Mothercare PLC on Friday reported growing profit amid declining revenue following Thursday’s announcements of a joint venture and a related financing.
The Watford-based business said its pretax profit for the 53 weeks to 30 March rose 32% to £2.9 million from £2.2 million the year prior.
Revenue for the baby-products retailer fell 23% to £56.2 million from £73.1 million, with the AIM-listed business citing ‘continuing challenges’ in its Middle Eastern markets as largely responsible for its decline in retail sales of 13% to £280.8 million from £322.7 million. Owing to this, Mothercare remains cautious in its short-term outlook.
Cost of sales for the retailer narrowed by 30% to £36.6 million from £52.2 million and net debt climbed 15% to £14.9 million from £12.9 million.
The company has not paid a dividend since 2012 but notes it is the directors’ intention to reintroduce the policy ‘when it is financially prudent’ to do so.
Shares in the AIM-listed business rallied on Friday afternoon by 44% to 4.90 pence a share, with the market responding to Thursday’s announcements pertaining to a refinancing and a new South Asian joint venture with London-based Reliance Brands Holding UK Ltd, a wholly owned subsidiary of Mumbai-based Reliance Brands Ltd.
This follows the recommencement of trading in its shares on Friday morning following a period of suspension from October 1. The business saw its shares suspended due to the delaying of the publication of its audited results pending the finalisation of its Middle East operations.
Under the terms of the deal, Reliance Brands Holding UK will hold a 51% stake in the new UK-based business for a cash consideration of £16 million, which, coupled with Mothercare’s newly secured £8 million debt facilities from GB Europe Management Services Ltd, will result in a taxable gain of £29 million.
The venture will own ‘Mothercare’s intellectual property assets India, Nepal, Sri Lanka, Bhutan and Bangladesh’ and replaces the previous franchise agreement between the two businesses.
The baby products retailer expects the business to ‘grow strongly and surpass previous revenue levels over the next few years’, with Mothercare expecting to benefit from sourcing feed, value creation and ‘materially reduced financial indebtedness’.
It added that: ‘A de-leveraged Mothercare can once more move forward with confidence and invest appropriately in the company’s future development.’
Mothercare Chair Clive Whiley stated: ‘We are now focused upon restoring critical mass alongside delivering our remaining core objectives. This is an exciting prospect for our partners, our colleagues and all our stakeholders alike as we finally leave behind the turmoil of recent years.’
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