REG - SAGA Plc - Preliminary Results
23/03/2022 07:00
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RNS Number : 6774F SAGA PLC 23 March 2022
23 March 2022
Saga plc
Preliminary results for the year ended 31 January 2022
Resilient performance delivered against challenging backdrop
Strategically positioning Saga for growth
Saga plc (Saga or the Group), the UK's specialist in products and services for
people over 50, announces its preliminary results for the year ended 31
January 2022.
31 January 2022 31 January 2021 Change
Underlying (Loss)/Profit Before Tax0F0F(1) (£6.7m) £17.1m (139%)
Loss before tax (£23.5m) (£61.2m) 62%
Available Operating Cash Flow(1) £75.8m £3.4m 2,129%
Net debt £729.0m £760.2m (4%)
Group and financial highlights
· Group delivered a resilient performance against the backdrop of
COVID-19 challenges; continued delivery against our turnaround strategy.
· Strong liquidity position following actions taken over the last
12 months; Available Cash(1) of £186.6m and £100m undrawn revolving credit
facility.
· Robust cash generation with Available Operating Cash Flow(1) of
£75.8m following the resumption of Cruise operations.
· Net debt reduced by £31.2m, to £729.0m, despite the impact of
the pandemic.
· Evolution of strategic approach following foundations laid over
the last two years, focused on returning Saga to growth.
Divisional performance
Insurance - positive momentum with second year of policy growth
Retail Broking
· 1.6m motor and home policies in force at 31 January 2022, 1.4%
ahead of the prior year.
· Customer retention continued to improve at 82.8%, 2.3ppts ahead
of the prior year.
· Our three-year fixed-price product continued to grow in
popularity, now representing 47% of the motor and home book (vs. 35% in
2020/21).
· Motor and home gross margin per policy remained stable at £74.
· The proportion of new business acquired directly, rather than
through price-comparison websites, remains stable at 59%.
· Maintained disciplined approach to pricing following
implementation of Financial Conduct Authority market study pricing rules.
Underwriting
· Underlying Profit Before Tax(1) of £54.1m, including £42.1m
prior year reserve releases.
· Policies in force in relation to the Saga book are 3% ahead of
the prior period, a return to growth for the first time since 2012.
· Current year combined operating ratio of 96.3% versus 91.4% in
2020/21, with motor claims frequency in the second half of the year broadly in
line with pricing assumptions as claims frequency began to normalise following
COVID-19 lockdowns.
Travel - Strong pipeline of Cruise bookings and move towards new Tour
Operations operating model
Cruise
· Cruise generated positive EBITDA and cash in the second half,
with a load factor of 68% and per diem of £299, despite pandemic-related
operational challenges.
· Cruise Underlying Loss Before Tax(1) of £47.7m, within our
guided range of £45-50m.
· External environment remains challenging but bookings for 2022/23
remain strong with a load factor of 73% and per diem of £319 for the full
year, as at 20 March 2022.
· Achieved exceptional levels of customer satisfaction within
Cruise of 9.1 out of 10.
Tour Operations
· Began the restructure of Tour Operations to deliver growth and
create a lower-cost, more agile, customer-focused business.
· Secured 2022/23 bookings of £132m at 20 March 2022, 30% below
the same point two years ago, with customer confidence still impacted by the
pandemic but expected to recover over the course of this year.
· New hotel stays proposition to be launched later this year.
Wider strategic progress
· Relaunched our brand through three new television adverts and
refreshed websites, promoting 'Experience is Everything'.
· Brand net promoter score increased to 49, an increase of 5pts
from 31 January 2021, reflecting improvements within our Insurance and
Personal Finance businesses.
· Improved colleague engagement score to 7.7 out of 10 with
participation rate of 93%.
· First major UK business to offer Grandparents' Leave, offering up
to one week's leave per year for the birth of a new grandchild.
· Acquisition of The Big Window Consulting Limited, a market
research business with a particular emphasis on the ageing process, further
supporting our focus on deep customer insight.
Euan Sutherland, Saga's Group Chief Executive Officer, said:
"Over the last year, Saga has delivered a resilient performance, whilst laying
the foundations for future growth. During 2021/22, we reduced our debt,
strengthened our financial position and relaunched the brand. The Insurance
business delivered a robust performance with the second year of policy growth
after several years in decline, whilst in Travel, we resumed operations,
secured positive Cruise bookings for 2022/23 and began the restructure of our
Tour Operations business.
"This performance is a testament to the resilience and determination of our
wonderful colleagues, and I would like to thank them for their hard work and
dedication through what has been a challenging period.
"Looking to the future, I am both confident and excited about the
opportunities ahead of us as we emerge stronger from the pandemic than we went
in, whilst remaining mindful of the current challenging external environment.
Against this backdrop, we are now looking to convert the foundations laid over
the past two years into sustainable growth and are further evolving our
strategic approach. Our growth plan will see us focused on maximising our
existing businesses, reducing our debt while step-changing our ability to
scale the business and positioning Saga as 'The Superbrand' for older people.
We already have a strong brand, management team and financial position - all
the tools required to return the business to sustainable growth and create
long-term value for our stakeholders."
END
(1)Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
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/62288454f73bbc230024eeeb/prhaf
(http://www.investis-live.com/saga-group/62288454f73bbc230024eeeb/prhaf) . A
copy of the presentation slides will be available at
www.corporate.saga.co.uk/investors/results-reports-presentations/
(http://www.corporate.saga.co.uk/investors/results-reports-presentations/)
shortly after the event.
A separate live presentation for retail investors will be held via the
Investor Meet Company platform on 25 March 2022 at 10.30am. 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 24
March 2022, or at any time during the live presentation. Investors can sign
up to Investor Meet Company for free and follow Saga plc via
www.investormeetcompany.com/saga-plc/register-investor
(http://www.investormeetcompany.com/saga-plc/register-investor) . Investors
who already follow Saga plc on the Investor Meet Company platform will
automatically be invited.
For further information, please contact:
Saga plc
Emily Roalfe, Head of Investor Relations Tel: 07732 093 007
Email: emily.roalfe@saga.co.uk (mailto:emily.roalfe@saga.co.uk)
Headland Consultancy
Susanna Voyle Tel: 07980 894 557
Will Smith Tel: 07872 350 428
Tel: 020 3805 4822
Email: saga@headlandconsultancy.com (mailto: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 holidays, insurance,
personal finance and publishing. www.saga.co.uk (http://www.saga.co.uk)
Chairman's Statement
I am pleased with the progress we made last year despite the considerable
challenges of the external environment.
Although it has clearly been a particularly difficult period for our Tour
Operations business and our cruise ships were only able to start sailing with
guests in late June and, even then, with significant restrictions on the
number of berths we were able to fill, we made good progress throughout the
year with our turnaround strategy. Saga's Retail Broking business achieved a
second consecutive year of motor and home policy growth following several
years of decline and our Cruise business secured a very encouraging level of
bookings for 2022/23.
As a result of the turbulence being experienced by the travel industry, we are
making significant changes to our Tour Operations business in order to create
a lower-cost, more agile and digitally-led operation, focused on the evolving
needs of our customers. These changes will place us in a better position as
our customer demand rebuilds and will help us in facing any further external
challenges, such as the current war in Ukraine.
During the year, we prepared ourselves for the new regulatory changes in the
insurance industry that came into force in January 2022. We also strengthened
our systems and senior management teams and we are now retaining more of our
customers at the point of policy renewal. We are now placing far greater focus
on cross-selling our policies to our customers.
As a result of raising new capital in 2020 and the successful issue of our new
bond last July, the Company is in a much stronger financial position and we
have ended the year with lower net debt and more cash on our balance sheet.
The culture across Saga has continued to develop with colleagues reporting
that they were feeling more engaged and supported than before. We announced
the introduction of Grandparents' Leave, the first initiative of its kind
amongst major UK employers. This is part of our work to challenge
perceptions of ageing which is a central part of our new Environmental, Social
and Governance (ESG) strategy.
Saga has always had a strong sense of purpose and has embraced our ESG
responsibilities with enthusiasm. We have a diverse range of ESG initiatives
and are currently engaged in developing a new and more ambitious plan that
will have even greater impact.
Shareholder returns
As a shareholder myself, I fully understand that some investors could be
frustrated by the current share price. I would like to assure you that the
Board is very focused on creating long-term sustainable growth in the value of
Saga. I believe that, with our strengthened team and the growth strategy we
now have in place, we will be successful.
In April 2020, to protect the Group's financial position in light of the
pandemic, the Board announced that it had suspended dividend payments to
shareholders and that it did not expect to renew them until 2024 at the
earliest. With this in mind, no dividend is proposed for the 2021/22 financial
year. We are very aware of the importance of an annual dividend to many of our
shareholders and will look to reinstate payments when it is appropriate to do
so.
The continued disruption caused by the pandemic has highlighted the financial
and operational resilience of Saga and the value of a diversified business. I
am very pleased with the performance of our leadership team and our
achievements, despite the external challenges we have faced. I am confident
that we are emerging from the pandemic stronger than we were when it began. We
have made good progress with our strategy and I am confident that our new
growth plan will, in the long term, benefit all our stakeholders.
Finally, I would like to extend my thanks to everyone at Saga for the
resilience they have shown throughout what has been another extraordinary
year. Our colleagues have worked hard with dedication and determination to
provide our customers with the very best support and service.
Group Chief Executive Officer's Statement
A year of transformation
During 2021/22, we continued to make strong progress against our turnaround
strategy, enhancing our capability in Insurance and delivering another year of
positive momentum, successfully resuming Cruise operations and beginning the
restructure of our Tour Operations business. All of this was achieved while
delivering a new brand campaign aimed at changing the perceptions of Saga.
Our robust performance
Against the backdrop of the COVID-19 pandemic, the Group reported an
Underlying Loss Before Tax(1) of £6.7m. While we reported a robust
performance within Insurance, this reflects suspension of the Travel business
for much of the first half of the year and the ongoing impact of the pandemic
once operations were able to resume. After allowing for one-off extraneous
items, the Group reported a loss before tax of £23.5m.
During 2021/22, we made strong progress in strengthening the Insurance
business and ensuring that we continued to deliver exceptional experiences for
our customers.
The Retail Broking business delivered a second year of positive momentum with
1.4% growth in motor and home policies after several years in decline,
supported by increased customer retention.
Our in-house underwriter, Acromas Insurance Company Limited (AICL), reported
positive momentum following action taken to strengthen our pricing capability
and expand our footprint. AICL policies in force in relation to the Saga book,
at 31 January 2022, were 3% ahead of the prior period, the first year of
policy growth since 2012.
Throughout 2021/22, our Travel business continued to be impacted by the
pandemic. Our Cruise business remained suspended until 27 June 2021, at which
point, we were able to resume sailing within the UK with a limited number of
guests onboard. Once UK restrictions were lifted in the summer and we were
able to commence international sailing, we continued to navigate local
restrictions at our ports of call, amending itineraries and reducing capacity
as necessary.
In spite of these headwinds, customer demand remained strong, and for the year
ended 31 January 2022, we delivered positive EBITDA and cash generation in the
second half with a load factor of 68% and per diem of £299.
Looking to our Tour Operations business, our customers have been cautious
about returning to this form of travel, with the need to move through airports
and mix with a greater range of people. As such, we have taken a number of
steps to amend our product set and ensure that we are well-positioned to offer
customers the holidays they want today. We are confident that this will help
return the business to growth as customer demand rebuilds.
The Group's performance was underpinned by our strong financial position
following actions taken in 2021, with Available Cash at 31 January 2022 of
£186.6m, and an undrawn revolving credit facility of £100.0m.
While 2021/22 was a challenging year, we have taken a number of key steps that
will return Saga to sustainable growth.
1 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Strong strategic progress
I am pleased with the progress we have made against our turnaround strategy,
Transforming Saga - Experience is Everything. Our brand relaunch means we have
delivered on our promise to create a refreshed, contemporary and relevant
brand which is at the heart of all our work to deliver the best possible
experience for our customers. To do this, we were focused on delivery under
each of the following five pillars.
People and culture reset
Our people and culture transformation continued to be key, acknowledging that
our colleagues are pivotal to the success of our business.
To foster a culture where colleagues feel like they belong, we continued to
focus on diversity, equity and inclusion through events such as our Women in
Leadership conference and introducing guest speakers for Black History Month,
Men's Health Month, LGBTQi+ and National Menopause Day.
Colleague wellbeing also continued to be a focus, with support provided
through additional holiday entitlements, financial aid for those in need and
increased emphasis on mental health. We also introduced a new colleague
recognition scheme, the 'Saga Spotlight Awards', designed to celebrate the
achievements of colleagues who showcase our values of precision pace, empathy,
curiosity and collaboration.
In January 2022, we were proud to be the first business of our kind to
introduce Grandparents' Leave, offering colleagues one week of paid leave per
annum following the birth of a new grandchild. This new benefit reflects our
belief in the value of experience in the workplace, alongside a recognition of
the role of grandparents to their families and society.
Following the further progress made over the past year, we continue to receive
positive feedback from colleagues which is reflected through an increase in
our overall colleague engagement. The score from our latest survey was 7.7 out
of 10, an increase of 0.4 from the same point last year.
Data, digital and brand transformation
As part of our data, digital and brand transformation, in October 2021, we
relaunched our brand, showcased through three new television adverts and the
relaunch of our websites and social media accounts. The 'Experience is
Everything' campaign is aimed at reflecting the attitude of our customers
rather than their age and represents a multi-year initiative designed to
transform the views of Saga over the longer term.
Our progress to date across the data, digital and brand space continues to be
recognised by our customers through a number of means, including an increased
net promoter score of 49 and more widely though an award nomination for
magazine 'cover of the year' and wins in seven categories at the Consumer
Intelligence Awards.
In February 2022, although after the end of the financial year, we were
pleased to announce the acquisition of The Big Window Consulting Limited (the
Big Window), a specialist research and insight business focused on
understanding older consumers. Having the Big Window as part of the Saga Group
allows us to strengthen our insight and understanding of our consumers and
ensure we are delivering the products and services that they want.
Optimising our businesses
Insurance
Within Retail Broking, we increased motor and home policies in force by 1.4%,
representing the second year of growth following several years in decline.
Customer retention improved by 2.3ppts to 82.8%, supported by increased uptake
of our three-year fixed-price products which now account for 47% of our motor
and home book. Motor and home margins per policy remained stable at £74 and
the proportion of customers who came to us directly, rather than through
price-comparison websites also remained stable, at 59%.
Our Underwriting business, AICL, reported an Underlying Profit Before
Tax3F3F(2) of £54.1m, supported by £42.1m of reserve releases and a current
year combined operating ratio (excluding reserve releases) of 96.3%. Over the
past two years, we have significantly enhanced our Underwriting capability,
strengthening the team and implementing new pricing models which have allowed
us to expand the range of business we underwrite, further supporting the
Retail Broking business.
In January 2022, the new pricing rules arising from the Financial Conduct
Authority market study came into effect. Experience to date for home insurance
is broadly in line with expectations, while motor insurance pricing has
remained highly competitive. While we expect the new pricing rules to reduce
motor and home profits, it is however too early to quantify the longer-term
impact. We remain of the view that we are well-positioned to operate in a
market that is focused more on propositions and service, alongside price.
In the second half of 2021/22, we launched Saga Plus, our enhanced three-year
fixed-price cover with added extras including our claims promise, onward taxi
travel, legal and key cover as standard.
More recently, we were rated as the number one insurance brand in the UK for
customer satisfaction and the third highest sector-wide, by The Institute of
Customer Service.
We were also pleased to welcome Steve Kingshott in November 2021 who was
appointed as CEO of Insurance. Steve has a wealth of experience in the
insurance industry, most recently from Tesco, and has hit the ground running
in terms of optimising our Insurance businesses.
2 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Travel
2021/22 was a pivotal year for the Travel business as our Cruise operation
successfully restarted in the summer following 15 months of suspension and we
began the restructure of our Tour Operations business.
Throughout this time, customer safety was our first priority, ensuring that we
were able to operate in a way which not only kept customers safe, but also
gave them peace of mind. I am incredibly proud of the environment we have
created and the demand we have subsequently seen for our offering.
In July 2021, our newest ocean cruise ship, Spirit of Adventure, was
officially named and sailed her inaugural cruise. With both ocean cruise ships
now back in service and operating our established health and safety protocols,
we are receiving exceptionally positive feedback from our customers. Our guest
satisfaction score from resumption, up until 31 January 2022 was 9.1 out of
10.
Since we resumed Cruise operations on 26 June 2021 and up until 31 January
2022, we completed 31 successful sailings onboard our two ships and we, and
our guests, are learning to live with COVID-19 restrictions. While it was
disappointing for those of our customers that were affected, we are pleased
that only one sailing has been meaningfully impacted, with a cruise to the
Caribbean (which took place after the financial year end) curtailed following
a limited outbreak, due to the strict protocols at those ports.
We began the restructure of our Tour Operations business, adopting a new
operating model. To maximise the efficiency within touring and create a
lower-cost, more agile business, we have combined the operations of Saga
Holidays and Titan Travel. In addition, the management of our river cruise
operation has moved across to ocean cruise.
These actions place us in a strong position as travel restrictions ease and
customer demand rebuilds.
Driving simplicity and efficiency
In order to deliver against our strategy, it is essential that we continually
look for opportunities to simplify our business and maximise our efficiency.
We continued the rationalisation of our office space and reduced the number of
offices in use from 11 to seven. We plan to reduce this even further with
three more currently for sale.
For the period of Travel suspension in the early part of the year, we
initially provided an indicative cost range of £7-9m per month across both
the Cruise and Tour Operations businesses. As a result of tight cost control,
we were pleased to report costs below this range, at £5.9m per month.
From a customer perspective, we introduced functionality to allow our Travel
guests to provide their feedback digitally, enabling faster and deeper insight
into customer satisfaction. We also launched a mid-term adjustment rebroking
process in Insurance which provides customers with greater flexibility when
making a policy change mid-way through their term.
Reducing our debt
Throughout 2021/22, despite the impact of the pandemic, our focus on debt
reduction and strengthening our financial position remained at the forefront
of our thinking.
In July 2021, we completed a series of financing transactions which provided
us with greater flexibility through less-restrictive terms and ample liquidity
to support the business through any ongoing period of uncertainty. These
included the issue of a new five-year £250.0m bond and use of the proceeds to
repay our £70.0m term loan and £100.0m of our existing bond, with the
remainder held as Available Cash4F4F(3).
At 31 January 2022, our net debt was £729.0m, £31.2m lower than at 31
January 2021, reflecting resilient cash generation within Retail Broking and
the restart of the Cruise business which were only partially offset by support
provided to Tour Operations and debt servicing costs.
3 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Our growth plan
In 2020, we announced our strategy to transform Saga and since then, we have
continued to deliver against each of those five strategic priorities.
In order to build on our progress to date and convert the foundations already
laid into sustainable growth, we are further evolving our strategic approach.
This will see us focus on three strategic priorities, all of which are
co-dependent and aligned in approach to maximise shareholder value:
1. Maximise our existing businesses - through specific growth plans
for each, a franchise structure to enable focus, growth, accountability and
efficiency, and the delivery of a common brand purpose.
2. Step-change our ability to scale while reducing debt - grow
existing businesses while reducing debt and develop new businesses through
innovation in a capital-light way.
3. Create 'The Superbrand' for older people - deliver a step-change in
brand perception and loyalty through focus on four areas:
a. Commercialising and growing our database.
b. Building exceptional insights, supported by the acquisition of data
and insights business, the Big Window.
c. Delivering a brand re-positioning where 'Experience is Everything'.
d. Creating a content platform where we reach millions of customers
every day.
Well-positioned for the future
Following the disruption caused by the pandemic over the past two years, we
are emerging stronger than we went in.
Whilst mindful of the headwinds as we enter 2022/23, I am confident that we
have the right strategy, structure and team in place to unlock the potential
that exists within Saga and create long-term sustainable growth for our
shareholders.
Finally, I would like to thank all of our colleagues for their continued
commitment throughout what has been another challenging year. Against a
backdrop of external headwinds, we are proud of what we have achieved and
acknowledge that none of this would have been possible without their hard work
and dedication.
Environmental, Social and Governance (ESG)
Saga exists to deliver exceptional experiences for our customers every day,
while being a driver of positive change in our markets and communities. We
have a diverse range of ESG initiatives and are proud of what we have achieved
to date. At the same time, we recognise that we need to do more and are
currently engaged in the detailed work necessary to achieve a reset that will
deliver an approach to ESG with greater scale, ambition - and importantly,
impact.
At the heart of our new approach will be a focus on reducing our environmental
impact, with a particular emphasis on our Cruise business where our two new
ships are based on significantly more modern and efficient technology than our
previous ships. Building on this successful fleet renewal, we have engaged
V.Ships, a leading independent ship management company, to help us assess what
more we can do in this area.
We are more advanced with regards to the S in ESG. Our Group business strategy
has seen us working to reset Saga and its operations. At its heart, this
strategy requires us to work harder, every day, to understand the lives and
needs of people in our markets and then deliver for them. Central to our
approach to transforming our business, is a focus on our people and the
step-changes being made to strengthen our culture of customer delivery. Our
enhanced ESG focus in this area will be clearly tied to this strategic
approach, to our customers and to our colleagues.
Our distinct customer group is one of the most experienced in society;
however, all our work has shown that they can face an uphill battle to get
their voices heard, to be represented in society and to overcome the
prejudices people have about ageing. People aged over 50 are the fastest
growing demographic in the UK: 28.2 million people(1) will be over the age of
50 by 2031 and 63p(2)( )of every £1 will be spent by people over 65 in 2040.
But despite the significance of this group, age is often left out of the
national conversation.
We are determined to play our part in tackling what we see as a hidden area in
the discrimination debate at a time when so much good work is being done to
address issues around race, gender and disability. Saga is now focused on
challenging perceptions of ageing and, specifically, on becoming the Champions
of Experience in the Workplace. This will be the focal point of our work
within the Social element of ESG and lead our wider strategic reset. This
will, of course, be underpinned by best-in-class governance and by the
detailed work necessary to ensure we are meeting and, where we can, exceeding
all our environmental responsibilities and ensuring our businesses help lead
the debates in their sectors.
A full update on our progress will be published as part of our 2022 Annual
Report and Accounts.
7F8F9F10F11F12F13
1 Office for National Statistics - 2018-based principal projections
2 Maximising the longevity dividend - ILC Partners Programme
Group Chief Financial Officer's Review
While Saga is in much better shape than it was 12 months ago, results for
2021/22 reflect the ongoing impact of the COVID-19 pandemic on our Travel
operations, with an Underlying Loss Before Tax10F14F1 (#_ftn1) in the Travel
business of £79.3m, in line with the previous year. As a result, we reported
an Underlying Loss Before Tax(1) of £6.7m and an overall loss before tax of
£23.5m.
The Underlying Loss Before Tax(1) of £6.7m compares to a profit of £17.1m in
the previous year, with the change mainly relating to higher marketing costs,
as well as the impact of increased motor insurance claims frequency as miles
driven returned closer to normal levels and other smaller factors such as
lower private medical insurance profitability.
The Travel result sits between the base case and downside scenarios we
modelled, consistent with an environment that remained constantly challenging
but, where for the Cruise business, we were able to restart trading in
mid-year. Cruise was EBITDA positive for the second half, and cash positive
for the full year, which we believe puts us in a much better position than
many of our, often much larger, competitors. The higher loss of the Cruise
business compared with the prior year was mainly due to increased financing
costs following delivery of our second ship in October 2020 and return to
service costs in the first part of 2021, partially offset by much improved
results following the resumption of trading from the end of June.
Insurance results were in line with expectations, and while profit was lower
than in the prior year, this was in part due to increased marketing investment
as we returned to television advertising in the later part of the year. Given
the timing of the spend, as well as the lead time in translating improved
brand awareness and consideration into hard sales, the benefits of almost all
of this spend will be in future years. More generally however, the business is
in a much stronger position than it was three years ago, with a second year of
policy growth in the core motor and home products, and at stable margins.
The reported loss before tax for 2021/22 of £23.5m was materially better than
the £61.2m loss in the prior year, mainly due to significantly lower
restructuring costs, as well as the £59.8m goodwill impairment included in
the 2020/21 results.
Looking to the future, 2022/23 should see improved performance, but we are
still navigating external challenges. This is especially the case for Travel,
where customer confidence is improving but is still impacted by COVID-19
uncertainty. For Tour Operations, we are aiming to achieve break even after
two years of heavy losses, and clearly our ambition is to achieve a much
better performance in the future. Similarly for Cruise, the current year will
see some impact from COVID-19 in terms of itinerary disruption, the cost of
the measures we are taking to protect customers and the earn through of
customer discounts offered in 2020. However, Cruise demand continues to be
strong and price increases should largely offset the impact of inflation on
our costs. In Retail Broking, a very competitive motor market and regulatory
changes equalising new business and renewals pricing will adversely impact
profitability but this should reduce over time as customers see less need to
shop around on renewal, and with more focus on product and service quality.
Overall, these factors make providing specific earning guidance very
challenging for this year, but at a minimum we expect a return to positive
profit contribution, with growth in sales and profits in future years from
2022/23 levels.
In terms of our financial position, this was a year of real progress. Despite
the Underlying and reported loss before tax, we generated positive Available
Operating Cash Flow(1) of £75.8m, compared with £3.4m in the prior year, and
net debt reduced from £760.2m to £729.0m. The 2021/22 year benefited from
positive working capital movements in Cruise, as the business recommenced
trading, compared with significant cash injections into the Travel businesses
in the prior year. Available Operating Cash Flow(1), excluding Travel, was
£89.4m compared with £92.3m in the prior year, which again demonstrates how
important it has been for the Group to have a fully operational Insurance
business throughout the pandemic.
In July 2021, we concluded the issuance of a new five-year £250m fixed-rate
unsecured bond, with the proceeds used to repay £100m of existing bonds and
to repay in full the £70m term loan. After costs, these transactions
increased Available Cash(1) by £76m. As a result, we have more than enough
liquidity to cope with potential short-term risks as we emerge from the
pandemic; we have no corporate debt maturities until 2024 and the bonds offer
us much better flexibility than bank debt. Reducing debt remains a priority
and we will restart repayments of ship debt from June 2022.
The past 12 months have been a time of considerable progress, and I would like
to thank everyone in the finance team and all our other stakeholders, who have
worked long hours in helping us navigate some choppy waters. Our goal now is
to capitalise on Saga's opportunities, while keeping a tight focus on downside
risks.
(1 )Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Operating performance
Group income statement
£m 12m to Change 12m to
Jan 2022 Jan 2021
Revenue (2) 377.2 11.7% 337.6
Underlying (Loss)/Profit Before Tax (3)
Total Retail Broking (earned) 66.4 (12.5%) 75.9
Underwriting 54.1 (7.8%) 58.7
Total Insurance 120.5 (10.5%) 134.6
Travel (79.3) (1.0%) (78.5)
Other Businesses and Central Costs (29.3) (30.8%) (22.4)
Net finance costs (4) (18.6) (12.0%) (16.6)
Total Underlying (Loss)/Profit Before Tax(3) (6.7) (139.2%) 17.1
Net fair value (losses)/gains on derivatives (2.7) 1.7
(Impairment)/profit on disposal of assets (4.3) 2.0
Restructuring costs (6.3) (30.8)
Charge on closure of defined benefit pension scheme (2.0) -
Foreign exchange gains on river cruise ship leases 0.9 -
Costs incurred for ship debt holiday (2.4) -
Net profit on disposal of businesses - 8.6
Impairment of Travel goodwill - (59.8)
Loss before tax (23.5) 61.6% (61.2)
Tax expense (4.5) 31.8% (6.6)
Loss after tax (28.0) 58.7% (67.8)
Basic earnings per share:
Underlying (Loss)/Earnings Per Share(3) (11.1p) (184.1%) 13.2p
Loss per share (20.1p) 70% (67.0p)
The Group's business model is based on providing high-quality and
differentiated products to its target demographic, predominantly focused on
insurance and travel. The Insurance business operates mainly as a broker,
sourcing underwriting capacity from selected third-party insurance companies,
and, for motor and home, also from the Group's in-house underwriter. Travel is
composed of Tour Operations and Cruise. Other Businesses comprises Saga
Personal Finance, Saga Publishing and MetroMail, a mailing and printing
business.
Revenue
Revenue increased by 11.7% to £377.2m (2021: £337.6m) due to the restart of
the Travel business in the second half of the year, partially offset by lower
Retail Broking revenues, largely as a result of the sale of the Bennetts
business in August 2020.
Underlying (Loss)/Profit Before Tax(3)
Underlying Profit Before Tax(3) decreased from £17.1m to an Underlying Loss
Before Tax(3) of £6.7m. This was partly due to a reduction in Retail Broking
profitability, mainly as a result of lower renewal margins in private medical
insurance (PMI) and increased television advertising spend to support the
relaunch of the brand in the Other Businesses and Central Costs segment.
Net finance costs in the year were £18.6m (2021: £16.6m), which excludes
finance costs that are included within the Travel division of £19.5m (2021:
£13.6m). The increase of 12.0% was largely due to the higher bond interest
costs following the completion of the new bond issue in July 2021. This was
partially offset by a reduction in bank debt interest costs due to a lower
level of bank debt in the current year compared with the prior year.
2 Revenue is stated net of ceded reinsurance premiums earned on business
underwritten by the Group of £123.7m (2021: £142.8m)
3 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
4 Net finance costs exclude Cruise finance costs, net fair value
gains/(losses) on derivatives and IAS 19R pension interest costs
Loss before tax
Loss before tax for the year of £23.5m includes a £2.7m fair value loss on
derivatives de- designated in the year due to the suspension of Travel
operations, £6.3m of restructuring costs, mainly relating to the Tour
Operations business, a £2.0m charge due to the closure of the defined benefit
pension scheme and £2.4m of costs incurred on the ship debt holiday,
partially offset by £0.9m foreign exchange gains on river cruise ship leases.
The loss before tax for 2021/22 also includes a net impairment of assets of
£4.3m that represents £10.2m and £0.5m of impairments and loss on disposals
of software and property, plant and equipment respectively, mainly relating to
the Tour Operations business, £1.0m of impairments on assets held for sale, a
£7.1m profit on disposal of assets, after costs of £0.1m, in relation to a
sale of property and a £0.3m gain on a lease modification within right-of-use
assets.
The prior year includes a £59.8m impairment to Travel goodwill and £30.8m of
restructuring costs, offset by an £8.6m profit on the disposal of non-core
businesses, £2.0m net gains on the disposal of assets and a £1.7m fair value
gain on derivatives de-designated in the prior year.
Tax expense
The Group's tax charge for the year was £4.5m (2021: £6.6m), representing a
tax effective rate of negative 19.1% (2021: negative 471.4%), excluding the
goodwill impairment charge. In both the current and prior years, the
difference between the Group's tax effective rate and the standard rate of
corporation tax of 19%, is mainly due to the Group's Cruise business entering
the tonnage tax regime on 1 February 2020.
There was an adjustment in the current year for the under provision of
prior-year tax of £1.0m (2021: £1.6m under provision) and the impact of the
change in the tax rate on opening deferred tax balances of £2.6m credit
(2021: £1.7m credit).
Earnings per share
The Group's Underlying Basic Loss Per Share(5). was 11.1p (2021: Profit
13.2p). The Group's reported basic loss per share was 20.1p (2021: loss of
67.0p).
5 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Insurance
Retail Broking
The Retail Broking business provides tailored insurance products and services, principally motor, home, private medical and travel insurance.
Its role is to price the policies and source the lowest cost of risk, whether
through the panel of motor and home underwriters or through solus arrangements
for private medical and travel insurance. The Group's in-house insurer,
Acromas Insurance Company Limited (AICL), sits on the motor and home panels
and competes for that business with other panel members on equal terms. AICL
offers its underwriting capacity on the home panel through a coinsurance deal
with a third party, and so the Group takes no underwriting risk for that
product. Even if underwritten by a third party, the product is presented as a
Saga product and the Group manages the customer relationship.
12m to Jan 2022 12m to Jan 2021
Motor Home Other Motor Home Other
£m Broking Broking Broking Total Change Broking Broking Broking Total
Gross written premiums (GWP):
Broked 105.0 153.2 96.5 354.7 (5.0%) 131.3 151.9 90.2 373.4
Underwritten 205.5 - 3.4 208.9 0.4% 204.6 - 3.5 208.1
GWP 310.5 153.2 99.9 563.6 (3.1%) 335.9 151.9 93.7 581.5
Broker revenue 43.2 29.0 33.2 105.4 2.8% 37.6 28.7 36.2 102.5
Instalment revenue 6.6 3.2 - 9.8 (11.7%) 8.1 3.0 - 11.1
Add-on revenue 11.0 10.9 - 21.9 (13.1%) 14.5 10.7 - 25.2
Other revenue 27.4 17.1 2.1 46.6 (12.9%) 31.3 17.8 4.4 53.5
Written revenue 88.2 60.2 35.3 183.7 (4.5%) 91.5 60.2 40.6 192.3
Written gross profit 85.6 60.2 35.6 181.4 (2.2%) 88.8 60.2 36.5 185.5
Marketing expenses (17.5) (7.1) (3.6) (28.2) (8.5%) (17.3) (6.0) (2.7) (26.0)
Written gross profit after marketing expenses 68.1 53.1 32.0 153.2 (3.9%) 71.5 54.2 33.8 159.5
Other operating expenses (38.0) (27.9) (20.7) (86.6) (1.1%) (40.1) (26.3) (19.3) (85.7)
Written Underlying PBT(6) 30.1 25.2 11.3 66.6 (9.8%) 31.4 27.9 14.5 73.8
Written to earned adjustment (0.2) - - (0.2) (109.5%) 2.1 - - 2.1
Earned Underlying PBT 29.9 25.2 11.3 66.4 (12.5%) 33.5 27.9 14.5 75.9
Saga branded policies in force 884k 682k 129k 1,695k 2.6% 867k 677k 108k 1,652k
Third-party panel share(7) 30.1% (0.3ppt) 30.4%
Retail Broking Underlying Profit Before Tax(6) on a written basis (which
excludes the impact of the written to earned adjustment) reduced to £66.6m
from £73.8m, and on an earned basis (which includes the impact of the written
to earned adjustment), reduced to £66.4m from £75.9m.
The written to earned adjustment of negative £0.2m in the current year
compares with a £2.1m positive adjustment in the prior year. The prior year
broking result benefited from price reductions implemented by AICL in 2019
that improved broking margins, but with these improvements partially deferred
during 2019/20 and earned during the 2020/21 financial year.
A key metric for the Retail Broking business is written gross profit, after
deducting marketing expenses, but before overheads. This reduced from £159.5m
in the prior year to £153.2m in the current financial year due to the sale of
Bennetts in August 2020. Excluding Bennetts, written gross profit after
marketing expenses increased by £0.3m, due to a £3.2m improvement in motor,
offset by a £1.1m reduction in home and a £1.8m reduction in other broking.
For Saga-branded motor and home insurance, in terms of the total gross margin
after marketing expenses, new business profits reduced by £6.2m, while there
was a £8.3m improvement in renewal profits.
The reduction in new business profits is due to investment in television
advertising and lower motor new business margins due to competitive market
conditions. The increase in renewal profits is principally due to a 5%
increase in motor renewal policies, coupled with higher renewal margins driven
by the continued growth of our three-year fixed-price products. The higher
renewal margins were, in part, due to low net rate inflation during the year
compared with the inflation assumptions built into three-year fixed-price
pricing.
The average gross margin per policy for Saga-branded motor and home combined,
calculated as written gross profit less marketing expenses divided by the
number of policies sold, was £74.2 in the year, compared with £73.8 in the
prior year.
While Retail Broking earnings have reduced year on year, the Insurance
business has shown good progress in the past 12 months:
· Saga-branded motor and home policies in force increased by 1.4%
in the year.
· Sustained improvement in customer retention to 82.8% across motor
and home, which was 2.3ppts higher than the prior year and 7.7ppts higher than
2019/20.
· 755k three-year fixed-price policies were sold in the year; 47%
of total motor and home policies in force, with 57% of direct new business
taking the product.
· Direct new business sales for motor and home were 59% of the
total, stable on the prior year but around 9ppts higher than in the 2018/19
year.
Written profit and gross margin per policy for motor and home are stated after
allowing for deferral of part of the revenues from three-year fixed-price
policies, which is then recognised in profit or loss when the option to renew
those policies at a predetermined fixed price is exercised or lapses,
recognising inflation risk inherent in this product. As at 31 January 2022,
£8.7m (2021: £9.9m) of income had been deferred in relation to three-year
fixed-price policies, £7.3m (2021: £5.0m) of which related to income written
in the year to 31 January 2022. The reduction in the amount deferred is due to
new three-year fixed-price sales during the 2021/22 year being lower than in
2019/20, the year the product was launched, with the latter group of policies
having all now passed the second renewal. The reduction in the number of
three-year fixed-price policies within the first and second renewal was
partially offset by higher assumed inflation assumptions.
6 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
7 Third-party underwriter's share of the motor panel for Saga-branded policies
Motor Broking
Gross written premiums decreased by 7.6% due to the sale of the Bennetts
business on 7 August 2020, therefore the current year results include no
trading results for Bennetts compared with six months' worth included in the
prior year.
Excluding Bennetts, gross written premiums decreased by 0.3%. This reduction
is due to lower average premiums per policy, partially offset by a 1.3%
increase in the number of core Saga-branded policies. Gross written premiums
from business underwritten by AICL increased 0.4% to £205.5m (2021:
£204.6m), partly due to a 0.3ppt decrease in third-party panel share to 30.1%
(2021: 30.4%). Other revenue declined by £3.9m, due primarily to the sale of
Bennetts.
Written gross profit minus marketing expenses was £68.1m (2021: £71.5m),
contributing £72.8/policy (2021: £66.9/policy). Excluding Bennetts results
from the prior year, motor written gross profit minus marketing expenses for
2021 was £65.0m, contributing £70.3/policy.
The increase in written gross profits excluding Bennetts is mainly due to a 5%
increase in motor renewal policies and higher renewal margins on the
three-year fixed-price product, partially offset by investment in television
advertising of £3.0m and competitive new business market conditions.
Home Broking
Gross written premiums increased by 0.9% due to a 0.3% increase in average
premiums and a 0.6% increase in core policies.
Written gross profit minus marketing expenses was £53.1m (2021: £54.2m), and
on a per policy basis this was £76.2/policy (2021: £78.2/policy). The
decrease is due to £1.6m of television advertising spend compared with zero
in the prior year.
Other Broking
The Other Insurance Broking business primarily comprises PMI and travel
insurance.
Gross written premiums increased 6.6% as a result of higher sales of travel
insurance, with policies in force increasing from 50k in the prior year to 77k
as a result of increased customer confidence in the travel outlook and fewer
restrictions on travel than in the prior year.
Gross profits after marketing costs relating to travel insurance products
increased by £1.0m.
Sales for the PMI product were stable; however, gross profit after marketing
costs was £6.0m lower. This reduction is a result of pricing changes that
have reduced renewal margins, alongside a lower profit share which is in line
with expectations as claims have risen post COVID-19 lockdowns.
Profitability of the Group's claims management and credit hire businesses were
adversely impacted during the prior year due to lower claims volumes as a
result of reduced repair activity during the COVID-19 lockdown, as well as the
exit from a claims handling contract for a third party. This has again
continued into this year due to a further COVID-19 lockdown but was more than
offset by better-than-expected recovery against previously written down credit
hire debt.
Underwriting
12m to Jan 2022 12m to Jan 2021
Quota share21F Quota share
£m Reported Underlying(9) Change Reported Underlying(9)
Net earned premium 51.5 (110.0) 161.5 (11.9%) 54.7 (128.7) 183.4
Other revenue 33.2 28.8 4.4 540.0% 19.7 20.7 (1.0)
Revenue a 84.7 (81.2) 165.9 (9.0%) 74.4 (108.0) 182.4
Claims costs b (44.3) 87.7 (132.0) 4.6% (42.2) 96.1 (138.3)
Reserve releases c 18.3 (23.8) 42.1 12.0% 30.6 (7.0) 37.6
Other cost of sales d (3.9) 12.7 (16.6) 6.7% (4.9) 12.9 (17.8)
e (29.9) 76.6 (106.5) 10.1% (16.5) 102.0 (118.5)
Gross profit 54.8 (4.6) 59.4 (7.0%) 57.9 (6.0) 63.9
Operating expenses f (4.2) 6.9 (11.1) (4.7%) (2.9) 7.7 (10.6)
Investment return 3.5 (4.3) 7.8 (6.0%) 3.7 (4.6) 8.3
Quota share net cost - 2.0 (2.0) 31.0% - 2.9 (2.9)
Underlying Profit Before Tax(8) 54.1 - 54.1 (7.8%) 58.7 - 58.7
Reported loss ratio (b+c)/a 30.7% 54.2% (1.0ppt) 15.6% 55.2%
Expense ratio (d+f)/a 9.6% 16.7% 1.1ppt 10.5% 15.6%
Reported COR (e+f)/a 40.3% 70.9% 0.1ppt 26.1% 70.8%
Current year COR (e+f-c)/a 61.9% 96.3% 4.9ppt 67.2% 91.4%
Number of earned policies 711k (6.9%) 764k
Policies in force - Saga motor 629k 3.5% 608k
The Group's in-house underwriter, AICL, continues to play an important role on
the motor panel, providing a significant source of competitively priced
underwriting. AICL also underwrites a portion of the home panel, although all
home underwriting risk is passed to third-party insurance and reinsurance
providers. AICL also has excess of loss and funds-withheld quota share
reinsurance arrangements in place relating to its motor underwriting line of
business, which transfer a significant proportion of motor insurance risk to
third-party reinsurers.
Excluding the impact of the quota share reinsurance arrangements(9), net
earned premiums decreased by 11.9% to £161.5m (2021: £183.4m) reflecting a
6.9% reduction in the number of earned policies underwritten by AICL coupled
with a 5.4% decrease in average earned premiums. The reduction in the number
of earned policies was mainly due to lower volumes on non-Saga panels.
Also excluding the impact of the quota share arrangement, AICL saw an increase
in the current year underlying combined operating ratio (COR) to 96.3% (2021:
91.4%). The prior year benefited from significantly reduced motor claims
frequencies due to customers driving fewer miles during COVID-19 lockdowns.
While this was also a factor in the first three months of 2021/22, motor
claims experience for the latter nine months of the 2021/22 year was broadly
in line with pricing assumptions.
Prior year reserve releases of £42.1m (2021: £37.6m) have resulted in an
underlying reported COR of 70.9% (2021: 70.8%). The Group retains an economic
interest in motor reserve development with reserve releases on other lines
typically having limited net impact on AICL profit. Reserve releases for the
past two years can be analysed as follows:
12m to Jan 2022 12m to Jan 2021
£m Reported Quota share Underlying(10) Change Reported Quota share Underlying(10)
Motor insurance 16.0 (26.5) 42.5 28.1 (8.6) 36.7
Home insurance - 0.1 (0.1) (0.4) - (0.4)
Other insurance 2.3 2.6 (0.3) 2.9 1.6 1.3
18.3 (23.8) 42.1 12.0% 30.6 (7.0) 37.6
Reserve releases reflect continued favourable experience on large bodily
injury claims relating to prior accident years. In addition, part of the
additional component of reserve margin for the increased uncertainty over
claims development held in respect of the 2020/21 accident year has been
released in the current year.
While the Group remains prudently reserved and expects to see ongoing reserve
releases in 2022/23, these are expected to be at a lower level than in
2021/22. Beyond 2022/23, the Group is targeting a reported combined ratio,
before the quota share reinsurance arrangements(10), of around 97%, in line
with previous expectations.
Excluding the impact of the quota share arrangement(10), the investment return
decreased by £0.5m to £7.8m (2021: £8.3m) due to a reduced investment
portfolio and lower reinvestment yields.
8
Refer to the Alternative Performance Measures Glossary on page 68 for definition and explanation
9
Underlying within Insurance Underwriting shows the commercial position of the business by removing the impact of the proportional line-item accounting of
the quota share reinsurance arrangements
10Underlying within Insurance Underwriting shows the true commercial position of the business by removing the impact of the proportional line-item accounting of
the quota share reinsurance arrangements
Travel
12m to Jan 2022 12m to Jan 2021
£m Tour Operations Cruise Total Change Tour Operations Cruise Total
Travel Travel
Revenue 12.2 82.5 94.7 83.5% 32.7 18.9 51.6
Gross loss (0.5) (7.7) (8.2) 50.3% (2.6) (13.9) (16.5)
Marketing expenses (8.7) (12.1) (20.8) (39.6%) (7.8) (7.1) (14.9)
Other operating expenses (21.7) (9.2) (30.9) 8.3% (26.4) (7.3) (33.7)
Investment return - 0.1 0.1 (50.0%) - 0.2 0.2
Finance costs (0.7) (18.8) (19.5) (43.4%) (0.1) (13.5) (13.6)
Underlying Loss Before Tax1 (#_ftn2) 1 (31.6) (47.7) (79.3) (1.0%) (36.9) (41.6) (78.5)
Average revenue per passenger (£) 1,356 3,750 3,055 12.5% 2,515 3,150 2,716
Tour Operations passengers ('000) 9 9 (30.8%) 13 13
Cruise passengers ('000) 22 22 266.7% 6 6
Cruise passenger days ('000) 274 274 349.2% 61 61
Load factor 68% 68% (15.0ppt) 83% 83%
Per diems (£) 299 299 24.1% 241 241
The Group's Travel businesses were suspended in mid-March 2020 following
government restrictions introduced as a result of the COVID-19 pandemic. The
Cruise business resumed on 27 June 2021 with the first sailing of Spirit of
Discovery, and Spirit of Adventure's inaugural cruise on 26 July 2021. The
Cruise business operated Spirit of Discovery in UK waters through July with a
government-enforced load factor restriction of 50%. This was removed from the
end of July. In the second half, the Cruise business operated without
interruption but in a continually changing environment that resulted in late
itinerary changes for our customers and load factor restrictions at various
ports in Europe. The Tour Operations business commenced a small number of
UK-based holidays in June 2021 and international holidays, tours and river
cruises, focused within Europe, commenced in September 2021, albeit with very
low volumes due to ongoing COVID-19 travel restrictions.
Marketing expenses have increased by £5.9m to £20.8m (2021: £14.9m) to
support the restart of operations and a return to a normalised trading in
2022/23, especially in Cruise. Other operating expenses have decreased by
£2.8m as a result of actions taken after the decision to suspend operations
in the prior year to downsize the overhead cost base whilst operations were
paused. The overheads cost base has begun to scale up to support the return to
service, but not to the same levels as before.
A significant number of changes have been made to how the Travel businesses
operate to provide peace of mind and ensure the safety of customers and
colleagues, including the requirement that all guests must be fully vaccinated
against COVID-19, which means two doses plus a booster from 1 February 2022,
at least 14 days before departure.
The Tour Operations business (comprising Saga Holidays and Titan Travel)
continues to be significantly impacted by COVID-19, with passenger volumes
well below pre-2019 levels. We are responding to these challenges by combining
the operations of Saga Holidays and Titan to position ourselves for growth and
create a lower-cost, more agile and dynamic operation which is focused on the
changing needs of our customers.
This will maximise efficiency in touring, where the product offerings are
highly complementary, and we will create a new hotel stay proposition to be
launched later in 2022. Management of our river cruise operation is being
transferred to our Cruise team, who have a demonstrable track record of
operating cruise ships successfully, both in terms of customer service and
commercial outcomes.
These actions place us in a strong position as travel restrictions ease and
customer demand builds during 2022.
11
Refer to the Alternative Performance Measures Glossary on page 68 for definition and explanation
Forward Travel sales
Cruise bookings for 2022/23 are higher than the same point two years ago by
46% and 9ppts for revenue and load factor respectively due to high levels of
pent-up demand for cruises and completion of the cruise transformation
programme, with per diems also 15% higher than at the same point two years
ago.
Tour Operations bookings for 2022/23 are below the same point two years ago by
30% and 35% for revenue and passengers respectively. This is due to continued
customer caution in relation to overseas travel.
Current-year departures
20 March 2022 Change 22 March 2020
Cruise revenue (£m) 160.5 45.6% 110.2
Load factor 73% 9ppts 64%
Per diem (£) 319 14.7% 278
Saga Holidays and Titan combined revenue (£m) 131.9 (29.9%) 188.1
Saga Holidays and Titan combined passengers ('000) 53.8 (35.3%) 83.1
Other Businesses and Central Costs
12m to Jan 2022 12m to Jan 2021
£m Other Central Costs Total Change Other Central Costs Total
Businesses Businesses
Revenue:
Personal Finance 5.9 - 5.9 (1.7%) 6.0 - 6.0
Healthcare - - - (100.0%) 0.9 - 0.9
Media and printing 9.9 - 9.9 8.8% 9.1 - 9.1
Other - 1.5 1.5 (25.0%) - 2.0 2.0
Total revenue 15.8 1.5 17.3 (3.9%) 16.0 2.0 18.0
Gross profit 5.7 3.4 9.1 (2.2%) 5.6 3.7 9.3
Operating expenses (3.9) (32.9) (36.8) (26.5%) (2.8) (26.3) (29.1)
IAS 19R pension charge - (1.6) (1.6) 38.5% - (2.6) (2.6)
Net finance costs - (18.6) (18.6) (12.0%) - (16.6) (16.6)
Underlying Profit/(Loss) Before Tax(12) 1.8 (49.7) (47.9) (22.8%) 2.8 (41.8) (39.0)
The Group's Other Businesses include Saga Personal Finance, the Saga
Publishing business and MetroMail, a mailing and printing business.
Underlying Profit Before Tax(12) for Other Businesses combined is broadly in
line with the prior year, with the prior year benefiting from one month's
worth of trading from the Healthcare business that was divested in March 2020.
Central operating expenses increased to £32.9m (2021: £26.3m).
Administration costs, adjusted for transfers to local business units, were
flat on the prior year, but net costs increased by £6.6m due to lower Group
recharges to the Travel division and a £3.2m increase in central marketing
costs. This latter increase was due to the Group's rebranding exercise as well
as production and other setup costs relating to the television advertising
campaign launched in October 2021.
Net finance costs in the year were £18.6m (2021: £16.6m), which excludes
finance costs that are included within the Travel division of £19.5m (2021:
£13.6m). The increase was largely due to higher bond interest costs following
the completion of the new bond issue in July 2021. This was partially offset
by a reduction in bank debt interest costs following the repayment of all
drawn bank facilities in July 2021.
12 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Cash flow and liquidity
Available Operating Cash Flow(13)
Available Operating Cash Flow(13) is made up of the cash flows of unrestricted
businesses and the dividends paid by restricted companies, less any cash
injections to those businesses. Unrestricted businesses include Retail Broking
(excluding specific ring-fenced funds to satisfy FCA regulatory requirements),
Other Businesses and Central Costs, and the Group's Cruise business.
Restricted businesses include AICL and Tour Operations.
Excluding cash transfers to and from the Travel business, Group cash flows
demonstrated considerable resilience in the year, with an Available Operating
Cash Flow(13) of £89.4m compared with £92.3m in the prior year. Trading
EBITDA(13) for unrestricted businesses reduced by £19.9m, partly due to
reduced renewal margins in PMI within the Retail Broking segment and increased
television advertising spend to support the brand. This was largely offset by
an increase in working capital inflows from £7.0m to £15.2m, mainly due to
the Retail Broking segment and a £10.5m increase in dividends paid by AICL.
Since the Group's Travel businesses were suspended in March 2020, the Group
has provided additional liquidity into the Travel businesses to meet supplier
and other trading payments, and to enable repayment of customer refunds where
requested.
For Tour Operations, which now operates as a ring-fenced fund, the Group
provided £36.4m of cash to the business to cover trading cash flows in the
current year. This is a reduction of £27.7m when compared with the £64.1m
funded in 2020/21, which is mainly due to the establishment of the stand-alone
ring fence in 2020 as well as high level of supplier payments in the prior
year. At 31 January 2022, the Tour Operations ring-fenced business held cash
of £32.4m, of which £23.4m is held in trust. In the second half of the year,
the Group agreed with the Civil Aviation Authority to hold a minimum of £5.6m
of cash outside of trust within the ring-fenced businesses.
During the year, the Cruise business reported an operating cash inflow of
£22.8m (2021: cash outflow £24.8m), with an increase in advance customer
receipts of £28.5m (2021: reduction of £8.1m), offset by net trading costs
of £2.7m (2021: £25.7m) and capital expenditure of £3.0m (2021: net inflow
of £9.0m). Net of interest costs of £15.2m (2021: £8.6m), the Cruise
business reported net cash inflow of £7.6m for 2021/22 compared to a net
outflow of £33.4m in the prior year.
The improvement compared with the prior year is a result of the Cruise
business resuming operations in the latter part of the first half, enabling
the business to start collecting payments on the cruises that sailed in the
second half of the year and the beginning of 2022.
As a result of the reduction in cash injections to the Travel business in the
year when compared with the prior year, Available Operating Cash Flow(13)
increased from an inflow of £3.4m in the prior year to £75.8m in the current
year.
13 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
£m 12m to Change 12m to
Jan 2022 Jan 2021
Retail Broking Trading EBITDA 73.2 (10%) 81.6
Other Businesses and Central Costs Trading EBITDA (21.5) (115%) (10.0)
Trading EBITDA from unrestricted businesses(14 15) 51.7 (28%) 71.6
Dividends paid by Underwriting business 35.0 43% 24.5
Working capital and non-cash items(16) 15.2 117% 7.0
Capital expenditure funded with Available Cash(14) (12.5) (16%) (10.8)
Available Operating Cash Flow before cash injections to Travel operations(14) 89.4 (3%) 92.3
Cash injection into Tour Operations business (36.4) 43% (64.1)
Cruise Available Operating Cash Flow 22.8 192% (24.8)
Available Operating Cash Flow(14) 75.8 2,129% 3.4
Restructuring costs paid (1.7) 93% (23.0)
Interest and financing costs (42.4) (55%) (27.3)
Business and property disposals 4.5 (85%) 30.1
Tax receipts 5.7 104% 2.8
Other payments (10.7) (5%) (10.2)
Change in cash flow from operations 31.2 229% (24.2)
Net proceeds from capital raise - (100%) 138.7
Change in bond debt 150.0 100% -
Change in bank debt (70.0) 13% (80.0)
Cash at 1 February 75.4 84% 40.9
Available Cash at 31 January(14) 186.6 147% 75.4
Other cash flow movements
Non-operating cash flow movements in the prior year include significant cash
costs relating to the restructuring activities undertaken in the first half of
the prior year, which principally relate to redundancy costs.
Interest and financing costs increased due to the financing costs relating to
the Spirit of Adventure debt facility which was drawn down at the end of
September 2020, combined with an increase in debt issue costs relating to the
fees associated with the new bond issue, the tender of the existing bond and
the amendments to the existing revolving credit facility (RCF), along with the
second ship debt holiday being more expensive than the first one in the prior
year.
Business and property disposals relate to the cash received from the sale of
property in the current year and from the sale of the Healthcare, Bennetts and
Destinology businesses in the prior year, net of related sale costs and
expenses.
The Group continued to make the agreed payments to the defined benefit pension
fund as part of the deficit recovery plan of £4.2m (2021 £4.8m), with the
prior year including a portion of the sales proceeds relating to the
Healthcare and Bennetts businesses paid into the fund. These are included
within other payments.
During the year, the Group agreed with the FCA to hold an additional
restricted cash balance of £5.0m on a temporary basis. This was funded from
Available Cash(14) and is included within other payments. The Group expects to
be able to release this amount from restricted cash in the first half of 2022.
In June 2021, the Group issued a five-year £250m fixed-rate unsecured bond.
The proceeds of the bond were used to fund the settlement of £100m of the
existing bond and to repay in full the £70m term loan. The balance of the
proceeds, together with the Available Cash(14) brought forward from the prior
year, and the undrawn RCF provides the Group with significant free liquidity
to support operations in the event of a re-emergence of COVID-19 in 2022 or
2023.
14 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
15 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
16 Adjusted to exclude IAS 19R pension current service costs
Reconciliation between operating and reported metrics
Available Operating Cash Flow(17) reconciles to net cash flows from operating
activities as follows:
£m 12m to 12m to
Jan 2022 Jan 2021
Net cash flow from operating activities (reported) 46.5 (78.4)
Exclude cash impact of:
Trading of restricted divisions 0.8 73.8
Non-trading costs 3.6 21.6
Interest paid 34.2 24.1
Tax paid 4.6 10.7
43.2 130.2
Cash released paid to restricted divisions (1.4) (26.8)
Include capital expenditure funded from Available Cash(17) (12.5) (10.8)
Include capital expenditure disposal proceeds - 6.9
Include net impact of Spirit of Adventure purchase cash flows - (5.2)
Less non-cash net liabilities disposed as part of business disposals - (12.5)
Available Operating Cash Flow(17) 75.8 3.4
Trading EBITDA(17) reconciles to Underlying (Loss)/Profit Before Tax(17) as
follows:
£m 12m to Change 12m to
Jan 2022 Jan 2021
Retail Broking Trading EBITDA 73.2 81.6
Underwriting Trading EBITDA 54.3 59.2
Tour Operations Trading EBITDA (28.1) (32.6)
Cruise Trading EBITDA (12.7) (19.5)
Other Businesses and Central Costs Trading EBITDA (21.5) (10.0)
Trading EBITDA(17) 65.2 (17.2%) 78.7
Depreciation and amortisation (excluding acquired intangibles) (32.2) (28.8)
Pension charge IAS 19R (1.6) (2.6)
Net finance costs (including Cruise) (38.1) (30.2)
Underlying (Loss)/Profit Before Tax(17) (6.7) (139.2%) 17.1
Adjusted Trading EBITDA(17) is used in the Group's leverage calculation and is
calculated as follows:
£m 12m to Change 12m to
Jan 2022 Jan 2021
Trading EBITDA(17) 65.2 (17.2%) 78.7
Less Trading EBITDA of disposed companies not disclosed below Underlying - (1.6)
Profit Before Tax(17)
Impact of IFRS 16 'Leases' (3.1) (3.0)
Spirit of Discovery and Spirit of Adventure Trading EBITDA(18) 11.5 18.7
Adjusted Trading EBITDA(17) 73.6 (20.7%) 92.8
17 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
18 EBITDA includes central Cruise overheads
Balance sheet
Goodwill
At 31 January 2022, the carrying value of the Group's goodwill asset totalled
£718.6m (31 January 2021: £718.6m) and is wholly attributable to the
Insurance business. The Group performed its annual impairment review of the
goodwill asset and the results demonstrated sufficient headroom against the
carrying value of the asset in both management's base case and reasonable
worst-case (RWC) scenarios, and so has concluded that no impairment is
required. During the prior year, the Group wrote down the £59.8m goodwill
asset attributable to its Travel businesses, the impairment review for which
was affected adversely by the uncertain outlook for the Travel business at
that point in time due to impact of COVID-19.
Carrying value of ocean cruise ships
At 31 January 2022, the carrying value of the Group's ocean cruise ships
totalled £621.3m (31 January 2021: £635.0m). Due to the continued impact of
the COVID-19 pandemic on the Travel business and the continued uncertainty in
the outlook for the Travel industry, the Group carried out an impairment
review of both of its vessels. The results of the review showed that there was
headroom in both the central and stress test scenarios for both Spirit of
Discovery and Spirit of Adventure, with no impairment required. Please refer
to Note 2.5 on page 42 for further details of the review that was
undertaken.
Investment portfolio
The majority of the Group's financial assets are held by its underwriting
entity and represent premium income received and invested to settle claims and
to meet regulatory capital requirements.
The amount held in invested funds decreased by £28.9m to £330.2m (31 January
2021: £359.1m) due to payment of £35.0m of dividends from AICL in the year.
At 31 January 2022, 98% of the financial assets held by the Group were
invested with counterparties with a risk rating of BBB or above, which is in
line with the prior year and reflects the relatively stable credit risk rating
of the Group's investment holdings.
Credit risk rating
At 31 January 2022 AAA AA A BBB Unrated Total
£m £m £m £m £m £m
Underwriting investment portfolio:
Deposits with financial institutions - - 14.0 - - 14.0
Debt securities 20.2 94.4 68.0 98.2 - 280.8
Money market funds 29.2 - - - - 29.2
Loan funds - - - - 6.2 6.2
Total invested funds 49.4 94.4 82.0 98.2 6.2 330.2
Derivative assets - - 1.8 0.1 - 1.9
Total financial assets 49.4 94.4 83.8 98.3 6.2 332.1
Credit risk rating
At 31 January 2021 AAA AA A BBB Unrated Total
£m £m £m £m £m £m
Underwriting investment portfolio:
Deposits with financial institutions - 24.2 - - - 24.2
Debt securities 23.1 73.9 71.5 93.4 - 261.9
Money market funds 66.8 - - - - 66.8
Loan funds - - - - 6.2 6.2
Total invested funds 89.9 98.1 71.5 93.4 6.2 359.1
Derivative assets - - 0.2 0.5 - 0.7
Total financial assets 89.9 98.1 71.7 93.9 6.2 359.8
Insurance reserves
Analysis of insurance contract liabilities at 31 January 2022 and 31 January
2021 is as follows:
At 31 January 2022 At 31 January 2021
£m Gross Reinsurance assets(19) Net Gross Reinsurance assets(19) Net
Reported claims 211.3 (55.8) 155.5 228.6 (57.8) 170.8
Incurred but not reported(20) 73.6 (3.3) 70.3 92.6 (7.4) 85.2
Claims handling provision 7.9 - 7.9 8.3 - 8.3
Total claims outstanding 292.8 (59.1) 233.7 329.5 (65.2) 264.3
Unearned premiums 93.9 (6.3) 87.6 96.8 (6.4) 90.4
Total 386.7 (65.4) 321.3 426.3 (71.6) 354.7
The Group's total insurance contract liabilities, net of reinsurance assets,
have decreased by £33.4m in the year to 31 January 2022 from the previous
year end, primarily due to a £15.3m reduction in reported net claims
reserves, coupled with a £14.9m decrease in net incurred but not reported
claims reserves. The reduction in net incurred but not reported claims
reserves is due to reserve releases that reflect continued favourable
experience on large bodily injury claims relating to prior accident years. In
addition, part of the additional component of reserve margin held in respect
of the 2020/21 accident year has been released in the current year.
Financing
At 31 January 2022, the Group's net debt was £729.0m, which is £31.2m lower
than at the beginning of the financial year.
The Group issued a new five-year £250m 5.5% fixed-rate unsecured bond in July
2021. The proceeds of the bond were used to fund the settlement of £100m of
the existing outstanding unsecured 3.375% bond and to repay in full the £70m
term loan. After transaction costs, these actions increased the Group's
Available Cash29(21 )by £76m. As at 31 January 2022, the £100m RCF remained
undrawn and available to the Group, and the maturity of the facility has been
extended to May 2025. The terms also include a requirement to repay the RCF on
1 March 2024 if the remaining £150m of the 3.375% bond notes have not been
redeemed prior to this date.
Excluding the impact of debt and earnings relating to the ocean cruise ships,
the Group's leverage ratio was 3.0x as at 31 January 2022 (31 January 2021:
2.7x), well within the 4.25x covenant applicable to the Group's RCF.
No repayments were made on the ship loans during the year, with the Group
agreeing a second debt holiday with its lenders in March 2021, as part of a
package of proposals to support the wider cruise industry. The second debt
holiday allowed for payments due in the year to 31 March 2022 to be deferred
for a period of up to five years from the original repayment date. The Group
intends to resume ship loan debt repayments after March 2022, with the first
payment due in June 2022.
£m Maturity date(22) 31 January 2022 31 January 2021
5.5% Corporate bond July 2026 250.0 -
3.375% Corporate bond May 2024 150.0 250.0
Term loan n/a - 70.0
Revolving credit facility May 2025(23) - -
Spirit of Discovery ship loan June 2031 234.8 234.8
Spirit of Adventure ship loan September 2032 280.8 280.8
Less Available Cash(21,)(24) (186.6) (75.4)
Net debt 729.0 760.2
19 Excludes funds-withheld quota share arrangement (please refer to Note 15
for further detail)
20 Includes amounts for reported claims that are expected to become periodical
payment orders
21 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
22 Maturity date represents the date that the principal must be repaid, other
than the ship loans, which are repaid in instalments over the next 12 years
23 The terms also include a requirement to repay the RCF on 1 March 2024 if
the remaining £150m of the 3.375% bond notes have not been redeemed prior to
this date
24 Refer to Note 13 of the financial statements for information as to how
this reconciles to a statutory measure of cash
Adjusted Net Debt(25) is used in the Group's leverage calculation and
reconciles to net debt as follows:
£m 31 January 2022 31 January 2021
Net debt 729.0 760.2
Exclude ship loans (515.6) (515.6)
Exclude Cruise Available Cash 4.7 2.3
Adjusted Net Debt33F2 (#_ftn3) 5 218.1 246.9
Pensions
The Group's defined benefit pension scheme deficit, as measured on an IAS 19R
basis improved by £5.4m to a £1.1m surplus at 31 January 2022 (£4.3m
deficit as at 31 January 2021).
£m 31 January 2022 31 January 2021
Fair value of scheme assets 412.0 411.2
Present value of defined benefit obligation (410.9) (415.5)
Defined benefit scheme surplus/(deficit) 1.1 (4.3)
The present value of defined benefit obligations decreased by £4.6m to
£410.9m, primarily due to a 70bps increase in the discount rate based on
high-quality bond yields, that was partially offset by a 100bps increase in
RPI inflation, the fair value of scheme assets increased by £0.8m to
£412.0m. The increase in asset values has been largely driven by employer
contributions of £8.2m into the scheme including a £4.2m deficit funding
contribution in February 2021, partially offset by a decrease in asset values,
largely driven by the increase in interest rates in the year.
During the year, the pension Trustees and the Group concluded the triennial
valuation of the scheme at 31 January 2020. The Company and Trustees agreed to
a new deficit recovery plan totalling £39.0m over the next seven years, with
the first payment of £4.2m paid in February 2021 and subsequent payments of
£5.8m due each February thereafter until February 2027.
In July 2021, following the completion of a review of the Group's pension
arrangements, a consultation process with active members was launched. 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 introduced a new defined contribution pension scheme arrangement
that is operated as a Master Trust. This move will reduce the risk of further
deficits developing in the future on the defined benefit scheme, while moving
to a new scheme for all colleagues. Upon closure of the scheme in October
2021, a one-off charge of £2.5m was made to the income statement that
crystallised from the rebasing of liability valuation assumptions from active
to deferred members.
Net assets
Since 31 January 2021, total assets have increased by £89.7m, which was
offset by an increase in total liabilities of £117.5m, resulting in an
overall decrease in net assets of £27.8m.
The increase in total assets is primarily due to an increase in cash and
short-term deposits as the financing transaction completed in the first half
of the year resulted in an increase in Available Cash(25) of £76m and an
increase of right-of-use assets of £33.2m following delivery of the Spirit of
the Rhine river cruise ship.
The increase in total liabilities reflects a £109.6m increase in financial
liabilities, which was due to an increase in gross debt from the receipt of
the £250m new bond proceeds offset by repayment of £100m of the existing
bond and the full £70m of the outstanding term loan, along with a £30.9m
increase in lease liabilities following the delivery of the Spirit of the
Rhine river cruise ship. There was also an increase in contract liabilities of
£32.4m and trade and other payables of £24.6m following the restart of
Travel operations in the year, offset by a £39.6m reduction in insurance
contract liabilities driven by favourable claims frequency.
25 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Impact of COVID-19 and going concern
The impact of COVID-19 over the past two years has increased the level of
uncertainty and earnings volatility for the Group, as it has done for many
businesses, and particularly for the Group's Travel business. Since the start
of the pandemic in the first half of 2020, the Group has increased the
frequency and depth of its long-term financial forecasting and scenario
modelling to allow the Directors to take appropriate action to ensure the
ongoing liquidity and solvency of the business.
Over this period, the Group has undertaken a series of transactions to
restructure its operations and capital structure. The Group's balance sheet
has been strengthened to allow it to withstand a further period of uncertainty
that may be faced in 2022 and beyond. The most notable of these transactions
was the raising of £139m of net proceeds from the issuance of new equity
shares in September 2020, followed by the issuance of a new £250m unsecured
fixed-rate five-year bond in July 2021. These actions allowed the Group to
fully repay its senior secured bank debt facilities, bolster Available
Cash(26) reserves, which were £187m at 31 January 2022, increase financial
flexibility and extend the maturity profile of Group debt. On its ship debt
facilities, the Group deferred a number of capital repayments and there is a
covenant testing holiday on these facilities until 31 July 2022.
The Group successfully recommenced operations in its Travel business during
2021, with UK-only cruises and holidays operating from July 2021, and a return
to international cruises from the end of August 2021 and international tours
from September 2021. The Travel business has continued to operate since,
despite the increased disruption from the emergence of the Omicron variant in
November 2021.
The Group announced at the end of January 2022 its plans to restructure the
operations of its Travel business. The Saga Holidays and Titan Travel
operations are being combined to maximise efficiency in touring, where the
product offerings are highly complementary, and to create a new hotel stay
proposition to be launched later in 2022. The river cruise product is now
being managed by the Cruise management team, who have a demonstrable track
record of operating the ocean cruise product successfully in a COVID-safe
environment. These actions place the Travel business in a strong position as
travel restrictions ease and customer demand continues to recover.
As in the prior year, the Insurance business' ability to trade continues to be
largely unaffected by COVID-19, with resilient earnings in the Retail Broking
business and some positive impacts on motor claims frequency during the first
half of 2021 when the UK population was in lockdown. The Insurance business
has also successfully implemented changes to pricing in line with the
requirement of the regulations imposed by the FCA following its market study
into insurance pricing, which came into force on 1 January 2022.
In the latest round of long-term financial forecasting, the Group updated its
modelling assumptions to reflect:
· In the base case, which represents the Group's central plan and
best estimate outlook, Cruise continues to see some impact of COVID-19 in the
first half of 2022/23, with reduced load factors and higher return to service
costs, but then largely returns to normal operation thereafter. The Tour
Operations business is targeting to break even in 2022/23 and then return to
pre-pandemic contribution levels from 2023/24, with a lower overhead cost base
following completion of the recently announced restructuring plans. Insurance
plans include an estimate of the impact of the FCA market study on customer
pricing, which is expected to have an adverse impact on profit before tax for
2022/23 and 2023/24.
· In the RWC, which represents the Group's severe, but plausible,
downside scenario, Cruise assumes a layup of both ships for a further
two-month period during 2022/23 due to further potential travel restrictions,
and with suppressed load factors for the remainder of 2022/23 and 2023/24,
capped at 75% and 80% for each year respectively. Tour Operations also sees a
much slower recovery from 2023/24 onwards than in the base case. Insurance is
assumed to be impacted by a number of downside risks, including a more
conservative outlook for the impact of the FCA market study compared with base
case assumptions.
The Group has made an initial assessment of the potential impact that the
Russia-Ukraine conflict could have on its outlook, and potential downsides are
considered to be limited to short-term reductions to Travel bookings and
inflationary pressures that are sufficiently covered by the assumptions within
the base case and RWC.
26 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
The Group has concluded discussions with its Cruise lenders to amend the
covenants on the two ship debt facilities as set out in the table below. This
is to ensure we have significant headroom against all scenarios modelled. As
part of the modelling, the Group considered its compliance with the
maintenance covenants attached to its banking facilities, which are summarised
in the following table at each of the required testing dates:
Ship debt facilities RCF
EBITDA to debt repayment EBITDA to cash interest Net debt to EBITDA EBITDA to cash interest Cruise intercompany debt cap
(leverage) (interest cover)
(minimum) (minimum) (maximum) (minimum) (maximum)
31 July 2022 1.0x 1.7x 3.75x 2.0x £115m
31 January 2023 1.0x 2.0x 3.75x 2.5x £115m
31 July 2023 1.0x 2.0x 3.00x 3.5x £115m
31 January 2024 1.0x 2.0x 3.00x 3.5x £115m
31 July 2024 onwards 1.2x 2.0x 3.00x 3.5x £115m
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.
Under the terms of the RCF, dividends also remain restricted if leverage
(excluding the Cruise debt) is above 3.0x and the Group remains subject to a
minimum liquidity requirement of £40m, which can be met either through cash
or undrawn and committed facilities (such as the RCF itself). The terms also
include a requirement to repay the RCF on 1 March 2024 if the remaining £150m
of bond notes that are due to mature in May 2024 have not been redeemed prior
to this date. The RCF is expected to remain undrawn in both scenarios for the
foreseeable future, and it can be cancelled with immediate effect at any
point, which would remove all covenants attached to it.
The new unsecured bond that is due to mature in July 2026 includes an
event-based fixed charge covenant ratio, of 2.0x EBITDA, which must be
satisfied if, and when, the Group intends to issue new debt. The Group has no
plans to issue any new debt. The definition of this covenant is comparable to
the interest cover covenant within the RCF.
In both the scenarios modelled, the Group expects to be able to operate within
its debt covenants and to maintain ample Available Cash(27) reserves until at
least September 2023, being 18 months from the date of signing the financial
statements, which more than accommodates the minimum 12-month assessment
period for going concern. The Directors therefore have a reasonable
expectation that the Group will continue to trade through the continued
COVID-19 disruption and will have sufficient liquidity for at least the next
12 months, and accordingly have prepared the financial statements on a going
concern basis.
26 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
27 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Dividends and financial priorities for 2022/23
Dividends
Given the Group's priority of reducing net debt, the Board of Directors does
not recommend payment of a final dividend for the 2021/22 financial year, nor
would this currently be permissible during the period of the ship debt
repayment holiday.
Financial priorities for 2022/23
The Group's financial priorities for the current financial year are to reduce
net debt, build on the already positive load factor and per diems in Cruise,
complete the restructure of the Tour Operations business, and to continue
progress in execution of its Insurance strategy. Given the continued
uncertainty arising from COVID-19, the Group is not providing any earnings
guidance for the 2022/23 financial year but would expect a return to profit
in both the base case and RWC scenarios.
Principal risks and uncertainties (PRUs)
The PRUs shown below are the principal risks facing the Company, including
those that would threaten its business model, future performance, solvency, or
liquidity. The table also includes the mitigating actions being taken to
manage these risks. The risk exposure outlook denotes the anticipated future
direction of each risk after mitigation, which is influenced by known key
external or internal factors. Saga takes a 'bottom-up' and 'top-down' approach
to developing and reviewing its PRUs, which occurs at least twice a year with
oversight from Executive Management and the plc Board. Each PRU has been
aligned to the most relevant strategic priorities.
Key to growth plan elements
1 Maximise our existing businesses
2 Step-change our ability to scale while reducing
debt
3 Create 'The Superbrand' for older people
Risk Mitigation Risk exposure outlook Link to
growth plan
Macroeconomic uncertainty
Heightened economic uncertainty arising from the Russian invasion of Ukraine Ongoing monitoring of the risks with agility to adapt quickly to changes in Worsening (externally driven) 1,2,3
leading to higher-than-expected inflation, delays in the supply chain, market conditions; strong cash position
increased risk or decrease in demand for Saga's travel products.
Group-wide
COVID-19 pandemic
Continuation of COVID-19, or emergence of variants thereof, threatens the Completion of capital restructuring and continuation of remote working Improving 1,2,3
financial resilience of the Group or viability of the Travel business. capability that is now integrated into our hybrid working model.
Group-wide
Cybercrime
Cyber security breach resulting in system lockdown, ransom demands and/or Continued investment in industry-leading tools and technologies to mitigate Worsening (externally driven) 1
compromise of confidential and/or personal data. cyber attacks, industry benchmarking and external penetration tests.
Continued programme of colleague awareness to identify and prevent cyber
threats and decommissioning of legacy systems, reducing our footprint of Group-wide
potential system targets.
Delivery and execution
Key business change initiatives fail to be delivered effectively, or at all, Robust project governance covering how significant changes are prioritised and Improving 1,3
due to one, or a combination of, the following: delivered, with close oversight from the ELT and Board with 2(nd) and 3(rd)
line assurance conducted for the change initiatives carrying the greatest
· Resource capability or capacity risk.
Group-wide
· Unexpected business as usual risk issues
· New regulation
· Material defects in the delivery
Capability
Our strategy and purpose have created a new demand for capability to deliver Increased focus on talent management, recruitment and succession planning. Worsening (externally driven) 1,2,3
the five-year plan, which requires new investment, leadership commitment and Reset learning programme and embedding a new reward framework that drives
learning culture. There is a risk that this step-change is not achieved. colleague performance and aligns to delivering fair customer outcomes.
Group-wide
Saga brand and relevance
The Saga brand and its products do not appeal sufficiently to our target Following the brand relaunch in 2021, we acquired The Big Window Consulting Improving 3
customer group resulting in loss of appeal and market share. Limited, an agency that specialises in understanding our target consumer
demographic. This allows us to prioritise products and services that most
appeal to our customers, with specific focus on identification and resolution
of pain points throughout the customer journey. Group-wide
Regulatory landscape
Risk of customer harm because of our actions/in-action or failure to implement Successful delivery of Financial Conduct Authority (FCA) changes. Continued Stable 1,2
regulatory change correctly. focus on effective risk management aligned to our values and strategy
alongside 1(st) line control testing within trading entities. Horizon scanning
reports produced to identify upcoming regulatory changes and necessary action.
Group-wide
Operational resilience
Failure in critical services or operations and inability to recover within Enhancements to technology and infrastructure, including replacement of legacy Stable 1,2,3
defined parameters, made more complex by remote working arrangements. platform through which colleagues access our systems. Delivery of an
Operational Resilience programme to meet FCA requirements. Change governance
ensures system changes are delivered within risk appetite.
Group-wide
Environmental, Social and Governance (ESG)
Failure to keep pace with increasing regulation around carbon emissions,
coupled with industry and societal pressures causes reputational, or financial
damage. New cruise ships built in line with latest regulations and can operate to Stable 1,2,3
near-zero sulphur oxide and nitrogen oxide exhaust emissions. Our ESG strategy
will be fully developed and integrated into our risk framework during 2022.
Group-wide
Third-party suppliers
Reputational impact, business interruption and financial losses arising from Third-party risk management ensures an appropriate risk-based approach for Stable 1,3
the failure of key third parties to deliver required standards. selecting third-party partners, for overseeing their performance and for their
operational and financial resilience.
Group-wide
Fraud and financial crime
Increased risk of internal or external fraud and financial crime driven by 2(nd) line and 3(rd) line assurance reviews conducted with no significant Stable 1
remote working and macroeconomic conditions. issues identified. Ongoing monitoring of claims fraud in place, reinforced by
colleague awareness communications. Operation of effective internal controls
subject to regular testing and oversight.
Insurance and Personal Finance
Saga's Speak Up process enhanced, with regular data monitoring in place.
Insurance risk
Exposure to reserving, premium and large or catastrophic claims risk through The use of coinsurance and reinsurance across underwritten business. Ensuring Improving 1
our underwriter, Acromas Insurance Company Limited. This may lead to claims reserves are set with sufficient margin to cover uncertainty.
insufficient claims reserves, higher losses than anticipated due to large or Investment in advanced analytics across pricing and claims.
catastrophic loss events or premiums being insufficient to cover claims and
other costs arising. Insurance
Breach of Data Protection Act 2018/UK General Data Protection Regulation
Failure to understand data privacy regulation and take reasonable steps to
ensure personal data can be managed in line with customer expectations.
Prioritisation of projects to improve effective data management, coupled with Stable 1,2,3
simplification of our technology estate and strengthening of our Data Privacy
Team and capabilities.
Group-wide
Consolidated income statement
for the year ended 31 January 2022
Note 2022 2021
£'m £'m
Gross earned premiums 3 203.0 221.7
Earned premiums ceded to reinsurers 3 (123.8) (142.8)
Net earned premiums 3 79.2 78.9
Other revenue 298.0 258.7
Total revenue 3 377.2 337.6
Gross claims incurred (94.6) (117.6)1 (#_ftn4)
Reinsurers' share of claims incurred 63.3 99.4(1)
Net claims incurred (31.3) (18.2)
Decrease in credit loss allowance 8.3 5.5
Other cost of sales (120.3) (87.5)
Total cost of sales 3 (143.3) (100.2)
Gross profit 233.9 237.4
Administrative and selling expenses (212.8) (224.2)
Impairment of assets (11.2) (65.0)
Gain on lease modification 11 0.3 3.2
Net profit on disposal of assets held for sale and businesses 19, 7 7.2 8.6
Net (loss)/profit on disposal of property, plant and equipment, right-of-use (0.4) 6.6
assets and software
Investment income 0.3 0.7
Finance costs (40.8) (30.2)
Finance income - 1.7
Loss before tax (23.5) (61.2)
Tax expense 4 (4.5) (6.6)
Loss for the year (28.0) (67.8)
Attributable to:
Equity holders of the parent (28.0) (67.8)
Loss per share:
Basic 6 (20.1p) (67.0p)
Diluted 6 (20.1p) (67.0p)
1 Gross claims incurred and reinsurers' share of claims incurred for the year
ended 31 January 2021 have been restated due to an incorrect allocation
between these classifications. Gross claims incurred have decreased by £13.8m
and reinsurers' share of claims incurred has decreased by £13.8m
Consolidated statement of comprehensive income
for the year ended 31 January 2022
2022 2021
£'m £'m
Loss for the year (28.0) (67.8)
Other comprehensive income
Other comprehensive income to be reclassified to income statement in
subsequent years
Net gains on hedging instruments during the year 2.1 22.3
Recycling of previous gains to income statement on matured hedges (1.2) (2.5)
Total net gains on cash flow hedges 0.9 19.8
Associated tax effect 0.3 (3.5)
Net (losses)/gains on fair value financial assets during the year (10.3) 3.2
Recycling of previous losses to income statement on fair value financial 0.1 -
assets during the year
Total net (losses)/gains on fair value financial assets during the year (10.2) 3.2
Associated tax effect 2.1 (0.8)
Total other comprehensive (losses)/gains with recycling to income statement (6.9) 18.7
Other comprehensive income not to be reclassified to income statement in
subsequent years
Re-measurement gains/(losses) on defined benefit plans 4.8 (1.2)
Associated tax effect (1.2) 0.2
Total other comprehensive gains/(losses) without recycling to income statement 3.6 (1.0)
Total other comprehensive (losses)/gains (3.3) 17.7
Total comprehensive losses for the year (31.3) (50.1)
Attributable to:
Equity holders of the parent (31.3) (50.1)
Consolidated statement of financial position
as at 31 January 2022
Note 2022 2021
Assets £'m £'m
Goodwill 8 718.6 718.6
Intangible assets 9 47.1 56.6
Retirement benefit scheme surplus 14 1.1 -
Property, plant and equipment 10 646.5 660.2
Right-of-use assets 11 36.0 2.8
Financial assets 12 332.1 359.8
Current tax assets 4.3 3.1
Deferred tax assets 4 12.3 12.5
Reinsurance assets 15 65.4 71.6
Inventories 6.3 3.5
Trade and other receivables 169.5 183.1
Trust accounts 23.4 22.4
Cash and short-term deposits 13 226.9 101.6
Assets held for sale 10, 19 12.9 16.9
Total assets 2,302.4 2,212.7
Liabilities
Retirement benefit scheme obligations 14 - 4.3
Gross insurance contract liabilities 15 386.7 426.3
Provisions 6.7 11.7
Financial liabilities 12 936.2 826.6
Deferred tax liabilities 4 5.6 5.8
Contract liabilities 114.6 82.2
Trade and other payables 199.7 175.1
Total liabilities 1,649.5 1,532.0
Equity
Issued capital 17 21.1 21.0
Share premium 648.3 648.3
Retained earnings (22.4) 0.2
Share-based payment reserve 7.4 5.8
Fair value reserve (0.8) 7.3
Hedging reserve (0.7) (1.9)
Total equity 652.9 680.7
Total equity and liabilities 2,302.4 2,212.7
Consolidated statement of changes in equity
for the year ended 31 January 2022
Attributable to the equity holders of the parent
Share premium Retained earnings Share-based payment reserve Fair value reserve Hedging reserve Total
Issued capital
£'m £'m £'m £'m £'m £'m £'m
At 1 February 2021 21.0 648.3 0.2 5.8 7.3 (1.9) 680.7
Loss for the year - - (28.0) - - - (28.0)
Other comprehensive income/(losses) excluding recycling - - 3.6 - (8.2) 3.3 (1.3)
Recycling of previous losses/(gains) to income statement - - - - 0.1 (2.1) (2.0)
Total comprehensive (losses)/income - - (24.4) - (8.1) 1.2 (31.3)
Issue of share capital (Note 17) 0.1 - - - - - 0.1
Share based payment charge (Note 18) - - - 3.4 - - 3.4
Exercise of share options - - 1.8 (1.8) - - -
At 31 January 2022 21.1 648.3 (22.4) 7.4 (0.8) (0.7) 652.9
At 1 February 2020 11.2 519.3 65.4 7.8 4.9 (20.4) 588.2
Loss for the year - - (67.8) - - - (67.8)
Other comprehensive (losses)/income excluding recycling - - (1.0) - 2.4 18.4 19.8
Recycling of previous gains to income statement - - - - - (2.1) (2.1)
Total comprehensive (losses)/income - - (68.8) - 2.4 16.3 (50.1)
Recognition of non-financial asset from hedging reserve (Note 12) - - - - - 2.2 2.2
Dividends paid (Note 5) - - (0.1) - - - (0.1)
Issue of share capital (Note 17) 9.8 140.6 - - - - 150.4
Transaction costs associated with issue of share capital - (11.6) - - - - (11.6)
Share based payment charge (Note 18) - - - 2.4 - - 2.4
Exercise of share options - - 3.7 (4.4) - - (0.7)
At 31 January 2021 21.0 648.3 0.2 5.8 7.3 (1.9) 680.7
Consolidated statement of cash flows
for the year ended 31 January 2022
Note 2022 2021
£'m £'m
Loss before tax (23.5) (61.2)
Depreciation, impairment and loss on disposal, of property, plant and 22.2 14.9
equipment and right-of-use assets
Amortisation and impairment of intangible assets, and loss on disposal of 20.6 72.5
software
Impairment of assets held for sale 19 1.0 -
Gain on lease modification (0.3) (3.2)
Share-based payment transactions 3.4 2.4
Profit on disposal of assets held for sale 19 (7.2) (12.2)
Loss on disposal of subsidiaries - 3.6
Finance costs 40.8 30.2
Finance income - (1.7)
Interest income from investments (0.3) (0.7)
Increase in trust accounts (1.0) (22.4)
Movements in other assets and liabilities 29.3 (66.5)
85.0 (44.3)
Interest received 0.3 0.7
Interest paid (34.2) (24.1)
Income tax paid (4.6) (10.7)
Net cash flows from/(used in) operating activities 46.5 (78.4)
Investing activities
Proceeds from sale of property, plant and equipment, and right-of-use assets 0.3 8.3
Net proceeds from disposal of assets held for sale 19 10.2 -
Purchase of and payments for the construction of property, plant and (18.9) (285.1)
equipment, and intangible assets
Net disposal of financial assets (18.9) 41.9
Disposal of subsidiaries, net of cash in businesses disposed of 7 - 23.1
Net cash flows used in investing activities (27.3) (211.8)
Financing activities
Payment of principal portion of lease liabilities (3.6) (4.0)
Proceeds from borrowings 250.0 330.8
Repayment of borrowings (170.0) (130.0)
Debt issue costs (6.8) (17.4)
Proceeds from issue of share capital 17 - 150.3
Transaction costs associated with issue of share capital - (11.6)
Dividends paid - (0.1)
Net cash flows from financing activities 69.6 318.0
Net increase in cash and cash equivalents 88.8 27.8
Cash and cash equivalents at the start of the year 166.9 139.1
Cash and cash equivalents at the end of the year 13 255.7 166.9
Notes to the consolidated 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
8804263). The Company is registered in England and its registered office is
located at Enbrook Park, Folkestone, Kent, CT20 3SE.
The consolidated financial statements of Saga plc and the entities controlled
by the Company (its subsidiaries, collectively Saga Group or the Group) for
the year ended 31 January 2022 were approved for issue by the Board of
Directors on 22 March 2022 and will be made available on the Company's website
in due course.
2.1 Basis of preparation
The results in this preliminary announcement have been taken from the Group's
2022 Annual Report and Accounts. The consolidated financial statements of the
Group have been prepared in accordance with UK-adopted international
accounting standards.
The basis of preparation, basis of consolidation and summary of significant
accounting policies applicable to the Group's consolidated financial
statements will be published in the Notes to the consolidated financial
statements in the 2022 Annual Report and Accounts.
The consolidated financial statements have been prepared on a going concern
basis. The Group has reviewed the appropriateness of the going concern basis
in preparing the financial statements, particularly in light of the COVID-19
pandemic, details of which are included below. Based on those assumptions, the
Directors have concluded that it remains appropriate to adopt the going
concern basis in preparing the financial statements.
The preliminary announcement for the year ended 31 January 2022 does not
constitute statutory accounts as defined in Section 434 of the Companies Act
2006. The consolidated financial statements for the full year ended 31 January
2022 and 31 January 2021 have been audited by KPMG LLP (KPMG). Their report
was unqualified and did not contain any statement under Section 498(2) or
Section 498(3) of the Companies Act 2006.
Going concern and liquidity
The Directors have considered the appropriateness of the going concern basis
of preparation for the financial statements prepared to 31 January 2022 and,
in doing so, have considered a range of possible scenarios that factor in the
potential ongoing impact of the COVID-19 pandemic and other key risks and
uncertainties.
The Group's business activities, together with the factors likely to affect
its future development and performance, its exposure to risk and its
management of these risks, details of its financial instruments and derivative
activities, and details of other financial and non-financial liabilities, are
described throughout the Annual Report (see principal risks and uncertainties;
Group Chief Financial Officer's Review; Audit, risk and internal control;
Audit Committee Report; Risk Committee Report; and Notes). As a consequence,
the Directors believe that the Group is well-placed to successfully manage its
business risks.
The impact of COVID-19 over the past two years has increased the level of
uncertainty and earnings volatility for the Group, as it has done for many
businesses, and particularly for the Group's Travel business. Since the start
of the pandemic in the first half of 2020, the Group has increased the
frequency and depth of its long-term financial forecasting and scenario
modelling to allow the Directors to take appropriate action to ensure the
ongoing liquidity and solvency of the business.
Over this period, the Group has undertaken a series of transactions to
restructure its operations and capital structure. The Group's balance sheet
has been strengthened to allow it to withstand a further period of uncertainty
that may be faced in 2022 and beyond. The most notable of these transactions
were the raising of £138.7m of net proceeds from the issuance of new equity
shares in September 2020, followed by the issuance of a new £250.0m unsecured
fixed-rate five-year bond in July 2021. These actions allowed the Group to
fully repay its senior secured bank debt facilities, bolster Available Cash(2)
reserves, which were £186.6m as at 31 January 2022, increase financial
flexibility and extend the maturity profile of Group debt. On its ship debt
facilities, the Group deferred a number of capital repayments and there is a
covenant testing holiday on these facilities until 31 July 2022.
2 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Notes to the consolidated financial statements (continued)
2.1 Basis of preparation (continued)
Going concern and liquidity (continued)
The Group successfully recommenced operations in its Travel business during
2021, with UK-only cruises and holidays operating from July 2021, and a return
to international cruises from the end of August 2021 and international tours
from September 2021. The Travel business has continued to operate since,
despite the increased disruption from the emergence of the Omicron variant in
December 2021.
The Group announced at the end of January 2022 its plans to restructure the
operations of its Travel business. The Saga Holidays and Titan Travel
operations are being combined to maximise efficiency in touring, where the
product offerings are highly complementary, and to create a new hotel stay
proposition to be launched later in 2022. The river cruise product is now
being managed by the Cruise management team, who have a demonstrable track
record of operating the ocean cruise product successfully in a COVID-safe
environment. These actions place the Travel business in a strong position as
travel restrictions ease and customer demand continues to recover.
As in the prior year, the Insurance business' ability to trade continues to be
largely unaffected by COVID-19, with resilient earnings in the Retail Broking
business and some positive impacts on motor claims frequency during the first
half of 2021 when the UK population was in lockdown. The Insurance business
has also successfully implemented changes to pricing in line with the
requirement of the regulations imposed by the Financial Conduct Authority
(FCA) following its market study into insurance pricing, which came into force
on 1 January 2022.
In the latest round of long-term financial forecasting, the Group updated its
modelling assumptions to reflect:
• In the base case, which represents the Group's central plan and best
estimate outlook, Cruise continues to see some impact of COVID-19 in the first
half of 2022/23, with reduced load factors and higher return to service costs,
but then largely returns to normal operation thereafter. The Tour Operations
business is targeting to break even in 2022/23 and then return to pre-pandemic
contribution levels from 2023/24, with a lower overhead cost base following
completion of the recently announced restructuring plans. Insurance plans
include an estimate of the impact of the FCA market study on customer pricing,
which is expected to have an adverse impact on profit before tax for 2022/23
and 2023/24.
• In the reasonable worst-case (RWC), which represents the Group's severe,
but plausible, downside scenario, Cruise assumes a layup of both ships for a
further two-month period during 2022/23 due to further potential travel
restrictions, and with supressed load factors for the remainder of 2022/23 and
2023/24, capped at 75% and 80% for each year respectively. Tour Operations
sees a much slower recovery from 2023/24 onwards than in the base case.
Insurance is assumed to be impacted by a number of downside risks, including a
more conservative outlook for the impact of the FCA market study compared with
base case assumptions
The Group has made an initial assessment of the potential impact that the
Russia-Ukraine conflict could have on its outlook, and potential downsides are
considered to be limited to short-term reductions to Travel bookings and
inflationary pressures that are sufficiently covered by the assumptions within
the base case and RWC.
The Group concluded discussions with its Cruise lenders to amend the covenants
on the two ship debt facilities as set out in the table below. This is to
ensure we have significant headroom against all scenarios modelled. As part of
the modelling, the Group considered its compliance with the maintenance
covenants attached to its banking facilities, which are summarised in the
following table at each of the required testing dates:
Ship debt facilities RCF
EBITDA to debt repayment EBITDA to cash interest Net debt to EBITDA EBITDA to cash interest Cruise intercompany debt cap
(leverage) (interest cover)
(minimum) (minimum) (maximum) (minimum) (maximum)
31 July 2022 1.0x 1.7x 3.75x 2.0x £115m
31 January 2023 1.0x 2.0x 3.75x 2.5x £115m
31 July 2023 1.0x 2.0x 3.00x 3.5x £115m
31 January 2024 1.0x 2.0x 3.00x 3.5x £115m
31 July 2024 onwards 1.2x 2.0x 3.00x 3.5x £115m
Notes to the consolidated financial statements (continued)
2.1 Basis of preparation (continued)
Going concern and liquidity (continued)
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. Under the terms of the revolving credit
facility (RCF), dividends also remain restricted if leverage is above 3.0x
(excluding Cruise debt) and the Group remains subject to a minimum liquidity
requirement of £40.0m, which can be met either through cash or undrawn and
committed facilities (such as the RCF itself). The terms also include a
requirement to repay the RCF on 1 March 2024 if the remaining £150.0m of bond
notes that are due to mature in May 2024 have not been redeemed prior to this
date. The RCF is expected to remain undrawn in both scenarios for the
foreseeable future, and it can be cancelled with immediate effect at any
point, which would remove all covenants attached to it.
The new unsecured bond that is due to mature in July 2026 includes an
event-based fixed charge covenant ratio, of 2.0x EBITDA, which must be
satisfied if, and when, the Group intends to issue new debt. The Group has no
current plans to issue any new debt. The definition of this covenant is
comparable to the interest cover covenant within the RCF.
In both scenarios modelled, the Group expects to be able to operate within all
of its debt covenants and to maintain 8Fsufficient liquidity until at least
September 2023, being 18 months from the date of signing the financial
statements, which more than accommodates the minimum 12-month assessment
period for going concern. The Directors therefore have a reasonable
expectation that the Group will continue to trade through the continued
COVID-19 disruption and will have sufficient liquidity for at least the next
12 months, and accordingly have prepared the financial statements on a going
concern basis.
2.2 Summary of significant accounting policies
There have been no significant changes to the accounting policies of the Group
during the year ended 31 January 2022. Full details of the accounting policies
of the Group will be published in the Annual Report and Accounts for the year
ended 31 January 2022 available at www.corporate.saga.co.uk
(http://www.corporate.saga.co.uk) .
2.3 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 January 2022. Except where
separately disclosed, these standards are yet to be endorsed by the UK
Endorsement Board.
i. IFRS 17 'Insurance Contracts'
IFRS 17 is a comprehensive new accounting standard that applies to all
insurance and reinsurance contracts covering the principles of recognition and
measurement, financial statement presentation and disclosure. It was issued in
May 2017 and establishes a principles-based accounting approach for insurance
contracts that will replace IFRS 4 'Insurance Contracts'. 'Amendments to IFRS
17' was issued in June 2020 and amends IFRS 17 to address concerns and
implementation challenges that were identified after IFRS 17 'Insurance
Contracts' was published. The standard is effective for annual reporting
periods beginning on or after 1 January 2023, so it becomes effective for the
Group from 1 February 2023. It is expected to have a material impact on the
Group's financial statements as it represents a significant change to current
insurance and reinsurance accounting requirements.
The Group has been undertaking a multi-year project to prepare for the
adoption of the new standard and has now largely concluded the technical
analysis required to appraise the impact that this will have on the Group's
financial statements. As a general insurer only, the Group is expecting to be
able to apply the simplified premium allocation approach permitted by the
standard, instead of the more complex general measurement model. As such, the
recognition and measurement of premium income is expected to remain largely
unchanged from current accounting. The only potential significant change to
earnings that is expected is the need to accelerate any anticipated future
losses from unexpired risks from the new onerous contract assessment required
under the new standard, although the Group does not anticipate that there will
be the need to recognise any significant level of such onerous contract
losses.
Notes to the consolidated financial statements (continued)
2.3 Standards issued but not yet effective (continued)
i. IFRS 17 'Insurance contracts' (continued)
The recognition and measurement of insurance contract liabilities in relation
to coverage provided before the statement of financial position date, now
referred to as the liability for incurred claims, is likely to change
significantly under the new standard. The Group expects to more closely align
its measurement of the actuarial best estimate of claims liabilities for
financial reporting to the principles of Solvency II, with a change to the
application of discounting and the derivation of an appropriate discount rate
in line with the requirements of the new standard. The derivation of the
reserve margin held for uncertainty above the actuarial best estimate, now
referred to as the risk adjustment, will also change, and will be based on
selecting an appropriate confidence interval using the expected loss
distribution for outstanding claims.
The Group is still assessing whether to exercise the option to expense
acquisition costs immediately and the option to recognise discount rate
movements through other comprehensive income (OCI). The Group intends to
finalise its view of these, and the approach to all of the key judgements and
estimates, towards the end of the calendar year 2022.
The standard is also expected to have a significant impact on the presentation
of the Group's financial statements, particularly the Group's income
statement, where the description of line items will change, and the
recognition of certain transactions will be reflected within different line
items to the ones they are now. The standard will also require new and changes
to existing disclosure notes in relation to insurance and reinsurance
contracts.
ii. 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 2023 and are not likely to have a material effect on the
Group's financial statements.
iii. Reference to the Conceptual Framework (amendments to IFRS 3)
The amendments update an outdated reference to the Conceptual Framework in
IFRS 3 without significantly changing the requirements in the standard. The
amendment is effective for annual reporting periods beginning on or after 1
January 2022 and apply prospectively. The amendment will have no effect on the
Group's financial statements.
iv. Property, plant and equipment - proceeds before intended use
(amendments to IAS 16)
The amendments prohibit deducting from the cost of an item of property, plant
and equipment any proceeds from selling items produced while bringing that
asset to the location and condition necessary for it to be capable of
operating in the manner intended by management. Instead, an entity recognises
the proceeds from selling such items, and the cost of producing those items,
in profit or loss. The amendments are effective for annual reporting periods
beginning on or after 1 January 2022. The amendments are not expected to have
a material impact on the Group's financial statements.
v. Onerous contracts - cost of fulfilling a contract (amendments to
IAS 37)
The amendments specify that the ''cost of fulfilling'' a contract comprises
the ''costs that relate directly to the contract''. Costs that relate directly
to a contract can either be incremental costs of fulfilling that contract
(examples would be direct labour and materials) or an allocation of other
costs that relate directly to fulfilling contracts (an example would be the
allocation of the depreciation charge for an item of property, plant and
equipment used in fulfilling the contract). The amendments are effective for
annual reporting periods beginning on or after 1 January 2022. The amendments
are not expected to have a material impact on the Group's financial
statements.
vi. Annual improvements to IFRS 2018-2020
Makes minor amendments to the following standards: IFRS 1, IFRS 9, IFRS 16 and
IAS 41. The amendments are effective for annual reporting periods beginning on
or after 1 January 2022. The amendments will have no effect on the Group's
financial statements.
Notes to the consolidated financial statements (continued)
2.3 Standards issued but not yet effective (continued)
vii. 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 are not expected to have a material impact on the
Group's financial statements.
viii. Definition of accounting estimates (amendments to IAS 8)
he 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 are not expected
to have a material impact on the Group's financial statements.
ix. COVID-19-related rent concessions beyond 30 June 2021 (amendment to
IFRS 16)
The amendment extends, by one year, the May 2020 amendment that provides
lessees with an exemption from assessing whether a COVID-19-related rent
concession is a lease modification. The amendment is effective for annual
reporting periods beginning on or after 1 April 2021. The amendment has been
endorsed by the UK Endorsement Board. The Group does not intend to take
advantage of the exemption available under this amendment. The amendment will
have no effect on the Group's financial statements.
x. 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 are not expected to have a material impact on the Group's financial
statements.
2.4 First time adoption of new standards and amendments
The Group has adopted 'Interest rate benchmark reform - phase 2 (amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)' during the year. These
amendments, issued in August 2020, introduce a practical expedient for
modifications required by the reform, clarify that hedge accounting is not
discontinued solely because of the inter-bank offered rate (IBOR) reform, and
introduce disclosures that allow users to understand the nature and extent of
risks arising from the IBOR reform to which the entity is exposed, how the
entity manages those risks, the entity's progress in transitioning from IBORs
to alternative benchmark rates and how the entity is managing this transition.
The amendments are effective for annual reporting periods beginning on or
after 1 January 2021.
In the UK, the London Interbank Offered Rate (LIBOR) was replaced by the
Sterling Overnight Index Average (SONIA) from the end of 2021. SONIA is based
on actual transactions and reflects the average of the interest rates that
banks pay to borrow pounds sterling overnight from other financial
institutions and other institutional investors. The amendments have not had a
material impact on the Group's financial statements.
Subsequent to these amendments being adopted, (a) 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 (Note 16); (b)
interest payable on the Group's cruise ship debt deferrals is incurred at a
variable rate of SONIA plus a bank margin (Note 16); and (c) interest return
on floating rate investments held by the Group's insurance underwriting
business is linked to SONIA (Note 11).
The adoption of these amendments has had no impact on the Group's hedge
accounting. In addition, no additional risks have arisen from the IBOR reform
which the Group would be exposed to.
Notes to the consolidated financial statements (continued)
2.5 Significant accounting judgements, estimates and assumptions
The preparation of financial statements requires the Group to select
accounting policies and make estimates and assumptions that affect items
reported in the primary consolidated financial statements and notes to the
consolidated financial statements.
The major areas of judgement used as part of accounting policy application are
summarised below:
Significant judgements
Acc. policy Items involving judgement Critical accounting judgement
2.3a Revenue recognition - identification of performance obligations within Identification of performance obligations within insurance contracts with
insurance contracts not underwritten by the Group customers. In particular, management has exercised judgement in defining
separate performance obligations as part of the Group's insurance broking
services, namely:
· the option to fix the customer's premium at renewal for
three-year fixed-price insurance policies, which results in the deferral of a
portion of revenue from policy years one and two to policy years two and
three; and
· the arrangement of each insurance policy at the point the
insurance cover is arranged, as separate from the premium charged in respect
of the insurance cover, which occurs on or before the cover start date of each
policy and results in a portion of revenue being recognised a number of days
in advance of the cover start date.
Please refer to Note 2.3a of the Annual Report and Accounts for the year ended
31 January 2022 for further information on the Group's performance obligations
relating to revenue recognition.
2.3ai, 2.3r and 2.3s Classification of insurance contracts Management has exercised judgement in defining which insurance policies that
it arranges and underwrites constitute an insurance policy that is subject to
the accounting principles of IFRS 4. This assessment is based on whether
significant insurance risk is transferred under each insurance contract and
also includes the assessment of reinsurance contracts that the Group enters
into.
Policies that are arranged and not underwritten by the Group, primarily a
portion of the motor and home insurance panels, private medical insurance and
travel insurance, are not deemed to constitute insurance policies as defined
by IFRS 4, and so they are accounted for in line with the principles of IFRS
15.
Policies that are both arranged and underwritten by the Group, primarily a
portion of the motor and home insurance panels, are deemed to constitute
insurance policies as defined by IFRS 4 and so are accounted for in line with
the requirements of that standard.
The Group's excess of loss and funds-withheld quota share reinsurance
arrangements relating to its motor underwriting line of business are deemed to
transfer significant insurance risk to the reinsurer, and so they are also
accounted for in line with the requirements of IFRS 4.
Notes to the consolidated financial statements (continued)
2.5 Significant accounting judgements, estimates and assumptions (continued)
Significant judgements (continued)
Acc. policy Items involving judgement Critical accounting judgement
2.3h Impairment testing of goodwill and other major classes of assets Following the continued impact of the COVID-19 pandemic on the Group's
operations, particularly in Travel, management concluded that indicators of
impairment exist and conducted impairment reviews at 31 January 2022, 31 July
2021 and 31 January 2021 of the Group's two cruise ships, Spirit of Discovery
and Spirit of Adventure. Management has considered a range of scenarios and
used its judgement to conclude that no impairment was necessary. Please refer
to Note 17a for further detail.
Given the delay in taking delivery of the river cruise ship, Spirit of the
Rhine, along with the ongoing adverse impacts of the COVID-19 pandemic on the
wider travel industry, management concluded that indicators of impairment
exist and deemed it necessary to conduct an impairment review of the vessel at
31 January 2022. Management has considered a range of scenarios and used its
judgement to conclude no impairment was necessary. Please refer to Note 18a
for further detail.
The Group determines whether goodwill needs to be impaired on an annual basis,
or more frequently as required.
In the year to 31 January 2022, management did not deem it necessary to impair
goodwill.
In the year to 31 January 2021, management deemed it necessary to impair the
goodwill allocated to the Cruise and Tour Operations cash generating units
(CGUs) in full.
Following the continued impact of the COVID-19 pandemic on the travel
industry, management decided to restructure the Group's Tour Operations CGU.
In light of this exercise, management has exercised its judgement in relation
to the impairment of software assets and performed an impairment review of
software assets used by the Tour Operations business.
In the year to 31 January 2021, in light of the Group's decision to vacate
most of its properties, management exercised its judgement in relation to the
impairment of the freehold land and buildings.
In the year to 31 January 2022, in light of the Group obtaining updated
freehold property market valuation reports, management exercised its judgement
in relation to the impairment of the assets held for sale. Please refer to
Note 38 for further detail.
In the year to 31 January 2021, in relation to the Destinology business,
management also exercised its judgement in relation to the impairment of
property, plant and equipment and right-of-use assets.
2.3r Insurance contract liabilities Judgement as to areas of uncertainty that may give rise to claims costs in
excess of the actuarial best estimate of claims incurred, and the level of
additional reserve margin to recognise in the financial statements above that
estimate.
In the years to 31 January 2022 and 31 January 2021, the Group considered the
additional latency risk to claims cost development caused by the impact of
COVID-19 and recognised an additional claims reserve above actuarial best
estimate to cover this specific risk.
Accounting policy references above are to the Notes to the Annual Report and
Accounts for the year ended 31 January 2022.
Notes to the consolidated financial statements (continued)
2.5 Significant accounting judgements, estimates and assumptions (continued)
Significant estimates
All estimates are based on management's knowledge of current facts and
circumstances, assumptions based on that knowledge and predictions of future
events and actions. Actual results may therefore differ from those estimates.
The table below sets out those items the Group considers susceptible to
changes in critical estimates and assumptions, together with the relevant
accounting policy.
Acc. policy Items involving estimation Sources of estimation uncertainty
2.3ai Revenue recognition - three-year fixed-price insurance policies The stand-alone selling price of the option to fix within the Group's
three-year fixed-price insurance policies has been estimated using the
expected cost plus a margin approach as set out in paragraph 79 (b) of IFRS
15.
An allowance has also been made for the likelihood that the option will be
exercised by factoring in the expected rate of renewal at the first and second
renewal dates. The amount of revenue deferred upon initial recognition is
therefore reduced to the extent that it is estimated that customers will not
exercise the option because they either decide not to renew or they make a
claim that releases the Group from its obligation to fix the customer price.
2.3f & 2.3i Useful economic lives and residual values of software intangible assets and The useful economic lives and residual values of software assets classified as
ocean cruise ships intangible assets (Note 15), and ocean cruise ship assets classified as
property, plant and equipment (Note 17) are assessed upon the capitalisation
of each asset and at each reporting date and are based upon the expected
consumption of future economic benefits of the asset.
2.3h Goodwill impairment testing The Group determines whether goodwill needs to be impaired on an annual basis,
or more frequently as required. This requires an estimation of the
value-in-use of the CGUs to which goodwill is allocated. The value-in-use
calculation requires the Group to estimate the future cash flows expected to
arise from the CGUs, discounted at a suitably risk-adjusted rate to calculate
present value.
In the prior year, the outcome of the impairment reviews concluded that an
impairment charge of £59.8m be recognised against the Group's Cruise and Tour
Operations CGUs, effectively writing them down to nil. This was due to
increased estimation uncertainty in the Tour Operations and Cruise CGUs in
light of the COVID-19 pandemic.
Sensitivity analysis was undertaken to determine the effect of changing the
discount rate, the terminal value and future cash flows on the present value
calculation, which is shown in Note 16a.
Notes to the consolidated financial statements (continued)
2.5 Significant accounting judgements, estimates and assumptions (continued)
Significant estimates (continued)
Acc. policy Items involving estimation Sources of estimation uncertainty
2.3h Impairment of ocean and river cruise ships Following the continued impact of the COVID-19 pandemic on the Group's
operations, management conducted impairment reviews at 31 January 2022, 31
July 2021 and 31 January 2021 of the Group's two ocean cruise ships, Spirit of
Discovery and Spirit of Adventure. Based on these impairment reviews and
looking at the probability of a range of outcomes, the Group remains
comfortable that there is headroom over and above the carrying value of the
two ocean cruise ship assets, and therefore concluded that no impairment
charges were necessary.
Sensitivity analysis was undertaken to determine the effect of changing the
residual value, load factor and useful economic life on the present value
calculation, which is shown in Note 17a.
At 31 January 2022, management conducted an impairment review of its river
cruise ship, Spirit of the Rhine. Based on this review, the Group is
comfortable that there is sufficient headroom over and above the carrying
value of the river cruise ship asset, and therefore concluded that no
impairment charge was necessary.
2.3r Valuation of insurance contract liabilities For insurance contracts, estimates have to be made for the expected cost of
claims known but not yet settled (case reserves) and for the expected cost of
claims incurred but not yet reported (IBNR), as at the reporting date. It can
take a significant period of time before the ultimate claims cost can be
established with certainty.
The ultimate cost of outstanding claims is estimated by using a range of
standard actuarial claims projection techniques, such as the Chain-Ladder and
Bornhuetter-Ferguson methods. The main assumption underlying these techniques
is that past claims development experience can be used to project future
claims development and hence ultimate claims costs. As such, these methods
extrapolate the development of paid and incurred losses, average costs per
claim and claim numbers based on the observed development of earlier years.
Historical claims development is primarily analysed by accident year,
geographical area, significant business line and peril. Additional qualitative
judgement is used to assess the extent to which past trends may not apply in
the future (e.g. to reflect one-off occurrences, changes in external or market
factors such as public attitudes to claiming, economic conditions, levels of
claims inflation, judicial decisions and legislation, as well as internal
factors such as portfolio mix, policy features and claims handling procedures)
in order to arrive at the best estimate of the ultimate cost of claims.
The ultimate cost of claims is not discounted except for those in respect of
periodic payment orders (PPOs), which have been discounted at -1.5% for the
year ended 31 January 2022 (2021: -1.5%). The valuation of these claims
involves making assumptions about the rate of inflation and the expected rate
of return on assets to determine the discount rate. Due to the size of PPO
claims, the ultimate cost is highly sensitive to changes in these assumptions.
The assumptions are reviewed at each reporting date, and the sensitivity of
this assumption is shown in Note 20d.
In calculating the level of reserve margin to recognise above the actuarial
best estimate of incurred claims, the Group considered an array of risks
(including cost inflation) to future claims experience and estimated the
financial impact that those risks could have to derive an appropriate level of
margin to hold. This included an assessment of the magnitude of the claims
latency risk due to the impact of the COVID-19 pandemic.
Notes to the consolidated financial statements (continued)
2.5 Significant accounting judgements, estimates and assumptions (continued)
Significant estimates (continued)
Acc. policy Items involving estimation Sources of estimation uncertainty
2.3u Valuation of pension benefit obligation The cost of defined benefit pension plans and the present value of the pension
obligation are determined using actuarial valuations. Actuarial valuations
involve making assumptions about discount rates, expected rates of return on
assets, future salary increases, mortality rates and future pension increases.
Due to the complexity of the valuation, the underlying assumptions and its
long-term nature, a defined benefit obligation is highly sensitive to changes
in these assumptions. All assumptions are reviewed at each reporting date.
All significant assumptions and estimates involved in arriving at the
valuation of the pension scheme obligation are set out in Note 27.
Accounting policy references above are to the Notes to the Annual Report and
Accounts for the year ended 31 January 2022.
3 Segmental information
For management purposes, the Group is organised into business units based on
their products and services. The Group has three reportable operating segments
as follows:
· Insurance: comprises the provision of general insurance products. Revenue
is derived primarily from insurance premiums and broking revenues. This
segment is further analysed into four product sub-segments:
- Retail Broking, consisting of:
o Motor Broking
o Home Broking
o Other Broking
- Underwriting
The Group classifies the CGU at its lowest level to be
at the Insurance segment level.
· Travel: comprises the operation and delivery of package tours and
cruise holiday products. The Group owns and operates two ocean cruise ships.
All other holiday products are packaged together with third-party supplied
accommodation, flights and other transport arrangements.
· Other Businesses and Central Costs: comprises the Group's other
businesses and its central cost base. The other businesses include the
financial services product offering, a monthly subscription magazine and the
Group's mailing and printing business.
Segment performance is evaluated using the Group's key performance measure of
Underlying (Loss)/Profit Before Tax(3). 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.
Goodwill, corporate bond and bank loans are not allocated to segments as they
are managed on a Group basis.
3 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Insurance
2022 Motor broking Home broking Other insurance broking Under-writing Total Travel Other Businesses and Central Costs Adjustments Total
£'m £'m £'m £'m £'m £'m £'m £'m £'m
Revenue 85.0 60.2 35.3 84.7 265.2 94.7 21.5 (4.2) 377.2
Cost of sales (2.6) - 0.3 (29.9) (32.2) (102.9) (8.2) - (143.3)
Gross profit/(loss) 82.4 60.2 35.6 54.8 233.0 (8.2) 13.3 (4.2) 233.9
Administrative and selling expenses (52.4) (35.0) (24.3) (4.2) (115.9) (54.9) (46.2) 4.2 (212.8)
Impairment of assets - - - (1.0) (1.0) (9.7) (0.5) - (11.2)
Gain on lease modification - - - - - - 0.3 - 0.3
Net profit on disposal of assets held for sale - - - - - - 7.2 - 7.2
Net (loss)/profit on disposal of property, plant and equipment, right-of-use (0.1) - - - (0.1) 0.1 (0.4) - (0.4)
assets and software
Investment income/(loss) - - - 3.5 3.5 0.1 (3.3) - 0.3
Finance costs - - - - - (22.2) (18.6) - (40.8)
Profit/(loss) before tax 29.9 25.2 11.3 53.1 119.5 (94.8) (48.2) - (23.5)
Reconciliation to Underlying Profit/(Loss) Before Tax(4)
Profit/(loss) before tax 29.9 25.2 11.3 53.1 119.5 (94.8) (48.2) - (23.5)
Net fair value loss on derivative financial instruments - - - - - 2.7 - - 2.7
Impairment/loss on disposal of assets - - - 1.0 1.0 9.8 0.7 - 11.5
Restructuring costs - - - - - 3.9 2.4 - 6.3
Net profit on disposal of assets held for sale - - - - - - (7.2) - (7.2)
Foreign exchange movement on lease liabilities - - - - - (0.9) - - (0.9)
Costs incurred for ship debt holiday - - - - - - 2.4 - 2.4
Charge on closure of defined benefit pensions scheme - - - - - - 2.0 - 2.0
Underlying Profit/ (Loss) Before Tax(4) 29.9 25.2 11.3 54.1 120.5 (79.3) (47.9) - (6.7)
Total assets 261.7 (63.2) 134.8 319.6 652.9
less liabilities
4 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Insurance
2021 Motor broking Home broking Other insurance broking Under-writing Total Travel Other Businesses and Central Costs Adjustments Total
£'m £'m £'m £'m £'m £'m £'m £'m £'m
Revenue 92.7 60.2 40.7 74.4 268.0 51.6 22.6 (4.6) 337.6
Cost of sales (2.7) - (4.2) (16.5) (23.4) (68.1) (8.7) - (100.2)
Gross profit/(loss) 90.0 60.2 36.5 57.9 244.6 (16.5) 13.9 (4.6) 237.4
Administrative and selling expenses (56.5) (32.3) (22.0) (2.9) (113.7) (64.4) (50.7) 4.6 (224.2)
Impairment of assets - - - - - (0.2) (5.0) (59.8) (65.0)
Gain on lease modification - - - - - - 3.2 - 3.2
Net (loss)/profit on disposal of businesses - - - - - (1.7) 10.3 - 8.6
Net profit/(loss) on disposal of property, plant and equipment, right-of-use - - - - - 6.8 (0.2) - 6.6
assets and software
Investment income/(loss) - - - 3.7 3.7 0.2 (3.2) - 0.7
Finance costs - - - - - (13.6) (16.6) - (30.2)
Finance income - - - - - 1.7 - - 1.7
Profit/(loss) before tax 33.5 27.9 14.5 58.7 134.6 (87.7) (48.3) (59.8) (61.2)
Reconciliation to Underlying Profit/(Loss) Before Tax(5)
Profit/(loss) before tax 33.5 27.9 14.5 58.7 134.6 (87.7) (48.3) (59.8) (61.2)
Net fair value gain on derivative financial instruments - - - - - (1.7) - - (1.7)
Impairment of goodwill - - - - - - - 59.8 59.8
(Profit) on disposal/ impairment of assets - - - - - (3.8) 1.8 - (2.0)
Restructuring costs - - - - - 13.0 17.8 - 30.8
Net loss/(profit) on disposal of businesses - - - - - 1.7 (10.3) - (8.6)
Underlying Profit/ (Loss) Before Tax(5) 33.5 27.9 14.5 58.7 134.6 (78.5) (39.0) - 17.1
Total assets 284.4 19.3 (18.0) 395.0 680.7
less liabilities
All revenue is generated solely in the UK.
5 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Total assets less liabilities detailed as adjustments relates to the following
unallocated items:
2022 2021
£'m £'m
Goodwill (Note 8) 718.6 718.6
Group bond and bank loans (Note 16) (399.0) (323.6)
319.6 395.0
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
a Disaggregation of revenue
In the following table, the Group's revenue has been disaggregated by major
product line, analysed by Group's three operating segments.
2022
Insurance
Major product lines Earned premium on insurance underwritten by the Group Other revenue Total insurance Travel Other Businesses and Central Costs Total
£'m £'m £'m £'m £'m £'m
Gross earned premiums on insurance underwritten by the Group 203.0 203.0 203.0
Less: ceded to reinsurers (123.8) (123.8) (123.8)
Net revenue on:
- Motor broking 26.7 58.3 85.0 85.0
- Home broking - 60.2 60.2 60.2
- Other broking 1.0 34.3 35.3 35.3
- Underwriting 51.5 33.2 84.7 84.7
Tour Operations 12.2 12.2
Cruise 82.5 82.5
Personal Finance 5.9 5.9
Media 9.9 9.9
Other 1.5 1.5
79.2 186.0 265.2 94.7 17.3 377.2
2021
Insurance
Major product lines Earned Other revenue Total insurance Travel Other Businesses and Central Costs Total
premium on insurance underwritten by the Group
£'m £'m £'m £'m £'m £'m
Gross earned premiums on insurance underwritten by the Group 221.7 221.7 221.7
Less: ceded to reinsurers (142.8) (142.8) (142.8)
Net revenue on:
- Motor broking 23.2 69.5 92.7 92.7
- Home broking - 60.2 60.2 60.2
- Other broking 1.1 39.6 40.7 40.7
- Underwriting 54.6 19.8 74.4 74.4
Tour Operations 32.7 32.7
Cruise 18.9 18.9
Personal Finance 6.0 6.0
Healthcare 0.9 0.9
Media 9.1 9.1
Other 2.0 2.0
78.9 189.1 268.0 51.6 18.0 337.6
Included in Insurance Broking other revenue is instalment interest income on
premium financing of £9.8m (2021: £11.1m)
Notes to the consolidated financial statements (continued)
4 Tax
The major components of the income tax expense are:
2022 2021
£'m £'m
Consolidated income statement
Current income tax
Current income tax charge 3.4 3.5
Adjustments in respect of previous years (0.1) (3.7)
(3.3) (0.2)
Deferred tax
Relating to origination and reversal of temporary differences 2.7 3.2
Effect of tax rate change on opening balance (2.6) (1.7)
Adjustments in respect of previous years 1.1 5.3
1.2 6.8
Tax expense in the income statement 4.5 6.6
The Group's tax expense for the year was £4.5m (2021: £6.6m expense)
representing a tax effective rate of negative 19.1% before the impairment of
goodwill and associated deferred tax (2021: negative 471.4%). In both the
current and prior years, the difference between the Group's tax effective rate
and the standard rate of corporation tax of 19%, is mainly due to the Group's
Cruise business entering the tonnage tax regime on 1 February 2020.
Adjustments in respect of previous years includes a charge for the
under-provision of tax charge in prior years of £1.0m (2021: £1.6m
under-provision charge) and the impact of the change in the tax rate on
opening deferred tax balances of £2.6m credit (2021: £1.7m credit)
No tax charge or credit arose in the prior year on the disposal of the
Bennetts, Destinology and Healthcare businesses.
Reconciliation of net deferred tax assets
2022 2021
£'m £'m
At 1 February 6.7 18.1
Tax charge recognised in the income statement (1.2) (6.8)
Tax charge recognised in other comprehensive income 1.2 (4.1)
Tax charge recognised directly into the hedging reserve - (0.5)
At 31 January 6.7 6.7
On 3 March 2021, it was announced that the corporation tax rate will increase
from 19% to 25% from 1 April 2023. This increase was substantively enacted on
24 May 2021. As a result, the closing deferred tax balances at the statement
of financial position date have been reflected at 25%. Net deferred tax
assets/(liabilities) are expected to be normally settled in more than 12
months.
Notes to the consolidated financial statements (continued)
5 Dividends
Given the restrictions on the declaration of dividends described below, the
Board of Directors does not recommend the payment of a final dividend for the
2021/22 financial year (2021: nil pence per share).
For the current and prior year, no interim or final dividends were declared or
paid during the year. Dividend equivalents of £nil have been paid during the
year (2021: £0.1m). Dividend equivalents paid in the prior year relate to
previously declared dividends which only become payable when certain share
options are exercised.
The distributable reserves of Saga plc are £18.1m as at 31 January 2022 which
are equal to the retained earnings reserve. If necessary, its subsidiary
companies hold significant reserves from which a dividend can be paid.
Subsidiary distributable reserves are available immediately with the exception
of companies within the Tour Operations and Underwriting segments, which
require regulatory approval before any dividends can be declared and paid.
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 Cruise debt). The Group maintained sufficient headroom under the
RCF covenant during the year.
6 Loss per share
Basic loss per share is calculated by dividing the loss after tax for the year
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 other 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:
2022 2021 (restated)
£'m £'m
Loss attributable to ordinary equity holders (28.0) (67.8)
Weighted average number of ordinary shares 'm 'm
Ordinary shares as at 1 February 139.4 1,119.4
Long-term incentive plan (LTIP) share options exercised 0.1 -
Issue of shares - 5 October 2020 (Note 17)
- First Firm Placing - 224.4
- Second Firm Placing - 124.2
- Placing and Open Offer - 623.3
Share consolidation - 13 October 2020 (Note 17) - (1,951.9)
Ordinary shares as at 31 January 139.5 139.4(6)
Weighted average number of ordinary shares for basic loss per share and 139.5 101.2
diluted loss per share
Basic loss per share (20.1p) (67.0p)
Diluted loss per share (20.1p) (67.0p)
6 Ordinary shares as at 31 January 2021 have been restated to 139.4m
reflecting the incorrect inclusion of 0.5m shares issued on 18 November 2020
in the 139.9m total reported previously. Options relating to these shares had
not been exercised as at 31 January 2021 and therefore should not have been
included in the total ordinary shares previously reported at this date
Notes to the consolidated financial statements (continued)
6 Loss per share (continued)
The table below reconciles between basic loss per share and Underlying Basic
(Loss)/Earnings Per Share(7).
2022 2021
Basic loss per share (20.1p) (67.0p)
Adjusted for:
Derivative losses/(gains) 1.4p (1.9p)
Impairment, and loss/(profit) on disposal, of assets 2.3p (2.2p)
Impairment of goodwill and associated deferred tax - 59.1p
Net profit on disposal of businesses - (8.5p)
Charge on closure of defined benefit pension scheme 1.1p -
Foreign exchange movement on lease liabilities (0.5p) -
Costs incurred for cruise ship loan holiday 1.3p -
Restructuring costs 3.4p 33.7p
Underlying Basic (Loss)/Earnings Per Share(7) (11.1p) 13.2p
7 Business combinations and disposals
(a) Acquisitions
There were no business acquisitions in the years ended 31 January 2022 and 31
January 202
(b) Disposals during the year ended 31 January 2022
There were no business disposals in the year ended 31 January 2022.
(c) Disposals during the year ended 31 January 2021
(i) Healthcare business
During the year ended 31 January 2020, the Group made the decision to exit
healthcare and initiated an active programme to locate a buyer for its
Healthcare operation. Having met the requirements of IFRS 5, the associated
assets and liabilities were consequently presented as a held for sale disposal
group in the statement of financial position as at 31 January 2020. The
disposal group did not meet the requirements of IFRS 5 to be classified as a
discontinued operation.
On 3 March 2020 the Group reached agreement for the sale of its Country
Cousins and Patricia White's branded healthcare businesses to Limerston
Capital LLP for an enterprise value of £14.0m. Country Cousins and Patricia
White's were introductory care agencies and represented two of the three
divisions comprising the Group's Healthcare business. The remaining division,
Saga Care at Home, was sold on 31 May 2020 to a third-party care provider,
Care By Us, for a nominal sum of £1. This completed the Group's exit from
healthcare.
Details of the sale of the Healthcare business operation are as follows:
2021
£'m
Cash consideration received (net of transaction costs) 12.8
Cash and short-term deposits disposed of as part of the transaction (1.4)
Carrying value of net assets disposed (1.0)
Gain on disposal before tax 10.4
Tax expense on gain -
Gain on disposal after tax 10.4
7 Refer to the Alternative Performance Measures Glossary on
page 68 for definition and explanation
Notes to the consolidated financial statements (continued)
7 Business combinations and disposals (continued)
(b) Disposals during the year ended 31 January 2021 (continued)
(ii) Bennetts
During the year ended 31 January 2020, the Group made the decision to initiate
an active programme to locate a buyer for its insurance biking brand within
the Insurance segment, Bennetts Motorcycling Services Limited (Bennetts).
Having met the requirements of IFRS 5, the associated assets and liabilities
were consequently presented as a held for sale disposal group in the statement
of financial position as at 31 January 2020. The disposal group did not meet
the requirements of IFRS 5 to be classified as a discontinued operation.
On 17 February 2020 the Group announced that it had reached agreement for the
sale of Bennetts for an enterprise value of £26m to Atlanta Investment
Holdings C Limited (Atlanta). Atlanta is part of The Ardonagh Group, one of
the largest independent insurance brokers in the UK. Completion was subject to
receiving regulatory approval and other closing conditions.
On 7 August 2020, the disposal of Bennetts to Atlanta was completed following
the receipt of regulatory approvals, generating net disposal proceeds of
£24.0m.
Details of the sale of Bennetts are as follows:
2021
£'m
Cash consideration received (net of transaction costs) 24.0
Cash and short-term deposits disposed of as part of the transaction (9.5)
Carrying value of net assets disposed (12.7)
Gain on disposal before tax 1.8
Tax expense on gain -
Gain on disposal after tax 1.8
(iii) Destinology
During the year ended 31 January 2021, the Group made the decision to initiate
an active programme to locate a buyer for its Travel segment business,
Destinology. On 20 October 2020 the Group announced that it had sold
Destinology Limited to Brooklyn Travel Limited for a nominal sum of £1. Net
transaction costs of £0.2m were incurred in relation to the disposal.
Details of the sale of the Destinology are as follows:
2021
£'m
Cash consideration received (net of transaction costs) (0.2)
Cash and short-term deposits disposed of as part of the transaction (1.6)
Expense of non-cash items relating to disposal (1.0)
Carrying value of net liabilities disposed 0.2
Loss on disposal before tax (2.6)
Tax expense on gain -
Loss on disposal after tax (2.6)
(iv) Other
During the year ended 31 January 2021, transaction costs of £1.0m were
incurred in relation to other business disposals that did not complete.
Notes to the consolidated financial statements (continued)
8 Goodwill
Goodwill acquired through business combinations has been allocated to CGUs for
the purpose of impairment testing. The carrying value of goodwill by CGU is as
follows:
2022 2021
£'m £'m
Insurance 718.6 718.6
718.6 718.6
The Group tests all goodwill balances for impairment at least annually, and
twice yearly if there exist indicators of impairment at the interim reporting
date of 31 July. The Group has duly tested the Insurance CGU goodwill balance
for impairment as at 31 January 2022. In the prior year, due to the impact of
the COVID-19 pandemic on the Group's earnings, the Group tested goodwill for
impairment as at 31 July 2020 and 31 January 2021. 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. The Group now only has
goodwill allocated to its Insurance CGU, following the write off in full of
goodwill allocated to its Tour Operations and Cruise CGUs as at 31 July 2020.
The recoverable amount of the Insurance CGU has been determined based on a
value-in-use calculation using cash flow projections from the Group's latest
five-year financial forecasts to 2026/27, which are derived using past
experience of the Group's trading combined with the anticipated impact of
changes in macroeconomic and regulatory factors. A terminal value has been
calculated using the Gordon Growth Model based on the fifth year of those
projections and an annual growth rate of 2.0% (January 2021: 2.0%) as the
expected long-term average growth rate of the UK economy. The cash flows have
then been discounted to present value using a suitably risk-adjusted discount
rate based on a market-participant view of the cost of capital and debt
relevant to the insurance industry.
As at 31 January 2022, the pre-tax discount rate used for the Insurance CGU
was 11.5% (2021: 9.8%). The Group's five-year financial forecasts incorporate
the modelled impact of the publication of the FCA's findings from its market
study into general insurance pricing and the impact this will likely have on
new business pricing and retention rates. As per IAS 36.44, incremental cash
flows directly attributable to growth initiatives not yet enacted at the
statement of financial position date have then also been removed for the
purpose of the value-in-use calculation.43F
Furthermore, the Group also considered an array of stress tests, both in terms
of adverse impacts to the cash flow projections and to the discount rate. For
the cash flow stress tests, the impact of a more prudent outlook for the
impact of the FCA market study, further impact to travel insurance sales from
COVID-19 disruption and further net rate pressures were assumed, in
combination with a more cautious terminal growth rate of 1.5% reflecting a
more conservative outlook for growth in the UK economy. For the discount rate
stress test, the Group applied risk premia of c. +1.5ppt.
After considering the impact of cash flow and discount rate stresses to the
recoverable amount, the Group remains comfortable that there remains headroom
over and above the carrying value of the net assets including goodwill
allocated to the Insurance CGU. This was the case at both the 31 January 2022
and 31 January 2021 testing points.
In the prior year, as a result of the continued uncertainty and adverse impact
of the COVID-19 pandemic on the travel industry, the Group determined that the
recoverable amounts of the goodwill allocated to the Tour Operations and
Cruise CGUs were below their respective carrying values and took the decision
to impair in full the £59.8m goodwill allocated to Tour Operations and Cruise
in the Group's July 2020 interim results. Whilst the outlook for the travel
industry has improved since then, characterised by an improvement in industry
betas and cost of debt levels, goodwill impairments are irreversible.
Notes to the consolidated financial statements (continued)
8 Goodwill (continued)
The headroom for the Insurance CGU against the brought forward carrying value
is as follows:
Headroom £'m
Di
sc
Central scenario Cash flow stress test scenario ou
nt
ra
te
st
re
ss
te
st
sc
en
ar
io
31 January 2022 31 January 2021 31 January 2022 31 January 2021 31 January 2022 31 January 2021
Insurance 146.3 216.4 89.7 72.4 (10.2) 108.0
The headroom calculated is most sensitive to the discount rate and terminal
growth rate assumed, or to changes in the projected cash flow of the CGU. A
quantitative sensitivity analysis for each of these as at 31 January 2022 and
its impact on the headroom against the brought forward goodwill carrying value
is as follows:
Pre-tax discount rate Terminal growth rate Cash flow (annual)
+1.0ppt -1.0ppt £'m +1.0ppt -1.0ppt £'m +10% -10%
£'m £'m £m £m
Insurance (136.6) 120.5 89.4 (113.1) 69.6 (121.4)
Given these headroom numbers, the Directors consider that there is no
reasonable possible change in the key assumptions made in their impairment
assessment that would give rise to an impairment.
9 Intangible fixed
assets
During the year, the Group capitalised £11.2m (2021: £13.2m) of software
assets, disposed of assets with a net book value of £0.2m (2021: £0.2m) and
charged £20.5m of amortisation and impairment to its intangible assets (2021:
£12.5m).
Following the continued impact of the COVID-19 pandemic on the travel
industry, management decided to restructure the Group's Tour Operations CGU.
As a result of this restructuring exercise, management performed an impairment
review of software assets used by the Tour Operations business. The outcome of
the impairment review concluded that an impairment charge of £9.4m be
recognised against the Group's software assets as at 31 January 2022. In
addition, the Group concluded that an impairment charge of £0.5m against
software assets was required in the Group's Central Costs division.
In the prior year the Group concluded that an impairment charge of £0.1m to
software assets was required in the Group's Central Costs division.
10 Property, plant and equipment
During the year, the Group capitalised assets with a cost of £7.1m (2021:
£274.0m), disposed of assets with a net book value of £0.6m (2021: £4.8m)
and charged £19.6m of depreciation and impairment to its property, plant and
equipment (2021: £18.5m).
a. Impairment review of property, plant and equipment
Due to the continued impact of the COVID-19 pandemic on the Group's
operations, with the suspension of the Cruise businesses between March 2020
and June 2021, and an ongoing impact on the level of customer demand,
management concluded that there continued to exist indicators of impairment
for both of its ocean cruise ships, Spirit of Discovery and Spirit of
Adventure. Management therefore conducted impairment reviews at 31 January
2022 for both vessels, following previous reviews conducted at 31 July 2021
and 31 January 2021.
Notes to the consolidated financial statements (continued)
10 Property, plant and equipment (continued)
a. Impairment review of property, plant and equipment (continued)
The recoverable amount of each cruise ship was determined based on a
value-in-use calculation using cash flow projections from the Group's
five-year financial forecasts to 2026/27 and applying a constant annual growth
rate of 2% thereafter for subsequent periods until the end of the ship's
useful economic life of 30 years, at which point a residual value of 15% of
original cost has been assumed. This has then been 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 cruises was also considered, by assuming the
need for a further two-month layup of both ships during April and May 2022,
and with load factors capped at 75% for the remainder of 2022/23 and at 80%
for the duration of 2023/24. The annual growth rate beyond the fifth year of
management forecasts was also reduced to 1.5% in the stress test scenario,
reflecting a more cautious outlook for long-term growth in the UK economy.
Potential environmental regulatory changes have also been considered as part
of this assessment. The shipping industry has made a commitment to reduce
CO(2) emissions by 40% by 2030 (from a 2008 baseline), and the UK Government
has made commitments to reach net zero emissions by 2050. The EEXI/CII (carbon
design/technical efficiency indicator) regulations are being introduced
internationally to enable the industry to meet the 2030 target, and both of
Saga's cruise ships will exceed the requirements of these regulations on
implementation in 2023. The end of their useful economic lives of 30 years
will have been reached by 2049 in the case of Spirit of Discovery and 2051 in
the case of Spirit of Adventure.
The Group has not factored in any potential fuel modifications that may occur
in the future into the cash flow forecasts used for the impairment assessment
of either ship. Whilst alternative fuels may present a viable route to
decarbonisation for the 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 cruise ships
was guided by a desire to maximise efficiency through deployment of the most
up-to-date technology. Their hull design maximises fuel efficiency, onboard
technology minimises fuel consumption and catalytic converters reduce carbon
emissions. Additionally, the Group is planning to retro-fit shore power
connections to both vessels allowing them to use clean energy where available
in ports of call and has commenced a study to evaluate other emerging
technologies. The capital expenditure required for the shore power connections
has been included in the forecast cash flows used in the assessment.
There is also currently no technological alternative to either oil or gas to
power large vessels and it is not clear if such technology will ever be
commercially viable, or in what time frame this might be achieved.
The cash flows were discounted to present value using a pre-tax discount rate
of 9.9% (January 2021: 11.8%) for both vessels. As at 31 January 2022, the
headroom for each of the ships against the carrying value was as follows:
Headroom £'m
Central scenario RWC stress test scenario
Spirit of Discovery 119.2 83.3
Spirit of Adventure 71.0 34.5
The headroom calculated is most sensitive to the discount rate and the load
factor assumed within the forecast cash flows. Given both ships are relatively
new, and so have relatively long remaining useful lives, the headroom is not
sensitive to either changes in the useful economic life or the residual value
of the vessel due to the degree of discounting that is applied in the
impairment calculation. A quantitative sensitivity analysis has been set out
below to illustrate the impact that changes in key assumptions within the
value-in-use calculation would bring about on the calculated headroom as at 31
January 2022:
Discount rate Residual value Load factor Useful economic life
+1.0ppt -1.0ppt +5% -5% +1% -1% +5 years -5 years
£'m £'m £'m £'m £'m £'m £'m £'m
Spirit of Discovery (34.8) 40.4 0.2 (0.2) 11.1 (13.3) 16.6 (23.9)
Spirit of Adventure (36.1) 42.1 0.2 (0.2) 11.5 (14.2) 15.4 (22.2)
Notes to the consolidated financial statements (continued)
10 Property, plant and equipment (continued)
a. Impairment review of property, plant and equipment (continued)
Based on these impairment tests, and looking at the likelihood of a range of
outcomes, the Group is satisfied that there was headroom over and above the
carrying values of both Spirit of Discovery and Spirit of Adventure. Given the
headroom in the test for both vessels and the degree of caution already
adopted in the RWC stress scenario, the Directors concluded that no impairment
of either vessel was necessary, and that there would need to be a reasonably
significant change in the key assumptions for this to be the case.
In the prior year, as a result of the Group planning to vacate most of its
properties (Note 19), management concluded that this constituted an indicator
of impairment and duly conducted an impairment review of the Group's freehold
land and buildings as at 31 January 2021, with the exception of the main Head
Office building which was not intended to be vacated. In relation to these
freehold properties, value-in-use was 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 £5.0m
should be recognised against the Group's assets as at 31 January 2021. At 31
January 2021, the Group reclassified freehold land and buildings with a net
book value of £16.9m to assets held for sale (Note 19).
During the current year, the Group declassified one of the properties
classified as held for sale at 31 January 2021, to property, plant and
equipment since it was no longer being actively marketed for disposal (Note
19). The carrying value of this property as at 31 January 2021 was £3.0m.
11 Right-of-use assets
During the year, the Group capitalised assets with a cost of £35.8m (2021:
£0.8m), disposed of assets with a net book value of £0.8m (2021: £0.5m),
reduced net book value for modification of lease terms by £0.1m (2021:
£17.8m) and charged £2.3m of depreciation and impairment to its right-of-use
assets (2021: £3.2m).
In the year ended 31 January 2021, modification of lease terms relating to
river cruise ships resulted from the impact of the COVID-19 pandemic on the
Travel business. The Group entered into multi-year agreements to lease the use
of river cruise vessels to operate its river cruise tours. As such, the Group
recognised a right-of-use asset and corresponding lease liability when those
lease agreements became effective. From March 2020, the Group suspended its
Travel operations, including its river cruise tours, as a result of the
restrictions placed on international travel from the impact of the COVID-19
pandemic. The Group then subsequently curtailed its river cruise agreements
during the financial year, and accordingly derecognised the right-of-use
assets held on the statement of financial position in respect of those
agreements. The Group also derecognised the corresponding lease liabilities,
which contributed to a reduction in lease liabilities during the financial
year ended 31 January 2021. Lease agreements that were modified in the year
ended 31 January 2021, also ended within the same financial year.
River cruise ship additions in the year ended 31 January 2022 relate to the
river cruise vessel, Spirit of the Rhine.
In the year ended 31 January 2021, modification of lease terms relating to
long leasehold land and buildings resulted from the Group's decision to
initiate an active programme to locate buyers for a number of its freehold
properties (Note 19) due to a relationship existing between the use of one of
these freehold properties and the use of one of the long leasehold land
buildings. In addition, the modification of lease terms relating to long
leasehold land and buildings resulted in a gain of £3.2m being reported in
the income statement in the prior year.
In the year ended 31 January 2022, the modification of lease terms relating to
long leasehold land and buildings resulted in a gain of £0.3m being reported
in the income statement in the prior year.
Notes to the consolidated financial statements (continued)
11 Right-of-use assets (continued)
a. Impairment review of right-of-use assets
During the year, the Group took delivery of the river cruise ship, Spirit of
the Rhine, under a 10-year lease. The ship's first cruise season was initially
planned to commence on 1 April 2021, but due to the impact of the COVID-19
pandemic, the start of the first season was delayed for several months. The
Group did not therefore take control of the asset until the ship's inaugural
cruise took place in September 2021, at which point a right-of-use asset was
recognised and corresponding lease liability was capitalised on the statement
of financial position.
Given the carrying value of the asset is quantitatively material to the Group,
combined with the ongoing adverse impacts of the COVID-19 pandemic on the
wider travel industry, which constitute an indicator of impairment, management
deemed it necessary to conduct an impairment review on Spirit of the Rhine at
31 January 2022.
The recoverable amount of the vessel 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 10 years. This has then been 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 river cruises was also considered, by assuming the need for a
two-month layup of the vessel in April and May 2022, and with load factors
capped at 75% for the remainder of 2022/23 and at 80% for the duration of
2023/24. The annual growth rate beyond the fifth year of management forecasts
was also reduced to 1.5% in the stress test scenario, reflecting a more
cautious outlook for long-term growth in the UK economy.
The cash flows were discounted to present value using a pre-tax discount rate
of 5.2%, which effectively represents a market-participant's view of the
pre-tax cost of debt of the river cruise business. This is because by the very
nature of how the carrying value of the right-of-use asset arises as the
present value of future lease payments at the inception of the lease, a
market-participant would expect to finance such an asset purely with debt. As
at 31 January 2022, the headroom for the ship against its carrying value was
as follows:
Headroom £'m
RWC stress test scenario
Central scenario
Spirit of the Rhine 7.9 6.5
Based on these impairment tests, and looking at the likelihood of a range of
outcomes, the Group is satisfied that there was headroom over and above the
carrying value of Spirit of the Rhine. Management considered that there was no
reasonable possible change in the key assumptions made in its impairment
assessment that would give rise to an impairment of the carrying value of this
vessel.
Notes to the consolidated financial statements (continued)
12 Financial assets and financial liabilities
a) Financial assets
2022 2021
£'m £'m
Fair value through profit and loss (FVTPL)
Foreign exchange forward contracts 0.4 0.6
Loan funds 6.2 6.2
Money market funds 29.2 66.8
35.8 73.6
FVTPL designated in a hedging relationship
Foreign exchange forward contracts 0.3 0.1
Fuel oil swaps 1.2 -
1.5 0.1
Fair value through other comprehensive income (FVOCI)
Debt securities 280.8 261.9
280.8 261.9
Amortised cost
Deposits with financial institutions 14.0 24.2
14.0 24.2
Total financial assets 332.1 359.8
Current 110.0 105.2
Non-current 222.1 254.6
332.1 359.8
b) Financial liabilities
2022 2021
£'m £'m
FVTPL
Foreign exchange forward contracts 1.3 1.3
1.3 1.3
FVTPL designated in a hedging relationship
Foreign exchange forward contracts 2.7 2.1
Fuel oil swaps - 0.2
2.7 2.3
Amortised cost
Bond and bank loans (Note 16) 896.5 817.1
Lease liabilities 35.3 4.4
Bank overdrafts 0.4 1.5
932.2 823.0
Total financial liabilities 936.2 826.6
Current 56.1 10.4
Non-current 880.1 816.2
936.2 826.6
Notes to the consolidated financial statements (continued)
12 Financial assets and financial liabilities (continued)
c) Fair value hierarchy
As at 31 January 2022 As at 31 January 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'m £'m £'m £'m £'m £'m £'m £'m
Financial assets measured at fair value
Foreign exchange forwards - 0.7 - 0.7 - 0.7 - 0.7
Fuel oil swaps - 1.2 - 1.2 - - - -
Loan funds 6.2 - - 6.2 6.2 - - 6.2
Debt securities 280.8 - - 280.8 261.9 - - 261.9
Money market funds 29.2 - - 29.2 66.8 - - 66.8
Financial liabilities measured at fair value
Foreign exchange forwards - 4.0 - 4.0 - 3.4 - 3.4
Fuel oil swaps - - - - - 0.2 - 0.2
Financial assets for which fair values
are disclosed
Deposits with institutions - 14.0 - 14.0 - 24.2 - 24.2
Financial liabilities for which fair values
are disclosed
Bond and bank loans - 879.0 - 879.0 - 793.9 - 793.9
Lease liabilities - 35.3 - 35.3 - 4.4 - 4.4
Bank overdrafts - 0.4 - 0.4 - 1.5 - 1.5
d) Other information
Debt securities, money market funds and deposits with financial institutions
relate to monies held by the Group's Insurance business and are subject to
contractual restrictions and are not readily available to be used for other
purposes within the Group. The values of the debt securities, money market
funds and loan funds are based upon publicly available market prices.
There have been no transfers between Level 1 and Level 2 and no non-recurring
fair value measurements of assets and liabilities during the year (2021:
none).
Foreign exchange forwards are valued using current spot and forward rates
discounted to present value. They are also adjusted for counterparty credit
risk using credit default swap (CDS) curves. Fuel oil swaps are valued with
reference to the valuations provided by third parties, which use current
Platts index rates, discounted to present value.
The Group operates a programme of economic hedging against its foreign
currency and fuel oil exposures. During the year, the Group designated 298
foreign exchange forward currency contracts as hedges of highly probable
foreign currency cash expenses in future periods and designated 36 fuel oil
swaps as hedges of highly probable fuel oil purchases in future periods. As at
31 January 2022, the Group has designated 431 forward currency contracts and
36 fuel oil swaps as hedges.
During the year, the Group recognised net gains of £2.1m (2021: £6.0m gains)
on cash flow hedging instruments through OCI into the hedging reserve.
Additionally, the Group recognised net gains of £nil (2021: £16.3m gains)
through OCI into the hedging reserve, in relation to the specific hedging
instrument for the acquisition of two new ships. The overall net gains were
£2.1m (2021: £22.3m gains). The Group has recognised £nil gains (2021:
£nil) through the income statement in respect of the ineffective portion of
hedges measured during the year.
Notes to the consolidated financial statements (continued)
12 Financial assets and financial liabilities (continued)
d) Other information (continued)
During the year, the Group has de-designated 96 foreign currency forward
contracts, with a transaction value of £18.8m, where forecast cash flows are
no longer expected to occur with a sufficiently high degree of certainty to
meet the requirements of IFRS 9. The accumulated gains in relation to these
contracts of £0.7m have been reclassified from the hedging reserve into
profit or loss during the year. The Group has not de-designated any fuel oil
swaps during the year. During the year, the Group recognised a £1.2m gain
(2021: £2.5m gain) through the income statement in respect of matured hedges
which have been recycled from OCI. In the prior year the Group also recognised
a £2.7m loss in property, plant and equipment, in respect of matured hedges
which have been recognised directly from the hedging reserve.
13 Cash and cash equivalents
2022 2021
£'m £'m
Cash at bank and in hand 174.6 94.4
Short-term deposits 52.3 7.2
Cash and short-term deposits 226.9 101.6
Money markets funds 29.2 66.8
Bank overdraft (0.4) (1.5)
Cash and cash equivalents in the cash flow statement 255.7 166.9
Included within cash and cash equivalents are amounts held by the Group's
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 £69.1m (2021: £91.5m). Available
Cash(8)( )excludes these amounts and any amounts held by disposal groups.
Cash at bank earns interest at floating rates based on daily bank deposit
rates. Short-term deposits are made for varying periods of between one day and
three months, depending on the immediate cash requirements of the Group, and
earn interest at the respective short-term deposit rates.
The bank overdraft is subject to a guarantee in favour of the Group's bankers
and is limited to the amount drawn. The bank overdraft is repayable on demand.
8 Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Notes to the consolidated financial statements (continued)
14 Retirement benefit schemes
The Group operates retirement benefit schemes for the employees of the Group
consisting of defined contribution plans and a defined benefit plan.
a. Defined contribution plans
There are three defined contribution schemes in the Group at 31 January 2022
(2021: two). The total charge for the year in respect of the defined
contribution schemes was £4.5m (2021: £3.2m).
The assets of these schemes are held separately from those of the Group in
funds under the control of Trustees.
b. Defined benefit plan
The Group operated a funded defined benefit scheme, the Saga Pension Scheme,
which was closed to future accrual on 31 October 2021 (see below). From 1
November 2021, members moved from active to deferred status, with future
indexation of deferred pensions before retirement measured by reference to the
Consumer Price Index (CPI). During the year, a net expense of £2.0m was
recognised as a past service cost (within administrative and selling expenses)
relating to the closure. 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:
2022 2021
£'m £'m
Fair value of scheme assets 412.0 411.2
Present value of defined benefit obligation (410.9) (415.5)
Defined benefit scheme asset/(liability) 1.1 (4.3)
The present values of the defined benefit obligation, the related current
service cost and any past service costs have been measured using the projected
unit credit valuation method.
During the year ended 31 January 2022, the opening net liability of the Saga
Pension Scheme of £4.3m has improved to end the year in an asset position of
£1.1m.
c. Pension consultation
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, and with effect from 31 October
2021, the Group closed both its existing schemes to future accrual: the Saga
Pension Scheme (its defined benefit plan) and the Saga Workplace Pension Plan
(its defined contribution plan). In their place, the Group launched a new
defined contribution pension scheme arrangement, operated as a Master Trust.
This move served to reduce the risk of further deficits developing in the
future on the defined benefit scheme, whilst moving to a fairer scheme for all
colleagues.
As a result of the Saga Pension Scheme closure, a £2.0m net expense has
crystallised in the income statement as a past service cost. This expense was
driven by a £2.5m debit from an increase in scheme liabilities due to all
members becoming deferred members upon closure. This was offset by a £0.5m
credit from the removal of the ill-health benefit post closure.
Notes to the consolidated financial statements (continued)
15 Insurance contract liabilities and reinsurance assets
The analysis of gross and net insurance liabilities is as follows:
2022 2021
Gross £'m £'m
Claims outstanding 292.8 329.5
Provision for unearned premiums 93.9 96.8
Total gross liabilities 386.7 426.3
2022 2021
Recoverable from reinsurers £'m £'m
Claims outstanding 59.1 65.2
Provision for unearned premiums 6.3 6.4
Total reinsurers' share of insurance liabilities (as presented on the face of 65.4 71.6
the statement of financial position)
Amounts recoverable under funds-withheld quota share agreements recognised
within trade payables:
- Claims outstanding 133.0 147.1
- Provision for unearned premiums 50.7 55.9
Total reinsurers' share of insurance liabilities after funds-withheld quota 249.1 274.6
share
Analysed as:
Claims outstanding 192.1 212.3
Provision for unearned premiums 57.0 62.3
Total reinsurers' share of insurance liabilities after funds-withheld quota 249.1 274.6
share
2022 2021
Net £'m £'m
Claims outstanding 233.7 264.3
Provision for unearned premiums 87.6 90.4
Total net insurance liabilities 321.3 354.7
Amounts recoverable under funds-withheld quota share agreements recognised
within trade payables:
- Claims outstanding (133.0) (147.1)
- Provision for unearned premiums (50.7) (55.9)
Total net insurance liabilities after funds-withheld quota share 137.6 151.7
Analysed as:
Claims outstanding 100.7 117.2
Provision for unearned premiums 36.9 34.5
Total net insurance liabilities after funds-withheld quota share 137.6 151.7
Notes to the consolidated financial statements (continued)
15 Insurance contract liabilities and reinsurance assets (continued)
Reconciliation of movements in claims outstanding
2022 2021
£'m £'m
Gross claims outstanding at 1 February 329.5 352.1(9)
Less: reinsurance claims outstanding (212.3) (203.0)(9)
Net claims outstanding at 1 February 117.2 149.1
Gross claims incurred 94.6 117.6(9)
Less: reinsurance recoveries (63.3) (99.4)(9)
Net claims incurred 31.3 18.2
Gross claims paid (131.3) (140.2)
Less: received from reinsurance 83.5 90.1
Net claims paid (47.8) (50.1)
Gross claims outstanding at 31 January 292.8 329.5
Less: reinsurance claims outstanding (192.1) (212.3)
Net claims outstanding at 31 January 100.7 117.2
9 Gross claims incurred and reinsurers' share of claims incurred for the year
ended 31 January 2021 have been restated due to an incorrect allocation
between these classifications. Gross claims incurred have decreased by £13.8m
and reinsurers' share of claims incurred has decreased by £13.8m. As a result
of these changes, gross claims outstanding at 1 February 2020 have increased
by £13.8m and reinsurance claims outstanding at 1 February 2020 have
increased by £13.8mincurred has decreased by £13.8m.
Notes to the consolidated financial statements (continued)
15 Insurance contract liabilities and reinsurance assets (continued)
The re-presented development of the gross loss ratios (before deducting
reinsurance recoveries) on an accident year basis over the last 10 years is as
follows:
Financial year ended 31 January
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 78% 75% 68% 64% 60% 57% 56% 55% 54% 54%
Accident year 2014 76% 72% 67% 63% 61% 58% 57% 56% 56%
2015 70% 73% 70% 66% 61% 58% 55% 55%
2016 77% 78% 75% 65% 62% 62% 59%
2017 70% 69% 65% 61% 56% 56%
2018 76% 78% 74% 70% 67%
2019 78% 80% 79% 75%
2020 78% 82% 78%
2021 64% 58%
2022 67%
The re-presented development of the net loss ratios (after deducting
reinsurance recoveries) on an accident year basis over the last 10 years is as
follows:
Financial year ended 31 January
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 76% 72% 67% 62% 58% 56% 55% 54% 53% 53%
Accident year 2014 75% 71% 65% 62% 59% 56% 55% 54% 54%
2015 67% 69% 66% 63% 58% 56% 54% 53%
2016 70% 71% 66% 59% 56% 54% 53%
2017 56% 56% 54% 53% 51% 51%
2018 66% 65% 64% 62% 60%
2019 71% 71% 71% 69%
2020 63% 64% 62%
2021 53% 47%
2022 55%
Favourable claims development over the year has resulted in a £18.4m (2021:
£30.6m) reduction in the net claims incurred in respect of prior years.
Notes to the consolidated financial statements (continued)
16 Loans and borrowings
2022 2021
£'m £'m
Bond 400.0 250.0
Bank loan - 70.0
Ship loan 515.6 515.6
Revolving credit facility - -
Accrued interest payable 5.9 8.3
921.5 843.9
Less: deferred issue costs (25.0) (26.8)
896.5 817.1
Term loan, RCF and bonds
As at 31 January 2021, the Group's financing facilities consisted of a
£250.0m seven-year senior unsecured bond (repayable May 2024), a £200.0m
five-year term loan facility (repayable May 2023) and a £100.0m five-year RCF
(expiry in May 2023). The bond is listed on the Irish Stock Exchange.
In March 2021, the Group reached agreement with its banks to amend covenants
on the term loan and RCF. Subsequently these were amended again in June 2021,
when the Group announced a series of financing transactions intended to
improve its financial flexibility by increasing available liquidity, extending
debt maturities and providing greater headroom against covenants. On 2 July
2021, the Group completed the offering of a new £250.0m five-year senior
unsecured bond and tendered £100.0m of the existing seven-year £250.0m
senior unsecured 2024 bond. The new bond is guaranteed by Saga Services
Limited and Saga Mid Co Limited. The proceeds of the new bond offering were
used by the Group to repay in full its existing £70.0m term loan, to fund the
settlement of £100.0m of its existing outstanding unsecured 2024 bond and for
general corporate purposes.
As part of the above transactions, the Group also announced that it had
reached agreement with its banks to amend the covenants on its RCF. The
covenants within the Group's RCF were amended as follows:
• Increase in the leverage ratio (excluding Cruise debt) covenant at 31 July
2022 and 31 January 2023 from 3.00x to 3.75x.
• Reduction in the Group interest cover covenant at 31 January 2022 from
1.5x to 1.25x, at 31 July 2022 from 3.5x to 2.0x and at 31 January 2023 from
3.5x to 2.5x.
In addition, the following amendments were also made:
• Dividends remain restricted while leverage (excluding Cruise debt) is
above 3.0x.
• The Group remains subject to a minimum liquidity requirement of £40.0m,
which can be met either through cash or undrawn and committed facilities.
• The maximum amount of liquidity that can be used to fund the Cruise
business was increased from £55.0m to £115.0m.
• The RCF maturity was extended to 31 May 2025. A requirement to repay the
RCF on 1 March 2024 if the existing 2024 bond has not been redeemed prior to
this date.
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 on the term loan and RCF was incurred at a variable
rate of LIBOR plus a bank margin which is linked to the Group's leverage
ratio.
The Group adopted 'Interest rate benchmark reform - phase 2 (amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)' during the year (Note 2.4). In
the UK, LIBOR was replaced by SONIA from the end of 2021. The Group took the
decision to transition to SONIA from LIBOR at the time it reached agreement
with its banks to amend the covenants on its RCF (see above). Subsequent to
these amendments being adopted, 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.
Notes to the consolidated financial statements (continued)
16 Loans and borrowings (continued)
Term loan, RCF and bonds (continued)
At 31 January 2022, the Group's financing facilities consist of a £150.0m
seven-year senior unsecured bond (repayable May 2024), a £250.0m five-year
senior unsecured bond (repayable July 2026) and a £100.0m five-year RCF
(expiry in May 2025). The bonds are listed on the Irish Stock Exchange.
At 31 January 2022, the Group had drawn £nil of its £100.0m RCF and since
the May 2017 refinancing, the £200.0m five-year term loan has been repaid in
full.
Accrued interest payable on the Group's term loan, RCF and bonds at 31 January
2022 is £2.8m (2021: £5.1m).
Cruise ship loans
In June 2019, the Group drew down the financing for its cruise ship, Spirit of
Discovery, of £245.0m. The financing for Spirit of Discovery represents a
12-year fixed rate sterling loan, backed by an export credit guarantee. The
initial loan was repayable in 24 broadly equal instalments, with the first
payment of £10.2m paid in December 2019. This financing is secured against
Spirit of Discovery cruise ship asset.
The Board announced on 22 June 2020, that it had secured a debt holiday and
covenant waiver for the Group's ship facilities. The Group's lenders agreed to
a deferral of £32.1m 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 remains payable.
On 29 September 2020, the Group drew down the financing for its new cruise
ship, Spirit of Adventure, of £280.8m. The financing for Spirit of Adventure
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. This financing is secured against Spirit of Adventure cruise ship
asset.
In March 2021, the Group reached agreement of a one-year extension to the debt
deferral on its 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 are:
• all principal payments to 31 March 2022 (£51.8m) are deferred and repaid
over five years;
• all financial covenants until 31 March 2022 are waived;
• dividends remain restricted while the deferred principal is outstanding;
and
• the Group is now subject to a minimum liquidity requirement of £40.0
million, which can be met through either cash or undrawn and committed
facilities.
After the year end, 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
periods from 31 July 2022 to 31 January 2024.
• Reduction in the EBITDA to cash interest ratio from 2.0x to 1.7x as at 31
July 2022.
Please refer to Note 2.1 for further detail.
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 on the Group's cruise ship debt deferrals was incurred at a variable
rate of LIBOR plus a bank margin. As noted above, the Group adopted 'Interest
rate benchmark reform - phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16)' during the year (Note 2.4). In the UK, LIBOR was replaced by
SONIA from the end of 2021. Subsequent to these amendments being adopted,
interest payable on the Group's cruise ship debt deferrals is incurred at a
variable rate of SONIA plus a bank margin. Amendments to the cruise ship debt
facilities were executed in December 2021.
Notes to the consolidated financial statements (continued)
16 Loans and borrowings (continued)
Cruise ship loans (continued)
Accrued interest payable on the Group's Cruise ship loans at 31 January 2022
is £3.1m (2021: £3.2m).
Total debt and finance costs
As at 31 January 2022, debt issue costs were £25.0m (2021: £26.8m). The
movement in the year represents an increase following the issuance of the 2026
bond in July 2021, being more than offset by expense amortisation for the
period.
During the year, the Group charged £37.4m (2021: £29.4m) to the income
statement in respect of fees and interest associated with the bonds, term
loan, ship loans and RCF. In addition, finance costs recognised in the income
statement include £0.7m (2021: £0.8m) relating to interest and finance
charges on lease liabilities and net fair value losses on derivatives are
£2.7m (2021: £nil). The Group has complied with the financial covenants of
its borrowing facilities during the current year and prior year.
17 Called up share capital
Ordinary shares
Nominal value
£
Value
£'m
Number
Allotted, called up and fully paid
At 31 January 2020 1,122,003,328 0.01 11.2
Issue of shares - 5 October 2020
- First Firm Placing 224,400,000 0.01 2.2
- Second Firm Placing 124,183,026 0.01 1.2
- Placing and Open Offer 623,335,182 0.01 6.3
971,918,208 0.01 9.7
Sub-total before share consolidation 2,093,921,536 0.01 20.9
Share consolidation - 13 October 2020 (1,954,326,767)
Issue of shares - 18 November 2020 507,458 0.15 0.1
As at 31 January 2021 140,102,227 0.15 21.0
Issue of shares - 12 November 2021 235,044 0.15 0.1
As at 31 January 2022 140,337,271 0.15 21.1
On 30 August 2020, the Group announced that it was at the advanced stage of a
prospective £150.0m equity capital raise in order to strengthen its statement
of financial position, improve liquidity and support the execution of its
strategic plan. The prospective £150.0m equity raise was launched on 10
September 2020, structured as a Firm Placing and Open Offer.
The Group's Firm Placing was made up of two firm placings, both of which
involved issuing shares to the Chairman, Roger De Haan. The First Firm Placing
resulted in Roger De Haan subscribing for 224,400,000 new ordinary shares at a
price of 27p per ordinary share. The Second Firm Placing resulted in Roger De
Haan subscribing for 124,183,026 new ordinary shares at 12p per ordinary share
(the Offer Price as if he were participating in the Open Offer as a qualifying
shareholder). The Firm Placing was inter-conditional with the Placing and Open
Offer.
Under the Placing and Open Offer, the Company invited its shareholders to
subscribe to the issue of 623,335,182 ordinary shares at an issue price of 12p
per ordinary share on the basis of five new shares for every nine ordinary
shares held. In addition to the Firm Placing described above, Roger De Haan
subscribed for 204,250,307 new shares in the Placing and Open Offer, and, as a
result, from admission held 26.4% of the enlarged share capital of the
Company.
Under the Firm Placing and Open Offer, on 5 October 2020 the Company issued
971,918,208 new ordinary shares, raising £150.3m of funds which were utilised
to repay part of the Group's term loan and repay in full the drawn RCF, with
the balance of the proceeds raised increasing Available Cash(10). The issue
was fully subscribed.
(10) Refer to the Alternative Performance Measures Glossary on page 68 for
definition and explanation
Notes to the consolidated financial statements (continued)
17 Called up share capital (continued)
The share premium arising on the issue of the new ordinary shares was
£140.6m. Transaction costs associated with the issue of the share capital of
£11.6m were deducted from share premium.
On 13 October 2020, the Company undertook a consolidation of its shares,
whereby for every 15 ordinary shares held of 1p nominal value, shareholders
received one new consolidated share of 15p nominal value.
On 18 November 2020, Saga plc issued 507,458 new ordinary shares of 15p each,
with a value of £0.1m, for transfer into an Employee Benefit Trust (EBT) to
satisfy employee incentive arrangements.
On 12 November 2021, Saga plc issued 235,044 new ordinary shares of 15p each,
with a value of £0.1m, for transfer into an EBT to satisfy employee incentive
arrangements.
18 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 during the year were
as follows:
a) On 9 April 2021, nil cost options over 713,343 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.
b) On 29 April 2021, nil cost options over 236,815 shares were issued
under the Deferred Bonus Plan to Executive Directors reflecting their deferred
bonus in respect of 2020/21, which vest and become exercisable on the third
anniversary of the grant date. Under the Deferred Bonus Plan, executives
receive and 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.
c) On 16 November 2021, 212,326 shares were awarded to eligible
employees on the seventh anniversary of the IPO and allocated at nil cost;
these shares become beneficially owned over a three-year period from
allocation, subject to continuing service.
The fair values of all awards are assessed using techniques based upon the
"Black-Scholes" pricing model. The Group charged £3.4m (2021: £2.4m) during
the year to the income statement in respect of equity-settled share-based
payment transactions.
Notes to the consolidated financial statements (continued)
19 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. Immediately before the classification of the properties to held
for sale, their recoverable amounts were ascertained and this resulted in an
impairment charge of £4.5m being recognised against the Group's freehold land
and buildings assets. 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. These properties are presented within the
Insurance segment of the Group, and as at 31 January 2021 were being actively
marketed and the disposals were expected to be completed within 12 months of
the end of the financial year. No gains or losses were recognised with respect
to the properties.
During the year, the Group declassified one of the properties classified as
held for sale at 31 January 2021, 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. Other than this one property, there
have been no changes in relation to the Group's intention to sell any of the
properties classified as held for sale at 31 January 2021, and so the held for
sale designation is considered to remain appropriate for the remaining
properties as at 31 January 2022.
During the year, the Group disposed of a property classified as held for sale
in the period. Cash consideration received (net of transaction costs) was
£10.2m and the carrying value of the property at the date of disposal was
£3.0m. Profit arising on disposal was £7.2m.
Management conducted an impairment review of the freehold property assets held
for sale as at 31 January 2022. 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 an impairment charge totalling £1.0m
should be recognised against the Group's property assets held for sale as at
31 January 2022. As at 31 January 2022, the carrying values of the properties
classified as held for sale, totalling £12.9m, are representative of either
each property's fair value or historic cost, whichever is lower.
20 Related party transactions
On 6 April 2021, the Company entered into a working capital facility agreement
with Roger De Haan, the Non-Executive Chairman of Saga plc, to allow the
Company to draw down up to £10.0m with 20 days' notice to fund the short-term
liquidity needs of its Cruise business. The agreement allowed the Company to
select a loan period of one, two, three or six months, or any other period
agreed with Roger De Haan. Interest on the working capital facility agreement
would be incurred at a variable rate of LIBOR plus a bank margin that is
linked to the Group's leverage ratio. Interest would accrue on the facility
and be payable on the last day of the period of the loan. The facility was set
to mature on 9 May 2023, at which point any outstanding amounts, including
interest, must be repaid.
As explained in Note 16, in June 2021 the Group announced a number of
financing transactions intended to improve its financial flexibility by
increasing available liquidity, extending debt maturities and providing
greater headroom against covenants. Following the completion of these
transactions the working capital facility agreement with Roger De Haan was
subsequently cancelled with effect from July 2021.
21 Events after the reporting period
After the year end, 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
periods from 31 July 2022 to 31 January 2024.
• Reduction in the EBITDA to cash interest ratio from 2.0x to 1.7x as at 31
July 2022.
Please refer to Note 16 for further details relating to the Group's cruise
ship debt facilities.
Alternative Performance Measures Glossary
The Group uses a number of Alternative Performance Measures (APMs), which are
not required or commonly reported under International Financial Reporting
Standards, the Generally Accepted Accounting Principles (GAAP) under which the
Group prepares its financial statements, but which are used by the Group to
help the user of the accounts better understand the financial performance and
position of the business.
Definitions for the primary APMs used in this report are set out below. APMs
are usually derived from financial statement line items and are calculated
using consistent accounting policies to those applied in the financial
statements, unless otherwise stated.
APMs may not necessarily be defined in a consistent manner to similar APMs
used by the Group's competitors. They should be considered as a supplement,
rather than a substitute, for GAAP measures.
Underlying (Loss)/Profit Before Tax
Underlying (Loss)/Profit Before Tax represents the loss before tax excluding
unrealised fair value gains and losses on derivatives, the net profit on
disposal of assets, impairment of the carrying value of assets including
goodwill, charge on closure of defined benefit pension scheme, foreign
exchange gains on river cruise ship leases, costs incurred for ship debt
holiday 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.
Trading EBITDA/Adjusted Trading EBITDA
Trading EBITDA is defined as earnings before interest payable, tax,
depreciation and amortisation, and excludes the amortisation of acquired
intangibles, non-trading costs and impairments. Adjusted Trading EBITDA also
excludes the impact of IFRS 16 and the Trading EBITDA relating to the two
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 (Loss)/Profit Before Tax within the Group Chief Financial Officer's
Review on page 21. Underlying (Loss)/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.
Underlying Basic (Loss)/Earnings Per Share
Underlying Basic (Loss)/Earnings Per Share represents basic loss per share
excluding the post-tax effect of unrealised fair value gains and losses on
derivatives, the net profit on disposal of assets, impairment of the carrying
value of assets including goodwill, charge on closure of defined benefit
pension scheme, foreign exchange gains on river cruise ship leases, costs
incurred for ship debt holiday and restructuring costs. This measure is
reconciled to the statutory basic loss per share in Note 6 to the accounts on
pages 48-49.
This measure is linked to the Group's key performance indicator Underlying
(Loss)/Profit Before Tax and represents what management considers to be the
underlying shareholder value generated in the year.
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 58.
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 21.
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 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 23.
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