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Edited Transcript of IVC.AX earnings conference call or presentation 18-Aug-20 11:30pm GMT

·58 min read

Half Year 2020 InvoCare Ltd Earnings Call North Sydney, New South Wales Sep 28, 2020 (Thomson StreetEvents) -- Edited Transcript of InvoCare Ltd earnings conference call or presentation Tuesday, August 18, 2020 at 11:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Damien MacRae InvoCare Limited - Deputy CEO * Josée Lemoine;CFO * Martin Alistair John Earp InvoCare Limited - CEO, MD & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Mathieu Chevrier Citigroup Inc. Exchange Research - Research Analyst * Mitchell Sonogan Macquarie Research - Analyst * Russell J. Gill JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand * Tim Plumbe UBS Investment Bank, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the InvoCare Limited 2020 Half Year Results Analyst Briefing. (Operator Instructions) I would now like to hand the conference over to Mr. Martin Earp, CEO. Please go ahead. -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [2] -------------------------------------------------------------------------------- Thank you. Good morning, and welcome to the presentation of InvoCare's 2020 Half Year Results. Today, I will make some opening remarks that summarize the key events for the half year. And then Damien MacRae, our Deputy COO, will provide a detailed update on the operating business. Josée Lemoine, our CFO, will talk you through the financials before I cover the growth initiatives and provide some commentary on the full year outlook. I'm also delighted to be joined today by Adrian Gratwicke, who has recently appointed the company's CFO and is currently working alongside Josée as she hands over the role in advance of her departure at the end of the month. At the time of the 2019 full year results in February, the great question relating to COVID focused on the issue of supply chains in China. At that time, it was difficult to envisage the global scale of the pandemic and the damaging impact on businesses of the measures put in place to mitigate the spread of the virus. Certainly, it has been a very challenging period for society generally, and InvoCare has been negatively impacted by the changing operating conditions. The main impact on InvoCare has been the restrictions on public gatherings, which has limited our ability to provide the full range of our services at our funeral homes and in our memorial parks. This has contributed to our operating revenue declining by 6.2%. I would, however, like to highlight the resilience of the funeral sector in comparison to many other service industries, and this clearly demonstrates the nondiscretionary nature of the services that we provide. The restriction to 10 people attending a funeral, and in the case of New Zealand, not being able to offer a viewing or a service at all, has been an incredible impost on grieving families. And I would like to start today's presentation by commending our team on their efforts in working closely with our client families to mitigate the negative impact of those restrictions. Our response to the COVID-19 pandemic has been driven by 4 overarching principles. The first of which is safety. Our primary concern has been the safety of our staff, our suppliers and our client families. We have taken all necessary steps to ensure that we've been able to work safely during the crisis. And whilst this has added additional cost to the business, we see safety as non-negotiable. The second principle is the retention of key staff. InvoCare's people are our biggest asset. Their compassion, skill and experience are incredibly difficult to replicate. We have, therefore, put a focus on ensuring that we minimize redundancies within the business so that we are able to serve our families and communities both now and into the future. Customer service. The provision of digitally focused solutions has allowed people to arrange and attend funerals virtually and this, combined with other operational changes, has allowed us to maintain a Net Promoter Score of plus 78, which remains at a world-class level and provides the bedrock for our future success. Finally, balance sheet strength. Given the uncertainty of the impact of COVID on the business, it was felt prudent to strengthen the balance sheet to allow InvoCare to not only trade through the pandemic, but also to continue investing in our growth initiatives. The support of our investors in raising $274 million, along with the refinancing of $200 million of debt and the improvement in cash collection, have all contributed to achieving the aim of a strong balance sheet. It should, however, be noted that our desire to operate safely, retain our key staff and continue to serve our communities with the highest levels of customer service have restricted our ability to meet the level of cost savings, which we have seen in other service industries. While we have been deliberately measured in our approach to cost savings, we will continue to leverage our investment in our new ERP system to drive sustainable cost efficiencies into the future. The high fixed costs associated with providing the highest levels of customer service did, however, mean that a reduction in operating revenue of $50 million did flow through to the operating EBITDA level where a $14.3 million reduction meant a 22.7% decline in year-on-year performance. In 2017, when we launched the Protect & Grow strategy, we were focused on investing in our people, our systems and our physical assets to both protect our position in the market and drive sustainable growth. I have already mentioned how both our people and the new ERP system have contributed to improved performance over the last 6 months. And it is worth highlighting that the renovated locations continue to outperform our unrenovated sites, despite the fact that COVID restrictions have meant that we are constrained in utilizing the renovative sites to their full potential. The combination of the resilience of the marketplace, coupled with the strengthened balance sheet, has given the company the confidence to continue to invest in our key growth strategies of Protect & Grow, regional expansion and pet cremations, whilst also committing resources to identify new growth initiatives for the core business that will ensure that InvoCare is able to meet the changing needs of our client families into future. In addition, the directors have decided to pay the full amount of the deferred 2019 final dividend in line with the date outlined earlier this year, the 5th of October. And in addition to that, we will also pay an interim dividend for 2020 of $0.055, also on the 5th of October. This decision is a demonstration of not only the strength of the balance sheet, but our confidence that the investments made in our business over the last few years to position the company to perform strongly into the future. I will now ask Damien to walk us through the operational performance of the last 6 months. -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [3] -------------------------------------------------------------------------------- Thank you, Martin, and good morning all. Before I begin, like Martin, I'd like to call out the outstanding efforts from all of our teams across Australia, New Zealand and Singapore during this uncertain and unprecedented period. Their focus and resilience to continue to care for our client families should not be understated. I'll now move to pillars of growth. I will not go through each of these numbers in detail. However, some headlines I would like to call out. Revenue has remained encouragingly resilient, falling by 6.2% during the period. The fall was driven by a softer volume across our funeral homes and parks, combined with case average impact directionally attributable to COVID. Our EBITDA impact of a 22.7% decline is a flow-through of conscious decisions made by management to maintain the highest levels of service to client families and a recognition of the requirement of experienced staff as we come through the COVID period. And the funerals EBIT has been impacted greater than memorial parks due to facilities' cost growth and a marketing allocation spend, which was front-ended during the first quarter. Regarding the numbers of deaths and market share, we have found our ability to provide a confident number against the market position for half 1 challenged due to usual sources providing highly volatile results during the period. Our internal qualitative research based on suppliers, memorial parks and government data, suggests the market has contracted somewhere in the vicinity of 2% to 4% against the same period last year. This internal estimate has just morning been backed up by New Zealand Government data, suggesting the number of deaths has contracted in excess of 5% year-to-date in New Zealand. Taking this into accounts and with our case volume declining by 3.4% over the period, we estimate our own market share sits somewhere between flat and a decline of up to 100 basis points. Case averages have declined by 6.6% through a combination of brand mix, and the inability to provide certain products and services during half 1 due to COVID-introduced restrictions. This brand mix has been driven heavily by client family choice, during a period of attendance restrictions. I'll provide some more detail on these trends in following slides. Lastly, and most encouragingly, our client families have continued to advocate for the services being provided throughout all our business units. This has played out with our NPS remaining consistently high throughout the period of great uncertainty and change. This provides us with confidence in our ability to be both agile and relevant during this period. I'll now turn to the COVID impacts on the business. As you'd all be aware, over the last 4 months of H1, funeral services and our Memorial parks have faced attendance and service restrictions driven by COVID. This has ranged from the inability to offer certain products and services, maximum of 10 attendees throughout Australia and Singapore, through to in New Zealand, direct cremation and burial being the only service available to client families for set periods. During this period and driven predominantly by these restrictions, we have seen, firstly, client families choose simpler offerings and direct cremations at higher levels than the previous norm. Secondly, as mentioned previously, numbers of deaths appear to be slowing. And thirdly, we've seen a shift towards offerings that can be attended remotely by both family and friends alike. The speed of this shift to remote viewings is highlighted in the graph on this page, which shows streaming growing at greater than 12-fold between the months of February and May of this year. I'll move on to our COVID response. InvoCare team responded with agility, but also, as Martin mentioned, with a measured response. Processes were implemented to ensure the safety of the team and client families, were paramount. These processes have remained agile and relevant as government guidance addressed this ongoing challenge. During the period, InvoCare quick -- moved quickly to strengthen its balance sheet, and we increased our focus on cash conversion. We took a measured approach to expense measurement -- management that ensured we were positioned appropriately for the short, the mid and the long term. And the team provided innovative solutions to firstly maintain their relationships with the communities they engage heavily with. And secondly, to meet our ongoing client family expectations. The 3 charts on this slide clearly highlight that InvoCare experienced its largest impact across business units during April. However, as government restrictions were eased, we've seen an encouraging trend back to what we would describe as more normalized levels. It should be noted that the second wave of restrictions coming into play in both New Zealand and Victoria recently, this has provided more uncertainty to this trend in the midterm. I'll now provide an overview of the funeral, memorial park and prepaid business units, starting with funeral performance. As mentioned previously, NPS has maintained its very high levels, which is, firstly, a great testament to the customer centricity of all of our funeral teams across Australia, New Zealand and Singapore. And secondly, the agile and innovative approach the team has taken in these uncertain times to meet and exceed the changing client family needs. We've seen customer volume contract by 3.4% over this period. This contraction was predominantly an outcome of May and June. As year-to-date to April, we had seen growth year-on-year, at circa 1.3%. During the full period of half 1, we saw contraction in the case volume of both our White Lady and traditional funeral brands as client families chose simpler options. Correspondingly, both our Value and Simplicity brands grew over this period, driven by client family choice and the restricted ability to host large services. Directly related to this point, we've seen case averages declined by 6.6% for half 1, with all geographic zones contracting. Unsurprisingly, due to all funeral services being suspended during the month of April in New Zealand, this business unit has experienced the greatest impact of case averages, declining 14.1% against the previous period. Again, it's important to highlight a conscious decision was made by management to ensure focus on providing the highest quality of service to our client families within our current models. Although FTE levels have reduced during the first half of the year and other cost initiatives have been put into place, we strongly believe this measured approach has ensured the InvoCare funeral business is positioned well for the short, medium and long term. It's important to call out, as mentioned at our AGM earlier in the year, marketing costs had been front-loaded into Q1 with a shift towards more a digital focus. We forecast this spend will normalize throughout the financial year. Moving to our memorial parks business. Like our Funerals business, in these uncertain times, the memorial parks team have remained focused on the client experience, maintaining a sustained high NPS outcome. Cremation and burial volumes were directionally aligned to the trends we saw in our Australian funeral business unit, which was a drag on half 1 performance against prior period. Our product development over previous years, including e crypts, niches and park restorations, provided and continues to provide a solid pipeline of opportunity. Like their funeral colleagues, the memorial park teams adapted to restrictions in place with the introduction of greater digital and virtual sales tools being implemented across the business. This focus and this investment will continue into the future. Finally, our prepaid funeral business. Funds under management has reduced by 5.4%, predominantly driven by the performance of the funds. Encouragingly, headroom remains in excess of $52 million on an asset versus liabilities level. Pre-need sales were heavily impacted during quarter 2, with lower numbers attending funerals and no ability to attend potential client family households, both of which have been key distribution channels. Opportunity to deliver a more remote and digital offering is high on the agenda as we move forward. Over the half, a percentage of funerals undertaken through pre-need has remained consistent at 14%. Finally, it should be noted, the pre-need fund is managed separately by the Over Fifty Friendly Society. I'll now hand over to Josée, who will provide more detail around the financial performance of the half 1. -------------------------------------------------------------------------------- Josée Lemoine;CFO, [4] -------------------------------------------------------------------------------- Thank you, Damien, and good morning, everybody. The financial performance presentation this morning will focus on the following 4 topics: first, the overall performance results against prior period; second, the impact on our operating versus underlying results following adoption of recent accounting standards; third, an overview of our operational expenses; and finally, a closer look at the cash flow, capital management and net assets position. You will find further details on capital expenditure and country segments information in the appendices. Firstly, let me take you through the overall performance of the business. Please turn to Slide 13. As explained by Martin and Damien, the restrictions imposed by governments as a response to COVID impacted the financial performance of the business due to the inability of the company to provide a full range of services to our client families across each lines of business and geographies. 3 key performance call-outs encouragingly, the resilient nature of the funeral industry meant that operating revenue declined by only 6.2% on the prior corresponding period. Together with the conversion to cash ratio for the half year 2020 at 98%, up from December 2019 of 82% and June 2019 of 72%. The strong operating cash flows reflect the improved cash collection practices in the business. And then finally, the net assets increased by $253 million as a result of the recent capital raise, which was slightly offset by the mark-to-market of the funds under management. I'll expand on these 2 subjects shortly. The table shows a summary of the income statement for the group. Damien has already covered the underlying results by line of business in the previous section. Overall, at an operating level, the group delivered for the half year to 30th of June 2020, a reduced operating EBITDA of $48.6 million, predominantly due to the impact on revenue of COVID-19 and the commitment to providing a continued high level of service to our client families. We have witnessed, particularly in May and June, a significant decline in period-on-period case volume. This decline has been ascribed to the factors preventing the spread of COVID, for example, improved hygiene, wearing of masks and social distancing. And as a result, the prevalence of influenza this year is at well below recent historic levels. Operating revenue was down on the PCP by $15 million, and the fixed nature of our cost base and the need to continue to provide a high level of customer service resulted in a reduction in EBITDA of $14.3 million. It includes the increase of contract realization, otherwise known as the AASB 15 unwind, which I will cover next in regard to this accounting change effective first of January 2018. The net loss after tax attributable to equity holders of $18 million was due to the noncash mark-to-market adjustment of the funds under management. The funds under management for our prepaid funerals, as mentioned by Damien, which is also independently managed by third parties, reduced by a net 5.4%, reflecting the bounce back in the equity market following the initial decline at the beginning of the pandemic. Despite this reduction, the headroom remains positive. That means the assets more than cover the liabilities by $52.3 million. Let me take you through the impact on EBITDA of the adoption of the recent accounting standards, would you please turn to Slide 14. This is maybe, Martin the last time, I have to explain these accounting standards, and then I'll hand over that to Adrian. But as usual, just to explain the difference for our operating versus underlying results. Let me remind you of the implication of those recent adoptions of the accounting standards on our results. So AASB 15, in particular, the revenue from contracts with customers for the unwind of the pre 1 of January 2018, CemCrem contracts. And this AASB 16 this year is now included in the underlying results as they now have comparatives. This reflects over 800 operating leases now accounted for in the balance sheet. I reported before, over 200 leases. The difference between the 2 is we've actually sold and leased back quite a few of our vehicles in meantime, which means that this is accounted on the balance sheet and the occupancy and facility costs, together with the lease cars are now expensed below EBITDA by an increase in depreciation and finance costs. This waterfall shows clearly how one component of the accounting standard changes is impacting the operating profitability. Those are blue bars at each end of the chart, and underlying profitability, the purple bars, on the inside. For the EBITDA, the underlying versus operating decline is 13 -- 30.1% and 22.7%, respectively. I'd like to remind you that the unwind of the CemCrem contracts is directly linked with the timing of final installment payments and/or transfer of title of ownership where more of these contracts being recognized in the first half of 2020 than in 2019, with a net favorable impact of $3.6 million on PCP. This is being the difference between $3.8 million recognized in 2019 and the $7.4 million this year as shown in the waterfall chart. The AASB 15 one line is in line with guidance provided in February 2020, $14 million for the full year. Notwithstanding the changes in accounting standards, the underlying EBITDA declined by 30.1% on PCP, which is reflected through the case average decline limited to 6.6% on PCP, demonstrating the resilient nature of our services to client family. Led by case average unfavorable variance to PCP of $8.2 million, the use of our renovated celebration lounges was also hindered when lockdown restrictions are in place. The contractions to the market in which we operate over the first 6 months of 2020, due in part to social distancing initiatives, resulting in an unfavorable volume variance of 2 PCP of 3.4% and or $4.3 million. With the onset of COVID-19, new cost control measures saw a company-wide annual leave drive and workforce optimization, such as reduction in overtime and the use of casual labor, helped to slightly mitigate increased costs such as personal protection equipment for our employees and client families, additional cleaning and streaming costs. Please turn to Slide 15 to get a sense of the movement in operational expenses. Operational expenses declined by 1.1%, mostly as a result of lower revenues. When excluding cost of sales and last year's 2019 acquisitions, expenses increased by 3.6%, reflecting the impact of personnel facilities and phasing of marketing expenditure. Walking you through the main variances. Cost of goods sold percentage to underlying revenue of 25.6%, improved by 1.2 percentage points, with continued procurement focus and a mix of products sold. Employee costs would contain following an annual leave drive during the COVID crisis, short-term and long-term incentive provision reduction and a workforce restructure and would include also the structure provision that started in late June. Advertising and marketing spend was skewed to the first half, and facilities cost increase were impacted by the annualized impact of the 2019 acquisitions and greenfield locations, such as new shop funds and shared services rentals. Lastly, I'll wrap up the financial performance section on Slide 16 by taking you through our cash flow and capital management position. You'll note the improved financial position across cash flow, balance sheet and leverage ratio. Cash conversion of 98% in this period has improved by 28 percentage points on PCP and 16 percentage points to December 2019. Strong operating cash flows reflect the improved cash collection practices company-wide. You will also note the lower borrowings during the half year 2020, InvoCare completed an institutional placement followed by a share purchase plan. The support from both institutional and retail investors was overwhelming, a new capital before costs of $200 million for the institutional placement and $74 million from the SPP will raise. Net proceeds from the capital raise have been initially applied to reduce net debt, increased liquidity and balance sheet flexibility to support the business during the current uncertain environment and to fund growth initiatives. The group maintained available funds of over $360 million, as at the 30th of June 2020, and the business is well within its banking covenants. This leads me to the impact of the group's net assets, which increased by $253 million to $550 million, with the main contributors being as just mentioned, part of the capital raise was used to reduce borrowings, continued growth projects and increased liquidity during the pandemic, which is reflected in the increase in cash and cash equivalents of $161.2 million and decrease in borrowings of $109.6 million. The net decrease in prepaid contracts, the funds under management of $41.7 million includes the net loss on undelivered prepaid contracts before tax of $39.5 million, of which $29.3 million is due to lower returns from equities, some property revaluation as a result of the pandemic. I'll remind you that these are noncash transactions. And finally, all cash-generating units to which goodwill has been allocated were reviewed for potential indicators of impairment at 30th of June 2020. Sensitivity analysis continue to indicate significant headroom exists in the value in use calculations for Australia and Singapore CGUs compared to the carrying value of the assets of each of the CGU. There is no reasonable possible long-term shifts in key assumptions considered likely, which will cause impairment of either of these CGUs. The New Zealand CGU has been reassessed during the half ended 30th of June 2020, and no change to the impairment charge was deemed necessary. As of today, the New Zealand government moved swiftly to improve imposed restrictions when active cases of COVID-19 arose in Auckland. The current restrictions are not expected to present a significant and prolonged impact on the New Zealand's performance, the situation in New Zealand is being actively monitored and will be reassessed at year-end. I will now hand back to Martin, who will provide an update on our growth initiatives. -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [5] -------------------------------------------------------------------------------- Thank you, Josée. As you say, I will now provide an update on our Protect & Grow strategy, which covers our investment in our properties, our people and our business systems. Work has continued on all fronts with regard to Protect & Grow. And to date, we have renovated 121 locations out of a total of 215 slated for investment. The quality of the renovation is delivering market-leading locations that leverage our brands and enable us to provide increased level of service to our client families. These sites continue to outperform the unrenovated locations, and the aim is to continue to roll out this critical reinvestment program. The COVID pandemic has meant that we've had to adapt our people and culture brands for the year, and we focused on training on safety and customer service. A tilt in program delivery has also been required with the vast majority of training now occurring online. However, this continued focus on customer service contributes to the high levels of Net Promoter Score. Finally, the focus for the ERP project has shifted from implementation to one of optimization. And we are working closely with the team to improve the system performance to allow for increased user friendliness, increased efficiency and more detailed and timely reporting. The improvement in cash collection is due, in part, to the greater visibility that we now have with regard to cash reconciliation. Now move to network and brand optimization in more detail. The chart on this slide shows both the number of sites completed by strategy and the quality of the work being delivered. We completed 15 projects in H1, with a further 50 scheduled for delivery in H2 this year. This assumes, of course, that the restrictions associated with COVID do not materially impact or interfere with the building industry. By the end of the year, we will have completed 171 projects, which equates to 80% of the portfolio planned for investment. The pipeline of 13 additional enhanced sites and 15 growth sites have been deliberately deferred until after 2020 as we manage the creation of long-term value with short-term business disruption, which is associated with taking new flagship locations offline for renovation. The photographs in the slide clearly show the high quality of the locations being delivered. The photographs in question were of Cue in Melbourne, which was opened in May. This world-class location provides a modern, contemporary and full-service facility to not only plan and hold the funeral service, but also a facility in which people can hold a wake and celebrate the life of a loved one in a dedicated, high-quality memorial lounge. Obviously, the fact that Cue is in Melbourne, means the ability to fully maximize this upgraded location is currently limited. But InvoCare is investing for long-term sustainable growth. And as such, the intention is to continue to roll out our program of renovations during the course of the year and make the most of the fact that the COVID-related issues are restricting the use of our chapel facilities. The next slide talks to performance. The performance of the renovated locations continues to outperform the unrenovated locations with case volume and sales being 7% and 4% ahead of what would have been the case if we had not invested in the sites. It should be noted that in the same way that our premium funeral brands were impacted by the trend towards simpler funerals during Q2, the same trend impacted the case average at the renovated locations. In summary, the strategic advantage that the renovations give us contemporary full-service locations is eroded when we are not able to provide the full range of services. As seen in the overall business, this loss of additional revenue has impacted EBITDA, albeit that EBITDA for H1 at the renovated sites remains ahead of a do-nothing position of 1%. And for reference, this was ahead by 5% in 2019. Turning to regional expansion. The recent acquisitions in 2019 have also been impacted by the COVID pandemic. But taking this into consideration, their performance is in line with our expectations, and they continue to contribute positively to the group's earnings. When the potential impact of COVID was becoming apparent in March, a decision was made to put on hold work relating to potential acquisitions until there is greater clarity on the impact of COVID on the funeral business. Following the capital raising, we have reactivated the acquisition pipeline and re-engaged with potential vendors. Though we are being prudent with regard to timing of acquisitions to ensure that we understand the long-term impact of the COVID pandemic on the industry. Work is also underway to leverage our national brands of Simplicity and White Lady Funerals into the regional areas where we have acquired a traditional brand. We are focused on rolling out this investment into Northern New South Wales as a proof of concept. Next the pet cremation business entered its second year of operations and continues to ramp up its performance, which is demonstrated by the increase in sales of 175% or $482,000, and albeit that the division is still delivering a negative EBITDA of $312,000, but this is a 48% improvement on H1 2019. We've also completed the establishment of our second greenfield site in New South Wales, up at Morisset, which complements our greenfield site in (inaudible) and our acquisition in [South Windsor]. And this provides us with good coverage throughout the greater Sydney market. We will also continue to examine opportunities to grow this business, either through additional acquisitions, or additional greenfield developments. Finally, the need to identify different ways of working to overcome the operational challenges associated with COVID, I've made it clear that we need to increase our understanding of the ways in which we can better serve the customer into the future. This will mean investing in technology advances that cater for the ever-evolving needs of our customers, with a deep reliance on both big and thick data. We are currently involved in undertaking a deep dive into customer needs across a range of different market demographics and religious segments. Protect & Grow was an important first step to improving the physical assets, business systems and culture of the company. But more work is required to provide relevant digital solutions for our customers and complement our face-to-face product offering. I'll now turn to the outlook. It is always hard for us to provide full year guidance at the half year, given the importance of winter trading on our financial performance. This is due not only to the increased number of deaths during this period, but also the higher level of year-on-year volatility in deaths from one winter to the next. This volatility is driven in part by the severity of the flu season, which is notoriously difficult to predict. This year, the impact of social distancing and potential further ways of COVID, make it even harder to provide reliable guidance on case volume. The uncertainty of whether there are subsequent ways of COVID that may require a reintroduction of more severe attendance level at funerals, does mean that there is a level of uncertainty around sustaining the recent improvement of case averages seen in July and June. Irrespective of these uncertainties, we will continue to make sensible cost measures whilst ensuring that we are able to maintain the high level of service we provide to our communities and client families. However, we will not be providing a detailed guidance for full year earnings at this stage. In summary, despite the fact that there remains uncertainty as to how the business will be impacted by market conditions caused by COVID, InvoCare will continue to respond quickly and appropriately to the operational challenges of this pandemic. It is clear to me that this is a time when difficult decisions are required, and our focus needs to be on balancing short-term pressures with delivering sustainable long-term value creation for shareholders. As such, InvoCare will continue to take a calm and balanced approach to navigating this ongoing crisis. I would like to echo the words of the Chair of our People and Culture Committee at the recent AGM. We are acutely aware of the additional pressures on our staff at this time and working with grieving families is a highly emotional and demanding job at the best of times. I'm very proud of the way the team has responded to the additional challenges that COVID has based upon them and their commitment to ensuring that we are able to provide the highest levels of customer service to our client families, is what makes InvoCare such a special company to work for. I'd also like to take this opportunity to thank Josée for all her hard work commitment and drive over the last 4 years as our CFO. It's been a period of much change for InvoCare, and Josée has been a key member of the group executive, responsible for both continuing to deliver business as usual, whilst helping implement Protect & Grow. I wish a well-earned rest in September and the best of luck in her new endeavors. Finally, I'd like to reiterate that despite the impact of the loss of revenue has had on the financial performance in H1, our view continues to be that the funeral services and memorial business remains resilient when compared to other service industries and the long-term demographic trends provide us with the confidence to continue to invest in our growth initiatives and undertake work to further improve our customer service offering. I'd like to thank you all for listening once again, and I'm going to open up the call to take any questions that you may have. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Russell Gill of JPMorgan. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [2] -------------------------------------------------------------------------------- A handful of questions. First, just you called out the shift in the period from White Lady, I guess, to Simplicity and Value creations. Is it possible to talk through 2 things there? Obviously, there's a lot of moving parts with the Protect & Grow and also COVID. But can you talk through the market, I guess, the margin differential between those segments of your business? And secondly, whether you can give any qualitative insights on market shares versus your competitors in those segments? Just to get a feel whether there's actually you guys are gaining share in lower parts of the marketplace and losing share at higher-margin offering to the marketplace. -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [3] -------------------------------------------------------------------------------- Russell, I think I understand the question. And if I don't get it all, I can take it on notice as well. What I -- let me give a high level on margins. The White Lady case averages have remained relatively steady over the period of time, Russell, and that's due to 2 reasons. Firstly, that isn't a brand that is a discount brand in the market and it's not a brand that we do a lot of direct cremations through, is firstly. Secondly, in regards to the market share, as I mentioned in my opening, our ability at the moment to give detailed data on market share is a little challenged. What I can tell you, though, is the lower value -- Simplicity and Value Cremations have both grown over that period of time. Our assumption is that part of the market has grown as well. What we don't know, Russell, is how much the market has grown. So I don't want to give you a number that is made up. But we do know both have grown above what we know the market is growing at. Our traditional brands, we believe, are directionally in line, and our White Lady brands are slightly below the market. -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [4] -------------------------------------------------------------------------------- I think it's probably safe to say that because they are a house of brands that have different levels of -- entry levels in terms of pricing and the service that is provided at our market share or the impact of the trend towards simpler funerals, we've managed to mitigate by having both Simplicity and Value Cremations as alternatives to offer people to one that has been an unprecedented period. I guess as to how might that have impacted more traditional operators that don't have those value brands, we just simply don't know. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [5] -------------------------------------------------------------------------------- Sure. I guess a follow-up to that, though. I guess those dynamics would be expected in the last 6 months. How much of these dynamics do you see, I guess, as market evolution -- I guess, to a market structure evolution as opposed to just a temporary adjustment through COVID, and then we'll see a rebound in coming years? -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [6] -------------------------------------------------------------------------------- No. We will look very closely at that. One of the things that we're seeing when we talk to our customers and when we look at media, both in terms of radio and talk about radio and also letters and social media is, in our view, a real element of people didn't necessarily value funerals in the same way before, and you place significant value on something that you've lost. We're actually seeing that people now fully understand the need for face-to-face interaction at funerals. Our team have done a tremendous job about streaming and making sure that people can attend virtually. But in reality, that's no substitute for being there face-to-face. And what we are seeing is that people are valuing the level of service that we can provide both with regard to digital, but also the face-to-face service and also the ability to have the wake or the celebration of life at the same venue. So what we're seeing is not only with the restrictions being lifted, an increased focus on customers saying, we want to be able to have the service. We want people to come along, and we want people to be able to celebrate the life all at the same venue. We're able to do that. And one of the benefits of the investment that we've been doing in terms of protecting growth has been around our ability to provide dedicated memorial lounges, which allow us then to be less impacted by restrictions where we have the sort of the 4-square meter rule because we have larger facilities because we can combine both the travel and the memorial lounge. -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [7] -------------------------------------------------------------------------------- Russell, one other quick point to make -- 2 quick points to make. Firstly, we're always looking for ways to ensure that we evolve our brands and they maintain relevance, whether that be White Lady, Simplicity or a traditional brand, that will remain. Secondly is, although unsurprisingly, the impact on White Lady was high during the COVID period, what we have seen in the months of June and July is a stronger performance from the White Lady brand as restrictions were eased. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [8] -------------------------------------------------------------------------------- Great. A handful of other questions. Just on Slide 14, you talked through, I guess, the waterfall chart, just some understanding of your EBITDA leverage. The first half this year has clearly been -- case average issue with a bit of a volume, which you called out in May, June, and then potentially, I guess, some large volume declines coming through in the second half. Your volume was off 3.4%, but you're saying the EBITDA impact was only 4%, but the case average was off 6% and the EBITDA impact was 8%. I would have thought there'd be far more leverage to EBITDA in volume in your business. Can you just talk through the dynamics of what leverage is in your business volume value or case average? -------------------------------------------------------------------------------- Josée Lemoine;CFO, [9] -------------------------------------------------------------------------------- Russell, so if you're looking at the case averages, the 6.6% obviously impacts all of the case volume. So the dynamic between the numbers, between the number of the volume and the case averages, just -- this plays out a bit differently. So if you look at your $8.2 million and your $4.3 million, then the difference is probably on a cost base that the underlying cost base, as I mentioned, still increase when you're looking -- when you're excluding the operating impact. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [10] -------------------------------------------------------------------------------- I maybe -- a better way to ask it, if your volume comes up 1% across your business, will the impact being greater to EBITDA than if the case average came down 1%? I would have thought you'd have far more EBITDA leverage on volume than you would have on case average? Maybe just the mechanics of the accounting. -------------------------------------------------------------------------------- Josée Lemoine;CFO, [11] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [12] -------------------------------------------------------------------------------- Okay. Third question, just another question. Just on the Protect & Grow, Martin, it does look like that's been a fair bit pushed into the second half. So you've got more enhance coming through in the second half, and a huge number of refreshes. Can you just go through the timing of those because you do make a lot of your money in the second half and that has the timing with those in the second half in that decision to push them into the second half? -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [13] -------------------------------------------------------------------------------- Yes. I think the decision is not necessarily to only start them in the second half. Work is ongoing on many of those locations already and enhance might take 6 or 9 months to do. So we we're actually working on many of those. That's the completion date. There's significant amount of work that pushed ahead after we did the capital raising, as we said we would. So we did ask ourselves when we put a number up there, we've got to commit to hitting it. Have we got confidence in hitting that number? And we've published a number. So you can derive from that. We are fully confident of delivering those enhance and refreshers in the second half of the year. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [14] -------------------------------------------------------------------------------- I guess my question is that your big earnings months are sort of now August, September, October. And these -- have a lot of that portion already been delivered in July or if they're ongoing, am I working on an assumption that you've got more places, I guess, out of operation in your highest earning month than you have previously? -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [15] -------------------------------------------------------------------------------- There will be more business disruption in the second half of the year than it was in the first half of the year. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [16] -------------------------------------------------------------------------------- Okay. Great. And then just a final question. When your Protect & Grow strategy was announced almost 3.5 years ago, it involved 2 things: one, a higher level of gearing in your business, a substantially high level of gearing; and two, the commentary that would underwrite, I guess, double-digit EPS growth into the future. By reading your Director's Report, it says that the LTIPs pricing off FY '20 are based on a 6% to 10% EPS dynamic. I appreciate there's less gearing the business. Appreciate that AASB 15 might be a comparative headwind over a couple of years. But can you just talk through whether the expectations of Protect & Grow have changed relative to 3.5 years and how we should interpret that 6% to 10% EPS growth dynamic over the next 3 years? -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [17] -------------------------------------------------------------------------------- Yes. I wouldn't read too much into it. I think it's just a realization that when we launched Protect & Grow back in 2017, our assumption was that in terms of market share, that the unrenovated locations would flatline, would remain the same. What we're actually seeing is market share decline in unrenovated locations. We still think the uplift of the Protect & Grow is in line with our original expectations, but it's probably off a slightly lower base. And we haven't managed to push through all the growth initiatives by the end of 2020, which was our original expectation. We're still bullish about the Protect & Grow and the upgrade to assets and the customers' response to the work that we're doing. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Our next question comes from Mathieu Chevrier of Citi. -------------------------------------------------------------------------------- Mathieu Chevrier, Citigroup Inc. Exchange Research - Research Analyst [19] -------------------------------------------------------------------------------- The first one is just on CapEx. I wonder if you've put any guidance numbers out for the second half of '20 and then looking at '21. -------------------------------------------------------------------------------- Josée Lemoine;CFO, [20] -------------------------------------------------------------------------------- Yes. We -- well, we haven't quite given the full and updated view on that. But we would expect -- I think what we -- I'm trying to remember now what we said in February, but we'll probably expect to be close to $70 million to $75 million, and that's gross. It's not net of our disposal. We have 2 properties that -- is planning to settle in the second half. For 2021, I haven't really given a guidance yet, so let me come back to the other one. -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [21] -------------------------------------------------------------------------------- But we normally say that recurring CapEx is at around that sort of $25 million to maybe $30 million level. -------------------------------------------------------------------------------- Josée Lemoine;CFO, [22] -------------------------------------------------------------------------------- And they're phasing at the moment, Mathieu has -- we've listed on our Slide 19, I mean, the forecast for 2021 and beyond. The rollout has not been fully determined how -- what's in 2021 versus 2022 and beyond. So that will impact, obviously, up and above the same business CapEx. -------------------------------------------------------------------------------- Mathieu Chevrier, Citigroup Inc. Exchange Research - Research Analyst [23] -------------------------------------------------------------------------------- Understood. And on the case averages trend, obviously, that's picked up in May and June as the lockdown measures were lifted. What have you seen so far in July and so far in August, obviously, outside of Victoria and New Zealand? -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [24] -------------------------------------------------------------------------------- Damien, if you focus on August, I think, because July is still strong. -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [25] -------------------------------------------------------------------------------- Yes. Mathieu, it's Damien here. Thanks for the question. We're certainly seeing in those regions being Victoria and New Zealand, where government restrictions have put in place, that has plateaued that trend that we've seen in June and July. Over that period -- it hasn't gone back anywhere near the levels we saw in April, but it's certainly plateaued slightly down. I wouldn't like to give a forecast where it's going to be for the rest of the month or September because there is uncertainty around that. But in those 2 regions, we've certainly seen that plateau out over the period of time. And as per the graph on -- I think it was Slide 3 in the presentation or Slide 4, we're returning to a more normal level in other zones, not quite back to where we were, but more normalized levels. -------------------------------------------------------------------------------- Josée Lemoine;CFO, [26] -------------------------------------------------------------------------------- I think it's Slide 8, you're referring to this one, too. -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [27] -------------------------------------------------------------------------------- Yes, Slide 8, Mathieu. Apologies, Slide 8. -------------------------------------------------------------------------------- Mathieu Chevrier, Citigroup Inc. Exchange Research - Research Analyst [28] -------------------------------------------------------------------------------- Okay. And then you touched on your assumptions in the do-nothing case with regards to Protect & Grow. Can you just walk us through your assumptions? So you're saying that -- in one of your slides, you're saying that you're about 1% above your previous expectations at the EBITDA line. Is that because your expectations of do-nothing did not include any impact, obviously, from COVID? Or have you adjusted that to COVID? -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [29] -------------------------------------------------------------------------------- We have adjusted for COVID. Fundamentally, it's a function that are sites where we could offer full-service provision to customers have been significantly impacted as opposed to our unrenovated sites where we don't make -- we're not able to provide the same level of customer service in terms of the provision of the services that we can provide. And therefore, the loss that was associated with the restrictions at the unrenovated side or the decline in case average has obviously been a lot less than the decline where we were providing the full level of service at the renovated. So it's a short-term in-cost associated with the government restrictions on case average that have driven that result. In the past, what we've seen, very clearly, is that people -- our case numbers are ahead of the unrenovated stock, and that remains the case. And generally speaking, our case average is well ahead of what we would see in the unrenovated locations. It's just a quirk of the government restrictions on attendance that has meant that we've been heavily impacted at our renovated sites. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Our next question comes from Tim Plumbe of UBS. -------------------------------------------------------------------------------- Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [31] -------------------------------------------------------------------------------- Some of my questions have been asked but I might just see if I can ask them in a slightly different way. Just in terms of the July run rate, are you able to give us a sort of indication in terms of what the average spend per revenue was down in July year-on-year? And also what the volumes were down year-on-year in July? And then if at all possible, Martin, here we can see what the portfolio was excluding New Zealand and Victoria? -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [32] -------------------------------------------------------------------------------- Just pausing and looking at my colleagues to see if they can help us and they are both shaking their heads in -- with regards to that. So maybe we'll take that on notice and come back to you if that's okay. -------------------------------------------------------------------------------- Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [33] -------------------------------------------------------------------------------- Okay. If the volumes are softer in the second half, do you guys have further cost levers that you can pull? Or do you look at that and say, well, it's a one-off. We'll see through this period because those deaths are likely to occur next year. -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [34] -------------------------------------------------------------------------------- So the answer is somewhat of both, actually. And without wanting to sound I'm sitting on the front, we will continue to push through measured cost savings throughout the business. And some of these take time to implement, and we'll begin to see more impact to them in the second half of the year than we were able to see in the first half, simply as a function of it takes time to push through that business. But we are very clear that we see this as it's not a temporary situation to deal with. Certainly, our business relies very much on the provision of the highest level of customer service. We are going to continue to serve our communities and therefore, continue to retain as many of our qualified staff in the field as is possible because without that, service levels dropped, and that really is an impost on future performance so I think what I'm trying to say to you is we'll continue to strip cost out of the business and become more efficient in a way that doesn't impact on the customer service. -------------------------------------------------------------------------------- Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [35] -------------------------------------------------------------------------------- Got it. And then just very last question. When you're looking at the Protect & Grow outcomes and you say case volume is 7% greater than the do-nothing scenario. Can you just remind us what were the assumptions underpinning the do-nothing scenario in terms of case volumes? Is that losing 1% per annum? So is that between 3.5% -- are we kind of down 3.5% to where we were at the start? -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [36] -------------------------------------------------------------------------------- Just to be clear, what that means to do-nothing scenario is we take real live data of what we're seeing in our sites that have not been renovated, and then apply that to the base year of when the renovation occurred. So it's not necessarily looking back and saying, what do we think in 2016. It's actually saying what's happening in the marketplace in the first half of 2020 in our unrenovated locations and then applying that factor and comparing how those renovated sites are performing. So it's a much more accurate and meaningful number sort of going back to the past. But as I said a few minutes ago, in the past, we would have assumed that market share is flat at the unrenovated sites. We're very clear now that, that's not the case. That we are seeing market share decline, at our unrenovated locations. And that's partly due to the changing customer needs, which is the whole point of Protect & Grow. -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [37] -------------------------------------------------------------------------------- Tim, it's Damien. Just back to your first question. One, firstly, we're not in a position to share that information. But secondly, the guidance we'd give is we don't get too excited either way on month-on-month volume changes. They can go up, they can go down. We look at it a more trend analysis. We'll make sure if we've got anything to share we will, that month-on-month really isn't overly relevant. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- Our next question comes from Mitchell Sonogan of Macquarie. -------------------------------------------------------------------------------- Mitchell Sonogan, Macquarie Research - Analyst [39] -------------------------------------------------------------------------------- Just a quick one, just talking about that you've mentioned today and also previously that market share losses accelerate in non-NBO site. Can you maybe just talk about what you did see in the first half '20, did that trend continue? And secondly, just also just give us give an update as to why you think that continues? -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [40] -------------------------------------------------------------------------------- Yes. I mean, I think the first thing I'll do is caveat my answer by saying, it's incredibly difficult to get market share. And the only market -- accurate market share is determined by ABS that comes out in November, the following year. So these comments are based on our best understanding of what's happening, drawing on a range of data sources, be it coffin suppliers, be it just marriages, which is registration, not natural deaths, be it talking with the AFDA and generally getting an understanding of what's happening in the marketplace. I would suggest that actually -- what's actually happened with our unrenovated sites is we probably haven't seen significant market share decline at the unrenovated sites in the first half of this year, it sort of goes slightly against the very long-term trend of decline in market share at those locations. And partly, that is because of COVID, and because people are saying, there's little or no point driving 20 or 30 minutes past a funeral home to one of our renovated full-service facility where I could only get 10 people into that facility. So as long as the unrenovated locations have streaming in them and are local, people are much more likely to just drive a shorter distance because they've only got half a dozen or 8 to 10 people, and the rest is streaming. Not -- we're not able to -- we haven't been able to hold the celebration of life, the wake at locations. So really what people are looking for is a simple service in a small chapel with video streaming and our unrenovated stock provides that. So rather strangely, the conditions of COVID have probably meant that we performed more strongly in the unrenovated locations than we would have anticipated if COVID hadn't taken place. -------------------------------------------------------------------------------- Mitchell Sonogan, Macquarie Research - Analyst [41] -------------------------------------------------------------------------------- Yes. Just talking about on the streaming, so has that sort of just become expected across a lot of different operators the industry. But I guess, do you think COVID going to drive any loss and structural impacts from lower attendees at funerals, the increased percentage of direct cremations and more people attending via streaming as opposed to actual larger funerals. Maybe just some thoughts there, please? -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [42] -------------------------------------------------------------------------------- Yes. No, I think that streaming is going to be an expected norm across the industry. Does that mean that I expect that there will be less physical people attending a funeral? My clear view on this is no. And as I referred to earlier, what we're seeing is people valuing the service and the celebration as part of the grieving process, much more when they weren't able to do it. So what we're really clearly seeing is a real focus on the event and our ability to provide that event. So we see this as -- not as an either/or, it's a both. We expect to see greater focus on face-to-face interaction as part of the event, but streaming and allowing people to attend virtually will become a norm and an expected, and it's not something that is seen as different or special. -------------------------------------------------------------------------------- Mitchell Sonogan, Macquarie Research - Analyst [43] -------------------------------------------------------------------------------- Okay. And just talking on the attendees at funerals post the easing of restrictions. Can you maybe just give a few insights, maybe if there's anything on a state-by-state basis, where it actually got up to? Did you actually get anywhere near return to normal attendees in some of the other states in Australia or over in New Zealand? Or are people still being very conservative and those attendee numbers are rolled down? -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [44] -------------------------------------------------------------------------------- Mitch -- it's Damien here, Mitch. There's still obviously social distancing requirements at all of the sites around the nation and in New Zealand, which means a chapel, which in the past may have been able to hold 100 or 150 people may now due to social distancing, only be able to hold 60 people, for example. So those restrictions are currently in place, and that will have an impact on the number of people who can attend. And as per the previous question to Martin, what that allows us to do, though, through our streaming is to make sure we're opening up all the service to as many people, if not more people than we did in the past. So we're seeing the numbers come back within the restrictions that have been put in place by the relevant governments. Obviously, they're a little bit stronger in Victoria or in New Zealand at the moment, and the team are doing a fantastic job aligning to those restrictions, but across the country, we're not back to those levels we were at prior to COVID just due to the social distancing. -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [45] -------------------------------------------------------------------------------- I think -- just also add to that, Damien, as I said earlier in the presentation, the fact that we've invested in our locations, and we are providing a dedicated memorial lounge which is of an equivalent, if not larger size than the chapel, which also has AV within it, is providing overflow facilities so that actually, whereas before, we might have had 80 or 100 people in the chapel at the service, we might have 40 or 50 in the channel, we might still be able to have 50 to 60 in the memorial lounge. So our ability to cater for funerals is still there, albeit that we've had to pivot and be a little bit more innovative about how we deliver those services. -------------------------------------------------------------------------------- Mitchell Sonogan, Macquarie Research - Analyst [46] -------------------------------------------------------------------------------- Yes. Great. And a quick one just on the memorial parks business. You stated that burial numbers and cremation numbers have declined in business. Can you maybe just provide a little more detail on those volumes going through their case average and also those material sales completed in the first half '20? -------------------------------------------------------------------------------- Damien MacRae, InvoCare Limited - Deputy CEO [47] -------------------------------------------------------------------------------- Damien, again. I'll start with the last question. And no, no material sales. The cremation and burial numbers, and obviously, we have parks in Queensland and in New South Wales are directionally in line with trends we're seeing throughout our broader business. Quality product developments in the past few years have ensured, though, that we're giving lots of options to client families, whether that be crypt complexes or niches, et cetera. And we're seeing the appetite for client families to take up that offering return, to more pre-COVID levels so no major big product sales. During the first half of the year, aligned cremation and barrier levels to our funeral business and the pipeline of quality product across all of our parks and also park redevelopments is ensuring that we're giving good options to our client families, and we're seeing our client families take up those options back to levels we saw prior to sort of March of this year. -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [48] -------------------------------------------------------------------------------- And without wanting to overstate it, Damien, I think what we've very clearly seen is that people regard funerals and memorials in a slightly different way than they may do other discretionary purchases such that I may be quite happy not to go on holiday. But actually, when my father dies or a relative does, I still want to provide a decent send off and memorialize a lot more. So I'm not saying that it's completely nondiscretionary. Elements of it are nondiscretionary, elements that are a discretion. What we're seeing is actually much more resilience around the case average because people see this in a different way than a regular service industry. -------------------------------------------------------------------------------- Mitchell Sonogan, Macquarie Research - Analyst [49] -------------------------------------------------------------------------------- And maybe just one for Josée. Just thinking your volumes remain pretty flat into the second half. How should we think about the cost base versus the first half there? And then also in consideration, is there any sort of increased pickup in D&A, the interest expense will come down the back of the raise? So just trying to think about how that leverage will flow through in the second half in a pretty flat environment, and that's what plays out? -------------------------------------------------------------------------------- Josée Lemoine;CFO, [50] -------------------------------------------------------------------------------- So let me just repeat your question. You had a question around volumes for the full year. And then you also had a question around the finance costs. Is that correct? -------------------------------------------------------------------------------- Mitchell Sonogan, Macquarie Research - Analyst [51] -------------------------------------------------------------------------------- Yes. So I was just saying -- second half, if the volumes are pretty flat, so second half is pretty flat versus first half. It has been asked before, what can you do to the cost base? Should we expect a similar cost base in terms of OpEx in that second half? And is there anything else happening in terms of depreciation and the interest expense there in the second half versus first half? How should we think about those different line items, please? -------------------------------------------------------------------------------- Josée Lemoine;CFO, [52] -------------------------------------------------------------------------------- Yes. No. No... -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [53] -------------------------------------------------------------------------------- Let me try and help you, Josée, with the volume question, and then I'll leave you to the finance stuff. -------------------------------------------------------------------------------- Josée Lemoine;CFO, [54] -------------------------------------------------------------------------------- Yes. I can talk about the expenses, too. -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [55] -------------------------------------------------------------------------------- We've always said that movements in the number of deaths year-on-year, it does fluctuate. And we've always said that the benchmarks of those fluctuations when we look back over a 20- or 30-year historical period, sort of plus or minus 5% within the markets in which we operate. In 2018, we pushed the limits of those benchmarks or those bookends, up towards -- I think we saw a 4.8% decline in year-on-year debt in our -- in the markets in which we operate. We don't know whether this pandemic will push that bookend further than plus or minus 5%. And at the moment, what we're seeing, we are trading within the bandwidth, albeit that I think New Zealand has indicated that they were at negative 6%. Again, New Zealand is a smaller market. So we expect in smaller markets such as the state, you see maybe fluctuations in excess of 5%. And we have seen that. But when you consolidate out the group, we've tended to give guidance that it's plus or minus 5% variation in year-on-year debt. I don't think at the moment, we can say that it will be any different this year. -------------------------------------------------------------------------------- Josée Lemoine;CFO, [56] -------------------------------------------------------------------------------- Yes. And related to, as Martin just said, when we're looking at the volume, let's say, whatever, how it plays out in H2, we have taken a measured approach to our OpEx. And to Damien's comments, we've had a limited amount. With limited the amount of redundancy, but we've had some redundancies. And we should see some of the benefits in H2 and as we stipulated, our marketing spend this year, when we had planned for the 2020 year, we've phased our expenditures in the first half. So you should see a year-on-year similar impact for the full year, but it has been phased. Now obviously, when we plan those marketing activities, they were planned pre-COVID-19 so it probably was a bit of a perfect storm for the first half. But notwithstanding that, you'll see some benefits in the second half. I'm trying to think, we do have, I think, like I explained, we do have more facilities costs on year from -- related to our 2019 acquisitions and the other items are on our Protect & Grow additional locations. But apart from that, I think you can probably forecast the position. -------------------------------------------------------------------------------- Martin Alistair John Earp, InvoCare Limited - CEO, MD & Executive Director [57] -------------------------------------------------------------------------------- Mitchell, we're going to have to wrap it up. [We've got a technical call]. We're getting close to that. We probably won't be able to take any more questions at this time, but we can certainly -- I think there was one person left that we had question from, I think it's Sam. So we encourage him to call us, and we'll answer that one-on-one if we can. I'd like to thank everybody for listening, and look forward to catching up over the next 3, 4, 5 days. Thank you. -------------------------------------------------------------------------------- Operator [58] -------------------------------------------------------------------------------- This concludes today's conference call. Thank you for participating. You may now disconnect your lines.