G8 Education Limited (GEM) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the G8 Education Limited CY '22 Full Year Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Pejman Okhovat, CEO. Please go ahead.

Good morning, everyone, and welcome to the 2022 full year results presentation for G8 Education Limited. My name is Pejman Okhovat, and I'm the CEO and Managing Director of G8 Education. I'm joined today by our Group CFO, Sharyn Williams; and Tracey Wood, our Chief Legal Quality and Risk Officer. Sharyn and I will have the pleasure of walking you through the investor presentation that was posted on the ASX earlier this morning and then provide time for questions. I'd like to begin this meeting by acknowledging the Gadigal of Eora nation, who are the traditional custodians of the land on which we are conducting this presentation today. We respect the spiritual relationship with a country and we pay our respects to the elders past, present and emerging. I send our respect to any aboriginal and Torres Strait islander people joining us today. I would also like to acknowledge the dedication, skill and commitment of the entire G8 Education team for their outstanding efforts during the year. We continue to respond to a highly challenging and rapidly changing operating environment while continuing to deliver on our purpose every day, which is creating the foundations for learning, for life. This morning, we will cover the financial performance for the CY '22, an overview of how our strategy is flowing through to operating results; and finally, the macro environment and our view of the medium-term outlook and current trading. I joined the group at the beginning of January. So I would like to take a very short couple of moments to provide some context on my background and my first 7 weeks. I joined G8 on the background of 29 years in the retail sector working across U.K., New Zealand and Australia within large and well-known organizations. Since 2012, I've held several MD and CEO roles in large distributed network and complex organizations and led them through turnaround growth through M&A, consolidations, business and agile transformations, which all have led to adding value to all the stakeholders. I've had an incredibly warm and fastest start, and I'm very grateful to our G8 team and wider stakeholders in assisting my immersion and learning journey into our organization and early childhood sector. I will be continuing on this journey for the next couple of months until I have completed my immersion program. Turning to Slide 7, an overview of the calendar year '22. To start with some key highlights. Our core occupancy at 71%, quality improvement of 3% compared to previous year at 89%, inquiries up 10% and operating EBIT of $80.3 million were a very pleasing and solid set of results that we achieved in '22. The year was a tale of two halves, with the first half impacted by Omicron and flood resulting in closures, capacity issues, team shortages and higher agency usage. The operating environment was challenging and had a significant impact on occupancy and earnings. To respond to these challenges, the group implemented a cost out program to augment the savings generated by transitioning from the improvement program to an integrated business as usual model. During the second half, we saw a solid rebound in occupancy, resulting in the gap to CY levels being closed further and CY levels being exceeded. This occupancy recovery translated into earnings performance as operational disciplines in workforce planning and intentional investment in centralized support for our teams mitigated the impact of higher agency usage. We know this performance was pleasing was in an environment of continuing sector team challenges, so we are cautious in our optimism for the coming year. Execution of the group's strategy priorities progressed well during the year with quality across the GI portfolio, not in line with the broader sector results. You may recall last year, we were slightly behind. So this improvement is pleasing to see and reflects on the dedication and the focus of our team in delivering quality services to our children and their families. A significant amount of resources and focus is being directed towards navigating the great challenge facing our sector regarding the workforce shortages. We are working hard on team attraction, retention and workers planning and metrics, particularly in our vacancy profile relative to the broader sector are encouraging and suggestive that these efforts are yielding results. At the same time, we continue to work on optimizing our own network. The group has a strong balance sheet that facilitated capital management initiatives totaling $68.5 million through an on-market buyback and fully franked dividends. Whilst the long-term fundamentals of the sector continue to be encouraging from both the demand and somewhat supply perspective, we remain cautious given the significant challenges relating to team shortages, inflationary pressures on the economy overall and the significant amount of regulatory activities relating to sector over the next 12 to 24 months. Whilst early to understand the full impact of the inquiries and how significant they may be. We will expand on these later in the presentation. As I land on Slide 8. Despite occupancy for the year being flat on prior year, revenues grew and cost management were disciplined -- with cost management discipline, allowing these revenues to flow through to operating EBIT. From a strategy perspective, nonoperating items such as noncash gains and losses, restructuring costs and software development costs resulted in the impact reducing compared to prior year. Slides 9 and 10 outline the drivers of occupancy, including quality, team and portfolio optimization, strong operational execution and broader growth in demand. A simple rule of thumb for us is that the stable engaged teams provide high-quality learning and care, drive high levels of family engagement that, in turn, it is sustainably higher levels of occupancy. We are showing some promising signs across these areas, particularly in the current environment of the sector-wide team shortages. However, we remain cautious that we are not where we need to be, particular occupancy. So we have a journey ahead of us to convert initial green shoots into occupancy and continued in growth. Quality continued to improve for the group to now be in line with the sector quality levels for centers meeting and exceeding, reflecting the investment made in around center support and increased training and development as we continue to work towards our goal of achieving 95%. Moving now to our most pressing and urgent short- and medium-term challenge team. We are currently in an acute workforce shortage, which has been fair sector wide. Across our team, we see engagement in the mid-70s and mid-80s for our center managers. Although retention as a group produced versus CY '19, it was pleasing to see our CMs improved slightly to 79%. In a year where there was a step change in sector vacancies, G8 recruited more roles than the prior year and reduced its number of vacancies. This outcome was driven by our centralized recruitment team and additional HR business partners supporting our center network. Similar to rest of the sector, navigating these shortages remain G8's key focus in CY '23 and beyond, and we expect this challenge to continue to constrain occupancy growth to some degree. During the year to improve our team experience, we increased support for our center managers, provide a dedicated teacher registration support for early childhood teachers and continue to tweak our ramp and benefits in both of these key roles. From a broader educated perspective, leveraging our system to provide enhanced flexibility and increasing development opportunities has been a focus. Given our scale, G8 has the opportunity to build a pipeline by growing our own talent. It is pleasing to see that circa 1,100 team members enrolled in Certificate III and Diploma courses and over 200 enrolled in the Bachelor study programs. From a sector and G8 demand perspective, we continue to see a strong demand reflecting the relative elevated higher inquiry levels. However, a large portion of these inquiries related to centers that have higher occupancy already and therefore, limited as well as centers where team shortages are constrained for occupancy. The upcoming CCS changes will improve affordability, and we expect consistent with the recent subsidy changes like the [ sibling ] subsidy will increase demand. This will likely manifest through increased frequency of bookings and through new families entering the sector. This reinforces G8's focus on team as the government changes to stimulate demand, the critical factor that will dictate whether families can access extra days will be the ability for operators [ to staff this ] demand. G8 has discontinued around the journey of optimizing the location of our services with a number of centers closed. 6 centers opened and are waiting to CBD centers continuing to reduce. The progress of greenfield pipeline has markedly slowed with developers being impacted by inflation and supply chain challenges as well as their own staffing shortages. On the supply side of question, supply growth remained subdued compared to prior year in CY '22 driven predominantly by increased construction and funding costs and longer construction time line due to labor shortages. It is uncertain if this is a sustainable decrease in supply, as recent Department of Education flagged, they are receiving an increased number of service approval applications. So we are cautious in how supply might look as we go forward. The final driver of occupancy is operational excellence. G8 continues to focus on execution, and we are seeing more early positive results in rostering disciplines and our incentive work routines in particular. Given the reliance on a stable team in our service business in the current environment, consistent and sustainable operational performance requires more focus and oversight. It was pleasing to see our progress along our ESG journey with key achievement in CY '22 being the quality of improvements across the portfolio, the sustainability-linked loan being renewed and an emission target being set and largely driven by installation of solar in a number of our centers during '23 and revision of our vehicle fleet. The group also has a commitment to implement a reconciliation action plan to foster a community shared value goals and common language when it comes to reconciliation and continue to pilot Allied Health Services to broaden our support for children's [indiscernible]. I will now hand over to Sharyn to provide a detailed overview of the group's operating and financial performance.

Thank you, Pejman. Turning to Slide 14. The group's performance was solid on the back of a stronger second half results ending broadly in line with CY '21 in terms of occupancy, operating earnings and margins. The core centers delivered higher earnings in the prior year and a stable margin. This is a pleasing result, particularly in light of the very weak first quarter that was impacted by Omicron and floods. While occupancy was flat year-on-year, revenue increased driven by fee reviews in both January and July, the latter and necessary response to inflation. Our largest cost base area, wages, was managed well in a year where inflation and agency usage impacted the wage rate. This reflects our increased investment to centrally support our teams to manage rosters and share our valuable team resources across locations. Rent is another material cost base for our business. Rental rate increases for the year were 5.4%, including market reviews of 6.6%. However, noting our continual focus on the locations of our centers, the nonrenewal of a number of leases resulted in rent payments being flat on prior year and an improvement in the quality of our portfolio. Greenfield centers performed in line with expectations. Noting importantly, the comparison to prior year does not reflect the same group of 16 centers with the current year, including 6 new centers, where start-up costs are higher. A significant achievement for the year was support office costs being flat on the prior year despite significant inflationary pressure across insurance, wages and other cost areas. You may recall during our prior year results, we outlined a temporary government funding stream relating to apprentice wages. This funding was put in place by the government to aid the economic recovery from COVID-19 in both CY '21 and CY '22. G8 used $5 million and $7 million, respectively, to increase trainees as part of our workforce shortage response. This subsidy will not repeat in CY '23 and support office cost should be adjusted due to the absence of that temporary subsidy. Our group margins being broadly stable year-on-year, demonstrated the effectiveness of cost disciplines and our active management of inflation while still continuing to deliver quality care and value for our families. We will maintain our focus and discipline as the expectation for the coming year is inflationary pressures will continue, not only for G8's cost base, but also for our families who are also feeling inflationary pressures. Moving on to occupancy performance. What is really interesting about Slide 15 is the trend of occupancy through the year. The overall occupancy was flat year-on-year at 71%, but there was a steady trend of improvement with occupancy closing the gap on CY '19 and slightly exceeding the CY21 occupancy levels by year-end. This occupancy outcome was driven by our strategic change programs and the reestablishment of the seasonal uplift trend. In addition, we have seen a further increase in days in care in response to increased childcare subsidies to improve affordability. The recent change improved affordability for families with multiple children and also removed the annual subsidy cap. It would be remiss of me not to mention that sector workforce shortages continue to impact occupancy levels with a portion of the network remaining constrained by team member availability. From a state-by-state perspective, Queensland is our best overall performing state and regional centers continue to outperform Metropolitan and CBD. To provide further context on nuances by state, New South Wales, Western Australia and the ACT, have been relatively more impacted by workforce challenges. Our metropolitan centers in Victoria, Queensland and South Australia, are predominantly driving the reduction compared to CY '19. With these states having material variances between regional and metro areas, particularly those centers that are within approximately 30 kilometers of cities. We're finding that families in those areas potentially commuting to a city for work are likely choosing a center close to the home rather than commuting to work each day. Our final callout on location variances is our CBD locations. We continually to proactively rationalize these locations given the structural changes in demand. In relation to wages, we've controlled the controllables. A highlight of the year was our response to increased agency usage and wage inflation. Active management and our new HRIS system, which facilitates improved analytics in rostering and compliance activities, partially mitigated the higher impact of agency costs. Labor inflation for the year was 7.8%, slightly higher than a 7% we'd anticipated at the half year. Internal wage rate increase was 4.7%. Agency usage comprised the remainder given the higher cost to access this temporary labor. Agency costs continue to be elevated at 4.7% of total wage hours, up from 2.7% in the prior year. However, this increase has been offset by internal team hours resulting in better wage efficiency. From a practical perspective, we've achieved this through flexible rostering, recruiting more part time and casual team members and sharing our resources across our network to better utilize the people we have, the benefit of operating multiple centers. This improved wage hours per booking partially offsets the higher rate paid for agency team members. Slide 17 reflects the continual active management of the portfolio, where 16 centers were exited during the period and 6 new centers were opened. The impaired cohort of centers have improved performance since CY '19 through not only the divestment program we've undertaken but also improved operational performances. These losses ignoring any impairment benefit for apples-with-apples and now reduced from $12 million from the 2019 year to $4 million, a significant improvement. The group's greenfield portfolio has slowed due to developer challenges with supply chain and inflation. We'll continue to take a very commercial lens on this pipeline, particularly in the current environment. Changing tack now to the group's cash conversion, which was 94%. The variation to prior year is largely driven by timing where we carried additional creditors into early CY '22 due to the cutover to our new financial system and these unwind in CY '22. During the year and outlined on Slide 19, CapEx and SaaS costs were $65 million, in line with expectations. This investment in property CapEx, in particular, has driven positive momentum in quality, with 96% of centers achieving meeting for QA3 area property. We've also seen improvements in family satisfaction relating specifically to physical facilities and resources. The targeted total CapEx and SaaS for the coming year is circa $65 million, predominantly focused on property improvements, information technology and systems and educational resources. All investments are to improve team engagement, family retention and child outcomes. The group's balance sheet is well positioned as outlined on Slide 20, with conservative leverage of 0.8x and net debt being flat on half due to stronger seasonal second half cash flows. A fully franked dividend of $0.02 per share has been declared and is payable in April, taking the total dividend for the year to $0.03. This is a 68% payout ratio within our target payout ratio range of 50% to 70% of net profit after tax. We continue on our journey to optimize our finance costs with the benefits of the refinance evident in reduced interest cash outflows. These reduced from $11 million in CY '21 to $9 million in CY '22. We do note that interest expense of $13.8 million recorded in the accounts for CY '22 includes $2.7 million of noncash capitalized borrowing costs written off relating to the junior facility refinance and extending our senior facility. The remaining finance costs comprise commitment fees, drawn interest costs and borrowing cost expense. The combination of these are expected to be circa $13 million in CY '23 based on current BBSW rates. However, we are mindful that interest rates may continue to increase. Therefore, we've reduced our facility size in our recent refinance from $350 million to $306 million to reduce commitment fees on our new facilities. As announced today and flagged at the half, we've completed a noncash reduction of our share capital. This transaction involves no reduction to net equity and no change in the number of shares on issue. It purely simplifies our balance sheet presentation to more closely reflect our net equity. Pleasingly, the $40 million on-market buyback is complete, with $38 million of shares purchased and our buyback objectives to support conservative leverage while enhancing shareholder returns and preserving funding reserves have been achieved. Pejman will now walk through the strategy update.

Thanks, Sharyn. We will now turn to the medium-term outlook for G8 and the broader market as well as the current trading update and outlook for the balance of the year. So turning to Slide 22. With the strong fundamentals in place that support long-term demand growth. The sector has historically benefited from bipartisan government support with this support increasing further in July '24. We have also seen the number of days our G8 families are using childcare increasing over the past years, and this trend has continued into early January, reflecting the positive impact of subsidy changes on days in care. The further change is being made to CCS percentages, while incoming brackets potentially also support increased days and our internal analysis suggests that these changes will make a difference to some of our families. In this current inflationary environment, where families could be looking to take on extra hours of work to help fund rising cost of living, the ability for this extra day of work to not to be spent on childcare fees will aid affordability. However, some families still will choose to retain these savings and the current days in care to restore family budgets. This is reinforced in the chart on the left-hand side, that shows the net out-of-pocket cost for families over time and the government affordability measures to assist out-of-pocket cost for families. In the December quarter, though, there has been a material increase in these out-of-pockets or other sector terms gap fees. The changes in subsidies in July '23 will help with these out-of-pocket fees. Importantly, these extra costs can only be realized if we have the team to support the growth. The trend in female workforce participation rate and the reestablishment of positive net migration will also provide a meaningful tailwind as this normalizes to historical values. Turning to labor supply side of the equation and our greatest sector challenge workforce shortages, which we'll discuss in more detail on Slide 24. Like other parts of the economy, the early childhood sector has been impacted by increased workforce vacancy rate. In the case of ECTs, the workforce challenges has been exasperated by increased demand due to new regulations in New South Wales and Victoria as well as the pausing of the immigration over the last 2 years due to COVID. These factors have resulted in ECT vacancies increasing by over 30% over the last 3 years. Government have responded by introducing funding and the scholarship programs to reduce the cost of both vocational and tertiary qualifications while also providing an accelerated decrease to fast track ECT qualifications. We are seeing some very early signs that the enrollment numbers are increasing in response to these programs, which are really pleasing to see. G8 has also responded with various initiatives, including remuneration and benefits, the scholarships, funding and enhanced professional development programs. The results for center managers have been heartening, with retention levels improving against prior period. However, in the ECT and educators, we have seen a retention reduce. We continue to improve the attractiveness of G8 in this ECT area, leveraging of the state-based kindy funding for 3- and 4-year-olds given these roles are hardly contested by primary schools and early education providers. We are seeing more regulatory activities in this sector with a number of government reviews and inquiries having commenced or are due to commence in this calendar year. The ACCC inquiry has commenced with a draft report due by June and final report by December. Focusing on the drivers of cost and the variability of these costs by provider and how these relate to fees within the sector. The Productivity Commission review, which commences in March 2023 is expected to leverage off the findings of the ACCC inquiry. The terms of reference have been released and are focused on supporting affordability, accessible, equitable and high-quality early childhood education and care. The commission in South Australia into early childhood is releasing its interim report in April with a final paper during August and also the New South Wales iPad inquiry again in '23. A more broader regulatory change across Australia is the multi-employee bargaining with one of their stated aims of these reforms being to address the undervalued work in the care sector and address the gender gap. G8 looks forward to working collaboratively with unions, peak bodies and government to commence the planning process in relation to multiemployer bargaining and advocating for government funding in relation to wage increases. Now turning to current trading and outlook as per Slide 26. Current core occupancy week ending 19th of February, is 1.8% higher than CY '22 and 1.5% lower than CY '19 and broadly in line with our December trading update. Fee increases of circa 6% implemented in January in response to the current inflationary environment. Wage management disciplines continue this year further wage inflation is expected in CY '23 due to agencies as remaining as one of their staffing shortage solutions, combined with general increase to sector wages anticipated with the war changes media. The group balance sheet remains strong following the completion of the sale of the circa $40 million on market buyback as part of the group's capital management strategy. We did announce the outlook. Demand outlook for the early childhood sector is improving and is expected to be further stimulated by the Cheaper Childcare Bill scheduled for July '23. New center supply response is still unknown. Supply in CY '22 was subdued but approval requests have increased in January '23. Chronic workflow shortages remain a sector's key challenge, constraining occupancy, conversion and sustained improvements. Inflation will continue to play a role for our families' affordability and our cost base management. The regulatory focus on the sector will potentially have significant reforms ahead which will require careful navigation and significant resource and time and attention from us. G8's focus in the near term is attracting and retaining the team to support the seasonal occupancy growth and assist families in benefiting from the upcoming CCS changes. I'm going to pause here and hand back to the moderator to start the Q&A session. And at the end, I will come back with some final remarks.

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

My question is just about labor constraints. Pejman, I know you've spoken about it in a fair amount of detail during the presentation. But can you maybe just touch on industry discussions that are currently being held with the government, in particular around ECTs? I mean it's positive seeing those numbers coming through from university admissions. But realistically, that takes 4 years for them to work their way through the pipeline. So importing that talent is probably going to be critical. And just further to that, maybe broadly how you're thinking about labor inflation in calendar year '23 given those constraints?

Thank you. Great start to the questions. In terms of how we're working and what are we observing from the sector and other providers. As you know, we are a member of the ELACCA. We've been having regular conversations with ELACCA particularly on this topic. And we are all in a similar way united in the fact that we are facing the same shortage challenges. To give you a data point, when we had our ELACCA meeting in January, the CEO of ELACCA mentioned that within the ELACCA members, which are roughly about 25% to 30% representation of the sector. We ended the year in December and coming to January roughly about 5,000 vacancies. So if you kind of multiply that out within the sectors, anything between, I would say, 18,000 to 20,000 vacancies currently out there. Everyone is in the same boat. We're all trying our best to deploy tactical activities and strategies that we feel right and is appropriate for each of our own businesses and organizations. At the same time, we're also really advocating for government to really look at this really critical workforce and recognize the importance of early childhood services that we provide for the families, their children and, of course, subsequently, the economy. Myself and the ELACCA members are actually in Canberra next Monday and having a conversation about that with the government to see what are the potential opportunities in terms of recognizing the sector and partially also by [indiscernible]. We have increased our own focus and attention on how do we navigate this workforce shortages because they're just not going to go away in short to your point, it takes time to educate people. We have increased our recruitment support, both from central support and, of course, our centralized programs. We have deployed HR field partners that are actually buddying up geographically to making sure we're recruiting and attracting talent as much as we can. We have looked into our REM and benefits. We improved our holiday pay about 2 weeks for our ECTs last year to 6 weeks, which is we feel incredibly pleased about being able to offer that. And working towards Bachelor can continue in some states, which is really, really important for us. The other things that we're also looking at is flexibility of hours, provisioning that and also working within geographical areas to pull talent because, as I said, we're going to have to find some new ways of addressing some of these challenges.

Your next question comes from Marni Lysaght with Macquarie Capital.

Just a quick one for me. Just on, like, I think, December, the kind of P&L contribution. I'd just like to understand, it seems to have come in a bit stronger than what, say, December calendar year '21 did. I just would like to understand the drivers of that.

Thank you. That yes, you are right. We were pleased with that December performance. I think at a high level, we continued the momentum from H2. Our occupancy was higher average fees were higher and a bit of wage, particularly around agency cost management were the key contributing factors. I'll now also hand to Sharyn in case he's got any other further color to add.

The only thing I'd add, Marni, is we do a reconciliation of our Kindergarten funding from our state governments. So in December, we did have around $1 million contribution where we've been a bit conservative during the year on that number.

And just a follow-up on that, kind of the kindergarten funding reconciliation. Is there anything to expect that could be different next December or next year -- or sorry, calendar year '23?

Certainly, state governments, particularly Victoria, Queensland, New South Wales are investing more in the 3- and 4-year olds. Now of course, that funding needs to be 100% invested through our cost base. So in terms of ECTs, we're focusing a lot of that spend on our kindergarten teachers, as Pejman mentioned, increasing the leave in particular. So you will see kindy funding lift, but of course, that will flow through our cost base and not a net benefit to the group, although it will help us with our team challenges.

Moderator, before we go to the next question, I omitted in answering Tim's final part of the question, which was about what do we anticipate that the wage increase this year might be. To be honest with you Tim, we don't know. Last year was over 5% when the award was reviewed in midyear. We don't know. So one thing we are guaranteed, it will be reviewed. And I think we can probably say that it will be an increase, but the quantum of it, we don't know, and we have no indication. Moderator, back to yourself.

Your next question comes from Wei-Weng Chen with RBC Capital Markets.

Just first question from me. Just on your medium-term targets. Just quantitatively speaking, can you maybe share how we should think about when you guys get to the point of 80% occupancy, what might that mean for GEM's profitability? What should post tax EBIT kind of -- sorry, [indiscernible] EBIT looks like at that point?

Wei-Weng, you might recall at the half year, we did give a bit of color around the earnings opportunity when centers are at higher levels of occupancy. And you will see it is a material uplift once they're particularly over 90%. At this stage, we won't be confirming an earnings equivalent for an 80% occupancy, but we are confident that those building blocks we've outlined there around quality team, getting our locations right and being operationally excellent are our building blocks towards 80%. And when we get to that stage, you would certainly see margin be more positive, although we won't be putting a number on it today.

Next question comes from Cameron Bell with Canaccord Genuity.

Sorry about that got stock on mute. Guys, I just want to ask about, I saw you made those comments about like-for-like occupancy, but just maybe some broader commentary about the reenrollment's process, how you've seen the first 7 or 8 weeks this year, particularly possibly if you could flesh out where you think occupancy might be if you didn't have these issues around labor?

A couple of high-level comments, Cameron. The pattern of occupancy coming into January, as for the same lines of the last couple of years, although with some positives and downside. As I explained, we've seen occupancy grow against CY '22. Our occupancy gap to CY '19 has broadly stayed similar to what we said in December, which was around 1.3% and we currently about 1.5% gap to CY '19. There are a couple of positives in terms of where we are. If I look back in December or that last part of quarter 4, we have circa 80 plus of our centers that had cap on occupancy due to significant team member shortages. Right here, right now, we started January with around the 40s and 50s. And right now, we're actually under 30 centers with a cap put in place due to that. The other pattern that we are seeing from our own team members is the increase actually against the last 2 years probably on the level of leave taken and also unpaid leave. I think partly, again, this is our own view is that over the last 2, 2.5 years, not many people due to COVID were able to take extended leave and go see families. And we have seen definitely this year as the traveling situation has stabilized a bit more, and it's not being disruptive. People have taken longer leaves. And also some of our -- you got to remember, some of our own team members are parents themselves and they're balancing the costs are coming to work and also putting their children in care and some of them are probably decided to stay a little bit longer in January and spend more quality time at home with the kids. So the patterns are the same, we are better than CY '22, but it's still got a gap that we're working and focusing on against CY '19.

[Operator Instructions] Your next question comes from Wei-Weng Chen with RBC Capital Markets.

I have my next question. Just on the non-trading income and expenses. Just wondering if you could bridge us from, I guess, the first half for the full year. Looking at the accounts, you appeared to have sort of stepped up software spending in the second half? And also in the first half, you had $2.7 million of income that at the full year, that number is now hard. So just how do we go from the sort of first half and second half and also first software spending, how should we be thinking about that going into '23.

So I'm trading expenses fall into a couple of buckets. Restructuring costs, which were part of our restructure, they were more heavily weighted to the second half there. The material amounts though, really relate to where we're exiting centers, and they relate to noncash gains and losses on the lease assets and liabilities. So since the introduction of AASB 16, we are seeing a lot of movement in that space when you do make changes to your center portfolio. So we make sure that we do carve them out so that the operating numbers are impacted by the noise around those leases. When we have a gain on a lease, it's not a cash gain in terms of the profit as such on sale that realizes in cash. It's purely around the carrying value of those leases and property, plant and equipment.

Yes. Okay. Can you just confirm on that we've got $13 million of non-trading items. How much of that was cash?

How much in terms of cash?

Yes.

No, you're better off to refer to the cash flow statement in terms of cost to look at exiting centers. The large majority of those nonoperating items around leases would be noncash. The restructuring costs are around $3 million, they would be cash. So they relate to some of our team changes we've made during the year.

Your next question comes from Tim Plumbe with UBS.

So just a follow-up from me, if possible, please. Just in relation to the greenfields. You guys got a pipeline of 12 centers presumably, that's for the next 12 months for calendar year '23. And if not, like how should we be thinking about ongoing annualized in that greenfield space, please?

Thanks, Tim. Number one, clarifying the time period. Those 12 in the pipeline are across a longer period than CY '23, I believe there over the next 3 years. The specific timing of those, we are working very closely with all our developers and landlords. As I explained earlier, most of our lenders and developers have had challenges for all the obvious reasons. And we're working with them to see when there's a possibility of them coming to fruition. So that's the first one. What was -- sorry, the second part your question, just remind me.

I think you just answered both, how we should be thinking about kind of annualized run rate? And apologies if you've already answered this as doing 2 results at the one time.

Tim, so in terms of the greenfields in the coming year, we'd certainly be looking for the newly opened greenfield to continue increasing occupancy, and we have seen that in the early stages of the year. Now as that occupancy increases, you would understand better than most, given you followed the company for some time that those earnings will improve from that group of centers. The unknown portion is how many of those 12 will open in this year. We will know more in terms of the half year around those 12 new centers that might be coming. So we can't really give the full year number at this stage. But in terms of the ones that are open, we would look to be reducing some of those losses that are currently there.

Your next question comes from Peter Drew with Carter Bar Securities.

Just a question on support costs. So I think the annualized second half run rate is about $54 million. And Sharyn, you made some comments about that apprentice funding not being in '23. I'm just wondering if you can give us some guidance around what support costs might be, I guess, at this stage, at least for '23, please?

Sure, Peter. So you are right in terms of the apprentice subsidy being added back on to that annualized number you have. You'd be working then from a base of around the 60, low 60s to add CPI, et cetera. Now the main drivers of CPI, we have been seeing the hardening of the insurance markets, we're continuing to see costs coming through insurance. We're doing a bit more in the IT cyberspace as other companies are doing and then wage inflation for the coming year. There will be a little bit of annualization in wages as well. that I'd certainly be working from the number you were referring to in the low 60s and then adding some inflation to that.

There are no further questions at this time. I'll now hand back to Mr. Okhovat for closing remarks.

Thank you for all your questions. In concluding the presentation, I'd like to just confirm that G8, we're incredibly committed to living our purpose, which is creating the foundation for learning for life. Our key strategic programs continue to be centered in terms of better outcomes and experience for our children and their families with our focus on our team and continuing to drive quality across the G8 network. Our operational disciplines and execution will ensure sustainability in our progress for all our stakeholders. Executing our strategic imperatives remain our key focus to ensure medium- to long-term progress. We do remain optimistic about the next horizon in terms of certainty as the demand continues to grow, but we do have a cautious lens on the macro challenges. That concludes our presentation today, and thank you again for your interest in attending.

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