I will now like to hand the conference over to Mr. Albin Kurti, Managing Director. Please go ahead, sir.
Thanks, Mike. Good morning, everyone, and thanks for joining Propel's FY25 half-year results briefing. I think there might be some family and friends who have also joined the call, which I appreciate. With me are my colleagues, Fraser Henderson and Lilli Raynar, formerly Gladstone, and congratulations, Lilli, on your recent nuptials, and together, Fraser, Lilli, and I will take you through the presentation lodged with the ASX this morning. Now, before we get started on the first half results, many of you will have likely seen the ASX release that came out this morning announcing my decision to retire at the end of August in just over six months. This will allow plenty of time for the company to implement its succession plan and to ensure an orderly leadership transition.
Having co-founded Propel 14 years ago and with the company in great shape, I have decided that now is the right time to transition Propel's leadership and for me to devote more time to my family, health, and other interests. I'm obviously incredibly proud of what we have collectively achieved at Propel, and I'd like to personally thank everyone involved in Propel's journey so far, especially our dedicated staff who have made the last 14 years the most fulfilling of my executive career. And of course, I'd also like to thank our shareholders for all your faith and support over the years, both prior to and since Propel's IPO back in 2017, almost eight years ago. But with that being said, today's really about our first half results, and as you'll see, we have a lot of records to report this half, which is great.
I'll kick off with the key highlights on slide six. Revenue increased 12% to AUD 115.2 million on the back of an 8.6% increase in total funeral volumes and a 2.6% increase in comparable average revenue per funeral. Propel continued to grow earnings and maintained a healthy operating margin. Operating EBITDA increased 9.2% to AUD 29.9 million, and operating NPAT increased 21.1% to AUD 12.2 million. Cash flow conversion remained strong at 96.1%. From a capital management perspective, the board has declared an interim dividend of AUD 0.074 per share, fully franked, reflecting a payout ratio of 85%. Propel ended the first half with a gearing ratio of 26%, a net leverage ratio of 1.9 times, and has available funding capacity of AUD 144 million, which will support Propel's acquisition-led growth strategy. Lilli will provide further details on the company's financials shortly.
In terms of growth, Propel has completed or announced the addition of nine locations to its network year to date in FY25, two of which were completed in the first half. The company has now committed approximately AUD 302 million on acquisitions since its IPO in 2017, and Fraser will provide an acquisition update shortly. In terms of our outlook, the company expects to benefit from favorable demographics in Australia and New Zealand, its strong funding position, and acquisitions completed and announced to date, and other potential future acquisitions in what remains a highly fragmented industry. I'll talk more about the company's outlook towards the end of the presentation and will now provide a brief overview of the business. Turning to slide eight. This slide illustrates how Propel's network has evolved.
Propel started with one funeral home in Queensland over a decade ago, and today it operates from 202 locations across Australia and New Zealand, including 40 cremation facilities and nine cemeteries. Of those 202 locations, the company owns 121 of the properties, which are held at cost on the balance sheet at over AUD 240 million. Slide nine 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, Millingtons has been operating in and around Hobart for over 100 years, and in New Zealand, J. Fraser has operated in Southland since the late 1800s. The dotted lines show the brands relating to acquisitions completed or announced to date in FY25. These brands are an important part of the goodwill of each business.
The charts on slide 10 illustrate Propel's track record. The company has maintained a strong growth trajectory. I won't go through each chart, but as you can see, Propel's funeral volumes, revenue, and operating earnings experienced material growth in the first half of FY25. The chart on slide 11 shows Propel's average revenue per funeral since FY15, which has grown at a compound annual growth rate of 3.1%. In the first half of FY25, comparable average revenue per funeral was up 2.6% in line with inflation. Turning to slide 12, 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 FY15. In the first half of FY25, cash conversion remained strong and stable at 96%, which is pleasing.
Propel is the only listed death care company on the ASX, and before I hand over to Lilli, I want to briefly touch on the company's performance since its IPO. The company listed in November 2017 with an issue price of AUD 2.70, and as you can see from the chart on this slide, as at 31 December 2024, Propel's share price has materially outperformed the ASX 300 index. For investors who participated in Propel's IPO and subsequent share issues, and who retained their shareholding as at 31 December 2024, Propel has generated a total shareholder return of 111% on a pre-tax basis, including dividends. This equates to total shareholder value accretion since the IPO of approximately AUD 494 million pre-tax. On behalf of everyone involved with Propel, I thank shareholders for their ongoing support. I'll now hand over to Lilli, who will provide further details on the half-year financial results.
Thanks, Albin, and good morning, everyone. Propel achieved material growth in key financial and operating metrics during the first half of FY25 on the back of higher funeral volumes and average revenue per funeral. Today, I will cover five key areas. Firstly, I'll provide an overview of Propel's first half results for an analysis of the income statement. Secondly, I'll touch on key drivers of revenue, operating earnings, and margin. Thirdly, I'll provide an analysis of the cash flows. I'll then touch on the balance sheet and finally wrap up with capital management. Please turn to slide 15. Propel generated revenue of AUD 115.2 million in the first half, an increase of 12% on the PCP.
The increase was driven by the full period impact of 11 acquisitions completed in FY24 and the first half of FY25, a 2.6% increase in comparable average revenue per funeral, and a 1% increase in comparable funeral volumes. Propel reported a gross margin of 70%, 60 basis points higher than the PCP, positively impacted by pricing and favorable sales mix. The company generated operating EBITDA of AUD 29.9 million in the first half, an increase of 9.2% on the PCP. Operating costs increased AUD 6.7 million, impacted by the acquisitions and changes to executive remuneration, noting that OPEX per funeral growth was in line with inflation.
In terms of other items of note on the income statement, interest expense on senior debt was approximately AUD 1.3 million lower than the PCP, driven by lower drawn debt as a result of the capital raising completed in early 2024, partially offset by a higher average effective interest rate. Propel generated operating NPAT of AUD 12.2 million in the first half, circa 21% higher than the PCP, noting that operating earnings per share was impacted by an increase in the number of shares on issue. In terms of non-operating items, acquisition costs totaled AUD 500,000. The adjusted effective tax rate was 29.7%. The waterfall on slide 16 sets out the sources of revenue growth on the prior period.
The chart shows the full period impact of the acquisitions made in the PCP, the impact of acquisitions completed during 2024, and the organic performance of businesses held for the comparable period. As you can see from the comments on the bottom left of the slide, total funeral volumes increased 8.6%, and average revenue per funeral increased 1.5%. In terms of organic, on the center of this slide, comparable businesses experienced a circa 1% increase in funeral volumes, reflecting stable growth compared to the material fluctuations in three consecutive PCPs, and a 2.6% increase in comparable average revenue per funeral in line with inflation. As you can see on the bottom right of this slide, the operating EBITDA margin was 26%, 60 basis points lower than the PCP, primarily impacted by changes to executive remuneration.
Moving to the cash flow statement on slide 17, operating cash flows increased 4.7%, reflecting contributions from acquisitions and movements in working capital. Cash flow conversion remained strong at 96.1%. In respect of investing activities during the period, Propel deployed AUD 6.1 million in connection with an acquisition and AUD 1.4 million relating to earnout payments. Acquired four freehold properties not connected to business combinations, two of which were previously leased, for total consideration of AUD 9.5 million, and incurred capital expenditure of AUD 6.3 million. Maintenance CapEx amounted to 4.2% of revenue. The financing activities during the period largely reflect the proceeds from senior debt to fund an acquisition, property purchases, and dividends paid. Moving to slide 18, there are three main points of note on the balance sheet. One, as at 31 December 2024, Propel had net debt of AUD 123.8 million.
Two, freehold properties owned by Propel are held at depreciated costs of approximately AUD 240 million. And three, Propel's prepaid contract funds totaled approximately AUD 83 million, which are largely invested with third-party friendly societies who primarily invest the funds in cash and fixed interest. During the period, prepaid contracts that turned at need in Australia accounted for less than 10% of the group's Australian funeral volumes. Turning to slide 19, in respect of capital management, after allowing for binding commitments on recently announced acquisitions, Propel has available funding capacity of AUD 144 million. Propel remained comfortably in compliance with its debt covenants, reporting a net leverage ratio of 1.9 times against a covenant limit of five times.
Finally, Propel declared a fully franked interim dividend of AUD 0.074 per share, up from AUD 0.072 per share in the PCP, noting that the company expanded its share capital by circa 17% during 2024. I'll now hand over to Fraser, who will cover industry trends and acquisitions.
Thank you, Lilli, and good morning, everyone. Some of you may be familiar with the graphs on slide 21, 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. Death volumes is the most significant driver of revenue in the death care industry. In Australia, death volumes grew by 1.1% per annum between 1990 and 2024, and the ABS forecast that they will increase by 2.8% per annum from 2025 to 2035, and 2.4% per annum from 2036 to 2045, whereas in New Zealand, death volumes grew by 1% per annum between 1990 and 2024, and Stats NZ forecast that they will increase by 1.8% per annum from 2025 to 2035, and 1.8% per annum from 2036 to 2045. Few industries have the benefit of the certainty of this sort of tailwind.
However, death volume growth is not necessarily linear and can fluctuate from time to time. The funeral industry is highly fragmented in both Australia and New Zealand, with Propel the second largest in both countries. Slide 22 shows how Propel's estimated market share in Australia has grown in the last nine calendar years from circa 1% in 2015 to circa 9% in 2024. However, it is worth noting that notwithstanding that significant increase, circa 70% of the market in Australia is still owned by entities other than Propel and the largest operator. This dynamic is not dissimilar to the New Zealand market, where the majority of funeral home operators remain independent. Turning to Slide 23, Propel remains focused on executing its core strategy of acquiring assets and social infrastructure which operate in the death care industry.
Since its IPO in November 2017, Propel has committed approximately AUD 302 million on acquisitions, and during the first half of FY25, Propel deployed approximately AUD 6.1 million on the acquisition of Decra in Christchurch. Since 31 December 2024, we have completed the acquisition of Twentymans and Forever Pets in Thames, New Zealand, and also committed to acquiring Richmond Funeral Home, including the Clareville Crematorium in Carterton, New Zealand, in respect of which completion is expected to occur during the second half of FY25. Moving forward, Propel 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 Albin.
Thanks, Fraser, and thank you, Lilli. As you can see from our presentation today, Propel achieved material growth in financial and operating metrics in the first half of FY25. The company operates in what is a stable, highly fragmented, and essential service industry with assets and infrastructure that are difficult to replicate and stands to benefit from favorable demographic tailwinds. Propel is well funded to continue its acquisition-led growth strategy, and with the management team and non-executive directors owning approximately 16% of the company, this ensures a strong alignment with fellow shareholders. As I flagged earlier, shareholders who participated in Propel's IPO have benefited from significant shareholder value creation through share price accretion and dividends, and we thank them for their continued support. In summary, Propel has a strong track record and a defensive market position in a favorable sector thematic and is well funded.
In terms of the outlook, demand for funeral services is not correlated to inflation, interest rates, or the economic cycle, and Propel continues to be well positioned to generate sustainable long-term growth and value creation. The company expects to benefit from favorable demographics in Australia and New Zealand, its strong funding positions, and acquisitions completed and announced to date, and other potential future acquisitions. In that regard, Propel has started the second half of FY25 with positive trading momentum. In the month of January 2025, revenue growth over the PCP exceeded 10%, reflecting materially higher funeral volumes, including contributions from acquisitions and positive organic volume growth, and higher average revenue per funeral. And finally, as I mentioned at the outset, my decision to retire at the end of August was announced this morning. I'm confident I will leave the company in great shape and in great hands.
Propel has strong internal succession candidates, the board is well prepared, and shareholders should expect an announcement regarding future leadership of the company in the coming months. In the meantime, it will be very much business as usual at Propel. So in conclusion, I think the three key takeaways from our presentation today are: one, Propel achieved material growth in key financial and operating metrics in the first half of FY25 on the back of higher funeral volumes and average revenue per funeral. Two, with a strong funding position, Propel is well placed to navigate natural fluctuations in the death rate and to continue consolidating what is a highly fragmented and essential service industry that stands to benefit from the aging population for decades to come. And three, Propel has made a positive start to the second half of FY25.
With that, I'll hand back to the moderator to invite questions.
Thank you, sir. If you wish to ask a question, please press star, then one on your telephone, and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you are on a speakerphone, please pick up your handset to ask your question. At this time, we will just pause momentarily to assemble our roster. Your first question comes from Chami Ratnapala of Bell Potter. Please go ahead.
Thank you. Good morning, Lilli and Fraser. A few questions from me. I think to start off with, maybe on organic volume for the first half, I think it is given as 1%. Could you also talk to how the first quarter to second quarter look like here, and any sort of commentary you can provide into where January is tracking so far? Thank you.
Yeah, good morning, Shami. Thanks for your question. So look, I think everybody's well aware that Q1 is typically a seasonally stronger quarter than Q2, given the winter months and early spring, which is consistent with what we experienced during the first half. Across the half, organic volumes were up 1%, and I think it is important to remember that the company cycled three consecutive PCPs of quite material fluctuations in organic volumes, primarily, I think, due to COVID-19 impacts. And whilst I don't have a crystal ball, it feels to me more like volumes are rebasing, and we would expect industry volumes to revert to long-term trends moving forward, especially as the first of the baby boomer generation, those born during and subsequent to 1946, are on the cusp of reaching average age of death.
In terms of January, I think we've called out that the organic volume growth in the month of January was positive, and we actually were cycling a pretty solid PCP in January, so that's an encouraging start to the second half, but look, I think, as we've said many times, death volumes fluctuate over short-term horizons, and we don't get hung up on short-term natural fluctuations, and I think, as we pointed out in the presentation, organic volumes have continued to be positive in January.
Perfect. Thanks for that. And then maybe moving to price. Price growth has come to that 2.6% level, and within the long-term sort of range that you guys used to talk about, we are too from here. I think in July, we will get a price increase, but it is noted that in line with inflation. Maybe perhaps is that a good indication to where January is tracking as well? Thank you.
Yeah. Yeah. Yeah. Thanks, Shami. Look, I think there's a few points that are relevant here in terms of average revenue per funeral. So the first point, the first point I'd make is that I think the company's demonstrated over a long period of time its ability to keep pace with inflation. In the first half of FY25, comp average revenue per funeral growth over the PCP was 2.6%. Again, slightly above, but pretty much in line with moderating inflation. So that's the first point. The second point I would make, and this may not necessarily be as obvious, but average revenue per funeral clearly in our materials is reported in AUD, and there has been some unfavorable FX translation impact with the weakening of the New Zealand dollar over the PCP.
So when we exclude that FX translation impact, the organic growth in average revenue per funeral was actually above 3% in the first half, which is consistent with our long-term CAGR. And I think the other point I'd make is that I think it's very important that our recent growth in average revenue per funeral be looked at in the context of the material comparable growth in average revenue per funeral achieved in two consecutive PCPs during the higher inflationary environment of circa 6% and circa 8%. So there is obviously a compounding impact there. And finally, average revenue per funeral is obviously influenced by the profile of acquisitions. And it's important to note that I think the 10 funeral acquisitions that we completed in FY24 and the first half of FY25 generate collectively a lower average revenue per funeral compared to the rest of the network.
So they were a drag in the first half, which we expected. And over time, there may be opportunities to bridge that gap where it makes sense to do so. So hopefully that gives you some color.
Perfect. Thanks for that, Albin. And lastly, your retirement, yeah, that's sad to see anyway. But if you could just talk a bit more, I think, of the transition here to any extent that you can provide as well.
Sorry, Shami, did you just say strategy?
Yeah, I just.
I didn't quite catch it.
Just, yeah, strategy and the transition as well. I think in August, you'll be stepping down. Just, I think internal candidate flag there, but maybe anything, yeah, that you can say. So thank you.
Yeah, sure. Sure. Sure. So look, I think. Well, thank you firstly. Clearly, it's something that after 14 years I've been giving thought to for some time, and I do think it is the right time for the company and for me personally. In terms of strategy, certainly the board hasn't indicated that there's any or there's going to be any change to the strategic direction of the company. The fragmented nature of the industry exists today. The number of people who are going to die over the next 5, 10, 15 years is unchanged by my retirement announcement this morning. In terms of future leadership, clearly there are strong internal candidates, and I suspect that the board will take some time to consider and reflect. As I said, there will be no change in strategic direction.
The board is very mindful of its continuous disclosure obligations, and I'm sure they will make the right call in the months ahead. I'm confident that I'll be leaving the company in great hands.
Thank you very much. Thanks for taking my questions, Albin and the team.
Thanks, Shami.
And your next question comes from Sophia Mulligan of Macquarie. Please go ahead.
Hi guys. Just two for me quickly. First, on M&A, so I guess in terms of size of acquisitions that you've done in the last 12 months, it's been a little bit quieter. It'd be helpful if you could provide some color maybe on the pipeline looking forward and maybe the size of the deals potentially in it.
Hi, Sophia. Fraser. So when you say quiet, I think just to, I think we did 11 acquisitions in FY24, and we've announced a further two now, so I'm not sure it's necessarily been quiet. But in terms of the pipeline moving forward, I think we sort of repeat what we say six months, and I haven't seen any change to that pipeline moving forward. So we're in active discussions with a number of vendors, and the scale of which does vary. I mean, I think some of them are on the smaller side and some of them are on the larger side. Some are regional, some are metro, some involve freehold properties, and some don't. But I think, yeah, we're confident and positive about that pipeline, and it's sort of the sort of 350-odd acquisitions that we've sort of assessed since the business was established.
I think we've completed or announced 59 of those, and so a lot of them still remain independently owned and are a prospective acquisition target for us.
Great. Thanks, Fraser. And just quickly on InvoCare, so it's been some time now since the TPG takeout. Have you seen any change that's worth calling out in terms of, I guess, the competitive landscape? Is things broadly rational? Have they been pushing price more aggressively? How are you seeing that?
Yeah. Thanks, Sophia. It's Albin here. Yeah, it's hard to believe, isn't it? I think it's two years now since TPG raided InvoCare. And I think the short answer is no. I mean, we haven't seen any significant irrational behavior, put it that way. And I think our numbers reflect business as usual from our perspective.
Great. Thanks, Albin, and congratulations on your tenure with Propel. Go.
Thanks. Thanks, Sophia. I look forward to catching up.
And your next question comes from Amanda Kelly of Barrenjoey. Please go ahead.
Good morning, team. Thanks. Just a couple from the Barrenjoey team. Firstly, Albin, are you able to provide any more color around why you're retiring? Are you moving on to another role? And will you still retain a material equity interest in PFP?
Thanks, Amanda. Good morning. So look, I'll answer the second part of the question. Yes, I still am a substantial shareholder of Propel, and it will be an important part of my future income, I hope. And also, I'm expecting to see capital growth over time as well. So that's the second part of your question. In terms of the first part of your question, it is retirement. I have no plans. I have no other intentions. And if I wanted to keep working, I would be doing it at Propel.
Right. Thanks for the color around that. And how should we think about EBITDA margins in second half 2025 and FY 2026 in the context of first half 2025 and what was delivered? Is there typical first half, second half seasonality?
Hi, Amanda. Lilli here. So look, typically, in a typical year, the first half margin is stronger than the second half, but it obviously depends on where comparable funeral volumes end up at any particular point in time because that is the biggest driver of margin. So we've typically guided the market to EBITDA margins of between sort of 26%-27%. Now, last year, there were obviously changes to the executive remuneration, and I think I called out in August last year that that impact was likely to have a 60 to 70 basis point impact on the margin going forward. So you should just take that into consideration when thinking about the group margin for FY26 and beyond.
Great. Thanks for that, Lilli. And sorry, just the last one. How does the pipeline of acquisitions look? Are you still on track to the 50 million target per item for FY25?
So, just, I mean, I've just answered the question that Sophia asked in terms of the pipeline generally, and I think in terms of sort of how much do we expect to deploy. I mean, I think we look at historical, and it's around that AUD 40 million a year mark, and I think that we don't think that is an unreasonable assumption.
Thank you.
No problem.
Once again, if you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. Again, that is star then one to ask a question. Next, we have James Bales of Morgan Stanley.
Hi, guys. Congratulations on the interim, and Albin. I just had a question about the initial trading that you guys have seen for January. It sounded like you thought that things had gone well, and it certainly is a strong performance, especially against the backdrop of last year. First half organic volumes were down 9.8%, and you finished the year down just -6%. So it seems like the comps get harder in the second half. I guess I'm just trying to reconcile those two things of how well you've traded January versus how much harder it gets sequentially in the second half. Can you maybe offer some color there?
Yeah. Thanks, James. Look, I think it's fair to say that we and I know you're looking at the PCP, but if you actually look at the sort of the three or four-year period, there's actually been quite material fluctuations in organic volumes, our organic volumes. And I think that's really been reflective of the sort of post-COVID impact. And so from our perspective, it's been encouraging to see January comp positively. We don't have a crystal ball, but it's certainly nice to see the pendulum swinging in the positive territory. But I think beyond that, I think beyond that, James, we will obviously lay out the data as and when we report, and there may be opportunities to update the market before August as well. Time will tell.
But the organic volumes to us, it feels more like a normal year or rebasing year from a volatility point of view compared to what we've experienced over the last sort of three or four years. Because the 9.8% I think you referenced in the PCP, in the half, that was on the back of consecutive two prior PCPs of 8% and 5% growth compounded. So if you look at the four half-year periods combined, you kind of get average growth rate above 1%, which is kind of in line with long-term growth. That's why I make the observations about it feels more like a rebasing.
Got it. Okay, and then, Fraser, maybe just one for you. The newly acquired businesses, there has been a lot of activity over the last year or so. Can you give us a sense of how those businesses are performing relative to the group in terms of their comps, their market share, their profitability, and how that looks versus your expectations going in?
Yeah. I mean, I think we won't and don't discuss the performance of specific businesses, but I mean, I think suffice it to say is, would we do them all again? The answer is yes. I think from an integration and bringing into the network, personalities, personnel, I think that has all been positive. And generally speaking, I think Lilli mentioned in one of her responses that, I mean, I think some of them have sort of lower margin businesses, and therefore we can see improvements in those over time. So I think that answers the three aspects of your question.
Perfect. Thanks, guys. I appreciate the help.
No problem.
There are no further questions at this time. I will now hand back to Mr. Kurti for closing remarks. Sir?
Oh, thanks. Look, thanks everybody for joining today's call. Lilli, Fraser, and I look forward to catching up with many of you over the coming days and obviously to providing updates on the company's progress as and when appropriate. Thanks, everyone.
That does conclude our conference for today. Thank you all for participating. At this time, you may disconnect your lines. Take care.