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Mothercare has agreed a deal that will see it refinance its existing debt facilities with investment firm Gordon Brothers, whilst forming a new joint venture with Reliance Brands UK that will see it expand into Asia.
The company secured debt facilities of £8m – taken together with the gross consideration of £16m – from Reliance Brands Holding UK Limited.
According to the group, the refinancing and new debt facilities will allow Mothercare to “move forward with confidence and invest appropriately in the company’s future development”.
As a result of its new joint venture with Reliance Brands UK, the nursery retailer will expand its operations in India, Nepal, Sri Lanka, Bhutan and Bangladesh.
It comes as Reliance holds a 51% stake in the partnership, which it acquired for £16m. The deal replaces its former 30-year franchise agreement from six years ago.
Mothercare has applied the proceeds received from Reliance towards a refinancing of its existing debt facilities with Gordon Brothers.
Under the terms of these new financing arrangements, the previous £19.5m term loan has been replaced with an £8m two-year term loan facility.
The news of the refinancing and joint venture comes as Mothercare today (18 October) reported a 31% jump in profits before tax to £2.9m for the year to 30 March, despite sales falling 23% to £56.2m.
The group attributed its weak sales performance to its franchise partners who grapple with “continued challenges in Middle Eastern markets”.
Clive Whiley, chairman of Mothercare, said: “Today’s agreements with Reliance and Gordon Brothers strengthen our operations in South Asia and support a material reduction in our bank facilities and leverage. We have worked closely with Gordon Brothers for over five years now and value its ongoing support for Mothercare.
“The revised facility agreement and related arrangements reflect the strength of that ongoing relationship and trust alongside recognising the accretive nature of the joint-venture to our equity valuation.”
He added: “Taking today’s developments together with the inherent strength of the business’s brand, we believe Mothercare can approach 2025 and beyond with a renewed and growing sense of confidence at the opportunities ahead, notwithstanding our ongoing cautious shorter term outlook, given the continuing challenges facing our Middle East operations.”
