As a new CEO, there’s usually a lot on the line—it’s probably why you’re brought in in the first place. This was a time to prove his merit for early education and care provider G8 Education’s (ASX: GEM) CEO Pejman Okhovat. And so he did with a $40 million on-market buyback, wherein the Company repurchased 37.9 million shares amounting to, essentially, all of its profit.
It infused confidence in investors while also making a case for G8’s new leadership.
That said, the Company had a less financially stable year otherwise. G8 has over 400 centres across Australia, but in 2022, the core occupancy increased only ever so slightly to 71% vs 70.9% in CY21. The occupancy was impacted in H1 by COVID-19 and floods but recovered strongly in H2.
Its operating EBIT increased slightly to $80.3 million from $80.1 million, driven by higher revenues and disciplined cost management. The Company undertook cost-cutting measures, with $14 million in costs removed to streamline the business and offset inflationary pressures. The costs were primarily taken from support office functions, allowing resources to be channelled into the central network.
It also shut 16 centres and opened six new ones in attractive locations.
In 2022, G8’s net profit declined to $36.6 million (vs $45.7 million in CY21), comprising a net non-trading expense of $9.1 million relating to SaaS, restructuring costs and non-operating gains/losses. Its debt increased significantly from $22 million in 2021 to $90 million last year.
Newly-appointed G8 Chief Executive Officer and Managing Director Okhovat is staying optimistic, though. He said, “In my first seven weeks at G8, it has been an absolute pleasure to tour our centres, meet our team and see first-hand their unwavering commitment to delivering on our purpose, which is creating the foundations for learning for life.”
G8’s revenue grew 4.0% to $901.3 million from $866.3 million in 2021 as fees and occupancy increased. However, like most of Australia, the Company faced labour shortages last year. To address that, it has devised a “multi-faceted response” to attract and retain a quality team. It has also strengthened its remuneration, benefits, professional development offerings and workforce planning support, resulting in a 38% reduction in team vacancies.
He added, “After a challenging first half disrupted by COVID-19 and flooding, the second half delivered a strong recovery in occupancy that narrowed the gap to pre-COVID levels and translated into an improved earnings performance. Effective cost controls and wage management were a key focus for the Group, with G8 successfully delivering $14 million in savings through its cost-out program.”
Add to that its $40 million buyback, and it’s evident that the Company is all about driving value for its shareholders. It has declared a CY22 fully franked dividend of 2.0 cents per share, payable in April 2023. This takes the full-year dividend payment to 3.0 cents per share, representing 68% of NPAT, in line with the stated dividend policy of 50-70% of NPAT.
Okhovat concluded, “It was terrific to see G8 end the year with 89% of our centres being rated as ‘exceeding’ or ‘meeting’ the National Quality Standard, a 3% pts increase year on year.”
To ensure it stays in step with—if not ahead of—the inflationary circumstances, G8 has increased its fees by 6%. It expects the upcoming “Cheaper Childcare Bill” scheduled for July 2023 to increase demand and mitigate losses.
Alinda is a Business Reporter for The Sentiment
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