REG - Dignity PLC - Preliminary Results
23/03/2022 07:00
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RNS Number : 6675F Dignity PLC 23 March 2022
For immediate release 23 March 2022
Dignity plc
Preliminary results for the 53 week period ended 31 December 2021
Dignity plc (Dignity, the Company or the Group), the only end-of-life provider
in the UK that is uniquely positioned to provide all the required elements of
a funeral service, announces its preliminary results for the 53 week period
ended 31 December 2021.
Financial highlights
53 week 52 week
period ended period ended
31 December 25 December Increase/
2021 2020 (decrease)
restated per cent
Underlying revenue (£million) 312.0 314.1 (1)
Underlying operating profit (£million) ((1)) 55.8 60.3 (7)
Underlying profit before tax (£million) ((1)) 26.8 30.6 (12)
Underlying earnings per share (pence) ((1)) 42.8 46.4 (8)
Underlying cash generated from operations (£million) ((1)) 88.3 88.9 (1)
Revenue (£million) 353.7 357.5 (1)
Operating profit (£million) 17.8 15.9 12
Profit/(loss) before tax (£million) 32.0 (19.6)
Basic earnings/(loss) per share (pence) 24.2 (51.0)
Cash generated from operations (£million) 68.3 62.7 9
Number of deaths 664,000 663,000 -
(1) Underlying performance measures throughout this announcement for
December 2020 have been restated to reflect the application of IFRS 16,
Leases. This standard was adopted in 2020 using the modified retrospective
adoption which meant 2019 comparatives were not restated. As a result, the
Group chose to exclude it from its underlying performance measures reported in
2020 in order to retain comparability. Therefore, the underlying performance
measures reported above in both periods includes the application of IFRS 16.
See note 1 for further details.
Alternative performance measures ('APMs')
The Board believes that whilst statutory reporting measures provide financial
performance of the Group under IFRS, APMs are necessary to enable users of the
financial statements to fully understand the trading performance and financial
position of the Group. The APMs provided are aligned with those used in the
day-to-day management of the Group and allow for greater comparability across
periods. For this reason, the APMs provided exclude the impact of
consolidating the Trusts and the changes which relate to the application of
IFRS 15, as well as non-underlying items comprising certain non-recurring
and non-trading transactions. Further detail may be found on pages 48 to 53.
Key points
· 2021, like 2020, was another year heavily impacted by the
pandemic with an elevated death rate
· Underlying operating profit fell seven per cent as a combination
of rising costs and lower prices impacted margins
· New strategy was agreed, and good progress made in implementation
· Focus groups and insight gathering to develop Dignity's new
Principles; the guiding framework that once embedded will become the
organisations new culture
· Reviewed and repositioned pricing for our at-need services to
ensure we offer the best value-for-money locally
· Inverted the organisation through a new organisational structure
with 12 regions; focuses on removing management hierarchy and replacing this
with a locally empowered leadership structure
· Focused programme of work to prepare Dignity for Financial
Conduct Authority regulation of the pre-paid funeral plan market (which comes
into force July 2022), including submission of our application to the
regulator
· Progress made to invest back into our funeral branches and
crematoria; aiming to bring the Group's property portfolio to a high standard
· The Board agreed a formal climate commitment, pledging for the
Group to be net-zero (across Scope 1 & 2 emissions) by 2038, following an
initial sustainability and ESG assessment
· Progress made to ensure a balanced, Corporate Governance Code
compliant, Board composition, with the appointments of John Castagno as new
Non-executive Chairman and Graham Ferguson as an independent NED. Kate
Davidson and Kartina Tahir Thomson were also welcomed to the Board in 2022
· In March 2022 we agreed a 12 month waiver to our main financial
covenant with noteholders to protect us from a post pandemic drop in the death
rate
Gary Channon, Chief Executive of Dignity plc, commented:
"2021 was a year of great change at Dignity as we set out and started
implementing the new strategy which at its core promotes a culture focused on
serving families and communities in all their end-of-life needs. There isn't a
part of Dignity that hasn't been affected by the transformation so far as we
inverted the whole organisation, empowered those serving clients and organised
ourselves in a more collaborative structure.
I would like to call out the hard work, dedication and commitment of all our
colleagues who continued to respond to the challenges of the COVID-19 pandemic
whilst coping with the rapid pace of organisational change that Dignity has
gone through.
Although there is still much work to do to complete the restructuring, we know
what we need to do."
For further information please contact:
Gary Channon, Chief Executive
Dean Moore, Interim Chief Financial Officer
Dignity
plc
+44 (0)20 7466 5000
Richard Oldworth
Chris Lane
Tilly Abraham
Verity Parker
Buchanan
+44 (0)20 7466 5000
www.buchanan.uk.com (http://www.buchanan.uk.com)
dignity@buchanan.uk.com (mailto:dignity@buchanan.uk.com)
Dignity's preliminary results and investor presentation are available at
https://www.dignityplc.co.uk/investors/
(https://www.dignityplc.co.uk/investors/) .
Chairman's statement
Giovanni ('John') Castagno, Non-Executive Chairman
I joined Dignity in July 2021 at a pivotal time for the Group.
With the backdrop of the on-going COVID-19 pandemic, the Executive team, led
by Gary, had embarked on an ambitious plan to grow the business by further
improving our operating model to better serve the bereaved as well as
implementing the changes required by the Competition and Markets Authority
('CMA') whilst simultaneously preparing for future Financial Conduct Authority
('FCA') regulations.
Our People
Our people responded splendidly to these challenges and on behalf of the
Board, I would like to publicly thank all our colleagues and everyone in the
sector for the way they have supported the bereaved. Our people are vital to
Dignity's success and in the challenging circumstances created by COVID-19
they have demonstrated the utmost dedication and resilience by continuing to
provide an excellent and respectful service. Whilst they may not have
received, or sought, the public recognition that has been bestowed on other
keyworkers, their quiet, selfless commitment has been admired by everyone that
experiences their actions. This thanks extends across the entire funeral,
crematoria and bereavement sector.
It is these colleagues who are at the centre of our new strategy as it is they
who provide a caring and high-quality service to our clients and are at the
heart of our communities each day. I am confident that by empowering and
trusting our people, and providing them with the right tools and resources,
the business can approach the future with great optimism.
Strategic overview
I would also like to thank Gary and his team for executing the first stage of
our ambitious plan which has been to restructure our branch and crematoria
network to better serve the bereaved. Notwithstanding the difficult trading
environment of the pandemic, we have created 12 integrated trading regions,
empowering all colleagues so that their expertise can be applied with greater
focus and speed to the needs of those communities. The support departments
based in Sutton Coldfield have also been reorganised and refocused, so they
are better aligned to servicing the needs of our front-line colleagues. These
changes lay the foundations of the vision to be a federation of respected
local businesses supported by a strong national brand.
During this period, we have also complied with the changes introduced by the
CMA and are preparing for regulation by the FCA having submitted our formal
application to continue selling pre-need Funeral Plans.
I believe that the new strategy, the cultural change being implemented by the
Executive Committee and supported by the Board and the forthcoming regulatory
framework will create opportunities for Dignity. The Principles developed and
launched by the Executive Committee will underpin the cultural change being
implemented and will further support the growth ambitions of the business.
But this optimism for growth should be tempered by volatility expected in
the medium-term mortality rates which are likely to be lower than those
experienced during the pandemic and the historic five-year average rate.
The volatility expected in the mortality rate and the investment needed in
executing the strategy will impact cash generation. It is therefore
appropriate that the Board considers options available to review Dignity's
current capital structure and to that end, we continue to make good progress.
The Board recognises the role of Environmental, Social and Governance ('ESG')
in creating value for all stakeholders. This year we committed to a formal
climate pledge, to be net-zero across the Group by 2038. We are committed to
engaging with these issues and to transparency of actions and disclosure.
Consequently, the Board will receive frequent reports from management on ESG
matters.
Governance during a time of change
During this period of significant change, having appropriate corporate
governance is of great importance. When I joined Dignity, I committed to
strengthen governance and make the business Code compliant as well as
introducing diversity to the Board.
To this end, I'm pleased to report that in addition to my appointment, we have
secured the support of Graham Ferguson and Kartina Tahir Thomson as
Independent Non-Executive Directors and chairs of the Audit, Remuneration and
the newly constituted Risk Committee. I'm also delighted that Kate Davidson,
who previously sat on the Executive Committee, joined the Board in January
2022 as Chief Operating Officer. I welcome Graham, Kartina and Kate to the
Board and look forward to working closely with them.
We continue our search for a new Chief Financial Officer and hope to make an
appointment soon. Once this appointment is made, it is the intention for Dean
Moore to regain his position as an Independent Chair of the Remuneration
Committee. This will ensure a smooth hand over to the newly appointed Chief
Financial Officer. This is subject to appropriate review and approval by the
Board.
Gary Channon was appointed to Executive Chairman following a General Meeting
in April 2021, and subsequently to Chief Executive at the time of my
appointment. In line with Gary's undertakings at the time of the General
Meeting at the appropriate time, the Board will seek to replace Gary as the
Chief Executive, with a process for identifying Gary's replacement now
underway. Again, ensuring a smooth transfer to new Chief Executive will be
central to the Board's plans.
Dividend policy
Dignity has not paid a dividend since June 2019 and the Directors do not
expect to do so until the business has returned to a more sustainable
financial footing. We retain significant cash resources, continue to be cash
generative and understand the importance of optimising total shareholder
return whilst maintaining a balance between different stakeholders, and it is
the Directors' intention to return to paying a dividend as soon as we believe
it is financially prudent to do so.
John Castagno
Non-Executive Chairman
22 March 2022
Strategic review
Gary Channon, Chief Executive
This is my first report to shareholders since being appointed in April 2021,
and it is likely to be my last. I want to take this opportunity to set out
what has been happening at Dignity over the past year and why; what happens
next and how we are going to measure our progress against our objectives going
forward.
The Plan
"We strive to be the most trusted, respected and valued end-of-life provider
in the UK, and the most inspirational and rewarding employer for those who
serve this goal."
Our vision is for Dignity to be a confederation of strong local businesses
serving their communities backed up by the strength of a national
organisation. We need to bring the benefits from that scale without the
bureaucracy, costs and hierarchy that can go with it. We are liberating and
empowering local businesses to serve their communities individually whilst
being able to call upon and utilise the knowledge and resources of the wider
Group. We seek to serve all end-of-life needs and are uniquely placed to do
that.
Although complex, we believe this model will best succeed because it is based
upon clients and their needs. Ultimately our service is delivered by our
people, and they make the difference. There isn't a person who spends time
around Dignity who isn't struck by the compassionate and empathetic nature of
our colleagues.
We receive a lot of positive and thankful feedback about our service, and it
almost always refers to the people. Therefore, the first thing we need to do
is be a place where those drawn to and interested in our industry want to come
to work, grow and thrive. We haven't been strong in this area and have enjoyed
loyalty beyond what we probably deserved in the past because of the strength
of the calling. We have set about redressing that but still have a way to go.
We have raised pay levels as part of that process.
As we cultivate an environment that attracts and retains the best people, we
empower them to deliver the service that meets the needs and aspirations of
the families we serve. We have made significant changes in the past nine
months to empower our client-facing colleagues, breaking down some of the
barriers to change around trust and decision-making.
Our ongoing regional restructure takes that a step further by creating locally
empowered businesses. That will be completed this year and when done will have
completely inverted the organisation. We are giving our people the freedom to
innovate and make decisions autonomously, to have ideas, and operate the
businesses in a way that meets the needs and aspirations of our clients,
colleagues and communities.
Once we have the best people and have empowered them, we need to give them the
tools to deliver the best proposition in their communities. One element of the
proposition is price. We had previously allowed our prices to rise above the
market level, which is not the way to serve clients well and doesn't align
with colleagues motivated to do the best for their clients. High prices were
the single biggest factor causing the underlying business to lose share year
after year (before acquisitions) and was leading to likely failure. We changed
that in 2021 and have lowered prices substantially.
Our pricing philosophy now is to offer the best value-for-money and not have
price be the reason for not choosing us. This is a big change for Dignity and
the effect of lowering prices is to reduce how much we earn per funeral.
However, our experience since we changed prices has been that the market share
loss stops and then reverses, and so in time we expect that revenue loss to be
more than compensated by volume growth, especially when combined with all the
other elements of our strategy.
After people, empowerment and price, we come to our premises. We need to have
the facilities to match our proposition and therefore have embarked on a
much-needed programme of capital expenditure across the estate. This has begun
but we have a long way to go considering the scale of our organisation with
over 800 locations at the time of reporting.
Next, our products. In addition to delivering funeral and cremation services
for families at the time of need, our other services include pre-arranged
funeral plans. An important part of our end-of-life service proposition, in
this area we are working on innovations, redesigns and new introductions to
better serve the needs of our customers. We believe that the world of funeral
plans is about to change dramatically for the better as it will fall under the
FCA rules and regulations which apply from July 2022. It is a big undertaking
to prepare for but holds significant potential for Dignity, as greater trust
by consumers in the products from regulation and the withdrawal of unregulated
competitors will give us an opportunity to grow the market and our business.
As the original innovator in the funeral plan sector since 1985, and as the
UK's largest end-of-life business we have a great opportunity in this new era.
We are uniquely placed as the only national operator carrying out funerals and
cremations, whilst also manufacturing our own coffins at our facility in the
North East and offering memorial services through our crematoria.
Vehicles are another important ingredient to having the best proposition.
Whether clients are seeking to add a personal touch to the service with a
motorcycle or campervan hearse or choosing a traditional hearse, vehicles form
a key focal point for a funeral, and we used our vehicles 98,000 times in
2021. Along with our people and premises, vehicles are a key part of the
overall impression families and attendees form of our funeral businesses on
the day of a service. We have 1,659 vehicles in our fleet, yet we have
underspent capital expenditure in our fleet by around £25 million in the past
five years. We also do not organise our fleet in a way that gets best overall
utilisation. We have started to increase the investment in the fleet, and we
will introduce new ways of organising it to gain a benefit from our scale.
Strategic Element One
Element One of our strategy, as outlined above, is to have the Best
Proposition and that comes from getting People, Empowerment, Price, Premises,
Products & Vehicles right.
The most ambitious element of our strategy is to introduce, foster and embed a
culture which will enable us to deliver that best proposition and keep
adapting and learning as we do. After an internal process over six months, we
crafted our Principles. They set out all the key attitudes, priorities, values
and philosophies consistent with a culture that we think will make Dignity a
special and successful organisation. They are written for ourselves, they are
for colleagues, they are about who we are, how we conduct ourselves, and how
we aspire to be but let me explain their purpose from a shareholder
perspective.
We aim to be a learning organisation, in other words an organisation that is
able to continuously learn from experience, including and especially by
learning from our failures. Such a culture creates a safe environment for
trying new ways of working, knowing that both success and failure contain
lessons from which to grow. If we do this then the business will continuously
adapt to the changing needs and aspirations of clients. With so many
businesses empowered to do things their own way, if we achieve this culture
then we will have a constant source of learning in variance, in other words
different outcomes in different places. Good ideas can then be spread around
the organisation as well as lessons learned from failure.
You will see that the Principles embed a strongly ethical culture that will
build a strong long-term reputation which will attract clients, employees and
benefit the owners of the business.
The specific Principle for shareholders is:
WE ARE GOOD STEWARDS OF OUR OWNER'S CAPITAL
Our goal is to create excellent long-term value for our shareholders. We will
allocate capital wisely, organise ourselves prudently, spend money frugally
and report openly and honestly.
The leading principle that will drive the focus of many of the decisions of
the organisation is the focus on our clients, the families and communities we
serve. If we apply that properly, and have it drive all that we do, we will be
a formidable competitor.
Strategic Element Two
Element Two of our strategy is to have a strong Culture that focuses on
Clients, creates a Learning Organisation and embeds good values.
If we have the Best Proposition ('Element One') then we make the task of
acquiring new clients easier. There are many routes to conversion and the very
best is the word-of-mouth repeat business from families who trust us.
Approximately one in eight of all funerals were handled by one of our funeral
directors, and if we include cremations in our crematoria then we were
involved in approximately one in five of all funerals in the UK in 2021. Doing
our very best for those clients is our best source of future business.
Increasingly many other routes are used to choose a funeral director and the
internet now plays a large part in that. Having an effective digital strategy
aligned with our local propositions is an essential part of our effort to grow
our share of funerals and cremations in all areas. We have a number of changes
coming in this area in 2022. To really get the benefits of these efforts you
need the Best Proposition.
Funeral Plans are one of the most effective ways for us to acquire a potential
future funeral and forms part of that acquisition strategy. We would like to
engage our customers when they are still alive to deal with their end-of-life
wishes and requirements. We believe that the very best way for anyone to share
and capture their wishes for a funeral is to do so personally - enabling a
truly personal and reflective funeral that meets their needs as well as those
of their families.
Strategic Element Three
Element Three of our strategy is to have an effective Customer Acquisition
Strategy aligned with our Best Proposition.
Dignity is an amalgamation of hundreds of businesses bought and combined over
the past few decades. However, in the way that we were organised we had not
achieved any benefits from scale, underlying central costs bloating from 7.5
per cent of underlying revenues in 2016 to 12.6 per cent of underlying
revenues in 2021. We have been reorganising the group to make the centre
smaller, more cost effective and more aligned with the new strategy. We made
some painful decisions in January 2022 and lost some loyal and capable
colleagues who had done nothing wrong. That was the most difficult step we
have had to take so far. We attempted to do it in the least painful way for
all concerned and to get it done quickly.
We need to show that there is a benefit to scale. There are excellent
independent funeral directors thriving without the need for any national
organisation behind them. If there isn't a benefit in being part of Dignity
then we lose our raison d'être. We believe if done correctly that this should
create advantage from factors like pooled sourcing, manufacturing, digital
capabilities, property expertise, dealing with regulatory needs, shared
learnings, shared resources, training and development, marketing expertise and
recruitment. Most of these are identified and are in the early stages of being
implemented for the new strategy.
Strategic Element Four
Element Four of our strategy is to be organised to gain the Benefits of Scale
and Breadth.
Those are the key elements but there are other ingredients like Dignity
Ventures, a new division that we set up in 2021 to back innovative businesses
in the end-of-life space who might benefit from working with the Dignity
organisation without becoming part of it, and in our property division we
believe we have value and income potential within the property estate. At our
coffin manufacturing facility in East Yorkshire, we believe we have the
capability to grow our business outside of Dignity.
Business Model
We are confident that as the strategy works then the business should grow,
increase its share of the market and through growth increase its
competitiveness and profitability. An important feature of our business model
is the operational leverage. Around two thirds of our cost of doing a funeral
is fixed cost and so the marginal cost of every unit of growth is only one
third of the overall cost. On our current numbers (taking total funeral
overhead costs and dividing them by the funerals undertaken in 2021) it costs
us £1,830 to deliver a funeral.
If we grow volumes by say, 20 per cent, then that cost would drop to £1,520
which we could use to be either more competitive or more profitable. The
success of the strategy lies in its ability to create this virtuous circle of
improvement, and these are the numbers we will focus on along with the
underlying average revenue on funerals (£2,548 in 2021 versus £2,522 in
2020) and cremations (£887 in 2021 versus £885 in 2020).
The business model for us, whether it is for funerals or cremations, is quite
simply a function of volume multiplied by the difference between the average
revenue per funeral or cremation less the cost of carrying out funerals and
cremations and the cost of acquiring clients. From that result you take off
the central overhead. We will give you the building blocks of the business
model so you can judge how we are getting on.
When it comes to funeral plans their contribution comes from any surplus that
can be generated by holding the proceeds of plan sales in trust less the cost
of acquiring plans and the ultimate cost of a funeral. In 2021 a strong return
on the Trust assets of 9.1 per cent (£88.2 million on starting assets of
£967.1 million) was generated but that came after a lower return last year of
4.0 per cent (£38.3 million on £947.5 million). It's a measure that must be
judged over multiple years and our long-term goal is to exceed the rise in
funeral cost inflation by three per cent per annum. See alternative
performance measures on page 52 for how it's calculated.
The returns that the business makes need to be judged against the capital used
to make them. To assist this we have developed a measure we call Cash Return
on Core Capital ('CROCC'). In 2021 the CROCC fell to 9.7 per cent from 16.9
per cent in 2020. Returns that are not distributed are retained in the
business and it is one of the key responsibilities of the Chief Executive to
see that they are allocated wisely. See alternative performance measures on
page 52 and 53 for how it's calculated and why we use it.
Capital Structure
The performance of the business is supported by the capital supplied by
shareholders and bondholders. We have previously discussed our desire to
operate a lower level of indebtedness. We currently owe £527.1 million on our
bonds and have Trading Group cash of £55.9 million. In February, we sought
and were granted in March a waiver on the application of the covenants on our
bonds for 12 months. We took this prudent measure to mitigate the uncertainty
and potential for a drop in the death rate following the pandemic.
It is still our intention to address the capital structure most likely by use
of the crematoria portfolio but to do it in a way that does not change the
integrated nature of the Group.
Outlook
The strategy as set out above is likely to lead to lower profits in the
short-term as we see a full year effect of the lower prices we have been using
since September. Costs have been rising as we have raised the pay of our
lowest paid staff. Conversely, there will be a benefit coming through from a
reduction in the central costs. The biggest factor affecting us is likely to
be the death rate and there is a real risk that after COVID-19 passes the
excess death effect of the past two years starts to reverse itself which it
will do at some point.
The business is likely to use more cash than it generates as we are investing
in our facilities to make up for past under investment and to roll out our new
strategy and local branding programmes. Investment is also needed in
technology to improve our productivity in many areas and the implementation of
new procedures and controls associated with the impending FCA regime.
These financial headwinds are a predictable consequence of the strategy
execution. We can fix competitiveness quickly but the benefits of that in
terms of growth and greater productivity come after. We need to look through
to the long-term value being created by turning Dignity from a business
perpetually losing share in structural decline into a successful and growing
business. The nature of our business model and its vertically integrated
structure means that growth delivers and compounds value.
We still expect to do some form of transaction to ease the leverage in the
capital structure and to align it with the long-term strategy.
We have a stream to cross at the bottom of the valley before we start our
climb to higher ground.
Annual General Meeting ('AGM')
At last year's AGM we explained the rationale and underpinnings for the change
of strategy and this year we intend to show you what has been achieved so far.
2021's accounts have been compiled in a way consistent with 2020, and at the
2022 AGM we want to share with you how we will be reporting to you from 2022
onwards. Like last year we will make a presentation on the strategy.
Last year we had to hold the meeting remotely but this year we expect to do it
in person. If you are able to, please come. We will again do our best to
answer all your questions candidly. We will also bring along colleagues from
within the business who will give you a perspective from beyond the Board.
You own shares in a very special company, come and learn more.
Gary Channon
Chief Executive
22 March 2022
Financial review
Dean Moore, Interim Chief Financial Officer
Our performance in 2021 reflects the continued impact of COVID-19 and the
implementation of the new strategy in quarter four. As a result, underlying
operating profit decreased by seven per cent to £55.8 million. Allowing for
the fact that 2021 represents a 53 week period for the Group means that, on a
52 week comparable basis, deaths were 14,000 lower in the period. Therefore,
although 2021 has an additional week of underlying revenue compared to 2020,
total deaths including week 53 were broadly comparable.
Our market share slightly decreased on funeral services and there was a strong
market share performance by our crematoria business.
Cash generation remained strong in the year and will enable us to continue to
invest in our strategic objectives in the future.
Introduction
These results have been prepared in accordance with International Financial
Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union and in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006.
Statutory operating profit was £17.8 million (2020: £15.9 million), an
increase of £1.9 million. Gross margin was broadly in line with prior year.
Administrative expenses were £2.5 million lower, largely driven by a
decreased impairment charge of £4.8 million on goodwill and trade names
compared to last year, a further trade name write-off of £2.5 million and
after incurring additional central overheads of £3.1 million relating to
digital expenditure and other costs. This was partially offset by a reduction
in other non-underlying items, primarily in respect of £4.7 million less
spent on the Transformation Plan which has been abrogated, £2.9 million less
spent on the Operating and competition review and £1.6 million less spent on
Directors' severance pay. See table on page 10 for further details on the
impacts to statutory and underlying operating profit.
A total impairment of £39.2 million has been charged in the period (2020:
£44.0 million), of which £2.8 million (2020: £15.3 million) relates to
trades names and £36.4 million (2020: £28.7 million) to goodwill. The
impairment has arisen within the funeral services division primarily due to
the reduced average revenues following the new pricing strategy for the Group.
Whilst the Group expects long-term market share growth from the new strategy,
the accounting standard (IAS 36) for impairment assessments does not allow
forecasts to be used where assumptions cannot be evidenced or have not yet
been implemented (e.g. cost savings). As a result, whilst the Group is
focussed on committing to delivering its market share growth ambitions, given
the infancy of the strategic plan implementation and the available evidence to
demonstrate this growth as at the year end when the impairment assessment is
made, the full extent of potential longer-term gains are not reflected in the
impairment modelling. Note 6 in the accounts provides sensitivity analysis
based on the calculated impairment.
In addition to the impairment described above, a further trade name write-off
of £2.5 million (2020: £nil) has been charged in the period following the
withdrawal of seven trading names from use following part of the Group's
strategic review.
The Group's net finance income was £14.2 million (2020: net finance costs
£35.5 million), a £49.7 million movement primarily due to the increase in
fair value movements of the financial assets held by the Trusts of £43.7
million.
The above has resulted in profit before tax for the Group of £32.0 million
(2020 loss: £19.6 million).
Financial highlights
The Group's financial performance is summarised below:
53 week 52 week
period period
ended ended
31 Dec 25 Dec Increase/
2021 2020 (decrease)
restated ((b))
£m £m %
Underlying revenue((a)) (£ million) 312.0 314.1 (1)
Underlying operating profit((a)) (£ million) 55.8 60.3 (7)
Underlying profit before tax((a)) (£ million) 26.8 30.6 (12)
Underlying earnings per share((a)) (pence) 42.8 46.4 (8)
Underlying cash generated from operations ((a)) (£ million) 88.3 88.9 (1)
Revenue (£ million) 353.7 357.5 (1)
Operating profit (£ million) 17.8 15.9 12
Profit/(loss) before tax (£ million) 32.0 (19.6)
Basic earnings/(loss) per share (pence) 24.2 (51.0)
Cash generated from operations (£ million) 68.3 62.7 9
Dividends paid in the period:
Final dividend (pence) - -
(a) Further details of alternative performance measures can be
found on pages 48 to 53.
(b) Underlying reporting measures for the 52 week period ended 25
December 2020 have been restated to include the application of IFRS 16 which
were previously included within other adjustments. See pages 25 and 26 for
further details
Alternative performance measures
The alternative performance measures are stated before non-underlying items
and the effect of consolidation of the Trusts and applying IFRS 15 as defined
on page 48. These items have been adjusted for in determining underlying
measures of profitability as these underlying measures are those used in the
day-to-day management of the business and allow for greater comparability
across periods.
Detailed information on non-underlying items is set out on pages 48 to 53 and
a reconciliation of statutory revenue to underlying revenue is detailed in
note 2.
Accordingly, the following information is presented to aid understanding of
the performance of the Group:
53 week period 52 week period
ended ended
31 Dec
25 Dec
2021
2020
restated (c)
£m
£m
Operating profit for the period as reported 17.8 15.9
Add the effects of:
Acquisition related amortisation 4.2 4.6
External transaction costs in respect of completed and aborted transactions 2.6 0.2
Marketing costs in relation to trials 0.9 0.6
Profit on sale of fixed assets (1.1) (0.2)
Transformation Plan costs((a)) - 4.7
Directors' severance pay - 1.6
Operating and competition review costs - 2.9
Trade name write-off 2.5 -
Trade name impairment 2.8 15.3
Goodwill impairment 36.4 28.7
Impact of Trust consolidation and IFRS 15 (10.3) (14.0)
Underlying operating profit((b)) 55.8 60.3
Underlying net finance costs (29.0) (29.7)
Underlying profit before tax((b)) 26.8 30.6
Tax charge on underlying profit before tax (5.4) (7.4)
Underlying profit after tax((b)) 21.4 23.2
Weighted average number of Ordinary Shares in issue during the period 50.0 50.0
(million)
Underlying EPS (pence)((b)) 42.8 46.4
Decrease in underlying EPS (per cent) 8 23
(a) The £4.7 million costs incurred in 2020 reflects expenditure up to the
point of the Transformation Plan being abrogated.
(b) Further details of alternative
performance measures can be found on pages 48 to 53.
(c) The 52 week period ended 25 December 2020 has been restated to include the
application of IFRS 16 within underlying operating profit which were
previously included within other adjustments. See pages 25 to26 for further
details. A presentation adjustment has also been made to separately pull out
the marketing costs in relation to trials.
Earnings per share
Statutory profit after tax was £12.1 million (2020: loss of £25.5 million).
Basic earnings per share were 24.2 pence per share (2020 loss: 51.0 pence per
share). Underlying profit after tax was £21.4 million (2020: restated £23.2
million), giving underlying earnings per share of 42.8 pence per share (2020:
restated 46.4 pence per share), a reduction of eight per cent.
Items excluded from underlying operating profit
Amortisation of acquisition related intangibles
Amortisation of acquisition related intangibles reflects the write-off of
acquired intangibles over the term of their useful life.
External transaction costs
External transaction costs primarily reflect amounts paid to external parties
for legal, tax and other advice in respect of the Group's acquisitions and
unsuccessful crematoria planning developments.
Profit on sale of fixed assets
Profits or losses arising from the sale of fixed assets (net of any insurance
proceeds received) are excluded as they are unconnected with the trading
performance in the period.
Transformation Plan costs
Cost incurred in relation to the Group's now abrogated Transformation Plan has
resulted in significant, directly attributable non-recurring costs.
Directors' severance pay
Following the departure of Mike McCollum, Steve Whittern and Richard Portman
in 2020, severance packages were agreed and paid and are considered to be a
non-recurring cost.
Operating and competition review costs
The Group has incurred costs with external advisers to support the Group's
response to the CMA's funerals market investigation and HM Treasury's
consultation on the funeral plan sector. Costs were also incurred in 2020 with
external advisers to support its operational review.
Trade name write-off
During 2021, the Group withdrew seven trading names from use following part of
the Group's strategic review. As the trading names had specific intangible
assets related to them, they were required to be written-off.
Trade name impairment
The Group assessed the carrying value of its trade names. In light of the
lower level of profitability and lower anticipated average revenue per
funeral, an impairment of £2.8 million (2020: £15.3 million) has been
recognised.
Goodwill impairment
The Group assessed the carrying value of its goodwill. In light of the lower
level of profitability and lower anticipated average revenue per funeral, an
impairment of £36.4 million (2020: £28.7 million) has been recognised.
Trust consolidation/IFRS 15
In the prior period the Group changed its accounting policy to consolidate the
Trusts and to implement IFRS 15. This adjustment reverses the impact of these
policy changes in order to maintain underlying performance measures with those
used in the day-to-day management of the business.
Capital expenditure
Capital expenditure on property, plant and equipment and intangible assets was
£21.0 million (2020: £11.1 million).
This is analysed as:
31 December 25 December 2020
2021
£m £m
Maintenance capital expenditure: 10.5 5.0
Funeral services
Crematoria 5.4 2.7
Other 1.7 1.4
Total maintenance capital expenditure((a)) 17.6 9.1
Branch relocations 0.1 0.5
Transformation capital expenditure - 0.2
Development of new crematoria and cemeteries 3.3 1.3
Total property, plant and equipment 21.0 11.1
Partly funded by:
Disposal proceeds - properties ((b)) (1.2) (1.1)
Net capital expenditure 19.8 10.0
(a) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other tangible and
intangible assets.
(b) Property disposals in 2021 includes £0.8 million of insurance
proceeds received. Property disposals in 2020 were the result of the now
abrogated Transformation Plan.
The Group will continue to invest in the maintenance of its existing portfolio
of vehicles and funeral and crematoria locations.
Cash flow and cash balances for the Trading Group
Underlying cash generated from operations was £88.3 million (2020: restated
£88.9 million).
Other working capital changes were consistent with the Group's experience of
converting profits into cash, subject to timing differences and cash incurred
in respect of commission payments.
Cash balances of the Trading Group at the end of the period were £55.9
million (2020: £56.7 million excluding £16.9 million set aside for debt
service: total Trading Group cash balances of £73.6 million). Further details
and analysis of the Group's cash balances are included in note 7.
Pensions
The balance sheet shows a deficit of £19.7 million before deferred tax (2020:
deficit of £36.6 million). Following the triennial valuation performed in
April 2020, the scheme will receive future annual cash obligations from the
Group from 2022 onwards of £4.5 million.
Taxation
The Group's effective tax rate on underlying profits in the period was 20.2
per cent (2020: restated 24.2 per cent). The current period underlying
effective tax rate is higher than the standard rate of corporation tax due to
the effects of permanent disallowables and prior year items with a tax impact
totalling £0.3 million. The underlying effective tax rate is lower than
originally anticipated due to the effects of prior year credits and a lower
level of permanent disallowables.
In 2022, the Group expects its underlying effective tax rate to be
approximately two to three per cent above the headline rate of corporation
tax. This translates to an underlying effective rate of between 21.0 per cent
and 22.0 per cent.
The Group's effective tax rate on profits is 62 per cent (2020: charge on
losses of 30.0 per cent) which is higher than the underlying effective tax
rate primarily due to the £1.5 million corporate interest restriction
disallowance, £6.9 million arising on the corporation tax rate change and
£6.1 million of disallowable taxation on the goodwill and trade name
impairments and write-off.
Prior year restatements
Following a review of the Group's accounting policy for insurance plans in
relation to the prepaid balances held on the consolidated balance sheet it has
been amended to include a provision for expected future cancellations. It was
further noted that a liability was not held for active plans where a known
commission is payable in future years. The total impact has been booked into
opening reserves at 28 December 2019 and is a reduction to reserves of £3.5
million. Further details of the prior year restatement are set out in note 17.
Comparatives for the 52 week period ended 25 December 2020 have been restated
due to a prior year adjustment in relation to the application of IFRS 16. This
has impacted the consolidated statement of cashflows and the revenue and
segmental analysis. Furthermore, underlying operating profit within divisional
results have also been restated. See note 1 for further details.
Capital structure and financing for the Trading Group
Secured Notes
The Group's principal source of long-term debt financing is the Secured A
Notes and the Secured B Notes. The principal is repaid completely over the
life of the Secured Notes and is therefore scheduled to be repaid by 2049. The
interest rate is fixed for the life of the Secured Notes and interest is
calculated on the principal.
The key terms of the Secured Notes are summarised in the table below:
Secured A Notes Secured B Notes
Total new issuance at par £238.9 million £356.4 million
Legal maturity 31 December 2034 31 December 2049
Coupon 3.5456% 4.6956%
Rating by Fitch A- BB+
Rating by Standard & Poor's A- B+
The Secured Notes have an annual debt service obligation (principal and
interest) of circa £33.2 million. Net amounts owing on the Secured Notes is
£526.6 million (2020: £541.7 million).
It is not currently possible to issue further Secured Notes, as such an issue
would require the rating of the Secured B Notes to raise to BBB by both rating
agencies.
Financial Covenant
The Group's primary financial covenant under the Secured Notes requires EBITDA
to total debt service to be above 1.5 times. The ratio at 31 December 2021 was
2.13 times (2020: 1.99 times). The Group therefore had EBITDA headroom of
approximately £21.4 million (2020: approximately £16.0 million) against its
financial covenants at the end of December. This covenant calculation uses a
prescribed definition of EBITDA detailed in the loan documentation and only
represents the profit of a sub-group of the Group which is party to the loans
(the 'Securitisation Group'). Furthermore, the calculations are unaffected by
the consolidation of the Trusts or the application of IFRS 15 and IFRS 16
described elsewhere, as the Group was able to elect to disregard those changes
when making the calculations.
EBITDA for this calculation can be reconciled to the Group's statutory
operating profit as follows:
31 December
2021
£m
EBITDA per covenant calculation - Securitisation Group 72.4
Add: EBITDA of entities outside Securitisation Group 1.3
Add: Impact of IFRS 16 12.5
Less: Non-cash items((a)) (1.3)
Underlying operating profit before depreciation and amortisation - Group 84.9
Underlying depreciation and amortisation (29.1)
Non-underlying items (48.3)
Impact of Trust consolidation and IFRS 15 10.3
Operating profit 17.8
(a) The terms of the securitisation require certain items (such as
pensions, Save As You Earn Scheme and Long-Term Incentive Plan Scheme costs)
to be adjusted from an accounting basis to a cash basis.
In addition, in order for the Group to transfer excess from the Securitisation
Group to Dignity plc, it must achieve both a higher EBITDA to total debt
service ratio of 1.85 times and achieve a Free Cash Flow to total debt service
(a defined term in the securitisation documentation) of at least 1.4 times.
This latter ratio at December was 1.76 times (December 2020: 1.57 times).
These combined requirements are known as the Restricted Payment Condition
('RPC') which have been met in 2021. Failure to pass the RPC would not be a
covenant breach and would not cause an acceleration of any debt repayments.
Any cash not permitted to be transferred whilst the RPC is not achieved will
be available to be transferred at a later date once the RPC requirement is
achieved.
Net debt
The Trading Group has underlying net debt of £471.2 million (2020: £480.6
million) at the balance sheet date. See note 10 for further details.
Should the Group wish to repay all amounts due under the Secured Notes, the
cost to do so at the year end would have been approximately £757.4 million,
(Class A Notes: £202.8 million; Class B Notes: £554.6 million) (2020:
£822.7 million, (Class A Notes: £226.0 million; Class B Notes: £596.7
million)).
Net finance costs
The Group's underlying finance costs substantially consist of the interest on
the Secured Notes and ancillary instruments. The net finance cost in the
period relating to these instruments was £23.7 million (2020: £24.1
million).
Other ongoing underlying finance costs incurred in the period amounted to
£0.8 million (2020: £1.0 million), covering the unwinding of discounts on
the Group's provisions and other financial liabilities.
Interest receivable on bank deposits was £nil (2020: £0.1 million).
The Group also incurred £4.5 million (2020: £4.7 million) lease liability
interest, under IFRS 16, giving a total underlying net finance cost of £29.0
million (2020: restated £29.7 million).
Shareholders' deficit
Consolidating the Trusts and applying IFRS 15, has a significant impact on our
reported results. The recognition of contract liabilities (the majority of
which are expected to fall due after one year) in excess of the Trusts'
financial assets has caused the Group's balance sheet to show an overall
deficit in shareholders' funds.
On consolidation of the Trusts, all funds received from the plan members are
deferred until recognised on satisfaction of a funeral obligation or when a
plan is cancelled and refunded (subject to an administrative fee). These
deferred funds increase under IFRS 15 by a material non-cash significant
financing charge. The assets of the Trusts, initially representing the same
funds received from plan members less an amount paid to the Trading Group to
cover marketing costs, are invested by the Trusts and are subject to market
movements. Over time, investments are also realised to fund funeral payments
or refund obligations. The net impact of the above gives rise to a significant
reduction in the net asset value of the Group to a position where the Group
has reported a net deficit of £151.1 million (2020: restated £177.5
million). Whilst this position appropriately reflects the application of IFRS
15 to the underlying contract with the plan member, based on the current cost
of delivery of a funeral service, delivery of pre-need funerals is expected to
result in the future recognition of profits under IFRS, which, over time, the
Directors consider would more than eliminate the deficit noted above.
This deficit, which only arises on consolidation, has no impact on the Group's
future ability to pay dividends to shareholders, which relies on the reserves
in the Company and not the Group.
The Trusts
At the balance sheet date, the Trusts had £1,043.1 million (2020: £967.1
million) of financial assets and £19.8 million (2020: £21.6 million) of
cash, which was recognised in the consolidated balance sheet. This has
resulted in average net Trust asset per plan increasing six per cent to
£3,650 (2020: £3,400). The movement in financial assets is primarily
attributable to remeasurement gains recognised in the consolidated income
statement of £85.0 million (2020: £41.3 million), reflecting changes in
asset values and net disposals of financial assets of £12.2 million (2020 net
disposals of financial assets: £18.7 million).
Aggregated contract liabilities totalled £1,337.5 million (2020: £1,317.5
million) with the primary movements being sales of new plans of £86.3 million
(2020: £82.0 million), increases due to significant financing of £51.6
million (2020: £53.1 million) and releases due to death or cancellation
totalling £117.9 million (2020: £122.2 million).
Outlook
The successful delivery of our strategy will deliver long-term growth and
value.
Divisional performance
Introduction
Operating segments are reported in a manner consistent with internal reporting
provided to the chief operating decision maker who is responsible for
allocating resources and assessing performance of the operating segments. The
chief operating decision maker of the Group has been identified as the three
Executive Directors.
For statutory purposes the Group has two reporting segments, funeral services
and crematoria, as under IFRS 15 only a single performance obligation exists
when a pre-arranged funeral plan is sold, being the performance of a funeral.
The Group also reports central overheads, which comprise unallocated central
expenses.
For the purpose of alternative performance measures the Group has three
reporting segments, funeral services, crematoria and pre-arranged funeral
plans as the chief operating decision maker reviews segmental performance
before applying the effect of IFRS 15.
Funeral services relate to the provision of funerals and ancillary items, such
as memorials and floral tributes.
Crematoria services relate to cremation services and the sale of memorials and
burial plots at the Dignity crematoria and cemeteries.
Pre-arranged funeral plans represent the sale of funerals in advance to
clients wishing to make their own funeral arrangements and the marketing and
administration costs associated with making such sales.
Funeral services
Overview
As at 31 December 2021, we operated from a network of 776 (2020: 795) funeral
locations throughout the UK, generally operating under established local
trading names. The change to the portfolio reflects five branch openings and
24 closures in the year. Most closures represent funeral locations where
leases have naturally come to an end and have not been renewed and also
include seven freehold closures.
Performance
We conducted 79,200 funerals (2020: 80,300) during the period under review.
Underlying operating profit was £48.2 million (2020: restated £53.1 million)
a reduction of nine per cent, this can be explained by the financial summary
table below.
Financial summary 2021
H1 H2 FY
£m £m £m
Underlying operating profit - 2020 restated ((1)) 36.0 17.1 53.1
Impact of:
Number of deaths ((2)) (8.2) 8.5 0.3
Market share((2)) (2.9) (0.1) (3.0)
Average revenues ((2)) 6.2 (4.4) 1.8
Net cost base changes 0.5 (4.5) (4.0)
Underlying operating profit - 2021 31.6 16.6 48.2
((1) )Restatement relates to the correction of the
application of IFRS 16 in 2020. See note 1 for further details.
((2) )Represents revenue impact.
Items totalling £35.2 million (2020: restated £34.4 million) excluded from
underlying operating profit resulted in statutory operating profit of £13.0
million (2020: restated £18.7 million). These items are discussed on pages 49
and 50 but relate to non-underlying items and the impact of consolidating the
Trusts and IFRS 15.
Progress and Developments
Market share
Approximately one per cent of all funerals were conducted in Northern Ireland.
Excluding Northern Ireland, these funerals represented approximately 11.8 per
cent (2020: 12.0 per cent) of total estimated deaths in Britain. Whilst
funerals divided by estimated deaths is a reasonable measure of Dignity's
market share, the Group does not have a complete national presence and
consequently, this calculation can only ever be an estimate.
On a comparable basis, excluding any funerals from locations not contributing
to the whole of 2020 and 2021, market share was 11.8 per cent, compared to
11.9 per cent in 2020. Both 2021 and 2020 are a significant improvement on the
dramatic market share declines witnessed in 2016 and 2017, however, the
Group's new strategy is expected to grow market share significantly.
Market share is calculated based on a fixed assumption of one week between the
registration of the death and the date of the funeral. Therefore, due to
COVID-19 and longer delays between the date of registering the death and the
date of the funeral being performed, calculations of market share in 2020 and
2021 may not be comparable.
Funeral mix and Average revenue
In September 2021, funeral services introduced an Attended Funeral at prices
from £1,595 to £2,495 (excludes extras) across the network and implemented
the Unattended Funeral (direct cremation), and the simple funeral was removed
(apart from our location in Jersey). As such, the historical full service
average and the simple and direct cremation average are no longer comparable.
In order to have comparability the full service and the simple averages have
been blended to give a new Attended average and the direct cremation, previous
included as simple and direct cremation, has been restated to Unattended to
make both comparable. The previous averages and the restated averages can be
seen in the two tables below.
The new pricing strategy was introduced in early September and as expected it
has caused a decline in our underlying average revenue. It is too early to
judge the precise effects of this however, as demonstrated in the second
table, the underlying Attended average in quarter four 2021 is £788 lower
than 2019 and £356 lower than 2020, which was impacted by COVID-19. Sales of
ancillary items such as flowers and memorials have also improved compared to
2020 at £154.
Funeral mix and average revenue FY 2019 FY 2020 Q1 Q2 2021 H1 2021 Q3 2021 Q4 2021 H2 FY 2021
2021 2021
Funeral type Actual Actual Actual Actual Actual Actual Actual Actual Actual
Underlying average revenue (£) Full service 3,578 3,337 3,354 3,441 3,393 3,284 2,462 2,780 3,062
Simple, limited and direct cremation((1)) 2,047 1,941 1,929 1,921 1,926 1,876 1,081 1,589 1,
81
8
Pre-need 1,846 1,911 1,943 1,955 1,948 1,980 1,965 1,959 1,959
Other (including Simplicity) 770 940 1,004 982 982 873 790 943 904
Volume mix (%) Full service 52 39 41 46 43 49 61 55 49
Simple, limited and direct cremation((1)) 14 25 21 17 20 14 6 10 15
Pre-need 27 28 29 28 28 28 27 28 28
Other (including Simplicity) 7 8 9 9 9 9 6 7 8
Underlying weighted average (£) 2,699 2,397 2,434 2,545 2,478 2,505 2,145 2,306 2,394
Ancillary revenue (£) 231 125 131 168 150 187 135 154 154
Underlying average revenue (£) 2,930 2,522 2,565 2,713 2,628 2,692 2,280 2,460 2,548
Full service volume as a percentage of full, simple and limited (%) 79 61 66 73 68 78 n/a n/a n/a
Funeral mix and average revenue - restated FY 2019 FY 2020 Q1 Q2 2021 H1 2021 Q3 2021 Q4 2021 H2 FY 2021
2021 2021
Funeral type Actual Actual Actual Actual Actual Actual Actual Actual Actual
Underlying average revenue (£) Attended 3,253 2,821 2,903 3,064 2,959 3,000 2,465 2,696 2,855
Unattended n/a 996 1,010 944 980 1,178 1,060 1,085 1,
06
3
Pre-need 1,846 1,911 1,943 1,955 1,948 1,980 1,965 1,959 1,959
Other (including Simplicity) 770 940 1,004 982 982 873 790 943 904
Volume mix (%) Attended 66 63 61 62 62 61 61 61 61
Unattended n/a 1 1 1 1 2 6 4 3
Pre-need 27 28 29 28 28 28 27 28 28
Other (including Simplicity) 7 8 9 9 9 9 6 7 8
Underlying weighted average (£) 2,699 2,397 2,434 2,545 2,478 2,505 2,145 2,306 2,394
Ancillary revenue (£) 231 125 131 168 150 187 135 154 154
Underlying average revenue (£) 2,930 2,522 2,565 2,713 2,628 2,692 2,280 2,460 2,548
Investment
Investment in the Group's locations and fleet have continued. In 2021, £10.5
million (2020: £5.0 million) was invested in maintenance capital expenditure.
Whilst 2021 expenditure was considerably higher than 2020 the Group
anticipates higher spend in 2022.
Outlook
The Group is focusing on its restructure which will allow it to put the power
back in the hands of the colleagues who are at the heart of their local
communities, with this will come growth.
Crematoria
Overview
The Group remains the largest single independent operator of crematoria in
Britain, operating 46 (2020: 46) crematoria as at 31 December 2021.
Performance
The Group performed 74,800 cremations (2020: 74,500) in the period,
representing 11.3 per cent (2020: 11.2 percent) of total estimated deaths in
Britain.
Underlying operating profit was £47.0 million (2020: restated £44.2
million), an increase of six per cent. This can be explained by the financial
summary table below:
Financial summary 2021
H1 H2 FY
£m £m £m
Underlying operating profit -2020 restated((1)) 24.4 19.8 44.2
Impact of:
Number of deaths((2)) (3.2) 3.3 0.1
Market share((2)) (0.4) 0.5 0.1
Average revenues((2)) 4.6 (2.0) 2.6
Cost base changes (0.2) 0.2 -
Underlying operating profit -2021 25.2 21.8 47.0
(1) Restatement relates to the
correction of the application of IFRS 16 in 2020. See note 1 for further
details.
(2) Represents revenue impact.
The primary reason for the increase in underlying operating profit is average
revenues. Crematoria grounds have been fully open for all of 2021 compared to
being closed in quarter two of 2020, and consequently total memorial and
cemetery revenue was £19.2 million (2020: £16.7 million), approximately 15
per cent higher despite cremation volume being in line with 2020. The average
cremation revenue is in line with the prior year at £887 (2020: £885).
Non-underlying costs of £0.5 million (2020: £0.2 million) are excluded from
underlying operating profit resulting in statutory operating profit of £46.5
million (2020: restated £44.0 million).
Progress and Developments
The Group has invested £5.4 million (2020: £2.7 million) maintaining and
improving its locations in the period.
The Group now has planning permission for six new crematoria. The total
capital commitment for these six projects is expected to be approximately £55
million, with £11.5 million of this amount having already been invested. Each
of the locations with planning permission will take five to seven years to
reach maturity, performing 800 to 1,000 cremations per year.
In addition, the Group also has one location where it is appealing the
planning decisions and another one that is currently in the planning process.
Furthermore, the Group withdrew its interest in one location following an
unsuccessful planning appeal.
Outlook
Crematoria remains a stable and cash generative aspect of the Group's
operations.
Pre-arranged funeral plans
Underlying Performance
The Group continues to have a strong market presence in pre-arranged funeral
plans and insurance policies charged to it for the provision of a funeral. The
plans represent potential future incremental business for the funeral
division, providing high-levels of certainty of cash flows as existing plans
mature.
The Trading Group claims a marketing allowance from the trust that covers the
costs incurred in the selling of Funeral Plans. As a result, the
pre-arrangement division does not contribute any profit at the time of sale
therefore underlying operating profit was £nil in both periods.
Approximately 50,000 (2020: 60,000) new plan sales were made and the number of
active pre-arranged plans (including insurance backed arrangements) increased
to 581,000 (2020: 558,000). All plan sales are stated net of cancellations of
33,000 (2020:32,000). The majority of commissions are clawed back from
distribution partners on cancellation in the first two years (the majority of
expected cancellations take place in this period).
Of the sales in the period 26,000 plans were trust based funeral plans (2020:
30,000). In addition, 24,000 (2020: 30,000) plans were linked to life
assurance plans with third parties. Not all of these insurance backed plans
include an obligation to provide a guaranteed funeral and we anticipate the
cancellation experience to be significantly higher than is witnessed on trust
based sales.
Historically, as with all the Group's divisions, pre-arranged funeral plans
underlying profits broadly reflect the cash generated by that activity. This
position has started to shift as more long-term instalment plans are written,
where marketing costs are incurred when a plan is sold, but, marketing
recoveries are claimed from the trust in line with instalment payments. This
shift has changed the profile of the early years cashflow position.
Progress and Developments
Dignity remains focused on selling high-quality business, in ways that support
the strong reputation of the Group. We ended our relationship with those
third-party telephony partners who sold plans on our behalf and are now
focussing on prioritising the sale of funeral plans through our branches.
The financial position of the Trusts holding members' monies is crucial, given
the Group ultimately guarantees the promises made to members. At the end of
2021, the Trusts had average assets per plan of £3,650 (2020: £3,400) in
respect of 323,000 trust based funeral plans. Average assets per plan are
greater than the amount currently received by the Trading Group for performing
a funeral.
The latest actuarial valuations of the Trusts (at 24 September 2021) showed
them to have a surplus of £147.3 million (25 September 2020: surplus £4
million), based on assumptions by the Trust's actuary. This valuation is based
on the amounts the Trusts are expected to pay when a funeral is performed
rather than the actual cost of performance (being a lower amount) to the
Group.
During the first half year the new investment strategy announced last year was
largely executed as the previous investment allocations were unwound and the
Trusts' assets placed in a combination of high-grade bonds (open-ended
investment funds) and low cost index funds (equities). This will reduce the
ongoing fund management cost and more rationally align the investments with
the liabilities with the intention of seeking in the long run to outperform
the cost of carrying out the funerals the trusts support.
The Trusts have assets, including cash, under the management of the Trustees
of £1,062.9 million (2020: £988.7 million) with investments split as
follows:
Example investment types Actual
(%)
Defensive investments Index linked gilts and corporate bonds 11-14
Illiquid investments Private investments 5-6
Core growth investments Equities 74-78
Liquid investments Cash 6
The current allocation is subject to annual review by the Trustees with
support from their investment advisers. See page 34 for additional discussion
of Trust balances.
Outlook
The Group remains optimistic on its ability to continue to be a market leader
in pre-arranged funerals and has successfully submitted its FCA application in
December 2021 and is planning for regulation to be effective by the middle of
2022.
The Group intends to continue to sell as many plans as is commercially
possible and economically sensible primarily through its branches. The Group
expects plan sales in H1 2022 to be lower than previous years whilst it
transitions from plans being sold by third party providers to selling the
majority of plans through its branches.
Central overheads
Overview
Central overheads relate to central services that are not specifically
attributed to a particular operating division. These include the provision of
IT, finance, personnel and Directors' emoluments. In addition, and consistent
with previous periods, the Group records centrally the costs of incentive
bonus arrangements, such as Long-Term Incentive Plans ('LTIPs') and annual
performance bonuses, which are provided to over 100 managers working across
the business.
Developments
Underlying costs in the period were £39.4 million (2020: restated £37.0
million). This reflects continued investment in digital activities and central
capabilities. The table below summarises the key movements:
H1 £m H2 £m FY
£m
Central overheads -2020 restated((1)) 18.5 18.5 37.0
Impact of:
Digital activities 0.6 0.7 1.3
Salaries (1.1) 0.4 (0.7)
Other 0.6 1.2 1.8
IT support fees 0.4 (0.4) -
Central overheads -2021 19.0 20.4 39.4
(1) Restatement relates to the correction of the application of IFRS 16
in 2020. See note 1 for further details.
The increase in digital activities primarily relates to promotional spend.
Salaries have reduced year on year partly due to £0.7 million savings in
temporary staff costs that were high in 2020 due to the increase in cover
required in the call centre during the pandemic. Other costs include legal and
professional fees of £2.3 million (2020: £1.5 million), recruitment fees
£0.8 million (2020: £0.3 million) and insurance costs of £0.5 million
(2020: £0.2 million).
Non-underlying items of £2.3 million (2020: £9.8 million) are excluded from
underlying costs resulting in total central costs of £41.7 million (2020:
£46.8 million).
In addition to the above costs, maintenance capital expenditure of £1.7
million (2020: £1.4 million) has been incurred on central projects
predominantly relating to IT that will help the business as a whole operate
more efficiently.
Outlook
As previously stated, Central overheads are expected to reduce as part of the
strategic review. In January 2022 the Group made the decision to make some
colleagues redundant as well as suspending some of its marketing and digital
activities.
Dean Moore
Interim Chief Financial Officer
22 March 2022
Our key performance indicators
We use non-financial and financial KPIs to both manage the business and ensure
that the Group's strategy and objectives are being delivered.
KPI KPI definitions 53 week 52 week Developments in 2021
period ended period ended
31 December 25 December
2021 2020
restated
Underlying earnings per share (pence) This is underlying profit after tax divided by the weighted average number of 42.8p 46.4p((1)) The reduction follows the decrease in underlying operating profit explained
Ordinary Shares in issue in the period.
below.
Underlying operating profit (£m) This is the statutory operating profit of the Group excluding non-underlying £55.8m £60.3m((1)) Underlying operating profit declined year-on-year, despite higher deaths. This
items and the impact of consolidating the Trusts and IFRS 15. is primarily due to lower market share and higher costs.
Underlying cash generated from operations (£m) This is the statutory cash generated from operations excluding non-underlying £88.3m £88.9m((1)) The Group continues to convert operating profit into cash efficiently.
items and the impact of consolidating the Trusts and IFRS 15.
Underlying average revenue per funeral (£) Underlying funeral revenue divided by the number of funerals performed in the £2,548 £2,522 Restrictions in client choices due to COVID-19 continued to adversely impact
relevant period. average revenue as clients opted for simpler funerals during the first half of
2021. Quarter 4 has been adversely impacted by the change in pricing strategy
in September 2021.
Total estimated number of deaths in Britain (number) This is as reported by the Office for National Statistics. 664,000 663,000 Deaths were materially higher than originally anticipated due to the pandemic.
Funeral market share excluding Northern Ireland (per cent) This is the number of funerals performed by the Group in Britain divided by 11.8% 12.0% Market share has declined slightly.
the total estimated number of deaths in Britain.
Number of funerals performed (number) This is the number of funerals performed by the Group according to our 79,200 80,300 Changes are a consequence of the total number of deaths and the Group's market
operational data. share.
Crematoria market share (per cent) This is the number of cremations performed by the Group divided by the total 11.3% 11.2% Market share is broadly stable.
estimated number of deaths in Britain.
Number of cremations performed (number) This is the number of cremations performed according to our operational data. 74,800 74,500 Changes are a consequence of the total number of deaths and the Group's market
share.
Active pre-arranged funerals (number) This is the number of pre-arranged funerals (both trust funeral plans and 581,000 558,000 This increase reflects continued sales activity (both trust funeral plans and
insurance backed) where the Group has an obligation to provide a funeral in insurance backed) offset by plans cancelled and the crystallisation of plans
the future. sold in previous periods.
(1) Restatement relates to the correction of the application of
IFRS 16 in 2020. See note 1 for further details.
Maintaining consistently high-quality and standards
We closely monitor the results of our client surveys which are conducted by
our funeral services division. In the last five years, we have received
approximately 155,000 responses. This is our measure of how these services
meet or exceed client expectations. Our consistently high satisfaction scores
reflect the strength of our relationships with our clients. We listen to our
clients and use our survey responses to focus on areas in which we can improve
and add value.
The Dignity Client Survey 2021
Reputation and recommendation
99.0% (2020: 98.9%)
99.0 per cent of respondents said that we met or exceeded their expectations.
98.0% (2020: 97.9%)
98.0 per cent of respondents would recommend us.
Quality of service and care
99.9% (2020: 99.9%)
99.9 per cent thought our staff were respectful.
99.7% (2020: 99.6%)
99.7 per cent thought our staff listened to their needs and wishes.
99.2% (2020: 99.1%)
99.2 per cent agreed that our staff were compassionate and caring.
High standards of facilities and fleet
99.8% (2020: 99.7%)
99.8 per cent thought our premises were clean and tidy.
99.6% (2020: 99.2%)
99.6 per cent thought our vehicles were clean and comfortable.
In the detail
99.2% (2020: 98.9%)
99.2 per cent of clients agreed that our staff had fully explained what would
happen before and during the funeral.
99.1% (2020: 99.2%)
99.1 per cent said that the funeral service took place on time.
98.3% (2020: 98.0%)
98.3per cent said that the final invoice matched the estimate provided.
Consolidated income statement
for the 53 week period ended 31 December 2021
53 week period 52 week period
ended ended
31 December 25 December
2021 2020
Note £m £m
Revenue 2 353.7 357.5
Cost of sales (174.1) (177.3)
Gross profit 179.6 180.2
Administrative expenses (161.8) (164.3)
Operating profit 2 17.8 15.9
Finance costs 3 (29.0) (29.8)
Finance income 3 - 0.1
Deferred revenue significant financing 3 (51.6) (53.1)
Remeasurement of financial assets held by the Trusts and related income 3 94.8 47.3
Profit/(loss) before tax 2 32.0 (19.6)
Taxation 4 (19.9) (5.9)
Profit/(loss) for the period attributable to equity shareholders 2 12.1 (25.5)
Earnings/(loss) per share for profit attributable to equity shareholders
- Basic (pence) 5 24.2p (51.0)p
- Diluted (pence) 5 24.2p (51.0)p
The alternative performance measures included within the Preliminary
Announcement present information on a comparable basis with that presented in
prior periods.
Consolidated statement of comprehensive income
for the 53 week period ended 31 December 2021
53 week period 52 week period
ended ended
31 December 25 December
2021 2020
Note £m £m
Profit/(loss) for the period 12.1 (25.5)
Items that will not be reclassified to profit or loss
Remeasurement gain/(loss) on retirement benefit obligations 12 15.6 (11.7)
Tax (charge)/credit on remeasurement on retirement benefit obligations (3.9) 2.2
Tax charge on pension contributions (0.2) -
Restatement of deferred tax for the change in UK tax rate 4 1.9 0.5
Other comprehensive income/(loss) 13.4 (9.0)
Comprehensive income/(loss) for the period 25.5 (34.5)
Attributable to:
Equity shareholders of the parent 25.5 (34.5)
Consolidated balance sheet
as at 31 December 2021
31 December 25 December
2021 2020
restated
Note £m £m
Assets
Non-current assets
Goodwill 6 167.9 203.9
Intangible assets 6 110.7 120.5
Property, plant and equipment 242.1 240.9
Right-of-use asset 89.1 95.2
Deferred insurance commissions 8.4 9.4
Financial assets held by the Trusts 8 1,043.1 967.1
Deferred commissions 9 100.9 101.3
Deferred tax asset 5.5 20.3
1,767.7 1,758.6
Current assets
Inventories 8.6 9.0
Trade and other receivables 30.0 30.0
Current tax receivable 2.4 -
Deferred commissions 9 7.6 7.6
Cash and cash equivalents - Trading Group 55.9 73.6
Cash and cash equivalents - held by the Trusts 19.8 21.6
Cash and cash equivalents 7 75.7 95.2
124.3 141.8
Total assets 1,892.0 1,900.4
Liabilities
Current liabilities
Financial liabilities 11.5 15.7
Trade and other payables 59.5 68.2
Lease liabilities 7.1 7.3
Current tax liabilities - 7.9
Contract liabilities 9 99.6 95.5
Provisions for liabilities 2.1 2.4
179.8 197.0
Non-current liabilities
Financial liabilities 518.3 529.5
Other non-current liabilities 2.2 2.1
Lease liabilities 75.8 81.2
Contract liabilities 9 1,237.9 1,222.0
Provisions for liabilities 9.4 9.5
Retirement benefit obligation 12 19.7 36.6
1,863.3 1,880.9
Total liabilities 2,043.1 2,077.9
Shareholders' deficit
Ordinary share capital 6.2 6.2
Share premium account 12.9 12.7
Capital redemption reserve 141.7 141.7
Other reserves (2.3) (3.0)
Retained earnings (309.6) (335.1)
Total deficit (151.1) (177.5)
Total deficit and liabilities 1,892.0 1,900.4
Prior year comparatives have been restated due to a prior year adjustment in
relation to insurance plans. See page 25 for further details.
The alternative performance measures included within the Group's consolidated
financial statements present information on a comparable basis.
Consolidated statement of changes in equity
for the 53 week period ended 31 December 2021
Ordinary Share Capital
share premium redemption Other Retained Total
capital account reserve reserves earnings equity
£m £m £m £m £m £m
Shareholders' equity as at 27 December 2019 - as previously stated 6.2 12.5 141.7 (4.0) (297.9) (141.5)
Impact of insurance plans on 28 December 2019 - prior year adjustment (note 1) - - - - (3.5) (3.5)
Adjustment on initial application of IFRS 16 on 28 December 2019 - - - - 0.8 0.8
Shareholders' equity as at 28 December 2019 - restated 6.2 12.5 141.7 (4.0) (300.6) (144.2)
Loss for the 52 weeks ended 25 December 2020 - - - - (25.5) (25.5)
Remeasurement loss on retirement benefit obligations - - - - (11.7) (11.7)
Tax on retirement benefit obligations - - - - 2.2 2.2
Restatement of deferred tax for the change in UK rate - - - - 0.5 0.5
Other comprehensive loss - - - - (9.0) (9.0)
Total comprehensive loss - - - - (34.5) (34.5)
Effects of employee share options - - - 1.2 - 1.2
Proceeds from share issue ((1)) - 0.2 - - - 0.2
Gift to Employee Benefit Trust - - - (0.2) - (0.2)
Shareholders' equity as at 25 December 2020 - restated 6.2 12.7 141.7 (3.0) (335.1) (177.5)
Profit for the 53 weeks ended 31 December 2021 - - - -
12.1 12.1
Remeasurement gain on retirement benefit obligations - - - -
15.6 15.6
Tax on retirement benefit obligations - - - - (3.9) (3.9)
Tax on pension contributions - - - - (0.2) (0.2)
Restatement of deferred tax for the change in UK tax rate - - - -
1.9 1.9
Other comprehensive income - - - - 13.4 13.4
Total comprehensive income - - - - 25.5 25.5
Effects of employee share options - - - 0.8 - 0.8
Proceeds from share issue ((2)) - 0.2 - - - 0.2
Gift to Employee Benefit Trust - - - (0.1) - (0.1)
Shareholders' equity as at 31 December 2021 6.2 12.9 141.7 (2.3) (309.6) (151.1)
(1) Relating to issue of 7,745 shares under 2017 DAB scheme and
344 shares issued under the 2019 SAYE scheme.
(2) Relating to issue of 5,963 shares under 2016 DAB scheme and
4,562 shares under the 2019 SAYE scheme.
Comparatives for the 52 weeks ended 25 December 2020 have been restated due to
a prior year adjustment in relation to insurance plans. See note 1 for further
details.
The above amounts relate to transactions with owners of the Company except for
the items reported within total comprehensive income.
Capital redemption reserve
The capital redemption reserve represents £80,002,465 B Shares that were
issued on 2 August 2006 and redeemed for cash on the same day, £19,274,610 B
Shares that were issued on 10 October 2010 and redeemed for cash on 11 October
2010, £22,263,112 B Shares that were issued on 12 August 2013 and redeemed
for cash on 20 August 2013 and £20,154,070 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 £12.3 million merger reserve.
Consolidated statement of cash flows
for the 53 week period ended 31 December 2021
53 week period 52 week period
ended ended
31 December 25 December
2021 2020
restated
Note £m £m
Cash flows from operating activities
Cash generated from operations 68.3 62.7
Finance income received - 0.1
Finance costs paid (40.2) (29.2)
Transfer from restricted bank accounts for finance costs 12.0 12.1
Payments to restricted bank accounts for finance costs 7 - (12.0)
Total payments in respect of finance costs (28.2) (29.1)
Tax paid (17.7) (6.9)
Net cash generated from operating activities 22.4 26.8
Cash flows from investing activities
Acquisition of subsidiaries and businesses (net of cash acquired) (0.2) -
Proceeds from sale of property, plant and equipment 1.2 1.1
Purchase of property, plant and equipment and intangible assets (21.0) (11.1)
Purchase of financial assets (by the Trusts) 8 (948.7) (778.1)
Disposals of financial assets (by the Trusts) 8 960.9 796.8
Realised return on financial assets 2.1 3.8
Net cash (used)/generated in investing activities (5.7) 12.5
Cash flows from financing activities
Payments due under Secured Notes (15.1) (9.6)
Transfer from restricted bank accounts for repayment of borrowings 4.9 4.8
Payments to restricted bank accounts for repayment of borrowings 7 - (4.9)
Total payments in respect of borrowings (10.2) (9.7)
Principal elements of lease payments (9.1) (7.8)
Net cash used in financing activities (19.3) (17.5)
Net (decrease)/increase in cash and cash equivalents (2.6) 21.8
Cash and cash equivalents at the beginning of the period 78.3 56.5
Cash and cash equivalents at the end of the period 7 75.7 78.3
Restricted cash - amounts set aside for debt service payments 7 - 16.9
Cash and cash equivalents at the end of the period as reported in
the
consolidated balance sheet 7 75.7 95.2
(1) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other tangible and
intangible assets.
Comparatives for the 52 weeks ended 25 December 2020 have been restated due to
a prior year adjustment in relation to the application of IFRS 16. See note 1
for further details.
1 Prior year restatements
Insurance plans
The Group is the named beneficiary on a number of life assurance products sold
by third party insurance companies on which the Group pays commission. The
Group is entitled to recover commission paid if plans are cancelled within two
years of being sold. However, if plans are cancelled outside this two year
period, commissions paid are not refundable. The majority of plans with these
features ceased to be written in October 2019 and the remainder in February
2020.
Following a review of the Group's accounting policy for insurance plans in
relation to the prepaid balance held on the consolidated balance sheet within
'deferred insurance commissions' it has been amended to include a provision
for expected future cancellations. A detailed analysis has been performed on
the cancellation rates for insurance products and a prior year restatement has
been required to reflect the expected level of future cancellations.
It was further noted that a liability was not held for the active plans where
a known commission is payable in future years. The calculation for the
liability includes an estimate of the level of cancellations before the
commission is payable and is discounted using a risk free rate of return.
Furthermore, an assessment has been performed to determine the level of future
expected funerals and this element of the liability has been held as a
corresponding asset.
Prior year comparatives have been restated to reflect the above changes. There
is no impact on statutory earnings, underlying earnings or earnings per share
for the 52 week period ended 25 December 2020. A reconciliation from the
reported prior period comparatives has been provided in note 17 together with
the third balance sheet required to be disclosed in support of the prior year
adjustments.
IFRS 16
Following the finalisation of adopting IFRS 16 for the first time and as
presented in the consolidated financial statements as at and for the 52 week
period ended 25 December 2020 a number of restatements have been made to the
consolidated financial information as follows:
· The operating profit impact of IFRS 16 in December 2020 was
reported within the funerals services segment within 'other adjustments'
totalling £4.6 million, however this has now been split between the funeral
services (£3.1 million), crematoria (£1.4 million) and central overheads
(£0.1 million) segments to better reflect where the leasing arrangements are
held;
· The December 2020 restated split reported in the 2021 Interim
Report was £1.9 million to funeral services, £2.6 million to crematoria and
£0.1 million to central overheads. Following further analysis of the leasing
arrangements these have been restated within this Annual Report as above.
Operating profit for December 2020 has therefore been restated from £17.5
million to £18.7 million in the funerals segment and from £45.2 million to
£44.0 million in the Crematoria segment. All remaining analysis of the
restatement is based on this revised split; and
· The impact of IFRS 16 has now been moved into underlying
performance measures to reflect the application of IFRS 16. On adoption in
2020 the modified retrospective approach was applied which meant 2019
comparatives were not restated. As a result, the Group choose to exclude it
from its underlying performance measures reported in 2020 in order to retain
comparability.
The following restatements have been made within the segmental analysis as a
result of the above:
· Funeral services - Underlying operating profit before
depreciation and amortisation has been increased by £10.9 million to £73.0
million, underlying depreciation and amortisation has increased by £7.8
million to £19.9 million giving an overall increase in underlying operating
profit of £3.1 million to £53.1 million. Accordingly, 'other adjustments'
has decreased by £1.9 million to £13.9 million. Statutory operating profit
has increased by £1.2 million to £18.7 million;
· Crematoria - Underlying operating profit before depreciation and
amortisation has been increased by £2.5 million to £51.2 million, underlying
depreciation and amortisation has increased by £1.1 million to £7.0 million
giving an overall increase in underlying operating profit of £1.4 million to
£44.2 million. Accordingly, 'other adjustments' has decreased by £2.6
million to £nil. Statutory operating profit has decreased by £1.2 million to
£44.0 million; and
· Central overheads - Underlying operating loss before depreciation
and amortisation has been reduced by £0.4 million to £34.9 million,
underlying depreciation and amortisation has increased by £0.3 million to
£2.1 million giving an overall decrease in underlying operating loss of £0.1
million to £37.0 million. Accordingly, 'other adjustments' has decreased by
£0.1 million to £nil. There is no impact to statutory operating profit.
Accordingly, the following restatements have also been made within the
segmental analysis:
· IFRS 16 finance costs of £4.7 million have been transferred out
of other adjustments into underlying profit before tax. The total underlying
finance costs has been restated to £29.8 million;
· Accordingly, the total impact of the above on underlying profit
before tax is a decrease of £0.1 million to £30.6 million;
· There is no impact on the underlying taxation charge;
· Underlying earnings for the 52 week period ended 25 December 2020
have been restated by £0.1 million to £23.2 million. Therefore, underlying
earnings per share has decreased by 0.2p to 46.4p; and
· There is no impact to statutory loss after taxation or statutory
earnings per share.
Consolidated statement of cashflows
The consolidated statement of cash flows has also been restated as at and for
the 52 week period ended 25 December 2020 as follows:
· The 'principal and interest elements of lease payments' was
previously classified within cashflows from financing activities. The interest
element of IFRS 16 amounting to £4.7 million has been reclassified into
finance costs paid under cash flow from operating activities. Total finance
costs paid now totals £29.2 million, leading to a net cash generated from
operating activities of £26.8 million. Principal elements of lease payments
has been restated to £7.8 million leading to a net cash used in financing
activities of £17.5 million.
2 Revenue and segmental analysis
Operating segments are reported in a manner consistent with internal reporting
provided to the chief operating decision maker who is responsible for
allocating resources and assessing performance of the operating segments. The
chief operating decision maker of the Group has been identified as the three
Executive Directors.
For statutory purposes the Group has two reporting segments, funeral services
and crematoria, as under IFRS 15 only a single performance obligation exists
when a pre-arranged funeral plan is sold, being the performance of a funeral.
The Group also reports central overheads, which comprise unallocated central
expenses.
Revenue
Funeral services relate to two primary sources of revenue:
· Funerals arranged and funded by the client at the time of need, in addition
to ancillary items, such as memorials and floral tributes; and
· Funerals arranged and funded by a pre-arranged Trust funeral plan, for
which amounts recognised as revenue arise from the de-recognition of deferred
revenue on completion of the related performance obligation.
Crematoria services relate to cremation services and the sale of memorials and
burial plots at the Dignity operated crematoria and cemeteries.
Underlying revenue and operating profit
For the purpose of alternative performance measures the Group has three
reporting segments, funeral services, crematoria and pre-arranged funeral
plans as the chief operating decision maker reviews segmental performance
before applying the effect of IFRS 15.
Funeral services relate to the provision of funerals and ancillary items, such
as memorials and floral tributes.
Crematoria services relate to cremation services and the sale of memorials and
burial plots at the Dignity crematoria and cemeteries.
Pre-arranged funeral plans represent the sale of funerals in advance to
clients wishing to make their own funeral arrangements and the marketing and
administration costs associated with making such sales.
Substantially all Trading Group revenue is derived from, and substantially all
of the Trading Group's net assets and liabilities are located in, the United
Kingdom and Channel Islands and relates to services provided. Overseas
transactions are not material.
Underlying revenue and underlying operating profit are stated before
non-underlying items and the effect of consolidation of the Trusts and
applying IFRS 15 as defined on pages 48 to 50.
Reconciliations to statutory amounts
Non-underlying items represent certain non-recurring or non-trading
transactions. See alternative performance measures on page 49 for further
details.
Other adjustments reflect the consolidation of the Trusts and applying IFRS
15. Underlying revenue substitutes revenue arising from the de-recognition of
deferred revenue on completion of the related performance obligation, which
includes the impact of significant financing, with the payments received from
the Trusts on the death of a plan member, and recognises marketing allowances
at the inception of a plan, net of an allowance for cancellations.
Underlying revenue also excludes amounts relating to disbursements and
external payments made when the performance of the plan funeral is delivered
by third parties.
Disaggregated revenue
The disaggregated revenue and operating profit/(loss), by segment, is shown in
the following tables:
53 week period ended 31 December 2021
Underlying revenue Other adjustments ((1)) Revenue
£m £m £m
Funeral services 201.9 66.3 268.2
Crematoria 85.5 - 85.5
Pre-arranged funeral plans 24.6 (24.6) -
Group 312.0 41.7 353.7
((1) See alternative performance
measures on page 50 for a reconciliation of other adjustments.)
Within funeral services revenue £108.1 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 depreciation and amortisation Underlying depreciation and amortisation Underlying Non-underlying items((1)) Other Operating
Operating profit/ adjustments((1)) profit/(loss)
(loss)
53 week period ended 31 December 2021 £m £m £m £m £m £m
Funeral services 67.6 (19.4) 48.2 (45.4) 10.2 13.0
Crematoria 54.5 (7.5) 47.0 (0.5) - 46.5
Pre-arranged funeral plans - - - (0.1) 0.1 -
Central overheads (37.2) (2.2) (39.4) (2.3) - (41.7)
Group 84.9 (29.1) 55.8 (48.3) 10.3 17.8
Finance costs (29.0) - - (29.0)
Deferred revenue significant financing (51.6) (51.6)
Remeasurement of financial assets held by the Trusts and related income 94.8 94.8
Profit before tax 26.8 (48.3) 53.5 32.0
Taxation - continuing activities (5.4) 2.5 (10.1) (13.0)
Taxation - rate change - (8.3) 1.4 (6.9)
Taxation - total (5.4) (5.8) (8.7) (19.9)
Underlying earnings for the period 21.4
Non-underlying items (54.1)
Other adjustments 44.8
Profit after taxation 12.1
Earnings per share for profit attributable to equity shareholders
- Basic (pence) 42.8p 24.2p
- Diluted (pence) 24.2p
((1) See alternative performance measures on page 50 for a
reconciliation of non-underlying items and other adjustments.)
( )
52 week period ended 25 December 2020
Underlying revenue Other adjustments ((1)) Revenue
£m £m £m
Funeral services 202.6 72.2 274.8
Crematoria 82.7 - 82.7
Pre-arranged funeral plans 28.8 (28.8) -
Group 314.1 43.4 357.5
((1) See alternative performance measures on page 51 for a
reconciliation of other adjustments.)
Within funeral services revenue £113.2 million relates to the release of
deferred revenue arising on the completion of performance obligations or on
cancellation under pre-need Trust plans. ( )
52 week period ended 25 December 2020 - restated ((2))
Underlying operating profit/(loss) before depreciation and amortisation £m Underlying depreciation and amortisation £m Underlying Non-underlying items((1)) Other adjustments((1)) Operating
Operating profit/ £m restated profit/(loss)
(loss) £m restated
£m £m
Funeral services 73.0 (19.9) 53.1 (48.3) 13.9 18.7
Crematoria 51.2 (7.0) 44.2 (0.2) - 44.0
Pre-arranged funeral plans - - - (0.1) 0.1 -
Central overheads (34.9) (2.1) (37.0) (9.8) - (46.8)
Group 89.3 (29.0) 60.3 (58.4) 14.0 15.9
Finance costs (29.8) - - (29.8)
Finance income 0.1 - - 0.1
Deferred revenue significant financing (53.1) (53.1)
Remeasurement of financial assets held by the Trusts and related income 47.3 47.3
(Loss)/profit before tax 30.6 (58.4) 8.2 (19.6)
Taxation - continuing activities (7.4) 6.1 (5.7) (7.0)
Taxation - rate change - (3.6) 4.7 1.1
Taxation - total (7.4) 2.5 (1.0) (5.9)
Underlying earnings for the period 23.2
Non-underlying items (55.9)
Other adjustments 7.2
Loss after taxation (25.5)
Earnings/(loss) per share for profit attributable to equity shareholders -
restated ((2))
- Basic (pence) 46.4p (51.0)p
- Diluted (pence) (51.0)p
((1) See alternative performance
measures on page 51 for a reconciliation of non-underlying items and other
adjustments.)
((2) Underlying reporting measures have
been restated to include the application of IFRS 16 which were previously
included within other adjustments. See pages 25 to 26 for further details.)
3 Net finance costs
53 week period 52 week period
ended ended
31 December 25 December
2021 2020
restated ((1))
£m £m
Finance costs
Secured Notes 23.1 23.4
Other loans 0.9 1.1
Finance cost on IFRS 16 lease liability 4.5 4.7
Net finance cost on retirement benefit obligations 0.5 0.5
Unwinding of discounts - 0.1
Finance costs 29.0 29.8
Finance income
Bank deposits - (0.1)
Finance income - (0.1)
Deferred revenue significant financing (note 9) 51.6 53.1
Remeasurement of financial assets held by the Trusts and related income
Realised investment income (9.8) (6.0)
Changes in fair value of financial assets held by the Trusts (note 8) (85.0) (41.3)
Remeasurement of financial assets held by the Trusts and related income (94.8) (47.3)
Underlying net finance costs
Underlying finance costs 29.0 29.8
Finance income - (0.1)
Underlying net finance costs 29.0 29.7
( )
((1) Underlying reporting measures have been restated to include
the application of IFRS 16. See pages 25 to 26 for further details.)
4 Taxation
53 week period 52 week period
ended ended
31 December 25 December
2021 2020
Analysis of charge in the period £m £m
Current tax - current period 7.7 9.4
Adjustments for prior period (0.2) 0.1
Total corporation tax 7.5 9.5
Deferred tax - current period 5.4 (2.9)
Adjustments for prior period 0.1 0.4
Restatement of deferred tax for the change in UK tax rate 6.9 (1.1)
Total deferred tax 12.4 (3.6)
Taxation 19.9 5.9
In the March 2021 budget, legislation to increase the main rate of corporation
tax from 19 per cent to 25 per cent from 1 April 2023 was announced. The
change was substantively enacted at the balance sheet date and is therefore
recognised in these financial statements. As a result, the Group recognised a
non-underlying taxation charge of £6.9 million through its income statement
and a credit of £1.9 million through other comprehensive income to reflect
the one off increase in the period of the Group's deferred tax position.
5 Earnings per share
The calculation of basic earnings per Ordinary Share has been based on the
profit attributable to equity shareholders for the relevant period.
For diluted earnings per Ordinary Share, the weighted average number of
Ordinary Shares in issue is adjusted to assume conversion of any dilutive
potential Ordinary Shares.
The Group has two classes of potentially dilutive Ordinary Shares being those
share options granted to employees under the Group's SAYE Scheme and the
contingently issuable shares under the Group's LTIP Schemes. At the balance
sheet date, the performance criteria for the vesting of the awards under the
LTIP Schemes, including any deferred annual bonus, are assessed, as required
by IAS 33, and to the extent that the performance criteria have been met those
contingently issuable shares are included within the diluted EPS calculations.
As the impact of these shares is dilutive for the 53 week period ended 31
December 2021, an adjustment has been made in respect of arriving at diluted
earnings per share measures for that period (2020: anti-dilutive so no
adjustment).
The Group's underlying measures of profitability exclude non-underlying items,
the effects of IFRS 15 and consolidation of the Trusts as set out on page 48.
These items have been adjusted for in determining underlying measures of
profitability as these underlying measures are those used in the day-to-day
management of the business and allow for greater comparability across
periods.
Accordingly, the Board believes that earnings per share calculated by
reference to this underlying performance measure users of the financial
statements to fully understand the trading performance and financial position
of the Group.
Reconciliations of the earnings and the weighted average number of shares used
in the calculations are set out below:
Weighted
average
number of Per share
Earnings shares amount
£m millions pence
53 week period ended 31 December 2021
Underlying profit after taxation and EPS 21.4 50.0 42.8
Add: Non-underlying items (net of taxation charge of £5.8 million) (54.1)
Add: Other adjustments (net of taxation charge of £8.7 million) ((1)) 44.8
Profit attributable to shareholders - Basic EPS 12.1 50.0 24.2
Profit attributable to shareholders - Diluted EPS 12.1 50.1 24.2
52 week period ended 25 December 2020 - restated ((2))
Underlying profit after taxation and EPS 23.2 50.0 46.4
Add: Non-underlying items (net of taxation credit of £2.5 million) (55.9)
Add: Other adjustments (net of taxation charge of £1.0 million)((1)) 7.2
Loss attributable to shareholders - Basic EPS (25.5) 50.0 (51.0)
Loss attributable to shareholders - Diluted EPS (25.5) 50.0 (51.0)
((1) )(See )(note 2)( for further details.)
((2) Underlying performance measures have been restated to include
the application IFRS 16 which were previously included within other
adjustments.)( See pages 25 to 26 for further details.)
( )
6 Goodwill and other intangible assets
Use of third Non-
Trade party brand compete
names((1)) name Other ((2)) Software agreements Sub-total Goodwill Total
£m £m £m £m £m £m £m £m
Cost
At 27 December 2019 150.4 3.2 4.7 2.5 0.2 161.0 232.6 393.6
Additions - - - 0.2 - 0.2 - 0.2
At 25 December 2020 150.4 3.2 4.7 2.7 0.2 161.2 232.6 393.8
Additions - - - - - - 0.4 0.4
At 31 December 2021 150.4 3.2 4.7 2.7 0.2 161.2 233.0 394.2
Accumulated amortisation and impairment
At 27 December 2019 (16.4) (1.8) (1.4) (0.7) (0.2) (20.5) - (20.5)
Amortisation charge (4.1) (0.2) (0.4) (0.2) - (4.9) - (4.9)
Impairment (15.3) - - - - (15.3) (28.7) (44.0)
At 25 December 2020 (35.8) (2.0) (1.8) (0.9) (0.2) (40.7) (28.7) (69.4)
Amortisation charge (3.6) (0.2) (0.4) (0.3) - (4.5) - (4.5)
Trade name write-off ((3)) (2.5) - - - - (2.5) - (2.5)
Impairment (2.8) - - - - (2.8) (36.4) (39.2)
At 31 December 2021 (44.7) (2.2) (2.2) (1.2) (0.2) (50.5) (65.1) (115.6)
Net book amount at 31 December 2021 105.7 1.0 2.5 1.5 - 110.7 167.9 278.6
Net book amount at 25 December 2020 114.6 1.2 2.9 1.8 - 120.5 203.9 324.4
Net book amount at 27 December 2019 134.0 1.4 3.3 1.8 - 140.5 232.6 373.1
(1) Trade names arise on the acquisitions of funeral businesses
and their fair value is calculated by reference to the estimated incremental
cash flows expected to arise by virtue of the trade name being
well-established. There are no individually material trade names that amount
to 6 per cent or more of the total net book value.
(2) The Group previously acquired interests in two crematoria
subject to finite periods of operation (by way of lease and/or service
concession). The fair value of these interests has been identified and
recognised as a separate intangible asset. The value of each interest will be
amortised over the remaining period of operation.
(3) During the period, the Group identified seven specific trade
names that are no longer being used within the Group under the new regional
structure and those intangible items were required to be written off.
Goodwill acquisitions in 2021
On 16 September 2021, the Group acquired the entire share capital of Funeral
Advisor Limited, a non-listed company based in the UK that offers a free
online resource to support individuals and families to research and organise a
funeral online. The Group acquired Funeral Advisor Limited because the online
offering is seen as an enhancement to the services it provides.
Total provisional fair
value
£m
Net assets acquired -
Goodwill arising 0.4
0.4
Satisfied by:
Cash paid on completion (funded from internally generated cash flows) 0.2
Deferred consideration 0.1
Contingent consideration 0.1
Total consideration 0.4
The fair values of the identifiable assets and liabilities of Funeral Advisor
Limited as at the date of acquisition was negligible and consequently, the
consideration relates to goodwill arising on acquisition, none of which is tax
deductible. The expected purchase consideration is £0.4 million. This
goodwill comprises the value of expected access to customers and making
available information and support to a wider customer base. Goodwill is
allocated entirely to the funeral segment.
The results of the business from the start of the accounting period would not
have been material to the Group had the acquisition been as of the beginning
of the annual reporting period. From the date of acquisition, Funeral
Advisor Limited is not expected to contribute significantly to revenue or
profit in the short term until the Group provides investment in the business'
operations to increase awareness of the service within the industry.
As part of the purchase agreement, contingent consideration has been agreed.
The fair value of the contingent consideration at the acquisition date is
estimated to be £0.1 million. The fair value is determined using a DCF
method. Future developments may require further revisions to the estimate. The
maximum contingent consideration to be paid is £0.7 million.
Impairment tests for goodwill and trade names
Goodwill is subject to an annual impairment test in accordance with IAS 36,
Impairment of Assets. For the purpose of this impairment test goodwill is
tested at a business segment level as this is the level at which the return on
assets acquired, including goodwill, is monitored.
The segmental allocation of goodwill and the recoverable amount is shown
below:
Book value Recoverable amount Book value Recoverable amount
31 December 25 December
31 December 2021 25 December 2020
2021 2020
£m £m £m £m
Funeral services 112.1 371.3 148.1 433.2
Crematoria 55.8 391.5 55.8 346.5
167.9 762.8 203.9 779.7
The recoverable amount of each goodwill CGU is based on a value-in-use
calculation. The impairment assessment than compares this value-in-use
calculation to the carrying value of the CGU. Any impairment is then
recognised in administrative expenses in the consolidated income statement.
The value-in-use calculations use cash flow projections derived from the
latest annual budget. Key assumptions used to produce the annual budget are
the estimated UK death rates (based on forecast death rates supplied by ONS),
anticipated market share and Attended Funeral price ranges from £1,595 to
£2,495 (excluding extras). The value-in-use calculations for the 2021 model
include the approved annual budget for 2022 and a forecast for 2023 and 2024.
Forecasts are based on death rates announced by ONS and market share growth
assumptions reflecting budgeted increases as benchmarked to the results of
recent pricing trials, and then stabilised at the projected 2022 year end
market share position over the remaining forecast period. Cash flows for all
segments beyond the initial 36 month period (2020: 24 month period) are
extrapolated using a growth rate of 2.25 per cent (2020: 2.25 per cent), being
an estimate of long-term growth rates for impairment review purposes only,
which reflects the expectations of long-term inflation and death rates. The
cash flows for each segment are discounted at a pre-tax rate of 10.3 per cent
(2020: 10.3 per cent).
Goodwill assessment
The impairment calculation indicated no impairment in the crematoria division
with headroom under the current assumptions used of £170.3 million (2020:
£99.1 million). The discount rate would need to increase to 17.7 per cent
(2020: increase to 14.1 per cent) or the long-term growth rate would need to
fall to minus 7.7 per cent (2020: minus 1.4 per cent) for the impairment test
to result in £nil headroom for this segment. The likelihood of such movements
in the discount rate and growth rate is deemed unlikely based on current
market conditions.
The impairment calculation has also been performed on the funeral services
division and an impairment of £36.4 million (2020: £28.7 million) has been
recognised within administrative expenses in the consolidated Income
statement. The impairment has arisen within the funeral services division
primarily due to the reduced average revenues following the new pricing
strategy for the Group. Whilst the Group expects long-term market share growth
from the new strategy, the accounting standard (IAS 36) for impairment
assessments does not allow forecasts to be used where assumptions cannot be
evidenced or have not yet been implemented (e.g. cost savings). As a result,
whilst the Group is focussed on committed to delivering its market share
growth ambitions, given the infancy of the strategic plan implementation and
the available evidence to demonstrate this growth as at the year end when the
impairment assessment is made, the full extent of potential longer-term gains
are not reflected in the impairment modelling.
Trade name assessment
In addition to the Group's annual goodwill impairment test, given the changes
in the funeral market noted above, an impairment test was performed in respect
of the Group's trade name intangibles assets in accordance with the
requirements of IAS 36. A value-in-use calculation has been performed against
each recognisable trade name. The trade name specific cashflows are based on
the individual CGU projections for the next 12 months and then adjusted in
years two and three onwards using the same assumptions as used within the
goodwill impairment assessment described above. The performance of this
impairment assessment indicated that an impairment within the funerals segment
of £2.8 million (2020: £15.3 million) arose and has been recognised within
administrative expenses in the consolidated Income statement. This is due to
lower levels of profitability and lower anticipated average revenue per
funeral. The recoverable amount of trade names that have been impaired is
£3.4 million which is based on a value-in-use calculation.
The trade name impairment and the subsequent reduction in net book value has
been reflected within the above goodwill impairment calculations to reflect
the lower asset base.
Goodwill and trade name sensitivities
The following table demonstrates the impact on the above impairment charges in
the funerals segment based on a number of reasonably possible sensitivities:
Decrease/(increase) in impairment
charge
Trade name Goodwill Total
Sensitivity applied: £m £m £m
Decrease in funeral services market share growth in 2022 and beyond of 0.5 per (1.7) (103.4) (105.1)
cent
Decrease in number of deaths in 2022 by 20,000 - (4.6) (4.6)
Increase in discount rate of 0.5 per cent (to 10.8 per cent) (0.1) (20.3) (20.4)
Increase in 2022 funeral services EBITDA and beyond of £1.0m - 12.6 12.6
Decrease in 2022 funeral services EBITDA and beyond of £1.0m (0.1) (11.6) (11.7)
Decrease in 2022 funeral services EBITDA and beyond of £5.0m (0.4) (62.2) (62.6)
Decrease in long-term growth rate of 0.25 per cent (to 2.0 per cent) - (8.4) (8.4)
Delay in funeral services market share growth by 1 per cent from 2022 to 2023 (0.3) (51.0) (51.3)
7 Cash and cash equivalents
Note 31 December 2021 25 December 2020
£m £m
Trading Group 55.9 56.7
Trusts (a) 19.8 21.6
Operating cash as reported in the consolidated statement of cash flows as cash 75.7 78.3
and cash equivalents
Amounts set aside for debt service payments (b) - 16.9
Cash and cash equivalents as reported in the balance sheet 75.7 95.2
(a) Trusts cash balances
All assets of the Trusts can, by definition, only be used for certain
prescribed purposes such as, but not limited to, the payment for a funeral or
a refund on cancellation of a plan. They cannot be used for day-to-day
operational activities of the wider Trading Group and could not, for example,
be used to fund a capital expenditure project. The cash is held in Trust bank
accounts but is accessible without restriction and can be used within the
Trusts for any allowable purpose, such as payment following the performance of
a funeral. As Dignity is considered to control the activities of the Trusts,
this cash balance meets the requirements to be included in cash and cash
equivalents for the purposes of IAS 7.
(b) Amounts set aside for debt service payments
Amounts are transferred to these restricted bank accounts shortly in advance
of making the bi-annual payments to the holders of the Secured Notes, which
include the payment of the interest and principal on the Secured Notes, the
repayment of liabilities due on the Group's commitment fees due on its undrawn
borrowing facilities and for no other purpose. The Statement of Cash Flows
shows the gross amounts of payments to the restricted bank accounts as
'finance costs paid' and 'payments due under Secured Notes', in accordance
with their nature. Supplementary information is provided to show the actual
payments to the noteholders and the movement in the restricted bank accounts
in the period. The amounts shown as 'transfer from restricted bank accounts
for finance costs' and 'payments to the restricted bank accounts for repayment
of borrowings' relate to the opening and closing balances of the account
respectively, and hence the figures exclude the mid-year transfers and
payments. No amounts were included in December 2021 as the payments to these
respective parties was made on 31 December 2021.
The note trustees have charge over this restricted bank account.
8 Financial assets - held by the Trusts
31 December 25 December
2021 2020
£m £m
Financial assets - held by the Trusts 1,043.1 967.1
The Trusts continue to take independent advice regarding the investment
strategy and have changed investment manager during the period with the
intention of growing the assets of the Trust over time. As a result, the
investment portfolio has been simplified during 2022 and it is anticipated
that the investment allocation by class will develop further during 2023 and
beyond. The current portfolio profile is as follows:
Example investment types Actual (%)
Defensive investments Index linked gilts and corporate bonds 11-14
Illiquid investments Private equity investments 5-6
Core growth investments Equities 74-78
Liquid investments Cash 6
The revised investment strategies are expected to provide returns that create
a 10 per cent capital buffer over the regulatory minimum of 110 per cent. Any
surpluses above this level are expected to be invested in fluctuating assets
that have a potential for greater returns.
Given the high percentage of investments held within equities, this does
impose an inherent risk of exposure to downward falls in equity markets. Such
investments can be subject to volatility due to movements in underlying
markets and assets and can go up and down. This can be seen in movements post
year end following the situation in Ukraine. The Group monitors this closely
and this forms part of its considerations for its long term investment
strategy, noting that the purpose of the Trust is to provide asset coverage
(and a surplus) to fund the pre-need funerals return which are forecast to
have an average maturity of 10 plus years.
Analysis of the movements in financial assets held by the Trusts: 31 December 25 December
2021 2020
£m £m
Fair value at the start of the period 967.1 947.5
Remeasurement recognised in the consolidated income statement 85.0 41.3
Investment income 7.7 2.2
Purchases 948.7 778.1
Disposals (960.9) (796.8)
Foreign exchange rate difference (1.7) -
Investment administrative expenses deducted at source (2.8) (5.2)
Fair value at the end of the period 1,043.1 967.1
Interest and dividend income received is included within remeasurements
recognised in the consolidated income statement.
9 Deferred commissions and contract liabilities
Deferred commissions
31 December 2021 25 December
£m 2020
£m
Deferred commissions - current 7.6 7.6
Deferred commissions - non-current 100.9 101.3
Deferred commissions represent directly attributable costs in respect of the
marketing of the pre-arranged funeral plans where the plan has yet to be used
or cancelled. An amount of £7.4 million (2020: £7.8 million) has been
amortised to the consolidated income statement within administrative expenses.
Contract liabilities
Note 31 December 2021 25 December
£m 2020
£m
Current
Contract liabilities - deferred revenue (a) 98.6 94.4
Contract liabilities - refund liability (b) 1.0 1.1
99.6 95.5
Non-current
Contract liabilities - deferred revenue (a) 1,224.0 1,208.1
Contract liabilities - refund liability (b) 13.9 13.9
1,237.9 1,222.0
Movement in total contract liabilities
31 December 2021 25 December
£m 2020
£m
Balance at the beginning of the year 1,317.5 1,304.6
Sale of new Trust plans 86.3 82.0
Increase due to significant financing 51.6 53.1
Recognition of revenue following delivery or cancellation of a Trust plan (117.9) (122.2)
Balance at the end of the year 1,337.5 1,317.5
(a) Contract liabilities - deferred revenue
Deferred revenue represents amounts received from pre-arranged funeral plan
holders adjusted to reflect a significant financing component, and for which
the Group has not completed its performance obligations at the balance sheet
date. The balance is split between current and non-current based on historical
experience to reflect the expected number of plans to be utilised within the
next 12 months.
(b) Contract liabilities - refund liability
Refund liabilities represent amounts received from pre-arranged funeral plan
holders for which it is expected that the respective plans will be cancelled
based on historical experience. The balance is split between current and
non-current based on historical experience to reflect the expected number of
plans to be cancelled within the next 12 months.
10 Net debt
31 December 25 December
2021 2020
£m £m
Net amounts owing on Secured Notes per financial statements (526.6) (541.7)
Add: unamortised issue costs (0.5) (0.5)
Gross amounts owing (527.1) (542.2)
Accrued interest on Secured Notes - (12.0)
Cash and cash equivalents - Trading Group (note 7) 55.9 73.6
Net debt (471.2) (480.6)
Net debt is an alternative performance measure calculated as shown in the
table. Net debt excludes any liabilities recognised in accordance with IFRS
16.
The Group's primary financial covenant in respect of the Secured Notes
requires EBITDA to total debt service ('EBITDA DSCR'), in the securitisation
group, to be at least 1.5 times. At 31 December 2021, the actual ratio was
2.13 times (2020: 1.99 times). The calculations are unaffected by the
consolidation of the Trusts or the application of IFRS 15 and IFRS 16
described elsewhere, as the Group was able to elect to disregard those changes
when making the calculations. See Financial review on pages 12 and 13.
These ratios are calculated for EBITDA and total debt service on a 12 month
rolling basis and reported quarterly. In addition, both terms are specifically
defined in the legal agreement relating to the Secured Notes. As such, they
cannot be accurately calculated from the contents of this report.
11 Reconciliation of cash generated from operations
53 week period 52 week period
ended ended
31 December 25 December
2021 2020
£m £m
Net profit/(loss) for the period 12.1 (25.5)
Adjustments for:
Taxation 19.9 5.9
Net finance costs 70.8 76.8
Profit on sale of fixed assets (1.1) (0.1)
Depreciation charges on property, plant and equipment 19.9 19.6
Depreciation charges on right-of-use asset 9.2 9.2
Amortisation of intangibles 4.5 4.9
Movement in inventories 0.4 (1.1)
Movement in trade receivables (2.5) 2.4
Movement in trade payables 3.7 (2.0)
Movement in contract liabilities (31.6) (40.2)
Fair value movement on net assets (85.0) (41.3)
Net pension charges less contributions (1.3) (1.6)
Trade name write-off (note 6) 2.5 -
Trade name impairment (note 6) 2.8 15.3
Goodwill impairment (note 6) 36.4 28.7
Changes in other working capital 2.3 5.1
Trust investment administrative expenses deducted at source ((3)) 2.8 5.2
Foreign exchange rate difference - Trust assets 1.7 -
Employee share option charges 0.8 1.4
Cash flows from operating activities 68.3 62.7
12 Analysis of the movement in the retirement benefit obligation
2021 2020
£m £m
At beginning of period (36.6) (26.0)
Total expense charged to the income statement (1.0) (1.1)
Remeasurement gains/(losses) and administration expenses credited/(charged) to 15.6 (11.7)
other comprehensive income
Contributions by Group 2.3 2.2
At end of period (19.7) (36.6)
13 Basis of preparation
These financial statements have been prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act
2006 and International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applied in the European Union.
In the current period, the Group's consolidated financial statements have been
prepared for the 53 week period ended 31 December 2021. For the comparative
period, the Group's consolidated financial statements have been prepared for
the 52 week period ended 25 December 2020.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2021 or 25 December 2020
but is derived from those accounts. Statutory accounts for 2020 have been
delivered to the registrar of companies, and those for 2021 will be delivered
in due course. The auditors have reported on those accounts; their reports
were (i) unqualified, (ii) did not include a reference to any matters to which
the auditors drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006 in respect of the accounts for 2020 and 2021.
The Group's consolidated financial statements are prepared on a going concern
basis and have been prepared under the historical cost convention.
The principal accounting policies adopted in the preparation of these
financial statements have been consistently applied to all periods presented.
Going concern
The key factors which impact the Group's financial performance are death rate,
market share, funeral mix (Attended Funeral vs Unattended Funeral) and average
revenue per funeral.
The financial performance of the Group and the Securitisation Group has been
forecast for a period through 31 March 2023 (the going concern period) and
those forecasts have been subjected to a number of sensitivities. These
forecasts reflect an assessment of current and future market conditions and
their impact on the future profitability of the Group and the Securitised
Group.
As at 31 December 2021, the Group had cash (excluding cash in the Trusts) of
£55.9 million and its operations are also funded by Class A Notes with an
outstanding principal of £170.7 million (matures 2034) and Class B Notes with
an outstanding principal of £356.4 million (matures 2049) that are listed on
the Irish Stock Exchange. As part of the conditions of these notes, the
Securitisation Group is required to comply with an EBITDA: Debt Service Charge
Ratio (DSCR) covenant, tested quarterly on a last 12 month basis. At each
point of testing, EBITDA must exceed c.£51 million (i.e. 1.5x the annual debt
service cost of £34 million).
Due to the uncertainty around the forecasted deaths for 2022 and 2023 (due to
the impact of COVID-19 on deaths in 2020 and 2021), as a precautionary
measure, the Group sought and was granted a waiver of the DSCR and related
covenants within the debt.
This waiver allows for an equity cure by Dignity plc should there be a
shortfall in EBITDA of the Securitisation Group at any covenant measurement
point up to and including 31 December 2022. Any cash transferred into the
Securitisation Group during this period (up to an allowed maximum of £15
million) is included within the EBITDA for the purpose of the DSCR for the
following 12 months and therefore the waiver covers the entire going concern
period, i.e. cash (required to be) injected into the Securitisation Group
prior to 31 December 2022 will be included in the calculation of EBITDA for
the following 12 months. The Group has forecast its liquidity position and has
sufficient liquidity in Dignity plc (the company), under all severe but
plausible scenarios modelled, should it need to inject cash into the
Securitised Group.
The Group accelerated its new strategy in September 2021 and introduced an
Attended Funeral at prices from £1,595 to £2,495 (excludes extras, e.g.
limousines, etc., which are charged in addition to this rate) across the
majority of the network, implemented the Unattended Funeral (direct cremation)
across the whole network and the simple funeral was removed (apart from our
location in Jersey). Whilst 2021 funeral market share is slightly lower than
the prior year that started to change after the price changes and the Group
expects the new strategy to generate growth in its funeral market share and
growth in profits.
When considering the going concern assumption, the Directors of the Group have
reviewed the principal risks within the environment in which it operates and
have prepared relevant sensitised scenarios, these include:
· Deaths being 10,000 less than budgeted (noting for going concern
purposes, the directors considered a budget for 610,000 deaths which is less
than the ONS projections of 631,000 deaths in 2022);
· Funeral market share growth being one per cent less than budgeted;
· Average revenue per funeral being two per cent lower than budgeted;
and
· A higher proportion of Unattended Funerals than budgeted.
This scenario modelling confirmed that, after considering the potential use of
the equity cure, there was no plausible scenario in which the Group would not
meet its debt service payments or related covenants in the going concern
period. The Group is forecast to have sufficient liquidity to meet its
liabilities as they fall due in the period assessed through to 31 March 2023.
Having considered all the above the directors remain confident in the
long-term future prospects for the Group and its ability to continue as a
going concern for the foreseeable future and for a period through to 31 March
2023 and therefore continue to adopt the going concern basis in preparing the
Annual Report.
14 Securitisation
In accordance with the terms of the Secured Notes issued October 2014, Dignity
(2002) Limited (the holding company of those companies subject to the
securitisation) has today issued reports to the Rating Agencies (Fitch Ratings
and Standard & Poor's), the Security Trustee and the holders of the
Secured Notes issued in connection with the securitisation, confirming
compliance with the covenants established under the securitisation.
Copies of these reports are available at www.dignityplc.co.uk
(http://www.dignityplc.co.uk) /corporate.
15 Principal risks and uncertainties
Our principal Group risks
Outlined here is our assessment of the principal risks facing the Group. In
assessing which risks should be classified as principal, we assess the
probability of the risk materialising and the financial or strategic impact.
Risk appetite
Risk appetite is the level of risk the Group is willing to take to achieve its
strategic objectives and is set by the Board. The Board looks at the Group's
appetite to risk across a number of areas including market, financing,
operations, strategy and execution, developments, cybersecurity and technology
and brand.
The Board operates a low-level risk appetite in order to ensure as much as is
possible that the services provided by the Group are consistently of a high
standard and that regulatory requirements are adhered to.
Risk appetites for specific key risks have been reviewed during the course of
the year and, where appropriate, the Group's risk appetite has been adjusted
accordingly.
Our approach to risk management
The Group has a well-established governance structure with internal control
and risk management systems. The risk management process:
· Provides a framework to identify, assess and manage risks, both
positive and negative, to the Group's overall strategy and the contribution of
its individual operations.
· Allows the Board to review a balanced and understandable
assessment of the operation of the risk management process and inputs.
The Board has established a new Risk Committee to enhance the oversight it has
over its management of risks. The Risk Committee will be chaired by Kartina
Tahir Thomson.
Responsibilities and actions
The Board
The Board is responsible for monitoring the Group's risk and associated
mitigating factors and has carried out a robust assessment of both emerging
and principal risks. This assessment process is supported by in-house risk
management professionals.
Following the General Meeting on 22 April 2021, Clive Whiley ceased to be a
Director and two independent Non-Executive Directors resigned from the Board.
Gary Channon became Executive Chairman at this time. Subsequently, John
Castagno was appointed to the Board as independent Non-Executive Chairman in
July 2021 at which time Gary Channon became Chief Executive. Graham Ferguson
was appointed to the Board in September 2021 as an independent Non-Executive
Director and Chair of the Audit and Remuneration Committees. In 2022, Kate
Davidson has been appointed as Chief Operating Officer and Kartina Tahir
Thomson has recently been appointed as an independent Non-Executive Director
and Chair of the Risk Committee.
The Company continues to work towards meeting its corporate governance
responsibilities in respect of the composition of the Board and is currently
in the recruitment process for a Chief Financial Officer.
Risk process
Every six months the Audit Committee formally considers the Group's Principal
Risks and Uncertainties for subsequent adoption by the Board.
Risk assessment
Executive Directors and senior management are primarily responsible for
identifying and assessing business risks.
Identify
Risks are identified through discussion with senior management and
incorporated in the risk system as appropriate.
Assess
The potential impact and likelihood of occurrence of each risk is considered.
Mitigating activities
Mitigating factors are identified against each risk where possible.
Review and internal audit
The link between each risk and the Group's policies and procedures is
identified. Where relevant, appropriate work is performed by the Group's
internal audit function, across a 3-year audit plan cycle, to assist in
ensuring the related key controls, procedures and policies are understood and
operated effectively where they serve to mitigate risks.
Risk Committee
With the establishment of the Risk Committee, a number of matters currently
the responsibility of and reviewed by the Audit Committee will transfer to the
Risk Committee. The Risk Committee will advise the Board on risk management
issues, recommend the framework of risk limits and risk appetite to the Board
for approval and to oversee the risk management arrangements of the Company,
including the embedding and maintenance of a supportive risk management
culture.
The Risk Committee will also ensure that the material risks facing the Company
have been identified and that appropriate arrangements are in place to manage
and mitigate those risks effectively within the Company's agreed risk
appetite.
Risk status summary
The ongoing review of the Group's principal risks focuses on how these risks
may evolve.
Regulation of Pre-arranged funeral plans
In order to carry out regulated funeral plan activities, firms must be
authorised by the FCA from July 2022. Continuing with regulated activity
without authorisation will be a criminal offence.
Dignity believes that this regulation is necessary and welcomes its
introduction. Dignity is working with the FCA to be registered as a regulated
provider of pre-arranged funeral plans.
COVID-19
Although hopefully the worst is behind the country, COVID-19 created risks
both to our ability to deliver our services in the context of restrictions
imposed by the pandemic and the health and safety implications for our
colleagues. We continue to regularly assess the potential risks.
The Group has business continuity and pandemic plans that are invoked,
reviewed and adapted as necessary.
Accordingly, the ability to maintain average revenue is influenced by changes
in the competitive landscape and the impact of COVID-19.
Emerging Risks
Focus on the environment and businesses operating sustainably is now an
imperative. We have started down the road to achieve net-zero by 2038.
Funeral Directors' Codes of Practice
A number of compliance requirements are currently recommended by the Scottish
Government Funeral Directors' Code of Practice. In addition, the introduction
of the Independent Funeral Standards Organisation will necessitate compliance
with a UK co-regulatory Code of Practice as described by the Ministry of
Justice.
Our principal risks and uncertainties
The principal risks we have identified
We maintain a detailed register of principal risks and uncertainties covering
strategic, operational, financial and compliance risks. We rate them according
to likelihood of occurrence and their potential impact.
In the tables below we provide a summary of each risk, a description of the
potential impact and a summary of mitigating actions.
Financial risk management
Risk description and impact Mitigating activities and commentary Change
Significant movements in the death rate The profile of deaths has historically seen intra year changes of +/- one per Increased
cent giving the Group the ability to plan its business accordingly. The ONS
There is a risk that the number of deaths in any year significantly reduces or long-term projection is for deaths to increase.
increases. This would have a direct result on the financial and operational
performance of both the funeral and crematoria divisions.
The risk is mitigated by the ability to control costs and the price structure
although this would not mitigate a short-term significant reduction in the
number of deaths.
The number of deaths in 2021 was 664,000 which was 0.2 per cent above the
prior year. It remains unknown over what time frame the death rate will
normalise. Our planning continues to be based on the long-term expectations
provided by the Office for National Statistics.
Operationally, we have spent time understanding lessons from the dramatic
increase in deaths due to COVID-19 to ensure we continue to respond
professionally and safely. The pandemic has been a period of significant
disruption to the funeral market as the elevated death rate has driven a
higher number of funerals and cremations in 2021 compared to the five-year
average. It is anticipated that this volatility in the death rate will
continue as this excess death rate may well reverse.
Nationwide adverse publicity The Group's strategy is to focus on increasing funeral and crematoria market No change
share together with prioritising the sale of funeral plans through branches
Nationwide adverse publicity for Dignity could result in a significant rather than telephony partners. We ended our relationship with telephony
reduction in the number of funerals or cremations performed in any financial partners who sold plans on our behalf and are now focused on the development
period. For pre-arranged funeral plans, adverse publicity for the Group or one and execution of a vision to excel in the new FCA regulated environment using
of its partners could result in a reduction in the number of plans sold or an all potential channels to find and delight new clients.
increase in the number of plans cancelled.
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's aim is to develop a suite of sector-leading policies and practices
that will form our Standard Operating Procedures ('SOP') This will be at the
core of everything we do regarding our care for clients and deceased persons.
It includes a review of our guidelines for security and identification, access
to premises and mortuaries, care for the deceased and all other important
policies for both observed and unobserved procedures.
In terms of quality of care for clients and their loved ones, the introduction
of the SOP will assist in mitigating reputational risk and the possibility of
consequential adverse press coverage.
Fall in average revenue per funeral or cremation resulting from market changes The Group's strategic review has resulted in a more efficient business that Increased
can accommodate more competitive pricing, but which continues to provide
There has been increasing price competition in the funeral market, resulting clients with a greater range of choice, underpinned by exceptional client
in material price reductions by the Group in recent years. It is highly likely service. This will be supported by strong reputational management. The Group
that pricing pressure will remain for the foreseeable future and it may not is aspiring to achieve 20 per cent funeral market share in 10 years time
therefore be possible to maintain average revenue per funeral or cremations at (including both pre and at-need funerals) by offering the best service for the
the current level. best prices.
The recent and significant increase in wholesale gas prices will also The Group will continue to adapt to serve evolving client needs. This will be
contribute to the pressure on average revenue per cremation. through investment in digital capabilities including an enhanced reporting
capability of business intelligence and management information which will
enable risks and trends to be identified promptly and accurately.
This risk has increased due to COVID-19 as the Group has experienced lower
average revenues than originally expected. In addition, awareness of Simple
Funerals and Simplicity Cremations has increased during the pandemic.
The Group has, for some time, conducted low-price trials in a significant
number of branches. Our trials and experience since we changed prices has been
that market share loss stops and then reverses, and so in time we expect that
revenue loss to be more than compensated by volume growth especially when
combined with all the other elements of our strategy.
We will monitor fuel markets and prices but accept that this market faces
difficulties from external factors.
Financial risk management (continued)
Risk description and impact Mitigating activities and commentary Change
Direct cremations The Group has addressed this with Simplicity Cremations which offers low-cost No change
direct cremations without any initial funeral service that are both respectful
Growth in the direct cremation market could reduce average revenue in the and dignified. They are an affordable alternative to a full funeral or for
funeral business and adversely affect the volume mix and average revenue in those who wish to have a simple cremation. The Group also now offers a
the crematoria business. Simplicity pre-arranged funeral plan option.
Financial Covenant under the Secured Notes The nature of the Group's debt means that the denominator is now fixed unless No change
further Secured Notes are issued in the future. This means that the covenant
The Group's Secured Notes requires EBITDA to total debt service to be above headroom will change proportionately with changes in EBITDA generated by the
1.5 times. If this financial covenant (which is applicable to the securitised securitised subgroup.
subgroup of Dignity) 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. Current trading continues to support the Group's financial obligations,
however lower reported profitability increases the risk of breaching
covenants.
In addition, the Group is required to achieve a more stringent ratio of 1.85
times for the same test in order to be permitted to transfer excess cash from
the Securitisation Group to Dignity plc. Whilst the Group's financial performance has delivered headroom in relation to
financial covenants throughout 2021, given the distorting impact of the
pandemic on the timing of deaths, there remains significant uncertainty around
the UK death rate in the near term. Therefore, the Board has taken the prudent
decision to seek a temporary waiver of the abovementioned financial covenant
on a precautionary basis in relation to Dignity Finance plc's debt
obligations. In March 2022 the Group was granted a waiver on the application
of the covenants on the bonds for 12 months. This course of action accounted
for post- pandemic uncertainty over the death rate which, together with the
challenge of restructuring, risked a potential covenant breach.
Strategic risk management
Risk description and impact Mitigating activities and commentary Change
Disruptive new business models leading to a significant reduction in market The Group believes that this risk is mitigated by its reputation as a Increased
share high-quality provider and with recommendation being a key driver to the choice
of funeral director being used. In addition, the Group's actions on pricing
It is possible that external factors such as new competitors and the increased and promotion seek to protect the Group's funeral market share by offering
impact of the internet on the sector, could result in a significant reduction more affordable options. This focus on affordability has allowed our market
in market share within funeral and crematoria operations. This would have a share to begin to stabilise.
direct result on the financial performance of those divisions.
The Group is prioritising investment into standards of care, facilities and
our estate, alongside a combination of a competitive pricing and product mix,
cultural change and stronger branding, to grow local market share.
For crematoria operations this is mitigated by the Group's experience and
ability in managing the development of new crematoria.
The Group will focus on:
· increasing both volume and revenue per crematoria by increasing
throughput and growing ancillary sales;
· continuing to build out the pipeline of crematoria and build
additional capacity into existing facilities; and
· embracing direct cremation and become price leaders for the
location-agnostic value segment of the market.
Additionally, the combination of the development of strong national brands and
significant investment in digital capability together with a range of product
and price offerings to clients is expected to strengthen the Group's
competitiveness.
Demographic shifts in population In such situations, Dignity would seek to follow the population shift by No change
rebalancing the funeral location network together with meeting the developing
There can be no assurance that demographic shifts in population will not lead cultural requirements.
to a reduced demand for funeral services in areas where Dignity operates.
Strategic risk management (continued)
Risk description and impact Mitigating activities and commentary Change
Competition in the Funeral Market The vision is for Dignity to be the UK's leading end-of-life business, No change
renowned for its excellence and high standards, represented and embedded in
The UK funeral services, crematoria and pre-need markets are currently the community with strong local brands, whilst offering the best service for
fragmented. the best prices. Central to our strategy is a focus on improving the culture
of our business, empowering our colleagues and working openly together to be
our best through teamwork.
There could be further consolidation or increased competition in the industry,
whether in the form of intensified price competition,
Our appetite to develop new products and trials has expanded through the
service competition, over capacity facilitated by the internet or otherwise, greater collaboration and open debate. Several trials are up and running with
which could lead to an erosion of the Group's market share, average revenues the objective of achieving the right combination of price product and
or an increase in costs and consequently a reduction in its profitability. promotion to not only grow our local market share but to sustain and grow our
revenues. The Branch Direct Cremation trial has introduced new competitively
priced products that can fit within our existing price and product
architecture.
Failure to replenish or increase the bank of pre-arranged funeral plans could
affect market share of the funeral division in the longer-term.
We continue to develop a new tiered funeral pricing proposition, that will
provide greater flexibility to meet individual client needs.
Competition continues to intensify, with additional funeral directors opening
at varying price points, alongside an increase in the popularity of direct
cremations.
By unbundling our prices and services to provide our clients with greater
flexibility to create the right funeral, we will be able to provide greater
consistency and competitiveness on price, while reflecting Dignity's premium
service levels.
A significant online presence and visibility leverages our scale and addresses
the needs of increasingly digitally focused clients. Through the Dignity and
Simplicity names, we are leveraging scale advantages in the digital age. We
also recognise that our established local funeral trading names continue to
have significant value in the communities they serve.
Through better allocation of our resources, the resultant efficiencies will
allow us to reduce the number of funeral locations and their associated cost.
Support functions are being centralised where appropriate to ensure a cost
effective and consistent high standard of service.
There are challenges to opening new crematoria due to the need to obtain
planning approval and the costs of development. Dignity has extensive
experience in managing the development of new crematoria.
The Group offers a quality pre-need product, the marketing of which will
benefit from the current and future significant investment in marketing and
enhanced digital presence.
Dignity supports full FCA regulation of the sector which presents an
opportunity to gain competitive margin through both pricing and good quality
service provision.
Operational risk management
Risk description and impact Mitigating activities and commentary Change
Cyber risk The Group has, in recent years, invested significantly in this area with the No change
objective of both upgrading all aspects of our systems and our internal
Our business is at risk of financial loss, disruption or damage to reputation resources and also using external consultants to drive a continuous
resulting from the failure of its information technology systems. This could improvement programme.
materialise in a variety of ways including deliberate and unauthorised
breaches of security to gain access to information systems.
The chance of an organisation falling victim to a cyber-attack is growing.
Threats are more pervasive and sophisticated than ever.
In addition, however, to maintaining appropriate levels of Cyber Insurance we
continue our investment in fit for purpose security controls, processes, and
technology to allow us to maintain pace with the current threat landscape
whilst proactively monitoring for breaches and improving internal
understanding and communication of initial risks, mitigations and residual
risks.
The Group is working with external advisers at an operational level providing
a broad view of our current maturity level of controls over multiple domains
associated with cyber security. Additionally, this external assessment will
include a deep dive review of Dignity's Security Architecture to confirm that
our information systems are in alignment with required cyber security
objectives addressing where possible potential risks to the technology
environment.
The Group has its security controls, processes and technology independently
audited to ensure it remains effective or requires additional investment.
Regulatory risk management
Risk description and impact Mitigating activities and commentary Change
Regulation of pre-arranged funeral plans Changes apply to the industry as a whole and not just the Group. No change
FCA Regulation has resulted in changes to processes, systems, pricing, The FCA rules address:
funding, capital requirements 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 draw · Customer documentation.
down the current level of marketing allowances.
· Trust structures.
The minimum solvency levels (110 per cent) for Trust funds set by the FCA
means that levels below this minimum will require Dignity Funerals Limited to · Product value and features.
address shortfall within a 12 month period.
· Minimum solvency requirements for Trust Funds.
· Compliant sales of Pre-Paid plans.
Our strong market presence in the Whole of Life Funeral Benefit market remains
unchanged.
The changes affect the whole industry, whilst we will experience a material
drop in volumes, Dignity will be in a strong market position as a vertically
integrated provider to grow its controlled channels that remain open post FCA
regulation.
We very much welcome FCA regulation which is confirmed for 29 July 2022 and
expect it to serve as a catalyst for our growth ambitions. It will lead to a
better product. One in which British consumers have greater confidence and are
more likely to purchase. It is also likely to cause unscrupulous firms in the
sector to exit the industry as they struggle to attain authorisation with the
regulator. We have already begun to see signs of this happening.
Internally we are working to improve the product by bringing more choice,
flexibility, and simplicity to our offering. We are also working hard to
improve our own channels of distribution. FCA regulation prevents us from
paying commissions to third parties and so we have ceased business with many
of our previous distribution partners. Instead, we will focus on developing
our proposition and sales strategy delivered through our website and via our
well-trained community-based colleagues. Our ambition is to significantly
increase the number of funeral plans sold through our branch network.
As well as top line growth we aim to reduce the cost per plan sale.
Minimum Solvency levels of 120 per cent of assets/liabilities have been agreed
by the Dignity Funerals Limited Board. This represents a 10 per cent buffer
over the regulatory minimum of 110 per cent.
Board oversight of product development, pricing and distribution of Pre-Paid
funeral plans.
Changes in the funding of the pre-arranged funeral plan business There is considerable regulation around insurance companies which is designed, No change
amongst other things, to ensure that the insurance companies meet their
In the current regulatory environment, the Group has given commitments to obligations.
pre-arranged funeral plan members to provide certain funeral services in the
future.
The Trusts hold assets of circa £1 billion with an average duration of circa
10+ years: we will seek to generate a surplus above funeral cost inflation.
Funding for these plans is reliant on either insurance companies paying the
amounts owed or the pre-arranged funeral plan Trusts having sufficient assets.
If this is not the case, then the Group may receive a lower amount per
funeral.
Emerging risk
The Group continues to scan for emerging risks through the processes noted
above. The key areas where additional risk is appearing, all of which are
extensions of risk already identified above, are as follows:
Risk description and impact Mitigating activities and commentary Change
Sustainability and climate resilience The vision is for Dignity to achieve net-zero by 2038. New
The need to operate businesses sustainability and with a focus on the
environment is now an imperative in order to achieve the Government's target
of net-zero. Dignity is ranked in the Top 200 in the FT/ Statista's Europe's Climate
Leaders Report 2021 due to a 27 per cent reduction in core emissions between
2014 and 2019.
Dignity are voluntarily submitting a message of intent with regards to TCFD
for the year 2021 prior to this becoming mandatory for 2022. Dignity have
partnered with Inspired Energy for the reporting of the TCFD and will assist
in growing our reporting requirements in line with Science based targets. To
assist with this an extensive programme of smart meters and water meters are
being rolled out both to allow us to have concise data to report against and
to identify quickly any wastage/leakage.
Key focuses for 2022 include:
· Climate scenarios analysis and interim target setting to 2038;
· Develop a standalone TCFD report - full disclosure;
· Improve data collection and metrics across Scopes 1,2&3; and
· Improved cremator technology.
We will review the Environmental and Sustainability Committee Terms of
reference to drive change and will develop a 3-year plan to mitigate risks
against emerging HM Government led initiatives.
Funeral Directors' Codes of Practice The Group is undertaking an assessment of compliance guidelines and works New
required to achieve compliance across the UK legislative networks.
A number of compliance requirements currently recommended by the Scottish
Government Funeral Directors' Code of Practice can reasonably be expected to
become law. For example, one draft requirement for funeral directors is to
have a ratio of 1 refrigerated space per 50 funerals performed. Additionally, Consideration for the resource profile and methodology for responding to legal
the need to respond to registration and inspection requirements which will be registration in Scotland and a statutory inspection response is being
enacted in law. initiated as a pre-emptive measure in advance of a published Scottish
government position.
The introduction of the Independent Funeral Standards Organisation in late
2021/22 will necessitate compliance with a UK co-regulatory Code of Practice Relationship management with the National Association of Funeral Directors
as described by the Ministry of Justice. Intended obligations include ('NAFD') and the Independent Funeral Standards Organisation ('IFSO') is
transparency, quality and standards measures with risk ratings and public underway.
reporting in subsequent phases.
We strongly support the progress IFSO has made and look forward to working
The relationship between and requirements of the two Codes of Practice have with the body should it transition into a government endorsed self-supervisory
yet to be finally determined. body for the sector.
We have also worked closely with Scottish Government to develop its approach
to regulation of the sector and provision of services, including the
anticipated implementation of a new Code of Practice for Funeral Directors
that will sit under a legal framework in Scotland.
16 Pre-arranged funeral plans
(a) Commitments
The Trading Group has sold pre-arranged funeral plans to clients in the past,
giving commitments to these clients to perform their funeral. All monies from
the sale of these funeral plans are paid into and controlled by a number of
trusts. These include the Trusts consolidated within the Group's financial
statements in addition to a number of other trusts (the 'Small Trusts'). The
Small Trusts are not consolidated in the Group's results as the Group does not
control these trusts.
The Group is obligated to perform these funerals in exchange for the assets of
the respective trusts, whatever they may be. It is the view of the Directors
that none of the commitments given to these clients are onerous to the Group.
However ultimately, the Group is obligated to perform these funerals in
exchange for the assets of the respective trusts, whatever they may be.
The Small Trusts had approximately £15.6 million (2020: £16.9 million) of
net assets as at the balance sheet date.
Only the Trusts consolidated within the Group's financial statements receive
funds relating to the sale of new plans.
(b) Actuarial valuation
The Trustees of the Trusts are required to have the Trusts' liabilities
actuarially valued once a year. This actuarial valuation is of liabilities of
the Trusts to secure funerals through Dignity and other third party funeral
directors and does not, in respect of those funerals delivered by the Group
represent the cost of delivery of the funeral. Assets of the Trusts include
instalment amounts due in the future from clients, as these amounts are
payable on death and are therefore relevant to the actuarial valuation.
However, this means that assets detailed in the actuarial valuations will not
agree on a particular day to the assets recognised in the Group's consolidated
balance sheet because the Group does not include future receivable amounts in
the consolidated balance sheet.
The Trustees have advised that the latest actuarial valuations of the Trusts
were performed as at 24 September 2021 (2020: 25 September) using assumptions
determined by the Trustees. Actuarial liabilities in respect of the Trusts
have decreased to £967.1 million as at 24 September 2021 (2020: £995
million). The corresponding market value of the assets of the Trusts was
£1,114.4 million (2020: £999 million) as at the same date. Consequently the
actuarial valuations recorded a total surplus of £147.3 million at 24
September 2021 (2020: surplus of £4 million).
Active members and assets per plan
31 December 25 December
2021 2020
Number Number
Supported by:
The Trusts 323,000 319,000
The Small Trusts 43,000 46,000
Insurance Plans 215,000 193,000
581,000 558,000
The Trusts have approximately £3,650 (2020: £3,400) average asset per
active plan (see alternative performance measures on page 52 for further
details). On average the Trading Group received approximately £3,000 (2020:
£3,000) in the period for the performance of each funeral (including amounts
to cover disbursements such as crematoria fees, ministers' fees and doctors'
fees where applicable).
Insurance Plans are those plans for which the Group is the named beneficiary
on life assurance products sold by third party insurance companies.
(c) Transactions with the Group
During the period, the Group entered into transactions with the Small Trusts.
Amounts may only be paid out of the Trusts in accordance with the relevant
Trust Deeds. Transactions (which were recognised as revenue in the funeral
division) amounted to £0.9 million (2020: £0.9 million) in the period and
principally comprised receipts from the Small Trusts in respect of funerals
provided. No amounts were due to the Group on either balance sheet date.
17 Insurance plans
The Group is the named beneficiary on a number of life assurance products sold
by third party insurance companies on which the Group pays commission. The
Group is entitled to recover commission paid if plans are cancelled within two
years of being sold. However, if plans are cancelled outside this two year
period, commissions paid are not refundable. The majority of plans with these
features ceased to be written in October 2019 and the remainder in February
2020.
Following a review of the Group's accounting policy for insurance plans in
relation to the prepaid balance held on the consolidated balance sheet within
'deferred insurance commissions' the Group has amended the accounting
treatment to include a provision for expected future cancellations. A detailed
analysis has been performed on the cancellation rates for insurance products
and a prior year restatement has been required to reflect the expected level
of future cancellations.
It was further noted that a liability was not held for the active plans where
a known commission is payable in future years. The calculation for the
liability includes an estimate of the level of cancellations before the
commission is payable and is discounted using a risk free rate of return.
Furthermore, an assessment has been performed to determine the level of future
expected funerals and this element of the liability has been held as a
corresponding asset.
The change to the recognition and measurement of the plans has been reflected
in these financial statements as a prior period restatement impacting opening
reserves.
27 December 2019 consolidated balance sheet (selected lines only):
27 Dec 2019 as originally presented Impairment of deferred commission prepayment Recognition of future commission payable liability Recognition of future expected funerals Tax impact 28 Dec 2019 restated
£m £m £m £m £m £m
Non-current assets
Deferred insurance commissions 11.0 (3.2) 2.4 10.2
Current liabilities
Financial liabilities 9.6 0.6 10.2
Current tax liabilities 6.0 (0.8) 5.2
Non-current liabilities
Financial liabilities 542.3 2.9 545.2
Shareholders' deficit
Retained earnings (297.9) (3.2) (3.5) 2.4 0.8 (301.4)
The impact of the above is as follows:
· At 28 December 2019 the deferred insurance commission prepayment of
£11.0 million has been impaired by £3.2 million;
· A liability has been recognised representing the future commission
payable of £3.5 million within financial liabilities. This is split between
current and non-current liabilities at £0.6 million and £2.9 million
respectively;
· The corresponding entry of the liability is the recognition of an
asset of £2.4 million which represents the level of expected future funerals.
The net impact of these adjustments of £1.2 million is a charge to the
consolidated income statement which has been corrected through opening
reserves as at 28 December 2019;
· The deferred commission prepayment of £11.0 million at 28 December
2019 has therefore overall reduced by £0.8 million to £10.2 million;
· The tax impact at 28 December 2019 is a credit of £0.8 million and
has reduced the current tax liability to £5.2 million; and
· The total impact of this impairment on opening reserves at 28
December 2019 is a reduction of £3.5 million to £145.0 million.
These adjustments have no impact on cash.
The above adjustments have been recorded in the funerals segment.
When comparing the updated amortisation analysis and roll forward of the
assets and liabilities at 25 December 2020 there is no material difference
between the original amounts charged to the consolidated income statement.
Therefore, no adjustments have been made to these accounting periods aside
from the adjustments to the assets and liabilities referred above. The balance
sheet at 25 December 2020 as presented in the annual report and accounts for
that period included a £0.5 million accrual and a related £0.5 million
deferred insurance commission asset. These balances should have been recorded
as of 28 December 2019 and have been corrected as part of the above
adjustment.
25 December 2020 consolidated balance sheet (selected lines only):
25 Dec 2020 as originally presented Impairment of deferred commission prepayment Recognition of future commission payable liability Recognition of future expected funerals Tax impact Removal of insurance commission accrual 25 Dec 2020 restated
£m £m £m £m £m £m
Non-current assets
Deferred insurance commissions commissions 10.7 (3.2) 9.4
2.4 (0.5)
Current liabilities
Financial liabilities 15.1 0.6 15.7
Trade and other payables 68.7 (0.5) 68.2
Current tax liabilities 8.7 (0.8) 7.9
Non-current liabilities
Financial liabilities 526.6 2.9 529.5
Shareholders' deficit
Retained earnings (331.6) (3.2) (3.5) 2.4 0.8 - (335.1)
A further impairment of £0.8 million has been charged to the consolidated
income statement for the 53 week period ending 31 December 2021 which reflects
the changes in future expected cancellation rates.
The key judgement used within the calculation of the above assets and
liabilities at 31 December 2021 is the future expected cancellation rate of
1.6 per cent per annum for the remaining life of active plans held. This is
based on historical data of cancellation rates on similar insurance plans sold
by third parties in the past for which the Group is the beneficiary. This
estimate therefore is subject to sensitivity.
If this expected future rate of cancellation was to reduce/increase by 0.2 per
cent to 1.4 per cent/1.8 per cent, respectively, the impairment charged in
the current period of £0.8 million would reduce/increase by £0.4 million. If
this rate reduced/increased by 0.4 per cent to 1.2 per cent/2.0 per cent,
respectively, the impairment charged in the current period of £0.8 million
would reduce/increase by £0.8 million.
In the event of the death of the policyholder, if the Group performs the
funeral, it receives an agreed amount from the insurers which is recognised as
revenue within the funeral services division. On occasions a third party will
perform the funeral and the Group will pass on all monies received to that
party and in this situation the Group is deemed to be acting as an agent and
revenue is treated as pass through revenue and not grossed up within the
consolidated income statement
18 Post balance sheet events
Consent solicitation with bondholders
On 17 February 2022, Dignity Finance plc ('Dignity Finance'), a Group
subsidiary, announced the launch of a consent solicitation period with its
Class A Bondholders in relation to a proposed temporary covenant waiver (as
described in note 13 of the Preliminary Announcement). As stated in the
Group's interim results on 21 September 2021, the Board continues to work on
its plans to improve the Group's capital structure in the pursuit of the best
long-term value for shareholders.
Whilst the Group's financial performance has delivered headroom in relation to
financial covenants throughout the last 12 months, given the distorting impact
of the pandemic on the timing of deaths, there remains significant uncertainty
around the UK death rate in the near term. Therefore, the Board has taken the
prudent decision to seek a temporary waiver of the abovementioned financial
covenant on a precautionary basis in relation to Dignity Finance's debt
obligations.
Following a meeting of the Class A Bondholders on 11 March 2022, the necessary
quorum was achieved (with 99.58 per cent of the aggregate principal amount of
the Notes for the time being outstanding being represented) and the
Extraordinary Resolution was duly passed (with 95.19 per cent of the votes
being cast in favour).
Trust financial assets
The Trust has over £1 billion in assets that are invested in various
equities, bonds, funds and private investments. Such investments can be
subject to volatility due to movements in underlying markets and assets and
can go up and down. This can be seen in movements post year end following the
situation in Ukraine. The Group monitors this closely and this forms part of
its considerations for its long term investment strategy, noting that the
purpose of the Trust is to provide asset coverage (and a surplus) to fund the
pre-need funerals return which are forecast to have an average maturity of 10
plus years.
Acquisition activity
The Group has acquired the trade and assets of one business since the balance
sheet date through the Dignity Ventures division.
Non-GAAP measures
(a) Alternative performance measures
The Board believes that whilst statutory reporting measures provide financial
performance of the Group under IFRS, alternative performance measures are
necessary to enable users of the financial statements to fully understand the
trading performance and financial position of the business.
The alternative performance measures provided are aligned with those used in
the day-to-day management of the Group and allow for greater comparability
across periods.
For this reason, the alternative performance measures provided exclude the
impact of consolidating the Trusts, the corporate interest restriction
disallowance arising as a result of consolidating the Trusts and the changes
which relate to the application of IFRS 15. In addition, the deferred tax
impact relating to the corporation tax rate change in both 2021 and 2020
arising on the deferred tax balances on consolidating the Trusts and
application of IFRS 15 have also been excluded, as well as non-underlying
items comprising certain non-recurring and non-trading transactions.
IFRS 16 has previously been included within the alternative performance
measures for 2020 only. This was due to the modified retrospective adoption of
the standard, meaning the 2019 comparatives had not been restated and
therefore were not comparable. IFRS 16 is now included within underlying
performance measures and all comparatives have been restated accordingly. As a
result all references to IFRS 16 have been removed from the other adjustments
reconciliation tables in comparative periods. Therefore, a prior year
restatement has been made to December 2020 underlying performance measures to
the magnitude of a £0.1 million charge to underlying profit. This is made up
of an adjustment to remove the operating lease rentals of £13.8 million which
is replaced with a depreciation charge of £9.2 million, a finance expense of
£4.7 million and a tax charge of £nil. See note 1 for further details of the
impact of this restatement on the consolidated financial statements
The exclusion of the impact of consolidating the Trusts and the application of
IFRS 15 will continue for the foreseeable future. We will also assess whether
it is right to exclude any future new accounting standards from alternative
performance measures based on whether they are included in the measures used
in the day-to-day management of the business.
All of these measures are highlighted as underlying throughout this
Preliminary Announcement.
Calculation of underlying reporting measures
Underlying revenue and profit measures (including divisional measures) are
calculated as revenue and/or profit before non-underlying items and other
adjustments.
Underlying net finance costs are calculated before the application of IFRS 15
and the impact of consolidating the Trusts. See note 3.
Underlying earnings per share is calculated as profit after taxation, before
non-underlying items and other adjustments (both net of tax), divided by the
weighted average number of Ordinary Shares in issue in the period.
Underlying cash generated from operations excludes non-underlying items and
other adjustments on a cash paid basis.
(b) Non-underlying items
The Group's underlying measures of profitability exclude:
· amortisation of acquisition related intangibles;
· external transaction costs;
· profit or loss on sale of fixed assets (net of any insurance
proceeds received);
· Transformation Plan costs (see below);
· marketing costs in relation to trials;
· restructuring costs;
· Directors severance pay;
· operating and competition review costs;
· trade name write-off's and impairments;
· goodwill impairments; and
· the taxation impact of the above items together with the impact
of taxation rate changes.
Non-underlying items have been adjusted for in determining underlying measures
of profitability as these underlying measures are those used in the day-to-day
management of the Group and allow for greater comparability across periods.
In the tables below, non-underlying items are categorised as either
non-trading or non-recurring. Non trading items refers to expenditure which
does not relate to the normal day-to-day transactions of the business, whereas
non-recurring also does not relate to the day-to-day transactions of the
business and is not expected to reoccur, however the same non-recurring item
may straggle more than one accounting period.
Transformation Plan costs
Cost incurred in relation to the Group's now abrogated Transformation Plan
resulted in significant, directly attributable non-recurring costs in 2020 and
these amounts are excluded from the Group's underlying profit measures and
treated as a non-underlying item.
These costs include, but are not limited to:
· external advisers' fees;
· directly attributable internal costs, including staff costs
wholly related to the Transformation (such as the Transformation Director and
project management office);
· costs relating to any property openings, closures or relocations;
· rebranding costs;
· speculative marketing costs; and
· redundancy costs.
Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
53 week period ended 31 December 2021 £m £m £m £m £m
Non-trading
Amortisation of acquisition related intangibles 3.7 0.4 0.1 - 4.2
External transaction costs in respect of completed and aborted transactions - 1.2 - 1.4 2.6
Profit on sale of fixed assets (net of insurance proceeds received) ((1)) - (1.1) - - (1.1)
Trade name write-off 2.5 - - - 2.5
Trade name impairment 2.8 - - - 2.8
Goodwill impairment 36.4 - - - 36.4
Non-recurring
Marketing costs in relation to trials - - - 0.9 0.9
45.4 0.5 0.1 2.3 48.3
Taxation ((2)) (2.5)
Taxation - rate change 8.3
54.1
((1) Includes £1.1 million of insurance proceeds received in respect of a
Crematoria fire which occurred in 2020. )
((2) All of the above items are subject to corporation tax, except for the
trade name write-off, trade name impairment and goodwill impairment.)
52 week period ended 25 December 2020 - restated ((3))
Non-trading
Amortisation of acquisition related intangibles 4.1 0.4 0.1 - 4.6
External transaction costs in respect of completed and aborted transactions 0.2 - - - 0.2
Profit on sale of fixed assets - (0.2) - - (0.2)
Trade name impairment 15.3 - - - 15.3
Goodwill impairment 28.7 - - - 28.7
Non-recurring
Marketing costs in relation to trials - - - 0.6 0.6
Transformation Plan costs - - - 4.7 4.7
Directors' severance pay - - - 1.6 1.6
Operating and competition review costs - - - 2.9 2.9
48.3 0.2 0.1 9.8 58.4
Taxation (6.1)
Taxation - rate change 3.6
55.9
((3) A presentation adjustment has been made in December 2020 to separately
pull out the marketing costs in relation to trials.)
(c) Other adjustments reconciliation
Other adjustments enable a user of the financial statements to assess the
financial performance of the Trading Group as it was historically reported
prior to the consolidation of the Trusts and the impact of IFRS 15, Revenue
from Contracts with Customers. This mirrors the financial reporting provided
to management on a monthly basis to monitor the performance of the underlying
Trading Group.
Adjustments to the Group's consolidated financial statements are made to
reflect the following:
· Deferred revenue recognised on the delivery of a funeral is
replaced with the payment received by the Trading Group from the Trust at the
same time. Pre-need segment income, in the form of upfront payments received
by the Trading Group from the Trusts in support of marketing are recognised
when received at inception of a funeral plan rather than being deferred as
part of the aforementioned deferred revenue.
· Payments made by the Trusts on cancellation are recognised by the
Trading Group.
· Unlike disbursements on at-need funerals, disbursements on
pre-need funerals under IFRS 15 are recognised on a principal basis within
both revenue and cost of sales, but for consistency in the alternative
performance measure both are reduced as these items are not included in either
measure. Similarly, pre-need funerals delivered by subcontracted funeral
directors, which form part of deferred income, are excluded within the
alternative performance measure with a corresponding adjustment to cost of
sales.
· Commissions payable on securing new Trust plans are recognised at
the inception of the plan rather than being deferred and recognised at the
time the funeral service is delivered.
· The amounts recorded in respect of the remeasurement of assets
held in the Trust is removed as is the significant financing component that
only arises when deferred revenue is recognised on consolidation of the
Trusts.
· The taxation impact of the above adjustments, including the
impact of corporate interest restriction and changes in the rate of deferred
tax associated with the items noted above are removed.
Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
53 week period ended 31 December 2021 £m £m £m £m £m
Revenue
Trust consolidation:
Release of deferred revenue on death or cancellation 117.9 - - - 117.9
Removal of payments received from the Trusts on death (58.4) - - - (58.4)
Payments on cancellation (9.8) - - - (9.8)
Derecognise pre-need segment income - - (24.6) - (24.6)
IFRS 15:
Recognition of disbursement element of pre-need plans 16.6 - - - 16.6
Revenue - Total other adjustments 66.3 - (24.6) - 41.7
Cost of sales
IFRS 15:
Amounts paid on subcontracted funerals (8.2) - - - (8.2)
Recognition of disbursement element of pre-need plans (16.6) - - - (16.6)
Administrative expenses
Trust consolidation:
Recognition of Trust costs (6.2) - - - (6.2)
Transfer of pre-need costs into funeral segment (24.7) - 24.7 - -
IFRS 15:
Net release of deferred costs in respect of commissions (0.4) - - - (0.4)
Operating profit - Total other adjustments 10.2 - 0.1 - 10.3
Finance income/(costs)
Trust consolidation:
Deferred revenue significant financing (51.6)
Remeasurement of financial assets held by the Trusts and related income 94.8
Finance costs - Total other adjustments 43.2
Taxation:
Trust consolidation:
Taxation impact on above adjustments (8.1)
Corporate interest restriction disallowance (1.5)
Deferred tax rate change 6.9
IFRS 15:
Taxation impact on above adjustments (0.5)
Deferred tax rate change (5.5)
Taxation - Total other adjustments (8.7)
Profit after taxation - Total other adjustments 44.8
Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
52 week period ended 25 December 2020 - restated £m £m £m £m £m
Revenue
Trust consolidation:
Release of deferred revenue on death or cancellation 122.2 - - - 122.2
Removal of payments received from the Trusts on death (59.8) - - - (59.8)
Payments on cancellation (8.8) - - - (8.8)
Derecognise pre-need segment income - - (28.8) - (28.8)
IFRS 15:
Recognition of disbursement element of pre-need plans 18.6 - - - 18.6
Revenue - Total other adjustments 72.2 - (28.8) - 43.4
Cost of sales
IFRS 15:
Amounts paid on subcontracted funerals (8.8) - - - (8.8)
Recognition of disbursement element of pre-need plans (18.6) - - - (18.6)
Administrative expenses
Trust consolidation:
Recognition of Trust costs (6.9) - - - (6.9)
Transfer of pre-need costs into funeral segment (28.9) - 28.9 - -
IFRS 15:
Net release of deferred costs in respect of commissions 4.9 - - - 4.9
Operating profit - Total other adjustments 13.9 - 0.1 - 14.0
Finance income/(costs)
Trust consolidation:
Deferred revenue significant financing (53.1)
Remeasurement of financial assets held by the Trusts and related income 47.3
Finance income - Total other adjustments (5.8)
Taxation:
Trust consolidation:
Taxation impact on above adjustments (0.5)
Corporate interest restriction disallowance (4.3)
Deferred tax rate change 6.8
IFRS 15:
Taxation impact on above adjustments (0.9)
Deferred tax rate change (2.1)
Taxation - Total other adjustments (1.0)
Profit after taxation - Total other adjustments 7.2
(d) Non-underlying cash flow items
31 December 25 December
2021 2020
restated ((1))
£m £m
Cash flows from operating activities 68.3 62.7
Cash flows of other adjustments 16.1 16.3
Cash flows from operating activities - Trading Group 84.4 79.0
External transaction costs 1.6 0.6
Marketing costs in relation to trials 0.9 0.2
Directors' severance pay 0.9 0.7
Transformation Plan costs - 5.4
Operating and competition review costs 0.5 3.0
Underlying cash generated from operations 88.3 88.9
(1) December 2020 has been restated to separately pull out spend on
marketing costs in relation to trials out of external transaction costs.
(e) Funeral market share
Comparable funeral market share excludes any volumes from locations not
contributing for the whole of 2020 and 2021 to date and therefore excludes 26
locations closed and one location opened in 2020 and a further 24 locations
closed and five locations opened in 2021.
(f) Average assets per plan
Average assets per plan are calculated as the net assets of the Trusts divided
by the number of active plans in the Trusts. Net assets in this calculation
will not equal amounts in the consolidated balance sheet of the Group, as it
includes instalment amounts due in future that become payable immediately on
death.
31 December 2021 25 December 2020
£ £
Net assets in the Trusts 1,179,000 1,097,000
Number of active plans 323,000 319,000
Asset per plan 3,650 3,400
(g) Return on Trusts assets
Return on Trust assets are calculated as net investment return in the Trusts
divided by the opening net assets within the consolidated balance sheet.
31 December 2021 25 December 2020
£m £m
Remeasurement recognised in the consolidated income statement 85.0 41.3
Investment income 7.7 2.2
Foreign exchange rate difference (1.7) -
Investment administrative expenses deducted at source (2.8) (5.2)
Net investment return in the Trusts 88.2 38.3
Opening net assets as per the consolidated balance sheet 967.1 947.5
Return on the Trust assets (per cent) 9.1% 4.0%
(h) Cash Return on Core Capital ('CROCC')
The Dignity CROCC is a measure of the return made on the productive capital in
the business ignoring intangible assets and non-cash returns. This is a
proprietary measure ('APM') and therefore not subject to accounting rules
which you should bear in mind.
We calculate it by taking the underlying cash generated from operations and
subtracting the maintenance capital expenditure, net finance costs paid and
tax paid; this gives the Cash Return ('CR'). This is then divided by the sum
of the property, plant and equipment, Trade receivables: at-need and
Inventories less Trade payables which make up the Core Capital ('CC').
To illustrate what it measures imagine that a company built a crematorium
costing say £8 million including the land which once mature makes a return
after tax and capital expenditure of £1.2 million, then its CROCC would be 15
per cent (£1.2 million /£8.0 million). Now if that crematorium were sold to
another company for £20.0 million it would still be making £1.2 million but
they might measure its return at 6 per cent (£1.2 million /£20.0 million).
CROCC would still come out at 15 per cent because it is based upon the capital
used to create the asset, not the goodwill reflected in its transfer. 6 per
cent is the initial return on an investment in what is a 15 per cent asset
purchased for 2.5 times the capital invested in it.
Core Capital is taken from a concept introduced by Warren Buffett about
judging a business based upon the capital you would need to replicate it.
CROCC is useful because it gives a measure of the underlying returns of a
business which are a guide to what the returns on retained capital might be.
As we progress the CROCC will increasingly reflect the returns from the
capital retained and allocated by the executive for organic growth. The CROCC
calculation can be reconciled as follows:
31 December 25 December
2021 2020
£m £m
Underlying cash generated from operations 88.3 88.9
Less:
Maintenance capital expenditure (17.6) (9.1)
Net finance costs paid (28.2) (29.1)
Tax paid (17.7) (6.9)
Cash Return 24.8 43.8
Property, plant and equipment 242.1 240.9
Trade receivables: at-need 15.2 14.1
Inventories 8.6 9.0
Less:
Trade payables (9.3) (5.5)
Core Capital 256.6 258.5
Cash Return on Core Capital (per cent) 9.7% 16.9%
Forward-looking statements
This Preliminary Announcement and the Dignity plc investor website may contain
certain 'forward-looking statements' with respect to Dignity plc (the
'Company') and the Group's financial condition, results of its operations and
business, and certain plans, strategy, objectives, goals and expectations with
respect to these items and the economies and markets in which the Group
operates.
Forward-looking statements are sometimes, but not always, identified by their
use of a date in the future or such words as 'anticipates', 'aims', 'due',
'could', 'may', 'should', 'will', 'would', 'expects', 'believes', 'intends',
'plans', 'targets', 'goal' or 'estimates' or, in each case, their negative or
other variations or comparable terminology. Forward-looking statements are not
guarantees of future performance. By their very nature forward-looking
statements are inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on circumstances that
will occur in the future. Many of these assumptions, risks and uncertainties
relate to factors that are beyond the Group's ability to control or estimate
precisely. There are a number of such factors that could cause actual results
and developments to differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not limited to,
changes in the economies and markets in which the Group operates; changes in
the legal, regulatory and competition frameworks in which the Group operates;
changes in the markets from which the Group raises finance; the impact of
legal or other proceedings against or which affect the Group; changes in
accounting practices and interpretation of accounting standards under IFRS,
and changes in interest and exchange rates.
Any forward-looking statements made in this Preliminary Announcement or the
Dignity plc investor website, or made subsequently, which are attributable to
the Company or any other member of the Group, or persons acting on their
behalf, are expressly qualified in their entirety by the factors referred to
in this statement. Each forward-looking statement speaks only as of the date
it is made. Except as required by its legal or statutory obligations, the
Company does not intend to update any forward-looking statements.
Nothing in this Preliminary Announcement or on the Dignity plc investor
website should be construed as a profit forecast or an invitation to deal in
the securities of the Company.
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