David garman

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When TDG released its 2006 results last month, Garman took the opportunity to set out group’s new strategic direction. This takes in many of the developments that have already taken place within the business, but reveals a significant change in the company’s view of where growth is going to come from in the future.

Seven years ago much of the business was focused on the general logistics market – ambient packaged goods and so on – and, at the time, it made sense to invest in this sector of the business. Customers were typically offering five-year contracts at respectable margins.

Today, the picture is very different, says Garman. Contract periods have become shorter and margins have been squeezed to as little as one per cent.

This reflects the fact that the market in Europe is relatively mature and the buyers of logistics services are under pressure to cut costs.

One response from the third party logistics sector has been mergers and take-overs to create organisations with the economies of scale to enable them to flourish in such an environment – Deutsche Post’s take over of Exel is a prime example. Garman has explored this avenue in the past, holding talks with a number of major players.

But now he says: “We have decided that if the general market is dominated by scale, we should have a strategy that is less dependent on scale.”

The logic is irrefutable. The past few years have seen TDG win a significant amount of new business but this has not been reflected in the bottom line because of the way margins have been squeezed at the same time. Last year sales were up four per cent to £531.3m but operating profit was down eight per cent to £18m – largely as a result of some major contracts coming to an end.

About half of TDG’s business is currently in the general market area. Garman is clear that this is an important sector for the group and he has no intention of sidelining it. Nevertheless, this is not the powerful engine of growth that it once was. For that, he is looking to a number of specialist sectors.

Already, these sectors account for the other half of TDG’s revenue. The chemicals market has proved to be a strong one for TDG and it has expanding both organically and through acquisition. Last year it bought Mond in Belgium and last month it announced the takeover of Doman in Spain in an agreed deal. With sales of £46.7m, Doman is Spain’s market leader in packed chemicals distribution and is expected to report a profit before interest of £2.1m.

TDG’s European chemicals business saw growth of 25 per cent last year and produced a margin of 4.2 per cent. Garman describes the market as dynamic and undergoing structural change with a multi-country approach to logistics and increasing complexity. TDG is a leader in the UK and developing business on the continent.

Temperature controlled services are also producing good results with a margin of 14.8 per cent despite the recent large energy cost increases. Garman also sees potential in the paper and packaging sector while freight forwarding has show substantial growth.

The other major growth sector is supply chain management where TDG is starting to reap the benefits of its huge Corus contract as well as operations for the Early Learning Centre and Johnson Diversey. These contracts are sometimes called “4PL”, though Garman does not like the term, and one of the major benefits is the fact that they are essentially management contracts – they do not require high levels of investment. As a result, they can do wonders for a company’s return on capital.

TDG is in discussion over further contracts but Garman points that out that these are very large, consultancy-led pieces of business that take time to come to fruition.

However, he can point to a strong record of contract wins last year. TDG brought in £89m worth of new business against losses of £28m while contract renewals totalled £87m – a much healthier situation than 2005 when wins of £85m were offset by losses of £65m.

“It is pleasing to confirm the anticipated return during 2006 to more normal levels of net contract wins following the fall experienced in 2005. The full profit from this new business will come through in 2008,” he says.

And one of TDG’s great strengths is its balance sheet which showed year-end net assets of £156.2m including just £10.9m of net borrowings. This gives Garman the opportunity to make further acquisitions – an opportunity he plans to take.


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