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Sunday 4 January 2015

CityLink - Now It Really Stinks

[Update at end of post]

Those politicians, Trades Unions officials, and business people who have been, in varying degrees, angry about the apparently sudden collapse of the CityLink parcels delivery operation, may be about to get a whole lot angrier. Because the last Interim Financial Report (IFR) for owner Better Capital shows an operation that knew CityLink had serious problems two months earlier than has been admitted.
Jon Moulton - yet more questions to answer

Moreover, despite making claims about what was necessary to turn the business round, Better Capital, despite having the resources, did not deploy one more penny of them. And, just to add insult to injury, the owners declined to make any redundancy payments, despite their sitting on a mountain of cash. First, though, we need to understand how Better Capital is set up, which is eyebrow-raising in itself.

As the IFR tells, “Better Capital PCC Limited, is a company incorporated in and controlled from Guernsey as a Protected Cell Company. There are currently two cells, being the
2009 Cell and the 2012 Cell”. CityLink’s loans came from the 2012 Cell. Why set up in Guernsey? You’ll love this one: “The Company and Cells are exempt from taxation in Guernsey and the Company is charged an annual exemption fee of £600”.

Better Capital then insulates itself from blowback by making loans to companies like CityLink: how these are made puts them at the front of the queue of creditors. The possibility of that blowback occurring was known in September, and spelt out in the IFR: “City Link has progressively deviated from its monthly profit budget during its current year to 31 December 2014 driving the conclusion that its current structure is unsustainable in the long term”. And, as the man said, there’s more.

There are several routes to a better position that are being pursued with a greatly expanded Better Capital team working to support City Link. A 50 per cent. write-down, calculated based on net realisable value, reflects the issues”. That happened in September, not November as suggested last month. And that narrative carries the name at its conclusion of Jon Moulton. Who has been spinning for Better Capital.

So why tell the media that problems were discovered in November and a “turnround plan” put into effect, when it had happened two months earlier? That is for Moulton and his merry men to explain. Meanwhile, we arrive at the point that will really make folks angry, Better Capital’s pile of cash and its refusal to employ it.

Moulton said it would have taken £100 million to turn CityLink around. Better Capital’s 2012 Cell was, in September, sitting on more than that - over £111 million. They had the money, so why not intervene? Or was the “£100 million” remark just more flannel? And after answering that one, Mr Moulton, perhaps you could explain how a business with a £111 million cash pile declines to stump up a penny in redundancy payments.

There you have it. Better Capital - vulture capitalism at its very worst.

[UPDATE 1425 hours: CityLink sent its suppliers a letter around a fortnight before it ceased trading, telling them that, er, it was not going to cease trading on the day when, as events turned out, it did.
The letter, from Managing Director Dave Smith, was unequivocal: "CityLink is aware of unfounded rumours being circulated ... stating that the business will cease trading on 24th December. These rumours are untrue. Those responsible for the rumours will be pursued through our legal process whenever they are identified".

But, as Better Capital's IFR shows, CityLink was being described as "unsustainable" back in September of that year. Either Smith was lying, or someone higher up was lying to him. Either way, that's more questions for Jon Moulton and his pals to answer]


rob said...

"They had the money, so why not intervene?"

Priorities perhaps?

Finance needed for a forthcoming election perhaps?

Directors bonuses?

Make up the losses from the 2009 Cell? (see:http://www.thisismoney.co.uk/money/markets/article-2551898/MARKET-REPORT-Is-Moulton-losing-Midas-touch.html)

rob said...

Anyway Tim I'm sure your friends at the independent body known as The Taxpayers' Alliance will be pursuing this case with their usual diligence for this unnecessary and unneedful waste of Government resources.

A low tax society (one of their aims) would not be able to afford such luxuries as statutory redundancy payments, would it?

John Ruddy said...

I've seen a letter on twitter that comes from City Link to its suppliers, categorically deying rumours that it will cease trading on December 24th, and threatening to sue anyone to repeats these claims.

rob said...

Letter mentioned alleged to have come from managing director David Smith above mentioned in this article:


keith said...

Private Equity companies generally use a measurement of a firm's worth called Net Asset value or NAV, which is usually the book value.

Better Capital in September used Net Realizable Value to do the write-down. NRV is what a firm could get if it was sold "now" minus the costs of the wind-down (including bad debts). It is used when a firm is in or set for liquidation. So Better Capital's increasing the management team in the autumn most probably was preparing it for a xmas closure.

Rob's comment above pointed to a This is Money piece from 2/14 that said:
"Meanwhile, all of the 2012 Cell portfolio companies continue to show demonstrable progress and it is likely that the net asset value of these will be either maintained or increased."

So I wonder what happened over spring and summer?

Some City Link workers quoted in the media said that BC put in a new system at some of the depots recently. I wonder if this is connected to claims that a company has been set up at companies house called City Link B2B. Ie the firm closes, BC doesn't have to pay out redundancy etc and then Phoenix-like a new leaner, fitter firm emerges. Bonuses for everyone.

SteveB said...

Never mind the financial evidence, the poor quality of the letter would send me running. It looks like it was worded by the person who normally does the Nigerian Bank scam emails!!

Dave H said...

Two questions - most of the final mile delivery is carried out by in livery sub contractors, and further filtered down to specialists such as cycle logistics operators who were paid a retainer and per job increments. My hunch is that the figure given for staff redundancies is only for the core staff engaged on depot and trunk haulage work directly for Citylink. Many of the sub contractors had to clear a minimum number of daily drops in order to pay for their van (probably on a lease contract. Anyone mined for detail on this one?

How does all this pretty obvious awareness of the company folding on 24/12 (close of business) align with the legal requirements of company directors to cease trading as soon as they are aware that the company will be insolvent?