Citylink And Asset Stripping

Parcel delivery firm Citylink went into administration over Christmas. In order to save money, its bosses didn’t bother telling workers and sub-contractors, leaving such trivia to the media and Trades Unions. Then focus shifted to owner Better Capital, run by Jon Moulton, and by this morning the phrase “asset stripping” was being freely circulated. There is good reason for this.

Questions: Jon Moulton

Citylink was sold by previous owners Rentokil to Moulton’s merry men in April last year for £1. Better Capital would invest £40 million. Administrator Ernst and Young partner Hunter Kelly told that Citylink had “all but used up Better Capital’s £40m investment”, but this one has already unravelled. The Guardian noted “Better Capital has already written down its £40m investment in City Link to £20m”.

Why should that be? Ah well. The only accounts filed under Better Capital’s tenure show Citylink losing money at less than £13 million a year in 2013, and there had been more economy measures since. Those accounts also show a headcount of 5,822 employees, rather more than the 2,727 of this week’s headlines. This is partly because many van drivers had been replaced by sub-contractors.

Those sub-contractors had to pay for their own vans and will have no claim as regards redundancy money. Then there is the allegation of moving “valuable property assets out into a separate company”. This could only have been achieved if the sale from Rentokil included assets like the depot hubs. Did it? At least one of those, near Warrington, was being leased earlier this year.

Sale and leaseback of depots is not new: it was one of the stock tools used by the late Edward Stobart to speed expansion of the Eddie Stobart empire. The difference there was that the proceeds of the sale went into expansion. There has been no expansion of Citylink. Were the larger commercial vehicles also subject to a sale and leaseback at Citylink? That, too, would have yielded significant funds.

Were vans transferred to sub-contractors? If so, how much did the sale yield? The same question applies if those vans were otherwise offloaded. Why was there no sign of trouble, with the company’s operations director telling “City Link had one of its most successful peak periods in 2013 and we are looking forward to an even busier and more successful one in 2014”?

And, Jon Moulton, when you’ve fielded all of that, pray tell why Citylink was put into administration just a week before the end of its current accounting period. What would those accounts have told that someone may prefer that we were not told? My suspicion is that Moulton, not one to spray money up the wall, may even have pulled the plug in time to ensure he and his pals come out of this with a tidy profit.

It’s the kind of asset stripping that would have made even Victor Matthews blush.