At Wednesday’s annual general meeting, G8 confirmed it will slow the pace of its acquisitions and focus on quality improvement
G8’s credit metrics have progressively weakened as it used a greater proportion of debt capital to fund its rapid growth rate. However the group has confirmed it will slow its acquisitive growth going forward and has previously highlighted internal leverage and gearing limits. G8’s credit profile has also been bolstered by an extended funding tenor, its intention to increase its working capital facility and the overhaul of the board of directors. With a market capitalisation of $1.5bn G8 is one of the largest issuers in the AUD high yield market.
Slower rate of acquisition
G8 confirmed at its AGM on 25 May that the company’s fastest growth period is likely over. Managing director Chris Scott said that acquisitions will still be important but no longer be the main focus. He said the company will concentrate on the qualitative issues, with 2016 focused on “development and training”.
The company does not have any acquisition quotas, and state it will only acquire businesses which are deemed attractive, reconfirming its 4 times earnings before interest and tax (EBIT) mantra.
The slower rate of growth is also endorsed by the company’s recently stated debt limits. G8 has a stated gearing target of 45% and a leverage target (net debt to EBITDA) of 2.0x or under. AT FYE15 gearing was a moderate 40.5% and leverage at the maximum of its relatively modest target of 2.0x. EBITDA Interest coverage is solid at 5.6x in FY15 and well above the bonds’ covenant level of 3.5x.
Funding profile
| Facility | Currency | Amount | Drawn | Coupon | Next call | Maturity |
| Unsecured notes | AUD | $50m | $50m | BBSW3m+3.9% | 03/03/2017 | 03/03/2018 |
Unsecured notes
| AUD | $70m | $70m | 7.65% | 07/08/2016 | 07/08/2019 |
| Unsecured notes | SGD | $270m | $270m | 5.50% | n/a | 18/05/2019 |
| Overdraft (secured) | AUD | $50m | $0m |
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| Bank guarantee (secured) | AUD | $30m | $26m |
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- In order to extend its funding tenor, G8 issued SGD$270m of notes with a 2019 maturity in order to redeem its outstanding SGD260m 2017 notes. The 2017 notes will be redeemed on 27 May 2016
- G8 intends to enter into a tender process for a new senior secured revolving line of credit in the second half of 2016. It is likely this facility will be larger than the $50m facility currently in place. While this puts a financial claim in front of bondholders, it also provides a source of liquidity if needed. We also note that G8’s current overdraft has remained undrawn reflecting the group’s limited need for working capital as a result of its near 1:1 cash conversion
Key appointment in 2016
The G8 Board has been strengthened with several new appointments in 2016:
- Mark Johnson, Chairman, 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
G8 Education’s updated full research report is available here.