Gold Coast childcare operator says China expansion not worthwhile

GOLD Coast childcare provider G8 Education has dumped plans to expand into the Chinese market.

G8 Education managing director Gary Carroll says the company will not be expanding to China. Photo: Steve Holland

GOLD Coast childcare provider G8 Education has dumped plans to expand into the Chinese market.

The decision comes after Hong Kong-based CFCG Investment Partners International (Australia) (CIPI) failed to complete a deal to purchase a $212.8 million stake in the childcare operator at a premium price of $3.88 per share.

The money was partly to have been used to settle the purchase of 49 childcare centres in Australia at a cost of $200 million over the next two years.

However, after delivering the first tranche of $63.8 million in February, CIPI, this month, failed to stump up with the second payment of $149 million.

Instead, G8 opted to raise $100 million via institutional investors at a discounted $3.10 to $3.20 per share.

It also renegotiated the terms of its arrangement with CIPI for a $31.8 million second tranche.

Earlier this year, G8 managing director Gary Carroll said it had plans to collaborate with CIPI parent company, China First Capital Group, on opportunities in the early education and childcare sector in China following the capital raising.

After addressing yesterday’s annual general meeting in Main Beach, Mr Carroll said it decided to shelve plans for expansion into China because it was not worthwhile.

He said the private childcare sector was worth less than one-fifth of the Australian market.

“So we would have to get a very substantial share of that entire market to make a meaningful difference to our revenue,” he said.

At the AGM, chairman Mark Johnson defended the board’s decision to opt for an institutional offer rather than a share purchase plan open to all shareholders, some of whom expressed concern about the dilution of their stock value.

Mr Johnson said a share purchase plan following a trading halt from May 19 to 24 would have been risky.

“We had to consider where the share price might end up if we did not come out strong with a placement versus a delay with a share purchase plan.”

Hunter Green Institutional Broking analyst Peter Drew said the board made the right decision.

“Otherwise the share price would have been the an easy target for short sellers,” he said.

“If they waited it would have been compromising the underlying strategy of the business.”

G8 is forecasting underlying EBITA in the mid-to-high $170 million range this year.

It is aiming to reach $1 billion in revenue in three years.

The company, which has 490 centres in Australia and 20 in Singapore, saw its 2016 full-year profit fall 9.4 per cent to $80.5 million.

Shares closed up 3c or 0.89 per cent at $3.39.