Think navigates first half 2020 well as active cost management mitigates COVID revenue shortfall
Think Childcare have released their half year 2020 results in which they report a sequential increase in service profit from Q1 2020 to Q2 2020 due to the effective management of labour, occupancy and service overheads, offsetting the net fall in revenues created by the onset of the COVID-19 pandemic and introduction of the ECEC Relief Package.
Revenues in the first quarter of 2020 were $31.3 million but fell to $17.2 million in the second quarter, with Q2 revenues largely made up of business continuity payments paid as part of the ECEC Relief Package amounting to $15.5 million in lieu of Think charging families as a condition of participation in the program.
In addition to the $17.2 million in Q2 revenue, Think also received $10 million from the JobKeeper wage subsidy program which when combined took their total receipts in Q2 2020 to $27.2 million, around 14 per cent lower than total revenues generated from fees in Q1 2020.
Faced with the shortfall in revenues, Think embarked on a concentrated cost optimisation campaign that saw labor costs fall by $3.7 million, occupancy costs fall by $0.7 million and service overheads drop by $0.6 million, a total of $5.0 million in savings which mitigated the loss in revenue.
As a result, Think was able to report total service profits of $9.9 million in H1 2020, up from $6.2 million last year. From an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) perspective they generated $6.6 million of EBITDA, up from $5.4 million last year.
Commenting on the performance, Managing Director and CEO Mathew Edwards said “Think Childcare Group has delivered positive results for the half-year as we continue to execute on our mission to become Australia’s leading provider of premium child care services.”
Occupancy above February 2020 levels by June but Vic suffering during lockdown
Group occupancy across the Think portfolio had risen to 74 per cent by the 30 June 2020, around five percentage points higher than that recorded at the end of March 2020 and 11 per cent higher than that recorded at the end of April.
Attendance rate trends were markedly more volatile, with around 59 per cent of enrolled children not attending at the worst point of the crisis in mid April but since then the attendance rates have improved materially by the end of June with just 14 per cent of enrolled children not attending.
That being said the onset of the second wave in Melbourne has had a material impact on the Group’s total portfolio operating metrics, with occupancy falling to 73 per cent with around 33 per cent of enrolled children not attending.
When looking at Victoria in isolation post the half year end, occupancy has held up relatively well at 68 per cent currently, 6 per cent lower than June but attendance rates have plummeted with 55 per cent of enrolled children not attending as at mid August, a reflection of the current Stage 4 restrictions in the state.
Away from Victoria the total portfolio performance has been steady coming in at 81 per cent occupancy with just 9 per cent non attendances, which is more or less consistent with pre-COVID-19 levels.
Notably, the impact on occupancy levels through the CCS “snapback” when fees were reintroduced to families has been marginal with Think transitioning back to CCS without losing significant levels of occupancy.
Balance sheet strength will provide foundation to weather balance of pandemic
Think reported a $10.0 million cash balance as at the end of the period, down from $11.7 million as at 31 December 2019.
Net debt levels however, did rise by $5.0 million as capital was required to meet dividend obligations of $3.0 million and miscellaneous property, plant and equipment purchases of $3.2 million.
The key financial metrics of total leverage ratio rose to 2.1 x from 2.0x as at 31 December 2020 however the Group’s covenants are at 3.5x signalling significant headroom remaining.
In terms of available debt facilities remaining Think has $14.9m headroom in its banking facility and $4.2 million in its Accordion.
Greenfield pipeline fully funded as Think Incubator starts to add value
Looking ahead, Think has secured a significant growth pipeline as Think Developments, its in-house incubator, begins to accumulate and progress opportunities which will ultimately feed through to Think.
The incubator now has 25 centres in its pipeline, the vast majority of which will be delivered to Think over the next 12 months and create a substantial boost to Think’s current portfolio of 70 services.
The financing of the pipeline is also more or less secure after Think Developments confirmed it had been successful in signing off on a new $11.5 million debt facility in July 2020.
To read Think’s half year 2020 investor presentation please click here.