Having seen bouts of ghoulish interest in recent weeks amid the spread of the coronavirus, shares in Dignity (DTY) dropped 19% to 405p on Wednesday after the embattled funeral services firm warned average income per funeral and cremation are likely to reduce further due to increased competition.

Temporarily suspending the dividend with annual results showing profits and cash generation under pressure, Dignity also cautioned that the Competition and Markets Authority’s (CMA) funeral and crematoria sector probe ‘could materially impact our plans’.

PROFITS DOWN AS DEATH RATE DROPS

Results for the year ended 27 December 2019 revealed a 31% drop in underlying pre-tax profit to £37.7m on sales down 5% to £301.3m as the number of deaths came in lower than expected at the start of the year and Dignity also experienced downwards pressure on funeral and cremation pricing.

Given the industry’s uncertain future and with cash generated from operations declining by 38% to £64.6m last year, the erstwhile capital returns star suspended the final dividend, having previously passed on the half-year payout.

INDUSTRY IN FLUX

New chairman Clive Whiley commented: ‘2019 witnessed a year of unprecedented change in the funeral industry. Whilst we were pleased with the progress we made and the financial performance we delivered in light of the competitive environment, we need to be cautious in the coming months until the CMA’s conclusions are finalised.’

Dignity is in the formative stages of a radical overhaul, yet Whiley warned the CMA investigation and report ‘could materially impact the industry and the size and shape of our business. We are therefore for now, delaying key aspects of our Transformation Plan.’

Due by the end of September 2020, the CMA report combined with the Treasury’s determination to regulate pre-arranged funerals means that ‘the next year or so will be even more challenging’, according to Whiley.

The positive news is Dignity is engaging with the CMA and sees regulation of the industry as a long-term positive for the group. The regulator’s work in the sector provides ‘an unparalleled opportunity to improve standards and protect consumers’ according to Whiley.

‘Dignity’s research has shown that 92% of consumers did not know that funeral directors were not regulated in the UK, but once they were aware 80% supported regulation to ensure minimum standards. The group would welcome regulation which sets out minimum standards for core activities such as the care of the deceased and minimum standards of storage facilities.’

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Issue Date: 11 Mar 2020