Evolve half year results highlight tough NZ conditions but roadmap in place for 2020

Evolve Education Group (Evolve) have released their interim results for the six month period ended 30 September 2019 in which a sharp decline in occupancy from June to October 2019 saw underlying half year earnings before interest and tax (EBITDA) fall to $3.9 million, down from $9.2 million in the same period last year. 

Although, it is not immediately clear what the key drivers of the occupancy deterioration were the magnitude of the fall from 76.2 per cent in June to 72.3 per cent in October was material and subsequently catalysed the process of Board and Executive renewal led by Chris Scott, former founder of G8 Education and previously a non executive director of Evolve. 

The new Board and Executive management team took operational control of the business on 17 September 2019 and have since launched a range of initiatives designed to stabilise the operational, and in turn financial performance. 

The key components of these initiatives were:

• Conducting a portfolio wide fee review which included local catchment and competitor assessments and resulted in an average increase of 3 per cent being passed across the network.
• Reviewing discount policies and practices in place across the Group and introducing new, stricter criteria for discounting. The result of this has been to increase the average parent “gap” fees paid by 11 per cent from $25.30 to $28.00.
• Streamlining support off costs which will deliver annual savings of $3.4 million with effect from 1 December 2019.
• Reducing Board fees by 16.7 per cent which should see fees fall from around $470,000 in FY2019 to closer to $400,000 as reported by The Sector in September.

In addition, the company noted that occupancy had stabilised at 72 per cent by mid November 2019.

The impact of the four initiatives plus the stabilisation of occupancy will likely drive EBITDA in the New Zealand operation back up to around $10 million in CY2020 and provides a foundation to build upon with additional gains likely from the execution of wage savings initiatives, yet to be launched in ernest, and general improvements in occupancy.

With respect to the Australian operations, anticipated CY2020 EBITDA is expected to be A$5 million at current portfolio levels brining total base case CY2020 EBITDA for the Group to around $15 million. 

Looking forward the focus of the management team will now turn to reviewing centre based wages and rostering practices in the New Zealand operations and continuing to drive occupancy improvements via a range of initiatives and also pursuing further acquisitions in Australia.

To read the company announcement please click here.