TIDMDTY
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
39 week period
period ended ended 24
30 September September Decrease
2022 2021 per cent
Underlying revenue (GBPmillion) 204.7 237.0 14
Underlying operating profit (GBPmillion) 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.
Central
Funerals Crematoria overheads Group
GBPm GBPm GBPm GBPm
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
GBPm GBPm GBPm GBPm
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 GBP4.4 million year to date compared to a
reduction of GBP10.8 million in the first quarter.
Total cost base changes include a GBP1.7 million impact from the
loss of rates relief, increases in salary costs of GBP3.2 million,
bad debts of GBP2.2 million, coffin raw material costs of GBP0.7
million, utility costs of GBP0.7 million, depreciation cost of
GBP0.6 million and fuel cost of GBP0.5 million. Accordingly, the
cost to deliver a funeral has increased to GBP1,925 as an LTM at 30
September 2022 (September 2021 LTM: GBP1,858).
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 (GBP) 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 (GBP) 2,394 2,108 2,093 2,115 2,095
Ancillary revenue (GBP) 154 165 174 155 166
Underlying average revenue (GBP) 2,548 2,273 2,267 2,270 2,261
The average revenue for funerals has decreased from GBP2,505 (Q3
2021) to GBP2,095 (Q3 2022), (excluding the funerals delivered as
part of our Safe Hands rescue support the average in Q3 2022 was
GBP2,141 and GBP2,129 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
GBP36,497 as an LTM at 30 September 2022 (September 2021 LTM:
GBP78,571).
Crematoria
Q1 Q2 Q3 Total
GBPm GBPm GBPm GBPm
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 GBP863 (September 2021: GBP891) which
reflects an increase in the percentage of direct cremations being
performed. Yield per crematoria has decreased to GBP1,050,000 as an
LTM at 30 September 2022 (September 2021 LTM: GBP1,078,261) and
average ancillary revenue (excluding cemetery sales) per cremation
has decreased to GBP169 (September 2021: GBP189).
Central overheads Q1 Q2 Q3 Total
GBPm GBPm GBPm GBPm
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 GBP3.0 million (Q3
2021: GBP2.0 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. GBP15.1 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 GBP29 million, approximately GBP21 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 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 /corporate .
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