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Connect Group (LSE:CNCT) has been through a very difficult period during which it saw its strategy of integrating its newspaper delivery business (Smiths News) with its parcel delivery business (Tuffnells) fall apart. It turns out that there are few synergies. But there was significant disruption and loss of front line empowerment and accountability.
Tuffnell’s people in particular experienced a greatly damaged business as a result of poorly prepared managers parachuted in from elsewhere in the Group to supposedly run the business.
They were out of their depth when it came to delivery of Tuffnell’s awkwardly-shaped parcels (Tuffnell’s specialises in irregular weight and dimension). The two businesses have totally different ways of acquiring customers:
- Smiths News negotiates 5-year £50m+ contracts with major publishers,
- Tuffnells has day-to-day dealings with 5,000 SME’s needing to shift 70,000 parcels per day.
There are also great differences in operational system requirements and the culture that goes with them:
- Smiths News has regular early morning deliveries with a highly predictable loads to 27,000 shops on fixed routes (it has 55% market share in the UK)
- Tuffnells has constantly changing delivery routes and customer requirements, needing accurate individual costing to ensure profitable pricing
The lack of attention to these details at Tuffnells contributed to a trading loss of £5m this year. Worse than that is the great loss of goodwill because customer service was poor following the loss of many good managers, inattention to customer service, procedures and pricing.
As a result, we have to wonder if the Tuffnells business has any value left. If not, Connect has lost all the £139m it spent in 2014 to buy it. This year it wrote off £46.1m of the balance sheet goodwill associated with Tuffnells. But it could be that customers are so disenchanted now that none of the real economic goodwill (as opposed to accounting goodwill) is left.
Having said that, a new team of senior managers and directors have assessed the Tuffnells business, concluding it can be returned to profit. We’ll look at this business in more detail later in the week.
The attempted integration of the two businesses under the former management also negatively impacted the SN business. For a few years it sought, and usually gained £5m annual cost savings at the same time a
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