DTY.L Regulatory News (DTY)

Dignity plc

('Dignity' or 'the Group')

Pre-close Trading Update and Market Positioning

Dignity, the UK's only listed provider of funeral related services, confirms that its results for the period ended 29 December 2017 will be in line with market expectations. Its preliminary results will be published on 14 March 2018.

While the pre-arranged and crematoria businesses are performing strongly with no change to the Board's expectations for these businesses, the Board is keen to address the continuing acceleration of price competition facing its funeral business. The Board is therefore taking decisive action on its funeral pricing strategy with a view to protecting market share and repositioning the Group for future growth. Consequently, the Board believes that the results for the period ending 28 December 2018 will be substantially below the market's current expectations.

Effective immediately, the Group's simple funeral will be reduced by an average of approximately 25 per cent and there will also be a price freeze for the Group's traditional funerals in the majority of the Group's locations. Consequently, the Group is now embarking on a rigorous review to ensure that its funeral operations are organised to run more efficiently and effectively.

The Group remains committed to being recognised as the best-quality service provider in the market place. It prides itself on its excellent customer service results and this will continue to be a strategic priority. Its strong investment over the years means that it is well positioned to provide the best quality service at whatever price point and market segment it chooses.

In meeting the challenges of an increasingly competitive market place, the Group will continue to build on the strong strategic initiatives it has been developing, in particular, its digital marketing and brand strategies. There are tremendous opportunities to lead the industry in digital marketing and to leverage the Group's scale to develop national recognition online to complement its existing national network. Dignity will also continue to lead calls for greater regulation of the funeral sector while continuing to set the standard for what constitutes best practice in the industry.

Background

The changing market

Over the last 18 months the Group has consistently alerted the investment community to the increasingly competitive environment in which it operates. Customers are increasingly price-conscious and in an over-supplied industry, are shopping around more. This continues to have an increasing impact on the Group's market share, with a significant reduction in the average number of funerals per location noted since 2015. The average reduction in the number of funerals per location per one thousand deaths between 2004 and 2014 was 3.6 per cent. This accelerated to 6.8 per cent per year between 2015 and 2017. The Group assumes that this will continue into 2018, with the revised pricing strategy and the promotional activity reducing the rate of decline as the year progresses.

Pricing strategy

Initial reported deaths for 2017 were 590,000 and the Group conducted 68,800 funerals. Approximately 60 per cent were represented by traditional full service funerals at an average income of £3,800; seven per cent were simple funerals at an average income of £2,700; and approximately 27 per cent had been pre-arranged and the Group received an average income of £1,650. The remainder of the Group's volumes were contract and other low value funerals with an average income of £500. In each case, these amounts exclude disbursements. In addition, the division generates ancillary revenues equating to approximately £280 per funeral which are not expected to change materially.

Effective immediately, the Group's simple funeral will be reduced to £1,995 (plus disbursements) in England and Wales and £1,695 (plus disbursements) in Scotland. As a result of reducing the simple funeral price and other initiatives to be introduced during the year, it is likely that the mix will change. The Group currently anticipates that as a result of changes to the pricing strategy, simple funerals may represent approximately 20 per cent of all funerals performed in 2018. However, this is an estimate and the precise mix will become clear during the year and be a key element in what will be an evolving pricing strategy. The Office for National Statistics anticipates approximately 580,000 deaths in 2018.

In order to promote the new prices and the business generally, the Group expects to spend an additional £2 million in 2018 on digital and other promotional activities, building on the work started in 2017.

Opportunities

In a fragmented and increasingly online marketplace the Group has a tremendous opportunity to leverage its existing physical national funeral and crematorium networks and create a powerful national digital presence in both its traditional premium service market and also other emerging market segments. The first example of this was Simplicity Cremations, launched in November 2016 and currently averaging a run rate of 1,000 direct cremations per year.

The Group continues to view selective acquisitions of well-established funeral businesses as an appropriate use of capital despite the changing market. The Group will also continue to develop its network of crematoria.

Industry Leadership

As a leader within its industry the Group has continued to call for regulation. To this end in 2017 independent consumer group Fairer Finance, in partnership with the Group, published a report looking at whether the funeral planning market works well for the consumer. Dignity also firmly believes that the funeral industry will benefit from proper regulation to ensure that customers are not misled into accepting below-par service and standards. The Group continues to engage Government and other stakeholders in calling for higher standards.

Outlook

The business model for the Group's funeral business is changing as the Board focuses on protecting market share by introducing new service offers and price points. The Board believes that the combination of ongoing albeit slightly reduced volume erosion; the freeze in the traditional funeral pricing; the reduction in the simple funeral price; the likely change in mix; the increasing proportion of funerals that have been pre-arranged and increased promotional expense, will lead to substantially lower profits in 2018.

The new balance between volumes and margins will take time to become clear and the Group expects to provide an initial update on these estimates and its progress when it releases its interim results in August 2018.

Ends

Market Abuse Regulation

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

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Notes

A conference call for analysts and investors will be held at 8.30am this morning. Dial in details may be obtained from Buchanan Communications. A recording of the call will be published on the Group's investor website http://www.dignityfuneralsplc.co.uk later today.

A simple funeral provides an attended funeral with limited service elements. In particular, a specified basic coffin is provided and the service takes place at a date and time of the Group's choosing. Simple funerals are a long-established means of providing an economic service to clients requiring it.