G8 Education looking for expansion opportunities as coronavirus hits industry

As far back as February, G8 Education was warning about potential impacts to its business from COVID-19.

Current booked occupancy across the group was 65 per cent, while actual physical attendance was much lower at 53 per cent, despite many parents returning to the workforce. Photo: iStock

ASX-listed early childhood network G8 Education said the coronavirus lockdown has slammed the business, but it has large cash reserves to take advantage of opportunities that might result.

Taking advantage of the government's initial relief for the childcare sector, where all parent’s costs were paid by the Commonwealth, G8 Education raised $301m through an underwritten institutional and retail entitlement offer.

Speaking at their 2020 annual general meeting, G8 Education chairman Mark Johnson said the capital raising came at the same time as “the difficult but prudent decision” to delay payment of the final dividend until October 2020.

“This capital raising provides the group with the liquidity and financial flexibility to withstand a prolonged period of economic downturn as well as allowing G8 to pursue any sensible opportunities that may emerge from this challenging period,” he said.

G8 has its sights set on buying new centres, acquiring 15 in 2019, divesting 25 and closing 16 in Australia.

The education network refurbished 70 centres in 2019 at a total cost of $21m.

This left the education provider with 475 centres in Australia and 17 in Singapore by 31 December 2019.

More than 40,000 places are available through the centres, where occupancy rates grew by 1 per cent last year.

For the first time in four years, G8 is in positive occupancy growth, but this has been offset by investment in both greenfield centres and improving centre quality.

As far back as February, G8 was warning about potential impacts to its business from COVID-19.

Mr Johnson said the impact had “accelerated rapidly over the succeeding weeks” due to government intervention to slow the rate of the virus.

“By late March, attendances across the sector were approximately half the level of those experienced in prior years, placing the viability of the sector at risk,” he said.

Current booked occupancy across the group was 65 per cent, while actual physical attendance was much lower at 53 per cent, despite many parents returning to the workforce.

However, occupancy growth was offset by a 3 per cent increase in organic earnings before interest and tax to $165.7m.

On an underlying basis, net profit after tax in FY2019 was $76.4m, down 4 per cent on 2018.

G8 chief executive and managing director Gary Carroll said in a bid to defer non-critical project costs and reduce expenditure for 2020, costs would be slashed from $40m to $25m.

“We have also identified cost savings that we can deliver in the 2020 year through the optimisation of wages, removal of non-essential spend and by engaging with our landlords to reduce rental costs during the peak of the pandemic,” he said.