My two cents on the topic of efficiencies from scale: Given that...

My two cents on the topic of efficiencies from scale:

Given that at a centre level the main costs are Wages and Rents, and given that the staff-to-child ratios are regulated, it is fairly evident that the benefits of scale are almost exclusively limited to Support Office Costs ideally representing a decreasing percentage of Revenue over time.

Slide 9 of the FY17 Results Presentation shows the historical trajectory of this ratio:



So, in particular, it can be seen that between FY12 and FY15 (which was a period of strong acquisition-driven revenue growth) the Company did manage to achieve some benefits from scale.

Between FY15 and FY18H1 there has been no further improvement, though.

Moreover, if we

1) annualise FY18H1 Support Office Costs (see slide 12 of the FY18H1 presentation) and

2) assume the same H1/H2 Total Revenue split in FY18 as in FY17,

then

[FY18E Support Office Costs] / [FY18E Total Revenue] = (14.1m$ * 2) / (396.4m$ + 460.1m$) = 3.3%

Therefore, at their current run rate, it looks like Support Office Costs as a percentage of Total Revenue are actually creeping back up.

In slide 12 of the FY18H1 presentation, Management ascribe the increase in Other expenses and support office costs to “network growth and investment in quality (training, IT, R&M)”.

Because the Company must differentiate their services at this stage, to improve their Occupancy rate in an increasingly competitive environment, this additional spend will conceivably remain a feature for the foreseeable future.

What I am personally inclined to conclude from this is that the ratio of Support Office Costs to Revenue is unlikely to fall significantly anytime soon.

Hope this helps.