Increased volumes at Tuffnells Parcels Express and Pass My Parcel failed to offset falling newspaper and magazine sales in a recent trading update from Connect Group, which saw its turnover take a hit.
Group turnover was down 3.5% in the 19 weeks ended 19 January 2018, reported in a gloomy update listing delayed contracts, declining sales and market uncertainty as reasons for a predicted drop in profitability this financial year.
The group's share price fell almost 30%, from 105p to 75p, with the release of the update yesterday morning (22 January).
Connect Group CEO Mark Cashmore said the group remained confident despite the "disappointing" update.
He said: "While today’s trading update is clearly disappointing we are confident of the underlying strength of the Group. Performance in the Newspaper and Magazine businesses , which represent 80% of our profit, remains on track, with continuing strong cash generation."
"The actions we are taking to address to address weaker margins outside of News distribution are closely aligned to the ongoing integration of the Group’s operations, and will therefore not distract us from our transformation strategy."
Tuffnells, referred to as Connect Group’s Mixed Freight division, saw its turnover climb 1.3% year on year, with volumes for the 19 weeks up 2.6%.
However the group said that the HGV driver shortage had had an impact on the business, and that market demand was uncertain.
The trading update said: “Looking ahead, we are confident that our profit recovery actions are gaining traction, however demand remains uncertain. As a result, the medium-term outlook continues to reflect both risk and opportunity in the wider market.”
The update added that "actions to address performance shortfalls are underway”, including a management restructure and a boost to its sales team.
Tuffnells added competitor DX's former chief commercial officer Stuart Godman to its ranks earlier this month, who the business said will play a "key role" in its redevelopment.
The IWD freight operator saw a departure from its MD Chris Ward last year. A spokeswoman told MT his exit was part of a move towards single leadership across Connect Group.
Read more:
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Connect Group did see impressive volume and turnover growth in its Pass My Parcel business, which falls under the News Distribution and Media division with Smiths News. Its 1.3 million parcels delivered in the weeks to 19 January mark a 347% improvement year on year.
The group said that it was "pleased with this aspect of progress", but countered with lower than forecast profit margins. The profitability of the business, it said, had been hit by the same driver of the volume growth.
Namely, the business began offering end customers the option to make return parcels through Pass My Parcel that hadn't been delivered through the network in the first instance. While this had a benefit on volumes and revenue, that side of the operation is less profitable, a spokesman told MT.
Smiths News continued to see declining newspaper and magazine sales within Connect Group’s medium term forecast, but the group is optimistic about the coming months for the division, anticipating a boost in sales in the lead up to the World Cup in the summer.
A spokesman added that Smiths News and connected Dawson Media Direct remained on track and a solid base for Connect Group, responsible for around 80% of the group's profit.
Connect Group said that integration within the business was progressing well, but needed more careful implementation than anticipated so as not to affect service levels.
In light of this, it said, the targeted efficiency savings of £15m over two years will be made predominantly towards the end of the period.
Connect Group will announce its preliminary results for the first six months of its current financial year on 1 May.
