The news from Australia’s commercial childcare providers this week illustrates the all-encompassing crisis embroiling the industry – and who is paying the price to fix it.
Listed childcare provider G8 Education reported a plunge in revenue and occupancy for the June half year, as well as a $39 million loss for investors who have watched the stock drop around 90 per cent since last year when the childcare sex abuse scandal erupted.
Part of the loss related to writedowns from the suspension of 40 struggling centres which seem unlikely to reopen. On a conference call with investors following the half-year results, G8 executives did not rule out further centre closures.
G8 chief executive Pejman Okhovat said the recent closures are part of the reason the plunge in occupancy across its remaining 359 centres was alleviated slightly in June. Spot occupancy was down just over five per cent compared to this time last year.
Other operators are doing far worse.
“We’re hearing anything from kind of minus five per cent, minus six per cent to about minus 15 per cent on previous years. And unfortunately, as you’ve noticed, we’ve seen an increasing number of operators that are actually just closing down as well,” Okhovat said.
G8’s cannibalisation strategy is providing a modest pay-off, but its staff and parents won’t be celebrating.
What was not evident in the numbers presented to investors this week is the 1600 staff who no longer work for G8, and 7000 children no longer in its care – largely a result of the closures.
If this wasn’t sobering enough, the following day, private equity owned Edge Early Learning went into voluntary administration, putting the future of its 70 centres in doubt.
“We understand that this may be a confusing and stressful development for families who rely upon Edge Early Learning to provide care for their children,” the company said on its website.
It should not have come as a surprise.
This month its landlord, Arena Real Estate Investment Trust (REIT) saw its shares plunge after it revealed Edge was no longer paying rent on 31 properties Arena owned, and a default notice had been issued. The deadline for remedying the default expired this week.
And while the company says it is operating its centres on a “business-as-usual” basis, parents and staff will already know that this term has a rather loose interpretation at Edge.
In April, multiple incidents with Edge centres in South Australia culminated in one centre being suspended from operating for three months due to repeated serious supervisory breaches. It isn’t the only one.
According to media reports, as many as five centres have been suspended from operating since last year for breaches – and at least one of them for three months.
All of Edge’s South Australian customers were left scrambling on May 1 when the group took the desperate step of a “Statewide Day of Action” to give every employee additional training to address the regulatory-induced chaos.
Even healthy operators are feeling the heat.
On Thursday, shares of another listed child care operator, Nido Education, plunged more than 20 per cent after it reported a loss for the June half-year, withdrew its guidance for 2026 and said it is reviewing its cost base.
What is becoming clear is the sex abuse scandal is having an ongoing impact across the whole sector, not just the main commercial operators whose centres were directly implicated: G8 and private equity-owned Affinity Education.
The duo’s centres were among those which employed Joshua Dale Brown, who was charged with more than 70 sex offences against eight children aged under two in their Victorian centres.
The scandal did not warrant a single comment in G8’s media release for its half-year results this week – and Edge was not involved at all – but they are both hostage to the regulatory forces the scandal has unleashed as government agencies ensure every effort is made to assure parents that commercial operators are not cutting corners at the expense of their children’s safety.
“Safety and compliance remain our highest priorities,” Okhovat told investors after unveiling a long list of costly remediation on this front. “Importantly, these initiatives are delivering results.”
His next comment may explain the wave of failures, like Edge, which are hitting the sector.
“While sector statutory compliance actions doubled compared to the prior corresponding period, G8 reduced the statutory compliance action by five per cent. Reportable compliance incidents reduced by approximately 25 per cent, while high-risk compliance incidents reduced by 56 per cent,” he said.
The evidence is clear from new enforcers like the Victorian Early Childhood Regulatory Authority (VECRA).
It took 39 statutory actions against childcare operators in the first quarter of this year, up from 9 in the same period last year.
This includes the three-month suspension of one of the Affinity centres where alleged paedophile Joshua Dale Brown briefly worked for “serious and concerning” non-compliance issues.
“Immediately suspending a provider is a decision which impacts the childcare arrangements of parents and caregivers, but we make this decision because we know they wouldn’t want us to compromise on safety,” VECRA’s Wendy Steendam said about another suspension this month.
Perversely, closures and centre failures may be helping ease the financial carnage unleashed by an industry where landlords have been rewarded for oversupplying centres to a market with tepid demand growth and rising costs.
As G8 – and ASX releases from childcare landlords – makes clear, the flood of money supplying new centres is waning.
G8 said the net supply of centres in the most recent quarter was the lowest quarterly growth in 10 consecutive quarters.
Another Edge landlord, Charter Hall Social Infrastructure, said it is engaging in “portfolio curation”, selling off 32 childcare properties last year and lifting its investment in alternative areas like education and health.
In a research note on Edge landlord Arena REIT, Macquarie analysts said it conservatively assumes “the industry is oversupplied by around 10 per cent” and noted the significant drop in supply this year and a significant increase in centre closures.
“Closures increased to 210 versus 120 (five year average),” it said.
It means the commercial operators that can afford the cost of providing a safe environment will find a bottom to their falling occupancy – aided by the collapse of operators which cannot survive the regulatory scrutiny.
But many more families and staff will be left scrambling.
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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.From our partners
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