Dignity plc Annual Report & Accounts 2011 Dedicated to the local communities we serve Dignity plc AnnualReport&Accounts2011 About Dignity Dignityowns600funerallocationsandoperates35crematoriaintheUnited Kingdom.TheGroupcontinuestohaveastrongmarketpresenceinpre-arranged funeralplans,wherepeopleplanandpayfortheirfuneralinadvance. WeareaFTSE250companylistedontheLondonStockExchange,withover 2,450employeesservingfamiliesandlocalcommunitiesacrosstheUnited Kingdomforgenerations. Helpingpeopleatoneof themostdifficulttimesintheirlivesremainsatthe veryheartof everythingwedo. Contents Our Business 01 Keyfinancialhighlights 02 Dignityataglance 03 Ourperformancein2011 04 Chairman’sstatement 05 Chief Executive’soverview 06 Dedicatedtothelocalcommunitiesweserve 08 Businessreview 14 Financialreview 17 Principalrisksanduncertainties 18 Corporateandsocialresponsibility Governance 28 Boardof Directors 29 Directors’ report 32 ReportonDirectors’remuneration 39 Directors’statementoncorporategovernance Financial Statements Group Accounts 45 Independentauditors’reporttothemembers of Dignity plc 46 Consolidatedincomestatement 46 Consolidatedstatementof comprehensiveincome 47 Consolidatedbalancesheet 48 Consolidatedstatementof changesinequity 49 Consolidatedstatementof cashflows 50 Notestothefinancialstatements Company Accounts 84 Independentauditors’ reporttothemembers of Dignityplc 85 DignityplcCompanybalancesheet 86 NotestotheDignityplcfinancialstatements 90 Financialrecord Shareholder Communications 92 Noticeof Meeting 96 Shareholderinformation ibc Contactdetailsandadvisers Financialcalendar Front cover: Dignitystrivestosetthehigheststandardof serviceforthe funeralprofessionintermsofclientserviceandcareforthedeceased. 01 | Dignity plc Annual Report & Accounts 2011 Key financial highlights Current period financial highlights 2011 2010 Increase % Revenue (£million) 210.1 199.1 6 Underlying operating profit(a) (£million) 64.5 61.0 6 Underlying profit before tax(a) (£million) 41.6 40.4 3 Underlying earnings per share(b) (pence) 55.1 46.4 19 Cash generated from operations(c) (£million) 74.2 74.5 – Operating profit (£million) 63.2 60.4 5 Profit before tax (£million) 40.3 39.8 1 Basic earnings per share (pence) 62.6 46.9 33 Interim dividend(d,e) (pence) 4.87 – n/a Final dividend(f) (pence) 8.88 8.07 10 (a) Underlying profit is calculated as profit excluding profit on sale of fixed assets and external transaction costs. (b) Underlying earnings per share is calculated as profit on ordinary activities after taxation, before profit on sale of fixed assets and external transaction costs (both net of tax), divided by the weighted average number of Ordinary Shares in issue in the period. (c) Cash generated from operations excludes external transaction costs. (d) Interim dividend represents the interim dividend that was approved and paid in the period out of earnings generated in the same period. (e) An interim dividend was not paid separately in 2010, but was instead included within the £1 Return of Value per Ordinary Share paid in October 2010. (f) The final dividend represents the final dividend that was approved and paid in the period relating to the earnings generated in the previous period. +6% +6% +19% Revenue up 6% Underlying operating profit Underlying earnings per share to £210.1 million up 6% to £64.5 million up 19% to 55.1 pence per share Revenue (£m) Underlying operating profit (£m) Underlying earnings per share (pence) 220 70 60 200 210.1 64.5 199.1 60 55.1 180 184.7 61.0 50 175.8 56.4 160 50 52.1 46.4 159.5 40 40.5 140 47.6 38.2 120 40 30 33.4 100 30 80 20 60 20 40 10 10 20 0 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Revenue by area (£m) Underlying operating profit by area* (£m) Funeral services 146.5 Funeral services 50.8 Crematoria 41.6 Crematoria 21.3 Pre-arranged funeral Pre-arranged funeral plans 22.0 plans 5.5 *Excludes central overheads of £13.1 million 02 | Dignity plc Annual Report & Accounts 2011 Dignity at a glance The Group’s operations are managed across three main areas, namely funeral services, crematoria and pre-arranged funeral plans. Our people across the business are dedicated to making a difference to the families and local communities they serve. We aim to achieve our business objectives in a caring and responsible manner, recognising the economic, social and environmental impact of our activities. Funeral services Business overview Funeral services revenues relate to the provision of funerals and 65% ancillary items such as memorials Group operating and floral tributes. We operate a profits share network of 600 funeral locations throughout the United Kingdom generally trading under established 600 local trading names. In 2011, the Number of funeral Group conducted 62,300 funerals, locations in the UK which represents approximately 11.3 per cent of estimated total 62,300 deaths in Britain. Number of funerals conducted during 2011 Crematoria Business overview Crematoria revenues arise from cremation services and the sale 28% of memorials and burial plots Group operating at the Group’s crematoria and profits share cemeteries. We are the largest single operator of crematoria in Britain. We operate 35 crematoria 35 in England and Scotland and Number of crematoria carried out 47,600 cremations in in England and Scotland 2011 representing 8.8 per cent of estimated total deaths in Britain. 47,600 Number of cremations conducted during 2011 Pre-arranged funeral plans Business overview Pre-arranged funeral plans income represents amounts to cover 7% the costs of marketing and Group operating administering the sales of plans. profits share Pre-arranged funeral plans allow people to plan and pay for their funeral in advance. The Group has 265,000 a strong market presence in the Number of unfulfilled provision of pre-arranged funeral funeral plans as at plans with 265,000 unfulfilled 30 December 2011 funeral plans as at 30 December 2011. Dignity works with a number of reputable affinity partners. 03 | Dignity plc Annual Report & Accounts 2011 Our performance in 2011 The Group has performed strongly in 2011 particularly given the challenging 53 week comparable period. Revenue is up 6 per cent, underlying operating profits are up 6 per cent and underlying earnings per share are up 19 per cent. We continue to make good progress across all our operations. Operational and financial summary Key developments Revenue up 2% Underlying operating profit • Good cost control has to £146.5 million up 3% to £50.8 million helped performance. • 10 locations acquired. Revenue (£m) Underlying operating profit (£m) 160 60 • 25 satellite locations 140 143.3 146.5 opened. 137.2 138.5 50 50.8 120 126.3 47.3 49.3 46.3 100 40 42.1 80 30 60 20 40 10 20 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Operational and financial summary Key developments Revenue up 11% Underlying operating profit • Division performed well to £41.6 million up 7% to £21.3 million with significant growth year on year. Revenue (£m) Underlying operating profit (£m) • Two locations added 45 22 in the year. 20 21.3 40 41.6 19.9 18 35 37.5 34.4 16 17.6 • Two further locations due 30 29.2 14 14.0 14.6 25 25.7 12 to open in 2012. 20 10 15 8 6 • Mercury abatement project 10 4 on track for completion 5 2 0 0 in 2012. 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Operational and financial summary Key developments Total unfulfilled pre-arranged Underlying operating profit • Strong performance in the period. funeral plans increased to 265,000 up 28% to £5.5 million • Plans outstanding Total number of unfulfilled plans Underlying operating profit (£m) continue to grow. 275,000 6 • The most successful 250,000 265,000 5.5 5 sales year since the 225,000 238,000 4 4.3 216,000 creation of pre -arranged 200,000 204,000 197,300 3 3.5 175,000 funeral plans. 2 2.4 2.5 150,000 125,000 1 100,000 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 04 | Dignity plc Annual Report & Accounts 2011 Chairman’s statement “The Board’s expectations for 2012 remain positive and unchanged.” Peter Hindley, Chairman Results I am also pleased to welcome Jane Ashcroft and Martin I am pleased to report another successful year for Pexton to the Board. Their biographies describe their the Group. background and I am sure they will contribute to the Board enormously and will help Dignity to continue to Underlying operating profits have increased by 6 per cent generate value for its shareholders in the future. Jane to £64.5 million (2010: £61.0 million). Underlying earnings and Martin will also sit on the Audit, Remuneration and per share have increased 19 per cent to 55.1 pence per Nomination Committees. Ordinary Share (2010: 46.4 pence per Ordinary Share). I am also delighted that Alan McWalter has agreed to Dividends become the Senior Non-Executive Director. Alan has also The Board is proposing a final dividend of 9.77 pence per become Chair of the Remuneration Committee. Ishbel Ordinary Share to be paid on 29 June 2012 to members Macpherson will become Chair of the Audit Committee. on the register at close of business on 25 May 2012. This dividend is subject to the approval of shareholders at the Our people Annual General Meeting on 14 June 2012. This final Dignity remains dependent on the quality of its staff, who dividend represents a 10 per cent increase on the previous care for our clients at one of the most difficult times in their year and is consistent with the annual increases made lives. They continue to deliver outstanding client service and since flotation in 2004. I am grateful for the part each member of staff has played during the year. The Board We have announced a number of changes regarding our Outlook for 2012 Non-Executive Directors, which will be effective from The number of deaths in the first quarter of 2012 is 1 April 2012. expected to be a lower proportion of the year as a whole than in 2011. However, the Board’s expectations for 2012 James Newman and Bill Forrester will be retiring from the remain positive and unchanged.