Profit slips at Australia's largest funeral provider as fewer people die
After tax profits at InvoCare, Australia's largest funeral provider and one of the country's most shorted stocks over the last week, have fallen by more than half over the last financial year due to fewer deaths, an accounting change and the lack of a windfall property sale.
The company, which owns the well-known White Lady and Simplicity Funerals brands as well as dozens of local providers, reported net profits after tax of $41.2 million, down 57.7 per cent over last year while revenue rose 1.4 per cent to $477.3 million.
That was better than analysts' prediction of $460 million in revenue, according to Bloomberg data.
In early trade, the company's stock rose about 4.3 per cent to be trading at $13.12 at 10:55am AEDT.
InvoCare's chief executive Martin Earp said the company was undergoing a cyclical downturn.
"We've always said the market can fluctuate by plus or minus 5 per cent and we saw a downturn by about 3 per cent last year and that had an impact on our performance," Mr Earp said.
"Generally speaking, the number of deaths does revert back to the long term trend and the long term trend is very positive for the industry with the number of deaths forecast to increase from 160,000 last year to 240,000 in 2034," he said.
Mr Earp said an aging population meant the company's market would eventually recover.
That affected the company's earnings before interest, taxation, debt and amortisation which fell about 4 per cent to $119 million, about $4 million higher than Bloomberg's consolidation of analysts' forecasts had predicted.
Prepaid contracts swung to an $8 million loss for the group after recording a $40 million profit in the last financial year.
Mr Earp said the change was largely driven by two causes.
"Firstly, last year, we had a significant increase due to the windfall gain on the sale of an office building on Spring Street in the [Melbourne] city," Mr Earp said. The lack of that windfall lowered profits.
Mr Earp also said a change in accounting standards had forced the company to amend how the company assesses its liabilities.
Josee Lemoine, InvoCare's chief financial officer, said the change was a readjustment that would not continue into the next year.
"When we start looking forward next year, we won't see such a dramatic change but in the transitional year it's a bit different," Ms Lemoine said.
Despite its results, the company announced a fully franked final dividend of 19.5 cents a share payable on April 12, taking the full year dividend to 37 cents a share.
Mr Earp said he had seen signs indicating the market may be picking up.
"We've been a little bit more circumspect with regard to calling the year because it is only February, but what we did see in Q4 was a more positive performance in the funeral business and we saw that positive performance continue into January," he said.
The company remains confident in its 'Protect and Grow' strategy, through which it is renovating its existing facilities to meet some baby boomers' expectations of a celebration of the deceased person's life by adding audio visual facilities and more pleasant surrounds.
"What we've shown is it is exceeding our expectations," Mr Earp said of the strategy.
The company's stock had a turbulent year, rising to a record $14.51 in August before falling 13 per cent to $12.58 before today's announcement.