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1 G8 Education Year End Overview 2013 G8 Education Limited (ASX:GEM) 17 February 2014

2 Corporate Snapshot Capital Structure Directors & Senior Management Fully Paid Ordinary Shares (current) million Options Nil Shares Price (13 February 2014) $3.65 Market Capitalisation (as at 13 February 2014) $1.1 bn Cash (as at 31 December 13) $114.0 million Senior Debt (as at 31 December 13) $46.4 million Senior Unsecured Note $70.0 million Jenny Hutson Chris Scott Andrew Kemp Brian Bailison Susan Forrester Chris Sacre Chairperson Managing Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Operating & Financial Officer 1 Year Share Price Chart $3.60 $3.30 $3.00 $2.70 $2.40 $2.10 $1.80 $1.50 $1.20 $0.90 $0.60 $0.30 $- Nov-12 Jan-13 Mar-13 May-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Substantial Shareholder Shares % Holding Perpetual 17.4 million 5.8% NAB 15.1 million 5.0% 2

3 CORPORATE STRATEGY

4 Our Vision & Mission Our mission is to be Australasia's leading provider of high quality, developmental and educational child care services. We aim to achieve this through: A portfolio of outstanding early childhood education brands A focus on the importance of early childhood education By making good centres great through focusing on outstanding early childhood education management Our Corporate Strategy is based around our four pillars for growth and sustainability: Quality Education & Care Employees Community Profitability To nurture and develop children s minds, social skills and confidence in a safe and stimulating environment. To commit to employee development and a rewarding culture which will ensure an engaged and driven workforce. To be responsive to local families and deliver upon community expectations. To grow and derive value for shareholders through innovative services, systems and management. 4

5 Australian Corporate Structure at 31 December

6 Our Brands G8 Education currently manages 13 brands as part of our multi-brand strategy. Three Brands were added to the portfolio in No two G8 Education centres are alike. They are based on the needs and wants of the local community. Our national footprint allows G8 to provide quality care and education for varied demographics. 6

7 FINANCIAL INFORMATION

8 Return on Invested Capital Broker forecasts as at 7 February 2014 CY13 CY12 CY11 Equity as at 31 December as per the Annual Report 304,786, ,307, ,164,091 Fair value adjustments to Equity due to acquisition purchase price gross up due to share price movements 24,026,790 24,026,790 23,835,853 Adjust equity for fair value 280,759, ,280,792 91,328,238 Add Net Debt 171,000 27,462,272 22,232, ,930, ,743, ,560,610 CY14 CY13 CY12 Average forecast EBIT for the following calendar year as modelled by the broker analysts 72,800,000 46,000,000 27,000,000 Return on Invested Capital (ROIC) 25.9% 24.8% 23.8% $M CPS EBIT NPAT EPS CY14 CY14 CY14 Broker A Broker B Broker C Broker D Broker E Broker F Average Return on Invested Capital continues to increase year on year and has increased from 23.8% in CY11 to 25.9% in CY13. A summary of the broker forecasts for the full year ending 31 December 2014 is set out opposite. The average EBIT forecast for CY14 is $72.8m with forecasted NPAT at $48.2m and EPS of 16.0 cents per share. ROIC was 23.8% in CY11, 24.8% in CY12 and 25.9% in CY13. 8

9 Organic Growth Like for Like Occupancy Performance Centres 92.00% 90.00% 88.00% 86.00% 84.00% 82.00% 80.00% 78.00% 76.00% 74.00% 72.00% CY13 CY12 Across 126 centres like for like occupancy increased from an average of 82.0% throughout CY12 to 83.8% in CY13. Occupancy levels continue to improve aided by a combination of increased centre based investment and focused community based marketing campaigns. The improvement in occupancy levels helped drive like for like revenue growth of 10.1% in the period. Like for like centre EBIT growth saw a significant rise of 20% driven by the improved occupancy levels and disciplined cost management 70.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 9

10 Organic Growth Case Study Group Name Ramsay Bourne Number of Centres 25 Acquisition Date Mar-10 Purchase Price (March 2010) $ 16,000,000 CY11 CY12 CY13 Centres EBIT 5,608,000 6,432,000 7,111,000 Effective Multiple Group Name Kindy Patch Number of Centres 24 Acquisition Date Mar-11 Purchase Price $ 22,400,000 CY12 CY13 EBIT 6,130,000 7,503,000 Effective Multiple The 25 Ramsay Bourne centres achieved EBIT growth of 14% and 10% for CY12 and CY13. These results have driven the effective multiple of the acquisition from 2.85 in 2011 to 2.25 in This represents a 21% fall in multiple over 3 years. The 24 Kindy Patch centres achieved EBIT growth of 14% and 22% for the CY12 and CY13. These improvements have driven the effective multiple of the acquisition from 4 times in 2011 to 2.99 in 2013, representing a 28% fall in multiple over 3 years. This growth across 49 centres has been achieved by driving revenue increases and reducing wages as a percent of income via more effective roster management. Revenue growth was driven by a 717 basis point improvement in occupancy from CY11 to CY13 in Kindy Patch centres and 107 basis point improvement over the same period for Ramsay Bourne centres. 10

11 CY13 Audited Income Statement 2013 $ 000 Consolidated 2012 $ 000 Variance % Revenue 275, ,991 53% Expenses (225,776) (150,584) 50% Earnings Before Interest and Tax 49,389 29,407 68% Interest (4,790) (2,539) 89% Net Profit Before Tax 44,599 26,868 66% Net Profit After Tax 31,072 19,209 62% Less non-recurring transactions: Deferred consideration not paid (550) (954) Legal expenses in relation to the Singapore court case & Acquisitions Share based payment expense Stamp Duty Write off of borrowing costs on refinance Net Loss on sale Underlying Net Profit After Tax 32,276 19,730 64% Underlying EPS (cents per share) % Underlying Earnings Before Interest and Tax 50,539 30,012 68% Gearing Ratio 12% 22% Strong revenue growth of $95.2m was reported in CY13 representing a 53% increase from CY12. Reported EBIT margin increased by 1.6% from 16.33% in CY12 to 17.94% in CY13. Reported NPAT margin increased from 10.67% in CY12 to 11.29% in CY13. Underlying EPS increased by 27% from 9.20cps to 11.72cps. Broker consensus EPS for CY14 is 16.0 cps. 11

12 Balance Sheet Consolidated 2013 $ $ 000 Current assets Cash and cash equivalents 114,043 21,790 Trade and other receivables 9,613 12,711 Other current assets 4,424 16,750 Assets classified as held for sale Total current assets 128,080 51,359 Non-current assets Receivables 1,640 1,865 Property plant and equipment 18,069 10,646 Deferred tax assets 7,320 3,558 Intangible assets 326, ,814 Total non-current assets 353, ,883 Total assets 481, ,242 LIABILITIES Current liabilities Trade and other payables 39,825 23,634 Borrowings 3,778 2,720 Employee Entitlements 11,214 7,471 Derivative Financial Instruments Current tax liabilities 8,910 5,176 Total current liabilities 64,010 39,329 Non-current liabilities Borrowings 110,436 46,532 Other payables Provisions 1,974 1,073 Total non-current liabilities 113,170 47,605 Total liabilities 177,180 86,934 Net assets 304, ,308 Cash reserves at 31 December 2013 were $114.0m up from $21.8m at 31 December Other current assets fell from $16.75m to $4.42m. This was a function of our Singaporean assets being reclassified as goodwill post the group taking operational control of the centres on 1 January PP&E has increased by $7.4m from December 2012 to December Excluding the purchase of the new head office building for $3.5m the remaining increase of $3.9m relates to centre improvements and technology upgrades. Intangible assets currently sit at $326.9m. This represents the purchase price of the child care centres (adjusted for fair value movements if applicable). Significant levels of acquisition activity in 2013 has driven the increase in reported goodwill. The increase in trade and other payables of $16.2m is due to the following: Dividend payable - $5.6m; Deferred centre acquisition payments - $2.8m; and $5.5m increase in other payables and accruals (including payroll accruals). Increase in employee entitlements over the period is a function of the increase in the number of centres owned in Australia at year end. Borrowings include senior secured bank debt of $46.4m and an unsecured corporate note of $70m. The amounts recorded in the balance sheet are net of establishment costs. 12

13 Cashflow Consolidated 2013 $ $ 000 Cash flows from operating activities Receipts from customers 274, ,997 Payments to suppliers and employees (218,783) (147,611) Interest received 1, Interest paid (2,039) (2,524) Income taxes paid (12,219) (7,444) Net cash inflows from operating activities 43,035 19,953 Cash flows from investing activities Payments from purchase of businesses (net of cash acquired) (98,536) (57,710) Repayment of loans by Key Management Personnel Inflows/(outflows) of funds for term deposits - 2,967 Proceeds from sale of property, plant and equipment Payments for property plant and equipment (10,500) (4,771) Net cash outflows from investing activities (108,202) (58,797) Cash flows from financing activities Share issue costs (4,440) (1,703) Dividends paid (19,232) (8,077) Proceeds from issue of corporate note 68,505 45,939 Proceeds from issue of shares 115,854 - Inflows from borrowings - 50,737 Repayment of borrowings (3,514) (37,504 Net cash inflows from financing activities 157,173 49,392 Net increase in cash and cash equivalents 92,006 10,548 Cash and cash equivalents at the beginning of the financial year 21,777 11,186 Effects of exchange rate changes on cash Cash and equivalents at the end of the financial year 114,029 21,777 Operating cashflow remains strong at $43.0m for CY13. This represents 120% of underlying Earnings Before Depreciation and Amortisation of $35.8m. Once the timing variance is taken into account for tax expense, interest expense and wage/other accruals the variance of underlying Earnings Before Depreciation and Amortisation to Operating cashflow is under 1%. Operating cashflow increased from $19.9m in CY12 to $43.0m in CY13 due to strong organic growth and contributions from centre acquisitions. Payments for businesses of $95.5m represent the payments for child care centre acquisitions announced and settled during the year. Payments for PP&E at $10.5m were elevated by the $3.5m payment for the new head office building. Cash flows from financing activities have increased by $157.2m during the year due to a share placements in Feb 13 and Oct 13 and the issue of $70m in corporate notes in Aug

14 $m Cents per share Group Financial Performance Group Underlying NPAT & EPS Underyling NPAT Underlying EPS (cents per share) The table opposite shows the underlying group NPAT and EPS growth from CY10 to CY Underlying NPAT has increased by 64% from CY12 to CY13 due to the contributions from acquisitions and strong organic growth in the like for like portfolio. CAGR of 28% for underlying EPS and 61% for underlying NPAT from CY10 to CY Importantly, G8 Education has a focused approach to ensure all acquisitions are EPS accretive. As a result EPS has grown by 27% from CY12 to CY13 and a CAGR of 28% from CY10 to CY13. - CY10 CY11 CY12 CY13 - **Underlying Revenue/EBIT is reported revenue/ebit excluding non-recurring transactions as displayed in page 10 of the Annual Report. 14

15 Financial Margin Analysis 16% 14% 12% 10% 8% 6% 4% 2% 0% 25% 20% 15% 10% Group Margin Analysis - First Half 15% 13% 12% 10% 8% 7% 7% 3% 1H10 1H11 1H12 1H13 Underlying NPAT margin Underlying EBIT margin Group Margin Analysis - Second Half 21% 20% 18% 15% 13% 13% 12% 9% The EBIT margin is affected by seasonal fluctuations in occupancy from January to June compared with July to December due to the transition of children from Kindergarten to primary school in January each year. Underlying EBIT margins have improved through a combination of organic improvements and high quality acquisitions. Like for like centre EBIT margins have increased from 19.97% in CY12 to 21.86% in CY13 across 126 centres. Underlying EBIT margins have increased from 13% in 1H12 to 15% in 1H13 and a further increase from 20% in 2H12 to 21% in 2H13. 5% 0% 2H10A 2H11A 2H12A 2H13A Underlying NPAT margin Underlying EBIT margin 15

16 INDUSTRY INFORMATION

17 Group Centre Portfolio Centre Portfolio Australian centres Singpore centres % 90% 85% Occupancy FY13 FY12 FY11 FY10 1H10A 2H10A 1H11A 2H11A 1H12A 2H12A 1H13A 2H13A G8 Education has continued to make earnings per share accretive acquisitions throughout % 75% Change In Portfolio Additions 9-6 Disposals 2-1 1H10A 2H10A 1H11A 2H11A 1H12A 2H12A 1H13A 1H13A The group acquired 76 centres during CY13 and divested 8 centres % 65% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The total average portfolio occupancy increased 370 basis points in CY13 compared to CY12. This growth is a function of organic improvement and positive centre acquisitions. Like for like occupancy across 126 child care centres has increased by 180 basis points from CY12 v CY13. Average occupancy in CY13 was 84% 17

18 Market Potential Highly Fragmented industry Approximately 6500 long day care centres across Australia G8 Education Limited represents approximately 4% of the market Goodstart represents approximately 12% of the market Estimated approximately 4000 centres in the addressable market % of sector long day care revenue 7.8% Strong long-term demand for early childhood education services Changing attitude from child minding to education/ crucial foundation step to better educational outcomes Increased numbers of women in the workforce expected to continue Government funding increased from $6bn in 11/12 up 63% from 07/08 Undersupply in key demographic areas Strong pipeline of acquisition opportunities Good relationships with brokers and vendors Strong reputation in the sector Disciplined due diligence Implement best practice operating efficiencies to improve organic performance Proven results from previous acquisitions 92.2% G8 Other 18

19 Market Potential Australian Statistics since 2006 Baby Boom 17% increase in number of Long Day Care (LDC) Places since 2006 baby boom Australia ranks 30 th against OECD countries for enrolment rates 31% increase in number of children enrolled in Govt. approved childcare since 2006 baby boom Potential to increase enrolments: Current Government support Funding through Child Care Rebate CCR (not means tested, capped at $7,500) and Child Care Benefit CCB (means tested) Room to move on educational funding Average OECD countries pre-primary expenditure equates to 0.5% of GDP. Australia invests 0.01% of GDP. An increase of funding would significantly increase enrolments inline with fellow OECD countries Since 2006 the 0-5 year population increased by 183,000 (6 times the 20 year average) National Quality Framework introduced in 2012 increases the propensity of parents/guardians to view childcare as an educational imperative Since the year 2000, the proportional attendance rate of childcare services has grown from 21% to 38% in the year to June Sector licencing based on m 2 requirement inside (3.25m 2 ) and outdoors (7m 2 ) compared to other countries like the UK (2.5m 2 ). Source: Educational Indicators in Focus OECD. 19

20 Operational Update Staff : Children Ratio State Age Group Current Ratio Proposed Future Ratio All States 0-24 months 1:4 No change N/A ACT NSW VIC QLD SA TAS months 1:5 No change N/A 36 months to preschool age 1:11 No change N/A Date of change months 1:8 1:5 1-Jan months to preschool age 1:10 No change N/A months 1:4 No change N/A 36 months to preschool age 1:15 1:11 1-Jan months 1:6 1:5 1-Jan months to preschool age 1:12 1:11 1-Jan months 1:6 1:5 1-Jan months to preschool age 1:11 No change N/A months 1:5 No change N/A 36 months to preschool age 1:10 No change N/A Care and education provided for over 24,000 families Under the National Quality Standards each Australian childcare centre must have a bachelor qualified teacher by G8 Education currently has 250 teachers across 234 centres and continues to recruit bachelor qualified teachers. 1,650 children benefit from Kindergarten program funding, totalling $3.0m. Funding is available in QLD, VIC, SA where the centre employs an early childhood teacher. G8 Education invested the following amounts to increase the quality of centres and facilities: $6.8m on capital centre improvements $2.6m on educational and teaching resources 20

21 Operational Update The group employee retention rate for permanent staff improved by 2.19% when compared to Retention rates are well above the industry average. At 31 December 2013 the group had 19,085 licenced places per day and employed 6,288 employees. In 2013, an additional 10 Operations Managers were added to the team to position G8 as an industry leader in quality care and education, resulting in 25 early learning experts supporting our centres. 30% Staff Turnover 28% 26% 24% 22% 20%

22 Significant Events Post 31 December 2013 Since 31 December 2013 G8 Education has announced it has contracts to acquire 63 childcare and education centres with a total licence capacity of 4,254. The total purchase price for the 63 centres is $ million with $ million payable at settlement and a further payment of $0.82 million conditional upon the centre based EBIT target being achieved in the 12 months post settlement. The purchase price is based on 4 times anticipated EBIT for the 12 months post settlement with settlement expected by 30 April The Group signed a revised facility agreement with Bank of Western Australia which extends the term of the senior debt facility until March The table below illustrates the updated EBIT, NPAT and EPS for the 2014 year following the announcement from the 3 analysts that have released updated forecasts: Broker forecasts as at 11 February 2014 $M CPS EBIT NPAT EPS CY14 CY14 CY14 Broker B Broker C Broker D Average

23 THANK YOU Questions?