InvoCare hit by funeral clampdown, raises $150m

InvoCare delays dividend while tapping the market to raise $150m as funeral attendance plummets amid coronavirus restrictions.

An InvoCare funeral home.

Australia’s biggest funeral chain, InvoCare, is delaying the payment of its final dividend while tapping the market to raise $150m as the number of people attending funerals plummets amid government-imposed restrictions to limit the spread of coronavirus.

While the number of funerals has so far remained unaffected by the COVID-19 pandemic, the spend per service has declined, following the government limiting mourners to 10 people at each funeral and stipulating social distancing measures as they farewell loved ones.

Despite the restrictions, InvoCare says it has been able to mitigate damage to its balance sheet, reporting a revenue slide per service of less than 10 per cent.

“Our ability to offer a full range of services to our client families is being affected by the current restrictions issued by governments on social distancing in response to the COVID-19 outbreak,” chief executive Martin Earp said.

“We have implemented a series of contingency plans to both reduce the impact of COVID-19 on our business and allow us to continue to meet the needs of our client families during this unprecedented crisis.

“We are now taking prudent actions to safeguard the success of our growth initiatives.”

The company says it will use the $150m, which it will raise through an institutional placement, to bolster its balance sheet and continue growth initiatives, including its funeral home renovation project, codenamed “protect and grow”.

Since last August InvoCare has spent $106m renovating 106 of its properties and plans to refurbish another 74 this year.

“This capital raising is designed to provide InvoCare with increased comfort on its debt covenants and allow it to continue with the rollout of its growth initiatives.

“The net proceeds of the capital raising will initially be used to reduce net debt, increase liquidity and balance sheet flexibility to support the business during the current uncertain environment,” Mr Earp said.

“Funds will then be deployed progressively prioritising: protect and grow, pre-identified acquisitions and digital transformation.”

InvoCare chief executive Martin Earp. Picture: Lyndon Mechielsen

The placement, underwritten by Morgan Stanley, will be conducted at $10.40 per new share which represents a 7.8 per cent discount to the last closing price of $11.28 on April 9. It will result in about 14.4 million new shares being issued, representing around 12.3 per cent of InvoCare’s existing issued capital.

Following the completion of the institutional placement, InvoCare will offer a non-underwritten share purchase plan to shareholders which will be capped at $30,000 per shareholder and up to $50m in aggregate.

In an effort to further fortify its balance sheet, InvoCare will defer payment of its final dividend of 23.5c a share, up from 19.5c in 2018, which was scheduled to be paid on Friday.

“The board has determined it is prudent to defer the payment of the FY19 final dividend, and the associated issue of securities under the dividend reinvestment plan... until the impact and duration of COVID-19 is better understood.

“Despite the short-term challenges, we are focused on ensuring that our business is well positioned to deliver sustainable long-term growth.

“The decisive actions we are taking today will assist the company in being well placed to weather the current market uncertainties from a position of strength. A fortified balance sheet will also increase our flexibility to capitalise on growth opportunities to enhance shareholders returns.”