TIDMSAGA
RNS Number : 5958U
SAGA PLC
07 April 2021
7 April 2021
Saga plc
Preliminary results for the full year ended 31 January 2021
Significant progress through the year, with disciplined
execution of turnaround strategy
Insurance delivers resilient performance; Travel ready for
restart with strong demand
Saga plc ('Saga' or 'the Group'), the UK's specialist in
products and services for people over 50, announces its preliminary
results for the 12 months ended 31 January 2021
31 January 2021 31 January 2020 Change
--------------------------------------------------------- ----------------- ----------------- -----------
Underlying Profit Before Tax 0F (1) GBP 17. 1m GBP109.9m (84.4%)
Loss before tax (GBP 61. 2m) (GBP300.9m) 79.7 %
Available operating cash flow (1) GBP 3. 4m GBP92.7m ( 96.3 %)
Adjusted net debt (excluding Cruise) (1) GBP 246. 9m GBP361.7m ( 31.7 %)
Leverage ratio (net debt to Trading EBITDA, ex Cruise) 2. 7x 2.4x 0. 3x
1 Refer to the Alternative Performance Measures (APM) Glossary
on pages 66 to 67 for definition and explanation
Financial and operational highlights
-- Underlying Profit Before Tax of GBP 17. 1m, against the backdrop of COVID-19 challenges
-- Loss before tax of GBP 61. 2m reflecting GBP59.8m impairment
of Travel goodwill in the first half
-- Strong liquidity position, with total available cash of GBP
75. 4m and undrawn revolving credit facility (RCF) of GBP100m at 31
January 2021
-- Strengthened balance sheet and improved financial resilience
as a result of decisive actions taken over the last 12 months,
including successful GBP150m capital raise in September 2020,
recent review of covenants attached to term loan and RCF, and
further deferral in relation to ship facilities
-- Leverage ratio (excluding Cruise) of 2.7x, well within the covenant of 4.75x
-- Robust response to COVID-19 challenges, with tight grip
maintained on business: colleagues supported through the transition
from office to home working, with no interruption to business;
Travel reset and ready to operate once restrictions lifted;
Insurance clearly focused on supporting customers through
pandemic
-- Positive progress made against all five pillars of the
strategy outlined in September 2020, designed to return Saga to
sustainable growth
Divisional performance
Insurance: resilient financial performance; range of COVID-19
care measures implemented to support customers
Retail Broking
-- Continued progress in the second half, with launch of online
self-serve portal and new motor price-comparison website
proposition
-- Saga-branded motor and home core policies of 1.6m are 1.1%
higher than the previous period, with retention 5.4ppts higher than
the prior year at 80.5%; performance represents return to growth,
underpinned by success of three-year fixed-price policy
-- Motor and home margins (after marketing costs) of GBP74 per
policy, in line with expectations
-- Growth in direct channels driven by three-year fixed-price
product, with 610k policies sold in the year, representing more
than 63% of direct new business sales
Underwriting
-- Underwriting generated profit of GBP 58. 7m, including GBP
37. 6m of reserve releases, primarily due to continued favourable
experience on large bodily injury claims relating to prior accident
years
-- Claims frequency fell, with customers driving fewer miles
during COVID-19 lockdowns. This resulted in reduced current year
combined operating ratio of 91.4 %, excluding impact of the Group's
quota share reinsurance arrangement
-- Cautious approach to reserving for the 2020/21 accident year,
holding additional component of reserve margin for increased
uncertainty over claims development
Travel: detailed work completed for return to service; customer
retention strong and high demand for post pandemic travel
-- Saga ready to resume its Tour Operations and Cruise
businesses in 2021 with specific timing being subject to government
restrictions
-- Customer demand remains strong, with evidence of significant
pent-up demand from customers ready to travel. Total Cruise
bookings of GBP154m for 2021/22 and 2022/23 combined, in comparison
to GBP128m at the same point last year, representing a 20%
improvement. This excludes 2020/21 bookings that have been
cancelled where the customer has indicated that they want to rebook
but have yet to do so on a specific cruise
-- Significant number of operational changes implemented,
ensuring highest level of health and safety standards; Saga awarded
first Lloyd's Register Shield+ accreditation, highest level of
health assurance available; introduction of policy that guests are
fully vaccinated at time of travel
-- Cash burn rate for the second half at lower end of GBP6-8m per month guidance
Euan Sutherland, Saga's Group Chief Executive Officer, said:
"Saga has made significant progress in a year of unprecedented
challenge, during which our key focus has been on serving our
customers and keeping our colleagues safe. At the same time, we
have continued the work to strengthen our financial position and
started to deliver against our new strategy, outlined in September,
which will return Saga to sustainable growth. Central to this is
our plan for our people which saw us launch a new purpose, values
and engagement programme. Overwhelmingly positive feedback has been
received to date and is reflected in our colleague engagement score
which has increased from September 2020. I want to thank our
colleagues for their hard work in delivering exceptional,
differentiated products and services for our customers.
"The progress we have made is clear in the resilient performance
delivered by our Insurance business and in Cruise where our high
levels of customer retention show clear loyalty to our
differentiated boutique offering. At the same time, we have been
working to develop the plans to refresh our brand and to invest in
data and digital to improve the customer experience.
"Looking ahead, while we are mindful of economic headwinds and
the potential ongoing impacts of COVID-19, it is clear that there
is significant pent-up demand among our customer base, the vast
majority of whom have now been vaccinated and are ready to enjoy
post-lockdown freedom. Saga is a proud British business, with a
strong brand, loyal customers and great people and we are excited
about the opportunities ahead. We look forward to relaunching our
brand later in 2021 which will only enhance our ability to unlock
the potential in Saga, returning the business to sustainable growth
and creating significant long-term value for all our investors and
stakeholders."
A presentation for analysts and investors on the preliminary
results will be available to view on Saga's corporate website from
07.00 today. The webcast can be found at:
https://www.corporate.saga.co.uk/investors/results-reports-presentations/.
Euan Sutherland and James Quin will hold a conference call for
analysts and investors at 09.30. The conference call can be
accessed on: UK: +44 (0) 20 3936 2999 , all other locations: + 44
(0) 20 3936 2999 . Participant access code: 805740 .
For further information please contact:
Saga plc
Emily Roalfe, Head of Investor Relations Tel: 07732 093 007
Email: emily.roalfe@saga.co.uk
Headland Consultancy
Susanna Voyle
Tel: 07980 894 557
Henry Wallers
Tel: 07876 562 436
Tel: 020 3805 4822
Email: saga@headlandconsultancy.com
Notes to editors
Saga is a specialist in the provision of products and services
for people over 50. The Saga brand is one of the most recognised
and trusted brands in the UK and is known for its high level of
customer service and its high quality, award winning products and
services including cruises and holidays, insurance, personal
finance and publishing. www.saga.co.uk
Chairman's statement
2020/21 was extraordinary for Saga. Like most other companies,
we have had to deal with the unprecedented threats posed by the
COVID-19 pandemic, including the lockdowns and ensuing
uncertainties. We also took the opportunity to address some
long-standing, fundamental issues within our organisation. Euan
Sutherland, Saga's new Group Chief Executive Officer (CEO) and his
senior team, most of whom have only joined the Company in the last
two years, have responded to all challenges extremely
effectively.
I joined the Company as its eleventh employee in 1966. When Saga
was floated for the first time in 1978 and I was Managing Director,
our principal business was operating holidays for older people. It
was in 1984, when my father who had founded the Company retired,
that I became Chairman and CEO and we began to focus on developing
our Insurance and Financial Services businesses. This
diversification has served Saga well through the challenges of the
past financial year.
On 5 October 2020, I became Non-Executive Chairman after the
Company's successful capital raise which generated GBP150m
(approximately GBP140m net of costs). I personally invested GBP100m
for just over 26% of the share capital. I did this, not only
because I realised that it would substantially improve the
Company's position but because I thought I was making a sound
investment, and felt that my long experience with Saga could
benefit the Company today.
I was attracted by Euan Sutherland's plans for the business and
particularly by his determination to refocus the Company to
concentrate on serving its customers better. During the last
financial year, Saga sold a number of non-core businesses which no
longer fit with the new strategy, as well as our old cruise ship,
Saga Sapphire.
We renegotiated more favourable repayment terms for the
facilities which funded the purchase of our two new cruise ships
ordered in 2015 and 2017 and delivered in June 2019 and September
2020. Our balance sheet strengthened during the year and, at our
year end, our net bank debt, excluding the two cruise ship
facilities, was GBP115m lower than in the prior year, enabling us
to agree flexibility within the covenants attached to our term loan
and revolving credit facility (RCF). Colleague and marketing costs
were GBP37m lower than the previous year and a decision was made
not to draw on any support from government funding.
During the year, we increased the number of our Insurance
customers (excluding for travel insurance) and, despite combined
losses of GBP78m from our Travel business that was not able to
generate revenues for 10 months of the financial year, we earned an
underlying profit of GBP17m. Given the global challenges, this was
a highly satisfactory result.
In January 2020, Euan Sutherland took over the executive
leadership of a company which, not long after it had been floated
in 2014, had begun to see a significant downward trend in the
number of its Travel customers and Insurance policyholders, as well
as of its income and underlying profits. In February last year,
Euan introduced a plan for Saga to become more efficient and to
reduce costs. However, by the end of February 2020, the senior
management team realised the seriousness of the threat of the
COVID-19 pandemic and began to develop a new plan which included
office-based colleagues being able to work from home. Within a few
hours of the Prime Minister's announcement of the first lockdown on
23 March 2020, we contacted 95% of Saga's office-based colleagues.
Within a week we distributed over 1,500 laptops with access to the
Company's computer systems, ensuring that Saga's customers faced no
interruption as we supported the transition of over 2,000 people
moving from office to home working.
Although none of our customers have been able to travel since
the first lockdown, we needed substantial numbers of colleagues to
assist customers who had already booked holidays and cruises, and
to be able to provide a good service to those who wished to book
new holidays. We also had to continue to work with our suppliers.
All this was without knowing when our Travel operations could start
again. We have implemented a raft of measures to ensure that our
holidays will be COVID-19 secure and have recently announced that
we will only take customers on holiday who have been fully
vaccinated. Our Travel businesses are therefore well-prepared to
start their programmes when travel is allowed again.
Saga's Insurance Broking arm saw a return to growth in the
number of customers for its main lines of business, motor and home
insurance. This was achieved by greatly improving customer
retention. It also generated a greater proportion of direct sales,
relying less on price-comparison websites. Saga's Underwriting
company, AICL, experienced continued favourable development on
large bodily injury claims, alongside reduced claims frequency in
line with the rest of the market.
Saga's magazine continued its printed circulation with over
200,000 subscribers, and recently successfully launched the digital
version of the magazine.
During the year, despite the massive distraction caused by the
pandemic, Euan Sutherland successfully launched Saga's new
strategic plan, and this is now being embedded in the organisation.
The strategy requires us all to work hard to understand the lives
and needs of people in our market, and to deliver relevant products
and services of high quality and excellent value, always striving
to achieve the best standards of customer service. The plan sets
these objectives in the context of our digital age and requires the
Company to continue to invest in its technology. It restructures
the business with a leaner operating model that will lead to a more
efficient and collaborative way of working. Management layers have
been reduced from 17 to 5.
To ensure excellent virtual communication within the
organisation, technology has been used very effectively and
considerable emphasis has been placed on providing support for the
wellbeing of all those working from home. Despite the uncertainty
created by the pandemic and the major changes the organisation has
been through, our surveys show that our team morale remains strong
and is better now than at the beginning of the financial year.
During the last financial year, we sought ways to meet our
Environmental, Social and Governance (ESG) responsibilities even
more effectively and we will continue to develop our reporting to
reflect the progress we are making.
I would like to thank everyone at Saga, including our Board, for
working so hard and embracing so enthusiastically the changes we
have had and have chosen to adopt. I would also like to
congratulate Euan Sutherland and his senior management team. Given
our circumstances, the financial results were very encouraging and
we are beginning to lay the foundations for the Company to prosper
in the future. I look forward to celebrating our 70(th) anniversary
this year.
Group Chief Executive Officer's statement
I could never have foreseen the challenges that Saga would face
in my first full year as Group CEO. With that being said, I am very
proud of the way we responded, and I am confident that Saga is in a
stronger position, with a clearer direction now, than when I joined
in January 2020. Despite the issues that the year presented, we
made good progress against our strategy, all the while placing the
safety of our colleagues and customers at the forefront of our
thinking.
As for many other businesses, the COVID-19 pandemic has had a
significant impact on Saga, both financially and operationally. We
have shown tremendous resilience in navigating the impact of the
pandemic and every single one of our colleagues has played their
part.
As such, I am pleased to report that despite the challenging
backdrop, the Group generated an Underlying Profit Before Tax of
GBP 17. 1m, reflecting resilient trading in the Insurance business
as it makes progress against the targets set in April 2019, and the
suspension of the Travel business from March 2020. Overall, the
Group reported a loss before tax of GBP 61.2m, due to an impairment
of Travel goodwill in the first half of the year.
In Insurance, motor and home policies returned to growth, with
sales volumes 1.1% higher than in 2019/20, following several years
in decline. Our three-year fixed-price product continues to improve
customer loyalty with motor and home retention at 80.5%, 5ppts
higher than the prior year, with over a third of customers choosing
the three-year product. Acquiring new business on a direct basis
continued to be a priority and in 2020/21, 59% of customers came to
us through this route, representing a 2ppt improvement on the prior
year. Motor and home margins per policy were GBP74, in line with
the expectations set at the beginning of the year.
Despite the Travel business being suspended, customer demand
remained strong; with GBP154m of total Cruise bookings across
2021/22 and 2022/23, in comparison with GBP128m at the same point
last year, representing a 20% improvement. This excludes 2020/21
bookings that have been cancelled where the customer has indicated
that they want to rebook but have yet to do so on a specific
cruise. Customer retention across both businesses remains
high with Cruise at 73% and Tours at 43 %.
Focus continued on managing our levels of debt and maintaining
sufficient liquidity through the period of Travel disruption.
Following the actions taken to provide further flexibility, the
Group had available cash of GBP 75. 4m at the year end, excluding
the GBP100m RCF which remained undrawn.
With the actions taken, I am certain we are on the right path to
ensuring Saga gets back to doing what it does
best, delivering exceptional experiences for our customers.
Strategic update
Saga launched its strategic turnaround plan, Transforming Saga -
Experience is Everything , in September 2020. The new strategy is
firmly rooted in our heritage and aims to create a refreshed,
contemporary and
confident brand with a data and digital-led approach to improving our customers' experiences.
At our core, we remain the same, a unique British business
focused on providing exceptional, differentiated products and
services to our distinct customer group. We are aligning our people
and products to focus on delivering exceptional experiences for our
customers every day, whilst being a driver of positive change in
our markets and communities. This will strengthen our relationship
with our customers, and it will address many of the challenges the
business has faced in the last few years.
The strategy is designed to drive growth in revenues, profit and
cash over the long term, while improving the financial strength of
the business by reducing debt and delivering sustainable returns
for our investors. It is focused on delivery under each of the
following five pillars.
People and culture step change
We recognise our colleagues underpin our success, and so they,
and the culture in which they operate, represent our first
priority. Promoting an environment of openness, transparency, and
trust, where colleagues can feel that they are heard and be
themselves is of great importance to me. To foster this culture, we
launched our new internal communications platform, Workplace, which
encourages colleagues to share experiences, communicate,
collaborate, and also have fun. We expanded our continuous
listening strategy to include several new channels of
communication, including a series of focus groups and inclusion
forums, providing colleagues with the opportunity to feel as though
they belong, encouraging them to speak up and express their
views.
I am pleased with the way that all colleagues have interacted
with the changes and to date, we have received overwhelmingly
positive feedback. Despite the difficult year that we had, the
result of our most recent colleague survey was an improved
engagement score of 7.3 (out of 10), and a record 92% participation
rate. This compares with a score of 7.0 in September 2020, with the
highest scores seen in categories including management support and
peer relationships. We recognise that there is still work to do,
and that it is not something we can change overnight. As such, we
will continue to monitor engagement, building the appropriate
action plans and work with colleagues to make the changes that
matter to them.
We have launched a set of core values that underpin our purpose
and represent who we are and the way in which we work. These values
include precision pace, empathy, curiosity and collaboration, all
of which are key qualities needed to ensure we deliver the best
experiences for each other and our customers. Colleagues have
welcomed
these new values, applying them to situations they encounter every day in life at Saga.
The unique challenges of 2020 impacted us all and our colleagues
were no different. As with many people, the adjustment to new ways
of working, separation from loved ones and, for many, home
schooling young children, have been difficult to manage. The mental
wellbeing of our colleagues has been a key focus, with enhanced
support provided via additional on-call Mental Health First Aiders,
the introduction of a dedicated Wellbeing Manager and the use of
national campaigns and awareness days to highlight the support
available. We believe mental health should be understood, nurtured
and celebrated, and to ensure our colleagues have access to the
right care at the right time, we invested in the Unmind platform.
This app is aimed at empowering colleagues to
improve their mental health through a variety of self-help tools and techniques.
Despite the fantastic progress, our people and culture step
change will continue to be a priority for the coming years, as the
changes made will take time to embed. Our immediate focus for
2021/22 will centre around living the new values and leadership
behaviours, further building capability in key roles, reassessing
our framework for colleague reward and continuing to create
exceptional experiences for our colleagues.
Data, digital and brand transformation
As a leadership team, we have also been focusing on assessing
the investments made over the last few years so that we can build
on and further optimise them, repurposing technology wherever
possible in order to reduce complexity. Given the nature and size
of the ambition, our data, digital and brand transformation
represents a multi-year strategy.
Since the launch of our strategy, a key focus has been the ease
with which customers are able to interact with us in the digital
landscape. We launched a series of improvements to our mobile app,
including the addition of web chat functionality, alongside our
recently launched Saga Magazine app, which has been well received,
achieving an Apple App Store rating of 4.7 out of 5.0.
Our priorities for the short to medium term include the relaunch
of our brand essence, Experience is Everything , planned for later
in 2021 . This will form part of a multi-year campaign designed to
enhance brand awareness and optimise marketing activity, whilst
representing a contemporary brand.
Work has started on the development of a single Group-wide
customer digital data platform which builds on and optimises the
investment made in recent years. This will continue to be a key
focus for 2021/22. Once complete, it will enable us to reduce
complexity across our systems and provide a clearer view of each
customer across all our businesses.
Optimising our businesses
Insurance
During the COVID-19 pandemic, we have all needed a little extra
support, and our customers have been no different. We proactively
contacted customers to encourage them to let us know if their
circumstances had changed; whether that be a reduction in mileage
or the requirement to add another driver to their policy. For
customers facing financial hardship, we offered support through
payment holidays and fee waivers, where appropriate. We continue to
proactively review our pricing, applying premium reductions to
reflect reduced driving activity throughout the pandemic.
Aside from a lower volume of claims, reflecting a reduction in
miles driven during lockdown periods, the Underwriting business
observed continued favourable experience in relation to large
bodily injury claims. This resulted in reserve releases of GBP 38m
for the year.
Saga continuously looks at ways to evolve our product offering
with the needs of our customers in mind. Innovation continued
within Insurance with the launch of our new motor price-comparison
website product, offering customers greater flexibility when
determining the product that is right for them. Given the
increasing number of consumers utilising digital platforms, we also
launched our self-serve portal, allowing customers to make common
policy amendments online. Additionally, in response to the current
uncertain times, we were one of the first insurers to offer
COVID-19 inclusive travel insurance, ensuring that our customers
have peace of mind whilst travelling.
The quality of the products we sell and the exceptional service
we offer continue to be recognised formally by our customers. Most
recently, Saga was awarded 'Best Home Insurance Provider' as well
as 'Best Big Insurance Company' at the 2020 Insurance Choice
Awards.
As we look to 2021/22, we continue to actively review and
develop our product offering in order to meet the desires of our
customers and the requirements of the regulatory landscape, whilst
completing the foundations
required to set the business on the track of longer-term growth.
Travel
Saga's Travel business suspended operations in March 2020.
Through these extraordinary times, we prioritised the safety and
wellbeing of our customers and crew. This was demonstrated through
the repatriation of all guests and crew and the flexibility we
offered in relation to cancelled departures, with the option for a
cash refund,
voucher towards a future booking, or the opportunity to rebook a specific destination.
Following the arrival of Spirit of Adventure in September 2020,
Saga's ocean cruise fleet comprises two new, technologically
advanced cruise ships. One of the key benefits of this is that it
will allow us to offer our guests the highest level of health and
safety standards in the industry at a time when that is of
paramount importance. Given the further considerations arising from
the COVID-19 pandemic, Saga has worked to develop the very best
safety protocols allowing us to operate in the COVID-19 world once
we are able. As we restart cruises, we are keeping all our current
health and safety measures in place to ensure our cruises are as
safe as possible. This includes our vaccination policy and
initially operating a reduced guest capacity. Keeping to a
restricted number of guests feels like the right thing to do as we
restart, but we will look to take more guests and move back to full
capacity over time. Our enhanced safety procedures include:
-- increasing our crew to guest ratio, to enhance our onboard cleaning regimes;
-- a private chauffeur car per household up to a range of 250
miles, for departures within the initial restart period;
-- additional enhancements to our state-of-the-art air
conditioning which already provides 100% fresh air in all cabins
and public areas; and
-- improved and expanded medical facilities with a new dedicated
isolation area and a doubled medical team.
Following the implementation of these and other measures, Saga
was awarded the first Lloyd's Register Shield+ accreditation, the
highest level of health assurance available.
During the COVID-19 suspension period, we took the opportunity
to reset the Tours business. Tour Operations will return to the DNA
that contributed to the success of Saga Holidays for so many years,
offering a higher-quality, differentiated product portfolio;
emphasising peace of mind, unique and aspirational holidays
tailored specifically for our customers. Leveraging the insights
gained from our Cruise transformation programme, we are extending
our Tours product proposition to include a second new river cruise
ship. Launching in 2022, Spirit of the Danube will join its sister
ship, Spirit of the Rhine, to allow customers to enjoy our luxury
cruise experience whilst voyaging on the riverways of Europe.
We have maintained an agile approach throughout the year and are
ready to resume operations in 2021, although
any changes to government travel guidance may impact those plans.
Driving simplicity and efficiency
We continue to adopt a cost-conscious approach, ensuring that
where possible we maximise efficiency by reducing both cost and
complexity across the Group.
Following our review of the organisational structure, looking at
both the services we needed to provide and the resources we had to
do so, we had no option but to make the difficult decision to
reduce our number of colleagues. Treating all colleagues with the
utmost care and respect during this process was paramount in our
approach to enhancing redundancy terms, outplacement offers and
maintaining transparent two-way conversations. As a result of this
process, the number of colleagues was reduced by 36% (including
non-core disposals, permanent reductions and temporary travel
measures).
Through disciplined cost management during the suspension
period, the Travel businesses were also able to achieve significant
savings in both marketing and administration costs and delivered
cash burn costs in the second half of the year at the lower end of
GBP6-8m per month guidance.
Saga remains on track to achieve run rate cost savings of GBP20m
over time and will continue to assess possible efficiencies in the
business to ensure that it is operating at the optimum level for
the future.
Reducing our debt
One of Saga's key objectives has always been to proactively take
decisive action to strengthen the balance sheet, reduce debt and
maintain financial resilience. This has been more important than
ever given the uncertainty
of the COVID-19 pandemic.
Our focus in this area during 2020/21 was on reducing covenanted
short-term debt, with a net debt to EBITDA leverage ratio
(excluding the Cruise business) of 2.7x at 31 January 2021, broadly
in line with the prior year, despite lower EBITDA.
Following the actions taken throughout the year to enhance our
financial flexibility, including the capital raise which generated
approximately GBP140m of proceeds and agreement of further
extensions in relation to both the corporate and ship facilities,
we remain well placed to support the delivery of our strategy and
the planned restart of the Travel business.
Acknowledging that the actions taken would not have been
possible without our shareholders or financing partners, I would
like to take this opportunity to thank them for their continued
support through a difficult year.
The Group continues to focus on the preservation of cash and
management of debt levels, with the objective of reducing total
debt leverage to under 3.5x EBITDA, providing Saga with a strong
foundation for future growth.
FCA market study
The final recommendations of the Financial Conduct Authority
(FCA) market study on general insurance pricing practices are
expected in the second quarter of 2021 with implementation due to
be complete by the end of 2021 . The FCA is proposing that when a
customer renews their motor and home insurance, the price offered
should be no greater than if the customer were new to the insurance
company. Although we expect some short-term financial impact from
the change, as pricing adjusts across both new business and
renewals, we approach the implementation of the expected
recommendations with confidence and, following our recent pricing
changes and planned enhancements to our product offering, believe
that we are well placed to operate successfully in a price
equalisation market.
The future
The current financial year will be a hugely important period of
transition, against the continued backdrop of the COVID-19
pandemic.
Within Travel, ahead of the full roll out of the vaccine
programme, we are poised to restart both operations in
2021, as soon as government restrictions allow.
We will continue to prioritise the preservation of cash and
manage levels of debt; however, given the continued uncertainty
arising from COVID-19, we are not in a position to provide earnings
guidance for the 2021/22 financial year. We remain confident that
the disciplined execution of our turnaround strategy will unlock
the potential that exists within Saga, creating significant
long-term value for our investors.
Finally, I would like to acknowledge the strength, agility,
resilience, and determination I have witnessed from our colleagues
in what has been a particularly challenging year, and I would like
to thank each and every one
for their contribution.
Operating and Financial Review
The Group has reported an Underlying Profit Before Tax (PBT) of
GBP17.1m, a decrease of 84.4% in comparison with the prior year.
This reflects:
-- resilient trading in the Insurance business with both the
Retail Broking and Underwriting businesses continuing to make good
progress against the targets set in April 2019, and with positive
claims experience in relation to both current and prior years;
and
-- the suspension of the Travel business in March 2020 due to
the government advice against travel, the impact of which is in
line with the stress modelling for the 2020/21 year.
The Group has reported an overall loss before tax of GBP61.2m
(2020: loss before tax of GBP300.9m) due to an impairment of Travel
goodwill in the first half of the year. The significant impact of
COVID-19 on travel companies led to an increase in risk and cost of
debt levels and, therefore, market-participant views of discount
rates as at 31 July 2020, particularly in the cruise industry.
Whilst the Group is confident that the Travel business will recover
over time and believes that its Cruise operations are well placed
for a post COVID-19 world, given the current position and
uncertainty over the pace of the recovery, the Group took the
decision to impair in full the goodwill assets allocated to the
Tour Operations and Cruise businesses totalling GBP59.8m as at 31
July 2020. Market risk and cost of debt levels have since reduced,
reflecting a more positive outlook and stronger recovery prospects
in the travel industry than was the case at the half year. Goodwill
impairments, however, are irreversible under International
Financial Reporting Standards (IFRS).
In September 2020, the Group raised approximately GBP140m of net
proceeds from the issuance of additional equity shares, with Roger
De Haan as a cornerstone investor. The Group used these proceeds to
repay the full GBP40m drawn on the revolving credit facility (RCF)
at that date and reduce the term loan to GBP70m. In addition, the
Group agreed with its lending banks to extend the maturity of the
remaining term loan to May 2023, along with a series of covenant
changes as reported at the time in the interim statement.
Due to the combination of the equity capital raise and other
actions taken by management to improve cash flow and costs, the
Group ends the year with a strong financial position and ample
liquidity. As at 31 January 2021, the Group had GBP75.4m of
available cash resources in addition to the full GBP100m available
and undrawn on the RCF that is available through to May 2023.
The uncertainty that COVID-19 has created continues into 2021,
and whilst the Group is confident of a resumption of its Travel
business later in the year, management has taken further
precautionary measures to provide financial flexibility in the
event that the suspension of the Travel business continues into
2022. These measures include further amendments to the covenant
tests attached to the term loan and RCF as at 31 January 2022,
combined with the extension of a repayment holiday on the Group's
ship debt facilities to 31 March 2022. Given the priority of
reducing debt levels, no final dividend is proposed for the
year.
Operating Performance
Group income statement
12m to 12m to
GBPm Jan 2021 Change Jan 2020
---------- ----------- -------- -----------
Revenue 1F 2 337.6 (57.7%) 797.3
--------- ----------
Underlying Profit Before Tax 2F 3
Total Retail Broking (earned) 75.9 (15.9%) 90.2
Underwriting 58.7 44.6% 40.6
--------- ----------
Total Insurance 134.6 2.9% 130.8
Travel (78.5) (496.5%) 19.8
Other Businesses and Central Costs (22.4) 17.4% (27.0)
Net finance costs 3F 4 (16.6) (21.2%) (13.7)
Total Underlying Profit Before Tax 17.1 (84.4%) 109.9
Net fair value gains / (losses) on derivatives 1.7 (1.1)
Profit on disposal / (impairment) of assets 2.0 (16.9)
Thomas Cook insolvency - (3.9)
Restructuring costs (30.8) (5.9)
Net profit on disposal of businesses 8.6 -
Impairment of goodwill (59.8) (383.0)
Loss before tax (61.2) 79.7% (300.9)
--------- ----------
Tax expense (6.6) 44.5% (11.9)
Loss after tax (67.8) 78.3% (312.8)
--------- ----------
Basic earnings per share:
Underlying earnings per share (3) (, 4) 13.2p (89.1%) 121.0p
Loss per share (4F 5) (67.0p) 82.4% (381.7p)
(2) Revenue is a stated net of ceded reinsurance premiums earned
on business underwritten by the Group of GBP142.8m (2020:
GBP145.7m)
(3) Refer to the Alternative Performance Measures (APM) Glossary
on pages 66 to 67 for definition and explanation
(4) Net finance costs exclude net fair value gains/(losses) on
derivatives and IAS 19R pension interest costs
(5) The figure for the prior year has been restated to reflect
the effect of the share consolidation that was completed in October
2020
Refer to the Alternative Performance Measures (APM) Glossary on
pages 66 to 67 for definition and explanation
The Group's business model is based on providing high-quality
and differentiated products to its target demographic,
predominantly focused on insurance and travel.
The Insurance business operates mainly as a broker, sourcing
underwriting capacity from selected third-party insurance
companies, and, for motor and home, also from the Group's in-house
underwriter. Travel is comprised of Tour Operations and Cruise.
Other Businesses comprises Saga Personal Finance, Saga Publishing
and MetroMail, a mailing and printing business.
Revenue
Revenue decreased by 57.7% to GBP337.6m (2020: GBP797.3m) due to
the suspension of the Travel business from March 2020, combined
with lower Retail Broking revenues largely as a result of a
reduction in sales of travel insurance policies combined with the
sale of the Bennetts business in August 2020.
Underlying Profit Before Tax 5F 6
Underlying Profit Before Tax decreased by 84.4% to GBP17.1m
(2020: GBP109.9m).
This was primarily due to a GBP98.3m reduction in Travel
profitability, largely resulting from the suspension of operations
in March 2020 due to government travel restrictions in response to
the COVID-19 pandemic.
Net finance costs in the year were GBP16.6m (2020: GBP13.7m), an
increase of 21.2%, which was largely due to the additional debt
issue costs incurred in connection with amendments to the Group's
leverage covenants in April 2019, April 2020 and September 2020.
This excludes finance costs relating to the Travel business that
are included within the Travel division of GBP13.6m (2020:
GBP6.9m).
(6) Refer to the Alternative Performance Measures (APM) Glossary
on pages 66 to 67 for definition and explanation
Loss before tax
Loss before tax for the year of GBP61.2m includes a GBP59.8m
impairment to Travel goodwill and GBP30.8m of restructuring costs,
offset by an GBP8.6m profit on the disposal of non-core businesses,
GBP2.0m of net gains on the disposal of assets and a GBP1.7m fair
value gain on derivatives de-designated in the period due to the
suspension of Travel operations.
The restructuring costs include GBP21.3m of expenses associated
with a Group-wide restructuring programme to improve the operating
efficiency of both the trading businesses and the central support
functions, including specifically the removal of roles not required
in Travel whilst that business has suspended trading in the short
term. The remaining GBP9.5m of costs relate to the impairment and
operating losses of non-core businesses, principally the
Destinology travel business.
The GBP8.6m net profit on disposal of non-core businesses
relates to the sale of: Consolidated Healthcare Agencies Limited,
which traded as Country Cousins and Patricia White's; Bennetts
Motorcycling Services Limited, the Group's bike insurance broking
business; and Destinology, one of the Group's tour operating
businesses.
The GBP2.0m net gain on the disposal of assets reflects a
GBP3.8m profit on the sale of the Saga Sapphire ocean cruise ship
and a GBP3.2m gain on the curtailment of a property lease,
partially offset by a GBP5.0m impairment to the carrying value of
owned properties that have been classified as held for sale. The
corresponding GBP16.9m loss in the prior year primarily relates to
a GBP6.3m impairment of Saga Sapphire at the point when it was
classified as held for sale, combined with a GBP7.0m impairment of
assets relating to the divested Destinology business and a GBP3.3m
impairment of machinery in the Group's printing business.
Tax expense
The Group's tax expense for the year was GBP6.6m (2020:
GBP11.9m) representing an abnormally high tax effective rate of
471.4% (2020: 14.5%) when excluding the goodwill impairment charge.
The Group's tax effective rate is higher than the standard rate of
corporation tax, mainly due to the Group's Cruise business entering
the tonnage tax regime on 1 February 2020. This regime is specific
to the shipping industry and provides a source of tax efficiency by
fixing an element of tax payable based on the tonnage of each ship.
While this is the appropriate long-term approach, in the short
term, losses accumulated in the Cruise business as a result of the
COVID-19 suspension are not eligible for group relief to other
profitable companies within the Group. Excluding the losses on
Cruise, the tax effective rate for the year was 17.6%.
Earnings Per Share
The Group's Underlying Earnings Per Share(4) were 13.2p (2020:
121.0p). The Group's reported Earnings Per Share were a loss of
67.0p (2020: loss of 381.7p). The figures for the prior year have
been restated to reflect the effect of the share consolidation that
was completed in October 2020.
Retail Broking
The Retail Broking business provides tailored insurance products
and services, principally motor, home, private medical and travel
insurance. Its role is to price the policies and source the lowest
cost of risk, whether through the panel of motor and home
underwriters or through solus arrangements for private medical and
travel insurance. The Group's in-house insurer, Acromas Insurance
Company Limited (AICL), sits on the motor and home panels and
competes for that business with other panel members on equal terms.
AICL offers its underwriting capacity on the home panel through a
coinsurance deal with a third party, and so the Group takes no
underwriting risk for that product. Even if underwritten by a third
party, the product is presented as a Saga product and the Group
will manage the customer relationship.
12m to Jan 2021 12m to Jan 2020
---------------------
Motor Home Other Motor Home Other
GBPm Broking Broking Broking Total Change Broking Broking Broking Total
--------------------- --------- --------- --------- -------- --------- --------- --------- --------- --------
Gross written premiums
(GWP):
Broked 131.3 151.9 90.2 373.4 (4.8%) 124.8 154.1 113.2 392.1
Underwritten 204.6 - 3.5 208.1 (8.6%) 224.0 - 3.6 227.6
GWP 335.9 151.9 93.7 581.5 (6.2%) 348.8 154.1 116.8 619.7
--------- --------- --------- -------- --------- --------- --------- --------
Broker revenue 37.6 28.7 36.2 102.5 (16.7%) 43.6 32.4 47.1 123.1
Instalment revenue 8.1 3.0 - 11.1 0.0% 8.1 3.0 - 11.1
Add-on revenue 14.5 10.7 - 25.2 (10.0%) 17.9 10.0 0.1 28.0
Other revenue 31.3 17.8 4.4 53.5 (28.3%) 36.8 17.1 20.7 74.6
Written revenue 91.5 60.2 40.6 192.3 (18.8%) 106.4 62.5 67.9 236.8
--------- --------- --------- -------- --------- --------- --------- --------
Written gross
profit 88.8 60.2 36.5 185.5 (16.1%) 103.6 62.5 55.0 221.1
Marketing expenses (17.3) (6.0) (2.7) (26.0) 30.3% (21.6) (8.2) (7.5) (37.3)
Other operating
expenses (40.1) (26.3) (19.3) (85.7) 7.6% (53.1) (21.2) (18.4) (92.7)
Written Underlying
PBT 6F 7 31.4 27.9 14.5 73.8 (19.0%) 28.9 33.1 29.1 91.1
Written to earned
adjustment 2.1 - - 2.1 333.3% (0.9) - - (0.9)
Earned Underlying
PBT 33.5 27.9 14.5 75.9 (15.9%) 28.0 33.1 29.1 90.2
--------- --------- --------- -------- --------- --------- --------- --------
Thousands
Core policies sold:
Saga-branded 924 693 112 1,729 (5.6%) 918 682 232 1,832
Non-Saga-branded 144 - - 144 (38.7%) 235 - - 235
--------- --------- --------- -------- --------- --------- --------- --------
1,068 693 112 1,873 (9.4%) 1,153 682 232 2,067
Third-party panel
share 7F 8 30.4% 5.8ppt 24.6%
(7) Refer to the Alternative Performance Measures (APM) Glossary
on pages 66 to 67 for definition and explanation
(8) Third-party underwriter's share of the motor panel for
Saga-branded policies
Retail Broking profit before tax on a written basis (which
excludes the impact of the written to earned adjustment) reduced to
GBP73.8m from GBP91.1m, and on an earned basis (which includes the
impact of the written to earned adjustment) reduced to GBP75.9m
from GBP90.2m.
The reduction in profit before tax on a written basis was mainly
due to a GBP24.3m reduction in written gross profit, after also
deducting marketing expenses but before overheads. Analysis of the
main components of the change in this metric is shown below,
separately identifying the element of the change that the Group
estimates is related directly to the COVID-19 pandemic.
Written gross profit after Change excluding Estimated element Total change
marketing costs COVID-19 of change directly
GBPm attributable
to COVID-19
----------------------------- ------------------ --------------------- --------------
Written gross profit after
marketing costs in 2020 183.8
Saga-branded motor (0.5) (1.2) (1.7)
Home (0.1) - (0.1)
Bennetts (7.9) (0.9) (8.8)
Travel - (7.2) (7.2)
Other (3.1) (3.4) (6.5)
Written gross profit after
marketing costs in 2021 (11.6) (12.7) 159.5
------------------ --------------------- --------------
While Retail Broking performance has been resilient in light of
COVID-19 challenges, there has been some impact on the full year
results, mainly due to a significant reduction in sales of travel
insurance and lower credit hire and repair volumes. In aggregate,
the Group estimates that factors directly related to COVID-19
reduced profits by GBP12.7m. Excluding the impact of COVID-19, the
balance of the change in written gross profits is largely due to
the disposal of Bennetts.
For Saga-branded motor and home insurance, in terms of the total
gross margin after marketing expenses, new business profits
improved by GBP4.4m, while there was a GBP5.0m reduction in renewal
profits. The impact of COVID-19 is estimated at around GBP1.2m,
reflecting a reduction in claim referral fee income.
The increase in new business profits is due to lower costs of
acquisition in comparison with the prior year. The reduction in
renewal profits is principally due to pricing actions for
long-tenured customers that were implemented in July 2019.
Excluding these actions, renewal profits were broadly flat, with
the impact of slightly lower underlying renewal margins offset by a
4% increase in the total number of motor and home renewals
policies.
The overall gross margin per policy for Saga-branded motor and
home combined, and calculated as written gross profit less
marketing expenses divided by the number of policies, was GBP73.8
in the year (GBP74.5 excluding COVID-19 impacts), compared with
GBP75.6 in the prior year.
Although Retail Broking earnings have reduced in the year, the
Insurance business has shown good progress despite the challenges
presented by COVID-19:
-- After several years of a decline in policy count,
Saga-branded motor and home policies increased by 1.1% in the
year.
-- The higher policy count is due to improved customer retention
of 80.5% across motor and home, which was 5.4ppt higher than the
prior year. This includes the beneficial impact of the three-year
fixed-price policy introduced in April 2019 on customer
loyalty.
-- 610k three-year fixed-price policies were sold in the year;
38% of total motor and home policies incepting, with 63% of direct
new business taking the product.
-- The margin per policy is tracking in line with expectations
set at the time of the insurance strategy reset in April 2019, on a
basis that is consistent with how that range was calculated.
Written profit and gross margin per policy for motor and home
are stated after allowing for deferral of part of the revenues from
three-year fixed-price policies, recognising inflation risk
inherent in this product. As at 31 January 2021, GBP9.9m of income
had been deferred in relation to three-year fixed-price policies,
GBP5.0m of which related to income written in the year to 31
January 2021.
Motor Broking
Gross written premiums decreased by 3.7% due to the sale of the
Bennetts business in the year. Excluding Bennetts, gross written
premiums increased by 1.2% due to a 0.7% increase in the number of
core policies and an increase in average gross written premiums
reflecting a higher contribution from the renewal book and the
three -- year fixed-price product. Gross written premiums from
business underwritten by AICL decreased by 8.7% to GBP204.6m (2020:
GBP224.0m) in line with a 5.8ppt increase in third-party panel
share to 30.4% (2020: 24.6%). This was due to price cuts
implemented by AICL in February 2019, with third-party panel
members then becoming relatively more competitive since August 2019
and therefore winning more share in 2020. Other revenue declined by
GBP5.5m due primarily to the sale of Bennetts.
Written gross profit minus marketing expenses was GBP71.5m
(2020: GBP82.0m), contributing GBP66.9/policy (2020:
GBP71.1/policy). Excluding Bennetts, motor written gross profit
minus marketing expenses was GBP65.0m (2020: GBP66.7m),
contributing GBP70.3/policy (2020: GBP72.6/policy).
The reduction in written gross profits excluding Bennetts is
mainly due to pricing actions for long-tenured customers that were
implemented in July 2019 and the impact of COVID-19 on other
income. This was partially offset by lower costs of acquisition and
a 0.5ppt increase in the proportion of renewal policies.
Bennetts gross profits reduced due to changes to a contractual
arrangement with a third party, as well as short-term factors
relating to the impact of COVID-19. The sale of Bennetts completed
on 7 August 2020, so the 2020/21 results only include six months'
worth of trading compared with 12 months in the prior year.
The positive written to earned impact in the current year of
GBP2.1m is due to reduced margins per policy in the current year on
a written basis relative to the margins on earned business. The
negative written to earned adjustment of GBP0.9m in the prior year
was due to price reductions implemented by AICL in February 2019,
which were included within written profits in the prior year but on
an earned basis are spread over a 12-month period.
Home Broking
Gross written premiums decreased by 1.4% due to a 4.5% decrease
in average renewal premiums more than offsetting a 1.6% increase in
core policies.
Written gross profit minus marketing expenses was GBP54.2m
(2020: GBP54.3m), and on a per policy basis this was GBP78.2/policy
(2020: GBP79.6/policy).
Within gross profits the impact of pricing actions for
long-tenured customers was offset by lower costs of acquisition and
a 6.6% increase in the number of renewal policies, predominately
due to high three-year fixed-price retention rates. Written gross
profit on a per policy basis was stable, with a reduction resulting
from pricing actions implemented last year but a positive impact
from a 4ppt increase in the proportion of renewal policies written
relative to total policies.
Other Broking
The other insurance broking business is primarily comprised of
private medical insurance (PMI) and travel insurance.
Gross written premiums declined 19.8% as a result of lower sales
of travel insurance, which declined from 171k in the prior year to
54k. This was due to the impact of COVID-19 related travel
restrictions. Gross profits after marketing costs relating to the
travel product declined by GBP7.2m, or 69%, as a result.
Sales for the PMI product were broadly stable, however gross
profit after marketing costs was GBP2.9m lower. The Group is not
recognising any upside from a reduction in claims costs in the year
that has occurred as a result of a significant decline in elective
procedures during the period of COVID-19 lockdown. While these
amounts could be receivable under profit share arrangements, both
Saga and the solus insurance provider have committed to returning
any such benefits to customers.
Profitability of the Group's claims management and credit hire
businesses was also impacted during the year due to lower claims
volumes as a result of reduced repair activity during the COVID-19
lockdown, as well as the exit from a claims handling contract for a
third party.
Insurance Underwriting
12m to Jan 2021 12m to Jan 2020
------------ -----------
Quota Quota
GBPm Reported Share Underlying Change Reported Share Underlying
--------------- ------------ ---------- --------- ------------ ----------- ---------- --------- ------------
Net earned
premium 54.7 (128.7) 183.4 (6.5%) 63.1 (133.1) 196.2
Other revenue 19.7 20.7 (1.0) (42.9%) 6.0 6.7 (0.7)
---------- --------- ------------ ---------- --------- ------------
Revenue a 74.4 (108.0) 182.4 (6.7%) 69.1 (126.4) 195.5
Claims costs b (42.2) 96.1 (138.3) 22.1% (57.3) 120.2 (177.5)
Reserve
releases c 30.6 (7.0) 37.6 (6.0%) 29.6 (10.4) 40.0
Other cost of
sales d (4.9) 12.9 (17.8) (0.6%) (2.4) 15.3 (17.7)
---------- --------- ------------ ---------- --------- ------------
e (16.5) 102.0 (118.5) 23.6% (30.1) 125.1 (155.2)
Gross profit 57.9 (6.0) 63.9 58.6% 39.0 (1.3) 40.3
---------- --------- ------------ ---------- --------- ------------
Operating
expenses f (2.9) 7.7 (10.6) (51.4%) (2.4) 4.6 (7.0)
Investment
return 3.7 (4.6) 8.3 (11.7%) 4.0 (5.4) 9.4
Quota share
net
cost - 2.9 (2.9) (38.1%) - 2.1 (2.1)
Underlying
Profit
Before Tax
8F 9 58.7 - 58.7 44.6% 40.6 - 40.6
---------- --------- ------------ ---------- --------- ------------
Reported loss
ratio (b+c)/a 15.6% 55.2% (15.1ppt) 40.1% 70.3%
Expense ratio (d+f)/a 10.5% 15.6% 3.0ppt 6.9% 12.6%
Reported COR (e+f)/a 26.1% 70.8% (12.2ppt) 47.0% 83.0%
Current year
COR (e+f-c)/a 67.2% 91.4% (12.0ppt) 89.9% 103.4%
Number of
earned
policies 764k (6.5%) 817k
(9) Refer to the Alternative Performance Measures (APM) Glossary
on pages 66 to 67 for definition and explanation
The Group's in-house underwriter AICL continues to play an
important role on the motor panel, providing a source of
competitively priced risk. AICL also underwrites a portion of the
home panel, although all of the risk in the home insurance business
is passed on to a third-party insurance company.
Excluding the impact of the quota share reinsurance arrangement,
net earned premiums decreased by 6.5% to GBP183.4m (2020:
GBP196.2m) in line with the decline in the number of earned
policies underwritten by AICL.
Also excluding the impact of the quota share arrangement, the
Underwriting business saw a decrease in the current year combined
operating ratio (COR) to 91.4% (2020: 103.4%). This was due to
lower claims frequencies in the year as a result of customers
driving fewer miles during COVID-19 lockdowns. The Group has taken
an appropriately cautious approach to reserving for the 2020/21
accident year and is holding an additional component of reserve
margin for the increased uncertainty over claims development.
Reserve releases of GBP37.6m (2020: GBP40.0m) have resulted in a
reported COR of 70.8% (2020: 83.0%), excluding the impact of the
quota share arrangement. The Group retains economic interest in
motor reserve releases. To the extent they are commuted under the
quota share arrangement they are recognised within other revenue as
a profit share. Reserve releases are analysed as follows:
12m to Jan 2021 12m to Jan 2020
------------------ --------
Quota Quota
GBPm Reported share Underlying Change Reported share Underlying
------------------ ---------- -------- ------------ -------- ---------- -------- ------------
Motor insurance 28.1 (8.6) 36.7 29.5 (9.3) 38.8
Home insurance (0.4) - (0.4) (1.1) (1.1) -
Other insurance 2.9 1.6 1.3 1.2 - 1.2
30.6 (7.0) 37.6 (6.0%) 29.6 (10.4) 40.0
---------- -------- ------------ ---------- -------- ------------
Reserve releases primarily reflect continued favourable
experience on large bodily injury claims relating to prior accident
years mainly due to a reduction in severity, with favourable
settlements on claims paid and reductions in case reserves for
claims outstanding.
Excluding the impact of the quota share arrangement, the
investment return decreased by GBP1.1m to GBP8.3m (2020: GBP9.4m)
due to a reduced investment portfolio and lower reinvestment
yields.
Travel
12m to Jan 2021 12m to Jan 2020
---------------------- ----------
Total Total
GBPm Tour Operations Cruising Travel Change Tour Operations Cruising Travel
---------------------- ----------------- ---------- --------- ---------- ----------------- ---------- ---------
Revenue 32.7 18.9 51.6 (88.9%) 346.1 118.0 464.1
----------------- ---------- --------- ----------------- ---------- ---------
Gross profit (2.6) (13.9) (16.5) (116.6%) 61.2 37.9 99.1
Marketing expenses (7.8) (7.1) (14.9) 53.3% (18.3) (13.6) (31.9)
Other operating
expenses (26.4) (7.3) (33.7) 17.6% (33.6) (7.3) (40.9)
Investment return - 0.2 0.2 (50.0%) 0.3 0.1 0.4
Finance costs (0.1) (13.5) (13.6) 97.1% (0.4) (6.5) (6.9)
Underlying (Loss) /
Profit Before Tax
9F
10 (36.9) (41.6) (78.5) (496.5%) 9.2 10.6 19.8
----------------- ---------- --------- ----------------- ---------- ---------
Average revenue per
passenger (GBP) 2,515 3,150 2,716 12.9% 2,150 3,688 2,405
Holidays passengers
('000)
Stays 8 8 (87.9%) 66 66
Escorted tours 5 5 (91.9%) 62 62
River cruise - - (100.0%) 25 25
Third-party ocean
cruise - - (100.0%) 8 8
----------------- --------- ----------------- ---------
13 13 (91.9%) 161 161
Cruise passengers
('000) 6 6 (81.3%) 32 32
Cruise passenger
days
('000) 61 61 (85.1%) 409 409
Load factor 83% 83% (1.2%) 84% 84%
Per diems (GBP) 241 241 (6.9%) 259 259
10 Refer to the Alternative Performance Measures (APM) Glossary
on pages 66 to 67 for definition and explanation
The Group's Travel businesses were suspended in mid-March 2020
as a result of COVID-19, which has led to a decline in revenues in
comparison to budget expectations of around 90% for the financial
year for both Tour Operations and Cruise.
The Group has focused on ensuring customers whose holidays have
been cancelled are rebooked on future trips or offered a cash
refund. The Group has experienced high levels of customer loyalty,
particularly in Cruise, with 73% of Cruise advance receipts
transferred to a future booking. Similarly, 43% of Tour Operations
advance receipts were also transferred to a future booking.
Other operating expenses and marketing costs have declined by
GBP24.2m as a result of actions taken after the decision to suspend
operations.
A significant number of changes have been made to how the Travel
businesses operate to provide peace of mind and ensure the safety
of customers and colleagues once operations restart, including the
requirement that all guests must be fully vaccinated against
COVID-19 at least 14 days before departure.
In April 2020, the Group indicated that, for the full year, it
expected a 'drop through' from lower revenues to Underlying Profit
Before Tax of 15-20% for Tour Operations and 55-60% for Cruise,
relative to plan assumptions. For the year, the drop through rate
was 20% and 46% respectively.
The Cruise business took delivery of its second new ship, Spirit
of Adventure, on 29 September 2020. The sale of Saga Sapphire was
completed on 12 June 2020 on terms broadly in line with previous
expectations.
Forward Travel sales
Tour Operations bookings for 2021/22 are below the same point
last year by 52% and 51% for revenue and passengers respectively.
This is due to our decision to suspend operations as a result of
the government's COVID-19 travel restrictions. Customer demand for
2021/22 is primarily focused on the second half and Saga has
maintained a disciplined approach to marketing activity during this
period as we expect customer confidence to return when restrictions
start to be lifted. Bookings for 2022/23 departures are ahead of
the same point last year by 64% and 52% for revenue and passengers
respectively, which demonstrates the strong level of pent-up demand
for Saga's holidays. Around 63% of revenue booked for 2021/22 is
from customers choosing to rebook holidays cancelled in 2020.
Similarly, Cruise bookings for 2021/22 are lower than the same
point last year by 20% and 23% for revenue and passenger days
respectively due to our decision to suspend operations for Spirit
of Discovery until at least June 2021 and for Spirit of Adventure
until at least July 2021. However, demand is very strong for
2022/23 departures, with revenue and passenger days ahead of the
prior year by 160% and 142% respectively. Around 45% of revenue
booked for 2021/22 is from customers choosing to rebook cruises
cancelled in 2020. These figures exclude bookings cancelled in
2020/21 where the customer has indicated that they want to rebook
but have yet to rebook onto a specific cruise.
Trading to week ended 28 March 2021
2021/22 departures 2022/23 departures
------------------------------- ------------------------------
2020/21 Change 2019/20 2020/21 Change 2019/20
Saga Holidays and Titan combined revenue (GBPm) 85.3 (52.5%) 179.4 37.4 64.0% 22.8
Saga Holidays and Titan combined passengers
('000) 38.6 (51.3%) 79.3 11.7 51.9% 7.7
Cruise revenue (GBPm) 79.3 (20.4%) 99.6 74.9 160.1% 28.8
Cruise passenger days ('000) 272.9 (23.5%) 356.6 269.8 141.5% 111.7
Other Businesses and Central Costs
12m to Jan 2021 12m to Jan 2020
---------------------------
Other Central Other Central
GBPm Businesses Costs Total Change Businesses Costs Total
--------------------------- ------------- --------- -------- ------------- --------- --------
Revenue:
Personal Finance 6.0 - 6.0 (18.9%) 7.4 - 7.4
Healthcare 0.9 - 0.9 (85.2%) 6.1 - 6.1
Media 9.1 - 9.1 (31.6%) 13.3 - 13.3
Other - 2.0 2.0 (9.1%) - 2.2 2.2
Total revenue 16.0 2.0 18.0 (37.9%) 26.8 2.2 29.0
Cost of sales (10.4) (1.1) (11.5) (16.5) (1.7) (18.2)
Consolidation adjustment - 2.8 2.8 - 3.1 3.1
Gross profit 5.6 3.7 9.3 (33.1%) 10.3 3.6 13.9
Operating expenses (2.8) (26.3) (29.1) 28.9% (5.7) (35.2) (40.9)
Investment income - - - - 0.1 0.1
IAS 19R pension charge - (2.6) (2.6) - (0.1) (0.1)
Net finance costs - (16.6) (16.6) (21.2%) - (13.7) (13.7)
Underlying Profit/(Loss)
Before Tax 10F 11 2.8 (41.8) (39.0) 4.2% 4.6 (45.3) (40.7)
------------- --------- -------- ------------- --------- --------
(11) Refer to the Alternative Performance Measures (APM)
Glossary on pages 66 to 67 for definition and explanation
The Group's other businesses include Saga Personal Finance, the
Saga Publishing business and a mailing and printing business. After
several years of operating a trial in Healthcare, the Group has
completed the closure of this business. The non-Saga branded
healthcare businesses of Country Cousins and Patricia White's were
sold in March 2020, and the Saga-branded businesses have since been
transferred to a third party with an outstanding Care Quality
Commission rating.
Underlying Profit Before Tax decreased by GBP1.8m due to the
closure of the Healthcare business coupled with a non-recurring
supplier contribution of GBP1.0m for the equity release product in
the prior year.
Central operating expenses decreased to GBP26.3m (2020:
GBP35.2m) due to a GBP5.2m net increase in recharges to the
operating divisions following a change in methodology, coupled with
cost savings driven by the Group's restructuring programme that
were retained centrally.
Net finance costs in the year were GBP16.6m (2020: GBP13.7m), an
increase of 21.2% largely due to the additional debt issue costs
incurred in connection with amendments to the Group's debt
covenants in April 2019, April 2020 and September 2020.
Cash flow and liquidity
Available operating cash flow
Available operating cash flow is made up of the cash flows of
unrestricted businesses and the dividends paid by restricted
companies, less any cash injections to those businesses.
Unrestricted businesses include Retail Broking (excluding specific
ring-fenced funds to satisfy Financial Conduct Authority (FCA)
regulatory requirements), Other Businesses and Central Costs, and
from the start of the current financial year, the Group's Cruise
business. Restricted businesses include AICL and Tour Operations,
and prior to 1 February 2020, Cruise.
Excluding cash transfers to and from the Travel business, Group
cash flows demonstrated considerable resilience in the year, with
available operating cash flow of GBP92.3m compared with GBP95.0m in
the prior year. Key movements were as follows:
-- Trading EBITDA for unrestricted businesses reduced by
GBP10.1m, in part due to the impact of COVID-19 on sales of travel
insurance.
-- There was an expected reduction in dividends from AICL of GBP15.5m.
-- Working capital improved from an outflow of GBP9.5m to an
inflow of GBP7.0m. The outflow in the prior year was mainly due to
a GBP15m one-off payment in February 2019.
-- Capital expenditure reduced by GBP6.4m due to the Group's
focus on conserving cash in the short term.
Trading in the Group's Travel businesses was suspended in March
2020. Since then, the Group has provided additional liquidity into
the Travel businesses to meet supplier and other trading payments,
and to enable repayment of customer refunds where requested.
For Tour Operations, which operates as a ring-fenced fund, a
significant portion of the cash outflow was met from the GBP55.1m
of funds available at the start of the financial year. During the
year, the Group provided an additional GBP64.1m of cash to the Tour
Operations business to cover trading cash flows, GBP46.0m of which
was provided in the first half of the year when the business
experienced higher cash outflows for customer refunds and
overheads. The Group has since taken action to reduce the cash burn
for the business by removing costs whilst operations are suspended,
which, coupled with lower refund levels, has resulted in much lower
cash outflows in the second half of the year. The combination of
cash within the ring-fenced fund at 1 February 2020 and this
additional injection of liquidity has enabled the Tour Operations
business to refund GBP48.2m of advance receipts (GBP39.5m of which
was in the first half of the year), and pay GBP43.2m of other
trading costs and capital expenditure (GBP31.1m of which was in the
first half of the year). The Group also disposed of Destinology in
October 2020, which incurred a GBP2.5m net cash outflow in the
second half of the year.
In the second half of the year, following discussions with the
Civil Aviation Authority (CAA), the main regulator for the Tour
Operations business, the Group created a trust arrangement for new
and existing bookings within the current ring-fenced setup. On this
basis, 100% of customer cash is held in a separate trust and will
only be passed back to the business once the customer has either
returned from holiday or has cancelled their booking and been
refunded. The Travel business had GBP22.4m of cash held in trust as
at 31 January 2021, and the Group had to inject a one-off payment
of GBP16.2m into the Tour Operations business to fund the initial
set-up of this arrangement (included in the GBP61.7m cash injection
stated above). The move into trust has enabled the Group to remove
GBP32.8m of bonding facilities that it held previously to satisfy
CAA requirements. In addition to the GBP61.7m cash injected, the
Group also funded GBP6.2m of restructuring costs for Tour
Operations shown below available operating cash flow.
During the year, the Cruise business reported a net cash outflow
of GBP36.6m, of which GBP30.7m related to the first half and
GBP5.9m related to the second half. The Group paid GBP25.7m of
trading costs, refunded GBP8.1m of advance customer receipts, paid
restructuring costs of GBP3.2m and interest costs of GBP8.6m. In
addition, the Group had a positive cash inflow from net capital
expenditure of GBP9.0m relating to the sale of Saga Sapphire and
the recovery of owners' supply payments on completion of Spirit of
Adventure under ship financing arrangements entered into when the
new vessel was commissioned. The higher cash outflow in the first
half is due to a reduction in working capital levels, with GBP14.2m
of customer refunds in the first six months compared to an increase
in advance receipts of GBP6.1m in the second half. In addition, net
capital expenditure contributed a positive GBP1.4m in the first
half and GBP7.6m in the second half.
The cash outflows for the Travel business since the onset of the
COVID-19 crisis are within modelled assumptions and stress test
scenarios.
In the prior year, the Group released GBP22.7m of cash relating
to the Cruise business from the Travel restricted ring-fenced fund
as the two operations were financially and operationally separated
following discussions with the CAA. As a result of the cash
injections to the Travel business in the last 12 months, available
operating cash flow reduced from GBP92.7m in the prior year to
GBP3.4m in the current year.
12m to 12m to
GBPm Jan 2021 Change Jan 2020
--------------------------------------------------------- ----------- ---------- -----------
Retail Broking Trading EBITDA 81.6 (17%) 98.4
Other Businesses and Central Costs Trading EBITDA (10.0) 40% (16.7)
Trading EBITDA from unrestricted businesses
11F 12 (,) 12F 13 71.6 (12%) 81.7
Dividends paid by Underwriting business 24.5 (39%) 40.0
Working capital and non-cash items 13F 14 7.0 174% (9.5)
Capital expenditure funded with available cash (10.8) 37% (17.2)
Available operating cash flow before cash injections
to Travel operations 92.3 (3%) 95.0
Cash injection into Tour Operations business (64.1) (156%) (25.0)
Cruise available operating cash flow (24.8) (209%) 22.7
Available operating cash flow (12) 3.4 (96%) 92.7
----------- -----------
Restructuring costs paid (23.0) (1,253%) (1.7)
Interest and financing costs (27.3) (38%) (19.8)
Business disposals 30.1 100% -
Tax receipts / (payments) 2.8 127% (10.4)
Other payments (10.2) (264%) (2.8)
Dividends to shareholders - n/a (25.8)
Change in cash flow from operations (24.2) 175% 32.2
Net proceeds from capital raise 138.7 100% -
Change in bank debt (80.0) (100%) (40.0)
Cash at 1 February 40.9 (16%) 48.7
Available cash at 31 January 75.4 84% 40.9
----------- -----------
(12) Refer to the Alternative Performance Measures (APM)
Glossary on pages 66 to 67 for definition and explanation
(13) Trading EBITDA includes the line item impact of IFRS 16
with the corresponding impact to net finance costs included in net
cash flows used in financing activities
(14) Adjusted to exclude IAS19R pension current service costs
The Group is in discussion with the FCA regarding the magnitude
of the Threshold Condition 2.4 balance that the Retail Broking
business holds as restricted cash and the potential need to hold an
additional amount on a temporary basis as a result of COVID-19. Any
additional temporary liquidity provision is not expected to be
significant in a Group context and allowance has been made for this
in going concern and viability assessments on a prudent basis
Other cash flow movements
Non-operating cash flow movements in the current year include
significant cash costs relating to the restructuring activities
undertaken in the first half of the year, which principally relate
to redundancy costs.
Interest and financing costs increased due to a full year of
financing costs relating to the Spirit of Discovery debt facility
and the financing costs relating to the new Spirit of Adventure
debt facility that was drawn down at the end of September 2020,
combined with an increase in the interest rate that was agreed as
part of covenant renegotiations.
Business disposals relate to the cash received from the sale of
the Healthcare, Destinology and Bennetts businesses, net of related
sale costs and expenses.
The Group continued to make the agreed payments to the defined
benefit pension fund as part of the deficit recovery plan and paid
a portion of the sales proceeds relating to the Healthcare and
Bennetts businesses to the fund, which totalled GBP4.8m (2020:
GBP2.8m) and is included within other payments.
In October 2020 the Group raised GBP138.7m net proceeds from the
issuance of new equity shares and used part of this to repay GBP80m
of bank debt. The balance of the proceeds, together with the
available cash brought forward from the prior year, provided
sufficient liquidity to fund the cash injections to the Travel
businesses and increase the cash reserves that the Group takes
forward into the new financial year.
Reconciliation between operating and reported metrics
Available operating cash flow reconciles to net cash flows from
operating activities as follows:
12m to 12m to
GBPm Jan 2021 Jan 2020
------------------------------------------------------- ----------- -----------
Net cash flow from operating activities (reported) (78.4) 91.9
Exclude cash impact of:
Trading of restricted divisions 73.8 (46.5)
Non-trading costs 21.6 4.5
Interest paid 24.1 19.9
Tax paid 10.7 25.1
130.2 3.0
Cash (paid to)/released from restricted divisions (26.8) 15.0
Include capital expenditure funded from available
cash (10.8) (17.2)
Include capital expenditure disposal proceeds 6.9 -
Include net impact of Spirit of Adventure purchase (5.2) -
cash flows
Less cash in businesses disposed of (12.5) -
Available operating cash flow 14F 15 3.4 92.7
----------- -----------
15 Refer to the Alternative Performance Measures (APM) Glossary
on pages 66 to 67 for definition and explanation
Trading EBITDA reconciles to Underlying Profit Before Tax as
follows:
12m to 12m to
GBPm Jan 2021 Change Jan 2020
-------------------------------------------------- ----------- --------- -----------
Retail Broking Trading EBITDA 81.6 98.4
Underwriting Trading EBITDA 59.2 41.7
Tour Operations Trading EBITDA (32.6) 24.8
Cruise Trading EBITDA (19.5) 33.5
Other Businesses and Central Costs Trading
EBITDA (10.0) (16.7)
----------- -----------
Trading EBITDA (15) 78.7 (56.7%) 181.7
Depreciation & amortisation (excluding acquired
intangibles) (28.8) (48.0)
Amortisation of acquired intangibles - (3.0)
Pension charge IAS 19R (2.6) (0.1)
Net finance costs (30.2) (20.7)
Underlying Profit Before Tax (15) 17.1 (84.4%) 109.9
----------- -----------
Adjusted Trading EBITDA is used in the Group's leverage
calculation and is calculated as follows:
12m to 12m to
GBPm Jan 2021 Change Jan 2020
------------------------------------------------ ----------- --------- -----------
Trading EBITDA 15F 16 78.7 (56.7%) 181.7
Less Trading EBITDA of disposed companies (1.6) -
not disclosed below Underlying Profit Before
Tax
Impact of IFRS 16 (3.0) (13.5)
Spirit of Discovery and Spirit of Adventure
Trading EBITDA 16F 17 18.7 (16.1)
Adjusted Trading EBITDA (16) (4) 92.8 (39.0%) 152.1
----------- -----------
16 Refer to the Alternative Performance Measures (APM) Glossary
on pages 66 to 67 for definition and explanation
(17) EBITDA includes central Cruise overheads
Balance Sheet
Goodwill
The Group has assessed the carrying value of goodwill for
impairment at 31 July 2020 and 31 January 2021. The impairment test
compares the recoverable amount of each cash generating unit (CGU)
with the carrying value of the net assets including goodwill for
each CGU, namely Insurance, Tour Operations and Cruise.
The recoverable amount of each CGU has been determined based on
a value-in-use calculation using cash flow projections from the
Group's five-year plan to 2025/26, and after allowing for certain
stress test scenarios. This stress testing has included the latest
and cautiously balanced estimates of the impact of the COVID-19
crisis as at the time of each test.
Based on this analysis, the Group remains comfortable that there
is headroom over and above the carrying value of the goodwill
allocated to the Insurance CGU of GBP718.6m.
In the first half of the year and as reported in the interim
statement in September 2020, for the Cruise and Tour Operations
businesses, the underlying forecast cash flows were updated for the
impact of COVID-19 as assessed at that point in time, with the
expectation then that ocean cruises would recommence in November
2020 and Tour Operations trading would remain suspended until April
2021. In addition to this, a further downside scenario was
considered that reflected the need for a further suspension of
ocean cruises between January 2021 and May 2021, with a long-term
impact on demand levels for both cruises and package holidays. As a
result of the continued uncertainty and adverse impact of COVID-19
on the travel industry, increases in perceived travel industry risk
resulting in higher asset betas and cost of debt levels,
particularly in Cruise in the first half of 2020, led to a marked
increase in the market-participant view of discount rates used in
the calculation of recoverable amount. Consequently, the Group
determined that the recoverable amounts of the goodwill allocated
to the Tour Operations and Cruise CGUs were below their respective
carrying values and took the decision to impair in full the
GBP59.8m goodwill allocated to Tour Operations and Cruise in the
Group's interim results. Whilst the outlook for the travel industry
has improved since then, characterised by an improvement in
industry betas and cost of debt levels, goodwill impairments are
irreversible, so the impairment charge remains in the full-year
results.
Carrying value of ocean cruise ships
As at 31 January 2021, the carrying value of the Group's ocean
cruise ships totalled GBP635.0m, which increased by GBP331.1m in
the year following the purchase of Spirit of Adventure in September
2020. Due to the suspension of Cruise for most of the year, the
Group carried out an impairment review of both of its vessels. The
results of the review showed that there was headroom in both the
central and stress test scenarios for Spirit of Discovery , and so
it was concluded that no impairment was required. Given its higher
carrying value, the central scenario for Spirit of Adventure
implied a small impairment, which increased in the stress test
scenario. Management considered a range of alternative data points
and other factors, and taking all of these into account, considered
that there was no need to impair the vessel. Please refer to note
10 on pages 54-55 for further details of the review that was
undertaken.
Investment portfolio
The majority of the Group's financial assets are held by its
underwriting entity and represent premium income received and
invested to settle claims and to meet regulatory capital
requirements. The 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 decreased by GBP17.8m to
GBP359.1m (2020: GBP376.9m) due to payment of GBP24.5m of dividends
from AICL in the year. As at 31 January 2021, 98% of the financial
assets held by the Group were invested with counterparties with a
risk rating of BBB or above, which is broadly in line with the
previous year and reflects the stable credit risk rating of the
Group's counterparties.
Risk rating
At 31 January 2021 AAA AA A BBB Unrated Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ------- ------ ------- --------- -------
Underwriting investment
portfolio:
Deposits with financial
institutions - 24.2 - - - 24.2
Debt securities 23.1 73.9 71.5 93.4 - 261.9
Money market funds 66.8 - - - - 66.8
Loan funds - - - - 6.2 6.2
------ ------- ------ ------- --------- -------
Total invested funds 89.9 98.1 71.5 93.4 6.2 359.1
Hedging derivative assets - - 0.2 0.5 - 0.7
Total financial assets 89.9 98.1 71.7 93.9 6.2 359.8
------ ------- ------ ------- --------- -------
Risk rating
At 31 January 2020 AAA AA A BBB Unrated Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ------- ------ ------- --------- -------
Underwriting investment
portfolio:
Deposits with financial
institutions - 30.4 - 18.6 - 49.0
Debt securities 15.3 117.5 54.1 87.3 - 274.2
Money market funds 45.9 - - - - 45.9
Loan funds - - - 1.6 6.2 7.8
------ ------- ------ ------- --------- -------
Total invested funds 61.2 147.9 54.1 107.5 6.2 376.9
Hedging derivative assets - - 0.7 0.5 - 1.2
Total financial assets 61.2 147.9 54.8 108.0 6.2 378.1
------ ------- ------ ------- --------- -------
Insurance reserves
Analysis of insurance contract liabilities at 31 January 2021
and 31 January 2020 is as follows:
At 31 January 2021 At 31 January 2020
Reinsurance Reinsurance
assets assets
GBPm Gross 17F 18 Net Gross (18) Net
---------------------------- ------- ------------- ------- ------- ------------- -------
Reported claims 228.6 (57.8) 170.8 250.5 (48.2) 202.3
Incurred but not
reported 18F 19 92.6 (7.4) 85.2 79.9 (7.0) 72.9
Claims handling provision 8.3 - 8.3 7.9 - 7.9
------- ------------- ------- ------- ------------- -------
Total claims outstanding 329.5 (65.2) 264.3 338.3 (55.2) 283.1
Unearned premiums 96.8 (6.4) 90.4 105.3 (6.9) 98.4
Total 426.3 (71.6) 354.7 443.6 (62.1) 381.5
------- ------------- ------- ------- ------------- -------
The Group's total insurance contract liabilities net of
reinsurance assets have decreased by GBP26.8m in the year to 31
January 2021 from the previous year end due to a GBP31.5m reduction
in reported net claims reserves coupled with a GBP8.0m reduction in
unearned premiums. This was partially offset by a GBP12.3m increase
in net incurred but not reported claims reserve due to increased
uncertainty over claims reporting patterns resulting from the
impact of COVID-19 necessitating a higher booked margin.
Financing
The Group's net debt has increased by GBP166.3m to GBP760.2m
since the previous year end due to the additional GBP280.8m
borrowed to fund the purchase of Spirit of Adventure, partially
offset by repayment of GBP80m in bank debt and short-term
facilities, and an increase in available cash. As at 31 January
2021, the GBP100m RCF remained undrawn and available to the
Group.
Excluding the impact of debt and earnings relating to the new
ocean cruise ships, the Group's leverage ratio was 2.7x as at 31
January 2021 (2020: 2.4x), well within the 4.75x covenant
applicable to the Group's term loan and RCF.
No repayments were made on the ship loans during the year, with
the Group agreeing two debt holidays with its lenders as part of a
package of proposals to support the wider cruise industry. The
first debt holiday agreed in June 2020 allowed repayments to be
deferred to March 2021, and the second debt holiday agreed in March
2021 extended this further to March 2022. The Group expects to
resume ship loan debt repayments after March 2022.
Maturity
date 19F 31 January 31 January
GBPm 20 2021 2020
-------------------------------- ------------ ------------ ------------
Corporate bond May 2024 250.0 250.0
Term loan May 2023 70.0 140.0
Revolving credit facility May 2023 - 10.0
Spirit of Discovery ship loan June 2031 234.8 234.8
Spirit of Adventure ship loan September 280.8 -
2032
Less available cash 20F 21 (75.4) (40.9)
Net debt 760.2 593.9
------------ ------------
(18) Excludes funds-withheld quota share arrangement (please
refer to note 15 for further detail)
(19) Includes amounts for reported claims that are expected to
become periodical payment orders
(20) Maturity date represents the date that the principal must
be repaid, other than the ship loans, which are repaid in
instalments over the next 12 years
(21) Refer to note 25 of the financial statements for
information as to how this reconciles to a statutory measure of
cash
Adjusted net debt is used in the Group's leverage calculation
and reconciles to net debt as follows:
31 January 31 January
GBPm 2021 2020
--------------------------- ------------ ------------
Net debt 760.2 593.9
Ship loans (515.6) (234.8)
Cruise available cash 2.3 2.6
Adjusted net debt 21F 22 246.9 361.7
------------ ------------
Pensions
The Group's defined benefit pension scheme deficit as measured
on an IAS 19R basis reduced by GBP1.2m to GBP4.3m as at 31 January
2021 (2020: GBP5.5m deficit).
31 January 31 January
GBPm 2021 2020
---------------------------------------------- ------------ ------------
Fair value of scheme assets 411.2 372.3
Present value of defined benefit obligation (415.5) (377.8)
Defined benefit scheme liability (4.3) (5.5)
------------ ------------
(22) Refer to the Alternative Performance Measures (APM)
Glossary on pages 66 to 67 for definition and explanation
Whilst the present value of defined benefit obligations
increased by GBP37.7m to GBP415.5m, due to a 25bps reduction in the
discount rate used to value these liabilities that is based on
high-quality bond yields, the fair value of scheme assets increased
by GBP38.9m to GBP411.2m. The increase in asset values has been
largely driven by the fall in interest rates in the year, which in
turn has led to a marked increase in the value of liability hedging
assets within the portfolio.
The pension trustees have largely completed the triennial
valuation of the scheme as at 31 January 2020. Following
discussions with the Company, the trustees are proposing a new
deficit recovery plan totalling GBP39.0m over the next seven years,
with the first payment of GBP4.2m paid in February 2021 and
subsequent payments of GBP5.8m due each February thereafter until
February 2027. Discussions with the trustees are ongoing but are
expected to be concluded in the next two months.
Net assets
Since 31 January 2020, total assets have increased by GBP117.9m
and total liabilities have increased by GBP25.4m, resulting in an
overall increase in net assets of GBP92.5m.
The increase in total assets is primarily as a result of the
purchase of Spirit of Adventure, which, after allowing for
offsetting depreciation and a reclassification of land and
buildings to assets held for sale, led to an increase in the
carrying value of property, plant and equipment of GBP235.2m. This
was partially offset by a GBP59.8m impairment of Travel goodwill
and the derecognition of GBP33.8m of assets held for sale relating
to the divestment of the Bennetts and Healthcare businesses during
the year, plus a further GBP15.0m of assets derecognised in respect
of the Destinology business.
The increase in total liabilities reflects a GBP136.3m increase
in financial liabilities, which was due to an increase in gross
debt from the draw-down of the facility to purchase Spirit of
Adventure, partially offset against the repayment of bank debt
following the equity raise in October 2020. This was offset by a
GBP71.0m reduction in contract liabilities due to the level of
refunds made in the Travel business following the suspension of
trading since March 2020, coupled with a GBP17.3m reduction in
insurance contract liabilities, a GBP10.8m decrease in trade and
other payables, also driven in part by the suspension of trading in
Travel, and the derecognition of GBP8.5m of liabilities held for
sale relating to disposed businesses.
Impact of COVID-19 and going concern
The Group's largest business is its Insurance operations, which
have been resilient over the last 12 months and have remained
profitable. In addition, the Group has been able to maintain full
operational capability throughout the year despite the impact of
COVID-19, with almost all colleagues working from home.
However, the Group's Travel business has been subject to
significant disruption. Following advice from the UK Government
that people over 70 years old should avoid travel and given
operational challenges in almost all countries, the Group took the
decision to suspend Cruise and Tour Operations in March 2020. Both
businesses have been suspended since then and will not resume
trading until later this year.
Over the 12 months during which the Travel businesses has been
suspended, the Group has taken a number of mitigating actions to
strengthen its financial position, including:
-- The removal of more than GBP50m of overhead and marketing
costs in comparison to the original budget for the year, both as
part of the Group's restructuring and simplification programme and
in response to the suspension of Travel operations.
-- The successful disposal of the Bennetts, Healthcare and
Destinology businesses, which raised net cash proceeds of
GBP31m.
-- Raising approximately GBP139m of net proceeds from the
issuance of new equity shares in September 2020, GBP104m of which
was used to reduce debt outstanding under corporate lending
facilities.
-- Establishment of trust accounting for the Tour Operations
business, enabling a reduction in bonding by GBP33m.
-- Agreement to repayment holidays for the ship debt facilities
from April 2020 until March 2022, and with a waiver of related ship
debt covenants for the same period.
-- Amendments to the covenants attached to the term loan and RCF
to provide increased levels of financial flexibility, and a
12-month extension to the maturity of the term loan until May
2023.
These actions, together with the cash generated by the Insurance
business, enabled the Group to reduce net debt (excluding debt
relating to Cruise operations) by GBP115m during the year despite
the provision of GBP104m in cash support to Travel operations.
As at 31 January 2021, the Group had significant headroom to all
covenants on bank facilities. At that date, the Group was in
compliance with all requirements of its banking facilities,
specifically the leverage ratio (excluding the impact of debt and
earnings relating to the new ocean cruise ships) was 2.7x (2020:
2.4x), compared to a 4.75x maximum covenant; interest cover was
3.3x (2020: 9.0x), well above the minimum covenant of 1.25x; and
the Cruise intercompany debt was GBP16.2m (2020: GBP1.1m),
significantly below the limit in bank facilities at that date of
GBP45m (since increased to GBP55m).
Although the Travel business remains suspended, customer loyalty
has been exceptionally positive, especially for Cruise. Given the
large number of customers who have rebooked for 2021/22 travel
departures and because of a level of pent-up demand, demand
generation is not considered to be a near-term material challenge
for the Travel business.
The Group's base case assumption is for Tour Operations to
resume in July 2021 for river cruising and in September 2021 for
stays and tours, and ocean cruises recommencing in June 2021 for
Spirit of Discovery and in July 2021 for the inaugural cruise of
Spirit of Adventure. It is also assumed that the mid-term outlook
for Cruise returns to pre COVID-19 levels.
The Group believes that the base case assumption is reasonable
for the following reasons:
-- All customers should have been vaccinated twice by the end of
May, which will be combined with a series of other safety measures
implemented by the business, including a quarantine and testing
procedure for crew. This is a critical factor that makes the Saga
cruise proposition safe for customers while also, over time, giving
governments the confidence to allow the Group to resume
trading.
-- There is UK Government support to resume domestic and
international tourism from June and they have confirmed that
cruises will be allowed to restart to the same timetable.
-- The Group believes that ocean cruise - if managed properly -
is a safer proposition than some other forms of international
travel. This is particularly the case for Saga given the nature of
the cruise proposition and the additional steps being taken,
including mandatory vaccines before travel and our third-party
accreditation for COVID-19 health and safety protocols.
-- A number of European countries have already indicated they
will be welcoming Saga customers and look forward to UK cruise
ships entering their ports in the summer of 2021. The Group's ships
are particularly sought after for their modest size (at less than
1,000 passengers) and the vaccine-only policy for customers.
-- If scheduled port stops are not possible because of growing
levels of COVID-19 in those countries, the flexibility of Cruise
allows for itineraries to be modified accordingly.
Although management are confident of a summer return, there is
high degree of uncertainty in the outlook, with a number of factors
that could lead to a delay in the lifting of the ban on
international travel. Given this situation, which is constantly
evolving, the Group has considered a range of alternative
outcomes.
The main downside scenario considered assumes no Tour Operations
departures until March 2022, with Cruise resuming from November
2021 for Spirit of Discovery and from December 2021 for Spirit of
Adventure. In this scenario, the Group has also assumed a slower
recovery in load factors (remaining at 80% until July 2022) and
incremental costs in operating the business. In assessing wider
downside risks the Group has also considered other trading stress
tests in relation to the Insurance business.
Although this scenario would be challenging, the Group expects
to remain resilient and would not expect to need to take further
actions to improve financial flexibility. Specifically:
-- The Group has plenty of liquidity, with GBP75m of available
cash at 31 January 2021, and a GBP100m RCF that is currently
undrawn.
-- The Group has agreed a working capital facility with Roger De
Haan that enables the Cruise business to draw down GBP10m in cash
support if required, on the same terms as for the RCF.
-- The Insurance business continues to perform well and with predictable cash generation.
-- Tour Operations customer receipts are fully ring fenced and
are not included in available cash.
-- There are no debt maturities until after April 2022, with
capital repayments not due on the two cruise ships until June 2022
for GBP15m on the Spirit of Discovery facility and until September
2022 for GBP16m on the Spirit of Adventure facility, and there are
no repayments due on bank facilities until their maturity in May
2023.
-- The Group therefore expects to be able to operate within the
debt covenants and other requirements of its banking facilities,
which have been amended to accommodate the Group's downside
scenario modelling and are summarised below.
30 April 31 July 31 October 31 January 30 April 31 July
2021* 2021 2021* 2022 2022* 2022
----------------------- ---------- ---------- --------- ------------ ------------ ---------- ---------
Leverage
(net debt to EBITDA
ratio) Maximum 4.75 4.75 4.50 4.25 4.00 3.00
----------------------- ---------- ---------- --------- ------------ ------------ ---------- ---------
Interest cover
(EBITDA to net cash
interest ratio) Minimum 1.25 1.25 1.25 1.50 3.50 3.50
----------------------- ---------- ---------- --------- ------------ ------------ ---------- ---------
Cruise intercompany Maximum GBP55m GBP55m GBP55m GBP55m GBP55m GBP55m
debt cap
----------------------- ---------- ---------- --------- ------------ ------------ ---------- ---------
* Quarterly covenants for leverage and interest cover are only
tested if leverage is above 4.0x times at the previous covenant
test date
Although the Group believes that the downside scenario above
represents an appropriate reasonable worse-case (RWC), there are a
number of significant factors related to COVID-19 that are outside
of the control of the Group, including the status and impact of the
pandemic worldwide; potential emergence of new variants of the
virus; the availability of vaccines, together with the speed at
which they are deployed and their efficacy; and the restrictions
imposed worldwide in respect of the freedom of movement and travel.
The Group is therefore not able to provide certainty that there
could not be more severe downside scenarios than the RWC.
While the Group expects the outcome of a scenario more severe
than the RWC to be unlikely, further downside sensitivities have
been considered in light of the COVID-19 pandemic, including the
impact of not being able to resume both Cruise and Tour Operations
until March 2022. In considering this outcome, the Group has
allowed for likely ongoing lower motor claims frequency than
assumed in its base case plans, which in part offsets the adverse
impact of continued delays to a resumption of Travel. In this
scenario, the Group projects that it would have limited headroom to
the interest cover covenant and would be near the limit of Cruise
funding, but it would still remain in compliance with the
requirements of its banking facilities for at least the next 12
months. The Group would however consider taking further actions to
increase flexibility and reduce downside risks associated with the
remote possibility of any further delay to the restart of Travel
beyond March 2022. Such actions would include seeking additional
amendments to bank facilities and consideration of alternative
sources of funding.
Given the above factors, the Directors have a reasonable
expectation that the Group will continue to trade through the
continued COVID-19 disruption and will have sufficient liquidity
for at least the next 12 months, and so have prepared the financial
statements on a going concern basis accordingly.
Dividends
Given the uncertain implications of COVID-19, the Board of
Directors does not recommend the payment of a final dividend for
the 2020/21 financial year, nor would this currently be permissible
during the period of the ship debt repayment holiday.
Financial priorities for 2021/22
The Group's financial priorities for the current financial year
continue to be the preservation of cash and managing its level of
debt, to ensure compliance with its banking covenants and to
continue to focus on cost efficiencies. At the same time, the Group
is continuing the progress in delivering its insurance strategy,
has taken delivery of the second new ocean cruise ship and has
repositioned the Tour Operations business ready for trading to
recommence later in 2021. Given the continued uncertainty arising
from COVID-19, the Group is not able to provide any earnings
guidance for the 2021/22 financial year.
Principal risks and uncertainties
The Group is subject to a number of risks and uncertainties as
part of its activities. The most significant risks that the Board
considers may affect our business are listed below:
-- COVID-19 pandemic
-- Cybercrime
-- Delivery and execution
-- Culture and capability
-- Saga brand and relevance
-- Regulatory landscape
-- Operational resilience
-- Climate change
-- Third-party suppliers
-- Fraud and financial crime
A full description of the principal risk and uncertainties and
their management and mitigation will be set out in the 2021 annual
report and accounts.
Consolidated income statement
for the year ended 31 January 2021
2020
Note 2021 (restated)
GBP'm GBP'm
Gross earned premiums 3 221.7 233.9
Earned premiums ceded to reinsurers 3 (142.8) (145.7)
--------- --------------
Net earned premiums 3 78.9 88.2
Other revenue 258.7 709.1
--------- --------------
Total revenue 3 337.6 797.3
(140.6)
Gross claims incurred (131.4) (23)
Reinsurers' share of claims incurred 113.2 109.8(23)
--------- --------------
Net claims incurred (18.2) (30.8)
Other cost of sales (82.0) (395.1)
--------- --------------
Total cost of sales 3 (100.2) (425.9)
Gross profit 237.4 371.4
Administrative and selling expenses (224.2) (252.6)
Impairment of assets (65.0) (400.5)
Gain on lease modification 11 3.2 -
Net profit on disposal of businesses 7 8.6 -
Net profit on disposal of property, plant and
equipment, right-of-use assets and software 6.6 1.3
Investment income 0.7 1.2
Finance costs (30.2) (21.8)
Finance income 1.7 0.1
Loss before tax (61.2) (300.9)
Tax expense 4 (6.6) (11.9)
Loss for the year (67.8) (312.8)
========= ==============
Attributable to:
Equity holders of the parent (67.8) (312.8)
========= ==============
Earnings Per Share: (restated)
Basic 6 (67.0p) (381.7p)(24)
Diluted 6 (67.0p) (381.7p)(24)
Consolidated statement of comprehensive income
for the year ended 31 January 2021
2021 2020
GBP'm GBP'm
Loss for the year (67.8) (312.8)
Other comprehensive income
Other comprehensive income to be reclassified to income
statement in subsequent years
Net gains/(losses) on hedging instruments during the
year 22.3 (11.2)
Recycling of previous gains to income statement on
matured hedges (2.5) (2.6)
Total net gains/(losses) on cash flow hedges 19.8 (13.8)
Associated tax effect (3.5) 2.4
Net gains on fair value financial assets during the
year 3.2 8.1
Associated tax effect (0.8) (1.4)
-------- ---------
Total other comprehensive gains/(losses) with recycling
to income statement 18.7 (4.7)
Other comprehensive income not to be reclassified to
income statement in subsequent years
Re-measurement losses on defined benefit plans (1.2) (5.4)
Associated tax effect 0.2 0.9
-------- ---------
Total other comprehensive losses without recycling
to income statement (1.0) (4.5)
Total other comprehensive gains/(losses) 17.7 (9.2)
-------- ---------
Total comprehensive losses for the year (50.1) (322.0)
======== =========
Attributable to:
Equity holders of the parent (50.1) (322.0)
======== =========
(23) Gross claims incurred and reinsurers' share of claims
incurred for the year ended 31 January 2020 have been restated due
to an incorrect allocation between these classifications. Gross
claims incurred have decreased by GBP19.3m and reinsurers' share of
claims incurred has decreased by GBP19.3m.
24 In accordance with IAS 33 'Earnings per Share', basic and
diluted EPS figures for the year ended 31 January 2020 have been
restated and adjusted for: (a) the bonus factor of 1.1 to reflect
the bonus element of the Firm Placing and Open Offer (note 6); and
(b) the consolidation of the Company's shares during the year (note
6). Amounts as originally stated were (27.9p) for basic and diluted
EPS, and 8.9p for basic and diluted Underlying Basic EPS
Consolidated statement of financial position
as at 31 January 2021
Note 2021 2020
Assets GBP'm GBP'm
Goodwill 8 718.6 778.4
Intangible assets 9 56.6 57.1
Property, plant and equipment 10 660.2 425.0
Right-of-use assets 11 2.8 25.7
Financial assets 12 359.8 378.1
Current tax assets 3.1 -
Deferred tax assets 4 12.5 22.3
Reinsurance assets 15 71.6 62.1
Inventories 3.5 5.4
Trade and other receivables 183.1 209.0
Assets held for sale 7, 19 16.9 33.8
Trust accounts 22.4 -
Cash and short-term deposits 13 101.6 97.9
Total assets 2,212.7 2,094.8
========= =========
Liabilities
Retirement benefit scheme obligations 14 4.3 5.5
Gross insurance contract liabilities 15 426.3 443.6
Provisions 11.7 7.7
Financial liabilities 12 826.6 690.3
Deferred tax liabilities 4 5.8 4.2
Current tax liabilities - 7.7
Contract liabilities 82.2 153.2
Trade and other payables 175.1 185.9
Liabilities held for sale 7, 19 - 8.5
Total liabilities 1,532.0 1,506.6
--------- ---------
Equity
Issued capital 17 21.0 11.2
Share premium 648.3 519.3
Retained earnings 0.2 65.4
Share-based payment reserve 5.8 7.8
Fair value reserve 7.3 4.9
Hedging reserve (1.9) (20.4)
Total equity 680.7 588.2
--------- ---------
Total liabilities and equity 2,212.7 2,094.8
========= =========
Consolidated statement of changes in equity
for the year ended 31 January 2021
Attributable to the equity holders of the parent
Share-based
Issued Retained payment Fair value Hedging
capital Share premium earnings reserve reserve reserve Total
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
At 1 February
2020 11.2 519.3 65.4 7.8 4.9 (20.4) 588.2
Loss for the year - - (67.8) - - - (67.8)
Other comprehensive
(losses)/income
excluding recycling - - (1.0) - 2.4 18.4 19.8
Recycling of previous
gains to income
statement - - - - - (2.1) (2.1)
Total comprehensive
(losses)/income - - (68.8) - 2.4 16.3 (50.1)
Recognition of
non-financial
asset from hedging
reserve (note
12) - - - - - 2.2 2.2
----------- --------------- ----------- ------------- ------------ ---------- ---------
Dividends paid
(note 5) - - (0.1) - - - (0.1)
Issue of share
capital (note
17) 9.8 140.6 - - - - 150.4
----------- --------------- ----------- ------------- ------------ ---------- ---------
Transaction costs
associated with
issue of share
capital - (11.6) - - - - (11.6)
----------- --------------- ----------- ------------- ------------ ---------- ---------
Share based payment
charge (note 18) - - - 2.4 - - 2.4
Exercise of share
options - - 3.7 (4.4) - - (0.7)
At 31 January
2021 21.0 648.3 0.2 5.8 7.3 (1.9) 680.7
=========== =============== =========== ============= ============ ========== =========
At 1 February
2019 11.2 519.3 401.4 13.3 (1.8) 17.5 960.9
Loss for the year - - (312.8) - - - (312.8)
Other comprehensive
(losses)/income
excluding recycling - - (4.5) - 6.7 (9.3) (7.1)
Recycling of previous
gains to income
statement - - - - - (2.1) (2.1)
Total comprehensive
(losses)/income - - (317.3) - 6.7 (11.4) (322.0)
Recognition of
non-financial
asset from hedging
reserve (note
12) - - - - - (26.5) (26.5)
----------- --------------- ----------- ------------- ------------ ---------- ---------
Dividends paid
(note 5) - - (25.8) - - - (25.8)
Share based payment
charge (note 18) - - - 2.2 - - 2.2
Exercise of share
options - - 7.1 (7.7) - - (0.6)
At 31 January
2020 11.2 519.3 65.4 7.8 4.9 (20.4) 588.2
=========== =============== =========== ============= ============ ========== =========
Consolidated statement of cash flows
for the year ended 31 January 2021
Note 2021 2020
GBP'm GBP'm
Loss before tax (61.2) (300.9)
Depreciation, impairment and profit on
disposal, of property, plant & equipment
and right-of-use assets 14.9 43.7
Amortisation and impairment of intangible
assets, and loss on disposal of software 72.5 408.1
Gain on lease modification (3.2) -
Share-based payment transactions 2.4 2.1
Profit on disposal of assets held for
sale (12.2) -
Loss on disposal of subsidiaries 3.6 -
Finance costs 30.2 21.8
Finance income (1.7) (0.1)
Interest income from investments (0.7) (1.2)
Increase in trust accounts (22.4) -
Movements in other assets and liabilities (66.5) (37.8)
--------- ---------
(44.3) 135.7
Interest received 0.7 1.2
Interest paid (24.1) (19.9)
Income tax paid (10.7) (25.1)
--------- ---------
Net cash flows (used in)/from operating
activities (78.4) 91.9
Investing activities
Proceeds from sale of property, plant
and equipment, and right-of-use assets 8.3 6.3
Purchase of and payments for the construction
of property, plant and equipment, and intangible
assets (285.1) (295.3)
Net disposal of financial assets 41.9 32.8
Disposal of subsidiaries, net of cash
in businesses disposed of 7 23.1 -
Net cash flows used in investing activities (211.8) (256.2)
Financing activities
Payment of principal portion of lease
liabilities (4.0) (15.0)
Proceeds from borrowings 330.8 279.0
Repayment of borrowings (130.0) (84.2)
Debt issue costs (17.4) (7.9)
Proceeds from issue of share capital 17 150.3 -
Transaction costs associated with issue
of share capital (11.6) -
Dividends paid (0.1) (25.8)
--------- ---------
Net cash flows from financing activities 318.0 146.1
Net increase/(decrease) in cash and cash
equivalents 27.8 (18.2)
Cash and cash equivalents at the start
of the year 139.1 157.3
Cash and cash equivalents at the end of
the year 13 166.9 139.1
========= =========
Notes to the consolidated financial statements
1 Corporate information
Saga plc (the 'Company') is a public limited company
incorporated and domiciled in the United Kingdom under the
Companies Act 2006 (registration number 8804263). The Company is
registered in England and its registered office is located at
Enbrook Park, Folkestone, Kent, CT20 3SE.
The consolidated financial statements of Saga plc and the
entities controlled by the Company (its subsidiaries, collectively
'Saga Group' or 'the Group') for the year ended 31 January 2021
were approved for issue by the Board of Directors on 6 April 2021
and will be made available on the Company's website in due
course.
2.1 Basis of preparation
The results in this preliminary announcement have been taken
from the Group's 2021 annual report and accounts. The consolidated
financial statements of the Group have been prepared in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
(EU).
The basis of preparation, basis of consolidation and summary of
significant accounting policies applicable to the Group's
consolidated financial statements will be published in the notes to
the consolidated financial statements in the 2021 annual report and
accounts.
The consolidated financial statements have been prepared on a
going concern basis. The Group has reviewed the appropriateness of
the going concern basis in preparing the financial statements,
particularly in light of the COVID-19 pandemic, details of which
are included below. Based on those assumptions, the Directors have
concluded that it remains appropriate to adopt the going concern
basis in preparing the financial statements.
The preliminary announcement for the year ended 31 January 2021
does not constitute statutory accounts as defined in section 434 of
the Companies Act 2006. The consolidated financial statements for
the full year ended 31 January 2021 have been audited by KPMG LLP
(KPMG). Their report was unqualified and did not contain any
statement under section 498(2) or section 498(3) of the Companies
Act 2006.
Going concern and liquidity
The Directors have considered the appropriateness of the going
concern basis of preparation for the financial statements prepared
to 31 January 2021 and in doing so have considered a range of
possible scenarios that factor in the potential ongoing impact of
the COVID-19 pandemic and other key risks and uncertainties.
The Group's business activities, together with the factors
likely to affect its future development and performance, its
exposure to risk and its management of these risks, details of its
financial instruments and derivative activities, and details of
other financial and non-financial liabilities, are described
throughout the annual report (see principal risks and
uncertainties; Operating and Financial Review; Audit Risk and
Internal Control; Audit Committee Report; Risk Committee Report;
and notes). As a consequence, the Directors believe that the Group
is well-placed to successfully manage its business risks.
The Group's largest business is its Insurance operations, which
have been resilient over the last 12 months and have remained
profitable. In addition, the Group has been able to maintain full
operational capability throughout the year despite the impact of
the COVID-19 pandemic, with almost all colleagues working from
home.
However, the Group's Travel business has been subject to
significant disruption. Following advice from the UK Government
that people over 70 years old should avoid travel and given
operational challenges in almost all countries, the Group took the
decision to suspend Cruise and Tour Operations in March 2020. Both
businesses have been suspended since then and will not resume
trading until later this year.
Over the 12 months during which the Travel business has been
suspended, the Group has taken a number of mitigating actions to
strengthen its financial position, including reductions in costs,
conclusion of disposals, an equity capital raise and amendments to
both ship debt and banking facilities. These actions, together with
the cash generated by the Insurance business, enabled the Group to
reduce net debt (excluding debt relating to Cruise operations) by
GBP115m during the year despite the provision of GBP104m in cash
support to Travel operations.
Notes to the consolidated financial statements (continued)
2.1 Basis of preparation (continued)
Going concern and liquidity (continued)
As at 31 January 2021, the Group had significant headroom to all
covenants on bank facilities. At that date, the Group was in
compliance with all requirements of its banking facilities,
specifically the leverage ratio (excluding the impact of debt and
earnings relating to the new ocean cruise ships) was 2.7x (2020:
2.4x), compared to a 4.75x maximum covenant; interest cover was
3.3x (2020: 9.0x), well above the minimum covenant of 1.25x; and
the Cruise intercompany debtor was GBP16.2m (2020: GBP1.1m),
significantly below the limit in bank facilities at that date of
GBP45m (since increased to GBP55m).
Although the Travel business remains suspended, customer loyalty
has been exceptionally positive, especially for Cruise. Given the
large number of customers who have rebooked for 2021/22 travel
departures and because of a level of pent-up demand, demand
generation is not considered to be a near-term material challenge
for the Travel business.
The Group's base case assumption is for Tour Operations to
resume in July 2021 for river cruising and in September 2021 for
stays and tours, and ocean cruises recommencing in June 2021 for
Spirit of Discovery and in July 2021 for the inaugural cruise of
Spirit of Adventure. It is also assumed that the mid-term outlook
for Cruise returns to pre COVID-19 levels.
The Group believes that the base case assumption is reasonable
for the following reasons:
-- All customers should have been vaccinated twice by the end of
May, which will be combined with a series of other safety measures
implemented by the business, including a quarantine and testing
procedure for crew. This is a critical factor that makes the Saga
cruise proposition safe for customers while also, over time, giving
governments the confidence to allow the Group to resume
trading.
-- There is UK Government support to resume domestic and
international tourism from June and they have confirmed that cruise
will be allowed to restart to the same timetable.
-- There is a growing recognition that ocean cruise - if managed
properly - is a safer proposition than some other forms of
international travel. This is particularly the case for Saga given
the nature of the cruise proposition and the additional steps being
taken, including mandatory vaccines before travel and our
third-party accreditation for COVID-19 health and safety
protocols.
-- A number of European countries have already indicated they
will be welcoming Saga customers and look forward to UK cruise
ships entering their ports in the summer of 2021. The Group's ships
are particularly sought after for their modest size (at less than
1,000 passengers) and the vaccine-only policy for customers.
-- If scheduled port stops are not possible because of growing
levels of COVID-19 in those countries, the flexibility of Cruise
allows for itineraries to be modified accordingly.
Although management are confident of a summer return, there is
high degree of uncertainty in the outlook, with a number of factors
that could lead to a delay in the lifting of the ban on
international travel. Given this situation, which is constantly
evolving, the Group has considered a range of alternative
outcomes.
The main downside scenario considered assumes no Tour Operations
departures until March 2022, with Cruise resuming from November
2021 for Spirit of Discovery and from December 2021 for Spirit of
Adventure. In this scenario the Group has also assumed a slower
recovery in load factors (remaining at 80% until July 2022) and
incremental costs in operating the business. In assessing wider
downside risks, the Group has also considered other trading stress
tests in relation to the Insurance business.
Notes to the consolidated financial statements (continued)
2.1 Basis of preparation (continued)
Going concern and liquidity (continued)
Although this scenario would be challenging, the Group expects
to remain resilient and would not expect to need to take further
actions to improve financial flexibility. Specifically:
-- The Group has plenty of liquidity, with GBP75m of available
cash at 31 January 2021, and a GBP100m revolving credit facility
(RCF) that is currently undrawn.
-- The Group has agreed a temporary working capital facility
with Roger De Haan that enables the Cruise business to draw down
GBP10m in cash support if required, on the same terms as for the
RCF.
-- The Insurance business continues to perform well and with predictable cash generation.
-- Tour Operations customer receipts are fully ring fenced are not included in available cash.
-- There are no debt maturities until after April 2022, with
capital repayments not due on the two cruise ships until June 2022
for GBP15m on the Spirit of Discovery facility and until September
2022 for GBP16m on the Spirit of Adventure facility, and there are
no repayments due on bank facilities until their maturity in May
2023.
-- The Group therefore expects to be able to operate within the
debt covenants and other requirements of its banking facilities,
which have been amended to accommodate the Group's downside
scenario modelling and are summarised below.
30 April 31 July 31 October 31 January 30 April 31 July
2021* 2021 2021* 2022 2022* 2022
---------------------- ---------- ---------- --------- ------------ ------------ ---------- ---------
Leverage Maximum 4.75 4.75 4.50 4.25 4.00 3.00
---------- ---------- --------- ------------ ------------ ---------- ---------
(net debt to EBITDA
ratio)
---------------------------------- ---------- --------- ------------ ------------ ---------- ---------
Interest cover Minimum 1.25 1.25 1.25 1.50 3.50 3.50
---------- ---------- --------- ------------ ------------ ---------- ---------
(EBITDA to net cash
interest ratio)
---------------------------------- ---------- --------- ------------ ------------ ---------- ---------
Cruise intercompany Maximum GBP55m GBP55m GBP55m GBP55m GBP55m GBP55m
debt cap
* Quarterly covenants for leverage and interest cover are only
tested if leverage is above 4.0x times at the previous covenant
test date .
Although the Group believes that the downside scenario above
represents an appropriate reasonable worse case (RWC), there are a
number of significant factors related to COVID-19 that are outside
of the control of the Group, including the status and impact of the
pandemic worldwide; potential emergence of new variants of the
virus; the availability of vaccines, together with the speed at
which they are deployed and their efficacy; and the restrictions
imposed worldwide in respect of the freedom of movement and travel.
The Group is therefore not able to provide certainty that there
could not be more severe downside scenarios to that described
above.
While the Group expects the outcome of a scenario more severe
than the RWC to be unlikely, further downside sensitivities have
been considered in light of the COVID-19 pandemic, including the
impact of not being able to resume both Cruise and Tour Operations
until March 2022. In considering this outcome, the Group has
allowed for likely ongoing lower motor claims frequency than
assumed in its base case plans, which in part offsets the adverse
impact of continued delays to a resumption of Travel. In this
scenario, the Group projects that it would have limited headroom to
the interest cover covenant and would be near the limit of Cruise
funding, but it would still remain in compliance with the
requirements of its banking facilities for at least the next 12
months. The Group would however consider taking further actions to
increase flexibility and reduce downside risks associated with the
remote possibility of any further delay to the restart of Travel
beyond March 2022. Such actions would include seeking additional
amendments to bank facilities and consideration of alternative
sources of funding.
The impact of the COVID-19 pandemic cannot be accurately
predicted and it is not possible to assess all possible future
implications for the Group; however, based on this analysis and the
scenarios modelled, the Directors are confident that the Group will
have sufficient funds to continue to meet its liabilities as they
fall due for a period of at least 12 months from the date of
approval of the financial statements. The Directors have therefore
deemed it appropriate to prepare the financial statements to 31
January 2021 on a going concern basis.
Notes to the consolidated financial statements (continued)
2.2 Summary of significant accounting policies
There have been no significant changes to the accounting
policies of the Group during the year ended 31 January 2021. Full
details of the accounting policies of the Group will be published
in the annual report and accounts for the year ended 31 January
2021 available at www.corporate.saga.co.uk .
2.3 Standards issued but not yet effective
The following is a list of standards and amendments to standards
that are in issue but are not effective or adopted as at 31 January
2021. Except where separately disclosed, these standards are yet to
be endorsed by the EU and UK Endorsement Board.
i. IFRS 17 'Insurance contracts'
IFRS 17 was issued in May 2017 and it establishes a
principles-based accounting approach for insurance contracts and
will replace IFRS 4. The Group has begun work to determine the full
impact of this standard on the Group's financial statements. Our
initial assessment is that the standard is likely to have a
material impact on the Group's financial statements as it
represents a significant change to current insurance accounting
requirements. The standard is effective for annual reporting
periods beginning on or after 1 January 2023.
ii. Classification of liabilities as current or non-current (amendments to IAS 1)
The amendments aim to promote consistency in applying the
requirements by helping companies determine whether, in the
statement of financial position, debt and other liabilities with an
uncertain settlement date should be classified as current (due or
potentially due to be settled within one year) or non-current. The
amendments are effective for annual periods beginning on or after 1
January 2023 and are not likely to have a material effect on the
Group's financial statements.
iii. Reference to the Conceptual Framework (amendments to IFRS 3)
The amendments update an outdated reference to the Conceptual
Framework in IFRS 3 without significantly changing the requirements
in the standard. The amendment is effective for annual reporting
periods beginning on or after 1 January 2022 and apply
prospectively. The amendment will have no effect on the Group's
financial statements.
iv. Property, plant and equipment - proceeds before intended use (amendments to IAS 16)
The amendments prohibit deducting from the cost of an item of
property, plant and equipment any proceeds from selling items
produced while bringing that asset to the location and condition
necessary for it to be capable of operating in the manner intended
by management. Instead, an entity recognises the proceeds from
selling such items, and the cost of producing those items, in
profit or loss. The amendments are effective for annual reporting
periods beginning on or after 1 January 2022. The amendments are
not expected to have a material impact on the Group's financial
statements.
v. Onerous contracts - cost of fulfilling a contract (amendments to IAS 37)
The amendments specify that the 'cost of fulfilling' a contract
comprises the 'costs that relate directly to the contract'. Costs
that relate directly to a contract can either be incremental costs
of fulfilling that contract (examples would be direct labour and
materials) or an allocation of other costs that relate directly to
fulfilling contracts (an example would be the allocation of the
depreciation charge for an item of property, plant and equipment
used in fulfilling the contract). The amendments are effective for
annual reporting periods beginning on or after 1 January 2022. The
amendments are not expected to have a material impact on the
Group's financial statements.
vi. Annual improvements to IFRS 2018-2020
Makes minor amendments to the following standards: IFRS 1, IFRS
9, IFRS 16 and IAS 41. The amendments are effective for annual
reporting periods beginning on or after 1 January 2022. The
amendments will have no effect on the Group's financial
statements.
Notes to the consolidated financial statements (continued)
2.3 Standards issued but not yet effective (continued)
vii. COVID-19-related rent concessions (amendment to IFRS 16)
The amendment provides lessees with an exemption from assessing
whether a COVID-19-related rent concession is a lease modification.
The amendment is effective for annual reporting periods beginning
on or after 1 June 2020. The amendment was endorsed by the EU on 9
October 2020. The amendment will have no effect on the Group's
financial statements.
viii. Amendments to IFRS 17
Amends IFRS 17 to address concerns and implementation challenges
that were identified after IFRS 17 Insurance Contracts was
published in 2017. As described above, our initial assessment is
that the standard is likely to have a material impact on the
Group's financial statements as it represents a significant change
to current insurance accounting requirements. The standard is
effective for annual reporting periods beginning on or after 1
January 2023.
ix. Interest rate benchmark reform - phase 2 (amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The amendments introduce a practical expedient for modifications
required by the reform, clarify that hedge accounting is not
discontinued solely because of the inter-bank offered rate (IBOR)
reform, and introduce disclosures that allow users to understand
the nature and extent of risks arising from the IBOR reform to
which the entity is exposed to and how the entity manages those
risks as well as the entity's progress in transitioning from IBORs
to alternative benchmark rates, and how the entity is managing this
transition. The amendments are effective for annual reporting
periods beginning on or after 1 January 2021. The amendments were
endorsed by the EU on 13 January 2021. The amendments are not
expected to have a material impact on the Group's financial
statements.
x. Disclosure of accounting policies (amendments to IAS 1 and IFRS Practice Statement 2)
The amendments require that an entity discloses its material
accounting policies, instead of its significant accounting
policies. Further amendments explain how an entity can identify a
material accounting policy. The amendments are effective for annual
reporting periods beginning on or after 1 January 2023. The
amendments are not expected to have a material impact on the
Group's financial statements.
xi. Definition of accounting estimates (amendments to IAS 8)
The amendments replace the definition of a change in accounting
estimates with a definition of accounting estimates. Under the new
definition, accounting estimates are "monetary amounts in financial
statements that are subject to measurement uncertainty". The
amendments clarify that a change in accounting estimate that
results from new information or new developments is not the
correction of an error. The amendments are effective for annual
reporting periods beginning on or after 1 January 2023. The
amendments are not expected to have a material impact on the
Group's financial statements.
Notes to the consolidated financial statements (continued)
2.4 Significant accounting judgements, estimates and assumptions
The preparation of financial statements requires the Group to
select accounting policies and make estimates and assumptions that
affect items reported in the primary consolidated financial
statements and notes to the consolidated financial statements.
The major areas of judgement used as part of accounting policy
application are summarised below:
Significant judgements
Acc. Items involving Critical accounting judgement
policy judgement
--------- ---------------------------- ------------------------------------------------------
2.3a Revenue recognition Identification of performance obligations within
- performance obligations contracts with customers, and the subsequent
allocation of the transaction price to each
performance obligation.
--------- ---------------------------- ------------------------------------------------------
2.3ai Classification Assessment of whether significant insurance
of insurance contracts risk is transferred, and in particular assessment
of whether reinsurance arrangements constitute
a reinsurance contract under IFRS 4, for example,
the funds-withheld quota share contract.
--------- ---------------------------- ------------------------------------------------------
2.3h Impairment testing The Group determines whether goodwill needs
of goodwill and to be impaired on an annual basis, or more
other major classes frequently as required. In the year to 31 January
of assets 2021, management deemed it necessary to impair
the goodwill allocated to the Cruise and Tour
Operations CGU's in full.
Following the continued impact of the COVID-19
pandemic on the Group's operations, especially
in Travel, management has concluded that indicators
of impairment exist and has conducted impairment
reviews at 31 January 2021 of the Group's two
cruise ships, Spirit of Discovery and Spirit
of Adventure. Management have considered a
range of scenarios and used their judgement
to conclude no impairment was necessary. Please
refer to note 10 for further detail.
In the year to 31 January 2021, in light of
the Group's decision to vacate most of its
properties, management exercised its judgement
in relation to the impairment of the freehold
land and buildings.
In the year to 31 January 2021, in relation
to the Destinology business, management also
exercised its judgement in relation to the
impairment of property, plant and equipment
and right-of-use assets.
--------- ---------------------------- ------------------------------------------------------
2.3l Leases - extension Assessment of whether it is probable that the
and termination Group will exercise any extension of termination
options options included within lease contracts.
--------- ---------------------------- ------------------------------------------------------
2.3r Insurance contract Judgement as to areas of uncertainty that may
liabilities give rise to claims costs in excess of the
actuarial best estimate of claims incurred,
and the level of additional reserve margin
to recognise in the financial statements above
that estimate.
In the year to 31 January 2021, the Group has
considered the additional latency risk to claims
cost development caused by the impact of the
COVID-19 pandemic and has recognised an additional
claims reserve above actuarial best estimate
to cover this specific risk.
--------- ---------------------------- ------------------------------------------------------
Accounting policy references above are to the notes to the
annual report and accounts for the year ended 31 January 2021.
Notes to the consolidated financial statements (continued)
2.4 Significant accounting judgements, estimates and assumptions (continued)
Significant estimates
All estimates are based on management's knowledge of current
facts and circumstances, assumptions based on that knowledge and
predictions of future events and actions. Actual results may
therefore differ from those estimates.
The table below sets out those items the Group considers
susceptible to changes in critical estimates and assumptions
together with the relevant accounting policy.
Acc. Items involving Sources of estimation uncertainty
policy estimation
--------- ----------------------- -------------------------------------------------------------
2.3ai Revenue recognition The stand-alone selling price of the option to fix
- three-year within the Group's three-year fixed-price insurance
fixed-price policies has been estimated using the expected cost
insurance plus a margin approach as set out in paragraph 79
policies (b) of IFRS 15.
An allowance has also been made for the likelihood
that the option will be exercised by factoring in
the expected rate of renewal at the first and second
renewal dates. The amount of revenue deferred upon
initial recognition is therefore reduced to the
extent that it is estimated that customers will
not exercise the option due to the fact that they
either decide not to renew or they make a claim
that releases the Group from its obligation to fix
the customer price.
--------- ----------------------- -------------------------------------------------------------
2.3bi Cost recognition Incremental costs of obtaining an insurance contract
- incremental not underwritten by the Group, namely fees charged
costs of obtaining by price-comparison websites, are recognised as
an insurance an asset on the statement of financial position.
contract Such costs are amortised in line with the pattern
of revenue for the related insurance contract, which
incorporates the propensity for that contract to
renew in future periods based on the prevailing
rate of renewal for these types of contract.
----------- ----------------------- -------------------------------------------------------------
2.3f Useful economic The useful economic lives and residual values of
& 2.3i lives and intangible assets and property, plant and equipment
residual values are assessed upon the capitalisation of each asset
of intangible and at each reporting date and are based upon the
assets and expected consumption of future economic benefits
property, of the asset.
plant and Assets which are in the course of construction are
equipment not amortised and are assessed for impairment in
line with the requirements of IAS 36.
----------- ----------------------- -------------------------------------------------------------
2.3h Goodwill impairment The Group determines whether goodwill needs to be
testing impaired on an annual basis, or more frequently
as required. This requires an estimation of the
value-in-use of the CGUs to which goodwill is allocated.
The value-in-use calculation requires the Group
to estimate the future cash flows expected to arise
from the CGUs, discounted at a suitably risk-adjusted
rate in order to calculate present value. The COVID-19
pandemic has increased the estimation uncertainty
in our Tour Operations and Cruise CGU's. The outcome
of the impairment reviews concluded that an impairment
charge of GBP59.8 be recognised against the Group's
Cruise and Tour Operations CGUs as at 31 July 2020.
Sensitivity analysis has been undertaken to determine
the effect of changing the discount rate, the terminal
value and future cash flows on the present value
calculation, which is shown in note 8 on pages 52
to 53.
----------- ----------------------- -------------------------------------------------------------
Notes to the consolidated financial statements (continued)
2.4 Significant accounting judgements, estimates and assumptions (continued)
Significant estimates (continued)
2.3h Impairment Management has performed an impairment review on
of property, its freehold land and buildings, and has estimated
plant and the recoverable amount based on the fair value less
equipment, costs to sell of each property the Group plans to
and right-of-use dispose of. The outcome of the impairment reviews
assets concluded that an impairment charge of GBP4.5m be
recognised against the Group's freehold land and
buildings assets as at 31 January 2021. These properties
were subsequently transferred to assets held for
sale.
Following the continued impact of the COVID-19 pandemic
on the Group's operations, management conducted
impairment reviews at 31 January 2021 of the Group's
two cruise ships, Spirit of Discovery and Spirit
of Adventure. Based on these impairment reviews,
and looking at the probability of a range of outcomes,
the Group remains comfortable that there is headroom
over and above the carrying value of the two cruise
ship assets, and therefore concluded that no impairment
charges were necessary.
------ ----------------------- ----------------------------------------------------------------
2.3r Valuation For insurance contracts, estimates have to be made
of insurance both for the expected cost of claims known but not
contract liabilities yet settled (case reserves) and for the expected
cost of claims incurred but not yet reported (IBNR),
as at the reporting date. It can take a significant
period of time before the ultimate claims cost can
be established with certainty.
The ultimate cost of outstanding claims is estimated
by using a range of standard actuarial claims projection
techniques, such as the Chain-Ladder and Bornhuetter-Ferguson
methods. The main assumption underlying these techniques
is that past claims development experience can be
used to project future claims development and hence
ultimate claims costs. As such, these methods extrapolate
the development of paid and incurred losses, average
costs per claim and claim numbers based on the observed
development of earlier years. Historical claims
development is primarily analysed by accident year,
geographical area, significant business line and
peril. Additional qualitative judgement is used
to assess the extent to which past trends may not
apply in the future (e.g. to reflect one-off occurrences,
changes in external or market factors such as public
attitudes to claiming, economic conditions, levels
of claims inflation, judicial decisions and legislation,
as well as internal factors such as portfolio mix,
policy features and claims handling procedures)
in order to arrive at the best estimate of the ultimate
cost of claims.
The ultimate cost of claims is not discounted except
for those in respect of PPOs, which have been discounted
at -1.5% for the year ended 31 January 2021 (2020:
-1.5%). The valuation of these claims involves making
assumptions about the rate of inflation and the
expected rate of return on assets to determine the
discount rate. Due to the size of PPO claims, the
ultimate cost is highly sensitive to changes in
these assumptions. The assumptions are reviewed
at each reporting date.
In calculating the level of reserve margin to recognise
above the actuarial best estimate of incurred claims,
the Group considered an array of risks to future
claims experience and estimated the financial impact
that those risks could have to derive an appropriate
level of margin to hold. This included an assessment
of the magnitude of the claims latency risk due
to the impact of the COVID-19 pandemic.
2.3u Valuation The cost of defined benefit pension plans and the
of pension present value of the pension obligation are determined
benefit obligation using actuarial valuations. Actuarial valuations
involve making assumptions about discount rates,
expected rates of return on assets, future salary
increases, mortality rates and future pension increases.
Due to the complexity of the valuation, the underlying
assumptions and its long-term nature, a defined
benefit obligation is highly sensitive to changes
in these assumptions. All assumptions are reviewed
at each reporting date.
Accounting policy references above are to the notes to the
Annual report and accounts for the year ended 31 January 2021.
Notes to the consolidated financial statements (continued)
3 Segmental information
For management purposes, the Group is organised into business
units based on their products and services. The Group has three
reportable operating segments as follows:
-- Insurance : the segment primarily comprises general insurance
products. Revenue is derived primarily from insurance premiums and
broking revenues. This segment is further analysed into four
product sub-segments:
- Retail Broking, consisting of:
o Motor broking
o Home broking
o Other insurance broking
- Underwriting
The Group classifies the CGU at its lowest level to be at the
Insurance segment level.
-- Travel : the segment comprises the operation and delivery of
package tours and cruise holiday products. The Group owns and
operates two ocean cruise ships. All other holiday products are
packaged together with third-party supplied accommodation, flights
and other transport arrangements.
-- Other Businesses and Central Costs : the segment comprises
the Group's other businesses and its central cost base. The other
businesses include the financial services product offering, a
monthly subscription magazine product and the Group's mailing and
printing business.
Segment performance is evaluated using the Group's key
performance measure of Underlying Profit Before Tax. Items not
allocated to a segment relate to transactions that do not form part
of the ongoing segment performance or which are managed at a Group
level.
Transfer prices between operating segments are set on an
arm's-length basis in a manner similar to transactions with third
parties. Segment income, expenses and results include transfers
between business segments which are then eliminated on
consolidation.
Goodwill, corporate bond and bank loans are not allocated to
segments as they are managed on a Group basis.
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Insurance
Motor Home Other Under-writing Total Travel Other Adjustments Total
broking broking insurance Businesses
broking and
Central
2021 Costs
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue 92.7 60.2 40.7 74.4 268.0 51.6 22.6 (4.6) 337.6
Cost of sales (2.7) - (4.2) (16.5) (23.4) (68.1) (8.7) - (100.2)
--------- --------- ----------- --------------- --------- -------- ------------ ------------- ---------
Gross profit 90.0 60.2 36.5 57.9 244.6 (16.5) 13.9 (4.6) 237.4
========= ========= =========== =============== ========= ======== ============ ============= =========
Administrative
and selling
expenses (56.5) (32.3) (22.0) (2.9) (113.7) (64.4) (50.7) 4.6 (224.2)
Impairment of
assets - - - - - (0.2) (5.0) (59.8) (65.0)
Gain on lease
modification - - - - - - 3.2 - 3.2
Net
(loss)/profit
on disposal of
businesses - - - - - (1.7) 10.3 - 8.6
Net
profit/(loss)
on disposal of
property,
plant
and equipment,
right-of-use
assets
and software - - - - - 6.8 (0.2) - 6.6
Investment
income - - - 3.7 3.7 0.2 (3.2) - 0.7
Finance costs - - - - - (13.6) (16.6) - (30.2)
Finance income - - - - - 1.7 - - 1.7
Profit/(loss)
before tax 33.5 27.9 14.5 58.7 134.6 (87.7) (48.3) (59.8) (61.2)
========= ========= =========== =============== ========= ======== ============ ============= =========
Reconciliation
to Underlying
Profit/ (Loss)
Before Tax
Profit/(loss)
before tax 33.5 27.9 14.5 58.7 134.6 (87.7) (48.3) (59.8) (61.2)
Net fair value
gain on
derivative
financial
instruments - - - - - (1.7) - - (1.7)
Impairment of
goodwill - - - - - - - 59.8 59.8
(Profit) on
disposal
/ impairment
of
assets - - - - - (3.8) 1.8 - (2.0)
Restructuring
costs - - - - - 13.0 17.8 - 30.8
Net
loss/(profit)
on disposal of
businesses - - - - - 1.7 (10.3) - (8.6)
--------- --------- ----------- --------------- --------- -------- ------------ ------------- ---------
Underlying
Profit/
(Loss) Before
Tax 33.5 27.9 14.5 58.7 134.6 (78.5) (39.0) - 17.1
========= ========= =========== =============== ========= ======== ============ ============= =========
Total assets
less
liabilities 284.4 19.3 (18.0) 395.0 680.7
========= ======== ============ ============= =========
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Insurance
Motor Home Other Under-writing Total Travel Other Adjustments Total
broking broking insurance Businesses
broking and
Central
2020 Costs
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue 104.7 62.5 67.9 69.1 304.2 464.1 35.6 (6.6) 797.3
Cost of sales (2.8) - (12.9) (30.1) (45.8) (365.0) (15.1) - (425.9)
--------- --------- ----------- --------------- --------- --------- ------------ ------------- ---------
Gross profit 101.9 62.5 55.0 39.0 258.4 99.1 20.5 (6.6) 371.4
========= ========= =========== =============== ========= ========= ============ ============= =========
Administrative
and selling
expenses (73.9) (29.4) (25.9) (2.4) (131.6) (78.4) (49.2) 6.6 (252.6)
Impairment of
assets - - - - - (13.3) (4.2) (383.0) (400.5)
Net profit on
disposal of
property,
plant and
equipment,
and
right-of-use
assets - - - - - 1.0 0.3 - 1.3
Investment
income - - - 4.0 4.0 0.4 (3.2) - 1.2
Finance costs - - - - - (8.0) (13.8) - (21.8)
Finance income - - - - - - 0.1 - 0.1
Profit/(loss)
before tax 28.0 33.1 29.1 40.6 130.8 0.8 (49.5) (383.0) (300.9)
========= ========= =========== =============== ========= ========= ============ ============= =========
Reconciliation
to Underlying
Profit/ (Loss)
Before Tax
Profit/(loss)
before tax 28.0 33.1 29.1 40.6 130.8 0.8 (49.5) (383.0) (300.9)
Net fair value
loss on
derivative
financial
instruments - - - - - 1.1 - - 1.1
Impairment of
assets - - - - - 13.6 3.3 - 16.9
Impairment of
goodwill - - - - - - - 383.0 383.0
Impact of
insolvency
of Thomas Cook - - - - - 3.9 - - 3.9
Restructuring
costs - - - - - 0.4 5.5 - 5.9
--------- --------- ----------- --------------- --------- --------- ------------ ------------- ---------
Underlying
Profit/
(Loss) Before
Tax 28.0 33.1 29.1 40.6 130.8 19.8 (40.7) - 109.9
========= ========= =========== =============== ========= ========= ============ ============= =========
Total assets
less
liabilities 283.2 71.9 (144.6) 377.7 588.2
========= ========= ============ ============= =========
All revenue is generated solely in the UK.
Total assets less liabilities detailed as adjustments relates to
the following unallocated items:
2021 2020
GBP'm GBP'm
Goodwill (note 8) 718.6 778.4
Group bond and bank loans (note 16) (323.6) (400.7)
395.0 377.7
========= =========
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
a Disaggregation of revenue
In the following table, the Group's revenue has been
disaggregated by major product line, analysed by Group's three
operating segments.
2021
-------------------------------------------------------------
Insurance Travel OB&CC Total
------------------------------------------
Major product lines Earned premium Other Total
on insurance revenue insurance
underwritten
by the Group
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Gross earned premiums
on insurance underwritten
by the Group 221.7 221.7 221.7
Less: ceded to reinsurers (142.8) (142.8) (142.8)
Net revenue on:
- Motor broking 23.2 69.5 92.7 92.7
- Home broking - 60.2 60.2 60.2
- Other broking 1.1 39.6 40.7 40.7
- Underwriting 54.6 19.8 74.4 74.4
Tour Operations 32.7 32.7
Cruise 18.9 18.9
Personal Finance 6.0 6.0
Healthcare 0.9 0.9
Media 9.1 9.1
Other 2.0 2.0
---------------- ---------- ------------ -------- ------- ---------
78.9 189.1 268.0 51.6 18.0 337.6
---------------- ---------- ------------ -------- ------- ---------
2020
-------------------------------------------------------------
Insurance Travel OB&CC Total
------------------------------------------
Major product lines Earned premium Other Total
on insurance revenue insurance
underwritten
by the Group
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Gross earned premiums
on insurance underwritten
by the Group 233.9 233.9 233.9
Less: ceded to reinsurers (145.7) (145.7) (145.7)
Net revenue on:
- Motor broking 23.8 80.9 104.7 104.7
- Home broking - 62.5 62.5 62.5
- Other broking 1.3 66.6 67.9 67.9
- Underwriting 63.1 6.0 69.1 69.1
Tour Operations 346.1 346.1
Cruise 118.0 118.0
Personal Finance 7.4 7.4
Healthcare 6.1 6.1
Media 13.3 13.3
Other 2.2 2.2
---------------- ---------- ------------ -------- ------- ---------
88.2 216.0 304.2 464.1 29.0 797.3
---------------- ---------- ------------ -------- ------- ---------
Included in other revenue is instalment interest income on
premium financing of GBP11.1m (2020: GBP11.1m).
Notes to the consolidated financial statements (continued)
4 Tax
The major components of the income tax expense are:
2021 2020
GBP'm GBP'm
Consolidated income statement
Current income tax
Current income tax charge 3.5 16.4
Adjustments in respect of previous years (3.7) (0.8)
------- -------
(0.2) 15.6
------- -------
Deferred tax
Relating to origination and reversal of
temporary differences 3.2 (1.1)
Effect of tax rate change on opening balance (1.7) -
Adjustments in respect of previous years 5.3 (2.6)
6.8 (3.7)
------- -------
Tax expense in the income statement 6.6 11.9
======= =======
The Group's tax expense for the year was GBP6.6m (2020:
GBP11.9m) representing a tax effective rate of 471.4% before the
impairment of goodwill and associated deferred tax (2020: 14.5%).
The Group's tax effective rate is higher than the standard rate of
corporation tax, mainly due to the Group's Cruise business entering
the Tonnage Tax regime on 1 February 2020, which has resulted in
the losses accumulated in the Cruise business due to the COVID-19
pandemic during the period not being eligible for group relief to
other profitable companies within the Group. If the Cruise business
had not entered the Tonnage Tax regime the Group's tax effective
rate would have been 17.6%.
Adjustments in respect of previous years includes an adjustment
for the over provision of tax charge in prior years of GBP1.6m
(2020: GBP3.4m credit).
No tax charge or credit arose on the disposal of the Bennetts,
Destinology and Healthcare businesses.
Reconciliation of net deferred tax assets
2021 2020
GBP'm GBP'm
At 1 February 18.1 7.1
Tax (charge)/credit recognised in the income
statement (6.8) 3.7
Tax (charge)/credit recognised in other
comprehensive income (4.1) 1.9
Tax (charge)/credit recognised directly
into the hedging reserve (0.5) 5.4
------- -------
At 31 January 6.7 18.1
======= =======
On 11 March 2020, it was announced that the corporation tax rate
would remain at 19% from 1 April 2020 and this has been enacted at
the statement of financial position date. As a result, the closing
deferred tax balances have been reflected at 19%. We expect net
deferred tax assets/(liabilities) to be normally settled in more
than 12 months.
On 3 March 2021, it was announced that the corporation tax rate
will increase to 25% from 1 April 2023 and has not been enacted at
the statement of financial position date. As a result, the closing
deferred tax balances have not been updated to reflect this rate
change. If the rate change had been enacted at the statement of
financial position date, the impact would have been to increase the
net deferred tax asset by GBP2.1m.
The Group has tax losses which arose in the UK of GBP4.2m (2020:
GBP4.2m) that are available indefinitely for offsetting against
future taxable profits of the companies in which the losses
arose.
Deferred tax assets have not been recognised in respect of these
losses as they may not be used to offset taxable profits elsewhere
in the Group. They have arisen in subsidiaries that have been
loss-making for some time, and there are no other tax planning
opportunities or other evidence of recoverability in the near
future. If the Group was able to recognise all unrecognised
deferred tax assets, the profit would increase by GBP0.8m (2020:
GBP0.7m).
Notes to the consolidated financial statements (continued)
5 Dividends
Given the uncertain implications of the COVID 19 pandemic, the
board of Directors does not recommend the payment of a final
dividend for the 2020/21 financial year. No interim dividend for
the year ended 31 January 2021 was paid during the year. In
addition to the dividends declared and paid during the year stated
above, dividend equivalents of GBP0.1m (2020: GBPnil) have been
paid. These dividend equivalents relate to previously declared
dividends which only become payable when certain share options are
exercised.
During the prior year, the Company paid an ordinary dividend of
1.0 pence per share, relating to the year ended 31 January 2020,
and also paid an interim dividend of 1.3 pence per share, relating
to the year ended 31 January 2021. The total dividends paid in the
prior year were GBP25.8m.
The distributable reserves of Saga plc are GBP38.2m as at 31
January 2021 which are equal to the retained earnings reserve. If
necessary, its subsidiary companies hold significant reserves from
which a dividend can be paid. Subsidiary distributable reserves are
available immediately with the exception of companies within the
Tour Operations and Underwriting segments, which require regulatory
approval before any dividends can be declared and paid. However,
due to the debt holidays agreed with our ship facilities lenders up
to 31 March 2022 (notes 16 and 20), the Group is prohibited from
declaring dividends during this time.
6 Earnings Per Share
Basic Earnings per Share (EPS) is calculated by dividing the
loss after tax for the year attributable to ordinary equity holders
of the parent by the weighted average number of ordinary shares
outstanding during the period. Diluted 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 other transactions involving ordinary shares or
potential ordinary shares between the reporting date and the date
of authorisation of these financial statements.
The calculation of basic and diluted EPS is as follows:
2021 2020 (restated)
GBP'm GBP'm
Loss attributable to ordinary equity
holders (67.8) (312.8)
Weighted average number of ordinary 'm 'm
shares
Ordinary shares as at 1 February 1,119.4 1,119.1
Initial Public Offering (IPO) share
options exercised - 0.2
Long-term Incentive Plan (LTIP) share
options exercised - 0.1
Issue of shares - 5 October 2020 (note
17)
224.4 -
* First Firm Placing
124.2 -
* Second Firm Placing
623.3 -
* Placing and Open Offer
Bonus factor impact reflecting bonus
element of October 2020 rights issue - 109.7
-
----------- -----------------
Sub-total before share consolidation 2,091.3 1,229.1
Share consolidation - 13 October 2020
(note 17) (1,951.9) (1,147.2)
Issue of shares - 18 November 2020 (note 0.5 -
17)
Ordinary shares as at 31 January 139.9 81.9
=========== =================
Weighted average number of ordinary
shares for basic EPS and diluted EPS 101.2 81.9
----------- -----------------
Basic EPS (67.0p) (381.7p)
----------- -----------------
Diluted EPS (67.0p) (381.7p)
----------- -----------------
Notes to the consolidated financial statements (continued)
6 Earnings Per Share (continued)
The table below reconciles between basic EPS and Underlying
Basic EPS:
2021 2020 (restated)
Basic EPS (67.0p) (381.7p)
Adjusted for:
Derivative (gains)/losses (1.9p) 1.4p
Impairment, and profit on disposal, of property, plant
and equipment and software (2.2p) 21.5p
Impairment of goodwill and associated deferred tax 59.1p 467.4p
Impact of insolvency of Thomas Cook - 4.9p
Net profit on disposal of businesses (8.5p) -
Restructuring costs 33.7p 7.5p
Underlying Basic EPS 13.2p 121.0p
========= =================
In accordance with IAS 33 'Earnings per Share', basic and
diluted EPS figures for the year ended 31 January 2020 have been
restated and adjusted for: (a) the bonus factor of 1.1 to reflect
the bonus element of the Firm Placing and Open offer (note 17); and
(b) the consolidation of the Company's shares during the year (note
17). Amounts as originally stated were (27.9p) for basic and
diluted EPS, and 8.9p for basic and diluted Underlying Basic
EPS.
7 Business combinations and disposals
(a) Acquisitions during the year ended 31 January 2021
There were no acquisitions in the year ended 31 January
2021.
(b) Disposals during the year ended 31 January 2021
(i) Healthcare business
During the year ended 31 January 2020, the Group made the
decision to exit the Healthcare business and initiated an active
programme to locate a buyer for its Healthcare operation. Having
met the requirements of IFRS 5, the associated assets and
liabilities were consequently presented as a held for sale disposal
group in the statement of financial position as at 31 January 2020.
The disposal group did not meet the requirements of IFRS 5 to be
classified as a discontinued operation.
On 3 March 2020 the Group reached agreement for the sale of its
Country Cousins and Patricia White's branded Healthcare businesses
to Limerston Capital LLP for an enterprise value of GBP14.0m.
Country Cousins and Patricia White's were introductory care
agencies, and represented two of the three divisions comprising the
Group's Healthcare business. The remaining division, Saga Care at
Home, was sold on 31 May 2020 to a third-party care provider, Care
By Us, for a nominal sum of GBP1. This completed the Group's exit
from the Healthcare business.
Details of the sale of the Healthcare business operation are as
follows:
2021
GBP'm
Cash consideration received (net of transaction
costs) 12.8
Cash and short-term deposits disposed of as part
of the transaction (1.4)
-------
Carrying value of net assets disposed (1.0)
-------
Gain on disposal before tax 10.4
Tax expense on gain -
-------
Gain on disposal after tax 10.4
=======
Notes to the consolidated financial statements (continued)
7 Business combinations and disposals (continued)
(b) Disposals during the year ended 31 January 2021 (continued)
(ii) Bennetts
During the year ended 31 January 2020, the Group made the
decision to initiate an active programme to locate a buyer for its
insurance biking brand within the Insurance segment, Bennetts.
Having met the requirements of IFRS 5, the associated assets and
liabilities were consequently presented as a held for sale disposal
group in the statement of financial position as at 31 January 2020.
The disposal group did not meet the requirements of IFRS 5 to be
classified as a discontinued operation.
On 17 February 2020 the Group announced that it had reached
agreement for the sale of Bennetts for an enterprise value of
GBP26m to Atlanta Investment Holdings C Limited ('Atlanta').
Atlanta is part of The Ardonagh Group, one of the largest
independent insurance brokers in the UK. Completion was subject to
receiving regulatory approval and other closing conditions.
On 7 August 2020 the disposal of Bennetts Motorcycling Services
Limited ('Bennetts') to Atlanta Investment Holdings C Limited was
completed following the receipt of regulatory approvals, generating
net disposal proceeds of GBP24.0m.
Details of the sale of Bennetts are as follows:
2021
GBP'm
Cash consideration received (net of transaction
costs) 24.0
Cash and short-term deposits disposed of as part
of the transaction (9.5)
--------
Carrying value of net assets disposed (12.7)
--------
Gain on disposal before tax 1.8
Tax expense on gain -
--------
Gain on disposal after tax 1.8
========
(iii) Destinology
Early in the year, the Group made the decision to initiate an
active programme to locate a buyer for its Travel segment business,
Destinology. On 20 October 2020 the Group announced that it had
sold Destinology Limited to Brooklyn Travel Limited for a nominal
sum of GBP1. Net transaction costs of GBP0.2m were incurred in
relation to the disposal.
Details of the sale of the Destinology are as follows:
2021
GBP'm
Cash consideration received (net of transaction
costs) (0.2)
Cash and short-term deposits disposed of as part
of the transaction (1.6)
-------
Expense of non-cash items relating to disposal (1.0)
-------
Carrying value of net liabilities disposed 0.2
-------
Loss on disposal before tax (2.6)
Tax expense on gain -
-------
Loss on disposal after tax (2.6)
=======
(iv) Other
During the year, transaction costs of GBP1.0m (2020: nil) were
incurred in relation to other business disposals that did not
complete.
Notes to the consolidated financial statements (continued)
8 Goodwill
Goodwill acquired through business combinations has been
allocated to CGUs for the purpose of impairment testing. The
carrying value of goodwill by CGU is as follows:
2021 2020
(restated)
GBP'm GBP'm
Insurance 718.6 718.6
Cruise - 44.8
Tour Operations - 15.0
718.6 778.4
======= ============
During the year ended 31 January 2020, the Group made structural
changes to its Travel business such that the cash flows of the
Cruise business are now managed independently of the Tour
Operations businesses. This required a re-evaluation of the
determination of the Group's CGUs, and the Travel excluding
Destinology CGU was subdivided into separate Cruise and Tour
Operations excluding Destinology CGUs. The goodwill asset
previously allocated to the Travel excluding Destinology CGU was
allocated to the Cruise and Tour Operations excluding Destinology
CGUs based on their relative value-in-use measurements. The
carrying value of the goodwill asset allocated to each of the
Cruise and Tour Operations excluding Destinology CGUs as at 31
January 2020 have been restated to GBP44.8m (previous reported
value: GBP35.8m) and GBP15.0m (previous reported value: GBP24.0m)
reflecting a correction to the allocation calculation.
The Group tests all goodwill balances for impairment at least
annually, and twice yearly if there exist indicators of impairment
at the interim reporting date of 31 July. Due to the impact of the
COVID-19 pandemic on the Group's earnings, the Group tested
goodwill for impairment as at 31 July 2020 and 31 January 2021.The
impairment test compares the recoverable amount of each CGU to the
carrying value of its net assets including the value of the
allocated goodwill.
The recoverable amount of each CGU has been determined based on
a value-in-use calculation using cash flow projections from the
Group's latest five-year financial forecasts to 2025/26, which are
derived using past experience of the Group's trading combined with
the anticipated impact of changes in macro-economic and regulatory
factors. A terminal value has been calculated using the Gordon
Growth Model based on the fifth year of those projections and an
annual growth rate of 2.0% (January 2020: 2.0%) as the expected
long-term average growth rate of the UK economy. The cash flows
have then been discounted to present value using a suitably
risk-adjusted discount rate based on a market-participant view of
the cost of capital and debt relevant to each industry. The pre-tax
discount rates used for each CGU were as follows:
31 January 31 July 31 January
2021 2020 2020
Insurance 9.8% 9.9% 12.6%
Cruise* n/a 11.7% 10.9%
Tour Operations n/a 11.3% 12.2%
------------ --------- ------------
* The Cruise pre-tax discount rate as at 31 January 2020 has
been restated to accurately reflect the impact of the tonnage tax
regime on future cash flows.
The Group also considered a series of stress tests, both in
terms of adverse impacts to either the cash flow projections or to
the discount rate. For the cash flow stress tests, the impact of
further prolonged COVID-19 lockdowns during 2021 was considered,
both in terms of the impact on the resumption of Travel operations
and the positive impact this could have on motor insurance claims
experience, in combination with a more cautious terminal growth
rate of 1.5% reflecting a more conservative outlook for growth in
the UK economy. For the discount rate stress test, the Group
applied risk premia of c. +1.0ppt for the Insurance CGU as at 31
January 2021, and +2.0ppt and 3.7ppt for the Cruise and Tour
Operations CGUs respectively as at 31 July 2020.
Notes to the consolidated financial statements (continued)
8 Goodwill (continued)
For the Insurance CGU, the Group has also incorporated the
expected impact of the publication of the FCA's findings from its
market study into general insurance pricing and the impact this
will likely have on new business pricing and retention rates, with
a further stress test involving a more cautious outlook for the
impact of this. The Group has also excluded the projected cash flow
benefit of strategic initiatives that are not reflective of the
business in its current condition. After considering the impact of
cash flow and discount rate stresses to the recoverable amount, the
Group remains comfortable that there remains headroom over and
above the carrying value of the net assets including goodwill
allocated to the Insurance CGU. This was the case at both the 31
July 2020 and 31 January 2021 testing points.
As at 31 July 2020, for both the Cruise and Tour Operations
businesses, the underlying forecast cash flows were updated for the
impact of the COVID-19 pandemic as assessed at that point in time,
with the expectation then that ocean cruises would recommence in
November 2020 and Tour Operations trading would remain suspended
until April 2021. In addition to this, a further stress test
scenario was considered that reflected the need for a further
suspension of ocean cruises between January 2021 and May 2021, with
a long-term impact on demand levels for both cruises and package
holidays.
As a result of the continued uncertainty and adverse impact of
the COVID-19 pandemic on the travel industry, increases in
perceived travel industry risk resulted in higher betas and cost of
debt levels, particularly in Cruise in the first half of 2020. This
led to a marked increase in the market-participant view of discount
rates used in the calculation of recoverable amount, and
particularly in increases in the top end of the range of discount
rates considered for the discount rate stress test. Consequently,
the Group determined that the recoverable amounts of the goodwill
allocated to the Tour Operations and Cruise CGUs were below their
respective carrying values and took the decision to impair in full
the GBP59.8m goodwill allocated to Tour Operations and Cruise in
the Group's interim results. Whilst the outlook for the travel
industry has improved since then, characterised by an improvement
in industry betas and cost of debt levels, goodwill impairments are
irreversible, so the impairment charge remains in the full-year
results.
The headroom/(deficit) for each of the CGUs against the brought
forward carrying value was as follows:
Headroom /(deficit) GBP'm
================== ----------------------------------------------------------------------------------------
Cash flow stress test Discount rate stress
Central scenario scenario test scenario
---------------------------- ---------------------------- ----------------------------
31 January 31 January 31 January
2021 31 July 2020 2021 31 July 2020 2021 31 July 2020
================== ============ ============== ============ ============== ============ ==============
Insurance 216.4 205.4 72.4 102.4 108.0 192.0
Cruise n/a 18.0 n/a (10.0) n/a (44.8)
Tour Operations n/a 86.0 n/a 20.0 n/a (15.0)
------------------ ------------ -------------- ------------ -------------- ------------ --------------
The headroom/(deficit) calculated is most sensitive to the
discount rate and terminal growth rate assumed, or to changes in
the projected cash flow of the CGU. A quantitative sensitivity
analysis for each of these as at 31 January 2021 and its impact on
the headroom / (deficit) against brought forward goodwill carrying
values is as follows:
Pre-tax discount Terminal growth
rate rate Cash flow (annual)
------------ -------------------- -------------------- ------------------------
+1.0ppt -1.0ppt +1.0ppt -1.0ppt
GBP'm GBP'm GBP'm GBP'm +10% GBPm -10% GBPm
------------ --------- --------- --------- --------- ----------- -----------
Insurance (113.0) 146.4 113.2 (87.3) 102.9 (102.9)
------------ --------- --------- --------- --------- ----------- -----------
Given these headroom numbers the Directors consider that there
is no reasonable possible change in the key assumptions made in
their impairment assessment that would give rise to an
impairment.
9 Intangible fixed assets
During the year, the Group capitalised GBP13.2m (2020: GBP21.5m)
of software assets, disposed of assets with a net book value of
GBP0.2m (2020: GBPnil) and charged GBP12.5m of amortisation and
impairment to its intangible assets (2020: GBP25.1m).
Notes to the consolidated financial statements (continued)
10 Property, plant and equipment
During the year, the Group capitalised assets with a cost of
GBP274.0m (2020: GBP282.0m), disposed of assets with a net book
value of GBP4.8m (2020: GBP5.0m) and charged GBP18.5m of
depreciation and impairment to its property, plant and equipment
(2020: GBP31.0m).
As the Group is planning to vacate most of its properties (note
19), management has concluded that this constitutes an indicator of
impairment and has duly conducted an impairment review of the
Group's freehold land and buildings as at 31 January 2021, with the
exception of the main Head Office building which will not be
vacated. In relation to these freehold properties, value-in-use is
negligible and so the Group has obtained market valuations to
determine the fair value of each building. The outcome of these
impairment reviews concluded that an impairment charge totalling
GBP5.0m should be recognised against the Group's assets as at 31
January 2021. At the year end, the Group reclassified freehold land
and buildings with a net book value of GBP16.9m to assets held for
sale.
Due to the continued impact of the COVID-19 pandemic on the
Group's operations, and particularly in Travel, with the suspension
of the Cruise and Tour Operations businesses since March 2020,
management concluded that indicators of impairment exist and
conducted impairment reviews at 31 January 2021 for the Group's two
ocean cruise ships, Spirit of Discovery and Spirit of Adventure.
The impairment test compares the recoverable amount of each cruise
ship to its carrying value.
The recoverable amount of each cruise ship has been determined
based on a value-in-use calculation using cash flow projections
from the Group's latest five-year financial forecasts to 2025/26,
and applying a constant annual growth rate thereafter for
subsequent periods until the end of the ship's useful economic life
of 30 years, at which point a residual value of 15% has been
assumed. This has then been discounted back to present value using
a suitably risk-adjusted discount rate. The underlying forecast
cash flows have been updated for the latest impact of the COVID-19
pandemic, with the expectation that ocean cruises recommence in
June 2021 for Spirit of Discovery and in July 2021 for the
inaugural cruise of Spirit of Adventure. In addition, a stress test
of a further four-month delay to the resumption of ocean cruises
and the potential adverse medium-term impact that the pandemic may
have on demand for cruises have also been considered. The annual
growth rate beyond the fifth year of management forecasts was also
reduced to 1.5% in the stress test scenario, reflecting a more
cautious outlook for long-term growth in the UK economy.
The cash flows have then been discounted to present value using
a suitably risk-adjusted discount rate based on a
market-participant view of the cost of equity and debt. The pre-tax
discount rates used for the cruise ships were 11.8% (2020: 10.9%)
for both vessels. As at 31 January 2021, the headroom/(deficit) for
each of the ships against the carrying value was as follows:
Headroom /(deficit) GBP'm
---------------------- ---------------------------------
Stress test
Central scenario scenario
---------------------- ------------------ -------------
Spirit of Discovery 57.0 10.0
Spirit of Adventure (17.0) (49.0)
---------------------- ------------------ -------------
Based on these impairment tests, and looking at the probability
of a range of outcomes, the Group remains comfortable that there is
headroom over and above the carrying value of Spirit of Discovery.
Given the headroom in these tests the Directors consider that there
is no reasonable possible change in the key assumptions made in
their impairment assessment that would give rise to an impairment
of this vessel.
For Spirit of Adventure however, the carrying value of the asset
would exceed its recoverable amount in both the central and stress
test scenarios at the discount rate selected, and therefore
management considered a range of other factors to test the
reasonableness of the assumptions used. Those factors included
additional data sources in the form of alternative views of the
discount rate, useful economic life and enterprise valuations
derived from EBITDA multiples of other publicly-traded cruise
companies.
Notes to the consolidated financial statements (continued)
10 Property, plant and equipment (continued)
Firstly, the calculated discount rate of 11.8% was found to sit
at the mid-point of a range of possible values that the Group's
auditors would consider reasonable, that range being 10.3% to 13.2%
as at 31 January 2021. Selection of a discount rate at the bottom
of that range of 10.3% would leave a headroom of GBP30.0m in the
central scenario, and a deficit of GBP5.0m in the stress-test
scenario. Secondly, the useful economic life of 30 years was found
to sit at the bottom end of a range of 30-40 years being adopted by
the industry. Increasing the useful economic life by five years
would increase the recoverable amount further by GBP7.0m. Lastly,
using an enterprise valuation basis derived from EBITDA multiples
of other publicly traded cruise companies implied a headroom of
GBP15.0m. On this basis, considering the range of data available,
the Group therefore concluded that no impairment of Spirit of
Adventure was necessary.
The headroom/(deficit) calculated is most sensitive to the
discount rate and cash flows assumed. A quantitative sensitivity
analysis for each of these as at 31 January 2021 and its impact on
the headroom/(deficit) against carrying values is as follows:
Annual growth
rate
Pre-tax discount (beyond fifth Useful economic
rate year) Cash flow (annual) life
---------------------- -------------------- -------------------- ------------------------ ----------------------
+1.0ppt -1.0ppt +1.0ppt -1.0ppt
GBP'm GBP'm GBP'm GBP'm +10% GBPm -10% GBPm +5 years -5 years
Spirit of Discovery (27.3) 31.6 17.3 (15.4) 34.4 (34.3) 8.4 (13.1)
Spirit of Adventure (26.2) 30.4 16.8 (14.9) 32.4 (32.4) 7.0 (10.8)
---------------------- --------- --------- --------- --------- ----------- ----------- ---------- ----------
11 Right-of-use assets
During the year, the Group capitalised assets with a cost of
GBP0.8m (2020: GBP19.5m), disposed of assets with a net book value
of GBP0.5m (2020: GBP0.5m), reduced net book value for modification
of lease terms by GBP17.8m (2020: GBP2.6m) and charged GBP3.2m of
depreciation and impairment to its right-of-use assets (2020:
GBP13.6m).
In the current year, modification of lease terms relating to
river cruise ships (GBP10.1m) resulted from the impact of the
COVID-19 pandemic on the Travel business. Modification of lease
terms relating to long leasehold land and buildings (GBP7.7m)
resulted from the Group's decision to initiate an active program to
locate buyers for a number of its freehold properties (note 19) due
to a relationship existing between the use of one of these freehold
properties and the use of one of the long leasehold land buildings.
In addition, the modification of lease terms relating to long
leasehold land and buildings resulted in a gain of GBP3.2m being
reported in the income statement.
12 Financial assets and financial liabilities
a) Financial assets
2021 2020
GBP'm GBP'm
Fair value through profit or loss
Foreign exchange forward contracts 0.6 0.1
Loan funds 6.2 7.8
Money market funds 66.8 45.9
73.6 53.8
------- -------
Fair value through profit or loss designated
in a hedging relationship
Foreign exchange forward contracts 0.1 1.0
Fuel oil swaps - 0.1
------- -------
0.1 1.1
------- -------
Fair value through other comprehensive Income
Debt securities 261.9 274.2
------- -------
261.9 274.2
------- -------
Amortised cost
Deposits with financial institutions 24.2 49.0
24.2 49.0
------- -------
Total financial assets 359.8 378.1
======= =======
Current 105.2 126.4
Non-current 254.6 251.7
------- -------
359.8 378.1
======= =======
Notes to the consolidated financial statements (continued)
12 Financial assets and financial liabilities (continued)
b) Financial liabilities
2021 2020
GBP'm GBP'm
Fair value through profit or loss
Foreign exchange forward contracts 1.3 2.0
1.3 2.0
------- -------
Fair value through profit or loss designated
in a hedging relationship
Foreign exchange forward contracts 2.1 23.4
Fuel oil swaps 0.2 2.5
------- -------
2.3 25.9
------- -------
Amortised cost
Bond and bank loans (note 16) 817.1 624.3
Lease liabilities 4.4 28.6
Bank overdrafts 1.5 9.5
823.0 662.4
------- -------
Total financial liabilities 826.6 690.3
======= =======
Current 10.4 95.6
Non-current 8162 594.7
------- -------
826.6 690.3
======= =======
c) Fair value hierarchy
As at 31 January 2021 As at 31 January 2020
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 - 0.7 - 0.7 - 1.1 - 1.1
Fuel oil swaps - - - - - 0.1 - 0.1
Loan funds 6.2 - - 6.2 7.8 - - 7.8
Debt securities 261.9 - - 261.9 274.2 - - 274.2
Money market funds 66.8 - - 66.8 45.9 - - 45.9
Financial liabilities measured at fair value
Foreign exchange forwards - 3.4 - 3.4 - 25.4 - 25.4
Fuel oil swaps - 0.2 - 0.2 - 2.5 - 2.5
======= ======= ======= ======= ======= ======= ======= =======
Financial assets for which fair
values
are disclosed
Deposits with institutions - 24.2 - 24.2 - 49.0 - 49.0
======= ======= ======= ======= ======= ======= ======= =======
Financial liabilities for which
fair values
are disclosed
Bond and bank loans - 817.1 - 817.1 - 624.3 - 624.3
Lease liabilities - 4.4 - 4.4 - 28.6 - 28.6
Bank overdrafts - 1.5 - 1.5 - 9.5 - 9.5
======= ======= ======= ======= ======= ======= ======= =======
Notes to the consolidated financial statements (continued)
12 Financial assets and financial liabilities (continued)
d) Other information
Debt securities, money market funds and deposits with financial
institutions relate to monies held by the Group's insurance
business and are subject to contractual restrictions and are not
readily available to be used for other purposes within the Group.
The values of the debt securities, money market funds and loan
funds are based upon publicly available market prices.
There have been no transfers between Level 1 and Level 2 and no
non-recurring fair value measurements of assets and liabilities
during the year (2020: none).
Foreign exchange forwards are valued using current spot and
forward rates discounted to present value. They are also adjusted
for counterparty credit risk using credit default swap (CDS)
curves. Fuel oil swaps are valued with reference to the valuations
provided by third parties, which use current Platts index rates,
discounted to present value.
The Group operates a programme of economic hedging against its
foreign currency and fuel oil exposures. During the year, the Group
designated 285 foreign exchange forward currency contracts as
hedges of highly probable foreign currency cash expenses in future
periods and did not designate any fuel oil swaps as hedges of
highly probable fuel oil purchases in future periods. As at 31
January 2021, the Group has designated 287 forward currency
contracts and 22 fuel oil swaps as hedges.
During the year, the Group recognised net gains of GBP6.0m
(2020: GBP4.0m losses) on cash flow hedging instruments through
other OCI into the hedging reserve. Additionally, the Group
recognised net gains of GBP16.3m (2020: GBP7.2m losses) through
other comprehensive income into the hedging reserve, in relation to
the specific hedging instrument for the acquisition of two new
ships. The overall net gains were GBP22.3m (2020: GBP11.2m losses).
The Group has recognised GBPnil gains (2020: GBP0.1m) through the
income statement in respect of the ineffective portion of hedges
measured during the year.
During the year the Group has de-designated 174 foreign currency
forward contracts, with a transaction value of GBP46.6m, where the
cash flows forecast are no longer expected to occur. Similarly,
during the year the Group has de-designated 27 fuel oil swaps to
25% and 50%, with a transaction value of GBP6.5m, where the cash
flows forecast are no longer expected to occur. During the year,
the Group recognised a GBP2.5m gain (2020: GBP2.6m gain) through
the income statement in respect of matured hedges which have been
recycled from OCI. The Group also recognised a GBP2.7m loss (2020:
GBP31.9m gain) in property, plant and equipment, in respect of
matured hedges which have been recognised directly from the hedging
reserve.
13 Cash and cash equivalents
2021 2020
GBP'm GBP'm
Cash at bank and in hand 94.4 73.1
Short-term deposits 7.2 24.8
------- -------
Cash and short-term deposits 101.6 97.9
Money markets funds 66.8 45.9
Bank overdraft (1.5) (9.5)
Cash held by disposal groups - 4.8
Cash and cash equivalents in the cash flow
statement 166.9 139.1
======= =======
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 (note 20). These amounts
held are not readily available to be used for other purposes within
the Group and total GBP91.5m (2020: GBP98.2m). Available cash
excludes these amounts and any amounts held by disposal groups.
Notes to the consolidated financial statements (continued)
14 Retirement benefit schemes
The Group operates retirement benefit schemes for the employees
of the Group consisting of defined contribution plans and defined
benefit plans.
a. Defined contribution plans
There are a number of defined contribution schemes in the Group.
The total charge for the year in respect of the defined
contribution schemes was GBP3.2m (2020: GBP3.6m). The assets of
these schemes are held separately from those of the Group in funds
under the control of Trustees.
b. Defined benefit plans
The Group operates a funded defined benefit scheme, the Saga
Pension 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 fair value of the assets and present value of the
obligations of the Saga defined benefit scheme are as follows:
2021 2020
GBP'm GBP'm
Fair value of scheme assets 411.2 372.3
Present value of defined benefit obligation (415.5) (377.8)
--------- ---------
Defined benefit scheme liability (4.3) (5.5)
========= =========
The present values of the defined benefit obligation, the
related current service cost and any past service costs have been
measured using the projected unit credit valuation method.
During the year ended 31 January 2021, the net liability of the
Saga Pension Scheme has decreased by GBP1.2m to a total liability
of GBP4.3m.
15 Insurance contract liabilities and reinsurance assets
The analysis of gross and net insurance liabilities is as
follows:
2021 2020
Gross GBP'm GBP'm
Claims outstanding 329.5 338.3
Provision for unearned premiums 96.8 105.3
------- -------
Total gross liabilities 426.3 443.6
======= =======
2021 2020
Recoverable from reinsurers GBP'm GBP'm
Claims outstanding 65.2 55.2
Provision for unearned premiums 6.4 6.9
------- -------
Total reinsurers' share of insurance liabilities
(as presented on the face of the statement of
financial position) 71.6 62.1
Amounts recoverable under funds - withheld quota
share agreements recognised within trade payables:
- Claims outstanding 147.1 134.0
- Provision for unearned premiums 55.9 63.9
------- -------
Total reinsurers' share of insurance liabilities
after funds - withheld quota share 274.6 260.0
======= =======
Analysed as:
Claims outstanding 212.3 189.2
Provision for unearned premiums 62.3 70.8
------- -------
Total reinsurers' share of insurance liabilities
after funds - withheld quota share 274.6 260.0
======= =======
Notes to the consolidated financial statements (continued)
15 Insurance contract liabilities and reinsurance assets (continued)
2021 2020
Net GBP'm GBP'm
Claims outstanding 264.3 283.1
Provision for unearned premiums 90.4 98.4
--------- ---------
Total net insurance liabilities 354.7 381.5
Amounts recoverable under funds - withheld quota
share agreements recognised within trade payables:
- Claims outstanding (147.1) (134.0)
- Provision for unearned premiums (55.9) (63.9)
--------- ---------
Total net insurance liabilities after funds -
withheld quota share 151.7 183.6
========= =========
Analysed as:
Claims outstanding 117.2 149.1
Provision for unearned premiums 34.5 34.5
--------- ---------
Total net insurance liabilities after funds -
withheld quota share 151.7 183.6
========= =========
Reconciliation of movements in claims outstanding
2021 2020
GBP'm GBP'm
Gross claims outstanding at 1 February 338.3 392.6
Less: reinsurance claims outstanding (189.2) (209.8)
--------- -------------
Net claims outstanding at 1 February 149.1 182.8
Gross claims incurred 131.4 140.6(25)
Less: reinsurance recoveries (113.2) (109.8)(25)
--------- -------------
Net claims incurred 18.2 30.8
Gross claims paid (140.2) (194.9)(25)
Less: received from reinsurance 90.1 130.4(25)
--------- -------------
Net claims paid (50.1) (64.5)
Gross claims outstanding at 31 January 329.5 338.3
Less: reinsurance claims outstanding (212.3) (189.2)
--------- -------------
Net claims outstanding at 31 January 117.2 149.1
========= =============
(25) Gross claims incurred and reinsurers' share of claims
incurred for the year ended 31 January 2020 have been restated due
to an incorrect allocation between these classifications. Gross
claims incurred have decreased by GBP19.3m and reinsurers' share of
claims incurred has decreased by GBP19.3m. As a result of these
changes, gross claims paid and reinsurers' share of claims paid for
the year ended 31 January 2020 have also been restated - gross
claims paid have decreased by GBP19.3m and reinsurers' share of
claims paid has decreased by GBP19.3m.
Notes to the consolidated financial statements (continued)
15 Insurance contract liabilities and reinsurance assets (continued)
The development of the gross loss ratios (before deducting
reinsurance recoveries) on an accident year basis over the last ten
years is as follows:
Financial Year ended 31 January
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
----------- ------- ------ ------ ------ --------- ------
2012 77% 71% 63% 62% 57% 55% 52% 52% 52% 51%
Accident
Year 2013 76% 72% 62% 56% 53% 52% 51% 50% 49%
2014 75% 70% 63% 61% 58% 55% 55% 54%
2015 81% 80% 78% 75% 71% 69% 67%
2016 87% 88% 82% 75% 73% 71%
2017 67% 69% 65% 62% 58%
2018 75% 75% 73% 69%
2019 80% 80% 80%
2020 70%(26) 74%
2021 70%
The development of the net loss ratios (after deducting
reinsurance recoveries) on an accident year basis over the last ten
years is as follows:
Financial Year ended 31 January
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
----------- ------- ------ ------ ------ --------- ------
2012 76% 70% 62% 62% 57% 54% 53% 52% 52% 51%
Accident
Year 2013 75% 72% 66% 62% 58% 56% 54% 54% 53%
2014 75% 71% 65% 62% 59% 56% 55% 54%
2015 67% 69% 66% 63% 58% 56% 54%
2016 70% 71% 66% 59% 56% 55%
2017 56% 56% 53% 52% 50%
2018 66% 66% 64%(27) 62%
2019 70% 71%(27) 71%
2020 63% 64%
2021 53%
Favourable claims development over the year has resulted in a
GBP30.6m (2020: GBP29.6m) reduction in net claims incurred in
respect of prior years.
(26) For the year ended 31 January 2020, gross claims incurred
have been restated due to an incorrect allocation between gross
claims incurred and reinsurers' share of claims incurred for that
year. The gross loss ratio for the 2020 accident year has decreased
by 7ppt as a result of this correction.
(27) For the 2018 and 2019 accident years in year ended 31
January 2020, net claims incurred have been restated due to a
reallocation of reserve releases between accident years. The net
loss ratio for the 2018 accident year has decreased by 1ppt (from
65%), and for the 2019 accident year the loss ratio has increased
by 1ppt (from 70%).
Notes to the consolidated financial statements (continued)
16 Loans and borrowings
2021 2020
GBP'm GBP'm
Bond 250.0 250.0
Bank loans 70.0 140.0
Ship loan 515.6 234.8
Revolving credit facility - 10.0
Accrued interest payable 8.3 3.7
843.9 638.5
Less: deferred issue costs (26.8) (14.2)
817.1 624.3
======== ========
Term loan and RCF
The Group's bank facilities consist of a GBP250.0m seven-year
senior unsecured bond (repayable May 2024), a GBP200.0m five-year
term loan facility (repayable May 2023) and a GBP100.0m five-year
RCF with an option to extend. In March 2019, the Group's banks
agreed to extend the term on the RCF by one year with expiry in May
2023. The bond is listed on the Irish Stock Exchange.
At 31 January 2021, the Group had drawn GBPnil of its GBP100.0m
RCF and since the May 2017 refinancing GBP130.0m of the term loan
has been repaid.
In light of the significant impact of the COVID-19 pandemic on
the business, especially Travel operations, the Group entered into
discussions with lending banks in early March 2020 to amend the
terms of its bank debt. These discussions were concluded on 1 April
2020, with favourable amendments to banking covenants.
On 30 August 2020 the Group announced that it was at the
advanced stage of a prospective GBP150.0m equity capital raise in
order to strengthen its statement of financial position, improve
liquidity and support the execution of its strategy plan. The
prospective GBP150.0m equity raise was launched on 10 September
2020, structured as a Firm Placing and Open Offer.
The GBP150.3m equity subsequently raised (GBP138.7m net of issue
costs) improved the Group's financial position by funding the
reduction of the term loan to GBP70.0m and repayment of the drawn
RCF, with the balance of the proceeds raised increasing available
cash. The Group also agreed with its lending banks to extend the
maturity of the remaining GBP70.0m term loan to May 2023 and
amended certain bank covenants to provide additional headroom in
stress test scenarios as follows:
-- Increase in the leverage ratio (excluding Cruise) covenant at
31 July 2021 from 4.25x to 4.75x and at 31 October 2021 from 4.0x
to 4.5x;
-- Reduction in the Group interest cover covenant at 30 April
2021 from 2.0x to 1.25x, at 31 July 2021 from 3.0x to 1.5x, at 31
October 2021 from 3.0x to 1.75x and at 31 January 2022 from 3.5x to
2.5x.
In March 2021 the Group reached agreement to amend covenants on
the term loan and RCF (note 21). The covenants within the Group's
term loan and RCF have been amended as follows:
-- Increase in the leverage ratio (excluding Cruise) covenant at
31 January 2022 from 4.00x to 4.25x;
-- Reduction in the Group interest cover covenant at 31 July
2021 from 1.5x to 1.25x, at 31 October 2021 from 1.75 x to 1.25x
and at 31 January 2022 from 2.5x to 1.5x.
Notes to the consolidated financial statements (continued)
17 Loans and borrowings (continued)
In addition, the following amendments have also been made:
-- The Group is subject to a minimum liquidity requirement of
GBP40 million, which can be met either through cash or undrawn and
committed facilities;
-- The permitted indebtedness to the Cruise Group is GBP55m
until September 2022, and then reduces to GBP30m (being GBP50m and
GBP25m respectively permitted indebtedness in addition to the level
of borrowing that was in place when the facility was originally
agreed of GBP5m);
-- Dividends remain restricted while leverage (excluding Cruise)
is above 3.0x.
Interest on the bond is incurred at an annual interest rate of
3.375%. Interest on the term loan and RCF is incurred at a variable
rate of LIBOR plus a bank margin which is linked to the Group's
leverage ratio.
Cruise ship debt deferral
In June 2019, the Group drew down the financing for its cruise
ship, Spirit of Discovery, of GBP245.0m. The financing for Spirit
of Discovery represents a 12-year fixed rate sterling loan, backed
by an export credit guarantee. The initial loan was repayable in 24
broadly equal instalments, with the first payment of GBP10.2m paid
in December 2019. This financing is secured against Spirit of
Discovery cruise ship asset.
The Board announced on 22 June 2020 that it had secured a debt
holiday and covenant waiver for the Group's ship facilities. The
Group's lenders agreed to a deferral of GBP32.1m in principal
payments under the ship facilities that were due up to 31 March
2021.. These deferred amounts will be paid between June 2021 and
December 2024 for Spirit of Discovery and between September 2021
and March 2025 for Spirit of Adventure, and interest remains
payable.
On 29 September 2020, the Group drew down the financing for its
new cruise ship, Spirit of Adventure, of GBP280.8m. The financing
for Spirit of Adventure represents a 12-year fixed rate sterling
loan, backed by an export credit guarantee. The loan is repayable
in 24 broadly equal instalments, with the first payment originally
due six
months after delivery in March 2021, but deferred to September
2021 as a result of the debt holiday described above. This
financing is secured against Spirit of Adventure cruise ship
asset.
In March 2021 the Group reached agreement of a one-year
extension to the debt deferral on its cruise ship facilities (note
21). As part of an industry-wide package of measures to support the
cruise industry, an extension of the existing debt deferral has
been agreed to 31 March 2022. The key terms of this deferral
are:
-- All principal payments to 31 March 2022 (GBP51.8 million) are
deferred and repaid over 5 years;
-- All financial covenants until 31 March 2022 are waived;
-- Dividends remain restricted while the deferred principal is
outstanding;
-- The Group is now subject to a minimum liquidity requirement
of GBP40 million, which can be met through either cash or undrawn
and committed facilities.
Interest on the Spirit of Discovery ship loan is incurred at an
effective annual interest rate of 4.31% (including arrangement and
commitment fees). Interest on the Spirit of Adventure ship loan is
incurred at an effective annual interest rate of 3.30% (including
arrangement and commitment fees).
At 31 January 2021, debt issue costs were GBP26.7m (2020:
GBP14.2m) which have increased in the year following the draw down
of the financing for the new cruise ship, Spirit of Adventure.
During the year, the Group charged GBP29.4m (2020: GBP19.5m) to
the income statement in respect of fees and interest associated
with the bond, term loan, ship loans and RCF. In addition, finance
costs recognised in the income statement include GBP0.8m (2020:
GBP1.2m) relating to interest and finance charges on lease
liabilities and net fair value losses on derivatives are GBPnil
(2020: GBP1.1m). The Group has complied with the financial
covenants of its borrowing facilities during the current year and
prior year.
Notes to the consolidated financial statements (continued)
17 Called up share capital
Ordinary shares
Nominal
value Value
Number GBP GBP'm
Allotted, called up and fully paid
As at 31 January 2019 and 31 January 2020 1,122,003,328 0.01 11.2
Issue of shares - 5 October 2020
* First Firm Placing 224,400,000 0.01 2.2
* Second Firm Placing 124,183,026 0.01 1.2
* Placing and Open Offer 623,335,182 0.01 6.3
971,918,208 0.01 9.7
Sub-total before share consolidation 2,093,921,536 0.01 20.9
Share consolidation - 13 October 2020 (1,954,326,767)
Issue of shares - 18 November 2020 507,458 0.15 0.1
As at 31 January 2021 140,102,227 0.15 21.0
On 30 August 2020 the Group announced that it was at the
advanced stage of a prospective GBP150m equity capital raise in
order to strengthen its statement of financial position, improve
liquidity and support the execution of its strategy plan. The
prospective GBP150m equity raise was launched on 10 September 2020,
structured as a Firm Placing and Open Offer.
The Group's Firm Placing was made up of two firm placings, both
of which involved issuing shares to the Chairman, Roger De Haan.
The First Firm Placing resulted in Roger De Haan subscribing for
224,400,000 new ordinary shares at a price of 27p per ordinary
share. The Second Firm Placing resulted in Roger De Haan
subscribing for 124,183,026 new ordinary shares at 12p per ordinary
share (the Offer Price as if he were participating in the Open
Offer as a qualifying shareholder). The Firm Placing was
inter-conditional with the Placing and Open Offer.
Under the Placing and Open Offer the Company invited its
shareholders to subscribe to the issue of 623,335,182 ordinary
shares at an issue price of 12p per ordinary share on the basis of
five new shares for every nine ordinary shares held. In addition to
the Firm Placing described above, Roger De Haan subscribed for
204,250,307 new shares in the Placing and Open Offer, and, as a
result, from admission held 26.4% of the enlarged share capital of
the Company.
Under the Firm Placing and Open Offer, on 5 October 2020 the
Company issued 971,918,208 new ordinary shares, raising GBP150.3m
of funds which were utilised to repay part of the Group's term loan
and repay in full the drawn RCF (note 16), with the balance of the
proceeds raised increasing available cash. The issue was fully
subscribed.
The share premium arising on the issue of the new ordinary
shares was GBP140.6m. Transaction costs associated with the issue
of the share capital of GBP11.6m were deducted from share
premium.
On 13 October 2020 the Company undertook a consolidation of its
shares, whereby for every 15 ordinary shares held of 1p nominal
value, shareholders received 1 new consolidated share of 15p
nominal value.
On 18 November 2020, Saga plc issued 507,458 new ordinary shares
of 15p each, with a value of GBP0.1m, for transfer into an Employee
Benefit Trust (EBT) to satisfy employee incentive arrangements.
Notes to the consolidated financial statements (continued)
18 Share-based payments
The Group has granted a number of different equity-based awards
which it has determined to be share-based payments. New awards
granted during the year were as follows:
a) On 28 May 2020, share options over 1,337,581 shares were
issued under the DBP to the Executive Directors reflecting their
deferred bonus in respect of 2019/20, which vest and become
exercisable on the third anniversary of the grant date. Under the
DBP scheme, executives receive two-thirds of the bonus award in
cash and one-third in the form of rights to shares of the
Company.
b) On 24 June 2020, options over 12,134,706 shares were issued
under the Restricted Share Plan (RSP) to certain Directors and
other senior employees which vest and become exercisable on the
third anniversary of the grant date, subject to continuing
employment.
c) On 23 November 2020, 253,458 shares were awarded to eligible
staff on the sixth 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.
d) On 15 December 2020, options over 26,225 shares were issued
under the RSP to certain Directors and other senior employees which
vest and become exercisable on the third anniversary of the grant
date, subject to continuing employment.
19 Assets held for sale
At the end of the year, the Group made the decision to initiate
an active programme to locate buyers for a number of its freehold
properties. Immediately before the classification of the properties
to held for sale, their recoverable amounts were ascertained and
this resulted in an impairment charge of GBP4.5m being recognised
against the Group's freehold land and buildings assets (note 10).
At the point of reclassification to held for sale, the carrying
values were considered to be equal to, or below, fair value less
costs to sell and hence no revaluation at the point of
reclassification was required. These properties are presented
within the Insurance segment of the Group, are being actively
marketed and the disposals are expected to be completed within 12
months of the end of the financial year. No gains or losses have
been recognised with respect to the properties
During the prior year, the Group made the decision to initiate
an active programme to locate a buyer for its insurance biking
brand, Bennetts and its Healthcare segment. As at 31 January 2020,
the requirements of IFRS 5 were met and accordingly Bennetts and
the Healthcare segment were classified as separate disposal groups
held for sale in the statement of financial position. Neither of
the disposal groups met the requirements of IFRS 5 to be classified
as discontinued operations. During the current year the Group
completed the sale of these two operations. Further information on
the completed disposals can be found in note 7.
20 Related party transactions
Roger De Haan was appointed as non-executive chairman of Saga
plc on 5 October 2020, following his purchase of 36,855,555 shares
in the Company (constituting 26.4% of issued share capital
immediately after the capital raise and 26.31% of total issued
capital as at 31 January 2021). The Company entered into a
relationship agreement with Roger De Haan on 10 September 2020,
which regulates the relationship between the Company and Roger De
Haan and contains undertakings that transactions and arrangements
with the shareholder will be conducted on an arm's length basis and
on normal commercial terms.
On 6 April 2021, the Company entered into a working capital
facility agreement with Roger De Haan, which allows the Company to
draw down up to GBP10m with 20 days' notice to fund the short-term
liquidity needs of its Cruise business. The agreement allows the
Company to select a loan period of one, two, three or six months,
or any other period agreed with Roger De Haan. Interest on the
working capital facility agreement is incurred at a variable rate
of LIBOR plus a bank margin which is linked to the Group's leverage
ratio. Interest accrues on the facility and is payable on the last
day of the period of the loan. The facility matures on 9 May 2023,
at which point any outstanding amounts, including interest, must be
repaid.
Notes to the consolidated financial statements (continued)
21 Events after the reporting period
a. Regulated insurance distribution business - TC2.4 balance
The Group is in discussion with the FCA regarding the magnitude
of the Threshold Condition 2.4 balance that the Retail Broking
business holds as restricted cash and the potential need to hold an
additional amount on a temporary basis as a result of COVID-19. Any
additional temporary liquidity provision is not expected to be
significant in a Group context and allowance has been made for this
in going concern and viability assessments on a prudent basis.
b. Corporate and cruise ship finance facilities
In March 2021 the Group reached agreement to amend covenants on
the term loan and RCF, and the agreement of a one-year extension to
the debt deferral on its cruise ship facilities.
Term loan and RCF
The covenants within the Group's term loan and RCF have been
amended as follows:
-- Increase in the leverage ratio (excluding Cruise) covenant at
31 January 2022 from 4.00x to 4.25x;
-- Reduction in the Group interest cover covenant at 31 July
2021 from 1.5x to 1.25x, at 31 October 2021 from 1.75 x to 1.25x
and at 31 January 2022 from 2.5x to 1.5x.
In addition, the following amendments have also been made:
-- The Group is subject to a minimum liquidity requirement of
GBP40 million, which can be met either through cash or undrawn and
committed facilities;
-- The permitted indebtedness to the Cruise Group is GBP50m 55m
until September 2022, and then reduces to GBP25m30m (being GBP50m
and GBP25m respectively permitted indebtedness in addition to the
level of borrowing that was in place when the facility was
originally agreed of GBP5m);
-- Dividends remain restricted while leverage (excluding Cruise)
is above 3.0x.
Cruise ship debt deferral
As part of an industry-wide package of measures to support the
cruise industry, an extension of the existing debt deferral has
been agreed to 31 March 2022. The key terms of this deferral
are:
-- All principal payments to 31 March 2022 (GBP51.8 million) are
deferred and repaid over 5 years;
-- All financial covenants until 31 March 2022 are waived;
-- Dividends remain restricted while the deferred principal is
outstanding;
-- The Group is now subject to a minimum liquidity requirement
of GBP40 million, which can be met through either cash or undrawn
and committed facilities.
Alternative Performance Measures (APM) Glossary
The Group uses a number of Alternative Performance Measures
('APMs'), which are not required or commonly reported under
International Financial Reporting Standards, the Generally Accepted
Accounting Principles (GAAP) under which the Group prepares its
financial statements, but which are used by the Group to help the
user of the accounts better understand the financial performance
and position of the business.
Definitions for the primary APMs used in this report are set out
below. APMs are usually derived from financial statement
line items and are calculated using consistent accounting
policies to those applied in the financial statements, unless
otherwise stated.
APMs may not necessarily be defined in a consistent manner to
similar APMs used by the Group's competitors. They should be
considered as a supplement rather than a substitute for GAAP
measures.
Underlying Profit Before Tax
Underlying Profit Before Tax represents loss before tax
excluding unrealised fair value gains and losses on derivatives,
the net profit on disposal of businesses and ships, the impairment
of the carrying value of fixed assets including goodwill, the
impact of the insolvency of Thomas Cook, and restructuring costs.
It is reconciled to statutory loss before tax within the Operating
and Financial Review on page 12 .
This measure is the Group's key performance indicator and is
useful for presenting the Group's underlying trading performance,
as it excludes non-cash technical accounting adjustments and
one-off financial impacts that are not expected to recur.
Trading EBITDA / Adjusted Trading EBITDA
Trading EBITDA is defined as earnings before interest payable,
tax, depreciation and amortisation, and excludes the amortisation
of acquired intangibles, non-trading costs and impairments.
Adjusted Trading EBITDA also excludes the
impact of IFRS 16, Trading EBITDA in relation to businesses
disposed of in the period and Trading EBITDA relating to
the our two new cruise ships, Spirit of Discovery and Spirit of
Adventure in line with the Group's debt covenants. It is
reconciled to Underlying Profit Before Tax within the Operating
and Financial Review on page 24. Underlying Profit Before Tax is
reconciled to statutory loss before tax within the Operating and
Financial Review on page 12.
This measure is linked to the Group's debt covenants, being the
denominator in the Group's leverage ratio calculation.
Underlying basic earnings per share
Underlying basic Earnings Per Share represents basic Earnings
Per Share excluding the post-tax effect of unrealised fair value
gains and losses on derivatives, the net profit on disposal of
businesses and ships, the impairment of the carrying value of fixed
assets including goodwill, the impact of the insolvency of Thomas
Cook and restructuring costs. Prior year figures have been restated
to reflect the effect of the share consolidation that was completed
in October 2020. This measure is reconciled to the statutory basic
earnings per share in note 6 to the accounts on page 50 .
This measure is linked to the Group's key performance indicator
Underlying Profit Before Tax and represents what management
consider to be the underlying shareholder value generated in the
period.
Available cash
Available cash represents cash held by subsidiaries within the
Group that is not subject to regulatory restrictions, net
of any overdrafts held by those subsidiaries. This measure is
reconciled to the statutory measure of cash in note 13 to the
accounts on page 57 .
Alternative Performance Measures Glossary (continued)
Available operating cash flow
Available operating cash flow is net cashflow from operating
activities after capital expenditure but before tax, interest
paid, restructuring costs, proceeds from disposal of businesses
and other non-trading items, which is available to be used by the
Group as it chooses and is not subject to regulatory restriction.
It is reconciled to statutory net cash flow from operating
activities within the Operating and Financial Review on page 23
.
Adjusted net debt
Adjusted net debt is the sum of the carrying values of the
Group's debt facilities less the amount of available cash it holds,
but excludes the ship debt and the Cruise business available cash.
It is linked to the Group's debt covenants, being the numerator in
the Group's leverage ratio calculation, and is analysed further
within the Operating and Financial Review on page 27 .
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