TIDMSAGA
RNS Number : 7117A
SAGA PLC
27 September 2022
27 September 2022
Saga plc
Interim results for the six months ended 31 July 2022
Saga returns to underlying profit as cruise and travel growth
begins
Saga plc (Saga or the Group), the UK's specialist in products
and services for people over 50, announces its interim results for
the six months ended 31 July 2022.
31 July 2022 31 July 2021 Change
------------------------------------------ -------------- -------------- --------
Revenue GBP258.3m GBP156.4m 65%
Underlying Profit/(Loss) Before Tax (1) GBP14.0m (GBP2.8m) 600%
(Loss)/profit before tax (GBP257.5m) GBP0.7m
Available Operating Cash Flow(1) GBP31.5m GBP41.9m (25%)
Net debt GBP721.3m GBP740.3m (3%)
Leverage ratio 8.5x 12.3x (3.8x)
Euan Sutherland, Saga's Group Chief Executive Officer, said:
"I am pleased to report that, for the first six months of the
year, Saga returned to an underlying profit, as we were able to
resume more normal cruise and travel operations.
"Following our return to service after the pandemic, our Ocean
Cruise business secured strong bookings and is on track to achieve
our targets for this year and next, while we also made the final
preparations for our new digital Saga Travel business which has
just launched the first of our new products.
" Trading conditions in the UK insurance market continue to be
challenging. While total policies in force grew by 3% compared with
the first half of the prior year, this was led by significant
growth in travel insurance with motor and home new policy sales
behind the prior year. Customer retention continued to improve,
increasing by a further two percentage points, and we continued to
remain disciplined with our pricing. We also introduced a new range
of motor insurance products including a lower-cost standard
one-year product as well as electric vehicle and multi-car
products. In our personal finance business, Saga Money, sales of
our newly launched equity release product are also well ahead of
last year.
"Following the launch of our multi-year three-step growth plan
and the strengthening of our leadership team, we are focused on
delivery of step one, maximising our existing businesses, step two,
reducing our debt and step three, creating THE Superbrand for older
people in the UK.
"Looking ahead, while we are mindful that the external
environment remains challenging, we are confident that Saga is now
in a stronger position than it was before the pandemic. We are
determined to build Saga into the largest and fastest-growing
commercial network for older people in the UK, building a customer
lifetime value model and creating long-term value for our
investors."
Operational and financial highlights
-- The Group delivered an Underlying Profit Before Tax(1) of
GBP14.0m for the first half, compared with an Underlying Loss(1) of
GBP2.8m in the prior period.
-- We delivered a strong Ocean Cruise return to service in spite
of the continued effects of the pandemic in the early part of the
year. Based on current bookings, we are on track to achieve our
target load factors for this year and next.
-- In River Cruise, to ensure that guests receive the same
exceptional experience as on our ocean cruises, we have updated our
offering to include more within the ticket price and also offer
early booking discounts.
-- We have also just launched the first of our new Travel(2)
products which followed the combination of Titan Travel and Saga
earlier in the year. The business is now more digital, has an
enhanced website and is able to offer greater customer choice and
peace of mind, at higher margins. More new product releases are
expected over the coming months.
-- The UK insurance market continues to be challenging following
implementation of regulatory changes which required equalisation of
pricing between new and renewing motor and home insurance
policies.
o Total policies in force, across all products, grew by 3%
compared with the first half of the prior year, led by the recovery
of travel insurance.
o Although sales of new motor and home policies were lower than
the prior year, our customer retention improved and our margin per
policy was in line with 2021/22.
o Sales of new travel insurance policies returned to similar
levels as before the pandemic, while private medical insurance
sales were broadly in line with the prior year.
o Our Underwriting business, along with the wider market, has
experienced high levels of claims inflation, currently around 13%.
This increases the cost of insurance claims which is having some
impact on our profitability.
-- In our personal finance business, Saga Money, following the
launch of our new equity release product earlier in the year, total
loan volumes were 33% ahead of the same point in the prior
year.
-- We maintained a strong liquidity position with GBP179.0m of
Available Cash(1) and a GBP50.0m undrawn revolving credit
facility.
-- Net debt reduced to GBP721.3m which is GBP7.7m lower than at 31 January 2022.
-- We resumed repayment of our ocean cruise ship facilities in
June 2022, following two years of agreed deferrals.
-- Our reported loss before tax of GBP257.5m reflects a
GBP269.0m impairment of Insurance goodwill, representing a reduced
view of future motor and home margins per policy, as signalled in
our July Trading Update. At 31 July 2022, GBP449.6m of Insurance
goodwill remained on the balance sheet.
Outlook
Looking ahead to the second half of the year, we expect a
continued recovery in our Cruise(3) and Travel businesses. We
anticipate that the headwinds experienced in the first six months
will recede as customer demand continues to rebuild and we are able
to grow our bookings. Whilst we are mindful of the broader
inflationary environment in the UK, the exposure within these
businesses has been largely offset or, in the case of fuel, hedged,
and at present, we are not seeing any impact to demand from our
customers.
We expect the current high levels of insurance claims inflation
to continue and the sales of motor and home insurance policies to
be similar to the first half. The launch of our new range of
products, alongside increases to our pricing and our continued
focus on discipline, will allow our Insurance business to return to
policy growth over time.
For the full year, while our view on the Cruise, Travel and
expense outlooks remain largely unchanged, based on the current
inflationary pressures within the insurance market which are
anticipated to continue, we now expect to report an Underlying
Profit Before Tax(1) in the range of GBP20m to GBP30m and grow
future earnings from this level. This compares to our previous
guidance of GBP35m to GBP50m.
Looking further ahead, to the next five years, Saga is making a
strategic pivot to become a marketing, content and distribution
business by continuing to deliver exceptional experiences for our
customers every day, growing our database and maximising our
Cruise, Travel, Money, Media, Insight and Insurance businesses. The
most significant profit growth will be delivered by Cruise and
Travel, supported by growth in Saga Money.
We are confident that Saga is in a stronger position now than
before the pandemic and we are committed to building Saga into THE
Superbrand for older people in the UK.
(1) Refer to the Alternative Performance Measures Glossary for
definition and explanation
(2) Travel refers to Saga and Titan Travel's touring, stays and
tailor-made products
(3) Cruise refers to our Ocean Cruise and River Cruise
operations
Divisional performance
Cruise(4) - Strong Ocean Cruise bookings and progress on River
Cruise
-- We are pleased with Ocean Cruise which generated positive
EBITDA and cash flow in the first half of the year, supported by a
load factor of 66% and a per diem of GBP318.
-- Ocean Cruise bookings for the full year, at 18 September
2022, reflected a 74% load factor with a per diem of GBP319.
-- We are on track to achieve the 75% target load factor for
2022/23 (84% in the second half) as we return to pre-pandemic
operating conditions following the removal of all temporary
COVID-19 measures.
-- We have already seen strong early 2023/24 bookings,
representing a load factor of 42% and per diem of GBP325. This is
on track to deliver our commitment of GBP40m EBITDA per ship.
-- We have maintained exceptional levels of customer
satisfaction throughout the first part of the year with a net
promoter score of 62 and a guest feedback score of 8.8 out of
10.
-- During the last six months, we combined the Ocean and River
Cruise teams into a single team to deliver the same consistently
high service across all ships, encouraging guests to cross-sell
between the two.
-- River Cruise to Ocean Cruise cross-sell at 31 July 2022 was
18% and vice versa was 6%. Both represent improvements year-on-year
and demonstrate a tremendous opportunity moving forwards.
Travel(5) - Phased launch of new digital business
-- In the first half of the year, we combined Titan Travel and
Saga touring to create the UK's largest and market-leading touring
company. This delivers cost efficiencies, margin benefits and
improved customer choice with 134 tours available to Saga and Titan
customers globally.
-- We have also radically improved our Travel business, moving
it from a largely paper brochure-based business, to a digital
business with dynamic pricing which allows customers to access the
lowest global prices for their flights and hotels.
-- The new business, which has recently launched the first of
our new products, is supported by an enhanced website and booking
platform, and includes the return and enhancement of the Saga
Exceptional Departure Experience. This provides customers with a
range of services including our home-to-airport pick-up, our visa
completion service, included travel insurance with our touring and
stays products, our 24/7 English-speaking emergency response
service and our UK airport experience which includes lounge access
and the option to fast-track through the airport.
-- At 18 September, our booked revenue for 2022/23, which
currently includes River Cruise, was GBP137.6m and does not
represent a typical year due to COVID-19 restrictions at the
beginning of the year, deliberately delayed product launches and
the reset of the business. As such, the business is expected to
report a small loss for the full year, but this will be
significantly ahead of the prior year.
-- Consequently, the bookings of GBP76.0m for 2023/24 are behind
the same point in the prior year, reflecting the conscious
re-positioning of the business ahead of our new touring, escorted
stays and tailor-made propositions which have begun a phased
launch.
-- Our call centre has seen record levels of call volumes in the
last month, as demand for holidays and tours picks up. This has
resulted in longer average wait times for customers as we ramp up
the capability in our teams.
(4) Cruise refers to our Ocean Cruise and River Cruise
operations
(5) Travel refers to Saga and Titan Travel's touring, stays and
tailor-made products
Insurance - Challenging market conditions with steps taken to
return to growth
Retail Broking
-- A mixed performance across motor and home with strong
customer retention but significantly lower new business
volumes:
o We have continued to be disciplined in our approach to pricing
in the context of the challenges facing the insurance market during
the first half of the year.
o Policies in force were 1.5m, 3% behind the prior period with
policy sales 8% behind. Policy sales for the second half are
expected to be similar to the first.
o We have seen a continued improvement in customer retention,
now at 83% and 2ppts ahead of the prior year.
o The decline in new business volumes was caused by maintaining
a disciplined approach to pricing which had some impact on our
competitiveness.
o During the first half, we introduced a range of new motor
insurance products to respond to the cost-of-living crisis and the
changing nature of driving. These included a new, lower-cost
standard one-year policy alongside electric vehicle and multi-car
products which are expected to improve policy sales over time.
o Our share of direct new motor and home business was lower in
the short-term at 50%, compared with 58% in the prior year, with
the remaining 50% coming indirectly from price-comparison
websites.
o Our margin per policy was in line with 2021/22 at GBP74 for
the first half of the year, reflecting a higher proportion of
renewals and lower new business. This is expected to be slightly
lower for the full year, moving to around GBP60 in 2023/24 as
lower-margin, standard one-year policies become a larger proportion
of our sales.
o Margins on our three-year fixed-price product remain adequate
on existing business, protected by our pricing strategy which
incorporated contingencies to allow for a higher inflation
environment.
o Motor insurance to home insurance cross-sell at 31 July 2022
was 18% and vice versa was 22%, highlighting a significant
opportunity as we continue to enhance our customer data and
insights.
-- The Insurance goodwill impairment of GBP269.0m reflects an
updated view of potential motor and home margins and incorporates
prudent downside scenarios.
-- Sales of new travel insurance policies returned to
pre-pandemic levels and were over 200% ahead of the same period in
the prior year.
-- Following on from pricing actions taken over the last two
years, sales of our private medical insurance product were broadly
in line with the prior year.
-- At 31 July 2022, total policies in force across all products
were at a similar level to 31 January 2022.
Underwriting
-- Our underlying current year combined operating ratio was
110%, 22ppts higher than the prior period reflecting high levels of
claims inflation which we observe to be currently around 13%,
alongside closer to normal claims frequency.
-- The reported combined operating ratio (excluding the impact
of quota share reinsurance arrangements) was 86%, 18ppts higher
than the prior period which benefited from reduced claims
frequency.
-- Reserve releases of GBP18.4m in the first half benefit from a
one-off GBP10.0m reduction in prudent reserves established for the
2020/21 accident year. Releases in the second half are expected to
be materially lower than the first.
-- While we are seeing some short-term earnings pressure from
high claims inflation, we are applying material increases to our
pricing. The current year combined operating ratio for the full
year is expected to be at similar levels to the first half, but we
expect an improvement into 2023/24 as price increases flow through
to earned premium.
Wider strategic progress
-- Tremendous progress has been made in strengthening our
leadership team to deliver our growth plan. Recruitment of the new
Executive Team is now complete with investment in CEOs to lead the
Saga Money, Media and Data teams.
-- Our colleague engagement has increased further to 8.0 out of
10 as we've continued to enhance the support available to
colleagues, providing access to a new reward platform which offers
a series of benefits, wellbeing tools and a range of discounts in
one place and, given the current inflationary pressures,
accelerating our annual pay review and providing two-additional
support payments for colleagues with lower earnings.
-- Building on the acquisition of the Big Window in February, we
conducted detailed customer segmentation research, identifying
eight distinct segments of the over 50s population. This research
has allowed us to identify which of these segments represent a
significant growth opportunity for Saga and will allow us to
effectively target these customers moving forward.
-- Volumes of new customer marketing consents were significantly
ahead of the prior year, at over 350%, and are on track to reach
three million by the financial year end, enabling us to be in a
better position to grow our marketable database and share new
offers with a wider audience.
-- There has been continued improvement in our customer net
promoter score, which is now at 50, compared with 47 at the same
point in the prior year, driven by a significant increase within
Saga Money.
-- Our new weekly email Saga magazine has been a particular
highlight, reaching over half a million people every week,
showcasing the best of our monthly magazine. Reader numbers are
increasing, and we hope to hit between 800k and 1 million readers
by the year-end.
Management will hold a presentation for analysts and investors
at 9.30am today. The webcast can be accessed by registering at
https://www.investis-live.com/saga-group/6315bbf979e5831200bc3fb1/saga
. A copy of the presentation slides is available at
www.corporate.saga.co.uk/investors/results-reports-presentations/
.
A separate live presentation for retail investors will be held
via the Investor Meet Company platform on 28 September 2022 at
9.30am. The presentation is open to all existing and potential
investors. Questions can be submitted pre-event via the Investor
Meet Company dashboard up until 9.00am on 27 September 2022, or at
any time during the live presentation. Investors can sign up to
Investor Meet Company for free and follow Saga plc via
www.investormeetcompany.com/saga-plc/register-investor. Investors
who already follow Saga plc on the Investor Meet Company platform
will automatically be invited.
For further information, please contact:
Saga plc
Emily Roalfe, Head of Investor Relations Tel: 07732 093 007
Email: emily.roalfe@saga.co.uk
Headland Consultancy
Susanna Voyle Tel: 07980 894 557
Will Smith Tel: 07872 350 428
Tel: 020 3805 4822
Email: saga@headlandconsultancy.com
Notes to editors
Saga is a specialist in the provision of products and services
for people over 50. The Saga brand is one of the most recognised
and trusted brands in the UK and is known for its high level of
customer service and its high-quality, award-winning products and
services including cruises and travel, insurance, personal finance
and media. www.saga.co.uk
Chairman's Statement
I am pleased to report that Saga has made an underlying profit
of GBP14.0m in the first six months of its trading this financial
year.
This resilient performance demonstrates that our Cruise and
Travel businesses have weathered the storms caused by the pandemic,
the war in Ukraine and the subsequent hike in fuel prices. Our
ocean cruise ships should operate this year with at least the
occupancy levels we have targeted and forward sales for next year
are strong. Our customers are beginning to book their holidays with
us again and our Travel businesses are gearing up their operations.
Their bookings for next year are also strong.
Our Insurance business has had to adapt to significant
regulatory changes and the high levels of inflation in the cost of
insurance claims, both of which continue to impact the entire
industry. We have maintained our pricing discipline and have
recently begun expanding our product range.
We have completed the recruitment of the talented senior
executives we need to understand better the needs of the millions
of older people we have on our database, and to expand our Saga
Money business, the range of services we offer older people and the
engagement we will have with them.
Earlier in the year, I was pleased to announce three new
non-executive appointments to the Board as part of the wider
objective of strengthening our leadership to support our growth
strategy. Sir Peter Bazalgette, Gemma Godfrey and Anand Aithal
joined on 1 September. They all have highly relevant skills and
experience and I am delighted to welcome them to the Board. Our
current Senior Independent Director, Orna NiChionna, will step down
on 30 September and, on behalf of the Board, I would like to thank
her for her contribution over the past eight years. Above all, I
would like to thank our investors, customers and colleagues.
Looking to the future, we are embarking on an exciting strategy.
At its core is the principle that my father, Sidney De Haan and I
always believed in: that Saga will have an absolute focus on our
customers. We have a very clear objective of serving people over
50, with products and services specifically designed for them of
high quality and excellent value and will always strive to achieve
the best standards of customer service. We will do this in ways
that take full advantage of the new opportunities our digital world
offers.
Euan Sutherland and his team are growing our Cruise and Travel
businesses again. They will also focus on developing Saga's
personal finance and wealth management service in a newly formed
business unit, Saga Money. We are investing in a new digital media
business as well as online digital community platforms that will
encourage our customers to join a range of new Saga activities
several times a week. Serving our customers in this way, alongside
providing our cruises, holidays, insurance, financial services and
magazine, will move us closer to maximising the potential there is
in our extensive customer database. It will significantly increase
our cross-selling opportunities and the lifetime value to us of
each of our customers. Our plan will take time to deliver, as it
did when I led the business. I am confident it will be very
successful again and to a much greater extent because of the very
significant opportunities offered by today's technology.
The Board of Saga is excited about our strategy and the
opportunities we are creating to grow our business.
Group Chief Executive Officer's Statement
Resilient performance amidst a challenging external
environment
I am pleased to report that, for the first half of the 2022/23
financial year, Saga generated an Underlying Profit Before Tax(1)
of GBP14.0m, compared with an Underlying Loss Before Tax(1) of
GBP2.8m in the prior year. This reflects much-improved results
within Cruise and Travel as our businesses returned to more normal
operating conditions as we emerge from the pandemic; and resilient
Insurance performance in a market which is adjusting to new
regulatory changes and experiencing high levels of claims
inflation. After allowing for the GBP269.0m impairment of Insurance
goodwill, the Group reported a loss before tax of GBP257.5m.
Within our Cruise business, we are on track to achieve our
target occupancy levels, or load factor, on our ocean cruise ships
and we have enhanced our River Cruise operations. In our Travel
business, we have begun to launch a series of new products with
more to come over the new few months.
While the motor insurance market continues to be challenging, we
maintained a disciplined approach, protecting our margins rather
than reducing pricing to win business. Although, as a result of
this, our policy sales were lower than in the prior year, our
margin per policy was in line with 2021/22.
This performance was underpinned by our robust financial
position with GBP179.0m of Available Cash(1) at 31 July 2022.
While we are aware that there remains some uncertainty within
the markets we operate in, we will continue to navigate any
challenges in an agile and proactive way while investing in, and
innovating for, the future.
Our growth plan
Our aim is to become the largest and fastest growing commercial
network for older people in the UK, THE Superbrand famous for
delivering exceptional experiences every day, building confidence
and connections with our customers. In March 2022, we set out our
strategic approach, which we believe will achieve just that. This
growth plan will see us focused on the following three
priorities:
1. Maximising our existing businesses
2. Step-changing our ability to scale while reducing debt
3. Creating THE Superbrand for older people
An update on our progress against each of these three areas
during the first six months is set out below.
1. Maximising our existing businesses
Cruise
As we began to return to more normal operating conditions, our
Ocean Cruise business generated positive EBITDA and cash flow in
the first half of the year, delivered through a load factor of 66%
and a per diem of GBP318. As we have referenced previously, after
excluding the impact of customer refunds on two cruises impacted by
COVID-19, the load factor would have been around 71%.
Bookings for the full year demonstrate that we're on track to
achieve our target load factor of 75% as we return to normal
operating conditions, removing the last of the temporary COVID-19
measures. At 18 September, the booked load factor was 74% and the
per diem was GBP319, both ahead of the 68% load factor and GBP299
per diem reported for the year ended 31 January 2022. In addition
to strong bookings, we've maintained exceptional levels of customer
satisfaction which currently stands at 8.8 out of 10, with a strong
net promoter score of 62.
Furthermore, looking ahead to 2023/24, bookings at 18 September
are exceptionally strong with a load factor of 42% and a per diem
of GBP325. This means we are on track to achieve our target of
GBP40m EBITDA per ship.
In River Cruise, we have taken steps to ensure that guests
receive the same exceptional experience as on our ocean cruises.
These include updating our proposition to include more within the
ticket price and also offering early booking discounts.
Travel
In our Travel business, we've spent the last six months
combining Titan Travel and Saga to create one market-leading
business which delivers cost efficiencies and margin benefits while
offering greater customer choice.
As a result of these changes, alongside some continued impact
from the pandemic and the conflict in Ukraine, current bookings
don't represent a typical season. At 18 September 2022, booked
revenue, which currently includes River Cruise, was GBP137.6m for
the full year and, as indicated previously, we expect the Travel
business to report a small loss for the financial year.
We have, however, begun to launch our new touring, escorted
stays and tailor-made propositions which represent a move towards a
product offering with greater differentiation, providing our
customers with confidence, security and peace of mind when
travelling with us. Booked revenue for 2023/24 is GBP76.0m and,
although currently behind the same point last year, is expected to
exceed 2022/23 levels.
Insurance
Our Insurance business continues to face a challenging market
backdrop following the implementation of regulatory changes and
high levels of claims inflation. In a market in which pricing
didn't fully reflect the anticipated cost of claims, it was
essential that we maintained a disciplined approach to protect our
margins.
As a result, although our motor and home margin for the first
half of the year remained stable at GBP74 per policy, the number of
policies sold was 8% behind the prior year. Turning to the total
number of policies sold across all products, following a recovery
in travel insurance new business, total policy sales were 1% behind
the prior year with policies in force being broadly in line with 31
January 2022.
Customer retention within motor and home continued to improve at
83% which was 2ppts ahead of the prior year. The proportion of
customers coming to us directly, rather than through
price-comparison websites, was 50% compared with 58% in the prior
period. This reflects a short-term change while our longer-term
focus on acquiring a greater proportion of business directly
remains unchanged.
In order to enhance the range of products that we're able to
offer our customers, the first half of the year saw us launch a
range of new products including a lower-cost standard one-year
policy, a multi-car proposition and a policy for electric vehicles.
This change allows us to offer customers a greater range of
products across a greater number of price points, providing them
with more choice and flexibility. We expect these actions to allow
us to return to policy growth over time, albeit at a lower margin
of around GBP60 per policy from 2023/24.
Our Underwriting business, in the first half of the year, and in
line with the rest of the market, experienced high levels of motor
claims inflation which has had some impact on our profitability. As
a result of this, alongside claims frequency returning closer to
pre-pandemic levels, our underlying current-year combined operating
ratio was 22ppts higher than the prior period, at 110%, with
reserve releases of GBP18m broadly in line.
Although, in August and into September, we have observed some
early positive signs of increased market pricing, we remain mindful
that a significant step-change is required market-wide in order to
offset the current view of inflation.
Looking further ahead, while an element of uncertainty remains
regarding the outlook for claims inflation, following pricing
actions taken, our longer-term expectations of a reported combined
ratio of 97% remain unchanged.
Money
Personal finance, or Saga Money, represents a significant
opportunity for Saga through the attraction of new customers,
acceleration of growth through our existing equity release and
savings products, and through the addition of new products to
deepen our customer relationships.
Following the launch of our new equity release product earlier
in the year, Saga Lifetime Mortgage, we've made good progress
towards growing the business. For the first six months of the year,
total loan volumes were 33% ahead of the prior year, with the
average value per loan also 21% higher.
Jerry Toher, previously Chief Customer Officer at Royal London,
was appointed as CEO of Saga Money and joined the team on 1
September 2022. Jerry will be pivotal in developing this into a
significantly larger business.
2. Step-changing our ability to scale while reducing debt
Reducing our levels of debt is a key driver in creating value
for our investors. With this in mind, we aim to grow our existing
businesses while reducing debt and develop new businesses through
innovation.
At 31 July 2022, our net debt was GBP721.3m, GBP7.7m lower than
31 January 2022. In addition, following two years of agreed payment
deferrals in relation to our two ocean cruise ship facilities,
repayments recommenced in June 2022 and will now resume in
accordance with the original schedule, alongside repayment of the
deferred amounts.
3. Creating THE Superbrand for older people
We are focused on building Saga into the largest and fastest
growing commercial network for older people in the UK and
delivering sustainable growth for our investors by creating THE
Superbrand for this age group.
We will achieve this through knowing our customer base better
than anyone else and expanding our database into the largest active
pool of insightful data. In our latest research, we have identified
eight distinct segments that broadly categorise the population of
people over 50. The people within each segment have different
attitudes towards ageing, the use of technology, what they class as
good value and, importantly, Saga. We have identified which of the
eight segments represent significant growth opportunity and with
this insight, we will be able to tailor our approach, targeting
specific tranches of high-value customers more effectively.
To support us with driving commercial value from this, alongside
other customer insight, we have appointed Michael O'Donohue as
Chief Data Officer who joins on 3 October 2022 from Camelot.
Alongside our focus on insight, we are aiming to radically
transform our database, growing the number of consumers that we're
able to communicate with, while ensuring that our data is as
up-to-date as possible. In support of this, we have been
proactively obtaining consent from customers to contact them with
new offers. Volumes of consent and re-consent for the first half of
the year were more than 350% higher than the previous year which
puts us on track to deliver three million new consents by the
year-end.
A key part of our plan is to drive higher engagement from our
customers through a higher frequency of interaction. The Saga
Magazine is already a fantastic way of engaging our customer base
on a variety of topics, however, we have plans to take this further
through the launch of Saga Media.
Saga Media will provide an opportunity to reach more customers
through a broader range of content. It will be the expert resource
for our audience, enabling them to learn more about their passions
and support them in their quest for experiences and connections.
Our aim is to become the global number one consumer advice brand
for people over 50, creating a scalable and diversified media
business with revenues and profits from online advertising,
affiliate revenues, brand revenues, events and social media. There
is significant growth potential. To drive forward the Saga Media
vision, Aaron Asadi joined on 1 September 2022 as CEO of Saga
Media. Aaron has held a variety of roles in publishing and will be
a valuable addition to the team.
A key metric that we use to measure how the Saga brand is
perceived by customers is our net promoter score. Following
improvements in Saga Money, our score increased to 50 which was
3pts higher than the prior year.
Our colleagues continue to be pivotal to the success of Saga;
because of them we're able to provide our customers with the
exceptional service they deserve. We strive to deliver exceptional
colleague experiences by creating a culture where, at Saga, more
than anywhere else, they can be their best and make a
difference.
We have continued to grow colleague engagement which has
increased by a further 4%, to 8.0 out of 10 and our focus on
diversity, equity and inclusion continues. In this space, we have
continued to champion age in the workplace, increasing our
representation of colleagues over 50 by 16% in the past year and
were delighted to be awarded the highly coveted 'Most Dynamic
Participant' in our support of the 30% Club, the world's largest
cross-company mentoring programme. Furthermore, we were also
pleased to report, in April 2022, that our gender pay gap had
reduced for both mean and median pay.
Throughout the past few years, we have proactively led the way
in our approach to flexible working which was formally recognised
in the 2022 Employee Benefits Awards, where we won the award for
'Best New Benefits to Support Colleagues Post-Pandemic'. To
continue our work in this area, we have provided colleagues with
access to a new reward platform which offers a series of benefits,
wellbeing tools and a range of discounts in one place. In addition,
given the current inflationary pressures on household budgets, have
enhanced the financial support available to colleagues through the
acceleration of our annual pay review cycle and two additional
support payments for our colleagues with lower earnings.
Opportunities ahead
While it is clear that we cannot control some of the challenges
within the broader external environment, I am confident that we are
in a strong position to navigate them, while pivoting the business
strategically for long-term profit growth. With the launch of our
new growth plan, our strengthened leadership team and our
exceptional colleagues, we will return Saga to sustainable growth.
It is on that note that I would like to personally thank our
colleagues for their dedication and determination which make Saga
the brand that it is today.
Finally, I'm pleased to announce that we have extended the
complimentary digital subscription to the Saga Magazine for
shareholders. Communications, with full details of the subscription
and how to redeem it, have been issued and will be arriving with
shareholders imminently. I do hope you enjoy the read.
1 Refer to the Alternative Performance Measures Glossary for
definition and explanation
Group Chief Financial Officer's Review
Saga Cruise and Travel results have started to recover from the
pandemic, enabling the Group to report an Underlying Profit Before
Tax(1) of GBP14.0m in the first half, compared to an Underlying
Loss Before Tax(1) of GBP2.8m in the prior period. The Underlying
Loss Before Tax(1) for Cruise and Travel reduced from GBP51.2m in
the prior period to GBP11.6m in the current, as the businesses
started to return to more normal conditions, albeit while still
operating in a difficult external environment.
This was partially offset by a reduction in Insurance
Underwriting Underlying Profit Before Tax(1) from GBP31.1m in the
prior period to GBP16.4m in the current period. The first few
months of the prior year benefited from lockdown conditions which
led to a sharp decline in motor claims frequency, whereas current
year profitability has been adversely impacted by a notable
increase in inflation in relation to damage claims.
While the Group generated an Underlying Profit Before Tax(1) ,
we reported a loss before tax of GBP257.5m due to a GBP269.0m
impairment of the goodwill related to our Insurance business. As I
reported in my CFO Review included in the results for the year
ended 31 January 2022, the combination of a very competitive motor
market and regulatory changes equalising new business and renewal
pricing, are adversely impacting the profitability of our Insurance
Retail Broking business. Having taken a decision to maintain
pricing discipline, particularly in relation to our three-year
fixed-price product, our new business volumes have declined more
significantly than anticipated, with overall sales of motor and
home insurance reducing by 8% in the first half of the year. This
has limited impact on profit in the current year, since new
business makes only a small contribution to profit due to the costs
of acquiring customers; left unchecked, however, this would lead to
a significant reduction in future profits as renewal volumes
decline, and with the majority of our operating costs being
relatively fixed in nature. We have responded to these developments
by changing our product strategy, shifting towards a more
'standard' motor policy, and making other changes which should,
over time, enable us to return to growth. What this does mean
though, is that our future gross margins are now expected to be
around GBP15 per policy lower than previous projections, which
leads to a reduction in the discounted cash flows that underpin the
carrying value of Insurance goodwill. This is, of course, a
disappointing outcome but we are not alone in facing a challenging
market environment and we are taking the right steps to position
the business for the future.
Looking to the remainder of the year, we expect to see a further
recovery in the Cruise and Travel businesses in the second half.
Ocean Cruise bookings for the summer period were excellent, and we
expect our load factors for H2 to be much closer to normal run-rate
levels, which should enable us to return to a positive profit
before tax for Ocean Cruise. The Travel business is also starting
to see much better booking momentum; the operational challenges
impacting the travel industry mean that we are likely to report a
small loss for the full-year but we are on track to return to
profit in 2023/24. In Insurance, we expect motor and home policy
sales for the second half to be similar to the first and within
Insurance Underwriting, a similar current year combined ratio
compared with the level reported for the first half.
We, of course, also continue to keep a close eye on inflationary
pressures more broadly. This includes the impact of the oil price
on fuel costs for our ocean cruise ships, as well as pressure on
staff costs. We are protected against the impact of the former by
having hedged this year's fuel buying last December, and we also
took advantage of a reduction in the oil price in June to hedge our
2023/24 fuel requirements. In relation to staff costs, we are
taking actions to support colleagues and have accelerated the
timetable for our annual salary review. This will lead to some
pressure on our overall costs, albeit with relatively limited
impact on our current year results.
For the Saga Group as a whole, based on current bookings levels
in the Cruise and Travel businesses for the second half, we expect
to report an Underlying Profit Before Tax(1) of in the range of
GBP20-30m for the full year.
In terms of our financial position, we continue to have
significant available liquidity, with GBP179m of Available Cash(1)
at 31 July 2022 and no debt maturities until 2024, when we are due
to repay GBP150m on our corporate bonds. Net debt reduced by around
GBP8m in the first half of the year, and we restarted capital
repayments on our cruise ship debt, with GBP15m repaid in H1 and
roughly GBP30m due in H2.
Overall, this has been a challenging six months, but we continue
to navigate this difficult external backdrop while investing to
build our capabilities.
1 Refer to the Alternative Performance Measures Glossary for
definition and explanation
Operating performance
Group income statement
GBPm 6m to Change 6m to
July July
2022 2021
------------------------------------------------ ---------- ------------- --------
Revenue(2) 258.3 65.2% 156.4
---------- --------
Underlying Profit/(Loss) Before Tax (3)
Total Retail Broking (earned) 35.5 (6.3%) 37.9
Underwriting 16.4 (47.3%) 31.1
---------- --------
Total Insurance 51.9 (24.8%) 69.0
Cruise and Travel (11.6) 77.3% (51.2)
Other Businesses and Central Costs (15.0) (35.1%) (11.1)
Net finance costs (4) (11.3) (18.9%) (9.5)
---------- --------
Total Underlying Profit/(Loss) Before Tax(3) 14.0 600.0% (2.8)
---------- --------
Net fair value gains/(losses) on derivatives 0.9 (3.2)
Profit on disposal of assets - 7.1
Restructuring costs (2.1) (0.4)
Foreign exchange losses on river cruise (0.3) -
ship leases
ST&H River Cruise IFRS 16 adjustment (0.4) -
The Big Window acquisition costs (0.6) -
Impairment of Insurance goodwill (269.0) -
(Loss)/profit before tax (257.5) (>1,000.0%) 0.7
---------- --------
Tax expense (5.6) (47.4%) (3.8)
Loss after tax (263.1) (>1,000.0%) (3.1)
---------- --------
Basic earnings per share:
Underlying Earnings/(Loss) Per Share(3) 6.1p 325.9% (2.7p)
Loss per share (189.0p) (>1,000.0%) (2.2p)
The Group's business model is based on providing high-quality
and differentiated products to its target demographic,
predominantly focused on insurance and travel. The Insurance
business operates mainly as a broker, sourcing underwriting
capacity from selected third-party insurance companies, and, for
motor and home, also from the Group's in-house underwriter. Cruise
and Travel is composed of Ocean Cruise, River Cruise and Travel.
Other Businesses comprises Saga Money, Saga Media and MetroMail, a
mailing and printing business.
Revenue(2)
Revenue(2) increased by 65.2% to GBP258.3m (H1 2021: GBP156.4m)
due to increased trading in the Cruise and Travel businesses in the
first half of the year, compared to a suspension of these
businesses for the majority of the first half of the prior
year.
Underlying Profit/(Loss) Before Tax (3)
The Group generated an Underlying Profit Before Tax(3) of
GBP14.0m in the first half of the current year compared to an
Underlying Loss Before Tax(3) of GBP2.8m in the prior period. This
is primarily due to a GBP39.6m reduction in Cruise and Travel
losses, of which GBP28.5m relates to the Ocean Cruise business.
This was partially offset by a reduction in Insurance Underwriting
profitability due to an increased current year loss ratio.
Net finance costs in the year were GBP11.3m (H1 2021: GBP9.5m),
which excludes finance costs that are included within the Cruise
and Travel businesses of GBP9.6m (H1 2021: GBP9.6m). The increase
of 18.9% was due to the higher bond interest costs following the
completion of the new bond issue in July 2021. This was partially
offset by a reduction in debt issue costs in the first half of this
year compared with the first half of the prior year.
(Loss)/profit before tax
Loss before tax for the period of GBP257.5m includes a GBP269.0m
impairment to Insurance goodwill, GBP2.1m of restructuring costs,
GBP0.3m foreign exchange loss on river cruise ship leases, GBP0.4m
IFRS 16 adjustment loss on ST&H river cruise ships, GBP0.6m
acquisition costs on the purchase of The Big Window Consulting
Limited and GBP0.9m fair value gain on derivatives de-designated in
the period.
The profit before tax for the first half of the prior year
includes GBP7.1m profit on disposal of assets in relation to the
sale of property, GBP3.2m fair value loss on derivatives
de-designated in the period due to the suspension of Cruise and
Travel operations and GBP0.4m of restructuring costs incurred to
separate the Saga and Titan travel businesses.
Tax expense
The Group's tax charge for the period was GBP5.6m (H1 2021:
GBP3.8m), representing a tax effective rate of 48.7% (H1 2021:
negative 542.9%), excluding the Insurance goodwill impairment
charge. In both the current and prior years, the difference between
the Group's tax effective rate and the standard rate of corporation
tax of 19%, is mainly due to the Group's Ocean Cruise business
entering the tonnage tax regime on 1 February 2020.
There was also an adjustment in the current year for the under
provision of prior-year tax of GBP1.6m (H1 2021: GBP1.1m over
provision). In the prior period, there was an adjustment for the
impact of the change in the tax rate on opening deferred tax
balances of GBP2.6m credit. Excluding the impact of the Ocean
Cruise business being in the tonnage tax regime, goodwill
impairment and adjustments to prior year tax, the tax effective
rate for the current period is 21.7%.
Earnings per share
The Group's Underlying Basic Earnings Per Share (3) was 6.1p (H1
2021: Loss of 2.7p). The Group's reported basic loss per share was
189.0p (H1 2021: loss of 2.2p).
2 Revenue is stated net of ceded reinsurance premiums earned on
business underwritten by the Group of GBP56.4m (H1 2021:
GBP63.3m)
3 Refer to the Alternative Performance Measures Glossary for
definition and explanation
4 Net finance costs exclude Cruise and Travel finance costs, net
fair value gains/(losses) on derivatives and IAS 19R pension
interest costs
Insurance
Retail Broking
The Retail Broking business provides tailored insurance products
and services, principally motor, home, private medical and travel
insurance.
Its role is to price the policies and source the lowest cost of
risk, whether through the panel of motor and home underwriters or
through solus arrangements for private medical and travel i
nsurance. The Group's in-house insurer, Acromas Insurance Company
Limited (AICL), sits on the motor and home panels and competes for
that business with other panel members on equal terms. AICL offers
its underwriting capacity on the home panel through a coinsurance
deal with a third party, and so the Group takes no underwriting
risk for that product. Even if underwritten by a third party, the
product is presented as a Saga product and the Group manages the
customer relationship.
6m to July 2022 6m to July 2021
Motor Home Other Motor Home Other
GBPm Broking Broking Broking Total Change Broking Broking Broking Total
--------------- --------- --------- --------- -------- ---------- --------- --------- --------- ----------
Gross written
premiums
(GWP):
Broked 45.3 71.9 61.6 178.8 1.7% 54.8 76.0 45.0 175.8
Underwritten 97.1 - 1.8 98.9 (7.5%) 105.0 - 1.9 106.9
--------- --------- --------- --------
GWP 142.4 71.9 63.4 277.7 (1.8%) 159.8 76.0 46.9 282.7
--------- --------- --------- -------- --------- --------- --------- ----------
Broker
revenue 19.9 11.9 21.1 52.9 0.4% 22.4 14.2 16.1 52.7
Instalment
revenue 3.2 1.5 - 4.7 - 3.3 1.4 - 4.7
Add-on
revenue 4.6 5.2 - 9.8 (14.8%) 6.0 5.5 - 11.5
Other revenue 13.6 8.6 0.3 22.5 (9.6%) 13.6 8.5 2.8 24.9
Written
revenue 41.3 27.2 21.4 89.9 (4.2%) 45.3 29.6 18.9 93.8
--------- --------- --------- -------- --------- --------- --------- ----------
Written gross
profit 39.5 27.2 23.0 89.7 (3.3%) 44.0 29.6 19.2 92.8
Marketing
expenses (6.6) (3.4) (2.4) (12.4) (5.1%) (7.9) (2.6) (1.3) (11.8)
--------- --------- --------- -------- --------- --------- --------- ----------
Written gross
profit
after
marketing
expenses 32.9 23.8 20.6 77.3 (4.6%) 36.1 27.0 17.9 81.0
Other
operating
expenses (19.0) (13.5) (7.8) (40.3) 2.9% (17.9) (13.6) (10.0) (41.5)
Written
Underlying
PBT (5) 13.9 10.3 12.8 37.0 (6.3%) 18.2 13.4 7.9 39.5
Written to
earned
adjustment (1.5) - - (1.5) 6.3% (1.6) - - (1.6)
Earned
Underlying
PBT 12.4 10.3 12.8 35.5 (6.3%) 16.6 13.4 7.9 37.9
--------- --------- --------- -------- --------- --------- --------- ----------
Policies in
force 840k 658k 189k 1,687k 3.1% 863k 681k 93k 1,637k
Policies sold 433k 333k 109k 875k (1.0%) 487k 348k 49k 884k
Third-party
panel
share (6) 27.7% (3.1ppt) 30.8%
Retail Broking Underlying Profit Before Tax(5) on a written
basis (which excludes the impact of the written to earned
adjustment) reduced to GBP37.0m from GBP39.5m, and on an earned
basis (which includes the impact of the written to earned
adjustment), reduced to GBP35.5m from GBP37.9m.
A key metric for the Retail Broking business is written gross
profit, after deducting marketing expenses, but before deducting
overheads. This reduced from GBP81.0m in the prior period to
GBP77.3m in the first half of the current financial year due to
reduced new business volumes and lower renewal margins on motor and
home business. The lower written gross profits after marketing
expenses in motor and home were partially offset by a GBP2.7m
improvement in Other Broking, mainly due to a recovery in sales of
travel insurance compared to the prior period.
For motor and home insurance, in terms of the total gross margin
after marketing expenses, new business profits increased by
GBP3.3m, while there was a GBP9.7m reduction in renewal
profits.
The changes in profitability of motor and home business are, in
part, attributable to the equalisation of pricing between new
business and renewals following the implementation of the FCA
market study from 1 January 2022. This led to an improvement in new
business margins, partially offset by a 52% and 21% reduction in
motor and home new business policies sold respectively compared to
the first half of last year. The reduction in renewal profits is
due to lower motor and home renewal margins, partially offset by a
7% increase in motor renewal policies sold.
The average gross margin per policy for motor and home combined,
calculated as written gross profit less marketing expenses, divided
by the number of policies sold, was GBP74.0 in the first half of
the year, compared with GBP75.6 in the prior period.
While the pricing implications of the FCA market study have
impacted Retail Broking earnings in the first half of the year, it
has also impacted some of the key metrics in the past six
months:
-- Motor and home policies in force decreased by 3.0% in the first half of the year.
-- Increase in customer retention at 83.2% across motor and home
from 80.6% in the prior period.
-- 361k three-year fixed-price policies were sold in the period;
47% of total motor and home policies incepting, with 38% of direct
new business taking the product.
-- Direct new business sales for motor and home were 50% of the
total, 8ppts lower than the prior period.
Written profit and gross margin per policy for motor and home
are stated after allowing for deferral of part of the revenues from
three-year fixed-price policies, which is then recognised in profit
or loss when the option to renew those policies at a predetermined
fixed price is exercised or lapses, recognising inflation risk
inherent in this product. As at 31 July 2022, GBP9.1m (H1 2021:
GBP9.6m) of income had been deferred in relation to three-year
fixed-price policies, GBP3.9m (H1 2021: GBP3.4m) of which related
to income written in the period to 31 July 2022.
As indicated in the Group's Trading Update on 5 July 2022, the
impact of the FCA market study and changes in policy mix, including
the introduction of a new standard motor product, are expected to
lead to a reduction in home and motor margins in 2023/24 to around
GBP60 per policy compared to GBP74 in the first half of the current
year.
Motor Broking
Gross written premiums decreased by 10.9% due to an 11.1%
decrease in core policies sold, partially offset by a 0.2% increase
in average premiums. Gross written premiums from business
underwritten by AICL decreased 7.5% to GBP97.1m (H1 2021:
GBP105.0m) due to an 8.2% decrease in core policies sold that were
underwritten by AICL, offset by a 0.7% increase in average
premiums.
Written gross profit minus marketing expenses was GBP32.9m (H1
2021: GBP36.1m), contributing GBP76.0/policy (H1 2021:
GBP73.1/policy). The decrease in written gross profits is mainly
due to lower renewal margins and a 52% reduction in new business
policies sold. This was partially offset by a 7% increase in
renewal policies and higher new business margins. The increase in
the margin per policy is due to a change in mix, with profits on
new business significantly lower than the margins on renewals due
to the costs of acquisition.
Home Broking
Gross written premiums decreased by 5.4% due to a 4.3% decrease
in core policies sold and a 1.1% decrease in average premiums.
Written gross profit minus marketing expenses was GBP23.8m (H1
2021: GBP27.0m), and on a per policy basis this was GBP71.5/policy
(H1 2021: GBP77.6/policy). The decrease is due to lower renewal
margins and a 21% decrease in new business policies sold. This was
partially offset by higher new business margins.
Other Broking
The Other Insurance Broking business primarily comprises private
medical insurance (PMI) and travel insurance.
Gross written premiums increased 35.2% as a result of higher
sales of travel insurance, with policies in force increasing from
37k in the prior period to 139k as a result of increased customer
confidence in the travel outlook and fewer restrictions on travel
than in the prior period.
Gross profits after marketing costs relating to travel insurance
products increased by GBP4.8m.
Sales for the PMI product were stable; however, gross profit
after marketing costs was GBP0.6m lower. This reduction is a result
of pricing changes that have reduced renewal margins, alongside a
lower profit share which is in line with expectations as claims
have risen post COVID-19 lockdowns.
(5) Refer to the Alternative Performance Measures Glossary for
definition and explanation
(6) Third-party underwriter's share of the motor panel for
policies
Underwriting
6m to July 2022 6m to July 2021 (restated)
Quota Quota
GBPm Reported share Underlying(8) Change Reported share Underlying
21F (8)
---------------- ------------ ----------- -------- ---------------- ------------ ----------- --------- ---------------
Net earned premium 24.2 (50.2) 74.4 (11.5%) 27.3 (56.8) 84.1
Other revenue 1.3 - 1.3 (55.2%) 10.3 7.4 2.9
----------- -------- ---------------- ----------- --------- ---------------
Revenue a 25.5 (50.2) 75.7 (13.0%) 37.6 (49.4) 87.0
Claims costs b (23.2) 47.0 (70.2) (9.5%) (22.9) 41.2 (64.1)
Reserve
releases c 16.1 (2.3) 18.4 2.2% 18.0 - 18.0
Other cost of
sales d (1.7) 6.3 (8.0) (2.6%) (1.9) 5.9 (7.8)
----------- -------- ---------------- ----------- --------- ---------------
e (8.8) 51.0 (59.8) (10.9%) (6.8) 47.1 (53.9)
----------- -------- ---------------- ----------- --------- ---------------
Gross profit 16.7 0.8 15.9 (52.0%) 30.8 (2.3) 33.1
Operating
expenses f (1.5) 3.7 (5.2) (4.0%) (1.6) 3.4 (5.0)
Investment return 1.2 (2.1) 3.3 (19.5%) 1.9 (2.2) 4.1
Quota share net
income/(cost) - (2.4) 2.4 318.2% - 1.1 (1.1)
----------- -------- ---------------- ----------- --------- ---------------
Underlying Profit Before
Tax (7) 16.4 - 16.4 (47.3%) 31.1 - 31.1
----------- -------- ---------------- ----------- --------- ---------------
Reported
loss ratio (b+c)/a 27.8% 68.4% (15.4ppt) 13.0% 53.0%
Expense ratio (d+f)/a 12.5% 17.4% (2.7ppt) 9.3% 14.7%
Reported COR (e+f)/a 40.4% 85.9% (18.2ppt) 22.3% 67.7%
Current year
COR (e+f-c)/a 103.5% 110.2% (21.8ppt) 70.2% 88.4%
Number of earned
policies 337k (5.3%) 356k
Policies in force
- Saga motor 599k (1.3%) 607k
The Group's in-house underwriter, AICL, plays an important role
on the motor panel, providing a significant source of competitively
priced underwriting. AICL also underwrites a portion of the home
panel, although all home underwriting risk is passed to third-party
insurance and reinsurance providers. AICL also has excess of loss
and funds-withheld quota share reinsurance arrangements in place
relating to its motor underwriting line of business, which transfer
a significant proportion of motor insurance risk to third-party
reinsurers.
Excluding the impact of the quota share reinsurance
arrangements(8) , net earned premiums decreased by 11.5% to
GBP74.4m (H1 2021: GBP84.1m) reflecting a 5.3% reduction in the
number of earned policies underwritten by AICL coupled with a 6.5%
decrease in average earned premiums. The reduction in the number of
earned policies was due to lower volumes on non-Saga panels.
Also excluding the impact of the quota share arrangement, AICL
saw an increase in the current year underlying combined operating
ratio (COR) to 110.2% (H1 2021: 88.4%) and the current year
reported COR to 103.5% (H1 2021: 70.2%) The first half of the prior
year benefited from significantly reduced motor claims frequency
due to customers driving fewer miles during the COVID-19 lockdown.
In the first half of the current year, motor attritional claims
experience and claims inflation have been in excess of pricing
assumptions for the current accident year. The 6 months to 31 July
2021 has been restated by netting down GBP8.7m between other
revenue and reserve releases in the quota share column, to ensure
the correct ratios are calculated in the reported column.
Prior year reserve releases of GBP18.4m (H1 2021: GBP18.0m) have
resulted in an underlying reported COR of 85.9% (H1 2021: 67.7%).
The Group retains an economic interest in motor reserve development
with reserve releases on other lines typically having limited net
impact on AICL profit. Reserve releases for the past two interim
periods can be analysed as follows:
6m to July 2022 6m to July 2021 (restated)
Quota Underlying Quota Underlying
GBPm Reported share (9) Change Reported share (9)
------------------ ---------- -------- ------------ -------- ---------- -------- ------------
Motor insurance 15.8 (2.3) 18.1 15.3 (2.7) 18.0
Home insurance - - - 0.1 0.1 -
Other insurance 0.3 - 0.3 2.6 2.6 -
2.2
16.1 (2.3) 18.4 % 18.0 - 18.0
---------- -------- ------------ ---------- -------- ------------
Reserve releases reflect continued favourable experience on
large bodily injury claims relating to prior accident years. In
addition, the final part of the additional component of reserve
margin for the increased uncertainty over claims development held
in respect of the 2020/21 accident year has been released in the
first half of this year.
While the Group remains prudently reserved and expects to see
ongoing reserve releases in the second half of 2022/23, these are
expected to be at a lower level than in 2021/22. Beyond 2022/23,
the Group is targeting a reported combined ratio, before the quota
share reinsurance arrangements(9) , of around 97%, in line with
previous expectations.
Excluding the impact of the quota share arrangement(9) , the
investment return decreased by GBP0.8m to GBP3.3m (H1 2021:
GBP4.1m) due to a reduced investment portfolio and lower
reinvestment yields.
(7) Refer to the Alternative Performance Measures Glossary for
definition and explanation
8 Underlying within Insurance Underwriting shows the commercial
position of the business by removing the impact of the proportional
line-item accounting of the quota share reinsurance
arrangements
(9) Underlying within Insurance Underwriting shows the
commercial position of the business by removing the impact of the
proportional line-item accounting of the quota share reinsurance
arrangements
Cruise and Travel
6m to July 2022 6m to July 2021
River Total River Total
Ocean Cruise Cruise Ocean Cruise Cruise
GBPm Cruise and Travel and Travel Change Cruise and Travel and Travel
---------------------- --------- ------------- ------------- ---------- --------- ------------- -------------
Revenue 75.7 60.5 136.2 1,262.0% 8.0 2.0 10.0
--------- ------------- ------------- --------- ------------- -------------
Gross profit/(loss) 11.9 8.9 20.8 214.3% (17.0) (1.2) (18.2)
Marketing expenses (4.7) (4.7) (9.4) (10.6%) (4.4) (4.1) (8.5)
Other operating
expenses (4.8) (8.6) (13.4) 10.7% (4.5) (10.5) (15.0)
Investment return - - - (100.0%) 0.1 - 0.1
Finance costs (9.3) (0.3) (9.6) - (9.6) - (9.6)
Underlying Loss
Before
Tax (10) (6.9) (4.7) (11.6) 77.3% (35.4) (15.8) (51.2)
--------- ------------- ------------- --------- ------------- -------------
Average revenue per
passenger (GBP) 4,731 2,241 3,167 26.7% 2,667 2,000 2,500
Ocean Cruise
passengers
('000) 16 16 433.3% 3 3
Ocean Cruise
passenger
days ('000) 231 231 904.3% 23 23
Load factor 66% 66% 10ppt 56% 56%
Per diem (GBP) 318 318 8.2% 294 294
River Cruise
passengers
('000) 6 6 100.0% - -
Travel passengers
('000) 21 21 2,000.0% 1 1
Ocean Cruise
In the first half of the year, Ocean Cruise returned to more
normal operating conditions and achieved a load factor of 66% (H1
2021: 56%) and a per diem of GBP318 (H1 2021: GBP294). This has
resulted in a significantly reduced Underlying Loss Before Tax(10)
from GBP35.4m to GBP6.9m, with the first half of the prior year
only including a month of Spirit of Discovery trading and a few
days of Spirit of Adventure trading, at a government-enforced load
factor restriction of 50% that was removed towards the end of July
2021.
There has been some adverse impact on a small number of cruises
for customers testing positive for COVID-19 prior to departure and
having to cancel, while the conflict in Ukraine has dampened
customer demand for departures to the Baltics and Black Sea,
resulting in late itinerary changes and further cancellations.
Excluding the impact of customer refunds on two cruises impacted by
COVID-19, the load factor would have been around 71%.
River Cruise and Travel
The River Cruise business has long-term leases in place for two
boutique river cruise ships, the Spirit of the Rhine and the Spirit
of the Danube, alongside other charters which are managed on an
annual basis. Although the business is now operating, both the
Omicron variant of COVID-19 and the conflict in Ukraine have
impacted the number of passengers travelling in the first half of
the current year due to continued customer caution in relation to
Central Europe. The River Cruise business did not operate in the
prior period due to the travel restrictions that were in place at
the time.
The Travel business, which includes both the Saga Holidays and
Titan brands, has seen much increased volumes compared to the prior
period, with passenger numbers increasing from 1k to 21k in the
current period. The recovery in volumes does, however, continue to
be impacted by a level of ongoing disruption from a variety of
factors, including operational challenges faced by airlines and
airports.
The recovery in passenger volumes has led to an improvement in
the Underlying Loss Before Tax(10) from GBP15.8m in H1 2021/22 to
GBP4.7m in H1 2022/23.
Towards the end of the first half, we've seen customer
cancellations returning closer to pre-pandemic levels and there are
multiple initiatives underway to return to growth. This includes a
phased launch of the newly combined Titan and Saga touring, stays
and tailor-made propositions for which we have recently launched of
a series of new products, with more to come over the next few
months.
The Group will report the River Cruise business as a component
of the Cruise business in its full year results for 2022/23.
1 (0) Refer to the Alternative Performance Measures Glossary for
definition and explanation
Forward Cruise and Travel sales
Ocean Cruise booked load factors for 2022/23 of 74% have been
impacted by the reduced load factor of 66% in the first half of the
year, but reflect an expected load factor for the second half of
around 84% as the business continues to recover. Booked per diems
of GBP319 are 6.0% higher than at the same point in 2021/22 as the
Group has reflected a significant increase in operating costs in
customer pricing.
Ocean Cruise load factors for 2023/24 are behind the same point
last year for 2022/23 by 18ppts. This is partly due to the release
of itineraries in the prior year being earlier than usual as we
emerged from COVID-19 lockdowns and partly due to the prior year
including bookings which had been postponed during the period of
COVID-19 suspension. We are still, however, expecting to be around
70% revenue booked for 2023/24 by the end of the current financial
year which would be in line with 2022/23. Per diems for 2023/24 are
5.9% higher than the same point last year for 2022/23. On a
like-for-like basis, at the point when the load factor for the
prior year was 42%, per diems were GBP290, resulting in the current
per diem of GBP325 being, comparably, 12.1% higher.
For Ocean Cruise, comparison with pre-pandemic bookings and per
diems in 2019/20 is not meaningful since the Group at the time was
only part way through the Cruise Transformation programme.
River Cruise and Travel bookings for 2022/23 are ahead of the
same point last year for 2021/22 by 760% and 422% for revenue and
passengers respectively. This is due to operating mainly in the
second half of last year, compared to operating in full across all
months in the current year.
River Cruise and Travel bookings for 2023/24 are below the same
point last year for 2022/23 by 32% and 41% for revenue and
passengers respectively. This is partly due to the 2023/24 season
being released later in the year than was the case last year for
2022/23 given the ongoing disruption in the travel industry.
Current year departures Next year departures
---------------------------------------- ---------------------------------------
18 September Change 19 September 18 Change 19 September
2022 2021 September 2021
2022
Ocean Cruise revenue
(GBPm) 162.5 90.3% 85.4 98.8 (26.0%) 133.5
Ocean Cruise load factor 74% 4ppt 70% 42% (18ppt) 60%
Ocean Cruise per diem
(GBP) 319 6.0% 301 325 5.9% 307
River Cruise and Travel
revenue (GBPm) 137.6 760.0% 16.0 76.0 (31.5%) 111.0
River Cruise and Travel
passengers ('000) 59.0 422.1% 11.3 24.7 (41.1%) 41.9
Other Businesses and Central Costs
6m to July 2022 6m to July 2021
Other Central Other Central
GBPm Businesses Costs Total Change Businesses Costs Total
--------------------------- ------------- --------- -------- --------- ------------- --------- --------
Revenue:
Saga Money 4.1 - 4.1 46.4% 2.8 - 2.8
Media and printing 5.1 - 5.1 4.1% 4.9 - 4.9
Other - 0.8 0.8 - - 0.8 0.8
------------- --------- -------- ------------- --------- --------
Total revenue 9.2 0.8 10.0 17.6% 7.7 0.8 8.5
------------- --------- -------- ------------- --------- --------
Gross profit 4.2 1.6 5.8 26.1% 2.8 1.8 4.6
Operating expenses (3.8) (17.2) (21.0) (44.8%) (1.7) (12.8) (14.5)
Investment income - 0.2 0.2 100.0% - - -
IAS 19R pension charge - - - 100.0% - (1.2) (1.2)
Net finance costs - (11.3) (11.3) (18.9%) - (9.5) (9.5)
Underlying Profit/(Loss)
Before Tax (11) 0.4 (26.7) (26.3) (27.7%) 1.1 (21.7) (20.6)
------------- --------- -------- ------------- --------- --------
The Group's Other Businesses include Saga Money, Saga Media and
MetroMail, a mailing and printing business.
Underlying Profit Before Tax(11) for Other Businesses combined
has decreased by GBP0.7m compared to the prior period, partly due
to an investment in marketing in the Saga Money business of GBP1.6m
above the prior period, which has been partially offset by a
GBP1.3m increase in revenue.
Central operating expenses increased to GBP17.2m (H1 2021:
GBP12.8m). Administration costs, adjusted for transfers to local
business units, were flat on the prior period, but net costs
increased by GBP4.4m due to lower Group recharges to the business
units. The IAS 19R pension charge has ceased following the closure
of the defined benefit pension scheme in the second half of the
prior year.
Net finance costs in the year were GBP11.3m (H1 2021: GBP9.5m),
which excludes finance costs that are included within the Cruise
and Travel businesses of GBP9.6m (H1 2021: GBP9.6m). The increase
of 18.9% was due to the higher bond interest costs following the
completion of the new bond issue in July 2021. This was partially
offset by a reduction in debt issue costs in the first half of this
year compared with the first half of the prior year.
1 (1) Refer to the Alternative Performance Measures Glossary for
definition and explanation
Cash flow and liquidity
Available Operating Cash Flow (12)
6m to Change 6m to
July July
GBPm 2022 2021
-------------------------------------------------------- -------- -------- --------
Retail Broking Trading EBITDA 38.8 (5%) 40.9
Other Businesses and Central Costs Trading EBITDA (12.2) (85%) (6.6)
Trading EBITDA from unrestricted businesses(12,)
(13) 26.6 (22%) 34.3
Dividends paid by Underwriting business 15.0 25% 12.0
Working capital and non-cash items (14) (3.5) (128%) 12.5
Capital expenditure funded with Available Cash (6.9) (3%) (6.7)
Available Operating Cash Flow before cash injections
to Cruise and Travel operations(12) 31.2 (40%) 52.1
Cash injection into River Cruise and Travel
businesses (12.6) 37% (19.9)
Ocean Cruise Available Operating Cash Flow 12.9 33% 9.7
Available Operating Cash Flow(12) 31.5 (25%) 41.9
Restructuring costs paid (0.7) (40%) (0.5)
Interest and financing costs (18.8) 17% (22.7)
Business and property (acquisitions)/disposals (0.9) (120%) 4.5
Tax receipts 2.4 167% 0.9
Other payments (5.8) (38%) (4.2)
Change in cash flow from operations 7.7 (61%) 19.9
Change in bond debt - (100%) 150.0
Change in bank debt - (100%) (70.0)
Change in ship debt (15.3) (100%) -
Cash at 1 February 186.6 148% 75.4
Available Cash at 31 July(12) 179.0 2% 175.3
-------- --------
Available Operating Cash Flow(12) is made up of the cash flows
of unrestricted businesses and the dividends paid by restricted
companies, less any cash injections to those businesses.
Unrestricted businesses include Retail Broking (excluding specific
ring-fenced funds to satisfy FCA regulatory requirements), Other
Businesses and Central Costs, and the Group's Ocean Cruise
business. Restricted businesses include AICL, River Cruise and
Travel.
Excluding cash transfers to and from the Cruise and Travel
businesses, the Group continued to be cash generative in the
period, with an Available Operating Cash Flow(12) of GBP31.2m
compared with GBP52.1m in the prior period. Trading EBITDA(12) for
unrestricted businesses reduced by GBP7.7m, mainly due to a
reduction in Retail Broking profitability and lower Group recharges
in the Other Businesses and Central Costs segment. There was also a
decrease in working capital from a GBP12.5m inflow to GBP3.5m
outflow, mainly relating to the Retail Broking segment and a
GBP3.0m increase in dividends paid by AICL.
For River Cruise and Travel, the Group provided GBP12.6m of cash
to the business to cover trading cash flows in the current year.
This is a reduction of GBP7.3m when compared with the GBP19.9m
funded in the first half of the prior year. The Group continues to
provide additional liquidity into the River Cruise and Travel
businesses, although at a lower level, to meet supplier and other
trading payments as both businesses operate under a ring-fenced
trust arrangement and so cannot access customer money from the
trust until they have returned from their river cruise or holiday.
At 31 July 2022, the ring-fenced businesses held cash of GBP68.3m,
of which GBP60.2m is held in trust. The Group must hold a minimum
of GBP5.6m of cash outside of trust within the ring-fenced
businesses as previously agreed with The Civil Aviation
Authority.
The Ocean Cruise business reported an operating cash inflow of
GBP12.9m (H1 2021: GBP9.7m), with an increase in advance customer
receipts of GBP4.0m (H1 2021: GBP25.1m), and net trading income of
GBP10.2m (H1 2021: net trading costs of GBP13.4m), partially offset
by capital expenditure of GBP1.3m (H1 2021: GBP2.0m). Net of
interest costs of GBP7.3m (H1 2021: GBP7.6m), the Ocean Cruise
business reported net cash inflow before any capital repayments on
the ship debt of GBP5.3m for the first half of 2022/23 compared to
a net inflow of GBP2.1m in the first of half of the prior year. The
improvement compared with the prior period is a result of the Ocean
Cruise business operating throughout the first half of the current
year whereas it only recommenced trading in the latter part of the
first half of the prior year.
As a result of a reduction in Retail Broking cash generation in
both Trading EBITDA and working capital, partially offset by a
reduction in cash injections to the Cruise and Travel businesses,
Available Operating Cash Flow(12) decreased from an inflow of
GBP41.9m in the prior period to GBP31.5m in the current period.
Other cash flow movements
Interest and financing costs were higher in the first half of
the prior year due to the debt issue costs relating to the fees
associated with the new bond issue, the tender of the existing bond
and the amendments to the revolving credit facility (RCF). This has
been partially offset by higher interest costs on the new bond in
the first half of the current year.
In the first half of the current year, business and property
acquisitions and disposals relate to the cash to fund the purchase
of The Big Window Consulting Limited. The first half of the prior
year included cash received from the sale of property, net of
related sale costs and expenses.
The Group continued to make the agreed payments to the defined
benefit pension fund as part of the deficit recovery plan of
GBP5.8m (H1 2021: GBP4.2m). These are included within other
payments.
In the first half of the current year, the Group restarted
capital repayments against its ship debt facilities. In the first
half of the prior year, the Group issued a five-year GBP250m
fixed-rate unsecured bond. The proceeds of the bond were used to
fund the settlement of GBP100m of the existing bond and to repay in
full the GBP70m term loan.
1 (2) Refer to the Alternative Performance Measures Glossary for
definition and explanation
1 (3) Trading EBITDA includes the line-item impact of IFRS 16
with the corresponding impact to net finance costs included in net
cash flows used in financing activities
1 (4) Adjusted to exclude IAS 19R pension current service
costs
Reconciliation between operating and reported metrics
Available Operating Cash Flow(15) reconciles to net cash flows
from operating activities as follows:
6m to 6m to
July July
GBPm 2022 2021
------------------------------------------------------- -------- -------
Net cash flow from operating activities (reported) (13.3) 36.5
Exclude cash impact of:
Trading of restricted divisions 22.0 (3.1)
Non-trading costs 6.5 4.2
Interest paid 19.9 14.9
Tax paid 0.9 4.0
49.3 20.0
Cash released paid to restricted divisions 2.4 (7.9)
Include capital expenditure funded from Available
Cash(15) (6.9) (6.7)
Available Operating Cash Flow(15) 31.5 41.9
-------- -------
Trading EBITDA(15) reconciles to Underlying Profit/(Loss) Before
Tax(15) as follows:
6m to 6m to
July July
GBPm 2022 Change 2021
---------------------------------------------------- -------- -------- --------
Retail Broking Trading EBITDA 38.8 40.9
Underwriting Trading EBITDA 16.5 31.3
Ocean Cruise Trading EBITDA 12.5 (21.4)
River Cruise and Travel Trading EBITDA (4.3) (14.9)
Other Businesses and Central Costs Trading
EBITDA (12.2) (6.6)
Trading EBITDA(15) 51.3 75.1% 29.3
Depreciation and amortisation (excluding acquired
intangibles) (20.7) (11.8)
Pension charge IAS 19R - (1.2)
Titan River Cruise commitment costs 4.3 -
Net finance costs (including Ocean Cruise) (20.9) (19.1)
Underlying Profit/(Loss) Before Tax(15) 14.0 600.0% (2.8)
-------- --------
Adjusted Trading EBITDA(15) is used in the Group's leverage
calculation and is calculated as follows:
6m to 6m to
July July
GBPm 2022 Change 2021
---------------------------------------------------- -------- --------- --------
Trading EBITDA for 12m to 31 January 2022 65.2 78.7
Less Trading EBITDA for 6m to 31 July 2021 (29.3) (45.1)
Add Trading EBITDA for 6m to 31 July 2022 51.3 29.3
Less Trading EBITDA of disposed companies not
disclosed below Underlying Profit Before Tax(15) - (0.2)
-------- --------
Trading EBITDA(15) 87.2 39.1% 62.7
Titan River Cruise commitment costs 4.3 -
Impact of IFRS 16 'Leases' (7.0) (2.3)
Spirit of Discovery and Spirit of Adventure
Trading EBITD A (16) (21.2) 33.7
Adjusted Trading EBITDA(15) 63.3 (32.7%) 94.1
-------- --------
1 (5) Refer to the Alternative Performance Measures Glossary
definition and explanation
1 (6) EBITDA includes central Ocean Cruise overheads
Statement of financial position
Goodwill
During the first half of the current year, the Group's new
business sales of motor and home insurance have been significantly
lower than expected as a result of competitive market conditions
and a challenging environment following the implementation of the
FCA market study reforms from 1 January 2022. In order to remain
competitive and to restore the business to policy growth in future
years, the Group has now launched a new standard motor product.
This product, and other actions taken to improve competitiveness,
are expected to lead to materially lower margins per policy in
future years, and lower overall profit before tax, compared to
prior assumptions. Since the lower expected future cash flows
represent a potential indicator of impairment, the Group has
conducted an impairment review of the GBP718.6m goodwill asset
relating to the Insurance business that was included on the
statement of financial position at 31 January 2022.
The Group's revised five-year financial forecasts incorporate
the modelled impact of the changes in the market environment,
including also an expected reduction in margins from a switch to
more standard products and lower sales of more feature-rich
policies. Further stress tests have also been considered including
the continuation of the current competitive environment for an
extended period and further downsides compared to revised base case
assumptions. This has resulted in management taking the decision to
impair insurance goodwill by GBP269.0m in the first half of
2022/23. Consistent with the approach taken in prior years, this
impairment is not included within Underlying Profit Before Tax(17)
.
Carrying value of ocean cruise ships
At 31 July 2022, the carrying value of the Group's ocean cruise
ships totalled GBP612.5m (31 January 2022: GBP621.3m). Due to the
continued challenging operating environment in the first half of
the year for the Ocean Cruise business, the Group carried out an
impairment review of both of its vessels. The results of the review
showed that there is headroom in both the central and stress test
scenarios for both Spirit of Discovery and Spirit of Adventure ,
with no impairment required.
Investment portfolio
The majority of the Group's financial assets are held by its
Underwriting entity and represent premium income received and
invested to settle claims and to meet regulatory capital
requirements.
The amount held in invested funds decreased by GBP37.4m to
GBP292.8m (31 January 2022: GBP330.2m), partly due to payment of
GBP15.0m of dividends from AICL in the period. At 31 July 2022, 98%
of the financial assets held by the Group were invested with
counterparties with a risk rating of BBB or above, which is in line
with the prior period and reflects the relatively stable credit
risk rating of the Group's investment holdings.
Credit risk rating
At 31 July 2022 AAA AA A BBB Unrated Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ------ ------ ------ --------- -------
Underwriting investment
portfolio:
Debt securities 24.4 80.0 63.6 91.9 - 259.9
Money market funds 27.1 - - - - 27.1
Loan funds - - - - 5.8 5.8
------ ------ ------ ------ --------- -------
Total invested funds 51.5 80.0 63.6 91.9 5.8 292.8
Derivative assets - - 4.4 - 0.8 5.2
Total financial assets 51.5 80.0 68.0 91.9 6.6 298.0
------ ------ ------ ------ --------- -------
Credit risk rating
At 31 January 2022 AAA AA A BBB Unrated Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ------ ------ ------ --------- -------
Underwriting investment
portfolio:
Deposits with financial
institutions - - 14.0 - - 14.0
Debt securities 20.2 94.4 68.0 98.2 - 280.8
Money market funds 29.2 - - - - 29.2
Loan funds - - - - 6.2 6.2
------ ------ ------ ------ --------- -------
Total invested funds 49.4 94.4 82.0 98.2 6.2 330.2
Derivative assets - - 1.8 0.1 - 1.9
Total financial assets 49.4 94.4 83.8 98.3 6.2 332.1
------ ------ ------ ------ --------- -------
1 (7) Refer to the Alternative Performance Measures Glossary for
definition and explanation
Insurance reserves
Analysis of insurance contract liabilities at 31 July 2022 and
31 January 2022 is as follows:
At 31 July 2022 At 31 January 2022 (restated)
Reinsurance
assets Reinsurance
GBPm Gross (18) Net Gross assets(18) Net
--------------------------- ------- ------------- ------- --------- -------------- --------
Reported claims 226.5 (62.0) 164.5 227.4 (55.8) 171.6
Incurred but not
reported (19) 48.4 (3.7) 44.7 57.5 (3.3) 54.2
Claims handling
provision 7.4 - 7.4 7.9 - 7.9
------- ------------- ------- --------- -------------- --------
Total claims outstanding 282.3 (65.7) 216.6 292.8 (59.1) 233.7
Unearned premiums 93.2 (4.1) 89.1 93.9 (6.3) 87.6
Total 375.5 (69.8) 305.7 386.7 (65.4) 321.3
------- ------------- ------- --------- -------------- --------
The Group's total insurance contract liabilities, net of
reinsurance assets, have decreased by GBP15.6m in the period to 31
July 2022 from the previous year end, primarily due to a GBP7.1m
reduction in reported net claims reserves, coupled with a GBP9.5m
decrease in net incurred but not reported claims reserves. The
reduction in net incurred but not reported claims reserves is due
to reserve releases that reflect continued favourable experience on
large bodily injury claims relating to prior accident years. In
addition, the final part of the additional component of reserve
margin held in respect of the 2020/21 accident year has been
released in the current year. The 31 January 2022 position has been
restated due to an incorrect classification between reported net
claims and net incurred but not reported of GBP16.1m.
Financing
At 31 July 2022, the Group's net debt was GBP721.3m, which is
GBP7.7m lower than at the beginning of the financial year. In the
first half, the RCF agreement was simplified by removing certain
clauses that were introduced during the pandemic and by reducing
the aggregate facility cost. The amendments to the RCF include:
-- removal of the GBP40m minimum free liquidity requirement ;
-- removal of the condition that the facility is terminated on 1
March 2024, should the 2024 bond not be repaid by that date ;
and
-- reduction of the RCF commitment from GBP100m to GBP50m.
The RCF termination date is 31 May 2025 and the facility is
expected to remain undrawn.
Excluding the impact of debt and earnings relating to the ocean
cruise ships, the Group's leverage ratio was 3.6x as at 31 July
2022 (31 January 2022: 3.0x), within the 3.75x covenant applicable
to the Group's RCF.
GBPm Maturity 31 July 31 January
date (20) 2022 2022
-------------------------------- ------------- --------- ------------
3.375% Corporate bond May 2024 150.0 150.0
5.5% Corporate bond July 2026 250.0 250.0
Revolving credit facility May 2025 - -
(21)
Spirit of Discovery ship loan June 2031 219.5 234.8
September
Spirit of Adventure ship loan 2032 280.8 280.8
Less Available Cash(22,23) (179.0) (186.6)
Net debt 721.3 729.0
--------- ------------
The Group resumed repayments on its ship debt facilities with a
repayment made on its Spirit of Discovery ship facility in June
2022. Further repayments are scheduled to be made in current
financial year on the Spirit of Adventure ship facility and Spirit
of Discovery ship facility in September 2022 and December 2022
respectively.
Adjusted Net Debt(22) is used in the Group's leverage
calculation and reconciles to net debt as follows:
GBPm 31 July 31 January
2022 2022
------------------------------------------ --------- ------------
Net debt 721.3 729.0
Exclude ship loans (500.3) (515.6)
Exclude Ocean Cruise Available Cash(22) 3.8 4.7
Adjusted Net Debt (22) 224.8 218.1
--------- ------------
Pensions
The Group's defined benefit pension scheme surplus, as measured
on an IAS 19R basis increased by GBP16.3m to a GBP17.4m surplus at
31 July 2022 (GBP1.1m surplus as at 31 January 2022).
GBPm 31 July 31 January
2022 2022
---------------------------------------------- --------- ------------
Fair value of scheme assets 331.9 412.0
Present value of defined benefit obligation (314.5) (410.9)
Defined benefit scheme surplus 17.4 1.1
--------- ------------
The present value of defined benefit obligations decreased by
GBP96.4m to GBP314.5m, primarily due to a 110bps increase in the
discount rate based on high-quality bond yields, coupled with a
30bps decrease in the long term RPI inflation assumption. The fair
value of scheme assets decreased by GBP80.1m to GBP331.9m. The
decrease in asset values has been largely driven by the increase in
interest rates in the first half of the year. This has been
partially offset by a GBP5.8m deficit funding contribution in
February 2022.
Net assets
Since 31 January 2022, total assets have decreased by GBP207.0m
and total liabilities have increased by GBP49.2m, resulting in an
overall decrease in net assets of GBP256.2m.
The decrease in total assets is primarily due to a reduction in
goodwill of GBP269.0m following the impairment to the Insurance CGU
and a decrease in financial assets of GBP34.1m following a
reduction to the Underwriting investment portfolio, partly to fund
GBP15.0m of dividends from AICL. This has been partially offset by
an increase in trust accounts of GBP36.8m due to the ramp up in
River Cruise and Travel operations, an increase in right-of-use
assets of GBP41.5m following delivery of the Spirit of the Danube
river cruise ship and an increased surplus of GBP16.3m in the
defined benefit scheme.
The increase in total liabilities reflects a GBP28.9m increase
in financial liabilities, which was due to a GBP42.2m increase in
lease liabilities following the delivery of the Spirit of the
Danube river cruise ship, partially offset by a GBP15.3m capital
repayment on the Spirit of Discovery ship facility. There was also
an increase in contract liabilities of GBP32.4m following the ramp
up of Cruise and Travel operations in the period, partially offset
by a GBP11.2m reduction in insurance contract liabilities driven by
reserve releases in the first half.
1 (8) Excludes funds-withheld quota share arrangement
(19) Includes amounts for reported claims that are expected to
become periodical payment orders
2 (0) Maturity date represents the date that the principal must
be repaid, other than the ship loans, which are repaid in
instalments over the next
10 years
2 (1) At 31 January 2022, t he terms also included a requirement
to repay the RCF on 1 March 2024 if the remaining GBP150m of the
3.375% bond notes had not been redeemed prior to this date. This
term has now been removed and does not apply at 31 July 2022
2 (2) Refer to the Alternative Performance Measures Glossary for
definition and explanation
2 (3) Refer to Note 13 of the financial statements for
information as to how this reconciles to a statutory measure of
cash
Going concern
The Group's Cruise and Travel business continues to recover from
the COVID-19 pandemic, and although there are operational
challenges from the current economic environment and the ongoing
disruption experienced by many airlines, we expect to see further
improvement in the second half of the year, and into 2023/24.
For the Insurance business, motor and home broking markets have
experienced a period of turbulence as pricing has adjusted to
reflect the impact of the new FCA reform of general insurance
pricing practices, which came into force on 1 January 2022, but the
business is expected to remain profitable and cash generative.
While the Group remains highly indebted, the return to an
Underlying Profit Before Tax(24) for 2022/23, with continued
improvement in future years, will enable net debt to be reduced
over time.
In the latest round of long-term financial forecasting, the
Group updated its modelling assumptions to reflect:
-- In the base case, which represents the Group's central plan
and best estimate outlook, Ocean Cruise expects to return to
broadly normal operations after 31 July 2022. The River Cruise and
Travel businesses also continue to recover and are expected to
return to profit from 2023/24, with a lower overhead cost base
following completion of the restructuring plans. Insurance plans
include the latest outlook of the Retail Broking business in
relation to competitive pricing pressures observed over the first
half of the year, which are expected to have an adverse impact on
profit before tax for 2022/23 and 2023/24.
-- In the reasonable worst-case (RWC), which represents the
Group's severe, but plausible, downside scenario, Ocean Cruise
assumes reduced load factors for 2023/24, with normal operations
thereafter. The River Cruise and Travel businesses see a slower
recovery from 2023/24 onwards than in the base case. Insurance is
assumed to be impacted by a number of downside risks, including a
more conservative outlook for the Retail Broking business compared
with base case assumptions.
The Russian invasion of Ukraine on 24 February 2022 has created
heightened global economic and political uncertainty and
contributed to a significant short-term increase in inflation. Over
the short-term, the Group's exposure to potential downsides is
limited to short-term reductions in Cruise and Travel bookings and
itinerary changes, increasing inflationary pressures on both
product margins and consumer spending behaviours caused by rising
commodity prices, supply chain disruption and foreign exchange
volatility. These risks have been factored into the Group's latest
forecasts, and whilst the Directors continue to monitor the impacts
on the business, they do not believe they impact the going concern
status of the Group.
In both the base case and RWC scenarios modelled, the Group
expects to operate within covenants in the ship debt and to
maintain sufficient liquidity until at least March 2024, with no
reliance placed on the availability of funds under the RCF. March
2024 is 18 months from the date of signing the interim financial
statements, which more than accommodates the minimum 12-month
assessment period for going concern. The Directors therefore have a
reasonable expectation that the Group has sufficient funds to
continue trading for at least the next 12 months, and accordingly
have prepared the financial statements to 31 July 2022 on a going
concern basis.
Dividends and financial priorities for 2022/23
Dividends
Given the Group's priority of reducing net debt, the Board of
Directors does not recommend payment of an interim dividend for the
2022/23 financial year, nor would this currently be permissible
under financing arrangements due to the leverage ratio being above
3.0x.
Financial priorities for 2022/23
The Group's financial priorities for the current year are to
reduce net debt, build on the already positive load factor and per
diems in Ocean Cruise, complete the restructure of the Travel
business, and to continue progress in execution of its Insurance
strategy. Based on current conditions and a recovery in the Cruise
and Travel businesses in the second half of the current year, the
Group expects to generate an Underlying Profit Before Tax(24) for
the year of around GBP 20-30m.
2 (4) Refer to the Alternative Performance Measures Glossary for
definition and explanation
Principal risks and uncertainties
The Group is subject to a number of risks and uncertainties as
part of its activities. The Board regularly considers these and
seeks to ensure that appropriate processes are in place to manage,
monitor and mitigate these risks. The Board included full details
of the risk and uncertainties pertinent to the Group on pages 53
and 54 of its Annual Report and Accounts for the year ended 31
January 2022, available at www.corporate.saga.co.uk.
Since the publication of the latest Annual Report and Accounts,
the Board have reviewed and updated the list of principal risks and
uncertainties (PRUs) and the outlook for each. By exception, the
following changes have been made:
Principal risks and uncertainties for which the outlook has
worsened
PRU Reason for change Mitigations
in outlook
Regulatory Increasing risk which Preparation in advance of consumer duty
landscape reflects recent incidents implementation, the embedding of 1(st)
line control self-assessment testing.
Detailed incident investigation and
root cause analysis.
---------------------------- --------------------------------------------
Insurance Increasing risk due Implementation of technical claims review,
risk to claims supply chain the use of coinsurance and reinsurance
constraints and inflation and investment in advanced analytics
risk across pricing and claims.
---------------------------- --------------------------------------------
Breach of Increasing risk due Decommissioning of key legacy systems
Data Protection to project work still alongside greater levels of testing
Act 2018/UK to be completed and completion of key projects.
GDPR
---------------------------- --------------------------------------------
Principal risks and uncertainties for which the outlook has
improved
PRU Reason for change in outlook
Capability Recent recruitment of senior appointments to accelerate
business growth and acceleration of learning strategy, including
roll-out of leadership training.
-------------------------------------------------------------------
Delivery Reflects delivery of 2(nd) and 3(rd) line assurance plan,
and execution enhanced change governance, FCA market study changes and
an external strategy review within Insurance.
-------------------------------------------------------------------
Saga brand Reflects status of brand advertising campaign with metrics
and relevance at, or above, benchmark.
-------------------------------------------------------------------
Condensed consolidated income statement
for the period ended 31 July 2022
Unaudited Unaudited
6m to 6m to 12m to
Note Jul 2022 Jul 2021 Jan 2022
GBPm GBPm GBPm
Gross earned premiums 3 96.0 104.2 203.0
Earned premiums ceded to reinsurers 3 (56.4) (63.3) (123.8)
----------- ----------- ------------
Net earned premiums 3 39.6 40.9 79.2
Other revenue 3 218.7 115.5 298.0
----------- ----------- ------------
Total revenue 3 258.3 156.4 377.2
----------- ----------- ------------
Gross claims incurred (61.5) (52.0) (94.6)
Reinsurers' share of claims incurred 54.2 37.5 63.3
----------- ----------- ------------
Net claims incurred (7.3) (14.5) (31.3)
Other cost of sales (117.3) (34.1) (112.0)
----------- ----------- ------------
Cost of sales 3 (124.6) (48.6) (143.3)
----------- ----------- ------------
Gross profit 133.7 107.8 233.9
Administrative and selling expenses (100.1) (92.3) (212.8)
Impairment of assets (269.5) - (11.2)
Gain on lease modification - - 0.3
Net profit on disposal of assets
held for sale 18 - 7.2 7.2
Net profit/(loss) on disposal of
property, plant and equipment,
right-of-use assets and software 0.1 (0.1) (0.4)
Net investment (expense)/income (0.2) 0.4 0.3
Finance costs (22.4) (22.3) (40.8)
Finance income 0.9 - -
(Loss)/profit before tax (257.5) 0.7 (23.5)
Tax expense 4 (5.6) (3.8) (4.5)
----------- ----------- ------------
Loss for the period (263.1) (3.1) (28.0)
=========== =========== ============
Attributable to:
Equity holders of the parent (263.1) (3.1) (28.0)
=========== =========== ============
Loss per share:
Basic 6 (189.0p) (2.2p) (20.1p)
Diluted 6 (189.0p) (2.2p) (20.1p)
Condensed consolidated statement of comprehensive income
for the period ended 31 July 2022
Unaudited Unaudited
6m to 6m to 12m to
Jul 2022 Jul 2021 Jan 2022
GBPm GBPm GBPm
Loss for the period (263.1) (3.1) (28.0)
Other comprehensive income
Other comprehensive income to be reclassified
to the income statement in subsequent periods
Net gains/(losses) on hedging instruments
during the period 5.4 (1.4) 2.1
Recycling of previous (gains)/losses on
matured hedges to income statement (2.3) 1.2 (1.2)
Total net gains/(losses) on cash flow hedges 3.1 (0.2) 0.9
Associated tax effect (0.7) - 0.3
Net losses on fair value financial assets
during the period (6.9) (2.5) (10.3)
Recycling of previous losses on fair value
financial assets to income statement during
the period - - 0.1
----------- ----------- ------------
Total net losses on fair value financial
assets during the period (6.9) (2.5) (10.2)
Associated tax effect 1.8 0.2 2.1
Total other comprehensive losses with recycling
to income statement (2.7) (2.5) (6.9)
Other comprehensive income not to be reclassified
to the income statement in subsequent periods
Re-measurement gains on defined benefit
plans 10.5 14.1 4.8
Associated tax effect (2.7) (3.5) (1.2)
----------- ----------- ------------
Total other comprehensive gains without
recycling to income statement 7.8 10.6 3.6
Total other comprehensive gains/(losses) 5.1 8.1 (3.3)
----------- ----------- ------------
Total comprehensive (losses)/income for
the period (258.0) 5.0 (31.3)
=========== =========== ============
Attributable to:
Equity holders of the parent (258.0) 5.0 (31.3)
========= ===== ========
Condensed consolidated statement of financial position
as at 31 July 2022
Unaudited Unaudited
As at As at As at
Note Jul 2022 Jul 2021 Jan 2022
Assets GBPm GBPm GBPm
Goodwill 8 449.6 718.6 718.6
Intangible assets 9 46.5 58.0 47.1
Retirement benefit scheme surplus 14 17.4 12.8 1.1
Property, plant and equipment 10 636.5 653.3 646.5
Right-of-use assets 11 77.5 2.8 36.0
Financial assets 12 298.0 363.1 332.1
Current tax assets 3.3 3.8 4.3
Deferred tax assets 4 11.6 12.9 12.3
Reinsurance assets 15 69.8 72.9 65.4
Inventories 7.6 4.3 6.3
Trade and other receivables 192.7 175.2 169.5
Trust accounts 60.2 23.6 23.4
Cash and short-term deposits 13 211.8 203.2 226.9
Assets held for sale 18 12.9 16.9 12.9
Total assets 2,095.4 2,321.4 2,302.4
=========== ============ ============
Liabilities
Gross insurance contract liabilities 15 375.5 421.3 386.7
Provisions 6.2 10.9 6.7
Financial liabilities 12 965.1 904.4 936.2
Deferred tax liabilities 4 10.2 10.0 5.6
Contract liabilities 147.0 105.7 114.6
Trade and other payables 194.7 181.7 199.7
Total liabilities 1,698.7 1,634.0 1,649.5
----------- ------------ ------------
Equity
Issued capital 21.1 21.0 21.1
Share premium 648.3 648.3 648.3
Retained (deficit)/earnings (277.7) 8.2 (22.4)
Share-based payment reserve 9.2 7.0 7.4
Fair value reserve (5.9) 5.0 (0.8)
Hedging reserve 1.7 (2.1) (0.7)
----------- ------------
Total equity 396.7 687.4 652.9
----------- ------------ ------------
Total equity and liabilities 2,095.4 2,321.4 2,302.4
=========== ============ ============
Condensed consolidated statement of changes in equity
for the period ended 31 July 2022
Attributable to the equity holders of the parent
--------------------------------------------------------------------------------------------
Retained Share-based
Issued Share (deficit)/ payment Fair value Hedging Total
capital premium earnings reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Unaudited
At 1 February 2022 21.1 648.3 (22.4) 7.4 (0.8) (0.7) 652.9
Loss for the period - - (263.1) - - - (263.1)
Other comprehensive
income/(losses)
excluding recycling - - 7.8 - (5.1) 4.2 6.9
Recycling of previous
gains
to income statement - - - - - (1.8) (1.8)
Total comprehensive
(losses)/income - - (255.3) - (5.1) 2.4 (258.0)
Share-based payment
charge - - - 1.8 - - 1.8
At 31 July 2022 21.1 648.3 (277.7) 9.2 (5.9) 1.7 396.7
=========== ========== ============= ============= ============ ========== =========
Unaudited
At 1 February 2021 21.0 648.3 0.2 5.8 7.3 (1.9) 680.7
Loss for the period - - (3.1) - - - (3.1)
Other comprehensive
income/(losses)
excluding recycling - - 10.6 - (2.3) (1.1) 7.2
Recycling of previous
losses
to income statement - - - - - 0.9 0.9
Total comprehensive
income/(losses) - - 7.5 - (2.3) (0.2) 5.0
Share-based payment
charge - - - 1.7 - - 1.7
Exercise of share
options - - 0.5 (0.5) - - -
At 31 July 2021 21.0 648.3 8.2 7.0 5.0 (2.1) 687.4
=========== ========== ============= ============= ============ ========== =========
At 1 February 2021 21.0 648.3 0.2 5.8 7.3 (1.9) 680.7
Loss for the year - - (28.0) - - - (28.0)
Other comprehensive
income/(losses)
excluding recycling - - 3.6 - (8.2) 3.3 (1.3)
Recycling of previous
losses/(gains)
to income statement - - - - 0.1 (2.1) (2.0)
----------- ---------- ------------- ------------- ------------ ---------- ---------
Total comprehensive
(losses)/income - - (24.4) - (8.1) 1.2 (31.3)
Issue of share capital 0.1 - - - - - 0.1
Share-based payment
charge - - - 3.4 - - 3.4
Exercise of share
options - - 1.8 (1.8) - - -
----------- ---------- ------------- ------------- ------------ ---------- ---------
At 31 January 2022 21.1 648.3 (22.4) 7.4 (0.8) (0.7) 652.9
=========== ========== ============= ============= ============ ========== =========
Condensed consolidated statement of cash flows
for the period ended 31 July 2022
Unaudited Unaudited
6m to 6m to 12m to
Note Jul 2022 Jul 2021 Jan 2022
GBPm GBPm GBPm
(Loss)/profit before tax (257.5) 0.7 (23.5)
Depreciation, impairment and net loss
on disposal, of property, plant and
equipment and right-of-use assets 19.7 6.9 22.2
Amortisation and impairment of intangible
assets and goodwill, and (profit)/loss
on disposal of software 273.9 4.9 20.6
Impairment of assets held for sale - - 1.0
Gain on lease modification - - (0.3)
Share-based payment transactions 1.8 1.7 3.4
Profit on disposal of assets held for
sale 18 - (7.2) (7.2)
Finance costs 22.4 22.3 40.8
Finance income (0.9) - -
Net expense/(income) from investments 0.2 (0.4) (0.3)
Increase in trust accounts (36.8) (1.2) (1.0)
Movements in other assets and liabilities (15.1) 27.3 29.3
----------- ----------- -----------
7.7 55.0 85.0
Net investment (expense)/income interest
(paid)/received (0.2) 0.4 0.3
Interest paid (19.9) (14.9) (34.2)
Income tax paid (0.9) (4.0) (4.6)
----------- ----------- -----------
Net cash flows (used in)/from operating
activities (13.3) 36.5 46.5
Investing activities
Proceeds from sale of property, plant
and equipment, intangible assets and
right-of-use assets 0.1 - 0.3
Net proceeds from disposal of assets
held for sale 18 - 10.2 10.2
Acquisition of subsidiary 7 (0.9) - -
Purchase of and payments for the construction
of property, plant and equipment, and
intangible assets (8.8) (10.4) (18.9)
Net disposal/(purchase) of financial
assets 28.4 20.6 (18.9)
Net cash flows from/(used in) investing
activities 18.8 20.4 (27.3)
Financing activities
Payment of principal portion of lease
liabilities (7.8) (1.3) (3.6)
Proceeds from borrowings - 250.0 250.0
Repayment of borrowings 16 (15.3) (170.0) (170.0)
Debt issue costs - (6.7) (6.8)
Net cash flows (used in)/from financing
activities (23.1) 72.0 69.6
Net (decrease)/increase in cash and
cash equivalents (17.6) 128.9 88.8
Cash and cash equivalents at the start
of the period 255.7 166.9 166.9
----------- ----------- -----------
Cash and cash equivalents at the end
of the period 13 238.1 295.8 255.7
=========== =========== ===========
Notes to the condensed consolidated interim financial
statements
1 Corporate information
Saga plc (the Company) is a public limited company incorporated
and domiciled in the United Kingdom under the Companies Act 2006
(registration number 08804263). The Company is registered in
England and its registered office is located at Enbrook Park,
Folkestone, Kent, CT20 3SE.
The condensed consolidated interim financial statements of Saga
plc and the entities controlled by the Company (its subsidiaries,
collectively Saga Group or the Group) for the six months ended 31
July 2022 were authorised for issue in accordance with a resolution
of the Directors on 26 September 2022.
2.1 Basis of preparation
These financial statements comprise the condensed consolidated
interim financial statements (the financial statements) of the
Group for the six-month period to 31 July 2022.
The financial statements have been prepared on a going concern
basis and on a historical cost basis except as otherwise stated.
The Group has reviewed the appropriateness of the going concern
basis in preparing the financial statements, particularly in light
of the COVID-19 pandemic, the Russia-Ukraine conflict and other
macroeconomic pressures, details of which are included in Note 2.6.
The Directors have concluded that it remains appropriate to adopt
the going concern basis in preparing the financial statements.
The Group's financial statements are presented in pounds
sterling which is also the parent company's functional currency,
and all values are rounded to the nearest hundred thousand (GBPm),
except when otherwise indicated.
The financial statements have been prepared in accordance with
the Disclosure and Transparency Rules (DTR) of the Financial
Conduct Authority (FCA) and in accordance with IAS 34 'Interim
Financial Reporting' as adopted for use in the UK. The significant
accounting policies applied by the Group are set out in the latest
Annual Report and Accounts for the year ended 31 January 2022 as
referenced in Note 2.3. These are consistent with International
Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board and adopted by the UK
Endorsement Board for use in the United Kingdom.
The financial statements do not constitute statutory accounts as
defined in Section 434 of the Companies Act 2006. The results from
the year ended 31 January 2022 have been taken from the Group's
Annual Report and Accounts for that year. Therefore, these
financial statements should be read in conjunction with the Annual
Report and Accounts for the year ended 31 January 2022 that have
been prepared in accordance with UK-adopted International
Accounting Standards. The financial statements are unaudited but
have been reviewed by KPMG LLP and include their review
conclusion.
Statutory financial statements for the year ended 31 January
2022 have been delivered to the Registrar of Companies. The
auditor's report on those financial statements: (i) was
unqualified; (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report; and (iii) did not constitute a statement
under Section 498 (2) or (3) of the Companies Act 2006.
2.2 Basis of consolidation
The financial statements comprise the financial position and
results of each of the companies within the Group. Where necessary,
adjustments have been made to the financial position and results of
subsidiaries to bring the accounting policies used into line with
those used by the Group. All intra-group transactions, balances,
income and expenses have been eliminated on consolidation. The
policies set out below have been applied consistently throughout
the periods presented to items considered material to the financial
statements.
2.3 Summary of significant accounting policies
The financial statements for the period ended 31 July 2022 have
been prepared applying the same accounting policies that were
applied in the preparation of the Group's published consolidated
financial statements for the year ended 31 January 2022.
Full details of the accounting policies of the Group can be
found in the Annual Report and Accounts for the year ended 31
January 2022, available at www.corporate.saga.co.uk .
Notes to the condensed consolidated interim financial statements
(continued)
2.4 New standards adopted and future accounting developments
The accounting policies applied in these financial statements
are consistent with those used in the preparation of the Annual
Report and Accounts for the year ended 31 January 2022, available
at www.corporate.saga.co.uk , as described in those annual
financial statements, with the exception of policies, standards,
amendments and interpretations effective as of 1 January 2022 and
other changes detailed below.
New accounting policies, standards, amendments and
interpretations effective, or adopted, in 2022
The following standards and amendments are effective for annual
reporting periods beginning on, or after, 1 April 2021:
-- Amendment to IFRS 16: 'Leases' regarding COVID-19 related
rent concessions beyond 30 June 2021.
The following standards and amendments are effective for annual
reporting periods beginning on, or after, 1 January 2022:
-- Amendments to IAS 16: 'Property, Plant and Equipment'
regarding proceeds before intended use. The amendments specify that
proceeds from selling items produced while bringing an asset into
the location and condition necessary for it to be capable of
operating in the manner intended should be included in profit or
loss.
-- Amendments to IAS 37: 'Provisions, contingent assets and
contingent liabilities'. The amendments specify which costs an
entity should include when assessing whether a contract is onerous
and therefore requires a provision.
-- Annual Improvements to IFRS 2018-2020.
-- Amendments to IFRS 3: 'Business Combinations' relating to an
outdated reference to the Conceptual Framework.
None of the changes to IFRS described above have a material
impact on the Group's consolidated financial statements.
Standards, amendments and interpretations that are issued but
not yet applied by the Group
The following standards and amendments have been issued and will
be applied to the Group in future periods, subject to UK
endorsement:
-- Amendments to IAS 1: 'Presentation of Financial Statements'
relating to the classification of financial liabilities effective
from 1 January 2023. The amendments clarify the meaning of
settlement in the context of liabilities, and the circumstances in
which liabilities are classified as current or non-current.
-- Amendments to IAS 12: 'Income Taxes' relating to deferred tax
on assets and liabilities arising from a single transaction
effective from 1 January 2023.
-- Amendments to IAS 1 relating to the disclosure of accounting
policy and materiality judgements, effective from 1 January
2023.
-- Amendments to IAS 8: 'Accounting policies, change in
accounting estimates and errors' relating to the definition of
accounting estimates, effective from 1 January 2023.
The following standards and amendments have been issued,
endorsed and will be applied to the Group in future periods:
-- IFRS 17: 'Insurance Contracts', effective from 1 January 2023.
IFRS 17 will be effective from 1 January 2023 and is a
comprehensive new accounting standard that applies to all insurance
and reinsurance contracts covering the principles of recognition
and measurement, financial statement presentation and disclosure.
It establishes a principles-based accounting approach for insurance
contracts that will replace IFRS 4 'Insurance Contracts'. It is
expected to have a material impact on the Group's financial
statements as it represents a significant change to current
insurance and reinsurance accounting requirements.
Notes to the condensed consolidated interim financial statements
(continued)
2.4 New standards adopted and future accounting developments
(continued)
The Group has substantially completed its assessment of IFRS 17.
As a general insurer issuing short-term contracts, the Group plans
to apply the simplified 'premium allocation approach' to its
insurance and reinsurance contracts. As such, the recognition and
measurement of premium income is expected to remain largely
unchanged from current accounting.
The recognition and measurement of insurance contract
liabilities in relation to coverage provided before the statement
of financial position date, now referred to as the liability for
incurred claims, is likely to change significantly under the new
standard. The IFRS 17 liability for incurred claims will include an
explicit best estimate and an explicit margin for uncertainty above
the best estimate (now referred to as a risk adjustment). The
liability for incurred claims will also be discounted using a
current discount rate.
The Group intends to finalise its approach to all key judgements
and estimates towards the end of the calendar year 2022.
The standard is expected to have a significant impact on the
presentation of the Group's financial statements, particularly the
Group's income statement, where the description of line items will
change, and the recognition of certain transactions will be
reflected within different line items to those in which they are
currently included. The standard will also require new, and changes
to existing, disclosure notes in relation to insurance and
reinsurance contracts.
Management does not expect other issued but not effective,
amendments of standards, or standards not discussed above to have a
material impact on the Group's financial statements.
2.5 Significant accounting judgements, estimates and
assumptions
Full details of significant accounting judgements, estimates and
assumptions used in the application of the Group's accounting
policies can be found in the Annual Report and Accounts for the
year ended 31 January 2022, available at www.corporate.saga.co.uk .
There have been no changes to the principles in these critical
accounting estimate and judgement areas during the six months ended
31 July 2022.
2.6 Going concern
The Directors have considered the appropriateness of the going
concern basis of preparation for the financial statements prepared
to 31 July 2022, and in doing so, have considered a range of
possible scenarios that factor in the potential ongoing impact of
COVID-19, the Russia-Ukraine conflict and other key risks and
uncertainties.
The Group's business activities, together with the factors
likely to affect its future development and performance, its
exposure to risk and its management of these risks, details of its
financial instruments and derivative activities, and details of
other financial and non-financial liabilities, are described
throughout the Group's published consolidated financial statements
for the year ended 31 January 2022 (see Principal Risks and
Uncertainties; Group Chief Financial Officer's Review; Audit, Risk
and Internal Control; Audit Committee Report; Risk Committee
Report; and Notes). Since the publication of the latest Annual
Report and Accounts for the year ended 31 January 2022, the Board
has reviewed and updated the list of principal risks and
uncertainties (PRUs), and the outlook for each of these - further
detail on the changes made can be found within the 'Principal risks
an uncertainties' section above. The Board regularly considers the
Group's risks and uncertainties and seeks to ensure that
appropriate processes are in place to manage, monitor and mitigate
them. As a result, the Directors believe that the Group is
well-placed to successfully manage its business risks.
The Group's Cruise and Travel business continues to recover from
the COVID-19 pandemic, and although there are operational
challenges from the current economic environment and the ongoing
disruption experienced by many airlines, we expect to see further
improvement in the second half of the year, and into 2023/24.
For the Insurance business, motor and home broking markets have
experienced a period of turbulence as pricing has adjusted to
reflect the impact of the new FCA reform of general insurance
pricing practices, which came into force on 1 January 2022, but the
business is expected to remain profitable and cash generative.
Notes to the condensed consolidated interim financial statements
(continued)
2.6 Going concern (continued)
While the Group remains highly indebted, the return to an
Underlying Profit Before Tax(1) for 2022/23, with continued
improvement in future years, will enable net debt to be reduced
over time.
In the latest round of long-term financial forecasting, the
Group updated its modelling assumptions to reflect:
-- In the base case, which represents the Group's central plan
and best estimate outlook, Ocean Cruise expects to return to
broadly normal operations after 31 July 2022. The River Cruise and
Travel businesses also continue to recover and are expected to
return to profit from 2023/24, with a lower overhead cost base
following completion of the restructuring plans. Insurance plans
include the latest outlook of the Retail Broking business in
relation to competitive pricing pressures observed over the first
half of the year, which are expected to have an adverse impact on
profit before tax for 2022/23 and 2023/24.
-- In the reasonable worst-case (RWC), which represents the
Group's severe, but plausible, downside scenario, Ocean Cruise
assumes reduced load factors for 2023/24, with normal operations
thereafter. The River Cruise and Travel businesses see a slower
recovery from 2023/24 onwards than in the base case. Insurance is
assumed to be impacted by a number of downside risks, including a
more conservative outlook for the Retail Broking business compared
with base case assumptions.
The Russian invasion of Ukraine on 24 February 2022 has created
heightened global economic and political uncertainty and
contributed to a significant short-term increase in inflation. Over
the short-term, the Group's exposure to potential downsides is
limited to short-term reductions in Cruise and Travel bookings and
itinerary changes, increasing inflationary pressures on both
product margins and consumer spending behaviours caused by rising
commodity prices, supply chain disruption and foreign exchange
volatility. These risks have been factored into the Group's latest
forecasts, and whilst the Directors continue to monitor the impacts
on the business, they do not believe they impact the going concern
status of the Group.
In both the base case and RWC scenarios modelled, the Group
expects to operate within covenants in the ship debt and to
maintain sufficient liquidity until at least March 2024, with no
reliance placed on the availability of funds under the RCF. March
2024 is 18 months from the date of signing the financial
statements, which more than accommodates the minimum 12-month
assessment period for going concern. The Directors therefore have a
reasonable expectation that the Group has sufficient funds to
continue trading for at least the next 12 months, and accordingly
have prepared the financial statements to 31 July 2022 on a going
concern basis.
1 Refer to the Alternative Performance Measures Glossary for
definition and explanation
Notes to the condensed consolidated interim financial statements
(continued)
3 Segmental information
For management purposes, the Group is organised into business
units based on their products and services. The Group has three
reportable operating segments as follows:
-- Insurance : comprises the provision of general insurance
products. Revenue is derived primarily from insurance premiums and
broking revenues. This segment is further analysed into four
product sub-segments:
- Retail Broking, consisting of:
o Motor Broking
o Home Broking
o Other Broking
- Underwriting
-- Cruise and Travel: comprises the operation and delivery of
package tours and cruise holiday products. The Group owns and
operates two ocean cruise ships. All other holiday and river cruise
products are packaged together with third-party supplied
accommodation, flights and other transport arrangements.
-- Other Businesses and Central Costs: comprises the Group's
other businesses and its central cost base. The other businesses
include Saga Money (the financial services product offering), Saga
Media and the Group's mailing and printing business.
Segment performance is evaluated using the Group's key
performance measure of Underlying Profit/(Loss) Before Tax (2) .
Items not allocated to a segment relate to transactions that do not
form part of the ongoing segment performance or which are managed
at a Group level.
Transfer prices between operating segments are set on an
arm's-length basis in a manner similar to transactions with third
parties. Segment income, expenses and results include transfers
between business segments which are then eliminated on
consolidation.
Seasonality
The Group is subject to seasonal fluctuations in both its
Insurance, and Cruise and Travel, segments resulting in varying
profits over each quarter.
The Insurance segment experiences increased motor insurance
sales in the month of March and, to a lesser degree, September due
to the issue of new vehicle registration plates; and increased home
insurance sales in March, June and September coinciding with the
historic quarter days. In the motor underwriting business, a
greater proportion of claims are notified in the second half of the
financial year.
Typically, increased holiday departures in the shoulder months
of May, June and September and low departure volumes during July
and August create seasonal fluctuations in the profit of the Cruise
and Travel segment. For the six months ended 31 July 2022, the
increase in the Cruise and Travel segment's revenue during this
period of time versus the six months ended 31 July 2021, has been
significant due to the resumption of trading, as the impact of the
COVID-19 pandemic on the business begins to subside.
Excluding the impact of COVID-19, when the seasonality of the
various segments is considered in aggregate, the resultant half
yearly Underlying Profit/(Loss) Before Tax(2) is broadly consistent
with half of the full year result.
2 Refer to the Alternative Performance Measures Glossary for
definition and explanation
Notes to the condensed consolidated interim financial statements
(continued)
3 Segmental information (continued)
Insurance
Other
Businesses
Other Cruise and
Unaudited Motor Home insurance and Central
6m to Jul 2022 broking broking broking Under-writing Total Travel Costs Adjustments Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 40.8 27.2 21.4 22.7 112.1 136.2 12.2 (2.2) 258.3
Cost of sales (1.7) - 1.6 (5.9) (6.0) (114.4) (4.2) - (124.6)
--------- --------- ----------- --------------- -------- --------- ------------ ------------- ---------
Gross
profit/(loss) 39.1 27.2 23.0 16.8 106.1 21.8 8.0 (2.2) 133.7
--------- --------- ----------- --------------- -------- --------- ------------ ------------- ---------
Administrative
and selling
expenses (26.8) (16.9) (10.2) (1.6) (55.5) (24.5) (22.2) 2.1 (100.1)
Impairment of
assets - - - - - - - (269.5) (269.5)
Net profit on
disposal of
software 0.1 - - - 0.1 - - - 0.1
Investment
income/(loss) - - - 1.2 1.2 - (1.4) - (0.2)
Finance costs - - - - - (11.1) (11.3) - (22.4)
Finance income - - - - - 0.9 - - 0.9
Profit/(loss)
before tax 12.4 10.3 12.8 16.4 51.9 (12.9) (26.9) (269.6) (257.5)
========= ========= =========== =============== ======== ========= ============ ============= =========
Reconciliation to Underlying Profit/(Loss)
Before Tax(3)
Profit/(loss)
before tax 12.4 10.3 12.8 16.4 51.9 (12.9) (26.9) (269.6) (257.5)
Net fair value
gain on
derivative
financial
instruments - - - - - (0.9) - - (0.9)
Impairment of
goodwill - - - - - - - 269.5 269.5
Business
acquisition
related costs - - - - - - - 0.1 0.1
Restructuring
costs - - - - - 1.5 0.6 - 2.1
Foreign
exchange
movement on
lease
liabilities - - - - - 0.3 - - 0.3
IFRS 16
adjustment
on river
cruise
vessels - - - - - 0.4 - - 0.4
Underlying
Profit/(Loss)
Before Tax(3) 12.4 10.3 12.8 16.4 51.9 (11.6) (26.3) - 14.0
========= ========= =========== =============== ======== ========= ============ ============= =========
All revenue is generated solely in the UK.
3 Refer to the Alternative Performance Measures Glossary for
definition and explanation
Notes to the condensed consolidated interim financial statements
(continued)
3 Segmental information (continued)
Insurance
Other
Businesses
Other Cruise and
Unaudited Motor Home insurance and Central
6m to Jul 2021 broking broking broking Under-writing Total Travel Costs Adjustments Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 43.1 29.6 18.9 46.3 137.9 10.0 10.8 (2.3) 156.4
Cost of sales (1.3) - 0.3 (15.5) (16.5) (28.2) (3.9) - (48.6)
--------- --------- ----------- --------------- -------- -------- ------------ ------------- --------
Gross
profit/(loss) 41.8 29.6 19.2 30.8 121.4 (18.2) 6.9 (2.3) 107.8
--------- --------- ----------- --------------- -------- -------- ------------ ------------- --------
Administrative
and selling
expenses (25.2) (16.2) (11.3) (1.6) (54.3) (23.9) (16.4) 2.3 (92.3)
Net profit on
disposal of
assets
held for sale - - - - - - 7.2 - 7.2
Loss on
disposal
of property,
plant
and equipment - - - - - (0.1) - - (0.1)
Investment
income/(loss) - - - 1.9 1.9 0.1 (1.6) - 0.4
Finance costs - - - - - (12.8) (9.5) - (22.3)
Profit/(loss)
before tax 16.6 13.4 7.9 31.1 69.0 (54.9) (13.4) - 0.7
========= ========= =========== =============== ======== ======== ============ ============= ========
Reconciliation to Underlying Profit/(Loss)
Before Tax(4)
Profit/(loss)
before tax 16.6 13.4 7.9 31.1 69.0 (54.9) (13.4) - 0.7
Net fair value
loss on
derivative
financial
instruments - - - - - 3.2 - - 3.2
Net profit on
disposal of
assets
held for sale - - - - - - (7.2) - (7.2)
Loss on
disposal
of property,
plant
and equipment - - - - - 0.1 - - 0.1
Restructuring
costs - - - - - 0.4 - - 0.4
--------- --------- ----------- --------------- -------- -------- ------------ ------------- --------
Underlying
Profit/(Loss)
Before Tax(4) 16.6 13.4 7.9 31.1 69.0 (51.2) (20.6) - (2.8)
========= ========= =========== =============== ======== ======== ============ ============= ========
All revenue is generated solely in the UK.
4 Refer to the Alternative Performance Measures Glossary for
definition and explanation
Notes to the condensed consolidated interim financial statements
(continued)
3 Segmental information (continued)
Insurance
Other
Businesses
Other Cruise and
12m to Motor Home insurance and Central
Jan 2022 broking broking broking Under-writing Total Travel Costs Adjustments Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 85.0 60.2 35.3 84.7 265.2 94.7 21.5 (4.2) 377.2
Cost of sales (2.6) - 0.3 (29.9) (32.2) (102.9) (8.2) - (143.3)
--------- --------- ----------- --------------- --------- --------- ------------ ------------- ---------
Gross
profit/(loss) 82.4 60.2 35.6 54.8 233.0 (8.2) 13.3 (4.2) 233.9
--------- --------- ----------- --------------- --------- --------- ------------ ------------- ---------
Administrative
and selling
expenses (52.4) (35.0) (24.3) (4.2) (115.9) (54.9) (46.2) 4.2 (212.8)
Impairment of
assets - - - (1.0) (1.0) (9.7) (0.5) - (11.2)
Gain on lease
modification - - - - - - 0.3 - 0.3
Net profit on
disposal of
assets
held for sale - - - - - - 7.2 - 7.2
Net
(loss)/profit
on disposal of
property, plant
and equipment,
right-of-use
assets
and software (0.1) - - - (0.1) 0.1 (0.4) - (0.4)
Investment
income/(loss) - - - 3.5 3.5 0.1 (3.3) - 0.3
Finance costs - - - - - (22.2) (18.6) - (40.8)
Profit/(loss)
before tax 29.9 25.2 11.3 53.1 119.5 (94.8) (48.2) - (23.5)
========= ========= =========== =============== ========= ========= ============ ============= =========
Reconciliation to Underlying Profit/(Loss)
Before Tax(5)
Profit/(loss)
before tax 29.9 25.2 11.3 53.1 119.5 (94.8) (48.2) - (23.5)
Net fair value
loss on
derivative
financial
instruments - - - - - 2.7 - - 2.7
Impairment/loss
on disposal of
assets - - - 1.0 1.0 9.8 0.7 - 11.5
Restructuring
costs - - - - - 3.9 2.4 - 6.3
Net profit on
disposal of
assets
held for sale - - - - - - (7.2) - (7.2)
Foreign exchange
movement on
lease
liabilities - - - - - (0.9) - - (0.9)
Costs incurred
for ship debt
holiday - - - - - - 2.4 - 2.4
Charge on
closure
of defined
benefit
pensions scheme - - - - - - 2.0 - 2.0
--------- --------- ----------- --------------- --------- --------- ------------ ------------- ---------
Underlying
Profit/(Loss)
Before Tax(5) 29.9 25.2 11.3 54.1 120.5 (79.3) (47.9) - (6.7)
========= ========= =========== =============== ========= ========= ============ ============= =========
All revenue is generated solely in the UK.
5 Refer to the Alternative Performance Measures Glossary for
definition and explanation
Notes to the condensed consolidated interim financial statements
(continued)
3a Disaggregation of revenue
Insurance
----------------------------------------
Earned premium
on insurance
Unaudited Total
6m to Jul 2022 underwritten Other
Insurance Cruise Other Businesses
and and Central
by the Group Revenue Travel Costs Total
Major product GBPm GBPm GBPm
lines GBPm GBPm GBPm
Gross earned premiums
on insurance underwritten
by the Group 96.0 96.0 96.0
Less: ceded to
reinsurers (56.4) (56.4) (56.4)
---------------- --------- ----------- --------- ------------------ --------
Net revenue on:
- Motor Broking 14.9 25.9 40.8 40.8
- Home Broking - 27.2 27.2 27.2
- Other Broking 0.5 20.9 21.4 21.4
- Underwriting 24.2 (1.5) 22.7 22.7
River Cruise and
Travel 60.5 60.5
Ocean Cruise 75.7 75.7
Money 4.1 4.1
Media 5.1 5.1
Other 0.8 0.8
----------------
39.6 72.5 112.1 136.2 10.0 258.3
================ ========= =========== ========= ================== ========
Insurance
----------------------------------------
Earned premium
on insurance
Unaudited Total
6m to Jul 2021 underwritten Other
Insurance Cruise Other Businesses
and and Central
by the Group Revenue Travel Costs Total
Major product GBPm GBPm GBPm
lines GBPm GBPm GBPm
Gross earned premiums
on insurance underwritten
by the Group 104.2 104.2 104.2
Less: ceded to
reinsurers (63.3) (63.3) (63.3)
---------------- --------- ----------- --------- ------------------ --------
Net revenue on:
- Motor Broking 13.1 30.0 43.1 43.1
- Home Broking - 29.6 29.6 29.6
- Other Broking 0.5 18.4 18.9 18.9
- Underwriting 27.3 19.0 46.3 46.3
River Cruise and
Travel 2.0 2.0
Ocean Cruise 8.0 8.0
Money 2.8 2.8
Media 4.9 4.9
Other 0.8 0.8
----------------
40.9 97.0 137.9 10.0 8.5 156.4
================ ========= =========== ========= ================== ========
Notes to the condensed consolidated interim financial statements
(continued)
3a Disaggregation of revenue (continued)
Insurance
----------------------------------------
Earned premium
on insurance
12m to Jan 2022 underwritten Other Total
Insurance Cruise Other Businesses
and and Central
by the Group Revenue Travel Costs Total
Major product lines GBPm GBPm GBPm GBPm GBPm GBPm
Gross earned premiums
on insurance underwritten
by the Group 203.0 203.0 203.0
Less: ceded to reinsurers (123.8) (123.8) (123.8)
---------------- --------- ----------- --------- ------------------ ---------
Net revenue on:
- Motor Broking 26.7 58.3 85.0 85.0
- Home Broking - 60.2 60.2 60.2
- Other Broking 1.0 34.3 35.3 35.3
- Underwriting 51.5 33.2 84.7 84.7
River Cruise and
Travel 12.2 12.2
Ocean Cruise 82.5 82.5
Money 5.9 5.9
Media 9.9 9.9
Other 1.5 1.5
----------------
79.2 186.0 265.2 94.7 17.3 377.2
================ ========= =========== ========= ================== =========
4 Tax
The major components of the income tax expense are:
Unaudited Unaudited
6m to 6m to 12m to
Jul 2022 Jul 2021 Jan 2022
GBPm GBPm GBPm
Condensed consolidated income statement
Current income tax
Current income tax charge 2.4 5.5 3.4
Adjustments in respect of previous
periods (0.5) (2.2) (0.1)
1.9 3.3 3.3
Deferred tax
Relating to origination and reversal
of temporary differences 1.6 2.0 2.7
Effect of tax rate on opening balance - (2.6) (2.6)
Adjustments in respect of previous
periods 2.1 1.1 1.1
----------
3.7 0.5 1.2
Tax expense in the income statement 5.6 3.8 4.5
=========== =========== ==========
Notes to the condensed consolidated interim financial statements
(continued)
4 Tax (continued)
The Group's tax expense for the period was GBP5.6m (July 2021:
GBP3.8m) representing a tax effective rate of 46.7% (July 2021:
542.9%) before the impairment of goodwill. In both the current and
prior periods, the difference between the Group's tax effective
rate and the standard rate of corporation tax of 19%, is mainly due
to the Group's Ocean Cruise business entering the tonnage tax
regime on 1 February 2020. Excluding the impact of the goodwill
impairment, cruise tonnage tax and adjustments in respect of
previous tax years, the Group's tax effective rate is 21.7%.
Adjustments in respect of previous periods include adjustments
for the under provision of the tax charge in prior periods of
GBP1.6m (July 2021: GBP1.1m over provision) and the impact of the
change in the tax rate on opening deferred tax balances of GBPnil
(July 2021: GBP2.6m credit).
Reconciliation of net deferred tax assets:
Unaudited Unaudited
6m to 6m to 12m to
Jul 2022 Jul 2021 Jan 2022
GBPm GBPm GBPm
At 1 February 6.7 6.7 6.7
Tax charge recognised in the income
statement (3.7) (0.5) (1.2)
Tax (charge)/credit recognised in
other comprehensive income (1.6) (3.3) 1.2
At the end of the period 1.4 2.9 6.7
=========== =========== ==========
On 3 March 2021, it was announced that the corporation tax rate
will increase from 19% to 25% from 1 April 2023. This increase was
substantively enacted on 24 May 2021. As a result, the closing
deferred tax balances at the statement of financial position date
have been reflected at 25%. Net deferred tax assets/(liabilities)
are expected to be normally settled in more than 12 months.
5 Dividends
No ordinary dividends were declared, nor paid, during the
current and prior periods.
Under the terms of the ship debt facilities, dividends remain
restricted until the ship debt principal repayments that were
deferred as part of the ship debt repayment holiday are fully
repaid (Note 16). In addition, under the terms of the RCF,
dividends also remain restricted while leverage is above 3.0x
(excluding Ocean Cruise EBITDA and debt). The Group maintained
sufficient headroom under the RCF covenant during the six months
ended 31 July 2022 .
Notes to the condensed consolidated interim financial statements
(continued)
6 Loss per share
Basic loss per share is calculated by dividing the loss after
tax for the period attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the period. Diluted loss per share is calculated
by also including the weighted average number of ordinary shares
that would be issued on conversion of all potentially dilutive
options.
There have been no transactions involving ordinary shares, or
potential ordinary shares, between the reporting date and the date
of authorisation of these financial statements.
The calculation of basic and diluted loss per share is as
follows:
Unaudited Unaudited
6m to 6m to 12m to
Jul 2022 Jul 2021 Jan 2022
GBPm GBPm GBPm
Loss attributable to ordinary equity
holders (263.1) (3.1) (28.0)
Weighted average number of ordinary
shares 'm 'm 'm
Ordinary shares as at 1 February 139.5 139.4 139.4
Movement during the period (0.3) 0.1 0.1
Ordinary shares as at the end of
the period 139.2 139.5 139.5
============ ============ ===========
Weighted average number of ordinary
shares for basic loss per share
and diluted loss per share 139.2 139.5 139.5
------------ ------------ -----------
Basic loss per share (189.0p) (2.2p) (20.1p)
------------ ------------ -----------
Diluted loss per share (189.0p) (2.2p) (20.1p)
------------ ------------ -----------
The table below reconciles between basic loss per share and
Underlying Basic Earnings/(Loss) Per Share (6) :
Unaudited Unaudited
6m to 6m to 12m to
Jul 2022 Jul 2021 Jan 2022
Basic loss per share (189.0p) (2.2p) (20.1p)
Adjusted for:
Derivative (gains)/losses (0.7p) 0.5p 1.4p
Impairment, and net (profit)/loss
on disposal, of assets - (1.1p) 2.3p
Impairment of goodwill 193.6p - -
Charge on closure of defined benefit
pension scheme - - 1.1p
Foreign exchange movement on lease
liabilities 0.2p - (0.5p)
Costs incurred for ocean cruise
ship loan holiday - - 1.3p
Restructuring costs 1.7p 0.1p 3.4p
IFRS 16 lease accounting adjustment
on river cruise vessels 0.3p - -
------------ ------------ -----------
Underlying Basic Earnings/(Loss)
Per Share 6.1p (2.7p) (11.1p)
============ ============ ===========
6 Refer to the Alternative Performance Measures Glossary for
definition and explanation
Notes to the condensed consolidated interim financial statements
(continued)
7 Business combinations and disposals
(a) Acquisitions during the period ended 31 July 2022
On 16 February 2022, the Group acquired The Big Window
Consulting Limited (the Big Window), a specialist research and
insight business focusing on ageing.
The fair values of the identifiable assets and liabilities of
the Big Window acquired on the date of acquisition were:
GBPm
Assets
Trade and other receivables 0.1
Cash 1.3
----------------
Total assets 1.4
----------------
Liabilities
Trade and other payables 0.1
Corporation tax liability 0.1
Total liabilities 0.2
----------------
Total identifiable net assets
at fair value 1.2
Goodwill arising on acquisition 0.5
----------------
Cash purchase consideration transferred 1.7
----------------
The cash purchase consideration of GBP1.7m was settled in cash.
In addition to the GBP1.7m cash purchase consideration transferred,
as part of the purchase agreement the Group granted a GBP0.5m
share-based payment arrangement which vests over three years
subject to a number of conditions being met. The GBP0.5m was
transferred in cash to the Group's share administrators on the date
of completion. Cash of GBP1.3m was acquired with the Big Window,
resulting in a net cash outflow of GBP0.9m.
Since acquisition, the addition of The Big Window insights and
capabilities has added significant value to all Saga business
units, in line with pre-acquisition expectations. However, because
these benefits are largely associated with the continued employment
of a small number of individuals, which under IFRS 3 cannot be
separately capitalised, and given the low materiality of the
amounts in question, the Group decided to write-off in full the
GBP0.5m goodwill arising on acquisition in the period to 31 July
2022.
The Big Window contributed GBP0.3m of revenue and GBP0.1m to the
Group profit before tax from the date of acquisition to 31 July
2022.
(b) Acquisitions during the period ended 31 July 2021
There were no business acquisitions during the period ended 31
July 2021.
(c) Disposals
There were no business disposals in the period ended 31 July
2022 or the period ended 31 July 2021.
Notes to the condensed consolidated interim financial statements
(continued)
8 Goodwill
Goodwill acquired through business combinations has been
allocated to Cash Generating Units (CGUs) for the purpose of
impairment testing. The carrying value of goodwill by CGU is as
follows:
Unaudited Unaudited
As at Jul As at Jul As at Jan
2022 2021 2022
GBPm GBPm GBPm
Insurance 449.6 718.6 718.6
------------ ------------ -------------
449.6 718.6 718.6
============ ============ =============
On 1 January 2022, the new pricing rules arising from the FCA
market study came into effect. As a result of the impact of the FCA
market study on customer pricing, especially in the highly
competitive motor insurance market, there has been a fall in policy
volumes in the period to 31 July 2022, with a consequential adverse
impact on the profitability of the Insurance business. Management
have considered this to be an indicator of impairment and have
therefore conducted a full impairment review of the Insurance CGU
as at 31 July 2022.
The recoverable amount of the Insurance CGU has been determined
based on a value-in-use calculation using cash flow projections
from the Group's latest five-year financial forecasts to 2026/27,
which are derived using past experience of the Group's trading
combined with the anticipated impact of changes in macroeconomic
and regulatory factors. A terminal value has been calculated using
the Gordon Growth Model based on the fifth year of those
projections and an annual growth rate of 2.0% (January 2022: 2.0%)
as the expected long-term average growth rate of the UK economy.
The cash flows have then been discounted to present value using a
suitably risk-adjusted discount rate based on a market-participant
view of the cost of capital and debt relevant to the insurance
industry.
As at 31 July 2022, the pre-tax discount rate used for the
Insurance CGU was 12.7% (January 2022: 11.5%). The Group's
five-year financial forecasts incorporate the modelled impact of
the publication of the FCA's findings from its market study into
general insurance pricing and the impact this will likely have on
new business pricing and retention rates. As per IAS 36.44,
incremental cash flows directly attributable to growth initiatives
not yet enacted at the statement of financial position date have
then also been removed for the purpose of the value-in-use
calculation. 43F
Furthermore, the Group also considered the impact of downside
stresses, both in terms of adverse impacts to the cash flow
projections and to the discount rate. For the cash flow stress
test, the Group has modelled the impact of a more prudent outlook
of the current competitive challenges seen in the insurance broking
market, in combination with a more cautious terminal growth rate of
1.5%, reflecting a more conservative outlook for growth in the UK
economy. For the discount rate stress test, the Group applied risk
premia of +1.2ppt.
The headroom/(deficit) for the Insurance CGU against the brought
forward carrying value is as follows:
Headroom/(deficit) GBPm
------------ -----------------------------------------------------------------------------
Cash flow Discount rate
Central scenario stress test scenario stress test scenario
------------ ----------------------- ------------------------- -------------------------
31 July 31 January 31 July 31 January 31 July 31 January
2022 2022 2022 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
------------ --------- ------------ ---------- ------------- ---------- -------------
Insurance (121.8) 146.3 (269.0) 89.7 (146.8) (10.2)
------------ --------- ------------ ---------- ------------- ---------- -------------
Given these outcomes, the Directors have taken the decision to
impair goodwill allocated to the Insurance CGU by GBP269.0m in the
period to 31 July 2022. The quantum of this impairment is based on
a combination of both the cash flow stress test scenario and
reasonable discount rate stresses.
Notes to the condensed consolidated interim financial statements
(continued)
8 Goodwill (continued)
The headroom calculated is sensitive to the discount rate and
terminal growth rate assumed, and to changes in the projected cash
flow of the CGU. Increased inflationary pressures on claims, the
evolving market response to the regulatory changes introduced in
early 2022 and in particular the extent to which market prices move
against Saga in a period of heightened global economic uncertainty,
combine to increase the range of possible cashflow outcomes in
management's modelling. A quantitative sensitivity analysis for
each of these as at 31 July 2022 and its impact on the central
scenario headroom against the brought forward goodwill carrying
value is as follows:
Pre-tax discount Terminal growth Cash flow (annual)
rate rate
-------------------- -------------------- ----------------------
+1.0ppt -1.0ppt +1.0ppt -1.0ppt +10% -10%
GBPm GBPm GBPm GBPm GBPm
GBPm
------------ --------- --------- --------- --------- ---------- ----------
Insurance (58.4) 75.3 60.1 (46.6) 57.5 (57.5)
------------ --------- --------- --------- --------- ---------- ----------
Goodwill arising on the acquisition of the Big Window (Note 7)
of GBP0.5m was immediately impaired in full.
9 Intangible fixed assets
During the period, the Group capitalised GBP3.9m (July 2021:
GBP6.3m) of software assets, disposed of assets with a net book
value of GBPnil (July 2021: GBPnil) and charged GBP4.5m (July 2021:
GBP4.9m) of amortisation and impairment to its intangible assets.
Profit arising on disposal was GBP0.1m (July 2021: GBPnil).
10 Property, plant and equipment
During the period, the Group capitalised assets with a cost of
GBP1.7m (July 2021: GBP2.7m), disposed of assets with a net book
value of GBP0.1m (July 2021: GBP0.1m) and charged GBP11.6m (July
2021: GBP6.5m) of depreciation and impairment to its property,
plant and equipment. Profit arising on disposal was GBPnil (July
2021: GBP0.1m loss).
As at 31 July 2022, capital amounts contracted for but not
provided for, in the financial statements, amounted to GBPnil (July
2021: GBPnil).
Impairment review of property, plant and equipment
Due to the continued impact of the COVID-19 pandemic on the
Group's Cruise and Travel operations in the first half of the year,
management has concluded potential indicators of impairment
continue to exist for both of its ocean cruise ships, Spirit of
Discovery and Spirit of Adventure and has therefore conducted
impairment reviews at 31 July 2022 for both vessels.
The impairment test has been conducted using a methodology
consistent with that applied as at 31 January 2022 and as detailed
in the most recent Annual Report and Accounts. The recoverable
amount of each ocean cruise ship was determined based on a
value-in-use calculation using cash flow projections from the
Group's five-year financial forecasts to 2026/27 and applying a
constant annual growth rate of 2% thereafter for subsequent periods
until the end of the ship's useful economic life of 30 years, at
which point a residual value of 15% of original cost has been
assumed. This was then discounted back to present value using a
suitably risk-adjusted discount rate. The underlying forecast cash
flows were updated for the latest impact of the COVID-19 pandemic.
In addition, a stress test of the potential adverse medium-term
impact that the pandemic may have on demand for ocean cruises was
also considered, with load factors capped at 80% throughout
2023/24. The annual growth rate beyond the fifth year of management
forecasts was reduced to 1.5% in the stress test scenario,
reflecting a more cautious outlook for long-term growth in the UK
economy.
Potential environmental regulatory changes have also been
considered as part of this assessment. The shipping industry has
made a commitment to reduce CO(2) emissions by 40% by 2030 (from a
2008 baseline), and the UK Government has made commitments to reach
net zero emissions by 2050. The EEXI (carbon design/technical
efficiency indicator) and CII ((in-service/operational carbon
intensity efficiency indicator) regulations are being introduced
internationally to enable the industry to meet the 2030 target, and
both of Saga's ocean cruise ships will exceed the requirements of
these regulations on implementation in 2023. The end of their
useful economic lives of 30 years will have been reached by 2049 in
the case of Spirit of Discovery and 2051 in the case of Spirit of
Adventure.
Notes to the condensed consolidated interim financial statements
(continued)
10 Property, plant and equipment (continued)
Impairment review of property, plant and equipment
(continued)
The Group has not factored in any potential fuel modifications
that may occur in the future into the cash flow forecasts used for
the impairment assessment of either ship. Whilst alternative fuels
may present a viable route to decarbonisation for the Ocean Cruise
business, there are significant upstream supply challenges which
will need to be resolved before these become viable for deployment.
The main engines currently installed in the Group's ocean cruise
ships are capable of being modified for use with certain
alternative fuels. Being new vessels, the design and specification
of the Group's ocean cruise ships was guided by a desire to
maximise efficiency through deployment of the most up-to-date
technology. Their hull design maximises fuel efficiency, onboard
technology minimises fuel consumption and catalytic converters
reduce carbon emissions. Additionally, the Group is planning to
retro-fit shore power connections to both vessels, allowing them to
use clean energy, where available, in ports of call and has
commenced a study to evaluate other emerging technologies. The
capital expenditure required for the shore power connections has
been included in the forecast cash flows used in the
assessment.
There is also currently no technological alternative to either
oil or gas to power large vessels and it is not clear if such
technology will ever be commercially viable, or in what time-frame
this might be achieved.
The cash flows have been discounted to present value using a
pre-tax discount rate of 8.6% (January 2022: 9.9%) for both
vessels. As at 31 July 2022, the headroom for each of the ships
against the carrying value was as follows:
Headroom GBPm
---------------------- -------------------------------------
Central scenario RWC stress test
scenario
---------------------- ------------------ -----------------
Spirit of Discovery 169.0 146.5
Spirit of Adventure 114.7 91.6
---------------------- ------------------ -----------------
Based on these impairment tests, and looking at the likelihood
of a range of outcomes, the Group is satisfied that no impairment
of either vessel was necessary as at 31 July 2022.
Notes to the condensed consolidated interim financial statements
(continued)
11 Right-of-use assets
During the period, the Group capitalised assets with a cost of
GBP49.6m (July 2021: GBP0.3m) and charged GBP8.1m (July 2021:
GBP0.3m) of depreciation and impairment to its right-of-use assets.
Right-of-use assets capitalised in the period ended 31 July 2022
primarily relate to r iver cruise ship additions relating to the
vessels, Spirit of the Danube, MS River Discovery II and MS
Serenade 1 .
As at 31 July 2022, the value of lease liabilities contracted
for, but not provided for, in the financial statements in respect
of right-of-use assets amounted to GBPnil (July 2021: GBP89.3m). As
at 31 July 2021, the lease commitments related to the river cruise
vessels, Spirit of the Rhine and Spirit of the Danube.
a. Impairment review of right-of-use assets
During the year ended 31 January 2022, the Group took delivery
of the river cruise ship, Spirit of the Rhine, under a 10-year
lease. The ship's first cruise season was initially planned to
commence on 1 April 2021, but due to the impact of the COVID-19
pandemic, the start of the first season was delayed for several
months. The Group did not therefore take control of the asset until
the ship's inaugural cruise took place in September 2021, at which
point a right-of-use asset was recognised and corresponding lease
liability was capitalised on the statement of financial
position.
Given the carrying value of the asset is quantitatively material
to the Group, combined with the ongoing adverse impacts of the
COVID-19 pandemic on the wider travel industry, which constitute an
indicator of impairment, management deemed it necessary to conduct
an impairment review on Spirit of the Rhine at 31 January 2022.
Based on the impairment tests undertaken and looking at the
likelihood of a range of outcomes, the Group was satisfied that
there was headroom over and above the carrying value of Spirit of
the Rhine. Management considered that there was no reasonable
possible change in the key assumptions made in its impairment
assessment that would give rise to an impairment of the carrying
value of this vessel as at 31 January 2022.
The Group does not consider it necessary to conduct an
impairment review of right-of-use assets as at 31 July 2022 since
no new indicators of impairment exist in relation to the Spirit of
the Rhine, Spirit of the Danube, MS River Discovery II or MS
Serenade 1 .
Notes to the condensed consolidated interim financial statements
(continued)
12 Financial assets and financial liabilities
a) Financial assets
Unaudited Unaudited
As at As at Jul As at Jan
Note Jul 2022 2021 2022
GBPm GBPm GBPm
Fair value through profit or loss
(FVTPL)
Foreign exchange forward contracts 0.9 0.1 0.4
Loan funds 5.8 6.1 6.2
Money market funds 13 27.1 93.4 29.2
33.8 99.6 35.8
----------- ------------ -------------
FVTPL designated in a hedging relationship
Foreign exchange forward contracts 3.4 0.1 0.3
Fuel oil swaps 0.9 0.4 1.2
4.3 0.5 1.5
----------- ------------ -------------
Fair value through other comprehensive
income (FVOCI)
Debt securities 259.9 249.0 280.8
----------- ------------ -------------
259.9 249.0 280.8
----------- ------------ -------------
Amortised cost
Deposits with financial institutions - 14.0 14.0
- 14.0 14.0
----------- ------------ -------------
Total financial assets 298.0 363.1 332.1
=========== ============ =============
Current 66.3 164.8 110.0
Non-current 231.7 198.3 222.1
----------- ------------ -------------
298.0 363.1 332.1
=========== ============ =============
The Group's financial assets are analysed by Moody's credit risk
rating within the Group Chief Financial Officer's Review.
b) Financial liabilities
Unaudited Unaudited
As at As at Jul As at Jan
Note Jul 2022 2021 2022
GBPm GBPm GBPm
FVTPL
Foreign exchange forward contracts 0.8 1.2 1.3
0.8 1.2 1.3
----------- ------------ -----------
FVTPL designated in a hedging relationship
Foreign exchange forward contracts 1.6 4.2 2.7
Fuel oil swaps 0.9 - -
2.5 4.2 2.7
Amortised cost
Bonds and bank loans 16 883.5 894.6 896.5
Lease liabilities 77.5 3.6 35.3
Bank overdrafts 13 0.8 0.8 0.4
961.8 899.0 932.2
----------- ------------ -----------
Total financial liabilities 965.1 904.4 936.2
Current 80.6 28.3 56.1
Non-current 884.5 876.1 880.1
965.1 904.4 936.2
Notes to the condensed consolidated interim financial statements
(continued)
12 Financial assets and financial liabilities (continued)
c) Fair value hierarchy
Unaudited Unaudited
As at Jul 2022 As at Jul 2021
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Financial assets measured at fair
value
Foreign exchange forwards - 4.3 - 4.3 - 0.2 - 0.2
Fuel oil swaps - 0.9 - 0.9 - 0.4 - 0.4
Loan funds 5.8 - - 5.8 6.1 - - 6.1
Debt securities 259.9 - - 259.9 249.0 - - 249.0
Money market funds 27.1 - - 27.1 93.4 - - 93.4
Financial liabilities measured at
fair value
Foreign exchange forwards - 2.4 - 2.4 - 5.4 - 5.4
Fuel oil swaps - 0.9 - 0.9 - - - -
Financial assets for which fair
values are disclosed
Deposits with institutions - - - - - 14.0 - 14.0
Financial liabilities for which
fair values are disclosed
Bonds and bank loans - 825.5 - 825.5 - 894.6 - 894.6
Lease liabilities - 77.5 - 77.5 - 3.6 - 3.6
Bank overdrafts - 0.8 - 0.8 - 0.8 - 0.8
As at Jan 2022
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
Financial assets measured at
fair value
Foreign exchange forwards - 0.7 - 0.7
Fuel oil swaps - 1.2 - 1.2
Loan funds 6.2 - - 6.2
Debt securities 280.8 - - 280.8
Money market funds 29.2 - - 29.2
Financial liabilities measured
at fair value
Foreign exchange forwards - 4.0 - 4.0
Fuel oil swaps - - - -
Financial assets for which fair
values are disclosed
Deposits with institutions - 14.0 - 14.0
Financial liabilities for which
fair values are disclosed
Bonds and bank loans - 879.0 - 879.0
Lease liabilities - 35.3 - 35.3
Bank overdrafts - 0.4 - 0.4
Full details of the valuation techniques and inputs used to
develop fair value measurements can be found in the Annual Report
and Accounts for the year ended 31 January 2022.
Notes to the condensed consolidated interim financial statements
(continued)
12 Financial assets and financial liabilities (continued)
d) Other information
Debt securities, money market funds and deposits with financial
institutions relate to monies held by the Group's Insurance
business and are subject to contractual restrictions and are not
readily available to be used for other purposes within the Group.
The values of the debt securities, money market funds and loan
funds are based upon publicly available market prices.
There have been no transfers between Level 1 and Level 2 and no
non-recurring fair value measurements of assets and liabilities
during the period (July 2021: none).
Foreign exchange forwards are valued using current spot and
forward rates discounted to present value. They are also adjusted
for counterparty credit risk using credit default swap (CDS)
curves. Fuel oil swaps are valued with reference to the valuations
provided by third parties, which use current Platts index rates,
discounted to present value.
The Group operates a programme of economic hedging against its
foreign currency and fuel oil exposures. During the period, the
Group designated 205 foreign exchange forward currency contracts as
hedges of highly probable foreign currency cash expenses in future
periods and designated 57 fuel oil swaps as hedges of highly
probable fuel oil purchases in future periods. As at 31 July 2022,
the Group has designated 424 forward currency contracts and 57 fuel
oil swaps as hedges.
During the period, the Group recognised net gains of GBP5.4m
(July 2021: GBP1.4m losses) on cash flow hedging instruments
through other comprehensive income (OCI) into the hedging reserve.
The Group recognised GBPnil gains (July 2021: GBPnil gains) through
the income statement in respect of the ineffective portion of
hedges measured during the period.
During the period, the Group has de-designated five foreign
currency forward contracts, with a transaction value of GBP0.4m,
where the forecast cash flows are no longer expected to occur with
a sufficiently high degree of certainty to meet the requirements of
IFRS 9. The accumulated gains in relation to these contracts of
GBPnil have been reclassified from the hedging reserve into profit
or loss during the period. The Group has not de-designated any fuel
oil swaps during the period. During the period, the Group
recognised a GBP2.3m gain (July 2021: GBP1.2m loss) through the
income statement in respect of matured hedges which have been
recycled from OCI.
13 Cash and cash equivalents
Unaudited Unaudited
As at Jul As at As at Jan
2022 Jul 2021 2022
GBPm GBPm GBPm
Cash at bank and in hand 99.6 196.0 174.6
Short-term deposits 112.2 7.2 52.3
Cash and short-term deposits 211.8 203.2 226.9
Money markets funds (Note 12a) 27.1 93.4 29.2
Bank overdraft (Note 12b) (0.8) (0.8) (0.4)
Cash and cash equivalents in the
cash flow statement 238.1 295.8 255.7
Included within cash and cash equivalents are amounts held by
the Group's Cruise and Travel, and Insurance, businesses which are
subject to contractual or regulatory restrictions. These amounts
held are not readily available to be used for other purposes within
the Group and total GBP59.1m (July 2021: GBP120.5m). Available Cash
(7) excludes these amounts and any amounts held by disposal
groups.
Cash at bank earns interest at floating rates based on daily
bank deposit rates. Short-term deposits are made for varying
periods of between one day and three months, depending on the
immediate cash requirements of the Group, and earn interest at the
respective short-term deposit rates.
The bank overdraft is subject to a guarantee in favour of the
Group's bankers and is limited to the amount drawn. The bank
overdraft is repayable on demand.
7 Refer to the Alternative Performance Measures Glossary for
definition and explanation
Notes to the condensed consolidated interim financial statements
(continued)
14 Retirement benefit schemes
The Group operates retirement benefit schemes for the employees
of the Group consisting of defined contribution plans and a legacy
defined benefit plan. In July 2021, following the completion of a
review of the Group's pension arrangements, a consultation process
with active members was launched. The consultation process
concluded during October 2021, and with effect from 31 October
2021, the Group closed both its existing schemes to future accrual:
the Saga Pension Scheme (its defined benefit plan) and the Saga
Workplace Pension Plan (its defined contribution plan). In their
place, the Group launched a new defined contribution pension scheme
arrangement, operated as a Master Trust. This move served to reduce
the risk of further deficits developing in the future on the
defined benefit scheme, whilst moving to a fairer scheme for all
colleagues.
a) Defined contribution schemes
There are three defined contribution schemes in the Group. The
assets of these schemes are held separately from those of the Group
in funds under the control of Trustees.
b) Defined benefit plan
The Group operated a funded defined benefit scheme, the Saga
Pension Scheme, which was closed to future accrual on 31 October
2021 (see above). From 1 November 2021, members moved from active
to deferred status, with future indexation of deferred pensions
before retirement measured by reference to the Consumer Price Index
(CPI). The assets of the scheme are held separately from those of
the Group in independently administered funds.
The fair value of the assets and present value of the
obligations of the Saga defined benefit scheme are as follows:
Unaudited Unaudited
As at Jul As at Jul As at Jan
2022 2021 2022
GBPm GBPm GBPm
Fair value of scheme assets 331.9 438.6 412.0
Present value of defined benefit
obligation (314.5) (425.8) (410.9)
Defined benefit scheme asset 17.4 12.8 1.1
The present values of the defined benefit obligation at 31
January 2022, the related current service cost and any past service
costs were measured using the projected unit credit method.
Liabilities at 31 July 2022 have been estimated by rolling forward
from 31 January 2022, allowing for changes in market conditions and
estimating the value of benefits accrued and paid out over the
period.
During the period ended 31 July 2022, the net position of the
Saga Scheme has increased by GBP16.3m, resulting in an overall
scheme surplus of GBP17.4m. The movements observed in the schemes
assets and obligations have been impacted significantly by
macroeconomic factors since the year-end, where at a global level
there have been rising inflation and cost of living pressures, as
well as shifts in long-term market perceptions. The present value
of defined benefit obligations decreased by GBP96.4m to GBP314.5m,
primarily due to a 110bps increase in the discount rate which is
based on increases in long-term trend corporate bond yields,
coupled with a 30bps decrease in the expected long term RPI
inflation assumption, driven by changes in the relative expected
long-term returns of index-linked gilts and fixed-interest rate
gilts. The fair value of scheme assets decreased by GBP80.1m to
GBP331.9m. A GBP5.8m deficit funding contribution was paid by the
Group in February 2022 in relation to a recovery plan agreed under
the latest triennial valuation of the scheme as at 31 January
2020.
Notes to the condensed consolidated interim financial statements
(continued)
15 Insurance contract liabilities and reinsurance assets
Gross and net insurance liabilities are analysed as follows:
Unaudited Unaudited
As at Jul As at Jul As at
2022 2021 Jan 2022
GBPm GBPm GBPm
Gross
Claims outstanding 282.3 324.6 292.8
Provision for unearned premiums 93.2 96.7 93.9
Total gross liabilities 375.5 421.3 386.7
Unaudited Unaudited
As at Jul As at Jul As at
2022 2021 Jan 2022
GBPm GBPm GBPm
Recoverable from reinsurers
Claims outstanding 65.7 68.8 59.1
Provision for unearned premiums 4.1 4.1 6.3
Total reinsurers' share of insurance
liabilities (as presented on the
face of the condensed statement
of financial position) 69.8 72.9 65.4
Amounts recoverable under funds
- withheld quota share agreements
recognised within trade payables:
- Claims outstanding 108.2 144.2 133.0
- Provision for unearned premiums 50.6 56.4 50.7
Total reinsurers' share of insurance
liabilities after funds - withheld
quota share 228.6 273.5 249.1
Unaudited Unaudited
As at Jul As at Jul As at
2022 2021 Jan 2022
GBPm GBPm GBPm
Net
Claims outstanding 216.6 255.8 233.7
Provision for unearned premiums 89.1 92.6 87.6
Total net insurance liabilities 305.7 348.4 321.3
Amounts recoverable under funds
- withheld quota share agreements
recognised within trade payables:
- Claims outstanding (108.2) (144.2) (133.0)
- Provision for unearned premiums (50.6) (56.4) (50.7)
Total net insurance liabilities
after funds - withheld quota share 146.9 147.8 137.6
The total cost of purchasing reinsurance recognised during the
period was GBP2.8m (July 2021: GBP4.2m (restated)).
Notes to the condensed consolidated interim financial statements
(continued)
16 Loans and borrowings
Unaudited Unaudited
As at
Jul As at Jul As at Jan
2022 2021 2022
GBPm GBPm GBPm
Bonds 400.0 400.0 400.0
Ship loans 500.3 515.6 515.6
Accrued interest payable 5.7 6.5 5.9
----------- -----------
906.0 922.1 921.5
Less: deferred issue costs (22.5) (27.5) (25.0)
----------- -----------
883.5 894.6 896.5
=========== ===========
Term loan, RCF and bonds
At 31 July 2021 and 31 January 2022, the Group's financing
facilities consisted of a GBP150.0m seven-year senior unsecured
bond (repayable May 2024), a GBP250.0m five-year senior unsecured
bond (repayable July 2026) and a GBP100.0m five-year RCF (expiry in
May 2025). The bonds are listed on the Irish Stock Exchange and are
guaranteed by Saga Services Limited and Saga Mid Co Limited.
Interest on the 2024 corporate bond is incurred at an annual
interest rate of 3.375%. Interest on the 2026 corporate bond is
incurred at an annual interest rate of 5.5%. Interest payable on
the Group's RCF, if drawn down, is incurred at a variable rate of
SONIA plus a bank margin which is linked to the Group's leverage
ratio.
During the period to 31 July 2022, the Group reached agreement
with its banks to simplify the RCF arrangement to remove certain
clauses that were introduced during the COVID-19 pandemic and
reduce the aggregate facility cost. The amendments to the RCF
include:
-- removal of the GBP40.0m minimum liquidity requirement;
-- removal of the condition that the facility (if drawn) is
repaid on 1 March 2024, if the existing 2024 bond has not been
redeemed prior to this date; and
-- reduction of the RCF commitment from GBP100.0m to GBP50.0m.
At 31 July 2022, the Group's financing facilities consist of a
GBP150.0m seven-year senior unsecured bond (repayable May 2024), a
GBP250.0m five-year senior unsecured bond (repayable July 2026) and
a GBP50.0m five-year RCF (expiry in May 2025). The bonds are listed
on the Irish Stock Exchange and are guaranteed by Saga Services
Limited and Saga Mid Co Limited.
At 31 July 2022, the Group's GBP50.0m RCF remained undrawn. The
Group's GBP200.0m five-year term loan (repayable May 2023) was
repaid in full in the period ended 31 July 2021.
Accrued interest payable on the Group's bonds at 31 July 2022 is
GBP2.5m (July 2021: GBP3.2m).
Ocean cruise ship loans
In June 2019, the Group drew down the financing for its ocean
cruise ship, Spirit of Discovery, of GBP245.0m. The financing for
Spirit of Discovery comprises a 12-year fixed rate sterling loan,
backed by an export credit guarantee. The initial loan was
repayable in 24 broadly equal instalments, with the first payment
of GBP10.2m paid in December 2019. This financing is secured
against the Spirit of Discovery ocean cruise ship asset.
The Board announced on 22 June 2020 that it had secured a debt
holiday and covenant waiver for the Group's ship facilities. The
Group's lenders agreed to a deferral of GBP32.1m of principal
payments under the ship facilities that were due up to 31 March
2021. These deferred amounts were due to be paid between June 2021
and December 2024 for Spirit of Discovery and between September
2021 and March 2025 for Spirit of Adventure, and interest remained
payable.
Notes to the condensed consolidated interim financial statements
(continued)
16 Loans and borrowings (continued)
Ocean cruise ship loans (continued)
On 29 September 2020, the Group drew down the financing for its
ocean cruise ship, Spirit of Adventure, of GBP280.8m. The financing
for Spirit of Adventure comprises a 12-year fixed rate sterling
loan, backed by an export credit guarantee. The loan is repayable
in 24 broadly equal instalments, with the first payment originally
due six months after delivery in March 2021, but initially deferred
to September 2021 as a result of the debt holiday described above.
This financing is secured against the Spirit of Adventure ocean
cruise ship asset.
In March 2021, the Group reached agreement of a one-year
extension to the debt deferral on its ocean cruise ship facilities.
As part of an industry-wide package of measures to support the
cruise industry, an extension of the existing debt deferral was
agreed to 31 March 2022. The key terms of this deferral were:
-- all principal payments to 31 March 2022 (GBP51.8m) deferred and repaid over five years;
-- all financial covenants until 31 March 2022 waived; and
-- dividends remain restricted while the deferred principal is outstanding.
Since 31 January 2022, the Group concluded discussions with its
Ocean Cruise lenders to amend the covenants on the two ship debt
facilities as follows:
-- Reduction in the EBITDA to debt repayment ratio from 1.2x to
1.0x for the periods from 31 July 2022 to 31 January 2024.
-- Reduction in the EBITDA to cash interest ratio from 2.0x to 1.7x as at 31 July 2022.
Interest on the Spirit of Discovery ship loan is incurred at an
effective annual interest rate of 4.31% (including arrangement and
commitment fees). Interest on the Spirit of Adventure ship loan is
incurred at an effective annual interest rate of 3.30% (including
arrangement and commitment fees). Interest payable on the Group's
ocean cruise ship debt deferrals is incurred at a variable rate of
SONIA plus a bank margin.
Accrued interest payable on the Group's ocean cruise ship loans
at 31 July 2022 is GBP3.2m (July 2021: GBP3.3m).
Total debt and finance costs
At 31 July 2022, deferred debt issue costs were GBP22.5m (July
2021: GBP27.5m). The movement of GBP5.0m represents expense
amortisation for the period.
During the period, the Group charged GBP20.5m (July 2021:
GBP19.0m) to the income statement in respect of fees and interest
associated with the bonds, term loan and ship loans. In addition,
finance costs recognised in the income statement include GBP1.9m
(July 2021: GBP0.1m) relating to interest and finance charges on
lease liabilities and net fair value losses on derivatives of
GBPnil (July 2021: GBP3.2m). The Group has complied with the
financial covenants of its borrowing facilities during the current
and prior periods.
Notes to the condensed consolidated interim financial statements
(continued)
17 Share-based payments
The Group has granted a number of different equity-based awards
which it has determined to be share-based payments. New awards
granted or approved during the six months ended 31 July 2022 were
as follows:
a) On 28 April 2022, nil cost options over 345,353 shares were
issued under the Deferred Bonus Plan to Executive Directors
reflecting their deferred bonus in respect of 2021/22, which vest
and become exercisable on the third anniversary of the grant date.
Under the Deferred Bonus Plan, executives receive a maximum of
two-thirds of the bonus award in cash and a minimum of one-third in
the form of rights to shares of the Company.
b) On 13 July 2022, nil cost options over 1,844,538 shares were
issued under the Restricted Share Plan to certain Directors and
other senior employees which vest and become exercisable on the
third anniversary of the grant date, subject to continuing
employment.
c) In July, the Board and shareholders approved the issue of an
additional new award called the Saga Transformation Plan (STP). The
STP has a five-year vesting period and participants receive a 12.5%
share in shareholder value (share price plus dividends) created
above a GBP6 per share hurdle over a five-year performance period
commencing from the grant date, subject to continuing employment.
For Directors and senior leaders, the STP will be equity-settled.
For other employees, the STP will be settled in cash. There is a
cap of GBP88.0m on the value of awards that may vest, and the
awards have a range of grant dates based on the tranche that each
participant falls into.
The fair values of all awards are assessed using techniques
based upon the Black-Scholes pricing model. The Group charged
GBP1.8m during the period (July 2021: GBP1.7m) to the income
statement in respect of equity-settled share-based payment
transactions.
18 Assets held for sale
At the end of the year ended 31 January 2021, the Group made the
decision to initiate an active programme to locate buyers for a
number of its freehold properties. At the point of reclassification
to held for sale, the carrying values of GBP16.9m were considered
to be equal to, or below, fair value less costs to sell and hence
no revaluation at the point of reclassification was required.
During the six months ended 31 July 2021, the Group disposed of
a property classified as held for sale in the period. Cash
consideration received (net of transaction costs) was GBP10.2m and
the carrying value of the property at the date of disposal was
GBP3.0m. Profit arising on disposal was GBP7.2m.
During the six-month period to 31 January 2022, the Group
declassified one of the properties from held for sale back to
property, plant and equipment, since it was no longer being
actively marketed for disposal. The carrying value of this property
as at 31 July 2021 was GBP3.0m. An impairment charge of GBP1.0m was
also recorded as a result of updated market valuations undertaken
to determine the fair value of each building.
As at 31 July 2022 the properties continue to be being actively
marketed and the disposals are expected to be completed within 12
months of the end of the financial period. No gains or losses were
recognised with respect to the properties during the six months
ended 31 July 2022 and the carrying values continue to be
representative of either each property's fair value or historic
cost, whichever is the lower.
19 Related party transactions
Related party transactions during the six months ended 31 July
2022 were consistent in nature, scope and quantum with those
disclosed in the Group's Annual Report and Accounts for the year
ended 31 January 2022 available at www.corporate.saga.co.uk .
Responsibility Statement
We confirm that to the best of our knowledge:
-- the condensed consolidated interim financial statements have
been prepared in accordance with UK-adopted IAS 34 'Interim
Financial Reporting' as issued by the IASB; and
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed consolidated set of interim financial statements;
and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last Annual Report and Accounts that
could do so.
On behalf of the Board
E A Sutherland J B Quin
Group Chief Executive Officer Group Chief Financial Officer
26 September 2022 26 September 2022
Independent Review Report to Saga plc
Conclusion
We have been engaged by Saga plc (the Company or the Group) to
review the condensed consolidated set of financial statements in
the interim financial report for the six months ended 31 July 2022
which comprises the condensed consolidated income statement,
condensed consolidated statement of comprehensive income, condensed
consolidated statement of financial position, condensed
consolidated statement of changes in equity, condensed consolidated
statement of cash flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated set of
financial statements in the interim financial report for the six
months ended 31 July 2022 is not prepared, in all material
respects, in accordance with IAS 34 'Interim Financial Reporting'
as adopted for use in the UK and the Disclosure Guidance and
Transparency Rules (DTR) of the UK's Financial Conduct Authority
(FCA).
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity (ISRE (UK) 2410) issued for use in the UK. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the interim financial
report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed
consolidated set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the 'Basis for
conclusion' section of this report, nothing has come to our
attention that causes us to believe that the Directors have
inappropriately adopted the going concern basis of accounting, or
that the Directors have identified material uncertainties relating
to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the group to cease to continue as a going
concern, and the above conclusion is not a guarantee that the Group
will continue in operation.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim financial report in accordance with the DTR
of the UK FCA.
As disclosed in Note 2.1, the latest annual financial statements
of the Group were prepared in accordance with UK-adopted
international accounting standards.
The Directors are responsible for preparing the condensed
consolidated set of financial statements included in the interim
financial report in accordance with IAS 34 as adopted for use in
the UK.
In preparing the condensed consolidated set of financial
statements, the Directors are responsible for assessing the Group's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated set of financial statements in the
interim financial report based on our review. Our conclusion,
including our conclusion relating to going concern, is based on
procedures that are less extensive than audit procedures, as
described in the 'Basis for conclusion' section of this report.
Independent Review Report to Saga plc (continued)
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Timothy Butchart
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
26 September 2022
Alternative Performance Measures Glossary
The Group uses a number of Alternative Performance Measures
(APMs), which are not required or commonly reported under
International Financial Reporting Standards, the Generally Accepted
Accounting Principles (GAAP) under which the Group prepares its
financial statements, but which are used by the Group to help the
user of the accounts better understand the financial performance
and position of the business.
Definitions for the primary APMs used in this report are set out
below. APMs are usually derived from financial statement line items
and are calculated using consistent accounting policies to those
applied in the financial statements, unless otherwise stated.
APMs may not necessarily be defined in a consistent manner to
similar APMs used by the Group's competitors. They should be
considered as a supplement, rather than a substitute, for GAAP
measures.
Underlying Profit/(Loss) Before Tax
Underlying Profit/(Loss) Before Tax represents the profit/(loss)
before tax excluding unrealised fair value gains and losses on
derivatives, the net profit on disposal of assets, impairment of
the carrying value of assets including goodwill, charge on closure
of defined benefit pension scheme, foreign exchange movements on
river cruise ship leases, costs incurred for ship debt holiday,
costs in relation to the acquisition of the Big Window, IFRS 16
lease accounting adjustment on river cruise vessels and
restructuring costs. It is reconciled to statutory loss before tax
within the Group Chief Financial Officer's Review.
This measure is the Group's key performance indicator and is
useful for presenting the Group's underlying trading performance,
as it excludes non-cash technical accounting adjustments and
one-off financial impacts that are not expected to recur.
Trading EBITDA/Adjusted Trading EBITDA
Trading EBITDA is defined as earnings before interest payable,
tax, depreciation and amortisation, and excludes the IAS 19R
pension charge, exceptional costs, Titan river cruise commitment
costs and impairments. Adjusted Trading EBITDA also excludes the
impact of IFRS 16 and the Trading EBITDA relating to the two ocean
cruise ships, Spirit of Discovery and Spirit of Adventure in line
with the covenant on the Group's revolving credit facility (RCF).
It is reconciled to Underlying Profit/(Loss) Before Tax within the
Group Chief Financial Officer's Review. Underlying Profit/(Loss)
Before Tax is reconciled to statutory loss before tax within the
Group Chief Financial Officer's Review.
This measure is linked to the covenant on the Group's RCF, being
the denominator in the Group's leverage ratio calculation.
Underlying Basic Earnings/(Loss) Per Share
Underlying Basic Earnings/(Loss) Per Share represents basic loss
per share excluding the post-tax effect of unrealised fair value
gains and losses on derivatives, the net profit on disposal of
assets, impairment of the carrying value of assets including
goodwill, charge on closure of defined benefit pension scheme,
foreign exchange gains on river cruise ship leases, costs incurred
for ship debt holiday, costs in relation to the acquisition of the
Big Window, IFRS 16 lease accounting adjustment on river cruise
vessels and restructuring costs. This measure is reconciled to the
statutory basic loss per share in Note 6 to the accounts.
This measure is linked to the Group's key performance indicator
Underlying Profit/(Loss) Before Tax and represents what management
considers to be the underlying shareholder value generated in the
period.
Available Cash
Available Cash represents cash held by subsidiaries within the
Group that is not subject to regulatory restrictions, net of any
overdrafts held by those subsidiaries. This measure is reconciled
to the statutory measure of cash in Note 13 to the accounts.
Available Operating Cash Flow
Available Operating Cash Flow is net cash flow from operating
activities after capital expenditure but before tax, interest paid,
restructuring costs, proceeds from business and property disposals
and other non-trading items, which is available to be used by the
Group as it chooses and is not subject to regulatory restriction.
It is reconciled to statutory net cash flow operating activities
within the Group Chief Financial Officer's Review.
Alternative Performance Measures Glossary
Adjusted Net Debt
Adjusted Net Debt is the sum of the carrying values of the
Group's debt facilities less the amount of Available Cash it holds
but excludes the ship debt and the Ocean Cruise business Available
Cash. It is linked to the covenant on the Group's RCF, being the
numerator in the Group's leverage ratio calculation, and is
analysed further within the Group Chief Financial Officer's
Review.
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END
IR SEUFAMEESEDU
(END) Dow Jones Newswires
September 27, 2022 02:01 ET (06:01 GMT)
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