Tuesday 23 October 2018

Dignity shares jump 6% as funeral firm announces £50 million turnaround plan

It also reported better than expected earnings in the first half of the financial year.

Dignity has unveiled a new strategy (PA)
Dignity has unveiled a new strategy (PA)

By Kalyeena Makortoff, Press Association Chief City Correspondent

Dignity shares jumped nearly 6% as the funeral provider announced a £50 million turnaround plan after logging better than expected earnings on the back of a rise in deaths.

The company reported a 3% rise in revenue to £174.7 million over the 26 weeks to June 29, and while underlying operating profit fell 5% to £56.4 million – which was higher than forecasts for £52.5 million.

Pre-tax profits were down 15% at £38.5 million.

Dignity said the drop in underlying operating profit was due to its 25% cut to the price tag for simple funerals – made to match the Co-op’s price drop – as well as a fall in profitability of its pre-arranged funeral plan business.

But it benefited from a higher than expected number of deaths which reached 324,000 over the period, while highlighting a solid performance from its crematoriums and an increase in funeral market share which grew to 12.1% from 11.8% a year earlier – excluding Northern Ireland.

Chief executive Mike McCollum said he was “pleased with the strong and better than originally expected financial performance in the first half of this year.”

The group has now announced the launch of a three-year turnaround plan that will see Dignity invest around £50 million in the business, £17 million of which will come from property disposals.

The programme is expected to deliver £8 million in annual savings by 2021.

Mr McCollum said: “Strong cash generation will support planned investments and costs which form part of our plan for the funeral business.

“Our focus remains on building a new lower cost model in our funeral business which will provide more competitive prices and a superior, future ready proposition. We have made good progress, but it is still early days.

“We have completed our operating review which has yielded a three-part transformation plan while our trials continue to yield valuable information.

“We are confident that the changes will position Dignity for long-term, sustainable and profitable growth while maintaining the highest possible standards of client service.”

It plans to embark on a marketing drive to increase its national Dignity and Simplicity brands, and said it would be investing in technology, fewer service locations and improving efficiency.

Lower performing locations and those that are too close together will likely be shuttered, and mobile staff will be introduced to extend its coverage to areas where traditional funeral branches are not financially viable.

The company said job cuts would be necessary in the funeral division but said it would amount to an “overall modest reduction in staff,” most of which will be manged through natural turnover where possible.

Dignity shares rose nearly 6% on the news.

There’s clearly a lot to absorb – our initial view is that the actions being taken should stabilise the business. Peel Hunt analysts

However, analysts at Peel Hunt led by Charles Hall said the turnaround plan “looks a poor return on the level of investment so we need to understand the details better.”

He added: “There’s clearly a lot to absorb – our initial view is that the actions being taken should stabilise the business.

“The company aims to deliver single digit growth in profits from the new lower base, however there still remains a number of uncertainties with the CMA (Competition and Markets Authority) and Treasury reviews, potential competitor reaction and share risks as the streamlining programme takes place.”

The CMA is currently conducting an investigation into whether funeral directors have been providing clear pricing and services information and is also probing rising fees for cremations.

The Treasury is separately proposing that pre-paid funeral plan providers come under the regulation of the Financial Conduct Authority (FCA).

It comes amid evidence showing elderly people are being “pressured, harassed and misled” by some operators.

Press Association

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