TIDMSAGA
RNS Number : 3813K
SAGA PLC
21 September 2016
21 September 2016
Saga plc
Interim Results for the six months ended 31 July 2016
23% increase in interim dividend supported by strong financial
performance
Saga plc ("Saga" or "the Group"), the UK's specialist in
products and services for life after 50, announces its interim
results for the six months ended 31 July 2016.
Financial highlights
31 July 31 July Change
2016 2015
----------------------------------------------- ----------- ----------- --------
Profit before tax from continuing operations GBP109.9m GBP101.3m 8.5%
Basic EPS from continuing operations 7.9p 7.3p 8.2%
Debt ratio (net debt(1) to EBITDA(1) ) 2.2x 2.4x (0.2)x
Interim dividend 2.7p 2.2p 22.7%
-- Trading Profit(1) of GBP117.6m (H1 2015: GBP117.5m)
o Trading Profit in the core businesses grew by 2.0%, including
GBP4.7m negative profit impact in H1 2016 of scheduled maintenance
for Saga Sapphire cruise ship
-- Profit before tax, excluding the effect of derivative gains,
increased by 3.9% to GBP104.5m (H1 2015: GBP100.6m)
-- Sustained cash generation, leading to further deleveraging:
o Net debt to EBITDA reduced to 2.2x from 2.4x at 31 July
2015
o Progressing towards target range for debt ratio of between 1.5
and 2.0 times in the medium term
-- 23% increase in interim dividend to 2.7p supported by
financial performance and ongoing deleveraging
Operational highlights
-- Insurance - strong performance in competitive environment:
o Total core insurance policies increased to 3,051k (H1 2015:
2,731k), 3.0% growth excluding Bennetts
o Motor panel performing effectively, taking around one quarter
of net premium(2) on renewals
o Continued strong performance in motor underwriting with
combined operating ratio(3) of 58.6% (H1 2015: 65.5%)
o Solvency II position of 196% (31 January 2016: 170%)1
o Quota share reducing capital at risk, enabling cash to be
gradually released from AICL
-- Travel - robust trading performance and visibility:
o Substantial majority of 2016/2017 sales targets already met
and ahead of prior year for departures in 2017/2018
o No discernable impact on customer behavior following the UK's
decision to leave the EU
-- Good progress made on design for new cruise ship with delivery on track for July 2019
(1) Please refer to the glossary provided in the Saga plc annual
report and accounts for a full definition of this measure. The
income statement and supporting analysis given later in the Chief
Financial Officer's Review shows how this measure reconciles to
statutory measures.
(2) Net premium here is defined as the share of premium paid by
customer that is passed on to the underwriter.
(3) Combined operating ratio is the ratio of claims costs and
expenses incurred in selling and administering insurance
underwritten (the numerator) to the net earned premium and other
income (the denominator) recognised for the period.
31 July 2016 31 July Change
2015
------------------------------------------ -------------- --------- -----------
Insurance
Core policies 3,051k 2,731k 11.7%
Motor combined operating ratio 58.6% 65.5% (6.9)ppts
Travel
Tour operating passengers 95k 96k (1.0)%
Ship passenger days 135k 171k (21.1)%
Customers
Contactable people on Saga database 11.3m 11.0m 2.7%
Active customers 2.7m 2.6m 3.8%
Average core product holding per active
customer 1.7 1.7 -
Commenting on the results, Lance Batchelor, Group Chief
Executive Officer, said:
"I am pleased that the business has made significant progress
with our key strategic initiatives whilst delivering another robust
financial performance. The strength of our core businesses and our
operating model has again led to strong cash generation, enabling
us to further reduce our debt ratio and giving us the confidence to
increase our interim dividend by 23% to 2.7p.
Saga already has significant brand awareness and customer
loyalty but we have been working hard to enhance our understanding
of the relationship with our customers. This has produced some
fascinating insights and opportunities and we are underway with the
work that will enable us to capitalise on our findings.
We have seen no discernible impact to date from Britain's
decision to leave the European Union; this has been especially
notable in our Travel business, where we polled customers recently
and 99% said that Brexit would not make them reconsider their
future holiday plans.
The robust operational performance in the first half means that
we are on track to meet our targets for the full year."
A presentation to analysts will be held at 09.30 at the offices
of Goldman Sachs, Peterborough Court, 133 Fleet Street, London,
EC4A 2BB. There will be a live webcast of the analyst presentation
for registered participants. Registration can be completed at
http://corporate.saga.co.uk/. The webcast will be also accessible
via the Saga website following the presentation.
For further information please contact:
Saga plc
Tim McCall, director of corporate Tel: 07753 561 862
affairs Email: tim.mccall@saga.co.uk
Duncan Browne, investor relations Tel: 07710 440 528
manager Email: duncan.browne@saga.co.uk
Paul Green, director of communications Tel: 01303 776 023 / 07714 414 859
Email: paul.green@saga.co.uk
MHP
Tim Rowntree/Simon Hockridge Tel: 020 3128 8100
Email: saga@mhpc.com
Notes to editors
Saga is a specialist in the provision of products and services
for life after 50. The Saga brand is one of the most recognised and
trusted brands in the UK and is known for its high level of
customer service and its high quality, award winning products and
services including cruises and holidays, insurance, personal
finance and publishing. saga.co.uk
Group Chief Executive's Review
Overview
The business has produced another solid financial performance in
the first half of the year with sustained profit growth in our core
businesses delivered alongside investment in future growth. Profit
before tax, excluding the effect of derivative gains, grew by 3.9%
to GBP104.5m, generating GBP97.3m of available operating cash flow.
This allowed us to further decrease our debt ratio to 2.2x net debt
to EBITDA, making further progress towards our target range of 1.5x
to 2.0x. This positive performance, combined with our confidence in
our robust, sustainable operating model, has enabled us to increase
our interim dividend by 23% to 2.7p, in line with our progressive
dividend policy.
Our strategy remains focused on becoming an even more customer
driven business, growing our core insurance and travel businesses,
investing in future growth and maintaining our operating model to
generate strong cash flows and robust earnings.
Become an even more customer driven business
A significant amount of work has been undertaken to further
enhance our understanding of our customers. A large part of that
work has been to segment our customer base and identify a cohort of
high value customers that already have the strongest relationship
with Saga. By identifying this group we are able to understand
their common characteristics and to evolve our proposition to help
ensure we build on our relationship with them.
To maximise the benefit of this insight, we are currently
implementing a new suite of marketing software tools, which will
enable us to understand how each customer interacts with us across
multiple channels, and to produce targeted and personalised
communications for them. This in turn allows us to optimise our
marketing resources, and to reduce the use of mass direct marketing
materials.
We are excited about the potential benefits of work in this area
and we already have multiple initiatives underway internally that
will allow us to capitalise on our findings. These initiatives will
be launched externally in the coming months and we will update the
market on the details in due course.
Growing our core businesses
Insurance
The strength of Saga's insurance model lies in its flexibility
to operate efficiently in all market conditions, balancing volume
and price to deliver sustainable, robust earnings. Through Saga
Services, our retail broker, we have the ability to access high
quality, accurately priced underwriting from the most cost
efficient source. This is either from our panel of third party
providers, our own in-house underwriter, AICL, or from a third
party solus arrangement. So far this year, this has allowed us to
perform strongly across our portfolio of insurance products in a
continuingly competitive environment, with Trading Profit up
3.7%.
The UK motor insurance market has remained highly competitive.
While motor premiums demonstrated strong growth year on year, we
saw the pace of premium growth slow markedly during the second
quarter of the year.
The motor panel is proving effective with around a quarter of
the net premiums on renewal going to third party underwriters. Our
experience in home insurance shows that motor panel will take some
time to reach its optimum pricing potential. It will become
increasingly efficient as underwriters understand the Saga customer
base, gain comfort with the data we provide them through the 'Saga
Factor' and as more underwriters join the panel. We have started
rolling out insurer hosted pricing, which enables us to receive
enhanced real-time pricing from our third party providers, leading
to better pricing and improved competitive tension. We currently
have five insurers on the panel and expect to add more insurers to
compete for volume during the remainder of the financial year.
As part of our drive to improve the customer experience and
efficiency of our operations, we are undertaking the modernisation
of our insurance sales and administration platform over the next
three years. This update will enhance our ability to rapidly react
to customers' changing needs, regardless of the channel through
which they interact with Saga. The cost of this new generation of
supported insurance operating platform will be covered within our
usual run rate of capital expenditure.
We have delivered a 6.9% improvement in our reported combined
operating ratio to 58.6% with a consistent level of reserve
releases. This improvement is the result of the earn through of
motor rate increases combined with ongoing efficient management of
claims and continued positive claims experience, as well as an
earned to written benefit from the introduction of the arrangement
fee at the end of last year.
The UK home insurance market continues to be highly competitive
and we have seen the same deflationary rate environment that the
wider market has experienced. Despite these conditions, the
efficiency of our panel has helped us to maintain our
competitiveness and deliver growth in core policies.
In recent years, the competitive tension on the home insurance
panel continued to rise as new panel members joined. This meant
that, in a falling market, we were afforded a pricing advantage,
with the cost of risk being charged to our retail broker, Saga
Services, falling faster than the average market price of policies.
The panel is now running very efficiently and as a result, future
margin improvements are expected to be more in line with wider
market rate rises.
We have continued to deliver a strong performance in other
insurance, through growing customer numbers in this segment's core
products of private medical insurance ('PMI') and travel insurance.
Continued strong performance in PMI has been driven by our ability
to manage our supply chain to achieve lower net rates. We have also
been working closely with our supplier to improve the customer
proposition to ensure its relevance to our target customer base. We
now have a system in place that means patients can fast track
appointments, providing the certainty and urgency that is important
to our demographic. Our travel insurance has continued to perform
well in light of our focus on developing new routes to market. This
has helped us to continue to grow volumes, despite seeing market
reductions in quote levels compared to the same period last
year.
Travel
We have delivered growth in both revenue and profit within our
tour operating business. We have continued to see a shift in the
mix of sales to longer-haul, higher-value products as customers
look beyond some of the more traditional holiday destinations. In
this area, our customers value the security and the highly
differentiated products that we offer. The shift is testament to
our expertise in catering for the specific needs of our customer
demographic and the flexibility of our model, which allows us to
shift our offer to match changes in demand. We are continuing to
broaden and target our offering based upon customer insight and
this has been very well received to date.
Cruising has had a strong first half year with improvements in
yields year on year. However Saga Sapphire underwent scheduled
maintenance during the period which had a GBP4.7m adverse profit
impact.
Our focus in cruising remains the safety of our ships, our
passengers and our crew and we continue to invest to ensure we are
continuously "raising the bar" within this remit. Outside of this
we continually challenge ourselves to understand and adapt to our
customer feedback which is ultimately measured by our exceptionally
high guest satisfaction scores.
In both tour operating and cruising, we have already secured the
substantial majority of our 2016/2017 sales targets and are ahead
of prior year for departures in 2017/2018.
Current trading
Trading to week ending 10 September 2016
2017/2018 Growth 2016/2017
Departure Year
------------------------------------ ----------- -------- -----------
Tour Operating Revenue (GBPm) 105.4 15.0% 91.6
Tour Operating Passengers (000) 49.6 13.0% 43.9
Cruise Revenue (GBPm) 51.6 1.0% 51.1
Cruise Passenger Days (000) 210.9 3.6% 203.5
Investing in future growth
The strength of our core businesses allows us to continue to
explore areas in which we can provide enhanced and differentiated
products and services that cater for our customers' needs.
We have made good progress during the period in the design stage
of the new cruise ship, conducted in consultation with our
customers. We are working with one of the world's best cruise
shipyards and are on track for delivery of the ship in July 2019.
Given its enduring popularity with our customers, it is not
surprising that we have received a high level of interest from
customers regarding our new ship, with nearly 5,000
pre-registrations for the initial cruises. The first cruises will
begin to go on sale next year and both we and our customers are
extremely excited about the future of our cruising business.
As we have stated previously, the economics of the new ship will
be transformational for our cruise business, delivering significant
improvements in profits while enhancing our already fantastic
customer experience.
We are continuing to develop our broad Saga Money proposition to
serve our customers' wide range of financial needs. Within that,
Saga Investment Services is making progress as the product range is
broadened and customers continue to seek financial advice
approaching retirement. The majority of our initial customers' have
chosen to invest in our readymade portfolios, tailored by growth
and risk objectives. During the recent challenging period
immediately after Brexit, customers of these portfolios benefited
from the funds' diversification.
We also continue to operate our other small scale, low cost
pilots and we will continue to monitor progress and keep the market
updated.
Maintaining our simple and efficient operating model
Strong cash generation and robustness of earnings are central to
our model. Our new motor panel allows us to offer competitive
products to a broader range of customers, and increase our ratio of
broked to underwritten policies, growing our potential footprint
and enhancing the quality of earnings.
The funds-withheld quota share arrangement we now have in place
will reduce the need to hold as much capital in the future within
our underwriter, gradually allowing cash to be released as a
greater number of policies are covered by the arrangement. This
will enhance cash generation, supporting our progressive dividend
policy, while also maintaining our debt reduction targets.
We are also stepping up measures to enhance customers'
experience of dealing with Saga, as well as improving operational
efficiency across the business. We are in the process of
introducing a new claims system, which will improve the process for
our customers, as well as reducing costs associated with claims
handling. As mentioned above, we will also be modernising our
retail broking platform with an upgraded sales and administration
system. The back office of our travel business is also being
reorganised to improve efficiency and reduce costs. Lastly, we have
put in place an enhanced procurement team to drive purchasing
efficiency across the Group.
Britain's decision to leave the European Union (Brexit)
Before the 23(rd) June EU Referendum we had stated our belief
that whatever the outcome of the vote, we were confident that Saga
could continue to thrive. We were confident because our business
model is flexible, and our target market has shown itself to be
robust in the face of previous economic challenges.
The largest part of the Saga business that was potentially
exposed to changing customer behaviour post the vote is our travel
business. However, we polled our customers in the immediate
aftermath of the vote and less than 1% of them said that they were
reconsidering their future holiday plans as a result of the
referendum result.
Since then, we have seen no discernible impact on our customers'
travel behaviour across the business, evidenced by our current
trading in the travel business. Our travel business model is also
different to the industry standard as we do not have to make volume
commitments to hotels and suppliers. We also hedge fuel and other
costs up to two years in advance so that short term currency and
oil price fluctuations have no material impact on pricing to
customers.
With regard to our underwriting operations in Gibraltar (AICL),
at present we can see no reason why the decision to leave the EU
will lead to a change in how we currently operate.
The longer-term impact of the Brexit negotiations will emerge
over time, but we will monitor them closely and remain confident in
our ability to adapt to and thrive amidst the new challenges and
opportunities.
Conclusion
The first half of the year has been an exciting one with a
significant amount of activity throughout all areas of the company.
Whilst growing our core businesses and exploring opportunities for
future growth, we are working hard to increase our understanding of
our customers through an enhanced dialogue, further analysis of our
database and developing our proposition.
Our aim is to deliver on these objectives, while continuing to
generate resilient earnings, progressive returns to shareholders
and reaching our cash generation and debt reduction targets. I
believe that we have the right team in place to achieve our goals
and I am confident that we will deliver on our plans for the full
year.
Chief Financial Officer's Review
The Group had a solid first six months of the year, with Trading
Profit in line with H1 2015. Profit before tax increased by 8.5%
and, excluding the benefit of derivative gains, grew by 3.9%. These
results were impacted by the scheduled Saga Sapphire maintenance,
which reduced profit in the first half of the year by GBP4.7m.
After generating a strong positive cash flow, the Group further
reduced its debt ratio to 2.2x from 2.3x at 31 January 2016. The
interim dividend has been increased by 23% to 2.7p per share (H1
2015: 2.2p).
Income Statement
Group Income Statement 6m to Growth 6m to
Jul Jul
2016 2015
------------------------------------------- ------------ ------------
Revenue GBP437.2m (8.6%) GBP478.3m
------------ ------------
Trading EBITDA GBP133.4m 2.1% GBP130.6m
Depreciation & amortisation (excluding
acquired intangibles) (GBP15.8m) (GBP13.1m)
Trading Profit GBP117.6m 0.1% GBP117.5m
Non-trading items (incl. IPO expenses) (GBP0.6m) (GBP0.4m)
Amortisation of acquired intangibles (GBP3.5m) (GBP2.4m)
Net finance costs (GBP9.0m) (GBP14.1m)
Net fair value gains on derivatives GBP5.4m GBP0.7m
Profit before tax from continuing
operations GBP109.9m 8.5% GBP101.3m
------------ ------------
Tax expense (GBP22.0m) 8.9% (GBP20.2m)
Loss after tax for the year from
discontinued operations - (GBP3.2m)
Profit after tax GBP87.9m 12.8% GBP77.9m
------------ ------------
Basic earnings per share:
Earnings per share from continuing
operations 7.9p 8.2% 7.3p
Group revenue decreased by 8.6% to GBP437.2m (H1 2015:
GBP478.3m), reflecting the accounting impact from the introduction
of the funds-withheld quota share arrangement in motor insurance.
Trading Profit was flat against the first half of 2015, with the
current period incurring a GBP4.7m profit impact from the scheduled
Saga Sapphire maintenance.
Net finance costs in the first half of the year were GBP9.0m (H1
2015: GBP14.1m), benefitting from lower interest costs on debt,
lower amortisation of debt issue costs and a credit related to the
unwind of discounting.
Profit before tax increased by 8.5% to GBP109.9m (H1 2015:
GBP101.3m), reflecting a GBP4.7m increase in derivative fair value
gains taken to profit and loss due to favourable movements on
foreign exchange and oil price derivatives that are not covered by
hedge accounting, and the reduction in finance costs. This was
partially offset by an increase in amortisation of acquired
intangibles of GBP1.1m as a result of the full six-month impact of
Bennetts, acquired on 1 July 2015, and a GBP0.2m increase in
non-trading costs.
During the first half of the year we completed the sale of the
Bel Jou hotel, in St Lucia. Having written-down its carrying value
during the previous financial year, there is no impact on the
Group's income statement or balance sheet in the period.
Tax expense
The tax charge reported in the income statement of GBP22.0m (H1
2015: GBP20.2m) equates to 20.0% of profit before tax (H1 2015:
19.9%).
Earnings per share
The Group's basic earnings per share from continuing operations
for the six months ending 31 July 2016 were 7.9p (H1 2015:
7.3p).
Dividends
The Directors declared an interim dividend of 2.7p per share (H1
2015: 2.2p per share). The dividend will be paid on 18 November
2016 to holders of ordinary shares on the register at the close of
business on 7 October 2016.
Saga offers a share alternative in the form of a dividend
re-investment plan ("DRIP") for those shareholders who wish to
elect to use their dividend payments to purchase additional shares
in the Group, rather than receive a cash payment. The last date for
shareholders to elect to participate in the DRIP will be 24 October
2016.
Cash flow and liquidity
The Group continued to generate high levels of cash flow in the
six months to 31 July 2016, with an available operating cash flow
of 72.9% of Trading EBITDA (H1 2015: 106.5%). Cash flow in the
first half of 2016 was more consistent with the expected full-year
cash flow outturn.
This cash flow decreased by GBP41.8m on the previous period,
which was driven by a lower payout from the restricted businesses,
as Travel retained more cash to fund deposits on the new ship, and
normalisation of working capital in line with the full year. The
working capital movement in the current year includes a one-off
payment of GBP7.6m to Acromas in respect of the tax losses
purchased, the benefit of which was recognised in the previous
year's tax expense.
Available Cash Flow 6m to Growth 6m to
Jul 2016 Jul 2015
----------------------------------------------- ------------ ---------- ------------
Trading EBITDA GBP133.4m 2.1% GBP130.6m
Less Trading EBITDA relating to restricted
businesses (GBP64.3m) 6.6% (GBP60.3m)
Intra-group dividends paid by restricted
businesses GBP50.0m (15.3%) GBP59.0m
Working capital and non-cash items (GBP12.8m) (178.5%) GBP16.3m
Capital expenditure funded with available
cash (GBP9.0m) 38.5% (GBP6.5m)
Available operating cash flow GBP97.3m (30.1%) GBP139.1m
------------ ------------
Available operating cash flow % 72.9% (33.6%) 106.5%
Available operating cash flow reconciles to net cash flows from
operating activities as follows:
6m to 6m to
Jul 2016 Jul 2015
----------------------------------------------- ------------ ------------
Net cash flow from operating
activities (reported) GBP91.7m GBP106.4m
Exclude cash impact of:
Trading of restricted divisions (GBP62.1m) (GBP35.7m)
Trading of discontinued operation - (GBP5.4m)
Cash released from restricted
divisions GBP50.0m GBP59.0m
Non-trading costs GBP5.0m GBP9.6m
Interest paid GBP7.2m GBP13.2m
------------ ------------
GBP0.1m GBP40.7m
Include capital expenditure funded
from available cash (GBP9.0m) (GBP6.5m)
Exclude non-operating interest
and tax cash flows GBP14.5m (GBP1.5m)
Available operating cash flow GBP97.3m GBP139.1m
------------ ------------
Financing
The Group has reduced its net debt to EBITDA ratio to 2.2x in
the six months to 31 July 2016 from 2.3x as at 31 January 2016. As
at 31 July 2016, net debt was GBP534.0m, comprising GBP470.0m of
gross debt and GBP75.0m of drawn revolving credit facility, offset
by GBP11.0m of available cash. This compared with net debt as at 31
January 2016 of GBP547.7m, comprising GBP480.0m of gross debt and
GBP75.0m of drawn revolving credit facility, offset by GBP7.3m of
available cash.
Pensions
Over the six month period, the valuation of the Group's pension
scheme liability has increased on an IAS19 basis by GBP28.8m to a
deficit of GBP47.6m (31 January 2016: deficit GBP18.8m):
Saga Scheme 31 July 31 January
2016 2016
-------------------------------------- ------------- -------------
Fair value of scheme assets GBP267.8m GBP218.6m
Present value of defined benefit
obligation (GBP315.4m) (GBP237.4m)
Defined benefit scheme liability (GBP47.6m) (GBP18.8m)
------------- -------------
The increase in deficit was driven by a GBP78.0m increase in the
present value of obligations to GBP315.4m (January 2016:
GBP237.4m), due to lower discount rates as a result of falling bond
yields. This was partially offset by a GBP49.2m increase in the
fair value of the scheme assets to GBP267.8m (January 2016:
GBP218.6m), reflecting a change in investment strategy and gains on
overseas assets.
Net assets
Since 31 January 2016, total assets and liabilities increased by
GBP43.3m and GBP4.9m respectively, increasing overall net assets by
GBP38.4m.
The growth in total assets was due to an increase in cash and
short-term deposits of GBP22.5m, and an increase in trade and other
receivables of GBP16.0m.
With regard to liabilities, pension scheme obligations increased
by GBP28.8m, coupled with GBP29.9m more deferred revenue driven by
the seasonality of the Travel business (recognised under other
liabilities) and an increase in tax liabilities of GBP11.9m. These
were partially offset by a reduction of GBP32.7m in gross insurance
contract liabilities, due to lower total claims outstanding,
GBP19.2m less financial liabilities as a result of more derivative
contracts moving into the money and continued deleveraging, and a
GBP13.7m decrease in trade in other payables.
Segmental performance
Segmental Performance Summary 6m to Growth 6m to
Jul Jul
2016 2015
----------------------------------- ----------- -----------
Revenue
Motor Insurance GBP120.4m (23.4%) GBP157.2m
Home Insurance GBP47.5m (6.1%) GBP50.6m
Other Insurance GBP47.0m 1.1% GBP46.5m
----------- -----------
GBP214.9m (15.5%) GBP254.3m
Travel GBP208.0m (0.8%) GBP209.7m
Other Businesses and
Central Costs GBP14.3m 0.0% GBP14.3m
GBP437.2m (8.6%) GBP478.3m
----------- -----------
Trading Profit
Motor Insurance GBP72.1m 9.9% GBP65.6m
Home Insurance GBP30.4m (11.6%) GBP34.4m
Other Insurance GBP16.0m 11.9% GBP14.3m
----------- -----------
GBP118.5m 3.7% GBP114.3m
Travel GBP9.0m (15.9%) GBP10.7m
Other Businesses and
Central Costs (GBP9.9m) 32.0% (GBP7.5m)
GBP117.6m 0.1% GBP117.5m
----------- -----------
The prior period has been restated to reclassify certain
overhead costs within the insurance segment to provide a more
accurate allocation of costs. Insurance Trading Profit of GBP114.3m
is unchanged.
Total revenue for the insurance business decreased by 15.5% to
GBP214.9m (H1 2015: GBP254.3m), driven primarily by the impact of
the new funds-withheld quota share arrangement in motor insurance.
Travel revenue reduced by 0.8% to GBP208.0m (H1 2015: GBP209.7m),
resulting from the Saga Sapphire maintenance offset by increased
revenues from the tour operating businesses. Emerging businesses
and central costs revenue was in line with the previous year.
The insurance business saw an increase in Trading Profit of
GBP4.2m, driven by the introduction of the motor panel, the full
six-month impact of Bennetts and supply chain improvements in
private medical insurance. Within this, Trading Profit from home
insurance was down GBP4.0m due to lower average premiums and less
profit share. This was offset by a GBP1.7m decrease in travel
Trading Profit due to the Saga Sapphire maintenance and a GBP2.4m
increase in the Trading Loss in the emerging businesses and central
costs segment, driven by investment in both the Saga Investment
Services and healthcare businesses.
Motor insurance
6m to Jul 2016 Growth 6m to Jul 2015
---------
Core Ancillary Broking/ Total Core Ancillary Broking/ Total
UW Other Motor UW Other Motor
------------ ---------- ----------- ---------- ----------- --------- ----------- ----------- ---------- -----------
Revenue GBP70.7m GBP16.9m GBP32.8m GBP120.4m (23.4%) GBP118.3m GBP17.3m GBP21.6m GBP157.2m
---------- ----------- ---------- ----------- ----------- ----------- ---------- -----------
Trading
Profit GBP56.4m GBP8.8m GBP6.9m GBP72.1m 9.9% GBP49.8m GBP10.5m GBP5.3m GBP65.6m
---------- ----------- ---------- ----------- ----------- ----------- ---------- -----------
Number of policies sold:
- core 892k 26k 451k 1,369k 23.1% 956k 23k 133k 1,112k
- add-ons n/a 1,146k 477k 1,623k 22.8% n/a 1,193k 129k 1,322k
---------- ----------- ---------- ----------- ----------- ----------- ---------- -----------
892k 1,172k 928k 2,992k 22.9% 956k 1,216k 262k 2,434k
Gross written
premiums GBP97.8m GBP16.3m GBP57.7m GBP171.8m 7.1% GBP122.2m GBP18.0m GBP20.2m GBP160.4m
The prior period has been restated to reclassify certain
overhead costs within the insurance segment to provide a more
accurate allocation of costs. Insurance Trading Profit of GBP114.3m
is unchanged.
Overall motor revenue decreased by 23.4% to GBP120.4m (H1 2015:
GBP157.2m), with the impact of the new quota share arrangement
being partially offset by trading in the Bennetts business that was
acquired on 1 July 2015.
High motor market premium inflation during the first quarter of
the year lowered persistency, but also led to higher levels of
churn in the market, resulting in higher new business sales.
Combined with the inclusion of Bennetts for the full six-month
period, growth in core motor policies was 23.1%. When excluding
Bennetts, core motor insurance policies increased by 1.7% to 1,102k
(H1 2015: 1,084k). Motor core policies placed with third-party
panel members form part of the policy count included under broking
/ other.
Positive claims experience within the core underwriting
business, the introduction of the motor panel and the full-period
impact of Bennetts has enabled an increase in Trading Profit of
9.9%, despite continuing challenging market conditions.
Motor underwriting
The profitability of the core underwritten motor business has
improved, as lower net earned premiums are more than offset by
improved claims experience and increases in other income.
Motor Core 6m to Quota Underlying Growth 6m to
Underwriting P&L Jul Share Jul
2016 2015
------------------------ ---------------- ------------ ------------ ------------ --------- ------------
Net earned premium A GBP54.4m (GBP51.0m) GBP105.4m (7.4%) GBP113.8m
Instalment income GBP2.3m - GBP2.3m 21.1% GBP1.9m
Other income B GBP14.0m GBP3.0m GBP11.0m 323.1% GBP2.6m
------------ ------------ ------------ ------------
Revenue GBP70.7m (GBP48.0m) GBP118.7m 0.3% GBP118.3m
Claims costs C (GBP34.2m) GBP44.2m (GBP78.4m) (11.7%) (GBP88.8m)
Reserve releases D GBP40.0m - GBP40.0m (1.2%) GBP40.5m
Claims handling and
regulatory fees E (GBP4.0m) GBP5.7m (GBP9.7m) 5.4% (GBP9.2m)
------------ ------------ ------------ ------------
Total cost of sales F GBP1.8m GBP49.9m (GBP48.1m) (16.3%) (GBP57.5m)
Gross profit GBP72.5m GBP1.9m GBP70.6m 16.1% GBP60.8m
------------ ------------ ------------ ------------
Total expenses G (GBP19.1m) GBP1.0m (GBP20.1m) 7.5% (GBP18.7m)
Investment return GBP3.0m (GBP3.8m) GBP6.8m (11.7%) GBP7.7m
Trading Profit GBP56.4m (GBP0.9m) GBP57.3m 15.1% GBP49.8m
------------ ------------ ------------ ------------
Reported loss ratio (C+D)/(A+B) (8.5%) 33.0% (8.5%) 41.5%
Expense ratio (E+G)/(A+B) 33.8% 25.6% 1.6% 24.0%
Reported COR (F+G)/(A+B) 25.3% 58.6% (6.9%) 65.5%
Pure COR (F+G-D)/(A+B) 83.8% 93.0% (7.3%) 100.3%
The prior period has been restated to reclassify certain
overhead costs within the insurance segment to provide a more
accurate allocation of costs. Insurance Trading Profit of GBP114.3m
is unchanged.
As intended, the introduction of the new motor panel has
resulted in more higher-premium business being placed with
third-party underwriters, reported under broking / other, which has
driven a reduction in the number of policies and average premiums
that remain underwritten by the Group. This effect, combined with
the newly introduced arrangement fee now recognised in other
income, has resulted in underlying net earned premium reducing by
7.4% to GBP105.4m.
Underlying profit from the core underwritten motor business has
increased by 15.1% to GBP57.3m (H1 2015: GBP49.8m), with a 7.3%
improvement in the pure combined operating ratio when excluding the
effect of the new funds-withheld quota share arrangement. This
improvement has been driven by the earn through of motor rate
increases combined with our strong claims performance, coupled with
an earned to written benefit enjoyed from the introduction of the
arrangement fee at the end of last year.
The accounting for the new quota share arrangement, effective
from 1 February 2016, has resulted in a reduction in revenue and
some cost lines, with a limited impact on Trading Profit. The
impact of this has been presented in the table above. The premiums
ceded to the reinsurer are based on the net premiums recognised by
AICL, and so they do not incorporate a share of broker revenue.
The Group has not seen the increase in claims frequency that has
been reported elsewhere in the market recently, with current levels
of frequency being broadly flat across accidental damage, third
party damage and personal injury claims. As previously reported,
this is largely a result of the characteristics of the Group's
current customer base, with the majority of customers being
retired, therefore lessening the impact of recent falls in fuel
costs and economic growth.
Claims severity during 2016 has increased in line with
expectations, being broadly stable across accidental damage, third
party damage and small personal injury claims when removing the
effect of cost inflation. The Group is not currently experiencing
the inflation in personal injury claims costs reported elsewhere
and has continued to maintain strong levels of retention within the
Ministry of Justice Portal, in addition to its significant and
ongoing focus on effective management of these types of claims.
Home insurance
6m to Jul 2016 Growth 6m to Jul 2015
---------
Ancillary Core Total Ancillary Core Total
UW Broking Home UW Broking Home
/ /
Coinsured Coinsured
----------------- ----------- ------------ ---------- --------- ----------- ------------ ----------
Revenue GBP9.2m GBP38.3m GBP47.5m (6.1%) GBP9.0m GBP41.6m GBP50.6m
----------- ------------ ---------- ----------- ------------ ----------
Trading Profit GBP3.9m GBP26.5m GBP30.4m (11.6%) GBP5.1m GBP29.3m GBP34.4m
----------- ------------ ---------- ----------- ------------ ----------
Number of policies sold:
- core n/a 1,283k 1,283k 2.0% n/a 1,258k 1,258k
- add-ons 545k n/a 545k (1.4%) 553k n/a 553k
----------- ------------ ---------- ----------- ------------ ----------
545k 1,283k 1,828k 0.9% 553k 1,258k 1,811k
Gross written
premiums GBP9.9m GBP67.7m GBP77.6m (2.6%) GBP10.2m GBP69.5m GBP79.7m
The prior period has been restated to reclassify certain
overhead costs within the insurance segment to provide a more
accurate allocation of costs. Insurance Trading Profit of GBP114.3m
is unchanged.
The home insurance market has remained highly competitive over
the last six months, with no inflation in premiums.
Revenue decreased by 6.1% to GBP47.5m (H1 2015: GBP50.6m) due to
a reduction in profit share and a small fall in average premiums
compared to the first half of last year. This, coupled with
inflationary increases in operating expenses, resulted in a
decrease in Trading Profit of 11.6% to GBP30.4m (H1 2015:
GBP34.4m).
Other insurance
6m to Jul 2016 Growth 6m to Jul 2015
---------
Core Core Total Core Core Total
UW Broking Other UW Broking Other
/ Insurance / Insurance
Other Other
---------------------- ---------- ---------- ------------ --------- ---------- ---------- ------------
Revenue GBP17.8m GBP29.2m GBP47.0m 1.1% GBP19.7m GBP26.8m GBP46.5m
---------- ---------- ------------ ---------- ---------- ------------
Trading Profit GBP1.5m GBP14.5m GBP16.0m 11.9% GBP2.0m GBP12.3m GBP14.3m
---------- ---------- ------------ ---------- ---------- ------------
Number of policies sold:
- core 32k 367k 399k 10.5% 29k 332k 361k
- add-ons n/a 3k 3k (40.0%) n/a 5k 5k
---------- ---------- ------------ ---------- ---------- ------------
32k 370k 402k 9.8% 29k 337k 366k
Gross written premiums GBP3.3m GBP64.8m GBP68.1m 1.9% GBP3.1m GBP63.7m GBP66.8m
The prior period has been restated to reclassify certain
overhead costs within the insurance segment to provide a more
accurate allocation of costs. Insurance Trading Profit of GBP114.3m
is unchanged.
Revenue in other insurance lines grew by 1.1% to GBP47.0m (H1
2015: GBP46.5m), driven by an increase in travel insurance volumes,
and lower net rates on private medical insurance due to supply
chain improvements.
Trading Profit was up GBP1.7m to GBP16.0m (H1 2015: GBP14.3m)
due to an increase in profit on private medical insurance, and
after marketing spend in the previous year on Saga Legal Services.
This was partially offset by increased costs in line with increased
travel insurance volumes.
Insurance underwriting
Reserving
Reserve Releases 6m to Growth 6m to
Jul Jul
2016 2015
----------------------- ---------- ---------- ----------
Motor insurance:
Core UW GBP40.0m (1.2%) GBP40.5m
Ancillary - (100.0%) GBP0.5m
---------- ----------
GBP40.0m (2.4%) GBP41.0m
Home insurance GBP0.4m 100.0% -
Other insurance GBP0.8m 60.0% GBP0.5m
Total GBP41.2m (0.7%) GBP41.5m
---------- ----------
Continued favourable claims development experience during the
six months to 31 July 2016, driven by large and small personal
injury claims, enabled the Group to maintain a consistent level of
reserve releases in the first half of the year of GBP41.2m (H1
2015: GBP41.5m). There has been no deterioration in the reserve
margin year-on-year. Releases in the second half of this year are
expected to be lower than the comparable period in the prior
year.
Analysis of insurance contract liabilities at 31 July 2016 and
31 January 2016 is as follows:
At 31 Jul 2016 At 31 Jan 2016
Gross Reinsurance Net Gross Reinsurance Net
Assets Assets
------------------- ----------- ------------- ----------- ----------- ------------- -----------
Reported claims GBP333.6m (GBP76.5m) GBP257.1m GBP341.5m (GBP70.7m) GBP270.8m
Incurred but
not reported GBP192.6m (GBP30.0m) GBP162.6m GBP209.2m (GBP30.9m) GBP178.3m
Claims handling
provision GBP10.8m - GBP10.8m GBP10.9m - GBP10.9m
----------- ------------- ----------- ----------- ------------- -----------
Total claims
outstanding GBP537.0m (GBP106.5m) GBP430.5m GBP561.6m (GBP101.6m) GBP460.0m
Unearned premiums GBP133.6m (GBP2.4m) GBP131.2m GBP141.7m (GBP4.8m) GBP136.9m
Total GBP670.6m (GBP108.9m) GBP561.7m GBP703.3m (GBP106.4m) GBP596.9m
----------- ------------- ----------- ----------- ------------- -----------
The Group's total insurance contract liabilities net of
reinsurance assets have reduced by GBP35.2m as at 31 July 2016 from
31 January 2016 due to a GBP29.5m decrease in the total claims
outstanding and a GBP5.7m decrease in unearned premiums.
Investment portfolio
The majority of the Group's financial assets are held by its
underwriting entity, and represent premium income received and
invested to settle claims, and to meet regulatory capital
requirements. The maturity profile of the invested financial assets
is aligned with the expected cash outflow profile associated with
the settlement of claims in the future.
The amount held in invested funds increased by GBP3.1m compared
with the previous year end, from GBP644.7m as at 31 January 2016,
to GBP647.8m as at 31 July 2016. As at 31 July 2016, 94% of the
financial assets held by the Group were invested with
counterparties with a risk rating of A or above, which is up 2
percentage points on the previous year and reflects the move
towards the Group's more prudent investment strategy.
At 31 July 2016 AAA AA A <A Unrated Total
----------------------------- ----------- ------------- ----------- --------- ------------ -----------
Underwriting investment portfolio:
Deposits with financial
institutions GBP30.0m GBP110.7m GBP224.1m - - GBP364.8m
Debt securities GBP81.9m - - - - GBP81.9m
Money market funds GBP114.6m - - - - GBP114.6m
Hedge funds - - - - GBP25.5m GBP25.5m
Loan funds - - - - GBP6.2m GBP6.2m
Loan notes - - - - GBP4.5m GBP4.5m
Unlisted equity shares - - - - GBP0.2m GBP0.2m
Total invested funds GBP226.5m GBP110.7m GBP224.1m - GBP36.4m GBP597.7m
Hedging derivative assets - GBP35.7m GBP13.9m GBP0.5m - GBP50.1m
Total financial assets GBP226.5m GBP146.4m GBP238.0m GBP0.5m GBP36.4m GBP647.8m
----------- ------------- ----------- --------- ------------ -----------
Solvency capital
6m to 12m to
Jul Jan
2016 2016
------------------------------------- ----------- -----------
Undertaking-specific parameters
Solvency Capital Requirement (SCR) GBP109.7m GBP128.8m
Available capital GBP214.6m GBP219.6m
Surplus GBP104.9m GBP90.8m
----------- -----------
Coverage 196% 170%
As expected, the Group's Solvency II coverage ratio has risen
during the period as the new quota share arrangement is taken into
account. At 31 July 2016, the Group had an SCR of GBP109.7m and
available capital of GBP214.6m, giving a coverage ratio of
196%.
Travel
The Travel business has had another strong six months of
trading, offset by the scheduled maintenance of one of the Group's
cruise ships, the Saga Sapphire.
6m to Jul 2016 Growth 6m to Jul 2015
---------
Tour Cruising Total Tour Cruising Total
Operating Travel Operating Travel
------------------ ------------ ---------- ----------- --------- ------------ ---------- -----------
Revenue GBP170.5m GBP37.5m GBP208.0m (0.8%) GBP166.9m GBP42.8m GBP209.7m
------------ ---------- ----------- ------------ ---------- -----------
Trading Profit GBP8.5m GBP0.5m GBP9.0m (15.9%) GBP8.3m GBP2.4m GBP10.7m
------------ ---------- ----------- ------------ ---------- -----------
Number of holidays
passengers 95k n/a 95k (1.0%) 96k n/a 96k
Number of ship
passenger
days n/a 135k 135k (21.1%) n/a 171k 171k
The tour operating businesses generated a 2.2% increase in
revenue to GBP170.5m (H1 2015: GBP166.9m), despite a small decrease
in passenger numbers of 1.0% on the previous year, as average
revenue per passenger increased due to a change in product mix to
more long haul and third-party cruise products. This resulted in an
increase in Trading Profit to GBP8.5m (H1 2015: GBP8.3m).
The Saga Sapphire was out of operation for scheduled maintenance
for 63 days between April and June, which impacted revenue and
Trading Profit by GBP8.6m and GBP4.7m respectively. As a result,
cruising delivered revenue of GBP37.5m, 12.4% below the previous
year (H1 2015: GBP42.8m), and Trading Profit of GBP0.5m (H1 2015:
GBP2.4m). Excluding the impact of the Saga Sapphire maintenance,
revenue and Trading Profit would have both increased, reflecting
improved yields.
Emerging businesses and central costs
6m to Growth 6m to
Jul Jul
2016 2015
----------- -----------
Revenue GBP14.3m 0.0% GBP14.3m
----------- -----------
Trading Loss (GBP9.9m) (32.0%) (GBP7.5m)
----------- -----------
Revenue from emerging businesses was consistent with the
previous year, at GBP14.3m (H1 2015: GBP14.3m).
The overall Trading Loss from this segment was GBP9.9m (H1 2015:
GBP7.5m), the increase being driven by investment in both the Saga
Investment Services and healthcare businesses.
Financial outlook and guidance
Given trading in the year to date, the Group expects to deliver
an ongoing increase in the profitability of the core businesses.
After incremental investment year on year in emerging businesses,
and with the benefit of lower finance costs, we are confident of
delivering growth in PBT of between 5% and 7% for the full
year.
With our strong cash generative attributes and our robust
solvency positon, we are confident that we can deliver on our
progressive dividend policy, while continuing to reduce our debt
ratio toward our medium term target range of between 1.5 and 2.0
times.
Condensed consolidated income statement
for the period ended 31 July 2016
Unaudited Unaudited
6m to 6m to 12m to
Note Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
Revenue 3 437.2 478.3 963.2
Cost of sales 3 (201.5) (264.4) (544.2)
----------- ----------- ------------
Gross profit 235.7 213.9 419.0
Administrative and selling expenses (122.9) (106.2) (227.3)
Investment income 2.0 6.9 11.0
Finance costs (9.7) (14.1) (25.2)
Finance income 6.1 0.7 -
Share of (loss)/profit of joint
ventures (1.3) 0.1 (1.3)
-----------
Profit before tax from continuing
operations 109.9 101.3 176.2
Tax expense 5 (22.0) (20.2) (28.1)
----------- ----------- ------------
Profit for the period from continuing
operations 87.9 81.1 148.1
Loss after tax from discontinued
operations 18 - (3.2) (6.9)
Profit for the period 87.9 77.9 141.2
=========== =========== ============
Attributable to:
Equity holders of the parent 87.9 77.8 140.9
Non-controlling interests 0.0 0.1 0.3
----------- ----------- ------------
87.9 77.9 141.2
=========== =========== ============
Earnings per share:
Basic 7 7.9p 7.0p 12.7p
Diluted 7 7.8p 6.9p 12.6p
Earnings per share for continuing
operations:
Basic 7 7.9p 7.3p 13.3p
Diluted 7 7.8p 7.2p 13.2p
Condensed consolidated statement of comprehensive income
for the period ended 31 July 2016
Unaudited Unaudited
6m to 6m to 12m to Jan
Jul 2016 Jul 2015 2016
GBP'm GBP'm GBP'm
Profit for the period 87.9 77.9 141.2
Other comprehensive income
Other comprehensive income to be reclassified
to the income statement in subsequent periods
Exchange differences on translation of
foreign operations - - (1.2)
Net gain/(loss) on cash flow hedges 32.0 (5.7) 16.6
Net gain/(loss) on available for sale financial
assets 4.3 (2.1) (1.6)
Tax effect (6.6) 1.4 (2.6)
----------- ----------- ----------
29.7 (6.4) 11.2
Other comprehensive income not to be reclassified
to the income statement in subsequent periods
Re-measurement (losses)/gains on defined
benefit plans (30.1) 18.3 26.6
Tax effect 5.4 (3.7) (4.8)
----------- ----------- ----------
(24.7) 14.6 21.8
----------- ----------- ----------
Total other comprehensive gains 5.0 8.2 33.0
----------- ----------- ----------
Total comprehensive income for the period 92.9 86.1 174.2
=========== =========== ==========
Attributable to:
Equity holders of the parent 92.9 86.0 173.9
Non-controlling interests - 0.1 0.3
92.9 86.1 174.2
====== ====== =======
Condensed consolidated statement of financial position
as at 31 July 2016
Unaudited Unaudited
As at Jul As at Jul As at Jan
Note 2016 2015 2016
Assets GBP'm GBP'm GBP'm
Goodwill 9 1,485.0 1,485.0 1,485.0
Intangible fixed assets 10 51.5 49.6 52.3
Investment in joint ventures 1.5 2.3 1.6
Property, plant and equipment 11 137.9 128.9 140.6
Financial assets 12 647.8 603.9 644.7
Deferred tax assets 25.3 21.4 22.1
Reinsurance assets 15 108.9 73.1 106.4
Inventories 4.5 4.7 4.9
Trade and other receivables 204.0 181.8 188.0
Assets held for sale 18 - 40.7 -
Cash and short-term deposits 13 129.0 140.0 106.5
------------
Total assets 2,795.4 2,731.4 2,752.1
============ ============= ===========
Liabilities
Retirement benefit scheme obligations 14 47.6 26.0 18.8
Gross insurance contract liabilities 15 670.6 691.8 703.3
Provisions 3.9 4.8 4.0
Financial liabilities 12 561.3 583.3 580.5
Current tax liabilities 20.9 36.6 15.0
Deferred tax liabilities 23.4 6.8 17.4
Other liabilities 163.2 161.4 133.3
Trade and other payables 177.9 155.5 191.6
Liabilities held for sale 18 - 40.9 -
------------ ------------- -----------
Total liabilities 1,668.8 1,707.1 1,663.9
------------ ------------- -----------
Equity
Issued capital 11.2 11.2 11.2
Share premium 519.3 519.3 519.3
Retained earnings 540.0 475.8 527.0
Share-based payment reserve 13.4 22.6 17.7
Foreign currency translation reserve (0.7) 0.5 (0.7)
Available for sale reserve 6.1 1.9 2.4
Hedging reserve 37.3 (7.0) 11.3
------------
Equity attributable to equity holders
of the parent 1,126.6 1,024.3 1,088.2
Non-controlling interest - - -
------------ ------------- -----------
Total equity 1,126.6 1,024.3 1,088.2
------------ ------------- -----------
Total liabilities and equity 2,795.4 2,731.4 2,752.1
============ ============= ===========
Condensed consolidated statement of changes in equity
for the period ended 31 July 2016
Attributable to the equity holders of the parent
--------------------------------------------------------------------------------------------------
Foreign
Share-based currency Available
Issued Share Retained payment translation for sale Hedging Non-controlling Total
capital premium earnings reserve reserve reserve reserve Total interests equity
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Unaudited
At 1 February
2016 11.2 519.3 527.0 17.7 (0.7) 2.4 11.3 1,088.2 - 1,088.2
Profit for the
period - - 87.9 - - - - 87.9 - 87.9
Other
comprehensive
gains/(losses) - - (24.7) - - 3.7 26.0 5.0 - 5.0
Dividends paid - - (55.9) - - - - (55.9) - (55.9)
Share-based
payment
transactions - - - 2.3 - - - 2.3 - 2.3
Exercise of
share options - - 5.7 (6.6) - - - (0.9) - (0.9)
---------- --------- ---------- ------------- ------------- ----------- --------- --------- ----------------- ---------
At 31 July 2016 11.2 519.3 540.0 13.4 (0.7) 6.1 37.3 1,126.6 - 1,126.6
========== ========= ========== ============= ============= =========== ========= ========= ================= =========
-
Unaudited
At 1 February
2015 11.1 519.4 410.7 40.7 0.5 3.6 (2.3) 983.7 0.4 984.1
Profit for the
period - - 77.8 - - - - 77.8 0.1 77.9
Other
comprehensive
gains/(losses) - - 14.6 - - (1.7) (4.7) 8.2 - 8.2
Bonus shares
issued 0.1 (0.1) - - - - - - - -
Dividends paid - - (45.8) - - - - (45.8) (0.5) (46.3)
Share-based
payment
transactions - - 12.9 (12.5) - - - 0.4 - 0.4
Exercise of
share options - - 5.6 (5.6) - - - - - -
---------- --------- ---------- ------------- ------------- ----------- --------- --------- ----------------- ---------
At 31 July 2015 11.2 519.3 475.8 22.6 0.5 1.9 (7.0) 1,024.3 - 1,024.3
========== ========= ========== ============= ============= =========== ========= ========= ================= =========
At 1 February
2015 11.1 519.4 410.7 40.7 0.5 3.6 (2.3) 983.7 0.4 984.1
Profit for the
year - - 140.9 - - - - 140.9 0.3 141.2
Other
comprehensive
gains/(losses) - - 21.8 - (1.2) (1.2) 13.6 33.0 - 33.0
Bonus shares
issued 0.1 (0.1) - - - - - - - -
Dividends paid - - (70.4) - - - - (70.4) (0.7) (71.1)
Share-based
payment
transactions - - - 2.8 - - - 2.8 - 2.8
Exercise of
share options - - 11.1 (12.9) - - - (1.8) - (1.8)
Issue of free
shares - - 12.9 (12.9) - - - - - -
---------- --------- ---------- ------------- ------------- ----------- --------- --------- ----------------- ---------
At 31 January
2016 11.2 519.3 527.0 17.7 (0.7) 2.4 11.3 1,088.2 - 1,088.2
========== ========= ========== ============= ============= =========== ========= ========= ================= =========
Condensed consolidated statement of cash flows
for the period ended 31 July 2016
Unaudited Unaudited
6m to 6m to 12m to
Note Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
Profit before tax from continuing
operations 109.9 101.3 176.2
Loss before tax from discontinued
operations - (5.0) (7.2)
----------- ----------- ------------
Profit before tax 109.9 96.3 169.0
Depreciation, impairment and loss
on disposal of property, plant and
equipment 10.3 11.2 23.4
Amortisation and impairment of intangible
assets 9.0 5.8 14.1
Share-based payment expense 1.4 0.4 1.1
Loss on re-measurement of disposal
group held for sale - - 7.3
Finance costs 9.7 14.8 25.2
Finance income (6.1) (1.2) -
Share of post-tax losses/(profits)
of joint ventures 1.3 (1.1) 1.3
Interest income from investments (2.0) (6.9) (11.0)
Movements in other assets and liabilities (22.0) (8.0) (56.5)
----------- ----------- ------------
111.5 111.3 173.9
Interest received 2.0 6.8 13.5
Interest paid (7.3) (13.2) (21.6)
Income tax (paid)/received (14.5) 1.5 (15.4)
----------- ----------- ------------
Net cash flows from operating activities 91.7 106.4 150.4
Investing activities
Proceeds from sale of property, plant
and equipment 0.1 0.1 -
Purchase of property, plant and equipment
and software (29.2) (12.1) (33.8)
Net disposal of financial assets 69.6 80.9 64.3
Acquisition of subsidiaries 8 - (26.0) (26.7)
Disposal of subsidiaries - - (8.2)
Investment in joint venture (1.3) - (3.0)
Net cash flows from/(used in) investing
activities 39.2 42.9 (7.4)
Financing activities
Payment of finance lease liabilities (0.2) (0.1) (0.5)
Proceeds from borrowings 16 20.0 70.0 -
Repayment of borrowings 16 (30.0) (200.0) (145.0)
Dividends paid (56.1) (46.3) (70.0)
----------- ----------- ------------
Net cash flows used in financing
activities (66.3) (176.4) (215.5)
Net increase/(decrease) in cash and
cash equivalents 64.6 (27.1) (72.5)
Net foreign exchange differences - - (1.0)
Cash and cash equivalents at the
start of the period 164.4 237.9 237.9
-----------
Cash and cash equivalents at the
end of the period 13 229.0 210.8 164.4
=========== =========== ============
Notes to the condensed consolidated interim financial
statements
1 Corporate information
Saga plc (the 'Company') is a public limited company
incorporated and domiciled in the United Kingdom under the
Companies Act 2006 (registration number 8804263). Its registered
office is located at Enbrook Park, Folkestone, Kent, CT20 3SE.
The interim condensed consolidated financial statements of Saga
plc and the entities controlled by the Company (its subsidiaries,
collectively 'the Group') for the six months ended 31 July 2016
were authorised for issue in accordance with a resolution of the
Directors on 20 September 2016.
2.1 Basis of preparation
These condensed financial statements comprise the interim
financial statements of the Group for the six month period to 31
July 2016.
The presentation currency of the Group is Sterling. Unless
otherwise stated, the amounts shown in the condensed consolidated
financial statements are in millions of pounds Sterling
(GBP'm).
The condensed consolidated interim financial statements have
been prepared in accordance with the Disclosure and Transparency
Rules (DTR) of the Financial Conduct Authority (FCA) and in
accordance with IAS 34 'Interim Financial Reporting'. The
significant accounting policies applied by the Group are set out in
note 2.3. The Group has applied all IFRS standards and
interpretations adopted by the EU effective for the period ending
31 January 2017. The condensed consolidated interim financial
statements have been reviewed by Ernst & Young LLP and include
their review conclusion.
These condensed consolidated interim financial statements do not
comprise statutory financial statements within the meaning of
Section 435 of the Companies Act 2006. Statutory financial
statements for the year ended 31 January 2016 have been delivered
to the Registrar of Companies. The auditor's report on those
financial statements:
(i) was unqualified;
(ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report; and
(iii) did not constitute a statement under Section 498 (2) or (3) of the Companies Act 2006.
2.2 Basis of consolidation
The condensed consolidated financial statements comprise the
financial position and results of each of the companies within the
Group. Where necessary, adjustments have been made to the financial
position and results of subsidiaries to bring the accounting
policies used into line with those used by the Group. All
intra-group transactions, balances, income and expenses have been
eliminated on consolidation. The policies set out below have been
applied consistently throughout the periods presented to items
considered material to the condensed consolidated interim financial
statements.
2.3 Summary of significant accounting policies
The condensed set of interim financial statements for the period
ended 31 July 2016 have been prepared applying the same accounting
policies that were applied in the preparation of the Group's
published consolidated financial statements for the year ended 31
January 2016, except for changes required to appropriately reflect
the contractual terms of the new quota share reinsurance agreement
in motor insurance that became effective from 1 February 2016.
Notes to the condensed consolidated financial statements
(continued)
2.3 Summary of significant accounting policies (continued)
Offsetting of insurance and related reinsurance assets and
liabilities
IFRS 4 prohibits the offsetting of reinsurance assets against
the related insurance liabilities, unless the appropriate legal
requirements are met. Financial assets and liabilities arising
under quota share agreements must be offset and the net amount
reported in the statement of financial position when there is a
legally enforceable right to set off the associated amounts and
there is an intention to settle on a net basis, or realise both the
asset and settle the liability simultaneously. The contractual
terms of the new funds-withheld quota share agreement in motor
insurance requires such a set-off of associated amounts.
Reinsurance costs
The Group undertakes a programme of reinsurance in respect of
the policies which it underwrites. Outward reinsurance premiums are
accounted for in the same accounting period as the related inward
insurance premiums and are included as a deduction from earned
premium, and therefore as a reduction in revenue.
The amount of any anticipated reinsurance recoveries is treated
as a reduction in claims costs. Where this amount is material, it
is reported separately in the statement of financial position,
except where the contractual terms of the reinsurance arrangement
necessitates the set off of its associated financial assets and
liabilities.
Revenue - profit commission due under coinsurance and
reinsurance arrangements
Profit commissions due under coinsurance and reinsurance
arrangements are recognised and valued in accordance with the
contractual terms to which they are subject to and on the same
basis, where appropriate, as the related reinsured liabilities.
Full details of the accounting policies of the Group can be
found in the Annual report and accounts for the year ended 31
January 2016 available at www.corporate.saga.co.uk.
2.4 Standards issued but not yet effective
Standards and amendments to standards in issue but not effective
or not adopted by the Group as at 31 January 2016 continue to be
not yet effective or not adopted by the Group at 31 July 2016 and
can be found in the Annual report and accounts for the year ended
31 January 2016 available at www.corporate.saga.co.uk. There have
been no amendments to standards or interpretations issued since 1
February 2016 which impact the consolidated financial statements of
the Group.
2.5 Significant accounting judgements, estimates and
assumptions
Full details of significant accounting judgements, estimates and
assumptions used in the application of the Group's accounting
policies can be found in the Annual report and accounts for the
year ended 31 January 2016 available at www.corporate.saga.co.uk.
There have been no changes to the principles or assumptions in
these critical accounting estimate and judgement areas during the
period.
2.6 Going Concern
The condensed consolidated interim financial statements have
been prepared on a going concern basis.
The Directors have reviewed the Group's projections including
cash flows for the twelve months from the date of approval of the
condensed consolidated interim financial statements and beyond, and
have concluded that the Group has sufficient funds to continue
trading for this period, and for the foreseeable future.
Notes to the condensed consolidated financial statements
(continued)
3 Segmental information
For management purposes, the Group is organised into business
units based on their products and services and has three reportable
operating segments as follows:
-- Insurance: primarily comprising general insurance products,
further analysed into three sub-segments:
o Motor Insurance
o Home Insurance
o Other Insurance
-- Travel: primarily comprising the operation and delivery of
package tours and cruise holiday products.
-- Emerging Businesses and Central Costs: comprises the Group's
other businesses and its central cost base. The other businesses
primarily include the financial services product offering including
the wealth management joint venture, the domiciliary care services
offering, a monthly subscription magazine product and the Group's
internal mailing house.
Seasonality
The Group is subject to seasonal fluctuations in both its
Insurance and Travel segments resulting in varying profits over
each quarter.
The Insurance segment experiences increased motor insurance
sales in the month of March, and to a lesser degree September, due
to the issue of new vehicle registration plates; and increased home
insurance sales in March, June and September coinciding with the
historic quarter days. In the motor underwriting business, a
greater proportion of claims are notified in the second half of the
financial year.
Typically, increased holiday departures in the shoulder months
of May, June and September and low departure volumes during July
and August create seasonal fluctuations in the profit of the Travel
segment.
When the seasonalities of the various segments are considered in
conjunction, the resultant half yearly Trading Profit is broadly
consistent with half of the full year result.
Notes to the condensed consolidated financial statements
(continued)
3 Segmental information (continued)
Emerging
Businesses
and Central
Insurance Travel Costs Adjust's Total
----------------------------------------------- --------- ------------- ---------- ---------
Unaudited Motor Home Other Total
6m to Jul Insurance Insurance Insurance
2016
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue 120.4 47.5 47.0 214.9 208.0 17.9 (3.6) 437.2
Cost of sales (9.4) (2.8) (15.4) (27.6) (166.4) (7.5) - (201.5)
----------- ----------- ----------- -------- --------- ------------- ---------- ---------
Gross profit 111.0 44.7 31.6 187.3 41.6 10.4 (3.6) 235.7
=========== =========== =========== ======== ========= ============= ========== =========
Results
Trading EBITDA 74.6 31.5 17.0 123.1 16.0 (5.7) - 133.4
Depreciation (0.9) (0.3) (0.3) (1.5) (5.6) (3.2) - (10.3)
Amortisation
of intangible
assets (1.6) (0.8) (0.7) (3.1) (1.4) (1.0) - (5.5)
----------- ----------- ----------- -------- --------- ------------- ---------- ---------
Trading Profit 72.1 30.4 16.0 118.5 9.0 (9.9) - 117.6
=========== =========== ===========
Amortisation of acquired intangible
assets (1.7) (1.7) (0.1) - (3.5)
Non-trading items - - (0.6) - (0.6)
Net fair value loss on derivative
financial instruments - 5.4 - - 5.4
Other finance income - - 0.7 - 0.7
Net finance costs - (0.2) (9.5) - (9.7)
-------- --------- ------------- ---------- ---------
Profit before tax from continuing
operations 116.8 12.5 (19.4) - 109.9
-------- --------- ------------- ---------- ---------
No of employees from continuing
operations 2,425 2,057 776 - 5,258
======== ========= ============= ========== =========
Revenue is generated solely in the UK.
Cost of sales within the insurance segment comprises claims
costs incurred on insurance policies underwritten by the Group (see
note 3b). The costs of marketing, selling and administering the
policies are deducted in arriving at Trading EBITDA.
The number of employees in the Travel segment includes 854 crew
who are employed indirectly via a manning agency.
Notes to the condensed consolidated financial statements
(continued)
3 Segmental information (continued)
Emerging
Businesses
and
Central
Insurance(1) Travel Costs Adjust's Total
--------- ------------ ---------- ---------
Unaudited Motor Home Other Total
6m to Jul 2015 Insurance Insurance Insurance
(as restated) GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue 157.2 50.6 46.5 254.3 209.7 18.0 (3.7) 478.3
Cost of sales (69.9) (3.2) (17.3) (90.4) (166.3) (7.7) - (264.4)
----------- ----------- ----------- -------- --------- ------------ ---------- ---------
Gross profit 87.3 47.4 29.2 163.9 43.4 10.3 (3.7) 213.9
=========== =========== =========== ======== ========= ============ ========== =========
Results
Trading EBITDA 67.2 35.5 15.0 117.7 16.9 (4.0) - 130.6
Depreciation (1.1) (0.7) (0.5) (2.3) (4.7) (3.0) - (10.0)
Amortisation
of intangible
assets (0.5) (0.4) (0.2) (1.1) (1.5) (0.5) - (3.1)
Trading Profit 65.6 34.4 14.3 114.3 10.7 (7.5) - 117.5
=========== =========== ===========
Amortisation of acquired intangible
assets (0.4) (2.0) - - (2.4)
Non-trading
items - 2.7 (3.1) - (0.4)
Net fair value loss on derivative
financial instruments - 0.7 - - 0.7
Net finance
costs - (0.8) (13.3) - (14.1)
--------------------- --------- ------------ ---------- ---------
Profit before tax from continuing
operations 113.9 11.3 (23.9) - 101.3
=========
No of employees from continuing
operations 2,332 2,157 713 5,202
===================== ========= ============ =========
(1) A review of the allocation basis for overhead expenses
between the Motor, Home and Other subsegments has been undertaken.
See Appendix 1 for further details.
Revenue is generated solely in the UK.
Cost of sales within the insurance segment comprises claims
costs incurred on insurance policies underwritten by the Group (see
note 3b). The costs of marketing, selling and administering the
policies are deducted in arriving at Trading EBITDA.
The number of employees in the Travel segment includes 836 crew
who are employed indirectly via a manning agency.
Notes to the condensed consolidated financial statements
(continued)
3 Segmental information (continued)
Emerging
Businesses
and
Central
Insurance(1) Travel Costs Adjust's Total
--------- ------------ ---------- ---------
12m to Jan 2016 Motor Home Insurance Other Total
Insurance Insurance
(as restated)
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue 318.7 99.8 91.6 510.1 423.1 37.1 (7.1) 963.2
Cost of sales (151.2) (6.1) (33.3) (190.6) (337.2) (16.4) - (544.2)
----------- ---------------- ---- ----------- --------- --------- ------------ ---------- ---------
Gross profit 167.5 93.7 58.3 319.5 85.9 20.7 (7.1) 419.0
=========== ================ ==== =========== ========= ========= ============ ========== =========
Results
Trading EBITDA 119.8 69.5 31.1 220.4 30.2 (11.8) - 238.8
Depreciation (1.9) (1.0) (0.8) (3.7) (10.0) (6.3) - (20.0)
Amortisation
of intangible
assets (1.5) (1.4) (0.7) (3.6) (3.0) (1.2) - (7.8)
Trading Profit 116.4 67.1 29.6 213.1 17.2 (19.3) - 211.0
=========== ================ ==== ===========
Amortisation of acquired intangible
assets (2.5) (3.7) (0.1) - (6.3)
Non-trading items (5.2) 9.5 (7.6) - (3.3)
Net fair value loss on derivative
financial instruments - (1.2) - - (1.2)
Net finance costs - (1.0) (23.0) - (24.0)
---------------------------------- ---- ---- --------- ---- ---- ------------ ---- ---- ---- ---- ---------- ---- ---- ---------
Profit before tax from continuing
operations 205.4 20.8 (50.0) - 176.2
=====================
No of employees from continuing
operations 2,237 2,175 735 5,147
================================== ==== ========= ==== ============ ==== ==== ==== =========
(1) A review of the allocation basis for overhead expenses
between the Motor, Home and Other subsegments has been undertaken.
See Appendix 1 for further details.
Revenue is generated solely in the UK.
Cost of sales within the insurance segment comprises claims
costs incurred on insurance policies underwritten by the Group (see
note 3b). The costs of marketing, selling and administering the
policies are deducted in arriving at Trading EBITDA.
The number of employees in the Travel segment includes 868 crew
who are employed indirectly via a manning agency.
Notes to the condensed consolidated financial statements
(continued)
3a Analysis of Insurance revenue
Unaudited Unaudited
6m to 6m to 12m to
Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
Gross earned premiums on insurance
underwritten by the Group 152.6 168.0 322.5
Less: ceded to reinsurers (54.6) (3.2) (6.8)
Net earned premiums on insurance
underwritten by the Group
- Motor Insurance 71.4 136.5 260.9
- Home Insurance 9.3 8.8 18.2
- Other 17.3 19.5 36.6
----------- ----------- --------------------
98.0 164.8 315.7
Other income from insurance products 116.9 89.5 194.4
-----------
214.9 254.3 510.1
=========== =========== ====================
3b Analysis of Insurance cost of sales
Unaudited Unaudited
6m to 6m to 12m to
Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
Gross Claims incurred on insurance
underwritten by the Group 68.7 79.9 219.3
Less: ceded to reinsurers (50.7) (1.6) (44.4)
Net Claims incurred on insurance
underwritten by the Group
- Motor Insurance (0.1) 57.9 134.8
- Home Insurance 2.8 3.2 7.0
- Other 15.3 17.2 33.1
----------- ----------- ----------
18.0 78.3 174.9
Other cost of sales 9.6 12.1 15.7
-----------
27.6 90.4 190.6
=========== =========== ==========
Notes to the condensed consolidated financial statements
(continued)
4 Non-trading items
Unaudited Unaudited
6m to 6m to 12m to
Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
Share-based payment costs (note
17) 0.4 0.2 0.3
Flotation and other costs 0.4 2.5 2.6
Restructuring costs (0.2) 0.7 1.3
Acquisition of subsidiaries (note
8) - - 0.5
Release of contingent consideration - (2.4) (7.1)
Supplier insolvency - - 4.7
Impairment of property - - 3.8
Insurance claims - - (3.1)
Other non-trading (income)/expenses - (0.6) 0.3
----------- ----------- ----------
0.6 0.4 3.3
=========== =========== ==========
Flotation and other costs comprise the cost of awards made at
the time of the IPO and which vest over a period of time
post-award.
Restructuring costs represents costs associated with
restructuring and reorganising a number of Group operations and
includes staff-related costs such as redundancy and other
termination costs, together with various professional fees for
advice and processes associated with the restructuring.
In the prior year, a significant supplier of legal services to
our customers and our partner in the Saga Law Limited joint venture
became insolvent and went into administration; this represents all
costs incurred as a consequence and includes legal fees to put in
place new arrangements, the cost of re-doing work by a replacement
law form, and lost profits from the joint venture.
In the prior year, impairment of property represents the
write-down of the carrying value of the Group's hotel in St Lucia
following the decision to dispose of this asset and includes the
expected costs of disposal.
In the prior year, the Group received two amounts under
insurance policies towards the costs of cancelled or curtailed
cruises; the costs of these operational issues were treated as
non-trading items in prior years.
Notes to the condensed consolidated financial statements
(continued)
5 Tax
Unaudited Unaudited
6m to 6m to 12m to
Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
Current income tax
Current income tax charge 20.8 21.3 32.7
Adjustments in respect of previous
years (0.4) - (8.4)
20.4 21.3 24.3
Deferred tax
Origination and reversal of temporary
differences 1.6 (1.1) 3.1
Effect of tax rate on opening balance - - 1.0
Adjustments in respect of previous
years - - (0.3)
----------- ----------- ----------
Tax expense in the income statement 22.0 20.2 28.1
=========== =========== ==========
Reconciliation of net deferred tax assets:
Unaudited Unaudited
6m to 6m to 12m to
Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
At 1 February 4.7 17.4 17.4
Tax (charge)/credit in the income
statement (1.6) 1.1 (3.8)
Tax charge in other comprehensive
income (1.2) (2.3) (7.4)
Tax credit in respect of discontinued
operations - 1.1 1.2
Acquired in business combinations - (2.7) (2.7)
At the end of the period 1.9 14.6 4.7
=========== =========== ==========
A reduction in the UK corporation tax rate from 21% to 20% took
effect on 1 April 2015, and further reductions were enacted in the
Finance Act 2015 to reduce the rate to 19% from 1 April 2017 and to
18% from 1 April 2020. A further reduction to 17% from 1 April 2020
was announced on 16 March 2016, however, this rate change had not
been enacted and is thus not applicable at the balance sheet date.
As a result, closing deferred tax balances have been reflected at
18%.
The Group has tax losses which arose in the UK of GBP1.2m (July
2015: GBP7.5m) that are available indefinitely for offsetting
against future taxable profits of the companies in which the losses
arose. A deferred tax asset has not been recognised in respect of
these losses as they may not be used to offset taxable profits
elsewhere in the Group.
6 Dividends
The Company paid an ordinary dividend of 5.0p per share during
the period. The total dividend paid was GBP55.9m (July 2015:
GBP45.8m).
Notes to the condensed consolidated financial statements
(continued)
7 Earnings per share
Basic EPS is calculated by dividing the profit 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 EPS is calculated by also including the weighted
average number of ordinary shares that would be issued on
conversion of all potentially dilutive options.
There have been no transactions involving ordinary shares or
potential ordinary shares between the reporting date and the date
of authorisation of these financial statements.
The calculation of basic and diluted EPS is as follows:
Unaudited Unaudited
6m to 6m to 12m to
Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
Profit attributable to ordinary
equity holders 87.9 77.8 140.9
Profit from continuing operations 87.9 81.1 148.1
=============== ======================= ===================
Weighted average number of ordinary
shares 'm 'm 'm
Original shares 800.0 800.0 800.0
297.3m shares issued on 29 May
2014 297.3 297.3 297.3
Free shares issued on 5 June 2015 7.0 7.3 7.3
IPO share options exercised 9.5 3.7 6.5
Other share options exercised 0.0 - -
--------------- ----------------------- -------------------
Weighted average number for Basic
EPS 1,113.8 1,108.3 1,111.1
Dilutive options
IPO share options not yet exercised 3.6 9.4 6.6
Other share options not yet vested 0.1 2.3 2.4
LTIP share options not yet vested 3.5 - -
Deferred bonus plan share options
not yet vested 0.2 0.2 0.2
--------------- ----------------------- -------------------
Weighted average number for Diluted
EPS 1,121.2 1,120.2 1,120.3
=============== ======================= ===================
Basic EPS 7.9p 7.0p 12.7p
--------------- ----------------------- -------------------
Basic EPS for continuing operations 7.9p 7.3p 13.3p
--------------- ----------------------- -------------------
Diluted EPS 7.8p 6.9p 12.6p
--------------- ----------------------- -------------------
Diluted EPS for continuing operations 7.8p 7.2p 13.2p
--------------- ----------------------- -------------------
Notes to the condensed consolidated financial statements
(continued)
8 Acquisitions
a) Current period acquisitions
The Group made no acquisitions during the 6 month period ended
31 July 2016.
b) Prior period acquisitions
On 1 July 2015, the Group acquired a 100% shareholding in
Bennetts Biking Services Limited ("Bennetts"), the UK's premier
motorbike insurance specialist. Full details of this acquisition
are provided in the annual report and accounts for the year ended
31 January 2016 available at www.corporate.saga.co.uk.
9 Goodwill
The net book value of goodwill is GBP1,485.0m (July 2015:
GBP1,485.0m).
The Group has performed a review for indicators of impairment at
31 July 2016, and concluded that no indicators of impairment exist
at that date.
10 Intangible fixed assets
During the period, the Group capitalised GBP8.2m (July 2015:
GBP5.2m) of software assets and charged GBP9.0m of amortisation to
its intangible assets (July 2015: GBP5.5m).
The Group has performed a review for indicators of impairment of
the acquired contracts, brands and customer relationships at 31
July 2016, and concluded that no indicators of impairment exist at
that date.
11 Property, plant and equipment
During the period, the Group capitalised assets with a cost of
GBP7.8m (July 2015: GBP5.9m).
On 21 December 2015, the Group contracted with Meyer Werft GmbH
& Co. KG to purchase a new cruise ship for delivery in July
2019, with an option to purchases a second similar cruise ship for
delivery in 2021.
As at 31 July 2016, capital amounts contracted for but not
provided in the financial statements in respect of the ship
amounted to GBP280.1m (July 2015: GBPnil).
The first stage payment for the new ship was made in February
2016. Three similar stage payments will be made during the
construction period (24 months, 18 months, and 12 months prior to
delivery) funded via cash resources of the Group. The remaining
element of the contract price is due on delivery of the ship, and
the Group entered into appropriate financing for this on 21
December 2015.
The financing represents a 12 year fixed rate Sterling loan,
backed by an export credit guarantee. The loan value of
approximately GBP245m will be repaid in 24 broadly equal
instalments, with the first payment 6 months after delivery. The
effective interest rate on the loan (including arrangement and
commitment fees) is 4.29%.
The Group has an option to purchase a second ship for the same
price within the contract; the option must be exercised by 21
December 2017. The Group may be released from this option at any
time although should the option to purchase not be exercised, a fee
would become payable. The likelihood of incurring such a fee is
considered extremely remote.
Notes to the condensed consolidated financial statements
(continued)
12 Financial assets and financial liabilities
a) Financial assets
Unaudited Unaudited
As at Jul As at Jul
Note 2016 2015 As at Jan 2016
GBP'm GBP'm GBP'm
Fair value through profit
or loss
Foreign exchange forward
contracts 2.0 0.2 3.3
Fuel oil swaps 0.2 - -
Loan funds 6.2 20.1 19.3
Hedge funds 25.5 34.3 26.7
Equities - 9.0 -
------------ ------------ ------------------
33.9 63.6 49.3
------------ ------------ ------------------
Fair value through the hedging
reserve
Foreign exchange forward
contracts 47.7 1.9 16.7
Fuel oil swaps 0.2 - -
------------ ------------ ------------------
47.9 1.9 16.7
------------ ------------ ------------------
Loans and receivables
Deposits with financial institutions 364.8 413.6 413.6
364.8 413.6 413.6
------------ ------------ ------------------
Available for sale investments
Debt securities 81.9 53.2 85.2
Money market funds 13 114.6 71.6 75.9
Unlisted equity shares 0.2 - 0.2
Loan notes 4.5 - 3.8
------------ ------------------
201.2 124.8 165.1
------------ ------------------
Total financial assets 647.8 603.9 644.7
============ ============ ==================
Current 309.9 217.7 288.8
Non-current 337.9 386.2 355.9
------------ ------------ ------------------
647.8 603.9 644.7
============ ============ ==================
The Group's financial assets are analysed by Moody's rating on
page 15 of the Chief Financial Officer's Review.
Notes to the condensed consolidated financial statements
(continued)
12 Financial assets and financial liabilities (continued)
b) Financial liabilities
Unaudited Unaudited
As at Jul As at Jul As at Jan
Note 2016 2015 2016
GBP'm GBP'm GBP'm
Fair value through profit
or loss
Foreign exchange forward
contracts 1.0 1.2 5.5
Fuel oil swaps 2.0 3.4 4.1
------------ ------------ -------------------------------
3.0 4.6 9.6
------------ ------------ -------------------------------
Fair value through the
hedging reserve
Foreign exchange forward
contracts - 8.5 1.2
Fuel oil swaps 1.2 2.1 1.9
------------ ------------ -------------------------------
1.2 10.6 3.1
------------ ------------ -------------------------------
Loans and borrowings
Bank loans 16 539.6 562.0 547.7
Finance leases and hire
purchase obligations 2.9 2.4 2.2
Bank overdrafts 13 14.6 3.7 17.9
557.1 568.1 567.8
------------ ------------ -------------------------------
Total financial liabilities 561.3 583.3 580.5
============ ===============================
Current 20.0 16.6 27.8
Non-current 541.3 566.7 552.7
------------
561.3 583.3 580.5
c) Fair value hierarchy
Unaudited Unaudited
As at Jul 16 As at Jul 15
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Financial assets measured at fair value
Foreign exchange forwards - 49.7 - 49.7 - 2.1 - 2.1
Fuel oil swaps - 0.4 - 0.4 - - - -
Loan funds - 6.2 - 6.2 - 20.1 - 20.1
Hedge funds - 25.5 - 25.5 - 34.3 - 34.3
Equities - - - - 9.0 - - 9.0
Debt securities 81.9 - - 81.9 53.2 - - 53.2
Money market funds - 114.6 - 114.6 - 71.6 - 71.6
Unlisted equity shares - - 0.2 0.2 - - - -
Loan notes - - 4.5 4.5 - - - -
Financial liabilities measured at fair value
Contingent consideration - - - - - - 4.6 4.6
Foreign exchange forwards - 1.0 - 1.0 - 9.7 - 9.7
Fuel oil swaps - 3.2 - 3.2 - 5.5 - 5.5
Assets for which fair values are disclosed
Deposits with institutions - 364.8 - 364.8 - 413.6 - 413.6
Liabilities for which fair values are disclosed
Bank loans - 539.6 - 539.6 - 562.0 - 562.0
Finance leases and hire purchase
obligations - 2.9 - 2.9 - 2.4 - 2.4
Bank overdrafts - 14.6 - 14.6 - 3.7 - 3.7
Notes to the condensed consolidated financial statements
(continued)
12 Financial assets and financial liabilities (continued)
c) Fair value hierarchy (continued)
As at Jan 16
Level Level Level Total
1 2 3
GBP'm GBP'm GBP'm GBP'm
Financial assets measured at fair value
Foreign exchange forwards - 20.0 - 20.0
Fuel oil swaps - - - -
Loan funds - 19.3 - 19.3
Hedge funds - 26.7 - 26.7
Equities - - - -
Debt securities 85.2 - - 85.2
Money market funds - 75.9 - 75.9
Unlisted equity shares - - 0.2 0.2
Loan notes - - 3.8 3.8
=======
Financial liabilities measured at fair value
Contingent consideration - - - -
Foreign exchange forwards - 6.7 - 6.7
Fuel oil swaps - 6.0 - 6.0
=======
Assets for which fair values are disclosed
Deposits with institutions - 413.6 - 413.6
=======
Liabilities for which fair values are disclosed
Bank loans - 547.7 - 547.7
Finance leases and hire purchase
obligations - 2.2 - 2.2
Bank overdrafts - 17.9 - 17.9
=======
d) Other information
Available for sale investments and deposits with financial
institutions relate to monies held by the Group's insurance
business and are subject to contractual restrictions and are not
readily available to be used for other purposes within the Group.
Whilst the Group's fixed / floating interest securities investments
could be realised at short notice, it is anticipated that they will
be held until maturity.
There have been no transfers between Level 1 and Level 2 in the
hierarchy and no non-recurring fair value measurements of assets
and liabilities.
The Group operates a programme of economic hedging against its
foreign currency and fuel oil exposures. During the period, the
Group designated 180 foreign exchange forward currency contracts as
hedges of highly probable foreign currency cash expenses in future
periods, and designated 26 fuel oil swaps as hedges of highly
probable fuel oil purchases in future periods. As at 31 July 2016,
the Group has designated 385 forward currency contracts and 64 fuel
oil swaps as hedges.
During the period, the Group recognised a net GBP12.1m gain on
forward currency cash flow hedging instruments and a net GBP0.9m
gain on commodity cash flow hedging instruments through other
comprehensive income into the hedging reserve. Additionally, the
Group recognised net gains of GBP20.1m through other comprehensive
income into the hedging reserve, in relation to the specific
hedging instrument for the acquisition of a new ship. The Group
recognised a GBP0.3m loss through the income statement in respect
of the ineffective portion of hedges measured during the
period.
There has been no de-designation of hedges during the period as
a result of cash flows forecast that are no longer expected to
occur, or as a result of failed ineffectiveness testing. The Group
recognised a GBP1.1m gain through the income statement in respect
of matured hedges.
Notes to the condensed consolidated financial statements
(continued)
13 Cash and cash equivalents
Unaudited Unaudited
As at Jul As at Jul As at Jan
2016 2015 2016
GBP'm GBP'm GBP'm
Cash at bank and in hand 69.2 48.0 36.9
Short term deposits 59.8 92.0 69.6
Cash and short term deposits 129.0 140.0 106.5
Money markets funds (note 12a) 114.6 71.6 75.9
Bank overdraft (note 12b) (14.6) (3.7) (18.0)
Cash held by disposal group (note 18) - 2.9 -
Cash and cash equivalents in the cash
flow statement 229.0 210.8 164.4
Included within cash and cash equivalents are amounts held by
the Group's Travel and Insurance businesses which are subject to
contractual or regulatory restrictions. These amounts held are not
readily available to be used for other purposes within the Group
and total GBP218.0m (July 2015: GBP174.2m). Available cash excludes
these amounts and any amounts held by disposal groups.
14 Retirement benefit schemes
The Group operates a funded defined benefit scheme, The Saga
Pension Scheme ("Saga scheme") which is open to new members who
accrue benefits on a career average salary basis. The assets of the
scheme are held separately from those of the Group in independently
administered funds. The two schemes associated with the Allied
Healthcare business ("Nestor schemes") were part of liabilities
held for sale and were disposed of as part of the sale of the
Allied Healthcare business on 30 November 2015 (note 18).
The fair value of the assets and present value of the
obligations of the defined benefit schemes are as follows:
Saga Nestor
scheme schemes Total
GBP'm GBP'm GBP'm
Unaudited at 31 July 2016
Fair value of scheme assets 267.8 - 267.8
Present value of defined benefit obligation (315.4) - (315.4)
Defined benefit scheme liability (47.6) - (47.6)
Unaudited at 31 July 2015
Fair value of scheme assets 210.9 54.2 265.1
Present value of defined benefit obligation (236.9) (62.5) (299.4)
Defined benefit scheme liability (26.0) (8.3) (34.3)
Included within liabilities held for
sale (note 18) - 8.3 8.3
(26.0) - (26.0)
At 31 January 2016
Fair value of scheme assets 218.6 - 218.6
Present value of defined benefit obligation (237.4) - (237.4)
Defined benefit scheme liability (18.8) - (18.8)
The present values of the defined benefit obligation at 31
January 2016, the related current service cost and any past service
costs were measured using the projected unit credit method.
Liabilities at 31 July 2016 have been estimated by rolling forward
from 31 January 2016, allowing for changes in market conditions and
estimating the value of benefits accrued and paid out over the
period.
During the period ended 31 July 2016, the net liability of the
Saga scheme has deteriorated by GBP28.8m to a total scheme
liability of GBP47.6m.
Notes to the condensed consolidated financial statements
(continued)
15 Insurance contract liabilities and reinsurance assets
Gross and net insurance liabilities are analysed as follows:
Unaudited Unaudited
As at As at As at
Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
Gross
Claims outstanding 537.0 537.3 561.6
Provision for unearned premiums 133.6 154.5 141.7
Total gross liabilities 670.6 691.8 703.3
Recoverable from reinsurers
Claims outstanding 106.5 70.7 101.6
Provision for unearned reinsurance
premiums 2.4 2.4 4.8
Total reinsurers' share of insurance
liabilities 108.9 73.1 106.4
Net
Claims outstanding 430.5 466.6 460.0
Provision for unearned premiums 131.2 152.1 136.9
Total net insurance liabilities 561.7 618.7 596.9
The total gain on purchasing reinsurance recognised during the
period was GBP0.6m (July 2015: GBP7.6m).
16 Loans and borrowings
Unaudited Unaudited
As at As at As at
Jul 2016 Jul 2015 Jan 2016
GBP'm GBP'm GBP'm
Bank loans, maturing 2019 470.0 500.0 480.0
Revolving credit facility 75.0 70.0 75.0
Accrued interest payable 1.2 0.6 0.6
546.2 570.6 555.6
Less: deferred issue costs (6.6) (8.6) (7.9)
539.6 562.0 547.7
During the period, the Group repaid GBP10.0m of its Senior
Facilities Agreement, and drew down and repaid GBP20.0m of its
Revolving Credit Facility. At 31 July 2016, the Group had drawn
GBP75.0m of its GBP150.0m Revolving Credit Facility.
Interest on the debt is incurred at a variable rate of LIBOR
plus 2.25%.
During the period the Group charged GBP9.1m (July 2015:
GBP12.7m) to the income statement in respect of fees and interest
associated with the Senior Facilities Agreement and Revolving
Credit Facility. In addition, interest charged to the income
statement includes GBP0.6m (July 2015: GBP1.4m) relating to
interest on finance lease liabilities, net finance expense on
pension schemes and other interest costs.
Notes to the condensed consolidated financial statements
(continued)
17 Share-based payments
The Group has granted a number of different equity-based awards
which it has determined to be share-based payments. New awards
granted during the period were as follows:
a) On 16 May 2016, options over 3,749,786 shares were issued
under the Long-Term Incentive Plan to certain Directors and other
senior employees which vest and become exercisable on the third
anniversary of the grant date and are 50% linked to EPS performance
and 50% linked to TSR performance;
b) On 27 May 2016, options over 334,522 shares were issued under
the Deferred Bonus Plan ("DBP") to the Executive Directors
reflecting their deferred bonus in respect of 2015/16, which vest
and become exercisable on the third anniversary of the grant
date.
c) On 29 May 2016, 474,508 shares were awarded to eligible staff
on the 2(nd) anniversary of the IPO and allocated at GBPnil cost;
these shares become beneficially owned over a three year period
from allocation subject to continuing service.
The fair values of all awards are assessed using techniques
based upon the "Black-Scholes" pricing model. The Group charged
GBP2.3m during the period (July 2015: GBP1.6m) to the income
statement in respect of equity-settled share-based payment
transactions. Of this, GBP0.4m (July 2015: GBP0.2m) is included
within non-trading items (note 4), which represents the share based
payment charge on options awarded at the IPO that are still
vesting.
18 Discontinued operations and assets held for sale
On 15 January 2015, the Group announced its decision to divest
the local authority section of its Healthcare business, Allied
Healthcare. As at 31 July 2015, the requirements of IFRS 5 were met
and accordingly Allied Healthcare was classified as a disposal
group held for sale in the statement of financial position and as a
discontinued operation in the income statement. On 30 November
2015, the Group completed the sale of Allied Healthcare. Full
details of this disposal are provided in the annual report and
accounts for the year ended 31 January 2016 available at
www.corporate.saga.co.uk.
19 Related party transactions
Related party transactions during the six months ended 31 July
2016 were consistent in nature, scope and quantum with those
disclosed in the Group's annual report and accounts for the year
ended 31 January 2016 available at www.corporate.saga.co.uk.
Principal Risks and Uncertainties
The Group is subject to a number of risks and uncertainties as
part of its activities. The Board regularly considers these and
seeks to ensure that appropriate processes are in place to manage,
monitor and mitigate these risks. Other than the result of the EU
Referendum on 23 July 2016, the Directors consider that the
principal risks and uncertainties facing the Group during the
period under review and for the remainder of the financial period
have not materially changed from those outlined on pages 28 to 32
of the Annual Report and Accounts for the year ended 31 January
2016 available at www.corporate.saga.co.uk. The Group has in place
processes to monitor and mitigate these risks. The impact of the EU
Referendum is discussed on page 7 of this interim statement.
Responsibility Statement
We confirm to the best of our knowledge:
a) The condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 'Interim Financial
Reporting' as adopted by the EU.
b) The interim management report includes a fair review of the
information required by the Financial Statements Disclosure and
Transparency Rules DTR 4.2.7R) - indication of important events
during the six month period and their impact on condensed
consolidated interim financial statements and description of
principal risks and uncertainties for the remaining six months of
the financial year: and
c) The interim management report includes a fair review of the
information required by DTR 4.2.8R - disclosure of related party
transactions and changes therein.
On behalf of the Board
Lance Batchelor Jonathan Hill
Chief Executive Officer Chief Financial Officer
20 September 2016 20 September 2016
INDEPENT REVIEW REPORT TO SAGA PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 July 2016 which comprises the condensed
consolidated income statement, condensed consolidated statement of
comprehensive income, condensed consolidated statement of financial
position, condensed consolidated statement of changes in equity,
condensed consolidated statement of cash flows, and related
explanatory notes 1 to 19. We have read the other information
contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2.1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
July 2016 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
20 September 2016
Appendix 1: Restated Cost Allocations within Insurance
Segment
Since the announcement of the Group's preliminary results for
the financial year ended 31 January 2016, a review of the
allocation basis for overhead expenses between the Motor, Home and
Other subsegments has been undertaken.
The previous allocation basis allocated the majority of overhead
costs using accounting revenue. Whilst this method was found to
allocate a fair and reasonable portion of costs to each of the
subsegments, the arbitrary nature of this method did serve to
introduce undue volatility of costs between the subsegments that
did not necessarily reflect the underlying activities related to
how those costs were incurred.
An improved activity-based costing method has therefore been
developed to allocate overhead expenses to the subsegments on a
basis that more accurately reflects how those expenses have been
incurred. This method has been applied from 1 February 2015 to
ensure reports are consistent.
The following tables outline the reconciliation between the
previously reported segmental information and the restated
segmental information.
6m to 6m to 31 Jul 2015 12m to 31 Jan 2016
31 Jul
2016 Restated Adj. Reported Restated Adj. Reported
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
MOTOR INSURANCE
Revenue 120.4 157.2 0.0 157.2 318.7 0.0 318.7
Cost of sales (9.4) (69.9) 0.0 (69.9) (151.2) 0.3 (151.5)
Gross profit 111.0 87.3 0.0 87.3 167.5 0.3 167.2
Operating expenses (42.1) (29.7) (1.1) (28.6) (65.0) (2.2) (62.8)
Investment income 3.2 8.0 0.0 8.0 13.9 0.0 13.9
Trading Profit 72.1 65.6 (1.1) 66.7 116.4 (1.9) 118.3
Trading Profit analysed
by:
- Core Underwriting 56.4 49.8 1.2 48.6 84.6 1.8 82.8
- Ancillary 8.8 10.5 (2.3) 12.8 21.7 (4.5) 26.2
- Broking /
Other 6.9 5.3 0.0 5.3 10.1 0.8 9.3
72.1 65.6 (1.1) 66.7 116.4 (1.9) 118.3
Appendix 1: Restated Cost Allocations within Insurance Segment
(continued)
6m to 6m to 31 Jul 2015 12m to 31 Jan 2016
31 Jul
2016 Restated Adj. Reported Restated Adj. Reported
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
HOME INSURANCE
Revenue 47.5 50.6 0.0 50.6 99.8 0.0 99.8
Cost of sales (2.8) (3.2) 0.0 (3.2) (6.1) (0.3) (5.8)
Gross profit 44.7 47.4 0.0 47.4 93.7 (0.3) 94.0
Operating expenses (14.4) (13.1) 1.8 (14.9) (26.7) 3.3 (30.0)
Investment income 0.1 0.1 0.0 0.1 0.1 0.0 0.1
Trading Profit 30.4 34.4 1.8 32.6 67.1 3.0 64.1
Trading Profit analysed
by:
- Core Broking /
Coinsured 26.5 29.3 2.5 26.8 59.2 4.6 54.6
- Ancillary
Underwriting 3.9 5.1 (0.7) 5.8 7.9 (1.6) 9.5
30.4 34.4 1.8 32.6 67.1 3.0 64.1
6m to 6m to 31 Jul 2015 12m to 31 Jan 2016
31 Jul
2016 Restated Adj. Reported Restated Adj. Reported
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
OTHER INSURANCE
Revenue 47.0 46.5 0.0 46.5 91.6 0.0 91.6
Cost of sales (15.4) (17.3) 0.0 (17.3) (33.3) 0.0 (33.3)
Gross profit 31.6 29.2 0.0 29.2 58.3 0.0 58.3
Operating expenses (16.0) (15.4) (0.7) (14.7) (29.2) (1.1) (28.1)
Investment income 0.4 0.5 0.0 0.5 0.5 0.0 0.5
Trading Profit 16.0 14.3 (0.7) 15.0 29.6 (1.1) 30.7
Trading Profit analysed
by:
- Core Underwriting 1.5 2.0 0.3 1.7 2.0 (0.4) 2.4
- Core Broking
/ Other 14.5 12.3 (1.0) 13.3 27.6 (0.7) 28.3
16.0 14.3 (0.7) 15.0 29.6 (1.1) 30.7
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR ZMGZLLGFGVZM
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