G8 Education updates on new Greenfield strategy
G8 Education has provided an update to investors and market participants on its refreshed approach to opening new centres as part of a broader Greenfield strategy that has been designed to enhance the existing portfolio and secure future growth.
The new Greenfield approach, which was first alluded to in its 2020 Full Year Results Presentation and also referenced at its 2021 AGM, has been informed by the experience of converting its legacy Greenfield portfolio of 44 centres, of which the last were opened in 2020.
Although the majority of these centres have met or exceeded return on investment expectations of 20 per cent on maturity, around 30 per cent have not, due largely to challenges posed by poor locations and/or inappropriate sizing which in turn have constrained their operating performance.
The new strategy has been designed to mitigate the shortcomings and build on the successes of the previous model so as to create a steady stream of new centres joining the overall portfolio over time.
The key components of the new strategy are as follows:
- Assessment of site opportunities – This phase includes assessing the market dynamics of the catchment and the specific location appeal of the site itself. It also includes an assessment of the commercial aspects of the operation including fees and rents. Finally, the new model allows for a greater emphasis on design input from G8 to ensure best practice is being adopted.
- Optimise centre opening processes – Prior to centre opening workforce planning programs to secure talent will be created for each site alongside customised marketing campaigns to drive enquiries. As new team members come on board there will be comprehensive inductions of team members into the G8 way.
- Before and after opening support – Pre and post opening support for families will come in the form of a dedicated parent liaison officer and for centre managers looking to scale occupancy and secure new team members a recruitment officer will be allocated.
In addition, to the process related programs that make up the Greenfield strategy, the model will employ a new capital “lite” approach whereby the only initial payment for each new centre will be a $4,000 per license place set up cost amounting to around $400,000 per centre.
The financial dynamics of this approach is materially different from the previous model employed by the Group, in which developers received a multiple of forecast future earnings based on certain criteria being achieved post open as opposed to a per licence place lump sum.
A second key focus of the Greenfield presentation was to articulate how the portfolio would be treated from a reporting perspective going forward with Sharyn Williams, CFO explaining that the key objectives in this area were to create separation from the core portfolio and in turn transparency around its performance.
An additional objective was to facilitate funding of the centres which will be facilitated by their separation from a reporting perspective from the core portfolio.
Greenfield sites will “graduate” from the Greenfield portfolio once occupancy has reached 80 per cent and transferred across into the core portfolio. Centres that do not reach 80 per cent occupancy after 36 months of ramp up will either be transferred to the core portfolio or divested from the Group.
Notably, the Group confirmed that all previously impaired centres, which include a number of Greenfield sites, have been transferred to the core portfolio and that initiatives designed to either transition, close or fix the centres continue to progress.
To review the Greenfield strategy presentation please click here.
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