Mayfield highlights better market conditions in mixed half year results report
Mayfield Childcare Ltd have, in their half year results, confirmed that market conditions in Victoria continue to stabilise and in particular highlighted that new Greenfield developments are becoming less frequent, also noting that councils are becoming more proactive in validating supply and demand metrics presented in development applications.
The increase in council action is notable in that existing operators are being contacted directly to corroborate metrics presented in development applications, reflecting a trend already evident in Queensland and New South Wales where councils and courts are taking increasingly harder positions against applications that do not meet “need” conditions.
With margins in decline, development applications become increasingly scrutinised and new tenant pools contracting incentives for developers to launch new early education and care development projects in Victoria continue to subside.
Continued investment in business absorbs benefits of new centres and 2018 fee rise
Revenues at the company, which operates 21 long day care centres in Victoria, increased to $15.9 million on an underlying basis, up by 13.6 per cent compared to the same period last year, as acquisitions and last year’s fee increases flowed through the business.
Overall centre margins were higher by 1.1 per cent due largely to a fall in wages as a percentage of revenue from 60.7 per cent to 59.9 per cent.
However, any financial benefits accrued from centre based improvements were absorbed by ongoing investment at the support level, in particular investments in operations personnel, professional development, marketing and IT systems spend.
After the inclusion of support office costs and the depreciation associated with the increased investment in centre refurbishment programs, margins at the EBIT (earnings before interest and tax) level were 11.5 per cent, the same level as last year.
Net profit after tax came in at $1.1 million with the net margin falling to 7.1 per cent from 7.5 per cent last year as higher financing costs flowed through from the increase in borrowings.
Occupancy up 0.3 per cent as softer than expected April mutes performance
Occupancy in the first half of 2019 was up 0.3 per cent on the same period last year.
This is lower than the company’s guidance of a 1.0 per cent increase in 2019 and was caused by a weaker than expected April enrolments performance and a negative drag from a number of underperforming centres.
The company notes that the challenges at the centres appear to have been resolved and has reiterated full year guidance of a 1.0 per cent increase in occupancy is still expected in 2019.
Investments, interest and acquisition costs take their toll on cash levels
Cash on balance sheet fell to $73,000 as at 30 June 2019 down from $360,000 on the same date last year as the ongoing investment program, the acquisition in May and higher financing costs outweighed positive net operating cash flows.
The company was able to restructure its existing debt with Westpac agreeing to extend maturities by 5 years and also added $1 million to the total bank facility leaving $4.5 million available for acquisitions and working capital going forward.
Cash levels will also likely be supported by a 3.9 per cent fee increase that was passed on 1 July 2019 and the improved seasonality dynamics that tend to unfold in the second half of the year.
Company reiterates full year guidance for 2019
Looking forward the company reiterated their full year guidance with revenue of approximately $34 million, group EBIT of between $5.8 million and $6.2 million and occupancy up 1.0 per cent.
For more information on Mayfield’s first half 2019 results please click here.