Dignity, based in Sutton Coldfield and Britain's only listed funeral services company, has turned a modest improvement in its trading environment into a gain of nearly 20 per cent in its underlying profit this yearbase by a policy of using high financial gearing to enhance the return to shareholders.

In the six months to July the number of deaths in Great Britain was 1.7 per cent higher, reversing a downturn last year, and Dignity improved its operating margins by a percentage point to 31.4 per cent.

It also used its cash flow to acquire four new funeral homes.

Thanks to net borrowings of £170.6 million - six times shareholders' funds - that drove underlying profits up to £15.8 million, 19.7 per cent up last year, not counting the cost of bringing the shares to the stock market in April, 2004.

Revenues were eight per cent higher at £74.6 million.

Peter Hindley, chief executive, believes Dignity's funeral-related services are predictable activities like utilities which can be highly geared to an extent which would be too risky for most listed trading companies.

Most of the debt is in securitised bonds that protect Dignity from any increase in interest rates and can be serviced out of cash flow.

" We are planning to increase the debt and return capital to shareholders," he said yesterday.

Meantime there is a 2.75p interim dividend, equivalent to a ten per cent increase on last year's pay-out covering the four months the shares were listed. The shares went 2p higher to a new high of 392p, up from 230p at last year's flotation.

Dignity performed 36,000 funerals and 21,200 cremations in the half-year, against 35,100 and 19,800 cremations in the same months last year in its 516 funeral homes and 22 crematoria. It also has 171,500 pre-arranged funeral plans outstanding backed by £200 million in an independent trust fund managed by Prudential.

Mr Hindley said "The group is trading well and the outlook remains positive for the rest of the year."