Thursday, 17 December 2020

The (short-term) downturn in the New Zealand and Australian funeral industry

In most countries, unfortunately, the funeral services industry is having a bit of a boom time. Not so in New Zealand though, as the National Business Review (maybe gated) reports:

Death in the age of Covid-19 is no laughing matter, to be sure. But a perverse result of the pandemic is that New Zealanders and Australians are having to deal with loss far less often than usual.

Death rates in both countries have dropped dramatically thanks to the near extinction of winter ‘flu bugs, a lower road toll, and people generally staying closer to home and out of harm’s way.

In the year to September, 1473 fewer New Zealanders died than in the same period last year, a fall of 4.3%. Between March and September the statistical drop was much more stark, with 1680 fewer Kiwis passing on than at the same time in 2019.

October figures indicate we continue to cling to life, with 2558 deaths in four weeks compared with 2662 in a corresponding period last year.

Australia has seen a similar trend, with the death rate down 2-4% in 2020...

This is a good thing, unless you are a funeral director.

The resulting effects on the ‘death care’ sector, as it calls itself, can be seen in the latest results from InvoCare and Propel Funeral Partners, ASX-listed funeral service firms with large operations across Australasia.

InvoCare has around 23% and 21% of the Australian and New Zealand markets respectively, while Propel accounts for 6.3% of the Australian industry and is rapidly growing its presence in this country. InvoCare also has operations in Singapore.

InvoCare’s results for the half year to June 30 clearly show what happens when fewer people die.

Its revenue was down 6.2% to A$226.5m as a direct result of Covid-19, it told the ASX.

Operating earnings after tax fell 48% to A$11.7m, and the company reported an after-tax loss of A$18m although this was driven by a market adjustment to funds held for prepaid funerals, it said.

In New Zealand, Invocare's underlying ebitda for the half was down 23% to A$4.5m, despite the help of $1.6m in government wage subsidies. Revenue fell 16% to A$23.3m. 

Not only has the demand for funerals declined, but the lockdown period has demonstrated that lavish funerals are not as necessary as many thought, and so spending on each funeral has also declined:

Not only are funeral directors receiving fewer customers, but the ones they are looking after are spending less.

This is hardly surprising given Australian Covid restrictions limited the number of mourners at funerals to 10, while New Zealand banned funerals outright during the first lockdown.

This led to families choosing “lower value brands and direct cremation offerings”, InvoCare told the market.

The industry concedes that now people have seen it is possible to lay loved ones to rest without putting on a buffet and buying out a florist’s stock, there is growing awareness that funerals can be done more cost-effectively. 

All may not be lost though. The funeral industry is hurting in New Zealand and Australia right now, but everyone dies eventually. You'd be hard-pressed to find an industry with a more stable long-term future. And it is possible that the funeral industry might actually be due for a boom after the coronavirus has passed.

Some researchers put forward the 'dry tinder' hypothesis (see here and here) as an explanation for the high proportion of coronavirus deaths occurring in Sweden. They argued that, because Sweden had a relatively light flu season in 2019 with few deaths among older people, there were more weak or high-risk older people in the population when the coronavirus struck, leading to a higher number of deaths. The hypothesis is supported by some data, but as far as I am aware it is not widely accepted. If the hypothesis is true though, it may be that New Zealand and Australia, having had a quiet flu season in 2020 as well as few coronavirus deaths, may be due a worse season in 2021. Or in 2022, if social distancing, hand washing and wearing masks, etc. are still widespread practices next year (which seems likely).

It is probably not time just yet to sell off your shares in the funeral industry.


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