Hello, and good day. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Propel Funeral Partners Limited FY 2023 R esults Briefing. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star followed by the number one. Thank you. Managing Director Albin Kurti, you may begin your conference.
Thanks, Jordan. Good morning, everyone, and thanks for joining Propel's FY 2023 full-year results briefing. First and foremost, I would like to acknowledge bereaved client families who farewelled loved ones during FY 2023. I also acknowledge and recognize the hard work and dedication of our staff across Australia and New Zealand. Their professionalism, flexibility, and commitment to providing essential and caring funeral and related services to the communities they serve is greatly appreciated. Turning to today's presentation, with me are my colleagues, Lilli Gladstone and Fraser Henderson, and together, we'll take you through the presentation lodged with the ASX this morning. In terms of the agenda, I'll summarize the key highlights of FY 2023, and I'll then provide a brief overview of the business. Lilli will cover the financial results in more detail.
Fraser will touch on industry trends and acquisitions, and finally, I'll make some concluding remarks before taking questions. The three key takeaways from today's presentation are, firstly, FY 2023 was another record year for Propel. The company achieved continued growth in key financial and operating metrics on the back of materially higher funeral volumes and stronger average revenue per funeral. Secondly, it has been a busy period of corporate and M&A activity, with Propel expanding its debt facilities and announcing nine acquisitions during and since FY 2023, which significantly broadened the company's network in new and existing metropolitan and regional markets across Australia and New Zealand.
And thirdly, having committed AUD 121 million on acquisitions in the past 12 months, Propel expects to deliver continued growth in FY 2024 and is well-placed to navigate natural fluctuations in the death rate, the higher inflationary and interest rate environment, 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. Please turn to slide 6 for the key highlights. Revenue increased 16% to AUD 168.5 million on the back of a 9% increase in funeral volumes, including contributions from acquisitions and organic growth volume, despite cycling a strong prior year. Average revenue per funeral increased 6%, and on a comparable basis, was up 7%. Propel continued to grow earnings.
Operating EBITDA increased 18% to AUD 46 million, and operating NPAT increased 17.9% to AUD 20.9 million. Cash flow conversion remains strong at over 95%, which is pleasing. From a capital management perspective, the board has declared a final dividend of AUD 0.069 per share, fully franked, resulting in total dividends of AUD 0.14 per share, fully franked, in connection with FY 2023, up 14.3% on the prior year and reflecting a payout ratio of 79%. During FY 2023, the company expanded its senior debt facilities by AUD 55 million to AUD 255 million, and importantly, the debt maturity date was extended to October 2027, and a key covenant limit was increased.
Propel ended the year with a gearing ratio of 27%, a net leverage ratio of 1.7x , and has available funding capacity of AUD 87 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 added 15 locations to its network in FY 2023, completing five new acquisitions in Queensland, Victoria, South Australia and New Zealand. Subsequent to year-end, Propel has completed three acquisitions, adding 21 locations to its network, and expects to complete a previously announced acquisition in the coming weeks. Propel has now committed to AUD 269 million on acquisitions since its IPO in November 2017. 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 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 and guidance for FY 2024 towards the end of the presentation, and will now provide an overview of the business. Turning to slide eight . This slide illustrates how Propel's network has evolved over the past 10 years. We started with one funeral home in Queensland, and today we operate from 180 locations across Australia and New Zealand, including 37 cremation facilities and nine cemeteries. Of those 180 locations, the company owns 107 of the properties, which are held at cost on the balance sheet at AUD 212 million....
Slide 9 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 and announced during and since FY 2023. These brands are an important part of the goodwill of each business. The charts on slide 10 illustrate Propel's historic growth in funeral volumes and revenue. As you can see on the left, the company performed over 18,000 funerals in FY 2023, up 9% from the prior year.
The chart on the right shows that Propel generated revenue of AUD 168.5 million, up 16%. The charts on slide 11 illustrate Propel's historic growth in operating earnings. As you can see on the left, the company generated operating EBITDA of AUD 46 million in FY 2023, up 18%. The chart on the right shows that Propel generated operating NPAT of AUD 20.9 million, up 17.9%. The chart on slide 12 shows Propel's average revenue per funeral since FY 2014, which has grown at a compound annual growth rate of 3%. In FY 2023, average revenue per funeral increased 6%, and on a comparable basis, by 7%. Turning to slide 13. Cash conversion continues to be a key focus. As you can see from this chart, Propel's cash conversion has remained consistently high since FY 2015.
In FY 2023, cash conversion remains strong at over 95%, which is pleasing. Before I hand over to Lily, I want to briefly touch on the company's performance since its IPO. Propel listed on the ASX in November 2017, with an issue price of AUD 2.70. As you can see from the chart on this slide, as at 30 June 2023, Propel's share price has materially outperformed the ASX 300 index and its only listed domestic peer. For investors who participated in Propel's IPO and subsequent share issues, and who retained their shareholding as at 30 June 2023, Propel has generated a total shareholder return of approximately 71% on a pre-tax basis, including dividends. This equates to total shareholder value accretion since the IPO of AUD 241 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'll provide further detail on the full year financial results.
Thanks, Albin, and good morning, everyone. Today, I will cover five key areas. Firstly, I'll provide an overview of Propel's FY 2023 results via an analysis of the income statement. Secondly, I'll touch on key growth 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 wrap up with capital management. Please turn to slide 16. Propel generated revenue of AUD 168.5 million in FY 2023, an increase of 16% on the prior year. The increase was driven by the full year impact of six acquisitions completed in FY 2022, and the part year impact of five acquisitions completed during FY 2023. Furthermore, the performance was impacted by stronger average revenue per funeral and comparable volume growth.
Propel reported a gross margin of 70.1%, which was 50 basis points below FY 2022, but in line with pre-COVID gross margins. It reflects a higher mix of full-service funerals compared to the prior year and the financial profile of recent acquisitions. The company generated operating EBITDA of AUD 46 million in FY 2023, an increase of 18% on the prior year. The increase was due to contributions from 11 acquisitions completed during FY 2022 and FY 2023, and positive operating leverage, which led to Propel expanding its operating EBITDA margin 45 basis points to 27.3%, despite the higher inflationary environment. In terms of other items of note on the income statement, depreciation increased circa 10% due to acquisitions. Net interest expense increased circa AUD 1.5 million, reflecting higher drawn debt relating to acquisitions and higher interest rates.
Noting the average effective interest rate on drawn debt in FY 2023 was 5.1%. Acquisition costs totaled AUD 1.6 million. Propel generated operating NPAT of AUD 20.9 million in FY 2023, up 17.9% on the prior year, resulting in operating earnings per share of AUD 0.177. The adjusted effective tax rate was 29.6%. The waterfall on slide 17 sets out the sources of revenue growth on the prior year. The chart shows the full year impact of six acquisitions made in FY 2022, the part year impact of the five acquisitions completed during the year, and organic growth for the relevant businesses.... as you can see from the comments on the bottom left of the slide, total funeral volumes increased 9%, and average revenue per funeral increased 6%.
In terms of organic growth on the center of this slide, comparable businesses experienced a circa 1% increase in funeral volumes and a circa 7% increase in average revenue per funeral. These two factors contributed to organic revenue, increasing by circa 8% on FY 2022. As you can see on the bottom right of this slide, the operating EBITDA margin was 27.3%, 45 basis points above the prior year. The margin was positively influenced by growth in comparable funeral volumes, average revenue per funeral, and good cost control despite the higher inflationary environment. These factors led to positive operating leverage. Moving to slide 18, the ungeared pre-tax operating cash flows were 7.2% higher in FY 2023, influenced by contributions from acquisitions and strong trading, partially offset by working capital movements.
Cash flow conversion remained strong at circa 95.4%. In respect of investing activities during the year, Propel deployed AUD 43 million in cash in connection with acquisitions, and AUD 1.5 million relating to earn-out payments, and incurred net capital expenditure of AUD 12.4 million, including growth projects. Net capex amounted to 4.1% of revenue. The financing activities largely reflect the proceeds from senior debt to fund acquisitions and dividends paid during the year. Moving to slide 19, there are three main points on the balance sheet. One, at that year-end, Propel had net debt of approximately AUD 94 million. Two, freehold properties owned by Propel are held at cost at approximately AUD 175 million, noting that an additional AUD 37 million of properties has been acquired subsequent to 30 June.
Three, Propel's prepaid contract funds totaled approximately AUD 64.5 million, which are largely invested with third-party friendly societies, who primarily invest the funds in cash and fixed interest. In accordance with accounting standards, the asset increases by the investment return generated during the reporting period, and the liability increases by the financing charge. The difference between those two amounts is recognized in the income statement. The contract turns at need when the service is delivered. At that time, revenue is recognized and the corresponding liability is extinguished. During the year, prepaid contracts that turned at need in Australia accounted for less than 10% of the group's Australian funeral volumes, consistent with the prior year. Turning to slide 20, in respect of capital management, during the year, Propel expanded its senior debt facilities to AUD 255 million, which mature in October 2027.
After allowing for binding commitments on acquisitions and the planned sale of two surplus properties, Propel has available funding capacity of AUD 87 million. Propel remained comfortably in compliance with its debt covenants, reporting a net leverage ratio of 1.7x against a covenant limit of 4x . Finally, Propel declared fully franked dividends totaling AUD 0.14 per share in FY 2023, up from AUD 0.1225 per share in the prior year. I'll now hand over to Fraser, who will cover industry trends and acquisitions.
Thank you, Lilli. Good morning, everyone. Some of you may be familiar with the graphs on slide 22, 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 0.9% per annum between 1990 and 2019, and the ABS forecasts that they will increase by 2.4% per annum from 2023 to 2030, and 2.5% per annum from 2030 to 2040.
Whereas in New Zealand, death volumes grew by 0.8% per annum between 1990 and 2019, and Stats NZ forecast that they will increase by 1.8% per annum from 2023 to 2030, and 2.1% per annum from 2030 to 2040. Please note that we've excluded 2019 to 2022 from the historic guardrails highlighted on this slide due to COVID-19 impacts during those years. Few industries have the benefits 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 23 shows how Propel's estimated market share in Australia, based on reported number of deaths performed and provisional ABS data on Australia deaths in calendar year 2022, has grown in the last eight calendar years from circa 1% in 2015 to circa 8% in 2022. However, it is worth noting that notwithstanding that significant increase, circa 71% of the market in Australia is still owned by entities other than Propel and the largest operator. Turning to slide 24, 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 269 million in acquisitions, including AUD 121 million in the last twelve months.
Of that AUD 121 million, approximately 60% relates to the purchase of real estate. Since 1 July 2023, Olsen's in Sydney, J. Fraser in Invercargill, and Harbour City Funeral Home in Wellington have joined Propel's network, and it is expected that Terry Longley & Son , which operates from Havelock North in New Zealand, will do so in the coming weeks. Together, these businesses, which include two cremation facilities, have allowed us to enter four new markets, including two major cities. 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 key financial and operating metrics in FY 2023. 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 long-term demographic tailwinds. Propel is well-funded to continue its acquisition-led growth strategy and with its founder-led management team, together with non-executive directors owning approximately 19% 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, a stable and aligned management team, a defensive market position in a favorable sector thematic, and is well-funded.
In terms of the outlook, Propel continues to be well-positioned to generate sustainable long-term growth and value creation. Having committed AUD 121 million on acquisitions in the past 12 months, over 80% of which has been deployed since April, the company has elected to provide FY 2024 guidance for revenue in the range of AUD 200 million-AUD 220 million, and operating EBITDA in the range of AUD 54 million-AUD 60 million. As you would appreciate, this guidance is based on a number of assumptions and currently available information, including recent trading, inflation expectations, and barring any unforeseen events. In terms of acquisitions, the guidance includes full-year contributions from 5 acquisitions completed in FY 2023, and part-year contributions from 4 acquisitions in FY 2024. Importantly, any further acquisitions completed in FY 2024 should be incremental.
In terms of volumes, the guidance assumes the company performs 21,000-23,000 funerals in FY 2024. Although it's still early in the new financial year, recent trading indicates that Propel is on track, with the company performing a record number of funerals in the month of July, which did not include contributions from an acquisition completed last week, and a previously announced acquisition, which is expected to complete in the coming weeks. Given natural fluctuations that occur in the death rates over short time horizons and ongoing uncertainty regarding COVID-19 impacts, it is important to note that during the first half of FY 2024, the company will cycle strong PCP organic volume growth, but expects to cycle weaker PCP organic volumes during the second half of the financial year.
Finally, average revenue per funeral growth is expected to exceed the company's long-term CAGR of 3% in FY 2024, with stable market share and funeral mix also assumed. In conclusion, and as I summarized at the outset, I think the three key takeaways from our presentation today are, One, FY 2023 was another record year for Propel. The company achieved continued growth in key financial and operating metrics on the back of materially higher funeral volumes and stronger average revenue per funeral. Two, it has been a busy period of corporate and M&A activity, with Propel expanding its debt facilities and announcing nine acquisitions during and since FY 2023, which significantly broadened the company's network in new and existing metropolitan and regional markets across Australia and New Zealand.
Three, having committed AUD 121 million on acquisitions in the past 12 months, Propel expects to deliver continued growth in FY 2024 and is well-placed to navigate natural fluctuations in the death rate, the higher inflationary interest rate environment, 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. With that, I'll hand back to the moderator to invite questions.
At this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a brief moment while we compile the Q&A roster. Your first question comes from the line of Chami Ratnapala from Bell Potter Securities.
... Thanks for taking my questions, and a good result today, Albin, Lilli, and Fraser. Just to start off with the July performance, or July, sort of trading that you have given. Looking at the industry numbers up to April, it seems to be that you have outperformed the industry decline in the second half. July was a very strong month in the PCP. Just keen to understand how the volume decline here has been, and if you have been able to manage to continue that outperformance in July. Thank you.
Good morning, Chami. Thanks for your question. As I called out in the outlook commentary, we performed a record number of funerals in July. That did not include any contribution from Harbor City, which only settled last Friday, i.e., in August. Nor did it include any contribution from Terry Longland, which, as Fraser touched on, is expected to complete in the coming weeks. I think to your point, if you look at our second half of FY 2023, we actually think our organic volumes held up pretty well.
They declined by slightly less than 4%, which, considering industry volumes in Australia declined by over 5%, between 1 January and 30 April, according to the ABS, we actually think they held up pretty well. But, yeah, so we feel pretty good about how our trading's been in July, all things considered.
Thanks for that, Albin. And secondly, I mean, very good to see that strong guidance, or the range of guidance that you provided today. Could I just dive into what the assumptions are for the lower end and the higher end would be? Thank you.
Yeah. So, I mean, I think we've provided some... We've tried to be pretty transparent around the assumptions, you know, in terms of guidance, you know, the guidance range that we've provided, Chami. Clearly, as I called out, you know, the company performed circa 18,000 funerals in FY 2023, and the FY 2024 guidance assumes 21,000-23,000 funerals, including acquisition contributions. So from the midpoint of that total funeral volume, the upper and lower end bookends are within sort of 5% of the midpoint. In terms of organic volumes, we're not expecting a material movement up or down in comparable funeral volumes in FY 2024.
That said, you know, natural fluctuations occur in the death rate over short time periods. And as I pointed out during the presentation, it is important to note that during the first half of FY 2024, the company will cycle strong PCP organic volume growth of +5%, but expects to cycle weaker PCP organic volumes during the second half of the financial year, which experienced a decline of 4%. So swings in organic volumes during the course of the year are to be expected. But as I said, we're not expecting a material movement up or down across the full year, but obviously, time will tell.
That's great, Albin. Maybe lastly, I mean, the 3% average revenue per funeral within the FY 2024 guidance looks pretty good. How are you thinking about the operating leverage in the business, with the current labor cost environment and also some of the price increases taken in July?
Hi, Chami, it's Lilli here. So, from an operating leverage perspective, obviously in 2023, we had the benefit of those comparable funeral volumes being positive, and the growth in, in average revenue per funeral, was obviously stronger than what we experienced in, in the cost base. Obviously, what we talked about in February was some of our suppliers, putting through out-of-cycle, increases. But I guess three points that are relevant, for the 2024 guidance is that we typically apply, a measured approach to passing on those, those cost increases, to our client families through, through pricing.
I think one of the key points in the 2023 results was the fact that our employment cost as a percentage of revenue, and our occupancy costs as a percentage of revenue were actually lower than they were in FY 2022. So I think that was a great sort of outcome considering the inflationary environment. And then obviously in 2023 as well, we didn't see any deterioration in that operating margin. We actually saw it expand. So I think we feel good about the pricing power of the industry.
Thanks, Lilli. Thanks, Albin. That's great. I'll jump back in the queue.
Your next question comes from the line of James Bales from Morgan Stanley. Your line is live.
Hi, guys. Thanks for taking my questions. I guess the first one is, it appears that it's definitely gotten tougher for the industry in the second half in lower volumes. Have you guys seen any change in M&A multiples or vendors' willingness to transact?
... Hi, James. Thanks for the question. I, I think probably now is the, is the short answer. I mean, I think we have been busy, but I think, they're not acquisitions and partnerships that we've created overnight. They've been long-standing relationships that we've been building over many, many years. And in terms of pricing, I think we, we would still say we pay within a, within a range of tolerance. And, and obviously, it's the upper end of that range when they're larger, multi-site, businesses with real estate and crematoria. But, but no real contraction on multiples or expansion. And in terms of the pipeline, it's, it's similar to what we say each time. It's, it's active, it's-- we're confident and, and pleased with those people that are wanting to join, our growing network.
Got it. And then, Lilli, you mentioned the cost of debt earlier in the call at 5.1% for FY 2023. How should we think about that into FY 2024?
Yeah. So, James, obviously, from an interest perspective, we disclosed that average effective interest rate. I won't sort of speculate on what interest rates will or won't do in FY 2024. But I guess we have given some good color in our presentation around what the pro forma net debt amount is after we complete the acquisitions that we've announced. And obviously, that effective interest rate gives you some color on the margin as well. So I think you can kind of make an educated assumption on what that means for interest cost, James. Just noting that there's obviously also a line fee of 75 basis points on the undrawn debt as well.
Okay, that's helpful color. And then, is there any scope for recycling some of the capital or finding alternative sources? And the sort of volume or the value of property keeps going up, and it's something that obviously has long-term strategic value, but potentially it could sort of accelerate lower cost forms of funding for M&A. Is that something that's on the radar at all?
Hi, James, it's Albin here. Look, it's not something we would rule out. As you would appreciate, capital management is something that is a standing agenda item for the board. And it's something that the board regularly considers. You may have picked up that there are two small surplus properties that are available for sale at the moment, or held for sale, which we expect to liquefy in the coming months. There may be opportunities to liberate other capital. But nothing that we're actively you know pursuing in this half other than the two that I've mentioned. But that is optionality that exists within our balance sheet.
Obviously, Albin, those properties are—their for sale price is higher, materially higher than the cost price.
Can you give us some context on why you've decided to sell those, and you know, why-
Yeah.
-you sort of think that they don't belong in the portfolio?
Yeah, sure, James. So, of the two, one of the properties is vacant land that is adjacent to one of our regional funeral homes that we had toyed with an idea of using, but have decided against that. And so it is surplus to requirements. The other is a small metropolitan property that we've only very recently acquired. It was one of several that was acquired as part of an acquisition that performs a very low number of funerals and is considered non-core. So, we identified it as surplus to requirements, but it came with the package, so to speak.
Okay, that's great.
It's not something we do lightly.
Sure.
There are no further questions at this time. I'd like to turn the call back over to Mr. Albin Kurti for the closing remarks.
Well, thank you. Thank you all for joining today's call. Lilli, Fraser, and I look forward to catching up with some of you over the coming days and to providing further updates on the company's progress as and when appropriate. Thanks, everyone.
This concludes today's conference call. You may now disconnect.