An oversupply of children’s nurseries has forced Nord Anglia to sell its 88 kindergartens to an Australian rival for less than half the price it paid for them.

Nord Anglia was until yesterday the country’s largest nursery school operator, owning the Leapfrog, Jigsaw and Petits Enfants brands. It will receive £31.2 million for a business it built through £73 million of acquisitions three years ago.

Nord Anglia, which charges fees that are in line with leading private day schools, has struggled to generate profits.

The company will use the cash to pay off its debts, and concentrate on its faster-growing and more profitable international schools, aimed at the children of expatriates, and its educational services division, which helps to support Ofsted and to run the London Borough of Waltham Forest’s education services.

Andrew Fitzmaurice, chief executive, said: “What we saw in 2003 to 2005 were many people entering the market as a lifestyle business, often with the help of surplus property, behind a pub for instance.”

The emerging operators, who typically run just one or two nurseries, took the total number or private nurseries in the UK to 15,000. The market is extremely fragmented, and there are relatively limited benefits in scale, because the nursery business is so labour-intensive. One member of staff is needed to look after every three babies or seven toddlers.

That meant that Nord Anglia could not maintain the occupancy levels needed to offset running costs, although its average annual fee for full-time care is £9,152, rising to as much as £13,000 in London. According to the Halifax, an average private day school charges £9,677.

“To be sustainable a nursery has to be 60 per cent full in each of its ten sessions in a week – and many people chose not to use a nursery for a full week,” Mr Fitzmaurice said.

Last year Nord Anglia lost £3.5 million on its nursery operation, on turnover of £47.1 million.

Closures of poorly performing nurseries mean that the company is expected to generate around £1 million of profit for the year to August 2007. Even the value of the property sold, at £40.9 million, is in excess of the disposal price.

The buyer is ABC Nurseries, the world’s largest operator, which is listed in Australia. ABC’s strategy is to consolidate; it already owns 1,200 nurseries in the United States, and it entered the UK market with the purchase of the Busy Bees chain last year.

Taking advantage of cost savings, ABC said that the acquisition would enable it to generate £5.3 million in underlying profit in 2009, after it achieved “significant synergies” from the integration.

Investec, the stockbroker, estimated that Nord Anglia’s continuing businesses would generate about £11.7 million in profit in the year to August 2008, on the back of turnover forecast at £79 million.

The sale is expected to a lead to a writedown of shareholders’ funds from around £48 million to £8 million, meaning that Nord Anglia will have to apply to the courts to restructure its share capital to permit future dividend payments.

Kindergarten costs

£9,152 Nord Anglia’s average annual nursery fee in the UK

£9,627 Average private day school fee

60% Nursery staff costs as a proportion of revenue

35% School staff costs as a proportion of revenue

1 to 3 Carer to baby ratio in a nursery

1 to 7 Carer to four-year-old ratio

1 to 17.1 Teacher to pupil ratio in schools in England and Wales

Source: Nord Anglia, Halifax, National Statistics

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