TIDMDTY
RNS Number : 2571B
Dignity PLC
30 September 2022
For immediate release 30 September 2022
Dignity plc
Interim results for the 26 week period ended 1 July 2022
Progress made against strategy delivery, and well prepared for
new funeral plan regulation.
Dignity plc (Dignity, the Company or the Group), one of the UK's
largest national providers of funeral plans and end of life
services, announces its unaudited interim results for the 26 week
period ended 1 July 2022.
26 week 26 week
period period
ended ended
1 July 25 June Decrease
2022 2021 per cent
------------------------------------------------------- -------- --------- -----------
Underlying revenue (GBPmillion) 141.2 169.4 17
Underlying operating profit (GBPmillion) 14.7 37.8 61
Underlying profit before tax (GBPmillion) 0.6 23.2 97
Underlying (loss)/earnings per share (pence) (1.2) 36.2
Underlying cash generated from operations
(GBPmillion) 24.4 56.6 57
Revenue (GBPmillion) 166.9 189.0 12
Operating (loss)/profit (GBPmillion) (48.3) 40.8
(Loss)/profit before tax (GBPmillion) (156.0) 50.5
Basic (loss)/earnings per share (pence) (258.6) 62.4
Cash (used in)/generated from operations (GBPmillion) (3.7) 49.0
Number of deaths 319,000 340,000 6
------------------------------------------------------- -------- --------- -----------
Alternative performance measures (APMs)
All measures marked as underlying in the table above and
throughout this announcement are alternative performance measures.
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 49 to 57.
Key points
-- We continue to implement our new strategy and are seeing
early signs of this coming through in market share, whilst also
recognising the initial adverse impact on profitability
-- As explained in the 2021 Annual Report, the Company reported
a potential adverse impact on underlying revenue and underlying
operating profit. This is due to a combination of factors,
including fluctuations in the death rate, partnered with a change
in our pricing strategy and introduction of a direct cremation
service through our funeral network
-- Delivered our regulatory programme and achieving
authorisation by the Financial Conduct Authority ('FCA') under new
funeral plan rules, which came into effect on 29 July 2022
-- Development and launch of our innovative new funeral plan
proposition, and the creation of a new trust to support this
-- Organisational restructure continues, supported by the new brand strategy
-- Confirmed our commitment to be net zero across the Dignity network by 2038
-- Launched and now embedding our new guiding principles, which
will be the framework for culture change at the Company, including
ensuring salaries are industry competitive for client facing
roles
-- Continuation of a large capital expenditure programme linked
to delayed works from previous years during the pandemic as well as
a property portfolio programme that is prioritising key investment
needs across our estate
-- Total impairment of GBP62.9 million of the Group's
non-current assets following slower funeral market share growth
combined with more branch direct cremations rather than full adult
funerals being performed than originally anticipated
-- We successfully reached an agreement with bondholders in
September which allows the Group to begin deleveraging and removes
some restrictions from the securitisation
Kate Davidson, Chief Executive Officer of Dignity plc,
commented:
"Over the past few years our business has risen to the
challenges presented by COVID-19. We have continued to deliver
excellent customer service whilst also implementing our new
strategy as well as preparing and achieving FCA regulatory approval
for new funeral plan rules, whilst recognising the short-term
adverse impact on our financial performance. Our people have risen
to these challenges and, through the embedding of our Principles
and values introduced earlier this year, we believe that we are
well placed to achieve our key aims of becoming the leading
end-of-life service provider in the UK and a deserving and
rewarding employer."
For further information please contact:
Kate Davidson, Chief Executive Officer
Dean Moore, Interim Chief Financial Officer
Dignity plc +44 (0)20 7466 5000
Chris Lane
Hannah Ratcliff
Verity Parker
Buchanan +44 (0)20 7466 5000
www.buchanan.uk.com Dignity@buchanan.uk.com
Chief Executive Officer's Statement
Financial summary
The impact of the pandemic, combined with pricing and strategic
changes implemented at the end of 2021, has continued to make
year-on-year comparisons difficult. The death rate in the first
half of 2022 was lower than the previous period despite being
higher than the five-year average, based on ONS data, potentially
due to factors resulting from the pandemic.
Growth in our funeral market share is signalling positive signs
that our new strategy is beginning to deliver, especially
considering that it comes as we have been rationalising the branch
network and closing unviable branches. A significant change in our
approach to pricing and product mix at the end of 2021 has resulted
in a reported operating loss of GBP48.3 million (June 2021:
operating profit GBP40.8 million) and lower underlying operating
profits of GBP14.7 million (June 2021: GBP37.8 million), but an
element of this can be attributed to our focus on increasing
competitiveness locally and offering direct cremation as a lower
priced service. We switched off the vast majority of our marketing
activity in January, which may have had a negative impact on
volumes and share.
Our growth in market share though is being held back by staff
shortages and despite our increased recruitment efforts we still
have over 400 vacancies. This is resulting in an increase to the
time between death and funeral and is losing us business. We
started a new programme of marketing activity from July but we are
having to hold back until we can handle the calls and additional
work. We have made a number of significant changes in H2 to address
this shortage including personnel and remuneration changes.
Lower prices to give increased competitiveness and an investment
in all elements of our proposition do lower profitability until
such time as growth with operational gearing compensates.
Therefore, factors holding back growth like insufficient capacity
impact short-term profitability until we reduce them.
We saw cremation market share grow by one per cent, helped by
our growing share of direct cremation business. Crematoria
operations are not being impacted in the same way by staff
shortages.
Consideration has been given to the increasing cost of fuel, and
the impact it has on our operations. We are continuing to monitor
the situation including the impact of the recently announced
government intervention and one potential option is the
introduction of a temporary 'fuel surcharge' across our
crematoria.
Overall we are seeing rising costs impacting our business,
especially employment costs and we will be looking to recover some
of that in our next pricing adjustments in October 2022. Central
costs are declining.
In those areas of the business where we have done the most to
introduce the elements of our new strategy, we see the signs of
encouraging results of the market share growth we are seeking. As
we covered in the Annual Report and at the AGM, it is growth
combined with our operational gearing that will restore the
profitability of the business.
The lower death rate reduced revenue across the group by GBP8.6
million and lower average revenues both from lower prices and the
introduction of direct cremations through the branch network,
reduced revenue by GBP17.5 million. Against that, market share
growth in funerals and crematoria added GBP5.6 million.
The impact of the above and the subsequent impact on forward
looking cashflows, coupled with an increase in the discount rate
from 10.3 per cent to 11.4 per cent since December 2021, has
created an impairment of GBP62.9 million of the Group's non-current
assets as at 1 July 2022, including GBP42.7 million goodwill,
GBP5.5 million trade names, GBP10.3 million right-of-use assets and
GBP4.4 million property, plant and equipment. The methodology for
impairment is based upon the accounting standard which does not
permit use of longer-term assumptions which cannot be evidenced.
This is not the same as a longer-term strategy based forecast or
expectation.
Further details on the Group's financial performance are
provided in the business and financial review.
Cash position
The Trading Group's period end cash position was GBP32.9 million
versus GBP55.9 million at 31 December 2021 and GBP64.8 million
(excluding GBP16.9 million of restricted cash) at 25 June 2021.
This decrease is a result of operating losses, increased capital
expenditure linked to delayed works from previous years during the
pandemic, debt service payments of GBP16.9 million and a transfer
out of the Trading Group to the Trusts of GBP3.6 million (see page
55 for more details).
Strategic update
Dividends
We continue to work on our plans to improve our capital
structure so that the pursuit of the best long-term value for
shareholders is not compromised by the covenants attached to our
bonds. Until that has been done the Board will not be contemplating
dividends. We will make announcements at the appropriate times on
this matter.
FCA Regulation of the pre-paid funeral plan sector
We are pleased to confirm that Dignity achieved authorisation by
the Financial Conduct Authority (FCA) under the new regulatory
regime for pre-paid funeral plans, which came into force on 29 July
2022.
Funeral plan providers in the UK must now be regulated by the
FCA to continue to sell or carry out funeral plans. Dignity has
long called for statutory oversight of the sector to remove bad
actors and to improve the outcome for customers, so it is extremely
positive to have seen the regulations come into effect.
The regulation has impacted almost every corner of our business;
from compliance and governance, an enhanced focus on customer
vulnerability and consumer redress processes, training and people
development, as well as a new approach to how we market and sell
our products. We have established the UK Funerals (2022) Trust,
operated by trustees independent to Dignity, which commenced
selling pre-arranged funeral plans on 8 August 2022. The Dignity
Trading Group also transferred GBP1.0 million cash into this new
Trust on 11 July 2022 in order to meet FCA regulatory requirements.
This requirement means that we must ensure the Trust always remains
adequately funded to meet the funeral plan liabilities. A process
is underway to combine our existing trusts into this new one.
We have also stood by our commitment to help customers of other
plan providers where we can, and as we have with the customers of
Safe Hands, we have engaged with a number of firms who will not be
regulated to understand any opportunity to help customers.
Following Safe Hands going into administration, we have delivered
188 funerals as at 1 July 2022 on behalf of bereaved people
impacted by the collapse, at no cost to the family. Had these
funerals been delivered at Dignity's current at-need prices,
additional revenue of GBP0.5 million would have been generated.
I would like to thank all of our colleagues that have been
involved with the strategic and operational effort that has enabled
the delivery of our authorisation. We are proud of what we have
achieved to date and recognise the responsibility Dignity has as a
market leader to ensure we continue to deliver the high standards
expected by the regulator. It is our expectation that FCA
regulation will introduce stability to the pre-need sector which
will be beneficial for all stakeholders.
New funeral plan proposition
We have taken the opportunity of the start of this new era to
completely rethink what a funeral plan should be, drawing on the
knowledge and expertise we have within Dignity. Our ambition has
been to create a product that inspires people, even those not
thinking about funeral plans, and gives them the opportunity to
plan the celebration of their life and turn that into a funeral
plan that is personal, tailored and as unique as they are. We aim
to provide that at a cost and service level that gives them great,
and we believe unrivalled, value through our specially trained
colleagues.
Organisational restructure
We have continued our focus on restructuring the business,
starting with the reorganisation of our network into 12 regions,
that delivers a collaborative and integrated end-of-life service
across our funeral directors, crematoria and funeral plan
proposition. We also set out at our AGM our approach to inverting
the organisation, through local empowerment of our new Business
Leaders, that are supported by the breadth and scale of the Dignity
network.
We have appointed all but one of the Heads of Regions and nine
of the 12 regions have moved to the new operational structure. We
have also made 202 Business Leader appointments nationally, and
anticipate recruitment and restructuring to be complete across the
network by the end of the year.
We continue to make progress with the new Business Leaders to
develop individual business strategies and plans, which include
localised objectives for performance and market share. A newly
appointed Head of Regional Development has been focused on
developing these plans with the Business Leaders. We will be able
to provide more detail on our localised plans in 2023.
A branding exercise has also begun across several of our funeral
businesses, creating a new identity that is unique to the heritage
of that business and brand. A dedicated creative team has worked
with the Business Leaders to develop these brand identities which
extends across physical facias, customer and marketing collateral,
our digital presence and plans for renovated interiors.
Our people
Dignity's people - our colleagues - are the most important asset
in our business, and I am committed to ensuring we fulfil the core
element of our vision that seeks to be an inspirational and
rewarding employer. We also want to attract and retain the best
people, ensuring colleagues are empowered, supported and developed
is essential to this, but so is putting an effective reward and
recognition framework in place.
Our first step to providing fair and competitive remuneration
was delivered through introducing the Living Wage Foundation's real
Living Wage to the lowest paid colleagues across the business in
January. As part of our review and benchmarking of pay across our
own business and the sector, we are in the process of increasing
the salaries for key frontline roles to ensure they are competitive
and leading in our sector and have also considered the impact on
our people due to inflationary rises.
We also must have the right culture in place - empowered people
that are driven and inspired by our social purpose, and this is
embedded in our new Principles which we launched earlier this year.
To support this, we have taken a measure of sentiment and
engagement with the Principles, through a colleague engagement
survey. This found that in Q1 2022, whilst 77 per cent colleagues
felt proud to work for Dignity, 35 per cent did not feel empowered
to make their own decisions, and a quarter do not understand how
their role supports the business's wider aims. We will be taking a
second measure of this at the end of Q4 to understand the extent
the Principles are becoming our culture, and in turn the impact of
the changes we have made to our structure and improvements to our
people approach.
Sustainability
At our AGM we announced Dignity's commitment to be net zero by
2038, which is underpinned by our new Principles that include a
dedicated value focused on protecting the environment and
prioritising sustainable practices. Our ambition includes reducing
carbon emissions from all of our owned operations, funeral
branches, crematoria and care centres, to our fleet and a view to
mitigating our impact through our supply chain. We are proud to
support the introduction of formal climate disclosures mandated for
listed firms, through the Taskforce on Climate-related Financial
Disclosures ('TCFD'). Dignity was not required to comply with the
formal climate disclosures in its 2021 Annual Report, but we
elected to take a pragmatic step and complete a voluntary
disclosure as we believe TCFD provides a strong framework for our
climate pledge and strategy to develop. Dignity is committed to,
and is, making progress towards a full, mandatory TCFD submission
for the period ending 30 December 2022, which will include climate
scenario analysis and interim target setting.
The Board
In January and February respectively, both myself and Kartina
Tahir-Thomson were appointed to the Board. Kartina joined as an
Independent Non-Executive Director and Chairs the Risk Committee
and is a member of the Audit, Remuneration and Nomination
Committees. My appointment to the Board was as an Executive
Director, in my former role as Dignity's Chief Operating Officer.
At the same time, we also confirmed the permanent appointment of
Graham Ferguson as an Independent Non-Executive Director and Chair
of the Audit and Remuneration Committees and a member of the
Nomination and Risk Committees. In June, Gary Channon stood down
from the Board, John Castagno stood down from the Audit Committee,
and Graham Ferguson was appointed Senior Independent Non-Executive
Director. All of these appointments ensure greater compliance with
the UK Corporate Governance Code (July 2018).
Whilst early progress had been made in the search for a new
Chief Financial Officer, we can now confirm that no appointments
have been made and that the recruitment process continues. Dean
Moore will therefore continue in his role as an interim CFO, and
once a permanent appointment has been made, he will then resume his
role as a Non-Executive Director.
Andrew Judd, our Director responsible for the day-to-day
provision of funeral services, stood down from the Board and left
the Company on 1 April 2022. We would like to thank Andrew for his
long and dedicated service to the Company.
And finally, I am honoured to confirm my appointment as Chief
Executive Officer from June 2022, when Gary Channon stepped down
from the Board and role as CEO. He has remained since this time an
integral part of our strategy delivery as an advisor to the Board,
focused on our work around the capital structure and the creation
of the newly formed trust, and I would like to thank Gary for his
dedication and commitment to driving our new strategy forward and
his support to me in my transition to the CEO role.
Outlook
We set out at our AGM the impact and progress made towards our
strategy, but with the unpredictability of the death rate in 2022,
the impact of our strategy implementation, regulatory change and
our new funeral plan proposition, we will continue to refrain from
giving guidance.
Kate Davidson
Chief Executive Officer
Business and financial review
Introduction
For statutory purposes, the Group has two reporting segments,
Funeral services and Crematoria. See note 2 for further details.
Statutory financial results are shown on page 1.
The Group's underlying operations are managed across three
distinct divisions: funerals, crematoria and pre-arranged funeral
plans. 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 Dignity operated crematoria and cemeteries.
Pre-arranged funeral plans represent the sale of funerals in
advance to customers wishing to make their own funeral
arrangements.
Number of deaths
2022 2021 (Decrease)/
increase
per cent
Quarter 1 166,000 204,000 (19)
Quarter 2 153,000 136,000 13
First half of year 319,000 340,000 (6)
Deaths were 19 per cent below the prior year in the first
quarter as a result of COVID-19 and one per cent below the
five-year average (2015-2019). The second quarter is 13 per cent
above the prior year and seven per cent above the five-year average
(2015-2019). The impact of COVID-19 deaths in 2020 and 2021 could
possibly mean we experience a fluctuating number of deaths than
originally anticipated by the Office of National Statistics ('ONS')
in 2022 and 2023. The Group will not speculate on the most likely
outcome.
Funeral operations
At 1 July 2022, the Group operated a network of 756 (June 2021:
789; December 2021: 776) funeral locations throughout the UK,
generally operating under established local trading names. The
change to the portfolio reflects 23 closures and three openings.
This forms part of our new local business strategies and closures
occur where a branch is not deemed to be viable in its current
location even with our new strategy. The timing of the closures can
be impacted by the end dates of leases and of the 23 closures only
five were freeholds.
GBPm GBPm GBPm
Q1 Q2 H1
Underlying operating profit - 2021 22.2 9.4 31.6
Impact of:
Number of deaths(1) (10.8) 4.4 (6.4)
Market share(1) 4.5 (1.4) 3.1
Average revenues(1) (6.6) (8.0) (14.6)
Net cost base changes (1.5) (3.5) (5.0)
Underlying operating profit - 2022 7.8 0.9 8.7
(1) Represents revenue impact
The table above demonstrates the impact of our new pricing
strategy, coupled with the distorting effect of the pandemic on the
death rate in the first quarter. Whilst market share has increased
revenue, we can see that a reduction in the number of deaths has
reduced revenue by GBP6.4 million, and the change in pricing
strategy and the introduction of direct cremation has reduced it by
a further GBP14.6 million. Cost base changes include a GBP1.7
million impact from the loss of rates relief, GBP1.6 million
increase in bad debt provision, GBP0.7 million impact from an
increase in coffin raw material prices, an increase of GBP0.5
million in depreciation and GBP0.3 million increase in utility
costs. Accordingly, the cost to deliver a funeral (see alternative
performance measures on page 57 for details on how it is
calculated) has increased to GBP1,902 as an LTM at 1 July 2022
(June 2021 LTM: GBP1,840; December 2021: GBP1,814).
Items totalling GBP56.5 million (2021: GBP4.3 million) are
excluded from underlying profit resulting in a statutory operating
loss of GBP47.8 million (2021: operating profit GBP35.9 million).
These items relate to non-underlying items and the impact of the
consolidation of the Trusts and applying IFRS 15. See Non-GAAP
measures note for further details.
Market share
In the first half of 2022 the Group conducted 40,000 funerals
(26 week period ended June 2021: 41,400; 53 week period ended
December 2021: 79,200) in the United Kingdom, a three per cent
decrease on the prior period. Approximately one per cent of the
funerals in each period were performed in Northern Ireland.
Excluding Northern Ireland, these funerals represented
approximately 12.4 per cent (June 2021: 12.0 per cent; December
2021: 11.8 per cent) of total estimated deaths in Great Britain. On
a comparable basis, excluding any funerals from locations not
contributing to the whole of the first half of 2022 and 2021 and
any Safe Hands funerals, market share was 12.2 per cent, compared
to 11.8 per cent in 2021.
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. Allied to this, 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,
calculations of market share, particularly over shorter periods,
may not be comparable.
Funeral mix and average income
The average revenue for funerals has decreased from GBP2,478 (H1
2021) to GBP2,115 (H1 2022), (excluding the funerals delivered as
part of our Safe Hands rescue support the average in H1 2022 was
GBP2,129), which can be attributed to a combination of the change
in our pricing strategy and the change in mix due to the provision
of lower cost funeral options, such as direct cremations. This
combined with reduced volumes has also impacted the contribution
per branch (see alternative performance measures on page 57 for
details on how it is calculated) which has decreased to GBP48,452
as an LTM at 1 July 2022 (June 2021 LTM: GBP75,547; December 2021:
GBP75,000).
FY Q1 Q2 H1 Q1 Q2 H1
Funeral type 2021 2022 2022 2022 2021 2021 2021 Actual
Actual Actual Actual Actual Actual Actual restated(1)
restated(1) restated(1)
Underlying
average
revenue
(GBP) Attended 2,855 2,486 2,439 2,464 2,903 3,064 2,959
Unattended 1,063 1,044 1,037 1,041 1,010 944 980
Pre-need 1,959 1,950 1,967 1,958 1,943 1,955 1,948
Other (including Simplicity and
3(rd) party direct cremations) 904 608 522 668 1,004 982 982
Volume mix
(%) Attended 61 58 59 59 61 62 62
Unattended 3 8 7 7 1 1 1
Pre-need 28 28 28 28 29 28 28
Other (including Simplicity and
3(rd) party direct cremations) 8 6 6 6 9 9 9
Underlying weighted average revenue
(GBP) 2,394 2,108 2,093 2,115 2,434 2,545 2,478
Ancillary revenue (GBP) 154 165 174 155 131 168 150
Underlying average revenue (GBP) 2,548 2,273 2,267 2,270 2,565 2,713 2,628
(1) In September 2021, funeral services introduced an Attended
Funeral at prices from GBP1,595 to GBP2,495 (excluding 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, previously included as simple and direct
cremation, has been restated to Unattended to make both
comparable.
Crematoria operations
The Group remains the largest single independent operator of
crematoria in Great Britain operating 46 crematoria (June 2021: 46;
December 2021: 46).
GBPm GBPm GBPm
Q1 Q2 H1
Underlying operating profit - 2021 14.6 10.6 25.2
Impact of:
Number of deaths(1) (3.7) 1.5 (2.2)
Market share(1) 2.2 0.3 2.5
Average revenues(1) (0.8) (2.1) (2.9)
Net cost base changes (0.9) (0.1) (1.0)
Underlying operating profit - 2022 11.4 10.2 21.6
(1) Represents revenue impact
Non-underlying costs of GBP0.5 million (2021: GBP0.7 million)
are excluded from underlying profit resulting in statutory
operating profit of GBP21.1 million (2021: GBP24.5 million). See
Non-GAAP measures note for further details.
The Group performed 39,300 cremations (June 2021: 38,900;
December 2021: 74,800) in the period. These volumes represent
approximately 12.3 per cent (June 2021: 11.4 per cent; December
2021: 11.3 per cent) of total estimated deaths in Great Britain.
Average price per cremation has decreased to GBP862 (June 2021:
GBP892, December 2021: GBP887), yield per crematoria (see
alternative performance measures on page 57 for details on how it
is calculated) has decreased to GBP1,056,522 as an LTM at 1 July
2022 (June 2021 LTM: GBP1,076,087; December 2021: GBP1,126,087) and
average ancillary revenue per cremation has decreased to GBP219
(June 2021: GBP272, December 2021: GBP269) which reflects an
increase in the percentage of direct cremations being performed. As
the number of unattended cremations increases this will impact the
averages when comparing to the prior period.
Crematoria remains a stable and cash generative aspect of the
Group's operations.
Pre-arranged operations
Dignity continues to remain focused on selling high-quality
funeral plans, in ways consistent with the strong reputation of the
Group and the high standards expected by our customers. During the
first half of 2022, we have remained focused on being ready for the
FCA regulation and on 29 July 2022 we were approved by the FCA so
are now regulated and as such sales of the new Dignity funeral plan
have commenced with focused distribution through our network of
local branches.
As a result of the above, sales of pre-arranged funeral plans
were low in the first half of 2022, resulting in low growth in the
total number of active pre-arranged funeral plans of 582,000
compared to 581,000 at December 2021 and 580,000 at the end of June
2021.
As previously stated, the Group can claim a marketing and
administration allowance from the trusts for plans sold in the
period (up to a maximum amount per plan sold), which historically
resulted in a profit in the pre-need division. In 2019, the Group
decided to restrict this allowance from the trusts to only recover
the costs incurred in the selling of the funeral plans and
therefore, the pre-need division has not contributed any profit or
loss since 2019 due to these under recoveries. However, as plan
sales were low in the first half of 2022, the Group would not have
been able to recover all of the costs incurred in the selling and
administration from funeral plans sold in the current period but
has been able to utilise under recoveries from previous years sales
to cover the current year operating costs.
We expect the sales of pre-arranged funeral plans to increase
during the second half of 2022.
Active members 1 July 25 June 31 December
2022 2021 2021
Number Number Number
Supported by:
The Trusts 316,000 330,000 323,000
The Small Trusts 44,000 43,000 43,000
Insurance Plans 222,000 207,000 215,000
582,000 580,000 581,000
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 June 2022, the Trusts had average assets per
plan of GBP3,405 (June 2021: GBP3,564; December 2021: GBP3,650) in
respect of 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 GBP4.0 million), based on assumptions by
the Trusts' 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.
Return on Trust assets of (2.5) per cent has been achieved for
the 12 month period to 1 July 2022 (June 2021: 11.2 per cent;
December 2021: 9.1 per cent). The decrease from prior periods is
due to the decline in equity markets and foreign exchange
movements. It is 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 56 for how it is calculated.
Central overheads
Central overheads relate to central services that are not
specifically attributed to a particular operating division. These
include the provision of IT, finance, HR, 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, considered annually for over 100 managers across the
business.
Underlying costs in the period were GBP15.6 million (2021:
GBP19.0 million). The table below summarises the key movements:
GBPm GBPm GBPm
Q1 Q2 H1
Central overheads - 2021 9.7 9.3 19.0
Impact of:
Digital activities (0.2) (1.5) (1.7)
Salaries (0.3) (0.8) (1.1)
Other 0.2 (0.8) (0.6)
Central overheads - 2022 9.4 6.2 15.6
Salaries have reduced year-on-year primarily due to the prior
period including a performance bonus accrual of GBP1.0 million.
Central overheads are expected to reduce as part of the new
strategy.
Non-underlying items of GBP6.0 million (2021: GBP0.6 million)
are excluded from underlying costs resulting in total central costs
of GBP21.6 million (2021: GBP19.6 million). Of the GBP6.0 million
non-underlying items, GBP3.4 million relates to external
transaction costs which includes costs associated with the current
capital structure work, GBP2.3 million of redundancy costs relating
to the new strategy and GBP0.3 million of onerous provisions
relating to the ongoing operational restructure.
Corporate development activity
The Group has planning permission for six new crematoria. The
total capital expenditure for these six projects is expected to be
approximately GBP56.0 million, with GBP12.0 million of this amount
having already been invested. Each of the locations with planning
permission will take five to seven years to reach maturity once
construction has been completed, performing 800 to 1,000 cremations
per year.
In addition, the Group also has one location that is currently
in the planning process.
The Group's strategic review for corporate development activity
is underway which will determine the next course of action for
these locations.
Earnings per share
Underlying earnings per share decreased to a loss of 1.2 pence
per Ordinary Share (June 2021: 36.2 pence; December 2021: 42.8
pence), principally driven by the 61 per cent decrease in
underlying operating profit.
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 49. 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.
Non-underlying items excluded from alternative performance
measures includes GBP62.9 million impairment charge which has
arisen due to a fall in short-term forecasts since the impairment
review performed for the 53 week period ended 31 December 2021
following slower funeral market share growth combined with more
branch direct cremations rather than full adult funerals being
performed than originally anticipated, together with an increase in
the discount rate from 10.3 per cent to 11.4 per cent since
December 2021. The slower market share growth is a result of the
new strategy taking longer to implement partly due to staff
shortages. The Group is currently suffering like many other
businesses with a shortage of workforce and a difficulty in
recruiting which is causing us to be unable to do funerals in a
timeframe soon enough for some families. We are confident that our
market share would have increased if we were not struggling with
this challenge. We are currently addressing the vacancy issue by
increasing the salaries within operations to be more competitive in
the market, which should enable us to recruit and retain staff.
For more detailed information on non-underlying items including
a reconciliation of statutory revenue to underlying revenue is set
out on pages 31 and 49 to 57.
Accordingly, the following information is presented to aid
understanding of the performance of the Group:
26 week 26 week 53 week
period period period
ended ended ended
1 Jul 25 Jun 31 Dec
2022 2021 2021
restated(b)
GBPm GBPm GBPm
Operating (loss)/profit for the period as
reported (48.3) 40.8 19.5
Add the effects of:
Acquisition related amortisation 2.0 2.1 4.2
External transaction costs in respect of completed,
aborted and ongoing transactions 3.7 0.6 2.6
Marketing costs in relation to trials - 0.6 0.9
(Profit)/loss on sale of fixed assets (net
of insurance proceeds received) - (0.2) (1.1)
Trade name write-off - - 2.5
Trade name impairment 5.5 - 2.8
Goodwill impairment 42.7 - 36.4
Right-of-use asset impairment 10.3 - -
Property, plant and equipment impairment 4.4 - -
Restructuring costs - redundancy 2.3 - -
Restructuring costs - onerous provision 0.3 - -
Impact of Trust consolidation and IFRS 15 (8.2) (6.1) (12.0)
Underlying operating profit (a) 14.7 37.8 55.8
Underlying net finance costs (14.1) (14.6) (29.0)
Underlying profit before tax (a) 0.6 23.2 26.8
Tax charge on underlying profit before tax (1.2) (5.1) (5.4)
Underlying profit after tax (a) (0.6) 18.1 21.4
Weighted average number of Ordinary Shares
in issue during the period (million) 50.0 50.0 50.0
Underlying EPS (pence) (a) (1.2) 36.2 42.8
(a) Fu rther details of alternative performance measures can be
found on pages 49 to 57.
(b) Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a reclassification of foreign
exchange movements. See Note 1 for further details.
Cash flow
Underlying cash generated from operations was GBP24.4 million
(June 2021: GBP56.6 million) and has decreased as a result of lower
operating profits and increased capital expenditure linked to
delayed works from previous years during the pandemic. Other
working capital changes were consistent with the Group's experience
of converting profits into cash, subject to timing differences.
In addition to the corporate development activity in the period,
the Group spent a net GBP13.3 million (June 2021: GBP9.9 million)
on purchases of property, plant and equipment.
1 25
Jul Jun
This is analysed as: 2022 2021
GBPm GBPm
Maintenance capital expenditure:
Funeral services 3.8 4.0
Crematoria 2.6 2.7
Other 4.1 1.3
Total maintenance capital expenditure(a) 10.5 8.0
Other property development 1.5 0.1
Development of new crematoria and cemeteries 1.8 2.2
Total property, plant and equipment 13.8 10.3
Partly funded by:
Disposal proceeds - properties (b) (0.4) (0.4)
Disposal proceeds - vehicles (0.1) -
Net capital expenditure 13.3 9.9
(a) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other
tangible and intangible assets.
(b) Property disposals in 2022 includes GBP0.4 million of insurance proceeds received.
Cash flow and cash balances for the Trading Group
Cash balances held by the Trading Group at the end of the period
were GBP32.9 million (June 2021: GBP81.7 million; December 2021:
GBP55.9 million). This includes GBP0.3 million of restricted cash
(June 2021: GBP16.9 million; December 2021: GBPnil), see note 10.
The amount of restricted cash held at June 2022 and December 2021
differs from June 2021 due to the timing of interest and principal
repayments on the Group's class A and B Secured Notes. Of the
remaining amount, GBP23.7 million (June 2021: GBP33.6 million;
December 2021: GBP44.6 million) was held by Dignity plc. Please see
the terminology section on page 28 for the definitions of the
Trading Group and the Securitisation Group.
Taxation
The Group's effective tax rate for 2022 is expected to be
approximately 22 per cent before the effect of non-underlying
items. The effective rate for 2023 and beyond is expected to be
approximately two to three per cent above the headline rate of
Corporation Tax for the relevant period principally due to the
effects of non-deductible expenses. This expected effective rate
excludes the impact of corporate interest rate restrictions.
The Group's effective tax rate on losses at 1 July 2022 is 17
per cent (June 2021: charge on profits of 38 per cent) which is
lower than the underlying effective tax rate primarily due to
GBP0.7 million of disallowable taxation on external transaction
costs, GBP10.7 million of disallowable taxation on the goodwill,
trade name, right-of-use asset and property, plant and equipment
impairments and a GBP5.2 million credit in relation to Trusts.
A judgement has been taken by management in relation to the June
2022 corporate interest restriction ('CIR') charge. The restriction
is calculated using the fixed ratio and is based upon an estimated
full year tax EBITDA calculation which is aligned to the forecasts
used within the Group's impairment and going concern assessments
for interim reporting. Consequently, a charge of GBP1.0 million
(June 2021: GBP2.1 million; December 2021: GBP1.5 million) has been
recognised within the consolidated income statement. The CIR charge
has been included within underlying taxation as the charge has
arisen due to the level of profitability of the Trading Group. In
prior periods, the charge has been included within "other
adjustments" as non-underlying as the charge arose due to the level
of fair value gains on the Trust bond portfolio as all Trust
related items are included as non-underlying.
Capital structure
The Group has continued to work on a long-term solution to
improve the Group's capital structure and on 7 September 2022 a
consent solicitation with approximately 61 per cent support from
its class A Noteholders was launched. This is seeking certain
consents from Noteholders for a potential transaction involving the
realisation of value from selected crematoria assets, with the
expected proceeds of such a transaction being applied in a partial
redemption of the Class A Notes, as required by the current
documentation. The necessary quorum was achieved on 29 September
2022 (with 99.92 per cent of the aggregate principal amount of the
Notes for the time being outstanding being represented and with
94.42 per cent of the votes being cast in favour of the proposal)
and the consent to the proposal applies for a 12 month period to 29
September 2023. Once the transaction is complete, an outcome the
board expects within the 12 months allowed, there are amendments to
the documents that will allow further equity cures, with
restrictions, to be made going forward should they be required.
As part of the proposed agreement with Noteholders, Dignity will
be required to inject a minimum of GBP70.0 million into the
Securitisation Group companies to partially repay some of the Class
A Notes outstanding in consideration for assets leaving the
Securitisation group. This will result in a deleveraging of the
Group and a positive impact on the underlying financial ratios and
covenant calculations. Funds for this injection are expected to be
realised from a capital transaction relating to the sale of certain
crematoria assets but the agreement with bondholders does not limit
where the funds come from.
Secured Notes
The Group's principal source of long-term debt financing is the
Secured Notes issued in 2014. 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 GBP356.4
million million
Legal maturity 31 December 31 December
2034 2049
Coupon 3.5456% 4.6956%
Rating by Fitch(1) A- BB+
Rating by Standard & Poor's(2) A- B+
(1) Rating affirmed on 1 July 2022.
(2) Rating affirmed on 25 October 2021 and credit watch negative was also removed.
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 GBP521.4 million (June 2021: GBP536.7
million; December 2021: GBP526.6 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.
As set out in note 12, the Group's gross amounts owing on its
debt obligations were GBP521.8 million (June 2021: GBP537.2
million; December 2021: GBP527.1 million). Net debt was GBP488.9
million (June 2021: GBP467.4 million; December 2021: GBP471.2
million).
The market value of the Secured Notes at the balance sheet date
was GBP488.6 million (June 2021: GBP549.2 million; December 2021:
GBP574.9 million).
Should the Group wish to repay all amounts due under the Secured
Notes, the cost to do so at 1 July 2022 would have been
approximately GBP627.4 million (Class A Notes: GBP177.4 million;
Class B Notes: GBP450.0 million) (June 2021: GBP759.7 million
(Class A Notes: GBP211.6 million; Class B Notes: GBP548.1 million);
December 2021: GBP757.4 million (Class A Notes: GBP202.8 million;
Class B Notes: GBP554.6 million)).
The Group also has access to a GBP55.0 million liquidity
facility relating to the Class A and B Secured Notes, which
attracts floating interest rates once drawn. This facility may only
be used to repay interest and principal on the Secured Notes in the
event of insufficient cash to service these instruments. The
facility is subject to annual renewal. However, if the bank
providing the facility does not renew it, then the provider is
required to place GBP55.0 million in a bank account, which the
Group may access as if it represented a borrowing facility on the
same terms. The facility is available on these terms until the
Secured Notes have been repaid in full. At 1 July 2022 GBPnil (June
2021: GBPnil; December 2021: GBPnil) was drawn on this
facility.
Secured Notes Financial Covenant
The Group's primary financial covenant under the Secured Notes
requires EBITDA to total debt service to be above 1.5 times. During
the temporary covenant waiver period that was approved by bonds
holders in March 2022, any cash transferred into the Securitisation
Group can be included within the EBITDA to debt service ratio for
the following 12 months. The waiver allows for cash to be
transferred at any covenant measurement point up to and including
31 December 2022. GBP15.1 million has been transferred in June 2022
which has resulted in a ratio of 1.86 times at 1 July 2022 (June
2021: 2.12 times; December 2021: 2.13 times). Excluding this cash
transfer the ratio at 1 July 2022 was 1.42 times.
If this primary financial covenant is not achieved, then this
may lead to an Event of Default under the terms of the Secured
Notes, which could result in the Security Trustee taking control of
the Securitisation Group on behalf of the Secured Note holders.
Refer to Note 1 to the interim financial statements for further
details.
EBITDA for this calculation uses the last twelve months ('LTM')
results and can be reconciled to the Group's statutory operating
profit as follows:
H1 LTM LTM
1 Jul 1 Jul 31
2022 Dec
2021
2022 restated(b)
GBPm GBPm GBPm
EBITDA per covenant calculation - Securitisation
Group 36.9 63.2 72.4
Less: Total cash transferred into Securitisation
Group (15.1) (15.1) -
Add: EBITDA of entities outside Securitisation
Group 1.8 2.7 1.3
A dd: Impact of IFRS 16 6.2 12.1 12.5
L ess : Non cash items(a) (0.2) (0.7) (1.3)
Underlying operating profit before depreciation
and amortisation - Group 29.6 62.2 84.9
Underlying depreciation and amortisation (14.9) (29.5) (29.1)
Non-underlying items (71.2) (116.4) (48.3)
Impact of Trust consolidation and IFRS
15 8.2 14.1 12.0
Operating (loss)/profit (48.3) (69.6) 19.5
Notes
(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 .
(b) Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a reclassification of foreign
exchange movements. See Note 1 for further details
Whilst not a covenant, in order for the Group to transfer excess
cash 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 June 2022 was 1.04 times (June 2021: 1.74 times;
December 2021: 1.76 times). These combined requirements are known
as the Restricted Payment Condition ('RPC'). Given the ratios
achieved, the RPC was not achieved at June 2022. Failure to pass
the RPC is not a covenant breach and does 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 but otherwise
can be used within the Securitisation Group with no restrictions.
These covenant calculations use 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').
Cash return on Core Capital
In the 2021 Annual Report we introduced a measure we call Cash
Return on Core Capital ('CROCC'). In June 2022 the CROCC fell to
(0.4) per cent (June 2021: 8.5 per cent; December 2021: 9.7 per
cent). The fall in 2022 reflects the reduced underlying operating
profits and higher capital expenditure offset by lower cash tax
payments. See alternative performance measures on page 56 for how
it is calculated and why we use it.
Trust balances
At the balance sheet date, the Trusts had GBP960.9 million (June
2021: GBP1,006.8 million; December 2021: GBP1,043.1 million) of
financial assets and GBP15.7 million (June 2021: GBP23.6 million;
December 2021: GBP19.8 million) of cash, which has been recognised
in the consolidated balance sheet. The movement in financial assets
from December 2021 to June 2022 is primarily attributable to
remeasurement loss recognised in the consolidated income statement
of GBP68.0 million (June 2021: remeasurement gain of GBP45.8
million; December 2021: remeasurement gain of GBP85.0 million) and
net disposals of financial assets of GBP14.1 million (June 2021:
net disposals of GBP5.8 million; December 2021: net disposals of
GBP12.2 million). This reduction in assets is reflective of current
market conditions, should this decrease continue, it is likely to
have an adverse impact on the next actuarial valuation due in
September 2022.
Aggregated contract liabilities totalled GBP1,330.6 million
(June 2021: GBP1,330.5 million; December 2021: GBP1,337.5 million)
with the primary movement from December 2021 to June 2022 being
sales of new plans of GBP29.0 million (June 2021: GBP48.6 million;
December 2021: GBP86.3 million), increases due to significant
financing of GBP25.6 million (June 2021: GBP25.9 million; December
2021: GBP51.6 million) and releases due to death or cancellation
totalling GBP61.5 million (June 2021: GBP61.5 million; December
2021: GBP117.9 million).
The accounting position is not the same as the actuarial
position which reflects the solvency of the Trusts. As of the last
actuarial valuations in September 2021, the Trusts had assets of
GBP1,114.4 million and liabilities of GBP967.1 million to give a
net surplus of GBP147.3 million.
Impairment
A total impairment of GBP62.9 million has been charged in the
period (June 2021: GBPnil million; December 2021: GBP39.2 million),
of which GBP42.7 million (June 2021: GBPnil million; December 2021:
GBP36.4 million) to goodwill, GBP5.5 million (June 2021: GBPnil
million; December 2021: GBP2.8 million) relates to trades names,
GBP10.3 million (June 2021: GBPnil million; December 2021: GBPnil
million) to right-of-use assets and GBP4.4 million (June 2021:
GBPnil million; December 2021: GBPnil million) to property, plant
and equipment.
The impairment has arisen within the funeral services division
primarily due to slower funeral market share growth combined with
more branch direct cremations rather than full adult funerals being
performed than originally anticipated which impacts the short-term
forecasts used within the impairment models, together with an
increase in the Group's discount rate from 10.3 per cent to 11.4
per cent since December 2021. Slower market share growth is
attributable to a shortage in workforce and a difficultly in
recruiting which is causing the Group to be unable to perform
funerals in a timeframe soon enough for some families.
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 focused 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 interim reporting date when the
impairment assessment is made, the full extent of potential
longer-term gains is not reflected in the impairment modelling. The
impairment of right-of-use assets and property, plant and equipment
includes a level of estimation in the interim reporting. Note 6 in
the interim report provides sensitivity analysis based on the
calculated impairment and a detailed explanation of these
estimations.
Post balance sheet events
Capital structure - consent solicitation with bondholders
On 7 September 2022 a consent solicitation with approximately 61
per cent support from its class A Noteholders was launched. This
sought certain consents from Noteholders for a potential
transaction involving the realisation of value from selected
crematoria assets, with the proceeds of such a transaction being
applied in a partial redemption of the Class A Notes, as required
by the current documentation. The necessary quorum was achieved on
29 September 2022 (with 99.92 per cent of the aggregate principal
amount of the Notes for the time being outstanding being
represented and the Extraordinary Resolution being passed with
94.42 per cent of the votes being cast in favour) and the consents
referred to above apply for 12 month period to 29 September
2023.
Dignity will be required to inject a minimum of GBP70 million
into the Securitisation Group to partially repay some of the Class
A Notes outstanding in consideration for assets leaving the
Securitisation Group. If the transaction completes in Q2 2023 and
GBP70m is the net realisation then this will result in a
deleveraging of the Group and a positive impact of GBP5.7 million
on the DSCR covenant calculations, i.e., a reduction of the DSCR
from c.GBP51 million to c.GBP45.3 million in 2023. If the
transaction takes longer to complete and is completed in Q3 2023
there will be no positive impact in 2023 as the first possible date
for repayment will be 29 December 2023. It would have a full year
impact of GBP11.7 million on the DSCR covenant calculations, i.e.,
a reduction of the DSCR from c.GBP51 million to c.GBP39.3 million
in 2024.
In addition, upon completion of the proposed transaction within
the timeframe permitted by the noteholder consent, there are
amendments to the documents that will allow further equity cures,
with restrictions, to be made going forward should they be
required. This can be used to supplement any EBITDA shortfall at 31
December 2023 .
UK Funerals (2022) Trust established
We have established the UK Funerals (2022) Trust, operated by
trustees independent to Dignity, which commenced selling
pre-arranged funeral plans on 8 August 2022. GBP1.0 million cash
was transferred into this new Trust on 11 July 2022 at the request
of the FCA in order to meet a requirement of the new
regulation.
Forward-looking statements
Certain statements in this Interim Report are forward-looking.
Please see page 60 for further details.
Going concern
In order to assess the appropriateness of the application of the
going concern principle in these interim financial statements, the
Directors have considered the principal risks and uncertainties and
financial position of the Group as well as alternative sources of
financing that might reasonably be assumed to be available.
The Group has carried out a diligent going concern analysis.
Full details of this analysis are set out in Note 1 to the interim
financial statements.
Following consideration of the base case forecasts and the range
of downside and stress test scenarios, the Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence through 30 September 2023, being
12 months from the date of these interim financial statements. The
Directors formally considered this matter at the Board meeting held
on 27 September 2022. For these reasons, they continue to adopt the
going concern basis for preparing the Interim Report .
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.
Group Performance
KPI KPI definitions 26 week period Developments in 2022
ended
1 July 2022
Underlying ( This is underlying (1.2) pence The reduction follows
loss)/ e arnings profit after tax (H1 2021: 36.2 the decrease in underlying
per share (pence) divided by the weighted pence)(a) operating profit
average number of (FY 2021: 42.8 explained below.
Ordinary Shares pence)(b)
in issue in the
period.
Underlying operating This is the statutory GBP14.7 million Underlying operating
profit (GBP operating profit (H1 2021: GBP37.8 profit declined year-on-year
million) of the Group excluding million)(a) reflecting lower
non-underlying items (FY 2021: GBP55.8 deaths and lower
and the impact of million)(b) average revenues.
consolidating the This is partially
trusts and IFRS offset by higher
15. market share.
Underlying cash This is the statutory GBP24.4 million Although cash balances
generated from cash generated from (H1 2021: GBP56.6 have fallen due to
operations (GBP operations excluding million)(a) lower underlying
million) non-underlying items (FY 2021: GBP88.3 operating profits,
and the impact of million)(b) the Group continues
consolidating the to convert operating
trusts and IFRS underlying pro t
15. into cash e ciently.
Underlying average Underlying funeral GBP2,270 2022 has been adversely
revenue per revenue divided (H1 2021: GBP2,628)(a) impacted by the change
funeral (GBP) by the number of (FY 2021: GBP2,548)(b) in pricing strategy
funerals performed and mix effective
in the relevant since September 2021.
period.
Total estimated This is as reported 319,000 Deaths in the prior
number of deaths by the Office for (H1 2021: 340,000) period were materially
in Britain (number) National Statistics. (a) higher than originally
(FY 2021: 664,000)(b) anticipated due to
the pandemic. Deaths
in the current period
may be lower than
the latest ONS expectations
despite being three
per cent above the
five year average.
Funeral market This is the number 12.4% Market share has
share excluding of funerals performed increased compared
Northern Ireland by the Group in to the prior period.
(per cent) Britain divided
by the total estimated
number of deaths
in Britain.
(H1 2021: 12.0%)(a)
(FY 2021: 11.8%)(b)
Number of funerals This is the number 40,000 Changes are a consequence
performed (number) of funerals performed of the total number
by the Group according of deaths and the
to our operational Group's market share.
data.
(H1 2021: 41,400)(a)
(FY 2021: 79,200)(b)
Crematoria market This is the number 12.3% Market share has
share (per cent) of cremations performed increased significantly
by the Group divided compared to the prior
by the total estimated period primarily
number of deaths due to direct cremations.
in Britain.
(H1 2021: 11.4%)(a)
(FY 2021: 11.3%)(b)
Number of cremations This is the number 39,300 Changes are a consequence
performed (number) of cremations performed of the total number
according to our of deaths and the
operational data. Group's market share.
(H1 2021: 38,900)(a)
(FY 2021: 74,800)(b)
Active pre-arranged This is the number 582,000 This increase reflects
funerals (number) of pre-arranged (H1 2021: 580,000)(a) continued sales activity
funerals (both trust (FY 2021: 581,000)(b) (both trust funeral
funeral plans and plans and insurance
insurance backed) backed, albeit at
where the Group a lower level than
has an obligation previous years) offset
to provide a funeral by plans cancelled
in the future. and the crystallisation
of plans sold in
previous periods.
In addition to these key performance indicators, the Group
closely monitors the results of its client surveys. Highlights of
these results can be found on the following page.
(a) H1 2021 relates to the 26 weeks ended 25 June 2021.
(b) FY 2021 relates to the 53 weeks ended 31 December 2021.
Maintaining consistent high-quality and standards
We are proud of how we care for our clients and families and aim
to continuously improve our approach to delivering high quality
services and standards.
Our mission is to drive forward positive change in the sector
and become a true market leader with an unrivalled focus on
quality, transparency and choice. To achieve this, we recognise the
importance of investing in our people, digital platforms, and
facilities; as well as empowering our colleagues to make the right
decisions that deliver a positive experience and outcome for our
clients.
Dignity has supported calls for stronger oversight of the
standards delivered by the funeral and crematoria profession for
some time, but we recognise there is still work to be done to
ensure that we ourselves are delivering truly market leading best
practice. We have supported formation of the Independent Funeral
Standards Organisation (IFSO), and the progress it has made to
finalise recommended quality and standards framework for the sector
for England and Wales. We have also worked closely with Scottish
Government to develop its approach to regulation of the sector and
provision of services, including the anticipated implementation of
a new Code of Practice for Funeral Directors that will sit under a
legal framework in Scotland.
Understanding our customers
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 140,000 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.
We are currently reviewing the way that we gather feedback from
our customers and the public. Our new approach will seek to attain
a deeper understanding of the needs, wants and trends amongst
bereaved families, communities and funeral plan customers, using
this insight to understand how we can improve our services. This
means we are likely to change the way we report that feedback in
the future.
The Dignity Customer Survey 2022
Reputation and recommendation High Standards of facilities and
99.0% (December 2021: 99.0%) fleet
99.0 per cent of respondents said 99.9% (December 2021: 99.8%)
that we met or exceeded their expectations 99.9 per cent thought our premises
. were clean and tidy.
98.1% (December 2021: 98.0%) 99.6% (December 2021: 99.6%)
98.1 per cent of respondents would 99.6 per cent thought our vehicles
recommend us. were clean and comfortable.
Quality of service and care In the detail
99.9% (December 2021: 99.9%) 99.1% (December 2021: 99.2%)
99.9 per cent thought our staff 99.1 per cent of clients agreed
were respectful. that our staff had fully explained
what would happen before and during
99.7% (December 2021: 99.7%) the funeral.
99.7 per cent thought our staff
listened to their needs and wishes. 99.3% (December 2021: 99.1%)
99.3 per cent said that the funeral
99.1% (December 2021: 99.2%) service took place on time.
99.1 per cent agreed that our staff
were compassionate and caring. 97.9% (December 2021: 98.3%)
97.9 per cent said that the final
invoice matched the estimate provided.
Kate Davidson
Chief Executive
29 September 2022
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 as
advised by the Risk Committee. The Risk Committee 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 Risk Committee to review a balanced and
understandable assessment of the operation of the risk management
process and inputs .
Responsibilities and actions
The Board
The Board is responsible for monitoring the Group's risk and
associated mitigating factors and through the Risk Committee has
carried out a robust assessment of both emerging and principal
risks. This assessment process is supported by in-house risk
management professionals.
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 Risk Committee formally considers the
Group's Principal Risks and Uncertainties for subsequent adoption
by the Board .
Risk assessment
Executive Directors and senior management are responsible for
identifying and assessing business risks.
Identify
Risks are identified through discussion and analysis with senior
management and incorporated in the risk register 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 an 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
The Risk Committee advises the Board on risk management issues,
recommends the framework of risk limits and risk appetite to the
Board for approval and oversees the risk management arrangements of
the Company, including the embedding and maintenance of a
supportive risk management culture.
The Risk Committee seeks to 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 now be authorised by the FCA. Continuing with regulated
activity without authorisation is a criminal offence.
Dignity believes that this regulation is necessary and has
welcomed its introduction. Dignity is a FCA 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
Financial risk management
Risk description and impact Mitigating activities and commentary Change
Significant movements in The profile of deaths has historically No change
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 for
or increases. This would 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 divisions. although this would not mitigate a
short-term significant reduction in
the number of deaths. Additionally,
the ability to mitigate is currently
affected by inflationary pressures
such as the price of energy.
The number of deaths in the first
half 2022 was 319,000 which was six
per cent lower than the prior year.
Our planning continues to be based
on the long-term expectations provided
by the Office for National Statistics.
The COVID-19 pandemic has been a period
of significant disruption to the funeral
market as the elevated death rate
resulted in a higher number of funerals
and cremations compared to the five-year
average.
Whilst we anticipate this volatility
in death rates to continue, the excess
death rate may well reverse, and the
off-setting impact of both factors
results in no change in the risk assessment.
---------------------------------------------- ----------
Nationwide adverse publicity The Group's strategy is to focus on No change
Nationwide adverse publicity 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 are now focused on the development
in any financial period. and execution of a vision to excel
For pre-arranged funeral in the new FCA regulated environment
plans, adverse publicity using all potential channels to find
for the Group or one of and delight new clients.
its limited number of partners FCA regulation of the sector has acted
could result in a reduction as a catalyst for change, resulting
in the number of plans sold in a small number of organisations
or an increase in the number withdrawing from the pre-need funeral
of plans cancelled. plans market. Dignity has stood by
its commitment to help customers of
other plan providers where we can,
and as we have with customers of Safe
Hands, have engaged with a number
of firms that are exiting the market.
We continue to provide support to
families that have been impacted by
the collapse of the firm through providing
funeral services to families for a
period.
The Group maintains a system of 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 operates a suite of sector-leading
policies and practices that form our
Standard Operating Procedures ('SOP')
The SOP is at the core of everything
we do regarding our care for clients
and deceased persons. It includes
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 SOP assists
in mitigating reputational risk and
the possibility of consequential adverse
press coverage.
---------------------------------------------- ----------
Risk description and impact Mitigating activities and commentary Change
Fall in average revenue The Group's strategic review has resulted No change
per funeral or cremation in a more efficient business that
either resulting from market can accommodate more competitive pricing,
changes but which continues to provide clients
There has been increasing with a greater range of choice, underpinned
price competition in the by exceptional client service. This
funeral market, resulting will be supported by strong reputational
in material price reductions management. The Group is aspiring
by the Group in recent years. to achieve 20 per cent funeral market
It is highly likely that share in ten years time (including
pricing pressure will remain both pre and at-need funerals) by
for the foreseeable future offering the best service for the
and it may not therefore best prices.
be possible to maintain
average revenue per funeral The Group will continue to adapt to
or cremations at the current serve evolving client needs. This
level. will be through investment in digital
capabilities including an enhanced
reporting capability of business intelligence
and management information which will
enable risks and trends to be identified
promptly and accurately.
During COVID-19 the Group experienced
lower average revenues than originally
expected. In addition, awareness of
Simple Funerals and Simplicity Cremations
has increased during the pandemic.
Inflationary pressures and recessionary
impact on cost of living may further
impact consumer preference and reduce
net average revenues
In 2021, we lowered prices substantially.
Since we changed prices, our experience
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.
-------------------------------------------------- ----------
Direct cremations The Group has addressed the increased No change
Growth in the direct cremation demand for direct cremation with Simplicity
market could reduce average Cremations which offers low-cost direct
revenue in the funeral business cremations without any initial funeral
and adversely affect the service that are both respectful and
volume mix and average revenue dignified. They are an affordable
in the crematoria business. alternative to a full funeral or for
those who wish to have a simple cremation.
The increased demand for direct cremation
has resulted in a decline in underlying
average revenue although our strategy
is to rebalance this through increased
market share.
-------------------------------------------------- ----------
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 issued
requires EBITDA to total in the future. This means that the
debt service to be above covenant calculation will change proportionately
1.5 times. If this financial with changes in EBITDA generated by
covenant (which is applicable the Securitised Group.
to the securitised subgroup
of Dignity) is not achieved, Current trading continues to support
then this may lead to an the Group's financial obligations,
Event of Default under the however lower reported profitability
terms of the Secured Notes, increases the risk of breaching covenants,
which could result in the which would have occurred on 1 July
Security Trustee taking 2022 were it not for the use of an
control of the Securitisation equity cure of at least GBP2.8 million.
Group on behalf of the Secured
Note holders. Refer to Note Whilst the Group's financial performance
1 to the interim financial delivered headroom in relation to
statements for further details. financial covenants throughout 2021,
given the distorting impact of the
In addition, the Group is pandemic on the timing of deaths,
required to achieve a more there remains significant uncertainty
stringent ratio of 1.85 around the UK death rate in the near
times for the same test term. During the period, the Board
in order to be permitted took the prudent decision and secured
to transfer excess cash a temporary waiver of the abovementioned
from the Securitisation financial covenant on a precautionary
Group to Dignity plc. 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.
The 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.
The agreement reached in September
2022 between Dignity and its bondholders
allows for a deleveraging transaction
involving seven crematoria which is
expected to take place in the next
12 months as permitted. This transaction,
if completed, would reduce the level
of the covenant test and increase
the headroom. It requires a minimum
of a net GBP70 million repayment of
the bonds but that figure could be
higher depending on the value placed
on the crematoria when the expected
transaction occurs. Changes to the
terms of the bonds will also allow
more operational flexibility and future
equity cures.
-------------------------------------------------- ----------
Strategic risk management
Risk description and impact Mitigating activities and commentary Change
Disruptive new business The Group believes that this risk is No change
models leading to a significant mitigated by its reputation as a high-quality
reduction in market share provider and with recommendation being
It is possible that external a key driver to the choice of funeral
factors such as new competitors director being used. In addition, the
and the increased impact Group's actions on pricing and promotion
of the internet on the sector, seek to protect the Group's funeral
could result in a significant market share by offering more affordable
reduction in market share options. The substantial lowering of
within funeral and crematoria prices in 2021 and the adoption of
operations. This would have a strategy based upon growth has allowed
a direct result on the financial our market share to stabilise and grow
performance of those divisions. .
The Group is prioritising investment
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 also
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 seek No change
There can be no assurance to follow the population shift by rebalancing
that demographic shifts the funeral location network together
in population will not lead with meeting the developing cultural
to a reduced demand for requirements .
funeral services in areas
where Dignity operates.
----------------------------------------------------------------- ----------
Operational risk management
Risk description and impact Mitigating activities and commentary Change
Competition in the Funeral The vision is for Dignity to be the Decreased
Market UK's leading end-of-life business,
The UK funeral services, renowned for its excellence and high
crematoria and pre-need standards, represented and embedded
markets are currently fragmented. in the community with strong local
brands, whilst offering the best service
There could be (i) further for the best prices. Central to our
consolidation as FCA regulation strategy is a focus on improving the
of the pre-need sector has culture of our business, empowering
acted as a catalyst for our colleagues and working openly together
change resulting in a number to be our best through teamwork.
of organisations withdrawing
from the market or (ii) Our appetite to develop new products
increased competition in and trials has expanded through the
the industry, whether in greater collaboration and open debate.
the form of intensified Several trials are up and running with
price competition, service the objective of achieving the right
competition, over capacity combination of price product and promotion
facilitated by the internet to not only grow our local market share
or otherwise, which could but to sustain and grow our revenues.
lead to an erosion of the The Branch Direct Cremation has introduced
Group's market share, average new competitively priced products that
revenues or an increase can fit within our existing price and
in costs and consequently product architecture.
a reduction in its profitability.
We continue to develop a new tiered
Failure to replenish or funeral pricing proposition, that will
increase the bank of pre-arranged provide greater flexibility to meet
funeral plans could affect individual client needs.
market share of the funeral
division in the longer-term. By unbundling our prices and services
to provide our clients with greater
Competition continues to flexibility to create the right funeral,
intensify, with additional we will be able to provide greater
funeral directors opening consistency and competitiveness on
at varying price points, price, while reflecting Dignity's premium
alongside an increase in service levels.
the popularity of direct
cremations. 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.
FCA regulation of the sector is an
opportunity for Dignity to gain competitive
position.
FCA regulation provides Dignity's customers
with reassurance that they hold a funeral
plan with a trusted and reputable provider,
backed by a secure and well-managed
trust fund. We recognise that this
is not the case for customers of those
providers that have failed to meet
the FCA requirements or have elected
to exit the market. We stand by our
commitment to help customers of other
plan providers where we can, and as
we have with the customers of Safe
Hands, we will engage with those firms
on a case-by case basis.
---------------------------------------------- ----------
Risk description and impact Mitigating activities and commentary Change
Cyber risk The Group has, in recent years, invested No change
Our business is at risk significantly in this area with the
of financial loss, disruption objective of both upgrading all aspects
or damage to reputation of our systems and our internal resources
resulting from the failure and also using external consultants
of its information technology to drive a continuous improvement programme.
systems. This could materialise
in a variety of ways including The chance of an organisation falling
deliberate and unauthorised victim to a cyber-attack is growing.
breaches of security to Threats are more pervasive and sophisticated
gain access to information than ever.
systems.
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 maintains an ISO 27001 compliant
Information Security Management System
and has its security controls, processes
and technology independently audited
to ensure it remains effective or to
assess where it requires additional
investment.
----------------------------------------------- ----------
Regulatory risk management
Risk description and impact Mitigating activities and commentary Change
Regulation of pre-arranged Regulation applies to the industry Decreased
funeral plans as a whole and not just the Group.
FCA Regulation has resulted The FCA rules addressed:
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 sell pre-arranged * Trust structures.
funeral plans in the future
and could result in the
Trading Group not being * Product value and features.
able to draw down the current
level of marketing allowances.
The minimum solvency levels * Minimum solvency requirements for Trust Funds.
(110 per cent) for Trust
funds set by the FCA means
that levels below this minimum * Compliant sales of Pre-Paid plans.
will require Dignity Funerals
Limited to address shortfall
within a 12-month period.
Our strong market presence in the
Whole of Life Funeral Benefit market
remains unchanged.
The changes affect the whole industry,
however, Dignity is in a strong market
position as a vertically integrated
provider to grow its controlled channels
that remain open.
Internally we improved our pre-need
product by bringing more choice, flexibility,
and simplicity to our offering. We
have also improved 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 were agreed
by the Dignity Funerals Limited Board.
This represents a 10 per cent buffer
over the regulatory minimum of 110
per cent.
There will be Board oversight of product
development, pricing and distribution
of Pre-Paid funeral plans. Compliance
with FCA regulations will be subject
to continuous monitoring by our Compliance
and Risk Team and reported regularly
to the Board. Compliance breaches
will be reviewed by the Board and
addressed as required. Our objective
is to deliver the high standards required
by the regulator and strive to exceed
them.
----------------------------------------------------------- ----------
Changes in the funding of There is considerable regulation around No change
the pre-arranged funeral insurance companies which is designed,
plan business amongst other things, to ensure that
In the current regulatory the insurance companies meet their
environment, the Group has obligations.
given commitments to pre-arranged
funeral plan members to The Trusts hold assets of circa GBP1
provide certain funeral billion with an average duration of
services in the future. circa 10+ years: we will seek to generate
a surplus above funeral cost inflation.
Funding for these plans
is reliant on either insurance Additionally, and in parallel with
companies paying the amounts the development and launch of our
owed or the pre-arranged innovative new funeral plan, we have
funeral plan Trusts having incorporated a new trust to support
sufficient assets. this.
If this is not the case,
then the Group may receive
a lower amount per funeral.
----------------------------------------------------------- ----------
Risk description and impact Mitigating activities and commentary Change
Funeral Directors' Codes The Group is undertaking an assessment No change
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 is
requirement for funeral being initiated as a pre-emptive measure
directors is to have a in advance of a published Scottish
ratio of 1 refrigerated government position.
space per 50 funerals performed.
Additionally, the need Relationship management with the National
to respond to registration Association of Funeral Directors ('NAFD')
and inspection requirements and the Independent Funeral Standards
which will be enacted in Organisation ('IFSO') is underway.
law.
We strongly support the progress IFSO
The introduction of the has made and look forward to working
Independent Funeral Standards with the body should it transition
Organisation will necessitate into a government endorsed self-supervisory
compliance with a UK co-regulatory body for the sector.
Code of Practice as described
by the Ministry of Justice. We have also worked closely with Scottish
Intended obligations include Government to develop its approach
transparency, quality and to regulation of the sector and provision
standards measures with of services, including the anticipated
risk ratings and public implementation of a new Code of Practice
reporting in subsequent for Funeral Directors that will sit
phases. under a legal framework in Scotland.
The relationship between
and requirements of the
two Codes of Practice have
yet to be finally determined.
--------------------------------------------- ----------
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
Macroeconomic Pressures Overall, we are seeing rising costs New
Inflationary pressures have impacting our business especially
become apparent to Dignity employment costs and we will be looking
and most other organisations to recover some of that in our next
as rising staff costs, energy pricing adjustments in October 2022.
prices and supply chain
disruption continue to develop.
The recent and significant
increase in wholesale gas
prices will contribute to
the pressure on average
revenue per cremation.
------------------------------------------------------------------ --------
Energy Security With all other businesses, we will New
In light of the geopolitical monitor the developing situation.
situation following the We note HM Governments Policy Paper
Russian invasion of the on British Energy Security Strategy
Ukraine, energy security which states that the country needs
is a major international to build a British energy system that
issue. is much more self-sufficient.
We continue to review our position
based on the recent government announcements
regarding energy prices and will determine
what action is required to address
this risk. Currently the major risk
is one of price not supply but Dignity
will be subject to whatever government
restrictions may be placed upon industry
users should there be a shortfall
in supply. The nature of Dignity's
activity is likely to give it some
prioritised protection should a form
of rationing be introduced.
------------------------------------------------------------------ --------
Sustainability and climate The vision is for Dignity to achieve No
resilience net-zero by 2038. change
The need to operate businesses
sustainably and with a focus Dignity is ranked in the Top 200 in
on the environment is now the FT/ Statista's Europe's Climate
an imperative in order to Leaders Report 2021 due to a 27 per
achieve the Government's cent reduction in core emissions between
target of net-zero. 2014 and 2019.
Dignity has voluntarily submitted
their first TCFD report for the year
2021 prior to this becoming mandatory
for 2022. Dignity, alongside their
consultancy partner, Inspired Energy,
are actively analysing Scope 3 emissions
in order to have a fuller more robust
report in 2022.
Key ESG 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; Improved cremator technology; and
* Proactively working with Supply Chain to influence
green credentials.
Dignity is actively recruiting a ESG
Manager to support with all Environmental
and Sustainable activities and initiatives.
Their role will be to build the strategy
and road map to achieving net zero
by 2038.
------------------------------------------------------------------ --------
Consolidated income statement (unaudited)
for the 26 week period ended 1 July 2022 53 week
period
ended
26 week period 31 Dec
ended 2021
restated
---------------------
1 Jul 25 Jun (audited)
2022 2021
restated
Note GBPm GBPm GBPm
------------------------------------------- ------ --------- ---------- ------------
Revenue 2 166.9 189.0 353.7
Cost of sales (87.3) (88.1) (174.1)
Gross profit 79.6 100.9 179.6
Administrative expenses (124.7) (59.4) (156.4)
Trade receivables impairment (3.2) (0.7) (3.7)
Operating (loss)/profit 2 (48.3) 40.8 19.5
Finance costs 3 (14.1) (14.6) (29.0)
Deferred revenue significant financing 3 (25.6) (25.9) (51.6)
Remeasurement of financial assets held by
the Trusts and related income 3 (68.0) 50.2 93.1
(Loss)/profit before tax 2 (156.0) 50.5 32.0
Taxation 4 26.7 (19.3) (19.9)
(Loss)/profit for the period attributable
to equity shareholders (129.3) 31.2 12.1
(Loss)/profit per share for (loss)/profit
attributable to equity shareholders
* Basic (pence) 5 (258.6)p 62.4p 24.2p
* Diluted (pence) 5 (258.6)p 62.4p 24.2p
Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a presentation change in
relation to trade receivables impairment and a reclassification of
foreign exchange movements. Prior period comparatives for have been
restated for the 26 period ended 25 June 2021 due to a presentation
change in relation to trade receivables impairment. See Note 1 for
further details.
The alternative performance measures included within this
interim statement present information on a comparable basis with
that presented in prior periods.
Consolidated statement of comprehensive income (unaudited)
for the 26 week period ended 1 53 week
July 2022
period
ended
26 week period 31 Dec
ended 2021
----------------------
1 Jul 25 Jun (audited)
2022 2021
GBPm GBPm GBPm
------------------------------------------- ----------- --------- ----------
(Loss)/profit for the period (129.3) 31.2 12.1
Items that will not be reclassified
to profit or loss
Remeasurement gain on retirement
benefit obligations 8.9 10.5 15.6
Tax charge on remeasurement on retirement
benefit obligations (2.2) (2.6) (3.9)
Tax charge on pension contributions (0.1) - (0.2)
Restatement of deferred tax for
the change in UK tax rate - 1.9 1.9
Other comprehensive income 6.6 9.8 13.4
Total comprehensive (loss)/income
for the period (122.7) 41.0 25.5
6
------------------------------------------------------------------------------
Attributable to:
Equity shareholders of the parent (122.7) 41.0 25.5
Consolidated balance sheet (unaudited)
as at 1 July 2022 1 Jul 25 Jun 31 Dec
2022 2021 21 (audited)
Note GBPm GBPm GBPm
Assets
Non-current assets
Goodwill 6 125.4 203.9 167.9
Intangible assets 6 103.3 118.3 110.7
Property, plant and equipment 240.7 241.2 242.1
Right-of-use asset 7 75.9 91.5 89.1
Deferred insurance commissions 8.1 9.2 8.4
Financial assets held by the Trusts 8 960.9 1,006.8 1,043.1
Deferred commissions 11 97.5 104.4 100.9
Deferred tax asset 4 30.2 6.7 5.5
1,642.0 1,782.0 1,767.7
Current assets
Inventories 7.9 9.1 8.6
Trade and other receivables 9 27.2 28.4 30.0
Current tax receivables 3.4 - 2.4
Deferred commissions 11 7.3 7.9 7.6
Cash and cash equivalents - Trading
Group 32.9 81.7 55.9
Cash and cash equivalents - held by
the Trusts 15.7 23.6 19.8
Cash and cash equivalents 10 48.6 105.3 75.7
94.4 150.7 124.3
Total assets 1,736.4 1,932.7 1,892.0
Liabilities
Current liabilities
Financial liabilities 11.7 16.0 11.5
Trade and other payables 51.9 72.5 59.5
Lease liabilities 7 7.1 7.1 7.1
Current tax liabilities - 1.7 -
Contract liabilities 11 98.1 96.3 99.6
Provisions for liabilities 2.2 2.1 2.1
171.0 195.7 179.8
Non-current liabilities
Financial liabilities 512.7 524.3 518.3
Other non-current liabilities 2.1 2.2 2.2
Lease liabilities 7 73.4 77.2 75.8
Contract liabilities 11 1,232.5 1,234.2 1,237.9
Provisions for liabilities 9.5 9.6 9.4
Retirement benefit obligation 15 9.0 25.4 19.7
1,839.2 1,872.9 1,863.3
Total liabilities 2,010.2 2,068.6 2,043.1
Shareholders' deficit
Ordinary share capital 6.2 6.2 6.2
Share premium account 13.0 12.9 12.9
Capital redemption reserve 141.7 141.7 141.7
Other reserves (2.4) (2.6) (2.3)
Retained earnings (432.3) (294.1) (309.6)
Total deficit (273.8) (135.9) (151.1)
Total deficit and liabilities 1,736.4 1,932.7 1,892.0
The alternative performance measures included within this
balance sheet present information on a comparable basis with that
presented in prior periods.
Consolidated statement of changes in equity (unaudited)
as at 1 July 2022
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
25 December 2020 6.2 12.7 141.7 (3.0) (335.1) (177.5)
Profit for the 26 weeks ended
25 June 2021 - - - - 31.2 31.2
Remeasurement gain on retirement
benefit obligations - - - - 10.5 10.5
Tax on retirement benefit obligations - - - - (2.6) (2.6)
Restatement of deferred tax
for the change in UK tax rate - - - - 1.9 1.9
Other comprehensive income - - - - 9.8 9.8
Total comprehensive income - - - - 41.0 41.0
Effects of employee share options - - - 0.5 - 0.5
Tax on employee share options - - - 0.1 - 0.1
Proceeds from share issue (1) - 0.2 - - - 0.2
Gift to Employee Benefit Trust - - - (0.2) - (0.2)
Shareholders' equity as at
25 June 2021 6.2 12.9 141.7 (2.6) (294.1) (135.9)
Loss for the 27 weeks ended
31 December 2021 - - - - (19.1) (19.1)
Remeasurement gain on retirement
benefit obligations - - - - 5.1 5.1
Tax on retirement benefit obligations - - - - (1.3) (1.3)
Tax on pension contributions - - - - (0.2) (0.2)
Other comprehensive income - - - - 3.6 3.6
Total comprehensive loss - - - - (15.5) (15.5)
Effects of employee share options - - - 0.3 - 0.3
Tax on employee share options - - - (0.1) - (0.1)
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)
Loss for the 26 weeks ended
1 July 2022 - - - - (129.3) (129.3)
Remeasurement gain on retirement
benefit obligations - - - - 8.9 8.9
Tax on retirement benefit obligations - - - - (2.2) (2.2)
Tax on pension contributions - - - - (0.1) (0.1)
Other comprehensive income - - - - 6.6 6.6
-
-------------------------------------------------------------------------------------------------------------
Total comprehensive loss - - - - (122.7) (122.7)
Effects of employee share options - - - 0.1 - 0.1
Tax on employee share options - - - (0.1) - (0.1)
Proceeds from share issue (2) - 0.1 - - - 0.1
Gift to Employee Benefit Trust - - - (0.1) - (0.1)
Shareholders' equity as at
1 July 2022 6.2 13.0 141.7 (2.4) (432.3) (273.8)
(1) Relating to issue of 5,963 shares under 2016 DAB scheme and
4,562 shares under 2019 SAYE scheme.
(2) Relating to issue of 2,709 shares under 2019 DAB scheme and
4,534 shares under 2019 SAYE scheme.
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 and 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 (unaudited)
for the 26 week period ended 1 July 2022
53 week
period
ended
26 week period 31 Dec
ended 2021
1 Jul 25 Jun (audited)
2022 2021
Note GBPm GBPm GBPm
------------------------------------------------ ----- ------- -------- ----------
Cash flows from operating activities
Cash generated from operations 13 (3.7) 49.0 68.3
Finance costs paid (13.6) (14.3) (40.2)
Transfer from restricted bank accounts
for finance costs 10 - 12.0 12.0
Payments to restricted bank accounts
for finance costs 10 (0.3) (11.9) -
Total payments in respect of finance
costs (13.9) (14.2) (28.2)
Tax paid (1.1) (12.4) (17.7)
Net cash (used in)/generated from
operating activities (18.7) 22.4 22.4
Cash flows from investing activities
Acquisition of subsidiaries and
businesses (net of cash acquired) (0.2) - (0.2)
Proceeds from sale of property,
plant and equipment 0.5 0.4 1.2
Purchase of property, plant and equipment
and intangible assets (1) (14.0) (10.3) (21.0)
Purchase of financial assets (by the Trusts) (85.4) (330.7) (948.7)
Disposals of financial assets (by the Trusts) 99.5 336.5 960.9
Realised return on financial assets - 2.0 2.1
Net cash generated/(used in) investing
activities 0.4 (2.1) (5.7)
Cash flows from financing activities
Payments due under Secured Notes (5.2) (5.0) (15.1)
Transfer from restricted bank accounts for
repayment of borrowings 10 - 4.9 4.9
Payments to restricted bank accounts for
repayment of borrowings 10 - (5.0) -
Total payments in respect of borrowings (5.2) (5.1) (10.2)
Principal elements of lease payments (3.9) (5.1) (9.1)
Net cash used in financing activities (9.1) (10.2) (19.3)
Net (decrease)/increase in cash
and cash equivalents (27.4) 10.1 (2.6)
Cash and cash equivalents at the
beginning of the period 75.7 78.3 78.3
Cash and cash equivalents at the
end of the period 10 48.3 88.4 75.7
Restricted cash - amounts set aside
for debt service payments 10 0.3 16.9 -
Cash and cash equivalents at the
end of the period as
reported in the consolidated balance
sheet 10 48.6 105.3 75.7
(1) See Business and financial review on page 6 for further
details.
Notes to the interim financial information 2022 (unaudited)
for the 26 week period ended 1 July 2022
1 Accounting policies
The principal accounting policies adopted in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all periods presented, unless
otherwise stated.
Basis of preparation
The interim condensed consolidated financial information of
Dignity plc (the 'Company') is for the 26 week period ended 1 July
2022 and comprises the results, assets and liabilities of the
Company and its subsidiaries (the 'Group').
The interim condensed consolidated financial information has
been reviewed, not audited and does not constitute statutory
accounts within the meaning of s434 of the Companies Act 2006. This
interim condensed consolidated financial information has been
prepared in accordance with the Disclosure Guidance and
Transparency Rules of the FCA and with the United Kingdom adopted
International Accounting Standard (IAS) 34 'Interim Financial
Reporting'.
They do not include all of the information required for full
annual financial statements, and should be read in conjunction with
the audited consolidated financial statements of the Group as at
and for the 53 week period ended 31 December 2021. The Directors
approved this interim condensed consolidated financial information
on 29 September 2022.
The accounting policies applied by the Group in this interim
condensed consolidated financial information are the same as those
applied by the Group in its audited consolidated financial
statements as at and for the 53 week period ended 31 December 2021,
which are prepared in accordance with International Financial
Reporting Standards adopted pursuant to Regulation (EC) No.
1606/2002 as it applied in the European Union. The consolidated
financial statements for the 52 week period ended 30 December 2022
will be prepared in accordance with UK adopted international
accounting standards. The accounting policies will be updated
following the adoption of amendments to IAS 37. The basis of
consolidation is set out in the Group's accounting policies in
those financial statements.
The preparation of interim condensed consolidated financial
information requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, and income and
expenses. In preparing this interim condensed consolidated
financial information, the significant judgements made by
management in applying the Group's accounting policies and key
sources of estimation uncertainty were the same as those applied to
the audited consolidated financial statements as at and for the 53
week period ended 31 December 2021. Comparative information has
been presented as at and for the 26 week period ended 25 June 2021,
and as at and for the 53 week period ended 31 December 2021.
The comparative figures for the 53 week period ended 31 December
2021 do not constitute statutory accounts for the purposes of s434
of the Companies Act 2006. A copy of the Group's statutory accounts
for the 53 week period ended 31 December 2021 has been delivered to
the Registrar of Companies and contained an unqualified auditors'
report which did not contain an emphasis of matter reference or a
statement made under section 498 (2) or (3) of the Companies Act
2006.
Terminology:
Trusts refers to The National Funeral Trust and the Trust for
Age UK Funeral Plans considered for accounting purposes to be
controlled and therefore included in the consolidated financial
statements of Dignity plc.
Small Trusts refers to pre-arranged funeral plans from which the
Group receives funeral cover in the event that they deliver a
funeral service. Dignity is unable to influence variable returns,
such that the Group is not considered to control these trusts and
therefore these trusts are not consolidated.
Trading Group refers to Dignity plc and its subsidiaries
excluding the Trusts. Trading Group therefore represents what would
have been described as the 'Dignity plc Group' or 'Group' in
previous Annual Reports.
Group or Dignity plc Group refers to Dignity plc, including its
subsidiaries and the Trusts.
Securitisation Group or Securitised Group refers to Dignity
(2002) Limited, including its subsidiaries, but excluding the
Trusts. It represents those entities over which security has been
granted in respect of the Secured Notes.
Prior year restatements
Classification of hedging/foreign exchange difference arising on
financial assets held by the Trusts
Within the consolidated income statement administrative expenses
have been restated for the 53 week period ended 31 December 2021 to
remove GBP1.7 million of hedging/foreign exchange losses arising on
financial assets held by the Trusts, which has now been more
appropriately included within remeasurement of financial assets
held by the Trusts and related income.
Disclosure of trade receivables impairment
Within the consolidated income statement administrative expenses
have been restated for the 26 week period ended 25 June 2021 by
GBP0.7 million and for the 53 week period ended 31 December 2021 by
GBP3.7 million to remove trade receivables impairment, which has
now been separately disclosed on the face of the consolidated
income statement (having previously been disclosed in note 5 of the
Group's Annual Report and Accounts).
The above changes in presentation have resulted in
administrative expenses for the 26 week period ended 25 June 2021
reducing by GBP0.7 million from GBP60.1 million to GBP59.4 million,
administrative expenses for the 53 week period ended 31 December
reducing by GBP5.4 million from GBP161.8 million to GBP156.4
million, operating profit for the 53 week period ended 31 December
increasing by GBP1.7 million from
1 Accounting policies (continued)
GBP17.8 million to GBP19.5 million and remeasurement of
financial assets by the Trusts and related income reducing by
GBP1.7 million from GBP94.8 million to GBP93.1 million. This
restatement for the 53 week period ended 31 December 2021 has been
reflected in the segmental analysis presented in note 2 within
funeral services 'other adjustments', which has increased by GBP1.7
million from GBP10.2 million to GBP11.9 million. Accordingly,
funerals services statutory operating profit has increased by
GBP1.7 million from GBP13.0 million to GBP14.7 million.
There is no impact on operating profit for the 26 week period
ended 25 June 2021. There is no impact on statutory earnings per
share in either period.
Going concern
The financial performance of the Group and the Securitisation
Group has been forecast for a period through 30 September 2023 (the
'going concern period') and those forecasts ('base case') have been
subjected to a number of sensitivities. The base case forecasts
reflect an assessment of current and future market conditions and
their impact on the future profitability of the Group and the
Securitised Group.
The key factors which impact the Group's financial performance
are death rate, market share, funeral mix (Attended Funeral vs
Unattended Funeral), average revenue per funeral and inflation.
The performance against the planned strategy in H1 2022 is
behind that originally anticipated as it is taking longer to
re-structure funeral operations along with challenges with staff
shortages; and as such forecasts have been adjusted to allow for a
slower growth in market share whilst the new strategy is fully
embedded and vacancies for key roles are filled. The result of the
above has resulted in lower covenant headroom than previously
forecast for the 2022 and 2023 periods. However, in those areas of
the business where we have done the most to introduce the elements
of our new strategy, we see encouraging results of the market share
growth we are seeking.
The base case assumes death rates in line with ONS figures,
market share flat for the remainder of 2022 and one per cent growth
in 2023, with funeral mix remaining at the current rates and an
uplift in average revenues reflecting an October 2022 price
adjustment and having considered the expected impact of inflation
on the Group's cost base.
Debt and liquidity
As at 1 July 2022, the Group had cash (excluding cash in the
Trusts) of GBP32.9 million. Its operations are also funded by Class
A Notes with an outstanding principal of GBP165.4 million (matures
2034) and Class B Notes (together, the 'Notes') with an outstanding
principal of GBP356.4 million (matures 2049) that are listed on the
Irish Stock Exchange.
Under the base case, the Group is forecast to have sufficient
liquidity to meet its liabilities as they fall due in the period
assessed through to 30 September 2023. This is having given due
consideration to the amount of the cash on hand, the planned
investments in capital and the expected conversion of trading
profitability into cash at historic levels.
As a precautionary measure to provide additional liquidity,
Dignity plc has sought and been offered an unconditional
irrevocable loan of GBP50 million from Phoenix Asset Management
Partners, a related party ('PAMP loan'). The terms permit the loan
to be used for any business purpose (e.g., capital investment) and
allows for an onward loan from Dignity plc to the Securitised
Group. The Group could if required drawdown on the facility in the
going concern period to provide a cash buffer and to protect
against the stress case risk. However, with this facility, there is
no plausible scenario of exhausting liquidity in the going concern
period.
Covenant test
As part of the conditions of the Notes, the Securitisation Group
is required to comply with an EBITDA: Debt Service Charge Ratio
('DSCR') covenant, tested quarterly on a last 12 month ('LTM')
basis. At each point of testing, EBITDA must exceed c.GBP51 million
(i.e., 1.5x the annual debt service cost of GBP34 million).
The Group did not meet this covenant at 1 July 2022, being
GBP2.8 million below the LTM DSCR requirement of c.GBP51 million.
However, under the terms of a waiver agreed with the bondholders on
11 March 2022, this was not a breach as the Group was able to make
an equity cure, contributing cash which counts as EBITDA and
therefore makes good this shortfall. To provide additional headroom
in the forecasts (the equity cure counts in the covenant
calculation for the prospective 12 months), Dignity plc paid an
amount of GBP15.1 million (being the GBP2.8 million equity cure and
an additional GBP12.3 million) into the Securitised Group in June
2022. The DSCR covenant test at 30 September 2022 is also expected
to be met.
The waiver and ability to equity cure currently applies to the
covenant up to and including 31 December 2022 and the Group has the
option of contributing an uncapped amount of cash in order to
provide headroom against the covenant prospectively. The cash must
be contributed to the Securitisation Group by 31 March 2023 and so
the Group has the benefit of the majority of the Q1 2023 actual
trading results before determining the amount of liquidity to
inject. For example, if cash is contributed in Q4 2022, this would
be included in the covenant test point at each successive quarterly
test up to and including 30 September 2023, i.e., would cover the
entire going concern period. Based on the Group's base case
forecast, an amount of GBP18 million has been modelled as a payment
in December 2022, utilising available cash from Dignity plc
(without forecasting to have to draw on the PAMP loan). This is to
give the Group the most flexibility whilst it continues to focus on
embedding the new strategy, which is expected to generate growth in
its funeral market share and growth in profits. The Group will
assess the exact amount to contribute based on Q4 performance and
FY23 outlook in December 2022 and make a payment as needed in order
or provide sufficient covenant headroom in the going concern period
to mitigate against a combination of the downside risks occurring -
see stress test below.
1 Accounting policies (continued)
Stress test
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 giving a reduction to the base case, these include:
-- Deaths being 10,000 less than forecast (noting FY22 year to
date, deaths are in line with ONS forecast);
-- No funeral market share growth in 2023 (noting FY22 year to
date market share growth is 0.6 per cent and no further market
share growth modelled in FY22);
-- Average revenue per funeral being in line with current year
(despite price adjustments expected to take effect during October
2022 to address inflationary cost pressures);
-- The proportion of Unattended Funerals being one per cent
higher (compared to the FY22 year to date proportion of seven per
cent); and
-- Additional inflation costs of five per cent above those
modelled (with no cost mitigation activity)
This scenario modelling confirmed that, after considering the
use of the equity cure (on the basis explained above) to supplement
EBITDA in the period to September 2023, there was no plausible
scenario in which the Group would not meet its debt service
payments or related covenants in the going concern period.
This is also with the Group having not taken any mitigating
action. Based on a review of its cost base as part of the
forecasting, the Group has identified cost saving opportunities
that could provide additional headroom if needed. These savings are
within the Group's control but are not planned, nor anticipated to
be required. The Group could also increase the equity cure in
December 2022 (with payment allowed up to 31 March 2023) should it
believe there were increased risks to achieving the DSCR covenant
in the going concern period.
Impact should there be a breach of the DSCR covenant
However, and whilst not forecast in any scenario modelled, any
breach of the covenant does not give rise to an immediate
requirement to repay the associated borrowings. Rather, such a
breach results in a requirement for the bond trustees to appoint a
financial adviser who will review the financial and operational
circumstances of the Securitised Group prior to making
recommendations as to how the breach can be resolved considering
whether the Securitised Group is likely to be able to remedy such a
breach. If the financial adviser considers that the Securitised
Group is likely to be able to remedy such a breach this will be
done by the placing of cash collateral in an amount which, if it
had been placed for the relevant period in respect of which the
covenant was breached, would have generated interest sufficient (if
added to EBITDA for the relevant period) to have ensured that the
covenant was not breached. The interest rate on which the cash
collateral would accrue interest to add to the EBITDA calculation
would be measured at the rate that is earned on such cash
collateral as at the date it was placed (e.g., a deposit rate
quoted by a bank). If the Group are unable to remedy such a breach
the Class A and Class B loan notes would be repayable
immediately.
Period beyond the going concern period
The Group has also considered the period beyond 30 September
2023 to assess if there are any significant risks that exist that
would otherwise impact the going concern assumption. As the current
equity cure does not benefit the DSCR covenant reporting at 31
December 2023 as the last 12 months post cash contribution will
have expired, the base forecast covenant headroom is reduced at
that point.
To provide further headroom and reduce the risk of a covenant
breach, the Group has continued to work on a long-term solution to
improve the Group's capital structure. On 7 September 2022 a
consent solicitation with c.61 per cent support from its class A
Noteholders was launched. The voting concluded on 29 September 2022
and the consents were approved, with 94.42 per cent of votes cast
in favour. As a result of this, consents from Noteholders have been
gained to permit a potential transaction involving the realisation
of value from selected crematoria assets (the trading performance
for which is included within the Securitisation Group), with the
proceeds of such a transaction being applied in a partial
redemption of the Class A Notes. These consents apply for a 12
month period to 29 September 2023.
Dignity will be required to inject a minimum of GBP70 million
into the Securitisation Group to partially repay some of the Class
A Notes outstanding in consideration for assets leaving the
Securitisation Group. If the transaction completes in Q2 2023 and
GBP70 million is the net realisation, then upon repayment of debt
at this level, this will result in a deleveraging of the Group and
a positive impact of GBP5.7 million on the DSCR covenant
calculations, i.e., a reduction of the DSCR from c.GBP51 million to
c.GBP45.3 million in 2023. If the transaction takes longer to
complete and is completed in Q3 2023 there will be no positive
impact in 2023 as the first possible date for repayment will be 29
December 2023. It would have a full year impact of GBP11.7 million
on the DSCR covenant calculations, i.e., a reduction of the DSCR
from c.GBP51 million to c.GBP39.3 million in 2024.
In addition, upon completion of the proposed transaction within
the timeframe permitted by the noteholder consent, there are
amendments to the documents that will allow further equity cures,
with restrictions, to be made going forward should they be
required. This can be used to supplement any EBITDA shortfall at 31
December 2023.
The Directors are confident that a realisation of value from
selected crematoria assets can be achieved in order to deleverage
the Group and reduce the DSCR requirement as explained above.
Conclusion
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 a period through to 30 September
2023 and therefore continue to adopt the going concern basis in
preparing the Interim Report.
1 Accounting policies (continued)
Climate risk
We are proud to support the introduction of formal climate
disclosures mandated for listed firms, through the Taskforce on
Climate-related Financial Disclosures ('TCFD'). At Dignity, we want
to set the standard for sustainable business practice in our
industry. This means taking action to mitigate our impact on
climate change, being aware of how our business is at risk from a
changing climate and being transparent about what we are doing in
both of these areas. As such, we welcome the TCFD disclosure
requirements as they provide a 1
framework for reporting on climate-related risks and
opportunities, covering governance, strategy, risk management and
metrics & targets. Whilst Dignity was exempt from this
requirement for its 2021 Annual Report, we elected to take a
pragmatic step and complete a voluntary disclosure as we believe
TCFD provides a strong framework for our climate pledge and
strategy to develop. Dignity is committed to, and is, making
progress towards a full, mandatory TCFD submission for the period
ending 30 December 2022, which will include climate scenario
analysis and interim target setting. Due to the early stages of
development of a pathway, these considerations did not have an
impact on the current period financial reporting judgements and
estimates.
New accounting standards, interpretations and amendments adopted
by the Group
The Group has also applied the amendment to IAS 37, Provisions,
Contingent Liabilities and Contingent Assets, for the first time
for the period ending 30 December 2022. The amendment specifies
which costs an entity needs to include when assessing whether a
contract is onerous or loss-making. The amendment has created an
onerous provision of GBP0.3 million.
There are no other accounting standards, interpretations or
amendments that have been adopted by the Group for the period
ending 30 December 2022.
The Group's securitisation documents contemplate accounting
policy changes and provide a mechanism that ensure covenant
calculations are not materially impacted to the detriment of either
the Group or Noteholders.
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 two 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 operated crematoria and
cemeteries .
Pre-arranged funeral plans represent the sale of funerals in
advance to customers 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 operating profit are stated
before non-underlying items and the effect of consolidation of the
Trusts, and applying IFRS 15 as defined on page 49.
Reconciliations to statutory amounts
Non-underlying items represent certain non-recurring or
non-trading transactions. See alternative performance measures on
pages 49 and 50 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.
2 Revenue and segmental analysis (continued)
Disaggregated revenue
The disaggregated revenue and operating profit/(loss), by
segment, is shown in the following tables.
Other
Underlying adjustments
revenue (1) Revenue
26 week period ended 1 July 2022 GBPm GBPm GBPm
Funeral services 90.8 33.7 124.5
Crematoria 42.4 - 42.4
Pre-arranged funeral plans 8.0 (8.0) -
Group 141.2 25.7 166.9
(1) See alternative performance measures on page 52 for a
reconciliation of other adjustments.
Within funeral services revenue GBP54.7 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 Non-underlying Other
and and profit/ items adjustments Operating
amortisation amortisation (loss) (1) (1) profit/(loss)
26 week period ended GBPm GBPm GBPm GBPm GBPm GBPm
1 July 2022
-
----------------------------------------------------------------------------------------------------------------------------------
Funeral services 18.7 (10.0) 8.7 (64.7) 8.2 (47.8)
Crematoria 25.6 (4.0) 21.6 (0.5) - 21.1
Pre-arranged funeral
plans - - - - - -
Central overheads (14.7) (0.9) (15.6) (6.0) - (21.6)
Group 29.6 (14.9) 14.7 (71.2) 8.2 (48.3)
Finance costs (14.1) - - (14.1)
Deferred revenue significant
financing (25.6) (25.6)
Remeasurement of financial
assets held by the Trusts
and related income ( 68.0) ( 68.0)
Profit/(loss) before
taxation 0.6 (71.2) (85.4) (156.0)
Taxation (1.2) 3.9 24.0 26.7
Underlying earnings for
the period (0.6)
Non-underlying items (67.3)
Other adjustments (61.4)
Loss after taxation (129.3)
Loss per share for profit attributable to
equity shareholders
- Basic (pence) (1.2)p (258.6)p
* Diluted (pence) (1.2)p (258.6)p
(1) See alternative performance measures on pages 50 and 52 for a
reconciliation of non-underlying items and other adjustments.
2 Revenue and segmental analysis (continued)
Other
Underlying adjustments
revenue (1) Revenue
26 week period ended 25 June 2021 GBPm GBPm GBPm
------------------------------------------------------------------ --------------- ------------- -------------
Funeral services 108.7 35.2 143.9
Crematoria 45.1 - 45.1
Pre-arranged funeral plans 15.6 (15.6) -
Group 169.4 19.6 189.0
(1) See alternative performance measures on page 53 for a reconciliation
of other adjustments.
Within funeral services revenue GBP55.4 million relates to the release
of deferred revenue arising on the completion of performance obligations
or on cancellation under pre-need trust plans.
Underlying
operating
profit/
(loss)
before Underlying Underlying Other
depreciation depreciation operating Non-underlying Adjustments Operating
and and profit/ items (1) profit/
amortisation amortisation (loss) (1) (loss)
26 week period ended GBPm GBPm GBPm GBPm GBPm GBPm
25
June 2021
----------------------- ------------- ------------- ----------- --------------- ------------- ----------
Funeral services 41.3 (9.7) 31.6 (1.7) 6.0 35.9
Crematoria 28.9 (3.7) 25.2 (0.7) - 24.5
Pre-arranged funeral
plans - - - (0.1) 0.1 -
Central overheads (17.9) (1.1) (19.0) (0.6) - (19.6)
Group 52.3 (14.5) 37.8 (3.1) 6.1 40.8
Finance costs (14.6) - - (14.6)
Deferred revenue
significant
financing (25.9) (25.9)
Remeasurement of
financial
assets held by the
Trusts
and related income 50.2 50.2
Profit before tax 23.2 (3.1) 30.4 50.5
Taxation - continuing
activities - restated (5.1) 0.4 (7.7) (12.4)
Taxation - rate change
- restated - (8.3) 1.4 (6.9)
Taxation (5.1) (7.9) (6.3) (19.3)
Underlying earnings
for the period 18.1
Non-underlying items (11.0)
Other adjustments 24.1
Profit after taxation 31.2
Earnings per share for profit attributable
to equity shareholders
* Basic (pence) 36.2p 62.4p
* Diluted (pence) 62.4p
(1) See alternative performance measures on pages 50 and 53 for a
reconciliation of non-underlying items and other adjustments.
2 Revenue and segmental analysis (continued)
Other
Underlying adjustments
revenue (1) Revenue
53 week period ended 31 December 2021 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 54 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 Non-underlying Other
and and profit/ items adjustments Operating
amortisation amortisation (loss) (1) (1) profit/(loss)
53 week period GBPm GBPm GBPm GBPm GBPm
ended 31 GBPm
December
2021 -
restated(2)
Funeral
services 67.6 (19.4) 48.2 (45.4) 11.9 14.7
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) 12.0 19.5
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 93.1 93.1
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 pages 50 and 54 for a
reconciliation of non-underlying items and other adjustments.
(2) Prior year comparatives have been restated for the 53 week period
ended 31 December 2021 due to a reclassification of foreign exchange
movements. See Note 1 for further details.
3 Net finance costs
53 week
26 week period period
ended ended
-----------------
1 Jul 25 Jun 31 Dec
2022 2021 2021
restated
(1)
GBPm GBPm GBPm
Finance costs
Secured Notes 11.4 11.9 23.1
Other loans 0.3 0.1 0.9
Finance costs on IFRS 16 lease liability 2.2 2.3 4.5
Net finance cost on retirement benefit obligations 0.2 0.2 0.5
Unwinding of discounts - 0.1 -
Finance costs 14.1 14.6 29.0
Deferred revenue significant financing 25.6 25.9 51.6
Remeasurement of financial assets held by the
Trusts and related income
Investment income (10.6) (4.4) (9.8)
Fair value loss/(gain) on financial assets held
by the Trusts 68.0 (45.8) (85.0)
Hedging/foreign exchange rate losses arising
on financial assets held by the Trusts 10.6 - 1.7
Remeasurement of financial assets held by the
Trusts and related income 68.0 (50.2) (93.1)
Underlying net finance costs
Underlying finance costs 14.1 14.6 29.0
Finance income - - -
Underlying net finance costs 14.1 14.6 29.0
(1) (Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a presentation change in
relation to a reclassification of foreign exchange movements. See
note 1 for further details.)
4 Taxation
The taxation credit on continuing operations in the period is
based on a full year estimated effective tax rate, before the
effects of non-underlying items, of 22 per cent (2021: 22.0 per
cent) on loss before tax for the 26 week period ended 1 July 2022.
The effective rate of tax is higher than the standard UK tax rate
of 19.0 per cent (2021: 19.0 per cent) due to the effects of
permanent disallowables and adjustments in respect of prior
periods.
53 week
26 week period period
ended ended
-----------------
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Current tax 0.6 6.2 7.5
Deferred tax (27.3) 13.1 12.4
Total taxation (credit)/charge (26.7) 19.3 19.9
All of the deferred tax assets were available for offset against
deferred tax liabilities and hence the net deferred tax asset at 1
July 2022 was GBP30.2 million (June 2021: GBP6.7 million; December
2021: GBP5.5 million). The Group has recognised the net deferred
tax asset as this is expected to unwind over the foreseeable
future. The net deferred tax asset has increased since 31 December
2021 primarily due to the decrease in Trust assets and the
subsequent decrease in the corresponding deferred tax liability.
The Group has no unrecognised deferred tax assets and no tax
losses.
No deferred tax asset has been recognised in relation to GBP11.1
million (June 2021: GBP10.7 million; December 2021: GBP10.1
million) disallowed interest expense calculated in the annual
corporate interest restriction returns due to insufficient evidence
to support recognition.
In the recent budget announced in September 2022, it was
confirmed that legislation will be introduced to reverse the
upcoming increase in the main rate of corporation tax to 25 per
cent from 1 April 2023 and the main rate of corporation tax is
expected to remain at 19 per cent. The proposed change would
decrease the Group's deferred tax liability by approximately
GBP17.3 million.
5 Earnings per share (EPS)
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
anti-dilutive for the 26 week period ended 1 July 2022, no
adjustment has been made in respect of arriving at diluted earnings
per share measures for that period (June 2021: anti-dilutive so no
adjustment, December 2021: dilutive so an adjustment).
The Group's underlying measures of profitability exclude
non-underlying items, the application of IFRS 15 and consolidation
of the Trusts as set out on pages 49 to 55. 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
helps 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
Earnings of shares amount
GBPm millions pence
26 week period ended 1 July 2022
Underlying profit after taxation and EPS (0.6) 50.0 (1.2)
Add: Non-underlying items (net of taxation
credit of GBP3.9 million) (67.3)
Add: Other adjustments (net of taxation credit
of GBP24.0 million) (1) (61.4)
Loss attributable to shareholders - Basic
LPS (129.3) 50.0 (258.6)
Loss attributable to shareholders - Diluted
LPS (129.3) 50.0 (258.6)
26 week period ended 25 June 2021
Underlying profit after taxation and EPS 18.1 50.0 36.2
Add: Non-underlying items (net of taxation
charge of GBP7.9 million) (11.0)
Add: Other adjustments (net of taxation charge
of GBP6.3 million) (1) 24.1
Profit attributable to shareholders - Basic
EPS 31.2 50.0 62.4
Profit attributable to shareholders - Diluted
EPS 31.2 50.0 62.4
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
(1) See note 2 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 25 December 2020 150.4 3.2 4.7 2.7 0.2 161.2 232.6 393.8
Additions for the 26 - - - - - - - -
weeks
ended 25 June 2021
At 25 June 2021 150.4 3.2 4.7 2.7 0.2 161.2 232.6 393.8
Additions for the 27
weeks
ended 31 December
2021 - - - - - - 0.4 0.4
At 31 December 2021 150.4 3.2 4.7 2.7 0.2 161.2 233.0 394.2
Additions for the 26
weeks
ended 1 July 2022(3) - - 0.2 - - 0.2 0.2 0.4
At 1 July 2022 150.4 3.2 4.9 2.7 0.2 161.4 233.2 394.6
Accumulated
amortisation
and impairment
At 25 December 2020 (35.8) (2.0) (1.8) (0.9) (0.2) (40.7) (28.7) (69.4)
Amortisation charge
for the
26 weeks ended
25 June 2021 (1.8) (0.1) (0.2) (0.1) - (2.2) - (2.2)
At 25 June 2021 (37.6) (2.1) (2.0) (1.0) (0.2) (42.9) (28.7) (71.6)
Amortisation charge
for the
27 weeks ended 31
December
2021 (1.8) (0.1) (0.2) (0.2) - (2.3) - (2.3)
Trade name write-off
(4) (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)
Amortisation charge
for 26
weeks ended 1 July
2022 (1.8) - (0.2) (0.1) - (2.1) - (2.1)
Impairment (5.5) - - - - (5.5) (42.7) (48.2)
-
------------------------------------------------------------------------------------------------------------------
At 1 July 2022 (52.0) (2.2) (2.4) (1.3) (0.2) (58.1) (107.8) (165.9)
-
--------------------------------------------------------------------------------------------------------------------
Net book amount at 1
July
2022 98.4 1.0 2.5 1.4 - 103.3 125.4 228.7
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
June
2021 112.8 1.1 2.7 1.7 - 118.3 203.9 322.2
(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) Within 'other intangibles' is GBP2.3 million relating to
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) Additions in the period of GBP0.2 million within 'other
intangibles' relate to costs incurred in the development of the new
pre-arranged funeral plan journey platform which includes website
development. This is still in the course of construction at the
period end and no amortisation has been charged and will not
commence until the websites are in use.
(4) During the 52 week period ending 31 December 2021, 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 2022
On 18 March 2022, the Group acquired the trade and certain
assets of Beyond Life Limited, a non-listed company based in the UK
that offers online will-writing and other services in relation to
end of life care. The Group acquired the business because the
online offering is seen as an enhancement to the services the Group
provides.
The fair values of the identifiable assets and liabilities of
the business as at the date of acquisition were negligible and
consequently, the consideration relates substantially to goodwill
arising on acquisition, none of which is tax deductible. The cash
consideration paid was GBP0.2 million. The 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 interim reporting
period. From the date of acquisition, the business 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.
6 Goodwill and other intangible assets (continued)
Impairment tests for goodwill and other non-current assets
Goodwill and other non-current assts are subject to an
impairment test as at 1 July 2022 as in accordance with IAS 36,
Impairment of Assets, there is an indication of impairment due to
slower funeral market share growth combined with more branch direct
cremations rather than full adult funerals being performed than
originally anticipated, in December 2021, and the subsequent
short-term forecasts used for impairment testing at that time.
These are deemed to be an impairment indicator .
For the purpose of this impairment test goodwill is tested at a
business segment level as this is the lowest level at which the
return on assets acquired, including goodwill, is monitored.
The segmental allocation of goodwill and the recoverable amount
is shown below:
Book value Recoverable Book value Recoverable Book value Recoverable
amount amount amount
1 July 1 July 25 June 25 June 31 December 31 December 2021
2022 2022 2021 2021 2021
GBPm GBPm GBPm GBPm GBPm GBPm
Funeral services 69.6 299.4 148.1 n/a (1) 112.1 371.3
Crematoria 55.8 404.9 55.8 n/a (1) 55.8 391.5
125.4 704.3 203.9 n/a (1) 167.9 762.8
(1) The Group performed an assessment as at 25 June 2021 to
determine whether there had been any indicators of impairment
during the 26 week period. No indicators were identified and
therefore no impairment value-in-use calculation was performed.
Consequently, all references to prior year assessments only relate
to the 53 week period ended 31 December 2021.
The recoverable amount of each goodwill CGU is based on a
value-in-use calculation. The impairment assessment then compares
this value-in-use calculation to the carrying value of the CGU. Any
impairment of goodwill is then recognised in administrative
expenses in the consolidated income statement.
The value-in-use calculations use cash flow projections derived
from the latest forecast. Key assumptions used to produce the
forecast are the estimated UK death rates (based on forecast death
rates supplied by ONS), anticipated market share, average revenues
driven by pricing and the mix between Attended and Unattended
funerals and medium and long-term growth rates. The value-in-use
calculations for the June 2022 model include the approved forecast
for 2022, 2023 and 2024. Forecasts are based on death rates
announced by ONS in January 2022 and market share growth
assumptions reflecting forecasted increases of one per cent in 2023
and 2024 compared to H1 2022. This market share growth is supported
by performance in areas of the business where the new strategy is
embedded, and then stabilising at the projected 2024 year end
market share position over the remaining forecast period. Average
revenues are assumed at H1 2022 levels adjusted for the October
2022 price adjustment, with future price rises assumed to be in
line with inflation and the mix is assumed to remain at H1 2022
levels.
Cash flows for segments beyond the initial 30 month period
(December 2021: 36 month period) are extrapolated to 2040
('medium-term growth rate') using the growth in the ONS death rate
(December 2021: 2.25 per cent) as this is deemed to be a reliable
indicator of future growth for the Group. The medium -term growth
rates ranges from 2.43 per cent to 6.75 per cent. Beyond 2040
('long-term growth rate') a growth rate of 2.25 per cent (December
2021: 2.25 per cent) is used, 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 ONS issued
updated death rates in January 2022 and together with a further
eight months of death data they are now deemed to be a reliable
estimate of future volumes. The cash flows for each segment are
discounted at a pre-tax rate of 11.4 per cent (December 2021: 10.3
per cent).
Goodwill assessment
The impairment calculation indicated no impairment in the
crematoria division with headroom under the current assumptions
used of
GBP181.3 million (December 2021: GBP170.3 million). The discount
rate would need to increase to 19.5 per cent (per cent; December
2021: 17.7 per cent) or the long-term growth rate would need to
fall to minus 9.5 per cent (December 2021: minus 7.7 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 assessment of the funeral services division has
resulted in an impairment of goodwill of GBP42.7 million (June
2021; GBPnil; December 2021: GBP36.4 million) which has been
recognised within administrative expenses in the consolidated
Income statement. The forecasts used in the assessment reflect the
slower than expected market share growth which is a result of the
new strategy taking longer to implement largely due to staff
shortages. The Group is currently suffering like many other
businesses with a shortage of workforce and a difficulty in
recruiting which is causing us to be unable to offer funerals in a
timeframe soon enough for some families and hence some business has
been lost to competitors. The forecasts also reflect the at-need
mix in funerals being more weighted to branch direct cremations
(unattended funerals) than originally anticipated, with future
assumptions aligned to actual year-to-date experience of attended
funerals 59 per cent and unattended seven per cent of total
funerals.
Whilst the Group expects further 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 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 interim reporting date when the
impairment assessment is made, the full extent of potential
longer-term gains are not reflected in the impairment
modelling.
Trade name, right-of-use and property, plant and equipment
assessment
In addition to the Group's goodwill impairment test, given the
changes in the funeral market noted above, an impairment test was
performed in respect of the Group's other non-current assets in
accordance with the requirements of IAS 36. A value-in-use
calculation has been performed against an individual CGU, which for
the purposes of other non-current assets is deemed to be at a cost
centre level, which include a number of branches. This is the
lowest level at which independent cash inflows can be identified
due to the interdependency of various elements in relation to
6 Goodwill and other intangible assets (continued)
Impairment tests for goodwill and other non-current assets
(continued)
the care of the deceased, performance of a funeral or
administration work can and are often carried out by any branch
within a cost centre. The CGU cashflows are based on the same
forecasts and assumptions as used within the goodwill impairment
assessment described above. As goodwill is not allocated at a cost
centre CGU level the impairment test for other non-current assets
is performed before goodwill at a business segment level.
The performance of this impairment assessment at cost centre
level indicated that an impairment within the funerals segment
of:
-- GBP5.5 million (December 2021: GBP2.8 million) in relation to trade names;
-- GBP10.3 million (December 2021: GBPnil) in relation to right-of-use assets; and
-- GBP4.4 million (December 2021: GBPnil) in relation to property, plant and equipment.
GBP0.2 million has been recognised within cost of sales and
GBP20.0 million recognised within administrative expenses in the
consolidated Income statement.
The recoverable amount of all impaired CGU's within the funerals
services division is GBP19.2 million which is based on a
value-in-use calculation. In line with IAS 36 an exercise has been
performed on an asset by asset basis to ensure that no asset (or
CGU) has been impaired below its value-in-use or fair value less
cost of disposal. This exercise has included obtaining external
market valuations which were principally available for freehold
properties and vehicles. Accordingly, an amount of GBP14.6 million
of other non-current assets has not been impaired based on a
recoverable amount measured as fair value less costs of
disposal.
These impairments and the subsequent reduction in net book value
have been reflected within the above goodwill impairment
calculations to reflect the lower asset base.
The increase in the discount rate from 10.3 per cent to 11.4 per
cent is primarily due to changes in the market, such as increases
in the costs of debt has contributed to an overall higher
impairment charge of GBP62.9 million as at 1 July 2022. This would
have been GBP47.3 million lower using a discount rate of 10.3 per
cent.
Goodwill and other non-current asset sensitivities
The impairment booked is based on management's best estimate of
future performance however there is significant estimation
uncertainty and judgement involved in determining future cashflows.
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 and
other
non-current
assets(1) Goodwill Total
Sensitivity applied:
GBPm GBPm GBPm
----------------------------------------------- -------------------- ---------------- ------------
Decrease in funeral services market share
growth in 2023 and beyond of 0.5 per cent (7.3) (63.3) (70.6)
Decrease in number of deaths by 10,000 in
2023 and 2024 (1.7) (1.9) (3.6)
Increase in discount rate of 1 per cent (to
12.4 per cent) (1.3) (32.6) (33.9)
Increase in 2023 funeral services EBITDA and
beyond of GBP1.0m 0.5 8.0 8.5
Decrease in 2023 funeral services EBITDA and
beyond of GBP1.0m (0.7) (8.0) (8.7)
Decrease in 2023 funeral services EBITDA and
beyond of GBP5.0m (3.6) (39.6) (43.2)
Decrease in 2023 funeral average revenue and
beyond of GBP100 (7.0) (62.4) (69.4)
Decrease in medium-term growth rate of 0.5
per cent per year (1.93 to 6.25 per cent) (0.5) (14.2) (14.7)
Decrease in long-term growth rate of 0.25
per cent (to 2.0 per cent) - (2.4) (2.4)
Delay in funeral services market share growth
by 1 per cent from 2023 to 2024 (9.0) (74.6) (83.6)
------------------------------------------------- -------------------- ---------------- ------------
(1) The sensitivities above are based on an assessment of
value-in-use. In the event of further impairment, it is expected
that a number of assets will have a measurable fair value less
costs of disposal above the value-in-use of the assets, such that
any additional impairment recognised is likely to be lower than
demonstrated. However, such analysis cannot be reliably estimated
until any additional impairment results as it is only then that an
assessment can be made of the fair value less costs of disposal to
ensure that the asset is written down to its appropriate carrying
value (being the higher of value-in-use and fair value less costs
of disposal).
7 Leases
Right-of-use asset
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
At the beginning of the period 89.1 95.2 95.2
Additions 1.6 0.5 2.4
Depreciation charge (4.4) (4.6) (9.2)
Impact of changes in lease payments (0.1) 0.4 0.7
Impairment (10.3) - -
At the end of the period 75.9 91.5 89.1
See note 6 for further information on the impairment charge
booked in the current period.
7 Leases (continued)
Lease liability 1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
At the beginning of the period 82.9 88.5 88.5
Additions 1.6 0.5 2.7
Impact of changes in lease payments (0.1) 0.4 0.8
Interest expense 2.2 2.3 4.5
Payments (6.1) (7.4) (13.6)
At the end of the period 80.5 84.3 82.9
Current 7.1 7.1 7.1
Non-current 73.4 77.2 75.8
All right-of-use assets and lease liabilities are related to
leasehold properties. Some lease contracts contain rent review
periods, break clauses and options to extend, all of which are
assessed and negotiated by the Group, taking into account any
changes in business need, throughout the contract term. In
accordance with IFRS 16, the Group has calculated the full lease
term on the majority of its leases, beyond break, to represent the
reasonably certain lease term within the total GBP80.5 million of
lease liabilities held on the consolidated balance sheet.
The following are the amounts recognised in the consolidated
income statement:
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Depreciation expense of the right-of-use asset 4.4 4.6 9.2
Interest expense on lease liabilities 2.2 2.3 4.5
Expense related to practical expedients applied 0.2 0.2 0.5
Impairment 10.3 - -
Total amount recognised in the consolidated income
statement 17.1 7.1 14.2
In addition, GBP0.6 million (June 2021: GBP0.7 million, December
2021: GBP1.3 million) has been recognised in the consolidated
income statement in respect of contingent rentals and other charges
on leases and is recognised within cash flows from operating
activities within the consolidated statement of cash flows.
Contingent rentals depend upon the level of turnover achieved, in
accordance with the related lease contracts.
The Group had total cash outflows for leases classified under
IFRS 16 of GBP6.1 million (June 2021: GBP7.4 million, December
2021: GBP13.6 million). The Group also had non-cash additions to
right-of-use assets and lease liabilities of GBP1.6 million (June
2021: GBP0.5 million, December 2021: GBP2.7 million).
Sublease payments received in the period amount to GBP0.1
million (June 2021: GBP0.2 million; December 2021: GBP0.3 million).
Total future sublease payments receivable relating to leases amount
to GBP0.2 million (June 2021: GBP0.2 million; December 2021: GBP0.2
million).
8 Financial assets - held by the Trusts
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Financial assets - held by the Trusts 960.9 1,006.8 1,043.1
8 Financial assets - held by the Trusts (continued)
Analysis of the movements in financial assets held by the
Trusts:
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Fair value at the start of the period 1,043.1 967.1 967.1
Remeasurement recognised in the consolidated
income statement (68.0) 45.8 85.0
Investment income 10.6 2.4 7.7
Purchases 85.4 330.7 948.7
Disposals (99.5) (336.5) (960.9)
Hedging/foreign exchange losses (1) (10.6) - (1.7)
Investment administrative expenses deducted
at source (0.1) (2.7) (2.8)
Fair value at the end of the period 960.9 1,006.8 1,043.1
(1) This represents foreign exchange differences and currency
hedges against exposure to global equity portfolios held by the
trusts.
Interest and dividend income received is included within
remeasurements recognised in the consolidated income statement.
9 Trade and other receivables
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Trade receivables: Trusts 9.7 10.0 9.4
Trade receivables: at-need 24.1 20.8 24.0
Less: provision for impairment (10.9) (7.3) (8.8)
Net trade receivables 22.9 23.5 24.6
Prepayments and accrued income 3.6 3.6 4.2
Other receivables 0.7 1.3 1.2
27.2 28.4 30.0
Trust trade receivables represent amounts due to the Group's
Trusts in respect of plans sold, where the Group's performance
obligation has yet to be satisfied. Instalments due to the Trusts
after the balance sheet date are excluded as they are not
contractually due.
At-need trade receivables represent all other trade receivables
due to the Group.
10 Cash and cash equivalents
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
32.
Trading group 6 64.8 55.9
Trusts 15.7 23.6 19.8
-------------------------------------------------- ------ ------- -------
Operating cash as reported in the consolidated
statement of
cash flows as cash and cash equivalents 48.3 88.4 75.7
Amounts set aside for debt service payments 0.3 16.9 -
Cash and cash equivalents as reported
in the balance sheet 48.6 105.3 75.7
(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 presented for the 53
week period ended 31 December 2021 exclude the mid-year transfers
and payments. GBP0.3 million was included i n June 2022 as the
repayment of liabilities due on the Group's commitment fees due on
its undrawn borrowing facilities were made on 4 July 2022.
The note trustees have charge over this restricted bank
account.
11 Deferred commissions and contract liabilities
Deferred commissions
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Deferred commissions - current 7.3 7.9 7.6
Deferred commissions - non-current 97.5 104.4 100.9
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.
Contract liabilities
Note 1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Current
Contract liabilities - deferred revenue (a) 97.1 95.2 98.6
Contract liabilities - refund liability (b) 1. 0 1.1 1.0
98.1 96.3 99.6
Non-current
Contract liabilities - deferred revenue (a) 1,219.7 1,220.3 1,224.0
Contract liabilities - refund liability (b) 12.8 13.9 13.9
1,232.5 1,234.2 1,237.9
11 Deferred commissions and contract liabilities (continued)
Movement in total contract liabilities
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Balance at the beginning of the period 1,337.5 1,317.5 1,317.5
Sale of new Trust plans 29.0 48.6 86.3
Increase due to significant financing 25.6 25.9 51.6
Recognition of revenue following delivery or
cancellation of a Trust plan (61.5) (61.5) (117.9)
Balance at the end of the period 1,330.6 1,330.5 1,337.5
(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.
12 Net debt
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Net amounts owing on Secured Notes per financial
statements (521.4) (536.7) (526.6)
Add: unamortised issue costs (0.4) (0.5) (0.5)
Gross amounts owing (521.8) (537.2) (527.1)
Accrued interest on Secured Notes - (11.9) -
Cash and cash equivalents - Trading Group
(note 10) 32.9 81.7 55.9
Net debt (488.9) (467.4) (471.2)
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 under the Secured Notes
requires EBITDA to total debt service to be above 1.5 times. During
the temporary covenant waiver period that was approved by bond
holders in March 2022, any cash transferred into the Securitisation
Group can be included within the EBITDA to debt service ratio for
the following 12 months. The waiver allows for cash to be
transferred at any covenant measurement point up to and including
31 December 2022. GBP15.1 million has been transferred in June 2022
which has resulted in a ratio of 1.86 times at 1 July 2022 (June
2021: 2.12 times; December 2021: 2.13 times). Excluding this cash
transfer the ratio at 1 July 2022 was 1.42 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.
If this primary financial covenant is not achieved, then this
may lead to an Event of Default under the terms of the Secured
Notes, which could result in the Security Trustee taking control of
the Securitisation Group on behalf of the Secured Note holders.
Refer to Note 1 to the interim financial statements for further
details.
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.
The Group also has access to a GBP55.0 million liquidity
facility relating to the Class A and B Secured Notes, which
attracts floating interest rates once drawn.
See page 11 for more details.
13 Reconciliation of cash generated from operations
53 week
26 week period period
ended ended
1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Net (loss)/profit for the period (129.3) 31.2 12.1
Adjustments for:
Taxation (26.7) 19.3 19.9
Net finance costs 29.1 36.1 70.8
Profit on disposal of fixed assets - (0.1) (1.1)
Depreciation charges on property, plant
and equipment 10.4 9.8 19.9
Depreciation charges on right-of-use
asset 4.4 4.6 9.2
Amortisation of intangibles 2.1 2.2 4.5
Movement in inventories 0.7 (0.1) 0.4
Movement in trade receivables 2.6 0.4 (2.5)
Movement in trade payables (1.0) 0.5 3.7
Movement in contract liabilities (32.5) (12.9) (31.6)
Fair value movement on net assets 68.0 (45.8) (85.0)
Net pension charges less contribution (2.0) (0.8) (1.3)
Trade name write-off (note 6) - - 2.5
Trade name impairment (note 6) 5.5 - 2.8
Goodwill impairment (note 6) 42.7 - 36.4
Right-of-use asset impairment (note 7) 10.3 - -
Property, plant and equipment impairment 4.4 - -
Changes in other working capital (3.2) 1.4 2.3
Trust investment administrative expenses
deducted at source 0.1 2.7 2.8
Hedging/ foreign exchange rate difference
- Trust assets 10.6 - 1.7
Employee share option charges 0.1 0.5 0.8
Cash flows from operating activities (3.7) 49.0 68.3
14 Financial risk management and financial instruments
(a) Financial risk factors
The Group's activities expose it to a variety of financial
risks: market risk (including interest rate risk and other price
risk), credit risk and liquidity risk.
The condensed interim financial statements do not include all
financial risk management information and disclosures required in
the annual financial statements; they should be read in conjunction
with the Group's annual financial statements as at 31 December
2021. There have been no changes in the approach to risk management
or in any risk management policies since the year end.
(b) Liquidity risk
Compared to 31 December 2021, there was no material change in
the contractual undiscounted cash out flows for financial
liabilities, except for scheduled repayments of principal and
interest elements of the Group's securitised debt and leases.
See going concern disclosures in note 1 for more information on
liquidity.
14 Financial risk management and financial instruments
(continued)
( c) Fair value of Trust financial assets 1 Jul 25 Jun 31 Dec
2022 2021 2021
GBPm GBPm GBPm
Financial assets at fair value through
consolidated income statement
Index linked gilts and corporate bonds - 77.1 -
Core growth investments - Equities 596.1 378.9 669.8
Growth fixed income and alternative investments
- Property funds and emerging market debt - 105.5 -
Liquid investments - Open-ended investment
funds 291.8 391.6 306.4
Illiquid investments - Private equity investments 73.0 53.7 66.9
Total financial assets at fair value 960.9 1,006.8 1,043.1
All other financial assets are held at amortised cost and there
is no difference between the book value and the fair value of these
assets, due to the short-term maturities of these instruments.
The following tables provide the fair value measurement
hierarchy of the Trusts' financial assets.
1 July 2022 Fair value measurement using
Quoted Significant Significant
prices observable unobservable
in active inputs inputs
markets (Level (Level
(Level 2) 3)
Total 1)
GBPm GBPm GBPm GBPm
Core growth investments - Equities 596.1 598.0 (1.9) -
Liquid investments - Open-ended investment
funds 291.8 112.9 178.9 -
Illiquid investments - Private equity
investments 73.0 3.6 - 69.4
There was no change in the classification of fair value of financial
assets during the 26 weeks ending 1 July 2022.
25 June 2021 Fair value measurement using
Quoted Significant Significant
prices observable unobservable
in active inputs inputs
markets (Level (Level
(Level 2) 3)
Total 1)
GBPm GBPm GBPm GBPm
Index linked gilts and corporate
bonds 77.1 - 77.1 -
Core growth investments - Equities 378.9 378.9 - -
Growth fixed income and alternative
investments - Property funds and
emerging
market debt 105.5 - 89.9 15.6
Liquid investments - Open-ended
investment
funds 391.6 142.8 248.8 -
Illiquid investments - Private
equity
investments 53.7 - - 53.7
During the 26 week period ending 25 June 2021 a number of investments
which were previously classed as a level 2 investment were divested
and then reinvested into different instruments which are classified
as level 1.
----------------------------------------------------------------------------------------
31 December 2021 Fair value measurement using
Quoted Significant Significant
prices observable unobservable
in active inputs inputs
markets (Level (Level
(Level 2) 3)
Total 1)
GBPm GBPm GBPm GBPm
Core growth investments - Equities 669.8 669.5 0.3 -
Liquid investments - Open-ended
investment
funds 306.4 114.8 191.6 -
Illiquid investments - Private
equity
investments 66.9 - - 66.9
---------------------------------------------------------------------------------------------------------
During the 53 week period ending 31 December 2021 a number of
investments which were previously classed as a level 2 investment
were divested and then reinvested into different instruments which
are classified as level 1.
14 Financial risk management and financial instruments
(continued)
(c) Fair value of Trust financial assets (continued)
The following methods and assumptions were used to estimate the
fair values:
Core growth investments and liquid investments - level 1
The fair values of equities are based on active market prices or
price quotations at the reporting date.
Index linked gilts and corporate bonds - level 2
The fair values of index linked gilts and corporate bonds are
based on active market prices or price quotations at the reporting
date. Whilst these assets have a quoted price on a recognised
exchange adjustments are required in respect of related inflation
factors, thereby making these measurements level 2 rather than
level 1.
Growth fixed income and alternative investments & liquid
investments - level 2
These represent pooled investment funds that do not have a
quoted price on a recognised exchange. The underlying assets of the
pooled fund have been valued using active market prices or price
quotations at the balance sheet date.
Growth fixed income and alternative investments & illiquid
investments - level 3
These investments hold some underlying investments that rely on
significant unobservable inputs to price or a premium or discount
may apply on exit.
In all cases, fair value information is provided by the
investment manager engaged by the Trusts. The Group has no input
to, or influence over the valuation methodologies applied by the
investment manager.
Within the above reconciliation of financial assets through the
consolidated income statement the following movements relate to
level 3 assets:
53 week
26 week period period ended
ended
----------------------
1 25 Jun 31 Dec
Jul 2021 2021
2022
GBPm GBPm GBPm
Fair value at the start of the period 66.9 65.5 65.5
Remeasurement recognised in the consolidated
income statement 9.8 2.9 10.7
Purchases - 1.5 7.5
Sales (7.1) - (15.6)
Investment administrative expenses (0.2) (0.6) (1.2)
Fair value at the end of the period 69.4 69.3 66.9
At 1 July 2022, the Trust financial assets (all level 2 or 3,
fair value of GBP246.4 million (June 2021: GBP485.1 million;
December 2021: GBP258.8 million)) are exposed to market sensitivity
and changes in valuation over time due to factors including
currency, interest rate and commodity prices. As the fair value
information is provided by the investment manager who has not been
able to provide sensitivity analysis on the inputs to the fair
values, the Group is unable to disclose this information. However,
a five per cent movement in the fair value of these assets would
result in a GBP12.3 million (June 2021: GBP24.3 million; December
2021: GBP12.9 million) increase/decrease to the carrying value,
with a corresponding movement in an unrealised gain/loss in the
income statement. A 10 per cent movement would increase this
movement to GBP24.6 million (June 2021: GBP48.5 million; December
2021: GBP25.9 million).
14 Financial risk management and financial instruments
(continued)
(d) Fair value of current and non-current financial assets and liabilities
1 Jul 2022 25 Jun 2021 31 Dec 2021
Nominal Book Fair Nominal Book Fair value Nominal Book Fair
value value value value value GBPm value value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Secured A Notes -
3.5456% maturing
31 December 2034 165.4 165.3 166.9 180.9 180.8 199.3 170.7 170.5 189.9
Secured B Notes -
4.6956% maturing
31 December 2049 356.4 356.1 321.7 356.4 356.0 349.9 356.4 356.1 385.0
Total 521.8 521.4 488.6 537.3 536.8 549.2 527.1 526.6 574.9
The Secured Notes are held at amortised cost. Other categories
of financial instruments include trade receivables and trade
payables, however there is no difference between the book value and
fair value of these items.
The fair values of the Secured Notes are their market value at
the balance sheet date and are considered to be level 1.
In addition to the above financial liabilities include lease
payables of GBP80.5 million (June 2021: GBP84.3 million; December
2021: GBP82.9 million), which represent the present value of future
minimum lease payments. At 1 July 2022 there is no difference
between the book value and fair value of this liability.
15 Retirement benefit obligation
The retirement benefit obligation at the end of the period was
GBP9.0 million (June 2021: GBP25.4 million; December 2021: GBP19.7
million). The discount rate used was 3.65 per cent (June 2021: 1.85
per cent; December 2021: 1.85 per cent) and the rate of inflation
used was 3.50 per cent (June 2021: 3.45 per cent; December 2021:
3.6 per cent). The rate of increase in salaries used was 2.5 per
cent (June 2021: 2.45 per cent; December 2021: 2.6 per cent) which
has been determined using consistently applied methodology to
previous periods. For every 0.5 per cent increase in the rate of
increase in salaries would increase the deficit at 1 July 2022 by
approximately GBP1.5 million.
A full actuarial valuation was undertaken as at 6 April 2020
with a subsequent Actuarial report as at 6 April 2021. This latest
valuation has been updated to 1 July 2022 by a qualified
independent Actuary.
16 Related party transactions
During the period Gary Channon and other members of Phoenix
Asset Management Partners Limited, the Group's significant
shareholder, have held roles such as Chief Executive, for which no
remuneration has been paid to the individuals or Phoenix Asset
Management Partner Limited.
Furthermore, Rawnet Limited, a company who is 100 per cent owned
by Phoenix Asset Management Partners Limited have provided
marketing and web development services to the Group amounting to
GBP0.4 million, of which GBP0.2 million was outstanding as at 1
July 2022. Of the amounts incurred GBP0.2 million has been charged
to the consolidated income statement and GBP0.2 million has been
capitalised within intangible assets. Services provided are at arms
length.
17 Post balance sheet events
Capital structure - consent solicitation with bondholders
On 7 September 2022 a consent solicitation with approximately 61
per cent support from its class A Noteholders was launched. This
sought certain consents from Noteholders for a potential
transaction involving the realisation of value from selected
crematoria assets, with the proceeds of such a transaction being
applied in a partial redemption of the Class A Notes, as required
by the current documentation. The necessary quorum was achieved on
29 September 2022 (with 99.92 per cent of the aggregate principal
amount of the Notes for the time being outstanding being
represented and the Extraordinary Resolution being passed with
94.42 per cent of the votes being cast in favour) and the consents
referred to above apply for 12 month period to 29 September
2023.
Dignity will be required to inject a minimum of GBP70 million
into the Securitisation Group to partially repay some of the Class
A Notes outstanding in consideration for assets leaving the
Securitisation Group. If the transaction completes in Q2 2023 and
GBP70m is the net realisation then this will result in a
deleveraging of the Group and a positive impact of GBP5.7 million
on the DSCR covenant calculations, i.e., a reduction of the DSCR
from c.GBP51 million to c.GBP45.3 million in 2023. If the
transaction takes longer to complete and is completed in Q3 2023
there will be no positive impact in 2023 as the first possible date
for repayment will be 29 December 2023. It would have a full year
impact of GBP11.7 million on the DSCR covenant calculations, i.e.,
a reduction of the DSCR from c.GBP51 million to c.GBP39.3 million
in 2024.
In addition, upon completion of the proposed transaction within
the timeframe permitted by the noteholder consent, there are
amendments to the documents that will allow further equity cures,
with restrictions, to be made going forward should they be
required. This can be used to supplement any EBITDA shortfall at 31
December 2023.
UK Funerals (2022) Trust established
We have established the UK Funerals (2022) Trust, operated by
trustees independent to Dignity, which commenced selling
pre-arranged funeral plans on 8 August 2022. The Dignity Trading
Group also transferred GBP1.0 million cash into this new Trust on
11 July 2022 in order to meet a requirement of the new
regulation.
18 Seasonality
The Group's financial results and cash flows have historically
been subject to seasonal trends between the first half and second
half of the financial period. Traditionally, the first half of the
financial period sees slightly higher revenue and profitability.
There is no assurance that this trend will continue in the future.
The impact of COVID-19 may mean that 2022 and future years
experience different seasonality to that experienced
previously.
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 Group.
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 rate change
in 2021 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.
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.
Calculation of underlying reporting measures
Underlying revenue and profit measures (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 from 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);
-- marketing costs in relation to trials;
-- restructuring costs;
-- payment for historical informal pre-need funerals;
-- trade name write-offs 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.
Non-GAAP measures (continued)
(b) Non-underlying items (continued)
Pre-arranged
Funeral funeral Central
services Crematoria plans overheads Group
GBPm GBPm GBPm GBPm GBPm
26 week period ended 1 July 2022
Non-trading
Amortisation of acquisition related
intangibles 1.8 0.2 - - 2.0
External transaction costs in respect
of completed, aborted and ongoing(1)
transactions - 0.3 - 3.4 3.7
Trade name impairment 5.5 - - - 5.5
Goodwill impairment 42.7 - - - 42.7
Right-of-use asset impairment 10.3 - - - 10.3
Property, plant and equipment impairment 4.4 - - - 4.4
Non-recurring
Restructuring costs - redundancy - - - 2.3 2.3
Restructuring costs - onerous provision - - - 0.3 0.3
64.7 0.5 - 6.0 71.2
Taxation impact on above adjustments(2) (3.9)
67.3
(1) External transaction costs includes costs associated with the current
capital structure work.
(2) All of the above items are subject to corporation tax, except for
the trade name impairment, goodwill impairment, right-of-use asset
impairment and external transactions costs.
26 week period ended 25 June 2021
(restated)(3)
Non-trading
Amortisation of acquisition related
intangibles 1.8 0.2 0.1 - 2.1
External transaction costs in respect
of completed and aborted transactions - 0.6 - - 0.6
Profit on sale of fixed assets (net of
insurance proceeds received)(4) (0.1) (0.1) - - (0.2)
Non-recurring
Marketing costs in relation to trials - - - 0.6 0.6
1.7 0.7 0.1 0.6 3.1
Taxation impact on above adjustments (0.4)
Taxation - rate change 8.3
11.0
(3) A presentational adjustment has been made in June 2021 to separately
pull out the marketing costs in relation to trials as non-recurring.
(4) Includes GBP0.1 million of insurance proceeds in respect of a Crematoria
fire which occurred in 2020.
53 week period ended 31 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)(5) - (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 impact on above adjustments(6) (2.5)
Taxation - rate change 8.3
54.1
(5) Includes GBP1.1 million of insurance proceeds received in
respect of a Crematoria fire which occurred in 2020.
(6) All of the above items are subject to corporation tax,
except for the trade name write-off, trade name impairment and
goodwill impairment.
Non-GAAP measures (continued)
(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.
Non-GAAP measures (continued)
(c) Other adjustments reconciliation (continued)
Pre-arranged Central
Funeral Crematoria funeral overheads
services GBPm plans GBPm Group
26 week period ended 1 July 2022 GBPm GBPm GBPm
Revenue
Trust consolidation:
Release of deferred revenue on
death
or cancellation 61.5 - - - 61.5
Removal of payments received
from
the Trusts on death (28.8) - - - (28.8)
Payments on cancellation (6.8) - - - (6.8)
Derecognise pre-need segment
income - - (8.0) - (8.0)
IFRS 15:
Recognition of disbursement
element
of pre-need plans 7.8 - - - 7.8
Revenue - Total other adjustments 33.7 - (8.0) - 25.7
Cost of sales
IFRS 15:
Amounts paid on subcontracted
funerals (3.6) - - - (3.6)
Recognition of disbursement
element
of pre-need plans (7.8) - - - (7.8)
Administrative expenses
Trust consolidation:
Recognition of the Trust costs (2.5) - - - (2.5)
Transfer of pre-need costs
into funeral
segment (8.0) - 8.0 - -
IFRS 15:
Net decrease of deferred costs
in
respect of commissions (3.6) - - - (3.6)
Operating profit - Total other
adjustments 8.2 - - - 8.2
Finance costs
Trust consolidation:
Deferred revenue significant
financing (25.6)
Remeasurement of financial assets held by
the Trusts and related income (68.0)
Finance costs - Total other
adjustments (93.6)
Taxation:
Trust consolidation:
Taxation impact on above
adjustments 23.3
IFRS 15:
Taxation impact on above
adjustments 0.7
Taxation - Total other adjustments 24.0
Loss after taxation - Total other
adjustments (61.4)
Non-GAAP measures (continued)
(c) Other adjustments reconciliation (continued)
Crematoria Pre-arranged Central
Funeral funeral overheads
services GBPm plans GBPm Group
26 week period ended 25 June 2021 GBPm GBPm GBPm
Revenue
Trust consolidation:
Release of deferred revenue on
death
or cancellation 61.5 - - - 61.5
Removal of payments received
from
the Trusts on death (29.5) - - - (29.5)
Payments on cancellation (6.1) - - - (6.1)
Derecognise pre-need segment
income - - (15.6) - (15.6)
IFRS 15:
Recognition of disbursement
element
of pre-need plans 9.3 - - - 9.3
Revenue - Total other adjustments 35.2 - (15.6) - 19.6
Cost of sales
IFRS 15:
Amounts paid on subcontracted
funerals (4.1) - - - (4.1)
Recognition of disbursement
element
of pre-need plans (9.3) - - - (9.3)
Administrative expenses
Trust consolidation:
Recognition of the Trust costs (3.5) - - - (3.5)
Transfer of pre-need costs into
funeral
segment (15.7) - 15.7 - -
IFRS 15:
Net increase of deferred costs
in
respect of commissions 3.4 - - - 3.4
Operating profit - Total other
adjustments 6.0 - 0.1 - 6.1
Finance income/(costs)
Trust consolidation:
Deferred revenue significant
financing (25.9)
Remeasurement of financial assets held by
the Trusts and related income 50.2
Finance costs - Total other
adjustments 24.3
Taxation:
Trust consolidation:
Taxation impact on above
adjustments (4.5)
Corporate interest restriction
disallowance (2.1)
Deferred tax rate change 6.9
IFRS 15:
Taxation impact on above
adjustments (1.1)
Deferred tax rate change (5.5)
Taxation - Total other adjustments (6.3)
Profit after taxation - Total other
adjustments 24.1
Non-GAAP measures (continued)
(c) Other adjustments reconciliation (continued)
Crematoria Pre-arranged Central
Funeral funeral overheads
53 week period ended 31 December services GBPm plans GBPm Group
2021 - restated(1) GBPm GBPm GBPm
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 the Trust costs (4.5) - - - (4.5)
Transfer of pre-need costs
into funeral
segment (24.7) - 24.7 - -
IFRS 15:
Net increase of deferred costs
in
respect of commissions (0.4) - - - (0.4)
Operating profit - Total other
adjustments 11.9 - 0.1 - 12.0
Finance income/(costs)
Trust consolidation:
Deferred revenue significant
financing (51.6)
Remeasurement of financial assets held by
the Trusts and related income 93.1
Finance costs - Total other
adjustments 41.5
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
(1) Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a reclassification of foreign
exchange movements. See Note 1 for further details.
Non-GAAP measures (continued)
(d) Non-underlying cash flow items
53 week
26 week period period ended
ended
----------------------
1 25 Jun 31 Dec
Jul 2021 2021
2022
GBPm GBPm GBPm
Cash flows from operating activities (3.7) 49.0 68.3
Cash flows of other adjustments 18.2 5.8 16.1
Cash flows from operating activities
- Trading Group 14.5 54.8 84.4
External transaction costs 4.0 0.2 1.6
Payment for historical informal pre-need 3.6 - -
funerals(1)
Restructuring costs - redundancy 2.3 - -
Marketing costs in relation to trials - 0.5 0.9
Directors' severance pay - 0.9 0.9
Operating and competition review costs - 0.2 0.5
Underlying cash generated from operations 24.4 56.6 88.3
(1) As part of the FCA requirements, the Group is required to
ensure all active funeral plans are backed by pre-need arrangement
held in an appropriate trust. As a result of prior acquisitions,
the Group had committed to perform 1,600 funerals for which there
are no formal pre-need arrangements in place. In order to comply
with the FCA regulations and to ensure the customers of these plans
are receiving the best possible outcome, the Group has transferred
these funeral plans at the cost of today's prices to reflect the
most appropriate level of cover required, totalling GBP3.6 million.
The Trading Group does not anticipate any further cash being
transferred to the pre-need Trust in relation to these informal
arrangements.
(e) Funeral market share
Comparable funeral market share excludes any volumes from
locations not contributing for the whole of 2021 and 2022 to date
and therefore excludes 24 locations closed and five locations
opened in 2021 and a further 23 locations closed and three
locations opened in 2022.
(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.
53 week
26 week period period ended
ended
----------------------
1 25 Jun 31 Dec
Jul 2021 2021
2022
Net assets in the Trusts - GBP'000 1,076,000 1,169,000 1,179,000
Number of active plans - number 316,000 328,000 323,000
Asset per plan (GBP) 3,405 3,564 3,650
Non-GAAP measures (continued)
(g) Return on Trust 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.
LTM LTM 53 week
1 25 Jun period
Jul 2021 ended
2022 31 Dec
2021
GBPm GBPm GBPm
Opening net assets as per the consolidated
balance sheet 1,006.8 920.1 967.1
Remeasurement recognised in the consolidated
income statement (28.8) 104.8 85.0
Investment income 15.9 3.4 7.7
Hedging/foreign exchange rate difference (12.3) - (1.7)
Investment administrative expenses
deducted at source (0.2) (5.5) (2.8)
Net investment return in the Trusts (25.4) 102.7 88.2
---------------------------------------------------- ------------------- -------- --------
Return on the Trust assets (per cent) (2.5)% 11.2% 9.1%
---------------------------------------------------- ------------------- -------- --------
(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.
This is calculated 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:
53 week
26 week period period ended
ended
----------------------
1 25 Jun 31 Dec
Jul 2021 2021
2022
GBPm GBPm GBPm
Underlying cash generated from operations 24.4 56.6 88.3
Less:
Maintenance capital expenditure (10.5) (8.0) (17.6)
Net finance costs paid (13.9) (14.2) (28.2)
Tax paid (1.1) (12.4) (17.7)
Cash Return (1.1) 22.0 24.8
Property, plant and equipment 240.7 241.2 242.1
Trade receivables: at-need 13.2 13.5 15.2
Inventories 7.9 9.1 8.6
Less:
Trade payables (8.3) (6.0) (9.3)
Core Capital 253.5 257.8 256.6
------------------------------------------------- -------------------------- ------- --------
Cash Return on Core Capital (per cent) (0.4)% 8.5% 9.7%
Non-GAAP measures (continued)
(i) Cost to deliver a funeral
The cost to deliver a funeral is calculated by taking underlying
overheads before IFRS 16 divided by the number of funerals
performed . The calculation can be reconciled as follows:
LTM 53
LTM 25 week
Jun period
1 2021 ended
Jul 31
2022 Dec
2021
Number of funerals performed (number) 77,800 75,700 79,200
Funeral services underlying revenue
(GBPmillion) 184.0 198.0 201.9
Less: Funeral services underlying operating profits
before depreciation and amortisation (GBPmillion) (45.0) (68.4) (67.6)
Add back: Impact of IFRS 16 (GBPmillion) 9.0 9.7 9.4
Funeral services underlying overheads
before IFRS 16 (GBPmillion) 148.0 139.3 143.7
----------------------------------------------------------- ------------ ------- --------
Cost to deliver a funeral (GBP) 1,902 1,840 1,814
----------------------------------------------------------- ------------ ------- --------
(j) Contribution per branch
The contribution per branch is calculated by taking underlying
operating profit before depreciation, amortisation and IFRS 16
divided by the number of funerals locations . The calculation can
be reconciled as follows:
LTM LTM 53
1 25 week
Jul Jun period
2022 2021 ended
31
Dec
2021
Number of funerals locations (number) 743 777 776
Funeral services underlying operating profits before
depreciation and amortisation (GBPmillion) 45.0 68.4 67.6
Less: Impact of IFRS 16 (GBPmillion) (9.0) (9.7) (9.4)
Funeral services underlying operating profit before
depreciation, amortisation and IFRS 16 (GBPmillion) 36.0 58.7 58.2
------------------------------------------------------------ ------------- ------- --------
Contribution per branch (GBP) 48,452 75,547 75,000
------------------------------------------------------------ ------------- ------- --------
(k) Yield per crematoria
The yield per crematoria is calculated by taking underlying
operating profit before depreciation, amortisation and IFRS 16
divided by the number of crematoria locations . The calculation can
be reconciled as follows:
LTM LTM 53 week
1 Jul 25 Jun period
2022 2021 ended
31 Dec
2021
Number of crematoria locations (number) 46 46 46
Crematoria underlying operating profits before
depreciation and amortisation (GBPmillion) 51.2 52.3 54.5
Less: Impact of IFRS 16 (GBPmillion) (2.6) (2.8) (2.7)
Crematoria operating profit before depreciation,
amortisation and IFRS 16 (GBPmillion) 48.6 49.5 51.8
--------------------------------------------------- ---------------- ---------- ----------
Yield per crematoria (GBP) 1,056,522 1,076,087 1,126,087
--------------------------------------------------- ---------------- ---------- ----------
Statement of Directors' responsibilities
The Directors confirm to the best of their knowledge that:
(a) The interim condensed consolidated financial information has
been prepared in accordance with United Kingdom adopted
International accounting standard IAS 34 'Interim Financial
Reporting'; and
(b) The Interim Report includes a fair review of the information as required by:
-- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first half of 2022 and their impact on the interim condensed
consolidated financial information; and a description of the
principal risks and uncertainties for the remaining second half of
the year; and
-- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
half of 2022 and any material changes in the related party
transactions described in the last Annual Report.
The Directors of Dignity plc and their functions are listed
below:
Kate Davidson - Chief Executive
Dean Moore - Interim Chief Financial Officer
John Castagno - Independent Non-Executive Chairman
Graham Ferguson - Senior Independent Director
Kartina Tahir Thomson - Independent Non-Executive Director
On behalf of the Board
Dean Moore
Interim Chief Financial Officer
29 September 2022
Independent review report to Dignity plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the interim financial report for the 26
week period ended 1 July 2022 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated statement of cash flows and
notes 1 to 18. We have read the other information contained in the
interim financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the 26 week period ended 1 July
2022 is not prepared, in all material respects, in accordance with
UK adopted International Accounting Standard 34 and the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this interim financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting or that management have identified
material uncertainties relating to going concern that are not
appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the interim
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the interim financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the interim report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the interim financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Birmingham
29 September 2022
Forward-looking statements
This Interim Report and the Dignity plc investor website may
contain certain 'forward-looking statements' with respect to
Dignity plc ('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 Interim Report 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 Interim Report 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
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IR MZGZLGLRGZZZ
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September 30, 2022 02:00 ET (06:00 GMT)
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