Connect Group has seen its annual profit collapse by more than 200% after a calamitous period, which saw its one time star-performer Tuffnells lose its way and attempts to restructure the group hit the wall.
Announcing annual results for the year to 31 August 2018, the business, which also owns Smiths News and recently disposed of its Pass My Parcel network, made a pre-tax loss of £35.5m (2017: profit of 34.2m).
Annual turnover was 3.8% lower year on year at £1.5bn (2017: £1.6bn).
In what it described as “a significantly challenging year”, Connect said weaker trading in Tuffnells and Smiths News (including losses in Pass My Parcel) was compounded by “operational inconsistency and shortfalls against efficiency targets”.
In July 2017, Connect restructured its leadership and operations in "pursuit of a more integrated business model".
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The group said that while progress was made in centralising support services, it became clear that the same efficiencies could not be achieved in sales and marketing and at an operating level.
It conceded that “the move to integrate into a single structure weakened operational performance and impacted internal accountability and controls.
“A detailed review of the group's networks also concluded that opportunities for combining physical operations of Tuffnells with Smiths News are limited, giving further impetus to a return to more focused management”.
Operationally, Connect has ceased integration activity across its two networks. “We have re-established dedicated management teams and leadership for Smiths News and Tuffnells, returning accountability for revenue and costs to the individual businesses, while supporting them with the newly integrated central services,” it added.
As part of the failed integration, Connect announced last year that Tuffnells MD Chris Ward was to leave, a departure that was followed soon after by the first warnings that the mixed and irregular freight specialist was not performing under the new regime.
Connect recorded a goodwill impairment of £46.1m against Tuffnells in its latest accounts, conceding that its restructure caused operational instability leading to a significant shortfall of drivers, high staff turnover and an inability to handle peak volumes.
Tuffnells made an operating loss of £57.7m in the period compared with profit of £4.3m a year ago.
On an adjusted basis it saw an operating loss of £5m compared to an adjusted operating profit of £12m in 2017 at Tuffnells. Turnover fell 4.4% to £175.2m (2017: £183.2m) with “sales and volumes performance in the second half of the year materially behind expectations”.
The fight back
Gary Kennedy, Connect Group’s chairman, said: "A year of significant challenge exposed weaknesses in our strategy and its execution, with a consequent impact on results.
“While it is disappointing not to succeed, we have taken decisive action to address underperformance and respond to the lessons learned.
“I am confident that under the new leadership of Jos Opdeweegh, and a return to more focused operations, we can re-energise the business, restoring stability and confidence."
