Gold Coast based childcare operator G8 Education’s net profit slumps 23 per cent for first half due to high wage costs

THE Gold Coast’s biggest listed company has seen its net profit slump 23 per cent for the first half of the year, dragged down by higher wage costs.

G8 Education’s net profit fell more than 23 per cent for the first half of the year.

THE Gold Coast’s biggest listed company — childcare operator G8 Education — says its pretax earnings plummeted 21 per cent over the past six months dragged down by higher wage costs and government-mandated staff to student ratios.

Investors punished the share price on the news, sending it down more than 11 per cent this morning in intraday trading to $2.13.

The company, which is struggling with an industry-wide surge in childcare centres impacting occupancy, is not expecting market conditions to improve until at least mid to late next year.

Last year its share price fell 23 per cent in one day after it issued a full-year earnings warning, which resulted in nearly $450 million being wiped off its market capitalisation.

G8’s Gary Carroll says early signs for occupancy in the second half are positive. Photo: Steve Holland

G8, which has a number of brands including Headstart Early Learning Centres and Pelican Childcare, said its underlying net profit — which strips out one-off items — for the first six months of the year fell 23.9 per cent to $25.6 million, while its underlying pretax earnings dropped 21.2 per cent to $48.1 million.

However, revenue was up 7.6 per cent to $396.4 million, due to fee increases, acquisitions and the opening of new centres.

Average like-for-like centre occupancy for the first six months fell 2.5 per cent.

G8 Education managing director Gary Carroll said the first half focus was on adapting to the Jobs for Families childcare package and investing in staff, systems and technology to fuel growth.

A surge in childcare centres has dragged down occupancy levels at centres for the overall sector.

G8 SAYS MARKET REMAINS CHALLENGING

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He said the increase in revenue had been achieved despite challenging market conditions while the impact on wages from the higher staff to student ratio was not expected to drag down pretax earnings in the second half.

He said early signs regarding occupancy in the second half were positive with levels increasing 2.2 per cent to 74.5 per cent in June.

“August has continued this trend, with occupancy growth ahead of last year’s levels,” he said.

“Looking forward, G8 is very strongly positioned to leverage its scale and reinforce its competitive market positions through a successful balance sheet refinancing, high earnings cash conversion of 99 per cent, the impact of the new child care subsidy, which is expected to stimulate demand through improved affordability, and transformational initiatives.”

G8 completed seven new centres in the first half and is targeting another 12 centres by the end of the year and 16 more next year.

However, the company said it is forecasting conservative growth in occupancy levels for the second half.

“While occupancy growth in July and August is encouraging and demand is forecast to improve as a result of the new childcare subsidy, the combination of supply conditions and regulatory change is unprecedented,” G8 said in an ASX update.

“Notwithstanding continued improvement in quality and capability, we are not forecasting a material improvement in market conditons until mid to late 2019 and are adopting a conservative approach in relation to occupancy growth forecasts for the second half.”