REG - Dignity PLC - Third Quarter Trading Update

DignityAnnouncement

09/11/2022 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20221109:nRSI7516Fa&default-theme=true

RNS Number : 7516F  Dignity PLC  09 November 2022

 

 For immediate release   9 November 2022

Dignity plc

 

Third Quarter Trading Update

Continued implementation of growth strategy initiatives

 

 

Dignity plc (Dignity, the Company, or the Group), one of the UK's largest
national providers of funeral plans and end of life services, provides the
following trading update for the 39 week period ended 30 September 2022.

 

Period Overview

During the third quarter, Dignity's new strategy continues to deliver early
promising signs of increases in market share growth despite the previously
referenced headcount challenges. That said, underlying revenue and underlying
operating profit continued to be impacted by a combination of factors,
including fluctuations in the death rate, change in pricing strategy and
introduction of a direct cremation service through Dignity's funeral network.

 

Summary

 

                                          39 week period ended 30 September 2022  39 week period ended 24 September 2021  Decrease

                                                                                                                          per cent

 
 Underlying revenue (£million)            204.7                                   237.0                                   14

 Underlying operating profit (£million)   14.1                                    43.4                                    68

 Number of deaths                         469,000                                 483,000                                 3

 

 

Alternative performance measures ('APMs')

All measures marked as underlying in the table above and throughout this
announcement are alternative performance measures. The Board believes that
whilst statutory reporting measures provide financial performance of the Group
under GAAP, APMs are necessary to enable users of the financial statements to
fully understand the trading performance and financial position of the
business. The APMs provided are aligned with those used in the day-to-day
management of the business and allow for greater comparability across periods.
For this reason, the APMs provided exclude the impact of consolidating the
Trusts and the changes which relate to the application of IFRS 15, all of
which are considered to mask the underlying trading performance of the Group,
as well as non-underlying items comprising certain non-recurring and
non-trading transactions.

 

                                            Funerals  Crematoria  Central overheads  Group
                                            £m        £m          £m                 £m

 
 Underlying operating profit - Q3 2021 YTD  38.8      34.4        (29.8)             43.4
 Impact of:
 Number of deaths                           (4.4)     (1.5)       -                  (5.9)
 Market share                               5.0       3.4         -                  8.4
 Average revenues                           (22.0)    (3.7)       -                  (25.7)
 Cost base changes                          (10.4)    (2.3)       6.6                (6.1)

 
 Underlying operating profit - Q3 2022 YTD  7.0       30.3        (23.2)             14.1

 

 

Key points

·      The Group continues to make good progress in the implementation
of its new strategy which, whilst limited somewhat by staff shortages, is
delivering early signs of increases in market share growth.

·      At the same time, the Group recognises underlying revenue and
underlying operating profit continue to be impacted by a combination of
factors.

·      In line with the Group's mission to drive forward positive change
in the sector and become a true market leader with an unrivalled focus on
quality, transparency, and choice, it has continued to invest in the
business.  These investments can be seen through its capital expenditure
programme, which prioritises key investment needs across the estate and
facilities as well as increased operational and colleague costs with the first
phase of its remuneration review now implemented. Since then, the Group has
seen improvements in its recruitment challenge and a material improvement in
vacancies filled.

·      The Group has confirmed the next stage of its at-need funeral
pricing strategy, which seeks to provide value for money, through adjustments
to a number of attended funeral fees. As part of the Group's local business
strategy, it seeks to enable pricing to be set locally based on insight,
competitor landscape and business knowledge. Dignity expects that this will
raise yields and cover the increases in its cost base which includes increased
salary costs, raw materials and energy & utility costs.

·      The Group has received a positive response from stakeholders and
customers on the innovative new funeral plan proposition launched in August
2022. The first phase of the launch was through online channels only and it
has now been extended through the branch network.

·      Dignity has also been providing its new funeral plan product to
customers of other providers who either have withdrawn from the market or who
did not achieve FCA authorisation. Currently around 32,000 such families have
decided to take on a new Dignity funeral plan.

·      In September 2022, bondholders provided consent to allow the
Group to begin deleveraging and subsequently provide the Group with additional
financial flexibility as more fully described in the Group's interim results
statement.

 

Kate Davidson, Chief Executive Officer of Dignity plc, commented:

"The third quarter continues to present some of the challenges we faced
earlier this year, but with our new strategy well underway we are beginning to
see positive indications of our market share growing. It is also promising to
see tangible improvements to our workforce as we increase our headcount
following the proactive steps we've taken.

"We remain focussed on our long term aims, and we believe that our strategy
will deliver sustainable growth and value for shareholders, colleagues and
clients alike."

 

Number of deaths

                     2022     2021     Increase/ (decrease)
                                       per cent

 Quarter 1           166,000  204,000  (19)
 Quarter 2           153,000  136,000  13

 First half of year  319,000  340,000  (6)
 Quarter 3           150,000  143,000  5

 Year to date        469,000  483,000  (3)

 

Although deaths were 19 per cent lower in the first quarter, we have seen
higher deaths in the second and third quarters of 13 per cent and five per
cent respectively. Deaths for the year to date are therefore three per cent
below the prior period. Compared to the five-year average (2015-2019), deaths
were higher in the second and third quarters by seven per cent and 14 per cent
respectively and six per cent for the year to date. In the first few weeks of
quarter four the deaths are circa. 19 per cent above the five-year average.
The reason for this spike in the death rate is currently unknown.

 

The impact of COVID-19 deaths in 2020 and 2021 could possibly mean we
experience a fluctuating number of deaths than originally anticipated by the
Office of National Statistics ('ONS') in 2022 and 2023.

 

The impact of these factors has differed in each quarter of the year to date,
as shown in the following table:

 

Funerals

                                     Q1      Q2     Q3     Total
                                     £m      £m     £m     £m

 
 Underlying operating profit - 2021  22.2    9.4    7.2    38.8
 Impact of:
 Number of deaths((1))               (10.8)  4.4    2.0    (4.4)
 Market share((1))                   4.5     (1.4)  1.9    5.0
 Average revenues((1))               (6.6)   (8.0)  (7.4)  (22.0)
 Cost base changes                   (1.5)   (3.5)  (5.4)  (10.4)

 
 Underlying operating profit - 2022  7.8     0.9    (1.7)  7.0

 

(1)    Represents revenue impact

 

The table above demonstrates the impact of our new pricing strategy, the
introduction of direct cremation on average revenues and our increased market
share. Although the death rate has had a distorting effect from the pandemic
in the first quarter, this has started to reverse in the second and third
quarters resulting in reduced revenue of £4.4 million year to date compared
to a reduction of £10.8 million in the first quarter.

 

Total cost base changes include a £1.7 million impact from the loss of rates
relief, increases in salary costs of £3.2 million, bad debts of £2.2
million, coffin raw material costs of £0.7 million, utility costs of £0.7
million, depreciation cost of £0.6 million and fuel cost of £0.5 million.
 Accordingly, the cost to deliver a funeral has increased to £1,925 as an
LTM at 30 September 2022 (September 2021 LTM: £1,858).

 

Funeral market share

In the first three quarters of 2022 the Group conducted 58,200 funerals
(September 2021: 59,900) in the United Kingdom. Just over one per cent of the
funerals in each period were performed in Northern Ireland. Excluding Northern
Ireland, these funerals represented approximately 12.3 per cent (September
2021: 11.9 per cent) of total estimated deaths in Great Britain.

 

Whilst funerals divided by estimated deaths is a reasonable measure of
Dignity's market share, the Group does not have a complete national presence
and consequently, this calculation can only ever be an estimate. Allied to
this, market share is calculated based on a fixed assumption of one week
between the registration of the death and the date of the funeral. Therefore,
due to COVID-19 and longer delays between the date of registering the death
and the date of the funeral being performed, calculations of market share in
2021 and 2022 may not be comparable.

 

Funeral mix and underlying average income

                                                                      FY       Q1       Q2       H1       Q3

                                  Funeral type                        2021     2022     2022     2022     2022

                                                                      Actual   Actual   Actual   Actual   Actual

 Underlying average revenue (£)   Attended                            2,855    2,486    2,439    2,464    2,425
                                  Unattended                          1,063    1,044    1,037    1,041    1,035
                                  Pre-need                            1,959    1,950    1,967    1,958    2,033
                                  Other (including Simplicity)        904      608      522      668      538

 Volume mix (%)                   Attended                            61       58       59       59       59
                                  Unattended                          3        8        7        7        8
                                  Pre-need                            28       28       28       28       27
                                  Other (including Simplicity)        8        6        6        6        6

 Underlying weighted average revenue (£)                              2,394    2,108    2,093    2,115    2,095
 Ancillary revenue (£)                                                154      165      174      155      166

 Underlying average revenue (£)                                       2,548    2,273    2,267    2,270    2,261

 

The average revenue for funerals has decreased from £2,505 (Q3 2021) to
£2,095 (Q3 2022), (excluding the funerals delivered as part of our Safe Hands
rescue support the average in Q3 2022 was £2,141 and £2,129 in H1 2022),
which can be attributed to a combination of the change in our pricing strategy
and the change in mix due to the provision of lower cost funeral options, such
as direct cremations. This, combined with reduced volumes, has also impacted
the contribution per branch which has decreased to £36,497 as an LTM at 30
September 2022 (September 2021 LTM: £78,571).

 

Crematoria

 

                                     Q1     Q2     Q3     Total
                                     £m     £m     £m     £m

 
 Underlying operating profit - 2021  14.6   10.6   9.2    34.4
 Impact of:
 Number of deaths((1))               (3.7)  1.5    0.7    (1.5)
 Market share((1))                   2.2    0.3    0.9    3.4
 Average revenues((1))               (0.8)  (2.1)  (0.8)  (3.7)
 Cost base changes                   (0.9)  (0.1)  (1.3)  (2.3)

 
 Underlying operating profit - 2022  11.4   10.2   8.7    30.3

 

(1)      Represents revenue impact

 

In the first three quarters of 2022, the Group conducted 57,100 cremations
(September 2021: 54,900), representing a market share of 12.2 per cent
(September 2021: 11.4 per cent). Average price per cremation has decreased to
£863 (September 2021: £891) which reflects an increase in the percentage of
direct cremations being performed. Yield per crematoria has decreased to
£1,050,000 as an LTM at 30 September 2022 (September 2021 LTM: £1,078,261)
and average ancillary revenue (excluding cemetery sales) per cremation has
decreased to £169 (September 2021: £189).

 

 Central overheads       Q1     Q2     Q3     Total

                         £m     £m     £m     £m

 
 Total overheads - 2021  9.7    9.3    10.8   29.8
 Impact of:
 Digital activities      (0.2)  (1.5)  (1.7)  (3.4)
 Salaries                (0.3)  (0.8)  (1.6)  (2.7)
 Other                   0.2    (0.8)  0.1    (0.5)

 
 Total overheads - 2022  9.4    6.2    7.6    23.2

 

Salaries have reduced year-on-year primarily due to the prior period including
a performance bonus accrual of £3.0 million (Q3 2021: £2.0 million). Central
overheads are expected to reduce further as part of the new strategy.

 

Funeral plans

Dignity's new sector leading funeral plan product launched in August through a
phased approach - initially online, moving to a phased rollout across the
funeral branch network. A deliberate decision not to activate marketing was
made to test and learn during the launch phase, and we are pleased to report
that even with no promotional activity the product has received encouraging
feedback. The Group look forward to sharing a performance update for the
funeral plan proposition at the time of its full year results.

 

Dignity has signed a new contract with Sun Life to exclusively offer funeral
services provision to customers purchasing a Protected Funeral Payout Plan,
further strengthening Dignity's partnership with Sun Life who are one of the
largest providers of insurance services in the UK.

 

Since the launch of regulation, a number of funeral plan providers have
withdrawn from the market. The Group has been proactively supporting families
affected by this and is offering our new funeral plan product to customers of
other providers who did not achieve FCA authorisation. Currently around 32,000
such families have decided to take on a new Dignity funeral plan.

 

Capital structure

Secured Notes

The Group's primary financial covenant under the Secured Notes requires EBITDA
to total debt service to be above 1.5 times. During the temporary covenant
waiver period that was approved by bondholders in March 2022, any cash
transferred into the Securitisation Group can be included within the EBITDA to
debt service ratio for the following 12 months. The waiver allows for cash to
be transferred at any covenant measurement point up to and including 31
December 2022. £15.1 million was transferred in June 2022 which has resulted
in a ratio at September 2022 of 1.69 times (June 2022: 2.11 times). Excluding
this cash transfer the ratio at 30 September 2022 was 1.24 times.

 

Whilst not a covenant, in order for the Group to transfer excess cash from the
Securitisation Group to Dignity plc, it must achieve both a higher EBITDA to
total debt service ratio of 1.85 times and achieve a Free Cash Flow to total
debt service (a defined term in the securitisation documentation) of at least
1.4 times. This latter ratio as at September 2022 was 0.88 times (June 2022:
1.72 times). These combined requirements are known as the Restricted Payment
Condition ('RPC'). Given the ratios achieved, the RPC was not met in June or
September 2022. Failure to pass the RPC is not a covenant breach and does not
cause an acceleration of any debt repayments. Any cash not permitted to be
transferred whilst the RPC is not achieved will be available to be transferred
at a later date once the RPC requirement is achieved but otherwise can be used
within the Securitisation Group with no restrictions. These covenant
calculations use a prescribed definition of EBITDA detailed in the loan
documentation and only represents the profit of a subgroup of the Group which
is party to the loans (the 'Securitisation Group').

 

Cash balances

At the end of September 2022, the Trading Group held cash of approximately
£29 million, approximately £21 million of which was held by Dignity plc,
which is freely available for use as the Group sees fit.

 

Outlook

The Group set out in more detail company performance in the half year results,
but with the unpredictability of the death rate in 2022, the impact of the new
strategy implementation, regulatory change and the launch of the new funeral
plan proposition, Dignity will continue to refrain from giving guidance.

 

For further information please contact:

Kate Davidson, Chief Executive Officer

Dean Moore, Interim Chief Financial Officer

Dignity
plc
+44 (0)20 7466 5000

 

Chris Lane

Hannah Ratcliff

Verity Parker

Buchanan
 
+44 (0)20 7466 5000

www.buchanan.uk.com (http://www.buchanan.uk.com)
 
dignity@buchanan.uk.com (mailto:dignity@buchanan.uk.com)

Forward-looking statements

This announcement and the Dignity plc investor website may contain certain
'forward-looking statements' with respect to Dignity plc ('the Company') and
the Group's financial condition, results of its operations and business, and
certain plans, strategy, objectives, goals and expectations with respect to
these items and the economies and markets in which the Group operates.

 

Forward-looking statements are sometimes, but not always, identified by their
use of a date in the future or such words as 'anticipates', 'aims', 'due',
'could', 'may', 'should', 'will', 'would', 'expects', 'believes', 'intends',
'plans', 'targets', 'goal' or 'estimates' or, in each case, their negative or
other variations or comparable terminology. Forward-looking statements are not
guarantees of future performance. By their very nature forward-looking
statements are inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on circumstances that
will occur in the future. Many of these assumptions, risks and uncertainties
relate to factors that are beyond the Group's ability to control or estimate
precisely. There are a number of such factors that could cause actual results
and developments to differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not limited to,
changes in the economies and markets in which the Group operates; changes in
the legal, regulatory and competition frameworks in which the Group operates;
changes in the markets from which the Group raises finance; the impact of
legal or other proceedings against or which affect the Group; changes in
accounting practices and interpretation of accounting standards under IFRS,
and changes in interest and exchange rates.

 

Any forward-looking statements made in this announcement or the Dignity plc
investor website, or made subsequently, which are attributable to the Company
or any other member of the Group, or persons acting on their behalf, are
expressly qualified in their entirety by the factors referred to above. Each
forward-looking statement speaks only as of the date it is made. Except as
required by its legal or statutory obligations, the Company does not intend to
update any forward-looking statements.

 

Nothing in this announcement or on the Dignity plc investor website should be
construed as a profit forecast or an invitation to deal in the securities of
the Company.

 

Other information

Dignity (2002) Limited (the holding company of those companies subject to the
securitisation) has today issued reports to the Rating Agencies (Fitch and
Standard & Poor's), the Security Trustee and the holders of the Secured
Notes issued in October 2014 in connection with the securitisation.

 

Copies of these reports are available at www.dignityfunerals.co.uk
(http://www.dignityfunerals.co.uk) /corporate.

 

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTEAEFPEAXAFAA