Fri 10/08/2021 10:04 AM
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Relevant Document:
FY’21/22 Accounts

Turnaround funds and advisors are circling Fenwick as the U.K. department store chain navigates the impact of the Covid-19 pandemic and increasing digitization of the high street, sources told Reorg.

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Private equity groups told Reorg they are attracted to Fenwick because of its “valuable” property portfolio and consistent performance in regional stores outside of London. The retail group has been owned by the Fenwick family since its inception in 1882 and is known to shun external investment as they want to remain as a family business, sources said.

Fenwick operates nine department stores across the U.K., including the Turnbridge Wells RVP branch, a Bond Street site in Central London, and its original Newcastle store. The company said in its recent accounts that it has a “sizable property investment portfolio.” The group-owned Bond Street store suffered a halt in footfall during the peak of the pandemic, particularly from a drastic drop in the number of city-based workers and tourists.

On May 21, the retailer increased its £40 million revolver due in 2022 to a three-year £88 million facility, to provide working capital support and financial flexibility. The facility is secured against the rental income streams of two investment properties held by the company. Attached to this facility are covenant requirements consisting of an interest cover covenant and a loan to property value covenant, according to the accounts.

The previous £40 million RCF was secured on June 26, 2020, with Lloyds Bank over a two-year term at an interest rate of LIBOR+1.75%. The group drew down on £10 million of this facility in the year ended Jan. 29.

The Telegraph reported in April 2021 that current CEO Edgar was optimistic about the company’s future financial viability as it had “over half a billion of unencumbered assets,” which could be leveraged if necessary, as well as “cash in the bank.” He added “Compared to most retailers, we’ve got a very strong balance sheet and no debt.”

Fenwick’s consolidated net assets reduced to £376 million as of Jan. 29 from £485 million the previous year, but the overall market value of the store portfolio remains substantially higher than its book value, the accounts claim. Consolidated assets less current liabilities declined to £457.8 million from £564.3 million over the same period, according to the report filed with Companies House.

Net book value of the group’s total land and buildings as at Jan. 29, 2021, totaled £413 million compared with £467.9 million as at Jan. 31, 2020. Of this, freehold and long leasehold investment property reduced to £294.3 million from £336 million. Freehold and long leasehold property reduced to £119 million from £132 million over the same period.

On March 1, a property with net book value of £7 million in the group’s portfolio was sold for £19 million, the report added.

Pros and Cons

Fenwick warned in its accounts for the year ended Jan. 29 that it will make a further loss in its current fiscal year due to the ongoing impact of the pandemic. Management said that “the business faced what were the most difficult trading conditions in living memory as a result of Covid-19.”

Part of Fenwick’s challenge was due to its limited online revenue and reliance on heavy footfall from London-based workers and tourists in its city center stores.

The company said it plans to invest further in online operations to mitigate impacts of the pandemic and future shopping trends. The group has also refocused its home offer in response to changes in consumer behavior during the pandemic and introduced new fashion brands.

Its regional stores have experienced rising footfall as many people retreated to their local towns when the Covid-19 crisis hit. Sources told Reorg that Fenwick stores outside of London performed better than its London counterparts due to weaker competition, increased demand for higher-end department stores and lower running costs.

It is worth noting that last year, Fenwick received approval to turn the upper levels of its Bond Street store into offices as it sought to make use of extra space, reported The Telegraph.

The average number of persons employed by the group declined to 1,613 in 2021 from 1,911 in 2020. Administrative roles were reduced from 538 to 312, while retail roles decreased by 54 positions on average over the same period.

Under the U.K. government’s Coronavirus Job Retention Scheme, the group received around £9 million for employees on furlough during the periods of lockdown, it said in the report. In September, the Times reported that Fenwick claimed £8.7 million in business rates relief to offset some of the impact from the pandemic and carried out 300 redundancies.

Subsequent to the year-end, the group incorporated two new subsidiaries Fenwick 55 Ltd. and Fenwick NBS Ltd. The rental income of these two properties serve as security against the £88 million RCF agreed earlier this year. Fenwick externally revalued the properties which showed headroom in the loan to value covenant, according to the accounts.

Performance

Fenwick’s turnover dropped to £99.2 million in the 52 weeks ended Jan. 29 from £218 million in fiscal 2020 and £246 million in fiscal 2019. The company closed stores due to Covid-19 related restrictions for 21 weeks in its peak selling periods during fiscal 2021.

Gross sales for fiscal 2021 fell to £140.5 million from £323.7 million in fiscal 2020, while net sales fell to £119 million from £271 million.

A breakdown of turnover by segment is below:

Fenwick reported an operating loss of £45 million in fiscal 2021, leading to cash flow from operations after tax of negative £39 million. Losses arising from the impact of Covid-19 are not covered by the company’s insurance cover, it added.

The company’s cash balance as of Jan. 29 is below:

 

Pretax loss for fiscal 2020 amounted to £112 million compared with a £47 million loss in the previous fiscal year and a pretax loss of £44.2 million in fiscal 2019.

Management

Fenwick appointed John Edgar as CEO in April 2020 to modernize the business and bring the Fenwick family firm “closer to the running of the business,” according to press reports at the time, replacing Robbie Feather. Edgar joined the company from Boston Consulting Group, where he was a senior advisor. He previously served as CFO at Harrods, from 2012 to 2017, and Selfridges, in 2012.

Simon Calver became the retailer’s non-executive chairman in May 2021, replacing Steve Barber who was in the role on an interim basis for 12 months from April 1, 2020. Barber replaced then chairman Richard Pennycock as part of a boardroom shake up.

Feather, who joined Fenwick in January 2018 from Argos, and Pennycook, who started his role in May 2017 from Co-op, became the first executives from outside the Fenwick family to run the company.

Fenwick Ltd is the parent company. The holding company is Fenwick Property Holdings Ltd and the investment property holding company is Fenwick 141 Ltd.

Sector Challenges

Fenwick faces significant and growing competition from online retailers and said it aims to differentiate itself with a high level of service and a tailored offering.

The department store sector has been struggling with changing consumer habits and the rise of online retailers prior to the pandemic. According to a BBC report, citing figures compiled by commercial property information firm CoStar Group, 83% of department stores have shut since the collapse of BHS in 2016.

According to The Times, Fenwick had been in talks with an overseas buyer but this was thwarted by the onset of the health crisis.

Since the Covid-19 outbreak, John Lewis has closed a series of underperforming stores and the Weston family put Selfridges on the market in July, according to news reports. Italian high-end department store chain Rinascente secured a €85 million state-guaranteed loan to strengthen its financial structure and Reuters reported that French peer Galeries Lafayette warned its 2020 revenue would halve due to the impact of Covid-19.

British department store Debenhams underwent multiple restructuring processes in 2019 and 2020. It completed a pre-pack administration in April 2019, concluded a company voluntary arrangement, or CVA, in May 2019 and filed for administration in April 2020. Signs of liquidation became apparent in August 2020 after a sale did not look promising and the company hired Hilco Capital to draw up a contingency plan. Shareholders were facing heavy losses with liquidation value likely to only partially cover secured claims. In January, U.K. online fashion retailer Boohoo acquired all of the intellectual property assets of Debenhams Retail Ltd. from its joint administrators for a cash consideration of £55 million.

House of Fraser’s woes emerged in early 2017. Its shareholder injected equity later that year and the department chain was seeking further funding in early 2018. It hired advisors to support a transformation program and explore a CVA that same year as talks to sell a majority stake in the business emerged. Bondholders organized shortly after and approved a CVA in June 2018 and an English scheme of arrangement was approved in July 2018. Agreements to acquire a majority stake in the business and inject capital from Hong Kong-listed C Banner collapsed in August 2018 and the retailer went into administration. Sports Direct bought the business and its assets for £90 million in August 2018.

Fenwick did not respond to Reorg’s request for comment.

--Andrew Ross, Lara Gibson
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