Mayfield H1 results tempered by difficult operating conditions, Genius centres tracking behind forecast

Mayfield Childcare has released its Half Year Results in which it confirmed COVID-19 and workforce shortages acted as a drag on performance in the first six months of the year and forecasts of an $8 million earnings contribution from the newly acquired Genius Child Care centres in 2022 will not be achieved.  

“The ongoing COVID-19 pandemic has presented a new set of challenges throughout 1H CY22, with the effects being felt in every community in which we operate,” the Board said in the release statement. 

“The emergence of the omicron strain and the significant increase in infection rates and/or household close contacts, results in a substantial number of our educators isolating,” before adding that although the impacts of omicron moderated in Q2 “the underlying sector wide issue of educator shortages continued, coupled with above average sick leave significantly increased costs from use of agency staff.”

The combination of these factors hampered “new enrolments as services were constrained in meeting child-educator ratios,” the Board concluded.

Core Mayfield portfolio sees like for like occupancy fall but revenues/profits still ahead

Revenue from continuing operations at Mayfield’s 21 centres was $18.8 million, up 11.2 per cent on the same period last year as non Genius acquisitions combined with the annual fee increase mitigated a weaker than expected enrolment performance. 

Occupancy was 67.6 per cent, down from 68.0 per cent in H1 2021 and average fee increases  across the network were 5.2 per cent, slightly higher than the 5.1 per cent passed last year. Average fees are now $127 per day.

Earnings before interest, tax, depreciation and amortisation (EBITDA) for the core Mayfield centres was $4.4 million, up around 18.3 per cent, with centre EBITDA margins now at 23.7 per cent, an increase of 2.2 per cent relative to last year. 

The margin improvements were also evident at the Group level with earnings before interest (EBIT) margins of 13.8 per cent, up 0.7 per cent, indicating that despite the softer occupancy performance and difficult workforce environment, Mayfield managed internal costs sufficiently well to absorb higher than normal external costs such as agency recruitment fees. 

The ACECQA quality ratings of the core portfolio remain at sector leading levels with 90 per cent of services assessed as Meeting or Exceeding the National Quality Standards. 

Genius $8m earn out cancelled as FY22 earnings impacted by COVID and costs

As part of the initial Genius transaction terms Mayfield agreed to pay Genius a further $8 million of consideration, on top of the initial sum of $31.2 million, if the group of fourteen centres generated FY2022 EBITDA of at least $8 million. 

In a Q1 trading statement issued by Mayfield in April 2022 indications were that the centres, which are currently being managed by the Genius team, were on track to achieve the earn out hurdle, however, challenging operating conditions in Q2 have forced a reassessment of likely full year performance and the subsequent confirmation the earn out target will not be met. 

The portfolio of centres was said to “in the main been performing well” but the combination of pandemic, operational and cost challenges had impacted results. 

The release noted that it’s North Queensland based centres, of which there are five, were hit particularly hard this year by COVID-19 after having avoided serious disruption during previous waves of the pandemic. 

In addition Mayfield noted that due to the purpose built and modern nature of the Genius centre network, and the more sophisticated landlord base, rental costs were materially higher which in turn impacts the consequences of revenue and cost underperformance on bottom line performance. 

Overall rent per licence place across the Group, core Mayfield and Genius, increased to $2,812, up 13 per cent from last year and average rents increased 4.7 per cent. 

Strong cash flow provides means to pay down portion of outstanding debt 

Mayfield’s net cash inflow from operations saw a substantial jump year on year to $7.8 million in the first half as relatively anchored interest and tax expenses were more than offset by overall group revenue increases. 

This enabled the Group to redirect $3.4 million of cash towards paying down its borrowings from $8.5 million as at December 2021 to $5.1 as at June 2022. 

Net debt to EBITDA stands at a low 0.44x and gearing at similar low levels of just 3.2 per cent, down from 8.5 per cent last year and 21.3 per cent in 2020. 

Cash levels at $2.8 million as well as substantial credit lines still available place Mayfield in a strong position to continue to execute on its growth strategy going forward.