Michael Holt: "I wanted a board that wasn't just seeing this as Tuffnells versus DX…"

Since returning to private ownership in 2020, Sheffield-based parcels firm Tuffnells has restructured, announced a new £7m investment to drive growth, and is now backing hydrogen for its future long-haul fleet. MT gets the full story from executive chairman Michael Holt

Q&A

Q: How’s business and what main lessons have you learnt from the pandemic?
In 2021 we had a storming year coming out of plc ownership. A lot of it was the lockdowns - we were flooded with e-commerce like everyone.

Last year we pivoted from B2B to B2C, then all that settled and we had to pivot back again and it was really tough. But this year we’ve restructured the board and the management. We’re building now and with that long-term investment plan we can really drive the business forward.

Q: What was the thinking behind the restructure?

A: We had a lot of people who were 'old Tuffnells'. If we wanted to invigorate the business, and develop and invest, the right thing was to bring in people with the same vision. You can get very inward looking. What we want is a board with an industry-wide perspective, looking forward rather than seeing it as being Tuffnells versus DX. You get into a position where you’re locking horns all the time. We stopped making investments. You can’t build resilience into your business if you’re only looking at today.

Next year will be the year of redevelopment. Then 2024 will be the year of acceleration and pivot. Then in 2025 who knows because we’re under private equity ownership.

Q: How would you describe the market right now?

A: It’s tough. We’ve increased our prices. We want to be giving wage awards. Retention is important and you can’t do that unless you invest in the people. Some of that is training but some of it has to be wages. We don’t want our people to be facing a choice of eat or heat. So we’re having to increase our headline prices to support that.

Q: How have customers reacted to that?

A: They’ve been understanding; we’ve not had a massive kickback in the main. Margins are being squeezed. You’re doing really well if you’re getting 4-5% margin. Cost of labour has gone up, and the cost of recruitment, and the cost of gas and electric at the sites. It’s a huge electric and heating bill.

Q: But you’ve created enough cash to invest another £7m….

A: It’s the old speculate to accumulate approach. If you don’t make decisions and stand still you die in this game.

Q: Have you increased staff pay?

A: Last year we gradually equalised out across all the regions and corrected old inequalities. Since private ownership we’ve not stopped giving wage awards. We’ve communicated pretty well what our intentions are and what we can afford. So far it’s brought a lot of patience from our people. There have not been threats of industrial action yet, but there’ll come a time if you ignore the problem. You have to communicate.

Q: What are the other big challenges for you and the business right now?

A: We’re having to accelerate levels of new business beyond levels we’ve ever done before so we’ve made a change in the commercial direction. We’ve brought in someone with a good track record at Yodel who were going backwards and then grew their business.

This year we will live or die by the amount of new business that we generate. Last year there was a record number of insolvencies and they’re predicting a record number again this year. You’ve got to pedal harder and faster to bring in new business. Take your eye off that for a minute and you go backwards. Around 75% of my mind is on how much new business I can bring in this week, next week, the week after…

Q: But Tuffnells is still making money?

A: We were profitable in 2021 but didn’t make money in 2022. We’re profitable this year but that’s new business.

Q: What’s your turnover?

A: This year we’re hoping for £180m. I’d like to be making somewhere in the region of £4-5m profit this year. It’s challenging off the back of last year. We’ve got to work hard for that.

Q: What are the longer-term targets?

A: It’s a difficult one because the aim is to make £4-5m this year and £8m the year after. We were losing £14-15m a year under Smiths News but made a small profit in the first 12 months back under private ownership. Our backers have been very supportive on the £7m investment. But my next stage is to invest in a control room for security and new sites. So the £7m investment is the tip of the iceberg. I’ve got another £10m of investment plans for the year after.

Q: How many sites are you looking for longer-term?

A: We’ve got 33 at the moment. We’re looking at eight or nine new sites over the course of the next eight or nine years.

Q: What’s your fleet strategy?

A: Our model is still for long-term leases with maintenance plans. We don’t want to invest in garages. Finding mechanics on a regional basis is very difficult.

Q: Any plans to diversify?

A: I’ve looked at two-man delivery but I don’t see anyone making good money on it. We’ve looked at providing storage but lots are doing it. A lot of our counterparts in storage are struggling to fill their warehouses so the prices for storing pallets are really low.

Q: How far advanced are your plans to decarbonise the fleet?

A: We’re of the view, along with a number of others from the heavier side of the parcel industry, that hydrogen is probably the way forward. There’s some debate in the business but that’s my personal view, certainly for 7.5 tonners. The only downside is that it’s not produced in the UK. But our technical director believes that by 2030 there’ll be a huge leap forward and that’s where we’re putting a lot of our effort.

Q: And HGV fleets running on hydrogen would only need around seven refuelling stations to cover the majority of movements?

A: Yes, I think there are two of them at the moment, so five more in the space of the next seven years isn’t a massive leap of faith. There’s an opportunity for us to take advantage of that. Diesel will disappear, there’s no doubt about it. It seems to be an abomination of nature at the moment. I know there’s a government strategy to go electric, and I understand that, but we need an open mind. We’re moving more towards 7.5 tonne vehicles, away from the long wheelbase.

Q: Do other transport firms you talk to favour hydrogen for long haul?
A: We’ve talked to a lot of the big logistics players and hydrogen seems to be the answer. We’ve spoken to Clipper’s technical guru and they’re spending a lot of time looking at hydrogen.

I was also talking to Ian Bremmer of Eurasia Group who’s a renowned speaker on geopolitics. He told me that to get from state to state on a trunker you need a battery the size of this room. He also said there’s not enough lithium for the batteries so it really feels like hydrogen is the way forward. You might just lose a bit on the pence per mile but fundamentally that’s where the future is. You don’t have to rely on huge batteries and you’re not going to drain the National Grid.

And from a wider global perspective, for the heavier side - the 7.5 tonne vehicles with tractors pulling trailers - there’s a mindset away from petrol and diesel to more manmade fuels, not electric type routes.

Q: What’s your timeline for the transition?

A: We’ve got someone working on it full time but there’s an element of wait and see. The time will soon be upon us - all too soon. I don’t think it will be this side of 2025 but I don’t want to wait for the rush in 2029.

By 2026/2027 we need to be making some decisions. Depending on the engine and emissions requirements there could be another global shortage of vehicles. If everyone waits until 2028/2029 we could catch a cold and I don’t want to be in that position.

Q: Are you expecting more industry consolidation in the tough economic climate?

A: Yes, it’s natural that there’s going to be a smaller number of players. Look at the US domestic parcel business – it’s USPS, UPS and Fedex with a bit of DHL. Why? Because margins are tight and they need to take volume and share. That’s happening here. Look at the number of players there were in 2000, it's more than halved. Whether it’s Culina or Clipper, there are M&A opportunities.

Q: Which of the big players impress you?

A: I like the Culina and EV Cargo businesses, in terms of global growth strategy. I was also a big fan of Fedex but they’ve hit some real problems lately. Clipper is also a company I’ve always admired, it’s a very good business.

Q: Do you predict a glut of warehousing as the market contracts?

A: I don’t think so, Amazon are taking most of them. Storage by Amazon is a huge benefit to local providers but we won't be getting involved in warehouses.

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