One of Britain’s biggest funeral companies has moved to reduce its debts after warning of “material uncertainties” over its ability to continue as a going concern, just over a year after it was taken private from the London Stock Exchange.

Dignity was acquired in April last year for about £789 million, including debt, by a consortium comprising SPWOne, an investment vehicle of Sir Peter Wood, the serial entrepreneur and founder of Direct Line, and Castelnau Group, a London-listed investment company managed by Phoenix Asset Management Partners.

Accounts for Dignity Funerals Limited, the group’s main operating company, filed last week at Companies House for the year to December 29 show that the directors “remain confident in the long-term prospects” of the company, but that “material uncertainties exist that may cast significant doubt on the group and parent company’s ability to continue as a going concern” for the period to the end of June.

Dignity, based in Sutton Coldfield in the West Midlands, is one of the country’s two big funeral companies, alongside Co-op Funeralcare. It employs about 3,500 people, has 600 branches, manages 45 crematoriums and 27 cemeteries and has 361,500 pre-paid funeral plans.

A “severe but plausible downturn” in the group’s financial performance could result in a breach of its debt service covenants, the accounts state. However, the “base case” of the business, which considers the death rate, market share and mix of funerals and costs, predicts it will have “sufficient liquidity”. A non-binding letter of support has been issued by Dignity’s majority shareholders for up to £25 million, should it be required.

The group, whose external auditor is EY, had about £500 million of borrowing outstanding under two secured loan notes listed on Euronext Dublin at the time of the accounts.

A spokesman for Dignity said that since the accounts had been signed off in May, the company had reduced its debt by £81 million to about £400 million, “with further payments to follow”. The funds are understood to have come from shareholders and excess cash from its pre-paid funeral trust. “We remain focused on our long-term aims and have confidence that our strategy will result in a successful business and the highest standards of care and service for our customers,” the spokesman said.

The board of Dignity has been refreshed, with Zillah Byng-Thorne, 49, a former boss of Future, the media company, appointed chief executive in June and Shirley Garrood, 66, as chairwoman, “both of whom have proven track records and retain the full support of our shareholders”, Dignity said.

As part of a long-term solution to improve its capital structure, Dignity is looking to repay the loan notes, such as through the sale of assets or extra capital from shareholders. It is understood to be confident of avoiding a “material uncertainty” warning in its next set of accounts.

Revenue increased by almost 10 per cent to £277.5 million last year, with increased funeral volumes and price rises offsetting cost inflation and keeping gross margins steady at about 38 per cent. The loss before tax was £36.1 million, an improvement on the £217.4 million of a year earlier.

Before the takeover, Dignity’s share price and balance sheet had been plagued by fierce competition, a growing demand for cheaper and simpler funerals, rising costs and a volatile death rate since the pandemic.

Wood, 77, who took the company private alongside Gary Channon, 56, a chief investment officer at Phoenix Asset Management, said before the takeover that the company had “been underinvested” and “not managed properly”.