TIDMDTY
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 25
September Increase/
2020 (decrease)
39 week
period ended
24 September
2021 restated (per cent)
Underlying revenue (GBPmillion) 237.0 234.5 1
Underlying operating profit (GBPmillion)
(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.
Central
Funerals Crematoria overheads Group
GBPm GBPm GBPm GBPm
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 GBP2 million for the third quarter against the prior
year (GBP7.2 million versus GBP5.2 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
GBPm GBPm GBPm GBPm
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
(GBP) 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 (GBP) 2,397 2,434 2,545 2,478 2,505
Ancillary revenue (GBP) 125 131 168 150 187
Underlying average revenue (GBP) 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 GBP187.
Crematoria
Q1 Q2 Q3 Total
GBPm GBPm GBPm GBPm
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 GBP10.6 million (2020:
GBP8.0 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
GBPm GBPm GBPm GBPm
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 GBP2.0 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 GBP21 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 GBP68 million, approximately GBP48 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 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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