Dignity plc

Interim results for the 26 week period ended 28 June 2019

Dignity plc (Dignity, the Company or the Group), the UK's only listed provider of funeral related services, announces its unaudited interim results for the 26 week period ended 28 June 2019.

Alternative performance measures

All measures marked as underlying in the table above and throughout this Interim Report are alternative performance measures. The reasons for the Group's use of alternative performance measures, definitions and where relevant, reconciliations are provided in the section on alternative performance measures at the end of this Interim Report.

Comparative information presented on a statutory basis is not comparable due to the effects of adopting IFRS 15. To aid a user of the financial statements, for the foreseeable future, the Group has amended its definition of underlying revenue and underlying operating profit so that the effects of adopting IFRS 15 are removed.

Key points

·      Number of deaths significantly lower than originally expected leading to lower financial performance

·      Funeral market share stable since 2018 year end

·      Transformation Plan on track and key branch pilots commencing in the second half of the year

·      Strong market share performance by crematoria business

·      Simplicity continues to grow strongly

·      Company fully engaged with the CMA sector investigation

·      The Group welcomes regulation of pre-paid funerals announced in March 2019

·      Temporary cessation of dividends

Mike McCollum, Chief Executive of Dignity plc, commented:

"While the number of deaths in the first half meant that our financial performance for the period was lower than originally anticipated, we remain confident that the changes we are introducing will generate sustainable growth in the medium to long-term. Longer-term expectations, based on the ONS forecasts remain unchanged, with increases in the long-term number of deaths, reaching approximately 700,000 per year by 2040.

Building on the momentum and significant progress already made in the past 12 months, our Transformation Plan is now entering a new phase. In the second half of the year we will begin transforming our branches, starting with a three network pilot programme. As the Board always anticipated, the transformation of our branches will be radical, complicated and challenging. We have over 800 branches, with each network reflecting a range of differing local and historical approaches. Our staff will be working in materially different ways and we fully expect there to be refinements during the piloting process which is likely to take a number of months. We are committed to ensuring that the design of our branch model is right before we embark on what will be a careful roll-out across the entire network, which we expect to start in 2020.

Across the business, we are pleased with the development of our Simplicity offering which is now available in three forms. We are making good progress with our digital capability, which is crucial in order to secure existing business and acquire new customers.

As a Board we are determined to seize the current opportunity to create a business that is clearly differentiated from the competition and gives customers a clear choice. We are building a more coherent, cohesive and technology-enabled business, one geared to meet the changing needs of our customers while remaining focused on excellent client service. We look forward to delivering our vision to lead the funeral sector in terms of quality, standards and value for money."

For more information

Mike McCollum, Chief Executive

Steve Whittern, Finance Director

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

A presentation for analysts and institutional investors will be held today at 9.00am (BST) at Buchanan Communications, 107 Cheapside, London EC2V 6DN. All participants must be pre-registered in order to attend the meeting.

A live audio webcast and conference call facility will be available. A webcast replay facility will be available after the analyst meeting via the same link.

Interim Chairman's statement

Financial summary

The number of deaths in the first half was 300,000 (June 2018: 324,000), seven per cent lower than the same period last year. Underlying operating profits decreased by 35 per cent to £36.7 million (2018: £56.4 million).

Our funeral market share remained stable. Underlying average funeral income in the second quarter increased, to be in line with the Board's expectation of £2,940. Underlying average income for the first half of the year was £2,919.

Further details are provided in the business and financial review.

CMA

On 28 March 2019, the Competition and Markets Authority ('CMA') confirmed its widely anticipated full market investigation into the funeral and crematoria sector. Dignity welcomed the investigation and is cooperating fully with the CMA's enquiries. The Company has established a strong working group of internal and external resource and seeks to focus on the following key areas:

·      Quality of service provided to meet customer needs;

·      Regulation of the industry to protect customers; and

·      Capital employed in crematoria.

Since the announcement in March 2019, Dignity has attended a hearing of the CMA's panel, facilitated site visits and has responded to detailed questions necessary for a proper analysis of the industry.

We hope that through its enquiry, the CMA is able to create a framework that ensures that customers are supported, feel respected and are able to exercise the choices available to them in an informed way.

HM Treasury

In June 2019, HM Treasury announced its decision to introduce statutory regulation of pre-paid funerals through the Financial Conduct Authority. Dignity's recent research, published together with Fairer Finance, has highlighted the poor sales practices and financial management risks that certain providers engage in. The Group welcomes this decision by HM Treasury as, for a long time, it has led the industry in best practice and called for regulation of the pre-paid funeral sector to protect consumers.

Dividends

The Group paid a final dividend of 15.74 pence per Ordinary Share on 28 June 2019.

Although the Group has significant cash resources at hand and continues to be cash generative, in order to maintain maximum flexibility and liquidity during the transformation, the Board has concluded that it is prudent to temporarily cease dividend payments. The Group has an established track record of returning cash to shareholders at appropriate times over many years and once the current uncertain competitive environment becomes clearer, it anticipates resuming dividend payments or returning excess cash to shareholders.

Our staff

The Board continues to be extremely mindful of the diligence and support of staff during this time of radical change to the Group's funeral business. Our staff continue to prove their dedication and professionalism in the service of Dignity's customers on a daily basis. This continued commitment will be essential as the Group enters the next phase of its Transformation Plan, implementing major change at branch level. We thank them for their work in this challenging time and look forward to their continued support over the coming months.

The Board

In May 2018, Peter Hindley, Dignity's Non-Executive Chairman since 2009, indicated to the Board that he would like to retire from the Board in 2019. The process of identifying a successor began in the summer of 2018 and the Board made good progress in identifying a suitable candidate. However, given the significant changes being made to the operating model of the Company and the current levels of uncertainty surrounding the funeral industry, and after consulting with major shareholders, the Board subsequently concluded that the nature of the role and the experience needed had changed and accordingly the search process to select a new Chairman was amended.

The Board had hoped to be in a position to announce Peter's replacement at the time of the Company's Annual General Meeting on 13 June of this year, but that was not possible. Instead the Company announced in May that I, David Blackwood, then the Senior Independent Non-Executive Director, would replace Peter at the AGM as Interim Chairman until a permanent successor could be found. The Board is also seeking to appoint additional Non-Executive Directors with the experience and expertise to assist the Board in the Transformation Plan and future growth of the business. The process to identify candidates has commenced with a view to the Board comprising a majority of independent Non-Executive Directors in due course.

In May, the Board also announced that James Wilson had joined the Board as a Non-Executive Director and been appointed a member of the Nomination Committee. James is a partner at Phoenix Asset Management Partners Ltd ('Phoenix') and as of the date of this interim report, funds managed by Phoenix held 26.7 per cent of the Company's shares.

Outlook

The decrease in the absolute number of deaths continued in the second quarter (albeit at a lesser rate) following a 12 per cent decrease in the first three months. The overall decrease in the first six months was seven per cent compared to the comparative period last year. Historical data over the last 20 years indicates that the number of deaths in 2019 is likely to be within three per cent of the previous year. If deaths were 580,000 (approximately three per cent lower than the previous year), then all other matters being equal, underlying operating profits for the full year could be approximately £3 million to £4 million lower than anticipated at the start of the year. The outlook for the full year therefore remains dependent on a greater number of deaths in the second half of this year than the previous year.

Following completion of the Transformation Plan, the Board continues to believe that targeting solid single digit increases in underlying earnings per share is appropriate and achievable.

David Blackwood

Interim Chairman

31 July 2019

The Group's funeral business: the Transformation Plan

Our Transformation Plan has been developed following a major strategic review in 2018 and its execution is scheduled to be complete by the end of 2021.

The need for change

The combination of increased price competition and more demanding consumers required a new approach, namely, a radical transformation of our business and business model.

The landscape in our industry has changed, with a growth in lower quality providers, lower cost funeral alternatives and with online channels driving increased price transparency.

Consumers are becoming more demanding and sophisticated. Values are changing, with increased secularism and a growing demand for personalised, lower-cost services, supported with online resources. There are fewer visits to the High Street and more online research and shopping around.

Market opportunity

While this degree of change could be seen as unnerving, we see it as an opportunity. Our response is to build a lower-cost model and develop recognisable national brands associated with quality in support of competitive prices. Specifically, we will grow our presence in the low-cost cremation market.

We will continue to embrace online and build a leading digital presence, unbundle our full service funeral pricing to create a more compelling proposition and greater flexibility for clients and further develop our low-cost Simplicity Cremations service.

Strategic review

The strategic review took place over the first half of 2018. It involved focus groups and quantitative surveys with clients, consumers and other stakeholders from across the market. The Company analysed data spanning the last 10 years on clients, transactions, fleet, property and people. It involved a review of our branch network footprint and service delivery model, and we engaged with staff to gather their insights and perspectives.

As we set out in August 2018, we expect to invest £50 million (partly funded by £17 million of surplus property disposals) in our business and achieve annualised net cost savings of £8 million per year by the end of 2021, increasing to £13 million per year by the end of 2028.

Three key strategic strands and imperatives emerged from the review: modernise the client proposition; invest in and simplify the operating model; streamline central support and invest in technology to centralise and automate administrative processes.

(1)   Modernise the client proposition

Adapting our service model to better suit evolving client needs and improve efficiency

We will provide client-facing staff with better tools to improve service levels and efficiency. This will include having vehicles and mobile devices to support arrangements at a location of the client's choice.

We will reward the delivery of key objectives such as exceptional client service and will drive increased front line productivity through more flexible ways of working.

A new tiered proposition provides greater flexibility to meet individual client needs

We will implement across our business a structure of services that gives clients the most appropriate range of choices. This will be achieved through ongoing testing of different propositions to ensure their appropriateness.

Building our national brands leverages our scale and addresses the needs of increasingly digital clients

We will build known, national brands to leverage our scale advantage in the digital age. We will market our commitment to high standards of care, quality of service delivery and competitive entry prices.

In our full service offer we will increase the prominence of the national brand over local brands while retaining strong local names. In the low-cost market we will grow Simplicity into the leading national provider of low-cost cremations.

Areas of focus in 2019

Building on the successes of 2018, the focus this year is on:

·      Implementing trials of new technologies in simplified forms to test client responses;

·      Further trials of different service propositions;

·      Relaunch the Dignity brand; and

·      Further support and marketing of the Simplicity brand.

(2)   Invest in and simplify the operating model 

Enabling specialisation and efficiency gains by separating front and back of house activities

Front of house

This will increase the focus on client service and community engagement, will establish a flexible arrangement model to meet changing consumer needs as these migrate from local to digital, and will enable us to move to more appropriately-sized locations.

Back of house

This will increase the focus on operational efficiency, create a superior operational platform for future growth and leverage organisational scale to realise operational efficiency benefits.

The existing network will be right-sized and enhanced and greater efficiency in funeral delivery will be achieved by leveraging scale and better allocating resources.

We expect to reduce the number of branch networks we operate from more than 120 to approximately 75. The average number of funeral locations per network will increase and we plan to move from a mix of distributed and centralised operations to centralised operations where appropriate.

Areas of focus in year 2019

In order to support efficient operational activity, it is essential that the operating model is simplified. The focus this year is therefore on:

·      Introduction of consistent management roles nationwide

·      Operation of pilot networks

(3)   Streamline central support and invest in technology to centralise and automate administrative processes

Consistency and focus in management roles

We will introduce consistent management roles nationwide in support of the strategy. There will be operational focus with managers unencumbered by non-management tasks. We will create specialised front and back of house roles to support process excellence and introduce clearly defined KPIs to assist management. We will also provide greater recognition of strong performance and reduce overall costs.

Central investment will enable improved support function effectiveness

Finance will automate and centralise supplier/client payments and produce standardised reporting. The marketing function will produce centrally created marketing materials and improve the targeting of digital spend. There will be centralised HR capabilities to reduce management time spent on non-core activities. We will also realise savings in key procurement activities such as mortuary equipment and stationery.

IT roadmap established

As so much of our Transformation journey will rely on having the right IT solutions, we have laid out a clear IT roadmap. This addresses:

·      A full maturity assessment of our IT systems and services today;

·      The plan of where we will invest in our IT capabilities to support the delivery of our strategy;

·      Review of alternative overarching architecture options;

·      Prioritisation and selection of individual applications to enable the strategy; and

·      Selection of partners to work with our implementation plans.

New IT capabilities to improve operational efficiency and enable delivery of plan

Our CRM System will enable consistent and informed communication and support for clients along the full journey from initial contact to final follow up, potential referrals or returning clients.

Our tablet based arrangement software will capture funeral arrangement data digitally to maximise accuracy and efficiency (versus the existing paper based process) and provide rich, relevant visual content e.g. choice of flowers. A workflow management tool will implement a new end-to-end workflow system to optimise funeral arrangements and the delivery process. Resource management will optimise the scheduling of limousines and hearses to maximise usage and also optimise the rostering of funeral director and support staff.

Areas of focus in year 2019

In order to support efficient operational activity, it is essential that central processes are streamlined. The focus this year is therefore on:

·      Finalisation of the overall IT strategy and selection of relevant IT partners to support change;

·      Modernisation of business intelligence reporting to support operational activities; and

·      Selection of a modern purchase-to-pay solution for all procurement activities.

The Transformation Plan - update

As previously reported in our first quarter trading update in mid-May, activity during the period has continued to accelerate with a focus on:

·      Following the finalisation of future efficient branch networks, the commissioning of a development partner to co-ordinate the property investment agenda;

·      Ongoing development and monitoring of trials of unbundled services for bespoke funeral arrangements;

·      Continued enhancement for clients in the Group's online digital offering including Funeral Notices and improved site structure and ease of use;

·      Formalisation of projects addressing central capability including initiatives focused on the Group's Client Service Centre, purchase-to-pay cycle and procurement expertise;

·      Continued investment in central capabilities particularly Human Resources and Marketing;

·      Detailed engagement with front-line colleagues on specific role design and ways of working ahead of testing the Group's future network operating model; and

·      Recruitment of a new IT Director to lead product selection and enhance the Group's development capabilities.
 

Crucially since the last update, we have developed detailed plans for the pilot network tests:

The first branch pilots

A great deal has been achieved over the past year to get us to the point of piloting radical changes in how our branches operate. Transforming them will be every bit as big a challenge as we originally thought it would be.

We have 826 branches, and more than 120 branch networks. There is no uniform branch network model, each network reflecting local and historical approaches. The plan includes reducing the number of networks to approximately 75 and within the branches themselves, defining different roles and relationships for staff. There will be new technology, processes and practices and our people will be working in a more collaborative way within our networks. Changing existing practices and introducing a new model will be complicated and involve managing significant change.

We will start by piloting change in three branch networks in the third quarter, in the Midlands region. We fully expect there to be important points to learn from this, which we will build into our future plans. The work will be painstaking and granular because we must, and will, get the design of our branch model absolutely right before we embark on the full roll-out. Then, given the nature of our business, it will be a sensitive and pragmatic roll-out, something that has been factored into our planning.

Business and financial review

Introduction

The Group's underlying operations are managed across three distinct divisions: funerals, crematoria and pre-arranged funeral plans. Funeral services relate to the provision of funerals and ancillary items, such as memorials and floral tributes. Crematoria services relate to cremation services and the sale of memorials and burial plots at Dignity operated crematoria and cemeteries. Pre-arranged funeral plans represent the sale of funerals in advance to customers wishing to make their own funeral arrangements.

The initial publication of recorded deaths in Britain for the first half of 2019 was 300,000 (2018: 324,000), a decrease of seven per cent compared to the same period last year.

Funeral services

At 28 June 2019, the Group operated a network of 826 (June 2018: 831; December 2018: 831) funeral locations throughout the UK, generally trading under established local trading names. The change to the portfolio reflects one new satellite location and six closures.

Market share

In the first half of 2019 the Group conducted 36,200 funerals (2018: 39,700) in the United Kingdom, a nine per cent decrease on the prior year. Slightly less than one and a half per cent of these funerals were performed in Northern Ireland (2018: one and a half per cent). Excluding Northern Ireland, these funerals represented approximately 11.9 per cent (June 2018: 12.1 per cent; December 2018: 11.9 per cent) of total estimated deaths in Great Britain. Whilst funerals divided by estimated deaths is a reasonable measure of Dignity's market share, the Group does not have a complete national presence and consequently, this calculation can only ever be an estimate. The second quarter of 2018 witnessed particularly strong funeral market share and the Board is pleased that market share for the first half of this year has remained stable.

On a comparable basis, excluding any volumes from locations not contributing for the whole of 2018 and 2019 to date (and therefore excluding eight locations closed in 2018 and a further six locations closed in the first half of 2019), market share was 11.8 per cent compared to 12.0 per cent for the same period in 2018.

Funeral mix and underlying average income

As demonstrated in the table, underlying average funeral income in the second quarter of 2019 increased to be in line with the Board's expectation of £2,940. Underlying average income for the first half of the year was £2,919.

During the first quarter, the Group removed the limited service offering from its trials.

Underlying operating profit was £30.5 million (June 2018: £42.1 million), 27.6 per cent lower than the same period in 2018. In broad terms, this can be explained by the following factors:

Crematoria

Crematoria operations

Underlying operating profit was £20.8 million (June 2018: £23.4 million), a decrease of 11.1 per cent. This reduction in profitability is driven by the number of deaths and lower average incomes from the increased use of direct cremation, slightly off-set by an improvement in market share. This is explained in the table below:

The Group operates 46 crematoria (June 2018: 45; December 2018: 46) and is the largest single operator of crematoria in Great Britain. The Group performed 33,800 cremations (2018: 35,400) in the period.

These volumes represent approximately 11.3 per cent (June 2018: 10.9 per cent; December 2018: 10.9 per cent) of total estimated deaths in Great Britain. Sales of memorials and other items equated to £273 per cremation (2018: £258 per cremation).

Pre-arranged funeral plans

Active pre-arranged funeral plans were approximately 503,000 at the end of the period (June 2018: 470,000; December 2018: 486,000). Although a broadly similar number of plans were sold in each period, there was a slight increase in the number of trust based plans sold, offset by greater reduction in the insurance based plans. These plans continue to represent future potential incremental business for the funeral division.

Central overheads

Central overheads relate to central services that are not specifically attributed to a particular operating division. These include the provision of IT, finance, personnel and Directors' emoluments. In addition, and consistent with previous periods, the Group records centrally the costs of incentive bonus arrangements, such as Long-Term Incentive Plans ('LTIPs') and annual performance bonuses, which are provided to over 100 managers working across the business.

Underlying costs in the period were £14.6 million (2018: £11.9 million), reflecting continued investment in digital activities and central capabilities, as previously articulated. The table below summarises the key movements:

Non-underlying items of £6.0 million (June 2018: £2.0 million) excluded from underlying costs resulted in costs of £20.6 million (June 2018: £13.9 million).

Marketing and digital activity

The Group's online Funeral Notices service is now fully rolled out and is being used by clients across the country. In the first half of the year 1.2 million people have viewed a Funeral Notice and approximately £0.5 million in charitable donations has been pledged via the online donations facility. The Group has continued to expand its online reach, providing more advice and guidance, which has resulted in an approximately 70 per cent increase in visits to the Group's websites, which equates to over half a million additional visitors compared to the same period last year.

The Group has continued to make good progress in developing and implementing its brand strategy. Funeral plans have been advertised on television and a radio campaign for Dignity Funerals has been running across national stations. Additionally, approximately 100 branches now have new fasciae and local websites in the Group's new blue Dignity brand.

Simplicity Cremations

The Group's Simplicity Cremation business continues to perform well. At the beginning of the year, the Group added to its £995 direct cremation service, providing two enhanced services where clients can attend a service at the crematorium - Intimate service (£1,395) and Attended service (£1,895). Two new prepaid plans were also introduced to match the new services, should clients wish to arrange their cremation in advance.

Corporate development activity

In November 2018, the Group announced that acquisitions of small funeral businesses were inconsistent with the Group's strategy and plans for the future. Although no such acquisition opportunities are currently being pursued, should opportunities of larger, more established businesses become available, the Group will consider these on a case by case basis. Consequently, no funeral acquisitions were made in the period.

The Group now has planning permission for four new crematoria. Three of these locations are due to be operational in 2020 and the fourth in 2021. The total capital commitment for these four projects is expected to be approximately £26 million to £27 million, with £5.3 million of this amount having already been invested. Each of the locations with planning permission will take five to seven years to reach maturity, performing 800 to 1,000 cremations per year.

The Group has one location where it is appealing the planning decision and another three that are currently in the planning process.

Earnings per share

Underlying earnings per share decreased 46 per cent to 37.8 pence per Ordinary Share, principally driven by the 35 per cent decrease in underlying operating profits.

Alternative performance measures

The Group's alternative performance measures exclude non-underlying items and the effects of IFRS 15. These items have been adjusted for in determining underlying measures of profitability as these underlying measures are those used in the day-to-day management of the business and allow for greater comparability across periods. 

Accordingly, the following information is presented to aid understanding of the performance of the Group:

Cash flow and cash balances

The Group continues to be strongly cash generative. Cash generated from operations, before non-underlying items, was £41.3 million (2018: £65.6 million). This cash generation reflects continued efficient operating profit conversion. Other working capital changes were consistent with the Group's experience of converting profits into cash. These changes fluctuate year-on-year as a result of timings of the Group's period end and the level of bonuses paid.

In addition to the corporate development activity in the period, the Group spent £8.0 million (2018: £9.9 million) on purchases of property, plant and equipment. The Group would ordinarily expect to incur approximately £20 million in the full year on maintenance capital expenditure. The Group's Transformation Plan will capture the majority of this planned capital expenditure on its funeral business. Consequently maintenance capital expenditure in 2019 is expected to be lower than 2018.

(a)       Maintenance capital expenditure includes vehicle replacement programme, improvements to locations and purchases of other tangible and intangible assets.

Cash balances at the end of the period were £49.8 million (June 2018: £64.0 million; December 2018: £66.9 million). December 2018 includes £16.9 million of restricted cash, see note 7.

Taxation

The Group's effective tax rate for 2019 is expected to be approximately 21 per cent before the effect of non-underlying items. The effective rate for 2020 and beyond is expected to be approximately one and a half to two per cent above the headline rate of Corporation Tax for the relevant period.

Capital structure and financing

Secured Notes

The Group's principal source of long-term debt financing is the Secured Notes issued in 2014. The principal is repaid completely over the life of the Secured Notes and is therefore scheduled to be repaid by 2049. The interest rate is fixed for the life of the Secured Notes and interest is calculated on the principal.

The key terms of the Secured Notes are summarised in the table below:

The table reflects a further one notch downgrade by S&P of each class of Secured Notes on 8 July 2019.

The Secured Notes have an annual debt service obligation (principal and interest) of circa £33.2 million.

It is not currently possible to issue further Secured Notes, as such an issue would require the ratings at original 2014 levels (A/ BBB) by both rating agencies. In any event, the Group does not have any requirement to issue any further Secured Notes for the foreseeable future.

Secured Notes Financial Covenant

The Group's primary financial covenant under the Secured Notes requires EBITDA to total debt service to be above 1.5 times. The ratio at June 2019 was 2.05 times (June 2018: 3.09 times; December 2018: 2.55 times). In addition, in order for the Group to transfer excess 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 June 2019 was 1.53 times (June 2018: 2.48 times; December 2018 1.98 times). These combined requirements are known as the Restricted Payment Condition ('RPC'). Given the ratios achieved, the RPC was achieved at June 2019. If the RPC is not achieved, then the Group's ability to pay dividends could be impacted. These covenant calculations use a prescribed definition of EBITDA detailed in the loan documentation and only represents the profit of a sub group of the Group which is party to the loans (the 'securitisation group'). EBITDA for this calculation uses the last twelve months ('LTM') results and can be reconciled to the Group's statutory operating profit as follows:

Notes

(a)    The terms of the securitisation require certain items (such as pensions) to be adjusted from an accounting basis to a cash basis.

As set out in note 8, the Group's gross amounts owing on its debt obligations were £551.8 million (June 2018: £561.2 million; December 2018: £561.2 million). Net debt was £502.2 million (June 2018 £497.4 million; December 2018: £506.8 million).

The market value of the Secured Notes at the balance sheet date was £501.4 million (June 2018: £564.8 million; December 2018: £531.6 million).

Whilst the Group has no plans to do so, should it wish to repay all amounts due under the Secured Notes, the cost to do so at 28 June 2019 would have been approximately £792 million.

Revolving credit facility

The Group has the benefit of a £50 million Revolving Credit Facility ('RCF'), provided by the Royal Bank of Scotland, which is secured against certain trade and assets held by legal entities outside the Group's securitisation structure. The RCF can be drawn down subject to a set of financial tests applied to these legal entities.

The facility is available until July 2021, with the option to renew, subject to the bank's consent at the time, by a further year. The margin on the facility ranges from 150 to 225 basis points depending on the resulting gross leverage.

This provides the Group ongoing flexibility in a cost effective manner, as if undrawn, the facility represents an annual cost of approximately £0.3 million. Given the Group's healthy cash balances, the RCF is undrawn at the time of the release of this announcement.

New accounting standards

The Group's 2019 interim results are the first period incorporating the changes necessary to comply with IFRS 15, Revenue from contracts with customers as a consequence the results for the current period presented on a statutory basis are not comparable to the amounts shown in the earlier periods presented. Details regarding the impact of adopting IFRS 15 may be found in note 18. The effect on the Group's alternative performance measures is detailed in note 2 and on page 34.

Post balance sheet events

There were no significant post balance sheet events.

Forward-looking statements

Certain statements in this Interim Report are forward-looking. Please see page 39 for further details.

Going concern

The Directors receive and review regularly management accounts, cash balances, forecasts and the annual budget together with covenant reporting. Total shareholders' equity as at 28 June 2019 is a negative £13.8 million however, this has no impact to the Board's view on going concern due to the non-cash effect of IFRS 15. After careful consideration and mindful of the current market conditions, the Directors confirm they are satisfied that the Group has adequate resources to continue operating for the foreseeable future. The Directors formally considered this matter at the Board meeting held on 25 July 2019. For this reason, they continue to adopt the going concern basis for preparing the Interim Report.

Our key performance indicators

We use non-financial and financial KPIs to both manage the business and ensure that the Group's strategy and objectives are being delivered.

Group Performance

In addition to these key performance indicators, the Group closely monitors the results of its client surveys. Highlights of these results can be found on the following page.

(a)              H1 2018 relates to the 26 weeks ended 29 June 2018.

(b)             FY 2018 relates to the 52 weeks ended 28 December 2018.

Maintaining consistently high-quality and standards

We closely monitor the results of our client surveys which are conducted by our Funeral Services division. In the last five years, we have received approximately 160,000 responses. This is our measure of how these services meet or exceed client expectations.

Our consistently high satisfaction scores reflect the strength of our relationships with our clients. We listen to our clients and use our survey responses to focus on areas in which we can improve and add value.