G8 Education: Pandemic threatened sector viability, momentum is back

Childcare group G8 says bookings across its network are almost back to pre-COVID levels, but CBD centres are still doing it tough.

G8 Education is seeing improved childcare bookings.

Childcare operator G8 Education says bookings across its network are almost back to pre-COVID levels, although some of its CBD operations remain sluggish given office workers are still working from home.

The comments, made at G8 Education’s annual meeting, follow a brutal year for the childcare industry that resulted in its business collapsing given city-wide lockdowns and the huge shift to working from home.

The Gold Coast-headquartered G8 last year suspended its dividend and slashed its executive salaries by 20 per cent over six months as part of a broader set of efforts by the company to preserve cash in the face of continued pandemic uncertainty. It also slashed $237m from the value of its operations given the sharp drop in bookings.

But chief executive Gary Carroll said the childcare operator was getting its momentum back.

From this month, G8’s like-for-like occupancy was just above 70 per cent. This is 3.3 per cent below 2019 pre-COVID levels.

While G8 has limited exposure to CBD sites, it still operates eight centres catering to office workers.

“These have been materially impacted by COVID-19 movement restrictions and working-from-home arrangements, with occupancy circa 39 per cent lower than 2019,” Mr Carroll said.

The childcare group posted a $60m profit after tax, excluding non-operating items, down 11 per cent on 2019. G8 told investors it was shelving its interim dividend, but committed to resuming dividend payouts in March next year.

Cashflow generation continued to be positive, with G8 noting it had received $189.6m in the calendar year.

G8 Education managing director Gary Carroll. Picture: Scott Powick

In a presentation on Wednesday, G8 chairman Mark Johnson said director and executive leadership team salaries were cut by 20 per cent over six months as part of a broader set of efforts by the company to preserve cash.

“The impact of COVID-19 on the sector was profound,” Mr Johnson said. “In late March 2020, attendances across the sector were approximately half the level of those experienced in prior years, placing the viability of the sector at risk.”

G8 buttressed its balance sheet during the pandemic, raising $301m in an underwritten institutional and retail entitlement offer in a bid to boost liquidity.

“It was pleasing to see sector occupancy levels recover a large portion of their shortfall in the second half of 2020 and the economy recovering from the lockdown measures that were undertaken earlier in the year,” Mr Johnson said.

The group is also dealing with a major wage underpayment scandal uncovered late last year, identified as part of the imple­mentation of a new rostering platform. Remediation of the under­payment is expected to cost $50-$80m, with costs fully provided for in the 2020 calendar year.

G8 Education said it was seeing occupancy levels in its sites returning to higher levels after a major shortfall last year.

Mr Carroll said the standouts for the business were its 191 regional centres, including 40 improvement program centres, which were tracking at 1.9 per cents above 2019 levels.

He said G8 was well on its way to divest several sites as the group pivoted into new greenfield areas.

“The group has signed agreements for lease for eight new greenfield centres with expected delivery timing and outflows to be updated at the half year as council and building approvals are progressed further,” Mr Carroll said.

“We continue to make good progress on our portfolio optimisation activities. The divestment process for previously impaired centres is on track, with 13 sales or lease surrenders being completed, a further two agreements signed awaiting completion and in-principle agreements reached for another seven centres.”

Originally published as G8 Education: Pandemic threatened sector viability, momentum is back