G8 Education shares dive on 20% profit dip
G8 Education shares have fallen by as much as 18 per cent on a first-half result weighed down by higher costs and a mixed performance at its recently acquired childcare centres.
The company says profit for the six months to June 30 fell by 20 per cent, or $4.8 million, to $19 million following the adoption of a new leases accounting standard in January, which contributed to an 11.2 per cent increase in total costs to $403 million.
G8 operates a network of more than 500 centres across 24 brands in Australia and Singapore but reported a mixed performance at its more recent acquisitions, where licensing delays are set to deliver a worse-than expected second-half earnings hit.
Incremental earnings and occupancy improved at the company's 2017 centre acquisitions but four of its 11 centres opened in 2018 are taking longer to ramp up occupancy.
The 12 childcare centres the company acquired in 2019 were an overall $3 million first-half earnings drag, with three larger format facilities opened in May and June not meeting expectations.
Licensing also delayed the opening of seven new centres until the second half, with 2019 acquisitions expected to deliver a $3 million earnings drain in the second half following previous guidance of a $1 million earnings contribution.
"While our acquisition performance was mixed, we are confident that these centres are on the right trajectory," the company told the ASX on Monday.
The group closed eight centres during the half and said a further five have been identified for closure at lease expiry in the second half of the 2019 year.
G8 said it was on track to complete the refurbishment of 80 centres in 2019 but would continue to evaluate opportunities to rationalise underperforming facilities.
Shares in the company were still 15.7 per cent lower at $2.31 by 1040 AEST on Monday, having slumped to a 10-month low of $2.20 in early trade.
G8's total revenue for the period grew 8.6 per cent to $430.8 million as average like-for-like occupancy rates increased by 1.5 per cent.
G8 said the overall occupancy lift was driven by its new customer engagement centre and improved affordability for parents via the federal government's Child Care Subsidy.
Underlying earnings of $51.6 million for the half was in line with consensus forecasts and 7.0 per cent above the prior corresponding period.
The company has lifted its interim dividend by 0.25 cents to a fully franked 4.75 cents per share.
"As previously outlined, G8's network modelling suggests there is capacity to continue to grow the centre network without cannibalisation," G8 said.
"We maintain a rigorous approach to portfolio analysis as part of our commitment to providing the best-quality experience for our families."
G8 FIIRST-HALF PROFIT SLIDES, OCCUPANCY RATES CLIMB
* Net profit down 20pct to $19m
* Revenue up 8.6pct to $430.8m
* Interim dividend up 0.25 cents, to a fully franked 4.75 cents per share.
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