The G8 Education Ltd (ASX: GEM) annual report for the calendar year ended 2020 (CY20) paints a challenging year ahead. In late morning trade, the G8 Education share price has tumbled more than 4%.
G8 Education is the largest listed for-profit childcare provider. It owns and operates 472 centres in Australia with notable brands like Community Kids and World of Learning.
In October 2020, G8 Education divested its Singapore business operations, which included 17 owned childcare centres.
COVID-induced decline supported by government assistance
2020 was a tough year for everyone, especially those who had kids. Parents were forced to juggle work and kids due to the COVID lockdown restrictions early in last year. This made it tough for G8 Education as well.
G8 Education experienced a significant fall in occupancy rates across its centres. As a result, the company recorded a substantial decline of 14.4% in revenue compared to the last calendar year (CY19).
The company recorded a net loss after tax of ($187 million) in CY20 compared to a net profit after tax of $52 million in CY19. This was a result of a $275 million impairment due to the revaluation of its assets in the wake of the pandemic.
2021 to be a recovery year
It appears G8 Education is narrowing the gap of occupancy rates relative to CY19 as December was just 1.5% below CY19.
However, G8 Education’s management team expects this year to be a recovery year due to the absence of government assistance. In addition, the company expects the pandemic to continue to negatively impact occupancy rates.
Understandably, G8 Education’s CEO and Managing Director, Gary Carroll highlighted the importance of careful financial management in trying times, saying:
“This year the Group’s absolute priority has been to ensure the health, safety and wellbeing of our team members, children and families as we navigate the ongoing impact of COVID‐19. In addition, we have been firmly focused on safeguarding the business through prudent financial management and cash preservation and by drawing on the Commonwealth Government’s welcome support for the sector during the pandemic.”
My thoughts
I think the continual rollout of COVID vaccines and the containment of breakouts will slowly alleviate pre-existing fears of using childcare centres.
Childcare centres play a pivotal role in the development of a child and parents will always provide what’s best for their child. So, over the long-term, I think occupancy rates will return to normal levels.
Investors should be mindful that operating childcare centres requires significant employee and lease expenses. Also, keep a close eye on one of G8 Education’s listed competitors, Think Childcare Ltd (ASX: TNK).
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