Mothercare to shut 10 more stores as Childrens World arm placed into administration

By Paul Norman - Monday, July 09, 2018 10:00

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UK high street mainstay Mothercare has raised the number of stores it plans to close from 49 to 60 as it said the CVA for its Childrens World business had not received creditor approval forcing it into administration.

Mothercare said in a stock market announcement it was also looking to raise a further £32.5m from shareholders as part of its restructuring of the group.

Mothercare is eyeing a capital raising at 19p per share, below Friday’s closing level of 28.6p.

The latest plans come two months after Mothercare received backing for a CVA that included plans to shut 50 stores.

This morning it revealed that while the CVA has passed without legal challenge, the propsals with regards to its Childrens World arm - which comprises 22 stores - had not received creditor approval and it had been placed into administration.

Mothercare will transfer 13 of the Childrens World estate into other parts of its business.

Mothercare said it expected this to “result in the exit from 60 UK stores and a continuing UK store estate of 77 stores for Mothercare as a whole by June 2019, with 19 of those stores on reduced rent”.

Chief executive Mark Newton-Jones said: “After a very challenging period for our business, we have now finalised arrangements to restructure and refinance the group, ensuring that the transformation of the Mothercare brand we started four years ago can now be completed. Mothercare is a great British brand with over 50 years of heritage and we now have the financing in place to take it forward for many more years to come.

"We have seen an unprecedented period for UK retail and we have not been alone in facing a number of strong headwinds. I’m pleased to say however, that we are now in a position to re-focus on our customers and improve the Mothercare brand both in the UK and across the globe. The restructuring will help generate £10m in savings per year, the company said. It is seeking to find another £9m of annual savings through a “root and branch review of every facet of the Mothercare business.”

Mothercare’s proposed company voluntary arrangement was approved by creditors on 1 June.

The CVA features comprehensive measures to refinance the business and to restructure its UK store portfolio.

The retailer has slashed its UK store portfolio from 220 stores to 137 over the past four years. In April Mothercare had warned it was in financial difficulties as poor trading put it at risk of breaching the terms of its loans.

The CVA has been proposed alongside a financial restructuring that includes £113.5m in funds to support the business. It said it in May it plans to raise £28m from shareholders via a new share issue in July, has secured new debt facilities of £67.5m from its banks and said shareholders have loaned it £8m and a “trade partner” had lent it £10m.

The restructuring of the UK store portfolio is expected to result in a portfolio of 77 UK stores by June 2019 and 73 UK stores by the end of FY 2021/22. The restructuring will be implemented as follows:

  • 60 stores have been or will be closed by June 2019 (instead of the 50 stores originally announced on 17 May 2018) (this comprises 58 stores closing pursuant to the CVA Proposals and the entry into administration of Childrens World together with another two stores closing as a result of expiring or terminated leases which have not been renewed);
  • 19 stores will remain open and have had rent reductions; and
  • 58 stores will remain open on substantially unchanged terms and/or rents.

Mothercare said: “The completion of the CVA Proposals and the entry into administration of Childrens World are vital steps to return the Group's UK business towards financial sustainability and positive cash contribution. The Group will also improve its customer offer and product range, sharpen the in-store execution of the remaining estate and, alongside these changes, invest in its online proposition in order to support sustainable growth in the longer term.

"Our base plans conservatively assume a significant reduction in the sales volume from the stores that are closing notwithstanding that over recent years the growth in online sales has broadly matched the decline in store sales due to store closure. This prudent approach to our base plan creates a further opportunity. Our UK retail operations team will focus in particular on the Group's online offering in order to recapture a larger proportion of sales from these closures.

KPMG is advising on the CVA.

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