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Connect Group has revealed further details of the strategic review of its troubled Tuffnells business after announcing that CEO Jos Opdeweegh has stepped down.

He will be replaced by new interim CEO John Bunting.

The group has also published its preliminary results for the year ended 31 August 2019 which show Tuffnells sales of £164.6m were down by 6.4% resulting in an Adjusted Operating Loss of £14.1m, down by £9.1m.

Overall group revenue was down 4.3% to £1,467.9m and profit before tax down 18.3% at £23.2m.

Tuffnells’ performance was ‘severely challenged by the carry through of legacy issues, including customer losses, poor quality revenues and operational disruption from the prior year’, a group statement said.

‘Their impact was made worse by an insufficiently flexible cost base and inconsistent service which resulted in inefficiency and rectification costs. Despite much progress in addressing the underlying issues, the decline in consignment volume, exacerbated by an especially challenging last quarter, has further delayed our expectation of financial performance improvement.’

“Tuffnells has some challenges," Connect Group communications director, Steve Hannam told motortransport.co.uk: "We need to understand where those challenges come from and we want to make sure we're pursuing the right level of investment to help it fully turn round and head back to profitability.

“We’re in a difficult market. There’s a lack of business confidence, a lack of clarity in terms of Brexit and it does have an impact. A lot of our customers are holding fire and seeing what happens. So there will potentially be a resolution to Brexit, but potentially not - and that started to hit quite hard in the last quarter of the year and from our point of view it was quite stark.”

Hannam said efforts to turn round Tuffnells' fortunes had been ongoing for some time.

“A lot of work has been done by CEO Peter Birks and his team to get Tuffnells into a stronger place. We’ve looked at standardisation, we’ve looked at fleet, we’ve looked at the way we’re recruiting drivers, we’ve looked at rates and our service to customers.

"That’s where the frustration comes. We can see the work that’s gone in and the steps we’ve taken. It’s just getting it to a point where you can turn it into a profitable and sustainable long-term position.

"Fleet is a big issue. We’re looking at a whole series of things including fleet and our trunking network and yes, if we can, electric vehicles as well."

Hannam also confirmed Tuffnells' short-term strategy wouldn't switch towards the end consumer: “Our business model is much more focused on B2B for all sorts of reasons to do with fleet," he explained. "It’s about sticking to our core strengths and that is B2B. But it doesn’t mean there aren’t longer-term opportunities to look outside of that.

"The key for us is to focus on our strengths. We have a tremendous team around the network. We have great long-term customer relationships. We’re doing a lot of work in terms of automating our processes and in terms of scanning and investment in depots to help tracking. We've launched a new app to help customers track their parcels online more accurately. We have a great team working flat out."

Hannam admitted Tuffnells has seen a big turnover of staff over recent months and the loss of several depot managers.

“But that has stabilised,” he said. “And the upside of that is we’ve been able to bring people in with different skill sets and backgrounds and more diverse abilities. We look at our team going into this financial year compared with last and believe it’s much more multi-skilled and robust."

Asked how optimistic Tuffnells was that it could halt the slide, Hannam said: “We’re all optimistic, it’s why we’re there. The opportunity is there to do it. Probably more importantly, the group is committed to giving all the support and the resources required to help improve the situation.

"We’re not where we want to be but we’re seeing progress. It’s not necessarily progress you can translate into the numbers, which is clearly what we want to do. But there’s a lot of confidence and commitment."

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Actions Tuffnells has taken to review customer rates and exit from unprofitable accounts have been successful in increasing the quality of revenue, the group said, but not without further short-term impact on volume.

‘New revenue generation at these more sustainable rates proved especially challenging in what have been disruptive markets, leading to loss of share to competitors over the course of year.

‘Given the ongoing challenges to performance improvement, an impairment of £45.5m was made to the goodwill, tangible and intangible assets of the business.

‘Furthermore, we have initiated a strategic review of Tuffnells which will be led by our chairman, Gary Kennedy. While the strategic review will determine our long-term plans for Tuffnells, we remain focused on addressing immediate issues.

‘Swift action has been taken to further reduce operating costs through improved last mile routing, and a wider network efficiency programme is underway. The business has ended the financial year with a lower cost base, which will have a positive impact on any volume improvements.

‘Our immediate plans are therefore focused on increasing consignment volumes, new customer wins without undermining profitable rates, the delivery of leaner and more flexible costs and improving the quality of service. These KPIs will spearhead our recovery plans in tandem with the strategic review and we will report on progress in due course.’

To support the strategic review and performance improvement plans, Michael Holt, previously non-executive director of the group, has agreed to become executive chairman of Tuffnells for the duration of the process.

‘The strategic review will primarily focus on the necessary actions and investment for a medium term recovery,’ the statement continued. ‘We will maintain our vigorous pursuit of more immediate cost savings, network efficiencies and quality revenue generation in response to the recent decline in consignment volumes.'

Back in August, Connect Group warned its performance since May has been “slightly below” market expectations, as it revealed that its plan to slash group debt through the sale and leaseback of property had hit the buffers.

In a trading update, the group said that 'due to the current market conditions and outlook' bids received during the tender process for the 16 freehold and long leasehold Tuffnells properties, which were expected to raise £35m before tax, 'did not meet the board's expectations in respect of value, economic return and timings'.

As CEO of Connect’s other core business Smiths News, where he has been part of the team for more than 25 years and held the position of CEO for two years, Bunting is said to have overseen continued strong financial performance.

Speaking on the appointment, Connect Group Chairman Gary Kennedy said: “In a challenging year, we have been resolute in pursuing a recovery plan that balanced improvements to profitability, with necessary investment and prudent capital management.

"The revitalised performance of Smiths News and the progress with our central restructure has established a solid foundation for the group's medium term recovery.

“As we look to reinvigorate our recovery plans we have appointed Jon Bunting as our interim group CEO and I’m certain that his clear leadership and unwavering dedication will serve Connect Group well, as we push forward to deliver improved performance.”

In a move described as further strengthening and supporting the leadership team, turnaround specialist Michael Holt (non-executive director of Connect Group) has become executive chairman of Tuffnells.

Working with Tuffnells CEO Peter Birks and the team, Holt will contribute his knowledge and expertise during the period of the strategic review.

Holt was most recently the COO of FedEx Express Europe and has more than 30 years of sector experience, including a successful period leading the turnaround of ANC Group.

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