Mayfield completes Genius centre integration, resets CY2022 profit expectations
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Mayfield Childcare has released a trading update confirming the integration of its Genius Education centres and that 2022 profit guidance would be lower than previously forecasted.
Mayfield acquired fourteen Genius centres as part of a transformational deal announced in October 2021. The deal saw the Group purchase a portfolio spread across three states with eight centres in Queensland, five in Victoria and one in South Australia.
The centres were to be managed by a Transitional Management Agreement (TSA) that would see an entity known as Genius Learning manage the centres on behalf of Mayfield for the duration of 2022 after which time they would transition across to Mayfield.
A key driver for this structure was an agreement between the parties that an earn out of $8 million would be payable to Genius should the fourteen centres achieve a set of predetermined profit targets.
In August 2022 as part of its Half Year results announcement Mayfield confirmed that the portfolio of centres have “in the main been performing well” but the combination of pandemic, operational and cost challenges had impacted results and the earn out targets would not be met.
As a result Mayfield and Genius Learning subsequently agreed to an early termination of the TSA which then triggered the process of integration of the fourteen centres into the existing Mayfield organisational structure.
The Board noted “We are pleased to announce that effective 17th October 2022, Mayfield completed the successful transition and integration of all operational and finance functions for the 14 Genius Education centres.”
Current trading remains challenging as FY2022 guidance paired back
In addition, Mayfield has provided some additional context on occupancy levels and the trajectory of its CY2022 earnings.
Occupancy for the week ended 28th October 2022 was 74.5 per cent, which compares to 70.9 per cent in June 2022 and 67.8 per cent in January 2022.
Mayfield noted that despite a healthy enquiry pipeline, which has driven continued occupancy growth, staff shortages have acted as a constraint that has resulted in enrolment waitlists across the Group.
The financial consequences of staff shortages as well as the continued underperformance of the Genius Education centres led the Group to revisit its internal financial forecasts and conclude that 2022 performance will be lower than previously anticipated and expected by the brokerage community.
Mayfield now expects underlying CY22 earnings before interest, tax, depreciation and amortisation (EBITDA) to be in the range of $12 million to $12.5 million, around 15 per cent lower than broker expectations of $14.3 million but still significantly higher than CY21 EBITDA of $7 million.
Despite the stated challenges encountered with its acquired Genius centres and the third party management arrangements Mayfield remains committed to its Genius Learning partners and highlighted that a Childcare Development Plan will be agreed in the coming months to outline potential acquisitions for 2023.
Any future acquisitions will be immediately incorporated into the Mayfield organisational structure.
“Although industry (sic.) wide staffing challenges persist, the Company remains positive that headwinds will abate in 2023 as COVID impacts recede and Government support continues via initiatives to improve childcare affordability, reduce immigration bottlenecks, and increase childcare (sic.) labour supply,” the Board said in conclusion.
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