Connect Group – the Tuffnells business

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In 2014 the big idea at Connect Group (LDSE:CNCT) was to diversify into parcel delivery and at the same time gain synergy with the early morning News Distribution business by buying Tuffnells for £139m. Here are the performance numbers for Tuffnells under Connect’s ownership – not pretty reading for shareholders who forked out £139m now that the market capitalisation of the whole Group is only £90m.

£m   2018   2017   2016   Less than year to August 2015
Revenue 175 183 174 114
Adjusted operating profit -5.0 12.0 15.0 9.7
Exceptional items -52.7 -7.7 -8.9 -4.6
Statutory operating profit -57.7 4.3 6.1 5.1
Assets 109 167 176 177
Liabilities -35 -36 -49 -41
Depreciation and amortisation -57.7 -11.2 -10.4 -6.5
Additions to non-current assets 4.4 6.7 11.1

Perhaps we should be grateful that turnover did not decline very much, indicating that there are many thousands of customers who still come Tuffnells despite the hiccup in customer service over the last two years.

The managers sent by Connect into Tuffnells were rubbish at it.  This was public knowledge a year ago as bulletin board writers, working at Tuffnells depots, vented anger at the ignorance and inattention to detail by the team from Connect.  The business quickly lost talented staff and customer service standards dropped.

The 2018 Report, written by the recently appointed directors, is frank about the poor performance:

“With hindsight, the integration of the Group’s operations and sales & marketing functions led to suboptimal service and a weakening of controls at a time when our competitors were more aggressively targeting our customers. The actions we have taken to strengthen management, improving service and accountability were implemented too late in the year to make a meaningful impact on peak trading. Volumes during the third quarter were down by 12.3% with a disproportionate impact on full year operating profits as the seasonal uplift would usually generate an important premium for the business.”

In a recent webcast ( Gary Kennedy, Chairman, acknowledged that Tuffnells was badly managed. In the same webcast the new CEO, Jos Opdeweegh, a veteran of Americold Logistics and Caterpillar Logistics, and CEO of Premier Farnell, gave his diagnosis:

“We focused insufficiently on standardisation of processes and procedure as well as on principles of continuous improvement.  Also, we still don’t have access to sufficient granular information to allow us to make decisions quickly, e.g. we don’t have (but we’re close to having) a cost-to-serve model; the extent to which adding an incremental customer add

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