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Childcare centre operator G8 Education (ASX: GEM) has offloaded 31 loss-making childcare centres in a move that will cost the company $26.5 million.
The announcement has also taken its toll on the company’s share price with the news wiping more than 11 per cent off the stock by midday (AEDT) when the shares last sold for 97.5c.
The Gold Coast-based company today announced that it has secured a conditional agreement with TAK Operations, a subsidiary of Genius Education Group, to sell the centres which collectively delivered an EBIT loss of $3 million to G8 last financial year. The loss was closer to $9 million under previous accounting standards used by the company.
While the contract is subject to multiple conditions and likely to be executed in tranches, G8 says it will make a payment to Genius Education Group, to be allocated across the 31 centres, totalling $26.5 million which includes transaction costs.
Among the sale conditions is multiple landlord consent for the assignment of leases which G8 says is not guaranteed and creates uncertainty over whether all 31 centres will be sold.
The sale agreement is expected to be finalised by the end of December, but G8 says this may be pushed out to early 2024 pending the sale conditions being met, while it is possible that settlement will occur in multiple tranches.
G8 Education, which posted a statutory net profit after tax of $14.99 million for the six months to the end of June, says the sale of the childcare centres is the result of a proactive review the group’s portfolio.
“As part of G8’s commitment to optimising our network we continuously review our centres to determine which are meeting our high quality and performance standards, which can be improved and which centres would be better under different ownership,” says G8’s CEO Pejman Okhovat.
“This agreement represents a significant milestone in our portfolio optimisation program and will leave us with a stronger network overall.
“A key consideration for G8 was a commitment from Genius Education Group to provide opportunities to our people who will transfer to the new owners.
“While there is some way to go in the process, we have every confidence that Genius Education Group will provide the ongoing high level of service that the children, families and our team at these centres expect and deserve."
Despite a solid rebound in its profit performance in the June half year, which saw net profit surge 76.5 per cent compared with a year earlier, G8 Education says chronic workforce shortages and rising costs hindered its performance during the period.
Group occupancy remained 2.1 percentage points below 2019, the last full year ahead of the pandemic. In that year, G8 Education posted a bottom-line profit of $62.6 million from revenue of $922 million.
At the end of June, occupancy across G8's portfolio of 443 centres was 67.4 per cent - up 0.6 percentage points from the previous year.
Th company today reported spot occupancy for the week ending 22 October 2023 was 75.4 per cent, which is 1.4 percentage points below the same week in 2022 and 2.2 percentage points below the same week in 2019.
G8 Education says the sale of the 31 childcare centres will have no impact on trading in CY23 given the earliest settlement target for the centres is mid-December.
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