Last week, Flamingo International representatives broke their silence about the firm’s insolvency proceedings and revealed their plans. Flanco International, the only remaining active entity of Flamingo Group, is on the look-out for an investor willing to inject capital. Currently in negotiations with five potential suitors, the firm expects the insolvency procedure to be finished by September.
Last December, Flamingo International revealed it would be restructured after negotiations with its creditors broke down and ING announced it would impound stock from some of the company’s stores. But first some background: Flamingo International, the mother company which was listed on the Stock Exchange, controlled retailers Flanco International, which ran Flanco stores, and Flamingo Computers, in charge of the Flamingo Computers shop network. The distribution was controlled by Flamingo International which centralized all the group’s acquisitions and then distributed the stock to the retailers. When the group went into insolvency, the approach changed. “Previously, everything took place within the group, but after this procedure started, we found out that in the insolvency procedure, each company is distinct and has a different legal administrator. So, today, all the employees and all the assets are registered to the Flanco entity. Flamingo no longer has any employees,” explains Adrian Olteanu, CEO of Flanco International.
Currently, Flanco has approximately 500 employees deployed in a network of 70 stores. “We want to recover market share. We want to consolidate the network of stores so we are aiming to open another 10 stores by the end of the year if we find suitable locations,” says Olteanu. At the beginning of the year the firm had 74 stores, but six were closed and another two re-opened in different locations. In Bucharest there are eight Flanco stores. The total surface of the shops is 40,000 sqm while the total sale surface spans 30,000 sqm. The supplementary 10,000 sqm represents in-shop storage area. Some 439 employees work in the stores. “Our expectations are that in June most (90 percent) of the company’s 70 stores will generate money,” predicts Olteanu. The total value of the debts is approximately EUR 60 million, for the entire group. Bank creditors are owed EUR 34 million. ING is the firm’s biggest creditor, to which there are unpaid outstanding debts of EUR 17.2 million.
What has happened to the shareholding structure? According to Flanco’s CEO, the shareholding structure of Flanco International is 100 percent that of Flamingo International, which included businessmen Dragos Cinca, Dan Adamescu and Ion Alexandru Tiriac. “The value of the shares is basically zero at the moment since the creditors have priority,” said Andrei Cionca, managing partner at Transilvania Insolvency House. This is why Flanco representatives are on the look-out for an investor. “We are talking about the injection of capital exclusively into the company and the total distributions to creditors will be made from the company’s results,” says Cionca. At the moment, discussions are ongoing with five possible investors, including an investment fund and an institutional investor, and the latter wants a company that is floating on the Stock Exchange, to ‘burn some stages.’ “We are keeping all options open and if the investor we eventually select wants a company that floats on the Stock Exchange, we will make the switch and transfer all the current activity to Flamingo International and the company will exit the insolvency procedure for Flamingo,” says Cionca.
He asserts that the liquidation of Flanco would benefit nobody. The company’s creditors have at the moment two choices: either they vote for the restructuring plan the company is proposing, or opt for bankruptcy: “we close everything, we gather all the stocks in the country – you can imagine what logistic costs that would involve – we store them somewhere and try to sell them for a price that is hard to estimate. But at that point we will not be talking about EUR 45 million that the creditors will lose but almost EUR 60 million,” says Cionca.
After the insolvency was declared, the company’s suppliers took a step back. “For the whole of last year we did everything possible to avoid this, because restructuring means you lose the trust of all your partners,” says Olteanu. He adds that in December and January, the retailer’s stores were almost empty because of suppliers’ distrust. “The good news is that we managed to re-gain the confidence of our business partners and at the moment we have operational business with more suppliers than in the past because a company in insolvency is under strict regulations and control which gives it more stability than a company that is not in insolvency,” says the CEO.
However, negotiations with banks are more complex. “We are trying to offer them alternative solutions regarding the money they are losing. We are trying to re-convert part of the debt to shares in the future company. So the investor who is willing to take over the firm will be given a major share package, a controlling package, while the remaining shares will be offered as an alternative for the reduction of losses to the main creditors, the banks,” says Cionca.
In a nutshell, the re-organization has two steps. First, to reduce the company’s debts to a level that is acceptable to an investor. “We are sufficiently realistic to realize we won’t be able to attract an investor if we give him a company where the liabilities are greater than the assets. Nobody wants to put money in a black hole,” says Cionca.
In June, Flanco is expected to reach a neutral EBITDA, which should make discussions with creditors a lot easier.
Second, to find an investor and have final discussions with the creditors and the investor at the same table. “We hope this procedure is finalized this fall, before Q4, because we want to give that investor the opportunity to make the most of that quarter, when there is a boom in sales,” said Cionca. The retailer’s business is very much subject to seasonal fluctuations, so Q4 delivers approximately 40 percent of year-round sales.