ABC Learning Centres go bust

[Peter 14.7]

Hello All

In the classic example of release bad news on busy news day, yesterday ABC Learning Centres is reported to have gone into voluntary liquidation.

The age reports

http://www.theaustralian.news.com.au/story/0,25197,24604389-601,00.html

ABC Learning, the childcare centre operator that looks after 100,000 Australian infants and toddlers, is today expected to be swept into receivership after months of escalating financial trouble.

It is understood the board of the debt-laden company will call in administrators, formally killing founder Eddy Groves's dream of creating a global childcare empire.

This may seem a minor point but it could have major implications for a massive industry and property.

ABC has 25% of all chidren in care, a total of 110,000. If you take each child to equate to only one parent you could have 110,000 struggling to attend work. The problem escalates where you have single parent familes or dual income.

Also the Fed Gov wants to change the ratio of under 3 care from 5 kids to one carer to 3 to 1. This could force many others to the wall or raise fees.

We could also see nationalisation of child care into essentially government preschools.

Finanically CBA is reported to have massive debt to ABC and there appears ot be nothing left except the building which are worthless if the income fails to cover them.

Please post your comments as it unfolds.

regards

Peter 14.7

 

[Bella01]

I have to say, I kind of saw this coming. ABC Learning centres have been doing pretty badly (or at least been tempremental) for a while now. I think a lot of us were just sitting around waiting to watch this all unfold.

 

[GoAnna!]

One of our children goes to ABC part-time. We never chose ABC - one day around the middle of the year we were advised that the centre had been sold and that we now attended an ABC centre. We were less than impressed especially when they started coverting this small community feel centre into the ABC mould regardless of whether the changes made sense or were welcomed by the parents.

In hindsight an irresponsible purchase with futher money wasted making these changes. We will be watching with more than a little interest to say the least....

 

[Aaron Sice]

that's what they get for publicly listing a company that treats young children as cattle.

 

[Max Carnage]

that's what they get for publicly listing a company that treats young children as cattle.

Wot? They slaughter them and send the carcasses to the butcher?

Or they feed them grass?

 

[lizzie]

that's what they get for publicly listing a company that treats young children as cattle.

i have never been inside an abc centre - so i don't know how the kids are treated - but like any other business, the children (or care of children) is the product.

i personally thought the idea and vision was really good ... the implementation was stuffed. eddy let his ego and passion for instant world domination get in the way.

if he'd let his idea and plan grow naturally, slowly over time, then there wouldn't be all the problems with the company.

 

[WinstonWolfe]

Fast Eddie is yet another victim of the naivety of so many who want to do business like the banks - borrow short and lend long, and profit on the lower short term interest rate.

Eddie might be excused, his bankers less so.

 

[ianvestor]

ABC has 25% of all chidren in care, a total of 110,000. If you take each child to equate to only one parent you could have 110,000 struggling to attend work.

Just a quick point. They make it sound like 1 parent per child is the minimum it could be, but it could easily be lower like 0.5 parents per child (55,000 struggling to attend work).

 

[Chris.R_WA]

Poor Eddie...

Poor Eddie, now his estranged wife and business partner Le Neve, is suing him for $40M

I'll leave the Karma comments for someone else!

 

[ermen]

As mentioned in a different thread - I am long Australian Education Trust (AEU) at the moment which owns all (or most) of the properties that is used for ABC Learning Centres. I thought the share price would be smashed today on the news - but it has held up pretty well...

 

[Aaron Sice]

Wot? They slaughter them and send the carcasses to the butcher?

Or they feed them grass?

deriving profit from the care of children not only extorts parents paying for childcare (some of their fee is going to shareholders, not the care of their child) and extorts the child because not all their parent's money is going towards their care.

money is required to run a business. that is understood and a given. wages to be paid, insurances, etc.

but shareholders jumping on the bandwagon and demanding a larger slice of the pie every fiscal year (expecting dividends to rise) means quality of education or quality of food is being taken from these children, converted back to cash and paid to shareholders. any monies after expenses should be directed straight into the child's care, not shareholders.

i find it both disgusting and immoral - and i'm happy to tell the same to anyone out there who has held ABC shares. if anyone has, my opinion of you has been severely reduced.

 

[aef]

How to make a profit?

I have been involved in community based not for profit child care for a number of years.

I found it extremely difficult to balance the competing needs of staff wage demands (being around 80% of toal costs) with quality care at a reasonable price.

The centre I was involved with did not pay rent or have to make a profit - it did need to break even.

I was at a loss as to how ABC made the profits they did. I read in the AFR on the weekend that the 'profit' was essentially an illusion.

Government subsidy is supposedly the answer - however I believe the subsidy needs to be regulated to ensure reasonable (not excessive) profits are made.

Regards
A

 

[ermen]

deriving profit from the care of children not only extorts parents paying for childcare (some of their fee is going to shareholders, not the care of their child) and extorts the child because not all their parent's money is going towards their care.

money is required to run a business. that is understood and a given. wages to be paid, insurances, etc.

but shareholders jumping on the bandwagon and demanding a larger slice of the pie every fiscal year (expecting dividends to rise) means quality of education or quality of food is being taken from these children, converted back to cash and paid to shareholders. any monies after expenses should be directed straight into the child's care, not shareholders.

i find it both disgusting and immoral - and i'm happy to tell the same to anyone out there who has held ABC shares. if anyone has, my opinion of you has been severely reduced.

BlueCard - I find that statement rather hypocritical (now I make the assumption that you are a property investor)

We could easily rephrase what you said with the following

"deriving profit from the (provision of housing) not only extorts tenants paying rent (some of their rent is going to the landlords profits or the landlord claims a subsidy from the govt) and not 100% for their housing needs .

money is required to run a business. that is understood and a given. wages to be paid, insurances, etc.

but investors jumping on the bandwagon and demanding a larger slice of the pie every fiscal year (expecting rentals or cap gains to rise) means quality of housing is being taken from the tenants and taxpayers, converted back to cash and given back to landlords . Any monies after expenses (*interest rate cuts!*) should be directed straight back into the tenant's pocket, not landlords.

i find it both disgusting and immoral - and i'm happy to tell the same to anyone out there who has held investment properties. if anyone has, my opinion of you has been severely reduce"

 

[Aaron Sice]

really - nice slant.

children requiring daycare while their parents work require very good education and the best food one can afford.

daycare centres don't subsidise the child's place in the centre (tenant's place in the house)- the taxpayer does; just like the housing.

good work on relating my position on childcare to investment property. very clever. too bad it has nothing to do with children or the subject at hand, much like my rant really.

i guess i'm just glad that there's a silent victory for fiscal morality.

 

[Peter 14.7]

My child was in an independant which was bought by ABC. In a small town of 5000 people they bought both operators.

ACCC steps in and they had to sell one. Sold to Neighbourhood Early Learning Centre. NELC is owned by Eddy Brother in Law. They did not have stationary for 3 months and used ABC t shirts and vans for over six. Clearly a scam. What did ACCC do? Bugger All...

As for the care in my centre the girls are absolutely brilliant! We cannot fault the care but it breaks your heart to see then being overworked, underpaid, and scammed. It is the staff that will suffer.

The Liberal Fed Gov blame in letting a shuster run a scam so transparently dodgy, it was obvious to blind freddie (let alone fast eddie). Yet the market wanted to believe.

For those doubting Fast Eddie dodgyness, please find the 7:30 Report on ABC about how ABC produced thier income. It quoted developers paid ABC bonuses for winning the work which went into first year profits to show another successful deal. And how the maintenace company was owned by Eddie, operated from his address and billed massively for minor work that never happened.

Eddie Groves will be the Alan Bond and Christopher Skase of the 00. he makes Gordon Gecko looka saint! I note his "ex" wife in now sueing him for $44M and I bet she wins because you cannot overturn family court judgements easily. Eileen Bond all over again.

ABC will survive but the impact will change the way we do childcare in Oz. We either need to get serious or accept a massive change in our work force participation.

Peter

 

[willair]

Must be hard for all the shareholders,and i have seen him talk that's one item he still has that no-one will ever take off him,but this guy has hurt a lot of people in $$$$ terms,will be interesting to see what happens to the person who controls the renovations and maintenance of all the ABC centres interesting how he was married to BIG ED'S sister not that it's of any importance now,i glad i never invested in this company he always talked too quickly for me,and as they say the loudest person in the room is always the weak link,pity "BigED" did not take the time to understand the ruthless way margin lending works and how quickly him and his wife were blown out of the water in one morning.imho..willair..

 

[quoll]

i find it both disgusting and immoral - and i'm happy to tell the same to anyone out there who has held ABC shares. if anyone has, my opinion of you has been severely reduced.

Some people have ABC shares simply because the financial planner / stock broker purchased them for the portfolio, they had not idea what they were getting into.

Maybe I should change the some to most, not sure just how many people take no responsibility for their financial welfare, I know it's lots just not sure what numbers that equates to.

Oh well, such is life.

 

[Aaron Sice]

Some people have ABC shares simply because the financial planner / stock broker purchased them for the portfolio, they had not idea what they were getting into.

Maybe I should change the some to most, not sure just how many people take no responsibility for their financial welfare, I know it's lots just not sure what numbers that equates to.

Oh well, such is life.

well, then my retort is directed to the stockbroker then....

 

[boomtown]

If you are interested in the story you really need to read last weekend's AFR which explains ABC"s business model.

From memory, ABC would pay a developer (who happened to be Eddies relative) 2 million dollars to develop a child care centre worth 1 million dollars. The developer would deliver the childcare centre late and would pay ABC 800k in liquidated damages. ABC would record the 800k as revenue. 43 percent of ABC's revenue in 2007 was liquidated damages from related parties. ABC would obtain financing to develop new child care centres based on its revenue.

As you can see it is basically a pyramid scheme. ABCs revenue would collapse if it stopped developing new centres and "earning" liquidated damages. This explains why ABC was forced to expand into the USA - it ran out of places to put a child care centre in Australia. Eventually the company's auditors and lenders wised up to the fact that half of ABC's revenue stream was faked and the whole house of cards started to collapse.

You don't get to be the founder and operator of a multi million Enron style pyramid scheme like this without being a massive shonk. Eddie is no victim - he is a charlatan and deserves everything he is about to cop. I wouldn't object to Eddie spending some quality time in the big house with a cellmate named Rock.

 

[Peter 14.7]

Thanks for the detailed post BT.

ABC was all a facade but dont expect Eddie Groves to feel any pain. He will come out of it after the court cases, etc.. with millions stashed away and plenty of friends to bunk in with.

Peter