Biocrem - Confidential Investment Memo

Biocrem is a pure-play direct cremation provider that leverages its focus on unattended cremations to provide Cremation-as-a-Service (”CaaS”).

Key value drivers:

• CaaS decouples demand from geographical location, in effect bypassing catchment areas and increasing total addressable market
• Requires both less Capex to build and less Opex to run than a traditional crematorium operation, thereby maximising ROCE (Return on Capital Employed)
• Maximises energy recovery by operating continuously in long shifts, thereby reducing the environmental footprint of an equivalent traditional facility

⛈ Problem

☔️ Solution

Traditional market: The UK’s existing 301 crematoria are configured to serve the traditional ‘attended’ cremation, but these same sites also serve the recent and fast growing direct ‘unattended’ cremation market. This lack of specialisation (”square peg in a round hole”) results in an infrastructure that is costly to build and operate, ultimately resulting in higher prices for its clients, i.e. funeral directors.

Polluting industry: Cremations are an energy-intensive process that releases 200 - 245 kg of carbon, which for the UK is equivalent to ~ 115k tonne each year. Burial is becoming more expensive and harder to access due to lack of space in urban environments. It disrupts the fragile ecosystems in the soil and can pollute groundwater with embalming chemicals and decomposition.

Biocrem is launching the UK’s first purpose-built crematorium focused solely on unattended cremations. Advantages:

1. Decoupling demand from geographical location thereby expanding market reach
2. Lowering required CAPEX and OPEX over a traditional facility
3. Reduce CO2 and NOx emissions by 60-80% over traditional processes

Biocrem offers a new cremation solution for the UK that is affordable, eco-friendly and accessible to all. Its facilities carry out unattended cremations and focus on maximising efficiency of the core process.

B2C - demand side (www.neocremations.co.uk)

B2B - supply side

The team’s established track record positions them well for expansion in the B2B market. By leveraging their proven sales ability and industry expertise, the team has pivoted to capitalise on B2B opportunities.

Why pivot from B2C to B2B?

🏳️ Funeral director side of the funeral market is highly fragmented and economics of the D2C model are unclear given high digital distribution costs

🤝 Today there is no pure-play direct cremation-focused facility in the UK despite the recent increase in the share of direct cremations

🦕 The economics (unit economics, ROCE, ROI) of the Biocrem business are category leading

🔃 Focus on B2B growth and then open a new B2B2C markets by offering plan providers, hospices, retire homes and doulas the platform to white label direct cremation services to their customer base.

• Dairy farm converted to light industrial warehouses
• 7,000 square feet facility with offices and parking
• Easy access to A3 and A31
• Pre-application process with Winchester Local Authority completed
• Rental costs 50% lower than equivalent surface area in industrial estate on outskirt of town
• Landlord also operating an anaerobic digester together with other local farmers provides option to use locally sourced biogas (TBD)

Funeral directors sell traditional ‘attended’ cremations as well as direct ‘unattended’ cremations. Direct cremations are a low-cost alternative that have gained traction with the UK public in the past decade.

Biocrem offers funeral director a purpose-built direct cremation-focused facility with collection and delivery services.

💻 Product offering

1. Direct cremation - the funeral director delivers the deceased to Biocrem who performs the cremation. The ashes are kept at Biocrem’s facilities and are collected by the funeral director.
2. Direct cremation with transportation - Biocrem collects the deceased from the funeral director, performs the cremation and delivers the ashes back to the funeral director.
3. CaaS - offering funeral industry practitioners a white label eco-friendly direct cremation product that burnishes their ESG credentials
4. Biocrem is also considering the potential roll-out of water resomation and terramation processes should market demand warrant it (this has not been factored in the business plan).

✅ Biocrem USP

1. 21st century digital experience for funeral directors with Biocrem phone app providing electronic booking, billing, facility access, after sale service.
2. Eco-friendly credentials that can be showcased to the families of the deceased guaranteeing a sustainable send-off.
3. First mover advantage in the CaaS market accessing a large potential of untapped distribution channels

Average UK price of a cremation paid by funeral directors: £832 for attended cremation, £400 for direct cremation

Challenges

🔺Lack of choice of service provider: Funeral directors are limited in their choice of crematorium by facilities that are within a ~ 50 mi. radius with often only one facility to chose from, rarely two and almost never three.

📉 Pressure on margins: The UK funeral market is under pressure due to the increasing popularity of direct cremations, which are a low-cost alternative to traditional cremations. This trend is resulting in cannibalisation of high margin traditional cremations, which is putting pressure on the margins of funeral directors and crematoria operator. Funeral directors are seeking cost-effective solutions.

♻️ Environmental Concerns: There is growing awareness and concern about the environmental impact of traditional burial and cremation practices. Funeral directors and crematoria are under pressure to offer eco-friendly alternatives, such as green burials, natural coffins, or carbon-neutral cremation options.

Unsophisticated mom & pop operations: 70% of UK’s funeral directors are operating a single shop front. These operators are generally family-owned, are passed from generation to generation and are not sophisticated in their day-to-day operations

Biocrem solution

Biocrem is a location-agnostic service provider; because it focuses solely on unattended cremations, it allows funeral directors to select Biocrem as a service provider even if the distance is large.

Biocrem offers a competitive price point made possible by its focus on direct cremations. Biocrem’s unique model of low capital requirement coupled with low operating costs are making it uniquely suited to help funeral directors. It operates a new type of hybrid cremator which can use gas, biogas or electricity, minimising fuel usage by operating almost continuously.

BioCrem becomes the first and only brand in the UK to provide CO2 and NOx emissions-minimized cremations. It achieves this by operating by operating almost continuously which maximises energy recovery.

Biocrem provides a phone app that provides intuitive booking, scheduling, billing and customer-support services facilitating logistics for the funeral directors which leaves them more time to support their customers.

Streamlined cremations

Biocrem charges a fixed fee per cremation, as per the standard crematoria model. Unlike the traditional crematoria model however, Biocrem offers collection and delivery services to maximise its opportunity to enlarge its addressable market beyond the usual catchment area.

In order to provide this collection and delivery service, the Biocrem business plan includes a fleet plus associated ancillary equipment of ‘private ambulances’ equipped for transportation of deceased.

Because Biocrem focuses solely on unattended cremations, it is able to build a facility at a fraction of the cost of a traditional crematorium. This is possible because Biocrem can do away with chapels, reception areas, maintained grounds, gardens of remembrance, and parking spaces. Moreover, Biocrem is able to build its facilities in industrial park, converting a light industrial use into a crematorium facility.

Cremation equipment

Biocrem has negotiated a vendor financing agreement with Facultatieve (FT), Europe’s leading manufacturer of crematoria equipment. The cremator FT will install in the first facility will be a hybrid cremator that can use gas, biogas and electricity as energy sources.

Source: Facultatieve Analysis, 2022

Sustainability factors

Traditionally, cremations have primarily used natural gas or propane as fuel sources (99% of UK crematoria). When these fossil fuels are burned, they release CO2 into the atmosphere. For every gas cremation, approximately 200-245 kg of CO2 is released (the equivalent of driving your car for 470 miles), which is around 115,150 tonnes of carbon released each year solely from cremation in the UK.

Biocrem has estimated in conjunction with OEM manufacturer that operating its machinery on continuous shifts (something made possible solely due to the direct-cremation nature of Biocrem’s model) would reduce energy consumption and therefore CO2 emissions by a factor of 10.

Use of funds for this seed round is to establish Biocrem’s first facility and fund operations leading to commercial launch. Thereafter facility #1 will become self-sustaining and profitable. A subsequent £600k equity raise in Year 2 done at a higher valuation will be required to financing of the second facility (North England). Alternatively, the second equity raise could be replaced by raising bank debt (project attractive to banks and impact lenders).

Biocrem pricing

1. Standard cremation - £295
2. Standard cremation + transport - £420
3. CaaS - £800

Currently, average unattended cremation fees across the country range between £250 and £500, with average of £400.

Revenue metrics

The historical evolution of crematoria fees over the past 10 years shows that fees have increased well in excess of CPI, in nominal terms at a CAGR of 6% between 2008 and 2018, equivalent to an inflation-adjusted increase of 48% across the Period.

TAM (Total Addressable Market)

bottom-up approach

The TAM represents the total potential market demand for Biocrem's services, considering all cremations in the UK.

There were 523,303 cremations in the UK in 2021 across 310 crematoria. Assuming this trend continues, and using the historical CAGR in the cremation rate of 0.33% per year, the cremation rate is projected to reach 82.3% of all deaths by 2037. Considering the projected 777,000 deaths in 2037, the estimated number of cremations would be approximately:

Projected cremations in 2037 = 777,000 * 0.823 = 639,771

Therefore, the TAM for Biocrem would be the potential market demand for cremations in the UK, which is estimated to reach around 639,771 cremations in 2037. TAM: £223m

(UK Funeral market value: £2.5bn)

SAM (Serviceable Addressable Market)

The SAM represents the portion of the TAM that BioCrem can realistically target and serve.

In this case, the SAM can be defined as the number of cremations that Biocrem can potentially handle in its purpose-built crematoria.

Based on the assumption that Biocrem will charge £250/350 per cremation UK funeral data in 2021:

• 667,479 registered deaths
• The cremation rate in the UK is 78.4%, resulting in 523,303 cremations
• 17% of all cremations were direct: 88,600

Assuming a similar proportion of direct cremations in the future, the SAM can be estimated as follows:

SAM = Direct cremations in 2021 * £350 per cremation: 88,600 * £350 = £31m

SAM: approximately £31m

SOM (Serviceable Obtainable Market)

The SOM represents the portion of the SAM that Biocrem can realistically capture based on its business strategy and competition.

In summary, the TAM for BioCrem is estimated to reach approximately 639,771 cremations in 2037. The SAM, representing the potential revenue from direct cremations that Biocrem can target and serve, is estimated at around £31m.

Using the capacity of each site: At full capacity and operating with maintenance shut-down requirements, Biocrem can process 3,000 cremations per site per year, based on that and the 2 sites planned for the first 4 years, Biocrem can process maximum of 6,000 cremations. SOM: £2.1m

Companies using own crematoria

The UK direct cremation market is fragmented with the top 5 providers estimated to perform 21,500 direct cremations in 2022. Pure Cremation is the largest player. Most competitors have between 1-5 crematoria sites, clustered around London and Southern England. This limits their geographic reach.

Companies using 3rd party crematoria

The analysis shows these additional players are relatively small, likely generating under £10 million in combined revenue. They rely mainly on 3rd party crematoria. Farewill is likely the largest based on its broader funeral services.

The UK funeral market experiences significant demand for cremations. Over the past 10 years, crematoria fees have steadily increased at a compound annual growth rate of 6%, resulting in a 48% inflation-adjusted increase. Funeral directors operate in a market where cremation fees generate healthy operating margins, with EBITDA margins projected to be no less than 44% at maturity. Moreover, the majority of investment appraisals forecast operating profit margins exceeding 50%.

Cremations

1. In 2020, there were 520k cremations across 300 crematoria in the UK, with a cremation rate of 78%.
2. On average there were 2,131 cremations every day in 2021 (we based this on weekdays only across the country)
3. In 2022, the average cost of a cremation to the end consumers is £3,600 (£1,500 for direct cremations)
4. Using ONS projections of 777,000 deaths in 2037, and assuming the historical CAGR in the cremation rate of 0.33% continues for the next 20 years, the cremation rate is forecast to reach 82.3% of all deaths by 2037

Crematoria

1. In the UK, there are 301 in service crematoria. The market is concentrated, with the top 3 providers (Dignity, Westerleigh, Memoria) owning over 40% of crematoria
2. 50% of crematoria have no local competitors within 30 minutes drive time. New crematoria openings have mainly come from the large private providers
3. Crematorium fees in the UK have risen consistently over the past decade. Direct cremations range between £350 and £500, with average of £400
4. According to the CMA (Competition and Markets Authority), new crematoria projects are projected to achieve EBITDA margins of no less than 44% at maturity
5. The busiest crematorium in 2021 was Andover with 9,632. The most expensive crematorium in 2021 was Friockheim (£1,100) and cheapest crematorium in 2021 was Belfast (£392)

Direct cremations

1. Direct cremations accounted for a significant portion, 18% of all cremations were direct with 88,600, recorded in 2021.
2. Awareness of direct cremations is growing, with 59% of funeral directors seeing an increase in client interest in direct cremations over the past year.
3. Average cost of direct cremations in UK is £1500, 2% of all funerals in 2018 were direct cremations, 18% in 2022.

Funeral Directors

1. The UK funeral directors market is estimated to be worth around £2 billion in revenue annually
2. There are over 10,000 funeral homes in the UK. The market is highly fragmented
3. Geographical constraints often limit funeral directors to a catchment area of approximately 50 miles, requiring them to work with local crematoria
4. The market is dominated by a few large providers: Co-op Funeralcare has around 1,000 locations, Dignity around 800 locations. Other large consolidators are Funeral Partners,, C.P.J Field, Golden Leaves.
5. According to the Funeral Guide, the average cost of cremation to funeral directors in the UK in 2023 is £832, which covers the cost of a standard weekday time slot.

Activating the sales channel:

• Targeting in the first instance funeral directors who are part of the Association of Green Funeral Directors (in excess of ~ 500 across the UK)
• Partnership with green burial grounds, similar to Green Acres in Manchester, for Biocrem to become the de-facto crematoria provider of woodlands plot providers (10,000 burials p.a. and growing)
• For all other FDs price services at a significant discount to what their local crematoria are charging for direct cremation fees (see success of Pure’s model)
• Data-driven dynamic pricing algorithm that maximises revenues based on instantaneous demand levels, similar to yield management for the airline industry.

Geographic expansion plan: Several facilities spread across the country to cover England and Wales

• Industrial unit 1 shall be located south: this will be upsized and most of the space wont be used but capacity will be 2500 - 3000 per year
• Industrial unit 2 between Liverpool and Manchester
• Biocrem will have a fleet of vehicles and drivers to cover nation-wide transportation