REG - SAGA Plc - Preliminary Results
04/04/2023 07:00
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RNS Number : 2911V SAGA PLC 04 April 2023
4 April 2023
Saga plc
Unaudited preliminary results for the year ended 31 January 2023
Saga reports significant revenue growth and return to underlying profit
Saga plc (Saga or the Group), the UK's specialist in products and services for
people over 50, announces its unaudited preliminary results for the year ended
31 January 2023.
31 January 2023 (unaudited) 31 January 2022 Change
Revenue £581.1m £377.2m 54%
Underlying Profit/(Loss) Before Tax(1) £21.5m (£6.7m) 421%
Loss before tax (£254.2m) (£23.5m)
Available Operating Cash Flow(1) £54.9m £75.8m (28%)
Net Debt(1) £711.7m £729.0m (2%)
Leverage ratio 7.5x 11.7x (4.2x)
Euan Sutherland, Saga's Group Chief Executive Officer, said:
"Over the past year, through what continued to be a particularly challenging
external backdrop, Saga made progress against its strategy while achieving
significant revenue growth and returning to underlying profit.
"Our Ocean Cruise business continued to see strong customer demand and
bookings for 2023/24 are on track to meet our targets. In Travel, bookings are
significantly ahead of the same point last year and that business will return
to profit this year.
"Our Insurance Underwriting business took pricing action to reflect the rise
in claims inflation, while our Insurance Broking business navigated a
challenging landscape, adjusting to significant regulatory changes and
increased competitive pressure.
"We also took a number of key steps to reposition the business, consistent
with the strategy we set out 12 months ago to create 'The Superbrand' for
older people. Our top priorities for the next 12 months are to strengthen our
financial position and continue to build Saga into the largest and
fastest-growing business for older people in the UK, delivering long-term,
sustainable growth for our stakeholders."
Operational and financial highlights
· The Group reports an Underlying Profit Before Tax(1) of £21.5m,
within the guided range of £20m to £30m.
· Revenue growth, when compared to the prior year, was 54% due to
continued Cruise and Travel recovery following the pandemic.
· The reported loss before tax of £254.2m reflects the £269.0m
impairment of Insurance goodwill reported within our interim results.
· Available Cash(1), at 31 January 2023, was £157.5m with Net
Debt(1) of £711.7m, £17.3m lower than the year before.
· The Group remains in discussions in relation to the possible sale
of its Insurance Underwriting business, consistent with the ambition to move
towards a capital-light model and reduce debt.
Divisional performance
Cruise - Strong Ocean bookings on track to meet our targets with River set to
return to profit
· Ocean Cruise reported an Underlying Loss Before Tax(1) of £0.7m
for the full year but with considerable improvement in the second half, when
the business reported an Underlying Profit Before Tax(1) of £6.2m.
· Ocean Cruise revenue, of £168.3m, was more than 100% ahead of
2021/22, supported by a full year load factor of 75% and per diem of £318.
This compares with 68% and £299 in the prior year.
· Ocean bookings for 2023/24 are strong, representing a load factor
of 72%, and per diem of £339 at 26 March 2023. This places us on track to
achieve our target of £40m EBITDA (excluding overheads) per ship.
· Our River Cruise business, which we now report separately from
our Travel business, reported revenue of £28.8m compared with £1.7m in the
prior year, and an Underlying Loss Before Tax(2) of £5.1m.
· River Cruise bookings for 2023/24 are very positive with the
number of booked guests 23% ahead of the same point last year, reflecting a
load factor of 63% and per diem of £298 at 26 March 2023.
· Customer satisfaction across both Ocean and River Cruise remains
exceptional at 9.0 and 8.2 out of 10, respectively at 31 January 2023.
Travel - Launch of new products boosting bookings position
· Our Travel business reported revenue of £108.4m, more than 10
times that in the previous year, and a small Underlying Loss Before Tax(1) of
£4.1m, in line with previous guidance.
· Building from a recovery in touring revenues, in addition to the
launch of new products including our private jet tours and 'Tailor-Made by
Saga' proposition, total booked revenue for 2023/24, at 26 March 2023, was
£136.6m, 32% ahead of the £103.7m booked at the same point in the prior
year.
Insurance Broking - Underlying Profit Before Tax(2) in line with the prior
year
· Overall, the business reported a written Underlying Profit Before
Tax(2) of £67.7m, in line with the £66.6m in the previous year.
· Total policies in force across all products, at 31 January 2023,
was 1.7m, 3% behind the prior year, with total policy sales 2% behind.
· The number of travel insurance policies sold was 103% ahead of
the prior year, achieving revenue growth of more than 200%.
· Customer retention across motor and home insurance strengthened
further, now at 83.8% and 1.0ppt ahead of the prior year.
· As a result of significantly lower new business sales, the total
number of motor and home insurance policies sold was 7% behind the prior year
with an average margin of £71 per policy, compared with £74 in the year
before. The direct share of new business was 49%, compared with 59% in the
prior year, reflecting challenging market conditions.
Insurance Underwriting - Material pricing increases applied to offset the rise
in claims inflation
· Our Underwriting business reported an Underlying Profit Before
Tax(2) of £19.1m for the year ended 31 January 2023, including underlying
prior year reserve releases of £25.1m.
· As indicated within our January Trading Update, the current year
underlying combined operating ratio (excluding the impact of our quota share
reinsurance arrangements) was 125.8% compared with 96.3% in the prior year.
This reflects the unwind of COVID-19 frequency benefits, a sharp rise in
claims inflation and an above-average level of current year large losses.
· This is largely offset within our result by recoveries under our
quota share reinsurance arrangements and favourable development on prior year
large losses.
· We continued to apply material price increases to the motor book,
reflecting not only retrospective, but also our prospective view of inflation.
Wider strategic progress - Positioning Saga for growth
· Saga Money reported an Underlying Profit Before Tax(2) of £2.3m
and top line growth across our equity release and savings products.
· Following the launch of Saga Media in late January, our brand-new
website, Saga Exceptional, has exceeded our initial expectations and attracted
more than 500,000 visitors to date.
· In the fourth quarter of 2022, the Group reported its highest
ever net promoter score. The score of 51 was 2 points higher than the same
point in the prior year and reflects improvements within our contact centres
which reduced wait times and improved the customer journey.
· Following the pandemic, and the move to our hybrid working
approach, far fewer colleagues are choosing to work regularly from the office.
We, therefore, made the decision to close our Enbrook headquarters in
Folkestone in favour of two smaller hubs in Kent, in addition to our existing
London hub. This will reduce operating expenses while we explore longer-term
options for the site.
· To allow us to reach a wider audience, our aim is to grow our
database. In support of this we set a target to achieve three million new
customer marketing consents by 31 January 2023, which we met.
· Following the acquisition of the Big Window at the start of the
year, we further developed our insights through the creation of our customer
segmentation, expansion of our Experienced Voices customer panel and, most
recently, the release of our 'Generation Experience' economic study which
dispels some of the myths around ageing and the contribution that people over
50 make to the economy.
Financial position
The Group continues to focus on reducing leverage, with Net Debt(1) decreasing
by £17.3m in 2022/23. To further reduce debt and increase liquidity ahead of
the £150m bond maturity in May 2024, and consistent with the ambition to move
to a more capital-light model, the Group has initiated a sale process for the
Insurance Underwriting business that is continuing.
To provide additional financial flexibility ahead of the May 2024 bond
maturity, the Group has agreed a loan facility with Sir Roger De Haan, on
normal commercial terms, that enables the business to draw down up to £50m of
cash, if required, with 30 days' notice. The facility will be effective from 1
January 2024 and will expire on 30 June 2025, with interest incurred at 10%
and with draw down and milestone fees of up to a maximum of 6% of the
facility.
Outlook
The progress made in 2022/23 places us in good stead as we enter 2023/24. We
expect to see customer demand continue to build for our Ocean Cruises and we
are aiming to achieve a load factor of at least 80% and our targeted £40m
EBITDA per ship, excluding overheads. We expect both our River Cruise and
Travel businesses to significantly increase the number of passengers that
travel with us and return to profit.
While the UK insurance market remains very challenging, our disciplined
approach is the right one. We expect lower sales in motor and home insurance
but with a margin in line with previous indications, trending towards £60 per
policy. We expect Insurance Underwriting to report a broadly break-even result
in the current year with material rate increases fully benefiting future
years.
Subsequent to the launch of new products planned for the second half of
2023/24, the contribution from Saga Money is expected to grow when compared
with 2022/23 levels.
We remain focused on reducing our debt through the continued repayment of our
ocean cruise ship debt and the £150m bond on maturity in May 2024 which,
following actions taken to improve our financial flexibility, we expect to
repay from Available Cash(3).
We will also continue our strategic pivot to become a capital-light,
direct-to-customer marketing, content and distribution business through
investment in Media, data and insight. As we increase the frequency and depth
of our customer relationships, we will transform Saga into the largest and
fastest-growing business for older people in the UK.
END
Management will hold a presentation for analysts and investors at 9.30am
today. The webcast can be accessed by registering at
https://www.investis-live.com/saga-group/6419aee93e92bb0c006728f0/dsgh
(https://www.investis-live.com/saga-group/6419aee93e92bb0c006728f0/dsgh) and a
copy of the presentation slides is available at
www.corporate.saga.co.uk/investors/results-reports-presentations/
(http://www.corporate.saga.co.uk/investors/results-reports-presentations/) .
Audited results for the year ended 31 January 2023 will be published within
the 2023 Annual Report and Accounts later in April.
For further information, please contact:
Saga plc
Emily Roalfe, Head of Investor Relations and Treasury
Tel: 07732 093 007
Email: emily.roalfe@saga.co.uk
Headland Consultancy
Susanna
Voyle
Tel: 07980 894 557
Will Smith
Tel:
07872 350 428
Tel: 020 3805 4822
Email: saga@headlandconsultancy.com
Notes to editors
Saga is a specialist in the provision of products and services for people over
50. The Saga brand is one of the most recognised and trusted brands in the UK
and is known for its high level of customer service and its high-quality,
award-winning products and services including cruises and travel, insurance,
personal finance and media. www.saga.co.uk (http://www.saga.co.uk)
1 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
2 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
3 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Chairman's Statement
I am pleased to report that last year the performance of our core Cruise,
Travel and Insurance businesses enabled us to return to underlying
profitability whilst we also made good progress in relation to the strategy we
set out 12 months ago.
Saga continued to build on the progress reported at the half year, with
revenue for the Group increasing by over 50% when compared with the previous
year, following the return to more normal Cruise and Travel operations post
the pandemic.
Our Ocean Cruise business, with its new ships, performed well in the second
half of the year, sailing with an average 84% occupancy, testament to the
exceptional service we provide on board, the model that we are now mirroring
on board our River Cruise vessels. Looking ahead, the level of revenue booked
for the 2023/2024 financial year is very encouraging and we are now in a good
position to generate our targeted levels of EBITDA, £80m excluding overheads,
from the two ships.
There have been exciting new developments in our Travel business in the past
year, including the move to a more agile, more digital operation, and the
launch of our new "Tailor-Made by Saga" holidays. Currently, demand for our
holidays is strong, particularly for our touring programmes.
Our Insurance business operated in the highly competitive market last year
following continued disruption and uncertainty created by the regulatory
changes to the industry's pricing and the high cost of settling insurance
claims. We continued to take a disciplined approach to our pricing.
As we have indicated previously, we have decided to focus on Insurance Broking
and to sell our Insurance Underwriting business, a move that will reduce the
risk we take and release capital and allow us to further reduce our debt. With
this in mind, I was pleased to be able to provide a £50m facility to give the
Company additional flexibility.
In order to increase the products and services we offer and the frequency of
our customer interactions and the understanding we have of them, I am
delighted that we strengthened our leadership team during the year. Three very
experienced and talented executives were appointed to set up and lead our new
Media business, our Personal Finance operations, Saga Money and our Data team.
Each of these areas has great potential.
As I set out in my statement last year, Saga has always had a strong sense of
purpose and we have embraced our Environmental, Social and Governance (ESG)
responsibilities. During the year, we conducted an assessment to understand
fully the ESG factors that are most material to our business. Our new
sustainability strategy will be published in our 2023 Annual Report and
Accounts, and in due course we will set out further details of the key metrics
that we will use to track our performance.
I am very positive about the future potential of Saga. We have managed our way
through three difficult years and, in 2023/24, we expect all of our three main
businesses to be profitable. I am confident that our strategy is the right one
and will lead to growth and a significant reduction in our levels of debt.
Finally, I'd like to thank the team at Saga for their hard work over the past
year. It is evident to me that there is a tremendous opportunity for Saga to
broaden its services to its customers, reduce its debt, enlarge its business
and increase its profitability and that the Company is now well placed to take
advantage of this.
Group Chief Executive Officer's Statement
Continued pandemic recovery
During 2022/23, we made strong progress against the growth plan that we set
out in March 2022, as our Cruise and Travel businesses continued to recover
from the pandemic, and we navigated a particularly challenging motor insurance
market as it adjusted to regulatory changes, a sharp rise in claims inflation
and a highly competitive environment in light of those changes. This was
achieved alongside the launch of our new Media business, significant
enhancements to our data capabilities and the strengthening of our leadership
team.
Return to underlying profit
I am pleased to report that, for the year ended 31 January 2023, Saga
generated an Underlying Profit Before Tax(1) of £21.5m, compared with an
Underlying Loss Before Tax(1) of £6.7m in the prior year. This reflects
significant improvements across Cruise and Travel as those businesses returned
to more normal operations, and consistent Insurance Broking performance, which
was partially offset by reduced earnings from our Insurance Underwriting
business.
After reflecting the £269.0m Insurance goodwill impairment that we reported
within our interim results, alongside other smaller one-off below-the-line
items, we report a loss before tax of £254.2m. This compares to a loss before
tax of £23.5m in the prior year.
In addition, we reduced our level of Net Debt(1) which, at 31 January 2023,
was £711.7m and continued to hold significant Available Cash(1) of £157.5m
at the same date. Net Debt(1) and Available Cash(1), at 31 January 2022, were
£729.0m and £186.6m respectively.
To further reduce debt and increase liquidity ahead of the maturity of our
£150m bond in May 2024, we have taken a series of actions which include the
initiation of a sales process in relation to our Insurance Underwriting
business and the agreement of a £50m loan facility with Sir Roger De Haan.
The progress made throughout the course of the year demonstrates that Saga is
on the right track to, in time, deliver long-term sustainable growth for our
stakeholders.
Our growth plan
In March 2022, we set out our ambition to become the largest and
fastest-growing business for older people in the UK which we will achieve
through delivery of our three-step growth plan. This plan is focused on the
following three priorities:
1. Maximising our existing businesses
2. Step-changing our ability to scale while reducing debt
3. Creating 'The Superbrand' for older people
An update on our progress, during the past year, in each of these areas is set
out below.
1. Maximising our existing businesses
Cruise
Our Ocean Cruise business reported an Underlying Loss Before Tax(1) of £0.7m
for the year ended 31 January 2023. This comprises an underlying loss of
£6.9m in the first half and a profit of £6.2m in the second half as the
impact of COVID-19 lessened. This compares to an Underlying Loss Before Tax(1)
of £47.7m in the prior year.
For the 2022/23 financial year, Ocean Cruise achieved a load factor of 75%,
made up of 66% in the first half of the year and 84% in the second,
accompanied by a per diem of £318. This compares with a 68% load factor and
£299 per diem in the prior year. These factors, when combined, result in
Ocean Cruise year-on-year revenue growth in excess of 100%.
Looking ahead to the 2023/24 financial year, our booked load factor positions
us well to meet our target of at least 80%. At 26 March 2023, we had secured
bookings equivalent to a 72% load factor and £339 per diem. This positions us
well to deliver our target of £40m EBITDA per ship, excluding overheads, in
the year ending 31 January 2024.
As our Ocean and River Cruise businesses are now managed by the same team, we
have taken steps to not only ensure that our River Cruise guests experience
the same exceptional service as within Ocean Cruise, but also provide more
visibility over the performance of our River Cruise operation.
Our River Cruise business, in line with the guidance within our January
Trading Update, reported an Underlying Loss Before Tax(2) of £5.1m which
compares with a £6.4m loss in the prior year. This improvement was largely
driven by significantly more guests sailing with us, being 12,000 in 2022/23
compared with just 1,000 in the prior year.
For the 2023/24 financial year, the River Cruise business is expected to
generate a small Underlying Profit Before Tax(2) before becoming a more
meaningful proportion of the Group's earnings over time. In support of this,
bookings for the year ending 31 January 2024 are strong and, at 26 March 2023,
we had already secured bookings from more than 12,500 guests which equated to
a load factor of 63% and per diem of £298.
We actively encourage our guests to openly express their views and provide
feedback in relation to our Cruise offering as it is this that allows us to
continuously enhance our guest experience. We are exceptionally proud that, at
31 January 2023, our guest satisfaction score was 9.0 out of 10 for Ocean
Cruise and 8.2 for River Cruise.
Travel
Our Travel business returned to more normal operations following the COVID-19
pandemic and, as such, revenue for the year ended 31 January 2023 increased by
more than 10 times when compared with the year before. The business reported a
small Underlying Loss Before Tax(2) of £4.1m.
2022/23 was a year of transformation for our Travel business, moving from a
largely traditional paper-based business to one that offers awe-inspiring
holidays through a more digital and agile operating model.
As part of the move, we developed a series of exciting new products, including
'Tailor-Made by Saga', which offers customers a truly personalised travel
experience, and our private jet tours which represent our most luxurious
holidays yet with a succession of unforgettable encounters and travel
exclusively by chartered plane. In addition, all bookings now benefit from our
Saga Deluxe and Titan VIP Travel Services which include home-to-airport pick
up, airport lounge access and fast-track security clearance at selected UK
airports.
Customer feedback received to date in relation to our revamped Travel offering
has been incredibly positive and is reflected in our forward bookings. At 26
March 2023, booked revenue totalled £136.6m which is 32% ahead of the same
point in the prior year. This level of bookings places the business firmly on
track to return to profit in 2023/24.
Insurance
The UK insurance market has faced particularly challenging times over the past
year as insurers adjusted to market-wide regulatory changes and high levels of
claims inflation.
Overall, Insurance Broking reported an Underlying Profit Before Tax(2), on a
written basis, of £67.7m which compares to £66.6m in the previous year.
The number of policies in force across all products, at 31 January 2023, was
1.7m or 3% behind the position at 31 January 2022. Total policy sales for the
year as a whole were 2% behind the prior year, reflecting a 103% increase in
the number of travel insurance policies sold, broadly stable sales of private
medical insurance and motor and home sales that were 7% behind the prior year.
While the level of new motor and home policies sold was significantly behind
the prior year at 50% and 17% respectively, customer retention improved to
83.8%, or 1.0ppt ahead of the prior year. The average margin per policy was
£71, compared with £74 in the year before.
The proportion of customers coming to Saga directly, rather than through
price-comparison websites, was 49%, compared with 59% in the prior year,
reflecting the competitive nature of the market.
Our Insurance Underwriting business reported an Underlying Profit Before
Tax(2) of £19.1m for the year, supported by £25.1m of underlying prior year
reserve releases.
Excluding the impact of these reserve releases, and our quota share
reinsurance arrangements, our current year underlying combined operating ratio
was 125.8% which compares with 96.3% in the prior year. This reflects the
expected unwind of the prior year COVID-19 frequency benefits, a sharp rise in
inflation to the cost of settling claims and an above-average level of current
year large claims.
In response to the rise in claims inflation, throughout the year, we applied
material increases to our pricing which incorporated both the level of
inflation already observed, and the expected inflation in the coming year.
Money
Our personal finance business, Saga Money, reported an Underlying Profit
Before Tax(2) of £2.3m for the 2022/23 financial year, broadly in line with
that of the prior year.
In equity release, which was supported by the launch of our new television
advertising, total loan volumes were 29% ahead of the prior year, with the
average loan value also 19% higher.
Our savings product, provided in partnership with Goldman Sachs, secured 17%
more accounts than in the year ended 31 January 2022, with assets under
management of around £3.5bn.
2. Step-changing our ability to scale while reducing debt
The second focus within our growth plan is on reducing our level of debt and
step-changing our ability to scale the business. At 31 January 2023, Net
Debt(3) was £711.7m, £17.3m lower than at 31 January 2022. This represents
the Group's gross debt at that date, less £157.5m of Available Cash(4).
Following two years of agreed deferrals, we re-commenced payments on our two
ocean cruise ship facilities and a total of £46.4m was repaid during 2022/23.
Future Cruise bookings are encouraging and, over time, we expect to generate
sufficient cash from Ocean Cruise to meet interest and capital repayments,
including catch-up payments on elements deferred during the pandemic.
To maintain flexibility in relation to our short-term liquidity needs, we
concluded discussions with the lending banks behind our revolving credit
facility and agreed a series of amendments, including changes to the leverage
and interest cover covenants attached to the facility. Full details of the
changes and revised covenant levels can be found on page 24.
As part of our property strategy, we are continuously assessing our ways of
working and how best to support colleagues. Following the pandemic, and in
line with our hybrid working approach, we saw that far fewer colleagues were
choosing to work regularly from our Enbrook Park headquarters in Folkestone.
We made the decision to close the site in favour of two smaller hubs in Kent,
in addition to our existing London hub. This will reduce operating expenses
while we explore longer-term options for the site.
As part of our plan to reduce debt and move towards a more capital-light
model, we are continuing to evaluate our options in relation to our Insurance
Underwriting business and an active sales process is ongoing.
3. Creating 'The Superbrand' for older people
The final step in our growth plan is to create 'The Superbrand' for older
people through focus on our brand, data, insights and customer interactions.
Saga is a brand that has exceptionally high awareness amongst people over 50,
however, historically too many have seen Saga as something that 'isn't for
them'. Over the past couple of years, our mission has been to reframe the
conversation with a focus on experience as opposed to age. The brand relaunch
in 2021 was only the start and, since then, we have expanded our new marketing
campaigns to cover more products, and increased our customer net promoter
score (NPS) to its highest ever level. When compared to 2021, NPS in the
fourth quarter was two points higher, at 51. This reflects improvements within
our contact centres which reduce wait times and improve the customer journey.
As we highlighted at our Capital Markets Event in January 2023, the data we
hold and the way that we use it, will be key to our success in becoming a
superbrand. At the beginning of the year, we set a target to achieve three
million new consents by 31 January 2023 which would allow us to communicate
our products and services to a wider audience than before. I am pleased to
confirm that we achieved this, and more.
The insights we hold about 'Generation Experience' are crucial as they allow
us to develop products and services that meet the specific needs of our
customers. Following the acquisition of The Big Window Consulting Limited at
the start of the year, we have taken great strides in this space. These
include developing our detailed customer segmentation, building our
Experienced Voices panel which now consists of more than 10,000 of our
customers and championing a conversation on positive ageing, most recently
supported by the release of our 'Generation Experience' economic study.
In addition, increasing the depth, and frequency, of our interactions with
customers is a key part of our superbrand plan. Through this, we are able to
learn more about their specific interests and viewpoints, enabling us to
continuously improve the products and services we offer. Saga Media, which was
launched in January 2023, is pivotal to this process. Through Saga Media, and
our brand-new Saga Exceptional website, we are providing people over 50 with
an online home and a corner of the internet that is designed specifically for
them. Not only does this allow us to become part of our customers' lives and
learn more about what they want, but it will also become a profit-generative
business in its own right within five years, through advertising and affiliate
partnerships.
In order to transform Saga into 'The Superbrand' for older people, we need to
create an exceptional colleague experience, giving each and every colleague
the opportunity to do the best work of their lives. During 2022/23, we made
great progress in this space, providing colleagues with access to a new reward
platform and enhancing the financial support available through acceleration of
our annual pay review cycle and two additional cost of living support payments
for our colleagues with lower earnings.
The engagement of our colleagues, measured through a survey hosted by an
independent third party, remains high at 8 out of 10.
Building Saga into the largest and fastest-growing business for older people
We are continuing with the delivery of our three-step growth plan, focused on
maximising our existing businesses, reducing debt while step-changing our
ability to scale and creating 'The Superbrand' for older people. We will
continue to pay down our ocean cruise ship debt, and we expect to repay the
£150m bond maturing in May 2024 from Available Cash(4).
Overall, I am pleased with the progress made during the year as we began to
make the strategic pivot towards becoming a capital-light marketing, content
and distribution business. We now have the right team, strategy and structure
in place that will return Saga to sustainable long-term growth.
Finally, I would like to pass my thanks on to our colleagues for their
relentless efforts during this period of change. I recognise that any business
is only as strong as its colleagues and, looking at the team around me, that
fills me with confidence.
1 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
2 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
3 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
4 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Group Chief Financial Officer's Review
Although the last 12 months have been challenging in both Insurance and
Travel, in 2022/23 the Group returned to an Underlying Profit Before Tax1 of
£21.5m compared to an Underlying Loss Before Tax(1) of £6.7m in the prior
year. This was mainly due to a £69.4m improvement in the results of our
Cruise and Travel operations, offset by a £35.0m reduction in the results
from Insurance Underwriting.
For Cruise and Travel, the first half of 2022/23 was far from 'plain sailing'.
The Cruise business was affected by ongoing impacts from COVID-19, which led
to the curtailing of two ocean cruises and higher cancellations on other
departures. The Travel business was impacted by lower demand and also
experienced higher-than-normal cancellations, in part due to the operational
issues impacting the industry. These factors were much less of an issue in the
second half, although revenues and profitability have yet to recover to levels
anticipated pre-pandemic.
Insurance Broking has been under pressure from a combination of pricing
reforms, inflation squeezing distribution margins and from a generally highly
competitive environment. This led to a significant decline in new business
sales for motor and home. The overall Insurance Broking result was at a
similar level to the prior year, with lower motor and home profits offset by
improved results on other products, especially travel insurance.
Results for Insurance Underwriting were, however, much lower than in the prior
year. Part of this was expected, with the prior year benefiting from reduced
motor claims frequency during periods of lockdown. This reduction in claims
frequency reversed as we expected, but results for the second half of the year
were adversely impacted by a sharp increase in claims inflation and an
increase in large losses. This resulted in us reporting an underlying current
year combined operating ratio (COR) of 125.8% for the full year, considerably
adverse to expectations, albeit with a significant portion of the lower result
ceded to our reinsurers.
While the Group generated an Underlying Profit Before Tax(1), we reported a
loss before tax of £254.2m, mainly due to a £269.0m impairment of the
goodwill related to our Insurance business, included in our interim results.
As reported at the half year, the combination of a very competitive motor
market and regulatory changes equalising new business and renewal pricing are
adversely impacting motor and home new business sales and pricing, which in
turn has led to a reduction in the discounted cash flows that underpin the
carrying value of Insurance goodwill.
For the 2023/24 financial year, we expect to see a further recovery in the
Cruise and Travel businesses. Ocean Cruise bookings are positive, and we
expect our load factors for the current year to be in line with the levels
expected pre-pandemic. The River Cruise and Travel businesses are also
starting to see much better booking momentum and we are on track to return to
profit in 2023/24. In Insurance Broking, we expect policy sales to continue to
reduce, as lower new business in 2022/23 translates into lower renewals in
2023/24, with motor and home margins of around £60 per policy, as previously
indicated. For Insurance Underwriting, we expect a broadly break-even result;
while underlying performance should be considerably better than in 2022/23,
significant rate increases will not be fully reflected in earned premiums
until the second half and improvement in results will, in the first instance,
go towards reducing reinsurer losses. In addition, we also expect only limited
reserve releases in future years.
In terms of our financial position, in 2022/23, our Net Debt(1) reduced from
£729.0m to £711.7m with gross debt reducing by £46.4m, all relating to the
debt financing of our two ocean cruise ships, of which £29.1m was financed
from a reduction in Available Cash(1). While this was a lower pace of
reduction than we had anticipated, reflecting the challenges we faced in
2022/23, we continue to have significant liquidity, with £157.5m of Available
Cash(1) at 31 January 2023.
Over the course of the past year, we have taken a series of actions which
increase our financial flexibility. These include amendments in relation to
our revolving credit facility, the initiation of a sales process for our
Insurance Underwriting business and, most recently, the agreement of a loan
facility with Sir Roger De Haan. This facility, which was provided on an
arm's-length basis, commences on 1 January 2024 and would allow the Group to
draw down up to £50m, as required, to support liquidity needs and
specifically the repayment of £150m bonds maturing in May 2024.
Our focus now is on growing earnings and significantly reducing leverage as
our Cruise and Travel businesses continue their positive momentum and as we
capitalise on investment in Media, Money and data.
Operating performance
Group income statement
£m 12m to Jan 2023 Change 12m to Jan 2022
(unaudited)
Revenue (2) 581.1 54.1% 377.2
Underlying Profit/(Loss) Before Tax(3)
Cruise and Travel (9.9) 87.5% (79.3)
Insurance Broking (earned) 69.1 4.1% 66.4
Insurance Underwriting 19.1 (64.7%) 54.1
Total Insurance 88.2 (26.8%) 120.5
Other Businesses and Central Costs (34.9) (19.1%) (29.3)
Net finance costs(4) (21.9) (17.7%) (18.6)
Underlying Profit/(Loss) Before Tax(3) 21.5 420.9% (6.7)
Impairment of Insurance goodwill (269.0) -
Other exceptional items (6.7) (16.8)
Loss before tax (254.2) (981.7%) (23.5)
Tax expense (5.0) (11.1%) (4.5)
Loss after tax (259.2) (825.7%) (28.0)
Basic earnings per share:
Underlying Earnings/(Loss) Per Share(3) 11.9p 207.2% (11.1p)
Loss per share (185.8p) (824.4%) (20.1p)
The Group's business model is based on providing high-quality and
differentiated products to its target demographic, predominantly focused on
cruise, travel and insurance. The Cruise and Travel business comprises Ocean
Cruise, River Cruise and Travel. The Insurance business operates mainly as a
broker, sourcing underwriting capacity from selected third-party insurance
companies, and, for motor and home, also from the Group's in-house
underwriter. Other Businesses comprises Saga Money, Saga Media, Saga Insight
and CustomerKNECT (formerly MetroMail), a mailing and printing business.
Revenue(2)
Revenue(2) increased by 54.1% to £581.1m (2022: £377.2m) due to increased
trading in the Cruise and Travel businesses. The current year has a full year
of trading in Cruise and Travel compared to a suspension of these businesses
for the majority of the first half of the prior year.
Underlying Profit/(Loss) Before Tax(3)
The Group generated a total Underlying Profit Before Tax(3) of £21.5m in the
current year compared to an Underlying Loss Before Tax(3) of £6.7m in the
prior year. This is primarily due to a £69.4m reduction in Cruise and Travel
losses, of which £47.0m relates to the Ocean Cruise business. This was
partially offset by a reduction in Insurance Underwriting profitability due to
lower reserve releases and an increased current year loss ratio.
Net finance costs(4) in the year were £21.9m (2022: £18.6m), which excludes
finance costs that are included within the Cruise and Travel businesses of
£19.2m (2022: £19.5m). The increase of 17.7% was due to the higher bond
interest costs following the completion of the new bond issue in July 2021.
This was partially offset by a reduction in debt issue costs in current year
compared with the prior year.
Loss before tax
Loss before tax for the year of £254.2m includes a £269.0m impairment to
Insurance goodwill and other exceptional items of £6.7m. Other exceptional
items are made up of £1.1m of impairments to assets (net of amounts
recoverable under quota share arrangements), £3.7m of restructuring costs, a
£2.0m foreign exchange loss on river cruise ship leases, £0.6m IFRS 16
adjustment loss on river cruise ships, £0.7m acquisition costs on the
purchase of The Big Window Consulting Limited and a £1.4m fair value gain on
derivatives de-designated in the year.
The loss before tax in the prior 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 Travel
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 prior year 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 Travel
business, £1.0m of impairment 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.
Tax expense
The Group's tax expense for the year was £5.0m (2022: £4.5m), representing a
tax effective rate of 33.8% (2022: negative 19.1%), excluding the Insurance
goodwill impairment charge. In the prior year, the difference between the
Group's tax effective rate and the standard rate of corporation tax of 19%,
was mainly due to the Group's Ocean Cruise business being in the tonnage tax
regime.
There was also an adjustment in the current year for the under-provision of
prior year tax of £0.8m (2022: £1.0m). In the prior year, there was an
adjustment for the impact of the change in the tax rate on opening deferred
tax balances of a £2.6m credit. Excluding the impact of the Ocean Cruise
business being in the tonnage tax regime, Insurance goodwill impairment and
adjustments to prior year tax, the tax effective rate for the current period
is 28.4%.
Earnings/(loss) per share
The Group's Underlying Basic Earnings Per Share(5) was 11.9p (2022: Loss of
11.1p). The Group's reported basic loss per share was 185.8p (2022: loss of
20.1p).
1 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
2 Revenue is stated net of ceded reinsurance premiums earned on business
underwritten by the Group of £111.3m (2022: £123.8m)
3 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
4 Net finance costs exclude Cruise and Travel finance costs, net fair value
gains/(losses) on derivatives and IAS 19R pension interest costs
5 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Cruise and Travel
12m to Jan 2023 (unaudited) 12m to Jan 2022
£m Ocean River Travel Total Cruise and Travel Change Ocean Cruise River Travel Total Cruise
Cruise Cruise Cruise and Travel
Revenue 168.3 28.8 108.4 305.5 222.6% 82.5 1.7 10.5 94.7
Gross profit/(loss) 40.2 1.5 20.9 62.6 863.4% (7.7) 0.2 (0.7) (8.2)
Marketing expenses (11.0) (3.2) (10.2) (24.4) (17.3%) (12.1) (2.2) (6.5) (20.8)
Other operating expenses (10.7) (3.4) (14.8) (28.9) 6.5% (9.2) (3.8) (17.9) (30.9)
Investment return - - - - (100.0%) 0.1 - - 0.1
Finance costs (19.2) - - (19.2) 1.5% (18.8) (0.6) (0.1) (19.5)
Underlying Loss Before Tax(6) (0.7) (5.1) (4.1) (9.9) 87.5% (47.7) (6.4) (25.2) (79.3)
Average revenue per passenger (£) 4,675 2,400 2,306 3,216 5.3% 3,750 1,700 1,313 3,055
Ocean Cruise passengers ('000) 36 36 63.6% 22 22
Ocean Cruise load factor 75% 75% 7ppts 68% 68%
Ocean Cruise per diem (£) 318 318 6.4% 299 299
River Cruise passengers ('000) 12 12 1,100.0% 1 1
Travel passengers ('000) 47 47 487.5% 8 8
Ocean Cruise
Ocean Cruise returned to more normal operating conditions and achieved a load
factor of 75% (2022: 68%) and a per diem of £318 (2022: £299). These two
factors, when combined, equate to year-on-year revenue growth in excess of
100% and have resulted in a significantly reduced Underlying Loss Before
Tax(6) from £47.7m to £0.7m. The first half of the prior year only included
a month of Spirit of Discovery trading and a few days of Spirit of Adventure
trading, at a government-enforced load factor restriction of 50% that was
removed towards the end of July 2021.
In the first half of the current year, there were some adverse impacts on a
small number of cruises due to COVID-19, while the conflict in Ukraine
dampened customer demand for departures to the Baltics and Black Sea,
resulting in late itinerary changes and some limited cancellations, which led
to a first half load factor of 66%.
In the second half of the year, as impacts from the pandemic lessened and
customer demand continued to build, a load factor of 84% was achieved.
River Cruise
The River Cruise business has long-term leases in place for two boutique river
cruise ships, Spirit of the Rhine and Spirit of the Danube, alongside other
charters which are managed on an annual basis. Although the business is now
operating, both the Omicron variant of COVID-19 and the conflict in Ukraine
impacted the number of passengers travelling in the current year, especially
in the first half, due to continued customer caution in relation to Central
Europe. The River Cruise business did not operate for the majority of the
prior year due to the travel restrictions that were in place at the time.
This resulted in a reduced Underlying Loss Before Tax(6) from £6.4m to
£5.1m.
Travel
The Travel business, which includes both the Saga Holidays and Titan brands,
has seen much increased volumes compared to the prior year, with passenger
numbers increasing from 8k to 47k. The recovery in volumes has been impacted
by a level of disruption from a variety of factors, including operational
challenges faced by airlines and airports, particularly in the first half.
The recovery in passenger volumes led to an improvement in the Underlying Loss
Before Tax(6) from £25.2m to £4.1m.
In the second half of the year, we saw customer cancellations returning closer
to pre-pandemic levels, with multiple initiatives underway to return to
growth, including the recently launched 'Tailor-Made by Saga' proposition.
6 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Forward Cruise and Travel sales
Ocean Cruise load factors for 2023/24 are behind the same point last year for
2022/23 by 3ppts. This is partly due to the release of itineraries in the
prior year being earlier than usual as we emerged from COVID-19 lockdowns, and
partly due to the prior year including bookings which had been postponed
during the period of COVID-19 suspension. The per diem for 2023/24 is 6.3%
higher than the same point last year for 2022/23 as the Group has reflected
the inflationary impact on operating costs in customer pricing.
River Cruise revenue and passengers booked for 2023/24 are ahead of the same
point last year for 2022/23 by 29.8% and 22.5% respectively. This is due to
increased customer demand for 2023/24 compared to customer caution in respect
of Central Europe in 2022/23. For 2023/24, the Cruise team have aligned
management information for the River Cruise business to the Ocean Cruise
business so load factor and per diems are now key performance indicators for
River Cruise.
Travel bookings for 2023/24 are ahead at the same point last year for 2022/23
by 31.7% and 17.1% for revenue and passengers respectively. The increased
revenue is due in part to higher passengers but also increases in operating
costs being incorporated in customer pricing and a move towards a higher
revenue, higher margin product range. The increase in passengers is due to
higher uptake of long-haul travel within our Titan brand as customer
confidence returns.
Current year departures
26 March 2023 (unaudited) Change 27 March 2022
Ocean Cruise revenue (£m) 175.1 6.6% 164.2
Ocean Cruise load factor 72% (3ppts) 75%
Ocean Cruise per diem (£) 339 6.3% 319
River Cruise revenue (£m) 34.0 29.8% 26.2
River Cruise passengers ('000) 12.5 22.5% 10.2
River Cruise load factor 63% n/a n/a
River Cruise per diem (£) 298 n/a n/a
Travel revenue (£m) 136.6 31.7% 103.7
Travel passengers ('000) 49.2 17.1% 42.0
Insurance
Insurance Broking
The Insurance Broking business provides tailored insurance products and
services, principally motor, home, private medical and travel insurance.
Its role is to price the policies and source the lowest cost of risk, whether
through the panel of motor and home underwriters or through solus arrangements
for private medical and travel insurance. The Group's in-house insurer, AICL,
sits on the motor and home panels and competes for that business with other
panel members on equal terms. AICL offers its underwriting capacity on the
home panel through a coinsurance deal with a third party, and so the Group
takes no underwriting risk for that product. Even if underwritten by a third
party, the product is presented as a Saga product and the Group manages the
customer relationship.
12m to Jan 2023 (unaudited) 12m to Jan 2022
Motor Home Other Motor Home Other
£m Broking Broking Broking Total Change Broking Broking Broking Total
Gross written premiums (GWP):
Broked 105.0 150.1 123.9 379.0 6.9% 105.0 153.2 96.5 354.7
Underwritten 180.9 - 3.2 184.1 (11.9%) 205.5 - 3.4 208.9
GWP 285.9 150.1 127.1 563.1 (0.1%) 310.5 153.2 99.9 563.6
Broker revenue 31.4 26.5 42.1 100.0 (5.1%) 43.2 29.0 33.2 105.4
Instalment revenue 6.4 3.0 - 9.4 (4.1%) 6.6 3.2 - 9.8
Add-on revenue 9.2 10.4 - 19.6 (10.5%) 11.0 10.9 - 21.9
Other revenue 26.1 17.7 3.2 47.0 0.9% 27.4 17.1 2.1 46.6
Written revenue 73.1 57.6 45.3 176.0 (4.2%) 88.2 60.2 35.3 183.7
Written gross profit 70.4 57.6 48.6 176.6 (2.6%) 85.6 60.2 35.6 181.4
Marketing expenses (13.0) (6.7) (5.5) (25.2) 10.6% (17.5) (7.1) (3.6) (28.2)
Written gross profit after marketing expenses 57.4 50.9 43.1 151.4 (1.2%) 68.1 53.1 32.0 153.2
Other operating expenses (39.3) (28.4) (16.0) (83.7) 3.3% (38.0) (27.9) (20.7) (86.6)
Written Underlying Profit Before Tax (PBT)(7) 18.1 22.5 27.1 67.7 1.7% 30.1 25.2 11.3 66.6
Written to earned adjustment 1.4 - - 1.4 800.0% (0.2) - - (0.2)
Earned Underlying PBT(7) 19.5 22.5 27.1 69.1 4.1% 29.9 25.2 11.3 66.4
Policies in force 800k 645k 207k 1,652k (2.5%) 884k 682k 129k 1,695k
Policies sold 849k 670k 206k 1,725k (2.4%) 943k 696k 129k 1,768k
Third-party panel share(8) 32.7% 2.6ppts 30.1%
Insurance Broking Underlying Profit Before Tax(7) on a written basis (which
excludes the impact of the written to earned adjustment) increased slightly to
£67.7m from £66.6m, and on an earned basis (which includes the impact of the
written to earned adjustment), increased to £69.1m from £66.4m.
A key metric for the Insurance Broking business is written gross profit, after
deducting marketing expenses, but before deducting overheads. This reduced
from £153.2m in the prior year to £151.4m in the current year due to reduced
new business volumes and lower renewal margins on motor and home business. The
fall of £12.9m in written gross profits after marketing expenses in motor and
home was partially offset by an £11.1m improvement in Other Broking, mainly
due to a recovery in sales of travel insurance compared to the prior year.
For motor and home insurance, in terms of the total gross margin after
marketing expenses, new business profits increased by £9.5m, while there was
a £22.4m reduction in renewal profits.
The changes in profitability of motor and home business are, in part,
attributable to the equalisation of pricing between new business and renewals
following the implementation of the General Insurance Pricing Practices (GIPP)
review by the Financial Conduct Authority (FCA) from 1 January 2022. This led
to an improvement in new business margins, partially offset by a 50% and 17%
reduction in motor and home new business policies sold respectively compared
to the prior year. The reduction in renewal profits is due to lower motor and
home renewal margins, partially offset by a 7% increase in motor renewal
policies sold.
The average gross margin per policy for motor and home combined, calculated as
written gross profit less marketing expenses, divided by the number of
policies sold, was £71.3 in the current year, compared with £73.9 in the
prior year. Comparison of margins across the two years is impacted by a
significant reduction in the sales of lower margin new business relative to
the number of renewals. Based on the same mix of new business and renewals as
in 2021/22, the average gross margin per policy in 2022/23 would have been
£67.2.
While the pricing implications of the FCA's review into GIPP have impacted
Insurance Broking earnings in the year, it has also impacted some of the key
metrics in the past 12 months:
· Motor and home policies in force decreased by 7.7% in the year.
· Increase in customer retention at 83.8% across motor and home
from 82.8% in the prior year.
· 714k three-year fixed-price policies were sold in the year; 47%
of total motor and home policies incepting, with 35% of direct new business
taking the product.
· Direct new business sales for motor and home were 49% of the
total, 10ppts lower than the prior year with the Group balancing volumes and
renewals post the GIPP reforms across direct and price-comparison website
distribution channels.
Written profit and gross margin per policy for motor and home are stated after
allowing for deferral of part of the revenues from three-year fixed-price
policies, which is then recognised in profit or loss when the option to renew
those policies at a predetermined fixed price is exercised or lapses,
recognising inflation risk inherent in this product. As at 31 January 2023,
£9.7m (2022: £8.7m) of income had been deferred in relation to three-year
fixed-price policies, £7.9m (2022: £7.3m) of which related to income written
in the year to 31 January 2023.
Motor Broking
Gross written premiums decreased by 7.9% due to a 10.0% decrease in core
policies sold, partially offset by a 2.3% increase in average premiums. Gross
written premiums from business underwritten by AICL decreased 12.0% to
£180.9m (2022: £205.5m) due to a 13.0% decrease in core policies sold that
were underwritten by AICL, offset by a 1.2% increase in average premiums.
Written gross profit minus marketing expenses was £57.4m (2022: £68.1m),
contributing £67.6/policy (2022: £72.2/policy). The decrease in written
gross profits and margin per policy is mainly due to lower renewal margins,
partially offset by a 7% increase in renewal policies and higher new business
margins.
Home Broking
Gross written premiums decreased by 2.0% due to a 3.7% reduction in core
policies sold, partially offset by a 1.8% increase in average premiums.
Written gross profit minus marketing expenses was £50.9m (2022: £53.1m) and,
on a per policy basis, this was £76.0/policy (2022: £76.3/policy). The
decrease is due to lower renewal margins and a 17% decrease in new business
policies sold, partially offset by higher new business margins.
Other Broking
The Other Insurance Broking business primarily comprises private medical
insurance (PMI) and travel insurance.
Gross written premiums increased 27.2% as a result of higher sales of travel
insurance, with policy sales increasing from 77k in the prior year to 158k 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 £9.5m.
While sales of the PMI product were broadly stable, gross profit after
marketing costs was £2.2m higher. This increase is a result of increased
renewal margins, alongside a higher profit share.
7 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
8 Third-party underwriter's share of the motor panel for policies
Insurance Underwriting
12m to Jan 2023 (unaudited) 12m to Jan 2022
Quota share21F Quota share
£m Reported Underlying(10) Change Reported Underlying(10)
Net earned premium 49.6 (98.7) 148.3 (8.2%) 51.5 (110.0) 161.5
Other revenue 25.6 22.9 2.7 (38.6%) 33.2 28.8 4.4
Revenue a 75.2 (75.8) 151.0 (9.0%) 84.7 (81.2) 165.9
Claims costs b (79.0) 83.0 (162.0) (22.7%) (44.3) 87.7 (132.0)
Reserve releases c 27.0 1.9 25.1 (40.4%) 18.3 (23.8) 42.1
Other cost of sales d (4.1) 12.7 (16.8) (1.2%) (3.9) 12.7 (16.6)
e (56.1) 97.6 (153.7) (44.3%) (29.9) 76.6 (106.5)
Gross profit 19.1 21.8 (2.7) (104.5%) 54.8 (4.6) 59.4
Operating expenses f (3.7) 7.4 (11.1) - (4.2) 6.9 (11.1)
Investment return 3.7 (3.9) 7.6 (2.6%) 3.5 (4.3) 7.8
Quota share net income/(cost) - (25.3) 25.3 1,365.0% - 2.0 (2.0)
Underlying Profit Before Tax9 19.1 - 19.1 (64.7%) 54.1 - 54.1
Reported loss ratio (b+c)/a 69.1% 90.7% (36.5ppts) 30.7% 54.2%
Expense ratio (d+f)/a 10.4% 18.5% (1.8ppts) 9.6% 16.7%
Reported COR (e+f)/a 79.5% 109.1% (38.2ppts) 40.3% 70.9%
Current year COR (e+f-c)/a 115.4% 125.8% (29.5ppts) 61.9% 96.3%
Number of earned policies 662k (6.9%) 711k
Policies in force - Saga motor 535k (15.0%) 629k
The Group's in-house underwriter, AICL, underwrites over 65% of the motor
business sold by Insurance Broking. 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(10), net
earned premiums decreased by 8.2% to £148.3m (2022: £161.5m) reflecting a
6.9% reduction in the number of earned policies underwritten by AICL coupled
with a 1.6% decrease in average earned premiums. The reduction in the number
of earned policies was due to lower volumes on non-Saga panels.
Also excluding the impact of the quota share arrangements(10), AICL saw an
increase in the current year underlying COR to 125.8% (2022: 96.3%) and the
current year reported COR to 115.4% (2022: 61.9%).
The first half of the prior year benefited from significantly reduced motor
claims frequency due to customers driving fewer miles during the COVID-19
lockdown, with motor claims experience in the second half of the prior year
broadly in line with pricing assumptions.
In the current year, motor attritional claims experience and claims inflation
have been well in excess of pricing assumptions for the current accident year,
with claims inflation estimated to have averaged around 13% for the year as a
whole. In addition, there was a modest increase in claims frequency and an
above-average level of current year large losses. In response to these trends,
we have been taking significant actions to re-price the motor book, in line
with technical pricing. These price increases will begin to flow through to
earned premium in 2023/24 and will be reflected in full in the 2024/25 result.
Underlying prior year reserve releases of £25.1m (2022: £42.1m) resulted in
an underlying reported COR of 109.1% (2022: 70.9%). 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 2023 (unaudited) 12m to Jan 2022
£m Reported Quota share Underlying(11) Change Reported Quota share Underlying(11)
Motor insurance 23.8 (3.2) 27.0 16.0 (26.5) 42.5
Home insurance 1.2 0.7 0.5 - 0.1 (0.1)
Other insurance 2.0 4.4 (2.4) 2.3 2.6 (0.3)
27.0 1.9 25.1 (40.4%) 18.3 (23.8) 42.1
Reserve releases reflect continued favourable experience on large bodily
injury claims relating to prior accident years. Also, the final part of the
additional component of reserve margin for the increased uncertainty over
claims development held in respect of the 2020/21 accident year was released
in the first half of this year.
While the Group remains prudently reserved and expects to see a level of
reserve releases in 2023/24, these are expected to be at a much lower level
than in 2022/23.
Excluding the impact of the quota share arrangement(11), the investment return
decreased by £0.2m to £7.6m (2022: £7.8m) due to a reduced investment
portfolio and lower reinvestment yields.
During 2022/23, the Group recorded a recovery from quota share reinsurance of
£25.3m, compared to a cost of £2.0m in the prior year. The recovery is due
to the high underlying current year COR of 125.8%, with 80% of current year
losses in excess of an underlying current year COR of around 105% ceded to
quota share reinsurers. The result for the last 12 months will be aggregated
with the results of the next two financial years in determining the final
outcome for the current quota share contract.
9 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
10 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
11 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
Other Businesses and Central Costs
12m to Jan 2023 (unaudited) 12m to Jan 2022
£m Other Central Costs Total Change Other Central Costs Total
Businesses Businesses
Revenue:
Money 7.9 - 7.9 33.9% 5.9 - 5.9
Media and printing 10.3 - 10.3 4.0% 9.9 - 9.9
Insight 0.6 - 0.6 100.0% - - -
Other - 1.0 1.0 (33.3%) - 1.5 1.5
Total revenue 18.8 1.0 19.8 14.5% 15.8 1.5 17.3
Gross profit 8.1 2.6 10.7 17.6% 5.7 3.4 9.1
Operating expenses (8.9) (37.7) (46.6) (26.6%) (3.9) (32.9) (36.8)
Investment income - 1.0 1.0 100.0% - - -
IAS 19R pension charge - - - 100.0% - (1.6) (1.6)
Net finance costs - (21.9) (21.9) (17.7%) - (18.6) (18.6)
Underlying (Loss)/Profit Before Tax(12) (0.8) (56.0) (56.8) (18.6%) 1.8 (49.7) (47.9)
The Group's Other Businesses include Saga Money, Saga Media, Saga Insight and
CustomerKNECT.
Underlying Profit Before Tax(12) for Other Businesses combined has decreased
by £2.6m from £1.8m to an Underlying Loss Before Tax(12) of £0.8m, partly
due to an investment in marketing in the Saga Money business of £2.7m above
the prior year, which has been partially offset by a £2.0m increase in
revenue. A further £1.9m of investment has been made in Saga Media and Saga
Insight in the year.
Central operating expenses increased to £37.7m (2022: £32.9m).
Administration costs, adjusted for transfers to local business units,
decreased by £1.0m in the year, but net costs increased by £4.8m due to
lower Group recharges to the business units, particularly Travel. The IAS 19R
pension charge ceased following the closure of the defined benefit pension
scheme in the second half of the prior year.
Net finance costs in the year were £21.9m (2022: £18.6m), which excludes
finance costs that are included within the Cruise and Travel businesses of
£19.2m (2022: £19.5m). The increase of 17.7% was due to the higher bond
interest costs following the completion of the new bond issue in July 2021.
12 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Cash flow and liquidity
Available Operating Cash Flow(13)
£m 12m to Change 12m to
Jan 2023 (unaudited) Jan 2022
Insurance Broking Trading EBITDA(13) 75.9 4% 73.2
Other Businesses and Central Costs Trading EBITDA(13) (29.5) (37%) (21.5)
Trading EBITDA(13,)(14) from unrestricted businesses 46.4 (10%) 51.7
Dividends paid by Insurance Underwriting business 25.0 (29%) 35.0
Working capital and non-cash items(15) (6.5) (143%) 15.2
Capital expenditure funded with Available Cash(13) (15.8) (26%) (12.5)
Available Operating Cash Flow(13) before cash injections to Cruise and Travel 49.1 (45%) 89.4
operations
Cash injection into River Cruise and Travel businesses (17.8) 51% (36.4)
Ocean Cruise Available Operating Cash Flow(13) 23.6 4% 22.8
Available Operating Cash Flow(13) 54.9 (28%) 75.8
Restructuring costs (1.4) 18% (1.7)
Interest and financing costs (38.0) 10% (42.4)
Business and property (acquisitions)/disposals (0.9) (120%) 4.5
Tax receipts 2.4 (58%) 5.7
Other receipts/(payments) 0.3 103% (10.7)
Change in cash flow from operations 17.3 (45%) 31.2
Change in bond debt - (100%) 150.0
Change in bank debt - (100%) (70.0)
Change in ship debt (46.4) (100%) -
Cash at 1 February 186.6 148% 75.4
Available Cash(13) at 31 January 157.5 (16%) 186.6
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 Insurance
Broking (excluding specific ring-fenced funds to satisfy FCA regulatory
requirements), Other Businesses and Central Costs, and the Group's Ocean
Cruise business. Restricted businesses include AICL, River Cruise and Travel.
Excluding cash transfers to and from the Cruise and Travel businesses, the
Group continued to be cash generative in the year, with an Available Operating
Cash Flow(13) of £49.1m compared with £89.4m in the prior year. Trading
EBITDA(13,14) from unrestricted businesses reduced by £5.3m, mainly due to
lower Group recharges from the Other Businesses and Central Costs segment.
There was also a decrease in working capital which fell from a £15.2m inflow
to a £6.5m outflow, mainly relating to the Insurance Broking segment, and a
£10.0m reduction in dividends paid by AICL.
For River Cruise and Travel, the Group provided £17.8m of cash to the
business to cover trading cash flows in the current year. This is a reduction
of £18.6m when compared with the £36.4m funded in the prior year. The Group
continues to provide additional liquidity into the River Cruise and Travel
businesses, although at a lower level, to meet supplier and other trading
payments as both businesses operate under a ring-fenced trust arrangement and
so cannot access customer cash from the trust until they have returned from
their river cruise or holiday. At 31 January 2023, the ring-fenced businesses
held cash of £44.3m, of which £36.2m was held in trust. The Group must hold
a minimum of £5.9m of cash outside of trust within the ring-fenced businesses
as agreed with the Civil Aviation Authority.
The Ocean Cruise business reported an operating cash inflow of £23.6m (2022:
£22.8m), with net trading income of £31.6m (2022: net trading costs of
£2.7m), partially offset by a decrease in advance customer receipts of £4.1m
(2022: increase of £28.5m), and capital expenditure of £3.9m (2022: £3.0m).
Net of interest costs of £15.2m (2022: £15.2m), the Ocean Cruise business
reported net cash inflow before any capital repayments on the ship debt of
£8.4m for 2022/23 compared to £7.6m in the prior year.
As a result of a reduction in cash generation from unrestricted businesses,
partially offset by a reduction in cash injections to the River Cruise and
Travel businesses, Available Operating Cash Flow(13) decreased from an inflow
of £75.8m in the prior year to £54.9m in the current year.
13 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
14 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
15 Adjusted to exclude IAS 19R pension current service costs
Other cash flow movements
Interest and financing costs were higher in the prior year due to the debt
issue costs associated with the new bond, the tender of the bond due in May
2024 and amendments to the revolving credit facility (RCF). This has been
partially offset by higher interest costs on the new bond in the current year.
In the current year, business and property acquisitions and disposals relate
to the purchase of The Big Window Consulting Limited. The prior year included
cash received from the sale of property, net of related sale costs and
expenses.
The Group continued to make the agreed payments to the defined benefit pension
fund as part of the deficit recovery plan of £5.8m (2022: £4.2m). These are
included within other receipts/(payments).
During the year, the Group released £5.0m of restricted cash to Available
Cash(16) that it had previously agreed with the FCA to hold on a temporary
basis. The Group has also released a further £1.1m in respect of the
Threshold Condition 2.4 balance that the Insurance Broking business holds as
restricted cash. Both of these are included within other receipts/(payments).
In the current year, the Group restarted capital repayments against its ship
debt facilities, with two payments totalling £30.6m on Spirit of Discovery's
debt facility and one payment totalling £15.8m on Spirit of Adventure's debt
facility. In the prior year, the Group issued a five-year £250m fixed-rate
unsecured bond. The proceeds of the bond were used to fund the settlement of
£100m of the existing bond and to repay, in full, the £70m term loan.
16 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
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 2023 (unaudited) Jan 2022
Net cash flow from operating activities (reported) (13.9) 46.5
Exclude cash impact of:
Trading of restricted divisions 35.3 3.8
Non-trading costs 7.5 3.6
Interest paid 37.6 34.2
Tax paid 0.9 4.6
81.3 46.2
Cash released paid to restricted divisions 7.2 (1.4)
Include capital expenditure funded from Available Cash(17) (15.8) (12.5)
Include Ocean Cruise capital expenditure (3.9) (3.0)
Available Operating Cash Flow(17) 54.9 75.8
Trading EBITDA17 reconciles to Underlying Profit/(Loss) Before Tax(17) as
follows:
£m 12m to Change 12m to
Jan 2023 (unaudited) Jan 2022
Insurance Broking Trading EBITDA(17) 75.9 73.2
Insurance Underwriting Trading EBITDA(17) 19.3 54.3
Ocean Cruise Trading EBITDA(17,18) 39.0 (12.7)
River Cruise and Travel Trading EBITDA(17) (8.1) (28.1)
Other Businesses and Central Costs Trading EBITDA(17) (29.5) (21.5)
Trading EBITDA(17) 96.6 48.2% 65.2
Depreciation and amortisation (34.0) (32.2)
Pension charge IAS 19R - (1.6)
Net finance costs (including Cruise and Travel) (41.1) (38.1)
Underlying Profit/(Loss) Before Tax(17) 21.5 420.9% (6.7)
Adjusted Trading EBITDA(17) is used in the Group's leverage calculation for
the RCF covenant and is calculated as follows:
£m 12m to Change 12m to
Jan 2023 (unaudited) Jan 2022
Trading EBITDA(17) 96.6 48.2% 65.2
Impact of IFRS 16 'Leases' (1.3) (3.1)
Spirit of Discovery and Spirit of Adventure Trading EBITDA(17,18) (39.0) 11.5
Adjusted Trading EBITDA(17) 56.3 (23.5%) 73.6
17 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
18 EBITDA includes central Ocean Cruise overheads
Statement of financial position
Goodwill
During the first half of the current year, the Group's new business sales of
motor and home insurance were significantly lower than expected as a result of
competitive market conditions and a challenging environment following the
implementation of the FCA's review of GIPP from 1 January 2022. In order to
remain competitive and to restore the business to policy growth in future
years, the Group launched a new standard motor product. This product, and
other actions taken to improve competitiveness, are expected to lead to
materially lower margins per policy in future years, and lower overall profit
before tax, compared to prior assumptions. Since the lower expected future
cash flows represent a potential indicator of impairment, the Group conducted
an impairment review of the £718.6m goodwill asset at 31 July 2022 relating
to the Insurance business that was included on the statement of financial
position at 31 January 2022.
The Group's revised five-year financial forecasts incorporated the modelled
impact of the changes in the market environment, including also an expected
reduction in margins from a switch to more standard products and lower sales
of more feature-rich policies. Further stress tests were also considered
including the continuation of the current competitive environment for an
extended period and further downsides compared to revised base case
assumptions. This resulted in management taking the decision to impair
Insurance goodwill by £269.0m in the first half of 2022/23. Consistent with
the approach taken in prior years, this impairment is not included within
Underlying Profit Before Tax(19).
At 31 January 2023, the Group conducted a further impairment review of the
remaining £449.6m goodwill asset relating to the Insurance business and
concluded that its recoverable amount was above the carrying value, and no
further impairment was considered necessary.
Carrying value of ocean cruise ships
At 31 July 2022 and 31 January 2023, the carrying value of the Group's ocean
cruise ships was £612.5m and £607.0m respectively (31 January 2022:
£621.3m). Due to the continued challenging operating environment in the first
half of the year for the Ocean Cruise business, the Group carried out an
impairment review of both of its vessels at 31 July 2022. The results of the
review showed that there was headroom in the central and stress test scenarios
for both Spirit of Discovery and Spirit of Adventure, with no impairment
required.
In the second half of the year, further COVID-19 restrictions were lifted for
cruise passengers and trading was in line with forecasts. Discount rates have
risen, but not to the extent that they materially change the headroom in the
impairment calculation. The Directors therefore concluded that there were no
additional indicators of impairment at 31 January 2023 and, accordingly, no
further impairment review was deemed necessary.
19 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Investment portfolio
The majority of the Group's financial assets are held by its Insurance
Underwriting entity and represent premium income received and invested to
settle claims and meet regulatory capital requirements.
The amount held in invested funds decreased by £50.3m to £279.9m (31 January
2022: £330.2m), partly due to payment of £25.0m of dividends from AICL in
the year. At 31 January 2023, 98% of the financial assets held by the Group
were invested with counterparties with a risk rating of BBB or above, which is
in line with the prior period and reflects the relatively stable credit risk
rating of the Group's investment holdings.
Credit risk rating
At 31 January 2023 (unaudited) AAA AA A BBB Unrated Total
£m £m £m £m £m £m
Insurance Underwriting investment portfolio:
Debt securities 23.5 74.9 64.2 91.8 - 254.4
Money market funds 19.6 - - - - 19.6
Loan funds - - - - 5.9 5.9
Total invested funds 43.1 74.9 64.2 91.8 5.9 279.9
Derivative assets - - 2.5 - - 2.5
Total financial assets 43.1 74.9 66.7 91.8 5.9 282.4
Credit risk rating
At 31 January 2022 AAA AA A BBB Unrated Total
£m £m £m £m £m £m
Insurance 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
Insurance reserves
Analysis of insurance contract liabilities at 31 January 2023 and 31 January
2022 is as follows:
At 31 January 2023 (unaudited) At 31 January 2022 (restated)
£m Gross Reinsurance assets(20) Net Gross Reinsurance assets(20) Net
Reported claims 231.1 (60.4) 170.7 227.4 (55.8) 171.6
Incurred but not reported(21) 47.3 (1.7) 45.6 57.5 (3.3) 54.2
Claims handling provision 6.8 - 6.8 7.9 - 7.9
Total claims outstanding 285.2 (62.1) 223.1 292.8 (59.1) 233.7
Unearned premiums 83.1 (6.7) 76.4 93.9 (6.3) 87.6
Total 368.3 (68.8) 299.5 386.7 (65.4) 321.3
The Group's total insurance contract liabilities, net of reinsurance assets,
decreased by £21.8m in the year to 31 January 2023 from the previous year
end, primarily due to a £11.2m reduction in unearned premiums, coupled with
an £8.6m decrease in net incurred but not reported claims reserves. The
reduction in net incurred but not reported claims reserves is due to reserve
releases that reflect continued favourable experience on large bodily injury
claims relating to prior accident years. In addition, the final part of the
additional component of reserve margin held in respect of the 2020/21 accident
year was released in the current year. The 31 January 2022 position has been
restated due to an incorrect classification between reported claims and
incurred but not reported of £16.1m. The restatement had no net impact on
total claims outstanding.
20 Excludes funds-withheld quota share arrangement
21 Includes amounts for reported claims that are expected to become periodical
payment orders
Financing
At 31 January 2023, the Group's Net Debt(24) was £711.7m, £17.3m lower than
at the beginning of the financial year.
In the first half of 2022/23, the RCF agreement was reduced from £100m to
£50m and was simplified by the removal of certain clauses that were
introduced during the pandemic, including:
· removal of the £40m minimum free liquidity requirement; and
· removal of the condition that the facility is terminated on 1
March 2024, should the 2024 bond not be repaid by that date.
In the second half of the year, we concluded discussions with our lending
banks and agreed the following amendments to the facility which, in aggregate,
provide us with increased financial flexibility:
· The introduction of a restriction whereby no utilisation of the
facility is permitted prior to repayment of the 2024 bond if leverage exceeds
5.5x, or liquidity is below £170m.
· During 2023 and 2024, should the RCF be drawn, leverage covenant
testing will be quarterly.
· Repayment of the 2024 bond, ahead of maturity, is restricted
while leverage remains above 3.75x.
· Amendments to the leverage and interest cover covenants attached
to the facility, as follows:
Leverage Interest
(excl. Ocean Cruise) cover
31 January 2023 4.75x 2.5x
30 April 2023 6.75x n/a
31 July 2023 6.75x 2.5x
31 October 2023 5.5x n/a
31 January 2024 5.5x 2.75x
30 April 2024 5.5x n/a
31 July 2024 5.5x 3.0x
31 October 2024 5.5x n/a
31 January 2025 4.75x 3.0x
The Group's total leverage ratio was 7.5x as at 31 January 2023 (31 January
2022: 11.7x). Excluding the impact of debt and earnings relating to the ocean
cruise ships, the Group's leverage ratio relating to the RCF was 4.3x as at 31
January 2023 (31 January 2022: 3.0x), within the 4.75x covenant.
The Group resumed repayments on its ship debt facilities with repayments made
on its Spirit of Discovery ship facility in June 2022 and December 2022 and on
its Spirit of Adventure ship facility in September 2022.
£m Maturity date(22) 31 January 2023 (unaudited) 31 January 2022
3.375% Corporate bond May 2024 150.0 150.0
5.5% Corporate bond July 2026 250.0 250.0
Revolving credit facility May 2025(23) - -
Spirit of Discovery ship loan June 2031 204.2 234.8
Spirit of Adventure ship loan September 2032 265.0 280.8
Less Available Cash(,24, 25) (157.5) (186.6)
Net Debt(24) 711.7 729.0
Net Debt(24) is analysed as follows:
Adjusted Net Debt(26) is used in the Group's leverage calculation and
reconciles to Net Debt(26) as follows:
£m 31 January 2023 (unaudited) 31 January 2022
Net Debt(26) 711.7 729.0
Exclude ship loans (469.2) (515.6)
Exclude Ocean Cruise Available Cash(26) 1.4 4.7
Adjusted Net Debt(26) 243.9 218.1
The Group entered into a £50m unsecured loan facility with Sir Roger De Haan
on 3 April 2023. This facility can be drawn, on 30 days' notice, from 1
January 2024 and terminates on 30 June 2025. As is the case with the senior
bonds in issue and with the RCF, the loan is guaranteed by Saga plc, Saga
MidCo and Saga Services Limited. The Group is able to use the funds drawn
under the facility for general corporate purposes although in practice would
only do so to support repayment of the £150m bonds due in May 2024.
The interest rate paid on the drawn funds under this facility is 10%. In
addition, a drawing fee of 2% is payable, alongside milestone payments of 2%
of any uncancelled amounts of the facility on each of 31 March 2024 and 31
December 2024. The facility would automatically terminate on the completed
sale of AICL.
Pensions
The Group's defined benefit pension scheme surplus, as measured on an IAS 19R
basis reduced by £13.2m to a £12.1m liability at 31 January 2023 (£1.1m
surplus as at 31 January 2022).
£m 31 January 2023 (unaudited) 31 January 2022
Fair value of scheme assets 224.1 412.0
Present value of defined benefit obligation (236.2) (410.9)
Defined benefit pension scheme (liability)/surplus (12.1) 1.1
During the year ended 31 January 2023, the net position of the scheme
decreased by £13.2m, resulting in an overall scheme deficit of £12.1m. The
movements observed in the scheme's assets and obligations have been impacted
significantly by macroeconomic factors during the year where, at a global
level, there have been rising inflation and cost of living pressures, as well
as shifts in long-term bond yields. The present value of defined benefit
obligations decreased by £174.7m to £236.2m, primarily due to a 245bps
increase in the discount rate which is based on increases in long-term trend
corporate bond yields. The fair value of scheme assets decreased by £187.9m
to £224.1m. A £5.8m deficit funding contribution was paid by the Group in
February 2022 in relation to a recovery plan agreed under the latest triennial
valuation of the scheme as at 31 January 2020.
Net assets
Since 31 January 2022, total assets have decreased by £324.7m and total
liabilities have decreased by £41.3m, resulting in an overall decrease in net
assets of £283.4m.
The decrease in total assets is primarily due to:
· a reduction in goodwill of £269.0m following the impairment to
the Insurance cash generating unit;
· a decrease in property, plant and equipment of £35.5m of which
£19.5m has been transferred to assets held for sale, £23.5m relates to
depreciation in the year, partially offset by £8.2m of additions in the year;
· a decrease in financial assets of £49.7m, mainly relating to a
reduction to the Insurance Underwriting investment portfolio, partly to fund
£25.0m of dividends from AICL;
· a decrease in cash and short-term deposits of £50.4m;
· an increase in trade and other receivables of £43.0m due to the
quota share contract with AICL's reinsurance partners being in a receivable
position and the further ramp-up of Cruise and Travel operations;
· an increase in assets held for sale of £18.3m; and
· an increase in trust accounts of £12.8m.
The decrease in total liabilities reflects:
· a decrease of £18.4m in insurance contract liabilities due to
reserve releases during the year;
· a decrease of £39.4m in financial liabilities, which is mainly
due to a reduction of £41.9m in bond and bank loans, as a result of capital
repayments on Spirit of Discovery and Spirit of Adventure facilities; and
· the recognition of a defined benefit pension scheme liability of
£12.1m.
(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
10 years
(23) At 31 January 2022, the terms also included a requirement to repay the
RCF on 1 March 2024 if the remaining £150m of the 3.375% bond notes had not
been redeemed prior to this date. This term has now been removed and does not
apply at 31 January 2023
24 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
25 Refer to Note 13 of the financial statements for information as to how this
reconciles to a statutory measure of cash
26 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Going concern
The Directors have performed an assessment of going concern to determine the
adequacy of the Group and Company's financial resources over a period of 14
months from the date of issue of these unaudited preliminary results, a period
which includes the maturity of £150m of senior bonds in May 2024.
This assessment is based on higher and lower case financial projections which
incorporate scenario analysis and stress tests on expected business
performance.
The Group's higher case modelling assumes good performance in the Cruise
division in 2023/24, on the back of strong booked load factors and per diems.
Travel is also expected to achieve continued growth in revenues with
encouraging bookings for 2023/24 as at the end of March 2023. As previously
indicated, the outlook for Insurance is likely to be challenging over the next
12 to 18 months, with high cost and claims inflation in a competitive market
expected to squeeze margins.
The Group's lower case scenario incorporates lower load factors for Ocean
Cruise, lower levels of demand in River Cruise, and slower growth in the
Travel business across the going concern period. Downside risks modelled for
the Insurance business include the impact of worsening competitive market
pressures on the Insurance Broking business, continued high cost and claims
inflation putting pressure on margins, among other stress tests. These
stresses are partially offset by discretionary cost savings and the deferral
of investment expenditure that would be achieved in the event of downside
trading risks materialising.
To increase liquidity, and consistent also with a strategy of reducing capital
intensity, in the autumn of 2022, the Group commenced a sale process for its
Insurance Underwriting business, AICL. The Group aims for this sale process to
be concluded in the second half of 2023.
However, given that there is no certainty that a sale of AICL will be
concluded in the next 14 months, the Group has agreed a loan facility with Sir
Roger De Haan. Under the terms of this facility, if the sale of AICL is not
completed prior to the end of 2023, the Group will, from 1 January 2024, be
able to borrow up to £50m to fund any liquidity needs, including repayment of
the 2024 bonds. This facility is unsecured, on arms-length terms and can be
drawn at the option of the Group on 30 days' notice. The facility matures on
30 June 2025, at which point any outstanding amounts, including interest, must
be repaid. Availability of funds under the facility is not contingent on
financial performance or on compliance with any financial covenants.
Under both higher and lower case scenarios, the Group expects to meet
scheduled Ocean Cruise debt principal repayments as they fall due over the
next 14 months, and to also meet the financial covenants relating to its
secured cruise debt facilities (see Note 16) throughout the assessment period,
except for the July 2023 testing date where lenders have agreed to a waiver of
the EBITDA to debt repayment covenant ratio (see Note 21).
In addition, in both higher and lower case scenarios and incorporating either
the expected net proceeds from a sale of the Insurance Underwriting business
or a draw down of the £50m loan facility with Sir Roger De Haan, the Group
expects to have sufficient resources to continue operations for at least the
next 14 months and to repay the £150m senior bonds on maturity in May 2024
from Available Cash27 resources.
Over the same time frame and on the same basis, the Group also expects to
remain within the renegotiated financial covenants and other terms relating to
its £50m RCF, as set out in Note 16, enabling it to draw down on this
currently undrawn facility in 2024/25 to meet short-term working capital
requirements should the need arise.
Noting that it is not possible to predict accurately all possible future risks
to the Group's future trading, based on this analysis and the scenarios
modelled, the Directors are confident that the Group will have sufficient
funds to continue to meet its liabilities as they fall due for a period of at
least 14 months from the date of from the date of issue of these unaudited
preliminary results. They have therefore deemed it appropriate to prepare the
financial statements to 31 January 2023 on a going concern basis.
Dividends and financial priorities for 2023/24
Dividends
Given the Group's priority of reducing Net Debt(27), the Board of Directors
does not recommend payment of a final dividend for the 2022/23 financial year,
nor would this currently be permissible under financing arrangements due to
the leverage ratio being above 3.0x and while the ship debt facility deferred
amounts are outstanding.
Financial priorities for 2023/24
The Group's financial priorities for the current financial year are to reduce
Net Debt(27), build on the already positive load factor and per diem in Ocean
Cruise, return the River Cruise and Travel businesses to profitability, and to
continue progress in execution of its Insurance strategy.
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 trend 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 the Executive Leadership Team (ELT) and the Board. Each PRU has
been aligned to the most relevant strategic priorities.
Key to growth plan elements
1. Maximising our existing businesses
2. Step-changing our ability to scale while reducing debt
3. Creating 'The Superbrand' for older people
27 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Risk Risk trend Risk category Link to strategy Mitigation
Pandemic/COVID-19 disruption Improving Operational 1, 2 and 3 Cost controls integrated into annual budget and five-year plans, complete
restructuring of the Saga Travel Group, continuation of remote working
Risk to the Cruise and Travel businesses and financial resilience of Saga in Group-wide capability that is now integrated into a hybrid working model, and ongoing
the event of a new and significant pandemic or extended duration of COVID-19 monitoring of COVID-19 cases is undertaken on both ocean and river cruise
arising from further variants. ships.
Cybercrime Stable Operational 1 Ongoing vulnerability management programme in place, including industry
benchmarking and external penetration testing to help maintain security
Cyber security breach resulting in system lockdown, ransom demands and/or Reputational Group-wide posture. Continued investment in cyber prevention, detection, and intelligence
compromise of confidential and/or personal data. technologies to help mitigate attacks. Awareness and testing programme in
place to protect against social engineering attacks on colleagues. Strategy in
place to further reduce our footprint of potential system targets.
Delivery and execution Stable Operational 1 and 2 Robust project governance covering how significant changes are prioritised and
delivered, with close oversight from the ELT and the Board with 2(nd) and
Key business change initiatives fail to be delivered effectively, or at all, Group-wide 3(rd) line assurance conducted for the change initiatives carrying the
due to one, or a combination of, the following: greatest risk.
· Resource capability or capacity.
· Unexpected business as usual risk issues.
· New regulation.
· Material defects in the delivery.
Capability Stable Strategic 2 Increased focus on talent management, career development, recruitment,
succession planning and embedding a new reward framework that drives colleague
A new strategy and purpose has created a new demand for capability to deliver Operational Group-wide performance and aligns to effective risk management, delivering fair customer
the five-year plan, which requires new investment, leadership commitment and a outcomes.
learning culture. There is a risk that this step change is not achieved.
Saga brand and relevance Stable Strategic 3 Delivery of the next phase of the brand campaign in addition to continuous
monitoring of metrics.
The Saga brand and its products do not appeal sufficiently to our target Reputational Group-wide
customer group, resulting in loss of appeal and market share, such that
competitors gain market share and customer volume continues to decline.
Regulatory action Improving Operational 1 Consumer Duty Project in progress. Continued focus on embedding 1(st) line
control self-assessment testing. Horizon-scanning reports produced to identify
Risk of customer harm because of our actions/inaction or failure to implement Reputational Group-wide upcoming regulatory changes and necessary action.
regulatory change correctly.
Operational resilience Stable Operational 1, 2 and 3 Migration onto new technology to increase colleague connectivity. Change
governance ensures that system changes are delivered consistently within risk
Failure in critical services or operations and inability to recover within Group-wide appetite.
defined parameters, made more complex by remote working arrangements.
Environmental, Social and Governance (ESG) Stable Strategic 2 and 3 Saga's ocean cruise ships were built relatively recently to a high
specification in terms of minimisation of harmful emissions. A Head of ESG was
Increasing regulation coupled with industry and societal pressure leaves Saga Operational Group-wide appointed who developed Saga's ESG strategy and will work to embed ESG and ESG
trailing its peers, causing reputational, customer and financial impacts.
risk identification and management within the business. Saga has undertaken a
Reputational stakeholder engagement exercise and materiality assessment to identify
priority future activities.
Third-party suppliers Stable Operational 1 and 3 Third-party risk management ensures an appropriate risk-based approach for
selecting third-party partners and overseeing their performance and
Reputational impact, business interruption and financial losses arising from Group-wide operational and financial resilience.
the failure or mis-performance of key third parties.
Fraud and financial crime Stable Operational 1 2(nd) and 3(rd) line assurance reviews conducted with no significant issues
identified. Ongoing monitoring of claims fraud in place, with colleague
Increased risk of internal or external fraud and financial crime driven by Group-wide awareness communications. Operation of effective internal controls subject to
remote working and macroeconomic conditions. regular testing and oversight.
Insurance pricing/modelling error Stable Operational 1 Market study related controls and other insurance modelling controls
incorporated into the internal control assurance programme.
Errors in data modelling lead to material pricing, reserving or underwriting Insurance
issues that have significant financial impact and/or customer harm.
Breach of Data Protection Act/ General Data Protection Regulation Improving Operational 1 and 3 Prioritisation of projects to improve effective data management, coupled with
simplification of our technology estate and strengthening of our Data Privacy
Failure to maintain compliance with data privacy requirements in line with Group-wide team to ensure we continue to put the customer first in how we manage their
growing customer expectations in relation to how they want their personal data personal information.
to be managed.
Liquidity risk/debt repayment New risk Liquidity 2 The Group intends to sell the Insurance Underwriting business and has also
entered into an unconditional and unsecured £50m loan facility with Sir Roger
The more challenging macroeconomic environment, in tandem with the impacts of Group-wide De Haan. As a result, the Group expects to repay the 2024 bonds from Available
COVID-19, has increased Saga's liquidity risk in relation to repayment of its Cash(1).
debt liabilities.
Culture Stable Operational 1 and 3 Ongoing measurement and monitoring of culture using colleague surveys.
Saga's culture does not transform in line with the purpose, values, and Reputational Group-wide
strategy to deliver the financial results expected per the five-year plan.
1 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Consolidated income statement
for the year ended 31 January 2023
Note 2023 (unaudited) 2022
£'m £'m
Gross earned premiums 189.5 203.0
Earned premiums ceded to reinsurers (111.3) (123.8)
Net earned premiums 78.2 79.2
Other revenue 502.9 298.0
Total revenue 3 581.1 377.2
Gross claims incurred (157.2) (94.6)
Reinsurers' share of claims incurred 99.1 63.3
Net claims incurred (58.1) (31.3)
Decrease in credit loss allowance 1.3 1.6(1)
Other cost of sales (250.4) (113.6)(1)
Total cost of sales 3 (307.2) (143.3)
Gross profit 273.9 233.9
Administrative and selling expenses (216.9) (212.1)(1)
Increase in credit loss allowance (0.9) (0.7)(1)
Impairment of assets (271.2) (11.2)
Gain on lease modification 11 - 0.3
Net profit on disposal of assets held for sale 19 - 7.2
Net profit/(loss) on disposal of property, plant and equipment, right-of-use 0.1 (0.4)
assets and software
Investment income 1.5 0.3
Finance costs (42.2) (40.8)
Finance income 1.5 -
Loss before tax (254.2) (23.5)
Tax expense 4 (5.0) (4.5)
Total loss for the year (259.2) (28.0)
Attributable to:
Equity holders of the parent (259.2) (28.0)
Loss per share:
Basic 6 (185.8p) (20.1p)
Diluted 6 (185.8p) (20.1p)
1 Movements in the credit loss allowance for the year ended 31 January 2022
have been restated due to an incorrect allocation between amounts written off
during the year and changes in the provision recognised in the income
statement
Consolidated statement of comprehensive income
for the year ended 31 January 2023
Note 2023 (unaudited) 2022
£'m £'m
Loss for the year (259.2) (28.0)
Other comprehensive income
Other comprehensive income to be reclassified to income statement in
subsequent years
Net (losses)/gains on hedging instruments during the year 12 (2.0) 2.1
Recycling of previous losses/(gains) to income statement on matured hedges 12 0.3 (1.2)
Total net (losses)/gains on cash flow hedges (1.7) 0.9
Associated tax effect (0.8) 0.3
Net losses on fair value financial assets during the year (15.1) (10.3)
Recycling of previous losses to income statement on fair value financial - 0.1
assets during the year
Total net losses on fair value financial assets during the year (15.1) (10.2)
Associated tax effect 3.8 2.1
Total other comprehensive losses with recycling to income statement (13.8) (6.9)
Other comprehensive income not to be reclassified to income statement in
subsequent years
Re-measurement (losses)/gains on defined benefit plans (19.1) 4.8
Associated tax effect 4.8 (1.2)
Total other comprehensive (losses)/gains without recycling to income statement (14.3) 3.6
Total other comprehensive losses (28.1) (3.3)
Total comprehensive losses for the year (287.3) (31.3)
Attributable to:
Equity holders of the parent (287.3) (31.3)
Consolidated statement of financial position
as at 31 January 2023
Note 2023 (unaudited) 2022
Assets £'m £'m
Goodwill 8 449.6 718.6
Intangible assets 9 51.3 47.1
Retirement benefit scheme surplus 14 - 1.1
Property, plant and equipment 10 611.0 646.5
Right-of-use assets 11 30.7 36.0
Financial assets 12 282.4 332.1
Current tax assets 4.4 4.3
Deferred tax assets 4 16.1 12.3
Reinsurance assets 15 68.8 65.4
Inventories 7.0 6.3
Trade and other receivables 212.5 169.5
Trust accounts 36.2 23.4
Cash and short-term deposits 13 176.5 226.9
Assets held for sale 19 31.2 12.9
Total assets 1,977.7 2,302.4
Liabilities
Retirement benefit scheme liability 14 12.1 -
Gross insurance contract liabilities 15 368.3 386.7
Provisions 5.2 6.7
Financial liabilities 12 896.8 936.2
Deferred tax liabilities 4 5.9 5.6
Contract liabilities 122.2 114.6
Trade and other payables 197.7 199.7
Total liabilities 1,608.2 1,649.5
Equity
Issued capital 17 21.1 21.1
Share premium 648.3 648.3
Retained deficit (293.5) (22.4)
Share-based payment reserve 8.9 7.4
Fair value reserve (12.1) (0.8)
Hedging reserve (3.2) (0.7)
Total equity 369.5 652.9
Total equity and liabilities 1,977.7 2,302.4
Consolidated statement of changes in equity
for the year ended 31 January 2023
Attributable to the equity holders of the parent
Share premium Retained (deficit)/ earnings Share-based payment reserve Fair value reserve Hedging reserve Total
Issued capital
£'m £'m £'m £'m £'m £'m £'m
At 1 February 2022 21.1 648.3 (22.4) 7.4 (0.8) (0.7) 652.9
Loss for the year - - (259.2) - - - (259.2)
Other comprehensive losses excluding recycling - - (14.3) - (11.3) (2.9) (28.5)
Recycling of previous losses to income statement - - - - - 0.4 0.4
Total comprehensive losses - - (273.5) - (11.3) (2.5) (287.3)
Share based payment charge (Note 18) - - - 3.9 - - 3.9
Transfer upon vesting of share options - - 2.4 (2.4) - - -
At 31 January 2023 (unaudited) 21.1 648.3 (293.5) 8.9 (12.1) (3.2) 369.5
Attributable to the equity holders of the parent
Share premium Retained earnings/ Share-based payment reserve Fair value reserve Hedging reserve Total
(deficit)
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
Transfer upon vesting 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
Consolidated statement of cash flows
for the year ended 31 January 2023
Note 2023 (unaudited) 2022
£'m £'m
Loss before tax (254.2) (23.5)
Depreciation, impairment and loss on disposal, of property, plant and 32.9 22.2
equipment and right-of-use assets
Amortisation and impairment of intangible assets and goodwill, and 278.6 20.6
(profit)/loss on disposal of software
Impairment of assets held for sale 19 1.2 1.0
Gain on lease modification - (0.3)
Share-based payment transactions 3.9 3.4
Profit on disposal of assets held for sale 19 - (7.2)
Finance costs 42.2 40.8
Finance income (1.5) -
Interest income from investments (1.5) (0.3)
Increase in trust accounts (12.8) (1.0)
Movements in other assets and liabilities (65.7) 29.3
23.1 85.0
Investment income interest received 1.5 0.3
Interest paid (37.6) (34.2)
Income tax paid (0.9) (4.6)
Net cash flows (used in)/from operating activities (13.9) 46.5
Investing activities
Proceeds from sale of property, plant and equipment, and right-of-use assets 0.2 0.3
Net proceeds from disposal of assets held for sale 19 - 10.2
Purchase of, and payments for the construction of, property, plant and (20.8) (18.9)
equipment and intangible assets
Net disposal/(purchase) of financial assets 25.6 (18.9)
Acquisition of subsidiary 7 (0.9) -
Net cash flows from/(used in) investing activities 4.1 (27.3)
Financing activities
Payment of principal portion of lease liabilities (7.8) (3.6)
Proceeds from borrowings - 250.0
Repayment of borrowings (46.4) (170.0)
Debt issue costs - (6.8)
Net cash flows (used in)/from financing activities (54.2) 69.6
Net (decrease)/increase in cash and cash equivalents (64.0) 88.8
Cash and cash equivalents at the start of the year 255.7 166.9
Cash and cash equivalents at the end of the year 13 191.7 255.7
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 2023 will be approved by the Board of Directors and
reported on by the auditors, KPMG LLP (KPMG), in April 2023. Accordingly, the
financial information for the year ended 31 January 2023 is presented
unaudited in this preliminary announcement.
2.1 Basis of preparation
The results in this preliminary announcement have been taken from the Group's
2023 unaudited Annual Report and Accounts. The unaudited 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 audited consolidated
financial statements in the 2023 Annual Report and Accounts.
The unaudited consolidated financial statements have been prepared on a going
concern basis and on a historical cost basis except as otherwise stated. The
Group has reviewed the appropriateness of the going concern basis in preparing
the unaudited financial statements, 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 2023 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 have been audited by KPMG. Their report was unqualified and did not
contain any statement under Section 498(2) or Section 498(3) of the Companies
Act 2006. The consolidated financial statements for the full year ended 31
January 2023 will be audited by KPMG.
Going concern
The Directors have performed an assessment of going concern to determine the
adequacy of the Group and Company's financial resources over a period of 14
months from the date of issue of these unaudited preliminary results, a period
which includes the maturity of £150m of senior bonds in May 2024.
This assessment is based on higher and lower case financial projections which
incorporate scenario analysis and stress tests on expected business
performance.
The Group's higher case modelling assumes good performance in the Cruise
division in 2023/24, on the back of strong booked load factors and per diems.
Travel is also expected to achieve continued growth in revenues with
encouraging bookings for 2023/24 as at the end of March 2023. As previously
indicated, the outlook for Insurance is likely to be challenging over the next
12 to 18 months, with high cost and claims inflation in a competitive market
expected to squeeze margins.
2.1 Basis of preparation
The Group's lower case scenario incorporates lower load factors for Ocean
Cruise, lower levels of demand in River Cruise, and slower growth in the
Travel business across the going concern period. Downside risks modelled for
the Insurance business include the impact of worsening competitive market
pressures on the Insurance Broking business, continued high cost and claims
inflation putting pressure on margins, among other stress tests.
These stresses are partially offset by discretionary cost savings and the
deferral of investment expenditure that would be achieved in the event of
downside trading risks materialising.
To increase liquidity and consistent also with a strategy of reducing capital
intensity, in the autumn of 2022, the Group commenced a sale process for its
Insurance Underwriting business, Acromas Insurance Company Limited (AICL). The
Group aims for this sale process to be concluded in the second half of 2023.
However, given that there is no certainty that a sale of AICL will be
concluded in the next 14 months, the Group has agreed a loan facility with Sir
Roger De Haan. Under the terms of this facility, if the sale of AICL is not
completed prior to the end of 2023, the Group will, from 1 January 2024, be
able to borrow up to £50m to fund any liquidity needs, including repayment of
the 2024 bonds. This facility is unsecured, on arms-length terms and can be
drawn at the option of the Group on 30 days' notice. The facility matures on
30 June 2025, at which point any outstanding amounts, including interest, must
be repaid. Availability of funds under the facility is not contingent on
financial performance or on compliance with any financial covenants.
Under both higher and lower case scenarios, the Group expects to meet
scheduled Ocean Cruise debt principal repayments as they fall due over the
next 14 months, and to also meet the financial covenants relating to its
secured cruise debt facilities (see Note 16) throughout the assessment period,
except for the July 2023 testing date where lenders have agreed to a waiver of
the EBITDA to debt repayment covenant ratio (see Note 16).
In addition, in both higher and lower case scenarios and incorporating either
the expected net proceeds from a sale of the Insurance Underwriting business
or a draw down of the £50m loan facility with Sir Roger De Haan, the Group
expects to have sufficient resources to continue operations for at least the
next 14 months and to repay the £150m senior bonds on maturity in May 2024
from Available (Cash2) resources.
Over the same time frame and on the same basis, the Group also expects to
remain within the renegotiated financial covenants and other terms relating to
its £50m revolving credit facility (RCF), as set out in Note 16, enabling it
to draw down on this currently undrawn facility in 2024/25 to meet short-term
working capital requirements should the need arise.
Noting that it is not possible to predict accurately all possible future risks
to the Group's future trading, based on this analysis and the scenarios
modelled the Directors are confident that the Group will have sufficient funds
to continue to meet its liabilities as they fall due for a period of at least
14 months from the date of issue of these unaudited preliminary results. They
have therefore deemed it appropriate to prepare the financial statements to 31
January 2023 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 2023. Full details of the accounting policies
of the Group will be published in the Annual Report and Accounts for the year
ended 31 January 2023 available at www.corporate.saga.co.uk
(http://www.corporate.saga.co.uk) .
2 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
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 2023. Except where
separately disclosed, these standards are endorsed by the UK Endorsement
Board.
i. IFRS 17 'Insurance Contracts'
IFRS 17 'Insurance Contracts' is a comprehensive new accounting standard that
applies to all insurance and reinsurance contracts covering the principles of
recognition, measurement, presentation and disclosure.
IFRS 17 only applies to insurance contracts that are underwritten by the Group
and related reinsurance contracts held. It does not affect the accounting for
the Group's Insurance Broking activities.
IFRS 17 is effective for annual reporting periods beginning on, or after, 1
January 2023. The Group will initially apply IFRS 17 in its consolidated
financial statements for the year ending 31 January 2024, with the date of
initial application being 1 February 2023 and the transition date being 1
February 2022. The Group's consolidated financial statements for the year
ending 31 January 2024 will include comparatives for the year ending 31
January 2023 restated onto an IFRS 17 basis.
i. Classification of liabilities as current or non-current
(amendments to IAS 1)
The amendments aim to promote consistency in applying the requirements by
helping companies determine whether, in the statement of financial position,
debt and other liabilities with an uncertain settlement date should be
classified as current (due, or potentially due, to be settled within one year)
or non-current. The amendments are effective for annual periods beginning on,
or after, 1 January 2024 and are not likely to have a material effect on the
Group's financial statements. These amendments are not currently endorsed by
the UK Endorsement Board.
ii. 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.
iii. 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.
iv. Definition of accounting estimates (amendments to IAS 8)
The amendments replace the definition of a change in accounting estimates with
a definition of accounting estimates. Under the new definition, accounting
estimates are "monetary amounts in financial statements that are subject to
measurement uncertainty". The amendments clarify that a change in accounting
estimate that results from new information or new developments is not the
correction of an error. The amendments are effective for annual reporting
periods beginning on, or after, 1 January 2023. The amendments are not
expected to have a material impact on the Group's financial statements.
v. Definition of lease liability in a sale and leaseback (amendment to
IFRS 16)
The amendment clarifies how a seller-lessee subsequently measures sale and
leaseback transactions that satisfy the requirements in IFRS 15 to be
accounted for as a sale. The amendment is effective for annual reporting
periods beginning on, or after, 1 January 2024. The amendment is not expected
to have a material impact on the Group's financial statements. This amendment
is not currently endorsed by the UK Endorsement Board.
2.4 First time adoption of new standards and amendments
The following is a list of standards, and amendments to standards, that became
effective, or were adopted, for the first time during the year ended 31
January 2023.
i. 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 was effective for annual
reporting periods beginning on, or after, 1 April 2021. The Group did not take
advantage of the exemption available under this amendment. The amendment has
had no effect on the Group's financial statements.
ii. 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 have had no effect on
the Group's financial statements.
iii. 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 have had no
effect on the Group's financial statements.
iv. Annual improvements to IFRS 2018-2020
The improvements make 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 have had no
effect on the Group's financial statements.
v. 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 has had no effect on the
Group's financial statements.
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:
Accounting policy references above are to the Notes to the Annual Report and
Accounts for the year ended 31 January 2023.
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 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
(PMI) 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.
2.3h Impairment testing of goodwill and other major classes of assets The Group determines whether goodwill needs to be impaired on an annual basis,
or more frequently as required.
New pricing rules set by the FCA came into effect on 1 January 2022, following
the conclusion of the General Insurance Pricing Practices market study (GIPP).
As a result of the impact of the GIPP changes on customer pricing, especially
in the highly competitive motor insurance market, there has been a fall in
policy volumes in the period to 31 July 2022 and the year to 31 January 2023,
with a consequential adverse impact on the profitability of the Insurance
business. Management have considered this to be an indicator of impairment and
have therefore conducted full impairment reviews of the Insurance CGU as at 31
July 2022 and 31 January 2023. As a result of these reviews, management deemed
it necessary to impair the goodwill allocated to the Insurance CGU by £269.0m
at 31 July 2022. No further impairment was deemed necessary in the six months
to 31 January 2023.
In the year to 31 January 2022, management did not deem it necessary to impair
goodwill. Please refer to Note 16a for further detail.
Since acquisition, the addition of the Big Window insights and capabilities
has added significant value to all Saga business units, in line with
pre-acquisition expectations. However, because these benefits are largely
associated with the continued employment of a small number of individuals,
which under IFRS 3 cannot be separately capitalised, and given the low
materiality of the amounts in question, the Group decided to write-off in full
the £0.5m goodwill arising on acquisition in the period to 31 July 2022.
Following the continued impact of the COVID-19 pandemic on the Group's Cruise
and Travel operations, management concluded that potential indicators of
impairment existed and conducted impairment reviews at 31 July 2022 and 31
January 2022 of the Group's two ocean cruise ships, Spirit of Discovery and
Spirit of Adventure. Management considered a range of scenarios and used its
judgement to conclude that no impairment was necessary.
As at 31 January 2023, management did not consider it necessary to conduct an
impairment review of the Group's two ocean cruise ships since no new
indicators of impairment were identified. Please refer to Note 17 for further
detail.
In the prior year, 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 existed and deemed it necessary to conduct an
impairment review of the vessel at 31 January 2022. Management considered a
range of scenarios and used its judgement to conclude that no impairment was
necessary. Please refer to Note 18a for further detail.
In the year to 31 January 2023, management did not consider it necessary to
conduct an impairment review of right-of-use river cruise ship assets, since
no new indicators of impairment were identified.
2.3h Impairment testing of goodwill and other major classes of assets (continued) In year ended 31 January 2022, following the continued impact of the COVID-19
pandemic on the travel industry, management decided to restructure the Group's
Tour Operations CGU (now River Cruise and Travel). In light of this exercise,
management 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. As a result of this review, management deemed it
necessary to impair these software assets by £9.4m and the software assets in
the Central Costs division by £0.5m. No further impairment was deemed
necessary in the period to 31 January 2023. Please refer to Note 16b for
further detail.
In the years to 31 January 2023 and 31 January 2022, in light of the Group
obtaining freehold property market valuation reports, management exercised
judgement in relation to the impairment of property assets held for sale. A
net impairment charge of £1.2m (2022: £1.0m) was accordingly recognised.
Please refer to Note 38 for further detail.
2.3r Insurance contract liabilities Judgement is required in relation to the 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 year to 31 January 2022, the Group considered the additional latency
risk to claims cost development caused by the impact of the COVID-19 pandemic
and recognised an additional claims reserve above actuarial best estimate to
cover this specific risk. The latency risk provision in relation to the
COVID-19 pandemic was released over the year to 31 January 2023, reflective of
the improvement in the COVID-19 outlook. Please refer to Note 20d for further
detail.
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.
Accounting policy references above are to the Notes to the Annual Report and
Accounts for the year ended 31 January 2023.
Acc. policy Items involving estimation Sources of estimation uncertainty
2.3ai Revenue recognition - three-year fixed-price insurance policies The standalone 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.
The impact of changes to pricing rules set by the FCA following the completion
of the GIPP market study, especially the highly competitive motor insurance
market, and the adverse impact on profit before tax for the current year, has
increased the estimation uncertainty in the Insurance CGU. The outcome of the
impairment reviews conducted concluded that an impairment charge of £269.0m
be recognised against the Group's Insurance CGU as at 31 July 2022. No further
impairment was deemed necessary in the six months to 31 January 2023.
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, as shown in Note 16a.
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 July 2022 and 31
January 2022 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. No
additional impairment indicators were identified as at 31 January 2023, and
therefore no further impairment review was conducted at this date.
Sensitivity analysis was undertaken to determine the effect of changing the
residual value, load factor and useful economic life on the present value
calculation, as shown in Note 17.
At 31 January 2022, management conducted an impairment review of its river
cruise ship, Spirit of the Rhine. Based on this review, the Group was
comfortable that there was sufficient headroom over and above the carrying
value of the river cruise ship asset, and therefore concluded that no
impairment charge was necessary. No additional impairment indicators were
identified in relation to river cruise ships as at 31 January 2023, and
therefore no further impairment review was conducted at this date.
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 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
PPOs, which have been discounted at -1.5% for the year ended 31 January 2023
(2022: -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.
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.
3 Segmental information
For management purposes, the Group is organised into business units based on
their products and services. The Group has three reportable operating segments
as follows:
· Cruise and Travel: comprises the operation and delivery of ocean
and river cruise holidays as well as package tour and other holiday products.
The Group owns and operates two ocean cruise ships. All other holiday and
river cruise products are packaged together with third-party supplied
accommodation, flights and other transport arrangements.
· Insurance: comprises the provision of general insurance products.
Revenue is derived primarily from insurance premiums and broking revenues. The
segment is further analysed into four product sub-segments:
o Insurance Broking, consisting of:
§ Motor broking
§ Home broking
§ Other broking
o Insurance Underwriting
· Other Businesses and Central Costs: comprises the Group's other
businesses and its central cost base. The other businesses include Saga Money
(the personal finance product offering), Saga Media and the Group's mailing
and printing business.
Segment performance is evaluated using the Group's key performance measure of
Underlying Profit/(Loss) Before Tax(3). Items not included within a specific
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 bonds and bank loans are not included within segments as
they are managed on a Group basis.
3 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
2023 (unaudited) Cruise and Travel £m Insurance
Motor Home Other Under-writing Total Other Adjustments Total
broking broking broking £m Businesses
£m
£m
£m £m £m and Central
Costs
£m
Revenue 305.5 77.7 57.6 45.3 75.2 255.8 24.3 (4.5) 581.1
Cost of sales (242.5) (2.7) - 3.2 (56.1) (55.6) (9.1) - (307.2)
Gross profit/(loss) 63.0 75.0 57.6 48.5 19.1 200.2 15.2 (4.5) 273.9
Administrative and selling expenses (57.5) (55.6) (35.1) (21.4) (3.1) (115.2) (49.6) 4.5 (217.8)
Impairment of assets - - - - (1.2) (1.2) (0.5) (269.5) (271.2)
Net profit on disposal of software - 0.1 - - - 0.1 - - 0.1
Investment income/(loss) - - - - 3.7 3.7 (2.2) - 1.5
Finance costs (20.2) - - - - - (22.0) - (42.2)
Finance income 1.4 - - - - - 0.1 - 1.5
(Loss)/profit before tax (13.3) 19.5 22.5 27.1 18.5 87.6 (59.0) (269.5) (254.2)
Reconciliation to Underlying (Loss)/Profit Before Tax(4)
(Loss)/profit before tax (13.3) 19.5 22.5 27.1 18.5 87.6 (59.0) (269.5) (254.2)
Net fair value gain on derivative financial instruments (1.4) - - - - - - - (1.4)
Impairment of goodwill - - - - - - - 269.5 269.5
Impairment of assets - - - - 0.6 0.6 0.5 - 1.1
Restructuring costs 2.2 - - - - - 1.5 - 3.7
Acquisition costs relating to the Big Window - - - - - - 0.2 - 0.2
Foreign exchange movement on lease liabilities 2.0 - - - - - - - 2.0
IFRS 16 adjustment on river cruise vessels 0.6 - - - - - - - 0.6
Underlying (Loss)/Profit Before Tax 4 (9.9) 19.5 22.5 27.1 19.1 88.2 (56.8) - 21.5
Total assets less liabilities 93.7 57.7 167.9 50.2 369.5
All revenue is generated solely in the UK.
4 Refer to the Alternative Performance Measures Glossary on
pages 68-69 for definition and explanation
2022 Cruise and Travel £m Insurance
Motor Home Other Under-writing Total Other Adjustments Total
broking broking broking £m £m Businesses
£m
£m
£m £m £m and Central
Costs
£m
Revenue 94.7 85.0 60.2 35.3 84.7 265.2 21.5 (4.2) 377.2
Cost of sales (102.9) (2.6) - 0.3 (29.9) (32.2) (8.2) - (143.3)
Gross (loss)/profit (8.2) 82.4 60.2 35.6 54.8 233.0 13.3 (4.2) 233.9
Administrative and selling expenses (54.9) (52.4) (35.0) (24.3) (4.2) (115.9) (46.2) 4.2 (212.8)
Impairment of assets (9.7) - - - (1.0) (1.0) (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 profit/(loss) on disposal of software and right-of-use assets 0.1 (0.1) - - - (0.1) (0.4) - (0.4)
Investment income/(loss) 0.1 - - - 3.5 3.5 (3.3) - 0.3
Finance costs (22.2) - - - - - (18.6) - (40.8)
(Loss)/profit before tax (94.8) 29.9 25.2 11.3 53.1 119.5 (48.2) - (23.5)
Reconciliation to Underlying (Loss)/Profit Before tax(5)
(Loss)/profit before tax (94.8) 29.9 25.2 11.3 53.1 119.5 (48.2) - (23.5)
Net fair value loss on derivative financial instruments 2.7 - - - - - - - 2.7
Impairment/loss on disposal of assets 9.8 - - - 1.0 1.0 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 ocean cruise ship loan holiday - - - - - - 2.4 - 2.4
Charge on closure of defined benefit pension scheme - - - - - - 2.0 - 2.0
Underlying (Loss)/Profit Before Tax 5 (79.3) 29.9 25.2 11.3 54.1 120.5 (47.9) - (6.7)
Total assets less liabilities (re-presented) 67.2 77.0 189.1 319.6 652.9
Total assets less liabilities have been re-presented due to a revision in the
way that inter-company debtors and creditors are reported between segments.
Inter-company debtors and creditors are excluded from re-presented total
assets less liabilities.
All revenue is generated solely in the UK.
5 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
Total assets less liabilities detailed as adjustments relates to the following
unallocated items:
2023 (unaudited) 2022
£'m £'m
Goodwill (Note 8) 449.6 718.6
Group bond and bank loans (excluding ocean cruise ship loans) (399.4) (399.0)
50.2 319.6
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.
2023 (unaudited)
Major product lines Cruise and Travel Earned premium on insurance underwritten by the Group Other revenue Insurance Other Total
£m
£'m £m Businesses £m
£'m
and Central
Costs
£m
Ocean Cruise 168.3 168.3
River Cruise and Travel 137.2 137.2
Gross earned premium on insurance underwritten by the Group 189.5
Less: ceded to reinsurers (111.3)
Net revenue on:
- Motor broking 27.7 50.0 77.7 77.7
- Home broking - 57.6 57.6 57.6
- Other broking 0.9 44.4 45.3 45.3
- Insurance Underwriting 49.6 25.6 75.2 75.2
Money 7.9 7.9
Media 10.3 10.3
Insight 0.6 0.6
Other 1.0 1.0
305.5 78.2 177.6 255.8 19.8 581.1
2022
Major product lines Cruise and Travel Earned premium on insurance underwritten by the Group Other revenue Insurance Other Total
£m £'m £'m £m Businesses £m
and Central
Costs
£m
Ocean Cruise 82.5 82.5
River Cruise and Travel 12.2 12.2
Gross earned premium on insurance underwritten by the Group 203.0
Less: ceded to reinsurers (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
- Insurance Underwriting 51.5 33.2 84.7 84.7
Money 5.9 5.9
Media 9.9 9.9
Other 1.5 1.5
94.7 79.2 186.0 265.2 17.3 377.2
Included in Insurance Broking other revenue is instalment interest income on
premium financing of £9.4m (2022: £9.8m).
4 Tax
The major components of the income tax expense are:
2023 (unaudited) 2022
£'m £'m
Consolidated income statement
Current income tax
Current income tax charge 1.1 3.4
Adjustments in respect of previous years (0.4) (0.1)
0.7 3.3
Deferred tax
Relating to origination and reversal of temporary differences 3.1 2.7
Effect of tax rate change on opening balance - (2.6)
Adjustments in respect of previous years 1.2 1.1
4.3 1.2
Tax expense in the income statement 5.0 4.5
The Group's tax expense for the year was £5.0m (2022: £4.5m) representing a
tax effective rate of 32.7% before the impairment of goodwill (2022: negative
19.1%). In the prior year, the difference between the Group's tax effective
rate and the standard rate of corporation tax of 19% is mainly due to the
Group's Ocean Cruise business entering the tonnage tax regime on 1 February
2020.
Adjustments in respect of previous years include a charge for the
under-provision of tax charge in prior years of £0.8m (2022: £1.0m) and the
impact of the change in the tax rate on opening deferred tax balances of £nil
(2022: £2.6m credit).
Reconciliation of net deferred tax assets
2023 (unaudited) 2022
£'m £'m
At 1 February 6.7 6.7
Tax charge recognised in the income statement (4.3) (1.2)
Tax credit recognised in other comprehensive income 7.8 1.2
At 31 January 10.2 6.7
On 3 March 2021, it was announced that the corporation tax rate would increase
from 19% to 25% from 1 April 2023. This increase was substantively enacted on
24 May 2021. As a result, the closing deferred tax balances at the statement
of financial position date have been reflected at 25%. Net deferred tax
assets/(liabilities) are expected to be normally settled in more than 12
months.
5 Dividends
The Board of Directors does not recommend the payment of a final dividend for
the 2022/23 financial year (2022: nil pence per share).
For the current and prior year, no interim or final dividends were declared,
or paid, during the year.
The distributable reserves of Saga plc are £386.6m deficit as at 31 January
2023, 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 River Cruise, Travel and Underwriting
businesses 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 Ocean Cruise EBITDA and debt).
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:
2023 (unaudited) 2022
£'m £'m
Loss attributable to ordinary equity holders (259.2) (28.0)
Weighted average number of ordinary shares 'm 'm
Ordinary shares as at 1 February 139.5 139.4
Long-term Incentive Plan (LTIP) share options exercised - 0.1
Ordinary shares as at 31 January 139.5 139.5
Weighted average number of ordinary shares for basic loss per share and 139.5 139.5
diluted loss per share
Basic loss per share (185.8p) (20.1p)
Diluted loss per share (185.8p) (20.1p)
The table below reconciles between basic loss per share and Underlying Basic
Earnings/(Loss) Per Share(6)
2023 (unaudited) 2022
Basic loss per share (185.8p) (20.1p)
Adjusted for:
Derivative (gains)/losses (1.1p) 1.4p
Impairment, and net loss on disposal, of assets 0.8p 2.3p
Impairment of Insurance goodwill 192.8p -
Acquisition costs relating to the Big Window 0.5p -
Charge on closure of defined benefit pension scheme - 1.1p
Foreign exchange movement on lease liabilities 1.5p (0.5p)
Costs incurred for ocean cruise ship loan holiday - 1.3p
Restructuring costs 2.7p 3.4p
IFRS 16 lease accounting adjustment on river cruise vessels 0.5p -
Underlying Basic Earnings/(Loss) Per Share(6) 11.9p (11.1p)
6 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
7 Business combinations and disposals
a) Acquisitions during the year ended 31 January 2023
On 16 February 2022, the Group acquired The Big Window Consulting Limited (the
Big Window), a specialist research and insight business focusing on ageing.
The fair values of the identifiable assets and liabilities of the Big Window
acquired on the date of acquisition were:
Assets £'m
Trade and other receivables 0.1
Cash 1.3
Total assets 1.4
Liabilities
Trade and other payables 0.1
Corporation tax liability 0.1
Total liabilities 0.2
Total identifiable net assets at fair value 1.2
Goodwill arising on acquisition 0.5
Cash purchase consideration transferred 1.7
The purchase consideration of £1.7m was settled in cash. In addition to the
£1.7m cash purchase consideration transferred, as part of the purchase
agreement, the Group granted a £0.5m share-based payment arrangement which
vests over three years subject to a number of conditions being met. The £0.5m
was transferred in cash to the Group's share administrators on the date of
completion. Cash of £1.3m was acquired with the Big Window, resulting in a
net cash outflow of £0.9m.
Since acquisition, the addition of the Big Window insights and capabilities
has added significant value to all Saga business units, in line with
pre-acquisition expectations. However, because these benefits are largely
associated with the continued employment of a small number of individuals,
which under IFRS 3 cannot be separately capitalised, and given the low
materiality of the amounts in question, the Group has written-off the £0.5m
goodwill arising on acquisition in full in the year to 31 January 2023 (Note
8).
The Big Window contributed £0.6m of revenue and a loss of £1.0m to the Group
loss before tax from the date of acquisition to 31 January 2023.
b) Acquisitions during the year ended 31 January 2022
There were no business acquisitions in the year ended 31 January 2022.
c) Disposals
There were no business disposals in the years ended 31 January 2023 and 31
January 2022.
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:
2023 (unaudited) 2022
£'m £'m
Insurance 449.6 718.6
449.6 718.6
The Group tests all goodwill balances for impairment at least annually, and
twice-yearly if indicators of impairment exist at the interim reporting date
of 31 July. The impairment test compares the recoverable amount of each CGU to
the carrying value of its net assets including the value of the allocated
goodwill.
On 1 January 2022, new pricing rules arising from the implementation of
recommendations included in the FCA's GIPP market study came into effect. As a
result, and against the background of a highly competitive motor insurance
market, the Group saw a fall in policy volumes in the period to 31 July 2022
and year to 31 January 2023, with a consequential adverse impact on the
profitability of the Insurance business. Management considered this to be an
indicator of impairment and therefore conducted full impairment reviews of the
Insurance CGU as at 31 July 2022 and 31 January 2023.
The recoverable amount of the Insurance CGU has been determined based on a
value-in-use calculation using nominal cash flow projections from the Group's
latest five-year financial forecasts to 2027/28, which are derived using past
experience of the Group's trading, combined with the anticipated impact of
changes in macroeconomic and regulatory factors. A terminal value has been
calculated using the Gordon Growth Model based on the fifth year of those
projections and an annual growth rate of 2.0% (July 2022: 2.0%, January 2022:
2.0%) as the expected long-term average nominal growth rate of the UK economy.
The cash flows have then been discounted to present value using a suitably
risk-adjusted nominal discount rate based on a market-participant view of the
cost of capital and debt relevant to the insurance industry.
As at 31 January 2023, the pre-tax discount rate used for the Insurance CGU
was 13.0% (July 2022: 12.7%; January 2022: 11.5%). The Group's five-year
financial forecasts incorporate the modelled impact of the new pricing rules
and the estimated impact this will likely have on future new business pricing
and retention rates. As per IAS 36.44, incremental cash flows directly
attributable to growth initiatives not yet enacted at the balance sheet date
have then been removed for the purpose of the value-in-use calculation.
The Group has also considered the impact of downside stresses, both in terms
of adverse impacts to the cash flow projections and to the discount rate. For
the cash flow stress test, the Group has modelled the impact of a more prudent
outlook of the current competitive challenges seen in the insurance broking
market, in combination with a more cautious nominal terminal growth rate of
1.5% (July 2022: 1.5%, 31 January 2022: 1.5%), reflecting a more conservative
outlook for growth in the UK economy. For the discount rate stress test, the
Group applied risk premia of +1.3ppt at 31 January 2023 (July 2022: +1.2ppt;
January 2022: +1.5ppt).
The headroom/(deficit) for the Insurance CGU against the carrying value of
goodwill at the time of the review of £449.6m at 31 January 2023 and £718.6m
at 31 July 2022 and 31 January 2022 was as follows:
Headroom £'m
Central scenario Cash flow stress test scenario Discount rate stress test scenario
31 January 2023 (unaudited) 31 31 January 2022 31 January 2023 (unaudited) 31 31 January 2022 31 January 2023 (unaudited) 31 31 January 2022
July 2022 July 2022 July 2022
Insurance 153.9 (121.8) 146.3 12.0 (269.0) 89.7 92.6 (146.8) (10.2)
As at 31 July 2022, the Group determined that the recoverable amount of the
goodwill asset allocated to the Insurance CGU was below the carrying value,
and so the Directors took the decision to impair goodwill allocated to the
Insurance CGU by £269.0m.
At 31 January 2023, the recoverable amount of the Insurance goodwill asset is
above the carrying value, and no further impairment is considered necessary.
The headroom calculated is sensitive to the discount rate and terminal growth
rate assumed, and to changes in the projected cash flow of the CGU. Increased
inflationary pressures on claims, the evolving market response to the
regulatory changes introduced in early 2022 and in particular the extent to
which market prices move against Saga in a period of heightened global
economic uncertainty, combine to increase the range of possible cash flow
outcomes in management's modelling. A quantitative sensitivity analysis for
each of these as at 31 January 2023 and its impact on the central scenario
headroom against the carrying value of goodwill at the time of the review of
£449.6m is as follows:
Pre-tax discount rate Terminal growth rate Cash flow (annual)
+1.0ppt -1.0ppt £'m +1.0ppt -1.0ppt £'m +10% -10%
£'m £'m £m £m
Insurance (47.7) 57.6 59.2 (46.6) 57.2 (57.2)
For the reasons explained in Note 7, goodwill of £0.5m arising on the
acquisition of the Big Window was immediately impaired in full.
9 Intangible fixed
assets
During the year, the Group capitalised £13.4m (2022: £11.2m) of software
assets, disposed of assets with a net book value of £nil (2022: £0.2m) and
charged £9.2m of amortisation and impairment to its intangible assets (2022:
£20.5m).
In the prior year, following the continued impact of the COVID-19 pandemic on
the travel industry, management decided to restructure the Group's former Tour
Operations business (now River Cruise and Travel). 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, all of which related to the
Tigerbay platform. In addition, the Group concluded that an impairment charge
of £0.5m 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 £8.2m (2022:
£7.1m), reclassified to assets held for sale assets with a net book value of
£19.5m (2022: £nil), disposed of assets with a net book value of £0.2m
(2022: £0.6m) and charged £24.0m of depreciation and impairment to its
property, plant and equipment (2022: £19.6m).
a) Impairment review of property, plant and equipment
Due to the continued impact of the COVID-19 pandemic on the Group's Cruise and
Travel operations in the first half of the year, management concluded that
potential indicators of impairment continued to exist as at 31 July 2022 for
both of its ocean cruise ships, Spirit of Discovery and Spirit of Adventure.
Management therefore conducted impairment reviews at 31 July 2022 for both
vessels, following previous reviews conducted at 31 January 2022.
The impairment test was conducted using a methodology consistent with that
applied as at 31 January 2022. The recoverable amount of each ocean cruise
ship was determined based on a value-in-use calculation using cash flow
projections from the Group's five-year financial forecasts to 2026/27 and
applying a constant annual growth rate of 2% thereafter for subsequent periods
until the end of the ship's useful economic life of 30 years, at which point a
residual value of 15% of original cost was assumed. This was then discounted
back to present value using a suitably risk-adjusted discount rate. The
underlying forecast cash flows were updated for the latest impact of the
COVID-19 pandemic. In addition, a stress test of the potential adverse
medium-term impact that the pandemic may have on demand for ocean cruises was
also considered, with load factors capped at 80% throughout 2023/24. The
annual growth rate beyond the fifth year of management forecasts was reduced
to 1.5% in the stress test scenario, reflecting a more cautious outlook for
long-term growth in the UK economy.
Potential environmental regulatory changes were also considered as part of
this assessment. The shipping industry has made a commitment to reduce CO(2)
emissions by 40% by 2030 (from a 2008 baseline), and the UK Government has
made commitments to reach net zero emissions by 2050. The EEXI (carbon
design/technical efficiency indicator) and CII (in-service/operational carbon
intensity efficiency indicator) regulations were introduced internationally
during the year to enable the industry to meet the 2030 target, and both of
Saga's ocean cruise ships meet the requirements of these regulations. The end
of their useful economic lives of 30 years will have been reached by 2049 in
the case of Spirit of Discovery and 2051 in the case of Spirit of Adventure.
The Group has not factored in any potential fuel modifications that may occur
in the future into the cash flow forecasts used for the impairment assessment
of either ship. Whilst alternative fuels may present a viable route to
decarbonisation for the Ocean Cruise business, there are significant upstream
supply challenges which will need to be resolved before these become viable
for deployment. The main engines currently installed in the Group's ocean
cruise ships are capable of being modified for use with certain alternative
fuels. Being new vessels, the design and specification of the Group's ocean
cruise ships was guided by a desire to maximise efficiency through deployment
of the most up-to-date technology. Their hull design maximises fuel
efficiency, onboard technology minimises fuel consumption and catalytic
converters reduce carbon emissions. Additionally, the Group is planning to
retro-fit shore power connections to both vessels, allowing them to use clean
energy, where available, in ports of call and has commenced a study to
evaluate other emerging technologies. The capital expenditure required for the
shore power connections has been included in the forecast cash flows used in
the assessment.
There is also currently no technological alternative to either oil or gas to
power large vessels and it is not clear if such technology will ever be
commercially viable, or in what time frame this might be achieved.
The cash flows were discounted to present value using a pre-tax discount rate
of 8.6% (January 2022: 9.9%) for both vessels. As at 31 July 2022, the
headroom for each of the ships against the carrying value was as follows:
Headroom £m
Central Lower trading stress test scenarios
scenario
Spirit of Discovery 169.0 146.5
Spirit of Adventure 114.7 91.6
Based on these impairment tests, and looking at the likelihood of a range of
outcomes, the Group was satisfied that no impairment of either vessel was
necessary as at 31 July 2022.
In the second half of the year, further COVID-19 restrictions were lifted for
cruise passengers and trading was in line with forecasts. Discount rates have
risen, but not to the extent that they materially change the headroom in the
impairment calculation. The Directors therefore concluded that there were no
additional indicators of impairment at 31 January 2023, and accordingly no
further impairment review has been deemed necessary.
As the Group is planning to vacate most of its properties (Note 19),
management has concluded that this constitutes an indicator of impairment and
has duly conducted an impairment review as at 31 January 2023 of the Group's
freehold, and long leasehold, land and buildings, and related fixtures and
fittings. In relation to these freehold and long leasehold properties,
value-in-use is negligible and so the Group has obtained market valuations to
determine the fair value of each building. The outcome of these impairment
reviews concluded that an impairment charge totalling £0.5m relating to
fixtures and fittings should be recognised against the Group's assets as at 31
January 2023. At the year end, the Group reclassified assets with a net book
value of £19.5m to assets held for sale (Note 19).
In the prior 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. During the year ended
31 January 2023, a unsolicited conditional offer for sale was accepted by the
Group in respect of this property. As a consequence, the property has been
reclassified back to assets held for sale as at the statement of financial
position date.
In addition, during the year ended 31 January 2022, following management's
decision to restructure the Group's Tour Operations CGU, the Group impaired
property, plant and equipment in its Tour Operations CGU by £0.3m.
11 Right-of-use assets
During the year, the Group capitalised assets with a cost of £25.6m (2022:
£35.8m), disposed of assets with a net book value of £nil (2022: £0.8m),
reduced net book value for modification, or reassessment, of lease terms by
£22.0m (2022: £0.1m) and charged £8.9m of depreciation and impairment to
its right-of-use assets (2022: £2.3m).
The total cash outflow for leases amounted to £9.1m (2022: £4.4m).
River cruise ship additions in the year ended 31 January 2023 relate to the
river cruise vessels, Spirit of the Danube, MS River Discovery II and MS
Serenade 1. River cruise ship additions in the year ended 31 January 2022
related to the river cruise vessel, Spirit of the Rhine.
During the year ended 31 January 2023, management reviewed the allocation of
costs under its river cruise charter agreements. As a consequence, a
proportion of costs previously included as lease costs for Spirit of the Rhine
were reassessed as costs of ongoing service provision. Accordingly, the
right-of-use asset and liability relating to this ship have been adjusted in
the current year, reflecting a prospective change in estimate as required
under IAS 8.
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 year.
a) Impairment review of right-of-use assets
During the year ended 31 January 2022, the Group took delivery of the river
cruise ship, Spirit of the Rhine, under a 10-year lease. The ship's first
cruise season was initially planned to commence on 1 April 2021, but due to
the impact of the COVID-19 pandemic, the start of the first season was delayed
for several months. The Group did not therefore take control of the asset
until the ship's inaugural cruise took place in September 2021, at which point
a right-of-use asset was recognised and a corresponding lease liability was
capitalised on the statement of financial position.
Given the carrying value of the asset is quantitatively material to the Group,
combined with the ongoing adverse impacts of the COVID-19 pandemic on the
wider travel industry, which constitute an indicator of impairment, management
deemed it necessary to conduct an impairment review on Spirit of the Rhine at
31 January 2022.
Based on the impairment tests undertaken, and looking at the likelihood of a
range of outcomes, the Group was satisfied that there was headroom over and
above the carrying value of Spirit of the Rhine.
The Group does not consider it necessary to conduct an impairment review of
right-of-use assets as at 31 January 2023 since no new indicators of
impairment exist in relation to the Spirit of the Rhine, Spirit of the Danube,
MS River Discovery II or MS Serenade 1.
12 Financial assets and financial liabilities
a) Financial assets
2023 (unaudited) 2022
£'m £'m
Fair value through profit and loss (FVTPL)
Foreign exchange forward contracts 0.4 0.4
Loan funds 5.9 6.2
Money market funds 19.6 29.2
25.9 35.8
FVTPL designated in a hedging relationship
Foreign exchange forward contracts 2.1 0.3
Fuel oil swaps - 1.2
2.1 1.5
Fair value through other comprehensive income (FVOCI)
Debt securities 254.4 280.8
254.4 280.8
Amortised cost
Deposits with financial institutions - 14.0
- 14.0
Total financial assets 282.4 332.1
Current 62.8 110.0
Non-current 219.6 222.1
282.4 332.1
b) Financial liabilities
2023 (unaudited) 2022
£'m £'m
FVTPL
Foreign exchange forward contracts 0.2 1.3
0.2 1.3
FVTPL designated in a hedging relationship
Foreign exchange forward contracts 1.0 2.7
Fuel oil swaps 4.0 -
5.0 2.7
Amortised cost
Bond and bank loans (Note 16) 854.6 896.5
Lease liabilities 32.6 35.3
Bank overdrafts 4.4 0.4
891.6 932.2
Total financial liabilities 896.8 936.2
Current 118.6 56.1
Non-current 778.2 880.1
896.8 936.2
c) Fair value hierarchy
As at 31 January 2023 (unaudited) As at 31 January 2022
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 - 2.5 - 2.5 - 0.7 - 0.7
Fuel oil swaps - - - - - 1.2 - 1.2
Loan funds 5.9 - - 5.9 6.2 - - 6.2
Debt securities 254.4 - - 254.4 280.8 - - 280.8
Money market funds 19.6 - - 19.6 29.2 - - 29.2
Financial liabilities measured at fair value
Foreign exchange forwards - 1.2 - 1.2 - 4.0 - 4.0
Fuel oil swaps - 4.0 - 4.0 - - - -
Financial assets for which fair values
are disclosed
Deposits with institutions - - - - - 14.0 - 14.0
Financial liabilities for which fair values
are disclosed
Bond and bank loans - 788.9 - 788.9 - 879.0 - 879.0
Lease liabilities - 32.6 - 32.6 - 35.3 - 35.3
Bank overdrafts - 4.4 - 4.4 - 0.4 - 0.4
d) Other information
Debt securities, loan funds, money market funds and deposits with financial
institutions relate to monies held by the Group's Insurance business (included
within discontinued operations (Note 19), 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 (2022:
none).
Foreign exchange forwards are valued using current spot and forward rates
discounted to present value. They are also adjusted for counterparty credit
risk using credit default swap curves. Fuel oil swaps are valued with
reference to the valuations provided by third parties, which use current
Platts index rates, discounted to present value.
The Group operates a programme of economic hedging against its foreign
currency and fuel oil exposures. During the year, the Group designated 352
foreign exchange forward currency contracts as hedges of highly probable
foreign currency cash expenses in future periods and designated 68 fuel oil
swaps as hedges of highly probable fuel oil purchases in future periods. As at
31 January 2023, the Group has designated 446 forward currency contracts and
68 fuel oil swaps as hedges.
During the year, the Group recognised net losses of £2.0m (2022: £2.1m
gains) on cash flow hedging instruments through OCI into the hedging reserve.
The Group recognised £nil gains (2022: £nil) through the income statement in
respect of the ineffective portion of hedges measured during the year.
During the year, the Group has de-designated 12 foreign currency forward
contracts, with a transaction value of £0.7m, 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 £nil 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 £0.3m loss (2022:
£1.2m gain) through the income statement in respect of matured hedges which
have been recycled from OCI.
13 Cash and cash equivalents
2023 (unaudited) 2022
£'m £'m
Cash at bank and in hand 52.0 174.6
Short-term deposits 124.5 52.3
Cash and short-term deposits 176.5 226.9
Money markets funds 19.6 29.2
Bank overdraft (4.4) (0.4)
Cash and cash equivalents in the cash flow statement 191.7 255.7
Included within cash and cash equivalents are amounts held by the Group's
River Cruise, Travel and Insurance businesses, which are subject to
contractual or regulatory restrictions. These amounts held are not readily
available to be used for other purposes within the Group and total £34.2m
(2022: £69.1m). Available cash(7) excludes these amounts and any amounts held
by disposal groups.
Cash at bank earns interest at floating rates based on daily bank deposit
rates. Short-term deposits are typically made for varying periods of between
one day and three months, depending on the immediate cash requirements of the
Group, and earn interest at the respective short-term deposit rates.
The bank overdraft is subject to a guarantee in favour of the Group's bankers
and is limited to the amount drawn. The bank overdraft is repayable on demand.
7 Refer to the Alternative Performance Measures Glossary on pages 68-69 for
definition and explanation
14 Retirement benefit schemes
The Group operates retirement benefit schemes for the employees of the Group
consisting of defined contribution plans and a legacy defined benefit plan.
In July 2021, following the completion of a review of the Group's pension
arrangements, a consultation process with active members was launched. The
consultation process concluded during October 2021, and with effect from 31
October 2021, the Group closed both its existing schemes to future accrual:
the Saga Pension Scheme (its defined benefit plan) and the Saga Workplace
Pension Plan (its defined contribution plan). In their place, the Group
launched a new defined contribution pension scheme arrangement, operated as a
Master Trust. This move served to reduce the risk of further deficits
developing in the future on the defined benefit scheme, while moving to a
fairer scheme for all colleagues.
a) Defined contribution plans
There are three defined contribution schemes in the Group at 31 January 2023
(2022: three). The total charge for the year in respect of the defined
contribution schemes was £9.9m (2022: £4.5m). The assets of these schemes
are held separately from those of the Group in funds under the control of
Trustees.
b) Defined benefit plan
The Group operated a funded defined benefit scheme, the Saga Pension Scheme,
which was closed to future accrual on 31 October 2021. From 1 November 2021,
members moved from active to deferred status, with future indexation of
deferred pensions before retirement measured by reference to the Consumer
Price Index. During the prior 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:
2023 (unaudited) 2022
£'m £'m
Fair value of scheme assets 224.1 412.0
Present value of defined benefit obligation (236.2) (410.9)
Defined benefit scheme (liability)/asset (12.1) 1.1
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 2023, the net position of the Saga Scheme has
decreased by £13.2m, resulting in an overall scheme deficit of £12.1m. The
movements observed in the scheme's assets and obligations have been impacted
significantly by macroeconomic factors during the year where, at a global
level, there have been rising inflation and cost of living pressures, as well
as shifts in long-term market yields. The present value of defined benefit
obligations decreased by £174.7m to £236.2m, primarily due to a 245bps
increase in the discount rate which is based on increases in long-term trend
corporate bond yields. The fair value of scheme assets decreased by £187.9m
to £224.1m. The decrease in asset values has been largely driven by the sharp
rise in interest rates in the year. Liability driven investment (LDI)
strategies resulted in assets being sold in order to meet the liquidity calls
required by the fall in leveraged LDI values. The Saga scheme has a hedged
component, but this is relative to gilt yields, rather than corporate bond
yields, which are used to derive the defined benefit obligation. A £5.8m
deficit funding contribution was paid by the Group in February 2022 in
relation to a recovery plan agreed under the latest triennial valuation of the
scheme as at 31 January 2020.
15 Insurance contract liabilities and reinsurance assets
The analysis of gross and net insurance liabilities is as follows:
2023 (unaudited) 2022
Gross £'m £'m
Claims outstanding 285.2 292.8
Provision for unearned premiums 83.1 93.9
Total gross liabilities 368.3 386.7
2023 (unaudited) 2022
Recoverable from reinsurers £'m £'m
Claims outstanding 62.1 59.1
Provision for unearned premiums 6.7 6.3
Total reinsurers' share of insurance liabilities (as presented on the face of 68.8 65.4
the statement of financial position)
Amounts recoverable under funds-withheld quota share agreements recognised
within trade receivables/payables:
- Claims outstanding 123.1 133.0
- Provision for unearned premiums 44.6 50.7
Total reinsurers' share of insurance liabilities after funds-withheld quota 236.5 249.1
share
Analysed as:
Claims outstanding 185.2 192.1
Provision for unearned premiums 51.3 57.0
Total reinsurers' share of insurance liabilities after funds-withheld quota 236.5 249.1
share
2023 (unaudited) 2022
Net £'m £'m
Claims outstanding 223.1 233.7
Provision for unearned premiums 76.4 87.6
Total net insurance liabilities 299.5 321.3
Amounts recoverable under funds-withheld quota share agreements recognised
within trade receivables/payables:
- Claims outstanding (123.1) (133.0)
- Provision for unearned premiums (44.6) (50.7)
Total net insurance liabilities after funds-withheld quota share 131.8 137.6
Analysed as:
Claims outstanding 100.0 100.7
Provision for unearned premiums 31.8 36.9
Total net insurance liabilities after funds-withheld quota share 131.8 137.6
Reconciliation of movements in claims outstanding
2023 (unaudited) 2022
£'m £'m
Gross claims outstanding at 1 February 292.8 329.5
Less: reinsurance claims outstanding (192.1) (212.3)
Net claims outstanding at 1 February 100.7 117.2
Gross claims incurred 157.2 94.6
Less: reinsurance recoveries (99.1) (63.3)
Net claims incurred 58.1 31.3
Gross claims paid (164.8) (131.3)
Less: received from reinsurance 106.0 83.5
Net claims paid (58.8) (47.8)
Gross claims outstanding at 31 January 285.2 292.8
Less: reinsurance claims outstanding (185.2) (192.1)
Net claims outstanding at 31 January 100.0 100.7
The 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
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
(unaudited)
2014 76% 72% 67% 63% 61% 58% 57% 56% 56% 56%
Accident year 2015 70% 73% 70% 66% 61% 58% 55% 55% 55%
2016 77% 78% 75% 65% 62% 62% 59% 59%
2017 70% 69% 65% 61% 56% 56% 55%
2018 76% 78% 74% 70% 67% 65%
2019 78% 80% 79% 75% 71%
2020 78% 82% 78% 75%
2021 64% 58% 50%
2022 67% 77%
2023 88%
The development of the net incurred claims ratios (after deducting reinsurance
recoveries) on an accident year basis over the last 10 years is as follows:
Financial year ended 31 January
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
(unaudited)
2014 75% 71% 65% 62% 59% 56% 55% 54% 54% 54%
Accident year 2015 67% 69% 66% 63% 58% 56% 54% 53% 53%
2016 70% 71% 66% 59% 56% 54% 53% 52%
2017 56% 56% 54% 53% 51% 51% 50%
2018 66% 65% 64% 62% 60% 56%
2019 71% 71% 71% 69% 59%
2020 63% 64% 62% 62%
2021 53% 47% 44%
2022 55% 53%
2023 101%
Favourable claims development over the year resulted in a £27.0m (2022:
£18.4m) reduction in the net claims incurred in respect of prior years.
16 Loans and borrowings
2023 (unaudited) 2022
£'m £'m
Bond 400.0 400.0
Ship loan 469.2 515.6
Revolving credit facility - -
Accrued interest payable 5.5 5.9
874.7 921.5
Less: deferred issue costs (20.1) (25.0)
854.6 896.5
Bonds, RCF and term loan
At 31 January 2023, the Group's financing facilities consisted of a £150.0m
seven-year senior unsecured bond (repayable May 2024), a £250.0m five-year
senior unsecured bond (repayable July 2026) and a £50.0m five-year RCF
(expiry in May 2025). The bonds are listed on the Irish Stock Exchange and are
guaranteed by Saga Services Limited and Saga Mid Co Limited.
Interest on the 2024 corporate bond is incurred at an annual interest rate of
3.375%. Interest on the 2026 corporate bond is incurred at an annual interest
rate of 5.5%. Interest payable on the Group's RCF, if drawn down, is incurred
at a variable rate of SONIA plus a bank margin which is linked to the Group's
leverage ratio.
During the year to 31 January 2023, the Group agreed amendments with its banks
to simplify the RCF arrangement to remove certain clauses that were introduced
during the COVID-19 pandemic and reduce the aggregate facility cost. The
amendments to the RCF include:
• removal of the £40.0m minimum liquidity requirement;
• removal of the condition that the facility (if drawn) is repaid on 1 March
2024, if the existing 2024 bond has not been redeemed prior to this date; and
• reduction of the RCF commitment from £100.0m to £50.0m.
In addition, dividends remain restricted while leverage (excluding Cruise) is
above 3.0x.
Subsequent to the above, the Group had further discussions with its lending
banks behind the RCF and agreed the following amendments to the facility:
• The introduction of a restriction whereby, no utilisation of the facility
is permitted prior to repayment of the 2024 bond if leverage exceeds 5.5x, or
liquidity is below £170.0m.
• During 2023 and 2024, should the RCF be drawn, leverage covenant testing
will be quarterly.
• Repayment of the 2024 bond, ahead of maturity, is restricted while
leverage remains above 3.75x.
• Amendments to the leverage and interest cover covenants attached to the
facility, as follows:
Leverage (excl. Ocean Cruise) Interest cover
31 January 2023 4.75x 2.5x
30 April 2023 6.75x n/a
31 July 2023 6.75x 2.5x
31 October 2023 6.75x n/a
31 January 2024 5.5x 2.75x
30 April 2024 5.5x n/a
31 July 2024 5.5x 3.0x
31 October 2024 5.5x n/a
31 January 2025 4.75x 3.0x
At 31 January 2023, the Group's £50.0m RCF remained undrawn. Accrued interest
payable on the Group's bonds at 31 January 2023 is £2.2m (2022: £2.8m).
During the year ended 31 January 2022, the Group repaid its £200.0m five-year
term loan (repayable May 2023) in full. Interest was incurred at a variable
rate of London Inter-Bank Offered Rate (LIBOR, since replaced by SONIA) plus a
bank margin which was linked to the Group's leverage ratio.
Ocean cruise ship loans
In June 2019, the Group drew down £245.0m of financing for its ocean cruise
ship, Spirit of Discovery. The financing represents a 12-year fixed-rate
sterling loan, secured against the Spirit of Discovery cruise ship asset, and
backed by an export credit guarantee. The initial loan was repayable in 24
broadly equal instalments, with the first payment of £10.2m paid in December
2019.
The Board announced on 22 June 2020 that it had secured a debt holiday and
covenant waiver for the Group's ship facilities. The Group's lenders agreed to
a deferral of £32.1m in principal payments under the ship facilities that
were due up to 31 March 2021. These deferred amounts were to be paid between
June 2021 and December 2024 for Spirit of Discovery and between September 2021
and March 2025 for Spirit of Adventure, and interest remained payable.
On 29 September 2020, the Group drew down £280.8m of financing for its ocean
cruise ship, Spirit of Adventure. The financing, secured against the Spirit of
Adventure cruise ship asset, represents a 12-year fixed-rate sterling loan,
backed by an export credit guarantee. The loan is repayable in 24 broadly
equal instalments, with the first payment originally due six months after
delivery in March 2021, but initially deferred to September 2021 as a result
of the debt holiday described above.
In March 2021, the Group reached agreement of a one-year extension to the debt
deferral on its ocean cruise ship facilities. As part of an industry-wide
package of measures to support the cruise industry, an extension of the
existing debt deferral was agreed to 31 March 2022. The key terms of this
deferral were:
• all principal payments to 31 March 2022 (£51.8m) deferred and repaid over
five years;
• all financial covenants until 31 March 2022 waived; and
• dividends remain restricted while the deferred principal is outstanding.
After the year end, the Group concluded discussions with its Cruise lenders in
respect of the covenant restrictions attaching to its two ship debt facilities
(Note 21). Lenders have agreed to a waiver of the EBITDA to debt repayment
covenant ratio for the 31 July 2023 testing date.
Interest on the Spirit of Discovery ship loan is incurred at an effective
annual interest rate of 4.31% (including arrangement and commitment fees).
Interest on the Spirit of Adventure ship loan is incurred at an effective
annual interest rate of 3.30% (including arrangement and commitment fees).
Interest payable on the Group's ocean cruise ship debt deferrals is incurred
at a variable rate of SONIA plus a bank margin.
Accrued interest payable on the Group's ocean cruise ship loans at 31 January
2023 is £3.3m (2022: £3.1m).
Also since the year end, on 3 April 2023, the Company entered into a forward
starting loan facility agreement with Sir Roger De Haan, commencing on 1
January 2024, under which the Company may draw down up to £50m with 30 days'
notice to support liquidity needs and specifically the repayment of £150m
bonds maturing in May 2024. The facility is provided on an arm's length basis.
Interest will accrue on the facility at the rate of 10% and is payable on the
last day of the period of the loan. The facility matures on 30 June 2025, at
which point any outstanding amounts, including interest, must be repaid. The
facility is subject to a 2% arrangement fee, payable on entering into the
arrangement. A draw down fee of 2% on any amount drawn down under the facility
is payable on the drawing date; and milestone fees of 2% on any uncancelled
amount of the facility become payable on 31 March 2024 and 31 December 2024
respectively.
Total debt and finance costs
At 31 January 2023, debt issue costs were £20.1m (2022: £25.0m). The
movement in the year represents expense amortisation for the period.
During the year, the Group charged £41.0m (2022: £37.4m) to the income
statement in respect of fees and interest associated with the bonds, RCF, term
loan and ship loans. In addition, finance costs recognised in the income
statement include £1.2m (2022: £0.7m) relating to interest and finance
charges on lease liabilities and net fair value losses on derivatives are
£nil (2022: £2.7m). 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
As at 1 February 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 and 31 January 2023 (unaudited) 140,337,271 0.15 21.1
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 28 April 2022, nil cost options over 345,353 shares were issued
under the Deferred Bonus Plan to Executive Directors reflecting their deferred
bonus in respect of 2021/22, which vest and become exercisable on the third
anniversary of the grant date. Under the Deferred Bonus Plan, executives
receive a maximum of two-thirds of the bonus award in cash and a minimum of
one-third in the form of rights to shares of the Company.
b) During the year, nil cost options over 2,548,775 shares were issued
under the Restricted Share Plan to certain Directors and other senior
employees which vest and become exercisable on the third anniversary of the
grant date, subject to continuing employment.
c) In July 2022, the Board and shareholders approved the issue of an
additional new award called the Saga Transformation Plan (STP). The STP has a
five-year vesting period and participants receive a 12.5% share in shareholder
value (share price plus dividends) created above a £6 per share hurdle over a
five-year performance period commencing from the grant date, subject to
continuing employment. For Directors and senior leaders, the STP will be
equity-settled. For other employees, the STP will be settled in cash. There is
a cap of £88.0m on the value of awards that may vest, and the awards have a
range of grant dates based on the tranche that each participant falls into.
On 5 July 2022, nil cost options were issued under the STP to certain
Directors and other senior employees which vest and become exercisable on the
fifth anniversary of the grant date, subject to continuing employment.
The fair values of all awards granted during the year under the equity-settled
and cash-settled share-based remuneration schemes operated by the Group are
assessed using techniques based upon the "Black-Scholes" pricing model. The
Group charged £3.9m (2022: £3.4m) during the year to the income statement in
respect of equity-settled share-based payment transactions.
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. At the point of reclassification to held for sale, the carrying
values of £16.9m were considered to be equal to, or below, fair value less
costs to sell and hence no revaluation at the point of reclassification was
required.
During the year ended 31 January 2022, the Group disposed of a property
reclassified from property, plant and equipment to held for sale in the
period. Cash consideration received (net of transaction costs) was £10.2m and
the carrying value of the property at the date of disposal was £3.0m. Profit
arising on disposal was £7.2m.
In addition, during the year ended 31 January 2022, the Group declassified one
of the properties from held for sale back to property, plant and equipment,
since it was no longer being actively marketed for disposal. The carrying
value of this property as at 31 January 2021 was £3.0m.
Management conducted impairment reviews of the freehold property assets held
for sale as at 31 January 2022 and 31 January 2023. In relation to these
freehold properties, value-in-use continued to be negligible and so the Group
obtained updated market valuations to determine the fair value of each
building. The outcome of these impairment reviews concluded that net
impairment charges totalling £1.2m (2022: £1.0m) should be recognised
against the Group's property assets held for sale as at 31 January 2023 and 31
January 2022 respectively.
At the end of the year ended 31 January 2023, the Group made the decision to
initiate an active programme to locate buyers for a further two of its
freehold properties and one of its long leasehold properties. The Group also
reclassified to held for sale the related fixtures and fittings associated
with one of these freehold properties. At the point of reclassification to
held for sale, the carrying values of £15.9m for the properties and £3.6m
for the related fixtures and fittings, total £19.5m, were considered to be
equal to, or below, fair value less costs to sell and hence no revaluation at
the point of reclassification was required. These properties are being
actively marketed and the disposals are expected to be completed within 12
months of the end of the financial year.
As at 31 January 2023, the carrying values of the properties classified as
held for sale, totalling £31.2m, are representative of either each property's
fair value or historic cost less accumulated depreciation and any impairment
charges to date, whichever is lower.
20 Related party transactions
There were no related party transactions in the year ended 31 January 2023.
A working capital facility of £10.0m, agreed with Sir Roger De Haan, the
Non-Executive Chairman of Saga plc, to fund the short-term liquidity needs of
the Cruise business was cancelled in July 2021.
As set out in Note 16, on 3 April 2023, the Company entered into a forward
starting loan facility agreement with Sir Roger De Haan, commencing on 1
January 2024, under which the Company may draw down up to £50m with 30 days'
notice to support liquidity needs and specifically the repayment of £150m
bonds maturing in May 2024. The facility is provided on an arm's length basis.
Interest will accrue on the facility at the rate of 10% and is payable on the
last day of the period of the loan. The facility matures on 30 June 2025, at
which point any outstanding amounts, including interest, must be repaid. The
facility is subject to a 2% arrangement fee, payable on entering into the
arrangement. A draw down fee of 2% on any amount drawn down under the facility
is payable on the drawing date; and milestone fees of 2% on any uncancelled
amount of the facility become payable on 31 March 2024 and 31 December 2024
respectively.
21 Events after the reporting period
After the year end, the Group concluded discussions with its Cruise lenders in
respect of the covenant restrictions attaching to its two ship debt facilities
(Note 16). Lenders have agreed to a waiver of the EBITDA to debt repayment
covenant ratio for the 31 July 2023 testing date.
Also since 31 January, the Company has agreed a £50m loan facility with Sir
Roger De Haan, to commence on 1 January 2024, details of which are set out in
Note 20 above.
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 to, rather than a substitute for, GAAP measures.
Underlying Profit/(Loss) Before Tax
Underlying Profit/(Loss) 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, the charge on closure of the defined benefit pension scheme, foreign
exchange movements on river cruise ship leases, costs incurred for the ship
debt holiday, costs in relation to the acquisition of the Big Window, the IFRS
16 lease accounting adjustment on river cruise vessels and restructuring
costs. It is reconciled to statutory loss before tax within the Group Chief
Financial Officer's Review on page 10.
This measure is the Group's key performance indicator and is useful for
presenting the Group's underlying trading performance, as it excludes non-cash
technical accounting adjustments and one-off financial impacts that are not
expected to recur.
Trading EBITDA/Adjusted Trading EBITDA
Trading EBITDA is defined as earnings before interest payable, tax,
depreciation and amortisation, and excludes the IAS 19R pension charge,
exceptional costs and impairments. Adjusted Trading EBITDA also excludes the
impact of IFRS 16 leases and the Trading EBITDA relating to the two ocean
cruise ships, Spirit of Discovery and Spirit of Adventure in line with the
covenant on the Group's revolving credit facility (RCF). It is reconciled to
Underlying Profit/(Loss) Before Tax within the Group Chief Financial Officer's
Review on page 21. Underlying Profit/(Loss) Before Tax is reconciled to
statutory loss before tax within the Group Chief Financial Officer's Review on
page 10.
This measure is linked to the covenant on the Group's RCF, being the
denominator in the Group's leverage ratio calculation.
Underlying Basic Earnings/(Loss) Per Share
Underlying Basic Earnings/(Loss) Per Share represents basic loss per share
excluding the post-tax effect of unrealised fair value gains and losses on
derivatives, the net profit on disposal of assets, impairment of the carrying
value of assets including goodwill, the charge on the closure of the defined
benefit pension scheme, foreign exchange gains on river cruise ship leases,
costs incurred for the ship debt holiday, costs in relation to the acquisition
of the Big Window, the IFRS 16 lease accounting adjustment on river cruise
vessels and restructuring costs. This measure is reconciled to the statutory
basic loss per share in Note 6 to the accounts on pages 50-51.
This measure is linked to the Group's key performance indicator Underlying
Profit/(Loss) Before Tax and represents what management considers to be the
underlying shareholder value generated in the period.
Available Cash
Available Cash represents cash held by subsidiaries within the Group that is
not subject to regulatory restrictions, net of any overdrafts held by those
subsidiaries. This measure is reconciled to the statutory measure of cash in
Note 13 to the accounts on page 59.
Available Operating Cash Flow
Available Operating Cash Flow is net cashflow 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.
Net Debt
Net Debt is the sum of the carrying values of the Group's debt facilities less
the amount of Available Cash it holds and is analysed further within the Group
Chief Financial Officer's Review on page 24.
Adjusted Net Debt
Adjusted Net Debt is the sum of the carrying values of the Group's debt
facilities less the amount of Available Cash it holds but excludes the ship
debt and the Ocean Cruise business Available Cash. It is linked to the
covenant on the Group's RCF, being the numerator in the Group's leverage ratio
calculation, and is analysed further within the Group Chief Financial
Officer's Review on page 25.
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