TIDMDTY
RNS Number : 5896E
Dignity PLC
09 November 2020
For immediate release 9 November 2020
Dignity plc
Third quarter update
Dignity plc (Dignity, the Company, or the Group), the UK's only
listed provider of funeral related services, provides the following
updates:
Summary
Increase/
(decrease)
39 week 39 week period
period ended ended 27
25 September September
2020 2019 (per cent)
Underlying revenue (GBPmillion) 234.5 225.4 4
Underlying operating profit (GBPmillion) 44.2 47.9 (8)
Number of deaths 498,000 432,000 15
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.
Central
Funerals Crematoria overheads Group
GBPm GBPm GBPm GBPm
Underlying operating profit
- Q3 2019 YTD 40.8 29.6 (22.5) 47.9
Impact of:
Number of deaths 20.1 6.9 - 27.0
Market share 4.7 1.4 - 6.1
Average incomes (25.2) (3.8) - (29.0)
Cost base changes (1.9) (1.6) (4.3) (7.8)
Underlying operating profit
- Q3 2020 YTD 38.5 32.5 (26.8) 44.2
Overview
2020 is proving to be a unique and challenging year, with the
impact of COVID-19 on our daily lives likely to continue for many
months to come. For people losing loved ones at this time, their
ability to grieve and to gain closure remains adversely impacted.
The Board is grateful for the constant dedication of our staff,
whichever role they perform in the business, as they respond
appropriately to each client they support, sometimes in extreme
circumstances.
Whilst COVID-19 features heavily in our planning into early
2021, inevitably leading to some delays, we have not lost sight of
the numerous other areas that demand our attention:
-- the root and branch strategic review will now continue
through to a conclusion in the second quarter of 2021;
-- the refocusing of the investment management strategy for the
pre-need trusts will conclude later this year;
-- the CMA market investigation Final Decision Report ('FDR') is
due no later than 27 March 2021; and
-- we are preparing for regulation of the pre-need funeral plan
industry by the Financial Conduct Authority ('FCA').
Strategic review
As the detailed, branch-by-branch review of every aspect of the
Group is conducted, two other lines of defence are designed to
support ongoing activities:
-- the first is already complete: the restructure of certain
operating assets to enable their profits to be included in our
securitisation covenants will develop additional EBITDA headroom,
of approximately GBP10 million, by the middle of 2021; and
-- secondly, we have identified operating efficiencies that when
completed, will serve to reduce our ongoing operating costs by in
excess of GBP8 million on an annualised basis, with all measures
implemented by the end of March 2021.
This additional covenant headroom will provide the platform upon
which the Group can execute its conclusions from the broader root
and branch review, realising further economic savings, creating a
combination of compelling propositions and price points and
introducing new ways of working, leveraged off the strength of its
existing resources. A key part of this will be further proposition
and pricing trials, which the Group expects to recommence later
this year. This detailed review will take time and has been delayed
to allow the business to focus its energies on addressing the
pandemic. Whilst an update will be provided at the Group's
preliminary results in March 2021, the full conclusions and detail
of the review will be launched at the Group's interim results in
July 2021.
Number of deaths
2020 2019 Increase/
(decrease)
(per
cent)
Quarter 1 161,000 159,000 1
Quarter 2 207,000 141,000 47
First half of year 368,000 300,000 23
Quarter 3 130,000 132,000 (2)
Year to date 498,000 432,000 15
Following the terrible impact of COVID-19 in the second quarter
this year, the number of deaths in the third quarter was broadly
flat on the prior year. The final quarter of 2019 witnessed 152,000
deaths and deaths in October were broadly flat on the prior year.
The Group will not speculate on the most likely outcome for the
remainder of the year, however it is possible that the tragic
events of 2020 may mean 2021 and 2022 could experience a lower
number of deaths than in 2019.
The impact of the environment the Group operates in differs 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
- 2019 18.4 12.1 10.3 40.8
Impact of:
Number of deaths 0.8 19.5 (0.2) 20.1
Market share 1.1 3.3 0.3 4.7
Average incomes (1.4) (17.6) (6.2) (25.2)
Cost base changes (1.4) (1.1) 0.6 (1.9)
Underlying operating profit
- 2020 17.5 16.2 4.8 38.5
Funeral market share
In the first three quarters of 2020 the Group conducted 61,700
funerals (September 2019: 52,100) 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 12.2 per cent (September 2019: 11.9 per
cent) of total estimated deaths in Great Britain. Year-on-year
growth in market share is primarily attributable to growth in
Simplicity and pre-arranged funeral plans. Market share of full,
simple and limited funerals was broadly flat year-on-year.
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.
Average funeral income
FY Q1 Q2 H1 Q3
Funeral type 2019 2020 2020 2020 2020
Actual Actual Actual* Actual* Actual
Underlying average revenue
(GBP) Full service 3,578 3,521 3,080 3,341 3,308
Simple and limited service 2,047 1,972 1,953 1,956 1,897
Pre-need 1,846 1,894 1,869 1,880 1,921
Other (including Simplicity) 770 888 992 987 811
Volume mix (%) Full service 52 50 26 37 40
Simple and limited service 14 14 37 26 25
Pre-need 27 29 28 28 27
Other (including Simplicity) 7 7 9 9 8
Underlying weighted average (GBP) 2,699 2,648 2,136 2,360 2,381
Ancillary revenue (GBP) 231 175 49 101 174
Underlying average revenue (GBP) 2,930 2,823 2,185 2,461 2,555
Full service volume as a percentage of full, simple and
limited (%) 79 78 41 59 62
Note: In the Group's interim results, other average revenue were
incorrectly quoted as GBP1,212 for Q2 2020 and GBP1,205 for H1
2020. The above table shows the correct amounts. The overall
underlying weighted average and underlying average revenue were
correctly stated.
Subsequent to the end of the quarter, October witnessed a full
service average of approximately GBP3,350, with 44 per cent of all
funerals being full service and the ratio of full service to full,
simple and limited increasing to 68 per cent. As a result, the
underlying weighted average for October was approximately GBP2,480
compared to GBP2,381 in the third quarter of 2020.
As a result of the crisis, the Group decided to temporarily
withdraw the provision of limousines in the interests of the
welfare of its staff and clients. Other choices such as church
services also stopped being possible during this time. Following
the installation of Perspex dividing screens, the Group's
limousines are now available to clients and as is well documented
in Government announcements, places of worship have now reopened.
Client choices and therefore average income are likely to vary more
by region in the coming months depending on the local restrictions
in place.
Crematoria
Q1 Q2 Q3 Total
GBPm GBPm GBPm GBPm
Underlying operating profit
- 2019 10.9 9.9 8.8 29.6
Impact of:
Number of deaths 0.4 7.0 (0.5) 6.9
Market share 0.3 0.6 0.5 1.4
Average incomes (0.7) (3.6) 0.5 (3.8)
Cost base changes (0.6) (0.5) (0.5) (1.6)
Underlying operating profit
- 2020 10.3 13.4 8.8 32.5
In the year to date, the Group conducted 57,500 cremations
(September 2019: 48,500), representing a market share of 11.5 per
cent (September 2019: 11.2 per cent). The increase in market share
can be attributed to direct cremations.
With crematoria grounds being allowed to fully reopen, the Group
has seen approximately 50 per cent of the GBP3 million memorial
sales that it would have anticipated making in the second quarter
being recouped in the third quarter, beyond usual levels of
activity.
Central overheads
Q1 Q2 Q3 Total
GBPm GBPm GBPm GBPm
Total overheads - 2019 7.6 7.0 7.9 22.5
Impact of:
Digital activities 0.4 0.6 0.2 1.2
Salaries 0.6 2.1 0.4 3.1
Other (0.2) 0.3 (0.1) -
Total overheads - 2020 8.4 10.0 8.4 26.8
Central overheads are expected to reduce as part of the
strategic review.
Pre-need operations
The Group remains optimistic on its ability to grow its
pre-arranged funeral plan business. Active pre-arranged funeral
plans (including insurance backed arrangements) were approximately
550,000 at the end of September, compared to 537,000 at the end of
June 2020. This reflects sales activity improving in the third
quarter and at a level higher than the equivalent prior year
period.
The pre-need trustees are actively reviewing the investment
strategy of the pre-need trusts, focused on providing the Group
with greater certainty over amounts to be paid when funerals are
performed in a rolling five year period (by retaining cash or high
grade bonds to cover these liabilities), together with implementing
an overall investment strategy with lower aggregate fund management
and execution costs. These changes to the investment strategy are
expected to be implemented before the end of the year, which will
materially reduce the overall costs of managing the trusts'
investments, enhancing the capacity for future revenue growth.
Pre-need regulation
Earlier in the year, HM Treasury indicated that as a result of
COVID-19, the government now intends that the secondary legislation
bringing funeral plan firms within the remit of the FCA will be
laid before parliament in the fourth quarter of 2020 and that this
date will be kept under review. The intention is for the FCA
regulatory framework to come fully into force 18 months after the
legislation is made.
The Group welcomes FCA regulation of the sector and is planning
for regulation to be effective by the middle of 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 2020 was 2.03 times (June 2020: 2.15 times). The
Group therefore had EBITDA headroom of approximately GBP18 million
against its financial covenants at the end of September 2020.
In addition, in order for the Group to transfer excess 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 2020 was 1.63 times (June 2020: 1.72 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.
On 31 July 2020, Standard & Poor's lowered their rating of
the Group's Class B Secured Notes from BB- to B+. This change of
rating has no impact on the day-to-day operations of the Secured
Notes.
Revolving Credit Facility
The Group's GBP10 million revolving credit facility remains
undrawn and is available until July 2021, with the option to renew,
subject to the bank's consent at the time, by a further year.
Cash balances
At the end of September 2020, the Trading Group held cash of
approximately GBP64 million, approximately GBP51 million of which
was held by Dignity plc, which is freely available for use as the
Group sees fit. As the Group has paused the Transformation Plan,
dividends and crematoria developments, use of this balance is
expected to be limited. Alongside this, the Group continues to plan
to preserve operating cash generated through the management of its
cost base. Therefore, given the Group had already taken the
decision to temporarily suspend dividend payments, in practical
terms, failure of the RPC would not have a material impact on the
day-to-day operation of the Group.
CMA
On 13 August 2020, the CMA released the Provisional Decision
Report ('PDR') for its funeral market investigation, with final
responses due before 30 October 2020 and a timetable that should
see the Final Decision Report ('FDR') issued well before the final
deadline of 27 March 2021.
Consistent with its collaborative approach throughout the
investigation, the Group has responded to the PDR comprehensively
in writing and also attended a CMA Remedies Hearing. Dignity
welcomes the CMA's provisional decision that price control remedies
would not be reasonable and practicable in the short to medium term
and is pleased that the CMA support Dignity's view on the need for
quality regulation alongside information and transparency remedies.
The Group believes the latter are necessary to provide any consumer
with an acceptable level of quality and should apply to all market
participants.
As part of the CMA market investigation, Dignity commissioned
Cushman & Wakefield in May 2019 to undertake an independent
valuation of the 41 freehold or long-leasehold crematoria
properties within the Dignity portfolio. The five crematoria owned
by local authorities but managed and operated by Dignity were
excluded from the valuation report. The rationale for commissioning
this one-off report was to assist the CMA in its market
investigation by providing information as to the Direct Replacement
Cost of each of crematoria owned by Dignity as well as providing an
estimate as the Cost of Replacement of the Land or an alternative
land use valuation.
The independent valuation was commissioned specifically to
assist with the CMA's market investigation informed by this
approach applied in previous market investigations. As such it is
subject to certain limitations and based on a number of
conservative assumptions (which are detailed as an appendix to this
announcement). Strictly subject to the foregoing, Cushman &
Wakefield have estimated that the replacement costs for the land
and buildings at these 41 crematoria to be in the region of GBP461
million. The report also estimates that the alternative use land
valuation at these 41 sites is approximately GBP374 million. This
compares to a net book value of approximately GBP44 million at the
time of the report in September 2019.
Board update
The Group has deferred its search for a new Chief Executive
Officer to align with the learning's from both our strategic review
and the CMA investigation in July 2021. In the interim Clive
Whiley, who has extensive change management experience, will
continue as Executive Chairman working closely with the existing
executive management team.
Outlook
The Group, alongside the rest of the industry, continues to work
closely with the cabinet office to navigate a safe course through
the pandemic. Given the continuing uncertainties facing the
business, and consistent with its position at the time of its
Interim Results, the Group is not providing guidance on 2020 and
beyond. The Group remains focused upon the strategic review in
order to develop a sustainable growth plan for the business,
leaving it ready to respond to whatever challenges are presented by
its markets and other external factors.
Clive Whiley, Executive Chairman of Dignity, commented:
"I am pleased with the progress Dignity has made in my first
year as Chairman. During that time, we have played a crucial role
in the country's fight against COVID-19, whilst simultaneously
challenging ourselves to do things better, collaborate
constructively in the CMA's market investigation, deal with
continued fierce competition and finally start the work that will
see our long held call for pre-need regulation become a
reality.
We still have a long way to go and the strategic review will
take time to ensure we are prepared for every eventuality.
Ultimately it will take a combination of the serious pricing and
product trials, alongside competitor reactions and the CMA final
outcome, to define a strategy that harnesses the full capacity and
bandwidth of our business, where we remain determined to grow
market share without further dilution for shareholders."
For further information please contact:
Clive Whiley, Executive Chairman
Steve Whittern, Finance Director
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 .
Appendix: assumptions supporting Cushman & Wakefield
valuation
Basis of preparation
The independent valuation to assist with the market
investigation is subject to the terms of engagement agreed and
entered into between Dignity and Cushman & Wakefield dated 31
May 2019.
The net book value disclosed in this announcement was not
provided by Cushman & Wakefield.
Cushman & Wakefield expressly disclaims any reliance, duty
or responsibility to any other party than Dignity in respect of the
whole or any part of the independent valuation commissioned.
Establishing the Cost of Replacing the Land
Identified what planning consent would likely be achieved,
disregarding the existing use where appropriate and then valued
based upon planning guidance received.
Where a site has been identified as having residential
development potential we have reviewed the relevant local plans and
have provided guidance on likely densities, affordable housing
ratios and potential local authority tariffs (Community
Infrastructure Levy and Section 106 contributions). We have then
created a bespoke development appraisal which essentially focuses
on the potential value of the completed development and the costs
associated with completing the development, in order to establish
the residual value of the land. All of the development appraisals
and resulting residual values have been reviewed by Partners within
the C&W residential valuation team.
Where a site has been identified as having limited development
potential due to being located within the Green Belt or comprising
protected open / amenity space within the local plan we have
referred to comparable transactions of agricultural land or sales
of amenity land in order to establish the potential value.
We are aware that when a vendor becomes aware that crematorium
operators are interested in acquiring land, they will often seek to
achieve a premium ahead of the Market Value. It should be noted
that we have not applied a crematorium premium when pricing land
based upon agricultural, commercial or residential
transactions.
Cost of Replacing the Existing Buildings
All of the Properties were inspected and a desktop measurement
exercise was completed to establish the floor areas for all
buildings situated on the respective sites.
Having established the floor areas, reference was made to the
BCIS mean rate for the principal buildings on each site, namely:
crematoriums, chapels and administration buildings. The BCIS mean
rate is effectively an average cost to replace the respective
building and is provided on a per square foot basis. BCIS is an
industry wide accepted database and the costs detailed are based
upon average contract data sourced by BCIS.
In addition to establishing the cost to re-construct the
building an allowance has been made for demolition costs and
external works, including: hard landscaping in the form of roads,
footpaths, fencing, gates and car parking.
Once the cost to replace a modern equivalent building has been
established this is depreciated to reflect the age of the existing
building and in particular, physical deterioration, functional
obsolescence and economic obsolescence. In order to make this
adjustment we have estimated the remaining economic life of the
asset and adopted a straight-line approach deducting the same
amount for depreciation for each year of the estimated life. This
approach is in accordance with RICS Professional Guidance Note:
Depreciated replacement cost method of valuation for financial
reporting 1st edition, November 2018.
All of the costs incorporated are exclusive of VAT.
Excluded items
It should be noted that in estimating the cost to replace the
building we have not included the following items:
-- Plant and Machinery - In particular the cost associated with replacing the cremators.
-- Fixtures and fittings - Including but not limited internal
fitout, audio visual equipment and security systems.
-- Costs associated with installing utilities and services at
the property - For example drainage, gas, electricity and
sewage.
-- Landscaping works to replace memorial gardens etc.
-- In addition to the above our calculations do not include the
costs associated with securing planning consent or other
professional / legal fees.
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 or visit 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.
END
TSTUWAKRRVUARAA
(END) Dow Jones Newswires
November 09, 2020 02:00 ET (07:00 GMT)
Dignity (LSE:DTY)
Historical Stock Chart
From Apr 2024 to May 2024
Dignity (LSE:DTY)
Historical Stock Chart
From May 2023 to May 2024