REG - SAGA Plc - Interim Results
27/09/2023 07:00
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RNS Number : 7545N SAGA PLC 27 September 2023
27 September 2023
Saga plc
Interim results for the six months ended 31 July 2023
Cruise and Travel drive double-digit revenue growth
Optimising Insurance in a difficult market
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
2023. These results are reported under International Reporting Standard (IFRS)
17 'Insurance Contracts' and any prior year comparisons have been restated
accordingly.
Six months ended 31 July 2023 31 July 2022 Change
(restated)
Revenue(1) £355.3m £309.8m 15%
Underlying Profit Before Tax (Under Previous IFRS)(2) £13.4m £14.0m (4%)
Underlying Profit Before Tax0F(2) £8.0m £14.6m (45%)
Loss before tax(3) (£77.8m) (£261.8m) 70%
Available Operating Cash Flow(2) £85.9m £31.5m 173%
Net Debt(2) £657.4m £721.3m (9%)
Leverage ratio 7.0x 8.5x (1.5x)
Euan Sutherland, Saga's Group Chief Executive Officer, said:
"I am pleased to announce a 15% increase in revenue for the first half of the
year, due to the continued growth of our Cruise and Travel businesses, in
addition to further debt reduction. Alongside this, under consistent
accounting standards, we report an underlying half year profit that is broadly
in line with the prior year.
"In Ocean Cruise, bookings are on track to achieve our targets for the full
year, reflecting continued strong customer demand, while our River Cruise
business has returned to profit with a 34% increase in guest numbers. Travel
is also on track to return to profit for the full year.
"In Insurance, we continue to develop our business against the backdrop of a
difficult inflationary market. While travel and private medical insurance are
achieving strong year-on-year revenue growth, the performance in motor
continues to weigh on earnings and this has resulted in an impairment of
goodwill. In Underwriting, we have paused the process for a potential sale of
the business as, while we had established terms for the disposal, the Board
believes there is potential to generate greater value once market conditions
improve.
"Saga Money has expanded the range of financial products offered to our
customers, most recently through the launch of a range of fixed rate savings
accounts, and legal services, with more to come shortly.
"Overall, I am pleased with the progress made in the year to date. Looking
ahead to the full year, we are keeping tight control of our costs and are
confident that we will deliver significant double-digit growth in revenue and
underlying profit that is ahead of market estimates, and repay the May 2024
bond when it falls due. This, alongside our continued focus on debt reduction,
leaves us well placed as we position Saga for long-term sustainable growth."
Operational and financial highlights
· Revenue(1) increased 15%, reflecting continued momentum in Cruise
and Travel.
· The Group reports an Underlying Profit Before Tax (Under Previous
IFRS)(2) of £13.4m, compared with £14.0m in the prior year which benefited
from one-off Insurance Underwriting releases.
· Under IFRS 17, Underlying Profit Before Tax(2) was £8.0m,
compared with £14.6m in the prior year.
· Net Debt(2), at 31 July 2023 was £657.4m, £63.9m lower than at
31 July 2022 and £54.3m lower than at 31 January 2023. This included
Available Cash(2) of £180.7m.
· Our reported loss before tax of £77.8m reflects a £68.1m
impairment of Insurance Broking goodwill. At 31 July 2023, £381.5m of
Insurance goodwill remained on the balance sheet.
· For the full year, we expect to achieve significant double-digit
growth in revenue and Underlying Profit Before Tax(2) when compared with the
prior year, ahead of current estimates.
_______________________________
1 Revenue is stated net of ceded reinsurance premiums earned on business
underwritten by the Group of £8.0m (H1 2022: £7.3m) less £5.2m onerous
contract provision (H1 2022: nil)
2 Refer to the Alternative Performance Measures Glossary for definition and
explanation
3 Loss before tax includes an Insurance goodwill impairment of £68.1m (H1
2022: £269.0m)
Divisional performance
Cruise - Ocean Cruise load factor exceeds 80%, while River Cruise returns to
profit
Ocean Cruise
· Ocean Cruise reported an Underlying Profit Before Tax(4) of
£12.9m for the first half of the year, compared with an Underlying Loss
Before Tax(4) of £6.9m in the year before.
· Ocean Cruise Trading EBITDA (Excluding Overheads)(4) in the first
half of the year was £40.1m compared with £17.3m in the prior year. This was
delivered through a load factor of 83%, 17ppts ahead of the 66% in the prior
year, and a per diem of £333 which was 5% higher.
· Ocean Cruise Available Operating Cash Flow(4), after capital
repayments and interest on the ship facilities, was £7.8m for the first six
months of the year, compared with an outflow of £9.7m for the same period in
2022.
· At 24 September 2023, the booked load factor for the full year
was 86%, a 12ppt increase when compared with the same point last year with the
per diem of £332, 4% ahead. We expect to report at least £40m Ocean Cruise
Trading EBITDA (Excluding Overheads)(4) per ship.
· Looking ahead to 2024/25, the booked load factor, at 24 September
2023, was 49% and the per diem was £359. This compares with 43% and £326 at
the same point last year.
River Cruise
· River Cruise reported a £1.5m Underlying Profit Before Tax(4) in
the first half of the year, a significant improvement when compared with the
£2.1m Underlying Loss Before Tax(4) in the year before.
· Revenue growth was in excess of 40%, with the number of guests
sailing with us increasing 34%, reflecting a load factor of 83% and per diem
of £296.
· Booked revenue at 24 September 2023 was £43.3m for the full
year, 52% higher than at the same point last year, representing a load factor
of 85% and per diem of £285. Bookings reflect a significant increase in the
number of first-time buyers following the decision to offer more shorter
seven-day cruises.
· At the same date, the booked load factor for 2024/25 was 30% with
revenue and guests 40% and 31% higher, when compared to the same time last
year.
Travel - Profitability returning for the full year
· In line with previous guidance, the Travel business reported a
small Underlying Loss Before Tax(4) of £2.6m for the six months ended 31 July
2023, in line with the prior year.
· At 24 September 2023, the booked revenue for the full year of
£155.8m was 46% ahead of the same point in the prior year, with the volume of
booked passengers 27% ahead. This places the business on track to return to an
Underlying Profit Before Tax(4) for the full year, in line with previous
guidance.
· At the same date, booked revenue in relation to 2024/25
departures was £67.5m from 19.4k passengers. This compares with revenue of
£58.9m and 18.1k passengers at the same point in the year before, reflecting
an increase in the number of passengers booking, but also a higher revenue per
passenger.
Insurance - Optimisation in a difficult market
Insurance Broking
· For the six months to 31 July 2023, Insurance Broking reports an
Underlying Profit Before Tax(4) of £23.8m on an earned basis, compared with
£36.7m(5)in the prior year.
· The number of policies sold, across all products, for the first
half of the year was 0.8m, 6% behind the prior year, reflecting lower motor
and home volumes, broadly flat private medical insurance and higher travel
insurance policies. The number of policies in force at 31 July 2023 was 1.6m,
5% behind 31 July 2022.
· Travel insurance reported a 19% year-on-year revenue increase
supported by 2% growth in policy sales.
· Private medical insurance revenue grew 12% on a broadly stable
policy base.
· The motor insurance market remained challenging as underwriting
rates continued to increase, reflecting the impact of ongoing claims
inflation, faster than market-wide customer pricing. This continued to weigh
on margins, particularly within our three-year fixed-price policies. For the
first half of the year, motor and home:
o Policies sold and policies in force were 8% and 7% behind the prior year
respectively.
o Margin per policy was £56, compared with £72(5) in the prior year.
Looking ahead to the full year, we expect the margin to remain broadly at this
level.
o Customer retention continues to be strong at 84%, 1ppt higher than in the
prior year.
· As lower policy sales in the current year translate into fewer
renewal opportunities in future years, this, alongside lower margins, resulted
in the goodwill allocated to the Insurance Broking business being impaired by
£68.1m. At 31 July 2023, £381.5m of Insurance goodwill remained on the
balance sheet.
· We are taking action to mitigate the pressure on earnings and
have identified a series of efficiencies that will reduce annual Insurance
operating expenses by £5-10m.
Insurance Underwriting
· For the first half of the year, Insurance Underwriting reported
an Underlying Loss Before Tax(4), after expected recoveries from reinsurance
arrangements, of £3.6m, compared with an Underlying Profit Before Tax(4) of
£15.8m(5) in the year before.
· This performance was heavily impacted by claims inflation,
estimated at around 15% in the year to date as the applied price increases are
yet to fully flow through to insurance revenue.
· In addition, we have observed an uptick in claims frequency,
particularly in relation to third-party damage claims and the number of large
bodily injury claims remains elevated.
· These factors, when combined, result in a current year combined
operating ratio (COR), before reinsurance arrangements, for the first half of
the year of 136.4%, 23.1ppts higher than the 113.3%(5) in the prior year.
· Looking ahead to the full year, the Insurance Underwriting
business is expected to report an improved gross COR as the price increases
continue to flow through to the result.
Wider strategic progress
· Saga Money launched two new products including a range of fixed
rate savings accounts and legal services for wills, probate and lasting powers
of attorney.
· Within Saga Media, the digital newsletter is reaching more than
750k readers three times a week and the Saga Magazine is distributed to 129k
subscribers per month.
· Delivery against our data strategy is progressing with our global
consent programme now live for all new customers, completion of reconsent of
existing customers on track for next year and the successful trial of a new
customer cross-sell journey.
· Our customer transactional net promoter score continued to grow,
now at 62 compared with 61 last year.
Financial position
Reducing our level of debt remains a key priority for the Group and good
progress was made in the first half of the year as Net Debt(4) reduced by
£54.3m when compared with 31 January 2023. The challenges within Insurance,
and motor in particular, however, continue to weigh on the Group's cash
generation and therefore the rate at which we are able to de-lever.
We had previously announced that we were looking to sell our Insurance
Underwriting operations and, while we were able to establish terms for the
sale, the Board believes that greater value could be generated once conditions
within the insurance market improve. We will, however, continue to evaluate
our options as the landscape evolves.
The Group expects to meet the £150m bond repayment due in May 2024 through a
combination of Available Cash(4) resources and drawdown of the loan facility
with Roger De Haan. To provide additional financial flexibility following
repayment of the bond, the Group has agreed a £35m increase to the facility,
taking the total to £85m, and an extension to the expiry date, to 31 December
2025.
To further increase the Group's financial flexibility, we have taken, and will
continue to take action on costs which include reduction of the Central Cost
base by at least £15m per annum and the rephasing of investments in our newer
businesses.
We remain confident in the Group's ability to repay the 2024 bond and we will
continue to take the necessary steps to prioritise debt reduction.
Outlook
In Cruise, we expect to achieve at least £40m Ocean Cruise Trading EBITDA
(Excluding Overheads)(4) per ship for the full year, through a load factor of
around 86%, with the opportunity to grow this further in 2024/25. River Cruise
and Travel, when combined, are anticipated to return to an Underlying Profit
Before Tax(4) for the full year, in line with pre-pandemic levels.
Insurance remains challenging as motor broking continues to weigh on earnings,
however, plans are underway to re-develop aspects of our operation which will
somewhat mitigate this. As a result, full year Insurance Broking
profitability, on a written basis, is expected to be lower than the prior
year. Repricing of the Insurance Underwriting motor book from mid-2022 onwards
is starting to more fully benefit insurance revenues, and this is expected to
lead to an improved gross combined operating ratio in the second half of
2023/24.
Building on the progress made during the first six months of the year, Saga is
well-placed to achieve full year double-digit growth in revenue and underlying
profitability, when compared with 2022/23, and build on the opportunities
ahead as we position Saga for sustainable growth.
END
Management will hold a presentation for analysts and investors at 9.30am
today. The webcast can be accessed by registering at
www.investis-live.com/saga-group/64d6149a2be9e41300ebdc0b/dwqd
(http://www.investis-live.com/saga-group/64d6149a2be9e41300ebdc0b/dwqd) .. 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 2023 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 2023, 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.
Shareholders will continue to benefit from the complimentary digital
subscription to the Saga Magazine. For those that have already taken advantage
of this, the existing voucher codes will be extended for a further 12 months
and those that have not, but wish to do so, should contact the team at
www.saga.co.uk/chat (http://www.saga.co.uk/chat) .
For further information, please contact:
Saga plc Tel: 07732 093 007
Emily Roalfe, Head of Investor Relations and Treasury Email: emily.roalfe@saga.co.uk
Headland Consultancy Tel: 020 3805 4822
Susanna Voyle Tel: 07980 894 557
Will Smith Tel: 07872 350 428
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)
_______________________________
(4) Refer to the Alternative Performance Measures Glossary for definition and
explanation
(5)The prior year has been restated to reflect the adoption of IFRS 17
'Insurance Contracts'
Chairman's Statement
Saga made progress during the first six months of the financial year,
particularly within the Cruise and Travel businesses which reported a
significant uplift in revenue. When combined, this was more than 40% higher
than in the same six-month period the year before.
Our ocean cruise ships are seeing a high level of demand and based on current
bookings, are expected to sail with strong load factors for the full year and
with a higher revenue per guest per night than before. We have also been
working hard to develop our River Cruise operations to provide the same levels
of satisfaction that guests experience on board our ocean cruise ships. The
changes we have made to date have been well received.
In Travel, we have seen an increase in the number of customers booking their
holidays with us and we expect this to continue into the latter part of the
year.
Motor insurance continues to be a challenge and the profitability of that
business has declined when compared with the prior year. We are focused on
re-developing aspects of our operation which will reduce not only the costs
associated with operating the Insurance Broking business, but also our central
function.
As part of our continued focus on debt reduction and ambition to move towards
a capital-light model, we previously indicated that we had decided to sell our
Insurance Underwriting operations. While a sale would have been possible, with
terms having been established, the current conditions within the motor
insurance market mean that a transaction now would not deliver the best value
for the Group. Consequently, I have extended my existing £50.0m facility to
£85.0m, providing incremental financial flexibility ahead of the bond
repayment in May 2024.
We are continuing to broaden the catalogue of products we are able to offer
our customers and, in Saga Money, which specialises in supporting our
customers with their financial needs, we have recently launched two new
products. These include a range of fixed rate savings accounts and legal
services in the form of support with wills, probate and lasting powers of
attorney.
We are focused on ensuring that Saga operates as efficiently as possible as we
continue to reduce debt and position Saga for sustainable growth. While we are
only six months into the financial year, I am pleased with the progress made
and look forward to updating further as part of our full year results.
Group Chief Executive Officer's Statement
Continued progress against our growth plan
In the first half of the year, we continued to make progress against our
three-step strategic growth plan. The Cruise business went from strength to
strength with full year Ocean Cruise bookings already ahead of our target and
guest satisfaction in River Cruise improving. Our Travel business saw a
significant uplift in the number of passengers travelling and is on track to
return to profit this year. Insurance has continued to be a challenge,
particularly in motor, however, it remains a material proportion of the
Group's earnings. Saga Money is also developing, having launched two new
products earlier this month.
Significant growth in Cruise and Travel
Saga reports an Underlying Profit Before Tax (Under Previous IFRS)(1) of
£13.4m for the first half of the year, compared with £14.0m in the prior
year which benefitted from one-off Insurance Underwriting reserve releases.
This reflects significant improvements in Cruise and Travel but continued
pressure within Insurance from the effects of motor claims inflation and
delays to market price increases.
Following the adoption of International Financial Reporting Standard (IFRS) 17
'Insurance Contracts', this equates to an Underlying Profit Before Tax5F(1) of
£8.0m, compared with £14.6m(2) for the same six months in the year before.
While the adoption of IFRS 17 changes the presentation and timing of profit
recognition, it does not impact the underlying performance of the Group.
For the six months ended 31 July 2023, we report a loss before tax of £77.8m
which includes a £68.1m impairment of Insurance Broking goodwill. This
compares with a loss of £261.8m(2) in the year before which included an
Insurance goodwill impairment of £269.0m.
Deleveraging also continued, benefiting from both increased Trading EBITDA(1)
and lower Net Debt(1) which, at 31 July 2023, was £657.4m or £54.3m lower
than at 31 January 2023. This included Available Cash(1) of £180.7m, £23.2m
higher than at 31 January 2023.
The progress in the first six months of the year, particularly within Cruise,
Travel and Money, provides us with a strong platform as we move into the
second half. Our drive to provide our customers with exceptional experiences
every day, supported by our focus on data, leaves us well-positioned to return
the business to long-term sustainable growth.
Our growth plan
As we have previously published, we are focused on strategic delivery under
our three-step growth plan. An update on our progress, during the past six
months, in each of these areas is set out below.
Step 1
The first step in our growth plan is focused on maximising our core businesses
of Cruise, Travel, Insurance and Money.
Cruise
In the first six months of the year, Ocean Cruise reported an Underlying
Profit Before Tax(1) of £12.9m compared with an Underlying Loss Before Tax(1)
of £6.9m in the prior year which included residual impacts from the pandemic.
Revenue was 37% ahead of the prior year, delivered through a load factor of
83% and per diem of £333 which were 17ppts and 5% ahead of the same period
for last year respectively. This equated to an Ocean Cruise Trading EBITDA
(Excluding Overheads)(1) of £40.1m, compared with £17.3m in the prior year.
In addition to delivering a significant uplift in revenue, Trading EBITDA
(Excluding Overheads)(1) and Underlying Profit Before Tax(1), the Ocean Cruise
business also reported positive Available Operating Cash Flow(1), even after
allowing for the capital repayments and associated interest on the two ship
facilities. In the six months to 31 July 2023, this equated to £7.8m which
compares with an outflow of £9.7m in the same six-month period in the year
before.
Bookings for the full year, at 24 September 2023 were exceptionally strong
with a load factor of 86% and per diem of £332, an increase of 12ppts and 4%
respectively when compared to the same point last year. This places us on
track to exceed the targeted £40m Ocean Cruise Trading EBITDA (Excluding
Overheads)(1) per ship.
Looking ahead to 2024/25, the booked load factor, at the same date, was 49%,
6ppts higher than the same time in the prior year and the per diem of £359
was 10% higher.
Ocean Cruise has also continued to deliver exceptional experiences for guests,
achieving a transactional net promoter score (tNPS)(3) of 82 in the year to
date, compared with 57 in the prior year.
River Cruise reported an Underlying Profit Before Tax(1) of £1.5m for the
first six months of the year which compares with an Underlying Loss Before
Tax(1) of £2.1m in the same period last year. This was delivered through a
load factor of 83% and per diem of £296. During the period, around 8.6k
guests sailed with us which was a 34% increase when compared with last year.
Bookings for the full year are strong, with revenue, at 24 September 2023, 52%
ahead of the same point in the prior year, reflecting an 85% load factor and
£285 per diem. Based on this level of bookings, River Cruise is expected to
report a small Underlying Profit Before Tax(1) for the full year, compared
with the £5.1m Underlying Loss Before Tax(1) in 2022/23.
At 24 September 2023, secured bookings for the year ended 31 January 2025
equated to revenue of £16.7m, 40% ahead of the same time last year,
reflecting higher guest numbers and inflationary increases to pricing. At the
same date, the load factor and per diem were 30% and £321 respectively.
River Cruise has made excellent progress in replicating the same level of
satisfaction that our guests experience on board our ocean cruise ships. This
is demonstrated in the tNPS(3) score of 57 in the year to date which compares
with 8 in the prior year, reflecting actions taken to improve pre-cruise
administration and the quality of the food on board, alongside the benefit of
fewer pandemic-driven itinerary changes.
Travel
In line with previous guidance, the Travel business reported a small
Underlying Loss Before Tax6F(1) of £2.6m in the first six months of the year,
in line with the prior year. Revenue for the first half of the year of
£69.7m, was 58% ahead of the prior period and the number of passengers that
travelled with us was also ahead, by 25%.
Turning to the full year, at 24 September 2023, booked revenue was £155.8m,
representing a 46% increase when compared to the same point in the prior year,
with passenger numbers 27% ahead. Based on this position and expected new
bookings for the latter part of the year, we expect that the business will
return to profit, as previously indicated, for the full year.
We are delighted that the first of our exclusive private jet tours departed
earlier this month, visiting 10 locations in just three weeks. Following the
success of this tour, a further three tours are planned for 2024/25.
Looking ahead to next year, at 24 September 2023, booked revenue was £67.5m
from 19.4k passengers. This compares with £58.9m and 18.1k passengers at the
same time last year, reflecting not only an increase in the number of
passengers choosing to book with us, but also higher revenue per passenger
arising from inflationary price increases and a move towards higher-margin
products.
Insurance
For the first six months of the year, Insurance Broking reported an Underlying
Profit Before Tax(1), on an earned basis, of £23.8m compared with £36.7m2(2)
in the prior year. This reflects continued pressure on the motor result, but
broadly stable performance in home, private medical and travel insurance.
The number of policies sold across all products was 0.8m, 6% lower than in the
year before, and the total policies in force at 31 July 2023 was 1.6m, or 5%
behind the prior year.
During the first six months of the year, travel insurance continued to recover
post-pandemic, generating revenue of £8.7m which was 19% higher than in the
year before, with policy sales increasing 2%. At the same time, revenue from
the sale of private medical insurance was £15.3m, an increase of 12% on
broadly flat policy sales, benefiting in part from a one-off contribution in
relation to the partnership agreement secured with Bupa earlier in the year.
Motor insurance continues to be subjected to prolonged levels of market-wide
claims inflation. While this is now largely reflected in underwriting rates
and customer pricing has begun to increase, it is currently not sufficient to
offset the impact. As a result, motor broking remains under pressure but has
maintained pricing discipline, prioritising the margin per policy over the
volume of policies sold.
Although the number of policies sold for motor and home insurance was 11% and
3% behind the prior year respectively, or 8% when combined, retention remained
high at 84%, supported by renewals of our three-year fixed-price policies
which remain particularly attractive to customers in the current inflationary
environment.
The margin per policy, under previous accounting standards, across motor and
home was £58, ahead of our £55 guidance. The adoption of IFRS 17 does,
however, require that some costs are reclassified as a cost of sale as opposed
to overheads, which had been the case previously. The result of this change is
that, under IFRS 17, the margin per policy for the current year is £56,
compared with a restated £72(2) in the prior year. For the full year, we
expect the margin per policy to remain broadly at the current level.
The proportion of motor and home customers purchasing new policies directly,
as opposed to through price-comparison websites, was 46%, reflecting a 4ppt
reduction when compared with the prior year due to the extended inflationary
pressures in the market encouraging more consumers to use price-comparison
websites.
In the short term, we expect motor insurance, in particular, to remain a
challenge as fewer policies sold in the current year translate into a lower
number of policies available for renewal in subsequent years. This, alongside
lower margins, impacts future earnings and cash generation. As a reflection of
this, Insurance Broking goodwill has been impaired by £68.1m, with £381.5m
of Insurance goodwill remaining on the balance sheet at 31 July 2023. To
offset some of the pressure on earnings, we have initiated a programme to
re-develop our Insurance Broking business which will reduce operating expenses
by £5-10m per annum.
In the first six months of the year, Insurance Underwriting reported an
Underlying Loss Before Tax(1), after accounting for the impact of our
reinsurance arrangements, of £3.6m, compared with an Underlying Profit Before
Tax(1) of £15.8m(2) in the year before. While the business has applied
significant price increases to reflect claims inflation, these take time to be
fully reflected in the result.
In addition to prolonged high levels of claims inflation, we, alongside the
wider market, observed an increase in the frequency of claims, and in
particular, those in relation to third-party damage. In addition, the number
of large bodily injury claims has remained elevated, albeit small in absolute
terms.
The impact of these trends is that the current year combined operating ratio,
before reinsurance arrangements, rose to 136.4% which was 23.1ppts higher than
the prior year. This is, however, expected to reduce for the full year and
beyond as the benefit from applied price increases is recognised.
Money
For the first half of the year, Saga Money reported an Underlying Profit
Before Tax(1) of £0.2m, compared with £0.9m in the year before. This
reflects the market-wide challenges within equity release owing to higher
interest rates, while performance from our savings products was in line with
the prior year.
Earlier this month, Saga Money launched two new products designed to support
our customers with a broader range of their financial needs. These included a
range of fixed rate savings accounts in partnership with Flagstone and legal
services supported by the Co-op such as wills, probate and lasting powers of
attorney.
Step 2
The second step of our growth plan is focused on reducing our levels of debt
while scaling the business in a capital-light way, both of which are key to
our long-term success.
At 31 July 2023, our Net Debt(1) was £657.4m, or £63.9m lower than 31 July
2022 and £54.3m lower than at 31 January 2023. This included Available
Cash(1) of £180.7m at the same date, after £31.1m of capital repayments on
our two ocean cruise ships.
As we have previously indicated, we conducted a sales process for the
Insurance Underwriting business and, as part of that, we were able to
establish terms for the sale. Given the current conditions within motor
insurance, the Board believes that there is an opportunity to generate greater
value once the market improves, however, we will continue to evaluate our
options.
We expect to repay the £150m bond due in May 2024 from a combination of
Available Cash(1) and drawdown of the loan facility with Roger De Haan. In
addition to the existing £50m available under the terms of the agreement, the
Group has agreed an amendment to provide a further £35m, alongside an
extension to the maturity date. To provide further financial flexibility in
the medium term, we have identified a series of actions which will reduce the
Group's central operating expenses by at least £15m per year, while also
rephasing investment in some of our newer businesses.
Step 3
The third step in our growth plan is focused on positioning Saga to deliver
long-term sustainable growth through increasing the frequency and quality of
interaction with our customers through data-driven insight.
As part of this, the role of data and increasing the number of customers we
are able to engage with is essential. Our lifetime value model is built and
operational; and we are now capturing customer email addresses for all
interactions through our website, which equates to around 17m unique visitors
per year. We have also completed pilots for a new cross-sell journey.
Saga Media is supporting this ambition, with the digital newsletter now
reaching 750k readers three times a week and the Saga Magazine distributed to
over 129k subscribers each month.
As a measure of the strength of the Saga brand, we closely monitor Group
customer tNPS which represents the willingness of our customers to recommend
Saga products and services to their family, friends and colleagues. In the
year to date, our tNPS was 62, a 1pt increase when compared with the same
period in the previous year.
Looking ahead to the full year
The progress made in the year to date would not have been possible without our
customers, investors, partners, communities and colleagues. I would,
therefore, like to take this opportunity to thank you all for your ongoing
support.
Turning to the remainder of the year, we are focused on continuing to deliver
exceptional experiences for our customers, further reducing our debt and
driving significant double-digit growth in underlying profitability.
_______________________________
1 Refer to the Alternative Performance Measures Glossary for definition and
explanation
2 The prior year has been restated to reflect the adoption of IFRS 17
'Insurance Contracts'
3 tNPS for Ocean and River Cruise is not directly comparable with the prior
year following the introduction of additional guest surveys
Group Chief Financial Officer's Review
The Group has reported an Underlying Profit Before Tax(1) of £8.0m for the
first half of the year, under the new accounting standard for insurance,
International Financial Reporting Standard (IFRS) 17, compared to a restated
£14.6m in the prior period. On the same basis as previous reporting,
Underlying Profit Before Tax(1) was £13.4m, compared to the £14.0m we had
previously reported for the first half of the prior year.
The reasons for the negative impact of IFRS 17 on profit this half year,
compared to a largely neutral impact in the prior period, are fairly technical
in nature. This is mainly due to slightly different accounting for insurance
claims settled via ongoing annuity payments, known as Periodical Payment
Orders (PPOs), as well as the fact that, under IFRS 17, we are required to
discount recoveries due under quota share reinsurance arrangements. None of
this has any fundamental impact on how we see the economics of the business,
or its profit drivers, and, on an ongoing basis, we would not expect results
to be materially different between IFRS 17 and the previous standard.
In terms of overall performance and in line with expectations we set as part
of our full year results announcement, the very different market dynamics in
our two main businesses are evident in our results. In terms of the positives,
Cruise and Travel continued to recover from the pandemic, and the first half
of this year has seen a return to normal trading. Travel and Cruise combined
returned to profit, with an £11.6m loss in the first half of 2022/23
reversing to a profit of £11.8m in the first half of 2023/24. Seasonality
effects mean that we expect a much higher level of profit in the second half
of 2023/24, as roughly 60% of Travel revenue is generated in that period, and
we expect a H2 Ocean Cruise load factor of at least 87% compared with 83% in
the first half.
In relation to Insurance, market conditions have continued to be difficult,
with continued very high claims inflation putting pressure on the Underwriting
business, Acromas Insurance Company Limited (AICL). Over the past 12 months,
AICL has materially repriced its book, with average rate increases of over
60%. As we recognise premiums over the life of the policy, however, this means
that these rate increases will not be fully included in revenue until next
year and this is why current profitability remains under significant pressure.
Equally, the significant increases in rates from AICL and other motor panel
members have squeezed the profitability of our Broking division, accentuated
by the fact that over 40% of the total motor book benefits from a three-year
fixed-price guarantee. This is why our average margin across motor and home of
£56 per policy in the first half is slightly below our target range of around
£60 per policy. These pressures are not anticipated to reduce in the second
half, with the motor market likely to remain challenging into 2024/25 and this
is the main reason we have taken a further impairment of Insurance Broking
goodwill of £68.1m for the first half of 2023/24. In assessing this
impairment, we weighted our assumptions towards what we view as prudent
downside assumptions as to future Broking cash flows.
While this has not been an easy period for either Insurance Broking or
Underwriting, the issues are mainly confined to motor, with home, travel and
PMI performing in line with expectations. In addition, the three-year
fixed-price challenge is relatively short-term as all policies will be
repriced to current levels within two years; we are also pricing three-year
fixed-price policies on a prudent basis that should, over time, be positive
for margins. Finally, from an Underwriting perspective, we have taken the
necessary pricing action and claims trends now appear to be stabilising.
Partly in response to the pressure on Insurance earnings, we have recently
launched a programme to reduce costs, particularly focused on central
functions, and a move to a more devolved approach for core business units. We
expect the run rate of Central Costs to reduce by at least £15m per annum,
with a smaller improvement in the current year. Given these efficiencies and
the seasonality of Cruise and Travel earnings, Underlying Profit Before Tax(1)
for the full year is expected to be significantly higher than in 2022/23,
whether calculated under IFRS 4 or under IFRS 17.
In terms of our balance sheet, Net Debt(1) reduced by 8% from £711.7m at 31
January 2023 to £657.4m at 31 July, supported in the first half by an
exceptionally high level of cash generation from Cruise and Travel, which more
than offset lower cash generation from Insurance Broking and reduced AICL
dividends. Cruise and Travel operating cash flow increased from £0.3m in the
first half of 2022/23 to £73.0m in the first half of 2023/24. While partly
due to improving profitability, the first half was also boosted by two working
capital effects - a one-off release of cash from our ring-fenced River Cruise
and Travel operations, as we moved from a 100% trust to a 70% escrow
arrangement, and a recovery in Ocean Cruise advance receipts, which is
somewhat seasonal in nature. While we still expect second half Cruise and
Travel cash flow to be positive, it will be much lower than in the first half.
As a result of the seasonality of Cruise and Travel cash flows and
restructuring costs we will incur in connection with the new Group operating
model, we expect full year Net Debt(1) to be slightly higher than at the half
year, but still significantly below where we started the year. When combined
with the positive outlook for Cruise and Travel businesses, lower-cost central
functions and with the increase in the loan facility with Roger De Haan from
£50m to £85m, we are very confident that we will be able to repay the £150m
bond due in May 2024 from Available Cash(1). We expect to retain a healthy
level of working capital post the bond repayment, supported by the £85m Roger
De Haan loan facility as well as the £50m revolving credit facility (RCF).
This will also give Saga a platform to continue deleveraging the business and
supporting future core business opportunities.
_______________________________
1 Refer to the Alternative Performance Measures Glossary for definition and
explanation
Operating performance
Group income statement
£m Unaudited Change Unaudited6m to
6m to July 2022
July 2023 (restated)
Revenue(2) 355.3 14.7% 309.8
Underlying Profit Before Tax(3)
Cruise and Travel 11.8 201.7% (11.6)
Insurance Broking (earned) 23.8 (35.1%) 36.7
Insurance Underwriting (3.6) (122.8%) 15.8
Total Insurance 20.2 (61.5%) 52.5
Other Businesses and Central Costs (12.5) 16.7% (15.0)
Net finance costs(4) (11.5) (1.8%) (11.3)
Underlying Profit Before Tax(3) 8.0 (45.2%) 14.6
Impairment of Insurance goodwill (68.1) (269.0)
Other exceptional items (17.7) (7.4)
Loss before tax (77.8) 70.3% (261.8)
Tax credit/(expense) 6.8 251.1% (4.5)
Loss after tax (71.0) 73.3% (266.3)
Basic earnings/(loss) per share:
Underlying Earnings Per Share(3) 1.7p (62.2%) 4.5p
Loss per share (50.9p) 73.4% (191.3p)
The Group's business model is based on providing high-quality and
differentiated products to its target demographic, predominantly focused on
cruise, travel and insurance. The Cruise and Travel business comprises Ocean
Cruise, River Cruise 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. Other Businesses comprises Saga Money, Saga Media, Saga Insight
and CustomerKNECT, a mailing and printing business.
Revenue(2)
Revenue(2) increased by 14.7% to £355.3m (H1 2022: £309.8m) due to increased
trading in the Cruise and Travel businesses in the first half of the year as
customer confidence towards Cruise and Travel returned to pre-pandemic levels.
Underlying Profit Before Tax(3)
The Group generated a total Underlying Profit Before Tax(3) of £8.0m in the
first half of the current year compared to £14.6m in the first half of the
prior year. This is primarily due to a £12.9m reduction in Insurance Broking
profitability due to difficult trading conditions within motor and a £19.4m
reduction in Insurance Underwriting profitability due to lower changes to
liabilities for prior year incurred claims and an increased current year loss
ratio. This was broadly offset by a £23.4m improvement in Cruise and Travel,
moving from an £11.6m loss to an £11.8m profit, of which £19.8m relates to
the Ocean Cruise business.
Net finance costs(4) in the period were £11.5m (H1 2022: £11.3m), which
excludes finance costs that are included within the Cruise and Travel
businesses of £9.7m (H1 2022: £9.6m) and Insurance Underwriting business of
£6.5m (H1 2022: £1.3m).
Loss before tax
The loss before tax for the period of £77.8m includes a £68.1m impairment to
Insurance Broking goodwill and other exceptional items of £17.7m consisting
of:
· restructuring costs of £5.9m;
· onerous contract provisions of £9.2m on three-year fixed-price
policies and on insurance contracts under IFRS 17;
· fair value loss on debt securities of £4.8m;
· a £3.1m positive change in discount rate on non-PPO insurance
liabilities;
· arrangement fee on the unsecured loan facility with Roger De Haan
of £1.0m;
· a £0.1m acquisition cost on the purchase of The Big Window
Consulting Limited;
· fair value losses of £0.9m on derivatives de-designated in the
period;
· foreign exchange gains on river cruise ship leases of £0.6m; and
· a positive IFRS 16 adjustment of £0.5m on river cruise ships.
The loss before tax in the prior period of £261.8m includes a £269.0m
impairment to Insurance goodwill and other exceptional items of £7.4m
including:
· restructuring costs of £2.1m;
· an onerous contract provision of £0.9m on insurance contracts
under IFRS 17;
· fair value loss on debt securities of £6.9m;
· a £2.9m positive change in discount rate on non-PPO insurance
liabilities;
· acquisition costs on the purchase of The Big Window Consulting
Limited of £0.6m;
· fair value gain on derivatives de-designated in the period of
£0.9m;
· foreign exchange loss on river cruise ship leases of £0.3m; and
· a negative IFRS 16 adjustment of £0.4m on river cruise ships.
Tax
The Group's tax credit for the period was £6.8m (H1 2022: £4.5m expense),
representing a tax effective rate of 70.1% (H1 2022: 62.5%), excluding the
Insurance goodwill impairment charge. In both the current and prior periods,
the difference between the Group's tax effective rate and the standard rate of
corporation tax, was mainly due to the Group's Ocean Cruise business being in
the tonnage tax regime.
There was also an adjustment in the current period for the over-provision of
prior year tax of £1.2m (H1 2022: £1.6m under-provision). Excluding the
impact of the Ocean Cruise business being in the tonnage tax regime, the
Insurance goodwill impairment and adjustments to prior year tax, the tax
effective rate for the current period is 25.6%.
Earnings/(loss) per share
The Group's Underlying Basic Earnings Per Share(3) was 1.7p (H1 2022: 4.5p).
The Group's reported basic loss per share was 50.9p (H1 2022: loss of 191.3p).
Effect of IFRS 17 on profit before tax
£m Unaudited 6m to Change Unaudited
31 July 2023 6m to
31 July 2022
Underlying Profit Before Tax (Under Previous IFRS)(3) 13.4 (0.6) 14.0
New approach to reserve margin (1.8) (0.7) (1.1)
Change in valuation of PPO reserves (other than due to margin) (1.6) 0.2 (1.8)
Discounting of non-PPO reserves (other than change in discount rate) (4.0) (4.3) 0.3
Effect of expensing insurance acquisition costs when incurred 1.0 (0.6) 1.6
Other individually immaterial adjustments 1.0 (0.6) 1.6
Impact of IFRS 17 on Underlying Profit Before Tax(3) (5.4) (6.0) 0.6
Underlying Profit Before Tax(3) 8.0 (6.6) 14.6
For the period ended 31 July 2023, the transition to IFRS 17 resulted in an
Underlying Profit Before Tax(3) reduction of £5.4m, compared with a £0.6m
benefit for the same period in the prior year.
The material movements between the IFRS 17 impact on Underlying Profit Before
Tax(3) across the two periods are detailed below:
· £4.3m negative impact arising from the discounting of non-PPO
reserves which, under previous IFRS, were not subject to discounting. The
negative impact in the current year largely arises from the increase in
recoveries under the quota share reinsurance agreement, with these recoveries
discounted over a longer duration than that of the underlying claims. This did
not represent a significant impact in the prior period.
· The new approach to reserve margin adjusts for differences in
reserving between IFRS 4 and IFRS 17. Specifically, management margins
included within IFRS 4 results are reversed, while new provisions for events
not in data (ENIDs) and risk adjustment are included under IFRS 17. In the
first half of 2023/24, the reversal of the change in management margins
reduced IFRS 17 profit by £5.1m and this was partially offset by a reduction
in ENIDs of £2.0m and a reduction in the risk adjustment of £1.3m, net of
reinsurance.
· The impact of expensing insurance acquisition costs when
incurred, produced a benefit to Underlying Profit Before Tax(3) in both the
current, and prior periods. This is due to decreasing acquisition costs linked
to lower sales of AICL-underwritten policies. The £0.6m movement, when
compared to the prior period, reflects a slow-down of that trend.
£m Unaudited Change Unaudited
6m to 6m to
31 July 2023 31 July 2022
Loss before tax (under previous IFRS) (66.7) 190.8 (257.5)
Impact of IFRS 17 on Underlying Profit Before Tax(3) (5.4) (6.0) 0.6
Impact of discount rate change on non-PPO reserves 3.1 0.2 2.9
Fair value losses on investments (4.8) 2.1 (6.9)
Net expense from onerous contracts (4.0) (3.1) (0.9)
Loss before tax (77.8) 184.0 (261.8)
In the six months ended 31 July 2023, the adoption of IFRS 17 increased the
loss before tax by £11.1m (H1 2022: £4.3m). The most material reasons for
this are as follows:
· £5.4m arising from the movements in Underlying Profit Before
Tax(3) described above.
· £4.0m in relation to the provision for onerous contracts. The
higher provision is due to a combination of an increase in contracts that are
onerous at initial recognition (primarily due to renewals in years two and
three of three-year fixed-price policies) and an upwards revaluation of the
existing provision due to prolonged claims inflation.
· £4.8m reduction in the value of investments backing claims
liabilities, largely offset by the related increase in the discount rate used
to value claims liabilities, which was a £3.1m benefit.
_______________________________
2 Revenue is stated net of ceded reinsurance premiums earned on business
underwritten by the Group of £8.0m (H1 2022: £7.3m) less £5.2m onerous
contract provision (H1 2022: nil)
3 Refer to the Alternative Performance Measures Glossary for definition and
explanation
4 Net finance costs exclude Cruise, Travel and Insurance Underwriting finance
costs and net fair value gains/(losses) on derivatives
Cruise and Travel
Unaudited 6m to July 2023 Unaudited 6m to July 2022
£m Ocean River Travel Total Cruise and Travel Change Ocean Cruise River Travel Total Cruise
Cruise Cruise Cruise and Travel
Revenue 103.8 23.4 69.7 196.9 44.6% 75.7 16.5 44.0 136.2
Gross profit 36.1 6.5 13.6 56.2 170.2% 11.9 1.3 7.6 20.8
Marketing expenses (6.5) (2.8) (5.4) (14.7) (56.4%) (4.7) (1.6) (3.1) (9.4)
Other operating expenses (7.0) (2.2) (10.9) (20.1) (50.0%) (4.8) (1.8) (6.8) (13.4)
Investment return - - 0.1 0.1 100.0% - - - -
Finance costs (9.7) - - (9.7) (1.0%) (9.3) - (0.3) (9.6)
Underlying Profit/(Loss) Before Tax(5) 12.9 1.5 (2.6) 11.8 201.7% (6.9) (2.1) (2.6) (11.6)
Average revenue per passenger (£) 4,325 2,600 2,681 3,337 5.4% 4,731 2,750 2,095 3,167
Ocean Cruise passengers ('000) 24.3 24.3 50.0% 16.2 16.2
Ocean Cruise load factor 83% 83% 17ppts 66% 66%
Ocean Cruise per diem (£) 333 333 4.7% 318 318
River Cruise passengers ('000) 8.6 8.6 34.4% 6.4 6.4
River Cruise load factor 83% 83% n/a n/a n/a
River Cruise per diem (£) 296 296 n/a n/a n/a
Travel passengers ('000) 25.7 25.7 24.8% 20.6 20.6
Ocean Cruise
The Ocean Cruise business owns two ocean cruise ships, Spirit of Discovery and
Spirit of Adventure.
In the first half of the year, the business returned to fully operational
conditions for the first time since the pandemic and achieved a load factor of
83% (H1 2022: 66%) and a per diem of £333 (H1 2022: £318). These two
factors, when combined, equated to revenue growth of 37.1% and resulted in a
return to profitability from an Underlying Loss Before Tax(5) of £6.9m to an
Underlying Profit Before Tax(5) of £12.9m, an improvement of 287.0%.
In the first half of the prior year, there were some adverse impacts on a
small number of cruises due to COVID-19, while the conflict in Ukraine
dampened customer demand for departures to the Baltics and Black Sea,
resulting in late itinerary changes and some limited cancellations.
River Cruise
The River Cruise business has 10-year leases in place for two boutique river
cruise ships, Spirit of the Rhine and Spirit of the Danube, alongside other
charters which are largely managed on an annual basis.
In the first half of the year, the business returned to more normal operating
conditions. For 2023/24, the Cruise team have aligned management information
for the River Cruise business to the Ocean Cruise business so load factor and
per diems are now key performance indicators for River Cruise. The business
achieved a load factor of 83% and a per diem of £296. This resulted in
revenue growth of 41.8% and a return to profitability from an Underlying Loss
Before Tax(5) of £2.1m to an Underlying Profit Before Tax(5) of £1.5m.
In the prior period, although the business was operating, both the Omicron
variant of COVID-19, and the conflict in Ukraine, impacted the number of
passengers travelling, due to continued customer caution in relation to
Central Europe.
Travel
The Travel business, which includes both the Saga Holidays and Titan brands,
has seen increased volumes compared to the prior period, with passenger
numbers increasing from 20.6k to 25.7k.
This has led to an Underlying Loss Before Tax(5) of £2.6m which is comparable
to the first half of last year with the increase in revenue of 58.4% being
offset by increases to both marketing and operating expenses as the business
returns to a more normal operating environment. The September to October
period in the second half is where the majority of the business's profit
arises, as these are peak travel months for our customers. The Travel business
remains on track to return to an Underlying Profit Before Tax(5) for the full
year.
In the first half of the prior year, the recovery in volumes was impacted by a
level of disruption from a variety of factors, including operational
challenges faced by airlines and airports.
Forward Cruise and Travel sales
Ocean Cruise load factors for 2023/24 are ahead of the same point last year
for 2022/23 by 12ppts. This is due to the business being fully operational for
the first time since the pandemic with significant demand for the Ocean Cruise
product particularly in the summer months where load factors are above 90%.
The per diem for 2023/24 is 4.1% higher than the same point last year for
2022/23 as the Group has reflected the inflationary impact on operating costs
in customer pricing.
Ocean Cruise load factors for 2024/25 are ahead of the same point last year
for 2023/24 by 6ppts. The per diem for 2024/25 is 10.1% higher than the same
point last year for 2023/24.
River Cruise revenue and passengers booked for 2023/24 are ahead of the same
point last year for 2022/23 by 52.5% and 42.7% respectively, reflecting an 85%
load factor and £285 per diem. This is due to increased customer demand for
2023/24 compared to customer caution in respect of Central Europe in 2022/23.
River Cruise revenue and passengers booked for 2024/25 are ahead of the same
point last year for 2023/24 by 40.3% and 31.1% respectively. Load factor and
per diems for 2024/25 are 30% and £321 respectively.
Travel bookings for 2023/24 are ahead at the same point last year for 2022/23
by 45.9% and 27.3% for revenue and passengers respectively. The increased
revenue is due in part to higher passengers but also increases in operating
costs being incorporated in customer pricing and a move towards a higher
revenue, higher margin product range. The increase in passengers is due to
higher uptake of long-haul travel within our Titan brand as customer
confidence returns.
Travel bookings for 2024/25 are ahead of the same point last year for 2023/24
by 14.6% for revenue and 7.2% for passengers.
Current year departures Next year departures
24 September 2023 Change 25 September 2022 24 September 2023 Change 25 September 2022
Ocean Cruise revenue (£m) 206.3 26.9% 162.6 124.1 23.1% 100.8
Ocean Cruise load factor 86% 12ppts 74% 49% 6ppts 43%
Ocean Cruise per diem (£) 332 4.1% 319 359 10.1% 326
River Cruise revenue (£m) 43.3 52.5% 28.4 16.7 40.3% 11.9
River Cruise passengers ('000) 16.7 42.7% 11.7 5.9 31.1% 4.5
River Cruise load factor 85% n/a n/a 30% n/a n/a
River Cruise per diem (£) 285 n/a n/a 321 n/a n/a
Travel revenue (£m) 155.8 45.9% 106.8 67.5 14.6% 58.9
Travel passengers ('000) 57.8 27.3% 45.4 19.4 7.2% 18.1
_______________________________
5 Refer to the Alternative Performance Measures Glossary for definition and
explanation
Insurance
Insurance Broking
The Insurance 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, 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.
Unaudited 6m to July 2023 Unaudited 6m to July 2022 (restated)
Motor Home Other Motor Home Other
£m Broking Broking Broking Total Change Broking Broking Broking Total
Gross written premiums (GWP):
Broked 61.9 78.3 70.0 210.2 17.6% 45.3 71.9 61.6 178.8
Underwritten 86.9 - 1.7 88.6 (10.4%) 97.1 - 1.8 98.9
GWP 148.8 78.3 71.7 298.8 7.6% 142.4 71.9 63.4 277.7
Broker revenue 4.7 12.1 23.3 40.1 (27.1%) 22.0 11.9 21.1 55.0
Instalment revenue 1.7 1.6 - 3.3 10.0% 1.5 1.5 - 3.0
Add-on revenue 4.2 4.9 - 9.1 (7.1%) 4.6 5.2 - 9.8
Other revenue 13.4 8.1 (1.2) 20.3 (8.1%) 13.2 8.6 0.3 22.1
Written revenue 24.0 26.7 22.1 72.8 (19.0%) 41.3 27.2 21.4 89.9
Written gross profit 20.7 26.7 25.8 73.2 (17.7%) 38.1 27.2 23.6 88.9
Marketing expenses (5.1) (2.6) (3.2) (10.9) 12.1% (6.6) (3.4) (2.4) (12.4)
Written gross profit after marketing expenses 15.6 24.1 22.6 62.3 (18.6%) 31.5 23.8 21.2 76.5
Other operating expenses (18.3) (15.5) (10.3) (44.1) (11.6%) (17.6) (13.5) (8.4) (39.5)
Written Underlying (Loss)/Profit Before Tax(6) (2.7) 8.6 12.3 18.2 (50.8%) 13.9 10.3 12.8 37.0
Written to earned adjustment 5.6 - - 5.6 (0.3) - - (0.3)
Earned Underlying Profit Before Tax(6) 2.9 8.6 12.3 23.8 (35.1%) 13.6 10.3 12.8 36.7
Policies in force 754k 634k 208k 1,596k (5.4%) 840k 658k 189k 1,687k
Policies sold 385k 323k 111k 819k (6.4%) 433k 333k 109k 875k
Third-party panel share(7) 38.9% 11.2ppts 27.7%
Insurance Broking Underlying Profit Before Tax(6) on a written basis (which
excludes the impact of the written to earned adjustment deferring the revenue
on policies underwritten over the term of the policy) decreased to £18.2m
from £37.0m. On an earned basis (which includes the impact of the written to
earned adjustment), Underlying Profit Before Tax(6) decreased to £23.8m from
£36.7m.
A key metric for the Insurance Broking business is written gross profit, after
deducting marketing expenses, but before deducting overheads. This reduced
from £76.5m in the prior period to £62.3m in the current period due mainly
to lower renewal volumes and margins on motor business. The fall of £15.9m in
written gross profits after marketing expenses in motor was partially offset
by a £0.3m and £1.4m improvement in Home and Other Broking respectively. The
improvement in Other Broking was mainly due to a one-off payment from Bupa on
private medical insurance (PMI) as part of the agreed terms for migrating the
book from AXA.
For motor and home insurance, in terms of the total gross margin after
marketing expenses, new business profits increased by £0.8m, while there was
a £16.4m reduction in renewal profits.
The reduction in profitability of the motor business is attributable to
significant inflationary pressures on the net rates charged by the Broking
division's panel partners, which have increased at a faster pace than the
price that can be charged to consumers in a competitive marketplace. This has
been accentuated by the fact that a significant number of motor policies are
on three-year fixed-price deals, which fixes the price to the customer for two
renewals. Lower new business volumes in the prior year have also led to an 11%
reduction in the level of renewal volumes in the current year.
The three-year fixed-price product remains important, with 319k policies sold
in the period, 45% of total motor and home policies, with 30% of direct new
business customers taking the product despite cost of living pressures. The
Group remains of the view that this product is highly attractive to our
customer base, and while current profitability has been impacted by high
industry inflation, this is a short-term challenge as all policies will have
been repriced by the middle of 2025 at the latest. Inflation for the
three-year fixed-price home product is within expectations.
The challenging motor environment led to 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, reducing to £56.1 in the
current period, compared with £72.2 in the prior period.
In addition, while customer retention improved from 83% to 84%, overall motor
and home policies in force decreased by 7% compared to 31 July 2022 and direct
new business sales reduced by 4ppts to 46% as the Group rebalanced volumes and
renewals towards price-comparison website distribution channels.
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 these products. As at 31 July 2023,
£11.1m (H1 2022: £9.1m) of income had been deferred in relation to
three-year fixed-price policies, £4.5m (H1 2022: £3.9m) of which related to
income written in the period to 31 July 2023.
Motor Broking
Gross written premiums increased by 4.5% due to a 17.5% increase in average
premiums, partially offset by a 11.1% decrease in core policies sold. Gross
written premiums from business underwritten by AICL decreased 10.5% to £86.9m
(H1 2022: £97.1m) due to a 24.5% decrease in core policies sold that were
underwritten by AICL, offset by a 18.6% increase in average premiums.
Written gross profit minus marketing expenses was £15.6m (H1 2022: £31.5m),
contributing £40.5/policy (H1 2022: £72.7/policy). The decrease in written
gross profits and margin per policy is mainly due to the adverse impact of
inflation on motor renewal profitability.
Home Broking
Gross written premiums increased by 8.9% due to a 12.3% increase in average
premiums, partially offset by a 3.0% reduction in core policies sold.
Written gross profit minus marketing expenses was £24.1m (H1 2022: £23.8m)
and, on a per policy basis, this was £74.6/policy (H1 2022: £71.5/policy).
The increase in new business margins was offset by lower renewal margins and a
3.9% decrease in renewal policies sold.
Other Broking
The Other Insurance Broking business primarily comprises PMI and travel
insurance.
Gross written premiums increased 13.1% as a result of higher average premiums
on travel insurance policies, with policy sales broadly stable at 86k (H1
2022: 84k).
Gross profits after marketing costs relating to travel insurance products
increased by £0.8m.
While sales of the PMI product were stable, gross profit after marketing costs
was £1.3m higher. This increase is mainly due to a one-off payment from Bupa
as part of the agreed terms for migrating the book from AXA.
Insurance Underwriting
Unaudited 6m to July 2023 Unaudited 6m to July 2022 (restated)
£m Re- Gross change Re-
Gross insurance Net Gross insurance Net
Insurance revenue A 78.5 (8.0) 70.5 (4.2%) 81.9 (7.3) 74.6
Incurred claims (current year claims) B (91.5) 19.2 (72.3) (16.9%) (78.3) 5.4 (72.9)
Claims handling costs in relation to incurred claims C (7.9) - (7.9) (16.2%) (6.8) - (6.8)
Changes to liabilities for incurred claims (prior year claims) D 8.6 7.4 16.0 (54.5%) 18.9 7.7 26.6
Other incurred insurance service expenses E (7.7) - (7.7) - (7.7) - (7.7)
Insurance service result (20.0) 18.6 (1.4) (350.0%) 8.0 5.8 13.8
Net finance (expense)/income (12.9) 6.4 (6.5) 1.4 (2.7) (1.3)
from (re)insurance (excludes impact of change in discount rate on non-PPO
liabilities)
Investment return (excludes fair value gains/losses on debt securities) 4.3 - 4.3 30.3% 3.3 - 3.3
Underlying (Loss)/Profit Before Tax(6) (28.6) 25.0 (3.6) (325.2%) 12.7 3.1 15.8
Reported loss ratio (B+D)/A 105.6% 79.9% (33.1ppt) 72.5% 62.1%
Expense ratio (C+E)/A 19.9% 22.1% (2.2ppt) 17.7% 19.4%
Reported combined operating ratio (COR) (B+C+D+E)/A 125.5% 102.0% (35.3ppt) 90.2% 81.5%
Current year COR (B+C+E)/A 136.4% 124.7% (23.1ppt) 113.3% 117.2%
Number of earned policies 278k (17.6%) 337k
Policies in force - Saga motor 462k (22.9%) 599k
The Group's in-house underwriter, AICL, underwrites over 60% of the motor
business sold by Insurance Broking, alongside a smaller proportion of business
on other panels. Alongside this, AICL underwrites a portion of Saga's 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.
In line with the wider market, AICL has experienced a prolonged period of
elevated claims inflation which, in the six months to 31 July 2023, was
estimated at around 15%. In response to this, material price increases have
been applied over the past 12 months, however, these take time to fully flow
through to insurance revenue.
Gross insurance revenue, in the first half of the year, decreased by 4.2% to
£78.5m (H1 2022: £81.9m) reflecting a 17.6% reduction in the number of
earned policies underwritten by AICL, particularly those underwritten for Saga
as opposed to other panels. This was only partially offset by the 16.2%
increase in average earned premiums.
While claims trends in the first half of 2022/23 were somewhat adverse to
expectations, inflationary pressures really started to accelerate from
mid-2022 onwards. Results for the second half of the year were heavily
impacted by these pressures, as well as from an increased frequency of large
losses. These trends have continued into the first half of 2023/24, albeit
with some moderation in large loss frequency and with pricing actions over the
past 12 months now starting to benefit revenues.
The above factors, when combined, result in an increased current year gross
COR of 136.4% (H1 2022: 113.3%), however, after allowing for reinsurance
arrangements, this reduces to 124.7% (H1 2022: 117.2%).
Following the increases applied over the past year, pricing now reflects
recent, and emerging trends, and, as a result, the COR is expected to reduce
over time as these higher prices flow through to the result.
Changes to liabilities for incurred claims reduced from a positive £26.6m in
the prior period to £16.0m in the current year result. This is in line with
previous indications that we expected lower run-off emergence in future. The
net finance expense line includes the unwind of the discount of opening claims
liabilities, which materially increased in the prior period due to the
increase in the claims discount rate over the last 12 months. This also
includes modest adjustments to the valuation of PPO liabilities, which were a
net £1.8m expense in the first half of 2023/24 compared with a £0.2m
positive in the prior period.
_______________________________
6 Refer to the Alternative Performance Measures Glossary for definition and
explanation
7 Third-party underwriter's share of the motor panel for policies
Other Businesses and Central Costs
Unaudited 6m to July 2023 Unaudited 6m to July 2022 (restated)
£m Other Central Costs Total Change Other Central Costs Total
Businesses Businesses
Revenue:
Money 3.7 - 3.7 (9.8%) 4.1 - 4.1
Media and CustomerKNECT 5.8 - 5.8 13.7% 5.1 - 5.1
Insight 0.5 - 0.5 100.0% - - -
Other - - - (100.0%) - 0.8 0.8
Total revenue 10.0 - 10.0 - 9.2 0.8 10.0
Gross profit 4.2 2.5 6.7 (5.6%) 4.2 2.9 7.1
Operating expenses (6.4) (15.1) (21.5) 3.6% (3.8) (18.5) (22.3)
Investment income - 2.3 2.3 - 0.2 0.2
Net finance costs - (11.5) (11.5) (1.8%) - (11.3) (11.3)
Underlying (Loss)/Profit Before Tax(8) (2.2) (21.8) (24.0) 8.7% 0.4 (26.7) (26.3)
The Group's Other Businesses include Saga Money, Saga Media, Saga Insight and
CustomerKNECT.
Underlying Profit Before Tax(8) for Other Businesses combined has decreased by
£2.6m from £0.4m to an Underlying Loss Before Tax(8) of £2.2m, due to net
investments of £2.2m across Saga Money, Saga Media and Saga Insight. In
addition, revenue in Saga Money has decreased by £0.4m due to a challenging
equity release market.
Central operating expenses decreased to £15.1m (H1 2022: £18.5m). Gross
administration costs, before Group recharges, decreased by £2.3m in the
period, mainly as a result of lower property costs following the closure of
the Group's offices and net costs decreased by £3.4m due to higher Group
recharges to the business units.
Net finance costs in the period were £11.5m (H1 2022: £11.3m), which
excludes finance costs that are included within the Cruise and Travel
businesses of £9.7m (H1 2022: £9.6m) and Insurance Underwriting business of
£6.5m (H1 2022: £1.3m).
_______________________________
8 Refer to the Alternative Performance Measures Glossary for definition and
explanation
Cash flow and liquidity
Available Operating Cash Flow
£m Unaudited 6m to Unaudited
Change
July 2023 6m to
July 2022
(restated)
Insurance Broking Trading EBITDA(9) 27.5 (31.3%) 40.0
Other Businesses and Central Costs Trading EBITDA(9) (10.0) 18.0% (12.2)
Trading EBITDA(9,)(10) from unrestricted businesses 17.5 (37.1%) 27.8
Dividends paid by Insurance Underwriting business 7.0 (53.3%) 15.0
Working capital and non-cash items (0.7) 85.1% (4.7)
Capital expenditure funded with Available Cash(9) (10.9) (58.0%) (6.9)
Available Operating Cash Flow(9) before cash repayment from/(injection into) 12.9 (58.7%) 31.2
Cruise and Travel operations
Cash repayment from/(injection into) River Cruise and Travel businesses 26.0 306.3% (12.6)
Ocean Cruise Available Operating Cash Flow(9) 47.0 264.3% 12.9
Available Operating Cash Flow(9) 85.9 172.7% 31.5
Restructuring costs (4.8) (585.7%) (0.7)
Interest and financing costs (21.3) (13.3%) (18.8)
Business acquisitions - 100.0% (0.9)
Tax receipts 0.3 (87.5%) 2.4
Other payments (5.8) - (5.8)
Change in cash flow from operations 54.3 605.2% 7.7
Change in ship debt (31.1) (103.3%) (15.3)
Cash at 1 February 157.5 (15.6%) 186.6
Available Cash(9) at 31 July 180.7 0.9% 179.0
Available Operating Cash Flow(9) is made up of the cash flows from
unrestricted businesses and the dividends paid by restricted companies, less
any cash injections to those businesses. Unrestricted businesses include
Insurance 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(9) of £12.9m compared with £31.2m in the prior period.
Trading EBITDA(9,10) from unrestricted businesses reduced by £10.3m, mainly
as a result of reduced motor margins in the Insurance Broking segment. Changes
in working capital were a £0.7m outflow in the current period, compared with
a £4.7m outflow in the first half of the prior year, and dividends from AICL
reduced by £8.0m, as expected.
For River Cruise and Travel, the Group was repaid £26.0m in the first half of
the year. This is an improvement of £38.6m when compared with the £12.6m
provided to the businesses to cover trading cash flows in the first half of
the prior year. The improvement is due to the businesses, in agreement with
the Civil Aviation Authority (CAA), moving from a fully ring-fenced trust
arrangement, where the businesses could not access 100% of customer cash from
the trust until they returned from their river cruise or holiday, to a
ring-fenced escrow arrangement trust where 70% of customer cash is restricted
until they return. At 31 July 2023, the ring-fenced businesses held cash of
£59.0m, of which £47.2m was held in trust. The Group must hold a minimum of
£8.1m of cash outside of trust within the ring-fenced businesses as agreed
with the CAA.
The Ocean Cruise business reported an operating cash inflow of £47.0m (H1
2022: £12.9m), with an increase in advance customer receipts of £18.7m (H1
2022: £4.0m), and net trading income of £31.4m (H1 2022: £10.2m), partially
offset by capital expenditure of £3.1m (H1 2022: £1.3m). Net of interest
costs of £8.1m (H1 2022: £7.3m), the Ocean Cruise business reported net cash
inflow, before any capital repayments on the ship debt, of £38.9m for the
first half of 2023/24 compared to £5.6m in the first half of the prior year.
As a result of the significantly improved cash generation from the Ocean
Cruise business and cash repayments from the River Cruise and Travel
businesses, partially offset by a reduction in cash generation from
unrestricted businesses, Available Operating Cash Flow(9) increased from an
inflow of £31.5m in the prior period to £85.9m in the current period.
Other cash flow movements
Interest and financing costs increased in the current period due to higher
interest costs on the ship debt deferral loans and the debt issue costs
associated with the unsecured loan facility with Roger De Haan.
In the prior period, business acquisitions relate to the purchase of The Big
Window Consulting Limited.
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 2022: £5.8m). These
are included within other payments.
In the current period, the Group continued to make capital repayments against
its ship debt facilities, with one payment totalling £15.3m (H1 2022:
£15.3m) on Spirit of Discovery's debt facility and one payment totalling
£15.8m (H1 2022: £nil) on Spirit of Adventure's debt facility.
_______________________________
9 Refer to the Alternative Performance Measures Glossary for definition and
explanation
1(0) 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
Reconciliation between operating and reported metrics
Available Operating Cash Flow(11) reconciles to net cash flows from operating
activities as follows:
£m Unaudited Unaudited
6m to 6m to
July 2023 Change July 2022 (restated)
Net cash flows from/(used in) operating activities (reported) 51.9 490.2% (13.3)
Exclude cash impact of:
Trading of restricted divisions (5.9) (125.2%) 23.4
Non-trading costs 0.2 (96.9%) 6.5
Interest paid 20.7 4.0% 19.9
Tax paid - 0.9
15.0 (70.4%) 50.7
Cash released from restricted divisions 33.0 2.4
Include capital expenditure funded from Available Cash(11) (10.9) (58.0%) (6.9)
Include Ocean Cruise capital expenditure (3.1) (121.4%) (1.4)
Available Operating Cash Flow(11) 85.9 172.7% 31.5
Trading EBITDA(11) reconciles to Underlying Profit Before Tax(11) as follows:
£m Unaudited Change Unaudited
6m to 6m to
July 2023 July 2022 (restated)
Insurance Broking Trading EBITDA(11) 27.5 (31.3%) 40.0
Insurance Underwriting Trading EBITDA(11) 2.9 (83.1%) 17.2
Ocean Cruise Trading EBITDA(11,)(12) 33.1 164.8% 12.5
River Cruise and Travel Trading EBITDA(11) (0.5) 88.4% (4.3)
Other Businesses and Central Costs Trading EBITDA(11) (10.0) 18.0% (12.2)
Trading EBITDA(11) 53.0 (0.4%) 53.2
Depreciation and amortisation (17.3) 16.4% (20.7)
Titan River Cruise commitment costs - (100.0%) 4.3
Net finance costs (including Cruise, Travel and Underwriting) (27.7) (24.8%) (22.2)
Underlying Profit Before Tax(11) 8.0 (45.2%) 14.6
Adjusted Trading EBITDA(11) is used in the Group's leverage calculation for
the revolving credit facility (RCF) covenant and is calculated as follows:
£m Unaudited Change Unaudited
6m to 6m to
July 2023 July 2022 (restated)
Trading EBITDA(11) for 12m to 31 January 2023 92.6 42.0% 65.2
Less Trading EBITDA(11) for 6m to 31 July 2022 (53.2) (81.6%) (29.3)
Add Trading EBITDA(11) for 6m to 31 July 2023 53.0 (0.4%) 53.2
Trading EBITDA(11) (12 months rolling) 92.4 3.7% 89.1
Titan River Cruise commitment costs - (100.0%) 4.3
Impact of accounting standard changes since 31 January 2017 2.0 122.5% (8.9)
Spirit of Discovery and Spirit of Adventure Trading EBITDA(11,12) (59.4) (180.2%) (21.2)
Adjusted Trading EBITDA(11) 35.0 (44.7%) 63.3
Ocean Cruise Trading EBITDA(11) reconciles to Ocean Cruise Trading EBITDA
(Excluding Overheads)(11) as follows:
£m Unaudited Change Unaudited
6m to 6m to
July 2023 July 2022
Ocean Cruise Trading EBITDA(11) 33.1 164.8% 12.5
Ocean Cruise overheads 7.0 45.8% 4.8
Ocean Cruise Trading EBITDA (Excluding Overheads)(11) 40.1 131.8% 17.3
_______________________________
1(1) Refer to the Alternative Performance Measures Glossary for definition and
explanation
1(2) EBITDA includes Ocean Cruise overheads
Statement of financial position
Goodwill
During the first half of 2023, high claims cost inflation, particularly in
Motor, has continued to put pressure on the Insurance business. Combined with
the impact of Saga's three-year fixed-price product and highly competitive
market conditions, this is expected to lead to lower margins per policy and
lower overall profit before tax for the broking business, compared to prior
assumptions. The Group has therefore conducted an impairment review of the
£449.6m Insurance goodwill asset that was included on the statement of
financial position at 31 January 2023.
The Group's revised five-year financial forecasts incorporate the modelled
impact of the changes in the market environment, including the impact of
continued pressure on margins. Further stress tests have also been considered,
including the continuation of high claims cost inflation 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
a further £68.1m as at 31 July 2023. Consistent with the approach taken in
prior years, this impairment is not included within Underlying Profit Before
Tax(13).
_______________________________
13 Refer to the Alternative Performance Measures Glossary for definition and
explanation
Carrying value of ocean cruise ships
At 31 July 2023, the carrying value of the Group's ocean cruise ships was
£597.2m (31 January 2023: £607.0m). Trading performance in the current year
has been very positive, and with strong bookings for 2024/25, the Directors
concluded that there were no indicators of impairment at 31 July 2023.
Investment portfolio
The majority of the Group's financial assets are held by its Insurance
Underwriting entity and represent premium income received and invested to
settle claims and meet regulatory capital requirements.
The amount held in invested funds decreased by £38.5m to £241.4m (31 January
2023: £279.9m), partly due to payment of £7.0m of dividends from AICL in the
period. At 31 July 2023, 100% of the financial assets held by the Group were
invested with counterparties with a risk rating of BBB or above, compared with
97.9% in the prior period, reflecting the relatively stable credit risk rating
of the Group's investment holdings.
Credit risk rating
Unaudited at 31 July 2023 AAA AA A BBB Unrated Total
£m £m £m £m £m £m
Investment portfolio:
Deposits with financial institutions - 4.3 6.2 - - 10.5
Debt securities 23.0 57.4 69.2 80.6 - 230.2
Money market funds 0.7 - - - - 0.7
Total invested funds 23.7 61.7 75.4 80.6 - 241.4
Derivative assets - - 1.1 - - 1.1
Total financial assets 23.7 61.7 76.5 80.6 - 242.5
Credit risk rating
At 31 January 2023 AAA AA A BBB Unrated Total
£m £m £m £m £m £m
Investment portfolio:
Debt securities 23.5 74.9 64.2 91.8 - 254.4
Money market funds 19.6 - - - - 19.6
Loan funds - - - - 5.9 5.9
Total invested funds 43.1 74.9 64.2 91.8 5.9 279.9
Derivative assets - - 2.5 - - 2.5
Total financial assets 43.1 74.9 66.7 91.8 5.9 282.4
Insurance reserves
Analysis of insurance contract liabilities at 31 July 2023 and 31 January 2023
is as follows:
Unaudited at 31 July 2023 At 31 January 2023 (restated)
£m Gross Reinsurance assets Net Gross Reinsurance assets Net
Incurred claims - estimate of the present value of future cash flows 263.9 (115.9) 148.0 259.2 (87.6) 171.6
Incurred claims - risk adjustment 36.8 (29.8) 7.0 35.6 (27.4) 8.2
Remaining coverage - excluding loss component 39.8 1.2 41.0 44.3 5.5 49.8
Remaining coverage - loss component 13.1 (3.4) 9.7 8.4 (2.7) 5.7
Total 353.6 (147.9) 205.8 347.5 (112.2) 235.3
The Group's total insurance contract liabilities, net of reinsurance assets,
decreased by £29.6m in the period to 31 July 2023 from the previous year end,
primarily due to a £24.8m reduction in net incurred claims reserves, coupled
with an £4.8m decrease in net remaining coverage claims reserves. The
reduction in net remaining coverage claims reserves is due to changes to
liabilities for prior year incurred claims that reflect continued favourable
experience on large bodily injury claims relating to prior accident years.
Financing
At 31 July 2023, the Group's Net Debt(14) was £657.4m, £54.3m lower than at
the beginning of the financial year.
The Group's total leverage ratio was 7.0x as at 31 July 2023 (31 January 2023:
7.5x). Excluding the impact of debt and earnings relating to the ocean cruise
ships, the Group's leverage ratio relating to the RCF was 6.4x at 31 July 2023
(31 January 2023: 4.3x), within the 6.75x covenant.
The Group made repayments on its ship debt facilities in March 2023 for Spirit
of Adventure and in June 2023 for Spirit of Discovery.
£m Unaudited
Maturity date(15) 31 July 2023 31 January 2023
3.375% Corporate bond May 2024 150.0 150.0
5.5% Corporate bond July 2026 250.0 250.0
RCF May 2025 - -
Spirit of Discovery ship loan June 2031 188.9 204.2
Spirit of Adventure ship loan September 2032 249.2 265.0
Less Available Cash (14,16) (180.7) (157.5)
Net Debt(14) 657.4 711.7
Net Debt(14) is analysed as follows:
Adjusted Net Debt(14) is used in the Group's leverage calculation and
reconciles to Net Debt(14) as follows:
£m Unaudited
31 July 2023 31 January 2023
Net Debt(14) 657.4 711.7
Exclude ship loans (438.1) (469.2)
Exclude Ocean Cruise Available Cash(14) 3.1 1.4
Adjusted Net Debt(14) 222.4 243.9
The Group has agreed an extension of the loan facility in place with Roger De
Haan, increasing the amount that can be drawn from £50m to £85m. The
facility, which can be utilised from 1 January 2024, remains unsecured, and
the interest rate remains at 10% provided that drawn funds are used to repay
the corporate bonds due in May 2024. If the loan facility is drawn for general
corporate purposes, the interest rate increases to 18%. While the Group is
likely to draw down the loan facility as part of the 2024 bond repayment, it
is not likely to draw the funds for any other purpose. The revised loan
agreement includes some other amendments that are not considered significant
but, for the most part, it continues to follow the wording of the Group's RCF.
The termination date of the facility with Roger De Haan has also been extended
from 30 June 2025 to 31 December 2025.
_______________________________
14 Refer to the Alternative Performance Measures Glossary for definition and
explanation
15 Maturity date represents the date that the principal must be repaid, other
than the ship loans, which are repaid in instalments over the next nine years
16 Refer to Note 13 of the financial statements for information as to how this
reconciles to a statutory measure of cash
Pensions
The Group's defined benefit pension scheme liability, as measured on an
International Accounting Standard (IAS) 19R basis reduced by £4.1m to a
£8.0m liability as at 31 July 2023 (£12.1m liability as at 31 January 2023).
£m Unaudited
31 July 2023 31 January 2023
Fair value of scheme assets 208.5 224.1
Present value of defined benefit obligation (216.5) (236.2)
Defined benefit pension scheme liability (8.0) (12.1)
During the period ended 31 July 2023, the net liability position of the scheme
reduced by £4.1m, resulting in an overall scheme deficit of £8.0m, mainly as
a result of a recovery plan contribution being paid by the Group. The £5.8m
deficit funding contribution was paid in February 2023 in relation to a
recovery plan agreed under the latest triennial valuation of the scheme as at
31 January 2020.
The movements observed in the scheme's assets and obligations have been
impacted by macroeconomic factors during the period where, at a global level,
there have been rising inflation and cost of living pressures, as well as
shifts in long-term market yields. The present value of defined benefit
obligations decreased by £19.7m to £216.5m, primarily due to a 55bps
increase in the discount rate which is based on increases in long-term trend
corporate bond yields. The fair value of scheme assets decreased by £15.6m to
£208.5m. The decrease in asset values has been largely driven by the rise in
interest rates in the period.
Net assets
Since 31 January 2023, total assets have decreased by £24.6m and total
liabilities have increased by £46.6m, resulting in an overall decrease in net
assets of £71.2m.
The decrease in total assets is primarily due to:
· a decrease in goodwill of £68.1m following an impairment to
insurance goodwill in the period;
· a decrease in financial assets of £39.9m, mainly relating to a
reduction to the Insurance Underwriting investment portfolio, partly to fund
£7.0m of dividends from AICL;
· an increase in reinsurance assets of £35.7m due to the
receivable on the quota share contract with AICL's reinsurance increasing in
the period;
· an increase in cash and short-term deposits of £30.7m; and
· an increase in trust accounts of £11.0m due to seasonality in
the River Cruise and Travel businesses.
The increase in total liabilities reflects:
· an increase of £57.5m in contract liabilities due to the
seasonality of the Cruise and Travel businesses;
· an increase in trade and other payables of £13.6m; and
· a decrease of £33.1m in financial liabilities, which is mainly
due to a reduction of £29.3m in bond and bank loans, as a result of capital
repayments on Spirit of Discovery and Spirit of Adventure facilities.
Effect of IFRS 17 on net assets
£m Unaudited Change Unaudited
31 July 2023 31 July 2022
Net assets (under previous IFRS) 303.1 (93.6) 396.7
Reversal of management margin under previous IFRS 18.8 (12.7) 31.5
ENIDs under IFRS 17 (6.0) 5.3 (11.3)
IFRS 17 risk adjustment (7.1) 4.3 (11.4)
New approach to reserve margin 5.7 (3.1) 8.8
Revised PPO carer wage inflation, alongside changes to other assumptions (22.6) (12.6) (10.0)
Different discount rate for PPOs and related reinsurance assets 17.5 8.3 9.2
Change in valuation of PPO reserves (other than due to 'margin') (5.1) (4.3) (0.8)
Discounting non-PPO liabilities and related reinsurance assets 11.2 1.4 9.8
Expense acquisition costs when incurred (12.9) 3.6 (16.5)
Onerous contract provision (net of related reinsurance assets) (9.7) (6.9) (2.8)
Other individually immaterial items (1.0) (3.1) 2.1
Deferred taxation 2.9 3.1 (0.2)
Impact of IFRS 17 on net assets (8.9) (9.3) 0.4
Net assets under IFRS 17 294.2 (102.9) 397.1
At 31 July 2022, net assets under IFRS 17 were £0.4m higher than under
previous IFRS, however, at 31 July 2023, net assets were £8.9m lower under
IFRS 17 than previous IFRS. The material components of this negative movement
are included below:
· £6.9m increase in the net onerous contracts provision held in
relation to motor insurance contracts. This was a driven by a combination of
an increase in contracts that were onerous at initial recognition (due
primarily due to renewals in years two and three of three-year fixed-price
policies) and an upwards revaluation of the provision due to prolonged claims
inflation.
· £3.1m reduction in the positive impact of the new approach to
reserve margin. This is due to a £12.7m reduction in the management margin
held under previous IFRS being greater than the £9.6m reduction in IFRS
'margin' (ENIDs and risk adjustment).
· £4.3m negative movement due to a change in the impact of
revaluing PPO reserves under IFRS 17. The two impacts of IFRS 17 changes to
PPO valuation assumptions (being the carer wage inflation assumption and the
discount rate) would typically largely offset each other, however, this is not
exact due to the complexities of valuing PPO liabilities, including related
potential lump sum awards. This is particularly the case in a changing
economic environment.
These are, however, partially offset by:
· £3.6m reduction to the negative impact of expensing insurance
acquisition costs when incurred under IFRS 17 instead of deferring them over
the life of the policy under previous IFRS. This reduced impact reflects a
trend of decreasing acquisition costs which is related to lower sales of
AICL-underwritten policies.
· £1.4m positive movement in the impact of discounting non-PPO
claim reserves at the IFRS 17 discount rate. This is due to rising market
interest rates to which the IFRS 17 discount rate is linked.
· £3.1m deferred tax impact of the above adjustments.
Going concern
The Directors have performed an assessment of going concern to determine the
adequacy of the Group's financial resources over a period of 13 months from
the date of signing these financial statements, a period selected to include
consideration of the 31 October 2024 covenant testing date attached to the
Group's £50m RCF.
This assessment is based on higher case and lower case financial projections
which incorporate scenario analysis and stress tests on expected business
performance.
The Group's higher case modelling assumes good performance in the Cruise
division in the second half of 2023/24 and into 2024/25, on the back of strong
booked load factors and per diems. Travel is also expected to achieve
continued growth in revenues. The outlook for Insurance, however, remains
challenging, with high cost and claims inflation in a competitive market
expected to put continued pressure on margins.
The Group's downside scenario incorporates lower load factors for Ocean
Cruise, lower levels of demand in River Cruise, slower growth in the Travel
business and higher working capital requirements. Downside risks modelled for
the Insurance business include the impact of worsening competitive market
pressures on the Broking business, continued high cost and claims inflation
putting pressure on margins, among other stress tests. Both scenarios reflect
further cost reduction measures focused on central overheads and non-core
activities.
Under all scenarios modelled, the Group expects to meet scheduled Ocean Cruise
debt principal repayments as they fall due over the next 13 months, and to
also meet the financial covenants relating to its secured ocean cruise debt.
In addition, in both higher and lower case scenarios and further incorporating
a drawdown under the Group's £85m loan facility from Roger De Haan, the Group
expects to have sufficient resources to enable repayment of the £150m senior
bonds on maturity in May 2024 from Available Cash(17) resources and to have
sufficient resources to continue in operation throughout the assessment
period.
Over the same time frame, and on the same basis, the Group also expects to
remain within the renegotiated financial covenants and other terms relating to
its £50m RCF, as set out in Note 16, enabling it to draw down on this
currently undrawn facility to meet short-term working capital requirements
should the need arise.
Noting that it is not possible to predict accurately all possible future risks
to the Group's future trading, based on this analysis and the scenarios
modelled, the Directors are confident that the Group will have sufficient
funds to continue to meet its liabilities as they fall due for a period of at
least 13 months from the date of approval of the condensed consolidated
interim financial statements. They have, therefore, deemed it appropriate to
prepare the financial statements to 31 July 2023 on a going concern basis.
_______________________________
1(7) Refer to the Alternative Performance Measures Glossary for definition and
explanation
Dividends and financial priorities for 2023/24
Dividends
Given the Group's priority of reducing Net Debt(18), the Board of Directors
does not recommend payment of an interim dividend for the 2023/24 financial
year, nor would this currently be permissible under financing arrangements due
to the leverage ratio being above 3.0x (excluding Ocean Cruise EBITDA and
debt) and while the ship debt facility deferred amounts are outstanding.
Financial priorities for 2023/24
The Group's financial priorities for the current financial year are to reduce
Net Debt(18), build on the already positive load factor and per diem in Ocean
Cruise, return the Travel business to profitability, and to continue progress
in execution of its Insurance strategy.
_______________________________
18 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 65 to 67 of its Annual Report and Accounts for the year
ended 31 January 2023, available at
https://corporate.saga.co.uk/investors/results-reports-presentations/
(https://corporate.saga.co.uk/investors/results-reports-presentations/) .
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:
PRUs for which the outlook has worsened
PRU Reason for change in outlook Mitigations
Saga brand and relevance Increasing reputational risk following the Financial Conduct Authority's (FCA) Consumer Duty live, with embedding to continue in the second half of the year.
market-wide assessment of the General Insurance Pricing Practices (GIPP)
review and introduction of Consumer Duty. Enhanced Insurance Risk Framework in place.
Regulatory action Increasing risk in relation to the FCA's market-wide assessment of the GIPP Consumer Duty live, with embedding to continue in the second half of the year.
review and introduction of Consumer Duty.
Project underway focused on enhancing the Insurance Risk Framework.
Capacity and capability Move towards leaner operating models within Insurance and central functions. Ongoing retention plan for areas most at risk.
Review of accountability and comprehensiveness of process documentation.
PRUs for which the outlook has improved
PRU Reason for change in outlook
Operational resilience Enhancement to infrastructure in progress.
Third-party suppliers Audits of critical suppliers, partnerships and outsourcing completed,
alongside implementation of partnership agreements.
New PRUs
PRU Trend Risk Mitigations
Continued inflation within Insurance Worsening Risk of adverse impact from sustained high levels of inflation on the Active monitoring of inflation, including review of inflation assumed in
Insurance business. pricing.
Efficiencies identified to reduce operating expenses.
Condensed consolidated income statement
for the period ended 31 July 2023
Unaudited Unaudited Unaudited
6m to 6m to 12m to
Jul 2023 Jul 2022 (restated(1)) Jan 2023 (restated(1))
Note £m £m £m
Revenue from Cruise and Travel services 3 196.9 136.2 305.5
Revenue from Insurance Broking services 3 62.5 71.9 147.8
Other revenue (non-Insurance Underwriting) 3 13.5 11.3 17.4
Non-insurance revenue 3 272.9 219.4 470.7
Insurance revenue 3 85.2 97.7 193.0
Total revenue 3 358.1 317.1 663.7
(Increase)/decrease in credit loss allowance (0.1) 0.4(2) 1.3
Other cost of sales (143.2) (117.4)(2) (249.8)
Cost of sales (non-Insurance Underwriting) 3 (143.3) (117.0) (248.5)
Gross profit (non-Insurance Underwriting) 129.6 102.4 222.2
Insurance service expenses 15 (114.8) (92.3) (215.8)
Net income from reinsurance contracts 15 19.3 6.3 27.3
Insurance service result (10.3) 11.7 4.5
Administrative and selling expenses (101.8) (81.1) (181.5)
Increase in credit loss allowance (0.3) (0.6)(2) (0.9)
Impairment of assets (68.1) (269.5) (271.2)
Net finance (expense)/income from insurance contracts 15 (7.6) 7.0 8.2
Net finance income/(expense) from reinsurance contracts 15 4.2 (5.3) (3.7)
Net (loss)/profit on disposal of property, plant and equipment and software (0.1) 0.1 0.1
Investment income/(expense) 0.3 (5.0) (9.7)
Finance costs (23.7) (22.4) (42.2)
Finance income - 0.9 1.5
Loss before tax (77.8) (261.8) (272.7)
Tax income/(expense) 4 6.8 (4.5) (0.4)
Loss for the period (71.0) (266.3) (273.1)
Attributable to:
Equity holders of the parent (71.0) (266.3) (273.1)
Loss per share:
Basic 6 (50.9p) (191.3p) (195.7p)
Diluted 6 (50.9p) (191.3p) (195.7p)
_______________________________
(1 )For details of the restatement, please see Notes 2.5, 12 and 15
2 Movements in the credit loss allowance for the period ended 31 July 2022
were not previously presented on the face of the income statement. Amounts
have been restated to separately report these amounts
Condensed consolidated statement of comprehensive income
for the period ended 31 July 2023
Unaudited Unaudited Unaudited
6m to 6m to 12m to
Jul 2023 Jul 2022 (restated(3)) Jan 2023 (restated(3))
£m £m £m
Loss for the period (71.0) (266.3) (273.1)
Other comprehensive income
Other comprehensive income that may be reclassified to the income statement in
subsequent periods
Net (losses)/gains on hedging instruments during the period (1.7) 5.4 (2.0)
Recycling of previous losses/(gains) on hedges to income statement 1.3 (2.3) 0.3
Total net (losses)/gains on cash flow hedges (0.4) 3.1 (1.7)
Associated tax effect 0.7 (0.7) (0.8)
Total other comprehensive gains/(losses) with recycling to income statement 0.3 2.4 (2.5)
Other comprehensive income that will not be reclassified to the income
statement in subsequent periods
Remeasurement (losses)/gains on defined benefit plan (1.4) 10.5 (19.1)
Associated tax effect 0.3 (2.7) 4.8
Total other comprehensive (losses)/gains without recycling to income statement (1.1) 7.8 (14.3)
Total other comprehensive (losses)/gains (0.8) 10.2 (16.8)
Total comprehensive losses for the period (71.8) (256.1) (289.9)
Attributable to:
Equity holders of the parent (71.8) (256.1) (289.9)
_______________________________
3 For details of the restatement, please see Notes 2.5, 12 and 15
Condensed consolidated statement of financial position
as at 31 July 2023
Unaudited Unaudited
As at As at Unaudited
31 Jul 2023 31 Jul 2022 (restated(4)) As at
31 Jan 2023 (restated(4))
Assets Note £m £m £m
Goodwill 8 381.5 449.6 449.6
Intangible assets 9 57.9 46.5 51.3
Retirement benefit scheme surplus 14 - 17.4 -
Property, plant and equipment 10 601.2 636.5 611.0
Right-of-use assets 11 30.7 77.5 30.7
Financial assets 12 242.5 298.0 282.4
Current tax assets 4.7 3.3 4.4
Deferred tax assets 4 30.7 12.3 20.8
Reinsurance contract assets 15 147.9 89.8 112.2
Inventories 7.7 7.6 7.0
Trade and other receivables 134.3 136.9 136.0
Trust accounts 47.2 60.2 36.2
Cash and short-term deposits 13 207.2 211.8 176.5
Assets held for sale 18 31.2 12.9 31.2
Total assets 1,924.7 2,060.3 1,949.3
Liabilities
Retirement benefit scheme liability 14 8.0 - 12.1
Insurance contract liabilities 15 353.6 337.2 347.5
Provisions 9.4 4.9 5.2
Financial liabilities 12 863.7 965.1 896.8
Deferred tax liabilities 4 11.7 11.2 9.3
Contract liabilities 184.0 150.5 126.5
Trade and other payables 200.1 194.3 186.5
Total liabilities 1,630.5 1,663.2 1,583.9
Equity
Issued capital 21.1 21.1 21.1
Share premium 648.3 648.3 648.3
Own shares held reserve (1.0) - -
Retained deficit (381.7) (283.2) (309.7)
Share-based payment reserve 10.4 9.2 8.9
Hedging reserve (2.9) 1.7 (3.2)
Total equity 294.2 397.1 365.4
Total equity and liabilities 1,924.7 2,060.3 1,949.3
_______________________________
4 For details of the restatement, please see Notes 2.5, 12 and 15
Condensed consolidated statement of changes in equity
for the period ended 31 July 2023
Attributable to the equity holders of the parent
Share premium Own shares held reserve Retained (deficit)/ Share-based payment reserve Fair value reserve Hedging reserve Total equity
earnings
Issued capital
£m £m £m £m £m £m £m £m
Unaudited
At 1 February 2023 (as reported) 21.1 648.3 - (293.5) 8.9 (12.1) (3.2) 369.5
Effect of adoption of International Financial Reporting Standard (IFRS) 17 - - - (16.2) - 12.1 - (4.1)
At 1 February 2023 (restated(5)) 21.1 648.3 - (309.7) 8.9 - (3.2) 365.4
Loss for the period - - - (71.0) - - - (71.0)
Other comprehensive (losses)/income excluding recycling - - - (1.1) - - 1.1 -
Recycling of previous gains to income statement - - - - - - (0.8) (0.8)
Total comprehensive (losses)/income - - - (72.1) - - 0.3 (71.8)
Share-based payment charge - - - - 2.4 - - 2.4
Own shares transferred in the period - - (1.0) (0.8) - - - (1.8)
Transfer upon vesting of share options - - - 0.9 (0.9) - - -
At 31 July 2023 21.1 648.3 (1.0) (381.7) 10.4 - (2.9) 294.2
Unaudited
At 1 February 2022 (as reported) 21.1 648.3 - (22.4) 7.4 (0.8) (0.7) 652.9
Effect of adoption of IFRS 17 - - - (2.3) - 0.8 - (1.5)
At 1 February 2022 (restated(5)) 21.1 648.3 - (24.7) 7.4 - (0.7) 651.4
Loss for the period (restated(5)) - - - (266.3) - - - (266.3)
Other comprehensive income excluding recycling (restated(5)) - - - 7.8 - - 4.2 12.0
Recycling of previous gains to income statement - - - - - - (1.8) (1.8)
Total comprehensive (losses)/income (restated(5)) - - - (258.5) - - 2.4 (256.1)
Share-based payment charge - - - - 1.8 - - 1.8
At 31 July 2022 (restated(5)) 21.1 648.3 - (283.2) 9.2 - 1.7 397.1
_______________________________
5 For details of the restatement, please see Notes 2.5, 12 and 15. The effect
of adoption of IFRS 17 disclosed above includes related updates to accounting
policies applied under IFRS 9
Condensed consolidated statement of changes in equity
for the period ended 31 July 2023 (continued)
Attributable to the equity holders of the parent
Share premium Own shares held reserve Retained (deficit)/ Share-based payment reserve Fair value reserve Hedging reserve Total equity
earnings
Issued capital
£m £m £m £m £m £m £m £m
Unaudited
At 1 February 2022 (as reported) 21.1 648.3 - (22.4) 7.4 (0.8) (0.7) 652.9
Effect of adoption of IFRS 17 - - - (2.3) - 0.8 - (1.5)
At 1 February 2022 (restated(6)) 21.1 648.3 - (24.7) 7.4 - (0.7) 651.4
Loss for the year (restated(6)) - - - (273.1) - - - (273.1)
Other comprehensive losses excluding recycling (restated(6)) - - - (14.3) - - (2.9) (17.2)
Recycling of previous losses to income statement - - - - - - 0.4 0.4
Total comprehensive losses (restated(6)) - - - (287.4) - - (2.5) (289.9)
Share-based payment charge - - - - 3.9 - - 3.9
Transfer upon vesting of share options - - - 2.4 (2.4) - - -
At 31 January 2023 (restated(6)) 21.1 648.3 - (309.7) 8.9 - (3.2) 365.4
_______________________________
6 For details of the restatement, please see Notes 2.5, 12 and 15. The effect
of adoption of IFRS 17 disclosed above includes related updates to accounting
policies applied under IFRS 9
Condensed consolidated statement of cash flows
for the period ended 31 July 2023
Unaudited Unaudited Unaudited 12m to
6m to 6m to Jan 2023 (restated(7))
Jul 2023 Jul 2022 (restated(7))
Note £m £m £m
Loss before tax (77.8) (261.8) (272.7)
Depreciation, impairment and loss on disposal, of property, plant and 18.0 19.7 32.9
equipment and right-of-use assets
Amortisation and impairment of intangible assets and goodwill, and profit on 72.4 273.9 278.6
disposal of software
Impairment of assets held for sale - - 1.2
Share-based payment transactions 1.6 1.8 3.9
Net finance expense/(income) from insurance contracts 15 7.6 (7.0) (8.2)
Net finance (income)/expense from reinsurance contracts 15 (4.2) 5.3 3.7
Finance costs 23.7 22.4 42.2
Finance income - (0.9) (1.5)
Interest (income)/expense from investments (0.3) 5.0 9.7
Increase in trust accounts (11.0) (36.8) (12.8)
Movements in other assets and liabilities 37.6 (15.9) (57.8)
67.6 5.7 19.2
Investment income interest received 5.0 1.8 5.4
Interest paid (20.7) (19.9) (37.6)
Income tax paid - (0.9) (0.9)
Net cash flows from/(used in) operating activities 51.9 (13.3) (13.9)
Investing activities
Proceeds from sale of property, plant and equipment and right-of-use assets - 0.1 0.2
Purchase of, and payments for the construction of, property, plant and (14.4) (8.8) (20.8)
equipment, and intangible assets
Disposal of financial assets 26.6 55.0 65.8
Purchase of financial assets (11.8) (26.6) (40.2)
Acquisition of subsidiary 7 - (0.9) (0.9)
Net cash flows from investing activities 0.4 18.8 4.1
Financing activities
Payment of principal portion of lease liabilities (6.7) (7.8) (7.8)
Repayment of borrowings 16 (31.1) (15.3) (46.4)
Net cash flows used in financing activities (37.8) (23.1) (54.2)
Net increase/(decrease) in cash and cash equivalents 14.5 (17.6) (64.0)
Cash and cash equivalents at the start of the period 191.7 255.7 255.7
Cash and cash equivalents at the end of the period 13 206.2 238.1 191.7
_______________________________
7 For details of the restatement, please see Notes 2.5, 12 and 15
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 3 Pancras Square, London N1C 4AG.
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 2023 were authorised for issue
in accordance with a resolution of the Directors on 26 September 2023.
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 2023.
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, as set out in Note 2.7. 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 International Accounting Standard (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 Annual Report and Accounts for the
year ended 31 January 2023, except for changes required as a result of the
transition to a new accounting standard for insurance and reinsurance
contracts, IFRS 17 'Insurance Contracts' and related updates to accounting
policies applied under IFRS 9 'Financial Instruments' (see Notes 2.3 and 2.5).
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 are unaudited but have been reviewed by KPMG LLP and
include their review conclusion. 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 2023 have been taken from the Group's
Annual Report and Accounts for that year, except for changes required as a
result of the transition to IFRS 17, including related updates to accounting
policies applied under IFRS 9 (see Notes 2.3 and 2.5). These changes have been
applied retrospectively, and prior period comparative information has been
restated. Therefore, prior period comparative information is unaudited.
Statutory financial statements for the year ended 31 January 2023 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 2023 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 2023, except for changes required as a result of the transition to a
new accounting standard for insurance and reinsurance contracts, IFRS 17
'Insurance Contracts'.
In addition, as a result of IFRS 17 being adopted and applied, the Group has
changed the classification of debt securities under IFRS 9 'Financial
Instruments', from fair value through OCI (FVOCI) to fair value through profit
or loss (FVTPL). IFRS 17 permits financial assets to be classified as FVTPL on
transition to IFRS 17 if doing so eliminates, or significantly reduces, a
measurement, or recognition inconsistency. For the debt securities that
support the Group's insurance liabilities, this condition is met as fair value
gains or losses on these securities are expected to be offset, to a
significant degree, by the impact of changes in the discount rate on the
measurement of IFRS 17 liabilities for incurred claims (net of the impact on
related reinsurance assets).
IFRS 17 is effective for annual reporting periods beginning on, or after, 1
January 2023. The Group has initially applied IFRS 17 in its consolidated
financial statements for the year ending 31 January 2024, with the date of
initial application being 1 February 2023 and the transition date being 1
February 2022. The Group's condensed consolidated interim financial statements
include comparatives for the year ending 31 January 2023 restated onto an IFRS
17 basis.
Details of the new accounting policy for insurance contracts underwritten by
the Group and reinsurance contracts is disclosed below, with note references
corresponding to the financial statements for the year ended 31 January 2023.
This includes details of revenue and cost recognition which replace the parts
of Notes 2.3(a) and 2.3(b) of the financial statements for the year ended 31
January 2023 that relate to insurance contracts underwritten by the Group and
reinsurance contracts.
r. Insurance contracts underwritten by the Group and reinsurance
contracts
i) Classification
The Group issues insurance contracts under which it accepts significant
insurance risk from policyholders, and also enters into reinsurance contracts
under which it transfers significant insurance risk related to underlying
insurance contracts. 'Reinsurance contracts' refers to reinsurance contracts
held by the Group. The Group does not issue any reinsurance contracts.
Insurance and reinsurance contracts can also expose the Group to financial
risk.
ii) Separating components from insurance and reinsurance contracts
When the Group underwrites an insurance contract, a number of separate
contracts may be entered into at the same time. These contracts may involve
more than one legal entity within the Group.
As the set of contracts is designed to achieve an overall commercial effect
for the Group, for accounting purposes the following steps are taken:
· The total cash flows arising from all contracts are initially
considered as a whole (together the host insurance contract).
· The Group then identifies any service components that are
'distinct' and therefore require separation for accounting purposes. A service
is distinct if the policyholder can benefit from it either on its own or with
other resources that are readily available to the policyholder. The following
distinct service components were identified:
o The brokerage of the core insurance contract (where it has first been
subject to the competitive pricing panel that the Group operates).
o The brokerage of any add-on cover underwritten by a third-party.
o The promise to fix the premium for three years (where this option is taken
by the policyholder).
These distinct service components are accounted for as separate contracts with
customers under IFRS 15.
· The total cash inflows from the combined set of contracts are
then allocated for accounting purposes between:
o any distinct service components; and
o the insurance component of the host insurance contract.
This allocation is performed based on the stand-alone selling price of each
component.
· Cash outflows that relate directly to each component are
attributed to that component, with any remaining cash outflows attributed on a
systematic and rational basis, reflecting the cash outflows the Group would
expect to arise if that component were a separate contract.
iii) Aggregation of insurance and reinsurance contracts
The Group applies the requirements of IFRS 17 at the level of groups of
insurance contracts issued. Groups of insurance contracts are determined by
identifying portfolios of insurance contracts, which comprise contracts that
are subject to similar risks and managed together, and dividing each portfolio
into annual cohorts (i.e. by year of issue) and each annual cohort into three
groups based on the expected profitability of each contract at initial
recognition:
· Any contracts that are onerous at initial recognition.
· Any contracts that at initial recognition have no significant
risk of becoming onerous.
· Any other contracts.
Groups of reinsurance contracts are established such that each group comprises
a single contract.
iv) Recognition of insurance and reinsurance contracts
The Group recognises insurance contracts issued from the earliest of:
· the beginning of the coverage period;
· when the first payment from a policyholder becomes due, or, if
there is no due date, when the first payment is received; and
· when facts and circumstances indicate that the contract is
onerous. This could be as early as the date on which the contract is first
entered into.
When a contract is recognised, it is added to an existing group of contracts
or, if the contract does not qualify for inclusion in an existing group, it
forms a new group to which future contracts are added. Groups of contracts are
established on initial recognition and their composition is not revised once
all contracts have been added to the group.
The Group recognises groups of reinsurance contracts as follows:
· Groups of reinsurance contracts that provide proportionate
coverage (primarily quota share arrangements) are recognised when any
underlying insurance contract is initially recognised.
· All other groups of reinsurance contacts (primarily excess of
loss arrangements) are recognised from the earlier of:
o the beginning of the coverage period of the group of reinsurance
contracts; and
o the date on which an onerous group of underlying contracts is recognised
(provided that the related reinsurance contract was entered into on, or
before, that date).
v) Contract boundaries
The measurement of groups of insurance contracts issued, and reinsurance
contracts, reflects all future cash flows arising from insurance coverage
within the boundary of each contract (the contract boundary).
Cash flows are within the contract boundary if they arise from substantive
rights and obligations that exist during the reporting period in which the
Group can compel the policyholder to pay premiums or has a substantive
obligation to provide services.
vi) Measurement - insurance contracts
The Group measures all groups of insurance contracts issued in accordance with
IFRS 17's simplified premium allocation approach (PAA). They are eligible for
the PAA as the coverage period of each contract in each group is one year or
less.
The following sections set out the Group's approach to measuring groups of
insurance contracts under the PAA.
a) Measurement at initial recognition
On initial recognition, the liability for remaining coverage of groups of
insurance contracts issued is measured as:
· any premiums received at initial recognition; plus
· for groups of contracts that are onerous (expected to be loss
making) at initial recognition, a loss component measured as the excess of the
fulfilment cash flows over the carrying amount of the liability for remaining
coverage excluding the loss component. A corresponding loss is recognised in
profit or loss. At initial recognition the loss component is only recognised
and measured in respect of policies that individually meet the recognition
criteria at that date.
b) Subsequent measurement
At the end of each reporting period, each group of contracts is measured as
the sum of the liability for remaining coverage and the liability for incurred
claims.
Liability for remaining coverage
At the end of each reporting period, the carrying amount of the liability for
remaining coverage (excluding the loss component) of each group of contracts
is equal to:
· the opening carrying amount of the liability for remaining
coverage; plus
· premiums received in the period; less
· the amount recognised as insurance revenue for coverage provided
in the period. Insurance revenue is the amount of total expected premium
receipts (excluding premium taxes) allocated to each period of coverage on the
basis of the passage of time (i.e. a straight line basis). This is appropriate
as, for the insurance contracts that the Group issues, the expected pattern of
release of risk during the coverage period does not differ significantly from
the passage of time.
For groups of contracts that were onerous at initial recognition:
· the loss component of the liability for remaining coverage is
increased in respect of any individual policies added to the group;
· the loss component is reversed as coverage is provided, reducing
the liability for remaining coverage. A corresponding credit to profit or loss
means that the onerous loss is not recognised a second time when a liability
for incurred claims is established as coverage is provided; and
· the expected profitability of remaining coverage is reassessed at
each reporting date, with any changes since initial recognition reflected in
the valuation of the remaining loss component of the liability for remaining
coverage, with a corresponding entry in profit or loss.
For other groups of contracts, at each reporting date, the Group considers
whether the remaining coverage has become onerous. If so, a loss component of
the liability for remaining coverage is established with a corresponding loss
recognised in profit or loss.
Liability for incurred claims
As coverage is provided, the Group establishes a liability for incurred
claims. The liability is estimated based on the fulfilment cash flows relating
to incurred claims, including both claims that have been notified (i.e.
outstanding claims) and claims incurred but not reported (IBNR). These
fulfilment cash flows:
· include an estimate of claims handling costs and the expected
value of salvage and other recoveries;
· incorporate, in an unbiased way, all reasonable and supportable
information available without undue cost or effort about the amount, timing
and uncertainty of those future cash flows;
· reflect current estimates from the Group's perspective;
· are adjusted to reflect the time value of money and effect of
financial risk (a discounting adjustment). The Group has not taken the PAA
option to not discount claims expected to be paid within one year of the loss
event; and
· include an explicit adjustment for non-financial risk (the risk
adjustment), which reflects the compensation required for bearing uncertainty
about the amount and timing of cash flows that arises from non-financial risk.
vii) Measurement - reinsurance contracts
The Group also measures all groups of reinsurance contracts in accordance with
the PAA. Groups of excess of loss reinsurance contracts are eligible for the
PAA as each underlying contract has a coverage period of one year or less.
Groups of other reinsurance contracts (primarily the motor quota share
arrangement) are eligible for the PAA as, at initial recognition, the Group
expects that the resulting measurement of the asset for remaining coverage
would not differ materially to that under the IFRS 17 general measurement
model.
Groups of reinsurance contracts are measured on the same basis as the
underlying insurance contracts, adapted as appropriate to reflect the
different features of reinsurance contracts, including:
· where the Group recognises a loss on initial recognition of an
onerous group of underlying insurance contracts, or when further onerous
underlying insurance contracts are added to a group, the Group establishes a
loss-recovery component of the asset for remaining coverage for groups of
reinsurance contracts depicting any recovery of losses. The loss-recovery
component is calculated by multiplying the loss recognised on the underlying
insurance contracts and the percentage of claims on the underlying insurance
contracts the Group expects to recover from the group of reinsurance
contracts;
· reinsurance cash flows that are contingent on claims experience
are treated as part of the claims expected to be reimbursed. This applies to
profit commission clauses within the Group's motor quota share reinsurance
contracts; and
· the Group assesses the risk that that the counterparties to its
reinsurance contracts are not able fulfil their obligations (non-performance
risk, or default risk), including by considering available data on the
financial strength of the reinsurers. An allowance is included in the relevant
estimate of the present value of future cash flows to reflect this risk.
viii) Measurement - insurance acquisition cash flows
The Group identifies insurance acquisition cash flows, being the costs of
selling, underwriting and starting insurance contracts. The costs are
primarily commissions paid to intermediaries and an allocation of other
operating expenses.
The Group has taken the IFRS 17 option to expense insurance acquisition cash
flows immediately where the coverage period of the related contract is one
year or less. As all the Group's insurance contracts have a coverage period of
one year or less, all insurance acquisition cash flows are expensed when they
are incurred.
ix) Modification and derecognition
An insurance contract is derecognised when:
· it is extinguished (i.e. when the obligation expires or is
discharged or cancelled); or
· there is a modification of the contract that is treated as a
derecognition and recognition of a new contract. This is the case where the
modified terms, if applied at inception, would have resulted in:
o a change in the measurement model or the applicable standard for measuring
a component of the contract;
o a substantially different contract boundary; or
o the contract being included in a different group of contracts.
When a modification is not treated as a derecognition, the Group recognises
amounts paid or received for the modification as an adjustment to the relevant
liability for remaining coverage relating to the existing contract.
x) Presentation
The Group disaggregates the total amount recognised in the statement of profit
or loss into an insurance service result, comprising insurance revenue and
insurance service expense, and insurance finance income or expenses.
a) Separate presentation of portfolios in an asset or liability position
In the statement of financial position, where applicable, the Group presents
separately the carrying amount of portfolios of insurance contracts issued
that are assets, portfolios of insurance contracts issued that are
liabilities, portfolios of reinsurance contracts that are assets and
portfolios of reinsurance contracts that are liabilities.
b) Changes in the risk adjustment
The Group disaggregates the change in risk adjustment for non-financial risk
between a financial and non-financial portion, included within insurance
finance expenses and the insurance service result respectively.
c) Reinsurance
On the face of the consolidated income statement, income or expenses from
reinsurance contracts (other than insurance finance income or expenses) are
presented as a single amount, separately from the income or expenses from
insurance contracts issued.
d) Insurance finance income or expense
Insurance finance income or expenses comprise the change in the carrying
amount of the group of insurance contracts arising from:
· the effect of the time value of money and changes in the time
value of money; and
· the effect of financial risk and changes in financial risk.
This largely represents:
· the unwind of the discounting of the liability for incurred
claims;
· the impact of changes in the discount rate used in the
measurement of the liability for incurred claims; and
· the impact of changes in the care worker inflation assumption
used in the measurement of claims settled as periodical payment orders (PPOs).
Reinsurance finance income or expense is the change in the carrying value of
amounts relating to reinsurance contracts arising for the same reasons.
The Group does not disaggregate insurance finance income or expenses between
profit or loss and other comprehensive income (OCI) as permitted by the
standard.
xi) Transition
In adopting IFRS 17, the Group applied a full retrospective approach to
transition. Under the full retrospective approach to transition, at 1 February
2022, the Group:
· identified, recognised and measured each group of insurance and
reinsurance contracts as if IFRS 17 had always been applied;
· derecognised previously reported balances that would not have
existed if IFRS 17 had always been applied (e.g. insurance receivables and
payables, which under IFRS 17 are included in the measurement of the insurance
contracts); and
· recognised any resulting net difference in equity.
Full details of all other accounting policies of the Group can be found in the
Annual Report and Accounts for the year ended 31 January 2023, available at
www.corporate.saga.co.uk (http://www.corporate.saga.co.uk) .
2.4 Standards issued but not yet effective
The following is a list of standards, and amendments to standards, that are in
issue but are not effective or adopted as at 31 July 2023.
a. Classification of liabilities as current or non-current (amendments
to IAS 1)
The amendments aim to promote consistency in applying the requirements by
helping companies determine whether, in the statement of financial position,
debt and other liabilities with an uncertain settlement date should be
classified as current (due, or potentially due, to be settled within one year)
or non-current. The amendments are effective for annual periods beginning on,
or after, 1 January 2024 and are not likely to have a material effect on the
Group's financial statements. These amendments have been endorsed by the UK
Endorsement Board.
b. Definition of lease liability in a sale and leaseback (amendment to
IFRS 16)
The amendment clarifies how a seller-lessee subsequently measures sale and
leaseback transactions that satisfy the requirements in IFRS 15 to be
accounted for as a sale. The amendment is effective for annual reporting
periods beginning on, or after, 1 January 2024. The amendment is not expected
to have a material impact on the Group's financial statements. This amendment
has been endorsed by the UK Endorsement Board.
c. Supplier finance arrangements (amendments to IAS 7 and IFRS 7)
The amendments add disclosure requirements, and 'signposts' within existing
disclosure requirements, that ask entities to provide qualitative and
quantitative information about supplier finance arrangements. The amendment is
effective for annual reporting periods beginning on, or after, 1 January 2024.
The amendment is not expected to have a material impact on the Group's
financial statements. This amendment is not currently endorsed by the UK
Endorsement Board.
2.5 First time adoption of new standards and amendments
The following is a list of standards, and amendments to standards, that became
effective, or were adopted, for the first time during the period ended 31 July
2023.
a. IFRS 17 'Insurance Contracts'
The Group has adopted IFRS 17 'Insurance Contracts' for the first time in the
year ended 31 January 2024, with prior period comparatives also restated. IFRS
17 is a comprehensive new accounting standard that applies to all insurance
and reinsurance contracts covering the principles of recognition, measurement,
presentation and disclosure.
IFRS 17 only applies to insurance contracts that are underwritten by the Group
and related reinsurance contracts held. It does not affect the accounting for
the Group's Insurance Broking activities.
The changes introduced by IFRS 17 are summarised as follows:
The Group has applied IFRS 17's simplified premium allocation approach (PAA)
to all insurance contracts issued and reinsurance contracts held.
Applying the PAA, the measurement of liabilities for remaining coverage
continues to be based on a deferred premium approach as under previously
reported IFRS. However key differences compared to previously reported IFRS
are as follows:
· IFRS 17 requires identification of any contracts that are
expected to be onerous at initial recognition. The expected losses are
recognised immediately in profit or loss, with a liability (a loss component)
established on the balance sheet. Under previously reported IFRS, these losses
were typically recognised in profit or loss over the coverage period of the
insurance contracts.
· The Group has taken the PAA option to expense insurance
acquisition costs immediately in profit or loss, meaning that the deferred
insurance acquisition cost asset held under previously reported IFRS has been
written off.
The measurement of insurance contract liabilities in relation to coverage
provided before the statement of financial position date, referred to as
liabilities for incurred claims under IFRS 17, has changed. Under IFRS 17,
liabilities for incurred claims are now measured as the sum of the following
components (collectively referred to as the fulfilment cash flows):
· The expected future cash flows, all of which are discounted using
a risk-free rate adjusted to reflect the liquidity characteristics of the
insurance contracts.
· A risk adjustment, being an explicit margin above the expected
future cash flows that represents the compensation required for bearing
non-financial uncertainty. The Group has derived the risk adjustment by
selecting an appropriate confidence interval using the expected loss
distribution for incurred claims.
This differs from previously reported IFRS under which:
· only certain long-tail claim liabilities were discounted. This
discounting used a discount rate that didn't typically move in line with
market interest rates; and
· the reserve margin was not explicit or linked to a target
confidence level.
The consolidated income statement changes under IFRS 17, including:
· introduction of 'Insurance revenue', which is similar to gross
earned premiums from previously reported IFRS. Further changes to the
presentation of revenue have been made as follows:
o Revenue from Cruise and Travel services and Insurance Broking services are
shown separately (this is not required by IFRS 17).
o 'Total revenue' is no longer stated after the deduction of reinsurance
premiums (the presentation of amounts arising from reinsurance contracts is
explained below).
· introduction of an 'Insurance service expenses' line item,
comprising all expenses relating to insurance contracts (except for 'Net
finance (expense)/income from insurance contracts');
· introduction of a single line item including all income and
expenses arising from reinsurance contracts (except for 'Net finance
income/(expense) from reinsurance contracts');
· introduction of 'Net finance (expense)/income from insurance
contracts' and an equivalent for reinsurance. This caption includes:
o the unwind of the discounting of the liability for incurred claims. Under
previously reported IFRS, only PPO liabilities were discounted, with the
unwind of discounting implicitly included within gross claims incurred;
o the impact of changes in the discount rate used in the measurement of the
liability for incurred claims; and
o the impact of changes in the care worker inflation assumption used in the
measurement of claims settled as PPOs.
· the netting down of amounts relating to quota share reinsurance
arrangements so that only amounts expected to be paid or received are
accounted for. Under previously reported IFRS, quota share reinsurance
arrangements are 'grossed up' in the income statement, with large nominal
premiums ceded and claims recovered balances which do not necessarily reflect
amounts expected to be paid or received.
Full details of the new accounting policy for insurance and reinsurance
contracts are included in Note 2.3.
b. Deferred tax related to assets and liabilities arising from a single
transaction (amendments to IAS 12)
The amendments clarify that the initial recognition exemption does not apply
to transactions in which equal amounts of deductible and taxable temporary
differences arise on initial recognition. They will typically apply to
transactions such as leases of lessees and will require the recognition of
additional deferred tax assets and liabilities. The amendments are effective
for annual reporting periods beginning on, or after, 1 January 2023. The
amendments had no effect on the Group's financial statements.
c. Disclosure of accounting policies (amendments to IAS 1 and IFRS
Practice Statement 2)
The amendments require that an entity discloses its material accounting
policies, instead of its significant accounting policies. Further amendments
explain how an entity can identify a material accounting policy. The
amendments are effective for annual reporting periods beginning on, or after,
1 January 2023. The amendments had no effect on the Group's financial
statements.
d. Definition of accounting estimates (amendments to IAS 8)
The amendments replace the definition of a change in accounting estimates with
a definition of accounting estimates. Under the new definition, accounting
estimates are "monetary amounts in financial statements that are subject to
measurement uncertainty". The amendments clarify that a change in accounting
estimate that results from new information or new developments is not the
correction of an error. The amendments are effective for annual reporting
periods beginning on, or after, 1 January 2023. The amendments had no effect
on the Group's financial statements.
e. International tax reform - Pillar two model rules (amendments to IAS
12)
The amendments provide a temporary exception to the requirements regarding
deferred tax assets and liabilities related to pillar two income taxes. The
application (issued 23 May 2023) of the exception and disclosure of that fact
is effective immediately, the other disclosure requirements are effective for
annual reporting periods beginning on or after 1 January 2023, but not
required in any interim financial statements for 2023. The amendments had no
effect on the Group's financial statements.
2.6 Significant accounting judgements, estimates and assumptions
The Annual Report and Accounts for the year ended 31 January 2023, available
at www.corporate.saga.co.uk, included full details of significant accounting
judgements, estimates and assumptions used in the application of the Group's
accounting policies.
The adoption of IFRS 17 in the period has resulted in updates to those
significant accounting judgements, estimates and assumptions. These updates,
which are explained below, have also been applied to the comparatives for the
year ending 31 January 2023 which have been restated onto an IFRS 17 basis.
a. Updates to significant judgements
i) Classification of insurance contracts
This judgment is now made by applying the principles of IFRS 17 rather than
IFRS 4 (the previous international accounting standard for insurance and
reinsurance contracts). This has not resulted in any changes to the
conclusions reached.
ii) Insurance contract liabilities (and related reinsurance contract
assets)
Eligibility of reinsurance contracts for the PAA
Within the Group's pool of reinsurance contracts (primarily the motor quota
share arrangement), some have a coverage period of more than 12 months.
Management has applied significant judgment in concluding that these groups
are eligible for the PAA.
Liability for incurred claims
This judgment relates to the estimation of future claims costs for areas of
uncertainty. This was also a key area of judgment under IFRS 4, although the
application of this judgment differs under IFRS 17. Claim liabilities no
longer include 'actuarial best estimate' or 'reserve margin' elements.
Instead, any areas of uncertainty in the estimation of future claims costs are
reflected in one or both components of the IFRS 17 liability for incurred
claims, being:
· the estimate of the present value of future cash flows; plus
· the risk adjustment.
The approach to determining the risk adjustment within the liability for
incurred claims is a key area of judgment under IFRS 17. The Group determines
the risk adjustment at the level of each IFRS 17 portfolio of insurance
contracts, the most material of which is the motor portfolio, using a
confidence level technique (also referred to as a Value at Risk (VaR)
approach). Following this approach, the total liability for incurred claims
(net of reinsurance) is set at the 85% confidence level (ultimate basis), with
the 'net' risk adjustment being the difference between this total net
liability for incurred claims and the net estimate of the present value of
future cash flows. The gross risk adjustment is derived in a similar way, with
the reinsurance risk adjustment being the difference between the gross and
'net' risk adjustments.
As the risk adjustment is determined at the level of each IFRS 17 portfolio,
no credit is taken for diversification of risk across these portfolios.
A further key area of judgment relates to the discount rate that is applied to
the estimate of future cash flows. Under IFRS 17, the discount rate used
should reflect the liquidity characteristics of the insurance liabilities.
Assessing the liquidity characteristics of the liabilities requires
significant judgment. Management concluded that cash flows relating to the
liability for incurred claims are illiquid and therefore the discount rate
should include an 'illiquidity premium' above the risk-free rate.
b. Updates to significant estimates and assumptions
i) Valuation of insurance contract liabilities (and related
reinsurance contract assets)
The valuation of insurance contract liabilities - and in particular
liabilities for incurred claims - continues to be a significant estimate under
IFRS 17. Key changes following adoption of IFRS 17 are as follows:
Discount rate applied to liabilities for incurred claims
All the Group's liabilities for incurred claims (and related reinsurance
assets) are discounted under IFRS 17, whereas previously only PPO liabilities
were discounted.
The determination of the discount rate applied to liabilities for incurred
claims is a significant estimate. This discount rate reflects the risk-free
interest rate in the currency of the insurance liabilities (GBP) plus an
illiquidity premium as described above. Such a discount rate is not readily
available and therefore must be estimated. The discount rate is estimated by
removing from the yield curve of a portfolio of GBP-denominated corporate
bonds an estimate of the components of that yield that relate to expected and
unexpected credit losses. The portfolio of corporate bonds used reflects the
debt securities that the Group holds to supports its insurance liabilities.
Following this approach, the GBP discount rate curves that were applied to
liabilities for incurred claims were as follows:
1 year 3 years 5 years 10 years
31 July 2023 5.6% 5.3% 5.1% 4.9%
31 January 2023 4.2% 4.1% 4.0% 4.1%
Estimates of future cash flows to fulfil liabilities for incurred claims
The approach to estimating the expected future cash flows required to fulfil
liabilities for incurred claims is similar to that previously used under IFRS
4. The technical basis for this estimate is set out in Note 2.3.
The Group has re-evaluated the rate of carer wage inflation that is assumed in
the valuation of PPO liabilities in the context of the IFRS 17 requirements.
This has resulted in the carer wage inflation assumption being set at 1.5%
above the discount rate applied to liabilities for incurred claims at all
measurement dates since transition to IFRS 17. This appropriateness of this
assumption will continue to be assessed at future measurement dates.
Risk adjustment
The confidence level technique used by the Group to determine the risk
adjustment requires estimation of the probability distribution of the present
value of future cash flows arising from liabilities for incurred claims,
including estimates of possible favourable and unfavourable outcomes.
These probability distributions are estimated both gross and net of
reinsurance.
2.7 Going concern
The Directors have performed an assessment of going concern to determine the
adequacy of the Group's financial resources over a period of 13 months from
the date of signing these financial statements, a period selected to include
consideration of the 31 October 2024 covenant testing date attached to the
Group's £50m revolving credit facility (RCF).
This assessment is based on higher case and lower case financial projections
which incorporate scenario analysis and stress tests on expected business
performance.
The Group's higher case modelling assumes good performance in the Cruise
division in the second half of 2023/24 and into 2024/25, on the back of strong
booked load factors and per diems. Travel is also expected to achieve
continued growth in revenues. The outlook for Insurance, however, remains
challenging, with high cost and claims inflation in a competitive market
expected to put continued pressure on margins.
The Group's downside scenario incorporates lower load factors for Ocean
Cruise, lower levels of demand in River Cruise, slower growth in the Travel
business and higher working capital requirements. Downside risks modelled for
the Insurance business include the impact of worsening competitive market
pressures on the Broking business, continued high cost and claims inflation
putting pressure on margins, among other stress tests. Both scenarios reflect
further cost reduction measures focused on central overheads and non-core
activities.
Under all scenarios modelled, the Group expects to meet scheduled Ocean Cruise
debt principal repayments as they fall due over the next 13 months, and to
also meet the financial covenants relating to its secured ocean cruise debt.
In addition, in both higher and lower case scenarios and further incorporating
a drawdown under the Group's £85m loan facility from Roger De Haan, the Group
expects to have sufficient resources to enable repayment of the £150m senior
bonds on maturity in May 2024 from Available Cash(8) resources and to have
sufficient resources to continue in operation throughout the assessment
period.
Over the same time frame, and on the same basis, the Group also expects to
remain within the renegotiated financial covenants and other terms relating to
its £50m RCF, as set out in Note 16, enabling it to draw down on this
currently undrawn facility to meet short-term working capital requirements
should the need arise.
Noting that it is not possible to predict accurately all possible future risks
to the Group's future trading, based on this analysis and the scenarios
modelled, the Directors are confident that the Group will have sufficient
funds to continue to meet its liabilities as they fall due for a period of at
least 13 months from the date of approval of the condensed consolidated
interim financial statements. They have, therefore, deemed it appropriate to
prepare the financial statements to 31 July 2023 on a going concern basis.
_______________________________
8 Refer to the Alternative Performance Measures Glossary for definition and
explanation
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:
· Cruise and Travel: comprises the operation and delivery of ocean and river
cruise holidays as well as package tour and other 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.
· Insurance: comprises the provision of general insurance products. Revenue
is derived primarily from insurance premiums and broking revenues. The segment
is further analysed into four product sub-segments:
o Insurance Broking, consisting of:
§ Motor broking
§ Home broking
§ Other broking
o Insurance Underwriting
· Other Businesses and Central Costs: comprises the Group's other
businesses and its central cost base. The other businesses include Saga Money
(the personal finance product offering), Saga Insight (the Group's online
platform offering customers social interaction and online services), Saga
Media and the Group's mailing and printing business.
Segment performance is evaluated using the Group's key performance measure of
Underlying Profit Before Tax(9). 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.
All revenue is generated solely in the UK.
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 Insurance
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 2023, the increase in the Cruise and Travel segment's
revenue versus the six months ended 31 July 2022, is due to the further
resumption of trading, as the impact of the COVID-19 pandemic on the business
began to subside and the business returned to fully operational conditions.
Unaudited Cruise and Travel £m Insurance
6m to
Jul 2023
Motor broking Home broking Other broking Under-writing £m Total Other Adjustments Total
£m £m £m £m Businesses
£m
£m
and Central
Costs
£m
Non-insurance revenue 196.9 14.1 26.7 21.7 3.5 66.0 12.9 (2.9) 272.9
Insurance revenue - 9.8 - 0.4 75.0 85.2 - - 85.2
Revenue 196.9 23.9 26.7 22.1 78.5 151.2 12.9 (2.9) 358.1
Cost of sales (non-Insurance Underwriting) (139.6) (4.2) - 3.8 - (0.4) (3.3) - (143.3)
Gross profit/(loss) (non-Insurance Underwriting) 57.3 9.9 26.7 25.5 3.5 65.6 9.6 (2.9) 129.6
Insurance service expenses - (13.6) - - (101.2) (114.8) - - (114.8)
Net income from reinsurance contracts - 0.2 - - 19.1 19.3 - - 19.3
Insurance service result - (3.6) - 0.4 (7.1) (10.3) - - (10.3)
Administrative and selling expenses (35.0) (10.5) (18.1) (13.6) - (42.2) (27.7) 2.8 (102.1)
Impairment of assets - - - - - - - (68.1) (68.1)
Net finance expense from insurance contracts - - - - (7.6) (7.6) - - (7.6)
Net finance income from reinsurance contracts - - - - 4.2 4.2 - - 4.2
Net loss on disposal of property, plant and equipment (0.1) - - - - - - - (0.1)
Investment income/(loss) 0.1 0.1 - - (0.5) (0.4) 0.6 - 0.3
Finance costs (11.2) - - - - - (12.5) - (23.7)
Profit/(loss) before tax 11.1 (4.1) 8.6 12.3 (7.5) 9.3 (30.0) (68.2) (77.8)
Reconciliation to Underlying Profit/(Loss) Before Tax(9)
Profit/(loss) before tax 11.1 (4.1) 8.6 12.3 (7.5) 9.3 (30.0) (68.2) (77.8)
Net fair value loss on derivative financial instruments 0.9 - - - - - - - 0.9
Impairment of goodwill - - - - - - - 68.1 68.1
Arrangement fee on RDH loan - - - - - - 1.0 - 1.0
Restructuring costs 0.9 - - - - - 5.0 - 5.9
Acquisition costs relating to the Big Window - - - - - - - 0.1 0.1
Foreign exchange movement on lease liabilities (0.6) - - - - - - - (0.6)
Fair value losses on debt securities - - - - 4.8 4.8 - - 4.8
Changes in underwriting discount rates on non-PPO liabilities - - - - (3.1) (3.1) - - (3.1)
Onerous contract provisions - 7.0 - - 2.2 9.2 - - 9.2
IFRS 16 adjustment on river cruise vessels (0.5) - - - - - - - (0.5)
Underlying Profit/(Loss) Before Tax(9) 11.8 2.9 8.6 12.3 (3.6) 20.2 (24.0) - 8.0
Unaudited Cruise and Travel £m Insurance
6m to
Jul 2022
(restated(10))
Motor broking Home broking Other broking Under-writing £m Total Other Adjustments Total
£m £m £m £m Businesses
£m
£m
and Central
Costs
£m
Non-insurance revenue 136.2 23.8 27.2 20.9 1.3 73.2 12.2 (2.2) 219.4
Insurance revenue - 16.6 - 0.5 80.6 97.7 - - 97.7
Revenue 136.2 40.4 27.2 21.4 81.9 170.9 12.2 (2.2) 317.1
Cost of sales (non-Insurance Underwriting) (114.4) (1.9) - 2.2 - 0.3 (2.9) - (117.0)
Gross profit/(loss) (non-Insurance Underwriting) 21.8 21.9 27.2 23.1 1.3 73.5 9.3 (2.2) 102.4
Insurance service expenses - (16.9) - - (75.4) (92.3) - - (92.3)
Net income from reinsurance contracts - - - - 6.3 6.3 - - 6.3
Insurance service result - (0.3) - 0.5 11.5 11.7 - - 11.7
Administrative and selling expenses (24.5) (8.1) (16.9) (10.8) - (35.8) (23.5) 2.1 (81.7)
Impairment of assets - - - - - - - (269.5) (269.5)
Net finance income from insurance contracts - - - - 7.0 7.0 - - 7.0
Net finance expense from reinsurance contracts - - - - (5.3) (5.3) - - (5.3)
Net profit on disposal of software - 0.1 - - - 0.1 - - 0.1
Investment loss - - - - (3.6) (3.6) (1.4) - (5.0)
Finance costs (11.1) - - - - - (11.3) - (22.4)
Finance income 0.9 - - - - - - - 0.9
(Loss)/profit before tax (12.9) 13.6 10.3 12.8 10.9 47.6 (26.9) (269.6) (261.8)
Reconciliation to Underlying (Loss)/Profit Before Tax(9)
(Loss)/profit before tax (12.9) 13.6 10.3 12.8 10.9 47.6 (26.9) (269.6) (261.8)
Net fair value gain on derivative financial instruments (0.9) - - - - - - - (0.9)
Impairment of goodwill - - - - - - - 269.5 269.5
Restructuring costs 1.5 - - - - - 0.6 - 2.1
Acquisition costs relating to the Big Window - - - - - - - 0.1 0.1
Foreign exchange movement on lease liabilities 0.3 - - - - - - - 0.3
Fair value losses on debt securities - - - - 6.9 6.9 - - 6.9
Changes in underwriting discount rates on non-PPO liabilities - - - - (2.9) (2.9) - - (2.9)
Onerous contract provision - - - - 0.9 0.9 - - 0.9
IFRS 16 adjustment on river cruise vessels 0.4 - - - - - - - 0.4
Underlying (Loss)/Profit Before Tax(9) (11.6) 13.6 10.3 12.8 15.8 52.5 (26.3) - 14.6
Unaudited Cruise and Travel £m Insurance
12m to
Jan 2023
(restated(10))
Motor broking Home broking Other broking Under-writing £m Total Other Adjustments Total
£m £m £m £m Businesses
£m
£m
and Central
Costs
£m
Non-insurance revenue 305.5 45.8 57.6 44.4 (2.4) 145.4 24.3 (4.5) 470.7
Insurance revenue - 31.2 - 0.9 160.9 193.0 - - 193.0
Revenue 305.5 77.0 57.6 45.3 158.5 338.4 24.3 (4.5) 663.7
Cost of sales (non-Insurance Underwriting) (242.5) (4.0) - 4.5 - 0.5 (6.5) - (248.5)
Gross profit/(loss) (non-Insurance Underwriting) 63.0 41.8 57.6 48.9 (2.4) 145.9 17.8 (4.5) 222.2
Insurance service expenses - (32.5) - - (183.3) (215.8) - - (215.8)
Net (expense)/income from reinsurance contracts - (0.1) - - 27.4 27.3 - - 27.3
Insurance service result - (1.4) - 0.9 5.0 4.5 - - 4.5
Administrative and selling expenses (57.5) (19.4) (35.1) (22.7) - (77.2) (52.2) 4.5 (182.4)
Impairment of assets - - - - (1.2) (1.2) (0.5) (269.5) (271.2)
Net finance income from insurance contracts - - - - 8.2 8.2 - - 8.2
Net finance expense from reinsurance contracts - - - - (3.7) (3.7) - - (3.7)
Net profit on disposal of software - 0.1 - - - 0.1 - - 0.1
Investment loss - - - - (7.5) (7.5) (2.2) - (9.7)
Finance costs (20.2) - - - - - (22.0) - (42.2)
Finance income 1.4 - - - - - 0.1 - 1.5
(Loss)/profit before tax (13.3) 21.1 22.5 27.1 (1.6) 69.1 (59.0) (269.5) (272.7)
Reconciliation to Underlying (Loss)/Profit Before Tax(9)
(Loss)/profit before tax (13.3) 21.1 22.5 27.1 (1.6) 69.1 (59.0) (269.5) (272.7)
Net fair value gain on derivative financial instruments (1.4) - - - - - - - (1.4)
Impairment of goodwill - - - - - - - 269.5 269.5
Impairment of assets - - - - 0.6 0.6 0.5 - 1.1
Restructuring costs 2.2 - - - - - 1.5 - 3.7
Acquisition costs relating to the Big Window - - - - - - 0.2 - 0.2
Foreign exchange movement on lease liabilities 2.0 - - - - - - - 2.0
Fair value losses on debt securities - - - - 15.0 15.0 - - 15.0
Changes in underwriting discount rates on non-PPO liabilities - - - - (6.3) (6.3) - - (6.3)
Onerous contract provision - 0.8 - - 3.0 3.8 - - 3.8
IFRS 16 adjustment on river cruise vessels 0.6 - - - - - - - 0.6
Underlying (Loss)/Profit Before Tax (9) (9.9) 21.9 22.5 27.1 10.7 82.2 (56.8) - 15.5
a. Disaggregation of revenue
Unaudited Insurance
6m to Jul 2023
Major product lines Cruise and Travel Underwriting Broking Other revenue Total Insurance Other Total
£m
£m £m Businesses £m
£m £m
and Central
Costs
£m
Ocean Cruise 103.8 103.8
River Cruise and Travel 93.1 93.1
Motor broking 9.8 14.1 - 23.9 23.9
Home broking - 26.7 - 26.7 26.7
Other broking 0.4 21.7 - 22.1 22.1
Insurance Underwriting 75.0 - 3.5 78.5 78.5
Money 3.7 3.7
Media 5.8 5.8
Insight 0.5 0.5
196.9 85.2 62.5 3.5 151.2 10.0 358.1
Unaudited Insurance
6m to Jul 2022
(restated(10))
Major product lines Cruise and Travel Underwriting Broking Other revenue Total Insurance Other Total
£m
£m £m Businesses £m
£m £m
and Central
Costs
£m
Ocean Cruise 75.7 75.7
River Cruise and Travel 60.5 60.5
Motor broking 16.6 23.8 - 40.4 40.4
Home broking - 27.2 - 27.2 27.2
Other broking 0.5 20.9 - 21.4 21.4
Insurance Underwriting 80.6 - 1.3 81.9 81.9
Money 4.1 4.1
Media 5.1 5.1
Insight 0.3 0.3
Other 0.5 0.5
136.2 97.7 71.9 1.3 170.9 10.0 317.1
Unaudited
12m to Jan 2023 Insurance
(restated(10))
Major product lines Cruise and Travel Underwriting Broking Other revenue Total Insurance Other Total
£m
£m £m Businesses £m
£m £m
and Central
Costs
£m
Ocean Cruise 168.3 168.3
River Cruise and Travel 137.2 137.2
Motor broking 31.2 45.8 - 77.0 77.0
Home broking - 57.6 - 57.6 57.6
Other broking 0.9 44.4 - 45.3 45.3
Insurance Underwriting 160.9 - (2.4) 158.5 158.5
Money 7.9 7.9
Media 10.3 10.3
Insight 0.6 0.6
Other 1.0 1.0
305.5 193.0 147.8 (2.4) 338.4 19.8 663.7
_______________________________
9 Refer to the Alternative Performance Measures Glossary for definition and
explanation
1(0) For details of the restatement, please see Notes 2.5, 12 and 15
4 Tax
The major components of the income tax expense are:
Unaudited Unaudited 12m to
6m to Unaudited Jan 2023
Jul 2023 6m to
Jul 2022
(restated(11)) (restated(11))
£m £m £m
Condensed consolidated income statement
Current income tax
Current income tax charge - 2.3 1.1
Adjustments in respect of previous periods (0.3) (0.5) (0.4)
(0.3) 1.8 0.7
Deferred tax
Relating to origination and reversal of temporary differences (5.6) 0.6 (0.2)
Adjustments in respect of previous periods (0.9) 2.1 (0.1)
(6.5) 2.7 (0.3)
Tax (income)/expense in the income statement (6.8) 4.5 0.4
The Group's tax income for the period was £6.8m (July 2022: £4.5m expense)
representing a tax effective rate of 70.1% (July 2022: 58.4% (restated))
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, was mainly due to the Group's Ocean Cruise business being in
the tonnage tax regime.
Adjustments in respect of previous periods include adjustments for the
over-provision of the tax charge in prior periods of £1.2m (July 2022: £1.6m
under-provision).
Reconciliation of net deferred tax assets
Unaudited Unaudited Unaudited 12m to
6m to 6m to Jan 2023
July 2023 Jul 2022
(restated(11)) (restated(11))
£m £m £m
At 1 February 11.5 7.2 7.2
Tax credit/(charge) recognised in the income statement 6.5 (2.7) 0.3
Tax credit/(charge) recognised in other comprehensive income 1.0 (3.4) 4.0
At the end of the period 19.0 1.1 11.5
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
are expected to be normally settled in more than 12 months.
_______________________________
11 For details of the restatement, please see Notes 2.5, 12 and 15
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 2023.
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 Unaudited
6m to 6m to 12m to
Jul 2023 Jul 2022 (restated(12)) Jan 2023 (restated(12))
£m £m £m
Loss attributable to ordinary equity holders (71.0) (266.3) (273.1)
Weighted average number of ordinary shares 'm 'm 'm
Ordinary shares as at 1 February 139.5 139.5 139.5
Movement during the period (0.1) (0.3) -
Ordinary shares as at the end of the period 139.4 139.2 139.5
Weighted average number of ordinary shares for basic loss per share and 139.4 139.2 139.5
diluted loss per share
Basic loss per share (50.9p) (191.3p) (195.7p)
Diluted loss per share (50.9p) (191.3p) (195.7p)
The table below reconciles between basic loss per share and Underlying Basic
Earnings Per Share(13):
Unaudited Unaudited Unaudited
6m to 6m to 12m to
Jul 2023 Jul 2022 Jan 2023 (restated(12))
(restated(12))
Basic loss per share (50.9p) (191.3p) (195.7p)
Adjusted for:
Derivative losses/(gains) 0.2p (0.3p) (1.2p)
Impairment, and net loss on disposal, of assets - - 0.9p
Impairment of Insurance goodwill 48.8p 193.2p 192.8p
Acquisition costs relating to the Big Window (Note 7b) 0.1p 0.4p 0.5p
Onerous contract provision 1.9p 0.3p 3.2p
Arrangement fee on RDH loan 0.2p - -
Foreign exchange movement on lease liabilities (0.1p) 0.1p 1.7p
Fair value losses on debt securities 1.0p 2.2p 12.4p
Changes in underwriting discount rates (0.6p) (0.9p) (5.3p)
Restructuring costs 1.2p 0.7p 3.1p
IFRS 16 lease accounting adjustment on river cruise vessels (0.1p) 0.1p 0.5p
Underlying Basic Earnings Per Share(13) 1.7p 4.5p 12.9p
_______________________________
12 For details of the restatement, please see Notes 2.5, 12 and 15
13 Refer to the Alternative Performance Measures Glossary for definition and
explanation
7 Business combinations and disposals
a. Acquisitions during the period ended 31 July 2023
There were no business acquisitions during the period ended 31 July 2023.
b. 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:
Assets £m
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 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 has written-off 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.
c. Disposals
There were no business disposals in the period ended 31 July 2023 or the
period ended 31 July 2022.
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 2023 As at Jul As at Jan 2023
2022
£m £m £m
Insurance 381.5 449.6 449.6
381.5 449.6 449.6
The Group tests all goodwill balances for impairment at least annually, and
twice-yearly if indicators of impairment exist at the interim reporting date
of 31 July. The impairment test compares the recoverable amount of each CGU to
the carrying value of its net assets including the value of the allocated
goodwill.
On 1 January 2022, new pricing rules arising from the implementation of
recommendations included in the FCA's General Insurance Pricing Practices
market study came into effect. As a result, and against the background of a
highly competitive motor insurance market, the Group saw a fall in policy
volumes in the period to 31 July 2022 and year to 31 January 2023. In the
period to 31 July 2023, high claims cost inflation in a competitive market
continued to have an adverse impact on the profitability of the Insurance
business. Management considered these trading impacts to constitute indicators
of impairment and have therefore conducted full impairment reviews of the
Insurance CGU as at 31 July 2022, 31 January 2023 and 31 July 2023.
At each review date, the recoverable amount of the Insurance CGU has been
determined based on a value-in-use calculation using nominal cash flow
projections from the Group's latest five-year financial forecasts, 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% (July 2022:
2.0%, January 2023: 2.0%) as the expected long-term average nominal growth
rate of the UK economy. The cash flows have then been discounted to present
value using a suitably risk-adjusted nominal discount rate based on a
market-participant view of the cost of capital and debt relevant to the
insurance industry.
As at 31 July 2023, the pre-tax discount rate used for the Insurance CGU was
13.8% (July 2022: 12.7%; January 2023: 13.0%). The Group's five-year financial
forecasts incorporate the modelled adverse impact of motor margin pressures
and lower policy sales on future profitability, partially offset by additional
efficiency measures. As per IAS 36.44, incremental cash flows directly
attributable to growth and other initiatives not yet enacted at the balance
sheet date have then been removed for the purpose of the value-in-use
calculation.
The Group has 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 nominal terminal growth rate of
1.5% (July 2022: 1.5%, 31 January 2023: 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 +0.7ppt at 31 July 2023 (July 2022: +1.2ppt;
January 2023: +1.3ppt).
The (deficit)/headroom for the Insurance CGU against the carrying value of
goodwill at the time of the review of £449.6m at 31 July 2023 and 31 January
2023 and £718.6m at 31 July 2022 was as follows:
(Deficit)/headroom £m
Central scenario Cash flow stress test scenario Discount rate stress test scenario
31 31 31 January 2023 31 31 31 January 2023 31 31 31 January 2023
July July 2022 July July 2022 July July 2022
2023 2023 2023
Insurance 11.6 (121.8) 153.9 (88.7) (269.0) 12.0 (9.8) (146.8) 92.6
As at 31 July 2022, the Group determined that the recoverable amount of the
goodwill asset allocated to the Insurance CGU was below the carrying value,
and so the Directors took the decision to impair the goodwill by £269.0m,
based on a probability weighted assessment of the forecast cash flows
modelled.
At 31 July 2023, the Group again determined that the recoverable amount of the
goodwill was below the carrying value, and so the Directors took the decision
to impair the goodwill by a further £68.1m, based on a probability weighted
assessment of the forecast cash flows modelled.
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 costs, 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 cash flow
outcomes in management's modelling. A quantitative sensitivity analysis for
each of these as at 31 July 2023 and its impact on the central scenario
headroom against the carrying value of goodwill at the time of the review of
£449.6m 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 (40.6) 50.8 37.9 (30.3) 41.5 (41.5)
For the reasons explained in Note 7, goodwill of £0.5m arising on the
acquisition of the Big Window in the period to 31 July 2022 was immediately
impaired in full.
9 Intangible fixed assets
During the period, the Group capitalised £10.9m (July 2022: £3.9m) of
software assets, disposed of assets with a net book value of £nil (July 2022:
£nil) and charged £4.3m (July 2022: £4.5m) of amortisation and impairment
to its intangible assets. Profit arising on disposal was £nil (July 2022:
£0.1m).
10 Property, plant and equipment
During the period, the Group capitalised assets with a cost of £1.7m (July
2022: £1.7m), disposed of assets with a net book value of £0.1m (July 2022:
£0.1m) and charged £11.4m (July 2022: £11.6m) of depreciation and
impairment to its property, plant and equipment. Loss arising on disposal was
£0.1m (July 2022: £nil).
As at 31 July 2023, capital amounts contracted for but not provided for, in
the financial statements, amounted to £nil (July 2022: £nil).
a. 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 prior financial year, management
concluded that potential indicators of impairment continued to exist as at 31
July 2022 for both of its ocean cruise ships, Spirit of Discovery and Spirit
of Adventure. Management therefore conducted impairment reviews at 31 July
2022 for both vessels, following previous reviews conducted at 31 January
2022.
The impairment test was conducted using a methodology consistent with that
applied as at 31 January 2022. 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 was 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 were also 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 Energy Efficiency
eXisting ships Index and Carbon Intensity Indicator regulations were
introduced internationally during the prior year to enable the industry to
meet the 2030 target, and both of Saga's ocean cruise ships meet the
requirements of these regulations. 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.
The Group did not factor 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 has commenced the
retro-fit of shore power connections to one of its vessels, and is planning on
doing the same to the other vessel, 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 were 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
RWC stress test scenario
Central 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 was satisfied that no impairment of either vessel was
necessary as at 31 July 2022.
Subsequent to 31 July 2022, further COVID-19 restrictions were lifted for
cruise passengers and the business returned to fully operational conditions.
Discount rates have risen, but not to the extent that they materially change
the headroom in the impairment calculation. The Directors therefore concluded
that there were no additional indicators of impairment at 31 July 2023 and 31
January 2023, and accordingly no further impairment review has been deemed
necessary.
As the Group planned to vacate most of its properties (Note 18), management
concluded that this constituted an indicator of impairment and duly conducted
an impairment review as at 31 January 2023 of the Group's freehold, and long
leasehold, land and buildings, and related fixtures and fittings. In relation
to these freehold and long leasehold properties, value-in-use is negligible
and so the Group obtained market valuations to determine the fair value of
each building. The outcome of these impairment reviews concluded that an
impairment charge totalling £0.5m relating to fixtures and fittings should be
recognised against the Group's assets as at 31 January 2023. At 31 January
2023, the Group reclassified assets with a net book value of £19.5m to assets
held for sale (Note 18).
11 Right-of-use assets
During the period, the Group capitalised assets with a cost of £6.5m (July
2022: £49.6m) and charged £6.5m (July 2022: £8.1m) 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.
a. Impairment review of right-of-use assets
The Group does not consider it necessary to conduct an impairment review of
right-of-use assets as at 31 July 2023 since no new indicators of impairment
have been identified.
12 Financial assets and financial liabilities
a. Financial assets
Unaudited Unaudited Unaudited
As at As at As at
31 Jul 2023 31 Jul 2022 31 Jan 2023 (restated(14))
(restated(14))
Note £m £m £m
FVTPL
Foreign exchange forward contracts 0.1 0.9 0.4
Loan funds - 5.8 5.9
Money market funds 13 0.7 27.1 19.6
Debt securities 230.2 259.9 254.4
231.0 293.7 280.3
FVTPL designated in a hedging relationship
Foreign exchange forward contracts 0.2 3.4 2.1
Fuel oil swaps 0.8 0.9 -
1.0 4.3 2.1
Amortised cost
Deposits with financial institutions 10.5 - -
10.5 - -
Total financial assets 242.5 298.0 282.4
Current 33.6 66.3 62.8
Non-current 208.9 231.7 219.6
242.5 298.0 282.4
The Group's financial assets are analysed by Moody's credit risk rating on
page 24of the Group Chief Financial Officer's Review.
b. Financial liabilities
Unaudited Unaudited As at
As at As at 31 Jan 2023
31 Jul 2023 31 Jul 2022
Note £m £m £m
FVTPL
Foreign exchange forward contracts 0.7 0.8 0.2
0.7 0.8 0.2
FVTPL designated in a hedging relationship
Foreign exchange forward contracts 3.8 1.6 1.0
Fuel oil swaps 0.4 0.9 4.0
4.2 2.5 5.0
Amortised cost
Bonds and bank loans 16 825.3 883.5 854.6
Lease liabilities 31.8 77.5 32.6
Bank overdrafts 13 1.7 0.8 4.4
858.8 961.8 891.6
Total financial liabilities 863.7 965.1 896.8
Current 226.3 80.6 118.6
Non-current 637.4 884.5 778.2
863.7 965.1 896.8
c. Fair value hierarchy
Unaudited Unaudited
As at 31 Jul 2023 As at 31 Jul 2022
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 - 0.3 - 0.3 - 4.3 - 4.3
Fuel oil swaps - 0.8 - 0.8 - 0.9 - 0.9
Loan funds - - - - 5.8 - - 5.8
Debt securities 230.2 - - 230.2 259.9 - - 259.9
Money market funds 0.7 - - 0.7 27.1 - - 27.1
Financial liabilities measured at fair value
Foreign exchange forwards - 4.5 - 4.5 - 2.4 - 2.4
Fuel oil swaps - 0.4 - 0.4 - 0.9 - 0.9
Financial assets for which fair values are disclosed
Deposits with institutions - 10.5 - 10.5 - - - -
Financial liabilities for which fair values are disclosed
Bonds and bank loans - 750.9 - 750.9 - 825.5 - 825.5
Lease liabilities - 31.8 - 31.8 - 77.5 - 77.5
Bank overdrafts - 1.7 - 1.7 - 0.8 - 0.8
As at 31 Jan 2023
Level Level 2 Level 3 Total
1
£m £m £m £m
Financial assets measured at fair value
Foreign exchange forwards - 2.5 - 2.5
Loan funds 5.9 - - 5.9
Debt securities 254.4 - - 254.4
Money market funds 19.6 - - 19.6
Financial liabilities measured at fair value
Foreign exchange forwards - 1.2 - 1.2
Fuel oil swaps - 4.0 - 4.0
Financial liabilities for which fair values are disclosed
Bonds and bank loans - 788.9 - 788.9
Lease liabilities - 32.6 - 32.6
Bank overdrafts - 4.4 - 4.4
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 2023.
d. Other information
Debt securities, money market funds and deposits with financial institutions
relate to monies held by the Group's Insurance Underwriting 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
2022: 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 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 139
foreign exchange forward currency contracts as hedges of highly probable
foreign currency cash expenses in future periods and designated 20 fuel oil
swaps as hedges of highly probable fuel oil purchases in future periods. As at
31 July 2023, the Group has designated 375 forward currency contracts and 70
fuel oil swaps as hedges.
During the period, the Group recognised net losses of £1.7m (July 2022: net
gains of £5.4m) on cash flow hedging instruments through OCI into the hedging
reserve. The Group recognised £nil gains (July 2022: £nil gains) through
the income statement in respect of the ineffective portion of hedges measured
during the period.
During the period, the Group de-designated one foreign currency forward
contract, with a transaction value of £nil, 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 this
contract of £nil has 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 £1.3 loss (July
2022: £2.3m gain) through the income statement in respect of matured hedges
which have been recycled from OCI.
_______________________________
14 For details of the restatement, please see Note 2.3. As a result of the
adoption of IFRS 17 during the period, the Group has changed classification of
debt securities under IFRS 9, from FVOCI to FVTPL, for the periods ended 31
July 2022 and 31 January 2023
13 Cash and cash equivalents
Unaudited Unaudited
As at As at As at
31 Jul 2023 31 Jul 2022 31 Jan 2023
£m £m £m
Cash at bank and in hand 84.3 99.6 52.0
Short-term deposits 122.9 112.2 124.5
Cash and short-term deposits 207.2 211.8 176.5
Money markets funds (Note 12a) 0.7 27.1 19.6
Bank overdraft (Note 12b) (1.7) (0.8) (4.4)
Cash and cash equivalents in the cash flow statement 206.2 238.1 191.7
Included within cash and cash equivalents are amounts held by the Group's
River Cruise, 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 £25.5m
(July 2022: £59.1m). Available Cash(15) 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 typically 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.
_______________________________
1(5) Refer to the Alternative Performance Measures Glossary for definition and
explanation
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, while 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. 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. 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 As at As at
31 Jul 2023 31 Jul 2022 31 Jan 2023
£m £m £m
Fair value of scheme assets 208.5 331.9 224.1
Present value of defined benefit obligation (216.5) (314.5) (236.2)
Defined benefit scheme (liability)/asset (8.0) 17.4 (12.1)
The present value of the defined benefit obligation at 31 January 2023 was
measured using the projected unit credit method. Liabilities at 31 July 2023
have been estimated by rolling forward from 31 January 2023, 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 2023, the net liability position of the Saga
Scheme reduced by £4.1m, resulting in an overall scheme deficit of £8.0m,
mainly as a result of a recovery plan contribution being paid by the Group,
although this has been partially offset by higher than expected inflation
experience. The £5.8m deficit funding contribution was paid by the Group in
February 2023 in relation to a recovery plan agreed under the latest triennial
valuation of the scheme as at 31 January 2020.
The movements observed in the scheme's assets and obligations have been
impacted by macroeconomic factors during the period where, at a global level,
there have been rising inflation and cost of living pressures, as well as
shifts in long-term market yields. The present value of defined benefit
obligations decreased by £19.7m to £216.5m, primarily due to a 55bps
increase in the discount rate which is based on increases in long-term trend
corporate bond yields. The fair value of scheme assets decreased by £15.6m to
£208.5m. The decrease in asset values has been largely driven by the rise in
interest rates in the period.
15 Insurance and reinsurance contract liabilities and assets
The Group has adopted IFRS 17 'Insurance Contracts' for the first time in the
year ending 31 January 2024, with the date of initial application being 1
February 2023 and the transition date being 1 February 2022. The comparatives
for the period ended 31 July 2022 and the year ended 31 January 2023 have been
restated onto an IFRS 17 basis. For further details of the restatement, please
see Note 2.5.
Liabilities for remaining coverage Liabilities for incurred claims
Excluding loss component Loss component Estimate of the present value of future cash flows Risk adjustment Total
Unaudited £m £m £m £m £m
As at 1 February 2023 (restated)
Insurance contract liabilities (44.3) (8.4) (259.2) (35.6) (347.5)
Insurance revenue 85.2 - - - 85.2
Incurred claims and related expenses - 5.3 (92.0) (6.6) (93.3)
Changes to liabilities for incurred claims - - 2.2 6.3 8.5
Insurance acquisition cash flows incurred (12.4) - - - (12.4)
Losses on onerous contracts and reversals of those losses - (10.0) - - (10.0)
Other incurred insurance service expenses - - (7.6) - (7.6)
Insurance service expenses (12.4) (4.7) (97.4) (0.3) (114.8)
Insurance finance expense - - (6.7) (0.9) (7.6)
Total changes in the consolidated income statement 72.8 (4.7) (104.1) (1.2) (37.2)
Cash flows
Premiums received (80.7) - - - (80.7)
Insurance acquisition cash flows paid 12.4 - - - 12.4
Claims and other expenses paid - - 99.4 - 99.4
Total cash flows (68.3) - 99.4 - 31.1
Unaudited
As at 31 July 2023
Insurance contract liabilities (39.8) (13.1) (263.9) (36.8) (353.6)
Assets for remaining coverage Amounts recoverable on incurred claims
Excluding loss-recovery component Loss-recovery component Estimate of the present value of future cash flows Risk adjustment Total
Unaudited £m £m £m £m £m
As at 1 February 2023 (restated)
Reinsurance contract (liabilities)/assets (5.5) 2.7 87.6 27.4 112.2
Allocation of reinsurance premiums (8.0) - - - (8.0)
Amounts recoverable for incurred - (0.9) 17.1 2.1 18.3
claims and other expenses
Changes to amounts recoverable for incurred claims - - 8.8 (0.9) 7.9
Loss-recovery on onerous underlying contracts and adjustments - 1.6 - - 1.6
Effect of changes in the risk of non-performance of reinsurance contracts - - (0.5) - (0.5)
Net (expense)/income from reinsurance contracts (8.0) 0.7 25.4 1.2 19.3
Reinsurance finance income - - 3.0 1.2 4.2
Total changes in the consolidated income statement (8.0) 0.7 28.4 2.4 23.5
Cash flows
Premiums received 12.3 - - - 12.3
Amounts received - - (0.1) - (0.1)
Total cash flows 12.3 - (0.1) - 12.2
Unaudited
As at 31 July 2023
Reinsurance contract (liabilities)/assets (1.2) 3.4 115.9 29.8 147.9
Liabilities for remaining coverage Liabilities for incurred claims
Excluding loss component Loss component Estimate of the present value of future cash flows Risk adjustment Total
Unaudited £m £m £m £m £m
As at 1 February 2022 (restated)
Insurance contract liabilities (54.9) (1.9) (267.6) (35.2) (359.6)
Insurance revenue 97.7 - - - 97.7
Incurred claims and related expenses - 1.8 (82.1) (5.1) (85.4)
Changes to liabilities for incurred claims - - 12.3 6.6 18.9
Insurance acquisition cash flows incurred (15.8) - - - (15.8)
Losses on onerous contracts and reversals of those losses - (3.2) - - (3.2)
Other incurred insurance service expenses - - (6.8) - (6.8)
Insurance service (expenses)/income (15.8) (1.4) (76.6) 1.5 (92.3)
Insurance finance income - - 6.2 0.8 7.0
Total changes in the consolidated income statement 81.9 (1.4) (70.4) 2.3 12.4
Cash flows
Premiums received (93.9) - - - (93.9)
Insurance acquisition cash flows paid 15.8 - - - 15.8
Claims and other expenses paid - - 88.1 - 88.1
Total cash flows (78.1) - 88.1 - 10.0
Unaudited
As at 31 July 2022 (restated)
Insurance contract liabilities (51.1) (3.3) (249.9) (32.9) (337.2)
Assets for remaining coverage Amounts recoverable on incurred claims
Excluding loss-recovery component Loss-recovery component Estimate of the present value of future cash flows Risk adjustment Total
Unaudited £m £m £m £m £m
As at 1 February 2022 (restated)
Reinsurance contract liabilities (1.1) - - - (1.1)
Reinsurance contract assets (5.1) - 63.7 22.5 81.1
Net reinsurance contract (liabilities)/assets (6.2) - 63.7 22.5 80.0
Allocation of reinsurance premiums (7.3) - - - (7.3)
Amounts recoverable for incurred - (0.1) 4.7 0.7 5.3
claims and other expenses
Changes to amounts recoverable for incurred claims - - 8.3 (0.3) 8.0
Loss-recovery on onerous underlying contracts and adjustments - 0.5 - - 0.5
Effect of changes in the risk of non-performance of reinsurance contracts - - (0.2) - (0.2)
Net (expense)/income from reinsurance contracts (7.3) 0.4 12.8 0.4 6.3
Reinsurance finance expense - - (3.9) (1.4) (5.3)
Total changes in the consolidated income statement (7.3) 0.4 8.9 (1.0) 1.0
Cash flows
Premiums paid 13.7 - - - 13.7
Amounts received - - (4.9) - (4.9)
Total cash flows 13.7 - (4.9) - 8.8
Unaudited
As at 31 July 2022 (restated)
Reinsurance contract assets 0.2 0.4 67.7 21.5 89.8
Liabilities for remaining coverage Liabilities for incurred claims
Excluding loss component Loss component Estimate of the present value of future cash flows Risk adjustment Total
Unaudited £m £m £m £m £m
As at 1 February 2022 (restated)
Insurance contract liabilities (54.9) (1.9) (267.6) (35.2) (359.6)
Insurance revenue 193.0 - - - 193.0
Incurred claims and related expenses - 4.4 (182.7) (10.7) (189.0)
Changes to liabilities for incurred claims - - 19.0 9.3 28.3
Insurance acquisition cash flows incurred (29.5) - - - (29.5)
Losses on onerous contracts and reversals of those losses - (10.9) - - (10.9)
Other incurred insurance service expenses - - (14.7) - (14.7)
Insurance service expenses (29.5) (6.5) (178.4) (1.4) (215.8)
Insurance finance income - - 7.2 1.0 8.2
Total changes in the consolidated income statement 163.5 (6.5) (171.2) (0.4) (14.6)
Cash flows
Premiums received (182.4) - - - (182.4)
Insurance acquisition cash flows paid 29.5 - - - 29.5
Claims and other expenses paid - - 179.6 - 179.6
Total cash flows (152.9) - 179.6 - 26.7
Unaudited
As at 31 January 2023 (restated)
Insurance contract liabilities (44.3) (8.4) (259.2) (35.6) (347.5)
Assets for remaining coverage Amounts recoverable on incurred claims
Excluding loss-recovery component Loss-recovery component Estimate of the present value of future cash flows Risk adjustment Total
Unaudited £m £m £m £m £m
As at 1 February 2022 (restated)
Reinsurance contract liabilities (1.1) - - - (1.1)
Reinsurance contract assets (5.1) - 63.7 22.5 81.1
Net reinsurance contract (liabilities)/assets (6.2) - 63.7 22.5 80.0
Allocation of reinsurance premiums (14.8) - - - (14.8)
Amounts recoverable for incurred - (0.3) 29.2 3.9 32.8
claims and other expenses
Changes to amounts recoverable for incurred claims - - 4.2 2.0 6.2
Loss-recovery on onerous underlying contracts and adjustments - 3.0 - - 3.0
Effect of changes in the risk of non-performance of reinsurance contracts - - 0.1 - 0.1
Net (expense)/income from reinsurance contracts (14.8) 2.7 33.5 5.9 27.3
Reinsurance finance expense - - (2.7) (1.0) (3.7)
Total changes in the consolidated income statement (14.8) 2.7 30.8 4.9 23.6
Cash flows
Premiums paid 15.5 - - - 15.5
Amounts received - - (6.9) - (6.9)
Total cash flows 15.5 - (6.9) - 8.6
Unaudited
As at 31 January 2023 (restated)
Reinsurance contract (liabilities)/assets (5.5) 2.7 87.6 27.4 112.2
16 Loans and borrowings
Unaudited As at Unaudited As at As at
31 Jul 2033 31 Jul 2022 31 Jan 2023
£m £m £m
Bonds 400.0 400.0 400.0
Ship loans 438.1 500.3 469.2
RCF - - -
Accrued interest payable 5.0 5.7 5.5
843.1 906.0 874.7
Less: deferred issue costs (17.8) (22.5) (20.1)
825.3 883.5 854.6
Term loan, RCF and bonds
At 31 July 2023, 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 £50.0m five-year RCF
(expiring 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 agreed amendments 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.
In addition, dividends remain restricted while leverage (excluding Cruise) is
above 3.0x.
Subsequent to the above, in the six-month period to 31 January 2023, the Group
had further discussions with its lending banks behind the RCF and agreed the
following amendments to the facility:
· The introduction of a restriction whereby, no utilisation of the
facility is permitted prior to repayment of the 2024 bond if leverage exceeds
5.5x, or liquidity is below £170.0m.
· During 2023 and 2024, should the RCF be drawn, leverage covenant
testing will be quarterly.
· Repayment of the 2024 bond, ahead of maturity, is restricted
while leverage remains above 3.75x.
· Amendments to the leverage and interest cover covenants attached
to the facility, as follows:
Leverage (excl. Ocean Cruise) Interest cover
31 January 2023 4.75x 2.5x
30 April 2023 6.75x n/a
31 July 2023 6.75x 2.5x
31 October 2023 6.75x n/a
31 January 2024 5.5x 2.75x
30 April 2024 5.5x n/a
31 July 2024 5.5x 3.0x
31 October 2024 5.5x n/a
31 January 2025 4.75x 3.0x
At 31 July 2023, the Group's £50.0m RCF remained undrawn. Accrued interest
payable on the Group's bonds at 31 July 2023 is £1.8m (July 2022: £2.5m).
During the period ended 31 July 2022, the Group repaid its £200.0m five-year
term loan (repayable May 2023) in full. Interest was incurred at a variable
rate of London Inter-Bank Offered Rate (LIBOR, since replaced by SONIA) plus a
bank margin which was linked to the Group's leverage ratio.
In the period to 31 July 2023, and as amended since the end of the period, the
Group has entered into a forward starting loan facility agreement with Roger
De Haan, commencing on 1 January 2024, under which the Group may draw down up
to £85.0m (£50.0m per the original terms) with 30 days' notice to support
liquidity needs and specifically the repayment of £150.0m bonds maturing in
May 2024. The facility is provided on an arm's length basis. Interest will
accrue on the facility at the rate of 10% and is payable on the last day of
the period of the loan. The amended facility matures on 31 December 2025
(previously 30 June 2025), at which point any outstanding amounts, including
interest, must be repaid. The interest rate paid on funds drawn under this
facility to finance the repayment of notes issued by Saga plc, or to provide
cash collateral demanded by providers of bonding facilities to the Group, is
10%, increasing to 18% for any amounts drawn to support general corporate
purposes. In addition, a drawing fee of 2% is payable (increasing to 5% for
drawdowns for general corporate purposes), alongside milestone payments of 2%
of any uncancelled amounts of the facility on each of 31 March 2024 and 31
December 2024. The amended facility has been provided on the basis of certain
conditions being met; including:
· no professional advisors may be appointed to or retained by Saga
plc without prior approval of the Board; and
· no incremental financial indebtedness, over and above the
facilities already in place, may be incurred by Group companies, including
contracts classed as finance lease arrangements under previous IFRS.
Ocean cruise ship loans
In June 2019, the Group drew down £245.0m of financing for its ocean cruise
ship, Spirit of Discovery. The financing represents a 12-year fixed-rate
sterling loan, secured against the Spirit of Discovery cruise ship asset, and
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.
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 in principal payments under the ship facilities that
were due up to 31 March 2021. These deferred amounts were 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.
On 29 September 2020, the Group drew down £280.8m of financing for its ocean
cruise ship, Spirit of Adventure. The financing, secured against the Spirit of
Adventure cruise ship asset, represents 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.
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.
In the period to 31 July 2023, the Group concluded discussions with its Cruise
lenders in respect of the covenant restrictions attaching to its two ship debt
facilities. Lenders agreed to a waiver of the EBITDA to debt repayment
covenant ratio for the 31 July 2023 testing date.
After the end of the period, the Group concluded discussions with its 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 additional periods up to and including 31 January 2025.
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
2023 is £3.2m (July 2022: £3.2m).
Total debt and finance costs
At 31 July 2023, deferred debt issue costs were £17.8m (July 2022: £22.5m).
The movement of £4.7m, year-on-year, represents expense amortisation for the
period between these two dates.
During the period, the Group charged £20.6m (July 2022: £20.5m) to the
income statement in respect of fees and interest associated with the bonds,
RCF, term loan and ship loans. In addition, finance costs recognised in the
income statement include £0.9m (July 2022: £1.9m) relating to interest and
finance charges on lease liabilities, £0.3m (July 2022: £nil) relating to
net finance expense on pension schemes, £1.0m (July 2022: £nil) in respect
of an arrangement fee associated with the forward starting loan facility
agreement with Roger De Haan, as disclosed above, and net fair value losses on
derivatives of £0.9m (July 2022: £nil). The Group has complied with the
financial covenants of its borrowing facilities during the current and prior
periods.
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 2023 were as follows:
· On 26 May 2023, nil cost options over 376,557 shares were issued
under the Deferred Bonus Plan to Executive Directors reflecting their deferred
bonus in respect of 2022/23, 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.
· On 12 June 2023, nil cost options over 1,991,234 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.
The fair values of all awards granted during the period under the
equity-settled and cash-settled share-based remuneration schemes operated by
the Group are assessed using techniques based upon the "Black-Scholes" pricing
model. The Group charged £2.4m during the period (July 2022: £1.8m) to the
income statement in respect of equity-settled share-based payment
transactions.
On 1 August 2023, Saga plc issued 1,458,551 new ordinary shares of 15 pence
each for transfer into an employee benefit trust to satisfy employee incentive
arrangements. The newly issued shares rank pari passu with existing Saga
shares.
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 year ended 31 January 2022, the Group disposed of a property
reclassified from property, plant and equipment to 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.
In addition, during the year ended 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 January 2021 was £3.0m.
Management conducted impairment reviews of the freehold property assets held
for sale as at 31 January 2022 and 31 January 2023. In relation to these
freehold properties, value-in-use continued to be negligible and so the Group
obtained updated market valuations to determine the fair value of each
building. The outcome of these impairment reviews concluded that net
impairment charges totalling £1.2m (January 2022: £1.0m) should be
recognised against the Group's property assets held for sale as at 31 January
2023 and 31 January 2022 respectively.
At the end of the year ended 31 January 2023, the Group made the decision to
initiate an active programme to locate buyers for a further two of its
freehold properties and one of its long leasehold properties. The Group also
reclassified to held for sale the related fixtures and fittings associated
with one of these freehold properties. At the point of reclassification to
held for sale, the carrying values of £15.9m for the properties and £3.6m
for the related fixtures and fittings, total £19.5m, 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. These properties are being
actively marketed and the disposals are expected to be completed within 12
months of the end of the financial period.
As at 31 July 2023, the carrying values of the properties classified as held
for sale, totalling £31.2m, are representative of either each property's fair
value or historic cost less accumulated depreciation and any impairment
charges to date, whichever is lower. No gains or losses were recognised with
respect to the properties during the six months ended 31 July 2023.
19 Related party transactions
Related party transactions during the six months ended 31 July 2023 were
consistent in nature, scope and quantum with those disclosed in the Group's
Annual Report and Accounts for the year ended 31 January 2023 available at
www.corporate.saga.co.uk (http://www.corporate.saga.co.uk) .
20 Events after the reporting period
On 1 August 2023, Saga plc issued 1,458,551 new ordinary shares of 15 pence
each for transfer into an employee benefit trust to satisfy employee incentive
arrangements. The newly issued shares rank pari passu with existing Saga
shares.
Since the end of the period, to provide additional financial flexibility, the
Group has agreed an increase and extension to the existing loan facility with
Roger De Haan. This increase is for the value of £35m, taking the total
facility to £85m, and will now expire on 31 December 2025, previously 30 June
2025. Please refer to Note 16 for further details.
In addition, after the end of the period, the Group concluded discussions with
its 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 additional periods up to and including 31 January 2025.
Please refer to Note 16 for further details relating to the Group's cruise
ship debt facilities.
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
2023
26 September 2023
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 2023 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 2023 is not
prepared, in all material respects, in accordance with International
Accounting Standard (IAS) 34 'Interim Financial Reporting' as adopted for use
in the United Kingdom (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 Company to
cease to continue as a going concern, and the above conclusion is not a
guarantee that the Company 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 annual financial statements of the Company are
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 Company'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 Company 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.
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 conclusion we have reached.
Timothy Butchart
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
26 September 2023
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 (IFRS), 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 Before Tax
Underlying Profit Before Tax represents the loss before tax excluding:
· unrealised fair value gains and losses on derivatives;
· the net loss on disposal of assets;
· impairment of the carrying value of assets, including goodwill;
· impact of changes in the discount rate on non-periodical payment
order (PPO) liabilities(1) ;
· fair value losses on debt securities;
· foreign exchange movements on river cruise ship leases;
· the arrangement fee on the facility with Roger De Haan;
· movements in the insurance onerous contract provisions (net of
reinsurance recoveries)(2);
· costs in relation to the acquisition of the Big Window;
· the 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 on page 11.
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.
Underlying Profit Before Tax (Under Previous IFRS)
Underlying Profit Before Tax (Under Previous IFRS) represents Underlying
Profit Before Tax, as described above, but under the previous IFRS 4
'Insurance Contracts', as opposed to IFRS 17 'Insurance Contracts'.
The measure is consistent with the forecasts of external analysts which are
collated into the company-compiled consensus and allows stakeholders to make
meaningful comparisons to historic reporting.
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 and impairments. Adjusted Trading EBITDA also excludes the
impact of IFRS 16 leases 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 Before Tax within the Group Chief Financial Officer's Review
on page 22. Underlying Profit Before Tax is reconciled to statutory loss
before tax within the Group Chief Financial Officer's Review on page 11.
This measure is linked to the covenant on the Group's RCF, being the
denominator in the Group's leverage ratio calculation.
Ocean Cruise Trading EBITDA (Excluding Overheads)
Ocean Cruise Trading EBITDA (Excluding Overheads) reflects the Trading EBITDA
for the Ocean Cruise business, adjusted to exclude the corresponding overheads
for those operations.
This measure is comparable with the £40m per annum per ship target that was
set at the time the cruise ships were purchased and is reconciled to Ocean
Cruise Trading EBITDA on page 22 of the Chief Financial Officer's Review.
Underlying Basic Earnings Per Share
Underlying Basic Earnings Per Share represents basic loss per share excluding
the post-tax effect of:
· unrealised fair value gains and losses on derivatives;
· the net loss on disposal of assets;
· impairment of the carrying value of assets, including goodwill;
· impact of changes in the discount rate on non-PPO liabilities(1)
;
· fair value losses on debt securities;
· foreign exchange gains on river cruise ship leases;
· the arrangement fee on the facility with Roger De Haan;
· movements in the insurance onerous contract provisions (net of
reinsurance recoveries)(2);
· costs in relation to the acquisition of the Big Window;
· the 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 on page 55.
This measure is linked to the Group's key performance indicator Underlying
Profit 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 on page 63.
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 on page 22.
Net Debt
Net Debt is the sum of the carrying values of the Group's debt facilities less
the amount of Available Cash it holds and is analysed further within the Group
Chief Financial Officer's Review on page 25.
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 on page 25.
_______________________________
(1) This adjustment reduces the risk of residual volatility from changes in
market interest rates adversely affecting Underlying Profit Before Tax
(2) The IFRS 17 onerous contract requirements create a timing mismatch between
when claims are incurred and when they are recognised in profit before tax.
Underlying Profit Before Tax adjusts for this timing mismatch by reversing the
impact of these requirements
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