British distribution company Connect Group improved pre-tax profits by 13% in the year ending August 31 thanks to the acquisition of parcels carrier Tuffnells and launch of a parcel shop network in cooperation with Amazon.
The group reported a 3.7% rise in revenues to £1.875 billion and a 13% increase in adjusted pre-tax profits to £56.5 million, driven by profits from Tuffnells and the News & Media and Books divisions.
The performance of the Parcel Freight division, established with the acquisition of Tuffnells in December 2014, has been “excellent” over the eight months of the financial year, Connect Group stated. Revenues increased by 19.6% to £114.4 million and adjusted operating profit by 10.8% to £9.7 million over the period, resulting in an 8.5% profit margin. On an annualised 12-month basis to August 31, revenues would have been £162.6 million and adjust operating profit would have reached £14.3 million.
“This strong performance is driven by a combination of new business wins, an increase in consignments from existing customers and a rate-card increase which did not adversely impact our volumes,” the company said.
Tuffnells is clearly positioned as a mostly B2B next-day delivery specialist transporting large and heavy parcels and freight which sets it apart from other parcel carriers, according to the group. It opened its 36th depot in September and plans another opening this month, while five depots were expanded and the vehicle fleet increased by 102 vehicles.
Outlining its strategy for the ‘Parcel Freight’ (Tuffnells) division, Connect Group commented: “The acquisition of Tuffnells for an initial consideration of £114.5m has transformed the shape and future prospects of the group. It provides entry to a new and growing market and it enhances our position as a leading UK specialist distributor, giving national coverage and access to a wide variety of new customers and sales opportunities.
“Parcel Freight will be a key driver of growth in the immediate future, with the group providing investment to increase capacity and exploit our unique market position. We aim to continue to grow ahead of the market through optimising volume growth, keeping a tight control on costs and delivering a best in class service. Network expansion will be an important part of this growth and we are planning to reach 40 depots within the next three years.”
Meanwhile, diversification of the news distribution business into B2C deliveries has been stepped up in cooperation with Amazon. Home deliveries for Amazon Logistics have been established in Newcastle, Brighton and Southampton, and will be extended to Newport and Newmarket in the near future, the company disclosed.
The ‘Pass My Parcel’ network of parcel shops, located within independent newsagents, has been extended to 3,000 locations and is scheduled to be scaled up to a nationwide network of 5,000 – 6,000 stores in total. A returns service will be launched shortly and the group plans to invest a further £2-3 million in the network this financial year.
“We remain very excited about the opportunities for Pass My Parcel which uses the existing Smiths News network to create a twice daily delivery that has the UK's fastest turn-around from click to collection,” the group stated. The UK Click & Collect market is predicted to grow by 20% a year in the coming years, it noted.
“In the medium-term, the goal is to become a major player in the Click & Collect market, the contribution from which is expected to offset the future decline in the core News distribution revenues.”
