The G8 Education Ltd (ASX: GEM) share price will be on watch this morning after the release of a trading update.
How is G8 Education performing?
G8 Education has experienced a further recovery in its occupancy since the release of its half year results in August.
According to the release, the childcare centre operator's like-for-like occupancy currently stands at 75.5%. This represents an occupancy gap of 4.5 percentage points compared to the same period last year. It is also a 5.5 percentage points improvement from its April low at the height of the pandemic.
Another positive is that G8 Education has managed to deliver wage efficiencies in line with its targets for the year. This was driven by the utilisation of its technology platform that forms part of its new rostering system.
This means that on a year-on-year comparison, based on the same occupancy levels as last year, there has been a clear improvement in its wage costs.
However, due to the decline in its occupancy rate, its wage hours per booking metric is currently higher than the prior corresponding period.
Nevertheless, despite the challenges it is facing, G8 Education is still profitable.
The release explains that the company has recorded underlying earnings before interest and tax (EBIT) of $98 million for the first 11 months of calendar year 2020. This includes current year employment costs relating to an employee payment remediation program.
Employee payment remediation.
The company also revealed that a proactive review of its award and legislative requirements has identified inadvertent noncompliance issues with the relevant awards.
G8 has self-reported the matter to the Fair Work Ombudsman and is undertaking a remediation program to ensure all affected team members are paid in full.
Remediation costs are presently estimated to be in the range of $50 million to $80 million pretax over the period from 1 July 2014 to present.
Outlook.
Management expects 2021 to be a recovery year due to the absence of additional government subsidies and the ongoing impacts of COVID-19 on its occupancy.
In addition to this, the absence of a 2020 fee increase (as stipulated by the government COVID-19 subsidiary arrangements) and its lower occupancy, is expected to see wages increase as a percentage of revenue.
Gary Carroll, Chief Executive Officer, commented: "Progress in our strategic focus areas has been pleasing. Together with our significantly strengthened balance sheet, this provides the group with confidence to increase the pace in our strategic focus areas as they will deliver significant benefits in the medium term. The program costs in 2021 will be carefully managed to ensure they do not result in a material drag to earnings in the near term."
