G8 GETS BACK TO BUILDING ON STELLAR YEAR
Written on the 16 February 2015 by Nick Nichols
G8 EDUCATION (ASX: GEM) has capped off a stellar year by boosting its 2014 bottom line by 70 per cent and adding another 12 premium childcare and education centres to its portfolio.
The childcare centre operator cemented its position as the Gold Coast's biggest and most profitable company by posting a net profit of $52.7 million for the year to December 31, up from $31 million in calendar 2013.
Underlying profit was even stronger, rising 88 per cent to $60.6 million thanks to deferred earn-out payments of $9.17 million not having to be paid to childcare centre vendors.
However, the bottom line was hit by $13 million in foreign currency losses, related to the value of its Singapore brands, and $3.3 million in acquisition costs.
The latest result was driven by a 79 per cent lift in revenue to $491.3 million, driven by acquisitions and higher occupancies.
G8 Education added 203 childcare centres to its portfolio in 2014, taking its total centre numbers to 455 with a combined licence capacity of 32,782 childcare places.
This week, it announced it had signed contracts totalling $36 million for another 12 centres from a number of vendors.
The company has contractual agreements with each vendor, conditional upon customary licensing and landlord approvals.
G8 Education managing director Chris Scott says the move is all part of the company's broader acquisition strategy.
"The acquisition of these premium centres at four times anticipated EBIT for the 12 months post settlement is another achievement in the group's acquisition strategy," says Scott.
"The centres are expected to contribute to EBIT immediately post settlement."
The total purchase price was $36 million - $29.9 million of which is payable at settlement and a further payment of $6.1 million conditional upon the centre-based EBIT target being achieved in the 12 months post settlement.
The acquisitions will be funded from existing cash reserves and are expected to be settled before the end of June this year.
Scott says acquisitions opportunities are still available despite rising interest in the sector.
"The childcare sector in Australia continues to exhibit a high degree of fragmentation and favourable underlying fundamentals," Scott writes in G8's annual report released this week. "The opportunity for disciplined acquisitions remains significant."
G8 has developed a strong funding pipeline for acquisitions, raising $470 million during the year - $200 million through equity raisings and $270 million in corporate debt.
Increased reliance on debt has seen financing costs jumped from $4.79 million to $34.64 million over the past year.
Meanwhile, Scott reveals the group's portfolio has strengthened returns over the year with higher occupancy rates, while staff turnover rates are lower.
"These important metrics of family satisfaction and employee satisfaction are very heartening," he says.
G8 had 9705 employees at the end of 2014, and 9440 of them were women.
G8 plays its cards close to its chest, neither offering forecasts for the year ahead nor revealing planned acquisition targets.
However, average broker forecasts for the year ahead have targeted EBIT of $170.9 million. This compares with 2014 EBIT of $107.2 million.
G8 is paying a 6c quarterly dividend, which is up from 3.5c the same time last year.
Author: Nick Nichols