Mothercare, the buggy-tobabywear retailer, has launched a £100m rights issue to pay down debt and close up to 75 UK stores to transform the property-heavy group into a “digitally led business”.
The 9-for-10 rights issue will be issued at 125p per share, a discount of 34.2 per cent to Monday’s closing price. It is fully underwritten by Numis, JPMorgan Cazenove and HSBC. It is expected to raise £95m net of expenses.
Profits from Mothercare’s portfolio of international stores have been severely dented by the poorly performing UK retail business in recent years. Management said it aimed to improve its earnings performance by “reshaping and modernising the UK store portfolio” as well as investing in IT and ecommerce.
Mark Newton-Jones, chief executive, said the investment would return the lossmaking UK business to profitability within a “three-year horizon”.
UK sales have suffered as competition from the supermarkets and low-cost clothing retailers such as Primark intensifies, and the group remains locked into fixed costs on the property leases of its UK stores.
On Tuesday, Mothercare said it would use the cash to pay down a £40m loan, exit between 50 and 75 high street stores and overhaul its website. It plans to open up to 20 new stores on retail parks in due course.
“Today, two-thirds of our stores are on high streets and one-third are on out-of-town retail parks,” said Mr Newton-Jones. “We want to change that over the next four years to the polar opposite. You can’t offer services such as fitting car seats when a customer’s car is parked half a mile away from the store.”

The digital investment in the business will include setting up a customer database that can personalise marketing and promotions.
“Once we know the due date, we know the development of that customer and the journey of that child,” he added.
Stores will be modernised so digital features such as customer reviews and stock levels are also visible to in-store customers.
Following the rights issue, the retailer will have paid down all its net debt, but is set to agree a new £50m working capital facility.
Source: Barrett, C (2014) Mothercare launches £100m rights issue, Financial Times, 23 Sept 2014 © The Financial Times Limited. All Rights Reserved.

Discussion points 1 Why has Mothercare made the rights issue?
2 What accounting information is provided in the article?