REG - SAGA Plc - Interim Results
27/09/2022 07:00
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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 £258.3m £156.4m 65%
Underlying Profit/(Loss) Before Tax(1) £14.0m (£2.8m) 600%
(Loss)/profit before tax (£257.5m) £0.7m
Available Operating Cash Flow(1) £31.5m £41.9m (25%)
Net debt £721.3m £740.3m (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 £14.0m
for the first half, compared with an Underlying Loss(1) of £2.8m 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 £179.0m of
Available Cash(1) and a £50.0m undrawn revolving credit facility.
· Net debt reduced to £721.3m which is £7.7m 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 £257.5m reflects a £269.0m
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, £449.6m 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 £20m to £30m and
grow future earnings from this level. This compares to our previous guidance
of £35m to £50m.
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 £318.
· Ocean Cruise bookings for the full year, at 18 September 2022,
reflected a 74% load factor with a per diem of £319.
· 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 £325. This is on track to deliver our
commitment of £40m 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 £137.6m 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 £76.0m 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 £74 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 £60 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 £269.0m 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 £18.4m in the first half benefit from a
one-off £10.0m 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.
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
(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/
(http://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
(http://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 (http://www.saga.co.uk)
Chairman's Statement
I am pleased to report that Saga has made an underlying profit of £14.0m 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 £14.0m, compared with an
Underlying Loss Before Tax(1) of £2.8m 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
£269.0m impairment of Insurance goodwill, the Group reported a loss before
tax of £257.5m.
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
£179.0m 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 £318. 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 £319, both ahead of the 68%
load factor and £299 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 £325. This
means we are on track to achieve our target of £40m 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 £137.6m 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 £76.0m 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 £74 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 £60 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 £18m 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 £721.3m, £7.7m 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 £14.0m in
the first half, compared to an Underlying Loss Before Tax(1) of £2.8m in the
prior period. The Underlying Loss Before Tax(1) for Cruise and Travel reduced
from £51.2m in the prior period to £11.6m 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 £31.1m in the prior period to £16.4m 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 £257.5m due to a £269.0m 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 £15 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 £20-30m for the full year.
In terms of our financial position, we continue to have significant available
liquidity, with £179m of Available Cash(1) at 31 July 2022 and no debt
maturities until 2024, when we are due to repay £150m on our corporate bonds.
Net debt reduced by around £8m in the first half of the year, and we
restarted capital repayments on our cruise ship debt, with £15m repaid in H1
and roughly £30m 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
£m 6m to Change 6m to
July 2022 July 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 ship leases (0.3) -
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 £258.3m (H1 2021: £156.4m) 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 £14.0m in the first
half of the current year compared to an Underlying Loss Before Tax(3) of
£2.8m in the prior period. This is primarily due to a £39.6m reduction in
Cruise and Travel losses, of which £28.5m 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 £11.3m (H1 2021: £9.5m), which excludes
finance costs that are included within the Cruise and Travel businesses of
£9.6m (H1 2021: £9.6m). 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 £257.5m includes a £269.0m impairment to
Insurance goodwill, £2.1m of restructuring costs, £0.3m foreign exchange
loss on river cruise ship leases, £0.4m IFRS 16 adjustment loss on ST&H
river cruise ships, £0.6m acquisition costs on the purchase of The Big Window
Consulting Limited and £0.9m fair value gain on derivatives de-designated in
the period.
The profit before tax for the first half of the prior year includes £7.1m
profit on disposal of assets in relation to the sale of property, £3.2m fair
value loss on derivatives de-designated in the period due to the suspension of
Cruise and Travel operations and £0.4m of restructuring costs incurred to
separate the Saga and Titan travel businesses.
Tax expense
The Group's tax charge for the period was £5.6m (H1 2021: £3.8m),
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 £1.6m (H1 2021: £1.1m 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 £2.6m 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 £56.4m (H1 2021: £63.3m)
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 insurance. 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
£m 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 £37.0m
from £39.5m, and on an earned basis (which includes the impact of the written
to earned adjustment), reduced to £35.5m from £37.9m.
A key metric for the Retail Broking business is written gross profit, after
deducting marketing expenses, but before deducting overheads. This reduced
from £81.0m in the prior period to £77.3m 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 £2.7m 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 £3.3m, while there was
a £9.7m 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 £74.0 in the first half of the year, compared with £75.6
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,
£9.1m (H1 2021: £9.6m) of income had been deferred in relation to three-year
fixed-price policies, £3.9m (H1 2021: £3.4m) 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 £60 per policy compared to £74 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 £97.1m
(H1 2021: £105.0m) 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 £32.9m (H1 2021: £36.1m),
contributing £76.0/policy (H1 2021: £73.1/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 £23.8m (H1 2021: £27.0m),
and on a per policy basis this was £71.5/policy (H1 2021: £77.6/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 £4.8m.
Sales for the PMI product were stable; however, gross profit after marketing
costs was £0.6m 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 share21F Quota share
£m Reported Underlying(8) Change Reported Underlying(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 £74.4m (H1 2021: £84.1m) 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
£8.7m 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 £18.4m (H1 2021: £18.0m) 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)
£m Reported Quota share Underlying(9) Change Reported Quota share Underlying(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 -
16.1 (2.3) 18.4 2.2% 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 £0.8m to £3.3m (H1 2021: £4.1m) 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
£m Ocean River Cruise and Travel Total Cruise and Travel Change Ocean Cruise River Cruise and Travel Total Cruise
Cruise 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 (£) 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 (£) 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
£318 (H1 2021: £294). This has resulted in a significantly reduced
Underlying Loss Before Tax(10) from £35.4m to £6.9m, 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 £15.8m in H1 2021/22 to £4.7m 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 £319 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
£290, resulting in the current per diem of £325 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 2022 Change 19 September 2021 18 Change 19 September 2021
September 2022
Ocean Cruise revenue (£m) 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 (£) 319 6.0% 301 325 5.9% 307
River Cruise and Travel revenue (£m) 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
£m Other Central Costs Total Change Other Central Costs Total
Businesses Businesses
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 £0.7m compared to the prior period, partly due to an investment in
marketing in the Saga Money business of £1.6m above the prior period, which
has been partially offset by a £1.3m increase in revenue.
Central operating expenses increased to £17.2m (H1 2021: £12.8m).
Administration costs, adjusted for transfers to local business units, were
flat on the prior period, but net costs increased by £4.4m 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 £11.3m (H1 2021: £9.5m), which excludes
finance costs that are included within the Cruise and Travel businesses of
£9.6m (H1 2021: £9.6m). 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)
£m 6m to Change 6m to
July 2022 July 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 31.2 (40%) 52.1
operations(12)
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 £31.2m compared with £52.1m in the prior period.
Trading EBITDA(12) for unrestricted businesses reduced by £7.7m, 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 £12.5m inflow to £3.5m outflow, mainly relating to
the Retail Broking segment and a £3.0m increase in dividends paid by AICL.
For River Cruise and Travel, the Group provided £12.6m of cash to the
business to cover trading cash flows in the current year. This is a reduction
of £7.3m when compared with the £19.9m 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 £68.3m, of which £60.2m is held in trust. The Group
must hold a minimum of £5.6m 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 £12.9m (H1
2021: £9.7m), with an increase in advance customer receipts of £4.0m (H1
2021: £25.1m), and net trading income of £10.2m (H1 2021: net trading costs
of £13.4m), partially offset by capital expenditure of £1.3m (H1 2021:
£2.0m). Net of interest costs of £7.3m (H1 2021: £7.6m), the Ocean Cruise
business reported net cash inflow before any capital repayments on the ship
debt of £5.3m for the first half of 2022/23 compared to a net inflow of
£2.1m 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 £41.9m in the prior period to £31.5m 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 £5.8m (H1 2021: £4.2m). 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 £250m fixed-rate unsecured bond. The proceeds of the
bond were used to fund the settlement of £100m of the existing bond and to
repay in full the £70m 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:
£m 6m to 6m to
July 2022 July 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:
£m 6m to Change 6m to
July 2022 July 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:
£m 6m to Change 6m to
July 2022 July 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 - (0.2)
Profit Before Tax(15)
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 EBITDA(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 £718.6m
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 £269.0m 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
£612.5m (31 January 2022: £621.3m). 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 £37.4m to £292.8m (31 January
2022: £330.2m), partly due to payment of £15.0m 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
£m £m £m £m £m £m
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
£m £m £m £m £m £m
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)
£m Gross Reinsurance assets(18) Net Gross Reinsurance 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 £15.6m in the period to 31 July 2022 from the previous year
end, primarily due to a £7.1m reduction in reported net claims reserves,
coupled with a £9.5m 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 £16.1m.
Financing
At 31 July 2022, the Group's net debt was £721.3m, which is £7.7m 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 £40m 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 £100m to £50m.
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.
£m Maturity date(20) 31 July 2022 31 January 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
Spirit of Adventure ship loan September 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:
£m 31 July 2022 31 January 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 £16.3m to a £17.4m surplus at 31 July 2022 (£1.1m
surplus as at 31 January 2022).
£m 31 July 2022 31 January 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 £96.4m to
£314.5m, 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 £80.1m to
£331.9m. 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 £5.8m deficit funding contribution in February 2022.
Net assets
Since 31 January 2022, total assets have decreased by £207.0m and total
liabilities have increased by £49.2m, resulting in an overall decrease in net
assets of £256.2m.
The decrease in total assets is primarily due to a reduction in goodwill of
£269.0m following the impairment to the Insurance CGU and a decrease in
financial assets of £34.1m following a reduction to the Underwriting
investment portfolio, partly to fund £15.0m of dividends from AICL. This has
been partially offset by an increase in trust accounts of £36.8m due to the
ramp up in River Cruise and Travel operations, an increase in right-of-use
assets of £41.5m following delivery of the Spirit of the Danube river cruise
ship and an increased surplus of £16.3m in the defined benefit scheme.
The increase in total liabilities reflects a £28.9m increase in financial
liabilities, which was due to a £42.2m increase in lease liabilities
following the delivery of the Spirit of the Danube river cruise ship,
partially offset by a £15.3m capital repayment on the Spirit of Discovery
ship facility. There was also an increase in contract liabilities of £32.4m
following the ramp up of Cruise and Travel operations in the period, partially
offset by a £11.2m 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, the terms also included a requirement to repay the
RCF on 1 March 2024 if the remaining £150m 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 £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
(http://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 in outlook Mitigations
Regulatory landscape Increasing risk which reflects recent incidents Preparation in advance of consumer duty implementation, the embedding of 1(st)
line control self-assessment testing. Detailed incident investigation and root
cause analysis.
Insurance risk Increasing risk due to claims supply chain constraints and inflation risk Implementation of technical claims review, the use of coinsurance and
reinsurance and investment in advanced analytics across pricing and claims.
Breach of Data Protection Act 2018/UK GDPR Increasing risk due to project work still to be completed Decommissioning of key legacy systems alongside greater levels of testing and
completion of key projects.
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 and execution Reflects delivery of 2(nd) and 3(rd) line assurance plan, enhanced change
governance, FCA market study changes and an external strategy review within
Insurance.
Saga brand and relevance Reflects status of brand advertising campaign with metrics at, or above,
benchmark.
Condensed consolidated income statement
for the period ended 31 July 2022
Note Unaudited Unaudited
6m to 6m to 12m to
Jul 2022 Jul 2021 Jan 2022
£m £m £m
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 0.1 (0.1) (0.4)
assets and software
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
£m £m £m
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 - - 0.1
statement during the period
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
Note Unaudited Unaudited
As at As at As at
Jul 2022 Jul 2021 Jan 2022
Assets £m £m £m
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
Share premium Retained (deficit)/ Share-based payment reserve Fair value reserve Hedging reserve Total equity
earnings
Issued capital
£m £m £m £m £m £m £m
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
Note Unaudited Unaudited 12m to
6m to 6m to Jan 2022
Jul 2022 Jul 2021
£m £m £m
(Loss)/profit before tax (257.5) 0.7 (23.5)
Depreciation, impairment and net loss on disposal, of property, plant and 19.7 6.9 22.2
equipment and right-of-use assets
Amortisation and impairment of intangible assets and goodwill, and 273.9 4.9 20.6
(profit)/loss on disposal of software
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 0.1 - 0.3
right-of-use assets
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 (8.8) (10.4) (18.9)
equipment, and intangible assets
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 (£m), 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 (http://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
(http://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
Unaudited Motor broking Home broking Other insurance broking Under-writing Total Cruise and Travel Other Businesses and Central Costs Adjustments Total
6m to Jul 2022
£m £m £m £m £m £m £m £m £m
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
Unaudited Motor broking Home broking Other insurance broking Under-writing Total Cruise and Travel Other Businesses and Central Costs Adjustments Total
6m to Jul 2021
£m £m £m £m £m £m £m £m £m
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
12m to Motor broking Home broking Other insurance broking Under-writing Total Cruise and Travel Other Businesses and Central Costs Adjustments Total
Jan 2022
£m £m £m £m £m £m £m £m £m
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 (0.1) - - - (0.1) 0.1 (0.4) - (0.4)
assets and software
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 Cruise Other Businesses and Central Costs Total
and
Travel
Unaudited on insurance
6m to Jul 2022
underwritten Other Total
by the Group Revenue Insurance
Major product lines £m £m £m £m £m £m
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 Cruise Other Businesses and Central Costs Total
and
Travel
Unaudited on insurance
6m to Jul 2021
underwritten Other Total
by the Group Revenue Insurance
Major product lines £m £m £m £m £m £m
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 Cruise Other Businesses and Central Costs Total
and
Travel
12m to Jan 2022 on insurance
underwritten Other Total
by the Group Revenue Insurance
Major product lines £m £m £m £m £m £m
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
£m £m £m
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 £5.6m (July 2021: £3.8m)
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 £1.6m (July 2021: £1.1m over
provision) and the impact of the change in the tax rate on opening deferred
tax balances of £nil (July 2021: £2.6m credit).
Reconciliation of net deferred tax assets:
Unaudited Unaudited
6m to 6m to 12m to
Jul 2022 Jul 2021 Jan 2022
£m £m £m
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
£m £m £m
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 139.2 139.5 139.5
diluted loss per share
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:
£m
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 £1.7m was settled in cash. In addition to
the £1.7m cash purchase consideration transferred, as part of the purchase
agreement the Group granted a £0.5m share-based payment arrangement which
vests over three years subject to a number of conditions being met. The £0.5m
was transferred in cash to the Group's share administrators on the date of
completion. Cash of £1.3m was acquired with the Big Window, resulting in a
net cash outflow of £0.9m.
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 £0.5m goodwill arising on acquisition in the period to 31 July 2022.
The Big Window contributed £0.3m of revenue and £0.1m 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 2022 As at Jul As at Jan 2022
2021
£m £m £m
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) £m
Cash flow Di
sc
Central scenario stress test scenario ou
nt
ra
te
st
re
ss
te
st
sc
en
ar
io
31 July 2022 31 January 2022 31 July 2022 31 January 2022 31 July 2022 31 January 2022
£m £m £m £m £m £m
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 £269.0m 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 rate Terminal growth rate Cash flow (annual)
+1.0ppt -1.0ppt £m +1.0ppt -1.0ppt £m +10% -10%
£m £m £m £m
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 £0.5m was
immediately impaired in full.
9 Intangible fixed assets
During the period, the Group capitalised £3.9m (July 2021: £6.3m) of
software assets, disposed of assets with a net book value of £nil (July 2021:
£nil) and charged £4.5m (July 2021: £4.9m) of amortisation and impairment
to its intangible assets. Profit arising on disposal was £0.1m (July 2021:
£nil).
10 Property, plant and equipment
During the period, the Group capitalised assets with a cost of £1.7m (July
2021: £2.7m), disposed of assets with a net book value of £0.1m (July 2021:
£0.1m) and charged £11.6m (July 2021: £6.5m) of depreciation and impairment
to its property, plant and equipment. Profit arising on disposal was £nil
(July 2021: £0.1m loss).
As at 31 July 2022, capital amounts contracted for but not provided for, in
the financial statements, amounted to £nil (July 2021: £nil).
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 £m
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 £49.6m (July
2021: £0.3m) and charged £8.1m (July 2021: £0.3m) 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 river 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 £nil (July 2021: £89.3m). 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
Note Unaudited Unaudited
As at Jul 2022 As at Jul As at Jan 2022
2021
£m £m £m
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
Note Unaudited Unaudited As at Jan 2022
As at Jul 2022 As at Jul 2021
£m £m £m
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 2 Level 3 Total Level Level 2 Level 3 Total
1 1
£m £m £m £m £m £m £m £m
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 2 Level 3 Total
1
£m £m £m £m
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 £5.4m (July 2021: £1.4m
losses) on cash flow hedging instruments through other comprehensive income
(OCI) into the hedging reserve. The Group recognised £nil gains (July 2021:
£nil 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 £0.4m, 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 £nil 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 £2.3m gain (July
2021: £1.2m 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 2022 As at As at Jan 2022
Jul 2021
£m £m £m
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 £59.1m (July 2021:
£120.5m). 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 2022 As at Jul 2021 As at Jan 2022
£m £m £m
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 £16.3m, resulting in an overall scheme surplus of £17.4m. 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 £96.4m to £314.5m, 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 £80.1m to £331.9m. A £5.8m 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 As at Jul 2022 As at Jan 2022
Unaudited As at Jul 2021
£m £m £m
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 As at Jul 2022 As at Jan 2022
Unaudited As at Jul 2021
£m £m £m
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 69.8 72.9 65.4
the condensed statement of financial position)
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 228.6 273.5 249.1
share
Unaudited As at Jul 2022 As at Jan 2022
Unaudited As at Jul 2021
£m £m £m
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
£2.8m (July 2021: £4.2m (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
£m £m £m
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 £150.0m seven-year senior unsecured bond (repayable May 2024),
a £250.0m five-year senior unsecured bond (repayable July 2026) and a
£100.0m 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 £40.0m 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 £100.0m to £50.0m.
At 31 July 2022, the Group's financing facilities consist of a £150.0m
seven-year senior unsecured bond (repayable May 2024), a £250.0m five-year
senior unsecured bond (repayable July 2026) and a £50.0m 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 £50.0m RCF remained undrawn. The Group's
£200.0m 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 £2.5m (July
2021: £3.2m).
Ocean cruise ship loans
In June 2019, the Group drew down the financing for its ocean cruise ship,
Spirit of Discovery, of £245.0m. 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 £10.2m 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 £32.1m 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 £280.8m. 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 (£51.8m) 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 £3.2m (July 2021: £3.3m).
Total debt and finance costs
At 31 July 2022, deferred debt issue costs were £22.5m (July 2021: £27.5m).
The movement of £5.0m represents expense amortisation for the period.
During the period, the Group charged £20.5m (July 2021: £19.0m) 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 £1.9m (July 2021: £0.1m) relating to interest and finance
charges on lease liabilities and net fair value losses on derivatives of £nil
(July 2021: £3.2m). 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 £6 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 £88.0m 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 £1.8m during the period (July
2021: £1.7m) 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 £16.9m 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 £10.2m and the carrying value of the property at the
date of disposal was £3.0m. Profit arising on disposal was £7.2m.
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 £3.0m. An impairment charge of £1.0m
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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