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1 Investor Presentation 11 th August 2016 Half Year CY2016 Results

2 Important Information and Disclaimer This presentation is for personal use only. It contains general information in summary form which is current as at 11 August This presentation is not a recommendation or advice in relation to Think Childcare Limited ( TNK ) No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, TNK, their affiliates and related bodies corporate, and their respective officers, directors, employees and agents disclaim any liability (including, without limitation, any liability arising from fault or negligence) for any loss arising from any use of this presentation (or its content) or otherwise arising in connection with it. TNK s forecasts and other forward-looking statements set out in this presentation are based on a number of estimates, assumptions and pro forma adjustments that are subject to business, economic and competitive uncertainties and contingencies, with respect to future business decisions, which are subject to change and, in many cases, are outside the control of TNK and its directors. TNK believe that the forecasts have been prepared with due care and attention and consider all best estimate assumptions, when taken as a whole, to be reasonable at the time of preparing this presentation. However, the forecasts presented in this presentation may vary from actual financial results. These variations may be material and, accordingly, neither TNK nor its directors give any assurance that the forecast performance in the forecasts or any forward-looking statement contained in this presentation will be achieved. This presentation is not and does not constitute an offer, invitation or recommendation to subscribe for, or purchase any security and neither this presentation nor anything contained in it shall form the basis of any contract or commitment. It is not intended to be relied upon as advice to investors or potential investors, and does not contain all information relevant or necessary for an investment decision. This presentation may not be reproduced or published, in whole or in part, for any purpose without the prior written consent of TNK. HY CY16: Thursday, 11 August 2016 Page 2

3 Operational Results Half Year CY2016 Results

4 Financial Summary HY CY16 $m HY CY15 $m Variance % REVENUE Up 19% NPAT Up 45% EBITDA Up 37% EBITDA Underlying (Excludes acquisition expenses) Up 36% Earnings per Share (EPS)- cents Up 42% Net Profit margin (NP/Revenue) 6.59% 5.42% Up 22% Enterprise Value (EV) (Shares x Price +Net 9/8/16) Up 115% HY CY16: Thursday, 11 August 2016 Page 4

5 Business Metrics Overview Operations Metrics (Jan 15) CY16 YTD (Mar 16) HY CY16 (Aug 16) CY16 post acquisitions Centres Licensed Places 2,244 2,476 2, Average Centre size Average Fees per day $90 $101 $106 Centre Metrics (on a spot basis) 5 August 2016 Occupancy 80.18% Average weekly revenue per centre $32,998 Base wages as a % of revenue 44.74% HY CY16: Thursday, 11 August 2016 Page 5

6 Interim Dividend Actual HY CY per share (Sept 2016) Franked 100% Item Dividend Announced DRP* pricing (5% discount to the VWAP) Ex-Dividend Record date VWAP calculation DRP price set Dividend payment & issue under the DRP Previous DRP price $1.155 Key Dates 11 August August 16 to 1 September 16 2 September 16 5 September 16 6 September September March 16 *Dividend Reinvestment Plan HY CY16: Thursday, 11 August 2016 Page 6

7 HY CY2016 Operations Commentary HY CY2016 has been a period of consolidating the gains made in the second half of CY2015. The portfolio is generally trading in-line with internal budgets and management expect that the full year (CY2016) result will be consistent with the guidance given in May 2016, being 10% improvement on CY2015 underlying EBITDA; before any impact from acquisitions. Average occupancies across the group, on a like for like basis, have remained marginally above last year, with some centres experiencing a decline from the impact of new competition. All of these centres are fighting back, and we expect to see them regain their market share by early $750K has been deployed in capital improvement on the centres. A further budgeted $600K will be invested by the end of the year in the enhancement of the yards, paint, educational resources and re-configuration of some of the centres. We have seen in this period centres continue to improve on the back of capital works and the expectation is they will continue to grow into the years end and into The second half of CY2016 will see us continue marketing initiatives to both maximise the performance in CY2016 and put the centres in a strong position going into the dark side of the moon period (December 16, school finish to February 17, school commences). HY CY16: Thursday, 11 August 2016 Page 7

8 Growth Strategy TNK has a dual growth strategy Organic: we have implemented programs to grow occupancy and reduce relative costs by; Aggressive marketing strategies Fee increases over CPI and labour costs New yards, new paint, new signs Increase in fees from managed centres Growth through acquisition Trading Centres: we are continuing to assess opportunities to acquire centres that; Make strategic sense Add to shareholder value Greenfield Centres: management have, historically and successfully developed greenfield sites into highly profitable centres. We believe by selecting strong locations, that have limited competition, in high demand areas we can add significantly to shareholder value. The intent is to create goodwill organically rather than buying it on market. Whilst we, in the main, will grow through acquiring trading centres, we will seek strategic greenfield developments within the mix of the portfolio. We do this with the support of our bankers. HY CY16: Thursday, 11 August 2016 Page 8

9 Before and After Central Coast, NSW City of Geelong, VIC HY CY16: Thursday, 11 August 2016 Page 9

10 Before and After City of Banyule, VIC City of Manningham, VIC HY CY16: Thursday, 11 August 2016 Page 10

11 Before and After City of Casey, VIC Shire of Macendon Ranges, VIC HY CY16: Thursday, 11 August 2016 Page 11

12 Acquisitions Key Data Area Metrics Projected EBITDA CY 2017 $1,900,000 Projected EBITDA CY 2016 (before acquisition costs) $70,000 Acquisition Payments Initial Payment $2,850,000 Potential Earn-outs (4 X EBITDA CY17) $3,850,000 Debt $2,850,000 Multiple with earn-out 3.5 Licensed places 285 Average lease term 35 years Acquisition costs $40,000 Source 2 incubator, 1 market HY CY16: Thursday, 11 August 2016 Page 12

13 Banking Update TNK has enjoyed a close working relationship with its bankers, ANZ. Through the 22 months since TNK has been listed the ANZ has become better acquainted with the operations of the TNK business and the broader strategy of TNK. To underpin the growth of TNK, the Board has agreed to new terms with the ANZ that recognises TNK s historical operational performance. Whilst many of the terms we consider commercially sensitive the key terms are: 5 year facility $20mil Acquisition Facility (unlocking the previously uncommitted advance) Low interest margin Reduced covenants across occupancy and security considerations HY CY16: Thursday, 11 August 2016 Page 13

14 Financial Information Half Year CY2016 Results

15 Key Financial Metrics Financial Metrics HY CY16 HY CY15 NPAT $1.61m $1.11m Earnings per Share (EPS) Interim Dividend per Share Fully franked 4.0 Nil Net Profit Margin (NP/Revenue) 6.59% 5.42% Enterprise Value (EV) (Shares x Price + Net 9/8/16) $83.23m 38.34m Key Ratios HY CY16 HY CY15 Net Debt / Equity 14.91% 41.35% Gearing [Net Debt / (Net Debt + Equity)] 12.98% 29.26% EBIT/Interest HY CY16: Thursday, 11 August 2016 Page 15

16 Profit & Loss HY CY2016 CY HY16 LY HY15 Variance $'m $'m $'m % Revenue % Employee expenses (16.08) (13.82) (2.3) 16.4% Building occupancy (3.01) (2.62) (0.4) 15.0% Direct expenses (0.97) (0.91) (0.1) 6.9% Acquisition expense (0.08) (0.07) (0.0) 12.2% Marketing expenses (0.43) (0.30) (0.1) 40.5% IT & communication (0.23) (0.18) (0.1) 30.1% Other expenses (0.82) (0.60) (0.2) 36.6% Share based payments (0.14) - (0.1) 100.0% Total expenses (21.76) (18.50) (3.3) 17.6% Revenue: Increase in number of centres, increased fees and occupancy Employee expenses: New centres, changes in ratios and 2.5% award increases Share based payments: Issue of ESOP in HY CY16 EBITDA % Depreciation (0.26) (0.16) (0.1) 66.0% EBIT % Net finance costs (0.14) (0.20) 0.1 (31.2%) Income tax (0.64) (0.47) (0.2) 35.0% NPAT % HY CY16: Thursday, 11 August 2016 Page 16

17 The Financial Puzzle CY HY16 LY HY15 $'000 $'000 Var REVENUE 24,410 20,437 Up 19% EBITDA Profit after income tax 1,608 1,107 Up 45% Add: Income tax expense Add: Depreciation and amortisation Add: Finance cost Less: Interest income (2) (8) EBITDA 2,647 1,931 Up 37% Add: Acquisition expenses Underlying EBITDA 2,730 2,005 Up 36% Underlying Revenue, underlying EBITDA, and EBITDA are financial measures which are not prescribed by Australian Accounting Standards ("AAS") and represent the results under AAS adjusted for noncash and other items. The directors consider the underlying results to reflect the core earnings of the consolidated entity. Debt less Cash (Net Debt) 2,696 5,868 Net Debt / Equity 14.91% 41.35% Gearing [Net Debt / (Net Debt + Equity)] 12.98% 29.26% HY CY16: Thursday, 11 August 2016 Page 17

18 Balance Sheet as at 30 th June 2016 Actual Actual 30/06/16 31/12/15 Variance $'m $'m $'m % Current Assets Cash at bank % Trade and other (0.17) (14.47%) Other current assets (0.18) (20.44%) Total-CA % Non Current Assets PP&E % Intangible assets % Deferred tax assets (0.11) (5.90%) Other NCA % Total-NCA % Total Assets % Actual Actual 30/06/16 31/12/15 Variance $'m $'m $'m % Current Liabilities Trade & other payables % Borrowings % Current tax liabilities (0.05) (2.98%) Employee benefits % Other current liabilities % Total-CL % Non- Current Liabilities Borrowings % Employee benefits (0.00) (0.50%) Total-NCL % Total Liabilities % NET ASSETS % HY CY16: Thursday, 11 August 2016 Page 18

19 Cash Flow HY CY2016 CY HY16 LY HY15 $'m $'m CY HY16 LY HY15 $'m $'m Cash flows from operating activities Cash receipts from parents and government funding Payments to suppliers and employees (21.30) (19.99) Interest received 0.01 Interest and other finance costs paid (0.14) (0.20) Income taxes paid (0.58) 0.00 Net cash from operating activities Cash flows from investing activities Payments for PP&E (0.97) (0.43) Payments for intangibles (0.13) Proceeds from disposal of PP&E 0.01 Net cash used in investing activities (1.10) (0.43) Cash flows from financing activities Proceeds from issue of shares 1.81 Dividends paid (2.85) Payment of deferred consideration (3.03) Accrued IPO costs paid (2.22) Finance lease payments (0.01) Net cash used in financing activities (1.06) (5.25) Net increase/(decrease) in cash and cash equivalents 0.40 (3.63) Cash and cash equivalents at the beginning of the financial half-year Cash and cash equivalents end of financial half year HY CY16: Thursday, 11 August 2016 Page 19

20 Corporate Details

21 Market Summary Issued Shares 41,163,087 Share Price as at 10 th Aug 2016 $1.94 (issue price $1.00) Market Capitalisation $79,856,389 (10 th Aug 2016) Official listing date 24/10/2014 Issuer code TNK Substantial Shareholders Top 5 as at 8 th August 2016 Rank Name Type Shareholding 8 Aug 2016 % Holding 1 Mathew Edwards Related 13,989, % 2 Citicorp Nominees Pty Ltd Institution 4,048, % 3 Riversdale Road Shareholding Company Private 2,637, % 4 RBC Investor Services Australia Nominees Pty Ltd Institution 2,381, % 5 HSBC Custody Nominees (Australia) Pty Ltd Institution 2,184, % Board - Outside of Mathew Edwards Related 2,177, % Top 20 shareholders control of the shares 77.29% HY CY16: Thursday, 11 August 2016 Page 21

22 Board of Directors The Board of TNK comprises two executive Directors and two non-executive Directors: Non-Executive Chairman: Mark Kerr Chairman of Contango Microcap Limited and Hawthorn Resources Limited Director of Contango Income Generator Limited and Alice Queen Limited Advisor to public and private boards Managing Director and CEO: Mathew Edwards Managing Director of Learning and Education Australia ( LEA ) ( ), which owned 12 of the TNK centres Formerly LEA s business focused on developing greenfield child care sites and trading up under-performing centres Former Director of Australian Daycare Group Executive Director and CFO: Paul Gwilym A Chartered Accountant with over 20 years experience in accounting and financial management Formerly CFO of LEA ( ) Non-Executive Director: Andrew Hanson A Chartered Accountant with over 27 years at PricewaterhouseCoopers including 16 years as a Partner Advisor to the Board of Beacon Lighting Group Ltd., Chairman of Guest Group Pty Ltd and Director (previous past Chairman) of Prestige Inhome Care Pty. Ltd. HY CY16: Thursday, 11 August 2016 Page 22

23 Corporate Details TNK Limited Suite 3, 1 Park Avenue DRUMMOYNE NSW 2047 (02) Mathew Edwards MD / CEO mathewe@thinkchildcare.com.au Paul Gwilym CFO / Director paulg@thinkchildcare.com.au HY CY16: Thursday, 11 August 2016 Page 23