G8 Education (ASX:GEM) executives said the early childhood education sector faced a difficult operating backdrop in 2025, citing affordability pressures on families, softer demand influenced by falling birth rates, and increased supply across the past three years. Speaking on the company’s full-year 2025 results call, CEO and Managing Director Pejman Okhovat said the group focused on “controllables” such as quality, retention, safety, and cost discipline amid lower occupancy.
Network scale and operating environment
Okhovat said G8 provided early childhood education and care to around 36,000 children across a network of 395 centers. He described 2025 as a challenging year for the sector, with “persistent affordability pressure on families,” demand affected by demographic trends, and additional supply in the market.
Regionally, Okhovat said Victoria and Western Australia experienced more significant occupancy pressure due to tougher supply-demand dynamics, while New South Wales and Queensland were “less affected.”
Quality, retention, and family sentiment
Despite the occupancy headwinds, management highlighted improvements across several operational measures. Okhovat said 95% of centers were now rated as meeting or exceeding the overall National Quality Standard, which he said was 4% ahead of the long day care sector average. He also said Quality Area 1 (Educational Program and Practices) improved, with 96% of centers meeting or exceeding that standard.
On workforce metrics, Okhovat said team retention improved 2.5 percentage points year-on-year to 79.5%, supported by engagement initiatives and wage uplift delivered through the government-funded Early Childhood Education and Care (ECEC) Worker Retention Grant. He said award-based team members received a cumulative 15% wage increase through the grant after a second wage increase in December.
G8 also pointed to recruitment and internal development progress. Okhovat said permanent vacancies fell 33% year-on-year and time to hire improved 14%, while more than half of center manager appointments were filled via internal promotion.
Family sentiment improved as well, with Net Promoter Score reaching its highest level since the company launched its Voice of Customer program in 2023. However, Okhovat noted affordability pressures continued to influence behavior, including constraints on families committing to additional permanent days and a flattening in frequency year-on-year. He said inquiry levels softened in the second half, though conversions remained stable, and a continued casual day offer supported occupancy in the fourth quarter.
Financial results and impairment charge
CFO Steven Becker said group operating revenue was AUD 946.9 million, down 7% from the prior year due to lower occupancy. Operating EBIT adjusted for leases was AUD 93.3 million, with an EBIT margin of 9.9%. Becker said margins were lower year-on-year but “remained resilient” given the environment, supported by procurement discipline, ongoing cost management, and a 3.6% reduction in underlying support office costs.
Becker said the statutory result was materially impacted by a non-cash goodwill impairment of approximately AUD 350 million, reflecting a conservative reassessment of long-term assumptions in light of current trading conditions. He emphasized the impairment did not affect cash flow, liquidity, or covenant strength.
At the center level, Becker said revenue declined 6.7%, mainly due to lower occupancy. Employment costs decreased year-on-year in line with lower booking volumes, while wages as a percentage of revenue rose slightly. He said rent as a percentage of revenue increased due to CPI and market reviews, depreciation increased slightly due to capital works and resources, and other expenses generally tracked lower occupancy and procurement benefits. Center margin decreased 1.3% to 16.4%.
Cash flow, capital allocation, and portfolio actions
Management characterized the balance sheet as conservative, with strong liquidity and low leverage. Becker said operating cash flow after interest and tax was AUD 168 million and cash conversion was above 100%.
For capital allocation, Becker said G8 invested about AUD 52 million in capital expenditure, paid dividends of AUD 43 million, and completed an AUD 42.6 million share buyback, resulting in free cash flow of AUD 12.3 million. Net debt ended the year at AUD 117 million, which Becker said equated to a gearing ratio of about 23% and leverage of 1.18 times. He added the group had access to a further AUD 45 million of committed bank debt facilities if required.
Okhovat said the company continued portfolio optimization, with five centers divested and six leases surrendered or exited in 2025. In response to a question about landlord relief, he said the company does approach landlords but described them as “unrelenting” and said no landlords were prepared to provide support at the moment.
The board resolved not to pay a final dividend for FY25 and to pause the on-market share buyback, citing the challenging environment.
Safety, regulation, and outlook
Okhovat said child safety was “fundamental” to G8’s values and governance and referenced sector-wide reforms and heightened expectations around compliance and safeguarding. He outlined actions including dedicated safety leaders in every center, expanded mandatory training beginning before day one, strengthened recruitment and background checking, ongoing quality and compliance reviews, and investment in systems such as a compliance platform and enhanced reporting. He also said G8 completed a procurement process for CCTV, with rollout to begin in 2026.
On the outlook, Okhovat said near-term conditions remained challenging and that the company was not seeing “material relief” from inflation or interest rate increases. He listed several factors impacting occupancy, including cost of living pressures, declining fertility rates, flattened female workforce participation, trust impacts from media coverage of “horrific issues” in the sector, and continued net supply (though he noted net supply had slowed to 2.4% in the most recent quarter from about 3.4%–3.5% previously).
Management also discussed regulatory cost pressures. In response to an analyst question, Okhovat said mandatory safety training reforms beginning in late February would add costs, and offered a draft estimate of about AUD 5 million to AUD 10 million of additional cost currently visible to the company, noting the estimate was not fully run to ground and further regulation could follow.
In Q&A, management reiterated historical EBIT sensitivity to occupancy, saying each 1 percentage point change in occupancy had been worth “a few” million dollars, potentially around AUD 4 million to AUD 5 million on an annualized basis, and they did not see that sensitivity as materially changed. They also said support costs were pulled down 3.6% in 2025 and the company would be “disappointed” if they were not at least flat in 2026, with hopes to take more out.
Looking beyond the near term, Okhovat said medium- to long-term sector dynamics remained encouraging, pointing to government initiatives supporting workforce participation such as the “3 Day Guarantee” and investment in kinder programs, alongside intentions to improve affordability and equity in early childhood education and care. He said G8’s focus remained on execution, safety, family attraction and retention, team capability, disciplined cost management, and continued portfolio optimization.
About G8 Education (ASX:GEM)
G8 Education Limited provides early childhood education and care services in Australia. It offers its services under various brands. The company was incorporated in 2006 and is based in Varsity Lakes, Australia.
