Evolve Education warns annual profit will dip in 2018 on weaker occupancy rates

Evolve Education, the early childhood education centre operator, has warned annual profit will fall as much as 12% in the current year on weaker-than-expected occupancy rates, spurring management to cut costs and bolster its marketing effort. The shares fell.

The Auckland-based company expects net profit of between $14 million and $15 million in the year ending March 31, 2018, down from $15.9 million a year earlier, chairman Alistair Ryan told shareholders at today's annual meeting. Evolve forecasts first half profit of $7 million, down 14% from a year earlier, due to lower occupancy rates than a year earlier, and excluding the impact of more public holidays falling on revenue generating days and early trading losses from its development programme.

"The softer than anticipated start to the year is taking some time to correct, and as a consequence, our first-half result will be significantly down on last year," Ryan said in speech notes published on the NZX. "This is disappointing and it is fair to say we have been slow to react, but also fair to say that we are now in full response mode and are confident we can turn this around in the second half."

Evolve has been expanding its ECE centre portfolio and now has 126 across the nation, up from just 65 when the company listed in late-2015, raising $132.3 million at $1 a share. The stock fell 5% to 95 cents after the profit warning.

The company is looking at ways to lift occupancy with a marketing campaign to attract more children and increase the number of hours enrolled, boost its retention of staff, and maintain family engagement levels. It will also seek to cut costs.

Ryan said management has scaled back its annual acquisition target to between eight and 12 centres from the 15-to-20 centre rate to "protect the important cultural relationship with staff and parents that underpins the financial performance of that acquisition."

Evolve is confident there will be "a significant uplift in earnings" in 2019 and plans to keep this year's dividend unchanged at 2.5 cents per share in both the first and second halves of 2018, he said.

(BusinessDesk)