There has been no shortage of headlines following the administration of City Link late last year, from former staff taking a claim to the Employment Tribunal, to the revelation that it owed more than £30m to trade creditors.
The events leading up to its closure have now been called into question by a group of MPs, who launched an inquiry into the effect the administration had on employment last month.
Giving evidence to the Business, Innovation and Skills committee and Scottish Affairs committee, Jon Moulton said there was a lot of work that needed to be done when his turnaround investment firm, Better Capital, bought City Link for £1 in 2013.
"It was a very challenging deal. The company had lost somewhere in excess of £300m for its prior owners, so it was clearly a very frightening sort of company,” he told MPs. “We had to believe there was a way forward to cut costs and improve systems and processes to get it to be a profitable company and an investment worth having for our shareholders."
The merger with Target Express had left it with a large network. “The company was run with a very large level of overhead, and we thought we could reduce that quite substantially. We thought we could improve the network of depots. Both those proved to be correct—that we could in fact do so.
“We thought we could improve the IT systems, which were just horrible, to something much better. We made some progress on that, but ultimately we did not finish it before things came to a head," said Moulton.
Losing business
Although Better Capital was full of ideas to help improve the profitability of the company at the time of its acquistion, it soon became clear that it would not be able to do so as the market changed.
“We were losing customers steadily; we could not retain customers at rates which made it economic to operate. That was the main macro; that was the real negative that was hurting the business.”
In a similar evidence session, former City Link chief executive Dave Smith (pictured below) revealed it was losing about £1 for every parcel it delivered for a major customer. In December 2014 alone, City Link lost around £3m.
“It was the busiest time in terms of volume, but the pricing positions that I had inherited in 2011 had a number of contracts that were set for a long period of time—two, three or four years,” Smith said.
Turnaround plan
But the former City Link boss believed the turnaround plan the company
wanted to implement would have eventually led to profit had it been able to continue trading. The operator had also planned to come out of the aforementioned loss-making contract in January.
Smith said: “We had made great progress on the physical restructuring of the sites. We had made great progress on the restructuring of the overhead base of the business, and we had built, although not completed the work, on the plans around the operation that would be needed for a smaller business.
“We had also put price increases into the marketplace in late December. We had served notice on our postal business, which was loss-making following the restructuring of Royal Mail; we could no longer make money in that part of the market. We had also made great strides in terms of the parcel broker part of the market, again to serve notice on loss-making accounts,” he added.