By Colin Kruger and Elias Visontay
The childcare operator at the centre of the sector’s alleged sexual abuse scandal, Affinity Education, lost money last year as it continued with an acquisition binge designed to give its rich-lister backers a lucrative exit.
The for-profit childcare sector at large has come under intensifying pressure following allegations that Joshua Dale Brown had allegedly sexually abused children at several Victorian centres, but the Quadrant Private Equity-owned Affinity has also been dogged by other alleged incidents.
Brown’s case is still being investigated and remains before the courts.
Affinity Education plans to fast track installation of CCTV cameras in its childcare centres.Credit: iStock
Queensland Police charged a 21-year-old male employee of an Affinity centre in Brisbane on July 10 over an offence alleging indecent treatment of a child. That came as the list of centres that Brown worked at continued to balloon, including additional centres owned by Affinity.
Scrutiny of Affinity has been limited compared with the ASX-listed G8 Education – which has had hundreds of millions of dollars wiped from its market capitalisation after the charges against Brown were made public – despite Affinity owning 13 of the 23 centres where Brown worked.
But financial statements lodged with the corporate regulator by the Brisbane-headquartered Affinity portray a company on an expansion binge since Quadrant bought it in 2021.
Financial statements lodged with ASIC show that in the 2024 calendar year, Affinity posted an after-tax loss of more than $20 million, with huge debt bills playing a significant role, despite underinvestment in staff compared with the rest of the industry.
Joshua Brown is alleged to have abused eight children who attended the Creative Garden Early Learning Centre in Point Cook between April 2022 and January 2023, police said.Credit: The Age
Affinity’s accounts for the financial year ending December 31, 2024, show it was saddled with $614 million worth of loans, just shy of the $650 million that Quadrant paid for Affinity in 2021 when the company borrowings totalled $325 million.
Affinity’s debt burden is significant. In 2024, it spent about 19 per cent of its revenue from childcare on debt costs, which soared as it hoovered up smaller operators and built childcare centres.
The statements filed with ASIC show that Affinity spent about $344 million on wages in 2024, equating to 57 per cent of its revenue from childcare fees.
The industry’s largest operator, not-for-profit Goodstart Early Learning, reported in its 2024 annual report that employee costs accounted for close to 71 per cent of its revenue.
ASX-listed G8 Education, which has centres that were impacted by the allegations, reported that staff costs accounted for 61 per cent of revenue last year.
In a response to this masthead, Affinity denied any underinvestment in staff via wages or poorer quality of service. Affinity noted that it met regulatory requirements for staffing, paid award wages and above, as well as retention-based bonus schemes.
Affinity also rejected the suggestion that the quality of care at centres has worsened after it took them over.
“While the overwhelming majority of our 250 services across Australia deliver safe, excellent care, every day, we accept there is more we can do as an organisation, and as a sector, to improve,” a spokesperson said.
Tim Hickey, Affinity’s chief executive, also played down the significance of a range of incidents that have landed the company negative publicity and in some cases regulatory action.
These include a four-year-old being left unattended and restrained in a car seat on a bus for about 65 minutes in July 2021. Misconduct at the Milestones Early Learning Raby centre in NSW included an educator getting sacked after using a child to mop up vomit, and another employee being banned from working in childcare for 12 months after dragging a child up a cement ramp.
Another Affinity employee was banned from the sector for 12 months over a 2023 incident where they were filmed repeatedly slapping a baby.
An Affinity centre in Spring Farm in NSW was suspended from operating for three months because of compliance failures, including medication failures, lack of supervision and qualified staff, and fake credentials. That centre had dropped from exceeding national quality standards to failing them within a year of Affinity taking ownership.
Between 2021 and 2024, more than 1700 regulatory breaches were recorded against the company – an average of more than one a day.
In response, Hickey said: “While even a single failing is one too many, it is also important to acknowledge these incidents are not representative of the dedicated, professional team who care for children every day across thousands of centres.
“The vast majority of people who work in early education, including those at Affinity, are deeply committed to nurturing, protecting, and educating children with compassion and integrity,” Hickey said. He noted the company had invested more than $70 million on compliance, training, safety and care processes across its network in the past three years.
The sex abuse allegations have ensured the sector faces a significant rise in costs for compliance and monitoring to reassure parents that their children are safe.
And there will be a big stick waiting if they fall short: the government is now proposing legislation that could strip childcare centres of their taxpayer funding over a single breach.
Affinity announced $10 million would be spent installing CCTV in all its centres, and lockboxes for smartphones, following the revelations of the charges against Brown.
Questions about performance of its centres and financial woes will make it much harder for Affinity’s owner, private equity group Quadrant, to flip the business with the returns needed to ensure the lucrative bonuses that the private equity sector is known for.
Affinity’s previous owner – local private equity group Anchorage Capital – hit the mother lode when it sold the group to Quadrant for $650 million cash in 2021.
In five years, Anchorage had more than tripled its money with a profit of about $440 million for its investors.
It also delivered a significant challenge for Quadrant: how do you make even more money to ensure they received the same multimillion-dollar bonuses enjoyed by Anchorage’s executives?
Acquiring more centres was part of the answer – childcare capacity is often used as an indicator of potential value – but parents who actually sent their young children to be cared for at the Affinity centres knew the bottom line.
“This once was a wonderful centre, but now it has become all about the profits,” Claire Ormiston said a year after the Anchorage acquired Affinity and its 160 centres for just $210 million in 2014.
The for-profit childcare sector can be a lucrative one for executives involved.
Affinity’s CEO Hickey – the one constant since the group entered private equity control in 2015 – paid $6 million in 2021 for a luxury apartment at Kangaroo Point, a short walk from Brisbane’s financial district. He also owns a five-bedroom house in Brisbane’s waterside suburb of Hawthorne.
The Quadrant executives who tried, and failed, to offload Affinity in 2023 for $1 billion are also used to the spoils of success.
In 2020, Quadrant chairman Chris Hadley sold his Mosman mansion, with harbour views, gym, pool and its own wine cellar, to another Quadrant executive, Marcus Darville, for $10.9 million.
Hadley, a legend in private equity circles, also has a Palm Beach weekender he bought in 2013 for $10.6 million.
A spokesperson would not divulge information on salaries and dividends for Affinity’s leaders and Quadrant executives but denied it came at the expense of care at its centres.
“Running a sustainable, profitable business does not come at the cost of quality care, in fact, it is essential to its delivery,” they said.
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