TIDMDTY
RNS Number : 9144U
Dignity PLC
31 March 2023
For immediate release 31 March 2023
Dignity plc
Preliminary results for the 52-week period ended 30 December
2022
Good operational progress in a changing market
Dignity plc ('Dignity' or 'the Group'), one of the UK's largest
national providers of funeral plans and end-of-life services,
announces its preliminary results for the 52-week period ended 30
December 2022.
Financial highlights
53 week period ended 31
52 week period ended 30 December 2021 Increase/
December 2022 restated (decrease) per cent
------------------------------- ------------------------------ ------------------------------- --------------------
Underlying revenue (GBPmillion) 270.5 312.0 (13)
Underlying operating profit
(GBPmillion) 17.9 55.8 (68)
Underlying (loss)/profit before
tax (GBPmillion) (10.1) 26.8
Underlying (loss)/earnings per
share (pence) (18.6) 42.8
Underlying cash generated from
operations (GBPmillion) 44.1 88.3 (50)
Revenue (GBPmillion) 323.1 353.7 (9)
Operating (loss)/profit
(GBPmillion) (1) (201.1) 19.5
(Loss)/profit before tax
(GBPmillion) (328.6) 32.0
Basic (loss)/earnings per share
(pence) (550.4) 24.2
Cash (used in)/generated from
operations (GBPmillion) (17.7) 68.3
Trading Group Cash (GBPmillion) 7.7 55.9 (86)
Net Debt (excluding impact of
IFRS16) (GBPmillion) 508.8 471.2 8
Number of deaths 639,000 664,000 (4)
------------------------------- ------------------------------ ------------------------------- --------------------
(1) Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a reclassification of foreign
exchange movements. See note 1 for further details.
Alternative performance measures ('APMs')
The Board believes that whilst statutory reporting measures
provide financial performance of the Group under IFRS, APMs are
necessary to enable users of the financial statements to fully
understand the trading performance and financial position of the
Group. The APMs provided are aligned with those used in the
day-to-day management of the Group and allow for greater
comparability across periods. For this reason, the APMs provided
exclude the impact of consolidating the Trusts and the changes
which relate to the application of IFRS 15, as well as
non-underlying items comprising certain non-recurring and
non-trading transactions. Further detail may be found on pages 51
to 57.
Key points
-- The Group continues to make progress in the implementation of
its new strategy. In 2022, market share increased by 0.1 per cent
from 11.8 per cent to 11.9 per cent in funeral services while
cremation market share grew 0.5 per cent from 11.3 per cent to 11.8
per cent. Various factors have resulted in slower market share
growth than originally anticipated such as recruitment challenges
(prior to completing a benchmarking process) and new competition,
though we remain focused on continuing to address these challenges
as we move forward
-- Dignity Funerals Limited gained FCA authorisation, a
programme demanding a review of our computer systems, extensive
colleague re-training and a review of recruitment processes. As
part of this programme Dignity also launched a new innovative and
market-leading funeral plan in August 2022 for which, we continue
to receive positive feedback from customers. The product is the
first of its kind in the UK enabling customers to tailor their
funeral plan rather than restrict their choices with a limited
range of 'packages'
-- Dignity continues its commitment to reassuring and supporting
approximately 38,000 'stranded' funeral plan customers from other
providers exiting the market following the introduction of the FCA
regulation
-- During the year the Group completed an operational
restructure and effectively inverted its business to benefit more
from its Business Leaders' local knowledge
-- The Group continues to rationalise the local trading names of
Dignity's funeral directors and has made good progress, reducing
the number of brands to retain only the most prominent and
strongest brands. To help support the growth strategy these brands
are being supported by localised marketing and proactive PR in the
pre-need and at-need markets
-- The Group's results continue to be impacted by a number of
factors, including proactive changes in pricing strategy, a trend
towards lower price funerals and a variety of cost pressures, some
of which Dignity is having to absorb directly
-- Underlying operating profit decreased by 68 per cent to
GBP17.9 million (2021: GBP55.8 million). Underlying cash generation
decreased by 50 per cent to GBP44.1 million (2021: GBP88.3
million). The lower profitability has reduced liquidity resulting
in an increase to Net Debt
-- Following a benchmarking process in 2022 it was clear that
employee remuneration in some areas should be increased and during
the year, more than 2,500 people in key operational roles duly
received increases. Since then, the Group has seen improvements in
its recruitment challenge and a material improvement in vacancies
filled
-- As previously noted in the Trading Update dated 23 January
2023, the Group made planned but required investment in its
premises and fleet. Said investments totalled GBP24.0 million
within the financial year. These investments can be seen through
the Group's capital expenditure programme and align with the
Group's vision to drive forward positive change in the sector and
lead the market on quality of service, value for money and
choice
-- The Group continues to have a significant need for capital
expenditure to maintain its existing asset base, as well as to
invest in future growth. Given current cash generation, the Group
is presently unable to fund strategic additional capital
expenditure from operations and is also limited in its ability to
invest in marketing/advertising and promotions in order to
accelerate growth. The Group therefore continues to draw upon
available resources and facilities to invest in the business and
manage liquidity in the short and medium-term. The Group has drawn
GBP15 million of its GBP50.0 million facility with Phoenix UK Fund
Ltd (a related party). The Group expects that GBP45.0 million of
this liquidity facility will be drawn in 2023 to fund ongoing
investment, working capital, and advisory fees
-- A total impairment of GBP196.3 million of the Group's
non-current assets has been included following slower funeral
market share growth combined with more branch direct cremations
rather than full adult funerals being performed than originally
anticipated
-- Operating loss was GBP201.1 million (2021: profit GBP19.5
million) which includes the GBP196.3 million total impairment
-- In relation to Dignity's securitised debt, the Group notes
S&P's ratings downgrade for the Class A and Class B notes on 21
February 2023 (from A- to BBB- and B+ to CCC+ respectively) and
Fitch's ratings downgrade for the Class A and Class B notes on 17
March 2023 (from A- to BBB and BB+ to B respectively - with both on
ratings watch negative)
-- The Group continues to benefit from the bondholder consents
secured in 2022 in the form of the covenant waiver that benefits
the covenant calculations until December 2023 and consent to
deleverage the capital structure to provide additional financial
flexibility. The Group has commenced a process regarding a
potential sale of seven crematoria as agreed with bondholders. This
process is currently proceeding in line with planned timelines but
successful completion, and the timing of any such successful
completion, remains uncertain
-- The recommended offer for Dignity plc at 550 pence per share
by Yellow (SPC) Bidco Limited ('BidCo') also remains ongoing and
remains subject to FCA change of control approval and shareholder
acceptance; BidCo and the Dignity plc Board will provide updates as
required
-- As part of the Group's contingency planning processes to
ensure it has an appropriate capital structure and capital
available to invest in the business going forward, and with
on-going uncertainty regarding successful delivery of actions
agreed as part of the bondholder consent programme, the Group
continues to review all options, including the possible need to
raise equity finance in order to reduce its debt and improve its
capital structure
Kate Davidson MBE, Chief Executive Officer of Dignity plc,
commented:
"Throughout a challenging year we have remained focussed on our
long-term aims and have confidence that our strategy will deliver
sustainable growth and the highest standards of care and service to
our customers.
We have a continuous emphasis on growing our market share across
each of our businesses, and a commitment to ongoing investment in
our people, facilities and infrastructure to unlock Dignity's
long-term success. We will continue to work towards our vision of
being a market leader through our exceptional service, quality and
proposition. We also look forward to meeting the challenges of a
regulated funeral sector, which we have long called for, and just
one example of this is our preparation for the FCA's Consumer Duty,
which puts our customers first by setting out higher standards of
governance and consumer protection.
I would like to thank all our stakeholders; to our customers for
their loyalty, which frequently dates back several generations; to
our own people, whose unique brand of care is so valued by those
customers and makes us the business we are; and to our
shareholders, for their support of our strategy and seeing the
clear potential it offers."
For further information please contact:
Kate Davidson, Chief Executive Officer
Dean Moore, Interim Chief Financial Officer
Dignity plc +44 (0)20 7466 5000
Chris Lane
Hannah Ratcliff
Verity Parker
Buchanan +44 (0)20 7466 5000
www.buchanan.uk.com dignity@buchanan.uk.com
Dignity's preliminary results are available at
https://www.dignityplc.co.uk/investors/ .
Chairman's statement
Giovanni ('John') Castagno, Non-Executive Chairman
Post lockdown, we returned to a more regular working pattern -
but also in the knowledge that we needed to address major tasks on
multiple fronts.
Regulation, modernisation, internal re-organisation and new
financial structures were all pressing imperatives, and we continue
to rise to these challenges with energy and purpose. We also
continued to implement our new strategy and saw early signs of
growth in market share.
These accomplishments will lay the foundations for future
growth, but our market is subject to structural change which has
impacted our financial performance.
Overview of 2022
Despite the higher-than-average need for our services persisting
following the COVID-19 pandemic, the Group's results continue to be
impacted by a number of factors, including proactive changes in
pricing strategy, a trend towards lower-priced funerals and a
variety of cost pressures, some of which Dignity is having to
absorb directly.
We continue to make progress in the implementation the new
strategy, but various factors have resulted in slower market share
growth than originally anticipated.
Furthermore, excluding the impact of lower promotional expense,
the cost base of the Group increased due to planned investments
across the estate and in facilities, as well as ongoing increases
in regulatory and operational costs which were partly driven by
macroeconomic factors.
As a result, key financial metrics saw a decline as follows:
-- Underlying revenue GBP270.5 million (2021: GBP312.0
million).
-- Revenue GBP323.1 million (2021: GBP353.7 million).
-- Underlying operating profit GBP17.9 million (2021: GBP55.8
million).
-- Operating (loss)/profit GBP(201.1) million (2021 restated:
GBP19.5 million) which includes GBP196.3 million total impairment
(2021: GBP39.2 million) and GBP6.4 million trade name write-offs
(2021: GBP2.5 million).
-- Underlying operating profit before depreciation and
amortisation (pre-IFRS 16) GBP34.2 million (2021: GBP72.5
million).
-- At the end of 2022, the Group held GBP7.7 million in Trading
Group cash on the balance sheet (resulting in a net debt position,
excluding the impact of IFRS16, of GBP508.8 million) (2021: GBP55.9
million and GBP471.2 million).
The Group continues to benefit from the previously secured
bondholder consents in the form of the covenant waiver, and consent
to deleverage the capital structure, which remain valid until March
2023 and September 2023 respectively. We can inject cash up to
March 2023 that can be used as equity cure to December 2023.
For further details, please turn to our Financial review.
We gained full FCA authorisation
Perhaps the biggest single piece of work we accomplished during
the year was to prepare for the major reforms being introduced by
the FCA. Effective from July 2022, every company in our sector had
to be FCA authorised to market funeral plans.
To gain this full authorisation was a huge project, demanding
different behaviours, new systems and documentation, a new pre-need
proposition, fresh recruitment processes and extensive
re-training.
FCA authorisation was a task that placed demands right across
the Group, in addition to the absolute priority of caring for our
customers, but I'm proud of how everyone approached it positively
and viewed it as an opportunity to raise our standards even
further. After major programmes of introducing new processes,
including those for identifying customer vulnerabilities, we duly
gained the required compliance for pre-arranged funeral plans.
These new processes are now bedded in our culture and working
practices.
It is fair to say the new regulatory regime had a significant
effect on funeral planning and has resulted in certain leading
providers choosing to withdraw from this part of the market. This
was the catalyst for a second significant piece of work: in order
to maintain stability and consumer confidence in the sector,
Dignity committed to helping customers of those providers who chose
not to apply or did not meet the standards required by FCA
regulation by offering the option to transfer to a Dignity plan
('Rescue plans'). This process of transitioning these Rescue plans
is still continuing.
I'm proud of how we've responded, and we welcome the outcome: a
market that, like us, puts customers' best interests first.
In 2023 there is more to come but the Group is well set to meet
these challenges. The FCA will require further work on Consumer
Duty, which, from July 2023, sets out higher standards of
governance and customer protection in the form of outcomes-related
measurements. We are also mindful of possible additional
requirements from the Competition and Markets Authority ('CMA') on
clear and transparent pricing.
Environmental, Social and Governance
As a Board we are united in believing that a company that has a
genuine focus on Environmental, Social and Governance ('ESG') will
inherently be a better business.
In addition to being the right path to take, having high ESG
standards earns the approval of customers, and helps to attract new
talent and retain current colleagues. It also satisfies the
increasing scrutiny of investors, financial institutions,
regulators and supply chain partners.
We therefore look hard at, and measure, our own ESG performance
and always seek to improve on it. For example, during the year, we
have drawn up plans to deploy the world's first hybrid crematorium
technology, and to phase in electric hearses to reduce the impact
of the many miles we need to drive. Our coffin manufacturing
business also asks searching questions about the most sustainably
sourced woods and strives to make optimal use of raw materials. We
also recently made capital investment in our manufacturing business
designed to reduce energy and waste.
More widely in the business, our overall gender split is very
close to 50/50, and women hold 41 per cent of our leadership roles.
I'm a passionate believer in diversity in all its forms, whether in
our people's backgrounds, thinking, ethnicity or life
experiences.
Our goal is to create a richer working culture, and to mirror
internally the communities we serve externally.
Restructuring, upgrading, improving
As the operational pressures resulting from the pandemic period
started to ease, we could see the improvements that needed to be
made in our operating model.
We have a considerable estate of 725 funeral branches and 46
crematoria, and it was evident we needed to launch a major
programme of improvement. This was not just a question of remedial
works, but how we can position our business for the future using
the most sustainable technologies, materials and methods
available.
During the year we also revised our regional management
structure to give greater attention to individual areas, and
effectively inverted our business to benefit more from our Business
Leaders' local knowledge.
Culturally, we continued to embed our new Guiding Principles
which set out how we care for our customers, communities, ourselves
and the planet. Financially, we are making progress with our
bondholders to arrive at a solution that will generate capital to
enable us to pay down our debt and invest in delivering our
strategy. We will be announcing more detail during the coming
year.
The Dignity Board
I'm pleased to report that there was continuity and smooth
succession in the Board membership. During 2022 we continued to
benefit from diverse, creative and complementary skills around the
table.
Graham Ferguson and Kartina Tahir Thomson continued as
independent Non-Executive Directors and Chairs of the Audit,
Remuneration and Risk committees.
During the year, Kate Davidson, who joined the Board as Chief
Operating Officer in January 2022, succeeded Gary Channon as CEO in
June 2022. The Board would like to thank Gary for his tremendous
contribution to the business during his time as CEO.
It had been our intention to appoint a new Chief Financial
Officer in the early part of 2023, but in view of a takeover bid
for the business, more of which below, the Board decided it would
be appropriate to put the process on hold.
Dividend policy
It is the Directors' intention to return to paying a dividend
when it is prudent to do so. We retain access to cash resources,
continue to be on track to return to being cash generative and
understand the importance of optimising total shareholder return
whilst maintaining a balance between different stakeholders.
We look forward to restoring the dividend, which was last paid
in June 2019, when the business has returned to a more sustainable
financial footing.
Recommended takeover offer
On 23 January 2023, the Board announced that it had reached
agreement on the terms of a recommended cash offer for the Dignity
business. The offer has been made by Yellow (SPC) Bidco Limited
('BidCo'), a consortium comprising SPWOne V Limited, Castelnau
Group Limited and Phoenix Asset Management Partners Limited. The
document detailing the key terms of the 550 pence per share cash
offer and alternatives was published on 14 February 2023. The Board
was unanimous in recommending the cash offer. At the time of
preparing this report, the offer remains conditional on, among
other things, regulatory approval.
2023
We go into 2023 with confidence that we will continue to deliver
on our strategy, the implementation of which was slower than
anticipated in 2022 owing to the highly challenging macro
environment.
Our financial performance will continue to be affected by a
combination of factors. These include competition (driven by new
entrants and products emerging), changes in pricing strategy
(driven by the influence of the CMA), and the introduction of a
direct cremation service through Dignity's branch network, the
growth of the latter being what we believe to be a structural
change in the sector. We expect that Dignity will continue to face
cost pressures in relation to capital expenditure to maintain its
existing asset base, as well as to invest for growth. Given current
cash generation, Dignity is limited in terms of further capital
expenditure and, as a result, its ability to invest in advertising
and promotions to accelerate growth.
Notwithstanding the above, we continue to have ambitions for
market share growth across our business units; investing in our
infrastructure; reviewing and improving our capital structure;
remaining competitive through our propositions and pricing; and
building on our good relations with our Regulators.
Above all we will build on our commitment to continue to improve
the service we provide to our customers and their families.
I would like to record my thanks to all our colleagues whose
dedication to our customers is recognised and appreciated by
all.
Finally, on behalf of the Board I would like to offer
congratulations to Kate Davidson. As well as being appointed our
new Chief Executive Officer, she became an MBE in the New Year
Honours List for her Services to Bereaved People during COVID-19.
We know how well deserved this recognition is and are proud that
our CEO has been honoured in this way.
GIOVANNI (JOHN) CASTAGNO
NON-EXECUTIVE CHAIRMAN
30 March 2023
Chief Executive Officer's review
Kate Davidson, Chief Executive Officer
Thankfully, 2022 was the first full year of a return to
something approaching normality. With the post-lockdown rules now
eased we could once again focus on what we do best: delivering
funerals meticulously with every care for bereaved families,
helping them to celebrate the life of a loved one in the most
personal of ways.
The year also marked changes on several fronts for Dignity plc:
from the way we structure ourselves and invest in our assets, to
embracing the rigours of full consumer financial regulation.
These factors, and many others, play into delivering our growth
strategy, which we launched in September 2021. In essence, the
strategy focuses on four key areas: creating the best proposition,
perfecting a customer-centric culture; executing an effective
customer acquisition strategy; and leveraging the benefits of our
scale and breadth.
Notwithstanding the above and as our Chairman alludes to in
previous pages, we remain alive to the factors and ongoing
challenges (e.g. competition, proactive changes in pricing
strategy, trend towards lower price funerals and cost pressures
arising from capital expenditure requirements, employee costs and
energy prices etc) which have contributed to a slower
implementation of Dignity's new strategy than originally
anticipated. These have inevitably impacted our financial
performance for 2022, but we remain optimistic that good progress
will continue to be made on the new strategy.
'Handing over the keys'
Perhaps our most significant move during 2022 was the decision
to effectively turn our business upside down.
As a UK-wide network of firms, we have no 'typical' operating
markets. From St Ives or Norwich to Newcastle or Glasgow, the
individual demographics, customs and geographies of each are
unique, as are the people and families we look after. As such, we
decided it was vital that services, pricing and the approach and
character of each business should be locally driven.
Therefore, we began a process of entrusting the more locally
driven decisions to the experts - our local Business Leaders -
empowering them to exercise their initiative and have more control
over how they run their business and serve their communities.
They are supported by a Head of Region, who as part of a new
regional structure will ensure colleagues across our network
receive the right level of resource and support to build their
business successfully.
And then at head office, we see our role as serving the
operational force of the business by setting out the group-wide
strategy and facilitating an environment where knowledge and best
practice can be shared, supporting our colleagues and businesses to
be the best that they can be.
Rationalising our brands
Part of this local focus has been a project to encourage our
regions to reappraise our brands.
Inside the Dignity network there are some of the oldest and most
trusted funeral businesses in the UK, but by 2022 we had amassed an
unwieldy number.
It is also a recipe for some confusion. In a large city, it had
become common for Dignity to offer several different brands within
a radius of a few miles. During the year, our local teams made
plans to reduce the number of trading names which will result in
many local firms being renamed to the most prominent and strongest
brands in their areas.
Dignity sits behind these local assets as a national brand: a
reassuring presence and a byword for trust, experience and
standards.
Culture: the key to customers
This greater sense of local empowerment also feeds into a proud
and caring Company culture.
If a business strategy is the 'what' we are doing, culture is
the 'how' and the 'why'. In our case, that culture starts with an
unwavering focus on our customers. By being empathetic in our
approach and generous with our time to listen and guide, we aim to
become a much-needed friend at a desperately upsetting time.
We combine this with a passion - obsession, even - for
initiative and efficiency, because there are no second chances to
make a funeral perfect. In turn, it is our goal that customers will
encounter the same excellence at every Dignity touchpoint and,
crucially, be moved to recommend us to others.
Internally, our work can bring many pressures, and looking after
each other, as well as our customers, is deep-rooted in our
culture. Every area has trained Mental Health First-Aiders, as well
as the option for specialist and confidential help externally.
Authorisation attained
On the previous pages, our Chairman explains how all firms
offering funeral plans in our sector must now be fully authorised
by the FCA. We were delighted to gain this status in July 2022,
following a company-wide requirement to reconfigure processes and
re-train in many functions. This was a huge task and I thank
everyone who contributed to make it happen.
We therefore needed little encouragement, a matter of days
later, to announce a brand new funeral plan. It is a product of
real creativity and the result of listening closely to our
customers, and does away with old-style funeral 'packages'. Rather,
this exciting product - the first of its kind in the UK - enables
customers to design a deeply personalised funeral down to the very
last detail. We're delighted with the impact our new product is
having, even in the early days.
Environmental, Social and Governance
It was back in 2010 that we started Carbon Disclosure Project
environmental reporting, so the impact of our operations has long
been front of mind.
Indeed, we were the first end-of-life provider to pledge to be
carbon neutral, in our case by 2038. It is a deliberately ambitious
target and calls for measurable actions now. We are therefore
actively assessing how we can address the principal sources of our
emissions - namely, the miles we drive in conducting funerals, and
the energy consumption of our crematoria and funeral branches.
More widely, we create high-quality employment for more than
3,500 people; offer everyone the equal opportunity to be recruited,
promoted and trained; and are active contributors to important
social and charitable causes, and life-enhancing projects.
Only Dignity offers a complete suite of funeral plans, funerals,
cremations, memorials and our own coffin-manufacturing facility, so
we are uniquely placed to take the lead in our sector.
2023: a full agenda
After a period of considerable change in 2022, at both the local
and national level, we embark on the new financial year refocused
and ready to make significant progress which will address or
mitigate some of the factors and challenges referred to
earlier:
-- Our locally empowered Business Leaders will continue to
maximise their local knowledge, supported by our know-how and
economies of scale.
-- We will continue a multi-million-pound investment programme
to upgrade our crematoria facilities and grounds.
-- We will remain focused on our long- term aim to increase
market share.
-- We will assess new energy-efficient technologies and phase in
electric vehicles for our funeral fleet.
-- We will embed our new quality standards.
-- We will support our new and unique funeral plan with a major
above the line marketing campaign.
-- Work is well under way and on target to meet the introduction
of the Consumer Duty by the FCA, which sets higher and clearer
standards of consumer protection.
Meanwhile, I would like to record my thanks to all our
stakeholders. To our customers for their loyalty, which frequently
dates back several generations. To our own people, whose unique
brand of care is so valued by those customers and makes us the
business we are. And finally to our shareholders, for their support
and trust in our new strategy.
KATE DAVIDSON, MBE
CHIEF EXECUTIVE OFFICER
30 March 2023
Financial review
Dean Moore, Interim Chief Financial Officer
Our performance in 2022 reflects the continued implementation of
our strategy, albeit at a slower rate than anticipated. Underlying
operating profit decreased by 68 per cent to GBP17.9 million.
Deaths were 25,000 lower in the period.
Our market share slightly increased in funeral services and
there was a strong market share performance by our crematoria
business.
Underlying cash generation has declined in the year to GBP44.1
million (2021: GBP88.3 million) due to lower average revenues, as a
result of the reduced prices and change in product mix, lower
deaths and an increase in the cost base.
Introduction
These results have been prepared in accordance with UK-adopted
international accounting standards in conformity with the
requirements of the Companies Act 2006.
Statutory operating loss was GBP201.1 million (2021: restated
profit of GBP19.5 million), a decrease of GBP220.6 million. Gross
margin has also declined by 12 per cent from prior year to 39 per
cent. Administrative expenses of GBP324.5 million were GBP168.1
million higher, largely driven by an increased impairment charge of
GBP157.1 million on goodwill, trade names, right-of-use asset and
property, plant and equipment compared with prior year and an
increase in other non-underlying items, primarily in respect of
GBP2.9 million incurred on redundancy costs, GBP2.5 million on
transition costs of moving Rescue plans over to Dignity in the form
of professional fees and third party administration costs, a GBP6.7
million increase in transactions costs due to the fees incurred on
the capital structure transaction and potential takeover and an
increase in trade name write-offs of GBP3.9 million. Furthermore,
an onerous contract provision of GBP10.0 million has been
recognised on the Rescue plans and a further GBP3.6 million
provision relating to previous plan sales. Utility costs have also
increased by GBP1.1 million due to energy prices.
This was partially offset by a reduction in underlying central
overheads of GBP6.8 million primarily relating to digital
expenditure and salary costs. See the table on page 9 for further
details on the impacts to statutory and underlying operating
profit.
A total impairment of GBP196.3 million has been charged in the
period (2021: GBP39.2 million), of which GBP47.5 million (2021:
GBP2.8 million) relates to trade names, GBP112.3 million (2021:
GBP36.4 million) to goodwill, GBP17.4 million to right-of-use asset
(2021: GBPnil) and GBP19.1 million to property, plant and equipment
(2021: GBPnil). The impairment has arisen within the funeral
services division primarily due to the slower funeral market share
growth combined with more direct branch cremations rather than
attended funerals being performed than originally anticipated,
together with an increase in the discount rate from 10.3 per cent
to 12.9 per cent since December 2021. The slower market share
growth is a result of the new strategy taking longer to implement
partly due to staff shortages encountered during 2022. The Group
has filled a high percentage of vacancies over the last few months
and has also increased salaries within operations to become more
competitive in the market, but focus remains on filling the
remaining vacancies.
Whilst the Group expects long-term market share growth from the
new strategy, the accounting standard (IAS 36) for impairment
assessments does not permit the use of longer-term forecasts which
cannot be evidenced. As a result, whilst the Group is focused on
committing to delivering its market share growth ambitions, given
the slower time taken in the implementation of the Group's strategy
and the available evidence to demonstrate this growth as at the
year end when the impairment assessment is made, the full extent of
potential longer-term gains are not reflected in the impairment
modelling. Note 6 provides sensitivity analysis based on the
calculated impairment.
A GBP13.6 million (2021: nil) charge to cost of sales has been
recognised on consolidation relating to pre-need funeral plans.
This includes GBP10.0 million relating to Rescue plans and GBP3.6
million for previous plan sales. This is primarily due to an
onerous contract provision of GBP8.9 million for Rescue plans,
where at an individual contract level some of the plans could be
loss making as Dignity will not have received sufficient cash to
cover the full cost of the funeral. However, the Board expects the
Rescue plans to be profitable on a portfolio basis. Note 1 provides
further information. The Group's net finance costs were GBP127.5
million (2021 restated: net finance income GBP12.5 million), a
GBP140.0 million movement primarily due to the loss on fair value
movements of the financial assets held by the Trusts of GBP57.7
million compared with a gain of GBP85.0 million in 2021.
The above has resulted in loss before tax for the Group of
GBP328.6 million (2021: profit of GBP32.0 million).
Financial highlights
The Group's financial performance is summarised below:
Increase/
(decrease)
52 week period ended 30 Dec 2022 GBPm 53 week period ended 31 Dec 2021 restated(b) GBPm %
-------------------- ------------------------------------- ------------------------------------------------- ------------
Underlying
revenue(a) (GBP
million) 270.5 312.0 (13)
-------------------- ------------------------------------- ------------------------------------------------- ------------
Underlying operating
profit(a) (GBP
million) 17.9 55.8 (68)
Underlying operating
profit before
depreciation and
amortisation (Pre
IFRS 16)(a) (GBP
million) 34.2 72.5 (53)
Underlying
(loss)/profit
before tax(a) (GBP
million) (10.1) 26.8
Underlying
(loss)/earnings per
share(a) (pence) (18.6) 42.8
-------------------- ------------------------------------- ------------------------------------------------- ------------
Underlying cash
generated from
operations(a) (GBP
million) 44.1 88.3 (50)
-------------------- ------------------------------------- ------------------------------------------------- ------------
Revenue (GBP
million) 323.1 353.7 (9)
Operating
(loss)/profit (GBP
million) (201.1) 19.5
(Loss)/profit before
tax (GBP million) (328.6) 32.0
Basic
(loss)/earnings per
share (pence) (550.4) 24.2
Cash (used
in)/generated from
operations (GBP
million) (17.7) 68.3
-------------------- ------------------------------------- ------------------------------------------------- ------------
Dividends paid in
the period:
Final dividend
(pence) - -
-------------------- ------------------------------------- ------------------------------------------------- ------------
(a) Further details of alternative performance measures can be found on pages 51 to 57.
(b) Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a reclassification of foreign
exchange movements.
See note 1 for further details.
Alternative performance measures
The alternative performance measures are stated before
non-underlying items and the effect of consolidation of the Trusts
and applying IFRS 15 as defined on page 51. 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
51 to 57 and a reconciliation of statutory revenue to underlying
revenue is detailed in note 2.
Accordingly, the following information is presented to aid
understanding of the performance of the Group:
53 week period ended 31 Dec 2021
52 week period ended 30 Dec 2022 GBPm restated(a) GBPm
--------------------------------------- ------------------------------------- --------------------------------------
Operating (loss)/profit for the period
as reported (201.1) 19.5
Add the effects of:
Acquisition related amortisation 3.9 4.2
External transaction costs in respect
of completed and aborted and ongoing
transactions 9.1 2.6
Marketing costs in relation to trials - 0.9
(Loss)/profit on sale of fixed assets 0.1 (1.1)
Trade name write-off 6.4 2.5
Trade name impairment 47.5 2.8
Goodwill impairment 112.3 36.4
Right-of-use asset impairment 17.4 -
Property, plant and equipment
impairment 19.1 -
Rescue plan transition costs 2.5 -
Restructuring costs - redundancy 2.9 -
Restructuring costs - onerous provision 0.3 -
Impact of Trust consolidation and IFRS
15 (2.5) (12.0)
--------------------------------------- ------------------------------------- --------------------------------------
Underlying operating profit 17.9 55.8
Underlying net finance costs (28.0) (29.0)
--------------------------------------- ------------------------------------- --------------------------------------
Underlying (loss)/profit before tax (10.1) 26.8
Tax charge/(charge) on underlying
(loss)/profit before tax 0.8 (5.4)
--------------------------------------- ------------------------------------- --------------------------------------
Underlying (loss)/profit after tax (9.3) 21.4
--------------------------------------- ------------------------------------- --------------------------------------
Weighted average number of Ordinary
Shares in issue during the period
(million) 50.0 50.0
Underlying EPS (pence) (18.6) 42.8
Decrease in underlying EPS (per cent) - 8
--------------------------------------- ------------------------------------- --------------------------------------
(a) Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a reclassification of foreign
exchange movements. See note 1 for further details.
Earnings per share
Statutory loss after tax was GBP275.2 million (2021: profit of
GBP12.1 million). Basic loss per share was 550.4 pence per share
(2021 earnings of 24.2 pence per share). Underlying loss after tax
was GBP9.3 million (2021: profit of GBP21.4 million), giving
underlying loss per share of 18.6 pence per share (2021: earnings
of 42.8 pence per share).
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, unsuccessful crematoria planning developments
and capital restructuring project.
(Loss)/profit on sale of fixed assets
Losses or profits 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.
Trade name write-off
During 2022 the Group has made the decision that it will
withdraw 20 (2021: seven) trading names with a value of GBP6.4
million (2021: GBP2.5 million) as part of the Group's strategic
review. As the trading names had specific intangible assets related
to them, they were required to be written off.
Impairment
The Group assessed the carrying value of its goodwill and
non-current assets. In light of the slower market share growth and
the impact on forward looking cash flows, coupled with an increase
in the discount rate from 10.3 per cent to 12.9 per cent, an
impairment of GBP47.5 million of trade names (2021: GBP2.8
million), GBP112.3 million of goodwill (2021: GBP36.4 million),
GBP17.4 million of right-of-use asset (2021: GBPnil) and GBP19.1
million of property, plant and equipment (2021: GBPnil) has been
recognised.
Rescue plan transition costs
In addition to helping Safe Hands customers, the Group has also
committed to helping customers of other funeral plan providers that
chose not to apply or did not meet the standards required by FCA
regulation by offering the option to transfer to a Dignity plan. As
part of this transfer, the Group has incurred additional costs of
GBP2.5 million in the form of professional fees and third party
administration costs. To date no Safe Hands customers have had
plans transferred to a Dignity Trust as the support offered to
these customers has been on delivery of a funeral at the time of
need.
Restructuring costs - Redundancy
As part of the continuing strategic review, in January 2022, the
Group made the decision to make some colleagues redundant.
Furthermore, as part of the local restructure, further roles within
the operational business were made redundant.
Restructuring costs - Onerous provision
As part of the ongoing operational restructure to streamline
branches, the Group has incurred additional onerous provisions.
Trust consolidation/IFRS 15
In 2019 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.
This includes reversal of a GBP13.6 million (2021: nil) charge
to cost of sales recognised on consolidation relating to Rescue
plans and previous plans. Note 1 to the consolidated financial
statements includes further information.
Capital expenditure
Capital expenditure on property, plant and equipment and
intangible assets was GBP29.7 million (2021: GBP21.0 million).
30 Dec 31 Dec
2022 2021
This is analysed as: GBPm GBPm
--------------------------------------------- ------ ------
Maintenance capital expenditure:
Funeral services 16.9 10.5
Crematoria 5.5 5.4
Other 2.0 1.7
--------------------------------------------- ------ ------
Total maintenance capital expenditure (a) 24.4 17.6
Other property development 2.4 0.1
Development of new crematoria and cemeteries 2.2 3.3
Development of intangible assets 0.7 -
--------------------------------------------- ------ ------
Total property, plant and equipment 29.7 21.0
Partly funded by:
Disposal proceeds - properties (b) (0.1) (1.2)
Disposal proceeds - vehicles (0.2) -
--------------------------------------------- ------ ------
Net capital expenditure 29.4 19.8
--------------------------------------------- ------ ------
(a) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other
tangible and intangible assets.
(b) Property disposals in 2021 includes GBP0.8 million of insurance proceeds received.
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 GBP44.1 million
(2021: GBP88.3 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
GBP7.7 million (2021: GBP55.9 million). Further details and
analysis of the Group's cash balances are included in note 7.
Pensions
The balance sheet shows a deficit of GBP10.8 million before
deferred tax (2021: deficit of GBP19.7 million). The scheme
currently represents an annual cash obligation of GBP4.5
million.
Taxation
The Group's effective tax rate on underlying profits in the
period was 7.9 per cent (2021: 20.2 per cent). The current period
underlying effective tax rate is lower than the standard rate of
corporation tax due to the effects of permanent disallowables with
a tax impact totalling GBP1.1 million. The underlying effective tax
rate is lower than originally anticipated due to the effects of
permanent disallowables.
The Group's statutory effective tax rate on losses is 16 per
cent (2021: tax rate on profits 62 per cent) which is higher than
the underlying effective tax rate primarily due to disallowable
taxation on non-underlying items and taxation in relation to the
Trusts.
Prior year restatements
Classification of hedging/foreign exchange differences arising
on financial assets held by the Trust has been restated for the 53
week period ended 31 December 2021 to remove the charge amounting
to GBP1.7 million out of administrative expenses and more
appropriately included within remeasurement of financial assets
held by the Trusts and related income.
The amount charged to the consolidated income statement for
impairment of trade receivables during the period to 31 December
2021 was GBP3.7 million which was presented within administrative
expenses has now been presented separately on the face of the
consolidated income statement. See note 1 for further details.
Capital structure and financing for the Trading Group
Following the Noteholder consent on 29 September 2022, the Group
continues to work through the capital transaction to inject a
minimum of GBP70.0 million into the Securitisation Group to
partially repay at full make-whole level (compensating Noteholders
for the present value of future cash flows discounted at Gilts +50
basis points) some of the Class A Notes outstanding in
consideration for trading assets leaving the Securitisation Group
(freehold land and buildings and long leasehold land is held
outside the Securitisation Group). This will result in a
deleveraging of the Group and a positive impact on the underlying
financial ratios and covenant calculations. Funds for this
injection are expected to be realised from a capital transaction
relating to the sale of certain crematoria assets but the agreement
with bondholders does not limit where the funds come from.
Loan facility
Dignity plc has a GBP50.0 million facility that was signed on 6
December 2022 and was amended and restated on 19 January 2023. The
facility has been offered by Phoenix UK Fund Ltd which is a related
party. It has no restrictive covenants, no minimum solvency
covenants and no charges over any assets and therefore no negative
impact on the Group's existing capital structure. It carries an
interest rate of seven per cent. The facility is available until 5
December 2023 and can be drawn in instalments providing the
appropriate notice is given, there are no other restrictions on
drawing this facility. Any drawdown of this facility will not
impact on the debt covenant calculations. On 2 March 2023, a
drawdown of GBP5.0 million was made from the facility and a further
GBP10.0 million was drawn on 30 March 2023.
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
31 December 31 December
Legal maturity 2034 2049
Coupon 3.5456% 4.6956%
Rating by Fitch BBB B
Rating by Standard & Poor's BBB- CCC+
---------------------------- ---------------- ----------------
The Secured Notes have an annual debt service obligation in 2023
(principal and interest) of circa GBP33.2 million. Net carrying
amounts owing on the Secured Notes are GBP516.1 million (2021:
GBP526.6 million).
It is not currently possible to issue further Secured Notes, as
such an issue would require the rating of the Secured B Notes to
raise to BBB by both rating agencies.
Financial covenant
The Group's primary financial covenant under the Secured Notes
requires EBITDA to total debt service to be above 1.5 times.
During the temporary covenant waiver period that was approved by
bondholders in March 2022, any cash transferred into the
Securitisation Group during the waiver period (up to 31 March 2023)
can be included within the EBITDA to debt service covenant ratio
for the following 12 months. As a result, any cash transferred
during 2022 will be included in the quarterly covenant calculations
to September 2023 and any cash transferred in the first quarter of
2023 can be included in the quarterly covenant calculations to
December 2023.
A cash transfer of GBP34.1 million has been made for the
covenant measurement point up to and including 31 December 2022,
resulting in a ratio of 1.96 times (2021: 2.13 times) at 30
December 2022. Excluding this cash transfer the ratio at 30
December 2022 was 0.95 times (2021: 2.13 times). The total debt
service used within the above ratios at 30 December 2022 was
GBP33.9 million (2021: GBP34.0 million).
EBITDA for this calculation can be reconciled to the Group's
statutory operating profit as follows:
30 Dec 2022
GBPm
------------------------------------------------------------------------- -----------
EBITDA per covenant calculation - Securitisation Group 32.3
Add: EBITDA of entities outside Securitisation Group 2.8
Add: Impact of IFRS 16 12.1
Less: Non-cash items (a) (0.9)
------------------------------------------------------------------------- -----------
Underlying operating profit before depreciation and amortisation - Group 46.3
Underlying depreciation and amortisation (28.4)
Non-underlying items (221.5)
Impact of Trust consolidation and IFRS 15 2.5
------------------------------------------------------------------------- -----------
Operating loss (201.1)
------------------------------------------------------------------------- -----------
(a) The terms of the securitisation require certain items (such
as pensions, Save As You Earn Scheme and Long-Term Incentive Plan
Scheme costs) to be adjusted from an accounting basis to a cash
basis.
If this primary financial covenant is not achieved, then this
may lead to an Event of Default under the terms of the Secured
Notes, which could result in the Security Trustee taking control of
the Securitisation Group on behalf of the Secured Note holders.
Refer to note 13 for further details.
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.
Whilst not a covenant, 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 2022 was 0.58 times (December 2021: 1.76
times).
These combined requirements are known as the Restricted Payment
Condition ('RPC'). Given the ratios achieved, the RPC was not
achieved at December 2022. 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 but otherwise can be used
within the Securitisation Group with no restrictions.
Cash Return on Core Capital
In the 2021 Annual Report we introduced a measure we call Cash
Return on Core Capital ('CROCC'). In December 2022 the CROCC fell
to negative 4.2 per cent (December 2021: positive 9.7 per cent).
The fall in 2022 reflects the reduced underlying operating profit
and higher capital expenditure offset by lower cash tax payments.
See alternative performance measures on page 56 for how it is
calculated and why we use it.
Net debt
The Trading Group has underlying net debt of GBP508.8 million
(2021: GBP471.2 million) at the balance sheet date. See note 10 for
further details.
Should the Group wish to repay all amounts due under the Secured
Notes, the cost to do so at the year end would have been
approximately GBP524.3 million (Class A Notes: GBP160.0 million;
Class B Notes: GBP364.3 million) (2021: GBP757.4 million (Class A
Notes: GBP202.8 million; Class B Notes: GBP554.6 million)).
Net finance costs
The Group's underlying finance costs substantially consist of
the interest on the Secured Notes and ancillary instruments. The
net finance cost in the period relating to these instruments was
GBP23.3 million (2021: GBP23.7 million).
Other ongoing underlying finance costs incurred in the period
amounted to GBP0.3 million (2021: GBP0.8 million), covering the
unwinding of discounts on the Group's provisions and other
financial liabilities.
The Group also incurred GBP4.4 million (2021: GBP4.5 million)
lease liability interest, under IFRS 16, giving a total underlying
net finance cost of GBP28.0 million (2021: GBP29.0 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
GBP422.2 million (2021: GBP151.1 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 GBP957.3 million
(2021: GBP1,043.1 million) of financial assets and GBP9.4 million
(2021: GBP19.8 million) of cash, which was recognised in the
consolidated balance sheet. See note 8 of the consolidated
financial statements for further information on the investment
strategy of the Trusts.
The average net Trust assets per plan (excluding Rescue plans)
of GBP3,444 (2021: GBP3,650) is a decrease of six per cent. Rescue
plans are not included in this average as no assets have
transferred over to the Trusts at 30 December 2022. Rescue plans
are discussed in more detail on pages 25 and 26.
The Trust consolidation includes a provision of GBP13.6 million
in relation to funeral plans. This includes GBP3.6 million relating
to previous funeral plans and GBP10.0 million relating to Rescue
plans. The provision for Rescue plans is comprised of an onerous
contract provision of GBP8.9 million and a provision for the
Dignity Promise of GBP1.1 million, see note 1 for further details.
Whilst the Group expects a commercial benefit overall from the
Rescue Plans, at an individual contract level some of the plans
could be loss making, where Dignity does not receive sufficient
cash to cover the full cost of the funeral. As such, we have taken
a prudent approach and provided for these potential future losses
until we have certainty over the asset recoverability from the
previous providers. If the assets values are higher than currently
recognised in the onerous contract assessment then the GBP8.9
million provision would reduce.
The movement in financial assets is primarily attributable to
remeasurement losses recognised in the consolidated income
statement of GBP57.7 million (2021: gains of GBP85.0 million),
reflecting changes in asset values and net disposals of financial
assets of GBP37.0 million (2021 net disposals of financial assets:
GBP12.2 million).
Aggregated contract liabilities totalled GBP1,316.4 million
(2021: GBP1,337.5 million) with the primary movements being sales
of new plans of GBP46.5 million (2021: GBP86.3 million), increases
due to significant financing of GBP50.9 million (2021: GBP51.6
million) and releases due to death or cancellation totalling
GBP118.5 million (2021: GBP117.9 million).
Going concern
The Group's consolidated financial statements are prepared on a
going concern basis although, there is a material uncertainty with
respect to covenant compliance and the implications thereof see
note 13 for further details.
Publication of unaudited financial information
On 23 January 2023, the Group issued a trading update for the 52
week period ended 30 December 2022. The table below compares the
estimates in that statement (which were published as "expected to
be no more than", i.e., a ceiling amount) to the audited financial
statements.
52 week period ended 52 week period ended
30 December 2022 estimated ceiling as at 23 30 December 2022
January 2023 audited
GBPm GBPm
----------------------------------------------- ----------------------------------------------- --------------------
Underlying revenue 275.0 270.5
Underlying operating profit (1) 20.0 17.9
Underlying operating profit before depreciation
and amortisation (pre-IFRS 16) 37.0 34.2
----------------------------------------------- ----------------------------------------------- --------------------
(1) Underlying operating profit is more than 10 per cent (being
10.5 per cent) lower than the ceiling amount as estimated at 23
January 2023 following finalisation of the Group's financial
reporting processes.
Outlook
The Group continues to embed the new strategy which has
empowered colleagues. This should deliver long-term growth.
Divisional performance
Introduction
Operating segments are reported in a manner consistent with
internal reporting provided to the chief operating decision maker
who is responsible for allocating resources and assessing
performance of the operating segments. The chief operating decision
maker of the Group has been identified as the two Executive
Directors.
For statutory purposes the Group has two reporting segments,
funeral services and crematoria, as under IFRS 15 only a single
performance obligation exists when a pre-arranged funeral plan is
sold, being the performance of a funeral. The Group also reports
central overheads, which comprise unallocated central expenses.
For the purpose of alternative performance measures the Group
has three reporting segments, funeral services, crematoria and
pre-arranged funeral plans, as the chief operating decision maker
reviews segmental performance before applying the effect of IFRS
15.
Funeral services relate to the provision of funerals and
ancillary items, such as memorials and floral tributes.
Crematoria services relate to cremation services and the sale of
memorials and burial plots at the Dignity crematoria and
cemeteries.
Pre-arranged funeral plans represent the sale of funerals in
advance to clients wishing to make their own funeral arrangements
and the marketing and administration costs associated with making
such sales.
Funeral services
Overview
As at 30 December 2022, we operated from a network of 725 (2021:
776) funeral branches throughout the UK, generally operating under
established local trading names. The change to the portfolio
reflects three branch openings and 54 closures in the year. Most
closures represent funeral branches where leases have naturally
come to an end and have not been renewed and also include 10
freehold closures.
Performance
We conducted 77,000 funerals (2021: 79,200) during the period
under review. Underlying operating profit was GBP11.0 million
(2021: GBP48.2 million), a reduction of 77 per cent, this can be
explained by the financial summary table below:
Financial summary 2022
H1 H2 FY
GBPm GBPm GBPm
----------------------------------- ------ ----- ------
Underlying operating profit - 2021 31.6 16.6 48.2
Impact of:
Number of deaths (1) (6.4) (0.6) (7.0)
Market share (1) 3.1 (1.2) 1.9
Average revenues (1) (14.6) (5.9) (20.5)
Net cost base changes (5.0) (6.6) (11.6)
----------------------------------- ------ ----- ------
Underlying operating profit - 2022 8.7 2.3 11.0
----------------------------------- ------ ----- ------
(1) Represents revenue impact.
The table above demonstrates the impact of our new pricing
strategy, coupled with the distorting effect of the pandemic on the
death rate in the first quarter. Whilst market share has increased
revenue, we can see that a reduction in the number of deaths has
reduced revenue by GBP7.0 million, and the change in pricing
strategy and the introduction of direct cremation has reduced it by
a further GBP20.5 million. Cost base changes include GBP5.7 million
increase in salary costs, GBP1.7 million increase in motor
expenses, a GBP1.7 million impact from the loss of rates relief,
GBP0.9 million impact from an increase in coffin raw material
prices, an increase of GBP0.7 million in depreciation and GBP0.8
million increase in utility costs.
Accordingly, the cost to deliver a funeral (see alternative
performance measures on page 56 for details on how it is
calculated) has increased to GBP2,018 at 30 December 2022 (December
2021: GBP1,814).
Items totalling GBP203.8 million (2021 restated: GBP33.5
million) excluded from underlying operating profit resulted in
statutory operating loss of GBP192.8 million (2021 restated: profit
GBP14.7 million). These items are discussed on pages 51 to 53 but
relate to non-underlying items and the impact of consolidating the
Trusts and IFRS 15.
Progress and developments
Market share
Approximately one per cent of all funerals were conducted in
Northern Ireland. Excluding Northern Ireland, these funerals
represented approximately 11.9 per cent (2021: 11.8 per cent) of
total estimated deaths in Britain. Whilst funerals divided by
estimated deaths is a reasonable measure of Dignity's market share,
the Group does not have a complete national presence and
consequently, this calculation can only ever be an estimate.
On a comparable basis, excluding any funerals from branches not
contributing to the whole of 2021 and 2022, market share was 11.7
per cent, compared with 11.5 per cent in 2021. Both 2022 and 2021
are an improvement on the dramatic market share declines witnessed
in 2016 and 2017, however, in the longer-term the Group's new
strategy is expected to grow market share significantly.
Market share is calculated based on a fixed assumption of one
week between the registration of the death and the date of the
funeral. Therefore, due to excess deaths and longer delays between
the date of registering the death and the date of the funeral being
performed, calculations of market share in 2021 and 2022 may not be
comparable.
Funeral mix and average revenue
The average revenue for funerals has decreased from GBP2,394 in
2021 to GBP2,116 in 2022 (excluding 603 funerals delivered as part
of our Safe Hands support the average for 2022 was FY GBP2,141, H2
GBP2,151 and H1 GBP2,129), which can be attributed to a combination
of the change in our pricing strategy and the change in mix due to
the provision of lower-cost funeral options, such as direct
cremations. This combined with reduced volumes has also impacted
the contribution per branch (see alternative performance measures
on page 57 for details on how this is calculated) which has
decreased to GBP28,966 in 2022 (2021: GBP75,000).
Funeral mix and underlying average revenue
FY 2020 FY 2021 Q1 2022 Q2 2022 H1 2022 Q3 2022 Q4 2022 H2 2022 FY 2022
Funeral type Actual Actual Actual Actual Actual Actual Actual Actual Actual
------------ ----------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Underlying
average
revenue
(GBP) Attended 2,821 2,855 2,486 2,439 2,464 2,425 2,605 2,516 2,489
Unattended 996 1,063 1,044 1,037 1,041 1,035 1,035 1,035 1,038
Pre-need 1,911 1,959 1,950 1,967 1,958 2,033 2,042 2,038 1,996
Other (including Simplicity) 940 904 608 522 668 533 514 414 517
------------------------------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Volume mix
(%) Attended 63 61 58 59 59 59 58 58 58
Unattended 1 3 8 7 7 8 8 8 8
Pre-need 28 28 28 28 28 27 28 28 28
Other (including Simplicity) 8 8 6 6 6 6 6 6 6
------------------------------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Underlying weighted average (GBP) 2,397 2,394 2,108 2,093 2,115 2,095 2,196 2,138 2,116
Ancillary revenue (GBP) 125 154 165 174 155 166 158 170 172
------------------------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Underlying average revenue (GBP) 2,522 2,548 2,273 2,267 2,270 2,261 2,354 2,308 2,288
------------------------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment
Investment in the Group's branches and fleet has continued. In
2022, GBP16.9 million (2021: GBP10.5 million) was invested in
maintenance capital expenditure. The Group anticipates another year
of high expenditure in 2023.
Outlook
The Group is focusing on embedding the recent restructure which
is allowing colleagues who are at the heart of their local
communities to make decisions with the aim of growing business.
Crematoria
Overview
The Group remains the largest single independent operator of
crematoria in Britain, operating 46 (2021: 46) crematoria as at 30
December 2022.
Performance
The Group performed 75,500 cremations (2021: 74,800) in the
period, representing 11.8 per cent (2021: 11.3 per cent) of total
estimated deaths in Britain.
Underlying operating profit was GBP39.5 million (2021: GBP47.0
million), a decrease of 16 per cent. This can be explained by the
financial summary table below:
Financial summary 2022
H1 H2 FY
GBPm GBPm GBPm
----------------------------------- ----- ----- -----
Underlying operating profit - 2021 25.2 21.8 47.0
Impact of:
Number of deaths (1) (2.2) (0.3) (2.5)
Market share (1) 2.5 0.7 3.2
Average revenues (1) (2.9) (1.4) (4.3)
Cost base changes (1.0) (2.9) (3.9)
----------------------------------- ----- ----- -----
Underlying operating profit - 2022 21.6 17.9 39.5
----------------------------------- ----- ----- -----
(1) Represents revenue impact.
The primary reason for the decrease in underlying operating
profit is lower average revenues, a higher cost base (including
increases in utility costs) partially offset by an increase in
market share. Total memorial and cemetery revenue was GBP16.7
million (2021: GBP19.2 million), approximately 13 per cent lower.
2021 included an element of catch-up on sales due to the sites
being closed for part of 2020 (2021 was 15 per cent higher than
2020). The average cremation revenue is lower than the prior year
at GBP864 (2021: GBP887) and yield per crematorium (see alternative
performance measures on page 57 for details on how it is
calculated) has decreased to GBP971,739 in 2022 (2021:
GBP1,126,087) which reflects the increase in direct cremations.
Non-underlying costs of GBP0.9 million (2021: GBP0.5 million)
are excluded from underlying operating profit resulting in
statutory operating profit of GBP38.6 million (2021: GBP46.5
million).
Progress and developments
The Group has invested GBP5.5 million (2021: GBP5.4 million) in
maintaining and improving its locations in the period.
The Group now has planning permission for six new crematoria.
The total capital commitment for these six projects is expected to
be approximately GBP56 million, with GBP16.3 million of this amount
having already been invested. Each of the locations with planning
permission will take five to seven years to reach maturity,
performing 800 to 1,000 cremations per year.
In addition, the Group also has one location that is currently
in the planning process.
Outlook
The crematoria division remains a stable and cash generative
aspect of the Group's operations.
Pre-arranged funeral plans
A momentous year
At the end of July 2022 the FCA formally became responsible for
the regulation of the funeral plan industry in the UK, heralding a
new and better era for customers which Dignity has long campaigned
for. Dignity became authorised to be a funeral plan provider which
was the culmination of a lot of hard work within the Group.
In preparation for this change we worked on redesigning our
funeral plan product based upon working with colleagues who deal
with families in our funeral branches. The result is an entirely
new and personalisable product that lets buyers design the plan
around the kind of funeral they want with the ability to keep
amending it in the future should those wishes change.
In preparation, we wound down activity in our old funeral plan
product range ahead of the changeover. When the new product
launched, we did it gradually as we built up and trained our team
of funeral plan consultants. Our priority has been on doing things
correctly and bedding in all the new regulations, processes and
monitoring programmes rather than a haste to sell plans. Our
results, in particular sales volumes, in 2022 need to be judged
against that background.
Rescue operations
Not all funeral plan providers made it into regulation, failing
for different reasons. At Dignity we have been working hard to do
all we can to ameliorate a bad situation and help those families
impacted by these developments. This has included providing free
funerals for those families suffering a bereavement right after
Safe Hands went into administration.
We are also in the process of offering replacement Dignity
funeral plans to the existing customers of a number of plan
providers who did not achieve regulation. So far that amounts to
five providers and 38,000 plans. That activity is continuing into
2023. Our motivation has been to help families negatively impacted
through no fault of their own and limit the damage to an industry
that we launched in the 1980's and which we believe with the proper
regulatory framework is now set for a bright future.
Performance
Approximately 21,000 (2021: 50,000) new plan sales were made. In
addition to this 38,000 (2021: nil) Rescue plans have transferred
to a Dignity pre-arranged funeral plan. The number of active
pre-arranged plans (including insurance backed arrangements)
increased to 618,000 (2021: 581,000). All plan sales are stated net
of cancellations of 29,000 (2021: 33,000). The majority of
commissions are clawed back from distribution partners on
cancellation in the first two years (the majority of expected
cancellations take place in this period).
In addition, 16,000 (2021: 24,000) plans were sold 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.
The Group has continued to claim a marketing and administration
allowance from the Trusts for plans sold in the period.
Historically this resulted in a profit in the division. In 2019,
the Group decided to restrict this allowance from the Trusts to
only recover the costs incurred in the selling of the funeral plans
and therefore, the division has not contributed any profit or loss
since 2019 due to these under-recoveries.
However, as plan sales were low in 2022, the Group would not
have been able to recover all of the costs incurred in the selling
and administration from funeral plans sold in the current period
but has been able to utilise under-recoveries from previous years'
sales to cover the current year operating costs.
For post FCA regulation plan sales Dignity has established a new
trust, the UK Funeral Trust (2022). So far no claims have been made
from the new trust for marketing and administration costs but going
forward it is intended to do so provided that the trust is left in
a surplus position, as we did previously.
As a consequence of the reduced costs in the division and ending
of marketing spending the amount recovered from the Trusts in 2022
was GBP12.2 million, 50 per cent lower than 2021 (2021: GBP24.6
million).
Trust solvency
The financial position of the Trusts holding members' monies is
crucial, given the Group ultimately guarantees the promises made to
members.
The latest actuarial valuations of the Trusts (at 24 September
2022) showed them to have a surplus of GBP225.4 million (24
September 2021: surplus restated of GBP290.6 million), based on
assumptions from the independent trustees working with the Trust's
actuary, PwC. 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. These
solvency reports are available on the company's website
www.dignityfunerals.co.uk/funeral-plans/2022-solvency-assessment-report/.
There was no change to the investment strategy in 2022 which was
previously agreed with Legal & General Investment Management
who continued as the OCIO. The new trust is still all held in cash.
In 2023 the Trustees are planning to adopt a Statement of
Investment Principles that will guide the manager of the
assets.
The Trusts have assets, including cash, under the management of
the Trustees of GBP966.7 million (2021: GBP1,062.9 million) with
investments split as follows:
FY
Example investment types GBPm
------------------------ --------------------------------------- -----
Defensive investments Index linked gilts and corporate bonds 10-12
------------------------ --------------------------------------- -----
Illiquid investments Private equity investments 6-8
------------------------ --------------------------------------- -----
Core growth investments Equities 64-67
------------------------ --------------------------------------- -----
Liquid investments Cash portfolio's 16-17
------------------------ --------------------------------------- -----
The assets of UK Funerals (2022) Trust are currently held in
cash pending an investment totalling GBP6.8 million.
The current allocation is subject to annual review by the
Trustees with support from their investment advisers, LGIM. See
note 8 for additional discussion of Trust balances.
Outlook
Our new product has been very well received and even without
promotion is selling well in our branches where it is available and
faster than our previous products on a like for like basis.
The Group has now trained over 300 Funeral Planning Consultants
located at its branches and has a pre-arranged funeral planning
website that enables customers to create a unique funeral plan for
the send-off they really want.
In 2023 we will rebuild our marketing efforts to drive growth
and form partnerships with organisations that share our values and
whose customers we would not otherwise see.
The Group is optimistic about its ability to continue to be a
market leader in pre -- arranged funerals and for the potential
growth of the overall market in the new world of regulation.
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 GBP32.6 million (2021:
GBP39.4 million). The table here summarises the key movements:
H1 H2 FY
GBPm GBPm GBPm
------------------------- ----- ----- -----
Central overheads - 2021 19.0 20.4 39.4
Impact of:
Digital activities (1.7) (3.2) (4.9)
Salaries (1.1) (1.2) (2.3)
Other (0.6) 1.0 0.4
------------------------- ----- ----- -----
Central overheads - 2022 15.6 17.0 32.6
------------------------- ----- ----- -----
The decrease in digital activities primarily relates to
promotional spend. Salaries have reduced year-on-year primarily due
to the prior period including an additional bonus charge of GBP3.5
million. Central overheads are expected to continue to reduce as
part of the new strategy. Non-underlying items of GBP14.3 million
(2021: GBP2.3 million) are excluded from underlying costs,
resulting in total central costs of GBP46.9 million (2021: GBP41.7
million).
In addition to the above costs, maintenance capital expenditure
of GBP2.0 million (2021: GBP1.7 million) has been incurred on
central projects predominantly relating to IT that will help the
business as a whole operate more efficiently.
Outlook
Central overheads are expected to continue to reduce as part of
the strategic review.
DEAN MOORE
INTERIM CHIEF FINANCIAL OFFICER
30 MARCH 2023
Key performance indicators
The Group use non-financial and financial KPIs to both manage
the business and ensure that the Group's strategy and objectives
are being delivered.
Financial KPIs
53 week
52 week period ended
period ended 31 December 2021
KPI KPI definitions 30 December 2022 restated Developments in 2022
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Underlying (loss)/earnings This is underlying (18.6)p 42.8p The reduction follows the
per share (pence) (loss)/profit after tax decrease in underlying
divided by the weighted operating profit
average number of explained below.
Ordinary
Shares in issue in the
period.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Underlying cash generated This is the statutory GBP44.1m GBP88.3m The Group continues to
from operations (GBPm) cash generated from convert operating profit
operations excluding into cash. The reduction
non-underlying items and year-on-year is primarily
the due to lower profit.
impact of consolidating
the Trusts and IFRS 15.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Underlying operating This is the statutory GBP17.9m GBP55.8m Underlying operating
profit (GBPm) operating profit of the profit declined
Group excluding year-on-year. This is
non-underlying items and primarily due to reduced
the average
impact of consolidating revenues, lower deaths
the Trusts and IFRS 15. and higher costs within
the funeral services and
crematoria divisions.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Underlying average revenue Underlying funeral GBP2,288 GBP2,548 2022 has been adversely
per funeral (GBP) revenue divided by the impacted by the change in
number of funerals pricing strategy and
performed in the relevant product mix effective
period. since September 2021.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Non-financial KPIs
53 week
52 week period ended
period ended 31 December 2021
KPI KPI definitions 31 December 2022 restated Developments in 2022
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Total estimated number of This is as reported by 639,000 664,000 Deaths were below the
deaths in Britain (number) the Office for National prior year but higher
Statistics. than originally
anticipated at the start
of the
year.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
This is the number of
cremations performed by
the Group divided by the
Cremation market share total estimated number Market share has seen a
(per cent) of deaths in Britain. 11.8% 11.3% steady increase.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Funeral market share This is the number of 11.9% 11.8% Market share has
excluding Northern funerals performed by increased compared with
Ireland (per cent) the Group in Britain the prior period.
divided by the total
estimated
number of deaths in
Britain.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Number of cremations This is the number of 75,500 74,800 Changes are a consequence
performed (number) cremations performed of the total number of
according to our deaths and the Group's
operational data. market share.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Number of funerals This is the number of 77,000 79,200 Changes are a consequence
performed (number) funerals performed by of the total number of
the Group according to deaths and the Group's
our operational data. market share.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Active pre-arranged This is the number of 618,000 581,000 The increase reflects
funerals (number) pre-arranged funerals continued sales activity
(both trust funeral (both trust funeral plans
plans and insurance and insurance backed)
backed) and the transfer of
where the Group has an 38,000 Rescue plans,
obligation to provide a offset by plans cancelled
funeral in the future. and the crystallisation
of plans sold in previous
periods.
-------------------------- ------------------------- ----------------- ----------------- -------------------------
Our mission is to drive forward positive change in the sector
and become a true market leader with an unrivalled focus on
quality, transparency and choice.
To achieve this, we recognise the importance of investing in our
people, digital platforms and facilities; as well as empowering our
colleagues to make the right decisions that deliver a positive
experience and outcome for our clients and in turn we become more
competitive.
If we include cremations in our crematoria then we were involved
in approximately one in five of all funerals in the UK in 2022.
Doing our best for those clients is our best source of future
business.
The Dignity client survey 2022
Reputation and recommendation
99.0 per cent of respondents said that we met or exceeded their
expectations (2021: 99.0%).
98.0 per cent of respondents would recommend us (2021:
98.0%).
High standards of facilities and fleet
99.8 per cent thought our premises were clean and tidy (2021:
99.8%).
99.6 per cent thought our vehicles were clean and comfortable
(2021: 99.6%).
Quality of service and care
99.9 per cent thought our staff were respectful (2021:
99.9%).
99.7 per cent thought our staff listened to their needs and
wishes (2021: 99.7%).
99.0 per cent agreed that our staff were compassionate and
caring (2021: 99.2%).
In the detail
99.1 per cent of clients agreed that our staff had fully
explained what would happen before and during the funeral (2021:
99.2%).
99.3 per cent said that the funeral service took place on time
(2021: 99.1%).
98.1 per cent said that the final invoice matched the estimate
provided (2021: 98.3%).
Consolidated income statement for the 52 week period ended 30
December 2022
53 week period
52 week period ended 30 December 2022 ended 31 December 2021 restated
Note GBPm GBPm
--------------------------------------- ---- ------------------------------------- --------------------------------
Revenue 2 323.1 353.7
Cost of sales (196.3) (174.1)
--------------------------------------- ---- ------------------------------------- --------------------------------
Gross profit 126.8 179.6
Administrative expenses (324.5) (156.4)
Trade receivables impairment (3.4) (3.7)
--------------------------------------- ---- ------------------------------------- --------------------------------
Operating (loss)/profit 2 (201.1) 19.5
Finance costs 3 (28.0) (29.0)
Deferred revenue significant financing 3 (50.9) (51.6)
Remeasurement of financial assets held
by the Trusts and related income 3 (48.6) 93.1
--------------------------------------- ---- ------------------------------------- --------------------------------
(Loss)/profit before tax 2 (328.6) 32.0
Taxation 4 53.4 (19.9)
--------------------------------------- ---- ------------------------------------- --------------------------------
(Loss)/profit for the period
attributable to equity shareholders 2 (275.2) 12.1
--------------------------------------- ---- ------------------------------------- --------------------------------
(Loss)/profit per share for
(loss)/profit attributable to equity
shareholders
- Basic (pence) 5 (550.4)p 24.2p
- Diluted (pence) 5 (550.4)p 24.2p
--------------------------------------- ---- ------------------------------------- --------------------------------
Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a presentation change in
relation to trade receivables impairment and a reclassification of
foreign exchange movements. See note 1 for further 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 30 December 2022
53 week period
52 week period ended 30 December 2022 ended 31 December 2021
Note GBPm GBPm
------------------------------------------------ ---- ------------------------------------- -----------------------
(Loss)/profit for the period (275.2) 12.1
------------------------------------------------ ---- ------------------------------------- -----------------------
Items that will not be reclassified to profit or
loss
Remeasurement gain on retirement benefit
obligations 12 5.2 15.6
Tax charge on remeasurement on retirement
benefit obligations (1.4) (3.9)
Tax charge on pension contributions (0.1) (0.2)
Restatement of deferred tax for the change in UK
tax rate 4 - 1.9
------------------------------------------------ ---- ------------------------------------- -----------------------
Other comprehensive income 3.7 13.4
------------------------------------------------ ---- ------------------------------------- -----------------------
Total comprehensive (loss)/income for the period (271.5) 25.5
------------------------------------------------ ---- ------------------------------------- -----------------------
Attributable to:
Equity shareholders of the parent (271.5) 25.5
------------------------------------------------ ---- ------------------------------------- -----------------------
Consolidated balance sheet as at 30 December 2022
53 week period
52 week period ended 30 December 2022 ended 31 December 2021
Note GBPm GBPm
----------------------------------------------- ---- ------------------------------------- -----------------------
Assets
Non-current assets
Goodwill 6 55.8 167.9
Intangible assets 6 53.4 110.7
Property, plant and equipment 231.6 242.1
Right-of-use asset 68.4 89.1
Deferred insurance commissions 8.0 8.4
Financial assets held by the Trusts 8 957.3 1,043.1
Deferred commissions 9 93.7 100.9
Deferred tax asset 56.8 5.5
----------------------------------------------- ---- ------------------------------------- -----------------------
1,525.0 1,767.7
----------------------------------------------- ---- ------------------------------------- -----------------------
Current assets
Inventories 7.9 8.6
Trade and other receivables 30.0 30.0
Current tax receivables 5.3 2.4
Deferred commissions 9 7.0 7.6
----------------------------------------------- ---- ------------------------------------- -----------------------
Cash and cash equivalents - Trading Group 7.7 55.9
Cash and cash equivalents - held by the Trusts 9.4 19.8
----------------------------------------------- ---- ------------------------------------- -----------------------
Cash and cash equivalents 7 17.1 75.7
----------------------------------------------- ---- ------------------------------------- -----------------------
67.3 124.3
----------------------------------------------- ---- ------------------------------------- -----------------------
Total assets 1,592.3 1,892.0
----------------------------------------------- ---- ------------------------------------- -----------------------
Liabilities
Current liabilities
Financial liabilities 12.2 11.5
Trade and other payables 60.9 59.5
Lease liabilities 7.0 7.1
Contract liabilities 9 98.8 99.6
Provisions for liabilities 3.4 2.1
----------------------------------------------- ---- ------------------------------------- -----------------------
182.3 179.8
----------------------------------------------- ---- ------------------------------------- -----------------------
Non-current liabilities
Financial liabilities 506.9 518.3
Other non-current liabilities 1.8 2.2
Lease liabilities 73.3 75.8
Contract liabilities 9 1,217.6 1,237.9
Provisions for liabilities 21.8 9.4
Retirement benefit obligation 12 10.8 19.7
----------------------------------------------- ---- ------------------------------------- -----------------------
1,832.2 1,863.3
----------------------------------------------- ---- ------------------------------------- -----------------------
Total liabilities 2,014.5 2,043.1
----------------------------------------------- ---- ------------------------------------- -----------------------
Shareholders' deficit
Ordinary share capital 6.2 6.2
Share premium account 13.0 12.9
Capital redemption reserve 141.7 141.7
Other reserves (2.0) (2.3)
Retained earnings (581.1) (309.6)
----------------------------------------------- ---- ------------------------------------- -----------------------
Total deficit (422.2) (151.1)
----------------------------------------------- ---- ------------------------------------- -----------------------
Total deficit and liabilities 1,592.3 1,892.0
----------------------------------------------- ---- ------------------------------------- -----------------------
The alternative performance measures included within the
Preliminary Announcement present information on a comparable basis
with that presented in prior periods.
Consolidated statement of changes in equity for the 52 week
period ended 30 December 2022
Capital
Ordinary share redemption Other Retained Total
capital Share premium account reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------------- --------------------- ----------- --------- --------- -------
Shareholders' equity as at 25
December 2020 6.2 12.7 141.7 (3.0) (335.1) (177.5)
----------------------------------- -------------- --------------------- ----------- --------- --------- -------
Profit for the 53 weeks ended 31
December 2021 - - - - 12.1 12.1
Remeasurement gain on retirement
benefit obligations - - - - 15.6 15.6
Tax on retirement benefit
obligations - - - - (3.9) (3.9)
Tax on pension contributions - - - - (0.2) (0.2)
Restatement of deferred tax for the
change in UK Tax rate - - - - 1.9 1.9
Other comprehensive income - - - - 13.4 13.4
----------------------------------- -------------- --------------------- ----------- --------- --------- -------
Total comprehensive income - - - - 25.5 25.5
Effects of employee share options - - - 0.8 - 0.8
Proceeds from share issue (1) - 0.2 - - - 0.2
Gift to Employee Benefit Trust - - - (0.1) - (0.1)
----------------------------------- -------------- --------------------- ----------- --------- --------- -------
Shareholders' equity as at 31
December 2021 6.2 12.9 141.7 (2.3) (309.6) (151.1)
Loss for the 52 weeks ended 30
December 2022 - - - - (275.2) (275.2)
Remeasurement gain on retirement
benefit obligations - - - - 5.2 5.2
Tax on retirement benefit
obligations - - - - (1.4) (1.4)
Tax on pension contributions - - - - (0.1) (0.1)
Other comprehensive income - - - - 3.7 3.7
----------------------------------- -------------- --------------------- ----------- --------- --------- -------
Total comprehensive loss - - - - (271.5) (271.5)
Effects of employee share options - - - 0.5 - 0.5
Tax on employee share options - - - (0.1) - (0.1)
Proceeds from share issue (2) - 0.1 - - - 0.1
Gift to Employee Benefit Trust - - - (0.1) - (0.1)
----------------------------------- -------------- --------------------- ----------- --------- --------- -------
Shareholders' equity as at 30
December 2022 6.2 13.0 141.7 (2.0) (581.1) (422.2)
----------------------------------- -------------- --------------------- ----------- --------- --------- -------
(1) Relating to issue of 5,963 shares under 2016 deferred annual
bonus ('DAB') scheme and 4,562 shares under 2019 SAYE scheme.
(2) Relating to issue of 3,954 shares under 2019 DAB scheme and
8,473 shares under 2019 SAYE scheme.
The above amounts relate to transactions with owners of the
Company except for the items reported within total comprehensive
income.
Capital redemption reserve
The capital redemption reserve represents GBP80,002,465 B Shares
that were issued on 2 August 2006 and redeemed for cash on the same
day, GBP19,274,610 B Shares that were issued on 10 October 2010 and
redeemed for cash on 11 October 2010, GBP22,263,112 B Shares that
were issued on 12 August 2013 and redeemed for cash on 20 August
2013 and GBP20,154,070 B Shares that were issued and redeemed for
cash in November 2014.
Other reserves
Other reserves include movements relating to the Group's SAYE
and LTIP schemes and associated deferred tax, together with a
GBP12.3 million merger reserve.
Consolidated statement of cash flows for the 52 week period
ended 30 December 2022
53 week period
ended
31 December
52 week period ended 30 December 2022 2021
Note GBPm GBPm
--------------------------------------------------------- ---- ------------------------------------- --------------
Cash flows from operating activities
Cash (used in)/generated from operations (17.7) 68.3
Finance costs paid (27.8) (40.2)
Transfer from restricted bank accounts for finance costs - 12.0
Payments to restricted bank accounts for finance costs - -
Total payments in respect of finance costs (27.8) (28.2)
Tax paid (2.3) (17.7)
--------------------------------------------------------- ---- ------------------------------------- --------------
Net cash (used in)/generated from operating activities (47.8) 22.4
--------------------------------------------------------- ---- ------------------------------------- --------------
Cash flows from investing activities
Acquisition of subsidiaries and businesses (net of cash
acquired) (0.2) (0.2)
Proceeds from sale of property, plant and equipment 0.3 1.2
Purchase of property, plant and equipment and intangible
assets (1) (29.7) (21.0)
Purchase of financial assets (by the Trusts) 8 (177.1) (948.7)
Disposals of financial assets (by the Trusts) 8 214.1 960.9
Realised return on financial assets - 2.1
--------------------------------------------------------- ---- ------------------------------------- --------------
Net cash generated/(used) in investing activities 7.4 (5.7)
--------------------------------------------------------- ---- ------------------------------------- --------------
Cash flows from financing activities
Payments due under Secured Notes (10.5) (15.1)
Payment in relation to amendment of Secured Loan Notes
agreement (0.5) -
Transfer from restricted bank accounts for repayment of
borrowings - 4.9
Payments to restricted bank accounts for repayment of
borrowings - -
Total payments in respect of borrowings (11.0) (10.2)
Principal elements of lease payments (7.2) (9.1)
--------------------------------------------------------- ---- ------------------------------------- --------------
Net cash used in financing activities (18.2) (19.3)
--------------------------------------------------------- ---- ------------------------------------- --------------
Net decrease in cash and cash equivalents (58.6) (2.6)
--------------------------------------------------------- ---- ------------------------------------- --------------
Cash and cash equivalents at the beginning of the period 75.7 78.3
--------------------------------------------------------- ---- ------------------------------------- --------------
Cash and cash equivalents at the end of the period 7 17.1 75.7
Restricted cash - amounts set aside for debt service
payments - -
--------------------------------------------------------- ---- ------------------------------------- --------------
Cash and cash equivalents at the end of the period as
reported in the consolidated balance
sheet 7 17.1 75.7
--------------------------------------------------------- ---- ------------------------------------- --------------
(1) See Financial review on page 10 for further details.
1 Prior year restatements and Rescue plans
Prior year restatement
Classification of hedging/foreign exchange difference arising on
financial assets held by the Trusts
Within the consolidated income statement administrative expenses
have been restated for the 53 week period ended 31 December 2021 to
remove GBP1.7 million of hedging/foreign exchange losses arising on
financial assets held by the Trusts, which has now been more
appropriately included within remeasurement of financial assets
held by the Trusts and related income. This has led to an increase
in operating profit of GBP1.7 million but no impact on statutory
profit after taxation or earnings per share for the prior
period.
Disclosure and valuation of trade receivables impairment
The amount charged to the consolidated income statement for
impairment of trade receivables during the period to 31 December
2021 was GBP3.7 million which was presented within administrative
expenses (as explained in note 5 to the 2021 Annual Report and
Accounts). Following the Financial Reporting Council's ('FRC')
review of the Group's 2021 Annual Report and Accounts, specifically
with regard to whether the charge for impairment should be
separately presented in the consolidated income statement, the
Group re-examined the materiality of the charge on the results for
the period. As a result, the Group concluded that it was
appropriate to present the impairment expense separately on the
face of the consolidated income statement as required by IAS 1,
'Presentation of Financial Statements', paragraph 82(ba).
Consequently, the impairment expense for the 53 week period
ended 31 December 2021 has been separately presented in the
consolidated income statement resulting in a reduction of
administrative expenses for the same amount. There is no impact on
the Group's operating profit, statutory profit after taxation or
earnings per share for the prior period.
The above prior period restatements have overall resulted in
administrative expenses for the 53 week period ended 31 December
2021 reducing by GBP5.4 million from GBP161.8 million to GBP156.4
million, operating profit for the 53 week period ended 31 December
2021 increasing by GBP1.7 million from GBP17.8 million to GBP19.5
million and remeasurement of financial assets by the Trusts and
related income reducing by GBP1.7 million from GBP94.8 million to
GBP93.1 million. This restatement for the 53 week period ended 31
December 2021 has been reflected in the segmental analysis
presented in note 2 within funeral services 'other adjustments',
which has increased by GBP1.7 million from GBP10.2 million to
GBP11.9 million. Accordingly, funeral services statutory operating
profit has increased by GBP1.7 million from GBP13.0 million to
GBP14.7 million.
There is no overall impact on statutory profit before taxation,
taxation or statutory profit after taxation for the 53 week period
ended 31 December 2021. There is no overall impact on statutory
earnings per share in either period.
The above adjustments have had no impact on opening reserves for
the 53 week period ended 31 December 2021. Accordingly, no third
balance sheet as at 26 December 2020 was required to be
presented.
Rescue plans
To maintain stability and consumer confidence in the sector,
Dignity committed to helping customers of those providers who chose
not to apply or did not meet the standards required by FCA
regulation by offering the option to transfer to a Dignity plan
('Rescue plans'). As at 30 December 2022, 38,000 Rescue plans had
been accepted by customers.
Dignity has agreed to honour the product and service purchased
by these customers, even though the assets transferable to Dignity
from their previous provider may be lower than the payments made by
customers. In the event that a customer subsequently cancels their
Rescue plan, the refund payable by Dignity is capped at the amount
received by Dignity in relation to that plan, being the amount
received from the previous provider's trust and any payments to be
made by the customer directly to Dignity.
At an individual contract level some of the plans could be loss
making as Dignity will not have received sufficient cash to cover
the full cost of the funeral. However, the Board expects the Rescue
plans to be profitable on a portfolio basis as the future cashflows
from plans where the total consideration is weighted towards future
instalments, including an allowance for future investment returns,
more than offsets the contracts where the assets transferable to
Dignity are lower than the payments made by customers.
An analysis of expected cash inflows (being any further
instalments under the funeral plans, estimates of assets to be
received from the ceding trusts and memorial revenue) and outflows
(principally the costs of delivering the funeral) has been prepared
for each individual plan in accordance with IAS 37 to identify
whether the contracts will be loss making. This has considered the
revenue at the expected maturity date, after accreting the expected
cash inflows using the significant financing component used for the
individual contract, consistent with the accounting methodology
adopted for contract liabilities.
The consolidated financial statements include a provision of
GBP13.6 million in relation to funeral plans. This includes GBP3.6
million relating to previous funeral plans and GBP10.0 million
relating to Rescue plans. The provision for Rescue plans is
comprised of an onerous contract provision of GBP8.9 million and a
provision for the Dignity Promise of GBP1.1 million, of which
GBP1.1 million (seven per cent) has been assessed as current in
line with contract liability for deferred revenue.
Onerous contract provision
The onerous contract provision reflects estimates in respect of
the value of assets due to Dignity from the ceding providers,
future instalments payable to Dignity by customers, the cost to
fulfil the plans, future cost inflation, the life expectancy of
plan holders and future cash inflows due from customers paying by
instalments, as well as the discount rate and significant financing
component.
The assets due from the ceding trusts to Dignity have not yet
been received. Under the asset transfer agreements with the ceding
trusts, Dignity is entitled to an equitable share of the trust
assets, as each plan receives the same percentage of payments made
into the trust to a level that distributes all of the remaining
assets. The value of payments made into the ceding trusts has been
calculated using the customer's plan price and outstanding future
instalments as provided by the ceding trusts. A range of 18 per
cent to 46 per cent for those trusts with remaining assets has been
assessed as recoverable for each contract.
The assets due from the ceding trusts to Dignity reflect data to
28 February 2022 (5,439 plans - GBP2.1 million), 30 June 2022
(6,432 plans - GBP5.0 million), 28 July 2022 (16,721 plans -
GBP19.5 million) and 30 December 2022 (8,973 plans - GBPnil
million). The valuation of assets due from the ceding trusts has
been estimated using the latest actuarial valuation reports
provided by the ceding trusts.
Where those reports were dated in 2021, additional data
containing customer payments and outstanding balances was obtained
from the ceding trusts to update the values to the dates listed
above, with no adjustments to the fair valuation of assets
themselves.
The Group have considered the potential for changes in the
assets due to Dignity from the ceding trusts between the
aforementioned dates and the balance sheet date, and whilst our
conclusion is that on balance, the values are more likely to have
increased (due to receipt of monthly instalment payments which
continued into those trusts until 31st October 2022 exceeding cash
outflows for funerals, administrative expenses), the Group is
taking a prudent approach in recognition of the inherent
uncertainty until the final asset position is confirmed by the
trustees. An increase/decrease of five per cent in the value of
trust assets due to Dignity would decrease/increase the provision
by GBP0.5 million and GBP0.6 million.
The cost to fulfil the plans includes all directly attributable
costs. This includes salaries, merchandise, vehicles and
disbursements payable to third parties as well as a commensurate
allocation of overheads including facilities costs and
depreciation. The average cost is approximately GBP2,100 per plan.
This is significantly higher than the marginal cost to Dignity of
fulfilling the plans as IAS 37 requires all directly attributable
fixed costs to be included in the assessment. An annual inflation
rate of two per cent for the cost to fulfil the plans has been
applied to the estimated maturity date. This is aligned to the
long-term Oxford Economics CPI forecast. A 50bps increase/ decrease
in the annual inflation rate would increase/decrease the provision
by GBP1.6 million and GBP1.2 million.
The life expectancy of plan holders has been estimated using the
no.17 English Life tables. An increase/decrease of one year would
decrease/increase the provision by GBP0.8 million and GBP0.9
million.
The significant financing component has been calculated based on
the expected discount rate that would be reflected in a separate
financing transaction between the Group and the plan holder at
contract inception. A 50bps increase/decrease in the annual rate
would decrease/increase the provision by GBP0.5 million and GBP0.6
million.
The discount rate applied in discounting the onerous provision
has been set at the 10-year UK GILT rate of 3.67 per cent for plans
with a maturity of 15 or less and the 20-year UK GILT rate of 4.03
per cent for all other plans as at the balance sheet date. A 50bps
increase/ decrease in both rates decrease/increase the provision by
GBP0.5 million and GBP0.6 million.
Dignity Promise
All funeral plans sold by Dignity include a feature that if the
pre-need funeral plan is payable by 13 or more monthly payments and
provided at the time of death all payments due under the plan are
up to date, Dignity will perform the funeral even if there is
shortfall in plan value compared with total amount paid, the
'Dignity Promise'. For all plans sold up until 29th July 2022, the
cost of unpaid instalments where a customer qualified for the
Dignity Promise were covered by an insurance product. This promise
applies to all Rescue plans, back dated to the date a customer took
out their plan with the previous provider. Dignity now provides
this benefit to customers free of charge and as such a provision
for the cost relating to Rescue plans of GBP1.1 million has been
included in these financial statements. This is estimated based on
actual experience of a claim rate of 2.2 per cent derived from
pre-need plans sold by Age UK Funeral Plans & National Funeral
Trust and an average cost per claim of GBP2,500 where the liability
is insured.
2 Revenue and segmental analysis
Operating segments are reported in a manner consistent with
internal reporting provided to the chief operating decision maker,
who is responsible for allocating resources and assessing
performance of the operating segments. The chief operating decision
maker of the Group has been identified as the two Executive
Directors.
For statutory purposes the Group has two reporting segments,
funeral services and crematoria, as under IFRS 15 only a single
performance obligation exists when a pre-arranged funeral plan is
sold, being the performance of a funeral. The Group also reports
central overheads, which comprise unallocated central expenses.
Revenue
Funeral services relate to two primary sources of revenue:
-- Funerals arranged and funded by the client at the time of
need, in addition to ancillary items, such as memorials and floral
tributes; and
-- Funerals arranged and funded by a pre-arranged Trust funeral
plan, for which amounts recognised as revenue arise from the
derecognition of deferred revenue on completion of the related
performance obligation.
Crematoria services relate to cremation services and the sale of
memorials and burial plots at the Dignity operated crematoria and
cemeteries.
Underlying revenue and operating profit
For the purpose of alternative performance measures the Group
has three reporting segments, funeral services, crematoria and
pre-arranged funeral plans, as the chief operating decision maker
reviews segmental performance before applying the effect of IFRS
15.
Funeral services relate to the provision of funerals and
ancillary items, such as memorials and floral tributes.
Crematoria services relate to cremation services and the sale of
memorials and burial plots at the Dignity crematoria and
cemeteries.
Pre-arranged funeral plans represent the sale of funerals in
advance to clients wishing to make their own funeral arrangements
and the marketing and administration costs associated with making
such sales.
Substantially all Trading Group revenue is derived from, and
substantially all of the Trading Group's net assets and liabilities
are located in, the United Kingdom and Channel Islands and relates
to services provided. Overseas transactions are not material.
Underlying revenue and underlying operating profit are stated
before non-underlying items and the effect of consolidation of the
Trusts and applying IFRS 15 as defined on pages 51 to 54.
Reconciliations to statutory amounts
Non-underlying items represent certain non-recurring or
non-trading transactions. See alternative performance measures on
pages 51 and 52 for further details.
Other adjustments reflect the consolidation of the Trusts and
applying IFRS 15. Underlying revenue substitutes revenue arising
from the derecognition of deferred revenue on completion of the
related performance obligation, which includes the impact of
significant financing, with the payments received from the Trusts
on the death of a plan member, and recognises marketing allowances
at the inception of a plan, net of an allowance for cancellations.
Underlying revenue also excludes amounts relating to disbursements
and external payments made when the performance of the plan funeral
is delivered by third parties.
Disaggregated revenue
The disaggregated revenue and operating profit/(loss), by
segment, is shown in the following tables:
Other
Underlying revenue adjustments(1) Revenue
52 week period ended 30 December 2022 GBPm GBPm GBPm
-------------------------------------- ------------------ --------------- -------
Funeral services 176.4 64.8 241.2
Crematoria 81.9 - 81.9
Pre-arranged funeral plans 12.2 (12.2) -
-------------------------------------- ------------------ --------------- -------
Group 270.5 52.6 323.1
-------------------------------------- ------------------ --------------- -------
(1) See alternative performance measures on page 53 for a reconciliation of other adjustments.
Within funeral services revenue GBP105.6 million relates to the
release of deferred revenue arising on the completion of
performance obligations or on cancellation under pre-need Trust
plans.
In addition to the adjustments noted above relating to revenue,
in arriving at underlying operating profit further other
adjustments, reflecting the impact of consolidating the Trusts and
applying IFRS 15, have been recorded. This includes corresponding
entries relating to the exclusion of disbursements and external
payments made when the performance of the funeral is delivered by
third parties. Adjustments are also made to exclude the
administration costs of the Trusts and to recognise commissions
payable at the inception of a plan rather than on delivery of the
funeral or cancellation.
The corporate interest restriction charge has been included
within underlying taxation in 2022 as the charge has arisen due to
the level of profitability of the Trading Group. In prior periods,
the charge has been included within 'other adjustments' as
non-underlying as the charge arose due to the level of fair value
gains on the Trust bond portfolio as all Trust related items are
included as non-underlying.
Underlying
operating
profit/(loss)
before Underlying
depreciation depreciation Underlying
52 week period and and operating Non-underlying Other Operating
ended 30 amortisation amortisation profit/(loss) items(1) adjustments(1) profit/(loss)
December 2022 GBPm GBPm GBPm GBPm GBPm GBPm
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Funeral services 29.9 (18.9) 11.0 (206.2) 2.4 (192.8)
Crematoria 47.5 (8.0) 39.5 (0.9) - 38.6
Pre-arranged
funeral plans - - - (0.1) 0.1 -
Central
overheads (31.1) (1.5) (32.6) (14.3) - (46.9)
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Group 46.3 (28.4) 17.9 (221.5) 2.5 (201.1)
Finance costs (28.0) (28.0)
Deferred revenue
significant
financing (50.9) (50.9)
Remeasurement of
financial
assets held by
the Trusts and
related income (48.6) (48.6)
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Loss before
taxation (10.1) (221.5) (97.0) (328.6)
Taxation 0.8 23.2 29.4 53.4
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Underlying
earnings for
the period (9.3)
Non-underlying
items (198.3)
Other
adjustments (67.6)
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Loss after
taxation (275.2)
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Loss per share
for profit
attributable to
equity
shareholders
- Basic (pence) (18.6)p (550.4)p
- Diluted
(pence) (550.4)p
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
(1) See alternative performance measures on pages 52 and 53 for
a reconciliation of non-underlying items and other adjustments.
Other
Underlying revenue adjustments(1) Revenue
53 week period ended 31 December 2021 GBPm GBPm GBPm
-------------------------------------- ------------------ --------------- -------
Funeral services 201.9 66.3 268.2
Crematoria 85.5 - 85.5
Pre-arranged funeral plans 24.6 (24.6) -
-------------------------------------- ------------------ --------------- -------
Group 312.0 41.7 353.7
-------------------------------------- ------------------ --------------- -------
(1) See alternative performance measures on page 54 for a reconciliation of other adjustments.
Within funeral services revenue GBP108.1 million relates to the
release of deferred revenue arising on the completion of
performance obligations or on cancellation under pre-need Trust
plans.
In addition to the adjustments noted above relating to revenue,
in arriving at underlying operating profit further other
adjustments, reflecting the impact of consolidating the Trusts and
applying IFRS 15, have been recorded. This includes corresponding
entries relating to the exclusion of disbursements and external
payments made when the performance of the funeral is delivered by
third parties. Adjustments are also made to exclude the
administration costs of the Trusts and to recognise commissions
payable at the inception of a plan rather than on delivery of the
funeral or cancellation.
Underlying
operating
profit/(loss)
before Underlying
53 week period depreciation depreciation Underlying Other Operating
ended 31 and and operating Non-underlying adjustments(1) profit/(loss)
December 2021 - amortisation amortisation profit/(loss) items(1) restated restated
restated(2) GBPm GBPm GBPm GBPm GBPm GBPm
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Funeral services 67.6 (19.4) 48.2 (45.4) 11.9 14.7
Crematoria 54.5 (7.5) 47.0 (0.5) - 46.5
Pre-arranged
funeral plans - - - (0.1) 0.1 -
Central
overheads (37.2) (2.2) (39.4) (2.3) - (41.7)
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Group 84.9 (29.1) 55.8 (48.3) 12.0 19.5
Finance costs (29.0) - - (29.0)
Deferred revenue
significant
financing (51.6) (51.6)
Remeasurement of
financial
assets held by
the Trusts and
related income 93.1 93.1
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Profit before
taxation 26.8 (48.3) 53.5 32.0
Taxation -
continuing
activities (5.4) 2.5 (10.1) (13.0)
Taxation - rate
change - (8.3) 1.4 (6.9)
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Taxation - total (5.4) (5.8) (8.7) (19.9)
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Underlying
earnings for
the period 21.4
Non-underlying
items (54.1)
Other
adjustments 44.8
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Profit after
taxation 12.1
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
Earnings per
share for profit
attributable to
equity
shareholders -
restated (2)
- Basic (pence) 42.8p 24.2p
- Diluted
(pence) 24.2p
---------------- --------------- --------------- --------------- -------------- --------------- ----------------
(1) See alternative performance measures on pages 52 and 53 for
a reconciliation of non-underlying items and other adjustments.
(2) Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a reclassification of foreign
exchange movements. See note 1 for further details
3 Net finance costs 53 week
period ended
31 December 2021
52 week period ended 30 December 2022 restated(1)
GBPm GBPm
------------------------------------------------------------ ------------------------------------- -----------------
Finance costs
Secured Notes 22.7 23.1
Other loans 0.6 0.9
Finance costs on IFRS 16 lease liability 4.4 4.5
Net finance cost on retirement benefit obligations 0.3 0.5
------------------------------------------------------------ ------------------------------------- -----------------
Finance costs 28.0 29.0
------------------------------------------------------------ ------------------------------------- -----------------
Deferred revenue significant financing (note 9) 50.9 51.6
------------------------------------------------------------ ------------------------------------- -----------------
Remeasurement of financial assets held by the Trusts and
related income
Investment income (22.2) (9.8)
Fair value loss/(gain) on financial assets held by the
Trusts (note 8) 57.7 (85.0)
Hedging/foreign exchange rate losses arising on financial
assets held by the Trusts 13.1 1.7
------------------------------------------------------------ ------------------------------------- -----------------
Remeasurement of financial assets held by the Trusts and
related income 48.6 (93.1)
------------------------------------------------------------ ------------------------------------- -----------------
Underlying net finance costs
Underlying finance costs 28.0 29.0
Finance income - -
------------------------------------------------------------ ------------------------------------- -----------------
Underlying net finance costs 28.0 29.0
------------------------------------------------------------ ------------------------------------- -----------------
(1) Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a presentation change in
relation to a reclassification of foreign exchange movements. See
note 1 for further details.
4 Taxation
53 week period
52 week period ended ended
30 December 2022 31 December 2021
Analysis of charge in the period GBPm GBPm
---------------------------------------------------------- -------------------- -----------------
Current tax - current period 0.7 7.7
Adjustments for prior period (0.5) (0.2)
---------------------------------------------------------- -------------------- -----------------
Total corporation tax 0.2 7.5
---------------------------------------------------------- -------------------- -----------------
Deferred tax - current period (54.2) 5.4
Adjustments for prior period 0.6 0.1
Restatement of deferred tax for the change in UK tax rate - 6.9
---------------------------------------------------------- -------------------- -----------------
Total deferred tax (53.6) 12.4
---------------------------------------------------------- -------------------- -----------------
Taxation (53.4) 19.9
---------------------------------------------------------- -------------------- -----------------
In the March 2021 budget and confirmed in the October 2022
budget, legislation to increase the main rate of corporation tax
from 19 per cent to 25 per cent from 1 April 2023 has been
confirmed. The change was substantively enacted during the prior
period; as a result, the Group recognised a non-underlying taxation
charge of GBP6.9 million through its income statement and a credit
of GBP1.9 million through other comprehensive income to reflect the
one-off increase in the period of the Group's deferred tax position
within the 53 week period ended 31 December 2021. The credit of
GBP0.6 million for the period ended 30 December 2022 relates to the
recognition of losses at 25 per cent as this is the corporate tax
rate at which they are expected to unwind.
5 Earnings per share
The calculation of basic earnings per Ordinary Share has been
based on the profit attributable to equity shareholders for the
relevant period.
For diluted earnings per Ordinary Share, the weighted average
number of Ordinary Shares in issue is adjusted to assume conversion
of any dilutive potential Ordinary Shares.
The Group has two classes of potentially dilutive Ordinary
Shares, being those share options granted to employees under the
Group's SAYE scheme and the contingently issuable shares under the
Group's LTIP schemes. At the balance sheet date, the performance
criteria for the vesting of the awards under the LTIP schemes,
including any deferred annual bonus, are assessed, as required by
IAS 33, and to the extent that the performance criteria have been
met those contingently issuable shares are included within the
diluted EPS calculations. As the impact of these shares is
anti-dilutive for the 52 week period ended 30 December 2022, no
adjustment has been made in respect of arriving at diluted earnings
per Ordinary Share measures for that period (2021: dilutive so an
adjustment).
The Group's underlying measures of profitability exclude
non-underlying items, the effects of IFRS 15 and consolidation of
the Trusts as set out on pages 51 to 57. 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 Ordinary Share
calculated by reference to this underlying performance measure
helps users of the financial statements to fully understand the
trading performance and financial position of the Group.
Reconciliations of the earnings and the weighted average number
of shares used in the calculations are set out below:
Earnings Per share amount
GBPm Weighted average number of shares millions pence
---------------------------------------------- -------- ------------------------------------------ ----------------
52 week period ended 30 December 2022
Underlying loss after taxation and EPS (9.3) 50.0 (18.6)
Add: Non-underlying items (net of taxation
credit of GBP23.2 million) (198.3)
Add: Other adjustments (net of taxation credit
of GBP29.4 million) (1) (67.6)
---------------------------------------------- -------- ------------------------------------------ ----------------
Loss attributable to shareholders - Basic EPS (275.2) 50.0 (550.4)
---------------------------------------------- -------- ------------------------------------------ ----------------
Loss attributable to shareholders - Diluted
EPS (275.2) 50.0 (550.4)
---------------------------------------------- -------- ------------------------------------------ ----------------
53 week period ended 31 December 2021
Underlying profit after taxation and EPS 21.4 50.0 42.8
Add: Non-underlying items (net of taxation
charge of GBP5.8 million) (54.1)
Add: Other adjustments (net of taxation charge
of GBP8.7 million) (1) 44.8
---------------------------------------------- -------- ------------------------------------------ ----------------
Profit attributable to shareholders - Basic
EPS 12.1 50.0 24.2
---------------------------------------------- -------- ------------------------------------------ ----------------
Profit attributable to shareholders - Diluted
EPS 12.1 50.1 24.2
---------------------------------------------- -------- ------------------------------------------ ----------------
(1) See note 2 for further details.
6 Goodwill and other intangible assets
Trade Use of third
names(1) party brand name Other(2) Software Non-compete Sub-total Goodwill Total
GBPm GBPm GBPm GBPm agreements GBPm GBPm GBPm GBPm
------------------ --------- ----------------- -------- -------- ------------------ --------- -------- -------
Cost
At 25 December
2020 150.4 3.2 4.7 2.7 0.2 161.2 232.6 393.8
Additions - - - - - - 0.4 0.4
------------------ --------- ----------------- -------- -------- ------------------ --------- -------- -------
At 31 December
2021 150.4 3.2 4.7 2.7 0.2 161.2 233.0 394.2
Additions (3) - - - 0.7 - 0.7 0.2 0.9
------------------ --------- ----------------- -------- -------- ------------------ --------- -------- -------
At 30 December
2022 150.4 3.2 4.7 3.4 0.2 161.9 233.2 395.1
------------------ --------- ----------------- -------- -------- ------------------ --------- -------- -------
Accumulated amortisation and impairment
At 25 December
2020 (35.8) (2.0) (1.8) (0.9) (0.2) (40.7) (28.7) (69.4)
Amortisation
charge (3.6) (0.2) (0.4) (0.3) - (4.5) - (4.5)
Trade name
write-off(4) (2.5) - - - - (2.5) - (2.5)
Impairment (2.8) - - - - (2.8) (36.4) (39.2)
------------------ --------- ----------------- -------- -------- ------------------ --------- -------- -------
At 31 December
2021 (44.7) (2.2) (2.2) (1.2) (0.2) (50.5) (65.1) (115.6)
Amortisation
charge (3.3) (0.1) (0.4) (0.3) - (4.1) - (4.1)
Trade name
write-off(4) (6.4) - - - - (6.4) - (6.4)
Impairment (47.5) - - - - (47.5) (112.3) (159.8)
------------------ --------- ----------------- -------- -------- ------------------ --------- -------- -------
At 30 December
2022 (101.9) (2.3) (2.6) (1.5) (0.2) (108.5) (177.4) (285.9)
Net book amount at
30 December 2022 48.5 0.9 2.1 1.9 - 53.4 55.8 109.2
------------------ --------- ----------------- -------- -------- ------------------ --------- -------- -------
Net book amount at
31 December 2021 105.7 1.0 2.5 1.5 - 110.7 167.9 278.6
------------------ --------- ----------------- -------- -------- ------------------ --------- -------- -------
Net book amount at
25 December 2020 114.6 1.2 2.9 1.8 - 120.5 203.9 324.4
------------------ --------- ----------------- -------- -------- ------------------ --------- -------- -------
(1) Trade names arise on the acquisitions of funeral businesses
and their fair value is calculated by reference to the estimated
incremental cash flows expected to arise by virtue of the trade
name being well established. There are no individually material
trade names that amount to 6 per cent or more of the total net book
value.
(2) Within other intangibles is GBP2.1 million relating to
previously acquired interests in two crematoria subject to finite
periods of operation (by way of lease and/or service concession).
The fair value of these interests has been identified and
recognised as a separate intangible asset. The value of each
interest will be amortised over the remaining period of
operation.
(3) Software additions in the period of GBP0.7 million within
other intangibles relate to costs incurred in the development of
the new pre-arranged funeral plan journey platform which includes
website development. This is still in the course of construction at
the period end and amortisation has not been charged and will not
commence until the websites are in use.
(4) During the 52 week period ended 30 December 2022, the Group
identified 20 (2021: seven) specific trade names that are no longer
being used within the Group under the new regional structure and
those intangible assets were required to be written off.
Goodwill acquisitions in 2022
On 18 March 2022, the Group acquired the trade and certain
assets of Beyond Life Limited, a non-listed company based in the UK
that offers online will writing and other services in relation to
end-of-life care. The Group acquired the business because the
online offering is seen as an enhancement to the services the Group
provides.
The fair values of the identifiable assets and liabilities of
the business as at the date of acquisition were negligible and
consequently, the consideration relates substantially to goodwill
arising on acquisition, none of which is tax deductible. The cash
consideration paid was GBP0.2 million. The goodwill comprises the
value of expected access to customers and making available
information and support to a wider customer base. Goodwill is
allocated entirely to the funeral services segment.
From the date of acquisition, the business is not expected to
contribute significantly to revenue or profit in the short-term
until the Group provides investment in the business' operations to
increase awareness of the service within the industry.
Goodwill acquisitions in 2021
On 16 September 2021, the Group acquired the entire share
capital of Funeral Advisor Limited, a non-listed company based in
the UK that offers a free online resource to support individuals
and families to research and organise a funeral online. The Group
acquired Funeral Advisor Limited because the online offering is
seen as an enhancement to the services it provides .
Goodwill of GBP0.4 million was made up of GBP0.2 million cash
consideration, GBP0.1 million deferred consideration and GBP0.1
million contingent consideration.
The fair value of the contingent consideration at the
acquisition date was estimated to be GBP0.1 million and has
subsequently been re-calculated at GBP0.2 million based on latest
management estimates. The fair value is determined using a
discounted cash flow method. Future developments may require
further revisions to the estimate. The maximum contingent
consideration to be paid is GBP0.7 million .
Impairment tests for goodwill and trade names
Goodwill i s subject to an annual impairment test in accordance
with IAS 36, 'Impairment of Assets'. Other non-current assets are
also subject to an impairment test as at 30 December 2022 as in
accordance with IAS 36, 'Impairment of Assets', there is an
indication of impairment due to slower funeral market share growth,
combined with more branch direct cremations rather than attended
funerals being performed than originally anticipated in December
2021 and the subsequent short-term forecasts used for impairment
testing at that time.
For the purpose of this impairment test goodwill is tested at a
business segment level as this is the lowest level at which the
return on assets acquired, including goodwill, is monitored.
The segmental allocation of goodwill and the recoverable amount
of the goodwill cash-generating unit ('CGU') is shown below:
Book value Recoverable amount
Book value Recoverable amount 31 31
30 December 2022 30 December 2022 December 2021 December 2021
GBPm GBPm GBPm GBPm
----------------- ----------------- ------------------ -------------- ------------------
Funeral services - 108.2 112.1 371.3
Crematoria 55.8 371.7 55.8 391.5
----------------- ----------------- ------------------ -------------- ------------------
55.8 479.9 167.9 762.8
----------------- ----------------- ------------------ -------------- ------------------
The recoverable amount of each goodwill CGU is based on a
value-in-use calculation. The impairment assessment then compares
this value-in-use calculation to the carrying value of the CGU. Any
impairment is then recognised in administrative expenses in the
consolidated income statement.
The value-in-use calculations use cash flow projections derived
from the latest forecast. Key assumptions used to produce the
forecast are the estimated UK death rates (based on forecast death
rates supplied by the ONS), anticipated market share, average
revenues driven by pricing and the product mix between attended
funerals at GBP2,729 and unattended funerals at GBP1,048 and medium
and long-term growth rates. The value-in-use calculations for the
December 2022 model include the approved forecast for 2023, 2024
and 2025. The 2023 forecast assumes death rates are approximately
one percent higher compared to the actual rate in 2022 and then
revert back to announced ONS figures for 2024 and 2025. Market
share growth assumptions reflect forecasted increases of 10 basis
points in 2023 to 12.0 per cent and a further 20 basis points in
both 2024 and 2025 giving market share of 12.2 per cent and 12.4
per cent respectively compared with the closing market share as at
30 December 2022 of 11.9 per cent. This market share growth is
supported by performance in areas of the business where the new
strategy is embedded, which is forecast to continue as this is
completed across the funeral segment. The market share is modelled
to then stabilise at the projected 2025 year end market share
position over the remaining forecast period. Average revenues and
product mix are based on week eight 2023 year to date actual
performance. Management have then assumed that future revenue
increases will equal future cost inflation.
Cash flows for segments beyond the initial 36 month period
(December 2021: 36 month period) are extrapolated to 2042
('medium-term growth rate') using the growth in the ONS death rate
as this is deemed to be a reliable indicator of future growth for
the Group. The medium-term growth rates range from 2.3 per cent to
11.7 per cent (December 2021: 2.25 per cent). Beyond 2042
('long-term growth rate') a growth rate of 2.25 per cent (December
2021: 2.25 per cent) is used, being an estimate of long-term
growth, which reflects the expectations of long-term inflation and
death rates. The ONS issued updated death rates in January 2022 and
together with a with a further 14 months of death data they are
deemed to be a reliable estimate of the longer-term future volumes.
The cash flows for each segment are discounted at a pre-tax rate of
12.9 per cent (December 2021: 10.3 per cent).
Goodwill assessment
The impairment calculation indicated no impairment in the
crematoria division with headroom under the current assumptions
used of GBP147.8 million (2021: GBP170.3 million). The discount
rate would need to increase to 21.2 per cent (2021: increase to
17.7 per cent) or the long-term growth rate would need to fall to
minus 9.0 per cent (2021: minus 7.7 per cent) for the impairment
test to result in GBPnil headroom for this segment. The likelihood
of such movements in the discount rate and growth rate is deemed
unlikely based on current market conditions.
The impairment assessment of the funeral services division has
resulted in an impairment of goodwill of GBP112.3 million (2021:
GBP36.4 million) which has been recognised within administrative
expenses in the consolidated Income statement. The forecasts used
in the assessment reflect the slower than expected market share
growth which is a result of the new strategy taking longer to
implement largely due to staff shortages. The Group is currently
suffering like many other businesses with a shortage of workforce
and a difficulty in recruiting which is causing us to be unable to
offer funerals in a timeframe soon enough for some families and
hence some business has been lost to competitors. The forecasts
also reflect the at-need product mix in funerals being more
weighted to branch direct cremations (unattended funerals) than
originally anticipated, with future assumptions aligned to actual
year-to-date experience of attended 56 per cent and unattended 12
per cent of total funerals.
Whilst the Group expects further long-term market share growth
from the new strategy, the accounting standard (IAS 36) for
impairment assessments does not allow forecasts to be used where
assumptions cannot be evidenced or have not yet been implemented
(e.g. cost savings). As a result, whilst the Group is committed to
delivering its market share growth ambitions, given the infancy of
the strategic plan implementation and the available evidence to
demonstrate this growth as at the period ended 30 December 2022
when the impairment assessment is made, the full extent of
potential longer-term gains is not reflected in the impairment
modelling.
Trade name, right-of-use and property, plant and equipment
assessment
In addition to the Group's goodwill impairment test, given the
changes in the funeral market noted above, an impairment test was
performed in respect of the Group's other non-current assets in
accordance with the requirements of IAS 36.
A value-in-use calculation has been performed against an
individual CGU, which for the purposes of other non-current assets
is deemed to be at a cost centre level, which includes a number of
branches. This is the lowest level at which independent cash
inflows can be identified due to the interdependency of various
elements in relation to the care of the deceased, performance of a
funeral or administration work, which can and are often carried out
by any branch within a cost centre. This is also the lowest level
at which costs are captured, for example all payroll costs for this
collection of branches would be charged to the cost centre and not
the individual branches due to the sharing of resources across the
branches. Management have considered alternative judgements
relating to the determination of CGU's, however the above is
considered to be the most practicable and balanced. The CGU cash
flows are based on the individual CGU projections for the next 12
months and include an allocation of central costs and then adjusted
in years two and three onwards using the same assumptions as used
within the goodwill impairment assessment described above. As
goodwill is not allocated at a cost centre CGU level the impairment
test for other non-current assets is performed before goodwill at a
business segment level.
Identified impairments at a CGU level are pro-rated against
non-current assets based on the net book value and include an
allocation of central assets. The performance of this impairment
assessment at cost centre level indicated an impairment within the
funeral services segment of:
-- GBP47.5 million (December 2021: GBP2.8 million) in relation
to trade names;
-- GBP17.4 million (December 2021: GBPnil) in relation to
right-of-use assets; and
-- GBP19.1 million (December 2021: GBPnil) in relation to
property, plant and equipment.
GBP0.7 million (December 2021: GBPnil) has been recognised
within cost of sales and GBP83.3 million (December 2021: GBP2.8
million) recognised within administrative expenses in the
consolidated income statement.
The recoverable amount of all impaired CGUs within the funeral
services division is GBP20.6 million which is based on a
value-in-use calculation. In line with IAS 36 an exercise has been
performed on an asset-by-asset basis to ensure that no asset (or
CGU) has been impaired below its value-in-use or fair value less
cost of disposal. This exercise has included obtaining external
market valuations which were principally available for freehold
properties and vehicles and an assumption that additions to plant
and equipment in the last 12 months is a proxy to fair value. In
addition, an assessment has been performed on right-of-use assets
to assess market rents and the ability to sub-let properties to
determine a discounted cashflow. The recoverable amount for trade
names in impaired CGU's is considered to be nil. These impairments
and the subsequent reduction in net book value have been reflected
within the above goodwill impairment calculations to reflect the
lower asset base.
Goodwill and other non-current asset sensitivities
The impairment booked is based on management's best estimate of
future performance; however, there is significant estimation
uncertainty and judgement involved in determining future cash
flows. The following table demonstrates the impact on the above
impairment charges in the funeral services segment based on a
number of reasonably possible sensitivities:
Decrease/(increase) in impairment charge
----------------------------------------
Total
Sensitivity applied: GBPm
--------------------------------------------------------------- ----------------------------------------
Increase in discount rate of 1 per cent (to 13.9 per cent) (1.4)
Increase in 2023 funeral services EBITDA and beyond of GBP3.0m 1.4
Decrease in 2023 funeral services EBITDA and beyond of GBP3.0m (1.6)
--------------------------------------------------------------- ----------------------------------------
(1) The sensitivities above reflect similar fair value
assessments for freehold properties, vehicles and plant and
equipment. The recoverable amount of right-of-use assets and trade
names is included as nil. In the event of further impairment, it is
expected that a number of assets will have a measurable fair value
less costs of disposal above the value-in-use of the assets, such
that any additional impairment recognised is likely to be lower
than demonstrated. However, such analysis cannot be reliably
estimated until any additional impairment results as it is only
then that an assessment can be made of the fair value less costs of
disposal to ensure that the asset is written down to its
appropriate carrying value (being the higher of value-in-use and
fair value less costs of disposal).
7 Cash and cash equivalents
30 December 2022 31 December 2021
Note GBPm GBPm
--------------------------------------------------------------------------- ----- ---------------- ----------------
Trading Group 7.7 55.9
Trusts (a) 9.4 19.8
--------------------------------------------------------------------------- ----- ---------------- ----------------
Operating cash as reported in the consolidated statement of cash flows as cash and
cash equivalents 17.1 75.7
Amounts set aside for debt service payments (b) - -
--------------------------------------------------------------------------- ----- ---------------- ----------------
Cash and cash equivalents as reported in the balance sheet 17.1 75.7
---------------------------------------------------------------------------------- ---------------- ----------------
(a) Trusts cash balances
All assets of the Trusts can, by definition, only be used for
certain prescribed purposes such as, but not limited to, the
payment for a funeral or a refund on cancellation of a plan. They
cannot be used for day-to-day operational activities of the wider
Trading Group and could not, for example, be used to fund a capital
expenditure project. The cash is held in Trust bank accounts but is
accessible without restriction and can be used within the Trusts
for any allowable purpose, such as payment following the
performance of a funeral. As Dignity is considered to control the
activities of the Trusts, this cash balance meets the requirements
to be included in cash and cash equivalents for the purposes of IAS
7.
(b) Amounts set aside for debt service payments
Amounts are transferred to these restricted bank accounts
shortly in advance of making the bi-annual payments to the holders
of the Secured Notes, which include the payment of the interest and
principal on the Secured Notes, the repayment of liabilities due on
the Group's commitment fees due on its undrawn borrowing facilities
and for no other purpose. The consolidated statement of cash flows
shows the gross amounts of payments to the restricted bank accounts
as 'finance costs paid' and 'payments due under Secured Notes', in
accordance with their nature. Supplementary information is provided
to show the actual payments to the Noteholders and the movement in
the restricted bank accounts in the period. The amounts shown as
'transfer from restricted bank accounts for finance costs' and
'payments to the restricted bank accounts for repayment of
borrowings' relate to the opening and closing balances of the
account respectively, and hence the figures presented for the 52
week period ended 30 December 2022 exclude the mid-year transfers
and payments. No amounts were included in December 2022 or December
2021 as the payments to these respective parties were made on 30
December 2022 and 31 December 2021 and therefore there was no
restricted cash.
The Note Trustees have charge over this restricted bank
account.
8 Financial assets - held by the Trusts
30 December 2022 31 December 2021
GBPm GBPm
------------------------------------ ---------------- ----------------
Financial assets held by the Trusts 957.3 1,043.1
------------------------------------ ---------------- ----------------
The Trusts of Age UK Funeral Plans and the National Funeral
Trust continue to take independent advice regarding the investment
strategy. The current portfolio profile is as follows:
Example investment types Actual (%)
------------------------ --------------------------------------- ----------
Defensive investments Index linked gilts and corporate bonds 10-12
Illiquid investments Private equity investments 6-8
Core growth investments Equities 64-67
Liquid investments Cash portfolios 16-17
------------------------ --------------------------------------- ----------
The assets of the UK Funerals (2022) Trust are currently held in
cash totalling GBP6.8 million pending an investment.
Given the high percentage of investments held within equities,
this does impose an inherent risk of exposure to downward falls in
equity markets. Such investments can be subject to volatility due
to movements in underlying markets and assets and can go up and
down. The Group monitors this closely and this forms part of its
considerations for its long-term investment strategy, noting that
the purpose of the Trust is to provide asset coverage (and a
surplus) to fund the pre-need funerals return which are forecast to
have an average maturity of 10 plus years.
Analysis of the movements in financial assets held by the
Trusts:
30 December 2022 31 December 2021
GBPm GBPm
--------------------------------------------------------------- ---------------- ----------------
Fair value at the start of the period 1,043.1 967.1
Remeasurement recognised in the consolidated income statement* (57.7) 85.0
Investment income* 22.2 7.7
Hedging/foreign exchange losses(1) * (13.1) (1.7)
Purchases 177.1 948.7
Disposals (214.1) (960.9)
Investment administrative expenses deducted at source (0.2) (2.8)
--------------------------------------------------------------- ---------------- ----------------
Fair value at the end of the period 957.3 1,043.1
--------------------------------------------------------------- ---------------- ----------------
(1) This represents foreign exchange differences and currency
hedges against exposure to global equity portfolios held by the
Trusts.
* The sum of these line items forms part of the remeasurement of
financial assets held by the Trusts and related income, recognised
in the consolidated income statement.
Interest and dividend income received is included within
remeasurements recognised in the consolidated income statement.
9 Deferred commissions and contract liabilities
Deferred commissions
30 December 2022 31 December 2021
GBPm GBPm
----------------------------------- ---------------- ----------------
Deferred commissions - current 7.0 7.6
Deferred commissions - non-current 93.7 100.9
----------------------------------- ---------------- ----------------
Deferred commissions represent directly attributable costs in
respect of the marketing of the pre-arranged funeral plans where
the plan has yet to be used or cancelled. An amount of GBP8.6
million (2021: GBP9.3 million) has been amortised to the
consolidated income statement within administrative expenses.
Contract liabilities
30 December 2022 31 December 2021
Note GBPm GBPm
---------------------------------------- ----- ---------------- ----------------
Current
Contract liabilities - deferred revenue (a) 97.9 98.6
Contract liabilities - refund liability (b) 0.9 1.0
---------------------------------------- ----- ---------------- ----------------
98.8 99.6
---------------------------------------------- ---------------- ----------------
Non-current
Contract liabilities - deferred revenue (a) 1,206.0 1,224.0
Contract liabilities - refund liability (b) 11.6 13.9
---------------------------------------- ----- ---------------- ----------------
1,217.6 1,237.9
---------------------------------------------- ---------------- ----------------
Movement in total contract liabilities
30 December 2022 31 December 2021
GBPm GBPm
-------------------------------------------------------------------------- ---------------- ----------------
Balance at the beginning of the year 1,337.5 1,317.5
Sale of new Trust plans 46.5 86.3
Increase due to significant financing 50.9 51.6
Recognition of revenue following delivery or cancellation of a Trust plan (118.5) (117.9)
-------------------------------------------------------------------------- ---------------- ----------------
Balance at the end of the year 1,316.4 1,337.5
-------------------------------------------------------------------------- ---------------- ----------------
(a) Contract liabilities - deferred revenue
Deferred revenue represents amounts received from pre-arranged
funeral plan holders adjusted to reflect a significant financing
component, and for which the Group has not completed its
performance obligations at the balance sheet date. The balance is
split between current and non-current based on historical
experience to reflect the expected number of plans to be utilised
within the next 12 months.
(b) Contract liabilities - refund liability
Refund liabilities represent amounts received from pre-arranged
funeral plan holders for which it is expected that the respective
plans will be cancelled based on historical experience. The balance
is split between current and non-current based on historical
experience to reflect the expected number of plans to be cancelled
within the next 12 months.
10 Net debt
30 December 31 December
2022 2021
GBPm GBPm
------------------------------------------------------------ ----------- -----------
Net amounts owing on Secured Notes per financial statements (516.1) (526.6)
Add: unamortised issue costs (0.4) (0.5)
------------------------------------------------------------ ----------- -----------
Gross amounts owing (516.5) (527.1)
------------------------------------------------------------ ----------- -----------
Accrued interest on Secured Notes - -
Cash and cash equivalents - Trading Group (note 7) 7.7 55.9
------------------------------------------------------------ ----------- -----------
Net debt (508.8) (471.2)
------------------------------------------------------------ ----------- -----------
Net debt is an alternative performance measure calculated as
shown in the table. Net debt excludes any liabilities recognised in
accordance with IFRS 16.
The Group's primary financial covenant 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. During the
temporary covenant waiver period that was approved by bondholders
in March 2022, any cash transferred into the Securitisation Group
during the waiver period (up to 31 March 2023) can be included
within the EBITDA to debt service covenant ratio for the following
12 months. As a result, any cash transferred during 2022 will be
included in the quarterly covenant calculations to September 2023
and any cash transferred in the first quarter of 2023 can be
included in the quarterly covenant calculations to December 2023. A
cash transfer of GBP34.1 million has been made for the covenant
measurement point up to and including 31 December 2022, resulting
in a ratio of 1.96 times (2021: 2.13 times). Excluding this cash
transfer the ratio at 30 December 2022 was 0.95 times (2021: 2.13
times). The calculations are unaffected by the consolidation of the
Trusts or the application of IFRS 15 and IFRS 16 described
elsewhere, as the Group was able to elect to disregard those
changes when making the calculations. See Financial review on pages
11 and 12.
If this primary financial covenant is not achieved, then this
may lead to an Event of Default under the terms of the Secured
Notes, which could result in the Security Trustee taking control of
the Securitisation Group on behalf of the Secured Noteholders.
These ratios are calculated for EBITDA and total debt service on
a 12 month rolling basis and reported quarterly. In addition, both
terms are specifically defined in the legal agreement relating to
the Secured Notes. As such, they cannot be accurately calculated
from the contents of this report.
The Group also has access to a GBP55.0 million liquidity
facility relating to the Class A and Class B Secured Notes which
attracts floating interest rates once drawn.
11 Reconciliation of cash generated from operations
53 week period
52 week period ended ended
30 December 31 December
2022 2021
GBPm GBPm
----------------------------------------------------------------- -------------------- --------------
Net (loss)/profit for the period (275.2) 12.1
Adjustments for:
Taxation (53.4) 19.9
Net finance costs 56.7 70.8
Loss/(profit) on disposal of fixed assets 0.1 (1.1)
Depreciation charges on property, plant and equipment 20.2 19.9
Depreciation charges on right-of-use asset 7.9 9.2
Amortisation of intangibles 4.1 4.5
Movement in inventories 0.7 0.4
Movement in trade receivables (1.1) (2.5)
Movement in trade payables 1.8 3.7
Movement in contract liabilities (71.9) (31.6)
Fair value movement on financial assets held by the Trusts 57.7 (85.0)
Net pension charges less contributions (4.0) (1.3)
Trade name write-off (note 6) 6.4 2.5
Trade name impairment (note 6) 47.5 2.8
Goodwill impairment (note 6) 112.3 36.4
Right-of-use asset impairment 17.4 -
Property, plant and equipment impairment 19.1 -
Changes in other working capital - Trading Group 3.6 2.2
Changes in other working capital - Trust 4.6 0.1
Provisions relating to funeral plans 13.6 -
Trust investment administrative expenses deducted at source 0.2 2.8
Hedging/foreign exchange rate difference - Trust assets 13.1 1.7
Employee share option charges 0.4 0.8
Payment in relation to amendment of Secured Loan Notes agreement 0.5 -
----------------------------------------------------------------- -------------------- --------------
Cash flows from operating activities (17.7) 68.3
----------------------------------------------------------------- -------------------- --------------
12 Analysis of the movement in the retirement benefit
obligation
2022 2021
GBPm GBPm
--------------------------------------------------------------------------------------- ------ ------
At beginning of period (19.7) (36.6)
Total expense as above charged to the income statement (0.8) (1.0)
Remeasurement gains and administration expenses credited to other comprehensive income 5.2 15.6
Contributions by Group 4.5 2.3
--------------------------------------------------------------------------------------- ------ ------
At end of period (10.8) (19.7)
--------------------------------------------------------------------------------------- ------ ------
13 Basis of preparation
These financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and UK-adopted
international accounting standards ('IFRS').
In the current period, the Group's consolidated financial
statements have been prepared for the 52 week period ended 30
December 2022. For the comparative period, the Group's consolidated
financial statements have been prepared for the 53 week period
ended 31 December 2021.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 30 December 2022
or 31 December 2021 but is derived from those accounts. Statutory
accounts for 2021 have been delivered to the registrar of
companies, and those for 2022 will be delivered in due course. The
auditors have reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006 in respect of the
accounts for 2020 and 2021.
The Group's consolidated financial statements are prepared on a
going concern basis and have been prepared under the historical
cost convention.
The principal accounting policies adopted in the preparation of
these financial statements have been consistently applied to all
periods presented.
Going concern
The financial performance of the Group and the Securitisation
Group has been forecast for a period through 31 March 2024 (the
'going concern period') and those forecasts ('base case') have been
subjected to a number of sensitivities. The base case forecasts
reflect an assessment of current and future market conditions and
their impact on the future profitability and liquidity of the Group
and the Securitised Group.
The key factors which impact the Group's financial performance
are death rate, market share, funeral mix (Attended Funeral vs
Unattended Funeral), average revenue per funeral and inflation.
As discussed in the 2022 interim results, the performance
against the planned strategy in H1 2022 was behind that originally
anticipated as it was taking longer to restructure funeral
operations and the Group had challenges with staff shortages; and
as such forecasts were adjusted to allow for a slower growth in
market share whilst the new strategy is fully embedded and
vacancies for key roles are filled. These challenges have continued
to impact H2 2022 and as a result have resulted in lower covenant
headroom than previously forecast for the going concern period.
However, in those areas of the business where we have done the most
to introduce the elements of our new strategy, we are continuing to
see encouraging results of the market share growth we are
seeking.
The base case assumes death rates are approximately one percent
higher in 2023 compared to 2022 and in line with ONS figures for
2024, funeral market share growth of one per cent in 2023 (phased
through the year, being 12.4 per cent for 2023 compared to 11.9 per
cent in 2022), with funeral mix remaining at the current rates and
an uplift in average revenues reflecting an October 2022 price
adjustment and having considered the expected impact of inflation
on the Group's cost base.
Debt and liquidity
As at 30 December 2022, the Group had cash (excluding cash in
the Trusts) of GBP7.7 million. Its operations are also funded by
Class A Notes with an outstanding principal of GBP160.1 million
(matures 2034) and Class B Notes with an outstanding principal of
GBP356.4 million (matures 2049) (together, the 'Loan Notes') that
are listed on the Irish Stock Exchange. The terms and conditions
for these Loan Notes are covered by an Issuer/Borrower Loan
Agreement ('IBLA').
Dignity plc has a GBP50 million loan facility (the 'Loan
Facility') that was signed on 6 December 2022 and is available to
be draw down in full or in instalments until 5 December 2023 and
carries a seven per cent rate of interest. The Loan Facility is
with Phoenix UK Fund Ltd which is a related party, it has no
restrictive covenants, no minimum solvency covenants and no charges
over any assets and therefore no negative impact on the Group's
existing capital structure.
At 30 March 2023, the directors had approved two initial
drawdowns on the Loan Facility, the first being GBP5.0 million on 2
March 2023 and the second being GBP10.0 million on 30 March 2023
(both of which have been received), a further GBP30 million is
forecast to be drawn before 5 December 2023 however, depending on
timing of capital expenditure this may change.
Under the base case, the Group is forecast to have sufficient
liquidity to meet its liabilities as they fall due in the period
assessed through to 31 March 2024. This is having given due
consideration to the amount of the cash on hand (including the
drawdown of the Loan Facility), the planned investments in capital
and the expected conversion of trading profitability into cash at
historic levels.
Covenant test
As part of the conditions of the Loan Notes, the Securitisation
Group is required to comply with an EBITDA: Debt Service Charge
Ratio ('DSCR') covenant, tested quarterly on a last 12 month
('LTM') basis. At each point of testing, EBITDA must exceed c.GBP51
million (i.e., 1.5x the annual debt service cost of GBP34
million).
The Group did not meet this covenant at 1 July 2022, 30
September 2022 or 30 December 2022, being GBP2.8 million, GBP8.6
million and GBP18.6 million respectively below the LTM DSCR
requirement. However, under the terms of a waiver agreed with the
bondholders on 11 March 2022, this was not a breach as the Group
was able to make an equity cure, contributing cash which counts as
EBITDA and therefore makes good this shortfall. To provide
additional headroom in the forecasts (the equity cure and any
additional cash transferred counts in the covenant calculation for
the prospective 12 months), Dignity plc paid an amount of GBP34.3
million (being the GBP18.6 million required for an equity cure and
an additional cash transfer of GBP15.7 million) into the
Securitised Group in 2022.
The waiver and ability to equity cure currently applies to the
covenant up to and including 31 March 2023 and the Group has the
option of contributing an uncapped amount of cash in order to
provide headroom against the covenant prospectively. Any cash
contributed in Q1 2023 can be included in the covenant test point
at each successive quarterly test up to and including 31 December
2023. Based on the Group's base case forecast, an amount of GBP13.5
million has been transferred as an equity cure in March 2023 from
Dignity plc, having drawn GBP15.0 million of the GBP50.0 million
Loan Facility. This is to give the Group flexibility whilst it
continues to focus on embedding the new strategy, which is expected
to generate growth in its funeral market share and profits.
Stress test
When considering the going concern assumption, the Directors of
the Group have reviewed the principal risks within the environment
in which it operates and have prepared relevant sensitised
scenarios giving a reduction to the base case, these include:
-- Deaths being 10,000 less than forecast (noting 2023 deaths
are forecast to be one per cent higher than 2022 deaths);
-- No funeral market share growth in 2023 or 2024 (noting FY22
comparable market share growth is 0.2 per cent);
-- Average revenue per funeral being GBP45 lower;
-- The proportion of Unattended Funerals being one per cent
higher (compared to the FY23 forecast of nine per cent); and
-- Additional inflation costs of five per cent above those
modelled (with no cost mitigation activity).
This downside scenario modelling confirmed that there is a
plausible scenario in which the Group would not meet its DSCR
covenant in the going concern period, specifically the risk of not
meeting the covenant at 31 March 2024 after the expiry of the
equity cure in the LTM DSCR calculation.
In a severe but plausible downside scenario (having taken into
account all of the above sensitivities in tandem and applying
further downside risk), and having taken into account controllable
mitigations such as delaying marketing spend, there is a risk that
the DSCR covenant might be breached as at 31 December 2023.
The downside scenario modelling also confirmed that, after
forecasting to use GBP45.0 million of the Loan Facility, the Group
has sufficient liquidity. The Group considered whether there were
any plausible circumstances that could exhaust liquidity. In the
severe but plausible downside scenario, having given due
consideration to controllable mitigations, for example reducing
discretionary capital expenditure and marketing spend, there were
no plausible scenarios in which the Group would not have sufficient
liquidity in the going concern period.
Based on a review of its cost base as part of the forecasting,
the Group has identified cost saving opportunities that could
provide additional liquidity and EBITDA headroom if needed. These
central overhead savings are within the Group's control but are not
planned, nor anticipated to be required.
Some controllable mitigating factors do not have an immediate
impact so there is still a risk of breaching the DSCR covenant at
31 December 2023 and 31 March 2024, which has resulted in a
material uncertainty (see Conclusion below).
Impact should there be a breach of the DSCR covenant
However, any breach of the covenant does not give rise to an
immediate requirement to repay the associated Loan Notes. Rather,
such a breach results in a requirement for the noteholder trustees
to appoint a financial adviser who will review the financial and
operational circumstances of the Securitised Group prior to making
recommendations as to how the breach can be resolved considering
whether the Securitised Group is likely to be able to remedy such a
breach. If the financial adviser considers that the Securitised
Group is likely to be able to remedy such a breach this will be
done by the placing of cash collateral in an amount which, if it
had been placed for the relevant period in respect of which the
covenant was breached, would have generated interest sufficient (if
added to EBITDA for the relevant period) to have ensured that the
covenant was not breached. The interest rate on which the cash
collateral would accrue interest to add to the EBITDA calculation
would be measured at the rate that is earned on such cash
collateral as at the date it was placed (e.g., a deposit rate
quoted by a bank). If the Group is unable to remedy such a breach
the Loan Notes would be repayable on an accelerated basis and could
be repayable immediately at the request of the noteholders.
The Directors have obtained independent legal advice to confirm
that there are no consequences of the material uncertainty
conclusion over going concern under the terms of the IBLA.
Period beyond the going concern period
The Group has also considered the period beyond 31 March 2024 to
assess if there are any significant risks that exist that would
otherwise impact the going concern assumption. As the current
equity cure does not benefit the DSCR covenant reporting after 31
December 2023 as the last 12 months cash contributions will have
expired, the base forecast covenant headroom is reduced at that
point.
To provide further headroom and reduce the risk of a covenant
breach, the Group has continued to work on a long-term solution to
improve the Group's capital structure. On 7 September 2022 a
consent solicitation with c.61 per cent support from its Class A
noteholders was launched. The voting concluded on 29 September 2022
and the consents were approved, with 94.42 per cent of votes cast
in favour. As a result of this, consents from noteholders have been
gained to permit a potential transaction involving the realisation
of value from selected crematoria assets (the trading performance
for which is included within the Securitisation Group), with the
proceeds of such a transaction being applied in a partial
redemption of the Class A Notes. These consents apply for a 12
month period to 29 September 2023.
Dignity will be required to inject a minimum of GBP70 million
into the Securitisation Group to partially repay some of the Class
A Notes outstanding in consideration for trade and assets leaving
the Securitisation Group. If the transaction completes by 30 June
2023 and GBP70 million is the net realisation, then upon repayment
of debt at this level, this will result in a deleveraging of the
Group and a positive impact of GBP6.1 million on the DSCR covenant
calculations, i.e., a reduction of the DSCR from c.GBP51 million to
c.GBP44.9 million for 31 March 2024. If the transaction takes
longer to complete and is completed between 30 June 2023 and 30
September 2023 there would be no positive impact in March 2024 as
the first possible date for repayment will be 29 December 2023. It
would have a full year impact of GBP10.2 million on the DSCR
covenant calculations, i.e., a reduction of the DSCR from c.GBP51
million to c.GBP41 million in 2024.
In addition, upon completion of the proposed transaction within
the timeframe permitted by the noteholder consent, there are
amendments to the documents that will allow further equity cures,
with restrictions, to be made going forward should they be
required. If the transaction completes before 30 June 2023, this
can be used to supplement any EBITDA shortfall at 31 December 2023
and 31 March 2024.
The Directors are confident that a realisation of value from
selected crematoria assets can be achieved in order to deleverage
the Group and reduce the DSCR requirement as explained above.
Potential takeover and delisting of the Group
In February 2023, the board recommended that Dignity
shareholders accept the cash offer for Dignity made by BidCo, a
newly formed company controlled by a consortium comprised of joint
offerors SPWOne V Limited, Castelnau Group Limited and Phoenix
Asset Management Partners Limited (collectively hereafter the
'Bidco consortium').
For the takeover to be effective, the Acceptance Condition (as
defined in the offer document) must be satisfied (i.e., holders of
Dignity shares representing the requisite percentage of Dignity
shares to which the Offer relates need to submit valid acceptances
of the Offer in respect of those Dignity shares). The Offer is also
conditional upon, among other things, satisfaction of the FCA
Change in Control Condition (as defined in the offer document),
which has not yet been met.
Through review of the offer document published by Bidco and
discussions with the Bidco consortium, the Directors are confident
of the continuation of the Group's strategy to invest in its estate
and target market share growth should the takeover take place.
The Directors have also considered the impact of the potential
takeover on its financing agreements and pre-need Trusts and have
concluded that a change of control does not impact on the terms of
the IBLA or the deeds of the pre-need Trusts. The potential
takeover, if completed, would constitute a "change of control" for
the purposes of the GBP50 million Loan Facility. However, a waiver
has been granted by Phoenix UK Fund Ltd (as lender) that allows the
Group to draw funds under the Loan Facility even in the event of a
takeover of the Group by the Bidco consortium.
Conclusion
Having considered all the above, the Directors remain confident
in the long-term future prospects for the Group and its ability to
continue as a going concern however, there are plausible downside
scenarios that could result in a breach of the DSCR covenant in the
period through to 31 March 2024, which if failed to be remedied to
the satisfaction of the financial adviser operating on behalf of
the noteholders, would be considered an event of default under the
IBLA resulting in the Loan Notes becoming repayable on an
accelerated basis and could be repayable immediately at the request
of the noteholders.
The events or conditions described above indicate that a
material uncertainty exists that may cast significant doubt on the
Group and parent Company's ability to continue as a going
concern.
These financial statements do not include any adjustments to the
carrying amount or classification of assets and liabilities that
would result if the Group and parent Company were unable to
continue as a going concern.
The Directors, whilst acknowledging there is a material
uncertainty, continue to adopt the going concern basis in preparing
the 2022 Preliminary Announcement.
14 Securitisation
In accordance with the terms of the Secured Notes issued October
2014, Dignity (2002) Limited (the holding company of those
companies subject to the securitisation) has today issued reports
to the Rating Agencies (Fitch Ratings and Standard & Poor's),
the Security Trustee and the holders of the Secured Notes issued in
connection with the securitisation, confirming compliance with the
covenants established under the securitisation.
Copies of these reports are available at
www.dignityplc.co.uk/corporate .
15 Principal risks and uncertainties
Our principal Group risks
We detail here our top-down approach to risk management which
supports our assessment of the principal risks facing the Group. In
assessing which risks should be classified as 'principal', we
assess the probability of a risk materialising together with its
financial or strategic impact.
Risk appetite
Risk appetite is the level of risk that the Group is willing to
take in order to achieve its strategic objectives, and it is set by
the Board as advised by the Risk Committee. The Committee assesses
the Group's risk appetite across wide-ranging areas including the
market, financing, operations, strategy and execution,
developments, cybersecurity and technology, and brand.
The Board operates the appropriate risk appetite depending on
the type of risk: for example, regulation, customer and cyber risks
are low level but for strategic risk we are more willing to address
greater risk to achieve strategic objectives. The overarching
principle is that the Group's services are of a consistently high
standard and adhere to all regulatory requirements.
We have reviewed risk appetites for specific key risks during
the year and, where appropriate, the Group's risk appetite has been
adjusted accordingly.
Our approach to risk management
The Group has a well-established governance structure with
internal control and risk management systems. Dignity operates a
three lines of defence model with each line understanding its own
responsibilities within the common framework. The model contributes
to fewer surprises and losses through a well-defined and operated
control framework to manage risks, lower risk exposure where
appropriate and increase likelihood that Dignity's objectives will
be achieved.
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; and
-- Allows the Risk Committee to review a balanced and
understandable assessment of the operation of the risk management
process and inputs.
Responsibilities and actions
The Board
The Board is responsible for monitoring the Group's risk and
associated mitigating factors. Through the Risk Committee, it has
carried out a robust assessment of both emerging and principal
risks. This assessment process is supported by in-house risk
management professionals.
The Company continues to work towards meeting its corporate
governance responsibilities in respect of the composition of the
Board, and is currently in the recruitment process for a Chief
Financial Officer.
Risk process
The Risk Committee meets at least three times annually to
consider the Group's principal risks and uncertainties for
subsequent adoption by the Board.
Risk assessment
Executive Directors and the leadership are responsible for
identifying and assessing business risks.
Identifying risk
We identify risks through discussion and analysis with senior
management, and include them in the risk register as
appropriate.
Assessing risk
The potential impact and likelihood of each risk occurring is
considered.
Mitigating activities
Where at all possible, we identify mitigating factors against
each risk. Currently, mitigation has been identified for principal
and emerging risks.
Review and internal audit
The link between each risk and the Group's policies and
procedures is identified. The Risk function reviews and provides
oversight of the risks the business is facing. Where required, the
Risk function will conduct deep dives into risks to manage and
understand them further. Where relevant, the Group's Internal Audit
function assists with appropriate work, across an audit plan cycle,
to ensure the related key controls, procedures and policies are
understood and operated effectively where they serve to mitigate
risks.
Risk Committee
The Risk Committee advises the Board on risk management issues,
recommends the framework of risk limits and risk appetite to the
Board for approval and oversees the risk management arrangements of
the Company. This includes embedding and maintaining a supportive
risk management culture.
The Risk Committee seeks to ensure that material risks have been
identified, and appropriate arrangements have been made, to manage
and mitigate those risks effectively within the Company's agreed
risk appetite.
Risk status summary
The ongoing review of the Group's principal risks focuses on how
these risks may evolve.
Regulation of pre-arranged funeral plans
In order to carry out regulated funeral plan activities, firms
must now be authorised by the FCA. Continuing with regulated
activity without authorisation is a criminal offence.
Dignity is an FCA-regulated provider of pre-arranged funeral
plans. We believe that this regulation is necessary and have
welcomed its introduction.
COVID-19
Although no longer a principal risk, COVID-19 created risks both
to our ability to deliver services during lockdown and to the
health and safety of our colleagues. We continue regular
assessments of potential risks.
The Group has formulated business continuity and pandemic plans
that are invoked, reviewed and adapted as necessary.
Accordingly, the ability to maintain average revenue is
influenced by changes in the competitive landscape and the impact
of COVID-19 pandemic.
Financial risk management
Risk description and impact Mitigating activities and commentary Change
--------------------------------------------------------- ----------------------------------------------------------- --------
Significant movements in the death rate The profile of deaths has historically seen inter-year No
There is a risk that the number of deaths in any year changes of +/- one per cent, giving change
will significantly reduce or increase. the Group the ability to plan its business accordingly. The
This would have a direct result on the financial and death rate volatility increased
operational performance of both our funeral during the COVID-19 pandemic and following it. The
and crematoria services. long-term projection of the Office for
National Statistics ('ONS') is for deaths to increase.
We mitigate the risk by being able to control our costs and
price structure, although this
would not mitigate a significant short-term reduction in
the number of deaths. Additionally,
the ability to mitigate is currently affected by
inflationary pressures such as the price
of energy.
The number of deaths in 2022 was 639,000, which was four
per cent lower than the prior year.
Our planning continues to be based on the long-term
expectations provided by the ONS.
The COVID-19 pandemic created a period of significant
disruption for the funeral sector as
the elevated death rate resulted in more funerals and
cremations than the five-year average.
Whilst we anticipate this volatility in death rates will
continue, it is possible that the
death rate may reverse (although, as previously stated, the
long-term ONS view is that it
will increase), and the offsetting impact of these factors
results in no change in the risk
assessment.
--------------------------------------------------------- ----------------------------------------------------------- --------
National adverse publicity The Group's strategy is to focus on increasing funeral and No
National adverse publicity for Dignity could result in a crematoria market share, together change
significant reduction in the number with prioritising the sale of funeral plans through
of funerals or cremations performed in any financial branches rather than telesales partners.
period. For pre-arranged funeral plans, We are now focused on developing and executing a vision to
adverse publicity for the Group, or for one of its excel in the new FCA-regulated
limited number of partners, could result environment using all potential channels to find and
in a reduction in the number of plans sold or an increase support new clients.
in the number of plans cancelled. FCA regulation of the sector has acted as a catalyst for
change, resulting in a small number
of organisations withdrawing from the pre-need funeral
plans market. Where we can, Dignity
has stood by its commitment to help customers of other plan
providers and, as we have for
customers of Safe Hands, we have engaged with a number of
firms that are exiting the market.
We continue to provide support to families that have been
impacted by the collapse of various
firms through providing funeral services to families.
Dignity is cognitive of and has assessed the financial risk
in the transfer of funeral plans
in this circumstance but the primary objectives are
customer outcomes and support for the
pre-need market. See also 'Rescue plan transition costs' on
page 10.
The Group also previously responded to and adopted the
requirements of the CMA Funerals Market
Investigation Order 2021.
The Group maintains a system of internal control to ensure
the business is managed in line
with its strategic objectives.
Staff training and the work of the Quality and Standards
Team assist in mitigating this risk.
Dignity operates a suite of sector-leading policies and
practices that form our SOPs. These
sit at the heart of everything we do regarding our care for
clients and those they have lost.
The procedures include guidelines for security and
identification, access to premises and
mortuaries, care for the deceased and all other important
policies for both observed and unobserved
procedures.
In terms of quality of care for clients and their loved
ones, the SOPs assist in mitigating
reputational risk and the possibility of adverse press
coverage.
--------------------------------------------------------- ----------------------------------------------------------- --------
A fall in average revenue per funeral or cremation, The Group's strategic review has resulted in a more Increase
resulting from market changes efficient business that can accommodate
There has been increasing price competition in the more competitive pricing, while continuing to provide
funeral market, resulting in material price clients with a greater range of choice,
reductions by the Group in recent years. It is highly underpinned by exceptional standards and service. This will
likely that pricing pressure will remain be supported by strong reputational
for the foreseeable future, and therefore maintaining management. The Group is aspiring to achieve 20 per cent
current average revenue per funeral funeral market share in 10 years'
or cremation may not be possible. time (including both pre and at-need funerals) by offering
the best service at the best value.
The Group will continue to adapt to serve evolving client
needs. This will be achieved through
investing in digital capabilities, including enhanced
reporting of business intelligence and
management information which will enable risks and trends
to be identified promptly and accurately.
The Group has in recent times experienced lower average
revenues than originally expected.
In addition, awareness of Simple Funerals and Simplicity
Cremations increased during the pandemic.
Inflationary pressures and the recessionary impact on the
cost of living may further impact
consumer preference and reduce net average revenues.
In 2021, we lowered prices substantially and found that our
decline in market share was arrested
and then reversed. Therefore, over time, we expect that
loss of revenue to be more than compensated
by volume growth, especially when combined with all the
other elements of our strategy.
--------------------------------------------------------- ----------------------------------------------------------- --------
Direct cremations The Group has addressed the increased demand for direct Increase
Growth in the direct cremation market could reduce cremation with Simplicity Cremations,
average revenue in our funeral business which offers low-cost, dignified direct cremations without
and adversely affect the volume mix and average revenue an initial funeral service. They
in the crematoria business. are an affordable alternative to a full funeral, or for
those who just wish for a simple cremation.
The increased demand for direct cremations has resulted in
a decline in underlying average
revenue, although our strategy is to rebalance this through
increased market share.
--------------------------------------------------------- ----------------------------------------------------------- --------
Financial covenant under the Secured Notes The nature of the Group's debt means that the denominator Increase
The Group's Secured Notes requires EBITDA to total debt is now fixed unless further Secured
service to be above 1.5 times. If Notes are issued in the future. This means that the
this financial covenant (which is applicable to the covenant calculation will change proportionately
securitised sub-group of Dignity) is not with changes in EBITDA generated by the Securitisation
achieved, then this may lead to an Event of Default under Group.
the terms of the Secured Notes, Lower reported profitability increases the risk of
which could result in the Security Trustee taking control breaching covenants.
of the Securitisation Group on behalf The distorting impact of the pandemic on the timing of
of the Secured Note holders. See note 13 for further deaths continues to create significant
details. uncertainty around the UK death rate in the near term. In
In addition, the Group is required to achieve a more order to address this uncertainty,
stringent ratio of 1.85 times for the the Board took the prudent decision to secure a temporary
same test, in order to be permitted to transfer excess waiver of the financial covenant,
cash from the Securitisation Group on a precautionary basis regarding Dignity Finance PLC's
to Dignity plc. debt obligations. As a result, in
March 2022 the Group was granted a waiver on the
application of the covenants on the bonds
for 12 months. This course of action accounted for
post-pandemic uncertainty over the death
rate which, together with the challenge of restructuring,
risked a potential covenant breach.
The waiver allows for an equity cure by Dignity plc should
there be a shortfall in EBITDA
of the Securitisation Group.
The agreement reached in September 2022 between Dignity and
its bondholders allows for a deleveraging
transaction involving and dependent on seven crematoria,
which is expected to take place by
29 September 2023 as permitted. This transaction, if
completed, would result in a deleveraging
of the Group and a positive impact on the underlying
financial ratios and covenant calculations.
It requires a minimum of a net GBP70 million repayment of
the bonds, but that figure could
be higher depending on the value placed on the crematoria
when the expected transaction occurs.
Changes to the terms of the bonds will also allow more
operational flexibility and future
equity cures.
The consent to the proposal applies for a 12 month period
to 29 September 2023. Should the
transaction complete, an outcome the board is fully focused
on achieving within the 12 months
allowed, there are amendments to the documents that will
allow further equity cures, with
restrictions, to be made going forward should they be
required.
The Group also has a loan facility with Phoenix Asset
Management Partners.
See also Financial review, Capital structure and financing
for the Trading Group on page 11
and Going Concern on pages 38 to 40.
--------------------------------------------------------- ----------------------------------------------------------- --------
Disruptive new business models leading to a significant The Group believes that this risk is mitigated by its No
reduction in market share reputation as a high-quality provider, change
It is possible that external factors, such as new and with word of mouth recommendations being a key driver
competitors and the increased impact of in how families choose a funeral
the internet on the sector, could result in a significant director. In addition, the Group's actions on pricing and
reduction in market share of our promotion seek to protect the Group's
funeral and crematoria operations. This would have a funeral market share by offering more affordable options.
direct result on the financial performance The substantial lowering of prices
of those divisions. in 2021 and the adoption of a strategy based on growth
have allowed our market share to stabilise
and grow.
The Group is prioritising investment into standards of
care, facilities and our estate, alongside
a combination of a competitive pricing and product mix,
cultural change and stronger branding,
to grow local market share.
For crematoria operations this is also mitigated by the
Group's experience and ability in
managing the development of new crematoria.
The Group will focus on:
* Growing both volume and revenue per crematorium by
increasing throughput and greater ancillary sales;
* Continuing to build out the pipeline of crematoria
and build additional capacity into existing
facilities; and
* Embracing direct cremation and becoming the best
value provider for the location-agnostic value
segment of the market.
Additionally, the combination of the development of
strong national brands and significant
investment in digital capability, together with a range
of product and price offerings to
clients, is expected to strengthen the Group's
competitiveness.
--------------------------------------------------------- ----------------------------------------------------------- --------
Demographic shifts in population In such situations, Dignity would seek to follow the No
There can be no assurance that demographic shifts in population shift by rebalancing the funeral change
population will not lead to a reduced location network together with meeting the developing
demand for funeral services in Dignity's areas of cultural requirements.
operation.
--------------------------------------------------------- ----------------------------------------------------------- --------
Competition in the funeral market The vision is for Dignity to be the UK's leading No
The UK funeral services, crematoria and pre-need markets end-of-life business, renowned for its excellence change
are currently fragmented. and high standards, represented and embedded in the
There could be: community with strong local brands, whilst
* Further consolidation as FCA regulation of the offering the best service and the best value. Central to
pre-need sector has acted as a catalyst for change, our strategy is a focus on improving
resulting in a number of organisations withdrawing the culture of our business, empowering our colleagues
from the market; or locally and working together to achieve
our best through teamwork.
This will be achieved:
* Increased competition in the industry, whether * By developing new products and trials. We have
through intensified price competition, service launched several trials with the objective of
competition, over-capacity facilitated by the achieving the right combination of price, product and
internet or otherwise, which could lead to an erosi promotion, not only to grow our local market share
on but to sustain and grow our revenues. The direct
of the Group's market share, average revenues or an cremation has introduced new competitively priced
increase in costs and consequent reduction in its products that can fit within our existing price and
profitability. product architecture;
Failure to replenish or increase the bank of pre-arranged * Through a new tiered funeral pricing proposition that
funeral plans could affect market will provide greater flexibility to meet individual
share of the funeral division in the longer-term. client needs;
Competition continues to intensify, with additional
funeral directors opening at varying price
points, alongside an increase in the popularity of direct * By unbundling our prices and services and giving
cremations. clients true flexibility to create the right funeral
thus providing greater consistency and
competitiveness on price, while reflecting Dignity's
premium service levels;
* Through a significant online presence: visibility
leverages our scale and addresses the needs of
digitally driven clients. Through the Dignity and
Simplicity brands, we are leveraging scale advantages
in the digital age. We also recognise that our
established local funeral trading names continue to
have significant value in the communities they serve;
* Through better allocation of our resources, the
resulting efficiencies allowing us to reduce the
number of funeral locations and their associated
cost. Where appropriate, support functions are being
centralised to ensure a cost effective and
consistently high standard of service;
* Although there are challenges to opening new
crematoria, due to the need for planning approval and
the costs of development. Dignity has extensive
experience in managing new projects;
* As the Group offers a high-quality pre-need product,
it will benefit from the current and significant
future investment in marketing and enhanced digital
presence; and
* As FCA regulation of the sector is an opportunity for
Dignity to gain a competitive position.
It also reassures Dignity's customers that they hold a
funeral plan with a trusted and reputable
provider, backed by a secure and well-managed trust fund.
We recognise that this is not the
case for customers of those providers that have failed to
meet the FCA requirements or have
elected to exit the market. We stand by our commitment to
help customers of other plan providers
where we can and, as we have with the customers of Safe
Hands, we will engage with those firms
on a case-by-case basis.
--------------------------------------------------------- ----------------------------------------------------------- --------
Cyber risk In recent years, the Group has invested significantly in Increase
Our business is at risk of financial loss, disruption or this area with the objective of both
reputational damage in the event upgrading all aspects of our systems and our internal
of a failure of our IT systems. This could materialise in resources, and also using external consultants
a variety of ways, including deliberate to drive a continuous improvement programme.
and unauthorised access and breaches of security. The chance of an organisation falling victim to a
cyber-attack is growing. Threats are more
pervasive and sophisticated than ever.
In addition to maintaining appropriate levels of cyber
insurance, we continue our investment
in fit-for-purpose security controls, processes and
technology. This ensures we keep pace
with the current threat landscape whilst proactively
monitoring for breaches and improving
internal understanding and communication of initial risks,
mitigations and residual risks.
The Group is working with external cyber specialists who
provide wide-ranging insights into
our current maturity level of controls over our multiple
domain names. Additionally, this
external assessment will include a deep dive review of
Dignity's security architecture to
confirm that our cyber security objectives address, where
possible, potential risks.
The Group maintains an ISO 27001 compliant information
security management system and has
its security controls, processes and technology
independently audited to ensure it remains
effective or requires additional investment.
--------------------------------------------------------- ----------------------------------------------------------- --------
Regulation of pre-arranged funeral plans Regulation applies to the industry as a whole and not just No
FCA regulation has resulted in changes to processes, the Group. change
systems, pricing, funding, capital requirements, The FCA rules addressed:
and terms and conditions of plans. * Commission;
Regulation affects the Group's opportunity to sell
pre-arranged funeral plans in the future
and could result in the Trading Group not being able to * Customer documentation;
draw down the current level of marketing
allowances.
The minimum solvency levels (110 per cent) set by the FCA * Consumer Duty setting higher and clearer standards of
for trust funds means that levels consumer protection;
below this minimum will require Dignity Funerals Limited
to address any shortfall within a
12-month period. * Trust structures;
* Product value and features;
* Minimum solvency requirements for trust funds; and
* Compliant sales of pre-paid plans.
Our strong market presence in the Whole of Life Funeral
Benefit market remains unchanged.
Although the changes affect the whole industry, Dignity is
in a strong market position as
a vertically integrated provider to grow its controlled
channels that remain open.
We improved our pre-need product for the market by bringing
more choice, flexibility and simplicity
to our offering. We have also improved our own channels of
distribution. FCA regulation prevents
us from paying commissions to third parties and we have
therefore ceased business with many
of our previous distribution partners. Instead, we will
focus on developing our proposition
and sales strategy, delivered through our website and via
our well-trained community-based
colleagues. Our ambition is to significantly increase the
number of funeral plans sold through
our branch network.
Minimum solvency levels of 120 per cent of
assets/liabilities were agreed by the Dignity Funerals
Limited Board. This represents a 10 per cent buffer over
the regulatory minimum of 110 per
cent.
There will be Board oversight of product development,
pricing and distribution of pre-paid
funeral plans. Compliance with FCA regulations will be
subject to continuous monitoring by
our Compliance and Risk Team and reported regularly to the
Board. Any compliance breaches
will be reviewed by the Board and addressed as required.
Our objective is not only to deliver
the high standards required by the regulator but to strive
to exceed them.
--------------------------------------------------------- ----------------------------------------------------------- --------
Changes in the funding of the pre-arranged funeral plan There is considerable regulation around insurance companies No
business which is designed, amongst other change
In the current regulatory environment, the Group has objectives, to ensure that the insurance companies meet
given commitments to pre-arranged funeral their obligations.
plan members to provide certain funeral services in the Our trusts hold assets of circa GBP1 billion with an
future. average duration of circa 10+ years.
Funding for these plans is reliant on either insurance We will seek to generate a surplus that exceeds funeral
companies paying the amounts owed or cost inflation.
the pre-arranged funeral plan trusts having sufficient Additionally, and in parallel with the development and
assets. launch of our innovative new funeral
If this is not the case, then the Group may receive a plan, we have incorporated a new trust to support this.
lower amount per funeral.
--------------------------------------------------------- ----------------------------------------------------------- --------
Funeral Directors' Codes of Practice The Group is assessing compliance guidelines and the steps No
A number of compliance requirements currently recommended required to achieve compliance change
by the Scottish Government Funeral across the UK legislative networks.
Directors' Code of Practice can reasonably be expected to Consideration for the resource profile and methodology for
become law. For example, one draft responding to legal registration
requirement is for funeral directors to have a ratio of in Scotland, and a statutory inspection response, is being
one refrigerated space per 50 funerals initiated as a pre-emptive measure
performed. Additionally, there will be the need to in advance of a published Scottish Government position.
respond to registration and inspection Relationship management with the National Association of
requirements which will be enacted in law. Funeral Directors ('NAFD') and IFSO
The introduction of the Independent Funeral Standards is under way.
Organisation ('IFSO') will necessitate We strongly support the progress IFSO has made and look
compliance with a UK co-regulatory Code of Practice as forward to working with the body should
described by the Ministry of Justice. it transition into a government-endorsed self-supervisory
Intended obligations include transparency, quality and body for the sector.
standards measures, with risk ratings We have also worked closely with the Scottish Government to
and public reporting in subsequent phases. develop its approach to regulation
The relationship between, and requirements of, the two of the sector and provision of services, including the
Codes of Practice have yet to be finalised. anticipated implementation of a new
Code of Practice for Funeral Directors that will sit under
a legal framework in Scotland.
--------------------------------------------------------- ----------------------------------------------------------- --------
Macroeconomic pressures Overall, we are seeing rising costs impacting our business, Increase
Inflationary pressures have become apparent to Dignity especially employment costs, and
and most other organisations as rising we will be looking to recover some of that through
staff costs, energy prices and supply chain disruption inflation-related pricing adjustments.
continue to develop. In 2022, our focus was given to supporting our lowest paid
The significant increase in wholesale gas prices will workers weather the storm of a
contribute to the pressure on average difficult set of macroeconomic factors.
revenue per cremation.
--------------------------------------------------------- ----------------------------------------------------------- --------
Energy security Along with all other businesses, we continue to monitor the Increase
In light of the geopolitical situation following the developing situation. We note
Russian invasion of Ukraine, energy security HM Government's policy paper on British Energy Security
is a major international issue. Strategy which states that the UK
needs to build an energy system that is much more
self-sufficient.
We continue to review our position based on the recent
government announcements regarding
energy prices and will determine what action is required to
address this risk. Currently,
the major risk is one of price rather than supply but
Dignity will be subject to whatever
government restrictions may be placed on industry users
should there be a shortfall in supply.
The nature of Dignity's activity is likely to give it some
prioritised protection should a
form of rationing be introduced.
--------------------------------------------------------- ----------------------------------------------------------- --------
Emerging risk
The Group continues to monitor for emerging risks through the
processes noted above. The key areas where additional risk is
appearing, all of which are extensions of risk already identified
above, are as follows:
Risk description and impact Mitigating activities and commentary Change
------------------------------------------------- ----------------------------------------------------------- ------
Sustainability and climate resilience The vision is for Dignity to achieve net-zero by 2038. New
The need to operate businesses sustainably and We voluntarily submitted our first TCFD Report for the year
with a focus on the environment is now an 2021 before this became mandatory
imperative for 2022. Dignity, alongside our consultancy partner
in order to achieve the Government's target of Inspired Energy, has analysed our full
net-zero. Scope 3 emissions. This expands on our previous SECR
reporting, which included Scope 1 and
2, as well as grey fleet, which is part of Scope 3.
Key ESG focuses for 2023 include:
* Climate scenarios analysis and interim target setting
to 2038;
* Improving data collection and metrics across Scopes
1, 2 and 3;
* Improved cremator technology; and
* Proactively working with our supply chain to
influence green credentials.
Dignity has recruited an ESG Manager to support with all
environmental and sustainable activities
and initiatives. Their role will be to build the strategy
and roadmap to achieving net-zero
by 2038.
------------------------------------------------- ----------------------------------------------------------- ------
16 Pre-arranged funeral plans
(a) Commitments
The Trading Group has sold pre-arranged funeral plans to clients
in the past, giving commitments to these clients to perform their
funeral. All monies from the sale of these funeral plans are paid
into and controlled by a number of trusts. These include the Trusts
consolidated within the Group's financial statements in addition to
a number of other trusts (the 'Small Trusts'). The Small Trusts are
not consolidated in the Group's results as the Group does not
control these trusts.
The Group is obligated to perform these funerals in exchange for
the assets of the respective trusts, whatever they may be. An
onerous contract provision of GBP10.0 million has been made in
these financial statements for the Rescue plans (which includes a
provision of GBP1.1 million for the Dignity Promise) and a further
provision of GBP3.6 million has been made relating to previous
funeral plans, see note 1 for further details. It is the view of
the Directors that none of the commitments given to these other
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 GBP13.2 million (2021:
GBP15.6 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 and are therefore
relevant to the actuarial valuation. However, this means that
assets detailed in the actuarial valuations will not agree on a
particular day to the assets recognised in the Group's consolidated
balance sheet because the Group does not include future receivable
amounts in the consolidated balance sheet.
The Trustees have advised that the latest actuarial valuations
of the Trusts were performed as at 24 September 2022 (2021: 24
September) using assumptions determined by the Trustees. Actuarial
liabilities in respect of the Trusts have decreased to GBP778.4
million as at 24 September 2022 (2021 restated: GBP817.3 million).
The corresponding market value of the assets of the Trusts was
GBP1,003.8 million (2021 restated: GBP1,107.9 million - under the
new FCA regulations there is a prescribed valuation method which
has been applied to the current year valuations and the prior year
has been restated using this method) as at the same date.
Consequently the actuarial valuations recorded a total surplus of
GBP225.4 million at 24 September 2022 (2021 restated: surplus of
GBP290.6 million).
30 December 31 December
2022 2021
Number Number
--------------------------------- ----------- -----------
Supported by:
The Trusts - Pre FCA regulation 302,000 323,000
The Trusts - Post FCA regulation 4,000 -
The Trusts - Rescue plans only 38,000 -
The Small Trusts 45,000 43,000
Insurance plans 229,000 215,000
--------------------------------- ----------- -----------
618,000 581,000
--------------------------------- ----------- -----------
The Trusts have approximately GBP3,444 (2021: GBP3,650) average
asset per active plan (see alternative performance measures on page
55 for further details ). On average the Trading Group received
approximately GBP3,100 (2021: GBP3,000) in the period for the
performance of each funeral (including amounts to cover
disbursements such as crematoria fees, ministers' fees and doctors'
fees where applicable).
Insurance plans are those plans for which the Group is the named
beneficiary on life assurance products sold by third party
insurance companies.
(c) Funding arrangement of UK Funerals (2022) Trust
In accordance with FCA regulation should the actuary report that
the Trust fund assets are not sufficient to cover the liability of
Trust, Dignity Funerals Limited, a subsidiary of the Group, will
prepare a remediation plan, approved by the actuary, setting out
how any deficit will be remedied before the next annual assessment
of the Trust.
(d) 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 services division) amounted to
GBP0.8 million (2021: GBP0.9 million) in the period and principally
comprised receipts from the Small Trusts in respect of funerals
provided. No amounts were due to the Group on either balance sheet
date.
18 Post balance sheet events
Recommended cash offer for Dignity plc
On 23 January 2023, the Board announced that it had reached
agreement on the terms of a recommended cash offer for the Dignity
business (the 'Offer'). The Offer was made by a consortium
comprising SPWOne V Limited, Castelnau Group Limited and Phoenix
Asset Management Partners Limited. On 14 February 2023, the offer
document, which contains, amongst other things, the full terms and
conditions of the Offer and the procedures for its acceptance, was
published and posted to Dignity shareholders.
In summary, under the Offer:
-- Dignity shareholders will be entitled to receive 550 pence in
cash for each Dignity share (the 'Cash Offer');
-- As an alternative to (or in combination with) the Cash Offer,
eligible Dignity shareholders may elect to receive for each Dignity
share 5.50 unlisted non-voting D shares in the capital of
Valderrama (the indirect parent company of the consortium's Bidco)
for each Dignity share (the 'Unlisted Share Alternative'); and
-- As an alternative to (or in combination with) the Cash Offer
and in addition to or instead of the Unlisted Share Alternative,
eligible Dignity shareholders may elect to receive 7 1/3 listed
voting Ordinary Shares in the capital of Castelnau for each Dignity
share (the 'Listed Share Alternative' and, together with the
Unlisted Share Alternative, the 'Alternative Offers').
Both the Unlisted Share Alternative and the Listed Share
Alternative are subject to the "scale back" arrangements detailed
in the offer document.
The Board was unanimous in recommending that Dignity
shareholders accept the Cash Offer. At the time of preparing this
report, the Offer remains conditional on, among other things,
regulatory approval.
Executive share awards
The Company intends to grant a performance share award under the
LTIP to Kate Davidson as soon as practicable following the
publication of the Company's preliminary 2022 financial results
(subject to being no dealing restrictions at that time). This award
was agreed previously but could not be made due to closed period
dealing restrictions.
Standard and Poor global rating
On February 2023, S&P Global Ratings lowered its credit
ratings on Dignity Finance PLC's class A notes to 'BBB-(sf)' from
'A- (sf)' and class B notes to 'CCC+ (sf)' from 'B+ (sf)'. At the
same time, S&P removed its ratings on both classes from
CreditWatch negative.
Fitch Ratings downgrade of Class A and Class B Notes
On 17 March 2023, Fitch Ratings downgraded Dignity Finance PLC's
Class A notes to 'BBB' from 'A-' and class B notes to 'B' from
'BB+' and placed that company on Rating Watch Negative.
Loan facility drawdown
The Directors approved two initial drawdowns on the GBP50.0
million facility offered by Phoenix UK Fund Limited, the first
being GBP5.0 million on 2 March 2023 and the second being GBP10.0
million on 30 March 2023. This loan agreement includes a change of
control provision that could trigger a full repayment and
cancellation of the facility, however, the Company has obtained a
waiver for this change of control clause specific to this potential
takeover.
Non-GAAP measures
Alternative performance measures
The Board believes that whilst statutory reporting measures
provide financial performance of the Group under IFRS, alternative
performance measures are necessary to enable users of the financial
statements to fully understand the trading performance and
financial position of the Group.
The alternative performance measures provided are aligned with
those used in the day-to-day management of the Group and allow for
greater comparability across periods.
For this reason, the alternative performance measures provided
exclude the impact of consolidating the Trusts, the corporate
interest restriction disallowance arising as a result of
consolidating the Trusts (see below) and the changes which relate
to the application of IFRS 15. In addition, the deferred tax rate
change in 2021 arising on the deferred tax balances on
consolidating the Trusts and application of IFRS 15 have also been
excluded, as well as non-underlying items comprising certain
non-recurring and non-trading transactions.
The exclusion of the impact of consolidating the Trusts and the
application of IFRS 15 will continue for the foreseeable future. We
will also assess whether it is right to exclude any future new
accounting standards from alternative performance measures based on
whether they are included in the measures used in the day-to-day
management of the business.
All of these measures are highlighted as underlying throughout
this Preliminary Announcement.
Calculation of underlying reporting measures
Underlying revenue and profit measures (including divisional
measures) are calculated as revenue and/or profit before
non-underlying items and other adjustments.
Underlying net finance costs are calculated before the
application of IFRS 15 and the impact of consolidating the Trusts.
See note 4 to the Group's consolidated financial statements.
Underlying earnings per Ordinary Share is calculated as profit
after taxation, before non-underlying items and other adjustments
(both net of tax), divided by the weighted average number of
Ordinary Shares in issue in the period.
Underlying cash generated from operations excludes
non-underlying items and other adjustments on a cash paid
basis.
(b) Non-underlying items
The Group's underlying measures of profitability exclude:
-- Amortisation of acquisition related intangibles;
-- External transaction costs;
-- Profit or loss on sale of fixed assets (net of any insurance proceeds received);
-- Marketing costs in relation to trials;
-- Restructuring costs;
-- Payment for historical informal pre-need funerals;
-- Rescue plan transition costs;
-- Trade name write-offs and impairments;
-- Goodwill impairments;
-- Right-of-use asset impairments;
-- Property, plant and equipment 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.
(c) Other adjustments reconciliation
Other adjustments enable a user of the financial statements to
assess the financial performance of the Trading Group as it was
historically reported prior to the consolidation of the Trusts and
the impact of IFRS 15, 'Revenue from Contracts with Customers'.
This mirrors the financial reporting provided to management on a
monthly basis to monitor the performance of the underlying Trading
Group.
In the tables below, non-underlying items are categorised as
either non-trading or non-recurring. Non trading items refers to
expenditure which does not relate to the normal day-to-day
transactions of the business, whereas non-recurring also does not
relate to the day-to-day transactions of the business and is not
expected to reoccur; however, the same non-recurring item may
straddle more than one accounting period.
52 week period ended 30 December Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
2022 GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Non-trading
Amortisation of
acquisition-related intangibles 3.4 0.4 0.1 - 3.9
External transaction costs in
respect of completed and aborted
and ongoing transactions(1) - 0.5 - 8.6 9.1
Loss on sale of fixed assets 0.1 - - - 0.1
Trade name write-off 6.4 - - - 6.4
Trade name impairment 47.5 - - - 47.5
Goodwill impairment 112.3 - - - 112.3
Right-of-use asset impairment 17.4 - - - 17.4
Property, plant and equipment
impairment 19.1 - - - 19.1
Non-recurring
Rescue plan transition costs - - - 2.5 2.5
Restructuring costs - redundancy - - - 2.9 2.9
Restructuring costs - onerous
provision - - - 0.3 0.3
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
206.2 0.9 0.1 14.3 221.5
Taxation impact on above
adjustments(2) (23.2)
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
198.3
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
(1) External transaction costs includes costs associated with
the current capital structure work.
(2) All of the above items are subject to corporation tax at 19
per cent, except for the trade name write-off, trade name
impairment, goodwill impairment, right-of-use asset impairment,
property, plant and equipment impairment and external transaction
costs which include an element of disallowables.
53 week period ended 31 December Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
2021 GBPm GBPm GBPm GBPm GBPm
---------------------------------- ---------------- ---------- -------------------------- ----------------- -----
Non-trading
Amortisation of acquisition
related intangibles 3.7 0.4 0.1 - 4.2
External transaction costs in
respect of completed and aborted
transactions - 1.2 - 1.4 2.6
Profit on sale of fixed assets
(net of insurance proceeds
received)(3) - (1.1) - - (1.1)
Trade name write-off 2.5 - - - 2.5
Trade name impairment 2.8 - - - 2.8
Goodwill impairment 36.4 - - - 36.4
Non-recurring
Marketing costs in relation to
trials - - - 0.9 0.9
---------------------------------- ---------------- ---------- -------------------------- ----------------- -----
45.4 0.5 0.1 2.3 48.3
Taxation impact on above
adjustments(4) (2.5)
Taxation - rate change 8.3
---------------------------------- ---------------- ---------- -------------------------- ----------------- -----
54.1
---------------------------------- ---------------- ---------- -------------------------- ----------------- -----
(3) Includes GBP1.1 million of insurance proceeds received in
respect of a crematoria fire which occurred in 2020.
(4) All of the above items are subject to corporation tax,
except for the trade name write-off, trade name impairment and
goodwill impairment.
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.
-- Recognition of provisions relating to pre-need funeral plans
and Rescue plans. The provision is comprised of an onerous contract
and for the Dignity Promise. Note 1 to the consolidated financial
statements includes further information.
-- Payments made by the Trusts on cancellation are recognised by the Trading Group.
-- Unlike disbursements on at-need funerals, disbursements on
pre-need funerals under IFRS 15 are recognised on a principal basis
within both revenue and cost of sales, but for consistency in the
alternative performance measure both are reduced as these items are
not included in either measure. Similarly, pre-need funerals
delivered by subcontracted funeral directors, which form part of
deferred income, are excluded within the alternative performance
measure with a corresponding adjustment to cost of sales.
-- Commissions payable on securing new Trust plans are
recognised at the inception of the plan rather than being deferred
and recognised at the time the funeral service is delivered.
-- The amounts recorded in respect of the remeasurement of
assets held in the Trust are removed, as is the significant
financing component that only arises when deferred revenue is
recognised on consolidation of the Trusts.
-- The taxation impact of the above adjustments, including the
impact of corporate interest restriction and changes in the rate of
deferred tax associated with the items noted above, are
removed.
52 week period ended 30 December Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
2022 GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Revenue
Trust consolidation:
Release of deferred revenue on
death or cancellation 118.5 - - - 118.5
Removal of payments received from
the Trusts on death (57.2) - - - (57.2)
Payments on cancellation (12.9) - - - (12.9)
Derecognise pre-need segment
income - - (12.2) - (12.2)
IFRS 15:
Recognition of disbursement
element of pre-need plans 16.4 - - - 16.4
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Revenue - Total other adjustments 64.8 - (12.2) - 52.6
Cost of sales
Trust consolidation:
Provision relating to funeral
plans (13.6) - - - (13.6)
IFRS 15:
Amounts paid on subcontracted
funerals (7.6) - - - (7.6)
Recognition of disbursement
element of pre-need plans (16.4) - - - (16.4)
Administrative expenses
Trust consolidation:
Recognition of the Trust costs (4.8) - - - (4.8)
Transfer of pre-need costs into
funeral services segment (12.3) - 12.3 - -
IFRS 15:
Net increase of deferred costs in
respect of commissions (7.7) - - - (7.7)
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Operating profit - Total other
adjustments 2.4 - 0.1 - 2.5
Finance costs
Trust consolidation:
Deferred revenue significant
financing (50.9)
Remeasurement of financial assets
held by the Trusts and related
income (48.6)
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Finance costs - Total other
adjustments (99.5)
Taxation:
Trust consolidation:
Taxation impact on above
adjustments 27.9
IFRS 15:
Taxation impact on above
adjustments 1.5
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Taxation - Total other
adjustments 29.4
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Loss after taxation - Total other
adjustments (67.6)
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
53 week period ended 31 December Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
2021 - restated(1) GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Revenue
Trust consolidation:
Release of deferred revenue on
death or cancellation 117.9 - - - 117.9
Removal of payments received from
the Trusts on death (58.4) - - - (58.4)
Payments on cancellation (9.8) - - - (9.8)
Derecognise pre-need segment
income - - (24.6) - (24.6)
IFRS 15:
Recognition of disbursement
element of pre-need plans 16.6 - - - 16.6
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Revenue - Total other adjustments 66.3 - (24.6) - 41.7
Cost of sales
IFRS 15:
Amounts paid on subcontracted
funerals (8.2) - - - (8.2)
Recognition of disbursement
element of pre-need plans (16.6) - - - (16.6)
Administrative expenses
Trust consolidation:
Recognition of the Trust costs (4.5) - - - (4.5)
Transfer of pre-need costs into
funeral services segment (24.7) - 24.7 - -
IFRS 15:
Net increase of deferred costs in
respect of commissions (0.4) - - - (0.4)
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Operating profit - Total other
adjustments 11.9 - 0.1 - 12.0
Finance costs
Trust consolidation:
Deferred revenue significant
financing (51.6)
Remeasurement of financial assets
held by the Trusts and related
income 93.1
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Finance costs - Total other
adjustments 41.5
Taxation:
Trust consolidation:
Taxation impact on above
adjustments (8.1)
Corporate interest restriction
disallowance - prior year
adjustment (1.5)
Deferred tax rate change 6.9
IFRS 15:
Taxation impact on above
adjustments (0.5)
Deferred tax rate change (5.5)
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Taxation - Total other
adjustments (8.7)
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
Profit after taxation - Total
other adjustments 44.8
--------------------------------- ---------------- ---------- -------------------------- ----------------- ------
(1) Prior year comparatives have been restated for the 53 week
period ended 31 December 2021 due to a reclassification of foreign
exchange movements. See note 1 to the Group's consolidated
financial statements for further details.
(d) Non-underlying cash flow items
30 31
December December
2022 2021
GBPm GBPm
----------------------------------------------------- --------- ---------
Cash flows from operating activities (17.7) 68.3
Cash flows of other adjustments 47.3 16.1
----------------------------------------------------- --------- ---------
Cash flows from operating activities - Trading Group 29.6 84.4
External transaction costs 8.0 1.6
Payment for historical informal pre-need funerals(1) 3.6 -
Restructuring costs - redundancy 2.9 -
Marketing costs in relation to trials - 0.9
Directors' severance pay - 0.9
Operating and competition review costs - 0.5
----------------------------------------------------- --------- ---------
Underlying cash generated from operations 44.1 88.3
----------------------------------------------------- --------- ---------
(1) As part of the FCA requirements, the Group is required to
ensure all active funeral plans are backed by pre-need arrangement
held in an appropriate trust. As a result of prior acquisitions,
the Group had committed to perform 1,600 funerals for which there
are no formal pre-need arrangements in place. In order to comply
with the FCA regulations and to ensure the customers of these plans
are receiving the best possible outcome, the Group has transferred
these funeral plans at the cost of today's prices to reflect the
most appropriate level of cover required, totalling GBP3.6 million.
The Trading Group does not anticipate any further cash being
transferred to the pre-need Trust in relation to these informal
arrangements.
(e) Funeral market share
Comparable funeral market share excludes any volumes from
branches not contributing for the whole of 2021 and 2022 to date
and therefore excludes 24 branches closed and five branches opened
in 2021 and a further 54 branches closed and three branches opened
in 2022.
(f) Average assets per plan
Average assets per plan are calculated as the net assets of the
Trusts divided by the number of active plans in the Trusts
(excluding rescue plans). 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.
30 31
December December
2022 2021
----------------------------------------------------------------------- --------- ---------
Net assets in the Trusts - GBP'000 1,054,000 1,179,000
Number of active plans in the Trusts (excluding rescue plans) - number 306,000 323,000
Asset per plan (GBP) 3,444 3,650
----------------------------------------------------------------------- --------- ---------
(g) Return on Trust assets
Return on Trust assets are calculated as net investment return
in the Trusts divided by the opening net assets within the
consolidated balance sheet.
30 31
December December
2022 2021
GBPm GBPm
-------------------------------------------------------------- --------- ---------
Opening net assets as per the consolidated balance sheet 1,043.1 967.1
Remeasurement recognised in the consolidated income statement (57.7) 85.0
Investment income 22.2 7.7
Hedging/foreign exchange losses (13.1) (1.7)
Investment administrative expenses deducted at source (0.2) (2.8)
Net investment return in the Trusts (48.8) 88.2
(Loss)/return on the Trust assets (per cent) (4.7)% 9.1%
-------------------------------------------------------------- --------- ---------
(h) Underlying operating profit before depreciation and
amortisation (pre IFRS 16)
Underlying operating profit before depreciation and amortisation
(pre IFRS 16) has been included as a new non-GAAP measure for the
first time in the 2022 Preliminary Announcement. This follows
discussions with external advisers during the potential takeover
process and was included in the Trading Update issued on 23 January
2023, as this measure is believed to be used by investors.
The underlying operating profit before depreciation and
amortisation and before IFRS 16 can be reconciled as follows:
30 31
December December
2022 2021
GBPm GBPm
------------------------------------------------------------------------------- --------- ---------
Underlying operating profit 17.9 55.8
Add back: Depreciation and amortisation 28.4 29.1
Less: Impact of IFRS 16 (12.1) (12.4)
------------------------------------------------------------------------------- --------- ---------
Underlying operating profit before depreciation and amortisation (Pre IFRS 16) 34.2 72.5
------------------------------------------------------------------------------- --------- ---------
(i) Cash Return on Core Capital ('CROCC')
The Dignity CROCC is a measure of the return made on the
productive capital in the business ignoring intangible assets and
non-cash returns. This is a proprietary measure and therefore not
subject to accounting rules which you should bear in mind.
We calculate it by taking the underlying cash generated from
operations and subtracting the maintenance capital expenditure, net
finance costs paid and tax paid; this gives the Cash Return ('CR').
This is then divided by the sum of the property, plant and
equipment, trade receivables: at-need and inventories, less trade
payables, which makes up the Core Capital ('CC').
To illustrate what it measures, imagine that a company built a
crematorium costing GBP8 million including the land which, once
mature, makes a return after tax and capital expenditure of GBP1.2
million; then its CROCC would be 15 per cent (GBP1.2 million/GBP8.0
million). If that crematorium were sold to another company for
GBP20.0 million, it would still be making GBP1.2 million but the
company might measure its return at 6 per cent (GBP1.2
million/GBP20.0 million). The CROCC would still come out at 15 per
cent because it is based upon the capital used to create the asset,
not the goodwill reflected in its transfer. 6 per cent is the
initial return on an investment in what is a 15 per cent asset
purchased for 2.5 times the capital invested in it.
Core Capital is taken from a concept introduced by Warren
Buffett about judging a business based upon the capital needed to
replicate it.
CROCC is useful because it gives a measure of the underlying
returns of a business, which are a guide to what the returns on
retained capital might be. As we progress, the CROCC will
increasingly reflect the returns from the capital retained and
allocated by the executive for organic growth. The CROCC
calculation can be reconciled as follows:
30 31
December December
2022 2021
GBPm GBPm
------------------------------------------ --------- ---------
Underlying cash generated from operations 44.1 88.3
Less:
Maintenance capital expenditure (24.4) (17.6)
Net finance costs paid (27.8) (28.2)
Tax paid (2.3) (17.7)
------------------------------------------ --------- ---------
Cash Return (10.4) 24.8
------------------------------------------ --------- ---------
Property, plant and equipment 231.6 242.1
Trade receivables: at-need 16.7 15.2
Inventories 7.9 8.6
Less:
Trade payables (11.1) (9.3)
------------------------------------------ --------- ---------
Core Capital 245.1 256.6
------------------------------------------ --------- ---------
Cash Return on Core Capital (per cent) (4.2)% 9.7%
------------------------------------------ --------- ---------
(j) Cost to deliver a funeral
The cost to deliver a funeral is calculated by taking underlying
overheads before IFRS 16 divided by the number of funerals
performed. The calculation can be reconciled as follows:
30
December 31 December
2022 2021
---------------------------------------------------------------------------------------------- --------- -----------
Number of funerals performed (number) 77,000 79,200
Funeral services underlying revenue (GBPmillion) 176.4 201.9
Less: Funeral services underlying operating profit before depreciation and amortisation
(GBPmillion) (29.9) (67.6)
Add back: Impact of IFRS 16 (GBPmillion) 8.9 9.4
---------------------------------------------------------------------------------------------- --------- -----------
Funeral services underlying overheads before IFRS 16 (GBPmillion) 155.4 143.7
---------------------------------------------------------------------------------------------- --------- -----------
Cost to deliver a funeral (GBP) 2,018 1,814
---------------------------------------------------------------------------------------------- --------- -----------
(k) Contribution per branch
The contribution per branch is calculated by taking underlying
operating profit before depreciation, amortisation and IFRS 16
divided by the number of funeral branches. The calculation can be
reconciled as follows:
30
December 31 December
2022 2021
---------------------------------------------------------------------------------------------- --------- -----------
Number of funeral branches (number) 725 776
Funeral services underlying operating profits before depreciation and amortisation
(GBPmillion) 29.9 67.6
Less: Impact of IFRS 16 (GBPmillion) (8.9) (9.4)
---------------------------------------------------------------------------------------------- --------- -----------
Funeral services underlying operating profit before depreciation, amortisation and IFRS 16
(GBPmillion) 21.0 58.2
---------------------------------------------------------------------------------------------- --------- -----------
Contribution per branch (GBP) 28,966 75,000
---------------------------------------------------------------------------------------------- --------- -----------
(l) Yield per crematorium
The yield per crematorium is calculated by taking underlying
operating profit before depreciation, amortisation and IFRS 16
divided by the number of crematoria locations. The calculation can
be reconciled as follows:
30
December 31 December
2022 2021
----------------------------------------------------------------------------------------- --------- -----------
Number of crematoria locations (number) 46 46
Crematoria underlying operating profit before depreciation and amortisation (GBPmillion) 47.5 54.5
Less: Impact of IFRS 16 (GBPmillion) (2.8) (2.7)
----------------------------------------------------------------------------------------- --------- -----------
Crematoria operating profit before depreciation, amortisation and IFRS 16 (GBPmillion) 44.7 51.8
----------------------------------------------------------------------------------------- --------- -----------
Yield per crematorium (GBP) 971,739 1,126,087
----------------------------------------------------------------------------------------- --------- -----------
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 JBMATMTJJMRJ
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