In the face of a mounting affordability crisis, childcare operators are being scrutinised for potentially exploiting government-mandated relief meant for struggling parents. However, regulatory changes could soon put an end to this.

A parliamentary inquiry is set to delve into concerns about childcare centres hiking fees whenever subsidies increase. This move comes as Australian parents grapple with exorbitant childcare costs, paying nearly double the OECD average, according to a recent inquiry. The Australian Competition and Consumer Commission (ACCC) reveals that, on average, Australian families with two children spend 16% of their budget on childcare, compared to the OECD (Organisation for Economic Co-operation and Development)’s 9%.

Despite recent increases in childcare subsidies, fees have continued to rise sharply. Between 2018 and 2022, childcare fees surged by 22.8%, far outstripping the average of 6.2% in other developed nations.

In light of this, the Productivity Commission has recommended regularly monitoring fee variations and closely examining costs and profits across the sector. It even proposed the possibility of making childcare free for families earning less than $80,000 annually.

Meanwhile, early childhood education and care services provider Nido Education (ASX: NDO) is carrying on with its expansion plans. The Company has secured a $67 million debt facility through agreements with the National Australia Bank (NAB). This facility is earmarked for future acquisitions, with specific components designated for various purposes including repayment of existing loans and guarantees.

Facility A is a $25 million corporate market loan designated for repaying Nido’s current related party loan of $10.5 million initially, with the remaining balance allocated for future acquisitions. Facility B, a $12 million bank guarantee facility, enables the release of $9.9 million cash currently securing existing bank guarantees. Facility C, a $250,000 credit card facility, is intended to replace the Company’s current credit card facilities. 

The Accordion Facility, totalling $30 million, is an uncommitted line of credit with pre-established terms, allowing the Company to initiate the approval process independently without impacting Facilities A, B, or C. Fees for this facility are only incurred upon its use.

The current debt facility follows Nido’s IPO. In October 2023, Nido Education completed its public listing, raising $99.2 million at $1.00 per share. Its total shares on issue during the IPO were worth $219.5 million. These funds were primarily allocated for the acquisition of 24 Nido Early Services. 

In comparing its projected figures for CY23 to those for CY24, the Company noted an uptick in its average daily fee per place, rising from $147 to $160. Simultaneously, it expects a decrease in employee benefits from 74% of total revenue to 60%.

Currently, Nido owns 52 services (besides managing some others) with an overall occupancy rate of about 72%. Its goal for CY24 is to increase that to 82%, thus expecting to achieve its forecasted revenue of $171.6 million. It has an acquisition pipeline of 100 services over the next five years, primarily targeting suburban areas where working parents desperately need childcare services (and might be willing to pay through their nose for it). These parents earn less than 80k a year, but if the productivity commission gets its way, they will no longer have to pay for childcare. 

By 2029, Nido aims to achieve $700k EBITDA per early school it owns. However, with ACCC now watching childcare services more closely and possibly implementing fee caps to help out parents, the Company might have to reign in some of its ambitious plans.