G8 Education logs 20 per cent drop in net profit for first half of 2019 despite increased revenue

Childcare fees have increased and demand is up - yet Australia’s biggest childcare provider, also the Gold Coast’s largest listed company, has logged a 20 per cent dive in profit for the first half of the year. Here’s why

G8 Education has recorded a 20 per cent drop in net profit in the past six months. Photo: iStock

GOLD Coast childcare giant G8 Education has slashed its net profit by a fifth to $19 million in the first half of 2019, despite growing its earnings by seven per cent, with new accounting standards hitting the company’s bottom line.

G8, which reports on a calendar year, reported revenue of $430.6 million in the six months to June 30, nine per cent higher than the previous year, with increased childcare fees and occupancy boosting the result.

It said it was expecting earnings of $140-145 million, lower than had been flagged earlier.

Shareholders reacted by sending G8 stock tumbling 16.9 per cent to $2.29 by 11.45am, wiping more than $210 million from its market capitalisation.

The company, which has brands including Headstart Early Learning Centres and Pelican Childcare, reported net earnings of $51.6 million for the half and said a change in accounting requirements had lead to the 20 per cent dive in profit year-on-year to $19 million.

It’s the lowest first half profit posted by the company since 2014, and 37.7 per cent lower than the first half of 2017, when $30.7 million was reported.

G8 said the latest result was largely due to a change in accounting requirements around lease liabilities, which were introduced from January 1 this year.

The new standards require companies to recognise future lease liabilities on their balance sheets, where historically they were disclosed as notes to the financial statements.

The change contributed to an 11.2 per cent increase in costs to $403 million to G8.

Shareholders will receive a 4.75c franked dividend for the half, up a quarter of a cent from the same time last year.

G8, which is the Gold Coast’s biggest listed company and Australia’s largest childcare operator, said average like-for-like occupancy was up 1.5 per cent on the previous year..

G8 managing director Gary Carroll said the result was solid and in line with expectations, with increased earnings driven by performance in the group’s childcare centres, which logged 14 per cent increase in earnings.

G8 SHARES PLUNGE ON FULL-YEAR RESULTS

Gold Coast-based G8 Education is Australia’s biggest childcare provider.

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“The long‐term fundamentals of the sector are very attractive, and we are committed to providing a high‐ quality differentiated service offering to our families”.

The company said it was focused on completing its network expansion via new childcare centres, which it said could be created without cannibalising demand.

“The group will continue to evaluate opportunities to rationalise underperforming centres, with eight centres closed during the period and a further five identified for closure at lease expiry in the second half of the 2019 year,” the company said.

“We maintain a rigorous approach to portfolio analysis as part of our commitment to providing the best quality experience for our families.”

G8 Education managing director Gary Carroll. Photo: Scott Powick

The group completed its balance sheet refinancing during the half, using syndicated debt facilities to repay a $289 million Singapore bond facility.

The company lost more than $200 million in sharemarket value after it reported its full-year results in February.

It posted a 14.5 per cent plunge in net profit to $79.5 million in calendar 2018 despite revenue increasing 7.7 per cent to $858.2 million.

G8 reported earnings of $136.3 million for the year to December 31, in line with the company’s forecast, but lower than the previous year.

Shares plunged again last month, by almost 10 per cent, leading a wider share market plunge, with the company considered by many analysts as undervalued.

The Gary Carroll-led G8 has struggled recently with falling occupancy at its 502 centres in Australia amid an industry-wide oversupply of childcare outlets.