G8 Education reports progress in HY21 results as portfolio optimisation continues
G8 Education Ltd has reported its first half results for 2021, confirming that half of its impaired assets have now been shed from the group and that its improvement programs, designed to uplift service occupancies, are beginning to generate positive returns both on an occupancy and quality basis.
Over the first half of the year the Group generated revenue of $421.5 million with operating earnings before interest, tax, depreciation and amortisation (EBITDA) of $102.4 million. EBITDA was 6.1 per cent lower than the last pre COVID reporting period in 2019 but around 15 percent higher than last year.
Group occupancy across the core portfolio, which excludes the 12 centres either sold or surrendered in the period, was 68.0 per cent, with G8’s 191 regional centres showing particular strength at 73.8 per cent. Metro services recorded occupancy of 63.8 per cent as Victorian mobility restrictions contributed to a negative impact on attendances.
“During the half, our operating performance continued to recover, with occupancy in the first half narrowing the gap on CY19, driven by our strategic change programs and particularly strong performance from our regional centres,” Gary Carroll, G8 CEO and Managing Director said.
Divestment program remains on track with more to come going forward
After having committed to actively streamlining the portfolio of services across the Group, G8 confirmed that six services were divested and six services surrendered in the six months to June 21.
In addition, a further eleven have indicative agreements in place to be sold which, once completed, will take the number of centres removed from the portfolio to 26 – exactly half of the 52 centres earmarked for disposal as part of the program.
The G8 portfolio now consists of 459 services, down approximately 10 per cent from the 512 services reported at the half year mark in 2018, and 8 per cent from 2019.
Notably, despite the core portfolio seeing material reductions in size, overall profitability has moved higher with core net profit before tax (NPBT) of $64.8 million generated from the 444 core services in 2021, 8.0 per cent higher than that reported by the 484 services in 2019.
Quality, safety, workforce and sustainability come to the fore as “heart of business”
H1 saw the Group achieve the strongest assessment and reassessment results period since inception, with 98 per cent of all centres assessed achieving a Meeting or Exceeding the National Quality Standard (NQS) rating.
G8 now has around 86 per cent of its portfolio rated as Meeting or Exceeding the NQS, up from around 82 per cent as at the end of 2020.
Elsewhere, a new suite of additional child safety and protection training programs were rolled out across the network and the Students Pathway Program, which supports professional learning for team members, has seen the Bachelor Scholarship Program take in 124 students and active trainees, increasing to 843.
“We achieved our highest NQS results in the period, became the first Australian childcare provider to execute a sustainability linked loan and expanded our Study Pathways program, providing Bachelor Scholarship and traineeship opportunities to more than 1,000 team members,” Mr Carrol noted.
Employee payments remediation program partially completed, more payments in H2
G8’s employee payments remediation program, first announced in December 2020 after an internal review highlighted irregularities in the payment of wages and entitlements, continues to progress.
An initial payment of around $17 million was made in mid July 2021 to 8,388 current impacted team members with a second payment due in the coming months. The payments include amounts for back paid wages, superannuation, payroll tax and interest.
Looking ahead, G8 has now commenced contacting former employees impacted to obtain bank and tax details which will follow with payments being made to settle the outstanding balances owed.
The original expectation was that around 27,000 current and former team members may have been impacted over a six and half year period. The Group provided no guidance as to whether this number will be the final one but has signalled that its original provision of $80 million to cover the cost of the program will remain in place.
Strong balance sheet to underpin organisational stability as COVID uncertainty remains
Despite a relatively robust operating performance and progress being made on quality and other key areas during the period, and notwithstanding the newly announced Federal Governments Targeted Assistance Program, uncertainty around the impact of COVID-19, particularly in locked down states remains, casting a more cautious tone to the outlook.
Nevertheless, G8 currently has $106.5 million of cash on its balance sheet which exceeds the long term debt outstanding of $94.9 million which provides considerable security should operating conditions take a turn for the worse.
“After an encouraging first half, since June, we have started to see some impact of COVID-19 lockdowns on occupancy in the eastern states. We have the right settings and systems in place, and are well capitalised to weather this period and emerge in a stronger position.” Mr Carroll said.