G8 Education issues 69% profit growth guidance, driven by managing educator wages

With the largest workforce of early childhood educators in the country, G8 Education (ASX: GEM) has long struggled to manage their wage bill while delivering maximum profit for shareholders. That looks to have changed in 2023 though, with the Company divesting unprofitable centres and streamlining their workforce, in lieu of occupancy growth. 

The Company announced a slight decline in occupancy rates across its network of childcare centres. However, this was effectively offset by significant improvements in its financial performance for the latter part of CY23, showcasing positive results compared to the prior year.

G8 Education estimates full-year Operating EBIT (after lease interest) of $99 million to $102 million and Operating NPAT of $62 million to $64 million. On the low end, it would be up 69% on the $36.6 million NPAT report in CY22. 

The positive outcome was attributed to the effective management of wages, with a substantial reduction in reliance on labour agencies who provide temporary staff to ensure childcare centres maintain staff-to-child ratios as mandated by regulators. The Company’s strategic focus on operational efficiency and other cost disciplines was highlighted as key contributors to the improved financial figures.

Despite the pandemic having no significant impact on childcare operation in 2023, G8 Education showcased a current year-to-date (YTD) occupancy of 70.5%, which was only marginally lower than the previous year (-0.2%pts year on year) and 2.2%pts below CY19. 

The trading update reflected ongoing efforts to lower customer attrition, increase conversion rates, and enhance Net Promoter Scores (NPS) to close the gap on 2022. The current ‘spot’ occupancy was reported at 74.8%, indicating a 0.4% decline compared to CY22 and a 2.8% decrease from CY19, with consideration given to the variations in December school holiday periods across different states.

G8 Education also provided insights into its portfolio optimisation activities, collaborating with landlords, regulatory departments, and Genius Education Group. The Company disclosed progress in satisfying the conditions under the sale agreement for 31 centres announced in October 2023 where G8 will pay the buyers $26.5 million to take over the 31 divested centres. 

In terms of regulatory updates, G8 Education expressed encouragement regarding the Productivity Commission’s Interim Report released in November 2023. The report contained key recommendations supportive of sector growth. G8 plans to submit a written response to the Productivity Commission in February 2024, providing selected information requested to finalise its report. 

G8 Education continues to engage in the multi-employer bargaining process, advocating for government-funded wage subsidies for the sector which would further reduce their wage bill in a bid to strengthen shareholder returns.