TIDMDTY
RNS Number : 6675F
Dignity PLC
23 March 2022
For immediate release 23 March 2022
Dignity plc
Preliminary results for the 53 week period ended 31 December
2021
Dignity plc (Dignity, the Company or the Group), the only
end-of-life provider in the UK that is uniquely positioned to
provide all the required elements of a funeral service , announces
its preliminary results for the 53 week period ended 31 December
2021 .
Financial highlights
53 week 52 week
period ended period ended
31 December 25 December I ncrease/
2021 2020 (d ecrease)
restated per cent
Underlying revenue (GBPmillion) 312.0 314.1 (1)
Underlying operating profit (GBPmillion)
(1) 55.8 60.3 (7)
Underlying profit before tax
(GBPmillion) (1) 26.8 30.6 (12)
Underlying earnings per share
(pence) (1) 42.8 46.4 (8)
Underlying cash generated from
operations (GBPmillion) (1) 88.3 88.9 (1)
Revenue (GBPmillion) 353.7 357.5 (1)
Operating profit (GBPmillion) 17.8 15.9 12
Profit/(loss) before tax (GBPmillion) 32.0 (19.6)
Basic earnings/(loss) per share
(pence) 24.2 (51.0)
Cash generated from operations
(GBPmillion) 68.3 62.7 9
Number of deaths 664,000 663,000 -
------------------------------------------------ ------------------ ----------------- ------------------
(1) Underlying performance measures throughout this announcement
for December 2020 have been restated to reflect the application of
IFRS 16, Leases. This standard was adopted in 2020 using the
modified retrospective adoption which meant 2019 comparatives were
not restated. As a result, the Group chose to exclude it from its
underlying performance measures reported in 2020 in order to retain
comparability. Therefore, the underlying performance measures
reported above in both periods includes the application of IFRS 16.
See note 1 for further details.
Alternative performance measures ('APMs')
The Board believes that whilst statutory reporting measures
provide financial performance of the Group under IFRS, APMs are
necessary to enable users of the financial statements to fully
understand the trading performance and financial position of the
Group. The APMs provided are aligned with those used in the
day-to-day management of the Group and allow for greater
comparability across periods. For this reason, the APMs provided
exclude the impact of consolidating the Trusts and the changes
which relate to the application of IFRS 15, as well as
non-underlying items comprising certain non-recurring and
non-trading transactions. Further detail may be found on pages 48
to 53.
Key points
-- 2021, like 2020, was another year heavily impacted by the
pandemic with an elevated death rate
-- Underlying operating profit fell seven per cent as a
combination of rising costs and lower prices impacted margins
-- New strategy was agreed, and good progress made in implementation
-- Focus groups and insight gathering to develop Dignity's new
Principles; the guiding framework that once embedded will become
the organisations new culture
-- Reviewed and repositioned pricing for our at-need services to
ensure we offer the best value-for-money locally
-- Inverted the organisation through a new organisational
structure with 12 regions; focuses on removing management hierarchy
and replacing this with a locally empowered leadership
structure
-- Focused programme of work to prepare Dignity for Financial
Conduct Authority regulation of the pre-paid funeral plan market
(which comes into force July 2022), including submission of our
application to the regulator
-- Progress made to invest back into our funeral branches and
crematoria; aiming to bring the Group's property portfolio to a
high standard
-- The Board agreed a formal climate commitment, pledging for
the Group to be net-zero (across Scope 1 & 2 emissions) by
2038, following an initial sustainability and ESG assessment
-- Progress made to ensure a balanced, Corporate Governance Code
compliant, Board composition, with the appointments of John
Castagno as new Non-executive Chairman and Graham Ferguson as an
independent NED. Kate Davidson and Kartina Tahir Thomson were also
welcomed to the Board in 2022
-- In March 2022 we agreed a 12 month waiver to our main
financial covenant with noteholders to protect us from a post
pandemic drop in the death rate
Gary Channon, Chief Executive of Dignity plc, commented:
"2021 was a year of great change at Dignity as we set out and
started implementing the new strategy which at its core promotes a
culture focused on serving families and communities in all their
end-of-life needs. There isn't a part of Dignity that hasn't been
affected by the transformation so far as we inverted the whole
organisation, empowered those serving clients and organised
ourselves in a more collaborative structure.
I would like to call out the hard work, dedication and
commitment of all our colleagues who continued to respond to the
challenges of the COVID-19 pandemic whilst coping with the rapid
pace of organisational change that Dignity has gone through.
Although there is still much work to do to complete the
restructuring, we know what we need to do."
For further information please contact:
Gary Channon, Chief Executive
Dean Moore, Interim Chief Financial Officer
Dignity plc +44 (0)20 7466 5000
Richard Oldworth
Chris Lane
Tilly Abraham
Verity Parker
Buchanan +44 (0)20 7466 5000
www.buchanan.uk.com dignity@buchanan.uk.com
Dignity's preliminary results and investor presentation are
available at https://www.dignityplc.co.uk/investors/ .
Chairman's statement
Giovanni ('John') Castagno, Non-Executive Chairman
I joined Dignity in July 2021 at a pivotal time for the
Group.
With the backdrop of the on-going COVID-19 pandemic, the
Executive team, led by Gary, had embarked on an ambitious plan to
grow the business by further improving our operating model to
better serve the bereaved as well as implementing the changes
required by the Competition and Markets Authority ('CMA') whilst
simultaneously preparing for future Financial Conduct Authority
('FCA') regulations.
Our People
Our people responded splendidly to these challenges and on
behalf of the Board, I would like to publicly thank all our
colleagues and everyone in the sector for the way they have
supported the bereaved. Our people are vital to Dignity's success
and in the challenging circumstances created by COVID-19 they have
demonstrated the utmost dedication and resilience by continuing to
provide an excellent and respectful service. Whilst they may not
have received, or sought, the public recognition that has been
bestowed on other keyworkers, their quiet, selfless commitment has
been admired by everyone that experiences their actions. This
thanks extends across the entire funeral, crematoria and
bereavement sector.
It is these colleagues who are at the centre of our new strategy
as it is they who provide a caring and high-quality service to our
clients and are at the heart of our communities each day. I am
confident that by empowering and trusting our people, and providing
them with the right tools and resources, the business can approach
the future with great optimism.
Strategic overview
I would also like to thank Gary and his team for executing the
first stage of our ambitious plan which has been to restructure our
branch and crematoria network to better serve the bereaved.
Notwithstanding the difficult trading environment of the pandemic,
we have created 12 integrated trading regions, empowering all
colleagues so that their expertise can be applied with greater
focus and speed to the needs of those communities. The support
departments based in Sutton Coldfield have also been reorganised
and refocused, so they are better aligned to servicing the needs of
our front-line colleagues. These changes lay the foundations of the
vision to be a federation of respected local businesses supported
by a strong national brand.
During this period, we have also complied with the changes
introduced by the CMA and are preparing for regulation by the FCA
having submitted our formal application to continue selling
pre-need Funeral Plans.
I believe that the new strategy, the cultural change being
implemented by the Executive Committee and supported by the Board
and the forthcoming regulatory framework will create opportunities
for Dignity. The Principles developed and launched by the Executive
Committee will underpin the cultural change being implemented and
will further support the growth ambitions of the business. But this
optimism for growth should be tempered by volatility expected in
the medium-term mortality rates which are likely to be lower than
those experienced during the pandemic and the historic five-year
average rate.
The volatility expected in the mortality rate and the investment
needed in executing the strategy will impact cash generation. It is
therefore appropriate that the Board considers options available to
review Dignity's current capital structure and to that end, we
continue to make good progress.
The Board recognises the role of Environmental, Social and
Governance ('ESG') in creating value for all stakeholders. This
year we committed to a formal climate pledge, to be net-zero across
the Group by 2038. We are committed to engaging with these issues
and to transparency of actions and disclosure. Consequently, the
Board will receive frequent reports from management on ESG
matters.
Governance during a time of change
During this period of significant change, having appropriate
corporate governance is of great importance. When I joined Dignity,
I committed to strengthen governance and make the business Code
compliant as well as introducing diversity to the Board.
To this end, I'm pleased to report that in addition to my
appointment, we have secured the support of Graham Ferguson and
Kartina Tahir Thomson as Independent Non-Executive Directors and
chairs of the Audit, Remuneration and the newly constituted Risk
Committee. I'm also delighted that Kate Davidson, who previously
sat on the Executive Committee, joined the Board in January 2022 as
Chief Operating Officer. I welcome Graham, Kartina and Kate to the
Board and look forward to working closely with them.
We continue our search for a new Chief Financial Officer and
hope to make an appointment soon. Once this appointment is made, it
is the intention for Dean Moore to regain his position as an
Independent Chair of the Remuneration Committee. This will ensure a
smooth hand over to the newly appointed Chief Financial Officer.
This is subject to appropriate review and approval by the
Board.
Gary Channon was appointed to Executive Chairman following a
General Meeting in April 2021, and subsequently to Chief Executive
at the time of my appointment. In line with Gary's undertakings at
the time of the General Meeting at the appropriate time, the Board
will seek to replace Gary as the Chief Executive, with a process
for identifying Gary's replacement now underway. Again, ensuring a
smooth transfer to new Chief Executive will be central to the
Board's plans.
Dividend policy
Dignity has not paid a dividend since June 2019 and the
Directors do not expect to do so until the business has returned to
a more sustainable financial footing. We retain significant cash
resources, continue to be cash generative and understand the
importance of optimising total shareholder return whilst
maintaining a balance between different stakeholders, and it is the
Directors' intention to return to paying a dividend as soon as we
believe it is financially prudent to do so.
John Castagno
Non-Executive Chairman
22 March 2022
Strategic review
Gary Channon, Chief Executive
This is my first report to shareholders since being appointed in
April 2021, and it is likely to be my last. I want to take this
opportunity to set out what has been happening at Dignity over the
past year and why; what happens next and how we are going to
measure our progress against our objectives going forward.
The Plan
"We strive to be the most trusted, respected and valued
end-of-life provider in the UK, and the most inspirational and
rewarding employer for those who serve this goal."
Our vision is for Dignity to be a confederation of strong local
businesses serving their communities backed up by the strength of a
national organisation. We need to bring the benefits from that
scale without the bureaucracy, costs and hierarchy that can go with
it. We are liberating and empowering local businesses to serve
their communities individually whilst being able to call upon and
utilise the knowledge and resources of the wider Group. We seek to
serve all end-of-life needs and are uniquely placed to do that.
Although complex, we believe this model will best succeed
because it is based upon clients and their needs. Ultimately our
service is delivered by our people, and they make the difference.
There isn't a person who spends time around Dignity who isn't
struck by the compassionate and empathetic nature of our
colleagues.
We receive a lot of positive and thankful feedback about our
service, and it almost always refers to the people. Therefore, the
first thing we need to do is be a place where those drawn to and
interested in our industry want to come to work, grow and thrive.
We haven't been strong in this area and have enjoyed loyalty beyond
what we probably deserved in the past because of the strength of
the calling. We have set about redressing that but still have a way
to go. We have raised pay levels as part of that process.
As we cultivate an environment that attracts and retains the
best people, we empower them to deliver the service that meets the
needs and aspirations of the families we serve. We have made
significant changes in the past nine months to empower our
client-facing colleagues, breaking down some of the barriers to
change around trust and decision-making.
Our ongoing regional restructure takes that a step further by
creating locally empowered businesses. That will be completed this
year and when done will have completely inverted the organisation.
We are giving our people the freedom to innovate and make decisions
autonomously, to have ideas, and operate the businesses in a way
that meets the needs and aspirations of our clients, colleagues and
communities.
Once we have the best people and have empowered them, we need to
give them the tools to deliver the best proposition in their
communities. One element of the proposition is price. We had
previously allowed our prices to rise above the market level, which
is not the way to serve clients well and doesn't align with
colleagues motivated to do the best for their clients. High prices
were the single biggest factor causing the underlying business to
lose share year after year (before acquisitions) and was leading to
likely failure. We changed that in 2021 and have lowered prices
substantially.
Our pricing philosophy now is to offer the best value-for-money
and not have price be the reason for not choosing us. This is a big
change for Dignity and the effect of lowering prices is to reduce
how much we earn per funeral. However, our experience since we
changed prices has been that the market share loss stops and then
reverses, and so in time we expect that revenue loss to be more
than compensated by volume growth, especially when combined with
all the other elements of our strategy.
After people, empowerment and price, we come to our premises. We
need to have the facilities to match our proposition and therefore
have embarked on a much-needed programme of capital expenditure
across the estate. This has begun but we have a long way to go
considering the scale of our organisation with over 800 locations
at the time of reporting.
Next, our products. In addition to delivering funeral and
cremation services for families at the time of need, our other
services include pre-arranged funeral plans. An important part of
our end-of-life service proposition, in this area we are working on
innovations, redesigns and new introductions to better serve the
needs of our customers. We believe that the world of funeral plans
is about to change dramatically for the better as it will fall
under the FCA rules and regulations which apply from July 2022. It
is a big undertaking to prepare for but holds significant potential
for Dignity, as greater trust by consumers in the products from
regulation and the withdrawal of unregulated competitors will give
us an opportunity to grow the market and our business. As the
original innovator in the funeral plan sector since 1985, and as
the UK's largest end-of-life business we have a great opportunity
in this new era.
We are uniquely placed as the only national operator carrying
out funerals and cremations, whilst also manufacturing our own
coffins at our facility in the North East and offering memorial
services through our crematoria.
Vehicles are another important ingredient to having the best
proposition. Whether clients are seeking to add a personal touch to
the service with a motorcycle or campervan hearse or choosing a
traditional hearse, vehicles form a key focal point for a funeral,
and we used our vehicles 98,000 times in 2021. Along with our
people and premises, vehicles are a key part of the overall
impression families and attendees form of our funeral businesses on
the day of a service. We have 1,659 vehicles in our fleet, yet we
have underspent capital expenditure in our fleet by around GBP25
million in the past five years. We also do not organise our fleet
in a way that gets best overall utilisation. We have started to
increase the investment in the fleet, and we will introduce new
ways of organising it to gain a benefit from our scale.
Strategic Element One
Element One of our strategy, as outlined above, is to have the
Best Proposition and that comes from getting People, Empowerment,
Price, Premises, Products & Vehicles right.
The most ambitious element of our strategy is to introduce,
foster and embed a culture which will enable us to deliver that
best proposition and keep adapting and learning as we do. After an
internal process over six months, we crafted our Principles. They
set out all the key attitudes, priorities, values and philosophies
consistent with a culture that we think will make Dignity a special
and successful organisation. They are written for ourselves, they
are for colleagues, they are about who we are, how we conduct
ourselves, and how we aspire to be but let me explain their purpose
from a shareholder perspective.
We aim to be a learning organisation, in other words an
organisation that is able to continuously learn from experience,
including and especially by learning from our failures. Such a
culture creates a safe environment for trying new ways of working,
knowing that both success and failure contain lessons from which to
grow. If we do this then the business will continuously adapt to
the changing needs and aspirations of clients. With so many
businesses empowered to do things their own way, if we achieve this
culture then we will have a constant source of learning in
variance, in other words different outcomes in different places.
Good ideas can then be spread around the organisation as well as
lessons learned from failure.
You will see that the Principles embed a strongly ethical
culture that will build a strong long-term reputation which will
attract clients, employees and benefit the owners of the
business.
The specific Principle for shareholders is:
WE ARE GOOD STEWARDS OF OUR OWNER'S CAPITAL
Our goal is to create excellent long-term value for our
shareholders. We will allocate capital wisely, organise ourselves
prudently, spend money frugally and report openly and honestly.
The leading principle that will drive the focus of many of the
decisions of the organisation is the focus on our clients, the
families and communities we serve. If we apply that properly, and
have it drive all that we do, we will be a formidable
competitor.
Strategic Element Two
Element Two of our strategy is to have a strong Culture that
focuses on Clients, creates a Learning Organisation and embeds good
values.
If we have the Best Proposition ('Element One') then we make the
task of acquiring new clients easier. There are many routes to
conversion and the very best is the word-of-mouth repeat business
from families who trust us. Approximately one in eight of all
funerals were handled by one of our funeral directors, and if we
include cremations in our crematoria then we were involved in
approximately one in five of all funerals in the UK in 2021. Doing
our very best for those clients is our best source of future
business.
Increasingly many other routes are used to choose a funeral
director and the internet now plays a large part in that. Having an
effective digital strategy aligned with our local propositions is
an essential part of our effort to grow our share of funerals and
cremations in all areas. We have a number of changes coming in this
area in 2022. To really get the benefits of these efforts you need
the Best Proposition.
Funeral Plans are one of the most effective ways for us to
acquire a potential future funeral and forms part of that
acquisition strategy. We would like to engage our customers when
they are still alive to deal with their end-of-life wishes and
requirements. We believe that the very best way for anyone to share
and capture their wishes for a funeral is to do so personally -
enabling a truly personal and reflective funeral that meets their
needs as well as those of their families.
Strategic Element Three
Element Three of our strategy is to have an effective Customer
Acquisition Strategy aligned with our Best Proposition.
Dignity is an amalgamation of hundreds of businesses bought and
combined over the past few decades. However, in the way that we
were organised we had not achieved any benefits from scale,
underlying central costs bloating from 7.5 per cent of underlying
revenues in 2016 to 12.6 per cent of underlying revenues in 2021.
We have been reorganising the group to make the centre smaller,
more cost effective and more aligned with the new strategy. We made
some painful decisions in January 2022 and lost some loyal and
capable colleagues who had done nothing wrong. That was the most
difficult step we have had to take so far. We attempted to do it in
the least painful way for all concerned and to get it done
quickly.
We need to show that there is a benefit to scale. There are
excellent independent funeral directors thriving without the need
for any national organisation behind them. If there isn't a benefit
in being part of Dignity then we lose our raison d'être. We believe
if done correctly that this should create advantage from factors
like pooled sourcing, manufacturing, digital capabilities, property
expertise, dealing with regulatory needs, shared learnings, shared
resources, training and development, marketing expertise and
recruitment. Most of these are identified and are in the early
stages of being implemented for the new strategy.
Strategic Element Four
Element Four of our strategy is to be organised to gain the
Benefits of Scale and Breadth.
Those are the key elements but there are other ingredients like
Dignity Ventures, a new division that we set up in 2021 to back
innovative businesses in the end-of-life space who might benefit
from working with the Dignity organisation without becoming part of
it, and in our property division we believe we have value and
income potential within the property estate. At our coffin
manufacturing facility in East Yorkshire, we believe we have the
capability to grow our business outside of Dignity.
Business Model
We are confident that as the strategy works then the business
should grow, increase its share of the market and through growth
increase its competitiveness and profitability. An important
feature of our business model is the operational leverage. Around
two thirds of our cost of doing a funeral is fixed cost and so the
marginal cost of every unit of growth is only one third of the
overall cost. On our current numbers (taking total funeral overhead
costs and dividing them by the funerals undertaken in 2021) it
costs us GBP1,830 to deliver a funeral.
If we grow volumes by say, 20 per cent, then that cost would
drop to GBP1,520 which we could use to be either more competitive
or more profitable. The success of the strategy lies in its ability
to create this virtuous circle of improvement, and these are the
numbers we will focus on along with the underlying average revenue
on funerals (GBP2,548 in 2021 versus GBP2,522 in 2020) and
cremations (GBP887 in 2021 versus GBP885 in 2020).
The business model for us, whether it is for funerals or
cremations, is quite simply a function of volume multiplied by the
difference between the average revenue per funeral or cremation
less the cost of carrying out funerals and cremations and the cost
of acquiring clients. From that result you take off the central
overhead. We will give you the building blocks of the business
model so you can judge how we are getting on.
When it comes to funeral plans their contribution comes from any
surplus that can be generated by holding the proceeds of plan sales
in trust less the cost of acquiring plans and the ultimate cost of
a funeral. In 2021 a strong return on the Trust assets of 9.1 per
cent (GBP88.2 million on starting assets of GBP967.1 million) was
generated but that came after a lower return last year of 4.0 per
cent (GBP38.3 million on GBP947.5 million). It's a measure that
must be judged over multiple years and our long-term goal is to
exceed the rise in funeral cost inflation by three per cent per
annum. See alternative performance measures on page 52 for how it's
calculated.
The returns that the business makes need to be judged against
the capital used to make them. To assist this we have developed a
measure we call Cash Return on Core Capital ('CROCC'). In 2021 the
CROCC fell to 9.7 per cent from 16.9 per cent in 2020. Returns that
are not distributed are retained in the business and it is one of
the key responsibilities of the Chief Executive to see that they
are allocated wisely. See alternative performance measures on page
52 and 53 for how it's calculated and why we use it.
Capital Structure
The performance of the business is supported by the capital
supplied by shareholders and bondholders. We have previously
discussed our desire to operate a lower level of indebtedness. We
currently owe GBP527.1 million on our bonds and have Trading Group
cash of GBP55.9 million. In February, we sought and were granted in
March a waiver on the application of the covenants on our bonds for
12 months. We took this prudent measure to mitigate the uncertainty
and potential for a drop in the death rate following the pandemic
.
It is still our intention to address the capital structure most
likely by use of the crematoria portfolio but to do it in a way
that does not change the integrated nature of the Group.
Outlook
The strategy as set out above is likely to lead to lower profits
in the short-term as we see a full year effect of the lower prices
we have been using since September. Costs have been rising as we
have raised the pay of our lowest paid staff. Conversely, there
will be a benefit coming through from a reduction in the central
costs. The biggest factor affecting us is likely to be the death
rate and there is a real risk that after COVID-19 passes the excess
death effect of the past two years starts to reverse itself which
it will do at some point.
The business is likely to use more cash than it generates as we
are investing in our facilities to make up for past under
investment and to roll out our new strategy and local branding
programmes. Investment is also needed in technology to improve our
productivity in many areas and the implementation of new procedures
and controls associated with the impending FCA regime.
These financial headwinds are a predictable consequence of the
strategy execution. We can fix competitiveness quickly but the
benefits of that in terms of growth and greater productivity come
after. We need to look through to the long-term value being created
by turning Dignity from a business perpetually losing share in
structural decline into a successful and growing business. The
nature of our business model and its vertically integrated
structure means that growth delivers and compounds value.
We still expect to do some form of transaction to ease the
leverage in the capital structure and to align it with the
long-term strategy.
We have a stream to cross at the bottom of the valley before we
start our climb to higher ground.
Annual General Meeting ('AGM')
At last year's AGM we explained the rationale and underpinnings
for the change of strategy and this year we intend to show you what
has been achieved so far. 2021's accounts have been compiled in a
way consistent with 2020, and at the 2022 AGM we want to share with
you how we will be reporting to you from 2022 onwards. Like last
year we will make a presentation on the strategy.
Last year we had to hold the meeting remotely but this year we
expect to do it in person. If you are able to, please come. We will
again do our best to answer all your questions candidly. We will
also bring along colleagues from within the business who will give
you a perspective from beyond the Board. You own shares in a very
special company, come and learn more.
Gary Channon
Chief Executive
22 March 2022
Financial review
Dean Moore, Interim Chief Financial Officer
Our performance in 2021 reflects the continued impact of
COVID-19 and the implementation of the new strategy in quarter
four. As a result, underlying operating profit decreased by seven
per cent to GBP55.8 million. Allowing for the fact that 2021
represents a 53 week period for the Group means that, on a 52 week
comparable basis, deaths were 14,000 lower in the period.
Therefore, although 2021 has an additional week of underlying
revenue compared to 2020, total deaths including week 53 were
broadly comparable.
Our market share slightly decreased on funeral services and
there was a strong market share performance by our crematoria
business.
Cash generation remained strong in the year and will enable us
to continue to invest in our strategic objectives in the
future.
Introduction
These results have been prepared in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006.
Statutory operating profit was GBP17.8 million (2020: GBP15.9
million), an increase of GBP1.9 million. Gross margin was broadly
in line with prior year. Administrative expenses were GBP2.5
million lower, largely driven by a decreased impairment charge of
GBP4.8 million on goodwill and trade names compared to last year, a
further trade name write-off of GBP2.5 million and after incurring
additional central overheads of GBP3.1 million relating to digital
expenditure and other costs. This was partially offset by a
reduction in other non-underlying items, primarily in respect of
GBP4.7 million less spent on the Transformation Plan which has been
abrogated, GBP2.9 million less spent on the Operating and
competition review and GBP1.6 million less spent on Directors'
severance pay. See table on page 10 for further details on the
impacts to statutory and underlying operating profit.
A total impairment of GBP39.2 million has been charged in the
period (2020: GBP44.0 million), of which GBP2.8 million (2020:
GBP15.3 million) relates to trades names and GBP36.4 million (2020:
GBP28.7 million) to goodwill. The impairment has arisen within the
funeral services division primarily due to the reduced average
revenues following the new pricing strategy for the Group. Whilst
the Group expects long-term market share growth from the new
strategy, the accounting standard (IAS 36) for impairment
assessments does not allow forecasts to be used where assumptions
cannot be evidenced or have not yet been implemented (e.g. cost
savings). As a result, whilst the Group is focussed on committing
to delivering its market share growth ambitions, given the infancy
of the strategic plan implementation and the available evidence to
demonstrate this growth as at the year end when the impairment
assessment is made, the full extent of potential longer-term gains
are not reflected in the impairment modelling. Note 6 in the
accounts provides sensitivity analysis based on the calculated
impairment.
In addition to the impairment described above, a further trade
name write-off of GBP2.5 million (2020: GBPnil) has been charged in
the period following the withdrawal of seven trading names from use
following part of the Group's strategic review .
The Group's net finance income was GBP14.2 million (2020: net
finance costs GBP35.5 million), a GBP49.7 million movement
primarily due to the increase in fair value movements of the
financial assets held by the Trusts of GBP43.7 million.
The above has resulted in profit before tax for the Group of
GBP32.0 million (2020 loss: GBP19.6 million).
Financial highlights
The Group's financial performance is summarised below:
53 week 52 week
period period
ended ended
31 Dec 25 Dec Increase/
2021 2020 (decrease)
restated
(b)
GBPm GBPm %
Underlying revenue(a) (GBP million) 312.0 314.1 (1)
Underlying operating profit(a) (GBP
million) 55.8 60.3 (7)
Underlying profit before tax(a) (GBP
million) 26.8 30.6 (12)
Underlying earnings per share(a) (pence) 42.8 46.4 (8)
Underlying cash generated from operations
(a) (GBP million) 88.3 88.9 (1)
-------------------------------------------
Revenue (GBP million) 353.7 357.5 (1)
Operating profit (GBP million) 17.8 15.9 12
Profit/(loss) before tax (GBP million) 32.0 (19.6)
Basic earnings/(loss) per share (pence) 24.2 (51.0)
Cash generated from operations (GBP
million) 68.3 62.7 9
Dividends paid in the period:
Final dividend (pence) - -
------------------------------------------- -------------- ---------------- -----------------
(a) Further details of alternative performance measures can be found on pages 48 to 53.
(b) Underlying reporting measures for the 52 week period ended
25 December 2020 have been restated to include the application of
IFRS 16 which were previously included within other adjustments.
See pages 25 and 26 for further details
Alternative performance measures
The alternative performance measures are stated before
non-underlying items and the effect of consolidation of the Trusts
and applying IFRS 15 as defined on page 48. These items have been
adjusted for in determining underlying measures of profitability as
these underlying measures are those used in the day-to-day
management of the business and allow for greater comparability
across periods.
Detailed information on non-underlying items is set out on pages
48 to 53 and a reconciliation of statutory revenue to underlying
revenue is detailed in note 2.
Accordingly, the following information is presented to aid
understanding of the performance of the Group:
53 week 52 week
period period
ended ended
31 Dec 25 Dec
2021 2020
restated
(c)
GBPm GBPm
Operating profit for the period as reported 17.8 15.9
Add the effects of:
Acquisition related amortisation 4.2 4.6
External transaction costs in respect of completed
and aborted transactions 2.6 0.2
Marketing costs in relation to trials 0.9 0.6
Profit on sale of fixed assets (1.1) (0.2)
Transformation Plan costs(a) - 4.7
Directors' severance pay - 1.6
Operating and competition review costs - 2.9
Trade name write-off 2.5 -
Trade name impairment 2.8 15.3
Goodwill impairment 36.4 28.7
Impact of Trust consolidation and IFRS 15 (10.3) (14.0)
Underlying operating profit(b) 55.8 60.3
Underlying net finance costs (29.0) (29.7)
---------------------------------------------------- -------------- ----------------
Underlying profit before tax(b) 26.8 30.6
Tax charge on underlying profit before tax (5.4) (7.4)
---------------------------------------------------- -------------- ----------------
Underlying profit after tax(b) 21.4 23.2
---------------------------------------------------- -------------- ----------------
Weighted average number of Ordinary Shares
in issue during the period (million) 50.0 50.0
Underlying EPS (pence)(b) 42.8 46.4
Decrease in underlying EPS (per cent) 8 23
---------------------------------------------------- -------------- ----------------
(a) The GBP4.7 million costs incurred in 2020 reflects
expenditure up to the point of the Transformation Plan being
abrogated.
(b) Fu rther details of alternative performance measures can be
found on pages 48 to 53.
(c) The 52 week period ended 25 December 2020 has been restated
to include the application of IFRS 16 within underlying operating
profit which were previously included within other adjustments. See
pages 25 to26 for further details. A presentation adjustment has
also been made to separately pull out the marketing costs in
relation to trials.
Earnings per share
Statutory profit after tax was GBP12.1 million (2020: loss of
GBP25.5 million). Basic earnings per share were 24.2 pence per
share (2020 loss: 51.0 pence per share). Underlying profit after
tax was GBP21.4 million (2020: restated GBP23.2 million), giving
underlying earnings per share of 42.8 pence per share (2020:
restated 46.4 pence per share), a reduction of eight per cent.
Items excluded from underlying operating profit
Amortisation of acquisition related intangibles
Amortisation of acquisition related intangibles reflects the
write-off of acquired intangibles over the term of their useful
life.
External transaction costs
External transaction costs primarily reflect amounts paid to
external parties for legal, tax and other advice in respect of the
Group's acquisitions and unsuccessful crematoria planning
developments.
Profit on sale of fixed assets
Profits or losses arising from the sale of fixed assets ( net of
any insurance proceeds received ) are excluded as they are
unconnected with the trading performance in the period.
Transformation Plan costs
Cost incurred in relation to the Group's now abrogated
Transformation Plan has resulted in significant, directly
attributable non-recurring costs.
Directors' severance pay
Following the departure of Mike McCollum, Steve Whittern and
Richard Portman in 2020, severance packages were agreed and paid
and are considered to be a non-recurring cost.
Operating and competition review costs
The Group has incurred costs with external advisers to support
the Group's response to the CMA's funerals market investigation and
HM Treasury's consultation on the funeral plan sector. Costs were
also incurred in 2020 with external advisers to support its
operational review.
Trade name write-off
During 2021, the Group withdrew seven trading names from use
following part of the Group's strategic review. As the trading
names had specific intangible assets related to them, they were
required to be written-off.
Trade name impairment
The Group assessed the carrying value of its trade names . In
light of the lower level of profitability and lower anticipated
average revenue per funeral , an impairment of GBP2.8 million
(2020: GBP15.3 million) has been recognised.
Goodwill impairment
The Group assessed the carrying value of its goodwill . In light
of the lower level of profitability and lower anticipated average
revenue per funeral , an impairment of GBP36.4 million (2020:
GBP28.7 million) has been recognised.
Trust consolidation/IFRS 15
In the prior period the Group changed its accounting policy to
consolidate the Trusts and to implement IFRS 15. This adjustment
reverses the impact of these policy changes in order to maintain
underlying performance measures with those used in the day-to-day
management of the business.
Capital expenditure
Capital expenditure on property, plant and equipment and
intangible assets was GBP21.0 million (2020: GBP11.1 million).
This is analysed as:
31 December 25 December
2021 2020
GBPm GBPm
Maintenance capital expenditure:
Funeral services 10.5 5.0
Crematoria 5.4 2.7
Other 1.7 1.4
Total maintenance capital expenditure(a) 17.6 9.1
Branch relocations 0.1 0.5
Transformation capital expenditure - 0.2
Development of new crematoria and cemeteries 3.3 1.3
Total property, plant and equipment 21.0 11.1
Partly funded by:
Disposal proceeds - properties (b) (1.2) (1.1)
Net capital expenditure 19.8 10.0
(a) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other
tangible and intangible assets.
(b) Property disposals in 2021 includes GBP0.8 million of
insurance proceeds received. Property disposals in 2020 were the
result of the now abrogated Transformation Plan.
The Group will continue to invest in the maintenance of its
existing portfolio of vehicles and funeral and crematoria
locations.
Cash flow and cash balances for the Trading Group
Underlying cash generated from operations was GBP88.3 million
(2020: restated GBP88.9 million).
Other working capital changes were consistent with the Group's
experience of converting profits into cash, subject to timing
differences and cash incurred in respect of commission
payments.
Cash balances of the Trading Group at the end of the period were
GBP55.9 million (2020: GBP56.7 million excluding GBP16.9 million
set aside for debt service: total Trading Group cash balances of
GBP73.6 million). Further details and analysis of the Group's cash
balances are included in note 7.
Pensions
The balance sheet shows a deficit of GBP19.7 million before
deferred tax (2020: deficit of GBP36.6 million). Following the
triennial valuation performed in April 2020, the scheme will
receive future annual cash obligations from the Group from 2022
onwards of GBP4.5 million.
Taxation
The Group's effective tax rate on underlying profits in the
period was 20.2 per cent (2020: restated 24.2 per cent). The
current period underlying effective tax rate is higher than the
standard rate of corporation tax due to the effects of permanent
disallowables and prior year items with a tax impact totalling
GBP0.3 million. The underlying effective tax rate is lower than
originally anticipated due to the effects of prior year credits and
a lower level of permanent disallowables.
In 2022, the Group expects its underlying effective tax rate to
be approximately two to three per cent above the headline rate of
corporation tax. This translates to an underlying effective rate of
between 21.0 per cent and 22.0 per cent.
The Group's effective tax rate on profits is 62 per cent (2020:
charge on losses of 30.0 per cent) which is higher than the
underlying effective tax rate primarily due to the GBP1.5 million
corporate interest restriction disallowance, GBP6.9 million arising
on the corporation tax rate change and GBP6.1 million of
disallowable taxation on the goodwill and trade name impairments
and write-off.
Prior year restatements
Following a review of the Group's accounting policy for
insurance plans in relation to the prepaid balances held on the
consolidated balance sheet it has been amended to include a
provision for expected future cancellations. It was further noted
that a liability was not held for active plans where a known
commission is payable in future years. The total impact has been
booked into opening reserves at 28 December 2019 and is a reduction
to reserves of GBP3.5 million. Further details of the prior year
restatement are set out in note 17.
Comparatives for the 52 week period ended 25 December 2020 have
been restated due to a prior year adjustment in relation to the
application of IFRS 16. This has impacted the consolidated
statement of cashflows and the revenue and segmental analysis.
Furthermore, underlying operating profit within divisional results
have also been restated. See note 1 for further details.
Capital structure and financing for the Trading Group
Secured Notes
The Group's principal source of long-term debt financing is the
Secured A Notes and the Secured B Notes. The principal is repaid
completely over the life of the Secured Notes and is therefore
scheduled to be repaid by 2049. The interest rate is fixed for the
life of the Secured Notes and interest is calculated on the
principal .
The key terms of the Secured Notes are summarised in the table
below:
Secured A Notes Secured B
Notes
Total new issuance at par GBP238.9 million GBP356.4 million
Legal maturity 31 December 31 December
2034 2049
Coupon 3.5456% 4.6956%
Rating by Fitch A- BB+
Rating by Standard & Poor's A- B+
The Secured Notes have an annual debt service obligation
(principal and interest) of circa GBP33.2 million. Net amounts
owing on the Secured Notes is GBP526.6 million (2020: GBP541.7
million).
It is not currently possible to issue further Secured Notes, as
such an issue would require the rating of the Secured B Notes to
raise to BBB by both rating agencies.
Financial Covenant
The Group's primary financial covenant under the Secured Notes
requires EBITDA to total debt service to be above 1.5 times. The
ratio at 31 December 2021 was 2.13 times (2020: 1.99 times). The
Group therefore had EBITDA headroom of approximately GBP21.4
million (2020: approximately GBP16.0 million) against its financial
covenants at the end of December. This covenant calculation uses a
prescribed definition of EBITDA detailed in the loan documentation
and only represents the profit of a sub-group of the Group which is
party to the loans (the 'Securitisation Group'). Furthermore, the
calculations are unaffected by the consolidation of the Trusts or
the application of IFRS 15 and IFRS 16 described elsewhere, as the
Group was able to elect to disregard those changes when making the
calculations.
EBITDA for this calculation can be reconciled to the Group's
statutory operating profit as follows:
31 December
2021
GBPm
EBITDA per covenant calculation - Securitisation
Group 72.4
Add: EBITDA of entities outside Securitisation
Group 1.3
Add: Impact of IFRS 16 12.5
Less: Non-cash items (a) (1.3)
Underlying operating profit before depreciation
and amortisation - Group 84.9
Underlying depreciation and amortisation (29.1 )
Non-underlying items (48.3 )
Impact of Trust consolidation and IFRS
15 10.3
Operating profit 17.8
(a) The terms of the securitisation require certain items (such
as pensions, Save As You Earn Scheme and Long-Term Incentive Plan
Scheme costs) to be adjusted from an accounting basis to a cash
basis.
In addition, in order for the Group to transfer excess from the
Securitisation Group to Dignity plc, it must achieve both a higher
EBITDA to total debt service ratio of 1.85 times and achieve a Free
Cash Flow to total debt service (a defined term in the
securitisation documentation) of at least 1.4 times. This latter
ratio at December was 1.76 times (December 2020: 1.57 times). These
combined requirements are known as the Restricted Payment Condition
('RPC') which have been met in 2021. Failure to pass the RPC would
not be a covenant breach and would not cause an acceleration of any
debt repayments. Any cash not permitted to be transferred whilst
the RPC is not achieved will be available to be transferred at a
later date once the RPC requirement is achieved.
Net debt
The Trading Group has underlying net debt of GBP471. 2 million
(2020: GBP480.6 million) at the balance sheet date. See note 10 for
further details.
Should the Group wish to repay all amounts due under the Secured
Notes, the cost to do so at the year end would have been
approximately GBP757.4 million, (Class A Notes: GBP202.8 million;
Class B Notes: GBP554.6 million) (2020: GBP822.7 million, (Class A
Notes: GBP226.0 million; Class B Notes: GBP596.7 million)).
Net finance costs
The Group's underlying finance costs substantially consist of
the interest on the Secured Notes and ancillary instruments. The
net finance cost in the period relating to these instruments was
GBP23.7 million (2020: GBP24.1 million).
Other ongoing underlying finance costs incurred in the period
amounted to GBP0.8 million (2020: GBP1.0 million), covering the
unwinding of discounts on the Group's provisions and other
financial liabilities.
Interest receivable on bank deposits was GBPnil (2020: GBP0.1
million).
The Group also incurred GBP4.5 million (2020: GBP4.7 million)
lease liability interest, under IFRS 16, giving a total underlying
net finance cost of GBP29.0 million (2020: restated GBP29.7
million).
Shareholders' deficit
Consolidating the Trusts and applying IFRS 15, has a significant
impact on our reported results. The recognition of contract
liabilities (the majority of which are expected to fall due after
one year) in excess of the Trusts' financial assets has caused the
Group's balance sheet to show an overall deficit in shareholders'
funds.
On consolidation of the Trusts, all funds received from the plan
members are deferred until recognised on satisfaction of a funeral
obligation or when a plan is cancelled and refunded (subject to an
administrative fee). These deferred funds increase under IFRS 15 by
a material non-cash significant financing charge. The assets of the
Trusts, initially representing the same funds received from plan
members less an amount paid to the Trading Group to cover marketing
costs, are invested by the Trusts and are subject to market
movements. Over time, investments are also realised to fund funeral
payments or refund obligations. The net impact of the above gives
rise to a significant reduction in the net asset value of the Group
to a position where the Group has reported a net deficit of
GBP151.1 million (2020: restated GBP177.5 million). Whilst this
position appropriately reflects the application of IFRS 15 to the
underlying contract with the plan member, based on the current cost
of delivery of a funeral service, delivery of pre-need funerals is
expected to result in the future recognition of profits under IFRS,
which, over time, the Directors consider would more than eliminate
the deficit noted above.
This deficit, which only arises on consolidation, has no impact
on the Group's future ability to pay dividends to shareholders,
which relies on the reserves in the Company and not the Group.
The Trusts
At the balance sheet date, the Trusts had GBP1,043.1 million
(2020: GBP967.1 million) of financial assets and GBP19.8 million
(2020: GBP21.6 million) of cash, which was recognised in the
consolidated balance sheet. This has resulted in average net Trust
asset per plan increasing six per cent to GBP3,650 (2020:
GBP3,400). The movement in financial assets is primarily
attributable to remeasurement gains recognised in the consolidated
income statement of GBP85.0 million (2020: GBP41.3 million),
reflecting changes in asset values and net disposals of financial
assets of GBP12.2 million (2020 net disposals of financial assets:
GBP18.7 million).
Aggregated contract liabilities totalled GBP1,337.5 million
(2020: GBP1,317.5 million) with the primary movements being sales
of new plans of GBP86.3 million (2020: GBP82.0 million), increases
due to significant financing of GBP51.6 million (2020: GBP53.1
million) and releases due to death or cancellation totalling
GBP117.9 million (2020: GBP122.2 million).
Outlook
The successful delivery of our strategy will deliver long-term
growth and value.
Divisional performance
Introduction
Operating segments are reported in a manner consistent with
internal reporting provided to the chief operating decision maker
who is responsible for allocating resources and assessing
performance of the operating segments. The chief operating decision
maker of the Group has been identified as the three Executive
Directors.
For statutory purposes the Group has two reporting segments,
funeral services and crematoria, as under IFRS 15 only a single
performance obligation exists when a pre-arranged funeral plan is
sold, being the performance of a funeral. The Group also reports
central overheads, which comprise unallocated central expenses.
For the purpose of alternative performance measures the Group
has three reporting segments, funeral services, crematoria and
pre-arranged funeral plans as the chief operating decision maker
reviews segmental performance before applying the effect of IFRS
15.
Funeral services relate to the provision of funerals and
ancillary items, such as memorials and floral tributes.
Crematoria services relate to cremation services and the sale of
memorials and burial plots at the Dignity crematoria and
cemeteries.
Pre-arranged funeral plans represent the sale of funerals in
advance to clients wishing to make their own funeral arrangements
and the marketing and administration costs associated with making
such sales.
Funeral services
Overview
As at 31 December 2021, we operated from a network of 776 (2020:
795) funeral locations throughout the UK, generally operating under
established local trading names. The change to the portfolio
reflects five branch openings and 24 closures in the year. Most
closures represent funeral locations where leases have naturally
come to an end and have not been renewed and also include seven
freehold closures.
Performance
We conducted 79,200 funerals (2020: 80,300) during the period
under review. Underlying operating profit was GBP48.2 million
(2020: restated GBP53.1 million) a reduction of nine per cent, this
can be explained by the financial summary table below.
Financial summary 2021
---------------------------------------------------------------------------------------------
H1 H2 FY
GBPm GBPm GBPm
--------------------------------------------------- ------------ ------------ ------------
Underlying operating profit - 2020 restated
(1) 36.0 17.1 53.1
Impact of:
Number of deaths (2) (8.2) 8.5 0.3
Market share(2) (2.9) (0.1) (3.0)
Average revenues (2) 6.2 (4.4) 1.8
Net cost base changes 0.5 (4.5) (4.0)
Underlying operating profit - 2021 31.6 16.6 48.2
--------------------------------------------------- ------------ ------------ ------------
(1) Restatement relates to the correction of the application of
IFRS 16 in 2020. See note 1 for further details .
(2) Represents revenue impact.
Items totalling GBP35.2 million (2020: restated GBP34.4 million)
excluded from underlying operating profit resulted in statutory
operating profit of GBP13.0 million (2020: restated GBP18.7
million). These items are discussed on pages 49 and 50 but relate
to non-underlying items and the impact of consolidating the Trusts
and IFRS 15.
Progress and Developments
Market share
Approximately one per cent of all funerals were conducted in
Northern Ireland. Excluding Northern Ireland, these funerals
represented approximately 11.8 per cent (2020: 12.0 per cent) of
total estimated deaths in Britain. Whilst funerals divided by
estimated deaths is a reasonable measure of Dignity's market share,
the Group does not have a complete national presence and
consequently, this calculation can only ever be an estimate.
On a comparable basis, excluding any funerals from locations not
contributing to the whole of 2020 and 2021, market share was 11.8
per cent, compared to 11.9 per cent in 2020. Both 2021 and 2020 are
a significant improvement on the dramatic market share declines
witnessed in 2016 and 2017, however, the Group's new strategy is
expected to grow market share significantly.
Market share is calculated based on a fixed assumption of one
week between the registration of the death and the date of the
funeral. Therefore, due to COVID-19 and longer delays between the
date of registering the death and the date of the funeral being
performed, calculations of market share in 2020 and 2021 may not be
comparable.
Funeral mix and Average revenue
In September 2021, funeral services introduced an Attended
Funeral at prices from GBP1,595 to GBP2,495 (excludes extras)
across the network and implemented the Unattended Funeral (direct
cremation), and the simple funeral was removed (apart from our
location in Jersey). As such, the historical full service average
and the simple and direct cremation average are no longer
comparable. In order to have comparability the full service and the
simple averages have been blended to give a new Attended average
and the direct cremation, previous included as simple and direct
cremation, has been restated to Unattended to make both comparable.
The previous averages and the restated averages can be seen in the
two tables below.
The new pricing strategy was introduced in early September and
as expected it has caused a decline in our underlying average
revenue. It is too early to judge the precise effects of this
however, as demonstrated in the second table, the underlying
Attended average in quarter four 2021 is GBP788 lower than 2019 and
GBP356 lower than 2020, which was impacted by COVID-19. Sales of
ancillary items such as flowers and memorials have also improved
compared to 2020 at GBP154.
Funeral mix and average FY FY H2
revenue 2019 2020 Q1
Q2 H1 Q3 Q4 2021 FY
2021 2021 2021 2021 2021 2021
Funeral Actual Actual Actual Actual Actual Actual Actual Actual Actual
type
---------------- -------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Underlying
average
revenue Full
(GBP) service 3,578 3,337 3,354 3,441 3,393 3,284 2,462 2,780 3,062
Simple, limited
and direct
cremation(1) 2,047 1,941 1,929 1,921 1,926 1,876 1,081 1,589 1,818
Pre-need 1,846 1,911 1,943 1,955 1,948 1,980 1,965 1,959 1,959
Other
(including
Simplicity) 770 940 1,004 982 982 873 790 943 904
---------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Volume mix Full
(%) service 52 39 41 46 43 49 61 55 49
Simple, limited
and direct
cremation(1) 14 25 21 17 20 14 6 10 15
Pre-need 27 28 29 28 28 28 27 28 28
Other
(including
Simplicity) 7 8 9 9 9 9 6 7 8
---------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Underlying weighted
average (GBP) 2,699 2,397 2,434 2,545 2,478 2,505 2,145 2,306 2,394
Ancillary revenue
(GBP) 231 125 131 168 150 187 135 154 154
-------------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Underlying average
revenue (GBP) 2,930 2,522 2,565 2,713 2,628 2,692 2,280 2,460 2,548
-------------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Full service volume as
a percentage of full,
simple and limited (%) 79 61 66 73 68 78 n/a n/a n/a
---------------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Funeral mix and average FY FY H2
revenue - restated 2019 2020 Q1
Q2 H1 Q3 Q4 2021 FY
2021 2021 2021 2021 2021 2021
Funeral Actual Actual Actual Actual Actual Actual Actual Actual Actual
type
---------------- ------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Underlying
average
revenue
(GBP) Attended 3,253 2,821 2,903 3,064 2,959 3,000 2,465 2,696 2,855
Unattended n/a 996 1,010 944 980 1,178 1,060 1,085 1,063
Pre-need 1,846 1,911 1,943 1,955 1,948 1,980 1,965 1,959 1,959
Other
(including
Simplicity) 770 940 1,004 982 982 873 790 943 904
--------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Volume mix
(%) Attended 66 63 61 62 62 61 61 61 61
Unattended n/a 1 1 1 1 2 6 4 3
Pre-need 27 28 29 28 28 28 27 28 28
Other
(including
Simplicity) 7 8 9 9 9 9 6 7 8
--------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Underlying weighted
average (GBP) 2,699 2,397 2,434 2,545 2,478 2,505 2,145 2,306 2,394
Ancillary revenue
(GBP) 231 125 131 168 150 187 135 154 154
------------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Underlying average
revenue (GBP) 2,930 2,522 2,565 2,713 2,628 2,692 2,280 2,460 2,548
------------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------------
Investment
Investment in the Group's locations and fleet have continued. In
2021, GBP10.5 million (2020: GBP5.0 million) was invested in
maintenance capital expenditure. Whilst 2021 expenditure was
considerably higher than 2020 the Group anticipates higher spend in
2022.
Outlook
The Group is focusing on its restructure which will allow it to
put the power back in the hands of the colleagues who are at the
heart of their local communities, with this will come growth.
Crematoria
Overview
The Group remains the largest single independent operator of
crematoria in Britain, operating 46 (2020: 46) crematoria as at 31
December 2021.
Performance
The Group performed 74,800 cremations (2020: 74,500) in the
period, representing 11.3 per cent (2020: 11.2 percent) of total
estimated deaths in Britain.
Underlying operating profit was GBP47.0 million (2020: restated
GBP44.2 million), an increase of six per cent. This can be
explained by the financial summary table below:
Financial summary 2021
H1 H2 FY
GBPm GBPm GBPm
Underlying operating profit -2020 restated(1) 24.4 19.8 44.2
Impact of:
Number of deaths(2) (3.2) 3.3 0.1
Market share(2) (0.4) 0.5 0.1
Average revenues(2) 4.6 (2.0) 2.6
Cost base changes (0.2) 0.2 -
Underlying operating profit -2021 25.2 21.8 47.0
(1) Restatement relates to the correction of the application of
IFRS 16 in 2020. See note 1 for further details .
(2) Represents revenue impact.
The primary reason for the increase in underlying operating
profit is average revenues. Crematoria grounds have been fully open
for all of 2021 compared to being closed in quarter two of 2020,
and consequently total memorial and cemetery revenue was GBP19.2
million (2020: GBP16.7 million), approximately 15 per cent higher
despite cremation volume being in line with 2020. The average
cremation revenue is in line with the prior year at GBP887 (2020:
GBP885).
Non-underlying costs of GBP0.5 million (2020: GBP0.2 million)
are excluded from underlying operating profit resulting in
statutory operating profit of GBP46.5 million (2020: restated
GBP44.0 million).
Progress and Developments
The Group has invested GBP5.4 million (2020: GBP2.7 million)
maintaining and improving its locations in the period.
The Group now has planning permission for six new crematoria.
The total capital commitment for these six projects is expected to
be approximately GBP55 million, with GBP11.5 million of this amount
having already been invested. Each of the locations with planning
permission will take five to seven years to reach maturity,
performing 800 to 1,000 cremations per year.
In addition, the Group also has one location where it is
appealing the planning decisions and another one that is currently
in the planning process. Furthermore, the Group withdrew its
interest in one location following an unsuccessful planning
appeal.
Outlook
Crematoria remains a stable and cash generative aspect of the
Group's operations.
Pre-arranged funeral plans
Underlying Performance
The Group continues to have a strong market presence in
pre-arranged funeral plans and insurance policies charged to it for
the provision of a funeral. The plans represent potential future
incremental business for the funeral division, providing
high-levels of certainty of cash flows as existing plans
mature.
The Trading Group claims a marketing allowance from the trust
that covers the costs incurred in the selling of Funeral Plans. As
a result, the pre-arrangement division does not contribute any
profit at the time of sale therefore underlying operating profit
was GBPnil in both periods.
A pproximately 50,000 (2020: 60,000) new plan sales were made
and the number of active pre-arranged plans (including insurance
backed arrangements) increased to 581,000 (2020: 558,000). All plan
sales are stated net of cancellations of 33,000 (2020:32,000). The
majority of commissions are clawed back from distribution partners
on cancellation in the first two years (the majority of expected
cancellations take place in this period).
Of the sales in the period 26,000 plans were trust based funeral
plans (2020: 30,000). In addition, 24,000 (2020: 30,000) plans were
linked to life assurance plans with third parties. Not all of these
insurance backed plans include an obligation to provide a
guaranteed funeral and we anticipate the cancellation experience to
be significantly higher than is witnessed on trust based sales.
Historically, as with all the Group's divisions, pre-arranged
funeral plans underlying profits broadly reflect the cash generated
by that activity. This position has started to shift as more
long-term instalment plans are written, where marketing costs are
incurred when a plan is sold, but, marketing recoveries are claimed
from the trust in line with instalment payments. This shift has
changed the profile of the early years cashflow position.
Progress and Developments
Dignity remains focused on selling high-quality business, in
ways that support the strong reputation of the Group. We ended our
relationship with those third-party telephony partners who sold
plans on our behalf and are now focussing on prioritising the sale
of funeral plans through our branches.
The financial position of the Trusts holding members' monies is
crucial, given the Group ultimately guarantees the promises made to
members. At the end of 2021, the Trusts had average assets per plan
of GBP3,650 (2020: GBP3,400) in respect of 323,000 trust based
funeral plans. Average assets per plan are greater than the amount
currently received by the Trading Group for performing a
funeral.
The latest actuarial valuations of the Trusts (at 24 September
2021) showed them to have a surplus of GBP147.3 million (25
September 2020: surplus GBP4 million), based on assumptions by the
Trust's actuary. This valuation is based on the amounts the Trusts
are expected to pay when a funeral is performed rather than the
actual cost of performance (being a lower amount) to the Group.
During the first half year the new investment strategy announced
last year was largely executed as the previous investment
allocations were unwound and the Trusts' assets placed in a
combination of high-grade bonds (open-ended investment funds) and
low cost index funds (equities). This will reduce the ongoing fund
management cost and more rationally align the investments with the
liabilities with the intention of seeking in the long run to
outperform the cost of carrying out the funerals the trusts
support.
The Trusts have assets, including cash, under the management of
the Trustees of GBP1,062.9 million (2020: GBP988.7 million) with
investments split as follows:
Example investment Actual
types (%)
------------------------- ---------------------- -------
Index linked gilts
Defensive investments and corporate bonds 11-14
------------------------- ---------------------- -------
Illiquid investments Private investments 5-6
------------------------- ---------------------- -------
Core growth investments Equities 74-78
------------------------- ---------------------- -------
Liquid investments Cash 6
------------------------- ---------------------- -------
The current allocation is subject to annual review by the
Trustees with support from their investment advisers. See page 34
for additional discussion of Trust balances.
Outlook
The Group remains optimistic on its ability to continue to be a
market leader in pre-arranged funerals and has successfully
submitted its FCA application in December 2021 and is planning for
regulation to be effective by the middle of 2022.
The Group intends to continue to sell as many plans as is
commercially possible and economically sensible primarily through
its branches. The Group expects plan sales in H1 2022 to be lower
than previous years whilst it transitions from plans being sold by
third party providers to selling the majority of plans through its
branches.
Central overheads
Overview
Central overheads relate to central services that are not
specifically attributed to a particular operating division. These
include the provision of IT, finance, personnel and Directors'
emoluments. In addition, and consistent with previous periods, the
Group records centrally the costs of incentive bonus arrangements,
such as Long-Term Incentive Plans ('LTIPs') and annual performance
bonuses, which are provided to over 100 managers working across the
business.
Developments
Underlying costs in the period were GBP39.4 million (2020:
restated GBP37.0 million). This reflects continued investment in
digital activities and central capabilities. The table below
summarises the key movements:
FY
H1 GBPm H2 GBPm GBPm
Central overheads -2020 restated(1) 18.5 18.5 37.0
Impact of:
Digital activities 0.6 0.7 1.3
Salaries (1.1) 0.4 (0.7)
Other 0.6 1.2 1.8
IT support fees 0.4 (0.4) -
Central overheads -2021 19.0 20.4 39.4
(1) Restatement relates to the correction of the application of
IFRS 16 in 2020. See note 1 for further details .
The increase in digital activities primarily relates to
promotional spend. Salaries have reduced year on year partly due to
GBP0.7 million savings in temporary staff costs that were high in
2020 due to the increase in cover required in the call centre
during the pandemic. Other costs include legal and professional
fees of GBP2.3 million (2020: GBP1.5 million), recruitment fees
GBP0.8 million (2020: GBP0.3 million) and insurance costs of GBP0.5
million (2020: GBP0.2 million).
Non-underlying items of GBP2.3 million (2020: GBP9.8 million)
are excluded from underlying costs resulting in total central costs
of GBP41.7 million (2020: GBP46.8 million).
In addition to the above costs, maintenance capital expenditure
of GBP1.7 million (2020: GBP1.4 million) has been incurred on
central projects predominantly relating to IT that will help the
business as a whole operate more efficiently .
Outlook
As previously stated, Central overheads are expected to reduce
as part of the strategic review. In January 2022 the Group made the
decision to make some colleagues redundant as well as suspending
some of its marketing and digital activities.
Dean Moore
Interim Chief Financial Officer
22 March 2022
Our key performance indicators
We use non-financial and financial KPIs to both manage the
business and ensure that the Group's strategy and objectives are
being delivered.
KPI KPI definitions 53 week 52 week Developments
period period in 2021
ended ended
31 December 25 December
2021 2020
restated
This is
underlying
profit after
tax divided
by the
weighted
average number The reduction
of Ordinary follows the
Underlying Shares in decrease
earnings issue in underlying
per share in the period operating profit
(pence) . 42.8p 46.4p(1) explained below.
Underlying This is the GBP55.8m GBP60.3m(1) Underlying
operating statutory operating
profit (GBPm) operating profit declined
profit of the year-on-year,
Group excluding despite higher
non-underlying deaths. This
items and the is primarily
impact of due to lower
consolidating market share
the Trusts and and higher costs.
IFRS 15.
Underlying This is the GBP88.3m GBP88.9m(1) The Group continues
cash generated statutory cash to convert
from operations generated from operating
(GBPm) operations profit into cash
excluding efficiently.
non-underlying
items and the
impact of
consolidating
the Trusts and
IFRS 15.
U nderlying Underlying GBP2,548 GBP2,522 Restrictions
a verage funeral in client choices
revenue per revenue divided due to COVID-19
funeral (GBP) by the number continued to
of funerals adversely impact
performed in average revenue
the relevant as clients opted
period. for simpler
funerals
during the first
half of 2021.
Quarter 4 has
been adversely
impacted by the
change in pricing
strategy in
September
2021.
Deaths were
Total estimated This is as materially
number of reported higher than
deaths in by the Office originally
Britain for National anticipated due
(number) Statistics. 664,000 663,000 to the pandemic.
This is the
number of
funerals
performed by
the Group in
Britain
Funeral market divided
share by the total
excluding estimated
Northern number Market share
Ireland (per of deaths in has declined
cent) Britain. 11.8% 12.0% slightly.
This is the
number of
funerals
performed by Changes are a
the Group consequence of
Number of according the total number
funerals to our of deaths and
performed operational the Group's market
(number) data. 79,200 80,300 share.
This is the
number of
cremations
performed by
the Group
divided
by the total
estimated
Crematoria number
market share of deaths in Market share
(per cent) Britain. 11.3% 11.2% is broadly stable.
This is the
number of
cremations Changes are a
performed consequence of
Number of according the total number
cremations to our of deaths and
performed operational the Group's market
(number) data. 74,800 74,500 share.
This is the
number of This increase
pre-arranged reflects continued
funerals (both sales activity
trust funeral (both trust funeral
plans and plans and insurance
insurance backed) offset
backed) where by plans cancelled
the Group has and the
Active an obligation crystallisation
pre-arranged to provide a of plans sold
funerals funeral in the in previous
(number) future. 581,000 558,000 periods.
(1) Restatement relates to the correction of the application of
IFRS 16 in 2020. See note 1 for further details .
Maintaining consistently high-quality and standards
We closely monitor the results of our client surveys which are
conducted by our funeral services division. In the last five years,
we have received approximately 155,000 responses. This is our
measure of how these services meet or exceed client expectations.
Our consistently high satisfaction scores reflect the strength of
our relationships with our clients. We listen to our clients and
use our survey responses to focus on areas in which we can improve
and add value.
The Dignity Client Survey 2021
Reputation and recommendation
99.0% (2020: 98.9%)
99.0 per cent of respondents said that we met or exceeded their
expectations.
98.0% (2020: 97.9%)
98.0 per cent of respondents would recommend us.
Quality of service and care
99.9% (2020: 99.9%)
99.9 per cent thought our staff were respectful.
99.7% (2020: 99.6%)
99.7 per cent thought our staff listened to their needs and
wishes.
99.2% (2020: 99.1%)
99.2 per cent agreed that our staff were compassionate and
caring.
High standards of facilities and fleet
99.8% (2020: 99.7%)
99.8 per cent thought our premises were clean and tidy.
99.6% (2020: 99.2%)
99.6 per cent thought our vehicles were clean and
comfortable.
In the detail
99.2% (2020: 98.9%)
99.2 per cent of clients agreed that our staff had fully
explained what would happen before and during the funeral.
99.1% (2020: 99.2%)
99.1 per cent said that the funeral service took place on
time.
98.3% (2020: 98.0%)
98.3per cent said that the final invoice matched the estimate
provided.
Consolidated income statement
for the 53 week period ended 31 December 2021
53 week 52 week
period period
ended ended
31 December 25 December
2021 2020
Note GBPm GBPm
Revenue 2 353.7 357.5
Cost of sales (174.1) (177.3)
Gross profit 179.6 180.2
Administrative expenses (161.8) (164.3)
Operating profit 2 17.8 15.9
Finance costs 3 (29.0) (29.8)
Finance income 3 - 0.1
Deferred revenue significant financing 3 (51.6) (53.1)
Remeasurement of financial assets held
by the Trusts and related income 3 94.8 47.3
Profit/(loss) before tax 2 32.0 (19.6)
Taxation 4 (19.9) (5.9)
Profit/(loss) for the period attributable
to equity shareholders 2 12.1 (25.5)
Earnings/(loss) per share for profit
attributable to equity shareholders
- Basic (pence) 5 24.2p (51.0)p
- Diluted (pence) 5 24.2p (51.0)p
The alternative performance measures included within the
Preliminary Announcement present information on a comparable basis
with that presented in prior periods.
Consolidated statement of comprehensive income
for the 53 week period ended 31 December 2021
53 week 52 week
period period
ended ended
31 December 25 December
2021 2020
Note GBPm GBPm
Profit/(loss) for the period 12.1 (25.5)
Items that will not be reclassified to
profit or loss
Remeasurement gain/(loss) on retirement
benefit obligations 12 15.6 (11.7)
Tax (charge)/credit on remeasurement on
retirement benefit obligations (3.9) 2.2
Tax charge on pension contributions (0.2) -
Restatement of deferred tax for the change
in UK tax rate 4 1.9 0.5
Other comprehensive income/(loss) 13.4 (9.0)
Comprehensive income/(loss) for the period 25.5 (34.5)
Attributable to:
Equity shareholders of the parent 25.5 (34.5)
Consolidated balance sheet
as at 31 December 2021
31 December 25 December
2021 2020
restated
Note GBPm GBPm
Assets
Non-current assets
Goodwill 6 167.9 203.9
Intangible assets 6 110.7 120.5
Property, plant and equipment 242.1 240.9
Right-of-use asset 89.1 95.2
Deferred insurance commissions 8.4 9.4
Financial assets held by the Trusts 8 1,043.1 967.1
Deferred commissions 9 100.9 101.3
Deferred tax asset 5.5 20.3
1,767.7 1,758.6
Current assets
Inventories 8.6 9.0
Trade and other receivables 30.0 30.0
Current tax receivable 2.4 -
Deferred commissions 9 7.6 7.6
Cash and cash equivalents - Trading Group 55.9 73.6
Cash and cash equivalents - held by the Trusts 19.8 21.6
Cash and cash equivalents 7 75.7 95.2
124.3 141.8
Total assets 1,892.0 1,900.4
Liabilities
Current liabilities
Financial liabilities 11.5 15.7
Trade and other payables 59.5 68.2
Lease liabilities 7.1 7.3
Current tax liabilities - 7.9
Contract liabilities 9 99.6 95.5
Provisions for liabilities 2.1 2.4
179.8 197.0
Non-current liabilities
Financial liabilities 518.3 529.5
Other non-current liabilities 2.2 2.1
Lease liabilities 75.8 81.2
Contract liabilities 9 1,237.9 1,222.0
Provisions for liabilities 9.4 9.5
Retirement benefit obligation 12 19.7 36.6
1,863.3 1,880.9
Total liabilities 2,043.1 2,077.9
Shareholders' deficit
Ordinary share capital 6.2 6.2
Share premium account 12.9 12.7
Capital redemption reserve 141.7 141.7
Other reserves (2.3) (3.0)
Retained earnings (309.6) (335.1)
Total deficit (151.1) (177.5)
Total deficit and liabilities 1,892.0 1,900.4
Prior year comparatives have been restated due to a prior year
adjustment in relation to insurance plans. See page 25 for further
details.
The alternative performance measures included within the Group's
consolidated financial statements present information on a
comparable basis.
Consolidated statement of changes in equity
for the 53 week period ended 31 December 2021
Ordinary Share Capital
share premium redemption Other Retained Total
capital account reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
Shareholders' equity as
at 27 December 2019 - as
previously stated 6.2 12.5 141.7 (4.0) (297.9) (141.5)
---------------------------------- --------- -------- ---------------- ------------ --------------- ------------
Impact of insurance plans
on 28 December 2019 - prior
year adjustment (note 1) - - - - (3.5) (3.5)
Adjustment on initial application
of IFRS 16 on 28 December
2019 - - - - 0.8 0.8
---------------------------------- --------- -------- ---------------- ------------ --------------- ------------
Shareholders' equity as
at 28 December 2019 - restated 6.2 12.5 141.7 (4.0) (300.6) (144.2)
Loss for the 52 weeks ended
25 December 2020 - - - - (25.5) (25.5)
---------------------------------- --------- -------- ---------------- ------------ --------------- ------------
Remeasurement loss on retirement
benefit obligations - - - - (11.7) (11.7)
Tax on retirement benefit
obligations - - - - 2.2 2.2
Restatement of deferred
tax for the change in UK
rate - - - - 0.5 0.5
---------------------------------- --------- -------- ---------------- ------------ --------------- ------------
Other comprehensive loss - - - - (9.0) (9.0)
Total comprehensive loss - - - - (34.5) (34.5)
Effects of employee share
options - - - 1.2 - 1.2
Proceeds from share issue
(1) - 0.2 - - - 0.2
Gift to Employee Benefit
Trust - - - (0.2) - (0.2)
Shareholders' equity as
at 25 December 2020 - restated 6.2 12.7 141.7 (3.0) (335.1) (177.5)
Profit for the 53 weeks
ended 31 December 2021 - - - - 12.1 12.1
---------------------------------- --------- -------- ---------------- ------------ --------------- ------------
Remeasurement gain on retirement
benefit obligations - - - - 15.6 15.6
Tax on retirement benefit
obligations - - - - (3.9) (3.9)
Tax on pension contributions - - - - (0.2) (0.2)
Restatement of deferred
tax for the change in UK
tax rate - - - - 1.9 1.9
---------------------------------- --------- -------- ---------------- ------------ --------------- ------------
Other comprehensive income - - - - 13.4 13.4
Total comprehensive income - - - - 25.5 25.5
Effects of employee share
options - - - 0.8 - 0.8
Proceeds from share issue
(2) - 0.2 - - - 0.2
Gift to Employee Benefit
Trust - - - (0.1) - (0.1)
Shareholders' equity as
at 31 December 2021 6.2 12.9 141.7 (2.3) (309.6) (151.1)
(1) Relating to issue of 7,745 shares under 2017 DAB scheme
and 344 shares issued under the 2019 SAYE scheme.
(2) Relating to issue of 5,963 shares under 2016 DAB scheme
and 4,562 shares under the 2019 SAYE scheme.
Comparatives for the 52 weeks ended 25 December 2020 have been
restated due to a prior year adjustment in relation to insurance
plans. See note 1 for further details.
The above amounts relate to transactions with owners of the
Company except for the items reported within total comprehensive
income.
Capital redemption reserve
The capital redemption reserve represents GBP80,002,465 B Shares
that were issued on 2 August 2006 and redeemed for cash on the same
day, GBP19,274,610 B Shares that were issued on 10 October 2010 and
redeemed for cash on 11 October 2010, GBP22,263,112 B Shares that
were issued on 12 August 2013 and redeemed for cash on 20 August
2013 and GBP20,154,070 B Shares that were issued and redeemed for
cash in November 2014.
Other reserves
Other reserves include movements relating to the Group's SAYE
and LTIP schemes and associated deferred tax, together with a
GBP12.3 million merger reserve.
Consolidated statement of cash flows
for the 53 week period ended 31 December 2021
53 week 52 week
period period
ended ended
31 December 25 December
2021 2020
restated
Note GBPm GBPm
Cash flows from operating activities
Cash generated from operations 68.3 62.7
Finance income received - 0.1
Finance costs paid (40.2) (29.2)
Transfer from restricted bank accounts
for finance costs 12.0 12.1
Payments to restricted bank accounts
for finance costs 7 - (12.0)
Total payments in respect of finance
costs (28.2) (29.1)
Tax paid (17.7) (6.9)
Net cash generated from operating
activities 22.4 26.8
Cash flows from investing activities
Acquisition of subsidiaries and businesses (0.2) -
(net of cash acquired)
Proceeds from sale of property, plant
and equipment 1.2 1.1
Purchase of property, plant and equipment
and intangible assets (21.0) (11.1)
Purchase of financial assets (by the
Trusts) 8 (948.7) (778.1)
Disposals of financial assets (by
the Trusts) 8 960.9 796.8
Realised return on financial assets 2.1 3.8
Net cash (used)/generated in investing
activities (5.7) 12.5
Cash flows from financing activities
Payments due under Secured Notes (15.1) (9.6)
Transfer from restricted bank accounts
for repayment of borrowings 4.9 4.8
Payments to restricted bank accounts
for repayment of borrowings 7 - (4.9)
Total payments in respect of borrowings (10.2) (9.7)
Principal elements of lease payments (9.1) (7.8)
Net cash used in financing activities (19.3) (17.5)
Net (decrease)/increase in cash and
cash equivalents (2.6) 21.8
Cash and cash equivalents at the beginning
of the period 78.3 56.5
Cash and cash equivalents at the end
of the period 7 75.7 78.3
Restricted cash - amounts set aside
for debt service payments 7 - 16.9
Cash and cash equivalents at the end
of the period as reported in the
consolidated balance sheet 7 75.7 95.2
(1) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other
tangible and intangible assets.
Comparatives for the 52 weeks ended 25 December 2020 have been
restated due to a prior year adjustment in relation to the
application of IFRS 16. See note 1 for further details.
1 Prior year restatements
Insurance plans
The Group is the named beneficiary on a number of life assurance
products sold by third party insurance companies on which the Group
pays commission. The Group is entitled to recover commission paid
if plans are cancelled within two years of being sold. However, if
plans are cancelled outside this two year period, commissions paid
are not refundable. The majority of plans with these features
ceased to be written in October 2019 and the remainder in February
2020.
Following a review of the Group's accounting policy for
insurance plans in relation to the prepaid balance held on the
consolidated balance sheet within 'deferred insurance commissions'
it has been amended to include a provision for expected future
cancellations. A detailed analysis has been performed on the
cancellation rates for insurance products and a prior year
restatement has been required to reflect the expected level of
future cancellations.
It was further noted that a liability was not held for the
active plans where a known commission is payable in future years.
The calculation for the liability includes an estimate of the level
of cancellations before the commission is payable and is discounted
using a risk free rate of return. Furthermore, an assessment has
been performed to determine the level of future expected funerals
and this element of the liability has been held as a corresponding
asset.
Prior year comparatives have been restated to reflect the above
changes. There is no impact on statutory earnings, underlying
earnings or earnings per share for the 52 week period ended 25
December 2020. A reconciliation from the reported prior period
comparatives has been provided in note 17 together with the third
balance sheet required to be disclosed in support of the prior year
adjustments.
IFRS 16
Following the finalisation of adopting IFRS 16 for the first
time and as presented in the consolidated financial statements as
at and for the 52 week period ended 25 December 2020 a number of
restatements have been made to the consolidated financial
information as follows:
-- The operating profit impact of IFRS 16 in December 2020 was
reported within the funerals services segment within 'other
adjustments' totalling GBP4.6 million, however this has now been
split between the funeral services (GBP3.1 million), crematoria
(GBP1.4 million) and central overheads (GBP0.1 million) segments to
better reflect where the leasing arrangements are held;
-- The December 2020 restated split reported in the 2021 Interim
Report was GBP1.9 million to funeral services, GBP2.6 million to
crematoria and GBP0.1 million to central overheads. Following
further analysis of the leasing arrangements these have been
restated within this Annual Report as above. Operating profit for
December 2020 has therefore been restated from GBP17.5 million to
GBP18.7 million in the funerals segment and from GBP45.2 million to
GBP44.0 million in the Crematoria segment. All remaining analysis
of the restatement is based on this revised split; and
-- The impact of IFRS 16 has now been moved into underlying
performance measures to reflect the application of IFRS 16. On
adoption in 2020 the modified retrospective approach was applied
which meant 2019 comparatives were not restated. As a result, the
Group choose to exclude it from its underlying performance measures
reported in 2020 in order to retain comparability.
The following restatements have been made within the segmental
analysis as a result of the above:
-- Funeral services - Underlying operating profit before
depreciation and amortisation has been increased by GBP10.9 million
to GBP73.0 million, underlying depreciation and amortisation has
increased by GBP7.8 million to GBP19.9 million giving an overall
increase in underlying operating profit of GBP3.1 million to
GBP53.1 million. Accordingly, 'other adjustments' has decreased by
GBP1.9 million to GBP13.9 million. Statutory operating profit has
increased by GBP1.2 million to GBP18.7 million;
-- Crematoria - Underlying operating profit before depreciation
and amortisation has been increased by GBP2.5 million to GBP51.2
million, underlying depreciation and amortisation has increased by
GBP1.1 million to GBP7.0 million giving an overall increase in
underlying operating profit of GBP1.4 million to GBP44.2 million.
Accordingly, 'other adjustments' has decreased by GBP2.6 million to
GBPnil. Statutory operating profit has decreased by GBP1.2 million
to GBP44.0 million; and
-- Central overheads - Underlying operating loss before
depreciation and amortisation has been reduced by GBP0.4 million to
GBP34.9 million, underlying depreciation and amortisation has
increased by GBP0.3 million to GBP2.1 million giving an overall
decrease in underlying operating loss of GBP0.1 million to GBP37.0
million. Accordingly, 'other adjustments' has decreased by GBP0.1
million to GBPnil. There is no impact to statutory operating
profit.
Accordingly, the following restatements have also been made
within the segmental analysis:
-- IFRS 16 finance costs of GBP4.7 million have been transferred
out of other adjustments into underlying profit before tax. The
total underlying finance costs has been restated to GBP29.8
million;
-- Accordingly, the total impact of the above on underlying
profit before tax is a decrease of GBP0.1 million to GBP30.6
million;
-- There is no impact on the underlying taxation charge;
-- Underlying earnings for the 52 week period ended 25 December
2020 have been restated by GBP0.1 million to GBP23.2 million.
Therefore, underlying earnings per share has decreased by 0.2p to
46.4p; and
-- There is no impact to statutory loss after taxation or statutory earnings per share.
Consolidated statement of cashflows
The consolidated statement of cash flows has also been restated
as at and for the 52 week period ended 25 December 2020 as
follows:
-- The 'principal and interest elements of lease payments' was
previously classified within cashflows from financing activities.
The interest element of IFRS 16 amounting to GBP4.7 million has
been reclassified into finance costs paid under cash flow from
operating activities. Total finance costs paid now totals GBP29.2
million, leading to a net cash generated from operating activities
of GBP26.8 million. Principal elements of lease payments has been
restated to GBP7.8 million leading to a net cash used in financing
activities of GBP17.5 million.
2 Revenue and segmental analysis
Operating segments are reported in a manner consistent with
internal reporting provided to the chief operating decision maker
who is responsible for allocating resources and assessing
performance of the operating segments. The chief operating decision
maker of the Group has been identified as the three Executive
Directors .
For statutory purposes the Group has two reporting segments,
funeral services and crematoria, as under IFRS 15 only a single
performance obligation exists when a pre-arranged funeral plan is
sold, being the performance of a funeral. The Group also reports
central overheads, which comprise unallocated central expenses.
Revenue
Funeral services relate to two primary sources of revenue:
-- Funerals arranged and funded by the client at the time of
need, in addition to ancillary items, such as memorials and floral
tributes; and
-- Funerals arranged and funded by a pre-arranged Trust funeral
plan, for which amounts recognised as revenue arise from the
de-recognition of deferred revenue on completion of the related
performance obligation.
Crematoria services relate to cremation services and the sale of
memorials and burial plots at the Dignity operated crematoria and
cemeteries .
Underlying revenue and operating profit
For the purpose of alternative performance measures the Group
has three reporting segments, funeral services, crematoria and
pre-arranged funeral plans as the chief operating decision maker
reviews segmental performance before applying the effect of IFRS
15.
Funeral services relate to the provision of funerals and
ancillary items, such as memorials and floral tributes.
Crematoria services relate to cremation services and the sale of
memorials and burial plots at the Dignity crematoria and cemeteries
.
Pre-arranged funeral plans represent the sale of funerals in
advance to clients wishing to make their own funeral arrangements
and the marketing and administration costs associated with making
such sales.
Substantially all Trading Group revenue is derived from, and
substantially all of the Trading Group's net assets and liabilities
are located in, the United Kingdom and Channel Islands and relates
to services provided. Overseas transactions are not material.
Underlying revenue and underlying oper ating profit are stated
before non-underlying items and the effect of consolidation of the
Trusts and applying IFRS 15 as defined on pages 48 to 50 .
Reconciliations to statutory amounts
Non-underlying items represent certain non-recurring or
non-trading transactions. See alternative performance measures on
page 49 for further details .
Other adjustments reflect the consolidation of the Trusts and
applying IFRS 15. Underlying revenue substitutes revenue arising
from the de-recognition of deferred revenue on completion of the
related performance obligation, which includes the impact of
significant financing, with the payments received from the Trusts
on the death of a plan member, and recognises marketing allowances
at the inception of a plan, net of an allowance for cancellations.
Underlying revenue also excludes amounts relating to disbursements
and external payments made when the performance of the plan funeral
is delivered by third parties.
Disaggregated revenue
The disaggregated revenue and operating profit/(loss), by
segment, is shown in the following tables:
53 week period ended 31 December 2021
Other
Underlying adjustments
revenue (1) Revenue
GBPm GBPm GBPm
Funeral services 201.9 66.3 268.2
Crematoria 85.5 - 85.5
Pre-arranged funeral plans 24.6 (24.6) -
Group 312.0 41.7 353.7
(1) See alternative performance measures on page 50 for a
reconciliation of other adjustments.
Within funeral services revenue GBP108.1 million relates to the
release of deferred revenue arising on the completion of
performance obligations or on cancellation under pre-need Trust
plans.
In addition to the adjustments noted above relating to revenue,
in arriving at underlying operating profit further 'other
adjustments', reflecting the impact of consolidating the Trusts and
applying IFRS 15, have been recorded. This includes corresponding
entries relating to the exclusion of disbursements and external
payments made when the performance of the funeral is delivered by
third parties, adjustments are also made to exclude the
administration costs of the Trusts and to recognise commissions
payable at the inception of a plan rather than on delivery of the
funeral or cancellation.
Underlying
operating
profit/(loss)
before Underlying Underlying
depreciation depreciation Operating
and and profit/ Non-underlying Other Operating
amortisation amortisation (loss) items(1) adjustments(1) profit/(loss)
53 week period ended GBPm GBPm GBPm GBPm GBPm GBPm
31
December 2021
Funeral
services 67.6 (19.4) 48.2 (45.4) 10.2 13.0
Crematoria 54.5 (7.5) 47.0 (0.5) - 46.5
Pre-arranged
funeral plans - - - (0.1) 0.1 -
Central overheads (37.2) (2.2) (39.4) (2.3) - (41.7)
Group 84.9 (29.1) 55.8 (48.3) 10.3 17.8
Finance costs (29.0) - - (29.0)
Deferred revenue significant
financing (51.6) (51.6)
Remeasurement of
financial
assets held by the
Trusts
and related income 94.8 94.8
Profit before tax 26.8 (48.3) 53.5 32.0
Taxation -
continuing
activities (5.4) 2.5 (10.1) (13.0)
Taxation - rate
change - (8.3) 1.4 (6.9)
Taxation - total (5.4) (5.8) (8.7) (19.9)
Underlying earnings
for
the period 21.4
Non-underlying items (54.1)
Other adjustments 44.8
Profit after
taxation 12.1
Earnings per share for profit attributable
to equity shareholders
- Basic (pence) 42.8p 24.2p
- Diluted (pence) 24.2p
(1) See alternative performance measures on page 50 for a
reconciliation of non-underlying items and other adjustments.
52 week period ended 25 December 2020
Other
Underlying adjustments
revenue (1) Revenue
GBPm GBPm GBPm
Funeral services 202.6 72.2 274.8
Crematoria 82.7 - 82.7
Pre-arranged funeral plans 28.8 (28.8) -
Group 314.1 43.4 357.5
(1) See alternative performance measures on page 51 for a
reconciliation of other adjustments.
Within funeral services revenue GBP113.2 million relates to the
release of deferred revenue arising on the completion of
performance obligations or on cancellation under pre-need Trust
plans.
52 week period ended 25 December 2020 - restated (2)
Underlying
operating
profit/(loss)
before Underlying Underlying
depreciation depreciation Operating Other Operating
and and profit/ Non-underlying adjustments(1) profit/(loss)
amortisation amortisation (loss) items(1) restated restated
GBPm GBPm GBPm GBPm GBPm GBPm
Funeral
services 73.0 (19.9) 53.1 (48.3) 13.9 18.7
Crematoria 51.2 (7.0) 44.2 (0.2) - 44.0
Pre-arranged
funeral plans - - - (0.1) 0.1 -
Central overheads (34.9) (2.1) (37.0) (9.8) - (46.8)
Group 89.3 (29.0) 60.3 (58.4) 14.0 15.9
Finance costs (29.8) - - (29.8)
Finance income 0.1 - - 0.1
Deferred revenue significant
financing (53.1) (53.1)
Remeasurement of
financial
assets held by the
Trusts
and related income 47.3 47.3
(Loss)/profit before
tax 30.6 (58.4) 8.2 (19.6)
Taxation -
continuing
activities (7.4) 6.1 (5.7) (7.0)
Taxation - rate
change - (3.6) 4.7 1.1
Taxation - total (7.4) 2.5 (1.0) (5.9)
Underlying earnings
for
the period 23.2
Non-underlying items (55.9)
Other adjustments 7.2
Loss after taxation (25.5)
Earnings/(loss) per share for profit attributable
to equity shareholders - restated (2)
- Basic (pence) 46.4p (51.0)p
- Diluted (pence) (51.0)p
(1) See alternative performance measures on page 51 for a
reconciliation of non-underlying items and other adjustments.
(2) Underlying reporting measures have been restated to include
the application of IFRS 16 which were previously included within
other adjustments. See pages 25 to 26 for further details.
3 Net finance costs
53 week 52 week
period period
ended ended
31 December 25 December
2021 2020
restated
(1)
GBPm GBPm
Finance costs
Secured Notes 23.1 23.4
Other loans 0.9 1.1
Finance cost on IFRS 16 lease liability 4.5 4.7
Net finance cost on retirement benefit obligations 0.5 0.5
Unwinding of discounts - 0.1
Finance costs 29.0 29.8
Finance income
Bank deposits - (0.1)
Finance income - (0.1)
Deferred revenue significant financing (
note 9 ) 51.6 53.1
Remeasurement of financial assets held by
the Trusts and related income
Realised investment income (9.8) (6.0)
Changes in fair value of financial assets
held by the Trusts ( note 8 ) (85.0) (41.3)
Remeasurement of financial assets held by
the Trusts and related income (94.8) (47.3)
Underlying net finance costs
Underlying finance costs 29.0 29.8
Finance income - (0.1)
Underlying net finance costs 29 .0 29.7
(1) Underlying reporting measures have been restated to include
the application of IFRS 16. See pages 25 to 26 for further
details.
4 Taxation
53 week period 52 week period
ended ended
31 December 25 December
2021 2020
Analysis of charge in the period GBPm GBPm
Current tax - current period 7.7 9.4
Adjustments for prior period (0.2) 0.1
Total corporation tax 7.5 9.5
Deferred tax - current period 5.4 (2.9)
Adjustments for prior period 0.1 0.4
Restatement of deferred tax for the change in UK tax rate 6.9 (1.1)
Total deferred tax 12.4 (3.6)
Taxation 19 .9 5.9
In the March 2021 budget, legislation to increase the main rate
of corporation tax from 19 per cent to 25 per cent from 1 April
2023 was announced. The change was substantively enacted at the
balance sheet date and is therefore recognised in these financial
statements. As a result, the Group recognised a non-underlying
taxation charge of GBP6.9 million through its income statement and
a credit of GBP1.9 million through other comprehensive income to
reflect the one off increase in the period of the Group's deferred
tax position.
5 Earnings per share
The calculation of basic earnings per Ordinary Share has been
based on the profit attributable to equity shareholders for the
relevant period.
For diluted earnings per Ordinary Share, the weighted average
number of Ordinary Shares in issue is adjusted to assume conversion
of any dilutive potential Ordinary Shares.
The Group has two classes of potentially dilutive Ordinary
Shares being those share options granted to employees under the
Group's SAYE Scheme and the contingently issuable shares under the
Group's LTIP Schemes. At the balance sheet date, the performance
criteria for the vesting of the awards under the LTIP Schemes,
including any deferred annual bonus, are assessed, as required by
IAS 33, and to the extent that the performance criteria have been
met those contingently issuable shares are included within the
diluted EPS calculations. As the impact of these shares is dilutive
for the 53 week period ended 31 December 2021, an adjustment has
been made in respect of arriving at diluted earnings per share
measures for that period (2020: anti-dilutive so no
adjustment).
The Group's underlying measures of profitability exclude
non-underlying items, the effects of IFRS 15 and consolidation of
the Trusts as set out on page 48. These items have been adjusted
for in determining underlying measures of profitability as these
underlying measures are those used in the day-to-day management of
the business and allow for greater comparability across
periods.
Accordingly, the Board believes that earnings per share
calculated by reference to this underlying performance measure
users of the financial statements to fully understand the trading
performance and financial position of the Group.
Reconciliations of the earnings and the weighted average number
of shares used in the calculations are set out below:
Weighted
average
number Per share
of
Earnings shares amount
GBPm millions pence
53 week period ended 31 December
2021
Underlying profit after taxation
and EPS 21.4 50.0 42.8
Add: Non-underlying items (net of
taxation charge of GBP5.8 million) (54.1)
Add: Other adjustments (net of taxation
charge of GBP8.7 million) (1) 44.8
Profit attributable to shareholders
- Basic EPS 12.1 50.0 24.2
Profit attributable to shareholders
- Diluted EPS 12.1 50.1 24.2
52 week period ended 25 December
2020 - restated (2)
Underlying profit after taxation
and EPS 23.2 50.0 46.4
Add: Non-underlying items (net of
taxation credit of GBP2.5 million) (55.9)
Add: Other adjustments (net of taxation
charge of GBP1.0 million)(1) 7.2
Loss attributable to shareholders
- Basic EPS (25.5) 50.0 (51.0)
Loss attributable to shareholders
- Diluted EPS (25.5) 50.0 (51.0)
(1) (See) (note 2) (for further details.)
(2) Underlying performance measures have been restated to
include the application IFRS 16 which were previously included
within other adjustments. (See pages 25 to 26 for further
details.)
6 Goodwill and other intangible assets
Use Non-
of third
Trade party compete
brand
names(1) name Other Software agreements Sub-total Goodwill Total
(2)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cost
At 27 December
2019 150.4 3.2 4.7 2.5 0.2 161.0 232.6 393.6
Additions - - - 0.2 - 0.2 - 0.2
At 25 December
2020 150.4 3.2 4.7 2.7 0.2 161.2 232.6 393.8
Additions - - - - - - 0.4 0.4
At 31 December
2021 150.4 3.2 4.7 2.7 0.2 161.2 233.0 394.2
Accumulated amortisation
and impairment
At 27 December
2019 (16.4) (1.8) (1.4) (0.7) (0.2) (20.5) - (20.5)
Amortisation
charge (4.1) (0.2) (0.4) (0.2) - (4.9) - (4.9)
Impairment (15.3) - - - - (15.3) (28.7) (44.0)
At 25 December
2020 (35.8) (2.0) (1.8) (0.9) (0.2) (40.7) (28.7) (69.4)
Amortisation
charge (3.6) (0.2) (0.4) (0.3) - (4.5) - (4.5)
Trade name write-off
(3) (2.5) - - - - (2.5) - (2.5)
Impairment (2.8) - - - - (2.8) (36.4) (39.2)
At 31 December
2021 (44.7) (2.2) (2.2) (1.2) (0.2) (50.5) (65.1) (115.6)
Net book amount
at 31 December
2021 105.7 1.0 2.5 1.5 - 110.7 167.9 278.6
Net book amount
at 25 December
2020 114.6 1.2 2.9 1.8 - 120.5 203.9 324.4
Net book amount
at 27 December 134
2019 .0 1. 4 3. 3 1.8 - 140.5 232.6 373.1
(1) Trade names arise on the acquisitions of funeral businesses
and their fair value is calculated by reference to the estimated
incremental cash flows expected to arise by virtue of the trade
name being well-established. There are no individually material
trade names that amount to 6 per cent or more of the total net book
value.
(2) The Group previously acquired interests in two crematoria
subject to finite periods of operation (by way of lease and/or
service concession). The fair value of these interests has been
identified and recognised as a separate intangible asset. The value
of each interest will be amortised over the remaining period of
operation.
(3) During the period, the Group identified seven specific trade
names that are no longer being used within the Group under the new
regional structure and those intangible items were required to be
written off.
Goodwill acquisitions in 2021
On 16 September 2021, the Group acquired the entire share
capital of Funeral Advisor Limited, a non-listed company based in
the UK that offers a free online resource to support individuals
and families to research and organise a funeral online. The Group
acquired Funeral Advisor Limited because the online offering is
seen as an enhancement to the services it provides.
Total provisional fair value
GBPm
Net assets acquired -
Goodwill arising 0.4
0.4
Satisfied by:
Cash paid on completion (funded from internally
generated cash flows) 0.2
Deferred consideration 0.1
Contingent consideration 0.1
Total consideration 0.4
The fair values of the identifiable assets and liabilities of
Funeral Advisor Limited as at the date of acquisition was
negligible and consequently, the consideration relates to goodwill
arising on acquisition, none of which is tax deductible. The
expected purchase consideration is GBP0.4 million. This goodwill
comprises the value of expected access to customers and making
available information and support to a wider customer base.
Goodwill is allocated entirely to the funeral segment.
The results of the business from the start of the accounting
period would not have been material to the Group had the
acquisition been as of the beginning of the annual reporting
period. From the date of acquisition, Funeral Advisor Limited is
not expected to contribute significantly to revenue or profit in
the short term until the Group provides investment in the business'
operations to increase awareness of the service within the
industry.
As part of the purchase agreement, contingent consideration has
been agreed. The fair value of the contingent consideration at the
acquisition date is estimated to be GBP0.1 million. The fair value
is determined using a DCF method. Future developments may require
further revisions to the estimate. The maximum contingent
consideration to be paid is GBP0.7 million.
Impairment tests for goodwill and trade names
Goodwill is subject to an annual impairment test in accordance
with IAS 36, Impairment of Assets. For the purpose of this
impairment test goodwill is tested at a business segment level as
this is the level at which the return on assets acquired, including
goodwill, is monitored.
The segmental allocation of goodwill and the recoverable amount
is shown below:
B ook value R ecoverable amount B ook value R ecoverable amount
31 December 25 December
31 December 2021 25 December 2020
2021 2020
GBPm GBPm GBPm GBPm
Funeral services 1 12.1 3 71.3 148.1 433.2
Crematoria 55.8 3 91.5 55.8 346.5
1 67.9 7 62.8 2 03.9 779.7
The recoverable amount of each goodwill CGU is based on a
value-in-use calculation. The impairment assessment than compares
this value-in-use calculation to the carrying value of the CGU. Any
impairment is then recognised in administrative expenses in the
consolidated income statement.
The value-in-use calculations use cash flow projections derived
from the latest annual budget. Key assumptions used to produce the
annual budget are the estimated UK death rates (based on forecast
death rates supplied by ONS), anticipated market share and Attended
Funeral price ranges from GBP1,595 to GBP2,495 (excluding extras).
The value-in-use calculations for the 2021 model include the
approved annual budget for 2022 and a forecast for 2023 and 2024.
Forecasts are based on death rates announced by ONS and market
share growth assumptions reflecting budgeted increases as
benchmarked to the results of recent pricing trials, and then
stabilised at the projected 2022 year end market share position
over the remaining forecast period. Cash flows for all segments
beyond the initial 36 month period (2020: 24 month period) are
extrapolated using a growth rate of 2.25 per cent (2020: 2.25 per
cent), being an estimate of long-term growth rates for impairment
review purposes only, which reflects the expectations of long-term
inflation and death rates. The cash flows for each segment are
discounted at a pre-tax rate of 10.3 per cent (2020: 10.3 per
cent).
Goodwill assessment
The impairment calculation indicated no impairment in the
crematoria division with headroom under the current assumptions
used of GBP170.3 million (2020: GBP99.1 million). The discount rate
would need to increase to 17.7 per cent (2020: increase to 14.1 per
cent) or the long-term growth rate would need to fall to minus 7.7
per cent (2020: minus 1.4 per cent) for the impairment test to
result in GBPnil headroom for this segment. The likelihood of such
movements in the discount rate and growth rate is deemed unlikely
based on current market conditions.
The impairment calculation has also been performed on the
funeral services division and an impairment of GBP36.4 million
(2020: GBP28.7 million) has been recognised within administrative
expenses in the consolidated Income statement. The impairment has
arisen within the funeral services division primarily due to the
reduced average revenues following the new pricing strategy for the
Group. Whilst the Group expects long-term market share growth from
the new strategy, the accounting standard (IAS 36) for impairment
assessments does not allow forecasts to be used where assumptions
cannot be evidenced or have not yet been implemented (e.g. cost
savings). As a result, whilst the Group is focussed on committed to
delivering its market share growth ambitions, given the infancy of
the strategic plan implementation and the available evidence to
demonstrate this growth as at the year end when the impairment
assessment is made, the full extent of potential longer-term gains
are not reflected in the impairment modelling.
Trade name assessment
In addition to the Group's annual goodwill impairment test,
given the changes in the funeral market noted above, an impairment
test was performed in respect of the Group's trade name intangibles
assets in accordance with the requirements of IAS 36. A
value-in-use calculation has been performed against each
recognisable trade name. The trade name specific cashflows are
based on the individual CGU projections for the next 12 months and
then adjusted in years two and three onwards using the same
assumptions as used within the goodwill impairment assessment
described above. The performance of this impairment assessment
indicated that an impairment within the funerals segment of GBP2.8
million (2020: GBP15.3 million) arose and has been recognised
within administrative expenses in the consolidated Income
statement. This is due to lower levels of profitability and lower
anticipated average revenue per funeral. The recoverable amount of
trade names that have been impaired is GBP3.4 million which is
based on a value-in-use calculation.
The trade name impairment and the subsequent reduction in net
book value has been reflected within the above goodwill impairment
calculations to reflect the lower asset base.
Goodwill and trade name sensitivities
The following table demonstrates the impact on the above
impairment charges in the funerals segment based on a number of
reasonably possible sensitivities:
Decrease/(increase) in
impairment charge
Trade
name Goodwill Total
Sensitivity applied: GBPm GBPm GBPm
--------------------------------------------- ------------- ---------------- --------------
Decrease in funeral services market
share growth in 2022 and beyond of
0.5 per cent (1.7) (103.4) (105.1)
Decrease in number of deaths in 2022
by 20,000 - (4.6) (4.6)
Increase in discount rate of 0.5
per cent (to 10.8 per cent) (0.1) (20.3) (20.4)
Increase in 2022 funeral services
EBITDA and beyond of GBP1.0m - 12.6 12.6
Decrease in 2022 funeral services
EBITDA and beyond of GBP1.0m (0.1) (11.6) (11.7)
Decrease in 2022 funeral services
EBITDA and beyond of GBP5.0m (0.4) (62.2) (62.6)
Decrease in long-term growth rate
of 0.25 per cent (to 2.0 per cent) - (8.4) (8.4)
Delay in funeral services market
share growth by 1 per cent from 2022
to 2023 (0.3) (51.0) (51.3)
--------------------------------------------- ------------- ---------------- --------------
7 Cash and cash equivalents
31 December 25 December
2021 2020
Note GBPm GBPm
Trading Group 55.9 56.7
(a
Trusts ) 19.8 21.6
Operating cash as reported in the consolidated
statement of cash flows as cash and cash equivalents 75.7 78.3
Amounts set aside for debt service payments (b) - 16.9
Cash and cash equivalents as reported
in the balance sheet 75.7 95.2
(a) Trusts cash balances
All assets of the Trusts can, by definition, only be used for
certain prescribed purposes such as, but not limited to, the
payment for a funeral or a refund on cancellation of a plan. They
cannot be used for day-to-day operational activities of the wider
Trading Group and could not, for example, be used to fund a capital
expenditure project. The cash is held in Trust bank accounts but is
accessible without restriction and can be used within the Trusts
for any allowable purpose, such as payment following the
performance of a funeral. As Dignity is considered to control the
activities of the Trusts, this cash balance meets the requirements
to be included in cash and cash equivalents for the purposes of IAS
7.
(b) Amounts set aside for debt service payments
Amounts are transferred to these restricted bank accounts
shortly in advance of making the bi-annual payments to the holders
of the Secured Notes, which include the payment of the interest and
principal on the Secured Notes, the repayment of liabilities due on
the Group's commitment fees due on its undrawn borrowing facilities
and for no other purpose. The Statement of Cash Flows shows the
gross amounts of payments to the restricted bank accounts as
'finance costs paid' and 'payments due under Secured Notes', in
accordance with their nature. Supplementary information is provided
to show the actual payments to the noteholders and the movement in
the restricted bank accounts in the period. The amounts shown as
'transfer from restricted bank accounts for finance costs' and
'payments to the restricted bank accounts for repayment of
borrowings' relate to the opening and closing balances of the
account respectively, and hence the figures exclude the mid-year
transfers and payments. No amounts were included in December 2021
as the payments to these respective parties was made on 31 December
2021.
The note trustees have charge over this restricted bank
account.
8 Financial assets - held by the Trusts
31 December 25 December
2021 2020
GBPm GBPm
Financial assets - held by the Trusts 1,043.1 967.1
The Trusts continue to take independent advice regarding the
investment strategy and have changed investment manager during the
period with the intention of growing the assets of the Trust over
time. As a result, the investment portfolio has been simplified
during 2022 and it is anticipated that the investment allocation by
class will develop further during 2023 and beyond. The current
portfolio profile is as follows:
Example investment types Actual
(%)
------------------------- ---------------------------------- -------
Index linked gilts and corporate
Defensive investments bonds 11-14
Illiquid investments Private equity investments 5-6
Core growth investments Equities 74-78
Liquid investments Cash 6
------------------------- ---------------------------------- -------
The revised investment strategies are expected to provide
returns that create a 10 per cent capital buffer over the
regulatory minimum of 110 per cent. Any surpluses above this level
are expected to be invested in fluctuating assets that have a
potential for greater returns.
Given the high percentage of investments held within equities,
this does impose an inherent risk of exposure to downward falls in
equity markets. Such investments can be subject to volatility due
to movements in underlying markets and assets and can go up and
down. This can be seen in movements post year end following the
situation in Ukraine. The Group monitors this closely and this
forms part of its considerations for its long term investment
strategy, noting that the purpose of the Trust is to provide asset
coverage (and a surplus) to fund the pre-need funerals return which
are forecast to have an average maturity of 10 plus years.
Analysis of the movements in financial assets
held by the Trusts: 31 December 25 December
2021 2020
GBPm GBPm
Fair value at the start of the period 967.1 947.5
Remeasurement recognised in the consolidated
income statement 85.0 41.3
Investment income 7.7 2.2
Purchases 948.7 778.1
Disposals (960.9) (796.8)
Foreign exchange rate difference (1.7) -
Investment administrative expenses deducted
at source (2.8) (5.2)
1,043
Fair value at the end of the period .1 967.1
Interest and dividend income received is included within
remeasurements recognised in the consolidated income statement.
9 Deferred commissions and contract liabilities
Deferred commissions
31 December 25 December
2021 2020
GBPm GBPm
Deferred commissions - current 7.6 7.6
Deferred commissions - non-current 100.9 101.3
Deferred commissions represent directly attributable costs in
respect of the marketing of the pre-arranged funeral plans where
the plan has yet to be used or cancelled. An amount of GBP7.4
million (2020: GBP7.8 million) has been amortised to the
consolidated income statement within administrative expenses.
Contract liabilities
31 December 25 December
2021 2020
Note GBPm GBPm
Current
(
Contract liabilities - deferred a
revenue ) 98.6 94.4
(
Contract liabilities - refund b
liability ) 1.0 1.1
99.6 95.5
Non-current
(
Contract liabilities - deferred a
revenue ) 1,224.0 1,208.1
(
Contract liabilities - refund b
liability ) 13.9 13.9
1,237.9 1,222.0
Movement in total contract liabilities
31 December 25 December
2021 2020
GBPm GBPm
Balance at the beginning of the year 1,317.5 1,304.6
Sale of new Trust plans 86.3 82.0
Increase due to significant financing 51.6 53.1
Recognition of revenue following delivery
or cancellation of a Trust plan (117.9) (122.2)
Balance at the end of the year 1,337.5 1,317.5
(a) Contract liabilities - deferred revenue
Deferred revenue represents amounts received from pre-arranged
funeral plan holders adjusted to reflect a significant financing
component, and for which the Group has not completed its
performance obligations at the balance sheet date. The balance is
split between current and non-current based on historical
experience to reflect the expected number of plans to be utilised
within the next 12 months.
(b) Contract liabilities - refund liability
Refund liabilities represent amounts received from pre-arranged
funeral plan holders for which it is expected that the respective
plans will be cancelled based on historical experience. The balance
is split between current and non-current based on historical
experience to reflect the expected number of plans to be cancelled
within the next 12 months.
10 Net debt
31 December 25 December
2021 2020
GBPm GBPm
Net amounts owing on Secured Notes per financial
statements (526.6) (541.7)
Add: unamortised issue costs (0.5) (0.5)
Gross amounts owing (527.1) (542.2)
Accrued interest on Secured Notes - (12.0)
Cash and cash equivalents - Trading Group (note
7) 55.9 73.6
Net debt (471.2) (480.6)
Net debt is an alternative performance measure calculated as
shown in the table. Net debt excludes any liabilities recognised in
accordance with IFRS 16.
The Group's primary financial covenant in respect of the Secured
Notes requires EBITDA to total debt service ('EBITDA DSCR'), in the
securitisation group, to be at least 1.5 times. At 31 December
2021, the actual ratio was 2.13 times (2020: 1.99 times). The
calculations are unaffected by the consolidation of the Trusts or
the application of IFRS 15 and IFRS 16 described elsewhere, as the
Group was able to elect to disregard those changes when making the
calculations. See Financial review on pages 12 and 13.
These ratios are calculated for EBITDA and total debt service on
a 12 month rolling basis and reported quarterly. In addition, both
terms are specifically defined in the legal agreement relating to
the Secured Notes. As such, they cannot be accurately calculated
from the contents of this report.
11 Reconciliation of cash generated from operations
53 week period 52 week period
ended ended
31 December 25 December
2021 2020
GBPm GBPm
Net profit/(loss) for the period 12.1 (25.5)
Adjustments for:
Taxation 19.9 5.9
Net finance costs 70.8 76.8
Profit on sale of fixed assets (1.1) (0.1)
Depreciation charges on property, plant and equipment 19.9 19.6
Depreciation charges on right-of-use asset 9.2 9.2
Amortisation of intangibles 4.5 4.9
Movement in inventories 0.4 (1.1)
Movement in trade receivables (2.5) 2.4
Movement in trade payables 3.7 (2.0)
Movement in contract liabilities (31.6) (40.2)
Fair value movement on net assets (85.0) (41.3)
Net pension charges less contributions (1.3) (1.6)
Trade name write-off (note 6) 2.5 -
Trade name impairment (note 6) 2.8 15.3
Goodwill impairment (note 6) 36.4 28.7
Changes in other working capital 2.3 5.1
Trust investment administrative expenses deducted at source (3) 2.8 5.2
Foreign exchange rate difference - Trust assets 1.7 -
Employee share option charges 0.8 1.4
Cash flows from operating activities 68.3 62.7
12 Analysis of the movement in the retirement benefit obligation
2021 2020
GBPm GBPm
At beginning of period (36.6) (26.0)
Total expense charged to the income statement (1.0) (1.1)
Remeasurement gains/(losses) and administration expenses credited/(charged) to other comprehensive
income 15.6 (11.7)
Contributions by Group 2.3 2.2
At end of period (19.7) (36.6)
13 Basis of preparation
These financial statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and International Financial
Reporting Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applied in the European Union.
In the current period, the Group's consolidated financial
statements have been prepared for the 53 week period ended 31
December 2021. For the comparative period, the Group's consolidated
financial statements have been prepared for the 52 week period
ended 25 December 2020.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2021
or 25 December 2020 but is derived from those accounts. Statutory
accounts for 2020 have been delivered to the registrar of
companies, and those for 2021 will be delivered in due course. The
auditors have reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006 in respect of the
accounts for 2020 and 2021.
The Group's consolidated financial statements are prepared on a
going concern basis and have been prepared under the historical
cost convention.
The principal accounting policies adopted in the preparation of
these financial statements have been consistently applied to all
periods presented.
Going concern
The key factors which impact the Group's financial performance
are death rate, market share, funeral mix (Attended Funeral vs
Unattended Funeral) and average revenue per funeral.
The financial performance of the Group and the Securitisation
Group has been forecast for a period through 31 March 2023 (the
going concern period) and those forecasts have been subjected to a
number of sensitivities. These forecasts reflect an assessment of
current and future market conditions and their impact on the future
profitability of the Group and the Securitised Group.
As at 31 December 2021, the Group had cash (excluding cash in
the Trusts) of GBP55.9 million and its operations are also funded
by Class A Notes with an outstanding principal of GBP170.7 million
(matures 2034) and Class B Notes with an outstanding principal of
GBP356.4 million (matures 2049) that are listed on the Irish Stock
Exchange. As part of the conditions of these notes, the
Securitisation Group is required to comply with an EBITDA: Debt
Service Charge Ratio (DSCR) covenant, tested quarterly on a last 12
month basis. At each point of testing, EBITDA must exceed c.GBP51
million (i.e. 1.5x the annual debt service cost of GBP34
million).
Due to the uncertainty around the forecasted deaths for 2022 and
2023 (due to the impact of COVID-19 on deaths in 2020 and 2021), as
a precautionary measure, the Group sought and was granted a waiver
of the DSCR and related covenants within the debt.
This waiver allows for an equity cure by Dignity plc should
there be a shortfall in EBITDA of the Securitisation Group at any
covenant measurement point up to and including 31 December 2022.
Any cash transferred into the Securitisation Group during this
period (up to an allowed maximum of GBP15 million) is included
within the EBITDA for the purpose of the DSCR for the following 12
months and therefore the waiver covers the entire going concern
period, i.e. cash (required to be) injected into the Securitisation
Group prior to 31 December 2022 will be included in the calculation
of EBITDA for the following 12 months. The Group has forecast its
liquidity position and has sufficient liquidity in Dignity plc (the
company), under all severe but plausible scenarios modelled, should
it need to inject cash into the Securitised Group.
The Group accelerated its new strategy in September 2021 and
introduced an Attended Funeral at prices from GBP1,595 to GBP2,495
(excludes extras, e.g. limousines, etc., which are charged in
addition to this rate) across the majority of the network,
implemented the Unattended Funeral (direct cremation) across the
whole network and the simple funeral was removed (apart from our
location in Jersey). Whilst 2021 funeral market share is slightly
lower than the prior year that started to change after the price
changes and the Group expects the new strategy to generate growth
in its funeral market share and growth in profits.
When considering the going concern assumption, the Directors of
the Group have reviewed the principal risks within the environment
in which it operates and have prepared relevant sensitised
scenarios, these include:
-- Deaths being 10,000 less than budgeted (noting for going
concern purposes, the directors considered a budget for 610,000
deaths which is less than the ONS projections of 631,000 deaths in
2022);
-- Funeral market share growth being one per cent less than budgeted;
-- Average revenue per funeral being two per cent lower than budgeted; and
-- A higher proportion of Unattended Funerals than budgeted.
This scenario modelling confirmed that, after considering the
potential use of the equity cure, there was no plausible scenario
in which the Group would not meet its debt service payments or
related covenants in the going concern period. The Group is
forecast to have sufficient liquidity to meet its liabilities as
they fall due in the period assessed through to 31 March 2023.
Having considered all the above the directors remain confident
in the long-term future prospects for the Group and its ability to
continue as a going concern for the foreseeable future and for a
period through to 31 March 2023 and therefore continue to adopt the
going concern basis in preparing the Annual Report.
14 Securitisation
In accordance with the terms of the Secured Notes issued October
2014, Dignity (2002) Limited (the holding company of those
companies subject to the securitisation) has today issued reports
to the Rating Agencies (Fitch Ratings and Standard & Poor's),
the Security Trustee and the holders of the Secured Notes issued in
connection with the securitisation, confirming compliance with the
covenants established under the securitisation.
Copies of these reports are available at www.dignityplc.co.uk
/corporate .
15 Principal risks and uncertainties
Our principal Group risks
Outlined here is our assessment of the principal risks facing
the Group. In assessing which risks should be classified as
principal, we assess the probability of the risk materialising and
the financial or strategic impact.
Risk appetite
Risk appetite is the level of risk the Group is willing to take
to achieve its strategic objectives and is set by the Board. The
Board looks at the Group's appetite to risk across a number of
areas including market, financing, operations, strategy and
execution, developments, cybersecurity and technology and
brand.
The Board operates a low-level risk appetite in order to ensure
as much as is possible that the services provided by the Group are
consistently of a high standard and that regulatory requirements
are adhered to.
Risk appetites for specific key risks have been reviewed during
the course of the year and, where appropriate, the Group's risk
appetite has been adjusted accordingly.
Our approach to risk management
The Group has a well-established governance structure with
internal control and risk management systems. The risk management
process:
-- Provides a framework to identify, assess and manage risks,
both positive and negative, to the Group's overall strategy and the
contribution of its individual operations.
-- Allows the Board to review a balanced and understandable
assessment of the operation of the risk management process and
inputs .
The Board has established a new Risk Committee to enhance the
oversight it has over its management of risks. The Risk Committee
will be chaired by Kartina Tahir Thomson.
Responsibilities and actions
The Board
The Board is responsible for monitoring the Group's risk and
associated mitigating factors and has carried out a robust
assessment of both emerging and principal risks. This assessment
process is supported by in-house risk management professionals.
Following the General Meeting on 22 April 2021, Clive Whiley
ceased to be a Director and two independent Non-Executive Directors
resigned from the Board. Gary Channon became Executive Chairman at
this time. Subsequently, John Castagno was appointed to the Board
as independent Non-Executive Chairman in July 2021 at which time
Gary Channon became Chief Executive. Graham Ferguson was appointed
to the Board in September 2021 as an independent Non-Executive
Director and Chair of the Audit and Remuneration Committees. In
2022, Kate Davidson has been appointed as Chief Operating Officer
and Kartina Tahir Thomson has recently been appointed as an
independent Non-Executive Director and Chair of the Risk
Committee.
The Company continues to work towards meeting its corporate
governance responsibilities in respect of the composition of the
Board and is currently in the recruitment process for a Chief
Financial Officer.
Risk process
Every six months the Audit Committee formally considers the
Group's Principal Risks and Uncertainties for subsequent adoption
by the Board .
Risk assessment
Executive Directors and senior management are primarily
responsible for identifying and assessing business risks.
Identify
Risks are identified through discussion with senior management
and incorporated in the risk system as appropriate.
Assess
The potential impact and likelihood of occurrence of each risk
is considered.
Mitigating activities
Mitigating factors are identified against each risk where
possible.
Review and internal audit
The link between each risk and the Group's policies and
procedures is identified. Where relevant, appropriate work is
performed by the Group's internal audit function, across a 3-year
audit plan cycle, to assist in ensuring the related key controls,
procedures and policies are understood and operated effectively
where they serve to mitigate risks.
Risk Committee
With the establishment of the Risk Committee, a number of
matters currently the responsibility of and reviewed by the Audit
Committee will transfer to the Risk Committee. The Risk Committee
will advise the Board on risk management issues, recommend the
framework of risk limits and risk appetite to the Board for
approval and to oversee the risk management arrangements of the
Company, including the embedding and maintenance of a supportive
risk management culture.
The Risk Committee will also ensure that the material risks
facing the Company have been identified and that appropriate
arrangements are in place to manage and mitigate those risks
effectively within the Company's agreed risk appetite.
Risk status summary
The ongoing review of the Group's principal risks focuses on how
these risks may evolve.
Regulation of Pre-arranged funeral plans
In order to carry out regulated funeral plan activities, firms
must be authorised by the FCA from July 2022. Continuing with
regulated activity without authorisation will be a criminal
offence.
Dignity believes that this regulation is necessary and welcomes
its introduction. Dignity is working with the FCA to be registered
as a regulated provider of pre-arranged funeral plans.
COVID-19
Although hopefully the worst is behind the country, COVID-19
created risks both to our ability to deliver our services in the
context of restrictions imposed by the pandemic and the health and
safety implications for our colleagues. We continue to regularly
assess the potential risks.
The Group has business continuity and pandemic plans that are
invoked, reviewed and adapted as necessary.
Accordingly, the ability to maintain average revenue is
influenced by changes in the competitive landscape and the impact
of COVID-19.
Emerging Risks
Focus on the environment and businesses operating sustainably is
now an imperative. We have started down the road to achieve
net-zero by 2038.
Funeral Directors' Codes of Practice
A number of compliance requirements are currently recommended by
the Scottish Government Funeral Directors' Code of Practice. In
addition, the introduction of the Independent Funeral Standards
Organisation will necessitate compliance with a UK co-regulatory
Code of Practice as described by the Ministry of Justice.
Our principal risks and uncertainties
The principal risks we have identified
We maintain a detailed register of principal risks and
uncertainties covering strategic, operational, financial and
compliance risks. We rate them according to likelihood of
occurrence and their potential impact.
In the tables below we provide a summary of each risk, a
description of the potential impact and a summary of mitigating
actions.
Financial risk management
Risk description and impact Mitigating activities and commentary Change
Significant movements in The profile of deaths has historically Increased
the death rate seen intra year changes of +/- one
There is a risk that the per cent giving the Group the ability
number of deaths in any to plan its business accordingly.
year significantly reduces The ONS long-term projection is
or increases. This would for deaths to increase.
have a direct result on
the financial and operational The risk is mitigated by the ability
performance of both the to control costs and the price structure
funeral and crematoria although this would not mitigate
divisions. a short-term significant reduction
in the number of deaths.
The number of deaths in 2021 was
664,000 which was 0.2 per cent above
the prior year. It remains unknown
over what time frame the death rate
will normalise. Our planning continues
to be based on the long-term expectations
provided by the Office for National
Statistics.
Operationally, we have spent time
understanding lessons from the dramatic
increase in deaths due to COVID-19
to ensure we continue to respond
professionally and safely. The pandemic
has been a period of significant
disruption to the funeral market
as the elevated death rate has driven
a higher number of funerals and
cremations in 2021 compared to the
five-year average. It is anticipated
that this volatility in the death
rate will continue as this excess
death rate may well reverse.
------------------------------------------------- -------------
Nationwide adverse publicity The Group's strategy is to focus No change
Nationwide adverse publicity on increasing funeral and crematoria
for Dignity could result market share together with prioritising
in a significant reduction the sale of funeral plans through
in the number of funerals branches rather than telephony partners.
or cremations performed We ended our relationship with telephony
in any financial period. partners who sold plans on our behalf
For pre-arranged funeral and are now focused on the development
plans, adverse publicity and execution of a vision to excel
for the Group or one of in the new FCA regulated environment
its partners could result using all potential channels to
in a reduction in the number find and delight new clients.
of plans sold or an increase
in the number of plans The Group maintains a system of
cancelled. internal control to ensure the business
is managed in line with its strategic
objectives.
Staff training and the work of the
Quality and Standards Team assist
in mitigating this risk.
Dignity's aim is to develop a suite
of sector-leading policies and practices
that will form our Standard Operating
Procedures ('SOP') This will be
at the core of everything we do
regarding our care for clients and
deceased persons. It includes a
review of our guidelines for security
and identification, access to premises
and mortuaries, care for the deceased
and all other important policies
for both observed and unobserved
procedures.
In terms of quality of care for
clients and their loved ones, the
introduction of the SOP will assist
in mitigating reputational risk
and the possibility of consequential
adverse press coverage.
------------------------------------------------- -------------
Fall in average revenue The Group's strategic review has Increased
per funeral or cremation resulted in a more efficient business
resulting from market changes that can accommodate more competitive
There has been increasing pricing, but which continues to
price competition in the provide clients with a greater range
funeral market, resulting of choice, underpinned by exceptional
in material price reductions client service. This will be supported
by the Group in recent by strong reputational management.
years. It is highly likely The Group is aspiring to achieve
that pricing pressure will 20 per cent funeral market share
remain for the foreseeable in 10 years time (including both
future and it may not therefore pre and at-need funerals) by offering
be possible to maintain the best service for the best prices.
average revenue per funeral
or cremations at the current The Group will continue to adapt
level. to serve evolving client needs.
This will be through investment
The recent and significant in digital capabilities including
increase in wholesale gas an enhanced reporting capability
prices will also contribute of business intelligence and management
to the pressure on average information which will enable risks
revenue per cremation. and trends to be identified promptly
and accurately.
This risk has increased due to COVID-19
as the Group has experienced lower
average revenues than originally
expected. In addition, awareness
of Simple Funerals and Simplicity
Cremations has increased during
the pandemic.
The Group has, for some time, conducted
low-price trials in a significant
number of branches. Our trials and
experience since we changed prices
has been that market share loss
stops and then reverses, and so
in time we expect that revenue loss
to be more than compensated by volume
growth especially when combined
with all the other elements of our
strategy.
We will monitor fuel markets and
prices but accept that this market
faces difficulties from external
factors.
------------------------------------------------- -------------
Financial risk management (continued)
Risk description and impact Mitigating activities and commentary Change
Direct cremations The Group has addressed this with No change
Growth in the direct cremation Simplicity Cremations which offers
market could reduce average low-cost direct cremations without
revenue in the funeral any initial funeral service that
business and adversely are both respectful and dignified.
affect the volume mix and They are an affordable alternative
average revenue in the to a full funeral or for those who
crematoria business. wish to have a simple cremation.
The Group also now offers a Simplicity
pre-arranged funeral plan option.
------------------------------------------------ ----------
Financial Covenant under The nature of the Group's debt means No change
the Secured Notes that the denominator is now fixed
The Group's Secured Notes unless further Secured Notes are
requires EBITDA to total issued in the future. This means
debt service to be above that the covenant headroom will
1.5 times. If this financial change proportionately with changes
covenant (which is applicable in EBITDA generated by the securitised
to the securitised subgroup subgroup.
of Dignity) is not achieved,
then this may lead to an Current trading continues to support
Event of Default under the Group's financial obligations,
the terms of the Secured however lower reported profitability
Notes, which could result increases the risk of breaching
in the Security Trustee covenants.
taking control of the Securitisation
Group on behalf of the Whilst the Group's financial performance
Secured Note holders. has delivered headroom in relation
to financial covenants throughout
In addition, the Group 2021, given the distorting impact
is required to achieve of the pandemic on the timing of
a more stringent ratio deaths, there remains significant
of 1.85 times for the same uncertainty around the UK death
test in order to be permitted rate in the near term. Therefore,
to transfer excess cash the Board has taken the prudent
from the Securitisation decision to seek a temporary waiver
Group to Dignity plc. of the abovementioned financial
covenant on a precautionary basis
in relation to Dignity Finance plc's
debt obligations. In March 2022
the Group was granted a waiver on
the application of the covenants
on the bonds for 12 months. This
course of action accounted for post-
pandemic uncertainty over the death
rate which, together with the challenge
of restructuring, risked a potential
covenant breach.
------------------------------------------------ ----------
Strategic risk management
Risk description and impact Mitigating activities and commentary Change
Disruptive new business The Group believes that this risk Increased
models leading to a significant is mitigated by its reputation as
reduction in market share a high-quality provider and with
It is possible that external recommendation being a key driver
factors such as new competitors to the choice of funeral director
and the increased impact being used. In addition, the Group's
of the internet on the actions on pricing and promotion
sector, could result in seek to protect the Group's funeral
a significant reduction market share by offering more affordable
in market share within options. This focus on affordability
funeral and crematoria has allowed our market share to
operations. This would begin to stabilise.
have a direct result on
the financial performance The Group is prioritising investment
of those divisions. into standards of care, facilities
and our estate, alongside a combination
of a competitive pricing and product
mix, cultural change and stronger
branding, to grow local market share.
For crematoria operations this is
mitigated by the Group's experience
and ability in managing the development
of new crematoria.
The Group will focus on:
* increasing both volume and revenue per crematoria by
increasing throughput and growing ancillary sales;
* continuing to build out the pipeline of crematoria
and build additional capacity into existing
facilities; and
* embracing direct cremation and become price leaders
for the location-agnostic value segment of the
market.
Additionally, the combination of
the development of strong national
brands and significant investment
in digital capability together with
a range of product and price offerings
to clients is expected to strengthen
the Group's competitiveness.
----------------------------------------------------------------- ----------
Demographic shifts in population In such situations, Dignity would No change
There can be no assurance seek to follow the population shift
that demographic shifts by rebalancing the funeral location
in population will not network together with meeting the
lead to a reduced demand developing cultural requirements
for funeral services in .
areas where Dignity operates.
----------------------------------------------------------------- ----------
Strategic risk management (continued)
Risk description and impact Mitigating activities and commentary Change
Competition in the Funeral The vision is for Dignity to be No change
Market the UK's leading end-of-life business,
The UK funeral services, renowned for its excellence and
crematoria and pre-need high standards, represented and
markets are currently fragmented. embedded in the community with strong
local brands, whilst offering the
There could be further best service for the best prices.
consolidation or increased Central to our strategy is a focus
competition in the industry, on improving the culture of our
whether in the form of business, empowering our colleagues
intensified price competition, and working openly together to be
service competition, over our best through teamwork.
capacity facilitated by
the internet or otherwise, Our appetite to develop new products
which could lead to an and trials has expanded through
erosion of the Group's the greater collaboration and open
market share, average revenues debate. Several trials are up and
or an increase in costs running with the objective of achieving
and consequently a reduction the right combination of price product
in its profitability. and promotion to not only grow our
local market share but to sustain
Failure to replenish or and grow our revenues. The Branch
increase the bank of pre-arranged Direct Cremation trial has introduced
funeral plans could affect new competitively priced products
market share of the funeral that can fit within our existing
division in the longer-term. price and product architecture.
Competition continues to We continue to develop a new tiered
intensify, with additional funeral pricing proposition, that
funeral directors opening will provide greater flexibility
at varying price points, to meet individual client needs.
alongside an increase in
the popularity of direct By unbundling our prices and services
cremations. to provide our clients with greater
flexibility to create the right
funeral, we will be able to provide
greater consistency and competitiveness
on price, while reflecting Dignity's
premium service levels.
A significant online presence and
visibility leverages our scale and
addresses the needs of increasingly
digitally focused clients. Through
the Dignity and Simplicity names,
we are leveraging scale advantages
in the digital age. We also recognise
that our established local funeral
trading names continue to have significant
value in the communities they serve.
Through better allocation of our
resources, the resultant efficiencies
will allow us to reduce the number
of funeral locations and their associated
cost. Support functions are being
centralised where appropriate to
ensure a cost effective and consistent
high standard of service.
There are challenges to opening
new crematoria due to the need to
obtain planning approval and the
costs of development. Dignity has
extensive experience in managing
the development of new crematoria.
The Group offers a quality pre-need
product, the marketing of which
will benefit from the current and
future significant investment in
marketing and enhanced digital presence.
Dignity supports full FCA regulation
of the sector which presents an
opportunity to gain competitive
margin through both pricing and
good quality service provision.
-------------------------------------------------- ----------
Operational risk management
Risk description and impact Mitigating activities and commentary Change
Cyber risk The Group has, in recent years, No change
Our business is at risk invested signi cantly in this area
of financial loss, disruption with the objective of both upgrading
or damage to reputation all aspects of our systems and our
resulting from the failure internal resources and also using
of its information technology external consultants to drive a
systems. This could materialise continuous improvement programme.
in a variety of ways including
deliberate and unauthorised The chance of an organisation falling
breaches of security to victim to a cyber-attack is growing.
gain access to information Threats are more pervasive and sophisticated
systems. than ever.
In addition, however, to maintaining
appropriate levels of Cyber Insurance
we continue our investment in fit
for purpose security controls, processes,
and technology to allow us to maintain
pace with the current threat landscape
whilst proactively monitoring for
breaches and improving internal
understanding and communication
of initial risks, mitigations and
residual risks.
The Group is working with external
advisers at an operational level
providing a broad view of our current
maturity level of controls over
multiple domains associated with
cyber security. Additionally, this
external assessment will include
a deep dive review of Dignity's
Security Architecture to confirm
that our information systems are
in alignment with required cyber
security objectives addressing where
possible potential risks to the
technology environment.
The Group has its security controls,
processes and technology independently
audited to ensure it remains effective
or requires additional investment.
---------------------------------------------------- ----------
Regulatory risk management
Risk description and impact Mitigating activities and commentary Change
Regulation of pre-arranged Changes apply to the industry as No change
funeral plans a whole and not just the Group .
FCA Regulation has resulted The FCA rules address:
in changes to processes, * Commission.
systems, pricing, funding,
capital requirements and
terms and conditions of * Customer documentation.
plans.
Regulation affects the
Group's opportunity to * Trust structures.
sell pre-arranged funeral
plans in the future and
could result in the Trading * Product value and features.
Group not being able to
draw down the current level
of marketing allowances. * Minimum solvency requirements for Trust Funds.
The minimum solvency levels
(110 per cent) for Trust
funds set by the FCA means * Compliant sales of Pre-Paid plans.
that levels below this
minimum will require Dignity
Funerals Limited to address
shortfall within a 12 month Our strong market presence in the
period. Whole of Life Funeral Benefit market
remains unchanged.
The changes affect the whole industry,
whilst we will experience a material
drop in volumes, Dignity will be
in a strong market position as a
vertically integrated provider to
grow its controlled channels that
remain open post FCA regulation.
We very much welcome FCA regulation
which is confirmed for 29 July 2022
and expect it to serve as a catalyst
for our growth ambitions. It will
lead to a better product. One in
which British consumers have greater
confidence and are more likely to
purchase. It is also likely to cause
unscrupulous firms in the sector
to exit the industry as they struggle
to attain authorisation with the
regulator. We have already begun
to see signs of this happening.
Internally we are working to improve
the product by bringing more choice,
flexibility, and simplicity to our
offering. We are also working hard
to improve our own channels of distribution.
FCA regulation prevents us from
paying commissions to third parties
and so we have ceased business with
many of our previous distribution
partners. Instead, we will focus
on developing our proposition and
sales strategy delivered through
our website and via our well-trained
community-based colleagues. Our
ambition is to significantly increase
the number of funeral plans sold
through our branch network.
As well as top line growth we aim
to reduce the cost per plan sale.
Minimum Solvency levels of 120 per
cent of assets/liabilities have
been agreed by the Dignity Funerals
Limited Board. This represents a
10 per cent buffer over the regulatory
minimum of 110 per cent.
Board oversight of product development,
pricing and distribution of Pre-Paid
funeral plans.
------------------------------------------------------------ ----------
Changes in the funding There is considerable regulation No change
of the pre-arranged funeral around insurance companies which
plan business is designed, amongst other things,
In the current regulatory to ensure that the insurance companies
environment, the Group meet their obligations.
has given commitments to
pre-arranged funeral plan The Trusts hold assets of circa
members to provide certain GBP1 billion with an average duration
funeral services in the of circa 10+ years: we will seek
future. to generate a surplus above funeral
cost inflation.
Funding for these plans
is reliant on either insurance
companies paying the amounts
owed or the pre-arranged
funeral plan Trusts having
sufficient assets.
If this is not the case,
then the Group may receive
a lower amount per funeral.
------------------------------------------------------------ ----------
Emerging risk
The Group continues to scan for emerging risks through the
processes noted above. The key areas where additional risk is
appearing, all of which are extensions of risk already identified
above, are as follows:
Risk description and impact Mitigating activities and commentary Change
Sustainability and climate The vision is for Dignity to achieve New
resilience net-zero by 2038.
The need to operate businesses
sustainability and with Dignity is ranked in the Top 200
a focus on the environment in the FT/ Statista's Europe's Climate
is now an imperative in Leaders Report 2021 due to a 27
order to achieve the Government's per cent reduction in core emissions
target of net-zero. between 2014 and 2019.
Dignity are voluntarily submitting
a message of intent with regards
to TCFD for the year 2021 prior
to this becoming mandatory for 2022.
Dignity have partnered with Inspired
Energy for the reporting of the
TCFD and will assist in growing
our reporting requirements in line
with Science based targets. To assist
with this an extensive programme
of smart meters and water meters
are being rolled out both to allow
us to have concise data to report
against and to identify quickly
any wastage/leakage.
Key focuses for 2022 include:
* Climate scenarios analysis and interim target setting
to 2038;
* Develop a standalone TCFD report - full disclosure;
* Improve data collection and metrics across Scopes
1,2&3; and
* Improved cremator technology.
We will review the Environmental
and Sustainability Committee Terms
of reference to drive change and
will develop a 3-year plan to mitigate
risks against emerging HM Government
led initiatives.
------------------------------------------------------------------ -------
Funeral Directors' Codes The Group is undertaking an assessment New
of Practice of compliance guidelines and works
A number of compliance required to achieve compliance across
requirements currently the UK legislative networks.
recommended by the Scottish
Government Funeral Directors' Consideration for the resource profile
Code of Practice can reasonably and methodology for responding to
be expected to become law. legal registration in Scotland and
For example, one draft a statutory inspection response
requirement for funeral is being initiated as a pre-emptive
directors is to have a measure in advance of a published
ratio of 1 refrigerated Scottish government position.
space per 50 funerals performed.
Additionally, the need Relationship management with the
to respond to registration National Association of Funeral
and inspection requirements Directors ('NAFD') and the Independent
which will be enacted in Funeral Standards Organisation ('IFSO')
law. is underway.
The introduction of the We strongly support the progress
Independent Funeral Standards IFSO has made and look forward to
Organisation in late 2021/22 working with the body should it
will necessitate compliance transition into a government endorsed
with a UK co-regulatory self-supervisory body for the sector.
Code of Practice as described
by the Ministry of Justice. We have also worked closely with
Intended obligations include Scottish Government to develop its
transparency, quality and approach to regulation of the sector
standards measures with and provision of services, including
risk ratings and public the anticipated implementation of
reporting in subsequent a new Code of Practice for Funeral
phases. Directors that will sit under a
legal framework in Scotland.
The relationship between
and requirements of the
two Codes of Practice have
yet to be finally determined.
------------------------------------------------------------------ -------
16 Pre-arranged funeral plans
(a) Commitments
The Trading Group has sold pre-arranged funeral plans to clients
in the past, giving commitments to these clients to perform their
funeral. All monies from the sale of these funeral plans are paid
into and controlled by a number of trusts. These include the Trusts
consolidated within the Group's financial statements in addition to
a number of other trusts (the 'Small Trusts'). The Small Trusts are
not consolidated in the Group's results as the Group does not
control these trusts.
The Group is obligated to perform these funerals in exchange for
the assets of the respective trusts, whatever they may be. It is
the view of the Directors that none of the commitments given to
these clients are onerous to the Group. However ultimately, the
Group is obligated to perform these funerals in exchange for the
assets of the respective trusts, whatever they may be.
The Small Trusts had approximately GBP15.6 million (2020:
GBP16.9 million) of net assets as at the balance sheet date.
Only the Trusts consolidated within the Group's financial
statements receive funds relating to the sale of new plans.
(b) Actuarial valuation
The Trustees of the Trusts are required to have the Trusts'
liabilities actuarially valued once a year. This actuarial
valuation is of liabilities of the Trusts to secure funerals
through Dignity and other third party funeral directors and does
not, in respect of those funerals delivered by the Group represent
the cost of delivery of the funeral. Assets of the Trusts include
instalment amounts due in the future from clients, as these amounts
are payable on death and are therefore relevant to the actuarial
valuation. However, this means that assets detailed in the
actuarial valuations will not agree on a particular day to the
assets recognised in the Group's consolidated balance sheet because
the Group does not include future receivable amounts in the
consolidated balance sheet.
The Trustees have advised that the latest actuarial valuations
of the Trusts were performed as at 24 September 2021 (2020: 25
September) using assumptions determined by the Trustees. Actuarial
liabilities in respect of the Trusts have decreased to GBP967.1
million as at 24 September 2021 (2020: GBP995 million). The
corresponding market value of the assets of the Trusts was
GBP1,114.4 million (2020: GBP999 million) as at the same date.
Consequently the actuarial valuations recorded a total surplus of
GBP147.3 million at 24 September 2021 (2020: surplus of GBP4
million).
Active members and assets per plan
31 December 25 December
2021 2020
Number Number
Supported by:
The Trusts 323 ,000 319,000
The Small Trusts 43 ,000 46,000
Insurance Plans 215 ,000 193,000
5 81 ,000 558,000
The Trusts have approximately GBP3, 650 (2020 : GBP3, 400)
average asset per active plan (see alternative performance measures
on page 52 for further details ). On average the Trading Group
received approximately GBP3,000 (2020: GBP3,000) in the period for
the performance of each funeral (including amounts to cover
disbursements such as crematoria fees, ministers' fees and doctors' fees where applicable).
Insurance Plans are those plans for which the Group is the named
beneficiary on life assurance products sold by third party
insurance companies.
(c) Transactions with the Group
During the period, the Group entered into transactions with the
Small Trusts. Amounts may only be paid out of the Trusts in
accordance with the relevant Trust Deeds. Transactions (which were
recognised as revenue in the funeral division) amounted to GBP0.9
million (2020: GBP0.9 million) in the period and principally
comprised receipts from the Small Trusts in respect of funerals
provided. No amounts were due to the Group on either balance sheet
date.
17 Insurance plans
The Group is the named beneficiary on a number of life assurance
products sold by third party insurance companies on which the Group
pays commission. The Group is entitled to recover commission paid
if plans are cancelled within two years of being sold. However, if
plans are cancelled outside this two year period, commissions paid
are not refundable. The majority of plans with these features
ceased to be written in October 2019 and the remainder in February
2020.
Following a review of the Group's accounting policy for
insurance plans in relation to the prepaid balance held on the
consolidated balance sheet within 'deferred insurance commissions'
the Group has amended the accounting treatment to include a
provision for expected future cancellations. A detailed analysis
has been performed on the cancellation rates for insurance products
and a prior year restatement has been required to reflect the
expected level of future cancellations.
It was further noted that a liability was not held for the
active plans where a known commission is payable in future years.
The calculation for the liability includes an estimate of the level
of cancellations before the commission is payable and is discounted
using a risk free rate of return. Furthermore, an assessment has
been performed to determine the level of future expected funerals
and this element of the liability has been held as a corresponding
asset.
The change to the recognition and measurement of the plans has
been reflected in these financial statements as a prior period
restatement impacting opening reserves.
27 December 2019 consolidated balance sheet (selected lines
only):
Impairment Recognition
27 Dec of of future Recognition
2019 as deferred commission of future 28 Dec
originally commission payable expected Tax 2019
presented prepayment liability funerals impact restated
GBPm GBPm GBPm GBPm GBPm GBPm
Non-current
assets
Deferred
insurance
commissions 11.0 (3.2) 2.4 10.2
Current
liabilities
Financial
liabilities 9.6 0.6 10.2
Current tax
liabilities 6.0 (0.8) 5.2
Non-current
liabilities
Financial
liabilities 542.3 2.9 545.2
Shareholders'
deficit
Retained
earnings (297.9) (3.2) (3.5) 2.4 0.8 (301.4)
The impact of the above is as follows:
-- At 28 December 2019 the deferred insurance commission
prepayment of GBP11.0 million has been impaired by GBP3.2
million;
-- A liability has been recognised representing the future
commission payable of GBP3.5 million within financial liabilities.
This is split between current and non-current liabilities at GBP0.6
million and GBP2.9 million respectively;
-- The corresponding entry of the liability is the recognition
of an asset of GBP2.4 million which represents the level of
expected future funerals. The net impact of these adjustments of
GBP1.2 million is a charge to the consolidated income statement
which has been corrected through opening reserves as at 28 December
2019;
-- The deferred commission prepayment of GBP11.0 million at 28
December 2019 has therefore overall reduced by GBP0.8 million to
GBP10.2 million;
-- The tax impact at 28 December 2019 is a credit of GBP0.8
million and has reduced the current tax liability to GBP5.2
million; and
-- The total impact of this impairment on opening reserves at 28
December 2019 is a reduction of GBP3.5 million to GBP145.0
million.
These adjustments have no impact on cash.
The above adjustments have been recorded in the funerals
segment.
When comparing the updated amortisation analysis and roll
forward of the assets and liabilities at 25 December 2020 there is
no material difference between the original amounts charged to the
consolidated income statement. Therefore, no adjustments have been
made to these accounting periods aside from the adjustments to the
assets and liabilities referred above. The balance sheet at 25
December 2020 as presented in the annual report and accounts for
that period included a GBP0.5 million accrual and a related GBP0.5
million deferred insurance commission asset. These balances should
have been recorded as of 28 December 2019 and have been corrected
as part of the above adjustment.
25 December 2020 consolidated balance sheet (selected lines
only):
Impairment Recognition Removal
25 Dec of of future Recognition of
2020 as deferred commission of future insurance 25 Dec
originally commission payable expected Tax commission 2020
presented prepayment liability funerals impact accrual restated
GBPm GBPm GBPm GBPm GBPm GBPm
Non-current
assets
Deferred
insurance
commissions
commissions 10.7 (3.2) 2.4 (0.5) 9.4
Current
liabilities
Financial
liabilities 15.1 0.6 15.7
Trade and
other
payables 68.7 (0.5) 68.2
Current tax
liabilities 8.7 (0.8) 7.9
Non-current
liabilities
Financial
liabilities 526.6 2.9 529.5
Shareholders'
deficit
Retained
earnings (331.6) (3.2) (3.5) 2.4 0.8 - (335.1)
A further impairment of GBP0.8 million has been charged to the
consolidated income statement for the 53 week period ending 31
December 2021 which reflects the changes in future expected
cancellation rates.
The key judgement used within the calculation of the above
assets and liabilities at 31 December 2021 is the future expected
cancellation rate of 1.6 per cent per annum for the remaining life
of active plans held. This is based on historical data of
cancellation rates on similar insurance plans sold by third parties
in the past for which the Group is the beneficiary. This estimate
therefore is subject to sensitivity.
If this expected future rate of cancellation was to
reduce/increase by 0.2 per cent to 1.4 per cent/1.8 per cent,
respectively, the impairment charged in the current period of
GBP0.8 million would reduce/increase by GBP0.4 million. If this
rate reduced/increased by 0.4 per cent to 1.2 per cent/2.0 per
cent, respectively, the impairment charged in the current period of
GBP0.8 million would reduce/increase by GBP0.8 million.
In the event of the death of the policyholder, if the Group
performs the funeral, it receives an agreed amount from the
insurers which is recognised as revenue within the funeral services
division. On occasions a third party will perform the funeral and
the Group will pass on all monies received to that party and in
this situation the Group is deemed to be acting as an agent and
revenue is treated as pass through revenue and not grossed up
within the consolidated income statement
18 Post balance sheet events
Consent solicitation with bondholders
On 17 February 2022, Dignity Finance plc ('Dignity Finance'), a
Group subsidiary, announced the launch of a consent solicitation
period with its Class A Bondholders in relation to a proposed
temporary covenant waiver (as described in note 13 of the
Preliminary Announcement). As stated in the Group's interim results
on 21 September 2021, the Board continues to work on its plans to
improve the Group's capital structure in the pursuit of the best
long-term value for shareholders.
Wh ilst the Group's financial performance has delivered headroom
in relation to financial covenants throughout the last 12 months,
given the distorting impact of the pandemic on the timing of
deaths, there remains significant uncertainty around the UK death
rate in the near term. Therefore, the Board has taken the prudent
decision to seek a temporary waiver of the abovementioned financial
covenant on a precautionary basis in relation to Dignity Finance's
debt obligations.
Following a meeting of the Class A Bondholders on 11 March 2022,
the necessary quorum was achieved (with 99.58 per cent of the
aggregate principal amount of the Notes for the time being
outstanding being represented) and the Extraordinary Resolution was
duly passed (with 95.19 per cent of the votes being cast in
favour).
Trust financial assets
The Trust has over GBP1 billion in assets that are invested in
various equities, bonds, funds and private investments. Such
investments can be subject to volatility due to movements in
underlying markets and assets and can go up and down. This can be
seen in movements post year end following the situation in Ukraine.
The Group monitors this closely and this forms part of its
considerations for its long term investment strategy, noting that
the purpose of the Trust is to provide asset coverage (and a
surplus) to fund the pre-need funerals return which are forecast to
have an average maturity of 10 plus years.
Acquisition activity
The Group has acquired the trade and assets of one business
since the balance sheet date through the Dignity Ventures
division.
Non-GAAP measures
(a) Alternative performance measures
The Board believes that whilst statutory reporting measures
provide financial performance of the Group under IFRS, alternative
performance measures are necessary to enable users of the financial
statements to fully understand the trading performance and
financial position of the business.
The alternative performance measures provided are aligned with
those used in the day-to-day management of the Group and allow for
greater comparability across periods.
For this reason, the alternative performance measures provided
exclude the impact of consolidating the Trusts, the corporate
interest restriction disallowance arising as a result of
consolidating the Trusts and the changes which relate to the
application of IFRS 15. In addition, the deferred tax impact
relating to the corporation tax rate change in both 2021 and 2020
arising on the deferred tax balances on consolidating the Trusts
and application of IFRS 15 have also been excluded, as well as
non-underlying items comprising certain non-recurring and
non-trading transactions.
IFRS 16 has previously been included within the alternative
performance measures for 2020 only. This was due to the modified
retrospective adoption of the standard, meaning the 2019
comparatives had not been restated and therefore were not
comparable. IFRS 16 is now included within underlying performance
measures and all comparatives have been restated accordingly. As a
result all references to IFRS 16 have been removed from the other
adjustments reconciliation tables in comparative periods.
Therefore, a prior year restatement has been made to December 2020
underlying performance measures to the magnitude of a GBP0.1
million charge to underlying profit. This is made up of an
adjustment to remove the operating lease rentals of GBP13.8 million
which is replaced with a depreciation charge of GBP9.2 million, a
finance expense of GBP4.7 million and a tax charge of GBPnil. See
note 1 for further details of the impact of this restatement on the
consolidated financial statements
The exclusion of the impact of consolidating the Trusts and the
application of IFRS 15 will continue for the foreseeable future. We
will also assess whether it is right to exclude any future new
accounting standards from alternative performance measures based on
whether they are included in the measures used in the day-to-day
management of the business.
All of these measures are highlighted as underlying throughout
this Preliminary Announcement.
Calculation of underlying reporting measures
Underlying revenue and profit measur es (including divisional
measures) are calculated as revenue and/or profit before
non-underlying items and other adjustments.
Underlying net finance costs are calculated before the
application of IFRS 15 and the impact of consolidating the Trusts.
See note 3.
Underlying earnings per share is calculated as profit after
taxation, before non-underlying items and other adjustments (both
net of tax), divided by the weighted average number of Ordinary
Shares in issue in the period.
Underlying cash generated f rom operations excludes
non-underlying items and other adjustments on a cash paid
basis.
(b) Non-underlying items
The Group's underlying measures of profitability exclude:
-- amortisation of acquisition related intangibles;
-- external transaction costs;
-- profit or loss on sale of fixed assets (net of any insurance proceeds received);
-- Transformation Plan costs (see below);
-- marketing costs in relation to trials;
-- restructuring costs;
-- Directors severance pay;
-- operating and competition review costs;
-- trade name write-off's and impairments;
-- goodwill impairments; and
-- the taxation impact of the above items together with the impact of taxation rate changes.
Non-underlying items have been adjusted for in determining
underlying measures of profitability as these underlying measures
are those used in the day-to-day management of the Group and allow
for greater comparability across periods.
In the tables below, non-underlying items are categorised as
either non-trading or non-recurring. Non trading items refers to
expenditure which does not relate to the normal day-to-day
transactions of the business, whereas non-recurring also does not
relate to the day-to-day transactions of the business and is not
expected to reoccur, however the same non-recurring item may
straggle more than one accounting period.
Transformation Plan costs
Cost incurred in relation to the Group's now abrogated
Transformation Plan resulted in significant, directly attributable
non-recurring costs in 2020 and these amounts are excluded from the
Group's underlying profit measures and treated as a non-underlying
item.
These costs include, but are not limited to:
-- external advisers' fees;
-- directly attributable internal costs, including staff costs
wholly related to the Transformation (such as the Transformation
Director and project management office);
-- costs relating to any property openings, closures or relocations;
-- rebranding costs;
-- speculative marketing costs; and
-- redundancy costs.
Funeral services Crematoria Pre-arranged funeral Central overheads Group
plans
53 week period ended 31 GBPm GBPm GBPm GBPm GBPm
December 2021
Non-trading
Amortisation of
acquisition related
intangibles 3.7 0.4 0.1 - 4.2
External transaction
costs in respect of
completed and aborted
transactions - 1.2 - 1.4 2.6
Profit on sale of fixed
assets (net of insurance
proceeds received) (1) - (1.1) - - (1.1)
Trade name write-off 2.5 - - - 2.5
Trade name impairment 2.8 - - - 2.8
Goodwill impairment 36.4 - - - 36.4
Non-recurring
Marketing costs in
relation to trials - - - 0.9 0.9
45.4 0.5 0.1 2.3 48.3
Taxation (2) (2.5)
Taxation - rate change 8. 3
54.1
(1) Includes GBP1.1 million of insurance proceeds received in respect of a Crematoria fire
which occurred in 2020.
(2) All of the above items are subject to corporation tax, except for the trade name write-off,
trade name impairment and goodwill impairment.
52 week period ended 25 December 2020 - restated (3)
Non-trading
Amortisation of
acquisition related
intangibles 4.1 0.4 0.1 - 4.6
External transaction
costs in respect of
completed and aborted
transactions 0.2 - - - 0.2
Profit on sale of fixed
assets - (0.2) - - (0.2)
Trade name impairment 15.3 - - - 15.3
Goodwill impairment 28.7 - - - 28.7
Non-recurring
Marketing costs in
relation to trials - - - 0.6 0.6
Transformation Plan costs - - - 4.7 4.7
Directors' severance pay - - - 1.6 1.6
Operating and competition
review costs - - - 2.9 2.9
48.3 0.2 0.1 9.8 58.4
Taxation (6.1)
Taxation - rate change 3.6
55.9
(3) A presentation adjustment has been made in December 2020 to
separately pull out the marketing costs in relation to trials.
(c) Other adjustments reconciliation
Other adjustments enable a user of the financial statements to
assess the financial performance of the Trading Group as it was
historically reported prior to the consolidation of the Trusts and
the impact of IFRS 15, Revenue from Contracts with Customers. This
mirrors the financial reporting provided to management on a monthly
basis to monitor the performance of the underlying Trading
Group.
Adjustments to the Group's consolidated financial statements are
made to reflect the following:
-- Deferred revenue recognised on the delivery of a funeral is
replaced with the payment received by the Trading Group from the
Trust at the same time. Pre-need segment income, in the form of
upfront payments received by the Trading Group from the Trusts in
support of marketing are recognised when received at inception of a
funeral plan rather than being deferred as part of the
aforementioned deferred revenue.
-- Payments made by the Trusts on cancellation are recognised by the Trading Group.
-- Unlike disbursements on at-need funerals, disbursements on
pre-need funerals under IFRS 15 are recognised on a principal basis
within both revenue and cost of sales, but for consistency in the
alternative performance measure both are reduced as these items are
not included in either measure. Similarly, pre-need funerals
delivered by subcontracted funeral directors, which form part of
deferred income, are excluded within the alternative performance
measure with a corresponding adjustment to cost of sales.
-- Commissions payable on securing new Trust plans are
recognised at the inception of the plan rather than being deferred
and recognised at the time the funeral service is delivered.
-- The amounts recorded in respect of the remeasurement of
assets held in the Trust is removed as is the significant financing
component that only arises when deferred revenue is recognised on
consolidation of the Trusts.
-- The taxation impact of the above adjustments, including the
impact of corporate interest restriction and changes in the rate of
deferred tax associated with the items noted above are removed.
Pre-arranged funeral
Funeral services Crematoria plans Central overheads Group
53 week period ended GBPm GBP m GBPm GBPm GBPm
31 December 2021
Revenue
Trust consolidation:
Release of deferred
revenue on death or
cancellation 117.9 - - - 117.9
Removal of payments
received from the
Trusts on death (58.4) - - - (58.4)
Payments on
cancellation (9.8) - - - (9.8)
Derecognise pre-need
segment income - - (24.6) - (24.6)
IFRS 15:
Recognition of
disbursement element
of pre-need plans 16.6 - - - 16.6
Revenue - Total
other
adjustments 66.3 - (24.6) - 41.7
Cost of sales
IFRS 15:
Amounts paid on
subcontracted
funerals (8.2) - - - (8.2)
Recognition of
disbursement element
of pre-need plans (16.6) - - - (16.6)
Administrative
expenses
Trust consolidation:
Recognition of Trust
costs (6.2) - - - (6.2)
Transfer of pre-need
costs into funeral
segment (24.7) - 24.7 - -
IFRS 15:
Net release of
deferred costs in
respect of
commissions (0.4) - - - (0.4)
Operating profit -
Total other
adjustments 10.2 - 0.1 - 10.3
Finance income/(costs)
Trust consolidation:
Deferred revenue
significant
financing (51.6)
Remeasurement of financial assets held by the Trusts and related income 94.8
Finance costs - Total other adjustments 43.2
Taxation:
Trust consolidation:
Taxation impact on above adjustments (8.1)
Corporate interest restriction disallowance (1.5)
Deferred tax rate change 6.9
IFRS 15:
Taxation impact on above adjustments (0.5)
Deferred tax rate change (5.5)
Taxation - Total other adjustments (8.7)
Profit after taxation - Total other adjustments 44.8
Pre-arranged funeral
Funeral services Crematoria plans Central overheads Group
52 week period ended GBPm GBP m GBPm GBPm GBPm
25 December 2020 -
restated
Revenue
Trust consolidation:
Release of deferred
revenue on death or
cancellation 122.2 - - - 122.2
Removal of payments
received from the
Trusts on death (59.8) - - - (59.8)
Payments on
cancellation (8.8) - - - (8.8)
Derecognise pre-need
segment income - - (28.8) - (28.8)
IFRS 15:
Recognition of
disbursement element
of pre-need plans 18.6 - - - 18.6
Revenue - Total
other
adjustments 72.2 - (28.8) - 43.4
Cost of sales
IFRS 15:
Amounts paid on
subcontracted
funerals (8.8) - - - (8.8)
Recognition of
disbursement element
of pre-need plans (18.6) - - - (18.6)
Administrative
expenses
Trust consolidation:
Recognition of Trust
costs (6.9) - - - (6.9)
Transfer of pre-need
costs into funeral
segment (28.9) - 28.9 - -
IFRS 15:
Net release of
deferred costs in
respect of
commissions 4.9 - - - 4.9
Operating profit -
Total other
adjustments 13.9 - 0.1 - 14.0
Finance income/(costs)
Trust consolidation:
Deferred revenue
significant
financing (53.1)
Remeasurement of financial assets held by the Trusts and related income 47.3
Finance income - Total other adjustments (5.8)
Taxation:
Trust consolidation:
Taxation impact on above adjustments (0.5)
Corporate interest restriction disallowance (4.3)
Deferred tax rate change 6.8
IFRS 15:
Taxation impact on above adjustments (0.9)
Deferred tax rate change (2.1)
Taxation - Total other adjustments (1.0)
Profit after taxation - Total other adjustments 7.2
(d) Non-underlying cash flow items
31 December 25 December
2021 2020
restated (1)
GBPm GBPm
Cash flows from operating activities 68.3 62.7
Cash flows of other adjustments 16.1 16.3
Cash flows from operating activities - Trading Group 84.4 79.0
External transaction costs 1.6 0.6
Marketing costs in relation to trials 0.9 0.2
Directors' severance pay 0.9 0.7
Transformation Plan costs - 5.4
Operating and competition review costs 0.5 3.0
Underlying cash generated from operations 88.3 88.9
(1) December 2020 has been restated to separately pull out spend
on marketing costs in relation to trials out of external
transaction costs.
(e) Funeral market share
Comparable funeral market share excludes any volumes from
locations not contributing for the whole of 2020 and 2021 to date
and therefore excludes 26 locations closed and one location opened
in 2020 and a further 24 locations closed and five locations opened
in 2021.
(f) Average assets per plan
Average assets per plan are calculated as the net assets of the
Trusts divided by the number of active plans in the Trusts. Net
assets in this calculation will not equal amounts in the
consolidated balance sheet of the Group, as it includes instalment
amounts due in future that become payable immediately on death.
31 December 2021 25 December 2020
GBP GBP
N et assets in the Trusts 1 ,179,000 1,097,000
Number of active plans 323,000 319,000
--------------------------- ----------------- -----------------
Asset per plan 3 ,650 3,400
--------------------------- ----------------- -----------------
(g) Return on Trusts assets
Return on Trust assets are calculated as net investment return
in the Trusts divided by the opening net assets within the
consolidated balance sheet.
31 December 2021 25 December 2020
GBPm GBPm
Remeasurement recognised in the consolidated income statement 85.0 41.3
Investment income 7.7 2.2
Foreign exchange rate difference (1.7) -
Investment administrative expenses deducted at source (2.8) (5.2)
--------------------------------------------------------------- ----------------- -----------------
Net investment return in the Trusts 88.2 38.3
--------------------------------------------------------------- ----------------- -----------------
Opening n et assets as per the consolidated balance sheet 967.1 947.5
--------------------------------------------------------------- ----------------- -----------------
Return on the Trust assets (per cent) 9.1% 4.0%
--------------------------------------------------------------- ----------------- -----------------
(h) Cash Return on Core Capital ('CROCC')
The Dignity CROCC is a measure of the return made on the
productive capital in the business ignoring intangible assets and
non-cash returns. This is a proprietary measure ('APM') and
therefore not subject to accounting rules which you should bear in
mind.
We calculate it by taking the underlying cash generated from
operations and subtracting the maintenance capital expenditure, net
finance costs paid and tax paid; this gives the Cash Return ('CR').
This is then divided by the sum of the property, plant and
equipment, Trade receivables: at-need and Inventories less Trade
payables which make up the Core Capital ('CC').
To illustrate what it measures imagine that a company built a
crematorium costing say GBP8 million including the land which once
mature makes a return after tax and capital expenditure of GBP1.2
million, then its CROCC would be 15 per cent (GBP1.2 million
/GBP8.0 million). Now if that crematorium were sold to another
company for GBP20.0 million it would still be making GBP1.2 million
but they might measure its return at 6 per cent (GBP1.2 million
/GBP20.0 million). CROCC would still come out at 15 per cent
because it is based upon the capital used to create the asset, not
the goodwill reflected in its transfer. 6 per cent is the initial
return on an investment in what is a 15 per cent asset purchased
for 2.5 times the capital invested in it.
Core Capital is taken from a concept introduced by Warren
Buffett about judging a business based upon the capital you would
need to replicate it.
CROCC is useful because it gives a measure of the underlying
returns of a business which are a guide to what the returns on
retained capital might be. As we progress the CROCC will
increasingly reflect the returns from the capital retained and
allocated by the executive for organic growth. The CROCC
calculation can be reconciled as follows:
31 December 25 December
2021 2020
GBPm GBPm
Underlying cash generated from operations 88.3 88.9
Less:
Maintenance capital expenditure (17.6) (9.1)
Net finance costs paid (28.2) (29.1)
Tax paid (17.7) (6.9)
Cash Return 24.8 43.8
Property, plant and equipment 242.1 240.9
Trade receivables: at-need 15.2 14.1
Inventories 8.6 9.0
Less:
Trade payables (9.3) (5.5)
Core Capital 256.6 258.5
Cash Return on Core Capital (per cent) 9.7% 16.9%
Forward-looking statements
This Preliminary Announcement and the Dignity plc investor
website may contain certain 'forward-looking statements' with
respect to Dignity plc (the 'Company') and the Group's financial
condition, results of its operations and business, and certain
plans, strategy, objectives, goals and expectations with respect to
these items and the economies and markets in which the Group
operates.
Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
'anticipates', 'aims', 'due', 'could', 'may', 'should', 'will',
'would', 'expects', 'believes', 'intends', 'plans', 'targets',
'goal' or 'estimates' or, in each case, their negative or other
variations or comparable terminology. Forward-looking statements
are not guarantees of future performance. By their very nature
forward-looking statements are inherently unpredictable,
speculative and involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future.
Many of these assumptions, risks and uncertainties relate to
factors that are beyond the Group's ability to control or estimate
precisely. There are a number of such factors that could cause
actual results and developments to differ materially from those
expressed or implied by these forward-looking statements. These
factors include, but are not limited to, changes in the economies
and markets in which the Group operates; changes in the legal,
regulatory and competition frameworks in which the Group operates;
changes in the markets from which the Group raises finance; the
impact of legal or other proceedings against or which affect the
Group; changes in accounting practices and interpretation of
accounting standards under IFRS, and changes in interest and
exchange rates.
Any forward-looking statements made in this Preliminary
Announcement or the Dignity plc investor website, or made
subsequently, which are attributable to the Company or any other
member of the Group, or persons acting on their behalf, are
expressly qualified in their entirety by the factors referred to in
this statement. Each forward-looking statement speaks only as of
the date it is made. Except as required by its legal or statutory
obligations, the Company does not intend to update any
forward-looking statements.
Nothing in this Preliminary Announcement or on the Dignity plc
investor website should be construed as a profit forecast or an
invitation to deal in the securities of the Company.
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END
FR UUSBRUBUOUAR
(END) Dow Jones Newswires
March 23, 2022 03:00 ET (07:00 GMT)
Dignity (LSE:DTY)
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