FINANCIAL ANALYSIS

FINANCIAL ANALYSIS OF EARLY LEARNING SERVICES EDUCATION SERVICES

[Writer's Name]

Financial Analysis of Early Learning Services Education Services

Difference Between 2008 and 2009 Annual Report

The 2009 annual report for Early Learning Services Limited (ELS, ASX: ELY) marks the end of the Company's second full year as a publicly listed corporate child care company on the Australian Securities Exchange. The past year has seen the Company's operations hampered by lower than expected occupancy throughout the group's child care centres due to increased unemployment during the global financial crisis. The continued defence of legal action in regard to the cancelation of centre contracts in 2008 also consumed financial and management resources throughout the year. The legal case has been heard and a decision is pending. Despite these factors, I'm happy to report the company has increased its EBITDA through the prudent management of operating costs. The underlying business increased earnings before interest, tax, depreciation and amortisation (EBITDA) on a normalised basis from $72,000 in 2008 to $2,583,000 in 2009.

Throughout the year, the Company continued to seek opportunities for growth through acquisitions. On 18 December 2009, ELS announced to the market it had secured an opportunity for expansion and improved economies of scale through the proposed merger with Payce Childcare Pty Ltd. The intention is to merge the two groups into the one entity operated through Early Learning Services` listed structure. Subject to shareholder and National Australia Bank (“NAB”) approval, the transaction allows for significant growth and earnings potential, improved synergies, increased diversification and the opportunity to raise the Company's profile in the investment community. This will, in turn, create positive flow on effects and outcomes for stakeholders.

Over the past 12 months, Early Learning Services has encountered some challenges on our quest to strengthen our position within the industry. But with strong leadership and astute management we have overcome these obstacles and continue to seize opportunities as we strive towards being Australia's leading provider of quality child care.

Over the period, Early Learning Services generated total revenue of $33.4 million and total earnings before interest, tax, depreciation and amortisation (EBITDA) was $1.3 million. The result has been impacted by the abnormal expenses mentioned earlier; however it shows significant improvement on 2008.

Considering only Financial Statements or Whole Annual Report?

Significant changes in the state of affairs of the Group during the period were as follows:

(a) Loss for the year reduced from $11,675,742 in 2008 to $153,804 in 2009

(b) Normalised EBITDA improved from $72,000 in 2008 to $2,583,000 in 2009;

(c) An impairment expense of $155,009 was incurred in respect of land and building held for sale at the balance date. The freehold was subsequently sold in January 2010 and $1,000,000, being the majority of the sale proceeds, was used to reduce debt.

(d) An Agreement was signed on 18 December 2009 to acquire Payce Child Care Pty Limited, a child care business. Further information is included in note 30; events occurring after the balance sheet date.

These information are provided in the annual report under the names of different key decisionmakers' reports ...