MK One, the 172-store low-price fashion retailer owned by Baugur, dived £21.4 million into the red last year and the company was forced to restructure its balance sheet. According to accounts filed at Companies House last week, like-for-like sales fell 22 per cent in the first five months of last year, before a change in management. Sales rose 1 per cent in the remaining seven months of the financial year, which ended on January 27.

Baugur, the Icelandic firm that owns a number of high-street names, has been forced to plough £15 million into MK One. Landsbanki, one of the firm’s bankers, converted £38.7 million of debt into equity.

Baugur now owns about 60 per cent of the retailer and Landsbanki 40 per cent as net debt was reduced from £61.7 million to £26.7 million.

Last July, Baugur brought in a new chairman, Kevin Lyon, and chief executive, Dominic Galvin, to try to revitalise the business.

MK One has been one of the Icelandic group’s most troubled investments since it was bought for £55 million in November 2004. Baugur has also had difficulties recently with some of its other high-street brands, including Mosaic, which owns the Oasis and Karen Millen stores. Mosaic’s earnings dropped 13 per cent last year after floating in Iceland and Baugur is hoping to take the group private again. Baugur’s other brands include House of Fraser and Hamleys.

When Mr Galvin was brought in to MK One last July, he cut prices on basic lines by about 15 per cent and introduced more fashionable clothing and footwear. He has also reduced the number of staff at the retailer by 10 per cent, helping to shave £4 million off the company’s annual costs.

The MK One accounts show that in the 20 weeks from the end of January this year underlying sales have been up by 10.3 per cent.

Mr Galvin says that he does not expect MK One to break even for three to five years.

The retailer faces strong competition from Primark, which has been expanding rapidly in the past few years, as well as the likes of New

Look, Peacocks and supermarkets, which which are increasing their fashion ranges.

Mr Galvin said: “MK One has a heritage. It was one of the first value fashion players. We are in a tough market with a lot more promotions around, but if you look at the turnaround all the movements are in the right direction. We are now looking for sales growth this year and a substantial improvement on the bottom line.”

This year he plans to close some poorly performing stores and refurbish about 60 under a £6 million plan also agreed with Baugur at the time of the refinancing. Two new stores are set to open in October.

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