Company Interview / G8 Education toys with buyback

Key Points:

G8 Education (ASX: GEM) reports first-half profit increase and declares interim dividend gain of 33% CEO Okhovat highlights the company's efficient management and commitment to strong cost discipline G8 education expresses optimism about the government's support for the childcare sector including a proposed wage increase for educators.

Pejman Okhovat, CEO of G8 Education, shares his insights on the company's financial results and future plans. Okhovat recounts that G8 Education saw a 34% increase in first-half profit on a revenue rise of 5.5%. The company also declared a fully franked interim dividend of $0.02 per share, which represents a 33% gain. Okhovat acknowledges that the second half of the year could prove challenging due to cost of living pressures and predicts lower occupancy expectations. However, he confidently communicates the company's commitment to maintaining a strong cost discipline up to 2025.

While discussing the company's recent performance, Okhovat expresses satisfaction with the results obtained under difficult circumstances. He notes that despite a reduction in enquiries, the company has managed effectively to maintain growth and control costs. G8 Education plans to continue this cost management into 2025 and beyond. Okhovat is also pleased to announce an increase in dividends and earnings per share as well as a 5% share buyback.

Okhovat also discusses the federal government's support for the childcare sector, expressing optimism about the multi-employer bargaining process with other providers and unions. He expresses gratitude for the proposed 15% wage increase for early childhood educators over the next two years. He sees this as a catalyst to attract new people into the sector and encourages those who have left to return. Pejman Okhovat, ultimately, gives a positive outlook for G8, noting his commitment to maintaining dividends and a conservative balance sheet.

Full unedited transcript below:

0:11

Well. G8 education has reported a 34% jump in first half profit to $20 million revenue rising 5.5% to $480 million. G8 declaring a fully franked interim dividend of $0.02 per share, which is a gain of 33%. G8 has also flagged that it expects a more challenging second half of the year due to continued cost of living pressures, leading to lower occupancy expectation. The CEO saying the company will maintain a strong cost discipline leading into 2025. To tackle this and let's get straight to the CEO payment. Ocuvite joins me now. Great to have you with us. So just talk us through, I guess, your numbers and the fact that you are starting to see a bit of a challenging second half.

0:55

Oh, thank you. And hi to all your, uh, your audience here. Yeah. Look, we're pretty pleased with our half won performance. You know, in the current climate. Uh, you know, you've got to bear in mind Australia has come from last year to this year on a high inflation coming to to 24. Cost of living pressures. Interest rates have been dominating the headlines here. With that backdrop, we have definitely across the whole sector. Uh, there's been a lowering of the enquiries from the families as a discretionary spend challenges. But within that, uh, tough, tough environment, you know, we we've definitely done a great job. We had a really great start into what we call the endorsement and transition coming into January, February of this year, which helped our occupancy to grow. Um, and yes, we have seen a softening in those enquiries coming into that May June-July period. We we don't know exactly what occupancy and enquiries will go.

1:55

Uh, what we just recognise the fact that it is a bit tougher out there. Back to our results. You know, we are incredibly pleased as you showed with your

2:04

on your screen that, you know, just over 5% revenue growth, uh, operating uh, Ebit being uh, over 20% and our statutory impact being over 33% just shows how more efficiently and effectively we're able to run the business, control our costs, uh, and making sure that we, you know, we're setting ourselves up for success, going to, uh, to 25, the other really to other pleasing things that we've shared with the market today is an increase of, uh, the,

2:39

uh, dividend and an earnings per share, of course, going up by 33% to and more importantly, uh, the, the confidence that we have, uh, and a great, uh, balance sheet that we've also got allows us to do another 5% share buyback on the market, too. Yeah. Very interesting about that share buyback. But I wanted to ask as well with regards to your profit. Where does the class action settlement fit in? Was that reflected?

3:10

Yeah, it was all. It was all last year. It was all done. Okay. So not reflected in this year. So you had $46.5 million in payments in terms of, I guess what you're saying about cost of living factors and fewer inquiries for the second half. What are you doing in terms of some of that cost discipline?

3:29

A lot of those cost disciplines are actually, you know, one thing we have done certainly over the last 12 months is our support office costs. In terms of our headcount, we've actually maintained that flat and actually slightly lower about inflationary costs. We are managing that really well, certainly in terms of our our expenditures. We've had a number of procurement strategies and big contracts there have been renewed. So we are working really hard in making sure the value that we get from our cost lines, uh, is significantly, uh, focus area and getting better, certainly from our

4:06

people or employment costs. We're doing a lot better at two different aspects one, we rostering our team a much better and ability to make sure that we got the right people in the right place. And subsequently we've also significantly improved our vacancy rate, our own team member vacancy rate, which is a pretty a significant issue in the sector. And that has allowed us to to reduce our what we call our agency usage, which is an incredibly high cost for us by quite a lot. So we're actually working, uh, on all aspects of our business to make sure that we reduce our costs where possible. In terms of, I guess, what we've seen from the federal government in terms of trying to support the childcare sector as well, how encouraged are you by that and how will that help your business as well?

4:56

Uh, no. Again, a great point. You know, we we are the only large provider that voluntarily has joined whilst in the multi-employer bargaining process, uh, with a small number of other providers and unions. And we've been advocating to the federal government to recognize the critical work that the early childhood educators do in Australia. It has been a low paid sector, and we are really pleased that the government has recognised that and has put on the table a 15% wage increase over the next two years. There is still a lot of detail on that to be worked through, but we are incredibly pleased with the outcome and our little effort into advocating for that. What do I think it means for the sector? It should hopefully work as a catalyst to bring new people into the sector and attract new people. And also, we're hoping that some of the people who left the sector will come back to it. So definitely, from a workforce point of view, this is a really, really good outcome. So a good outcome for staff and

5:56

in terms of retention hopefully there too. What about family retention when it comes to your centres? I note that you're bringing your family call centre in-house. Yeah. Now those um, that was something that we did coming into end of last year, and it's worked incredibly well for us. And some of our data that we've shared with the market is showing, even though that there's a slightly lowering of the enquiries in the sector, we are converting more of our enquiries into what we call enrolment, and our retention of our families are also better than this time last year. The other thing that's also really important to note, this wage increase that the government is, is proposing to fund going into next year not only will help our educators as number one priority here, but it will also help maintain a low level of fees across the sector, which means family affordability will be better and hopefully more families will also be able to join the sector again. Let's talk about shareholder

6:56

return. You have increased your dividend. What sort of, um, foreseeable growth, juicy and dividends for the remainder of the year and moving into full year 25. We will be comfortable that we will deliver on our dividend policy, which is between 50 and 70% of our security impact by end of the year. So in half one is always a little bit different because of the the difference between what we deliver in half one and half two. So, you know, if you look at the pure the numbers 33% increase in that, which is about 81% of the impact for half one. But that will kind of balance itself off. But we're very comfortable that we will be working within our policy and deliver a dividend for full year, between 50 and 70% of our impact. And you mentioned potential buyback as well. What's your debt position like? And I guess what where are you sitting in terms of looking at further maybe acquisitions or growth.

7:54

Our current net debt is 90 million at about 0.5 times, which again is a great place to be. You know, we've been working incredibly hard of on making sure that we have a solid and a very conservative balance sheet that gives us optionality. One of those optionality is, of course, the buyback. Uh, we're currently not considering any major, uh, acquisitions of majors at this point in time. And also payment. I know that you can't control the market. If you look at the last six months, though, shareholders have done quite well, up about 4% year to date. Do you think that you sort of sit fairly compared to your peers, or what do you see as further growth and shareholder value?

8:37

I think our shareholders would say that J&J stock has been, let's call it, probably not as valued as highly as issued. Um, but that's partly due to some of the performances that that G8 has had in the past, where we are genuinely working really hard to change that trajectory. You know, certainly in the last 18 months, we have shown our ability to continue to deliver good, um, good earnings growth for for our shareholders. Uh, and we continue to work hard and that, that gives more confidence back in the stock.