Childcare operators target WA market

MAJOR childcare centre operators from the east coast are racing against time, and each other, in a bid to buy or build new centres in Western Australia.

Listed entity Child Care Centres Australia Ltd last week announced a $25.3 million purchase, making it the biggest player in WA’s growing childcare market.

And the $50 million listed Peppercorn Group, which manages 200 centres, has issued a $20 million prospectus to help fund the purchase of 83 additional centres, including 12 operating or planned for WA.

The consolidation of the sector was flagged by WA Business News in October last year.

Child Care Centres Australia Ltd has received approval to add 46 centres from the Mulberry Tree and Jellybeans group currently operating or planned in WA.

The deal involves the purchase of 22 currently operating centres with a combined 1,226 licensed long day-care places, 14 centres currently in various stages of development and 10 centres to be developed by the Jellybeans and Mulberry Tree Groups in the future.

Once these are completed, WA will account for close to half of CCCA’s childcare assets, which will continue to be branded under their current name.

To fund the 22 operating centres, CCCA is issuing approximately 5.67 million fully paid ordinary shares to raise $8.5 million.

A further $5 million is scheduled to be raised in July 2004 to fund the 14 centres under construction, while the 10 centres still to be developed and built will be sold to CCCA for $100,000 per centre with settlement expected during the 2005 financial year.

CCCA chief executive Christopher Stear said the centres would add substantially to the company’s net profit. CCCA is now predicting a net profit after tax for the 2004 financial year of $5.1 million, representing earnings per share of 13.2 cents – a 45.05 per cent increase over the forecast 2003 financial year annualised results.

“Consistent with CCCA’s long-standing policy, CCCA will not be acquiring any of the real estate attaching to the 46 WA centres,” Mr Stear said. “This gives us enormous critical mass in this State.”

However, he said while CCCA was committed to staying one step ahead of its competitors, the operation’s focus remained the provision of strong returns to shareholders through the purchase of quality childcare centres.

“I don’t believe it’s a race,” Mr Stear said.

Meanwhile, the Peppercorn Group and ABC Learning Centre Ltd are also on the acquisition path. ABC Learning Centres, a significant player on the east coast, operates just four WA centres but is expected to increase this over the next year.

The Peppercorn Group last month initiated plans for a $90 million national spending spree, funded by a combination of debt and a $20 million public offering through the offer of 18 million, $1.15 units.

The deal includes about a dozen centres in WA. As part of the deal The Peppercorn Group bought

two WA childcare centres in November last year – in Rockingham and in Mandurah for $700,000 and $975,000 respectively, while a further four have been contracted and another five are under negotiation.

The arrival in WA of several aggressive competitors is being felt by WA’s largest remaining independent operator, Cuddles Child Care Centre.

Director Allan Carver said Cuddles currently operated 12 centres and was examining its expansion opportunities, with plans to open five new childcare centres a year. While bullish about the future of Cuddles, Mr Carver is witnessing first hand the effects of the changing business environment, with one of the large operators lodging plans with the local council for a 90-place child care centre in Kalamunda, adjacent to an existing Cuddles 28-place centre.

But if he is worried about current events, Mr Carver isn’t showing it.

“The industry in Perth is quite a bit different than in Melbourne or Sydney,” Mr Carver said.

“People here still don’t like the big centres.

“We don’t think they are going to work here. Give another four years and we think the industry will be taking a bit of a U-turn.”