Shares in funeral operator Dignity PLC (LON:DTY) fell as it posted a 30% drop in underlying pre-tax profit for 2018 and said it continues to expect another decline this year.
Underlying pre-tax profit in the year to December 28 was £54.4mln, compared to £77.8mln in 2017, on revenue down 3% to £315.6mln.
Average income per funeral fell to £2,973 from £3,222 the prior year after the company cut prices by 25% ahead of an investigation by the UK competition watchdog into the industry.
READ: Dignity upgrades profit forecasts on “stronger than expected” fourth quarter
The UK’s Competition and Markets Authority has said it would look into the £2bn funerals market after finding prices have risen above inflation for well over a decade.
Dignity chief executive Mike McCollum said the company’s surveys demonstrate that the majority of clients assume the funeral industry is regulated and some assume they will receive the same quality of service from different operators irrespective of the price but they will not.
“I am proud that underpinning all of the changes we are making to our business is a continued, relentless commitment to the highest levels of client service,” he said.
“This commitment makes me confident that we have the quality necessary to achieve our ambition of getting ahead of the competitive curve, leading the industry and providing sustainable growth."
Transformation plan on track, says CEO
McCollum said 2018 marked a “radical year of change” for Dignity. Along with reducing funeral prices, the group broadened its customer offerings and kicked off a plan to transform the business by the end of 2021.
McCollum said while plenty of work remains to be done, the transformation plan is on track.
Last year the number of deaths edged up by 2% to 599,000 and Dignity noted that official UK figures estimate long-term increases to about 700,000 per year by 2040.
Dignity left its guidance for the 2019 financial year unchanged. It still expects underlying profits will be lower than in 2018 but in line with market expectations.
“In the medium-term, the board believes that targeting solid single-digit increases in underlying earnings per share is appropriate and achievable,” the company said.
The firm declared a final dividend of 15.74p per share, in line with the prior year's payout.
Shares dropped 1.2% to 733p in morning trading.
Peel Hunt reiterates 'sell' rating
Peel Hunt repeated a 'sell' rating on the stock, saying: "There is no mention of current trading in the release, but Q1 will be sharply lower as the death-rate is currently -12% (due to a
high death-rate last year and lower flue incidence).
"Q1 is an important period and profits are likely to be >50% down. In the FY the death-rate is likely to balance out, but may well be below last year."In reality, this is all short-term noise. The real issue is the CMA review and potential for a Market Investigation. This will run on for some time, but the direction of travel is clear given the CMA’s initial findings."