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 the market capitalisation of the whole Group is only £71m because of the performance drag created by Tuffnells.

£m   2019   2018   2017   2016   Less than year to August 2015
Revenue 165 175 183 174 114
Adjusted operating profit -14.1 -5.0 12.0 15.0 9.7
Exceptional items – write-offs -53.5 -52.7 -7.7 -8.9 -4.6
Statutory operating profit -67.6 -57.7 4.3 6.1 5.1
Assets n/a 109 167 176 177
Liabilities n/a -35 -36 -49 -41
Depreciation and amortisation -10.9 -57.7 -11.2 -10.4 -6.5
Additions to non-current assets 4.8 4.4 6.7 11.1

Perhaps we should be grateful turnover did not decline much, indicating that there are thousands of customers who still come Tuffnells despite hiccups in customer service.

Having said that, Gary Kennedy mentioned, at the analyst’s briefing last week, that Tuffnells’ “volumes continue to be soft” and “unfortunately in that business we are not at the point we expected to be.  But I have no doubt we have the resolve to get there….We’ve fallen short – competitors are picking up customers. It’s a highly competitive market. Brexit doesn’t help.” Not exactly brimming with confidence, is he?

The managers sent by Connect into Tuffnells were rubbish at it.  This was public knowledge years ago as bulletin board writers working at Tuffnells depots, vented anger at the ignorance and inattention to detail by the team from Connect.  There are scores of negative comments about the managers on and Glassdoor.

Jos Opdeweegh, CEO for a year, tried to get to grips with the now deep-rooted problems at Tuffnells.  But as from last week he no longer works for the Group. No explanation has been given, but there are no/few warm words from fellow directors as he walked. Given the success of Smiths News, I can only surmise that the failure to turnaround Tuffnells led to his departure.

Peter Birks is still there as chief of Tuffnells and seems to have the confidence of the Board. He is now joined by Michael Holt, who has accepted an Executive Chairmanship of Tuffnells for the duration of a Strategic Review.

Michael Holt joined Connect’s Board last year from FedEx. He was COO of FedEx Express, Europe until the end of September 2018 and held a number of other senior executive roles with FedEx Corporation since 2006.

Gary Kennedy will lead on Tuffnell’s strategic review.

The Tuffnells turnaround plan

The directors have pointed to the following actions,

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