TIDMDTY
RNS Number : 0073L
Dignity PLC
11 May 2022
For immediate release 11 May 2022
Dignity plc
First quarter trading update
Dignity plc (Dignity, the Company or the Group), the only
end-of-life provider in the UK that is uniquely positioned to
provide all the required elements of a funeral service , provides
the following updates:
Summary
13 week
period
13 week ended
period ended 26 March
1 April 2021 Decrease
2022 restated (per cent)
Underlying revenue (GBPmillion) 73.9 94.7 22
Underlying operating profit (GBPmillion)
(1) 9.0 27.1 67
Number of deaths 166,000 204,000 19
(1) Underlying performance measures throughout this announcement
for the 13 week period ended 26 March 2021 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. The decision to
include IFRS 16 in the underlying numbers for 2021 was taken after
the 2021 first quarter trading update. Therefore, the underlying
performance measures reported above in both periods now 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 IFRS, APMs are necessary
to enable users of the financial statements to fully understand the
trading performance and financial position of the Group. The APMs
provided are aligned with those used in the day-to-day management
of the Group and allow for greater comparability across
periods.
Financial summary
Whilst the impact of the pandemic has made year-on-year
comparisons difficult, the early signs of our new strategy are
coming through. Increased competitiveness is showing up in
across-the-board growth in market share at the cost of average
revenue per funeral. The combined effect of the drop in the death
rate following the pandemic during a time of strategic change for
the Group is what we were protecting against when we sought and
agreed the deal with our bondholders. That gives us the ability to
pursue the right long-term strategy whatever happens to the death
rate this year. It also gives us the time to agree a more long-term
solution for the capital structure which we are currently working
on. As we said in the Annual Report competitiveness is just one of
the aspects of our best proposition strategy and progress is being
made on all the others.
Operating performance in the first quarter was weak due to the
lower number of deaths than the corresponding period last year and
lower average revenues per funeral following the move to more
competitive pricing in September 2021. Both funeral market share
and crematoria market share grew strongly as the new strategy
started to deliver the growth on which it depends. Underlying
operating profit by division is summarised in the table below:
Pre-arranged
funeral Central
Funerals Crematoria plans overheads Group
GBPm GBPm GBPm GBPm GBPm
Underlying operating profit
- Q1 2021 - restated (1) 22.2 14.6 - (9.7) 27.1
Impact of:
Number of deaths(2) (10.8) (3.7) - - (14.5)
Market share(2) 4.5 2.2 - - 6.7
Average revenues(2) (6.6) (0.8) - - (7.4)
Pre-arranged funeral plan
revenue - - (5.5) - (5.5)
Net cost base changes (1.5) (0.9) 4.7 0.3 2.6
Underlying operating
profit - Q1 2022 7.8 11.4 (0.8) (9.4) 9.0
(1) Restatement relates to the correction of the application of
IFRS 16 in March 2021.
(2) Represents revenue impact
Number of deaths
The absolute number of deaths decreased by approximately 19 per
cent to 166,000 from 204,000 in the comparative period last year as
a result of COVID-19. The first quarter of 2022 has seen UK deaths
being slightly below the five year average (excluding 2020 and
2021).
Funeral operations
Funeral market share
The Group performed 21,200 funerals in the first 13 weeks of the
year (Q1 2021: 23,800) 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 12.7 per cent (Q1 2021: 11.5 per cent) of total
estimated deaths in Great Britain. The year-on-year growth in
market share is attributable to an increase in the Attended
Funeral, the Unattended Funeral and the Pre-need Funeral.
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,
calculations of market share, particularly over shorter periods,
may not be comparable.
Funeral mix and average revenue
FY Q1 Q4 Q1
2021 2021 2021 2022
Funeral type Actual Actual Actual Actua l
Restated(1)
Underlying average revenue
(GBP) Attended 2,855 2,903 2,465 2,486
Unattended 1,063 1,010 1,060 1,044
Pre-need 1,959 1,943 1,965 1,950
Other (including Simplicity and 3(rd)
party direct cremations) 904 1,004 790 608
Volume mix (%) Attended 61 61 61 58
Unattended 3 1 6 8
Pre-need 28 29 27 28
Other (including Simplicity and 3(rd)
party direct cremations) 8 9 6 6
Underlying weighted average (GBP) 2,394 2,434 2,145 2,108
Ancillary revenue (GBP) 154 131 135 165
Underlying average revenue (GBP) 2,548 2,565 2,280 2,273
(1) In September 2021, funeral services introduced an Attended
Funeral at prices from GBP1,595 to GBP2,495 (excludes extras)
across the network and implemented the Unattended Funeral (direct
cremation), and the simple funeral was removed (apart from our
location in Jersey). As such, the historical full service average
and the simple and direct cremation average are no longer
comparable. In order to have comparability the full-service and the
simple averages have been blended to give a new Attended average
and the direct cremation, previously included as simple and direct
cremation, has been restated to Unattended to make both
comparable.
The new pricing strategy was introduced in early September 2021
and as expected it has caused a decline in our underlying average
revenue per funeral compared to prior years. We have also started
to perform direct cremations on behalf of third parties, which has
resulted in a reduction in the average revenue for the category
called "other". Sales of ancillary items such as flowers and
memorials continue to improve.
Crematoria operations
The Group conducted 20,800 cremations in the first 13 weeks of
the year (Q1 2021: 22,600). While volumes are lower, this reflects
the backdrop of a much-reduced death rate compared to Q1 2021 and
so market share has increased significantly to 12.6 per cent (Q1
2021 11.1 per cent). The year-on-year growth in market share is
attributable to increases in full fee service and direct
cremations. As explained above, the increase in the time between
registering the death and the funeral taking place could impact on
the comparability of the market share calculation.
Pre-need operations
Dignity remains focused on selling high-quality funeral plans,
in ways consistent with the strong reputation of the Group and the
high standards expected by our customers. During 2021, w e ended
our relationship with those third-party telephony partners who sold
plans on our behalf. We are focused on being ready for the FCA
regulation by 29 July 2022.
As a result of the above, sales of pre-arranged funeral plans
were low in the first quarter, resulting in active pre-arranged
funeral plans of 584,000 compared to 581,000 at December 2021 and
571,000 at the end of March 2021. The Group can claim a marketing
allowance from the trusts, for plans sold in the period (up to a
maximum amount per plan sold), which historically resulted in a
profit in the pre-need division. In 2019, the Group decided to
restrict the marketing allowance from the trusts to only recover
the costs incurred in the selling of the funeral plans and
therefore, the pre-need division has not contributed any profit or
loss since 2019. However, as plan sales were low in the first
quarter of 2022, the Group has not been able to recover all of the
costs incurred in the selling of those funeral plans including
GBP0.5 million of costs associated with the FCA regulation (Q1
2021: GBP0.1 million) and therefore the underlying operating loss
was GBP0.8 million (Q1 2021: GBPnil).
We expect the sales of pre-arranged funeral plans to increase
during the second half of 2022 and full recovery of costs incurred
in the selling of funerals plans to be recovered from the
trust.
Central overheads
Total
GBPm
Total overheads - Q1 2021 9.7
Impact of:
Digital activities (0.2)
Other (0.1)
Total overheads - Q1 2022 9.4
Central overheads are expected to reduce further as part of the
strategic review. In January 2022, we closed a number of central
departments to ensure our central support services are structured
in a way that delivers our strategic aims and ambitions. As a
consequence, we had to make the difficult decision to make a number
of colleagues redundant. We have also suspended some of our
marketing and digital activities as we review our business. The
full effect of these changes will show as the year goes on.
Capital structure
In February 2022, we sought and were granted in March 2022 a
waiver on the application of the covenants on our bonds for 12
months. We took this prudent measure to mitigate the uncertainty
and potential for a drop in the death rate following the
pandemic.
This waiver allows for an equity cure by Dignity plc should
there be a shortfall in EBITDA of the Securitisation Group at any
covenant measurement point up to and including 31 December 2022.
Any cash transferred into the Securitisation Group during this
period is included within the EBITDA for the purpose of calculating
the EBITDA to debt service cover ratio for the following 12
months.
It is still our intention to address the capital structure most
likely by use of the crematoria portfolio without undermining the
integrated nature of the Group. We will make further announcements
on this in due course.
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 March 2022 was 1.61 times (March 2021: 2.28 times;
December 2021: 2.13 times). As such, the Group had EBITDA headroom
of approximately GBP3.7 million against its financial covenant at
the end of March 2022 and no equity cure is required.
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 at March 2022 was 1.24 times (March 2021: 1.88 times;
December 2021: 1.76 times). These combined requirements are known
as the Restricted Payment Condition ('RPC'). Given the ratios
achieved, the RPC was not achieved at March 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. These
covenant calculations use a prescribed definition of EBITDA
detailed in the loan documentation and only represents the profit
of a sub group of the Group which is party to the loans (the
'securitisation group').
Cash balances
At the end of March 2022, the Group held cash of approximately
GBP50 million, approximately GBP41 million of which was held by
Dignity plc, which is freely available for use as the Group sees
fit.
Safe Hands funeral plans goes into administration
FCA regulation of the funeral plan market will be introduced
from 29th July 2022. Dignity strongly welcomes this regulation, but
we recognise there may be some short-term impact on customers of
other funeral plan providers and potentially their loved ones.
A number of plan providers are likely to leave the market as
they are unwilling or unable to seek regulatory approval and are
unable to transfer their plans to another provider. This will put
their customers at risk if action is not taken.
In February 2022, Dignity announced its pledge to offer rescue
options to funeral plan providers exiting the market, with a
commitment to ensuring that no family or person goes without a
funeral due to the transition impacts of the new regulation.
Safe Hands, a medium sized funeral plan provider in the sector,
has since entered administration. Dignity plc took immediate action
by fulfilling funeral plans for families that require a funeral in
the four weeks from Safe Hands entering administration without
charge.
Dignity has also now set out an interim plan to provide funeral
cover for Safe Hands customers for the next six months if they pass
away. This would be at no cost to the family (excluding additional
requests). We are also working with the administrators to develop a
longer term solution for customers of Safe Hands, which could
include offering customers the option of switching to a new Dignity
funeral plan.
We continue to work with the regulator and wider industry to
mitigate other risks that may emerge within the sector.
Board update
As previously announced, Andrew Judd stood down from the Board
on 1 April 2022. The composition and structure of the Board is
currently being reviewed and further announcements will be made in
due course.
Outlook
COVID-19 has continued to have a distorting impact on the
business both in terms of operations and the financial results. The
death rate in the UK was significantly higher in the corresponding
Q1 period during 2021, making comparisons to previous years
difficult. A number of difficult operational changes were
implemented in January 2022, including closure/reduction in the
size of key central departments, with a view to reset and
restructure in line with our new strategy. We are likely to see
significant long-term cost savings as a result, however the impact
of these changes will take time to manifest in our overall
financial position.
As previously indicated, a fuller Group strategy and performance
update will be presented at the time of the Group's AGM on 9 June
2022, which investors are encouraged to attend. Shareholders should
also refer to the 2021 Annual Report and Accounts for an outline of
our new strategy and financial performance over the past year.
Gary Channon, Chief Executive of Dignity, commented:
" Whilst the impact of the pandemic has made year-on-year
comparisons difficult, the early signs of our new strategy are
coming through. Increased competitiveness is showing up in
across-the-board growth in market share at the cost of average
revenue per funeral. The combined effect of the drop in the death
rate following the pandemic during a time of strategic change for
the Group is what we were protecting against when we sought and
agreed the deal with our bondholders. That gives us the ability to
pursue the right long-term strategy whatever happens to the death
rate this year. It also gives us the time to agree a more long-term
solution for the capital structure which we are currently working
on. As we said in the Annual Report competitiveness is just one of
the aspects of our best proposition strategy and progress is being
made on all the others.
At this year's AGM, we intend to provide a comprehensive outline
of our strategy design and an update on execution therefore I
invite and encourage our investors to attend. There will be an
opportunity to hear from executives and departments that are
delivering vital aspects of our new strategy and to ask questions.
I know most AGMs are short, formal and not greatly informative
affairs but we aim to put on the sort of AGM that I would like to
attend if I was a shareholder.
Once again, I would like to thank our colleagues for their
continued dedication and hard work delivering a caring,
compassionate and high-quality service to families and
communities."
For further information please contact:
Gary Channon, Chief Executive
Dean Moore, Interim Chief Financial Officer
Dignity plc +44 (0)20 7466 5000
Chris Lane
Tilly Abraham
Verity Parker
Buchanan +44 (0)20 7466 5000
www.buchanan.uk.com 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
https://www.dignityplc.co.uk/investors/ .
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