G8 Education to tackle childcare supply and demand as HY results prompt shareholder selldown

Patchy demand for childcare has seen Gold Coast company G8 Education hone its skills in macro economics, shutting down underperforming centres even as they build new ones in other areas.

Listed childcare provider G8 Education’s centre at Curlewis.

PATCHY demand for childcare has seen Gold Coast company G8 Education hone its skills in macro economics, shutting down underperforming centres even as they build new ones in other areas.

G8 yesterday reported a 20 per cent dive in net profit for the first half of the calendar year to $19 million, and flagged earnings for the full-year more modest than previously expected.

The company said occupancy at some of its newer centres had not grown as quickly as hoped.

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 overall growth in occupancy and earnings was pleasing in the face of challenging wider conditions.

Mr Carroll said the company had to consider local trading conditions across its 500-plus network of centres, with demand varying greatly in different locations.

G8 Education managing director Gary Carroll.

“There are some local trading areas where demand is very strong, and others where there has been loads of supply,” he said.

“We’ve got a specific team looking at defending supply increases and turning around and improving some of our centres.

Mr Carroll said the Gold Coast was a strongly-performing area it was looking to defend from a flurry of new supply in the sector, while bringing online new supply of its own in places where demand was stronger.

The group closed eight underperforming centres during the year, with another five slated for closure after their leases expire this year.

Julie Madgwick who has taken on the new position of Head of Early Learning and Education at G8 Education. Picture Glenn Hampson

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G8, which has brands including Kool Kids, Headstart Early Learning Centres and Pelican Childcare, reported net earnings of $51.6 million for the half and a 20 per cent drop 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.

G8 Education has struggled with an oversupply of childcare centres. Photo: iStock

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 compared to the previous year.

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

Shareholders reacted by sending G8 stock down 20 per cent to a 10-month low of $2.20, recovering slightly to close 16.06 per cent down at $2.30 on volume of 6.5 million shares.

The company grew net earnings in the six months to June 30 by seven per cent to $51.6 million and posted revenue of $430.6 million, nine per cent higher than the previous year, with increased childcare fees and occupancy boosting the result.