Wednesday 17 August 2016 by Company updates

G8’s growth rate slows as expected

While equity markets did not like the G8’s slowing growth reported for 1H16, the results were sound from a credit perspective

Credit metrics weakened slightly however we believe that this was more than offset by 1) the company’s more sustainable rate of acquisition controlled by stated leverage and gearing limits 2) improved governance 3) an extended funding tenor and 4) the likelihood of improved liquidity as G8 tenders for a new overdraft during 2H16.

Results summary

$m 1H16 1H15 Change
Total revenue 361.2 310.9 16.2%
Total expenses 326.4 273.2 19.5%
Underlying EBITDA 63.5 57.0 11.4%
EBITDA margin 17.6% 18.3% -70bps
Underlying NPAT 32.0 31.5 1.6%
NPAT 24.8 28.2 -12.0%
Net debt/Underlying EBITDA (rolling 12 months) 2.28x 2.14x  
Net debt/total capital 37.8% 33.5%  

Key points

  • Revenue up 16.2% driven by fee increases and acquisitions
  • Expenses increased 19.5% mainly due to higher wage costs. Regulation changes required a greater staff to child ratio. Margins were also impacted by investment in staff training and centre refurbishments, which G8 expects to yield both top line and cost line benefits in the future
  • EBITDA margin contracted 70bp to 17.6%. The industry benchmark is 14.2% (note that this also includes NFP organisations)
  • While the company spent $30m on dividends which is quite a high portion of its $33m cash flow from operations, this was due to the timing of payments. Three dividend payments were made in 1H16 and therefore this will even out over the full year
  • Leverage: Net debt to EBITDA is a little higher than the G8 targeted maximum of 2.00x at 2.28x
  • Gearing: Net debt to total capital of 37.8% remains below G8’s stated maximum of 45%

Slower rate of acquisition

As confirmed by G8 at the start of the year, the company’s fastest growth period is likely over. During 1H16 nine centres were purchased compared to 23 in 2H15 and 21 during 1H15. The comparatively slower growth rate is forecast to continue with 12 centres scheduled for settlement in 2H16. 

The slowing growth rate and leverage and gearing limits give comfort of the sustainability of G8’s business model.

Capital structure

Facility Currency Amount Drawn Coupon Next call Maturity
Unsecured notes AUD $50m $50m 3M+3.9% 03/03/2017 @101.5 03/03/2018
Unsecured notes AUD $70m $70m 7.65% 07/02/2017 @103.0 07/08/2019
Unsecured notes SGD $270m $270m 5.50% n/a 18/05/2019
Overdraft (secured) AUD $50m $20m      


  • Extended funding tenor: G8 raised SGD270m to refinance a SGD260m line extending the maturity from May 2017 to May 2019. All FX exposure has now been fully hedged removing currency risks
  • Liquidity is adequate: As at 30 June, G8 had access to $39.8m of cash and $30m in available overdraft. Cash conversion remained at around 100% (102%) meaning minimal working capital funding requirements
  • G8 intends to enter into a tender process for a new senior secured revolving line of credit in 2H16. While this puts a financial claim in front of bondholders, it improves G8’s liquidity profile

Improved governance

  • G8’s existing auditor replaced with Ernst and Young. Ernst and Young has greater capability and resources to identify irregularities and are under less pressure to undertake aggressive accounting
  • The G8 Board has been strengthened with several new appointments in 2016:
  • Mark Johnson, Chairman. Excellent credentials; past senior partner and CEO of PWC. Currently holds several other directorships including Westfield and HSBC.
  • David Foster, Independent Non-Executive Director, has a successful career history in financial services, where his last executive role was as CEO of Suncorp Bank.
  • Gary Carroll, CFO, joins from Super Retail Group where he was part of the executive leadership team for ten years and CFO for Six
  • Maria Forgione, Company Secretary, is a senior lawyer with experience in legal, compliance and governance