Registered number: 04488292

Dignity Finance PLC

Annual report and financial statements

for the period ended 30 December 2022

Dignity Finance PLC

Annual report and financial statements

for the period ended 30 December 2022

Page

Strategic report for the period ended 30 December 2022 ...................................................................................... 1

Directors’ report for the period ended 30 December 2022 .................................................................................... 3

Independent auditor's report to the members of Dignity Finance PLC .................................................................. 8

Income statement for the period ended 30 December 2022 ................................................................................. 15

Statement of comprehensive income for the period ended 30 December 2022 ................................................... 15

Balance sheet as at 30 December 2022 ................................................................................................................ 16

Statement of changes in equity for the period ended 30 December 2022 ............................................................ 17

Notes to the financial statements for the period ended 30 December 2022 ......................................................... 18

Dignity Finance PLC

Strategic report

for the period ended 30 December 2022

The Directors present their Strategic report for Dignity Finance PLC (‘the Company’) for the period ended 30

December 2022. The Company is a subsidiary of Dignity plc and a member of the Dignity plc group (‘the Dignity

group’).

The financial statements have been prepared for the 52 week period ended 30 December 2022. The financial

statements for the comparative period have been prepared for the 53 week period ending 31 December 2021.

Business review and future development

The Company continues to act as a financing company within the Dignity plc group, managing the Dignity group’s

listed debt and providing the funds raised to Dignity (2002) Limited and its subsidiaries through an intercompany

loan.

Consent solicitation with bondholders

The directors of Dignity plc have continued to work on a long-term solution to improve the Dignity group's capital

structure and on 7 September 2022 a consent solicitation was launched by the Company. This obtained certain consents

from Noteholders for a potential transaction involving the realisation of value from selected crematoria assets within

the Dignity group, with the expected proceeds of such a transaction being applied in a partial redemption of the Class

A Notes, as required by the current documentation. The necessary quorum was achieved on 29 September 2022 (with

99.92 per cent of the aggregate principal amount of the Notes for the time being outstanding being represented and

the Extraordinary Resolution being passed with 94.42 per cent of the votes being cast in favour) and the consents

referred to above apply for 12 month period to 29 September 2023. Should the transaction complete, an outcome the

Dignity plc board is fully focused on achieving within the 12 months allowed, there are amendments to the documents

that will allow further equity cures, with restrictions, to be made going forward should they be required. This can be

used to supplement any EBITDA shortfall as at 31 December 2023.

As part of the proposed agreement with Noteholders, the Dignity group will be required to inject a minimum of £70.0

million into the Securitisation Group to partially repay some of the Class A Notes outstanding in consideration for

assets leaving the Securitisation Group. This will result in a deleveraging of the Dignity group and a positive impact

on the underlying financial ratios and covenant calculations, i.e., a reduction of the DSCR from c.£51 million to

c.£45.3 million in 2023. If the transaction takes longer to complete and is completed in Q3 2023 there will be no

positive impact in 2023 as the first possible date for repayment will be 29 December 2023. It would have a full year

impact of £11.7 million on the DSCR covenant calculations, i.e., a reduction of the DSCR from c.£51 million to

c.£39.3 million in 2024.

The Directors do not currently anticipate any changes in the nature of the Company’s principal activities.

Following the United Kingdom leaving the European Union, the Company has elected Ireland as its Home Member

State under the Transparency Directive. This election was submitted and published on 14 April 2022.

The loss for the period was £20,000 (2021: profit of £104,000). The results for the period are set out in the Income

statement on page 15. The loss in the current period is a result of an increase in the expected credit losses on

intercompany receivables due to a change in the credit rating of the external Secured Notes, compared to a reduction

in the expected credit losses in the prior period.

The Directors do not consider there are any key performance indicators in respect of the Company other than the

inancial information set out in the Income statement, Statement of comprehensive income, Balance sheet and the

Statement of changes in equity.

In respect of the Dignity group, the directors of Dignity plc manage the Dignity group’s operations on a divisional

basis. The development, performance and position of the Dignity group, which includes the Company, is discussed

within the Strategic report of the Dignity group’s annual report which does not form part of this report.

Post balance sheet events

See note 13 for details on post balance sheet events.

Risks

All risks are managed by the directors of Dignity plc on a group basis. From the perspective of the Company, the

principal risks and uncertainties are in respect of servicing of the Company’s debt, which is mitigated by the terms

of the loan to Dignity (2002) Limited which mirror the terms of the listed debt other than in respect of the interest

Dignity Finance PLC

Strategic report

for the period ended 30 December 2022 (continued)

Risks (continued)

rate which has an incremental margin. The risks surrounding the ability of Dignity (2002) Limited to service the

intercompany debt are integrated with the principal risks of the Dignity group and are not managed separately.

Accordingly, the principal risks and uncertainties of the Dignity group, which include those of the Company, are

discussed within the Principal risks and uncertainties within the Strategic report of the Dignity group’s annual report

which does not form part of this report.

Section 172 statement

The directors are aware of their duty under s172(1) of the Companies Act 2006 to act in the way which they consider,

in good faith, would be most likely to promote the success of the Company for the benefit of its stakeholders as a

whole, and in doing so, to have a regard (amongst other matters) to:

•

the likely consequences of any decision in the long term;

•

the interests of the Company’s employees;

•

the need to foster the Company’s business relationships with suppliers, customers and others;

•

the impact of the Company’s operations on the community and the environment;

•

the desirability of the Company maintaining a reputation for high standards of business conduct; and

•

the need to act fairly towards all stakeholders of the Company.

The directors of the Company consider that they have had regard in material respects to the factors set out above.

The Company is a UK subsidiary of Dignity plc, a company quoted on the London Stock Exchange. The Dignity plc

board determines the strategic objectives and policies of the Dignity Group to best support the delivery of long-term

value, providing overall strategic direction within an appropriate framework of controls, delegated authority, and

rewards. The Company follows Group policies and procedures, including those relating to standards of business

conduct, employees, customers, suppliers, the environment, the communities in which we operate, and other

stakeholders such as regulatory bodies and non-government organisations. Stakeholder engagement takes place at

both a Group level and at a Company level and the Company looks to Group initiatives for guidance and takes them

into account in its decision making. During the current period the Company has engaged with Bondholders to secure

a covenant waiver and obtained consent for a potential transaction to partially repay its Class A Notes, which were

conducted under the guidance of the Group’s directors. More detail can be found on pages 26 and 27 and pages 90

and 91 in the Dignity Group’s 2022 Annual Report and Accounts which does not form part of this report.

The C

ompany delegates authority for day-to-day management to the Dignity Group senior leadership team, who set,

approve and oversee the execution of the Company’s activities. Board meetings are held ad-hoc where the directors

consider Company business, such as appointment of directors, approval of accounts, approval of dividends,

guarantees and other strategic decisions relating to business operations. In considering items of business the Company

makes autonomous decisions on each item’s own merits, after due consideration of the long-term success of the

Company, Section 172 factors, where relevant, and the stakeholders impacted.

The Strategic report has been approved by the Board.

By order of the board

A Eames

Director

26 April 2023

Dignity Finance PLC

Directors’ report

for the period ended 30 December 2022

The Directors present their report with the audited financial statements of Dignity Finance PLC (‘the Company’) for

the period ended 30 December 2022.

The Company registration number of Dignity Finance PLC is 04488292.

Forward-looking statements

Certain statements in this annual report 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.

Dividends

No dividends were declared or paid by the Company in either the current or preceding period.

Directors' indemnities

During the period, the Dignity group maintained liability insurance for its Directors and Officers. The Directors of

this Company have the benefit of an indemnity provision in the Dignity group’s Articles of Association. The indemnity

provision, which is a qualifying third-party indemnity provision as defined by Section 234 of the Companies Act 2006,

was in force throughout the period and is currently in force.

Directors

The Directors who served during the period and up to the date of signing the financial statements were:

K Davidson

A Eames

Chief Executive Officer (appointed 27 January 2022)

Director (appointed 10 November 2022)

G Channon

A Judd

A Lathbury

Chief Executive (appointed 1 April 2022 / resigned 16 November 2022)

Executive Director of Funeral Operations (resigned 1 April 2022)

Business Development Director (resigned 6 February 2022)

Treasury policy

The Company’s objective is to raise external finance for the Dignity group. The Company manages its funding

requirements by the careful selection of appropriate financing methods. This approach seeks to minimise interest rate

fluctuations.

It is not the Company’s policy to actively trade in derivatives.

Interest rate risk

The Company's aim is to minimise the effects of interest rate fluctuations. Apart from cash, which is classed as

floating, 100% (2021: 100%) of the financial assets and liabilities carry interest at fixed rates.

Liquidity risk

The Company's objective is to raise external finance for the Dignity group and consequently seeks to maintain a

balance between certainty of funding and a flexible, cost-effective borrowings structure. It therefore seeks facilities

that have, for the most part, a maturity of five years or longer.

The Dignity 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 Dignity 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 times

in respect of the Securitisation Group, excluding the pre-need trusts. This ratio was determined when raising the debt

as being sufficient to ensure all borrowings could be repaid. During the temporary covenant waiver period that was

approved by bondholders in March 2022, any cash transferred into the Securitisation Group during the waiver period

(up to 31 March 2023) can be included within the EBITDA to debt service ratio for the following 12 months. A cash

transfer of £34.1 million has been made into the Securitisation Group for the covenant measurement point up to and

including 31 December 2022, resulting in a ratio of 1.96 times at 30 December 2022 (December 2021: 2.13 times).

Excluding this cash transfer the ratio at 30 December 2022 was 0.95 times.

This covenant test (as amended by the temporary covenant waiver introduced in March 2022) has been satisfied on

each quarterly testing date in the period.

Dignity Finance PLC

Directors’ report

for the period ended 30 December 2022 (continued)

Liquidity risk (continued)

If this primary financial covenant 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 Note holders. Refer to going concern disclosures on pages 19 to 22 for further details.

Whilst not a covenant, in order for the Securitisation Group to transfer excess cash 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

December 2022 was 0.58 times (December 2021: 1.76 times).

These combined requirements are known as the Restricted Payment Condition (‘RPC’). Given the ratios achieved, the

RPC was not achieved at December 2022. Failure to pass the RPC is not a covenant breach and does not cause an

acceleration of any debt repayments. Any cash not permitted to be transferred whilst the RPC is not achieved will be

available to be transferred at a later date once the RPC requirement is achieved but otherwise can be used within the

Securitisation Group with no restrictions.

Currency risk

All the Company’s financial assets and liabilities are denominated in Sterling.

Credit risk

The Company deposits its on-hand cash with well-established financial institutions with high credit ratings.

The Company has exposure to credit risk through its intercompany loan receivable due from Dignity (2002) Limited,

the terms of which are described further within note 7 to the financial statements.

The credit risk attached to this receivable is intrinsically linked to the ability of Dignity (2002) Limited and its

subsidiaries to continue to generate sufficient profits to service this debt. The principal risks and uncertainties

associated with the ability of Dignity (2002) Limited to service the intercompany debt are integrated with those of the

Dignity group and are not managed separately. Accordingly, the principal risks and uncertainties of the Dignity group,

which include those of the Dignity (2002) Limited and its subsidiaries, are discussed within the strategic report of the

Dignity group’s annual report which does not form part of this report.

The C

ompany, as described within note 1 to the financial statements, recognises an allowance for expected credit losses

associated with its intercompany loan receivable.

See note 12 for disclosure of security over the external Secured Notes. Further discussion is also included in note 30

of the Dignity Group’s 2022 consolidated financial statements.

Capital risk management

The Company’s objective under managing capital is to safeguard the Company’s and Dignity group’s ability to

continue as a going concern in order to provide returns for the Dignity group shareholders and repay holders of Secured

Notes. It also aims to reduce its cost of capital by maintaining an optimal capital structure. The Dignity group’s capital

comprises equity and net debt as set out in note 25 of the Dignity plc 2022 Annual Report and Accounts. The principal

source of long-term debt financing are the Secured A Notes, rated BBB by Fitch and BBB- by Standard & Poor’s and

the Secured B Notes rated B and CCC+ respectively by Fitch and Standard & Poor’s.

In order to achieve these objectives, the Dignity 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. However, it is not currently

possible to issue further Secured Notes, as such an issue would require the rating of the Secured B Notes to raise to

BBB by both rating agencies. We continue to work on our plans to improve our capital structure so that the pursuit of

the best long-term value for shareholders is not compromised by the covenants attached to the bonds. We continue to

be cash generative and understand the importance of optimising total shareholder return whilst maintaining a balance

between different stakeholders, and it is the Directors’ intention to pay a dividend as soon as we believe it is financially

prudent to do so.

During th

e period, the company achieved its covenants (as amended by the temporary covenant waiver introduced in

March 2022) for the Secured Notes under the terms of the Company’s secured borrowings (see ‘Liquidity risk’ above).

Dignity Finance PLC

Directors’ report

for the period ended 30 December 2022 (continued)

Capital risk management (continued)

The Company and Dignity group has continued to work on a long-term solution to improve the Dignity group’s capital

structure and on 7 September 2022 a consent solicitation was launched. This obtained certain consents from

Noteholders for a potential transaction involving the realisation of value from selected crematoria assets, with the

expected proceeds of such a transaction being applied in a partial redemption of the Class A Notes, as required by the

current documentation. The necessary quorum was achieved on 29 September 2022 (with 99.92 per cent of the

aggregate principal amount of the Notes for the time being outstanding being represented and with 94.42 per cent of

the votes being cast in favour of the proposal) and the consent to the proposal applies for a 12 month period to 29

September 2023. Should the transaction complete, an outcome the board expects within the 12 months allowed, there

are amendments to the documents that will allow further equity cures, with restrictions, to be made going forward

should they be required.

As part of the proposed agreement with Noteholders, the Dignity Group will be required to inject a minimum of £70.0

million into the Securitisation Group to partially repay at full make-whole level (compensating Noteholders for the

present value of future cash flows discounted at Gilts +50 basis points) some of the Class A Notes outstanding in

consideration for assets leaving the Securitisation group (freehold land and buildings and long leasehold land is held

outside the Securitisation Group). This will result in a deleveraging of the Dignity group and a positive impact on the

underlying financial ratios and covenant calculations for the Company. Funds for this injection are expected to be

realised from a capital transaction relating to the sale of certain crematoria assets but the agreement with bondholders

does not limit where the funds come from.

Going concern

The Company is a finance entity within the Dignity plc group (‘Dignity Group’) and is one of a number of entities

within that group which are part of a Securitisation Group established in connection with the Dignity Group’s only

loan borrowings, which are the A Notes and B Notes held by the Company. The ability of the Company to meet its

obligations under the A Notes and B Notes is entirely dependent on the ability of other members of the

Securitisation Group to meet their obligations under loan agreements between those entities and the Company. The

day-to-day liquidity requirements of the Company are sourced either from within the Company or, where

necessary, from the continued support of certain other entities within the Dignity Group, such support having been

confirmed in writing as available for a period through 30 April 2024. In order to assess the ability of the Company

to continue as a going concern the Directors of the Company have therefore considered the ability of the Dignity

Group to continue as a going concern and to provide financial support to the Company as required.

The C

ompany has carried out a diligent going concern analysis and full details of this analysis are set out in note 1 to

the financial statements.

Further information in respect of the Directors’ assessment of the ability of the Dignity Group to continue as a going

concern in addition to information in respect of the longer term viability of the Dignity Group is presented within the

Dignity Group’s 2022 Annual Report and Accounts which does not form part of this report.

Following consideration of the going concern analysis of the Dignity Group and its ability to continue to provide

financial support to the Company, the Directors of the Company have a reasonable expectation that the Company

has adequate resources to continue in operational existence for a period through to 30 April 2024.

The Directors have also considered events beyond the assessment period. The Directors formally considered this

matter at the Board meeting held on 26 April 2023. The Directors, whilst acknowledging there is a material

uncertainty with respect to covenant compliance and the implications thereof, continue to adopt the going concern

basis for preparing the annual Report and financial statements.

Statement of directors’ responsibilities

The directors are responsible for preparing the Strategic report, Directors’ report and the financial statements in

accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial period. Under that law the

directors have prepared the financial statements in accordance with applicable law and United Kingdom Accounting

Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 101

Reduced Disclosure Framework (FRS 101). Under company law the directors must not approve the financial

Dignity Finance PLC

Directors’ report

for the period ended 30 December 2022 (continued)

Statement of directors’ responsibilities (continued)

statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the

profit or loss of the Company for that period.

In preparing these financial statements, the directors are required to:

•

select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting

Estimates and Errors and then apply them consistently;

•

make judgements and accounting estimates that are reasonable and prudent;

•

present information, including accounting policies, in a manner that provides relevant, reliable,

comparable and understandable information;

•

state whether applicable United Kingdom Accounting Standards including FRS 101 have been followed,

subject to any material departures disclosed and explained in the financial statements;

•

provide additional disclosures when compliance with the specific requirements in FRS 101 is insufficient

to enable users to understand the impact of particular transactions, other events and conditions on the

company financial position and financial performance; and

•

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the

ompany will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the

company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and

enable them to ensure that the financial statements comply with the Companies Act 2006.

They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a strategic report and directors’

report, that comply with that law and those regulations. The directors are responsible for the maintenance and integrity

of the corporate and financial information included on the company’s website.

Responsibility statement of the Directors in respect of the annual report

Each of the Directors, whose names are listed on page 3 of this annual report confirm that, to the best of their

know

ledge and belief:

•

The financial statements are prepared in accordance with applicable law and United Kingdom

Accounting Standards (United Kingdom Generally Accepted Accounting Practices), including Financial

Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101) give a true and fair view of the

assets, liabilities, financial position and profit of the Company;

•

This annual report, including the Strategic report, includes a fair review of the development and

performance of the business and the position of the Company, together with a description of the principal

risks and uncertainties that it faces; and

•

Having taken into account all matters considered by the Board and brought to the attention of the Board

during the year, the Directors consider that the financial statements, taken as a whole, are fair, balanced

and understandable. The Directors believe that the disclosures set out in these financial statements

provide the information necessary for shareholders to assess the Company’s performance, business

model and strategy.

Statement of disclosure of information to auditors

As at the date this report was signed, so far as each director is aware, there is no relevant audit information of which

the Company’s auditor are unaware and each director has taken all steps that he ought to have taken as a director in

order to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware

of that information.

Dignity Finance PLC

Directors’ report

for the period ended 30 December 2022 (continued)

Independent auditors

A resolution to reappoint Ernst & Young LLP as auditors to the Company will be proposed at the annual general

meeting.

As permitted by legislation, some of the matters required to be included in the Directors’ report have instead been

included in the Strategic Report, as the Directors considers them to be of strategic importance. Specifically, these

relate to likely future developments and subsequent events to the Company.

he Directors’ report has been approved by the Board.

By order of the board

K Davidson A Eames

Director Director

26 April 2023 26 April 2023

Independent auditor’s report to the members of Dignity Finance PLC

Opinion

We have audited the financial statements of Dignity Finance PLC (the ‘company’) for the 52 week period ended

30 December 2022 which comprise the Income statement, the Balance sheet, the Statement of changes in equity

and the related notes 1 to 13, including a summary of significant accounting policies. The financial reporting

framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards

including FRS 101 “Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).

In o

ur opinion, the financial statements:

•

give a true and fair view of the company’s affairs as at 30 December 2022 and of its loss for the period then

nded;

•

have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice;

and

•

have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable

law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit

of the financial statements section of our report. We are independent of the company in accordance with the ethical

requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical

Standard as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these

requirements.

We b

elieve that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

Dignity Finance PLC is part of a securitisation group headed by Dignity (2002) Limited (the ‘Securitisation

Group’) which is ultimately owned by Dignity plc (the ‘Dignity group’). The ability of Dignity Finance PLC to

meet its obligations is dependent on the ability of the other members of the Securitisation Group to meet their

obligations under the loan agreement between those entities and Dignity Finance PLC. The results of the

Securitisation Group, notably the EBITDA and net debt, are principal factors in evaluation of the testing of the

covenants on the external loans. The day-to-day liquidity requirements of Dignity Finance PLC are sourced either

from within the company or, where necessary, from the continued support of certain other entities within the

group, such support having been confirmed in writing as available through to 30 April 2024. Given these factors,

the going concern assessment for the company is focused on the ability of the group to continue as a going

concern and the ongoing compliance with the Securitisation Group’s covenants.

e draw attention to note 1 in the financial statements, which indicates that a plausible downturn in the group’s

financial performance could result in a breach of the debt service covenant ratio (‘DSCR’) on its securitised debt

(being the Class A and Class B loan notes, together the ‘Loan Notes’), which if unremedied, would be considered

an event of default under the Issuer/Borrower Loan Agreement (‘IBLA’) resulting in the Loan Notes becoming

repayable on an accelerated basis and could be repayable immediately at the request of the noteholders. As stated

in note 1, these events or conditions, along with the other matters as set forth in note 1, indicate that a material

uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern. Our

opinion is not modified in respect of this matter.

In a

uditing the financial statements, we have concluded that the directors’ use of the going concern basis of

accounting in the preparation of the financial statements is appropriate.

r evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis

of accounting included the following procedures:

Independent auditor’s report to the members of Dignity Finance PLC

(continued)

•

Understanding and walking through management’s process for and controls related to assessing going

oncern including discussion with management to assess whether the key factors were taken into

account.

•

Read and considered the directors’ going concern assessment covering the period through to 30 April

2024,

including their assessment of market risks and potential changes to consumer preferences, t

unde

rstand the key assumptions upon which it was based.

•

Tested the model integrity on which the going concern assessment was based for clerical accuracy.

•

Inspected the debt service cash requirement and earnings before interest, tax, depreciation and

amortisation (‘EBITDA’) definition as per the IBLA to confirm the basis of the DSCR calculation,

which is a minimum of 1.5x the annual debt service payments (c.£51 million), tested each quarter

(March, June, September and December) on a last 12 months basis.

•

Inspected the documentation in relation to the modification to the DSCR terms under the IBLA,

approved by bondholders on 11 March 2022, for the period to 31 March 2023, and confirmed this

included the permissibility of Dignity plc to contribute liquidity into the Securitised Group in order to

remediate any EBITDA shortfall below the contracted DSCR position and that any such liquidity

contributed can be included in the last 12 months calculation in future quarters until it no longer is

ncluded in the lookback 12 months period (last period of inclusion of an equity cure is for the 12

months to 31 December 2023, as supported by a legal opinion which we have reviewed). Further, we

confirmed that management’s going concern assessment accurately reflected the impact of the

modification of the DSCR terms. We understood the reasons for obtaining the waiver and the impact

he going concern assessment.

•

Tested compliance with the EBITDA:DSCR covenant in the financial reporting period as follows:

Recalculated the EBITDA for the Securitisation Group and assessed whether it has been correctly

calculated in accordance with the definition of EBITDA provided in the IBLA;

Agreed the DSCR to the underlying interest and principal repayment schedules that had been

subjected to audit procedures; and

Recalculated the EBITDA:DSCR ratio to confirm the group is compliant with this ratio during

he period and at the period end date.

•

Tested the forecast compliance with the EBITDA: DSCR covenant ratio as follows:

Agreed the DSCR to the interest and principal repayment schedules;

Obtained management’s forecast through 30 April 2024 which was prepared using the 2023

budget as a basis and the 2024 plan, which was presented to and approved by the Board, having

ven due consideration to changes in financial performance in respect of expected number of

deaths, market share, average revenues and cost inflation;

Tested the underlying assumptions and data upon which the budget and forecast were based to

ensure their reasonableness, by:



assessing the accuracy of management’s historical budgeting by comparing budgeted

to actual results and understanding the reasons for any significant variances;



comparing forecast deaths to independent information from the Office for National

tatistics (‘ONS’);



assessing cost saving initiatives against management plans, considering the

chievability of both the timing and quantum;



assessing current trading performance by inspecting the January, February and March

2023 period end management accounts and further financial information available for

pril 2023 in addition to making inquiries of management to identify any impacts to

current trading, average incomes, funeral mix and debtor recoverability;

Independent auditor’s report to the members of Dignity Finance PLC

(continued)

Obtained the sensitivity analysis performed in the director’s going concern assessment. We

checked the calculations for accuracy and evaluated the underlying assumptions related t

erage price, market share and death rate by comparison to the trend in actual deaths, funeral

numbers performed and revenues achieved since the COVID-19 outbreak and, where relevant,

statistics published by the ONS;

Performed additional stress testing to model the impact of further severe, but plausible

scenarios to assess their impact upon the EBITDA:DSCR covenant ratio;

Performed a reverse stress test to evaluate the level of downturn in performance that would

result in a breach of the EBITDA:DSCR covenant and evaluated the plausibility of this

scenario; and

For mitigations modelled we assessed whether management had the ability to affect these in the

time period involved.

•

Assessed the forecast liquidity of the Dignity group in order to meet its liabilities as they fall due

including the debt service payments falling due over a period through to 30 April 2024 by:

Confirming its current cash resources to bank statements;

Assessing the reasonableness of the budgeted assumption on converting EBITDA to cash by

comparing against the group’s historical conversion performance;

Considering the availability of the IBLA and the loan facility from Phoenix UK Fund Ltd

(‘PUKF’) through the going concern period and assessing the impact to the availability of thes

acilities of the proposed takeover should it occur, including inspecting the external legal advi

on no change of control impact to the IBLA and inspecting the related waiver obtained in

respect of the PUKF loan;

Performed a reverse stress test to evaluate the level of downturn in performance that would

result in liquidity being exhausted and evaluated whether the likelihood of such a scenario was

remote; and

For mitigations modelled we assessed whether management had the ability to affect these in the

time period involved.

•

Reviewed documentation in respect of the proposed takeover offer made on 14 February 2023 by

YELLOW (SPC) BIDCO Limited (a newly formed company controlled by a consortium comprised o

int offerors SPWOne V Limited, Castelnau Group Limited and Phoenix Asset Management Partners

Limited) and considered the implications on going concern.

•

Inspected the external legal opinion that concluded that a change of control would not result in the

Dignity group’s long-term debt falling due immediately under the IBLA.

•

Inspected the external legal opinion that concluded that the existence of a material uncertainty as

outlined in note 1 to the financial statements was not an event of default under the terms of the IBLA.

•

Inquired of management as to their knowledge of any other events or conditions beyond the period of

their assessment that may cast significant doubt on the Company’s ability to continue as a going concer

nd compared their response to forecast market conditions by the ONS, the profile of payments and

covenant requirements of the IBLA and other information that could impact the funeral and crematoria

ectors, notably the regulation of pre-need sector by Financial Conduct Authority.

•

Reviewed the letters of support provided by other group companies to Dignity Finance PLC, noting they

ere willing and able to provide support, as needed, for the period through 30 April 2024, and through

the procedures above, assessed whether they were in a position to offer that support.

•

Assessed the going concern disclosures in the financial statements to ensure they are in accordance with

relevant standards.

Independent auditor’s report to the members of Dignity Finance PLC

(continued)

The group is forecast to be profitable and generate positive cashflows in the going concern period. Under the

stress case the DSCR covenant falls below 1.5x which would be a breach of the debt service covenant ratio. This

gives rise to the material uncertainty described above.

oing concern has also been determined to be a key audit matter.

r responsibilities and the responsibilities of the directors with respect to going concern are described in the

relevant sections of this report. However, because not all future events or conditions can be predicted, this

statement is not a guarantee as to the company’s ability to continue as a going concern.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of

the financial statements of the current period and include the most significant assessed risks of material

misstatement (whether or not due to fraud) that we identified. These matters included those which had the

greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of

the engagement team. These matters were addressed in the context of our audit of the financial statements as a

whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Overview of our audit approach

Key audit matters

•

Going concern

Materiality

•

Overall materiality of £2.6 million which represents 0.5% of Total Assets

An overview of the scope of our audit

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine

our audit scope for the company. This enables us to form an opinion on the financial statements. We take into

account size, risk profile, the organisation of the company and effectiveness of controls, the potential impact of

climate change and changes in the business environment when assessing the level of work to be performed. All

audit work was performed directly by the audit engagement team.

limate change

Stakeholders are increasingly interested in how climate change will impact Dignity Finance PLC. The company

has assessed the future impacts from climate change on its operations. As explained on page 1 in the strategic

report, all the risks for Dignity Finance PLC are managed by the directors of Dignity plc on a group basis

including those related to climate change. Accordingly, the principal risk and uncertainties of the Dignity group,

which include those of the company, are discussed within the Principal risks and uncertainties within the Strategic

report of the Dignity group’s annual report which does not form part of this report. All of these disclosures form

part of the “Other information,” rather than the audited financial statements. Our procedures on these unaudited

disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial

statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in

line with our responsibilities on “Other information”.

In planning and performing our audit we assessed the potential impacts of climate change on the company’s

business and any consequential material impact on its financial statements. Our audit effort in considering the

impact of climate change on the financial statements was focused on evaluating management’s assessment of the

impact of climate risk and their climate commitments.

We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and

associated disclosures. We discussed with management that the estimated impacts of climate change will need to

be frequently reassessed and the associated disclosures should continue to evolve as the group further develops its

response to the impacts identified.

Independent auditor’s report to the members of Dignity Finance PLC

(continued)

Based on our work we have not identified the impact of climate change on the financial statements to be a key

audit matter or to impact a key audit matter.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified

misstatements on the audit and in forming our audit opinion.

ateriality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be

expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis

for determining the nature and extent of our audit procedures.

We d

etermined materiality for the company to be £2,585,000 (2021: £2,638,000), which is 0.5% (2021: 0.5%) of

Total Assets. The company acts as a financing company within the Dignity plc group, managing the group’s

listed debt and providing the funds raised to Dignity (2002) Limited and its subsidiaries through an intercompany

loan. Therefore, the lenders to the company are focused on ability of the company to repay back the loan and debt

service costs, which is then supported by the intercompany assets held the company. Given the nature of the

company means it achieves a negligible profit/(loss) each period, and using an asset based approach as explained

above provides a more appropriate basis for determining materiality.

uring the course of our audit, we reassessed initial materiality and note there was no change in our final

materiality from our original assessment at planning. .

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an

appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds

materiality.

On th

e basis of our risk assessments, together with our assessment of the company’s overall control environment,

our judgement was that performance materiality was 50% (2021: 50%) of our planning materiality, namely

£1,292,000 (2021: £1,319,000). We have set performance materiality at this percentage due to low risk nature of

the company’s business.

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We ag

reed with the Audit Committee that we would report to them all uncorrected audit differences in excess of

£129,000 (2021: £132,000), which is set at 5% of planning materiality, as well as differences below that threshold

that, in our view, warranted reporting on qualitative grounds.

We ev

aluate any uncorrected misstatements against both the quantitative measures of materiality discussed above

and in light of other relevant qualitative considerations in forming our opinion.

Other information

he other information comprises the information included in the annual report, other than the financial statements

and our auditor’s report thereon. The directors are responsible for the other information contained within the

annual report.

r opinion on the financial statements does not cover the other information and, except to the extent otherwise

explicitly stated in this report, we do not express any form of assurance conclusion thereon.

Independent auditor’s report to the members of Dignity Finance PLC

(continued)

Our responsibility is to read the other information and, in doing so, consider whether the other information is

materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or

otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material

misstatements, we are required to determine whether this gives rise to a material misstatement in the financial

statements themselves. If, based on the work we have performed, we conclude that there is a material

misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the strategic report and the directors’ report for the financial year for which the

inancial statements are prepared is consistent with the financial statements; and

•

the strategic report and directors’ report have been prepared in accordance with applicable legal

equirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the company and its environment obtained in the course of the

audit, we have not identified material misstatements in the strategic report or directors’ report.

We ha

ve nothing to report in respect of the following matters in relation to which the Companies Act 2006

requires us to report to you if, in our opinion:

•

adequate accounting records have not been kept, or returns adequate for our audit have not been received

from branches not visited by us; or

•

the financial statements to be audited are not in agreement with the accounting records and returns; or

•

certain disclosures of directors’ remuneration specified by law are not made; or

•

we have not received all the information and explanations we require for our audit

Responsibilities of directors

As explained more fully in the directors’ responsibilities statement set out on pages 5 and 6, the directors are

responsible for the preparation of the financial statements and for being satisfied that they give a true and fair

view, and for such internal control as the directors determine is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue

as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis

of accounting unless the directors either intend to liquidate the company or to cease operations, or have no

realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from

material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance

with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or

error and are considered material if, individually or in the aggregate, they could reasonably be expected to

influence the economic decisions of users taken on the basis of these financial statements.

Independent auditor’s report to the members of Dignity Finance PLC

(continued)

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures

in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting

a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may

involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those charged with

governance of the company and management.

•

We obtained an understanding of the legal and regulatory frameworks that are applicable to the company

nd determined that the most significant are those that relate to the reporting framework (Financial

Reporting standard 101 ‘Reduced Disclosure Framework’ (FRS 101) and the Companies Act 2006), the

relevant tax compliance regulations in the UK and the regulations that relate to its listing on the

Euronext Dublin.

•

We understood how Dignity Finance PLC is complying with those frameworks by making enquiries of

anagement, internal audit and those charged with governance to understand how the company, as par

of th

e wider Dignity group, maintains and communicates its policies and procedures in these areas. We

understood any controls put in place by management to reduce the opportunities for fraudulent

transactions.

•

We assessed the susceptibility of the company’s financial statements to material misstatement, including

how f

raud might occur by meeting with management, internal audit and those charged with governance

to understand where it considered there was susceptibility to fraud. We understood the programmes an

ontrols that the company, as part of the wider Dignity group, has established to address risks identiﬁed,

or that otherwise prevent, deter and detect fraud; and how senior management monitors those

programmes an

d controls. Where the risk was considered to be higher, in respect of management

override, we performed audit procedures to address the identiﬁed fraud risk. These procedures include

esting manual journals posted by key management personnel including directors of the company and

journals indicating large or unusual transactions. We have considered the nature of these transactions a

or those that we did not consider to be in the normal course of the business and are not of a trivial value

we obtained evidence to support the validity of the transactions. Our procedures were designed to

provide reasonable assurance that the financial statements were free from material misstatement. .

•

Based on this understanding we designed our audit procedures to identify non-compliance with such

laws and regulations. Our procedures involved: journal entry testing, with a focus on journals posted by

the key management personnel including directors of the company and journals indicating large unusual

transactions based on our understanding of the business and enquiries of management and internal audit.

A further description of our responsibilities for the audit of the financial statements is located on the Financial

Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our

auditor’s report.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the

Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members

those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s

members as a body, for our audit work, for this report, or for the opinions we have formed.

Adrian Roberts (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor

Birmingham

26 April 2023

Dignity Finance PLC

Income statement

for the period ended 30 December 2022

52 week

period

ended 30

December

2022

53 week

period

ended 31

December

2021

Note

£’000

Interest

receivable and similar income 5

23,353

23,766

Interest

payable and similar charges

(23,373)

(23,662)

(Loss)

/ profit before taxation (20)

104

Tax

on (loss) / profit

(Loss)

/ profit for the financial period (20)

104

The (loss) / profit has been derived wholly from continuing activities.

Statement of comprehensive income

for the period ended 30 December 2022

There were no other items of comprehensive income such that there is no difference between the (loss) / profit

for the financial period as shown above and the total comprehensive income. Therefore no separate statement of

comprehensive income has been presented.

Dignity Finance PLC

Balance sheet

as at 30 December 2022

December

2022

December

2021

Note

£’000

Current assets

Debtors (including £505,607,000 (2021: £516,520,000) amounts

falling due after more than one year)

516,916

527,475

Cash at bank and in hand

516,960

527,518

Creditors: amounts falling due within one year

(10,913)

(10,538)

Net current assets

506,047

516,980

Total assets less current liabilities 506,047

516,980

Creditors: amounts falling due after more than one year

(505,607)

(516,520)

Net assets

440

460

Capital and reserves

Called up share capital 10

Profit and loss reserve

390

410

Total shareholders’ funds

440

460

The financial statements on pages 15 to 31 were approved by the board of directors on 26 April 2023 and were

signed on its behalf by:

A Eames

Director

Dignity Finance PLC Registered Number: 04488292

Dignity Finance PLC

Statement of changes in equity

for the period ended 30 December 2022

Called up

capital

Profit and

loss reserve

Total

shareholders’

funds

£’000 £’000 £’000

Shareholders’ funds as at 25 December 2020 50 306 356

Profit for the financial period

104 104

Total comprehensive income

104 104

Shareholders’ funds as at 31 December 2021 50 410 460

Loss for the financial period

(

20) (20)

Total comprehensive loss

(

20) (20)

Shareholders’ funds as at 30 December 2022 50 390 440

Dignity Finance PLC

Notes to the financial statements

for the period ended 30 December 2022

1 Principal accounting policies

Basis of preparation

The financial statements of the Company for the period ended 30 December 2022 were authorised for issue by the

board of directors and the Balance sheet was signed on the board’s behalf by Mrs A Eames. The Company is

incorporated and domiciled in England and Wales. The Company’s registered address is 4 King Edwards Court, King

Edwards Square, Sutton Coldfield, West Midlands, B73 6AP. The Company has elected Ireland as its Home Member

State under the Transparency Directive. This election was submitted and published on 14 April 2022.

The financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101

‘Reduced Disclosure Framework’ (FRS 101) (applicable accounting standards). The financial statements have been

prepared on a going concern basis under the historical cost convention. The principal accounting policies are set out

below and have been applied consistently throughout the period.

The Company’s financial statements are presented in Sterling and all values are rounded to the nearest thousand pound

(£’000) except where otherwise indicated.

Exemptions:

As permitted by FRS 101 the following exemptions from the requirements of International Financial Reporting

Standards (“IFRS”) have been applied in the preparation of these financial statements:

•

The following paragraphs of IAS 1, ‘Presentation of financial statements’:

•

10(d) (statement of cash flows);

•

16 (statement of compliance with all IFRS);

•

38A (requirement for minimum of two primary statements, including cash flow statements);

•

38B-D (additional comparative information);

•

111 (cash flow statement information); and

•

134-136 (capital management disclosures).

•

Paragraph 38 of IAS 1 ‘Presentation of financial statements’ comparative information requirements in

respect of paragraph 79 (a) (iv) of IAS 1 ‘Presentation of financial statements’.

•

IAS 7, ‘Statement of cash flows’

•

Paragraph 30 and 31 of IAS 8 ‘Accounting policies, changes in accounting estimates and errors’

(requirement for the disclosure of information when an entity has not applied a new IFRS that has bee

ssued but is not yet effective).

•

IFRS 7, ‘Financial instruments: Disclosures’

•

Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques and inputs

used for fair value measurement of assets and liabilities)

•

Paragraph 17 of IAS 24, ‘Related party disclosures’ (key management compensation)

•

The requirements in IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into

between two or more members of a group.

•

IFRS 13, ‘Fair value disclosures’.

The Company is eligible to apply the above exemptions as it is included in the consolidated financial statements of

Dignity plc who prepare financial statements under IFRS and include the above disclosures.

The consolidated financial statements of Dignity plc are available from 4 King Edwards Court, King Edwards Square,

Sutton Coldfield, West Midlands, B73 6AP.

Dignity Finance PLC

Notes to the financial statements

for the period ended 30 December 2022 (continued)

1 Principal accounting policies (continued)