Mothercare new boss to invest own £400,000 in £100m rights issue

Mothercare’s new chief executive, Mark Newton-Jones, is to invest £400,000 of his own money in the company’s planned £100m rights issue, insisting the mother and baby goods specialist has a future in the UK.

Newton-Jones said the entire board and executive team had committed to taking up shares in the massive rights issue which will fund the closure of loss-making stores as well as IT investments and debt repayments in the latest attempt to revive the ailing retailer.

“We are all putting our money into the business. It is important that while we are asking shareholders to invest in the future of Mothercare we are doing it ourselves. It is a great business turnaround.” Newton-Jones’s acquisition will help him meet an obligation to buy shares equivalent to his £600,000 salary within three years of his appointment two months ago.

While Mothercare, which has not paid a dividend since February 2012, warned on Tuesday that shareholders would not see a payout in the “medium term”, Newton-Jones said there had been “very encouraging noises” in discussions about the fundraising with top-10 shareholders, which include M&G, Fidelity and Beano owners DC Thomson. “They recognise the UK business needs to modernise,” he said.

Newton-Jones, who previously ran online retail group Shop Direct, owner of the Littlewoods and Very brands, said Mothercare would become a “digital first” retailer, with iPads and interactive screens in stores so that shoppers could view demo videos and customer reviews and access a broader product range on the high street.

Mothercare has already cut costs by shutting 153 unprofitable stores in the past three years. It now plans to shut between 50 and 75 more branches by the end of the next financial year at a cost of £25m. The closures will include almost all Early Learning Centre stores, although the brand will continue to produce toys for sale online and in 120 departments in Mothercare shops. Newton-Jones said staff were being transferred to nearby branches to help improve service while up to 20 new stores or relocations in the UK are planned.

The retailer is also introducing more exclusive, higher quality products in an attempt to encourage shoppers to buy more at full price. Newton Jones said the group had relied too much on cost cutting and price reductions in recent years, while failing to invest to keep up with changing customer demands. It will spend £20m on refurbishing all its branches and £10m improving computer systems in the hope of increasing online sales from 30% to 50%. It will use £40m of the money it is raising to pay off debt.

Mothercare launched the rights issue, which will net £95m after advisers’ fees, two months after rejecting a £266m takeover approach from Destination Maternity of the US. Big shareholders backed the decision even though Mothercare has struggled in recent years. Now the group is asking investors to back its own plan.

Newton-Jones signalled that money was needed in July when he said the UK business was old-fashioned with antiquated systems and uninspiring stores. He joined as interim boss in March before becoming permanent chief executive two months ago.

Under Newton-Jones, UK store sales have started to improve with like-for-like revenues up nearly 1% in the 15 weeks to 12 July. Sales at its more successful international business also picked up, with like-for-likes up 14.7%. But the retailer faces a highly competitive market where rival specialists Kiddicare and Mamas & Papas have both experienced difficulties in the face of rising competition from the supermarkets.

“There has been consolidation and I think that continues,” said Newton-Jones. “If there are less competitors there could be a bigger piece of the pie for everybody else and the piece we are after is not discount.”

The rights issue offers existing shareholders new shares at 125p each, a 34.2% discount to Monday’s closing price. It is fully underwritten by Numis, HSBC and JP Morgan Cazenove.