Mike McCollum

Chief Executive

2 August 2017

 

 

 

 

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

Our risk appetite remains broadly unchanged. Risk appetite is the level of risk the Group is willing to take to achieve its strategic objectives and is set by the Board. The Board looks at the Group's appetite to risk across a number of areas including market, financing, operations, strategy and execution, developments, cybersecurity and technology and brand.

 

The Group's risk appetite is set in the context of our focus on one sector - funeral services. As experts in this sector we are able to mitigate the risk involved in growing the business by acquisition, development and our active asset management strategy. This focus on our core strengths is balanced by a more cautious approach to risk in other areas.

 

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 risks 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.

 

Operational risk management

Risk and impact	Mitigating activities	2017 commentary	Change
Significant reduction in the death rate There is a risk that the number of deaths in any year significantly reduces. This would have a direct result on the financial performance of both the funeral and crematoria divisions.	The profile of deaths has historically followed a similar profile to that predicted by the ONS, giving the Group the ability to plan its business accordingly. The risk is mitigated by the geographical spread of locations, the ability to control costs and the ability to acquire funerals.	Deaths were higher than anticipated in the period. Historical data would suggest that deaths in 2017 could be significantly lower than 2015 and 2016.	No significant change
Nationwide adverse publicity Nationwide adverse publicity for Dignity could result in a significant reduction in the number of funerals or cremations performed in any financial period. For pre-arranged funeral plans, adverse publicity for the Group or one of its partners could result in a reduction in the number of plans sold or an increase in the number of plans cancelled. This would have a direct and significant impact on the financial performance of that division and the Group as a whole.	This risk is addressed by ensuring appropriate policies and procedures are in place, which are designed to ensure excellent client service and careful selection of reputable partners.	There have been no such events in the period.	No significant change
Ability to increase average revenues per funeral or cremation Operating profit growth is in part attributable to increases in the average revenue per funeral or cremation. There can be no guarantee that future average revenues per funeral or cremation will be maintained or increased.	The Group believes that its focus on excellent client service helps to mitigate this risk.	Average revenues increased in line with the Board's expectations.	No significant change

 

 

Risk and impact	Mitigating activities	2017 commentary	Change
Significant reduction in market share It is possible that other external factors, such as new competitors, could result in a significant reduction in market share within funeral or crematoria operations. This would have a direct result on the financial performance of those divisions.	The Group believes that this risk is mitigated for funeral operations by reputation and recommendation being a key driver to the choice of funeral director being used. For crematoria operations this is mitigated by difficulties associated with building new crematoria.	The reduction in funeral market share is slightly worse than anticipated and is being kept under review.	Risk exposure increased
Demographic shifts in population There can be no assurance that demographic shifts in population will not lead to a reduced demand for funeral services in areas where Dignity operates.	In such situations, Dignity would seek to follow the population shift. This is mitigated by the geographical spread of locations coupled with the ability to acquire funeral locations in areas of higher demand.	There have been no material changes, with satellites being opened and businesses acquired in appropriate areas.	No significant change
Competition The UK funeral services market and crematoria market is currently very fragmented.   There can be no assurance that there will not be further consolidation in the industry or that increased competition in the industry, whether in the form of intensified price competition, service competition, over capacity or otherwise, would not lead to an erosion of the Group's market share, average revenues or costs and consequently a reduction in its profitability.   The retention of affinity partners who sell the Group's pre-arranged funeral plans is essential to the long-term development of the pre-arranged funeral plan division.  The loss of an affinity partner could lead to a reduction in the amount of profit recognised in that division at the time of sale. Failure to replenish or increase the bank of pre-arranged funeral plans could affect market share of the funeral division in the longer-term.	There are barriers to entry in the funeral services market due to the importance of established local reputation and in the crematoria market due to the need to obtain planning approval for new crematoria and the cost of developing new crematoria.           There are a number of potential affinity partners who could replace existing ones or add to existing relationships.	The reduction in funeral market share is slightly worse than anticipated and is being kept under review.   Denials of planning applications for crematoria demonstrate the barriers to entry.	Risk exposure increased
Taxes There can be no assurance that changes will not be made to UK taxes, such as VAT. VAT is not currently chargeable on the majority of the Group's services. The introduction of such a tax could therefore significantly increase the cost to clients of the Group's services.	There are currently specific exemptions under European legislation for the UK on the VAT treatment of funerals. Any change would apply to the industry as a whole and not just the Group.	No significant changes noted in the period.	No significant change
Regulation of pre-arranged funeral plans Pre-arranged funeral plans are not a regulated product, but are subject to a specific financial services exemption. Changes to the basis of any regulation could affect the Group's opportunity to sell pre-arranged funeral plans in the future or could result in the Group not being able to draw down the current level of marketing allowances, which would have a direct impact on the profitability of the pre-arranged funeral plan division.	Any changes would apply to the industry as a whole and not just the Group. This risk is also mitigated through the high standards of selling and administration of pre-arranged funeral plans operated by the Group.	See Business Review for details of report issued by Dignity and Fairer Finance calling for regulation of the industry.	No significant change
Regulation of the funeral industry Legislative changes by the Scottish Government were enacted in 2016. This provides them with the powers to regulate the funeral industry. Dignity welcomes this progress.   Regulation would most likely result in increased compliance costs for the industry as a whole.	The Group already operates at a very high standard, using facilities appropriate for the dignified care of the deceased.	We continue to seek regulation of our markets.   An inspector of funerals for Scotland has been appointed and the Group is seeking to be actively involved in the work they are carrying out.	No significant change
Changes in the funding of the pre-arranged funeral plan business The Group has given commitments to pre-arranged funeral plan members to provide certain funeral services in the future.   Funding for these plans is reliant on either insurance companies paying the amounts owed or the pre-arranged funeral plan Trusts having sufficient assets.   If this is not the case, then the Group may receive a lower amount per funeral than expected and thus generate lower profits.	There is considerable regulation around insurance companies which is designed, amongst other things, to ensure that the insurance companies meet their obligations.   The Trusts hold assets with the objective of achieving returns slightly in excess of inflation.	The latest actuarial valuation of the pre-arranged funeral plan Trusts demonstrates a small actuarial deficit.   However, the average assets per plan are still robust.	No significant change

 

Financial risk management

Risk and impact	Mitigating activities	2017 commentary	Change
Financial Covenant under the Secured Notes The Group's Secured Notes requires EBITDA to total debt service to be above 1.5 times. If this financial covenant (which is applicable to the securitised subgroup of Dignity) is not achieved, then this may lead to an Event of Default under the terms of the Secured Notes, which could result in the Security Trustee taking control of the securitisation group on behalf of the Secured Noteholders.   In addition, the Group is required to achieve a more stringent ratio of 1.85 times for the same test in order to be permitted to transfer excess cash from the securitisation group to Dignity plc. If this stricter test is not achieved, then the Group's ability to pay dividends would be impacted.	The nature of the Group's debt means that the denominator is now fixed unless further Secured Notes are issued in the future. This means that the covenant headroom will change proportionately with changes in EBITDA generated by the securitised subgroup.	No significant changes noted in the period.	No significant change

 

 

Consolidated income statement (unaudited)

for the 26 week period ended 30 June 2017 

 

				53 week
				period ended
		26 week period ended		30 Dec 2016
		30 Jun 2017	24 Jun 2016	(audited)
	Note	£m	£m	£m
Revenue	2	169.8	158.0	313.6
Cost of sales		(66.3)	(62.6)	(128.1)
Gross profit		103.5	95.4	185.5
Administrative expenses		(44.8)	(40.7)	(87.8)
Operating profit	2	58.7	54.7	97.7
Analysed as:
Underlying operating profit	2	59.5	55.6	101.7
Profit on sale of fixed assets		-	0.1	0.1
External transaction costs		(0.8)	(1.0)	(4.1)
Operating profit		58.7	54.7	97.7
Finance costs	3	(13.5)	(13.4)	(26.9)
Finance income	3	0.1	0.2	0.4
Profit before tax	2	45.3	41.5	71.2
Taxation - before exceptional items	4	(9.2)	(8.9)	(15.8)
Taxation - exceptional	4	-	-	1.8
Taxation	4	(9.2)	(8.9)	(14.0)
Profit for the period attributable to equity shareholders		36.1	32.6	57.2
Earnings per share for profit attributable to equity shareholders
- Basic (pence)	5	72.5p	65.9p	115.3p
- Diluted (pence)	5	72.3p	65.7p	114.6p

 

Consolidated statement of comprehensive income (unaudited)

for the 26 week period ended 30 June 2017

					53 week
					period ended
			26 week period ended		30 Dec 2016
			30 Jun 2017	24 Jun 2016	(audited)
			£m	£m	£m
Profit for the period			36.1	32.6	57.2
Items that will not be reclassified to profit or loss
Remeasurement gain/ (loss) on retirement benefit obligations			1.8	(2.1)	(12.5)
Tax (charge)/ credit on remeasurement on retirement benefit obligations			(0.3)	0.4	2.3
Restatement of deferred tax for the change in UK tax rate			-	-	(0.3)
Other comprehensive income/ (loss)			1.5	(1.7)	(10.5)
Comprehensive income for the period			37.6	30.9	46.7
Attributable to:
Equity shareholders of the parent			37.6	30.9	46.7

 

 

Consolidated balance sheet (unaudited)

as at 30 June 2017

			30 Jun 2017	24 Jun 2016			30 Dec 16 (audited)
		Note	£m	£m			£m
Assets
Non-current assets
Goodwill			223.3	203.0			215.9
Intangible assets			155.3	129.8			142.2
Property, plant and equipment			242.1	200.2			235.4
Financial and other assets			12.6	10.8			11.3
			633.3	543.8			604.8
Current assets
Inventories			7.0	6.0			6.1
Trade and other receivables			34.7	32.6			37.0
Cash and cash equivalents		7	65.4	120.7			67.1
			107.1	159.3			110.2
Total assets			740.4	703.1			715.0
Liabilities
Current liabilities
Financial liabilities			24.8		8.5	8.8
Trade and other payables			52.3		66.6	59.3
Current tax liabilities			7.9		5.0	5.4
Provisions for liabilities			1.6		1.4	1.6
			86.6		81.5	75.1
Non-current liabilities
Financial liabilities			561.2		590.3	581.5
Deferred tax liabilities			29.4		25.3	25.7
Other non-current liabilities			2.7		2.7	2.8
Provisions for liabilities			7.7		6.4	7.5
Retirement benefit obligation			24.9		15.0	25.9
			625.9		639.7	643.4
Total liabilities			712.5		721.2	718.5
Shareholders' equity
Ordinary share capital			6.2		6.1	6.1
Share premium account			11.4		7.0	8.5
Capital redemption reserve			141.7		141.7	141.7
Other reserves			(4.8)		(4.7)	(3.5)
Retained earnings			(126.6)		(168.2)	(156.3)
Total equity			27.9		(18.1)	(3.5)
Total equity and liabilities			740.4		703.1	715.0

 

Consolidated statement of changes in equity (unaudited)

as at 30 June 2017

	Ordinary		Share		Capital
	share		Premium		redemption		Other			Retained				Total
	capital		account		reserve		reserves			earnings				equity
	£m		£m		£m		£m			£m				£m
Shareholders' equity as at 25 December 2015		6.1		4.8		141.7		(4.5)			(192.0)		(43.9)
Profit for the 26 weeks ended 24 June 2016		-		-		-		-			32.6		32.6
Remeasurement loss on defined benefit obligations		-		-		-		-			(2.1)		(2.1)
Tax on pensions		-		-		-		-			0.4		0.4
Total comprehensive income		-		-		-		-			30.9		30.9
Effects of employee share options		-		-		-		1.7			-		1.7
Tax on employee share options		-		-		-		0.3			-		0.3
Proceeds from share issue(1)		-		2.2		-		-			-		2.2
Gift to Employee Benefit Trust		-		-		-		(2.2)			-		(2.2)
Dividends (note 6)		-		-		-		-			(7.1)		(7.1)
Shareholders' equity as at 24 June 2016		6.1		7.0		141.7		(4.7)			(168.2)		(18.1)
Profit for the 27 weeks ended 30 December 2016		-		-		-		-			24.6		24.6
Remeasurement loss on defined benefit obligations		-		-		-		-			(10.4)		(10.4)
Tax on pensions		-		-		-		-			1.9		1.9
Restatement of deferred tax for the change in UK                                 tax rate		-		-		-		-			(0.3)		(0.3)
Total comprehensive income		-		-		-		-			15.8		15.8
Effects of employee share options		-		-		-		1.3			-		1.3
Tax on employee share options		-		-		-		(0.1)			-		(0.1)
Proceeds from share issue(2)		-		1.5		-		-			-		1.5
Dividends (note 6)		-		-		-		-			(3.9)		(3.9)
Shareholders' equity as at 30 December 2016		6.1		8.5		141.7		(3.5)			(156.3)		(3.5)
Profit for the 26 weeks ended 30 June 2017		-		-		-		-			36.1		36.1
Remeasurement gain on defined benefit obligations		-		-		-		-			1.8		1.8
Tax on pensions		-		-		-		-			(0.3)		(0.3)
Total comprehensive income		-		-		-		-			37.6		37.6
Effects of employee share options		-		-		-		1.3			-		1.3
Tax on employee share options		-		-		-		0.2			-		0.2
Proceeds from share issue(3)		0.1		2.9		-		-			-		3.0
Gift to Employee Benefit Trust		-		-		-		(2.8)			-		(2.8)
Dividends (note 6)		-		-		-		-			(7.9)		(7.9)
Shareholders' equity as at 30 June 2017		6.2		11.4		141.7		(4.8)			(126.6)		27.9

 

(1)  Relating to issue of 213,851 shares under 2013 LTIP scheme and 353 shares under 2013 SAYE scheme.

(2)  Relating to issue of 103,655 shares under 2013 SAYE scheme.

(3)  Relating to issue of 184,391 shares under 2014 LTIP scheme and 9,079 shares under 2013 SAYE scheme.

The above amounts relate to transactions with owners of the Company except for the items reported within total comprehensive income.

 

Capital redemption reserve

The capital redemption reserve represents £80,002,465 B Shares that were issued on 2 August 2006 and redeemed for cash on the same day and £19,274,610 B Shares that were issued on 10 October 2010 and redeemed for cash on 11 October 2010, £22,263,112 B Shares that were issued on 12 August 2013 and redeemed for cash on 20 August 2013 and £20,154,070 B Shares that were issued and redeemed for cash in November 2014.

 

Other reserves

Other reserves includes movements relating to the Group's SAYE and LTIP schemes and associated deferred tax, together with a £12.3 million merger reserve.

 

 

Consolidated statement of cash flows (unaudited)                                                                                           

for the 26 week period ended 30 June 2017						53 week
						period ended
				26 week period ended		30 Dec 2016
				30 Jun 2017	24 Jun 2016	(audited)
			Note	£m	£m	£m
Cash flows from operating activities
Cash generated from operations before external transaction costs			9	61.9	64.6	121.1
External transaction costs in respect of acquisitions				(0.8)	(0.6)	(3.9)
Cash generated from operations				61.1	64.0	117.2
Finance income received				0.1	0.3	0.5
Finance costs paid				(13.2)	(13.2)	(38.5)
Transfer from restricted bank accounts for finance costs				0.3	12.8	12.8
Payments to restricted bank accounts for finance costs			7	-	(12.7)	(0.3)
Total payments in respect of finance costs				(12.9)	(13.1)	(26.0)
Tax paid				(5.4)	(5.3)	(10.6)
Net cash generated from operating activities				42.9	45.9	81.1
Cash flows from investing activities
Acquisition of subsidiaries and businesses (net of cash acquired)			11	(20.0)	(6.0)	(56.3)
Proceeds from sale of property, plant and equipment				0.4	0.5	1.0
Maintenance capital expenditure(1)				(9.5)	(5.9)	(19.6)
Branch relocations				(2.0)	(0.8)	(1.6)
Satellite locations				(0.4)	(0.4)	(0.8)
Development of new crematoria and cemeteries				(0.9)	-	(0.8)
Purchase of property, plant and equipment and intangible assets				(12.8)	(7.1)	(22.8)
Net cash used in investing activities				(32.4)	(12.6)	(78.1)
Cash flows from financing activities
Issue costs in respect of debt facility				-	-	(0.1)
Proceeds from share issue				0.1	-	1.5
Repayment of borrowings				(4.4)	(4.2)	(12.6)
Transfer from restricted bank accounts for repayment of borrowings				-	4.1	4.1
Payments to restricted bank accounts for repayment of borrowings			7	-	(4.2)	-
Total payments in respect of borrowings				(4.4)	(4.3)	(8.5)
Dividends paid to shareholders on Ordinary Shares			6	(7.9)	(7.1)	(11.0)
Net cash used in financing activities				(12.2)	(11.4)	(18.1)
Net (decrease)/ increase in cash and cash equivalents				(1.7)	21.9	(15.1)
Cash and cash equivalents at the beginning of the period				67.1	81.9	81.9
Cash and cash equivalents at the end of the period			7	65.4	103.8	66.8
Restricted cash			7	-	16.9	0.3
Cash and cash equivalents at the end of the period as
reported in the consolidated balance sheet			7	65.4	120.7	67.1

 

 

(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 2017 (unaudited)

for the 26 week period ended 30 June 2017

 

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 30 June 2017 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 29 December 2017. 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 53 week period ended 30 December 2016. The Directors approved this interim condensed consolidated financial information on 2 August 2017.

 

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 53 week period ended 30 December 2016, which are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. 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 judgments, 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 judgments made by management in applying the Group's accounting policies and key source of estimation uncertainty were the same as those applied to the audited consolidated financial statements as at and for the 53 week period ended 30 December 2016. Comparative information has been presented as at and for the 26 week period ended 24 June 2016, and as at and for the 53 week period ended 30 December 2016.

 

The comparative figures for the 53 week period ended 30 December 2016 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 53 week period ended 30 December 2016 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.

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 four Executive Directors. The Group has three reporting segments, funeral services, crematoria and pre-arranged funeral plans.  The Group also reports central overheads, which comprise unallocated central expenses.

 

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 operating profit is stated before profit or loss on sale of fixed assets and external transaction costs. Underlying operating profit is included as it is felt that adjusting operating profit for these items provides a useful indication of the Group's performance.

 

2 Revenue and segmental analysis (continued)

 

The revenue and operating profit/ (loss), by segment, was as follows:

26 week period ended 30 June 2017
		Revenue		Underlying operating profit/ (loss) before depreciation and amortisation		Depreciation and amortisation		Underlying operating profit/ (loss)	Profit  on sale of fixed assets and external transaction costs		Operating profit/ (loss)
		£m		£m		£m		£m	£m		£m
Funeral services		116.7		51.2		(6.1)		45.1	(0.7)		44.4
Crematoria		38.4		23.1		(2.2)		20.9	(0.1)		20.8
Pre-arranged funeral plans		14.7		5.0		(0.1)		4.9	-		4.9
Central overheads		-		(10.9)		(0.5)		(11.4)	-		(11.4)
Group		169.8		68.4		(8.9)		59.5	(0.8)		58.7
Finance costs								(13.5)	-		(13.5)
Finance income								0.1	-		0.1
Profit before tax								46.1	(0.8)		45.3
Taxation								(9.2)	-		(9.2)
Underlying earnings for the period								36.9
Total other items									(0.8)
Profit after taxation											36.1
Earnings per share for profit attributable to equity shareholders
- Basic (pence)							74.1p				72.5p
- Diluted (pence)							73.9p				72.3p
26 week period ended 24 June 2016
		Revenue		Underlying operating profit/ (loss) before depreciation and amortisation		Depreciation and amortisation		Underlying operating profit/ (loss)	Profit  on sale of fixed assets, external transaction costs and exceptional items		Operating profit/ (loss)
		£m		£m		£m		£m	£m		£m
Funeral services		111.6		49.7		(5.6)		44.1	(1.0)		43.1
Crematoria		32.5		20.0		(1.7)		18.3	0.1		18.4
Pre-arranged funeral plans		13.9		4.1		(0.1)		4.0	-		4.0
Central overheads		-		(10.4)		(0.4)		(10.8)	-		(10.8)
Group		158.0		63.4		(7.8)		55.6	(0.9)		54.7
Finance costs								(13.4)	-		(13.4)
Finance income								0.2	-		0.2
Profit before tax								42.4	(0.9)		41.5
Taxation								(8.9)	-		(8.9)
Underlying earnings for the period								33.5
Total other items									(0.9)
Profit after taxation											32.6
Earnings per share for profit attributable to equity shareholders
- Basic (pence)							67.7p				65.9p
- Diluted (pence)							67.5p				65.7p

 

 

2 Revenue and segmental analysis (continued)

 

53 week period ended 30 December 2016
	Revenue	Underlying operating profit/ (loss) before depreciation and amortisation	Depreciation and amortisation	Underlying operating profit/ (loss)	Profit on sale of fixed assets, external transaction costs and exceptional items	Operating profit/ (loss)
	£m	£m	£m	£m	£m	£m
Funeral services	217.8	90.6	(11.6)	79.0	(0.9)	78.1
Crematoria - existing	65.1	40.0	(3.4)	36.6	0.1	36.7
Crematoria - acquisitions	2.4	1.1	(0.1)	1.0	(3.0)	(2.0)
Crematoria	67.5	41.1	(3.5)	37.6	(2.9)	34.7
Pre-arranged funeral plans	28.3	8.7	(0.2)	8.5	-	8.5
Central overheads	-	(22.6)	(0.8)	(23.4)	(0.2)	(23.6)
Group	313.6	117.8	(16.1)	101.7	(4.0)	97.7
Finance costs				(26.9)	-	(26.9)
Finance income				0.4	-	0.4
Profit before tax				75.2	(4.0)	71.2
Taxation - continuing activities				(15.8)	-	(15.8)
Taxation - exceptional				-	1.8	1.8
Taxation				(15.8)	1.8	(14.0)
Underlying earnings for the period				59.4
Total other items					(2.2)
Profit after taxation						57.2
Earnings per share for profit attributable to equity shareholders
- Basic (pence)				119.8p		115.3p
- Diluted (pence)				119.0p		114.6p

 

 

 

3 Net finance costs

															53 week
						26 week period ended						period ended
							30 Jun  2017			24 Jun  2016				30 Dec  2016
							£m			£m				£m
	Finance costs
	Secured Notes			12.2						12.4				24.7
	Crematoria Acquisition Facility			0.3						0.3				0.6
	Other loans			0.7						0.5				1.0
	Net finance cost on retirement benefit obligations			0.3						0.2				0.4
	Unwinding of discounts			-						-				0.2
	Finance costs			13.5						13.4			26.9
	Finance income
	Bank deposits			(0.1)						(0.2)			(0.4)
	Finance income			(0.1)						(0.2)			(0.4)
	Net finance costs			13.4						13.2			26.5

 

 

4 Taxation

The taxation charge on continuing operations in the period is based on a full year estimated effective tax rate, before exceptional items, of 20.0 per cent (2016: 21.0 per cent) on profit before tax for the 26 week period ended 30 June 2017.

						53 week
			26 week period ended			period ended
			30 Jun 2017	24 Jun 2016		30 Dec 2016
			£m	£m		£m
Taxation			9.2	8.9		14.0

                                                                                            

The standard rate of Corporation Tax in the UK changed from 20 per cent to 19 per cent from 1 April 2017. In addition, changes have been substantively enacted that will mean the standard rate will reduce further to 17 per cent from 1 April 2020. Further rate changes are possible. Each percentage point reduction in Corporation Tax rate is expected to reduce the deferred tax liability by approximately £1.7 million.

 

 

5 Earnings per share (EPS)

The calculation of basic earnings per Ordinary Share has been based on the profit attributable to equity share holders 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 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 Board believes that profit on ordinary activities before profit (or loss) on sale of fixed assets, external transaction costs, exceptional items and after taxation is a useful indication of the Group's performance, as it excludes significant non-recurring items. This reporting measure is defined as 'Underlying profit after taxation'.

 

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.

 

Reconciliations of the earnings and the weighted average number of shares used in the calculations are set out below:

	Earnings	Weighted  average number of shares	Per share  amount
	£m	millions	pence
26 week period ended 30 June 2017
Underlying profit after taxation and EPS	36.9	49.8	74.1
Less: Profit on sale of fixed assets and external transaction costs
(net of taxation of £nil million)	(0.8)
Profit attributable to shareholders - Basic EPS	36.1	49.8	72.5
Profit attributable to shareholders - Diluted EPS	36.1	49.9	72.3
26 week period ended 24 June 2016
Underlying profit after taxation and EPS	33.5	49.5	67.7
Less: Profit on sale of fixed assets and external transaction costs
(net of taxation of £nil million)	(0.9)
Profit attributable to shareholders - Basic EPS	32.6	49.5	65.9
Profit attributable to shareholders - Diluted EPS	32.6	49.6	65.7
53 week period ended 30 December 2016
Underlying profit after taxation and  EPS	59.4	49.6	119.8
Add: Exceptional items, loss on sale of fixed assets and
external transaction costs (net of taxation of £nil million)	(2.2)
Profit attributable to shareholders - Basic EPS	57.2	49.6	115.3
Profit attributable to shareholders - Diluted EPS	57.2	49.9	114.6

 

 

6 Dividends

On 30 June 2017, the Group paid a final dividend, in respect of 2016, of 15.74 pence per share (2016: 14.31 pence per share) totalling £7.9 million (2016: £7.1 million).

 

On 2 August 2017, the Directors declared an interim dividend, in respect of 2017, of 8.64 pence per share (2016: 7.85 pence per share) totalling £4.3 million (2016: £3.9 million), which will be paid on 27 October 2017 to those shareholders on the register at the close of business on 21 September 2017.

 

7 Cash and cash equivalents

                                                                                                          

			30 Jun	24 Jun	30 Dec
			2017	2016	2016
			£m	£m	£m
cash flows as cash and cash equivalents			65.4	103.8	66.8
Amounts set aside for debt service payments			-	16.9	0.3
Cash and cash equivalents as reported in the balance sheet			65.4	120.7	67.1

 

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 June 2017 there is no restricted cash as payments were made on 30 June. In December 2016 this amount was used to pay these respective parties on 3 January 2017. Of this amount £nil million (December 2016: £0.3 million) is shown within the Statement of Cash Flows as 'Payments to restricted bank accounts for finance costs'.

 

8 Net debt

                                                                                                                                                                

			30 Jun	24 Jun	30 Dec
			2017	2016	2016
			£m	£m	£m
Net amounts owing on Secured Notes per financial statements			(569.5)	(582.4)	(573.9)
Add: unamortised issue costs			(0.7)	(0.7)	(0.7)
Gross amounts owing on Secured Notes			(570.2)	(583.1)	(574.6)
Net amounts owing on Crematoria Acquisition Facility per financial statements			(15.8)	(15.7)	(15.7)
Add: unamortised issue costs on Crematoria Acquisition Facility			-	(0.1)	(0.1)
Gross amounts owing			(586.0)	(598.9)	(590.4)
Accrued interest on Secured Notes			-	(12.7)	(0.3)
Accrued interest on other debt facilities			(0.2)	-	(0.1)
Cash and cash equivalents			65.4	120.7	67.1
Net debt			(520.8)	(490.9)	(523.7)

 

In addition to the above, the consolidated balance sheet also includes finance lease obligations and other financial liabilities which totalled £0.7 million (June 2016: £0.7m; December 2016: £0.7 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 30 June 2017, the actual ratio was 3.41 times (June 2016: 3.19 times; December 2016: 3.37 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

					53 week
			26 week period ended		period ended
		30 Jun 2017		24 Jun 2016	30 Dec 2016
		£m		£m	£m
Net profit for the period		36.1		32.6	57.2
Adjustments for:
Taxation		9.2		8.9	14.0
Net finance costs		13.4		13.2	26.5
Profit on disposal of fixed assets		-		(0.1)	(0.1)
Depreciation charges		8.4		7.7	15.9
Amortisation of intangibles		0.5		0.1	0.2
Movement in inventories		(0.9)		0.5	0.4
Movement in trade receivables		1.7		0.7	(0.6)
Movement in trade payables		(1.6)		(0.4)	1.3
External transaction costs		0.8		1.0	4.1
Changes in other working capital (excluding acquisitions)		(7.2)		(1.5)	(1.4)
Employee share option charges		1.5		1.9	3.6
Cash generated from operations before external transaction costs		61.9		64.6	121.1

 

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 30 December 2016. 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 year end, 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
	30 Jun 2017			24 Jun 2016			30 December 2016
	Nominal value £m	Book value £m	Fair value £m	Nominal value £m	Book value £m	Fair value £m	Nominal value  £m	Book value £m	Fair value £m
Secured A Notes - 3.5456% maturing 31   December 2034	213.7	213.5	238.9	226.7	226.4	246.5	218.2	217.9	241.8
Secured B Notes - 4.6956% maturing 31 December 2049	356.4	356.0	440.3	356.4	356.0	406.4	356.4	356.0	436.2
Crematoria Acquisition Facility	15.8	15.8	15.8	15.8	15.7	15.8	15.8	15.7	15.8
Finance leases	0.7	0.7	0.7	0.7	0.7	0.7	0.7	0.7	0.7
Total	586.6	586.0	695.7	599.6	598.8	669.4	591.1	590.3	694.5

 

The Crematoria Acquisition Facility and Secured Notes are held at amortised cost. Finance lease payables represent the present value of future minimum lease payments. 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. 

 

The fair value of the Crematoria Acquisition Facility is considered to be nominal value, given the nature of the loan and the source of the cash flows support its repayment and is considered to be level 3.

 

 

 

11 Acquisitions and disposals

 

(a) Acquisition of subsidiary and other businesses

			Provisional
			fair value
			£m
Property, plant and equipment			3.5
Intangible assets: trade names			12.9
Cash acquired			2.2
Receivables			-
Provisions			(0.2)
Other working capital			(0.1)
Deferred taxation			(2.3)
Net assets acquired			16.0
Goodwill arising			7.4
			23.4
Satisfied by:
Cash paid on completion (funded from internally generated cash)			21.7
Accrued consideration			1.7
Total consideration			23.4

 

During 2017, the Group acquired the operational interest of 14 funeral locations and one crematorium.

 

The residual excess of the consideration paid over the net assets acquired is recognised as goodwill, none of which is tax deductible. This goodwill represents future benefits to the Group in terms of revenue, market share and delivering the Group's strategy.

 

The fair values ascribed reflect provisional amounts, which will be finalised once acquisition working capital balances have been converted into cash. These fair values reflect the recognition of trade names and associated deferred taxation, and adjustments to reflect the fair value of other working capital items such as receivables, inventories and accruals which are immaterial.

 

Each acquisition made followed the Group's strategy to acquire such locations that will help the Group grow and create value for shareholders.

 

All acquisitions have been accounted for under the acquisition method. None were individually material and consequently have been aggregated. The aggregated impact of the acquisitions on the Income Statement for the period is not material.

 

(b) Reconciliation to cash flow statement

	£m
Cash paid on completion	21.7
Cash paid in respect of prior year acquisitions	0.5
Cash acquired on acquisition	(2.2)
Acquisition of subsidiaries and businesses as reported in the cash flow statement	20.0

 

(c) Acquisition and disposals of property, plant and equipment

In addition to the above, there were additions in relation to crematoria developments totalling £0.9 million (June 2016: £nil million; December 2016: £0.8 million) and £11.9 million (June 2016: £7.1 million; December 2016: £22.0 million) of other additions to property, plant and equipment in the period. The Group also received proceeds of £0.4 million (June 2016: £0.5 million; December 2016: £1.0 million) from disposals of property, plant and equipment, which had a net book value of £0.4 million (June 2016: £0.4 million; December 2016: £0.7 million).

 

The Group had capital expenditure authorised by the Board and contracted for at the balance sheet date of £22 million (June 2016: £19.5 million; December 2016: £8.6 million) in respect of property, plant and equipment.

 

 

12 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 Group's 2016 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 (which are recognised by the Group as revenue within the pre-arranged funeral plan division at the time of the sale); and

·    Receipts from the Trusts in respect of funerals provided (which are recognised by the Group as revenue within the funeral division when the funeral is performed).

 

Transactions also include:

·    Receipts from the Trusts in respect of cancellations by existing members;

·    Reimbursement by the Trusts of expenses paid by the Group on behalf of the respective Trusts; and

·    The payment of realised surpluses generated by the Trust funds as and when the Trustees sanction such payments.

 

Transactions are summarised below:

 

						Amounts due to the
		Transactions during the period				Group at the period end
			26 week period ended		53 week period ended	26 week period ended		53 week period ended
		30 Jun 2017		24 Jun 2016	30 Dec 2016	30 Jun 2017	24 Jun 2016	30 Dec 2016
		£m		£m	£m	£m	£m	£m
Dignity Limited Trust Fund		0.2		0.2	0.3	-	-	-
National Funeral Trust		25.8		22.7	44.4	7.0	4.6	6.8
Trust for Age UK Funeral Plans		18.8		19.5	36.5	3.7	3.5	4.2
Recent Trusts		2.8		1.3	2.1	0.1	0.2	0.2
Total		47.6		43.7	83.3	10.8	8.3	11.2

Amounts due to the Group from the Trusts are included in Trade and other receivables.

 

13 Post balance sheet events

The Group has acquired three funeral locations since the balance sheet date. 

 

See the Business and Financial Review for details of a new revolving credit facility obtained by the Group in July 2017.

 

There were no other significant post balance sheet event.

               

14 Interim Report

Copies of this Interim Report are available at the Group's website www.dignityfuneralsplc.co.uk.

 

15 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.

 

16 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.

 

 

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 2017 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 2017 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:

 

Peter Hindley - Non-Executive Chairman

Mike McCollum - Chief Executive

Steve Whittern - Finance Director

Andrew Davies - Operations Director

Richard Portman - Corporate Services Director

Alan McWalter - Senior Independent Director

David Blackwood - Non-Executive Director

Jane Ashcroft - Non-Executive Director

Mary McNamara - Non-Executive Director

 

 

By order of the Board

 

 

 

 

 

Steve Whittern

Finance Director

2 August 2017

 

 

 

 

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 30 June 2017 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 16. 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 Ireland) 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 30 June 2017 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

2 August 2017