This article first appeared on GuruFocus .
-
Operating Revenue:$409.1 million for the half, 12% lower than the prior corresponding period.
-
Operating EBIT:$14.7 million for the half.
-
Operating Net Profit After Tax (NPAT):$6.7 million, down 74% from the prior corresponding period.
-
Reported Net Loss After Tax:$38.8 million, impacted by non-trading items including impairment expenses from the suspension of operations at 40 centers.
-
Group Occupancy:57% for the half, 7.5% lower than the prior corresponding period.
-
Spot Occupancy:61.9% as of week ending August 21, 2026, 5.1% lower than the prior corresponding period.
-
Standard Revenue:11.5% lower than the first half of 2025.
-
Capital Expenditure (CapEx):$24.4 million invested during the half; full-year CapEx expected to be approximately $50 million.
-
Net Debt:$123.6 million at the end of the half, marginally higher than December 2025.
-
Gearing Ratio:Approximately 25%.
-
Share Buyback:$600,000 repurchased during the half.
-
Dividend:No interim dividends will be paid.
-
Warning! GuruFocus has detected 6 Warning Signs with ASX:GEM.
-
Is ASX:GEM fairly valued? Test your thesis with our free DCF calculator.
Release Date: August 24, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
-
Team retention improved to 80%, the highest level in six years, indicating a stable and engaged workforce.
-
Family net promoter score (NPS) increased by 7 points to 58, reflecting stronger family satisfaction and engagement.
-
Quality outcomes improved, with 97% of centers meeting or exceeding national standards, 6 percentage points above the sector average.
-
Decisive cost-saving actions, including suspending 40 centers and restructuring the support office, are expected to deliver at least $10 million in annual savings.
-
Maintained a conservative balance sheet with stable liquidity, compliance with financial covenants, and extended a debt facility to 2029.
Negative Points
-
Group occupancy declined to 57%, down 7.5% year-over-year, due to affordability pressures, lower birth rates, and supply growth.
-
Operating revenue fell 12% to $409.1 million, and operating EBIT dropped significantly to $14.7 million, reflecting the challenging environment.
-
Reported a net loss after tax of $38.8 million, driven by impairment expenses from center suspensions and portfolio optimization.
-
Inquiries remain below the prior corresponding period, indicating ongoing weak demand despite marketing efforts.
-
No interim dividend was declared, and the share buyback program remains incomplete, limiting shareholder returns.
Q & A Highlights
Q: Could you talk to the occupancy move in July, which was pretty material, and why there has been this jump in like-for-like occupancy in the last six to eight weeks? A: Pejman Okhovat (CEO): The suspension of operations at 40 centers in June improved the June period. Since then, we have experienced a very similar seasonal pattern from the end of June to last week. At the end of June, we were minus 7.5%; at the end of July, we were minus 7%, indicating a trend-pattern improvement of 0.5%. This is a combination of those center closures and some of our centers performing slightly better than in previous years.
Q: How much of the contribution in occupancy narrowing is due to the closing centers? A: Pejman Okhovat (CEO): We are estimating, at this point, that the impact of those centers is somewhere between 2% to 3%. Industry-wide, we are hearing occupancy impacts ranging from minus 5% to minus 15% on previous years, and we have seen an increasing number of operators closing down.
Q: If the operating conditions and environment go on for another 12 months, what are your thoughts on potentially flagging or looking at further suspensions? And how difficult is it to surrender a lease or divest a center in the current environment? A: Steven Becker (CFO): We will have to assess that as we go, but we can never rule out future suspensions. For the current 40 suspended centers, we are looking to divest or surrender them back to the landlord. We have had some success with buyers and are confident we will divest a number of those centers before December, though not all. We will also have some lease surrenders, either when the lease ends or through arrangements with landlords. Each is a case-by-case proposition depending on the property and lease.
Q: Can you provide more detail on your balance sheet covenants, whether you are talking to banks about covenant holidays, and how close you think you will go come February? A: Steven Becker (CFO): We have three broad covenants and were compliant with those in June, and we expect to be compliant going forward. We rolled our debt with Westpac and have their full support. We don't give the actual numbers, but we are comfortable in terms of our headroom. Pejman Okhovat (CEO) added that no covenant holidays or waivers were involved.
Q: What is the approximate WALE on the remaining suspended centers, and can you give a guide on the annualized cash costs of holding those centers? A: Steven Becker (CFO): We haven't given a disclosure of that. The WALE on those is probably consistent with most of our portfolio, with some shorter and some longer terms. In terms of cash costs, we haven't given a breakout. We have taken an onerous lease contract which will absorb any costs going forward, aside from lease interest which will be amortized into non-trading. We will have the cash cost of those leases to the extent that we don't divest them or come to another arrangement.
Q: Is it fair to assume that the cost savings from restructuring will start to come through in the first half, and you will see half of what you called out? A: Pejman Okhovat (CEO): You are correct in that assumption. The three big activitiessuspension of 40 centers, support-office restructure, and targeted procurement initiativeswill have at least a $10 million annualized impact. We concluded these initiatives fundamentally towards the end of June, so the impact will roll into half one of '27. However, you also have to balance that with cost increases happening around us, particularly in the operating environment of compliance.
Q: Are inquiry levels below PCP on a like-for-like basis, excluding the 40 suspended centers? A: Pejman Okhovat (CEO): The inquiry levels reported are for the like-for-like portfolio, yes.
Q: Can you confirm the maturity of the other debt facility and whether you will try to extend it in the next few months? A: Steven Becker (CFO): There were two tranches and they both expire at roughly the same time in '29. We extended one of our $100 million revolving debt facilities from December '27 to January '29 during the half.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
