G8 reports improved HY23 financial performance despite workforce constraints

G8 Education reported an improved financial performance in the first half of 2023 as fee increases and a closer focus on managing costs mitigated static occupancy and ongoing challenges with workforce availability in a portion of the overall network.

 

“G8 Education’s performance in the first months of CY23 demonstrates the improvements we are making across the business and the success we are having in our response to industry-wide (sic.) issues, including rising costs and significant workforce shortages,” Chief Executive Officer and Managing Director Pejman Okhovat said.

 

“Despite the inflationary pressure on families, overall demand for childcare (sic.) is improving. We are already seeing some early positive signs following the Government’s changes to the Child Care Subsidy, with improved affordability translating into a small increase in average bookings per child.”

 

“While the long-term demand fundamentals of our sector remain attractive, our focus in the near-term remains on addressing the workforce shortages by attracting and retaining the team to support seasonal occupancy growth through the crucial CY23 enrolment and transition period.”

 

Revenues, earning and margins bounce back after difficult HY 2022

 

G8’s financial performance improved against the first half of the prior year, a period that was impacted by flooding across Eastern Australia and the consequences of the Omicron COVID-19 variant in late 2021 and early 2022. 

 

Revenues increased 9.3 per cent to $455.3 million supported by a 6 per cent increase in fees passed at the beginning of the year, stronger Q1 occupancy trends and a small increase in average bookings per child per week.

 

Centre based costs, which include staff, rent, child care expenses and utilities, were up 7.5 per cent to $389.6 million in the period. Employment costs as a percentage of revenue came in at 58.7 per cent, down marginally on HY2022. 

 

“After the challenging first half of CY22, which was disrupted by COVID-19 and flooding on the East Coast, we were pleased to deliver a modest increase in core occupancy in H1 CY23, which together with higher average fees and disciplined cost management in an inflationary environment, translated into stronger revenue, margins and earnings,” Mr Okhovat  said. 

 

Occupancy for first half at 67.4 per cent, marginally higher than 2022

 

First half occupancy across the Group’s network of 434 centres was 67.4 per cent, 0.6 per cent above FY2022 but is still tracking around 2.1 per cent below that recorded in FY2019 despite New South Wales, Queensland and parts of Victoria recording stronger occupancy than 2019. 

 

A key constraint on better occupancy performance, particularly at the crucial earlier parts of the year, were the relatively high numbers of capped centres where booking demand could not be met due to lack of qualified team members to meet ratios. 

 

Although the number of capped centres has fallen materially, the fifty centres most impacted by capping towards the end of last year and early this year are currently tracking around 8 per cent below group occupancy. 

 

“The sector-wide workforce shortages remain the biggest issue facing our industry. While they continue to constrain occupancy rates, the impact is not uniform across our portfolio. In fact, over 80 per cent of the Group’s centres, as a cohort, have an average occupancy of circa 80 per cent,” Mr Okhovat said. 

 

Portfolio optimisation continues as centres disposals pick up and greenfields mature

 

G8 reported a total network of 434 centres as at June 2023 and confirmed that five centres had been sold in the first half with an additional three transitioning out of the business between the end of the half year and the reporting date.

 

The Group has now exited 25 of the 52 centres that were designated as impaired in 2020 highlighting just how difficult it is to off load underperforming centres, both brownfield and greenfield, in a cost effective manner. 

 

G8’s greenfield portfolio continues to mature with just seven centres remaining after the targeted opening of three over the remainder of 2023.

 

Average daily fees across the network are now $145 with families accessing on average 3.08 days of care each week. 

 

Balance sheet health remains strong with ample cash and modest debt exposure

 

Consistent with each reporting period since the recapitalisation of the business in response to the COVID-19 pandemic in early 2020 G8’s balance sheet health continues to be notably robust. 

 

The Group reported net debt of $103.4 million consists of $41.8 million of cash and $145.2m of borrowings. Operating earnings before interest, tax, depreciation and amortisation (EBITDA) was $119.7 million giving a net debt to EBITDA ratio of 0.9, which although higher than HY22 is still considered low. 

 

Interest cover was 11.3x and balance sheet gearing just 11 per cent. 

 

“Our cash generation and balance sheet remain strong following the completion of our buyback program in January, which underscored our commitment to delivering shareholder value and capital efficiency,” Mr Okhovat  said. 

 

To read this year’s HY report please click here.