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Pre-close trading update

38602Pre-close trading update

  • confirms existing earnings guidance for 2005 and 2006
  • reports substantial progress during the last six months
  • announces outcome of strategic review

Nord Anglia, the education services provider, today releases a pre-close period trading update for the financial year ended 31 August, 2005. The Group confirms that, following completion of the annual budgeting process, the Board is comfortable with existing market estimates of adjusted earnings for both 2005 and 2006. Headline earnings for 2005 will however reflect exceptional write-offs, principally a provision for the integration of head office functions including the closure of the Cheadle office (announced in July) and a goodwill impairment charge arising from the decision to sell the underperforming Petits Enfants nurseries (also announced in July).

The Board is also pleased to report substantial progress during the last six months in de-risking the Group's operating profile, particularly within Outsourcing where we have successfully renewed all our Connexions contracts; secured in April a major new contract with OFSTED for the supply of inspection services; and restored the Eduaction joint venture to profitability. Enrolment levels within our International Schools Division are very encouraging and, having stabilised the performance of the Nursery Division, we expect to deliver a significant uplift in contribution from Nurseries in future years.

In preparing the 2006 budgets, we have thoroughly reviewed the performance and prospects of the three divisions: International Schools is trading well, although we are continuing to seek to complete the restructuring of our business in Moscow. Outsourcing has performed ahead of expectations and new contracts won are expected to counterbalance any potential decline in contribution from Connexions. We are now implementing a comprehensive improvement plan for the Nursery Division which includes:

  • strengthening divisional management, including the recruitment of a new managing director
  • rationalising underperforming/loss-making units
  • nursery-specific pricing plans following a recent review of the entire estate
  • refocusing marketing and promotional expenditure, also on a nursery-specific basis
  • substantial revisions to the capital expenditure programme, to include completion of the re-branding of all units under the Leapfrog name

We are also progressing the closure of the Cheadle office and the move to Burton which we plan to complete by the end of the calendar year. By centralising all the major administrative functions, we will ensure more effective management of the Group and generate cost savings in the order of £0.5m this year and £1.0m on an annualised basis.

The sale of the Cheadle office, the sale and leaseback of the Burton office, nursery disposals and the sale of other surplus properties should generate substantial cash proceeds during 2006. The sale proceeds, together with operating cashflows, will fund planned capital expenditure and reorganisation expenses and, in addition, are projected to result in a substantial reduction in Group borrowings during the coming year.

The Board has completed a strategic review encompassing the operational and capital structure of the Group. In the light of the developments mentioned above, the prospects for the Group have been fundamentally reassessed. The
conclusions of the review are:

  • There is no compelling need for the Group to sell any of its operating divisions
  • The prospects for improving performance at the Nursery Division in the short to medium term and the positive outlook for the other divisions indicate that the Group does not need to make fundamental changes to its capital structure

The Board remains strongly committed to maximizing value for all shareholders.