The Bug in the System

“Bedbug outbreaks are swarming all over Latin America and globalisation means we could soon see an outbreak here. That would be just up Rentokil Initial’s street, so why is it still bothering itself with its underperforming parcel delivery business?”

Industrial conglomerates used to be in fashion. British Electric Traction was one until it saw the light and broke up in the 1980s. What was left in 1996 – laundry, linen and some shipping – was acquired by Rentokil. At this time Rentokil was in the middle of a longish period of 20 per cent annual growth, under the leadership of Clive Thompson, and was voted “Britain’s most admired company.” So what went wrong?

Rentokil Initial, as it is now known, still covers a number of bases with businesses that include: pest control, uniform rental, commercial laundry services, facilities services, the disposal of medical waste, and office plants under its Ambius brand. There is a degree of logic here as a lot of Rentokil’s clients are companies who will buy more than one service so there are sound cross-selling and bundling opportunities. The company’s website states that it provides, “Fully integrated Total Facilities Management to government and commercial sector organisations of all sizes across all business sectors.”

While all this seems to make sense, it is hard to see where parcel delivery business City Link fits in, particularly as it is in a bit of a muddle and making a loss that is diluting the profitability of the rest of the group.

Rentokil made £14.5 million profit in 2010, but in 2011 it made a loss of £50.5m mainly as the result of City Link’s poor performance. City Link seems to have lost control of its subcontractors and is now trying to renegotiate contracts in order to save £20m pounds or so. 2012 looks a bit bleak for them in these recessionary times. You might have thought that Rentokil would get the hint from a series of profit warnings that began in 2004 as it tried to integrate the Target Express parcel delivery business it had bought into its existing City Link business.

There seems to be a theme developing in Rentokil Initials’ recent history that says either there isn’t any money in parcel delivery or the firm doesn’t know how to do it as well as the other stuff. Isn’t it time to leave the parcels in the hands of others, forget those charming yellow and green vans and focus on the bedbugs?

Mark

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