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Evolve awash with red ink on goodwill writedown

Monday 27th May 2019

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Evolve Education sank deeper into the red as it slashed the value of goodwill and has targeted a three-year turnaround backed by its recent capital raise 

The early education provider reported a loss of $101.6 million in the 12 months ended March, including a $107.1 million impairment charge on the goodwill of its early childhood education centres. That's now valued at $95.3 million. 

The company said declining occupancy rates and increased costs were behind the impairment charge. It had 123 centres with an average occupancy rate of 76.5 percent as at March 31, compared to 126 centres with 78.6 percent occupancy a year earlier. 

Evolve reported a loss of $4.2 million in the prior year, which included a $12.9 million impairment charge on goodwill attached to businesses which it's since sold. 

Evolve stopped buying properties last year and sold its Porse In-Home Childcare and Au Pair Link businesses as it struggled with declining enrolments, high staff turnover and flat Ministry of Education Funding.

The company listed in late 2014, raising $132.4 million in an initial public offering, and was a roll-up of several childcare businesses. Its retained losses totaled $107.9 million as at March 31. 

Underlying earnings before interest, tax, depreciation and amortisation were $13.3 million in the year ended March 31, within its latest guidance, but down from $21.6 million in the prior year. Revenue decreased 0.9 percent to $137.2 million. Of the $102 million of Ministry of Education funding in the 2019 March financial year, $90.4 million was from continuing operations. 

Chief executive Roseanne Graham said the year had been spent coming to grips with the issues facing the business and developing a turnaround plan. That's included a discounted $63.5 million capital raise which closes next month, of which $30 million will repay debt to ASB Bank and another $25 million will fund the purchase of Australian centre acquisitions. 

Evolve said it expects to remain within its lending covenants once the capital raise is completed, which have been reset since March 31. ASB relaxed the covenants last year, provided Evolve raised money to pay down its debt. A $55.4 million acquisition facility was paid down to $26.4 million after the institutional component of the capital raise, and another $1 million will be repaid next month

The company's effective interest rate was 6 percent, up from 4.6 percent in the 2018 year. It has an $8.5 million senior revolving facility for general and working capital purposes. Both facilities expire at the end of August 2022. 

Accident Compensation Corp's investment arm was among institutional investors that participated in the capital raising, buying 35.6 million shares for $2.8 million, or 8 cents apiece. 

The shares dropped 0.9 of a cent, or 6.1 percent, to 13.9 cents in early trading today. 


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