G8 Education Limited (ASX:GEM) RBS Morgans 2010 Annual Queensland - - PowerPoint PPT Presentation

G8 Education Limited (ASX:GEM)

RBS Morgans 2010 Annual Queensland Conference Craig Chapman, Chief Executive Officer and Chris Sacre, Chief Financial Officer 17 September 2010

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Overview | G8 Education

• Early Learning Services Limited (ASX:ELY) listed in

2007 with 38 owned centres

• Payce Child Care – an unlisted subsidiary of Payce

Industries Limited – 31 owned and 20 managed centres

• ELY and Payce merged in March 2010 to form G8

Education (ASX:GEM): ▫ This provided economies of scale and efficiencies throughout the child care centre

• perations

▫ Share price (10 September 2010) $0.63 ▫ Market capitalisation circa $80 million

• Acquisition of 51 additional early childhood

education centres on foot taking G8 Education’s portfolio to 140 centres

• The merged team is now profitably producing for

all stakeholders across the centres operated by G8 Education

• The bringing together of the S8 Limited (ASX: SEL)

team that created in excess of 50% per annum compound growth over 6 years

• G8 Education has a board and management

team with exceptional credentials

• Chris Scott, Managing Director and Craig

Chapman, Chief Executive Officer are both

• utstanding businessmen who successfully
• perated child care operator SunKids for 2 years

during 2008 and 2009 and then Payce child care’s business during 2009 before leading G8 Education’s successful expansion program

• Chris Sacre is Chief Financial Officer and has

been involved in G8 Education’s establishment and expansion phases

• Extensive experience in consolidation of

businesses & integration of acquisitions across various industries

• Current debt is $15.5 million
• Debt to be assumed on finalisation of current

acquisitions is $14.2 million

• Forecast Debt/EBITDA is 1.49 x for 2011 year

Creation of G8 Education Considered early childhood education Modest debt gearing

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Industry Overview

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Industry Overview

• Key reason identified for child care is ‘work

related’ – increasingly, child care is incorporated with education and vacation care.

• Over 800,000 children benefit from government

subsidised child care.

• The industry produces nearly $7 billion in

revenue each year.

• The industry is low risk with medium barriers to

entry, low volatility and a high level of government assistance. Child care remains an essential part of family life.

• Growth in the population of children aged

between 0 and 14 years is expected to continue.

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Industry Overview

• Growth in the number of women in the labour force is

also expected to increase.

• Larger operators and larger centres are in a stronger

position to attract qualified staff, to adjust the staff mix and to defray the costs of specialist staff and facilities over a larger fee base. Larger players will benefit from stricter regulation and an evolution in the concept of child care from child minding to child development, which is a concept recommended by the Commonwealth under the Early Learning Framework.

• IBISWorld estimates that the industry will grow at an

average annualised rate of 5% in the five year period from now to 2015.

• The industry is quite fragmented, providing G8

Education with many positive opportunities in this changing landscape.

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G8’s vision

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G8’s mission

Quality Education & Care

• To nurture and develop

children’s minds, social skills and confidence in a safe and stimulating environment.

Employees

• To commit to employee

development and a rewarding culture which will ensure an engaged and driven workforce.

Community

• To be responsive to local

families and deliver upon community expectations.

Profitability

• To grow and derive value for

shareholders through innovative services, systems and management.

Our mission is to be a leading provider of high quality, developmental and educational services, and to achieve this through growth and sustainability:

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The vision of G8 Education

• A portfolio of outstanding early childhood education

brands:

• Early Learning Services
• World of Learning
• Bourne Learning
• Community Kids
• Holiday Club
• Kindy Patch
• Focus on the importance of early childhood education
• Make good centres great through focusing on
• utstanding early childhood education management

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Centre Overview

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Centres

State Total centres (assuming completion of all announced acquisitions as at 10 September 2010)

Queensland 70 New South Wales 38 Victoria 9 Australian Capital Territory 5 South Australia 15 Western Australia 2 Tasmania 1 Total centres 140 Total licence capacity 9,854

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Geographic Diversity

Qld 70 NSW 38 ACT 5 Vic 9 Tas 1 SA 15 WA 2

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2010 Acquisitions Update

1 April 2010 acquisitions

10 child care centres 847 licensed places

28 June 2010 acquisitions

9 child care centres 655 licensed places

27 July 2010 acquisitions

2 child care centres 180 licensed places

2 August 2010 acquisitions

30 child care centres 2,078 licensed places

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Key Statistics

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Key Statistics

Current share price (at close of trade on 10 September 2010) $0.63 30 day VWAP $0.612996 Shares on issue (as at 10 September 2010) 126,368,723 60 day VWAP $0.613312 Market capitalisation (at close of trade on 10 September 2010) $79,612,295 90 day VWAP $0.611361 Shares on issue during 2011 (following announced acquisitions and pre capital raising) 139,924,148 Market capitalisation at finalisation of all announced acquisitions, and assuming share price of $0.65 at close on 15 September 2010) $90,950,695

90 day price history: 10 June 2010 to 10 September 2010

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80

Volume Close

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Key financial results 1H2010

Forecast 6 months to 30 June 2010* Actual 6 months to 30 June 2010

Revenue 23,585,383 23,282,014 Expenses (excluding interest) 22,476,352 21,697,921 EBIT 1,109,031 1,584,094 Interest 641,289 608,083 Net Profit Before Tax 467,742 976,010 EBIT increase 42.8% on forecast. NPAT increase 108.7% on forecast

Source: GEM ASX Announcement: 16 August 2010

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2011 Guidance

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2011 Guidance

Calendar Year 2011 Guidance

Revenue 115,474,615 Expenses 98,191,814 Earnings Before Interest and Tax 17,282,801 Interest 2,110,562 Net Profit Before Tax 15,172,239 Net Profit After Tax 10,620,567 Basic Earning per share (cents per share) 7.6 cents Average Interest coverage for 2011 9 times Debt/EBITDA 1.49 *Based on 139,924,148 shares being 126,368,723 shares currently on issue plus 13,555,425 to be issued shortly as part consideration for centre acquisitions that have been previously announced. *Assumes 140 centres owned/managed for the 2011 year. Source: GEM ASX Announcement: 18 August 2010

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Directors & Senior Management Team

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Directors and Senior Management

Jenny Hutson, Chairperson B.Com, LLB, FAIMM, MAICD

Jenny is an investment banker and fund manager. She is an experienced corporate adviser and company director. Jenny has a keen interest in the welfare and education of children. In addition to chairing G8 Education, Jenny is a director

• f the Royal Childrens Hospital Foundation in Brisbane.

Jenny was previously a partner of a major law firm. She has over 20 years experience in board issues involving listed companies including as chair of S8 Limited. Jenny was previously named Queensland Businesswoman of the Year and Australian Institute of Management Owner/Manager of the Year.

Chris Scott, Managing Director B.Econ (Hons)

Chris graduated with first class honours in Economics from Latrobe University in

• Melbourne. He was awarded the DM Myers

University Medal in 1977. Chris has over 23 years experience in senior management positions. He has spent over 20 years in business in Singapore where he was involved in a number of successful businesses. Chris Scott was also the founder of the S8 Group (now part of CVC’s Mantra Group). Chris is a ‘hands on’ manager. His operational, analytical and strategic skills were critical in the selection of potential acquisitions which met the criteria to ensure the profitable expansion of the S8 Group and now G8 Education.

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Directors and Senior Management

Craig Chapman, Chief Executive Officer

• B. Com., A.S.C.P.A., C.S.A.

Craig has had 25 years experience in business holding senior management roles with particular emphasis on consolidations

• ver the last 10 years.

Craig has recently held senior operational roles with S8 Limited and Greencross Limited, and more recently has been Chief Executive Officer of child care providers Sunkids and Ramsay & Bourne. Craig holds a Bachelor of Commerce from the University of Queensland and is an Associate CPA. He also holds a Graduate Diploma in Company Secretarial Practice and is an Associate of the Institute of Chartered Secretaries and Administrators.

Brian Bailison, Non-Executive Director B.Com., B.Acc (Cum Laude), ACA

Brian has over 15 years experience in finance, corporate finance and operations from senior roles in listed and unlisted businesses in South Africa and Australia, including senior positions at Rand Merchant Bank Limited (South Africa’s largest banc-assurance business), the Ivany Investment Group (diversified investment group) and Payce Consolidated Limited which operated child care centres prior to them becoming part of the G8 Education group. Brian holds Bachelor of Commerce and Bachelor of Accounting (Cum Laude) degrees from the University of Witwatersrand and is a member of the Institute of Chartered Accountants of Australia.

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Directors and Senior Management

Garry Edwards, Financial Controller/Joint Company Secretary MBA, FAICD Chris Sacre, Chief Financial Officer/Joint Company Secretary B.Bus, CA, SA Fin, G Dip AppFin

Garry has been Company Secretary of a number of ASX listed companies

• ver the past 15 years and has been involved

in the listing of two companies on ASX and a significant number of equity raisings. His accounting experience includes KPMG in Papua New Guinea as well as CFO of entities listed in Australia and Canada. He is closely involved with statutory reporting, governance and compliance for the Company. Garry’s formal qualifications include a Master of Business Administration from Griffith University and he is a Fellow of the Australian Institute of Company Directors. Chris is the group Chief Financial Officer , where he is responsible for financial management including reporting, forecasting (short term and long term growth) and centre acquisitions and operational management. Chris’ formal qualifications include a Bachelor or Business, a Graduate Diploma in Applied Finance . Chris is Chartered Accountant qualified and is a senior associate of FINSIA. Chris provides invaluable experience and skills from a business and financial perspective. Chris has been involved in the child care industry since 2007.

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Directors and Senior Management

Jae Fraser, General Manager Operations

Jae has over 11 years experience in the child care industry. Academic credentials include a Bachelor of Education, Advanced Diploma in Children’s Services and several business management qualifications spanning across the many spectrums of the child care and education industry. To compliment these achievements, Jae has worked in all sectors of the child care industry from child carer through to centre management and operations senior management positions. Jae specialises in monitoring and performance development of the financial and quality assurance of individual centres. Jae is passionate about teaching and guiding child care directors to manage a healthy business while ensuring the highest quality of care and education is being provided. Jae is responsible for the training, team succession and development of operations for acquired centres.

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Balance Sheet as at 30 June 2010

*G8 Consolidated Proforma Consolidated Balance Sheet ASSETS 30 June 2010 30 June 2010 Current assets Cash and cash equivalents 323,653 953,036 Trade and other receivables 2,121,220 2,822,735 Other current assets 870,672 1,137,663 3,315,545 4,913,434 Non-current assets held for sale 150,000 150,000 Total current assets 3,465,545 5,063,434 Non-current assets Receivables 1,025,202 1,025,202 Property plant and equipment 6,080,961 6,563,879 Deferred tax assets 2,360,748 2,360,748 Intangible assets 55,496,907 84,321,661 Total non-current assets 64,963,818 94,271,490 Total assets 68,429,363 99,334,924 LIABILITIES Current liabilities Trade and other payables 7,204,556 9,698,644 Deferred Consideration on Acquisitions 4,889,445 4,889,445 Borrowings 1,676,807 1,676,807 Total current liabilities 13,770,808 16,264,896 Non-current liabilities Borrowings 14,131,259 22,078,100 Deferred Consideration on Acquisitions

• 2,425,853

Provisions 518,174 518,174 Total non-current liabilities 14,649,433 25,022,127 Total liabilities 28,420,241 41,287,023 Net Assets 40,009,122 58,047,902 *GEM ASX Announcement: Half Yearly Report and Accounts: 18 August 2010

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Profit and Loss for the half year ended 30 June 2010

30 June 2010 30 June 2009 $ $ Revenue from continuing operations 23,282,014 15,783,751 Expenses Expenses from ordinary activities Employee benefit expense (15,325,208) (10,905,694) Occupancy (2,964,614) (2,000,528) Direct costs of providing services (1,730,277) (1,124,759) Amortisation (71,949) (94,575) Depreciation expense (434,601) (272,587) Evaluation and assessment costs incurred in respect of potential centre acquisitions

• (190,898)

Other expenses (1,046,562) (1,584,930) Finance costs (732,793) (574,841) Total expenses (22,306,004) (16,748,812) Profit / (Loss) before income tax 976,010 (965,061) Income tax (expense) / benefit (290,435) 262,976 Profit / (Loss) from continuing operations 685,575 (702,085) Profit / (Loss) for the half-year 685,575 (702,085) Other comprehensive income for the half-year net of tax

• Total comprehensive income for the half-year

685,575 (702,085) Earnings per share for profit attributable to the ordinary equity holders of the company: Cents Cents Basic earnings/(loss) per share 0.87 (1.60) Source: GEM ASX Announcement: Half Yearly Report and Accounts: 18 August 2010

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Revenue Seasonality

• G8 Education’s actual EBIT for the 6 months was $1.6 million against a

forecast of $1.1 million. It is important to note that this result represents the profit from the Early Learning Services centres within the Group for the full 6 months and the acquired Payce child care centres for 3 months only.

• The childcare industry has a distinct seasonal pattern. A large group of

children leave childcare to commence school at the beginning of the year and then revenue increases with new enrolments as the calendar year progresses.

• Consequently, in the first half of the year, approximately 35% of the annual

profit is delivered and in the second half of the year approximately 65% of the annual profit is delivered.

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Capital structure

Shares on issue 126,368,723 Shares to be issued as consideration for announced transactions 13,555,425 Options over unissued shares (250,000 vested in 2010 and 250,000 vest in 2011) held by Chris Sacre 500,000 Debt Current debt – National Australia Bank $15,543,000 Debt to be assumed on acquisition $7,900,000 Debt to be drawn during 2011 to fund acquisitions $6,303,000 Dividend Policy Quarterly dividends at 50% - 60% payout ratio with first dividend of 1 cent to be paid in the first week of October for the September quarter.

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