Charging an average of $131 per day across their 448 childcare clinics, parents are voting with their feet away from centres run by early education company G8 Education (ASX: GEM) which has reported a 63% decline in profits for the Half Year.
For the six months ended 30 June 2022, G8 Education reported a 1.1% drop in operating revenue to $416.7 million but the impacts of declining occupancy were much more damaging at their bottom line where net profit after tax fell 63.8% to $8.5 million, down from the $23.5 million at the same time last year.
While core occupancy of 67.1% was only marginally down on the 68% from last year, the operator cited the absence of Covid subsidies and impacts of floods as the reason for the drop in profit.
According to their JobKeeper notice though, the Company did not receive any JobKeeper payments in FY21, after claiming $103.2m in FY20.
“Financial performance for the half was a tale of two quarters, with the first quarter being significantly impacted by COVID-19 and floods before occupancy and earnings recovered strongly in the second quarter,” said outgoing G8 Education Managing Director, Gary Carroll.
“Cost reduction program implemented in Q2 with $2.8 million in costs removed in H1 and on track to deliver targeted $13 million – $15 million cost reduction to mitigate inflationary impacts by end of H2.
“Looking forward, the long-term demand fundamentals for the sector are positive, including enhanced subsidy arrangements that will improve affordability for families in 2023.”
The Company has released its strategy pathway towards achieving 80% occupancy which they hope will progress towards realisation once their Centre Improvement Program is completed. At present, 361 centres have completed the transition with those centres delivering EBIT growth of 1.2% above the wider network.
The Improvement Program has a strong focus on increasing the responsibilities and supervision of Centre Managers and Area Managers in a streamlined manner that will reduce operational expenses by centralising support services. Other initiatives are aiming to reduce staff turnover which is rampant across the childcare industry due to low wages, poor working conditions and reduced migration during the pandemic where migrants often enter the Australian workforce for the first time via childcare jobs.
Looking ahead to the remainder of CY2022, G8 Education is looking forward to additional Government support from the Child Care Subsidy with the Federal Labour Government having made an election promise to increase childcare subsidies by $5.4 million, and now in power.
Rival childcare operator Mayfield Childcare (ASX: MFD) reported similar occupancy over the same period but delivered $3.5m in net profits from $32.4m revenue.
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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