Connect Group's (CNCT) chief executive, Mark Cashmore, called it a “challenging year” for the newspaper distributor and parcel delivery group - and he’s not wrong. Profitability was constrained due to a weak performance in mixed freight, which, among other things, was forced to cope with an unexpected spike in delivery requests for irregularly shaped items. This unit, along with the early distribution business, are the focus of rationalisation measures by management, specifically the integration of Tuffnells with Smiths News to streamline both operations, thereby saving around £15m a year.
Revenue from early distribution, the other focus division, fell 4 per cent to £1.41bn, but a decline in sales was partially offset by £5m saved through cost efficiencies. The growth of its 'click and collect' business has taken longer than expected due to weak volume growth through parcel shops.
The focus on mixed freight and early distribution has raised questions about the future of the media business. Mr Cashmore said there are no plans to sell its smallest division now, but would not rule it out if the right offer came along. The group banked £58m from the sale of its education and care business during the period, which was used to pay down debt, although free cash flow still fell by 21 per cent to £28.7m. Nevertheless, management remains confident in its ability to continue to increase the dividend.
Analysts at FinnCap expect adjusted pre-tax profits of £51m in the year to August 2018, giving EPS of 16.2p, broadly flat on 2017.
