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Childcare provider G8 Education (ASX: GEM) has dug up a $20 million half-year profit from the sandpit as it toys with the idea of a market buy-back, amidst improved occupancy and ongoing divestments from underperforming centres.
The Gold Coast-headquartered group, which operates around 430 centres nationwide and supports the education of around 45,000 children, lifted net profit after tax (NPAT) by 33.6 per cent in the June half while revenue was up 5.6 per cent at $481.7 million.
The result was not impacted by a class action settlement with shareholders earlier this year, with the group clarifying at the time that the $46.5 million in payments would be covered by available indemnity from G8's insurers and existing provisions.
G8 notes there was a positive start to occupancy at the start of the year, but over the period it only rose slightly to 68.2 per cent.
In a bid to preserve this level, the company has been heavily focused on staff retention and keeping its quality standards high with 91 per cent of its centres now rated as "exceeding" or "meeting" the National Quality Standard for the sector.
However, cost-of-living factors continue to influence families and have tempered occupancy expectations for the year ahead. Sector enquiries have reportedly been down year-on-year since the start of July, but G8 has sought to offset this by bringing its family call centre in-house, which has boosted conversions and improved family retention.
G8 Education's managing director and chief executive officer Pejman Okhovat is encouraged by the Federal Government's recent announcement to fund wage increases for early childhood educators, and praises the group's progress in a challenging environment.
"Our families and our team members are at the heart of everything we do and, underpinned by our purpose of ‘creating the foundations for learning for life’, this has guided our strategic progress during the period," says Okhovat.
"A key strategic focus for the group has been building team member capability which has resulted in improved team, family and occupancy results, all of which have contributed to a positive trend on our balanced scorecard compared with the prior corresponding period.
"Our team’s strategic cost management and conservative balance sheet approach coupled with achieving operational efficiencies and positive occupancy results have contributed to the Group’s solid CY24 H1 financial performance."
Okhovat says network optimisation to improve performance is now well progressed with the completed divestment of 15 centres and three centres surrendered during the half-year.
"We are also pleased to report the opening of two new centres during the half that we are confident have the underlying fundamentals to perform," he says.
Since the end of June the company has divested a further three centres and exited another, totalling 22 in the year to date.
"Against the macro-economic environment, lower enquiries, consistent with the broader sector, have resulted in occupancy growth softening in Q2," the CEO adds.
"This demands that we maintain our disciplined focus on our team engagement position, improve our family experience including our enrolments and transition, continue to maintain capital and cost disciplines and implement our ‘fit core' strategic plan initiatives leading into 2025."
The group anticipates capital expenditure of $40-45 million for the calendar year, and with net debt of $90 million it is "maintaining a conservative leverage position to support the commencement of an on market buy-back" of up to 5 per cent.
GEM shares were down 13.17 per cent at $1.22 when trading opened this morning.
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