Business in Burials - Making Money at Dignity PLC: 2015

Here's my draft - please have a read and leave any comments that spring to mind:

Step 1:

The link to my blog:

http://rachib19.blogspot.com.au/

The link to my blog posts on Moodle:

https://moodle.cqu.edu.au/mod/forum/discuss.php?d=92617

Step 2:

Links to Dignity PLC annual reports for 2014, 2013 and 2012:

2014 Annual Report: http://www.dignityfunerals.co.uk/media/2366/dignity_annual_report_and_accounts.pdf

2013 Annual Report: http://www.dignityfunerals.co.uk/media/1517/dignity_annual_report_and_accounts_2013.pdf

2012 Annual Report: http://www.dignityfunerals.co.uk/media/1520/dignity_annual_report_and_accounts_2012.pdf

Know Your Firm:

Dignity PLC is a UK funeral director company which is listed on the London Stock Exchange. The company is actually made up of approximately 710 different funeral locations (funeral homes) the oldest of which dates back to 1812 and has almost a hundred crematoria (Dignity PLC 2014). Currently, Dignity is second only in the UK market to the Co-operative Funeral Care (BBC News 2015) but is reportedly the nation’s leading provider of pre-paid funeral plans, which appears to be a growing business (Wikipedia 2015). Dignity’s annual report for 2014 shows their funeral services market share to be at approximately 12%, cremation services at approximately 10% and had approximately 345,000 active pre-paid funeral plans (Dignity PLC 2014). Amusingly (though probably not exactly profit related), Dignity also offers advice on how to conduct oneself properly at a funeral.

While researching Dignity PLC, I found several blogs – specifically, the Good Funeral Guide, which is written by consumers for consumers, and another called the Motley Fool, an investor advice blog. The Good Funeral Guide published a scathing review of Dignity's prices, which stated that Dignity is completely unaffordable for many otherwise potential clients (Good Funeral Guide 2014). On the other hand, Peter Stephens (2015) from investor advice website the Motley Fool recommended Dignity PLC as a viable option, even comparing it to BP for earnings potential in 2016. The principle seems simple: death is a good business to be in.

However, I believe a key challenge for Dignity lies in meeting the affordability expectations of middle-wage earners and yet maintaining high standards of service.

Areas of your firm’s financial statements you are having difficulty understanding

I don’t have an extensive knowledge of accounting, so while I came to grips with the basic calculations for the three financial statements, there were several items in the 2014 report which I found quite confusing. The most confusing one was a statutory recording of a loss. Here is the explanatory quote from the 2014 report:

‘The market value of the Old Notes was significantly in excess of their carrying value. As previously announced, the refinancing during the period resulted in an exceptional charge of £124.2 million. The majority (£117.4 million) of this charge was non-cash reflecting the mark to market of the Old Notes and the write-off of associated unamortised issue costs on the Group’s balance sheet in respect of these financial liabilities. As a result, the Group reported a statutory loss for the year. This andthe associated costs of the transaction have, because of their nature and amount, been disclosed as exceptional and are excluded from the Group’s underlying performance measure in line with previous guidance’ (Dignity 2014, p. 22).

The fact that this transaction had to be recorded as a statutory loss meant that Dignity’s 2014 financial statements appeared to show a devastating loss when compared to the three years prior. However, the above explanation indicates that that’s not really the case! I’ll be researching this transaction more deeply. Other concepts unfamiliar to me included underlying profit and how ‘earnings per share’(both ‘underlying’ and ‘basic and diluted’) are calculated. Also, ‘elimination of swap’ is a term I hadn’t come across before.

Areas of the business that seem most important or critical to you:

Given Dignity’s strategy, I think it is very important for them to continue to focus on their point of difference when it comes to service – practically speaking, this involves recruiting, training and motivating staff who are capable in demonstrating sympathy and discretion. It also means ensuring they have the assets (resources) to conduct their services without any foreseeable issues.

According to the Good Funeral Guide blog, Dignity is at the expensive end of the scale of funeral service producers in the UK. Going by this post, it’s clear that potential clients want to pay the lowest price possible for a funeral. So I think a key challenge for Dignity is to keep their overheads as low as possible in order to increase their funeral services and pre-paid plans portfolios, while maintaining a reputation for excellent client service

Key challenges the firm appears to be facing:

Dignity’s main competitor is the Co-operative Funeralcare (Wikipedia 2015). So it seems pretty vital that Dignity keep costs as low as feasible and continue to monitor this (and other) competition for different areas of value to clients. What is the Co-operative doing better (and more cheaply?)

I also think that another key business challenge is Dignity’s reliance on a consistent or growing number of deaths per capita in the UK. They can meet this challenge by ensuring that the funeral homes and offices in densely populated areas, e.g., London, Liverpool, Manchester, are marketed in close proximity to elderly populations (nursing and aged care home facilities, hospitals, etc).

Another challenge is the potential regulation of the funeral services business, and the requirement to prove the need for a new crematorium in a specific area (Dignity PLC 2014, p. 10).

How successful it appears to be in meeting these challenges and its apparent strategy:

Dignity’s strategy appears to answer all these questions within its strategy, as follows:

To grow profits by continuing to operate in the traditional market where services are used based on their company reputation and through recommendations, by controlling their operating expenses; developing or acquiring additional funeral locations and ‘managing or acquiring additional crematoria; National marketing of pre-arranged funeral plans, principally through affinity partners; and Efficient use of...balance sheet to enhance shareholder returns.’ (Dignity PLC 2014, p. 10)

Provided Dignity continue to execute their plan as outlined above and ensure they have a lot of exposure in key populated areas, I believe they will continue to grow. Keeping their costs down as the market becomes more competitive is crucial though.

Step 4

Chapter 1 – KCQs

· Accounting is basically like a diary of the firm’s expenditure and losses, ups and downs. I assume this is the type of thinking that brought about the name ‘journal’.

· I find it frustrating that I don’t yet understand as much as I’d like to about how the same item is recorded in different ways – this is something I want to focus on understanding.

· When it comes to creating value, I think a big challenge is working out how to stay relevant – in some ways social media really helps business with this challenge, but not completely – people are very fickle in jumping from one fad to another, as social media also proves! I think it can be very hard for business to meet the changing demands and to try to predict trends. So, what do we focus on producing in order to create value?

· I think about the different degrees of complexity of different businesses’ accounts. For instance, the Coles accounts would be so extensive and split up into the different departments, whereas a hairdressers’ account should be reasonably simple. Right now, as I don’t yet have a complete understanding of book-keeping, I would definitely employ an experienced professional accountant if I had my own business.

· Why do we think that it is a historical ‘accident’ that double-entry accounting came about?

· This chapter really clarifies a home truth of accounting for me – it makes sense to enter a transaction twice if it affects two entities.

· The explanation of the accounting equation (and the five elements of accounting) has helped me so much. To me (more simplified) it means this: The more resources and currency of value that people put into something, the more they want this ‘thing’ to produce additional currency of value for them in the future. It’s basically the same situation as that in the parable of the talents in the Bible (Matthew 25: 14-30). The master gives a talent to his servants and tells them that they each need to have more than this one talent when he returns. It doesn’t matter how much more, but it has to be more than the original. Return on investment is the key concept.

Chapter 3 - KCQs

· I find it really surprising that there are no rules when it comes to the name for an items or transactions in financial statements.

· It frustrates me that so many Annual Reports are so detailed but it definitely makes sense. If it was my company or firm, I’d want the readers to be motivated to invest.

· Interesting that a Balance Sheet is a snapshot of one particular day and I guess the most revenue-filled day of the month! 31 December is the official end of year date for Dignity PLC, but the balance sheets show different dates in December.

· Non-controlling interests – the real meaning of this term was news to me. I didn’t know that this really referred to the shareholders with 49% or less ownership.

· The fact that the business situation is ever-changing and that this isn’t necessarily reflected in the numbers indicates that it’s really important for governing boards to be flexibly minded. So often when working in customer service, I’ve felt that board members, directors, CEOs, etc., can make rash and rather impractical decisions. Maybe too much focus on number-crunching has something to do with it.

· It’s intriguing how the pioneers of using ratios to predict a firm’s future performance were so eagerly accepted and trusted in the 1920s and 30s.

· Prior to reading this chapter, I didn’t realise that companies had to borrow from banks to pay their shareholders the dividends! It’s become more and more apparent just how useful this course will be on a personal basis J

Here they are :)

Christyn Kelly http://christynjade.blogspot.com.au/2015/10/introductions.html

I love this blog - it's so interesting and upbeat but it gets down to business and is well structured. Christyn posted a brief history but also pointed out some of the company's numerous notable achievements with real examples in easy to read bullet point format. It's also funny, which keeps the reader engaged - Christyn's humour plus the cat and Ryan Gosling memes combined. Great stuff!

Emma Walker http://outnumberedbynumbers.blogspot.com.au/2015/12/we-received-our-companies-little-over.html#comment-form

Emma's tone in her blog is really enthusiastic but she's also very humble about her supposed lack of understanding. Once I started reading her blog however, I could see that she has definitely applied herself in gaining understanding, clearly outlining Caltex Australia's community efforts and also their financial achievements. Emma has noted this information in easy-to-read format, which I appreciate. Awesome work and also inspirational for me.

Suzie Wieland http://suziesaccountingblog.blogspot.com.au/

I really like this blog, as it’s very honest and Suzie actually discloses what surprised her about the course and her personal opinion of the course in general. She outlined her new understanding of key accounting concepts which some of us may be too uncomfortable to do. However, Suzie specifically states that she’s happy to finally understand why assets are treated as debits etc . I find this blog logical, easy to read and fresh in its approach.

Business in Burials - Making Money at Dignity PLC

Saturday, 12 December 2015

Assignment is submitted for grading

Friday, 11 December 2015

Dignity PLC's Financial Statements

Thursday, 10 December 2015

Assgt Stage 1 Draft: Please leave feedback

Top Three Blogs

Wednesday, 9 December 2015

Annual Report Links

Tuesday, 8 December 2015

Welcome to my blog!