DX Group investor calls for board change after 90% drop in share price

A 90% plummet in DX Group's share price has prompted its largest shareholder to call for the removal of two board members for their "inexcusable" performance.

Gatemore Capital Management, which owns 11.3% of DX Group, has requested an EGM to discuss the removal of board chairman Bob Holt and non-executive director Paul Murray.

It wants to see them replaced with four new board members, including Nightfreight co-founders Lloyd Dunn and Russell Black, and former Tuffnells CEO Ron Series.

Gatemore said the One DX programme, put in place after the company bought two man delivery outfit Nightfreight in 2012 had failed. It is holding Holt and Murray accountable.

Gatemore managing partner Liad Meidar told Motortransport.co.uk that the men had “destroyed value” since their arrival at the business.

“These guys have overseen a more than 90% drop in share price, they have destroyed value since they’ve been there. They made the acquisition of Nightfreight in 2012, and that business has gone downwards under their stewardship.”

"One DX was their brainchild. They devised the programme. And it’s failed.

"Every solution they’ve put out there has been more of the same, there's been no admission of the fact they tried and it’s not working. It’s 'well we’re just going to do it faster and more aggressively'. And they’ve destroyed value faster and more aggressively."

Loss of shareholder faith

He added shareholders had lost faith in the duo after being misled on business outlook. Meidar said: “It’s one thing to oversee a decline in share price, and losing 90% of value is in itself an impeachable offence. But what makes it outrageous is the way the duo have communicated and the way they have broken trust."

DX put out the first of two recent profit warnings in November 2015, when it blamed the driver shortage for poor performance, but Meidar said shareholders were lead to think business was healthy two months prior to that announcement.

He said: “In September, less than two months before the first profit warning, the duo put out a statement that implied everything was fine. And then they made the announcement that EBITDA expectations should come down from £34.5m to £20m. It’s not like they were off by a couple of million.”

The same thing happened before the second profit warning in February this year, said Meidar.

“In November they put out a statement saying they were focused on meeting management expectations for the full year. Which implies to shareholders that they’re on track. And instead in February they said EBITDA was coming down from £17.8m to £8.7m. That is inexcusable."

He added: “These guys think they can oversee this destruction of value and still deserve to keep their jobs."

New board members

The recommended non-executive directors are Nightfreight co-founders Russell Black and Lloyd Dunn and former Great Bear Distribution executive chairman Paul Goodson.

The proposed chairman is former Tuffnells chairman Ron Series, who led the turnaround of the business before its sale to Connect Group in 2014.

Meidar said Gatemore worked with other large shareholders to come up with the four names.

“It was obvious we needed a board change, we took names from a number of different groups, and we came up with this list. If you had to have the board for the UK parcels business, these four would make the shortlist.”

A possible sale?

He added it’s possible the new board members, with their substantial experience in business turnaround and sale, will work towards selling DX Group.

“It’s quite possible, but I don’t want to try and predict what will happen long or short term.

“Our role is to put the best people forward for the board, and their role is to explore whatever strategic alternatives are available, that’s something they would take seriously.”

As for the future of the current MD and chief commercial officer, Peter Cvekovic and Stuart Goodman, Meidar said it wasn’t Gatemore’s place as a shareholder to predict.

He said: “The track record speaks for itself. But we’ve been careful not to overstep our boundary. Our role is picking the board and it’s their role to assess those roles. It’s obvious the track record’s not been good. But we don’t want to prejudice their thinking.”

DX Group response

In a statement this morning, DX Group said it was "disappointed" by Gatemore Capital Management's decision to call the EGM and said it was "unclear as to Gatemore's intended objectives in requisitioning a meeting".

It added that the board had started a "wide ranging review of of the company's operations with a view to driving revenues and improving its financial performance".

"The company will be reporting on the half year ended 31 December 2016 on 31 March 2017 when a further update on its progress will be given. In the intervening period, the board will continue to pursue current initiatives to the benefit of shareholders and views Gatemore's requisition notice as disruptive to management efforts and focus."