UK: WHAT'S IT ALL ABOUT STEPHEN?

UK: WHAT'S IT ALL ABOUT STEPHEN? - Everyone wants to know what Stephen Hinchliffe is up to. After a chequered history in the public arena, his private company has now acquired 800 high-street stores in less than 18 months - and has yet to file its accoun

by Chris Blackhurst.
Last Updated: 31 Aug 2010

Everyone wants to know what Stephen Hinchliffe is up to. After a chequered history in the public arena, his private company has now acquired 800 high-street stores in less than 18 months - and has yet to file its accounts.

Stephen Hinchliffe is talking away when the phone rings. He grabs it. 'Hello Don.' He pauses and a large, satisfied smile creases his big face. 'That's great Don, I'm really excited about it. Get the heads we agreed across to them.' He lights another cigarette. 'Listen, Don. Well done.' He hangs up. With an even bigger grin he turns to me and says: 'I bet you would like to know what that was about?' I smile and nod. 'Not yet,' he replies, laughing. 'Now, where were we?' It is over in seconds. A quick phone call - confirmation that the other side has accepted his offer, another deal for Stephen Hinchliffe.

We are sitting in the boardroom of his London home-cum-office just off Eaton Square. The tiny, cobbled mews is blocked by two top-of-the-range Mercedes bearing personalised number plates. One is M1 GOB, not a testament to Hinchliffe's capacious self-confidence, but the car belonging to his deputy, Gary O'Brien. The chauffeurs are pouring over an A-Z: 'You pull up there, then he crosses the road. Then you wait round the corner.' What sounds like a plan for a bank robbery is, in fact, almost certainly, an arrangement for another meeting, another head-to-head negotiation, another acquisition for the un-stoppable Hinchliffe.

They do not make entrepreneurs like Hinchliffe any more. Scrub that. They have never made them like him. Not even in the mad-cap late '80s when the likes of Halpern, Ratner, et al, were at their peaks. In the space of just 12 months, Hinchliffe, through his Facia group, has bought nine high-street chains. From a standing start, he has amassed 800 stores. If the phone call during our conversation is anything to go by, he is not finished yet. A stock market fed on Hinchliffe's seemingly insatiable appetite - he already owns Sock Shop, Freeman Hardy Willis, Trueform, Manfield, Salisburys, Torq, Oakland, Contessa, and Red or Dead - is awash with rumours of his next move. Era Group, which owns the Beatties toy shop chain, has seen its shares rise on the back of speculation that Hinchliffe is moving in; Sears is thought to be selling him Olympus or Wallis and possibly more of its shoeshop chains, this time Saxone and Curtess; while Burton's Dorothy Perkins may be next on his shopping list. This is not just idle speculation. 'Now we're interested in a nice little womenswear business,' said O'Brien, insouciantly, after clinching the purchase of the Freeman Hardy Willis shoe group, which includes Manfield and Trueform, also from Sears, 'We are in discussion with several sellers.' Like someone playing Monopoly and buying whichever property they land on, Hinchliffe seems driven by a fierce desire to own everything in sight. For the time being, even hardened City sceptics, used to some spectacular rises and falls in the past, are prepared to go along with him. There is good speculative money to be made from spotting, or claiming to spot, his next move. And, as Tony Shiret, retail analyst at BZW, points out, Hinchliffe is doing the larger, quoted players a service. 'He is reducing the problems for the stock market,' says Shiret. 'What he is buying is the bottom-of-the-barrel stuff.' Facia may own nine chains of 800 shops but they were not top-notch performers. For the most part, the companies selling them were desperate to get them off their hands. Hinchliffe, the visitor to a giant car boot sale with money to burn, has been only too happy to oblige. The irony is that the companies he is buying from are just the sort who came a cropper by expanding too quickly a decade ago. They have been left with businesses that no longer fit their more confined plan for the 1990s. In walks Hinchliffe and buys them for a song.

The jury is still out on whether there is method in his madness. At the time of going to press, Facia still had to file its first set of annual accounts at Companies House. Not only is this illegal (more than 10 months have elapsed since the company's first year-end in January 1995 - Companies House has formally notified the directors of their lapse), it's also extraordinary for a company of Facia's size to have no figures in the public domain. This, allied to Hinchliffe's own reluctance to discuss figures in detail, sows seeds of doubt. For the time being, the industry is prepared to suspend its disbelief. Facia is a private company, and as such is not subject to the constant probing of analysts. The widely-held assumption is that Hinchliffe is gearing up for flotation - in which case, the City may sit on its hands. The prospect of having all that 'bottom-of-the-barrel stuff' returning to the market in one company fills industry watchers with unease.

Neither are the omens good. 'This year has been a good year for retailing,' says Shiret. 'Facia may have been able to pick up on that cyclical swing and if it had done something about costs could have done well, but after next year, the overall economic scenario for retailers is not as good. There will be no real prizes for the next government to make the consumer feel good so soon after coming into office.' Sitting in his mews house, Hinchliffe has heard it all before. He gives a resigned sigh. Yet again, the City has got it wrong, assuming it knows what his plans are, thinking it knows best how to run his business. 'Flotation only has two real benefits,' he says. 'One is for the shareholders to crystallise their gains. The other is so a purchase can be made and gearing up is prohibitive. We do not have plans for either.' The City, you see, does not understand or like him. The feeling is mutual. Brokers talk up a stock, says Hinchliffe, buy the shares, the shares rise, they sell and make a profit. He knows their game and it is simple. They have no right to question his motives. 'It is the easiest role for anyone to criticise. Let the performance of the business speak for itself.' This is fighting talk, delivered in a hard, solid Yorkshire accent. Allied to that, Hinchliffe's sheer size - he is six foot five - and imposing presence, make it difficult not to feel intimidated. He is a big man who does not suffer fools gladly.

He wears crocodile shoes and a watch as large as some clocks. Tucked into the breast pocket of his grey suit is a bright red hankie. The bookshelves around the room are almost bare, save for some books on fast cars and wine, and a few CDs - including Crocodile Shoes. All of which shows there is nothing complicated about Hinchliffe. Some businessmen in his position would fill the shelves with books they think would make them look good. Hinchliffe does not share that concern - he does not feel the need to impress anyone.

He would like, he says, 'for people to look at me objectively, not subjectively. The British are a nation of knockers, which is sad really.' He has a point. But the reason is simple. Hinchliffe has come from nowhere at such a rate of knots buying up some of the country's best known names he is bound to arouse interest and suspicion - a suspicion compounded by the fact that for all his professed openness and lack of airs and graces, he keeps his cards close to his chest.

One of Hinchliffe's rules is that he never reveals how much he paid for anything. 'I'm criticised for not telling the press how much I've paid for something,' he shakes his head in wonderment. 'What difference does it make if something is £100 million or £100,000? If it is £100 million, journalists will say I'm crazy, I've paid too much. If it's £100,000 they will say it can't be up to much, I bought it for a song.' Another is that he will not spell out in detail how his purchases are funded. They are all financed from his own resources, is his stock answer. Borrowings are short-term and repaid from the extra cash Facia extracts from the new acquisition. A further rule is that he wants only to be judged on his track record, on results. 'I would rather give people evidence than have them rely on perceptions,' he says.

Aged 46, he started out as an accountant, working first for a local engineering firm, then the Trent Regional Health Authority. Spells in marketing at Mars and Memorex followed, before he decided to run his own business. He based himself in his native Sheffield, buying, developing and selling businesses, mainly small-time stuff. Two deals, however, put him on the map.

In 1984, for a £200,000 investment he led the mainly management team that bought out the Wades furniture chain from Asda for £20 million. Wades was losing £2.2 million a year. Within two years, Hichcliffe had turned that into a £2 million profit. Three years after buying it, he sold Wades to Waring & Gillow for a profit for the buy-out's backers of £7.3 million - his share was 40%, or £2.9 million. Then there was the development of the Norwich Union's new building in Sheffield. Covering 130,000 square feet, it netted another tidy - but, as with many things Hinchliffe, undisclosed - profit.

Soon after selling Wades, he ploughed money into James Wilkes, a mishmash of businesses in the Midlands. Hinchliffe was one of three people paying a combined £2.1 million for a 29.6% stake in the company,which had divisions in property, engineering, waste disposal and packaging and print, where it was the world's largest supplier of beer mats. He moved the headquarters to Sheffield and started making 'strategic' acquisitions. The money came from the sale of Wilkes's stake in James Neill Holdings, a toolmaker, for £7.25 million, and a succession of rights issues.

In the space of two years, Wilkes bought Knightway, an air shuttle operator based at Leeds airport; Floform, a supplier of spark plugs; Avon Transmission Services, a maker of replacement gear systems for heavy goods vehicles; Easterbrook Allcard, a toolmaker; and the beer mat arm of Smurfit Cartons. Wilkes's stock market value soared, from £7.5 million to £20 million and profits quadrupled.

Then came a blow which has dogged Hinchliffe ever since. He was arrested then released in connection with a fraud investigation. West Midlands police were inquiring into WB Industries, a West Bromwich spring-maker. WB had struck a £1.7 million property deal with Allied Industrial Estates, a Hinchliffe private company. The police were called after WB refused to pay Allied an outstanding £300,000. The suspicion was that Hinchliffe and Graham Avery, WB's former managing director, had conspired together to sell an Allied property to WB at an artificially inflated price. Later, the civil courts forced WB to pay the £300,000 - a decision Hinchliffe claims clears him of any possible wrongdoing. Hinchliffe was held for a few hours, questioned, then let go without charge. Shares in Wilkes, and another of his companies, Lynx, a quoted computer equipment manufacturer, slumped. Two months later, in January 1992, Wilkes was the subject of a hostile takeover bid.

The battle with Petrocon, four times smaller than Wilkes, cast another shadow over Hinchliffe. He was accused of allowing Wilkes to run up too great a debt burden - gearing was 130% - and of pushing up overheads. Wilkes's head office was a country home outside Sheffield with peacocks and deer grazing in the grounds, and its ebullient boss flew in and out in the corporate helicopter. Criticism of this rankles. 'There were two peacocks, the deer replenished themselves and Wilkes had its own aviation business,' Hinchliffe explains.

Even though he was opposed to the takeover, Hinchliffe is not one to miss an opportunity. Having put the group together, he approached the board with his own plans for demerger: he would buy the beer mats and aviation subsidiaries. The move forced his resignation - it was felt that the board could not be negotiating with a fellow director - but that was not without its up side: he was entitled to twice his gross salary and twice the annual fees payable under a consultancy agreement to a private company he owned. His salary was £63,000 and he charged £200,000 a year consultancy, giving him a pay-off of £533,000 - a sizeable sum for a company like Wilkes. In addition he received options over 90,000 shares on top of the 8.7% stake he already owned. He also picked up another pay-off from Lynx, which, despite making a loss, paid £131,000 to Hinchliffe and two directors when they resigned to concentrate on the battle for Wilkes, their other company. Hinchliffe eventually sold what by then had become a 10% holding in Wilkes when it was taken over, not by Petrocon but by Suter - given his longstanding friendship with David Abell, Suter's chief, Hinchliffe could be said to have had the last laugh.

After Wilkes, the deals continued unabated: the Royal Hospital site in Sheffield; the city centre Gateway Project; the purchase of En-tout-cas, the Royal Warranted tennis court company; Bukta, from the receivers; the Shoesave chain, from the receiver; Cooper Ludlam cutlery from the receiver; 15% of Sheffield United Football Club; Colibri lighters; French & Scott cosmetics.

In August 1994, he started building Facia: 174 Salisburys handbag shops bought from Signet, the jewellery chain once known as Ratners, for £2.75 million of his own cash and £430,000 from another of his private companies. The £3.18 million price was just 4% of the sum Ratners paid for Salisburys six years previously. The same was true of Sock Shop. In that deal, Hinchliffe paid nothing at all. Murray Johnstone, the Glasgow fund manager paid £8 million for Sock Shop when it was in trouble. In the deal they executed with Hinchliffe, they swapped the chain for preference shares in Facia that give them 10% of his company on sale or flotation.

Hinchliffe still owns 100% of Facia but Murray Johnstone will get 10% should he sell or float. Five years ago, says Hinchliffe, Sock Shop changed hands for almost £200 million. 'I did not pay that for them,' he adds, beaming. David MacLellan, a Murray Johnstone director and fund manager, sits on the Facia board - which meets only quarterly - and professes to be delighted with the way things have turned out. 'We hope it will make us a lot of money. It was a good deal for Stephen because he did not put any money up; it was a good deal for us because we got a bite of the future under Stephen Hinchliffe.' The Hinchliffe style is to strip costs out, tighten reporting requirements - outlets have to report daily, weekly and monthly, in contrast to the frequency of his own board meeting - and ensure that staff are motivated.

Contrary to his love of paying next to nothing himself, he does not pass lower prices on to customers. 'Discounting and constant promotions do not work,' he says. 'What we have to aim for is all year round quality and good value for money. Fresh merchandise and value for money are far better than promotions.' In contrast with life under Gerald Ratner, where sale signs were permanently in its windows, Salisburys has not had a sale all year, 'it has not needed one,' says Hinchliffe.

Commentators like Richard Perks from Verdict, the retail research specialist, who maintain they cannot see the purpose to it all, that Facia lacks 'synergy', are talking rubbish, says Hinchliffe. 'If your wife wants shoes, what does she buy to match? A handbag. Then she wants some jewellery and an outfit. What does she wear underneath? Hosiery and underwear. How can anyone say we are unfocused? I'm going for fashion and accessories, not ice-cream parlours and exhaust fitters.' Those who suggest he has embarked on some enormous property play, to make a killing when the high street turns the corner,look to be wide of the mark, particularly as the vast majority of the 800 shops are leasehold. He has no time for fellow retailers who wax lyrical about how often they visit each store. He has 800 and if he did six a day it would take him six months. He leaves that and overseeing his 6,000 employees to his managers. 'I have a full pyramid of management,' he says. Only the exceptional items are referred to him.

A spanking new headquarters is being built on the site of the old Laura Ashley design headquarters in Chelsea and a distribution centre will open in Milton Keynes. To answer those critics who say he lacks purpose, the Chelsea head office will comprise a shopping mall of branches of the different Facia chains.

His supporters claim his magic is simple. He buys businesses that others do not want for next to nothing. He gets in, pumps up the cash flow and uses it to pay off borrowings, and on he goes to the next acquisition. 'Steven Hinchliffe is fundamentally a larger-than-life character,' says MacLellan of Murray Johnstone. 'From that aspect he's his own worst enemy. There's also a lot of tittle tattle about him that gets passed around. Having got to know him over the last year, I like him and he is honest.' He is now Britain's tenth biggest retailer who got there by hardly spending anything at all. He can drive a hard bargain: the people he buys from want to sell more than he wants to buy. Price is everything. 'I'm a seller, not a grower,' Hinchliffe says. 'If you buy something and you think immediately you can get all your money back, that means you have paid a good price.

He is a creature of the tougher 1990s, someone by his own admission, 'who is reaping the benefit of a world that went a bit mad in the '80s.' Think of the retailers then, and they have all left the high street: Halpern, Davies, Ratner, Conran. Retailing today, he says, is all about 'common sense.' The only thing is, he adds: 'that common sense is a misnomer, it is not that common.' With that, he is away, in his personalised Merc, to another meeting, another possible purchase. Those results cannot come a moment too soon.

Chris Blackhurst is on the staff of the Independent.

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