The G8 Education Ltd (ASX: GEM) share price has tumbled lower in morning trade.
At the time of writing the childcare centre operator's shares are down 3.5% to $1.76 following the release of its full year results.
How did G8 Education perform in FY 2019?
For the 12 months ended December 31, G8 Education reported a 7.2% increase in revenue to $920.1 million. This was primarily attributable to improved occupancy, acquisition performance, and fee growth.
Things weren't quite as positive for its underlying earnings before interest and tax (EBIT). G8 Education reported a 2.8% decline in underlying EBIT to $132.5 million. This was in line with the revised guidance it provided in November.
On the bottom line, the company posted a 3.9% decline in underlying net profit after tax to $76.4 million and a 4.8% decline in earnings per share to 16.7 cents.
The decline in G8 Education's earnings was due to its operating expenses growing quicker than revenue. Operating expenses lifted 9.1% over the prior corresponding period to $787.6 million. Management advised that this was due to the investment it made in quality, as well as the ramp‐up of its greenfield portfolio.
Though, it believes these investments are worth the short term pain. It notes that it is "already seeing the benefit of these investments, both of which are expected to generate significant earnings growth in future years."
Pleasingly, the company reported strong cash flow generation, with (lease adjusted) cash conversion of 107%. This allowed the board to declare a final fully franked dividend of 6 cents per share, which means a full year dividend of 10.75 cents per share.
Outlook.
Management advised that there has been significant instability in the market in 2020 due to events such as bushfires and the coronavirus. This has flowed through to the group's occupancy, with year‐to‐date like‐for‐like occupancy slightly behind the prior year.
Given the recent and continuing market volatility, management warned that it is too early to form a clear view on the group's underlying occupancy performance. Though, it intends to limit any impact on profits through cost management. It will continue to monitor conditions in the market and be agile with its response.
Outside this, its year to date wage performance is in line with expectations.
