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Think Childcare provides update on year to date trading performance

Jason Roberts

May 28, 2019

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Think Childcare has released a trading update providing a snapshot of the company’s financial and operating performance so far this calendar year, the first indication of trading performance since the company issued its Full Year results in February.

The company reported that from the 1st week in January to the second end of the 2nd week in May revenues at the 41 centres that make up its like for like (LFL) portfolio (ie: those centres owned by the Group for more than one year) was tracking 7.0 per cent higher than the same period last year.

The increase in revenues was driven by higher average fees being applied across the Group whilst days sold, a proxy for actual daily enrolments, continued to track levels experienced last year.

EBIT performance of LFL centres up strongly as wage management initiatives deliver

The centre level earnings performance of the LFL cohort was up a strong 26 per cent to $3.2 million, an increase of $0.7 million on the same period last year driven largely by more efficient roster management practices.

The wages as a percentage of revenue metric, a key measure of wage efficiency, saw a reduction of 1.8 percentage points to 62.6 per cent.

The higher revenues and lower costs saw margins increase by 2.2 per cent.

Broader portfolio sees good growth as Government CCS contributions ratchet higher

Overall days sold across the entire portfolio increased 40 per cent as the impact of new acquisitions generated material new growth for the company.

Fees increased on average 6.0 per cent and wages were 1.6 per cent better than the Group’s performance in 2018.

Notably, the company also confirmed that the percentage contribution paid to the company from the Government in the form of the Child Care Subsidy (CCS) has risen to 60.6 per cent of revenue, up from 47.5 per cent prior to its implementation.

Transition to Nido Early School model continues

The Group’s transition towards a portfolio that consists of 100 per cent Nido Early School centres continues to track according to plan with the first phase, education curriculum transition, now complete.

As of reporting date the Group is now 50 per cent through the roll out of the new service delivery model across its network. This consists of a combination of broader service and curriculum leadership at the centre level supported by General Management capability at the support office level.

The last leg of the Nido transition strategy, which is approximately 30 per cent complete, is targeting centre presentation. 44 centres were subjected to a review to assess their current quality against a set of key objectives with a view to identifying centres that would benefit most from the investment.

A group of 14 centres were selected to participate in the capital investment program.

Investment in support office lays foundation for future growth

Think continues to invest heavily in its support office capabilities with total spend in 2019 on employee expenses expected to be around $7.1 million, an increase of $2.4 million from 2018.

The company has been building support office capability to support future growth since last year and has added new headcount in marketing, finance and the people and culture team which is largely complete.

The next step will be to add new team members in the operations team so as to effectively manage the anticipated growth of it’s network in the months and years ahead.

Think targets 65 centres in 2019 after closing two centres in March

The Group is targeting closing the year with 65 centres in it’s network up from 55 at the end of 2018.

This increase will consist of two new greenfield centres developed by Think and 10 centre acquisitions from Think’s incubator partners.

In addition, Think elected to remove two centres from it’s base portfolio because they were deemed to not be strategically aligned with the Group’s Nido brand strategy. The leases at these centres were not renewed and Think vacated the premises at the end of March.

The Group also highlighted that as a result of a strategic review of their network a group of between 3 to 5 centres may be put up for sale to raise capital to reinvest in the network, a move designed to ensure that overall network quality continues to improve.

Detailed 2019 guidance rounds off trading statement

The company has guided underlying full year group earnings before interest, tax, depreciation and amortisation (EBITDA) to $14.8 million.

This compares to EBITDA of $10.7 million reported in 2018.

Centre profit margins are expected to rise to 18.8 per cent, up from 15.8 per cent in 2018, with underlying group EBITDA margins tracking 0.5 per cent lower than 2018 at 12.0 per cent. For more information on the Think trading statement please click here.

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