REG - Dignity PLC - Trading Update & Consent solicitation period

DignityAnnouncement

17/02/2022 10:30

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RNS Number : 0081C  Dignity PLC  17 February 2022

 

 FOR IMMEDIATE RELEASE  17 FEBRUARY 2022

 

Dignity PLC

("Dignity", the "Company" or the "Group")

TRADING UPDATE AND CONSENT SOLICITATION WITH BONDHOLDERS

 

Dignity, the UK's only listed provider of funeral related services, provides a
trading update for the year ended 31 December 2021 and notes the announcement
made today by Dignity Finance plc ("Dignity Finance"), a Group subsidiary, of
the launch of a consent solicitation period with its Bondholders in relation
to a proposed temporary covenant waiver.

Trading update

For the year ended 31 December 2021, the Board expects underlying operating
profit to be c.£54.7 million (2020 restated((1)): £60.3 million). Summary
details of underlying operating profit for Q4 and EBITDA for the Group are set
out in the tables below.

 

The COVID-19 pandemic has been a period of significant disruption for the
wider funeral market, with various government restrictions limiting the
Group's business activities, whilst the elevated death rate has driven a
higher number of funerals and cremations in 2021 compared to the five-year
average of 590,000 deaths per year. Details of the death rate and the impact
on profits are disclosed in the tables below.

 

As disclosed at the interim results on 21 September 2021, Dignity intends to
change the way it reports results to reflect the new strategy set out at the
2021 AGM. Full details will be provided in the preliminary results
announcement on 23 March 2022.

 

Consent solicitation period

As stated in the Group's interim results on 21 September 2021, the Board
continues to work on its plans to improve the Group's capital structure in the
pursuit of the best long-term value for shareholders.

The Group's primary financial covenant under its secured notes requires EBITDA
to total debt service to be above 1.5 times. Throughout the last 12 months the
Group's performance delivered significant headroom in relation to its
financial covenants. The ratio at 31 December 2021 was 2.09 times (June 2021:
2.12 times; December 2020: 1.99 times). As at 31 December 2021, the Group
therefore had EBITDA headroom of approximately £20 million against its
financial covenants.  A breach of the covenant does not give rise to an
immediate requirement to repay the associated borrowings. Rather, such a
breach results in a requirement for the bond trustees to appoint a financial
adviser who will review the financial and operational circumstances of the
securitised group prior to making recommendations as to how the breach can be
resolved.

Whilst the Group's financial performance has delivered headroom in relation
to financial covenants throughout the last 12 months, given the distorting
impact of the pandemic on the timing of deaths, there remains significant
uncertainty around the UK death rate in the near term. Therefore, the Board
has taken the prudent decision to seek a temporary waiver of the
abovementioned financial covenant on a precautionary basis in relation to
Dignity Finance's debt obligations.

Dignity Finance has accordingly launched a consent solicitation period with
its Class A Noteholders. Further information on the consent solicitation
process can be found within the announcement made by Dignity Finance and a
further announcement will be made, as appropriate, in due course.

As part of the consent solicitation process, the waiver proposal has been
considered by a special committee (the "Special Committee") consisting of
bondholders and convened by The Investment Association at the request of
Dignity Finance. The members of the Special Committee, who hold in aggregate
approximately 70 per cent of the current principal amount outstanding of the
Class A Notes have examined the proposal, and have informed Dignity Finance
that they find it acceptable.

As a condition to the waiver requested, Dignity will be required to inject up
to a maximum of £15 million in cash into the securitised group over the 12
month waiver period to restore the EBITDA:DSCR calculation to at least 1.5:1,
if it falls below this level. Any amount injected for this purpose can be used
at Dignity's discretion within the terms of the securitised group, including
being returned to Dignity after the waiver period as soon as the normal 1.85x
DSCR dividend lock trigger is satisfied.

 

Gary Channon, Chief Executive of Dignity, commented: "The Group delivered a
resilient performance in 2021 despite continuing market disruption from
Covid-19. Whilst it is still early days, we are confident that the ongoing
strategic changes at Dignity will position the business to grow and to best
serve families for their end-of-life needs. We look forward to providing a
more fulsome update on progress with these strategic initiatives as part of
our preliminary results in March.

We are thankful for the support of our Noteholders as we seek this covenant
waiver which will allow us to continue to implement these important strategic
changes despite the uncertain backdrop of the Covid-19 pandemic. I would like
to call out the ongoing heroic efforts of our colleagues in dealing with the
impact on the organisation of the elevated death rate at a time of staff
shortages due to the pandemic. Serving families remains our driving purpose."

 

For further information please contact:

 Gary Channon, Chief Executive                       +44 (0)20 7466 5000

Dean Moore, Interim Chief Financial Officer

Dignity plc

 Richard Oldworth                                    +44 (0) 207 466 5000

Chris Lane
Dignity@buchanan.uk.com (mailto:Dignity@buchanan.uk.com)

Tilly Abraham

Verity Parker

Buchanan

www.buchanan.uk.com (http://www.buchanan.uk.com/)

 

 

Notes

(1)    Underlying performance measures have been restated to reflect the
application of IFRS 16, Leases. This standard was adopted in 2020 using the
modified retrospective adoption which meant 2019 comparatives were not
restated. As a result, the Group chose to exclude it from its underlying
performance measures reported in 2020 in order to retain comparability.
Therefore, the underlying performance measures reported in this announcement
in both periods includes the application of IFRS 16.

 

(2)    Alternative performance measures ('APMs')

All measures marked as underlying throughout this announcement are alternative
performance measures. The Board believes that whilst statutory reporting
measures provide financial performance of the Group under GAAP, APMs are
necessary to enable users of the financial statements to fully understand the
trading performance and financial position of the business. The APMs provided
are aligned with those used in the day-to-day management of the business and
allow for greater comparability across periods. For this reason, the APMs
provided exclude the impact of consolidating the Trusts and the changes which
relate to the application of IFRS 15, all of which are considered to mask the
underlying trading performance of the Group, as well as non-underlying items
comprising certain non-recurring and non-trading transactions.

(3)      Group operating profit - Q4

                                                      £m
 Underlying operating profit - Q4 2020 restated((1))  12.2
 Impact from
 Number of deaths((2) (3))                            6.7
 Market share((2))                                    2.4
 Average revenues((2))                                (7.6)
 Cost base changes                                    (2.4)
 Underlying operating profit - Q4 2021                11.3

 

(1)      See note 1 above

(2)      Revenue impact

(3)      At the marginal level, a high proportion of the impact to
changes in the death rate on revenue falls through to profitability

 

 

(4)    UK deaths - Q4

 

 

                     2021      2020      Increase/ (decrease)
                                         (per cent)

 
 Quarter 1           204,000   161,000   27
 Quarter 2           136,000   207,000   (34)

 
 First half of year  340,000   368,000   (8)

 Quarter 3           143,000   130,000   10

 Quarter 4           181,000   165,000   10

 
 Full year           664,000   663,000   (0)

 

 

 

 

 

 

 

(5)    Bridge between Group Operating Profit and Securitisation Group
EBITDA

 

                                                                           2020       2021 £m

                                                                           restated

                                                                            £m
 EBITDA per convenant calculation - Securitisation Group                   67.6       70.9
 Add: EBITDA of entities outside Securitisation Group                      9.8        1.4
 Less: Non-cash items                                                      (1.9)      (1.4)
 Add: Impact of IFRS 16                                                    13.8       12.8
 Underlying operating profit before depreciation and amortisation - Group  89.3       83.7
 Underlying depreciation and amortisation                                  (29.0)     (29.0)
 Underlying operating profit - Group                                       60.3       54.7

(6)    Underlying cash balances

Underlying cash held of £56 million at Dignity plc of which £11 million held
within the Securitisation Group as at 31 December 2021

 

Forward-looking statements

This 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 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 above. 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 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.

 

Legal Entity Identifier number:

Dignity plc - 21380049687CNAYKV483

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