Belgian fashion group FNG will have to wait to next week to learn about its fate: a judge will take seven days to decide over the reorganisation plan. We have reported on the matter in great detail in Dutch, and summarised the most important facts in this English analysis.
“No more confidence”
The key question for the judge is whether the fashion group should receive protection against creditors for ninety days, but the court will also have to decide whether it will appoint external administrators, as the unions say that they have absolutely no confidence in the current management.
Retail Estates, which rents out about thirty retail properties to Brantano, has also requested the court to appoint a judicial representative for the subsidiary alone. The real estate owner wants the money flows to be monitored in this way, for fear that Brantano may have been “drained”. How is it possible that trust evaporated so completely? Let us take a look back …
Too ambitious acquisitions?
Many ecstatic articles had been written about the stellar growth of a small Belgian children’s fashion chain into a group with a dozen brands, before the first critical questions about the growth reached the media in September 2019. At that time, the fashion group announced that it would acquire Scandinavian omnichannel retailer Ellos for 229 million euros, well over the 180 million euros that FNG (hitherto only active in the Benelux) itself was worth at the time, which led to concerns among analysts.
The Brussels stock market watch dog had meanwhile started an investigation into late participation reports in the company. Former CEO Dieter Penninckx told RetailDetail in an interview that this was just a routine investigation following the company’s IPO in Brussels, initiated by the (then) management itself. When questions arose later, management said it had the shares suspended to find the necessary answers – those shares have since been suspended since 11 May …
New questions arose when the Belgian clothing chain e5 mode was taken over in December 2019 by Frédéric Helderweirt, an ex-employee of FNG and fellow student of the founders. Both parties deny that FNG wanted to incorporate the chain itself in this way, although it resembles previous acquisitions by the fashion group: ailing chains were first cleaned up by external entrepreneurs, and then they were brought into the group as healthy chains.
The corona crisis gave the fashion group and its particularly risky debt strategy the final push over the cliff, which led FNG to decide not to publish the annual figures for the past financial year until later.
Unclear structures and constructions
In between, the company had several board changes: at the end of 2019, the chairman and the CFO stepped down for personal reasons and in early April 2020, CEO Dieter Penninckx had to resign from his duties due to health reasons. In an interview, the former CEO said that he was physically exhausted and that too many tasks were carried out by a management team that was too small. Also, there would have been too little ‘corporate’ expertise on board: the three founders still held the titles of creative director, COO and CEO at the time, but they had no experience in the fashion or business world: they are all three engineers.
When the annual figures for 2019 were finally released in June, the crisis gained momentum. In addition to the high debt burden (more than 500 million euros), the organic turnover decrease (5.3 %) and especially the net loss of 292.1 million euros were striking. It was also noteworthy that auditors deducted 94 million euro in “dubious debts”: “a number of complex and international transactions and structures” turned out to be incomplete or unclear. In Belgian media, a picture came together of a company whose founders were too ambitious and put their trust in a Dutch specialist in financial creativity – a huge gamble that now seems to have backfired.
Specifically, these were promised volume discounts through purchasing companies in Switzerland and Hong Kong, which the group may never receive. Reports have appeared in the press about shadowy companies exploiting the opacity of the Asian corporate market, but Penninckx said the earlier corona pandemic outbreak in China was responsible for the difficulties in the purchasing centre.
Loss-making stock trading
Subsequently, questions arose about share constructions, in which FNG purchased its own shares to (partly) pay for the takeover of Ellos. The company bought – according to Belgian newspaper De Standaard – 1.4 million shares at a price of 32 euros each from a company with close ties to the company, but in the end the shares were only booked at a value of 14 euros each. The result: a loss of 25.2 million euros.
In the context of those uncertainties and questions, the corporate court must now decide on the application for judicial reorganisation. The reorganisation plan says 47 stores should be closed, including 19 Brantano stores and all ‘Boutik by Brantano’, Fred & Ginger and Ginger stores, and also includes debt rescheduling negotiations with the banks.
The company also turns to the government for state support. Some of the bondholders have already placed their trust and have granted FNG a delay in repayments of 30 million euros. On 16 July, the holders of another 45 million in bonds will come together to discuss what they will do.
