Dignity

Is Dignity overvalued, over-leveraged and operationally insecure?

14 March 2013
Charles
7 Comments
Categories: Dignity

A couple of copies of the Investors Intelligence have come to our attention. In them, financial analyst Aubrey Brocklebank entertains doubts about the viability of Dignity plc. 

He expresses himself very technically, so some of his argument and most of the graphs go somewhat over the heads of Team GFG. We’d be interested to know what they say to you.

Here are extracts from Brocklebank:

The bull-case on Dignity is very simple. It is a very safe, stable, and predictable business. People will keep on dying, despite any recession, and they will need to be buried or cremated. Dignity is also a very cash generative business and that has been exploited to use leverage to generate significant returns for shareholders.

It is a very simple and convincing argument, and it is one that has won over many institutional holders.

This argument is however seriously flawed.

The number of funerals or cremations per unit is dropping (as expected) though the only means that Dignity have been able to use to increase revenues is by price increases and acquisitions.

The cost of a basic funeral has risen 6.2% per annum since 2004. However it is the cost of burials, up 9.9%, that has caused much of this increase. Thus the 5.7% increase in prices posted by Dignity is above market average once one has stripped away the increased cost of burial.

This gives Dignity very little room to increase prices and remain competitive with the competition. It is also possible given the scale of Dignity’s price in comparison with the competition that prices could soon come down. This may not necessarily be due to like-for-like prices having to be reduced but customers opting for less expensive offerings … By cutting the amount spent per funeral Dignity could suffer a significant fall in earnings.

Whilst it may take some bravery to short this stock the low volatility of the share price, the low growth estimates, and the low implied returns, do mean that there is very little upside to Dignity even if all goes well for them, and they certainly lack the safety that the story would suggest!

Concerning Dignity’s acquisition of Yew Holdings at the beginning of the year, Brocklebank observes:

It is curious that the average price per funeral charged by Yew is £1565 compared to Dignity’s £2,350 when Yew have an EBITDA margin of 46% comparative to Dignity’s 34.7%. Thus their margins can only be held up by sales volumes. Should Dignity raise prices and find a significant fall in volume then they could see a significant drop in EBITDA.

If Dignity are not very careful with their handling of this acquisition it is quite possible that this could be the straw that breaks the proverbial back.

Find Brocklebank’s articles here and here. 

Trebles all round

7 March 2013
Charles
2 Comments
Categories: Dignity

From the Evening Standard: 

Dignity, the funeral care specialist, has again shown there is only one line of work guaranteed to be recession-proof: death.

The group increased the number of funerals it performed to 63,200 last year as it benefited from a rise in deaths in Britain to 551,000.

This helped buy cialis from mexico Dignity, the UK’s only-listed funeral care operator, post a 13% rise in full-year pre-tax profits to £45.4?million, with revenues up 9% to £229.6 million, driven by its raising the average cost of a funeral to £3500.

Feeding time

22 January 2013
Charles
12 Comments
Categories: Dignity

Yorkshire-headquartered Yew Holdings has been acquired by rival funeral services provider Dignity in a deal priced at £58.3m.

Dignity has also announced plans for a share placing to raise £24.2m before expenses. The acquisition comprises 40 funeral locations and two crematoria located in the north of England.

Dignity added there were “significant opportunities” to improve the financial performance of Yew’s funeral portfolio. It said the deal should lead to a “high degree of operational efficiency”.

In a statement the company said: “Like Dignity, Yew trades under established local brand names. 

More here and here. 

Be sober, be vigilant; because your adversary the devil, as a roaring lion, walketh about, seeking whom he may devour – 1 Peter 5:8

Hat tip: The Man

Piece of mind for the man with the plan

22 November 2012
Charles
18 Comments
Categories: Co-operative Funeralcare, Dignity, funeral plans

There’s an unsparing piece in The Times, 11 November, on financial products associated with funeral planning:

Hundreds of thousands of the poorest pensioners are losing thousands of pounds by buying into poor-value funeral planning products offered by some of the most trusted high street names.

Funeral benefit plans offered as add-ons to over-50s life insurance promise to help those aged between 50 and 80 to set aside a pot of money for their families to pay for their funeral … First, the majority of people who invest in over-50s plans end up paying in much more money than their relatives receive in the cash lump sum. Second, in many cases the funeral plan add-ons are assigned to particularly expensive funeral directors, and, finally, the lump sum payouts are not protected against inflation or linked to specific funeral costs so they are likely to cover only a small proportion of the cost of a future funeral.

Sales of over-50s policies rose 25 per cent between 2008 and 2010, with 346,128 people buying policies last year alone. Sun Life Direct, for example, has 750,000 such customers … This type of insurance policy does not have a “cash-in value” so policyholders often find themselves facing the dilemma of whether to continue to lose money paying premiums until they die or close the account and forfeit the cash lump sum.

The funeral benefit option on these products effectively assigns the cash lump sum to a funeral provider with whom it has a commercial deal, usually Dignity or the Co-operative.

Insurers are also pushing policyholders’ families towards funeral directors that charge the highest fees. The two main providers that arrange funerals as part of a funeral benefit add-on are Dignity and the Co-operative.

Dignity and the Co-operative argue that it is worth paying more for their service … A spokesman for Dignity says: “Dignity provides an allinclusive service with no hidden extras.”  A spokesman for the Co-operative says: “The Co-operative provides customers, and their families, with the invaluable peace of mind afforded by planning for their funeral in advance. We believe that, when compared on a like-for- like basis our charges are fair and reasonable and highly competitive for the standard of service that we provide.”

Age UK, an organisation that helps the elderly, has been accused of exploiting its reputation to sell unnecessarily costly funeral plans. A former senior employee of Age Concern is critical of these plans. He believes that Age UK is trading on its good name to sell overpriced products to vulnerable pensioners. He says: “Age UK uses its local branches as a route to a market where it can sell its branded products. Very often it is the less well-off pensioners using day care centres that are sold these products. Age UK funeral plans are particularly poor value because they encourage families to use expensive funeral directors rather than a cheaper local director.”

Age UK’s unholy alliance with Dignity brings in something like £9 million a year. 

The last point the article makes is that funeral plan funds are not regulated by the FSA. Did you know that? Ah, you always assumed they must be. Well, they’re not; they’re regulated by the Funeral Planning Authority — whose shareholders are trade associations for pre-paid funeral plan companies, creating a conflict of interest.

Coming soon: more thoughts about the ticking time bomb of the pre-paid funeral plan. In the meantime, stash it under the mattress. 

Call it quits

19 October 2012
Charles
18 Comments
Categories: Dignity

From the Oxford Times:

The former owner of Oxford’s last independent funeral directors has spoken of the difficult decision she made in selling the business.

S & R Childs, which has four branches in the city, is now part of Dignity, the UK’s biggest provider of funeral services.

Sandra Homewood was one of the founders of the business in 1997 and said: “Selling a business that you have nurtured and developed over many years is not a task to be undertaken lightly.”

She said Dignity had assured her that it would be “business as usual” for the company, which will continue to trade in the same way.

Full story here. 

News just in from Taunton: Thomas Brothers are in negotiation with Dignity plc.

A syphilitic blister on the face of funeral service

29 September 2012
Charles
4 Comments
Categories: Co-operative Funeralcare, Dignity, Funeral Partners, LM Funerals

Dear Mr Greenfield,

This has been a horrible week for you. 

Or has it? 

You will have by now appraised your reputational vulnerability, conducted a jeopardy assessment and learned how many people watched The British Way of Death.  Taking heart from the recovery of Co-operative Funeralcare, you may be reckoning your best move is to lie low and wait for the storm to pass. 

You could get lucky. 

Judging by your combative response to the film, you are not a man to roll over easily. Your clear-eyed intellect and tenacity may have calmed your investors, and this may well have been your priority. But how’s your conscience? Do you feel shamed and dishonoured? You displayed no compassion towards those bereaved people who must live with what has been done to them. Your repeated apology, offered without reservation (whatever that means), lacked (I feel) the heartfelt sincerity with which an apology must necessarily be invested. 

You did not give the impression of a man suffering from either remorse or a trashed reputation. I can only put that down to a diminished sense of jeopardy. 

The film’s revelations call into question your competence to run a business. That must hurt. You repose much of your defence in company policies designed to prevent the conduct we witnessed. A policy, Mr Greenfield, is so much hot air, wishful thinking and bumf in a boxfile if it is not supported by a regime of compliance. 

I was unable to watch the film until two days after it was broadcast so I expected, having heard the views of others, to be angered by the behaviour of the staff at Gillman’s. I wasn’t, but I concede that mine is a minority opinion. I was saddened. I witnessed the behaviour of people whose personal standards had been, in my view, corrupted by the culture of their workplace – they had lost touch with decency and right conduct. I am inclined to suppose that a much better version of these same people might have been apparent had they been working for a firm whose vision, values and working conditions they bought into and were proud of, and whose insistence on high standards was reinforced by a rapid-response disciplinary framework. That you should have reckoned Merv Moyes a fit person to be general manager is beyond baffling. You’ve got some great people working for you. Don’t you know the difference? 

Can you tell us, Mr Greenfield, why you opted for brand invisibility? You know perfectly well that the FPL/FSP brand has virtually zero public recognition. The funeral industry is ripe and ready for a great brand to roll out a great service. As we like to say here, if John Lewis did funerals… 

An unexpected upside to the sullying of the good name of Roger Gillman is that any undertaker presently contemplating selling up would have to be mad to include their own name in the sale. So here’s a backhanded compliment: you have played an important part in the cause of transparency of ownership. 

I’ll finish with some reflections by Rory Sutherland on the price of a good reputation. This is extracted from something he wrote in the Spectator on 21 July 2012. Mr Sutherland is vice-chairman of Ogilvy Group UK.

Reputation acts as a kind of cashless deposit in human dealings. As any mafioso or game theorist knows, you can only trust people who have something to lose.

Look at where capitalism works best and you’ll find a business sensitive to shame. 

I recently arranged for my family to fly to the US. What struck me when I clicked ‘buy’ on the BA website is that I now feel less anxious when paying an airline a few thousand quid to hurtle my family across Arctic wastelands in a tin tube than I do when handing £2,000 to a financial institution. Why does the aviation industry make very little money doing something immensely complicated astoundingly well, while the finance sector makes a fortune doing a simple thing badly?

There are a few game-theoretic reasons to explain this. Reputation is one. When even a minor aviation incident occurs, it makes headlines. There is also a healthy sharing of risk. Unlike banks, airlines make the pilot sit at the front of the plane.

Intensifying consumer scrutiny, together with exposés like Undercover Undertaker and The British Way of Death, are contributing incrementally to enhancing the reputational vulnerability of undertakers, especially those stealth consolidators whose brand dares not speak its name.

Whereabouts are you sitting on your plane, Mr Greenfield? Yes, and you Mr Tinning? And you, Mr McCollum? And you, Ms Kemp?

 

 

Dog Day

1 August 2012
Charles
4 Comments
Categories: Dignity

Dignity Plc said its profit for the first half rose about 11 percent on strong performance in its funeral services and crematoria businesses.

The company said its underlying pretax profit rose to 27.5 million pounds ($43.16 million) for the 26 weeks ending June 29 from 24.7 million pounds a year earlier.

Dignity, which operates a network of 616 funeral locations throughout the United Kingdom, said revenue grew about 8 percent to 116.5 million pounds.

Revenue from its core funeral services business grew about 7 percent to 81.6 million pounds. The business contributes 70 percent to its overall revenue.

Revenue from its crematoria business grew about 9 percent to 23.7 million pounds.

The company raised its interim dividend by 10 percent to 5.36 pence per share.

The FTSE-250 company’s shares, which rose about 7 percent in the last year, were up about 1 percent at 856.5 pence on Tuesday the London Stock Exchange.

Source

The view below the radar

26 July 2012
Charles
2 Comments
Categories: Co-operative Funeralcare, Dignity, funeral cost, funeral directors, funeral trends, Marketing, pre-need plans

An article in the Times dated 15 July, based on an interview with Mike McCollum, ceo of Dignity plc, offers one or two (no more) features of interest.

His definition of an undertaker?

“We’re event organisers,” says McCollum. “We arrange a family event for you on very short notice, which you wish you didn’t have to arrange.”

He adds:

“And, on the day of the funeral, we’re the master of ceremonies. The funeral director makes sure everything goes exactly to plan, to the second, and hopefully makes sure everybody, in an unfamiliar situation, knows where to sit and where to go.”

He doesn’t say if he regards this model as eternal, nor whether he is aware of trends towards empowered mourners who take a different view of the brief of a funeral event planner.

Concerning the travails of his reassuringly inept rivals, ‘Co-operative’ Funeralcare, he is defensive of the hub model and reckons “it’s time people accepted some home truths”.

“The definition of a mortuary is a place where dead people are kept. When people die and they can be in different conditions. You need specialist refrigeration, specialist conditions. You’d expect them to be clinical, to use stainless steel equipment, to be easy to clean. They’re not necessarily going to be nice places to be.”

Hmn.

By way of assuring Times readers who are also Dignity shareholders, the article points out that Dignity’s market capitalisation has risen from £180m to £446m and the share price from 230p to 810p. The writer does not detect the present injurious effect of underfunded funeral plans. Nor does he point out Dignity’s Achilles heel, its high prices, vulnerable, in an increasingly price-conscious market, to consumer scrutiny. Nor does he question Dignity’s policy of brand omerta, a remarkable stance for an outfit in the event-planning business.

Would you buy shares in Dignity?

Source (paywalled)

Camref – the Campaign for Real Funerals

2 July 2012
Charles
7 Comments
Categories: Dignity, family funeral directors, funeral cost, funeral directors, funeral trends, independent funeral directors

The departing board chairman of Golden Charter funeral plans offers this cold sweat-inducing warning to independent funeral directors in a valedictory address in the Golden Charter newsletter, Goldenews, which we are grateful to have had forwarded to us. He says:

Co-op and Dignity have both acquired significant additional scale, and unquestionably they are operating with a better financial model than independents – on their own – can hope to achieve. There will be no softening of their ambition and there will be greater local commercial pressure. We can also expect consolidation to come from other quarters, particularly private equity.

Not only are these two corporations and private equity seeking to dominate the funerals market, they are making substantial in-roads into the crematoria market. The strategy is to provide future control of and access to crematoria which will potentially form a risk to independents and the prices that they will have to pay.

Corporations like to deal with corporations, and Co-op and Dignity present like-minded opportunity to the insurance companies. In 2007, an over 50’s plan was merely a means of building a financial provision for a funeral – the question of service provision did not come into it.

However, the insurance companies now manage 60 per cent of funds subsequently to be used to pay for a funeral, and it is a reality that they exert considerable influence over who carries out a funeral.

The funeral industry is one of the last bastions for independents. Almost every other market sector has fallen to national or international consolidation. Over the next five years, the choice for an independent funeral director is simple: sell to the competition or come together and exploit your collective strength.

This remains a chilling analysis even after you factor in the chairman’s sales pitch: ‘Over the next five years, the choice for an independent funeral director is simple: sell to the competition or come together and exploit your collective strength. Golden Charter is the only credible collective umbrella.’

Consolidation, done well, benefits consumers and shareholders. The present corporate players will fail to grow their market share if they don’t address pricing, service and positive brand identity, and they don’t look as if they’re going to hack it. But there are unquestionably opportunities for the right player with a brand that dares to speak its name. As we like to say, if John Lewis did funerals…

The days of the independents just have to be numbered, don’t they? Come on, look at your high street and go figure. 

Or do they? 

Consider the work of the Campaign for Real Ale (CAMRA). Among its many successes it lists these: 

  • Created a rich and varied choice of real ale – In the 1970’s CAMRA successfully fought the efforts of the big brewers to replace traditional ales with tasteless keg beers. Since seeing off the likes of Watneys Red, Tavern Keg and Double Diamond the campaigning efforts of CAMRA has seen the creation of hundreds of new breweries producing a wonderful array of real ales. 
  • Smashed the Big brewers stranglehold on UK pubs – In the 1970s and 1980s the Big Six brewers, Allied, Bass, Courage, Scottish & Newcastle, Watneys and Whitbread monopolised regions of the country. CAMRA lobbied against this lack of choice in Britain’s pubs and gradually eroded these regional monopolies. 
  • Number of Breweries increased Fourfold – Since CAMRA was founded the number of breweries operating in the UK has grown fourfold to over 840 breweries. Without CAMRA’s presence it is doubtful whether real ale would be as widespread as it is today. 

 

CAMRA is not an industry body, it is an alliance of consumers: CAMRA, the Campaign for Real Ale is an independent, voluntary organisation campaigning for real ale, community pubs and consumer rights.
 
Much the same as the Good Funeral Guide. And the Natural Death Centre. 
 
The funeral industry is unaccustomed to consumer scrutiny, doesn’t much like it and tends either to keep schtum or react with angry insecurity when challenged and questioned. This is in stark contrast to all those bereaved people who phone and email to thank us for being there for them. 

 

We believe that independent funeral directors, if they are to survive as a collection of characterful and excellent businesses offering richness of choice,  would do well to reflect that their survival, by no means assured, is likely, if it happens, to owe a debt, perhaps a very great debt, to consumer-focussed communities like the GFG and the Natural Death Centre. To them we say: join in the debate. We learn from each other. We want the same thing. Let’s find common ground. 

 

CAMRA website here.
 
Sorry, no link to the Golden Charter newsletter available. 

 

Wrong coffin with a twist

1 March 2012
Charles
32 Comments
Categories: coffins, Dignity, funeral directors, scandals

Here’s an extraordinary thing.

A funeral director brings the wrong coffin to the crematorium. The crematorium staff spot that it’s the wrong coffin on arrival, and inform the funeral director. 

So far, so banal.

What happens next? The service goes ahead with the wrong coffin. At the conclusion thereof the coffin is not burnt but, presumably, taken home by the funeral director.

So she/he’s now got two dead people, one of whom ought to be ashes. What did she/he do next?

The Belfast Telegraph does not tell us here. The crematorium was Loughborough (Dignity plc) and the undertaker has yet to be named.