REG - Dignity PLC - Q3 Trading Update

DignityAnnouncement

08/11/2021 07:05

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RNS Number : 5606R  Dignity PLC  08 November 2021

 

 For immediate release  8 November 2021

 

Dignity plc

 

Third quarter trading update

 

Dignity plc (Dignity, the Company, or the Group), the UK's only listed
provider of funeral related services, provides the following trading update
for the 39 week period to 24 September 2021.

 

Summary

 

                                                39 week period ended 24 September 2021  39 week period ended 25 September 2020  Increase/ (decrease)

                                                                                        restated                                (per cent)

 
 Underlying revenue (£million)                  237.0                                   234.5                                   1

 Underlying operating profit (£million) ((1))   43.4                                    48.1                                    (10)

 Number of deaths                               483,000                                 498,000                                 (3)

 

Prior year adjustment

(1)    Underlying performance measures throughout this announcement for
September 2020 have been restated to reflect the application of IFRS 16,
Leases. This standard was adopted in 2020 using the modified retrospective
adoption which meant 2019 comparatives were not restated. As a result, the
Group chose to exclude it from its underlying performance measures reported in
2020 in order to retain comparability. Therefore, the underlying performance
measures reported above in both periods includes the application of IFRS 16.

 

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 2020 YTD restated ((1))  41.2      33.6        (26.7)             48.1
 Impact of:
 Number of deaths                                          (4.3)     (2.0)       -                  (6.3)
 Market share                                              (4.5)     (0.8)       -                  (5.3)
 Average revenues                                          8.7       3.3         -                  12.0
 Cost base changes                                         (2.3)     0.3         (3.1)              (5.1)

 
 Underlying operating profit - Q3 2021 YTD                 38.8      34.4        (29.8)             43.4

 

((1)      )(Restatement relates to the correction of the application of
IFRS 16 in September 2020)

 

Overview

As with the interim results announced on 21 September 2021, this third quarter
trading update is presented in a way consistent with the past. To reflect the
new strategy as presented at the AGM, we remain on course to change the way we
report at the year end.

 

Solid trading continued into the third quarter, with the death rate 10 per
cent ahead of quarter three 2020 but three per cent down for the year to
September 2021 versus the equivalent period in 2020. The elevated death rate
was the main driver of an increase in underlying profitability within
funerals, which reported an increase of £2 million for the third quarter
against the prior year (£7.2 million versus £5.2 million). We continued to
show a decline in market share in both funerals and crematoria.

 

There is considerable activity underway within the Group, as mentioned in the
interim results statement, impacting all aspects of our business. This is
driven by the strategic changes being made as well as preparing for and
complying with new and evolving regulations in our industry. This reporting
period includes a few weeks of trading with our new pricing, where we have
launched competitively priced funeral services in the UK to truly lower the
cost of dying for families, but it is still too early to judge and extrapolate
the overall effect. Our average revenue per funeral has fallen, and volumes
have risen as we expected, but coming as this does at a time of an elevated
death rate it is still not possible to apportion the element of that growth
that potentially could be attributed to market share, in part because the time
between death and funeral has moved in reaction to that volume rise.

 

The regional restructuring, in which we are organising our businesses into
smaller groups to devolve autonomy and the opportunity for decision making and
local developments, remains on track and continues as previously described. We
are mindful of the impact on our colleagues and potential uncertainty
throughout the business, and are therefore doing all we can to mitigate this
through increased communication and engagement with our colleagues. Our goal
is to complete the restructuring as quickly as we can without disrupting our
operations.

 

Number of deaths

                     2021     2020     Increase/ (decrease)
                                       (per cent)

 Quarter 1           204,000  161,000  27
 Quarter 2           136,000  207,000  (34)

 First half of year  340,000  368,000  (8)
 Quarter 3           143,000  130,000  10

 Year to date        483,000  498,000  (3)

 

Deaths were above the prior year in the first quarter with the second quarter
falling below the five-year average (2015-2019). The third quarter saw an
increase in deaths from the prior year and an increase above the five-year
average. The impact of COVID-19 deaths in 2020 and 2021 could possibly mean we
experience a lower number of deaths than originally anticipated by the Office
of National Statistics ('ONS') in 2022 and 2023. The Group will not speculate
on the most likely outcome.

 

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

 

Funerals

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

 
 Underlying operating profit - 2020 restated ((1))  19.1   16.9    5.2    41.2
 Impact of:
 Number of deaths                                   13.2   (21.4)  3.9    (4.3)
 Market share                                       (3.7)  0.8     (1.6)  (4.5)
 Average revenues                                   (5.4)  11.6    2.5    8.7
 Cost base changes                                  (1.0)  1.5     (2.8)  (2.3)

 
 Underlying operating profit - 2021                 22.2   9.4     7.2    38.8

 

((1)      Restatement relates to the correction of the application of
IFRS 16 in September 2020)

 

Funeral market share

In the first three quarters of 2021 the Group conducted 57,900 funerals
(September 2020: 61,700) 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 11.9 per cent (September
2020: 12.2 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
2020 and 2021 may not be comparable.

 

 

Funeral mix and underlying average income

                                                                                           FY       Q1       Q2       H1       Q3

                                          Funeral type                                     2020     2021     2021     2021     2021

                                                                                           Actual   Actual   Actual   Actual   Actual

 Underlying average revenue (£)           Full service                                     3,337    3,354    3,441    3,393    3,284
                                          Simple and direct cremation                      1,941    1,929    1,921    1,926    1,876
                                          Pre-need                                         1,911    1,943    1,955    1,948    1,980
                                          Other (including Simplicity)                     940      1,004    982      982      873

 Volume mix (%)                           Full service                                     39       41       46       43       49
                                          Simple and direct cremation                      25       21       17       20       14
                                          Pre-need                                         28       29       28       28       28
                                          Other (including Simplicity)                     8        9        9        9        9

 Underlying weighted average revenue (£)                                                   2,397    2,434    2,545    2,478    2,505
 Ancillary revenue (£)                                                                     125      131      168      150      187

 Underlying average revenue (£)                                                            2,522    2,565    2,713    2,628    2,692

 Full service volume as a percentage of full, simple and direct cremation (%)              61       66       73       68       78

 

As demonstrated in the table, overall average revenue in the third quarter of
2021 has decreased compared to the second quarter despite an increase in
clients selecting a full service rather than a simple or direct cremation.
Sales of ancillary items such as flowers and memorials have increased and are
starting to normalise at £187.

 

Crematoria

 

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

 
 Underlying operating profit - 2020 restated ((1))  10.8   13.6   9.2    33.6
 Impact of:
 Number of deaths                                   4.3    (7.5)  1.2    (2.0)
 Market share                                       (0.9)  0.5    (0.4)  (0.8)
 Average revenues                                   0.5    4.1    (1.3)  3.3
 Cost base changes                                  (0.1)  (0.1)  0.5    0.3

 
 Underlying operating profit - 2021                 14.6   10.6   9.2    34.4

 

((1)      Restatement relates to the correction of the application of
IFRS 16 in September 2020)

 

In the first three quarters of 2021, the Group conducted 54,900 cremations
(September 2020: 57,500), representing a market share of 11.4 per cent
(September 2020: 11.5 per cent).

 

Crematoria grounds have been fully open for all of 2021 compared to being
closed in quarter two of 2020, and consequently sales of memorials in our
crematoria grounds totalled £10.6 million (2020: £8.0 million),
approximately 33 per cent higher despite cremation volume being five per cent
lower. The third quarter movement on average revenue reflects the recouping of
memorial sales in the prior year as the crematoria grounds reopened.

 

 Central overheads                      Q1   Q2     Q3    Total

                                        £m   £m     £m    £m

 
 Total overheads - 2020 restated ((1))  8.5  10.0   8.2   26.7
 Impact of:
 Digital activities                     0.7  (0.1)  0.3   0.9
 IT support fees                        0.2  0.2    -     0.4
 Salaries                               -    (1.1)  1.8   0.7
 Other                                  0.3  0.3    0.5   1.1

 
 Total overheads - 2021                 9.7  9.3    10.8  29.8

 

 

Salaries have increased in quarter three compared to the prior year primarily
due to a performance bonus of £2.0 million. We have made this accrual for
bonuses, but they will be very dependent on trading in quarter four. Central
overheads are expected to reduce as part of the strategic review.

 

Pre-need operations

Active pre-arranged funeral plans (including insurance backed arrangements)
were approximately 582,000 at the end of September, compared to 580,000 at the
end of June 2021. This slow growth reflects the impact of ending our telephony
relationships as previously advised and the associated impact of the much
higher cancellation rate with those plans. We expect that effect to tail off
by the end of the year.

 

Pre-need regulation

Our work on preparing for the new FCA regulatory regime continues. We expect
to formally submit our application in November 2021. We have also reached an
initial agreement with the trustees of our funeral plan trusts on our proposal
to merge them into a new FCA compliant trust in time for the new regulations
taking effect in July 2022.

 

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. The ratio at September 2021 was
2.11 times (June 2021: 2.12 times). The Group therefore had EBITDA headroom of
approximately £21 million against its financial covenants at the end of
September 2021.

 

In addition, 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 at September 2021 was 1.72 times (June 2021: 1.74
times). These combined requirements are known as the Restricted Payment
Condition ('RPC'). In the interests of clarity, failure to pass the RPC would
not be a covenant breach and would not cause an acceleration of any debt
repayments. Furthermore, 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.

 

Cash balances

At the end of September 2021, the Trading Group held cash of approximately
£68 million, approximately £48 million of which was held by Dignity plc,
which is freely available for use as the Group sees fit.

 

Board update

We continue to seek the additional directors required to make us code
compliant by the time of the next Annual Report. The search for a permanent
CFO and Non-executive Director continues to progress and we will make further
announcements as and when appointments are made.

 

Outlook

We have been preparing for what might happen this winter so that we are ready
to serve society the way we have throughout the pandemic, which is with a
quiet and understated professionalism that masks the enormous and heroic
efforts that go on behind the scenes. The more I have learned the greater my
admiration and I hope one day we will get to share some of that. We do not
know what this winter will bring but we are determined that every family
trusting Dignity with their loved ones will be well served.

 

Quarter four is going to be important for us but is still hard to predict.
Some of the moving parts will become clearer and allow us to model the impact
of them on the Group's financial position. Given that uncertainty, we will
continue to refrain from giving guidance.

 

Gary Channon, Chief Executive, commented:

"There is a huge amount of positive change going on at Dignity as we position
ourselves to be a growing and thriving business that serves families for their
end-of-life needs. I am really pleased with the progress so far and the
general enthusiasm with which this is being tackled internally. We will have a
lot more to say at the year end and look forward to sharing an update then."

 

 

For further information please contact:

Gary Channon, Chief Executive

Dean Moore, Interim Chief Financial Officer

Dignity
plc
+44 (0)20 7466 5000

 

Richard Oldworth

Chris Lane

Tilly Abraham

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.

 

 

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