headwinds and ongoing supply chain issues (and in conjunction with the general risk management approach); and (ii) focusing on the Group's growth strategy across a number of large global sectors, anticipated to deliver long-term value for Shareholders and ensure the Group remains on track to be cash flow positive in 2024. - General: against the backdrop of a number of global factors, including the war in Ukraine, Covid-19 related lockdowns in Asia and unprecedented inflationary pressures, ongoing oversight of market guidance and consensus and the Group's profit improvement initiatives; and considering and approving a new £156m banking facility, provided equally by three existing lenders. Further information on the key discussions and principal decisions taken by the Board during the 2022 reporting period, including stakeholder considerations, can be found in the "Section 172 Statement Stakeholder Engagement" section of the Strategic Report on pages 47-54. ## Board Committees and governance structure Pursuant to the Schedule of Reserved Matters previously referred to, the Board is authorised to establish the Board Committees which, through the delegation of authority narrated within their Terms of Reference, support the Board in the proper and effective discharge of its duties and responsibilities. Accordingly, to ensure the most robust governance structure exists within the Group to comprehensively support the Board and promote long-term, sustainable value creation for Shareholders, a Board-constituted Nomination Committee, Audit Committee and Remuneration Committee were established at the time of Admission (in compliance with the Code), together with the Related Party Committee, the Sustainability Committee and the Risk Committee (the latter two being established during 2021). As detailed within the "Board evaluation" section of the Nomination Committee Report on pages 133-137, and in line with the Company's ongoing PLC transition, the scheduled monthly Board meeting agenda continued to evolve during 2022 resulting in, amongst other things, the inclusion of Board Committee updates as a standing agenda item. Further information on the composition and activities of the Board Committees during 2022 can be found within the respective Board Committee Reports on pages 123-197, together with details of the membership changes which took place to reflect outgoing and incoming NEDs. The Nomination Committee was responsible for making recommendations to the Board in respect of Board Committee membership (where appropriate, following consultation with the relevant Board Committee Chair) and, in doing so, took into account not only the specific skillsets and experience of individual NEDs but also the time commitment expected of them and their external commitments. The governance structure within the Group year, and as at the date of this Government | **Board** Chair: Charles Allen | | | --- | --- | | Provides effective leadership and promotes the long-term, sustainable value setting and overseeing the successful delivery of the Board | | | **Nomination Committee** Chair: Charles Allen | | | - Regularly reviews structure, size and composition of the Board Committees and the Board, including the Board's 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 in 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 and with due regard to applicable DBI targets | | | **Audit Committee** Chair (interim) Dean Moore | | | - Supports the Board in fulfilling oversight responsibilities by reviewing and monitoring | | | - Independence and effectiveness of internal/external audit functions | | | - Integrity of financial and narrative statements | | | - Internal financial controls and, as appropriate and in conjunction with the Risk Committee, risk management framework | | | **Sustainability Committee** Chair: Iain McDonald | | | - 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 EDS 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 | | | **Executive Leaders** | | | - Executes delivery of agreements | | | - Oversees day-to-day management | | | - Provides regular Board updates on | | 115 Annual Report 2022 ## Board appointments, ## recruitment and succession Board composition is monitored on an ongoing basis to mandate to refresh the Board and strengthen it by The process followed by the Nomination Committee in Details of how potential Board appointees are identified ensure that the Directors, collectively, have the necessary improving its independence and diversity, Gillian Kent recommending the three aforementioned Board appointees are also included within the Nomination Committee skillsets to effectively deliver the Group’s strategic aims and Dean Moore were appointed independent NEDs is detailed within the Nomination Committee Report on Report and, as required by the Code, an independent and objectives and the balance of skills, knowledge and on 15 September 2022. With both appointees bringing pages 133-137. As disclosed, appointments were made search consultant was formally appointed to assist with experience remains appropriate for a company of the size, extensive and relevant sector and PLC board experience, on the basis of merit, with potential candidates assessed the recruitment of an independent chair. Recruitment nature and stage of development of THG. Accordingly, and and demonstrating strong track records in business against objective criteria, and with regard to the need to consultancy firms may also be engaged to facilitate as previously detailed within this Governance Report, Board growth, these appointments were viewed as enhancing promote diversity in the boardroom (including with respect a search for a particular position and, on occasion, the composition remained subject to scrutiny throughout 2022 not only the skillsets and experience on the Board but to gender, as reflected in Axon Moore’s search mandate Board and Senior Management may be asked for candidate (and up to the date of this Governance Report), with particular also overall independence (noting that former SID Zillah for suitable independent NEDs). Indeed, the breadth of recommendations from within their professional networks. consideration being given to overall independence and the Byng-Thorne stepped down contemporaneously with benefits which a diverse board can bring to a company, Whilst the Nomination Committee remained cognisant balance of Executive Directors / NEDs. these appointments, together with non-independent NED including a more inclusive culture and improved corporate of the need to ensure the Company’s leadership was Andreas Hansson). Additionally, in January 2023 and as governance generated via a broader insight/knowledge appropriately structured to effectively oversee the delivery The need for an independent chair was recognised considered further in the Nomination Committee Report base, are recognised and, as disclosed in the 2021 Annual and execution of the Group’s strategic aims and objectives pursuant to a review of corporate governance on pages 133-137, independent NED Damian Sanders was Report, the Board remains aligned with the FRC’s position during 2022, it also gave due consideration to the skills and arrangements and, following the Nomination Committee’s appointed CFO and the incumbent CFO, John Gallemore, that, by reducing the risk of group think, diversity can experience that might be required to effectively address | recommendation, the Board considered and approved | | | | | | | | appointed COO. | | | | | | have a positive effect on the quality of decision-making | and manage upcoming challenges and opportunities. | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | the appointment of Charles Allen as Independent | | | | | | | | | | | | | | (Guidance on Board Effectiveness (July 2018)). Therefore, | Additionally, in considering the balance of skills, knowledge | | Chair, effective from 22 March 2022. Subsequently, | | | | | | | | The following matrix sets out the key competencies | | | | | | in considering and recommending Board appointments, | and experience on the Board (and the Board Committees), | | and with a particular focus on the Independent Chair’s | | | | | | | | of individual Board members: | | | | | | the Nomination Committee seeks, as appropriate, to | a related responsibility of the Nomination Committee was | | | | | | | | | | | | | | | | promote, amongst other things, diversity of gender, ethnic | to ensure appropriate succession planning was undertaken | | | | | | | | | | | | | | | | background and personal strengths to ensure Board | from a Board and Senior Management perspective to | | | | | | | | | | | | | | | | effectiveness is maximised through enhanced decision- | satisfy any potential leadership needs that could arise | | | | | | | | | | | | | | | | making which, in turn, results in enhanced value creation | both in the short and the medium to long term. | | | | | Skills Leadership | | | | | | | | | | | for stakeholders. | | | | UK listed | Technology/ | | Marketing/ | Retail | | | Global | | Finance & | | Risk | Strategy & | | | | Name | | | | | | M&A | | | Governance | | | | | | | | | PLC | e-commerce | | branding | industries | | operations | | | accounting | management | | development | | | Charles x x x x x x x x x x Allen Matthew x x x x x x x x Moulding John x x x x x x x Gallemore Damian x x x x x x x Sanders Edward x x x x x x Koopman Iain x x x x x x x McDonald Gillian x x x x x x x x Kent Dean x x x x x x x x Moore 117 118 Annual Report 2022 ## Board induction, training and support Throughout 2022 the Company continued to develop and refine its Board induction and training arrangements to ensure all Directors possess and/or acquire the requisite market and operational knowledge to oversee the successful delivery of the Group's strategy. A structured onboarding programme is now in place for all new Board members which includes both internal briefing memorandums on core regulatory and legislative items (such as the UK Market Abuse Regulation, inside information and insider dealing) and face-to-face/interactive training and update sessions with relevant external advisers (e.g. legal and remuneration) to ensure Directors are fully aware of the duties and responsibilities incumbent upon them as PLC directors and Board Committee members. Whilst one-to-one sessions are typically arranged with members of Senior Management to provide new Board members with a general introduction to all areas of the business, more focused/tailored sessions may also be arranged when, for example, a Director has a particular area of interest or wishes further insight/data on certain Group and/or Divisional items. Following the induction process, the continuing professional development needs of the Board (both collective and individual) remain subject to ongoing oversight and a number of measures are now in place to keep Directors suitably apprised of applicable legislation, guidance and market practice/developments and any changes to, and/or proposals on, the corporate governance landscape. In addition to the Company's legal advisers attending scheduled Board meetings to run condensed training sessions on topics such as the FCKs proposed audit and governance reforms, the selective disclosure of inside information and the new climate/TCFD and diversity reporting requirements, associated briefing papers are also included within Board packs for Directors' longer-term information/reference. As previously disclosed, the new annual Board planning cycle has introduced regular deep dives which ensure that NEDs are kept up to date on key Group and Divisional items, including operational issues, market challenges and landscape, and People and Sustainability matters, with broker and investor updates incorporated as appropriate. The Company has arranged membership of the Non-Executive Directors' Association for all Board members (including Executive Directors) to ensure individual knowledge and skillsets are suitably refreshed and via which Directors are provided with technical knowledge updates and have access to a monthly programme of seminars and briefings (including networking opportunities). The Company is fully supportive of Directors attending any such events which may be of interest and/or which address particular training needs. THG remains committed to ensuring that the necessary resources are available to the Board and Board Committees to allow them to function effectively and efficiently and, more generally, that the Group's corporate governance framework is appropriately structured to meet both its immediate and longer-term needs. The Company Secretary plays a key role in this regard, advising on legal, regulatory and governance matters and ensuring they are available to advise/assist Directors as and when required. ## Board independence The Board currently comprises three Executive Directors (i.e. the CEO, the CFO and the COO) and five NEDs, three of whom (including the Chair) are deemed to be independent in character and judgement following due consideration of their individual circumstances against Code Provision 10. Further to a critical appraisal of the issue by the Board and as previously disclosed in, for example, the 2021 Annual Report, the holding of Ordinary Shares by NEDs is not considered to impair their independence but, rather, is viewed as aligning their interests with those of Shareholders more generally and thus with the long-term interests and success of the Company. Consequently, NEDs may purchase Ordinary Shares at market value via a broker and facilitated by the Company if required. Directors' shareholdings are set out on page 151 of the Directors' Remuneration Report. Upon analysis of the relevant Code provisions, Edward Koopman is not deemed to be independent, having been appointed to the Board prior to Admission 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. Iain McDonald is also not regarded as independent, with reference to the tenure provisions of the Code and noting that he was appointed to the Board prior to Admission in 2010. At the end of the 2022 reporting period the Board comprised two Executive Directors and six NEDs, four of whom were regarded as independent – namely, Charles Allen, Damian Sanders, Gillian Kent and Dean Moore. On an analysis which incorporates the strict letter of the Code and excludes the Independent Chair, the Code Provision 11 requirement that at least half the Board be independent NEDs was not satisfied at the financial year end. As discussed in further detail in the Nomination Committee Report on pages 133-137, and in light of the Chair's express mandate to refresh and strengthen the Board by improving independence and diversity, Board composition will remain a key focus throughout 2023, and with particular regard to overall independence and the balance of Executive Directors / NEDs. ## Conflicts of interest and time commitment 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. A conflict of interest situation which arose during 2022 related to the Board's consideration of the unsolicited, indicative, non-binding proposal received for the entire issued share capital of the Company from a consortium led by Belenon Capital Group Limited ("Belenon") and King Street Capital Management L.P. NED Iain McDonald is the founder and chief investment officer of Belenon and, as such, a clear conflict of interest was determined to exist which required that Iain McDonald was not present during any Board discussions relating, directly or indirectly, to the proposal or any other proposals received by the Company. The NEDs' Letters of Appointment ("Appointment Letters") recognise that NEDs may have business interests outwith those of the Company but require that no NED puts themselves in a position where their duties to any other person, firm or company conflict with their duties to the Company or the wider Group. The Appointment Letters further require that any actual or potential conflict of interest must be communicated to the Board as soon as it becomes apparent, and at least seven days' written notice must be provided to the Chair before a NED accepts an appointment as a director, agent, employee or consultant of any company or firm engaged in a business competing with, or similar to that of the Company or any Group company. The Group occupies and utilises property assets which are owned by the Proppo Group, which itself is wholly owned by the CEO (who is also a major Shareholder). As a result of these arrangements, the Board-constituted Related Party Committee was established post-Admission to oversee and approve Related Party Transactions and provide the requisite governance structure within which any actual or potential conflicts of interest could be considered and addressed. Whilst officers of the Proppo Group were also previously officers of the Company, this situation has been rectified to avoid any perceived or actual conflicts of interest arising. Further information on the responsibilities and activities of the Related Party Committee can be found in the Related Party Committee Report on pages 138-140. The time commitment expected of and expended by NEDs is kept under ongoing review by the Board, in conjunction with the Nomination Committee. Under the terms of their Appointment Letters and pursuant to Code Principle H, NEDs must confirm they have sufficient time to undertake the duties and responsibilities incumbent upon them and have disclosed details of all other significant business (and other) interests and a broad indication of the time required for of any NEDs agree to the company to state Board. The Company's time and circus is at that date. ## We As imp en exp em sc of of of tea en rev an sc in be sec in by em on gr ma bel Gr an UK 'Be With that wo line Ser pre sec 119 Annual Report 2022 Board Committee updates was introduced as a standing agenda item at monthly Board meetings during 2022, in turn ensuring the Board is kept suitably apprised of employee engagement initiatives via the NED Sustainability Committee Chair. Additionally, a People section is incorporated within monthly Board packs and the non-statutory Group Talent Director, who has ultimate oversight of the Group's workforce engagement initiatives, is also in attendance at monthly Board meetings to take questions and report to the Board on the wider People piece. On a day-to-day basis the Group's D&I Committee Champions play a key engagement role, driving general workforce engagement and representation within their Divisions whilst collaborating with, and reporting into, Senior Management. This reporting framework ensures the 'employee voice' is heard at an appropriately senior level within the Group and, as Senior Management typically attends the monthly Board meetings, this further facilitates regular updates and feedback being shared directly with the Board. In placing its People at the heart of the organisation THG considers that a truly engaged and empowered workforce will result in an enhanced workplace culture, in turn serving to enhance operational resilience and growth. It has recently been agreed that the Group's employee engagement strategy, including implementation thereof, should become a recurring agenda item for the Remuneration Committee which, it is considered, evidences how seriously the Company and the Board view their responsibilities in respect of workforce engagement. Further details on how engagement strategies positively impact decision-making throughout the organisation, including at Board level, can be found in the 'Section 172 Statement Stakeholder Engagement' section of the Strategic Report on pages 47-54. 'Empowering People and Communities' is one of the three key priorities under the 2030 Sustainability Strategy, THG x Planet Earth, which affirms that THG's greatest asset is its People. Indeed, the 2030 Sustainability Strategy recognises that to bring out the best in its People the Group must foster a diverse and inclusive environment to ensure its People feel empowered to make a positive difference in the world. D&I represents another key focus area for the Board and during 2022 a Board-approved D&I Strategy was launched which seeks to enhance THG's meritocratic culture by building upon the Group's approach to inclusion and diversity at every level within, and every location across, the organisation. The Group's D&I vision is to further curate a diverse, inclusive and supportive work environment - reflective of the communities within which THG operates and comprising talented and motivated individuals - and it is considered that this updated D&I Strategy provides clear direction for achieving this vision. Further information on the Group's approach to D&I-related matters, together with details on how the Group supports the wellbeing and development of its workforce, can be found in the 'Empowering people and communities' and 'Our people' sections of the Strategic Report. The 'Our people' section also includes key D&I data required to be disclosed pursuant to section 414C of the Companies Act. ## Board evaluation Building on the results of the previous Board evaluation which was discussed in the 2021 Annual Report (the '2021 Evaluation'), the Company's second Board evaluation took place at the end of 2022. As before, the Company engaged a third-party market leader within the advanced digital evaluation space and used their online platform to run the evaluation which was aligned with best market practice and the content tailored, as appropriate, to the specific requirements of the Company. As required by the Code, the evaluation considered not only the effectiveness of individual Directors but also the collective effectiveness of the Board and Board Committees, including specific consideration of, for example, composition and diversity. Certain of the outputs and actions flowing from the evaluation are detailed within the Nomination Committee Report on pages 133-137, together with insights on progress against the 2021 Evaluation. Significantly, the overall conclusion was that the Board and the Board Committees continue to function in an effective manner and each Director continues to contribute effectively to the Board and the Board Committees of which they are a member. As previously disclosed, and in furtherance of good corporate governance, the Company has committed to undertaking an externally facilitated Board evaluation within three years of Admission (i.e. by September 2023) and at least every three years thereafter, albeit this Code requirement is only strictly applicable to FTSE 350 companies. The Company's first external evaluation will therefore take place later this year. ## ESG As detailed within the 'Sustainability' section of the Strategic Report and as set out within the 2030 Sustainability Strategy, the Group's sustainability vision is to act as a force for good and leave the world a better place by using THG's scale, partnerships, access to capital and unique capacity for innovation to promote and embed sustainability into everything the Group does. In seeking to discharge its primary responsibility under Section 172, the Board therefore not only takes into account what may be in the best interests of Shareholders but, recognising the responsibility which THG owes to all its stakeholders (and with particular regard to its commitment to act as a force for good), also gives the appropriate consideration to wider stakeholder issues (further information on which can be found in the 'Section 172 Statement Stakeholder Engagement' section of the Strategic Report on pages 47-54). Indeed, through striving to deliver on THG's purpose and strategic priorities, the Board aims to generate long-term, sustainable growth and, in turn, secure positive change for all THG stakeholders across the locations and communities within which it operates. Evidencing THG's commitment to embed sustainability best practice at the heart of the business, Executive Directors and Senior Management 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. However, to ensure that the appropriate foundations are in place for the Group to achieve its vision and deliver effectively on THG x Planet Earth, a Board-approved Social Impact Strategy was developed, ![img-22.jpeg](img-22.jpeg) 121 Annual Report 2022 # Audit Committee Report ![img-23.jpeg](img-23.jpeg) "The Committee, together with the Risk Committee, continues to play a leading role in ensuring the integrity of the Group's financial reporting, overseeing external and internal audit functions and monitoring the Group's controls framework. In light of proposed corporate governance reforms, the ongoing evolution of THG's controls environment and oversight from the Committee remain key." Dean Moore Interim Chair of the Audit Committee ## Members and attendance | Committee member | Position | Attendance | | --- | --- | --- | | Dean Moore | Chair^{1} | 1/1 | | Gillian Kent | Member^{2} | 1/1 | | Damian Sanders | Former Chair^{3} | 6/6 | | Zillah Byng-Thorne | Former Member^{4} | 5/5 | | Dominic Murphy | Former Member^{5} | 1/3 | 1. Dean Moore was appointed as a member of the Audit Committee upon his appointment to the Board on 15 September 2022. He thereafter assumed the position of Audit Committee Chair on an interim basis on 24 January 2023 when Damian Sanders stepped down from the Committee upon his appointment as an Executive Director. 2. Gillian Kent was appointed as a member of the Audit Committee upon his appointment to the Board on 15 September 2022. 3. Damian Sanders stepped down as Audit Committee Chair upon his appointment as an Executive Director on 24 January 2023 and was replaced by Dean Moore, a member of the Committee, on an interim basis. 4. Zillah Byng-Thorne stepped down from the Board and as a member of the Audit Committee on 15 September 2022. 5. Dominic Murphy stepped down from the Board and as a member of the Audit Committee on 8 June 2022. Having been appointed interim Audit Committee Chair on 24 January 2023, I have the pleasure of introducing the Audit Committee Report for the 2022 financial year and confirm that, during the year, and up to the date of this Report, the Committee has continued to discharge a key role within the Group's corporate governance infrastructure. The ongoing development of the Group's internal controls systems (financial and otherwise) and general control environment (including the Internal Audit function) remained subject to rigorous oversight and, where appropriate, challenge by the Committee during 2022 to ensure their continued effectiveness and integrity. It is pleasing to report that, as confirmed by the annual Board and Board Committees' evaluation, the Committee continues to operate effectively and deliver against its Terms of Reference. Further details on this evaluation, including the means by which it was conducted, can be found in the "Board evaluation" section of the Governance Report. ## Composition and meetings Pursuant to its Terms of Reference, members of the Audit Committee are appointed by the Board, upon the recommendation of the Nomination Committee and in consultation with myself as Audit Committee Chair. Individually members are expected to possess the skills and experience appropriate for Audit Committee membership, whilst collectively the Committee must have the necessary competence (financial and otherwise) relevant to the sectors in which the Company operates. The Terms of Reference stipulate that the Committee must comprise at least three independent NEDs, one of whom is, where possible, a member of the Remuneration Committee (possessing recent and relevant financial expertise and experience in accounting and/or auditing (as determined by the Board)) and one of whom is a member of the Risk Committee. At the end of the 2022 reporting period, Audit Committee membership satisfied the relevant provisions of both the Terms of Reference and the Code comprising Damian Sanders, as Audit Committee Chair, Gillian Kent, an independent NED and Risk Committee Chair, and myself, Dean Moore, also an independent NED and Remuneration Committee Chair. As previously detailed, Gillian Kent and I became members of the Audit Committee upon our appointment to the Board on 15 September 2022, when Zillah Byng-Thorne stepped down from the Board and certain Board Committees (including the Audit Committee). Dominic Murphy was also a member of the Audit Committee during the 2022 reporting period until he stepped down from the Board on 8 June 2022. Upon his appointment to the position of CFO on 24 January 2023 Damian Sanders stepped down as Audit Committee Chair, and from all other Board Committee membership, at which time I was appointed Audit Committee Chair on an interim basis. As the Board currently comprises only two independent NEDs, Gillian Kent and myself (excluding the Chair), this has resulted in the non-satisfaction of the Audit Committee membership requirements since this date. This position is temporary and expected only to continue until the appointment of at least one new independent NED in the coming months which will ensure that the applicable membership requirements are satisfied. Whilst at least four Audit Committee meetings must take place annually, at appropriate times in the financial reporting and audit cycle (and as otherwise required), six Committee meetings took place during 2022, reflecting the Committee's valuable role within THG's governance framework. Member attendance at these meetings is set out within the preceding table and, although attendance is restricted to Committee members (and any individual entitled to be present as an observer), the Terms of Reference provide that certain individuals (including the CFO, the Head of Internal Audit and the External Auditor's Lead Partner) shall be invited and are expected to attend meetings on a regular basis and may also request a meeting of the Committee should they consider it necessary or desirable to do so. Outside these scheduled meetings and throughout the 2022 reporting period (and up to the date of this Report), the Audit Committee Chair (and other Committee members where appropriate) also maintained an ongoing dialogue with the principal individuals involved in the Group's governance, including the Independent Chair, the CEO, the CFO, the Deputy CFO, the Head of Internal Audit and the External Auditor's Lead Partner. In addition to attending all Audit Committee meetings, the External Auditor met with Audit Committee members in the absence of Senior Management and also privately with the Audit Committee Chair, as and when considered necessary, 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. 123 Annual Report 2022 ## Activities of the Audit Committee As noted above, six Audit Committee meetings were convened during the 2022 reporting period, all of which were scheduled. The main matters that the Audit Committee considered during the year are listed below: | Topic | Activity / Review | | --- | --- | | **Financial reporting** | - Reviewed the draft and final full year statement, including key accounting judgements, materiality and the External Auditor's report on the interim statements - Reviewed key judgements and estimates in preparation for year-end reporting - Reviewed year-end matters including the draft Annual Report and Accounts (and assessed the processes which ensure it is fair, balanced and understandable); significant accounting judgements, the draft and final full-year results announcement, the going concern statement and the viability model - Considered the impact of climate risks on the financial statements - Review other reports and updates from management including the Group Tax Strategy, Corporate Reporting Reform, and updates from the AQR Inspection Report | | **External audit** | - Reviewed EY's plan for the audit of the 2022 Annual Report and Accounts and the progress of the audit to date - Reviewed EY's report on the scope of the audit of the 2022 Annual Report and Accounts, including key audit risks - Disclosed relevant audit information to the External Auditors and the required evidence in support of it - Reviewed the final report from EY following completion of the audit of the 2022 annual report | | **Internal control and assurance** | - Reviewed reports from Internal Audit on assurance and audit work - Reviewed other updates from Internal Audit including the Recommendations Tracker and Whistleblowing Updates - Re-approved the Internal Audit annual plan on a quarterly basis - Reviewed the outputs of the fraud risk assessment | ## 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 finance team provided accounting papers to the Audit Committee which detailed the financial aspects surrounding key accounting judgements and areas of focus for THG, including all significant issues outlined in the following table. As part of the year-end reporting process the Audit Committee reviewed this Annual Report, the management papers on key accounting estimates and judgements, going concern and viability review, 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 | Impact on financial information and disclosure | | --- | --- | --- | | **Revenue recognition** | Following the growth of THG ingenuity in recent years, the key areas of management judgement include the classification of revenue streams to the Group's Divisions and contract accounting within Ingenuity Commerce. The Committee were presented with the key judgements applied by management for the ingenuity contracts under IFRS 15. The Committee challenged management on the judgement relating to principal or agent recognition of different revenue streams, being one of the key judgements. Management responded to all challenges and there was no impact on the recognition or disclosure. | The revenue accounting policy is included within note 1c and note 2 within the Consolidated Financial Statements. | | Area of focus | Consideration and actions taken by the Audit Committee | | --- | --- | | **Accounting for platform development costs** | As a growing technology business, THG incurred £16m in re- and the carrying value of £10 December 2022 totals £100m. There was no impact on the financial statements for THG in relation to capital spend. This is reviewed on a report on the financial statements. | | | The Committee reviewed and assessed the accounting treatment of THG. The effectiveness of controls around the maintenance and control of THG was also considered. Management is in the process of improving the financial statements. The Committee also considered the impact of the financial statements on the financial statements. In addition, the Committee reviewed the level of spend and control of THG. It was noted that THG's platform has a lower carrying value than the financial statements. All items were concluded to be appropriate. | | **Impairment and cash-generating-units** | Following the divisional reorganisation in the year, additional items were identified. The result is that six CGCs have been identified. The Audit Committee reviewed management's impairment and the accounting terms of growth rate, forecast growth rate and discount rate. The Committee reviewed the impairment charges and the auditors' report. The Committee reviewed the impairment charges and the auditors' report. The Committee reviewed the impairment charges and the auditors' report. The Committee reviewed the impairment charges and the auditors' report. The Committee reviewed the impairment charges and the auditors' report. The Committee reviewed the impairment charges and the auditors' report. The Committee reviewed the impairment charges and the auditors' report. The Committee reviewed the impairment charges and the auditors' report. The Committee reviewed the impairment charges and the auditors' report. The Committee reviewed the impairment charges and the auditors' report. | | **Presentation and disclosure of adjusted items and APMs** | To allow the Committee to assess the policy, presentation and disclosure of adjusted items and APMs, a detailed category by category analysis of adjusted items to the extent that the Company has a clear understanding of the appropriateness of the classification of costs. The Committee also considered the presentation of APMs in the report and whether the variables are appropriate. The Committee also considered the presentation of APMs in the report and whether the variables are appropriate. The Committee also considered the presentation of APMs in the report and whether the variables are appropriate. The Committee also considered the presentation of APMs in the report and whether the variables are appropriate. The Committee also considered the presentation of APMs in the report and whether the variables are appropriate. The Committee also considered the presentation of APMs in the report and whether the variables are appropriate. | | **Related Party Transactions** | The Group leases a number of properties from a related party transactions. The Group leases a number of properties from a related party transactions. The Group leases a number of properties from a related party transactions. The Group leases a number of properties from a related party transactions. The Group leases a number of properties from a related party transactions. The Group leases a number of properties from a related party transactions. The Group leases a number of properties from a related party transactions. The Group leases a number of properties from a related party transactions. The Group leases a number of properties from a related party transactions. | | **Taskforce on Climate-Related Financial Disclosures** | A significant change to the annual report and accounts in relation to the 2021 Annual Report, officers of the Project Group, the Company's report on the impact of climate-related financial disclosures. Acknowledging the conflict of interest between the Company and the Company's report on the impact of climate-related financial disclosures was taken to resolve this crossover in officer approval. The Company's report on the impact of climate-related financial disclosures was taken during the reporting period such that the Company was not responsible for the Group. | The previous table is not a complete list of all the Group's accounting policies, but highlights the most significant ones for the period in the report. 125 Annual Report 2022 ## 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 93-95 of the Strategic Report. ## Risk management and internal controls In accordance with the 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). During the year, the Committee considered the UK Government's consultation on 'Restoring Trust in Audit and Corporate Governance' and reviewed management's strategy for delivering the necessary control framework enhancements. 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 83-95 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; cyber, ESG; projects and M&A; global site audits; operations and commerce. Audit engagements were undertaken in each of these areas during 2022. 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 87-93). ## Independence, performance and effectiveness of External Auditor The External Auditor confirmed its independence and objectivity from THG during the 2022 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 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 skepticism 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, 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. There are independent reporting lines from the External Auditor to the Committee and the External Auditor is afforded the opportunity for sessions with the committee throughout the year. The and of the said to be the the the ind The the the per the first Au to The rep ## Fe The reg ple In de ob pre un urg Co The by the it is pro ind The to the Sta The fee con the of 127 Annual Report 2022 ## Focus for 2023 ## Risk Committee Report During the current financial year, the Audit Committee will continue to: “The Committee, together with the Audit Committee, • Oversee the controls and governance of any changes continues to play a key role in governing THG’s risk in THG to ensure the continued effectiveness and management and internal controls. This oversight is integrity of THG’s systems of internal controls and increasingly important, keeping pace with the dynamic development of THG’s Internal Audit function nature of change, both within THG and the external as THG continues to grow and mature economic environment. " • Play a key role in understanding the UK Government’s ‘Restoring Trust in Audit and Corporate Governance’ ## Gillian Kent reforms when they are published and subsequently Chair of the Risk Committee monitoring the progress of the proposed control framework enhancements On behalf of the Audit Committee • Oversee the evolution of the organisation’s control ## environment and the use of technology to enhance Members and attendance the operation of controls and harness potential opportunities to digitalise and automate controls Committee member Position Attendance as the framework matures further Gillian Kent Chair¹ 2/2 Dean Moore • Ensure the provision of training, development and support is relevant to all Directors and the Executive Interim Chair of the Audit Committee Dean Moore Member² n/a Leadership Team, particularly with respect to applicable new legislation, regulation and guidance 17 April 2023 3 Damian Sanders Former Member 4/4 Zillah Byng-Thorne Former Chair¹ 2/2 4 Dominic Murphy Former Member 0/1 1. Zillah Byng-Thorne stepped down from the Board and as Risk Committee Chair on 15 September 2022 and was replaced by Gillian Kent who was appointed to the Board with effect from this date. 2. Dean Moore was appointed as a member of the Risk Committee on 6 December 2022. 3. Damian Sanders stepped down as a member of the Risk Committee upon his appointment as an Executive Director on 24 January 2023. 4. Dominic Murphy stepped down from the Board and as a member of the Risk Committee on 8 June 2022. ## Having been appointed as Chair of the Risk Committee Composition and meetings upon joining the Board in September 2022, I am pleased to introduce the Risk Committee Report for the financial As detailed within the Terms of Reference, members of year ending 31 December 2022. the Risk Committee are appointed by the Board, upon the recommendation of the Nomination Committee and The Risk Committee was established to ensure an in consultation with myself, as Risk Committee Chair. appropriate framework exists within the Group for robust The Terms of Reference provide that the Committee is and effective risk oversight and governance and this is composed of at least three independent NEDs, one of reflected within the Committee’s Terms of Reference which whom is a member of the Audit Committee, with the align with current market practice (including in respect quorum for any Committee meeting being any two of of the Committee’s scope of responsibilities and duties). its members. Whilst, collectively, the Risk Committee must possess the necessary competence (risk, financial The Committee, as confirmed by the annual Board and and otherwise) relevant to the sectors in which the Board Committees’ evaluation, continues to operate Company operates, individual members are also effectively and deliver against its Terms of Reference. expected to have the requisite skills and experience Further details on this evaluation, including how it was appropriate to such membership. conducted, can be found in the “Board evaluation” section of the Governance Report. 129 130 Annual Report 2022 At the end of the 2022 reporting period, Committee As disclosed in the 2021 Annual Report, the Risk Additionally, throughout the reporting period and pursuant and mitigate risk and provide the Board with the required membership satisfied the relevant provisions of the Terms of Committee is also responsible for approving the role and to the Terms of Reference, the Risk Committee Chairs, assurance that sound systems of risk management and Reference comprising Gillian Kent, as Risk Committee Chair, mandate of the Group Risk function and monitoring and together with other Committee members (to the extent internal controls exist throughout the Group. Damian Sanders, a former independent NED and former assessing the effectiveness of its work, including in the appropriate), remained in ongoing dialogue with key Audit Committee Chair, and Dean Moore, also an independent overall context of the Group’s risk management systems. individuals involved in the Group’s governance, including The Viability Statement is set out on pages 93-95 NED and Remuneration Committee Chair. As detailed above, The CRO has always open and direct access to the Risk the Chair, the CRO and the Head of Internal Audit, to of the Strategic Report. Gillian Kent became a member of the Committee upon her Committee, an arrangement which is viewed as key in ensure the necessary intra-functional transparency appointment to the Board on 15 September 2022, replacing maintaining the independence of the CRO and Group Risk and alignment. Zillah Byng-Thorne as Committee Chair, and Dean Moore was reporting line from that of the Executive Leadership Team. ## Focus for 2023 appointed to the Committee on 6 December 2022. Dominic Murphy was also a member of the Committee during the 2022 As required under the Terms of Reference, arrangements ## Risk management During the current financial year it is anticipated that key reporting period until he stepped down from the Board on 8 are in place to ensure that the Risk Committee has areas of focus for the Risk Committee will be as follows: June 2022. Upon his appointment to the position of CFO on 24 sufficient resources at its disposal to allow it to properly ## and internal controls January 2023, Damian Sanders stepped down as a member and effectively discharge its duties and responsibilities • Oversee the management and reporting of principal of the Risk Committee and from all other Board Committees. including, if considered appropriate, the ability to seek In accordance with the FRC’s Guidance on “Risk and operational risks and the application of our As the Board currently comprises only two independent specialist input and expertise from external advisors. Management, Internal Control and Related Financial risk appetite NEDs, Gillian Kent and Dean Moore (excluding the Chair), this and Business Reporting” (September 2014), ultimate has resulted in the non-satisfaction of the Risk Committee’s responsibility for the Group’s systems of internal controls • Monitor the identification and quantification membership requirements since this date. This position is and risk management framework rests with the Board. ## Activities of the Risk Committee of emerging risks and the business response temporary and expected only to continue until the appointment However, pursuant to the provisions of the Code and of at least one new independent NED in the coming as reflected in its Terms of Reference, the Risk Committee, As detailed above, four Risk Committee meetings took • Receive updates, as applicable to risk, on the key months which will ensure that the applicable membership along with the Audit Committee, has delegated responsibility place during the reporting period and, as was the case elements of the UK Government consultation on requirements are satisfied. for the ongoing monitoring and review of the Group’s risk during the 2021 financial year, both Risk Committee Chairs proposed audit and corporate governance reforms continued to meet with the CRO on a one-to-one basis management and internal control systems, including its At least four Risk Committee meetings must be held annually, financial, operational and compliance controls. to discuss the ongoing development, refinement and at appropriate times in the financial reporting and audit cycle embedding of the Group’s risk management framework (and as otherwise required), and any Risk Committee member, The Committees have also delegated responsibility for On behalf of the Risk Committee and associated processes. the Chief Risk Officer (CRO) or the Head of Internal Audit monitoring and review of the processes and procedures in may request a meeting of the Committee if they consider place to manage or mitigate principal risks and to identify A summary of the key activities undertaken by the it necessary or desirable to do so. In accordance with the emerging risks and review and assess the Company’s risk Committee during the 2022 financial year is as follows: Terms of Reference and as can be seen from the preceding appetite and associated stress testing whilst assisting the attendance table, four meetings of the Risk Committee took Board in its annual review of the effectiveness of these • Received and challenged scheduled risk updates place during the financial year under review, all of which were systems and determining their adequacy (or otherwise). outlining both the principal risks and any escalated scheduled. Whilst only members of the Committee (and any Gillian Kent operational risks. The Committee also received detail individual entitled to be present as an observer) have the right Information on the Group’s risk management framework of escalated sub-risks as well as the outcome of Chair of the Risk Committee to attend Committee meetings, typically the CFO, Deputy CFO, can be found on pages 83-93 of the Strategic Report, principal risk ‘deep dives’ CRO and the Head of Internal Audit will also be in attendance, together with details of the processes and controls which 17 April 2023 together with the External Auditor. were in place throughout the reporting period to manage • Consideration of the ongoing evolvement of group and principal risk appetites and consideration of emerging risks ## Roles and responsibilities • Consideration of the role of THG Insurance in supporting risk mitigation activities The Risk Committee’s Terms of Reference detail the specific duties and responsibilities of the Committee and clarify that • Received and challenged the ongoing refresh of the its purpose is to not only assist the Board in its oversight principal risks and their continuing relevance and of risk throughout the Group and advise on its overall risk alignment to the business appetite, tolerance and strategy (including the principal and emerging risks it may be willing to accept to achieve its • Review of the results and remedial actions arising long-term strategic objectives) but to review and monitor: from the annual Fraud Risk Assessment and any summary reports of escalated incidents and instances • the principal risks and identify the emerging risks of fraud facing the Group, the likelihood and impact of such risks materialising and the way in which such risks • Consideration of the potential impact of the UK are managed and mitigated (including the definition Government’s consultation on ‘Restoring Trust in Audit and execution of a risk management strategy and and Corporate Governance’ upon both the committee associated risk policies); and and the wider group risk management framework • 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. 131 132 Annual Report 2022 # Nomination Committee Report ![img-24.jpeg](img-24.jpeg) "The Nomination Committee remains committed to ensuring that the Company's leadership is, at all times, appropriately constituted to oversee THG's continued growth and deliver on its value creation plans. Further independent NED appointments are therefore expected during 2023 as we continue to enhance and strengthen the Group's governance standards and infrastructure." Charles Allen, Lord Allen of Kensington CBE Chair of the Nomination Committee ## Members and attendance | Committee member | Position | Attendance | | --- | --- | --- | | Charles Allen | Chair^{1} | 2/2 | | Iain McDonald | Member | 6/6 | | Gillian Kent | Member^{2} | 1/1 | | Zillah Byng-Thorne | Former Member^{3} | 5/5 | | Dominic Murphy | Former Chair^{4} | 4/4 | 1. Charles Allen was appointed Nomination Committee Chair on 10 June 2022. 2. Gillian Kent was appointed to the Nomination Committee upon her appointment to the Board on 15 September 2022. 3. Zillah Byng-Thorne (deposed down from the Board and as a member of the Nomination Committee on 15 September 2022). 4. Dominic Murphy (deposed down from the Board and as Nomination Committee Chair on 8 June 2022). Having been appointed as Nomination Committee Chair in June 2022, I would like to welcome you to the Nomination Committee Report for the 2022 financial year and convey my gratitude to my predecessor, Dominic Murphy, for his strong leadership of the Committee since the IPO and to Zillah Byng-Thorne for her contribution as a Committee member. As we indicated in the 2021 Annual Report, Board composition was expected to be a key focus throughout 2022 and, pleasingly, significant progress was made in this regard. Acknowledging my mandate to improve independence and diversity and heedful of the Committee's responsibility to keep the structure, size and make-up of the Board under ongoing review, a successful recruitment process was undertaken which resulted in the appointment of two independent NEDs during the year with certain Executive Director changes also taking place in January 2023 (further information on which follows). The Nomination Committee nonetheless remains mindful of Code Provision 11, discussed in detail within the "Corporate Governance Statement" section of the Governance Report; in conjunction with the Board, the Committee will continue to seek alignment with this Code Provision as a matter of priority during 2023 and having regard to, amongst other things, the FCA's O&I targets (as incorporated within Listing Rule 14.3.33R) and the need to ensure the necessary succession plans are in place and the Company's leadership is, at all times, properly constituted to oversee the delivery of the Group's strategic aims and objectives. In recommending any potential appointee, the Nomination Committee recognises the importance of promoting diverse and inclusive Board membership, but always comprising individuals who are considered the right THG fit; and, in line with the relevant Code Provision, appointments will continue to be made on the basis of merit with potential appointees assessed against objective criteria. ## Role and responsibilities To ensure it is well-placed to execute its principal functions within the Group's governance infrastructure, the Nomination Committee's Terms of Reference incorporate the salient elements of the Code in respect of Board appointments, orderly succession planning and the oversight of a diverse succession pipeline. Stated duties and responsibilities which were considered and discharged, as appropriate, throughout the 2022 reporting period included: - as noted above, the ongoing review of the structure, size and composition (including the skills, knowledge, experience and diversity) of the Board and identifying and nominating potential Board appointees as required; - recommending suitable S/O candidates to the Board (discussed in further detail in the "Board composition" section which follows); and - reviewing Board and Senior Management succession plans, taking into account both the challenges and opportunities facing the Group and the skills, experience and knowledge required within the Company and the Board to effectively manage and exploit such challenges and opportunities. To ensure that suitable and timely Board and Senior Management appointments are made, the Terms of Reference expressly provide that the Nomination Committee must remain abreast of strategic and commercial issues affecting the Group and the markets within which it operates. Accordingly, in addition to the Board strategy session which took place in November 2022 following the appointment of the new independent NEDs. ![img-25.jpeg](img-25.jpeg) 133 Gil and an ma C Ref Co of i che or a the Co or a as the Ch ind (are of t Co of t WP No ad the Co ath eth nie 202 wit che pro Annual Report 2022 # Activities of the Nomination Committee # Board composition As disclosed in the 2021 Annual Report, a review of the Group's corporate governance arrangements identified the need for an independent chair and Russell Reynolds Associates, an independent search consultant, was formally appointed to assist with the recruitment process. The search for a suitable candidate was launched in the 2021 reporting period and culminated in the appointment of Charles Allen as Independent Chair on 22 March 2022. As further disclosed within the 2021 Annual Report, in recommending Charles Allen to the Board the Nomination Committee had given robust consideration to candidate shortlists and engaged in significant deliberations around, for example, relevant experience, knowledge and skillsets and whether shortlisted candidates could be viewed as the 'right THG fit' Face-to-face interviews with shortlisted candidates were undertaken by members of the Nomination Committee, and other NEDs and members of Senior Management participated in the process to the extent considered appropriate. In light of the Independent Chair's mandate to, amongst other things, enhance governance and transparency and refresh and strengthen the Board by improving its independence and diversity, Board composition remained an ongoing focus of the Nomination Committee throughout 2022. Noting that two former independent NEDs, Tiffany Hall and Dominic Murphy, stepped down from the Board in the first half of the year, particular consideration was given to overall independence and the balance of Executive Directors / NEDs. Leading recruitment consultancy firm Axon Moore was engaged by the Company to assist in the search for suitable independent NEDs, with a mandated brief which acknowledged the benefits which a diverse Board could bring and which sought to identify suitably skilled and experienced candidates who aligned culturally with the organisation. The executive chair and co-founder of Axon Moore is David Moore, a founder investor in the Company. Aside from this connection, Axon Moore has no other connections with the Company or individual Directors. Following an initial desk search and database review, Axon Moore produced a longlist of potential appointees which they subsequently refined to a shortlist following an extended interview process. At the same time, the Nomination Committee also drew up a shortlist of potential appointees, comprising individuals who had been recommended from the professional networks of the independent NEDs, and thereafter members of the Nomination Committee, wider Board and, as required, Senior Management participated in interviews with candidates from both the external and internal shortlists. As with the process to appoint the Independent Chair, relevant experience, knowledge and skillsets were considered key factors in identifying potential appointees who were the 'right THG fit' and, following detailed discussions, the Nomination Committee recommended both Gillian Kent and Dean Moore as independent NEDs. In line with the relevant provisions of both the Code and the Committee's Terms of Reference, Gillian Kent and Dean Moore were appointed, following Board approval, on 15 September 2022 on the basis of merit and as assessed against objective criteria, due regard being had to the benefits of a diverse Board (including with respect to gender). As noted in the Governance Report, both of these NEDs possess extensive sector specific and PLC experience and have demonstrable track records in business growth - their knowledge and insight are considered invaluable as the Company seeks to develop and refine the strategic drivers underpinning THG's future growth. At the same time as Gillian Kent and Dean Moore were appointed to the Board, Zillah Byng-Thorne, former SID, stepped down from the Board together with NED Andreas Hansson. Pursuant to its Terms of Reference, the Nomination Committee was therefore required to consider suitable candidates for the role of SID, with reference to the then-current composition of the Board and the balance of Executive Directors / NEDs. Following detailed consideration, Damian Sanders was identified as a suitable candidate for the role of SID and his appointment was approved on an interim basis as the Company continued to monitor and reshape its leadership to ensure it was properly constituted to drive long-term, sustainable growth and Shareholder value creation. As a result of this ongoing review of THG's leadership needs and the balance of skills, knowledge and experience on the Board, the Nomination Committee thereafter recommended certain changes to the Executive Leadership Team - specifically, that independent NED Damian Sanders assume the role of CFO and John Gallamore, the incumbent CFO, remain an Executive Director and be appointed to the newly-created, stand-alone role of COO. In light of the scale and pace of the Group's international growth since IPO, the role of COO is now viewed as integral in developing and driving THG's global fulfilment footprint and the implementation of such changes would allow John Gallamore, who had been covering both the Finance and Operations functions, to focus solely on the latter and continue to evolve and strengthen the Divisional commercial and operating models. Further, the Nomination Committee considered that Damian Sanders was ideally placed to assume the role of CFO having acquired an in-depth understanding of the Group, its People and its culture during his two-year tenure as an independent NED, including serving as interim SID, Audit Committee Chair and chair of the Divisional Reorganisation Committee, and also playing a key role in the internal reorganisation of the Group's principal trading Divisions during 2021/2022. In assuming the CFO position, Damian Sanders would simultaneously step down as interim SID and as chair and a member of certain Board Committees. Accordingly, upon reviewing Board composition and the balance of Executive Directors / NEDs, the Nomination Committee agreed that Dean Moore was a suitable candidate for the position of SID and recommended his appointment, also on an interim basis and until such times as a suitable long-term candidate was identified (with reference to future independent NED appointments). The Nomination Committee's recommendations were duly considered and approved by the Board and took effect from 24 January 2023. As also required under its Terms of Reference, the Nomination Committee considered Board composition and the performance of individual Directors in advance of the 2022 AGM and, following the requisite deliberations, recommended to the Board that all Directors be put forward for annual election or re-election (as appropriate) by Shareholders. # Board Committee composition Board Committee membership was updated at various points during 2022 to reflect the NED changes which took place throughout the year and, as mandated, the Nomination Committee was responsible for making recommendations to the Board in respect of such membership (whose appropriate, following consultation with the relevant Board Committee Chair). In making such recommendations, which were ultimately accepted and implemented by the Board, the Nomination Committee took into account not only the specific skillsets and experience of individual NEDs but also the time commitment expected of them and their external commitments. The Board Committee changes which took place during 2022 are detailed within the respective Board Committee Reports on pages 123-157, together with current Board Committee composition, but key changes included the appointments of Gillian Kent and Dean Moore to, respectively, Risk Committee Chair and Remuneration Committee Chair upon their appointments to the Board on 15 September 2022 and, following Damian Sanders' appointment to CFO, Dean Moore's appointment to interim Audit Committee Chair and Related Party Committee Chair on 24 January 2023. As the Board currently comprises only two independent NEDs, Gillian Kent and Dean Moore (excluding the Chair), this has resulted in the non-satisfaction of the membership requirements of the Audit Committee and the Risk Committee since the date of Damian Sanders' appointment as an Executive Director. This position is temporary and expected only to continue until the appointment of at least one new independent NED in the coming months which will ensure that the applicable membership requirements are satisfied under the Code and the Terms of Reference of these Board Committees. Throughout 2023 the Nomination Committee, 135 in c for con a n Be The gro eff In r FTT to u yen per the The onl rigs eva pra req Mo dec eva and the to t app dv of t An re2 Wh me pa ad car pre Co 'de Dir Wh con for sup on the fin are str as Annual Report 2022 The 2022 evaluation outcomes in respect of the Independent Chair are reflective of the feedback generated through the annual SID-led appraisal which took place amongst the NEDs at the end of 2022; the strong experience, commercial knowledge and facilitative and inclusive manner of the Independent Chair were acknowledged in both the NEDs' discussion and the 2022 evaluation, together with the governance improvements implemented during their tenure to date. Notably, certain of the 2022 evaluation outcomes specifically acknowledge that the Board is in transition and suggest it could be enhanced by increased diversity and the addition of particular skillsets (e.g. e-commerce and/or technology), thus aligning with the Nomination Committee's key recruitment priorities. ## Diversity and inclusion Pursuant to its Terms of Reference the Nomination Committee must ensure that the promotion of diversity, including (but not limited to) diversity of gender and social and ethnic backgrounds, is a key consideration when reviewing leadership appointments and succession planning and, in conjunction with the People team, is expected to take an active role in setting and monitoring Group diversity objectives and strategies. Indeed, the Nomination Committee recognises and embraces the benefits attendant in a diverse Board (and Senior Management) membership and, to the extent practicable and appropriate, is committed to building upon the Group's robust commitment in this area. This is evidenced by the aforementioned NED recruitment brief, the parameters of which not only recognise the need to identify suitably skilled and experienced candidates but also take into account the FCA's D&I targets (as incorporated within Listing Rule 14.3.33R). Whilst the search for independent NEDs remains ongoing, challenges have been encountered to date identifying suitable candidates who also satisfy the diversity criteria. More generally, as a Disability Confident Committed employer, the Company must ensure that its recruitment processes are inclusive and accessible, including any recruitment activity undertaken from a Board and Senior Management perspective. Recruitment will therefore continue on a meritocratic basis and founded on the principle of fairness for all and with due regard to the D&I targets contained within the 2030 Sustainability Strategy, further details on which are contained in the 'Sustainability' section of the Strategic Report on pages 71-73. Key strategic targets under THG v Planet Earth include achieving 50% female representation and at least 19% ethnic minority representation on the Board and in Senior Management by 2030. To ensure the Nomination Committee (and the Board collectively) remains suitably apprised of material People issues (including D&I items) to allow it to effectively discharge the responsibilities incumbent upon it, the Group Talent Director, who has ultimate oversight of, amongst other things, general workforce diversity, attends scheduled Board meetings to provide regular on-topic updates. Further and as previously discussed within this Annual Report, the Group launched its new D&I Strategy during 2022 with the objective of building upon its approach to D&I at every level within the organisation and becoming an industry pioneer in driving social change. It is anticipated that the Group's D&I Committee, founded as a platform through which to improve the employee journey and establish a truly inclusive Group environment, will be instrumental in driving the progression of the Strategy throughout the organisation. Further information on the Group's approach to D&I, including strategy, associated objectives and related employee initiatives, is contained within the Governance Report and in the 'Empowering people and communities' section of the Strategic Report. The diversity disclosures required pursuant to section 414C of the Companies Act can be found within the 'Our people' section of the Strategic Report. ## AGM As in previous years, the Nomination Committee is scheduled to convene ahead of the AGM to review overall Board composition and, pursuant to its Terms of Reference, the continuation (or otherwise) of individual Directors, with reference to their performance and ability to contribute to the Board in light of the knowledge, skills and experience required. Following due and careful consideration of all relevant factors, including (but not limited to) the time committed to discharge the responsibilities incumbent upon them as Directors, the Committee will make its recommendations as to whether Directors should be put forward for election or re-election (as appropriate) by Shareholders. On behalf of the Nomination Committee **Charles Allen,** **Lord Allen of Kensington CBE** Chair of the Nomination Committee 17 April 2023 # Related Party Committee ![img-26.jpeg](img-26.jpeg) 'The Related Party Committee ensures that the governance is in place and that an action is classified as a 'Related Party' Transition. The key objective is shareholder values. **Dean Moore** Chair of the Related Party Committee ## Members and attendance | Committee member | Position | | --- | --- | | Dean Moore | Chair | | Gillian Kent | Member | | Damian Sanders | Foreman | | Zillah Byng-Thorne | Member | 1. Dean Moore was appointed a member of the Related Party Committee upon his appointment to the position of Related Party Committee Chair on 24 January 2023 when Damian Sanders was appointed a member of the Related Party Committee on 24 January 2023. 2. Gillian Kent was appointed a member of the Related Party Committee on 24 January 2023. 3. Damian Sanders, previously a member of the Related Party Committee, assumed that he was not to be a member of the Related Party Committee Chair. He then referred to as an Executive Director on 24 January 2023 and was replaced by Dean Moore, a member of the Related Party Committee Chair. 4. Zillah Byng-Thorne stepped down from the Board and as Related Party Committee chair, the Chairman, a member of the Committee and the then interim SID. I have pleasure in introducing the Related Party Committee Report for the 2022 financial year. Having been appointed as Committee Chair earlier this year, I would like to take this opportunity to restate the Committee's commitment to ensuring that all Related Party Transactions remain subject to robust evaluation prior to approval (or otherwise) and to confirm that the requisite governance arrangements are in place to allow for the full and effective oversight of both existing and potential conflicts of interest. As disclosed in previous Annual Reports, prior to Admission to the London Stock Exchange, THG divested the Propco Group, which owns property assets occupied and utilised by the Company. 137 Annual Report 2022 ## Composition and meetings Management charge ## Activities of the Related In recognition of the Related Party Committee’s key Party Committee Under the terms of a Master Services Agreement (“MSA”), governance function, its Terms of Reference provide that a management charge is levied upon the Propco Group members must be independent NEDs who are appointed In addition to the ongoing oversight and approval (where by THG for the provision of specified services. The MSA by the Board upon the recommendation of the Nomination appropriate) of Related Party Transactions, the Committee was updated during the reporting period to reflect the fact Committee (and in consultation with myself as Committee gave specific consideration to the following matters during that certain processes, historically performed by THG on Chair). Current Committee membership is set out in the 2022 reporting period and in the period up to the date behalf of the Propco Group, would gradually be transferred the preceding attendance table and, as noted above, of this Report: over to the Propco Group. The Related Party Committee I assumed the position of Committee Chair when Damian considered this change in arrangements between THG Sanders stepped down from the Committee following his and the Propco Group was satisfied this increased the Officers of the Company appointment as an Executive Director in January 2023. independence of Propco and thereafter approved the revised charge due under the MSA. As noted in the 2021 Annual Report, officers of the Propco The Terms of Reference provide that meetings of the Group were then also officers of the Company and certain Related Party Committee are held at such times as the of its subsidiaries. Acknowledging the conflict of interest Other items Committee Chair requires, although any member of the that may arise from such a position, the decision was taken Committee may request a meeting if they consider it to resolve this crossover in officer appointments by 31 The Related Party Committee approved the details of necessary. As can also be seen from the attendance table, December 2022. The necessary action was taken during the Company’s charitable donation to The Moulding six meetings of the Related Party Committee took place the reporting period such that Propco Group officers are Foundation. The charitable donation is paid by the during the 2022 financial year, in February, March, two now fully independent of the Group. Company in lieu of Matthew Moulding waiving as meetings in May, August and October, at which certain much of his annual salary as is legally permissible. salient matters were subject to detailed consideration (please refer to the section below entitled “Activities Separation of the Group The Committee approved the purchase of fixtures and of the Related Party Committee”). Whilst only members fittings from Propco where costs had been paid by MCL on are entitled to attend Committee meetings, the Terms To ensure the relevant property interests (leases) sat behalf of THG in respect of a fitout of one of the properties of Reference provide that others, including external within the appropriate division following the internal leased by THG. An extensive review was completed by advisers, may attend by invitation when considered Group reorganisation which completed during the 2022 management and presented to the Committee to ensure necessary and appropriate. financial year, consent was required to be sought from the that all assets were in existence and that all assets were Propco Group to reassign and sublet a number of lease in use by THG. All assets were then agreed to invoice and agreements to alternative Group entities. The Related Party physical existence verified. In addition, legal specialists Committee challenged whether this proposal would involve ## Role and responsibilities and property specialists were engaged to ensure that variations to the existing lease agreements (including in this transaction was completed on an arms-length basis. respect of rent payable by the Group). It was confirmed that As detailed within its Terms of Reference, the key function Following completion of this work and after approval no variations would be required and thereafter the Committee of the Related Party Committee is to oversee and approve by the Related Parties Committee the amount was approved the proposal to seek the relevant consent. (where appropriate) the terms of any Related Party recognised as an amount owed to related parties (note 27). Transaction and to ensure that any such arrangement is conducted on standard commercial terms and at arm’s Capital expenditure length. The Related Party Committee is cognisant of On behalf of the Related Party Committee the critical role which it plays within THG’s corporate Capital expenditure incurred by the Company on properties governance infrastructure and, as required by its Terms of leased from the Propco Group - the rationale for the spend Reference, has regard to certain mandated factors when incurred in the year and the nature of the work completed, assessing any Related Party Transaction (such as whether ensuring this was appropriate and expenditure expected the Related Party Transaction can be viewed as fair and of a tenant. The Committee concluded that the nature of reasonable and in the best interests of the Group (including works and level of spend were appropriate. from the perspective of the Company and minority shareholders)). Schedule of leases Dean Moore Whilst the Terms of Reference provide that Related Party The leases in place were entered into prior to divestment Transactions may not be authorised or implemented by Chair of the Related Party Committee of the Propco Group to Moulding Capital which preceded the Board unless they have been positively recommended the IPO and therefore prior to the formation of the Related by the Related Party Committee, they do contain a caveat 17 April 2023 Parties Committee. A summary of all such leases and terms to this default position; specifically, if deemed to be in the was presented to the Committee. The leases and terms best interests of the Company, the Board may resolve therein were reviewed. that the Committee’s views are not binding but rather of a recommendary nature in respect of certain categories A summary of the rent payable together with the market of Related Party Transactions. Noting the important role rent at inception was also reviewed. Actual rent at the time which the Related Party Committee plays within the of inception varied when compared with market rent at this Group’s governance framework, the importance of ensuring time. The Committee subsequently reviewed current market the Committee is operating to maximum effectiveness rent information provided by THG Property specialists and is acknowledged and this is managed through Board concluded that the actual rents were appropriate when discussions and the annual Board and Board Committee reviewed across the Portfolio. evaluation exercise. 139 140 Annual Report 2022 Whilst the Terms of Reference mandate that at least three ## Activity during the year Sustainability Committee meetings must be held annually, ## Sustainability Committee Report and at such other times as the Sustainability Committee The Committee has a number of standing agenda items which Chair may require, five meetings took place during 2022, it considers in line with its Terms of Reference including: with member attendance set out in the foregoing table. As detailed in the 2021 Annual Report and in recognition ”The Sustainability Committee plays a crucial role in ensuring the business • reviewing internal reports on progress towards of the Group’s robust sustainability targets and is delivering its Sustainability Strategy, THG x Planet Earth, and will set targets and KPIs in support of the 2030 commitments, it is expected that the Committee will continue to oversee future progress towards medium and long-term Sustainability Strategy and agreeing further continue to convene in excess of the stated requirements targets. An enhanced understanding of its environmental and social targets and KPIs where appropriate; during the current financial year. impact allows THG to create value and opportunities for stakeholders across the Group’s value chain.” • assessment, benchmarking and recommendations on Additionally, any Sustainability Committee member may policies, processes, and procedures for sustainability; request a meeting of the Committee if they consider it necessary and, whilst only members of the Committee (and ## Iain McDonald • overseeing the Group’s conduct with regard to its any individual entitled to be present as an observer) have Chair of the Sustainability Committee corporate and societal obligations, including reviewing the right to attend Committee meetings, other external THG’s statement on Modern Slavery and Trafficking; advisers may be invited to attend when appropriate. The Committee also has Board authority to secure the • in conjunction with the Risk Committee, reviewing attendance of any other person as and when considered ## Members and attendance Climate Change, Environmental and Social necessary. During 2022, the Chief Risk Officer, the General Responsibility as a principal risk to ensure relevant Counsel and Company Secretary, the Procurement Director sub-risks are identified and the necessary actions Committee member Position Attendance and the Group Director of HSE regularly attended meetings taken to mitigate these risks; and at the request of the Committee, along with other members Iain McDonald Chair 5/5 of Senior Management. • monitoring and reviewing processes for the risk assessment of corporate responsibility, sustainability, 1 Steven Whitehead Member 4/5 and compliance and ethical conduct. 2 | Philip Pratt Member | | 5/5 | Role and responsibilities | | | --- | --- | --- | --- | --- | | | 3 | | | Activities of the | | Tiffany Hall Former Member | | 1/1 | The role of the Sustainability Committee is narrated within | | its Terms of Reference which clarify that its overarching ## Sustainability Committee 1. Steven Whitehead sits on the Sustainability Committee in his capacity as Group Commercial Director. purpose is to ensure that the Group has appropriate and 2. Prior to his departure from the Company at the beginning of 2023, Philip Pratt sat on the Sustainability Committee in his capacity as Chief Sustainability Officer. effective strategies, policies and operational controls in A summary of the key activities undertaken by the Since his departure Philip Pratt has continued to serve as a member of the Committee but in the capacity of external sustainability adviser to the Committee. place to allow its business to be conducted in a responsible Sustainability Committee during the 2022 financial 3. Tiffany Hall stepped down from the Board, and as a member of the Sustainability Committee, on 18 March 2022. manner and to ensure accountability in respect of year is as follows: performance against the 2030 Sustainability Strategy and applicable targets. The specific duties of the Committee • sustainability linked remuneration targets for the As Chair of the Sustainability Committee and on behalf are detailed within the Terms of Reference and include ## Composition and meetings Executive Leadership Team reviewed and recommended of the Board, I am delighted to once again introduce responsibilities such as reviewing and monitoring: to the Remuneration Committee for approval; the Sustainability Committee Report for the 2022 The Sustainability Committee’s Terms of Reference provide reporting period. Last year THG published its 2030 • the Group’s strategies, policies and targets in relation that the Committee should comprise a minimum of three • review of the Group’s baseline Scope 1, 2 and 3 Sustainability Strategy, THG x Planet Earth, which to, for example, energy and carbon management, members, at least one of whom should be a NED, with emissions, setting net zero targets for submission represented a significant step in defining the Company’s climate change, waste and recycling; any two Committee members required for a quorate to the SBTi for validation; key sustainability-related priorities and goals and which, meeting. Members of the Committee are appointed by importantly, also included medium and long-term targets. • Senior Management’s assessment of the health, the Board, upon the recommendation of the Nomination • ethical supply chain update and supplier survey As Sustainability Committee Chair, I am very pleased to safety, security, environmental and social impacts Committee, and whilst, collectively, the Committee must results review; note that during 2022 good progress was made towards resulting from the Group’s operations, with particular possess the competence relevant to the sectors in which achieving the Group’s key sustainability targets, further regard to the impact on its employees, suppliers, the Company operates, individual members must also • approval of Social Impact Strategy and updated information on which can be found in the “Sustainability” contractors and host communities; and have the skillsets and experience relevant to Sustainability D&I Strategy; section on pages 57-73. Notable milestones include: Committee membership. In satisfaction of the relevant • the Group’s systems for compliance with applicable • submission of THGs net zero targets for validation provisions of the Terms of Reference, membership of the • circularity and plastics action plan update; environmental/sustainability-related legal and by the SBTi; Sustainability Committee currently comprises myself, Iain regulatory requirements and performance against McDonald, a NED and Sustainability Committee Chair, • Investor Relations – ESG rating agencies • defining of THG own-brand packaging roadmaps; those requirements. Steven Whitehead, Group Commercial Director and Philip perspectives update; • continuation and improvement in supply chain Pratt, former Chief Sustainability Officer and now external To ensure the full and effective discharge of its duties, sustainability advisor to the Committee. As detailed above, • TCFD and non-financial reporting regulations mapping and ethical supply chain roadmap; the Terms of Reference provide that the Sustainability Tiffany Hall, a former NED, was also a member of the compliance update; • establishing THG Eco with a primary focus Committee will have access to such sufficient resources as Committee during the reporting period until she stepped are necessary (including advice and assistance from Group on climate action; and down from the Board on 18 March 2022. • THG Eco business model and route to market update; Secretariat or the specialist support of external advisers). and • approval of THG’s first Social Impact Strategy. • HSE review and progress update. 141 142 Annual Report 2022 # Focus for 2023 During the current financial year, it is anticipated that key areas of focus for the Sustainability Committee will be as follows: - oversee and make recommendations to the Executive Leadership Team and the Board for actions to be taken in respect of the Group's sustainability, ethics and compliance strategies, policies, programmes, and activities; - take a proactive approach in anticipating and preparing for non-financial legislative or regulatory changes and reviewing processes to ensure compliance; - undertake the bi-annual review of the 2030 Sustainability Strategy, objectives, and targets; and - monitor and review progress relating to TCFD, particularly in understanding potential risks and uncertainties based on outcomes of the scenario analysis. On behalf of the Sustainability Committee **Iain McDonald** Chair of the Sustainability Committee 17 April 2023 ![img-27.jpeg](img-27.jpeg) 143 # Directors' Remuneration ![img-28.jpeg](img-28.jpeg) "The Remuneration Committee is a Company's leadership is suitably made successfully implement the Company's long-term, sustainable growth for the Remuneration Policy has been developed." **Dean Moore** Chair of the Remuneration Committee # Members and attendance | Committee member | Position | | --- | --- | | Dean Moore | Chair | | Iain McDonald | Member | | Gillian Kent | Member | | Damian Sanders | Former | | Dominic Murphy | Former | | Tiffany Hall | Former | 1. Dean Moore was appointed Remuneration Committee Chair upon his appointment. 2. Gillian Kent was appointed to the Remuneration Committee on 24 January 2023 when he was an Executive Director. 3. Damian Sanders was appointed Remuneration Committee Chair on an interim basis. 4. Dominic Murphy stepped down from the Board and as a member of the Remuneration Committee. 5. Tiffany Hall stepped down from the Board and as Remuneration Committee Chair on an interim basis from the date until Dean Moore's appointment on 15 September 2022. As the recently appointed Chair of the Remuneration Committee, I am delighted to introduce the Directors' Remuneration Report for the 2022 financial year and would like to thank Damian Sanders for assuming the role of Chair on an interim basis, and leading the Committee, in the period prior to my appointment. I would echo Damian's sentiments in the 2021 Annual Report that the Remuneration Committee remains committed to ensuring that the Group's leadership is appropriately motivated and incentivised to deliver long-term sustainable growth for Shareholders, noting that a key component of this is ensuring that the Group continues to attract and retain talent with the knowledge and skillsets required to maximise the organisation's performance and success. This action and am into • • • Annual Report 2022 ## Composition and meetings The Terms of Reference provide that the Remuneration Committee must comprise not less than three NEDs, the majority of whom must be independent, who are selected by the Board on the recommendation of the Nomination Committee and in consultation with the Remuneration Committee Chair (who must also be an independent NED). With the exception of Iain McDonald, all Remuneration Committee members are deemed to be independent and it is considered that current membership ensures the Committee is well-placed to operate at maximum effectiveness. Whilst recognising the Code's position that only independent non-executive directors should sit on a company's remuneration committee (and as discussed further in the Corporate Governance Statement on page 101), the Board does not consider that it would be in the best interests of the Company and its stakeholders for Iain McDonald to step down from membership of the Committee at the present time. In addition to the fact that the Board currently comprises only two independent NEDs, both of whom are members of the Committee, the Board believes that Iain McDonald's extensive remuneration experience is not only a valuable addition to the Remuneration Committee but also serves to enhance its overall balance of knowledge and skillsets. It is therefore anticipated that Iain McDonald's membership of the Remuneration Committee will continue for the time being, albeit the matter will be kept under ongoing review with regard to, for example, the timing and independence of future Board appointees. As detailed above, Tiffany Hall stepped down from the Board and as Remuneration Committee Chair on 18 March 2022. Damian Sanders assumed the position of Chair at this time on an interim basis until Dean Moore was appointed to the Board and as Remuneration Committee Chair on 16 September 2022. Damian Sanders remained a member of the Committee until his appointment as an Executive Director on 24 January 2023, at which point Gillian Kent assumed membership of the Committee. Dominic Murphy, was also a member of the Committee during the 2022 reporting period until he stepped down from the Board on 8 June 2022. A summary of these changes, together with the other Board changes which took place during 2022, is as follows (with further details included within the Governance Report): | NED / Former NED | Appointment | Resignation | Date | | --- | --- | --- | --- | | Tiffany Hall | | ✓ | 18 March 2022 | | Charles Allen | ✓ | | 22 March 2022 | | Dominic Murphy | | ✓ | 06 June 2022 | | Gillian Kent | ✓ | | 16 September 2022 | | Dean Moore | ✓ | | 16 September 2022 | | Ziloh Byng-Throne | | ✓ | 16 September 2022 | | Andrew Hansson | | ✓ | 15 September 2022 | | Damian Sanders | n/a | n/a | 24 January 2023 | 1. This is the date on which Damian Sanders stepped down as a NED and was appointed an Executive Director. At least two Remuneration Committee meetings must take place annually and at such other times as required by the Remuneration Committee Chair or as requested by any Committee member should they consider it necessary. The Remuneration Committee met on six occasions during 2022, with member attendance set out in the foregoing table. The Terms of Reference provide that whilst only Committee members are entitled to attend these meetings others, such as Senior Management and external advisers, may be invited to attend as and when considered appropriate, as was the case during the reporting period. ## Role and responsibilities As detailed within its Terms of Reference, a primary responsibility of the Remuneration Committee is to determine the remuneration package of Executive Directors and the Independent Chair. More generally, it is the responsibility of the Remuneration Committee to ensure that remuneration practices and policies support the Group's strategy and promote its long-term sustainable success. Other key duties of the Committee, as detailed within the 2021 Annual Report, include: - approving the design of, and determining targets for, any performance-related pay schemes operated by the Company and the payments made thereunder; - exercising its use of discretion, where appropriate, to override formulaic remuneration outcomes; - reviewing the ongoing appropriateness and relevance of the Remuneration Policy (further details on which follow), 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. ## Remuneration Policy To ensure the Remuneration Policy was suitably future-proofed for the medium term certain amendments were proposed at the 2022 AGM, including the incorporation of a market standard shareholding requirement for future Executive Directors and the introduction of a LTIF to allow awards to be granted to certain Executive Directors and thus maximise alignment with long-term Shareholder interests. Whilst these amendments were approved by Shareholders, the Remuneration Committee will, as mandated, continue to review the ongoing suitability of the Remuneration Policy to ensure it remains fit for purpose and evolves as required. ## 2022 remuneration outcomes The Remuneration Committee operated the Remuneration Policy broadly as intended during the 2022 reporting period, with the exception that no performance-related pay awards were made in 2022. In light of the global macroeconomic environment both Matthew Moulding and John Gallemore opted to waive their entitlement to participate in the annual bonus plan for the 2022 reporting period (as in prior years). Further, whilst the introduction of a LTIF was approved by Shareholders at the 2022 AGM, the decision was taken to refrain from making any awards under it for the same reason. No salary increases were awarded during the 2022 reporting period and, as was the case for the 2021 reporting period, Matthew Moulding waived as much as was legally permissible of his base salary in return for the Group making a charitable donation of similar value. John Gallemore also waived as much as was legally permissible of his base salary in return for the Group making a charitable donation of similar value for the period 1 January 2022 to 30 June 2022, after which he was paid his normal contractual salary. ## Remuneration for 2023 The Remuneration Committee intends to implement the Remuneration Policy during 2023 as follows: ### Base salary A key activity of the Remuneration Committee during 2022 was the consideration and approval of the remuneration package for Damian Sanders following his appointment to the role of CFO on 24 January 2023. Remuneration for this role will be operated in line with the Remuneration Policy, with a base salary of £500,000 per annum being payable from the date of his appointment. No salary increases will be awarded to Matthew Moulding or John Gallemore for the 2023 reporting period. ### Annual bonus A review of THQ'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, sustainability-linked objectives will be assessed in the annual bonus scorecard for the CEO, members of the Executive Leadership Team and Senior Management. In line with the Remuneration Policy, annual bonus awards will be granted with a maximum opportunity of 100% of base salary for each of Matthew Moulding, John Gallemore and 145 ![img-29.jpeg](img-29.jpeg) Annual Report 2022 Component Operation Opportunity Performance ## Remuneration Policy and objective measures Introduction Performance targets are set at the start of each Maximum opportunity: 200% of base The bonus will be based on the Annual bonus | | | | financial year and aligned with the annual | salary (with 50% deferred into Ordinary | achievement of financial and non- | | --- | --- | --- | --- | --- | --- | | | | | budget agreed by the Board. At the end of the | Shares vesting after three years). | financial performance targets which | | As detailed above, certain amendments to the | A summary of the Remuneration Policy is set out | To focus Executive | | | | | | | | financial year in question, the Remuneration | | may vary year-to-year but at least | Directors on Remuneration Policy were approved by Shareholders below for reference to assist with the understanding Committee determines the extent to which Target opportunity: 50% of 50% of the total opportunity will be achieving demanding | | | | these targets have been achieved. | maximum opportunity. | based on financial performance. | | --- | --- | --- | --- | --- | --- | | at the 2022 AGM (with 99.88% of votes in favour), | of this Directors’ Remuneration Report. Full details | annual targets | | | | | with the amendments to the Remuneration Policy | of the Remuneration Policy can be found on | relating to Group | | | | | | | | 50% of the total bonus payable is normally | Threshold opportunity: at most, | Details of the measures and weighting | performance | becoming effective upon approval. | | | pages 183-193 of the 2021 Annual Report. | | paid in cash with 50% deferred in nil cost | 25% of maximum opportunity. | on which the bonus will be based will | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | options over Ordinary Shares. These options | | be disclosed in the relevant Annual | | | | | | | are exercisable after three years, subject to | Matthew Moulding and John Gallemore | Report on Remuneration. If the | | | | | | | continued employment and malus (in whole | will have a reduced opportunity of | Remuneration Committee determines | | | | | | | or in part) during the deferral period in the | 100% of salary which will be payable | certain targets to be deemed | | | | | | | event of a material misstatement in accounting | fully in cash. They also intend to waive | commercially sensitive, the targets | | | Component | Operation Opportunity Performance | | | records, gross misconduct, calculation error | any amounts which become payable | will be disclosed retrospectively. | | | and objective | | | measures | or corporate failure. Cash bonuses may be | under the annual bonus scheme | | | | | | | | subject to clawback over the deferral period | in future years in lieu of donations | The Remuneration Committee has | | | | | | | in similar circumstances as identified above. | to charity of a similar amount. | discretion to adjust the formulaic bonus | | | | Generally reviewed each year, with | Salaries in respect of the year | n/a | | | outcomes (including down to zero) | Base salary increases effective 1 January. under review (and for the following A payment equivalent to the dividends that would within the limits of the scheme if the year) are disclosed in the Annual have accrued on deferred bonus awards that formulaic outcome is not reflective of To enable the Group Report on Remuneration. vest may be made to participants on vesting. underlying business performance. to attract, motivate Salary levels take account of: and retain the • salaries at FTSE companies of broadly Salary increases for Executive Directors people it needs to similar size or sector to THG; will normally not exceed those of the maximise the value wider workforce over the period this | of the business | • salary increases across the | | | Awards are granted annually in the form of nil | Normally annual awards of up to | The majority of the awards will be | | --- | --- | --- | --- | --- | --- | --- | | | | Remuneration Policy applies. Where | LTIP | | | | | | rest of the UK business; | | | cost options or conditional awards of Ordinary | 250% of base salary. In exceptional | based on financial metrics, with the | increases are awarded in excess of | | | | Shares. These will vest at the end of a three-year | circumstances, such as to secure an | balance based on strategic metrics. | | --- | --- | --- | --- | --- | --- | | • role, personal performance | the wider employee population, the | To incentivise | | | | | | | | period subject to continued employment and | external appointment or in specific | | | and experience; and | Remuneration Committee will provide | Executive Directors | | | | | | | | satisfaction of the performance conditions. | retention scenarios, an award of up to | The Remuneration Committee retains | | • business performance and | the rationale in the relevant year’s Annual | whilst providing | | | | | | | | | 300% of base salary may be made. | discretion, in exceptional circumstances, | | the external environment. | Report on Remuneration (e.g. if there is | alignment with | | | | | | | | A further two-year holding period | | to change performance measures | | | a material change in the responsibility, | Shareholder interests | | | | | | | | will apply post-vesting. | Matthew Moulding will not be | and targets and the weightings | size or complexity of a role). eligible to participate in the LTIP. attached to performance measures There is no fixed maximum. The Remuneration Committee may partway through a performance award dividend equivalents on awards period if there is a significant and to the extent that these vest. material event which causes the Remuneration Committee to believe Malus and clawback provisions will apply to the original measures, weightings and enable the Company to recover sums paid or targets are no longer appropriate. withhold the payment of any sum in the event of a Executive Directors receive pension contributions Executive Directors receive a Company n/a material misstatement resulting in an adjustment The Remuneration Committee also Pension either as a direct payment or a cash allowance. contribution of a maximum in line to the audited consolidated accounts of THG has discretion to adjust the formulaic with the wider workforce for the or action or conduct which, in the reasonable vesting outcome (including down to To provide a level Base salary is the only element of relevant country. This is currently opinion of the Board, amounts to employee zero) within the limits of the scheme if of retirement benefit remuneration that is pensionable. set at 3% of pensionable salary misbehaviour, fraud or gross misconduct. the formulaic outcome is not reflective that is competitive in for UK Executive Directors. of underlying business performance. the relevant market Pensionable salary is determined in line with the approach taken for the Shareholding Matthew Moulding and John Gallemore are n/a n/a wider workforce which is currently required to retain at least 50% of any incentive in line with auto-enrolment levels. requirement awards that vest (net of tax) until they have built up a personal holding of Ordinary To align Executive Shares worth at least 350% of salary. Director and | Shareholder interests | Any future Executive Directors must build up | | --- | --- | | and reinforce | and subsequently retain a shareholding of at | | long-term decision | least 200% of salary over a five-year period from | | making, including | the date of their appointment to the Board. | for a period following | | Executive Directors may be provided with | Benefits may vary by role and the level is | n/a | | | | --- | --- | --- | --- | --- | --- | | Benefits | | | | cessation of | A post-cessation shareholding requirement of | | | medical insurance benefits, permanent health | determined each year to be appropriate | | | | | | | | | employment | 350% of salary to be held for two years after an | | | insurance and life assurance. | for the role and circumstances of | | | | | To provide a level | | | | | Executive Director’s employment is terminated | individual Executive Directors. of benefits that is in the case of Matthew Moulding and John Other benefits, including all employee share | in line with relevant | | | | Gallemore and 200% of salary for any future | | | | --- | --- | --- | --- | --- | --- | --- | | | schemes, may be introduced from time | It is not anticipated that the cost of | | | | | | market practice | | | | Executive Directors (or full actual holding if lower). | | | | | to time to ensure the benefits package is | benefits (as set out in the Annual | | | | | | | appropriately competitive and reflects the | Report on Remuneration) will increase | | | | | | | needs and circumstances of the Group | materially over the period for which | | | | | | | and individual Executive Directors. | this Remuneration Policy applies. | Chair and | NEDs are paid a basic annual fee. Additional | Fee increases will be applied considering | n/a | | | | | | fees may be paid to NEDs who chair a Board | the outcome of the review. | | NED fees The Remuneration Committee retains Committee and/or sit on a Board Committee the discretion to approve a higher to reflect additional responsibilities. The fees paid to NEDs in respect of cost in exceptional circumstances (e.g. To attract and the year under review (and for the relocation expenses or an expatriation retain NEDs of the The fees paid to NEDs are determined following year) are disclosed in the allowance on recruitment) or in highest calibre with by the Board and may be paid in a Annual Report on Remuneration. circumstances where factors outwith the broad commercial mix of cash and Ordinary Shares. Group’s control have changed materially experience relevant (e.g. market increases in insurance costs). to the Group 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. 147 148 Annual Report 2022 ## Annual Report on Remuneration Base salary (audited) Bonus awards (audited) The base salaries of the Executive Directors are typically Both Matthew Moulding and John Gallemore chose This section covers the reporting period from 1 January 2022 to 31 December 2022 and provides details of the implementation reviewed on an annual basis, with any increases effective to waive their entitlement to participate in the annual of the Remuneration Policy during the period, as well as the intended implementation during the current 2023 reporting period. from 1 January. As detailed in the Remuneration Policy, bonus plan for the 2022 financial year. when determining any increases the Remuneration Single total figure of remuneration (audited) Committee compares the Group’s remuneration packages for its Executive Directors with those of directors in FTSE Scheme interests awarded (audited) The following table provides a single figure for total remuneration of the Directors for the financial year to 31 December 2022, companies of similar size or sector to THG and also takes together with comparative figures for the financial year to 31 December 2021. The values of each element of remuneration account of salary increases across the rest of the UK No such awards were made to Directors during the are based on the actual value delivered, where known. The value of the annual bonus includes both the cash element and business, an individual’s role and personal performance, 2022 financial year. the element deferred into Shares. business performance and the external environment. No salary increases were awarded to Executive Directors Salary Benefits Pension Total Annual bonus1 LTI P Other Total Total during the 2022 reporting period. As such, at 31 December | | & fees1 | | | fixed pay | | | | variable pay | | | Payments to past Directors (audited) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | (£’000) | (£’000) | (£’000) | (£’000) | (£’000) | (£’000) | (£’000) | (£’000) | (£’000) | 2022 salary levels were as follows: | | | Executive Directors | | | | | | | | | | | No payments were made to past Directors during | • Matthew Moulding: £750,000; and | Matthew Moulding | 2022 21 12 0 33 0 0 0 0 33 | | | | the 2022 financial year. | | --- | --- | --- | --- | --- | --- | | | | 2 | | • John Gallemore: £450,000. | | | | 2021 20 433 | | 0 453 0 0 0 0 453 | | | | John Gallemore | 2022 235 5 1 241 0 0 0 0 241 | | | | | As previously stated, Matthew Moulding waived as much 2021 20 5 0 25 0 0 0 0 25 as was legally permissible of his base salary during the Loss of office payments (audited) NEDs 2022 reporting period in return for the Group making a Charles Allen 3 2022 328 0 0 328 0 0 0 0 328 charitable donation of similar value. John Gallemore also No loss of office payments were made during the 2021 n/a n/a n/a n/a n/a n/a n/a n/a n/a waived as much as was legally permissible of his base 2022 financial year. Damian Sanders 4 2022 157 0 0 157 0 0 0 0 157 salary in return for the Group making a charitable donation 2021 132 0 0 132 0 0 0 0 132 of similar value for the period 1 January 2022 to 30 June Edward Koopman 2022 36 0 0 36 0 0 0 0 36 2022. For the financial year ending 31 December 2022, the External appointments 2021 35 0 0 35 0 0 0 0 35 salaries waived by Matthew Moulding and John Gallemore Iain McDonald 2022 58 0 0 58 0 0 0 0 58 were £729,331 and £214,328 respectively. None of the Executive Directors received any fees 2021 60 0 0 60 0 0 0 0 60 in relation to external non-executive roles. Gillian Kent 3 2022 30 0 0 30 0 0 0 0 30 2021 n/a n/a n/a n/a n/a n/a n/a n/a n/a Pension (audited) Dean Moore 3 2022 30 0 0 30 0 0 0 0 30 2021 n/a n/a n/a n/a n/a n/a n/a n/a n/a As part of their remuneration arrangements, the Executive Former NEDs Directors are entitled to receive pension contributions from | Tiffany Hall | | 5 | | | | | --- | --- | --- | --- | --- | --- | | | | | | 2022 19 0 0 19 0 0 0 0 19 | the Company. Under these arrangements, they can elect for | | | | | | 2021 81 0 0 81 0 0 0 0 81 | those contributions to be paid in the form of taxable pension | | Dominic Murphy | | | 5 | | | | | | | | 2022 29 0 0 29 0 0 0 0 29 | allowance or direct payments into a personal pension plan | | | | | | 2021 93 0 0 93 0 0 0 0 93 | or the Group’s UK defined contribution scheme. | | Zillah Byng- | | | | 2022 71 0 0 71 0 0 0 0 71 | | | Thorne | 5 | | | | | | | | | | 2021 100 0 0 100 0 0 0 0 100 | During the 2022 reporting period, £433 and £872 were | | Andreas Hansson | | | 5 | | paid into the personal pension plans of Matthew Moulding | 2022 25 0 0 25 0 0 0 0 25 2021 6 0 0 6 0 0 0 0 6 and John Gallemore respectively. This represented 3% of pensionable salary. 1. From Admission and subject to minimum statutory limits, Matthew Moulding has elected to waive his salary with John Gallemore electing to waive his salary for the period from Admission to 30 June 2022. 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 2021, the salaries waived by Matthew Moulding and John Gallemore were £730,414 and £430,414 respectively. For the financial year ending 31 December 2022, the salaries waived by Matthew Moulding and John Gallemore were £729,331 and £214,328 respectively. The Group made charitable donations equivalent to these amounts which are in addition to the donations included in the Adjusted Items Benefits (audited) set out in Note 4 to the Financial Statements. For the financial year ending 31 December 2022, both Matthew Moulding and John Gallemore waived their entitlement to participate in the annual bonus plan, as they did for the financial year ending 31 December 2021. In line with the current Remuneration Policy, benefits in 2. In line with the previous Remuneration Policy, the Company provided private security cover to Matthew Moulding and his family to allow him to carry out his kind for each of Matthew Moulding and John Gallemore duties as CEO. Whilst the cost of this cover is included within the 2021 benefits figure it has been personally funded by Matthew Moulding from 1 January 2022 onwards and is not therefore included within Matthew Moulding’s remuneration figure for the 2022 reporting period. comprised medical insurance benefits, permanent health 3. The figures for the 2022 reporting period have been pro-rated to reflect Charles Allen’s appointment to the Board from 22 March 2022 and the insurance and life assurance. Matthew Moulding has appointments of Gillian Kent and Dean Moore from 15 September 2022. personally funded his private security from 1 January 4. Damian Sanders was appointed chair of: (i) the Divisional Reorganisation Committee upon its inception on 1 July 2021 and remained as chair until 2022 onwards. the Committee’s dissolution on 31 July 2022; and (ii) the Profit Improvement Committee, established to oversee efficiency projects across the Group, incorporating oversight of cost rationalization programmes and specific review of areas identified for performance improvement (the “PIC”), upon its inception on 1 August 2022. He received a fee of £80,000 (pro-rated as appropriate) in respect of each of these chairships during the 2022 reporting period. 5. The figures for the 2022 reporting period have been pro-rated to reflect Tiffany Hall stepping down from the Board on 18 March 2022, Dominic Murphy stepping down from 8 June 2022 and each of Zillah Byng-Thorne and Andreas Hansson stepping down from 15 September 2022. 149 150 Annual Report 2022 Directors’ shareholdings (audited) Directors’ share ownership guidelines (audited) The table below shows the shareholdings of each Director as at 31 December 2022: As described in the Remuneration Policy, Matthew Moulding and John Gallemore are both 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 2022 reporting period was as follows: | Director Ordinary | | D1 Shares D2 Shares Deferred | | E Shares F Shares G Shares H Shares | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Shares | | 2 Shares | | | | | | | | | | | | Director Shareholding requirement | | Shareholding as at 31 December | Shareholding | | Executive Directors | | | | | | (%age of salary) | 2022 (%age of salary) | requirement met? | 1,2 Matthew Moulding 198,744,095 50,550,450 360 (equivalent to 18,346,774 43,641,266 20,197,808 7,733,792 0 1 Matthew Moulding 350% 25,200% Yes 66,772 Ordinary Shares) 2 John Gallemore 350% 1,472% Yes John Gallemore 104,237 3,533,879 3,174 (equivalent to 813,345 185,476 2,666,963 4,000,537 0 588,702 Ordinary Shares) 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. NEDs 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. 3 Charles Allen 2,400,000 0 0 0 0 0 0 0 Current shareholdings are based on Shares owned outright and valued using the average Ordinary Share price over the Damian Sanders3 21,926 0 0 0 0 0 0 0 three months ended 31 December 2022 i.e. £0.557. Edward Koopman 0 0 0 0 0 0 0 0 Iain McDonald 2,505,943 0 0 14,524 185,476 0 0 0 Performance graph and table Gillian Kent 0 0 0 0 0 0 0 0 The following graph shows the TSR (i.e. total shareholder return) performance over the period from Admission to 31 Dean Moore 0 0 0 0 0 0 0 0 December 2022 relative to the FTSE 250 Index. It illustrates the performance of a £100 investment in the Company in that period compared with the value of £100 invested in the FTSE 250 Index over the same period. Former NEDs While the FTSE 100 Index was used in previous years, the FTSE 250 Index is now considered to be a more appropriate Tiffany Hall4 33,557 0 0 0 0 0 0 0 comparator for this purpose as it is a broad equity index into which the Company’s market cap falls. Dominic Murphy5 14,566,016 0 0 29,047 370,953 0 0 0 6 Zillah Byng-Thorne 69,765 0 0 25,417 0 0 0 0 Andreas Hansson6 0 0 0 0 0 0 0 0 180 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. 160,486,876 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 160 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. 140 3. Charles Allen and Damian Sanders 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 120 acknowledges that the shareholdings of these NEDs sit significantly below the notification threshold and therefore do not impair their independence. 4. Tiffany Hall stepped down from the Board on 18 March 2022 and her shareholding is stated as at this date. 100 5. Dominic Murphy stepped down from the Board on 8 June 2022 and his shareholding is stated as at this date. 6. Both Zillah Byng-Thorne and Andreas Hansson stepped down from the Board on 15 September 2022 and their shareholdings are stated as at this date. 80 There have been no changes to Directors’ shareholdings between 31 December 2022 and the date of this Directors’ 60 Remuneration Report. 40 20 0 Listed Dec 20 Dec 21 Dec 22 THG PLC FTSE250 151 152 Annual Report 2022 Chief Executive Officer’s historical remuneration Chief Executive Officer’s pay ratio The following table details the Chief Executive Officer’s remuneration for each of the last three financial years: 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 th th 2020 2021 2022 with the total remuneration of full-time equivalent UK employees at the 25 , median and 75 percentiles. Single figure (£’000) 870,139 453 33 1 UK employees (full-time equivalents) Bonus outcome as a percentage of maximum 100% n/a n/a1 2 | Long-term incentive outcome as a percentage of maximum 100% n/a2 n/a | | | | | th | | th | | --- | --- | --- | --- | --- | --- | --- | --- | | | Year | | CEO remuneration | | 25 percentile | | 75 percentile | | | | Method | | | | Median pay ratio | | | | | | | (£,000) | pay ratio | | pay ratio | 1. Matthew Moulding waived his entitlement to participate in the annual bonus plan for each of the 2021 and 2022 financial years. 2. No LTIP was eligible to vest in respect of either the 2021 or 2022 financial years and Matthew Moulding does not participate in any ongoing LTIP. 2022 Option A 33 1.2:1 1.1:1 0.8:1 2021 Option A 453 21:1 18:1 14:1 Percentage change in Directors’ remuneration The total pay and benefits and salary figures used for the pay ratio calculations are set out in the following table: 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 percentage change UK employees (full-time equivalents) in the Directors’ salaries, benefits (excluding pension) and annual bonuses between the 2020 and 2021 and 2021 and 2022 financial years, compared with the percentage change in the average of each of these components of pay for all UK th th Year 25 percentile Median 75 percentile employees for each of these periods. The comparison uses a per capita figure. 2022 Salary £23,018.10 £26,679.32 £38,158.33 2021 to 2022 2020 to 2021 2022 Total pay and benefits £27,872.37 £29,977.27 £39,942.46 Salary / fees Benefits Bonus Salary / fees Benefits Bonus Executive Directors | | 1 | | | th | th | | --- | --- | --- | --- | --- | --- | | Matthew Moulding | | 5.5% -97.3% n/a -95.8% 17.0 % -100% | The 25 | percentile, median and 75 | percentile figures used to determine the above ratios were selected by reference to | | | 2 | | the hourly pay figures for the Group’s UK workforce. Option A, as set out under the Regulations, was used to calculate | | | | John Gallemore | | 1,100.7% 2.6% n/a -91.6% 63.0% -100% | | | | remuneration for the 2022 financial year as the Company believes this is the most robust methodology for calculating these NEDs figures (and reflects the approach adopted for the 2021 financial year). The full-time equivalent annualised remuneration Charles Allen n/a 3 0% n/a 4 n/a 3 n/a 3 n/a 4 (comprising salary, benefits, pension, annual bonus and long-term incentives) was then calculated for those employees | | 5 | | 4 | | 4 | for the 2022 financial year. | | --- | --- | --- | --- | --- | --- | --- | | Damian Sanders 18.8% | | 0% n/a | | 780% 0% n/a | | | | Edward Koopman 2 .1% 0% n/a | | | 4 | 250% 0% n/a | 4 | | The ratio continues to reduce year-on-year, primarily as a result of Matthew Moulding waiving as much of his base Iain McDonald -2.8% 0% n/a 4 325% 0% n/a 4 salary as is legally permissible in return for the Group making a charitable donation of similar value, as well as waiving Gillian Kent n/a 3 0% n/a 4 n/a 3 n/a 3 n/a 4 his entitlement to participate in the annual bonus and not participating in any long-term incentive scheme. Executive Director pay is, typically, more at risk than wider employee pay due to the use of variable pay which is not guaranteed and Dean Moore n/a 3 0% n/a 4 n/a 3 n/a 3 n/a 4 hence, depending on incentive plan outcomes, can lead to a total pay ratio that varies significantly from year-to-year. The Wider workforce Remuneration Committee notes that the pay ratios for 2022 reflect the fact that the CEO waived most of his remuneration Average employee6 10.5% -20.8% -85.4% 10.1% 217.3% -37.5% for the financial year. Furthermore, the Committee believes that THG’s reward policies are not only aligned with the Group’s shared values and culture but also incentivise and drive the right behaviours and ensure all employees are rewarded fairly Former NEDs and competitively for their contribution to the Group’s success. For these reasons, the Committee is satisfied that the Tiffany Hall -76.3% 7 0% n/a 2 n/a 8 0% n/a 2 median pay ratio is consistent with the Group’s pay, reward and progression policies. | Dominic Murphy -68.5% | 7 | 0% n/a | 2 | 244% 0% n/a | 2 | | | --- | --- | --- | --- | --- | --- | --- | | | 7 | | 2 | | 2 | THG PLC is the parent company of the Group and, with the exception of the Executive Directors, does not have any | | Zillah Byng-Thorne -29.1% | | 0% n/a | | 100% 0% n/a | | | employees. The pay ratio figures have therefore been calculated with reference to the Group’s UK workforce which, the Andreas Hansson 313.6% 7 0% n/a 2 n/a 8 0% n/a 2 Company believes, is the appropriate comparator being reflective of the wider policies in operation on employee pay, reward and progression across the vast majority of the Group’s overall workforce. 1. From Admission and subject to minimum statutory limits, Matthew Moulding has elected to waive his salary and the percentage increase stated above reflects changes in these statutory limits rather than changes to salary levels. The reduction in the benefits figure relates to Matthew Moulding’s private security cover which was funded by the Company in 2021 and personally funded from 1 January 2022 onwards. As in 2021, Matthew Moulding waived his entitlement to participate in the annual bonus plan. 2. During 2021 John Gallemore elected to waive his salary subject to minimum statutory limits. In 2022 John Gallemore elected to waive his salary to 30 June 2022 and since this date has been paid his standard base salary. The percentage increase stated above reflects John Gallemore electing not to waive his salary during the period 1 July 2022 to 31 December 2022. As in 2021, John Gallemore waived his entitlement to participate in the annual bonus plan. 3. Charles Allen, Gillian Kent and Dean Moore were not Directors during the 2021 financial year. Charles Allen was appointed to the Board on 22 March 2022 and Gillian Kent and Dean Moore were both appointed on 15 September 2022. 4. NEDs are not entitled to participate in the annual bonus plan. 5. Damian Sanders was appointed chair of: (i) the Divisional Reorganisation Committee upon its inception on 1 July 2021 and remained as chair until the Committee’s dissolution on 31 July 2022; and (ii) the PIC upon its inception on 1 August 2022. He received a fee of £80,000 (pro-rated as appropriate) in respect of each of these chairships during the 2022 reporting period. 6. THG PLC is the parent company of the Group and, with the exception of the Executive Directors, does not have any employees. The figures detailed here are therefore representative of the Group’s UK workforce. 7. Each of these former NEDs stepped down from the Board during the 2022 reporting period. Tiffany Hall stepped down on 18 March 2022, Dominic Murphy stepped down on 8 June 2022 and both Zillah Byng-Thorne and Andreas Hansson stepped down on 15 September 2022. 8. Each of these former NEDs were also not Directors during the 2020 reporting period. Tiffany Hall was appointed to the Board on 12 January 2021 and Andreas Hansson was appointed to the Board on 26 October 2021. 153 154 Annual Report 2022 # *Relative importance of spend on pay* The following table details Shareholder distributions and THG expenditure on total employee pay for the 2022 reporting period versus the prior year, together with the percentage change year-on-year. | | 2022 (£m) | 2021 (£m) | %age change | | --- | --- | --- | --- | | Profit distributed by way of dividend | 0 | 0 | n/a | | Total spend on remuneration | 336.3 | 305.3 | 10.16 | # *Shareholder dilution* Any share incentive plans (including The THG PLC 2022 Executive 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 ordinary shares must not exceed 10% of the issued ordinary share capital in any rolling ten-year period, of which up to 5% may be used to satisfy options under executive share schemes. As detailed in the 2021 Annual Report and as set out in the Company's published Prospectus, it was intended that any future share awards to Group employees (excluding the Executive Directors), for the purpose of making employee incentive awards, would be satisfied out of the previously authorised but unissued maximum of 9,917,601 F Shares and 14,889,292 G Shares (i.e. a total of 24,806,893 Shares), following admission of the Ordinary Shares to trading on the London Stock Exchange. During 2022 awards were made using 24,128,750 of these F Shares and G Shares to in excess of 500 employees (excluding Executive Directors). As these Shares were already reflected in the fully diluted share capital of the Company, their issuance does not affect overall dilution and thus they have not been included in the dilution percentage which follows. In October 2022 18,074,902 Ordinary Shares were admitted to trading on the London Stock Exchange to further satisfy employee incentive awards and ensure the Group continues to attract and retain world-class talent. This new issue of Ordinary Shares represented 1.51% of the Company's ordinary issued share capital as at 31 December 2022. To date no Ordinary Shares have been issued to Executive Directors under any executive schemes. # *Shareholder voting at 2022 AGM* At the 2022 AGM the resolutions to approve the Directors' Remuneration Report, the changes to the Remuneration Policy, and the adoption of The THG PLC 2022 Executive LTIP 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) | 718,217,975 | 99.88 | 895,256 | 0.12 | 719,103,271 | 99.88 | 14,538,630 | | To approve the changes to the Remuneration Policy | 718,254,407 | 99.88 | 923,864 | 0.12 | 719,082,271 | 99.88 | 14,558,630 | | To approve the adoption of The THG PLC 2022 Executive LTIP | 718,241,430 | 99.88 | 918,557 | 0.12 | 719,101,257 | 99.88 | 14,540,544 | # **Implementation of Remuneration Policy** The Remuneration Committee proposes to implement the Remuneration Policy 2023 as set out below: # *Base salary* Base salaries have been reviewed considering individual performance. Group's remuneration peer group, together with remuneration awards Committee has concluded there will be no increase in the Executive Directors' ending 31 December 2023. base salaries will be as follows: - Matthew Moulding: £750,000; - Damian Sanders: £500,000; and - John Gallemore: £450,000. # *Pension* There is no change in the contribution percentage for Executive Directors and it remains at 3% of pensionable salary. Pensionable salary is due in a wider workforce, which is currently in line with auto-enrolment levels. # *Benefits* There is no change in benefits provisions for Executive Directors for the year. # *Annual bonus* In line with the Remuneration Policy, the maximum opportunity for the 2022 AGM is 1,000,000. - Matthew Moulding: 100% of base salary; - Damian Sanders: 100% of base salary; and - John Gallemore: 100% of base salary. The measures and weightings for the 2023 financial year will be: - Group Sales (20%); - Group adjusted EBITDA (30%); - Free Cash Flow (25%); and - Strategic objectives including ESG metrics (25%). The specific targets are considered commercially sensitive and will be: # *LTIP* In line with the Remuneration Policy approved at the 2022 AGM, it is agreed to Damian Sanders and John Gallemore during the 2023 financial year. The results of these years after grant and will be subject to a further two-year period. The financial and strategic performance conditions which will be disclosed are: 155 Annual Report 2022 # NED fees A review of the fees paid to NEDs has been undertaken and consequently no increase in fees is proposed for the 2023 financial year. Accordingly, annual NED fees will remain at the following levels: | NED fee type | Fee | | --- | --- | | Fee for Independent Chair | £400,000 | | Base fee for independent NEDs | £70,000 | | Base fee for non-independent NEDs | £35,000 | | Additional fee for chairing each of Audit, Risk, Remuneration and Sustainability Committees | £32,000 | | Additional fee for chairing each of Related Party and Nomination Committees | £8,000 | | Additional fee for membership of each of Audit, Risk, Related Party, Nomination, Remuneration and Sustainability Committees | £5,000 | # 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 2022 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 2022 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 2021 Directors' Remuneration Report and the proposed amendments to the Remuneration Policy presented therein; - the remuneration package for the new Independent Chair; - the remuneration package for the new CFO; - the design and implementation of the new Employee Incentive Plan; and - appropriate performance metrics for 2023 incentive arrangements. Fees charged by PwC for advice provided to the Remuneration Committee for the financial year ended 31 December 2022 amounted to £78,500 (excluding VAT). On behalf of the Remuneration Committee Dean Moore Chair of the Remuneration Committee 17 April 2023 157 Financial Statement Annual Report 2022 by sensitising for each key assumption individually ## Conclusions relating to based on their expectation of a reasonable downside ## going concern scenario for that assumption, and then prepared a ## Independent Auditor's Report reverse stress test by sensitising multiple assumptions In auditing the financial statements, we have concluded in order to reduce headroom to nil. We then evaluated that the directors’ use of the going concern basis of the likelihood of the scenario that would reduce ## to the Members of THG PLC accounting in the preparation of the financial statements headroom to nil. is appropriate. Our evaluation of the directors’ assessment of the Group and parent company’s ability to continue to • We evaluated THG’s ability to undertake mitigating adopt the going concern basis of accounting included: actions should it experience a severe downside ## Opinion scenario, considering likely achievability of both • We have documented and evaluated the process quantum and timing of those actions. In our opinion: followed by management to prepare the forecasts which they have used in their going concern • We reviewed the appropriateness of management’s • THG plc’s Group financial statements and parent • the parent company financial statements have been assessment. going concern disclosure in describing the risks company financial statements (the “financial properly prepared in accordance with United Kingdom associated with its ability to continue to operate as a statements”) give a true and fair view of the state of Generally Accepted Accounting Practice; and • We audited the forecasts underpinning the going going concern until 30 April 2024. the Group’s and of the parent company’s affairs as at concern model which are based on the Board- 31 December 2022 and of the Group’s loss for the year • the financial statements have been prepared in approved budget, including checking the arithmetical • The audit procedures on going concern were then ended; accordance with the requirements of the Companies accuracy and appropriateness of management’s base supervised and directed by the audit engagement Act 2006. case forecast over the going concern assessment partner and senior members of the team. • the Group financial statements have been properly period to 30 April 2024. prepared in accordance with UK adopted international Our key observations in relation to the work performed are: accounting standards; • We challenged the reasonableness of the key assumptions such as the revenue growth rate • In management’s base case and plausible downside and EBITDA margin achieved by the Group used scenarios the Group retained headroom on forecast We have audited the financial statements of THG plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year within the scenarios and validated to supporting cash and covenant compliance throughout the going ended 31 December 2022 which comprise:for the year ended 31 December 2021 which comprise: documentation where appropriate. concern assessment period. Nor the base case or sensitised scenario does not assume any draw • We read and evaluated the Group’s lending down of the RCF. The lowest level of cash headroom Group Parent company agreements to ascertain any financial or non-financial identified is £253.9m in management’s downside covenant restrictions which are in place. scenario, this cash headroom position includes a Consolidated statement of comprehensive income Company balance sheet as at 31 December 2022 40% drawdown of funds from the RCF facility of £170m for the year ended 31 December 2022 | | | • We obtained management’s schedule of loan facilities | | (less amounts ringfenced for supply chain financing) | | --- | --- | --- | --- | --- | | | | | and covenants thereon for the going concern period. | which expires in December 2024, in addition to | | Consolidated statement of financial position | Company statement of changes in equity | | | | | | | | We confirmed that loan repayments have been | cash balances. | | as at 31 December 2022 | for the year ended 31 December 2022 | | | | appropriately included within management’s forecasts to the extent they are due in the period. We assessed • Cash balances as at 31 December 2022 total £474m. Consolidated statement of changes in equity Related notes 1 to 8 to the financial statements the forecast compliance of each covenant throughout The Group is projected to meet all of its covenant for the year ended 31 December 2022 including a summary of significant accounting policies the going concern period under each scenario tests (which only apply when the Group draws down presented by management which included drawing on more than 40% of the RCF facilities) throughout Consolidated statement of cash flows funds from the facility. the forecast period after applying sensitivities and for the year ended 31 December 2022 stress testing modelled by management except for • We verified the cash positions as at 31 December the reverse stress test which was designed to identify Related notes 1 to 29 to the financial statements, including a summary of significant accounting policies 2022 and 31 March 2023 to bank statements. which assumptions would eliminate headroom in the model. • We compared the forecast results for the year to date to 31 March 2023 to management accounts and flash results. Based on the work we have performed, we have not The financial reporting framework that has been applied identified any material uncertainties relating to events ## Basis for opinion in the preparation of the Group financial statements is • We identified additional stress tests that were then or conditions that, individually or collectively, may cast applicable law and UK adopted international accounting run by management to determine the impact of significant doubt on the Group and parent company’s We conducted our audit in accordance with International standards. The financial reporting framework that has changing some of management’s key assumptions ability to continue as a going concern for the period to Standards on Auditing (UK) (ISAs (UK)) and applicable been applied in the preparation of the parent company on the going concern assessment. These key 30 April 2024. law. Our responsibilities under those standards are further financial statements is applicable law and United Kingdom assumptions were in relation to: the revenue growth described in the Auditor’s responsibilities for the audit Accounting Standards, including FRS 101 “Reduced rate, and a reduction in the EBITDA margin achieved Our responsibilities and the responsibilities of the directors of the financial statements section of our report. We Disclosure Framework” (United Kingdom Generally by the Group, all of which would impact the liquidity with respect to going concern are described in the relevant are independent of the group and parent company in Accepted Accounting Practice). headroom in the going concern period. Covenant sections of this report. However, because not all future accordance with the ethical requirements that are relevant compliance only becomes relevant if the business events or conditions can be predicted, this statement is not to our audit of the financial statements in the UK, including draws down on more than 40% of the existing RCF a guarantee as to the Group’s or parent company’s ability to the FRC’s Ethical Standard as applied to listed public facilities. Management performed these stress tests continue as a going concern. 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. 159 160 Annual Report 2022 Independent # Overview of our audit approach | **Audit scope** | We performed an audit of the complete financial information of 1 component and audit procedures on specific balances for a further 2 components. The components where we performed full or specific audit procedures accounted for 100% of loss before the review scope components contained a profit, 98% of revenue, 98% of total expenses and 99% of total assets. | | --- | --- | | **Key audit matters** | - Revenue recognition - Impairment of intangible assets - Accounting for platform development costs - Significant disclosures | | **Materiality** | Overall Group materiality of £4.2m which represents 0.4% of total 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 91% of the Group's revenue, 92% of the Group's expenses, and 94% of the Group's total assets. Specific scope components account for 7% of the Group's revenue, 6% of the Group's expenses, and 5% of the total assets. We performed specified or analytical audit procedures on the other components. All audit work performed for the purposes of the Group audit was undertaken by the Group audit team. # *Changes from the prior year* There are no significant changes to our scoping from the 2021 Group audit. # *Involvement with component teams* There is no involvement of component teams, all audit work performed for the purposes of the audit was undertaken by the Group audit team only. In the prior year, we involved an EY component team to perform specified procedures on a newly acquired component in the US. The work on this component has been performed by the Group audit team in the current year. # *Climate change* There has been increasing interest from stakeholders as to how climate change will impact THG plc. The Group has determined that the principal impact will be through transition and physical risks as described in the TCFD section on pages 79-82 and in the Sustainability report, as well as on page 91 within 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 Goring concern and viability and associated disclosures including the Groups disclosure of its assessment of climate change within the critical accounting judgements and estimates section of the Groups accounting policies on page 183. Whilst the Group has stated its commitment to the aspirations of the Paris Agreement to achieve net zero emissions by 2030, 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. Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to impact a key audit matter. # 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 due to fraud) that we identified. These matters included those which had the greatest effect on the overall | Risk | Our response to the | | --- | --- | | **Revenue recognition (£2,239m, 2021: £2,180m)** | For the risk identified following procedures | | *Refer to the Audit Committee Report (page 555). Accounting policies (page 176) and Note 2 of the Consolidated Financial Statements.* | We performed a walk design effectiveness | | THG plc has reported revenue of £2,239m for the year ended 31 December 2022 (2021: £2,180m). | We considered the p contractual arrangement | | Revenue is a key metric when evaluating the performance of the Group and receives significant scrutiny externally and internally. | We adopted a data review revenue (£18bn of £2,179m) involved tracing a full demonstrated that it received as cash. A bank statement, to a cash receipts. For an significant items to a | | Product revenue (D2C/B2B revenue) is primarily compiled at a large volume of small value transactions. As the Group makes 28% of its sales in the final quarter of the year we have focussed our risk on the final three months of product sales. | We tested a sample (but within the period on customer type), to in place at the year end | | | For product revenue of total revenues, we delivery and subsequent | | | For product revenue data analytics approach transactions to the IT as well as subsequent | | | We performed an as agreeing a sample th | | | We tested material re review of aged amount | | | We tested manual jo the reasons for the tr evidence. We have to focus on those based to be a heightened it transactions at send into our testing. | | | We performed analy tested trade receivables were in s | 161 Annual Report 2022 Independent auditor's report to the members of THG PLC (continued) Risk Our response to the risk Risk Our response to the risk In regards to the revenue from THG Ingenuity, For the risk identified on Ingenuity and other revenues we performed the Impairment of intangible assets Our procedures to respond to the risk of impairment of intangible the risk we have identified is split across following procedures: £1,276m (2021: £1,506m) assets included: both product revenues and other revenues (services, hosting) reported by THG. We performed a walkthrough of each significant class of revenue transactions Refer to the Audit Committee Report We reviewed the basis for the identification of CGUs and concluded that within THG Ingenuity or ‘Other revenue’ and assessed the design effectiveness (page 126); Accounting policies (page 178); management’s identified CGUs were appropriate. As a result, we identified a potential risk of key controls. and Note 11 of the Consolidated of bias or fraud through management Financial Statements. We assessed management’s calculation of the discount rate (for each manipulation by manual adjustments, For a sample of new contracts, we reviewed the terms of business and CGU) and agreed assumptions and peer Group analysis to supporting especially in the last quarter of the management’s assessment of how IFRS 15 is applied to the contract terms, The Group’s legal structure was reorganised documentation in order to ensure that the discount rate used is appropriate financial year. including the identification of performance obligations and allocation of during the financial year and as a result of and specific to that CGU. consideration to each performance obligation identified. We assessed the this there has been a change in the number We have identified a potential risk of bias or status of the project and whether the relevant site had ‘gone live’. Where of CGUs (“cash-generating units”) identified We challenged the reasonableness of the forecasts used in the assessment fraud through management inappropriately these projects were yet to go live, we understood the reasons and considered by management for the purposes of their including key assumptions (such as growth rates, EBITDA margins and | classifying revenue to THG Ingenuity. We | whether revenue had been recognised in line with IFRS 15. Our assessment | year-end impairment assessment. £1.1bn of | discount rates). | | --- | --- | --- | --- | | have also identified a risk of inappropriate | included, but was not limited to: | the Group’s intangible assets is contained | | | recognition of THG Ingenuity contract revenue | | within two of the identified CGU’s (THG | We assessed the reliability of management’s forecasts by comparing | | by manipulating the performance obligations | • Variable consideration | Beauty and THG Ingenuity). There is a risk | previous forecasts to actual results. | | against which revenue is recognised. Our | • Services which have been rendered at nil charge | that these assets recoverable value are below | | | procedures are responsive to the risk that the | • Principal vs agent considerations | the carrying amount. | We assessed the sensitivities of the headroom to changes in key | | accounting for revenue recognition is not in | • Consideration of whether any contracts contain embedded leases (IFRS 16). | | assumptions. | line with “IFRS15, Revenue from Contracts with Customers”. For a sample of existing contracts, we enquired of the customer managers as We engaged an EY internal expert to review the discount rates applied by to whether there had been changes in the contract terms, including changes in management to forecast cashflows. performance obligations and allocation of consideration to each performance obligation identified. We considered analysts’ views on the valuation of the Group with EY internal expert input to assess if this provided contradictory evidence to We tested a sample of other revenue transactions, agreeing the amounts to management’s assessment of the value of the Group, and each of its CGUs. 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 We assessed the impairment disclosure presented by management these items we also tested the classification of the revenue by segment. and ensured this was in accordance with the requirements of ‘IAS 36 Impairment of Assets’ and ‘IFRS 13 Fair Value Measurement’. We challenged management on the classification of revenue as ‘Infrastructure’ and ‘Commerce’ revenue and ensured that different elements of THG Ingenuity We compared the disclosure with the key assumptions we have audited and are clearly articulated given external interest in this business. ensured these were consistent and that appropriate sensitivities have been disclosed. 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 Key observations communicated to the Audit Committee heightened risk of manipulation. We also selected a sample of transactions at random to build in an element of unpredictability to our testing. We have highlighted to the Audit Committee the sensitivity of the THG Beauty and THG Ingenuity CGU’s (and the disclosed impairment charges) to reasonably possible changes in key assumptions such as the revenue growth rate and the discount rate. Management have considered this in the specific risk premiums adopted in their discount rate, the final impairment charge recorded and the disclosures adopted in the Annual Report and Accounts. Key observations communicated to the Audit Committee Through our audit procedures on product revenue, we identified a reclassification for discounts amounting to £17m between revenue and cost of sales – this has been corrected by management. Based on the audit procedures performed, we did not identify further evidence of material misstatements in the revenue recognised in the current year. We have highlighted to the Audit Committee the importance of ensuring that there is clear disclosure regarding classification of revenues, including any changes. We are satisfied that the disclosures appropriately describe the classification of revenue and are also in compliance with IFRS 15. 163 164 Annual Report 2022 Independent auditor's report to the members of THG PLC (continued) Risk Our response to the risk Risk Our response to the risk Accounting for platform development costs Our procedures to respond to the risk on capitalised platform development Significant disclosures We performed the following procedures on the significant disclosure items £100m (2021: £82m) costs included: noted: Refer to the Audit Committee Report Refer to the Audit Committee Report We performed a walkthrough of significant classes of transactions (page 126); Accounting policies (page 183). Whether the accounts when taken as a whole are fair, balanced (page 126); Accounting policies (page 178); associated with platform development costs and understood the relevant and understandable and Note 11 of the Consolidated controls. This risk focuses on the more complex or Financial Statements. subjective disclosure items within the ARA We understood the process that the Board and those charged with governance We interviewed members of the finance team to understand what they do (“Annual Report and Accounts”), which we implemented to ensure the ARA is fair, balanced and understandable. Within capitalised platform development costs to ensure only direct costs are capitalised. consider to be: we have identified a risk that management In reviewing the ARA we gave specific consideration to whether the business and other employee time is capitalised that We tested a sample of employee timesheets and made inquiries to • Whether the accounts when taken model and Group’s purpose was clear to the readers of the financial does not represent incremental value/future understand the nature of their activities and of the project to which their as a whole are fair, balanced and statements. We also involved a corporate governance specialist to perform an economic benefits. time had been recorded. understandable 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 We tested a sample of key projects and made inquiries of the project • Disclosures relating to impairment on the ARA and the adequacy of the disclosures made. managers to understand the nature, timing and purpose of the project. • Adjusted profit measures We read the disclosures and challenged management to ensure there was an We assessed whether the capitalisation of these employees / projects was appropriate balance between the narrative on mature businesses and fast- consistent with the requirements of ‘IAS 38 Intangible Assets’ and ‘SIC 32 – • Related party transactions growing aspects of the Group’s performance, as well as giving greater clarity on Intangible Assets – Web Site Costs’. underlying organic performance. • Narrative related to Ingenuity, and We reviewed for risk of management bias, particularly in respect of presentation of segmental reporting Disclosures relating to impairment employees who do not use timesheets. (including the impact of IFRS 5 discontinued operations) We assessed the impairment disclosure presented by management and We reviewed for any significant new projects or changes in judgments ensured this was in accordance with the requirements of IAS 36 and IFRS 13. made prior to the year end. We have considered the areas currently focussed on by investors, analysts and the We compared the disclosure with the key assumptions we have audited and We exercised professional scepticism and performed an unusual phrase wider market. There is a risk that the accounts ensured these were consistent and that appropriate sensitivities have been search on the ledger to identify any operational costs incorrectly capitalised. may be presented in a way that does not give disclosed. a fair reflection of the business, transactions We performed a trend analysis to assess any unusual fluctuation in the and/or is not understandable to the external Adjusted profit measures (APMs) pattern of time capitalised on a month-on-month basis. users of the financial statements. Our focus was on ensuring that narrative within the ARA does not give undue We made inquiries of the Chief Technology Officer to corroborate our prominence to APMs. understanding of process and the controls in place to ensure capitalised projects delivered expected results and whether there is appropriate Where APMs are disclosed we checked consistency with the Group’s oversight of new projects in place to ensure they meet relevant criteria accounting policy and ensured that the APM is reconciled to the nearest of IAS 38. 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 Key observations communicated to the Audit Committee they were in line with our understanding of the nature of these items based on this assessment. We reported certain control observations to the Audit Committee which have been acknowledged. Based on the procedures we have performed we did not identify material misstatements in the capitalised platform development costs We selected a sample of adjusted items and agreed these costs to invoices carried in the statement of financial position. where relevant. 165 166 Annual Report 2022 Independent | Risk | Our response to the risk | | --- | --- | | | **Related party transactions** 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 related parties. We assessed the appropriateness of modifications made to existing related party relationships and contracts to assess whether they were at an armé length. 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 related party contracts. 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, or that those that are not on a fair market basis are not material to the financial statements. 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 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 ensured appropriate disclosure of all related party transactions in the financial statements. **Narrative related to the Ingenuity business, and presentation of segmental reporting (including IFRS 5 discontinued operations)** We considered whether narrative related to the Ingenuity business was in line with our understanding of our contract testing (see revenue section above). We reviewed judgements on segments and ensured that reportable segments were disclosed appropriately in accordance with IFRS 5. We ensured that the presentation of results for THG On Demand and Luxury in the segmental reporting note to the financial statements was in line with authoritative guidance on discontinued operations. | # *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. The disclosures for related party transactions have been made in accordance with TAS 24 Related Party Transactions' in 2021 we reported control deficiencies in relation to related party transactions. During the year, management have implemented controls to remediate the reported deficiency. Overall we concluded that the Annual Report and Accounts, when taken as a whole, is considered to be Fair, Balanced and Understandable. In the prior year, our auditor's report included a key audit matter in relation to 'Valuation of Intangibles' which incorporated our risks on acquisition accounting; capitalisation of platform development costs and impairment of intangibles. However in the current year, we have only considered impairment of intangibles and accounting for platform development costs as key audit matters given the significance of the judgements taken, impact on the financial statements and the time and resources allocated to these risk areas by the audit team. The Group has made no acquisitions in the current year (ten in FY21, total spend £0.8bn) and as such this has not been determined to be a key audit matter in 2022. # **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. # **Materiality** 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 determined materiality for the Group to be £9.2m (2021: £9.7m), which is 0.4% (2021: 0.4%) 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 the increase in revenue which is the basis for materiality. We determined materiality for the parent company to be £9.2m (2021: £7.6m), which is 1% of equity (2021: 1% of equity), capped at Group materiality. 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. # **Performance 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% (2021: 50%) of our planning materiality namely £48m (2021: £44m). We have set performance materiality at this percentage due to the level of errors identified through the course of the 2021 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 R An We to m the in O Th in air of Our do to re mi on is C As sta to Ba ha Co 167 Annual Report 2022 Independence 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 93; - 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 93; - Directors' statement on fair, balanced and understandable set out on page 127; - Board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 86-87; - The section of the Annual Report and Accounts that describes the review of effectiveness of risk management and internal control systems set out on page 83; and; - The section describing the work of the Audit Committee and Risk Committee set out on page 123 and 130. ## Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: - the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements and 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 72.5 and 72.6 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 72.2, 72.3 and 72.7 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; or - 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 72.5 and 72.6 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; or - 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; or - certain disclosures of directors' remuneration specified by law are not made; - we have not received all the information and explanations we require for our audit; or - a Corporate Governance Statement has not been prepared by the company. ## Responsibilities of directors As explained more fully in the directors' responsibilities statement set out on page 103, 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. - 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. - 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 within 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 169 ![img-30.jpeg](img-30.jpeg) Annual Report 2022 ## Consolidated statement of comprehensive income for the year ended 31 December 2022 | | Note | 2022 Total €'000 | 2021 Total €'000 | | --- | --- | --- | --- | | Revenue | 2 | 2,239,200 | 2,278,000 | | Cost of sales | | (1,999,294) | (1,225,599) | | **Gross profit** | | **879,075** | **884,404** | | Distribution costs | | (402,768) | (429,940) | | Administrative costs | | (872,771) | (880,827) | | **Operating loss** | 3 | **(490,505)** | **(137,463)** | | Finance income | 8 | 2,358 | 823 | | Finance costs | 8 | (56,522) | (49,447) | | **Loss before taxation** | | **(549,738)** | **(186,287)** | | Income tax credit | 9 | 9,771 | 48,253 | | **Loss for the financial year** | | **(538,657)** | **(138,074)** | ### Other comprehensive (expense) / income Items that may be subsequently reclassified to profit or loss: | Exchange differences on translating foreign operations, net of tax | | 62,853 | (272) | | --- | --- | --- | --- | | Net gain in cash flow hedges | | 9,793 | 11,391 | | **Total comprehensive expense for the financial year** | | **(467,251)** | **(188,855)** | | Basic and diluted loss per share (€) | 20 | (544) | (573) | ### Adjusted EBITDA | | Notes | 2022 €'000 | 2021 €'000 | | --- | --- | --- | --- | | **Operating loss** | | **(485,565)** | **(137,463)** | | Adjustments for: | | | | | Share-based payments | 7 | 10,734 | - | | Adjusted items - impairment | 4 | 275,422 | 55,990 | | Adjusted items - other | 4 | 70,357 | 73,238 | | Depreciation | 12,122 | 94,191 | 70,478 | | Amortisation | 11 | 100,975 | 99,033 | | **Adjusted EBITDA** | | **64,114** | **91,179** | 1. Adjusted EBITDA is defined as operating profit before depreciation, amortisation, share-based payments 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. 171 ## Consolidated statement of financial position | **Non-current assets** | | --- | | Intangible assets | | Property, plant and equipment | | Right-of-use assets | | Investments | | Other financial assets | | **Current assets** | | --- | | Assets held for sale | | Inventories | | Trade and other receivables | | Other financial assets | | Current tax asset | | 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 | | Other 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 | The financial statements on pages 171-223 were approved by the Board of Directors on 17 April 2023 and were signed on its behalf by Annual Report 2022 ## Consolidated statement of changes in equity for the year ended Consolidated statement of cash flows for the year ended ## 31 December 2022 31 December 2022 | | | | Capital | | | Cost of | | | 2022 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Ordinary | Share | Merger | | FX | Hedging | | Retained | | | | | | | Redemption | | | Hedging | | Total equity | | | shares | premium | reserve | | reserve | reserve | | earnings | | | | | | | reserve | | | reserve | | | | Note £’000 £’000 Note £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Cash flows from operating activities before adjusted cash flows Balance at 1 January 2021 6 ,061 1,287 , 1 71 615 52 3 (8 22) (18 ,003) 7, 3 4 2 (138,361) 1,144,526 Cash generated from operations 25 8 7, 6 4 2 95,954 Loss for the year - - - - - - - (138,07 4) (138, 0 7 4) Income tax paid (4 ,8 5 7) ( 7, 0 9 5) Other comprehensive expense: Net cash generated from operating activities before adjusted cash flows 82 ,78 5 88,859 Impact of foreign exchange - - - - (272) - - - (272) Cash flows relating to adjusted items (4 5 ,0 7 1) (65,528) Movement on hedging - - - - - 5 ,039 6,352 - 1 1,391 instruments Net cash generated from operating activities 3 7, 7 1 4 23 ,331 Total comprehensive (expense) / income for - - - - (2 72) 5,0 39 6,352 (138,07 4) (126,955) the year Cash flows from investing activities Issue of ordinary share 623 7 35, 140 - - - - - - 735,763 capital Acquisition of subsidiaries net of cash acquired 10 (5,691) (768,490) Deferred tax effect in equity 21 - - - - - - - 2 ,42 0 2,4 20 Purchase of investments - (1, 400) Balance at 31 December 6,684 2, 02 2,3 11 615 523 (1, 094) (12,964) 13,694 (27 4,015) 1,7 55 ,75 4 Purchase of property, plant and equipment (9 4,8 54) (111 ,553) 2021 Purchase of intangible assets (81, 56 4) ( 7 7, 6 2 0) Balance at 1 January 2022 6,68 4 2, 02 2,3 11 615 523 (1,094) (12 ,964) 13, 694 (27 4,015) 1 ,75 5,75 4 Interest received 8 2 ,359 323 Loss for the year - - - - - - - (5 39,95 7) (539,9 57) Net cash used in investing activities (1 7 9,7 50) (9 5 8 ,74 0) Other comprehensive income: Cash flows from financing activities Impact of foreign exchange - - - - 62 ,953 - - - 62,9 53 Proceeds from issuance of ordinary shares net of fees (73) 760, 23 0 Movement on hedging - - - - - 6 , 74 3 3,0 10 - 9 ,753 instruments Interest paid ( 2 7, 9 2 3 ) (25,359) Total comprehensive income / (expense) for - - - - 62 ,953 6 ,74 3 3,0 10 (539,95 7) (4 6 7, 2 5 1 ) Proceeds from bank borrowings 156, 000 - the year Repayment of lease liabilities 22 (4 9,0 12) (3 6,2 16) Issue of ordinary share 219 2 ,1 4 1 - - - - - - 2 ,360 capital Net cash flow from financing activities 78,992 698,655 Share-based payments 7 - - - - - - - 1 0,73 4 1 0,73 4 Deferred tax effect in equity 21 - - - - - - - 142 1 42 Net decrease in cash and cash equivalents (63 ,0 44) (236, 754) Balance at 31 December 6,903 2 ,024,4 52 615 523 6 1,85 9 (6,221) 1 6 ,70 4 (803,096) 1,3 01,739 2022 Cash and cash equivalents at the beginning of the year 536, 827 7 73,58 1 Cash and cash equivalents at the end of the year 16 4 73 ,78 3 536,827 173 174 Annual Report 2022 # Notes to the consolidated financial statements # Basis of preparation The consolidated financial statements have been prepared in accordance with UK-adopted international accounting standards ("IFRS"). The financial statements have been prepared on the historical cost basis, except for derivatives which are held at fair value. The accounting policies adopted by the Group in the current year are consistent with those adopted during the year ended 31 December 2021. There have been no new or amended accounting standards or interpretations adopted during the year that have had a significant impact on the Group's financial statements. There are no standards, interpretations or amendments to IFRS that have been issued but are not yet effective that are expected to have a material impact on the Group's financial statements. # 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 2024. 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 3-104. 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 and Deputy Group CFO along with the Board and Executive Chair and CEO providing further direction to align strategic initiatives. Following the divisional reorganisation of the business units in the year, more granular information has been available which has supported decision making on strategic initiatives. Forecasts have been prepared on a divisional level. 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 £474m readily available cash held on the balance sheet. Net debt at this date was £510m (note 18) and net debt of £181m 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. During the year an incremental €156 million export facility was provided by the Group's existing lenders ranking pan passu with the existing facility. This new facility expires in October 2025. There are no key covenants attached to the €600m or €156m facilities which are 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. 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 the 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 93. 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 2022 and have been applied to 2021 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 2022. 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. 175 Go ide of t the in t end date of i the rec In c con tha wit c. Re inte D2 Ide For dal of c cur Ide For wit pur go pay Re ret to s of c (an rec cur Af In p per mu is a sel Re Re cur Annual Report 2022 177 178 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 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 are variable and 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. 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 the 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. 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 • Management's expectation on the recurring or non-recurring nature of the item 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) 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 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 revision to original estimates, if any, in the statement of comprehensive income with a corresponding adjustment to equity. The shares issued under the Group's share schemes are held by an Employee Benefit Trust ("EBT"), with the beneficial interest in the shares being held jointly by the EBT and the individual participant until the shares vest. The EBT has been consolidated within the Group's financial statements. f. Intangible assets 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. Such costs are only capitalised when the criteria within IAS 38 are met. Intellectual Property 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. Annual Report 2022 179 180 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 5 years New product development 1-5 years Brands 5-20 years Intellectual property (including customer lists, domain and trade names) 2-20 years g. Property, plant and equipment Property, plant and equipment are stated at historic purchase cost less accumulated depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is provided at the following annual rates in order to write off each asset on a systematic basis over its estimated useful 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 5-10 years Fixtures and fittings 3-20 years Computer equipment and software 1-10 years Freehold buildings 20-50 years Motor vehicles 3-7 years Leasehold improvements 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. i. Inventories 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 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 and payment providers 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. Financial liabilities Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at amortised cost. The Group measures contingent consideration 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. 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. 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. 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. Annual Report 2022 181 182 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 1– 6 years Motor vehicles 3–6 years Buildings 1–28 years Lease liabilities 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 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 The tax expense included in the statement of comprehensive income and statement of changes in equity comprises current and deferred tax. Current tax is the expected tax payable based on the taxable profit for the period and the tax laws that have been enacted or substantively enacted by the reporting date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate, 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. The business combinations in previous years have given rise to deferred tax liabilities, as a result deferred tax assets are recognised to the extent they offset the corresponding liability. 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. Transactions and balances Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange 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. 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. The key judgement relates to assessing the feasibility and the extent of future Annual Report 2022 economic benefits that will be derived from each project. 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; and - Significance of the item on the financial results. Refer to note 4 for details of each class of adjusted items. # Impairment reviews – number of cash generating units The Group is required to review intangible assets, including goodwill, 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 change in the number of CGUs in the year following the divisional reorganisation of the Group. More information has been provided within note 11. # Key sources of estimation uncertainty # Goodwill and intangible asset valuation The Group has made several acquisitions in previous years, 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 intangible assets, management were 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 the 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. # 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, management's 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. A reduction of 10% in online sales selling prices would impact the net realisable value by c60.7m. # Impairment reviews – key estimates and judgements When a review for impairment is conducted, the recoverable amount of the CGU is determined based on the higher of value-in-use calculations applying IAS 36 and fair value less costs to dispose applying IFRS 13. The recoverable amount is calculated using management's assumptions and estimates. The key estimates within the value-in-use calculation are growth rates and discount rates applied. The key estimates within the fair value less costs to dispose are the length of forecast period applied, discount rates including any risk premium and growth rates. Refer to note 11 for further details of calculations. # Other judgements and other sources of 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 key impact to THG is the implementation of plastic packaging tax and Packaging Waste Regulations; - 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 prior year 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. # 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. # 2. Segmental reporting and revenue Following the completion of the divisional reorganisation, the Directors under IFRS 8 'Operating Segments' in order to identify operating segments, the Directors have concluded that the Group has six operating segments, one operating segment. During 2022, the Group's activities were divided into two: Nutrition, THG Ingenuity, THG OnDemand (disclosed under the division of THG Experience. This corresponds to the internal reporting and organisational analysis of the Group's current assets. The Group's Central costs are disclosed separately. The prior year segmental analysis for EBITDA has been presented to the Board of Directors of THG Operating Decision Maker (CODM) during the current year as a control. The prior year segmental revenue includes an illustrative internal exchange from THG. This is not a result of the Group's results. This was in place throughout 2021 to provide a like-for-like comparison. The results of each division are reported to the Board of Directors of THG. The following table describes the main activities for each reportable group: Annual Report 2022 The measure of the Group’s profit or loss used by THG’s management team are both Adjusted EBITDA pre SaaS change In 2021, the Group only had one operating segment. The below information has been included as the comparative disclosure . in accounting policy and Adjusted EBITDA comprising operating loss less interest, tax, depreciation, amortisation, shared- based payments and adjusted items. This is reconciled to the nearest IFRS measure (loss before tax) in the below table. | | | | | | | | | | THG | THG | THG | Other | Central | Inter-group | | Result before | | Discontinued | 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | 3 | | | | | 4 | | | | | | | | | | | Beauty | Nutrition | Ingenuity | | PLC | elimination | | discontinued | | categories | Total | | | THG | THG | THG | Other | Central | Inter-group | Result before | Discontinued | 2022 | | | | | | | | | 2 | | | | categories Beauty Nutrition Ingenuity PLC elimination discontinued categories Total 2021 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 1 categories 2022 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 External revenue 1,181,529 659,531 146,306 46,062 - - 2,033,428 146,482 2 ,1 79,9 10 External revenue 1,234,977 675,133 159,580 50,878 - - 2,120,568 118,661 2,239,229 Internal revenue - - 602,545 - - 602,545 - - - Internal revenue - - 597,420 - - 597,420 - - - Total revenue 1,181,529 659,531 748,851 46,062 - (602,545) 2,033,428 146,482 2,17 9,91 0 Total revenue 1,234,977 675,133 757,000 50,878 - (5 9 7,420) 2,120,568 118,661 2,239,229 Adjusted EBITDA 70,234 76,633 40,410 (2 ,137 ) (15,517) - 169,263 (8,348) 161,276 Adjusted EBITDA Margin % 5.9% 11.6% 5.4% -4.6% - - 8.3% -5.7% 7.4% 32,866 51,783 29,304 (1,907) (23,167 ) - 88,879 (14,582) 74,297 pre SaaS costs Depreciation - - - - - - - - (70,478) Adjusted EBITDA 32,866 51,783 19,12 1 (1,907) ( 23,167 ) - 78,696 (14,582) 64 ,114 Amortisation - - - - - - - - (99,033) Margin % 2.7% 7. 7 % 2.5% -3.7% - - 3.7% -12.3% 2.9% Adjusted items - - - - - - - - (129,228) Depreciation - - - - - - - - (94,191) Operating loss - - - - - - - - ( 137,4 6 3 ) Amortisation - - - - - - - - (108,975) Finance income - - - - - - - - 623 Share-based - - - - - - - - (10,734) payments Finance costs - - - - - - - - (49,447) Adjusted items - - - - - - - - (345,779) Loss before taxation - - - - - - - - (186,287) Operating loss - - - - - - - - (495,565) 2. For the loss-making categories and territories within non-core divisions that have been shown separately within the 2022 table under the discontinued Finance income - - - - - - - - 2,359 categories heading, the same adjustment has been included for 2021 result to show a comparative of continuing operations year-on-year. 3. Internal revenue was not recharged until the completion of the divisional reorganisation, however for illustrative purposes this has been calculated for 2021. Finance costs - - - - - - - - (56,522) This has been calculated using the same charging mechanisms in 2022 to provide a like-for-like comparison. Loss before taxation - - - - - - - - (549,728) 4. Following the completion of the divisional reorganisation, the strategy of each segment has been reviewed and redefined where necessary, as a result some services were redefined within THG Ingenuity, THG Beauty and Other segments in 2022. To ensure that the comparative disclosure is consistent thi s has been restated in the above table. The impact is an increase in THG Beauty external revenue of £63.7m, decrease in THG Ingenuity external revenue of 1. At the year end, certain loss-making categories and territories within non-core divisions were placed under strategic review and subsequently management £48.0m and decrease of Other segments external revenue of £15.7m. THG Beauty has been restated to include Acheson & Acheson which was previously has decided to exit these areas. The exit doesn’t meet the criteria under IFRS 5: Discontinued operations as these categories and territories are not a major recognised within THG Ingenuity due to some services being delivered to THG Ingenuity customers which is no longer the case. THG Ingenuity has been component of the Group as defined by the accounting standard, however, to provide further information on the ongoing revenue and Adjusted EBITDA of restated to exclude Acheson & Acheson manufacturing and include Arrow Films which has been reclassified following the discontinuation of the other the Group the result of these operations have been shown separately in the above table. categories within THG OnDemand. The total revenue has not changed as a result of the inter-segment reclassifications. An element of Ingenuity revenue is contract based and therefore is recognised over time; all other revenue streams are recognised at a point in time. Of the total revenues recognised for THG Ingenuity, £73.8m (2021: £75.6m) is recognised over time. Segment assets and liabilities are not disclosed because they are not yet regularly reported or reviewed by the Board. 185 186 Annual Report 2022 ## The Group has provided an analysis of external revenue by region (by destination): 4. Adjusted items 2022 2021 These are items which are material in nature and include, but are not limited to, costs relating to acquisitions, disposals an d £'000 £'000 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 UK 960,535 909,452 financial performance is measured by management and reported to the Board. USA 446,542 406,489 2022 2021 Europe 449,783 458,027 £'000 £'000 Rest of the world 382,369 405,942 Within Cost of sales 2,239,229 2,179,910 Inventory provision for discontinuation of loss-making categories 25,517 - and decommissioning of facilities following strategic review 25,517 - The Group’s non-current assets by geography are as follows: Within distribution costs 2022 2021 Transportation, delivery and fulfilment costs in relation to Covid-19 18,504 26,628 £'000 £'000 Commissioning – new facilities 3,613 16,384 UK 1, 2 5 7, 6 8 9 1,891,133 22 ,11 7 43,012 Europe 145,057 37,966 Within Administrative costs Rest of the world 550,333 224,495 Other costs following the outcome of strategic review 6,942 - 1,953,079 2,153,594 Restructuring costs to simplify the Group structure 6,803 10,233 Impairment of assets within Experience, Luxury and OnDemand divisions - 53,008 Following the completion of the divisional reorganisation in the year, certain intangible assets have been reclassified Impairment of certain intangible and tangible assets associated with between geographies, given the greater granularity of information available. - 2,982 Software-as-a-service arrangements Impairment of assets 269,828 - ## 3. Operating loss Impairment of assets within the discontinued categories 3,763 - 2022 2021 | | Note £'000 £'000 | Impairment of non-core assets held for sale 1,831 - | | | --- | --- | --- | --- | | Operating loss has been arrived at after charging / (crediting): | | Donations 362 1,090 | | | Adjusted items - impairment 4 275,422 55,990 | | Acquisitions - restructuring and integration 8,046 5,328 | | | Adjusted items - other 4 70,357 73,238 | | Acquisitions - legal and professional costs - 12,225 | | | Employee costs 275,14 5 260,892 | | Other legal and professional costs 570 1,350 | | | Share-based payments 7 10,734 - | | | 298,145 86,216 | | Depreciation on fixed assets 12 50,896 38,269 | | Total adjusted items before finance costs 345,779 129,228 | | | Depreciation on right-of-use assets 22 43,295 32,209 | | Within finance costs | | | Amortisation of intangibles 11 108,975 99,033 | | Non-cash – revaluation of SBM option (601) 601 | | | Government grants (1,752) (1,662) | | Total adjusted Items before tax 34 5,1 78 129,829 | | | Net foreign exchange gain 1,422 444 | | Tax impact (11,634) (11,901) | | Total adjusted items 333,544 11 7, 9 2 8 187 188 Annual Report 2022 # Inventory provision for discontinuation of loss-making categories and decommission of facilities following strategic review Following the divisional reorganisation, the Group has undertaken a strategic review of loss-making categories and territories within THG OnDemand and other non-core divisions. In addition, as part of the strategic review in the year, the Group also reviewed its warehousing facilities resulting in some sites being decommissioned. The result of the decommissioning identified inventory where there was no economic benefit of the Group to moving to an alternative warehouse or selling via other channels. The outcome of these reviews has led to a one off inventory provision for the categories being discontinued of £25.0m which has been recognised within cost of sales. # Transportation, delivery and fulfilment costs in relation to Covid-19 In 2022, we continue to be impacted by Covid-19 surcharges from suppliers with routes travelling through and into Asia, although at a lesser rate during 2022 compared to prior periods. 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 main driving factor of the excess cost continuing across accounting periods is the continued lockdowns experienced in Asia which continue to affect air traffic. 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 doesn't consider this to be a recurring part of the Group's cost base. As the effects of the pandemic lessen and the lockdowns in Asia ease, the service providers will no longer need to charge such excess costs. We anticipate the costs to reduce significantly in 2023. 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. As the impact of the pandemic have lessened the requirement to charter flights has dropped away in the first half of 2022 and this cost will not continue. - Our delivery partners passed on to the Group additional surcharges specifically identified on invoices as a response to operating during the pandemic. This continues for routes relating to Asia where the impact of the pandemic is continuing and this cost has continued to decrease each month during 2022 and post year end. - 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. This cost will not continue. # 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 (inclusive of 3 warehouses) at Manchester Airport, UK ('Icon') and New Jersey, US. Works at New Jersey, US and the Icon facility began in August 2021 and August 2020 respectively. These warehouses are in operation, although further automation is required to be implemented into the sites to reach to optimal efficiency expected of the sites, including Autostore automation in New Jersey in 2023 and automated sortation in Icon in 2022. The costs have significantly reduced year on year as these projects reach completion stages. The majority of the costs incurred in the prior year relate to the commissioning of the multiple ICON warehouses, of which two out of three completed during 2022. 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 on average 18 months 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 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 adjusted 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; - Costs relating to 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; and - Additional shipping costs are incurred when the products with two different warehouses, due to stock being split across two. This results in duplicated postage costs on a single order. The costs above are identified through internal processes and control facilities. For some of these costs, the amounts included within adjusted unit versus the normalised rate, which is set based on historical information. Further charges are anticipated as the respective projects are completed, continue to reduce year on year as these projects are completed. The Jersey and are expected to be completed by the end of 2023 at which for these two sites total £12.0m with the projects being £90% completed. # Other costs following the outcome of strategic review Other costs following the outcome of the strategic review totalling costs include the costs triggering early lease break clauses for the marketing costs for pre-releases that will no longer be launched. The complete by the end of Q3 2023 with costs not recurring after this. # Restructuring costs to simplify the Group structure The costs included within restructuring costs of £6.8m (2021: £10.2m) are not significant for the simplification project. # Impairment # Impairment of assets within Experience, Luxury and OnDemand See impairment of assets within the discontinued categories headings. In 2021, a one-off, non-cash impairment of £53.0m was recognised by OnDemand business units. # Impairment of certain intangible and tangible assets associated with There was no impairment of these costs incurred in 2022. SaaS could be underlying administrative expenses. The Group hold various arrangements for SaaS solutions. Given the its accounting treatment and policy for IAS 38 Intangible Assets and of SaaS related costs no longer met the criteria for recognition as well as was expressed in full and has been disclosed as an adjusting item by interpretations to accounting guidance. # Impairment of assets A further impact of the divisional reorganisation is that the assets are identifiable. The result being the identification of additional cash-generating corporate structure. The result of more CGUs is that the impairment in previous years. Following the significant acquisitions within the THG intangible assets are included within the underlying asset base which is technology businesses has fallen over the last 18 months. This is reflected macroeconomic, inflationary and interest rate pressures driven by an this backdrop, the impairment review has led to an impairment of £1. In addition, an impairment charge of £87m has been recognised which has arisen as the impairment review has been undertaken at a more appointment of our new CEO of THG Ingenuity in 2022, the Group have made conservative growth assumptions which are lower than the Ingenuity operates given the recent change in strategy. Alongside the future in its platform and global infrastructure network, these are environment impacting several of the key assumptions, particularly peer valuations, has led to the impairment of the historical goodwill. More information is included within note 11. 189 Annual Report 2022 # *Impairment of assets within the discontinued categories* Following the decision to discontinue certain categories and territories an impairment has been charged totalling £3.7m against affected assets. More information is included within note 11. # *Impairment of non-core assets held for sale* An impairment charge of £18m has been recognised against non-core assets that meet the criteria to be classified as held for sale under IFRS 5. The net book value of these assets has been reclassified to a current asset and an impairment charge has been recognised for the difference between the selling price and the carrying value. # *Donations* In 2022, the Group has donated £0.4m related to aid in the form of nutrition and hygiene products to charities assisting with the war in Ukraine. In 2021, as part of its Covid-19 response, the Group made several charitable donations to the local region, totalling £11m. # *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 costs that are not related to the underlying trading operations of the Group which are classified as adjusted items. The costs in 2022 relate to the planned integrations of the acquisitions made in 2021. Cult Beauty was acquired in August 2021 and the integration was a key focus of 2022. 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; and - 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. # *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. There have been no such costs incurred in 2022. # *Other legal and professional costs* The Group incurs legal and professional costs that are non-recurring, one-off in nature and not related to trading activities. These costs are included as adjusted items and can include, but are not limited to, legal costs for one off matters and other fees associated with investor activities. # *Non-cash – revaluation of SBM option* On 10 May 2021, THG entered into a call option with SB Management Limited ("SBM"), a wholly owned subsidiary of SoftBank Group Corp. to purchase 19.9% of the share capital of THG Ingenuity for $165m. On 26 July 2022, the Group announced that in light of global macroeconomic conditions the SBM option agreement had been terminated by mutual agreement. The call option granted by THG to SBM will not therefore be, and will cease to be capable of being exercised. At 31 December 2022, the option has therefore been derecognised. The option had previously been classified as a derivative instrument, an option that held value for SBM and consequently fell under the provisions of IFRS 9 (Financial Instruments). The impact of the derecognition is a non-cash £0.6m gain recognised on the revaluation. As this is a non-recurring transaction the revaluation effects of this option have been presented as an adjusted item. 191 ## 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 - other assurance services Total non-audit services **Total fees** 1. Fees in respect of other assurance services relate to interim procedures in accordance with ## 6. Employee costs and Directors' remuneration Wages and salaries Social security costs Pension costs Share-based payments The aggregate amount of employee costs included above that have been paid was £50.5m (2021: £44.4m). The costs incurred in respect of the Executive Directors and Non-Executive Directors' remuneration are the management personnel, were as follows: Wages and salaries Social security costs Pension costs No retirement benefits are accruing to any of the Directors at 31 December 2022. The average number of employees (including executive directors) calculated is 1,000. Retail Administration Distribution Information technology The above table reflects the full time equivalent (FTE) number of employees, including the year. The total staff numbers on a FTE basis at 1 January 2022 were ![img-31.jpeg](img-31.jpeg) Annual Report 2022 ## 7. Share-based payments The Group operates a share-based compensation plan, under which the Group receives services from employees as consideration for equity settled instruments (options) of the Company. Options over Ordinary Shares were granted to participants on 16 June 2022, with top up options awarded to certain participants on 3 October 2022. The fair value of the employee services received in exchange for the grant of the equity instruments is recognised as an expense in the Statement of Comprehensive Income with the corresponding increase to equity. The option awards will vest in three equal tranches on 31 December 2022, 31 December 2023 and 31 December 2024 provided participants remain in continued employment with the Company at each date. Performance conditions are attached to a small proportion of the awards to a small number of participants. | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Expense arising from equity-settled share-based payment transactions | 16,754 | - | The following table shows the shares granted and outstanding at the beginning and end of the year: | | 2022 Number of shares | | --- | --- | | As at 1 January | - | | Granted during the year | 43,352,600 | | Vested during the year | (12,045,412) | | Forfeited during the year | (1,556,687) | | As at 31 December | 29,248,600 | The key inputs to calculate the charge are the share price at the date of grant and an assumption around those not remaining in continued employment, spread across the vesting period. Achievement of performance conditions have been considered where appropriate. The range of exercise prices are £0.00 to £0.11, and the weighted average remaining contractual life is 9.6 years. ## 8. Finance income and cost | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | **Finance income** | | | | Bank interest receivable | 2,359 | 323 | | Derivative financial instrument | - | 300 | | | 2,359 | 623 | | **Finance costs** | | | | Bank interest payable and charges | 42,791 | 39,496 | | Interest on lease liabilities | 14,532 | 12,350 | | Revaluation of SBM option | (501) | 651 | | | 58,022 | 49,447 | ## 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 The effective tax rate is 1.8% (2021: 25.88%) and is explained below Loss before tax Tax of statutory rate of 19% (2021: 19%) ### Tax effects of: Adjustments in respect of prior year Expenses not deductible State taxes Effect of higher tax rates in other jurisdictions Losses not recognised / (recognised) in the year Effect of change in tax rate The standard rate of corporation tax in the UK is 19%. The main rate with effect from 1 April 2023. This change was introduced by Financial The effective tax rate is 1.8% (2021: 25.9%), based on a total tax credit from the average statutory rate of 19%. This is primarily due to a more impact of goodwill impairment (-0.3%). At the balance sheet date the total net deferred tax liability is £765.6. Intangible assets recognised on consolidation was £150.8m (2021: 150.8m). The net recognised was £54.8m (2021: £60.2m). There were £57.8m of unrealised the balance sheet date (2021: £nil). This non-recognition has an impact of the primary reasons for the effective tax rate being below the standard 193 Annual Report 2022 ## 10. Business combinations ### 2022 Business combinations During 2022, the Group has concluded on the fair value of the net assets in respect of acquisitions completed in 2021, resulting in a decrease of £2.4m in net assets and a corresponding increase in goodwill. Cash flows from investing activities include a cash outflow of £5.7m relating to acquisitions has been recognised in the statement of cash flows. This amount relates to the finalisation of completion accounts net of the payment of contingent consideration in the period. ### 2021 Business combinations Details of the acquisitions are as follows: | Business | Country of incorporation | Nature of activity | Date of acquisition | Purchase consideration £'000 | Percentage ownership | | --- | --- | --- | --- | --- | --- | | Dermatore | USA | Professional skincare online retailing | 2 February 2021 | 290,898 | 100% | | Indigo Environmental | England and Wales | Recycling provider | 3 March 2021 | 6,397 | 100% | | Arrow Films | England and Wales | Motion picture distribution activities | 5 March 2021 | 18,490^{1} | 100% | | More Trees | England and Wales | Tree planting | 1 April 2021 | 3,227^{1} | 100% | | Private Label Nutrition | England and Wales | Vitamin, mineral and supplement manufacturer | 16 April 2021 | 3,867^{1} | 100% | | Preston Plastics | England and Wales | Recycling provider | 27 April 2021 | 18,881 | 100% | | Brighter Foods | England and Wales | Manufacturing and developing cold-pressed and cold form snack bars | 11 May 2021 | 43,800^{1} | 100% | | Bentley Laboratories | USA | Prestige skincare and haircare manufacturing | 15 June 2021 | 177,602 | 100% | | Cult Beauty | England and Wales | Online beauty retailer | 3 August 2022 | 289,302 | 100% | 1. Contingent consideration as at 31 December 2022 was £1.8m, which is dependent upon performance targets post acquisition 2. Contingent consideration as at 31 December 2022 was £0.3m, which is dependent upon performance targets post acquisition 3. Contingent consideration as at 31 December 2022 was £2.7m, which is dependent upon performance targets post acquisition 4. Contingent consideration as at 31 December 2022 was £5.5m, which is dependent upon performance targets post acquisition 5. Contingent consideration as at 31 December 2022 was £7.2m, which is dependent upon performance targets post acquisition The Group also paid £0.6m on 28 July 2021 for the trade and certain assets of Morvèlo, a retailer of cycling clothing. ### Reason for 2021 business combination Dermatore, 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 off-set 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. 195 ### 2021 Contingent consideration The contingent consideration arrangements require the Group to provide post-acquisition. The potential undiscounted amount of all future products under the contingent consideration arrangements is between £1.8m and £1.7m, EBITDA or revenue. The fair value of the contingent consideration arrangements of £15.2m are based on the guidelines for the funders being reached as at December 2022. The fair value estimate is: The following intangible assets were recognised at acquisition: | | Dermatore | Indigo Environmental | Arrow Films | More Trees | Private Label Nutrition | | --- | --- | --- | --- | --- | --- | | | £'000 | £'000 | £'000 | £'000 | £'000 | | Intangible assets - brands | 216,949 | 160 | 3,000 | - | 2,000 | | Intangible assets - customer lists | - | 463 | 3,350 | - | 1,000 | | Intangibles - other intellectual property | - | - | - | - | - | | Deferred tax | (36,407) | (186) | (2,078) | - | (2,078) | | **Total fair value on acquisition** | **160,542** | **517** | **6,622** | **-** | **5,000** | The amounts recognised in respect of the fair value of identifiable assets are based on the table below. The exercise to determine the fair value of the acquisition is: The final fair values of the assets and liabilities and the associated liabilities are: | | Dermatore | Indigo Environmental | Arrow Films | More Trees | Private Label Nutrition | | --- | --- | --- | --- | --- | --- | | | £'000 | £'000 | £'000 | £'000 | £'000 | | Final net assets acquired | 170,261 | 2,736 | 11,764 | (21) | 2,000 | | Goodwill | 169,137 | 3,180 | 9,799 | 3,248 | 1,000 | | **Purchase consideration** | **350,888** | **6,316** | **18,490** | **3,237** | **3,000** | | Transaction costs | 2,400 | 237 | 336 | 182 | 1,000 | The goodwill recognised in the prior year has not been restated following the 2022. Instead goodwill in the current year has been adjusted for £2.4m to reflect the net assets acquired. The purchase consideration in total was £822.2m, which was materialised by £8070m plus contingent consideration totalling £15.2m. Transaction costs are based on tax and legal due diligence costs and these are included in acquisition. ![img-32.jpeg](img-32.jpeg) Annual Report 2022 # 2021 Goodwill 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 Dermatore 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 Dermatore. The Goodwill for all acquisitions apart from Bentley Laboratories is not deductible for tax purposes. Cash flows arising from the acquisitions in the prior year were as follows: | | Dermatore | 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 | | Purchase consideration | 260,898 | 6,316 | 16,490 | 3,227 | 2,667 | 10,881 | 43,800 | 179,996 | 291,302 | 825,537 | | Contingent consideration | - | (1,750) | (3,000) | (2,738) | - | (6,000) | (5,000) | - | - | (14,000) | | Cash and cash equivalents acquired | (8,000) | (572) | (7,476) | (7) | (477) | (176) | (2,646) | (703) | (20,000) | (42,358) | | **Net cash flows** | **255,200** | **3,884** | **8,011** | **478** | **2,190** | **12,703** | **38,954** | **178,253** | **270,707** | **768,490** | # 11. Intangible assets | | Goodwill | Platform development costs | | --- | --- | --- | | Cost or valuation | £'000 | £'000 | | **At 1 January 2021** | **421,684** | **179,742** | | Transfers | - | (6,919) | | Additions | 79 | 47,587 | | Business combinations (note 10) | 323,401 | - | | Currency translation | 3,919 | 28 | | Disposals | - | (1,891) | | **At 31 December 2021** | **755,082** | **218,827** | | **At 1 January 2022** | **755,082** | **218,827** | | Transfers | - | 2,592 | | Additions | - | 53,553 | | Business combinations (note 10) | 2,375 | - | | Currency translation | 33,020 | 348 | | Disposals | - | (9,020) | | **At 31 December 2022** | **790,977** | **268,249** | # Accumulated amortisation | **At 1 January 2021** | **270** | **103,440** | | --- | --- | --- | | Transfers | - | (3,438) | | Amortisation | - | 36,894 | | Impairment loss | 33,399 | 1,759 | | Currency translation | - | (4) | | Disposals | - | (1,588) | | **At 31 December 2021** | **33,629** | **137,083** | | **At 1 January 2022** | **33,629** | **137,083** | | Transfers | - | - | | Amortisation | - | 39,837 | | Impairment loss | 271,003 | - | | Currency translation | - | 443 | | Disposals | - | (9,020) | | **At 31 December 2022** | **304,632** | **166,332** | # NBV | At 1 January 2021 | 421,414 | 76,302 | | --- | --- | --- | | At 31 December 2021 | 721,463 | 81,744 | | **At 31 December 2022** | **486,145** | **89,917** | Included within Intellectual property is £4.4m (2021: £3.3m) of capital customer. The costs relate to sales commissions paid to sales personnel. Amortisation of £0.8m (2021: £0.6m) was recognised in the period 1 197 Annual Report 2022 # *Impairment tests for goodwill and other intangible assets* Goodwill and intangible assets that have an indefinite useful life are subject to annual impairment testing, or more frequently 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. Following the completion of the divisional reorganisation, the Directors have assessed the identified CGUs of the Group at 31 December 2022. The Directors have concluded that as a result of the reorganisation there has been a change in CGUs. The divisional reorganisation has led to the assets and cash flows of each division being separately identifiable. The Directors have concluded that there are now six CGUs within THG, being THG Beauty, THG Nutrition, THG Ingenuity, THG OnDemand, THG Luxury and THG Experience. This corresponds to the organisational structure that changed during the year. Separately-identifiable cash flows are only available for the Group's operating segments and therefore CGUs are consistent with the new operating segments also identified in 2022 (see note 2). Note that the discontinued categories segment primarily relates to THG OnDemand. Goodwill has arisen from previous business combinations across the Group and is allocated to the CGUs that are expected to benefit from the synergies of those acquisitions. The recoverable amounts of these CGUs are the higher of fair value less costs to dispose (FVLCTD) and value-in use (VIU). Management has reviewed each CGU in turn and has adopted the VIU approach for THG Nutrition and THG Experience, with a FVLCTD approach being adopted for THG Beauty, THG Ingenuity, THG OnDemand and THG Luxury to establish a recoverable amount under IAS 36. # *THG Beauty (Goodwill totalling £353.2m with an indefinite life after impairment charge) and THG Ingenuity (Goodwill totalling £nil after impairment charge)* For both THG Beauty and THG Ingenuity, management has estimated a FVLCTD using a discounted cashflow method. This method relies on inputs not normally observable by market participants and is therefore categorised at Level 3 in the fair value hierarchy. The directors concluded that FVLCTD was more appropriate for valuing the Group because for both of these CGUs the cash flows will be generated from the future growth expectation which is not captured in a standard length of a VIU calculation. For THG Beauty this is due to the strong growth anticipated within online beauty markets, in part driven by continued online adoption and combined with the high growth expectation from the acquisitions that have been completed in recent years, including Dermatore and Cult Beauty. For THG Ingenuity future growth is expected driven by the capital investment made in the platform and global infrastructure, principally warehousing as well as the continued drive by global industry to digitalise their business models. The key assumptions made are as follows: # *THG Beauty* # **Key Assumption** | **Discount rate** | The discount rate is based on the weighted average cost of capital of a typical market participant. The post-tax discount rate used is 12.5% (pre-tax discount rate 17.2%). The discount rate reflects an upwards adjustment for a risk premium input. | | --- | --- | | **Forecast cash flows** | Forecasts are based on assumptions from the Board approved budget with projections extending eight years. The key assumptions within the impairment assessment are the future revenue growth and EBITDA margin in the forecasts, as well as discount and interest rates. The projections are based on the best estimate of future cash flows, taking into account growth from the high repeat nature of the beauty customer base, the strong growth anticipated in the beauty markets. The market in which THG Beauty operates is expected to continue to grow as documented by wider market commentary, supported by digital shift to online (given relatively low levels of online penetration), as well as further international opportunities at resulting in double digit growth rates. The directors believe the forecasts are reasonable and consistent with the strategy and are underpinned by market data. | | **Long-term growth rate** | A long-term growth rate of 3.0% was used for cash flows after the eight year period which is based on the long-term growth rate across the beauty market. | An impairment charge of £182.0m has been recognised within the arisen largely due to reviewing the recoverable amount of this CGU following the completion of the divisional reorganisation during the following the macroeconomic, inflationary and interest rate pressure conflict. This macroeconomic uncertainty has adversely impacted THG Beauty has completed a significant amount of acquisitions in amount of intangible assets on balance sheet. These factors combine impacting several of the key assumptions, particularly the discount that has arisen on these acquisitions. The impairment charge is recorded within administrative expenses income statement. Management has performed sensitivity analysis on the key assumptions possible changes in these key assumptions. There are possible do a reduction in revenue of 5.0% per annum this would give a further per annum, £108m, and an increase in discount rate of 10%, £50m, including cost reduction. Cost reductions that could be implemented capex and increased cost control, such as reducing stock levels an # *THG Ingenuity* # **Key Assumption** | **Discount rate** | Discount rates are based on the weighted average cost of ca 13.3% (pre-tax discount rate 17.7%). The discount rate reflects nature of this CGU | | --- | --- | | **Forecast cash flows** | Forecasts are based on assumptions from the Board approved within the forecasts are the future revenue growth and EBITDA the best estimate of future cash flows taking into account g the success of the new strategy launched in 2022. The strate the historic and ongoing investment combined with the exp Directors believe the forecasts are reasonable and consistent | | **Long-term growth rate** | A long-term growth rate of 3.0% was used for cash flows after across digital markets | An impairment charge of £870m has been recognised within the T arisen largely due to reviewing the recoverable amount of this CGU following the completion of the divisional reorganisation during the THG Ingenuity in 2022, the Group has repositioned its strategy. Ma assumptions given the recent change in strategy, but however note rate prospects of the sectors in which THG Ingenuity operates pro strategy embeds. Alongside this, THG Ingenuity has made significant infrastructure network. These factors combined with the challenging the key assumptions, particularly the discount rate, has led to the in Directors consider that if valued on a replacement cost basis, the v would be equal to, or in excess of, the carrying value. The impairment charge is recorded within administrative expenses income statement. Management has performed sensitivity analysis on the key assumptions possible changes in these key assumptions. There are possible do reduction in revenue of 5.0% per annum this would give a further i per annum, £262m, and an increase in discount rate of 10%, £57m, including cost reduction. Cost reductions that could be implemented capex and increased cost control, such as investment in the platform 199 Annual Report 2022 # THG OnDemand and THG Luxury (Goodwill totalling £nil) THG OnDemand CGU and THG Luxury CGU include categories and territories that management has now chosen to exit following the completion of the Strategic Review of these businesses in Q1 2023. As such, management has estimated a FVLCTD for specified assets. FVLCTD are valued using Level 3 fair value hierarchy inputs based on management's estimate of the recoverable amount of the assets within these divisions. An impairment charge of £2.2m has been recognised within THG OnDemand CGU and £1.6m within THG Luxury CGU both in respect of other intangibles. This is driven by the decision to exit loss-making categories and territories. The impairment charge is recorded within administrative expenses and adjusting items - impairment of assets within the discontinued categories in the consolidated income statement. # THG Nutrition (Goodwill totalling £353.8m with an indefinite life) The key assumptions used within the VIU calculation are: | Key Assumption | | | --- | --- | | **Discount rate** | The post tax discount rate used is 9.9% (pre-tax discount rate 11.7%). | | **Forecast cash flows** | The VIU calculation uses cash flow projections from financial budgets approved by the Board covering a five year period. The key assumptions within the forecasts are the future revenue growth and EBITDA margin. | | **Long-term growth rate** | A long-term growth rate of 3.0% was used for cash flows after the five year period which is based on the long-term growth rate across online sports and nutrition retailing. | No impairment has been recognised for THG Nutrition. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions. There are no reasonably possible changes in key assumptions that would lead to an impairment. # THG Experience (Goodwill totalling £nil) The key assumptions used within the VIU calculation are: | Key Assumption | | | --- | --- | | **Discount rate** | The post tax discount rate used is 8.8% (pre-tax discount rate 10.9%). | | **Forecast cash flows** | The VIU calculation uses cash flow projections from financial budgets approved by the Board covering a five year period. The key assumptions within the forecasts are the future revenue growth and EBITDA margin. | | **Long-term growth rate** | A long-term growth rate of 3.0% was used for cash flows after the five year period which is based on the long-term growth rate across the UK hospitality industry. | As explained within note 12.2, an impairment charge of £1.8m was recognised in respect of non-core assets when classified as held for sale during the year to reflect the difference between their carrying value and expected selling price. No additional impairment has been recognised for any remaining assets within the THG Experience CGU. At 31 December 2022, the recoverable amount is determined on a VIU calculation using cash flow projections and the FVLCTD for specified non-core assets held for sale. FVLCTD are valued using Level 2 fair value hierarchy inputs based on quoted prices in an active market. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions. There are no reasonably possible changes in key assumptions that would lead to an impairment. # 12.1 Property, plant and equipment | | Motor vehicles | Plant and machinery | | --- | --- | --- | | Cost | £'000 | £'000 | | **At 1 January 2021** | **2,055** | **70,060** | | Additions | 19 | 49,277 | | Business combinations | 213 | 11,877 | | Transfers | - | - | | Currency translation differences | (1) | (541) | | Disposals | (54) | (246) | | **At 31 December 2021** | **2,332** | **128,448** | | **At 1 January 2022** | **2,332** | **128,448** | | --- | --- | --- | | Additions | 12 | 19,375 | | Transfer to assets held for sale (note 12.2) | - | (102) | | Transfers | - | (2,592) | | Currency translation differences | - | 3,137 | | Disposals | (27) | (263) | | **At 31 December 2022** | **2,317** | **143,100** | | Accumulated depreciation | | | | --- | --- | --- | | **At 1 January 2021** | **1,095** | **9,038** | | Depreciation (note 3) | 250 | 1,823 | | Impairment | - | 3,533 | | Transfers | - | - | | Currency translation differences | - | 242 | | Disposals | (54) | (251) | | **At 31 December 2021** | **1,291** | **26,995** | | **At 1 January 2022** | **1,291** | **26,995** | | --- | --- | --- | | Depreciation (note 3) | 323 | 19,238 | | Impairment of assets held for sale | - | - | | Transfer to assets held for sale (note 12.2) | - | - | | Currency translation differences | - | 840 | | Disposals | (27) | (160) | | **At 31 December 2022** | **1,087** | **43,103** | | NBV | | | | --- | --- | --- | | At 1 January 2021 | 960 | 61,042 | | At 31 December 2021 | 1,041 | 100,263 | | **At 31 December 2022** | **730** | **99,997** | 201 Annual Report 2022 ## 12.2 Assets held for sale In Q4 2022, the Group committed to a plan to sell some non-core freehold buildings that were no longer in use by the Group and not required to execute its future strategy. In accordance with IFRS 5: Non-current assets held for sale and discontinued operations, the assets were classified as held for sale on the Group's statement of financial position at 31 December 2022. Immediately before the classification as an asset held for sale, the recoverable amount was estimated and an impairment loss of £1,831,000 was recognised to reduce the carrying amount of the assets to their fair value less costs to sell. This was recognised within adjusted items (note 4) as this was a one-off charge outside the normal course of business. The assets held for sale are valued using Level 2 fair value hierarchy inputs based on quoted prices in an active market. As at 31 December 2022, there was no further write-down as the carrying amount of the assets held for sale did not fall below their fair value less costs to sell. These assets were previously recognised within the THG Ingenuity and THG Experience operating segments. | | 2022 | 2021 | | --- | --- | --- | | Assets classified as held for sale | £'000 | £'000 | | Transfer from property, plant and equipment (note 12) | 21,387 | - | | | 21,387 | - | ## 13. Inventories | | 2022 | 2021 | | --- | --- | --- | | | £'000 | £'000 | | Goods held for resale | 298,533 | 378,605 | | Raw materials | 72,327 | 82,342 | | Goods in transit | 4,811 | 5534 | | | 373,271 | 464,761 | Goods in transit relate to goods whose control is still to be transferred to the customers as of the reporting date. The cost of inventories recognised as an expense and included in cost of sales amounted to £1,272.9m (2021: £1,178.7m). The value of inventories written down and recognised as an expense in the statement of comprehensive income in the year was £8.8m (2021: £7.6m). Within goods held for resale is a £3.0m (2021: £3.0m) right to recover asset which represents the carrying value of inventory expected to be received back from customers as returns. ## 14. Financial assets and liabilities | | Note | 2022 | 2021 | | --- | --- | --- | --- | | Assets as per balance sheet - financial assets | | £'000 | £'000 | | Trade and other receivables excluding non-financial assets | 15 | 162,835 | 167,345 | | Cash and cash equivalents | 16 | 473,783 | 516,827 | | Investments | | 1,403 | 1,403 | | Assets as per balance sheet - held at fair value through OCI | | | | | Derivative financial instruments designated as hedging instruments | | 21,587 | 2,400 | | Derivative financial instruments held at fair value through profit and loss | | 301 | 305 | | | | 658,886 | 698,272 | ### Liabilities as per balance sheet - other financial liabilities at amortised cost 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 Financial instruments included within current assets and liabilities, and accordingly their fair values approximate to their book values, direct issue costs. The derivative financial instruments designated as hedging instruments Other Comprehensive Income. Hedging instruments used are measured as classified at Level 2 hierarchy level in line with IFRS 13 'Fair Value'. During 2021, derivative financial instruments held at fair value through THG Ingenuity held by SBM, announced on the 10 May 2021. This is THG Ingenuity equity once THG Ingenuity has been separated into The derivative was recognised at fair value and was valued based on inputs and had been classified as Level 2. On 26 July 2022, the Group announced that in light of global macro and been terminated by mutual agreement. The call option granted by be capable of being exercised. At 31 December 2022, the option has derecognition being reflected within finance costs. The Group has established a hedge ratio of 1:1 for the hedging related interest rate, and cash flow contracts are identical to the hedged risk. Group uses the hypothetical derivative method and compares the against the changes in fair value of the hedged items attributable to derivatives are established to be effective. The changes in counterp ### 2022 ### Notional Derivatives hedging foreign exchange risk on borrowings Derivatives hedging interest rate risk on borrowings Derivatives hedging foreign exchange risk on future cash flows 1 Impact on OCI is shown net of deferred tax. 203 Annual Report 2022 Interest rate risk 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 2022, the Group held €600m expiring December 2026. Interest rate sensitivity is summarised in note 18. The Group’s financial risks are detailed on pages 88-93 in this Annual Report. Changes in liabilities arising from financing activities The changes in liabilities arising from financing activities are presented below: | 1 January 2022 Cash flows New leases | | Proceeds | Foreign exchange | | Other 31 December | | | --- | --- | --- | --- | --- | --- | --- | | | & Lease | from bank | | movement | | 2022 | | | modifications | borrowings | | | | | £’000 £’000 £’000 £’000 £’000 £’000 £’000 Borrowings 489,865 (24,469) - 156,000 2 7,32 6 30,467 679,189 Lease liabilities 3 49,173 (49,013) 10,930 - 9,156 14,130 334,376 Total liabilities from 839,038 (73,482) 10,930 156,000 36,482 44,597 1,013,565 financing activities 1 January 2021 Cash flows New leases Foreign exchange Other 31 December & Lease movement 2021 modifications £’000 £’000 £’000 £’000 £’000 £’000 Borrowings 526,159 (25,359) - ( 37,867 ) 26,932 489,865 Lease liabilities 236,18 5 (36,216) 137,158 (304) 12,350 349,173 Total liabilities from 762,344 (61,575) 137,15 8 (38,1 7 1) 39,282 839,038 financing activities 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. ## 15. Trade and other receivables 2022 2021 £'000 £'000 Trade receivables 121,122 119,567 Less: loss allowance (1,805) (2,268) Net trade receivables 119,317 117,299 Prepayments 28,362 21,372 Accrued income 40,004 58,329 Other taxation and social security 33,748 26,883 Other receivables 43,518 40,046 264,949 263,929 Trade and other receivables are principally denominated in Sterling. At 31 December 2022, there were 160,809,675 fully vested, but partly paid and unlisted Shares (31 Dec 2021: 161,439,766). The average amount of unpaid share capital per fully vested but partly-paid and unlisted Share is £0.17 (2021: £0.16) representing a receivable to the Group of £26.9m (2021: £27.0m). 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. 205 206 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. 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 2024 and €600m notional of interest swaps expiring in December 2026. Maturity of the Group’s derivative and non-derivative financial liabilities are given below. Included within trade payables is £53.7m (2021: £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. Contractual amount Carrying amount Tot al Less than 3 months 3 to 12 months 1 to 2 years 2 to 5 years More than 5 years £'000 £'000 £'000 £'000 £'000 £'000 £'000 31 December 2022: Bank borrowings 679,189 691,808 - 30,991 - 660,817 - Lease liabilities 334,376 447,847 12 ,188 31,942 44,289 8 7, 1 4 8 272,280 Trade payables 574,145 574,145 568,486 5,659 - - - Derivative financial liabilities 4,189 4,189 - - 4,189 - - 31 December 2021: Bank borrowings 489,865 502,962 - 752 - 502,210 - Lease liabilities 349,173 499,770 10,653 32 ,112 39,353 105,567 312,085 Trade payables 645,712 645,712 615,748 29,964 - - - Derivative financial liabilities 21,943 21,943 - 21,943 - - - 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 for- wards and spot transactions, whose fair value is based on the observable market value of the respective instrument, taking into account 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 in the form of FX forward contracts. As at 31 December 2022, the Group held €600m notional of forward contracts expiring in December 2026. 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 would be impacted as follows: Change in foreign exchange rate Effect on change in EUR rate 1 Effect on change in USD rate 2 Effect on change in PLN rate £'000 £'000 £'000 2022 +5% (271) 3,222 2,834 2022 -5% 300 (3,561) (3,132) 2021 +5% 20 4,554 1,832 2021 -5% (22) (5,034) (2,025) 1. If the closing exchange rate was 5% higher/lower, the impact on Group Equity would be £10.4m (2021: £11.7m) reflecting the impact of the derivative hedges associated with the €600m term loan B. 2. If the closing exchange rate was 5% higher/lower, the impact on Group Equity would be £33.5m reflecting the impact of the substantial other intangible assets denominated in USD. The fair value of bank borrowings at 31 December 2022 was £686.6m (2021: £503.3m). There is no material difference between the fair value and the carrying value of the bank borrowings. 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. Annual Report 2022 At 31 December 2022 the ageing of trade receivables was as follows: | | 2022 | 2021 | | --- | --- | --- | | | £'000 | £'000 | | Net due | 61,178 | 65,399 | | 0 to 3 months overdue | 43,318 | 47,004 | | More than 3 months overdue | 14,639 | 9,904 | | | 121,122 | 119,667 | The movement in the loss allowance of trade receivables was as follows: | | £'000 | | --- | --- | | At 1 January 2022 | 2,258 | | Change for the year | 2,080 | | Released | (2,241) | | Utilised | (95) | | Foreign exchange movement | 211 | | At 31 December 2022 | 1,809 | 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 | 0.64% | 1.89% | 0.14% | 1.74% | 7.37% | | | Estimated total gross carrying amount at default | 0.0787 | 24,320 | 9,984 | 6,939 | 12,922 | 121,122 | | Expected credit loss | (439) | (287) | (14) | (113) | (952) | (1,809) | | At 31 December 2022 | 67,348 | 24,053 | 9,970 | 6,396 | 11,970 | 119,317 | 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. No provision is required in respect of accrued income. ## 16. Cash and cash equivalents | | 2022 | 2021 | | --- | --- | --- | | | £'000 | £'000 | | Cash and cash equivalents | 475,763 | 536,827 | Cash and cash equivalents includes amounts receivable of £3.1m (2021: £3.6m) from banks and £174m (2021: £8.9m) from payment providers, for credit and debit card transactions. Such amounts clear the bank shortly after the transaction takes place. ## 17. Trade and other payables | | 2022 | 2021 | | --- | --- | --- | | | £'000 | £'000 | | Trade payables | 321,709 | 287,559 | | Accruals | 244,953 | 326,857 | | Other taxation and social security | 58,811 | 28,259 | | Other payables | 1,880 | 8,360 | | Government grants | 2,635 | 2,592 | | Contingent consideration on acquisitions | 6,852 | 15,096 | | | 636,440 | 676,563 | 207 The Directors consider the carrying amount of trade and other payables in the discounting cash flows at market rates of interest as at the balance. Contingent consideration on acquisitions is measured at fair value (e.g. 1.5m). The unobservable inputs used in the fair value calculation are actual results to date. The fair values are sensitive to changes in EBITDA. The performance targets are based on the reduction year on year in the first 12 months. The first 12 months are not included in the first 12 months. The first 12 months are not included in the first 12 months. Included within trade payables is £53.7m (2021: £42.3m) due to supply of financing agreement. The agreement does not change the supplier. ## 18. Interest-bearing loans and borrowings | Current | | --- | | Bank borrowings | | Lease liabilities | | Non-current | | --- | | Bank borrowings | | Lease liabilities | Bank borrowings relate predominantly to the 7-year Euro term loan. The term loan is the incremental facility obtained during the year. The revolving credit for the Citibank, NatWest and JPM. The term loan B carried an interest rate of 1.5m. The facility interest rate is SONIA. The Group increased its bank borrowings from the 1.5m plus Commercial Facility Loan. This loan is provided by the Group's (SONIA). The floating element of the term loan B is hedged by interest rate being reformed as a benchmark rate and are in dialogue with its leases. The Group has the Group as transition occurs. If interest rates moved by 100bps, the Group's loss before tax would be 100bps. The Group's subsequent move on the derivative valuation would cause equity to be 100bps. The Group's loss of the same move. Net debt consists of loans and lease liabilities, less cash and cash equivalents. The purpose of the Group's net debt calculation, loans that are denominated as a hedge, is hedged rate where applicable. Net (debt)/cash is an alternative portion of the transaction to the most directly comparable IFRS measure is included. | 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 Net (debt)/cash before lease liabilities The contractual maturity analysis of bank borrowings and lease liabilities Annual Report 2022 ## 19. Provisions | | Dilapidations | Other | Total | | --- | --- | --- | --- | | | £'000 | £'000 | £'000 | | **At 1 January 2022** | **16,509** | - | **16,509** | | Acquired | - | 2,454 | 2,454 | | Utilised | (138) | (680) | (1,259) | | Created | 4,497 | - | 4,497 | | Released | (468) | (209) | (977) | | Discount unwind | 202 | - | 202 | | FX on retranslation | 606 | - | 606 | | **At 31 December 2022** | **20,605** | **1,585** | **22,370** | | Current | 2,790 | 775 | 3,530 | | Non-current | 18,040 | 795 | 18,840 | Dilapidations provisions relate to leased properties. Dilapidations provisions are made based on the best estimate of the likely committed cash outflow and discounted to net present value. Future costs are expected to be incurred over the term of the existing lease arrangements at the reporting date, which is a period of up to 25 years. The following table shows the timeline in which undiscounted costs in relation to the dilapidation provision are expected to be incurred. | | Current £'000 | 1-5 years £'000 | 6-10 years £'000 | 11-15 years £'000 | 16-20 years £'000 | 21-25 years £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | --- | | **At 31 December 2022** | **3,025** | **5,490** | **2,869** | **2,307** | **496** | **8,736** | **23,683** | | At 31 December 2021 | 883 | 5,144 | 3,863 | 3,367 | 498 | 6,021 | 18,524 | Other provisions relate to onerous contracts. The amount of £2.4m acquired in the year relates to a hindsight adjustment in relation to a prior year acquisition. ## 20. Contract liabilities | | 2022 | 2021 | | --- | --- | --- | | | £'000 | £'000 | | Contract liabilities | 34,256 | 30,143 | Contract liabilities are the consideration received from the customers for sales where the Group still has an obligation to transfer goods or services, which predominately relates to THG Beauty and THG Nutrition. 100% of the transaction price of the unsatisfied contracts as at 31 December 2021 were recognised as revenue during 2022. ## 21. Deferred tax The deferred tax balance comprises: | | 2022 | 2021 | | --- | --- | --- | | | £'000 | £'000 | | Short term timing differences | 109 | (2,449) | | Accelerated capital allowances | 3,381 | 1,699 | | Business combinations | 150,627 | 50,899 | | Tax losses | (54,809) | (8,053) | | Loan relationships | (25,627) | (8,603) | | Derivatives | 3,958 | 257 | | Other balance sheet amounts | (818) | (865) | | | **76,598** | **73,796** | At the balance sheet date there are unrecognised tax losses of £578m (2021: £nil). 209 The movement on the deferred tax liability during the year is as follows: | | Accelerated capital allowances | Short term timing differences | | --- | --- | --- | | | £'000 | £'000 | | **Opening balance 1 January 2022** | **1,889** | **(2,449)** | | Charged / (credited) to the statement of comprehensive income | 4,504 | 2,758 | | (Credited) to equity | - | (142) | | Charged to OCI | - | - | | Other / FX | (2,802) | (64) | | **Closing balance 31 December 2022** | **3,381** | **106** | ## 22. Leases Set out below are the carrying amounts of the right-of-use assets | | Motor vehicles | Planned mac | | --- | --- | --- | | | £'000 | £'000 | | **As at 1 January 2021** | **539** | | | Additions | 44 | | | Depreciation (note 3) | (172) | | | Lease modifications | - | | | Impairment | - | | | Currency translation differences | (35) | | | **As at 31 December 2021** | **378** | | | **As at 1 January 2022** | **378** | | | Additions | - | | | Depreciation (note 3) | (172) | | | Lease modifications | - | | | Disposals | - | | | Currency translation differences | 5 | | | **As at 31 December 2022** | **210** | | Annual Report 2022 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: | | 2022 | 2021 | | --- | --- | --- | | | €'000 | €'000 | | **As at 1 January** | **348,173** | **238,185** | | Additions | 8,820 | 13,569 | | Accretion of interest | 16,150 | 12,393 | | Payments | (48,012) | (38,216) | | Lease modifications | 13,830 | (442) | | Disposals | (13,510) | - | | Currency translation differences | 8,155 | (304) | | **As at 31 December** | **314,175** | **348,173** | | Current | 43,995 | 43,340 | | Non-current | 290,391 | 305,831 | The maturity analysis of lease liabilities is disclosed in Note 14. The Group had total cash outflows for leases of €490m in 2022 (2021: €36.2m). The following are the amounts recognised in the year in the consolidated statement of comprehensive income: | | 2022 | 2021 | | --- | --- | --- | | | €'000 | €'000 | | Depreciation expense on right-of-use assets | 43,295 | 30,299 | | Interest expense on lease liabilities | 14,130 | 12,350 | | | **57,405** | **44,050** | ## 23. Share capital and reserves 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 2022, the Company's issued share capital comprised: | Class | 2022 Number | Nominal value £ each | | --- | --- | --- | | Ordinary Shares | 1,395,572,243 | 0.005 | | D1 Shares | 56,030,651 | 0.005 | | D2 Shares | 1,741 | 1 | | E Shares | 48,885,767 | 0.005 | | F Shares | 27,522,287 | 0.005 | | G Shares | 17,454,614 | 0.005 | | Special Share | 1 | 1 | | Deferred 1 Shares | 315,297 | 0.005 | | Deferred 2 Shares | 21,963,960 | 0.005 | | | **1,436,582,451** | | The rights attaching to the Shares are set out in the Director's Report pages 96-101. 211 ## Capital risk management The Group's objectives when managing capital, which comprises equipping a going concern to provide returns for Shareholders and benefits for our structure. In order to maintain or adjust the capital structure, the Group's return capital to Shareholders, issue new Shares or sell assets to reduce During the financial year ending 31 December 2022 the following took into account: employee share scheme: - (i) 34,454 Ordinary Shares were converted from 34,454 E Shares; - (ii) 88,000 Ordinary Shares were converted from 88,000 E Shares; - (iii) 22,993 Ordinary Shares were converted from 22,993 E Shares; - (iv) 1,008 Ordinary Shares were converted from 1,008 E Shares; - (v) 5,268 Ordinary Shares were converted from 5,268 E Shares; - (vi) 44,000 Ordinary Shares were converted from 2,044 E Shares, 8,000 E Shares and 1,000 E Shares; - (vii) 7,722 Shares were subject to 14,000 E Shares of €0.005 each, 1,000 of which was not yet subscribed as Deferred 1 Shares; - (viii) 1,000 Ordinary Shares were converted from 1,000 E Shares; - (ix) 15,000 Ordinary Shares were converted from 6,238 E Shares and 5,322 E Shares; - (x) 15,000 Ordinary Shares were converted from 15,000 E Shares; - (xi) 1,000 Ordinary Shares were converted from 1,000 E Shares; - (xii) 12,000 Ordinary Shares were converted from 12,000 E Shares; - (xiii) 65,000 Ordinary Shares were converted from 65,000 E Shares; - (xiv) 24,000 Ordinary Shares were issued for a total consideration of €97,722 (not 1,000); - (xv) 1,000 Ordinary Shares were converted from 1,000 E Shares; - (xvi) 7,519 Ordinary Shares were converted from 8,018 E Shares, 30,497 E Shares and 1,000 E Shares; - (xvii) 12,000 Ordinary Shares were converted from 4,000 E Shares and 7,000 E Shares; - (xviii) 15,000 Ordinary Shares were issued for a total consideration of €82,187 (not 1,000); - (xix) 15,512 Ordinary Shares were converted from 15,512 E Shares and 1,000 E Shares; - (xx) 17,521 Ordinary Shares were converted from 1,044 E Shares and 10,491 E Shares; - (xxi) 12,000 Ordinary Shares were converted from 6,000 E Shares, 1,000 E Shares and 1,000 E Shares; - (xxii) 26,261 Ordinary Shares were converted from 5,073 E Shares and 2,750 E Shares; - (xxiii) 6,508 Ordinary Shares were converted from 2,640 E Shares and 3,800 E Shares; - (xxiv) 4,000 Ordinary Shares were converted from 4,000 E Shares. ## 24. Pension commitments During the year, the Group operated an auto-enrolment pension scheme, a subsidiary of the Company's share capital, which is a part of the Company's share capital. The Company's share capital is a part of the Company's share capital, which is a part of the Company's share capital. The Company's share capital is a part of the Company's share capital, which is a part of the Company's share capital. ## 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** | | Decrease/(Increase) in inventories | | Decrease/(Increase) in trade and other receivables | | (Decrease)/Increase in trade and other payables | | Decrease in provisions | | Foreign exchange gain/(loss) | ### Cash generated from operations before adjusting items 1. Included within trade and other payables is a decrease in contract liabilities of €19m. Refer to the Chief Financial Officer's Review on page 31 of this report for details regarding the liabilities that may be available in the future for the operating activities and settling capital. Annual Report 2022 In addition to the shareholdings noted above, the Directors had the following interests in vested Shares issued under ## 26. Earnings per share previous incentive arrangements at the balance sheet date. These shares carry no voting rights. The following table reflects the income and share data used in the basic and diluted EPS calculations: 2022 2021 2022 2021 2022 2021 | | | Subscription/ | | Subscription/ | | | | --- | --- | --- | --- | --- | --- | --- | | Loss for the financial year (£'000) (539,957) (138,074) | Date of award | exercise price | | exercise price | | Number Number | | | | | £ | | £ | | Weighted average number of ordinary shares for basic EPS 1,239,485,253 1,099,043,113 M J Moulding Dec-19 0.23 0.23 43,641,266 43,641,266 Basic and Diluted EPS (£’s) (0.44) (0.13) M J Moulding Aug-20 0.33 0.33 2 0,1 97,808 20,197,808 If the impact of impairment charges in the year was removed, the Basic and Diluted EPS would be £(0.21). M J Moulding Aug-20 0.28 0.28 7,733,792 7,733,792 M J Moulding Aug-20 0.26 0.26 - - The basic loss per share has been calculated by dividing the loss attributable to the Group by the weighted average J A Gallemore Dec-19 0.23 0.23 185,476 185,476 number of ordinary shares in issue. J A Gallemore Aug-20 0.33 0.33 2,666,963 2,666,963 The diluted loss per share has been calculated by adjusting the weighted average number of shares for the effects of the D, E, J A Gallemore Aug-20 0.28 0.28 4,000,537 4,000,537 F, G and H shares, assuming full vesting of all potentially dilutive shares. The number of these shares is disclosed in note 23. 1 D P Murphy Dec-19 0.23 0.23 n/a 370,953 There was no change in the diluted earnings per share, since the effect of all potentially dilutive shares outstanding was I McDonald Dec-19 0.23 0.23 185,476 185,476 anti-dilutive. 78,611,318 78,982,271 1. D P Murphy, Z Byng-Thorne and T Hall stepped down from the Board during the year and were therefore not Directors at 31 December 2022. ## 27. Related Party Transactions The Group has not provided any interest free loans to the Directors in 2022. In previous years the Group provided £0.3m The Directors’ interests in the ordinary share capital of the Company at the balance sheet date are detailed below: of interest free loans to the Directors for them to subscribe for shares as part of the employee benefit scheme which remain outstanding at the balance sheet date. Full details of the Directors’ shareholdings are detailed in the Directors’ £ per share Ordinary Shares Ordinary Shares Remuneration Report on page 144. 2022 2021 On 11 August 2021, 89,612,682 H Shares held by M J Moulding were paid up and converted into listed Ordinary Shares, Number Number leading to a reduction in the unpaid share capital included within other receivables (note 15) of £30.5m. M J Moulding 0.005 249,294,545 233,441,525 The Group has in place an agreement on commercial terms with Moulding Capital Limited to provide property, facilities and project management services to the entity and its subsidiaries. This agreement generated £269,017 (2021: £635,000) for M J Moulding 1 361 361 the Group recognised within administrative expenses. J A Gallemore 0.005 3,638,116 3,638,116 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. J A Gallemore 1 3,1 74 3,1 74 The amounts recognised on the Group’s balance sheet in relation to the leases with Propco in the year are as follows: 1 D P Murphy 0.005 n/a 14,566,016 I McDonald 0.005 2,505,943 2,505,943 2022 2021 1 Z Byng-Thorne 0.005 n/a 69,765 £'000 £'000 1 T Hall 0.005 n/a 33,557 Right-of- use asset 159,000 218,279 D Sanders 0.005 21,926 21,926 Lease liability 178,694 262,797 C Allen 0.005 2,400,000 - The amounts recognised on the Group’s statement of comprehensive income 257,864,065 254,280,383 in relation to the leases with Propco in the year are as follows: 2022 2021 £'000 £'000 Depreciation arising on right-of-use assets 11,277 12,723 Expense recognised in financing costs 8,812 10,663 Impairment arising on right-of-use-assets - 6,856 Impairment arising on property plant and equipment - 8,156 213 214 Annual Report 2022 215 216 The table below gives further detail around the leases in place: 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. Included within the amounts owed to Moulding Capital Limited is an amount of £10.5m in relation to fixtures and fittings that had been paid by Propco on behalf of THG in respect of a fitout of one of the properties leased by THG. An extensive review was completed by THG to ensure that all assets were in use by THG. In addition, legal specialists and property specialists were engaged to ensure that this transaction was completed on an arms-length basis. Following completion of this work and after approval by the Related Parties Committee the amount was recognised as an amount owed to related parties. Number of properties Residual lease term date divestment FY22 rent £’000 9 0-4 years 962 1 6 years 1,652 12 12-14 years 3,285 7 18-24 years 9,923 29 15,822 2022 2021 Related party Amounts owed by related parties Amounts owed to related parties Amounts owed by related parties Amounts owed to related parties £’000 £’000 £’000 £’000 Aghoco 1442 Ltd - 100 - 217 Allenby Square Ltd - 190 - 532 MCL Alpha PropCo Ltd - 161 - 192 MCL Omega PropCo Ltd - - - 1,243 MCL Icon Unit 3 PropCo S.à r.l. - 296 - 296 MCL Gadbrook PropCo Ltd - 242 - 242 MCL Icon Unit 4 PropCo Ltd - 217 - 217 MCL PV PropCo Ltd - 45 - - MCL A&A PropCo Ltd - 241 - 241 MCL GJS PropCo Ltd - 195 - 465 MCL HCC PropCo Ltd - 285 - 355 MCL KS PropCo Ltd - 225 - 225 Moulding Capital Limited - 10,454 - 47 MCL Wroclaw sp. Z.o.o - - - 645 MCL ICON S.à r.l - 1,101 - 1,101 MCL Icon Unit 2 PropCo Limited - 953 - 953 - 14,705 - 6,971 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 2022 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 the Group (a company incorporated in England and Wales). All investments are 100% owned by THG PLC either directly or indirectly. Subsidiary Registered office Country of incorporation Nature of business The Hut.com Limited 1 England and Wales Online retailing The Hut Platform Limited 1 England and Wales Provision of website development services The Hut Holdings Limited 1 England and Wales Dormant The Hut.com (Trading) Limited 2 Jersey Online retailing Cend Limited 1 England and Wales Holding company Guco Internet Supplies Limited 3 Guernsey Holding company Iwantoneofthose Limited 3 Guernsey Holding company The Hut Entertainment SL 14 Spain Dormant Ensco 818 Limited 1 England and Wales Holding company Mankind Holdings Limited 3 Guernsey Dormant Mankind Direct Limited 1 England and Wales Procurement company Moo Limited 1 England and Wales Online advertising Lookfantastic Group Limited 1 England and Wales Holding company Lookfantastic.com Ltd 1 England and Wales Online retailing Lookfantastic Franchising Limited 1 England and Wales Franchising and consultancy services Lookfantastic London Limited 1 England and Wales Dormant Lookfantastic Salons Limited 1 England and Wales Hairdressing salon Exante Diet Limited 1 England and Wales Dormant Bike Kit Limited 1 England and Wales Dormant CNP Professional Holdings Limited 3 Guernsey Procurement company MyVitamins Limited 1 England and Wales Dormant HQ Hair Limited 3 Guernsey Holding company Cend International Limited 1 England and Wales Online retailing THGPP LLC 4 USA Holding company THG International LLC 4 USA Warehouse and distribution Mama Mio Limited 1 England and Wales Online retailing Mama Mio Distribution Limited 1 England and Wales Dormant Mama Mio US Inc. 30 USA Online retailing 28. Subsidiary undertakings Annual Report 2022 Notes to the consolidated financial statements (continued) 217 218 Hale Country Club Limited 1 England and Wales Retail and leisure company EI Spa Holdings (UK) Limited 1 England and Wales Holding company Gadbrook Limited 1 England and Wales Holding company ESPA International (UK) Limited 1 England and Wales Online retailing THG International Limited 1 England and Wales Marketing company Primavera Aromatherapy Limited 1 England and Wales Manufacturing The Hut Group International ESPA International (US) Inc. 6 USA Online retailing 15 China License holding company (Shanghai) Co Limited ESPA International FZE 17 UAE Online retailing PC Beauty Inc. 4 USA Holding company Make Money Limited 1 England and Wales Holding company Ideal Shape LLC 31 USA Marketing company M Beauty Limited 1 England and Wales Online retailing Performance Supplements LLC 31 USA Marketing company Language Connect International Ltd 1 England and Wales Translation and interpretation Salu Australia PTY Limited 20 Australia Holding company Language Connect, Inc. 7 USA Translation and interpretation Skincarestore Australia PTY Limited 20 Australia Online retailing THG Ingenuity Singapore Pte. Limited 34 Singapore Translation and interpretation Salu Beauty Inc. 4 USA Online retailing Acheson & Acheson Limited 1 England and Wales Manufacturing UK-2 Limited 1 England and Wales Webhosting 1010 Products Limited 1 England and Wales Dormant Another.com Limited 1 England and Wales Webhosting Ameliorate Skincare Limited 1 England and Wales Holding company Virtual Internet Holdings Limited 1 England and Wales Holding company Eddie Rockers Limited 1 England and Wales Holding company Hosting Services Inc. 5 USA Webhosting Great John Street Hotel Limited 1 England and Wales Hotel operator UK2 Ukraine LLC 9 Ukraine Webhosting King Street Investments Limited 1 England and Wales Hotel operator Virtual Internet (UK) Limited 1 England and Wales Webhosting 1 THG Trustee Limited 1 England and Wales Trustee of EBT The Hut.com (Poland) sp. z.o.o. 10 Poland Warehouse and distribution THG Nutrition US Inc. (previously MP, Inc.) 1 USA Holding company RY.com.au Pty Limited 20 Australia Online retailing Myprotein Japan K.K. 12 Japan Online retailing Media Ark Limited 1 England and Wales Visual content producer Colorist Christophe Robin S.A.S. 8 France Online retailing THG Studios Limited (previously 1 England and Wales Visual content producer Hangar Seven Limited) Colorist Christophe Robin US, Inc 11 USA Online retailing H7P Portugal Unipessoal LDA 16 Portugal Visual content producer THG General Trading LLC 25 UAE Online retailing Illamasqua (Holdings) Limited 1 England and Wales Holding company David Berryman Ltd 1 England and Wales Online retailing Illamasqua Limited 1 England and Wales Online retailing David Berryman Holdings Limited 1 England and Wales Holding company Beauty Box Beteiligungen GmbH 22 Germany Holding company Fair Juice Limited 1 England and Wales Dormant Beauty Trend Holding GmbH 22 Germany Online retailing Claremont Ingredients Ltd 1 England and Wales Online retailing Beauty Trend GmbH 22 Germany Online retailing THG 100 KING STREET LIMITED 1 England and Wales Hotel operator Jade 1150. GmbH 22 Germany Holding company The Hut Group Limited 1 England and Wales Dormant Beauty Trend S.A.S France 8 France Online retailing THG Hangar Holdco Limited 1 England and Wales Holding company GlossyBox Sweden Holding UG 22 Germany Holding company THG Hangar Limited 1 England and Wales Holding company GlossyBox Sweden AB 33 Sweden Online retailing THG Hangar 2 Limited 1 England and Wales Holding company GlossyBox United Kingdom Holding GmbH 22 Germany Holding company Lion/Wrinkle Holdings, Inc 1 USA Holding company Beauty Trend UK Limited 1 England and Wales Online retailing Lion/Wrinkle Parent Corp 1 USA Holding company VRB GmbH & Co. B-149 KG 22 Germany Holding company Lion/Wrinkle Intermediate LLC 1 USA Holding company Beauty Trend USA Inc. 11 USA Online retailing Annual Report 2022 Notes to the consolidated financial statements (continued) 219 220 N.V. Perricone LLC 13 USA Online retailing Perricone MD Cosmeceuticals UK Limited 1 England and Wales Online retailing The Hut Group, S.L 14 Spain Online retailing THG Intermediate OpCo Limited 1 England and Wales Holding company THG Operations Holdings Limited 1 England and Wales Holding company THG Intermediate Holdings Limited 1 1 England and Wales Holding company THG Ingenuity Limited 1 England and Wales Holding company THG Shelfco Limited 1 England and Wales Holding company THG Beauty USA LLC (previously Dermstore LLC) 27 USA Online retailing Arrow Film Distributors Limited 1 England and Wales Motion picture distributor The Engine House Media Services Limited 1 England and Wales Film processing Indigo Environmental Limited 1 England and Wales Environmental consulting activities Indigo Environmental Holdings Limited 1 England and Wales Holding company Indigo Polymers Limited 1 England and Wales Dormant Three Counties Reclamation Limited 1 England and Wales Recovery of sorted metals The Protein Lab (UK) Limited 1 England and Wales Manufacturing Preston Plastics (Holdings) Limited 1 England and Wales Holding company Preston Plastics Limited 1 England and Wales Recovery of sorted metals Eco Credits Limited 1 England and Wales Environmental consulting activities Brighter Foods Limited 1 England and Wales Manufacturing Bentley Laboratories Blocker Company 11 USA Holding company Bentley Laboratories LLC 19 USA Online retailing Cult Beauty Limited 1 England and Wales Online retailing THG AUS Fulfilment PTY Limited 20 Australia Fulfilment THG AUS PP PTY Limited 20 Australia Holding company THG Eco Ltd 1 England and Wales Holding company THG EU PP Limited 21 Ireland Holding company THG Ingenuity Germany GmbH 29 Germany Online retailing THG Beauty Limited 1 England and Wales Online retailing THG AUS Beauty PP PTY Limited 20 Australia Holding company THG Beauty Singapore PTE Limited 23 Singapore Online retailing THG Beauty PP EU Limited 21 Ireland Holding company THG Beauty PP US LLC 18 USA Holding company THG Experience Limited 1 England and Wales Holding company THG Luxury Limited 1 England and Wales Online retailing THG Luxury PP AUS PTY Limited 20 Australia Holding company THG Luxury PP EU Limited 21 Ireland Holding company THG Luxury PP US LLC 18 USA Holding company THG Nutrition Limited 1 England and Wales Online retailing THG AUS Nutrition PP PTY Limited 20 Australia Holding company THG AUS Nutrition PTY Limited 20 Australia Online retailing THG Nutrition India Private Limited 24 India Online retailing THG Nutrition Singapore PTE Limited 23 Singapore Online retailing THG Nutrition Poland s.p.z.o.o 10 Poland Online retailing THG Nutrition PP EU Limited 21 Ireland Holding company THG Nutrition PP US LLC 18 USA Holding company THG OnDemand Limited 1 England and Wales Online retailing THG Beauty Europe GmbH (previously THG OnDemand Germany GmbH) 22 Germany Online retailing THG OnDemand Netherlands B.V 26 Netherlands Online retailing THG OnDemand PP AUS PTY Limited 20 Australia Holding company THG OnDemand PP EU Limited 21 Ireland Holding company THG OnDemand PP US LLC 18 USA Holding company THG OnDemand US LLC 18 USA Online retailing THG Shared Services Limited 1 England and Wales Shared Service centre THG Shared Services AUS PTY Limited 20 Australia Shared Service centre THG Shared Services Poland sp.z.o.o 10 Poland Shared Service centre THG Shared Services US LLC 18 USA Shared Service centre THG Beauty Trading LLC 28 UAE Online retailing THG Ingenuity General Trading LLC 29 UAE Holding company THG Insurance Limited 1 3 Guernsey Holding company THG Icon CP PropCo Limited 1 England and Wales Holding company 1. Companies owned directly by THG PLC Annual Report 2022 Notes to the consolidated financial statements (continued) ## Registered Offices: ## Subsidiary audit exemptions 1. Icon 1 7-9 Sunbank Lane, Ringway, Altrincham, 18. 300 Creekview Road, Suite 209, Newark, New Castle, 19711. United Kingdom, WA15 0AF. The below subsidiaries have taken the exemption from an audit for the year ended 31 December 2022 permitted by s479A 19. 111 Fieldcrest Avenue, Edison NJ 08837. 2. 2nd Floor, Charter Place, 23/27 Seaton Place, St Helier, Jersey, JE1 1JY. of Companies Act 2006. In order to allow these subsidiaries to take the audit exemption, the parent company THG PLC has 20. Azure Group Pty Level 10, 171 Clarence Street, Sydney, NSW 2000. given a statutory guarantee, in line with s479C of Companies Act 2006. 3. Sarnia House, Le Truchot, St Peter Port, Guernsey, GY1 4NA. 21. City Trust & Corporate Services Limited 1st Floor Liffey | | | | Name Company | | Name Company | | Name Company | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 4. Corporation Trust Center, 1209 Orange Street, | | Trust Centre, 117 -126 Sheriff Street Upper, Dublin 1. | | | | | | | | | Wilmington, DE 19801, USA. | | | number | | number | | number | 22. Maximilianstrasse 5480538 Munich. Ensco 818 Ltd 7459909 UK-2 Ltd 3550739 David Berryman Holdings Ltd 10392135 5. 517 West 100 North, Providence, UT 84332, USA. 23. 100 Tras Street, #16-01 100AM, 079027, Singapore. Lookfantastic Group Ltd 5381562 Virtual Internet (UK) Ltd 3203095 Claremont Ingredients Ltd 2817306 6. 100 SE 2nd Street, Suite 2000, Miami, FL 3313, USA. Illamasqua (Holdings) Ltd 6116121 Beauty Trend UK Ltd 7569585 David Berryman Ltd 2185279 24. 203, 2nd Floor, Time Tower, Gurgaon Haryana, India. 7. Language Connect, Inc. 79 Madison Avenue, El Spa Holdings (UK) Ltd 9317257 THG International Ltd 10523712 THG Hangar 2 Ltd 12746651 Suite 205, New York, NY 10016, USA. 25. Eternity Realty Building-ER 3 Deira Al Marrar Office: 041. Perricone MD Make Money Ltd 5880897 Illamasqua Ltd 6301971 6471993 Cosmeceuticals UK Ltd 8. 73 rue Sainte-Anne, Paris, France. 26. Barbara Strozzilaan 2011083 HN Amsterdam, The Netherlands. Eddie Rockers Ltd 3009737 Primavera Aromatherapy Ltd 2053064 Guco Internet Supplies Ltd 49249 9. 79060, Ukraine, Lviv, Naukova str. 7D, office No. 305. 27. 1960 E GRAND AVE 6TH FLOOR EL Eco Credits Ltd 12933421 M Beauty Ltd 5850964 The Hut.com (Trading) Ltd 87702 SEGUNDO, CA 90245 United States. 10. ul. Magazynowa 1, 55-040 Magnice, Poland. THG Intermediate Holdings Ltd 12526036 THG 100 King Street Ltd 12938227 HQ Hair Ltd 52888 28. New Mall Limited, Al Warsan First, 681-0, UAE. 11. 06-101, WeWork 115 Broadway, New York, NY 10006, USA. THG Studios Limited (previously Lookfantastic.com Ltd 3519634 Cend International Ltd 8651475 6293681 29. Office no 08-106, 8th & 9th Floor, The Office 4, We Work, One Hangar Seven Limited) 12. DLA Piper Tokyo, 2-1-1 Marunouchi, Chiyoda-ku, Central, Dubai World Trade Centre, Dubai, United Arab Emirates. Mankind Direct Ltd 4112104 ESPA International (UK) Ltd 2742156 Lookfantastic Franchising Ltd 5382066 Meiji Seimei Kan 7F, Tokyo, 100-0005, Japan. 30. 555 California Street Ste 4925, San Francisco, CA 94104. Cend Ltd 4067712 Language Connect International Ltd 7364250 Lookfantastic Salons Ltd 6310534 13. 600 Montgomery St Ste 2500, San Francisco, CA, 941111-2724, USA. The Hut Platform Ltd 6473891 Acheson & Acheson Ltd 2764368 Moo Ltd 5158225 31. 632 N 2000 W Ste 110, Lindon, UT 84042. 14. Monte Equinza 30 Bajo Izquierda 2810, Madrid, Spain. Another.com Ltd 3661600 King Street Investments Ltd 8242806 Mama Mio Ltd 5251791 32. 7405 E Monte Cristo Ave, Scottsdale, AZ, 85260. THG Shared Services Ltd 13515579 Great John Street Hotel Ltd 7973960 Hale Country Club Ltd 6970110 15. Room 753, Level 7, Building 2, No. 155, Fu Texi 1st Road, China (Shanghai) Pilot Free Trade Zone. 33. Drottninggatan 108113 60 Stockholm Sweden. THG Hangar Ltd 12699915 The Engine House Media Services Ltd 10597642 Indigo Environmental Ltd 10695826 Indigo Environmental Holdings Ltd 11738577 THG Hangar Holdco Ltd 12698636 Three Counties Reclamation Ltd 3792922 16. Lote D, Área Empresarial de Marim, 8700-122 Olhão, Portugal. 34. Rawlinson & Hunter Singapore - 30 Cecil Street, #18- 02 & 03, Prudential Tower, Singapore 049712. The Protein Lab (UK) Ltd 8491800 Preston Plastics Holdings Ltd 13265838 Preston Plastics Ltd 3377914 17. Jebel Ali Free Zone, Dubai, UAE. THG Nutrition Ltd 13400484 THG Beauty Ltd 13400467 THG OnDemand Ltd 13400489 THG Ingenuity Ltd 13414244 THG Luxury Ltd 13515580 THG Experience Ltd 13515614 The Hut.com Limited 5016010 Media Ark Limited 6127322 Arrow Film Distributors Limited 2584648 Iwantoneofthose.com Limited 52189 Ameliorate Skincare Limited 3427037 Brighter Foods Limited 8815259 CNP Professional Holdings Limited 53443 THG Trustee Limited 10511000 Cult Beauty Limited 6195011 Gadbrook Limited 9867117 THG Intermediate OpCo Limited 12297092 THG Eco Limited 13400476 Virtual Internet Holdings Limited 5943486 THG Shelfco Limited 13120197 THG Insurance Limited 2770512 THG Icon CP PropCo Limited 12940601 The below subsidiaries have taken the exemption from an audit for the year ended 31 December 2022 permitted by s480 of Companies Act 2006. Name Company Name Company Name Company number number number Lookfantastic London Ltd 6338404 Exante Diet Ltd 7126424 Bike Kit Ltd 8317188 Mama Mio Distribution Ltd 7721655 Mankind Holdings Ltd 52666 The Hut Holdings Ltd 7002848 Fair Juice Ltd 6494686 1010 Products Ltd 3402920 Indigo Polymers Ltd 11526560 Myvitamins Ltd 8179216 The Hut Group Limited 12526836 221 222 Annual Report 2022 ## Company only ## financial statements 224223 29. Post balance sheet events At the year end, certain loss-making categories and territories primarily within THG OnDemand were placed under strategic review. Post year end, and following completion of the strategic review (further details on which are included in the “Section 172 Statement Stakeholder Engagement” section), the Board approved the exit from THG OnDemand. In Q4, the Board approved the exit of ProBikeKit. These operations will be fully exited throughout the course of 2023. The optimal exit route remains under review. The result of this decision has led to an inventory provision totalling £25.5m, other costs of £6.9m and impairment of £3.8m which have been recognised within cost of sales and administrative expenses respectively and included within Adjusted Items (note 4). This has been concluded as an adjusting post balance sheet event. On 28 February 2023, the sale completed in respect of one of the non-core freehold assets recorded within the assets held for sale category (note 12.2). The sale generated cash proceeds of £5m which reflected the carrying value of the asset. No other post balance sheet events have occurred. Annual Report 2022 # Company statement of financial position as at 31 December 2022 | | Note | 2022 €'000 | 2021 €'000 | | --- | --- | --- | --- | | **Non-current assets** | | | | | Investments | 4 | 524,980 | 506,840 | | | | **524,980** | **506,840** | | **Current assets** | | | | | Receivables | 5 | 1,812,636 | 1,400,262 | | Cash | | 98,267 | 292,278 | | | | **1,668,903** | **1,669,540** | | Payables: amounts falling due within one year | 6 | (9,710) | (3,147) | | **Net current assets** | | **1,660,963** | **1,661,363** | | **Total assets less current liabilities** | | **2,964,773** | **2,964,239** | | **Net assets** | | **2,964,773** | **2,964,239** | | **Capital and reserves** | | | | | Called up share capital | 7 | 6,863 | 6,864 | | Share premium | | **2,024,452** | **2,022,311** | | Margin reserve | | 615 | 615 | | Capital redemption reserve | | 923 | 923 | | Loss for the year | | (22,580) | (10,328) | | Retained earnings | | **174,840** | **183,434** | | **Total shareholders' funds** | | **2,964,773** | **2,964,239** | The financial statements on pages 225-230 were approved by the Board of Directors on 17 April 2023 and were signed on its behalf by: Damian Sanders Chief Financial Officer Registered number: 06539496 225 # Company statement of changes in equity 31 December 2022 | | Ordinary shares €'000 | Share premium €'000 | Share premium €'000 | | --- | --- | --- | --- | | **Balance at 1 January 2021** | **6,061** | **1,287,571** | **61** | | Loss for the year | - | - | - | | Issue of ordinary share capital | 623 | 730,240 | - | | **Balance at 31 December 2021** | **6,064** | **2,022,311** | **61** | | **Balance at 1 January 2022** | **6,064** | **2,022,311** | **61** | | Loss for the year | - | - | - | | Issue of ordinary share capital | 218 | 2,141 | - | | Share-based payment | - | - | - | | **Balance at 31 December 2022** | **6,063** | **2,024,452** | **61** | Annual Report 2022 # 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 Company financial statements have been prepared in accordance with United Kingdom's Generally Accepted Accounting Practice, including Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101), and 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 £22.6m (2021 £19.3m). The financial statements have been prepared on the historical cost basis. 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 There have been no new or amended accounting standards or interpretations adopted during the year that have had 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. 227 # d. Financial liabilities and equity Annual Report 2022 Notes to the Company financial statements (continued) ## 2. Employee costs and numbers 7. Share capital and reserves The average number of employees during the year was 2 (2021: 2). 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 2022 2021 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; £'000 £'000 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 2022, Short term employee benefits 270 50 the Company’s issued share capital comprised: Class Social security costs 25 3 2022 Number Nominal value £ each Pension costs 2 - Ordinary Shares 1,265,377,243 0.005 297 53 | | D1 Shares | 56,082,651 0.005 | | | --- | --- | --- | --- | | | D2 Shares | | 1 7,741 1 | | 3. Auditor remuneration | E Shares | 48,995,797 0.005 | | | | F Shares | 27,122 ,2 8 7 0.005 | | Amounts paid to the Company’s auditors are disclosed in note 5 of the Group’s consolidated financial statements. G Shares 17,494,614 0.005 Special Share 1 1 ## 4. Fixed asset investments Deferred 1 Shares 313,257 0.005 Fixed asset investments comprise investments in subsidiary undertakings. Deferred 2 Shares 21,563,860 0.005 2022 2021 1,436,967,451 £'000 £'000 At 1 January 508,846 508,846 During the financial year ending 31 December 2022 the following took place. The conversion of shares are in respect of the employee share scheme: Additions 15,734 - At 31 December 524,580 508,846 (xxv) 34,454 Ordinary Shares were converted from 34,454 E Shares; (xxvi) 88,000 Ordinary Shares were converted from 88,000 E Shares; (xxvii) 22,953 Ordinary Shares were converted from 22,953 E Shares; (xxviii) 1,606 Ordinary Shares were converted from 1,606 E Shares; ## 5. Receivables (xxix) 6,399 Ordinary Shares were converted from 6,399 E Shares; (xxx) 44,909 Ordinary Shares were converted from 21,144 E Shares, 8,000 F Shares and 15,765 G Shares; 2022 2021 (xxxi) 71 D2 Shares were subdivided into 14,200 D2 shares of £0.005 each, 13,169 of which converted into 13,169 Ordinary Shares and 1,031 of which were reclassified as Deferred 1 Shares; £'000 £'000 (xxxii) 1,000 Ordinary Shares were converted from 1,000 E Shares; Trade and other receivables 2,480 596 (xxxiii) 15,530 Ordinary Shares were converted from 6,208 F Shares and 9,322 G Shares; (xxxiv) 75,000 Ordinary Shares were converted from 75,000 G Shares; Amounts owed from Group undertakings 1,575,903 1,373,336 (xxxv) 1,000 Ordinary Shares were converted from 1,000 E Shares; Unpaid share capital 26,919 27,026 (xxxvi) 12,000 Ordinary Shares were converted from 12,000 G Shares; (xxxvii) 65,000 Ordinary Shares were converted from 65,000 E Shares; Corporation tax asset 4,741 4,687 (xxxviii) 24,806,893 Ordinary Shares were issued for a total consideration of £911,722 (note 7); Other taxation and social security 1,229 379 (xxxix) 1,000 Ordinary Shares were converted from 1,000 E Shares; (xl) 77,175 Ordinary Shares were converted from 16,118 E Shares, 30,497 F Shares and 30,560 G Shares; Prepayments and accrued income 1,362 238 (xli) 12,168 Ordinary Shares were converted from 4,193 F Shares and 7,975 G Shares; 1,612,634 1,406,262 (xlii) 19,074,902 Ordinary Shares were issued for a total consideration of £1,521,117 (note 7); (xliii) 19,753 Ordinary Shares were converted from 10,572 F Shares and 9,181 G Shares; Amounts owed by Group undertakings are unsecured, non-interest bearing and repayable on demand. The current amount includes amounts of £1,575.9m (xliv) 17,529 Ordinary Shares were converted from 7,048 F Shares and 10,481 G Shares; (2021: £1,373.3m) due on demand but expected to be settled after 1 year. (xlv) 52,026 Ordinary Shares were converted from 8,068 E Shares, 17,620 F Shares and 26,338 G Shares; At 31 December 2022, there were 160,809,675 fully vested, but partly paid and unlisted Shares (31 Dec 2021: 161,439,766). The average amount of unpaid share (xlvi) 26,292 Ordinary Shares were converted from 10,572 F Shares and 15,720 G Shares; capital per fully vested but partly-paid and unlisted Share is £0.17 (2021: £0.16) representing a receivable to the Group of £26.9m (2021: £27.0m). The movement (xlvii) 6,538 Ordinary Shares were converted from 2,643 F Shares and 3,895 G Shares; and in the year is all due to certain fully vested but partly paid and unlisted Shares being paid-up and converted to Ordinary Shares. (xlviii) 4,000 Ordinary Shares were converted from 4,000 E Shares. ## 6. Payables: amounts falling due within one year ## 8. Related party transactions 2022 2021 £'000 £'000 The Company has taken exemption under FRS 101 not to disclose transactions with wholly owned subsidiary companies. Trade creditors 1,900 919 Accruals and deferred income 6,810 2,228 8,710 3,147 229 230 Annual Report 2022 Alternative performance measures (“APMs”) ## Glossary 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 and acquisition-related costs) 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 or as part of the outcome of the strategic review or divisional reorganisation. • 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 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. • In 2022 following the strategic review, some non-core categories and territories were discontinued. These areas do not meet the definition of a component to be disclosed under IFRS 5; Assets held for sale and discontinued operations as a discontinued operation on the face of the consolidated income statement and as such has been recognised as an APM in 2022 to provided information to the users of the financial statements of the ongoing operations. 231 232 Annual Report 2022 Closest Closest Adjustments to reconcile to Adjustments to reconcile to APM equivalent Purpose APM equivalent Purpose primary statements primary statements IFRS measure IFRS measure • Depreciation EBITDA is a useful measure for investors • Adjusted items • Amortisation because it is a measure closely tracked by To show gross profit before depreciation and • Depreciation and management to evaluate THGs operating | Adjusted Gross profit Gross profit | | amortisation charged due to its nature to aid | | amortisation | | | --- | --- | --- | --- | --- | --- | | | See the Chief Financial | | | | performance and to make financial, strategic and | | | | comparability. | • Share-based payments | | | | | Officer review footnote 1 | | | | operating decisions and may help investors to | • SaaS costs arising from for a reconciliation. understand and evaluate, in the same manner Adjusted EBITDA Operating change in accounting as management, the underlying trends in (continuing) profit policy operational performance on a comparable basis • EBITDA from discontinued year on year. categories • Adjusted items • Depreciation and In 2022 an additional measure has been See the Chief Financial Officer | | | | amortisation | To show distribution costs before adjusted items | | recognised to show the impact of the operations | | --- | --- | --- | --- | --- | --- | --- | | Adjusted distribution | Distribution | | | | review for a reconciliation. | | | | | | | and depreciation and amortisation charged due | | that will continue in 2023. | | costs | costs | | | | | | | | | See the Chief Financial | | to their nature to aid comparability. | | | Officer review footnote 1 for a reconciliation. • Loans and other borrowings To show the cash balance after the deduction • Foreign exchange of the loans and other borrowings balances • Adjusted items (Retranslate debt balance but before lease liabilities are deducted and • Depreciation and Net (debt) / cash at swap rate where hedged after retranslation of debt balance at swap rate. amortisation before lease Cash by foreign exchange This measure is tracked by management when • SaaS costs arising from liabilities derivatives) Adjusted To show administrative expenses before adjusted reviewing liquidity and the indebtedness of the Administrative change in accounting policy • Lease liabilities administrative items and depreciation and amortisation charged Group which is then used to drive any strategic expenses • Share-based payments expenses due to their nature to aid comparability. or acquisition related decisions. See the Chief Financial Officer See the Chief Financial review for a reconciliation. Officer review footnote 1 for a reconciliation. • Loans and other borrowings EBITDA is a useful measure for investors To show the cash balance after the deduction • Foreign exchange because it is a measure closely tracked by of the loans and other borrowings balances and (Retranslate debt balance management to evaluate THGs operating after retranslation of debt balance at swap rate. at swap rate where hedged performance and to make financial, strategic and Net debt Cash This measure is tracked by management when by foreign exchange operating decisions and may help investors to reviewing liquidity and the indebtedness of the derivatives) understand and evaluate, in the same manner Group which is then used to drive any strategic • Adjusted items as management, the underlying trends in or acquisition related decisions. • Depreciation and See the Chief Financial Officer operational performance on a comparable basis amortisation review for a reconciliation. Operating year on year. Adjusted EBITDA • Share-based payments profit Share-based payment costs are added back, See the Chief Financial Officer following the launch of the share-based payment review for a reconciliation. scheme in the year and management consider these to be outside of the underlying day-to- day operations. Given the material size of these charges they are removed from underlying Adjusted EBITDA. 233 234 Annual Report 2022 The definitions set out below apply throughout this document, unless the context requires otherwise. | 2021 Annual Report | means the Annual Report and Accounts of the Company in respect of the financial year ending 31 December 2021 | | --- | --- | | 2022 AGM | means the annual general meeting of the Company held on 10 June 2022 | | 2030 Sustainability Strategy | means the Group's Sustainability Strategy, THG's 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 2022 | | Adjusted EBITDA | means the non-GAAP measure which is defined as Earnings Before Interest, Taxes, Depreciation, Amortisation, share-based payments, SaaS change in accounting policy and adjusting items as detailed in note 4 of the financial statements contained within this Annual Report | | Adjusted EBITDA (continuing) | means the non-GAAP measure which is defined as Earnings Before Interest, Taxes, Depreciation, Amortisation, share-based payments, SaaS change in accounting policy, adjusting items and removal of the EBITDA from those operations within the Group that are no longer continuing | | Admission | means the admission of 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 | | AGM | means the annual general meeting of the Company that will be held on 21 June 2023 | | Annual Report | means this Annual Report and Accounts of the Company in respect of the financial year ending 31 December 2022 | | AP1 | 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 | means AutoStore AS, a warehouse robotics company | | B2B | means business to business | | Bentley Laboratories | means Bentley Laboratories LLC, an innovative developer and manufacturer of prestige skincare and haircare products that was acquired by THG on 15 June 2021 | | Board | means the board of directors of the Company | | Board Committees | 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 | | Brexit | means the UK's decision to leave the European Union following the referendum on 23 June 2019 | | Brighter Foods | means Brighter Foods Limited, a specialist developer and manufacturer of snack bars that was acquired by THG on 11 May 2021 | | Carbon Neutrality | means achieving a net-zero release of greenhouse gas emissions (including carbon dioxide) into the atmosphere | | Char or Independent Char | 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 Damian Sanders, the Company's Chief Financial Officer | | Chief Operating Officer or COO | means John Gallemore, the Company's Chief Operating Officer and co-founder | | 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 06539466, whose registered office is at Icon 1, 7-9 Sunbank Lane, Ringway, Altrincham, United Kingdom, WA15 0AP | | 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 | means the disease caused by Severe Acute Pandemic that has impacted the Group's | | --- | --- | | CRM | means Customer Relationship Management | | Cult Beauty | means Cult Beauty Limited, the UK-based that was acquired by THG on 3 August 2021 | | CX | means customer experience | | DM | means diversity and inclusion | | D1 Shares | means the D ordinary shares of €5000 each the restrictions set out in the Articles of As | | D2 Shares | means the D ordinary shares of €100 each the restrictions set out in the Articles of As | | D2C | means direct to customer | | Deferred 1 Shares | means the deferred 1 shares of €5000 each the restrictions set out in the Articles of As | | Deferred 2 Shares | means the deferred 2 shares of €5000 each the restrictions set out in the Articles of As | | Dermative | means Dermature LLC, the pure play on 2021 | | Directors | means the directors of the Company from | | Disclosure Guidance and Transparency Rules or OTRs | means the disclosure guidance and transparency and Markets Act 2000 (as amended from | | Division | means business units within the Group The THG On Demand, THG Luxury and THG Ex | | Divisional Reorganisation Committee | means the committee, formerly named the delivery and execution of the reorganisation of six sub-groups relating to THG Beauty, Experience | | EBITDA | means the non-GAAP measure which is d Amortisation | | EBT | means earnings before tax | | eCRM | means electronic customer relationship m | | Employee Incentive Plan | means the employee incentive plan which Ordinary Share awards will be made to co | | ERM | means Enterprise Risk Management | | ESG | means environmental, social and corporate the sustainability and societal impact of the | | EU | means the European Union | | E Shares | means the E ordinary shares of €5000 each the restrictions set out in the Articles of As | | Executive Leadership Team | means, collectively, those individuals hold | | Executive Directors | means the executive directors of the Company Financial Officer and the Chief Operating Officer means any one of them | | EY or External Auditor | means Ernst & Young LLP, the Group's sta | | FCA | means the Financial Conduct Authority | | FDA | means the Food and Drug Administration, | | FIRST | means fulfilment, inventory, retrieval and a | | FMCG | means fast moving consumer goods | | FRC | means the Financial Reporting Council | 235 Annual Report 2022 | F Shares | means the F ordinary shares of €5000 each in the capital of the Company, having the rights and being subject to the restrictions set out in the Articles of Association | | --- | --- | | GAAP | means Generally Accepted Accounting Principles | | GBPR | means the General Data Protection Regulation (EU) 2010/879 | | General Counsel | means James Richin, the General Counsel of the Company | | GHG | means greenhouse gases | | GMV | means Gross Merchandise Value | | Group or THG | means the Company and its subsidiaries and subsidiary undertakings from time to time | | G Shares | means the G ordinary shares of €5000 each in the capital of the Company, having the rights and being subject to the restrictions set out in the Articles of Association | | HI 2023 | means the six-month period from 1 January 2023 to 30 June 2023 | | H Shares | means the H ordinary shares of €5000 each in the capital of the Company, having the rights and being subject to the restrictions set out in the Articles of Association | | IAS | means International Accounting Standards | | IFRS | means International Financial Reporting Standards | | IPO | means the initial public offering of Ordinary Shares by the Company in September 2020 | | KPI | 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 | means any long-term incentive plan operated by the Company from time to time | | M&A | means mergers and acquisitions | | NEDs | means the Non-Executive Directors of the Company and 'NED' means any one of them | | Notice of Meeting | means the notice of AGM circulated to Shareholders on or around the date of posting of this Annual Report | | NPO | means new product development | | Ordinary Shares | means the voting ordinary shares of €5000 each in the capital of the Company, having the rights and being subject to the restrictions set out in the Articles of Association | | Pentzone | means Pentzone MD, the US prestige skincare brand that was acquired by THG on 29 September 2020 | | 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 | | Propos Group | means Moulding Capital Limited (formerly Kingsmead Holden Limited), a company incorporated in Guernsey (registered no. 97762), whose registered office is at Somia House, La Truchet, St Peter Port, Guernsey, GU11 0R ('Propos'), 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 Propos | | Propos Transaction | means the sale of the Propos Group prior to Admission to Moulding Group Limited (formerly PTC Holdings Ltd), which is wholly owned by Matthew Moulding, the CEO | | RCF | means revolving credit facility | | Regulations | means the Companies (Miscellaneous Reporting) Regulations 2016 (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) | | Said | means software as a service | | SBTI | means the Science Based Targets initiative targets in line with climate science | | --- | --- | | Section 170 | means section 172 of the Companies Act with success of the company | | SEDEX | means Supplier Ethical Data Exchange | | Senior Management | means the Executive Leadership Team and | | Shareholder | means a holder of Ordinary Shares | | Shares | means together the Ordinary Shares, O1.5 Shares, Deferred 2 Shares and the Special | | SID | means the Board's senior independent NE January 2023 | | Softbank | means SB Management Limited, a subsidiary | | Special Share | means the 'special' share of £100 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 | | TCPO | means the Task Force on Climate-Related organizations more effectively disclose climate processes | | THG Beauty | means a key division and market of the Company | | THG Digital | means the Company's end-to-end digital | | THG Eco | means the Company's sustainability solution | | THG Experience | means a key division and market of the Company | | THG Ingenuity | means a platform created and used by the Company | | THG Luxury | means the luxury fashion retail division of the Company | | THG Media | means the Company's digital content, learning | | THG Nutrition | means a key division and market of the Company | | THG OnDemand | means the division offering personalisation | | THG Procure | means our internally developed procurement | | THG Studios | means a division of the Company which provides | | THG Technology | means a key division and market of the Company | | THG Values | means the Company's values, namely lead | | WMS | means warehouse management systems | | Yor | means year on year | 237