TIDMDTY
RNS Number : 4741S
Dignity PLC
17 March 2021
For immediate release 17 March 2021
Dignity plc
Preliminary results for the 52 week period ended 25 December
2020
Dignity plc (Dignity, the Company or the Group), the UK's only
listed provider of funeral related services, announces its
preliminary results for the 52 week period ended 25 December 2020
.
Financial highlights
52 week 52 week
period ended period ended
25 December 27 December I ncrease/
2020 2019 (d ecrease)
restated per cent
Underlying revenue (GBPmillion) 314.1 301.3 4
Underlying operating profit (GBPmillion) 55.7 63.3 (12)
Underlying profit before tax
(GBPmillion) 30.7 37.7 (19)
Underlying earnings per share
(pence) 46.6 60.6 (23)
Underlying cash generated from
operations (GBPmillion) 76.4 71.8 6
Revenue (GBPmillion) 357.5 338.9 5
Operating profit (GBPmillion) 15.9 44.8 (65)
(Loss)/profit before tax (GBPmillion) (19.6) 44.1
Basic (loss)/earnings per share
(pence) (51.0) 61.2
Cash generated from operations
(GBPmillion) 62.7 64.6 (3)
Number of deaths 663,000 584,000 14
------------------------------------------------ ------------------ ----------------- ------------------
Prior year adjustment
A prior year restatement has been made to the magnitude of
GBP4.3 million to correct the 2019 taxation charge and
corresponding corporation tax liability. This follows the
finalisation of the Group's detailed corporate interest restriction
return and an increase to the Group's interest disallowance as a
result of the inclusion of the fair value movements on the Trusts
debt investments.
Alternative performance measures (APMs)
The Board believes that whilst statutory reporting measures
provide financial performance of the Group under GAAP, APMs are
necessary to enable users of the financial statements to fully
understand the trading performance and financial position of the
business. The APMs provided are aligned with those used in the
day-to-day management of the business 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 and adoption of IFRS 16,
all of which are considered to mask the underlying trading
performance of the Group, as well as non-underlying items
comprising certain non-recurring and non-trading transactions.
Further detail may be found on pages 50 to 53.
Key points
-- COVID-19 directly contributed to a 14 per cent increase in
the total UK 2020 annual death-toll of 663,000
-- Lower average revenues due primarily to the COVID-19
restrictions imposed by Government
-- Operating performance robust, despite the pandemic
-- Crematoria and pre-need divisions performing well
-- The refocusing of the investment management strategy for the
pre-need Trusts will conclude in the second quarter of this
year
-- The Group welcomes the recommendations from the CMA's Final Decision Report
-- The Group's root and branch review is scheduled to conclude
in the second quarter of 2021
-- Proposed regulation of pre-arranged funeral plans sector by
the Financial Conduct Authority expected Summer 2022 with the
outcome of the FCA proposals expected during quarter three 2021
Clive Whiley, Chairman of Dignity plc, commented:
"During 2020, we have continued to be focused and resilient in
the light of many changes, however the business has remained
robust.
Whilst COVID-19 featured heavily in our day-to-day activities
into the first quarter of 2021, we did not lose sight of the
numerous project work-streams initiated in the last year, aimed at
affording the Board the time and collateral necessary to allow the
business to self-heal, without recourse to dilutive funding
initiatives.
In a unique and challenging year, it is the dedication of our
staff that has enabled continued delivery of our services,
supported by a refreshed strategy and management team. Our people
are fundamental to both the Group's success and sustainability and
I would like to thank them for their significant contribution,
resilience and commitment to service during what has been an
exceptional time for society, bereaved families, our people and our
business."
For further information please contact:
Clive Whiley, Executive Chairman
Dean Moore, Interim Chief Financial Officer
Dignity plc +44 (0)20 7466 5000
Richard Oldworth
Chris Lane
Tilly Abraham
Buchanan +44 (0)20 7466 5000
www.buchanan.uk.com dignity@buchanan.uk.com
Dignity's preliminary results and corporate presentation are
available at https://www.dignityplc.co.uk/investors/ .
Executive Chairman's review
In a unique and challenging year, it is the dedication of our
staff that has enabled continued delivery of our services,
supported by a refreshed strategy and management team.
Overview
The year under review represents my first full year as Chairman
and proved to be a unique and challenging period due to the
conjunction of events surrounding the COVID-19 pandemic, ongoing
regulatory considerations and the Transformation Plan. However,
first and foremost the Board is grateful for the constant
dedication of our staff, whichever role they perform in the
business, as they continue to respond appropriately to people
losing loved ones at a time when their ability to grieve and to
gain closure remains adversely impacted by the pandemic.
Our people are fundamental to both the Group's success and
sustainability and I would like to thank them for their significant
contribution, resilience and commitment to service during what has
been an exceptional time for society, bereaved families, our people
and our business.
Strategic challenges
Of the triple challenges highlighted, COVID-19 directly
contributed to a total UK 2020 annual death-toll of 663,000, an
increase of 14 per cent over 2019, representing the highest total
UK deaths since 1918, which witnessed the end of WW1 and the
Spanish Flu pandemic. Moreover, the year-on-year impact swung from
an increase of one per cent in Q1, to plus 47 per cent in Q2, minus
two per cent in Q3 and back to plus eight per cent in Q4 with the
concomitant stress on our funeral and crematoria operations:
notwithstanding the fact that we deliberately maintain a degree of
structural overcapacity with, for example, over 20 per cent of
private sector mortuary capacity.
At the peak of the pandemic the crisis led to a constricted
service offering, in the interests of the welfare of our staff and
clients, alongside higher PPE and temporary staff expenditure which
translated into underlying operating profit falling by 12 per cent
to GBP55.7 million and underlying average revenue per funeral of
GBP2,522 (2019: GBP2,930). Government guidance continues to
restrict the attendance at funerals with limits for all venues,
remaining at 30 in England, 20 in Scotland and 25 in Northern
Ireland. In Wales as many attendees as the venue can hold whilst
respecting social distance and COVID-19 Safe protocol is currently
allowed.
We also had to contend with the ongoing CMA market
investigation, launched in March 2019, which reached an early
conclusion with the publication of the Final Decision Report issued
on 18 December 2020 (detailed on page 10). We engaged openly and
collaboratively with the CMA throughout the investigation and look
forward to working with the regulator and the Government to ensure
the package of remedies work for consumers and are implemented
effectively across the market.
In fact, Dignity has been working to raise awareness regarding
issues of transparency and consistency in quality of care across
the funerals sector for a number of years and we are determined to
represent a flagship within the industry for quality and
governance. In addition, we welcome the decision to introduce
statutory regulation to pre-arranged funeral plans and are working
with the FCA as it accelerates the development of its future
approach (see page 8).
However, it is the shortcomings exposed by the root and branch
review, arguably self-inflicted by torpid strategic direction over
the last decade, as exacerbated by the extreme volatility in volume
created by the pandemic, that exposed the business most during the
year. The Transformation Plan, launched with great fanfare and at
considerable expense in 2018, in my opinion introduced too narrow a
focus upon one element of the Group, without considering the
capacity to grow the business organically across its full
bandwidth. In short, that was tantamount to admitting defeat as a
Group that had elected for many years to utilise the majority of
its capital investment buying its way out of deteriorating funeral
market share (2001: 491 funeral locations and 11.8 per cent funeral
market share; 2019: 820 funeral locations and 11.7 per cent funeral
market share). At best that consolidated the heritage of strong
family businesses and staff that perform well to this day, at worst
business integration ceased at legal completion: leading to Dignity
essentially becoming the industry retirement plan for independent
funeral directors.
Fortunately, over the same period our cremation market share has
grown by 70 per cent (2001: 21 crematoria and 6.5 per cent
cremation market share; 2019: 46 crematoria and 11.1 per cent
cremation market share) benefitting from a best-in-class capital
development programme, including nine new build crematoria coming
on stream as a result.
Transformation Plan
The Transformation Plan, which was paused indefinitely on 3
April 2020 with the onset of the pandemic, was expected to cost
GBP50 million over a three year period to deliver mid-range EBITDA
benefits of approximately GBP10 million per annum. The root and
branch review, initiated upon my appointment, identified benefits
of GBP8 million in 2020 alone, alongside preserving cash spending
on transformation of in excess of GBP30 million, simply from better
housekeeping. Furthermore Project 20:20, which is the final
component of the root and branch review, will now shoulder the
burden of effecting appropriate changes to staff working practices
within our funeral division. This project is designed to determine
the optimal scope, size and logistics of our care centre and branch
network, having due regard to both the extensive learnings from the
Transformation Plan alongside output from the pricing, product and
other trial propositions in train.
Strategic update
Future Strategic Direction
Whilst COVID-19 obviously featured heavily in our day-to-day
activities into the first quarter of 2021, we have not lost sight
of the numerous project work-streams initiated in the last year,
aimed at affording the Board the time and collateral necessary to
allow the business to self-heal, without recourse to dilutive
funding initiatives. In that context:
-- The root and branch review is scheduled to conclude in the second quarter of 2021;
-- The refocusing of the investment management strategy for the
pre-need trusts successfully validated the combined trust assets at
a level of some GBP1 billion alongside implementing a more
defensive risk profile and significantly reduced annual fees;
-- A record 558,000 people have pre-arranged their funerals with
Dignity, a ten year CAGR of 10 per cent and we continue to strive
to set the industry standard.
The consultation paper on the proposed FCA approach to
regulation of funeral plans was published on 2 March and, if
enacted as published, would have a profound impact on the industry.
This is notwithstanding the core strength of our funeral plan
trusts, with assets at a level of some GBP1 billion and our ability
to perform the at need funeral commitment from within our own
funeral division. Accordingly, we are in the process of reviewing
the possible ramifications for our longer-term instalment funeral
plan sales and the anticipated higher cancellations thereon and
will report on that in due course;
-- We commissioned an independent valuation report for our
standalone crematoria operations, which retain the benefit of
several active planning consents as well as the marginal capacity
to perform a materially higher volume, as both a datum from which
to determine future capital structure and a defence in the event of
an unwelcome approach for the Group; and
-- The ongoing success of Simplicity Cremations, launched as a
challenger brand in December 2016, which delivered a record of
4,300 direct cremation based services in 2020 (an increase of 106
per cent) has reinforced our determination to ultimately become the
sector leader.
As detailed above, I am satisfied that the Board now has a very
clear understanding of our strategic objectives, with an
overarching desire to significantly grow both funeral and cremation
market share over the next five years on a sustainable organic
basis: whilst preserving our core values built around quality,
providing excellent client service and high standards of care.
Board changes
As noted, the onset of the pandemic forced us to accelerate the
root and branch review, alongside pausing the Transformation Plan
in order to preserve cash resources, ahead of anticipated
volatility in funeral and cremation volumes over both 2020 and
2021, also heralded wholesale change at board level, where:
-- On 11 March 2020 Dean Moore joined the Group as a
Non-Executive Director, succeeding as Chair of the Audit Committee
on 11 June 2020 before becoming Interim Chief Financial Officer on
14 December 2020;
-- On 3 April 2020 we agreed with Mike McCollum, who had been a
significant influence behind the Group for over twenty years, that
the approaching strategic crossroads represented an appropriate
time for him to hand over as Chief Executive Officer and I agreed
to step up to the role of Executive Chairman;
-- On 3 April Jane Ashcroft, who had completed her contractual
term as a Non-Executive Director, stepped down from the Board;
-- David Blackwood, who served as Senior Independent Director
and as Interim Non-Executive Chairman prior to my appointment on 26
September 2019 and Chair of the Audit Committee thereafter, did not
seek re-election at the AGM held on 11 June 2020;
-- Gillian Kent, who has strong digital transformation
experience, joined the Board on 11 June 2020 as an independent
Non-Executive Director and as Chair of the Remuneration
Committee;
-- On 14 December, we reached an agreement with both Steve
Whittern, Finance Director and Richard Portman, Corporate Services
Director, to step down from the Board, which they both did in
December;
-- Andrew Judd, Director of the Group's funeral operations and a
member of the Operating Board, joined the Board as an additional
Executive Director with effect from 14 December 2020; and
-- Paul Humphreys joined the Board on 23 February 2021, as an
independent Non-Executive Director and as Chair of the Audit
Committee.
We are currently engaged in seeking a new Chief Financial
Officer and we will continue our search for an appropriate
candidate for the role of Chief Executive Officer, coterminous with
the outcome of the root and branch review. Following these proposed
appointments, we believe that we will have a plc Board that is
appropriate for a company of our size, nature and circumstances.
Furthermore, we now have a cohort of Non-Executive Directors with
deeply embedded and relevant skills who are directly contributing
to the change process and interface cohesively with the Operating
Board.
As we approach the end of this period of major change our
management needs and requirements have evolved as we become
singularly focused upon our future strategic direction.
Accordingly, we have also refreshed the majority of our Operating
Board including identifying a strong candidate for the role of
Chief Operating Officer and welcoming several new additions to our
Senior Leadership Team: bringing renewed diversity alongside
relevant skills and expertise.
Finally, we are fortunate to have a workforce that demonstrates
a professionalism, pride and empathy in their work and we are
placing a renewed focus upon long-term staff wellbeing, in addition
to the advanced PPE and vaccination programmes specific to the
pandemic, as we seek to enhance the cohesion between the Board and
the workplace.
Dividend Policy
The Company has not paid a dividend since June 2019 and the
Directors do not expect to pay dividends until the business has
returned to a sustainable and stable financial footing,
notwithstanding the fact that the Group retains significant cash
resources and remains cash generative. The Directors understand the
importance of optimising total shareholder return, as well as the
need to maintain a balance between different groups of
stakeholders, and it is the Directors' intention to return to
paying a dividend as soon as they believe it is financially prudent
for the Group to do so.
Summary outlook
Unfortunately, notwithstanding the significant progress the
business has made since my appointment, our largest shareholder
Phoenix Asset Management Partners, with whom we believed we were
having a constructive dialogue in relation to the future strategy
of the business, has chosen this moment to seek to assert what
would, in effect, be executive control at Board level.
Whilst, in my view, the Group is now sufficiently robust to
sustain this wholly avoidable and unnecessary challenge, it is
nonetheless an unwelcome distraction as we remain dedicated to
dealing with the ongoing fallout from the pandemic. To minimise
disruption, the independent directors have been charged with taking
the necessary steps to convene the required general meeting of
shareholders and they will share their views on the resolutions to
be considered at that time. It will then be for shareholders to
decide on the merits of the Phoenix proposal.
Executive Chairman's review (continued)
Operating Board perspective
Andrew Judd, Executive Director of Funeral Operations
Andrew Judd is responsible for provision of funeral services
through our network of colleagues and funeral locations ensuring we
provide a consistently high standard of client service and care for
the deceased.
Rising to the challenge
Dignity works in a unique industry and succeeds by helping
people through difficult times with respect, openness and care. Our
operational colleagues are integral to this success, representing
one of the most important interfaces in the business - our service
to clients.
We endeavour to make a positive difference to an essential
societal need, but 2020, and specifically limitations caused by the
COVID-19 pandemic, have tested our collective resolve like never
before.
The strength of our people during the year has been nothing
short of inspirational. They remained accountable in their roles as
critical workers and continued to take the greatest care, perhaps
not with the public visibility or acclaim that other frontline
responders had, but always with a level of professionalism and
sensitivity that clients appreciated.
Together we arranged and delivered more funerals for our clients
than at any other time in our history, even when our operational
capacity was under strain.
Financial summary 2020
H1 H2 FY
GBPm GBPm GBPm
Underlying operating profit - 2019 30.5 25.8 56.3
Impact of:
Number of deaths 20.3 3.3 23.6
Market share 4.4 0.1 4.5
Average revenues (19.0) (11.3) (30.3)
Net cost base changes (2.5) (1.6) (4.1)
Underlying operating profit - 2020 33.7 16.3 50.0
See Operating Review for further details.
We implemented significant changes to our working practices and
provided enhanced personal protective equipment to help ensure
everyone's safety in all situations and environments. Teams used
their skills to navigate complex and frequently changing guidelines
on caring for the deceased, some of which varied across the four
devolved nations where we offer our services.
Above all, we put clients first in extremely demanding
circumstances. Funerals should always be deeply personal occasions,
which is why colleagues worked tirelessly to ensure the preferences
and individual wishes of families still found space for expression,
even amidst the restrictions required to stay COVID-secure.
Constantly adapting
While often borne out of necessity, our experiences this year
have highlighted alternative ways of doing things that have the
potential to enhance our proposition going forward.
By embracing digital technology, we can interact with our
clients at a distance, if that makes them feel more comfortable, as
well as in person. It enables funeral services to be shared with
family members and friends who are unable to attend and helps us
plan for future opportunities to honour and remember those who have
died.
I have already referred to the strain the pandemic placed on us
operationally, but it also made clear the importance of
safeguarding the mental health of our people. We are actively
promoting a safe working environment where anyone can voice
concerns or anxieties and access help.
As attention turns to the year ahead, we know the challenges
presented by COVID-19 will remain for some time yet. Experience is
on our side and I am confident that same resilient attitude of our
people will come to the fore again.
Our scope, however, must be wider than COVID-19. We need to
constantly adapt to changing consumer preferences and respond
appropriately to issues raised by the CMA through its market
investigation.
This focus on client needs resonates firmly with us and is
absolutely the right thing to do and is reflected in my recent
appointment to the Group Board.
I pride myself on having first-hand experience of arranging and
conducting funerals built across a lifelong career in an industry I
am hugely passionate about. It is these insights I will bring
wholeheartedly into our discussions and ultimately our
decision-making.
Steve Gant, Crematoria Director
Steve Gant is responsible for the operation of our crematoria
and cemeteries and provision of memorials. He is a long-standing
advocate for high-quality facilities in the industry with
continuous investment and development.
Adapting to change
2020 was an extraordinary year. I am very proud of how The
Crematorium and Memorial Group (CMG) responded to challenges that
none of us had previously faced in our careers. Our commitment to
remaining operational has been evident and we continued to provide
a vital service throughout the pandemic.
CMG has been active in encouraging a consistent, sector wide
response to the pandemic by local authorities, private crematorium
operators, industry bodies and the funeral directors that use our
facilities. We have met weekly with central government to offer our
expertise and regularly shared information about our service
capabilities with Local Resilience Forums.
Due to the pandemic, we have needed to be flexible and make
significant changes to the way we operate. This has included the
provision of additional service slots during weekdays or weekends.
As just one example of our continuity planning, approximately 60
colleagues were upskilled, and each crematorium partnered with a
neighbouring CMG facility to provide greater flexibility of
resources.
Restrictions to funerals, such as the number of attendees or the
closure and re-opening of cemeteries, crematoria grounds and
offices to visitors, has presented the challenge of keeping the
public informed about the services we were able to provide within
these guidelines.
We also witnessed an increased demand for unattended direct
cremations. We adapted to meet this challenge whilst continuing to
provide facilities for those that wanted a more traditional
cremation service.
Protecting our community and our colleagues
The safety of our visitors and colleagues is one of my greatest
priorities. To help reduce transmission of COVID-19 and ensure that
social distancing guidelines were followed, we have invested in
PPE, perspex screens in our public offices and created one-way
systems at all our crematoria. We have also ensured there is enough
time between services to thoroughly sanitise our facilities.
Maximising our investment in technology
In recent years, we have invested in audio visual equipment at
the majority of our crematoria which this year has proven to be a
timely and invaluable addition to the services we offer. We can
provide personalised tributes to the person that died, but also
record or webcast the funeral for those that cannot attend the
service.
During the first half of the year our installation programme was
accelerated at the remaining sites.
Leading the sector in this way was instrumental in assisting as
many mourners as possible to participate in the funeral during
lockdown.
Enhancing our locations
As a long-standing advocate of high standards, we continually
invest in our crematoria to ensure we have modern facilities that
meet the changing needs of local communities or to react to
operational needs.
While we continue our long-term programme of investment and
refurbishment, we sometimes need to respond quickly to incidents
outside of our control. During the year, Haltemprice and Randall's
Park crematoria respectively suffered damage from fire and
flooding. We took the opportunity to not only refurbish these
crematoria, but also to modernise them in line with our other
flagship facilities.
Looking forward
I am confident about the future of CMG and our ability to serve
both funeral directors and the bereaved in our local
communities.
We will continue to respond to the challenges of the pandemic
but will also endeavour to future proof our facilities and install
the latest technology, so we set a high bar for the crematoria
sector in terms of standards and choice.
Financial summary 2020 H1 H2 FY
GBPm GBPm GBPm
Underlying operating profit -2019 20.8 17.6 38.4
Impact of:
Number of deaths 7.4 0.4 7.8
Market share 0.9 0.1 1.0
Average revenues (4.3) 1.4 (2.9)
Cost base changes (1.1) (0.4) (1.5)
Underlying operating profit -2020 23.7 19.1 42.8
See Operating Review for further details.
Paul Toghill, Director of Pre Arrangement
Paul Toghill has responsibility for Dignity Pre Arrangement
including proposition, distribution, marketing and operations. He
is also preparing the business for regulation of the funeral plan
market by the Financial Conduct Authority ('FCA').
Market context
In an unprecedented year, Dignity's funeral planning business
has demonstrated its resilience and an ability to deliver a strong
market performance, despite the distraction and disruption of
external factors.
Whilst COVID-19 has taken its toll on the wider societal and
economic environment, we have continued to provide clients
exemplary levels of service, adapting and being flexible in the
environment in which we have been operating. This client-focused
adaptability is a trait we pride ourselves on, this year seeing
both growth in our core funeral plan offering as well as in our
direct cremation funeral plan model. Our position of strength in
being both a funeral director and funeral plan provider allows us
to continue to offer clients both a competitive price point and a
market leading, feature rich product proposition.
We have also continued to grow our business through our
corporate partners, including testing different distribution models
and some innovative products shaped around specific client needs.
We launched a number of new partnerships in 2020, which has given
us the opportunity to grow our volumes further. In addition, 2021
will see us launch a number of initiatives to grow and develop our
funeral director and direct distribution models.
In addition to funeral plans we continue to work alongside a
number of large UK insurers to provide funeral propositions which
bolt on to their whole of life assurance products.
Regulation and the funeral plan market
In March 2020, HM Treasury announced that prepaid funeral plans
would be subject to regulation by the Financial Conduct Authority
('FCA'). This decision followed several years of campaigning by
Dignity. We believe regulation will prevent the small number of
unscrupulous firms undermining what is otherwise a responsible
industry. On 2 March 2021 the FCA published their consultation
paper with their proposed approach to regulation.
If the FCA rules are enacted in the way they are currently
drafted they will have a profound impact on both the wider industry
and Dignity. We welcome the opportunity to work closely with the
FCA over the coming months to ensure the rules provide the much
needed consumer protection, but also supporting the FCA in their
understanding of the potential unintended consequences a commission
ban would have in removing quality distributors that provide a
valuable customer service from the market as well as those that are
undermining the industry. We have also taken a decision to reduce
our instalment terms on the majority of our plans from 25 to 10
years with effect from May. We will be reviewing alternative
low-cost product options in the coming months.
Committed to a move towards a better market
Ahead of statutory regulation, we have been working diligently
to ensure the FCA readiness of our business. We are already an
organisation that has market leading, feature rich products,
competitively priced with high service standards. The majority of
our team already have regulated backgrounds, as do many of our
corporate partners, such as those in the building society and
insurance space.
Despite any impact the current drafting may have on our volumes
as a result of a commission ban, we remain confident that Dignity
is in a strong market position, and that we will be able to deliver
products and a service that will meet and exceed the regulatory
standards set to be established across the market .
Mark Hull, Marketing Director
Mark Hull is responsible for delivering the Group's marketing
strategy including brand development, digital marketing and product
and price proposition, in addition to providing market and client
experience analysis.
A leading digital offer
Like many businesses today, our client journey now typically
begins online. In 2010, only nine per cent of our Dignity Funeral
clients found our details through the internet, last year it was
over half. For Simplicity Cremations with no physical branches,
every single Simplicity client will have started online.
Therefore, it is essential that we make it easy for potential
clients to find us online then provide meaningful help and advice
when they reach our websites. Our websites provide comprehensive
guidance from subject matter experts on everything to do with
funerals or funeral plans. Each branch also has a micro-site
containing localised information about that business and its
products and services, including pricing.
We have achieved a lot in the past three years - our combined
website traffic has grown from just over 1 million hits in 2017 to
5.13 million in 2020. Our digital channels are continuing to
generate increasing volumes of calls into our branches, enquiries
to our Simplicity call centre and sales of Funeral Plans. We have
been awarded the Feefo Platinum Trusted Service Award for both
Simplicity and Dignity in 2020 and we passed 10,000 online reviews
for our local businesses with an average rating of 4.89 out of
5.
Providing digital solutions during the pandemic
The pandemic has increased our clients' digital interaction with
us. Our websites provide the latest information and help clients
understand what type of funeral is still possible within the
Government restrictions - both through our funeral business and at
our crematoria. We adapted our processes and products, including
distanced arrangements being made using digital information packs
and we've enabled more people to view funeral services through
streaming.
Providing greater choice and flexibility
The pricing of funerals is complex and requires testing to
ensure that it's easy for the bereaved to understand exactly what
they are paying for. The pace of change and evolution in the
funeral market has accelerated significantly with increased demand
for personalised funerals, products such as direct cremation and
woodland burials; and specialist needs in areas of the UK where
traditions, strength of religious beliefs and the demographic
make-up are all changing.
During 2020, we constantly trialled different products and
prices and we haven't been afraid to try alternatives that benefit
both the business and clients. Over 250 branches currently have
comprehensive price lists online, with the remainder to be updated
by Summer 2021.
An award-winning team
I am very proud of the team I lead and our continued progress in
creating a leading marketing function that attracts and retains
exceptional marketing talent. In support of this, I am delighted
that our work for Dignity and Simplicity has been recognised in
2020 with accolades at both the Marketing Society Brave Awards and
the Chartered Institute of Marketing Excellence Awards.
42.5 per cent increase in call volumes
Our website continues to provide an increasing volume of calls
into our local businesses, with 228,673 trackable calls in 2020
(+42.5 per cent year-over-year).
Creating a clear brand identity
We continue to develop the identities of the Group and its
component businesses. In the past, funeral directors had little
need for marketing, however, in an increasingly competitive sector,
with demand for a wider range of products, it's imperative to
differentiate ourselves from other providers.
The way we market our business has changed a great deal in the
past three years, but there remains a lot to do. To continue to
create value and grow market share we use a blend of national and
local marketing, utilise the latest tools and techniques and
ultimately make the decision for the client to use us an easy
one.
Alan Lathbury, Business Development Director
Alan Lathbury has led Dignity's open and constructive dialogue
with the CMA's investigation into the provision of funeral and
cremation services. He is also responsible for the development of
our crematoria business through acquisition, public/private
partnerships or construction of new locations.
The UK funeral market
The UK funeral market is becoming more dynamic - it is more
digital than ever before, and more driven by the evolving client
needs. However, in 2020 the operation of the funeral industry was
largely determined by the necessary government restrictions put in
place to reduce COVID-19 transmission rates. The long-term effects
of these precautions and the impact on consumer behaviour will
emerge as the restrictions are lifted.
Scale and structure of the market
The funeral director market remains very fragmented, with
approximately two-thirds of funeral directors being small owner
managed businesses. There are approximately 300 crematoria in the
UK, with circa 64 per cent owned by local authorities. It is
estimated that three quarters of all funerals result in a cremation
with the remainder being burials.
Changes in the competitive dynamics of the sector
The funeral market is already extremely competitive; however,
more can be done to improve the ability of clients to exercise the
choice that exists, especially through greater pricing
transparency. The CMA process has proposed measures to help address
this across the market.
Deaths in Great Britain
In 2020 initial total estimated deaths in Great Britain for 52
weeks was 663,000, 14 per cent higher than the 52 weeks in 2019.
Some of the Group's key performance indicators rely on the total
number of estimated deaths for each period and this information is
obtained from the Office for National Statistics ('ONS'). Although
annual deaths have declined significantly since the early 1990s
from 640,000 to a low of 539,000 in 2011, the last six years have
seen deaths above that level. The ONS (2019 based projections)
expects long-term increases in the number of deaths, but these
projections have been impacted as a result of COVID-19.
CMA Market Investigation
Overview
In November 2018 the CMA announced its investigation into the
funeral and crematoria industry. This came 20 years after the last
study of the sector by the former competition regulator (Monopolies
and Mergers Commission) and followed several months of market
engagement. The CMA sought to 'review how well the market works and
whether consumers are getting a good deal.'
What followed was two years of engagement with providers in the
sector, including Dignity, as well as wider calls for evidence from
third sector organisations (such as bereavement charities and
consumer groups).
The CMA has concluded that consumers find it intrinsically
challenging to purchase a funeral and can be hindered by lack of
easily accessible and comparable information, an inability to
observe the quality of care provided, and by barriers to entry and
local concentration in crematoria services.
Dignity's participation and response
During the investigation we have responded to the formal CMA
process, whilst also offering sector expertise through our
engagement with the regulator. Our input has included:
-- Over 11 responses to CMA "Requests For Information" ('RFI').
-- Supply of thousands of historical e-mail correspondence.
-- Direct engagement via eight face-to-face or virtual meetings with the CMA team.
As part of our contributions and evidence to the regulatory
process, we hosted visits with both CMA panel members and its wider
executive team. This offered a platform for Dignity to showcase its
market-leading services, for both front and back of house
facilities.
Key considerations we've communicated to the CMA include:
-- Ensuring that service elements of the funeral process were
fully understood and assessed, alongside other key aspects, such as
price and transparency.
-- Strongly recommending that any regulation must be
independent, consumer-focused, and implemented for all funeral and
crematoria services providers to ensure a consistent level of
consumer standards across the market.
-- Highlighting the capital investment made by Dignity to
continually deliver high service standards, including provision of
mortuary capacity, development of our employees, and investment in
technology.
It is clear from the financial data 2018 to 2020 that both
funeral mix and average funeral revenues have been affected by
structural changes in the market and the COVID-19 pandemic. We have
worked with the CMA to ensure that the increased level of
competition and increased engagement of consumers through online
activity will not be restricted or limited by the proposed future
remedies.
Recommendation for new inspection and registration scheme to
improve the quality of funeral directors' back-of-house standards.
This covers collection and transport, care, storage and preparation
of the deceased. This will potentially be funded through a levy or
license fee imposed on funeral directors.
It will be important for Dignity to continue to work closely
with the CMA and Government on the implementation and structuring
of regulation, including any appointed regulator, building on the
platform already being developed by the Funeral Service Consumer
Standards Review ('FSCSR'). Accordingly, we have strengthened our
senior leadership team with the appointment of a Head of Governance
reporting directly to the Chairman.
Commercial remedies that build on and improve recent industry
progress to help consumers fully engage with the economic aspects
of choosing a funeral provider.
The key elements of this are:
-- A Price List that adheres to a specified CMA template.
-- Provision of business information to clients.
-- Prohibition of certain types of commercial arrangements.
The statutory deadline for the implementation of the remedies is
17 June 2021. We already comply with many of the remedies and
expect to meet this deadline.
After this date, Dignity and others in the industry will be
required to share information with the CMA. This reporting and
future engagement with Dignity and the wider sector, will enable
the regulator to ensure its remedies are being applied correctly,
and to understand if the actions are effective in supporting the
bereaved.
A leading position in the direct cremation market
In December 2016 we launched our own direct cremation business,
Simplicity Cremations, as a response to the increased competition,
changing consumer behaviour, and growing calls for alternative and
lower cost funerals.
It is one of the UK's first predominantly online cremation
offers, at one of the most competitive price points. Arrangements
are made over the phone with a team of experts and there is no
requirement to visit a physical branch.
Under the Simplicity Cremations brand, families have access to
affordable direct cremation options and smaller, family-led
services.
The services provide all the practical and essential elements of
a funeral without the obligation to pay for a ceremony or other
features of a traditional service they may not want.
This is supported by the years of experience and uncompromised
quality of care delivered by Dignity funeral directors and national
facilities.
An alternative choice
We know that consumer demand for alternative and lower priced
funerals is rising. There is a need to cater for those clients that
are seeking to save costs, but also those that want more control
over funeral arrangements.
Awareness of direct cremation as an option has grown to 52 per
cent, with 42 per cent who would consider using this service
(source: SunLife Cost of Dying report 2020). Yet in 2019 direct
cremations only made up 2.4 per cent of all funerals in the UK.
2020 has seen direct cremation grow significantly, in part due
to COVID-19. Through both Simplicity Cremations and in the CMG, we
have seen direct cremation volumes almost double compared to 2019.
It made up 16 per cent of CMG's cremation volumes in 2020 alone.
The impact of the Government's restrictions placed on funerals has
unsurprisingly forced people to think differently about the type of
service they would want for themselves or their family members. We
expect this societal shift to continue.
Amidst a greater focus on funeral costs and a shift away from
tradition, direct cremation presents a compelling proposition for
the bereaved. By removing the ceremony or service, direct
cremations are much less expensive, with prices starting from
around GBP1,000.
It is also very much an active choice for an increasingly
secular, less traditional segment of consumers. We have found that
many families choose an unattended direct cremation, whilst holding
a more personalised attended service at an alternative venue. Also,
and particularly relevant under the restrictions during the
pandemic, some people are choosing to hold a celebration of life or
memorial service at a completely different time and date to the
cremation itself.
Unique in our service capabilities
We are uniquely positioned as a business in being able to offer
direct cremation at all levels through our national infrastructure;
either in the care we provide as a funeral director, as a
crematorium operator, or by facilitating the service through our
dedicated direct cremation brand (Simplicity Cremations). We also
offer consumers pre-arranged plan options for this type of funeral
- a product that is growing in popularity.
We deliver direct cremations through our network of 46
crematoria, which provide allocated slots that can be utilised by
our own direct cremation business, but also by non-Dignity funeral
directors and agreements with other providers.
Years of experience and operational efficiencies delivered
through Dignity's funeral directors and facilities across the UK
underpins the high-quality care provided through Simplicity
Cremations, a capability that the majority of direct cremation
providers simply do not have.
Future growth
Online continues to be our key route to market and consumers
have responded well to our innovative Simplicity Cremations TV and
radio advertising campaign. However, it is important to keep
exploring how we can reach all of those consumers that are seeking
an alternative solution for a funeral or cremation service.
In addition to Simplicity direct cremations, we have begun
trials offering direct cremation as a service through several of
our funeral locations, and we are set to roll this out across more
of Dignity's network in the next year .
By rethinking how a funeral service is both marketed and
delivered, the Company has already made a significant step forward
in giving clients greater choice and flexibility when it comes to
arranging a funeral. Direct cremation is presenting signs of rapid
growth and we will continue to seek ways to expand our
market-leading position in this space.
Clive Whiley
Executive Chairman
17 March 2021
Operating Review
FUNERAL SERVICES
Overview
As at 25 December 2020, we operated from a network of 795 (2019:
820) funeral locations. This network covers the UK and trades under
locally established names.
Performance
We conducted 80,300 funerals (2019:69,400) during the period
under review, more than at any stage in our history despite
operational constraints resulting from COVID-19.
Underlying operating profit was GBP50.0 million (2019: GBP56.3
million), down by 13 per cent due to the impacts of COVID-19, this
can be explained by the Financial Summary table on page 6.
Progress and Developments
Market share
Approximately one per cent of all funerals were conducted in
Northern Ireland. Excluding Northern Ireland, these funerals
represented approximately 12.0 per cent (2019: 11.7 per cent) of
total estimated deaths in Britain. Whilst funerals divided by
estimated deaths is a reasonable measure of our market share, the
Group does not have a complete national presence and consequently,
this calculation can only ever be an estimate.
Year-on-year growth in market share is primarily attributable to
growth in Simplicity 0.3 per cent and pre-arranged funeral plans
0.1 per cent. Market share of full, simple and limited funerals was
slightly below the prior year.
On a comparable basis, excluding any funerals from locations not
contributing to the whole of 2019 and 2020, market share was 11.9
per cent, compared to 11.6 per cent in 2019. This builds on the
improvement made in 2019 where comparable market share grew by 0.2
per cent, both 2020 and 2019 are a significant improvement on the
dramatic market share declines witnessed in 2016 and 2018, however,
further trials are necessary to complete the Group's understanding
of the changing relationship between price and market share.
Funeral mix and Average revenue
As demonstrated in the tables below, the year-on-year decline in
the underlying average revenue is primarily due to the COVID-19
pandemic. Q2 was particularly impacted due to the Group temporarily
withdrawing the provision of limousines in the interests of the
welfare of its staff and clients. Other choices such as church
services also stopped being possible during this time. Following
the installation of perspex dividing screens and the re-opening of
places of worship (albeit restricted on number of mourners), the
Group's average revenue started to improve during Q3. Q4 witnessed
a full service average that was higher than Q2 and Q3 at GBP3,351
with 43 per cent of all funerals being full service and the ratio
of full service to full, simple and limited increasing to 68 per
cent. This resulted in the underlying average revenue for Q4 being
GBP2,645 compared to GBP2,555 in the third quarter of 2020. Client
choices and therefore average revenue are still likely to vary more
by region in the coming months depending on national and then
potential local restrictions in place.
Funeral mix and average income Q1 H2
Q2 H1 Q3 Q4 FY
2020 2020 2020 2020 2020 2020 2020
Funeral type Actual Actual Actual Actual Actual Actual Actual
-------------------- -------------------- ---- ------- ------- ------- ------- ------- ------- ----------------
Underlying average
revenue (GBP) Full service 3,521 3,080 3,341 3,308 3,351 3,332 3,337
Simple and limited
service 1,972 1,953 1,956 1,897 1,937 1,917 1,941
Pre-need 1,894 1,869 1,880 1,921 1,979 1,953 1,911
Other (including
Simplicity) 888 992 987 811 927 937 940
-------------------------- ------------------- ------- ------- ------- ------- ------- ------- ----------------
Volume mix (%) Full service 50 26 37 40 43 42 39
Simple and limited
service 14 37 26 25 21 22 25
Pre-need 29 28 28 27 28 28 28
Other (including
Simplicity) 7 9 9 8 8 8 8
-------------------------- ------------------- ------- ------- ------- ------- ------- ------- ----------------
U nderlying w eighted average
(GBP) 2,648 2,136 2,360 2,381 2,476 2,443 2,397
Ancillary revenue (GBP) 175 49 101 174 169 161 125
------------------------------------------ ---- ------- ------- ------- ------- ------- ------- ----------------
Underlying average revenue
(GBP) 2,823 2,185 2,461 2,555 2,645 2,604 2,522
------------------------------------------ ---- ------- ------- ------- ------- ------- ------- ----------------
Full service volume as a percentage
of full, simple and limited
(%) 78 41 59 62 67 66 61
------------------------------------------ ---- ------- ------- ------- ------- ------- ------- ----------------
Funeral mix and average income FY Q1 H2
2018 Q2 H1 Q3 Q4 FY
2019 2019 2019 2019 2019 2019 2019
Funeral type Actual Actual Actual Actual Actual Actual Actual Actual
-------------------- -------------------- ------- ------- ------- ------- ------- ------- ------- -------
Underlying average
revenue (GBP) Full service 3,735 3,542 3,585 3,558 3,608 3,613 3,605 3,578
Simple and limited
service 2,350 2,159 2,000 2,089 2,000 1,995 1,996 2,047
Pre-need 1,705 1,826 1,789 1,806 1,879 1,899 1,890 1,846
Other (including
Simplicity) 570 773 734 756 772 780 774 770
----------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Volume mix (%) Full service 48 52 53 52 52 52 52 52
Simple and limited
service 19 14 13 14 14 13 13 14
Pre-need 27 27 28 28 27 28 28 27
Other (including
Simplicity) 6 7 6 6 7 7 7 7
----------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
U nderlying w eighted average
(GBP) 2,734 2,691 2,705 2,694 2,717 2,724 2,717 2,699
Ancillary revenue (GBP) 239 213 233 225 227 214 224 231
------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
Underlying average revenue
(GBP) 2,973 2,904 2,938 2,919 2,944 2,938 2,941 2,930
------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
Full service volume as a percentage
of full, simple and limited
(%) 72 79 80 79 79 80 80 79
------------------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
Investment
Investment in the Group's locations and fleet have continued. In
2020, GBP4.9 million was invested in maintenance capital
expenditure. Expenditure was lower in 2019 and 2020 than in
previous years as the Group is focusing on priorities around the
root and branch review following the suspension of the
Transformation Plan in 2020. The Group anticipates higher spend in
2021.
There was one branch opening and 26 closures in the year. These
closures represent funeral locations where leases have naturally
come to an end and have not been renewed and also include nine
freehold closures.
Strategic focus and outlook
The Group is focusing on its root and branch review which will
be completed in the second quarter of 2021. We continue to develop
and trial different service offerings and propositions and will
continue to work with the regulator and Government to ensure the
package of remedies recommended by the CMA work for customers.
CREMATORIA
Overview
The Group remains the largest single independent operator of
crematoria in Britain, operating 46 (2019: 46) crematoria as at 25
December 2020.
The greatest challenge of 2020 was undoubtedly ensuring safety
and continuity of service through an ever changing landscape forced
upon us by the aggressive growth of COVID-19, leading to excess
deaths and the unmitigated rate at which the Government had to
review and change the guidelines for businesses. For CMG this meant
creating a safe environment for visitors and staff.
Performance
The Group performed 74,500 cremations (2019: 64,800) in the
period, representing 11.2 per cent (2019: 11.1 per cent) of total
estimated deaths in Britain.
Underlying operating profit was GBP42.8 million (2019: GBP38.4
million), an increase of 11 per cent. This increase in
profitability is driven by the number of deaths partially offset by
lower average revenues from the increased use of direct cremation
and lower memorial revenue, as explained below:
Financial summary 2020
H1 H2 FY
GBPm GBPm GBPm
Underlying operating profit -2019 20.8 17.6 38.4
Impact of:
Number of deaths 7.4 0.4 7.8
Market share 0.9 0.1 1.0
Average revenues (4.3) 1.4 (2.9)
Cost base changes (1.1) (0.4) (1.5)
Underlying operating profit -2020 23.7 19.1 42.8
Sales of memorials and other items have been adversely impacted
primarily by COVID-19 and an increasing trend in not collecting
ashes resulting in total memorial revenue being GBP16.7 million
(2019: GBP17.8 million) six per cent lower than the prior year
despite cremation volumes being 15 per cent higher. In addition to
reduced memorial sales, the average cremation revenue has reduced
by three per cent to GBP885 (2019: GBP911) due to the increase in
direct cremation related services.
All offices were officially closed in line with Government
guidance. We promptly made offices safe for staff and visitors with
the use of personal screens and limiting to an appointment-only
basis for visitors. Our m emorial offices reopened in July, having
been closed for three-months and were inundated with clients who
understandably needed closure through creating final resting places
for their loved one's ashes, as well as the arrangement of
memorials. Nonetheless, memorial sales and other items were six per
cent lower than the previous period.
Non-underlying costs of GBP0.2 million (2019: GBP1.2 million)
and IFRS 16 credit of GBP2.6 million (2019: nil) are excluded from
underlying operating profit resulting in statutory operating profit
of GBP45.2 million (2019: GBP37.2 million).
Progress and Developments
The Group has invested GBP2.7 million maintaining and improving
its locations in the period.
The Group now has planning permission for four new crematoria.
The total capital commitment for these four projects is expected to
be approximately GBP30 million, with GBP6.7 million of this amount
having already been invested. Each of the locations with planning
permission will take five to seven years to reach maturity,
performing 800 to 1,000 cremations per year.
The Group also has two locations where it is appealing the
planning decisions and another two that are currently in the
planning process.
Strategic focus and outlook
Crematoria remains a stable and cash generative aspect of the
Group's operations. However, we have embarked on a total
restructure of CMG which is still in progress. We have introduced
smaller cluster areas to encompass a more collaborative team ethic
and an increase in the training and staff development across all
disciplines. The overall achievement will be to create a more
dedicated and focused CMG team which will facilitate further cost
savings through a more streamlined and efficient organisation.
PRE-ARRANGED FUNERAL PLANS
Underlying Performance
The Group continues to have a strong market presence in
pre-arranged funeral plans and insurance policies charged to it for
the provision of a funeral. The plans represent potential future
incremental business for the funeral division, providing
high-levels of certainty of cash flows as existing plans
mature.
The Trading Group claims a marketing allowance from the trust
that covers the costs incurred in the selling of Funeral Plans. As
a result, the pre-arrangement division does not contribute any
profit at the time of sale therefore underlying operating profit
was GBPnil in both periods.
A pproximately 60,000 (2019: 58,000) new plan sales were made
and the number of active pre-arranged plans (including insurance
backed arrangements) increased to 558,000 (2019: 523,000). All plan
sales are stated net of cancellations. Over the last 12 months the
cancellation rate has increased which primarily relates to the
increase in the mix of long-term instalment plan sales which have a
higher cancellation rate. The majority of commissions are clawed
back from distribution partners on cancellation in the first two
years (the majority of expected cancellations take place in this
period).
Of the sales in the period 30,000 plans were trust based funeral
plans (2019: 26,000). In addition, 30,000 (2019: 32,000) plans were
linked to life assurance plans with third parties. Not all of these
insurance backed plans include an obligation to provide a
guaranteed funeral and we anticipate the cancellation experience to
be significantly higher than is witnessed on trust based sales.
Historically, as with all the Group's divisions, pre-arranged
funeral plans underlying profits broadly reflect the cash generated
by that activity. This position has started to shift as more
long-term instalment plans are written, where marketing costs are
incurred when a plan is sold, but, marketing recoveries are claimed
from the trust in line with instalment payments. This shift has
changed the profile of the early years cashflow position.
Progress and Developments
Dignity remains focused on selling high-quality business, in
ways that support the strong reputation of the Group.
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 2020, the Trusts had average assets per plan
of GBP3,400 (2019: GBP3,300) in respect of 319,000 trust based
funeral plans. Average assets per plan are greater than the amount
currently received by the Trading Group for performing a
funeral.
The latest actuarial valuations of the Trusts (at 25 September
2020) showed them to have a surplus of GBP4 million (27 September
2019: surplus GBP17 million), based on prudent assumptions by the
Trust's actuary. This valuation is based on the amounts the Trusts
are expected to pay when a funeral is performed rather than the
actual cost of performance (being a lower amount) to the Group.
The pre-arrangement Trustees are actively reviewing the
investment strategy of the Trusts, focused on providing the Trading
Group with greater certainty over amounts to be paid when funerals
are performed in a rolling five year period. The retention of cash
or high-grade bonds to cover these liabilities, together with
implementing an overall investment strategy with lower aggregate
fund management and execution costs will provide more certainty.
These changes to the investment strategy are imminent and will
materially reduce the overall costs of managing the Trusts'
investments, enhancing the capacity for future revenue growth.
The Trusts have assets, including cash, under the management of
the Trustees of GBP988.7 million (2019: GBP963.0 million) with
investments split as follows:
Example investment types Target
(%)
Index linked gilts and
Defensive investments corporate bonds 18
Illiquid investments Private investments 16
Core growth investments Equities 38
Growth fixed income and alternative Emerging market debt/diversified
investments growth 22
Liquid investments Open-ended investment funds 6
The current allocation is subject to annual review by the
Trustees with support from their investment advisers. See Financial
review for additional discussion of Trust balances.
Strategic focus and outlook
The Group remains optimistic on its ability to continue to be a
market leader in pre-arranged funerals.
The Group welcomes FCA regulation of the sector and is planning
for regulation to be effective by the middle of 2022. The Group
will continue to engage with relevant parties as appropriate whilst
maintaining focus on selling high-quality, competitive products to
clients.
The Group intends to continue to sell as many plans as is
commercially possible and economically sensible.
Financial Review
Three quarters of our financial year has been impacted by the
COVID-19 pandemic. Despite this we consider these underlying
results to be robust having increased our operating cash generation
year-on-year, and remained profitable, albeit at a reduced level.
With the exception of business rate relief, we have chosen not to
take advantage of the various Government schemes brought in to
support business during the pandemic .
These results have been prepared in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006.
Statutory operating profit was GBP15.9 million (2019: GBP44.8
million), a decrease of GBP28.9 million. Gross margin increased
GBP3.0 million with a strong performance in the crematoria division
and a higher contribution from delivery of an increased number of
pre-need funerals, whereas the additional at-need funerals
delivered were more than offset by reductions in average revenues.
Administrative expenses were GBP31.9 million higher, largely driven
by an increased impairment charge of GBP37.2 million on goodwill
and trade names compared to last year and after incurring
additional central overheads of GBP5.7 million in part to help
manage the business through the pandemic. This was partially offset
by a reduction in other non-underlying items, primarily in respect
of GBP7.4 million less spent on the Transformation Plan which has
been abrogated. See table on page 18 for further details on the
impacts to statutory and underlying operating profit.
The total impairment of GBP44.0 million has been charged in the
period (2019: GBP6.8 million), of which GBP15.3 million (2019:
GBP6.8 million) relates to trades names and GBP28.7 million (2019:
nil) to goodwill. The impairment has arisen primarily due to the
reduced average revenues and mix that has impacted the funeral
services division over the last 12 months.
The Group's net finance costs of GBP35.5 million (2019: income
GBP5.3 million), a GBP40.8 million movement primarily due to the
lower increase in fair value movements of the financial assets held
by the Trusts of GBP38.2 million. In 2019, the Group had a further
GBP6.0 million of non-underlying items relating to the impairment
of its investment in an associated undertaking. The above has
resulted in losses before tax for the Group of GBP19.6 million
(2019 profit: GBP44.1 million).
The Board believes that whilst statutory reporting measures
provide financial performance of the Group under GAAP, alternative
performance measures as used in the day-to-day management of the
business are necessary to enable users of the financial statements
to fully understand the trading performance and financial position
of the business and allow for greater comparability across
periods.
Financial highlights
The Group's financial performance is summarised below:
52 week 52 week
period period
ended ended
25 December 27 December Increase/
2020 2019 (decrease)
restated( %
(b)
Underlying revenue(a) (GBP million) 314.1 301.3 4
Underlying operating profit(a)
(GBP million) 55.7 63.3 (12)
Underlying profit before tax(a)
(GBP million) 30.7 37.7 (19)
Underlying earnings per share(a)
(pence) 46.6 60.6 (23)
Underlying cash generated from
operations (a) (GBP million) 76.4 71.8 6
----------------------------------------
Revenue (GBP million) 357.5 338.9 5
Operating profit (GBP million) 15.9 44.8 (65)
(Loss)/profit before tax (GBP million) (19.6) 44.1
Basic ( loss)/earnings per share
(pence) (51.0) 61.2
Cash generated from operations
(GBP million) 62.7 64.6 (3)
Dividends paid in the period:
Final dividend (pence) - 15.74
---------------------------------------- ------------------ ------------------ -----------------
(a) Further details of alternative performance measures can be found on pages 50 to 53.
(b) See prior year adjustment note on page 29.
Alternative performance measures
The alternative performance measures are stated before
non-underlying items and the effect of consolidation of the Trusts,
applying IFRS 15 and adopting IFRS 16 as defined on page 50. These
items have been adjusted for in determining underlying measures of
profitability as these underlying measures are those used in the
day-to-day management of the business and allow for greater
comparability across periods.
Detailed information on non-underlying items is set out on pages
50 to 53 and a reconciliation of statutory revenue to underlying
revenue detailed in note 2.
Accordingly, the following information is presented to aid
understanding of the performance of the Group:
52 week period 52 week period
ended ended
25 December 27 December
2020 2019
GBPm GBPm
Operating profit for the period as reported 15.9 44.8
Add the effects of:
Acquisition related amortisation 4.6 4.8
External transaction costs in respect of
completed and aborted transactions 0.8 0.9
Profit on sale of fixed assets (0.2) (1.0)
Transformation Plan costs(a) 4.7 12.1
Directors severance pay 1.6 -
Operating and competition review costs 2.9 3.5
Trade name impairment 15.3 6.8
Goodwill impairment 28.7 -
Impact of Trust consolidation and IFRS 15 (14.0) (8.6)
Impact of IFRS 16 (4.6) -
Underlying operating profit (b) 55.7 63.3
Underlying net finance costs (25.0) (25.6)
Underlying profit before tax (b) 30.7 37.7
Tax charge on underlying profit before tax (7.4) (7.4)
Underlying profit after tax (b) 2 3.3 3 0.3
Weighted average number of Ordinary Shares
in issue during the period (million) 50.0 50.0
Underlying EPS (pence) (b) 4 6.6 6 0.6
Decrease in underlying EPS (per cent) 2 3 29
(a) The GBP4.7 million costs incurred in 2020 reflects
expenditure up to the point of the Transformation Plan being
abrogated.
(b) Fu rther details of alternative performance measures can be
found on pages 50 to 53.
Earnings per share
Statutory loss after tax was GBP25.5 million (2019 restated:
GBP30.6 million). Basic loss per share were (51.0) pence per share
(2019 restated earnings: 61.2 pence per share). Underlying profit
after tax was GBP23.3 million (2019: GBP30.3 million), giving
underlying earnings per share of 46.6 pence per share (2019: 60.6
pence per share), a reduction of 23 per cent.
Items excluded from underlying operating profit
Amortisation of acquisition related intangibles
Amortisation of acquisition related intangibles reflects the
write-off of acquired intangibles over the term of their useful
life.
External transaction costs
External transaction costs primarily reflect amounts paid to
external parties for legal, tax and other advice in respect of the
Group's acquisitions and unsuccessful crematoria planning
developments.
Profit on sale of fixed assets
Profits or losses arising from the sale of fixed assets ( net of
any insurance proceeds received ) are excluded as they are
unconnected with the trading performance in the period.
Transformation Plan costs
Cost incurred in relation to the Group's now abrogated
Transformation Plan has resulted in significant, directly
attributable non-recurring costs.
Directors severance pay
Following the departure of Mike McCollum, Steve Whittern and
Richard Portman in 2020, severance packages have been agreed and
paid and are considered to be a non-recurring cost.
Operating and competition review costs
The Group has incurred costs with external advisers to support
the Group's response to the CMA's funerals market investigation and
HM Treasury's consultation on the funeral plan sector. Costs were
also incurred in 2020 with external advisers to support its
operational review.
Trade name impairment
The Group assessed the carrying value of its trade names. In
light of the lower level of profitability and lower anticipated
average revenue per funeral, an impairment of GBP15.3 million
(2019: GBP6.8 million) has been recognised.
Goodwill impairment
The Group assessed the carrying value of its goodwill. In light
of the lower level of profitability and lower anticipated average
revenue per funeral, an impairment of GBP28.7 million (2019: GBPnil
million) has been recognised.
Trust consolidation/IFRS 15
In the prior period the Group changed its accounting policy to
consolidate the Trusts and to implement IFRS 15. This adjustment
reverses the impact of these policy changes in order to maintain
underlying performance measures with those used in the day-to-day
management of the business.
IFRS 16
As detailed elsewhere in this report, the Group has adopted IFRS
16 in the period. This adjustment reverses the impact of these
policy changes in order to maintain underlying performance measures
with those used in the day-to-day management of the business. The
impact of IFRS 16 has been reversed in arriving at the APM for 2020
only. This is due to the modified retrospective adoption of the
standard, meaning the 2019 comparatives have not been restated and
therefore are not comparable.
Capital expenditure
Capital expenditure on property, plant and equipment and
intangible assets was GBP11.1 million (2019: GBP18.3 million).
This is analysed as:
25 December 27 December
2020 2019
GBPm GBPm
Maintenance capital expenditure:
Funeral services 5.0 5.4
Crematoria 2.7 3.3
Other 1.4 1.1
Total maintenance capital expenditure(a) 9.1 9.8
Branch relocations 0.5 1.1
Transformation capital expenditure 0.2 1.7
Satellite locations - 0.3
Development of new crematoria and cemeteries 1.3 5.4
Total property, plant and equipment 11.1 18.3
Partly funded by:
Disposal proceeds - vehicles - (0.2)
Disposal proceeds - properties (b) (1.1) (1.9)
Net capital expenditure 10.0 16.2
(a) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other
tangible and intangible assets.
(b) Property disposals are the result of the Transformation Plan.
The Group will continue to invest in the maintenance of its
existing portfolio of vehicles and funeral and crematoria
locations.
Cash flow and cash balances for the Trading Group
Underlying cash generated from operations was GBP76.4 million
(2019: GBP71.8 million).
Other working capital changes were consistent with the Group's
experience of converting profits into cash, subject to timing
differences and cash incurred in respect of commission
payments.
Cash balances of the Trading Group at the end of the period were
GBP73.6 million (2019: GBP57.9 million). Further details and
analysis of the Group's cash balances are included in note 8.
Pensions
The balance sheet shows a deficit of GBP36.6 million before
deferred tax (2019: deficit of GBP26.0 million). The scheme
currently represents an annual cash obligation of GBP2.2 million.
The triennial valuation was performed in April 2020, the outcome of
which is awaiting and will determine future annual cash obligations
for the Group from 2021 onwards.
Taxation
The Group's effective tax rate on underlying profits in the
period was 24.1 per cent (2019: 19.5 per cent). The current period
underlying effective tax rate is higher than originally anticipated
due to the effects of prior year items with a tax impact totalling
GBP0.6 million.
In 2021, the Group expects its underlying effective tax rate to
be approximately two to three per cent above the headline rate of
corporation tax. This translates to an underlying effective rate of
between 21.0 per cent and 22.0 per cent.
The Group's effective tax rate on losses is 30.0 per cent (2019:
30.6 per cent) which is higher than the underlying effective tax
rate primarily due to the GBP4.3 million corporate interest
restriction disallowance and GBP3.5 million arising on the goodwill
and trade name impairments partially offset by the GBP1.1 million
rate change credit.
Prior year restatement
A prior year restatement has been made to the magnitude of
GBP4.3 million to correct the 2019 taxation charge and
corresponding corporation tax liability. This follows the
finalisation of the Group's detailed corporate interest restriction
return and an increase to the Group's interest disallowance as a
result of the inclusion of the fair value movements on the Trusts
debt investments. Further details of the prior year restatement are
set out in note 1 to the financial statements.
Capital structure and financing for the Trading Group
Secured Notes
The Group's principal source of long-term debt financing is the
Secured A Notes and the Secured B Notes. The principal is repaid
completely over the life of the Secured Notes and is therefore
scheduled to be repaid by 2049. The interest rate is fixed for the
life of the Secured Notes and interest is calculated on the
principal.
The key terms of the Secured Notes are summarised in the table
below:
Secured A Notes Secured B
Notes
Total new issuance at par GBP238.9 million GBP356.4 million
Legal maturity 31 December 31 December
2034 2049
Coupon 3.5456% 4.6956%
Rating by Fitch A- BB+
Rating by Standard & Poor's A- B+
The Secured Notes have an annual debt service obligation
(principal and interest) of circa GBP33.2 million.
It is not currently possible to issue further Secured Notes, as
such an issue would require the rating of the Secured B Notes to
raise to BBB by both rating agencies.
Financial Covenant
The Group's primary financial covenant under the Secured Notes
requires EBITDA to total debt service to be above 1.5 times. The
ratio at 25 December 2020 was 1.99 times (2019: 2.13 times). The
Group therefore had EBITDA headroom of approximately GBP16 million
against its financial covenants at the end of December. This
covenant calculation uses a prescribed definition of EBITDA
detailed in the loan documentation and only represents the profit
of a sub-group of the Group which is party to the loans (the
'Securitisation Group'). Furthermore, the calculations are
unaffected by the consolidation of the Trusts or the application of
IFRS 15 and IFRS 16 described elsewhere, as the Group was able to
elect to disregard those changes when making the calculations.
During the period, certain trade and assets previously held
outside of the Securitisation Group were sold to the Securitisation
Group increasing future EBITDA.
EBITDA for this calculation can be reconciled to the Group's
statutory operating profit as follows:
25 December
2020
GBPm
EBITDA per covenant calculation - Securitisation
Group 67.6
Add: EBITDA of entities outside Securitisation
Group 9.8
Less: Non-cash items (a) (1.9)
Underlying operating profit before depreciation
and amortisation - Group 75.5
Underlying depreciation and amortisation (19.8)
Non-underlying items (58.4)
Impact of Trust consolidation and IFRS
15 14.0
Impact of IFRS 16 4.6
Operating profit 15.9
(a) The terms of the securitisation require certain items (such
as pensions) to be adjusted from an accounting basis to a cash
basis.
In addition, in order for the Group to transfer excess from the
Securitisation Group to Dignity plc, it must achieve both a higher
EBITDA to total debt service ratio of 1.85 times and achieve a Free
Cash Flow to total debt service (a defined term in the
securitisation documentation) of at least 1.4 times. This latter
ratio at December was 1.57 times (December 2019: 1.65 times). These
combined requirements are known as the Restricted Payment Condition
('RPC') which have been met in 2020. Failure to pass the RPC would
not be a covenant breach and would not cause an acceleration of any
debt repayments. Any cash not permitted to be transferred whilst
the RPC is not achieved will be available to be transferred at a
later date once the RPC requirement is achieved.
On 31 July 2020, Standard & Poor's lowered their rating of
the Group's Class B Secured Notes from BB- to B+. This change of
rating has no impact on the day-to-day operations of the Secured
Notes.
Revolving Credit Facility
The Group has the benefit of a GBP10 million Revolving Credit
Facility ('RCF'), provided by the Royal Bank of Scotland, which is
secured against certain trade and assets held by legal entities
outside of the Group's securitisation structure. The RCF can be
drawn down subject to a set of financial tests applied to these
legal entities.
The facility is available until July 2021, with the option to
renew, subject to the bank's consent at the time, by a further
year. The margin on the facility ranges from 150 to 225 basis
points depending on the resulting gross leverage.
This provides the Group ongoing flexibility in a cost effective
manner as, if undrawn, the facility represents an annual cost of
approximately GBP0.1 million. Given the Group's healthy cash
balances, the RCF is undrawn at the time of the release of this
announcement and was not drawn at any point in the year.
Net debt
The Trading Group has underlying net debt of GBP480.6 million
(2019: GBP506.2 million) at the balance sheet date. See note 11 for
further details.
Whilst the Group has no plans to do so, should it wish to repay
all amounts due under the Secured Notes, the cost to do so at the
year end would have been approximately GBP822.7 million, (Class A
Notes: GBP226.0 million; Class B Notes: GBP596.7 million) (2019:
GBP791.9 million, (Class A Notes: GBP231.4 million; Class B Notes:
GBP560.5 million)).
Net finance costs
The Group's underlying finance costs substantially consist of
the interest on the Secured Notes and ancillary instruments. The
net finance cost in the period relating to these instruments was
GBP24.1 million (2019: GBP24.4 million).
Other ongoing underlying finance costs incurred in the period
amounted to GBP1.0 million (2019: GBP1.4 million), covering the
unwinding of discounts on the Group's provisions and other
financial liabilities.
Interest receivable on bank deposits was GBP0.1 million (2019:
GBP0.2 million).
The Group also incurred GBP4.7 million (2019: GBPnil) lease
liability interest, under IFRS 16, giving a total statutory net
finance cost of GBP29.7 million (2019: GBP25.6 million).
Shareholders' deficit
Consolidating the Trusts and applying IFRS 15, has a significant
impact on our reported results. The recognition of contract
liabilities (the majority of which are expected to fall due after
one year) in excess of the Trusts' financial assets has caused the
Group's balance sheet to show an overall deficit in shareholders'
funds.
On consolidation of the Trusts, all funds received from the plan
members are deferred until recognised on satisfaction of a funeral
obligation or when a plan is cancelled and refunded (subject to an
administrative fee). These deferred funds increase under IFRS 15 by
a material non-cash significant financing charge. The assets of the
Trusts, initially representing the same funds received from plan
members less an amount paid to the Trading Group to cover marketing
costs, are invested by the Trusts and are subject to market
movements. Over time, investments are also realised to fund funeral
payments or refund obligations. The net impact of the above gives
rise to a significant reduction in the net asset value of the Group
to a position where the Group has reported a net deficit of
GBP174.0 million (2019: GBP141.5 million). Whilst this position
appropriately reflects the application of IFRS 15 to the underlying
contract with the plan member, based on the current cost of
delivery of a funeral service, delivery of pre-need funerals is
expected to result in the future recognition of profits under IFRS,
which, over time, the Directors consider would more than eliminate
the deficit noted above.
This deficit, which only arises on consolidation, has no impact
on the Group's future ability to pay dividends to shareholders,
which relies on the reserves in the Company and not the Group.
The Trusts
At the balance sheet date, the Trusts had GBP967.1 million
(2019: GBP947.5 million) of financial assets and GBP21.6 million
(2019: GBP15.5 million) of cash, which was recognised in the
consolidated balance sheet. This has resulted in average net Trust
assets per plan increasing three per cent to GBP3,400 (2019:
GBP3,300). The movement in financial assets is primarily
attributable to remeasurement gains recognised in the consolidated
income statement of GBP41.3 million (2019: GBP79.5 million),
reflecting changes in asset values and net disposals of financial
assets of GBP18.7 million (2019 net purchases: GBP9.5 million).
Aggregated contract liabilities totalled GBP1,317.5 million
(2019: GBP1,304.6 million) with the primary movements being sales
of new plans of GBP82.0 million (2019: GBP91.2 million), increases
due to significant financing of GBP53.1 million (2019: GBP54.1
million) and releases due to death or cancellation totalling
GBP122.2 million (2019: GBP96.8 million).
The impact of IFRS 16 - Leases
In 2020, the Group has adopted the new accounting standard IFRS
16, Leases. This standard requires the Group to recognise an asset
and liability on its balance sheet for operating leases that were
previously held off balance sheet. As approximately half of the
Group's funeral properties and some of its crematoria are leased,
this has had a material impact to the Group's statutory results.
The Group has recognised an initial asset of GBP101.7 million and
an initial liability of GBP93.6 million. Under the transition
approach being followed comparative results for the prior period
are not restated.
At the period end the Group held a right-of-use asset of GBP95.2
million and a corresponding lease liability of GBP88.5 million.
Furthermore, in the period, operating lease costs of GBP12.1
million were replaced by a depreciation charge of GBP9.2 million,
finance cost of GBP4.7 million and a release of accruals and
prepayments of GBP1.7 million.
As with the Trust consolidation and the impact of IFRS 15, the
adoption of IFRS 16 does not impact the Group's securitisation
covenants, as the Securitisation Group has exercised its ability to
disregard the impact of the new standard to maintain consistency of
measurement.
For more information see note 19.
Central overheads
Overview
Central overheads relate to central services that are not
specifically attributed to a particular operating division. These
include the provision of IT, finance, personnel and Directors'
emoluments. In addition, and consistent with previous periods, the
Group records centrally the costs of incentive bonus arrangements,
such as Long-Term Incentive Plans ('LTIPs') and annual performance
bonuses, which are provided to over 100 managers working across the
business.
Developments
Underlying costs in the period were GBP37.1 million (2019:
GBP31.4 million). As anticipated, this reflects continued
investment in digital activities and central capabilities. The
table below summarises the key movements:
H1 H2 FY
GBPm GBPm GBPm
Central overheads -2019 14.6 16.8 31.4
Impact of:
Digital activities 1.0 0.9 1.9
Salaries 2.7 1.5 4.2
Other 0.1 (1.0) (0.9)
IT support fees - 0.5 0.5
Central overheads -2020 18.4 18.7 37.1
The increase in salaries includes increases of GBP1.6 million
relating to staff incentive bonuses, GBP0.6 million for option
scheme charges and GBP0.6 million temporary staff costs primarily
to increase the cover in the call centre during the pandemic.
Non-underlying items of GBP9.8 million (2019: GBP15.7 million)
and IFRS 16 credit of GBP0.1 million (2019: nil) are excluded from
underlying costs resulting in total central costs of GBP46.8
million (2019: GBP47.1 million).
In addition to the above costs, maintenance capital expenditure
of GBP1.4 million has been incurred on central projects
predominantly relating to IT that will help the business as a whole
operate more efficiently.
Outlook
The Group will continue to invest in central functions and
marketing activity to support the Group's plans.
Dean Moore
Interim Chief Financial Officer
17 March 2021
Our key performance indicators
We use non-financial and financial KPIs to both manage the
business and ensure that the Group's strategy and objectives are
being delivered.
KPI KPI definitions 52 week 52 week Developments
period ended period ended in 2020
25 December 27 December
2020 2019
This is
underlying
profit after
tax divided The reduction
by the weighted follows the
Underlying average number decrease in
earnings of Ordinary underlying
per share Shares in issue operating
(pence) in the period. 46.6p 60.6p profit.
Underlying This is the GBP55.7m GBP63.3m Underlying
operating statutory operating
profit (GBPm) operating profit declined
profit of the year-on-year,
Group excluding despite higher
non-underlying deaths. This
items and the is primarily
impact of due to lower
consolidating average revenue
the Trusts, due to the
IFRS 15 and pandemic.
IFRS 16.
Underlying This is the GBP76.4m GBP71.8m The Group
cash generated statutory cash continues
from operations generated from to convert
(GBPm) operations operating
excluding profit into
non-underlying cash
items and the efficiently.
impact of
consolidating
the Trusts,
IFRS 15 and
IFRS 16.
Average revenue Underlying GBP2,522 GBP2,930 Restrictions
per funeral funeral in client
(GBP) revenue divided choices
by the number due to COVID-19
of funerals have adversely
performed in impacted
the relevant average
period. revenue as
clients
opted for
simpler
funerals.
Deaths were
materially
This is as higher
Total estimated reported than originally
number of by the Office anticipated
deaths in for National due to the
Britain (number) Statistics. 663,000 584,000 pandemic.
This is the
number of
funerals
performed by
the Group in
Britain divided
Funeral market by the total
share excluding estimated
Northern number Market share
Ireland (per of deaths in has improved
cent) Britain. 12.0% 11.7% slightly.
This is the
number of
funerals Changes are
performed by a consequence
the Group of the total
Number of according number of
funerals to our deaths
performed operational and the Group's
(number) data. 80,300 69,400 market share.
This is the
number of
cremations
performed by
the Group
divided
by the total
estimated
Crematoria number Market share
market share of deaths in is broadly
(per cent) Britain. 11.2% 11.1% stable.
This is the
number of Changes are
cremations a consequence
performed of the total
Number of according number of
cremations to our deaths
performed operational and the Group's
(number) data. 74,500 64,800 market share.
This is the This increase
number of reflects
pre-arranged continued
funerals (both sales activity
trust funeral (both trust
plans and funeral plans
insurance and insurance
backed) where backed) offset
the Group has by the
Active an obligation crystallisation
pre-arranged to provide a of plans sold
funerals funeral in the in previous
(number) future. 558,000 523,000 periods.
Maintaining consistently high-quality and standards
We closely monitor the results of our client surveys which are
conducted by our funeral services division. In the last five years,
we have received approximately 160,000 responses. This is our
measure of how these services meet or exceed client expectations.
Our consistently high satisfaction scores reflect the strength of
our relationships with our clients. We listen to our clients and
use our survey responses to focus on areas in which we can improve
and add value.
The Dignity Client Survey 2020
Reputation and recommendation
98.9% (2019: 99.2%)
98.9 per cent of respondents said that we met or exceeded their
expectations.
97.9% (2019: 98.0%)
97.9 per cent of respondents would recommend us.
Quality of service and care
99.9% (2019: 99.9%)
99.9 per cent thought our staff were respectful.
99.6% (2019: 99.7%)
99.6 per cent thought our staff listened to their needs and
wishes.
99.1% (2019: 99.1%)
99.1 per cent agreed that our staff were compassionate and
caring.
High standards of facilities and fleet
99.7% (2019: 99.8%)
99.7 per cent thought our premises were clean and tidy.
99.2% (2019: 99.7%)
99.2 per cent thought our vehicles were clean and
comfortable.
In the detail
98.9% (2019: 99.2%)
98.9 per cent of clients agreed that our staff had fully
explained what would happen before and during the funeral.
99.2% (2019: 99.0%)
99.2 per cent said that the funeral service took place on
time.
98.0% (2019: 98.3%)
98.0 per cent said that the final invoice matched the estimate
provided.
Consolidated income statement
for the 52 week period ended 25 December 2020
52 week 52 week
period period
ended ended
25 December 27 December
2020 2019
restated
Note GBPm GBPm
Revenue 2 357.5 338.9
Cost of sales (177.3) (161.7)
Gross profit 180.2 177.2
Administrative expenses (164.3) (132.4)
Operating profit 2 15.9 44.8
Finance costs 3 (29.8) (25.8)
Finance income 3 0.1 0.2
Share of loss and impairment in respect
of associated undertakings - (6.0)
Deferred revenue significant financing 3 (53.1) (54.1)
Remeasurement of financial assets held
by the Trusts and related income 3 47.3 85.0
(Loss)/profit before tax 2 (19.6) 44.1
Taxation 4 (5.9) (13.5)
(Loss)/profit for the period attributable
to equity shareholders 2 (25.5) 30.6
(Loss)/earnings per share for profit
attributable to equity shareholders
- Basic (pence) 6 (51.0)p 61.2p
- Diluted (pence) 6 (51.0)p 61.2p
Prior year comparatives have been restated due to a prior year
adjustment in relation to taxation. See page 29 for further
details.
The results for the 52 week period to 25 December 2020 reflect
the impact of adopting IFRS 16, Leases. Comparatives in respect of
the 2019 reporting periods have not been restated in this respect
as permitted under the specific transition provisions of the
standard. See note 19 for details.
The alternative performance measures included within the
Preliminary Announcement present information on a comparable basis
with that presented in prior periods.
Consolidated statement of comprehensive income
for the 52 week period ended 25 December 2020
52 week 52 week
period period
ended ended
25 December 27 December
2020 2019
restated
Note GBPm GBPm
(Loss)/profit for the period (25.5) 30.6
Items that will not be reclassified to
profit or loss
Remeasurement loss on retirement benefit
obligations 13 (11.7) (1.8)
Tax credit on remeasurement on retirement
benefit obligations 2.2 0.3
Restatement of deferred tax for the change
in UK tax rate 4 0.5 -
Other comprehensive loss (9.0) (1.5)
Comprehensive (loss)/income for the period (34.5) 29.1
Attributable to:
Equity shareholders of the parent (34.5) 29.1
Prior year comparatives have been restated due to a prior year
adjustment in relation to taxation. See page 29 for further
details.
The results for the 52 week period to 25 December 2020 reflect
the impact of adopting IFRS 16, Leases. Comparatives in respect of
the 2019 reporting periods have not been restated in this respect
as permitted under the specific transition provisions of the
standard. See note 19 for details.
Consolidated balance sheet
as at 25 December 2020
25 December 27 December
2020 2019
restated
Note GBPm GBPm
Assets
Non-current assets
Goodwill 7 203.9 232.6
Intangible assets 7 120.5 140.5
Property, plant and equipment 240.9 251.3
Right-of-use asset 95.2 -
Financial and other assets 10.7 18.2
Financial assets held by the Trusts 9 967.1 947.5
Deferred commissions 10 101.3 96.8
Deferred tax asset 20.3 14.0
1,759.9 1,700.9
Current assets
Inventories 9.0 7.9
Trade and other receivables 30.0 32.4
Deferred commissions 10 7.6 7.3
Cash and cash equivalents - Trading Group 73.6 57.9
Cash and cash equivalents - held by the Trusts 21.6 15.5
Cash and cash equivalents 8 95.2 73.4
141.8 121.0
Total assets 1,901.7 1,821.9
Liabilities
Current liabilities
Financial liabilities 15.1 9.6
Trade and other payables 68.7 61.6
Lease liabilities 7.3 -
Current tax liabilities 8.7 6.0
Contract liabilities 10 95.5 95.5
Provisions for liabilities 2.4 2.0
197.7 174.7
Non-current liabilities
Financial liabilities 526.6 542.3
Other non-current liabilities 2.1 2.0
Lease liabilities 81.2 -
Contract liabilities 10 1,222.0 1,209.1
Provisions for liabilities 9.5 9.3
Retirement benefit obligation 13 36.6 26.0
1,878.0 1,788.7
Total liabilities 2,075.7 1,963.4
Shareholders' deficit
Ordinary share capital 6.2 6.2
Share premium account 12.7 12.5
Capital redemption reserve 141.7 141.7
Other reserves (3.0) (4.0)
Retained earnings (331.6) (297.9)
Total deficit (174.0) (141.5)
Total deficit and liabilities 1,901.7 1,821.9
Prior year comparatives have been restated due to a prior year
adjustment in relation to taxation. See page 29 for further
details.
The balance sheet as at 25 December 2020 reflect the impact of
adopting IFRS 16, Leases. Comparatives in respect of the 2019
reporting periods have not been restated in this respect as
permitted under the specific transition provisions of the standard.
See note 19 for details.
The alternative performance measures included within the Group's
consolidated financial statements present information on a
comparable basis.
Consolidated statement of changes in equity
for the 52 week period ended 25 December 2020
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 28 December 2018 6.2 12.4 141.7 (5.1) (319.1) (163.9)
Profit for the 52 weeks
ended 27 December 2019
- as originally presented - - - - 34.9 34.9
Impact of corporate interest
restriction disallowance
- prior year adjustment - - - - (4.3) (4.3)
Remeasurement loss on defined
benefit obligations (note
13) - - - - (1.8) (1.8)
Tax on retirement benefit
obligations - - - - 0.3 0.3
Total comprehensive income
- restated - - - - 29.1 29.1
Effects of employee share
options - - - 1.1 - 1.1
Tax on employee share options - - - 0.1 - 0.1
Proceeds from share issue(1) - 0.1 - - - 0.1
Gift to Employee Benefit
Trust - - - (0.1) - (0.1)
Dividends (note 5) - - - - (7.9) (7.9)
Shareholders' equity as
at 27 December 2019 - restated 6.2 12.5 141.7 (4.0) (297.9) (141.5)
Adjustment on initial application
of IFRS 16 on 28 December
2019 (note 19) - - - - 0.8 0.8
Loss for the 52 weeks ended
25 December 2020 - - - - (25.5) (25.5)
Remeasurement loss on retirement
benefit obligations (note
13) - - - - (11.7) (11.7)
Tax on retirement benefit
obligations - - - - 2.2 2.2
Restatement of deferred
tax for the change in UK
tax rate (note 4) - - - - 0.5 0.5
Total comprehensive loss - - - - (33.7) (33.7)
Effects of employee share
options - - - 1.2 - 1.2
Proceeds from share issue(2) - 0.2 - - - 0.2
Gift to Employee Benefit
Trust - - - (0.2) - (0.2)
Shareholders' equity as
at 25 December 2020 6.2 12.7 141.7 (3.0) (331.6) (174.0)
(1) Relating to issue of 3,455 shares under 2016 DAB scheme.
(2) Relating to issue of 7,745 shares under 2017 DAB scheme
and 344 issued under the 2019 SAYE scheme.
Prior year comparatives have been restated due to a prior year
adjustment in relation to taxation. See page 29 for further
details.
The results for the 52 week period to 25 December 2020 reflect
the impact of adopting IFRS 16, Leases. Comparatives in respect of
the 2019 reporting periods have not been restated in this respect
as permitted under the specific transition provisions of the
standard. See note 19 for details .
The above amounts relate to transactions with owners of the
Company except for the items reported within total comprehensive
income.
Capital redemption reserve
The capital redemption reserve represents GBP80,002,465 B Shares
that were issued on 2 August 2006 and redeemed for cash on the same
day, GBP19,274,610 B Shares that were issued on 10 October 2010 and
redeemed for cash on 11 October 2010, GBP22,263,112 B Shares that
were issued on 12 August 2013 and redeemed for cash on 20 August
2013 and GBP20,154,070 B Shares that were issued and redeemed for
cash in November 2014.
Other reserves
Other reserves includes movements relating to the Group's SAYE
and LTIP schemes and associated deferred tax, together with a
GBP12.3 million merger reserve.
Consolidated statement of cash flows
for the 52 week period ended 25 December 2020
52 week 52 week
period period
ended ended
25 December 27 December
2020 2019
Note GBPm GBPm
Cash flows from operating activities
Cash generated from operations 62.7 64.6
Finance income received 0.1 0.3
Finance costs paid (24.5) (25.0)
Transfer from restricted bank accounts
for finance costs 12.1 12.3
Payments to restricted bank accounts
for finance costs 8 (12.0) (12.1)
Total payments in respect of finance
costs (24.4) (24.8)
Tax paid (6.9) (7.9)
Net cash generated from operating
activities 31.5 32.2
Cash flows from investing activities
Proceeds from sale of property, plant
and equipment 1.1 2.1
Maintenance capital expenditure(1) (9.1) (9.8)
Branch relocations (0.5) (1.1)
Transformation capital expenditure (0.2) (1.7)
Satellite locations - (0.3)
Development of new crematoria and
cemeteries (1.3) (5.4)
Purchase of property, plant and equipment
and intangible assets (11.1) (18.3)
Purchase of financial assets (by the
Trusts) 9 (778.1) (736.1)
Disposals of financial assets (by
the Trusts) 9 796.8 726.6
Realised return on financial assets 3.8 3.6
Net cash used in investing activities 12.5 (22.1)
Cash flows from financing activities
Payments due under Secured Notes (9.6) (9.3)
Transfer from restricted bank accounts
for repayment of borrowings 4.8 4.6
Payments to restricted bank accounts
for repayment of borrowings 8 (4.9) (4.8)
Total payments in respect of borrowings (9.7) (9.5)
Principal and interest elements of (12.5) -
lease payments
Dividends paid to shareholders on
Ordinary Shares 5 - (7.9)
Net cash used in financing activities (22.2) (17.4)
Net increase/(decrease) in cash and
cash equivalents 21.8 (7.3)
Cash and cash equivalents at the beginning
of the period 56.5 63.8
Cash and cash equivalents at the end
of the period 8 78.3 56.5
Restricted cash 8 16.9 16.9
Cash and cash equivalents at the end
of the period as reported in the
consolidated balance sheet 8 95.2 73.4
(1) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other
tangible and intangible assets.
1 Prior year restatement
Following the finalisation of the Group's 2019 corporation tax
returns for its subsidiary undertakings and the corresponding
detailed Group corporate interest restriction return it became
apparent that the interaction of the consolidation of the Trusts
and the application of the complex tax provisions relating to the
level of interest deductibility within the Group had been
understated and consequently the 2019 financial statements were
misstated. Due to an increased amount of disallowed interest
expense arising predominately from the inclusion of realised and
unrealised fair value movements on the bond investments within the
Trust consolidation a prior year adjustment has been booked due to
the magnitude of the disallowance. The Group has therefore restated
its consolidated financial statements for 2019. There is no impact
on any further previous accounting periods. The restatement
increases the tax charge by GBP4.3 million with a corresponding
increase in the Group's current tax liabilities by GBP4.3 million.
Accordingly, retained earnings as at 27 December 2019 have reduced
by GBP4.3m and statutory EPS has also been restated to 61.2p. A
deferred tax asset cannot be recognised in this respect as it is
not considered probable that the Group will be able to access the
disallowed interest amounts under the corporate interest
restriction rules in the foreseeable future.
2 Revenue and segmental analysis
Operating segments are reported in a manner consistent with
internal reporting provided to the chief operating decision maker
who is responsible for allocating resources and assessing
performance of the operating segments. The chief operating decision
maker of the Group has been identified as the three Executive
Directors (which includes the Executive Chairman). 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
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 Group's crematoria and cemeteries
.
Pre-arranged funeral plans represent the sale of funerals in
advance to clients wishing to make their own funeral arrangements
and the marketing and administration costs associated with making
such sales.
Substantially all Trading Group revenue is derived from, and
substantially all of the Trading Group's net assets and liabilities
are located in, the United Kingdom and Channel Islands and relates
to services provided. Overseas transactions are not material.
Underlying revenue and underlying oper ating profit are stated
before n on-underlying items and the effect of consolidation of the
Trusts, applying IFRS 15 and adopting IFRS 16 as defined on page 50
.
Reconciliations to statutory amounts
Non-underlying items represent certain non-recurring or
non-trading transactions. See alternative performance measures on
page 50 for further details .
Other adjustments reflect the impact of consolidating the Trusts
and subsequent impact on corporate interest restriction
disallowances, applying IFRS 15 and the adoption of IFRS 16 in the
current period. It also includes the impact of the deferred tax
rate change on the Trust and IFRS 15 balances. 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.
See alternative performance measures on page 51 for a full
reconciliation.
Disaggregated revenue
The disaggregated revenue and operating profit/(loss), by
segment, is shown in the following tables:
52 week period ended 25 December 2020
Other
Underlying adjustments
revenue (1) Revenue
GBPm GBPm GBPm
Funeral services 202.6 72.2 274.8
Crematoria 82.7 - 82.7
Pre-arranged funeral plans 28.8 (28.8) -
Group 314.1 43.4 357.5
(1) See alternative performance measures on page 52 for a
reconciliation of other adjustments.
Within funeral services revenue GBP113.2 million relates to
deferred revenue arising on the completion of performance
obligations 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 Trusts
administration costs and to recognise commissions payable at the
inception of a plan rather than on delivery of the funeral or
cancellation. Furthermore, for the period ended 25 December 2020
'other adjustments' to operating profit also includes the impact of
adopting IFRS 16, with operating lease rentals being replaced with
depreciation, finance costs and a release of accruals and
prepayments.
Underlying
operating
profit/(loss)
before Underlying Underlying
depreciation depreciation Operating
and and profit/ Non-underlying Other Operating
amortisation amortisation (loss) items(1) adjustments(1) profit/(loss)
52 week period ended GBPm GBPm GBPm GBPm GBPm GBPm
25
December 2020
Funeral
services 62.1 (12.1) 50.0 (48.3) 15.8 17.5
Crematoria 48.7 (5.9) 42.8 (0.2) 2.6 45.2
Pre-arranged
funeral plans - - - (0.1) 0.1 -
Central overheads (35.3) (1.8) (37.1) (9.8) 0.1 (46.8)
Group 75.5 (19.8) 55.7 (58.4) 18.6 15.9
Finance costs (25.1) (4.7) (29.8)
Finance income 0.1 - 0.1
Deferred revenue significant
financing (53.1) (53.1)
Remeasurement of
financial
assets held by the
Trusts
and related income 47.3 47.3
(Loss)/profit before
tax 30.7 (58.4) 8.1 (19.6)
Taxation -
continuing
activities (7.4) 6.1 (5.7) (7.0)
Taxation - rate
change - (3.6) 4.7 1.1
Taxation - total (7.4) 2.5 (1.0) (5.9)
Underlying earnings
for
the period 23.3
Non-underlying items (55.9)
Other adjustments 7.1
Loss after taxation (25.5)
(Loss)/earnings per share for profit attributable
to equity shareholders
- Basic (pence) 46.6p (51.0)p
- Diluted (pence) (51.0)p
(1) See alternative performance measures on pages 51 and 52 for
a reconciliation of non-underlying items and other adjustments.
52 week period ended 27 December 2019
Other
Underlying adjustments
revenue (1) Revenue
GBPm GBPm GBPm
Funeral services 203.3 58.8 262.1
Crematoria 76.8 - 76.8
Pre-arranged funeral plans 21.2 (21.2) -
Group 301.3 37.6 338.9
(1) See alternative performance measures on page 53 for a
reconciliation of other adjustments.
Within funeral services revenue GBP91.7 million relates to
deferred revenue arising on the completion of performance
obligations under pre-need Trust plans.
52 week period ended 27 December 2019
Underlying
operating
profit/(loss)
before Underlying Underlying
depreciation depreciation Operating Other Operating
and and profit/ Non-underlying adjustments(1) profit/(loss)
amortisation amortisation (loss) items(1) restated restated
GBPm GBPm GBPm GBPm GBPm GBPm
Funeral
services 68.6 (12.3) 56.3 (10.0) 8.4 54.7
Crematoria 43.6 (5.2) 38.4 (1.2) - 37.2
Pre-arranged
funeral plans - - - (0.2) 0.2 -
Central overheads (29.6) (1.8) (31.4) (15.7) - (47.1)
Group 82.6 (19.3) 63.3 (27.1) 8.6 44.8
Finance costs (25.8) (25.8)
Finance income 0.2 0.2
Deferred revenue significant
financing (54.1) (54.1)
Remeasurement of
financial
assets held by the
Trusts
and related income 85.0 85.0
Share of loss in
associated
undertakings (0.6) (0.6)
Impairment of
investments
in associated
undertakings (5.4) (5.4)
Profit before tax 37.7 (33.1) 39.5 44.1
Taxation (7.4) 4.9 (11.0) (13.5)
Underlying earnings
for
the period 30.3
Non-underlying items (28.2)
Other adjustments 28.5
Profit after
taxation 30.6
Earnings per share for profit attributable
to equity shareholders
- Basic (pence) 60.6p 61.2p
- Diluted (pence) 61.2p
(1) See alternative performance measures on pages 51 and 53 for
a reconciliation of non-underlying items and other adjustments.
3 Net finance costs
52 week 52 week
period period
ended ended
25 December 27 December
2020 2019
GBPm GBPm
Finance costs
Secured Notes 23.4 23.7
Other loans 1.1 1.3
Net finance cost on retirement benefit obligations 0.5 0.7
Unwinding of discounts 0.1 0.1
Underlying finance costs 25.1 25.8
Finance cost on IFRS 16 lease liability 4.7 -
Finance costs 29.8 25.8
Finance income
Bank deposits (0.1) (0.2)
Finance income (0.1) (0.2)
Deferred revenue significant financing (note
10) 53.1 54.1
Remeasurement of financial assets held by
the Trusts and related income
Realised investment income (6.0) (5.5)
Changes in fair value of financial assets
held by the Trusts (note 9) (41.3) (79.5)
Remeasurement of financial assets held by
the Trusts and related income (47.3) (85.0)
Underlying net finance costs
Underlying finance costs 25.1 25.8
Finance income (0.1) (0.2)
Underlying net finance costs 25.0 25.6
4 Taxation
52 week period 52 week period
ended ended
25 December 27 December
2020 2019
restated
Analysis of charge in the period GBPm GBPm
Current tax - current period 9.4 9.1
Adjustments for prior period 0.1 0.1
Total corporation tax 9.5 9.2
Deferred tax - current period (2.9) 4.9
Adjustments for prior period 0.4 (0.6)
Restatement of deferred tax for the change in UK tax rate (1.1) -
Total deferred tax (3.6) 4.3
Taxation 5.9 13.5
In the budget announced in March 2020, the legislation to reduce
the main rate of corporation tax to 17 per cent was cancelled and
the main rate of corporate tax will remain at 19 per cent from 1
April 2020 and 1 April 2021. The change was substantively enacted
at the balance sheet date and is therefore recognised in these
financial statements. As a result, the Group recognised a
non-underlying taxation credit of GBP1.1 million through its income
statement and a credit of GBP0.5 million through other
comprehensive income to reflect the one off increase in the period
of the Group's deferred tax position.
Following the budget announced on 3 March 2021, the legislation
to increase the main rate of corporation tax from 19 per cent to 25
per cent from 1 April 2023 was not substantively enacted at the
balance sheet date and so has not been reflected in the deferred
tax balances as at 25 December 2020. Each percentage increase in
the corporation tax rate would increase deferred tax balances by
GBP1.1 million.
5 Dividends
52 week 52 week
period period
ended ended
25 December 27 December
2020 2019
GBPm GBPm
Final dividend paid: nil per Ordinary Share
(2019: 15.74p) - 7.9
Interim dividend paid: nil per Ordinary Share - -
(2019: nil)
Dividend on Ordinary Shares - 7.9
The interim dividend represents the interim dividend that was
approved and paid in the period out of earnings generated in the
same period. No interim dividend was declared in 2020 (2019:
GBPnil).
The final dividend in 2019 represents the final dividend that
was approved and paid in the period relating to the earnings
generated in the previous period.
Consequently, total dividends recognised in the period were
GBPnil million, nil pence per share (2019: GBP7.9 million, 15.74
pence per share). No final dividend was declared in respect of 2019
totalling GBPnil million (2019: final dividend in respect of 2018
was 15.74 pence per share totalling GBP7.9 million). The Group is
not proposing any dividend for the period ended 25 December
2020.
6 Earnings per share
The calculation of basic earnings per Ordinary Share has been
based on the profit attributable to equity shareholders for the
relevant period.
For diluted earnings per Ordinary Share, the weighted average
number of Ordinary Shares in issue is adjusted to assume conversion
of any dilutive potential Ordinary Shares.
The Group has two classes of potentially dilutive Ordinary
Shares being those share options granted to employees under the
Group's SAYE Scheme and the contingently issuable shares under the
Group's LTIP Schemes. At the balance sheet date, the performance
criteria for the vesting of the awards under the LTIP Schemes,
including any deferred annual bonus, are assessed, as required by
IAS 33, and to the extent that the performance criteria have been
met those contingently issuable shares are included within the
diluted EPS calculations. As the impact of these shares is
anti-dilutive for the 52 week period ended 25 December 2020, no
adjustment has been made in respect of arriving at diluted earnings
per share measures for that period (2019: no adjustment).
The Group's underlying measures of profitability exclude
non-underlying items, the effects of IFRS 15, consolidation of the
Trusts and the adoption of IFRS 16 as set out on page 50. These
items have been adjusted for in determining underlying measures of
profitability as these underlying measures are those used in the
day-to-day management of the business and allow for greater
comparability across periods.
Accordingly, the Board believes that earnings per share
calculated by reference to this underlying performance measure
users of the financial statements to fully understand the trading
performance and financial position of the Group.
Reconciliations of the earnings and the weighted average number
of shares used in the calculations are set out below:
Weighted
average
number Per share
of
Earnings shares amount
GBPm millions pence
52 week period ended 25 December
2020
Underlying profit after taxation
and EPS 23.3 50.0 46.6
Add: Non-underlying items (net of
taxation credit of GBP2.5 million) (55.9)
Add: Other adjustments (net of taxation
charge of GBP1.0 million) (1) 7.1
Loss attributable to shareholders
- Basic EPS (25.5) 50.0 (51.0)
Loss attributable to shareholders
- Diluted EPS (25.5) 50.0 (51.0)
52 week period ended 27 December
2019 - restated (2)
Underlying profit after taxation
and EPS 30.3 50.0 60.6
Add: Non-underlying items (net of
taxation credit of GBP4.9 million) (28.2)
Add: Other adjustments (net of taxation
charge of GBP11.0 million)(1) 28.5
Profit attributable to shareholders
- Basic EPS 30.6 50.0 61.2
Profit attributable to shareholders
- Diluted EPS 30.6 50.0 61.2
(1) See note 2 for further details.
(2) Prior year comparatives have been restated due to a prior
year adjustment in relation to taxation. See page 29 for further
details (.)
7 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 28 December
2018 150.4 3.2 4.7 2.5 0.2 161.0 232.6 393.6
At 27 December
2019 150.4 3.2 4.7 2.5 0.2 161.0 232.6 393.6
Additions - - - 0.2 - 0.2 - 0.2
At 25 December
2020 150.4 3.2 4.7 2.7 0.2 161.2 232.6 393.8
Accumulated amortisation
and impairment
At 28 December
2018 (5.4) (1.7) (0.9) (0.5) (0.2) (8.7) - (8.7)
Amortisation
charge (4.2) (0.1) (0.5) (0.2) - (5.0) - (5.0)
Trade name impairment (6.8) - - - - (6.8) - (6.8)
At 27 December
2019 (16.4) (1.8) (1.4) (0.7) (0.2) (20.5) - (20.5)
Amortisation
charge (4.1) (0.2) (0.4) (0.2) - (4.9) - (4.9)
Impairment (15.3) - - - - (15.3) (28.7) (44.0)
At 25 December
2020 (35.8) (2.0) (1.8) (0.9) (0.2) (40.7) (28.7) (69.4)
Net book amount
at 25 December
2020 114.6 1.2 2.9 1.8 - 120.5 203.9 324.4
Net book amount
at 27 December
2019 134.0 1.4 3.3 1.8 - 140.5 232.6 373.1
Net book amount
at 28 December
2018 145.0 1.5 3.8 2.0 - 152.3 232.6 384.9
(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 5 per cent or more of the total net book
value.
(2) The Group previously acquired interests in two crematoria
subject to finite periods of operation (by way of lease and/or
service concession). The fair value of these interests has been
identified and recognised as a separate intangible asset. The value
of each interest will be amortised over the remaining period of
operation.
Impairment tests for goodwill and trade names
Goodwill is subject to an annual impairment test in accordance
with IAS 36, Impairment of Assets. For the purpose of this
impairment test goodwill is tested at a business segment level as
this is the level at which the return on assets acquired, including
goodwill, is monitored.
The segmental allocation of goodwill is shown below:
25 December 27 December
2020 2019
GBPm GBPm
Funeral services 148.1 176.8
Crematoria 55.8 55.8
203.9 232.6
The recoverable amount of each segment is based on a
value-in-use calculation.
The value-in-use calculations use cash flow projections derived
from the latest annual budget. Key assumptions used to produce the
annual budget are the estimated UK death rates (based on historical
death rates supplied by ONS), anticipated market share, mix and
pricing. The value-in-use calculations for the 2020 model include
the approved annual budget for 2021 and a forecast for 2022. Cash
flows for all segments beyond the initial 24 month period (2019: 12
month period) are extrapolated using a growth rate of 2.25 per cent
(2019: 2.25 per cent), being an estimate of long-term growth rates
for impairment review purposes only, which reflects the
expectations of long-term inflation and death rates. The cash flows
for each segment are discounted at a pre-tax rate of 10.3 per cent
(2019: 12.0 per cent).
Goodwill assessment
The impairment calculation indicated no impairment in the
crematoria division with headroom under the current assumptions
used of GBP99.1 million (2019: GBP102.9 million). The discount rate
would need to increase to 14.1 per cent (2019: increase to 25.8 per
cent) or the long-term growth rate would need to fall to minus 1.4
per cent (2019: minus 2.8 per cent) for the impairment test to
result in GBPnil headroom for this segment. The likelihood of such
movements in the discount rate and growth rate is deemed unlikely
based on current market conditions.
The impairment calculation has also been performed on the
funeral services division and an impairment of GBP28.7 million
(2019: GBPnil) has been recognised within administrative expenses
in the Income statement.
If the value-in-use calculations for the funeral services
division used a discount rate of 11.3 per cent instead of 10.3 per
cent, then the impairment would increase by GBP40.6 million to
GBP69.3 million. The discount rate would have to reduce to 9.7 per
cent to result in no goodwill impairment.
If the value-in-use calculation for the funeral services
division used a growth rate of 1.75 per cent instead of 2.25 per
cent, then the impairment would increase by GBP20.3 million to
GBP49.0 million. The growth rate would have to increase to 2.82 per
cent to result in no goodwill impairment.
If the value-in-use calculations for the funeral services
division used a year one cash flow assumption of GBP3.0 million
less than that forecast, then the impairment would increase by
GBP43.9 million to GBP72.6 million.
Trade name assessment
In addition to the Group's annual goodwill impairment test,
given the changes in the funeral market and a decrease (2019: an
increase) in the discount rate to be applied in determining
value-in-use, an impairment test was performed in respect of the
Group's trade name intangibles assets in accordance with the
requirements of IAS 36. A value-in-use calculation has been
performed against each recognisable trade name. The performance of
this impairment test, which was based on the same cash flow
projections and key assumptions as the goodwill impairment test set
out above, indicated that an impairment within the funerals segment
of GBP15.3 million (2019: GBP6.8 million) arose and has been
provided accordingly. This is due to lower levels of profitability
and lower anticipated average revenue per funeral.
The trade name impairment and the subsequent reduction in net
book value has been reflected within the above goodwill impairment
calculations to reflect the lower asset base.
If the value-in-use calculations used a discount rate of 11.3
per cent instead of 10.3 per cent, then the impairment would
increase by GBP1.8 million to GBP17.1 million. If the value-in-use
calculations used a growth rate of 1.75 per cent instead of 2.25
per cent, then the impairment would increase by GBP0.9 million to
GBP16.2 million. If the value-in-use calculations used an initial
cash flow assumption of GBP3.0 million less than that forecast,
then the impairment would increase by GBP2.3 million to GBP17.6
million.
8 Cash and cash equivalents
25 December 27 December
2020 2019
Note GBPm GBPm
Trading Group 56.7 41.0
(a
Trusts ) 21.6 15.5
Operating cash as reported in the consolidated
statement of cash flows as cash and cash equivalents 78.3 56.5
Amounts set aside for debt service payments (b) 16.9 16.9
Cash and cash equivalents as reported
in the balance sheet 95.2 73.4
(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
This amount was transferred to restricted bank accounts which
could only be used for 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. Consequently, this amount did not meet the
definition of cash and cash equivalents in IAS 7, Statement of Cash
Flows. This amount was used to pay these respective parties on 31
December 2020. Of this amount, GBP12.0 million (2019: GBP12.1
million) is shown within the Statement of Cash Flows as 'Payments
to restricted bank accounts for finance costs' and GBP4.9 million
(2019: GBP4.8 million) is shown within 'Financing activities' as
'Payments to restricted bank accounts for repayment of
borrowings'.
9 Financial assets - held by the Trusts
25 December 27 December
2020 2019
GBPm GBPm
Financial assets - held by the Trusts 967.1 947.5
The Trusts continue to take independent advice regarding the
investment strategy. As a result, it is anticipated that the
investment allocation by class will develop further during 2021 and
beyond, gradually resulting in a portfolio in the following
profile:
Example investment types Target
(%)
-------------------------- ---------------------------------- -------
Index linked gilts and corporate
Defensive investments bonds 18
Illiquid investments Private investments 16
Core growth investments Equities 38
Growth fixed income and Emerging market debt/diversified
alternative investments growth 22
Liquid investments Open-ended investment funds 6
-------------------------- ---------------------------------- -------
The investment strategies are expected to provide returns in
excess of inflation in the longer-term but will, however,
potentially result in greater volatility year-on-year in the
reported value of the Group's assets. See Operating Review for
further details.
Analysis of the movements in financial assets
held by the Trusts: 25 December 27 December
2020 2019
GBPm GBPm
Fair value at the start of the period 947.5 862.4
Remeasurement recognised in the consolidated
income statement 41.3 79.5
Investment income 2.2 1.9
Purchases 778.1 736.1
Disposals (796.8) (726.6)
Investment administrative expenses deducted
at source (5.2) (5.8)
Fair value at the end of the period 967.1 947.5
Interest and dividend income received is included within
remeasurements recognised in the consolidated income statement.
10 Deferred commissions and contract liabilities
Deferred commissions
25 December 27 December
2020 2019
GBPm GBPm
Deferred commissions - current 7.6 7.3
Deferred commissions - non-current 101.3 96.8
Deferred commissions represent directly attributable costs in
respect of the marketing of the pre-arranged funeral plans where
the plan has yet to be used or cancelled. An amount of GBP7.8
million (2019: GBP6.4 million) has been amortised to the
consolidated income statement within administrative expenses.
Contract liabilities
25 December 27 December
2020 2019
Note GBPm GBPm
Current
(
Contract liabilities - deferred a
revenue ) 94.4 94.4
(
Contract liabilities - refund b
liability ) 1.1 1.1
95.5 95.5
Non-current
(
Contract liabilities - deferred a
revenue ) 1,208.1 1,194.6
(
Contract liabilities - refund b
liability ) 13.9 14.5
1,222.0 1,209.1
Movement in total contract liabilities
25 December 27 December
2020 2019
GBPm GBPm
Balance at the beginning of the year 1,304.6 1,256.1
Sale of new Trust plans 82.0 91.2
Increase due to significant financing 53.1 54.1
Recognition of revenue following delivery
or cancellation of a Trust plan (122.2) (96.8)
Balance at the end of the year 1,317.5 1,304.6
(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.
11 Net debt
25 December 27 December
2020 2019
GBPm GBPm
Net amounts owing on Secured Notes per financial
statements (541.7) (551.3)
Add: unamortised issue costs (0.5) (0.6)
Gross amounts owing (542.2) (551.9)
Accrued interest on Secured Notes (12.0) (12.2)
Cash and cash equivalents - Trading Group (note
8) 73.6 57.9
Net debt (480.6) (506.2)
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 in respect of the Secured
Notes requires EBITDA to total debt service ('EBITDA DSCR'), in the
securitisation group, to be at least 1.5 times. At 25 December
2020, the actual ratio was 1.99 times (2019: 2.13 times).
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.
12 Reconciliation of cash generated from operations
52 week period 52 week period
ended ended
25 December 27 December
2020 2019
restated
GBPm GBPm
Net (loss)/profit for the period(1) (25.5) 30.6
Adjustments for:
Taxation(1) 5.9 13.5
Finance costs(2) 76.8 74.2
Profit on sale of fixed assets (0.1) (1.0)
Depreciation charges on property, plant and equipment 19.6 19.1
Depreciation charges on right-of-use asset 9.2 -
Amortisation of intangibles 4.9 5.0
Movement in inventories (1.1) 0.6
Movement in trade receivables 2.4 (1.5)
Movement in trade payables (2.0) (0.8)
Movement in contract liabilities (40.2) (5.6)
Fair value movement on Trust assets(2) (41.3) (79.5)
Net pension charges less contributions (1.6) (1.7)
Trade name impairment 15.3 6.8
Goodwill impairment 28.7 -
Share of loss and impairment in respect of associated undertakings - 6.0
Changes in other working capital (excluding acquisitions) 5.1 (7.7)
Trust investment administrative expenses deducted at source (3) 5.2 5.8
Employee share option charges 1.4 0.8
Cash flows from operating activities 62.7 64.6
(1) Restatement reflects the corporate interest restriction
disallowance treated as a prior year adjustment. See note 1 for
further details.
(2) Restatement reflects the separation of fair value movements
on trust assets out of net finance costs/(income) to provide more
accurate presentation in line with the consolidated income
statement.
(3) Restatement reflects the separation of Trust investment
administrative expenses deducted at sources out of changes in other
working capital to provide more accurate presentation of working
capital.
13 Analysis of the movement in the retirement benefit obligation
2020 2019
GBPm GBPm
At beginning of period (26.0) (25.2)
Total expense charged to the income statement (1.1) (1.2)
Remeasurement losses and administration expenses charged to other comprehensive income (11.7) (1.8)
Contributions by Group 2.2 2.2
At end of period (36.6) (26.0)
14 Basis of preparation
European law requires that the Group's consolidated financial
statements for the 52 week period ended 25 December 2020 are
prepared in accordance with all applicable International Financial
Reporting Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applied in the European Union. These financial
statements have been prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006.
In the current period, the Group's consolidated financial
statements have been prepared for the 52 week period ended 25
December 2020. For the comparative period, the Group's consolidated
financial statements have been prepared for the 52 week period
ended 27 December 2019.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 25 December 2020
or 27 December 2019 but is derived from those accounts. Statutory
accounts for 2019 have been delivered to the registrar of
companies, and those for 2020 will be delivered in due course. The
auditors have reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006 in respect of the
accounts for 2019 and 2020.
The Group's consolidated financial statements are prepared on a
going concern basis and have been prepared under the historical
cost convention.
The principal accounting policies adopted in the preparation of
these financial statements have been consistently applied to all
periods presented, with the exception of IFRS 16. See note 19 for
details.
Going concern
The key factors which impact the Group's financial performance
are death rate, market share, mix and average revenue per funeral.
As this Preliminary Announcement describes, during the COVID-19
pandemic, whilst the death rate in the UK has sadly increased and
the Group's market share remained broadly stable, both the average
revenue received per funeral and the revenue received for memorial
sales has declined. Whilst not back to pre-pandemic levels,
following the adaptation of limousines and application of other
protective measures for our colleagues and customers, the take up
of full service funerals compared to simple funerals has increased
to approximately 68:32 in the fourth quarter compared to 54:46 in
the second quarter. This has resulted in the recovery of average
revenues through 2020 to close the year (and start 2021) at
approximately 94 per cent of those achieved prior to the start of
COVID-19. The Group has also taken prudent action to manage costs,
where appropriate, to protect its position in terms of ensuring
sufficient headroom on both profitability and liquidity
measures.
The impact on 2021 revenue and profitability will depend in part
on various factors outside of the Group's control, such as the
number of deaths in the UK and the length of time social distancing
measures continue to be in place.
The financial performance of the Group and the Securitisation
Group has been forecast and those forecasts have been subjected to
a number of sensitivities. These forecasts reflect an assessment of
current and future market conditions and their impact on the future
profitability of the Group and the Securitised Group. The forecasts
reflect recovery at the beginning of 2022.
When considering the going concern assumption, the Directors of
the Group have reviewed the principal risks within the environment
in which it operates and have prepared relevant sensitised
scenarios, these include:
-- Prolonged period of social distancing restrictions which may
serve to keep the mix and average revenue per funeral lower for a
sustained period; and
-- A significant reduction in the number of deaths.
In all base scenarios modelled, the Group is forecast to have
sufficient liquidity and meet its debt service cover ratio ('DSCR')
in the period assessed through to 31 March 2022.
To provide further consideration of going concern, the Directors
also considered what would happen in an ongoing scenario of reduced
profitability significantly below management's forecasts, such as a
significant reduction in the market share or average revenues (the
year to date analysis through February 2021 does not indicate the
likelihood of such a scenario). In such a scenario, the Securitised
Group may not meet its DSCR covenant requirements before the
consideration of additional mitigating activities such as reducing
controllable spend. Under the terms of the Securitised Group's
borrowings, the Securitised Group is required to maintain a DSCR of
at least 1.5 times, measured on a rolling 12 month basis every
quarter. However, a 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.
Notwithstanding this, given
the current cash on hand and facilities available to it, the
Securitised Group (as supported by the Company) would have
sufficient liquid resources to make all required debt service
payments for a period through to 31 March 2022.
Having considered all the above the directors remain confident
in the long-term future prospects for the Group and its ability to
continue as a going concern for the foreseeable future and for a
period through to 31 March 2022 and therefore continue to adopt the
going concern basis in preparing this Preliminary Announcement.
15 Standards, amendments and interpretations effective in 2020
The Group has applied IFRS 16, Leases for the first time in the
preparation of the Group's consolidated financial statements. A
description of the nature and effect of transition to this standard
are presented in note 19.
Comparatives in respect of the 2019 reporting periods have not
been restated as permitted under the specific transition provisions
of the standard.
16 Securitisation
In accordance with the terms of the Secured Notes issued October
2014, Dignity (2002) Limited (the holding company of those
companies subject to the securitisation) has today issued reports
to the Rating Agencies (Fitch Ratings and Standard & Poor's),
the Security Trustee and the holders of the Secured Notes issued in
connection with the securitisation, confirming compliance with the
covenants established under the securitisation.
Copies of these reports are available at www.dignityplc.co.uk
/corporate .
17 Principal risks and uncertainties
Risk management is embedded throughout the business with all
employees aware of the role they play.
Risk appetite
Risk appetite is the level of risk the Group is willing to take
to achieve its strategic objectives and is set by the Board. The
Board looks at the Group's appetite to risk across a number of
areas including market, financing, operations, strategy and
execution, developments, cybersecurity and technology and
brand.
There has been no change to the Group's risk appetite in the
period .
Our approach to risk management
The Group has a well-established governance structure with
internal control and risk management systems. The risk management
process :
-- Provides a framework to identify, assess and manage risks,
both positive and negative, to the Group's overall strategy and the
contribution of its individual operations .
-- Allows the Board to fulfil its governance responsibilities by
making 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
their mitigating factors .
Risk process
Every six months the Audit Committee formally considers the risk
register and approves it for adoption by the Board .
Risk assessment
Executive Directors and senior management are responsible for
identifying and assessing business risks .
Identifying risk
Risks are identified through discussion 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
M iti gating 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 to assist in
ensuring the related key controls, procedures and policies are
understood and operated effectively where they serve to mitigate
risks .
Risk governance
The Board has overall responsibility for the Group's internal
control systems and for reviewing their effectiveness. This has
been designed to assist the Board in making more risk-informed,
strategic decisions with a view to creating and protecting
shareholder value .
Risk status summary
The ongoing review of the Group's principal risks focuses on how
these risks may evolve.
Pre-arranged funeral plans
In November 2020, the Financial Conduct Authority ('FCA') issued
a statement welcoming the Government's laying of legislation
setting out a timetable for bringing the regulation of pre-need
funeral plans wit hin the remit of the FCA, expecting to take
responsibility for the regulation of the sector in Summer 2022.
On 2 March 2021, the FCA released their consultation on funeral
plans and their proposed approach to funeral plans. Dignity will be
engaging constructively through the consultation process which
closes on 13 April with final regulations expected to be published
in Q3 2021.
In order to carry out regulated funeral plan activities, firms
must be authorised by the FCA. Continuing with regulated activity
without authorisation will be a criminal offence.
Dignity believes that this regulation is necessary and welcomes
its planned introduction .COVID-19 has created new risks relating
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. The potential risks are assessed
regularly in light of the developing guidance and commentary from
HM Government.
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
continued impact of COVID-19.
Competition and Market Authority's Market Investigation:
Change in risk
The CMA's Final Decision Report into the supply of services by
funeral directors at the point of need and the supply of crematoria
services was published on 18 December 2020 such that the risk of
unexpected findings has now reduced. The Group supports the CMA's
conclusions which focus on measures to support consumer choice and
transparency and welcomes the recommendations to Government for
quality and standards regulation in the UK.
Our principal risks and uncertainties
Outlined here are 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 of the risk.
The principal risks we have identified
We maintain a detailed register of principal risks and
uncertainties covering strategic, operational, financial and
compliance risks. We rate them according to likelihood of
occurrence and their potential impact.
In the tables below we provide a summary of each risk, a
description of the potential impact and a summary of mitigating
actions.
Operational risk management
Risk description and impact Mitigating activities and commentary Change
Significant movement in the The profile of deaths has historically Increased
death rate seen intra year changes of +/-
There is a risk that the 1 per cent giving the Group the
number of deaths in any year ability to plan its business
significantly reduces or accordingly. The ONS long-term
increases. This would have projection is for deaths to increase.
a direct result on the financial The risk is mitigated by the
and operational performance ability to control costs and
of both the funeral and crematoria the price structure and the ability
divisions . to acquire funerals and crematoria,
2020 has seen unprecedented although this would not mitigate
times with COVID-19 impacting a short-term significant reduction
all our lives. This has impacted in the number of deaths.
our operations, our staff The number of deaths in 2020
and resourcing . was 663,000 which was 14 per
cent above the prior year and
significantly higher than originally
anticipated before the onset
of the pandemic. It is currently
unknown over what time frame
the death rate will normalise.
Our planning will continue to
be based on the long-term expectations
as provided by the Office of
National Statistics.
Operationally, we have spent
time understanding lessons from
the dramatic increase in deaths
due to COVID-19 to ensure we
continue to respond professionally
and safely. A key part has been
staffing: absence levels peaked
at circa 16 per cent compared
to normal levels of one or two
per cent. Where required, this
was and continues to be managed
through a national provider of
temporary resource. In the Crematoria
and Memorial Group, staff have
been upskilled and cross trained
to provide cover as required
.
---------------------------------------------- -------------
Operational risk management (continued)
Risk description and impact Mitigating activities and commentary Change
Nationwide adverse publicity This risk is addressed by the No change
Nationwide adverse publicity strategic decision to support
for Dignity could result development of strong national
in a significant reduction brands via the Group's websites,
in the number of funerals TV and radio advertising and
or cremations performed in increased awareness of the Group
any financial period. For and its services and by the Corporate
pre-arranged funeral plans, Communications team monitoring
adverse publicity for the and responding, where required,
Group or one of its partners to media statements, articles
could result in a reduction and interviews.
in the number of plans sold In addition, the Group maintains
or an increase in the number a strong system of internal control
of plans cancelled. This to ensure the business is managed
would have a direct and significant in line with its strategic objectives.
impact on the financial performance
of the Group.
The risk is increased as
the Dignity brand is marketed
more widely.
---------------------------------------------------- -------------
Fall in average revenue per The Group's strategic review Increased
funeral or cremation resulting has resulted in a more efficient
from market changes business that can accommodate
There has been increasing more competitive pricing, but
price competition in the which continues to provide clients
funeral market, resulting with a greater range of choice,
in material price reductions underpinned by excellent client
by the Group in recent years. service. This will be supported
It is highly likely that by strong reputational management.
pricing pressure will remain The Group will continue to adapt
for the foreseeable future to serve evolving client needs.
and it may not therefore This will be through investment
be possible to maintain average in digital capabilities including
revenue per funeral or cremations an enhanced reporting capability
at the current level. of business intelligence and
management information which
will enable risks and trends
to be identified promptly and
accurately.
This risk has increased due to
COVID-19 as the Group has experienced
lower average revenues than originally
expected: these are anticipated
to return to the levels previously
experienced although the period
of time needed for this to occur
is currently unknown. Awareness
of Simple Funerals and Simplicity
Cremations has increased during
the pandemic.
---------------------------------------------------- -------------
Disruptive new business The Group believes that this No change
models leading to a significant risk is mitigated by its reputation
reduction in market share as a high-quality provider and
It is possible that external with recommendation being a key
factors such as new competitors driver to the choice of funeral
and the increased impact director being used. In addition,
of the internet on the sector, the Group's actions on pricing
could result in a significant and promotion seek to protect
reduction in market share the Group's funeral market share
within funeral and crematoria by offering more affordable options.
operations. This would have This focus on affordability has
a direct result on the financial allowed our market share to begin
performance of those divisions to stabilise.
. For crematoria operations this
is mitigated by the Group's experience
and ability in managing the development
of new crematoria.
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
will strengthen the Group's competitiveness.
---------------------------------------------------- -------------
Demographic shifts in population In such situations, Dignity would No change
There can be no assurance seek to follow the population
that demographic shifts in shift by rebalancing the funeral
population will not lead location network together with
to a reduced demand for funeral meeting the developing cultural
services in areas where Dignity requirements .
operates.
---------------------------------------------------- -------------
Operational risk management (continued)
Risk description and Mitigating activities and commentary Change
impact
Competition The purpose of our root and No change
The UK funeral services, branch review is to position
crematoria and pre-need the Group for all eventualities
markets are currently whether driven by the rapidly
fragmented. changing competitive environment
There could be further in which we operate, the changes
consolidation or increased resulting from the CMA's measures
competition in the industry, to support consumer choice and
whether in the form of transparency and recommendations
intensified price competition, to Government for quality and
service competition, standards regulation in the
over capacity facilitated UK or in response to the COVID-19
by the internet or otherwise, pandemic.
which could lead to an The funeral service model will
erosion of the Group's be adapted to better suit evolving
market share, average client needs and to improve
revenues or an increase efficiency. We provide clients
in costs and consequently with a more tailored service,
a reduction in its profitability. allowing them to choose how
Failure to replenish they wish to interact with Dignity
or increase the bank in arranging a funeral through
of pre-arranged funeral mobile staff and improved digital
plans could affect market capabilities.
share of the funeral We continue to develop a new
division in the longer-term. tiered funeral pricing proposition,
Competition continues that will provide greater flexibility
to intensify, with additional to meet individual client needs.
funeral directors opening By unbundling our prices and
at varying price points, services to provide our clients
alongside an increase with greater flexibility to
in the popularity of create the right funeral, we
direct cremations. will be able to provide greater
consistency and competitiveness
on price, while reflecting Dignity's
premium service levels.
A significant online presence
and visibility leverages our
scale and addresses the needs
of increasingly digitally focused
clients. Through the Dignity
and Simplicity names, we are
leveraging scale advantages
in the digital age. We will
continue to promote the Group's
commitment to high standards
of care, quality of service
delivery and competitive entry
prices. 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 market leading
pre-need product, the marketing
of which will benefit from the
current and future significant
investment in marketing and
enhanced digital presence.
--------------------------------------------- -------------
Regulation of pre-arranged Any changes would apply to the Increased
funeral plans industry as a whole and not
FCA Regulation may result just the Group. Regulation could
in changes to processes, materially change the business
systems, pricing, funding, model and would likely increase
capital requirements costs.
and terms and conditions We are engaging with the FCA
of plans. through the consultations process
to highlight the potential unintended
Regulation could affect consequences of the proposed
the Group's opportunity ban on commissions. We have
to sell pre-arranged diversified distribution through
funeral plans in the Partner and Direct channels,
future or could result as well as a strong market presence
in the Trading Group in the Whole of Life Funeral
not being able to draw Benefit market. If this change
down the current level is enacted it will effect the
of marketing allowances. whole industry, whilst we will
experience a material drop in
One immediate risk highlighted volumes, Dignity will be in
by the consultation paper a strong market position as
is the proposed removal a vertically integrated provider
of commissions from the to grow alternative channels
Industry, this would that remain open post FCA regulation.
have a significant impact Regulation of the pre-need industry
on our ability to distribute by the FCA is now confirmed
through Affinity Partners. for Summer 2022. We believe
that regulation is necessary
and welcome its planned introduction.
--------------------------------------------- -------------
Regulation of the funeral The Group already operates at Decreased
industry a high standard, compared to
Regulation could result the majority of our competitors,
in increased compliance using facilities appropriate
costs for the industry for the dignified care of the
as a whole or other unforeseen deceased.
consequences including
capping of funeral and
cremation prices.
--------------------------------------------- -------------
Operational risk management (continued)
Risk description and Mitigating activities and commentary Change
impact
Changes in the funding There is considerable regulation No change
of the pre-arranged funeral around insurance companies which
plan business is designed, amongst other things,
In the current regulatory to ensure that the insurance
environment, the Group companies meet their obligations.
has given commitments The Trusts hold assets with
to pre-arranged funeral the objective of achieving returns
plan members to provide slightly in excess of inflation.
certain funeral services Volatility has continued to
in the future. be seen in global markets since
Funding for these plans the year end. After a reduction
is reliant on either in market values in the first
insurance companies paying quarter, the actuarial valuation
the amounts owed or the in September 2020 showed both
pre-arranged funeral the NFT and Age UK trusts as
plan Trusts having sufficient showing a surplus.
assets. Changes in the Trust investment
If this is not the case strategy have been agreed and
then the Group may receive are in the process of being
a lower amount per funeral. implemented.
---------------------------------------------- -------------
Direct cremations The Group has addressed this No change
Growth in the direct with Simplicity Cremations which
cremation market could offers low-cost direct cremations
reduce average revenue without any initial funeral
in the funeral business service that are both respectful
and adversely affect and dignified. They are an affordable
the volume mix and average alternative to a full funeral
revenue in the crematoria or for those who wish to have
business. a simple cremation. The Group
also now offers a Simplicity
pre-arranged funeral plan option.
Simplicity Cremations is being
promoted via a strong online
presence together with TV advertising.
Other media advertising is also
planned.
---------------------------------------------- -------------
Cyber risk The Group has, in recent years, Increased
Our business is at risk invested signi cantly in this
of financial loss, disruption area with the objective of both
or damage to the reputation upgrading all aspects of our
of an organisation resulting systems and our internal resources
from the failure of its and also using external consultants
information technology to perform regular external
systems. This could materialise and internal penetration tests,
in a variety of ways using the results to drive a
including deliberate continuous improvement programme.
and unauthorised breaches The chance of an organisation
of security to gain access falling victim to a cyber-attack
to information systems. is growing. Threats are more
pervasive and sophisticated
than ever.
However, in addition 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.
---------------------------------------------- -------------
COVID-19 response related In addition to our business No change
risks continuity and pandemic planning,
COVID-19 has created the risk is mitigated by illness
new risks relating to tracking, the use of agency
our ability to deliver staff and staff redeployment.
our services in the context The Group has issued Operational
of restrictions imposed Guidance and a PPE policy, secured
by the pandemic and was an increased supply of PPE and
added to the risk register emphasised HM Government policy
as part of the 2020 Interim such as social distancing.
Report. We have modelled forward- looking
The potential risks of scenarios considering volumes,
COVID-19 to the Group changes to service and revenue
are assessed regularly and Government intervention.
in light of guidance We have contingency plans and
and commentary from HM an escalating route for operations
Government. Primary risks and central offices to redeploy
include: resources from other teams and
(i) a lack of availability locations.
of staff in operations We have established central
due to illness, self-isolation planning of capacity, put new
or Government policy capacity in place, leveraged
including Test and Trace Local Resilience Forums and
which may result in a super-mortuary facilities.
material number of colleagues In addition, the Group recognises
needing to self-isolate the toll that the pandemic has
at the same time impairing taken on colleagues. Issues
our ability to provide include mental health, isolation
services; and matters arising from working
(ii) the need to keep from home. The Group provides
staff safe in the COVID-19 the Employee Assistance Programme
crisis; to all staff which provides
(iii) a loss of profit access to anonymous, independent
due to the cost of our counselling services and advice
response plans, or HM to help manage any personal
Government intervention wellbeing concerns and provide
causes profit or cash additional emotional, physical,
concerns; and and financial support.
(iv) mortuary capacity We are also investing in the
and/or supply of consumables training and accreditation of
is exhausted. a number of colleagues in Mental
Health first aid.
If continuing long-term,
COVID-19 and related
social distancing measures
may result in lower revenues.
---------------------------------------------- -------------
Financial risk management
Risk description and Mitigating activities and commentary Change
impact
Financial Covenant under The nature of the Group's debt Increased
the Secured Notes means that the denominator is
The Group's Secured Notes now fixed unless further Secured
requires EBITDA to total Notes are issued in the future.
debt service to be above This means that the covenant
1.5 times. If this financial headroom will change proportionately
covenant (which is applicable with changes in EBITDA generated
to the securitised subgroup by the securitised subgroup.
of Dignity) is not achieved, Current trading continues to
then this may lead to support the Group's financial
an Event of Default under obligations, however lower reported
the terms of the Secured profitability increases the
Notes, which could result risk of breaching covenants.
in the Security Trustee
taking control of the To act as a mitigation against
Securitisation Group this risk, in 2020 the Group
on behalf of the Secured completed an internal restructure
Note holders. of its trading assets which
In addition, the Group increases covenant headroom.
is required to achieve
a more stringent ratio
of 1.85 times for the
same test in order to
be permitted to transfer
excess cash from the
Securitisation Group
to Dignity plc.
-------------------------------------------- -------------
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 Mitigating activities and commentary Change
impact
COVID-19 response related The Group has business continuity New
risks and pandemic plans that are
COVID-19 has resulted invoked and reviewed as necessary.
in a risk relating both In addition, and to manage staff
to our ability to deliver absences, we have used a national
our services due to restrictions provider of temporary resource.
imposed and the health
and safety implications
for our colleagues.
------------------------------------------- -------------
Regulation of pre-arranged This emerging risk is mitigated New
funeral plans by the high standards of selling
The FCA published its and administration of pre-arranged
consultation paper - funeral plans operated by the
Funeral Plans: Proposed Group , we have been preparing
approach to regulation for regulation for the last
on 2 March 2021. The 12 months.
market will be required Dignity as a vertically integrated
to adhere to the final provider will still be in a
post consultation regulations strong market position with
with effect from July continuing distribution through
2022 . our funeral locations and the
direct to consumer marketing
model in existence today.
However, if the current proposed
ban on commissions were to be
enacted, it would have a material
effect on volumes for the market
and Dignity.
Changes imposed by the FCA will
apply to the industry as a whole.
------------------------------------------- -------------
Cyber risk We continue our investment in New
Our business like all fit for purpose security controls,
others is at risk of processes, and technology to
financial loss, disruption allow us to maintain pace with
or damage to the reputation the current threat landscape
of an organisation resulting whilst proactively monitoring
from the failure of its for breaches and improving internal
information technology understanding and communication
systems. This could materialise of initial risks, mitigations
in a variety of ways and residual risks.
including deliberate
and unauthorised breaches
of security to gain access
to information systems.
The chance of an organisation
falling victim to a cyber-attack
is growing. Threats are
more pervasive and sophisticated
than ever.
------------------------------------------- -------------
18 Pre-arranged funeral plans
(a) Commitments
The Trading Group has sold pre-arranged funeral plans to clients
in the past, giving commitments to these clients to perform their
funeral. All monies from the sale of these funeral plans are paid
into and controlled by a number of trusts. These include the Trusts
consolidated within the Group's financial statements in addition to
a number of other trusts (the 'Small Trusts'). The Small Trusts are
not consolidated in the Group's results as the Group does not
control these trusts.
The Group is obligated to perform these funerals in exchange for
the assets of the respective trusts, whatever they may be. It is
the view of the Directors that none of the commitments given to
these clients are onerous to the Group. However ultimately, the
Group is obligated to perform these funerals in exchange for the
assets of the respective trusts, whatever they may be.
The Small Trusts had approximately GBP16.9 million (2019:
GBP17.5 million) of net assets as at the balance sheet date.
Only the Trusts consolidated within the Group's financial
statements receive funds relating to the sale of new plans.
(b) Actuarial valuation
The Trustees of the Trusts are required to have the Trusts'
liabilities actuarially valued once a year. This actuarial
valuation is of liabilities of the Trusts to secure funerals
through Dignity and other third party funeral directors and does
not, in respect of those funerals delivered by the Group represent
the cost of delivery of the funeral. Assets of the Trusts include
instalment amounts due in the future from clients, as these amounts
are payable on death and are therefore relevant to the actuarial
valuation. However, this means that assets detailed in the
actuarial valuations will not agree on a particular day to the
assets recognised in the Group's consolidated balance sheet because
the Group does not include future receivable amounts in the
consolidated balance sheet.
The Trustees have advised that the latest actuarial valuations
of the Trusts were performed as at 25 September 2020 (2019: 27
September) using assumptions determined by the Trustees. Actuarial
l iabilities in respect of the Trusts have increased to GBP995
million as at 25 September 2020 (2019: GBP987 million). The
corresponding market value of the assets of the Trusts was GBP999
million (2019: GBP1,004 million) as at the same date. Consequently
the actuarial valuations recorded a total surplus of GBP4 million
at 25 September 2020 (2019: surplus of GBP17 million). The Group
considers these to be prudent assumptions.
Active members and assets per plan
25 December 27 December
2020 2019
Number Number
Supported by:
The Trusts 319,000 311,000
The Small Trusts 46,000 48,000
Insurance Plans 193,000 164,000
558,000 523,000
The Trusts have approximately GBP3,400 (2019: GBP3,300) per
active plan. On average the Trading Group received approximately
GBP3,000 (2019: GBP2,900) in the period for the performance of each
funeral (including amounts to
cover disbursements such as crematoria fees, ministers' fees and doctors' fees).
Insurance Plans are those plans for which the Group is the named
beneficiary on life assurance products sold by third party
insurance companies.
(c) Transactions with the Group
During the period, the Group entered into transactions with the
Small Trusts. Amounts may only be paid out of the Trusts in
accordance with the relevant Trust Deeds. Transactions (which were
recognised as revenue in the funeral division) amounted to GBP0.9
million (2019: GBP1.1 million) in the period and principally
comprised receipts from the Small Trusts in respect of funerals
provided. No amounts were due to the Group on either balance sheet
date.
19 Adoption of IFRS 16 - Right-of-use assets and lease liabilities
Background
The Group has adopted the requirements of IFRS 16, Leases, for
the first time within this Preliminary Announcement. The adoption
of the standard has had a material impact on the Group's primary
financial statements, including impacts on operating profit, profit
before tax, total assets and total liabilities.
IFRS 16 is applicable for accounting periods beginning on or
after 1 January 2019. Due to the fact that the Group's 2019
reporting period began on 29 December 2018 the Group has adopted
IFRS 16 retrospectively for its 2020 reporting period beginning on
28 December 2019. Comparatives for the 2019 reporting period have
not been restated as permitted under the specific transition
provisions in the standard. The reclassifications and the
adjustments arising from the new leasing rules have therefore be
recognised in the opening balance sheet on 28 December 2019.
Approximately 50 per cent of the Group's properties are on lease
terms that were previously accounted for as an operating lease
under the principles of IAS 17, Leases. The minimum undiscounted
lease commitment on these leases as disclosed in the 2019 Annual
Report was approximately GBP228 million at the end of 2019.
On adoption of IFRS 16, the Group has recognised lease
liabilities in relation to leases which had previously been
classified as 'operating leases'. These liabilities are measured at
the present value of the remaining lease payments, discounted using
the Trading Group's incremental borrowing rate ('IBR') as at 28
December 2019 for a borrowing of similar duration. The weighted
average lessee's IBR applied to the lease liabilities on 28
December 2019 was 4.9 per cent, with a minimum rate of 3.6 per cent
and a maximum rate of 6.8 per cent.
The IBRs have been determined as follows:
a) We have derived rates based on corporate bond yields to
maturity reflecting the Group's indicative credit rating. In order
to assess the Group's IBRs we considered yield curves at 28
December 2019 for similarly rated listed corporate bonds for
durations aligned with the adjusted unexpired lease durations at 28
December 2019.
b) An asset/lease specific adjustment is then applied, if
needed, to reflect the nature of the lease collateral. Such an
adjustment has not been required on transition and we have
performed a high level cross check against other indicators of
lease pricing to confirm this. Given the specialised nature of
Group's properties there are no direct property market benchmarks
and therefore we have looked at retail, industrial and long income
sub-sectors to obtain indicative references points.
On adoption of IFRS 16, the Group has recognised a right-of-use
asset representing its right to use the underlying leased asset and
a corresponding lease liability for future lease payables for each
operating lease in which the Group is a lessee on its consolidated
balance sheet.
Right-of-use assets are measured at an amount equal to the lease
liability, adjusted by the amount of any prepaid or accrued lease
payments relating to that lease recognised in the balance sheet as
at 28 December 2019. Furthermore, assets relating to finance leases
held on the balance sheet at 27 December 2019 have been transferred
into the right-of-use asset.
The right-of-use asset has been depreciated on a straight-line
basis over the life of the lease. Interest has been recognised on
the lease liability, resulting in a higher interest expense in the
earlier years of the lease term. The total expense recognised in
the consolidated income statement over the life of the lease will
be unaffected by the new standard, however, IFRS 16 will result in
the timing of lease expense recognition being accelerated for
leases which would be currently accounted for as operating
leases.
The lease term comprises the non-cancellable lease term, in
addition to optional periods when the Group is reasonably certain
to exercise an option to extend or not to terminate a lease.
Transition
In order to establish the impact on the Group's opening
consolidated balance sheet for the period ending 25 December 2020,
the lease portfolio at transition date has been used, which has
resulted in the recognition of right-of-use assets of GBP101.7
million, with corresponding lease liabilities of GBP93.6
million.
For the period ending 25 December 2020, operating profit
increased by GBP4.6 million and profit before tax decreased by
GBP0.1 million as the pre-IFRS 16 rental charge was replaced by
depreciation, interest charge and a release of accruals and
prepayments. The Group's 2020 current tax charge is unaffected.
Furthermore, there will be no impact on profit before tax or the
Group's current tax charge (assuming consistent rates of tax) over
the life of the lease portfolio.
At 25 December 2020 the Group held a right-of-use asset of
GBP95.2 million and a corresponding lease liability of GBP88.5
million. Furthermore, operating costs of GBP12.1 million were
replaced by a depreciation charge of GBP9.2 million, a release of
accruals and prepayments of GBP1.7 million and a finance cost of
GBP4.7 million.
There will be no impact on the way the Group runs its business,
and on a cash basis the Group will pay out less cash due to the
reduction in corporation tax. The presentation of the cash flow
statement will also change as operating cashflows will include
adjustments for depreciation and finance costs, tax paid will
decrease/increase (no impact over the life of the lease portfolio)
and principal and interest costs will be included under financing
activities.
Due to the modified retrospective transition method being
applied there has been no deferred tax implications on transition
as the right-of-use asset equals the lease liability being
recognised, with the exception of a GBP0.9 million difference
relating to prepaid and accrued lease payments and GBP7.2 million
representing amounts paid to acquire the long leasehold interest in
land at certain of the Group's properties. In addition, GBP0.8
million has been credited to equity on transition, which represents
rent reviews not contractually concluded as at 28 December 2019.
This GBP0.8 million credit to reserves is a restatement from the
balances reported in the 2020 Interim Report following a more
detailed review of the contractual rent reviews.
Transition roll
Below is a reconciliation from previously disclosed operating
lease commitments to lease liability on transition:
GBPm
Operating lease commitments disclosed
as at 27 December 2019 227.9
Less: non-IFRS 16 leases and practical
expedients (69.2)
IFRS 16 qualifying leases - undiscounted 158.7
Group's weighted average incremental borrowing
rate at the date of application (1) 4.9%
Lease liabilities recognised as at
27 December 2019 92.9
Add: finance leases already held under
IAS 17 0.6
Add: onerous leases held as provisions 0.1
Lease liability recognised as at 28
December 2019 93.6
Of which:
Current lease liability 5.9
Non-current lease liability 87.7
(1) This weighted average rate is based on various lease terms
ranging from 1 - 999 years.
The change in accounting policy affected the following items in
the balance sheet on 28 December 2019 :
27 Dec Impact 28 Dec
2019 of 2019
GBPm IFRS GBPm
16
GBPm
Property, plant and equipment (finance
leases previously held under IAS 17) 0.5 (0.5) -
Prepayments (previously held in financial
and other assets) (1) 7.2 (7.2) -
Right-of-use of assets - 101.7 101.7
Total non-current assets 7.7 94.0 101.7
Current lease liability - 5.9 5.9
Non-current lease liability 0.6 87.1 87.7
Total lease liability 0.6 93.0 93.6
(1) Prepayments represent amounts paid to acquire the long
leasehold interest in land at certain of the Group's properties.
These were not included within the right-of-use asset transition
balance as reported in the 2020 Interim Report. They have now been
included as, on further review, this is considered necessary to
comply with IFRS 16.
Practical expedients applied
In applying IFRS 16 for the first time, the Group has applied
the following practical expedients permitted by the standard:
-- applying a single discount rate to a portfolio of leases with
reasonably similar characteristics;
-- accounting for operating leases with a remaining lease term
of less than 12 months from the date of initial application;
and
-- using hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
In addition, the Group has applied the low-value asset exemption
on transition for existing lease contracts previously classified as
operating leases for which the underlying asset rental is below
GBP1,000 per annum.
The above exemptions in relation to lease terms less than 12
months and low-value assets will also be applied on an ongoing
basis.
The Group has also elected not to reassess whether a contract
is, or contains a lease at the date of initial application.
Instead, for contracts entered into before the transition date the
Group relied on its assessment made applying IAS 17 and
Interpretation 4 Determining whether an Arrangement contains a
Lease.
20 Post balance sheet events
Regulation and the funeral plan market
HM Treasury had previously announced that prepaid funeral plans
would be subject to regulation by the Financial Conduct Authority
('FCA'). On 2 March 2021, the FCA published their consultation
paper with their proposed approach to regulation.
If the FCA rules are enacted in the way they are currently
drafted they will have a profound impact on both the wider industry
and Dignity. We welcome the opportunity to work closely with the
FCA over the coming months to ensure the rules provide the much
needed consumer protection, but also supporting the FCA in their
understanding of the potential unintended consequences on the
industry as a result of the current drafting.
Tax rate change
In the budget on 3 March 2021 by HM Government, legislation to
increase the main rate of corporation tax from 19 per cent to 25
per cent from 1 April 2023 was announced. This will be reflected in
the Group's financial results once substantively enacted.
Requisition notice
On 11 March 2021, Dignity plc received a requisition notice
pursuant to section 303(1) of the Companies Act 2006 requiring that
the Board convenes a general meeting of shareholders for the
purposes of considering and, if thought fit, approving resolutions
to remove the existing Executive Chairman, Clive Whiley as a
Director and appoint Gary Channon as an Executive Director. The
Requisition Notice was delivered by Phoenix UK Fund Limited, the
Company's largest shareholder.
The Phoenix UK Fund is managed by Phoenix Asset Management
Partners and Mr Channon is the founder and chief investment officer
of Phoenix Asset Management Partners.
Non-GAAP measures
(a) Alternative performance measures
The Board believes that whilst statutory reporting measures
provide financial performance of the Group under GAAP, alternative
performance measures are necessary to enable users of the financial
statements to fully understand the trading performance and
financial position of the business.
The alternative performance measures provided are aligned with
those used in the day-to-day management of the business 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, the changes which relate to the
application of IFRS 15 and adoption of IFRS 16. In addition, the
deferred tax rate change in 2020 arising on the deferred tax
balances on consolidating the Trusts and application of IFRS 15
have also been included. All of the above are considered to mask
the underlying trading performance of the Group, as well as
non-underlying items comprising certain non-recurring and
non-trading transactions.
IFRS 16 has been included within the alternative performance
measures for 2020 only. This is due to the modified retrospective
adoption of the standard, meaning the 2019 comparatives have not
been restated and therefore are not comparable.
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 adoption of IFRS 16 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);
-- Transformation Plan costs (see below);
-- Directors severance pay;
-- operating and competition review costs;
-- trade name 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.
Transformation Plan costs
Cost incurred in relation to the Group's now abrogated
Transformation Plan has resulted in significant, directly
attributable non-recurring costs and these amounts are excluded
from the Group's underlying profit measures and treated as a
non-underlying item.
These costs include, but are not limited to:
-- external advisers' fees;
-- directly attributable internal costs, including staff costs
wholly related to the Transformation (such as the Transformation
Director and project management office);
-- costs relating to any property openings, closures or relocations;
-- rebranding costs;
-- speculative marketing costs; and
-- redundancy costs.
Funeral services Crematoria Pre-arranged funeral Central overheads Group
plans
52 week period ended 25 GBPm GBPm GBPm GBPm GBPm
December 2020
Non-trading
Amortisation of
acquisition related
intangibles 4.1 0.4 0.1 - 4.6
External transaction
costs in respect of
completed and aborted
transactions 0.2 - - 0.6 0.8
Profit on sale of fixed
assets - (0.2) - - (0.2)
Non-recurring
Transformation Plan costs - - - 4.7 4.7
Directors severance pay - - - 1.6 1.6
Operating and competition
review costs - - - 2.9 2.9
Trade name impairment 15.3 - - - 15.3
Goodwill impairment 28.7 - - - 28.7
48.3 0.2 0.1 9.8 58.4
Taxation (6.1)
Taxation - rate change 3.6
55.9
52 week period ended 27
December 2019
Non-trading
Amortisation of
acquisition related
intangibles 4.2 0.5 0.1 - 4.8
External transaction
costs in respect of
completed and aborted
transactions - 0.7 0.1 0.1 0.9
Profit on sale of fixed
assets (1.0) - - - (1.0)
Non-recurring
Transformation Plan costs - - - 12.1 12.1
Operating and competition
review costs - - - 3.5 3.5
Trade name impairment 6.8 - - - 6.8
10.0 1.2 0.2 15.7 27.1
Group's share of loss of
associated undertakings 0.6
Impairment of investments
in associated
undertakings 5.4
Taxation (4.9)
28.2
(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 recent accounting standards, IFRS 15, Revenue from
Contracts with Customers and IFRS 16, Leases. 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 no longer recognised.
-- 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.
-- Rentals payable under operating leases now capitalised under
IFRS 16 are recognised in operating costs, replacing the
right-of-use asset depreciation charge on the IFRS 16 right-of-use
asset. The finance cost associated with the same lease arrangements
is removed from finance costs.
-- 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 changes in the rate of deferred tax associated with the
items noted above are removed. In addition, the consolidation of
the Trusts has given rise to a significant reduction in the level
of interest on which the Group is able to obtain a corporation tax
deduction. The impact of this is included in arriving at other
adjustments.
Pre-arranged funeral
Funeral services Crematoria plans Central overheads Group
52 week period ended GBPm GBP m GBPm GBPm GBPm
25 December 2020
Revenue
Trust consolidation:
Release of deferred
revenue on death or
cancellation 122.2 - - - 122.2
Removal of payments
received from the
Trusts on death (59.8) - - - (59.8)
Payments on
cancellation (8.8) - - - (8.8)
Derecognise pre-need
segment income - - (28.8) - (28.8)
IFRS 15:
Recognition of
disbursement element
of pre-need plans 18.6 - - - 18.6
Revenue - Total
other
adjustments 72.2 - (28.8) - 43.4
Cost of sales
IFRS 15:
Amounts paid on
subcontracted
funerals (8.8) - - - (8.8)
Recognition of
disbursement element
of pre-need plans (18.6) - - - (18.6)
Administrative
expenses
Trust consolidation:
Recognition of Trust
costs (6.9) - - - (6.9)
Transfer of pre-need
costs into funeral
segment (28.9) - 28.9 - -
IFRS 15:
Net release of
deferred costs in
respect of
commissions 4.9 - - - 4.9
IFRS 16:
Elimination of
operating lease
rentals 9.2 2.6 - 0.3 12.1
Elimination of
operating lease
prepayments and
accruals 0.4 1.2 - 0.1 1.7
Deprecation of
right-of-use asset (7.7) (1.2) - (0.3) (9.2)
Operating profit -
Total other
adjustments 15.8 2.6 0.1 0.1 18.6
Finance income/(costs)
Trust consolidation:
Deferred revenue
significant
financing (53.1)
Remeasurement of financial assets held by the Trusts and related income 47.3
IFRS 16:
Recognition of finance costs (4.7)
Finance costs - Total other adjustments (10.5)
Taxation:
Trust consolidation:
Taxation impact on above adjustments (0.5)
Corporate interest restriction disallowance (4.3)
Deferred tax rate change 6.8
IFRS 15:
Taxation impact on above adjustments (0.9)
Deferred tax rate change (2.1)
IFRS 16:
Taxation impact on above adjustments -
Taxation - Total other adjustments (1.0)
Profit after taxation - Total other adjustments 7.1
Funeral services Pre-arranged funeral plans Group
52 week period ended 27 December 2019 GBPm GBPm GBPm
Revenue
Trust consolidation:
Release of deferred revenue on death or
cancellation 96.8 - 96.8
Removal of payments received from the Trusts on
death (49.4) - (49.4)
Payments on cancellation (4.5) - (4.5)
Derecognise pre-need segment income - (21.2) (21.2)
IFRS 15:
Recognition of disbursement element of pre-need
plans 15.9 - 15.9
Revenue - Total other adjustments 58.8 (21.2) 37.6
Cost of sales
IFRS 15:
Amounts paid on subcontracted funerals (9.0) - (9.0)
Recognition of disbursement element of pre-need
plans (15.9) - (15.9)
Administrative expenses
Trust consolidation:
Recognition of Trust costs (6.6) - (6.6)
Transfer of pre-need costs into funeral segment (21.4) 21.4 -
IFRS 15:
Net release of deferred costs in respect of
commissions 2.5 - 2.5
Operating profit - Total other adjustments 8.4 0.2 8.6
Finance income/(costs)
Trust consolidation:
Deferred revenue significant financing (54.1)
Remeasurement of financial assets held by the Trusts and related income 85.0
Finance income - Total other adjustments 30.9
Taxation:
Trust consolidation:
Taxation impact on above adjustments (6.3)
Corporate interest restriction disallowance - prior year adjustment (4.3)
IFRS 15:
Taxation impact on above adjustments (0.4)
Taxation - Total other adjustments (11.0)
Profit after taxation - Total other adjustments 28.5
(d) Non-underlying cash flow items
25 December 27 December
2020 2019
GBPm GBPm
Cash flows from operating activities 62.7 64.6
Cash flows of other adjustments 16.3 (7.6)
Cash flows from operating activities - Trading Group 79.0 57.0
Other adjustments - IFRS 16 (12.5) -
External transaction costs 0.8 0.8
Directors severance pay 0.7 -
Transformation Plan costs 5.4 11.2
Operating and competition review costs 3.0 2.8
Underlying cash generated from operations 76.4 71.8
(e) Funeral market share
Comparable funeral market share excludes any volumes from
locations not contributing for the whole of 2019 and 2020 to date
and therefore excludes 12 locations closed and one location opened
in 2019 and a further 26 locations closed and one location opened
in 2020.
(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.
Forward-looking statements
This Preliminary Announcement and the Dignity plc investor
website may contain certain 'forward-looking statements' with
respect to Dignity plc (the "Company") and the Group's financial
condition, results of its operations and business, and certain
plans, strategy, objectives, goals and expectations with respect to
these items and the economies and markets in which the Group
operates.
Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
'anticipates', 'aims', 'due', 'could', 'may', 'should', 'will',
'would', 'expects', 'believes', 'intends', 'plans', 'targets',
'goal' or 'estimates' or, in each case, their negative or other
variations or comparable terminology. Forward-looking statements
are not guarantees of future performance. By their very nature
forward-looking statements are inherently unpredictable,
speculative and involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future.
Many of these assumptions, risks and uncertainties relate to
factors that are beyond the Group's ability to control or estimate
precisely. There are a number of such factors that could cause
actual results and developments to differ materially from those
expressed or implied by these forward-looking statements. These
factors include, but are not limited to, changes in the economies
and markets in which the Group operates; changes in the legal,
regulatory and competition frameworks in which the Group operates;
changes in the markets from which the Group raises finance; the
impact of legal or other proceedings against or which affect the
Group; changes in accounting practices and interpretation of
accounting standards under IFRS, and changes in interest and
exchange rates.
Any forward-looking statements made in this Preliminary
Announcement or the Dignity plc investor website, or made
subsequently, which are attributable to the Company or any other
member of the Group, or persons acting on their behalf, are
expressly qualified in their entirety by the factors referred to in
this statement. Each forward-looking statement speaks only as of
the date it is made. Except as required by its legal or statutory
obligations, the Company does not intend to update any
forward-looking statements.
Nothing in this Preliminary Announcement or on the Dignity plc
investor website should be construed as a profit forecast or an
invitation to deal in the securities of the Company.
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END
FR JFMRTMTTBBAB
(END) Dow Jones Newswires
March 17, 2021 03:00 ET (07:00 GMT)
Dignity (LSE:DTY)
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