A secret war is taking place across Australia’s childcare industry and despite their struggles on the battlefield, G8 Education (ASX: GEM) is doubling down by appointing a new CEO who once again, has zero experience in early childhood education.
Since the onset of COVID, the pandemic has wreaked havoc on Australia’s childcare industry through a combination of international border closures, staff absenteeism and a drop in consumer demand. All of this has resulted in a critical labour shortage as the industry fails to attract new talent while the high-stress environments ultimately see staff leave the industry in search of better pay and working conditions.
As much as the Company just wants outsiders to see happy children laughing and playing all day, staff shortages and low occupancy rates are ultimately passed on to the customers in the form of quality declines in education, food and staff experience.
Having served at G8 for six years which saw the national operator increase its network which is now shrinking (currently 450 locations), Gary Carroll hands over leadership of the Company to current Big W Managing Director, Pejman Okhovat.
“Pejman is an accomplished leader and a veteran of the retail and consumer space and has significant experience driving business performance, delivering exceptional consumer outcomes and experiences and leading teams to achieve excellent results,” said G8 Chairman, David Foster.
Like his predecessor, Okhovat has no experience working in early childhood education but has more than 27 years of experience in retail, one of the few industries that requires less formal education than early childhood education.
Where poor product quality in his current workplace Big W may result in a customer getting cranky and asking for a refund, there is no such refund available in early childhood education when a lack of quality can leave children years behind their cohort if delivered by poor staff. The long-term effect can be startling as a child’s education lags, with a snowballing effect through to primary and then secondary school.
Okhovat, however, will be very well versed in cost-cutting measures which Big W has excelled in to emerge as one of the most popular discount retailers, ticking the box asked of G8 which in April was proud of the $15 million in planned cost cuts. After all, what parent would mind if their child just ate plain rice and pasta 5 days a week in lieu of a balanced diet?
It seems like those cost-cutting measures haven’t made it through to the higher end however, with Okhovat signing on at a $950k base salary with a $170k signing bonus. It’s substantially more than Carroll’s $840k. Okhovat is also able to earn up to $2.6 million, compared to Carroll’s potential $2.1 million in earnings if G8 Education meets its financial incentive triggers.
Ongoing labour struggles continue to be the overarching theme in the childcare space as listed rivals Mayfield Childcare (ASX: MFD) and Evolve Education (ASX: EVO) have also cited.
This should come as no surprise to industry veterans given the low wages offered by most operators in an industry where employment has, prior to the pandemic, been fueled by international students and workers with migrant backgrounds.
According to Fair Work, an 18-year old that has no formal education will earn a minimum wage of 20.38 per hour. That includes dealing with the most precious of goods and super-protective customers that come with the job. It’s not quite the same as a Big W employee dropping a box of mugs…
With a big task ahead of him, Okhovat’s appointment was accompanied by a trading update to shareholders where G8 Education reported its core occupancy for the 4 weeks ended 17 July 2022 to be 72%, just marginally behind the 73% for the same pre-COVID period.
That occupancy figure has been salvaged by G8 measures to shut down centres over the past two years attributed to a combination of underperformance and staffing problems.
G8 Education is currently undertaking its Improvement Program to reduce operating expenses by $15 million, expected to be completed by early 2023. The program is being rolled out across each centre in the network which involves the re-engineering of learning environments. G8 is aiming for these changes to increase team capability and engagement and reduce team turnover while the Company continues divesting its impaired centres.
For the 12 months ended 31 December 2021, G8 Education had total occupancy of 70.9% which generated $866.3m revenue and net profit after tax of $45.7m.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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