G8 Education Limited (GEM) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the G8 Education Limited half year results investor call. [Operator Instructions] I would now like to hand the conference over to Mr. Gary Carroll, CEO. Please go ahead.

Thanks, Kelly. Good morning, everyone, and welcome to the 2020 Half Year Results for G8 Education Limited. My name is Gary Carroll, and I'm the CEO and Managing Director for G8 Education, and I'm joined on today's call by the group's CFO, Sharyn Williams. As we've done in the past, we'll walk through the investor presentation that was posted on the ASX earlier this morning and then provide time for any questions. But before I start the formal presentation, I'd like to acknowledge the entire G8 Education team for their outstanding courage and efforts during what's been an incredibly challenging period. Slides 4, 5 and 6 provide a summary of key events and achievements during the half, covering the impact of COVID-19, our financial results as well as an update on current trading, strategic implementation and outlook. Starting with the COVID-19 impacts on Slide 4. The initial stages of the pandemic led to the large withdrawals of children from care across the sector due to health and safety concerns, changes in working arrangements and unemployment. Recognizing this, the government responded to provide a series of relief packages to ensure sector viability, allowing centers to remain open and fulfill their role as an essential service to the economy. Pleasingly, occupancy and attendance levels recovered from the April lows due to infection rates being contained and the government relief package easing the financial burden for families. In July, the government relief package was amended, reinstating fees for families that attended centers while continuing to provide funding support for operators and waiving fees for families that were not attending centers. The impact of removing free childcare was better than expected and occupancy has been growing steadily since in all states, except Victoria. As a group, we are very aware that our operating environment will remain subject to changes in infection levels and lockdown responses, so we continue to be agile in our response both in terms of health and safety and cost management. Slide 5 sets out the key financial results for the half year. As a result of the $237 million noncash impairment expense that was announced to the market on the 11th of June, the group recorded a statutory loss of $239 million for the half. Our underlying EBIT was $29 million, reflecting the net effect of COVID-19 impacts and the government support packages. We'll unpack the key components of this result later in the presentation. G8 achieved its aggregate cash preservation and cost-saving targets that were set at the April equity raising. And this performance, together with the $301 million equity raising, has enabled the group to finish the half with net debt of $57 million. During the half, the group also completed the settlement of its committed greenfield pipeline with the final 10 centers being opened. Turning to Slide 6. The group's current occupancy is 69% with attendances running at 50%. All states, except Victoria, have normal attendance levels relative to occupancy. And in this sense, G8's national footprint provides a degree of portfolio diversification and protection, given the varying impacts of COVID by region or state. From a strategy perspective, we've maintained our Acceleration Program to turn around the quality and performance of selected centers with the focus being on ensuring a consistent, high-quality education program and family experience in the relevant centers. And this work was undertaken across 108 centers in the first half. Looking forward to the balance of 2020. Government funding mechanisms are in place until the end of September with the government demonstrating a really good track record of responding swiftly to COVID-driven -- to COVID-19-driven changes such as lockdowns. Given the ongoing uncertainty and market volatility, G8 is not in a position to provide guidance on expected underlying occupancy or financial performance. What we do know is that as a result of the changes implemented over the past few months, we have the financial flexibility, disciplines, processes and people in place to ensure we can emerge from the COVID-19 environment as a stronger business. And given that summary, I'll now provide a more detailed review of operations for the half, starting with our operational response to COVID-19, which is set out in Slide 8. Our #1 priority during this time has been the safety and well-being of our children and team members. To ensure this, we undertook a series of actions from increased infection control measures and amended center routines through to mental wellness support for our team members and toolkits for families on how to talk to children about COVID-19. During the period up to 19th of August, we temporarily closed 10 centers for short periods of time, in each case, working closely with and following the relevant advice and directions of the government. From the initial stages of the pandemic, G8 has maintained a dedicated COVID support and case management team, providing support and communication to our teams and families as we navigate the crisis together. It's heartening to report that we have substantially maintained our center-based teams throughout the period, positioning us well as we recover from the pandemic. Finally, we ensured that families that were not attending our centers remained engaged with the center community via the provision of at-home learning support and a content hub. The financial impacts of COVID-19 are set out on Slide 9. In the half, the group received $89.3 million in funding in the form of the initial early childhood education and care relief package with this funding being capped and replacing all other forms of fee revenue during the funding period. In mid-July, the funding package was amended with $51 million in government funding revenue expected in half 2, augmenting the CCS and parent fee revenues that were reinstated from the 13th of July. The group also received $70.8 million in net JobKeeper funding in half 1 with $14.1 million expected in the second half of the year. As part of the government funding arrangements, all employees, such as G8, are required to maintain employment levels based on the July reference period up until the end of September. From a cost-saving and cost preservation perspective, the group achieved its aggregate targets. Total rental waivers or deferrals were $8.2 million versus an original target of $12 million with the variance being driven primarily by the relief period being around 3 months rather than the expected 6 months. This variance was offset by wage efficiencies throughout the period. 60% of the rental relief was in the form of waivers with the remaining taking the form of deferrals. Other cost savings were slightly better than forecast during the half. A number of capital structure initiatives were undertaken during the period, positioning the group's balance sheet to withstand any prolonged downturn. Now I won't steal Sharyn's thunder on this aspect other than to note that the payment of the deferred dividend will be made in October 2020 and the strong support we've received from our banking group, including the extension of covenant relief and debt facilities until December 2021. The story of the group's occupancy during the first half is contained on Slide 10. And we split the year-to-date into 3 phases: firstly, quarter 1, where occupancy reduced as parents withdrew their children from care or reduced bookings due to COVID-19 until the government support package in early April removed parent fees; secondly, the rebound in occupancy in quarter 2 as COVID-19 infection rates reduced and childcare was free; and lastly, the period from 13th of July following reintroduction of parent fees. It's been pleasing to see occupancy continuing to grow even after parent co-payments have been reestablished. At an overall level, occupancy is behind last year due to the seasonal uplift that historically occurs in quarter 2 being impacted by COVID-19. Slide 11 provides a further breakdown of occupancy, highlighting the movement in bookings and attendance during the half. The 3 key takeouts from this slide are: firstly, the recovery in attendances in all states, except Victoria, since the April low; secondly, the smaller-than-expected drop of circa 3 percentage points in bookings following the reintroduction of parent fees; and thirdly, the significant impact on attendances of the stage 3 and stage 4 lockdowns in Victoria. The period from April to July presented significant challenges to the sector with revenues being capped and attendances growing, placing pressure on costs. G8 responded well during this period, as highlighted on Slide 12. As part of our COVID response, we increased the frequency and scope of our wage management activities. And we utilized some of the technology that we'll be rolling out at scale as part of our roster project. The outcome of this work was wage performance exceeded the target set in April, driven by roster management, including annual utilization and JobKeeper subsidy relief. I'll now hand over to Sharyn to talk through the group's financial performance for the half in more detail.

Thank you, Gary. I will now walk through the financial drivers of the group's results, including the statutory results, the pre-AASB 16 result and the underlying performance of the business over the past 6 months. Turning to the half year 2020 snapshot on Slide 14. This slide sets out the statutory and pre-AASB 16 results of the group. Revenue of $308 million, 28% lower than prior comparative period, reflects the impact of COVID-19 and the government support packages for the sector with the decrease in revenues isolated to quarter 2. During the second quarter, the government funding model effectively capped revenue for the group, irrespective of occupancy levels, based on the reference period in late February, coinciding with the seasonal low point of the year. This subsidy package protected the group's revenue from parents withdrawing children from care in the early stages of COVID-19 restrictions. However, it also removed parent gap fees. As a result, cost management was a key focus of this period. From a statutory loss point of view, the key driver was the previously announced impairment, which is noncash in nature and reflects the reduction in carrying value of assets on the balance sheet. This impairment was flagged to the market on 11 June 2020. And the material items making up this amount are twofold, firstly, an impairment of goodwill of $150 million, driven by the COVID-19 impact on the future cash flows of the group, particularly the near-term cash flows and the resulting impact on the group's goodwill carrying value. Also within this adjustment is an adjustment to the carrying value of the Singapore business. The second material driver of the non-trading items was the strategic review of the portfolio, which resulted in a number of centers being identified as underperforming. This resulted in $90 million of AASB 16 right-of-use assets and PP&E assets being impaired. You will recall that this right-of-use asset was brought on to the balance sheet due to AASB 16 in January 2019 and now forms an additional asset that must be tested for impairment. From a pre-AASB 16 perspective, the pro forma columns reflect key changes to the P&L from the changed leasing standard, which can be seen in the reduced occupancy cost line, offset by increases to the depreciation and finance cost lines. In terms of the cash flow and balance sheet impacts, we committed to providing 2 years of pre- and post-AASB 16 financials to show the impacts of this new accounting standard. These financial statements have been outlined in the investor presentation appendix. And the final year results will also be provided on a pre-AASB 16 basis. Adjusting for the impairment and noncash items outlined in the notes to the financial statements, the group achieved an operating profit with an underlying EBIT result of $29 million and an NPAT of $12 million. Although EBIT was down 44% on PCP, it was pleasing that each of the 6 months during the period produced a positive EBIT performance, driven by effective cost management. At an EBITDA level, the underlying $40 million result was a 36% reduction on PCP. However, the EBITDA margin held up well, reflected in the 12.9% margin, a 1.5 percentage point reduction from PCP. From a net profit perspective, reduced finance costs reflect the benefits of the refinance of the Singapore notes. Cash conversion remained strong at 98% during the half and the dividend deferred from April will be paid to shareholders on 30 October 2020. Turning now to a more detailed overview of operating performance on Slide 15. Reductions in the cost base are evident with an organic EBIT margin of 18.5% being achieved despite significantly lower revenues. As mentioned by Gary earlier, quarter 2, in particular, presented a challenge to the sector as cost pressures increased under the government's capped revenue model while attendances grew with free child care and the easing of COVID-19 restrictions. In April, we outlined in our equity raise presentation that we expected to be cash flow breakeven during the COVID-19 period. Costs were managed well with organic wages before the benefit of JobKeeper subsidies reducing by 7% and annual rental increases offset by COVID-19 rental abatement negotiations, resulting in flat rental amounts year-on-year. This resulted in a better-than-expected quarter 2 result, which is broadly 40% of the half year earnings. The drivers of this outperformance being better wage optimization, $2 million of rental concessions being recognized in the P&L and usage of annual leaves. Other costs reduced by 14% compared to the prior comparative period, driven by our cost being restricted to critical spend and attendance levels reducing variable costs. In addition to managing wages to attendance levels, the JobKeeper subsidy provided a further variable to wage management. The combination of effective roster management, maximizing the JobKeeper subsidy and utilization of annual leaves resulted in a wage outcome that exceeded the targets we set in April. Our 2017 to 2020 acquisition cohorts are also outlined, although it is difficult to infer the performance of these recently acquired centers, given the COVID-19 and government subsidy impacts. From support office cost point of view, these were flat on prior comparative period. The planned March 2020 fee increase was not implemented due to the government subsidy arrangements with fees remaining at the level they were during the February reference period. Turning now to Slide 16, which outlines the cash conversion of the business measured on a lease-adjusted basis, that is before AASB 16. Cash flow conversion was 98% of underlying EBITDA, driven by cost control and cash preservation. During the period of free childcare, a focus on working capital assisted this strong cash conversion result. During the period, 4 centers were settled for $11 million with operating cash flows, funding CapEx commitments and lease acquisitions. This now completes the greenfield pipeline. Slide 17 outlines the capital management of the group. During the period, the group raised $301 million in equity. The net proceeds of these funds are reflected in net debt as the operational cash flows have supported the business requirements. So there has been no requirement to draw upon these equity funds. The capital raise significantly reduced the group's leverage with net debt at June 30 of $57 million. This provides the group with significant liquidity and cash reserves to buffer a sustained period of COVID-19 impacts. The dividend policy of the group remains temporarily suspended in light of heightened uncertainty still being presented by the current COVID-19 situation. The Board may consider dividend payments in the 2021 year, subject to financial performance. The forecast 2020 CapEx is estimated at $25 million to $30 million. And CapEx requirements for the first half were funded from operating cash flows. The debt facilities of the group are currently drawn to $300 million with a staggered profile of expiries out to October 2025. Cash on hand of circa $240 million results in a net debt position of circa $60 million, better than anticipated at the April equity raise due to a better quarter 2 result, better reductions and COVID-19-related cash management opportunities. The group's net debt facility expiry is over 12 months away in October 2021 and relates to the undrawn $200 million revolving facility. The company has experienced strong lender support with covenant relaxations being applied through to December 31, 2021. This extension takes into account the COVID-19 impact and the rolling nature of covenant measures as they roll through the 2021 metrics. Turning now to our capital metrics on Slide 18. The group's key financial ratios are net debt-to-EBITDA leverage, fixed charge cover and gearing. Net debt levels ended the period at $57 million, in line with the pro forma balance sheet provided in the April equity raise document. Leverage was 0.4x at 30 June 2020 based on the last 12 months' underlying EBITDA, reducing from 2.3x at 31 December '19. The fixed charge cover ratio reduced during the period to 1.6x due to the COVID-19 impact on EBIT. Gearing ratios are expected to be impacted by the rolling nature of these measures and a COVID-19-impacted performance. However, the group remains conservatively geared. The group has a strong capital position based on the recent equity raise and the covenant extension, which positions the group to withstand a sustained COVID-19 impacted period. From a return perspective on Slide 19, returns on capital employed has reduced during the period, reflecting the decrease in earnings and the increase in capital from the equity raise. I will now hand back to Gary for strategy update.

Thanks, Sharyn. We'll now turn to an update on implementation of the group's strategic plan. As outlined in our Investor Day in November 2019, the group's priorities as part of its Acceleration Program are the turnaround of selected centers and the optimization of the group's center network and cost base. Slide 21 provides an update on each of these areas. We have maintained the dedicated turnaround team during the first half with the team being focused on driving improvements in learning environments and people capability as we know that driving quality in these areas drives improved occupancy and operating performance. Progress has been good with the team undertaking improvement activities in 108 centers in half 1. The focus in half 2 will be on embedding these improvements as well as rolling out an enhanced website platform for a number of brands and launching our child protection program in partnership with Bravehearts. From a network and cost base perspective, the implementation of the new rostering system is on track to be completed by the end of the year. This system will improve visibility, optimize rostering and automate award compliance with a review of award and legislative requirements being undertaken as part of project implementation. The greenfield pipeline was completed in half 1 with a new approach involving high-quality partners and lower capital investment to be adopted to secure attractive future site locations. Any such greenfield acquisition activity will be measured and considered within the backdrop of the prevailing operating environment. As announced on the 11th of June, and as Sharyn alluded to, the groups completed its strategic portfolio review with this review culminating in an $82 million noncash impairment of right-of-use assets and PP&E for 52 centers as highlighted on Slide 22. Over the coming periods, we'll be working to exit these underperforming centers. Doing so will improve the occupancy, quality and earnings of our core portfolio with the relevant uplifts being set out in the slide. We've also entered an agreement to divest our Singaporean business. And we expect to finalize this divestment in half 2, subject to various regulatory approvals and the satisfaction of certain conditions precedent. The other key activity that's been undertaken in relation to portfolio optimization has been the reengineering of our greenfield acquisition model. This model, which is set out in Slide 23, features 2 key changes: the establishment of relationships with high-quality national development partners and a much lower level of upfront capital investment. These changes are expected to provide the group with access to better-quality site locations and improved financial returns. And we'll continue to keep the market updated as opportunities progress in this space. Before turning to our trading update and outlook, we've set out the snapshot of the supply-demand profile for the market on Slide 24. From a macro point of view, net supply growth slowed substantially in quarter 2, being 68% lower than the prior corresponding period. While closures were actually down slightly year-on-year, the impact of COVID on new center openings was clearly evident in quarter 2, driving the overall reduction. At a micro level, the number of G8 centers impacted by supply within 2 kilometers of an existing center decreased by 33% year-on-year. As discussed previously, the focus of our Acceleration Program is on countering this supply threat by improving the quality of our centers, this -- as this continues to be an effective way of mitigating the impacts of new supply. Turning to the current trading and outlook, which is set out on Slide 25. COVID-19-impacted trading conditions are expected to continue. And given this backdrop, the group will continue its disciplined approach to cost and cash management. The Acceleration Program has continued despite COVID-19, focusing on consistent, high-quality education programs and family experience. Government funding mechanisms are in place until the end of September with a track record of swiftly responding to COVID-19-driven lockdowns. The national footprint of G8 centers provides a degree of portfolio diversification protection with COVID-19 impacts varying by region and state. The removal of JobKeeper and government stimulus is expected to impact unemployment levels. The level of restrictions will also impact bookings moving forward as will government support for the sector, for example, the waiving of parent fees. The deferred CY '19 final dividend will be paid on the 30th of October 2020. A combination of the group's net debt position, lender support and covenant relaxations until December 2021 provides the group with substantial financial flexibility to withstand a prolonged downturn. While current occupancy levels of 69% are solid, given the ongoing uncertainty and market volatility, G8 is not in a position to provide guidance on expected occupancy or financial operating performance. With the changes implemented over the past few months, G8 now has people, balance sheet and processes in place to emerge from the COVID-19 environment as a stronger business. That concludes the formal part of the presentation. I'll now hand back to our host to start the Q&A session.

[Operator Instructions] Your first question comes from Tim Plumbe with UBS.

Can you hear me?

Yes, sure.

Just 2 questions from me, if that's all right. Firstly, maybe just around the current occupancy levels sitting at 69%, probably a lot higher than most of us were expecting at the moment. When you take into consideration that occupancy level plus the temporary payment that you've got to appreciate that it only lasts until the end of September. But can you maybe talk about how you guys are tracking in terms of monthly cash performance at the moment?

Yes. So we won't provide detailed numbers as I'm sure you'll understand, Tim. But certainly, we are tracking ahead of our internal forecasts. And it's pleasing to hear we're tracking ahead of market expectations. So that would generate a pretty solid result in quarter 3, where the focus will then turn to what's going to happen in quarter 4, when those -- if and when those subsidy arrangements expire.

Yes. And just the other question...

Sorry, just to complete that, Tim. We did try and help people by providing some very specific numbers in the presentation about the amount of government funding revenue that we're going to get in quarter 3: $14 million, JobKeeper; and $51 million, government funding. And we're hopeful people -- that will enable people to do a pretty good forecast off the back of our current occupancy levels in terms of quarter 3 performance.

Got it. Just the second question, thinking about the Acceleration Program. Can you maybe touch on some of the initiatives that you've been focusing on over the last kind of 3 months? And more importantly, what's in focus for the next 6 months, how we should think about that in terms of the flow-through impact to the business, either in terms of improved occupancy or dollar of cost saved?

Yes. So we did clearly need to make adjustments to that program, given COVID, because the more capital-intensive asset refurbishment programs were deferred when COVID hit. And we -- what we continue to focus on was rolling out our reengineered learning environments and practices as well as center work routines and helping our center managers from a leadership and operating capability perspective. We made really good progress around the 108 centers in the first half in that sense, Tim. So not capital, but lots of focus on improving operational effectiveness, particularly around learning environments. What we're looking to do is embed those over the second half of the year. So as I'm sure you'll appreciate, building that capability, that requires a bedding-down period. About 70 of those centers were located in Victoria with the remainder being in New South Wales and ACT. We're also very aware of what's happening in Victoria at the moment and not wanting to push the envelope too much for those centers during this period. And we'll also be rolling out an enhanced web platform for a number of those brands -- a number of our brands in [ there ]. In terms of what that plays out from an occupancy and operating performance really is subject to the overarching impact of COVID on our operating environment. We're certainly hopeful that those centers will present much more favorably for the key enrollment and transition period at the end of the year. So we're certainly very hopeful of generating improved occupancy levels leading into 2021 in those centers.

Got it. And sorry, I might have missed it on the call. But in terms of the electronic wage rostering or the new rostering software, where are we with that?

So that's due to be rolled out by the end of November across all of our centers. So we'll actually -- we're in the midst of UAT, et cetera, and training of the team, and we'll be doing staged rollouts with our first pilot group coming up in a number of weeks. So that project is absolutely nearing completion.

Your next question comes from John Hynd with Wilsons.

Perhaps some more color on Victoria, if you could. Are you able to give us some color on maybe revenue per month in the region? And is it harder to keep those assets at breakeven? And how are families responding the longer we're in the lockdown period?

Okay. Thanks, John. So what I can give you is our current enrollment and attendance levels in Victoria. And then I might do a wrap-up of the funding arrangements that are in place to enable you to get a sense of what that means. So if we look at our stage 3 lockdown areas, their enrollment is broadly equivalent to the rest of Australia, attendances are in the low to mid-50 percents. Our stage 4 lockdown area enrollments are reasonably consistent, attendances are in the low 20s. And in terms of the revenue that we get relative to those centers, for parents that are attending, we get a full fee, so we get the parent gap fee and CCS. For parents that are not attending, we get CCS, which is circa 60% of our full fee. We also for stage 4 lockdown centers, and we've got about 116 of those, we get a 30% government transition payment. And that's 30% of the February reference period for Victoria. For stage 3 lockdown centers, we get 25% transition payment. So if you add all those numbers up, the total subsidy for Victoria is around about $4 million or $5 million a month to augment the reduction in attendances. I'm not going to give you whether that means breakeven, but we -- certainly, that subsidy closes the gap substantially, bearing in mind that we maintain our employment levels during that period as a requirement of the government funding package. But we're feeling pretty okay that Victoria won't be a significant drain on our cash flows if we keep up those current levels of performance.

Okay. And sort of leads into the next question around it being quite a -- it sounds like it was quite a good second quarter. It's hard to tell in the pack, but were there -- I guess did you -- did the portfolio benefit from occupancy being below the, I guess, the previous breakeven level? Were there any tailwinds there? Or has this come down to -- result come down to just good cash and cost management?

Yes. So I mean, revenue was capped for the quarter, so there was no way to drive revenue to get an improved result. So it was really down to 2 things, John. One was the government funding package. Like everyone in the sector, we were the beneficiaries both from the early childhood education and care relief package, which wins a price for the longest title, but it was very helpful to maintain liability, and JobKeeper during that period. And from a G8 perspective, it's all down to how well we managed our cost and cash. And we did slightly better than what we'd forecast in that respect.

Okay. And can we perhaps touch on the new, I guess, the divestments as well? It's a surprise to see Singapore being divested. What -- can you give us some color around that part of your portfolio? We don't talk about it often. How should we think about valuations? And I mean, what's the invested capital? And what were they purchased for originally, please?

Yes. So Singapore, we've got 17 owned centers, 18 franchise centers. At that level, and we've done a detailed review of our portfolio and the market, and we formed a pretty clear view that we have a subscale business in that market. And without -- we would need to invest significant capital and change our business model quite materially if we wanted to change the trajectory of that business. We formed the view that we'd be better off getting out and allowing another player to come in and take those assets and we'll focus on Australia. We think we've got great opportunities to optimize our portfolio in Australia. In the accounts, we're now carrying those assets at the expected consideration value for those, results in an impairment of circa $5 million. Original purchase price for those businesses, and bear in mind, it was a while ago, was circa $30 million.

Great. And did -- are the metrics similar to that of an Australian center in terms of places in revenue? Or is it a different equation?

That business hasn't been performing as well as Australia in terms of operating profitability. The size of the centers and the revenues are slightly lower and the operating -- the profit performance has been significantly lower.

Right. Can we -- I mean do we read into that, that it's potentially loss-making?

No. It hasn't been loss-making, but it hasn't been a material contributor to profit. Although it's done better in 2020, but yes, it's not at a level that excites us in terms of continuing to invest, which is why we've made the decision we have.

Okay. And just last one for me. The net debt was meant to be $100 million by June following a raise. But you've obviously come in materially below that, which is a good result. What were the key drivers there? And can you perhaps explain why the second half interest guidance is -- it looks like it's unchanged at that $20 million. Do we expect some movement in '21 as a result of the paydown or reduction?

Yes, John. So the interest split for the year, you'll see the second half is lower, around circa $9 million. We did have that forecasting when we spoke at the equity raise, so nothing changed since then. Going forward to 2021, you'd then be looking at circa $17 million for interest, all else being equal. But we are seeing that reduction in interest in the second half.

And the better debt performance was driven primarily from better quarter 2. We also did a good job managing our debtors' position during quarter 2 when it was free. We encouraged our families to clear any debts they had and they participated very well so that was appreciated. And lastly, there was some COVID-related cash flow benefits that we hadn't originally parked in. Various governments have instituted additional funding pieces, which aren't massive, but they've certainly been helpful along the way. Whether that's temporary relief, payroll tax, cleaning funds, there's a whole bunch of stuff.

Great, Gary. So Sharyn, could you just clarify the comment around '21? I missed that about...

You'd be able to take the second half and double it for 2021, all else being equal, so around that $17 million.

Your next question comes from Aaron Muller with Canaccord Genuity.

Well, obviously, the EBIT number of $28.7 million has been normalized for the write-down. But there's also about $10 million of non-trading expenses or other non-trading expenses. Could you just run through those, please?

Sure. So at the half year, Aaron, we had a thorough review of the balance sheet. And at that time, we took up some provisions for items such as debtors. These are all outlined in Note 4. So there's a number of items there that we took the opportunity to review at the half year. Things like taking into consideration specifically the COVID impact, affordability for parents did play into specifically that data piece and also some items that we wanted to ensure we had coverage of, such as some inventory items that were slow-moving.

Yes. Okay. And then just on the -- obviously, it's not -- there's no price increases that have gone through this year. But how are you thinking of price increases? And how should we be thinking about them for CY '21?

Yes. Good question, Aaron. So like everything in the COVID world, we'll be pretty agile as it relates to pricing. Very clearly, we will not be doing anything during the government funding period. It's a specific requirement of all operators. There's no fee increase between now and the end of September. We will then survey the market from that point and work out the best time in relation to a price increase, balancing our occupancy levels, our family feedback and their requirements and what it means in terms of maintaining a competitive pricing position in the market. So if you're interpreting all that to be, we haven't fixed the timing of price increase at this point. We haven't -- we'll continue to survey.

Your next question comes from Gareth James with Morningstar.

Sorry, I was on mute then. Just would like to ask about -- yes, sorry about that. So firstly, on the Acceleration Program, just wondering if you were able to quantify how much is being spent, how much you expect to spend going forward and also the same for expected savings?

Yes. So to date, our expenses -- year-to-date, Gareth, our expense have been tied to team costs, so it'd be circa $1 million. We haven't invested the capital that we originally flagged in that program. So costs are well down. Moving forward, if we assume a return to a more normal operating environment, we would look to pick up the refurbishment activity. So that clearly won't be happening in 2020, may happen in '21 as well as some resources for our centers, which we've kept pretty tightly controlled. Now we may start to increase that, but that's all subject to operating environment. We flagged in the Investor Day a cost for that program of circa $10 million on an annualized basis. We certainly wouldn't be looking at it getting anywhere close to that in the next 6 to 12 months.

Okay. And then are you also able to kind of make similar comments for the rostering system?

Yes. So roster system CapEx will be somewhere $5 million from an implementation point of view. We still maintain our target cost savings to be in the high single-digit millions from a wage efficiency point of view, I guess -- and we actually, in some respects, have started harvesting a little bit of that already because we've utilized the technology that we'll be rolling out at scale -- period. We've seen some good results out of that, which gives us some increased confidence around being able to generate those sort of cost-saving targets.

Okay. Just on that rostering system implementation, could I just clarify, is that purely an IT system implementation as opposed to a change in kind of working practices?

No, it's both. It's -- we're moving all of our people processes onto one platform. From a technology point of view, we're changing our roster system, we're changing our HR information system. So that covers all aspects of people processed from recruitment, onboarding, forms management, et cetera. We're changing our recruitment system as part of that. We've taken the opportunity to review all of our policies, processes and procedures around that, including the centralization of a number of tasks that are currently being done at the center. One of the benefits of the project is we take a lot of the people-related admin burden away from our center managers, whether that's in recruitment, whether that's in onboarding, et cetera. So we get benefits not only in terms of center admin time but also pure roster savings. But it's a whole process redesign of our people process.

Okay. And just one final one, if I may. Are you able to just clarify the figures for centers opened and closed in the first half and then the same expectations for the second half, including the divestments?

Yes. I think they're outlined in the details in the pack. I think it was around 4 that were closed with 1 that's been closed...

Since then, we opened up 10.

Since then. And we opened -- and that's correct.

Sure. And then in the second half?

In terms of closures, at the moment, we've had 1 to date. And there may be another handful. No new settlements in the second half. We've got a slide in the back of that pack there that will walk you through those numbers.

Right. Okay. So -- okay. But the comments around the right-of-use asset impairment, isn't that relating to centers that are going to be closed or divested?

Over the coming periods, we'll be doing that. But timing is very uncertain at this point, Gareth. So we've done the work to identify where we need to focus. We will then start in earnest on how we go about doing that. Clearly, our near-term priority is to improve the performance of those centers. We'll then look at what potential exit options there are. So we haven't flagged a specific number of closures by period at this point.

Sure. And are you able to quantify how many centers that involved at all?

The total subject to the review is 52.

Your next question comes from James Bales with Morgan Stanley.

I just wanted to try to understand a bit better the trends that you expect to see in the business between the third quarter and the fourth quarter onwards. So maybe if we start with the trend in attendance versus occupancy. Have you done any surveys at the customer base? And have you got any view on where paid occupancy is likely to trend post September 30?

We haven't done an updated survey yet, James. Actually, as you know, we're a member of a couple of peak bodies. No one is really doing them right now. The key -- because there's an upcoming budget that will influence a lot of people's attitudes around employment, et cetera. So in the lead up to that budget, we -- a number of us will look to update our surveys, but we haven't as yet. We don't want to really spook the horses in terms of asking them under scenarios if subsidies drop away, et cetera. So our preferred way forward is we get clarity on what the government subsidy package is, then we'll survey families. And we're -- as part of those peak bodies, they are working with governments very actively surveying movements in the market and discussing various iterations around funding packages or not, and hoping to have announcements in place before the end of this current funding period. We'll then flow that through to surveying families from there.

And in the absence of any major outbreaks, I assume the government wants to return the industry to being sort of self-sufficient on a sort of stable trajectory. Is that a valid assumption in terms of the interactions that you've had with regulators?

Yes. So the #1 priority is how do they keep operators in the sector viable, not underwriting profits but viable. So they continually -- they're working with the sector to continually assess enrollment levels and forming a view as to whether they're at a level that is sustainable and on a self-sufficient basis. And once they get that trigger, then I imagine they will be looking to withdraw funding and let the sector stand on its feet.

Right. And then finally, on rent, have you got a view in terms of when you go back to paying full freight on rent?

We've got arrangements in place with 300 of our vendors for various waivers or deferrals. Most of them were in that 3- to 6-month period. So I'd say our rental payments in 2021 will be broadly indicative of our ongoing kind of level of rent, noting that we do have some deferrals, about $2.5 million that were negotiated that will flow through into 2021. But you would say late in 2020, our run rate would be getting back to very much close to normal.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Carroll for closing remarks.

Thanks, Kelly, and thanks, everyone, for your participation this morning. No doubt, we'll be catching up with a lot of you in the coming days. And I hope everyone has a great day. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.