TDG strives to do better

T DG gave its half-year report at the end of last month in which the financials failed to excite but progress in revitalising the group was enough to keep shareholders on-side.
David Garman, who joined the industry when he became chief executive in 1999 and launched a new strategy at the start of 2000, is finding out just how tough this industry can be.
Garman set out to turn TDG from a UK asset-based storage and distribution company into one targeted at European contract logistics and the management of extended supply chains, combining top level strategic consultancy with contracting. The main target sectors are consumer goods and chemicals.
Shareholders can now “tick the box” when it comes to cultural change at TDG, Garman says. Where before TDG was “selling things and shrinking”, it is now set up for profitable growth by adding value to the supply chain and moving into Europe, which now accounts for 30% of turnover.
In the new strategy, the group has invested £75m in acquisitions, new products and marketing — and still maintained a strong balance sheet. Debt is not far adrift from what it was, he says.
Garman revealed that TDG now has six big supply chain consultancy projects agreed with customers. It is being paid
directly for three of them and will be paid on the other three if it fails to land a logistics con-
tract with the customer at the end of the consultancy. Eagle Logistics, TDG’s US-based strategic partner, will bring its European freight forwarding expertise to several of these projects, he says.
TDG has achieved 50%
growth with three major customers, by adding value to their competitiveness in a way that the former TDG would not have done.
Shareholders are still waiting for evidence that they can tick the second box of strong profitable growth, he says. He notes “difficult trading conditions” compared with a year ago in both the UK and Continental Europe, together with sharply higher insurance costs.
Economic uncertainty continues to delay customer decision-making on investment and out-sourcing and the markets
for many TDG customers remain challenging. In that light, the financial performance so far this year is creditable; and the second half-year will demonstrate underlying improvement in TDG, he says.
Even so, Garman forecasts
that year-end profit will only match that of 2001. TDG is far from being the only UK-based logistics company to struggle to make headway at present; and the City is generally making allowances for the impact of September 11. But analysts suggest that shareholders’ patience will run out if there is no marked improvement in turnover and profit in 2003.
TDG’s London headquarters has an early aspiration prominently displayed — the doubling of annualised turnover by the end of 2003 to the level of £lbn. That now looks to be beyond TDG’s reach. “The £1bn target is sensible but less timecritical than it was,” Garrnan says.
He revealed last week that he has had to rethink TDG’s tactics for moving into Europe in the light of experience. The idea of buying national businesses and establishing management structures in ten countries just won’t work.
In Ireland and The Netherlands, good local TDG companies are thriving. But “it would-
n’t work in Germany and it isn’t working in France.”
In future, TDG will look for good local partners, or go into a country with traffic flows from an existing customer.
Kimberly-Clark would be a good example of such a customer. The market is still highly fragmented, so although TDG had a number of years when it could have developed on the continent but didn’t, there are still many opportunities.
TDG won’t expand its truck operations in line with group turnover but nor will the truck fleet fall below its current level of 1,500, says Garman.
TDG will focus its own truck operations on “integrated transport contracts — groups of clients with comparable traffic flows. I don’t favour TDG running multi-user transport fleets working on unit pricing. TDG would be far too exposed to market conditions and changes in volume.”
Garman is keen to increase the proportion of revenue that is either open book or has recoverable fixed costs.