G8 Education Limited · ASX:GEM
G8 Education — Investor Presentation (August 2019)
34 slides from G8 Education's investor presentation, Aug 26, 2019
Slide 1: 2019 Half Year Results Investor Presentation
2019 HALF YEAR RESULTS Investor Presentation 26 August 2019 1
Slide 2: Disclaimer
DISCLAIMER The material in this presentation has been prepared by G8 Education Limited (G8) and is general background information about G8’s activities current as at the date of this presentation. The presentation does not purport to be complete and should be read in conjunction with G8’s other peri
Slide 3: Agenda
AGENDA G8 EDUCATION LIMITED ASX: GEM OVERVIEW & CEO COMMENTARY Gary Carroll GROUP FINANCIALS Sharyn Williams STRATEGY UPDATE Gary Carroll CURRENT TRADING & OUTLOOK Gary Carroll Q&A Gary Carroll & Sharyn Williams APPENDIX 3
Slide 4: Overview & CEO Commentary
OVERVIEW & CEO COMMENTARY Gary Carroll
Slide 5: CY19 H1 Statutory Result
CY19 H1 STATUTORY RESULT $M CY19 H1 CY18 H1 % change • The group adopted the new leases accounting standard, AASB 16, on 1 January 2019. Revenue 429.9 393.1 9.4% • This standard has had a material impact on G8’s Other income 1.0 3.5 (71.7%) Total revenue 430.9 396.6 8.6% statutory numbers (refer to
Slide 6: CY19 H1 Snapshot
CY19 H1 SNAPSHOT H1 Financial Results • Revenue increased by 9% driven by increased occupancy, fee growth and CY19 H1 AASB 16 CY19 H1 CY18 H1 acquisitions $M Statutory Adjustment Proforma Statutory % change • Underlying EBIT* of $51.6 million, in line with half year consensus, 7% above prior corresp
Slide 7: Sector Dynamics
SECTOR DYNAMICS Resilient with good long term fundamentals BENEFITS AND DEMAND SHIFT HIGHLY FRAGMENTED SUPPLY IMPROVED FAVOURS QUALITY WITH STRUCTURAL GROWTH AFFORDABILITY TO AND SCALE GROWTH DRIVERS MODERATING BOLSTER OCCUPANCY • Extensive research shows that • Occupancy at high appeal, • Top 5 pla
Slide 8: Supply / Demand Dynamics
SUPPLY / DEMAND DYNAMICS Signs of moderating supply • While supply growth increased Q2 on Q1 2019 (driven by a lower number of closures), CY19 H1 is down on the prior National Long Day Care (LDC) Net Supply Growth and LDC Centre Closures period • In CY19 H1, 89 G8 centres faced new supply within a 2
Slide 9: Occupancy
OCCUPANCY* • H1 occupancy of 71.3%, 1.5%pts above prior year Half-Yearly Like-for-Like Occupancy (%) • The government subsidy has improved affordability 90% 78.7%1 76.8%1 80% 69.8%1 71.3% • Supply defence initiatives are showing positive early 70% 60% signs 50% 40% • The Customer Engagement Centre i
Slide 10: Occupancy – Recent Trends
OCCUPANCY – RECENT TRENDS Steady improvement on prior year Monthly Like-for-Like Occupancy (%) Occupancy Improvement from February* base (%) 14% 2017 2018 2019 2017 2018 2019 12% * A February 85% base is more 10% reflective of occupancy improvement 8% given it removes the 6% 75% ‘back to school’ tim
Slide 11: Wage Performance
WAGE PERFORMANCE Efficiency performance continuing Wage hours per booking by fortnight • CY19 H1 wage performance delivered an expected improvement on prior period (where 2017 2018 2019 wage costs were impacted by regulatory change to staff ratios) as efficiencies were realised • Continued wage effi
Slide 12: Operating Performance
OPERATING PERFORMANCE $M CY19 H1 1 CY18 H1 2 % change Total Organic Revenue 374.0 352.9 6.0% • Organic centre revenue was 6% higher than the prior Wages (210.9) (204.5) 3.1% corresponding period driven by occupancy and fee Rent (46.4) (44.7) 3.8% Depreciation (7.9) (6.9) 15.1% increases partly offse
Slide 13: CY17 Cohort Performance
CY17 COHORT PERFORMANCE Occupancy on the right trajectory CY17 Greenfields Cohort – Weekly Occupancy • CY17 acquisitions delivered $2.5m in incremental EBIT ($1.5m greenfield and $1.0m brownfield) 90% • CY17 greenfields are nearing occupancy maturity 80% o Focus for these centres is now on achieving
Slide 14: CY18 Cohort Performance
CY18 COHORT PERFORMANCE Occupancy heading in the right direction CY18 Greenfields Cohort – Weekly Occupancy • While as a cohort the ramp has been slower than anticipated, occupancy for the greenfield centres 80.0% continues to build on the solid start to CY19 70.0% • 7 of the 11 centres opened in CY
Slide 15: CY19 Cohort Performance
CY19 COHORT PERFORMANCE Impacted by delays • CY19 acquisitions were a $3m drag on earnings in H1, • The net impact of these issues is that the deficit from consistent with guidance given at the AGM CY19 centres is now expected to be $3m in CY19 H2 vs. previous guidance of a $1m EBIT contribution in
Slide 16: Network Growth Strategy
NETWORK GROWTH STRATEGY Active portfolio management Centre Portfolio • G8’s committed greenfield pipeline remains its primary network growth driver in the short term: 530 o 5 greenfield centres completed in CY19 H1 Singapore 520 Australia o 2 brownfield centres acquired in CY19 H1 17 • 12 centres ar
Slide 17: Group Financials
GROUP FINANCIALS Sharyn Williams
Slide 18: Cash Conversion
CASH CONVERSION Consistent and strong EBITDA to Cash Flow Conversion – Lease Adjusted CY19 H1 CY18 H1 • Cash flow generation remained strong in CY19 H1 $M Proforma Statutory with a continued focus on efficient working capital management Operating cash flow 31.8 30.3 + Net interest 14.6 10.9 + Tax pa
Slide 19: Cash Flow
CASH FLOW CY19 H1 AASB 16 CY19 H1 CY18 H1 • Lease adjusted proforma net cashflows from operating $M Statutory Adjustments Proforma Statutory activities of $32m, an increase of 5% on prior corresponding Cash flows from Operating Activities period, primarily driven by proforma (pre-AASB16) EBITDA Rece
Slide 20: Capex Commitments
CAPEX COMMITMENTS Supported by robust and consistent cashflow Centre CY19 Capex = $7 million • 1H19 total capex of $16m driven by: o Refurb and Refresh program (centre capex) – circa $7m o Educational equipment/resources – circa $5m o IT/wifi upgrades – circa $2m Playground & External o Project cape
Slide 21: Balance Sheet
CY19 H1 AASB 16 CY19 H1 CY18 $M Statutory Adjustments Proforma Statutory BALANCE SHEET ASSETS Current assets Cash and cash equivalents 45.2 - 45.2 55.5 Trade and other receivables 33.1 0.4 33.5 36.5 Other current assets 8.8 - 8.8 14.1 • The new AASB16 Lease Standard became effective Derivative finan
Slide 22: Gearing Ratios and Capital Returns
GEARING RATIOS AND CAPITAL RETURNS Gearing Ratios – Lease adjusted Return on Capital Employed – Lease adjusted Proforma Statutory Proforma Statutory $M CY19 H1 CY18 CY19 H1 CY18 $M Current borrowings - 268.7 Non-current borrowings 396.6 92.2 Underlying EBIT (last 12 months) 139.7 136.3 Cash and cash
Slide 23: Capital Management
CAPITAL MANAGEMENT Reinforcing balance sheet strength Debt Facility Profile ($M) • Singapore bonds ($270m SGD) repaid during the half using syndicated debt facilities, currently drawn to $390m with headroom of $110m 200 • Net debt is forecast to peak in CY19 Q3 at which point the balance sheet will
Slide 24: Strategy Update
STRATEGY UPDATE Gary Carroll
Slide 25: Medium Term (CY22) Targets
MEDIUM TERM (CY22) TARGETS Based on organic and committed greenfield centres Group like for like Greenfield pipeline Achieve a ROCE* average occupancy achieves 25% ROI greater than 15% grows to 81% • Underlying non IFRS (i.e. pre AASB 16 lease standard) ROCE = Underlying EBIT / (Shareholders Equity
Slide 26: Strategic Initiatives
STRATEGIC INITIATIVES Progressing to plan Build a Strengthen Great Team the Foundation • Initiatives relating to team turnover reduction are on track • Education with Centre Manager and Early Childhood Teacher (ECT) o Roll out of the new curriculum has commenced, turnover reducing in line with expec
Slide 27: Strategic Initiatives
STRATEGIC INITIATIVES Progressing to plan Create Sustainable Continue Differentiation Profitable Growth • Customer Engagement Centre • Turnaround centres o Total of 500 centres completed in April 19, in line with o Focus group established expectations o On track to complete 25 turnarounds in CY19, •
Slide 28: Current Trading & Outlook
CURRENT TRADING & OUTLOOK Gary Carroll
Slide 29: Current Trading & Outlook
CURRENT TRADING & OUTLOOK • Organic centre performance continues to track solidly. It is • The strategy of driving quality, capability and team noted that: engagement is on track and producing results even in the o the second half growth rate will not have the benefit of face of increased supply. We
Slide 30: Q&A
Q&A
Slide 31: Appendix
G8 Fducation" APPENDIX
Slide 32: G8 Is a Market Leader
G8 IS A MARKET LEADER With significant competitive advantages AUSTRALIA’S LARGEST Listed Early Childhood Education 517 CENTRES & Care (ECEC) provider Diversified geographic footprint across Australia and Singapore 41K+ Licensed places across Australia and Singapore 71 67 9K+ Early Childhood Educator
Slide 33: Quality Drives Occupancy
QUALITY DRIVES OCCUPANCY National Quality Framework G8 NQS Ratings: G8 NQS Ratings: G8 NQS Ratings: Where we were Where we are Where we need to be +2% EXCEEDING NQS*: 22% 21% 40% MEETING NQS: POINTS TO 57% 60% 50% GROUP WORKING OCCUPANCY TOWARDS NQS: 21% 19% 10% * In February 2018 changes in the NQS
Slide 34: The G8 Education Journey
THE G8 EDUCATION JOURNEY (November, 2018) 34