Good morning, everyone, and thanks for joining Propel's FY 'twenty one Half Year Results Briefing. I hope that wherever you're listening to this, you and your family are safe and well. With me are my colleagues, Lily Gladstone and Fraser Henderson and together we'll take you through the presentation lodged with the ASX this morning. Before we start, I would like to first acknowledge and express my sympathies to bereaved client families, many of whom have farewelled loved ones in very challenging circumstances, especially in lockdown areas where strict funeral attendee limits and travel restrictions have applied. I also would like to thank Propel's dedicated staff in Australia and New Zealand for their hard work, professionalism, flexibility and commitment to providing essential and caring services to their communities, especially since the start of the pandemic.
Turning to today's presentation. In terms of the agenda, I'll summarize the key highlights of the first half of FY twenty twenty one, the impacts of and our responses to COVID-nineteen and I'll then provide a brief overview of the business. Lily will cover the financial results in more detail. Fraser will touch on industry trends and acquisitions. And finally, I'll make some concluding remarks before taking questions.
The 3 key takeaways from today's presentation are firstly, PROPEL's financial results were resilient in the first half of FY twenty twenty one despite the low trend debt volumes and COVID-nineteen impacts. Secondly, PROPEL stands to benefit from debt volumes reverting to long term trends and there are some encouraging recent signs in that regard. And thirdly, with a strong funding position, PROPEL remains well positioned to continue consolidating what is a fragmented and essential service industry with favorable demographic tailwinds. Please turn to Slide 6 for the key highlights. First half revenue increased 3.5 percent to CAD 59,000,000 on the back of a 3.8% increase in funeral volumes, including contributions from acquisitions with average revenue per funeral up 3.6%.
PROPEL continued to grow earnings with operating EBITDA up 14.8 percent to CAD 19,000,000 operating NPAT up 7.6 percent to CAD 8,400,000 dollars and operating earnings per share up 7% to 0.085 dollars Cash flow conversion remains strong at circa 98%, which is pleasing. From a capital management perspective, the Board has declared an interim dividend of $0.06 per share fully franked, up $0.02 per share on the PCP, reflecting a payout ratio of 82% and a gross dividend yield of 5.8% at yesterday's closing share price. Since its IPO in November 2017, Propel has declared fully franked dividends totaling $0.339 per share or circa $0.48 per share on a pre tax basis. PROPEL ended the first half with a gearing ratio of approximately 30% and available funding capacity of approximately 63,000,000 In terms of growth, the company added 8 locations during the first half bringing its total network to 138 locations as at 31 December 2020. Management has been focused on executing Propel's acquisition led growth strategy, deploying approximately $127,000,000 on acquisitions since the company's IPO.
And during the first half, despite travel restrictions and border closures, Propel deployed approximately €30,000,000 on acquisitions in New Zealand, Western Australia, New South Wales and Queensland. And we are pleased to announce the acquisition of Pets RIP, a provider of pet cremation services operating from 2 locations, which completed in December 2020 and expands the company's adjacent existing pet loss service offering in Queensland. In terms of the outlook, the company expects to benefit from debt volumes reverting to long term trends, our growing and aging population, a strong funding position, acquisitions completed to date and other potential future acquisitions in what is a fragmented industry. I'll talk more about our outlook towards the end of the presentation and we'll now touch on key COVID-nineteen impacts and some of our responses. Turning to Slide 8.
As previously disclosed, strict funeral attendee limits in Australia and New Zealand during the final quarter of FY 2020 at times limited to 10 mourners throughout Australia and prohibited in New Zealand affected the company's ability to offer a full range of services to client families and temporarily resulted in a higher mix of lower value funerals performed across Propel's network. As can be seen from the chart at the top of this slide, unlike the widespread impacts on average revenue per funeral in the final quarter of FY 2020, in the first half of FY 2021, the easing of funeral attendee limits resulted in a significant improvement in funeral mix, which contributed to an increase in average revenue per funeral. The impacts were generally isolated to COVID-nineteen hotspot areas that were in lockdown. And encouragingly, average revenue per funeral growth across Propel's network has returned to pre COVID-nineteen levels. FUEL volumes have also been impacted.
During 2020, death volumes were below long term trends in key markets in which PROPEL operates. For example, in the 1st 5 months of FY 2021, total registered deaths in the state of Queensland declined 10.5% compared to the PCP. Social distancing measures, travel restrictions and increased focus on personal hygiene and effective flu vaccinations contributed to an unusually benign flu season. And as illustrated in the chart to the bottom right, reported flu cases in Australia were circa 99% below the prior 5 year average, which is expected to result in a deferral of debt volumes into future periods. Slide 9 sets out some of our responses to COVID-nineteen and how we, our staff and our client families have had to adapt.
Our focus has been on people safety, essential service continuity and financial resilience. I won't go through each point listed on this slide, but the measures implemented range from reducing and rearranging seating capacity in our chapels, increasing the scheduled time between services, increased online streaming of funerals, changing the way funerals are arranged, controlling operating costs, staff working from home where feasible and accessing government subsidies where eligible, enabling headcount to be maintained. With the support of our dedicated staff and the understanding of our client families, Propell is focused on continuing to trade through COVID-nineteen disruptions effectively. I'll now provide a brief overview of the business. Slide 11 illustrates how Propel's network has evolved over the past 7.5 years.
We started with 1 funeral home in Queensland and today we operate from 138 locations across Australia and New Zealand including 32 cremation facilities and 9 cemeteries. Of those 138 locations, the company owns 77 of the properties, which are held at cost on the balance sheet at approximately $122,000,000 Slide 12 shows Propel's main operating brands in Australia and in New Zealand. Each brand has a distinct identity and is well known in their respective markets. Some have been around for many decades. For example, in Tasmania, Millington has been operating in and around Hobart for over 100 years.
And in New Zealand, Davis Funerals has operated in and around Auckland since 18/75. The green dotted lines show those brands added to Propel's network during the first half. These brands are an important part of the goodwill of each business. The chart on Slide 13 illustrate Propel's historic growth in funeral volumes and revenue. As you can see on the left, the company performed approximately 6,900 funerals in the first half of FY twenty twenty one, up 3.8% on the PCP.
The chart on the right shows that Propel generated revenue of CAD59 1,000,000 in the first half, up 3.5%. The charts on slide 14 illustrate Propel's historic growth in operating earnings. As you can see on the left, the company generated operating EBITDA of CAD 19,000,000 in the first half, up 14.8% on the PCP. The chart on the right shows the PROPEL generated operating NPAT of CAD 8,400,000 in the first half, up 7.6%. The chart on Slide 15 shows PROPEL's average revenue per funeral since FY 2014, which has grown at a compound annual growth rate of 2.5%.
In the first half of FY 2021, average revenue per funeral was up 3.6% on FY 2020 and up 2.1% on the pre COVID-nineteen period in FY 2020. Turning to Slide 16. Cash conversion continues to be a key focus. As you can see from this chart, Propel's cash conversion has remained consistently high, averaging approximately 99% since FY 2015. In the first half of FY 2021, cash conversion remained strong at approximately 98%, which is pleasing, particularly given the continued growth in Prokal's operating cash flow.
Importantly, the company has not seen any deterioration in its aged debtor profile or in the propensity of client families to pay for funeral and related services since the start of the pandemic. I'll now hand over to Lily, who will provide further detail on the financial first half financial results.
Thanks, Alwyn, and good morning, everyone. Today, I will cover 4 key areas. Firstly, I'll provide an overview of Propel's first half results by an analysis of the income statement. Secondly, I'll touch on key growth drivers of revenue, operating earnings and margin. I'll then provide an analysis of the cash flows and wrap up by touching on the balance sheet and capital management.
Please turn to Slide 18. Propel generated revenue of $59,000,000 in the first half, an increase of 3.5% on the PCP. The increase was primarily driven by the full period contributions of 2 acquisitions completed in FY 'twenty and the part period contributions of 3 acquisitions completed during the first half of FY 'twenty one. The performance was positively impacted by growth in average revenue per funeral, partially offset by below trend debt volumes in key markets. PROPEL reported a gross margin of 72.3%, which was 80 basis points higher than the PCP.
The increase was primarily due to the financial profile of recent acquisitions, which included cremation facilities and funeral mix. The company generated operating EBITDA of $19,000,000 in the first half, an increase of 14.8 percent on the PCP. It was positively impacted by acquisitions, COVID-nineteen related mitigation measures, including recognition of government wage subsidies in Australia and New Zealand of $2,200,000 partially offset by below trend debt volumes. In terms of other items of note on the income statement, no performance fee was paid to the manager in respect to the 3rd calculation period. Acquisition costs were materially lower than the PCP due to significant stamp duty costs recognized in the prior period.
And net interest expense increased due to higher borrowings primarily used to fund acquisitions. Propel generated operating NPAT of $8,400,000 in the first half, up 7.6% on the PCP, which translated to operating earnings per share growth of 7%. The adjusted effective tax rate for the period was 29.8%. The waterfall on Slide 19 sets out the sources of revenue growth on the PCP. The chart shows the full period contributions of acquisitions made in the PCP, the contributions of acquisitions completed during the current period and organic for businesses held for the comparable period.
As you can see from the comments on the bottom left of this slide, in the first half, average revenue per funeral increased 3.6% on FY 'twenty and funeral volumes increased 3.8% on the PCP. In terms of organic on the center of this slide, comparable businesses experienced a 3.5% increase in average revenue per funeral on FY 2020, which was primarily influenced by a significant improvement in funeral mix from the final quarter of FY 'twenty, which was heavily impacted by the 1st wave of COVID lockdowns and pricing. As Alwyn noted earlier, death volumes were below long term historical trends in key markets in which the company operates, with Propel's comparable funeral volumes decreasing by 6.5% in 2020. As you can see on the bottom right of this slide, the operating EBITDA margin was 32.2%, 3 20 basis points above the PCP. The margin was influenced by the financial metrics of recent acquisitions, improved gross margin and COVID-nineteen mitigation measures, including government wage subsidies and good cost control, with comparable operating expenses approximately 2% below the PCP.
As you can see on Slide 20, cash flows from operating activities increased 80 percent to $13,700,000 This material increase was partially due to no performance fee being paid in the 3rd calculation period versus $4,100,000 ex GST in the PCP. Cash flow conversion remained strong at 97.6%. In respect to investing activities, during the first half, Propel deployed approximately $26,000,000 in cash in connection with acquisitions, including 2 separate property purchases, one of which was previously leased, for $4,400,000 including stamp duty and incurred capital expenditure of $3,800,000 Maintenance CapEx amounted to 3.9% of revenue in the first half. The financing activities largely reflect the repayment of funds drawn down in Q4 FY 'twenty to increase the company's liquidity position during the initial wave of COVID-nineteen. Moving to Slide 21, there are 3 main points on the balance sheet.
1, as at period end, Propel had net debt of $80,800,000 2, the 77 freehold properties owned by Propel are held at cost less accumulated depreciation of approximately $122,000,000 And 3, Propel's prepaid contract funds totaled approximately $47,000,000 which are largely invested with 3rd party friendly societies who primarily invest the funds in cash and fixed interest products. In accordance with accounting standards, the asset increases by the investment return generated during the reporting period and the liability increases by the financing charge. The difference between those two amounts is recognized in the income statement. The contract turns at need when the service is delivered. At that time, revenue is recognized and the liability is extinguished.
During the reporting period and consistent with the PCP, prepaid contracts that turned at need in Australia accounted for less than 10% of the group's Australian funeral volumes. It should be noted that there are no prepaid funeral contracts in the New Zealand business. Turning to Slide 22. In respect of capital management, Propel expanded its senior debt facilities to $150,000,000 in FY 'twenty, and they comprised of 4 tranches. Tranches A, B and C mature in August 2022 and tranche D matures in December 2023.
After allowing for funds required for the interim dividend declared today of $0.06 per share, Propel has available funding capacity of approximately $63,000,000 And as at 31 December 2020, Propel remains comfortably in compliance with its debt covenants, reporting a net leverage ratio of 2.2x. I'll now hand over to Fraser, who will cover industry trends and acquisitions.
Thank you, Lily, and good morning, everyone. Some of you may be familiar with the graphs on Slide 24, which show that the number of deaths is forecast to both increase and accelerate in the countries in which PROPEL has operations, namely Australia and New Zealand. Debt volumes is the most significant driver of revenue in the death care industry. In Australia, the ABS forecast that death volumes will increase by 2.7% per annum from 2019 to 2,030 and 2% per annum from 2,030 to 2,050. Whereas in New Zealand, Staff 10Z forecasts that debt volumes will increase by 2% per annum from 2020 to 2,031 and 1.9% per annum from 2,031 to 2,050.
Few industries have the benefit of the certainty of that sort of tailwind. However, that volume growth is not necessarily linear and can fluctuate from time to time. As Albin mentioned, social distancing measures, travel restrictions and increased focus on personal hygiene and effective flu vaccination since the start of the pandemic may result in a deferral of debt volumes into future periods. The funeral industry is highly fragmented in both Australia and New Zealand with Propel the 2nd largest in both countries. Slide 25 shows how Propel's estimated market share in Australia based on reported number of funerals performed and estimated Australian deaths in 2020 has grown in the last 5 calendar years from circa 1.2% in 2015 to circa 7% in 2020.
However, it's worth noting that notwithstanding that significant increase, approximately 70% of the market is still owned by entities other than Propel and the largest operator. Turning to Slide 26. Propel remains focused on executing its core investment strategy of acquiring assets and social infrastructure, which operates in the death care industry. During the first half of financial year twenty twenty one, Propell deployed $29,600,000 on business acquisitions and properties in New Zealand, Western Australia, Queensland and New South Wales. Since its IPO in November of 2017, PROPEL has deployed circa $127,000,000 on acquisitions.
As well as the acquisitions of the DILs Group in New Zealand and Midwest Funeral in Western Australia during the first half of FY twenty twenty one, PROPEL also expanded its ownership of businesses that operate within the pet loss industry with the acquisition of Pets RIP in Queensland. We see the pet loss industry as an interesting adjacency for PROPEL. Moving forward, management will continue to explore other potential acquisition opportunities, but the timing of any future acquisitions, as you would appreciate, remains uncertain. I'll now hand back to Alvin.
Thanks, Fraser. In terms of the outlook, PROPEL continues to be well positioned to generate sustainable long term growth and value creation. PROPEL operates in a fragmented and essential service industry with assets and social infrastructure that are difficult to replicate, which stands to benefit from favorable demographic tailwinds. Demand for funeral services is not discretionary. Although, debt volume growth is certain, unavoidable and predictable over the longer term, it's not linear and it fluctuates over time.
In other words, death is certain, but its timing is not. Historical experience suggests that the below trend debt volumes during 2020 should be temporary given prior period declines have rebounded quickly, the unusually benign flu season last year and the growing and aging population. PROPEL's recent trading indicates that debt volumes may be starting to reverse to long term trends with PROPEL recording positive comparable funeral volume growth in the last 3 months, which is encouraging. In terms of the company's financial results, PROPEL expects to benefit from debt volumes reverting to long term trends, acquisitions completed to date and other potential future acquisitions and a strong funding position. That said, we expect COVID-nineteen related disruptions to continue, especially in hotspot areas where temporary lockdowns are implemented and strict funeral attendee limits are applied as was recently the case in Victoria, Auckland and Perth.
However, our experience since the start of the pandemic indicates that the financial impacts of strict funeral attendee limits have been temporary with funeral mix and average revenue per funeral generally rebounding quickly as restrictions have eased. This not only reinforces the value that society places on physical attendance at a funeral service as an important part of the grieving process, it also highlights the defensive nature, diversification and the social infrastructure characteristics of Propell's network of funeral homes, cremation facilities and cemeteries. In conclusion, and as I summarized at the outset, I think the 3 key takeaways from our presentation today are: 1, PROPEL's financial results were resilient in the first half of FY twenty twenty one despite the low trend debt volumes and COVID-nineteen impacts 2, PROPEL stands to benefit from debt volumes reverting to long term trends and there are some encouraging recent signs in that regard. And 3, with a strong funding position, PROPEL remains well positioned to continue consolidating what is a fragmented and essential service industry with favorable demographic tailwinds. With that, I'll hand back to the moderator to invite questions.
Thank Your first question comes from Sam Haddad of Bell Potter. Please go ahead.
Hi, Alvin, Lily and Fraser. Congratulations on the results.
Thanks, Sam. Good morning.
Just my first question on the subsidy. Dan, if you're looking at Note 5, it's about $2,000,000 Is that right? And do I just to get a feel for where it would have been without that, would it be simply $19,000,000 minus $2,000,000 to dollars to get to a $17,000,000 EBITDA number?
Roughly, Sam, that's right. It was actually $2,200,000 in the half.
Yes. So your margins are held broadly steady versus PCP, which is a good result given the
Yes. There's a couple of positives and negatives impacting that margin, obviously, Sam. On the positive side, we obviously saw some increases in our average revenue per funeral and the benefit of that increased gross margin, particularly given the profile of recent acquisitions, plus our good cost control and then obviously the benefit of the subsidies. But offsetting that was obviously the deleverage of the funeral volumes that we experienced in the half.
What do you feel is a normalized margin on post AASB-sixteen given if you break out the subsidy and see where margins fall through? I mean when volumes recover?
Yes. So it's a good question. And it obviously depends on the profile of acquisitions that we acquire. But around the 28%, 29% mark is where we see a normal EBITDA margin post AASB 16. I think that's a good indication if any for you.
Great. And just more color on volume movements across your network in terms of market share movements and trends you're seeing there?
In terms of the volumes Sam, I guess, I think we've given some flavor for the fact that there were quite widespread declines in funeral volumes in key markets in which we operate. I won't go into too many specifics, but I think we've given to give you a sense for the magnitude, I think we called out from July to November, which includes the traditionally busier winter and early spring months. The total registered deaths in the state of Queensland were down 10.5% below the PCP which is very significant. And in other markets where we have line of sight on total debt volumes such as New South Wales, Tasmania and New Zealand. Total debt volumes in the first half were also materially below the PCP.
So not inconsistent with what we saw across our network. And so as best we can measure it, we feel as though our market share held across the network. Now of course, there's always certain parts of the network where we feel as though we may have gained some share and other parts that we feel we could be doing better.
And just on the slide 25 where you do chart market share, does that include recent acquisitions?
Yes, it does. So it's based on our actual funerals performed in calendar year 2020. And we've had to make an estimate on the total market volumes in 2020 given the ABS stats are not out yet.
And I
think we've footnoted our assumption there.
Although it excludes 3rd party cremations on behalf of 3rd parties.
Correct. This is just funeral services, correct.
Are you seeing COVID create more acquisition opportunities given the depressed volumes over the past year? And what vendor appetite for discussions and so forth?
I mean, I think the short answer is no, Sam. I think we're similar to what we said at the end of the full year last time, I think for every opportunity that comes to market because of COVID where vendors have said, look, we'd like a gentle sort of end towards retirement. I think COVID may have brought about brought forward those discussions. But for every one of those, there's been another that said, well, we were in active discussions, but we'd now prefer to be focusing on the business during these COVID periods. So I think pipeline remains reasonably strong.
And from a pricing perspective, we haven't seen a material change in that because I think they like us will look through COVID and look to sort of a normalized period of time post vaccination.
Yes. And just final question from me. Just your goodwill on balance sheet, are you comfortable with the valuation on that value?
We are, Sam. We sort of go through our rigorous impairment testing twice a year and directors and our auditor are comfortable with that number.
Right. That's it for me. Thank you.
There are no further questions at this time. I'll now hand the call back to Mr. Kirti for closing remarks.
Thank you, Andrea, and thank you all for joining today's call. Lily Frazer and I hope that you and your loved ones stay safe, and we look forward to catching up with some of you virtually over the coming days and to obviously providing further updates on the company's progress as and when appropriate. Thanks, everyone.