Evolve Education warns of lower 2019 earnings, confirms takeover interest; shares drop

Tuesday 31st July 2018

Evolve Education Group expects its 2019 annual earnings will be $3 million to $5 million lower and said it continues to see takeover interest. Its shares dropped 7.8 percent.

The company reported underlying earnings before interest, taxes, depreciation and amortisation of $21.6 million in the year ended March 31, 2018, and a net loss of $4.2 million from a profit of $15.8 million a year earlier.

For 2019 earnings, the "best available estimate will inevitably be subject to variation and the company will be looking to provide more robust guidance at the half-year result in November," the early childhood education provider said in a statement ahead of its annual general meeting later today.

Its shares fell 5 cents to 59 cents in early trading on the NZX, and have shed 19 percent so far this year.

Evolve noted that its new chief executive Rosanne Graham will address shareholders for the first time at today's meeting and will outline the strategic priorities she will be pursuing with the senior management team in order to arrest a "decline in occupancy and regain lost ground." Graham took over from Mark Finlay on July 2.

These strategies include employee engagement, family departures, property management including centre portfolio mix, and brand and marketing effectiveness and will require some "additional operating expenditures," it said.

According to Evolve, the occupancy decline experienced during the year to March has continued into the current year. In the 2018 financial year, average occupancy across the base network of centres was down to 80 percent from 82 percent.

"Evolve's business model is extremely sensitive to small changes in occupancy levels, given the fixed nature of the cost base, particularly staffing and rents," it said.

The company also said it has received enquiries from a number of interested and credible parties about the potential value of the company under different ownership over the past nine months.

"Evolve believes that there has been, and continues to be, credible interest in the ownership of the company, although there is no certainty that any transaction will eventuate from this interest," it said. However, the company said it "is not in a position to say more than this at this stage or comment on any particular rumours."

"Should anything tangible eventuate, it would be weeks rather than days away," it said.

(BusinessDesk)

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