Funeral services operator Dignity’s (DTY) underlying pre-tax profits fell 19% in 2020 despite the tragic Covid pandemic pushing the UK's death toll to its highest level in over a century.
Yet shares in the funerals-to-cremations provider rose 7.1% to 650p on Wednesday as investors welcomed last year’s improved underlying cash generation and assessed the potential for a significant strategic shake-up.
A general meeting has been requisitioned by Dignity’s 29.9% shareholder Phoenix Asset Management Partners, which is seeking to oust executive chairman Clive Whiley and install its own chief investment officer Gary Channon as an executive director.
HIGHEST DEATH TOLL SINCE WW1
For the year ended 25 December, Dignity’s underlying pre-tax profit fell from £37.7 million to £30.7 million, despite sales rising 4% to £314.1 million as Covid-19 drove the total UK death-toll up 14% to 663,000.
This represented the highest total UK deaths since 1918, which witnessed the end of World War One and the Spanish Flu pandemic.
Dignity’s profitability was pressured by the requirement for a constricted funeral service offering at the peak of the pandemic, which translated into lower revenue per funeral, as well as higher personal protective equipment and temporary staff costs.
During a tumultuous year, Dignity also had to contend with the ongoing Competition and Markets Authority investigation into the funeral and crematoria industry.
The proposed regulation of the funeral plan market by the Financial Conduct Authority creates additional uncertainties for the group, though Dignity insists it ‘welcomes FCA regulation of the sector and is planning for regulation to be effective by the middle of 2022’.
UNWELCOME DISTRACTION?
Dignity’s root-and-branch review is set to conclude in the second quarter of 2021 and Whiley has plans to ‘significantly grow both funeral and cremation market share over the next five years on a sustainable organic basis’, though Phoenix Asset Management Partners wants to shake things up.
‘Unfortunately, notwithstanding the significant progress the business has made since my appointment, ‘ said Whiley, ‘our largest shareholder Phoenix Asset Management Partners, with whom we believed we were having a constructive dialogue in relation to the future strategy of the business, has chosen this moment to seek to assert what would, in effect, be executive control at board level.’
Whilst Whiley believes Dignity is ‘now sufficiently robust to sustain this wholly avoidable and unnecessary challenge’, he insists it is ‘nonetheless an unwelcome distraction as we remain dedicated to dealing with the ongoing fallout from the pandemic.
‘To minimise disruption, the independent directors have been charged with taking the necessary steps to convene the required general meeting of shareholders and they will share their views on the resolutions to be considered at that time. It will then be for shareholders to decide on the merits of the Phoenix proposal.’
