Step 1:
The
link to my blog:
The link to my blog posts on Moodle:
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
What an interesting company you have Rachael, fancy needing advice on how to conduct yourself at a funeral and I wonder who reads the Good Funeral Guide 2014. Well done on your blog, it looks great.
ReplyDeleteThanks Suzie :) It's a good company to have, honestly!
DeleteNice work Rachael. The KCQs that you identified are very interesting, and the discussion for the external business environment for your company is great
ReplyDeleteIt is true that many items in accounting can be treated differently, which could result the different outcomes. For example, I heard a joke that a firm successfully cut its labour cost by 10%, by changing the titles of those employees, and capitalising such expenses. Therefore, to have good understanding for such accounting magic would be the important thing that we need to learn in this subject.
ReplyDelete