In a period marked by government initiatives aimed at making child care more affordable for families, nationwide operator G8 Education (ASX: GEM) has reported strong profit growth, benefiting from timely alignment between subsidy policies and the financial realities of child care services. 

For the Half Year ended 30 June 2024, G8 Education, which operates over 400 early learning centres across Australia, reported $481.7 million in revenue which represented a 5.6% increase on the previous corresponding period. Of greater favour to shareholders though, was a 21.8% increase in net profit after tax which was a 21.8% increase. 

While the government’s increased Child Care Subsidy (CCS) was introduced in 2024 to reduce out-of-pocket expenses for families, G8 Education’s concurrent fee increases reflect the nature of for-profit child care operators in Australia where savings intended by the Government, are not necessarily passed on to parents. 

Industry-wide price increases have seen the affordability benefits of the government’s child care reforms quickly eroded, evidenced by G8’s current occupancy rate of 72.7%, down 0.1% on the same week in 2023. Effectively, there have been no increase in use of childcare from families that the Child Care Subsidy reforms aimed to benefit, while G8 Education has delivered impressive returns to shareholders to the tune of 21.8% net profit after tax. 

According to G8’s Managing Director, Pejman Okhovat, the Company’s performance reflects its ability to navigate a challenging economic environment. He highlighted that improved team retention, better family experiences, and a strong focus on operational efficiencies were key drivers of the company’s success.

“We remain committed to creating the foundations for learning for life,” Okhovat said. 

“Our focus on team member capability has resulted in improved family retention and occupancy rates, with 91% of our centres now meeting or exceeding the National Quality Standard.”

In mid-2024, G8 Education increased fees by 2.4%, partially in response to inflationary pressures. This fee increase coincided with the Government’s July 2023 enhancements to the Child Care Subsidy, intended to alleviate financial strain on families.

Concerns over fee increases and subsidy impact

In January 2024, the Australian Competition and Consumer Commission (ACCC) released a detailed report into a review of Government reforms around child care, finding that the benefits of these reforms have been diminished by rapid fee increases from child care providers. 

ACCC Chair Gina Cass-Gottlieb pointed out that market forces alone are not adequately serving all households, particularly in underserved and unserved regions. She suggested that a one-size-fits-all policy approach is failing to meet the diverse needs of Australian families, with low-income households continuing to bear the brunt of child care costs.

The ACCC recommended that the government consider additional regulatory measures to address this issue and improve the affordability and accessibility of child care, especially for lower-income and marginalised communities.

G8 Education’s future outlook

Despite the broader sector challenges, G8 Education remains optimistic about its future performance. The Company has maintained a disciplined focus on team engagement, family experiences, and operational execution. While occupancy rates have softened slightly in the second quarter of 2024 due to lower inquiries, G8 is focusing on maintaining high family retention and improving conversion rates.

The company has also declared a fully franked interim dividend of 2.0 cents per share, reflecting an 81% payout of its half-year NPAT. Furthermore, G8 has announced plans for an on-market buy-back of up to 5% of its issued capital, part of a broader capital management strategy aimed at optimising shareholder returns.