KEY POINTS:
While looking after kids may come with its own unique set of challenges, making a buck out of the business of childcare is not one of them.
That's the view of many New Zealand childcare centre operators, as they look on bemused at the unravelling of the ABC
Learning Centres empire across the Tasman.
Trading in shares of the Australian-owned company - the world's biggest publicly listed owner of childcare centres - was suspended last week after their value plummeted as much as 70 per cent per cent on Tuesday amid rumours the company had breached its banking covenants.
With more than 2300 centres around the world, including 116 in New Zealand, ABC's financial woes are being painted as a classic story of growing too big too fast.
Now the company is looking at selling some of its international empire to cut its heavy debt load.
None of ABC's troubles appear to have much to do with the day-to-day business of providing care for the children of working parents.
The childcare business is in fact booming. Sue Thorne, chief executive of the Early Childhood Council, said numbers of children enrolled in childcare in New Zealand had grown 200 per cent since 1990.
Parents were also enrolling children for longer hours, and at a younger age, she said. At the same time enrolments at community-based centres such as playcentres and kohanga reos were at their lowest levels in 18 years, indicating that parents were not available to be involved in this kind of early childhood education.
Add to that the current mini-baby boom, and childcare centre operators were winning.
"The for-profit side [of the sector] have probably been in a better position to respond as families' needs have changed," Thorne said.
Lindsay Jones, general manager finance of local operator Kindercare which has 32 centres, agreed the ABC situation was "a top level corporate governance thing" and should not have any impact on the operation of its centres here or across the Tasman.
He said the business of running a childcare centre was a relatively straightforward one - take a strong roll, add good teachers and charge appropriate fees, and you should have your profit margin.
Like all the operators the Business Herald spoke to, Jones said the only significant constraint on growth in the childcare sector at the moment was the severe shortage of teachers.
He estimated staff accounted for around 70 per cent of a centre's costs - "teachers are at the heart of the business, so it's all about them" - and the government requirement (currently being phased in) for all teachers to have an Early Childhood Education diploma by 2012 was placing a huge strain on supply.
"It's difficult to get good staff even without looking at growth at the moment," Jones said. "If you were to come and tell me that I could take 20 or 30 registered staff anywhere in the country then I'd take them all probably."
Wayne Wright, founder and chief executive of Kidicorp which has 80 centres, said he could place 200 teachers tomorrow if he could find them.
He said some Kidicorp centres were on provisional licences because they could not meet the current criteria that 50 per cent of teaching hours be done by staff with an ECE diploma.
"Between getting pregnant, going on OEs, changing lifestyles and getting sick of changing nappies ... they're leaving the sector as fast as they're coming on board, if not faster."
He said the demand had driven up wages by 25 per cent in the last 18 months.
Wright said he had a different philosophy from most in the sector, in that he preferred to reinvest in the needs of the children in his care and not extract big profits from Kidicorp.
The Tauranga-based group, which grew by acquisition, delisted from the sharemarket last year. "I was never going to be able to satisfy the parents who didn't want fee increases, the teachers who wanted wage increases, and the shareholders who wanted dividends, out of not enough dollars," Wright said.
However he said the profits were there to be made in individual centres.
In some ways Wright believed small was better. Owner-operated centres could be more profitable, because the owners could do the administration and maintenance in their own time. They could also "work with the rules" more easily than a corporate which had to adhere faithfully to the regulations.
Director and owner of the five Prodigy Learning Centres, Ross Penman, agreed there were advantages to being small. But he said larger groups had access to centralised support services, such as training, quality assurance and administration systems which took the burden off local centres.
Sue Thorne said she had no fears for the survival of the individual ABC centres. "If they are well-supported centres with near to full rolls, then they're going to be viable centres in anybody's hands."
She said her biggest worry for the industry was the teacher shortage. "We're staring down the barrel of 2012 when everybody needs to be qualified. We're not seeing sufficient improvement in the percentage of staff that are qualified to make us feel comfortable that we're going to get there ... "
GROWING PAINS
* Shares in ABC, the world's biggest publicly listed owner of childcare centres, were suspended from the Australian stock exchange last week.
* The company owns over 2300 centres, including 116 in New Zealand
* The debt-laden company's share value had plummeted amid rumours it had breached its banking covenants.
* Founder Eddy Groves and his wife - worth A$325 million at the height of their success - were forced to sell half their stake in the company for half its value to meet margin calls from their brokers.
