Good morning, everyone, and thank you for joining Nido Education Limited for our 2026 half-year results presentation. Today, we will take you through the financial results, the operating context for the half, the investments and improvements we have made across the business, and the growth opportunities we continue to see through incubation and disciplined acquisitions. Feel free to add questions to the chat function as we go through, and we will pick them up at the end. I can already see a couple of questions have come in before today, so thank you very much for those. We will get to those at the end. My name is Adam Lai, CEO and Executive Director of Nido, and I am joined today by Mathew Edwards, our Managing Director, Tom Herring, our Chief Financial Officer, and Nadia Wilson-Ali, our Head of Quality and Pedagogy.
Before we begin, I acknowledge the traditional custodians of the land on which we educate and care for children, and pay my respects to their elders, past, present, and emerging. I would also like to acknowledge all of our educators who support children and families every day, and also the families who trust Nido with the care and early education of their most precious gift, their children. Our purpose at Nido is to create an environment that supports teachers to rise and make a positive impact on the lives of children, and we are deeply appreciative of the impact they have made during the half. Delivering over 400,000 days of early learning and care at a time that is so impactful for children's development and for families' aspirations. The first half of 2026 was a period of disciplined execution for Nido.
We continued to grow the network, acquiring four services from incubation and opening four new services, with a further two services opened since the period's end. We invested in the operating platform, we strengthened our proposition for children and families, and we maintained a clear focus on capital allocation. Group revenue was up 4% to AUD 85.8 million, group adjusted EBITDA was AUD 4.3 million, and adjusted NPAT was AUD 2.1 million. At a service level, adjusted EBITDA was AUD 10.7 million, achieved through delivering 434,000 days of learning with a wage-to-revenue ratio held at 57%. This has been one of the most challenging periods the sector has faced in many years. Rather than simply navigating a difficult market, we have used this period to accelerate a number of strategic initiatives aimed at improving operational performance. These changes are expected to support stronger execution, occupancy growth, productivity improvements, and of course, long-term earnings expansion.
The backdrop has supported our focus. To support children and families, to continue to invest in the fundamentals, and to consider acquiring services outside of the incubator where market conditions provide opportunities. At the start of the year, we targeted 20% year-on-year adjusted EBITDA growth, supported by both organic performance and a planned acquisition pipeline outside of the incubator. While the underlying business continues to show encouraging momentum, the timing of acquisitions and also the broader operating environment mean we are unlikely to achieve that target within the current financial year. Importantly, we remain disciplined in our approach to capital allocation, and we are not prepared to compromise DD, our due diligence standards, or acquisition quality to meet a short-term objective.
We continue to see positive lead indicators across the business, including strong inquiry levels, offers of enrollment tracking approximately 17% ahead of prior year, and a growing pipeline of incubator and external acquisition opportunities. Together with the initiatives to improve conversion, occupancy, and cost efficiency, these factors provide confidence in the medium-term growth outlook and our ability to create sustainable shareholder value. As mentioned, group revenue was AUD 85.8 million, adjusted EBITDA was AUD 4.3 million, and adjusted NPAT was AUD 2.1 million. The business delivered 434,000 days of learning in the half. We operated with a quality rating above the sector average, opened four services and acquired four. These numbers reflect both the scale of the platform today and the continued opportunity to grow the network with discipline. Operating cash flow was strong, with a cash conversion rate of 110%.
Free cash flow was also solid with a conversion rate of 77%, reflective of just AUD 1.5 million being required to be spent on CapEx. That, of course, being because all of our services are purpose-built and properly maintained. We currently have an acquisition facility of AUD 18 million in place to support our growth strategy. Through the half, families continued to make decisions in a very challenging cost-of-living environment. Demand has been uneven across local markets, and the sector is operating with changing regulatory expectations, evolving government policy, uneven supply growth, and ongoing workforce dynamics. Data released by the Federal Department of Education showed that the number of children attending center-based long daycare declined by 2.8% in the year to March.
While this reflects the impact of weaker birth cohorts in recent years, the Australian government's latest population statement suggests Australia may be approaching the low point in the current birth cycle. Annual births are forecast to gradually recover, which is great for our sector, with births projected to increase to 354,000 by 2035/2036. Although fertility rates remain below historical norms, the forecast points to an improvement in birth cohorts over time rather than a continuation of the recent decline. That supports our view that long-term sector outlook for the early childhood education sector remains positive. The number of center-based daycare services increased by 2.5% through the year to June 2026, with a total of 9,705 services in operation. 425 new services opened, just shy of the 443 record set in the prior comparable period. However, 204 services closed.
That is compared to 109 in 2025, and 90 in 2024. As a result, despite the increase in supply, the sector is seeing some early signs of net new supply slowing. At the same time, the increase in supply is not evenly distributed across Australia, and we still see regularly areas of over and under supply. We do not see this as a reason to stand still. Good operators with quality services, disciplined capital management, and a strong culture that supports wonderful educators should be well-placed as conditions normalize. For Nido, the response has been to focus on the levers we control. They are quality, safety, family experience, the educator experience and stability, conversion, productivity, and discipline growth. Importantly, we have seen public policy and government commitments continue to support positive changes across the sector. The extension of the Worker Retention Payment and increase in the award supports income for educators.
That really improves attraction and retention of these wonderful, talented professionals. The evolving regulatory environment is continuing to enhance safety across the sector, improving trust and outcomes for children and families. There are very encouraging opportunities for quality operators. Against a challenging backdrop, we have been focused on ensuring this period is used to strengthen the business rather than simply manage through the current conditions. While some of these initiatives require investment today, they position Nido to be a stronger, more scalable business over the medium term. To deliver enterprise value, we have pursued a number of purposeful and disciplined investments during the first half, focused on strengthening the foundations of the business and positioning Nido for sustainable long-term growth. Firstly, we have invested in delivering exceptional education and care for children.
This included the launch of the Nido Infant and Toddler Curriculum following three years of development, the embedding of our kindergarten curriculum, the introduction of our new seasonal menus, the continued evolution of our community partnerships at a local level, and also the service innovations, including introduction of an artist in residence program across many of our services. We also continued investing in our environments through our new service design guide for new services, targeted upgrades across the network, and enhancements in our facilities management approach. Importantly, over the past 12 months, we have transformed Nido's marketing capability, building a stronger brand, deeper family engagement, and a more scalable customer acquisition platform. Leveraging our 97% five-star family satisfaction rating, we have expanded reach across digital, social, local reputation, and experiential marketing channels.
This has driven an increase in Google-generated leads, a 300% increase in Google reviews, 90% increase in social followers, and over 100% increase in video views. Importantly, despite a challenging market backdrop, inquiry volumes have remained resilient while more families than ever are discovering and engaging with Nido. Alongside this, we have maintained quality ratings above sector averages and delivered further improvements in compliance performance. Secondly, we have invested in creating an environment where educators can rise. We continue to strengthen leadership capability, educator development, and the broader employee experience across the group. Our focus has been on recruitment, engagement, training and recognition, and ensuring our people have the capability and support required to continue to deliver exceptional outcomes for children and families.
Pleasingly, our educator retention has improved to 83%, supporting stronger teaming, more mature practice, and deeper relationships within our services, which is so important for the education and care of children. Thirdly, we have invested in expanding our impact. During the half, we opened four new services and a further two since June, while continuing to progress our incubator strategy. We have also completed acquisitions and continue to assess additional acquisition opportunities. Importantly, we remain disciplined in our approach, focused on deploying capital into the right assets at the right time and on the right terms. Finally, we have invested in building a sustainable Nido. We have strengthened our senior leadership team, enhanced accountability and visibility across the business, and continued to build organizational capability to support future growth.
We've strengthened our governance risk and compliance framework, including progressing the development of our new GRC platform, which is soon to be released. Together with the extension of our bank facilities and increased acquisition capacity, these investments ensure we remain well-positioned to execute on our long-term strategy. Collectively, these initiatives that I've just gone through are intended to deliver a stronger family proposition, higher occupancy, improved productivity, and more consistent operating performance. While the benefits are not all immediate, they're creating the foundations for a sustainable earnings growth and longer-term shareholder value. I'd now love to hand over to Tom Herring, our CFO, to cover the financial results.
Thank you, Adam. At a group level, revenue was AUD 85.8 million, comprising service revenue of AUD 81.4 million and establishment and management fees of AUD 4.4 million. Group Adjusted EBITDA was AUD 4.3 million, adjusted profit before tax was AUD 2.8 million, and adjusted net profit after tax was AUD 2.1 million. Support office costs were AUD 6.4 million net of establishment and management fees. The establishment and management fee line continues to reflect the value of developing, opening, and managing services through the incubation model. At a service level, childcare revenue was AUD 79.5 million. Other service revenue was AUD 1.9 million, and total service revenue was AUD 81.4 million. Service costs were AUD 17.7 million, producing service-adjusted EBITDA of AUD 10.7 million, and a service margin of 13%. The key operating metrics were 434,000 days of learning, average daily fee of AUD 183, and a wage-to-revenue ratio of 57%.
Our operating focus is on converting inquiry and offers into days of learning, improving productivity, and continuing to protect the quality and consistency of service delivery. During the half, we extended our loan facility to February 2028 and increased the total facility to AUD 65 million. At 30 June, facilities drawn were AUD 47 million and available headroom was AUD 18 million. Together, these changes strengthen our capital position, providing capacity to pursue acquisition opportunities while preserving flexibility to support the group's ongoing growth strategy.
Incubation remains a central part of Nido's growth model. The model is designed to give Nido access to purpose-built Nido-branded services while reducing the risks associated with traditional greenfields development. A third-party incubator initially owns the new service and funds both development and trade-up costs. Nido selects, designs, and manages the service opening and day-to-day operations. Once performance hurdles are met, Nido has an option to acquire. This means whilst we're involved from the site selection, design, opening, and trade-up, we only acquire services once performance has been proven. We opened four new services in the half, with a further two opening since the reporting period, and we've acquired four services from incubation. The incubator pipeline continues to provide access to quality locations, purpose-built environments, and long-term growth opportunities.
The value of the model is that it is capital efficient, lower risk, quality-led, and provides a predictable source of future acquisition opportunities. The incubator today is performing well, with an average of 52% occupancy with a number of services close to or at the target acquisition hurdle of 80%. This gives us confidence both in the new services but also in future acquisitions. During the half, our team had the privilege of opening four new Nido services to serve the communities in Safety Bay, Australind, and Sienna Wood in W.A., and Sunshine in Victoria. We have also opened two new services in Henley Brook, W.A., and The Gables in New South Wales since June, which is really exciting for our team and also for the families and communities we serve.
These services reflect the evolution of the Nido Early School experience, combining thoughtfully designed early learning spaces, the natural outdoor play areas, and contemporary family spaces. They are developed in line with our updated design guide. Each service is designed to enhance children's learning and wellbeing, support educator practice, and foster a sense of belonging for children and families, reflecting our ongoing investment in quality, safety, and of course, the overall Nido experience. During the year, we also acquired four services from incubation. These were Wembley Downs, Piara Waters, and Treeby South in W.A., and Para Hills in South Australia. These services are a testament to the quality education and care delivered to children and families in their local catchments. The incubation growth model has allowed us to increase our owned and incubated portfolio by 37% from IPO to October 2023 to 81 services today.
We look forward to engaging with the market over the coming year regarding further openings and acquisitions, as we are planning to undertake quite a few of those. As mentioned in the last year, we have further strengthened our approach to opening new services, and this includes our designs, our marketing, our management and oversight, our quality and compliance. Opening services is not about footprint expansion alone. It is about scaling and expanding quality care and education. Our current pipeline of services continues to mature with over 100 sites at various stages of development and consideration. On top of the 16 currently in incubation, we have opened another two already since the reporting period, and we expect to open more over the coming months. Each new service reflects careful demographic analysis and disciplined capital allocation, working very closely at all times with our incubator partner.
We remain discerning and uncompromising on selection, and we will continue to grow where demographics support sustainable demand, there are unmet children and family needs, supply conditions are rational, safety and quality can be maintained, and returns justify capital deployment. We are pleased with the progress of the incubator and look forward to communicating with the market as we continue to grow. Outside the incubator, we continue to assess acquisition opportunities carefully. We will move where an opportunity is strategically compelling, value accretive, and aligned with our quality expectations. We will not compromise discipline simply to deploy capital or meet short-term timing objectives. We currently have a small group under non-binding offer, and we are working through an exclusive final due diligence period. If that opportunity meets our strategic, financial, and quality requirements, we will update the market accordingly. Looking ahead, our priorities are clear.
We're focused on converting inquiry into occupancy, converting improved systems into productivity, and converting the stronger platform into sustainable earnings growth. From August 2026, we increased fees within the parameters allowed under the government-funded Worker Retention Grant. We've also commenced a project to review our cost base, with benefits expected to phase in through the year. Our focus is on improving productivity consistency, but of course, very importantly, protecting the quality of our education and care. Important to note for investors, the CMA, the Centre Management Agreement with Busy Bees Childcare has reached its conclusion, and that agreement has been in place since Think Childcare was sold to Busy Bees in October 2021, and had been extended a number of times and has now come to its end. The underlying need for quality early education remains strong.
Nido has the people, the platform, and the pipeline to continue building value, and we remain focused on doing that with discipline, absolute care, and a clear view of what matters most: children, families, educators, and of course, shareholders. As noted at the start of the presentation, we targeted approximately 20% year-on-year EBITDA growth. That was supported by both organic performance and a planned acquisition pipeline outside the incubator. While the underlying business continues to show encouraging momentum, the timing of acquisitions in the broader operating environment mean we're unlikely to achieve that target within the current financial year. Importantly, we'll remain disciplined in our approach to capital allocation and are not prepared to compromise DD and due diligence standards or acquisition quality to meet a short-term objective.
We continue to see a number of positive indicators across Nido, as I've mentioned, including strong inquiry levels, offers of enrollment tracking approximately 17% above last year, and a growing pipeline of incubator and external acquisition opportunities. Together with the initiatives to improve conversion occupancy and cost efficiency, these factors provide confidence in the medium-term growth outlook and our ability to create sustainable shareholder value. The medium-term sector outlook is strong. Beyond that predicted increase in the number of births in the medium-term that I've already talked about, the government's commitment to supporting the introduction of a universal and affordable and accessible sector continues. With the extension of the Worker Retention Grant until mid-2028, they've noted their intention to take to the next election a really significant system reform that will replace the current environment.
Acknowledging the importance of early learning for childhood development, families, the workforce, and the economy, early childhood education has bipartisan support as a major policy area. We'll know more as we progress towards this date, of course. At the same time, we approach policy reform generally pragmatically. We know that if implemented carefully, it will broaden participation in ECEC, as we've seen modeled by both the Productivity Commission and we've seen in other international markets. As we've said publicly before, whilst we await government certainty on reform, our strategy doesn't depend on a single funding configuration. It depends on the fundamentals. It depends on quality education and care for children, child safety and protection, operational consistency, our workforce, and our educator stability and capability and support, capital discipline, and quality execution.
I would like to thank you for listening to the presentation today. I can see quite a few questions have come through, and we will try and work through those in the time that we have got. If we do not have time to respond to those, then we will most certainly come back. The first question that we were given just before the session was: When management presented the FY 2026 guidance at 20% growth in January, EBITDA was ahead of FY 2025. What led to the deterioration in subsequent months? Why did not the lead indicators convert into sustainable growth? Does management have conviction that the leading indicators reported in H1 2026 will convert? Thanks very much for the question. When we reported in February, we were seeing a number of encouraging lead indicators across inquiries, tours, and enrollment pipelines, as previously said.
However, as we previously discussed, the start of the calendar year proved challenging across the whole sector. In ECEC, our enrollment year really starts as we come through the seasonal low of late February and March, which are really important months for gaining enrollment momentum. Whilst those leading indicators remain positive, they were coming off a lower occupancy base, and the conversion cycle in our business is not immediate. There is often a lag between initial family engagement and occupancy outcomes, and that can be anywhere between a family wanting to enroll children quite quickly to three to four months, and in some cases longer than that. Importantly, we have continued to see encouraging lead activity throughout the first half, and our focus now is on converting that demand that we have sitting here with us into enrollments and attendance.
Obviously being very clearly mindful of the broader market conditions and the cost-of-living challenges families are facing. The second question was: Why has not the 3 Day Guarantee translated into better occupancy? It is a very good question. For those not familiar with the change, the 3 Day Guarantee was introduced earlier this year and replaced the activity test for government childcare subsidies. It represents a really important step toward making childcare more accessible for families, and it is a bit of a journey and a progression, if you like, towards universal childcare. From our perspective, it is a very positive policy, and there is no doubt that behavioral change takes time. Many families are still becoming aware of the new arrangements and understanding what it means for their individual circumstances.
We see we play a role in communicating that as an operator, as a sector, but both operators and the government have a role to ensure that families understand the benefits that are available to them. We expect awareness and utilization to build progressively over time, particularly as families make enrollment and re-enrollment decisions for 2027. We are hoping for that to make a bigger impact throughout the year, and we are seeing family awareness increase through that time. While we have not seen the full benefit flow through to enrollments, we continue to believe the policy is a very positive structural development for the sector, and encouraging also that the government is taking steps towards universal childcare rather than waiting till mid-2028, in a binary sense, to introduce it or not. There was a question about the recoverability of the incubator loan. When will it be repaid?
Why is it simply offset against center acquisition consideration? Thanks very much for that question. We are very comfortable with the recoverability of the loan. It is overseen and governed by a contract, obviously, between us and the incubator. The facility is contractually repayable no later than 2029, but it is also important to recognize that the incubator model moves through three distinct phases. Initially, as you can imagine, capital is provided to support development and growth, both through debt and equity. Then the centers move into a self-funding phase, before ultimately transitioning into a capital repayment phase. There is a timetable put forward for that. We work closely with the incubator team. We do have a strong relationship, and we maintain good visibility over their operations and the funding requirements. Based on that ongoing engagement, we remain comfortable with the carrying value of that loan, absolutely.
The next question was around the Busy Bees. It was, Can you comment on how Busy Bees will impact gross and net support office costs? The Busy Bees transition impacts both the variable and fixed support office costs. We are currently working through a bit of a consultation process. It has just drawn to a close this month. We are working through that consultation process with staff on the optimal support office structure going forward. Importantly, we are balancing any changes against our future growth requirements for new services and also our aspiration for those acquisitions. We have a number of new services that are scheduled to open toward the end of the calendar year, as well as ongoing acquisition opportunities. We really want to make sure that we retain capability and capacity to support that growth.
As a result, while we would expect some support office costs associated with Busy Bees arrangement to unwind over time, we are taking a very measured approach rather than simply removing or cutting costs. Of course, look, at the end of the day, our focus is really on right-sizing that support office for the portfolio. We have got to own it is a trade-off between what we have today and what we need in the future, while also ensuring we are appropriately positioned for future expansion. A lot of the costs that are consumed in the support office are there to support the organization as a whole and continuing to deliver quality and manage compliance as well, which is very important, and also to provide that environment for staff. There is a question here about days of learning have declined.
We made four acquisitions, and the question refers to the 434,000 hours and to what extent that has been impacted by the acquisitions versus on a like-for-like basis, which I think is a good question. We made four acquisitions, and we hit the target occupancy in about April, May, in that half, that allowed us to acquire those. That added days of learning for that short period. As mentioned, off the back of a more challenging start, we have continued to see inquiries and offers ahead of last year and working to convert those in the second half. All right. I know that we are at time, and we still have quite a few other questions. What we might do is draw those to a close and actually reach out to those folks who have asked questions.
If needs be, if there's anything in there that we think is relevant for the market for access to information and an equal disclosure, we'll report them out more broadly, if that's okay. In closing, I just wanted to thank you very much for your time today. It's been a challenging environment and an evolving environment. We've demonstrated resilience, we've strengthened our foundations, we've sharpened our operating discipline, and we've invested deliberately in quality capability and long-term growth. As we move into this next period, as I've mentioned, our priorities remain unchanged. Disciplined execution, consistent performance, and sustainable value creation.
On behalf of the board and leadership team, I'd like to thank our educators and team for their professionalism and commitment, importantly, our families for their trust they place in us every day, and for you who have joined us today, our investors, for their continued support. We look forward to updating you on our progress throughout the year, and we'll come back to you with some of those answers. Thank you very much.