News

31/03/2023

Preliminary results for the 52-week period ended 30 December 2022

Good operational progress in a changing market

Dignity plc ('Dignity' or 'the Group'), one of the UK's largest national providers of funeral plans and end-of-life services, announces its preliminary results for the 52-week period ended 30 December 2022.

(1) Prior year comparatives have been restated for the 53 week period ended 31 December 2021 due to a reclassification of foreign exchange movements. See note 1 for further details.

Alternative performance measures ('APMs')
The Board believes that whilst statutory reporting measures provide financial performance of the Group under IFRS, APMs are necessary to enable users of the financial statements to fully understand the trading performance and financial position of the Group. The APMs provided are aligned with those used in the day-to-day management of the Group and allow for greater comparability across periods. For this reason, the APMs provided exclude the impact of consolidating the Trusts and the changes which relate to the application of IFRS 15, as well as non-underlying items comprising certain non-recurring and non-trading transactions. Further detail may be found on pages 51 to 57.

Key points

• The Group continues to make progress in the implementation of its new strategy. In 2022, market share increased by 0.1 per cent from 11.8 per cent to 11.9 per cent in funeral services while cremation market share grew 0.5 per cent from 11.3 per cent to 11.8 per cent. Various factors have resulted in slower market share growth than originally anticipated such as recruitment challenges (prior to completing a benchmarking process) and new competition, though we remain focused on continuing to address these challenges as we move forward
• Dignity Funerals Limited gained FCA authorisation, a programme demanding a review of our computer systems, extensive colleague re-training and a review of recruitment processes. As part of this programme Dignity also launched a new innovative and market-leading funeral plan in August 2022 for which, we continue to receive positive feedback from customers. The product is the first of its kind in the UK enabling customers to tailor their funeral plan rather than restrict their choices with a limited range of 'packages'
• Dignity continues its commitment to reassuring and supporting approximately 38,000 'stranded' funeral plan customers from other providers exiting the market following the introduction of the FCA regulation
• During the year the Group completed an operational restructure and effectively inverted its business to benefit more from its Business Leaders’ local knowledge
• The Group continues to rationalise the local trading names of Dignity's funeral directors and has made good progress, reducing the number of brands to retain only the most prominent and strongest brands. To help support the growth strategy these brands are being supported by localised marketing and proactive PR in the pre-need and at-need markets
• The Group’s results continue to be impacted by a number of factors, including proactive changes in pricing strategy, a trend towards lower price funerals and a variety of cost pressures, some of which Dignity is having to absorb directly
• Underlying operating profit decreased by 68 per cent to £17.9 million (2021: £55.8 million). Underlying cash generation decreased by 50 per cent to £44.1 million (2021: £88.3 million). The lower profitability has reduced liquidity resulting in an increase to Net Debt
• Following a benchmarking process in 2022 it was clear that employee remuneration in some areas should be increased and during the year, more than 2,500 people in key operational roles duly received increases. Since then, the Group has seen improvements in its recruitment challenge and a material improvement in vacancies filled
• As previously noted in the Trading Update dated 23 January 2023, the Group made planned but required investment in its premises and fleet. Said investments totalled £24.0 million within the financial year. These investments can be seen through the Group’s capital expenditure programme and align with the Group’s vision to drive forward positive change in the sector and lead the market on quality of service, value for money and choice
• The Group continues to have a significant need for capital expenditure to maintain its existing asset base, as well as to invest in future growth. Given current cash generation, the Group is presently unable to fund strategic additional capital expenditure from operations and is also limited in its ability to invest in marketing/advertising and promotions in order to accelerate growth. The Group therefore continues to draw upon available resources and facilities to invest in the business and manage liquidity in the short and medium-term. The Group has drawn £15 million of its £50.0 million facility with Phoenix UK Fund Ltd (a related party). The Group expects that £45.0 million of this liquidity facility will be drawn in 2023 to fund ongoing investment, working capital, and advisory fees
• A total impairment of £196.3 million of the Group’s non-current assets has been included following slower funeral market share growth combined with more branch direct cremations rather than full adult funerals being performed than originally anticipated
• Operating loss was £201.1 million (2021: profit £19.5 million) which includes the £196.3 million total impairment
• In relation to Dignity's securitised debt, the Group notes S&P’s ratings downgrade for the Class A and Class B notes on 21 February 2023 (from A- to BBB- and B+ to CCC+ respectively) and Fitch’s ratings downgrade for the Class A and Class B notes on 17 March 2023 (from A- to BBB and BB+ to B respectively – with both on ratings watch negative)
• The Group continues to benefit from the bondholder consents secured in 2022 in the form of the covenant waiver that benefits the covenant calculations until December 2023 and consent to deleverage the capital structure to provide additional financial flexibility. The Group has commenced a process regarding a potential sale of seven crematoria as agreed with bondholders. This process is currently proceeding in line with planned timelines but successful completion, and the timing of any such successful completion, remains uncertain
• The recommended offer for Dignity plc at 550 pence per share by Yellow (SPC) Bidco Limited ('BidCo') also remains ongoing and remains subject to FCA change of control approval and shareholder acceptance; BidCo and the Dignity plc Board will provide updates as required
• As part of the Group's contingency planning processes to ensure it has an appropriate capital structure and capital available to invest in the business going forward, and with on-going uncertainty regarding successful delivery of actions agreed as part of the bondholder consent programme, the Group continues to review all options, including the possible need to raise equity finance in order to reduce its debt and improve its capital structure

Kate Davidson MBE, Chief Executive Officer of Dignity plc, commented:

"Throughout a challenging year we have remained focussed on our long-term aims and have confidence that our strategy will deliver sustainable growth and the highest standards of care and service to our customers.

We have a continuous emphasis on growing our market share across each of our businesses, and a commitment to ongoing investment in our people, facilities and infrastructure to unlock Dignity’s long-term success. We will continue to work towards our vision of being a market leader through our exceptional service, quality and proposition. We also look forward to meeting the challenges of a regulated funeral sector, which we have long called for, and just one example of this is our preparation for the FCA's Consumer Duty, which puts our customers first by setting out higher standards of governance and consumer protection.

I would like to thank all our stakeholders; to our customers for their loyalty, which frequently dates back several generations; to our own people, whose unique brand of care is so valued by those customers and makes us the business we are; and to our shareholders, for their support of our strategy and seeing the clear potential it offers."

For further information please contact:

Dignity's preliminary results are available at https://www.dignityplc.co.uk/investors/.

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