Dignity PLC -Third quarter trading update

39 week period ended

28 September 2018

39 week period ended

29 September

2017

 

Increase/ (decrease)

per cent

 

 

Revenue (£million)

244.2

243.9

-

Underlying operating profit* (£million)

68.6

79.4

(14)

Number of deaths

455,000

440,000

3

 

 

* The reasons for the Group's use of alternative performance measures, definitions and where relevant reconciliations, are provided in the section on Non-GAAP alternative performance measures at the end of this announcement.

 

Financial summary

Operating performance in the third quarter was in line with the Board's expectations, reporting underlying operating profits of £12.2 million, compared to £19.9 million in the same period in 2017. Underlying operating profit for the year to date is summarised as follows:

 

 

 

13 weeks ended

28 September 2018

13 weeks ended

29 September 2017

39 week period

ended

28 September 

2018

39 week period ended 

29 September

2017

Underlying operating profit by division

£m

£m

£m

£m

Funeral division

11.1

15.3

53.2

60.4

Crematoria division

8.8

8.8

32.2

29.7

Pre-need division

(0.3)

1.6

2.5

6.5

Central overheads

(7.4)

(5.8)

(19.3)

(17.2)

Underlying operating profit

12.2

19.9

68.6

79.4

 

In aggregate, crematoria, pre-need and central overheads generated an underlying operating profit of £1.1 million in the quarter compared to £4.6 million during the same period in 2017. This reduction reflects reduced profitability from pre-need consistent with the reduction in marketing allowances described in the Group's interim results on 1 August 2018, combined with incremental costs arising from the further investment centrally in marketing and digital activities.

 

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

 

 

H1

Q3

YTD

Funeral operations

£m

£m

£m

 

 

Underlying operating profit - 2017

45.1

15.3

60.4

Impact of:

 

 

 

Number of deaths

5.5

(0.8)

4.7

Market share

(1.5)

1.5

-

Lower average incomes

(5.5)

(5.2)

(10.7)

Cost base increases

(3.5)

(0.6)

(4.1)

Acquisition activity

2.0

0.9

2.9

 

 

Underlying operating profit - 2018

42.1

11.1

53.2

 

 

Number of deaths

Whilst the number of deaths in the year to date increased three per cent to 455,000, the third quarter, as expected, saw the number broadly flat year on year. The Group continues to anticipate 600,000 deaths in 2018.

Market share

Funeral market share continued to show good momentum in the third quarter. The Group performed 55,700 funerals in the first 39 weeks of the year (2017: 52,100), representing a market share of 12.1 per cent (2017: 11.7 per cent). On a comparable basis, excluding any volumes from locations not contributing for the whole of 2017 and 2018 to date (and therefore excluding two further locations closed in the third quarter of 2018), market share was 11.4 per cent compared to 11.3 per cent for the same period in 2017.

Crematoria performed 49,900 cremations in the period (2017: 48,100), representing a market share of 11.0 per cent (2017: 10.9 per cent) for the first 39 weeks of the year.

Funeral mix and average income

As expected, the third quarter witnessed a reduction in average income as a consequence of the ongoing pricing trials. The Group continues to anticipate its average income will be lower in the fourth quarter of 2018 and broadly in line with its original expectation of £2,870. However, this is likely to be achieved as a consequence of a different funeral mix and achievement of different actual averages compared to original expectations.

 

 

 

 

Funeral type

FY 2017 Actual

FY 2018 Board's  original expectations*

Q1 2018 Actual

Q2 2018 Actual

 

Q3

2018 Actual

H1

2018

Actual

Q3

2018

YTD

Actual

 

 

Average revenue (£)

Full service

3,800

3,800

3,875

3,700

3,695

3,800

3,775

Simple and Limited service

2,700

1,965

2,100

2,340

2,420

2,240

2,315

Pre-need

1,650

1,650

1,680

1,680

1,720

1,680

1,690

Other

500

500

580

535

550

560

550

 

 

Volume mix (%)

Full service

60

44

55

48

44

52

49

Simple and Limited service

7

20

12

20

24

15

18

Pre-need

27

30

28

26

26

27

27

Other

6

6

5

6

6

6

6

 

 

Weighted average

2,945

2,590

2,883

2,713

2,688

2,799

2,756

Ancillary revenue

277

280

212

225

233

224

239

 

 

Average revenue

3,222

2,870

3,095

2,938

2,921

3,023

2,995

 

 

 

 

 

 

 

                   

* As per January 2018 trading update

Marketing and digital activity

The Group continues to expand its digital offering, increasing the amount of online advice and support it offers to consumers and enhancing the digital services it offers to its clients. More than one third of our branches are now trained to offer our Online Funeral Notices service which is proving popular with clients. This provides clients with a convenient way to share details of the funeral arrangements through social media and the internet. It also allows friends and family to arrange flowers and make donations.

The Group's websites are performing well, with more than 1.2 million visits on a year to date basis, up 52 per cent on the same comparable prior year period. Visits to our websites in the third quarter were up 67 per cent on the prior year.  Publishing our prices online is still a key priority and we remain on track to achieve this by the end of March 2019.

Update on the transformation plan

The Group's Transformation Director, has spent the weeks since appointment in August setting up the project management office, establishing an appropriately skilled team for the plan's implementation and creating all the necessary detailed processes to ensure the three year plan can be delivered on time and on budget.

The early focus has been on the following areas:

-       Establishing the senior leadership team within Funeral Operations including a new national role to focus on Service Delivery;

-       Completing a thorough review of the existing IT applications and support model against the requirements of the transformation strategy;

-       Commencing trials of the Group's funeral services focused around unbundling the services offered within bespoke funeral arrangements;

-       Managing the ongoing development of the brand identity for the Group's Simplicity offering; and

-       Finalising a smaller number of larger branch networks in advance of the testing of our new operating model.

Outlook

The Group continues to perform in line with current market expectations for the year ended 28 December 2018.

Mike McCollum, Chief Executive of Dignity plc commented:

"We are pleased with how the Group has performed in the period and following these results our expectations for the full year remain unchanged. Our work on the transformation plan is critical and we are encouraged by the progress that has been made in the initial weeks. Alongside the expansion of our digital offerings, we continue to provide a greater choice for consumers and our focus on high standards and excellent client service remains central to our plans for the future. The Group's significant research projects highlight the need for minimum professional standards and support calls for regulation that we have been making for some time."