Australia | Jul 10 2006
By Chris Shaw
Being positioned in a growth industry helps but it is certainly no guarantee a company can achieve good financial performance as a number of other factors come into play, such as being a big enough player in the industry to benefit from growth options or to match a competitor.
Such is the position childcare provider CFK Ltd (CFK) finds itself, as the company has today (Monday July 10, 2006) warned of a larger than expected operating loss for the financial year just ended.
Management has lifted its guidance for the loss to between $3.1-$3.35m, almost double the previous guidance of a $1.7m loss and making it more difficult for the company to achieve its previously forecast return to profitability in FY07.
The increased loss reflects a combination of factors, with occupancy rates in its centres currently about 7% lower than had been anticipated, while staffing costs have also been about $250,000 more than expected thanks to higher wages generally and the need to use more casual staff. It also reflects ongoing litigation over a dispute with Acre Woods, which is impacting in its ability to increase centre numbers as the rate of expansion it had expected as a result of the deal with Acre Woods is now not being achieved.
Currently the group has 49 centres under management, with Intersuisse noting its limited size may make growth more difficult to achieve going forward, especially as industry heavyweight ABC Learning Centres (ABS), the company’s major competitor, expects to have around 1,200 centres in Australia and New Zealand by the end of June next year.
ABC Learning Centres continues to grow rapidly, the company last week announcing a $1.50/share offer to acquire Hutchison Child Care Services (HCC), another peer who had to issue a profit warning recently. Hutchison operates predominantly in Queensland. The broker notes the bid is partly strategic in that it strengthens ABC’s already dominant position in the Queensland market, making it even more difficult for CFK to grow in that state.
The worse than expected guidance has not been well received by the market, as CFK shares have fallen by 5c to $0.41 today, after touching a year low of $0.37.