Eleven months ago, the Scottish billionaire and philanthropist Sir Tom Hunter made one of the most ambitious charitable pledges the British business community had ever seen. Speaking to the television cameras, he said he hoped to give £1bn to charitable causes during his lifetime, and added: "My own personal belief is that with great wealth comes great responsibility."
But last weekend, The Independent on Sunday revealed that McCarthy & Stone, the British retirement home builder in which Sir Tom has an 8 per cent stake, had appointed bankers at Rothschild to explore its options amid mounting concern about the company's finances.
McCarthy & Stone is the latest in a number of Sir Tom's business interests, run through his investment vehicle West Coast Capital, which are struggling, in addition to a series of under-performing investments he has offloaded. For instance, he is thought to expect only to break even on the sale of his 29 per cent stake in the garden centre chain Dobbies to Tesco this month.
Given this turn of events, and with darkening clouds over the economy, questions are being asked about whether West Coast Capital could be feeling the pinch and whether Sir Tom will ever reach his holy grail of giving away £1bn to charity. So is the great man losing his Midas touch or are recent events a minor bump in the road as he drives towards his ultimate goal?
It is fair to say that while West Coast Capital has a diverse portfolio, including investments overseas, it has a degree of exposure to the credit crunch-driven downturn. Between 10 per cent and 15 per cent of West Coast Capital's investments are in retailing, while the remainder is in residential and commercial property, from industrial estates to hospitals and hotels. It also has interests in the oil services industry.
Of these, the scale of the downturn in the retailing and property sectors looks set to be deep. In retail, Sir Tom, 47, a graduate from Strathclyde University's business school, had a fairly unblemished record until a few years ago. After all, he started his career by selling shoes from the back of a van and offloaded his first retail venture, the sportswear group Sports Division, to JJB Sports for £290m in 1998. The money generated from the sale led to Sir Tom setting up The Hunter Foundation, which gives money to good causes in Britain and the developing world.
But this year, Sir Tom has sold his young fashion chain D2 to its management team, sold his loss-making footwear chain Qube to JJB Sports for a nominal £1 and will complete the sale of his Dobbies' stake to Tesco. After selling D2 in January, Sir Tom said: "This for us is really part of a decluttering strategy. Our business is now largely focused on sizeable retail investments like House of Fraser and Wyevale alongside a heavy focus on property and international investment."
But two other retail investments, the young fashion chain USC and Flying Brands, the Jersey-based home shopping group, have also struggled recently. USC made an operating loss of £8.8m for the year to 27 January 2007 and – although Sir Tom has vowed to turn it around – speculation in the market is that Sir Tom is considering selling it, although a deal is not imminent. Publicly quoted Flying Brands, in which West Coast Capital has a 29.9 per cent stake, issued a profits warning last month.
In his defence, his investments in larger retailers, such as House of Fraser and the garden centre chain Wyevale, in which West Coast Capital has a 40 per cent stake, look better long-term bets. Its property portfolio has not escaped the tentacles of the UK downturn this year.
For instance, McCarthy & Stone is being hit by the slowdown in sales of houses. Its elderly customers are suffering from a dearth of buyers, which prevents them moving into the house builder's retirement flats.
A spokesman for McCarthy & Stone said: "While McCarthy & Stone is a specialist, it cannot be immune from what is happening in the housing sector. They decided to appoint Rothschild as a financial adviser to the company to assist them in these unprecedented times.
"Are we going insolvent? No. Are we in breach of banking covenants? No." He added: "The company's shareholders remain fully supportive of the business."
Some of Sir Tom Hunter's investments are understood to be adding decent return to the coffers of West Coast Capital. For instance, West Coast Capital acts as landlord on 135 sites for the low-cost hotel chain Travelodge, which is thought to be performing well. The project is a joint venture with Prestbury Investment Holdings.
Similarly, City sources speculated that the performance of West Coast Capital's joint venture with Catalyst Capital and Bank of Scotland is also holding its own. The joint venture has £340m worth of shopping centre property in the UK. It is unclear how the housebuilder Crest Nicholson is performing, but it is understood that Sir Tom is a long-term investor after joining a consortium with HBOS to buy Crest Nicholson last year. Furthermore, a number of West Coast Capital's property investments and long-term assets are outside of the UK, in countries including China and India.
The diverse portfolio of West Coast Capital should shelter it from the worst of the credit crunch, although its exposure to the UK property and retail market will no doubt dent its financial performance this year. West Coast Capital is cash rich and is in no hurry to trim down its portfolio. On the contrary, Sir Tom is understood to be in a position to sit out the falling profits that will occur if the UK and global economy heads for choppier waters.
A spokesman for West Coast Capital and Sir Tom said: "West Coast Capital ... does not possess a Midas touch so inevitably it incurs losses on some investments and gains in others. As a long-term investor we are very confident on where that balance will end up."
Since 1998, the Hunter Foundation has committed to invest £35m in good causes. Last year its founders pledged a further £100m for investment in Scotland and the developing world.
However, if the credit crunch continues to hurt the balance sheets of most global companies, he will have to run a bit faster to achieve his dream.
Sir Tom's investment empire
His retail investments include:
*USC, the designer clothing chain, made an £8.8m loss in the year to 27 January 2007.
*Office Holdings, the footwear specialist trading as Office, made an operating profit of £3.6m for the year to 28 January 2007.
*Wyevale Garden Centres, in which West Coast Capital has a 40 per cent stake, made an operating profit of £8.5m in the year to 1 January 2006.
*West Coast Capital owns a 29.9 per cent stake in Flying Brands.
*Sir Tom also owns stakes in Sir Philip Green's Bhs, House of Fraser and Blooms of Bressingham.
His property investments include:
*A joint venture with Catalyst Capital and Bank of Scotland that owns shopping malls worth £340m.
*West Coast Capital sold and leased back of 135 of Travelodge's properties. This project is another joint venture with Prestbury Investment Holdings.
*West Coast Capital acquired 220 pubs from Spirit Group for £500m in 2004. Other partners in the deal were Prestbury Investment Holdings, Bank of Scotland and Reuben Brothers.Reuse content