THG completes disposal of non-core assets with sale of OnDemand division
Manchester online retailer, THG, has completed the sale of non-core assets announced earlier this year as part of a strategic review with the disposal of its OnDemand division.
The group confirmed the business, which includes the likes of entertainment retailer Zavvi, gifting website I Want One of Those and fast-moving consumer goods retailer Pop in a Box, has been acquired by its existing management team, funded by Gordon Brothers, the advisory and investment firm.
It said the new business will continue to be a client of its Ingenuity arm, with the provision of technology, operational and digital services.
As part of the strategic review to eliminate loss-making businesses announced on January 17 this year, THG also sold ProBikeKit, the specialist provider of cycling equipment, to Mike Ashley’s Frasers Group in the second quarter of the year. The two disposals are worth a total of around £4m to THG, but Moulding confirmed on LinkedIn this morning that the split was a £3m yield from OnDemand and therefore £1m from Frasers for ProBikeKit.
THG said the financial impact of the disposals for its 2023 financial year is incorporated into existing market guidance, inclusive of one-off costs, with discontinued revenues non-recurring after the third quarter of 2023.
The discontinued categories collectively contributed to an EBITDA loss of £14.6m in fiscal year 2022.
The group reiterated its announcement in its AGM trading statement on June 21, 2023, that free cash flow performance for the 12 months to June 30, 2023 was ahead of expectations – around £40m outflow – including disposal proceeds from the sale of non-core freehold assets.
THG chief executive, Matthew Moulding, said: “Through the years, our incubator division OnDemand has cultivated our talent, technology and trading strategies.
“I am delighted to see management and Gordon Brothers continuing the fantastic work of the OnDemand team, and I have no doubt the ProBikeKit business will continue to thrive under Frasers Group.
“We will remain close partners with both the OnDemand management team and Frasers Group through continued Ingenuity services.”
THG shares opened this morning at 109.20p per share, but slipped slightly to 107.85p in early trading. By mid-afternoon the stock had dropped by 9.04% to 97.42p. At the close of trading the shares had fallen by 9.34% to 97.10p per share.
In a LinkedIn post, Moulding described the disposal of OnDemand as “bittersweet”.
“It’s bitter because the division holds a special place for me and THG. Yet it’s sweet because the long-serving Management team now own it. They’ve more than earned the opportunity.”
He added: “Leigh Amery joined THG as a Finance trainee 18 ½ years ago. I think he was our 7th employee back in 2004 – cheap labour! After training to be an accountant, Leigh moved into various commercial roles becoming MD of OnDemand c4 years ago.
“18 ½ years’ service is unheard of in today’s modern world. Most people quit when the going gets tough, which it does at some point. He and his 50-person team deserve the right to shape the next chapter for OnDemand.”
“The £3m sale proceeds is small to THG, but the heritage of OnDemand is massive. Everything at THG has been born out of this division through the years. It’s the original THG business we started nearly 20 years ago. 6-months after start-up, we couldn’t survive by selling CDs alone, so Ingenuity was formed, selling our brief expertise to other retailers and competitors 😂
“We quickly won big contracts with the likes of Asda & Tesco, which saved us. Ingenuity was just 2 developers sat in OnDemand back then, vs. a 4,000 strong global THG Ingenuity team today.”
Moulding posed the question, ‘why sell OnDemand?’, adding: “In our first year on the LSE, it became clear that the UK market penalises businesses operating in more than one sector. THG has 3 highly profitable divisions in Nutrition, Beauty, and Technology, each with enviable global positions in their sectors. Not ideal for the LSE!
“Investors often scratch their heads as to why THG has always been valued on the LSE at less than what the individual divisions should be worth if listed separately. This is why PE interest in THG is always so strong. It’s basic math.”
“Add OnDemand as a 4th division, a loss-making incubator division, then we’re really wasting our time and money. Imagine the multi-faceted models of the big US tech firms like Amazon or Meta operating from the LSE 🤣 It just couldn’t happen.
“Even if OnDemand was to create another billion $ division for THG, it doesn’t change anything. So, it’s time to unshackle both the Management team and the division and see if they can do it again, this time for themselves 💪
“Yes, it’s bittersweet, but we will stay close – after all Ingenuity will continue to power OnDemand’s technology. I for one will be cheering on Leigh and the OnDemand team every step of the way.”
