Dignity Funerals Reduces Debt Following ‘Going Concern’ Warning
One of the UK’s largest funeral service providers, Dignity Funerals, has initiated debt reduction measures after raising concerns over its ongoing viability, a little over a year after it was privatized from the London Stock Exchange.
In April last year, Dignity was purchased for approximately £789 million, including debt, by a consortium featuring SPWOne, the investment vehicle of Sir Peter Wood, founder of Direct Line, and Castelnau Group, managed by Phoenix Asset Management Partners.
According to the recent accounts for Dignity Funerals Limited filed for the year ending December 29, the directors maintain confidence in the company’s long-term prospects but acknowledge “material uncertainties” that could affect its ability to continue as a going concern through the end of June.
Based in Sutton Coldfield, West Midlands, Dignity is one of the two major funeral companies in the UK, alongside Co-op Funeralcare. The company employs around 3,500 people, operates 600 branches, manages 45 crematoriums, 27 cemeteries, and holds 361,500 pre-paid funeral plans.
The accounts state that a “severe but plausible downturn” in financial performance could breach debt service covenants. However, the business’s “base case” scenario, which factors in the death rate, market share, and funeral costs, anticipates sufficient liquidity. Majority shareholders have issued a non-binding letter of support for up to £25 million if needed.
At the time of the accounts, the group had around £500 million in borrowing under two secured loan notes listed on Euronext Dublin, with EY serving as the external auditor.
A Dignity spokesperson revealed that since May, the company has reduced its debt by £81 million to roughly £400 million, with additional reductions expected. These funds were sourced from shareholders and excess cash from its pre-paid funeral trust. “We remain focused on our long-term aims and are confident that our strategy will result in a successful business and the highest standards of care and service for our customers,” the spokesperson stated.
The board has seen new appointments, with Zillah Byng-Thorne, the former CEO of media company Future, becoming chief executive in June, and Shirley Garrood appointed as chairwoman. Both have strong track records and shareholder support, Dignity stated.
As part of a long-term strategy to improve its capital structure, Dignity aims to repay loan notes, possibly through asset sales or additional capital from shareholders. The company is confident it will not face a “material uncertainty” warning in the next accounts.
Last year, Dignity’s revenue increased by nearly 10% to £277.5 million, with higher funeral volumes and price hikes balancing cost inflation and maintaining gross margins at around 38%. The pre-tax loss stood at £36.1 million, an improvement from the previous year’s £217.4 million loss.
Prior to the takeover, Dignity’s share price and financial health were impacted by fierce competition, increasing demand for more affordable and straightforward funerals, rising costs, and fluctuations in the death rate since the pandemic.
Sir Peter Wood and Gary Channon, Phoenix Asset Management’s chief investment officer, cited underinvestment and poor management as key issues before taking the company private.
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