TIDMDTY
RNS Number : 2640H
Dignity PLC
31 July 2019
For immediate release 31 July 2019
Dignity plc
Interim results for the 26 week period ended 28 June 2019
Dignity plc (Dignity, the Company or the Group), the UK's only
listed provider of funeral related services, announces its
unaudited interim results for the 26 week period ended 28 June
2019.
26 week 26 week
period period
ended ended
28 June 29 June Decrease
2019 2018 per cent
--------------------------------------------- --------- --------- -----------
Underlying revenue (GBPmillion) 155.3 174.7 11
Underlying operating profit (GBPmillion) 36.7 56.4 35
Underlying profit before tax (GBPmillion) 23.9 43.4 45
Underlying earnings per share (pence) 37.8 69.4 46
Underlying cash generated from operations
(GBPmillion) 41.3 65.6 37
Revenue (GBPmillion) 153.3 174.7 12
Operating profit (GBPmillion) 28.0 51.5 46
Profit before tax (GBPmillion) 14.9 38.5 61
Basic earnings per share (pence) 23.0 61.4 63
Cash generated from operations (GBPmillion) 36.0 62.6 42
Number of deaths 300,000 324,000 7
Interim dividend (pence) - 8.64 n/a
--------------------------------------------- --------- --------- -----------
Alternative performance measures
All measures marked as underlying in the table above and
throughout this Interim Report are alternative performance
measures. The reasons for the Group's use of alternative
performance measures, definitions and where relevant,
reconciliations are provided in the section on alternative
performance measures at the end of this Interim Report.
Comparative information presented on a statutory basis is not
comparable due to the effects of adopting IFRS 15. To aid a user of
the financial statements, for the foreseeable future, the Group has
amended its definition of underlying revenue and underlying
operating profit so that the effects of adopting IFRS 15 are
removed.
Key points
-- Number of deaths significantly lower than originally expected
leading to lower financial performance
-- Funeral market share stable since 2018 year end
-- Transformation Plan on track and key branch pilots commencing
in the second half of the year
-- Strong market share performance by crematoria business
-- Simplicity continues to grow strongly
-- Company fully engaged with the CMA sector investigation
-- The Group welcomes regulation of pre-paid funerals announced in March 2019
-- Temporary cessation of dividends
Mike McCollum, Chief Executive of Dignity plc, commented:
"While the number of deaths in the first half meant that our
financial performance for the period was lower than originally
anticipated, we remain confident that the changes we are
introducing will generate sustainable growth in the medium to
long-term. Longer-term expectations, based on the ONS forecasts
remain unchanged, with increases in the long-term number of deaths,
reaching approximately 700,000 per year by 2040.
Building on the momentum and significant progress already made
in the past 12 months, our Transformation Plan is now entering a
new phase. In the second half of the year we will begin
transforming our branches, starting with a three network pilot
programme. As the Board always anticipated, the transformation of
our branches will be radical, complicated and challenging. We have
over 800 branches, with each network reflecting a range of
differing local and historical approaches. Our staff will be
working in materially different ways and we fully expect there to
be refinements during the piloting process which is likely to take
a number of months. We are committed to ensuring that the design of
our branch model is right before we embark on what will be a
careful roll-out across the entire network, which we expect to
start in 2020.
Across the business, we are pleased with the development of our
Simplicity offering which is now available in three forms. We are
making good progress with our digital capability, which is crucial
in order to secure existing business and acquire new customers.
As a Board we are determined to seize the current opportunity to
create a business that is clearly differentiated from the
competition and gives customers a clear choice. We are building a
more coherent, cohesive and technology-enabled business, one geared
to meet the changing needs of our customers while remaining focused
on excellent client service. We look forward to delivering our
vision to lead the funeral sector in terms of quality, standards
and value for money."
For more information
Mike McCollum, Chief Executive
Steve Whittern, Finance Director
Dignity plc +44 (0)20 7466 5000
Richard Oldworth
Chris Lane
Tilly Abraham
Buchanan +44 (0)20 7466 5000
www.buchanan.uk.com Dignity@buchanan.uk.com
Notes
A presentation for analysts and institutional investors will be
held today at 9.00am (BST) at Buchanan Communications, 107
Cheapside, London EC2V 6DN. All participants must be pre-registered
in order to attend the meeting.
A live audio webcast and conference call facility will be
available. A webcast replay facility will be available after the
analyst meeting via the same link.
Webcast https://webcasting.buchanan.uk.com/broadcast/5d039bf4221579216107de01
Conference UK Toll: 0333 300 0804
call UK Toll Free: 0800 358 9473
Participant PIN code: 98211659#
URL for international dial in numbers:
(listen only) http://events.arkadin.com/ev/docs/FEL_Events_International_Access_List.pdf
Interim Chairman's statement
Financial summary
The number of deaths in the first half was 300,000 (June 2018:
324,000), seven per cent lower than the same period last year.
Underlying operating profits decreased by 35 per cent to GBP36.7
million (2018: GBP56.4 million).
Our funeral market share remained stable. Underlying average
funeral income in the second quarter increased, to be in line with
the Board's expectation of GBP2,940. Underlying average income for
the first half of the year was GBP2,919.
Further details are provided in the business and financial
review.
CMA
On 28 March 2019, the Competition and Markets Authority ('CMA')
confirmed its widely anticipated full market investigation into the
funeral and crematoria sector. Dignity welcomed the investigation
and is cooperating fully with the CMA's enquiries. The Company has
established a strong working group of internal and external
resource and seeks to focus on the following key areas:
-- Quality of service provided to meet customer needs;
-- Regulation of the industry to protect customers; and
-- Capital employed in crematoria.
Since the announcement in March 2019, Dignity has attended a
hearing of the CMA's panel, facilitated site visits and has
responded to detailed questions necessary for a proper analysis of
the industry.
We hope that through its enquiry, the CMA is able to create a
framework that ensures that customers are supported, feel respected
and are able to exercise the choices available to them in an
informed way.
HM Treasury
In June 2019, HM Treasury announced its decision to introduce
statutory regulation of pre-paid funerals through the Financial
Conduct Authority. Dignity's recent research, published together
with Fairer Finance, has highlighted the poor sales practices and
financial management risks that certain providers engage in. The
Group welcomes this decision by HM Treasury as, for a long time, it
has led the industry in best practice and called for regulation of
the pre-paid funeral sector to protect consumers.
Dividends
The Group paid a final dividend of 15.74 pence per Ordinary
Share on 28 June 2019.
Although the Group has significant cash resources at hand and
continues to be cash generative, in order to maintain maximum
flexibility and liquidity during the transformation, the Board has
concluded that it is prudent to temporarily cease dividend
payments. The Group has an established track record of returning
cash to shareholders at appropriate times over many years and once
the current uncertain competitive environment becomes clearer, it
anticipates resuming dividend payments or returning excess cash to
shareholders.
Our staff
The Board continues to be extremely mindful of the diligence and
support of staff during this time of radical change to the Group's
funeral business. Our staff continue to prove their dedication and
professionalism in the service of Dignity's customers on a daily
basis. This continued commitment will be essential as the Group
enters the next phase of its Transformation Plan, implementing
major change at branch level. We thank them for their work in this
challenging time and look forward to their continued support over
the coming months.
The Board
In May 2018, Peter Hindley, Dignity's Non-Executive Chairman
since 2009, indicated to the Board that he would like to retire
from the Board in 2019. The process of identifying a successor
began in the summer of 2018 and the Board made good progress in
identifying a suitable candidate. However, given the significant
changes being made to the operating model of the Company and the
current levels of uncertainty surrounding the funeral industry, and
after consulting with major shareholders, the Board subsequently
concluded that the nature of the role and the experience needed had
changed and accordingly the search process to select a new Chairman
was amended.
The Board had hoped to be in a position to announce Peter's
replacement at the time of the Company's Annual General Meeting on
13 June of this year, but that was not possible. Instead the
Company announced in May that I, David Blackwood, then the Senior
Independent Non-Executive Director, would replace Peter at the AGM
as Interim Chairman until a permanent successor could be found. The
Board is also seeking to appoint additional Non-Executive Directors
with the experience and expertise to assist the Board in the
Transformation Plan and future growth of the business. The process
to identify candidates has commenced with a view to the Board
comprising a majority of independent Non-Executive Directors in due
course.
In May, the Board also announced that James Wilson had joined
the Board as a Non-Executive Director and been appointed a member
of the Nomination Committee. James is a partner at Phoenix Asset
Management Partners Ltd ('Phoenix') and as of the date of this
interim report, funds managed by Phoenix held 26.7 per cent of the
Company's shares.
Outlook
The decrease in the absolute number of deaths continued in the
second quarter (albeit at a lesser rate) following a 12 per cent
decrease in the first three months. The overall decrease in the
first six months was seven per cent compared to the comparative
period last year. Historical data over the last 20 years indicates
that the number of deaths in 2019 is likely to be within three per
cent of the previous year. If deaths were 580,000 (approximately
three per cent lower than the previous year), then all other
matters being equal, underlying operating profits for the full year
could be approximately GBP3 million to GBP4 million lower than
anticipated at the start of the year. The outlook for the full year
therefore remains dependent on a greater number of deaths in the
second half of this year than the previous year.
Following completion of the Transformation Plan, the Board
continues to believe that targeting solid single digit increases in
underlying earnings per share is appropriate and achievable.
David Blackwood
Interim Chairman
31 July 2019
The Group's funeral business: the Transformation Plan
Our Transformation Plan has been developed following a major
strategic review in 2018 and its execution is scheduled to be
complete by the end of 2021.
The need for change
The combination of increased price competition and more
demanding consumers required a new approach, namely, a radical
transformation of our business and business model.
The landscape in our industry has changed, with a growth in
lower quality providers, lower cost funeral alternatives and with
online channels driving increased price transparency.
Consumers are becoming more demanding and sophisticated. Values
are changing, with increased secularism and a growing demand for
personalised, lower-cost services, supported with online resources.
There are fewer visits to the High Street and more online research
and shopping around.
Market opportunity
While this degree of change could be seen as unnerving, we see
it as an opportunity. Our response is to build a lower-cost model
and develop recognisable national brands associated with quality in
support of competitive prices. Specifically, we will grow our
presence in the low-cost cremation market.
We will continue to embrace online and build a leading digital
presence, unbundle our full service funeral pricing to create a
more compelling proposition and greater flexibility for clients and
further develop our low-cost Simplicity Cremations service.
Strategic review
The strategic review took place over the first half of 2018. It
involved focus groups and quantitative surveys with clients,
consumers and other stakeholders from across the market. The
Company analysed data spanning the last 10 years on clients,
transactions, fleet, property and people. It involved a review of
our branch network footprint and service delivery model, and we
engaged with staff to gather their insights and perspectives.
As we set out in August 2018, we expect to invest GBP50 million
(partly funded by GBP17 million of surplus property disposals) in
our business and achieve annualised net cost savings of GBP8
million per year by the end of 2021, increasing to GBP13 million
per year by the end of 2028.
Three key strategic strands and imperatives emerged from the
review: modernise the client proposition; invest in and simplify
the operating model; streamline central support and invest in
technology to centralise and automate administrative processes.
(1) Modernise the client proposition
Adapting our service model to better suit evolving client needs
and improve efficiency
We will provide client-facing staff with better tools to improve
service levels and efficiency. This will include having vehicles
and mobile devices to support arrangements at a location of the
client's choice.
We will reward the delivery of key objectives such as
exceptional client service and will drive increased front line
productivity through more flexible ways of working.
A new tiered proposition provides greater flexibility to meet
individual client needs
We will implement across our business a structure of services
that gives clients the most appropriate range of choices. This will
be achieved through ongoing testing of different propositions to
ensure their appropriateness.
Building our national brands leverages our scale and addresses
the needs of increasingly digital clients
We will build known, national brands to leverage our scale
advantage in the digital age. We will market our commitment to high
standards of care, quality of service delivery and competitive
entry prices.
In our full service offer we will increase the prominence of the
national brand over local brands while retaining strong local
names. In the low-cost market we will grow Simplicity into the
leading national provider of low-cost cremations.
Areas of focus in 2019
Building on the successes of 2018, the focus this year is
on:
-- Implementing trials of new technologies in simplified forms to test client responses;
-- Further trials of different service propositions;
-- Relaunch the Dignity brand; and
-- Further support and marketing of the Simplicity brand.
(2) Invest in and simplify the operating model
Enabling specialisation and efficiency gains by separating front
and back of house activities
Front of house
This will increase the focus on client service and community
engagement, will establish a flexible arrangement model to meet
changing consumer needs as these migrate from local to digital, and
will enable us to move to more appropriately-sized locations.
Back of house
This will increase the focus on operational efficiency, create a
superior operational platform for future growth and leverage
organisational scale to realise operational efficiency
benefits.
The existing network will be right-sized and enhanced and
greater efficiency in funeral delivery will be achieved by
leveraging scale and better allocating resources.
We expect to reduce the number of branch networks we operate
from more than 120 to approximately 75. The average number of
funeral locations per network will increase and we plan to move
from a mix of distributed and centralised operations to centralised
operations where appropriate.
Areas of focus in year 2019
In order to support efficient operational activity, it is
essential that the operating model is simplified. The focus this
year is therefore on:
-- Introduction of consistent management roles nationwide
-- Operation of pilot networks
(3) Streamline central support and invest in technology to
centralise and automate administrative processes
Consistency and focus in management roles
We will introduce consistent management roles nationwide in
support of the strategy. There will be operational focus with
managers unencumbered by non-management tasks. We will create
specialised front and back of house roles to support process
excellence and introduce clearly defined KPIs to assist management.
We will also provide greater recognition of strong performance and
reduce overall costs.
Central investment will enable improved support function
effectiveness
Finance will automate and centralise supplier/client payments
and produce standardised reporting. The marketing function will
produce centrally created marketing materials and improve the
targeting of digital spend. There will be centralised HR
capabilities to reduce management time spent on non-core
activities. We will also realise savings in key procurement
activities such as mortuary equipment and stationery.
IT roadmap established
As so much of our Transformation journey will rely on having the
right IT solutions, we have laid out a clear IT roadmap. This
addresses:
-- A full maturity assessment of our IT systems and services today;
-- The plan of where we will invest in our IT capabilities to
support the delivery of our strategy;
-- Review of alternative overarching architecture options;
-- Prioritisation and selection of individual applications to enable the strategy; and
-- Selection of partners to work with our implementation plans.
New IT capabilities to improve operational efficiency and enable
delivery of plan
Our CRM System will enable consistent and informed communication
and support for clients along the full journey from initial contact
to final follow up, potential referrals or returning clients.
Our tablet based arrangement software will capture funeral
arrangement data digitally to maximise accuracy and efficiency
(versus the existing paper based process) and provide rich,
relevant visual content e.g. choice of flowers. A workflow
management tool will implement a new end-to-end workflow system to
optimise funeral arrangements and the delivery process. Resource
management will optimise the scheduling of limousines and hearses
to maximise usage and also optimise the rostering of funeral
director and support staff.
Areas of focus in year 2019
In order to support efficient operational activity, it is
essential that central processes are streamlined. The focus this
year is therefore on:
-- Finalisation of the overall IT strategy and selection of
relevant IT partners to support change;
-- Modernisation of business intelligence reporting to support operational activities; and
-- Selection of a modern purchase-to-pay solution for all procurement activities.
The Transformation Plan - update
As previously reported in our first quarter trading update in
mid-May, activity during the period has continued to accelerate
with a focus on:
-- Following the finalisation of future efficient branch
networks, the commissioning of a development partner to co-ordinate
the property investment agenda;
-- Ongoing development and monitoring of trials of unbundled
services for bespoke funeral arrangements;
-- Continued enhancement for clients in the Group's online
digital offering including Funeral Notices and improved site
structure and ease of use;
-- Formalisation of projects addressing central capability
including initiatives focused on the Group's Client Service Centre,
purchase-to-pay cycle and procurement expertise;
-- Continued investment in central capabilities particularly Human Resources and Marketing;
-- Detailed engagement with front-line colleagues on specific
role design and ways of working ahead of testing the Group's future
network operating model; and
-- Recruitment of a new IT Director to lead product selection
and enhance the Group's development capabilities.
Crucially since the last update, we have developed detailed
plans for the pilot network tests:
The first branch pilots
A great deal has been achieved over the past year to get us to
the point of piloting radical changes in how our branches operate.
Transforming them will be every bit as big a challenge as we
originally thought it would be.
We have 826 branches, and more than 120 branch networks. There
is no uniform branch network model, each network reflecting local
and historical approaches. The plan includes reducing the number of
networks to approximately 75 and within the branches themselves,
defining different roles and relationships for staff. There will be
new technology, processes and practices and our people will be
working in a more collaborative way within our networks. Changing
existing practices and introducing a new model will be complicated
and involve managing significant change.
We will start by piloting change in three branch networks in the
third quarter, in the Midlands region. We fully expect there to be
important points to learn from this, which we will build into our
future plans. The work will be painstaking and granular because we
must, and will, get the design of our branch model absolutely right
before we embark on the full roll-out. Then, given the nature of
our business, it will be a sensitive and pragmatic roll-out,
something that has been factored into our planning.
Business and financial review
Introduction
The Group's underlying operations are managed across three
distinct divisions: funerals, crematoria and pre-arranged funeral
plans. 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 Dignity operated crematoria and cemeteries.
Pre-arranged funeral plans represent the sale of funerals in
advance to customers wishing to make their own funeral
arrangements.
The initial publication of recorded deaths in Britain for the
first half of 2019 was 300,000 (2018: 324,000), a decrease of seven
per cent compared to the same period last year.
Funeral services
At 28 June 2019, the Group operated a network of 826 (June 2018:
831; December 2018: 831) funeral locations throughout the UK,
generally trading under established local trading names. The change
to the portfolio reflects one new satellite location and six
closures.
Market share
In the first half of 2019 the Group conducted 36,200 funerals
(2018: 39,700) in the United Kingdom, a nine per cent decrease on
the prior year. Slightly less than one and a half per cent of these
funerals were performed in Northern Ireland (2018: one and a half
per cent). Excluding Northern Ireland, these funerals represented
approximately 11.9 per cent (June 2018: 12.1 per cent; December
2018: 11.9 per cent) of total estimated deaths in Great 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. The second quarter of 2018 witnessed particularly
strong funeral market share and the Board is pleased that market
share for the first half of this year has remained stable.
On a comparable basis, excluding any volumes from locations not
contributing for the whole of 2018 and 2019 to date (and therefore
excluding eight locations closed in 2018 and a further six
locations closed in the first half of 2019), market share was 11.8
per cent compared to 12.0 per cent for the same period in 2018.
Funeral mix and underlying average income
FY Q1 Q2 H1 Q1 Q2 H1
Funeral type 2018 2019 2019 2019 2018 2018 2018 Actual
Actual Actual Actual Actual Actual Actual
Underlying
average revenue
(GBP) Full service 3,735 3,542 3,585 3,558 3,875 3,700 3,800
Simple and limited service 2,350 2,159 2,000 2,089 2,100 2,340 2,240
Pre-need 1,705 1,826 1,789 1,806 1,680 1,680 1,680
Other (including Simplicity) 570 773 734 756 580 535 560
Volume mix (%) Full service 48 52 53 52 55 48 52
Simple and limited service 19 14 13 14 12 20 15
Pre-need 27 27 28 28 28 26 27
Other (including Simplicity) 6 7 6 6 5 6 6
Underlying weighted average (GBP) 2,734 2,691 2,705 2,694 2,883 2,713 2,799
Ancillary revenue (GBP) 239 213 233 225 212 225 224
Underlying average revenue (GBP) 2,973 2,904 2,938 2,919 3,095 2,938 3,023
As demonstrated in the table, underlying average funeral income
in the second quarter of 2019 increased to be in line with the
Board's expectation of GBP2,940. Underlying average income for the
first half of the year was GBP2,919.
During the first quarter, the Group removed the limited service
offering from its trials.
Underlying operating profit was GBP30.5 million (June 2018:
GBP42.1 million), 27.6 per cent lower than the same period in 2018.
In broad terms, this can be explained by the following factors:
GBPm
Underlying operating profit
- June 2018 42.1
Impact of:
Number of deaths (7.0)
Market share (2.0)
Lower average incomes (4.4)
Cost base decreases 1.6
Acquisition activity 0.2
Underlying operating profit
- June 2019 30.5
Crematoria
Crematoria operations
Underlying operating profit was GBP20.8 million (June 2018:
GBP23.4 million), a decrease of 11.1 per cent. This reduction in
profitability is driven by the number of deaths and lower average
incomes from the increased use of direct cremation, slightly
off-set by an improvement in market share. This is explained in the
table below:
GBPm
Underlying operating profit
- June 2018 23.4
Impact of:
Number of deaths (2.4)
Market share 0.8
Lower average incomes (0.6)
Cost base increases (0.5)
Acquisition activity 0.1
Underlying operating profit
- June 2019 20.8
The Group operates 46 crematoria (June 2018: 45; December 2018:
46) and is the largest single operator of crematoria in Great
Britain. The Group performed 33,800 cremations (2018: 35,400) in
the period.
These volumes represent approximately 11.3 per cent (June 2018:
10.9 per cent; December 2018: 10.9 per cent) of total estimated
deaths in Great Britain. Sales of memorials and other items equated
to GBP273 per cremation (2018: GBP258 per cremation).
Pre-arranged funeral plans
Active pre-arranged funeral plans were approximately 503,000 at
the end of the period (June 2018: 470,000; December 2018: 486,000).
Although a broadly similar number of plans were sold in each
period, there was a slight increase in the number of trust based
plans sold, offset by greater reduction in the insurance based
plans. These plans continue to represent future potential
incremental business for the funeral division.
Central overheads
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.
Underlying costs in the period were GBP14.6 million (2018:
GBP11.9 million), reflecting continued investment in digital
activities and central capabilities, as previously articulated. The
table below summarises the key movements:
GBPm
Central overheads - June 2018 11.9
Impact of:
Digital activities 1.5
Salaries - central support functions 0.7
IT support fees 0.3
Depreciation 0.2
Central overheads - June 2019 14.6
Non-underlying items of GBP6.0 million (June 2018: GBP2.0
million) excluded from underlying costs resulted in costs of
GBP20.6 million (June 2018: GBP13.9 million).
Marketing and digital activity
The Group's online Funeral Notices service is now fully rolled
out and is being used by clients across the country. In the first
half of the year 1.2 million people have viewed a Funeral Notice
and approximately GBP0.5 million in charitable donations has been
pledged via the online donations facility. The Group has continued
to expand its online reach, providing more advice and guidance,
which has resulted in an approximately 70 per cent increase in
visits to the Group's websites, which equates to over half a
million additional visitors compared to the same period last
year.
The Group has continued to make good progress in developing and
implementing its brand strategy. Funeral plans have been advertised
on television and a radio campaign for Dignity Funerals has been
running across national stations. Additionally, approximately 100
branches now have new fasciae and local websites in the Group's new
blue Dignity brand.
Simplicity Cremations
The Group's Simplicity Cremation business continues to perform
well. At the beginning of the year, the Group added to its GBP995
direct cremation service, providing two enhanced services where
clients can attend a service at the crematorium - Intimate service
(GBP1,395) and Attended service (GBP1,895). Two new prepaid plans
were also introduced to match the new services, should clients wish
to arrange their cremation in advance.
Corporate development activity
In November 2018, the Group announced that acquisitions of small
funeral businesses were inconsistent with the Group's strategy and
plans for the future. Although no such acquisition opportunities
are currently being pursued, should opportunities of larger, more
established businesses become available, the Group will consider
these on a case by case basis. Consequently, no funeral
acquisitions were made in the period.
The Group now has planning permission for four new crematoria.
Three of these locations are due to be operational in 2020 and the
fourth in 2021. The total capital commitment for these four
projects is expected to be approximately GBP26 million to GBP27
million, with GBP5.3 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.
The Group has one location where it is appealing the planning
decision and another three that are currently in the planning
process.
Earnings per share
Underlying earnings per share decreased 46 per cent to 37.8
pence per Ordinary Share, principally driven by the 35 per cent
decrease in underlying operating profits.
Alternative performance measures
The Group's alternative performance measures exclude
non-underlying items and the effects of IFRS 15. 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 following information is presented to aid
understanding of the performance of the Group:
26 week 26 week 52 week
Period Period period
ended ended ended
28 Jun 29 Jun 28 Dec
2019 2018 2018
GBPm GBPm GBPm
Operating profit for the period as reported 28.0 51.5 66.3
Add the effects of:
(Profit)/loss on sale of fixed assets (0.9) - 0.3
External transaction costs in respect of
completed and aborted transactions 0.2 0.4 0.8
Acquisition related amortisation 2.4 2.5 4.9
Transformation Plan costs 4.3 2.0 2.7
Operating and competition review costs 1.7 - 2.7
GMP past service cost - - 1.4
Trade name write-off - - 1.1
Effect of IFRS 15 1.0 - -
Underlying operating profit 36.7 56.4 80.2
Net finance costs (12.8) (13.0) (25.8)
Underlying profit before tax 23.9 43.4 54.4
Tax charge on underlying profit before tax (5.0) (8.7) (11.5)
Underlying profit after tax 18.9 34.7 42.9
Weighted average number of Ordinary Shares
in issue during the period (million) 50.0 50.0 50.0
Underlying EPS (pence) 37.8 69.4 85.8
Cash flow and cash balances
The Group continues to be strongly cash generative. Cash
generated from operations, before non-underlying items, was GBP41.3
million (2018: GBP65.6 million). This cash generation reflects
continued efficient operating profit conversion. Other working
capital changes were consistent with the Group's experience of
converting profits into cash. These changes fluctuate year-on-year
as a result of timings of the Group's period end and the level of
bonuses paid.
In addition to the corporate development activity in the period,
the Group spent GBP8.0 million (2018: GBP9.9 million) on purchases
of property, plant and equipment. The Group would ordinarily expect
to incur approximately GBP20 million in the full year on
maintenance capital expenditure. The Group's Transformation Plan
will capture the majority of this planned capital expenditure on
its funeral business. Consequently maintenance capital expenditure
in 2019 is expected to be lower than 2018.
28 29
Jun Jun
This is analysed as: 2019 2018
GBPm GBPm
Maintenance capital expenditure:
Funeral services 2.0 3.5
Crematoria 1.5 2.7
Other 0.4 0.6
Total maintenance capital expenditure(a) 3.9 6.8
Branch relocations 0.4 0.3
Transformation capital expenditure 0.9 -
Satellite locations 0.2 0.7
Development of new crematoria and cemeteries 2.6 2.1
Total property, plant and equipment 8.0 9.9
Partly funded by:
Disposal proceeds (1.6) (0.3)
Net capital expenditure 6.4 9.6
(a) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other
tangible and intangible assets.
Cash balances at the end of the period were GBP49.8 million
(June 2018: GBP64.0 million; December 2018: GBP66.9 million).
December 2018 includes GBP16.9 million of restricted cash, see note
7.
Taxation
The Group's effective tax rate for 2019 is expected to be
approximately 21 per cent before the effect of non-underlying
items. The effective rate for 2020 and beyond is expected to be
approximately one and a half to two per cent above the headline
rate of Corporation Tax for the relevant period.
Capital structure and financing
Secured Notes
The Group's principal source of long-term debt financing is the
Secured Notes issued in 2014. The principal is repaid completely
over the life of the Secured Notes and is therefore scheduled to be
repaid by 2049. The interest rate is fixed for the life of the
Secured Notes and interest is calculated on the principal.
The key terms of the Secured Notes are summarised in the table
below:
Secured A Notes Secured B
Notes
Total new issuance at par GBP238.9 GBP356.4
million million
Legal maturity 31 December 31 December
2034 2049
Coupon 3.5456% 4.6956%
Rating by Fitch A BBB-
Rating by Standard & Poor's A- BB-
The table reflects a further one notch downgrade by S&P of
each class of Secured Notes on 8 July 2019.
The Secured Notes have an annual debt service obligation
(principal and interest) of circa GBP33.2 million.
It is not currently possible to issue further Secured Notes, as
such an issue would require the ratings at original 2014 levels (A/
BBB) by both rating agencies. In any event, the Group does not have
any requirement to issue any further Secured Notes for the
foreseeable future.
Secured Notes Financial Covenant
The Group's primary financial covenant under the Secured Notes
requires EBITDA to total debt service to be above 1.5 times. The
ratio at June 2019 was 2.05 times (June 2018: 3.09 times; December
2018: 2.55 times). In addition, in order for the Group to transfer
excess from the securitisation group to Dignity plc, it must
achieve both a higher EBITDA to total debt service ratio of 1.85
times and achieve a Free Cash Flow to total debt service (a defined
term in the securitisation documentation) of at least 1.4 times.
This latter ratio at June 2019 was 1.53 times (June 2018: 2.48
times; December 2018 1.98 times). These combined requirements are
known as the Restricted Payment Condition ('RPC'). Given the ratios
achieved, the RPC was achieved at June 2019. If the RPC is not
achieved, then the Group's ability to pay dividends could be
impacted. These covenant calculations use 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'). EBITDA for this calculation uses the
last twelve months ('LTM') results and can be reconciled to the
Group's statutory operating profit as follows:
H1 LTM
28 Jun 28
2019 Jun
2019
GBPm GBPm
EBITDA per covenant calculation - securitisation group 40.9 69.6
Add: EBITDA of entities outside securitisation group 6.4 12.1
Add: Non cash items(a) (0.6) (1.4)
Underlying operating profit before depreciation and
amortisation - Group 46.7 80.3
Underlying depreciation and amortisation (10.0) (19.8)
Non-underlying items (7.7) (16.7)
Effect of IFRS 15 (1.0) (1.0)
Operating profit 28.0 42.8
Notes
(a) The terms of the securitisation require certain items (such
as pensions) to be adjusted from an accounting basis to a cash
basis.
As set out in note 8, the Group's gross amounts owing on its
debt obligations were GBP551.8 million (June 2018: GBP561.2
million; December 2018: GBP561.2 million). Net debt was GBP502.2
million (June 2018 GBP497.4 million; December 2018: GBP506.8
million).
The market value of the Secured Notes at the balance sheet date
was GBP501.4 million (June 2018: GBP564.8 million; December 2018:
GBP531.6 million).
Whilst the Group has no plans to do so, should it wish to repay
all amounts due under the Secured Notes, the cost to do so at 28
June 2019 would have been approximately GBP792 million.
Revolving credit facility
The Group has the benefit of a GBP50 million Revolving Credit
Facility ('RCF'), provided by the Royal Bank of Scotland, which is
secured against certain trade and assets held by legal entities
outside the Group's securitisation structure. The RCF can be drawn
down subject to a set of financial tests applied to these legal
entities.
The facility is available until July 2021, with the option to
renew, subject to the bank's consent at the time, by a further
year. The margin on the facility ranges from 150 to 225 basis
points depending on the resulting gross leverage.
This provides the Group ongoing flexibility in a cost effective
manner, as if undrawn, the facility represents an annual cost of
approximately GBP0.3 million. Given the Group's healthy cash
balances, the RCF is undrawn at the time of the release of this
announcement.
New accounting standards
The Group's 2019 interim results are the first period
incorporating the changes necessary to comply with IFRS 15, Revenue
from contracts with customers as a consequence the results for the
current period presented on a statutory basis are not comparable to
the amounts shown in the earlier periods presented. Details
regarding the impact of adopting IFRS 15 may be found in note 18.
The effect on the Group's alternative performance measures is
detailed in note 2 and on page 34.
Post balance sheet events
There were no significant post balance sheet events.
Forward-looking statements
Certain statements in this Interim Report are forward-looking.
Please see page 39 for further details.
Going concern
The Directors receive and review regularly management accounts,
cash balances, forecasts and the annual budget together with
covenant reporting. Total shareholders' equity as at 28 June 2019
is a negative GBP13.8 million however, this has no impact to the
Board's view on going concern due to the non-cash effect of IFRS
15. After careful consideration and mindful of the current market
conditions, the Directors confirm they are satisfied that the Group
has adequate resources to continue operating for the foreseeable
future. The Directors formally considered this matter at the Board
meeting held on 25 July 2019. For this reason, they continue to
adopt the going concern basis for preparing the Interim Report.
Our key performance indicators
We use non-financial and financial KPIs to both manage the
business and ensure that the Group's strategy and objectives are
being delivered.
Group Performance
KPI KPI definitions 26 week period Developments
ended in 2019
28 June 2019
Underlying earnings This is underlying 37.8 pence The reduction
per share (pence) profit after tax (H1 2018: 69.4 follows the decrease
divided by the weighted pence)(a) in underlying
average number of (FY 2018: 85.8 operating profit.
Ordinary Shares pence)(b)
in issue in the
period.
Underlying operating This is the statutory GBP36.7 million Underlying operating
profit (GBP operating profit (H1 2018: GBP56.4 profit declined
million) of the Group excluding million)(a) year-on-year,
non-underlying items (FY 2018: GBP80.2 primarily driven
and the effect of million)(b) by significantly
IFRS 15. lower deaths
and lower average
incomes.
Underlying cash This is the statutory GBP41.3 million The Group continues
generated from cash generated from (H1 2018: GBP65.6 to convert operating
operations (GBP operations excluding million)(a) profit into cash
million) non-underlying items. (FY 2018: GBP101.9 efficiently.
million)(b)
Underlying average Net underlying funeral GBP2,919 This reduction
income per funeral revenue divided (H1 2018: GBP3,023)(a) year-on-year
(GBP) by the number of (FY 2018: GBP2,973)(b) is in line with
funerals performed the Group's strategic
in the relevant price changes.
period.
Total estimated This is as reported 300,000 Deaths were significantly
number of deaths by the Office for (H1 2018: 324,000) lower than anticipated.
in Britain (number) National Statistics. (a)
(FY 2018: 599,000)(b)
Funeral market This is the number 11.9% Market share
share excluding of funerals performed has been broadly
Northern Ireland by the Group in stable in the
(per cent) Britain divided first half of
by the total estimated 2019 compared
number of deaths to 2018 as a
in Britain. whole.
(H1 2018: 12.1%)(a)
(FY 2018: 11.9%)(b)
Number of funerals This is the number 36,200 Changes are a
performed (number) of funerals performed consequence of
according to our the total number
operational data. of deaths and
the Group's market
share.
(H1 2018: 39,700)(a)
(FY 2018: 72,300)(b)
Crematoria market This is the number 11.3% Market share
share (per cent) of cremations performed has increased,
by the Group divided reflecting the
by the total estimated effect of increases
number of deaths in the number
in Britain. of locations
combined with
an increase in
the number of
Simplicity and
other direct
cremations being
performed.
(H1 2018: 10.9%)(a)
(FY 2018: 10.9%)(b)
Number of cremations This is the number 33,800 Changes are a
performed (number) of cremations performed consequence of
according to our the total number
operational data. of deaths and
the Group's market
share.
(H1 2018: 35,400)(a)
(FY 2018: 65,200)(b)
Active pre-arranged This is the number 503,000 This increase
funeral plans of pre-arranged (H1 2018: 470,000)(a) reflects continued
(number) funeral plans where (FY 2018: 486,000)(b) sales activity
the Group has an offset by the
obligation to provide crystallisation
a funeral in the of plans sold
future. in previous periods.
In addition to these key performance indicators, the Group
closely monitors the results of its client surveys. Highlights of
these results can be found on the following page.
(a) H1 2018 relates to the 26 weeks ended 29 June 2018.
(b) FY 2018 relates to the 52 weeks ended 28 December 2018.
Maintaining consistently high-quality and standards
We closely monitor the results of our client surveys which are
conducted by our Funeral Services division. In the last five years,
we have received approximately 160,000 responses. This is our
measure of how these services meet or exceed client
expectations.
Our consistently high satisfaction scores reflect the strength
of our relationships with our clients. We listen to our clients and
use our survey responses to focus on areas in which we can improve
and add value.
The Dignity Client Survey 2019
Reputation and recommendation
99.1% (December 2018: 98.9%)
99.1 per cent of respondents said that we met or exceeded their
expectations.
97.9% (December 2018: 97.7%)
97.9 per cent of respondents would recommend us.
Quality of service and care
99.9% (December 2018: 99.9%)
99.9 per cent thought our staff were respectful.
99.7% (December 2018: 99.6%)
99.7 per cent thought our staff listened to their needs and
wishes.
99.2% (December 2018: 99.1%)
99.2 per cent agreed that our staff were compassionate and
caring.
High Standards of facilities and fleet
99.9% (December 2018: 99.8%)
99.9 per cent thought our premises were clean and tidy.
99.7% (December 2018: 99.7%)
99.7 per cent thought our vehicles were clean and
comfortable.
In the detail
99.2% (December 2018: 99.2%)
99.2 per cent of clients agreed that our staff had fully
explained what would happen before and during the funeral.
99.0% (December 2018: 99.1%)
99.0 per cent said that the funeral service took place on
time.
98.4% (December 2018: 98.4%)
98.4 per cent said that the final invoice matched the estimate
provided.
Mike McCollum
Chief Executive
31 July 2019
Principal risks and uncertainties
Our principal Group risks
Outlined here is our assessment of the principal risks facing
the Group. In assessing which risks should be classified as
principal, we assess the probability of the risk materialising and
the financial or strategic impact of the risk.
Risk appetite
Risk appetite is the level of risk the Group is willing to take
to achieve its strategic objectives and is set by the Board. The
Board looks at the Group's appetite to risk across a number of
areas including market, financing, operations, strategy and
execution, developments, cybersecurity and technology and
brand.
There has been no change to the Group's risk appetite in the
period.
Our approach to risk management
The Group has a well established governance structure with
internal control and risk management systems. The risk management
process:
-- Provides a framework to identify, assess and manage risks,
both positive and negative, to the Group's overall strategy and the
contribution of its individual operations.
-- Allows the Board to fulfil its governance responsibilities by
making a balanced and understandable assessment of the operation of
the risk management process and inputs.
Responsibilities and actions
The Board
The Board is responsible for monitoring the Group's risk and
their mitigants.
Risk process
Every six months the Audit Committee formally considers the risk
register and approves it for adoption by the Board.
Risk assessment
Executive Directors and senior management are responsible for
identifying and assessing business risks.
Identify
Risks are identified through discussion with senior management
and incorporated in the risk register as appropriate.
Assess
The potential impact and likelihood of occurrence of each risk
is considered.
Mitigating activities
Mitigants are identified against each risk where possible.
Review and internal audit
The link between each risk and the Group's policies and
procedures is identified. Where relevant, appropriate work is
performed by the Group's internal audit function to assist in
ensuring the related procedures and policies are appropriately
understood and operated where they serve to mitigate risks.
Risk governance
The Board has overall responsibility for the Group's internal
control systems and for reviewing their effectiveness. This has
been designed to assist the Board in making more risk-informed,
strategic decisions with a view to creating and protecting
shareholder value.
Risk status summary
The ongoing review of the Group's principal risks focuses on how
these risks may evolve.
Increasing risk trends
The impact of the Group's decisive response in January 2018 to
changes in the competitive landscape highlighted increased risk
from its ability to maintain average incomes. This risk continues
to increase and may result in average income reducing further.
This, combined with lower death rates, could impact the Groups
headroom against its debt covenant.
Regulation could also result from both the CMA investigation and
HM Treasury's review of pre-arranged funeral plans. Whilst the
Group believes that regulation would be beneficial, there remains a
risk that regulation could be imposed that may result in a
significant cost burden to the Group.
Operational risk management
Risk description and impact Mitigating activities and commentary Change
Significant reduction in The profile of deaths has historically No change
the death rate seen intra year changes of +/- 1 per
There is a risk that the cent giving the Group the ability
number of deaths in any to plan its business accordingly.
year significantly reduces. The ONS long term projection is for
This would have a direct deaths to increase.
result on the financial
performance of both the The risk is mitigated by the ability
funeral and crematoria divisions. to control costs and the price structure
and the ability to acquire funerals
and crematoria, although this would
not mitigate a short term significant
reduction in the number of deaths.
The absolute number of deaths in the
first quarter of 2019 decreased by
approximately 12 per cent to 159,000
from 181,000 in the comparative period
in 2018. Historical data indicates
that it is likely that this proportional
decrease will not continue throughout
the remainder of the year and that
the full year will finish within approximately
three per cent of the previous year.
------------------------------------------------- ----------
Nationwide adverse publicity This risk is addressed by the strategic No change
Nationwide adverse publicity decision made as part of the Transformation
for Dignity could result Plan to support development of strong
in a significant reduction national brands via the Group's websites,
in the number of funerals TV and radio advertising and prominent
or cremations performed signage at our funeral locations leading
in any financial period. to increased awareness of the Group
For pre-arranged funeral and its services.
plans, adverse publicity
for the Group or one of With significant investment committed
its partners could result already and planned for subsequent
in a reduction in the number years, we are building and positioning
of plans sold or an increase a strong brand that will be more resilient
in the number of plans cancelled. to adverse publicity should that arise.
This would have a direct
and significant impact on
the financial performance
of that division and the
Group as a whole.
------------------------------------------------- ----------
Fall in average revenues The Group's Transformation Plan will Increased
per funeral or cremation result in a more efficient business
Operating profit growth that can accommodate more competitive
has in part historically pricing, but which continues to provide
been attributable to increases clients with a greater range of choice,
in the average revenue per underpinned by excellent client service.
funeral or cremation. There This will be supported by strong reputational
has been increasing price management together with significant
competition in the funeral investment in both marketing and the
market, resulting in material Group's online profile and presence.
price reductions by the
Group in 2018. It is highly The Group will continue to adapt to
likely that pricing pressure serve evolving client needs.
will remain for the foreseeable
future and it may not therefore
be possible to maintain
average incomes per funeral
or cremations at the current
level.
------------------------------------------------- ----------
Disruptive new business The Group believes that this risk No change
models leading to a significant is mitigated by its reputation as
reduction in market share a high quality provider and with recommendation
It is possible that external being a key driver to the choice of
factors such as new competitors funeral director being used. In addition,
and the increased impact the Group's actions in January 2018
of the internet on the sector, on pricing and promotion sought to
could result in a significant protect the Group's funeral market
reduction in market share share by offering more affordable
within funeral and crematoria options. This focus on affordability
operations. This would have has allowed our market share to start
a direct result on the financial to recover.
performance of those divisions.
For crematoria operations this is
mitigated by the Group's experience
and ability in managing the development
of new crematoria.
Additionally, the combination of the
development of strong national brands
and significant investment in digital
capability together with a range of
product and price offerings to clients
will strengthen the Group's competitiveness.
------------------------------------------------- ----------
Demographic shifts in population In such situations, Dignity would No change
There can be no assurance seek to follow the population shift
that demographic shifts by rebalancing the funeral location
in population will not lead network together with meeting the
to a reduced demand for developing cultural requirements.
funeral services in areas
where Dignity operates.
------------------------------------------------- ----------
Risk description and impact Mitigating activities and commentary Change
Competition Under the Transformation Plan, the Increased
The UK funeral services, funeral service model will be adapted
crematoria and pre-need to better suit evolving client needs
markets are currently fragmented. and to improve efficiency. We will
provide customers with a more tailored
There could be further consolidation service, allowing them to choose how
or increased competition they wish to interact with Dignity
in the industry, whether in arranging a funeral through more
in the form of intensified mobile staff and improved digital
price competition, service capabilities.
competition, over capacity
facilitated by the internet We have developed a new tiered funeral
or otherwise, which could pricing proposition, specifically
lead to an erosion of the targeting different market segments
Group's market share, average that will provide greater flexibility
revenues or costs and consequently to meet individual client needs.
a reduction in its profitability.
By unbundling our prices and services
Failure to replenish or to provide our customers with greater
increase the bank of pre-arranged flexibility to create the right funeral,
funeral plans could affect we will be able to provide greater
market share of the funeral consistency and competitiveness on
division in the longer term. price, while reflecting Dignity's
premium service levels.
Building national brands with a significant
online presence and visibility leverages
our scale and addresses the needs
of increasingly digitally focused
clients. Through the Dignity and Simplicity
names, we plan to build known, national
brands to leverage scale advantages
in the digital age. We will develop
our marketing proposition to promote
the Group's commitment to high standards
of care, quality of service delivery
and competitive entry prices. We also
recognise that our established local
funeral trading names continue to
have significant value in the communities
they serve.
Through better allocation of our resources,
the resultant efficiencies will allow
us to reduce the number of funeral
operating networks and their associated
cost. Support functions are being
centralised where appropriate to ensure
a cost effective and consistent high
standard of service.
There are challenges to opening new
crematoria due to the need to obtain
planning approval and the costs of
development. Dignity has extensive
experience in managing the development
of new crematoria and continues to
be very active in that market.
The Group offers a market leading
pre-need product, the marketing of
which will benefit from the current
and future significant investment
in marketing and enhanced digital
presence.
---------------------------------------------- ----------
Regulation of pre-arranged Any changes would apply to the industry Increased
funeral plans as a whole and not just the Group.
HM Treasury has announced Regulation could materially change
its decision to introduce the business model and would likely
statutory regulation of increase costs.
pre-arranged funerals through
the Financial Conduct Authority. The risk is mitigated through the
high standards of selling and administration
Regulation could affect of market leading pre-arranged funeral
the Group's opportunity plans operated by the Group which
to sell pre-arranged funeral will benefit from the significant
plans in the future or could investment in marketing and an enhanced
result in the Group not digital presence.
being able to draw down
the current level of marketing Dignity has long led the industry
allowances. in best practice and has called for
regulation of the pre-paid funeral
plan sector to protect consumers.
We are pleased that HM Treasury has
taken this decision and, during the
transition period, will continue to
deliver the high standards of selling
and administration of pre-arranged
funeral plans that we already provide.
---------------------------------------------- ----------
Regulation of the funeral The Group already operates at a very Increased
industry high standard, using facilities appropriate
Regulation could result for the dignified care of the deceased.
in increased compliance
costs for the industry as
a whole or other unforeseen
consequences.
---------------------------------------------- ----------
Changes in the funding of There is considerable regulation around No change
the pre-arranged funeral insurance companies which is designed,
plan business amongst other things, to ensure that
In the current regulatory the insurance companies meet their
environment, the Group has obligations.
given commitments to pre-arranged
funeral plan members to The Trusts hold assets with the objective
provide certain funeral of achieving returns slightly in excess
services in the future. of inflation.
Funding for these plans The latest actuarial valuation of
is reliant on either insurance the pre-arranged funeral plan Trusts
companies paying the amounts demonstrates an actuarial surplus.
owed or the pre-arranged This is supported by robust average
funeral plan Trusts having assets per plan.
sufficient assets.
If this is not the case
then the Group may receive
a lower amount per funeral
than expected and thus generate
lower profits.
---------------------------------------------- ----------
Risk description and impact Mitigating activities and commentary Change
Implementation of the Transformation This risk has been and will be mitigated No change
Plan by executive leadership in the business
In 2018, Dignity conducted supported by the Transformation Director
an operational review which who was appointed in August 2018 and
resulted in the development who reports to the Chief Executive.
of a Transformation Plan.
The Transformation team has made substantial
The core components of the progress within a clearly defined
Transformation Plan are: and accountable project framework.
-- Modernise the client
proposition;
-- Invest in and simplify
the operating model; and
-- Streamline central support
and invest in technology
to centralise and automate
administrative processes.
A risk exists that the Plan
is either not implemented
correctly or proves to be
materially disruptive to
the funeral business.
---------------------------------------------- ----------
Direct cremations The Group has addressed this with No change
Growth in the direct cremation Simplicity Cremations which offers
market could reduce average low cost direct cremations without
income in the funeral business any initial funeral service that are
and adversely affect the both respectful and dignified. They
business mix in the crematoria are an affordable alternative to a
business. full funeral or for those who wish
to have a simple cremation. The Group
also now offers a Simplicity pre-arranged
funeral plan option.
Simplicity Cremations is being promoted
via a strong online presence together
with television advertising. Other
media advertising is also planned.
---------------------------------------------- ----------
Competition and Markets Dignity has engaged constructively No change
Authority (CMA) investigation with the CMA and strongly supports
into the Funerals Market the opportunity to improve standards
The CMA investigation into within the sector and meet the expectations
the funeral market will of consumers.
examine whether the information
provided by funeral directors Dignity has pro-actively been making
on prices and services is changes to its business for some time
clear enough for people in response to changing customer demand
to be able to choose the and will continue to review its operations
best option for them. to ensure that the CMA's concerns
are addressed.
It will also look at how
prices have changed over The Group is focused on enhancing
time and the factors that the customer proposition, its service
affect them. and pricing model and will continue
to adapt to serve evolving client
Cremation fees will be considered needs.
as part of the investigation.
Price is a factor when making a decision,
The initial CMA report indicates but quality is also a vital component
possible remedies including and ultimately ensures that consumers
pricing controls, which, are happy with services provided.
if implemented, could have Whilst Dignity's Simplicity service
a significantly detrimental is the lowest price, nationally available,
impact on the Group. attended funeral service, our research
demonstrates that consumers consider
the smooth running of the funeral
and proper care of the deceased more
than cost. Our business has been built
with a focus on high quality service
delivery and we closely monitor the
results of our client surveys to ensure
we continue to maintain the highest
levels of excellent client service
and standards of care.
---------------------------------------------- ----------
Financial risk management
Risk description and impact Mitigating activities Change
Financial Covenant under The nature of the Group's debt means Increased
the Secured Notes that the denominator is now fixed
The Group's Secured Notes unless further Secured Notes are issued
requires EBITDA to total in the future. This means that the
debt service to be above covenant headroom will change proportionately
1.5 times. If this financial with changes in EBITDA generated by
covenant (which is applicable the securitised subgroup.
to the securitised subgroup
of Dignity) is not achieved, Current trading continues to support
then this may lead to an the Group's financial obligations,
Event of Default under the however lower reported profitability
terms of the Secured Notes, increases the risk of breaching covenants.
which could result in the
Security Trustee taking
control of the securitisation
group on behalf of the Secured
Note holders.
In addition, the Group is
required to achieve a more
stringent ratio of 1.85
times for the same test
and also require Free Cash
Flow to total debt service
to be at least 1.4 times
in order to be permitted
to transfer excess cash
from the securitisation
group to Dignity plc (the
Restricted Payment Condition,
'RPC'). If the RPC is not
achieved, then the Group's
ability to pay dividends
would be impacted.
----------------------------------------------- ----------
Consolidated income statement (unaudited)
for the 26 week period ended 28 June 2019
52 week
period
ended
26 week period 28 Dec
ended 2018
-----------------
28 Jun 29 Jun (audited)
2019 2018
Note GBPm GBPm GBPm
---------------------------------------------- ------ -------- ------- ------------
Revenue 2 153.3 174.7 315.6
Cost of sales (68.6) (68.3) (135.0)
Gross profit 84.7 106.4 180.6
Administrative expenses (56.7) (54.9) (114.3)
Operating profit 2 28.0 51.5 66.3
Finance costs 3 (12.9) (13.1) (26.0)
Finance income 3 0.1 0.1 0.2
Share of loss of associated undertakings (0.3) - -
Profit before tax 2 14.9 38.5 40.5
Taxation 4 (3.4) (7.8) (9.0)
Profit for the period attributable to equity
shareholders 11.5 30.7 31.5
Earnings per share for profit attributable
to equity shareholders
* Basic (pence) 5 23.0p 61.4p 63.0p
* Diluted (pence) 5 23.0p 61.4p 63.0p
Following the adoption of IFRS 15 as set out in note 18, the
consolidated income statement and consolidated balance sheet for
the comparative periods are not directly comparable to the current
period, due to the use of the modified retrospective approach to
transition.
The alternative performance measures included within this
interim statement present information on a comparable basis.
Consolidated statement of comprehensive income (unaudited)
for the 26 week period ended 28 June 2019
52 week
period
ended
26 week period 28 Dec
ended 2018
----------------------
28 Jun 29 Jun (audited)
2019 2018
GBPm GBPm GBPm
----------------------------------------- ---------- ---------- ----------
Profit for the period 11.5 30.7 31.5
Items that will not be reclassified
to profit or loss
Remeasurement (loss)/gain on retirement
benefit obligations (2.3) 2.8 (0.6)
Tax credit/(charge) on remeasurement
on retirement benefit obligations 0.4 (0.5) 0.1
Other comprehensive (loss)/income (1.9) 2.3 (0.5)
Comprehensive income for the
period 9.6 33.0 31.0
Attributable to:
Equity shareholders of the parent 9.6 33.0 31.0
Consolidated balance sheet (unaudited)
as at 28 June 2019
28 Jun 29 Jun 28 Dec
2019 2018 18 (audited)
Note GBPm GBPm GBPm
Assets
Non-current assets
Goodwill 232.5 231.5 232.6
Intangible assets 149.8 157.3 152.3
Property, plant and equipment 251.0 248.3 254.1
Investments in associated undertakings 5.8 - 6.0
Financial and other assets 17.2 15.5 15.7
Deferred commissions(1) 18 95.8 - -
752.1 652.6 660.7
Current assets
Inventories 8.1 7.4 8.5
Trade and other receivables 31.5 33.0 32.9
Deferred commissions(1) 18 7.2 - -
Cash and cash equivalents 7 49.8 64.0 66.9
96.6 104.4 108.3
Total assets 848.7 757.0 769.0
Liabilities
Current liabilities
Financial liabilities 4.8 9.3 9.3
Trade and other payables 51.7 52.2 68.9
Deferred revenue(1) 18 14.2 - -
Current tax liabilities 3.3 7.2 4.8
Provisions for liabilities 1.6 1.6 1.7
75.6 70.3 84.7
Non-current liabilities
Financial liabilities 547.1 551.9 551.9
Deferred tax liabilities 11.9 31.2 29.2
Other non-current liabilities 2.1 2.2 2.1
Deferred revenue(1) 18 189.2 - -
Provisions for liabilities 9.5 8.9 9.9
Retirement benefit obligation 12 27.1 20.7 25.2
786.9 614.9 618.3
Total liabilities 862.5 685.2 703.0
Shareholders' equity
Ordinary share capital 6.2 6.2 6.2
Share premium account 12.4 12.4 12.4
Capital redemption reserve 141.7 141.7 141.7
Other reserves (4.5) (5.6) (5.1)
Retained earnings (169.6) (82.9) (89.2)
Total equity (13.8) 71.8 66.0
Total equity and liabilities 848.7 757.0 769.0
(1) In respect of pre-arranged funerals - see note 18.
Following the adoption of IFRS 15 as set out in note 18, the
consolidated income statement and consolidated balance sheet for
the comparative periods are not directly comparable to the current
period, due to the use of the modified retrospective approach to
transition.
The alternative performance measures included within this
interim statement present information on a comparable basis.
Consolidated statement of changes in equity (unaudited)
as at 28 June 2019
Ordinary Share Capital
share premium redemption Other Retained Total
capital account reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
Shareholders' equity as at
29 December 2017 6.2 11.1 141.7 (4.6) (108.0) 46.4
Profit for the 26 weeks ended
29 June 2018 - - - - 30.7 30.7
Remeasurement gain on retirement
benefit obligations - - - - 2.8 2.8
Tax on retirement benefit
obligations - - - - (0.5) (0.5)
Total comprehensive income - - - - 33.0 33.0
Effects of employee share
options - - - 0.4 - 0.4
Tax on employee share options - - - (0.1) - (0.1)
Proceeds from share issue(1) - 1.3 - - - 1.3
Gift to Employee Benefit Trust - - - (1.3) - (1.3)
Dividends (note 6) - - - - (7.9) (7.9)
Shareholders' equity as at
29 June 2018 6.2 12.4 141.7 (5.6) (82.9) 71.8
Profit for the 26 weeks ended
28 December 2018 - - - - 0.8 0.8
Remeasurement loss on retirement
benefit obligations - - - - (3.4) (3.4)
Tax on retirement benefit
obligations - - - - 0.6 0.6
Total comprehensive loss - - - - (2.0) (2.0)
Effects of employee share
options - - - 0.4 - 0.4
Tax on employee share options - - - 0.1 - 0.1
Dividends (note 6) - - - - (4.3) (4.3)
Shareholders' equity as at
28 December 2018 (as originally
presented) 6.2 12.4 141.7 (5.1) (89.2) 66.0
Adjustment on initial application
of IFRS 15 (note 18) - - - - (82.1) (82.1)
Shareholders' equity as at
29 December 2018 (adjusted) 6.2 12.4 141.7 (5.1) (171.3) (16.1)
Profit for the 26 weeks ended
28 June 2019 - - - - 11.5 11.5
Remeasurement loss on retirement
benefit obligations - - - - (2.3) (2.3)
Tax on retirement benefit
obligations - - - - 0.4 0.4
Total comprehensive income - - - - 9.6 9.6
Effects of employee share
options - - - 0.6 - 0.6
Dividends (note 6) - - - - (7.9) (7.9)
Shareholders' equity as at
28 June 2019 6.2 12.4 141.7 (4.5) (169.6) (13.8)
(1) Relating to issue of 77,038 shares under 2015 LTIP
scheme.
The above amounts relate to transactions with owners of the
Company except for the items reported within total comprehensive
income.
Capital redemption reserve
The capital redemption reserve represents GBP80,002,465 B Shares
that were issued on 2 August 2006 and redeemed for cash on the same
day and GBP19,274,610 B Shares that were issued on 10 October 2010
and redeemed for cash on 11 October 2010, GBP22,263,112 B Shares
that were issued on 12 August 2013 and redeemed for cash on 20
August 2013 and GBP20,154,070 B Shares that were issued and
redeemed for cash in November 2014.
Other reserves
Other reserves includes movements relating to the Group's SAYE
and LTIP schemes and associated deferred tax, together with a
GBP12.3 million merger reserve.
Consolidated statement of cash flows (unaudited)
for the 26 week period ended 28 June 2019 52 week
period
ended
26 week period 28 Dec
ended 2018
28 Jun 29 Jun (audited)
2019 2018
Note GBPm GBPm GBPm
----------------------------------------------- ----- -------- ------- ----------
Cash flows from operating activities
Cash generated from operations 9 36.0 62.6 94.9
Finance income received 0.2 0.1 0.2
Finance costs paid (24.7) (12.9) (13.1)
Transfer from restricted bank accounts
for finance costs 7 12.3 0.3 0.3
Payments to restricted bank accounts
for finance costs 7 - - (12.3)
Total payments in respect of finance
costs (12.4) (12.6) (25.1)
Tax paid (5.0) (6.6) (11.6)
Net cash generated from operating
activities 18.8 43.5 58.4
Cash flows from investing activities
Investment in financial asset and associated
undertakings - - (5.0)
Acquisition of subsidiaries and businesses
(net of cash acquired) - (6.5) (6.5)
Proceeds from sale of property,
plant and equipment 1.6 0.3 0.4
Maintenance capital expenditure(1) (3.9) (6.8) (16.1)
Branch relocations (0.4) (0.3) (0.8)
Transformation capital expenditure (0.9) - -
Satellite locations (0.2) (0.7) (1.4)
Development of new crematoria and
cemeteries (2.6) (2.1) (6.7)
Purchase of property, plant and equipment
and intangible assets (8.0) (9.9) (25.0)
Net cash used in investing activities (6.4) (16.1) (36.1)
Cash flows from financing activities
Payments due under Secured Notes (9.3) (4.5) (4.5)
Transfer from restricted bank accounts for
repayment of borrowings 7 4.6 - -
Payments to restricted bank accounts for
repayment of borrowings 7 - - (4.6)
Total payments in respect of borrowings (4.7) (4.5) (9.1)
Dividends paid to shareholders
on Ordinary Shares 6 (7.9) (7.9) (12.2)
Net cash used in financing activities (12.6) (12.4) (21.3)
Net (decrease)/increase in cash
and cash equivalents (0.2) 15.0 1.0
Cash and cash equivalents at the
beginning of the period 50.0 49.0 49.0
Cash and cash equivalents at the
end of the period 7 49.8 64.0 50.0
Restricted cash 7 - - 16.9
Cash and cash equivalents at the
end of the period as
reported in the consolidated balance
sheet 7 49.8 64.0 66.9
(1) Maintenance capital expenditure includes vehicle replacement
programme, improvements to locations and purchases of other
tangible and intangible assets.
Notes to the interim financial information 2019 (unaudited)
for the 26 week period ended 28 June 2019
1 Accounting policies
The principal accounting policies adopted in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all periods presented, unless
otherwise stated.
Basis of preparation
The interim condensed consolidated financial information of
Dignity plc (the 'Company') is for the 26 week period ended 28 June
2019 and comprises the results, assets and liabilities of the
Company and its subsidiaries (the 'Group').
The interim condensed consolidated financial information has
been reviewed, not audited and does not constitute statutory
accounts within the meaning of s434 of the Companies Act 2006. This
interim condensed consolidated financial information has been
prepared in accordance with the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority and with IAS
34 'Interim Financial Reporting' as adopted by the European
Union.
The interim condensed consolidated financial information has
been prepared in accordance with all applicable International
Financial Reporting Standards ('IFRSs'), as adopted by the European
Union, that are expected to apply to the Group's Financial Report
for the 52 week period ended 27 December 2019. They do not include
all of the information required for full annual financial
statements, and should be read in conjunction with the audited
consolidated financial statements of the Group as at and for the 52
week period ended 28 December 2018. The Directors approved this
interim condensed consolidated financial information on 31 July
2019.
The accounting policies applied by the Group in this interim
condensed consolidated financial information are the same as those
applied by the Group in its audited consolidated financial
statements as at and for the 52 week period ended 28 December 2018,
which are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union, except for
the adoption of new accounting standards effective as of 29
December 2018. The basis of consolidation is set out in the Group's
accounting policies in those financial statements.
The preparation of interim condensed consolidated financial
information requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, and income and
expenses. In preparing this interim condensed consolidated
financial information, the significant judgements made by
management in applying the Group's accounting policies and key
sources of estimation uncertainty were the same as those applied to
the audited consolidated financial statements as at and for the 52
week period ended 28 December 2018. Comparative information has
been presented as at and for the 26 week period ended 29 June 2018,
and as at and for the 52 week period ended 28 December 2018.
The comparative figures for the 52 week period ended 28 December
2018 do not constitute statutory accounts for the purposes of s434
of the Companies Act 2006. A copy of the Group's statutory accounts
for the 52 week period ended 28 December 2018 have been delivered
to the Registrar of Companies and contained an unqualified
auditors' report which did not contain a statement made under
section 498 (2) or (3) of the Companies Act 2006.
New accounting standards, interpretations and amendments adopted
by the Group
The Group has applied IFRS 15, Revenue from contracts with
customers and IFRS 9, Financial instruments for the first time in
the preparation of this interim condensed consolidated financial
information.
IFRS 15, Revenue from contracts
A description of the nature and effect of transition to this
standard and the Group's revised accounting policy are presented in
note 18.
IFRS 9, Financial Instruments - impact of adoption
Due to the nature of the Group's financial instruments there has
been no material impact on the adoption of IFRS 9.
Under IFRS 9 all financial assets and liabilities are measured
at fair value on initial recognition, with the exception of certain
trade receivables. Trade receivables that do not have a significant
financing component are measured at their transaction price, being
the invoice amount excluding sales tax. The Group has applied the
practical expedient within the standard, as trade receivables are
expected to be settled in less than one year it can presume that
all trade receivables do not contain a significant financing
component. This represents a change in accounting policy. However,
as the transaction price is not materially different to the fair
value, this change in accounting policy has not had a material
impact.
IFRS 9 subsequently measures financial assets and liabilities at
amortised cost, fair value through other comprehensive income
('FVOCI') or fair value through profit and loss ('FVTPL'). As all
assets and liabilities were measured at amortised cost under IAS 39
there is no change in accounting policy on adoption of IFRS 9.
IFRS 9 establishes a new model for recognition and measurement
of impairments for loans and receivables that are measured at
amortised cost called the 'expected credit losses' model which
replaces the IAS 39 incurred loss model. The Group has applied the
expected credit loss model to its provisioning for trade receivable
balances and its receivables due from pre-arranged funeral plan
trusts using the simplified approach within the standard. This
approach tracks trade receivable balances over an historic rolling
12 month period to create a provision matrix to be applied. This
has not had a material impact.
IFRS 9, Financial Instruments - updated accounting policy
Borrowings
All borrowings are stated at the fair value of consideration
received after deduction of transaction costs and subsequently at
amortised cost. The transaction costs, interest payable and premium
on debt finance are charged/credited to the consolidated income
statement, as finance costs/income, on a constant-yield basis over
the term of the borrowings, or over a shorter period where it is
more likely than not that the lender will require earlier
repayment, using the effective interest method.
Trade receivables
Trade and other receivables that do not have a significant
financing component are measured at their transaction price, being
the invoice amount excluding sales tax. As trade and other
receivables are expected to be settled within one year from
inception it is presumed that all trade and other receivables do
not contain a significant financing component. Trade and other
receivables are subsequently measured at amortised cost. A
provision for impairment is established using the expected credit
loss model. When a trade receivable is not collectable it is
written-off against the allowance account. Subsequent recovery of
amounts previously written-off are credited against administrative
expenses in the consolidated income statement.
Trade payables
Trade payables are not interest bearing and are initially
recognised at fair value and subsequently measured at amortised
cost.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its
liabilities. Equity instruments issued by the Company are recorded
at the proceeds received, net of direct transaction costs.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and on demand
deposits and amounts included in accounts restricted for specific
uses.
Update to standards, amendments and interpretations to existing
standards that are not yet effective and have not been early
adopted
IFRS 16, Leases
This standard is effective for accounting periods beginning on
or after 1 January 2019 and will therefore impact the Group's 2020
financial results. The standard, which will replace IAS 17 Leases,
is expected to have material impact on the reported assets,
liabilities and consolidated income statement of the Group.
Under the standard a lessee is required to recognise a
right-of-use asset representing its right to use the underlying
leased asset and a corresponding lease liability representing its
obligation to make lease payments for all leases. As a result of
this change, the consolidated income statement will include
depreciation of the right-of-use asset and interest on the
liability, rather than the rental expense recognised under IAS
17.
The Group will elect to use the exemptions in the standard on
lease contracts for which the lease term ends within 12 months as
at the date of initial application, and lease contracts for which
the underlying asset is of low value.
Approximately 50 per cent of the Group's properties are on lease
terms that are currently accounted for as an operating lease but
which will result in the recognition of both a right of use asset
and a liability under the new standard. As set out in the Annual
Report and Accounts 2018, the Group has total minimum future lease
payments under non-cancellable operating leases of approximately
GBP220 million and circa 500 leases that will be captured by the
standard. Whilst the net present value of this commitment will be
less than this amount, the grossing up of the balance sheet will be
material.
Given the number of leases and historical data requirements to
adopt the fully retrospective approach, the Group intends to apply
the modified retrospective approach, with assets equal to
liabilities, at transition. This approach will not require
restatement of comparative information.
The Group has established a working group to ensure we take all
the necessary steps to comply with the requirements of IFRS 16. The
working group includes key members of our finance and property
teams. The project is well progressed, with appropriate software
designed, a database completed of all lease contracts, a detailed
review of lease data complete, discount rate methodology underway
and the agreement of accounting policies. We have also reviewed the
tax treatment on transition and have concluded that no deferred tax
will be created on adoption. Furthermore, corporation tax will
follow the income statement charge going forwards.
Until the project has been finalised, it is not practicable to
provide a reasonable estimate of the financial effect of IFRS 16 on
the financial statements of the Group. The estimated impact on the
Group's results and financial position will be provided in the
Annual Report and Accounts for the 52 weeks ending 27 December
2019.
The Group's securitisation documents contemplate accounting
policy changes and provide a mechanism that ensure covenant
calculations are not materially impacted to the detriment of either
the Group or Noteholders. As a result, the adoption of IFRS 16 will
not impact on covenant calculations.
Other
There are no other updates to standards, amendments and
interpretations to existing standards that are not yet effective
that are expected to have a material impact on the Group.
2 Revenue and segmental analysis
Operating segments are reported in a manner consistent with
internal reporting provided to the chief operating decision maker
who is responsible for allocating resources and assessing
performance of the operating segments. The chief operating decision
maker of the Group has been identified as the three Executive
Directors. For statutory purposes the Group now has two reporting
segments, funeral services and crematoria. This follows the
adoption of IFRS 15, in which the timing of the recognition of
revenue associated with marketing allowances received at the
inception of a pre-need plan is now deferred until the single
performance obligation under each plan, being the funeral. This
results in marketing allowances, previously recognised within the
pre-need segment at the inception of a pre-need plan, being
recognised within the funerals services segment at the point a plan
is utilised. In addition, certain other revenue streams and the
costs of running the pre-need division, aside from the directly
attributable costs of marketing pre-arranged plans which are held
as deferred commissions until performance of a funeral, have
prospectively been reclassified into the funeral service segment.
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 operated crematoria and
cemeteries.
Pre-arranged funeral plans represent the sale of funerals in
advance to customers wishing to make their own funeral arrangements
and the marketing and administration costs associated with making
such sales.
Substantially all Group revenue is derived from, and
substantially all of the 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 IFRS 15 as defined on
page 34.
The revenue and operating profit/ (loss), by segment, was as
follows:
26 week period ended 28 June 2019
Effect
Underlying of IFRS
Revenue 15 Revenue
GBPm GBPm GBPm
------------------------------------------------------------------ --------------- -------- --------
Funeral services 105.7 7.5 113.2
Crematoria 40.1 - 40.1
Pre-arranged funeral plans 9.5 (9.5) n/a
Group 155.3 (2.0) 153.3
Underlying
operating
profit/
(loss)
before Underlying Underlying Effect
depreciation depreciation operating of Operating
and and profit/ Non-underlying IFRS profit/
amortisation amortisation (loss) items 15 (loss)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------- ------------- ----------- --------------- -------- ---------------
Funeral services 37.0 (6.5) 30.5 (1.2) (1.1) 28.2
Crematoria 23.4 (2.6) 20.8 (0.4) - 20.4
Pre-arranged funeral
plans - - - (0.1) 0.1 n/a
Central overheads (13.7) (0.9) (14.6) (6.0) - (20.6)
Group 46.7 (10.0) 36.7 (7.7) (1.0) 28.0
Finance costs (12.9) - - (12.9)
Finance income 0.1 - - 0.1
Share of loss of
associated
undertakings - (0.3) - (0.3)
Profit before tax 23.9 (8.0) (1.0) 14.9
Taxation (5.0) 1.4 0.2 (3.4)
Underlying earnings
for the period 18.9
Non-underlying items (6.6)
Effect of IFRS 15 (0.8)
Profit after taxation 11.5
Earnings per share for profit attributable
to equity shareholders
* Basic (pence) 37.8p 23.0p
* Diluted (pence) 23.0p
2 Revenue and segmental analysis (continued)
26 week period ended 29 June 2018
Underlying
operating
profit/
(loss)
before Underlying Underlying
depreciation depreciation operating Operating
and and profit/ Non-underlying profit/
Revenue amortisation amortisation (loss) items (loss)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------- ---------------- ---------------- ------------ --------------- ----------
Funeral services 120.1 48.4 (6.3) 42.1 (2.4) 39.7
Crematoria 42.1 25.6 (2.2) 23.4 (0.2) 23.2
Pre-arranged
funeral
plans 12.5 2.8 - 2.8 (0.3) 2.5
Central
overheads - (11.2) (0.7) (11.9) (2.0) (13.9)
Group 174.7 65.6 (9.2) 56.4 (4.9) 51.5
Finance costs (13.1) - (13.1)
Finance income 0.1 - 0.1
Profit before
tax 43.4 (4.9) 38.5
Taxation (8.7) 0.9 (7.8)
Underlying earnings for
the period 34.7
Non-underlying
items (4.0)
Profit after
taxation 30.7
Earnings per share for profit attributable to equity
shareholders
- Basic (pence) 69.4p 61.4p
- Diluted
(pence) 61.4p
52 week period ended 28 December
2018
Underlying
operating
profit/
(loss) Underlying
before Underlying operating Operating
depreciation depreciation profit/ Non-underlying profit/
Revenue and amortisation and amortisation (loss) items (loss)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- ------------------ ------------------ ----------- --------------- ----------
Funeral services 214.9 75.0 (12.8) 62.2 (7.4) 54.8
Crematoria 78.0 44.9 (4.6) 40.3 (0.7) 39.6
Pre-arranged funeral
plans 22.7 2.8 - 2.8 (0.2) 2.6
Central overheads - (23.5) (1.6) (25.1) (5.6) (30.7)
Group 315.6 99.2 (19.0) 80.2 (13.9) 66.3
Finance costs (26.0) - (26.0)
Finance income 0.2 - 0.2
Profit before tax 54.4 (13.9) 40.5
Taxation (11.5) 2.5 (9.0)
Underlying earnings
for the period 42.9
Non-underlying items (11.4)
Profit after taxation 31.5
Earnings per share for profit attributable
to equity shareholders
- Basic (pence) 85.8p 63.0p
- Diluted (pence) 63.0p
3 Net finance costs
52 week
26 week period period ended
ended
--------------------------
28 29 Jun 28 Dec
Jun 2018 2018
2019
GBPm GBPm GBPm
Finance costs
Secured Notes 11.9 12.1 24.1
Other loans 0.6 0.7 1.2
Net finance cost on retirement benefit
obligations 0.3 0.3 0.6
Unwinding of discounts 0.1 - 0.1
Finance costs 12.9 13.1 26.0
Finance income
Bank deposits (0.1) (0.1) (0.2)
Finance income (0.1) (0.1) (0.2)
Net finance costs 12.8 13.0 25.8
4 Taxation
The taxation charge on continuing operations in the period is
based on a full year estimated effective tax rate, before the
effects of non-underlying items, of 21.0 per cent (2018: 20.0 per
cent) on profit before tax for the 26 week period ended 28 June
2019.
52 week
26 week period period
ended ended
------------------------
28 Jun 29 Jun 28 Dec
2019 2018 2018
GBPm GBPm GBPm
---------- --------------- ------- --------
Taxation 3.4 7.8 9.0
----------- --------------- ------- --------
Changes to the standard rate of Corporation Tax in the UK have
been substantively enacted that will mean the standard rate will
reduce to 17 per cent from 1 April 2020. Further rate changes are
possible.
5 Earnings per share (EPS)
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.
The Group's underlying measures of profitability exclude
non-underlying items and the effects of IFRS 15 as set out on page
34. These items have been adjusted for in determining underlying
measures of profitability as these underlying measures are those
used in the day-to-day management of the business and allow for
greater comparability across periods.
Accordingly, the Board believes that earnings per share
calculated by reference to this underlying profit after taxation is
also a useful indicator of financial performance.
5 Earnings per share (EPS) (continued)
Reconciliations of the earnings and the weighted average number
of shares used in the calculations are set out below:
Weighted
average
number Per share
Earnings of shares amount
GBPm millions pence
26 week period ended 28 June 2019
Underlying profit after taxation and EPS 18.9 50.0 37.8
Add: Non-underlying items (net of taxation
of GBP1.4 million) (6.6)
Add: Effect of IFRS 15 (net of taxation of
GBP0.2 million) (0.8)
Profit attributable to shareholders - Basic
EPS 11.5 50.0 23.0
Profit attributable to shareholders - Diluted
EPS 11.5 50.0 23.0
26 week period ended 29 June 2018
Underlying profit after taxation and EPS 34.7 50.0 69.4
Add: Non-underlying items (net of taxation
of GBP0.9 million) (4.0)
Profit attributable to shareholders - Basic
EPS 30.7 50.0 61.4
Profit attributable to shareholders - Diluted
EPS 30.7 50.0 61.4
52 week period ended 28 December 2018
Underlying profit after taxation and EPS 42.9 50.0 85.8
Add: Non-underlying items (net of taxation
of GBP2.5 million) (11.4)
Profit attributable to shareholders - Basic
EPS 31.5 50.0 63.0
Profit attributable to shareholders - Diluted
EPS 31.5 50.0 63.0
6 Dividends
On 28 June 2019, the Group paid a final dividend, in respect of
2018, of 15.74 pence per share (2018: 15.74 pence per share)
totalling GBP7.9 million (2018: GBP7.9 million). The Group is not
proposing any dividend for the period ended 28 June 2019 (2018:
8.64 pence per share).
7 Cash and cash equivalents
28 Jun 29 Jun 28 Dec
2019 2018 2018
GBPm GBPm GBPm
Operating cash as reported in the consolidated
statement of
cash flows as cash and cash equivalents 49.8 64.0 50.0
Amounts set aside for debt service payments - - 16.9
Cash and cash equivalents as reported in
the consolidated balance sheet 49.8 64.0 66.9
Amounts set aside for debt service payments
This amount was transferred to restricted bank accounts which
could only be used for the payment of the interest and principal on
the Secured Notes, the repayment of liabilities due on the Group's
commitment fees due on its undrawn borrowing facilities and for no
other purpose. Consequently, this amount does not meet the
definition of cash and cash equivalents in IAS 7, Statement of Cash
Flows. In December 2018 this amount was used to pay these
respective parties on 31 December 2018. Of this amount GBP12.3
million is shown within the Statement of Cash Flows as 'Payments to
restricted bank accounts for finance costs' and GBP4.6 million is
shown within 'Financing activities' as 'Payments to restricted bank
accounts for repayment of borrowings'.
8 Net debt
28 Jun 29 Jun 28 Dec
2019 2018 2018
GBPm GBPm GBPm
Net amounts owing on Secured Notes per financial
statements (551.3) (560.6) (560.6)
Add: unamortised issue costs (0.5) (0.6) (0.6)
Gross amounts owing (551.8) (561.2) (561.2)
Accrued interest on Secured Notes - - (12.3)
Accrued interest on Revolving Credit Facility (0.2) (0.2) (0.2)
Cash and cash equivalents 49.8 64.0 66.9
Net debt (502.2) (497.4) (506.8)
In addition to the above, the consolidated balance sheet also
includes finance lease obligations and other financial liabilities
which totalled GBP0.6 million (June 2018: GBP0.6 million; December
2018: GBP0.6 million). These amounts do not represent sources of
funding for the Group and are therefore excluded from the
calculation of net debt.
The Group's primary financial covenant in respect of the Secured
Notes requires EBITDA to total debt service ('EBITDA DSCR') to be
at least 1.5 times. At 28 June 2019, the actual ratio was 2.05
times (June 2018: 3.09 times; December 2018: 2.55 times).
These ratios are calculated for EBITDA and total debt service on
a 12 month rolling basis and reported quarterly. In addition, both
terms are specifically defined in the legal agreement relating to
the Secured Notes. As such, they cannot be accurately calculated
from the contents of this report.
9 Reconciliation of cash generated from operations
52 week
26 week period period
ended ended
28 Jun 29 Jun 28 Dec
2019 2018 2018
GBPm GBPm GBPm
Net profit for the period 11.5 30.7 31.5
Adjustments for:
Taxation 3.4 7.8 9.0
Net finance costs 12.8 13.0 25.8
(Profit)/loss on disposal of fixed assets (0.9) - 0.3
Depreciation charges 10.0 9.2 18.7
Amortisation of intangibles 2.4 2.5 5.1
Share of loss of associated undertakings 0.3 - -
Movement in inventories 0.4 (0.1) (1.2)
Movement in trade receivables 0.4 3.7 5.5
Movement in deferred commissions(1) (1.0) - -
Movement in trade payables (1.3) (3.3) (1.0)
Movement in deferred revenue(1) 1.7 - -
Net pension charges less contribution (0.5) (0.6) 0.6
Trade name write off - - 1.1
Changes in other working capital (excluding
acquisitions) (3.7) (0.7) (1.4)
Employee share option charges 0.5 0.4 0.9
Cash flows from operating activities 36.0 62.6 94.9
(1) In respect of pre-arranged funerals - see note 18.
10 Financial risk management and financial instruments
(a) Financial risk factors
The Group's activities expose it to a variety of financial
risks: market risk (including interest rate risk and other price
risk), credit risk and liquidity risk.
The condensed interim financial statements do not include all
financial risk management information and disclosures required in
the annual financial statements; they should be read in conjunction
with the Group's annual financial statements as at 28 December
2018. There have been no changes in the approach to risk management
or in any risk management policies since the year end.
(b) Liquidity risk
Compared to 28 December 2018, there was no material change in
the contractual undiscounted cash out flows for financial
liabilities.
(c) Fair value of current and non-current financial assets and liabilities
28 Jun 2019 29 Jun 2018 28 Dec 2018
Nominal Book Fair Nominal Book Fair value Nominal Book Fair
value value value value value GBPm value value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Secured A Notes -
3.5456% maturing
31 December 2034 195.4 195.2 210.1 204.8 204.6 218.5 204.8 204.6 214.8
Secured B Notes -
4.6956% maturing
31 December 2049 356.4 356.1 291.3 356.4 356.0 346.3 356.4 356.0 316.8
Total 551.8 551.3 501.4 561.2 560.6 564.8 561.2 560.6 531.6
The Secured Notes are held at amortised cost. Other categories
of financial instruments include trade receivables and trade
payables, however there is no difference between the book value and
fair value of these items.
The fair values of the Secured Notes are their market value at
the balance sheet date and are considered to be level 1.
In addition to the above:
(a) Financial liabilities include finance lease payables of
GBP0.6 million (June 2018: GBP0.6 million; December 2018: GBP0.6
million), which represent the present value of future minimum lease
payments. At 28 June 2019 there is no difference between the
nominal value, book value and fair value of this liability; and
(b) Financial assets include GBPnil (June 2018: GBP1.0 million;
December 2018: GBPnil) in respect of assets held at fair value. The
underlying investment was accounted for as an asset available for
sale in accordance with IAS 39 and was initially measured at the
fair value of consideration paid with subsequent measurement based
upon a level 3 fair value estimate. At 29 June 2018 there was no
difference between the nominal value, book value and fair value of
this asset.
11 Acquisitions and disposals
(a) Acquisition of subsidiary and other businesses
During the period the Group did not make any acquisitions. The
Group also did not make any adjustments to the provisional fair
value ascribed on 2018 acquisitions.
(b) Acquisition and disposals of property, plant and
equipment
During the period there were additions in relation to crematoria
developments totalling GBP2.6 million (June 2018: GBP2.1 million;
December 2018: GBP6.7 million) and GBP5.4 million (June 2018:
GBP7.8 million; December 2018: GBP18.3 million) of other additions
to property, plant and equipment. The Group also received proceeds
of GBP1.6 million (June 2018: GBP0.3 million; December 2018: GBP0.4
million) from disposals of property, plant and equipment, which had
a net book value of GBP0.7 million (June 2018: GBP0.3 million;
December 2018: GBP0.7 million).
The Group had capital expenditure authorised by the Board and
contracted for at the balance sheet date of GBP20.4 million (June
2018: GBP24.4 million; December 2018: GBP17.3 million) in respect
of property, plant and equipment.
12 Retirement benefit obligation
The retirement benefit obligation at the end of the period was
GBP27.1 million (June 2018: GBP20.7 million; December 2018: GBP25.2
million).
The Company is currently paying contributions of GBP1.7 million
per annum over the period from 1 July 2018 to 31 March 2024, a
total of GBP9.8 million, to cover a funding shortfall. The Company
is also paying GBP0.5 million per annum to fund Scheme expenses and
the cost of future benefit accrual for the remaining active members
of the Scheme.
13 Pre-arranged funeral plan trust
During the period, the Group entered into transactions with the
National Funeral Trust, the Trust for Age UK Funeral Plans and the
Dignity Limited Trust Fund (the 'Principal Trusts') and the Trusts
related to businesses acquired since 2013 ('Recent Trusts') (and
collectively, the 'Trusts') associated with the pre-arranged
funeral plan businesses. The nature of the relationship with the
Trusts is set out in the accounting policies in the 2018 Annual
Report. Amounts may only be paid out of the Trusts in accordance
with the relevant Trust Deeds.
Transactions principally comprise:
-- The recovery of marketing and administration allowances in
relation to plans sold net of cancellations; and
-- Receipts from the Trusts in respect of funerals provided.
Transactions also include:
-- Receipts from the Trusts in respect of cancellations by existing members; and
-- Reimbursement by the Trusts of expenses paid by the Group on behalf of the respective Trusts.
Transactions are summarised below:
Amounts due to
the
Transactions during Group at the period
the period end
52 week 52 week
26 week period 26 week period
period ended ended period ended ended
----------------- -----------------
28 29 28 Dec 28 29 28 Dec
Jun Jun 2018 Jun Jun 2018
2019 2018 2019 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Dignity Limited Trust Fund 0.1 0.1 0.2 - - -
National Funeral Trust 24.9 27.0 49.3 8.1 7.9 8.5
Trust for Age UK Funeral Plans 16.0 18.4 33.7 3.1 3.6 3.4
Recent Trusts 0.9 0.6 1.3 0.1 0.1 -
Total 41.9 46.1 84.5 11.3 11.6 11.9
Amounts due to the Group from the Trusts are included in Trade
and other receivables.
14 Post balance sheet events
There were no significant post balance sheet events.
15 Interim Report
Copies of this Interim Report are available at the Group's
website www.dignityfuneralsplc.co.uk/corporate.
16 Securitisation
In accordance with the terms of the securitisation carried out
in April 2003, 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 notes issued in
connection with the securitisation confirming compliance with the
covenants established under the securitisation.
17 Seasonality
The Group's financial results and cash flows have historically
been subject to seasonal trends between the first half and second
half of the financial period. Traditionally, the first half of the
financial period sees slightly higher revenue and profitability.
There is no assurance that this trend will continue in the
future.
18 Adoption of IFRS 15
IFRS 15 Revenue from contracts with customers - nature and
impact of adoption
IFRS 15 establishes principles for reporting the nature, amount
and timing of revenue arising from contracts with customers and
replaces IAS 18, Revenue Recognition. The new standard establishes
a five-step model to account for revenue arising from contracts
with customers. IFRS 15, defines performance obligations as a
'promise to provide a distinct good or service or a series of
distinct goods or services'. Revenue is recognised when a
performance obligation has been satisfied which reflects the point
when control over a product or service transfers to a customer.
Revenue is measured based on the consideration set out in the
contract with the customer. Adoption of IFRS 15 has resulted in a
change in accounting policy as set out below, which has impacted
the timing of recognition of income and direct costs related to
pre-arranged funeral plans ('pre-need').
The Group has adopted IFRS 15 using the modified retrospective
method. Under the modified retrospective method of transition prior
year comparatives are not restated, therefore information presented
within the interim condensed consolidated financial information in
respect of the 52 week period ended 28 December 2018 and the 26
week period ended 29 June 2018 is not comparable with the current
period.
On transition to IFRS 15 on 29 December 2018 a cumulative
transition adjustment of GBP82.1 million has been recorded which
reduces retained earnings and represents the following impact on
the consolidated balance sheet:
Consolidated balance sheet (extract)
Recognition Recognition
of deferred of deferred
28 Dec revenue De-recognition costs
2018 in respect of in respect Deferred Total 29 Dec
As originally of marketing cancellation of tax adjustment 2018
presented allowances provision commissions impact Restated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Non-current
assets
Deferred
commissions - - - 94.9 - 94.9 94.9
Current assets
Deferred
commissions - - - 7.1 - 7.1 7.1
Current
liabilities
Deferred
revenue - 14.1 - - - 14.1 14.1
Provisions for
liabilities 1.7 - (0.3) - - (0.3) 1.4
Non-current
liabilities
Deferred tax
liabilities 29.2 - - - (16.8) (16.8) 12.4
Deferred
revenue - 187.6 - - - 187.6 187.6
Provisions for
liabilities 9.9 - (0.5) - - (0.5) 9.4
Total (reduction)/increase
to retained earnings (201.7) 0.8 102.0 16.8 (82.1)
Retained
earnings (89.2) (82.1) (171.3)
The Group has concluded that in applying IFRS 15 all pre-need
activities are deemed to relate to a single performance obligation,
being the delivery of a funeral, with all revenue associated with a
pre-need plan being recognised on the performance of the funeral.
This represents a change in accounting policy as the Group no
longer separately recognises revenue for pre-need marketing
activities at the inception of a pre-need plan and for the
performance of the funeral on the utilisation of the plan.
As a result, marketing allowances received at the inception of a
pre-need plan are now held as contract liabilities defined as
'deferred revenue' in the consolidated balance sheet up to the time
the funeral is performed. Having deferred all the marketing
allowances received, it is no longer necessary to maintain a
separate cancellation provision in this respect. Furthermore,
directly attributable costs associated with the inception of a
pre-need plan, in the form of commissions payable either to
employees or third parties, are held as deferred commissions in the
consolidated balance sheet up to the time the associated funeral is
performed. Once the funeral is performed both deferred marketing
allowance revenues and deferred commission costs are recognised in
the consolidated income statement. Deferred revenue and deferred
commission balances are split between current and non-current based
on historical experience.
The timing of revenue recognised by the Group from the Trusts
for the ongoing administration services performed on behalf of the
Trusts is unaffected by IFRS 15, with revenue continuing to be
recognised in the period to which it relates, therefore there is no
change in accounting policy in relation to this revenue stream,
except that this revenue will now be recognised within the funeral
segment.
Furthermore, there is no change to payments made on behalf of
the Trusts to third party funeral directors when the funeral is
ultimately performed as it has been concluded that the Group is
deemed to be acting as an agent and revenue is treated as pass
through revenue and not grossed up within the consolidated income
statement.
The effect of IFRS 15 for the period ended 28 June 2019 on the
consolidated income statement is shown within the revenue and
segmental analysis in note 2, which also shows current year results
as they would be been reported under IAS 18. Under IAS 18 the
consolidated balance sheet would not include deferred commissions
or deferred revenue but would recognise a cancellation provision of
GBP0.5 million.
IFRS 15 Revenue from contracts with customers - updated
accounting policy
Revenue
Revenue from funeral operations comprises the amount recoverable
from customers for the provision of funerals, income from
crematoria and other services, once those services have been
performed or the goods supplied.
Revenues include amounts receivable from the pre-arranged
funeral plan trusts for funerals performed by the Group for
pre-arranged funeral plan members.
Income from memorial sales is recognised at the point of sale,
to the extent that the goods have been supplied. Costs of
maintaining memorials are recognised as incurred.
The Group pays certain disbursements (such as crematoria fees,
burial plots, ministers' fees and doctors' fees) on behalf of its
clients. These amounts are recovered as part of the invoicing
process. However, these amounts are not included within net
revenues as they are simply passed on to the customer at cost and
not controlled by Dignity.
The accounting policies for recognising turnover for
pre-arranged funeral plans are stated below.
The Group views the UK and Channel Islands as one geographical
segment, given each local business exhibits similar long-term
characteristics.
All amounts are exclusive of VAT.
Pre-arranged funeral plans
Trust plans
The Group markets and sells pre-arranged funeral plans, with
monies received from selling funeral plans being held and
controlled by independent pre-arranged funeral plan trusts (the
'Trusts'). The responsibility for the ultimate performance of
funerals is allocated to funeral directors, who are selected by the
beneficiary of the plan, some of whom are not owned by the Group.
The sale of a pre-arranged plan is considered a single performance
obligation fulfilled by the delivery of the funeral service.
The Group receives monies from the Trusts in respect of the
following transactions:
-- A marketing allowance in respect of each plan sold. The
marketing element is only refundable in the event that the plan is
subsequently cancelled. Marketing allowances are deferred within
deferred revenue on the consolidated balance sheet when the related
plan is sold and are included in Group revenue, within the funeral
services operating segment, on performance of a funeral; and
-- Further contributions are also received from the Trusts in
return for the provision of general ongoing administrative services
supplied to the Trusts. These contributions are included in Group
revenue for the period to which they relate and are included in the
funeral services operating segment.
All directly attributable costs in respect of the marketing of
the pre-arranged funeral plans are held as deferred commissions in
the consolidated balance sheet and recognised in the Group's income
statement, within administration expenses, on the performance of a
funeral.
Deferred revenue and deferred commission balances are split
between current and non-current based on historical experience.
All costs in respect of the administration of the pre-arranged
funeral plans are expensed in the Group income statement as
incurred.
The Group makes payments on behalf of the Trusts relating to the
ongoing overheads of the Trusts, refunds to members of the Trusts
in event of cancellation, and the payments made to third party
funeral directors when the funeral is ultimately performed. All
such payments are reimbursed in full by the Trusts on demand, in
accordance with the terms of the relevant Trust's deed. The Group
is deemed to be acting as an agent and revenue is treated as pass
through revenue and not grossed up within the consolidated income
statement. This conclusion reflects the third party funeral
director's relationship with the customer at the time the funeral
is performed.
Neither the sales value of plans nor the costs of providing
funerals are recognised in the financial statements of the Group
when a pre-arranged funeral plan is sold.
Each Dignity marketing company contractually guarantees with the
customer of a pre-arranged funeral plan that (i) if the customer
chooses to cancel their selected funeral plan, a full refund will
be made to the customer of all monies paid in respect thereof (less
in certain cases an administration fee payable to the relevant
Dignity marketing company); (ii) the funeral director's services
(as selected by the customer) will be provided regardless of price
rises in the future; and (iii) for the majority of plans sold,
specific disbursements (such as crematoria fees, ministers' fees
and doctors' fees) will be provided regardless of price rises in
the future.
Insurance plans
The Group is the named beneficiary on a number of life assurance
products sold by third party insurance companies, in consideration
for which the Group has committed to performing the funeral
(including some disbursements) of the plan holder at a discount to
its rates prevailing at the time of death.
A commission is paid to the insurers when the policy is
initially charged to the Group. These costs are carried as a
prepayment and charged to the consolidated income statement as a
funeral is performed, with the cost per funeral estimated based on
the total costs incurred and the expected level of policies,
allowing for cancellations, where the Group will be involved in the
fulfilment of the funeral. This expectation is reviewed
annually.
In the event of the death of the policyholder, if the Group
performs the funeral, it receives an agreed amount from the
insurers which is recognised as revenue within the funeral services
division. On occasions a third party will perform the funeral and
the Group will pass on all monies received to that party and in
this situation the Group is deemed to be acting as an agent and
revenue is treated as pass through revenue and not grossed up
within the consolidated income statement.
Non-GAAP measures
(a) Alternative performance measures
The Board believes that whilst statutory reporting measures
provide a useful indication of the financial performance of the
Group, additional insight is gained by excluding non-underlying
items which comprise certain non-recurring or non-trading
transactions and the effects of IFRS 15.
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 the effect of IFRS 15.
Underlying earnings per share is calculated as profit after
taxation, before non-underlying items (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 on a cash paid basis.
(b) Effects of IFRS 15
On adoption of IFRS 15 on 29 December 2018 the Group no longer
separately recognises revenue for pre-need marketing activities as
all pre-need activities are deemed to relate to a single
performance obligation, being the performance of a funeral.
To aid a user of the financial statements, for the foreseeable
future, the Group has amended its definition of underlying revenue
and underlying operating profit so that the effects of adopting
IFRS 15 are removed. The impact in 2019 can be seen within note
2.
(c) Non-underlying items
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;
-- Transformation Plan costs (see below);
-- operating and competition review costs;
-- one-off costs in respect of the defined benefit pension obligations;
-- trade name write-off and impairments;
-- Group's share of profit or loss of associated undertakings; 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 business and
allow for greater comparability across periods.
Transformation Plan costs
Given the on-going transformation of the Group's business will
result in significant, directly attributable non-recurring costs
over the period of the Transformation Plan, these amounts are
excluded from the Group's underlying profit measures and treated as
a non-underlying item.
These costs will include, but are not limited to:
-- external advisers' fees;
-- directly attributable internal costs, including staff costs
wholly related to the Transformation (such as the Transformation
Director and project management office);
-- costs relating to any property openings, closures or relocations;
-- rebranding costs;
-- speculative marketing costs; and
-- redundancy costs.
Pre-arranged
Funeral funeral Central
services Crematoria plans overheads Group
GBPm GBPm GBPm GBPm GBPm
26 week period ended 28 June 2019
Non-trading
Amortisation of acquisition related
intangibles 2.1 0.2 0.1 - 2.4
External transaction costs - 0.2 - - 0.2
Profit on sale of fixed assets (0.9) - - - (0.9)
Group's share of loss of associated
undertakings - - - 0.3 0.3
Non-recurring
Transformation Plan costs - - - 4.3 4.3
Operating and competition review costs - - - 1.7 1.7
1.2 0.4 0.1 6.3 8.0
Taxation (1.4)
6.6
26 week period ended 29 June 2018
Non-trading
Amortisation of acquisition related
intangibles 2.2 0.2 0.1 - 2.5
External transaction costs 0.2 - 0.2 - 0.4
Non-recurring
Transformation Plan costs - - - 2.0 2.0
2.4 0.2 0.3 2.0 4.9
Taxation (0.9)
4.0
52 week period ended 28 December 2018
Non-trading
Amortisation of acquisition related
intangibles 4.4 0.4 0.1 - 4.9
External transaction costs 0.6 - - 0.2 0.8
Loss on sale of fixed assets 0.3 - - - 0.3
Non-recurring
Transformation Plan costs - - - 2.7 2.7
Operating and competition review costs - - - 2.7 2.7
GMP past service cost 1.0 0.3 0.1 - 1.4
Trade name write-off 1.1 - - - 1.1
7.4 0.7 0.2 5.6 13.9
Taxation (2.5)
11.4
(d) Non-underlying cash flow items
52 week
26 week period period ended
ended
----------------------
28 29 Jun 28 Dec
Jun 2018 2018
2019
GBPm GBPm GBPm
Cash flows from operating activities 36.0 62.6 94.9
External transaction costs 0.6 1.4 1.7
Transformation Plan costs 4.2 1.6 2.6
Operating and competition review costs 0.5 - 2.7
Underlying cash generated from operations 41.3 65.6 101.9
(e) Like-for-like annualised operating profit ('LFL annualised operating profit')
The Group recognises that its current measure of underlying
operating profit and statutory measures of financial performance
will not provide a transparent view of financial performance whilst
the Group's Transformation Plan is being implemented. This is
because such existing measures will not give clarity of the
economic impact of changes made part way through the period (e.g.
new investments, location closures and staff changes). The Group
therefore plans to introduce an additional alternative performance
measure for the period of the Transformation Plan.
LFL annualised operating profit will adjust underlying operating
profit in such a way as to reflect a best estimate of the Group's
sustainable profitability into the following year. An explanation
of the changes to underlying operating profit in arriving at LFL
annualised operating profit will be provided in each reporting
period.
As there have not been any material changes in locations or
staffing in 2019, LFL annualised operating profit is considered to
be the same as underlying operating profit for the first half of
2019.
Statement of Directors' responsibilities
The Directors confirm to the best of their knowledge that:
(a) The interim condensed consolidated financial information has
been prepared in accordance with IAS 34 as adopted by the European
Union; and
(b) The Interim Report includes a fair review of the information as required by:
-- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first half of 2019 and their impact on the interim condensed
consolidated financial information; and a description of the
principal risks and uncertainties for the remaining second half of
the year; and
-- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
half of 2019 and any material changes in the related party
transactions described in the last Annual Report.
The Directors of Dignity plc and their functions are listed
below:
David Blackwood - Interim Non-Executive Chairman
Mike McCollum - Chief Executive
Steve Whittern - Finance Director
Richard Portman - Corporate Services Director
Jane Ashcroft - Non-Executive Director
Mary McNamara - Non-Executive Director
James Wilson - Non-Executive Director
By order of the Board
Steve Whittern
Finance Director
31 July 2019
Independent review report to Dignity plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the Interim Report for the 26 week
period ended 28 June 2019 which comprises the consolidated income
statement, the consolidated statement of comprehensive income, the
consolidated balance sheet, the consolidated statement of changes
in equity, the consolidated statement of cash flows and notes 1 to
18. We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The Interim Report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the Interim Report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this Interim Report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the Interim Report
based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the Interim Report for 26 week period ended 28 June 2019 is not
prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Birmingham
31 July 2019
Forward-looking statements
This Interim Report and the Dignity plc investor website may
contain certain 'forward-looking statements' with respect to
Dignity plc ('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 Interim Report 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 Interim Report 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR GMGFNVGNGLZM
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