Funerals group reiterates profits warning as price war bites

The UK’s only listed provider of funeral services has reiterated its warning to shareholders that the current year is likely to see substantially lower profits as it looks to fend off rivals intent on undercutting its prices.

Sutton Coldfield-based Dignity saw its shares fall 50% in January when it announced it would be cutting prices for its cheapest funerals package by a quarter in an effort to beat off its rivals and secure business.

It warned then that the price war would dramatically impact its profits for 2018 and in its full year results statement today it said this remained the case.

It said that while 2017 had been a relatively successful year for the business, tough times lays ahead.

Outlining the situation, it said in its results statement: “Our financial success was achieved against the backdrop of a rapidly changing and increasingly competitive market and accelerating erosion of our market share,” it said.

“It is clear that the pace of change and the fierceness of competition, particularly for our funeral business, will continue to increase.

“This new pricing strategy is to protect market share by offering a range of new price points and services to our clients while preserving our unrivalled levels of service. We have therefore significantly reduced the price of some funerals and frozen the price of others as part of this evolving pricing strategy.

“As we have also stated clearly this action will have a substantial impact on profits in 2018 and the new relationship between volumes and margins will take time to become clear.”

In meeting the challenges ahead, it said it would continue to build on the strategic initiatives it developed in 2017, in particular, in digital marketing and brand strategies, as it looked to achieve long-term growth.

“There are significant opportunities to lead the industry in digital marketing and to leverage the group’s scale to develop national recognition online to complement our existing physical national network,” it said.

“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.”

Mike McCollum, chief executive of Dignity, said: “We have begun a new chapter for Dignity and for the funeral business in particular. It does not change our focus on excellent client service, which remains core to how we operate. We will also continue to demonstrate industry leadership by seeking the regulated market that will be good for clients and society and which plays to our strengths as a compliant and well managed business.”

For the year ended December 29, 2017, revenue rose 3% to £324m (2016: £313.6m), with underlying pre-tax profit up by the same percentage to £77.8m (2016: £75.2m). Underlying earnings per share rose 7% to 128.3p (2016: 119.8p).

The board is proposing to maintain the final dividend at 15.74p per share, bringing the total dividend for the year to 24.38p, an increase of 3%.

Investors reacted more positively to the announcement, with the group’s shares up almost 14% in early trading.