TDG – On the way back. Company profile
Suddenly TDG has become exciting. In the past few weeks it has announced two innovative partnership deals. First with Volvo then last week with the US logistics company Eagle. It has also linked up with management consultant Cap Gemini and is about to launch its supply chain systems business (Scio) with hopes of a £200m annual turnover and profits of between £15m and £20m within three years.
TDG used to be known as the company with a great future behind it. After the glory years of the "80s under Sir James Duncan, the company ran into serious problems in the "90s. It stagnated, and in 1998 returned £110m to shareholders.
Now it is in the second year of an attempted turn around, led by the new management team which is headed by David Garman, and which also includes former Exel senior executive David Hindson. The aim is to move from a largely asset-based UK logistics provider to a more dynamic European company producing solutions".
However, if you just take the headline figures in the latest accounts, published last week, there seems to be little evidence of a turnaround. Profit before tax last year was down 6% to £24.7m. But if you look more-closely at the detail there is room for optimism.
First, the fall in profit was the result of a serious problem in the storage and distribution division. This was due to over dependence by the 35 cold stores on commodity products and a low margin on transport. This business has now been turned around and should be in profit later this year.
The main contract distribution business is, however, booming. In the UK and Ire-land its contract logistics turnover increased by 19%. This has not been achieved by sharply cutting prices – margins fell only slightly from 8.7% to 7.8%. Instead, Garman points to TDG"s new risk-taking approach. "The old TDG would not invest before it had the customers," he says. But now it does. For example it set up a new chemicals distribution centre in the Midlands before it had a single customer. "Six weeks after it opened we signed up DuPont," says Gar-man. Another example of the change is shown at Wrexham where TDG used to run a warehouse for Kimberly-Clark. This work moved to another location and instead TDG has converted the warehouse into a home delivery fulfilment centre. It now has a three-year contract with Littlewoods worth £15m. The warehouse will also serve other home delivery customers such as cable TV home shopping channels. "The old TDG would have just put in short term storage," says Gar-man.
TDG has also been actively going to customers with proposals rather than waiting for invitations to tender. This is shown with its new B&Q national import consolidation centre at Grantham. This used to house pet foods. When that business ended, TDG went to B&Q to sell the idea of using the site for its import centre. It moved from housing 100,000 units of pet food to 400,000 units of DIY goods for B&Q… within a few weeks.
Garman prefers this approach to simply waiting for the invitation to tender (ITT). "We are reducing our dependence upon ITTs as a way of growing our business," he says. In fact TDG is now refusing to bid for tenders which involve seven or more contractors. "We are not going to do business on the basis of do we feel lucky today," he says. "Our guys will say no." TDG is now in a position, he says, where it has business coming to it. "We have plenty of other things to do and people to see," he says.
The turnaround plan also calls for TDG to be more of a European company than in the past. At the start of last year less than 20% of turnover came from continental Europe; by the end of this year it should approach a third. TDG has purchased companies including Van den Berg in the Netherlands, and TCG, which it describes as one of the most sophisticated logistics providers in the Benelux markets. TDG has operations in both France and the Nether-lands, while a customer led presence in Germany is planned for the future. While the growth was high, profit is still modest. Operating profit in France increased by 114% but that is still less than £1m, while a 95% growth in the Netherlands resulted in a £2m operating profit on a turnover of £38m.
"Our research shows that if you are operating in multi sectors you need a turnover of at least £50m to make it work," says Garman. "We are well through that barrier in the Netherlands and we are getting closer to doing this in France."
Companies just working in one sector can make a profit "any-where north of £10m." More acquisitions are expected, but despite its group turnover of £456m last year, the whole company is still of modest size compared to Exel, Deutsche Post, TNT"s logistics operations, or even Tibbett & Britten which has a turnover of £1.3bn.
It is at risk of a take-over as its asset value is greater than its market value, although this has been true for some time. What it has not done is merge with a bigger company. But what it has done is enter into a partnership deal with Eagle Global Logistics, a US-based company that last year took over the Circle International Group. TDG made the first approach, which was to Circle, after considering many other similar companies. The deal was confirmed by Eagle after the merger last September. The link-up gives air and ocean freight capacity around the world, and particularly in Asia. Teams from both companies are working together to pitch for business.
"There is no hidden agenda," insists Garman, when questioned on whether the deal would lead to a full merger. It is not being considered by either TDG or Eagle, he says. He insists that big mergers are not always successful. "The road to consolidation is littered with people who rue compatible activities, and have problems in the organisational structure and cultural differ-ences." TDG is making a bold attempt to break out of old ways and to recreate itself. With three partnerships announced this year, it is moving fast. But the big question remains: does it have the scale needed to compete as a significant European logistics company?
