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Evolve hires new CEO as Porse impairments push it into the red

Monday 28th May 2018

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Evolve Education Group sank into the red as it booked previously signalled impairment charges to its Porse in-home childcare unit, having twice downgraded guidance. The Auckland-based early childhood education group also appointed a new chief executive.

Earlier this month, Evolve warned underlying earnings would be $12 million in the year ended March 31, a figure it confirmed today, down from $15.9 million a year earlier and within guidance for underlying profit of between $11 million and $12 million. It had downgraded the forecast twice after falling short of expected growth in net enrolment numbers.

Evolve today posted a net loss of $4.2 million in 2018, compared to a profit of $15.8 million a year earlier. Revenue rose 4.8 percent to $159 million while expenses jumped 23 percent to $157.6 million as employee and building lease costs rose. Within those expenses, the company incurred $16.2 million in non-recurring costs, comprised of a $3 million settlement with the Inland Revenue Department and a $13.2 million impairment from its Porse home-based division and from closing one centre. 

The company announced it had put its Porse in-home childcare business up for sale in April following a strategic review which found its businesses were serving different and distinct markets and it couldn't make savings from the overlap. The company retained its other home-based business, Au Pair Link, alongside its early childcare centres (ECEs) - Lollipops Educare and Leaps and Bounds.

Alongside today's earnings, the company announced that chief executive Mark Finlay - who had been in the role since November 2017 having been interim CEO since August 2017 - would be replaced by Rosanne Graham, current managing director of Ignite Colleges. The board said Finlay will "continue to work with Evolve going forward on an advisory basis supporting strategic initiatives".  

The company said Finlay had worked with the board to determine how Evolve could improve its performance and the changes would require a "quality long-term CEO with a strong strategic and people leadership skill set". Finlay said he had worked with the board on the recruitment and he would now be able to devote time to his other business interests. The date for Graham to take over has not yet been agreed.

Evolve noted that its banking arrangements with ASB Bank changed post balance date, with its senior revolving facility reduced by $5 million to $25 million but its acquisition facility increased by $10 million to $70 million. The facilities were extended to April 2022, from April 2019.

The board declared a final dividend of 2 cents per share, down from 2.5 cents a year earlier, payable on June 28.

Evolve went public in 2014 after selling shares in an initial public offering at $1 apiece, raising $132.3 million to fund the acquisition of several childcare businesses in what was a newly-formed company. The shares recently traded at 59 cents, down 1.7 percent today, and have dropped 26 percent this year.


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