InvoCare’s Move to The US Proving to Be Much More Expensive Then Projected, Losing Millions

August 18, 2015
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Article originally appeared on Sydney Morning Herald

Death is proving expensive in the United States for Australia’s largest funeral homes and crematorium operator InvoCare as it attempts to break into the lucrative market and diversify from its home base, with losses from its fledgling operations in the US expected to be higher than expected over calendar 2015.

InvoCare started up its funeral operations in southern California in February, 2015 after buying the Macera crematorium in San Diego for $US2 million ($2.7 million), and has conducted 100 funerals since then.

InvoCare chief executive Martin Earp, who came into the role on May 1 this year after running New Zealand-based on-campus student accommodation provider Campus Living Villages, said the initial case volume ramp-up and averages had been tracking below plan in the US, but this was expected to improve as the company stepped up its marketing through community networks and digital media.

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The US business incurred losses of $US1.5 million for the half year ended June 30, 2015 and he said this could grow to $US3 million over the full year as brand investment is stepped up. This is higher than the anticipated $US2 million loss initially outlined last year.

But InvoCare’s core Australian and Singapore operations delivered solid performances and Mr Earp said overall, “the business remains robust”.

He is part-way through a comprehensive review of the entire InvoCare business, with operating efficiencies across Australia, New Zealand and Singapore a main area of focus. Mr Earp said the outcomes of the review would be presented to the market in early calendar 2016 when InvoCare announces its full-year results.

Impact of acquisitions

When the losses from InvoCare USA and the impact of acquisitions were included, InvoCare’s net profit after tax for the six months ended June 30, 2015 was 11.3 per cent lower at $18.5 million.

Total sales revenue across InvoCare increased by 6.1 per cent to $208.1 million. Shareholders will be paid an interim dividend of 15.75¢ per share on October 9. The dividend is the same as a year ago.

The earnings before interest, tax, depreciation and amortisation from the Australian businesses were up 5.5 per cent on a year ago, while in Singapore, EBITDA was up 12.6 per cent.

In Australia, the average revenue per funeral was up 2.2 per cent, which was in part underpinned by price reviews in late 2014.

InvoCare, which runs funeral businesses including White Lady, Simplicity, Blackwell, Guardian and George Hartnett, expanded into the US because it is limited by competition regulators in how much further it can grow in Australia through acquisitions, and because the cost of funerals is generally much higher in the United States compared with Australia.

Industry analysts put the average cost of funerals in the US at between $US8000 and $US10,000, which is almost double the cost in Australia depending on the level of service and sophistication. The downturn in sharemarkets also had an impact on InvoCare’s pre-paid funerals funds under management, which was $408 million at June 30, compared with $385 million a year earlier, with investment earnings below the growth in service delivery obligations

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