G8 continues to report strong acquisition led growth and recognise efficiencies however gearing is also increasing
Summary of financial results below:
| FYE 13 December | FY13 | FY14 | FY15 |
| Childcare revenue | 274.6 | 482.1 | 689.4 |
| EBITDA | 54.1 | 108.8 | 158.5 |
| Margin (%) |
19.7%
|
22.6%
|
23.0%
|
| EBIT | 50.6 | 102.1 | 149.2
|
| Interest |
4.8
|
16.0
|
28.3
|
| Operating profit |
45.8
|
86.0
|
120.9
|
| Significant items |
(1.2)
|
(13.5)
|
1.9
|
| NPAT | 31.1 | 52.7 | 88.6 |
| Credit stats
|
| Total debt/EBITDA |
2.1x
|
3.2x
|
3.2x
|
| Net debt/EBITDA |
0.0x
|
2.1x
|
2.0x
|
| EBITDA/interest |
11.3x
|
6.8x
|
5.6x
|
| EBIT/Interest |
10.6x
|
6.4x
|
5.3x
|
| Net debt/Total capital |
14.4%
|
37.0%
|
40.5%
|
| Debt/(Debt+equity) |
27.5%
|
39.4%
|
46.1%
|
Source: Company report
Key points:
- Core childcare revenue increased by 43% to $689.4m in FY15 driven by acquisitions
- EBITDA increased 45.7% to $158.5m and NPAT increased 68% to $88.6m
- Efficiency continues to improve primarily due to economies of scale. The EBITDA margin increased to 23.0% FY15 compared to 22.6% FY14. Like for like EBIT, which represents the performance of existing centres, grew 11% to $145.4m
- Operating cash flow was strong at $95.1m compared with $74.7m in FY14
- The group has been increasing its gearing (net debt to total capital) which now stands at 40.5% (39.4% in FY14). G8’s directors believe 45% is an appropriate level of gearing and therefore the continued higher use of debt is likely which will in turn weaken credit metrics
- Net debt to EBITDA has remained stable at 2.0x in FY15. G8 states it will seek to maintain this measure at or under 2.0x
- Interest coverage measures have weakened from 6.8X (EBITDA/interest) in FY14 to 5.6x FY15. This is still a comfortable level of coverage
Source: Company report
- The group added 44 new centres and 13,697 licensed places in 2015 for a total of 471 centres in Australia and 18 in Singapore with a total of 35,221 licensed places as at December 2015
- G8 estimates $50-150m in centre acquisitions in calendar 2016
Debt structure
| Amount | Currency | Coupon | Next call | Maturity |
| $155m | SGD | 3.5% | 7 March 2016 | 31 July 2016 |
| $260m | SGD | 4.75% | | 19 May 2017 |
| $50m | AUD | BBSW 3m + 390 bps | 3 March 2017 | 3 March 2018 |
| $70m | AUD | 7.65% | 7 August 2016 | 7 August 2019 |
Source: FIIG Securities, G8
Key points:
- The SGD155m (AUD154m) note is scheduled to be redeemed on 29 February 2016 from existing cash reserves ($193m cash on balance sheet FY15). This was drawn to fund the potential acquisition of Affinity Education however G8 was outbid
- G8 is seeking to refinance the SGD260m bonds and state it has received various proposals.This is expected to be completed during 1H16. It is the intention of the group to hedge any residual FX exposure on the current SGD bonds to the refinancing date and fully hedge the new bonds to maturity. This is positive given the unhedged position represented a risk and resulted in multiple losses during prior periods given currency fluctuations
- G8 will also enter into a tender process for a senior secured revolving line of credit in the second half of 2016.This is credit negative as it potentially puts a financial claim in front of bondholders
- The group continued to operate within its financial covenants
Conclusion
G8 continues to report strong acquisition led growth and efficiency benefits driven by its increasing scale. The company has stated it will seek to utilise a higher level of gearing and therefore credit metrics should continue to weaken. However this is from a solid base and controlled by covenants as well as G8’s guidance to a leverage ratio of less than 2.0x net debt to EBITDA.
G8 has fixed and floating bonds available to retail and wholesale clients in $10k minimum parcels. The floating rate note matures in August 2018 and is offered with an indicative yield to maturity of 6.15% (+411bps) and the fixed rate bond matures in August 2019 and has an indicative yield to maturity of 6.53% (+439bps).
Please note pricing is indicative only, accurate as at 23 February 2016 and subject to change.