Chronic workforce shortages and rising costs have hindered G8 Education’s (ASX: GEM) earnings rebound in the first half of calendar 2023, but the childcare centre operator says new government incentives are helping to drive occupancies higher.
Gold Coast-based G8 Education has posted a statutory net profit after tax of $14.99 million for the six months to the end of June, up 76.5 per cent from the same period last year.
The bottom line was supported by a 9.3 per cent increase in revenue to $455.3 million as the company edges closer to more normalised operating conditions.
“After the challenging first half of CY22, which was disrupted by COVID-19 and flooding on the east coast, we were pleased to deliver a modest increase in core occupancy in H1 CY23, which together with higher average fees and disciplined cost management in an inflationary environment, translated into stronger revenue, margins and earnings,” says G8’s CEO Pejman Okhovat.
“The sector-wide workforce shortages remain the biggest issue facing our industry. While they continue to constrain occupancy rates, the impact is not uniform across our portfolio.”
Group occupancy is still 2.1 percentage points below 2019, the last full year ahead of the pandemic. In that year, G8 Education posted a bottom-line profit of $62.6 million from revenue of $922 million.
At the end of June this year, occupancy across G8's portfolio of 443 centres was 67.4 per cent - up 0.6 percentage points from the previous year.
While G8 Education says more than 80 per cent of its centres across Australia recorded an average occupancy of about 80 per cent, the performance of some centres remains constrained due to the 'chronic' sector-wide workforce shortages.
Amid encouraging signs of recovery, G8 Education has reported a varied performance across its portfolio. Momentum is building in NSW and Queensland, but Victoria experienced a mixed performance while ‘more challenging conditions’ were recorded in Western Australia, South Australia and the ACT.
The company says it is making steady progress towards CY19 occupancy levels as 46 per cent of its childcare centres are currently performing above these levels.
“Despite the inflationary pressure on families, overall demand for childcare is improving,” Okhovat says.
“We are already seeing some early positive signs following the government’s changes to the childcare subsidy, with improved affordability translating into a small increase in average bookings per child.
“While the long-term demand fundamentals of our sector remain attractive, our focus in the near-term remains on addressing the workforce shortages by attracting and retaining the team to support seasonal occupancy growth through the crucial CY23 enrolment and transition period.”
G8 Education has taken steps to attract and retain staff. Among the initiatives are higher wages, benefits and study offerings – a process that G8 says involves engagement with the government ‘to get the settings right’.
Staff retention levels have improved marginally to 70.2 per cent, while job vacancies are down 24 per cent compared to this time last year. G8 Education says this compares with an average increase in vacancies across the sector of 4 per cent.
The group continues to target underperforming childcare centres, offloading five in the first half and three more since June 30. G8 has now exited 25 of its 52 impaired centres.
The company opened one greenfield centre in the first half of this year and plans to open two more in the current half.
G8 Education is paying an interim dividend of 1.5c per share.
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