In its latest financial report to the ASX, InvoCare (ASX:IVC) has announced its results for the half-year ended 30 June 2020.
In what has been an extremely challenging operating environment for the funeral industry, IVC has reported a messy result, predominantly due COVID-19.
According to J.P Morgan Securities Australia Limited, COVID 19 had a variety of impacts across IVC’s business model.
Case averages in 1H20 fell 6.6% on the prior comparison period (PCP), driven by brand mix and product offering
The company noted that it had seen a shift towards Simplicity and Value Cremations (and away from Traditional and White Lady) due to COVID-19 restrictions and consumers not looking for larger funerals with added offerings while these restrictions were in place.
Management also highlighted that this is the reason why renovated sites did perform as well in 1H20 (vs. un-renovated) as customers did not require the services offered by a larger renovated site.
Funeral volumes fell 3.4% on the PCP, with the company noting an expected market share loss of 0-100 basis points
Management estimates that market volumes in 1H20 were down 2-4% on the PCP (although also noting that NZ government data today suggests volumes were down 5% for the period) and therefore the company estimates that it lost market share of 0-100bps.
Management noted that volume declines in the business were mainly seen in May/June.
Large operating leverage to earnings before interest, taxes, depreciation and amortization (EBITDA) as cost base not addressed
Management highlighted that EBITDA fell much greater than the drop in revenue, driven by the decision to retain some costs in the business given:
- the company needed to maintain a high quality of service, particularly in challenging times. And
- the company did not want to impair the business by making experienced people redundant and impact the earnings recovery when volumes/case average returns.
The company noted that there are some costs that can be addressed in 2H20 and some expenses (e.g., marketing) were front-loaded into 1H20.
Acquisition pipeline re-engaged
Given the uncertainties surrounding the impact from COVID-19, IVC ceased discussions with potential vendors.
Following the capital raises and as IVC has some more comfort in its operations for the uncertain outlook, the company has re-engaged with potential vendors.
InvoCare are the largest funeral operator in Australia and New Zealand and currently operate over 290 locations and 16 cemeteries and crematoria. InvoCare has 3 national funeral brands in Australia (White Lady Funerals; Simplicity Funerals; and Value Cremations) and over 33 regional funeral home brands in different states across Australia.
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