G8 Education says market conditions remain challenging but funding boost expected

CHILDCARE giant G8 Education is forecasting a better year ahead following a tough 2017. The government’s Jobs for Families packages is expected to provide a big boost.

G8 Education is hoping to have some better news this year thanks to the Federal Government spending more money on childcare. Picture: Regi Varghese

GOLD Coast-based childcare provider G8 Education is forecasting demand to increase and supply to ease following a challenging year where it missed guidance but delivered a modest boost to earnings.

G8, which has a number of brands including Headstart Early Learning Centres and Pelican Childcare, said its revenue in 2017 was $795.8 million — 2.4 per cent up on the previous year while underlying earnings — which strips out one-off items — grew 2.2 per cent to $156 million.

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This was short of guidance of about $160 million issued in December. The market punished G8 sending shares down 25c to close at $2.90.

Managing director Gary Carroll said 2017 was challenging due to “significant” levels of new supply and weak demand, which impacted occupancy levels.

“Against that backdrop, generating growth in underlying EBIT was a creditable result,” Mr Carroll said.

“The final result was slightly short of previous guidance, driven by higher discounts and increased investment in resourcing for our recently acquired centres and our kindergarten rooms.”

G8 spent $17 million in 2017 in capital expenditure, which included 16 playground upgrades and 107 airconditioning upgrades.

Mr Carroll said he expected increased demand for childcare services later this year due to the Federal Government’s Jobs for Families package, which is due to start in July.

The package was expected to mitigate affordability issues for families, due to “sluggish wage growth” and the current $7500 rebate cap.

“The 20 per cent increase in government funding is expected to drive demand. How it plays out for each family we will have to wait and see but we expect it to be positive.”

An investor presentation by G8 listed the overall national supply of childcare centres growing by 4.15 per cent in the past 12 months. However, that had eased throughout the year and was forecast to slow down further this year.

G8 said occupancy has been stable during January “with committed forward bookings heading in the right direction”.

“Demand on the Gold Coast has been reasonable. There have been a number of new centres opening in the past 12 months, which has been challenging.

“But long term the prospects of the region are really positive. If demand increases at its current growth rate it will soak up excess supply.” Occupancy in 2017 fell to 76.7 per cent from 79.9 per cent the previous year.

Mr Carroll said the company is well positioned to grow this year due to improvements such as reducing staff turnover, recruiting the “right leaders”, and improving the quality of centres as well as strengthening the company’s balance sheet. That included raising $100 million via institutional investors and a further $95 million via a placement with Hong Kong-based CFCG Investment Partners International (Australia).

The company added 11 greenfield centres last year and bought 25 existing centres.