LONDON (Alliance News) - Shares in Mothercare PLC dropped on Monday after it declared its company voluntary arrangement (CVA) proposal effective, as no challenges have been made or filed with the High Court.
Under the CVA proposal the baby products retailer will shut down 60 UK stores, 10 more than planned in May, and continue to operate 77 stores, 19 of which at a reduced rent price.
In May, Mothercare filed for CVA after posting an annual pretax loss of GBP72.8 million, sinking from a profit of GBP7.1 million the year before.
The store estate restructuring was expected to result in a GBP10 million cash inflow and cost savings of GBP5 million.
In relation to the CVA proposal of its subsidiary Childrens World Ltd (CW), which did not receive creditor's support, Mothercare said that CW will enter administration transferring 13 of its 22 stores to other Mothercare group companies to continue trading.
The company said it was able to identify cost saving initiatives for a total of GBP19 million, as UK trading conditions remain challenging "following the patterns seen in the second half of the last financial year".
The struggling chain also said it seeks to raise GBP32.5 million via equity issue. In May, the baby products retailer said it planned to raise GBP28 million.
The placing and open offer will be priced at 19 pence per new ordinary share and is at a 33.6% discount to the closing price of 28.6 pence on Friday. Mothercare shares were down 8.9% at 26.05 pence each early Monday.
"We have worked tirelessly as a team to get to where we are today and this fully underwritten equity issue marks the end of this initial phase, returning the Group to financial stability," Interim Executive Chairman Clive Whiley said.
"Alongside the fundraising, we have been very busy on numerous fronts to restructure the group for future profitability. Whilst the lack of full approval for the Childrens World CVA was disappointing, we have now found a solution which allows us to go further and faster with the right-sizing of our store portfolio."
Mothercare is not the only British retailer struggling to make ends meet.
In June, department store chain House of Fraser PLC received approval for its own CVA proposals which will see more than half of its stores lock their doors.
Last month, Poundworld entered into administration putting 5,100 jobs at risk, while Debenhams PLC and Footaslyum PLC were there latest victims of tough conditions on the UK high streets, with both retailers issuing profit warning.
Mothercare also said its company voluntary arrangement proposal is now effective and its subsidiary Childrens World will be placed into administration.
In terms of outlook, the company said current trading continues to follow the patterns seen in the second half of the last financial year, with challenging conditions in the UK. It has also identified cost savings totalling GBP19 million together with GBP10 million cash realisation coming from its restructuring plans.
"Alongside the fundraising, we have been very busy on numerous fronts to restructure the Group for future profitability. Whilst the lack of full approval for the Childrens World CVA was disappointing, we have now found a solution which allows us to go further and faster with the right-sizing of our store portfolio. We have also identified significant areas for further efficiencies and cost savings, which will underpin our return to a sustainable future," said Chairman Clive Whiley.