Shares in childhood learning provider G8 Education (ASX: GEM) have plunged this morning after the company announced a significant drop in profit guidance and slated the sale of 25 centres in Western Australia for $6.4 million.
In a trading outlook today the Gold Coast-headquartered group noted occupancy growth had been slower than expected, leading to a $7 million revenue shortfall that would have a "significant flow-on effect" for profits.
In August the company had forecast EBIT of $140-145 million for the calendar year, but that guidance has been cut to $131-134 million.
The news sent GEM shares plummeting by more than 16 per cent to $2.17 by 11am AEDT.
More than 60 per cent of G8's 500 centres increased their occupancy rates over the course of the year, but the group has decided to remove some dead weight in a bid to lift performance.
G8 Education has reached a deal to sell 25 centres Sparrow Early Learning, an existing provider of early childhood education through its network of 34 long day care centres in Queensland and Victoria.
The centres were identified as part of an ongoing portfolio review and the transaction sum represents an EBIT multiple of around 4.1x.
Following the expected completion of the sale in December, G8 forecasts an overall portfolio occupancy uplift of more than 1 per cent along with a more than 10 per cent occupancy rise for its Western Australian business.
The company expects capital expenditure savings as a result of the deal with an annual cost reduction of $330,000.
Funds will initially be used to repay debt with a view to ultimately recycling proceeds into growth opportunities as they arise. G8 does not expect the sale to have a material impact on the its statutory results.
"The sale of these centres is consistent with our strategy of regularly reviewing our portfolio to optimise the performance of the Group's centre network," says managing director Gary Carroll.
"The divestment will enable G8 to increase its focus on the execution of our strategic program and the existing Greenfield pipeline.
"We will work with Sparrow Early Learning Pty Ltd to ensure there is a smooth transition for families, children and team members."Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
Business News Australia
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support