Xxxxxxxx take over child-care industry

[Grant Lee <grantlee@xxxxxxxxxxxx>]

Millions milked

The Age, November 17, 2003

Claims of mismanagement threaten the rapidly expanding child-care industry,
writes James Kirby.

Australia's child-care boom is turning ugly. Behind the painted smiles and
cuddly brand names, this $3 billion service industry is at war with itself.
A BRW investigation reveals that big profits are drawing free-wheeling
entrepreneurs into the industry. But bitter industrial disputes and claims
of miserable operating conditions are creating a potent mix that will change
the business comprehensively. Child-care tycoon Eddie Groves, of ABC
Learning Centres, has begun an unprecedented defamation action against the
biggest union in child care, the Australian Liquor, Hospitality and
Miscellaneous Workers Union (LHMU), and the sector is still reeling from a
dispute in Western Australia, where police were called to intervene in a
protest by child-care workers.

With profit margins of up to 50% and $1.6 billion of taxpayers' money
flowing into the sector each year, everyone wants a piece of the child-care
action. Diamond miners, dot-com pioneers and real estate agents are getting
on board. But the average worker is paid about $10 an hour and there are few
regulations governing who can start a child-care business.

On the stockmarket, the two biggest companies in the sector - ABC Learning
Centres and Peppercorn Management Group - are recording performance figures
that are the envy of the market. ABC reported a 75% increase in profit to
$12 million this year. Peppercorn's maiden profit of $3 million was 81%
above prospectus forecasts. But the high multiples for these stocks -
Peppercorn is on a price/earnings multiple of 51 times - means the pressure
to grow earnings is intense.

Moreover, the industry is getting bigger than anybody might have expected
when ABC Learning Centres listed on the stockmarket two-and-a-half years
ago. ABC Learning Centres has 240 centres and Eddie Groves believes he may
have 700 within 10 years. At the 261-centre Peppercorn Management Group,
managing director Michael Gordon says: "There's nothing stopping us having
1000 centres." Because there are 50 children on average at each centre,
Gordon's forecast could represent 50,000 children under the care of one
company.

There are few barriers to entry and expenses are low, so the child-care
industry is a licence to make money. A Gold Coast real estate agent and
"child-care specialist", Bryan Hayden, says: "I've got a client and he's got
20 bottle shops, 10 hotels and three child-care centres. I say to him, 'I'm
77 and the child-care business is the best business I've ever seen in my
life.' The Government pays subsidies, the parents pay you two weeks in
advance and property prices keep going up."

* * * *

Tough calls
Allegations of leaking toilets, broken doors and missing child locks - the
crumbling assets of Perth's Gateway Centre managed by the Peppercorn
Management Group signal bigger problems ahead for the privatised industry.
In a draft agenda prepared by the LHMU for a meeting on November 5 with
senior Peppercorn management, matters of concern to the union at the Gateway
Centre included:
*Children travelling on unregistered buses.
*No medicine forms or accident forms at the centre.
*Insufficient furniture.
*Broken doors.
*No shade and no sunscreen.
*Leaking toilets and taps.
Issues raised by the union at other WA Peppercorn centres, including the
Alexander Heights centre in Perth, included:
*Staff being underpaid.
*Centres understaffed.
*Doors missing.
*Dangerous playground equipment.
*Not enough "bedding, chairs, shade and bins".

* * * *

In March this year, an IBISWorld report on the child-care industry estimated
that there were 82,000 employees in the child-care industry, making it one
of the 10 biggest employers in Australia. The report said 720,000 children
now attended some form of child-care service. The report warned: "There are
concerns that large for-profit operators will be more likely [than
non-profit centres] to cut costs to an absolute minimum."

Accusations of intense cost-cutting by the bigger operators do not come only
from unions or analysts. In Melbourne, Carl Fitchett, the owner of a private
day-care centre, Green Cottage, in Seaford, says: "There are new people in
this industry making profits in a new way. They just stick to the absolute
minimum regulations and cut expenses to the bone. I get former staff from
these big operators coming over all the time saying they won't work under
such conditions."

The flamboyant Eddie Groves and his ABC Learning Centres group (which has a
market capitalisation of $391 million) have avoided public criticism over
substandard facilities. "I couldn't sleep at night if one my centres was not
up to scratch," Groves says. "I've got three teams of renovators flying
round the country out of Brisbane and their job is to keep our centres up to
standard. We just did a centre in Melbourne, you should see it, I tell you,
it's like the Taj Mahal."

Canadian-born Groves, 37, is a former bank teller. With his partner, Le Neve
Groves, he has a fortune of $146 million. Wearing brown winkle-picker boots,
jeans and a white T-shirt, Groves is a larger-than-life empire builder who
drives a Ferrari and owns the Brisbane Bullets basketball team.

The head office of ABC Learning Centres is lavishly painted in lurid lilac
and green, with red tables. There are pictures of happy children on the
walls and teddy bears at reception. The largely female staff scurry around
the brightly lit office as Groves runs the show with an infectious energy
and enthusiasm. Established in 1988, ABC Learning Centres is the leading
brand in the child-care industry.

But Groves, too, is facing bitter industrial issues. A wrangle that began
last year over who should pay for staff uniforms is casting a cloud over the
company's jolly public image. Groves says he cannot afford to spend an
estimated $3.5 million on new uniforms for more than 3500 "girls". Still, he
wants them to wear uniforms and refuses to budge on the issue of paying for
the clothes.

In retaliation for Groves' alleged penny-pinching, the LHMU started an
"Uncle Scrooge" campaign against him. He says the union handed out pamphlets
defaming him to parents at ABC Learning Centres sites. Groves is furious and
has begun a defamation action.

On March 27, Groves lodged a claim in the Brisbane Supreme Court for
$500,000 against the LHMU and its Queensland branch secretary, Ron Monaghan.
The claim was amended to an unquantified claim on October 25. The trial by
jury is expected to be heard in the Queensland Supreme Court before the end
of the year.

* * * *

BRW [magazine] vol. 25 no. 44

http://www.theage.com.au/articles/2003/11/17/1069027027097.html