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Connect Group London’s top faller as revenues slide and £12mln books business sale in doubt

The logistics and distribution group had hoped to return to growth this year but revenues fell in the opening 19 weeks, while the £11.6mln sale of its books business has hit a stumbling block

Smith News distributes more than half of the UK’s papers and magazines

Connect Group PLC (LON:CNCT) was the biggest faller in London on Monday after the logistics and distribution business reported a fall in revenues in the opening few months of its financial year, while the £11.6mln sale of its book division has been thrown into doubt.

Connect – which owns Smith News, the UK’s largest magazine and newspaper distributor, as well as airline content specialist Dawson Media Direct and logistics group Tuffnells – said back in October that it expected to return to growth in 2018.

READ: Newspaper distributor Connect ups dividend and eyes return to growth in 2018

But sales fell 3.5% to £564.5mln in the 19 weeks to 13 January (2017: £584.9mln), with the expected declines of newspaper and magazine sales more than offsetting growth in its Mixed Freight and Pass My Parcel (PMP) businesses.

Profit guidance lowered

The company also noted that the £15mln of cost savings from the integration of Tuffnells with Smith News is taking longer than expected to come through.

That, coupled with contract delays in PMP and market uncertainty and weaker margins in Mixed Freight, means pre-tax profits for the year are now forecast to be between £42mln and £45mln.

That’s still more than the £34.2mln it generated last year, but analysts had been looking for a figure nearer to £50mln.

Sale of books division hits the rocks

Away from the underlying business, Connect struck a deal – worth up to £11.6mln – to sell off its books division to European investment group Aurelius Equity Opportunities.

The deal – which will see £10.6mln paid upon completion plus up to £1.05mln in milestone payments further down the line – became unconditional last week when it was approved by German regulators.

As a result, the sale should go through by the end of this month, but Aurelius has written to Connect saying that it “can no longer complete on the current terms as [the directors] can see no way of financing this transaction”.

Connect has urged for urgent clarification on the matter and reiterated that the deal must complete on or before 31 January, otherwise it will take the issue to the courts.

Shares were down 28.5% to 75.5p early on Monday afternoon.

Quick facts: Connect Group

Price: 20.0202 GBX

Market: LSE
Market Cap: £49.59 m

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