Last year’s childcare sex abuse scandal dropped a bomb on Australia’s for-profit operators, which found themselves at the core of the tragedy, and for good reason. Their high staff turnover and lax standards have been described as fertile ground for predators.
Several months on, the shockwaves haven’t stopped.
The latest financial results from G8 Education, the nation’s largest for-profit childcare provider, show an alarming exodus from its centres so far this year. At the same time, the company is getting hit with soaring regulatory and compliance costs in response to the scandal.
The for-profit operators are on notice to demonstrate that they are not putting dollars before child safety – a claim they deny – while being squeezed by rising competition and falling birth rates, which raise the survival stakes.
G8 warned of trouble ahead earlier this month when it announced plans to write down the value of its centres in its financial books by $350 million based on their “projected future occupancy” and “current and expected supply and demand levels”. It also announced plans to conserve its cash.
But the market was still shocked to hear this week that its occupancy levels this year had plunged below those during the pandemic.
Investment bank RBC Capital pointed to occupancy declines so far this year of more than 7 per cent compared to the same time last year. Occupancy levels reached a low of 54 per cent across G8’s centres.
Accused paedophile Joshua Brown’s arrest in the second half of last year had a noted impact on childcare centres’ occupancy levels, and RBC expressed concern that G8’s dismal performance might be a continuation of that trend rather than a seasonal demand issue.
Brown, who had worked at 23 centres across Victoria including operations run by G8, faces 150 charges for alleged sexual abuse of children in his care.
“To underscore the scale of the challenges being faced by G8 right now, we note even through the COVID period, G8’s occupancy remained above 60 per cent and never saw a half-year occupancy decline more than 4.5 percentage points,” RBC says.
It does not appear to be an industry-wide affliction. Attendance at not-for-profit giant Goodstart has been only marginally softer than usual.
G8’s share price, which had halved since February last year, has halved again this month to below 34¢. It’s a low not seen in 16 years – a stark contrast to its high above $5 in August 2014.
G8 blamed a number of factors, including Australia’s declining fertility rate, increased childcare supply and cost-of-living issues for its financial woes.
G8 chief executive Pejman Okhovat appeared before the Victorian inquiry into the early childhood education and care sector this week over the sex abuse scandal that ignited last year when charges were announced against Brown. Most of the charges relate to incidents at centres operated by G8 and fellow for-profit provider Affinity.
Okhovat’s appearance was preceded by another shocking blight, when the Victorian regulator laid criminal charges against the company for allegedly putting a child’s safety at risk at one of its centres. In the alleged incident, a child with diagnosed disabilities exited one of its centres and was later found “by two members of the public in the middle of a busy road where there was fast-moving traffic”.
“We’re absolutely committed to ensuring that we learn from that isolated incident in that centre, and continue to improve,” Okhovat told the inquiry.
But clearly, worried parents are voting with their feet.
Georgie Dent, head of parent advocacy group The Parenthood, cited research by the Mindaroo Foundation that shows one in 10 families has withdrawn a child from childcare in recent months, while many more reduced their childcare hours. “That reflects anxiety about safety, not a shift away from the need for childcare,” she said.
The numbers destroy any complacency that commercial operators don’t have to worry too much about quality as parents don’t have much of a choice. With their high fixed-cost base, the difference between a child care operator making money and losing it hand over fist can swing dramatically over a few percentage points of occupancy levels.
Add to this the rising capital needed to remedy the massive safety holes that the scandal revealed, including the deployment of security cameras, and the financial pressure becomes real.
Goodstart head of advocacy John Cherry says some providers in the industry “impacted by low occupancy may struggle to generate enough revenue to support quality and safety, and be impacted by increased churn of children and employees”.
The cost of regulation is also set to soar. This week, Australia’s education ministers said NSW and Victoria “will increase annual service fees by up to tenfold for services owned by large for-profit providers, fivefold for small for-profit providers and threefold for not-for-profit providers; to reflect increases in the volume, risk and complexity of regulatory activities”.
Then there is market cannibalisation. The Victorian inquiry heard how the for-profit operators were responsible for most of the 500 new centres that opened in Australia last year, but few of them in areas where extra childcare was needed.
“Over the past five years, the supply of licensed places has increased by around 29 per cent, against a backdrop of a declining number of children,” G8 rival Nido Education said earlier this month.
“In this challenging market, we have seen services open in some oversupplied areas, which has diluted demand and led to lower than expected occupancy across local catchments, causing services in the area to trade at reduced occupancy levels.”
Industry insiders say one of the issues is that developing new childcare centres appears to be a more lucrative business than running them. Commercial landlords are also said to be making a killing.
In a submission to the Victorian inquiry, the Centre for International Corporate Tax Accountability and Research estimated that the childcare sector spent as much as $2.7 billion on rent each year.
According to CICTAR, one local agent described childcare real estate as “one of the hottest asset classes”. One centre leased to G8 in Melbourne sold for $17.5 million in 2024.
With the sector in strife, it may be a sign of things to come that some big investors in commercial childcare operators themselves are also now voting with their feet.
This week, super funds Host Plus and Australian Retirement Trust both sold down their stakes in G8 and they probably rue the fact they did not follow the drastic action taken by Vision Super last year.
Vision sold out of G8 Education entirely – and in an indication of just how toxic the commercial childcare provider’s brand has become, it put the company on its excluded investments list, alongside tobacco companies and weapons manufacturers.
“The media coverage of the incidents at G8 Education has been deeply disturbing,” the super fund’s chief investment officer, Michael Wyrsch, said in a statement at the time.
“Our decision to sell the shares reflects the sector’s poor long-term performance, concerns over the implications of the abuse, and heightened regulatory risk.”
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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.
