TIDMSAGA
RNS Number : 6610Y
SAGA PLC
10 September 2020
10 September 2020
Note: Saga plc Interim Results for the six months ended 31 July
2020 published at 7:00am 10 September 2020 has been replaced with
this document. Changes made reflect the addition of footnotes.
Saga plc
Interim Results for the six months ended 31 July 2020
Significant Progress in H1 2020
Insurance returned to growth; Travel managed efficiently through
suspension
Launch of GBP150m capital raise; strategic GBP100m investment by
Sir Roger De Haan
Strategy update with detailed plan to return Saga to sustainable
growth
Saga plc ("Saga" or "the Group") announces its interim results
for the six months ended 31 July 2020
Financial highlights
31 July 2020 31 July 2019 Change
--------------------------------------------------------- -------------- -------------- ----------
Underlying Profit Before Tax(1) GBP15.9m GBP52.8m (69.9%)
(Loss)/profit before tax (GBP55.5m) GBP52.6m (205.5%)
Available operating cash flow(1) (GBP23.2m) GBP24.9m (193.2%)
Adjusted net debt (excluding Cruise)(1) GBP410.7m GBP397.9m 3.2%
Leverage ratio (net debt to Trading EBITDA, ex Cruise) 3.6x 2.2x 1.4x
1.Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation.
-- Underlying Profit Before Tax of GBP15.9m, in line with our expectations.
-- Loss before tax of GBP55.5m due to prudent GBP60m impairment
of Travel goodwill, reflecting impact of COVID-19 on perceived
travel industry risk.
-- Leverage ratio (excluding Cruise) of 3.6x, well within the 4.75x covenant level.
-- Robust response to COVID-19 with all colleagues working from
home and no interruption to business, and the Travel businesses
reset for operation in a COVID-19 world.
-- Having taken significant actions to reduce operating costs,
we expect the cash 'burn' for the Travel businesses to be in a
range of GBP6m to GBP8m per month in the second half of the year,
including all operating and financing expenses.
-- Fully committed GBP150m (2) capital raise with Sir Roger De
Haan as cornerstone investor. Reduces leverage and provides
additional financial resources to be able to operate through a
prolonged COVID-19 disruption and remain within banking
covenants.
-- Post capital raise leverage ratio (excluding Cruise) expected to be 2.3x.
2. GBP150m gross proceeds with estimated issue costs of GBP10m
to be deducted, resulting in net proceeds of GBP140m.
Operational highlights for the six months ended 31 July 2020
Insurance
Both our Retail Broking and Underwriting businesses showed
resilience in trading during the period.
Retail Broking
-- Saga-branded motor and home core policies of 831,000 are 2.5%
higher than the previous period. This is due to retention being
5.4ppt higher than last year at 80%.
-- Home and motor margins (after marketing costs) are GBP71 per
policy, GBP7 below the prior year and in line with our
expectations, principally due to pricing actions that were
implemented in July 2019.
-- Our three-year fixed price policy continues to perform well;
we now have 501,000 in force policies. Retention continues to
outperform our expectations and is over 10ppts higher than our
standard products.
-- Total Saga-branded core policies for the period of 900,000
are 4.4% lower than in the prior period due to a significant
decline in the number of new travel insurance policies sold from
mid -- March.
Underwriting
-- The Underwriting business profit of GBP28.0m, including
GBP27.0m of reserve releases, is ahead of expectations. This is due
to favourable experience on large bodily injury claims relating to
prior accident years.
-- Current year claims frequency from March onwards has been
reduced as a result of lower miles driven following the start of
the COVID-19 lockdown.
-- The Group has not recognised any COVID-19 related claims
frequency upside in current year results or financial projections,
because of uncertainty over the current pricing and claims outlook,
and with part of the reduction in claims costs to be returned to
customers.
Travel
-- The Travel business has been paused since mid-March due to
COVID-19. The Group is ready to resume Cruise this year, with the
Tour Operations business due to recommence from April 2021.
-- A significant number of operational changes have been
implemented to ensure the enhanced safety of customers and
colleagues.
-- Saga benefits from having very new, technologically advanced
and smaller ships. We have held detailed discussions with the
Government and industry bodies regarding safe resumption of
cruising and are ready to resume travel when restrictions are
lifted.
-- A significant proportion of customers continue to show their
loyalty, with over 65% of customers retaining their Cruise
bookings.
Strategic update
-- Saga today issues an update on strategy, Transforming Saga -
Experience is Everything, centred on delivering differentiated
products and services for our distinct customer segment.
- The Board believes that Saga has a fundamentally strong
proposition, with a target audience that is the fastest growing and
wealthiest consumer segment in the UK.
- The new management team has developed a clear and compelling
strategy to create a refreshed, contemporary and confident brand
position and to leverage the heritage of Saga with a data and
digital-led approach to improve the customer experience.
- The Board is confident that this strategy will drive growth in
revenues, profit and cash, return Saga to sustainable growth and
restore significant shareholder value.
- The strategy will be focused on delivery under five key pillars:
-- People and Culture Reset - a step-change in delivery
-- Data, Digital and Brand Transformation - a bigger, bolder
strategy
-- Optimising our Businesses - exceptional experiences for our
customers
-- Lower Cost Base - constant drive for efficiencies
-- Debt Reduction - further strengthening of our balance
sheet.
-- To better position the business to deliver against these
priorities, we have announced a GBP150m (3) equity raise. This will
enable us to reduce leverage and significantly reduce balance sheet
risks.
-- In connection with the capital raise, the Company intends to
ask shareholders to approve a share consolidation. Under the
consolidation every 15 Ordinary Shares of 1 pence nominal value
(including new shares issued in the capital raise) will be
consolidated into 1 Consolidated Share of 15 pence nominal value.
The consolidation is being undertaken because the current trading
price of the Ordinary Shares is such that a small movement in the
Company's share price could result in a large percentage movement
and considerable volatility. Thus the purpose of the consolidation
is to try to establish a market price for the Company's shares that
is more appropriate than the market price at present.
3. GBP150m gross proceeds with estimated issue costs of GBP10m
to be deducted, resulting in net proceeds of GBP140m.
Euan Sutherland, Saga's Group Chief Executive Officer,
commented:
"Saga has made significant progress in the first half. Through
this year our priorities have been serving our customers and
keeping colleagues safe during a period of major disruption and
further strengthening our financial position. While taking decisive
action to react to the COVID-19 outbreak, we have also continued to
make progress in our businesses. This is clearly shown in Insurance
with the success of our three-year fixed-price product and our
COVID-19 travel insurance product, and in Cruise by the imminent
arrival of our second new ship, Spirit of Adventure. We are excited
about the opportunities ahead, whilst mindful of the fact that we
face into challenges with the continuation of the COVID-19
pandemic.
"We have conducted a comprehensive review of strategy and have
developed a plan which we believe will strengthen our brand,
improve our focus on our customers, deliver exceptional experiences
for them, and return both our Insurance and Travel businesses to
growth. The Capital Raising, supported by Sir Roger De Haan's
cornerstone investment, will allow us to build on our actions to
date by enhancing our resilience and financial strength.
"Saga is a proud British business, with a strong brand, loyal
customers and great people and we are excited about the
opportunities ahead. With our strengthened financial position and a
refreshed strategy, we expect to be well positioned to unlock all
the potential in Saga, returning the business to sustainable growth
and creating significant long-term value for all our
investors."
A presentation for analysts and investors on the interim
results, strategy update and capital raise will be available to
view on Saga's Investor Relations website from 7.00am 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 Q&A conference
call for analysts and investors at 9.30am. The conference call can
be accessed on: UK: +44 20 3936 2999, all other locations: +44 20
3936 2999. Participant access code: 193041.
For further information please contact:
Saga plc
Mark Watkins, Investor Relations Director Tel: 07738 777 479
Email: mark.watkins@saga.co.uk
Headland Consultancy
Susanna Voyle/Henry Wallers/Sophie O'Donoghue Tel: 020 3805
4822
Email: saga@headland.com
Notes to editors
Saga is a specialist in the provision of products and services
for life after 50. The Saga brand is one of the most recognised and
trusted brands in the UK and is known for its high level of
customer service and its high quality, award winning products and
services including cruises and holidays, insurance, personal
finance and publishing. www.saga.co.uk
Chairman's statement
Saga is a unique British business, with a strong brand, loyal
customers and great people and we are encouraged by the
opportunities that we have identified to return the business to
growth. Our new, strengthened management team has developed a
compelling turnaround strategy, anchored in Saga's heritage as a
business providing exceptional, differentiated products and
services to a distinct customer group. With detailed plans to
create a refreshed, contemporary and confident brand position and
to invest in data and digital to improve the customer experience,
we are confident we have a strategy that will see Saga return, in
time, to sustainable growth and restore significant value for you
as a shareholder.
Our executive team has deep experience in insurance, travel,
brand and digital as well as expertise in turnaround situations.
They have quickly developed a strong understanding of Saga and have
shown they have a tight grip on the business. They have made
significant progress in the first half, with encouraging
improvements in Insurance, progress in Travel before the COVID-19
pandemic and the delivery of significant cost reductions. Since
COVID-19 struck, they have taken a series of decisive actions
driven, first and foremost, by the priority of keeping our
colleagues and our customers safe. As a Board we have been
impressed by their determined focus on delivery.
To underpin this ability to deliver for our investors, we have
today confirmed a GBP150m equity raise (before issue costs),
underpinned by a GBP100m strategic investment by Sir Roger De Haan,
the former Chief Executive Officer of this business and the son of
Saga's founder. Sir Roger is investing at a premium to the recent
share price, reflecting his confidence in the business and the
management team and he will become Non-Executive Chairman of the
business.
Your Board knows that Saga's share price in recent years has
failed to live up to the promises made at the time of the flotation
of the business. We understand your frustration and thank you for
your continued support as an investor. We believe that we now have
a clear and compelling strategy, a team with the right skills and
experience to execute it at pace and, with the support of Sir Roger
and other shareholders, will have a significantly strengthened
balance sheet.
I will step down as Chairman following the EGM to approve the
equity raise. The Directors have carefully considered the proposed
role of Sir Roger as Non-Executive Chairman of the Company in the
context of the role of the Chief Executive Officer and Senior
Independent Director and the proposed responsibilities of each. The
role of the Senior Independent Director has been widened as it is
recognised that Sir Roger will not be considered independent on
appointment. Taking into account Sir Roger's heritage with the Saga
brand and business, his proposed time commitment, and the terms of
his appointment, the Directors believe that the appointment of Sir
Roger De Haan as Non-Executive Chairman is in the best interests of
the Company.
I am confident that I will be leaving Saga in a strong position,
with a strengthened management team delivering against a compelling
strategy and with a significantly enhanced financial position.
Group CEO's statement
The Group has continued to make good progress in the first half,
with Insurance performing well. Our Travel business remains
suspended due to the ongoing impact of COVID-19 but our customers
continue to show strong loyalty with retention in our Cruise
business above 65%.
The Group has continued to simplify and focus on efficiency, and
this has accelerated in light of the impact of COVID-19. In total,
over GBP35m of cash has been generated from the disposal of
non-core businesses, with Bennetts completing in early August. As
previously announced, we have achieved GBP15m of run-rate cost
savings, with plans in a place for an additional GBP5m across the
business.
GBP150m equity raise and strategic investment by Sir Roger De
Haan
The Group continues to monitor the impact of the COVID-19
pandemic on its business and has taken actions to reduce its costs,
in particular in the Travel business. While the future impact of
COVID-19 remains highly uncertain, there is an increased risk of
disruption of the Cruise and Tour Operations businesses well into
2021. While the Group has significant available liquidity and is
expected to remain in compliance with all banking covenants through
at least the next six months in all reasonable scenarios and before
any additional actions are taken to improve financial flexibility,
such an outcome would have a potentially significant adverse impact
on the position beyond this date. Specifically, there is a risk
that the Group would not comply with all of its financial covenants
as at 31 July 2021 in the absence of such further actions being
taken.
In light of the above challenges, the Group is intending to
raise GBP140m net of costs, which is fully committed, and includes
a significant investment from Sir Roger De Haan. The equity raise
is intended to improve the Group's financial position by reducing
the term loan from GBP134m to GBP70m and repaying the drawn GBP40m
of revolving credit facility, with the balance of proceeds raised
increasing available cash by around GBP36m. The Group has also
agreed with its lending banks, subject to the equity raise, to
extend the maturity of the remaining GBP70m term loan to May 2023
and to amend certain bank covenants to provide additional headroom
in stress test scenarios. The GBP100m undrawn revolving credit
facility will remain available until its existing maturity date of
May 2023.
Good progress in first half
Insurance
The Retail Broking insurance business has performed well and it
is pleasing to see that motor and home policies are now growing for
the first time in five years. This is due to strong retention of
80% across our motor and home products, and reflects a number of
actions taken to drive retention as well as the fantastic response
we have seen to our three-year fixed-price policy. Retention on
this product is currently over 10ppts higher than our standard
product.
The business continues to drive innovation beyond the 3-year
fixed-price product and has announced that treatment abroad,
repatriation and cancellation for COVID-19 has been included as
standard as part of its travel insurance policies for all trips
from 1 June. Saga has added the cover to help customers feel more
comfortable travelling once the Government advice changes to say
that it is safe to do so.
We responded quickly to COVID-19 to establish full home working
and remained open for both new and existing customers throughout
the period.
Our Underwriting business achieved a GBP28m profit for the
period. This included GBP27m of reserve releases due to continued
favourable experience on large bodily injury claims relating to
prior accident years. Consistent with other insurers, claims
frequency in the first half of the current financial year has
significantly reduced as a result of the sharp reduction in miles
driven by the Group's customers during the lockdown period. At this
stage, the Group has not recognised the benefit of this decrease
because of uncertainty over the current pricing and claims outlook,
and as a result of actions the Group intends to take to return part
of the reduction in claims costs to customers.
Travel
The Group's Travel business has remained on pause since the
decision in mid-March to suspend operations due to COVID-19. The
Group has been focused on ensuring customers whose holidays have
been cancelled are re-booked on future trips or offered a cash
refund. We currently have particularly high levels of retention in
the Cruise business of over 65%.
The Group continues to expect some Cruise operations to resume
this year. We have made a number of significant changes to how the
Travel businesses operate to provide peace of mind and ensure the
safety of customers and colleagues. Together with our modern
vessels we are leading the cruise industry in our response.
Transforming Saga - Experience is Everything
In 2021 Saga will celebrate its 70th anniversary. The strategic
turnaround plan outlined by the new management team in 2020 is
intended to build on Saga's heritage while responding fully to the
challenges faced by the business today. At our core, we will remain
the same - a unique British business focused on providing
exceptional, differentiated products and services to our distinct
customer group. At the same time, we will refresh our brand, invest
in data and digital to improve the customer experience; we will
optimise the Insurance business and build greater capability and
resilience in the Cruise business and re-set our Tours offer. We
are confident that this approach will return Saga to growth and
underpin a successful next chapter in its history.
Our target audience of the over 50s is the fastest growing and
wealthiest consumer segment in the UK. For the first 55 years of
its life, Saga kept a relentless focus on innovation, creating and
delivering unique, high-quality products and services for older
people in the UK. This was followed by almost 15 years during which
this tight focus slipped. Our franchise was depleted, first under
private equity ownership, when debt was increased dramatically and
decision making became too focused on the short-term; then, during
the period in public ownership, when the potential impact of some
of the investment made was lost due to poor delivery.
The new management team have looked back to our heritage and
faced into the problems we have identified and we have begun to
resolve them with precision and pace. Our objective is to return
the business to its core DNA, within a contemporary data and
digital-led strategy, creating exceptional experiences every day
for our customers. We are confident that this will in turn drive
growth in revenues, profit and cash over the long term and
sustainable returns for our investors.
We have a new creative brand essence of Experience is Everything
- this talks to the life experience of our customers, the
experience of Saga and the amazing customer experiences we deliver
for them. This is a really important change for Saga - not only
will it drive increased brand awareness, but it will act as an
internal mantra for our people.
It is important to be clear eyed as we move forward, recognising
four major challenges, in order to address them and ensure they
never recur:
-- Dilution of the original culture and lack of clear performance expectations
-- An inconsistent focus on the customer and the core drivers of shareholder value
-- Legacy of poorly made investment and then lack of delivery across the business
-- Excessive levels of debt.
At the same time, we are very aware that we are heading into the
next phase of delivery against the backdrop of the COVID-19
pandemic and the UK's worsening economic outlook. We are aware of
the scale of the task ahead of us, but confident in our ability to
deliver.
Recognising all this, the new management team has already begun
delivering improvements and creating the platform for long-term
growth in revenue and profit. We have worked out how to leverage
the investment of recent years efficiently and what more
investments need to be made. We are making sure Saga is focused,
first and foremost, on returning to its roots and innovating to
bring unique products to our customer base.
The golden thread running through everything we do will be a
purpose-led approach to business. We recognise that older people do
not define themselves by age, but by attitude, aspiration and an
appetite for adventure. Saga is committed to delivering exceptional
experiences for all customers every day, while being a driver of
positive change in the markets in which we operate. We are aligning
our people and our products around this purpose and through this
approach and a return to great customer focus, we will build
longer, deeper relationships with this growing cohort of customers.
This, in turn, will ensure Saga returns to being a high quality,
growing and profitable business, one with a higher quality of
earnings.
To deliver our plan we are focused on the following five
pillars.
1. People and Culture Reset
The transformation required in people, leadership and culture
will underpin the success of the strategic reset, so this is our
first priority. The new management team have already acted
decisively, resizing and reshaping the business in 2020, and
creating a culture of accountability by reducing management layers
from 17 to 5. Total headcount reduced by 36% in H1, down to 2,500
colleagues from 3,900, when including the non-core disposals,
permanent reductions and temporary Travel measures. We expect to
add back up to 500 roles in time as Travel resumes, leaving
permanently lower headcount of 23%. The work we had done in this
area enabled us to move quickly once COVID-19 hit and within a week
of lockdown we had all 2,500 colleagues working effectively from
home, with no reduction in customer satisfaction levels. Our
re-established commitment to fairness and colleague welfare saw all
Cruise crew repatriated to their home countries, alongside an
investment in improved communications across the business to drive
alignment and performance, as well as upweighting support for
colleague mental health, diversity and inclusion. We are launching
a new purpose, values and engagement programme this month, as we
connect the customer brand revitalisation with the colleague brand
to secure a strong foundation for growth in revenue and profit
across the business.
2. Data, Digital and Brand Transformation
The new management team are implementing a single group-wide
customer digital data platform. This builds on and optimises the
investments made in the last five years and will give us a single
view of the customer across our businesses. We are efficiently
re-purposing existing technology and developing big data solutions
over the next two years. From this we are creating an automated
personalisation model that provides prompts to make the best offer
to each customer at each opportunity, allowing customer interaction
in real time and synchronisation across channels and businesses to
drive customer multi-product holdings, loyalty and value.
We will drive awareness and consideration of a refreshed and
contemporary Saga with a new integrated multi-year brand campaign
planned to launch in 2021. Our plans for this are well advanced and
have tested very positively with our target audience. We have
earmarked a brand advertising fund within the current plan to
support this.
3. Optimising our Businesses
The new management team are focused on making the core Saga
businesses the best they can be for customers and colleagues -
separately and together. We are clearly focused on this core and
will not create distraction by investing in other businesses until
we have delivered real improvements. This discipline will be
important to drive maximum value creation and efficiency across the
Group in the interests of shareholders
Insurance - has been operationally and financially resilient
through the COVID-19 crisis, with good progress made in delivery of
our objectives in H1 2020. Innovation has seen a step change in the
last year, resulting in positive customer reaction with the
introduction of motor and home three-year fixed-price insurance,
alongside COVID-19 inclusive travel insurance. There is more
innovation to come from a refocused team, who will benefit from the
group-wide focus on data, digital and knowing our customers better
than anyone else. This will enable us to deliver exceptional
propositions to our customers, creating broader and deeper
relationships and retaining our customers for longer.
Cruise - our number one priority is a safe return to service as
soon as Government restrictions on the cruise industry are lifted.
We are working closely with the Government and all the relevant
authorities to ensure provision of the very best safety operating
protocols for a COVID-19 world. Our transformation of Cruise means
we operate the newest ships on the seas. These are boutique ships
that are technologically advanced and able to offer our guests the
highest levels of safety, with fresh air for all cabins, control of
air-conditioning airflow in corridors and public spaces, ionisation
and ultra-violet filter capability further protects guests as well
as all table-service restaurants. Our ships are mid-size, enabling
social distancing more easily and realistic capacity management,
along with enhanced guest protection ahead of boarding and enhanced
medical facilities and staff onboard. Saga Cruise has always
operated an end-to-end bubble for those travelling to and from our
ships - with a dedicated car service picking up guests from their
homes and driving them to the ships, and the same on return - and
we only sail from UK ports. We will soon launch our second Spirit
class ocean ship Spirit of Adventure, and customer retention for
those whose cruises have been cancelled because of COVID-19 has
been consistently strong, as are 2021 bookings. The new management
team has confidence in the financial metrics established with
Spirit of Discovery from August 2019 (load factors, per diems and
profit per ship) being re-established, over time, as sailings
resume. We are extending our proposition to river cruise from 2021
and an intended expedition cruise proposition from 2023.
Tour - The new management team have taken the opportunity to
reset the Tour Operations business during the COVID-19 lockdown.
Having repatriated more than 3,000 customers in March, we set about
establishing a lower cost, smaller business and planning for a
resumption of operations based on a higher-quality, differentiated
product portfolio that is consistent with the Saga brand. This will
emphasise peace of mind, unique and aspirational holidays tailored
for our customers and the delivery of exceptional experiences. The
launch of the 2021 season is taking place in early autumn 2020,
with a return to the DNA that created Saga Holidays success for
many years. Titan Travel has also improved its focus and reduced
its cost base, while taking the same high-quality measures around
COVID-19 safety and peace of mind for customers. Both Tour
Operations businesses are planning for a resumption of operations
from April 2021.
4. Lower Cost Base
During 2020 and before COVID-19 the new management team was
focused on delivering the optimum cost base for Saga. Having
inherited a high cost, complex business, we have worked hard to
reduce cost and complexity and have focused Saga to great effect
already. This focus on cost efficiency will remain as a central
element for the business in the years ahead.
5. Debt Reduction
The new management team acted quickly with decisive measures to
strengthen the balance sheet and reduce debt. Focused in particular
on the covenanted short-term debt, we have reduced operating costs,
disposed of non-core assets, suspended the dividend and now we are
proposing the Placing and Open offer. These measures will
significantly strengthen the Saga balance sheet and provide a
strong foundation for future success and growth.
In terms of financial targets, the Group aims to return to
sustainable profitable growth from the 2019/20 level for Underlying
Profit Before Tax of GBP110m, with a step change in the quality of
earnings. This is underpinned by an ambition to grow insurance
policy count by 3% per annum over the cycle, to grow Tour
Operations revenues by 4% per annum from the reset level, both
while sustaining or improving margins, as well as to achieve the
goal of generating GBP40m of EBITDA per cruise ship per annum at
normal load factors.
Management recognises that there will be an ongoing impact from
COVID-19; the 2021/22 financial year will inevitably be a
transitional one for the Group. Management also recognises that
there is a need to increase investment in the brand, data and
digital. This extra investment is not expected to exceed GBP10m in
each of the current and next years and should be self-funding from
the 2022/23 financial year.
A key financial objective for the Group is to reduce total debt
leverage to under 3.5x EBITDA. While the pace of recovery from
COVID-19 will significantly influence the speed of debt reduction,
the Group's modelling suggests that this should be achieved by the
end of 2023 even in stress test scenarios. Given this priority the
Group is not expecting to pay dividends in the next few years, but
the Board will reassess its dividend policy once the leverage goal
has been achieved.
The new management team are confident the strategy for Saga is
right and with the strengthened balance sheet through the Placing
and Open offer, underpinned by Sir Roger De Haan, who will return
to Saga as our Non-Executive Chairman, are committed to delivering
a strong future for the business.
Operating and Financial Review
The Group has reported Underlying Profit Before Tax of GBP15.9m,
a decrease of 69.9% in comparison to the prior period. This is in
line with expectations and the stress test modelling undertaken at
the onset of the COVID-19 crisis in March 2020 and 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.
-- The suspension of the Travel business in March due to the Government advice against travel.
The significant impact of COVID-19 on travel companies has led
to an increase in risk and cost of debt levels such that
market-participant views of discount rates have increased over the
past six months, particularly in the cruise industry. While 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 this position and uncertainty over the pace
of the recovery, the Group has impaired in full the goodwill assets
allocated to the Tour Operations and Cruise businesses totalling
GBP59.8m. As a result, the Group reported a Loss Before Tax of
GBP55.5m compared to a profit of GBP52.6m in the prior period.
Notwithstanding the progress made during the year and the strong
current liquidity position of the Group, there is an increasing
likelihood that the impact of COVID-19 on the travel industry will
be more significant and result in a slower recovery than previously
anticipated. This has led to the launch of the Group's capital
raising, with Sir Roger De Haan as a cornerstone investor, which
seeks to raise GBP140m of net proceeds.
The Group will use these proceeds to reduce short-term
indebtedness and further improve the financial strength of
operating divisions. On completion of the capital raise, the Group
will repay the GBP40m drawn revolving credit facility ('RCF') and
reduce the term loan to GBP70m. In addition, the Group has agreed
with its lending banks, subject to the reduction of the term loan
to GBP70m and completion of the capital raise, to extend the
maturity of the remaining term loan to May 2023 and certain
amendments that will provide additional financial flexibility. On a
proforma basis post completion of the capital raise, the Group will
have a strong financial position with significant available
liquidity, with approximately GBP60m of available cash resources,
together with GBP100m of available undrawn RCF that is available
through to May 2023.
The Group suspended dividend payments at the onset of the
COVID-19 crisis and no interim dividend is proposed.
Operating Performance
Group Income Statement
6m to Change 6m to
GBPm July 2020 July 2019
------------------------------------------------ --------------------- ------------ ------------
Revenue (4) 192.4 (51.4%) 395.9
--------------------- ------------
Underlying Profit Before Tax (5)
Total Retail Broking (earned) 42.0 (14.8%) 49.3
Underwriting 28.0 31.5% 21.3
--------------------- ------------
Total Insurance 70.0 (0.8%) 70.6
Travel (34.2) (4,375.0%) 0.8
Other Businesses and Central Costs (11.3) 7.4% (12.2)
Net finance costs (6) (8.6) (34.4%) (6.4)
15.9 (69.9%) 52.8
Net fair value gains on derivatives 1.9 2.3
Profit on disposal / (impairment) of assets 4.5 (0.3)
Restructuring costs (28.3) (2.2)
Net profit on disposal of businesses 10.3 0.0
Impairment of Travel goodwill (59.8) 0.0
(Loss)/profit before tax (55.5) (205.5%) 52.6
--------------------- ------------
Tax expense (1.6) 76.5% (6.8)
(Loss)/profit after tax (57.1) (224.7%) 45.8
--------------------- ------------
Basic earnings per share:
Underlying Earnings Per Share (5) 2.2p (46.3%) 4.1p
Earnings per share (5.1p) (224.4%) 4.1p
4. Revenue is stated net of ceded reinsurance premiums earned on
business underwritten by the Group of GBP73.1m (H1 2019:
GBP70.3m).
5 . Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation.
6 . Net finance costs exclude net fair value gains / (losses) on
derivatives and IAS19R pension interest costs.
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 Personal Finance, Publishing and
MetroMail, a printing and fulfilment business.
Revenue
Revenue decreased by 51.4% to GBP192.4m (H1 2019: GBP395.9m) due
to the suspension of the Travel business from March 2020, combined
with lower Retail Broking revenues as a result of a reduction in
the sales of travel insurance policies.
Underlying Profit Before Tax (7)
Underlying Profit Before Tax decreased by 69.9% to GBP15.9m (H1
2019: GBP52.8m).
This was primarily due to a GBP35.0m 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 period were GBP8.6m (H1 2019: GBP6.4m),
an increase of 34.4% largely due to the additional debt issue costs
incurred in connection with amendments to the Group's leverage
covenants in April 2019 and April 2020. This excludes finance costs
relating to the Cruise business that are included within the Travel
division, totalling GBP5.2m (H1 2019: GBP1.4m).
Loss before tax
Loss before tax for the period of GBP55.5m includes a GBP59.8m
impairment to goodwill and GBP28.3m restructuring costs offset by
the GBP10.3m profit on the disposal of non-core businesses and
GBP4.5m net profit on completion of the sale of the Saga Sapphire
cruise ship.
The restructuring costs include GBP18.7m of expenses associated
with a group-wide restructuring programme to improve the operating
efficiency of both the trading business 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 GBP9.6m of costs relate to the impairment
and operating losses of non-core businesses, principally the
Destinology travel business.
The GBP10.3m 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.
Tax expense
The Group's tax expense for the period was GBP1.6m (H1 2019:
GBP6.8m) representing a tax effective rate of 37.2% (H1 2019:
12.9%) 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.
Earnings per share
The Group's Underlying Earnings Per Share were 2.2p (H1 2019:
4.1p). The Group's reported earnings per share were a loss of 5.1p
(H1 2019: profit of 4.1p).
7. Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation.
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 home and motor
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.
Even if underwritten by a third party, the product is presented as
a Saga product and the Group will always manage the customer
relationship.
6m to July 2020 6m to July 2019
Motor Home Other Motor Home Other
GBPm Broking Broking Broking Total Change Broking Broking Broking Total
--------------------- --------- --------- --------- -------- --------- --------- --------- --------- --------
GWP
Broked 82.3 76.6 49.2 208.1 2.9% 61.1 80.4 60.7 202.2
Underwritten 109.1 0.0 1.9 111.0 (10.3%) 121.7 0.0 2.1 123.8
191.4 76.6 51.1 319.1 (2.1%) 182.8 80.4 62.8 326.0
--------- --------- --------- -------- --------- --------- --------- --------
Broker revenue 20.7 14.5 20.0 55.2 (17.0%) 23.8 17.5 25.2 66.5
Instalment revenue 4.5 1.5 0.0 6.0 11.1% 3.9 1.5 0.0 5.4
Add-on revenue 8.6 5.3 0.0 13.9 (8.6%) 10.2 5.0 0.0 15.2
Other revenue 16.6 9.2 3.2 29.0 (30.8%) 20.4 8.7 12.8 41.9
Written revenue 50.4 30.5 23.2 104.1 (19.3%) 58.3 32.7 38.0 129.0
--------- --------- --------- -------- --------- --------- --------- --------
Written gross
profit 49.1 30.5 21.1 100.7 (17.1%) 56.9 32.7 31.8 121.4
Marketing expenses (10.9) (3.2) (1.4) (15.5) 29.5% (11.8) (5.4) (4.8) (22.0)
Other operating
expenses (24.9) (12.5) (9.1) (46.5) 1.7% (27.3) (10.4) (9.6) (47.3)
Written Underlying
PBT (8) 13.3 14.8 10.6 38.7 (25.7%) 17.8 16.9 17.4 52.1
Written to earned
adjustment 3.3 0.0 0.0 3.3 217.9% (2.8) 0.0 0.0 (2.8)
Earned Underlying
PBT (8) 16.6 14.8 10.6 42.0 (14.8%) 15.0 16.9 17.4 49.3
--------- --------- --------- -------- --------- --------- --------- --------
Thousands
Number of policies
sold ('000)
Core 628 347 69 1,044 (4.1%) 614 345 130 1,089
Add-ons 922 273 4 1,199 12.0% 795 271 5 1,071
--------- --------- --------- -------- --------- --------- --------- --------
1,550 620 73 2,243 3.8% 1,409 616 135 2,160
Core policies sold
('000)
Saga branded 484 347 69 900 (4.4%) 466 345 130 941
Bennetts 144 0 0 144 (2.7%) 148 0 0 148
--------- --------- --------- -------- --------- --------- --------- --------
628 347 69 1,044 (4.1%) 614 345 130 1,089
Third-party panel
share (9) 29.9% 8.6% 21.3%
8. Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation.
9. 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
GBP38.7m from GBP52.1m, and on an earned basis (which includes the
impact of the written to earned adjustment) reduced to GBP42.0m
from GBP49.3m.
The reduction in profit before tax on a written basis was mainly
due to a GBP14.2m 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.[1]
GBPm Change in written Element of change Total change in
gross profit directly attributable written gross
after marketing to COVID-19 profit after marketing
expense excluding expense
COVID-19
----------------------- --------------------- ------------------------- --------------------------
Written gross profit
in H1 2019 99.4
Saga branded motor (2.8) (1.1) (3.9)
Home (0.1) - (0.1)
Bennetts (2.0) (0.9) (2.9)
Travel - (3.3) (3.3)
Other (2.8) (1.2) (4.0)
Written gross profit
in H1 2020 (7.7) (6.5) 85.2
--------------------- ------------------------- --------------------------
While Retail Broking performance has been resilient in light of
COVID-19 challenges, there has been some impact on first-half
results, mainly due to a significant reduction in sales of travel
insurance and on some components of other fee income. In aggregate,
the Group estimates that factors directly related to COVID-19
reduced first-half profits by GBP6.5m, mainly relating to the Other
Broking segment.
Excluding the impact of COVID-19, the balance of the change in
written gross profits is due to Bennetts (GBP2.0m), lower results
from Other Broking (GBP2.8m), mainly in relation to claims handling
and credit hire) and a GBP2.9m decline in profits on the core Saga
branded home and motor books.
For Saga branded home and motor insurance, in terms of the total
gross margin after marketing expenses, new business profits
improved by GBP1.5m, while there was a GBP5.5m reduction in renewal
profits. The impact of COVID-19 is estimated at around GBP1.1m,
reflecting a reduction in mid-term adjustment and referral
fees.
The increase in new business profits is principally due to lower
costs of acquisition in comparison to the first half of last year,
partially offset by reduced fee income. 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 5% increase
in the total number of home and motor renewals policies.
The overall gross margin per policy for Saga branded home and
motor combined, and calculated as written gross profit less
marketing expenses divided by the number of policies, was GBP71 in
the first half of the year (GBP72 per policy excluding COVID-19
impacts), compared to GBP78 in the prior period. This ratio
benefitted from mix changes, with a higher weighting to renewals,
and reduced spend on above the line advertising, offset by price
actions implemented last July (around GBP6 per policy impact on
average) and a more competitive environment for motor insurance.
The first-half margin is within the indicative full-year range for
2020/21 that was set out in April 2020.
Although Retail Broking earnings have reduced in the first half
of the year, much of this was expected and the Insurance business
has shown good progress despite the challenges presented by
COVID-19:
-- After several years of a decline in the policy count, Saga
branded home and motor policies increased by 2.5% in the first half
of the year.
-- The higher policy count is due to improved customer retention
of 79.9% across home and motor, which was 6 percentage points
higher than the prior period. This includes the beneficial impact
of the three-year fixed policy introduced in April 2019 on customer
loyalty.
-- 273k three-year fixed-price policies were sold in the period,
32.8% of total motor and home policies, with over 60% 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 home and motor
are 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 July 2020, GBP7.6m of income had
been deferred in relation to three-year fixed-price policies,
GBP4.0m of which related to income deferred on three-year fixed
price policies written in the six months to 31 July 2020.
Motor Broking
Gross written premiums increased by 4.7% due to a 2.3% increase
in core policies and an increase in average gross written premiums
reflecting a higher contribution from the renewal book and three --
year fixed-price product. Gross written premiums from business
underwritten by AICL decreased by 10.4% to GBP109.1m (H1 2019:
GBP121.7m) in line with an 8.6ppt increase in third-party panel
share to 29.9% (H1 2019: 21.3%) due to price cuts implemented by
AICL in February 2019, and with third-party panel members
relatively more competitive since August 2019.
Other revenue declined by GBP3.8m due to lower levels of
mid-term adjustments and cancellations as fewer customers bought or
sold cars during the period of lock-down relating to COVID-19.
Written gross profit minus marketing expenses was GBP38.2m (H1
2019: GBP45.1m), contributing GBP61/policy (H1 2019: GBP73/policy).
Excluding Bennetts, motor written gross profit minus marketing
expenses was GBP31.6m (H1 2019: GBP35.6m), contributing
GBP65.3/policy (H1 2019: GBP76.4).
The reduction in written gross profits excluding Bennetts is
mainly due to pricing actions for long-tenured customers that were
implemented in July 2019, the impact of COVID-19 on other income
and more generally competitive market conditions. This was
partially offset by lower costs of acquisition and a 4% increase in
the number 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 was
completed on 7 August 2020.
The positive written to earned impact in the current year of
GBP3.3m 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 GBP2.8m 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 4.7% due to lower volumes of
new business, offset by higher average GWP. The renewal book on a
GWP basis was stable, with higher volumes offset by lower average
GWP.
Written gross profit minus marketing expenses was GBP27.3m (H1
2019: GBP27.3m), on a per policy basis this was GBP79/policy (H1
2019: GBP79/policy).
Within gross profits the impact of pricing actions for long
tenured customers was offset by lower costs of acquisition and an
8% increase in the number of renewal policies. 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
higher weight of new business relative to total policies
written.
Other Broking
Other insurance broking business is primarily comprised of
private medical insurance (PMI) and travel insurance.
Gross written premiums declined 18.6% as a result of lower sales
of travel insurance, which declined from 96k in the prior period to
38k in the first half of the year. This was due to the impact of
COVID-19 related travel restrictions. Gross profits relating to the
travel product declined by GBP3.3m as a result.
Sales and profit before tax for the PMI product were broadly
stable. The Group is not including any upside from a reduction in
claims costs in the first half that has occurred as a result of a
significant decline in elective surgery 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 such benefits to
customers.
Profitability of the Group's claims management and credit hire
businesses were also impacted during the period due to lower claims
volumes as a result of reduced repair activity during the COVID-19
lock-down, as well as the exit from a claims handling contract for
a third party.
Insurance Underwriting
6m to July 2020 6m to July 2019
Quota Quota
GBPm Reported Share Underlying Change Reported Share Underlying
------------------ ------------ ---------- -------- ------------ ---------- ---------- -------- ------------
Net earned
premium 26.6 (65.9) 92.5 (3.5%) 31.6 (64.3) 95.9
Other revenue 1.9 2.1 (0.2) (133.3%) 5.8 5.2 0.6
---------- -------- ------------ ---------- -------- ------------
Revenue A 28.5 (63.8) 92.3 (4.4%) 37.4 (59.1) 96.5
Claims costs B (22.8) 56.4 (79.2) 6.3% (28.8) 55.7 (84.5)
Reserve releases C 25.4 (1.6) 27.0 50.0% 14.2 (3.8) 18.0
Other cost of
sales D (2.7) 6.8 (9.5) (8.0%) (1.9) 6.9 (8.8)
---------- -------- ------------ ---------- -------- ------------
E (0.1) 61.6 (61.7) 18.1% (16.5) 58.8 (75.3)
Gross profit 28.4 (2.2) 30.6 44.3% 20.9 (0.3) 21.2
---------- -------- ------------ ---------- -------- ------------
Operating
expenses F (1.8) 3.3 (5.1) (54.5%) (1.4) 1.9 (3.3)
Investment
return 1.4 (2.1) 3.5 (20.5%) 1.8 (2.6) 4.4
Quota share net
cost 0.0 1.0 (1.0) 0.0% 0.0 1.0 (1.0)
Underlying Profit Before
Tax (11) 28.0 0.0 28.0 31.5% 21.3 0.0 21.3
---------- -------- ------------ ---------- -------- ------------
Reported loss
ratio (B+C)/A (9.1%) 56.6% (12.3%) 39.0% 68.9%
Expense ratio (D+F)/A 15.8% 15.8% 3.3% 8.8% 12.5%
Reported COR (E+F)/A 6.7% 72.4% (9.1%) 47.9% 81.5%
Pure COR (E+F-C)/A 95.8% 101.6% 1.5% 85.8% 100.1%
Number of earned
policies 386k (4.0%) 402k
Net earned premium per
policy (GBP) 240 0.4% 239
11. Alternative performance measure - refer to the glossary on
pages 61 to 62 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, primarily focused on lower risk drivers.
AICL also underwrites a portion of the home panel, although all the
risk in the home insurance business is passed on to a third-party
insurance company.
Excluding the impact of the quota share reinsurance agreement,
net earned premiums decreased by 3.5% to GBP92.5m (H1 2019:
GBP95.9m) in line with the decline in the number of earned policies
underwritten by AICL.
Also excluding the impact of the quota share, the Underwriting
business saw an increase in the pure combined operating ratio to
101.6% (H1 2019: 100.1%). This was due to an increase in operating
expenses to support investment in pricing capabilities.
Consistent with the experience of other insurers, claims
frequency in the first half of the current financial year has
significantly reduced as a result of the sharp reduction in miles
driven by the Group's customers during the lockdown period. At this
stage, the Group has not recognised the benefit of this decrease
because of uncertainty over the current pricing and claims outlook,
and as a result of actions the Group intends to take in returning
part of the reduction in claims costs to customers.
Reserve releases of GBP27.0m (H1 2019: GBP18.0m) have resulted
in a reported combined operating ratio of 72.4% (H1 2019: 81.5%),
excluding the impact of the quota share treaty. 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.
6m to July 2020 6m to July 2019
Reported Quota Underlying Change Reported Quota Share Underlying
Share
------------------ ---------- -------- ------------ -------- ---------- ------------- ------------
GBPm GBPm GBPm GBPm GBPm GBPm
Motor insurance 24.5 (2.5) 27.0 15.4 (2.6) 18.0
Home insurance (0.4) (0.4) 0.0 (1.2) (1.2) 0.0
Other insurance 1.3 1.3 0.0 0.0 0.0 0.0
25.4 (1.6) 27.0 50.0% 14.2 (3.8) 18.0
---------- -------- ------------ ---------- ------------- ------------
Reserve releases primarily reflect continued favourable
experience on large bodily injury claims relating to prior accident
years. The investment return decreased GBP0.9m to GBP3.5m (H1 2019:
GBP4.4m) due to a reduced investment portfolio and lower
reinvestment yields.
Travel
6m to July 2020 6m to July 2019
----------
Total Total
GBPm Tour Operations Cruise Travel Change Tour Operations Cruise Travel
-------------------------- ----------------- -------- --------- ---------- ----------------- -------- ---------
Revenue 33.0 16.3 49.3 (77.5%) 176.9 42.1 219.0
----------------- -------- --------- ----------------- -------- ---------
Gross (loss) / profit 0.0 (3.4) (3.4) (108.5%) 31.2 8.8 40.0
Marketing expenses (3.8) (2.9) (6.7) 61.0% (9.7) (7.5) (17.2)
Other operating expenses (14.9) (4.0) (18.9) 9.1% (17.2) (3.6) (20.8)
Investment return 0.0 0.0 0.0 (100.0%) 0.2 0.0 0.2
Finance costs (0.1) (5.1) (5.2) 271.4% (0.3) (1.1) (1.4)
Underlying (Loss) /
Profit Before Tax (12) (18.8) (15.4) (34.2) n.m. 4.2 (3.4) 0.8
----------------- -------- --------- ----------------- -------- ---------
Average revenue per
passenger
(GBP) 2,750 2,717 2,739 18.8% 2,106 3,827 2,305
Holidays passengers
('000)
Stays 7 7 (79.4%) 34 34
Escorted tours 5 5 (83.3%) 30 30
River cruise 0 0 (100.0%) 15 15
Third-party ocean
cruise 0 0 (100.0%) 5 5
----------------- --------- ----------------- ---------
12 12 (85.7%) 84 84
Cruise passengers ('000) 6 6 (45.5%) 11 11
Cruise passenger days
('000) 61 61 (57.9%) 145 145
Load factor 83% 83% 1.2% 82% 82%
Per Diems (GBP) 241 241 (5.9%) 256 256
12. Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation.
The Group's Travel businesses was suspended in mid-March as a
result of COVID-19. The suspension of the Travel businesses has led
to a decline in revenues in comparison to budget expectations of
around 80% for the first half of the financial year for both Tour
Operations and Cruise.
The Group has focused on ensuring customers whose holidays have
been cancelled are re-booked on future trips or offered a cash
refund.
Other operating expenses and marketing costs have declined by
GBP12.4m as a result of actions taken after the decision to suspend
operations.
Customer retention levels continue to be high, particularly in
Cruise, and 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.
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 first half, the drop through
rate was 19% and 41%, respectively. The Cruise business benefitted
from profits generated during the period of operations at the start
of the year.
The sale of the Saga Sapphire cruise ship was completed on 12
June on terms broadly in line with previous expectations and the
latest indication for the Spirit of Adventure is that she will be
delivered by the end of September.
Forward Travel sales
Saga Holidays and Titan combined bookings for 2021/22 are ahead
of the same point last year by 5.6% and 8.4% for revenue and
passengers respectively. Around 65% of bookings for next year are
due to customers choosing to rebook holidays cancelled in 2020.
Cruise bookings for 2021/22 are lower than the same point last
year by 7.7% and 10.0% for revenue and passenger days respectively
due to an earlier brochure launch in the prior year and a
deliberate delay to marketing activity in the current year. Of
those bookings, 21% of revenue is from customers who have chosen to
rebook cruises cancelled in 2020. Around 41% of the annual revenue
target for 2021/22 is now booked.
The booking figures for Cruise do not include GBP14.6m of 2020
bookings that have been cancelled but where customers have at this
stage chosen to receive a voucher for future departures rather than
rebook a specific cruise. Including these vouchers, bookings for
2021/22 are around 11% higher than the corresponding figure in the
prior year.
Trading to week ended 29 August 2020
2021/22 departures
----------------------------------------------------- -------------------------------
2020/21 Change 2019/20
----------------------------------------------------- --------- --------- ---------
Saga Holidays and Titan combined revenue (GBPm) 100.5 5.6% 95.2
Saga Holidays and Titan combined passengers ('000) 41.3 8.4% 38.1
Cruise revenue (GBPm) 73.1 (7.7%) 79.2
Cruise passenger days ('000) 265.6 (10.0%) 295.1
Other Businesses and Central Costs
6m to July 2020 6m to July 2019
----------
GBPm Other Central Other Central
Businesses costs Total Change Businesses costs Total
--------------------------- ------------- --------- -------- ---------- ------------- --------- --------
Revenue:
Personal Finance 3.3 0.0 3.3 (13.2%) 3.8 0.0 3.8
Healthcare 1.1 0.0 1.1 (63.3%) 3.0 0.0 3.0
Media 4.2 0.0 4.2 (44.7%) 7.6 0.0 7.6
Other 0.0 0.8 0.8 (11.1%) 0.0 0.9 0.9
Total revenue 8.6 0.8 9.4 (38.6%) 14.4 0.9 15.3
Gross profit 2.6 1.7 4.3 (38.6%) 5.3 1.7 7.0
Operating expenses (1.4) (13.2) (14.6) 23.6% (3.7) (15.4) (19.1)
IAS19R pension charge 0.0 (1.0) (1.0) (900.0%) 0.0 (0.1) (0.1)
Net finance costs 0.0 (8.6) (8.6) (34.4%) 0.0 (6.4) (6.4)
Underlying Profit/(Loss)
Before Tax (13) 1.2 (21.1) (19.9) (7.0%) 1.6 (20.2) (18.6)
------------- --------- -------- ------------- --------- --------
13. Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation.
The Group's Other Businesses include Personal Finance and Media,
Mailing and Printing businesses. After several years of operating a
trial in Healthcare, the Group has completed the closure of this
business. The non-Saga branded businesses of Patricia White's and
Country Cousins were sold in March 2020, and the Saga businesses
have since been transferred to a third party with an outstanding
Care Quality Commission rating.
Underlying Profit Before Tax decreased marginally as a result of
lower volumes in the Group's printing business, offset by lower
operating expenses.
Central operating costs decreased to GBP13.2m (H1 2019:
GBP15.4m) due to a GBP2.5m increase in recharges to the operating
divisions following a change in methodology to more accurately
reflect consumption of services provided. The benefits of the
restructuring programme completed in the period have been passed on
to the operating divisions in the form of lower recharges.
Net finance costs in the period were GBP8.6m (H1 2019: GBP6.4m),
an increase of 34.4% largely due to the additional debt issue costs
incurred in connection with amendments to the Group's leverage
covenants in April 2019 and April 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 operations.
The Retail Broking and Other Businesses and Central Costs have
demonstrated considerable resilience in the first half of the year,
with available operating cash flow of GBP45.4m compared to GBP49.9m
in the preceding period. Although Trading EBITDA for these
operations reduced by GBP7.1m, in part due to the impact of
COVID-19 on sales of travel insurance, and dividends from AICL
reduced by GBP4.0m, this was partially offset by a lower working
capital outflow and lower capital expenditure than in the prior
period.
Trading in the Group's Travel businesses was suspended in March.
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 within the business at the start of the COVID-19
crisis at the beginning of the financial period. During the first
half of the year the Group provided an additional GBP51.8m of cash
to the Tour Operations business, of which GBP46.0m related to
operating considerations and GBP5.8m related to restructuring costs
(which are excluded from available operating cash flow). The
combination of cash within the ring-fenced fund at 1 February and
this additional injection of liquidity has enabled the Tour
Operations business to refund GBP39.5m of advanced receipts, pay
GBP31.2m of other trading costs and capital expenditure and the
GBP5.8m of restructuring costs. As at 31 July 2020, the Tour
Operations business had GBP30.5m of cash supporting GBP34.7m of
advance customer receipts.
For Cruise, which now operates on an unrestricted basis, the
Group provided additional liquidity of GBP22.6m to support
repayment of advance customer receipts of GBP14.2m, which reduced
in the first half from GBP51.5m to GBP37.3m, as well as other
trading payments of GBP9.8m, and with a net positive cash flow from
capital expenditure of GBP1.4m as a result of the completion of
sale of the Saga Sapphire cruise ship in June. The Group also
provided further non-operating liquidity of GBP2.7m to pay for
Cruise restructuring costs and GBP4.3m of interest payments.
In the case of both Tour Operations and Cruise, the cash
outflows are well within modelled assumptions and stress test
scenarios.
Having taken significant actions to reduce operating costs in
the Travel businesses, the Group expects the cash 'burn' for the
Travel businesses to be in a range of GBP6m to GBP8m per month in
the second half of the year. This depends on the extent of
marketing activity undertaken, and the timing of the launch of the
Spirit of Adventure. This includes all trading and financing
expenses. Some additional reduction in advance receipts is possible
in the event that the suspension of travel continues but is
expected to be at a much lower level than in the first half since
all upcoming departures have now been cancelled, with customers
either rebooked to next year or refunded amounts paid.
As a result of the cash injections to the Travel business,
available operating cash flow reduced from a positive cash inflow
of GBP24.9m in the prior period to a GBP23.2m cash outflow in
half-year 2020/21.
GBPm 6m to Change 6m to
July July
2020 2019
--------------------------------------------------------- -------- ---------- --------
Retail Broking Trading EBITDA 44.8 (16.3%) 53.5
Other Businesses and Central Costs Trading EBITDA (5.5) 22.5% (7.1)
Trading EBITDA from unrestricted entities (14,
15) 39.3 (15.3%) 46.4
Dividends paid by Underwriting business 12.0 (25.0%) 16.0
Working capital and non-cash items (16) (1.0) 75.6% (4.1)
Capital expenditure funded with available cash (4.9) 41.7% (8.4)
Available operating cash flow before cash injections
to Travel operations 45.4 (9.1%) 49.9
Cash injection into Tour Operations (46.0) (84.0%) (25.0)
Cruise available operating cash flow (22.6) (100.0%) 0.0
Available operating cash flow (14) (23.2) (193.2%) 24.9
-------- --------
Restructuring costs paid (19.8) (0.6)
Interest and financing costs (14.6) (10.3)
Business disposals 17.8 -
Tax payments (3.3) (6.6)
Other payments (9.0) (2.8)
Dividends to shareholders - (11.2)
Change in cash flow from operations (52.1) (6.6)
Change in bank debt 40.0 (10.0)
Cash at 1 February 40.9 48.7
Available cash at 31 July 28.8 (10.3%) 32.1
-------- --------
14. Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation.
15. Trading EBITDA includes the line item impact of IFRS 16 with
the corresponding impact to net finance costs included in net cash
flows used in financing activities.
16. Adjusted to exclude IAS19R pension current service
costs.
Following discussions with the Civil Aviation Authority (CAA),
the main regulator for the Tour Operations business, the Group is
likely to create a trust arrangement for new and existing bookings
within the current ring fence setup. On this basis, 100% of
customer cash will be held in a separate trust and will only be
available to pay suppliers and for other corporate uses once the
customer has returned from holiday. The Group estimates that this
will require an additional GBP10m of cash support to be provided to
the ST&H legal entity. A move into trust should enable the CAA
requirement to hold separate bonding facilities, which are in
addition to the current 70% covenant, to be significantly reduced
or removed altogether.
The Group has also recently been discussing the cash
arrangements for the Retail Broking business with the FCA and has
agreed that, from 1 October 2020, it will operate a daily cash
sweep from the Retail Broking business for any cash held above the
ring-fenced Threshold Condition 2.4 (TC2.4) amount plus the
expected next month-end bordereaux payment to insurers. This will
increase intra-month cash held within Retail Broking compared to
the existing cash sweep arrangements but is not expected to change
the month-end position or to have any impact on the Group's
covenant position under banking facilities. The current TC2.4
balance of GBP5.3m has been treated as restricted cash as at 31
July 2020.
Other Cash Flow Movements
Non-operating cash flow movements in the current period 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 the higher levels
of bank debt in the period, an increase in the interest rate that
was agreed as part of covenant renegotiations and the financing
costs relating to the Spirit of Discovery debt facility.
Business disposals relates to the cash received from the sale of
the healthcare businesses, net of related sale costs and expenses
related to other disposals. The Group received GBP24.2m of net
disposal proceeds on 7 August 2020 on completion of the sale of
Bennetts.
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 business
to the fund.
During the first half of the year the Group drew down a net
GBP40m on the revolving credit facility. Together with the cash
available at 31 January 2020 this provided sufficient liquidity to
fund the cash injections to the Travel businesses and maintain a
buffer for other operational needs.
Reconciliation between Operating and Reported Metrics
Available operating cash flow reconciles to net cash flows from
operating activities as follows:
GBPm 6m to 6m to
July 2020 July 2019
------------------------------------------------------ ------------ ------------
Net cash flow from operating activities (reported) (79.7) 71.0
Exclude cash impact of:
Trading of restricted divisions 83.8 (55.6)
Disposal group companies (4.5) 0.0
Non-trading costs 18.6 3.4
Interest paid 12.5 7.4
Tax paid 4.7 16.1
115.1 (28.7)
Cash paid into restricted divisions (53.7) (9.0)
Capital expenditure funded from available cash (4.9) (8.4)
Available operating cash flow (17) (23.2) 24.9
------------ ------------
Trading EBITDA reconciles to Underlying Profit Before Tax as
follows:
6m to Change 6m to
GBPm July 2020 July 2019
-------------------------------------------------- ------------ --------- ------------
Retail Broking Trading EBITDA 44.8 53.5
Underwriting Trading EBITDA 28.3 21.9
Tour Operations Trading EBITDA (16.5) 13.9
Cruise Trading EBITDA (6.0) 4.9
Other Businesses and Central Costs Trading
EBITDA (5.5) (7.1)
Trading EBITDA (17) 45.1 (48.2%) 87.1
Depreciation & amortisation (excluding acquired
intangibles) (14.4) (24.8)
Amortisation of acquired intangibles 0.0 (1.6)
Pension charge IAS19R (1.0) (0.1)
Net finance costs (13.8) (7.8)
Underlying Profit Before Tax (17) 15.9 (69.9%) 52.8
------------ ------------
17. Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation
Adjusted Trading EBITDA is used in the Group's leverage
calculation and is calculated as follows:
GBPm 12m to
July 2020
Trading EBITDA for 12m to 31 January 2020 181.7
Less Trading EBITDA for 6m to 31 July 2019 (87.1)
Add Trading EBITDA for 6m to 31 July 2020 45.1
Less Trading EBITDA of disposed and held for sale companies (3.7)
Trading EBITDA (12 months rolling) (18) 136.0
Impact of IFRS 16 Leases (6.6)
Spirit of Discovery Trading EBITDA (19) (14.1)
Adjusted Trading EBITDA (18) 115.3
------------
18. Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation.
19. EBITDA includes central Cruise overheads.
Balance Sheet
Goodwill
The Group has tested all goodwill for impairment at 31 July
2020. The impairment test compares the recoverable amount of the
goodwill with the carrying value of each cash generating unit
(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 2024/25, 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.
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.
For the Cruise and Tour Operations businesses, the underlying
forecast cash flows have been updated for the latest impact of
COVID-19, with the expectation that ocean cruises recommence in
November 2020 and tour operations trading remains suspended until
April 2021. In addition to this, further downside scenarios have
been considered that reflect 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 betas and cost of debt levels, particularly in
cruise, have led to a marked increase in the market-participant
view of discount rates used in the calculation of recoverable
amount. As a result, the Group has determined that the recoverable
amounts of the goodwill allocated to the Tour Operations and Cruise
CGUs are below the previous carrying values. The Group's results
therefore include a full impairment of the GBP59.8m goodwill
allocated to Tour Operations and Cruise.
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 GBP34.9m to
GBP342.0m (31 Jan 20: GBP376.9m) due to a combination of the AICL
dividend payment of GBP12m and the maturity of financial assets in
June and July that have not been reinvested at the balance sheet
date. As at 31 July 2020, 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 July 2020 AAA AA A BBB Unrated Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ------- ------ ------- --------- -------
Underwriting investment
portfolio:
Deposits with financial
institutions 0.0 30.6 0.0 13.9 0.0 44.5
Debt securities 15.0 93.0 52.5 96.0 0.0 256.5
Money market funds 35.1 0.0 0.0 0.0 0.0 35.1
Loan funds 0.0 0.0 0.0 0.0 5.9 5.9
Total invested funds 50.1 123.6 52.5 109.9 5.9 342.0
Hedging derivative assets 0.0 0.0 5.4 0.0 0.0 5.4
Total financial assets 50.1 123.6 57.9 109.9 5.9 347.4
------ ------- ------ ------- --------- -------
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 0.0 30.4 0.0 18.6 0.0 49.0
Debt securities 15.3 117.5 54.1 87.3 0.0 274.2
Money market funds 45.9 0.0 0.0 0.0 0.0 45.9
Loan funds 0.0 0.0 0.0 1.6 6.2 7.8
Total invested funds 61.2 147.9 54.1 107.5 6.2 376.9
Hedging derivative assets 0.0 0.0 0.7 0.5 0.0 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 July 2020 and
31 January 2020 is as follows:
At 31 July 2020 At 31 January 2020
GBPm Gross Reinsurance Net Gross Reinsurance Net
Assets Assets
(20) (20)
---------------------------- ------- ------------- ------- ------- ------------- -------
Reported claims 236.4 (49.5) 186.9 250.5 (48.2) 202.3
Incurred but not reported
('IBNR') (21) 86.5 (5.0) 81.5 79.9 (7.0) 72.9
Claims handling provision 7.9 0.0 7.9 7.9 0.0 7.9
------- ------------- ------- ------- ------------- -------
Total claims outstanding 330.8 (54.5) 276.3 338.3 (55.2) 283.1
Unearned premiums 106.4 (4.5) 101.9 105.3 (6.9) 98.4
Total 437.2 (59.0) 378.2 443.6 (62.1) 381.5
------- ------------- ------- ------- ------------- -------
20. Excludes funds-withheld quota share agreement (please refer
to note 15 for further detail).
21. Includes amounts for reported claims that are expected to
become periodical payment orders.
The Group's total insurance contract liabilities net of
reinsurance assets have decreased by GBP3.3m in the six months to
31 July 2020 from the previous year end due to a GBP15.4m reduction
in reported net claims reserves, offset by an GBP8.6m increase in
net IBNR 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 GBP52.1m to GBP646.0m
since the previous year end due to a GBP40m net drawdown against
the GBP100m revolving credit facility in the period. This was
required to fund the short-term liquidity needs of the Travel
business following suspension of operations from March 2020. As at
31 July 2020, GBP50m remained undrawn and available on this
facility.
Excluding the impact of debt and earnings relating to the new
cruise ship, the Group's leverage ratio was 3.6x as at 31 July 2020
(31 Jan 20: 2.4x), well within the 4.75x covenant applicable to the
Group's term loan and revolving credit facility.
No repayments were made on the ship loan during the first half
of the year, with the Group agreeing a twelve-month debt holiday
with its lenders as part of a package of proposals to support the
wider Cruise industry. The Group expects to restart ship loan debt
repayments after March 2021.
GBPm Maturity 31 July2020 31 January
date (22) 2020
---------------------------- ------------- ------------- ------------
Corporate bond May 2024 250.0 250.0
May 2023
Term loan (23) 140.0 140.0
Ship loan June 2031 234.8 234.8
Revolving credit facility May 2023 50.0 10.0
Less available cash (24) (28.8) (40.9)
Net debt 646.0 593.9
------------- ------------
22. Maturity date represents the date that the principle must be
repaid, other than the ship loan, which is repaid at a rate of
GBP20m a year for the next twelve years, and the term loan, which
requires minimum repayments of principle at a rate of GBP20m
p.a.
23. Maturity date has been extended from May 2022 to May 2023
for GBP70m of the term loan, which is contingent on the successful
outcome of the intended equity raise.
24. Refer to note 13 of the financial statements for information
as to how this reconciles to a statutory measure of cash.
In August the Group repaid GBP6.4m of the outstanding term loan
and GBP10m of the outstanding revolving credit facility from the
Bennetts sales proceeds.
Adjusted net debt is used in the Group's leverage calculation
and reconciles to net debt as follows:
GBPm 31 July2020 31 January
2020
--------------------------------------- ------------- ------------
Net debt 646.0 593.9
Exclude ship loan (234.8) (234.8)
Exclude Cruise available (overdraft)
/ cash (0.5) 2.6
Adjusted net debt (25) 410.7 361.7
------------- ------------
25. Alternative performance measure - refer to the glossary on
pages 61 to 62 for definition and explanation.
Pensions
The Group's defined benefit pension scheme as measured on an
IAS19 basis improved by GBP11.2m to a GBP5.7m surplus as at 31 July
2020 (GBP5.5m deficit as at 31 Jan 20).
GBPm 31 July 31 January
2020 2020
---------------------------------------------- --------- ------------
Fair value of scheme assets 415.1 372.3
Present value of defined benefit obligation (409.4) (377.8)
Defined benefit scheme surplus/(liability) 5.7 (5.5)
--------- ------------
Whilst the present value of defined benefit obligations
increased by GBP31.6m to GBP409.4m, due to a 30bps reduction in the
discount rate used to value these liabilities that is based
high-quality bond yields, the fair value of scheme assets increased
by GBP42.8m to GBP415.1m. The increase in asset values has been
largely driven by the fall in interest rates in the period, which
in turn has led to a marked increase in the value of liability
hedging assets within the portfolio. The pension trustees are
currently undertaking the triennial valuation of the scheme as at
31 January 2020, which will be concluded in early 2021.
Net assets
Since 31 January 2020, total assets and total liabilities have
decreased by GBP132.8m and GBP101.0m respectively, resulting in an
overall decrease in net assets of GBP31.8m.
The decrease in total assets is primarily as a result of a
GBP59.8m impairment of goodwill, a decrease in financial assets of
GBP30.7m, a GBP17.1m reduction in the carrying value of property,
plant and equipment and right of use assets and a GBP10.1m
reduction in the value of deferred tax assets.
The decrease in total liabilities reflects a GBP67.2m reduction
in contract liabilities due to the level of refunds made in the
Travel business following the suspension of trading since March
2020, and a GBP33.9m decrease in trade and other payables, also
driven in part by the suspension of trading in Travel, coupled with
seasonality of payments due in the Underwriting business.
Regulatory and legislative developments
The Group operates within an evolving regulatory landscape.
Aspects of this, such as the Data Protection Act 2018, cover all of
Saga's business. Other aspects cover the Group's Insurance, Travel
and Personal Finance operations.
The Insurance business is regulated by both the FCA and the
Gibraltar Financial Services Commission and the Travel business by
the CAA. The Travel businesses are also members of the Association
of British Travel Agents (ABTA).
The FCA continues to focus on pricing practices generally,
including its Market Study on general insurance pricing practices.
Saga has had measures in place for several years to address
fairness in pricing and increasing numbers of long-standing
customers have seen their renewal premium either frozen or reduced
as a result. We are supportive of the FCA Market Study and believe
that, over the long term, it will be positive for Saga's customers
and our place in the market. While the outcome of the study has now
been delayed beyond the planned publication date of June 2020, it
is noted that the FCA will aim to deliver its final findings and
proposed remedies in the autumn. The FCA has continued to focus on
good customer outcomes - through its work on culture and
governance, operational resilience, vulnerable customers and
product value - and Saga's three lines of defence activities
continue to align to these.
Impact of COVID-19 and Going Concern
The Group's Insurance business remains largely unaffected by
COVID-19, and the Group has been able to maintain operational
capability successfully throughout this period, with almost all
colleagues working from home.
However, the Group's Travel businesses has been subject to
significant disruption in the first half of the year. 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 on 12 March to suspend
Cruising until May and on 16 March decided to suspend Tour
Operations, initially for a period of six weeks.
This disruption has had a significant impact on Group earnings
and a bigger impact on Group cash flows due to working capital
outflows as refunds have been made to customers on request.
As at 9 September 2020, the Group's Travel businesses remain
suspended, and it is now increasingly likely that the disruption of
the Travel operations will continue well into 2021, especially for
Tour Operations.
The Group has continued to refine its scenario planning in the
last six months. While customer demand for future departures
remains positive and a return to travel departures before the end
of the year is expected for the Cruise operations, the Group has
taken the decision to suspend its Tour Operations business until
April 2021, and made preparations for the possibility that Cruise
departures may resume towards the end of 2020 but subsequently be
temporarily paused until May next year.
In this scenario the Group would expect revenue for the full
year to be reduced by around 90% for Tour Operations and between
80%-90% for Cruise, respectively, with a 'drop-through' from lower
revenues to Underlying Profit Before Tax of 15-20% for Tour
Operations and 50%-55% for Cruise, relative to plan assumptions.
This is largely unchanged from the stress test scenarios published
in March 2020.
This equates to a cash 'burn cost' for the Travel business of
between GBP6m and GBP8m per month in the second half of the current
financial year.
The Group will also be exposed to continued working capital
outflows as a result of the return of customer advance deposits on
cancelled departures. Given the cancellation of all impending
departures and the significant amount of customer refunds that have
been processed, future working capital outflows are expected to be
much lower than in the first half of the year. As at 31 July, total
advance receipts for the Cruise business were GBP37m, reduced from
GBP52m at 31 January 2020. Total advance receipts for the Tour
Operations business at the same date were GBP35m, reduced from
GBP74m at 31 January 2020.
Further, the Group has identified several downside risks to the
cash requirements needed to support the Insurance and Travel
operating divisions. For Tour Operations, future new business will
be subject to trust accounting arrangements whereby customer cash
will be 100% ring-fenced from shareholder funds and will only be
available for payment to suppliers upon the customer's return from
holiday. For Insurance Underwriting, which owns almost all the
Group's properties, any future impairment of property values would
require further capital support to the underwriter.
Even allowing for these scenarios, the Group is expected to
remain in a secure position for at least the next six months and
before any further management actions. This is for the following
reasons:
-- As at 31 August 2020 the Group had available operating cash,
excluding cash in the Tour Operations business and in AICL, and
excluding specific restricted cash in Retail Broking, of
approximately GBP26m.
-- During August the Group reduced the amounts outstanding under
the term loan and revolving credit facility by GBP16.4m following
the completion of the sale of Bennetts. As a result, GBP60m of the
GBP100m revolving credit facility was undrawn at 31 August.
-- The Tour Operations business holds cash in a ring-fenced fund
which protects advance payments made by customers. At 31 July 2020
the amount of cash in the ring-fenced fund was GBP30m, equivalent
to 88% coverage of advance receipts and GBP6m higher than required
by the CAA.
-- The Insurance business continues to perform well and is cash
generative. Travel insurance sales have started to pick up, albeit
from very low levels, and home, motor and PMI products have proved
to be highly resilient.
-- The Group has included no benefits from the significant
reduction in motor claims frequency since the start of the COVID-19
crisis, either in its results for the first half of the year or in
ongoing financial projections or stress tests. This is due to
uncertainty over the current pricing and claims outlook, and as a
result of actions the Group intends to take in returning part of
the reduction in claims costs to customers.
-- No repayments are due on the Group's term loan until 31
January 2021, when GBP20m is due to be repaid under the current
facility agreement, and no amounts are due to be repaid in relation
to ship loans until after 31 March 2021.
-- The Group has reduced operating costs significantly in all
areas but particularly in the Travel business.
-- The Board of Directors is not recommending the payment of an
interim dividend for the 2020/21 financial year.
Nonetheless, while the Group remains in a secure financial
position and expects to remain in compliance with covenants
associated with its banking facilities at 31 January 2021 in all
modelled scenarios, there remains considerable uncertainty as to
the impact of COVID-19 beyond this date.
More specifically, looking beyond the next six months it is
possible that the Group may breach covenants included in its
banking facilities in July 2021 in the event of further disruption
to the Cruise business into the middle of next year. In this
situation, the Group may also face challenges in its ability to
repay the term loan when this matures, which under the existing
facility, would be in May 2022.
As a result, the Directors are now proposing additional actions
to provide further financial security. The main action is the
proposed GBP150m capital raising, which would enable the Group to
significantly reduce short-term bank debt. Alongside certain
changes to bank facility arrangements and covenants, which are also
contingent on the proposed equity raise being completed
successfully, this would enable the Group to maintain compliance
with debt covenants in the event of ongoing disruption to the
Travel business.
The additional equity capital is contingent on the outcome of a
shareholder vote, and, in addition, whilst it is fully committed,
the underwriting agreement is subject to certain specific
conditions that, although customary in nature, are outside the
control of the Group. As a result, the Directors have concluded
that there exists a material uncertainty that may cast significant
doubt on the Company's ability to continue as a going concern, and
to continue realising its assets and discharging its liabilities in
the normal course of business.
This material uncertainty would be removed on completion of the
capital raising exercise, including shareholder approvals. This is
expected to happen in early October 2020.
Notwithstanding the above, the Group is currently in full
compliance with all debt covenants and expects to continue to
remain in compliance through at least the next six months, even
without any additional equity capital. The Directors expect the
Company to trade through the current COVID-19 disruption and have
continued to prepare the interim financial statements to 31 July
2020 on a going concern basis. Full details regarding the
considerations made in reaching this conclusion are included in the
going concern basis of preparation note on pages 35 to 36 of this
report.
Dividends
Given the uncertain implications of COVID-19, the Board of
Directors does not recommend the payment of an interim dividend for
the 2020/21 financial year, nor would this be permissible at
present within the bank covenants, which require net debt
(excluding Cruise) to be below 3.0x EBITDA.
Financial priorities for 2020/21
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 Insurance that started last year,
focused on taking delivery of the second new ocean cruise ship and
recommencing sailing by the end of 2020, and repositioning the Tour
Operations business ready for trading to start in spring 2021.
Given the continued uncertainty arising from COVID-19, the Group is
not able to provide any earnings guidance for the 2020/21 financial
year.
Condensed consolidated income statement
for the period ended 31 July 2020
Unaudited Unaudited
6m to 6m to 12m to
Note Jul 2020 Jul 2019 Jan 2020
GBP'm GBP'm GBP'm
Gross earned premiums 3 112.1 111.8 233.9
Earned premiums ceded to reinsurers 3 (73.1) (70.3) (145.7)
----------- ----------- --------------
Net earned premiums 3 39.0 41.5 88.2
Other revenue 3 153.4 354.4 709.1
----------- ----------- --------------
Total revenue 3 192.4 395.9 797.3
----------- ----------- --------------
Gross claims incurred (64.9) (76.0) (140.6) (26)
Reinsurers' share of claims incurred 64.1 59.0 109.8 (26)
----------- ----------- --------------
Net claims incurred (0.8) (17.0) (30.8)
Other cost of sales (60.5) (194.4) (395.1)
----------- ----------- --------------
Cost of sales 3 (61.3) (211.4) (425.9)
----------- ----------- --------------
Gross profit 131.1 184.5 371.4
Administrative and selling expenses (129.6) (125.8) (252.6)
Impairment of assets (62.0) (1.2) (400.5)
Net profit on disposal of businesses 10.3 - -
Net profit on disposal of property,
plant and equipment 6.7 0.2 1.3
Investment income (0.1) 0.4 1.2
Finance costs (13.8) (7.8) (21.8)
Finance income 1.9 2.3 0.1
(Loss)/profit before tax (55.5) 52.6 (300.9)
Tax expense 4 (1.6) (6.8) (11.9)
----------- ----------- --------------
(Loss)/profit for the period (57.1) 45.8 (312.8)
=========== =========== ==============
Attributable to:
Equity holders of the parent (57.1) 45.8 (312.8)
=========== =========== ==============
Earnings per share:
Basic 6 (5.1p) 4.1p (27.9p)
Diluted 6 (5.1p) 4.1p (27.9p)
26. 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.
Condensed consolidated statement of comprehensive income
for the period ended 31 July 2020
Unaudited Unaudited
6m to 6m to 12m to
Jul 2020 Jul 2019 Jan 2020
GBP'm GBP'm GBP'm
(Loss)/profit for the period (57.1) 45.8 (312.8)
Other comprehensive income
Other comprehensive income to be reclassified
to the income statement in subsequent periods
Net gains/(losses) on hedging instruments
during the period 21.8 24.0 (11.2)
Recycling of previous gains to income statement
on matured hedges (1.5) (1.4) (2.6)
Total net gains/(losses) on cash flow hedges 20.3 22.6 (13.8)
Associated tax effect (4.4) (3.9) 2.4
Net gains on fair value financial assets
during the period 2.6 7.2 8.1
Associated tax effect (0.5) (1.2) (1.4)
Total other comprehensive gains/(losses)
with recycling to income statement 18.0 24.7 (4.7)
Other comprehensive income not to be reclassified
to the income statement in subsequent periods
Re-measurement gains/(losses) on defined
benefit plans 8.5 (7.3) (5.4)
Associated tax effect (1.6) 1.2 0.9
----------- ----------- ------------
Total other comprehensive gains/(losses)
without recycling to income statement 6.9 (6.1) (4.5)
Total other comprehensive income/(losses) 24.9 18.6 (9.2)
----------- ----------- ------------
Total comprehensive (losses)/income for
the period (32.2) 64.4 (322.0)
=========== =========== ============
Attributable to:
Equity holders of the parent (32.2) 64.4 (322.0)
======== ====== =========
Condensed consolidated statement of financial position as at 31
July 2020
Unaudited Unaudited
As at Jul As at Jul As at Jan
Note 2020 2019 2020
Assets GBP'm GBP'm GBP'm
Goodwill 8 718.6 1,175.0 778.4
Intangible assets 9 56.8 62.3 57.1
Retirement benefit scheme assets 14 5.7 - -
Property, plant and equipment 10 420.1 426.2 425.0
Right of use assets 11 13.5 27.8 25.7
Financial assets 12 347.4 406.8 378.1
Current tax assets 1.5 - -
Deferred tax assets 12.2 16.8 22.3
Reinsurance assets 15 59.0 82.2 62.1
Inventories 2.8 4.7 5.4
Trade and other receivables 195.7 239.1 209.0
Assets held for sale 18 43.0 - 33.8
Cash and short-term deposits 13 85.7 158.6 97.9
------------ -------------
Total assets 1,962.0 2,599.5 2,094.8
============ ============= =============
Liabilities
Retirement benefit scheme obligations 14 - 7.4 5.5
Gross insurance contract liabilities 15 437.2 489.9 443.6
Provisions 5.3 7.6 7.7
Financial liabilities 12 697.0 716.1 690.3
Current tax liabilities - 9.3 7.7
Deferred tax liabilities 6.7 6.7 4.2
Contract liabilities 86.0 181.3 153.2
Trade and other payables 152.0 193.3 185.9
Liabilities held for sale 18 21.4 - 8.5
Total liabilities 1,405.6 1,611.6 1,506.6
------------ ------------- -------------
Equity
Issued capital 11.2 11.2 11.2
Share premium 519.3 519.3 519.3
Retained earnings 16.4 429.7 65.4
Share-based payment reserve 7.0 14.0 7.8
Fair value reserve 7.0 4.2 4.9
Hedging reserve (4.5) 9.5 (20.4)
------------ -------------
Total equity 556.4 987.9 588.2
------------ ------------- -------------
Total liabilities and equity 1,962.0 2,599.5 2,094.8
============ ============= =============
Condensed consolidated statement of changes in equity
for the period ended 31 July 2020
Attributable to the equity holders of the parent
------------------------------------------------------------------------------------------
Share-based
Issued Share Retained payment Fair value Hedging Total
capital premium earnings reserve reserve reserve equity
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Unaudited
At 1 February 2020 11.2 519.3 65.4 7.8 4.9 (20.4) 588.2
Loss for the period - - (57.1) - - - (57.1)
Other comprehensive
income
excluding recycling - - 6.9 - 2.1 17.1 26.1
Recycling of previous
gains
to income statement - - - - - (1.2) (1.2)
Total comprehensive
(losses)/income - - (50.2) - 2.1 15.9 (32.2)
Share-based payment
charge - - - 1.1 - - 1.1
Exercise of share
options - - 1.2 (1.9) - - (0.7)
At 31 July 2020 11.2 519.3 16.4 7.0 7.0 (4.5) 556.4
=========== ========== =========== ============= ============ ========== =========
Unaudited
At 1 February 2019 11.2 519.3 401.4 13.3 (1.8) 17.5 960.9
Profit for the period - - 45.8 - - - 45.8
Other comprehensive
(losses)/income
excluding recycling - - (6.1) - 6.0 19.9 19.8
Recycling of previous
gains
to income statement - - - - - (1.2) (1.2)
Total comprehensive
income - - 39.7 - 6.0 18.7 64.4
Recognition of
non-financial
asset from hedging
reserve - - - - - (26.7) (26.7)
Dividends paid - - (11.2) - - - (11.2)
Share-based payment
charge - - - 1.1 - - 1.1
Exercise of share
options - - (0.2) (0.4) - - (0.6)
At 31 July 2019 11.2 519.3 429.7 14.0 4.2 9.5 987.9
=========== ========== =========== ============= ============ ========== =========
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 - - - - - (26.5) (26.5)
Dividends paid - - (25.8) - - - (25.8)
Share-based payment
charge - - - 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
=========== ========== =========== ============= ============ ========== =========
Condensed consolidated statement of cash flows
for the period ended 31 July 2020
Unaudited Unaudited
6m to 6m to 12m to
Note Jul 2020 Jul 2019 Jan 2020
GBP'm GBP'm GBP'm
(Loss)/profit before tax (55.5) 52.6 (300.9)
Depreciation, impairment and profit
on disposal of property, plant and
equipment and right of use assets 3.1 21.1 43.7
Amortisation, impairment and profit
on disposal
of intangible assets 67.1 9.5 408.1
Share-based payment transactions 1.0 1.1 2.1
Profit on assets held for sale 7 (10.3) - -
Finance costs 13.8 7.8 21.8
Finance income (1.9) (2.3) (0.1)
Interest income from investments 0.1 (0.4) (1.2)
Movements in other assets and liabilities (79.8) 5.0 (37.8)
----------- ----------- -----------
(62.4) 94.4 135.7
Interest received (0.1) 0.4 1.2
Interest paid (12.5) (7.7) (19.9)
Income tax paid (4.7) (16.1) (25.1)
----------- ----------- -----------
Net cash flows (used in)/from operating
activities (79.7) 71.0 91.9
Investing activities
Proceeds from sale of property, plant
and equipment, and right of use assets 7.2 4.9 6.3
Purchase of, and payments for, the
construction of property, plant and
equipment and intangible assets (12.5) (263.9) (295.3)
Net disposal of financial assets 26.8 45.6 32.8
Disposal of subsidiaries 7 13.3 - -
Net cash flows from/(used in) investing
activities 34.8 (213.4) (256.2)
Financing activities
Payment of principal portion of lease
liabilities (2.4) (9.2) (15.0)
Proceeds from borrowings 16 50.0 269.0 279.0
Repayment of borrowings 16 (10.0) (34.0) (84.2)
Debt issue costs (1.1) (1.3) (7.9)
Dividends paid - (11.2) (25.8)
----------- ----------- -----------
Net cash flows from financing activities 36.5 213.3 146.1
Net (decrease)/increase in cash and
cash equivalents (8.4) 70.9 (18.2)
Cash and cash equivalents at the start
of the period 139.1 157.3 157.3
----------- -----------
Cash and cash equivalents at the end
of the period 13 130.7 228.2 139.1
=========== =========== ===========
Notes to the condensed consolidated interim financial
statements
1 Corporate information
Saga plc ('the Company') is a public limited company
incorporated and domiciled in the United Kingdom under the
Companies Act 2006 (registration number 8804263). Its registered
office is located at Enbrook Park, Folkestone, Kent, CT20 3SE.
The interim condensed consolidated financial statements of Saga
plc and the entities controlled by the Company (its subsidiaries,
collectively 'the Group') for the six months ended 31 July 2020
were authorised for issue in accordance with a resolution of the
Directors on 9 September 2020.
2.1 Basis of preparation
These condensed consolidated interim financial statements
comprise the interim financial statements of the Group for the
six-month period to 31 July 2020.
The condensed consolidated interim financial statements have
been prepared on a going concern basis and on a historical cost
basis except as otherwise stated. The Group has reviewed the
appropriateness of the going concern basis in preparing the
condensed financial statements, particularly in light of the
COVID-19 pandemic, details of which are included in note 2.6. Based
on those assumptions, the Directors have concluded that it remains
appropriate to adopt the going concern basis in preparing the
financial statements.
The presentation currency of the Group is sterling. Unless
otherwise stated, the amounts shown in the condensed consolidated
financial statements are in millions of pounds sterling
(GBP'm).
The condensed consolidated interim financial statements have
been prepared in accordance with the Disclosure and Transparency
Rules (DTR) of the Financial Conduct Authority (FCA) and in
accordance with IAS 34 'Interim Financial Reporting'. The
significant accounting policies applied by the Group are set out in
note 2.3 and 2.4. The Group has applied all IFRS standards and
interpretations adopted and endorsed by the EU effective for the
period ending 31 January 2021. The condensed consolidated interim
financial statements have been reviewed by KPMG LLP and include
their review conclusion.
These condensed consolidated interim financial statements do not
comprise statutory financial statements within the meaning of
Section 435 of the Companies Act 2006. Statutory financial
statements for the year ended 31 January 2020 have been delivered
to the Registrar of Companies. The auditor's report on those
financial statements:
(i) was unqualified;
(ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report; and
(iii) did not constitute a statement under Section 498 (2) or (3) of the Companies Act 2006.
Notes to the condensed consolidated financial statements
(continued)
2.2 Basis of consolidation
The condensed consolidated financial statements comprise the
financial position and results of each of the companies within the
Group. Where necessary, adjustments have been made to the financial
position and results of subsidiaries to bring the accounting
policies used into line with those used by the Group. All
intra-group transactions, balances, income and expenses have been
eliminated on consolidation. The policies set out below have been
applied consistently throughout the periods presented to items
considered material to the condensed consolidated interim financial
statements.
2.3 Summary of significant accounting policies
The condensed set of interim financial statements for the period
ended 31 July 2020 have been prepared applying the same accounting
policies that were applied in the preparation of the Group's
published consolidated financial statements for the year ended 31
January 2020.
Full details of the accounting policies of the Group can be
found in the annual report and accounts for the year ended 31
January 2020 available at www.corporate.saga.co.uk .
2.4 Standards issued but not yet effective
Standards and amendments to standards in issue but not effective
or not adopted by the Group as at 31 January 2020 continue to be
not yet effective or not adopted by the Group at 31 July 2020 and
can be found in the annual report and accounts for the year ended
31 January 2020 available at www.corporate.saga.co.uk .
In May 2020, the IASB issued '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, although it is
yet to be endorsed by the EU and will be dependent on the
implementation policy adopted by the UK after leaving the EU. The
Group does not intend to take advantage of the exemption available
under this amendment. The amendment will have no effect on the
Group's financial statements for the year ended 31 January
2021.
There have been no other amendments to standards or
interpretations issued since 1 February 2020 which impact the
consolidated financial statements of the Group.
2.5 Significant accounting judgements, estimates and
assumptions
Full details of significant accounting judgements, estimates and
assumptions used in the application of the Group's accounting
policies can be found in the annual report and accounts for the
year ended 31 January 2020 available at www.corporate.saga.co.uk.
There have been no changes to the principles or assumptions in
these critical accounting estimate and judgement areas during the
period.
Notes to the condensed consolidated financial statements
(continued)
2.6 Going concern
The Directors have considered the appropriateness of the going
concern basis of preparation for the interim financial statements
prepared to 31 July 2020, and in doing so have considered a range
of possible scenarios that factor in the potential ongoing impact
of COVID-19 and other key risks and uncertainties.
The COVID-19 outbreak has created a major challenge and a high
level of uncertainty, and it has had a severe impact on the Group,
with both Cruise and Tour Operations suspended from mid-March .
Current plans are being made to recommence ocean cruises from the
end of 2020, with appropriate measures taken to protect the safety
of customers. A decision has been made to suspend the Tour
Operations business until April 2021. The Group is taking
mitigating actions by managing its cash flow and has enabled all of
its head office employees to work from home.
The Group currently has an ample level of liquidity, with
approximately GBP26m of available cash as at 31 August 2020, GBP60m
undrawn and available on a revolving credit facility (RCF) and a
GBP10m overdraft. Despite the impact of COVID-19 on its Travel
business, the Group's Insurance business is trading well, remains
highly cash generative and is largely unaffected by COVID-19.
Whilst the going concern assessment only requires consideration
of a minimum of at least twelve months following the date of
signing the accounts, the Group has taken a more thorough approach
given the current climate and has updated its financial outlook to
January 2025, and with a particular focus on the eighteen-month
period to January 2022 and the impact of different scenarios on the
Group's leverage and interest cover covenants associated with its
banking facilities.
In undertaking the assessment, the Group has considered three
possible scenarios:
-- a central scenario based on current plans, with a best
estimate outlook for the Insurance and Tour Operations businesses,
with no trading expected in the Saga Holidays and Titan businesses
until April 2021. This is coupled with the latest view of being
able to commence ocean cruises again from November 2020 based on
the current preparations being made, with the long-term outlook for
cruising beyond 2020 returning to pre COVID-19 levels
-- a downside scenario that factors in the impact of a second
wave of lockdown restrictions in the first half of 2021 such that
cruises have to cease again from January 2021 until May 2021, and
with lower load factors for the next few years . Also incorporated
into this scenario are further potential downside risks as a result
of other trading and regulatory pressures on margins of
approximately GBP12m per annum , with a further associated working
capital strain and a requirement to provide additional cash support
to the Insurance business of around GBP30m within the next 12
months
-- a further, more severe downside scenario (a 'reasonable
worse-case scenario') that factors in additional long-term
suppression in demand for package holidays and tours, and further
downward pressure on Insurance earnings of GBP10m per annum.
As required, these scenarios do not include the impact of any
mitigating actions which are dependent on shareholder approval and
as such, do not include the expected cash proceeds from the
proposed capital raising exercise.
Notes to the condensed consolidated financial statements
(continued)
2.6 Going concern (continued)
In all scenarios, the short-term outlook remains stable and the
Group continues to operate within its debt covenants for the rest
of the financial year up to 31 January 2021. Further out, there is
more uncertainty and the modelled scenarios indicate a potential
breach of the EBITDA to net debt ratio covenant (leverage) attached
to its term loan and revolving credit facility (RCF) of 4.25x at
July 2021. Based on the existing facility agreement, this covenant
requirement reduces to 4.0x from October 2021 and again to 3.0x
from July 2022, and it is tested at quarterly intervals when it is
above 4.0x, and half-yearly when below 4.0x. In the two downside
scenarios, the Group has also forecast a sustained breach of its
covenants for twelve months following July 2021 in the middle
scenario and eighteen months in the reasonable worse-case scenario.
As at 31 August 2020, the Group owed GBP134m on its term loan
facility, which is due to mature in May 2022, and was GBP40m drawn
against a GBP100m RCF, which is due to mature in May 2023. In the
two downside scenarios, the Group would need to extend its access
to the term loan facility beyond May 2022 by up to a further twelve
months.
In the two downside scenarios, the Group has also forecast a
breach of the existing EBITDA to net cash interest payable ratio
covenant (interest cover) of 3.0x as at July 2021 and October 2021.
This covenant is also attached to the term loan and RCF.
The Group is therefore taking mitigating actions to improve
financial flexibility and address the aforementioned risks. First,
the Group is intending to raise approximately GBP140m in net
proceeds from the issuance and sale of additional equity shares in
Saga plc, which will reduce net debt and bring leverage back below
the covenant levels across the duration of the planning horizon.
The additional equity capital is contingent on the outcome of a
shareholder vote, and, in addition, whilst it fully committed, the
underwriting agreement is subject to certain specific conditions
that, although customary in nature, are outside the control of the
Group. Second, the Group has agreed with its lenders an increase in
the net debt to EBITDA ('leverage') covenant at 31 July 2021 from
4.25x to 4.75x and at 31 October 2021 from 4.0x to 4.5x. The Group
has also agreed a reduction in the 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. The agreement with the lenders is contingent on the
proposed equity raise being completed successfully.
The impact of the COVID-19 situation cannot be predicted with a
high level of accuracy and it is not possible to assess all
possible future implications for the Group. Although the Group has
a plan to address this uncertainty through the proposed capital
raising and amendments to bank facilities, successful completion of
these actions is conditional upon shareholder approval and cannot
therefore be relied upon in relation to the going concern
assessment in the current results. Accordingly, the Directors have
concluded that there exists a material uncertainty in relation to
going concern in the scenarios modelled. This material uncertainty
may cast significant doubt on the Group's ability to continue as a
going concern and to continue realising its assets and discharging
its liabilities in the normal course of business.
Notwithstanding this material uncertainty, the Directors have
continued to prepare the interim financial statements to 31 July
2020 on a going concern basis. This is in part due to the proposed
capital raising exercise, which if completed successfully, would
lead to the removal of the going concern uncertainty. However, even
in the event that this was not successful, the Group would still
expect to trade through the current period of uncertainty with time
to execute alternative actions in the next six months, during which
period the Group would remain in compliance with covenants and with
sufficient available liquidity to support the business.
Notes to the condensed consolidated financial statements
(continued)
3 Segmental information
For management purposes, the Group is organised into business
units based on their products and services. 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
sub-segments:
o Retail broking, consisting of:
o Motor Broking
o Home Broking
o Other Insurance Broking
o Underwriting
-- Travel : the segment primarily comprises the operation and
delivery of package tours and cruise holiday products. The Group
owns and operates two cruise ships. All other holiday products are
packaged together with third-party supplied accommodation, flight
and other transport arrangements.
-- Other Businesses and Central Costs : the segment comprises
the Group's other businesses, its central cost base and Membership
scheme. The other businesses include the financial services product
offering, the domiciliary care services offering, a monthly
subscription magazine product and the Group's internal mailing
house.
Seasonality
The Group is subject to seasonal fluctuations in both its
Insurance and Travel segments resulting in varying profits over
each quarter.
The Insurance segment experiences increased motor insurance
sales in the month of March, and to a lesser degree September, due
to the issue of new vehicle registration plates; and increased home
insurance sales in March, June and September coinciding with the
historic quarter days. In the motor underwriting business, a
greater proportion of claims are notified in the second half of the
financial year.
Typically, increased holiday departures in the shoulder months
of May, June and September and low departure volumes during July
and August create seasonal fluctuations in the profit of the Travel
segment. For the six months ended 31 July 2020, the decrease in
Travel's revenue during this period of time, and into subsequent
months, has been significant due to the adverse effects of
COVID-19.
Excluding the impact of COVID-19, when the seasonalities of the
various segments are considered in aggregate, the resultant half
yearly Underlying Profit Before Tax is broadly consistent with half
of the full year result. However, due to the high level of
uncertainty regarding the likely impact of COVID-19 in the second
half of year, the Group is not able to provide any earnings
guidance for the 2020/21 financial year.
Notes to the condensed consolidated financial statements
(continued)
3 Segmental information (continued)
Insurance
------------------------------------------------------------
Other
Other Businesses
Unaudited Motor Home Insurance & Central
6m to Jul 2020 Broking Broking Broking Under-writing Total Travel Costs Adjust-ments Total
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue 51.5 30.5 23.2 28.5 133.7 49.3 12.1 (2.7) 192.4
Cost of sales (1.3) - (2.1) (0.1) (3.5) (52.7) (5.1) - (61.3)
--------- --------- ----------- --------------- -------- -------- ------------ -------------- ---------
Gross profit 50.2 30.5 21.1 28.4 130.2 (3.4) 7.0 (2.7) 131.1
--------- --------- ----------- --------------- -------- -------- ------------ -------------- ---------
Administrative
and selling
expenses (33.6) (15.7) (10.5) (1.8) (61.6) (41.1) (29.6) 2.7 (129.6)
Impairment
of assets - - - - - (2.2) - (59.8) (62.0)
Net profit
on disposal
of businesses - - - - - - 10.3 - 10.3
Net profit
on disposal
of property,
plant and
equipment - - - - - 6.4 0.3 - 6.7
Investment
income - - - 1.4 1.4 - (1.5) - (0.1)
Finance costs - - - - - (5.2) (8.6) - (13.8)
Finance income - - - - - 1.9 - - 1.9
--------- --------- ----------- --------------- -------- -------- ------------ -------------- ---------
Profit / (loss)
before tax 16.6 14.8 10.6 28.0 70.0 (43.6) (22.1) (59.8) (55.5)
--------- --------- ----------- --------------- -------- -------- ------------ -------------- ---------
Reconciliation
to Underlying
Profit / (Loss)
Before Tax:
Profit / (loss)
before tax 16.6 14.8 10.6 28.0 70.0 (43.6) (22.1) (59.8) (55.5)
Net fair value
gain on
derivative
financial
instruments - - - - - (1.9) - - (1.9)
Impairment
of goodwill - - - - - - - 59.8 59.8
Profit on
disposal
of assets - - - - - (4.5) - - (4.5)
Restructuring
costs - - - - - 15.8 12.5 - 28.3
Net profit
on disposal
of business - - - - - - (10.3) - (10.3)
Underlying
Profit /
(Loss)
Before Tax 16.6 14.8 10.6 28.0 70.0 (34.2) (19.9) - 15.9
--------- --------- ----------- --------------- -------- -------- ------------ -------------- ---------
Notes to the condensed consolidated financial statements
(continued)
3 Segmental information (continued)
Insurance
------------------------------------------------------------
Other
Other Businesses
Unaudited Motor Home Insurance & Central
6m to Jul 2019 Broking Broking Broking Under-writing Total Travel Costs Adjust-ments Total
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue 53.5 32.7 38.0 37.4 161.6 219.0 18.7 (3.4) 395.9
Cost of sales (1.4) - (6.2) (16.5) (24.1) (179.0) (8.3) - (211.4)
--------- --------- ----------- --------------- -------- --------- ------------ -------------- ---------
Gross profit 52.1 32.7 31.8 20.9 137.5 40.0 10.4 (3.4) 184.5
--------- --------- ----------- --------------- -------- --------- ------------ -------------- ---------
Administrative
and selling
expenses (37.1) (15.8) (14.4) (1.4) (68.7) (38.2) (22.3) 3.4 (125.8)
Reversal of
/ (impairment)
of assets - - - - - 3.0 (4.2) - (1.2)
Net profit
on disposal
of property,
plant and
equipment - - - - - 0.2 - - 0.2
Investment
income - - - 1.8 1.8 0.2 (1.6) - 0.4
Finance costs - - - - - (1.4) (6.4) - (7.8)
Finance income - - - - - 2.3 - - 2.3
--------- --------- ----------- --------------- -------- --------- ------------ -------------- ---------
Profit / (loss)
before tax 15.0 16.9 17.4 21.3 70.6 6.1 (24.1) - 52.6
--------- --------- ----------- --------------- -------- --------- ------------ -------------- ---------
Reconciliation
to Underlying
Profit / (Loss)
Before Tax:
Profit / (loss)
before tax 15.0 16.9 17.4 21.3 70.6 6.1 (24.1) - 52.6
Net fair value
gain on
derivative
financial
instruments - - - - - (2.3) - - (2.3)
Reversal of
/ (impairment)
of PPE - - - - - (3.0) 3.3 - 0.3
Restructuring
costs - - - - - - 2.2 - 2.2
Underlying
Profit /
(Loss)
Before Tax 15.0 16.9 17.4 21.3 70.6 0.8 (18.6) - 52.8
--------- --------- ----------- --------------- -------- --------- ------------ -------------- ---------
Notes to the condensed consolidated financial statements
(continued)
3 Segmental information (continued)
Insurance
-------------------------------------------------------------
Other
Other Businesses
12m to Motor Home insurance & Central
Jan 2020 broking broking broking Under-writing Total Travel Costs Adjust-ments Total
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
--------- --------- ----------- --------------- --------- --------- ------------ -------------- ---------
All revenue is generated solely in the UK.
Notes to the condensed consolidated financial statements
(continued)
3a Disaggregation of revenue
Insurance Travel OB&CC Total
Earned premium
on insurance
Unaudited Total
6m to Jul 2020 underwritten Other
by the Group Revenue Insurance
Major product GBP'm GBP'm GBP'm
lines GBP'm GBP'm GBP'm
Gross earned premiums
on insurance underwritten
by the Group 112.1 112.1 112.1
Less: ceded to
reinsurers (73.1) (73.1) (73.1)
---------------- --------- ----------- -------- ------- --------
Net revenue on:
- Motor broking 11.9 39.6 51.5 51.5
- Home broking - 30.5 30.5 30.5
- Other broking 0.5 22.7 23.2 23.2
- Underwriting 26.6 1.9 28.5 28.5
Tour operations 33.0 33.0
Cruise 16.3 16.3
Personal finance 3.3 3.3
Healthcare 1.0 1.0
Media 4.2 4.2
Other 0.9 0.9
----------------
39.0 94.7 133.7 49.3 9.4 192.4
================ ========= =========== ======== ======= ========
Insurance Travel OB&CC Total
Earned premium
on insurance
Unaudited Total
6m to Jul 2019 underwritten Other
by the Group Revenue Insurance
Major product GBP'm GBP'm GBP'm
lines GBP'm GBP'm GBP'm
Gross earned premiums
on insurance underwritten
by the Group 111.8 111.8 111.8
Less: ceded to
reinsurers (70.3) (70.3) (70.3)
---------------- --------- ----------- -------- ------- --------
Net revenue on:
- Motor broking 9.1 44.4 53.5 53.5
- Home broking - 32.7 32.7 32.7
- Other broking 0.8 37.2 38.0 38.0
- Underwriting 31.6 5.8 37.4 37.4
Tour operations 176.9 176.9
Cruise 42.1 42.1
Personal finance 3.8 3.8
Healthcare 3.0 3.0
Media 7.6 7.6
Other 0.9 0.9
----------------
41.5 120.1 161.6 219.0 15.3 395.9
================ ========= =========== ======== ======= ========
Notes to the condensed consolidated financial statements
(continued)
3a Disaggregation of revenue (continued)
Insurance Travel OB&CC Total
Earned premium
on insurance
12m to Jan 2020 underwritten Other Total
by the Group Revenue Insurance
Major product lines 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
================ ========= =========== ======== ======= =========
4 Tax
Unaudited Unaudited
6m to 6m to 12m to
Jul 2020 Jul 2019 Jan 2020
GBP'm GBP'm GBP'm
Current income tax
Current income tax (credit)/charge (0.8) 8.7 16.4
Adjustments in respect of previous
years (3.7) (0.5) (0.8)
(4.5) 8.2 15.6
Deferred tax
Origination and reversal of temporary
differences 2.5 1.5 (1.1)
Effect of tax rate on opening balance (1.7) - -
Adjustments in respect of previous
years 5.3 (2.9) (2.6)
----------- ----------
6.1 (1.4) (3.7)
Tax expense in the income statement 1.6 6.8 11.9
=========== =========== ==========
The Group's tax expense for the period was GBP1.6m (July 2019:
GBP6.8m) representing a tax effective rate of 37.2% (July 2019:
12.9%) before the impairment of goodwill and associated deferred
tax. 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
COVID-19 during the period not being eligible for group relief to
other profitable companies within the Group. Adjustments in respect
of previous years includes adjustments for the under provision of
the tax charge in prior years of GBP1.6m (July 2019: GBP3.4m credit
for the over provision).
Notes to the condensed consolidated financial statements
(continued )
4 Tax (continued)
Reconciliation of net deferred tax assets:
Unaudited Unaudited
6m to 6m to 12m to
Jul 2020 Jul 2019 Jan 2020
GBP'm GBP'm GBP'm
At 1 February 18.1 7.1 7.1
Tax (charge)/credit recognised in
the income statement (6.1) 1.4 3.7
Tax (charge)/credit recognised in
other comprehensive income (6.5) 1.6 1.9
Tax credit recognised directly into
the hedging reserve - - 5.4
At the end of the period 5.5 10.1 18.1
=========== =========== ==========
On 11 March 2020, it was announced that the corporation tax rate
will remain at 19% from 1 April 2020 and has been enacted at the
balance sheet 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 within 12 months.
The Group has tax losses which arose in the UK of GBP4.2m (July
2019: 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 were able to recognise all unrecognised
deferred tax assets, the profit would increase by GBP0.7m (July
2019: GBP0.7m).
5 Dividends
The Company did not pay an ordinary dividend during the period
(July 2019: 1.0p). The total dividend paid was GBPnil (July 2019:
GBP11.2m).
The Directors have not declared an interim dividend.
Notes to the condensed consolidated financial statements
(continued )
6 Earnings per share
Basic EPS is calculated by dividing the profit after tax for the
year attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
period. Diluted EPS is calculated by also including the weighted
average number of ordinary shares that would be issued on
conversion of all potentially dilutive options.
There have been no transactions involving ordinary shares or
potential ordinary shares between the reporting date and the date
of authorisation of these financial statements.
The calculation of basic and diluted EPS is as follows:
Unaudited Unaudited
6m to 6m to 12m to
Jul 2020 Jul 2019 Jan 2020
GBP'm GBP'm GBP'm
(Loss)/profit attributable to ordinary
equity holders (57.1) 45.8 (312.8)
Weighted average number of ordinary
shares 'm 'm 'm
Shares in issue at 1 February 1,119.4 1,119.1 1,119.1
IPO share options exercised - 0.1 0.2
LTIP share options exercised - 0.1 0.1
Weighted average number for Basic
EPS 1,119.4 1,119.3 1,119.4
Dilutive options
IPO share options not yet vested - 0.3 -
LTIP/RSP share options not yet vested - 5.0 -
Deferred bonus plan share options
not yet vested - 0.4 -
Weighted average number for Diluted
EPS 1,119.4 1,125.0 1,119.4
============ ============ ===========
Basic EPS (5.1p) 4.1p (27.9p)
------------ ------------ -----------
Diluted EPS (5.1p) 4.1p (27.9p)
------------ ------------ -----------
Notes to the condensed consolidated financial statements
(continued)
7 Business combinations
(a) Acquisitions
The Group made no acquisitions during the six-month period ended
31 July 2020 or six-month period ended 31 July 2019.
(b) Disposals
During the year ended 31 January 2020, the Group made the
decision to exit the healthcare business and initiated an active
program 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 GBP14m. 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:
Unaudited
6m to
Jul 2020
GBP'm
Cash consideration received (net
of transaction costs) 13.3
Carrying amount of net assets disposed (3.0)
Gain on disposal before tax 10.3
Tax expense on gain -
Gain on disposal after tax 10.3
============
The carrying amounts of assets and liabilities as at the date of
disposal were:
As at date
of disposal
GBP'm
Intangible assets 0.2
Trade receivables and other receivables 1.6
Cash and short-term deposits 1.4
--------------
Total assets 3.2
--------------
Trade and other payables 0.2
Total liabilities 0.2
--------------
Net assets 3.0
==============
Notes to the condensed consolidated financial statements
(continued)
7 Business combinations (continued)
(b) Disposals (continued)
The following assets and liabilities were reclassified as held
for sale in relation to the healthcare business operation as at 31
January 2020:
As at
31 Jan 2020
GBP'm
Intangible assets 0.3
Property, plant and equipment 0.3
Trade receivables and other receivables 1.3
Cash and short-term deposits 1.5
--------------
Total assets 3.4
--------------
Trade and other payables 0.2
Total liabilities 0.2
--------------
Net assets directly associated with
disposal group 3.2
==============
8 Goodwill
Goodwill acquired through business combinations has been
allocated to cash generating unit (CGUs) for the purpose of
impairment testing. The carrying value of goodwill by CGU is as
follows:
Unaudited Unaudited 12m to
6m to 6m to Jan 2020
Jul 2020 Jul 2019 (restated)
GBP'm GBP'm GBP'm
Insurance, excluding Bennetts 718.6 1,088.6 718.6
Insurance, Bennetts - 13.6 -
Travel, excluding Destinology - 59.8 -
Cruise - - 44.8
Tour Operations, excluding Destinology - - 15.0
Travel, Destinology - 13.0 -
----------- ----------- ------------
718.6 1,175.0 778.4
----------- ----------- ------------
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.
Notes to the condensed consolidated financial statements
(continued)
8 Goodwill (continued)
The Group has tested all goodwill balances for impairment at 31
July 2020. The impairment test compares the recoverable amount of
the goodwill of each CGU with its carrying value, including the
allocated goodwill. The goodwill associated with the Bennetts
business has been transferred to assets held for sale. Please see
note 18 for further details.
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 2024/25, and after allowing for certain
stress test scenarios, and applying a suitably risk-adjusted
discount rate. This stress testing has included the latest view of
the impact of the COVID-19 pandemic, including the impact of a
potential second wave of lockdowns at the start of 2021 and the
potential long-term impact that the pandemic may have on demand for
packages holidays, cruises and travel insurance. Terminal values
have been calculated using 2.0% (January 2020: 2.0%) as the
expected long-term average growth rate of the UK economy, and
calculated using the Gordon Growth Model. The cash flows have then
been discounted to present value using a suitably risk-adjusted
discount rate based on a market participant cost of capital. The
pre-tax discount rates used for each CGU were as follows:
Unaudited Unaudited
6m to 6m to 12m to
Jul 2020 Jul 2019 Jan 2020
Insurance, excluding Bennetts 9.9% 11.3% 12.6%
Insurance, Bennetts n/a 11.6% n/a
Travel, excluding Destinology n/a 12.0% n/a
Cruise 12.7% n/a 11.3%
Tour Operations, excluding Destinology 13.0% n/a 12.2%
Travel, Destinology n/a 11.9% 12.2%
----------- ----------- ----------
Based on this analysis, the Group remains comfortable that there
is headroom over and above the carrying value of the goodwill asset
allocated to the Insurance CGU.
For the Cruise and Tour Operations businesses, the underlying
forecast cash flows have been updated for the latest impact of
COVID-19, with the expectation that ocean cruise recommence in
November 2020 and tour operations trading remains suspended until
April 2021. In addition to this, further downside scenarios have
been considered that reflect 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 travel industry betas and cost
of debt levels, particularly in cruise, have led to a marked
increase in the market-participant view of discount rates used in
the calculation of recoverable amount. As a result, the Group has
determined that the recoverable amounts of the goodwill allocated
to the Tour Operations and Cruise CGUs are below the carrying value
reported at 31 January 2020, and so the Directors have taken the
decision to write-off the goodwill assets allocated to the Cruise
and Tour Operations excluding Destinology CGUs in full. The Group's
results therefore include a total impairment of goodwill of
GBP59.8m (GBP15.0m for Tour Operations and GBP44.8m for
Cruise).
Notes to the condensed consolidated financial statements
(continued)
9 Intangible fixed assets
During the period, the Group capitalised GBP7.0m (July 2019:
GBP9.0m) of software assets, disposed of assets with a net book
value of GBPnil (July 2019: GBPnil) and charged GBP7.3m (July 2019:
GBP9.5m) of amortisation and impairment to its intangible
assets.
The Group has performed a review for indicators of impairment of
the acquired contracts, brands and customer relationships at 31
July 2020, and concluded that no indicators of impairment exist at
that date.
10 Property, plant and equipment
During the period, the Group capitalised assets with a cost of
GBP7.4m (July 2019: GBP263.8m), disposed of assets with a net book
value of GBP5.0m (July 2019: GBP7.7m) and charged GBP7.6m (July
2019: GBP13.6m) of depreciation and impairment to its property,
plant and equipment. Profit arising on disposal was GBP6.7m (July
2019: GBP0.2m).
On 20 September 2017, the Saga plc Board approved the purchase
of the second cruise ship, the Spirit of Adventure, with a delivery
date of August 2020, and the Group exercised the option in December
2017.
Four stage payments for the Spirit of Adventure were made
between December 2017 and August 2019. The remaining element of the
contract price is due on delivery of the ship, and the Group
entered into appropriate financing for this on 20 September
2017.
During the period the Group was notified that disruption arising
from COVID-19 will delay delivery of the Spirit of Adventure ,
which was due to commence operations in August 2020. The latest
indication for the Spirit of Adventure is that she will be
delivered by the end of September 2020. In addition, 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 GBP32.3m in principal payments
under the Ship Facilities that were due up to 31 March 2021. Of the
deferral, GBP11.9m relates to the Spirit of Adventure and is
contingent on it being delivered by the end of September 2020.
These deferred amounts will be paid between June 2021 and December
2024 for the Spirt of Discovery and between September 2021 and
March 2025 for the Spirit of Adventure, and interest remains
payable.
As at 31 July 2020, capital amounts contracted for but not
provided in the financial statements in respect of the ships
amounted to GBP269.5m (July 2019: GBP291.4m).
11 Right of use assets
During the period, the Group capitalised assets with a cost of
GBPnil (July 2019: GBP15.0m), disposed of assets with a net book
value of GBPnil (July 2019: GBP0.2m) and charged GBP2.2m (July
2019: GBP7.5m) of depreciation and impairment to its right of use
assets. During the period the impact of modifications of lease
terms was a reduction in the net book value of right of use assets
of GBP10.1m (July 2019: GBP2.6m).
Notes to the condensed consolidated financial statements
(continued)
12 Financial assets and financial liabilities
a) Financial assets
Unaudited Unaudited
As at Jul As at Jul As at Jan
Note 2020 2019 2020
GBP'm GBP'm GBP'm
Fair value through profit or loss
Foreign exchange forward contracts 0.9 2.0 0.1
Fuel oil swaps - 0.5 -
Loan funds 5.9 6.2 7.8
Money market funds 13 35.1 72.8 45.9
41.9 81.5 53.8
------------ ------------ -------------
Fair value through profit or loss
designated in a hedging relationship
Foreign exchange forward contracts 4.5 13.0 1.0
Fuel oil swaps - 1.1 0.1
4.5 14.1 1.1
------------ ------------ -------------
Fair value through other comprehensive
income
Debt securities 256.5 262.2 274.2
------------ ------------ -------------
256.5 262.2 274.2
------------ ------------ -------------
Amortised cost
Deposits with financial institutions 44.5 49.0 49.0
44.5 49.0 49.0
------------ ------------ -------------
Total financial assets 347.4 406.8 378.1
============ ============ =============
Current 107.2 119.4 126.4
Non-current 240.2 287.4 251.7
------------ ------------ -------------
347.4 406.8 378.1
============ ============ =============
The Group's financial assets are analysed by Moody's rating on
page 23 of the Operating and Financial Review.
Notes to the condensed consolidated financial statements
(continued)
12 Financial assets and financial liabilities (continued)
b) Financial liabilities
Unaudited Unaudited
As at Jul As at Jul As at
Note 2020 2019 Jan 2020
GBP'm GBP'm GBP'm
Fair value through profit or loss
Foreign exchange forward contracts 0.9 - 2.0
Fuel oil swaps 0.5 0.1 -
------------ ------------ ---------------
1.4 0.1 2.0
------------ ------------ ---------------
Fair value through profit or loss
designated in a hedging relationship
Foreign exchange forward contracts 7.7 1.5 23.4
Fuel oil swaps 1.2 0.9 2.5
------------ ------------ ---------------
8.9 2.4 25.9
------------ ------------ ---------------
Amortised cost
Bond and bank loans 16 666.8 675.7 624.3
Lease liabilities 16.3 34.7 28.6
Bank overdrafts 13 3.6 3.2 9.5
686.7 713.6 662.4
------------ ------------ ---------------
Total financial liabilities 697.0 716.1 690.3
===============
Current 99.8 80.1 95.6
Non-current 597.2 636.0 594.7
------------ ------------ ---------------
697.0 716.1 690.3
============ ============ ===============
c) Fair value hierarchy
Unaudited Unaudited
As at Jul 2020 As at Jul 2019
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 - 5.4 - 5.4 - 15.0 - 15.0
Fuel oil swaps - - - - - 1.6 - 1.6
Loan funds 5.9 - - 5.9 6.2 - - 6.2
Debt securities 256.5 - - 256.5 262.2 - - 262.2
Money market funds 35.1 - - 35.1 72.8 - - 72.8
======= ======= ======= ======= ======= ======= ======= =======
Financial liabilities measured at fair
value
Foreign exchange forwards - 8.6 - 8.6 - 1.5 - 1.5
Fuel oil swaps - 1.7 - 1.7 - 1.0 - 1.0
Financial assets for which fair values
are disclosed
Deposits with institutions - 44.5 - 44.5 - 49.0 - 49.0
Financial liabilities for which fair
values are disclosed
Bond and bank loans - 666.8 - 666.8 - 675.7 - 675.7
Lease liabilities - 16.3 - 16.3 - 34.7 - 34.7
Bank overdrafts - 3.6 - 3.6 - 3.2 - 3.2
======= ======= ======= ======= ======= ======= ======= =======
Notes to the condensed consolidated financial statements
(continued)
12 Financial assets and financial liabilities (continued)
c) Fair value hierarchy (continued)
As at Jan 2020
Level Level Level
1 2 3 Total
GBP'm GBP'm GBP'm GBP'm
Financial assets measured at fair value
Foreign exchange forwards - 1.1 - 1.1
Fuel oil swaps - 0.1 - 0.1
Loan funds 7.8 - - 7.8
Debt securities 274.2 - - 274.2
Money market funds 45.9 - - 45.9
======== ======= ======= =======
Financial liabilities measured at fair value
Foreign exchange forwards - 25.4 - 25.4
Fuel oil swaps - 2.5 - 2.5
======== ======= ======= =======
Financial assets for which fair values are disclosed
Deposits with institutions - 49.0 - 49.0
======== ======= ======= =======
Financial liabilities for which fair values are
disclosed
Bond and bank loans - 624.3 - 624.3
Lease liabilities - 28.6 - 28.6
Bank overdrafts - 9.5 - 9.5
======== ======= ======= =======
d) Other information
Debt securities, money market funds and deposits with financial
institutions relate to monies held by the Group's insurance
underwriting business and are subject to contractual restrictions
and are not readily available to be used for other purposes within
the Group. Whilst the Group's fixed / floating interest securities
investments could be realised at short notice, it is anticipated
that they will be held until maturity.
The Group operates a programme of economic hedging against its
foreign currency and fuel oil exposures. During the period, the
Group designated 116 foreign exchange forward currency contracts as
hedges of highly probable foreign currency cash expenses in future
periods and designated no fuel oil swaps as hedges of highly
probable fuel oil purchases in future periods. As at 31 July 2020,
the Group has designated 491 forward currency
contracts and 44 fuel oil swaps as hedges.
During the period, the Group recognised net gains of GBP6.8m
(July 2019: GBP11.1m) on cash flow hedging instruments through
other comprehensive income into the hedging reserve. Additionally,
the Group recognised net gains of GBP15.0m (July 2019: GBP13.3m)
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 of GBP21.8m (July 2019:
GBP24.4m) are offset by a net GBPnil loss (July 2019: GBP0.4m loss)
on forecast transactions recognised in the financial statements.
The Group recognised a GBP1.9m gain (July 2019 GBP0.1m loss)
through the income statement in respect of the ineffective portion
of hedges measured during the period.
During the period the Group has de-designated 248 foreign
currency forward contracts, with a transaction value of GBP65.5m,
where the cash flows forecast are no longer expected to occur.
Similarly, the Group has de-designated to 25%, 8 fuel oil swaps,
with a transaction value of GBP0.2m, where the cash flows forecast
are no longer expected to occur. During the period, the Group
recognised a GBP1.5m gain (July 2019: GBP1.4m gain) through the
income statement in respect of matured hedges which have been
recycled from other comprehensive income. The Group also recognised
a GBPnil gain (July 2019: GBP32.2m gain) in property, plant and
equipment, in respect of matured hedges, which have been recognised
directly from the hedging reserve.
Notes to the condensed consolidated financial statements
(continued)
13 Cash and cash equivalents
Unaudited Unaudited
As at Jul As at Jul As at Jan
2020 2019 2020
GBP'm GBP'm GBP'm
Cash at bank and in hand 78.9 93.9 73.1
Short term deposits 6.8 64.7 24.8
------------ ------------ -------------
Cash and short-term deposits 85.7 158.6 97.9
Money markets funds (note 12a) 35.1 72.8 45.9
Bank overdraft (note 12b) (3.6) (3.2) (9.5)
Cash held by disposal groups 13.5 - 4.8
Cash and cash equivalents in the cash
flow statement 130.7 228.2 139.1
============ ============ =============
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. These amounts held are not
readily available to be used for other purposes within the Group
and total GBP101.9m (July 2019: GBP196.1m). Available cash excludes
these amounts and any amounts held by disposal groups.
14 Retirement benefit schemes
The Group operates a funded defined benefit scheme, The Saga
Pension Scheme ("Saga Scheme") which is open to new members who
accrue benefits on a career average salary basis. The assets of the
scheme are held separately from those of the Group in independently
administered funds.
The fair value of the assets and present value of the
obligations of the Saga defined benefit scheme are as follows:
Unaudited Unaudited
As at Jul As at Jul As at Jan
2020 2019 2020
GBP'm GBP'm GBP'm
Fair value of scheme assets 415.1 356.4 372.3
Present value of defined benefit
obligation (409.4) (363.8) (377.8)
Defined benefit scheme asset/(liability) 5.7 (7.4) (5.5)
============ ============ =============
The present values of the defined benefit obligation at 31
January 2020, the related current service cost and any past service
costs were measured using the projected unit credit method.
Liabilities at 31 July 2020 have been estimated by rolling forward
from 31 January 2020, allowing for changes in market conditions and
estimating the value of benefits accrued and paid out over the
period.
During the period ended 31 July 2020, the net liability of the
Saga Scheme has decreased by GBP11.2m to create a total scheme
asset of GBP5.7m. The increase in scheme assets of GBP42.8m has
been largely driven by the fall in interest rates in the period,
which in turn has led to a marked increase in the value of
liability hedging assets within the portfolio. This was partially
offset by the present value of defined benefit obligations of
GBP31.6m, driven largely by a 30bps reduction in corporate bond
yields, being the basis of the discount rate that is used in the
IAS19 valuation of the obligations.
Notes to the condensed consolidated financial statements
(continued)
15 Insurance contract liabilities and reinsurance assets
Gross and net insurance liabilities are analysed as follows:
Unaudited Unaudited
As at As at As at
Jul 2020 Jul 2019 Jan 20
GBP'm GBP'm GBP'm
Gross
Claims outstanding 330.8 375.4 338.3
Provision for unearned premiums 106.4 114.5 105.3
----------- ------------- ---------
Total gross liabilities 437.2 489.9 443.6
=========== ============= =========
Unaudited Unaudited
As at As at As at
Jul 2020 Jul 2019 Jan 20
Recoverable from reinsurers
Claims outstanding 54.5 78.0 55.2
Provision for unearned reinsurance
premiums 4.5 4.2 6.9
----------- ------------- ---------
Total reinsurers' share of insurance
liabilities (as presented on the
face of the condensed statement
of financial position) 59.0 82.2 62.1
Amounts recoverable under funds
withheld quota share agreements
recognised within trade payables:
Claims outstanding 148.0 127.0 134.0
Provision for unearned premiums 65.9 71.5 63.9
----------- ------------- ---------
Total reinsurers' share of insurance
liabilities after funds withheld
quota share 272.9 280.7 260.0
=========== ============= =========
Unaudited Unaudited
As at As at As at
Jul 2020 Jul 2019 Jan 20
Net
Claims outstanding 276.3 297.4 283.1
Provision for unearned premiums 101.9 110.3 98.4
----------- ------------- ---------
Total net insurance liabilities 378.2 407.7 381.5
----------- ------------- ---------
Amounts recoverable under funds
withheld quota share agreements
recognised within trade payables:
Claims outstanding (148.0) (127.0) (134.0)
Provision for unearned premiums (65.9) (71.5) (63.9)
----------- ------------- ---------
Total net insurance liabilities
after funds withheld quota share 164.3 209.2 183.6
=========== ============= =========
The total cost on purchasing reinsurance recognised during the
period was GBP3.6m (July 2019: GBP3.5m).
Notes to the condensed consolidated financial statements
(continued)
16 Loans and borrowings
Unaudited Unaudited
As at As at As at
Jul 2020 Jul 2019 Jan 2020
GBP'm GBP'm GBP'm
Bond 250.0 250.0 250.0
Bank loans 140.0 160.0 140.0
Ship loan 234.8 245.0 234.8
Revolving credit facility 50.0 20.0 10.0
Accrued interest payable 4.8 3.3 3.7
----------- ----------- ----------
679.6 678.3 638.5
Less: deferred issue costs (12.8) (2.6) (14.2)
----------- ----------- ----------
666.8 675.7 624.3
=========== =========== ==========
The Group's bank facilities consist of a GBP250.0m seven-year
senior unsecured bond, a GBP200.0m five-year term loan facility and
a GBP100.0m five-year revolving credit facility with an option to
extend. In March 2019, the Group's banks agreed to extend the term
on the revolving credit facility by one year with expiry in May
2023. The bond is listed on the Irish Stock Exchange.
In June 2019, the Group drew down its financing for its new
cruise ship, the Spirit of Discovery, of GBP245.0m. The financing
for the new cruise ship, the Spirit of Discovery, represents a
12-year fixed rate sterling loan, backed by an export credit
guarantee. The initial loan value of GBP245.0m is repayable in 24
broadly equal instalments, with the first payment of GBP10.2m paid
in December 2019.
At 31 July 2020, the Group had drawn GBP50.0m of its GBP100.0m
revolving credit facility and since the refinancing GBP60.0m of the
term loan has been repaid.
Interest on the bond is incurred at an annual interest rate of
3.375%. Interest on the term loan and revolving credit facility is
incurred at a variable rate of LIBOR plus a bank margin which is
linked to the Group's leverage ratio. Interest on the ship loan is
incurred at an effective annual interest rate of 4.31% (including
arrangement and commitment fees).
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 to amend its bank debt in early
March 2020. These discussions were concluded on 1 April 2020, with
amendments to banking covenants that provide the Group with much
greater financial flexibility in the event of prolonged disruption
to Travel business. Under these amendments, the covenants in the
bank facilities will be tested quarterly while leverage excluding
Cruise is greater than 4.0x and no dividends can be paid while
leverage is greater than 3.0x.
In June 2020 the Group secured a waiver of the covenants for the
Group's Ship Facilities and a debt holiday for the period to 31
March 2021. Further details on this are provided in note 10.
After the end of the period, the Group announced that it is at
the advanced stage of a prospective GBP150m equity capital raise.
The equity raise is intended to improve the Group's financial
position by reducing its debt, so allowing it to renegotiate
banking agreements and covenants. Further details on this are
provided in note 19.
During the period the Group charged GBP13.4m (July 2019:
GBP7.1m) to the income statement in respect of fees and interest
associated with the bond, term loan, ship loan and revolving credit
facility. In addition, finance costs recognised in the income
statement includes GBP0.4.m (July 2019: GBP0.7m) relating to
interest and finance charges on lease liabilities. The Group
recognised GBP1.9m of net fair value gains on derivatives (July
2019: GBP2.3m gains).
Notes to the condensed consolidated financial statements
(continued)
17 Share-based payments
The Group has granted a number of different equity-based awards
which it has determined to be share-based payments. New awards
granted during the period were as follows:
a) On 28 May 2020, options over 1,337,581 shares were issued
under the deferred bonus plan to Executive Directors reflecting
their deferred bonus in respect of 2019/20, which vest and become
exercisable on the third anniversary of the grant date.
b) On 24 June 2020, options over 12,134,706 shares were issued
under the Restricted Share Plan to certain Directors and other
senior employees which vest and become exercisable on the third
anniversary of the grant date.
The fair values of all awards are assessed using techniques
based upon the "Black-Scholes" pricing model. The Group charged
GBP1.1m during the period (July 2019: GBP1.1m) to the income
statement in respect of equity-settled share-based payment
transactions.
18 Assets held for sale
During the year ended 31 January 2020, the Group made the
decision to initiate an active program to locate a buyer for its
insurance biking brand, Bennetts and its healthcare business.
As at 31 January 2020, the requirements of IFRS 5 were met and
accordingly Bennetts and the healthcare business 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.
On 17 February 2020 the Group announced that it had reached
agreement for the sale of Bennetts to Atlanta Investment Holdings C
Limited for an enterprise value of GBP26m. Completion was subject
to receiving regulatory approval and meeting other closing
conditions. The sale was completed subsequent to the end of the
reporting period (note 19).
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 GBP14m. 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.
During the period ended 31 July 2020, the Group made the
decision to initiate an active program to locate a buyer for its
holiday business segment, Destinology. Since 31 July 2020, the
planned sale of Destinology has not taken place as intended, and
the Group will continue to evaluate its options for this business
as part of a plan that would see it not remaining as part of the
Group into the future.
As at 31 July 2020, the requirements of IFRS 5 were met and
accordingly Bennetts and Destinology have been 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.
Notes to the condensed consolidated financial statements
(continued)
18 Assets held for sale (continued)
The assets and liabilities of the two disposal groups classified
as held for sale as at 31 July 2020 are as follows:
Disposal groups
-------------------------
Destinology Bennetts Total
GBP'm GBP'm GBP'm
Goodwill - 13.6 13.6
Intangible assets - 3.2 3.2
Property, plant and equipment - 0.1 0.1
Trade receivables and other receivables 1.3 11.3 12.6
Cash and short-term deposits 3.1 10.4 13.5
------------- ---------- -------
Total assets 4.4 38.6 43.0
------------- ---------- -------
Provisions - 0.2 0.2
Financial liabilities 0.6 - 0.6
Contract liabilities 5.2 0.9 6.1
Trade and other payables 0.1 14.4 14.5
Total liabilities 5.9 15.5 21.4
------------- ---------- -------
Net assets directly associated
with disposal groups (1.5) 23.1 21.6
============= ========== =======
No remeasurement on reclassification to held for sale was
necessary for either of the disposal groups as the fair value of
each disposal group is in excess of its carrying value
19 Post balance sheet events
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 GBP24.2m (note 18).
On 30 August 2020 the Group announced that it is at the advanced
stage of a prospective GBP150m equity capital raise in order to
strengthen its balance sheet, improve liquidity and support the
execution of its strategy plan. The prospective GBP150m equity
raise is to be launched on 10 September 2020, structured as a Firm
Placing and Open offer. The prospective equity raise is fully
committed and includes a significant investment from the Group's
former Chief Executive Officer and majority shareholder.
The equity raise is intended to improve the Group's financial
position by reducing the term loan to GBP70m and repaying the drawn
revolving credit facility, with the balance of proceeds raised
increasing available cash. The Group has also agreed with its
lending banks to extend the maturity of the remaining GBP70m term
loan to May 2023 and has 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.
Notes to the condensed consolidated financial statements
(continued)
20 Related party transactions
Related party transactions during the six months ended 31 July
2020 were consistent in nature, scope and quantum with those
disclosed in the Group's annual report and accounts for the year
ended 31 January 2020 available at www.corporate.saga.co.uk
Principal Risks and Uncertainties
The Group is subject to a number of risks and uncertainties as
part of its activities. The Board regularly considers these and
seeks to ensure that appropriate processes are in place to manage,
monitor and mitigate these risks. With the exception of the
COVID-19 pandemic, the Directors consider that the principal risks
and uncertainties facing the Group during the period under review
and for the remainder of the financial period have not materially
changed from those outlined on pages 32 and 33 of the annual report
and accounts for the year ended 31 January 2020 available at
www.corporate.saga.co.uk . The Group has in place processes to
monitor and mitigate these risks.
The COVID-19 pandemic has had a significant impact on the
Group's financial performance in the first six months of the
financial year, especially in Travel. As the situation has evolved
over the past six months, both of the Group's Tour Operating and
Cruise businesses have suspended travel since March 2020, with the
intention to recommence ocean cruising from November 2020 and tour
operating from April 2021.
The impact of the COVID-19 situation cannot be predicted with a
high level of accuracy and it is not possible to assess all
possible future implications for the Group. Although the Group has
a plan to address this uncertainty through the proposed capital
raising and amendments to bank facilities, successful completion of
these actions is conditional upon shareholder approval and cannot
therefore be relied upon in relation to the going concern
assessment in the current results. Accordingly, the Directors have
concluded that there exists a material uncertainty in relation to
going concern in the scenarios modelled. This material uncertainty
may cast significant doubt on the Group's ability to continue as a
going concern and to continue realising its assets and discharging
its liabilities in the normal course of business.
Notwithstanding this material uncertainty, the Directors have
continued to prepare the interim financial statements to 31 July
2020 on a going concern basis. This is in part due to the proposed
capital raising exercise, which if completed successfully, would
lead to the removal of the going concern uncertainty. However, even
in the event that this was not successful, the Group would still
expect to trade through the current period of uncertainty with time
to execute alternative actions in the next six months, during which
period the Group would remain in compliance with covenants and with
sufficient available liquidity to support the business.
Further details on this are provided in notes 2.1 and 2.6.
Responsibility Statement
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules
, being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
On behalf of the Board
E A Sutherland J B Quin
Group Chief Executive Officer Group Chief Financial Officer
9 September 2020 9 September 2020
INDEPENT REVIEW REPORT TO SAGA PLC
Conclusion
We have been engaged by the company to review the condensed set
of interim financial statements in the half-yearly financial report
for the six months ended 31 July 2020 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
financial position, the condensed consolidated statement of changes
in equity, the condensed consolidated statement of cash flows and
the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
July 2020 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Material uncertainty related to going concern
We draw attention to the basis of preparation in note 2.6 to the
interim financial statements which indicates that there is a
material uncertainty relating to the Group's ability to continue as
a going concern. As set out in note 2.6, while Saga plc expects to
remain in compliance with its banking covenants through January
2021, given the potential ongoing impact from COVID-19 into next
year, the ability of the Group to continue as a going concern
beyond this date is dependent on further mitigating actions. The
Board's going concern assessment and conclusion is predicated on
being able to successfully execute such mitigating actions and as
is set out in note 2.6, the Group is at an advanced stage with a
Firm Placing and Open Offer to raise additional equity capital and
the renegotiation of certain terms attaching to the Group's bank
facilities. The agreement of revised terms attaching to the Group's
bank facilities being conditional on the equity raise being
successful, a shareholder vote being required in order to raise
additional capital through this Firm Placing and Open Offer, and
the underwriting agreement being
subject to certain specific, albeit customary, conditions are
all factors that are outside the control of the Group. These events
and conditions give rise to a material uncertainty that may cast
significant doubt about the Group's ability to continue as a going
concern.
Our conclusion is not modified in respect of this matter.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
INDEPENDENT REVIEW REPORT TO SAGA PLC (continued)
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2.1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of interim financial
statements included in the half-yearly financial report in
accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of interim financial statements in the
half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Stuart Crisp
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
9 September 2020
Alternative Performance Measures Glossary
The Group uses a number of Alternative Performance Measures
("APMs"), which are not required or commonly reported under
International Financial Reporting Standards, the Generally Accepted
Accounting Principles (GAAP) under which the Group prepares its
financial statements, but which are used by the Group to help the
user of the accounts better understand the financial performance
and position of the business.
Definitions for the primary APMs used in this report and 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 profit/(loss) before tax
excluding unrealised fair value gains and losses on derivatives,
the net profit on disposal of businesses and ships, 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 profit/(loss) before tax within the
Operating and Financial Review on page 10.
This measure is the Group's key performance indicator and is
useful for presenting the Group's underlying trading performance,
as it excludes non-cash technical accounting adjustments and
one-off financial impacts that are not expected to recur.
Trading EBITDA / Adjusted Trading EBITDA
Trading EBITDA is defined as earnings before interest payable,
tax, depreciation and amortisation, and excludes the amortisation
of acquired intangibles, non-trading costs and impairments.
Adjusted Trading EBITDA also excludes the impact of IFRS 16 and the
Trading EBITDA relating to the two new cruise ships, the Spirit of
Discovery and Spirit of Adventure in line with the Group's debt
covenants. It is reconciled to Underlying Profit/(loss) Before Tax
within the Operating and Financial Review on page 20. Underlying
Profit/(loss) Before Tax is reconciled to statutory profit/(loss)
before tax within the Operating and Financial Review on page
10.
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 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.
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
52.
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 20.
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 24.
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