17/02/2022
Trading Update and Consent Solicitation with Bondholders
Dignity, the UK’s only listed provider of funeral related services, provides a trading update for the year ended 31 December 2021 and notes the announcement made today by Dignity Finance plc (“Dignity Finance”), a Group subsidiary, of the launch of a consent solicitation period with its Bondholders in relation to a proposed temporary covenant waiver.
Trading update
For the year ended 31 December 2021, the Board expects underlying operating profit to be c.£54.7 million (2020 restated(1): £60.3 million). Summary details of underlying operating profit for Q4 and EBITDA for the Group are set out in the tables below.
The COVID-19 pandemic has been a period of significant disruption for the wider funeral market, with various government restrictions limiting the Group’s business activities, whilst the elevated death rate has driven a higher number of funerals and cremations in 2021 compared to the five-year average of 590,000 deaths per year. Details of the death rate and the impact on profits are disclosed in the tables below.
As disclosed at the interim results on 21 September 2021, Dignity intends to change the way it reports results to reflect the new strategy set out at the 2021 AGM. Full details will be provided in the preliminary results announcement on 23 March 2022.
Consent solicitation period
As stated in the Group’s interim results on 21 September 2021, the Board continues to work on its plans to improve the Group’s capital structure in the pursuit of the best long-term value for shareholders.
The Group's primary financial covenant under its secured notes requires EBITDA to total debt service to be above 1.5 times. Throughout the last 12 months the Group’s performance delivered significant headroom in relation to its financial covenants. The ratio at 31 December 2021 was 2.09 times (June 2021: 2.12 times; December 2020: 1.99 times). As at 31 December 2021, the Group therefore had EBITDA headroom of approximately £20 million against its financial covenants. A breach of the covenant does not give rise to an immediate requirement to repay the associated borrowings. Rather, such a breach results in a requirement for the bond trustees to appoint a financial adviser who will review the financial and operational circumstances of the securitised group prior to making recommendations as to how the breach can be resolved.
Whilst the Group’s financial performance has delivered headroom in relation to financial covenants throughout the last 12 months, given the distorting impact of the pandemic on the timing of deaths, there remains significant uncertainty around the UK death rate in the near term. Therefore, the Board has taken the prudent decision to seek a temporary waiver of the abovementioned financial covenant on a precautionary basis in relation to Dignity Finance’s debt obligations.
Dignity Finance has accordingly launched a consent solicitation period with its Class A Noteholders. Further information on the consent solicitation process can be found within the announcement made by Dignity Finance and a further announcement will be made, as appropriate, in due course.
As part of the consent solicitation process, the waiver proposal has been considered by a special committee (the "Special Committee") consisting of bondholders and convened by The Investment Association at the request of Dignity Finance. The members of the Special Committee, who hold in aggregate approximately 70 per cent of the current principal amount outstanding of the Class A Notes have examined the proposal, and have informed Dignity Finance that they find it acceptable.
As a condition to the waiver requested, Dignity will be required to inject up to a maximum of £15 million in cash into the securitised group over the 12 month waiver period to restore the EBITDA:DSCR calculation to at least 1.5:1, if it falls below this level. Any amount injected for this purpose can be used at Dignity’s discretion within the terms of the securitised group, including being returned to Dignity after the waiver period as soon as the normal 1.85x DSCR dividend lock trigger is satisfied.
Gary Channon, Chief Executive of Dignity, commented: “The Group delivered a resilient performance in 2021 despite continuing market disruption from Covid-19. Whilst it is still early days, we are confident that the ongoing strategic changes at Dignity will position the business to grow and to best serve families for their end-of-life needs. We look forward to providing a more fulsome update on progress with these strategic initiatives as part of our preliminary results in March.
We are thankful for the support of our Noteholders as we seek this covenant waiver which will allow us to continue to implement these important strategic changes despite the uncertain backdrop of the Covid-19 pandemic. I would like to call out the ongoing heroic efforts of our colleagues in dealing with the impact on the organisation of the elevated death rate at a time of staff shortages due to the pandemic. Serving families remains our driving purpose.”
For further information please contact:
| Gary Channon, Chief Executive | |
| Dean Moore, Interim Chief Financial Officer | |
| Dignity plc | +44 (0)20 7466 5000 |
| Richard Oldworth | |
| Chris Lane | |
| Tilly Abraham | |
| Buchanan | +44 (0)20 7466 5000 |
| www.buchanan.uk.com | Dignity@buchanan.uk.com |
Notes
(1) Underlying performance measures have been restated to reflect the application of IFRS 16, Leases. This standard was adopted in 2020 using the modified retrospective adoption which meant 2019 comparatives were not restated. As a result, the Group chose to exclude it from its underlying performance measures reported in 2020 in order to retain comparability. Therefore, the underlying performance measures reported in this announcement in both periods includes the application of IFRS 16.
(2) Alternative performance measures (‘APMs’)
All measures marked as underlying throughout this announcement are alternative performance measures. The Board believes that whilst statutory reporting measures provide financial performance of the Group under GAAP, APMs are necessary to enable users of the financial statements to fully understand the trading performance and financial position of the business. The APMs provided are aligned with those used in the day-to-day management of the business and allow for greater comparability across periods. For this reason, the APMs provided exclude the impact of consolidating the Trusts and the changes which relate to the application of IFRS 15, all of which are considered to mask the underlying trading performance of the Group, as well as non-underlying items comprising certain non-recurring and non-trading transactions.
(3) Group operating profit – Q4
| £m | |
| Underlying operating profit - Q4 2020 restated(1) | 12.2 |
| Impact from | |
| Number of deaths(2)(3) | 6.7 |
| Market share(2) | 2.4 |
| Average revenues(2) | (7.6) |
| Cost base changes | (2.4) |
| Underlying operating profit - Q4 2021 | 11.3 |
(1) See note 1 above
(2) Revenue impact
(3) At the marginal level, a high proportion of the impact to changes in the death rate on revenue falls through to profitability
(4) UK deaths – Q4
| 2021 | 2020 | Increase/ (decrease) (per cent) |
|
| Quarter 1 | 204,000 | 161,000 | 27 |
| Quarter 2 | 136,000 | 207,000 | (34) |
| First half of year | 340,000 | 368,000 | (8) |
| Quarter 3 | 143,000 | 130,000 | 10 |
| Quarter 4 | 181,000 | 165,000 | 10 |
| Full year | 664,000 | 663,000 | (0) |
(5) Bridge between Group Operating Profit and Securitisation Group EBITDA
| 2020 restated £m |
2021 £m |
|
| EBITDA per convenant calculation – Securitisation Group | 67.6 | 70.9 |
| Add: EBITDA of entities outside Securitisation Group | 9.8 | 1.4 |
| Less: Non-cash items | (1.9) | (1.4) |
| Add: Impact of IFRS 16 | 13.8 | 12.8 |
| Underlying operating profit before depreciation and amortisation - Group | 89.3 | 83.7 |
| Underlying depreciation and amortisation | (29.0) | (29.0) |
| Underlying operating profit - Group | 60.3 | 54.7 |
(6) Underlying cash balances
Underlying cash held of £56 million at Dignity plc of which £11 million held within the Securitisation Group as at 31 December 2021
Forward-looking statements
This announcement and the Dignity plc investor website may contain certain ‘forward-looking statements’ with respect to Dignity plc (‘the Company’) and the Group’s financial condition, results of its operations and business, and certain plans, strategy, objectives, goals and expectations with respect to these items and the economies and markets in which the Group operates.
Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as ‘anticipates’, ‘aims’, ‘due’, ‘could’, ‘may’, ‘should’, ‘will’, ‘would’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘targets’, ‘goal’ or ‘estimates’ or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are not guarantees of future performance. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Group’s ability to control or estimate precisely. There are a number of such factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies and markets in which the Group operates; changes in the legal, regulatory and competition frameworks in which the Group operates; changes in the markets from which the Group raises finance; the impact of legal or other proceedings against or which affect the Group; changes in accounting practices and interpretation of accounting standards under IFRS, and changes in interest and exchange rates.
Any forward-looking statements made in this announcement or the Dignity plc investor website, or made subsequently, which are attributable to the Company or any other member of the Group, or persons acting on their behalf, are expressly qualified in their entirety by the factors referred to above. Each forward-looking statement speaks only as of the date it is made. Except as required by its legal or statutory obligations, the Company does not intend to update any forward-looking statements.
Nothing in this announcement or on the Dignity plc investor website should be construed as a profit forecast or an invitation to deal in the securities of the Company.
Legal Entity Identifier number:
Dignity plc – 21380049687CNAYKV483