retail

Mothercare UK stock liquidation leaves £10m debt shortfall

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Mothercare failed to raise as much as it had hoped through the clearance of stock when it closed its stores across the UK this month, leaving it to make up a £10m shortfall to lenders.

The baby products retailer stopped trading at all 79 of its outlets in its biggest market two weeks ago following a decision last November to put the UK unit into administration after years of efforts to return it to profitability proved fruitless.

The company — which plans to keep its brand alive in the UK through a franchise agreement with Boots — had planned to use the proceeds made from liquidating stock to pay down the £24.5m in net debt recorded on its balance sheet as of October 2019.

But following heavy discounting, which reached as high as 80 per cent as its stores entered their final days, the company said on Thursday that the cash raised had come in “behind expectations” and it would be left with a £10m shortfall.

“Our plans for the final steps of the recapitalisation of the group are in hand and whilst the cash realisation from the Mothercare UK administration was lower than anticipated, the progress that we have made elsewhere means that the financing requirement overall is unchanged from our original plans,” said Clive Whiley, Mothercare chairman.

The group said progress made lowering working capital requirements meant that its need for additional financing would not rise from the £25m it had previously anticipated. It is weighing up a handful of options for how to do this and said its recapitalisation plans remained “broadly on track”.

Mothercare — which remains in existence through its profitable international operation — also announced on Thursday that its chief executive Mark Newton-Jones would be stepping down to be replaced by chief financial officer Glyn Hughes on an interim basis.

Its international business, largely run under franchise agreements, generated profits of £28m in its last financial year from stores in Europe, Asia, the Middle East and Latin America.

But the UK, where it had been in operation since 1961, defied recent attempts to return it to profitability. In its last financial year, the company made a loss of £36m on £337m of sales as customers shopped elsewhere for baby products.

Clive Black, an analyst at Shore Capital described the overhaul at Mothercare as “daunting, high risk and extensive”. But he added: “Whilst there is more to do to dot the ‘i’s’ and so forth, we are pleased to see the progress that Mothercare is making.”

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