Slide 1: ASX Announcement
ASX Announcement G8 Education Limited (ASX:GEM) 24 February 2020 The Manager Market Announcements Office Australian Securities Exchange Dear Manager, CY19 FULL YEAR RESULTS INVESTOR PRESENTATION G8 Education Limited (ASX: GEM) encloses its CY19 Full Year Results Investor Presentation. Yours faithful
Slide 2: 2019 Full Year Result Investor Presentation
2019 FULL YEAR RESULT Investor Presentation 24 February 2020 1
Slide 3: 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 4: 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 5: Overview & CEO Commentary
OVERVIEW & CEO COMMENTARY Gary Carroll
Slide 6: Solid Progress Despite Headwinds
SOLID PROGRESS DESPITE HEADWINDS • Investments in quality and capability resulted in solid LFL occupancy and EBIT growth • Group EBIT result impacted by investment and Greenfield ramp up Operating • Consistent Greenfield occupancy growth trends provides confidence in future earnings profile Performa
Slide 7: CY19 EBIT Bridge
CY19 EBIT BRIDGE Underlying EBIT movement 2018 to 2019 • Underlying EBIT* of $132.5 million in line with November 2019 guidance • Underlying LFL occupancy growth of 1.1% pts flowing through to $10.9 million LFL EBIT growth, even after accounting for $4 million licence fee revenue in pcp • LFL growth
Slide 8: LFL Occupancy
LFL OCCUPANCY* • CY19 LFL occupancy growth of 1.1% pts Half-Yearly Like-for-Like Occupancy (%) • Occupancy has improved in every state with the 78.3%1 78.9% exception of South Australia as new supply continues 71.3%1 72.9%1 to be digested • Drivers of occupancy growth: o Investment in quality (educa
Slide 9: Occupancy Trends
OCCUPANCY TRENDS Performance above prior year Monthly Like-for-Like Occupancy (%) Occupancy Improvement from February* base (%) • CY19 occupancy tracked above prior year, ending in line with • Occupancy growth was 0.6% pts in H2, a good result after cycling prior year after growth softened in Q4 a s
Slide 10: Wage Efficiency
WAGE EFFICIENCY Strong finish to the year • Full year wage efficiency improved on prior year Wage hours per booking by fortnight • Following a disappointing Q3, wage performance recovered in Q4 • Wage performance is primarily driven by: o Occupancy levels o Mix of age range o Regulatory requirements
Slide 11: CY17 & CY18 Greenfield Performance
CY17 & CY18 GREENFIELD PERFORMANCE Occupancy on right pathway CY17 Greenfields Cohort – Weekly Occupancy CY18 Greenfields Cohort – Weekly Occupancy • Achieving target occupancy at a portfolio level • Occupancy of portfolio is on track, consistent with CY17 • Continuing occupancy growth as centres ma
Slide 12: Greenfield Portfolio Snapshot
GREENFIELD PORTFOLIO SNAPSHOT Mature centres performing – half of portfolio still in early stages 2017 COHORT 2018 COHORT 2019 COHORT 2020 COHORT CENTRES 12 10 12 10 CAPITAL $33m $29m $62m $31m • 8 above 80% occupancy, • 4 above 80% occupancy, • 5 reached or are on track • 5 opened including 2 which
Slide 13: Support Office Investment
SUPPORT OFFICE INVESTMENT • Support Office costs increased $6.4m in CY19, to 4.3% of revenue • Four main investment areas for incremental spend were: o Safety – the safety and wellbeing of our children and team is paramount and this fundamental business function is now appropriately resourced o Educ
Slide 14: Group Financials
GROUP FINANCIALS Sharyn Williams
Slide 15: Financial Drivers
FINANCIAL DRIVERS • Underlying EBIT result in line with November 2019 guidance • Organic earnings growth of 3% after investment in quality P&L Drivers • Acquisition EBIT in line with guidance • Strong cashflow conversion Cashflow & Capital • Balance sheet strength and covenant headroom • Debt restru
Slide 16: CY19 Statutory Result
CY19 STATUTORY RESULT • The Group adopted the new leases accounting standard, AASB 16, on 1 January 2019 • As with a number of other companies with a significant lease footprint, this standard has had a material impact on G8’s statutory numbers (refer to the ASX release on 7 August 2019) driven by:
Slide 17: CY19 Snapshot
CY19 SNAPSHOT Underlying results CY19 AASB 16 CY19 CY18 $M Statutory Adjustment Proforma^ Statutory % change CY19 Financial Results Total Revenue 921.7 (1.6) 920.1 858.2 7.2% • Revenue increased 7.3% driven by occupancy, fee growth Employee expenses (542.8) - (542.8) (507.1) 7.0% and acquisitions Oc
Slide 18: Operating Performance
$M CY19 CY18 % YoY OPERATING PERFORMANCE Total Organic Revenue 753.3 720.3 4.6% • Organic centre revenue was 4.6% higher than the prior Wages (413.8) (398.6) 3.8% year driven by occupancy and fee increases partly offset Rent (86.7) (83.0) 4.4% by removal of the license fee ($4m) Depreciation (15.6)
Slide 19: Cash Conversion
CASH CONVERSION Consistent and strong cash conversion EBITDA to Cash Flow Conversion – Lease Adjusted $M CY19 CY18 • Cash flow generation remained strong in CY19 with a continued focus on efficient working capital Operating cash flow 90.2 105.9 management + Net interest 24.1 22.5 • Adjustment was ma
Slide 20: Cash Flow
CASH FLOW CY19 AASB 16 CY19 CY18 $M Statutory Adjustments Proforma Statutory • Lease adjusted proforma net cashflows from operating activities of $90m, a decrease of 15% on prior year, primarily Cash flows from Operating Activities driven by 27 wage periods during the year Receipts from customers (i
Slide 21: Capex Commitments
CAPEX COMMITMENTS Supported by robust and consistent cashflow Total CY19 Capex = $40 million • CY19 total capex of $40m driven by: o Refurb and Refresh Program (centre capex) – $21.2m o Educational equipment/resources – $9.5m Playgrounds & External Internal Centre Upgrades o Project capex (e.g. rost
Slide 22: Gearing Ratios
GEARING RATIOS Strong balance sheet and prudent gearing Gearing Ratios – Lease adjusted • Group continues to maintain flexibility with comfortable covenant headroom CY19 CY18 $M Proforma Statutory • Net debt is forecast to peak in 2Q20 at which point the Current borrowings - 268.7 balance sheet will
Slide 23: Capital Returns
CAPITAL RETURNS Return on Capital Employed – Lease adjusted • Return on capital employed (ROCE) of 10.3% driven by: CY19 CY18 $M Proforma Statutory o Current earnings profile Underlying EBIT 132.5 136.3 o Investment in quality, capability and network growth Shareholders' equity (average last 12 mont
Slide 24: Capital Management
CAPITAL MANAGEMENT Dividend Balance sheet restructure complete • CY19 fully franked final dividend of 6 cents per share • Repayment of SGD 270m bonds funded by syndicated debt declared, resulting in a full year dividend of 10.75 cents per facilities share representing a 70% payout of CY19 lease adju
Slide 25: Strategy Update
STRATEGY UPDATE Gary Carroll
Slide 26: Supply / Demand Dynamics
SUPPLY / DEMAND DYNAMICS Continuing supply growth Macro • National LDC net supply growth increased in Q4 bringing the full year annualised growth to 4.2% (vs 3.8% in CY18) Micro • G8 centres impacted by supply within 2km increased by 1% YoY, which is lower than the macro supply growth (4.2%) • Over
Slide 27: 2020 Priorities
2020 PRIORITIES To drive growth in Turnaround and Greenfield centres • Pilot showed the potential for performance improvement and established the methodology for the Acceleration Program Accelerate EBIT • Full time dedicated team largely established, focusing on turnaround opportunities and driving
Slide 28: Acceleration Program Cost Allocation
ACCELERATION PROGRAM COST ALLOCATION • Costs will be incurred in CY20 to support the Acceleration Program and are considered to be one-off: o Turnaround team consists of temporarily seconded resources and consultants (circa $3m), with seconded team to return to operational roles Turnaround within 12
Slide 29: Current Trading & Outlook
CURRENT TRADING & OUTLOOK Gary Carroll
Slide 30: Current Trading & Outlook
CURRENT TRADING & OUTLOOK • There has been significant instability in the market to date in CY20 due to events such as bushfires and CORVID-19. This has flowed through to the Group’s occupancy with year-to-date like-for-like occupancy slightly behind prior year. • Given the recent and continuing mar
Slide 31: Q&A
Q&A
Slide 32: Appendix
APPENDIX
Slide 33: Balance Sheet
CY19 AASB 16 CY19 CY18 $M Statutory Adjustments Proforma Statutory BALANCE SHEET ASSETS Current assets Cash and cash equivalents 40.6 - 40.6 55.5 Trade and other receivables 29.9 7.8 37.8 36.5 Other current assets 11.2 (0.1) 11.2 14.1 Derivative financial instruments - - - 10.8 • The new AASB16 Leas
Slide 34: Pathway to Portfolio Optimisation
PATHWAY TO PORTFOLIO OPTIMISATION Divestments and centre closures optimising portfolio quality Centre Portfolio • Divestment of 25 WA centres completed o Improved quality and margin of WA and Group portfolio o WA occupancy uplift of circa 8% pts, now above network portfolio occupancy level o Group o