City Link’s management had laid out plans to pull out of the B2C market and refocus the courier’s efforts on attracting higher-margin business shortly before its collapse, it has emerged.
A report published by administrator Ernst & Young (EY) also revealed that the troubled parcels carrier saw a net loss after tax of £44.4m for the year to 24 December, on a turnover of £243.5m.
In the face of this, City Link’s management had devised a turnaround plan a month before its administration which, if implemented, would have involved targeting more profitable B2B business; revising pricing with major customers; headcount reductions; fewer hubs and depots and the renegotiation of property leases.
The plan was due to be supported by a £25m injection from parent Better Capital (BC). However, BC revealed it would be withdrawing its financial support on 22 December, due to “the perceived difficulty of the turnaround given City Link’s weakened market position”.
City Link was subsequently put in administration on 24 December.
BC had attempted to find a buyer for the business before this and 17 parties were approached.
A two-week period of exclusivity was entered into with one unnamed party in November, but Ernst & Young claimed that the party was ultimately only interested in acquiring “certain, limited assets” rather than the company as a whole.
So far the only named company to buy the firm’s assets is DX Group, which acquired cages, scanners and certain intellectual property for £1.1m in January.
So far, more than 200 former City Link staff have signed up to take a group employment claim to the employment tribunal in a bid to win a larger payout.
More than £30m owed
According to its statement of affairs, City Link owed trade creditors more than £30m on 29 January, with those affected unlikely to receive any more than 2p in the pound.
Giving evidence to the Commons’ Business, Innovation and Skills Committee this month, former City Link chief executive Dave Smith said it was losing about £1 for every parcel it delivered for a particular major customer, which represented approximately 28% of its volume in December.
“In addition, we had more physical premises than we needed for the volume that we were carrying. We had a significant proportion of fixed costs that were not being covered by the volume that the business was carrying,” Smith added.
