If childcare occupancy rate is an indicator that the pandemic has come to an end, then the recent announcement from G8 Education (ASX: GEM) indicates that we are one step closer. The childcare education provider reported a core occupancy rate of 77.3%, which is a 1% improvement from CY21. This brings the company closer to narrowing the gap of the pre-COVID rate at 78.6% occupancy. The rise in occupancy was mainly driven by increased days per child.
The predicted rise of occupancy rate is also driven by the Federal government’s ‘Cheaper Child Care Bill’ that passed both houses in November 2022, in which families will have access to cheaper childcare in 2023. One of the purposes of the Bill is to improve affordability, which is expected to elevate childcare demand by increasing the maximum Child Care Subsidy (CCS) percentage available to families.
From July next year, families earning up to $80,000 will receive a 90% childcare subsidy and this will decrease by 1% for every additional $5,000 of income earned and stop at a threshold of $350,000. There are also more additional childcare perks introduced to second child and Indigenous families.
Though G8 is quite optimistic with its growth strategy, it is impossible to increase occupancy and conversion rate without an adequate number of staff. Here’s where the Company bumps into a roadblock. A portion of the network is constrained by team member availability, and reliance on staffing agencies is inevitable. This however, resulted in an 8% rise in wage rate despite the Company’s efforts to apply wage efficiency strategies for in-house staff.
To respond to the ongoing labour shortage challenges, sector and unions are commencing multi-employer bargaining discussions to have the Government fund any relevant wage increase. Despite lobbying individually and via peak bodies, there has been no change as yet to priority visas for the sector.
Due to the limited number of staff (even lacking), it only makes sense for G8 Education to do all they can to retain existing talent. First of all, G8’s approach to address workforce shortages is multi-faceted, including:
- Centre Managers (CMs) – ensure managers are well supported by additional ”Field Support” roles and continue to award them with above standard remuneration.
- Early Childhood Teachers (ECTs) – continue to improve competitiveness with additional paid leave, dedicated Teacher Registration resources, and above award remuneration.
- Educators – focus on increased flexibility leveraging the newly implemented HRIS system, introducing more development opportunities and service recognition, and continued investment in expanding the G8 team via the Study Pathways Program with approximately 1,000 enrolments in the Certificate III and Diploma programs and 450 enrolments in Bachelor study programs.
As a result, the Company reported that team retention is holding reasonably steady and outperforming the sector, with sector vacancies up more than 30% across CMs and ECTs over 7 months from February to September 2022.
However, it is important to bear in mind that the post-COVID childcare dynamic has changed due to changed workplace settings, and this will be unlikely to change drastically to pre-pandemic levels anytime soon.
More parents are now able to work from home and provide care in lieu of childcare, while many others have concluded the cost of childcare outweighs their earnings and chose to be full time carers. This is reflected in the Company’s operating EBIT for the 11 months to 30 November 2022 of $71 million, down 7% on the previous year attributed to the higher labour expenses. It further highlighted G8’s inability to scale their services due to staff shortages that limit enrollment capacity. Similarly, operating NPAT is down 5% to $41m as opposed to $43m in the previous year.
Rise in occupancy rate does not directly translate into an increased number of children, but is rather dependent on the number of available staff in the centres to meet the industry’s regulatory requirements. Decline in profit shows that the number of children enrolled is not at its peak yet.
Clara is a Business Reporter for The Sentiment.
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