G8 Education Half-Year FY24 Earnings Call Highlights

G8 Education (ASX: GEM) shares tumbled 7.5% on Thursday after its first-half FY24 result missed market expectations, largely driven by cost-of-living pressures impacting the childcare sector.

1H24 Earnings Summary

• Revenue up 5.5% to $480.4m

• EBIT up 18.9% to $55.4m

• Net profit after tax up 33.6% to $20.0m

• Group occupancy up 0.8 percentage points to 68.2%

• Fully franked interim dividend of 2 cents per share (81% payout ratio)

• Declared on-market buy-back of up to 5% of issued capital

• Outlook: Occupancy rates at 82.7%, down 0.1% on the prior period

Macquarie said that the 1H24 net profit was 2-3% below consensus expectations as occupancy rates slowed towards the end of the first half.

"Network support costs were also slightly above our expectations, partially offset by increased subsidies. We believe cost- efficiency measures and reduced reliance on staff agencies will offset any further slowdown in occupancy rates," the analysts said in a note on Friday.

Earnings Call Highlights

The below topics have all been answered by CEO Pejman Okhovat and CFO Sharyn Williams.

FY24 performance: "The group's financial results reflect solid earnings growth compared to the prior comparative period, driven by higher revenues and margins. This reflects an improved enrollment and transition period, a focus on achieving value from our cost base and our improved portfolio quality, as we exited some underperforming centers."

Occupancy: "Occupancy continues to be supported by the positive trend in increased frequency, though we have seen some flattening of this trend from May onwards due to cost of living and affordability challenges."

Wage increase adjustments: "We are proud that this has resulted in the government supporting a funded 15% pay increase over two years for ECEC employees."

Agency costs: "We are continuing to alleviate the impact within our network, as evidenced by our lowering of vacancy rates and further decreasing agency usage ... We have reduced the use of high-cost agency fees, down to 0.3% from 2.2% in pcp."

Inquiry trends: "Slowing in the momentum with the enquiries lowered across the sector and frequency flattening ... There has been some flattening in growth, likely a result of increasing affordability challenges impacting discretionary bookings."

Inflation impact:"Affordability challenges impacting discretionary bookings ... A fee increase of 2.4% was implemented at mid-year, mitigating inflationary impacts whilst ensuring we balance family affordability."

Sector conditions: "Sector conditions are anticipated to be more challenging with themes such as sector enquiries remaining lower than pcp, net supply growth steady, and cost of living pressures continuing to be a key factor."

Underperforming sectors: "During the half, we exited 18 underperforming centers and opened two new locations."

Strategic initiatives: "We continue to simplify work routines, introduce digital tools for our center managers, and improve workforce planning, delivering better team utilization and reducing agency reliance."

Analyst Q&A Highlights

Insight into occupancy growth of 0.8%: "Our occupancy is our occupancy and I'm not going to really break that detail out."

On agency costs: "They usually at a headline rate potentially say double of an internal rate."

Inquiry trends: "Do we anticipate the inquiries to be a bit lower than last year? Potentially ... We remain cautious."

This article was generated with the support of AI and reviewed by an editor.