UPDATE 2-Funeral company Dignity lays out new strategy ahead of new regulations

* Dignity cancels ‘uneconomical’ contracts with five partners

* Says 21-week profit slightly lower to 30.7 mln pounds

* Sets new strategy including selling through branches rather than partners (Recast, adds background)

June 23 (Reuters) - British funeral services firm Dignity has cancelled contracts with telephone marketing firms and will instead focus on selling directly through branches, it said on Wednesday, as UK authorities tighten rules on the sector.

Dignity, which owns around 800 funeral locations and 46 crematoria in Britain, said it has cancelled contracts with five of its commission-based telephony partners after an assessment showed they were not economical and failed to uphold its standards.

The funeral sector in Britain in the past year has been setting itself up for new regulations around pricing and prepaid funerals, while seeing an unprecedented rise in funerals because of the pandemic.

The UK competition watchdog last week gave funeral companies until September to standardise prices and has since banned directors from soliciting businesses through coroner and police contracts. Another watchdog is set to lay out fresh regulations next year on prepaid funerals.

As part of the strategy, Dignity will also focus on competitive pricing and improved branding, while lowering its cost of acquisition, and investing more in its facilities, among others.

The company, however, did not disclose plans to list its crematoria business separately to raise capital, a suggestion that its largest shareholder Phoenix Management brought up during a dispute with the prior management that led to the ousting of its prior chairman and the election of Gary Channon.

Dignity said its underlying operating profit for the 21-week-period ending May 21 was 30.7 million pounds ($42.87 million), slightly lower than last year.

The company also said its average revenue per funeral has risen in April and May from the first quarter as more people opt for full-service funerals on easing restrictions.

Shares rose 9.4% to 699 pence by 1102 GMT.

The contract cancellations will lower revenue at the funeral plan division by 35% for the current year, the company said.

$1 = 0.7161 pounds Reporting by Muvija M and Yadarisa Shabong in Bengaluru; Editing by Shounak Dasgupta, Uttaresh.V and Chizu Nomiyama