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G8 full year 2022 results highlight resilience in difficult year as new CEO takes control
Jason Roberts
Feb 21, 2023
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G8 Education Ltd has reported its full year 2022 results which show that, despite a major profit shortfall in the first quarter of the year and workforce related headwinds throughout the year, occupancy and profitability were broadly stable with balance sheet strength intact.
“After a challenging first half disrupted by COVID-19 and flooding, the second half delivered a strong recovery in occupancy that narrowed the gap to pre-COVID levels and translated into an improved earnings performance,” new G8 Chief Executive Officer and Managing Director Pejman Okhovat said.
“G8 continued to focus on quality and embed sustainable practices across the organisation, including completing its centralised improvement program. Our approach now is focused on sustaining and continuously improving centre quality, supported by the efforts of the centre ‘Field Support’ teams.”
“In my first seven weeks at G8, it has been an absolute pleasure to tour our centres, meet our team and see first-hand their unwavering commitment to delivering on our purpose, which is creating the foundations for learning for life. I would like to extend my thanks to the team for their warm welcome and their contribution to this solid set of results,” he added.
Rebound in H2 occupancy and cost streamlining initiatives support 2022 results
G8 reported calendar year 2022 occupancy of 71 per cent, in line with last year's results, and around 3.0 per cent above COVID-19 impacted 2020, but still lower than pre-COVID levels of 73.0 per cent recorded in 2019.
On a state basis New South Wales, G8’s largest state based footprint, was 1.5 per cent better than last year, and is now tracking in line with pre-COVID levels, however, Victoria, its second last state based network, is still well below 2019 levels despite carving out a small increase this year.
G8 was able to pass significant fee increases in 2022 which supported 4.0 per cent increase in revenues to $901.3 million. This came despite a reduction in the number of centres operated in the group from 432 last year to 422 this year.
Underlying operating profits were $80.3 million, a significant achievement given just $21 million was reported in the first half of the year and highlights the impact of occupancy rebounds and cost cutting initiatives in the second half.
Workforce shortages a material headwind for the group but quality outcomes still rising
The ongoing workforce challenges encountered by providers across the early childhood education and care (ECEC) sector were deeply felt by G8 across the year.
Overall wage rates increased by 7.7 per cent composed of the 4.6 per cent Modern Award increase and a step change in the use of agency sourced educators and teachers, with agency usage as a percentage of hours worked rising to 4.6 per cent in 2022, up from just 1.9 per cent in 2021.
Notably, despite the quite evident difficulties G8 was able to marginally improve center manager retention rates in 2022 with overall team engagement rates improving substantially as ongoing initiatives to enhance team retention including ongoing training and professional development and strengthening the employee value proposition yielding results.
G8 reported that 89 per cent of its centres are now rated as ‘Meeting' or 'Exceeding’ the National Quality Standard, up three per cent from last year, and eight per cent since 2019. Multiple initiatives, including investment in quality support and centralised improvement programs, have supported the network wide improvements.
Portfolio optimisation sees 14 leases surrendered and to impaired centres exited
Consistent with its portfolio optimisation objectives G8 surrendered fourteen centre leases and exited two centres that had been classified as impaired in 2022.
The overall network now stands at 422 centres, 50 centres less than was reported in December 2020. Further reductions can be expected as the balance of the thirty “impaired centres” are either sold, excited or surrendered.
G8’s greenfield development pipeline continues to deliver centres into the core portfolio. Six greenfield centres were opened in 2022, seven centres were moved to the core portfolio after hitting occupancy hurdles and twelve centres remain in various stages prior to opening.
The Group remains committed to identifying new greenfield opportunities to optimise existing footprint and reviewing its existing network for opportunities to streamline.
G8 balance sheet metrics remain sound, even after completion of share buyback
The balance sheet at G8 has continued to be managed well, with stability and resilience evident in the key metrics used to evaluate financial and balance sheet risk.
Cash levels of $37.8 million set against debt of $127.8 million give a net debt of $90.8 million which on operating profits of $106.5 million yield a debt to EBITDA multiple of just 0.8 times.
With the balance sheet gearing in single digits and interest cover at just shy of double digits, the G8 balance sheet would be conservatively positioned even after the completion of its $40 million share buyback, equal to around 4.3 per cent of outstanding shares pre buy back.
Looking ahead G8 sees demand for early learning continuing to improve supported by the Cheaper Child Care affordability measures expected in July 2023.
To read G8’s Full Year Results media release click here and for the presentation click here.
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