G8 Education releases trading statement updating on 2021 year to date performance
G8 Education has released an end of year trading update in which it confirmed operating earnings are tracking above consensus estimates despite occupancy being disrupted by COVID-19 lockdowns, particularly in New South Wales and Victoria.
The Group generated earnings before interest and tax (EBIT) of $76 million in the eleven months ended November 2021 and $43 million of net profit after tax with revenue shortfalls arising from Gap Fee Waiver losses, general COVID disruption and no seasonal uptick in COVID-19 impacted states all impacting revenues.
On a comparative basis the performance in 2021 relative to the same eleven month period in 2020 was substantially lower as large scale Federal COVID support funding programs like JobKeeper and the Business Continuity Payments were phased out.
That being said, from a financial perspective, 2021 is shaping to be the “recovery year” that was flagged by management in the 2020 December trading statement.
Core Group occupancy at 76.5 per cent as at week ended 5 December 2021
Core occupancy for the week ended 5 December 2021 was 76.5 per cent – 1.7 per cent above the same point last year and 2.1 per cent per cent below 2019 levels.
Occupancy build in the second half of 2021 was relatively muted in some states compared to previous years, with the traditional seasonal build being impacted by the extended lock downs experienced in New South Wales and Victoria.
On a state by state basis this dynamic was evident to see with the exception of the ACT which is being impacted by service specific challenges, the non locked down states of Queensland, Western Australia and South Australia performing around or better than pre COVID levels recorded in 2019, but NSW and Victoria tracking 3.0 per cent and 4.0 per cent behind.
Importantly G8 flagged a note of caution regarding 2022 opening occupancy levels in NSW and Victoria due to the muted second half which may impact the trajectory of growth across next year.
Fee increases for 2022 to balance parent affordability with cost base increases
Although the trading update did not specify precisely what fee level of fee increase would be passed in 2022, G8 did confirm that it “will balance the necessary increase in the cost base with the necessity of managing parent affordability.”
The cost base component is linked to improvements made to the G8 employment proposition for educators to improve retention over the course of 2021 including higher ECT starting salaries.
In addition, ongoing COVID-19 management protocols continues to have an impact on the cost of operations via increased need for consumables spend (e.g. gloves), funding a COVID-19 support team and more recruitment agency costs with the Group citing the inability to share team members across centres in COVID-19 impacted areas as a key driver.
G8 increased fees by around 4.5 per cent on average in February 2021.
Greenfield pipeline continues to mature with average occupancy approaching 80%
The Group’s greenfield pipeline of 16 centres reported occupancy approaching 80 per cent with CY21 EBIT expected to be around $1.7 million up from 71 per cent and earnings of $0.7 million reported in its half year results.
It is expected that six centres will transition across to the Core portfolio from January 2022 with thirteen new centres slated to be opened across the year, a higher than signalled number due largely to deferrals made necessary by COVID-19 in 2021.
Progress on the exit of imparied centres across the Group appears to be slower than expected with just 21 completed thus far in 2021 and only six of the eleven flagged as having indicative agreements in place at the half year stage actually being settled.
Elsewhere in the Group’s strategic programs progress has been made in the “Quality & experience improvement” stream with the role out of the Improvement Program (IP) across targeted centres with inducted centres expanding by 137 this year and in the “Systems & platforms” stream with the new Human Resources Information System and rostering platform rolling out.
G8 education will be reporting their Full Year 2021 Financial Results in February 2022.
To review the Trading Statement presentation please click here.
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