Dignity Plc - First quarter trading update

Dignity plc, the UK's only listed provider of funeral related services, announces its trading update for the first quarter of 2019.

 

 

13 week period ended

29 March 2019

13 week period ended              30 March 2018

Decrease

(per cent)

 

 

Underlying revenue (£million)

81.1

95.1

15

 

 

 

 

Underlying operating profit (£million)

21.7

                37.5

42

 

 

 

 

Number of deaths

159,000

181,000

12

 

 

Alternative performance measures

All measures marked as underlying in the table above and throughout this announcement are alternative performance measures. The reasons for the Group's use of alternative performance measures are provided in the section on alternative performance measures at the end of this announcement.

 

Financial summary

Operating performance in the first quarter was below the Board's expectations as a result of the significantly lower than expected number of deaths. Funeral market share and average income were in line with the Board's expectations. Underlying operating profit by division is summarised in the table below:

 

 

 

13 weeks
ended
29 March 
2019

13 weeks
ended
30 March

 2018

Underlying operating profit by division

 

 

£m

£m

 

 

Funeral division

 

 

18.4

27.9

Crematoria division

 

 

10.9

13.0

Pre-need division

 

 

-

1.5

Central overheads

 

 

(7.6)

(4.9)

 

 

Underlying operating profit

 

 

21.7

37.5

 

 

 

Number of deaths

The absolute number of deaths decreased by approximately 12 per cent to 159,000 from 181,000 in the comparative period last year, continuing the low number reported by the Group in its preliminary results presentation for the first nine weeks of 2019. Historical data indicates that it is likely that this proportional decrease will not continue throughout the remainder of the year and that the full year will finish within approximately three per cent of the previous year. A table showing this data is appended to this statement and is also displayed in chart form on the Group's investor website. Longer term expectations, based on the Office for National Statistics ('ONS') forecasts, remain unchanged. The ONS expects long-term increases in the number of deaths, reaching approximately 700,000 per year by 2040.

 

Funeral operations

Key changes in the profitability of the Group's funeral business are detailed in the table below:

 

 

 

 

Funeral operations

 

 

£m

 

 

Underlying operating profit - Q1 2018

 

 

27.9

Impact of:

 

 

 

Number of deaths

 

 

(6.8)

Market share

 

 

0.8

Lower average incomes

 

 

(4.0)

Reduction in costs

 

 

0.5

 

 

Underlying operating profit - Q1 2019

 

 

18.4

 

 


 

 

Funeral market share

Funeral market share continued to show a positive response to the Group's updated service offering and price points introduced in 2018. The Group performed 19,200 funerals in the first 13 weeks of the year (Q1 2018: 21,400), representing a market share of 12.0 per cent (Q1 2018: 11.7 per cent). On a comparable basis, excluding any volumes from locations not contributing for the whole of 2018 and 2019 to date (and therefore excluding eight locations closed in 2018 and a further three locations closed in the first quarter of 2019), market share was 11.8 per cent compared to 11.6 per cent for the same period in 2018.

 

Average income

As demonstrated in the table, average income per funeral was approximately £190 lower than the same period in 2018, slightly below the amount expected and previously guided by the Group. The Group continues to expect average income for the remainder of the year to be approximately £2,940 as it continues its trials and plans to implement its tailored funeral nationally.

 

 

 

 

 

 

 

 

 

 

 

 

Funeral type

 

 

FY

2018

Actual

Q1

2019

Actual

Q1

2018

Actual

 

 

Average revenue (£)

Full service

 

 

3,735

3,542

3,875

 

Simple and limited service

 

 

2,350

2,159

2,100

 

Pre-need

 

 

1,705

1,826

1,680

 

Other (including Simplicity)

 

 

570

773

580

 

 

Volume mix (%)

Full service

 

 

48

52

55

 

Simple and limited service

 

 

19

14

12

 

Pre-need

 

 

27

27

28

 

Other (including Simplicity)

 

 

6

7

5

 

 

Weighted average (£)

 

 

 

2,734

2,691

2,883

Ancillary revenue (£)

 

 

 

239

213

212

 

 

Average revenue (£)

 

 

 

2,973

2,904

3,095

 

 

                 

 

Crematoria operations

Key changes in the profitability of the Group's crematoria business are detailed in the following table:

 

 

 

 

Crematoria operations

 

 

£m

 

 

Underlying operating profit - Q1 2018

 

 

13.0

Impact of:

 

 

 

Number of deaths

 

 

(2.0)

Market share

 

 

1.0

Lower average incomes

 

 

(0.5)

Cost base increases

 

 

(0.6)

 

 

Underlying operating profit - Q1 2019

 

 

10.9

 

 

 

Crematoria performed 18,000 cremations in the period (Q1 2018: 19,100), representing a market share of 11.3 per cent (Q1 2018: 10.6 per cent) for the first quarter of the year. This particularly strong performance is mainly attributed to the increased popularity of direct cremations.

 

Pre-need accounting

As previously announced, the Group reduced the level of marketing allowances it claimed from the trusts when it made a plan sale with effect from July 2018. As expected, the Group's pre-need division reported no underlying operating profit in the first quarter of 2019.

 

In addition, the adoption of IFRS 15 in 2019 has resulted in a change to the Group's accounting policies for the sale of trust based pre-arranged funeral plans. The adoption of this standard does not affect the Group's underlying reporting measures. See the section on alternative performance measures at the end of this announcement for further details.

 

Marketing and digital activity

The Group's online Funeral Notices service is now fully rolled out and is being used by clients across the country.  In the first quarter over half a million consumers have viewed a Funeral Notice and more than £250,000 in charitable donations has been pledged via the online donations facility.  The Group has continued to expand its online reach, providing more advice and guidance, which has resulted in a near threefold increase in visits to the Group's websites compared to the same prior year period. 

 

Transformation Plan update

Activity has continued to accelerate with a focus on:

 

·      Following the finalisation of future efficient branch networks, the commissioning of a development partner to co-ordinate the property investment agenda;

·      Ongoing development and monitoring of trials of unbundled services for bespoke funeral arrangements;

·      Continued enhancement for clients in the Group's online digital offering including Funeral Notices and improved site structure and ease of use;

·      Formalisation of projects addressing central capability including initiatives focused on the Group's Client Service Centre,  purchase-to-pay cycle and procurement expertise;

·      Continued investment in central capabilities particularly Human Resources and Marketing;

·      Detailed engagement with front-line colleagues on specific role design and ways of working ahead of testing the Group's future network operating model; and

·      Recruitment of an IT Director to lead product selection and enhance the Group's development capabilities.

 

Competition and Markets Authority investigation

On 28 March 2019, the Competition and Markets Authority ('CMA') confirmed its widely anticipated full market investigation into the funeral and crematoria sector. Dignity welcomes the investigation and is cooperating fully with the CMA's enquiries. In particular, Dignity has established a strong working group of internal and external resource and will seek to focus on these key areas:

 

·      Quality of service provided to meet customer needs;

·      Regulation of the industry to protect customers; and

·      Capital employed in the crematoria.

 

The Group will make further announcements as appropriate.

 

Outlook

The year has started below the Board's expectations primarily as a result of the number of deaths so far in 2019. Achievement of full year expectations will rely heavily on the number of deaths in the remainder of the year compared to 2018. Historical data over the last 20 years indicates that the final volume is likely to be within three per cent of the previous year. If deaths were 580,000 (approximately three per cent lower), then all other matters being equal, underlying operating profits for the full year could be approximately £3 million to £4 million lower than originally anticipated. Clearly, this would require a significant increase in the number of deaths compared to last year in the second half of the year and would result in the financial performance for the year being more heavily weighted towards the second half of the year.

 

Mike McCollum, Chief Executive of Dignity, commented:

"Our primary focus for 2019 remains the execution of our transformation programme, which seeks to build a more coherent, cohesive and technology-enabled business, geared to meeting the changing needs of our customers, whilst remaining focused on excellent client service. This will deliver our vision to lead the funeral sector in terms of quality, standards and value-for-money.

 

Whilst the number of deaths in 2019 may mean that our short-term financial performance is lower than we originally anticipated, I am confident that the changes we are making will allow us to generate sustainable growth in the medium to long-term."