One year on, Amy Shields assesses the impact of the Icelandic investment giant’s collapse on UK retail and the chains it owned

A year ago this week, one of the most high profile and - it had been assumed - successful retail investment stories of the decade came to a shuddering halt.

Icelandic investor Baugur, which had built up a portfolio of some of the industry’s best-known names in raid after breathtaking raid on the UK high street, went into meltdown.

Baugur’s demise, precipitated in 2008 by that of the Icelandic banks such as Kaupthing and Landsbanki that had bankrolled the investor’s acquisition spree, sparked fears that the chains it owned - ranging from Hamleys and jewellery group Aurum to Mosaic and House of Fraser - might follow suit.

A year on, after the dust has settled, what was the effect of Baugur’s collapse and what is its legacy?

Baugur’s fall did drag down some retailers, notably Mosaic. And it necessitated refinancing by others, such as All Saints and Jane Norman. But all the core former Baugur investments overcame the turbulence and continue to trade today.

Mike Shearwood, chief executive of Aurora, which was born from last year’s pre-pack administration of Mosaic, says the bad publicity that accompanied Baugur’s fall created difficulties but the real problem was the failure of Icelandic banks.

He says: “We weren’t affected directly by the collapse of Baugur. We were affected by the collapse of the Icelandic banking system and the effect that this had on Kaupthing bank. In hindsight, from that point on our fate was sealed.”

Mosaic had announced “solid” half-year results in September, one month before Kaupthing fell.

Shearwood recalls: “We lost a £75m working capital facility and a significant dollar hedge for 2009 at over $1.90. The combination of these factors had a significant impact on our profits and subsequent valuation.”

He continues: “A year ago, we were unable to pay our bank debt. We were having to spend significant amounts of time managing the supplier base to ensure the continuation of stocks.”

“The negative publicity that surrounded Baugur at the time made it more difficult to manage the relationship with landlords and credit insurers.”

Banking on UK retail

Don McCarthy, chairman of House of Fraser and Aurum and who was a shareholder in Baugur, also pinpoints the Icelandic banks’ importance in how things played out, and he is generally positive.

He says Baugur’s administration “didn’t have an effect”, and that Baugur’s stakes in retailers passed to the administrators of the banks. He says: “Everyone thought the banks would act irrationally and sell their shares at a low value but the banks have maintained value by not selling off their shares.

“Aurum went through a restructure supported by Landsbanki and is in the best shape for five years. We expect this year to be one of House of Fraser’s most profitable years.”

He concludes: “If the business was healthy and performing well and growing EBITDA, then the collapse of Baugur was just an annoyance.”

Hamleys chief financial officer Alasdair Dunn agrees: “In terms of trading the business it didn’t have any impact at all. Landsbanki is still on the scene and the company is in great shape.”

Former Baugur chief executive Gunnar Sigurdsson defends the investor’s record. He regrets the instability retailers suffered, but says the fact they all survived illustrates what made Baugur so influential in the first place.

“The reality has been that the businesses we were involved with before have performed well. It’s testament to the fact they were good businesses, they had good management teams and weren’t overleveraged,” says Sigurdsson.

He is philosophical about Baugur’s demise: “We took on more things than we should have but there was always a plan behind it. Strategically we were strong but we got caught up in the storm in the markets.”

Not everyone might agree with that verdict but surely few would argue with Shearwood’s summary of the Baugur phenomenon. “They will be remembered for their audacity and bold moves. It was a reflection of the noughties.”