16 September 2021

THG PLC

Interim results for the half-year ending 30 June 2021

Group revenue of £958.8m, +44.7% YoY and +95.0% 2 year growth (constant currency), with THG Beauty H1 revenue a highlight at +59.0% YoY growth. Adjusted Group EBITDA of £81.2m, +38.6% on H1 2020

Ahead of schedule for both the technical separation of each of the Group's key trading divisions and the exercise of the SB Management Limited ("SBM") Ingenuity investment option in 2022  

Announcing today that THG Beauty is to be separated and listed on a public share-trading exchange in 2022

Nine companies across the SoftBank Group Corp. ("SoftBank") portfolio, including AutoStore, are partnering with THG Ingenuity, driving increased THG revenue and enhanced platform functionality, with a healthy pipeline going forward underpinning the collaboration agreement

Launch of FIR/ST, a global-innovation combining AutoStore's automated storage and recovery system with THG Ingenuity's warehouse management and courier system, creating a single, headless, end-to-end global fulfilment software solution

50 end-to-end, fully localised and serviced websites launched across 22 territories for existing and new THG Ingenuity clients, with over 95% of clients utilising THG's global fulfilment network, delivering +165.5% revenue growth in H1

THG PLC ("THG" or the "Group"), the proprietary technology platform specialising in taking brands direct to consumers ("D2C") globally, announces its interim results for the half-year ending 30 June 2021 ("H1 2021").

H1 2021 Group Trading Performance                                                            

⁽¹⁾ YoY defined as year-on-year statutory sales growth

⁽²⁾ CCY defined as constant currency basis. Removing fluctuations arising from translation of foreign exchange by restating prior year numbers at current year exchange rates

⁽³⁾Gross Margin % is presented before the impact of depreciation and amortisation

⁽⁴⁾ Adjusted EBITDA is defined as operating profit before depreciation, amortisation and adjusted items, and after £1.0m of self-funded furlough costs in H1 2021 (H1 2020: £1.6m)

⁽⁵⁾Net Cash / (Debt) is cash and cash equivalents less debt before lease liabilities, on a hedged basis (see note 7 to the interim results)

Matthew Moulding, Executive Chairman and CEO of THG, commented:

"I am delighted to announce a strong first half performance across all divisions, as we continue to invest significantly in support of our strategic growth ambitions. This investment is across our entire business, including our infrastructure, namely our recently-opened ICON campus and our global distribution network, in our Ingenuity platform, in building leading digital brands, and most importantly, in our people.

"In May, we announced the financial and trading partnership opportunity with SoftBank, one of the world's leading technology investors. We are only at the start of this relationship, but we are pleased to have already established multiple live commercial partnerships between the SoftBank portfolio and our Ingenuity platform. We continue to see an acceleration in levels of enquiry from global enterprises looking to leverage the Ingenuity platform, and I believe the global growth opportunity for Ingenuity to be unparalleled.

"Today we also update on the roadmap to separating our key trading divisions, and announce our commitment to list THG Beauty in 2022, which we believe will create further value for our shareholders.

"We are also proud to be launching our 2030 sustainability strategy, outlining our key priorities and commitments in the coming weeks."

Half-year 2021 financial highlights

·   During the first half THG shipped over 20 million orders to 195 countries. Notwithstanding more challenging comparatives in the second quarter of 2021, Group revenues increased by 44.7% on a constant currency basis to £958.8m, as consumers continued to positively migrate their shopping habits online.

·     Returning customers generated 76% of direct-to-consumer H1 2021 Group revenues, reinforcing the repeat nature of our digital brands, Ingenuity's frictionless retailing environment and the enduring nature of consumer channel shift to online.

·    Increasing US participation at 19% of Group revenue following strong organic growth across beauty and nutrition, and the acquisition of Dermstore, the leading specialty retailer of prestige skincare online in the US. Dermstore has now been fully migrated to the Ingenuity platform ahead of schedule, with all THG Beauty own brands expected to be available to purchase at www.dermstore.com by the end of the year. THG Beauty Highlights: https://f.io/yYF73tZz

·   Building on THG Nutrition's vertical integration capabilities, the canning and bottling expertise at Berryman's (acquired 29 December 2020) has expedited the launch of 14 new products in the first half of 2021, supporting YoY ready-to-drink revenue growth of +59%.          

·     Ingenuity Commerce revenues grew +165.5% to £18.3m during the period with over 70, end-to-end, fully localised and serviced brand sites scheduled to launch in H2 2021 (vs 50 in H1 2021), as the business development function continues to scale with commitments to build this global team to over 100 people by the year end.

·    The Group's measure of gross profit margin at 46.5%, is +130bps ahead of H1 2020, with gross profit growth of +46.1% on H1 2020 driven by strong underlying trading margins in Nutrition, Beauty and Ingenuity Commerce.

·     Adjusted EBITDA of £81.2m, at a margin of 8.5% (vs 8.7% in H1 2020, post self-funded furlough costs) reflects the initial dilutive impact of the Dermstore acquisition, which is expected to be neutral to the Group margin by the end of 2022 (as communicated at the time of acquisition). 

·    Strong liquidity with net cash of £384.6m at half-year end (excluding lease liabilities), with liquidity available of more than £1.0bn (including undrawn facilities).

·     Before adjusted items in the period, the Group generated an operating profit of £11.2m (H1 2020: £13.4m).

·     The Group has incurred an operating loss for the first-half of £17.4m impacted by certain non-recurring cash costs:

o £15.6m of non-recurring Distribution costs (principally transportation, delivery and fulfilment costs associated with Covid-19, which are declining as expected and now running at half of the levels seen at the peak FY 2020 position);

o  £13.0m of Administrative costs (principally acquisition related costs including legal and professional fees) which are included within adjusted items reflecting the non-underlying nature of these costs.

Half-year 2021 strategic and operational highlights

·    Over $1.0 billion capital raised to support the continuation of the Group's disciplined M&A strategy, including the investment in Cult Beauty (acquired 4 August 2021), which will migrate fully onto the THG Ingenuity platform by the end of the year, delivering the overseas growth strategy through the platform's well-proven internationalisation capabilities. 

·     Integration of 2021 acquisitions Dermstore, Bentley Labs and Brighter Foods all on track.

·    In addition to subscribing c. $730m as part of a wider capital raising, THG and SB Management Limited, a wholly owned subsidiary of SoftBank Corp. ("SBM") entered into an Option and Collaboration agreement to explore commercial arrangements between the Group and SoftBank portfolio companies, whilst also granting SBM an option to subscribe for a 19.9% interest in THG Ingenuity for a $1.6bn investment, at a $6.3bn enterprise value.

·    Commitment to invest in 3.6 million sq. ft. of additional fulfilment, production and personalisation capacity at key locations globally to support THG's own-brands and Ingenuity clients, equivalent to a c. 200% increase in fulfilment capacity over three years.

·     Apps continue to be an efficient customer retention and acquisition tool:

o  7x increase in downloads vs H1 2020;

o  over 5% of D2C sales are now accounted for by app purchases;

o  the Lookfantastic app average order values ("AOVs") are c. 5% higher than non-app sales; and

o  10 day reduction in the repeat order cycle for returning Myprotein app customers.

·    Further expansion of the THG Society influencer platform with over 26,000 global influencers onboarded, driving low cost engagement and customer acquisition to THG brands and Ingenuity clients, with influencers generating 11.0% of D2C sales in the period on a tracked¹ basis (vs 8.5% in H1 2020).

·    THG recognised as one of the 'Best Companies' Top 25 Best Big Companies to Work for 2021, alongside improved agile working practices across the Group.

·    At Retail Risk's Fraud Awards, THG Detect, the Group's proprietary fraud prevention software supporting THG and Ingenuity brands, won the Most Innovative Online/Supply Chain Solution and was Highly Commended in the Loss Prevention Online/Supply Chain Team of the Year category.

 ^[1]Tracked is based on revenues via link last click attribution and codes which may have a last click attribution of other digital channels.

Ingenuity Commerce and SoftBank collaboration update

Ingenuity is rapidly diversifying its outreach through global, peer-to-peer, B2B partnerships to access pools of new clients. For example, THG Ingenuity is now partnering with the leading marketing, search and social network platforms, with the deepest US, UK & European and Asian penetration to promote Ingenuity services to their customers, either as an end-to-end full-service or headless components. Ingenuity has been selected as a preferred partner given its proven capabilities across e-commerce internationalisation, data intelligence, in-app payment methods, marketing and many more services.

THG Ingenuity has also partnered with leading beauty tech solutions provider Perfect Corp. to offer consumers across Ingenuity's sites the ability to preview products or experience services in their own environment via augmented reality and artificial technology. In its partnership with StoryStream, an artificial intelligence powered curation platform, Ingenuity is helping D2C brands display user-generated content across the e-commerce journey.

New client highlights for H1 2021 include:

·     Coca-Cola Europacific Partners ("CCEP") is taking advantage of THG Ingenuity's unique end-to-end offering, proven expertise, and speed of delivery to deliver a D2C site in Great Britain. The tie-up spans a full range of e-commerce services including hosting, trading, operations, and delivery, with the brand leveraging D2C to drive long-term brand loyalty and generate insight. The partnership aims to grow CCEP's D2C offering at speed, with potential for international expansion in the future.

·  A partnership with Mondelez International, whose global portfolio of household names includes Cadbury, Toblerone, Oreo and Philadelphia, to deliver personalisation for Toblerone. Following the UK launch, there is scope to expand the technology into further Mondelez International brands and Toblerone markets.

·   Launch of a UK site for ZYN, a nicotine pouch brand owned by Swedish Match, one of the world's leading manufacturers of smoke-free products. THG Ingenuity is responsible for trading, marketing, strategy and operations as part of a 10-year end-to-end service partnership, with ambition to roll out the launch into multiple territories. 

·  Partnering with William Grant & Sons ("WG&S"), the independent distillers with a global reach, to launch Clinkspirit.com, a new e-commerce platform that gives consumers direct access to award-winning spirit brands and content. THG Ingenuity has collaborated with WG&S to create the entire Clink* brand, utilising the strategic expertise of THG Studios to launch in the UK.

·   A long-term partnership to provide a complete end-to-end service including trading, marketing, strategy and operations for the new L'OR Japan D2C site, part of JDE Peet's portfolio of world leading coffee and tea brands.

The rapidly building awareness of Ingenuity on a global scale has led to keynote speaker participation at industry conferences hosted by technology peers and consultancies including Facebook, Yandex, KPMG, PwC and Citi.   

In order to expand the Group's cloud based hosting capabilities, it has invested £1.4m for a c. 9.4% equity stake in Civo, a highly innovative, cloud technology business. This investment will provide THG with a public cloud product and technology which makes cloud based hosting simpler to deploy and materially more efficient, enabling THG Ingenuity to get significantly more operating leverage from its existing server infrastructure. In addition to the equity stake in Civo, THG is also acquiring a perpetual license to Civo's technology and a call option that gives THG the right (but not the obligation) to acquire further tranches of the business as it scales in a highly disruptive and rapidly growing market.

SoftBank collaboration

Current and pipeline collaborations between THG Ingenuity and SoftBank portfolio companies, range from THG offering both end-to-end Ingenuity Commerce services and single service headless components of the Ingenuity stack, to bolting on enhancements to Ingenuity from across the SoftBank portfolio in marketing, payments, B2B financing, and fulfilment.

·    Development of FIR/ST ("Fulfilment & Inventory Retrieval / Storage Technology"): a single, cross-border productised software solution formed through the integration of AutoStore's proprietary Automated Storage Recovery System ("AS/RS"), with headless elements of THG Ingenuity's proprietary infrastructure, specifically: Voyager, the Warehouse Management System ("WMS"), THG Delivered, the Global Courier Platform ("GCP"), and THG Orbit, the Global Customer Service Platform ("CSP").

There is no comparable product available in the market, addressing all FMCG product categories across a single unified distribution platform, providing a single view to optimise end-to-end WMS, AS/RS, GCP and CSP.

The benefits of developing this single, headless product include;

§ the fastest AS/RS with 99.6% uptime;

§ reduced fulfilment cost per unit;

§ increased implementation speed;

§ reduced integration risks;

§ global courier reach and international customer service; and

§ greater accountability given it is an end-to-end fulfilment, courier and customer services software solution.

FIR/ST will connect to all major 3^rd party platforms globally, bringing these benefits to the entire addressable fulfilment market.

FIR/ST will go live in H1 2022 initially supporting Ingenuity merchants in the US and thereafter, Ingenuity clients globally via the Group's global, 3.6m sq. ft. distribution centre roll out in 2022 and 2023 in addition to supporting SoftBank portfolio companies (where applicable). 

·    In one of its first major partnerships with a Vision Fund II portfolio company, THG Ingenuity has partnered with Clearco, one of the world's largest funders of e-commerce businesses, to offer corporate clients the opportunity to finance their Ingenuity Commerce expansion. Through the innovative new partnership, brands will be able to pursue accelerated international digital transformation programmes through Ingenuity, without traditional funding constraints.

·    Freight technology provider Flexport has agreed a partnership with Ingenuity to offer THG brands and Ingenuity clients data-driven supply chain visibility to maximise efficiencies across global logistics and trade.

·    THG Beauty is integrated with Contentsquare to optimise its e-commerce site content delivery. Contentsquare's digital experience analytics cloud helps companies understand hidden customer behaviour, and use those insights to deliver an enhanced customer experience, increased website conversion and higher customer lifetime value.

·    US delivery provider Gopuff is renowned for its 30-minute D2C local delivery service, powering global US-based grocery and CPG clients. Initially the partnership with THG will be focused on extending delivery options for Myprotein customers in the US, with the brand to be stocked in 80 local US fulfilment sites, enabling customers in select cities to have Myprotein delivered within an hour of order. The partnership will also support 3^rd party Ingenuity merchants from 2022.

SBM Option Agreement and divisional separation progress

Further to the announcement on 10 May 2021 where the Group committed to undertaking a review of its corporate structure as part of the intended separation of its key trading divisions, the Board is pleased to confirm that progress remains ahead of schedule for the separation in 2022.  To deliver the separations, the Group originally guided to 15 calendar months from announcement, with a right to extend by up to a further 6 calendar months where reasonably required.

The anticipated completion of the divisional separation work in H1 2022 will enable THG to complete SBM's investment into Ingenuity for a minority 19.9% stake. Whilst immediately following the exercise of the SBM option Ingenuity will be a majority owned subsidiary of THG, the Group retains ultimate discretion and flexibility to determine any subsequent IPO, or other structural option for Ingenuity, with the objective to maximise value for all shareholders.

Furthermore, completion of the separation work will enable a listing of THG Beauty during 2022. This commitment reflects the continued strong organic growth of the division and its position as the industry's digital strategic partner globally, its growing US footprint, expanding global social media presence (>3 million Instagram followers) and vertically integrated model. A separate listing for THG Beauty will position the business very well to focus investment in its key growth areas, including own-brand portfolio expansion. The decision of whether to separately list THG Nutrition and the timing will remain under consideration.

The commercial details of the long-term, arm's-length Ingenuity contracts with both THG Beauty and THG Nutrition will be disclosed during H1 2022.

The option is a derivative instrument and as a consequence of the market value being considered greater than the price to be paid by SBM, a non-cash charge has been incurred within Finance costs.

Outlook and guidance

Guidance is in line with the Group's statement on 4 August 2021 on a constant FX basis.

·    Trading remains strong and we are confident in delivering FY 2021 Group revenue growth of between +38% to +41% on a constant currency basis (reported growth of +35% to +38%).

·    Margin guidance remains unchanged at stable adjusted EBITDA margins on a constant FX basis, before taking into consideration the dilutive full year contribution of Dermstore (which is expected to be in line with Group margins by the end of 2022). 

·    FY 2021 capital expenditure guidance for the Group is between 10.0% to 12.0% of Group revenue (vs 14.8% in 2020). The continued level of expenditure is driven by an acceleration of growth plans to support our own brands, Ingenuity clients and reflecting investment in acquired assets.

·     The Group continues to take a highly selective and disciplined approach to M&A, with strategic priorities remaining beauty brands, and assets that extend the Group's vertical integration, and expand its brand building and digital commerce activities. The capital raise in May 2021 provided >$1 billion to support the Group's successful M&A strategy, with a select number of value-enhancing opportunities under evaluation. 

Capital Markets Event

·    The Group plans to host its inaugural Capital Markets Event on 12 October  2021, presenting its end-to-end technology platform, Ingenuity.

Analyst and investor conference call

THG will today host a conference call and webcast for analysts and investors at 9.00am (UK time) via the following links:

To register for the webcast, please use the below link:

https://webcasting.brrmedia.co.uk/broadcast/611a66f4c97de6636c2d9577

To ask questions, you must dial in via conference line using the below details:

·      Room number: 6175509

·      UK dial in: +44 (0)330 336 9126

·      US dial in: +1 929 477 0402

For further information please contact: 

ENDS

Notes to editors

THG (www.thg.com) is a vertically integrated, digital-first consumer brands group, retailing its own brands in beauty and nutrition, plus third-party brands, via its proprietary, end-to-end, e-commerce technology, infrastructure and brand-building platform (THG Ingenuity) to an online and global customer base. THG's business is operated through the following businesses:

THG Ingenuity: Ingenuity Commerce provides an end-to-end direct-to-consumer e-commerce solution for consumer brand owners under 'Software as a Service' (SaaS) licences. The wider Ingenuity division provides stand-alone digital services, including hosting, studio content, translation services and beauty product development and manufacturing.

THG Beauty: The globally pre-eminent digital-first brand owner, retailer and manufacturer in the prestige beauty market, combining its prestige portfolio of eight owned brands across skincare, haircare and cosmetics, the provision of a global route to market for over 1,000 third-party beauty brands through its portfolio of websites, including Lookfantastic, Dermstore, Cult Beauty and Mankind and the beauty subscription box brand GLOSSYBOX.  

THG Nutrition: A group of digital-first Nutrition brands, which includes the world's largest online sports nutrition brand Myprotein, and its family brands (Myvegan, Myvitamins, MP Clothing and Myprotein Pro), with a vertically integrated business model, supported by six THG production facilities.

THG OnDemand: Personalisation and customisation is a key offering within THG OnDemand, enabling brands to offer unique products to a vast range of consumers across THG's global territories through websites including Zavvi, IWOOT and Pop in a Box.

Other: Luxury D2C websites including Coggles, AllSole and MyBag, in addition to THG Experience. The latter comprises prestige events locations at Hale Country Club & Spa, King Street Townhouse Hotel and Great John Street Hotel, providing deeply experiential brand building environments, most notably in support of THG Society, the Group's proprietary influencer marketing platform.

THG (eco): THG (eco) is the driving force behind the Group's sustainability action plan. THG Eco covers the core pillars of THG's sustainability commitment: the planet, sustainable resources, people and livelihoods.

Cautionary Statement

This announcement may include "forward-looking statements" in respect of the Group's operations, performance, prospects and/or financial condition. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words and words of similar meaning as "anticipates", "aims", "due", "could", "may", "will", "should", "expects", "believes", "intends", "plans", "potential", "targets", "goal" or "estimates". By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Factors which may cause future outcomes to differ from those foreseen in forward-looking statements include, but are not limited to, those identified in the "Risk Management" section of the Group's 2020 Annual Report. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. Additionally, forward looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future.

Except as required by any law or regulation, no responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Nothing in this announcement should be construed as a profit forecast.

This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in the Group nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares or other securities of the Group. Statements in this announcement reflect the knowledge and information available at the time of its preparation.

THG PLC

Interim results for the half-year ending 30 June 2021

Chief Financial Officer Review

Following a momentous 2020 for THG, the first half of 2021 has carried on the strong delivery with sales growing 44.7% year-on-year (on a constant currency basis) to £958.8m, supported by continued new contract wins in THG Ingenuity Commerce, strong organic sales growth and robust delivery through the acquisitions integrated in the first half of the year, including Dermstore - the US number one pure-play online retailer of prestige skincare and specialty beauty brands.

⁽¹⁾ The table above shows financial results for cost of sales, distribution costs and administrative costs before the impact of depreciation and amortisation, which are shown as separate lines below EBITDA. For statutory presentation, cost of sales includes charges of £8.9m (2020: £7.7m), whilst distribution and administrative costs include £7.2m (2020: £3.3m) and £53.9m (2020: £34.2m) of charges respectively.

Revenue

Group revenues increased 45% year-on-year on a constant currency basis (42% growth on a reported basis) in the first half of 2021, an acceleration on full year 2020 growth as sales increased from £676m in H1 2020 to £959m in H1 2021. The wider consumer shift to digital channels continued at pace, partially supported by global disruption arising from the continuation of the Covid-19 pandemic alongside the strength of the THG Ingenuity platform. The Group has continued to deliver growth in all major channels with THG Beauty and THG Nutrition growing 59% and 30% year-on-year respectively (constant currency basis). The Group's largest market, the UK, grew 55% year-on-year and represented 41% of Group sales, whilst sales in the US more than doubled year-on-year supported by the acquisitions of Dermstore and Perricone.

Operating loss

The Group has incurred an operating loss in the period of £17.4m (H1 2020: operating loss of £24.8m), driven by adjusted items not related to the underlying performance of the business, principally £13.0m of acquisition related professional fees, restructuring and integration costs in addition to £15.6m of transportation, delivery and fulfilment costs in relation to Covid-19 and commissioning of new facilities. THG made an operating profit of £11.2m before these adjusted items (H1 2020: operating profit of £13.4m). 

Gross profit (before depreciation and amortisation)

The Group achieved gross profit (before depreciation and amortisation) of £446m at a gross profit margin  on this basis of 46.5%, 130bps higher than the previous year despite foreign exchange headwinds, reflecting robust underlying margin control. Gross margins increased year-on-year in both THG Beauty and THG Nutrition whilst the strong sales growth in THG Ingenuity supported the Group margin mix.

Operating expenses (before depreciation and amortisation)

Distribution costs (before depreciation and amortisation) as a percentage of revenue, excluding adjusted items, reduced by 40 bps on the comparative period totalling 17.2% of revenue despite substantial investment in the Group infrastructure with six more fulfilment centres in the Group network at the 30 June 2021, vs. the same time last year. THG's international mix remains strong supported by our end-to-end fulfilment model which utilises an extensive local courier network spanning over 115 services, all of which are fully integrated into the THG Ingenuity platform. The Group has built significant additional capacity in its global network to fuel future growth with our courier integrations providing optionality for the end customer and enhancing the customer experience through customised communications.

Administrative expenses (before depreciation and amortisation) as a percentage of revenue, excluding adjusted items increased by 190 bps year on year driven by a continued investment in people and additional regulatory and compliance costs, resulting from being a publicly listed company, whilst Marketing costs remained stable year on year. As with the 2020 results, within the underlying result are costs incurred from self-funding furlough costs for employees who were unable to work during the period totalling £1.0m (H1 2020: £1.6m). 

Adjusted EBITDA

Adjusted EBITDA increased to £81.2m from £58.6m, representing an increase of 39% on the same period of 2020. This represents a margin of 8.5% (vs 8.7% H1 2020, post self-funded furlough costs) reflecting the initial dilutive impact of the Dermstore acquisition. Adjusted EBITDA is an alternative performance measure, the below table reconciles back to the nearest appropriate GAAP measure, operating loss:

Depreciation and amortisation

Total depreciation and amortisation costs for the period were £70.0m (H1 2020: £45.2m), an increase of 55% on the same period in the prior year, as THG invested £35m in its market leading end-to-end proprietary technology platform during the period to address the ever-changing social trends of THG and THG Ingenuity customers across the world. Depreciation charges increased year-on-year reflecting the increased right of use assets acquired from business combinations in the period and the full impact of the sale and leaseback transaction entered into in H2 2020, whilst amortisation charges increased year-on-year primarily driven by the additional intangible assets that arose from the 11 acquisitions completed over the last 12 months.

Adjusted items

In order to understand the underlying performance of the Group, certain costs included within distribution, administrative and finance costs have been classified as adjusted items. These items principally relate to acquisition related restructuring and integration costs, transportation, delivery and fulfilment costs in relation to Covid-19 and a non-cash loss on revaluation of the derivative within the SBM option agreement.

For full details on each category of adjusted item see note 3 to the financial statements.

Finance costs

Finance costs (before adjusted items) rose to £25.9m (H1 2020: £25.1m), driven by further investment in physical infrastructure, predominantly lease charges, whilst the revolving credit facility (RCF) was undrawn in 2021 (partially drawn in 2020) providing a saving year-on-year. Total finance costs for the period are £64.1m (H1 2020: £25.1m) driven by the non-cash adjusted item relating to the recognition of the SBM option (note 7).

Loss before tax and tax

Reported loss before tax was £81.3m (H1 2020: reported loss before tax of £49.9m). The tax charge on profit before tax was £0.7m (2020: £1.8m credit) driven by a current tax charge of £3.5m arising from profits taxable overseas.  

Earnings per share

Earnings per share was £(0.06) per share (2020: £(0.07) per share) on a basic and fully diluted basis. 

Cash flow

The Group continued to generate strong operating cash flows with an £81.2m inflow (note 8) before adjusted items and working capital movements (H1 2020: £58.6m). The first half of each financial year typically leads to a working capital outflow as peak (Q4) stock is paid for and this led to a £65.9m outflow of cash, as inventory levels increased to support strong top-line sales growth, but trade payables reduced reflecting seasonality. Cash generated from operations totalled an inflow of £15.3m (H1 2020: inflow £124.8m). The prior year saw a less typical first half working capital profile as it was disrupted by the Covid-19 pandemic and an acceleration in sales growth post March 2020.

The Group further invested £497.6m across eight acquisitions in the first half of 2021 to further its strategic objectives through key vertical integration and expansionary acquisitions, with a further £89.6m invested in tangible fixed assets and the THG Ingenuity platform. The primary share issuance in May 2021 replenished the available cash pool of the Group, leading to a net increase in cash and cash equivalents in the first half of 2021 of £105.0m, (H1 2020: £15.8m net decrease).

Cash and cash equivalents and net cash before lease liabilities

The Group's balance sheet remains robust, strengthened by the primary fund raise completed in early May 2021 which generated £730m net of fees. This more than offset the £587m invested in acquisitions and non-current assets. The Group closed the half-year with positive net cash levels of £66m (net cash before leases of £385m).

Going concern

The Group remains in a strong cash position with cash and cash equivalents totalling £878.5m (2020: £773.6m) with net cash before lease liabilities totalling £384.6m (2020: £282.8m). At 30 June 2021, the Group had not drawn down on the £170m secured Revolving Credit Facility (RCF).

In making their assessment of going concern, the Directors reviewed financial projections for a period of 12 months from the date of this report. Stress test scenarios were modelled to take into account severe but plausible impacts of Covid-19 and other potential operating impacts. The results of stress testing demonstrated that the combination of mitigating actions available including existing cash resources, level of discretionary spend and ability to utilise the RCF were sufficient for the Group to withstand such impacts. For these reasons, the Directors continue to adopt the going concern basis in preparing these condensed interim financial statements.