Think results confirm strong portfolio growth in 2019 with more to come going forward
The increase was driven by the purchase of 15 operating Nido Services and the opening of four new greenfield sites, two of which were developed by Think internally. The total cost for the centres acquired was $22.4 million.
Think also confirmed that their development arm, Think Childcare Developments (TND), was currently incubating 18 further sites that were expected to reach occupancy hurdles and vend into the Group over the course of the next 24 months taking the future committed portfolio size to 90 services.
EBITDA meets guidance with occupancy drag mitigated by fees and cost savings
The Company generated $14.8 million of underlying earnings before interest and tax which was at the top end of the guidance range and $5.8 million of underlying net profit after tax which exceeded guidance of $5.2 million.
Centre performance was materially stronger in 2019 as new acquisitions and centres opened in 2018 contributed around $5.2 million of additional EBIT and the 41 centres that make up the organic portfolio contributed $1.3 million to 2019 EBIT as fee increases and cost savings helped mitigate more challenging operating conditions.
Think reported a 1.7 per cent year on year fall in days of care sold, their preferred measure of occupancy, across the 41 centre cohort but this weaker performance was more than mitigated by fee increases of around 3.7 per cent, cost saving measures in workforce and child care expenses categories and also management fees of $4.9 million.
Overall underlying centre EBIT margins for the Company increased to 17.4 per cent up from 16.1 per cent last year and underlying company margins were more or less flat at 13.4 per cent compared to 13.2 per cent last year.
Support office costs up and next phase of Project Elevate confirmed
In a development that was echoed in G8 Education’s results earlier in the week, Think has continued to invest significantly in its support office team.
Corporate overheads increased by $2.7 million to $9.4 million in 2019 as the full year impact of roles added in 2018 kicked in and additional key strategic roles such as COO, CIO, Head of Marketing and a Project Manager were onboarded.
There are now 45 people working at support office up from 35 last year with the largest increase coming in the operations team which saw numbers increase from 11 to 17 team members.
The Company also provided guidance on the next phase of Project Elevate, their strategic and operational plan designed to enable the successful execution of it’s group strategy that was launched in early 2019.
Looking forward, the next set of objectives will focus on quality enhancement, procurement savings, embedding a new risk and compliance framework, replacing the legacy payroll system, an overhaul of their point of sale ecosystem and development of better customer experience and marketing return on investment data insights.
Balance sheet remains buoyed by 2019 capital raise and cash flow dynamics solid
As at year end liquidity on balance sheet was solid with $11.7 million of cash available after last years $18.1 million capital raise as well as a further $24.5 million of debt facility headroom. This level of funds available will comfortably fund further centre growth and in house initiatives such as Project Elevate.
From an indebtedness perspective gearing, measured as net debt divided by equity, came in towards end of the sector’s range at 65 per cent but the net leverage ratio, measured as net debt divided by underlying EBITDA, came in around 2.0x within their covenants.
Group cash flow was strong with a total of $22.1 million of operating cash flow generated compared to just $8.9 million in 2018 as acquisitions and prices rises drove revenues and more efficient working capital management drove payments.
Cash conversion, a ratio used to compare cash flow generated by a company to its net profit, was 125 per cent, meaning that cash generated by the company exceeded the accounting profitability of the company by 1.25 x and signalling strong cash flow dynamics within the organisation.
Start to 2020 looks good but guidance not offered quite yet
The Company reported that days of learning sold were up on the same period last year with utilisation rate growth of around 1.2 per cent on a like for like basis across the 53 services owned in 2019.
A more detailed guidance statement will be released in March 2020.