REG - Dignity PLC - Preliminary Results
31/03/2023 07:15
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RNS Number : 9144U Dignity PLC 31 March 2023
For immediate release 31 March 2023
Dignity plc
Preliminary results for the 52-week period ended 30 December 2022
Good operational progress in a changing market
Dignity plc ('Dignity' or 'the Group'), one of the UK's largest national
providers of funeral plans and end-of-life services, announces its preliminary
results for the 52-week period ended 30 December 2022.
Financial highlights
52 week period ended 30 December 2022 53 week period ended 31 December 2021 Increase/
restated
(decrease) per cent
Underlying revenue (£million) 270.5 312.0 (13)
Underlying operating profit (£million) 17.9 55.8 (68)
Underlying (loss)/profit before tax (£million) (10.1) 26.8
Underlying (loss)/earnings per share (pence) (18.6) 42.8
Underlying cash generated from operations (£million) 44.1 88.3 (50)
Revenue (£million) 323.1 353.7 (9)
Operating (loss)/profit (£million) ((1)) (201.1) 19.5
(Loss)/profit before tax (£million) (328.6) 32.0
Basic (loss)/earnings per share (pence) (550.4) 24.2
Cash (used in)/generated from operations (£million) (17.7) 68.3
Trading Group Cash (£million) 7.7 55.9 (86)
Net Debt (excluding impact of IFRS16) (£million) 508.8 471.2 8
Number of deaths 639,000 664,000 (4)
(1) Prior year comparatives have been restated for the 53 week period
ended 31 December 2021 due to a reclassification of foreign exchange
movements. See note 1 for further details.
Alternative performance measures ('APMs')
The Board believes that whilst statutory reporting measures provide financial
performance of the Group under IFRS, APMs are necessary to enable users of the
financial statements to fully understand the trading performance and financial
position of the Group. The APMs provided are aligned with those used in the
day-to-day management of the Group and allow for greater comparability across
periods. For this reason, the APMs provided exclude the impact of
consolidating the Trusts and the changes which relate to the application of
IFRS 15, as well as non-underlying items comprising certain non-recurring and
non-trading transactions. Further detail may be found on pages 51 to 57.
Key points
· The Group continues to make progress in the implementation of its new
strategy. In 2022, market share increased by 0.1 per cent from 11.8 per cent
to 11.9 per cent in funeral services while cremation market share grew 0.5 per
cent from 11.3 per cent to 11.8 per cent. Various factors have resulted in
slower market share growth than originally anticipated such as recruitment
challenges (prior to completing a benchmarking process) and new competition,
though we remain focused on continuing to address these challenges as we move
forward
· Dignity Funerals Limited gained FCA authorisation, a programme
demanding a review of our computer systems, extensive colleague re-training
and a review of recruitment processes. As part of this programme Dignity also
launched a new innovative and market-leading funeral plan in August 2022 for
which, we continue to receive positive feedback from customers. The product is
the first of its kind in the UK enabling customers to tailor their funeral
plan rather than restrict their choices with a limited range of 'packages'
· Dignity continues its commitment to reassuring and supporting
approximately 38,000 'stranded' funeral plan customers from other providers
exiting the market following the introduction of the FCA regulation
· During the year the Group completed an operational restructure and
effectively inverted its business to benefit more from its Business Leaders'
local knowledge
· The Group continues to rationalise the local trading names of
Dignity's funeral directors and has made good progress, reducing the number of
brands to retain only the most prominent and strongest brands. To help support
the growth strategy these brands are being supported by localised marketing
and proactive PR in the pre-need and at-need markets
· The Group's results continue to be impacted by a number of factors,
including proactive changes in pricing strategy, a trend towards lower price
funerals and a variety of cost pressures, some of which Dignity is having to
absorb directly
· Underlying operating profit decreased by 68 per cent to £17.9
million (2021: £55.8 million). Underlying cash generation decreased by 50 per
cent to £44.1 million (2021: £88.3 million). The lower profitability has
reduced liquidity resulting in an increase to Net Debt
· Following a benchmarking process in 2022 it was clear that employee
remuneration in some areas should be increased and during the year, more than
2,500 people in key operational roles duly received increases. Since then, the
Group has seen improvements in its recruitment challenge and a material
improvement in vacancies filled
· As previously noted in the Trading Update dated 23 January 2023, the
Group made planned but required investment in its premises and fleet. Said
investments totalled £24.0 million within the financial year. These
investments can be seen through the Group's capital expenditure programme and
align with the Group's vision to drive forward positive change in the sector
and lead the market on quality of service, value for money and choice
· The Group continues to have a significant need for capital
expenditure to maintain its existing asset base, as well as to invest in
future growth. Given current cash generation, the Group is presently unable to
fund strategic additional capital expenditure from operations and is also
limited in its ability to invest in marketing/advertising and promotions in
order to accelerate growth. The Group therefore continues to draw upon
available resources and facilities to invest in the business and manage
liquidity in the short and medium-term. The Group has drawn £15 million of
its £50.0 million facility with Phoenix UK Fund Ltd (a related party). The
Group expects that £45.0 million of this liquidity facility will be drawn in
2023 to fund ongoing investment, working capital, and advisory fees
· A total impairment of £196.3 million of the Group's non-current
assets has been included following slower funeral market share growth combined
with more branch direct cremations rather than full adult funerals being
performed than originally anticipated
· Operating loss was £201.1 million (2021: profit £19.5 million)
which includes the £196.3 million total impairment
· In relation to Dignity's securitised debt, the Group notes S&P's
ratings downgrade for the Class A and Class B notes on 21 February 2023 (from
A- to BBB- and B+ to CCC+ respectively) and Fitch's ratings downgrade for the
Class A and Class B notes on 17 March 2023 (from A- to BBB and BB+ to B
respectively - with both on ratings watch negative)
· The Group continues to benefit from the bondholder consents secured
in 2022 in the form of the covenant waiver that benefits the covenant
calculations until December 2023 and consent to deleverage the capital
structure to provide additional financial flexibility. The Group has commenced
a process regarding a potential sale of seven crematoria as agreed with
bondholders. This process is currently proceeding in line with planned
timelines but successful completion, and the timing of any such successful
completion, remains uncertain
· The recommended offer for Dignity plc at 550 pence per share by
Yellow (SPC) Bidco Limited ('BidCo') also remains ongoing and remains subject
to FCA change of control approval and shareholder acceptance; BidCo and the
Dignity plc Board will provide updates as required
· As part of the Group's contingency planning processes to ensure it
has an appropriate capital structure and capital available to invest in the
business going forward, and with on-going uncertainty regarding successful
delivery of actions agreed as part of the bondholder consent programme, the
Group continues to review all options, including the possible need to raise
equity finance in order to reduce its debt and improve its capital structure
Kate Davidson MBE, Chief Executive Officer of Dignity plc, commented:
"Throughout a challenging year we have remained focussed on our long-term aims
and have confidence that our strategy will deliver sustainable growth and the
highest standards of care and service to our customers.
We have a continuous emphasis on growing our market share across each of our
businesses, and a commitment to ongoing investment in our people, facilities
and infrastructure to unlock Dignity's long-term success. We will continue to
work towards our vision of being a market leader through our exceptional
service, quality and proposition. We also look forward to meeting the
challenges of a regulated funeral sector, which we have long called for, and
just one example of this is our preparation for the FCA's Consumer Duty, which
puts our customers first by setting out higher standards of governance and
consumer protection.
I would like to thank all our stakeholders; to our customers for their
loyalty, which frequently dates back several generations; to our own people,
whose unique brand of care is so valued by those customers and makes us the
business we are; and to our shareholders, for their support of our strategy
and seeing the clear potential it offers."
For further information please contact:
Kate Davidson, Chief Executive Officer
Dean Moore, Interim Chief Financial Officer
Dignity
plc
+44 (0)20 7466 5000
Chris Lane
Hannah Ratcliff
Verity Parker
Buchanan
+44 (0)20 7466 5000
www.buchanan.uk.com (http://www.buchanan.uk.com)
dignity@buchanan.uk.com (mailto:dignity@buchanan.uk.com)
Dignity's preliminary results are available at
https://www.dignityplc.co.uk/investors/
(https://www.dignityplc.co.uk/investors/) .
Chairman's statement
Giovanni ('John') Castagno, Non-Executive Chairman
Post lockdown, we returned to a more regular working pattern - but also in the
knowledge that we needed to address major tasks on multiple fronts.
Regulation, modernisation, internal re-organisation and new financial
structures were all pressing imperatives, and we continue to rise to these
challenges with energy and purpose. We also continued to implement our new
strategy and saw early signs of growth in market share.
These accomplishments will lay the foundations for future growth, but our
market is subject to structural change which has impacted our financial
performance.
Overview of 2022
Despite the higher-than-average need for our services persisting following the
COVID-19 pandemic, the Group's results continue to be impacted by a number of
factors, including proactive changes in pricing strategy, a trend towards
lower-priced funerals and a variety of cost pressures, some of which Dignity
is having to absorb directly.
We continue to make progress in the implementation the new strategy, but
various factors have resulted in slower market share growth than originally
anticipated.
Furthermore, excluding the impact of lower promotional expense, the cost base
of the Group increased due to planned investments across the estate and in
facilities, as well as ongoing increases in regulatory and operational costs
which were partly driven by macroeconomic factors.
As a result, key financial metrics saw a decline as follows:
· Underlying revenue £270.5 million (2021: £312.0 million).
· Revenue £323.1 million (2021: £353.7 million).
· Underlying operating profit £17.9 million (2021: £55.8 million).
· Operating (loss)/profit £(201.1) million (2021 restated: £19.5 million)
which includes £196.3 million total impairment (2021: £39.2 million) and
£6.4 million trade name write-offs (2021: £2.5 million).
· Underlying operating profit before depreciation and amortisation
(pre-IFRS 16) £34.2 million (2021: £72.5 million).
· At the end of 2022, the Group held £7.7 million in Trading Group cash on
the balance sheet (resulting in a net debt position, excluding the impact of
IFRS16, of £508.8 million) (2021: £55.9 million and £471.2 million).
The Group continues to benefit from the previously secured bondholder consents
in the form of the covenant waiver, and consent to deleverage the capital
structure, which remain valid until March 2023 and September 2023
respectively. We can inject cash up to March 2023 that can be used as equity
cure to December 2023.
For further details, please turn to our Financial review.
We gained full FCA authorisation
Perhaps the biggest single piece of work we accomplished during the year was
to prepare for the major reforms being introduced by the FCA. Effective from
July 2022, every company in our sector had to be FCA authorised to market
funeral plans.
To gain this full authorisation was a huge project, demanding different
behaviours, new systems and documentation, a new pre-need proposition, fresh
recruitment processes and extensive re-training.
FCA authorisation was a task that placed demands right across the Group, in
addition to the absolute priority of caring for our customers, but I'm proud
of how everyone approached it positively and viewed it as an opportunity to
raise our standards even further. After major programmes of introducing new
processes, including those for identifying customer vulnerabilities, we duly
gained the required compliance for pre-arranged funeral plans. These new
processes are now bedded in our culture and working practices.
It is fair to say the new regulatory regime had a significant effect on
funeral planning and has resulted in certain leading providers choosing to
withdraw from this part of the market. This was the catalyst for a second
significant piece of work: in order to maintain stability and consumer
confidence in the sector, Dignity committed to helping customers of those
providers who chose not to apply or did not meet the standards required by FCA
regulation by offering the option to transfer to a Dignity plan ('Rescue
plans'). This process of transitioning these Rescue plans is still continuing.
I'm proud of how we've responded, and we welcome the outcome: a market that,
like us, puts customers' best interests first.
In 2023 there is more to come but the Group is well set to meet these
challenges. The FCA will require further work on Consumer Duty, which, from
July 2023, sets out higher standards of governance and customer protection in
the form of outcomes-related measurements. We are also mindful of possible
additional requirements from the Competition and Markets Authority ('CMA') on
clear and transparent pricing.
Environmental, Social and Governance
As a Board we are united in believing that a company that has a genuine focus
on Environmental, Social and Governance ('ESG') will inherently be a better
business.
In addition to being the right path to take, having high ESG standards earns
the approval of customers, and helps to attract new talent and retain current
colleagues. It also satisfies the increasing scrutiny of investors, financial
institutions, regulators and supply chain partners.
We therefore look hard at, and measure, our own ESG performance and always
seek to improve on it. For example, during the year, we have drawn up plans to
deploy the world's first hybrid crematorium technology, and to phase in
electric hearses to reduce the impact of the many miles we need to drive. Our
coffin manufacturing business also asks searching questions about the most
sustainably sourced woods and strives to make optimal use of raw materials. We
also recently made capital investment in our manufacturing business designed
to reduce energy and waste.
More widely in the business, our overall gender split is very close to 50/50,
and women hold 41 per cent of our leadership roles. I'm a passionate believer
in diversity in all its forms, whether in our people's backgrounds, thinking,
ethnicity or life experiences.
Our goal is to create a richer working culture, and to mirror internally the
communities we serve externally.
Restructuring, upgrading, improving
As the operational pressures resulting from the pandemic period started to
ease, we could see the improvements that needed to be made in our operating
model.
We have a considerable estate of 725 funeral branches and 46 crematoria, and
it was evident we needed to launch a major programme of improvement. This was
not just a question of remedial works, but how we can position our business
for the future using the most sustainable technologies, materials and methods
available.
During the year we also revised our regional management structure to give
greater attention to individual areas, and effectively inverted our business
to benefit more from our Business Leaders' local knowledge.
Culturally, we continued to embed our new Guiding Principles which set out how
we care for our customers, communities, ourselves and the planet. Financially,
we are making progress with our bondholders to arrive at a solution that will
generate capital to enable us to pay down our debt and invest in delivering
our strategy. We will be announcing more detail during the coming year.
The Dignity Board
I'm pleased to report that there was continuity and smooth succession in the
Board membership. During 2022 we continued to benefit from diverse, creative
and complementary skills around the table.
Graham Ferguson and Kartina Tahir Thomson continued as independent
Non-Executive Directors and Chairs of the Audit, Remuneration and Risk
committees.
During the year, Kate Davidson, who joined the Board as Chief Operating
Officer in January 2022, succeeded Gary Channon as CEO in June 2022. The Board
would like to thank Gary for his tremendous contribution to the business
during his time as CEO.
It had been our intention to appoint a new Chief Financial Officer in the
early part of 2023, but in view of a takeover bid for the business, more of
which below, the Board decided it would be appropriate to put the process on
hold.
Dividend policy
It is the Directors' intention to return to paying a dividend when it is
prudent to do so. We retain access to cash resources, continue to be on track
to return to being cash generative and understand the importance of optimising
total shareholder return whilst maintaining a balance between different
stakeholders.
We look forward to restoring the dividend, which was last paid in June 2019,
when the business has returned to a more sustainable financial footing.
Recommended takeover offer
On 23 January 2023, the Board announced that it had reached agreement on the
terms of a recommended cash offer for the Dignity business. The offer has been
made by Yellow (SPC) Bidco Limited ('BidCo'), a consortium comprising SPWOne V
Limited, Castelnau Group Limited and Phoenix Asset Management Partners
Limited. The document detailing the key terms of the 550 pence per share cash
offer and alternatives was published on 14 February 2023. The Board was
unanimous in recommending the cash offer. At the time of preparing this
report, the offer remains conditional on, among other things, regulatory
approval.
2023
We go into 2023 with confidence that we will continue to deliver on our
strategy, the implementation of which was slower than anticipated in 2022
owing to the highly challenging macro environment.
Our financial performance will continue to be affected by a combination of
factors. These include competition (driven by new entrants and products
emerging), changes in pricing strategy (driven by the influence of the CMA),
and the introduction of a direct cremation service through Dignity's branch
network, the growth of the latter being what we believe to be a structural
change in the sector. We expect that Dignity will continue to face cost
pressures in relation to capital expenditure to maintain its existing asset
base, as well as to invest for growth. Given current cash generation, Dignity
is limited in terms of further capital expenditure and, as a result, its
ability to invest in advertising and promotions to accelerate growth.
Notwithstanding the above, we continue to have ambitions for market share
growth across our business units; investing in our infrastructure; reviewing
and improving our capital structure; remaining competitive through our
propositions and pricing; and building on our good relations with our
Regulators.
Above all we will build on our commitment to continue to improve the service
we provide to our customers and their families.
I would like to record my thanks to all our colleagues whose dedication to
our customers is recognised and appreciated by all.
Finally, on behalf of the Board I would like to offer congratulations to Kate
Davidson. As well as being appointed our new Chief Executive Officer, she
became an MBE in the New Year Honours List for her Services to Bereaved People
during COVID-19. We know how well deserved this recognition is and are proud
that our CEO has been honoured in this way.
GIOVANNI (JOHN) CASTAGNO
NON-EXECUTIVE CHAIRMAN
30 March 2023
Chief Executive Officer's review
Kate Davidson, Chief Executive Officer
Thankfully, 2022 was the first full year of a return to something approaching
normality. With the post-lockdown rules now eased we could once again focus on
what we do best: delivering funerals meticulously with every care for bereaved
families, helping them to celebrate the life of a loved one in the most
personal of ways.
The year also marked changes on several fronts for Dignity plc: from the way
we structure ourselves and invest in our assets, to embracing the rigours of
full consumer financial regulation.
These factors, and many others, play into delivering our growth strategy,
which we launched in September 2021. In essence, the strategy focuses on four
key areas: creating the best proposition, perfecting a customer-centric
culture; executing an effective customer acquisition strategy; and leveraging
the benefits of our scale and breadth.
Notwithstanding the above and as our Chairman alludes to in previous pages, we
remain alive to the factors and ongoing challenges (e.g. competition,
proactive changes in pricing strategy, trend towards lower price funerals and
cost pressures arising from capital expenditure requirements, employee costs
and energy prices etc) which have contributed to a slower implementation of
Dignity's new strategy than originally anticipated. These have inevitably
impacted our financial performance for 2022, but we remain optimistic that
good progress will continue to be made on the new strategy.
'Handing over the keys'
Perhaps our most significant move during 2022 was the decision to effectively
turn our business upside down.
As a UK-wide network of firms, we have no 'typical' operating markets. From
St Ives or Norwich to Newcastle or Glasgow, the individual demographics,
customs and geographies of each are unique, as are the people and families we
look after. As such, we decided it was vital that services, pricing and the
approach and character of each business should be locally driven.
Therefore, we began a process of entrusting the more locally driven decisions
to the experts - our local Business Leaders - empowering them to exercise
their initiative and have more control over how they run their business and
serve their communities.
They are supported by a Head of Region, who as part of a new regional
structure will ensure colleagues across our network receive the right level
of resource and support to build their business successfully.
And then at head office, we see our role as serving the operational force of
the business by setting out the group-wide strategy and facilitating an
environment where knowledge and best practice can be shared, supporting our
colleagues and businesses to be the best that they can be.
Rationalising our brands
Part of this local focus has been a project to encourage our regions to
reappraise our brands.
Inside the Dignity network there are some of the oldest and most trusted
funeral businesses in the UK, but by 2022 we had amassed an unwieldy number.
It is also a recipe for some confusion. In a large city, it had become common
for Dignity to offer several different brands within a radius of a few miles.
During the year, our local teams made plans to reduce the number of trading
names which will result in many local firms being renamed to the most
prominent and strongest brands in their areas.
Dignity sits behind these local assets as a national brand: a reassuring
presence and a byword for trust, experience and standards.
Culture: the key to customers
This greater sense of local empowerment also feeds into a proud and caring
Company culture.
If a business strategy is the 'what' we are doing, culture is the 'how' and
the 'why'. In our case, that culture starts with an unwavering focus on our
customers. By being empathetic in our approach and generous with our time to
listen and guide, we aim to become a much-needed friend at a desperately
upsetting time.
We combine this with a passion - obsession, even - for initiative and
efficiency, because there are no second chances to make a funeral perfect. In
turn, it is our goal that customers will encounter the same excellence at
every Dignity touchpoint and, crucially, be moved to recommend us to others.
Internally, our work can bring many pressures, and looking after each other,
as well as our customers, is deep-rooted in our culture. Every area has
trained Mental Health First-Aiders, as well as the option for specialist and
confidential help externally.
Authorisation attained
On the previous pages, our Chairman explains how all firms offering funeral
plans in our sector must now be fully authorised by the FCA. We were
delighted to gain this status in July 2022, following a company-wide
requirement to reconfigure processes and re-train in many functions. This was
a huge task and I thank everyone who contributed to make it happen.
We therefore needed little encouragement, a matter of days later, to announce
a brand new funeral plan. It is a product of real creativity and the result
of listening closely to our customers, and does away with old-style funeral
'packages'. Rather, this exciting product - the first of its kind in the UK -
enables customers to design a deeply personalised funeral down to the very
last detail. We're delighted with the impact our new product is having,
even in the early days.
Environmental, Social and Governance
It was back in 2010 that we started Carbon Disclosure Project environmental
reporting, so the impact of our operations has long been front of mind.
Indeed, we were the first end-of-life provider to pledge to be carbon neutral,
in our case by 2038. It is a deliberately ambitious target and calls for
measurable actions now. We are therefore actively assessing how we can address
the principal sources of our emissions - namely, the miles we drive in
conducting funerals, and the energy consumption of our crematoria and funeral
branches.
More widely, we create high-quality employment for more than 3,500 people;
offer everyone the equal opportunity to be recruited, promoted and trained;
and are active contributors to important social and charitable causes, and
life-enhancing projects.
Only Dignity offers a complete suite of funeral plans, funerals, cremations,
memorials and our own coffin-manufacturing facility, so we are uniquely placed
to take the lead in our sector.
2023: a full agenda
After a period of considerable change in 2022, at both the local and national
level, we embark on the new financial year refocused and ready to make
significant progress which will address or mitigate some of the factors and
challenges referred to earlier:
· Our locally empowered Business Leaders will continue to maximise their
local knowledge, supported by our know-how and economies of scale.
· We will continue a multi-million-pound investment programme to upgrade
our crematoria facilities and grounds.
· We will remain focused on our long- term aim to increase market share.
· We will assess new energy-efficient technologies and phase in electric
vehicles for our funeral fleet.
· We will embed our new quality standards.
· We will support our new and unique funeral plan with a major above the
line marketing campaign.
· Work is well under way and on target to meet the introduction of the
Consumer Duty by the FCA, which sets higher and clearer standards of consumer
protection.
Meanwhile, I would like to record my thanks to all our stakeholders. To our
customers for their loyalty, which frequently dates back several generations.
To our own people, whose unique brand of care is so valued by those customers
and makes us the business we are. And finally to our shareholders, for their
support and trust in our new strategy.
KATE DAVIDSON, MBE
CHIEF EXECUTIVE OFFICER
30 March 2023
Financial review
Dean Moore, Interim Chief Financial Officer
Our performance in 2022 reflects the continued implementation of our strategy,
albeit at a slower rate than anticipated. Underlying operating profit
decreased by 68 per cent to £17.9 million. Deaths were 25,000 lower in the
period.
Our market share slightly increased in funeral services and there was a strong
market share performance by our crematoria business.
Underlying cash generation has declined in the year to £44.1 million (2021:
£88.3 million) due to lower average revenues, as a result of the reduced
prices and change in product mix, lower deaths and an increase in the cost
base.
Introduction
These results have been prepared in accordance with UK-adopted international
accounting standards in conformity with the requirements of the Companies Act
2006.
Statutory operating loss was £201.1 million (2021: restated profit of £19.5
million), a decrease of £220.6 million. Gross margin has also declined by 12
per cent from prior year to 39 per cent. Administrative expenses of £324.5
million were £168.1 million higher, largely driven by an increased
impairment charge of £157.1 million on goodwill, trade names, right-of-use
asset and property, plant and equipment compared with prior year and an
increase in other non-underlying items, primarily in respect of £2.9 million
incurred on redundancy costs, £2.5 million on transition costs of moving
Rescue plans over to Dignity in the form of professional fees and third party
administration costs, a £6.7 million increase in transactions costs due to
the fees incurred on the capital structure transaction and potential takeover
and an increase in trade name write-offs of £3.9 million. Furthermore, an
onerous contract provision of £10.0 million has been recognised on the Rescue
plans and a further £3.6 million provision relating to previous plan sales.
Utility costs have also increased by £1.1 million due to energy prices.
This was partially offset by a reduction in underlying central overheads of
£6.8 million primarily relating to digital expenditure and salary costs.
See the table on page 9 for further details on the impacts to statutory and
underlying operating profit.
A total impairment of £196.3 million has been charged in the period (2021:
£39.2 million), of which £47.5 million (2021: £2.8 million) relates to
trade names, £112.3 million (2021: £36.4 million) to goodwill, £17.4
million to right-of-use asset (2021: £nil) and £19.1 million to property,
plant and equipment (2021: £nil). The impairment has arisen within the
funeral services division primarily due to the slower funeral market share
growth combined with more direct branch cremations rather than attended
funerals being performed than originally anticipated, together with an
increase in the discount rate from 10.3 per cent to 12.9 per cent since
December 2021. The slower market share growth is a result of the new strategy
taking longer to implement partly due to staff shortages encountered during
2022. The Group has filled a high percentage of vacancies over the last few
months and has also increased salaries within operations to become more
competitive in the market, but focus remains on filling the remaining
vacancies.
Whilst the Group expects long-term market share growth from the new strategy,
the accounting standard (IAS 36) for impairment assessments does not permit
the use of longer-term forecasts which cannot be evidenced. As a result,
whilst the Group is focused on committing to delivering its market share
growth ambitions, given the slower time taken in the implementation of
the Group's strategy and the available evidence to demonstrate this growth
as at the year end when the impairment assessment is made, the full extent of
potential longer-term gains are not reflected in the impairment modelling.
Note 6 provides sensitivity analysis based on the calculated impairment.
A £13.6 million (2021: nil) charge to cost of sales has been recognised on
consolidation relating to pre-need funeral plans. This includes £10.0 million
relating to Rescue plans and £3.6 million for previous plan sales. This is
primarily due to an onerous contract provision of £8.9 million for Rescue
plans, where at an individual contract level some of the plans could be loss
making as Dignity will not have received sufficient cash to cover the full
cost of the funeral. However, the Board expects the Rescue plans to be
profitable on a portfolio basis. Note 1 provides further information. The
Group's net finance costs were £127.5 million (2021 restated: net finance
income £12.5 million), a £140.0 million movement primarily due to the loss
on fair value movements of the financial assets held by the Trusts of £57.7
million compared with a gain of £85.0 million in 2021.
The above has resulted in loss before tax for the Group of £328.6 million
(2021: profit of £32.0 million).
Financial highlights
The Group's financial performance is summarised below:
52 week period ended 30 Dec 2022 £m 53 week period ended 31 Dec 2021 restated((b) Increase/
) £m
(decrease)
%
Underlying revenue((a)) (£ million) 270.5 312.0 (13)
Underlying operating profit((a)) (£ million) 17.9 55.8 (68)
Underlying operating profit before depreciation and amortisation (Pre IFRS 34.2 72.5 (53)
16)((a)) (£ million)
Underlying (loss)/profit before tax((a)) (£ million) (10.1) 26.8
Underlying (loss)/earnings per share((a)) (pence) (18.6) 42.8
Underlying cash generated from operations((a)) (£ million) 44.1 88.3 (50)
Revenue (£ million) 323.1 353.7 (9)
Operating (loss)/profit (£ million) (201.1) 19.5
(Loss)/profit before tax (£ million) (328.6) 32.0
Basic (loss)/earnings per share (pence) (550.4) 24.2
Cash (used in)/generated from operations (£ million) (17.7) 68.3
Dividends paid in the period:
Final dividend (pence) - -
(a) Further details of alternative performance measures can be found
on pages 51 to 57.
(b) Prior year comparatives have been restated for the 53 week period
ended 31 December 2021 due to a reclassification of foreign exchange
movements.
See note 1 for further details.
Alternative performance measures
The alternative performance measures are stated before non-underlying items
and the effect of consolidation of the Trusts and applying IFRS 15 as defined
on page 51. These items have been adjusted for in determining underlying
measures of profitability as these underlying measures are those used in the
day-to-day management of the business and allow for greater comparability
across periods.
Detailed information on non-underlying items is set out on pages 51 to 57 and
a reconciliation of statutory revenue to underlying revenue is detailed in
note 2.
Accordingly, the following information is presented to aid understanding of
the performance of the Group:
52 week period ended 30 Dec 2022 £m 53 week period ended 31 Dec 2021 restated((a)
) £m
Operating (loss)/profit for the period as reported (201.1) 19.5
Add the effects of:
Acquisition related amortisation 3.9 4.2
External transaction costs in respect of completed and aborted and ongoing 9.1 2.6
transactions
Marketing costs in relation to trials - 0.9
(Loss)/profit on sale of fixed assets 0.1 (1.1)
Trade name write-off 6.4 2.5
Trade name impairment 47.5 2.8
Goodwill impairment 112.3 36.4
Right-of-use asset impairment 17.4 -
Property, plant and equipment impairment 19.1 -
Rescue plan transition costs 2.5 -
Restructuring costs - redundancy 2.9 -
Restructuring costs - onerous provision 0.3 -
Impact of Trust consolidation and IFRS 15 (2.5) (12.0)
Underlying operating profit 17.9 55.8
Underlying net finance costs (28.0) (29.0)
Underlying (loss)/profit before tax (10.1) 26.8
Tax charge/(charge) on underlying (loss)/profit before tax 0.8 (5.4)
Underlying (loss)/profit after tax (9.3) 21.4
Weighted average number of Ordinary Shares in issue during the period 50.0 50.0
(million)
Underlying EPS (pence) (18.6) 42.8
Decrease in underlying EPS (per cent) - 8
(a) Prior year comparatives have been restated for the 53 week period
ended 31 December 2021 due to a reclassification of foreign exchange
movements. See note 1 for further details.
Earnings per share
Statutory loss after tax was £275.2 million (2021: profit of £12.1 million).
Basic loss per share was 550.4 pence per share (2021 earnings of 24.2 pence
per share). Underlying loss after tax was £9.3 million (2021: profit of
£21.4 million), giving underlying loss per share of 18.6 pence per share
(2021: earnings of 42.8 pence per share).
Items excluded from underlying operating profit
Amortisation of acquisition related intangibles
Amortisation of acquisition related intangibles reflects the write-off of
acquired intangibles over the term of their useful life.
External transaction costs
External transaction costs primarily reflect amounts paid to external parties
for legal, tax and other advice in respect of the Group's acquisitions,
unsuccessful crematoria planning developments and capital restructuring
project.
(Loss)/profit on sale of fixed assets
Losses or profits arising from the sale of fixed assets (net of any insurance
proceeds received) are excluded as they are unconnected with the
trading performance in the period.
Trade name write-off
During 2022 the Group has made the decision that it will withdraw 20 (2021:
seven) trading names with a value of £6.4 million (2021: £2.5 million) as
part of the Group's strategic review. As the trading names had specific
intangible assets related to them, they were required to be written off.
Impairment
The Group assessed the carrying value of its goodwill and non-current
assets. In light of the slower market share growth and the impact on forward
looking cash flows, coupled with an increase in the discount rate from
10.3 per cent to 12.9 per cent, an impairment of £47.5 million of trade
names (2021: £2.8 million), £112.3 million of goodwill (2021: £36.4
million), £17.4 million of right-of-use asset (2021: £nil) and £19.1
million of property, plant and equipment (2021: £nil) has been recognised.
Rescue plan transition costs
In addition to helping Safe Hands customers, the Group has also committed to
helping customers of other funeral plan providers that chose not to apply or
did not meet the standards required by FCA regulation by offering the option
to transfer to a Dignity plan. As part of this transfer, the Group has
incurred additional costs of £2.5 million in the form of professional fees
and third party administration costs. To date no Safe Hands customers have had
plans transferred to a Dignity Trust as the support offered to these
customers has been on delivery of a funeral at the time of need.
Restructuring costs - Redundancy
As part of the continuing strategic review, in January 2022, the Group made
the decision to make some colleagues redundant. Furthermore, as part of the
local restructure, further roles within the operational business were made
redundant.
Restructuring costs - Onerous provision
As part of the ongoing operational restructure to streamline branches,
the Group has incurred additional onerous provisions.
Trust consolidation/IFRS 15
In 2019 the Group changed its accounting policy to consolidate the Trusts and
to implement IFRS 15. This adjustment reverses the impact of these policy
changes in order to maintain underlying performance measures with those used
in the day-to-day management of the business.
This includes reversal of a £13.6 million (2021: nil) charge to cost of sales
recognised on consolidation relating to Rescue plans and previous plans. Note
1 to the consolidated financial statements includes further information.
Capital expenditure
Capital expenditure on property, plant and equipment and intangible assets was
£29.7 million (2021: £21.0 million).
This is analysed as: 30 Dec 2022 31 Dec 2021
£m £m
Maintenance capital expenditure:
Funeral services 16.9 10.5
Crematoria 5.5 5.4
Other 2.0 1.7
Total maintenance capital expenditure((a)) 24.4 17.6
Other property development 2.4 0.1
Development of new crematoria and cemeteries 2.2 3.3
Development of intangible assets 0.7 -
Total property, plant and equipment 29.7 21.0
Partly funded by:
Disposal proceeds - properties((b)) (0.1) (1.2)
Disposal proceeds - vehicles (0.2) -
Net capital expenditure 29.4 19.8
(a) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other tangible and
intangible assets.
(b) Property disposals in 2021 includes £0.8 million of insurance
proceeds received.
The Group will continue to invest in the maintenance of its existing
portfolio of vehicles and funeral and crematoria locations.
Cash flow and cash balances for the Trading Group
Underlying cash generated from operations was £44.1 million (2021: £88.3
million).
Other working capital changes were consistent with the Group's experience
of converting profits into cash, subject to timing differences and cash
incurred in respect of commission payments.
Cash balances of the Trading Group at the end of the period were £7.7
million (2021: £55.9 million). Further details and analysis of the
Group's cash balances are included in note 7.
Pensions
The balance sheet shows a deficit of £10.8 million before deferred tax (2021:
deficit of £19.7 million). The scheme currently represents an annual cash
obligation of £4.5 million.
Taxation
The Group's effective tax rate on underlying profits in the period was 7.9 per
cent (2021: 20.2 per cent). The current period underlying effective tax rate
is lower than the standard rate of corporation tax due to the effects of
permanent disallowables with a tax impact totalling £1.1 million. The
underlying effective tax rate is lower than originally anticipated due to the
effects of permanent disallowables.
The Group's statutory effective tax rate on losses is 16 per cent (2021: tax
rate on profits 62 per cent) which is higher than the underlying effective
tax rate primarily due to disallowable taxation on non-underlying items and
taxation in relation to the Trusts.
Prior year restatements
Classification of hedging/foreign exchange differences arising on financial
assets held by the Trust has been restated for the 53 week period ended 31
December 2021 to remove the charge amounting to £1.7 million out of
administrative expenses and more appropriately included within remeasurement
of financial assets held by the Trusts and related income.
The amount charged to the consolidated income statement for impairment of
trade receivables during the period to 31 December 2021 was £3.7 million
which was presented within administrative expenses has now been presented
separately on the face of the consolidated income statement. See note 1 for
further details.
Capital structure and financing for the Trading Group
Following the Noteholder consent on 29 September 2022, the Group continues to
work through the capital transaction to inject a minimum of £70.0 million
into the Securitisation Group to partially repay at full make-whole level
(compensating Noteholders for the present value of future cash flows
discounted at Gilts +50 basis points) some of the Class A Notes outstanding in
consideration for trading assets leaving the Securitisation Group (freehold
land and buildings and long leasehold land is held outside the Securitisation
Group). This will result in a deleveraging of the Group and a positive impact
on the underlying financial ratios and covenant calculations. Funds for this
injection are expected to be realised from a capital transaction relating to
the sale of certain crematoria assets but the agreement with bondholders does
not limit where the funds come from.
Loan facility
Dignity plc has a £50.0 million facility that was signed on 6 December 2022
and was amended and restated on 19 January 2023. The facility has been offered
by Phoenix UK Fund Ltd which is a related party. It has no restrictive
covenants, no minimum solvency covenants and no charges over any assets and
therefore no negative impact on the Group's existing capital structure. It
carries an interest rate of seven per cent. The facility is available until 5
December 2023 and can be drawn in instalments providing the appropriate notice
is given, there are no other restrictions on drawing this facility. Any
drawdown of this facility will not impact on the debt covenant calculations.
On 2 March 2023, a drawdown of £5.0 million was made from the facility and a
further £10.0 million was drawn on 30 March 2023.
Secured Notes
The Group's principal source of long-term debt financing is the Secured A
Notes and the Secured B Notes. The principal is repaid completely over the
life of the Secured Notes and is therefore scheduled to be repaid by 2049. The
interest rate is fixed for the life of the Secured Notes and interest is
calculated on the principal.
The key terms of the Secured Notes are summarised in the table below:
Secured A Notes Secured B Notes
Total new issuance at par £238.9 million £356.4 million
Legal maturity 31 December 2034 31 December 2049
Coupon 3.5456% 4.6956%
Rating by Fitch BBB B
Rating by Standard & Poor's BBB- CCC+
The Secured Notes have an annual debt service obligation in 2023 (principal
and interest) of circa £33.2 million. Net carrying amounts owing on the
Secured Notes are £516.1 million (2021: £526.6 million).
It is not currently possible to issue further Secured Notes, as such an issue
would require the rating of the Secured B Notes to raise to BBB by both
rating agencies.
Financial covenant
The Group's primary financial covenant under the Secured Notes requires EBITDA
to total debt service to be above 1.5 times.
During the temporary covenant waiver period that was approved by bondholders
in March 2022, any cash transferred into the Securitisation Group during the
waiver period (up to 31 March 2023) can be included within the EBITDA to debt
service covenant ratio for the following 12 months. As a result, any cash
transferred during 2022 will be included in the quarterly covenant
calculations to September 2023 and any cash transferred in the first quarter
of 2023 can be included in the quarterly covenant calculations to December
2023.
A cash transfer of £34.1 million has been made for the covenant measurement
point up to and including 31 December 2022, resulting in a ratio of 1.96 times
(2021: 2.13 times) at 30 December 2022. Excluding this cash transfer the ratio
at 30 December 2022 was 0.95 times (2021: 2.13 times). The total debt service
used within the above ratios at 30 December 2022 was £33.9 million (2021:
£34.0 million).
EBITDA for this calculation can be reconciled to the Group's statutory
operating profit as follows:
30 Dec 2022
£m
EBITDA per covenant calculation - Securitisation Group 32.3
Add: EBITDA of entities outside Securitisation Group 2.8
Add: Impact of IFRS 16 12.1
Less: Non-cash items((a)) (0.9)
Underlying operating profit before depreciation and amortisation - Group 46.3
Underlying depreciation and amortisation (28.4)
Non-underlying items (221.5)
Impact of Trust consolidation and IFRS 15 2.5
Operating loss (201.1)
(a) The terms of the securitisation require certain items (such as
pensions, Save As You Earn Scheme and Long-Term Incentive Plan Scheme costs)
to be adjusted from an accounting basis to a cash basis.
If this primary financial covenant is not achieved, then this may lead to an
Event of Default under the terms of the Secured Notes, which could result in
the Security Trustee taking control of the Securitisation Group on behalf of
the Secured Note holders. Refer to note 13 for further details.
This covenant calculation uses a prescribed definition of EBITDA detailed in
the loan documentation and only represents the profit of a sub-group of the
Group which is party to the loans (the 'Securitisation Group'). Furthermore,
the calculations are unaffected by the consolidation of the Trusts or the
application of IFRS 15 and IFRS 16 described elsewhere, as the Group was able
to elect to disregard those changes when making the calculations.
Whilst not a covenant, in order for the Group to transfer excess from the
Securitisation Group to Dignity plc, it must achieve both a higher EBITDA to
total debt service ratio of 1.85 times and achieve a Free Cash Flow to total
debt service (a defined term in the securitisation documentation) of at least
1.4 times. This latter ratio at December 2022 was 0.58 times (December 2021:
1.76 times).
These combined requirements are known as the Restricted Payment Condition
('RPC'). Given the ratios achieved, the RPC was not achieved at December 2022.
Failure to pass the RPC would not be a covenant breach and would not cause an
acceleration of any debt repayments. Any cash not permitted to be transferred
whilst the RPC is not achieved will be available to be transferred at a later
date once the RPC requirement is achieved but otherwise can be used within
the Securitisation Group with no restrictions.
Cash Return on Core Capital
In the 2021 Annual Report we introduced a measure we call Cash Return on Core
Capital ('CROCC'). In December 2022 the CROCC fell to negative 4.2 per cent
(December 2021: positive 9.7 per cent). The fall in 2022 reflects the reduced
underlying operating profit and higher capital expenditure offset by lower
cash tax payments. See alternative performance measures on page 56 for how it
is calculated and why we use it.
Net debt
The Trading Group has underlying net debt of £508.8 million (2021: £471.2
million) at the balance sheet date. See note 10 for further details.
Should the Group wish to repay all amounts due under the Secured Notes,
the cost to do so at the year end would have been approximately £524.3
million (Class A Notes: £160.0 million; Class B Notes: £364.3 million)
(2021: £757.4 million (Class A Notes: £202.8 million; Class B Notes: £554.6
million)).
Net finance costs
The Group's underlying finance costs substantially consist of the interest on
the Secured Notes and ancillary instruments. The net finance cost in the
period relating to these instruments was £23.3 million (2021: £23.7
million).
Other ongoing underlying finance costs incurred in the period amounted to
£0.3 million (2021: £0.8 million), covering the unwinding of discounts on
the Group's provisions and other financial liabilities.
The Group also incurred £4.4 million (2021: £4.5 million) lease liability
interest, under IFRS 16, giving a total underlying net finance cost of £28.0
million (2021: £29.0 million).
Shareholders' deficit
Consolidating the Trusts and applying IFRS 15 has a significant impact on our
reported results. The recognition of contract liabilities (the majority of
which are expected to fall due after one year) in excess of the Trusts'
financial assets has caused the Group's balance sheet to show an overall
deficit in shareholders' funds.
On consolidation of the Trusts, all funds received from the plan members are
deferred until recognised on satisfaction of a funeral obligation or when a
plan is cancelled and refunded (subject to an administrative fee). These
deferred funds increase under IFRS 15 by a material non-cash significant
financing charge. The assets of the Trusts, initially representing the same
funds received from plan members less an amount paid to the Trading Group to
cover marketing costs, are invested by the Trusts and are subject to market
movements. Over time, investments are also realised to fund funeral payments
or refund obligations. The net impact of the above gives rise
to a significant reduction in the net asset value of the Group to a position
where the Group has reported a net deficit of £422.2 million (2021: £151.1
million). Whilst this position appropriately reflects the application of IFRS
15 to the underlying contract with the plan member, based on the current cost
of delivery of a funeral service, delivery of pre-need funerals is expected to
result in the future recognition of profits under IFRS, which, over time,
the Directors consider would more than eliminate the deficit noted above.
This deficit, which only arises on consolidation, has no impact on the Group's
future ability to pay dividends to shareholders, which relies on the reserves
in the Company and not the Group.
The Trusts
At the balance sheet date, the Trusts had £957.3 million (2021: £1,043.1
million) of financial assets and £9.4 million (2021: £19.8 million) of
cash, which was recognised in the consolidated balance sheet. See note 8 of
the consolidated financial statements for further information on the
investment strategy of the Trusts.
The average net Trust assets per plan (excluding Rescue plans) of £3,444
(2021: £3,650) is a decrease of six per cent. Rescue plans are not included
in this average as no assets have transferred over to the Trusts at 30
December 2022. Rescue plans are discussed in more detail on pages 25 and 26.
The Trust consolidation includes a provision of £13.6 million in relation to
funeral plans. This includes £3.6 million relating to previous funeral plans
and £10.0 million relating to Rescue plans. The provision for Rescue plans is
comprised of an onerous contract provision of £8.9 million and a provision
for the Dignity Promise of £1.1 million, see note 1 for further details.
Whilst the Group expects a commercial benefit overall from the Rescue Plans,
at an individual contract level some of the plans could be loss making, where
Dignity does not receive sufficient cash to cover the full cost of the
funeral. As such, we have taken a prudent approach and provided for these
potential future losses until we have certainty over the asset recoverability
from the previous providers. If the assets values are higher than currently
recognised in the onerous contract assessment then the £8.9 million provision
would reduce.
The movement in financial assets is primarily attributable to remeasurement
losses recognised in the consolidated income statement of £57.7 million
(2021: gains of £85.0 million), reflecting changes in asset values and net
disposals of financial assets of £37.0 million (2021 net disposals of
financial assets: £12.2 million).
Aggregated contract liabilities totalled £1,316.4 million (2021: £1,337.5
million) with the primary movements being sales of new plans of £46.5
million (2021: £86.3 million), increases due to significant financing of
£50.9 million (2021: £51.6 million) and releases due to death or
cancellation totalling £118.5 million (2021: £117.9 million).
Going concern
The Group's consolidated financial statements are prepared on a going concern
basis although, there is a material uncertainty with respect to covenant
compliance and the implications thereof see note 13 for further details.
Publication of unaudited financial information
On 23 January 2023, the Group issued a trading update for the 52 week period
ended 30 December 2022. The table below compares the estimates in that
statement (which were published as "expected to be no more than", i.e., a
ceiling amount) to the audited financial statements.
52 week period ended 52 week period ended
30 December 2022 estimated ceiling as at 23 January 2023 30 December 2022
£m audited
£m
Underlying revenue 275.0 270.5
Underlying operating profit ((1)) 20.0 17.9
Underlying operating profit before depreciation and amortisation (pre-IFRS 16) 37.0 34.2
(1) Underlying operating profit is more than 10 per cent (being 10.5 per cent)
lower than the ceiling amount as estimated at 23 January 2023 following
finalisation of the Group's financial reporting processes.
Outlook
The Group continues to embed the new strategy which has empowered colleagues.
This should deliver long-term growth.
Divisional performance
Introduction
Operating segments are reported in a manner consistent with internal reporting
provided to the chief operating decision maker who is responsible for
allocating resources and assessing performance of the operating segments. The
chief operating decision maker of the Group has been identified as the two
Executive Directors.
For statutory purposes the Group has two reporting segments, funeral services
and crematoria, as under IFRS 15 only a single performance obligation exists
when a pre-arranged funeral plan is sold, being the performance of a funeral.
The Group also reports central overheads, which comprise unallocated central
expenses.
For the purpose of alternative performance measures the Group has three
reporting segments, funeral services, crematoria and pre-arranged funeral
plans, as the chief operating decision maker reviews segmental performance
before applying the effect of IFRS 15.
Funeral services relate to the provision of funerals and ancillary items,
such as memorials and floral tributes.
Crematoria services relate to cremation services and the sale of memorials and
burial plots at the Dignity crematoria and cemeteries.
Pre-arranged funeral plans represent the sale of funerals in advance to
clients wishing to make their own funeral arrangements and the marketing and
administration costs associated with making such sales.
Funeral services
Overview
As at 30 December 2022, we operated from a network of 725 (2021: 776) funeral
branches throughout the UK, generally operating under established local
trading names. The change to the portfolio reflects three branch openings and
54 closures in the year. Most closures represent funeral branches where
leases have naturally come to an end and have not been renewed and also
include 10 freehold closures.
Performance
We conducted 77,000 funerals (2021: 79,200) during the period under review.
Underlying operating profit was £11.0 million (2021: £48.2 million), a
reduction of 77 per cent, this can be explained by the financial summary
table below:
Financial summary 2022
H1 H2 FY
£m £m £m
Underlying operating profit - 2021 31.6 16.6 48.2
Impact of:
Number of deaths((1)) (6.4) (0.6) (7.0)
Market share((1)) 3.1 (1.2) 1.9
Average revenues((1)) (14.6) (5.9) (20.5)
Net cost base changes (5.0) (6.6) (11.6)
Underlying operating profit - 2022 8.7 2.3 11.0
(1) Represents revenue impact.
The table above demonstrates the impact of our new pricing strategy, coupled
with the distorting effect of the pandemic on the death rate in the first
quarter. Whilst market share has increased revenue, we can see that
a reduction in the number of deaths has reduced revenue by £7.0 million, and
the change in pricing strategy and the introduction of direct cremation has
reduced it by a further £20.5 million. Cost base changes include £5.7
million increase in salary costs, £1.7 million increase in motor expenses, a
£1.7 million impact from the loss of rates relief, £0.9 million impact from
an increase in coffin raw material prices, an increase of £0.7 million in
depreciation and £0.8 million increase in utility costs.
Accordingly, the cost to deliver a funeral (see alternative performance
measures on page 56 for details on how it is calculated) has increased to
£2,018 at 30 December 2022 (December 2021: £1,814).
Items totalling £203.8 million (2021 restated: £33.5 million) excluded from
underlying operating profit resulted in statutory operating loss of £192.8
million (2021 restated: profit £14.7 million). These items are discussed on
pages 51 to 53 but relate to non-underlying items and the impact
of consolidating the Trusts and IFRS 15.
Progress and developments
Market share
Approximately one per cent of all funerals were conducted in Northern Ireland.
Excluding Northern Ireland, these funerals represented approximately 11.9 per
cent (2021: 11.8 per cent) of total estimated deaths in Britain. Whilst
funerals divided by estimated deaths is a reasonable measure of Dignity's
market share, the Group does not have a complete national presence
and consequently, this calculation can only ever be an estimate.
On a comparable basis, excluding any funerals from branches not contributing
to the whole of 2021 and 2022, market share was 11.7 per cent, compared with
11.5 per cent in 2021. Both 2022 and 2021 are an improvement on the dramatic
market share declines witnessed in 2016 and 2017, however, in the longer-term
the Group's new strategy is expected to grow market share significantly.
Market share is calculated based on a fixed assumption of one week between
the registration of the death and the date of the funeral. Therefore, due to
excess deaths and longer delays between the date of registering the death and
the date of the funeral being performed, calculations of market share in 2021
and 2022 may not be comparable.
Funeral mix and average revenue
The average revenue for funerals has decreased from £2,394 in 2021 to £2,116
in 2022 (excluding 603 funerals delivered as part of our Safe Hands support
the average for 2022 was FY £2,141, H2 £2,151 and H1 £2,129), which can be
attributed to a combination of the change in our pricing strategy and the
change in mix due to the provision of lower-cost funeral options, such as
direct cremations. This combined with reduced volumes has also impacted the
contribution per branch (see alternative performance measures on page 57 for
details on how this is calculated) which has decreased to £28,966 in 2022
(2021: £75,000).
Funeral mix and underlying average revenue
Funeral type FY 2020 FY 2021 Q1 2022 Q2 2022 H1 2022 Q3 2022 Q4 2022 H2 2022 FY 2022
Actual Actual Actual Actual Actual Actual Actual Actual Actual
Underlying average revenue (£) Attended 2,821 2,855 2,486 2,439 2,464 2,425 2,605 2,516 2,489
Unattended 996 1,063 1,044 1,037 1,041 1,035 1,035 1,035 1,038
Pre-need 1,911 1,959 1,950 1,967 1,958 2,033 2,042 2,038 1,996
Other (including Simplicity) 940 904 608 522 668 533 514 414 517
Volume mix (%) Attended 63 61 58 59 59 59 58 58 58
Unattended 1 3 8 7 7 8 8 8 8
Pre-need 28 28 28 28 28 27 28 28 28
Other (including Simplicity) 8 8 6 6 6 6 6 6 6
Underlying weighted average (£) 2,397 2,394 2,108 2,093 2,115 2,095 2,196 2,138 2,116
Ancillary revenue (£) 125 154 165 174 155 166 158 170 172
Underlying average revenue (£) 2,522 2,548 2,273 2,267 2,270 2,261 2,354 2,308 2,288
Investment
Investment in the Group's branches and fleet has continued. In 2022, £16.9
million (2021: £10.5 million) was invested in maintenance capital
expenditure. The Group anticipates another year of high expenditure in 2023.
Outlook
The Group is focusing on embedding the recent restructure which is allowing
colleagues who are at the heart of their local communities to make decisions
with the aim of growing business.
Crematoria
Overview
The Group remains the largest single independent operator of crematoria in
Britain, operating 46 (2021: 46) crematoria as at 30 December 2022.
Performance
The Group performed 75,500 cremations (2021: 74,800) in the period,
representing 11.8 per cent (2021: 11.3 per cent) of total estimated deaths in
Britain.
Underlying operating profit was £39.5 million (2021: £47.0 million), a
decrease of 16 per cent. This can be explained by the financial summary
table below:
Financial summary 2022
H1 H2 FY
£m £m £m
Underlying operating profit - 2021 25.2 21.8 47.0
Impact of:
Number of deaths((1)) (2.2) (0.3) (2.5)
Market share((1)) 2.5 0.7 3.2
Average revenues((1)) (2.9) (1.4) (4.3)
Cost base changes (1.0) (2.9) (3.9)
Underlying operating profit - 2022 21.6 17.9 39.5
(1) Represents revenue impact.
The primary reason for the decrease in underlying operating profit is lower
average revenues, a higher cost base (including increases in utility costs)
partially offset by an increase in market share. Total memorial and cemetery
revenue was £16.7 million (2021: £19.2 million), approximately 13 per cent
lower. 2021 included an element of catch-up on sales due to the sites being
closed for part of 2020 (2021 was 15 per cent higher than 2020). The average
cremation revenue is lower than the prior year at £864 (2021: £887) and
yield per crematorium (see alternative performance measures on page 57 for
details on how it is calculated) has decreased to £971,739 in 2022 (2021:
£1,126,087) which reflects the increase in direct cremations.
Non-underlying costs of £0.9 million (2021: £0.5 million) are excluded from
underlying operating profit resulting in statutory operating profit of £38.6
million (2021: £46.5 million).
Progress and developments
The Group has invested £5.5 million (2021: £5.4 million) in maintaining and
improving its locations in the period.
The Group now has planning permission for six new crematoria. The total
capital commitment for these six projects is expected to be approximately £56
million, with £16.3 million of this amount having already been invested.
Each of the locations with planning permission will take five to seven years
to reach maturity, performing 800 to 1,000 cremations per year.
In addition, the Group also has one location that is currently in the
planning process.
Outlook
The crematoria division remains a stable and cash generative aspect of the
Group's operations.
Pre-arranged funeral plans
A momentous year
At the end of July 2022 the FCA formally became responsible for the regulation
of the funeral plan industry in the UK, heralding a new and better era for
customers which Dignity has long campaigned for. Dignity became authorised to
be a funeral plan provider which was the culmination of a lot of hard work
within the Group.
In preparation for this change we worked on redesigning our funeral plan
product based upon working with colleagues who deal with families in our
funeral branches. The result is an entirely new and personalisable product
that lets buyers design the plan around the kind of funeral they want with
the ability to keep amending it in the future should those wishes change.
In preparation, we wound down activity in our old funeral plan product range
ahead of the changeover. When the new product launched, we did it gradually as
we built up and trained our team of funeral plan consultants. Our priority has
been on doing things correctly and bedding in all the new regulations,
processes and monitoring programmes rather than a haste to sell plans. Our
results, in particular sales volumes, in 2022 need to be judged against that
background.
Rescue operations
Not all funeral plan providers made it into regulation, failing for different
reasons. At Dignity we have been working hard to do all we can to ameliorate
a bad situation and help those families impacted by these developments. This
has included providing free funerals for those families suffering a
bereavement right after Safe Hands went into administration.
We are also in the process of offering replacement Dignity funeral plans to
the existing customers of a number of plan providers who did not achieve
regulation. So far that amounts to five providers and 38,000 plans. That
activity is continuing into 2023. Our motivation has been to help families
negatively impacted through no fault of their own and limit the damage to an
industry that we launched in the 1980's and which we believe with the proper
regulatory framework is now set for a bright future.
Performance
Approximately 21,000 (2021: 50,000) new plan sales were made. In addition to
this 38,000 (2021: nil) Rescue plans have transferred to a Dignity
pre-arranged funeral plan. The number of active pre-arranged plans (including
insurance backed arrangements) increased to 618,000 (2021: 581,000). All plan
sales are stated net of cancellations of 29,000 (2021: 33,000). The majority
of commissions are clawed back from distribution partners on cancellation in
the first two years (the majority of expected cancellations take place in this
period).
In addition, 16,000 (2021: 24,000) plans were sold linked to life assurance
plans with third parties. Not all of these insurance backed plans include an
obligation to provide a guaranteed funeral and we anticipate the cancellation
experience to be significantly higher than is witnessed on trust based sales.
The Group has continued to claim a marketing and administration allowance from
the Trusts for plans sold in the period. Historically this resulted in a
profit in the division. In 2019, the Group decided to restrict this allowance
from the Trusts to only recover the costs incurred in the selling of the
funeral plans and therefore, the division has not contributed any profit or
loss since 2019 due to these under-recoveries.
However, as plan sales were low in 2022, the Group would not have been able to
recover all of the costs incurred in the selling and administration from
funeral plans sold in the current period but has been able to utilise
under-recoveries from previous years' sales to cover the current year
operating costs.
For post FCA regulation plan sales Dignity has established a new trust, the
UK Funeral Trust (2022). So far no claims have been made from the new trust
for marketing and administration costs but going forward it is intended to do
so provided that the trust is left in a surplus position, as we did
previously.
As a consequence of the reduced costs in the division and ending of marketing
spending the amount recovered from the Trusts in 2022 was £12.2 million, 50
per cent lower than 2021 (2021: £24.6 million).
Trust solvency
The financial position of the Trusts holding members' monies is crucial, given
the Group ultimately guarantees the promises made to members.
The latest actuarial valuations of the Trusts (at 24 September 2022) showed
them to have a surplus of £225.4 million (24 September 2021: surplus restated
of £290.6 million), based on assumptions from the independent trustees
working with the Trust's actuary, PwC. This valuation is based on the amounts
the Trusts are expected to pay when a funeral is performed rather than the
actual cost of performance (being a lower amount) to the Group. These
solvency reports are available on the company's website
www.dignityfunerals.co.uk/funeral-plans/2022-solvency-assessment-report/.
There was no change to the investment strategy in 2022 which was previously
agreed with Legal & General Investment Management who continued as the
OCIO. The new trust is still all held in cash. In 2023 the Trustees are
planning to adopt a Statement of Investment Principles that will guide the
manager of the assets.
The Trusts have assets, including cash, under the management of the Trustees
of £966.7 million (2021: £1,062.9 million) with investments split as
follows:
Example investment types FY
£m
Defensive investments Index linked gilts and corporate bonds 10-12
Illiquid investments Private equity investments 6-8
Core growth investments Equities 64-67
Liquid investments Cash portfolio's 16-17
The assets of UK Funerals (2022) Trust are currently held in cash pending an
investment totalling £6.8 million.
The current allocation is subject to annual review by the Trustees with
support from their investment advisers, LGIM. See note 8 for additional
discussion of Trust balances.
Outlook
Our new product has been very well received and even without promotion is
selling well in our branches where it is available and faster than our
previous products on a like for like basis.
The Group has now trained over 300 Funeral Planning Consultants located at its
branches and has a pre-arranged funeral planning website that enables
customers to create a unique funeral plan for the send-off they really want.
In 2023 we will rebuild our marketing efforts to drive growth and form
partnerships with organisations that share our values and whose customers we
would not otherwise see.
The Group is optimistic about its ability to continue to be a market leader in
pre‑arranged funerals and for the potential growth of the overall market in
the new world of regulation.
Central overheads
Overview
Central overheads relate to central services that are not specifically
attributed to a particular operating division. These include the provision of
IT, finance, personnel and Directors' emoluments. In addition, and consistent
with previous periods, the Group records centrally the costs of incentive
bonus arrangements, such as Long-Term Incentive Plans ('LTIPs') and annual
performance bonuses, which are provided to over 100 managers working across
the business.
Developments
Underlying costs in the period were £32.6 million (2021: £39.4 million).
The table here summarises the key movements:
H1 H2 FY
£m £m £m
Central overheads - 2021 19.0 20.4 39.4
Impact of:
Digital activities (1.7) (3.2) (4.9)
Salaries (1.1) (1.2) (2.3)
Other (0.6) 1.0 0.4
Central overheads - 2022 15.6 17.0 32.6
The decrease in digital activities primarily relates to promotional spend.
Salaries have reduced year-on-year primarily due to the prior period including
an additional bonus charge of £3.5 million. Central overheads are expected to
continue to reduce as part of the new strategy. Non-underlying items of £14.3
million (2021: £2.3 million) are excluded from underlying costs, resulting in
total central costs of £46.9 million (2021: £41.7 million).
In addition to the above costs, maintenance capital expenditure of £2.0
million (2021: £1.7 million) has been incurred on central projects
predominantly relating to IT that will help the business as a whole operate
more efficiently.
Outlook
Central overheads are expected to continue to reduce as part of the strategic
review.
DEAN MOORE
INTERIM CHIEF FINANCIAL OFFICER
30 MARCH 2023
Key performance indicators
The Group use non-financial and financial KPIs to both manage the business and
ensure that the Group's strategy and objectives are being delivered.
Financial KPIs
KPI KPI definitions 52 week 53 week Developments in 2022
period ended
period ended
30 December 2022
31 December 2021
restated
Underlying (loss)/earnings per share (pence) This is underlying (loss)/profit after tax divided by the weighted average (18.6)p 42.8p The reduction follows the decrease in underlying operating profit explained
number of Ordinary Shares in issue in the period. below.
Underlying cash generated from operations (£m) This is the statutory cash generated from operations excluding non-underlying £44.1m £88.3m The Group continues to convert operating profit into cash. The reduction
items and the impact of consolidating the Trusts and IFRS 15. year-on-year is primarily due to lower profit.
Underlying operating profit (£m) This is the statutory operating profit of the Group excluding non-underlying £17.9m £55.8m Underlying operating profit declined year-on-year. This is primarily due to
items and the impact of consolidating the Trusts and IFRS 15. reduced average revenues, lower deaths and higher costs within the funeral
services and crematoria divisions.
Underlying average revenue per funeral (£) Underlying funeral revenue divided by the number of funerals performed in the £2,288 £2,548 2022 has been adversely impacted by the change in pricing strategy and product
relevant period. mix effective since September 2021.
Non-financial KPIs
KPI KPI definitions 52 week 53 week Developments in 2022
period ended
period ended
31 December 2022
31 December 2021
restated
Total estimated number of deaths in Britain (number) This is as reported by the Office for National Statistics. 639,000 664,000 Deaths were below the prior year but higher than originally anticipated at the
start of the year.
Cremation market share (per cent) This is the number of cremations performed by the Group divided by the total 11.8% 11.3% Market share has seen a steady increase.
estimated number of deaths in Britain.
Funeral market share excluding Northern Ireland (per cent) This is the number of funerals performed by the Group in Britain divided by 11.9% 11.8% Market share has increased compared with the prior period.
the total estimated number of deaths in Britain.
Number of cremations performed (number) This is the number of cremations performed according to our operational data. 75,500 74,800 Changes are a consequence of the total number of deaths and
the Group's market share.
Number of funerals performed (number) This is the number of funerals performed by the Group according to our 77,000 79,200 Changes are a consequence of the total number of deaths and the Group's
operational data. market share.
Active pre-arranged funerals (number) This is the number of pre-arranged funerals (both trust funeral plans and 618,000 581,000 The 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) and the transfer of 38,000 Rescue plans, offset by plans
the future. cancelled and the crystallisation of plans sold in previous periods.
Our mission is to drive forward positive change in the sector and become a
true market leader with an unrivalled focus on quality, transparency and
choice.
To achieve this, we recognise the importance of investing in our people,
digital platforms and facilities; as well as empowering our colleagues to make
the right decisions that deliver a positive experience and outcome for our
clients and in turn we become more competitive.
If we include cremations in our crematoria then we were involved in
approximately one in five of all funerals in the UK in 2022. Doing our best
for those clients is our best source of future business.
The Dignity client survey 2022
Reputation and recommendation
99.0 per cent of respondents said that we met or exceeded their expectations
(2021: 99.0%).
98.0 per cent of respondents would recommend us (2021: 98.0%).
High standards of facilities and fleet
99.8 per cent thought our premises were clean and tidy (2021: 99.8%).
99.6 per cent thought our vehicles were clean and comfortable (2021: 99.6%).
Quality of service and care
99.9 per cent thought our staff were respectful (2021: 99.9%).
99.7 per cent thought our staff listened to their needs and wishes (2021:
99.7%).
99.0 per cent agreed that our staff were compassionate and caring
(2021: 99.2%).
In the detail
99.1 per cent of clients agreed that our staff had fully explained what would
happen before and during the funeral (2021: 99.2%).
99.3 per cent said that the funeral service took place on time (2021: 99.1%).
98.1 per cent said that the final invoice matched the estimate provided
(2021: 98.3%).
Consolidated income statement for the 52 week period ended 30 December 2022
Note 52 week period ended 30 December 2022 53 week period
£m
ended 31 December 2021 restated
£m
Revenue 2 323.1 353.7
Cost of sales (196.3) (174.1)
Gross profit 126.8 179.6
Administrative expenses (324.5) (156.4)
Trade receivables impairment (3.4) (3.7)
Operating (loss)/profit 2 (201.1) 19.5
Finance costs 3 (28.0) (29.0)
Deferred revenue significant financing 3 (50.9) (51.6)
Remeasurement of financial assets held by the Trusts and related income 3 (48.6) 93.1
(Loss)/profit before tax 2 (328.6) 32.0
Taxation 4 53.4 (19.9)
(Loss)/profit for the period attributable to equity shareholders 2 (275.2) 12.1
(Loss)/profit per share for (loss)/profit attributable to equity shareholders
- Basic (pence) 5 (550.4)p 24.2p
- Diluted (pence) 5 (550.4)p 24.2p
Prior year comparatives have been restated for the 53 week period ended 31
December 2021 due to a presentation change in relation to trade receivables
impairment and a reclassification of foreign exchange movements. See note 1
for further details.
The alternative performance measures included within the Preliminary
Announcement present information on a comparable basis with that presented in
prior periods.
Consolidated statement of comprehensive income for the 52 week period ended 30
December 2022
Note 52 week period ended 30 December 2022 53 week period
£m
ended 31 December 2021
£m
(Loss)/profit for the period (275.2) 12.1
Items that will not be reclassified to profit or loss
Remeasurement gain on retirement benefit obligations 12 5.2 15.6
Tax charge on remeasurement on retirement benefit obligations (1.4) (3.9)
Tax charge on pension contributions (0.1) (0.2)
Restatement of deferred tax for the change in UK tax rate 4 - 1.9
Other comprehensive income 3.7 13.4
Total comprehensive (loss)/income for the period (271.5) 25.5
Attributable to:
Equity shareholders of the parent (271.5) 25.5
Consolidated balance sheet as at 30 December 2022
Note 52 week period ended 30 December 2022 53 week period
£m
ended 31 December 2021
£m
Assets
Non-current assets
Goodwill 6 55.8 167.9
Intangible assets 6 53.4 110.7
Property, plant and equipment 231.6 242.1
Right-of-use asset 68.4 89.1
Deferred insurance commissions 8.0 8.4
Financial assets held by the Trusts 8 957.3 1,043.1
Deferred commissions 9 93.7 100.9
Deferred tax asset 56.8 5.5
1,525.0 1,767.7
Current assets
Inventories 7.9 8.6
Trade and other receivables 30.0 30.0
Current tax receivables 5.3 2.4
Deferred commissions 9 7.0 7.6
Cash and cash equivalents - Trading Group 7.7 55.9
Cash and cash equivalents - held by the Trusts 9.4 19.8
Cash and cash equivalents 7 17.1 75.7
67.3 124.3
Total assets 1,592.3 1,892.0
Liabilities
Current liabilities
Financial liabilities 12.2 11.5
Trade and other payables 60.9 59.5
Lease liabilities 7.0 7.1
Contract liabilities 9 98.8 99.6
Provisions for liabilities 3.4 2.1
182.3 179.8
Non-current liabilities
Financial liabilities 506.9 518.3
Other non-current liabilities 1.8 2.2
Lease liabilities 73.3 75.8
Contract liabilities 9 1,217.6 1,237.9
Provisions for liabilities 21.8 9.4
Retirement benefit obligation 12 10.8 19.7
1,832.2 1,863.3
Total liabilities 2,014.5 2,043.1
Shareholders' deficit
Ordinary share capital 6.2 6.2
Share premium account 13.0 12.9
Capital redemption reserve 141.7 141.7
Other reserves (2.0) (2.3)
Retained earnings (581.1) (309.6)
Total deficit (422.2) (151.1)
Total deficit and liabilities 1,592.3 1,892.0
The alternative performance measures included within the Preliminary
Announcement present information on a comparable basis with that presented in
prior periods.
Consolidated statement of changes in equity for the 52 week period ended
30 December 2022
Ordinary share Share premium account Capital Other Retained Total
capital
£m
redemption
reserves
earnings
equity
£m
reserve
£m
£m
£m
£m
Shareholders' equity as at 25 December 2020 6.2 12.7 141.7 (3.0) (335.1) (177.5)
Profit for the 53 weeks ended 31 December 2021 - - - - 12.1 12.1
Remeasurement gain on retirement benefit obligations - - - - 15.6 15.6
Tax on retirement benefit obligations - - - - (3.9) (3.9)
Tax on pension contributions - - - - (0.2) (0.2)
Restatement of deferred tax for the change in UK Tax rate - - - - 1.9 1.9
Other comprehensive income - - - - 13.4 13.4
Total comprehensive income - - - - 25.5 25.5
Effects of employee share options - - - 0.8 - 0.8
Proceeds from share issue((1)) - 0.2 - - - 0.2
Gift to Employee Benefit Trust - - - (0.1) - (0.1)
Shareholders' equity as at 31 December 2021 6.2 12.9 141.7 (2.3) (309.6) (151.1)
Loss for the 52 weeks ended 30 December 2022 - - - - (275.2) (275.2)
Remeasurement gain on retirement benefit obligations - - - - 5.2 5.2
Tax on retirement benefit obligations - - - - (1.4) (1.4)
Tax on pension contributions - - - - (0.1) (0.1)
Other comprehensive income - - - - 3.7 3.7
Total comprehensive loss - - - - (271.5) (271.5)
Effects of employee share options - - - 0.5 - 0.5
Tax on employee share options - - - (0.1) - (0.1)
Proceeds from share issue((2)) - 0.1 - - - 0.1
Gift to Employee Benefit Trust - - - (0.1) - (0.1)
Shareholders' equity as at 30 December 2022 6.2 13.0 141.7 (2.0) (581.1) (422.2)
(1) Relating to issue of 5,963 shares under 2016 deferred annual bonus
('DAB') scheme and 4,562 shares under 2019 SAYE scheme.
(2) Relating to issue of 3,954 shares under 2019 DAB scheme and 8,473
shares under 2019 SAYE scheme.
The above amounts relate to transactions with owners of the Company except for
the items reported within total comprehensive income.
Capital redemption reserve
The capital redemption reserve represents £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 52 week period ended 30 December
2022
Note 52 week period ended 30 December 2022 53 week period
£m
ended
31 December
2021
£m
Cash flows from operating activities
Cash (used in)/generated from operations (17.7) 68.3
Finance costs paid (27.8) (40.2)
Transfer from restricted bank accounts for finance costs - 12.0
Payments to restricted bank accounts for finance costs - -
Total payments in respect of finance costs (27.8) (28.2)
Tax paid (2.3) (17.7)
Net cash (used in)/generated from operating activities (47.8) 22.4
Cash flows from investing activities
Acquisition of subsidiaries and businesses (net of cash acquired) (0.2) (0.2)
Proceeds from sale of property, plant and equipment 0.3 1.2
Purchase of property, plant and equipment and intangible assets((1)) (29.7) (21.0)
Purchase of financial assets (by the Trusts) 8 (177.1) (948.7)
Disposals of financial assets (by the Trusts) 8 214.1 960.9
Realised return on financial assets - 2.1
Net cash generated/(used) in investing activities 7.4 (5.7)
Cash flows from financing activities
Payments due under Secured Notes (10.5) (15.1)
Payment in relation to amendment of Secured Loan Notes agreement (0.5) -
Transfer from restricted bank accounts for repayment of borrowings - 4.9
Payments to restricted bank accounts for repayment of borrowings - -
Total payments in respect of borrowings (11.0) (10.2)
Principal elements of lease payments (7.2) (9.1)
Net cash used in financing activities (18.2) (19.3)
Net decrease in cash and cash equivalents (58.6) (2.6)
Cash and cash equivalents at the beginning of the period 75.7 78.3
Cash and cash equivalents at the end of the period 7 17.1 75.7
Restricted cash - amounts set aside for debt service payments - -
Cash and cash equivalents at the end of the period as reported in the 7 17.1 75.7
consolidated balance sheet
(1) See Financial review on page 10 for further details.
1 Prior year restatements and Rescue plans
Prior year restatement
Classification of hedging/foreign exchange difference arising on financial assets held by the Trusts
Within the consolidated income statement administrative expenses have been
restated for the 53 week period ended 31 December 2021 to remove £1.7 million
of hedging/foreign exchange losses arising on financial assets held by the
Trusts, which has now been more appropriately included within remeasurement of
financial assets held by the Trusts and related income. This has led to an
increase in operating profit of £1.7 million but no impact on statutory
profit after taxation or earnings per share for the prior period.
Disclosure and valuation of trade receivables impairment
The amount charged to the consolidated income statement for impairment of
trade receivables during the period to 31 December 2021 was £3.7 million
which was presented within administrative expenses (as explained in note 5 to
the 2021 Annual Report and Accounts). Following the Financial Reporting
Council's ('FRC') review of the Group's 2021 Annual Report and Accounts,
specifically with regard to whether the charge for impairment should be
separately presented in the consolidated income statement, the Group
re-examined the materiality of the charge on the results for the period. As a
result, the Group concluded that it was appropriate to present the impairment
expense separately on the face of the consolidated income statement as
required by IAS 1, 'Presentation of Financial Statements', paragraph 82(ba).
Consequently, the impairment expense for the 53 week period ended 31 December
2021 has been separately presented in the consolidated income statement
resulting in a reduction of administrative expenses for the same amount. There
is no impact on the Group's operating profit, statutory profit after
taxation or earnings per share for the prior period.
The above prior period restatements have overall resulted in administrative
expenses for the 53 week period ended 31 December 2021 reducing by £5.4
million from £161.8 million to £156.4 million, operating profit for the 53
week period ended 31 December 2021 increasing by £1.7 million from £17.8
million to £19.5 million and remeasurement of financial assets by the Trusts
and related income reducing by £1.7 million from £94.8 million to £93.1
million. This restatement for the 53 week period ended 31 December 2021 has
been reflected in the segmental analysis presented in note 2 within funeral
services 'other adjustments', which has increased by £1.7 million from £10.2
million to £11.9 million. Accordingly, funeral services statutory operating
profit has increased by £1.7 million from £13.0 million to £14.7 million.
There is no overall impact on statutory profit before taxation, taxation or
statutory profit after taxation for the 53 week period ended 31 December
2021. There is no overall impact on statutory earnings per share in either
period.
The above adjustments have had no impact on opening reserves for the 53 week
period ended 31 December 2021. Accordingly, no third balance sheet as at 26
December 2020 was required to be presented.
Rescue plans
To maintain stability and consumer confidence in the sector, Dignity committed
to helping customers of those providers who chose not to apply or did not meet
the standards required by FCA regulation by offering the option to transfer to
a Dignity plan ('Rescue plans'). As at 30 December 2022, 38,000 Rescue plans
had been accepted by customers.
Dignity has agreed to honour the product and service purchased by these
customers, even though the assets transferable to Dignity from their previous
provider may be lower than the payments made by customers. In the event that a
customer subsequently cancels their Rescue plan, the refund payable by Dignity
is capped at the amount received by Dignity in relation to that plan, being
the amount received from the previous provider's trust and any payments to be
made by the customer directly to Dignity.
At an individual contract level some of the plans could be loss making as
Dignity will not have received sufficient cash to cover the full cost of the
funeral. However, the Board expects the Rescue plans to be profitable on a
portfolio basis as the future cashflows from plans where the total
consideration is weighted towards future instalments, including an allowance
for future investment returns, more than offsets the contracts where the
assets transferable to Dignity are lower than the payments made by customers.
An analysis of expected cash inflows (being any further instalments under the
funeral plans, estimates of assets to be received from the ceding trusts and
memorial revenue) and outflows (principally the costs of delivering the
funeral) has been prepared for each individual plan in accordance with IAS 37
to identify whether the contracts will be loss making. This has considered the
revenue at the expected maturity date, after accreting the expected cash
inflows using the significant financing component used for the individual
contract, consistent with the accounting methodology adopted for contract
liabilities.
The consolidated financial statements include a provision of £13.6 million in
relation to funeral plans. This includes £3.6 million relating to previous
funeral plans and £10.0 million relating to Rescue plans. The provision for
Rescue plans is comprised of an onerous contract provision of £8.9 million
and a provision for the Dignity Promise of £1.1 million, of which £1.1
million (seven per cent) has been assessed as current in line with contract
liability for deferred revenue.
Onerous contract provision
The onerous contract provision reflects estimates in respect of the value of
assets due to Dignity from the ceding providers, future instalments payable to
Dignity by customers, the cost to fulfil the plans, future cost inflation, the
life expectancy of plan holders and future cash inflows due from customers
paying by instalments, as well as the discount rate and significant financing
component.
The assets due from the ceding trusts to Dignity have not yet been received.
Under the asset transfer agreements with the ceding trusts, Dignity is
entitled to an equitable share of the trust assets, as each plan receives the
same percentage of payments made into the trust to a level that distributes
all of the remaining assets. The value of payments made into the ceding trusts
has been calculated using the customer's plan price and outstanding future
instalments as provided by the ceding trusts. A range of 18 per cent to 46 per
cent for those trusts with remaining assets has been assessed as recoverable
for each contract.
The assets due from the ceding trusts to Dignity reflect data to 28 February
2022 (5,439 plans - £2.1 million), 30 June 2022 (6,432 plans - £5.0
million), 28 July 2022 (16,721 plans - £19.5 million) and 30 December 2022
(8,973 plans - £nil million). The valuation of assets due from the ceding
trusts has been estimated using the latest actuarial valuation reports
provided by the ceding trusts.
Where those reports were dated in 2021, additional data containing customer
payments and outstanding balances was obtained from the ceding trusts to
update the values to the dates listed above, with no adjustments to the fair
valuation of assets themselves.
The Group have considered the potential for changes in the assets due to
Dignity from the ceding trusts between the aforementioned dates and the
balance sheet date, and whilst our conclusion is that on balance, the values
are more likely to have increased (due to receipt of monthly instalment
payments which continued into those trusts until 31st October 2022 exceeding
cash outflows for funerals, administrative expenses), the Group is taking a
prudent approach in recognition of the inherent uncertainty until the final
asset position is confirmed by the trustees. An increase/decrease of five per
cent in the value of trust assets due to Dignity would decrease/increase the
provision by £0.5 million and £0.6 million.
The cost to fulfil the plans includes all directly attributable costs. This
includes salaries, merchandise, vehicles and disbursements payable to third
parties as well as a commensurate allocation of overheads including facilities
costs and depreciation. The average cost is approximately £2,100 per plan.
This is significantly higher than the marginal cost to Dignity of fulfilling
the plans as IAS 37 requires all directly attributable fixed costs to be
included in the assessment. An annual inflation rate of two per cent for the
cost to fulfil the plans has been applied to the estimated maturity date. This
is aligned to the long-term Oxford Economics CPI forecast. A 50bps increase/
decrease in the annual inflation rate would increase/decrease the provision by
£1.6 million and £1.2 million.
The life expectancy of plan holders has been estimated using the no.17 English
Life tables. An increase/decrease of one year would decrease/increase the
provision by £0.8 million and £0.9 million.
The significant financing component has been calculated based on the expected
discount rate that would be reflected in a separate financing transaction
between the Group and the plan holder at contract inception. A 50bps
increase/decrease in the annual rate would decrease/increase the provision by
£0.5 million and £0.6 million.
The discount rate applied in discounting the onerous provision has been set at
the 10-year UK GILT rate of 3.67 per cent for plans with a maturity of 15 or
less and the 20-year UK GILT rate of 4.03 per cent for all other plans as at
the balance sheet date. A 50bps increase/ decrease in both rates
decrease/increase the provision by £0.5 million and £0.6 million.
Dignity Promise
All funeral plans sold by Dignity include a feature that if the pre-need
funeral plan is payable by 13 or more monthly payments and provided at the
time of death all payments due under the plan are up to date, Dignity will
perform the funeral even if there is shortfall in plan value compared with
total amount paid, the 'Dignity Promise'. For all plans sold up until 29th
July 2022, the cost of unpaid instalments where a customer qualified for the
Dignity Promise were covered by an insurance product. This promise applies to
all Rescue plans, back dated to the date a customer took out their plan with
the previous provider. Dignity now provides this benefit to customers free of
charge and as such a provision for the cost relating to Rescue plans of £1.1
million has been included in these financial statements. This is estimated
based on actual experience of a claim rate of 2.2 per cent derived from
pre-need plans sold by Age UK Funeral Plans & National Funeral Trust and
an average cost per claim of £2,500 where the liability is insured.
2 Revenue and segmental analysis
Operating segments are reported in a manner consistent with internal reporting
provided to the chief operating decision maker, who is responsible for
allocating resources and assessing performance of the operating segments. The
chief operating decision maker of the Group has been identified as the two
Executive Directors.
For statutory purposes the Group has two reporting segments, funeral services
and crematoria, as under IFRS 15 only a single performance obligation exists
when a pre-arranged funeral plan is sold, being the performance of a funeral.
The Group also reports central overheads, which comprise unallocated central
expenses.
Revenue
Funeral services relate to two primary sources of revenue:
· Funerals arranged and funded by the client at the time of need, in
addition to ancillary items, such as memorials and floral tributes; and
· Funerals arranged and funded by a pre-arranged Trust funeral plan, for
which amounts recognised as revenue arise from the derecognition of deferred
revenue on completion of the related performance obligation.
Crematoria services relate to cremation services and the sale of memorials and
burial plots at the Dignity operated crematoria and cemeteries.
Underlying revenue and operating profit
For the purpose of alternative performance measures the Group has three
reporting segments, funeral services, crematoria and pre-arranged funeral
plans, as the chief operating decision maker reviews segmental performance
before applying the effect of IFRS 15.
Funeral services relate to the provision of funerals and ancillary items, such
as memorials and floral tributes.
Crematoria services relate to cremation services and the sale of memorials and
burial plots at the Dignity crematoria and cemeteries.
Pre-arranged funeral plans represent the sale of funerals in advance to
clients wishing to make their own funeral arrangements and the marketing and
administration costs associated with making such sales.
Substantially all Trading Group revenue is derived from, and substantially all
of the Trading Group's net assets and liabilities are located in, the United
Kingdom and Channel Islands and relates to services provided. Overseas
transactions are not material.
Underlying revenue and underlying operating profit are stated before
non-underlying items and the effect of consolidation of the Trusts and
applying IFRS 15 as defined on pages 51 to 54.
Reconciliations to statutory amounts
Non-underlying items represent certain non-recurring or non-trading
transactions. See alternative performance measures on pages 51 and 52 for
further details.
Other adjustments reflect the consolidation of the Trusts and applying IFRS
15. Underlying revenue substitutes revenue arising from the derecognition of
deferred revenue on completion of the related performance obligation, which
includes the impact of significant financing, with the payments received from
the Trusts on the death of a plan member, and recognises marketing allowances
at the inception of a plan, net of an allowance for cancellations. Underlying
revenue also excludes amounts relating to disbursements and external payments
made when the performance of the plan funeral is delivered by third parties.
Disaggregated revenue
The disaggregated revenue and operating profit/(loss), by segment, is shown in
the following tables:
52 week period ended 30 December 2022 Underlying revenue Other Revenue
£m adjustments((1)) £m
£m
Funeral services 176.4 64.8 241.2
Crematoria 81.9 - 81.9
Pre-arranged funeral plans 12.2 (12.2) -
Group 270.5 52.6 323.1
(1) See alternative performance measures on page 53 for a reconciliation
of other adjustments.
Within funeral services revenue £105.6 million relates to the release of
deferred revenue arising on the completion of performance obligations or on
cancellation under pre-need Trust plans.
In addition to the adjustments noted above relating to revenue, in arriving at
underlying operating profit further other adjustments, reflecting the impact
of consolidating the Trusts and applying IFRS 15, have been recorded. This
includes corresponding entries relating to the exclusion of disbursements and
external payments made when the performance of the funeral is delivered by
third parties. Adjustments are also made to exclude the administration costs
of the Trusts and to recognise commissions payable at the inception of a plan
rather than on delivery of the funeral or cancellation.
The corporate interest restriction charge has been included within underlying
taxation in 2022 as the charge has arisen due to the level of profitability
of the Trading Group. In prior periods, the charge has been included within
'other adjustments' as non-underlying as the charge arose due to the level of
fair value gains on the Trust bond portfolio as all Trust related items
are included as non-underlying.
52 week period ended 30 December 2022 Underlying operating profit/(loss) before depreciation and amortisation £m Underlying depreciation and amortisation £m Underlying operating profit/(loss) £m Non-underlying Other Operating profit/(loss) £m
items((1)) adjustments((1))
£m £m
Funeral services 29.9 (18.9) 11.0 (206.2) 2.4 (192.8)
Crematoria 47.5 (8.0) 39.5 (0.9) - 38.6
Pre-arranged funeral plans - - - (0.1) 0.1 -
Central overheads (31.1) (1.5) (32.6) (14.3) - (46.9)
Group 46.3 (28.4) 17.9 (221.5) 2.5 (201.1)
Finance costs (28.0) (28.0)
Deferred revenue significant financing (50.9) (50.9)
Remeasurement of financial assets held by the Trusts and related income (48.6) (48.6)
Loss before taxation (10.1) (221.5) (97.0) (328.6)
Taxation 0.8 23.2 29.4 53.4
Underlying earnings for the period (9.3)
Non-underlying items (198.3)
Other adjustments (67.6)
Loss after taxation (275.2)
Loss per share for profit attributable to equity shareholders
- Basic (pence) (18.6)p (550.4)p
- Diluted (pence) (550.4)p
(1) See alternative performance measures on pages 52 and 53 for a
reconciliation of non-underlying items and other adjustments.
53 week period ended 31 December 2021 Underlying revenue Other Revenue
£m adjustments((1)) £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 54 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.
53 week period ended 31 December 2021 - restated((2)) Underlying operating profit/(loss) before depreciation and amortisation £m Underlying depreciation and amortisation £m Underlying operating profit/(loss) £m Non-underlying Other Operating profit/(loss) restated
items((1)) adjustments((1)) £m
£m restated
£m
Funeral services 67.6 (19.4) 48.2 (45.4) 11.9 14.7
Crematoria 54.5 (7.5) 47.0 (0.5) - 46.5
Pre-arranged funeral plans - - - (0.1) 0.1 -
Central overheads (37.2) (2.2) (39.4) (2.3) - (41.7)
Group 84.9 (29.1) 55.8 (48.3) 12.0 19.5
Finance costs (29.0) - - (29.0)
Deferred revenue significant financing (51.6) (51.6)
Remeasurement of financial assets held by the Trusts and related income 93.1 93.1
Profit before taxation 26.8 (48.3) 53.5 32.0
Taxation - continuing activities (5.4) 2.5 (10.1) (13.0)
Taxation - rate change - (8.3) 1.4 (6.9)
Taxation - total (5.4) (5.8) (8.7) (19.9)
Underlying earnings for the period 21.4
Non-underlying items (54.1)
Other adjustments 44.8
Profit after taxation 12.1
Earnings per share for profit attributable to equity shareholders -
restated((2))
- Basic (pence) 42.8p 24.2p
- Diluted (pence) 24.2p
(1) See alternative performance measures on pages 52 and 53 for a
reconciliation of non-underlying items and other adjustments.
(2) Prior year comparatives have been restated for the 53 week period
ended 31 December 2021 due to a reclassification of foreign exchange
movements. See note 1 for further details
3 Net finance costs 52 week period ended 30 December 2022 53 week
£m period ended
31 December 2021
restated((1))
£m
Finance costs
Secured Notes 22.7 23.1
Other loans 0.6 0.9
Finance costs on IFRS 16 lease liability 4.4 4.5
Net finance cost on retirement benefit obligations 0.3 0.5
Finance costs 28.0 29.0
Deferred revenue significant financing (note 9) 50.9 51.6
Remeasurement of financial assets held by the Trusts and related income
Investment income (22.2) (9.8)
Fair value loss/(gain) on financial assets held by the Trusts (note 8) 57.7 (85.0)
Hedging/foreign exchange rate losses arising on financial assets held by the 13.1 1.7
Trusts
Remeasurement of financial assets held by the Trusts and related income 48.6 (93.1)
Underlying net finance costs
Underlying finance costs 28.0 29.0
Finance income - -
Underlying net finance costs 28.0 29.0
(1) Prior year comparatives have been restated for the 53 week period
ended 31 December 2021 due to a presentation change in relation to a
reclassification of foreign exchange movements. See note 1 for further
details.
4 Taxation
Analysis of charge in the period 52 week period ended 53 week period
30 December 2022 ended
£m 31 December 2021
£m
Current tax - current period 0.7 7.7
Adjustments for prior period (0.5) (0.2)
Total corporation tax 0.2 7.5
Deferred tax - current period (54.2) 5.4
Adjustments for prior period 0.6 0.1
Restatement of deferred tax for the change in UK tax rate - 6.9
Total deferred tax (53.6) 12.4
Taxation (53.4) 19.9
In the March 2021 budget and confirmed in the October 2022 budget, legislation
to increase the main rate of corporation tax from 19 per cent to 25 per cent
from 1 April 2023 has been confirmed. The change was substantively enacted
during the prior period; as a result, the Group recognised a non-underlying
taxation charge of £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 within the 53
week period ended 31 December 2021. The credit of £0.6 million for the period
ended 30 December 2022 relates to the recognition of losses at 25 per cent as
this is the corporate tax rate at which they are expected to unwind.
5 Earnings per share
The calculation of basic earnings per Ordinary Share has been based on the
profit attributable to equity shareholders for the relevant period.
For diluted earnings per Ordinary Share, the weighted average number of
Ordinary Shares in issue is adjusted to assume conversion of any dilutive
potential Ordinary Shares.
The Group has two classes of potentially dilutive Ordinary Shares, being those
share options granted to employees under the Group's SAYE scheme and the
contingently issuable shares under the Group's LTIP schemes. At the balance
sheet date, the performance criteria for the vesting of the awards under the
LTIP schemes, including any deferred annual bonus, are assessed, as required
by IAS 33, and to the extent that the performance criteria have been met those
contingently issuable shares are included within the diluted EPS calculations.
As the impact of these shares is anti-dilutive for the 52 week period ended 30
December 2022, no adjustment has been made in respect of arriving at diluted
earnings per Ordinary Share measures for that period (2021: dilutive so an
adjustment).
The Group's underlying measures of profitability exclude non-underlying items,
the effects of IFRS 15 and consolidation of the Trusts as set out on pages 51
to 57. These items have been adjusted for in determining underlying measures
of profitability as these underlying measures are those used in the day-to-day
management of the business and allow for greater comparability across periods.
Accordingly, the Board believes that earnings per Ordinary Share calculated by
reference to this underlying performance measure helps users of the financial
statements to fully understand the trading performance and financial position
of the Group.
Reconciliations of the earnings and the weighted average number of shares used
in the calculations are set out below:
Earnings Weighted average number of shares millions Per share amount
£m pence
52 week period ended 30 December 2022
Underlying loss after taxation and EPS (9.3) 50.0 (18.6)
Add: Non-underlying items (net of taxation credit of £23.2 million) (198.3)
Add: Other adjustments (net of taxation credit of £29.4 million)((1)) (67.6)
Loss attributable to shareholders - Basic EPS (275.2) 50.0 (550.4)
Loss attributable to shareholders - Diluted EPS (275.2) 50.0 (550.4)
53 week period ended 31 December 2021
Underlying profit after taxation and EPS 21.4 50.0 42.8
Add: Non-underlying items (net of taxation charge of £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
(1) See note 2 for further details.
6 Goodwill and other intangible assets
Trade Use of third party brand name Other((2)) Software Non-compete agreements £m Sub-total Goodwill Total
names((1)) £m £m £m £m £m £m
£m
Cost
At 25 December 2020 150.4 3.2 4.7 2.7 0.2 161.2 232.6 393.8
Additions - - - - - - 0.4 0.4
At 31 December 2021 150.4 3.2 4.7 2.7 0.2 161.2 233.0 394.2
Additions((3)) - - - 0.7 - 0.7 0.2 0.9
At 30 December 2022 150.4 3.2 4.7 3.4 0.2 161.9 233.2 395.1
Accumulated amortisation and impairment
At 25 December 2020 (35.8) (2.0) (1.8) (0.9) (0.2) (40.7) (28.7) (69.4)
Amortisation charge (3.6) (0.2) (0.4) (0.3) - (4.5) - (4.5)
Trade name write-off((4)) (2.5) - - - - (2.5) - (2.5)
Impairment (2.8) - - - - (2.8) (36.4) (39.2)
At 31 December 2021 (44.7) (2.2) (2.2) (1.2) (0.2) (50.5) (65.1) (115.6)
Amortisation charge (3.3) (0.1) (0.4) (0.3) - (4.1) - (4.1)
Trade name write-off((4)) (6.4) - - - - (6.4) - (6.4)
Impairment (47.5) - - - - (47.5) (112.3) (159.8)
At 30 December 2022 (101.9) (2.3) (2.6) (1.5) (0.2) (108.5) (177.4) (285.9)
Net book amount at 30 December 2022 48.5 0.9 2.1 1.9 - 53.4 55.8 109.2
Net book amount at 31 December 2021 105.7 1.0 2.5 1.5 - 110.7 167.9 278.6
Net book amount at 25 December 2020 114.6 1.2 2.9 1.8 - 120.5 203.9 324.4
(1) Trade names arise on the acquisitions of funeral businesses and
their fair value is calculated by reference to the estimated incremental cash
flows expected to arise by virtue of the trade name being well established.
There are no individually material trade names that amount to 6 per cent or
more of the total net book value.
(2) Within other intangibles is £2.1 million relating to previously
acquired interests in two crematoria subject to finite periods of operation
(by way of lease and/or service concession). The fair value of these interests
has been identified and recognised as a separate intangible asset. The value
of each interest will be amortised over the remaining period of operation.
(3) Software additions in the period of £0.7 million within other
intangibles relate to costs incurred in the development of the new
pre-arranged funeral plan journey platform which includes website
development. This is still in the course of construction at the period end and
amortisation has not been charged and will not commence until the websites
are in use.
(4) During the 52 week period ended 30 December 2022, the Group
identified 20 (2021: seven) specific trade names that are no longer being used
within the Group under the new regional structure and those intangible assets
were required to be written off.
Goodwill acquisitions in 2022
On 18 March 2022, the Group acquired the trade and certain assets of Beyond
Life Limited, a non-listed company based in the UK that offers online will
writing and other services in relation to end-of-life care. The Group acquired
the business because the online offering is seen as an enhancement to the
services the Group provides.
The fair values of the identifiable assets and liabilities of the business as
at the date of acquisition were negligible and consequently, the consideration
relates substantially to goodwill arising on acquisition, none of which is tax
deductible. The cash consideration paid was £0.2 million. The goodwill
comprises the value of expected access to customers and making available
information and support to a wider customer base. Goodwill is allocated
entirely to the funeral services segment.
From the date of acquisition, the business is not expected to contribute
significantly to revenue or profit in the short-term until the Group provides
investment in the business' operations to increase awareness of the service
within the industry.
Goodwill acquisitions in 2021
On 16 September 2021, the Group acquired the entire share capital of Funeral
Advisor Limited, a non-listed company based in the UK that offers a free
online resource to support individuals and families to research and organise a
funeral online. The Group acquired Funeral Advisor Limited because the online
offering is seen as an enhancement to the services it provides.
Goodwill of £0.4 million was made up of £0.2 million cash consideration,
£0.1 million deferred consideration and £0.1 million contingent
consideration.
The fair value of the contingent consideration at the acquisition date was
estimated to be £0.1 million and has subsequently been re-calculated at £0.2
million based on latest management estimates. The fair value is determined
using a discounted cash flow method. Future developments may require further
revisions to the estimate. The maximum contingent consideration to be paid
is £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'. Other non-current assets are also subject to an
impairment test as at 30 December 2022 as in accordance with IAS 36,
'Impairment of Assets', there is an indication of impairment due to slower
funeral market share growth, combined with more branch direct cremations
rather than attended funerals being performed than originally anticipated in
December 2021 and the subsequent short-term forecasts used for impairment
testing at that time.
For the purpose of this impairment test goodwill is tested at a business
segment level as this is the lowest level at which the return on assets
acquired, including goodwill, is monitored.
The segmental allocation of goodwill and the recoverable amount of the
goodwill cash-generating unit ('CGU') is shown below:
Book value Recoverable amount Book value Recoverable amount
30 December 2022 30 December 2022 31 31
£m £m December 2021 December 2021
£m £m
Funeral services - 108.2 112.1 371.3
Crematoria 55.8 371.7 55.8 391.5
55.8 479.9 167.9 762.8
The recoverable amount of each goodwill CGU is based on a value-in-use
calculation. The impairment assessment then compares this value-in-use
calculation to the carrying value of the CGU. Any impairment is then
recognised in administrative expenses in the consolidated income statement.
The value-in-use calculations use cash flow projections derived from the
latest forecast. Key assumptions used to produce the forecast are the
estimated UK death rates (based on forecast death rates supplied by the ONS),
anticipated market share, average revenues driven by pricing and the product
mix between attended funerals at £2,729 and unattended funerals at £1,048
and medium and long-term growth rates. The value-in-use calculations for the
December 2022 model include the approved forecast for 2023, 2024 and 2025. The
2023 forecast assumes death rates are approximately one percent higher
compared to the actual rate in 2022 and then revert back to announced ONS
figures for 2024 and 2025. Market share growth assumptions reflect forecasted
increases of 10 basis points in 2023 to 12.0 per cent and a further 20 basis
points in both 2024 and 2025 giving market share of 12.2 per cent and 12.4 per
cent respectively compared with the closing market share as at 30 December
2022 of 11.9 per cent. This market share growth is supported by performance in
areas of the business where the new strategy is embedded, which is forecast to
continue as this is completed across the funeral segment. The market share is
modelled to then stabilise at the projected 2025 year end market share
position over the remaining forecast period. Average revenues and product mix
are based on week eight 2023 year to date actual performance. Management have
then assumed that future revenue increases will equal future cost inflation.
Cash flows for segments beyond the initial 36 month period (December 2021: 36
month period) are extrapolated to 2042 ('medium-term growth rate') using the
growth in the ONS death rate as this is deemed to be a reliable indicator of
future growth for the Group. The medium-term growth rates range from 2.3 per
cent to 11.7 per cent (December 2021: 2.25 per cent). Beyond 2042 ('long-term
growth rate') a growth rate of 2.25 per cent (December 2021: 2.25 per cent) is
used, being an estimate of long-term growth, which reflects the expectations
of long-term inflation and death rates. The ONS issued updated death rates in
January 2022 and together with a with a further 14 months of death data they
are deemed to be a reliable estimate of the longer-term future volumes. The
cash flows for each segment are discounted at a pre-tax rate of 12.9 per cent
(December 2021: 10.3 per cent).
Goodwill assessment
The impairment calculation indicated no impairment in the crematoria division
with headroom under the current assumptions used of £147.8 million (2021:
£170.3 million). The discount rate would need to increase to 21.2 per cent
(2021: increase to 17.7 per cent) or the long-term growth rate would need to
fall to minus 9.0 per cent (2021: minus 7.7 per cent) for the impairment test
to result in £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 assessment of the funeral services division has resulted in an
impairment of goodwill of £112.3 million (2021: £36.4 million) which has
been recognised within administrative expenses in the consolidated Income
statement. The forecasts used in the assessment reflect the slower than
expected market share growth which is a result of the new strategy taking
longer to implement largely due to staff shortages. The Group is currently
suffering like many other businesses with a shortage of workforce and a
difficulty in recruiting which is causing us to be unable to offer funerals in
a timeframe soon enough for some families and hence some business has been
lost to competitors. The forecasts also reflect the at-need product mix in
funerals being more weighted to branch direct cremations (unattended
funerals) than originally anticipated, with future assumptions aligned to
actual year-to-date experience of attended 56 per cent and unattended 12 per
cent of total funerals.
Whilst the Group expects further long-term market share growth from the new
strategy, the accounting standard (IAS 36) for impairment assessments does not
allow forecasts to be used where assumptions cannot be evidenced or have not
yet been implemented (e.g. cost savings). As a result, whilst the Group is
committed to delivering its market share growth ambitions, given the infancy
of the strategic plan implementation and the available evidence to demonstrate
this growth as at the period ended 30 December 2022 when the impairment
assessment is made, the full extent of potential longer-term gains is not
reflected in the impairment modelling.
Trade name, right-of-use and property, plant and equipment assessment
In addition to the Group's goodwill impairment test, given the changes in the
funeral market noted above, an impairment test was performed in respect of
the Group's other non-current assets in accordance with the requirements of
IAS 36.
A value-in-use calculation has been performed against an individual CGU, which
for the purposes of other non-current assets is deemed to be at a cost centre
level, which includes a number of branches. This is the lowest level at which
independent cash inflows can be identified due to the interdependency of
various elements in relation to the care of the deceased, performance of a
funeral or administration work, which can and are often carried out by any
branch within a cost centre. This is also the lowest level at which costs are
captured, for example all payroll costs for this collection of branches would
be charged to the cost centre and not the individual branches due to the
sharing of resources across the branches. Management have considered
alternative judgements relating to the determination of CGU's, however the
above is considered to be the most practicable and balanced. The CGU cash
flows are based on the individual CGU projections for the next 12 months and
include an allocation of central costs and then adjusted in years two and
three onwards using the same assumptions as used within the goodwill
impairment assessment described above. As goodwill is not allocated at a cost
centre CGU level the impairment test for other non-current assets is
performed before goodwill at a business segment level.
Identified impairments at a CGU level are pro-rated against non-current assets
based on the net book value and include an allocation of central assets. The
performance of this impairment assessment at cost centre level indicated an
impairment within the funeral services segment of:
· £47.5 million (December 2021: £2.8 million) in relation to trade names;
· £17.4 million (December 2021: £nil) in relation to right-of-use assets;
and
· £19.1 million (December 2021: £nil) in relation to property, plant and
equipment.
£0.7 million (December 2021: £nil) has been recognised within cost of sales
and £83.3 million (December 2021: £2.8 million) recognised within
administrative expenses in the consolidated income statement.
The recoverable amount of all impaired CGUs within the funeral services
division is £20.6 million which is based on a value-in-use calculation. In
line with IAS 36 an exercise has been performed on an asset-by-asset basis to
ensure that no asset (or CGU) has been impaired below its value-in-use or fair
value less cost of disposal. This exercise has included obtaining external
market valuations which were principally available for freehold properties and
vehicles and an assumption that additions to plant and equipment in the last
12 months is a proxy to fair value. In addition, an assessment has been
performed on right-of-use assets to assess market rents and the ability to
sub-let properties to determine a discounted cashflow. The recoverable amount
for trade names in impaired CGU's is considered to be nil. These impairments
and the subsequent reduction in net book value have been reflected within the
above goodwill impairment calculations to reflect the lower asset base.
Goodwill and other non-current asset sensitivities
The impairment booked is based on management's best estimate of future
performance; however, there is significant estimation uncertainty and
judgement involved in determining future cash flows. The following table
demonstrates the impact on the above impairment charges in the funeral
services segment based on a number of reasonably possible sensitivities:
Decrease/(increase) in impairment charge
Sensitivity applied: Total
£m
Increase in discount rate of 1 per cent (to 13.9 per cent) (1.4)
Increase in 2023 funeral services EBITDA and beyond of £3.0m 1.4
Decrease in 2023 funeral services EBITDA and beyond of £3.0m (1.6)
(1) The sensitivities above reflect similar fair value assessments for
freehold properties, vehicles and plant and equipment. The recoverable amount
of right-of-use assets and trade names is included as nil. In the event of
further impairment, it is expected that a number of assets will have a
measurable fair value less costs of disposal above the value-in-use of the
assets, such that any additional impairment recognised is likely to be lower
than demonstrated. However, such analysis cannot be reliably estimated until
any additional impairment results as it is only then that an assessment can be
made of the fair value less costs of disposal to ensure that the asset is
written down to its appropriate carrying value (being the higher of
value-in-use and fair value less costs of disposal).
7 Cash and cash equivalents
Note 30 December 2022 31 December 2021
£m £m
Trading Group 7.7 55.9
Trusts (a) 9.4 19.8
Operating cash as reported in the consolidated statement of cash flows as cash 17.1 75.7
and cash equivalents
Amounts set aside for debt service payments (b) - -
Cash and cash equivalents as reported in the balance sheet 17.1 75.7
(a) Trusts cash balances
All assets of the Trusts can, by definition, only be used for certain
prescribed purposes such as, but not limited to, the payment for a funeral or
a refund on cancellation of a plan. They cannot be used for day-to-day
operational activities of the wider Trading Group and could not, for example,
be used to fund a capital expenditure project. The cash is held in Trust bank
accounts but is accessible without restriction and can be used within the
Trusts for any allowable purpose, such as payment following the performance of
a funeral. As Dignity is considered to control the activities of the Trusts,
this cash balance meets the requirements to be included in cash and cash
equivalents for the purposes of IAS 7.
(b) Amounts set aside for debt service payments
Amounts are transferred to these restricted bank accounts shortly in advance
of making the bi-annual payments to the holders of the Secured Notes, which
include the payment of the interest and principal on the Secured Notes, the
repayment of liabilities due on the Group's commitment fees due on its undrawn
borrowing facilities and for no other purpose. The consolidated statement of
cash flows shows the gross amounts of payments to the restricted bank accounts
as 'finance costs paid' and 'payments due under Secured Notes', in accordance
with their nature. Supplementary information is provided to show the actual
payments to the Noteholders and the movement in the restricted bank accounts
in the period. The amounts shown as 'transfer from restricted bank accounts
for finance costs' and 'payments to the restricted bank accounts for repayment
of borrowings' relate to the opening and closing balances of the account
respectively, and hence the figures presented for the 52 week period ended 30
December 2022 exclude the mid-year transfers and payments. No amounts were
included in December 2022 or December 2021 as the payments to these respective
parties were made on 30 December 2022 and 31 December 2021 and therefore there
was no restricted cash.
The Note Trustees have charge over this restricted bank account.
8 Financial assets - held by the Trusts
30 December 2022 31 December 2021
£m £m
Financial assets held by the Trusts 957.3 1,043.1
The Trusts of Age UK Funeral Plans and the National Funeral Trust continue to
take independent advice regarding the investment strategy. The current
portfolio profile is as follows:
Example investment types Actual (%)
Defensive investments Index linked gilts and corporate bonds 10-12
Illiquid investments Private equity investments 6-8
Core growth investments Equities 64-67
Liquid investments Cash portfolios 16-17
The assets of the UK Funerals (2022) Trust are currently held in cash
totalling £6.8 million pending an investment.
Given the high percentage of investments held within equities, this does
impose an inherent risk of exposure to downward falls in equity markets. Such
investments can be subject to volatility due to movements in underlying
markets and assets and can go up and down. The Group monitors this closely and
this forms part of its considerations for its long-term investment strategy,
noting that the purpose of the Trust is to provide asset coverage (and a
surplus) to fund the pre-need funerals return which are forecast to have an
average maturity of 10 plus years.
Analysis of the movements in financial assets held by the Trusts:
30 December 2022 31 December 2021
£m £m
Fair value at the start of the period 1,043.1 967.1
Remeasurement recognised in the consolidated income statement* (57.7) 85.0
Investment income* 22.2 7.7
Hedging/foreign exchange losses((1)) * (13.1) (1.7)
Purchases 177.1 948.7
Disposals (214.1) (960.9)
Investment administrative expenses deducted at source (0.2) (2.8)
Fair value at the end of the period 957.3 1,043.1
(1) This represents foreign exchange differences and currency hedges
against exposure to global equity portfolios held by the Trusts.
* The sum of these line items forms part of the remeasurement of
financial assets held by the Trusts and related income, recognised in the
consolidated income statement.
Interest and dividend income received is included within remeasurements
recognised in the consolidated income statement.
9 Deferred commissions and contract liabilities
Deferred commissions
30 December 2022 31 December 2021
£m £m
Deferred commissions - current 7.0 7.6
Deferred commissions - non-current 93.7 100.9
Deferred commissions represent directly attributable costs in respect of the
marketing of the pre-arranged funeral plans where the plan has yet to be used
or cancelled. An amount of £8.6 million (2021: £9.3 million) has been
amortised to the consolidated income statement within administrative expenses.
Contract liabilities
Note 30 December 2022 31 December 2021
£m £m
Current
Contract liabilities - deferred revenue (a) 97.9 98.6
Contract liabilities - refund liability (b) 0.9 1.0
98.8 99.6
Non-current
Contract liabilities - deferred revenue (a) 1,206.0 1,224.0
Contract liabilities - refund liability (b) 11.6 13.9
1,217.6 1,237.9
Movement in total contract liabilities
30 December 2022 31 December 2021
£m £m
Balance at the beginning of the year 1,337.5 1,317.5
Sale of new Trust plans 46.5 86.3
Increase due to significant financing 50.9 51.6
Recognition of revenue following delivery or cancellation of a Trust plan (118.5) (117.9)
Balance at the end of the year 1,316.4 1,337.5
(a) Contract liabilities - deferred revenue
Deferred revenue represents amounts received from pre-arranged funeral plan
holders adjusted to reflect a significant financing component, and for which
the Group has not completed its performance obligations at the balance sheet
date. The balance is split between current and non-current based on historical
experience to reflect the expected number of plans to be utilised within the
next 12 months.
(b) Contract liabilities - refund liability
Refund liabilities represent amounts received from pre-arranged funeral plan
holders for which it is expected that the respective plans will be cancelled
based on historical experience. The balance is split between current and
non-current based on historical experience to reflect the expected number of
plans to be cancelled within the next 12 months.
10 Net debt
30 December 31 December
2022 2021
£m £m
Net amounts owing on Secured Notes per financial statements (516.1) (526.6)
Add: unamortised issue costs (0.4) (0.5)
Gross amounts owing (516.5) (527.1)
Accrued interest on Secured Notes - -
Cash and cash equivalents - Trading Group (note 7) 7.7 55.9
Net debt (508.8) (471.2)
Net debt is an alternative performance measure calculated as shown in the
table. Net debt excludes any liabilities recognised in accordance with IFRS
16.
The Group's primary financial covenant in respect of the Secured Notes
requires EBITDA to total debt service ('EBITDA DSCR'), in the Securitisation
Group, to be at least 1.5 times. During the temporary covenant waiver period
that was approved by bondholders in March 2022, any cash transferred into the
Securitisation Group during the waiver period (up to 31 March 2023) can be
included within the EBITDA to debt service covenant ratio for the following 12
months. As a result, any cash transferred during 2022 will be included in the
quarterly covenant calculations to September 2023 and any cash transferred in
the first quarter of 2023 can be included in the quarterly covenant
calculations to December 2023. A cash transfer of £34.1 million has been
made for the covenant measurement point up to and including 31 December 2022,
resulting in a ratio of 1.96 times (2021: 2.13 times). Excluding this cash
transfer the ratio at 30 December 2022 was 0.95 times (2021: 2.13 times). The
calculations are unaffected by the consolidation of the Trusts or the
application of IFRS 15 and IFRS 16 described elsewhere, as the Group was able
to elect to disregard those changes when making the calculations. See
Financial review on pages 11 and 12.
If this primary financial covenant is not achieved, then this may lead to an
Event of Default under the terms of the Secured Notes, which could result in
the Security Trustee taking control of the Securitisation Group on behalf of
the Secured Noteholders.
These ratios are calculated for EBITDA and total debt service on a 12 month
rolling basis and reported quarterly. In addition, both terms are specifically
defined in the legal agreement relating to the Secured Notes. As such, they
cannot be accurately calculated from the contents of this report.
The Group also has access to a £55.0 million liquidity facility relating to
the Class A and Class B Secured Notes which attracts floating interest rates
once drawn.
11 Reconciliation of cash generated from operations
52 week period ended 53 week period
ended
30 December
31 December
2022
2021
£m
£m
Net (loss)/profit for the period (275.2) 12.1
Adjustments for:
Taxation (53.4) 19.9
Net finance costs 56.7 70.8
Loss/(profit) on disposal of fixed assets 0.1 (1.1)
Depreciation charges on property, plant and equipment 20.2 19.9
Depreciation charges on right-of-use asset 7.9 9.2
Amortisation of intangibles 4.1 4.5
Movement in inventories 0.7 0.4
Movement in trade receivables (1.1) (2.5)
Movement in trade payables 1.8 3.7
Movement in contract liabilities (71.9) (31.6)
Fair value movement on financial assets held by the Trusts 57.7 (85.0)
Net pension charges less contributions (4.0) (1.3)
Trade name write-off (note 6) 6.4 2.5
Trade name impairment (note 6) 47.5 2.8
Goodwill impairment (note 6) 112.3 36.4
Right-of-use asset impairment 17.4 -
Property, plant and equipment impairment 19.1 -
Changes in other working capital - Trading Group 3.6 2.2
Changes in other working capital - Trust 4.6 0.1
Provisions relating to funeral plans 13.6 -
Trust investment administrative expenses deducted at source 0.2 2.8
Hedging/foreign exchange rate difference - Trust assets 13.1 1.7
Employee share option charges 0.4 0.8
Payment in relation to amendment of Secured Loan Notes agreement 0.5 -
Cash flows from operating activities (17.7) 68.3
12 Analysis of the movement in the retirement benefit obligation
2022 2021
£m £m
At beginning of period (19.7) (36.6)
Total expense as above charged to the income statement (0.8) (1.0)
Remeasurement gains and administration expenses credited to other 5.2 15.6
comprehensive income
Contributions by Group 4.5 2.3
At end of period (10.8) (19.7)
13 Basis of preparation
These financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and UK-adopted international accounting
standards ('IFRS').
In the current period, the Group's consolidated financial statements have been
prepared for the 52 week period ended 30 December 2022. For the comparative
period, the Group's consolidated financial statements have been prepared for
the 53 week period ended 31 December 2021.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 December 2022 or 31 December 2021
but is derived from those accounts. Statutory accounts for 2021 have been
delivered to the registrar of companies, and those for 2022 will be delivered
in due course. The auditors have reported on those accounts; their reports
were (i) unqualified, (ii) did not include a reference to any matters to which
the auditors drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006 in respect of the accounts for 2020 and 2021.
The Group's consolidated financial statements are prepared on a going concern
basis and have been prepared under the historical cost convention.
The principal accounting policies adopted in the preparation of these
financial statements have been consistently applied to all periods presented.
Going concern
The financial performance of the Group and the Securitisation Group has been
forecast for a period through 31 March 2024 (the 'going concern period') and
those forecasts ('base case') have been subjected to a number of
sensitivities. The base case forecasts reflect an assessment of current and
future market conditions and their impact on the future profitability and
liquidity of the Group and the Securitised Group.
The key factors which impact the Group's financial performance are death rate,
market share, funeral mix (Attended Funeral vs Unattended Funeral), average
revenue per funeral and inflation.
As discussed in the 2022 interim results, the performance against the planned
strategy in H1 2022 was behind that originally anticipated as it was taking
longer to restructure funeral operations and the Group had challenges with
staff shortages; and as such forecasts were adjusted to allow for a slower
growth in market share whilst the new strategy is fully embedded and vacancies
for key roles are filled. These challenges have continued to impact H2 2022
and as a result have resulted in lower covenant headroom than previously
forecast for the going concern period. However, in those areas of the business
where we have done the most to introduce the elements of our new strategy, we
are continuing to see encouraging results of the market share growth we are
seeking.
The base case assumes death rates are approximately one percent higher in 2023
compared to 2022 and in line with ONS figures for 2024, funeral market share
growth of one per cent in 2023 (phased through the year, being 12.4 per cent
for 2023 compared to 11.9 per cent in 2022), with funeral mix remaining at the
current rates and an uplift in average revenues reflecting an October 2022
price adjustment and having considered the expected impact of inflation on the
Group's cost base.
Debt and liquidity
As at 30 December 2022, the Group had cash (excluding cash in the Trusts) of
£7.7 million. Its operations are also funded by Class A Notes with an
outstanding principal of £160.1 million (matures 2034) and Class B Notes with
an outstanding principal of £356.4 million (matures 2049) (together, the
'Loan Notes') that are listed on the Irish Stock Exchange. The terms and
conditions for these Loan Notes are covered by an Issuer/Borrower Loan
Agreement ('IBLA').
Dignity plc has a £50 million loan facility (the 'Loan Facility') that was
signed on 6 December 2022 and is available to be draw down in full or in
instalments until 5 December 2023 and carries a seven per cent rate of
interest. The Loan Facility is with Phoenix UK Fund Ltd which is a related
party, it has no restrictive covenants, no minimum solvency covenants and no
charges over any assets and therefore no negative impact on the Group's
existing capital structure.
At 30 March 2023, the directors had approved two initial drawdowns on the Loan
Facility, the first being £5.0 million on 2 March 2023 and the second being
£10.0 million on 30 March 2023 (both of which have been received), a further
£30 million is forecast to be drawn before 5 December 2023 however, depending
on timing of capital expenditure this may change.
Under the base case, the Group is forecast to have sufficient liquidity to
meet its liabilities as they fall due in the period assessed through to 31
March 2024. This is having given due consideration to the amount of the cash
on hand (including the drawdown of the Loan Facility), the planned investments
in capital and the expected conversion of trading profitability into cash at
historic levels.
Covenant test
As part of the conditions of the Loan Notes, the Securitisation Group is
required to comply with an EBITDA: Debt Service Charge Ratio ('DSCR')
covenant, tested quarterly on a last 12 month ('LTM') basis. At each point of
testing, EBITDA must exceed c.£51 million (i.e., 1.5x the annual debt service
cost of £34 million).
The Group did not meet this covenant at 1 July 2022, 30 September 2022 or 30
December 2022, being £2.8 million, £8.6 million and £18.6 million
respectively below the LTM DSCR requirement. However, under the terms of a
waiver agreed with the bondholders on 11 March 2022, this was not a breach as
the Group was able to make an equity cure, contributing cash which counts as
EBITDA and therefore makes good this shortfall. To provide additional headroom
in the forecasts (the equity cure and any additional cash transferred counts
in the covenant calculation for the prospective 12 months), Dignity plc paid
an amount of £34.3 million (being the £18.6 million required for an equity
cure and an additional cash transfer of £15.7 million) into the Securitised
Group in 2022.
The waiver and ability to equity cure currently applies to the covenant up to
and including 31 March 2023 and the Group has the option of contributing an
uncapped amount of cash in order to provide headroom against the covenant
prospectively. Any cash contributed in Q1 2023 can be included in the
covenant test point at each successive quarterly test up to and including 31
December 2023. Based on the Group's base case forecast, an amount of £13.5
million has been transferred as an equity cure in March 2023 from Dignity plc,
having drawn £15.0 million of the £50.0 million Loan Facility. This is to
give the Group flexibility whilst it continues to focus on embedding the new
strategy, which is expected to generate growth in its funeral market share and
profits.
Stress test
When considering the going concern assumption, the Directors of the Group have
reviewed the principal risks within the environment in which it operates and
have prepared relevant sensitised scenarios giving a reduction to the base
case, these include:
· Deaths being 10,000 less than forecast (noting 2023 deaths are forecast
to be one per cent higher than 2022 deaths);
· No funeral market share growth in 2023 or 2024 (noting FY22 comparable
market share growth is 0.2 per cent);
· Average revenue per funeral being £45 lower;
· The proportion of Unattended Funerals being one per cent higher (compared
to the FY23 forecast of nine per cent); and
· Additional inflation costs of five per cent above those modelled (with no
cost mitigation activity).
This downside scenario modelling confirmed that there is a plausible scenario
in which the Group would not meet its DSCR covenant in the going concern
period, specifically the risk of not meeting the covenant at 31 March 2024
after the expiry of the equity cure in the LTM DSCR calculation.
In a severe but plausible downside scenario (having taken into account all of
the above sensitivities in tandem and applying further downside risk), and
having taken into account controllable mitigations such as delaying marketing
spend, there is a risk that the DSCR covenant might be breached as at 31
December 2023.
The downside scenario modelling also confirmed that, after forecasting to use
£45.0 million of the Loan Facility, the Group has sufficient liquidity. The
Group considered whether there were any plausible circumstances that could
exhaust liquidity. In the severe but plausible downside scenario, having given
due consideration to controllable mitigations, for example reducing
discretionary capital expenditure and marketing spend, there were no plausible
scenarios in which the Group would not have sufficient liquidity in the going
concern period.
Based on a review of its cost base as part of the forecasting, the Group has
identified cost saving opportunities that could provide additional liquidity
and EBITDA headroom if needed. These central overhead savings are within the
Group's control but are not planned, nor anticipated to be required.
Some controllable mitigating factors do not have an immediate impact so there
is still a risk of breaching the DSCR covenant at 31 December 2023 and 31
March 2024, which has resulted in a material uncertainty (see Conclusion
below).
Impact should there be a breach of the DSCR covenant
However, any breach of the covenant does not give rise to an immediate
requirement to repay the associated Loan Notes. Rather, such a breach results
in a requirement for the noteholder trustees to appoint a financial adviser
who will review the financial and operational circumstances of the Securitised
Group prior to making recommendations as to how the breach can be resolved
considering whether the Securitised Group is likely to be able to remedy such
a breach. If the financial adviser considers that the Securitised Group is
likely to be able to remedy such a breach this will be done by the placing of
cash collateral in an amount which, if it had been placed for the relevant
period in respect of which the covenant was breached, would have generated
interest sufficient (if added to EBITDA for the relevant period) to have
ensured that the covenant was not breached. The interest rate on which the
cash collateral would accrue interest to add to the EBITDA calculation would
be measured at the rate that is earned on such cash collateral as at the date
it was placed (e.g., a deposit rate quoted by a bank). If the Group is unable
to remedy such a breach the Loan Notes would be repayable on an accelerated
basis and could be repayable immediately at the request of the noteholders.
The Directors have obtained independent legal advice to confirm that there are
no consequences of the material uncertainty conclusion over going concern
under the terms of the IBLA.
Period beyond the going concern period
The Group has also considered the period beyond 31 March 2024 to assess if
there are any significant risks that exist that would otherwise impact the
going concern assumption. As the current equity cure does not benefit the DSCR
covenant reporting after 31 December 2023 as the last 12 months cash
contributions will have expired, the base forecast covenant headroom is
reduced at that point.
To provide further headroom and reduce the risk of a covenant breach, the
Group has continued to work on a long-term solution to improve the Group's
capital structure. On 7 September 2022 a consent solicitation with c.61 per
cent support from its Class A noteholders was launched. The voting concluded
on 29 September 2022 and the consents were approved, with 94.42 per cent of
votes cast in favour. As a result of this, consents from noteholders have been
gained to permit a potential transaction involving the realisation of value
from selected crematoria assets (the trading performance for which is included
within the Securitisation Group), with the proceeds of such a transaction
being applied in a partial redemption of the Class A Notes. These consents
apply for a 12 month period to 29 September 2023.
Dignity will be required to inject a minimum of £70 million into the
Securitisation Group to partially repay some of the Class A Notes outstanding
in consideration for trade and assets leaving the Securitisation Group. If the
transaction completes by 30 June 2023 and £70 million is the net realisation,
then upon repayment of debt at this level, this will result in a deleveraging
of the Group and a positive impact of £6.1 million on the DSCR covenant
calculations, i.e., a reduction of the DSCR from c.£51 million to c.£44.9
million for 31 March 2024. If the transaction takes longer to complete and is
completed between 30 June 2023 and 30 September 2023 there would be no
positive impact in March 2024 as the first possible date for repayment will be
29 December 2023. It would have a full year impact of £10.2 million on the
DSCR covenant calculations, i.e., a reduction of the DSCR from c.£51 million
to c.£41 million in 2024.
In addition, upon completion of the proposed transaction within the
timeframe permitted by the noteholder consent, there are amendments to the
documents that will allow further equity cures, with restrictions, to be made
going forward should they be required. If the transaction completes before 30
June 2023, this can be used to supplement any EBITDA shortfall at 31 December
2023 and 31 March 2024.
The Directors are confident that a realisation of value from selected
crematoria assets can be achieved in order to deleverage the Group and reduce
the DSCR requirement as explained above.
Potential takeover and delisting of the Group
In February 2023, the board recommended that Dignity shareholders accept the
cash offer for Dignity made by BidCo, a newly formed company controlled by a
consortium comprised of joint offerors SPWOne V Limited, Castelnau Group
Limited and Phoenix Asset Management Partners Limited (collectively hereafter
the 'Bidco consortium').
For the takeover to be effective, the Acceptance Condition (as defined in the
offer document) must be satisfied (i.e., holders of Dignity shares
representing the requisite percentage of Dignity shares to which the Offer
relates need to submit valid acceptances of the Offer in respect of those
Dignity shares). The Offer is also conditional upon, among other things,
satisfaction of the FCA Change in Control Condition (as defined in the offer
document), which has not yet been met.
Through review of the offer document published by Bidco and discussions with
the Bidco consortium, the Directors are confident of the continuation of the
Group's strategy to invest in its estate and target market share growth should
the takeover take place.
The Directors have also considered the impact of the potential takeover on its
financing agreements and pre-need Trusts and have concluded that a change of
control does not impact on the terms of the IBLA or the deeds of the pre-need
Trusts. The potential takeover, if completed, would constitute a "change of
control" for the purposes of the £50 million Loan Facility. However, a waiver
has been granted by Phoenix UK Fund Ltd (as lender) that allows the Group to
draw funds under the Loan Facility even in the event of a takeover of the
Group by the Bidco consortium.
Conclusion
Having considered all the above, the Directors remain confident in the
long-term future prospects for the Group and its ability to continue as a
going concern however, there are plausible downside scenarios that could
result in a breach of the DSCR covenant in the period through to 31 March
2024, which if failed to be remedied to the satisfaction of the financial
adviser operating on behalf of the noteholders, would be considered an event
of default under the IBLA resulting in the Loan Notes becoming repayable on an
accelerated basis and could be repayable immediately at the request of the
noteholders.
The events or conditions described above indicate that a material uncertainty
exists that may cast significant doubt on the Group and parent Company's
ability to continue as a going concern.
These financial statements do not include any adjustments to the carrying
amount or classification of assets and liabilities that would result if the
Group and parent Company were unable to continue as a going concern.
The Directors, whilst acknowledging there is a material uncertainty, continue
to adopt the going concern basis in preparing the 2022 Preliminary
Announcement.
14 Securitisation
In accordance with the terms of the Secured Notes issued October 2014, Dignity
(2002) Limited (the holding company of those companies subject to the
securitisation) has today issued reports to the Rating Agencies (Fitch Ratings
and Standard & Poor's), the Security Trustee and the holders of the
Secured Notes issued in connection with the securitisation, confirming
compliance with the covenants established under the securitisation.
Copies of these reports are available at www.dignityplc.co.uk/corporate
(http://www.dignityplc.co.uk/corporate) .
15 Principal risks and uncertainties
Our principal Group risks
We detail here our top-down approach to risk management which supports our
assessment of the principal risks facing the Group. In assessing which risks
should be classified as 'principal', we assess the probability of a risk
materialising together with its financial or strategic impact.
Risk appetite
Risk appetite is the level of risk that the Group is willing to take in order
to achieve its strategic objectives, and it is set by the Board as advised by
the Risk Committee. The Committee assesses the Group's risk appetite across
wide-ranging areas including the market, financing, operations, strategy and
execution, developments, cybersecurity and technology, and brand.
The Board operates the appropriate risk appetite depending on the type of
risk: for example, regulation, customer and cyber risks are low level but for
strategic risk we are more willing to address greater risk to achieve
strategic objectives. The overarching principle is that the Group's services
are of a consistently high standard and adhere to all regulatory requirements.
We have reviewed risk appetites for specific key risks during the year and,
where appropriate, the Group's risk appetite has been adjusted accordingly.
Our approach to risk management
The Group has a well-established governance structure with internal control
and risk management systems. Dignity operates a three lines of defence model
with each line understanding its own responsibilities within the common
framework. The model contributes to fewer surprises and losses through a
well-defined and operated control framework to manage risks, lower risk
exposure where appropriate and increase likelihood that Dignity's objectives
will be achieved.
The risk management process:
· Provides a framework to identify, assess and manage risks, both positive
and negative, to the Group's overall strategy and the contribution of its
individual operations; and
· Allows the Risk Committee to review a balanced and understandable
assessment of the operation of the risk management process and inputs.
Responsibilities and actions
The Board
The Board is responsible for monitoring the Group's risk and associated
mitigating factors. Through the Risk Committee, it has carried out a robust
assessment of both emerging and principal risks. This assessment process is
supported by in-house risk management professionals.
The Company continues to work towards meeting its corporate governance
responsibilities in respect of the composition of the Board, and is currently
in the recruitment process for a Chief Financial Officer.
Risk process
The Risk Committee meets at least three times annually to consider the Group's
principal risks and uncertainties for subsequent adoption by the Board.
Risk assessment
Executive Directors and the leadership are responsible for identifying and
assessing business risks.
Identifying risk
We identify risks through discussion and analysis with senior management, and
include them in the risk register as appropriate.
Assessing risk
The potential impact and likelihood of each risk occurring is considered.
Mitigating activities
Where at all possible, we identify mitigating factors against each risk.
Currently, mitigation has been identified for principal and emerging risks.
Review and internal audit
The link between each risk and the Group's policies and procedures is
identified. The Risk function reviews and provides oversight of the risks the
business is facing. Where required, the Risk function will conduct deep dives
into risks to manage and understand them further. Where relevant, the Group's
Internal Audit function assists with appropriate work, across an audit plan
cycle, to ensure the related key controls, procedures and policies are
understood and operated effectively where they serve to mitigate risks.
Risk Committee
The Risk Committee advises the Board on risk management issues, recommends the
framework of risk limits and risk appetite to the Board for approval and
oversees the risk management arrangements of the Company. This includes
embedding and maintaining a supportive risk management culture.
The Risk Committee seeks to ensure that material risks have been identified,
and appropriate arrangements have been made, to manage and mitigate those
risks effectively within the Company's agreed risk appetite.
Risk status summary
The ongoing review of the Group's principal risks focuses on how these risks
may evolve.
Regulation of pre-arranged funeral plans
In order to carry out regulated funeral plan activities, firms must now be
authorised by the FCA. Continuing with regulated activity without
authorisation is a criminal offence.
Dignity is an FCA-regulated provider of pre-arranged funeral plans. We believe
that this regulation is necessary and have welcomed its introduction.
COVID-19
Although no longer a principal risk, COVID-19 created risks both to our
ability to deliver services during lockdown and to the health and safety of
our colleagues. We continue regular assessments of potential risks.
The Group has formulated business continuity and pandemic plans that are
invoked, reviewed and adapted as necessary.
Accordingly, the ability to maintain average revenue is influenced by changes
in the competitive landscape and the impact of COVID-19 pandemic.
Financial risk management
Risk description and impact Mitigating activities and commentary Change
Significant movements in the death rate The profile of deaths has historically seen inter-year changes of ± one per No change
cent, giving the Group the ability to plan its business accordingly. The death
There is a risk that the number of deaths in any year will significantly rate volatility increased during the COVID-19 pandemic and following it. The
reduce or increase. This would have a direct result on the financial and long-term projection of the Office for National Statistics ('ONS') is for
operational performance of both our funeral and crematoria services. deaths to increase.
We mitigate the risk by being able to control our costs and price structure,
although this would not mitigate a significant short-term reduction in the
number of deaths. Additionally, the ability to mitigate is currently affected
by inflationary pressures such as the price of energy.
The number of deaths in 2022 was 639,000, which was four per cent lower than
the prior year. Our planning continues to be based on the long-term
expectations provided by the ONS.
The COVID-19 pandemic created a period of significant disruption for the
funeral sector as the elevated death rate resulted in more funerals and
cremations than the five-year average.
Whilst we anticipate this volatility in death rates will continue, it is
possible that the death rate may reverse (although, as previously stated, the
long-term ONS view is that it will increase), and the offsetting impact of
these factors results in no change in the risk assessment.
National adverse publicity The Group's strategy is to focus on increasing funeral and crematoria market No change
share, together with prioritising the sale of funeral plans through branches
National adverse publicity for Dignity could result in a significant reduction rather than telesales partners. We are now focused on developing and executing
in the number of funerals or cremations performed in any financial period. For a vision to excel in the new FCA-regulated environment using all potential
pre-arranged funeral plans, adverse publicity for the Group, or for one of channels to find and support new clients.
its limited number of partners, could result in a reduction in the number
of plans sold or an increase in the number of plans cancelled. FCA regulation of the sector has acted as a catalyst for change, resulting in
a small number of organisations withdrawing from the pre-need funeral plans
market. Where we can, Dignity has stood by its commitment to help customers of
other plan providers and, as we have for customers of Safe Hands, we have
engaged with a number of firms that are exiting the market. We continue to
provide support to families that have been impacted by the collapse of various
firms through providing funeral services to families.
Dignity is cognitive of and has assessed the financial risk in the transfer of
funeral plans in this circumstance but the primary objectives are customer
outcomes and support for the pre-need market. See also 'Rescue plan transition
costs' on page 10.
The Group also previously responded to and adopted the requirements of the CMA
Funerals Market Investigation Order 2021.
The Group maintains a system of internal control to ensure the business is
managed in line with its strategic objectives.
Staff training and the work of the Quality and Standards Team assist in
mitigating this risk.
Dignity operates a suite of sector-leading policies and practices that form
our SOPs. These sit at the heart of everything we do regarding our care for
clients and those they have lost. The procedures include guidelines for
security and identification, access to premises and mortuaries, care for the
deceased and all other important policies for both observed and unobserved
procedures.
In terms of quality of care for clients and their loved ones, the SOPs assist
in mitigating reputational risk and the possibility of adverse press coverage.
A fall in average revenue per funeral or cremation, resulting from The Group's strategic review has resulted in a more efficient business that Increase
market changes can accommodate more competitive pricing, while continuing to provide clients
with a greater range of choice, underpinned by exceptional standards and
There has been increasing price competition in the funeral market, resulting service. This will be supported by strong reputational management. The Group
in material price reductions by the Group in recent years. It is highly likely is aspiring to achieve 20 per cent funeral market share in 10 years' time
that pricing pressure will remain for the foreseeable future, and therefore (including both pre and at-need funerals) by offering the best service at the
maintaining current average revenue per funeral or cremation may not be best value.
possible.
The Group will continue to adapt to serve evolving client needs. This will
be achieved through investing in digital capabilities, including enhanced
reporting of business intelligence and management information which
will enable risks and trends to be identified promptly and accurately.
The Group has in recent times experienced lower average revenues than
originally expected. In addition, awareness of Simple Funerals and Simplicity
Cremations increased during the pandemic.
Inflationary pressures and the recessionary impact on the cost of living may
further impact consumer preference and reduce net average revenues.
In 2021, we lowered prices substantially and found that our decline in market
share was arrested and then reversed. Therefore, over time, we expect that
loss of revenue to be more than compensated by volume growth, especially when
combined with all the other elements of our strategy.
Direct cremations The Group has addressed the increased demand for direct cremation with Increase
Simplicity Cremations, which offers low-cost, dignified direct cremations
Growth in the direct cremation market could reduce average revenue in our without an initial funeral service. They are an affordable alternative to a
funeral business and adversely affect the volume mix and average revenue in full funeral, or for those who just wish for a simple cremation. The
the crematoria business. increased demand for direct cremations has resulted in a decline in
underlying average revenue, although our strategy is to rebalance this
through increased market share.
Financial covenant under the Secured Notes The nature of the Group's debt means that the denominator is now fixed unless Increase
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 calculation will change proportionately with changes in EBITDA generated by
1.5 times. If this financial covenant (which is applicable to the securitised the Securitisation Group.
sub-group 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 Lower reported profitability increases the risk of breaching covenants.
Security Trustee taking control of the Securitisation Group on behalf of the
Secured Note holders. See note 13 for further details. The distorting impact of the pandemic on the timing of deaths continues to
create significant uncertainty around the UK death rate in the near term. In
In addition, the Group is required to achieve a more stringent ratio of 1.85 order to address this uncertainty, the Board took the prudent decision to
times for the same test, in order to be permitted to transfer excess cash from secure a temporary waiver of the financial covenant, on a precautionary basis
the Securitisation Group to Dignity plc. regarding Dignity Finance PLC's debt obligations. As a result, in March 2022
the Group was granted a waiver on the application of the covenants on the
bonds for 12 months. This course of action accounted for post-pandemic
uncertainty over the death rate which, together with the challenge of
restructuring, risked a potential covenant breach. The waiver allows for
an equity cure by Dignity plc should there be a shortfall in EBITDA of the
Securitisation Group.
The agreement reached in September 2022 between Dignity and its bondholders
allows for a deleveraging transaction involving and dependent on seven
crematoria, which is expected to take place by 29 September 2023 as permitted.
This transaction, if completed, would result in a deleveraging of the Group
and a positive impact on the underlying financial ratios and covenant
calculations. It requires a minimum of a net £70 million repayment of the
bonds, but that figure could be higher depending on the value placed on the
crematoria when the expected transaction occurs. Changes to the terms of the
bonds will also allow more operational flexibility and future equity cures.
The consent to the proposal applies for a 12 month period to 29 September
2023. Should the transaction complete, an outcome the board is fully focused
on achieving within the 12 months allowed, there are amendments to the
documents that will allow further equity cures, with restrictions, to be made
going forward should they be required.
The Group also has a loan facility with Phoenix Asset Management Partners.
See also Financial review, Capital structure and financing for the Trading
Group on page 11 and Going Concern on pages 38 to 40.
Disruptive new business models leading to a significant reduction in market The Group believes that this risk is mitigated by its reputation as a No change
share high-quality provider, and with word of mouth recommendations being a key
driver in how families choose a funeral director. In addition, the Group's
It is possible that external factors, such as new competitors and the actions on pricing and promotion seek to protect the Group's funeral market
increased impact of the internet on the sector, could result in a significant share by offering more affordable options. The substantial lowering of prices
reduction in market share of our funeral and crematoria operations. This would in 2021 and the adoption of a strategy based on growth have allowed our market
have a direct result on the financial performance of those divisions. share to stabilise and grow.
The Group is prioritising investment into standards of care, facilities and
our estate, alongside a combination of a competitive pricing and product mix,
cultural change and stronger branding, to grow local market share.
For crematoria operations this is also mitigated by the Group's experience and
ability in managing the development of new crematoria.
The Group will focus on:
· Growing both volume and revenue per crematorium by increasing throughput
and greater ancillary sales;
· Continuing to build out the pipeline of crematoria and build additional
capacity into existing facilities; and
· Embracing direct cremation and becoming the best value provider for the
location-agnostic value segment of the market.
Additionally, the combination of the development of strong national brands and
significant investment in digital capability, together with a range of product
and price offerings to clients, is expected to strengthen the
Group's competitiveness.
Demographic shifts in population In such situations, Dignity would seek to follow the population shift by No change
rebalancing the funeral location network together with meeting the
There can be no assurance that demographic shifts in population will not lead developing cultural requirements.
to a reduced demand for funeral services in Dignity's areas of operation.
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 the community with strong local brands, whilst offering the best service and
currently fragmented. the best value. Central to our strategy is a focus on improving the culture of
our business, empowering our colleagues locally and working together to
There could be: achieve our best through teamwork.
· Further consolidation as FCA regulation of the pre-need sector This will be achieved:
has acted as a catalyst for change, resulting in a number of organisations
withdrawing from the market; or · By developing new products and trials. We have launched several trials
with the objective of achieving the right combination of price, product and
· Increased competition in the industry, whether through intensified price promotion, not only to grow our local market share but to sustain and grow our
competition, service competition, over-capacity facilitated by the internet revenues. The direct cremation has introduced new competitively priced
or otherwise, which could lead to an erosion of the Group's market share, products that can fit within our existing price and product architecture;
average revenues or an increase in costs and consequent reduction
in its profitability. · Through a new tiered funeral pricing proposition that will provide
greater flexibility to meet individual client needs;
Failure to replenish or increase the bank of pre-arranged funeral plans could
affect market share of the funeral division in the longer-term. · By unbundling our prices and services and giving clients true flexibility
to create the right funeral thus providing greater consistency and
Competition continues to intensify, with additional funeral directors opening competitiveness on price, while reflecting Dignity's premium service levels;
at varying price points, alongside an increase in the popularity of direct
cremations. · Through a significant online presence: visibility leverages our scale and
addresses the needs of digitally driven clients. Through the Dignity and
Simplicity brands, we are leveraging scale advantages in the digital age. We
also recognise that our established local funeral trading names continue to
have significant value in the communities they serve;
· Through better allocation of our resources, the resulting efficiencies
allowing us to reduce the number of funeral locations and their associated
cost. Where appropriate, support functions are being centralised to ensure a
cost effective and consistently high standard of service;
· Although there are challenges to opening new crematoria, due to the need
for planning approval and the costs of development. Dignity has extensive
experience in managing new projects;
· As the Group offers a high-quality pre-need product, it will benefit
from the current and significant future investment in marketing and
enhanced digital presence; and
· As FCA regulation of the sector is an opportunity for Dignity to gain
a competitive position.
It also reassures Dignity's customers that they hold a funeral plan with a
trusted and reputable provider, backed by a secure and well-managed trust
fund. We recognise that this is not the case for customers of those providers
that have failed to meet the FCA requirements or have elected to exit the
market. We stand by our commitment to help customers of other plan providers
where we can and, as we have with the customers of Safe Hands, we will engage
with those firms on a case-by-case basis.
Cyber risk In recent years, the Group has invested significantly in this area with the Increase
objective of both upgrading all aspects of our systems and our internal
Our business is at risk of financial loss, disruption or reputational damage resources, and also using external consultants to drive a continuous
in the event of a failure of our IT systems. This could materialise in a improvement programme.
variety of ways, including deliberate and unauthorised access and breaches of
security. The chance of an organisation falling victim to a cyber-attack is growing.
Threats are more pervasive and sophisticated than ever.
In addition to maintaining appropriate levels of cyber insurance, we continue
our investment in fit-for-purpose security controls, processes and technology.
This ensures we keep pace with the current threat landscape whilst proactively
monitoring for breaches and improving internal understanding and communication
of initial risks, mitigations and residual risks.
The Group is working with external cyber specialists who provide wide-ranging
insights into our current maturity level of controls over our multiple domain
names. Additionally, this external assessment will include a deep dive review
of Dignity's security architecture to confirm that our cyber security
objectives address, where possible, potential risks.
The Group maintains an ISO 27001 compliant information security management
system and has its security controls, processes and technology independently
audited to ensure it remains effective or requires additional investment.
Regulation of pre-arranged funeral plans Regulation applies to the industry as a whole and not just the Group. No change
FCA regulation has resulted in changes to processes, systems, pricing, The FCA rules addressed:
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.
· Consumer Duty setting higher and clearer standards of consumer
The minimum solvency levels (110 per cent) set by the FCA for trust funds protection;
means that levels below this minimum will require Dignity Funerals Limited to
address any shortfall within a 12-month period. · Trust structures;
· Product value and features;
· Minimum solvency requirements for trust funds; and
· Compliant sales of pre-paid plans.
Our strong market presence in the Whole of Life Funeral Benefit market
remains unchanged.
Although the changes affect the whole industry, Dignity is in a strong market
position as a vertically integrated provider to grow its controlled channels
that remain open.
We improved our pre-need product for the market by bringing more choice,
flexibility and simplicity to our offering. We have also improved our own
channels of distribution. FCA regulation prevents us from paying commissions
to third parties and we have therefore ceased business with many of our
previous distribution partners. Instead, we will focus on developing our
proposition and sales strategy, delivered through our website and via our
well-trained community-based colleagues. Our ambition is to significantly
increase the number of funeral plans sold through our branch network.
Minimum solvency levels of 120 per cent of assets/liabilities were agreed by
the Dignity Funerals Limited Board. This represents a 10 per cent buffer over
the regulatory minimum of 110 per cent.
There will be Board oversight of product development, pricing and distribution
of pre-paid funeral plans. Compliance with FCA regulations will be subject to
continuous monitoring by our Compliance and Risk Team and reported regularly
to the Board. Any compliance breaches will be reviewed by the Board and
addressed as required. Our objective is not only to deliver the high standards
required by the regulator but to strive to exceed them.
Changes in the funding of the pre-arranged funeral plan business There is considerable regulation around insurance companies which is designed, No change
amongst other objectives, 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. Our trusts hold assets of circa £1 billion with an average duration of circa
10+ years. We will seek to generate a surplus that exceeds funeral cost
Funding for these plans is reliant on either insurance companies paying the inflation.
amounts owed or the pre-arranged funeral plan trusts having
sufficient assets. Additionally, and in parallel with the development and launch of our
innovative new funeral plan, we have incorporated a new trust to
If this is not the case, then the Group may receive a lower amount per support this.
funeral.
Funeral Directors' Codes of Practice The Group is assessing compliance guidelines and the steps required No change
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 Consideration for the resource profile and methodology for responding to legal
become law. For example, one draft requirement is for funeral directors to registration in Scotland, and a statutory inspection response, is being
have a ratio of one refrigerated space per 50 funerals performed. initiated as a pre-emptive measure in advance of a published Scottish
Additionally, there will be the need to respond to registration and inspection Government position.
requirements which will be enacted in law.
Relationship management with the National Association of Funeral Directors
The introduction of the Independent Funeral Standards Organisation ('IFSO') ('NAFD') and IFSO is under way.
will necessitate compliance with a UK co-regulatory Code of Practice as
described by the Ministry of Justice. Intended obligations include We strongly support the progress IFSO has made and look forward to working
transparency, quality and standards measures, with risk ratings and public with the body should it transition into a government-endorsed self-supervisory
reporting in subsequent phases. body for the sector.
The relationship between, and requirements of, the two Codes of Practice have We have also worked closely with the Scottish Government to develop its
yet to be finalised. 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.
Macroeconomic pressures Overall, we are seeing rising costs impacting our business, especially Increase
employment costs, and we will be looking to recover some of that through
Inflationary pressures have become apparent to Dignity and most other inflation-related pricing adjustments.
organisations as rising staff costs, energy prices and supply chain disruption
continue to develop. In 2022, our focus was given to supporting our lowest paid workers weather the
storm of a difficult set of macroeconomic factors.
The significant increase in wholesale gas prices will contribute to the
pressure on average revenue per cremation.
Energy security Along with all other businesses, we continue to monitor the developing Increase
situation. We note HM Government's policy paper on British Energy Security
In light of the geopolitical situation following the Russian invasion of Strategy which states that the UK needs to build an energy system that is much
Ukraine, energy security is a major international issue. more self-sufficient.
We continue to review our position based on the recent government
announcements regarding energy prices and will determine what action is
required to address this risk. Currently, the major risk is one of price
rather than supply but Dignity will be subject to whatever government
restrictions may be placed on industry users should there be a shortfall in
supply. The nature of Dignity's activity is likely to give it some prioritised
protection should a form of rationing be introduced.
Emerging risk
The Group continues to monitor for emerging risks through the processes noted
above. The key areas where additional risk is appearing, all of which are
extensions of risk already identified above, are as follows:
Risk description and impact Mitigating activities and commentary Change
Sustainability and climate resilience The vision is for Dignity to achieve net-zero by 2038. New
The need to operate businesses sustainably and with a focus on the environment We voluntarily submitted our first TCFD Report for the year 2021 before this
is now an imperative in order to achieve the Government's target of became mandatory for 2022. Dignity, alongside our consultancy partner Inspired
net-zero. Energy, has analysed our full Scope 3 emissions. This expands on our previous
SECR reporting, which included Scope 1 and 2, as well as grey fleet, which is
part of Scope 3.
Key ESG focuses for 2023 include:
· Climate scenarios analysis and interim target setting to 2038;
· Improving data collection and metrics across Scopes 1, 2 and 3;
· Improved cremator technology; and
· Proactively working with our supply chain to influence
green credentials.
Dignity has recruited an ESG Manager to support with all environmental and
sustainable activities and initiatives. Their role will be to build the
strategy and roadmap to achieving net-zero by 2038.
16 Pre-arranged funeral plans
(a) Commitments
The Trading Group has sold pre-arranged funeral plans to clients in the past,
giving commitments to these clients to perform their funeral. All monies from
the sale of these funeral plans are paid into and controlled by a number of
trusts. These include the Trusts consolidated within the Group's financial
statements in addition to a number of other trusts (the 'Small Trusts'). The
Small Trusts are not consolidated in the Group's results as the Group does not
control these trusts.
The Group is obligated to perform these funerals in exchange for the assets of
the respective trusts, whatever they may be. An onerous contract provision of
£10.0 million has been made in these financial statements for the Rescue
plans (which includes a provision of £1.1 million for the Dignity Promise)
and a further provision of £3.6 million has been made relating to previous
funeral plans, see note 1 for further details. It is the view of the Directors
that none of the commitments given to these other clients are onerous to the
Group. However, ultimately, the Group is obligated to perform these funerals
in exchange for the assets of the respective trusts, whatever they may be.
The Small Trusts had approximately £13.2 million (2021: £15.6 million) of
net assets as at the balance sheet date.
Only the Trusts consolidated within the Group's financial statements receive
funds relating to the sale of new plans.
(b) Actuarial valuation
The Trustees of the Trusts are required to have the Trusts' liabilities
actuarially valued once a year. This actuarial valuation is of liabilities of
the Trusts to secure funerals through Dignity and other third party funeral
directors and does not, in respect of those funerals delivered by the Group,
represent the cost of delivery of the funeral. Assets of the Trusts include
instalment amounts due in the future from clients and are therefore relevant
to the actuarial valuation. However, this means that assets detailed in the
actuarial valuations will not agree on a particular day to the assets
recognised in the Group's consolidated balance sheet because the Group does
not include future receivable amounts in the consolidated balance sheet.
The Trustees have advised that the latest actuarial valuations of the Trusts
were performed as at 24 September 2022 (2021: 24 September) using assumptions
determined by the Trustees. Actuarial liabilities in respect of the Trusts
have decreased to £778.4 million as at 24 September 2022 (2021 restated:
£817.3 million). The corresponding market value of the assets of the Trusts
was £1,003.8 million (2021 restated: £1,107.9 million - under the new FCA
regulations there is a prescribed valuation method which has been applied to
the current year valuations and the prior year has been restated using this
method) as at the same date. Consequently the actuarial valuations recorded a
total surplus of £225.4 million at 24 September 2022 (2021 restated: surplus
of £290.6 million).
30 December 31 December
2022 2021
Number Number
Supported by:
The Trusts - Pre FCA regulation 302,000 323,000
The Trusts - Post FCA regulation 4,000 -
The Trusts - Rescue plans only 38,000 -
The Small Trusts 45,000 43,000
Insurance plans 229,000 215,000
618,000 581,000
The Trusts have approximately £3,444 (2021: £3,650) average asset per active
plan (see alternative performance measures on page 55 for further details). On
average the Trading Group received approximately £3,100 (2021: £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) Funding arrangement of UK Funerals (2022) Trust
In accordance with FCA regulation should the actuary report that the Trust
fund assets are not sufficient to cover the liability of Trust, Dignity
Funerals Limited, a subsidiary of the Group, will prepare a remediation plan,
approved by the actuary, setting out how any deficit will be remedied before
the next annual assessment of the Trust.
(d) Transactions with the Group
During the period, the Group entered into transactions with the Small Trusts.
Amounts may only be paid out of the Trusts in accordance with the relevant
Trust Deeds. Transactions (which were recognised as revenue in the funeral
services division) amounted to £0.8 million (2021: £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.
18 Post balance sheet events
Recommended cash offer for Dignity plc
On 23 January 2023, the Board announced that it had reached agreement on the
terms of a recommended cash offer for the Dignity business (the 'Offer'). The
Offer was made by a consortium comprising SPWOne V Limited, Castelnau Group
Limited and Phoenix Asset Management Partners Limited. On 14 February 2023,
the offer document, which contains, amongst other things, the full terms and
conditions of the Offer and the procedures for its acceptance, was published
and posted to Dignity shareholders.
In summary, under the Offer:
· Dignity shareholders will be entitled to receive 550 pence in cash for
each Dignity share (the 'Cash Offer');
· As an alternative to (or in combination with) the Cash Offer, eligible
Dignity shareholders may elect to receive for each Dignity share 5.50 unlisted
non-voting D shares in the capital of Valderrama (the indirect parent company
of the consortium's Bidco) for each Dignity share (the 'Unlisted Share
Alternative'); and
· As an alternative to (or in combination with) the Cash Offer and in
addition to or instead of the Unlisted Share Alternative, eligible Dignity
shareholders may elect to receive 7 1/3 listed voting Ordinary Shares in the
capital of Castelnau for each Dignity share (the 'Listed Share Alternative'
and, together with the Unlisted Share Alternative, the 'Alternative Offers').
Both the Unlisted Share Alternative and the Listed Share Alternative are
subject to the "scale back" arrangements detailed in the offer document.
The Board was unanimous in recommending that Dignity shareholders accept the
Cash Offer. At the time of preparing this report, the Offer remains
conditional on, among other things, regulatory approval.
Executive share awards
The Company intends to grant a performance share award under the LTIP to Kate
Davidson as soon as practicable following the publication of the Company's
preliminary 2022 financial results (subject to being no dealing restrictions
at that time). This award was agreed previously but could not be made due to
closed period dealing restrictions.
Standard and Poor global rating
On February 2023, S&P Global Ratings lowered its credit ratings on Dignity
Finance PLC's class A notes to 'BBB-(sf)' from 'A- (sf)' and class B notes to
'CCC+ (sf)' from 'B+ (sf)'. At the same time, S&P removed its ratings on
both classes from CreditWatch negative.
Fitch Ratings downgrade of Class A and Class B Notes
On 17 March 2023, Fitch Ratings downgraded Dignity Finance PLC's Class A notes
to 'BBB' from 'A-' and class B notes to 'B' from 'BB+' and placed that company
on Rating Watch Negative.
Loan facility drawdown
The Directors approved two initial drawdowns on the £50.0 million facility
offered by Phoenix UK Fund Limited, the first being £5.0 million on 2 March
2023 and the second being £10.0 million on 30 March 2023. This loan agreement
includes a change of control provision that could trigger a full repayment and
cancellation of the facility, however, the Company has obtained a waiver for
this change of control clause specific to this potential takeover.
Non-GAAP measures
Alternative performance measures
The Board believes that whilst statutory reporting measures provide financial
performance of the Group under IFRS, alternative performance measures are
necessary to enable users of the financial statements to fully understand the
trading performance and financial position of the Group.
The alternative performance measures provided are aligned with those used in
the day-to-day management of the Group and allow for greater comparability
across periods.
For this reason, the alternative performance measures provided exclude the
impact of consolidating the Trusts, the corporate interest restriction
disallowance arising as a result of consolidating the Trusts (see below) and
the changes which relate to the application of IFRS 15. In addition, the
deferred tax rate change in 2021 arising on the deferred tax balances on
consolidating the Trusts and application of IFRS 15 have also been excluded,
as well as non-underlying items comprising certain non-recurring and
non-trading transactions.
The exclusion of the impact of consolidating the Trusts and the application of
IFRS 15 will continue for the foreseeable future. We will also assess whether
it is right to exclude any future new accounting standards from alternative
performance measures based on whether they are included in the measures used
in the day-to-day management of the business.
All of these measures are highlighted as underlying throughout this
Preliminary Announcement.
Calculation of underlying reporting measures
Underlying revenue and profit measures (including divisional measures) are
calculated as revenue and/or profit before non-underlying items and other
adjustments.
Underlying net finance costs are calculated before the application of IFRS 15
and the impact of consolidating the Trusts. See note 4 to the Group's
consolidated financial statements.
Underlying earnings per Ordinary Share is calculated as profit after taxation,
before non-underlying items and other adjustments (both net of tax), divided
by the weighted average number of Ordinary Shares in issue in the period.
Underlying cash generated from operations excludes non-underlying items and
other adjustments on a cash paid basis.
(b) Non-underlying items
The Group's underlying measures of profitability exclude:
· Amortisation of acquisition related intangibles;
· External transaction costs;
· Profit or loss on sale of fixed assets (net of any insurance
proceeds received);
· Marketing costs in relation to trials;
· Restructuring costs;
· Payment for historical informal pre-need funerals;
· Rescue plan transition costs;
· Trade name write-offs and impairments;
· Goodwill impairments;
· Right-of-use asset impairments;
· Property, plant and equipment impairments; and
· The taxation impact of the above items together with the impact
of taxation rate changes.
Non-underlying items have been adjusted for in determining underlying measures
of profitability as these underlying measures are those used in the day-to-day
management of the Group and allow for greater comparability across periods.
(c) Other adjustments reconciliation
Other adjustments enable a user of the financial statements to assess the
financial performance of the Trading Group as it was historically reported
prior to the consolidation of the Trusts and the impact of IFRS 15, 'Revenue
from Contracts with Customers'. This mirrors the financial reporting provided
to management on a monthly basis to monitor the performance of the underlying
Trading Group.
In the tables below, non-underlying items are categorised as either
non-trading or non-recurring. Non trading items refers to expenditure which
does not relate to the normal day-to-day transactions of the business, whereas
non-recurring also does not relate to the day-to-day transactions of the
business and is not expected to reoccur; however, the same non-recurring item
may straddle more than one accounting period.
52 week period ended 30 December 2022 Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
£m £m £m £m £m
Non-trading
Amortisation of acquisition-related intangibles 3.4 0.4 0.1 - 3.9
External transaction costs in respect of completed and aborted and ongoing - 0.5 - 8.6 9.1
transactions((1))
Loss on sale of fixed assets 0.1 - - - 0.1
Trade name write-off 6.4 - - - 6.4
Trade name impairment 47.5 - - - 47.5
Goodwill impairment 112.3 - - - 112.3
Right-of-use asset impairment 17.4 - - - 17.4
Property, plant and equipment impairment 19.1 - - - 19.1
Non-recurring
Rescue plan transition costs - - - 2.5 2.5
Restructuring costs - redundancy - - - 2.9 2.9
Restructuring costs - onerous provision - - - 0.3 0.3
206.2 0.9 0.1 14.3 221.5
Taxation impact on above adjustments((2)) (23.2)
198.3
(1) External transaction costs includes costs associated with the current
capital structure work.
(2) All of the above items are subject to corporation tax at 19 per cent,
except for the trade name write-off, trade name impairment, goodwill
impairment, right-of-use asset impairment, property, plant and equipment
impairment and external transaction costs which include an element of
disallowables.
53 week period ended 31 December 2021 Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
£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)((3)) - (1.1) - - (1.1)
Trade name write-off 2.5 - - - 2.5
Trade name impairment 2.8 - - - 2.8
Goodwill impairment 36.4 - - - 36.4
Non-recurring
Marketing costs in relation to trials - - - 0.9 0.9
45.4 0.5 0.1 2.3 48.3
Taxation impact on above adjustments((4)) (2.5)
Taxation - rate change 8.3
54.1
(3) Includes £1.1 million of insurance proceeds received in respect of a
crematoria fire which occurred in 2020.
(4) All of the above items are subject to corporation tax, except for the
trade name write-off, trade name impairment and goodwill impairment.
Adjustments to the Group's consolidated financial statements are made to
reflect the following:
· Deferred revenue recognised on the delivery of a funeral is
replaced with the payment received by the Trading Group from the Trust at the
same time. Pre-need segment income, in the form of upfront payments received
by the Trading Group from the Trusts in support of marketing, are recognised
when received at inception of a funeral plan rather than being deferred as
part of the aforementioned deferred revenue.
· Recognition of provisions relating to pre-need funeral plans and
Rescue plans. The provision is comprised of an onerous contract and for the
Dignity Promise. Note 1 to the consolidated financial statements includes
further information.
· Payments made by the Trusts on cancellation are recognised by the
Trading Group.
· Unlike disbursements on at-need funerals, disbursements on
pre-need funerals under IFRS 15 are recognised on a principal basis within
both revenue and cost of sales, but for consistency in the alternative
performance measure both are reduced as these items are not included in either
measure. Similarly, pre-need funerals delivered by subcontracted funeral
directors, which form part of deferred income, are excluded within the
alternative performance measure with a corresponding adjustment to cost of
sales.
· Commissions payable on securing new Trust plans are recognised at
the inception of the plan rather than being deferred and recognised at the
time the funeral service is delivered.
· The amounts recorded in respect of the remeasurement of assets
held in the Trust are removed, as is the significant financing component that
only arises when deferred revenue is recognised on consolidation of the
Trusts.
· The taxation impact of the above adjustments, including the
impact of corporate interest restriction and changes in the rate of deferred
tax associated with the items noted above, are removed.
52 week period ended 30 December 2022 Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
£m £m £m £m £m
Revenue
Trust consolidation:
Release of deferred revenue on death or cancellation 118.5 - - - 118.5
Removal of payments received from the Trusts on death (57.2) - - - (57.2)
Payments on cancellation (12.9) - - - (12.9)
Derecognise pre-need segment income - - (12.2) - (12.2)
IFRS 15:
Recognition of disbursement element of pre-need plans 16.4 - - - 16.4
Revenue - Total other adjustments 64.8 - (12.2) - 52.6
Cost of sales
Trust consolidation:
Provision relating to funeral plans (13.6) - - - (13.6)
IFRS 15:
Amounts paid on subcontracted funerals (7.6) - - - (7.6)
Recognition of disbursement element of pre-need plans (16.4) - - - (16.4)
Administrative expenses
Trust consolidation:
Recognition of the Trust costs (4.8) - - - (4.8)
Transfer of pre-need costs into funeral services segment (12.3) - 12.3 - -
IFRS 15:
Net increase of deferred costs in respect of commissions (7.7) - - - (7.7)
Operating profit - Total other adjustments 2.4 - 0.1 - 2.5
Finance costs
Trust consolidation:
Deferred revenue significant financing (50.9)
Remeasurement of financial assets held by the Trusts and related income (48.6)
Finance costs - Total other adjustments (99.5)
Taxation:
Trust consolidation:
Taxation impact on above adjustments 27.9
IFRS 15:
Taxation impact on above adjustments 1.5
Taxation - Total other adjustments 29.4
Loss after taxation - Total other adjustments (67.6)
53 week period ended 31 December 2021 - restated((1)) Funeral services Crematoria Pre-arranged funeral plans Central overheads Group
£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 the Trust costs (4.5) - - - (4.5)
Transfer of pre-need costs into funeral services segment (24.7) - 24.7 - -
IFRS 15:
Net increase of deferred costs in respect of commissions (0.4) - - - (0.4)
Operating profit - Total other adjustments 11.9 - 0.1 - 12.0
Finance costs
Trust consolidation:
Deferred revenue significant financing (51.6)
Remeasurement of financial assets held by the Trusts and related income 93.1
Finance costs - Total other adjustments 41.5
Taxation:
Trust consolidation:
Taxation impact on above adjustments (8.1)
Corporate interest restriction disallowance - prior year adjustment (1.5)
Deferred tax rate change 6.9
IFRS 15:
Taxation impact on above adjustments (0.5)
Deferred tax rate change (5.5)
Taxation - Total other adjustments (8.7)
Profit after taxation - Total other adjustments 44.8
(1) Prior year comparatives have been restated for the 53 week period ended
31 December 2021 due to a reclassification of foreign exchange movements. See
note 1 to the Group's consolidated financial statements for further details.
(d) Non-underlying cash flow items
30 31
December December
2022 2021
£m £m
Cash flows from operating activities (17.7) 68.3
Cash flows of other adjustments 47.3 16.1
Cash flows from operating activities - Trading Group 29.6 84.4
External transaction costs 8.0 1.6
Payment for historical informal pre-need funerals((1)) 3.6 -
Restructuring costs - redundancy 2.9 -
Marketing costs in relation to trials - 0.9
Directors' severance pay - 0.9
Operating and competition review costs - 0.5
Underlying cash generated from operations 44.1 88.3
(1) As part of the FCA requirements, the Group is required to ensure all
active funeral plans are backed by pre-need arrangement held in an appropriate
trust. As a result of prior acquisitions, the Group had committed to perform
1,600 funerals for which there are no formal pre-need arrangements in place.
In order to comply with the FCA regulations and to ensure the customers of
these plans are receiving the best possible outcome, the Group has transferred
these funeral plans at the cost of today's prices to reflect the most
appropriate level of cover required, totalling £3.6 million. The Trading
Group does not anticipate any further cash being transferred to the pre-need
Trust in relation to these informal arrangements.
(e) Funeral market share
Comparable funeral market share excludes any volumes from branches not
contributing for the whole of 2021 and 2022 to date and therefore excludes 24
branches closed and five branches opened in 2021 and a further 54 branches
closed and three branches opened in 2022.
(f) Average assets per plan
Average assets per plan are calculated as the net assets of the Trusts divided
by the number of active plans in the Trusts (excluding rescue plans). Net
assets in this calculation will not equal amounts in the consolidated balance
sheet of the Group, as it includes instalment amounts due in future that
become payable immediately on death.
30 31
December December
2022 2021
Net assets in the Trusts - £'000 1,054,000 1,179,000
Number of active plans in the Trusts (excluding rescue plans) - number 306,000 323,000
Asset per plan (£) 3,444 3,650
(g) Return on Trust assets
Return on Trust assets are calculated as net investment return in the Trusts
divided by the opening net assets within the consolidated balance sheet.
30 31
December December
2022 2021
£m £m
Opening net assets as per the consolidated balance sheet 1,043.1 967.1
Remeasurement recognised in the consolidated income statement (57.7) 85.0
Investment income 22.2 7.7
Hedging/foreign exchange losses (13.1) (1.7)
Investment administrative expenses deducted at source (0.2) (2.8)
Net investment return in the Trusts (48.8) 88.2
(Loss)/return on the Trust assets (per cent) (4.7)% 9.1%
(h) Underlying operating profit before depreciation and amortisation (pre
IFRS 16)
Underlying operating profit before depreciation and amortisation (pre IFRS 16)
has been included as a new non-GAAP measure for the first time in the 2022
Preliminary Announcement. This follows discussions with external advisers
during the potential takeover process and was included in the Trading Update
issued on 23 January 2023, as this measure is believed to be used by
investors.
The underlying operating profit before depreciation and amortisation and
before IFRS 16 can be reconciled as follows:
30 31
December December
2022 2021
£m £m
Underlying operating profit 17.9 55.8
Add back: Depreciation and amortisation 28.4 29.1
Less: Impact of IFRS 16 (12.1) (12.4)
Underlying operating profit before depreciation and amortisation (Pre IFRS 16) 34.2 72.5
(i) Cash Return on Core Capital ('CROCC')
The Dignity CROCC is a measure of the return made on the productive capital in
the business ignoring intangible assets and non-cash returns. This is a
proprietary measure and therefore not subject to accounting rules which you
should bear in mind.
We calculate it by taking the underlying cash generated from operations and
subtracting the maintenance capital expenditure, net finance costs paid and
tax paid; this gives the Cash Return ('CR'). This is then divided by the sum
of the property, plant and equipment, trade receivables: at-need and
inventories, less trade payables, which makes up the Core Capital ('CC').
To illustrate what it measures, imagine that a company built a crematorium
costing £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). If that crematorium were sold to
another company for £20.0 million, it would still be making £1.2 million but
the company might measure its return at 6 per cent (£1.2 million/£20.0
million). The CROCC would still come out at 15 per cent because it is based
upon the capital used to create the asset, not the goodwill reflected in its
transfer. 6 per cent is the initial return on an investment in what is a 15
per cent asset purchased for 2.5 times the capital invested in it.
Core Capital is taken from a concept introduced by Warren Buffett about
judging a business based upon the capital needed to replicate it.
CROCC is useful because it gives a measure of the underlying returns of a
business, which are a guide to what the returns on retained capital might be.
As we progress, the CROCC will increasingly reflect the returns from the
capital retained and allocated by the executive for organic growth. The CROCC
calculation can be reconciled as follows:
30 31
December December
2022 2021
£m £m
Underlying cash generated from operations 44.1 88.3
Less:
Maintenance capital expenditure (24.4) (17.6)
Net finance costs paid (27.8) (28.2)
Tax paid (2.3) (17.7)
Cash Return (10.4) 24.8
Property, plant and equipment 231.6 242.1
Trade receivables: at-need 16.7 15.2
Inventories 7.9 8.6
Less:
Trade payables (11.1) (9.3)
Core Capital 245.1 256.6
Cash Return on Core Capital (per cent) (4.2)% 9.7%
(j) Cost to deliver a funeral
The cost to deliver a funeral is calculated by taking underlying overheads
before IFRS 16 divided by the number of funerals performed. The calculation
can be reconciled as follows:
30 31 December
December 2021
2022
Number of funerals performed (number) 77,000 79,200
Funeral services underlying revenue (£million) 176.4 201.9
Less: Funeral services underlying operating profit before depreciation and (29.9) (67.6)
amortisation (£million)
Add back: Impact of IFRS 16 (£million) 8.9 9.4
Funeral services underlying overheads before IFRS 16 (£million) 155.4 143.7
Cost to deliver a funeral (£) 2,018 1,814
(k) Contribution per branch
The contribution per branch is calculated by taking underlying operating
profit before depreciation, amortisation and IFRS 16 divided by the number of
funeral branches. The calculation can be reconciled as follows:
30 31 December
December 2021
2022
Number of funeral branches (number) 725 776
Funeral services underlying operating profits before depreciation and 29.9 67.6
amortisation (£million)
Less: Impact of IFRS 16 (£million) (8.9) (9.4)
Funeral services underlying operating profit before depreciation, amortisation 21.0 58.2
and IFRS 16 (£million)
Contribution per branch (£) 28,966 75,000
(l) Yield per crematorium
The yield per crematorium is calculated by taking underlying operating profit
before depreciation, amortisation and IFRS 16 divided by the number of
crematoria locations. The calculation can be reconciled as follows:
30 31 December
December 2021
2022
Number of crematoria locations (number) 46 46
Crematoria underlying operating profit before depreciation and amortisation 47.5 54.5
(£million)
Less: Impact of IFRS 16 (£million) (2.8) (2.7)
Crematoria operating profit before depreciation, amortisation and IFRS 16 44.7 51.8
(£million)
Yield per crematorium (£) 971,739 1,126,087
Forward-looking statements
This Preliminary Announcement and the Dignity plc investor website may contain
certain 'forward-looking statements' with respect to Dignity plc (the
'Company') and the Group's financial condition, results of its operations and
business, and certain plans, strategy, objectives, goals and expectations with
respect to these items and the economies and markets in which the Group
operates.
Forward-looking statements are sometimes, but not always, identified by their
use of a date in the future or such words as 'anticipates', 'aims', 'due',
'could', 'may', 'should', 'will', 'would', 'expects', 'believes', 'intends',
'plans', 'targets', 'goal' or 'estimates' or, in each case, their negative or
other variations or comparable terminology. Forward-looking statements are not
guarantees of future performance. By their very nature forward-looking
statements are inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on circumstances that
will occur in the future. Many of these assumptions, risks and uncertainties
relate to factors that are beyond the Group's ability to control or estimate
precisely. There are a number of such factors that could cause actual results
and developments to differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not limited to,
changes in the economies and markets in which the Group operates; changes in
the legal, regulatory and competition frameworks in which the Group operates;
changes in the markets from which the Group raises finance; the impact of
legal or other proceedings against or which affect the Group; changes in
accounting practices and interpretation of accounting standards under IFRS;
and changes in interest and exchange rates.
Any forward-looking statements made in this Preliminary Announcement or the
Dignity plc investor website, or made subsequently, which are attributable to
the Company or any other member of the Group, or persons acting on their
behalf, are expressly qualified in their entirety by the factors referred to
in this statement. Each forward-looking statement speaks only as of the date
it is made. Except as required by its legal or statutory obligations, the
Company does not intend to update any forward-looking statements.
Nothing in this Preliminary Announcement or on the Dignity plc investor
website should be construed as a profit forecast or an invitation to deal in
the securities of the Company.
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