Think Childcare exceeds guidance, reasserts growth credentials in Full Year 2020 results
Think Childcare has released its Full Year 2020 results, in which the Group reports a solid underlying financial performance that exceeded updated guidance provided in December 2020, and confirmed a significant development pipeline to drive future growth.
Group underlying earnings before interest tax depreciation and amortisation (EBITDA) was $26.8m, an increase of 89 per cent in 2019, and 7 per cent above the guidance range of $24.0 million to $25.0 million provided in December.
On a company basis, the operating entity Think Childcare (TNK) generated $30.1 million in EBITDA and the development company, Think Developments (TND) generated $0.9 million. When combined, and taking into account intercompany eliminations, Group profits came in at $26.8 million.
The Group received a total of $29.7 million from the ECEC Relief Package, Transition Payment and Recovery Package funds, equivalent to around 21.8 per cent of revenue, and $16.2 million in JobKeeper subsidies.
H1 initiatives supported operational momentum in 2020 calendar year
During 2020 the Group has worked to grow enrolments and manage costs effectively by employing a range of marketing and cost optimisation strategies.
With regards to the former, as highlighted in the results presentation, Think launched an extensive marketing campaign, including 3 million letterbox drops, to increase enrolments during the “free childcare” between 4 April 2020 and 12 July 2020.
Over this period Think had an open door policy for any new enrolment opportunities with a large proportion of new families remaining once the Child Care Subsidy co-payment system resumed.
With regards to the latter, and as outlined in their HY2020 results, Think launched a cost optimisation program in Q2 2020 which resulted in savings of around $5.0 million of which $3.7 million was in labour related costs.
The combination of the savings, which offset losses in revenue caused by the payment mechanism within the ECEC Relief Package and created a more supportive financial base as CCS co-payments resumed, and the occupancy momentum generated by their marketing strategy created a platform for Think to continue to sustain performance as seasonality trends reasserted themselves, support packages fell away and continued optimisation and investment programs continued.
From a fee perspective, Think passed a relatively small increase in February 2021 of $1.50 with expectations to pass a further increase of between 2 per cent and 3 per cent in July 2020.
Future growth prospects very well supported as incubator pipeline matures
With current like-for-like occupancy trends tracking at around the same as last year’s levels, and total portfolio occupancy tracking 2.0 per cent higher than last year, Think is well positioned to continue to grow its network in 2021.
TND, the in house incubator, currently has ten services in trade up stage, and a further 26 at various stages of the pre opening life cycle, which are expected to open over the course of the next 18 months.
Of the ten services open and trading up, Think expects five to achieve their occupancy hurdles in 2021 and transition across from the incubator to the operating business.
Notably, the combined EBITDA generation expected from the incubator’s portfolio is around $15 million, which would be a significant contribution to the business earnings profile going forward.
Outside of the Think incubator, a further 22 centres are being incubated by external specialists brinig the total development profile available to Think to around 50 centres.
Balance sheet strength and operating performance creates confidence to pay dividend
As at 31 December 2020 the Group had $22.9 million of cash on balance sheet,of which $15.8 million was held by Think, and the balance by the incubator entity with around $54.3 million of debt currently outstanding and further headroom of $24.2 million.
Group cash flows in the period were also strong at $24.4 million which post investment related activity and before financing outflows left a net cash contribution of around $9.7 million.
The solid balance sheet and good operating performance will see a CY2020 dividend declared of 0.12 cents a share, around 30 per lower than last year, and makes Think the second listed provider to recommence dividend payments in 2020 after Mayfield reversed a previous decision to not pay a dividend as reported at their full year results.
G8 on the other hand has elected to not pay a dividend for 2020 and will revisit their policy in August 2021.
No update on Busy Bees and Alceon bids as due diligence continues
Although more than a month has passed since Busy Bees revised their offer for Think with a $2.10 per security proposal no further update was provided by the company in the presentation of the conference call.
When asked, Mr Edwards said that Think continued to cooperate with the interested parties with regards to information provision and the due diligence processes being conducted continued to run their course.