Minus $437m, ABC scraps dividend ::

Author: Jesse Hogan
Date: 01/08/2008
Publication: The Age

ABC Learning Centres has delivered a double whammy to its battered investors by scrapping its dividend and revealing its full-year debt will blow out to more than $400 million.

The child-care centre operator, whose shares have plunged from above $7 to below $1 in the past year, said its pre-tax loss for the year to June 30 was expected to be $437 million — about double the deficit it predicted three months ago.

The update prompted a 12% drop in the value of ABC shares, which finished 10¢ lower at 72.5¢.

ABC's revised guidance was triggered by an inability to sell its British child-care administration business during the half, which it expected would contribute $110 million, and $132 million in new write-downs — predominantly of the value of centre licences, as well as bad loans and investments.

The previous write-downs came in April when ABC agreed to sell 60% of its US operations to Morgan Stanley Private Equity for $462 million, to reduce its multibillion-dollar debt burden.

ABC said the US sale would make its future financial results "almost entirely driven by its Australian and New Zealand child-care operations", but it was those crucial markets that suffered in May and June, the last two months of the 2008 financial year.

Those centres missed their earnings target by $13 million and the US centres fell short by $8 million, cushioned only by an extra $1 million from Britain and $2 million from a restatement of earnings.

While ABC forecast an overall loss of $219 million for the year, it previously expected to achieve between $105 million and $114 million in earnings before interest, tax, depreciation and amortisation. That estimate was yesterday changed to an $86 million EBITDA loss.

Clime Asset Management managing director Roger Montgomery, a sceptic of ABC's share price rise above $8 early last year because of the company's underlying debt, said he was "not surprised at all" by the new guidance.

"The reality is you're going to get write-downs when you've paid too much for something and the fact that they'd paid too much was always reflected in their consolidated numbers," he said.

ABC has been under significant share price pressure since the release of its half-year result five months ago, when investors began questioning its capacity to comfortably repay more than $2 billion of debt. That plunge cost ABC chief executive Eddy Groves almost his entire stake in the company he founded, because he had used the stake as collateral for margin loans to buy other shares.

ABC investors last year received a 9¢ fully franked final dividend but will receive nothing this year, with the company declaring a resumption of dividends would "depend upon profitability, capital commitments and available cash and franking credits at that time".

It did, however, declare its centres in Australia and New Zealand had enjoyed an "encouraging" start to the 2009 financial year and had achieved their revenue and wages targets.

There was also no announcement on new additions to ABC's board, despite the company's announcement three months ago that it was in "advanced discussions" with two independent candidates.

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