Addendum Announcment regardin

RNS Number : 9632R

Dignity PLC

08 May 2009

 



For immediate release

8 May 2009

Dignity plc

Addendum announcement regarding release of the 2008 Annual Report

The Company announced its preliminary results for the 52-week period ended 26 December 2008 on 12 March 2009, which included consolidated financial statements and a fair review of business. It has come to the Company's attention that this statement inadvertently omitted certain information required by rule 6.5.5 (2) (b) of the Disclosure and Transparency Rules. The omitted information was the full unedited text in the body of a RNS announcement of the principal risks, directors' responsibility statement and confirmation that copies of the Annual Report are available at the UK Listing Authority's Document Viewing Facility.

The Company would like to apologise for this technical oversight and now provides this required information.

This announcement does not amend in any way the Company's results or any information previously released in the Group's preliminary announcement or Annual Report.

On 20 April the Company announced that the 2008 Annual Report and Notice of the 2009 Annual General Meeting were published. Copies of the above documents which were posted to shareholders on 20 April 2009 have been submitted to the UK Listing Authority and will be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at: The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.

For more information

Steve Whittern, Finance Director

Richard Portman, Corporate Service Director and Company Secretary

Dignity plc  Richard Oldworth Mark Edwards Christian Goodbody Buchanan Communications

[phone] [phone]

  Business Review

Introduction

The Group's operations are managed across three main areas; funeral services, crematoria and pre-arranged funeral plans, which respectively represent 78 per cent, 17 per cent and 5 per cent of the Group's revenues. Funeral services revenues relate to the provision of funerals and ancillary items, such as memorials and floral tributes. Crematoria revenues arise from cremation services and the sale of memorials and burial plots at the Group's crematoria and cemeteries. Pre-arranged funeral plan income represents amounts to cover the costs of marketing and administering the sale of plans.

Office for National Statistics data

Some of the Group's key performance indicators rely on the total number of estimated deaths for each period. This information is obtained from the Office of National Statistics (ONS).

In 2007, the ONS changed their reporting systems. Consequently, there is possibly a lack of comparability between 2007 and 2008 estimated deaths. Nonetheless, the figures continue to give a good general background to the Group's performance.

The initial publication of recorded total estimated deaths in Britain for 2008 was 553,000 (2007: 553,000). Historically the ONS has updated these estimates from time to time. As in previous years, the Group does not restate any of its key performance indicators when these figures are restated in the following year.

Funeral services

Overview

The Group operates a network of 544 (2007: 540) funeral locations throughout the United Kingdom, trading under local established names. During the period, the Group conducted 68,700 funerals (2007: 66,500). Approximately 1 per cent of these funerals were conducted in Northern Ireland. Excluding Northern Ireland, these funerals represent approximately 12.3 per cent (2007: 12.0 per cent) of total estimated deaths in Britain.

Developments

Underlying operating profits were £46.3 million (2007: £42.1 million), an increase of 10 per cent. This reflects good growth in our core portfolio arising from increased spend per funeral and continued cost control, together with the incremental benefits from acquisitions made in 2008 and acquisitions made in 2007 having a full year effect for the first time.

Reported operating profits were £47.4 million (2007: £42.2 million), an increase of 12 per cent. The difference between statutory amounts and underlying amounts is represented by profit on sale of fixed assets of £1.1 million (2007: £0.1 million).

The vast majority of our funeral locations comprise those owned and operated by the Group for many years. These locations have continued to perform well and have benefited from the continued investment in our funeral locations and fleet, with a total of approximately £6.9 million being invested in the period. This investment has resulted in the acquisition of a further 31 new hearses and limousines, 99 other vehicles and the refurbishment of approximately one fifth of our property portfolio.

The operating results also demonstrate our high level of client service, which has been supported for another year by our client survey results. Approximately 89 per cent of responding families would definitely recommend our services and a further 9 per cent would probably do so. These statistics speak volumes about the quality of service provided by our staff to the families we help at their time of need.

Sometimes, changing demographics or market conditions in local areas mean that individual funeral locations can become unprofitable. The Group has closed five (2007: two) such locations in the period. 

Acquisition spend has again been higher than average annual spend since flotation in the period, with £16.3 million invested in acquiring nine funeral locations in the United Kingdom, including six funeral locations in Northern Ireland.

Each of these acquisitions met the Group's criteria of being larger than average, long-established businesses that fit well within the Group's existing network. The Group will also continue to acquire businesses that meet the Group's stringent acquisition criteria. No acquisitions have been completed since the end of 2008.

The funeral business is built on the reputation of each of our funeral locations. Consequently, client service will continue to be a key priority in 2009 and the coming years.

  Crematoria

Overview

The Group operates 25 crematoria and performed 39,600 cremations (2007: 38,900) in the period. This represents 7.2 per cent (2007: 7.0 per cent) of deaths in Britain and reflects the Group's position as the largest single operator of crematoria in Britain.

Developments

Revenues of £29.2 million (2007: £25.7 million) have resulted in operating profits of £14.6 million (2007: £14.0 million), an increase of 4 per cent. This reflects a consistent performance by the division, which has experienced some cost pressures during the period, such as an increase in utility prices and some anticipated operating losses at the start of the Rotherham contract.

During the period, the Group has acquired two crematoria from private operators and started to develop and operate the crematorium in Rotherham on behalf of Rotherham Metropolitan Borough Council. The site was initially closed for two days a week to allow redevelopment work to begin. During this period, the site was loss making. However, work is nearing a close, the site is open five days a week and became profitable in December.

In addition, the Group acquired the property interest in five crematoria. At present, the sites are leased to a third party not connected to the Group. Three of these locations were fully operational at the year end with a further one having since become operational and the fifth one expected to become operational in the second quarter of 2009. The leases expire by 2039, at which point the Group will take over operational control of the locations. These properties are not counted within the 25 reported crematoria that we operate.

The Group has spent £0.8 million improving the facilities at its operational locations.

The Group continues to look at opportunities to work with local authorities. In addition, the Group is, in conjunction with the developer of the five sites recently acquired, evaluating a number of locations for potential new build crematoria.

Pre-arranged funeral plans

Overview

The Group continues to have a strong market presence in this area. Unfulfilled pre-arranged funeral plans were 204,000 at the end of the period (2007: 197,300). These plans represent future incremental business for the funeral division, as the Group expects to perform the majority of these funerals.

Developments

The Group has continued to work hard at developing its portfolio of affinity partners and has formed a number of new partnerships in the period with organisations in the retail and financial services arena. This activity has been complemented by continued development and marketing of plans endorsed by the actor Christopher Timothy, together with good sales via our funeral locations.

The Group is in discussion with a number of new potential partners with tests planned for 2009.

Central overheads

Overview

Head office costs relate to central services that are not specifically attributed to a particular operational division. These include the provision of IT, finance, personnel and Directors' emoluments. In addition and consistent with previous periods, the Group records the costs of incentive bonus arrangements, such as Long Term Incentive Plans (LTIPs) and annual performance bonuses, which are provided to over 50 managers working across the business.

Developments

Costs in the period were £11.3 million (2007: £10.9 million), an increase of 4 per cent. This year on year increase principally reflects the additional cost of bonuses paid to the operational managers of the business.

Mike McCollum

Chief Executive

12 March 2009  Financial Review

Introduction 

The market conditions in which the Group operates and its trading performance during the 52 week period ended 26 December 2008 are described in the Chairman's Statement, the Chief Executive's Overview and the Business Review.

Financial highlights

	2008	2007	% increase
Revenue (£ million)	175.8	159.5	10
Underlying operating profit* (£ million)	52.1	47.6	9
Underlying profit before tax* (£ million)	34.3	30.1	14
Underlying earnings per share* (pence)	38.2	33.4	14
Cash generated from operations (£ million)	62.3	57.5	8
Operating profit (£ million)	53.2	47.7	12
Profit before tax (£ million)	35.4	30.2	17
Basic earnings per share (pence)	38.8	34.4	13
Interim dividend (pence)	3.66	3.33	10
Final dividend (pence)	6.67	6.06	10

* Underlying amounts exclude profit on sale of fixed assets and exceptional tax items.

The Board has proposed a dividend of 7.34 pence per Ordinary Share as a final distribution of profits relating to 2008 to be paid in 2009. This brings the total dividend in respect of 2008 to 11 pence per share, an increase of 10 per cent.

Capital structure and financing

The Group's principal source of long term debt financing is the Class A and B Secured Notes, rated A and BBB respectively.

The Board considers that maintaining a leveraged balance sheet is appropriate for the Group, given the highly stable and predictable nature of its cash flows. This predictability is matched in the Secured Notes. The principal and interest on the Secured Notes amortise fully over their life and are completely repaid by 2031. The interest rate is fixed for the life of the Secured Notes and interest is calculated on the outstanding principal.

This has the benefit of maximising shareholder returns, whilst leaving sufficient flexibility to invest in the growth of the business.

At the end of November 2008, the Group borrowed £7.4 million to help fund the acquisition of the freehold or long leasehold interests in five crematoria properties. The Group also has the facility to draw down a further £2.6 million in 2009 once the two locations under construction are complete. 

This is a five-year facility with all interest cash paid. The principal is repayable in one amount at the end of the facility. The interest rate on this facility is fixed at approximately 5.6 per cent on the first tranche and is capped at approximately 5.6 per cent on the second tranche.  Outstanding net debt as at 26 December 2008 was:

	26 December		28 December
	2008		2007
	£m		£m
Net amounts owing on Class A and B Secured Notes per financial statements		(263.0)		(267.0)
Add: unamortised issue costs on Secured Notes		(15.9)		(17.2)
Net amounts owing on crematoria acquisition facility per financial statements		(7.2)		-
Add: unamortised issue costs on crematoria acquisition facility		(0.2)		-
Gross amounts owing		(286.3)		(284.2)
Accrued interest on Class A and B Secured Notes (paid 31 December)		(9.7)		(9.9)
Cash and cash equivalents		46.7		52.6
Net debt		(249.3)		(241.5)

The Group's finance expense substantially consists of the interest on the Class A and B Secured Notes and ancillary instruments. The net finance charge in the period relating to these instruments was £19.9 million (2007: £20.1 million). 

Other ongoing finance costs incurred in the period amounted to £0.9 million (2007: £0.8 million), including the unwinding of discounts on the Group's provisions and other financial liabilities. This amount also includes the very small amount of interest incurred on the crematoria acquisition facility in the last month of the period.

Interest receivable on bank deposits was £2.3 million (2007: £2.7 million). These receipts are a direct reflection of the Bank of England Base Rate, which averaged approximately 4.7 per cent (2007: 5.5 per cent) in the period. Given the current low Bank of England Base Rate, the Group is likely to receive less interest on its substantial cash deposits in 2009 and is exploring ways to more effectively generate returns from its cash balances.

Net finance income of £0.7 million (2007: £0.7 million) was recognised in respect of the Group's pension scheme in accordance with IAS 19. 

Underlying profit after tax 

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 certain non-recurring or non-trading transactions. Accordingly, the following information is presented to aid understanding of the performance of the Group:

	52 week period	52 week period
	ended	ended
	26 December	28 December
	2008	2007
	£m	£m
Operating profit for the period end as reported	53.2	47.7
Deduct the effects of:
Profit on sale of fixed assets	(1.1)	(0.1)
Underlying operating profit	52.1	47.6
Net finance charges	(17.8)	(17.5)
Underlying profit before tax	34.3	30.1
Tax charge on underlying profit before tax	(10.1)	(9.1)
Underlying profit after tax	24.2	21.0
Weighted average number of Ordinary Shares in issue during the period (million)	63.4	62.8
Underlying EPS (pence)	38.2p	33.4p
Increase in underlying EPS (per cent)	14%

  Earnings per share 

The Group's earnings were £24.6 million (2007: £21.6 million). Basic earnings per share were 38.8 pence per share (2007: 34.4 pence per share).

However, the Group's reported earnings include a £0.4 million one off charge for taxation described later in this review and £1.1 million profit on sale of fixed assets. Consequently, the Group's underlying profit after tax was £24.2 million (2007: £21.0 million), giving underlying earnings per share of 38.2 pence per share (2007: 33.4 pence per share), an increase of 14 per cent.

This increase demonstrates the strong operating performance combined with the beneficial leveraging effect of the Secured Notes. 

The average number of shares increased year on year as a result of the 2005 LTIP scheme maturing in the period.

Cash flow and cash balances

Cash generated from operations was £62.3 million (2007: £57.5 million), demonstrating the cash generative nature of the business and further improvements in working capital management.

Acquisition activity in the period was strong, with £31.5 million (2007: £16.6 million) being spent on funeral and crematoria acquisitions. As described above, £7.4 million of this amount was funded by way of a new loan facility.

Capital expenditure increased year on year, with £8.0 million (2007: £8.3 million) being spent on replacing older vehicles in the Group's fleet, in line with a planned replacement programme, and improvements to the Group's premises and plant. A further £1.1 million (2007: £0.2 million) was spent on branch relocations and £2.1 million (2007: £nil million) was spent on Rotherham and other crematoria property developments. This capital expenditure was offset by disposal proceeds of £2.5 million (2007: £0.9 million).

The Group also paid dividends totalling £6.5 million (2007: £5.9 million) in the period. 

Cash balances at the end of the period were £46.7 million. £12.4 million represents amounts legally set aside to fund the Group's liabilities to Class A and B Secured Noteholders. This payment was made on 31 December 2008, which falls in the Group's 2009 financial year as it reports on a 52 week basis rather than on a calendar year. These funds do not qualify as cash or cash equivalents for the purposes of IAS 7, Cash Flow Statements. Accordingly, £10.0 million has been reported within the cash flow statement as 'Payments to restricted bank accounts for finance charges' and £2.4 million has been reported as 'Payments to restricted bank accounts for repayment of borrowings'.

£1.5 million (2007: £1.5 million) represents amounts received as Recoveries from the pre-arranged funeral plan trusts. These amounts are legally required, under the terms of the Group's securitisation, to be retained in a separate bank account for one year following receipt and do not therefore meet the definition of cash for cash flow reporting purposes.

£10.9 million of the remainder has been set aside for acquisitions and developments. Approximately £1.0 million has been spent on Rotherham since the balance sheet date. £10.8 million has also been set aside for future corporation tax and dividend payments. However, these funds could be used for further acquisitions if suitable opportunities arose, with statutory payments being funded out of future operating cash flows.

Full details and analysis of the Group's cash balances are included in note 6.

Pensions

During the period, the Group's pension scheme had a formal actuarial valuation, as required once every three years. This reported that the scheme was fully funded on an ongoing basis. As a consequence of the valuation, the Group has agreed the rate of employer contributions for the next three years, which is anticipated to result in a similar cash obligation in 2009 as that experienced in 2008.

The balance sheet shows a surplus of £13.2 million before deferred tax (2007: £6.8 million). This significant increase year on year is principally a result of the changes in assumptions based on increased gilt yields experienced in the market.

  Taxation

As anticipated last year, legislation was passed during the period amending the Industrial Buildings Allowances regime. This change resulted in an exceptional charge of £0.4 million in the period.

Furthermore, the rate of Corporation Tax was reduced to 28 per cent with effect from April 2008. This change resulted in the Group's effective tax rate reducing to 29.5 per cent in the period. As the 28 per cent rate will be effective for the whole of 2009, the Group's effective tax rate for 2009 is anticipated to be 29 per cent.

Key performance indicators

The Group uses a number of performance indicators to both manage the business and ensure that the Group's strategy and objectives are being delivered. 

	52 week period		52 week period
	ended		ended
	26December		28December
	2008		2007
	£m		£m
Total estimated number of deaths in Britain (number)		553,000	553,000
Number of funerals performed (number)		68,700	66,500
Funeral market share excluding Northern Ireland (per cent)		12.3	12.0
Number of cremations performed (number)		39,600	38,900
Crematoria market share (per cent)		7.2	7.0
Unfulfilled pre-arranged funeral plans (number)		204,000	197,300
Underlying earnings per share (£ million)		38.2	33.4
Underlying operating profit (£ million)		52.1	47.6
Cash generated from operations (£ million)		62.3	57.5

These key performance indicators are produced using information supplied by ONS and company data.

Forward-looking statements

Certain statements in this preliminary announcement are forward-looking. Although the Board believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

Steve Whittern

Finance Director

12 March 2009

  Directors' Responsibility Statement

The Directors confirm to the best of their knowledge that:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and 
  

• the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principle risks and uncertainties that they face. 

The Directors of Dignity plc and their functions are listed below:

Peter Hindley - Chairman

Mike McCollum - Chief Executive

Steve Whittern - Finance Director

Andrew Davies - Operations Director

Richard Portman - Corporate Services Director

James Newman - Senior Independent Director

William Forrester - Non-Executive Director

Ishbel Macpherson - Non-Executive Director

Alan McWalter - Non-Executive Director

By order of the Board

Richard Portman

Company Secretary

12 March 2009

Principal risks and uncertainties

Operational and financial risks are considered in the Business Review and the Financial Review.

The Group's principal operational risks are a significant reduction in the death rate and nationwide adverse publicity, which could affect the Group's market share. However, 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. Adverse publicity is addressed by ensuring appropriate policies and procedures are in place designed to ensure client service excellence. 

An assessment of the Group's exposure to financial risks and a description of how these risks are managed are included in note 2 to the consolidated financial statements.

Annual Report Note 2:Financial risk management 

The Group finances its operations by a mixture of shareholders' funds and Secured Notes, with other bank borrowings available if required. This approach seeks to minimise financing costs and generate optimum shareholder value through efficient leveraging of the Group's balance sheet, which is made possible by the stable and predictable cash generative nature of the business.

It is not the Group policy to actively trade in derivatives.

Market risk

Currency risk

All the Group's financial assets and liabilities are denominated in Sterling. The Group purchases minimal amounts from overseas. Accordingly, exposure to currency fluctuations are not significant and therefore not actively managed. 

Interest rate risk and other price risk

The Group's main borrowings consist of Class A and B Secured Notes, which are at fixed interest rates, resulting in a predetermined repayment profile. The fair value of these financial instruments is based on underlying gilt prices and yield spreads based on the market's current view of the risk profile of the Secured Notes. Consequently, the fair value of these instruments will fluctuate. Fair values are not relevant to the Group unless it was to change its funding strategy and repay the Secured Notes early.  

During the period, the Group obtained a £10 million crematoria acquisition facility ('the Crematoria Acquisition Facility'). £7.4 million was drawn on 24 November 2008 ('the First Tranche'). The First Tranche carries interest at 5.59 per cent per annum. Any remaining funds drawn will carry interest at a rate relative to three month LIBOR, with such rate being capped at 5.59 per cent. Consequently, the Group carries no interest rate risk on this facility. The Crematoria Acquisition Facility is repayable in one bullet payment in five years time. 

The Group has significant cash balances that are held by institutions rated at least A-1 by Standard and Poors. These balances earn interest by reference to the Bank of England base rate. If base rates reduced by one per cent at the beginning of 2009 then the Group would receive £0.1 million less interest income on an annualised basis for each £10 million held.

None of the Group's other financial liabilities or financial assets carry any significant interest rate risk.

Credit risk

Trade receivables are the main source of credit risk to the Group. However, this risk is minimised as much as possible through well-established credit control procedures. Quantitative disclosures regarding the aging of these receivables are included in note 21(c). 

Liquidity risk

The Group manages its liquidity risk by maintaining sufficient cash reserves, committed undrawn borrowing facilities and regular monitoring and forecasting of cash balances. In addition, the Group is required under the terms of its secured borrowings to maintain a precisely defined EBITDA to total debt service ratio of at least 1.5:1. This ratio was determined when raising the debt as being sufficient to ensure all borrowings could be repaid. At 26 December 2008 the actual ratio was 2.55:1 (2007: 2.31:1).

Capital risk management

The Group's objective under managing capital is to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders, repay holders of Class A and B Secured Notes and benefit other shareholders. It also aims to reduce its cost of capital by maintaining an optimal capital structure.

In order to achieve these expectations, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or issue further Class A and B Secured Notes.

During the period, the Group achieved its covenants under the terms of the Group's secured borrowings (see 'Liquidity risk' above).

 

END

 

 

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