SYDNEY - [AAP] Childcare centre operator G8 Education (ASX: GEM) has blamed a temp agency bill along with volatile supply and occupancy conditions for a cut to its earnings forecast.

G8's share price has plunged by more than a fifth after the company said it now expects underlying earnings to come in at around $160 million, instead of the mid-$170 million it forecast in August.

At 1308 AEDT, G8 Education's shares were trading at $3.49, down 21.9 per cent.

The Queensland-based company said business had been hit by a recent slowing in centre occupancy growth, ongoing sluggish wages growth and supply issues in key regions like Western Sydney and inner Melbourne.

But that had been compounded by more states than it had expected amending staffing ratios which meant G8 needed to use temp agency labour and bringing a likely $3 million bill.

"While G8 had been aware that current arrangements were due for review by regulators in a number of states, we expected other states to mirror Queensland by extending the current structures until the end of 2019," the group told the ASX on Monday.

G8 managing director Gary Carroll said the group expected challenging market conditions to continue for the next six to nine months.

"While supply has been moderating over the course of 2017, the impact of new supply over the last 18-24 months has resulted in a challenging occupancy environment in FY2017," Mr Carroll said.

The market reacted sharply on Monday, with shares in G8 losing its past six months of steady gains, or more than one dollar in the first hour of trade.

 

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