G8 Education Limited · ASX:GEM
G8 Education — Investor Presentation (February 2019)
36 slides from G8 Education's investor presentation, Feb 25, 2019
Slide 1: 2018 Full Year Results
2018 FULL YEAR RESULTS Investor Presentation 25 February 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 OVERVIEW & CEO COMMENTARY ASX: GEM 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: CY18 Snapshot
CY18 SNAPSHOT CY18 Financial Results • Underlying CY18 EBIT of $136.3 million, in line with management $M CY18 CY17 % change guidance • Strong CY18 H2 organic performance in both occupancy and Total Revenue 858.2 796.8 7.7% wages, in line with expectations Employee expenses (507.1) (445.8) 13.7% • E
Slide 6: 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 7: Supply / Demand Dynamics
SUPPLY / DEMAND DYNAMICS Signs of moderating supply National Long Day Care Supply vs. LDC Centre Closures Long Day Care Centres Opened / Firm & Commenced DAs (ACECQA) LDCs opened – (ACECQA) Firm & Commenced DAs (Cordells) 4.4% 0.6% LDC Closures (% of total) 4.3% 164 LDC Supply (% change YoY) 4.2% 0.
Slide 8: CY18 Occupancy – G8
CY18 OCCUPANCY – G8 Steady improvement sustained into year end Monthly Like for Like Occupancy* (%) Occupancy Improvement from January base (%) 12% 11% 2016 2017 2018 2016 2017 2018 10% 85% 9% 8% 7% 6% 5% 4% 75% 3% 2% 1% 0% -1% -2% 65% -3% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Slide 9: Occupancy
OCCUPANCY • Higher seasonal growth rates in occupancy in CY18 Half-Yearly Like for Like G8 Occupancy (%) H2 resulted in December occupancy being above 90% 78.8% 77.7% the PCP 80% 72.8% 70.3% 70% • CY18 occupancy of 74.0%, 1.9%pts below CY17 60% 50% occupancy of 75.9% 40% 30% • CY18 H2 of 77.7%, 1%pt
Slide 10: Wage Performance
WAGE PERFORMANCE 2H efficiency outperformance vs. prior year Fortnightly hours per booking (CY18 vs. CY17) 2017 2018 • CY18 H2 wage performance was consistent with the outlook provided at the November Investor Day, delivering outcomes in CY18 Q4 that were well below prior year levels • In the first
Slide 11: Operating Performance
OPERATING PERFORMANCE $M CY18 CY17* % change YoY Total Organic Revenue 715.2 700.4 2.3% • Underlying CY18 Group EBIT decreased by $19.8m Wages (401.3) (376.5) 6.6% (12.7%) to $136.3m with $4.4m in incremental Rent (84.1) (81.2) 3.3% acquisition earnings offset by: Depreciation (13.2) (11.9) 13.0% Ot
Slide 12: Support Office Costs
SUPPORT OFFICE COSTS Rightsizing the business • CY18 support office costs increased $8.1m YoY, primarily driven by: Support Office Costs as % Total Revenue o $3.5m increase from newly created roles to support network expansion, improved capability and service delivery 4.0% o $2.0m in annual wage inc
Slide 13: Acquisition Performance
ACQUISITION PERFORMANCE Mixed performance with improvement plans in place • Acquisitions (net of divestments) contributed EBIT of $17.8m in CY18 vs. $13.4m in CY17 EBIT from acquisitions and divestments • In CY18 H2, prior year acquisitions were below expectations, contributing an incremental $1.3m
Slide 14: CY17 Cohort Performance
CY17 COHORT PERFORMANCE Occupancy on the right trajectory CY17 Greenfields Cohort – Weekly Occupancy • The performance of the centres in the CY17 greenfield cohort is consistent with the update provided at the 80% November Investor Day 70% • Occupancy for the greenfield centres ended the year 60% sl
Slide 15: Network Growth Strategy
NETWORK GROWTH STRATEGY Underpinned by detailed network modelling • G8’s committed greenfield pipeline remains its Centre Portfolio primary network growth driver in the short term: 600 o 16 centres completed in CY18, in line with Singapore Australia expectations 17 500 18 20 21 17 o 19 centres targe
Slide 16: Group Financials
GROUP FINANCIALS Sharyn Williams
Slide 17: Cashflow
CASHFLOW Consistent and strong cash conversion EBITDA to Cash flow Conversion • Cashflow generation remained strong in CY18 H2 $M CY18 CY17 • Underlying CY18 cashflow conversion of 98% adjusts for Operating cash flow 105.9 92.0 the timing of the final year payroll outflow of $13.4m that + Net intere
Slide 18: Cashflow
CASHFLOW • Net cashflows from operating activities of $105.9 million $M CY18 CY17 increased 15% YoY, primarily driven by timing of payroll Cash flows from Operating Activities and lower interest costs Receipts from customers (net of GST) 853.6 777.8 Payments to suppliers and employees (net of GST) (
Slide 19: Capex Commitments
CAPEX COMMITMENTS Supported by robust cashflow Centre CY18 Capex = $19.8 million • CY18 total capex of $36.8m, c. $6.8m ahead of the estimate outlined in August 2018 due to: Playground & Yard Upgrades o acceleration of Refurb and Refresh program (~$4m) Painting o educational equipment/resources (~$1
Slide 20: Balance Sheet
$M CY18 CY17 ASSETS BALANCE SHEET Current assets Cash and cash equivalents 55.5 49.2 Trade and other receivables 36.5 30.4 Other current assets 14.1 12.4 Derivative financial instruments 10.8 0.0 Current tax asset 0.0 0.3 • Current borrowings of $279.6m ($268.8m net of Total current assets 117.0 92.
Slide 21: Gearing Ratios and Capital Returns
GEARING RATIOS AND CAPITAL RETURNS Gearing Ratios Return on Capital Employed $M CY18 CY17 $M CY18 CY17 Current borrowings 268.8 49.9 Underlying EBIT 136.3 156.0 Non-current borrowings 92.2 267.4 Cash and cash equivalents (55.5) (49.2) Shareholders' equity (average last 12 months) 890.0 745.6 Net Deb
Slide 22: Capital Management
CAPITAL MANAGEMENT Reinforcing balance sheet strength Debt facility profile • Secured $400 million syndicated bank debt facility and $100 million subordinated debt facility to refinance: Prior Debt Facilities New Debt Facilities o $270 million SGD bonds 300 270 o $200 million Club Bank facility 200
Slide 23: Strategy Update
STRATEGY UPDATE Gary Carroll
Slide 24: 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% * ROCE = Underlying EBIT / (Shareholders Equity [ave. previous 12months] + Borrowings [ave. previous 1
Slide 25: The G8 Education Journey
THE G8 EDUCATION JOURNEY ASX LISTING + Acquisition strategy COMPANY +47 centres FOUNDED BUILT SCALE +500 centres + 24“brands", Inherited + ¢.480 centres + Singular focus on growth + Decentralised decision making, processes, systems, training and rostering + Committed Greenfield (GF) pipeline * Build
Slide 26: Strategic Initiatives
STRATEGIC INITIATIVES Progressing to plan Build a Strengthen Great Team the Foundation • Initiatives relating to team turnover reduction are on • Curriculum rollout – from Q2 CY19 track with encouraging early results coming from the • Best practice framework and hub – CY19 Q3 change in ECT (Early Ch
Slide 27: Strategic Initiatives
STRATEGIC INITIATIVES Progressing to plan Create Sustainable Continue Differentiation Profitable Growth • Customer Engagement centre • Portfolio optimisation o 100 centres rolled out by end January 19 o Manage underperforming centres – ongoing o Remaining 400 centres on track for April 19 • Labour s
Slide 28: Quality Drives Occupancy
QUALITY DRIVES OCCUPANCY National Quality Framework G8 vs All ECEC services assessed as meeting and Snapshot of portfolio - December 2018 exceeding the National Quality Standard All ECEC G8 Education 90% 21% 22% 80% Exceeding NQS 70% Meeting NQS 60% Working Towards NQS 50% 57% 40% 30% 20% 10% 2012 2
Slide 29: Current Trading & Outlook
CURRENT TRADING & OUTLOOK Gary Carroll
Slide 30: Current Trading & Outlook
CURRENT TRADING & OUTLOOK • CY19 YTD has had an encouraging start with: • The CY19 result will be impacted by the cessation of annual o occupancy growth circa 2% YTD above PCP; and license fee revenue of $4m following the mutually agreed o wages performing ahead of prior year in line with terminatio
Slide 31: Q&A
Q&A
Slide 32: Appendix
S & APPENDIX
Slide 33: G8 Is a Market Leader
G8 IS A MARKET LEADER With significant competitive advantages AUSTRALIA’S LARGEST Listed Early Childhood Education ~519 CENTRES & Care (ECEC) provider Diversified geographic footprint across Australia and Singapore 41K+ Licensed places across Australia and Singapore 73 68 9K+ Early Childhood Educato
Slide 34: Quality Drives Occupancy
QUALITY DRIVES OCCUPANCY National Quality Framework G8 NQS Ratings: Where we are G8 NQS Ratings: Where we need to be 34
Slide 35: Greenfields Pipeline
GREENFIELDS PIPELINE Greenfields Maturity Profile 100.0% 81% • Average capital invested per centre: circa $4m 25% ROI target at 24 months • Breakeven maturity: 5 months Occupancy (%) 50% • Occupancy maturity: 18 months • ROI at maturity: 25% -% 0 5 12 18 24 Months 35
Slide 36: Lease Standard Expectations
LEASE STANDARD EXPECTATIONS • Income statement – operating lease expenses (e.g. rental expense) will be replaced by depreciation and interest • Balance sheet – leases (except short-term or low value) recognised as a right of use asset and associated liability • Lease liability is the present value o