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Hello and welcome to Dignity plc Q1 Trading Update.[Operator Instructions]Today, I am pleased to present Mike McCollum and Stephen Whittern. Please go ahead with your meeting.
Good morning, everyone. Thanks for dialing in.I'll give a very brief summary of the statement that we put out, pick out the highlights and then hand it over rapidly to questions, so a short introduction.I suppose my primary observation on the first quarter is that I'm pleased with progress and everything has gone as we would've expected and things remain on track with our transformation program. When we look at the funeral business, our market share continues to be solid, which is pleasing. If you remember, we chose to prioritize market share having seen a significant decline in 2016 and 2017. We saw market share stabilize in 2018 and that's continued into 2019, and so I'm pleased with that. Average income's a little bit short by a few pounds from where we thought but basically on track, and we remain confident in working with the settling with our unbundled tailored funeral package. Costs, pretty much as expected. And as I said, the transformation program continues to move at pace, and we're pleased with how that's going. Our rebrand of -- or our Dignity rebrand, having launched Simplicity last year, continues on track. And again, good progress has been made with all of that.So in the round, the funeral business performing well, likewise in the crematorium business. Market share in the crematorium business has been noticeably strong in the first quarter of the year, primarily driven that slight overperformance in market share by unattended funerals, some of those being Simplicity sold by us and some of those being unattended services coming from other people.In pre-arranged, sales of trust plans are ahead of last year, and we have been scaling back our insurance sales of new plans, which we've talked about before, but our trust plans are ahead of prior year. Profitability, 0. Again we made that change last year and that's performed as exactly as we expected it to be. So the pre-arranged business pretty solid.So all in all, everything firing well. However, the story of the quarter is that the number of deaths is materially lower than last year, 12% down on last year, and that has had a profound impact on the profitability of the business in the first quarter. We put some charts in there to show you going back over 20 years the relationship between first quarter deaths compared to the prior year and where it ended in the year. And what you see is really quite a lot of volatility in first quarter deaths, which invariably by the end of the year has stabilized to a very great extent, 2016 being the most recent case where we started the year with a significant reduction in deaths in the first quarter but at the end of the year ending close to the previous year. So what's unclear is where the number of deaths will be for the end of the year. That chart suggests that it's likely that deaths will be within about 3% of the previous year by the end of the year, which will have an impact on our profitability for the year but much less profound than we've seen in the first quarter.So absent the movement in the number of deaths, which is not completely unprecedented, but absent the significant movements in number of deaths in the first quarter, really I'm pretty pleased with the performance of each of our 3 main businesses.So that's the summary, and I'll hand it over to questions.
[Operator Instructions] Our first question is from Matthew Webb from Panmure Gordon.
I just wondered whether you had any comments on trading in Q2 so far. It looks from the publicly available information like the number of deaths in England and Wales up to 26th of April was also quite low compared to last year. I just wonder whether you had seen similar things in April and also whether that's picked up at all in the 2 or 3 weeks since then.
It certainly hasn't bounced back. That's for sure. As you say, April continued to be somewhat subdued in terms of the number of deaths. It's difficult to really see what's going on in April and May because you've got all these bank holidays all over the place and they don't always chime with the previous year. My perception is -- I don't have market share numbers for April yet, but my perception is, just looking at the raw numbers, that market share continues to be solid in April and that really the pattern is no different from the comments I've just made about the first quarter.
Got it. Okay. And sorry, just quick follow-up. Just looking at -- purely at the number of deaths throughout the market share, would what you've seen in Q2 so far have been incorporated into the guidance you've given for the full year, i.e., still probably within that 3%?
Yes. I don't think there's anything we've seen so far that would -- I mean, when we're giving guidance, we're basically saying the [ maths ] of the past would point you in that direction. We have -- clearly, we don't have a crystal ball. We don't have more insight than anybody else as to where the final outcome is going to be, but based on what we've seen in the past, it's likely that the deaths will be somewhere around 3% down on the previous year. There's nothing -- it's really too early to say because not enough time has gone by to form any materially different conclusion.
[Operator Instructions] Our next question is from Calum Battersby from Berenberg.
A couple of questions from me. I [ follow this ] for the statement that the mix of simple funerals was down quite significantly from Q4 last year to Q1 this year, while the average price as well was also down quite significantly. Just wondering if you could give slightly more color on what's happened there and if there's any change on where you think those figures would normalize. Secondly, could you please provide an update on what proportion of funerals are now being sold fully unbundled and what the response has been from customers when you sell funerals in this way, if there's kind of any change in how you see that looking?
Okay. The simple percentage is that in the past, we included -- we'd introduced in 2018 a limited package between our full-service funerals and the simple, and we reported those grouped together as simple and limited. Those limited packages had a higher average income than our entry-level simple. So we withdrew the limited early in 2019. There are a few in 2019, but we're no longer doing that limited package anywhere across the country. So the overall reduction in percentage towards simple funerals just reflects that those limiteds aren't there anymore, and the average income also reflects the fact that those limiteds aren't there anymore. So you're just beginning to see the simples coming out cleanly and we'd expect that average to settle somewhere just a little bit over 2,000 -- around GBP 2,000 for the simples alone. So as I said, in January, there were still some simples -- some limiteds in there, but they were out by the end of January. There'll have been a tail because often there can be -- the average between arranging a funeral and the funeral happening -- or sorry. The average between death and the funeral is 3 weeks, but sometimes it can be longer. So having withdrawn the limited, they're just working their ways out of the numbers. So that explains both the percentage and the average income. And in terms of unbundled, the unbundled is in approximately 1/4 of that business and so it would -- is available because some -- is available in approximately 1/4 of our locations, very approximately. That's not to say that 1/4 of all our funerals are unbundled because obviously there are simple packages available in those branches as well, but it's available in 1/4 of our businesses. We recently launched version 2. The average -- the initial average income for the unbundled was a little lower than we were hoping for. We've launched version 2. And it's very early days because again it takes weeks for the change to come through in the numbers, until it settles, but the indications are that we've made good progress with that. And we continue to think that by the end of the year, we'll have the unbundleds throughout our business and that our average will be consistent with the guidance that we've given previously.
Great. That's very good. Just actually to follow up quickly on the guidance provided in the outlook just to be [ perfectly ] clear then. The prior guidance was assuming deaths across the U.K. of 600,000. And the reduction in guidance of roughly GBP 3 million to GBP 4 million is if the average deaths over the year normalize at 580,000 and doesn't reflect kind of any other underlying differences in trading that you've seen from the start of the year. Is that correct?
Yes. So all other things being equal, so averages continuing as expected, costs continuing as expected, market share continuing as expected, all other things being equal, if it were -- if it turns out to be 580,000 deaths, that's what the guidance is referring to. Clearly any other changes will -- for better or worse would affect that.
[Operator Instructions] Our next question is from Jamie Fletcher from Stockviews.
I was just wondering if you could give some more detail on the comments around the CMA and some -- maybe some color around the resources been allocated internally and externally and also the point around capital employed in the crematoria, just what your thoughts are there.
Sure. So the -- we submitted last week a response to the CMA's statement of issues and that will be a public document. I am not sure if it's up on their website yet. We don't think so, but it will be shortly. And that sets out in a little bit more detail our broad response to their issues. And then obviously, we're beginning to get -- very rapidly now we'll be into the meat with our interaction with the CMA, which will involve site visits, will involve a hearing and will involve very detailed submissions from us to the CMA on the various points we're making. In terms of resources, we've got dedicated resource internally focusing on it and which is our main point of contact through which everything goes. And then externally, we've got Fingleton Associates. So John Fingleton was the CEO of the OFT, which obviously was the forerunner of the CMA. So good team to have on our side. We've got Slaughter and May acting as lawyers and NERA acting as our economic adviser. So all very, very experienced top-draw advisers. So we're taking it very, very seriously, and we've got excellent resource on that. And in terms of our comments about capital for crematoriums, our argument is that -- or one of our arguments is that when you look at new build crematoriums, there aren't that many of them built. And one of the reasons is because at the current prevailing price per cremation it's there are only a handful of places where it's economically attractive to build a crematorium. And once you take into account what it costs to build a new crematorium and then the number of people that would need to come and use it to -- just to produce enough profits to justify the capital that you've invested, there aren't that many places where it's economically worthwhile to build a crematorium. So this is one of several arguments that we'll be making, but the argument there is that actually the price that people are paying for cremations at the moment is economically very fair and essentially that the return on invested capital isn't excessive.
And as there are no further questions at this time, I will hand the word back to the speakers.
Okay, thank you. Well, listen, thanks for dialing in.The main story, as we said, is everything is going well. Deaths significantly down on previous year has a profound effect on the numbers. Picking up on one of the questions that was asked, I think that you can take from that, that the first half will also continue the pattern. I certainly wouldn't expect everything to have bounced back by the end of the first half. There's 2 months to go obviously, but we're -- for the numbers to turn out within or around the 3% that the history would predict from deaths, then the year will be significantly backloaded. So I would expect first half performance to be somewhat soft compared to prior year and compared to what's expected for the full year. But nonetheless, history suggests that by the end of the year, deaths would normalize somewhat.So thank you very much indeed. We'll leave it there.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.