Yahoo Finance Dignity boss apologises as it warns on profits and cuts 'simple' funeral pricing
Dignity, the UK-listed funeral provider, lost half its value in morning trade after it issued a profit warning that it blamed on an “increasingly competitive” environment and outlined a plan to drop its prices.
The West Midlands-based funeral service said that while it expected its results for 2017 to be in line with market expectations, its plans to increase its market share “will lead to substantially lower profits in 2018”.
Shares in Dignity sank 49.27pc at 972p in early trade and chief executive Mike McCollum apologised to shareholders for the short-term "pain" its plans would have.
The company said that customers were becoming “increasingly price-conscious and in an over-supplied industry, are shopping around more”, which had hit its market share.
Dignity has been hit by declining number of funerals at each site it serves. To become more competitive, the company will cut the price of its “simple” funerals by 26pc to £1,995 in England and Wales and by 37pc to £1,695 in Scotland, from an average of £2,700 previously.
Mr McCollum said: “With a heavy heart we’ve decided that we need to take decisive action now to become more price competitive.”
It is also freezing the price of its traditional services, which cost £3,800 on average.
Dignity expects that as a result of the change in strategy simple funerals will represent about 20pc of its services in 2018, compared with 7pc in 2017.
Analysts at Numis estimated that the steps would have a roughly £50m impact on earnings before interest, taxes, depreciation and amortisation.
Mr McCollum reassured analysts that the company had a "substantial" margin on its debt servicing and covenants. The company had net debt of £520m as of June 2017 and its total annual debt servicing costs are £33m. Its covenants require that it holds 1.5 times that amount to give it a margin to cover those costs.
The funeral operator expects to spend an additional £2m on digital and other promotional activities this year and may embark on selective acquisitions of “well-established” funeral businesses, as well as developing its network of crematoria.
Mr McCollum said that for shareholders “the short-term financial consequences of this are painful - and I’m sorry".
Dignity has called for more regulation of the industry and said it was engaging with the Government to push for higher standards to prevent customers from being “misled” into accepting “below-par service and standards”.
The company will release its full-year results on March 14.
