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The managers who started off working for Smith News (later named Connect Group, LSE:CNCT) back on 2006 when it demerged from WH Smith could see that they were heavily dependent on the simple business of delivering newspapers and magazines to newsagents. They thought it best to diversify, and to build an empire.
They bought Bartrams for £8.6m, a book wholesaler, in 2009; and Dawson Books, another book wholesaler, as part of the £20m merger with Dawson Holdings in 2011.
Connect then added a couple of other book wholesalers for about £3m. The combined books business did not thrive under Connect’s ownership and this division was sold off earlier this year for £6m. An appalling loss of shareholder value.
In 2012 they tried their hand at stationery and other educational supplies by buying The Consortium for £40m (becoming Connect’s Educational and Care Division). It was sold in 2017 for £57m. At least that made a 10% annualised return.
In 2014 the big idea 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.
| £m | 4 x 3rd quarter
(March, April, May) |
2 x half-year to February 2018 | 2017 | 2016 | Less than year to August 2015 | ||||
| Revenue | 174 | 166 | 183 | 174 | 114 | ||||
| Adjusted operating profit | loss | -0.4 | 12.0 | 15.0 | 9.7 | ||||
| Exceptional items | Some | -7.7 | -8.9 | -4.6 | |||||
| Statutory operating profit | loss | Substantial loss | 4.3 | 6.1 | 5.1 | ||||
| Assets | 159 | 167 | 176 | 177 | |||||
| Liabilities | -32 | -46 | -49 | -41 | |||||
| Depreciation and amortisation | -11.6 | -11.2 | -10.4 | -6.5 | |||||
| Additions to non-current assets | 4.8 | 6.7 | 11.1 | – |
Sales in the first three months of the second half were down 12.3% on those a year ago.
There has been an attempt to gain synergies between Tuffnells’ nationwide awkward shape and weight parcels business with Smiths News early morning delivery runs. There has also been attempts to use Tuffnells to help the Click and Collect business, called Pass My Parcel (described tomorrow).
But the performance numbers are appalling for the Tuffnell’s business. The fundamental causes seem to be:
(a) Connect’s directors inability to win over the hearts and minds of the Tuffnells’ staff (many senior Tuffnell’s people have left and now work for rival DX), and
(b) The intense price competition in parcels. Tuffnells are supposed to be specialists in long, heavy and irregular shapes which gives them some degree of pricing power. But there is no evidence of any pricing power in the figures produced by this business now that it has lost so many experienced people with longstanding relationships with thousands of clients.
Bulletin Board comments by current (I think) staff:
“A lot wrong with Tuffies nowadays. I’ve been there
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