InvoCare Ltd. (IVC) Q2 2021 Earnings Call Transcript

InvoCare Ltd. (ASX: IVC) Q2 2021 earnings call dated Aug. 29, 2021

Corporate Participants:

Olivier Chretien — Chief Executive Officer and Managing Director

Adrian Gratwicke — Chief Financial Officer

Analysts:

Russell Gill — J.P. Morgan — Analyst

Mathieu Chevrier — Citigroup — Analyst

Sam Haddad — Bell Potter Securities — Analyst

James Bell — Morgan Stanley — Analyst

Mitch Sonogan — Macquarie — Analyst

Presentation:

Olivier Chretien — Chief Executive Officer and Managing Director

Good morning and welcome everyone to InvoCare’s Half Year Results Presentation for the six months ended 30 June, 2021. I am joined today with Adrian Gratwicke, our CFO. I will first make some opening remarks on the key highlights for the half, followed by a more detailed operational update. Adrian, will then walk you through our financial results, before I cover some perspective on our strategy and outlook. And we then open the call for questions.

So now to highlight on today’s results. In our strategy presentation to investors in May, we set out what our key performance measures were going to be. These are KPIs that we believe will demonstrate our success in raising the bar and delivering on our five year strategy. I am delighted to report today improvements across all our KPIs in the half. This was the first period in which our leadership team has been in place to guide the business. And with the limited impact from COVID restrictions in most markets during the half, I do believe that these results demonstrate the operational performance opportunities of this business, when market conditions are low.

Starting first, with our customers and people. As a [Indecipherable] business, InvoCare prides itself on maintaining its quality of service standards, to inspire advocation. This continues to be reflected in ongoing improvement in Net Promoter Score NPS, which was plus 79.3% At the end of June, the highest result in three years. I am also extremely pleased to say a reduction in our Lost Time Injury Frequency Rate, LTIFR, with the recent investments in your safety team and policies, demonstrating their merit. LTI’s were 18% lower in the half, compared to the same time last year. Our operational excellence speak to a focus on capital and cost discipline. Pleasingly, we have achieved that we come to positive operating leverage, and the balance sheet continues to remain in good shape, with low levels of leverage, assisted by an exceptional level of cash conversion.

Growth has come from high quality earnings, in line with a focus on share of market value, despite only modest growth in case volume. Case averages have recovered to pre-COVID levels in Australia and New Zealand, for our ability to offer a full suite of services, in a more stabilized trading environment. We have also been disciplined in managing costs, which has seen earnings growth outpace price and volume increases, underscoring my earlier remarks about operating leverage.

In measuring success and sustainable leadership, pleasingly, our [Indecipherable] sustainability report released to the market in March, has again being recognized as leading by the Australian Council of superannuation investors. The strong growth in earnings has also translated to strong growth in operating earnings per share, and we saw a positive trend in our return on capital employed at 1.4 percentage points from the full year 202 results. And in terms of strategic achievements, I’m pleased to say we have gathered some positive momentum in the first half.

So we announced our strategic reset in May and assisted the business to a [Indecipherable] strategic planning horizon. When we talk about the first phase of our strategy, we use the phrase raising the bar. We are raising the bar on customer service and the employee value proposition. We are raising the bar in stretching our business to run more efficiently and with higher standards. We raise the bar when we seek new growth, the traditional or innovative. And we want to raise the bar for the industry, in terms of standards of care, sustainability, and community engagement.

The early stages of applying, focus heavily on the first, second and fifth pillars, with growth and innovation to play a larger path in the latter years. In our first pillar, customer led people empowered, we know that by better engaging and empowering your people, we can lift an already high NPS, by building a great safe and inclusive place to work. We have increased the frequency and granularity of our customer feedback programs, to ensure we remain focused on supporting our customers in the best ways possible.

Our first externally benchmarked employee survey was also conducted in the half, which gave us real time feedback on the experience, as well as an opportunity to assess their engagement and alignment. The second pillar, operational excellence considers InvoCare’s operating model, network performance and costs and capital discipline, During behalf, we applied a more disciplined approach to Investment and project management to complete 13 MBU and shared service projects, and to deploy significant enhancements to our Australian [Indecipherable] ERP.

Some less visible but important achievements include reviews into the organization cost base, transitioning the prepaid funerals business to its own Australian Financial Service License, AFSL, and commencement of our debt refinance, which we announced last Friday, and which Adrian will touch on later in the presentation.

In terms of core growth, beyond developing a new study of strategy, we started to focus on our networks, brands and websites, as well as investing in capacity for growth. Our new growth platforms pillar, focused on more innovative sources of growth. This included investment in digital memorialization with memories, which I announced earlier this month, as well as a pet cremation ecommerce platform, and a greater focus on business-to-business opportunities, including a multiyear community agreement in cemeteries and crematoria, as well as National Vet Network agreements.

And finally, I wanted to make mention of our sustainable leadership pillar. During the half, we strengthened the executive leadership team, with a role dedicated to health, safety and sustainability, and another one stakeholder engagement. The group also undertook a refresh [Phonetic] capability in the safety team and established a new health and safety strategy. Looking at key risks, mitigation ways of working physical and psychological well-being. COVID safety protocols are now embedded in their business, and the recent outbreak and return to hard lockdown conditions, as well killing the establishment of the Group’s COVID Task Force, it coordinates the company’s response and assists our employees in navigating this challenging period. As mentioned, our sustainability report has again been recognized as leading by ACSI, and we are currently conducting a materiality assessment to inform our long term sustainability strategy and initiatives.

Finally, we were much more productive towards the half, when engaging with key stakeholders, in addition to playing a greater role alongside our industry associations. The shift in focus gives us greater insight into emerging issues, as well as the opportunity to advocate for higher standards of care across the community.

Now moving to our operational updates; the Australian funerals business has delivered a strong result, driven by a return to pre-COVID case averages, as restrictions on funeral attendees were eased. This has allowed customers to return to their [Indecipherable] of holding larger higher service levels, with a strong focus on the gathering elements and increased spend on things like caskets and flowers. There has also been an observed reduction in direct cremation activity compared to the prior period.

Operating revenue has grown in all markets, with a 6.6% increase in revenue as a whole. Volumes remain materially in line with the prior period, but we have seen strong volume growth in some states, offsetting declines in others. A strong focus on controlling costs, led to a 5 percentage point improvement in opex to sales to 44%. The 44% increase in operating EBITDA with AUD37.5 million, and pleasingly a return to positive operating leverage. From a strategy perspective, the continuation of high quality service has been reflected in the business NPS score of 79.7, the highest score achieved in recent years. The enhancement of ERP platform project successfully went live. Our first major project completed under our new Enterprise Project Management Office framework, and an important step forward in ensuring we have keen eyes on platforms to best support our frontline [Indecipherable] engines. The team also commenced a planned strategic review, starting with value connections refreshing the brand’s visual identity, website and business model.

Looking ahead to the rest of the year, as I touched on the current situation with respect to COVID and extended outlook terms, particularly in New South Wales and Victoria, are very likely to impact the case [Indecipherable] in the second half, provided the extent of this impact and the timing of any change in these restrictions is uncertain and subject to change at this present time. Within our control is a continued focus on cost base efficiencies, and progressing of strategy. We have a pipeline of NBO projects due for completion in the second half, an update of which is included in the appendix. In the network optimization review, we also expected to complete towards the end of the year, which will influence portfolio management activities for the coming year.

Looking to prepaid, Adrian will touch later on the mark-to-market impact of the accounting for the prepaid funerals business to the group P&L. The continued volatility in mark-to-market evaluations we can highlight. Why the company has historically distinguished its results, on an operating versus non-operating basis? To exclude the impact of such material, non-cash movements. Occasionally, the easing of credit restrictions in the half, has enabled a return to face-to-face consultations, with prepaid contract volumes sold growing 20% compared to the prior period. However, the percentage of prepaid funeral redemptions has also remained relatively static at 14.1%.

During the half, the business also implemented an SSL, to ensure compliance, which revised as guidance for the industry, which previously provided exemptions from the requirement to hold an AFSL for prepaid funerals. As I touched on just before the funerals update, the current lockdown restrictions are expected to have some impact on our ability to access customer and potential changes to discretionary consumer spending, may also impact sales volumes and [Indecipherable]. Activities going forward will include a policy review, revamp of our package sharing, and integration with the relevant local community engagement strategy. The team will also kick off a strategic review to maximize long term opportunity for each line of business.

Cemeteries and crematoria business continues to deliver strong growth in memorialization sales, up 12% on the prior comparable period. The growth across both New South Wales and Queensland. In Queensland, the benefit of the Alombi [Phonetic] remedial works undertaken in prior years, continue to contribute to the coffin service. The easing of restrictions and return to more traditional service levels have seen a 9.7% increase in burials in the half. Digital growth, together with a growth in memorialization, was the number one increase in operating revenue of 13% against the prior comparable period an increased focus on park maintenance has slightly tempered the impact of this top line growth, with 12% growth in operating EBITDA to AUD13.1 million.

In terms of strategic achievements, the business delivered its highest ever NPS score of 74.1, a reflection of increased focus on servicing client families versus a self focus. In addition, many initiatives went into our operational excellence pillar for this business, ensuring consistently high standards of safety and order processing, because of parks and crematorium. The opportunity of working with religious and community groups on long-term partnership and reservation agreements, is a key initiative in our new growth platforms pillar. Pleasingly, this has resulted in the signing of a significant multi-year burial agreement in the half, with the growth of local community groups in New South Wales opting their burial needs for many years to come. Additionally, the project to acquire this business ERP platform has commenced.

Looking to the second half; operations are likely to be impacted by the current lockdowns, particularly in New South Wales, with restrictions on population movements, reducing the number of visitors to our parks and we have seen a reduction in appointments to view memorialization opportunities. We continue to grow through virtual tools with our customers, but expect a slowdown in memorialization activity, the extent and persistence of which over the half remains uncertain. The continued economic impact in New South Walers on consumer discretionary spending may also be a temporary headwind. On the positive side, we continue to broaden our community relationships to drive further B2B opportunities, and our expansion of park products and services is underway.

The pet cremations business in Australia continued to grow and deliver a AUD3.6 million EBITDA in the half, with a strong contribution from the two businesses we acquired at the end of last year. Financial results exceeded expectations, with these two acquisitions contributing AUD12.5 million to operating revenue in the half. The first step in the operational excellence strategy of this business was taken by establishing a national leadership group. The [Indecipherable] also continues to pursue product and service innovation opportunities, as I touched on earlier, with the Patch and Purr e-commerce site we launched in the half. This allows customers to book their pet clinicians online, as well as allowing them to purchase terms [Phonetic] and memorabilia.

Management continues to go through national agreement opportunities, leveraging the digital scale, with agreements signed with a number of key veterinary groups in the half. Investments were also made in two new Pet Cremators in WA and Victoria, to increase operational capacity in these locations, and keep up with the demand. We also executed a small acquisition of a pet disposal business in metro Sydney, servicing 32 vets in its local market.

Looking to the second half, work will continue integrating the businesses onto one ERP system, with a consistent operating approach over the next 12 months. We are also looking to expand our [Indecipherable] products and services and e-commerce capabilities, and negotiations continue to pursue national vet supply agreements as well as potential M&A targets. This is a high growth market segment which over the long term, will be further supported by the increased pet ownership we witnessed during COVID.

The financial results including on this page are in local currency. First with New Zealand, [Indecipherable] funeral business, New Zealand has experience continued recovery in case average to pre-COVID levels. The key driver of the 8.8% increase in operating revenue. Growth in case [Indecipherable], but was supported by a return to higher service funerals, and growth in catering, with large sales growth, particularly evident in two metro markets, Auckland and Wellington, which were hard hit by restrictions in the prior comparable period. The tight control of costs has contributed to a return to positive operating leverage, with operating EBITDA increasing 24% to NZD5.7 million. The hard work and dedication of our employees to support our clients family, with high level of service is reflected in another step-up in the business NPS. This time by two points in the half to plus 86.7%.

Looking to the second half, like Australia, the emergence of COVID cases in New Zealand and the subsequent lockdowns imposed by the New Zealand government are expected to have an impact on case average, and potentially volumes in the short term, under the stage 4 restrictions, which remain in Auckland. With the extent and persistence we may ascertain. In terms of what the business can control, the New Zealand network review is ongoing and the three NBO projects that were underway in the half, have subsequently been completed in August, with a few more expected to complete within the next few months.

Now to Singapore; in May, Singapore experienced a spike in COVID cases, as a result of the Delta variant, and the government reimposed tightened measures, restricting catering and the number of attendees at funerals to 20. The persistent COVID restrictions and increased competition, particularly on price, have seen a market shift from holding long waits over multiple days to shorter waits and even [Indecipherable] clinicians. Further, the Singapore business has successfully [Indecipherable], with the introduction of targeted packages to address this change in customer opportunity. It has been a key driver to the 6.7% increase in funeral case volumes, but has contributed to funeral case averages remaining at pre-COVID levels.

On a local currency basis, the business has pleasingly expanded growth at a top line level and in EBITDA. Further, the depreciation of the Singaporean dollar against the Australian dollar in the half, has meant that translation of earnings from this business has reduced, compared to the prior period.

Dedicated efforts of our teams on the ground in Singapore continue to provide high quality service. This is reflected in the locally based customer recommendations growth, with a consistently high 99% of respondents, indicating that they would recommend Singapore Caskets to their friends and family.

Looking ahead to the second half, earlier this month, the number of attendees at funerals was increased to 30. Singapore is on track to have over two-third of its population vaccinated by the end of August and once 80% of the population is fully vaccinated which is expected in September, the government is looking to continue its phase transition in opening up its economy, subject to outbreak control. The local team is also consistently focused on maintaining the high service and value-add focus that sustained earnings in the first half. The newly won Singapore Police contract that is expected to increase volumes and brand recognition, commenced on 1st July.

I will now hand over to Adrian, who will walk you through our financials in more detail. Thank you.

Adrian Gratwicke — Chief Financial Officer

Thank you, Olivier and good morning everyone. Consistent with how we set out our strategy presentation in May. This slide summarizes the primary focus areas for us from a financial management perspective. Effectively a scorecard of key metrics, which together will deliver our core financial measures of success; being sustained growth in earnings per share and a satisfactory enterprise return on capital employed.

As Olivier touched on earlier, we are pleased to see these two measures have improved in the half. With operating EPS, up 57% and our rolling 12 month return on capital employed of 10.4%, up 1.8 percentage points from our full-year 2020 results. Both metrics indicate positive early momentum toward delivering on the strong sustainable Group targets identified in our 2025 strategy.

Let’s now touch on some of the highlights across the four quadrants of the scorecard. In P&L optimization, we are focused on the delivery of improved operating leverage. Pleasingly, the group has successfully driven down the opex to sales metric 2.5 percentage points to 51%. A disciplined control of costs constrained the level of cost growth below that of the Group’s revenue growth, returning the business to positive operating leverage of 2.4 times. This in turn has delivered strong operating EBITDA and EBIT growth.

Despite the severe impact of COVID restrictions last year, one of the bright spots of our 2020 financial results was our strong cash flow generation and conversion. This momentum has been sustained into 2021, with strong EBITDA growth and disciplined cash collections driving operating cash flows of up 59%. Feeding into this picture is the 1 percentage point improvement in working capital efficiency, and the cash flow conversion of 102%. We are also keeping track of a free cash flow metric, which we calculate to be operating cash flows before interest paid and after allowing for reoccurring and platform investment capex. The growth in operating cash flows has driven a 9% increase in this metric compared to last year.

Our capital management focus remains on balancing the importance of rewarding our shareholders, with the cash flow demands of sustaining and growing the business. That strong cash flow conversion has delivered a further improvement in debt metrics, driving down interest paid and debt leverage. The strong earnings performance has also allowed the Board to determine an increased interim dividend of AUD0.095, which is prudently within our preferred dividend payout ratio range of 60% to 80%. Although capex is 16% lower than prior period, a pause on projects in Q1, as the management team underwent the process of reassessing the strategy and delays in some construction projects in the NBO program due to slow development approvals, and building material supply constraints, means that the capex profile is likely again to be weighted to the second half.

From the portfolio management perspective, decisive action to invest restructure or divest non-core assets, while fulfilling the Group’s investment and strategic priorities, is vital to actively managing InvoCare’s deployed capital across its portfolio of operations. Whilst there were no material acquisitions in the half, the pet cremation business did acquire the operating assets of the pet disposal business in Metro Sydney. The Group also disposed off three locations; two in Australia and one in New Zealand for combined proceeds of AUD9.4 million. These disposals are consequence of network reviews by both businesses, as well as associated NBO activities. As Olivier has touched on, we also signed a subscription agreement for an investment in digital memorialization company Memories, a key step forward in our pursuit of innovative new growth platforms.

And finally, as highlighted in our full-year 2020 results presentation in February, the program of identified NBO projects is nearing completion. 13 projects were delivered in the half, including one shared service center.

Let’s now move on to reviewing the key components of the Group’s profit and loss performance, on slide 14. Olivier has already touched on some of the key movements from a divisional perspective, with continued recovery in funeral case average in Australia and New Zealand, growth in Memorialization sales in our Memorial Parks, together delivering 13% revenue growth, whilst control of cost growth was limited to 8%, thereby delivering 31% operating EBITDA growth.

Some other highlights I want to touch on. In the second half of last year, we executed three acquisitions Galaxy Funerals In metropolitan Sydney, and two pet cremation businesses in WA and Queensland. Together, these businesses have contributed to first half growth in both operating revenue and expenses. I will come back to a little more detail on expense movements on the next slide.

Set out in the boxed area of the table is the split of operating EBITDA by line of business. Olivier has provided commentary on the drivers of growth in his earlier operational update. But what I would point out, is that the New Zealand and Singapore results included in this table, are the Australian dollar equivalents. As Olivier touched on, this half the Singaporean results have been adversely impacted by foreign exchange fluctuations. Showing a decline in earnings of 8.6%, when EBITDA in local currency has actually grown 4.1%. The foreign currency impact is approximately AUD0.5 million in lower earnings to the consolidated group.

I’ll explain the increase in support costs on a subsequent slide. The capex investments in prior years is driving the step up in depreciation and amortization expense, albeit AUD1.1 million of the increase is from accelerated depreciation of leasehold improvements attached to our old North Sydney head office premises in Miller Street, following our relocation around the corner to Mount Street in June. This relocation also gave rise to an accounting non-cash gain of AUD1.5 million on the write-back of the exited lease obligations. One should really net these two items, when thinking about the total impact of the relocation on the P&L.

All this has driven a 46% increase in operating EBIT, despite the increase in D&A expense. Those of you familiar with the InvoCare financial statements, will know that non-operating EBIT primarily reflects the results of our prepaid funeral business. A breakdown of this amount into revenue costs and mark-to-market revaluations, is included on the next slide, and in the operating to statutory reconciliation provided in the appendix. Suffice to say, the continuing volatile nature of the mark-to-market revaluation, underscores why we have chosen to separate out the results of this business from the main operating results of the Group.

At 30th of June, this asset revaluation yielded an unrealized gain of AUD38.6 million in distinct contrast to the AUD29.3 million loss to the prior period. I’ll come back to this in a little more detail on the next slide. However the materiality of that swing has meant the Group’s reported for statutory earnings after tax has also increased significantly, up AUD62 million, to AUD44 million for the half, compared to an AUD18 million loss for the prior period.

Finally, on this slide, net finance costs declined, reflecting the benefits of lower leverage in terms of interest margins charged, and debt repayments in the prior year following the capital raise. This contributed to a AUD2.7 million decrease in interest charged, with the other AUD2.1 million relating to the cost recognized in the prior period of extinguishing and interest rate hedge linked to that debt repayment. The swing in tax expense for the Group is primarily linked to the movement in the net revaluation gain on prepaid funds under management.

Now, as promised; on the next couple of slides, I’ll provide a slightly deeper dive into operating expenses, non-operating EBIT and support costs. Improved cost control and a heightened focus on opex to sales as a key management reporting metric, has had some success in keeping cost growth contained and below revenue growth. As noted on the previous slide, AUD9.8 million of the overall AUD14.4 million increase in operating expenses is driven by the inclusion of prior-year second half acquisitions. That impact feeds through most of the operating expense lines, and most particularly employee benefits, accounting for AUD5.3 million of the AUD9.3 million increase for the half. Excluding the impact of acquisitions, the underlying AUD4.6 million increase in operating expenses can be explained by the following; a AUD2.2 million increase in finished goods, consumables and funeral disbursements reflecting increased sales activity. A AUD4 million underlying increase in employee expenses, AUD3.1 million of this relates to an increased incentive cost accrual run rate compared to the prior year and higher sales commissions paid in the cemeteries and crematoria business, given their strong sales performance in the half. The balance of the increase can be attributed to core wage inflation, and the impact of capability investment that I will touch on in a moment.

Somewhat offsetting these increases are underlying cost savings in advertising, albeit mostly timing, motor vehicles and other expenses. In terms of non-operating results, the revenue recognized here relates primarily to the administration fee we earn on selling a prepaid contract. This fee gets deferred to the balance sheet, when the prepaid contract is signed, and is only recognized in the profit and loss, when the prepaid funeral is ultimately delivered. Non-operating expenses include the costs associated with running the prepaid funerals business, including staff costs and marketing expenses, with the decrease coming from a decline in personnel costs. No impairments have been recognized in the half, and as touched on earlier, the funerals network optimization review has led to the disposal of three locations and gave rise to a net gain of AUD5.8 million on disposal.

Finally and most materially, you can see again the swing in funds under management fair value accounting outcomes for the half. Strong returns on equities, including dividends received and property revaluations have driven a significant upswing in the prepay funds under management assets, compared to the same period last year. Shown on this slide, is the net revaluation, namely the net at the funds under management asset revaluation, offset by the increase in the associated liability. As you can see period-on-period that improvement upswing is significant with AUD67.5 million.

Maybe just worth noting here as well, as part of our strategic review of this line of business, we are considering how close the strategic alignment of the prepaid business with the funerals business may impact the way we think about our normal pricing disclosure of prepaid revenue and expenses. Whilst comfortable that mark-to-market unrealized revaluation gains and losses should be disclosed as non-operating. It may be that we conclude the day-to-day operational activities of running the prepaid business. Both prepaid contract generation and subsequent contract realization would be more properly reflected within operating earnings. This is currently under consideration and any changes to disclosure approach would be made from 1st of January, 2022 and are not expected to have a material impact on operating EBIT.

Now moving on to support costs; an important area of focus for us, given the existing strong fixed cost structure at the InvoCare P&L, and as called out in our strategy presentation, is control support costs. Just a reminder here, we consider support costs in three distinct categories; support corporate, the cost of corporate support functions such as finance, HR, legal listed company costs and the offices of the CEO and CFO. Over the longer term, these costs should broadly increase, in line with wage inflation. Support field, this includes the cost of the marketing teams, embedded field HR support personnel such as trainers, as well as the safety and sustainability procurement and property and facilities teams. Broadly speaking and again over the longer term, these costs should move in line with business unit cost growth, and broader activity levels.

Support IT, comprised of costs of our IT support team, including external support services, and centralized technology costs such as the software license fees, for our Microsoft and Oracle platforms. The way to think about cost growth in this area should be twofold. Short term capability investment, for example the appointment of a new CITO this half and medium to longer term opex investments, in line with technology driven strategic imperatives, such as digital e-commerce and process automation. Of the AUD4.2 million increase — overall increase in support costs in the half, AUD1.6 million of this is attributed to the increase in accrual rates for short-term and long-term incentives, as I mentioned earlier. With the accrual run rate in the first half of last year being particularly impacted by COVID uncertainty. Support IT costs increased AUD1.3 million due to the impact of capability investments, and a AUD1 million increase in software license expense, driven by the Oracle ERP rollout, increasing digital investments and the Microsoft Office upgrade. The remaining increase in support costs is attributed to the impact of capability investments made in safety and sustainability, stakeholder engagement compliance and our new E-PMO, important foundational opex investments required to execute on our operational efficiency and sustainable leadership strategic objectives.

Now, moving onto the balance sheet; disciplined working capital management, especially the ongoing improvements in the collection of trade receivables, and the decrease in inventory from sale of developed crypts and memorials, drove an improvement in working capital relative to December 2020. The improved sales performance has also driven a one percentage point improvement in average working capital as a percentage of sales, to 13.4%. The overall 3.3% increase in total capital employed from December, is driven primarily by the increase in net prepaid funds under management, partially offset by related tax items. In addition, the business has continued to invest capital in property, plant and equipment, including the NBO program and increases in intangibles arising from the continued capitalization of IT development costs.

At this point. I should also draw your attention to the new IFRIC pronouncements on the treatment of capitalized software development costs, in relation to software-as-a-service implementation contracts. Like many other listed entities, we are assessing the potential impact of this decision on costs, currently capitalized to intangibles on the InvoCare balance sheets, and we’ll conclude this in the second half and as part of our year-end finalization processes.

And next to cash flow; as noted in our opening scorecard, cash flow generation and conversion continues to be a positive feature of InvoCare financial performance. The Group ended the period, with cash on hand of AUD131.2 million, a strong sales half, disciplined focus on cash collections, and a reduction in finance costs paid, has led to growth in operating cash flows of 59%. This has also led to improved cash conversion at 102%, as more earnings were converted to cash. The reduction in net investing cash outflows for the period of AUD3.8 million, includes proceeds of AUD9.4 million from the disposal of three locations I referenced earlier.

Capital expenditure of AUD23.5 million in the period, included AUD8.2 million of NBO related expenditure, and AUD5.8 million on shared service center projects and IT. The remainder relates primarily to maintenance capex and other plant and equipment purchases. Net financing cash flows includes the payment of the 2020 final dividend, and principal payments in respective leased assets, primarily property and motor vehicles.

Set out on the next page is further detail on the capex spend in the half. Recurring or maintenance capex includes minor capital works and leasehold improvements. The purchase of equipment like cremators or AV equipment and normal course IT software and hardware purchases. AUD1.9 million of the increase in reoccurring capex has come from leasehold improvements associated with the support office relocation previously mentioned. In this case, the Group has taken advantage of softer commercial property market conditions and relocated the corporate support office to new premises in North Sydney. There has also been a AUD0.5 million increase from AV system upgrades, as the program was extended to a further 16 locations in the half, including three in New Zealand.

Platform investment of AUD5.8 million, includes AUD0.8 million related to shared service center projects, with a center deliberating [Indecipherable] in the half. Just over AUD3 million were spent on Compass 2.0, a significant enhancement to the functionality of our new Oracle ERP system for funeral arrangers. This successful implementation has gone live and increases flexibility and transparency through an automation of associated procurement processes, and client invoice generation. The balance of spend was on other key operational efficiency projects such as the new payroll system, and other new digital tools.

In terms of facilities investments AUD8.2 million was spent on identified NBO projects in the half, and we completed 12 projects, including seven refresh, two enhanced and three growth sites. We have set out in the appendix, a summary of these projects, in a similar format to what we provided in our 2020 full year results release. As I noted previously, not too similar to last year, a ramp up in delivery activity is expected in the second half, albeit increasing COVID restrictions may continue to hamper this.

Finally, I note that depreciation and amortization, excluding the accelerated depreciation on the exited support office lease of approximately AUD24 million, is broadly in line with the guidance provided for 2021, as included in our full-year 2020 Results Presentation. The second half will likely see a slight increase in run rate, compared to first half.

Now very quickly on the capital management slide, because we’ve already touched on most of the salient points. Strong cash generation and improved cash position has driven a 9.3% reduction in the Group’s net debt, as at 30th of June, to AUD124.7 million. This has also contributed to a further improvement in the Group’s debt metrics. The growth in our operating EPS of 57% is also a very pleasing result, particularly as we are cycling a step-up in the number of shares on issue, following the capital raise last year. And clearly, reflecting the 78% increase in operating profit after tax. This in turn has enabled a 73% increase in the interim dividend, while still ensuring we remain within our preferred dividend payout ratio of 60% to 80%.

And finally, as some may have already seen from the ASX announcement last Friday, we have successfully concluded a limited restructuring of our debt facilities. As highlighted to you when we presented our 2020 financial results back in February and again, when we presented our strategy in May, a key initiative in the operational excellence pillar from a finance perspective, was to ensure our debt financing was set up to best support the business going forward. The Group now has access to AUD375 million of loan facilities, including a 10-year, AUD100 million note purchase agreement with MetLife, fully drawn and due for repayments in February 28 — February 2028. A three-year syndicated debt facility agreement, supported by ANZ, Westpac, Mizuho and SMBC providing AUD275 million of available funds, through a multi-currency revolver, with a turnaround to the end of August 2024.

And that concludes the financial section of the presentation. I’ll now hand back to Olivier, who will take you through our strategy focus and outlook for the balance of the year.

Olivier Chretien — Chief Executive Officer and Managing Director

Thank you, Adrian. So looking ahead for the balance of the year, a strategic focus for each of our five pillars includes; first following through on the learnings from our employee survey and enhancing our call center and digital assets to ensure we capture and convert more first calls, and make it easier for customers to find assistance from us. In the second half, we intend to complete another 25 to 40 NBO and shared services projects, depending on restrictions, as this initiative approaches conclusion. System investments will include both the broader IT deployment and a new payroll system to improve workforce efficiency. Platform enhancements enable us to optimize our existing funeral footprint and commence return to logical small M&A bolt-ons. We are updating the Simplicity brands collateral, and within this brand, we will be piloting new digital tools for arrangers.

We will embed the Memories partnership, which I will cover in a minute across our businesses, focus on new value-added services directly or for partnerships and continue our program of B2B engagement, as these agreements offer opportunities to secure larger volumes from a single engagement.

We aspire to lead the industry on safety and standard of care. In the second half, we are updating our preventative safety management plans, [Indecipherable] greatest and most frequent risks. We are also making continued improvements to raise the bar on the back of house operations, including an upgrade for security devices. The ACCC is yet to release its report on its review of the sector, but as noted by [Indecipherable], supportive of regulation that protects customers interest, including minimum standards across the sector.

So we recently announced our partnership in investment in Memories, an Australian startup, who has developed the world’s leading offering in digital memorialization. We will commence the rollout of these — of funeral homes in the second half. A AUD4 million investment for a 9.6% stake, recognized of strategic contribution and the potential of our partnership. We have representation on the Board, as well as the potential to unlock a greater equity share, through the success of our partnership. InvoCare Funeral Directors will sell memories timelines, and unlock incremental case average calls. And importantly the Memories platform can be used across our entire business. We see digital as an important prevalent part of the funeral service, with streaming and upcoming digital tool developments in to further examples of the work we are doing in that space.

Throughout much of this half, the business was able to operating close to normal operating conditions, and this contributed to a strong result. Whether the start of the second half has seen protracted and intermittent lockdowns throughout most of Australia, and more recently in New Zealand. With earnings weighted towards the most affected Eastern seaboard, we expect a softening in case averages. Whilst we will not provide an earnings guidance, we see the second half as challenged by potential volume impact from lockdowns, and limited flu season in Australia and attendance restrictions and staying at home orders driving case averages down during lockdowns.

However long run, we remain confident in the strong potential of InvoCare. The death rate across three countries is expected to grow on the back of ageing populations, our operational excellence initiatives are delivering green shoots with a return to operating leverage towards the first half. Significant opportunities exist to internalize and diversify revenues and expand into new adjacencies, and importantly, I am really encouraged by the opportunities ahead and the momentum of our teams and businesses behind the raising the bar phase of our five-year strategic plan.

Finally, I wish to thank our employees across Australia, New Zealand and Singapore for their outstanding commitment, care and service to our client families, in what is a challenging and often fast changing environment.

That’s it for the formal part of our presentation. We will now open the call for any questions you may have. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Russell Gill from J.P. Morgan. Please go ahead.

Russell Gill — J.P. Morgan — Analyst

Hi guys. Handful of questions just firstly, breaking down the case average growth in your funeral Australian business was quite strong in the 6.7%. Can you possibly give us a bit more detail on that in terms of — you called out I guess opening up of locations, but also flowers [Phonetic]. But what was the breakdown, I guess between price rises and the mix within that 6.7%?

Olivier Chretien — Chief Executive Officer and Managing Director

Thanks Russell. And yeah, I think it’s been mostly, as I mentioned in February and then in May, our focus is increasingly on case average and share of value — volumes. Our volume was flat in this environment. Our increase in case average is a number of things. We’ve got new services coming through, and we didn’t put big price increases during this half beyond that. So it’s not a return to the ability to sell flowers, catering, gathering and services during the half, as we had limited lockdowns. There was not much of a mix effect — as a matter of fact during the half that impacted all [Indecipherable].

Russell Gill — J.P. Morgan — Analyst

Great. And then you have now traded two months, particularly with quite large restrictions in New South Wales and also Victoria, which I guess you’re cycling year-on-year. But July and August are probably the biggest months historically speaking. Can you give us a feel for July, August, how that case average has actually moved on the PCP?

Olivier Chretien — Chief Executive Officer and Managing Director

So the — it has not been as important as we thought it would be in July. I think the teams have done an extraordinary job to compensate through the years. The volume has been actually strong. The case average had been slightly impacted, mostly in New South Wales, as you would expect. I think the main impact, as I flagged during my presentation, is more on the cemetery crematoria business. We’ve got some of our largest parks in some of the 12 locked LGAs, that has driven quite a drop in fragmentation of our parks, in willingness and comfort of customers to come and buy some memorialization, so there been a lot of different role of appointments. So it will really depend on the duration of lockdowns and when people will feel comfortable to come back. So it’s up to the really strong recruit, no lower than expected because of the average impact as I mentioned in both New South Wales for funerals mostly, and [Indecipherable].

Russell Gill — J.P. Morgan — Analyst

And just had a question on that, how do you manage the business through these next couple of months? Because usually, it increases the variable labor as well through these months. What’s the cost base tracking on I guess that variable labor and moving people around, given the restrictions in New South Wales are quite different LGA by LGA?

Olivier Chretien — Chief Executive Officer and Managing Director

Yeah, that’s a challenging one. And as I flagged in recent months, we are working hard to improve our workforce flexibility, but a lot of it is — has to be driven by systems enhancements. We are [Indecipherable] in November and will follow up early next year with the time and maintenance system [Indecipherable]. So it seems quite challenging. I think the positive is, we’ve worked very well with all our employees and the unions. We renegotiated five EVAs in the last eight months. And I guess you know in term of the way with holding these negotiations, a lot of business to have more flexibility to rely less on full-timers, — with more part timers and casuals with your shifts, we do over time do, we can work. So we’ve built in a lot of flexibility in this arrangement, which will help navigate. I think that’s why you know, I think the funeral business has done very strong work on cost management in July, because we’ve got much more flexibility embedded. But we will still benefit from our embedded systems to [Indecipherable] cluster to really manage tightly the workforce, that is a lot of database work.

I think you know in our parks, it’s a bit more challenging. I think the team is looking at ways of working through people taking no leave and how we work through that period. But no doubt that we have an impact when we got hard lockdowns. Similarly when you have seen in sort of Australia for a week or in New Zealand, when funeral don’t [Indecipherable], it has immediately an impact. So I think we will navigate all these things, but we really rely on for employees to be there on the other side for us. It’s challenging in this environment, with low unemployment to recruit and retain good people. So we really want to work with our workforce positively. And next year, we come stronger on the other side.

Russell Gill — J.P. Morgan — Analyst

Two more questions just the first half, I guess it was already called out, had less restrictions than you’ve seen I guess 12 months. So it gives you a bit of run rate feel. There is still the tail end of NBO occurring and the ramp up of sites. It does take time to get back to operating level. Is it possible to give just a broad feel for, I guess, what percentage of capability do you think your organization operator at the first six months in terms of sites closed, or those in ramp up stage. What sort of level of operating capacity or capability were you operating at in that six months?

Olivier Chretien — Chief Executive Officer and Managing Director

Clearly, we didn’t have many materials [Phonetic] had closed or so. So I think well you could assume that, we didn’t have much disruption from NBO. I think when you think about the operation capacity, we want to — we still have a lot of work to do on our shared services. It’s fair to say that a lot of our NBO program privileged first shop homes and [Indecipherable], but we still have some work to do on certain issues, and to work really efficiently, I do need to have services open, unless [Indecipherable]. When you’ve got a central point for mortuary care, coffin services or [Indecipherable], we work much more smoothly. So I do need that to be in place more consistently across the network, and they are still working correlation of [Indecipherable].

We still have a number of [Indecipherable], I flagged in the presentation, both in Australia and New Zealand, we have [Indecipherable] network reviews, because all the [Indecipherable] has been predicated on data from 2016. We’ve been regulating that, looking at demographics, looking at preemptive changes, where people are retiring, where the [Indecipherable] communities are leaving, and that influences to do some tweaks to these networks in terms of new growth corridor that it could open for us, given the growth coming through from baby boomers in the coming years. So we’ll do some more tweaks from more sites coming from — which are not [Indecipherable] credentials. But the occasional capacity is good in terms of NBO constraints. That is what we want to put in place. So the challenge was more, not everyone was comfortable to do big gathering, because of the uncertainty of, you don’t know what you don’t know. So a lot of times, we are traveling across borders obviously, and so we were still relying a lot, as we will on video streaming.

Russell Gill — J.P. Morgan — Analyst

Fair, and then final question and Adrian, you did give a bit more breakdown on I guess the detail within that support cost line. Is there a way that you could possibly provide us a bit more detail around, I guess the drop-through or the operating leverage that you guys think you’ll be able to deliver from the top line? So when or if volumes do improve, I guess how much of that revenue uplift on volume per se, flows through to EBITDA?

Adrian Gratwicke — Chief Financial Officer

Yeah, sure. I think when we presented the strategy earlier in the year, I think we targeted a preferred pricing leverage in that two times and above type range or level. So clearly, that’s where we’ve got in the first half. So to Olivier’s point, in terms of having that clean air, if you like, for the business to be able to operate somewhat unencumbered by restrictions. So I think that’s showing what the business is capable of. I think maybe just to build on it a little bit more is clearly we’re only six months in to a five year strategy, and I think we’ve made note of the fact, that there is reasonable amount of foundational improvement that we think needs to be addressed, and I think as we get the other side of that over the course of the first sort of 12 to 18 months, that’s clearly going to feed into that improved operating leverage.

Russell Gill — J.P. Morgan — Analyst

Great. Thanks guys.

Operator

Thank you. Your next question comes from Mathieu Chevrier from Citi. Please go ahead.

Mathieu Chevrier — Citigroup — Analyst

Hi, good morning Olivier, and good morning Adrian. Thank you for taking my question. Maybe just on the revenue, you talked about increased focus on share value going forward. I was just wondering, obviously the second half could be impacted by the pandemic, but on a run rate basis, what kind of case average growth do you think you can get and I guess the split between pure price increases and increased offering/mix?

Olivier Chretien — Chief Executive Officer and Managing Director

Yeah, that’s an interesting one. I guess in the second half it’s difficult to pin, because that will depend on the shape and duration of lockdowns, because that always impacts our weight and ability to sell catering. So I think the way we want to think about it, it’s to enable services anyway. For example, in the last months, we have implemented a flow of e-commerce solution for parks. So in some of our parks, the customers, if they can’t go to the parks, they can go online and ask for some flowers to be delivered. So we try to enable that digitally. You will see more and more digital tools that we will roll out, as I flagged, the simplicity is one of the brand, we are going to digitally enable robust initially, but that really hold out other lines as well.

So that will really allow us to sell more services you know, beyond just price increases because we want to rely on increasing occasion rates on the back of better and greater services for our client families. So I think through those memorialization, we are working on expanding our hands of jewelry, urns for cremation. Mourning stationery, we look at our multimedia offering. We look at what we do in house in terms of [Indecipherable], because sometimes [Indecipherable] is external providers, but sometime we do it in-house, we look at [Indecipherable] services. So that’s a range of services we are currently looking at, to support long-term case average, not only by increasing price on the back of labor cost increases. So I don’t have a direct mix to answer to you, but definitely, you would have seen some of our overall targets in terms of EPS growth, over the cycle of the five years, as well as return on capital growth, and a lot of it will have to be supported by case average costs. As we know, we feel where the case volumes will be, we won’t be chasing market shares, so you are just — assuming the flat market share at minimum. We know what percentage growth we will have in volumes. So we are really looking for increasing case averages and then over time, increase in M&A as well.

Mathieu Chevrier — Citigroup — Analyst

Yeah fair. And in terms of cost control, you mentioned employee cost. It’s by far, your biggest cost and you expanded on that during the prepared remarks. Looking at the entire cost base in terms of opex, do you think that kind of 3% or 4% growth will be what you would expect in a normal kind of year?

Olivier Chretien — Chief Executive Officer and Managing Director

I think that’s what we conservatively have as the underlying [Indecipherable] growth assumption from the management to give you a sense. So based on historical long term, that’s what the accounting make us do from a management level for the prepaid business. So it’s a good indication of the conservative growth you can apply to your cost base. We try to improve that. I think Adrian touched base on operating leverage. We want our costs to really reflect our scale going forward. So a lot of our investments in the ERP. A lot of our investments in payroll and time and attendance, is really to enable us to flex that cost base, especially labor cost going forward. The renegotiation of the EBA with unions to enable more flexibility and the way we think about more know part timers and casual workforce and how do you shift and we can work and so on, is also to enable us to not carry the same cost base every single day of the week. Given we’ve got 60 on the week for seasonality during the week. So I think I’m quite comfortable, that we’ll be able to flex the cost base. As Adrian pointed, we still had some operational efficiency work to do in the next 12 months, so that will take some time to really be fully enabled in our business.

Adrian Gratwicke — Chief Financial Officer

Yeah, I might just step in there, just to add a little bit. I think Olivier is absolutely right. That’s the right way to broadly think of assets. I think maybe also worth remembering is, employee costs is a significant part of the cost base, which is I think is probably the point you’re also getting at. So clearly it’s going to be driven by underlying wage inflation. So bear that in mind. I think the only other thing is, just a reference back to the commentary I gave on the different areas of support, and how the costs in relation to those three categories move for our expectations of how they’re going to move over the longer term, because I think that’s relevant as well. So there’ll be certain parts of the cost base that we actually want to invest from an opex perspective, and clearly in and around IT, because it would be such a big driver of a lot of process automation and other additional improvements in the business, will probably over index in that area, but seek to constrain cost growth in other areas where we can. So that’s very much the approach that we’re taking.

Mathieu Chevrier — Citigroup — Analyst

Yeah. Understood, thanks for that. And maybe just one final one on the memorial business, do you have to invest significantly more capital going forward to grow that business or do you have — I guess some visibility and plenty of room to grow, let’s say over the next five plus years?

Olivier Chretien — Chief Executive Officer and Managing Director

So I think it’s a good question. We definitely have a lot of room to grow. I think all we still are the — in most of our 17 parks, we still have quite a long time remaining life of the parks to memorialize and it also depends on the future mix of customers wanting to memorialize, [Indecipherable]. So we still have a lot of room. We also have a lot of strategy to make [Indecipherable] destination. So we don’t have the same service offering into every single part for InvoCare and InvoCare funeral directors and for client families. So when you think about cafes, florists, how we could have different services we want to enable. We are doing a lot of work on innovation and there are a lot of interesting products and services that we looked at overseas, that could be an interesting enhancement to our parks offering, especially in a constrained travel world, where not all the client families live in the same state as their loved ones. So we do think we’ve got a great runway to expand within the [Indecipherable] parks, but this being said, there is also some strategy we’re looking at to expand the footprint, either parks, but also [Indecipherable] standalone to ship off some of our InvoCare and non-InvoCare funeral directors and their clinician needs. So I think we’re looking at both, but we can definitely — we still have a lot of room to grow, within the pyramid [Phonetic] of our parks.

Mathieu Chevrier — Citigroup — Analyst

Thanks very much.

Operator

[Operator Instructions] Your next question comes from Sam Haddad from Bell Potter Securities. Please go ahead.

Sam Haddad — Bell Potter Securities — Analyst

Good morning Olivier and Adrian. Just did I hear you quickly to say that volumes were pretty strong in July, or did I — just want to get a feel for how volumes are tracking coming to the financial beneath the second half please.

Olivier Chretien — Chief Executive Officer and Managing Director

Yeah Sam, on the Australian funeral business, the volume were solid in July. So there was no impact if you see what I mean, from what we expected versus the lockdowns and the impact was really focused on case averages and the ability of the customers to gathering or to the catering and so on, during the lockdown, especially in New South Wales.

Sam Haddad — Bell Potter Securities — Analyst

Okay. Yeah. So very, very true. It’s a return to growth in volumes, in July?

Olivier Chretien — Chief Executive Officer and Managing Director

Yes. Well, [Indecipherable] impact of lockdown. So, it’s always hard to compare with 2020 unfortunately, depending on which month you compare to. So that’s why I wouldn’t want to make too many conclusions from the one-month comparison, because a lot of things happened last year, a lot of things happened this year. But I think the, the main impact we’ve seen to date in the — taking [Indecipherable] is must be the case average impact, more than the case volume impact. It can be different as I flagged its different in New Zealand, because New Zealand couldn’t authorize burial period, so obviously that impacts volumes and what people want to do and so on. So it’s quite a mixed use of [Indecipherable] at this state, but in the main states, we haven’t seen a drop in case volumes in July.

Sam Haddad — Bell Potter Securities — Analyst

And giving it more free air through the first half, can you comment around performance of renovated sites, for sites that are yet to be renovated? Any metrics around that, those KPIs, things like that?

Olivier Chretien — Chief Executive Officer and Managing Director

So we haven’t done a detailed rate. I think the — Adrian tried to flag it in May, during Investor Day. It’s harder and harder to compare like-for-like, because we’ve got some clusters where we know has a strong location cluster manager in place. We start to have some digital investments. We’ve got the shared service in place, where we don’t have clusters. So it makes the comparison harder right now there to compare. And over time, we really want to work on, not only the properties investment, but the hiking, the digital the people, the marketing, the website investments altogether will impact our return on capital employed. So more and more, we’re moving to ROCE. This is why we haven’t put a comparison of MBO sites by core from this time because we, it becomes really difficult to make a meaningful comparison to prior period, but the sites have been comparing well. It’s contributed to a strong revenue growth. So I’m quite pleased with the performance of the site with some exceptions where some facts have been decided in 2016 as I flagged and potentially the road map in population are not followed, where we felt they would. So we’ll make a few tweaks and minor adjustments to some locations or some brands across our networks on the back of that review.

Sam Haddad — Bell Potter Securities — Analyst

Thank you and can you give some color or some numbers around capex outlook for the second half in ’22 like maintenance and to support those renovations that are left.

Olivier Chretien — Chief Executive Officer and Managing Director

It’s fine, I’ll let Adrian to answer this one maybe.

Adrian Gratwicke — Chief Financial Officer

Yeah, yeah, I think we’ve maybe hinted at the fact that whilst we’re expecting a ramp up in second half activity from an MBO deployment perspective, clearly that’s going to be governed by COVID lockdown restrictions and our ability to actually get on the ground and do what we need to do. So I think broadly speaking we gave capex guidance in our 2020 results. It wouldn’t surprise me if we come in less than that given maybe the slower ramp up in the first half and maybe some constraints in the second half. So beyond that for ’22, we haven’t really given definitive capital deployment guidance. I think probably the better time to do that is maybe in our final financial results for the year because we’ll have a clearer view of what we’ve been able to complete in the second half. We gave some indication of what that forward profile may look like I think in our strategy deck. So maybe point you back to that deck. I think in terms of recurring and maintenance capex, we continue to hold firm to the rule of thumb of that capex being broadly in line with D&A excluding AASB 16. So it started moving towards that but it’s still some way off getting close to so that core D&A number.

Sam Haddad — Bell Potter Securities — Analyst

Thank you. And final question, just on the acquisition opportunities. Are you primarily focused on the that organic strategy in terms of improving the operating efficiencies or is keeping an eye out for the other prospects of acquisition made in offshore markets as well.

Olivier Chretien — Chief Executive Officer and Managing Director

So we are keeping an eye mostly domestically in our markets because we — both in terms of hold and clinician, it hasn’t been a massive focus because I didn’t want to distract the teams as we flagged, we do have a lot of operational efficiency work, we wanted to learn well in our ERP in funerals was a big pain point from two years ago in terms of the change management approach and what it left the team weak. So we made since some improvement in a very different process and it’s been received very well by the field but it required a lot of work from many people and so I didn’t want some of the management teams to be too distracted, but we’ve keeping an eye. We’ve got some dedicated people who focus on strategy innovation and M&A. So we may do a few in this will help, but it’s not a major part of the strategy as I flagged. Second phase of this five-year plan, definitely put the accelerator on opportunities to go faster, but it may depend on the type of services and adjacencies we want to go into. It may not be the same traditional brick and mortar.

Sam Haddad — Bell Potter Securities — Analyst

Thank you, Peter.

Olivier Chretien — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. Your next question comes from James Bell from Morgan Stanley. Please go ahead.

James Bell — Morgan Stanley — Analyst

Hi guys, thanks for taking my question. I’d like to better understand the cost base in the funeral business. How much of the initiatives that you’ve put in place are still to annualize into the second half and how much can you improve from here versus the 44% opex to sales number that you reported.

Olivier Chretien — Chief Executive Officer and Managing Director

So I think a lot of the — you would have seen a look of some of the investments we’ve made, James, are actually in the support cost areas with some indeed impacting the field and the IT support that did impact our funeral business. So there will be some annualization of some cost increased there. We don’t have a target yet on the opex to sales. We are going into strategic quick planning and budget in the next two months to actually review all of this. So we haven’t seen the number yet because it’s very hard to lead the first eight weeks of the year in term of we do now our forecast every month, but it’s been very hard to get the trends from the opening and closing of lockdowns. So I think we still need to do a bit more work and get stabilized view of all the lockdowns impact to really see what happened in the second half. So second half will probably be noisy in terms of what the months allow us to do. So I think into next year, we’ll have a full annualization of the cost, which will be much easier. I don’t think we are aiming to have a much lower opportunity on opex to sell in the short-term. I think the next stage will come when we can grow the business on the back of fully enabled IT systems and cost efficiency on shared service. So that will come in the second phase. I don’t know Adrian if you wanted to add something on this.

Adrian Gratwicke — Chief Financial Officer

No, exactly right, you know, I think I’m not necessarily thinking in terms of setting opex to sales metric targets. Clearly, that metric is going to be governed by what we do on the top line as much as what we do in constraining cost growth on below that. So I think that’s something that we’ll take away and as Olivier says, we will look at that from a strategy and budget process coming up. I think what I would say is it’s not always easier to exactly pinpoint the efficiency gain you get out of an ERP deployment. So what we got out of Compass 2.0 actually was funeral arrangers spending significantly less administration time, messing around with an ineffective initial cost of the deployment that we did. So in addressing that and getting it right in the first half through Compass 2.0, what it actually means is that funeral arrangers can spend more time doing what we want them to do. They’d probably feed more into the top line than the cost line maybe. So I mean that’s just an anecdote probably.

James Bell — Morgan Stanley — Analyst

Yeah, I guess what I’m getting at is sort of ignoring in the second half and the lockdown impacts, it seems that the leverage that you got in the funeral business was quite material and I wanted to understand whether we should sort of think about that as the new run rate or that was only a part period impact and the improvement is still ongoing once COVID normalizes?

Olivier Chretien — Chief Executive Officer and Managing Director

I just think in the beyond lockdown, I think you may see some incremental still improvement in the short-term. As I said, I don’t think we should bank on big step change being implemented until we can growth business a different way on the back of the time and attendance system and all the shared services. So I think I would see more incremental improvement in the next 12, 18 months before we can get to a different stage of potential cost leverage.

Adrian Gratwicke — Chief Financial Officer

I think that’s right and the only thing I was going to add was clearly second half of last year saw a gradual improvement in the business as we exited lockdowns. So that’s obviously going to feed into the period-on-period comparisons in the second half.

James Bell — Morgan Stanley — Analyst

Great, thanks for the color.

Operator

Thank you. Your next question comes from Mitch Sonogan from Macquarie. Please go ahead.

Mitch Sonogan — Macquarie — Analyst

Good morning Olivier and Adrian. Thanks for taking the question. Just first up, just on the portfolio management. You talked about three assets being divested. Can you maybe just talk through the drivers behind that and should we expect any more and maybe just following on from that, what impact that might have had on the cost base as well? Thank you.

Olivier Chretien — Chief Executive Officer and Managing Director

Adrian, can you do this?

Adrian Gratwicke — Chief Financial Officer

Yeah I can probably take that one. I wouldn’t actually read too much into it from a materiality perspective, Mitch. It’s not that significant. I think what we’ve done and will continue to do is proactively manage the portfolio. Clearly, the network optimization reviews in both New Zealand and Australia will consistently inform that and I think Olivier touched on the way in which we were thinking about that from a broader network perspective and what that means is that, you know, where we don’t believe that we are optimally placed or we’ve identified surplus property. So a couple of these divestments were property sales because we no longer needed the property or didn’t need to be in that location, then we’ll look to divest. And in terms of impact on cost base, yeah, just not material.

Olivier Chretien — Chief Executive Officer and Managing Director

Yeah, I think just, Mitch, to add to Adrian, there were property sales and as part of MBO but the first part of the current network review, if we believe we are not in the best location going forward for client families and often it’s driven by parking on the back of growth. If we think parking is constrained and we are in a residential area where parking access suddenly becomes more and more difficult for traffic, we relocate and so we don’t keep properties in residential area. We don’t use them for the business and we do [Indecipherable] and just recycle them to sell them. So that’s what you see in here and you will probably see ongoing. There’s always going to be a low-single digit number of properties we cycle through because our funeral homes date decades ago and demographics are quite different around them and if the parking becomes really constrained, then we move and that’s what you see being cycled through.

Mitch Sonogan — Macquarie — Analyst

Yes. Okay. I understand. And Olivier, just a broader one about the environment. The case volumes were pretty flat, but just interested in how you’re seeing it from an industry volume perspective, just looking at the ABS data for the first, yes, sort of five, six months this year. It looks like it’s tracking, yes, 5% to 10% above the average over the last five years prior. So it actually looks like it’s pretty strong, which given there has been very low numbers of influenza, that’s a little bit surprising. So maybe can you just talk through if you do think you held share in the Australian market. But I guess, number two, how you think about overall volumes if we do see influenza kicking back in 2022?

Olivier Chretien — Chief Executive Officer and Managing Director

Yeah, as I said, that’s something really we are interested, but we’re not focused on. We don’t focus on the market share or volume. We don’t have a acquisition-driven strategy in the last six months. So when we look at the near finalized numbers and as you know in Australia, it takes some time I think when final ABS numbers will be available in September for last year. The calendar year last year, we know we grew market share slightly in Australia. We think we went down 2.5%, the market went down 3.1%. It reverted on the back of last year. It started to increase again in the first half, but we haven’t been trying to acquire market share or focus. We had some mix effect across our region. So I think we’ve been gaining market share in some states, but declining in others and that’s linked to the work we are doing on our brands, making sure we’ve got the right brand in the right market for the right demographics. In some submarkets, our brands are just not the optimal portfolio for the current demand and demographics and multiculturalism.

And that’s why we’ve done this phase two in a way network strategy review to really revisit that and that costed us some I guess market share drops most likely in some parts of some states. So that’s what we try to address. So I wouldn’t be surprised if we had a tiny decline in market share in some stage in the first half, but the numbers are very hard to read consistently. I think in Singapore, we increased market share of late and I think in New Zealand, we’ve been refocusing the business. And we don’t try to get as much of a market share of the low-value segment as some of our competitors do. So we now have and we can go to, sometimes we don’t get to admit market channel there. So we now have declined slightly in New Zealand during the early months of the year because we haven’t focused on the low-value cases but I think what matters to me is really profitable growth. So I really want to make sure we focus on the segments that are less profitable as well and not chase market share for the sake of chasing market share. So we have to wait to see the first half numbers.

Mitch Sonogan — Macquarie — Analyst

Yes. Okay. And just on the Pet Cremations business. Are you able to give us any update there on how that’s tracking? Have you seen growth continue on a pretty similar levels to when you acquired? Or have you actually seen some acceleration there with it being under InvoCare ownership? Thanks.

Olivier Chretien — Chief Executive Officer and Managing Director

[Technical Issues] business is indeed very pleasing. I think like briefly we are well above our acquisition business case. All the businesses are tracking very well. We retain the owners. There is still a lot of innovation in product and services there. The demand is very strong. The long-term growth of that segment is going to grow because of the step change in pet ownership. We saw during COVID in both Australia and New Zealand. So yeah, we are very pleased with the business, we are investing into connection capacities. We are quickly in that business to increase their workforce. So it really is a stronger contributor than we expected for the year’s EBITDA. The impact of COVID has been quite limited. It must be one-off processes adjustments like the [Indecipherable] are not always comfortable in more to add, anyone entering the home. So it’s not a process of collecting [Indecipherable] synergies, which are changed but [Indecipherable]. We got very strong relationship, it’s a plus B2B business within our network. We got very strong relationship with national veterinary networks and some of them we are integrated on the IT to provide full visibility and tracking for the veterinary customers at each stage of the process. So it’s a very smooth integrated process. So while the cases are fairly low, it’s volume business and on the back of very strong efficiency, we’re going to invest in the business further.

Mitch Sonogan — Macquarie — Analyst

Yeah, thanks and just a really quick final one for me. So Adrian here. Just on the FY ’21 guidance you provided back at the full year ’20 result, just on the interest expense of AUD23 million to AUD25 million. Is that what we should still expect for the full year? Thanks guys.

Adrian Gratwicke — Chief Financial Officer

Yeah, Mitch, it’s a good call-out and clearly the restructuring of the finance — our debt facilities is going to help. That won’t actually kick in until the back end of September. So it will be a muted impact on this year, more of an impact on next year. I think AUD23 million to AUD25 million is probably the right way to think of it. It maybe more towards the lower end of that range. Clearly, our run rate in the first half was below that run rate somewhat. So we just have to see how the impact of the operating environment flows through into the core of the business in the second half, but I think probably that lower-end maybe a little bit below that.

Operator

Thank you. There are no further questions at this time, I’ll now hand back to Mr. Chretien for closing remarks.

Olivier Chretien — Chief Executive Officer and Managing Director

Well, thank you everyone for listening to our calls and I wish you a great day. And some of you talk to you very soon through analyst calls. Thank you. Have a great day.