SAGA PLC
ANNUAL REPORT
AND ACCOUNTS 2022
Contents
Strategic Report
2 Saga at a glance
4 Chairman’s Statement
6 Group Chief Executive Officer’s Statement
10 Key performance indicators
12 Market review
14 Purpose and business model
16 Engaging with stakeholders
18 Our strategy
23 Environmental, Social and Governance (ESG)
36 Group Chief Financial Officer’s Review
53 Principal risks and uncertainties (PRUs)
55 Viability Statement
56 Key disclosure statements
Governance
Corporate Governance Statement
58 Chairman’s introduction to governance
60 Application of UK Corporate Governance Code
61 Governance in action
65 Governance statements
66 Board leadership and Company purpose
67 Division of responsibilities
69 Composition, succession and evaluation
70 Board of Directors
72 Nomination Committee Report
74 Audit, risk and internal control
77 Audit Committee Report
82 Risk Committee Report
Directors’ Remuneration Report
85 Annual Statement
88 Remuneration at a glance
90 Directors’ Remuneration Policy
94 Annual Report on Remuneration
107 Directors’ Report
111 Statements of responsibilities
112 Independent Auditor’s Report to
the Members of Saga plc
Financial statements
Consolidated financial statements
121 Consolidated income statement
122 Consolidated statement of comprehensive income
123 Consolidated statement of financial position
124 Consolidated statement of changes in equity
125 Consolidated statement of cash flows
126 Notes to the consolidated financial statements
Company financial statements of Saga plc
193 Balance sheet
194 Statement of changes in equity
195 Notes to the Company financial statements
Additional information
201 Alternative Performance Measures Glossary
202 Glossary
204 Shareholder information
SAGA’S PURPOSE IS TO
DELIVER EXCEPTIONAL
EXPERIENCES EVERY DAY,
WHILE BEING A DRIVER
OFPOSITIVE CHANGE
INOUR MARKETS AND
COMMUNITIES.
At the heart of our business model is the
drive to understand our customers’
wants and needs sothat wecanprovide
them with theproducts they want and
theexceptional experience theydeserve.
Our vision is to help lead andcreate a UK
where olderpeople are valued fortheir
experience and havegreater confidence,
contribution and connections.
Alternative Performance Measures
In addition to statutory performance measures, the Group also measures performance using Alternative Performance Measures. These are reconciled
tostatutory measures of performance on page 47 of the Group Chief Financial Officer’s Review and defined in full on page 201.
We have made strong progress against our turnaround
strategy, unlocking the potential thatexists within Saga.
In2021/22 our Insurance business performed resiliently,
delivering the second year of policy growth after several
years of decline. In Travel, we resumed operations,
deliveredastrong pipeline of Cruise bookings for
2022/23and began the restructure ofour Tour
Operationsbusiness.
During the year, we also launched our new brand approach,
showcased by three new television adverts, proudly
celebrating our audience and focusing ontheir attitude,
rather than age.
In order to convert the foundations laid into sustainable
growth, we are further evolving our strategic approach,
focused on maximising our existing businesses, reducing
ourdebt and developing new businesses in a capital-light
wayand creating ‘The Superbrand’ for older people.
TRANSFORMING
SAGA
See our
CEO presenting
our growth planSee our new television advert
here
Our purpose is to deliver exceptional experiences every day, while
being a driver of positive change in our markets and communities.
TRANSFORMING SAGA,
BUILDING OUR FUTURE
Saga at a glance
Our values
Our values represent who we are and
howwe work, brought to life every day
byour colleagues. We believe that every
interaction, in whatever form that takes,
should reflect these values.
Precision pace
Always owning and making things happen
We agree clear goals and plans, we move quickly
andboldly, and we act and take ownership.
Empathy
Always aware of others
We understand and acknowledge how someone
else is feeling and their experience, andwe
walk in their shoes.
Curiosity
Always asking why
We are open minded, always seeking new insights and
learning about our customers, markets, competitors
andeach other, and we welcome andprovide challenge.
Collaboration
Always one team, the Saga team
We are one team, working together, valuing
inclusivity and difference.
We aim to build exceptional insight that runs
throughout our businesses, allowing us to
understand our customers, the ageing
process and life stages better than anyone
else. Everything we do for our customers,
and indeed each other, is simple, personal
and special.
Throughout 2021/22, we delivered against our
turnaround strategy, focused on five strategic
priorities:
People and culture step change
Maximising our existing businesses
Data, digital and brand transformation
Step-changing our ability to scale while
reducing debt
Optimising our businesses
Creating ‘The Superbrand’ for older people
Driving simplicity and efficiency
Reducing our debt
We are now well-placed to return the business
to sustainable long-term growth and will focus
on three key areas to do so:
1
1
2
2
3
3
4
5
This will continue to be underpinned by our
commitment to high Environmental, Social and
Governance standards.
Saga plc Annual Report and Accounts 2022
2
Our businesses
Saga’s businesses all focus on the specific needs and wishes of our unique customergroup.
Insurance
Travel
Saga’s Insurance business remains the largest part
of the Group and comprises:
•
Retail Broking, which includes principally motor,
home, private medical and travel insurance; and
•
Underwriting, representing the Group’s in-house
underwriter, Acromas Insurance Company Limited
(AICL), which sits on the panel of insurers and
underwrites 70% of Saga’s motor insurance
policies.
Highlights for 2021/22
•
Second year of policy growth following several
years in decline, supported by increased customer
retention.
•
Launch of our enhanced Saga Plus three-year
fixed-price motor and home insurance.
•
AICL policies, in relation to the Saga motor book,
returned to growth for the first time since 2012.
Other Businesses
The Group’s Other
Businesses include:
•
Saga Personal Finance,
offering equity release and
savings products;
•
Saga Magazine; and
•
MetroMail, our in-house
mailing and printing
business.
Highlights for 2021/22
•
Offered all shareholders
acomplimentary
subscription to the digital
magazine.
•
Launch of Saga Lifetime
Mortgage and Easy Access
Cash ISA.
Underlying Profit Before Tax
1
£1.8m
2020/21 – £2.8m
2019/20 – £4.6m
The Travel business, where Saga began, has always
been at the heart of the brand and consists of:
•
Cruise, offering boutique ocean and river cruises;
and
•
Tour Operations, offering package holidays
including escorted tours, special interest trips
andhotel stays.
Highlights for 2021/22
•
Travel business successfully resumed operations
in June 2021.
•
Cruise business delivered strong load factor and
per diems, despite travel restrictions in place.
•
Strong Cruise bookings into 2022/23 with load
factor of 73% and per diem of £319 at 20March
2022.
•
Began the restructure of Tour Operations, to
deliver growth and create a lower-cost, more agile,
customer-focused business.
Read more on pages 39-42 Read more on pages 43-44
Read more on page 44
Underlying Profit Before Tax
1
£120.5m
Underlying (Loss)/Profit Before Tax
1
(£79.3m)
2
021/22
£120.5m
2020/21
£134.6m
2019/20
£130.8m
(£79.3m)
(£78.5m)
£19.8m
2
021/22
2020/21
2019/20
1 Refer to Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
3
Chairman’s Statement
EMERGING STRONGER
FROM THE PANDEMIC
We are emerging from the
pandemic stronger than
wewerewhen itbegan and
wearepositioning Saga
forsustainable growth.
Anexcitingfuture lies ahead.
I am pleased with the progress we made last
year despite the considerable challenges of the
external environment.
Although it has clearly been a particularly
difficult period for our Tour Operations business
and our cruise ships were only able to start
sailing with guests in late June and, even then,
with significant restrictions on the number
ofberths we were able to fill, we made good
progress throughout the year with our
turnaround strategy. Saga’s Retail Broking
business achieved a second consecutive year
ofmotor and home policy growth following
several years of decline and our Cruise
businesssecured a very encouraging level
ofbookings for 2022/23.
Reasons to invest in Saga
Our investment case is designed to create value for shareholders by returning the
business to sustainable long-term growth and reducing debt.
How we are different
Saga focuses on people over 50, the
fastest growing, most affluent and
influential segment in the UK. Our
deep customer insight gives us a
unique view into our customers’
lives. We exist to create exceptional
experiences for these customers
every day, while being a driver for
positive change in our markets and
communities.
The model works
We offer differentiated products
and services, underpinned by a
trusted brand. Our business model
is capital-efficient and highly cash
generative, providing flexibility to
balance investment in our brand and
businesses with debt reduction and
delivery of long-term returns to
shareholders.
Confidence in future delivery
We have a clear and compelling
strategy, focused on building on the
foundations laid over the past two
years under our turnaround plan.
Weare now focused on returning
the business to growth through
maximising our existing businesses,
reducing debt while step-changing
our ability to scale and positioning
Saga as ‘The Superbrand’ for older
people. Thiswill create a truly
customer-orientated experience
and continue to drive longer and
deeper relationships with our
customers.
Read more on page 14
Saga plc Annual Report and Accounts 2022
4
As a result of the turbulence being experienced
by the travel industry, we are making significant
changes to our Tour Operations business in
order to create a lower-cost, more agile and
digitally-led operation, focused on the evolving
needs of our customers. These changes will
place us in a better position as our customer
demand rebuilds and will help us in facing any
further external challenges, such as the current
war in Ukraine.
During the year, we prepared ourselves for the
new regulatory changes in theinsurance
industry that came into force inJanuary 2022.
We also strengthened our systems and senior
management teams and weare now retaining
more of our customers atthe point of policy
renewal. We are now placing far greater focus
oncross-selling our policies to our customers.
As a result of raising new capital in 2020 and the
successful issue of our new bond last July, the
Company is in a much stronger financial position
and we have ended the year with lower net debt
and more cash on our balance sheet.
The culture across Saga has continued to
develop with colleagues reporting that they
were feeling more engaged and supported than
before. We announced the introduction of
Grandparents’ Leave, the first initiative of its
kind amongst major UK employers. This is part
of our work to challenge perceptions of ageing
which is a central part of our new Environmental,
Social and Governance (ESG) strategy.
Saga has always had a strong sense of purpose
and has embraced our ESG responsibilities
withenthusiasm. We have a diverse range of
ESG initiatives and are currently engaged in
developing a new and more ambitious plan
thatwill have even greater impact.
Shareholder returns
As a shareholder myself, I fully understand that
some investors could be frustrated by the
current share price. I would like to assure you
that the Board is very focused on creating
long-term sustainable growth in the value of
Saga. I believe that, with our strengthened team
and the growth strategy we now have in place,
we will be successful.
In April 2020, to protect the Group’s financial
position in light of the pandemic, the Board
announced that it had suspended dividend
payments to shareholders and that it did not
expect to renew them until 2024 at the earliest.
With this in mind, no dividend is proposed for
the 2021/22 financial year. We are very aware
ofthe importance of an annual dividend to many
of our shareholders and will look to reinstate
payments when it is appropriate to do so.
The continued disruption caused by the
pandemic has highlighted the financial and
operational resilience of Saga and the value of
adiversified business. I am very pleased with the
performance of our leadership team and our
achievements, despite the external challenges
we have faced. I am confident that we are
emerging from the pandemic stronger than
wewere when it began. We have made good
progress with our strategy and I am confident
that our new growth plan will, in the long term,
benefit all our stakeholders.
Finally, I would like to extend my thanks to
everyone at Saga for the resilience they have
shown throughout what has been another
extraordinary year. Our colleagues have worked
hard with dedication and determination to
provide our customers with the very best
support and service.
Sir Roger De Haan
Non-Executive Chairman
22 March 2022
“I would like to extend my thanks to
everyone at Saga for the resilience they
have shown throughout what has been
another extraordinary year.”
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
5
Group Chief Executive Officer’s Statement
A year of transformation
During 2021/22, we continued to make strong
progress against our turnaround strategy,
enhancing our capability in Insurance and
delivering another year of positive momentum,
successfully resuming Cruise operations and
beginning the restructure of our Tour
Operations business. All of this was achieved
while delivering a new brand campaign aimed
atchanging the perceptions of Saga.
We were determined to emerge
stronger from the pandemic than
we went in and, in spite of the
challenges of 2021/22, I am pleased
that we have done so, and are now
positioning the business for growth.
POSITIONING SAGA
FORGROWTH
“Against a backdrop of
external headwinds, we are
proud of what we have
achieved and acknowledge
that none of this would
have been possible without
our colleagues’ hard work
and dedication.”
Euan Sutherland
Group Chief Executive Officer
See our
CEO discussing
ourprogress
Saga plc Annual Report and Accounts 2022
6
1 Refer to Alternative Performance Measures Glossary on page 201 for definition and explanation
Our colleagues are the
core of our business
This year, we remained
committed to fostering a
culturewhere colleagues feel
like they belong, are heard and
recognised for the value they
bring to the business. Through
the provision of additional
holiday entitlements, increased
diversity, equity and inclusion
focus and new colleague reward
and recognition schemes, we
are creating a culture that we
can all be proud of.
While 2021/22 was a challenging year, we have
taken a number of key steps that will return
Saga to sustainable growth.
Strong strategic progress
I am pleased with the progress we have made
against our turnaround strategy, Transforming
Saga – Experience is Everything. Our brand
relaunch means we have delivered on our promise
to create a refreshed, contemporary and relevant
brand which is at the heart of all our work to
deliver the best possible experience for our
customers. To do this, we were focused on
deliveryunder each of the following five pillars.
People and culture step change
Our people and culture transformation continued
to be key, acknowledging that our colleagues are
pivotal to the success of our business.
To foster a culture where colleagues feel like
they belong, we continued to focus on diversity,
equity and inclusion through events such as
ourWomen in Leadership conference and
introducing guest speakers for Black History
Month, Men’s Health Month, LGBTQi+ and
National Menopause Day.
Colleague wellbeing also continued to be a focus,
with support provided through additional
holiday entitlements, financial aid for those in
need and increased emphasis on mental health.
We also introduced a new colleague recognition
scheme, the ‘Saga Spotlight Awards’, designed
to celebrate the achievements of colleagues
who showcase our values of precision pace,
empathy, curiosity and collaboration.
In January 2022, we were proud to be the first
business of our kind to introduce Grandparents’
Leave, offering colleagues one week of paid
leaveper annum following the birth of a new
grandchild. This new benefit reflects our belief
inthe value of experience in the workplace,
alongside a recognition of the role of
grandparents to their families and society.
Our robust performance
Against the backdrop of the COVID-19
pandemic, the Group reported an Underlying
Loss Before Tax
1
of £6.7m. While we reported
arobust performance within Insurance, this
reflects suspension of the Travel business for
much of the first half of the year and the ongoing
impact of the pandemic once operations were
able to resume. After allowing for one-off
extraneous items, the Group reported a loss
before tax of £23.5m.
During 2021/22, we made strong progress
instrengthening the Insurance business
andensuring that we continued to deliver
exceptional experiences for our customers.
The Retail Broking business delivered a second
year of positive momentum with 1.4% growth
inmotor and home policies after several years
indecline, supported by increased customer
retention.
Our in-house underwriter, Acromas Insurance
Company Limited (AICL), reported positive
momentum following action taken to strengthen
our pricing capability and expand our footprint.
AICL policies in force in relation to the Saga
book, at 31 January 2022, were 3% ahead of
theprior period, the first year of policy growth
since 2012.
Throughout 2021/22, our Travel business
continued to be impacted by the pandemic.
OurCruise business remained suspended until
27 June 2021, at which point, we were able to
resume sailing within the UK with a limited
number of guests on board. Once UK
restrictions were lifted in the summer and we
were able to commence international sailing,
wecontinued to navigate local restrictions at
our ports of call, amending itineraries and
reducing capacity as necessary.
In spite of these headwinds, customer demand
remained strong, and for the year ended
31January 2022, we delivered positive EBITDA
and cash generation in the second half with
aload factor of 68% and per diem of £299.
Looking to our Tour Operations business, our
customers have been cautious about returning
to this form of travel, with the need to move
through airports and mix with a greater range
ofpeople. As such, we have taken a number of
steps to amend our product set and ensure that
we are well-positioned to offer customers the
holidays they want today. We are confident that
this will help return the business to growth as
customer demand rebuilds.
The Group’s performance was underpinned by
our strong financial position following actions
taken in 2021, with Available Cash at 31 January
2022 of £186.6m, and an undrawn revolving
credit facility of £100.0m.
Underlying (Loss)/
ProfitBefore Tax
1
(£6.7m)
2020/21 – £17.1m
2019/20 – £109.9m
LossBefore Tax
(£23.5m)
2020/21 – (£61.2m)
2019/20 – (£312.8m)
Available Cash
1
£186.6m
2020/21 – £75.4m
2019/20 – £40.9m
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
7
2 Refer to Alternative Performance Measures Glossary on page 201 for definition and explanation
Group Chief Executive Officer’s Statement
continued
In January 2022, the new pricing rules arising
from the Financial Conduct Authority market
study came into effect. Experience to date
forhome insurance is broadly in line with
expectations, while motor insurance pricing
hasremained highly competitive.
While we expect the new pricing rules to reduce
motor and home profits, it is however too early
to quantify the longer-term impact. We remain
of the view that we are well-positioned to
operate in a market that is focused more on
propositions and service, alongside price.
In the second half of 2021/22, we launched Saga
Plus, our enhanced three-year fixed-price cover
with added extras including our claims promise,
onward taxi travel, legal and key cover as standard.
More recently, we were rated as the number
oneinsurance brand in the UK for customer
satisfaction and the third highest sector-wide,
by The Institute of Customer Service.
We were also pleased to welcome Steve Kingshott
in November 2021 who was appointed as CEO of
Insurance. Steve has a wealth of experience in the
insurance industry, most recently from Tesco, and
has hit the ground running in terms of optimising
our Insurance businesses.
Travel
2021/22 was a pivotal year for the Travel
business as our Cruise operation successfully
restarted in the summer following 15 months
ofsuspension and we began the restructure
ofour Tour Operations business.
Throughout this time, customer safety was our
first priority, ensuring that we were able to
operate in a way which not only kept customers
safe, but also gave them peace of mind. I am
incredibly proud of the environment we have
created and the demand we have subsequently
seen for our offering.
In July 2021, our newest ocean cruise ship,
Spiritof Adventure, was officially named and
sailed her inaugural cruise. With both ocean
cruise ships now back in service and operating
our established health and safety protocols, we
are receiving exceptionally positive feedback
from our customers. Our guest satisfaction
score from resumption, up until 31 January
2022 was 9.1 out of 10.
Since we resumed Cruise operations on 26 June
2021 and up until 31 January 2022, we completed
31 successful sailings on board our two ships and
we, and our guests, are learning to live with
COVID-19 restrictions. While it was disappointing
for those of our customers that were affected,
weare pleased that only one sailing has been
meaningfully impacted, with a cruise to the
Caribbean (which took place after the financial
yearend) curtailed following a limited outbreak,
dueto the strict protocols at those ports.
Following the further progress made over the
past year, we continue to receive positive
feedback from colleagues which is reflected
through an increase in our overall colleague
engagement. The score from our latest survey
was 7.7 out of 10, an increase of 0.4 from the
same point last year.
Data, digital and brand transformation
As part of our data, digital and brand
transformation, in October 2021, we relaunched
our brand, showcased through three new
television adverts and the relaunch of our
websites and social media accounts. The
‘Experience is Everything’ campaign is aimed at
reflecting the attitude of our customers rather
than their age and represents a multi-year
initiative designed to transform the views
ofSaga over the longer term.
Our progress to date across the data, digital
and brand space continues to be recognised
byour customers through a number of means,
including an increased net promoter score of 49
and more widely though an award nomination for
magazine ‘cover of the year’ and wins in seven
categories at the Consumer Intelligence Awards.
In February 2022, although after the end of
thefinancial year, we were pleased to announce
the acquisition of The Big Window Consulting
Limited (
the Big Window
), a specialist research
and insight business focused on understanding
older consumers. Having the BigWindow as part
of the Saga Group allows usto strengthen our
insight and understanding of our consumers and
ensure we are delivering the products and
services that they want.
Optimising our businesses
Insurance
Within Retail Broking, we increased motor and
home policies in force by 1.4%, representing the
second year of growth following several years
indecline. Customer retention improved by
2.3ppts to 82.8%, supported by increased
uptake of our three-year fixed-price products
which now account for 47% of our motor and
home book. Motor and home margins per policy
remained stable at £74 and the proportion
ofcustomers who came to us directly, rather
than through price-comparison websites also
remained stable, at 59%.
Our Underwriting business, AICL, reported
anUnderlying Profit Before Tax
2
of £54.1m,
supported by £42.1m of reserve releases and
acurrent year combined operating ratio
(excluding reserve releases) of 96.3%. Over the
past two years, we have significantly enhanced
our Underwriting capability, strengthening the
team and implementing new pricing models
which have allowed us to expand the range of
business we underwrite, further supporting
theRetail Broking business.
Customer net
promoter score (NPS)
49
2020/21 – 44
2019/20 – 38
Overall colleague
engagement
7.7
out of 10
2020/21 – 7.3
Saga plc Annual Report and Accounts 2022
8
3 Refer to Alternative Performance Measures Glossary on page 201 for definition and explanation
We began the restructure of our Tour Operations
business, adopting a new operating model. To
maximise the efficiency within touring and create a
lower-cost, more agile business, we have combined
the operations of Saga Holidays and Titan Travel. In
addition, the management ofour river cruise
operation has moved across to ocean cruise.
These actions place us in a strong position
astravel restrictions ease and customer
demand rebuilds.
Driving simplicity and efficiency
In order to deliver against our strategy, it is
essential that we continually look for
opportunities to simplify our business and
maximise our efficiency.
We continued the rationalisation of our office
space and reduced the number of offices in use
from 11 to seven. Weplan to reduce this even
further with three more currently for sale.
For the period of Travel suspension in the
earlypart of the year, we initially provided an
indicative cost range of £7–9m per month
across both the Cruise and Tour Operations
businesses. As a result of tight cost control, we
were pleased to report costs below this range,
at £5.9m per month.
From a customer perspective, we introduced
functionality to allow our Travel guests to
provide their feedback digitally, enabling faster
and deeper insight into customer satisfaction.
We also launched a mid-term adjustment
rebroking process in Insurance which provides
customers with greater flexibility when making
apolicy change mid-way through their term.
Reducing our debt
Throughout 2021/22, despite the impact of
thepandemic, our focus on debt reduction
andstrengthening our financial position
remained atthe forefront of our thinking.
In July 2021, we completed a series of financing
transactions which provided us with greater
flexibility through less-restrictive terms and ample
liquidity to support the business through any
ongoing period of uncertainty. These included the
issue of a new five-year £250.0m bond and use of
the proceeds to repay our £70.0m term loan and
£100.0m of our existing bond, with the remainder
held as Available Cash
3
.
At 31 January 2022, our net debt was £729.0m,
£31.2m lower than at 31 January 2021, reflecting
resilient cash generation within Retail Broking
and the restart of the Cruise business which
were only partially offset by support provided
toTour Operations and debt servicing costs.
Our growth plan
In 2020, we announced our strategy to
transform Saga and since then, we have
continued to deliver against each of those
fivestrategic priorities.
In order to build on our progress to date and
convert the foundations already laid into
sustainable growth, we are further evolving
ourstrategic approach. This will see us focus
onthree strategic priorities, all of which are
co-dependent and aligned in approach to
maximise shareholder value:
1. Maximise our existing businesses
Through specific growth plans for each, a
franchise structure to enable focus, growth,
accountability and efficiency, and the delivery
ofa common brand purpose.
2. Step-change our ability to scale while
reducing debt
Grow existing businesses while reducing debt
and develop new businesses through innovation
in a capital-light way.
3. Create ‘The Superbrand’ for older people
Deliver a step-change in brand perception and
loyalty through focus on four areas:
•
Commercialising and growing our database.
•
Building exceptional insights, supported by
the acquisition of data and insights business,
the Big Window.
•
Delivering a brand re-positioning where
‘Experience is Everything’.
•
Creating a content platform where we reach
millions of customers every day.
Well-positioned for the future
Following the disruption caused by the pandemic
over the past two years, we are emerging
stronger than we went in.
Whilst mindful of the headwinds as we enter
2022/23, I am confident that we have the right
strategy, structure and team in place to unlock
the potential that exists within Saga and create
long-term sustainable growth for our
shareholders.
Finally, I would like to thank all of our colleagues
for their continued commitment throughout
what has been another challenging year. Against
a backdrop of external headwinds, we are proud
of what we have achieved and acknowledge that
none of this would have been possible without
their hard work and dedication.
Euan Sutherland
Group Chief Executive Officer
22 March 2022
Net debt
£729.0m
2020/21 – £760.2m
2019/20 – £593.9m
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
9
Insurance Underlying
Profit Before Tax
1
Purpose and definition
Insurance Underlying Profit Before
Tax
1
isthe primary KPI of the Insurance
business and a subset of Underlying
(Loss)/Profit Before Tax
1
, reflecting only
the performance of that business.
Performance
10% reduction in comparison to 2020/21
due to lower renewal margins in private
medical insurance, increased motor
claims frequency, television advertising
costs and the movement in the written-
to-earned adjustment. Refer to pages
39-42 of the Group Chief Financial
Officer’s Review for full details.
Net debt
Purpose and definition
Net debt represents the sum of the
carrying value of the Group’s debt
facilities, less the amount of Available
Cash
1
it holds. Refer to page 49 of the
Group Chief Financial Officer’s Review
fora full breakdown.
Performance
Net debt reduced by £31m compared with
31 January 2021 due to the underlying
performance of the Insurance business
and the restart of the Cruise business
which are offset in part by capital
expenditure, interest payments and
support provided to Tour Operations.
Refer to pages 48-49 of the Group Chief
Financial Officer’s Review for full details.
Underlying (Loss)/Profit
BeforeTax
1
Purpose and definition
Underlying (Loss)/Profit Before Tax
1
is the
Group’s primary KPI and a meaningful
representation of the Group’s underlying
trading performance. It represents profit
before tax excluding items which are not
expected to recur. Refer to page 201 for
full definition and explanation.
Performance
Reduction of £23.8m in comparison to
2020/21, largely as a result of higher
marketing costs, the impact of increased
motor claims frequency as miles driven
returned closer to normal levels and lower
renewal margins in private medical
insurance.
Available Operating Cash Flow
1
Purpose and definition
Available Operating Cash Flow
1
represents
net cash flow from operating activities
which is not subject to regulatory
restriction, after capital expenditure but
before tax, interest, restructuring costs,
proceeds from the disposal of businesses
and other non-trading items. Refer to page
201 for full definition and explanation.
Performance
Significant increase in Available Operating
Cash Flow due to positive Cruise cash flow
following the restart of operations,
actions taken to reduce the support
required by Tour Operations and a higher
AICL dividend, only partially offset by
increased capital expenditure and lower
Trading EBITDA
1
.
Key performance indicators
During the financial year,
the following key
performance indicators
(KPIs) were used to
assess the financial and
operational performance
of the business against
itsstrategy.
(£6.7m)
£75.8m
Financial KPIs
£120.5m
£729.0m
(£6.7m)
£17.1m
£109.9m
2
021/22
2020/21
2
019/20
£120.5m
£134.6m
£130.8m
2
021/22
2020/21
2
019/20
£75.8m
£3.4m
£92.7m
2
021/22
2020/21
2
019/20
£729.0m
£760.2m
£593.9m
2
021/22
2020/21
2
019/20
1 Refer to Alternative Performance Measures Glossary on page 201 for definition and explanation
3
2022 Bonus KPIs
References to our
turnaroundstrategy
People and culture
stepchange
Data, digital and brand
transformation
Optimising our businesses
Driving simplicity
andefficiency
Reducing our debt
1
2
3
4
5
5
2 3
4
2 3
5
Saga plc Annual Report and Accounts 2022
10
Customers
Customer net promoter
score(NPS)
Purpose and definition
Customer NPS represents the willingness
of customers to recommend Saga
products and services to others. It is
measured by customer survey responses,
weighted by business unit.
Performance
Customer NPS increased 5pts to 49,
reflecting improvements within our
Insurance and Personal Finance
businesses.
Colleague engagement
3,4
Overall
Purpose and definition
Our overall colleague engagement metric
provides an indication of how committed and
enthusiastic colleagues are towards both
Saga and their work. It is measured through
responses to regular colleague surveys
hosted by an independent third party.
Performance
Overall colleague engagement increased
to7.7 from our initial score of 7.0 in
September 2020, with improvements
arising from enhancements to our
performance reviews, increased standard
leave entitlements, removal of eligibility
criteria from our family policies and providing
colleagues with regular strategy updates.
Values
Purpose and definition
Our values-based colleague engagement
metric provides an indication of how engaged
colleagues are with our four values of
precision pace, empathy, curiosity and
collaboration. Itis measured as part of the
overall regular colleague engagement surveys
hosted by an independent third party.
Performance
The overall values score increased to 7.8 from
our initial score of 7.4 in February 2021, which
iswhen we launched our values. In order to
embed our values after the launch, we hosted
avalues experience workshop for all colleagues
and launched the Saga Spotlight Awards, our
values-led colleague recognition programme.
Insurance
Motor and home retention
Purpose and definition
Motor and home retention is a key
indicator of performance within the
Insurance business and represents the
proportion of motor and home customers
that choose to remain with Saga when
their policy is due for renewal.
Performance
Motor and home retention 2.3ppts ahead
of 2020/21, supported by increased
uptake of our three-year fixed-price
product which now represents 47% of
allmotor and home policies in force.
Cruise
Load factor
Purpose and definition
Load factor is the most sensitive driver
ofCruise profit before tax and represents
the booked proportion of the total
capacity across our two cruise ships.
Itiscalculated by dividing the number
ofberths booked by the total berths
available.
Performance
2
Load factor of 68% for 2021/22,
reflecting imposed capacity restrictions.
Strong booked load factor for 2022/23
of73% as at 20 March 2022.
Per diem
Purpose and definition
Per diem provides an indication of pricing
within the Cruise business and reflects
the average revenue charged per guest
per night on boardour ocean cruise ships.
Performance
2
£299 per diem for 2021/22, and £319
for2022/23 (at 20 March 2022) reflect
enhancements made to the Cruise
offering.
82.8%
Non-financial KPIs
68%
2021/22
£299
2021/22
49
7.7
out of 10
7.8
out of 10
82.8%
80.5%
75.1%
2
021/22
2020/21
2
019/20
49
44
38
2
021/22
2020/21
2
019/20
7.3
7.0
Feb 2021
Sep 2020
7.7
Nov 2021
7.8
7.4
Nov 2021
Feb 2021
73%
2022/23
£319
2022/23
2 No comparative data has been provided for Cruise load factor and per diems as operations were suspended for much of 2020/21, with the offering prior to that not
comparable with our two current ships
3 Note that the last colleague engagement survey was conducted in November 2021, with the next survey due in April 2022
4 During 2020/21, Saga appointed a new third-party survey provider. As such, there is no comparable data available prior to February 2021
3 3
2
1
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
11
The Saga customer
Our customers are the core of our business. It is this focus
thatdrives usto constantly evolve our in-depth understanding of
their behaviours and sentiments, allowing us to deliver products they
desire with the unprecedented service that theydeserve.
Saga predominantly operates in the insurance and travel markets which both facesignificant
competition for customers, particularly in the context of highly commoditised products and
an evolving digital landscape. We aim to deliver differentiating products specifically tailored to
meet the needs of our customers which, within Insurance, includes our unique Saga Plus
product, offering fixed-price
1
motor and home insurance for three years, and within Travel,
includes cruises on board our luxury mid-sized ocean ships and purpose-built river ships.
DELIVERING EXCEPTIONAL
EXPERIENCES
INCHALLENGING MARKETS
Saga operates in a highly attractive market with significant
opportunity for growth
Market review
…but people over 55
represent
62%
of total wealth in the UK
3
1 Customer premiums are fixed over three years subject to no claims being made, no new convictions and no changes to insurance premium tax, address,
vehicleor drivers. Policyholders may cancel the policy at any time without any obligation to renew
2 Office for National Statistics – 2018-based principal projections
3 Office for National Statistics – Total individual wealth, including private pension wealth, by age band, April 2016-March 2018
4 Office for National Statistics – Recent internet users, UK, 2011 and 2019
There were...
25.9m
individuals in the UK aged
over 50 during 2021
2
…representing
38%
of the total UK population
2
…which is only
expected togrow
9%
increase expected
in the UK over 50
population by 2031
2
1.5m
Saga customers at
31 January 2021
60%
increase in internet
usage among 65-74
year-olds
(from 2011 to 2019)
4
Saga plc Annual Report and Accounts 2022
12
Regulatory and legislative developments
Background
Our Retail Broking and Personal
Finance businesses are regulated by
the Financial Conduct Authority (FCA),
with the Underwriting business
regulated by the Gibraltar Financial
Services Commission operating under
the Solvency II Directive. The Tour
Operations business is regulated by the
Civil Aviation Authority and is a member
of the Association of British Travel
Agents (ABTA), the International Air
Transport Association and the
Federation ofTour Operators trade
bodies. The Cruise business is
regulated by the Maritime and
Coastguard Agency (MCA) and is
amember of the UK Chamber of
Shipping and ABTA. Saga also operates
processes and procedures to comply
with other regulations and legislation
that apply to its businesses including,
but not limited to, the Data Protection
Act 2018, UK General Data Protection
Regulation, the Bribery Act 2020, the
Equality Act 2010 and health and
safety legislation.
Developments during the year
During 2021, Saga completed the work
required to meet the FCA requirements
for general insurance pricing practices to
address the difference between new
business and renewal pricing for motor
and home policies, which came into effect
on 1January 2022. We believe these
changes are positive for consumers as
a whole and will encourage more focus
on service and claims handling as
prices become more aligned across
the industry.
In December 2021, the FCA published its
second consultation paper ‘A New
Consumer Duty’, which incorporates new
consumer protection standards in retail
financial services, designed to improve
overall customer outcomes and to
encourage firms to ‘get it right first time’.
Itwill be supported by a set of rules and
required customer outcomes. These new
rules are expected to be finalised in July
2022, with the implementation period
running until April 2023. Saga is well-
positioned to meet these new standards,
building upon customer-orientated
working practices already embedded
andoperating to good effect.
Macroeconomic conditions
COVID-19 pandemic
2021 began with significant COVID-19
restrictions in place across most of the
UK. These restrictions began to be
lifted in March, with most activities
resuming by the summer. During this
period, our colleagues continued to
operate largely from home, and service
delivery in the Insurance business
continued as usual with minimal
disruption under our remote working
model rolled out in 2020.
Our Cruise business was not able to
operate forthe first half of 2021 due
tothe pandemic. Cruises returned to
service with Spirit of Discovery’s first
cruise on 27June 2021, followed a
month later by Spirit of Adventure on
26 July 2021. Preparations for return to
service began at full pace in April 2021
with the crew vaccination programme
to ensure that 100% of crew were
vaccinated before ourguests were
invited back on board.
Working closely with regulators, new
COVID-19 protocols were designed,
implemented and certified by Lloyds
Register, with both ships gaining the
Shield+ accreditation. All crew
members were trained in these
procedures aswell as our standard
safety and emergency response
training. Following successful sea trials,
the MCA certified the ships to operate
with guests on board.
In November 2021, a further COVID-19
variant, Omicron, was discovered in the
UK, leading to record levels of cases.
While this didn’t result insignificant
restrictions, it did have an impact on
absenteeism in all industries. Our
Insurance business suffered a short-
term diminution incontact centre
service levels, which was addressed
through increased recruitment and
productivity measures. The Cruise
business wasalready testing all guests
and crew prior to, and at key points
during, each cruise. These measures
will continue to remain in force for
aslong as necessary toprotect our
guests.
Political uncertainty
Although starting after the end of our
financial year, the Russian invasion of
Ukraine on 24 February 2022 has
created heightened economic and
political uncertainty throughout the
world. Whilst the situation continues to
unfold, a number of potential risks have
been identified that could impact our
ability to deliver on our strategy that
will require close monitoring and an
agile management response should the
situation continue to escalate. The key
risks at the time of writing include
increasing inflationary pressures
caused by rising commodity prices,
such as oil, food and metals that all
affect either our costs of supply,
household spending patterns or both.
There is also the potential disruption of
global stock markets, which combined
with the inflationary impacts, may drive
investors towards a more cautious
outlook and reduced spending. We will
respond to these changes as necessary,
whilst maintaining our focus on the
customer and delivering optimal
performance under whatever
circumstances prevail over the
coming year.
Recruitment and retention
During the latter half of 2021, UK
companies started to suffer high levels
of resignations, commonly referred to
as the ‘Great Resignation’. These
attrition rates, noted by external
experts as being the highest since
2009, have affected all financial
services firms, including Saga.
Inresponse, we have enhanced our
recruitment, induction and onboarding
processes, continuing to build on our
strong colleague engagement, and
reviewed and responded to key themes
among our leavers, to identify
opportunities for further improvement.
This work will continue into 2022 and
will be closely monitored to ensure our
response remains effective.
Saga plc Annual Report and Accounts 2022
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Strategic Report
13
Purpose and business model
Our colleagues and culture
Our colleagues remain integral to our brand
asthey deliver exceptional experiences for our
customers every day. Focus on our people, and
the culture in which they work, istherefore a key
priority. Through investing in, and constantly
developing this culture, we encourage
colleagues to do the best work oftheir lives
which in turn, benefits our customers.
Our brand
The strength of the Saga brand is a key
differentiator in the highly competitive markets
that we operate in. The relaunch of the brand
in2021 was aimed at reflecting the attitudes
andmindsets of our customers rather than
justtheir age. This will allow Saga to appeal
toawider customer base than ever before,
supporting our direct marketing model and
driving customer loyalty.
Our customers and insight
Our customers are the core of our business.
Everything wedo is aimed at creating
exceptional experiences for them every day.
Itisthis focus that drives us to gather an
in-depth understanding of their behaviours
andsentiments to allow us to develop products
tailored specifically for this unique group.
Supplier partnerships
Our supplier relationships are paramount to our
business model, providing specialist expertise,
knowledge and capital that support us in
delivering the best possible outcome for our
customers.
Proprietary data and technology
We are always looking to enhance our systems
capabilities and strengthen our ability to
capture insight at every opportunity with both
our existing and potential customers. This
approach allows us to create bespoke offerings
to suit the specific needs of our customers.
Financial resilience
Insurance operations remain the largest part
ofthe Group,converting much of its profit
aftertax into cash. Against the continued
backdrop of the COVID-19 pandemic, the Group
has demonstrated that it is able to maintain
financial resilience through proactive actions
taken, responding to the developing landscape
in an agilemanner.
Our strengths Our diverse business
CREATIN
G VALUE USING
OUR DISTINCT STRENGTHS
Insurance
What we do
We provide our customers with
tailored insurance products,
principally motor, home, private
medical and travel insurance.
How we add value
•
We develop differentiated
products, such as our Saga
Plus three-year fixed-price
and COVID-19 inclusive travel
products to offer customers
additional peace of mind.
•
To ensure that customers
receive the best price, we
usea combination of our
ownin-house underwriter
and a third-party panel of
underwriters.
•
We focus on acquiring our
customers directly, reducing
the cost of acquisition.
Marketplace and position
We are the UK’s specialist in
insurance products for people
over 50 in the UK.
Key competitors:
Admiral, Direct Line, Hastings,
LV, RSAand Aviva
Motor and home
policies in force
1.6m
2020/21 – 1.5m
Travel
What we do
We provide our customers
withluxury travel experiences
through ocean and river cruises,
escorted tours, special interest
trips and hotel stays.
How we add value
•
In ocean cruise, we offer
anall-inclusive experience
including our VIP chauffeur
service, all drinks and meals,
balcony cabins as standard
and selected excursions.
•
We maintain the highest
levelof health and safety
standards on board our
cruise ships, recognised
through the award of the
Lloyd’s Shield+ accreditation.
•
Customers benefit from
peace of mind through the
inclusion of travel insurance
and our price promise
guarantee.
Marketplace and position
We are one of the leading travel
businesses serving people over
50 in the UK, founded on our
exceptional insight into our
customers’ evolving needs.
Key competitors:
Royal Caribbean, Carnival,
TUIand On the Beach
Guests travelled
31k
2020/21 – 15k
Our businesses are entrepreneurial and autonomous, whilst
leveraging our core intellectual property to build deep and
long-lasting relationships with our customers.
Saga plc Annual Report and Accounts 2022
14
Our purpose is to deliver exceptional experiences every day, whilst
being a driver of positive change in our markets and communities.
At our heart and in our heritage, we are a capital-light, direct-to-customer marketing,
content and distribution business with long-term customer relationships.
Customers
At Saga, delivering for our customers
iswhat motivates us. Our distinct
customer group knows what good looks
like and it’s those expectations that we
aim to surpass. Through our unique
insight, we create differentiated
products, coupled with exceptional
service to create longer and deeper
relationships with our customers.
Customer NPS
49
2020/21 – 44
Colleagues
We recognise that our colleagues are
key to our success. It is important that
colleagues feel committed to Saga
andengaged in their work to deliver
exceptional experiences for our
customers. We continue to invest in
creating a diverse and inclusive culture
so colleagues feel supported, are
recognised and rewarded appropriately
and have an opportunity to learn and
grow with Saga.
Colleague engagement
7.7 out of 10
February 2021 – 7.3
Community
Saga is committed to driving positive
change within our communities through
volunteer programmes, charitable
giving, and minimising the
environmental impact of our
operations. We are proud to both
represent and advocate for people
over50 in the UK.
Colleague volunteering
3,283 hours
2020/21 – 301 hours
1
Our carefully selected partners and
suppliers support our ability to deliver
exceptional products and services
forour customers. We aim to select
partners and suppliers that
complement our in-house ability
through specialist skills, knowledge
orcapital, or whose interests align
tothose of our customers. In turn,
ourpartners and suppliers benefit
fromaccess to the expertise of our
colleagues, our brand and our deep
customer insight.
Shareholders
Saga aims to deliver long-term value for
shareholders by optimising our core
businesses, returning to sustainable
growth and reducing our debt.
In order to protect the Group’s financial
position in light of the COVID-19
pandemic, the Board announced in April
2020 that it had suspended dividend
payments to shareholders. The Board
does not expect to pay dividends until
2024 at the earliest.
Our diverse business
Creating value
Other Businesses
What we do
The Group’s Other Businesses
provide customers with
personal finance products,
including equity release and
savings accounts and media
content through the Saga
Magazine, offering
entertainment and insight into
a range of topics. We also
operate an in-house mailing
andprinting business.
How we add value
•
We complement our in-house
expertise by partnering with
third parties to deliver
personal finance products
that meet the needs of our
customers.
•
Saga Magazine delivers
eclectic and interesting
articles each month, keeping
our subscribers up to date on
the latest topics.
Personal finance customers
32k
2020/21 – 32k
Paid magazine subscribers
162k
2020/21 – 174k
Read more on Travel on
pages 3 and 20
Read more on Insurance on
pages 3 and 20
Further information
1 Colleague volunteer hours during 2020/21 were significantly impacted by the effect of COVID-19 lockdowns in the UK
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
15
Engaging with stakeholders
UNDERSTANDING
OUR STAKEHOLDERS
What matters to them
•
Products and services that
arespecifically tailored to
theirneeds.
•
Exceptional customer service
and great value for money across
all our products and services.
•
Ease of interaction and clear
communication through every
step of the journey.
How we engage
We aim to maintain an honest
dialogue with our customers
through customer telephone
support, social media, the Saga
Magazine and our customer panel.
We track customer satisfaction
within each business area via a
number of metrics including net
promoter score (NPS), which forms
part of the balanced scorecard for
our executive annualbonuses.
How the Board is kept informed
The Board receives regular reports
from management based on
customer insights and feedback,
and reviews NPS scores.
Customer-facing colleagues are
also invited to Board meetings to
present details of customer
experiences.
What matters to them
•
A culture where they feel they
belong and are valued for the
characteristics that make them
individual.
•
Communication that is regular,
clear and open and allows
colleagues to speak up and
beheard.
•
Receiving fair reward and
recognition.
How we engage
We aim to create an exciting
culture where colleagues feel able
to do the bestwork of their lives.
We have open and honest two-way
communication with our colleagues
through a number of channels,
further detail of which is provided
on page 25.
How the Board is kept informed
Our nominated ‘People Champion’
is Eva Eisenschimmel, one of our
Non-Executive Directors, who
regularly attends our People
Committee meetings. The Board is
also kept informed through regular
updates from our Chief People
Officer (CPO) on colleague
engagement, feedback from our
Saga Spirit Survey and progress
against our people strategy.
What matters to them
•
Maintaining open
communications with us,
ensuring that members of the
community are aware of our
strategy, as well as any impact
tothem.
•
Opportunity to share what
matters to them and how
wemaybe able to support.
•
Ability to share knowledge and
skills between our colleagues
andthe wider community.
How we engage
Quarterly meetings are hosted
byour Group CEO and CPO with
key members of the wider team.
Abusiness update is provided
ateach meeting, giving our
community stakeholders the
opportunity to ask questions
andengage with us on key topics.
This has been particularly helpful
during the major refurbishment
ofour Enbrook headquarters
inFolkestone.
How the Board is kept informed
Our CEO and CPO attend each
meeting, enabling them to directly
provide feedback to the Board.
Customers
Our customers remain at the heart of
ourbrand. Engaging new customers and
building and maintaining the loyalty of our
existing customers is key to our success.
Colleagues
Our colleagues remain integral to the
brand and it is key that we create a
welcoming and supportive culture,
allowing our colleagues to do the best
work of their lives.
Communities
Part of Saga’s purpose is to be a driver
of positive change within our communities.
We seek to understand and carefully
consider the impact of every decision
wemake.
Saga plc Annual Report and Accounts 2022
16
What matters to them
•
Stable relationships allowing
them to achieve their own
strategic goals.
•
Frequent and transparent
two-way communication.
•
Promotion of innovation,
including new technologies,
tosimplify, standardise and
automate whereverpossible.
How we engage
The Supplier Relationship
Management and Supplier Risk
Management Policies govern
therelationships with our supply
chain, providing a formal framework
within which we operate.
Thisensures regular, appropriate
and mutually beneficial
communication for bothparties,
continuously improving the way we
work together. The business units
and functional areas are responsible
forthe management and control
ofsupplier relationships.
How the Board is kept informed
The Risk Committee is kept
informed of any changes to supplier
risk management through the
Executive Leadership Risk
Committee and by hearing from our
Chief Risk and Compliance Officer.
What matters to them
•
Active engagement with the
Group CEO, Group Chief
Financial Officer (CFO) and
Investor Relations (IR) Team.
•
Regular communications
providing updates on the Group’s
financial performance and
progress against our strategy.
How we engage
We have frequent communication
with shareholders through results
announcements, press releases,
updates to the corporate website,
one-on-one meetings and group
events.
How the Board is kept informed
An IR report is reviewed at each
Board meeting, providing an update
on shareholder engagement and
feedback received. Our Non-
Executive Chairman, Group CEO
andGroup CFO meet with our
shareholders on a regular basis,
assisted by our Head of IR. In addition,
the Chair of the Remuneration
Committee meets with shareholders
throughout the year and provides the
Board with any feedback. The Annual
General Meeting also provides an
opportunity for the Board to meet
shareholders and answer any
questions they may have.
What matters to them
•
Proactive and transparent
communication.
•
Protection of our customers and
the markets we operate in.
•
Increasing the trust of the public
and encouraging market
competition.
How we engage
Regulator relationships are
maintained at subsidiary level and
monitored by the respective audit,
risk and compliance committees.
How the Board is kept informed
All material areas are overseen by
the Risk Committee and escalated
to the Board if necessary.
Our partners and suppliers play a vital
rolein helping us to deliver exceptional
experiences every day for our customers.
We aim to build mutually beneficial, long-
term relationships with all key suppliers.
Shareholders
Saga is committed to creating long-term
sustainable value for our shareholders.
Weaim to treat all shareholders fairly,
providing them with opportunities to
express their views.
Regulators
Maintaining strong relationships with
ourregulators is crucial as they set the
framework within which we operate.
Saga plc Annual Report and Accounts 2022
Additional information
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Strategic Report
17
People and culture step change
Our people and culture transformation underpinned the success of our turnaround
strategy. After laying the foundations in 2020, we took great strides in 2021 towards
creating a culture where colleagues feel welcome and can always be themselvesas part
of a supportive and empathetic team.
Our strategy
Grandparents’ Leave
“I was so happy to hear that Saga was giving
grandparents paid leave. I think the bond
youget early on with your grandchild is
lovelyand the extra time to spend with your
daughter which you don’t in real life often have.
Iremember how important it was to have my
grandparents around so the fact that Saga
hasgiven me this time off means so much
tome.It’s nice to know that I have the full
supportof my employer in looking after my
family. I really would encourage everyone who
has the opportunity to take Grandparents’
Leave. It’s been the best experience.”
Shelley Whittam
(Saga colleague)
1
DELIVERY AGAINST OUR
TURNAROUND STRATEGY
Objective
Reset and launch Saga’s new purpose,
values and leadership behaviours to
engage colleagues in the true Saga
spirit and create a culture to deliver
and maintain Saga’s transformation.
KPI
7.7
Overall colleague
engagement
Related risks
•
Capability
•
Regulatory landscape
•
Environmental, Social and
Governance (ESG)
Progress in 2021/22
Culture and engagement
•
Record levels of colleague
engagement, scoring 7.7 out of 10
with a participation rateof 93%.
•
Increased awareness of diversity,
equity andinclusion through our
Women in Leadership event and
guest speakers for Men’s Health
Month, Black History Month and
Menopause Day, among others.
•
Increased engagement with our
values, demonstrated through our
Saga Spirit Survey, scoring 7.8 out
of10.
Working@Saga
•
Won 2021 Hybrid Working Award in
the Workplace Customer Success
Awards.
•
Introduction of Grandparents’ Leave,
offeringup to one week’s leave per
year forthe birth of a new grandchild.
Perform Learn Grow
•
Continued to support the
development offemale talent through
partnership with the30% Club.
•
Continued focus on wellbeing
through additional holiday
entitlements and the provision of
financial support for those inneed.
Reward and recognition
•
Launched new values-led recognition
programme.
•
Launched new reward framework for
frontline colleagues, focused on
providing exceptional experiences for
customers.
See more of
Shelley’s story
Saga plc Annual Report and Accounts 2022
18
2021 was a transformational year for our brand, which we relaunched through our
‘Experience is Everything’ campaign, aimed at reflecting the attitudeofourcustomers rather
than their age.
Objective
Transform the digital experience for our
customers, focusing on a faster, easier
and simpler service. Develop data
solutions to create a single customer view.
Enhance brand awareness and optimise
marketing through the relaunch of our
new Sagabrand.
KPI
49
Customer NPS
Related risks
•
Cybercrime
•
Saga brand and relevance
•
Fraud and financial crime
•
Breach of Data Protection Act 2018/
UK General Data Protection
Regulation
Progress in 2021/22
•
Relaunched the Saga brand with a
new identity and national ‘Experience
is Everything’ marketing campaign.
•
Websites redesigned, incorporating
the new brand identity, easier
navigation for mobile devices and
improved accessibility.
•
Launched digital version of the Saga
Magazine, including complimentary
digital subscription for all
shareholders.
•
Developed the Saga app to include
more products and added webchat
functionality.
•
NPS of 49, 5pts higher than
31January 2021, reflecting
improvements within our Insurance
and Personal Finance businesses.
•
Migrated marketing data from
multiple legacy systems to new
modern infrastructure, enabling
faster analytics.
•
Launched ‘Experienced Voices’, an
online panel of 6,000 customers
providing valuable insight into what
they think of our products and
services, alongside what matters
most tothem.
‘Experience is Everything’
We are delighted with the positive feedback
received in relation to our brand campaign
aimed at reflecting the attitude of our
customers rather than their age.
“ Shows people over 50 are stillactive, participating inwhat
life has tooffer. Age is notabarrier to living a full life.
Shows that Saga respects this world view of older people.”
Female, 68
“ As a 70 year-old, I appreciate positive attitudes to being
older. This advert does it very well.”
Female, 70
“ A new company logo which is more modern and the style
of advertising is also certainly different to what I
expected.”
Male, 50
Data, digital and brand transformation
2
See our new
television advert
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“Excellent cover for three years
– I needed to change my
building and contents insurance
as my existing insurer was
acting unreasonably, hiking the
new premium to stupid levels
and wasn’t prepared to
negotiate. I found that the Saga
Plus cover offers everything I
need and I like the idea of a
fixed premium for three years,
thus avoiding the annual hassle
over premium increases.”
Mr Wisbey
(home insurance customer)
“Returning to Saga car
insurance after five-year break,
competitive premium, three-
year fixed-premium and good
coverage makes a compelling
package, plus online system
easy to navigate.”
Mr Packham
(motor insurance customer)
Our strategy
continued
Optimising our businesses
We are focused on optimising our core businesses to ensure they are the best they can be
for both our customers and our colleagues. We aim to maximise value creation and efficiency
in order to return to long-term sustainable growth.
Objective
Re-establish Saga through exceptional
service and by building differentiated
propositions for our customers.
Strengthen the foundations of our core
businesses by simplifying processes
and addressing customer concerns
while keeping costs down.
Related risks
•
COVID-19 pandemic
•
Cybercrime
•
Delivery and execution
•
Regulatory landscape
•
Operational resilience
•
Environmental, Social and
Governance (ESG)
•
Third-party suppliers
•
Fraud and financial crime
•
Insurance risk
Optimising Insurance
Progress in 2021/22
•
Delivered second year of positive
momentum across motor and home:
–
Policies in force increased 1.4%.
–
2.3ppt improvement in customer
retention to 82.8%.
–
Gross margin per policy remained
stable at£74.
–
Growth in three-year fixed-price
products, representing 47% of the
book (vs. 35% in 2020/21).
•
Launch of Saga Plus, our enhanced
three-year fixed-price cover with
more features as standard.
•
Successful implementation of, and
adjustment to, changes arising from
the FCA market study.
•
AICL policies in force increased 3%
year on year, growth for the first time
since 2012.
•
Ranked highest UK insurer by The
Institute of Customer Service.
Optimising Travel
Progress in 2021/22
•
Successful resumption of operations
following easing of travel restrictions.
•
Implemented robust COVID-19
protocols to ensure the safety of
colleagues and guests.
•
Cruise generated positive EBITDA
and cash in the second half through
load factor of 68% and per diem of
£299.
•
Secured Cruise bookings for
2022/23 of 73% load factor and
£319per diem at 20 March 2022.
•
Achieved exceptional levels of
customer satisfaction within Cruise
of 9.1 out of 10.
•
Extension of our river cruise
proposition to include two new
purpose-built river vessels, Spirit of
the Rhine and Spirit of the Danube.
3
Saga plc Annual Report and Accounts 2022
20
Objective
Maximise efficiency by continuing to
reduce cost and complexity across the
Group.
KPI
Number of offices reduced from
11 to 7
(with a further three currently for sale)
Related risks
•
Delivery and execution
•
Third-party suppliers
•
Breach of Data Protection Act 2018/
UK General Data Protection
Regulation
Progress in 2021/22
•
Enhancements launched in Insurance
including the mid-term adjustment
rebroke process and launch of the
new motor price-comparison
website product.
•
Number of offices reduced from
11toseven, with a further three
currently for sale.
•
Completion of Enbrook
refurbishment, creating a
collaborative hub for colleagues.
•
During the period of Travel
suspension, kept burn costs to a
minimum (£5.9m per month), and
below the guided range of £7–9m.
•
Launched consistent, automated
measurement of customer
satisfaction and NPS, providing
up-to-date insight on our customers’
experience.
The reduction of debt continues to be a key priority for Saga.
Objective
Continue to reduce debt,taking action
tostrengthen the balance sheet and
maintain financial resilience.
KPI
£729m
Net debt at 31 January 2022
Related risks
•
COVID-19 pandemic
•
Insurance risk
Progress in 2021/22
•
Net debt reduced by £31m to £729m,
from £760m at 31 January 2021.
•
Issuance of £250m fixed-rate
unsecured bond allowed repayment
of £70m covenanted term loan and
tender of £100m of existing bond,
while providing ample liquidity and
greater flexibility.
•
Completed disposal of property,
generating £4.5m of net sales
proceeds.
•
Worked closely with lenders in order
to manage the remaining ship and
bank debt covenants, allowing
flexibility through the ongoing
disruption arising from COVID-19.
•
Leverage ratio (excluding Cruise)
of3.0x, well within the covenant of
4.25x associated with the revolving
credit facility.
Driving simplicity and efficiency
We aim to transform Saga into a leaner, simpler and more efficient business, laying the
foundations for future growth.
4
Reducing our debt
5
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Saga plc Annual Report and Accounts 2022
22
In order to build on our progress to date and convert the
foundations already laid into sustainable growth, we are further
evolving our strategic approach.
OUR GROWTH PLAN
MOVING FORWARD
Our growth plan
1
2
3
Create ‘The
Superbrand’
for older people
•
Grow existing businesses while reducing
debt.
•
Develop new businesses through innovation,
in a capital-light way.
•
Address the current brand polarisation.
•
Commercialise and grow our database.
•
Build exceptional insights, driven by the
acquisition of The Big Window Consulting
Limited.
•
Deliver a brand re-positioning where
‘Experience is Everything’.
•
Create a content platform where we reach
millions of customers every day.
Maximise our existing
businesses
Step-change
our ability to
scale while
reducing debt
Specific growth plans for each business, enabling
growth, accountability, efficiency and the delivery
of a common brand purpose
Insurance
Move from reset to growth, focused on optimising
our products and broadening the range, build
customer relationship marketing capability, shift
distribution from price-comparison websites to
direct and refocus ourproduct sourcing approach.
Cruise
Build ocean cruise into an exceptional experience
every day, whilst maximising our returns.
Build a river cruise proposition that mirrors ocean.
Holidays
Create a market-leading, more digital holidays
business from a low-cost operating platform to
accelerate growth and modernise the business.
Personal Finance
Attract new customers, accelerate growth within
existing equity release and savings products and
add new products to deepen our customer
relationships.
Our strategy
continued
Environmental, Social and Governance (ESG)
Overview
Saga exists to deliver exceptional experiences
for our customers every day, while being a
driverof positive change in our markets and
communities. We have a diverse range of
ESGinitiatives and are proud of what we
haveachieved to date. At the same time,
werecognise that we need to do more and
arecurrently engaged in the detailed work
necessary to achieve a reset that will deliver an
approach to ESG with greater scale, ambition
– and importantly, impact. This report shows
the direction of travel for that approach, which
will be unveiled within the next 12 months,
alongside the work carried out this year.
At the heart of our new approach will be a focus
onreducing our environmental impact, with a
particular emphasis on our Cruise business where
our two new ships are based on significantly more
modern and efficient technology than our previous
ships. Building on this successful fleet renewal, we
have engaged V.Ships, a leading independent ship
management company, to help us assess what
more we can do in this area.
We are more advanced with regards to the S in
ESG. Our Group business strategy has seen us
working to reset Saga and its operations. At its
heart, this strategy requires us to work harder,
every day, to understand the lives and needs of
people in our markets and then deliver for them.
Central to our approach to transforming our
business, is a focus on our people and the step-
changes being made to strengthen our culture of
customer delivery. Our enhanced ESG focus in this
area will be clearly tied to this strategic approach,
to our customers and to our colleagues.
Our distinct customer group is one of the most
experienced in society; however, all our work has
shown that they can face an uphill battle to get
their voices heard, to be represented in society,
and to overcome the prejudices people have about
ageing. People aged over 50 are the fastest
growing demographic in theUK: 28.2 million
people
1
will be over the ageof 50 by 2031 and 63p
2
of every £1 will be spent by people over 65 in 2040.
But despite the significance of this group, age is
often left out of the national conversation.
We are determined to play our part in tackling
what we see as a hidden area in the
discrimination debate at a time when so much
good work is being done to address issues
around race, gender and disability. Saga is now
focused on challenging perceptions of ageing
and, specifically, on becoming the Champions of
Experience in the Workplace. This will be the
focal point of our work within the Social element
of ESG and lead our wider strategic reset. This
will, of course, be underpinned by best-in-class
governance and by the detailed work necessary
to ensure we are meeting and, where we can,
exceeding all our environmental responsibilities
and ensuring our businesses help lead the
debates in their sectors.
Saga has always been a purpose-led business, so embracing ESG
responsibilities lies within our DNA.
DELIVERING AGAINST
OUR ESG COMMITMENTS
1 Office for National Statistics – 2018-based principal projections
2 Maximising the longevity dividend – ILC Partners Programme
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ESG
continued
While we work on the details of our ESG
strategy, including targets against which we can
be held to account, our direction of travel has
been clearly set this year by two moments.
In October 2021, we relaunched our brand with
a campaign focused on changing the way people
think about age and showing the more positive
side of getting older. Euan Sutherland, our
Group Chief Executive Officer (CEO),
encapsulated our approach at the launch with
these words: “People are living longer than ever
before; they are working longer; they are helping
their families; they are contributing to society.
We know our customers do not feel old – they
feel as if they are experienced. They have lived
full lives, have so much to give, and fully intend to
make the most of each and every day. Our new
brand strategy champions are what we are
calling ‘Generation Experience’ – the discerning,
sharp and savvy over-50s who represent over a
third of the UK population.”
The second moment was the launch of our new
colleague benefit, a week of paid leave on the
birth of a grandchild. This move, the first of
itskind for a major UK business, has been
welcomed by our colleagues and we were
delighted when it sparked a national
conversation. The new benefit reflects our belief
in the value of experience in the workplace,
alongside a recognition of the role of
grandparents to their families and society. It was
launched following extensive consultation with
colleagues, as well as research involving 2,500
people over 50. That research showed that a
quarter of working grandparents said they
found it ‘difficult’ to balance work with childcare
commitments, showing the value of policies that
start to address this challenge.
We have been heartened by the responses to
both of these moves from customers,
colleagues, the media and wider society. As we
said when we launched our brand, it’s time for
businesses and organisations of all sizes to have
a conversation about age. As a purpose-led
business with more than 70 years’ experience,
it’s one that we think Saga is ideally placed to
lead. We look forward to putting the necessary
rigour and reporting approach behind this
thinking, and our wider ESG strategy and
updating in next year’s Annual Report and
Accounts.
2021/22 in review
The past 12 months have seen Saga deliver
against its ESG commitments, in spite of the
operational challenges posed by COVID-19.
Weare proud of the progress we are making
and the way in which consideration of our
ESGresponsibilities is becoming more firmly
embedded in how we work and the decisions
wemake. We set out the detail on the
followingpages.
“People are living longer than ever
before;they are working longer; they
arehelping their families; they are
contributing to society. We know our
customers do not feel old – they feel
as ifthey are experienced. They have
lived fulllives, have so much to give,
and fully intend to make the most of
each and every day. Our new brand
strategy champions are what we are
calling ‘Generation Experience’ – the
discerning, sharp and savvy over-
50s who represent over a third of
the UK population.”
Saga plc Annual Report and Accounts 2022
24
Hybrid working
As a result of the COVID-19 pandemic, like many
other businesses, Saga has moved towards a
hybrid way of working. Our new model is a blend
of home-based working, with the flexibility to
work from our London office or from Enbrook,
our main hub in Kent, which has undergone a
radical transformation over the past 18 months.
The hub is used to meet, collaborate, socialise
and celebrate – moving away from desk-based
working, marking a big transformation to the
way we all work.
Following building renovations, we started
welcoming colleagues back to the Enbrook hub
in summer 2021, slowly and carefully, as part of a
pilot programme, and in line with government
guidance.
Colleague engagement
Saga Spirit Survey
In 2021, we carried out regular pulse surveys,
intended to provide us with more frequent
feedback from colleagues, allowing managers to
take action quicker. In 2021, we received our
highest response rate of 93%, and have seen
asignificant improvement in our overall
colleague engagement and health and wellbeing
scores, with them both increasing from 7.3 in
February 2021 to 7.7 in November 2021. The key
actions taken in 2021 centred around the
following:
Growth – career path:
Resetting performance
reviews, enabling a better conversation between
colleagues and managers; speaking to managers
to help them develop their teams; creating
personal development plans.
Reward:
Launching our new values-led
recognition programme; increasing the
standard annual leave allowance to 25 days for
all colleagues; removing eligibility criteria from
our family policies; reviewing base salaries in our
Insurance Operations area.
Strategy, purpose and values:
Launching an
Exceptional Welcome experience for all new
colleagues; taking every colleague through a
Values Experience Workshop; actively engaging
in community events; using colleague forums,
Tell Euan About sessions and interviews to
communicate our plans with colleagues.
Health and wellbeing:
Training 350 managers
on our colleague support framework; running a
30-Day Challenge to encourage colleagues to
form healthy new habits; celebrating diversity,
equity and inclusion (DE&I) through speaker
events and DE&I training for leaders;
implementing policy changes that better
support colleagues.
Workplace
Our internal communications platform,
Workplace, keeps colleagues informed and
connected via a single, mobile-first channel.
Workplace has transformed our colleague
communications, enabling every colleague to be
part of the conversation, to share their feedback
and ideas, and for their voices to be heard,
building an open culture.
In the past 12 months, we have implemented a number of fundamental changes to the way
we operate, including embedding flexible and remote ways of working for all our colleagues
and have widened our engagement with our communities.
Social
Overall colleague
engagement
7.7
out of
10
February 2021 – 7.3
Participation
incolleague
engagement surveys
93%
February 2021 – 92%
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ESG
continued
People Committee and
Colleague Forums
We remain committed to creating ongoing
conversations with our colleagues, allowing
them to have their say through multiple
channels including the People Committee and
our Colleague Forums.
The People Committee
•
Chaired by our Chief People Officer.
•
Attended by 10 Lead Colleague Ambassadors
from across the Group.
•
Typically meets during the first week of every
month (quarterly as a minimum).
The Colleague Forums
•
Chaired by the Executive Leadership Team
(ELT) member of the business unit/function.
•
Lead Colleague Ambassador(s) for the unit/
function also attends.
•
Meets during the third week of every month.
•
The Lead Colleague Ambassador(s) for the
business unit/function are responsible for
feeding back to the People Committee.
The People Committee
Colleague Forums
Insurance
Travel
People and
Property
Finance and
Professional
Services
Technology
Strategy, Brand
and Customer
Risk
10 Lead Colleague Ambassadors from across the business
Accelerating change for
colleagues and customers
Our Claims Customer Operations saw
significant improvement in their overall
engagement score, increasing from 7.2 in
February to 8.1 in November 2021.
In this short time, management introduced
actions including a new reward scheme, an
improved induction programme and piloted
ourWorking@Saga programme. Alongside
these, two customer focused initiatives
werelaunched, ‘Time to be Exceptional’
and‘Say Yes to Exceptional’, giving colleagues
the time to deliver our purpose and live our
values, empowering them to take ownership
ofsaying ‘yes’ to our customers to deliver
better outcomes.
Saga plc Annual Report and Accounts 2022
26
Diversity, equity and inclusion (DE&I)
We are committed to a culture which gives
everyone the opportunity to be their exceptional
self, by building a diverse and inclusive
environment where all our colleagues feel like
they belong.
In 2020, we appointed our first Diversity,
Inclusion and Belonging Manager to help
establish a clear strategic and tactical approach.
We have since brought in a Head of DE&I to
further lead in this space. The change of title, to
include the term ‘equity’, is itself an evolution of
the inclusion agenda and a better alignment to
the latest external thinking.
In 2021, the focus has been on taking the
DE&Iagenda forwards, step-changing the
conversation we have with colleagues and
bringing changes to the business which support
greater inclusion.
We are also a committed member of the UK
Government’s Disability Confident scheme and
remain supportive of the employment and
advancement of disabled persons in the UK.
Gender pay gap
At Saga, we’ve made it our mission to create a
working environment that’s inclusive and equal
for all and has our values at the heart of
everything that we do. We welcome the
opportunity to explore our gender pay gap each
year, and we have firm commitments in place to
drive improvements.
These include our commitment to equal pay for
equal work, gender balanced shortlists for all
roles, and continued upskilling of leaders in
DE&I. A full update on our gender pay gap and
our commitments can be found in our annual
gender pay review published on our website
(www.saga.co.uk/gender-pay-review).
Male Female
Total
Actual
%
Actual%
Board
4
4
57%
343%
7Senior management
5
34
68%
16
32%
50
Other colleagues
6
2,189
57%
1,653
43%
3,842
All
2,227
57%
1,672
43%
3,899
3 Headcount numbers reflect our colleagues in our UK offices and crew on board our ships as at 31 January 2022
4 Directors of the Company, including Executive and Non-Executive
5 All business unit directors and colleagues with strategic input and influence
6 All Saga colleagues (excluding Board and senior management)
Board
4
Senior management
5
Other colleagues
6
Our gender diversity
3
Male
Female
Male
Female
Male
Female
57%
68%
57%43% 32% 43%
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ESG
continued
Saga culture
Levelling the playing
field through an
inclusive culture
Weheld DE&I
upskilling sessions
for all senior
colleagues,
covering
unconscious bias,
the role of leaders
in driving change,
recruitment and
more.
Saga talent
Diversity of thought
helps us stay
relevant, expand
our reach and
create asustainable
talent pool
In 2021, we actively
championed the
development of
female colleagues
with more than ever
taking part in the
30% Club.
#BeYou at Saga
Building a
reputation as an
employer of choice
for diverse talent
via engagement and
communications
We delivered an
annual cycle of
broadcasts,
celebrating key
dates and events
with colleagues and
continued to hold
our Inclusion
Forums.
Force for change
Ensuring our brand
is inclusive and can
be a positive
advocate for a
diverse society
Webecame the
first major UK
employer to offer
paid Grandparents’
Leave.
We enhanced our
family friendly
policies and
associated paid
leave, introduced a
Menopause Policy,
Pregnancy Loss
Policy and additional
paid leave to support
the premature birth
of a baby.
Data and insights
Bringing
transparency and
accountability
through regular
reviews and
measuring of data
and impact
Wecollate our
colleague data
toensure that we
can measure the
success of our
DE&Iagenda.
key focus areas
5
We have five key focus areas for our DE&I work and here are
thehighlights of what we delivered under each during 2021:
How the Board monitors culture and how this links to strategy
The Board regularly reviews a range of information to actively monitor culture. The table below
shows the key sources of data the Board tracks, with a view to take action, where adjustments or
remedial action are needed.
Cultural identifier
Cultural priorities
Promoting
integrity and
openness
Valuing
DE&I
Being
responsive to
the views of
stakeholders
Culture
aligned
to purpose
and values
Culture
aligned
to strategy
Colleague Saga Spirit Survey data
People Committee and Colleague
Forums feedback
Colleague listening groups
Speak Up reports
Progress on DE&I
Gender pay gap progress
Health and safety performance
Internal Audit reports and findings
Environmental targets
Saga plc Annual Report and Accounts 2022
28
During 2021, we worked closely with the communities where our colleagues live and work, with a summary of thatactivity
provided below.
£184k
of value donated to the
community through our office
furniture giveaway
£38k
raised by colleagues and
customers for good causes
Delivering vaccinations
Saga’s Thanet office was used by
the NHS as a COVID-19 vaccination
centre, delivering thousands of
vaccinations each day.
123
families of our Filipino crew
supported with educational
bursaries
We extended our long-running
scheme, helping the children and
siblings of our crew members in the
Philippines. We also provided
financial support to crew whose
properties were damaged or
destroyed by Typhoon Rai.
3,283
volunteer hours given by
colleagues
£206k
charitable donations made by
Saga
12
volunteer days per year now
offered to uniformed volunteers
Increased the number of volunteer
days for colleagues performing
public service roles, recognising
the importance of these roles
within our community.
3
community meetings held
during the year
These meetings were hosted by our
Group CEO, Euan Sutherland. The
meetings enable us to have an open
forum where we can give a business
update and understand the current
needs of the community and where
we may be able to support. By
collaborating, we can help address
some of the issues affecting our
local community.
Communities
Saga plc Annual Report and Accounts 2022
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29
ESG
continued
In the past 12 months, as well as strengthening our reporting, we have increased
ourunderstanding of our environmental and social impact and introduced hybrid
andelectricvehicles in the fleet used to transfer guests to and from their holiday.
Environment
Energy and Carbon Statement
This statement has been prepared in
accordance with our regulatory obligation to
report Greenhouse Gas (GHG) emissions
pursuant to the Companies (Directors’ Report)
and Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2018 which
implement the Government’s policy on
Streamlined Energy and Carbon Reporting.
Emissions summary
During the reporting period 1 February 2021 to
31 January 2022, our measured Scope 1 and 2
emissions (location-based) totalled 82,374
tCO
2
e and reported Scope 3 emissions totalled
2,385 tCO
2
e.
Overall, our Scope 1 and 2 emissions have
increased by 118% compared to 2020/21.
Thiscan largely be attributed to an increase
inmarine fuel consumption by our cruise ships
as COVID-19 travel restrictions were lifted.
Wehave been continuing to optimise our office
buildings for the past three years, looking to
maximise their energy efficiency. The past year
has seen a large increase in energy savings,
amounting to an approximate 942 tCO
2
e
reduction in emissions. These savings have
beenachieved through increasing the number
ofbuilding management system control
interventions, related to plant schedules and
optimising heating and cooling plant on our key
assets. We also have a colleague engagement
programme which delivers communications and
training to colleagues in order to encourage
them to reduce energy, water use and waste,
and to minimise travel.
We used external campaigns such as Plastic
Free July, World Environment Day and Recycling
Week to maximise these communications and
provide tips and share best practice around our
buildings and at home. Saga purchases 97% of
its electricity from a 100% renewable supply
from Haven Power, demonstrating that we are
making efforts to reduce our climate impact
through the purchase of electricity generated
from cleaner sources. Scope 3 categories
include business travel, fuel-and-energy related
activities and working from home emissions.
7 Emissions from the consumption of electricity outside the UK and emissions from the purchased electricity are calculated using the market-based approach,
using supplier-specific emission factors and are reported in tCO
2
e
8 2020/21 emissions have been verified to ISO 14604-3 standard by our sustainability partner, Carbon Intelligence. Our 2021/22 emissions will be verified in the
coming quarter
Greenhouse gas emissions in tonnes of carbon dioxide (tCO
2
e)
Emissions scope
2021/22 emissions 2020/21 emissions
Scope 1
80,993
36,187
Scope 2 (location-based)
1,381
1,654
Scope 2 (market-based)
7
3 8
Total Scope 1 and 2 (location-based)
82,374
37,841
Scope 1 and 2 tCO
2
e per £m trading EBITDA
8
1,263
481
Scope 3
2,385 1,333
Total Scope 1, 2 and 3 (location-based)
84,759
39,173
Saga plc Annual Report and Accounts 2022
30
Methodology
We quantify and report our organisational
GHGemissions in alignment with the World
Resources Institute’s Greenhouse Gas Protocol
Corporate Accounting and Reporting Standard
and in alignment with the Scope 2 Guidance.
Weconsolidate our organisational boundary
according to the operational control approach,
which includes emissions from Saga plc. We
have adopted a materiality threshold of 5% for
GHG reporting purposes. The GHG sources
that constituted our operational boundary for
the year are:
•
Scope 1:
Natural gas combustion within boilers,
marine fuel combustion within ships, road fuel
combustion within vehicles, fuel combustion
within non-road mobile machinery, and fugitive
refrigerants from air-conditioning equipment.
•
Scope 2:
Purchased electricity consumption
for our own use.
•
Scope 3:
Business travel from grey fleet,
taxis, rail and hotel stays; transmission and
distribution losses associated with electricity
consumption; and working from home
emissions.
The Scope 2 Guidance requires that we quantify
and report Scope 2 emissions in accordance
with two different methodologies (dual
reporting):
•
The location-based method, using average
emissions factors for the country in which
thereported operations take place.
•
The market-based method, which uses the
actual emissions factors of the energy
procured.
As in previous years, Scope 3 business travel
emissions from air have been identified, but not
included in our disclosure due to a lack of
accurate data. For the first time, rail and hotel
stays were included in Scope 3 business travel
emissions as accurate data could be obtained.
Emissions from energy paid for in service
charges have been excluded due to lack of data
and immateriality.
Other GHG emissions
During the reporting period, our Scope 1 and 2
methane emissions totalled 35.2 tCH
4
and
Scope 3 totalled 0.1 tCH
4
. Of this, 82%
originates from marine fuel (Scope 1), 15% is
from electricity (Scope 2) and 3% is from
natural gas (Scope 1). Our nitrous oxide Scope 1
and 2 emissions totalled 1,074.0 tN
2
O and Scope
3 totalled 0.1 tN
2
O. Of this, 99% is from marine
fuel (Scope 1).
Emissions scope
2021/22 emissions
9
tCH
4
tN
2
0
Scope 1
30.0
1,065.1
Scope 2
5.2
8.9
Scope 3
0.1 0.1
Total Scope 1, 2 and 3
35.3
1,074.1
Energy summary
During the year, our total fuel and electricity
consumption was 343,035,924 kWh, compared
with 152,664,244 in 2020/21. The split between
fuel and electricity consumption isdisplayed
below.
Energy usage
2021/22
kWh
2020/21
kWh
Electricity
6,508,366
7,092,329
Fuels
10
336,527,558
145,571,915
Total energy
343,035,924
152,664,244
Assumptions and estimations
In some instances, where data is missing, values
have been estimated using either an extrapolation
of available data from the reporting period or data
from 2020/21 as a proxy.
9 Reporting on our wider GHG emissions was introduced for 2021/22 and therefore no comparable data is available for 2020/21
10 Fuels comprise natural gas, diesel, petrol, marine fuel oil, marine gas oil and refrigerants
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
31
ESG
continued
Carbon Disclosure Project (CDP)
Saga made the decision in 2015 to respond to
theCDP Climate Change Questionnaire to better
understand and manage our climate-related
impacts, risks and opportunities. In 2021,
Sagascored a ‘B’ which is categorised as the
management category. This is a reduction from
an‘A-’ in 2020 and reflects a change in the CDP
rating system to consider the maturity of
businesses making voluntary CDP disclosures.
Forexample, the number of businesses achieving
an‘A’ rating decreased from 280 in 2020 to 200
in2021.
Cruise
During 2021, our ocean ships only operated
from the end of June and July, for Spirit of
Discovery and Spirit of Adventure respectively.
This contributed to the reduction in our Scope 1
emissions. Marine fuel represented 92% of our
Scope 1 carbon emissions with the ships also
generating an additional 2% Scope 1 fugitive
carbon emissions. In terms of other Scope 1
GHG emissions, our ships represent 99% of
Saga’s CH
4
and N
2
0 emissions.
Following their return to service, we
commenced a study to assess our operational
practices on board with the aim of further
reducing our carbon footprint and identifying
opportunities to deliver efficiency-enhancing
modifications to our vessels. We are planning to
install shore power connections on board both
ocean cruise ships in the next three years, which
will reduce the vessels’ emissions while docked
in ports which are able to provide shore power.
Further to this, we plan to build on the
reductions already made by removing all
non-essential single-use plastics on board by
theend of 2023 and will establish targets for
garbage volume reduction and recycling.
The emissions per guest have increased from
2.91 tCO
2
e in 2019/20 to 3.53 tCO
2
e in 2021/22.
This increase is a result of UK Government
COVID-19 restrictions which limited our ships to
operating initially at no more than 50% capacity
on their return to service during summer 2021.
Whilst ourguest numbers were limited, fuel
consumption was largely unchanged, resulting
inahigher consumption being recorded on a
perguest basis.
Supply chain
We surveyed our top suppliers to determine
both their current and planned approach to ESG
and developed a focused questionnaire to
support the formal procurement process for
large contracts. Supplier contractual obligations
to deliver on ESG commitments made in the
tender process will be introduced as
appropriate.
For 2022, we will expand the baselining of ESG
within our supply chain and develop required
standards aligned to our new supplier
relationship management banding.
Head office refurbishment
We completed the second phase of our Enbrook
hub refurbishment, which included better air
quality intake at lower power consumption and
the replacement of all lights with LEDs,
improving the building’s environmental
performance. We donated redundant office
furniture to charities and community projects,
diverting 52 tonnes ofwaste from landfill and
avoiding 44 tonnes ofCO
2
e.
With a focus on recycling and a zero to landfill policy,
we have collected 100 tonnes of waste from our
sites, of which 79 tonnes were recycled and the
residual diverted to an energy-from-waste facility.
Period
General
waste
Recycling
Total
waste
generated
2020
34.1
78.3
112.4
2021
21.2
79.3
100.5
Total
55.3
157.6
212.9Green Fleet
We introduced a Green Fleet Car Scheme
meaning that, from October 2021, our company
car scheme only offers three types of vehicle –
full battery electrical vehicles, plug-in hybrid
vehicles or non-plug-in hybrid vehicles. By 2024,
once all existing company car drivers have
renewed their vehicle, all will have moved to
thescheme.
Waste diverted
fromlandfill
52
tonnes
(through donation
of office furniture)
Saga plc Annual Report and Accounts 2022
32
The Task Force on Climate-Related Financial
Disclosures (TCFD) has become part of the
regulatory framework in many jurisdictions.
TheTCFD’s 11 disclosure recommendations
span four different areas: governance, strategy,
risk management, and metrics and targets.
In accordance with Listing Rule 9.8.6 (8), we
aredisclosing our alignment with the TCFD
recommendations. We are continuously
improving and aligning our internal processes
and public disclosures with the TCFD and this
following section sets out our progress against
the four pillars of the TCFD framework.
This is Saga’s first annual TCFD report.
Inthepast 12 months, we have established
anappropriate governance approach for
overseeing climate-related risks and
opportunities and have identified the risks
facing Saga as articulated below.
We will focus in the next reporting cycle on
reviewing our metrics and targets, further
assessing the impact of these on our strategy
and assessing the effectiveness of the key
management actions to mitigate risks. We will
explain how we have complied with the
recommendations in our 2023 Annual Report
and Accounts.
Governance
Our Board of Directors has responsibility over
our risk management framework, including
climate-related risk, monitoring the
effectiveness of the Group’s risk management
and control systems. The Board established the
Risk and Audit Committees, each composed of
three independent Non-Executive Directors, to
oversee the principal risks, tolerance thresholds
and control framework.
The Risk Committee meets to discuss the Group’s
overall risk tolerance, strategy and ability to detect
new risks, including those related to climate change,
which is reflected as one of Saga’s principal risks.
The Committee Chair reports recommendations
to the Board, together with an annual report
outlining principal risks and uncertainties, how they
are identified, and mitigating actions. Also reporting
to the Board, the Audit Committee monitors the
integrity of the Group’s financial statements as well
as working with the Risk Committee to oversee the
efficacy of internal control systems. The Board
commits to including climate-related risk formally
on the Board agenda including an oversight of
emissions performance, embedding climate
resilience and risk management, as well as oversight
of the wider ESG strategy as it develops. We
recognise that the responsibility for ESG, including
financial risks associated with climate change, is the
responsibility of all Board members.
Strategy
We engaged our Travel and Insurance
businesses separately to provide a
comprehensive and robust analysis to identify
and assess climate-related risks and the
resilience of our businesses to manage the links
between our climate-related risks and
opportunities and our business strategy. We will
be setting targets for our overall emissions
reduction during 2022, with a commitment to
reduce our contribution to climate change. This
is a key management control for some of our
climate-related risks, such as our reputational,
energy and market risks.
Initial assessment of the climate-related risks
and opportunities for both our Insurance and
Travel businesses were determined over three
different time horizons: short, medium and
long-term. Short-term risks and opportunities
are articulated below, with the full TCFD report
articulating medium and longer-term risks and
opportunities available on our corporate
website (www.corporate.saga.co.uk/about-us/
environmental-social-and-governance).
Short-term risks and opportunities
At the Group level, our business faces several
short-term transition risks:
1. Our Travel business will face short-term
risks including increased fuel costs and
financial strain on Saga’s key third-party
partners (such as airlines) as carbon taxation
is used to drive climate transition,
particularly on fossil-based fuels.
2. Direct and indirect carbon pricing and cost
pass-on within the supply chain could reduce
Saga’s financial returns as upstream supply
materials costs increase, specifically on
energy and fuel-intensive materials.
3. Saga’s market valuation may be impacted by
investors challenging Saga’s commitment to,
or progress on, climate-change
commitments.
In the short-term, as a Group, we have the
following climate-related opportunities:
1. The Travel business can achieve a high ESG
profile by responding to customers’ interest
in climate-related issues and by
demonstrating a responsible and sustainable
approach to ESG. This has the potential to
enable increased investment capacity
through new green financing opportunities.
Task Force on Climate-Related Financial Disclosures
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
33
ESG
continued
2. For our ships, and our operations
specifically, we can achieve increased
climate leadership as well as a reduction in
our carbon footprint by collaborating with
new low carbon partners and exploring and
taking advantage of fuel-efficient
technologies.
3. We can reduce our exposure to the rising
price of carbon by reducing our carbon
footprint and our contribution to climate
change through, for example, utilising
technology to optimise fuel consumption on
our ships; implementing energy efficient air
handling in our Enbrook office hub; and
changing our colleague car scheme to hybrid
or electric cars only.
Risk management
We carried out engagement workshops to hear
from internal stakeholders across the business
units and functions to identify and review
potential climate impacts on the Group. We also
consulted with external climate risk experts,
Carbon Intelligence, to better understand
sector-wide climate-related risks and
opportunities. To progress our alignment to the
TCFD framework, we will be developing our
climate risk appetite during 2022 to determine
the level to which we will accept, mitigate,
transfer or control our climate-related risks.
Metrics and targets
We understand the critical importance of
delivering sustainable growth and we have taken
steps to measure our current impact on the
environment and set targets to mitigate this.
Our Energy and Carbon Statement has been
prepared in accordance with our regulatory
obligation to report greenhouse gas (GHG)
emissions which can be found on page 30.
Toensure transparency and accuracy, we also
commit to having our carbon footprint verified
by a third party and our 2021 CDP report
canbefound on our corporate website
(www.corporate.saga.co.uk/media/1498/
saga-cdp-submission-2021.pdf).
During the reporting period 1 February 2021 to
31 January 2022, our measured Scope 1 and 2
emissions (location-based) totalled 82,374
tCO
2
e and reported Scope 3 emissions totalled
2,385 tCO
2
e.
Saga acknowledges that climate risk and climate
strategy are interrelated and should be
managed in unison to control our emissions.
We will be setting clear targets for our carbon
and GHG emissions, aligned to our business
strategy. While year on year our Scope 1 and 2
emissions have increased by 118%, this can
largely be attributed to an increase in marine
fuel consumption by Saga’s cruise ships as travel
restrictions due to COVID-19 have been lifted,
causing travel to significantly increase.
2018/19
102,582
2019/20
104,622
2020/21
39,173
2021/22
84,759
2021/22 GHG emissions progress (Scope 1, 2 and 3 tCO
2
e)
Scope 1 Scope 2 Scope 3
Saga plc Annual Report and Accounts 2022
34
ESG Task Force
Governance is at the heart of our sustainability
ambitions and, while recognising that there was
more that needed to be done to speed up our
approach on ESG, we moved to adapt our
internal governance and oversight of this area
and to increase the number of people involved.
Our Environmental Committee, which met
frequently, was replaced with an ESG Task
Force, led by the strategy function.
The Task Force reports into the Executive
Leadership Risk Committee and has
responsibility for setting the priorities on
whichSaga should focus to deliver an approach
to ESG with great scale, ambition and impact.
Pulling in expertise andrepresentation from
across the Group, the Task Force will be
overseen by Paula Kerrigan, Saga’s new Chief
Strategy and Innovation Officerand Helen
Webb, Saga’s Chief Risk and Compliance Officer.
Euan Sutherland, Saga’s Group CEOis the ESG
representative on the Board.
Risk management
Our risk management framework has been
designed in conjunction with external risk
expertise to bring together best practice risk
management standards and draw upon risk
standards and professional body guidance.
These standards, frameworks and guidelines
support specific design considerations of our
risk framework, which can be found on page75.
The Risk Committee considers the Group’s overall
risk tolerance, including climate-related risks,
ensuring that Saga’s exposure to environmental
and climate-related risks is clearly articulated,
monitored and mitigated as part of the Group’s
overall risk management approach.
Anti-bribery and corruption
The Group values its reputation for financial
probity and integrity and recognises that it has
aprimary duty to protect its customers from all
financial crime, including bribery and corruption.
The Group takes a zero-tolerance approach to
incidents involving bribery and corruption and
has a policy which lays out clear guidance for the
appropriate assessment of any risk of bribery
and corruption across all businesses.
Allcolleagues are trained annually to ensure
their understanding of the risks and the
appropriate action to be taken if they encounter
any activity of concern.
Modern slavery, human rights
and labour standards
Saga conducts business in an ethical and
transparent way. Policies to support recognised
human rights principles include those on
non-discrimination, health, safety and wellbeing
and environmental issues. Our Modern Slavery
Statement can be found on our corporate
website (www.corporate.saga.co.uk/media/1418/
modern-slavery-and-human-trafficking-
statement-2021.pdf) alongside our Labour
Standards Policy (www.corporate.saga.co.uk/
media/1507/labour-standards-policy-final.pdf).
Responsible investments
Our approach to investments continues to
ensure robust ESG factors are considered when
making investments. Saga’s subsidiary boards
consider investment decisions, including
requiring external investment managers to
consider ESG risk factors and report on ESG
metrics where appropriate, and the plc Board
considers and approves all material investments.
Saga has always taken governance seriously and continued to do so over the past 12 months.
As we develop our ESG strategy in detail, we will consider all governance implications.
Governance
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
35
A RESILIENT BUSINESS,
ONCOURSE FOR GROWTH
The Travel result sits between the base case and
downside scenarios we modelled, consistent
with an environment that remained constantly
challenging but, where for the Cruise business,
we were able to restart trading in mid-year.
Cruise was EBITDA positive for the second half,
and cash positive for the full year, which we
believe puts us in a much better position than
many of our, often much larger, competitors.
The higher loss of the Cruise business compared
with the prior year was mainly due to increased
financing costs following delivery of our second
ship in October 2020 and return to service
costs in the first part of 2021, partially offset by
much improved results following the resumption
of trading from the endof June.
Insurance results were in line with expectations,
and while profit was lower than in the prior year,
this was in part due to increased marketing
investment as we returned to television
advertising in the later part of the year. Given
the timing of the spend, as well as the lead time
in translating improved brand awareness and
consideration into hard sales, the benefits of
almost all of this spend will be in future years.
More generally however, the business is in a
much stronger position than it was three years
ago, with a second year of policy growth in the
core motor and home products, and at stable
margins.
The reported loss before tax for 2021/22 of
£23.5m was materially better than the £61.2m
loss in the prior year, mainly due to significantly
lower restructuring costs, as well as the £59.8m
goodwill impairment included in the 2020/21
results.
Looking to the future, 2022/23 should see
improved performance, but we are still
navigating external challenges. This is especially
the case for Travel, where customer confidence
is improving but is still impacted by COVID-19
uncertainty. For Tour Operations, we are aiming
to achieve break even after two years of heavy
losses, and clearly our ambition is to achieve
amuch better performance in the future.
Similarly for Cruise, the current year will
seesome impact from COVID-19 in terms of
itinerary disruption, the cost of the measures
weare taking to protect customers and the earn
through of customer discounts offered in 2020.
James Quin
Group Chief Financial
Officer
Group Chief Financial Officer’s Review
“The past 12 months have been
atime of considerable progress,
and I would like to thank everyone
inthe Finance Team and all our
other stakeholders.”
1 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
While Saga is in much better shape than it was
12 months ago, results for 2021/22 reflect the
ongoing impact of the COVID-19 pandemic on
our Travel operations, with an Underlying Loss
Before Tax
1
in the Travel business of £79.3m, in
line with the previous year. As a result, we
reported an Underlying Loss Before Tax
1
of
£6.7m and an overall loss before tax of £23.5m.
The Underlying Loss Before Tax
1
of £6.7m
compares to a profit of £17.1m in the previous
year, with the change mainly relating to higher
marketing costs, as well as the impact of
increased motor insurance claims frequency as
miles driven returned closer to normal levels
and other smaller factors such as lower private
medical insurance profitability.
Loss before tax
(£23.5m)
2021 – (£61.2m)
Underlying (Loss)/
ProfitBefore Tax
1
(£6.7m)
2021 – £17.1m
Saga plc Annual Report and Accounts 2022
36
However, Cruise demand continues to be strong
and price increases should largely offset the
impact of inflation on our costs. In Retail
Broking, a very competitive motor market and
regulatory changes equalising new business
andrenewals pricing will adversely impact
profitability but this should reduce over time
ascustomers see less need to shop around on
renewal, and with more focus on product and
service quality.
Overall, these factors make providing specific
earning guidance very challenging for this year,
but at a minimum we expect a return to positive
profit contribution, with growth in sales and
profits in future years from 2022/23 levels.
In terms of our financial position, this was a year
of real progress. Despite the Underlying and
reported loss before tax, we generated positive
Available Operating Cash Flow
2
of £75.8m,
compared with £3.4m in the prior year, and net
debt reduced from £760.2m to £729.0m. The
2021/22 year benefited from positive working
capital movements in Cruise, as the business
recommenced trading, compared with
significant cash injections into the Travel
businesses in the prior year.
AvailableOperatingCash Flow
2
, excluding
Travel, was £89.4m compared with £92.3m in
the prior year, which again demonstrates how
important it has been for the Group to have a
fully operational Insurance business throughout
thepandemic.
In July 2021, we concluded the issuance of a new
five-year £250m fixed-rate unsecured bond,
with the proceeds used to repay £100m of
existing bonds and to repay in full the £70m
term loan. After costs, these transactions
increased Available Cash
2
by £76m. As a result,
we have more than enough liquidity to cope with
potential short-term risks as we emerge from
the pandemic; we have no corporate debt
maturities until 2024 and the bonds offer us
much better flexibility than bank debt. Reducing
debt remains a priority and we will restart
repayments of ship debt from June 2022.
The past 12 months have been a time of
considerable progress, and I would like to thank
everyone in the Finance Team and all our other
stakeholders, who have worked long hours in
helping us navigate some choppy waters. Our
goal now is to capitalise on Saga’s opportunities,
while keeping a tight focus on downside risks.
2 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
3 Revenue is stated net of ceded reinsurance premiums earned on business underwritten by the Group of £123.7m (2021: £142.8m)
4 Net finance costs exclude Cruise finance costs, net fair value (losses)/gains on derivatives and IAS 19R pension interest costs
Operating performance
Group income statement
£m
12m to
Jan 2022
Change
12m to
Jan 2021
Revenue
3
377.2
11.7%
337.6
Underlying (Loss)/Profit Before Tax
2
Total Retail Broking (earned)
66.4
(12.5%)
75.9
Underwriting
54.1
(7.8%)
58.7
Total Insurance
120.5
(10.5%)
134.6
Travel
(79.3)
(1.0%)
(78.5)
Other Businesses and Central Costs
(29.3)
(30.8%)
(22.4)
Net finance costs
4
(18.6)
(12.0%)
(16.6)Total Underlying (Loss)/Profit Before Tax
2
(6.7)
(139.2%)
17.1
Net fair value (losses)/gains on derivatives
(2.7) 1.7
(Impairment)/profit on disposal of assets
(4.3)
2.0
Restructuring costs
(6.3)
(30.8)
Charge on closure of defined benefit pension scheme
(2.0)
–
Foreign exchange gains on river cruise ship leases
0.9
–Costs incurred for ship debt holiday
(2.4)
–
Net profit on disposal of businesses –
8.6
Impairment of Travel goodwill –
(59.8)
Loss before tax
(23.5)
61.6%
(61.2)
Tax expense
(4.5)
31.8%
(6.6)
Loss after tax
(28.0)
58.7%
(67.8)
Basic earnings per share:
Underlying (Loss)/Earnings Per Share
2
(11.1p)
(184.1%)
13.2p
Loss per share
(20.1p)
70.0%
(67.0p)
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
37
Group Chief Financial Officer’s Review
continued
5 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Loss before tax
Loss before tax for the year of £23.5m includes
a £2.7m fair value loss on derivatives de-
designated in the year due to the suspension
ofTravel operations, £6.3m of restructuring
costs, mainly relating to the Tour Operations
business, a £2.0m charge due to the closure of
the defined benefit pension scheme and £2.4m
of costs incurred on the ship debt holiday,
partially offset by £0.9m foreign exchange gains
on river cruise ship leases.
The loss before tax for 2021/22 also includes
anet impairment of assets of £4.3m that
represents £10.2m and £0.5m of impairments
and loss on disposals of software and property,
plant and equipment respectively, mainly relating
to the Tour Operations business, £1.0m of
impairments on assets held for sale, a £7.1m
profit on disposal of assets, after costs of £0.1m,
in relation to a sale of property and a £0.3m gain
on a lease modification within right-of-use assets.
The prior year includes a £59.8m impairment to
Travel goodwill and £30.8m of restructuring
costs, offset by an £8.6m profit on the disposal
of non-core businesses, £2.0m net gains on the
disposal of assets and a £1.7m fair value gain on
derivatives de-designated in the prior year.
Tax expense
The Group’s tax charge for the year was £4.5m
(2021: £6.6m), representing a tax effective
rateof negative 19.1% (2021: negative 471.4%),
excluding the goodwill impairment charge.
Inboth the current and prior years, the
difference between the Group’s tax effective
rate and the standard rate of corporation tax
of19%, is mainly due to the Group’s Cruise
business entering the tonnage tax regime
on1February 2020.
There was an adjustment in the current year for
the under provision of prior-year tax of £1.0m
(2021: £1.6m under provision) and the impact of
the change in the tax rate on opening deferred
tax balances of £2.6m credit (2021: £1.7m credit).
Earnings per share
The Group’s Underlying Basic Loss Per Share
5
was 11.1p (2021: Profit 13.2p). The Group’s
reported basic loss per share was 20.1p (2021:
loss of 67.0p).
The Group’s business model is based on
providing high-quality and differentiated
products to its target demographic,
predominantly focused on insurance and travel.
The Insurance business operates mainly as a
broker, sourcing underwriting capacity from
selected third-party insurance companies, and,
for motor and home, also from the Group’s
in-house underwriter. Travel is composed of
Tour Operations and Cruise. Other Businesses
comprises Saga Personal Finance, Saga
Publishing and MetroMail, a mailing and
printingbusiness.
Revenue
Revenue increased by 11.7% to £377.2m (2021:
£337.6m) due to the restart of the Travel
business in the second half of the year, partially
offset by lower Retail Broking revenues, largely
as a result of the sale of the Bennetts business
inAugust 2020.
Underlying (Loss)/Profit Before Tax
5
Underlying Profit Before Tax
5
decreased from
£17.1m to an Underlying Loss Before Tax
5
of
£6.7m. This was partly due to a reduction in
Retail Broking profitability, mainly as a result
oflower renewal margins in private medical
insurance (PMI) and increased television
advertising spend to support the relaunch
ofthebrand in the Other Businesses and
Central Costs segment.
Net finance costs in the year were £18.6m
(2021: £16.6m), which excludes finance costs
that are included within the Travel division of
£19.5m (2021: £13.6m). The increase of 12.0%
was largely due to the higher bond interest
costs following the completion of the new bond
issue in July 2021. This was partially offset by
areduction in bank debt interest costs due to
alower level of bank debt in the current year
compared with the prior year.
Basic loss per share
(20.1p)
2021 – (67.0p)
Underlying Basic (Loss)/
Profit Per Share
5
(11.1p)
2021 – 13.2p
Saga plc Annual Report and Accounts 2022
38
Insurance
Retail Broking
The Retail Broking business
provides tailored insurance
products and services,
principallymotor, home, private
medical and travel insurance.
Its role is to price the policies and source the
lowest cost of risk, whether through the panel
ofmotor and home underwriters or through
solus arrangements for private medical and
travel insurance.
The Group’s in-house insurer, Acromas
Insurance Company Limited (AICL), sits on the
motor and home panels and competes for that
business with other panel members on equal
terms. AICL offers its underwriting capacity
onthe home panel through a coinsurance deal
with a third party, and so the Group takes no
underwriting risk forthat product. Even if
underwritten by a thirdparty, the product is
presented as a Sagaproduct and the Group
manages the customer relationship.
Insurance, which comprises Retail Broking and Insurance Underwriting, performed well
intheyear, generating strong cash flow.
£m
12m to Jan 2022
Change
12m to Jan 2021
Motor
Broking
Home
Broking
Other
Broking
Total
Motor
Broking
Home
Broking
Other
Broking
Total
Gross written premiums (GWP):
Brokered
105.0
153.2
131.396.5
354.7
(5.0%)
151.9
90.2
373.4
Underwritten
205.5
–
204.63.4
208.9
0.4%
–
3.5
208.1
GWP
310.5
153.2
99.9
581.5563.6
(3.1%)
335.9
151.9
93.7
Broker revenue
43.2
29.0
33.2105.4
2.8%
37.6
102.528.7
36.2
Instalment revenue
6.6
3.2
–
9.8
–(11.7%)
8.1
3.0
11.1
Add-on revenue
11.0
10.9
–
25.221.9
–(13.1%)
14.5
10.7
Other revenue
27.4 17.1
2.1
46.6
(12.9%)
31.3
17.8
4.4
53.5
Written revenue
88.2
60.2
35.3
183.7
(4.5%)
91.5
60.2 40.6
192.3
Written gross profit
85.6
60.2
35.6181.4
(2.2%)
88.8
60.2
36.5
185.5
Marketing expenses
(17.5) ( 7.1)
(3.6)
(17.3)(28.2)
(8.5%)
(6.0)
(2.7)
(26.0)Written gross profit after
marketing expenses
68.1 53.1
32.0
153.2
(3.9%)
71.5
54.2
33.8
159.5
Other operating expenses
(38.0)
(27.9)
(20.7)
(86.6)
(1.1%)
(40.1)
(85.7)(26.3) (19.3)
Written Underlying PBT
6
30.1
25.2
11.3
66.6
(9.8%)
31.4
27.9
14.5
73.8
Written to earned adjustment
(0.2)
– –
(0.2)(109.5%)
2.1
– –
2.1Earned Underlying PBT
29.9
25.2
11.3
66.4
(12.5%)
33.5
27.9
14.5
75.9
Saga-branded policies in force
884k
682k
129k1,695k
2.6%
867k 677k
108k
1,652k
Third-party panel share
7
30.1%
(0.3ppt)
30.4%
Gross written
premiums
£563.6m
2021 – £581.5m
Retail Broking
writtenrevenue
£183.7m
2021 – £192.3m
6 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
7 Third-party underwriter’s share of the motor panel for Saga-branded policies
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
39
Retail Broking written
gross profit (after
marketing expenses)
£153.2m
2021 – £159.5m
Group Chief Financial Officer’s Review
continued
Retail Broking Underlying Profit Before Tax
8
onawritten basis (which excludes the impact
ofthe written to earned adjustment) reduced to
£66.6m from £73.8m, and on an earned basis
(which includes the impact of the written to
earned adjustment), reduced to £66.4m
from£75.9m.
The written to earned adjustment of negative
£0.2m in the current year compares with a
£2.1m positive adjustment in the prior year.
Theprior year broking result benefited from
price reductions implemented by AICL in 2019
that improved broking margins, but with these
improvements partially deferred during
2019/20 and earned during the 2020/21
financial year.
A key metric for the Retail Broking business is
written gross profit, after deducting marketing
expenses, but before overheads. This reduced
from £159.5m in the prior year to £153.2m in
the current financial year due to the sale of
Bennetts in August 2020. Excluding Bennetts,
written gross profit after marketing expenses
increased by £0.3m, due to a £3.2m
improvement in motor, offset by a £1.1m
reduction in home and a £1.8m reduction in
other broking.
For Saga-branded motor and home insurance, in
terms of the total gross margin after marketing
expenses, new business profits reduced by
£6.2m, while there was a £8.3m improvement
inrenewal profits.
The reduction in new business profits is due to
investment in television advertising and lower
motor new business margins due to competitive
market conditions. The increase in renewal
profits is principally due to a 5% increase in
motor renewal policies, coupled with higher
renewal margins driven by the continued growth
of our three-year fixed-price products. The
higher renewal margins were, in part, due to low
net rate inflation during the year compared with
the inflation assumptions built into three-year
fixed-price pricing.
The average gross margin per policy for
Saga-branded motor and home combined,
calculated as written gross profit less marketing
expenses divided by the number of policies sold,
was £74.2 in the year, compared with £73.8 in
the prior year.
While Retail Broking earnings have reduced year
on year, the Insurance business has shown good
progress in the past 12 months:
•
Saga-branded motor and home policies in
force increased by 1.4% in the year.
•
Sustained improvement in customer
retention to 82.8% across motor and home,
which was 2.3ppts higher than the prior year
and 7.7ppts higher than 2019/20.
•
755k three-year fixed-price policies were
soldin the year; 47% of total motor and
homepolicies in force, with 57% of direct
newbusiness taking the product.
•
Direct new business sales for motor and
homewere 59% of the total, stable on the
prior year but around 9ppts higher than in
the2018/19 year.
Written profit and gross margin per policy for
motor and home are stated after allowing for
deferral of part of the revenues from three-year
fixed-price policies, which is then recognised in
profit or loss when the option to renew those
policies at a predetermined fixed price is
exercised or lapses, recognising inflation risk
inherent in this product. As at 31 January 2022,
£8.7m (2021: £9.9m) of income had been
deferred in relation to three-year fixed-price
policies, £7.3m (2021: £5.0m) of which related
to income written in the year to 31 January
2022. The reduction in the amount deferred is
due to new three-year fixed-price sales during
the 2021/22 year being lower than in 2019/20,
the year the product was launched, with the
latter group of policies having all now passed the
second renewal. The reduction in the number of
three-year fixed-price policies within the first
and second renewal was partially offset by
higher assumed inflation assumptions.
Motor Broking
Gross written premiums decreased by 7.6% due
to the sale of the Bennetts business on 7 August
2020, therefore the current year results include
no trading results for Bennetts compared with
six months’ worth included in the prior year.
Excluding Bennetts, gross written premiums
decreased by 0.3%. This reduction is due to
lower average premiums per policy, partially
offset by a 1.3% increase in the number of core
Saga-branded policies. Gross written premiums
from business underwritten by AICL increased
0.4% to £205.5m (2021: £204.6m), partly due
to a 0.3ppt decrease in third-party panel share
to 30.1% (2021: 30.4%). Other revenue declined
by £3.9m, due primarily to the sale of Bennetts.
Written gross profit minus marketing expenses
was £68.1m (2021: £71.5m), contributing £72.8/
policy (2021: £66.9/policy). Excluding Bennetts
results from the prior year, motor written gross
profit minus marketing expenses for 2021 was
£65.0m, contributing £70.3/policy.
The increase in written gross profits excluding
Bennetts is mainly due to a 5% increase in
motor renewal policies and higher renewal
margins on the three-year fixed-price product,
partially offset by investment in television
advertising of £3.0m and competitive new
business market conditions.
Retail Broking earned
Underlying Profit
Before Tax
8
£66.4m
2021 – £75.9m
Retail Broking written
Underlying Profit
Before Tax
8
£66.6m
2021 – £73.8m
8 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
40
Home Broking
Gross written premiums increased by 0.9% due
to a 0.3% increase in average premiums and a
0.6% increase in core policies.
Written gross profit minus marketing expenses
was £53.1m (2021: £54.2m), and on a per policy
basis this was £76.2/policy (2021: £78.2/policy).
The decrease is due to £1.6m of television
advertising spend compared with zero in the
prior year.
Other Broking
The Other Insurance Broking business primarily
comprises PMI and travel insurance.
Gross written premiums increased 6.6% as a
result of higher sales of travel insurance, with
policies in force increasing from 50k in the prior
year to 77k as a result of increased customer
confidence in the travel outlook and fewer
restrictions on travel than in the prior year.
Gross profits after marketing costs relating to
travel insurance products increased by £1.0m.
Sales for the PMI product were stable; however,
gross profit after marketing costs was £6.0m
lower. This reduction is a result of pricing
changes that have reduced renewal margins,
alongside a lower profit share which is in line
with expectations as claims have risen post
COVID-19 lockdowns.
Profitability of the Group’s claims management
and credit hire businesses were adversely
impacted during the prior year due to lower
claims volumes as a result of reduced repair
activity during the COVID-19 lockdown, as well
as the exit from a claims handling contract for
athird party. This has again continued into this
year due to a further COVID-19 lockdown, but
was more than offset by better-than-expected
recovery against previously written down credit
hire debt.
Underwriting
£m
12m to Jan 2022
Change
12m to Jan 2021
Reported
Quota
share
Underlying
9
Reported
Quota
share
Underlying
9
Net earned premium
51.5
(110.0) 161.5
(11.9%)
54.7 (128.7)
183.4
Other revenue
33.2
28.8
4.4
540.0%
19.7 20.7
(1.0)
Revenue
a
84.7
(81.2)
165.9
(9.0%)
74.4
(108.0)
182.4
Claims costs
b
(44.3)
87.7
(42.2)(132.0)
4.6%
96.1
(138.3)
Reserve releases
c
18.3
(23.8)
42.1
12.0%
30.6
(7.0) 37.6
Other cost of sales d
(3.9)
12.7
(16.6)
6.7%
(4.9)
12.9
(17.8)
e
(29.9)
76.6
(106.5)
10.1%
(16.5) 102.0 (118.5)
Gross profit
54.8
(4.6)
59.4
(7.0%)
57.9
(6.0)
63.9
Operating expenses
f
(4.2)
6.9
(11.1)
(4.7%)
(2.9)
7.7
(10.6)
Investment return
3.5
(4.3)
7.8
(4.6)(6.0%)
3.7
8.3
Quota share net cost –
2.0
(2.0)
31.0%
–2.9 (2.9)
Underlying Profit Before Tax
10
54.1
–
54.1(7.8%)
58.7
–
58.7Reported loss ratio
(b+c)/a
30.7%
54.2%
(1.0ppt)
15.6%
55.2%
Expense ratio
(d+f)/a
9.6%
16.7%
1.1ppt
10.5%
15.6%
Reported COR
(e+f)/a
40.3%
70.9%
0.1ppt
26.1%
70.8%Current year COR
(e+f-c)/a
61.9%
96.3%
4.9ppt
67.2%
91.4%
Number of earned policies 711k
(6.9%)
764k
Policies in force – Saga motor
629k
3.5%
608k
9 Underlying within Insurance Underwriting shows the commercial position of the business by removing the impact of the proportional line-item accounting of
the quota share reinsurance arrangements
10 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
41
Group Chief Financial Officer’s Review
continued
The Group’s in-house underwriter, AICL,
continues to play an important role on the
motor panel, providing a significant source of
competitively priced underwriting. AICL also
underwrites a portion of the home panel,
although all home underwriting risk is passed
tothird-party insurance and reinsurance
providers. AICL also has excess of loss and
funds-withheld quota share reinsurance
arrangements in place relating to its motor
underwriting line of business, which transfer
asignificant proportion of motor insurance risk
to third-party reinsurers.
Excluding the impact of the quota share
reinsurance arrangements
11
, net earned
premiums decreased by 11.9% to £161.5m (2021:
£183.4m) reflecting a 6.9% reduction in the
number of earned policies underwritten by AICL
coupled with a 5.4% decrease in average earned
premiums. The reduction in the number of
earned policies was mainly due to lower volumes
on non-Saga panels.
Also excluding the impact of the quota share
arrangement
11
, AICL saw an increase in the
current year underlying combined operating
ratio (COR) to 96.3% (2021: 91.4%). The prior
year benefited from significantly reduced motor
claims frequencies due to customers driving
fewer miles during COVID-19 lockdowns. While
this was also a factor in the first three months of
2021/22, motor claims experience for the latter
nine months of the 2021/22 year was broadly in
line with pricing assumptions.
Prior year reserve releases of £42.1m (2021:
£37.6m) have resulted in an underlying reported
COR of 70.9% (2021: 70.8%). The Group retains
an economic interest in motor reserve
development with reserve releases on other
lines typically having limited net impact on AICL
profit. Reserve releases for the past two years
can be analysed as follows:
£m
12m to Jan 2022
Change
12m to Jan 2021
Reported
Quota share
Underlying11
Reported
Quota share
Underlying11
Motor insurance
16.0
(26.5)
42.5
28.1
(8.6)
36.7
Home insurance
–
0.1
–(0.1)
(0.4)
(0.4)
Other insurance
2.3
2.6
1.3(0.3)
1.62.9
18.3
(23.8)
42.1
12.0%
30.6
(7.0) 37.6
Reserve releases reflect continued favourable
experience on large bodily injury claims relating
to prior accident years. In addition, part of the
additional component of reserve margin for the
increased uncertainty over claims development
held in respect of the 2020/21 accident year has
been released in the current year.
While the Group remains prudently reserved
and expects to see ongoing reserve releases in
2022/23, these are expected to be at a lower
level than in 2021/22. Beyond 2022/23, the
Group is targeting a reported combined ratio,
before the quota share reinsurance
arrangements
11
, of around 97%, in line with
previous expectations.
Excluding the impact of the quota share
arrangement
11
, the investment return decreased
by £0.5m to £7.8m (2021: £8.3m) due to a
reduced investment portfolio and lower
reinvestment yields.
11 Underlying within Insurance Underwriting shows the true commercial position of the business by removing the impact of the proportional line-item accounting
of the quota share reinsurance arrangements
12 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Underwriting
Underlying Profit
Before Tax
12
£54.1m
2021 – £58.7m
Current year COR
96.3%
2021 – 91.4%
Prior year reserve
releases
£42.1m
2021 – £37.6m
Saga plc Annual Report and Accounts 2022
42
£m
12m to Jan 2022
Change
12m to Jan 2021
Tour
Operations
Cruise
Total
Travel
Tour
Operations
Cruise
Total
Travel
Revenue
12.2
82.5
94.7
83.5%
32.7
18.9
51.6
Gross loss
(0.5)
(7.7)
(8.2)
50.3%
(2.6)
(13.9)
(16.5)
Marketing expenses
(8.7)
(12.1)
(20.8)(39.6%)
(7.8) ( 7.1)
(14.9)
Other operating expenses
(21.7)
(9.2)
(30.9)
8.3%
(26.4)
(7.3)
(33.7)
Investment return
–
0.1 0.1
(50.0%)
–0.2 0.2
Finance costs
(0.7)
(18.8)
(0.1)(19.5)
(43.4%)
(13.5)
(13.6)
Underlying Loss Before Tax
13
(31.6)
(47.7)
(79.3)
(1.0%)
(36.9)
(41.6)
(78.5)
Average revenue per passenger (£)
1,356
3,750
3,055
2,71612.5%
2,515
3,150
Tour Operations passengers (’000)
9 9
(30.8%)
13 13
Cruise passengers (’000)
22 22
266.7%
6 6
Cruise passenger days (’000)
274 274
349.2%
61 61
Load factor
68% 68%
(15.0ppt)
83% 83%
Per diem (£)
299 299
24.1%
241 241
The Group’s Travel businesses were suspended
in mid-March 2020 following government
restrictions introduced as a result of the
COVID-19 pandemic. The Cruise business
resumed on 27 June 2021 with the first sailing
ofSpirit of Discovery, and Spirit of Adventure’s
inaugural cruise on 26 July 2021. The Cruise
business operated Spirit of Discovery in UK
waters through July with a government-
enforced load factor restriction of 50%. This
was removed from the end of July. In the second
half, the Cruise business operated without
interruption but in a continually changing
environment that resulted in late itinerary
changes for our customers and load factor
restrictions at various ports in Europe. The Tour
Operations business commenced a small
number of UK-based holidays in June 2021 and
international holidays, tours and river cruises,
focused within Europe, commenced in
September 2021, albeit with very low volumes
due to ongoing COVID-19 travel restrictions.
Marketing expenses have increased by £5.9m to
£20.8m (2021: £14.9m) to support the restart
of operations and a return to a normalised
trading in 2022/23, especially in Cruise. Other
operating expenses have decreased by £2.8m
as a result of actions taken after the decision to
suspend operations in the prior year to downsize
the overhead cost base whilst operations were
paused. The overheads cost base has begun to
scale up to support the return to service, but
not to the same levels as before.
A significant number of changes have been made
to how the Travel businesses operate to provide
peace of mind and ensure the safety of
customers and colleagues, including the
requirement that all guests must be fully
vaccinated against COVID-19, which means two
doses plus a booster from 1 February 2022,
atleast 14 days before departure.
The Tour Operations business (comprising
SagaHolidays and Titan Travel) continues to
besignificantly impacted by COVID-19, with
passenger volumes well below pre-2019 levels.
We are responding to these challenges by
combining the operations of Saga Holidays and
Titan to position ourselves for growth and
create a lower-cost, more agile and dynamic
operation which is focused on the changing
needs of our customers.
This will maximise efficiency in touring, where
the product offerings are highly complementary,
and we will create a new hotel stay proposition
to be launched later in 2022. Management of
our river cruise operation is being transferred
to our Cruise team, who have a demonstrable
track record of operating cruise ships
successfully, both in terms of customer service
and commercial outcomes.
These actions place us in a strong position as
travel restrictions ease and customer demand
builds during 2022.
Travel
Travel Underlying
Loss Before Tax
13
(£79.3m)
2021 – (£78.5m)
Average revenue
perpassenger
£3,055
2021 – £2,716
13 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
43
Group Chief Financial Officer’s Review
continued
Forward Travel sales
Cruise bookings for 2022/23 are higher than
the same point two years ago by 46% and 9ppt
for revenue and load factor respectively due to
high levels of pent-up demand for cruises and
completion of the cruise transformation
programme, with per diems also 15% higher
than at the same point two years ago.
Tour Operations bookings for 2022/23 are
below the same point two years ago by 30% and
35% for revenue and passengers respectively.
This is due to continued customer caution in
relation to overseas travel.
The Group’s Other Businesses include Saga
Personal Finance, the Saga Publishing business
and MetroMail, a mailing and printing business.
Underlying Profit Before Tax
14
for Other
Businesses combined is broadly in line with
theprior year, with the prior year benefiting
from one month’s worth of trading from the
Healthcare business that was divested in
March2020.
Central operating expenses increased to
£32.9m (2021: £26.3m). Administration costs,
adjusted for transfers to local business units,
were flat on the prior year, but net costs
increased by £6.6m due to lower Group
recharges to the Travel division and a £3.2m
increase in central marketing costs.
This latter increase was due to the Group’s
rebranding exercise as well as production and
other setup costs relating to the television
advertising campaign launched in October 2021.
Net finance costs in the year were £18.6m
(2021: £16.6m), which excludes finance costs
that are included within the Travel division of
£19.5m (2021: £13.6m). The increase was largely
due to higher bond interest costs following the
completion of the new bond issue in July 2021.
This was partially offset by a reduction in bank
debt interest costs following the repayment of
all drawn bank facilities in July 2021.
£m
Current-year departures
20 March
2022
Change
22 March
2020
Cruise revenue (£m)
160.5
45.6%
110.2
Load factor
73%
9ppts
64%
Per diems (£)
319
14.7%
278
Saga Holidays and Titan combined revenue (£m)
131.9
(29.9%)
188.1
Saga Holidays and Titan combined passengers (’000)
53.8
(35.3%)
83.1
Other Business and
Central Costs
Underlying Loss
Before Tax
14
(£47.9m)
2021 – (£39.0m)
14 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Other Businesses and Central Costs
£m
12m to Jan 2022
Change
12m to Jan 2021
Other
Businesses
Central
Costs
Total
Other
Businesses
Central
Costs
Total
Revenue:
Personal Finance
5.9
–
5.9(1.7%)
6.0
–
6.0Healthcare
– – –
(100.0%)
0.9
–0.9
Media and printing
9.9
–9.9
–8.8%
9.1
9.1
Other
–
1.5 1.5
–(25.0%)
2.0 2.0
Total revenue
15.8
1.5
17.3
(3.9%)
16.0 2.0 18.0
Gross profit
5.7
3.4
9.1
(2.2%)
5.6
3.7
9.3
Operating expenses
(3.9)
(32.9)
(36.8)
(26.5%)
(2.8)(26.3)
(29.1)
IAS 19R pension charge –
(1.6) (1.6)
–38.5%
(2.6) (2.6)
Net finance costs
–
(18.6) (18.6)
–(12.0%)
(16.6) (16.6)
Underlying Profit/(Loss) Before Tax
14
1.8
(49.7)
(47.9)
(22.8%)
2.8
(41.8)
(39.0)
Saga plc Annual Report and Accounts 2022
44
Cash flow and liquidity
Available Operating Cash Flow
15
Available Operating Cash Flow
15
is made up of
the cash flows of unrestricted businesses and
the dividends paid by restricted companies, less
any cash injections to those businesses.
Unrestricted businesses include Retail Broking
(excluding specific ring-fenced funds to satisfy
FCA regulatory requirements), Other
Businesses and Central Costs, and the Group’s
Cruise business. Restricted businesses include
AICL and Tour Operations.
Excluding cash transfers to and from the Travel
business, Group cash flows demonstrated
considerable resilience in the year, with an
Available Operating Cash Flow
15
of £89.4m
compared with £92.3m in the prior year. Trading
EBITDA
15
for unrestricted businesses reduced
by £19.9m, partly due to reduced renewal
margins in PMI within the Retail Broking
segment and increased television advertising
spend to support the brand. This was largely
offset by an increase in working capital inflows
from £7.0m to £15.2m, mainly due to the Retail
Broking segment and a £10.5m increase in
dividends paid by AICL.
Since the Group’s Travel businesses were
suspended in March 2020, the Group has
provided additional liquidity into the Travel
businesses to meet supplier and other trading
payments, and to enable repayment of customer
refunds where requested.
For Tour Operations, which now operates as a
ring-fenced fund, the Group provided £36.4m of
cash to the business to cover trading cash flows
in the current year.
This is a reduction of £27.7m when compared
with the £64.1m funded in 2020/21, which is
mainly due to the establishment of the stand-
alone ring fence in 2020 as well as high level of
supplier payments in the prior year. At 31
January 2022, the Tour Operations ring-fenced
business held cash of £32.4m, of which £23.4m
is held in trust. In the second half of the year, the
Group agreed with the Civil Aviation Authority
to hold a minimum of £5.6m of cash outside of
trust within the ring-fenced businesses.
During the year, the Cruise business reported
an operating cash inflow of £22.8m (2021: cash
outflow £24.8m), with an increase in advance
customer receipts of £28.5m (2021: reduction
of £8.1m), offset by net trading costs of £2.7m
(2021: £25.7m) and capital expenditure of
£3.0m (2021: net inflow of £9.0m). Net of
interest costs of £15.2m (2021: £8.6m), the
Cruise business reported net cash inflow of
£7.6m for 2021/22 compared to a net outflow
of£33.4m in the prior year.
The improvement compared with the prior year
is a result of the Cruise business resuming
operations in the latter part of the first half,
enabling the business to start collecting
payments on the cruises that sailed in the
second half of the year and the beginning of
2022.
As a result of the reduction in cash injections to
the Travel business in the year when compared
with the prior year, Available Operating Cash
Flow
15
increased from an inflow of £3.4m in the
prior year to £75.8m in the current year.
Available Operating
Cash Flow
15
(excludingTravel)
£89.4m
2021 – £92.3m
Available Operating
Cash Flow
15
£75.8m
2021 – £3.4m
15 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
45
Group Chief Financial Officer’s Review
continued
Other cash flow movements
Non-operating cash flow movements in the prior
year include significant cash costs relating to
the restructuring activities undertaken in the
first half of the prior year, which principally
relate to redundancy costs.
Interest and financing costs increased due to
the financing costs relating to the Spirit of
Adventure debt facility which was drawn down at
the end of September 2020, combined with an
increase in debt issue costs relating to the fees
associated with the new bond issue, the tender
of the existing bond and the amendments to
theexisting revolving credit facility (RCF), along
with the second ship debt holiday being more
expensive than the first one in the prioryear.
Business and property disposals relate to
thecash received from the sale of property
inthe current year and from the sale of the
Healthcare, Bennetts and Destinology
businesses in the prior year, net of related
salecosts and expenses.
The Group continued to make the agreed
payments to the defined benefit pension fund as
part of the deficit recovery plan of £4.2m (2021:
£4.8m), with the prior year including a portion of
the sales proceeds relating to the Healthcare
and Bennetts businesses paid into the fund.
These are included within other payments.
During the year, the Group agreed with the FCA
to hold an additional restricted cash balance of
£5.0m on a temporary basis. This was funded
from Available Cash
16
and is included within
other payments. The Group expects to be able
to release this amount from restricted cash in
the first half of 2022.
In June 2021, the Group issued a five-year
£250m fixed-rate unsecured bond. The
proceeds of the bond were used to fund the
settlement of £100m of the existing bond and
torepay in full the £70m term loan. The balance
of the proceeds, together with the Available
Cash
16
brought forward from the prior year,
andthe undrawn RCF provides the Group with
significant free liquidity to support operations
inthe event of a re-emergence of COVID-19 in
2022 or 2023.
£m
12m to
Jan 2022
Change
12m to
Jan 2021
Retail Broking Trading EBITDA
73.2
(10%)
81.6
Other Businesses and Central Costs Trading EBITDA
(21.5)
(115%)
(10.0)
Trading EBITDA from unrestricted businesses
16,17
51.7
(28%)
71.6
Dividends paid by Underwriting business
35.0
43%
24.5
Working capital and non-cash items
18
15.2
117%
7.0
Capital expenditure funded with Available Cash
16
(12.5)
(16%)
(10.8)
Available Operating Cash Flow before cash injections to Travel operations
16
89.4
(3%)
92.3
Cash injection into Tour Operations business
(36.4)
43%
(64.1)
Cruise Available Operating Cash Flow
22.8
192%
(24.8)
Available Operating Cash Flow
16
75.8
2,129%
3.4
Restructuring costs paid
(1.7)
93%
(23.0)
Interest and financing costs
(42.4)
(55%)
(27.3)
Business and property disposals
4.5
(85%)
30.1
Tax receipts
5.7
104%
2.8
Other payments
(10.7)
(5%)
(10.2)
Change in cash flow from operations
31.2
229%
(24.2)
Net proceeds from capital raise –
(100%)
138.7
Change in bond debt 150.0
100%
–Change in bank debt
(70.0)
13%
(80.0)Cash at 1 February
75.4
40.9 84%
Available Cash at 31 January
16
186.6
147%
75.4
16 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
17 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
18 Adjusted to exclude IAS 19R pension current service costs
Available Cash
at31January
16
£186.6m
2021 – £75.4m
Saga plc Annual Report and Accounts 2022
46
Reconciliation between operating and reported metrics
Available Operating Cash Flow
19
reconciles to net cash flows from operating activities as follows:
£m
12m to
Jan 2022
12m to
Jan 2021
Net cash flow from operating activities (reported)
46.5
(78.4)
Exclude cash impact of:
Trading of restricted divisions
0.8
73.8
Non-trading costs
3.6 21.6
Interest paid
34.2
24.1
Tax paid
4.6
10.7
43.2
130.2
Cash released paid to restricted divisions
(1.4)
(26.8)
Include capital expenditure funded from Available Cash
19
(12.5)
(10.8)
Include capital expenditure disposal proceeds
–
6.9
Include net impact of Spirit of Adventure purchase cash flows –
(5.2)
Less non-cash net liabilities disposed as part of business disposals –
(12.5)
Available Operating Cash Flow
19
75.8
3.4
Trading EBITDA
19
reconciles to Underlying (Loss)/Profit Before Tax
19
as follows:
£m
12m to
Jan 2022
Change
12m to
Jan 2021
Retail Broking Trading EBITDA
73.2
81.6
Underwriting Trading EBITDA
54.3
59.2
Tour Operations Trading EBITDA
(28.1)
(32.6)
Cruise Trading EBITDA
(12.7)
(19.5)
Other Businesses and Central Costs Trading EBITDA
(21.5)
(10.0)
Trading EBITDA
19
65.2
(17.2%)
78.7
Depreciation and amortisation (excluding acquired intangibles)
(32.2) (28.8)
Pension charge IAS 19R
(1.6)
(2.6)
Net finance costs (including Cruise)
(38.1) (30.2)
Underlying (Loss)/Profit Before Tax
19
(6.7)
(139.2%)
17.1
Adjusted Trading EBITDA
19
is used in the Group’s leverage calculation and is calculated as follows:
£m
12m to
Jan 2022
Change
12m to
Jan 2021
Trading EBITDA
19
65.2
(17.2%)
78.7
Less Trading EBITDA of disposed companies not disclosed below Underlying Profit
Before Tax
19
–
(1.6)
Impact of IFRS 16 ‘Leases’
(3.1)
(3.0)
Spirit of Discovery and Spirit of Adventure Trading EBITDA
20
11.5
18.7
Adjusted Trading EBITDA
19
73.6
(20.7%)
92.8
19 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
20 EBITDA includes central Cruise overheads
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
47
Group Chief Financial Officer’s Review
continued
Goodwill
At 31 January 2022, the carrying value of
theGroup’s goodwill asset totalled £718.6m
(31January 2021: £718.6m) and is wholly
attributable to the Insurance business.
TheGroup performed its annual impairment
review of the goodwill asset and the results
demonstrated sufficient headroom against
thecarrying value of the asset in both
management’s base case and reasonable
worst-case (RWC) scenarios, and so has
concluded that no impairment is required.
During the prior year, the Group wrote down the
£59.8m goodwill asset attributable to its Travel
businesses, the impairment review for which was
affected adversely by the uncertain outlook for
the Travel business at that point in time due to
impact of COVID-19.
Carrying value of ocean cruise ships
At 31 January 2022, the carrying value of the
Group’s ocean cruise ships totalled £621.3m
(31January 2021: £635.0m). Due to the
continued impact of the COVID-19 pandemic
onthe Travel business and the continued
uncertainty in the outlook for the Travel
industry, the Group carried out an impairment
review of both of its vessels. The results of the
review showed that there was headroom in both
the central and stress test scenarios for both
Spirit of Discovery and Spirit of Adventure, with
no impairment required. Please refer to Note
2.6 on page 142 for further details of the review
that was undertaken.
Investment portfolio
The majority of the Group’s financial assets are
held by its underwriting entity and represent
premium income received and invested to settle
claims and to meet regulatory capital
requirements.
The amount held in invested funds decreased by
£28.9m to £330.2m (31 January 2021: £359.1m)
due to payment of £35.0m of dividends from
AICL in the year. At 31 January 2022, 98% of the
financial assets held by the Group were invested
with counterparties with a risk rating of BBB or
above, which is in line with the prior year and
reflects the relatively stable credit risk rating
ofthe Group’s investment holdings.
Balance sheet
£m
Credit risk rating
At 31 January 2022
AAA AA
A
BBB
Unrated
Total
Underwriting investment portfolio:
Deposits with financial institutions
– – –
14.0
–14.0
Debt securities
20.2
94.4
280.868.0
98.2
–
Money market funds
29.2
– – – –
29.2Loan funds
– – – –
6.2 6.2
Total invested funds
49.4
94.4
82.0
98.2
6.2
330.2
Hedging derivative assets
– –
1.8
–0.1
1.9
Total financial assets
49.4
94.4
83.8
98.3
6.2
332.1
£m
Credit risk rating
At 31 January 2021
AAA AA
A
BBB
Unrated
Total
Underwriting investment portfolio:
Deposits with financial institutions
– – –
24.2
–24.2
Debt securities
23.1
73.9 71.5 93.4 – 261.9
Money market funds
66.8
– – – –
66.8 Loan funds
– – – – 6.2 6.2
Total invested funds 89.9 93.4 6.2
98.1
71.5 359.1
Hedging derivative assets
– – 0.2 0.5 –
0.7
Total financial assets
89.9 6.2 359.8
98.1
93.9 71.7
Saga plc Annual Report and Accounts 2022
48
The Group’s total insurance contract liabilities, net
of reinsurance assets, have decreased by £33.4m
in the year to 31 January 2022 from the previous
year end, primarily due to a £15.3m reduction in
reported net claims reserves, coupled with a
£14.9m decrease in net incurred but not reported
claims reserves. The reduction in net incurred but
not reported claims reserves is due to reserve
releases that reflect continued favourable
experience on large bodily injury claims relating
toprior accident years. In addition, part of the
additional component of reserve margin held in
respect of the 2020/21 accident year has been
released in the current year.
Financing
At 31 January 2022, the Group’s net debt was
£729.0m, which is £31.2m lower than at the
beginning of the financial year.
The Group issued a new five-year £250m 5.5%
fixed-rate unsecured bond in July 2021. The
proceeds of the bond were used to fund the
settlement of £100m of the existing outstanding
unsecured 3.375% bond and to repay in full the
£70m term loan. After transaction costs, these
actions increased the Group’s Available Cash
23
by
£76m. As at 31 January 2022, the £100m RCF
remained undrawn and available to the Group, and
the maturity of the facility has been extended to
May 2025. The terms also include a requirement
to repay the RCF on 1 March 2024 if the remaining
£150m of the 3.375% bond notes have not been
redeemed prior to this date.
Excluding the impact of debt and earnings
relating to the ocean cruise ships, the Group’s
leverage ratio was 3.0x as at 31 January 2022
(31 January 2021: 2.7x), well within the 4.25x
covenant applicable to the Group’s RCF.
No repayments were made on the ship loans
during the year, with the Group agreeing a
second debt holiday with its lenders in March
2021, as part of a package of proposals to
support the wider cruise industry. The second
debt holiday allowed for payments due in the
year to 31 March 2022 to be deferred for a
period of up to five years from the original
repayment date. The Group intends to resume
ship loan debt repayments after March 2022,
with the first payment due in June 2022.
Insurance reserves
Analysis of insurance contract liabilities at 31 January 2022 and 31 January 2021 is as follows:
At 31 January 2022
At 31 January 2021
£m
Gross
Reinsurance
assets
21
Net
Gross
Reinsurance
assets
21
Net
Reported claims
211.3
(55.8)
155.5228.6
(57.8)
170.8
Incurred but not reported
22
73.6
(3.3)
70.3
92.6
( 7.4)
85.2 Claims handling provision
7.9
–
7.98.3 – 8.3
Total claims outstanding
292.8
(59.1)
233.7
329.5
(65.2)
264.3 Unearned premiums
93.9
(6.3)
87.6
96.8
(6.4)
90.4
Total
386.7
(65.4)
321.3
426.3
(71.6)
354.7
21 Excludes funds-withheld quota share arrangement (please refer to Note 28 for further detail)
22 Includes amounts for reported claims that are expected to become periodical payment orders
23 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
24 Maturity date represents the date that the principal must be repaid, other than the ship loans, which are repaid in instalments over the next 12 years
25 The terms also include a requirement to repay the RCF on 1 March 2024 if the remaining £150m of the 3.375% bond notes have not been redeemed prior to this date
26 Refer to Note 25 of the financial statements for information as to how this reconciles to a statutory measure of cash
Net debt
£729.0m
2021 – £760.2m
Leverage ratio
3.0x
2021 – 2.7x
£m
Maturity
date
24
31 January
2022
31 January
2021
5.5% Corporate bond
July 2026
250.0
–
3.375% Corporate bond
May 2024
150.0
250.0
Term loan
n/a
–
70.0
Revolving credit facility
May 2025
25
Spirit of Discovery ship loan June 2031 234.8 234.8
Spirit of Adventure ship loan
September 2032
280.8 280.8
Less Available Cash
23,26
(186.6)
(75.4)
Net debt
729.0
760.2
Adjusted Net Debt
23
is used in the Group’s leverage calculation and reconciles to net debt as follows:
£m
31 January
2022
31 January
2021
Net debt
729.0
760.2
Exclude ship loans
(515.6) (515.6)
Exclude Cruise Available Cash
4.7
2.3
Adjusted Net Debt
23
218.1
246.9
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
49
27 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Group Chief Financial Officer’s Review
continued
Pensions
The Group’s defined benefit pension scheme deficit, as measured on an IAS 19R basis improved by £5.4m to a £1.1m surplus at
31 January 2022 (£4.3m deficit as at 31 January 2021).
£m
31 January
2022
31 January
2021
Fair value of scheme assets
412.0 411.2
Present value of defined benefit obligation
(410.9) (415.5)
Defined benefit scheme surplus/(deficit)
1.1
(4.3)
The present value of defined benefit obligations
decreased by £4.6m to £410.9m, primarily due
to a 70bps increase in the discount rate based
on high-quality bond yields, that was partially
offset by a 100bps increase in RPI inflation, the
fair value of scheme assets increased by £0.8m
to £412.0m. The increase in asset values has
been largely driven by employer contributions
of£8.2m into the scheme including a £4.2m
deficit funding contribution in February 2021,
partially offset by a decrease in asset values,
largely driven by the increase in interest rates
inthe year.
During the year, the pension Trustees and the
Group concluded the triennial valuation of the
scheme at 31 January 2020. The Company and
Trustees agreed to a new deficit recovery plan
totalling £39.0m over the next seven years, with
the first payment of £4.2m paid in February
2021 and subsequent payments of £5.8m due
each February thereafter until February 2027.
In July 2021, following the completion of a review
of the Group’s pension arrangements, a
consultation process with active members was
launched. With effect from 31 October 2021,
theGroup closed both its existing schemes to
future accrual, the Saga Pension Scheme (its
defined benefit plan) and the Saga Workplace
Pension Plan (its defined contribution plan).
Intheir place, the Group introduced a new
defined contribution pension scheme
arrangement that is operated as a Master Trust.
This move will reduce the risk of further deficits
developing inthe future on the defined benefit
scheme, while moving to a new scheme for all
colleagues. Upon closure of the scheme in
October 2021, aone-off charge of £2.5m was
made to the income statement that crystallised
from the rebasing of liability valuation
assumptions from active to deferred members.
Net assets
Since 31 January 2021, total assets have
increased by £89.7m, which was offset by an
increase in total liabilities of £117.5m, resulting
inan overall decrease in net assets of £27.8m.
The increase in total assets is primarily due to
an increase in cash and short-term deposits as
the financing transaction completed in the first
half of the year resulted in an increase in
Available Cash
27
of £76m and an increase of
right-of-use assets of £33.2m following delivery
of the Spirit of the Rhine river cruise ship.
The increase in total liabilities reflects a
£109.6m increase in financial liabilities, which
was due to an increase in gross debt from the
receipt of the £250m new bond proceeds offset
by repayment of £100m of the existing bond and
the full £70m of the outstanding term loan,
along with a £30.9m increase in lease liabilities
following the delivery of the Spirit of the Rhine
river cruise ship. There was also an increase in
contract liabilities of £32.4m and trade and
other payables of £24.6m following the restart
of Travel operations in the year, offset by a
£39.6m reduction in insurance contract
liabilities driven by favourable claims frequency.
Impact of COVID-19 and going concern
The impact of COVID-19 over the past two years
has increased the level of uncertainty and
earnings volatility for the Group, as it has done
for many businesses, and particularly for the
Group’s Travel business. Since the start of the
pandemic in the first half of 2020, the Group
has increased the frequency and depth of its
long-term financial forecasting and scenario
modelling to allow the Directors to take
appropriate action to ensure the ongoing
liquidity and solvency of the business.
Over this period, the Group has undertaken
aseries of transactions to restructure its
operations and capital structure. The Group’s
balance sheet has been strengthened to allow
itto withstand a further period of uncertainty
that may be faced in 2022 and beyond. The most
notable of these transactions was the raising
of£139m of net proceeds from the issuance of
new equity shares in September 2020, followed
by the issuance of a new £250m unsecured
fixed-rate five-year bond in July 2021. These
actions allowed the Group to fully repay its
senior secured bank debt facilities, bolster
Available Cash
27
reserves, which were £187m
at31 January 2022, increase financial flexibility
and extend the maturity profile of Group debt.
On its ship debt facilities, the Group deferred
anumber of capital repayments and there is a
covenant testing holiday on these facilities until
31 July 2022.
Saga plc Annual Report and Accounts 2022
50
The Group successfully recommenced
operations in its Travel business during 2021,
with UK-only cruises and holidays operating
from July 2021, and a return to international
cruises from the end of August 2021 and
international tours from September 2021.
TheTravel business has continued to operate
since, despite the increased disruption from
theemergence of the Omicron variant in
November 2021.
The Group announced at the end of January
2022 its plans to restructure the operations
ofits Travel business. The Saga Holidays and
Titan Travel operations are being combined
tomaximise efficiency in touring, where the
product offerings are highly complementary,
and to create a new hotel stay proposition to
belaunched later in 2022. The river cruise
product is now being managed by the Cruise
management team, who have a demonstrable
track record of operating the ocean cruise
product successfully in a COVID-safe
environment. These actions place the Travel
business in a strong position as travel
restrictions ease and customer demand
continues to recover.
As in the prior year, the Insurance business’
ability to trade continues to be largely
unaffected by COVID-19, with resilient earnings
in the Retail Broking business and some positive
impacts on motor claims frequency during the
first half of 2021 when the UK population was
inlockdown. The Insurance business has also
successfully implemented changes to pricing
inline with the requirement of the regulations
imposed by the FCA following its market study
into insurance pricing, which came into force
on1 January 2022.
In the latest round of long-term financial
forecasting, the Group updated its modelling
assumptions to reflect on:
•
In the base case, which represents the
Group’s central plan and best estimate
outlook, Cruise continues to see some impact
of COVID-19 in the first half of 2022/23,
withreduced load factors and higher return
toservice costs, but then largely returns to
normal operation thereafter. The Tour
Operations business is targeting to break
even in 2022/23 and then return to pre-
pandemic contribution levels from 2023/24,
with a lower overhead cost base following
completion of the recently announced
restructuring plans. Insurance plans include
an estimate of the impact of the FCA market
study on customer pricing, which is expected
to have an adverse impact on profit before tax
for 2022/23 and 2023/24.
•
In the RWC, which represents the Group’s
severe, but plausible, downside scenario, Cruise
assumes a layup of both ships for a further
two-month period during 2022/23 due to
further potential travel restrictions, and with
suppressed load factors for the remainder of
2022/23 and 2023/24, capped at 75% and 80%
for each year respectively. Tour Operations also
sees a much slower recovery from 2023/24
onwards than in the base case. Insurance is
assumed to be impacted by a number of
downside risks, including a more conservative
outlook for the impact of the FCA market study
compared to base case assumptions.
The Group has made an initial assessment of
thepotential impact that the Russia-Ukraine
conflict could have on its outlook, and potential
downsides are considered to be limited to
short-term reductions to Travel bookings and
inflationary pressures that are sufficiently
covered by the assumptions within the base
case and RWC.
The Group has concluded discussions with its
Cruise lenders to amend the covenants on the
two ship debt facilities as set out in the table
below. This is to ensure we have significant
headroom against all scenarios modelled.
Aspart of the modelling, the Group considered
its compliance with the maintenance covenants
attached to its banking facilities, which are
summarised in the following table at each
oftherequired testing dates:
Ship debt facilities
RCF
EBITDA
to debt
repayment
(minimum)
EBITDA
to cash
interest
(minimum)
Net debt
to EBITDA
(leverage)
(maximum)
EBITDA
to cash
interest
(interest
cover)
(minimum)
Cruise
intercompany
debt cap
(maximum)
31 July 2022
1.0x
1.7x 3.75x
2.0x£115m
31 January 2023
1.0x 2.0x
3.75x
2.5x
£115m
31 July 2023
1.0x 2.0x 3.00x
3.5x
£115m
31 January 2024
1.0x 2.0x 3.00x
3.5x
£115m
31 July 2024 onwards
1.2x
2.0x 3.00x
3.5x
£115m
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
51
Dividends
Given the Group’s priority of reducing net debt,
the Board of Directors does not recommend
payment of a final dividend for the 2021/22
financial year, nor would this currently be
permissible during the period of the ship debt
repayment holiday.
Financial priorities for 2022/23
The Group’s financial priorities for the current
financial year are to reduce net debt, build on
the already positive load factor and per diems in
Cruise, complete the restructure of the Tour
Operations business, and to continue progress
in execution of its Insurance strategy. Given the
continued uncertainty arising from COVID-19,
the Group is not providing any earnings
guidance for the 2022/23 financial year but
would expect a return to profit in both the base
case and RWC scenarios.
James Quin
Group Chief Financial Officer
22 March 2022
Dividends and financial
priorities for 2022/23
Group Chief Financial Officer’s Review
continued
28 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Under the terms of the ship debt facilities,
dividends remain restricted until the ship
debtprincipal repayments that were deferred
as part of the ship debt repayment holiday
arefully repaid.
Under the terms of the RCF, dividends also
remain restricted if leverage (excluding
theCruise debt) is above 3.0x and the Group
remains subject to a minimum liquidity
requirement of £40m, which can be met either
through cash or undrawn and committed
facilities (such as the RCF itself). The terms also
include a requirement to repay the RCF on
1March 2024 if the remaining £150m of bond
notes that are due to mature in May 2024 have
not been redeemed prior to this date. The RCF
is expected to remain undrawn in both scenarios
for the foreseeable future, and it can be
cancelled with immediate effect at any point,
which would remove all covenants attached to it.
The new unsecured bond that is due to mature in
July 2026 includes an event-based fixed charge
covenant ratio, of 2.0x EBITDA, which must be
satisfied if, and when, the Group intends to issue
new debt. The Group has no plans to issue any new
debt. The definition of this covenant is comparable
to the interest cover covenant within the RCF.
In both the scenarios modelled, the Group expects
to be able to operate within its debt covenants and
to maintain ample Available Cash
28
reserves until
at least September 2023, being 18 months from
the date of signing the financial statements, which
more than accommodates the minimum 12-month
assessment period for going concern. The
Directors therefore have a reasonable
expectation that the Group will continue to trade
through the continued COVID-19 disruption and
will have sufficient liquidity for at least the next 12
months, and accordingly have prepared the
financial statements on a going concern basis.
Saga plc Annual Report and Accounts 2022
52
Principal risks and uncertainties (PRUs)
The PRUs shown below are the principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity.
The table also includes the mitigating actions being taken to manage these risks. The risk exposure outlook denotes the anticipated
future direction of each risk after mitigation, which is influenced by known key external or internal factors. Saga takes a ‘bottom-up’
and ‘top-down’ approach todeveloping and reviewing its PRUs, which occurs at least twice a year with oversight from the Executive
Leadership Team (ELT) and the Board. Each PRU has been aligned to the most relevant strategic priorities.
Risk
Mitigation
Risk
exposure
outlook
Link to
growth plan
Macroeconomic uncertainty
Heightened economic uncertainty arising
from the Russian invasion of Ukraine
leading to higher-than-expected inflation,
delays in the supply chain, increased risk
or decrease in demand for Saga’s
travelproducts.
Ongoing monitoring of the risks with agility to
adapt quickly to changes in market conditions;
strong cash position.
Worsening
(externally
driven)
Group-wide
COVID-19 pandemic
Continuation of COVID-19, or emergence
of variants thereof, threatens the financial
resilience of the Group or viability of the
Travel business.
Completion of capital restructuring and
continuation of remote working capability that is
now integrated into our hybrid working model.
Improving
Group-wide
Cybercrime
Cyber security breach resulting in system
lockdown, ransom demands and/or
compromise of confidential and/or
personal data.
Continued investment in industry-leading tools and
technologies to mitigate cyber attacks, industry
benchmarking andexternal penetration tests.
Continued programme of colleague awareness
toidentify and prevent cyber threats and
decommissioning of legacy systems, reducing
ourfootprint of potential system targets.
Worsening
(externally
driven)
Group-wide
Delivery and execution
Key business change initiatives fail tobe
delivered effectively, or at all, due to one,
or a combination of, thefollowing:
•
Resource capability or capacity.
•
Unexpected business as usual risk issues.
•
New regulation.
•
Material defects in the delivery.
Robust project governance covering how
significant changes are prioritised and delivered,
with close oversight from the ELT and Board with
2
nd
and 3
rd
line assurance conducted forthe
change initiatives carrying the greatest risk.
Improving
Group-wide
Capability
Our strategy and purpose have created
anew demand for capability to deliver
thefive-year plan, which requires new
investment, leadership commitment and
learning culture. There is a risk that this
step-change is not achieved.
Increased focus on talent management,
recruitment and succession planning. Reset
learning programme and embedding a new
reward framework that drives colleague
performance and aligns to delivering fair
customer outcomes.
Worsening
(externally
driven)
Group-wide
Saga brand and relevance
The Saga brand and its products do not
appeal sufficiently to our target customer
group resulting in loss of appeal and
market share.
Following the brand relaunch in 2021, we
acquired The Big Window Consulting Limited,
anagency that specialises in understanding our
target consumer demographic. This allows us
toprioritise products and services that most
appeal to our customers, with specific focus
onidentification and resolution of pain points
throughout the customer journey.
Improving
Group-wide
Key for link to strategy
Maximise our existing businesses
Step-change our ability to scale while
reducing debt
Create ‘The Superbrand’ for older people
Threat to business model
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
53
Risk
Mitigation
Risk
exposure
outlook
Link to
growth plan
Regulatory landscape
Risk of customer harm because of our
actions/in-action or failure to implement
regulatory change correctly.
Successful delivery of Financial Conduct
Authority (FCA) changes. Continued focus on
effective risk management aligned to our values
and strategy alongside 1
st
line control testing
within trading entities. Horizon scanning reports
produced to identify upcoming regulatory
changes and necessary action.
Stable
Group-wide
Operational resilience
Failure in critical services or operations
and inability to recover within defined
parameters, made more complex by
remote working arrangements.
Enhancements to technology and infrastructure,
including replacement of legacy platform through
which colleagues access our systems. Delivery of
an Operational Resilience programme to meet
FCA requirements. Change governance ensures
system changes are delivered within risk appetite.
Stable
Group-wide
Environmental, Social and Governance (ESG)
Failure to keep pace with increasing
regulation around carbon emissions,
coupled with industry and societal
pressure causes reputational or
financialdamage.
New cruise ships built in line with latest
regulations and can operate to near-zero sulphur
oxide and nitrogen oxide exhaust emissions.
OurESG strategy will be fully developed and
integrated into our risk framework during 2022.
Stable
Group-wide
Third-party suppliers
Reputational impact, business
interruption and financial losses arising
from the failure of key third parties to
deliver to required standards.
Third-party risk management ensures an
appropriate risk-based approach for selecting
third-party partners, for overseeing their
performance and for their operational and
financial resilience.
Stable
Group-wide
Fraud and financial crime
Increased risk of internal or external
fraud and financial crime driven by
remote working and macroeconomic
conditions.
2
nd
and 3
rd
line assurance reviews conducted
withno significant issues identified. Ongoing
monitoring of claims fraud in place, reinforced by
colleague awareness communications. Operation
of effective internal controls subject to regular
testing and oversight.
Saga’s Speak Up process enhanced, with regular
data monitoring in place.
Stable
Insurance
and Personal
Finance
Insurance risk
Exposure to reserving, premium and large
or catastrophic claims risk through our
underwriter, Acromas Insurance
Company Limited. This may lead to
insufficient claims reserves, higher losses
than anticipated due to large or
catastrophic loss events or premiums
being insufficient to cover claims and
other costs arising.
The use of coinsurance and reinsurance across
underwritten business. Ensuring claims reserves
are set with sufficient margin to cover
uncertainty. Investment in advanced analytics
across pricing and claims.
Improving
Insurance
Breach of Data Protection Act 2018/UK General Data Protection Regulation
Failure to understand data privacy
regulation and take reasonable steps to
ensure personal data can be managed in
line with customer expectations.
Prioritisation of projects to improve effective
data management, coupled with simplification of
our technology estate and strengthening of our
Data Privacy Team and capabilities.
Stable
Group-wide
Principal risks and uncertainties (PRUs)
continued
Saga plc Annual Report and Accounts 2022
54
Viability Statement
The Directors have considered the viability
ofthe Group over the five-year period to
January 2027. The COVID-19 pandemic and the
war between Russia and Ukraine continues to
create uncertainty in the outlook for many
businesses, and in particular, within the travel
sector. The Directors and Executive Leadership
Team remain focused on protecting the Group
and have taken actions to strengthen the
Group’s financial position to help it mitigate the
continued uncertainty. The going concern
disclosure on pages 50-52 provides detail on
the actions that the Directors have taken over
the past year and the key assumptions that
underpin the Group’s scenario modelling.
On the assumption that the travel industry
continues to recover during 2022, the
Directors have a reasonable expectation that
the Group will be able to continue in
operation and meet its liabilities as they fall
due over the next five years. The Directors
recognise that uncertainty increases over
time and therefore future outcomes cannot
be guaranteed. The Directors have
determined the five-year period to January
2027 to be an appropriate period over which
to assess the Group’s viability, as this period:
a) is consistent with the planning horizon over
which the Directors normally consider the
future performance, capital and solvency
requirements of the business;
b) includes the maturity of both unsecured
bonds in 2024 and 2026; and
c) includes fuller consideration of a range of
potential risks, including the potential
ongoing impact of the COVID-19 pandemic.
In making this statement, the Directors have
considered the resilience of the Group,
taking account of its current position, the
principal risks facing the business in severe,
but plausible, scenarios and the effect of any
mitigating actions. The Directors have
considered each of the Group’s principal
risks and uncertainties (PRUs) detailed on
pages 53-54 and the potential impact of
these risks on the business model, future
performance, solvency and liquidity over the
period. The Directors have also taken into
account the availability of the Group’s debt
facilities, which are considered to be
sufficient to meet the Group’s needs.
The list of PRUs, derived from a robust review
of risks, was reviewed by risk owners, Finance
and the Risk function, to consider which risks
might threaten the Group’s ongoing viability.
The PRUs have been considered, and severe,
but plausible, outcomes for each have
beenidentified, with an estimate of the
potential financial impact of each quantified.
Assessments of the potential financial impact
were derived from both internal calculations
and examples of similar incidents in the
publicdomain. In assessing the viability of
theGroup, the Directors have considered
appropriate management actions that may
be taken in order to manage the solvency
ofthe Group in the event of severe, but
plausible, downside scenarios. The
assessment assumes that the Group is able
to repay the £150m bond that matures in
May 2024, but that it would need to partially
refinance the £250m bond when it matures
in July 2026.
The three largest sensitivities in terms of
financial impact were identified as the
following:
1. The continued impact of COVID-19 on the
Travel business.
2. The impact of further regulation across the
business, incorporating climate change
considerations.
3. A failure to deliver on the Insurance
strategy – Insurance has continued to
perform in line with expectations and
continues to demonstrate good progress.
Nonetheless, the business continues to
navigate a period of significant change.
In scenarios beyond those considered in
relation to going concern, such as a need to
layup both ocean cruise ships for a period
longer than four months during 2022/23,
with more severe load factor suppression,
and with longer delays to countries reopening
their borders to foreign travel, the Group
would likely need to take further mitigating
actions to ensure its continued compliance
with debt facility agreements. While such
scenarios are considered remote, such
mitigating actions would likely include further
renegotiation with the Group’s lenders to
relax debt covenants or consideration of
alternative funding options.
As set out in the Audit Committee Report on
pages 77-81, the Directors have reviewed and
discussed the rationale and conclusions of
management’s viability testing.
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
55
Key disclosure statements
Non-financial information statement
An overview of our approach to environmental, colleague, social, human rights, anti-corruption and anti-bribery matters
canbe found in the table below. Details of our business model can be found on pages 14-15, and our principal risks and
uncertainties are on pages 53-54.
Our approach and key policies
Outcomes of policies
and impacts of activities
More information
Environmental matters
Our Environmental Social and Governance (ESG) Policy
sets out our intention to minimise the impact of our
operations on the environment, comply with relevant
environmental legislation and monitor and, where
applicable, report our usage of all types of energy.
To ensure that environmental matters are given
sufficientfocus, and to allow us to set an ESG strategy
withgreat scale, ambition and impact, we set up an
ESGTask Force, which reports into the Executive
Leadership Risk Committee.
•
Total Scope 1 and 2
(location-based) 2021/22
emissions at 82,374 tCO
2
e
compared with 37,841 tCO
2
e
in 2021/22.
See pages 30-34 for more
information on environmental
matters.
Read more about environmental
matters on our corporate website
(www.corporate.saga.co.uk/
about-us/environmental-social-and-
governance/).
Colleagues
Our colleagues are core to our business and their wellbeing
is of utmost importance to us. We have a Health, Safety and
Wellbeing Policy which sets out a clear set of principles and
commitments which apply to all colleagues, contractors
and members of the public.
We aim to be an inclusive employer with increased
awareness of diversity, equity and inclusion (DE&I)
whichisset out in our Equal Opportunities Policy.
•
We aim to be ‘Champions
ofExperience in the
Workplace’.
•
43% of our colleagues
arefemale.
Colleagues are one of our key
stakeholders, as set out on pages
16-17. Our culture is described on
page 14.
Read more about our colleagues
and associated policies within the
ESG section of our corporate
website (www.corporate.saga.
co.uk/about-us/environmental-
social-and-governance/).
Social matters
Part of Saga’s purpose is to be a driver of positive change
within our communities. We seek to understand and
carefully consider the impact of every decision we make.
We ensure we have an open dialogue with the community
and they are aware of our strategy, as well as any impact
tothem.
•
£206k charitable donations
made by Saga.
•
3,283 hours volunteered
bycolleagues.
•
Our Thanet office was used
by the NHS as a COVID-19
vaccination centre.
Read more about our engagement
with the communities on page 16 of
this report and on our corporate
website (www.corporate.saga.
co.uk/about-us/environmental-
social-and-governance/).
Respect for human rights
Saga supports the rights of all people as set out in the
Universal Declaration of Human Rights. Our Labour
Standards Policy sets out our human rights principles
which are adopted across the Group alongside our
commitments to working responsibly and with integrity.
Our Modern Slavery Statement also provides further
detailon risk, due diligence, policies, training and audit
inthat area.
•
No incidents of human
rights violations or modern
slavery were identified in
2021/22.
Our Labour Standards Policy can
befound on our corporate website
(www.corporate.saga.co.uk/
media/1507/labour-standards-
policy-final.pdf) alongside our
Modern Slavery Statement (www.
corporate.saga.co.uk/modern-
slavery-statement/).
Anti-bribery and anti-corruption
Saga takes a zero-tolerance approach to bribery and
corruption. There is an Anti-Bribery and Corruption Policy
in place which lays out clear guidance for the appropriate
assessment of any risk of bribery and corruption across
allbusinesses. This is enforced by mandatory training
forallcolleagues.
•
There we no fines,
penaltiesor settlements
forcorruption reported
in2021/22.
•
94% completion of
mandatory training.
Read more about anti-bribery and
corruption on page 35.
Further information, including our
Anti-bribery and Corruption Policy
can be found on our corporate
website (www.corporate.saga.
co.uk/about-us/environmental-
social-and-governance/).
Saga plc Annual Report and Accounts 2022
56
Section 172(1) statement
Duty to promote the success of the Company
The Directors have had regard for the matters set out in Section 172(1)(a)–(f) of the Companies Act 2006 (S172(1)) when
performing their duty under Section 172. The Directors consider that they have acted in good faith in the way that would be
most likely to promote the success of the Company for the benefit of its members as a whole, while also having regard to the
S172(1) matters referred to below.
A description of how the Board engages with its key stakeholders can be found on pages 16-17 and the principal decisions
made by the Board during 2021, how stakeholders were considered and the likely consequences of these decisions over the
longer-term are set out on pages 63-64. Further information on how S172(1) has been applied by the Board can be found in the
table below.
S72(1) matter
Further information incorporated into this statement by reference
Likely consequences of any
decision in the long term
Our strategy
Pages 18-21
Environmental, Social and Governance (ESG)
Pages 33-34
G
roup Chief Financial Officer’s Review
Pages36-52
Principal risks and uncertainties (PRUs)
Pages 53-54
Chairman’s introduction to governance
Page59
Nomination Committee Report
Pages 72-73
Audit Committee Report
Pages 77-81
Risk Committee Report
Pages 82-84
Annual Statement
Pages 85-87
The interests of the
Company’s employees
Chairman’s Statement
Pages 4-5
Group Chief Executive Officer’s Statement
Pages 6-9
Purpose and business model
Pages 14-15
Our strategy
Pages 18-21
Environmental, Social and Governance
Pages25-28
Chairman’s introduction to governance
Page59
Governance in action
Page 61
The need to foster the
Company’s business
relationships with suppliers,
customers and others
Purpose and business model
Pages 14-15
Environmental, Social and Governance
Pages23-35
Governance in action
Page 61
Risk Committee Report
Pages 82-84
Impact of the Company’s
operations on the community
and environment
Purpose and business model
Page 15
Environmental, Social and Governance (ESG)
Pages 29-34
Board leadership and Company purpose
Page66
Division of responsibilities
Pages 67-68
The Company’s reputation for
high standards of business
conduct
Group Chief Executive Officer’s Statement
Pages 6-9
Our strategy
Pages 18-21
Environmental, Social and Governance
Pages23-35
Governance statements
Page 65
The need to act fairly as
between members of the
Company
Chairman’s Statement
Page 5
Chairman’s introduction to governance
Page59
Board leadership and Company purpose
Page66
This Strategic Report is presented to inform members of the Company and help them assess how the Directors have
performed their duty under Section 172. Ithas been approved by the Board and signed on its behalf by
Euan Sutherland
Group Chief Executive Officer
22 March 2022
Saga plc Annual Report and Accounts 2022
Additional information
Financial statements
Governance
Strategic Report
57
Chairman’s introduction to governance
OUR GOVERNANCE
STRUCTURE
IS WELL PLACED TO
RETURN THE BUSINESS
TOGROWTH
“The prolonged
uncertainty around the
COVID-19 pandemic
affected all of our
stakeholders as well
asour business. The
Board called additional
meetings to review the
strategy required to
besuccessful in this
challenging period.”
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
58
Dear shareholder,
It was important that, in another challenging year, our
governance structure supported the Company with its
turnaround strategy. It did and we are now well-placed to
return the business to growth.
Changes to Board and Committee composition
There were no changes to our Board or Committee
membership during the year and I am pleased to confirm that
Eva Eisenschimmel, Julie Hopes and Gareth Hoskin were
reappointed for a further three-year term. In addition to the
value they bring to the plc Board, they play an important role
in acting as our People Champion, chairing Saga Services
Limited (SSL), our Retail Broking business, and Acromas
Insurance Company Limited (AICL), Saga’s Underwriting
business, respectively.
The Company complies with the UK Corporate Governance
Code 2018 (the
Code
) requirement that at least half of its
Board members, excluding the Chairman, are Independent
Non-Executive Directors.
The Nomination Committee continued to assess the skills
weneeded. As the Company has a strategy for growth
andbusiness diversification, it is considering the skills that
will berequired. It is recognised that this will require an
entrepreneurial mindset and marketing, data and digital
experience.
Board focus and decisions
The prolonged uncertainty around the COVID-19 pandemic
affected all of our stakeholders as well as our business. The
Board called additional meetings to review the strategy
required to be successful in this challenging period.
The Board considered how and when Cruise operations could
resume safely in line with changing government advice in the
UK and local requirements in the countries which would be
visited. It was important that the Group maintained flexibility
around its financing arrangements. The Board considered
and approved the extension of the deferral of payments of its
ship debt and approved the steps which resulted in issuing a
new five-year £250m fixed-rate unsecured bond. The Board
considered and approved the triennial valuation of the
Group’s pension scheme and, following a consultation with
colleagues, took the decision to replace the existing schemes
with a new defined contribution pension scheme that is
operated as a Master Trust. It considered this to be afair
andequitable result for colleagues.
Considerable time was spent discussing a strategy that
would allow us to optimise our businesses as we emerge
fromthe COVID-19 pandemic.
Risk management
The Audit and Risk Committees continued to play an
important role in overseeing our financial reporting
processes and internal controls and in monitoring the
Group’s overall risk strategy.
People and remuneration
Eva Eisenschimmel, our Remuneration Committee Chair,
attended our People Committee meetings twice during the
year inorder to explain the Board’s approach to reward and
to hear what our colleagues thought of Saga’s culture,
working environment, communication, learning and
development initiatives, rewards and benefits. This allowed
Eva to relate these views to the Board. Our Audit Committee
Chair, Gareth Hoskin, also acted as our Speak Up Champion
and ensured that colleagues felt that they could speak freely
and see that, where needed, action was taken as a result.
Our Remuneration Policy was last approved at our Annual
General Meeting (AGM) in June 2020. At the 2021 AGM,
wereceived a vote of 77.72% in favour of our Annual Report
on Remuneration. However, we were keen to understand
thereasons for those who had voted against it and Eva
contacted those shareholders and listened to their
reasonsfor doing so. Following this valuable exchange,
theRemuneration Committee concluded that the main
points raised had been considered when the relevant
bonusdecisions were approved and, whenever possible,
hadbeen taken into account in setting targets.
Environmental, Social and Governance (ESG)
Our ESG Task Force continued to develop our ESG strategy.
Representatives of the Task Force attended Board meetings
on three occasions to discuss it. Many of their initiatives have
started, as described on pages 23-35, and I am pleased
withthe progress we are making. The Board recognises that
we need to do even more and we are currently engaged in
developing a new plan that will be more ambitious and have
greater impact.
Board and Committee evaluation
During the year, we completed an evaluation of the Board
andits Committees. It concluded that the Board had
effectively tracked progress against the turnaround strategy
and that there was an improved focus on understanding our
customers. Looking forward, the Board’s focus will be on
monitoring delivery of the growth strategy in all businesses.
Shareholder engagement and our 2022 AGM
The Board was keen to take steps to engage further with our
retail shareholders. During the year and for the first time, we
arranged a live presentation, via the Investor Meet Company
platform, which allowed all shareholders to question our
Group Chief Executive Officer and Group Chief Financial
Officer. This provided valuable insights which were reported
to the Board. Our plan is to do the same this year.
Our AGM will be held on 5 July 2022 at our offices at
Enbrook Park, Folkestone. Full details will be set out in the
Notice of AGM in due course. I am looking forward to inviting
shareholders to attend in person for the first time since 2019
and, as ever, welcome comments from our shareholders at
any time.
Sir Roger De Haan
Non-Executive Chairman
22 March 2022
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
59
Read more:
Environmental, Social and Governance (ESG), pages 23-35
Principal risks and uncertainties (PRUs), pages 53-54
Key disclosure statements, pages 56-57
Board leadership and Company purpose, page 66
Division of responsibilities, pages 67-68
Composition, succession and evaluation, page 69
Nomination Committee Report, pages 72-73
Audit, risk and internal control, pages 74-76
Audit Committee Report, pages 77-81
Risk Committee Report, pages 82-84
Directors’ Remuneration Report, pages 85-106
The Code can be found on the
FinancialReporting Council’s website
(www.frc.org.uk).
For full details of how Saga has complied
with the Code, please view our compliance
schedule on our corporate website
(www.corporate.saga.co.uk/about-us/
governance/).
Full details of the governance framework
supporting delivery of our strategy can
also be found on our corporate website
together with the documents listed below
(www.corporate.saga.co.uk/about-us/
governance/).
•
Articles of Association of the Company
•
Matters reserved for the Board
•
Committee Terms of Reference
•
Division of duties of the Chairman,
Group CEO and responsibilities of
theSenior Independent Director
•
Remuneration Policy
•
Votes cast at our AGM
Application of UK Corporate Governance Code
Saga seeks to comply with the principles set out in the UK
Corporate Governance Code (the
Code
) to promote good corporate governance which supports the long-term
sustainable success of the Group.
The five themes covered by the Code, their supporting
provisions, and how Saga has applied the Principles and
Provisions of the Code throughout the year, are set out on
the following pages in the Corporate Governance Statement,
with additional information contained in the Strategic Report.
The Board believes that, during 2021/22, the Company was in
full compliance with all applicable Principles and Provisions of
the Code, save that:
•
Provision 3:
While the Non-Executive Chairman did meet
with some shareholders during the year, as he is a
significant shareholder in the business, it was determined
that it would be more appropriate for the Group Chief
Executive Officer (CEO) and Group Chief Financial Officer
(CFO) to engage with major shareholders.
• Provision 9 (taking the circumstances set out in Provision
10 into account):
Due to his shareholding in the Company,
the Non-Executive Chairman was not considered
independent on appointment. Taking into account Roger
De Haan’s history with the Saga brand and business, his
proposed time commitment, the terms of the Relationship
Agreement between him and the Company, and his letter
of appointment, the appointment was deemed to be in the
best interests of the Company. Shareholders supported
this when they voted in favour of his appointment at the
2021 Annual General Meeting (AGM).
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
60
Governance in action
The Board considered progress against
our strategy at each Board meeting.
These meetings play an important role in
allowing for robust debate and challenge
on elements of performance and specific
projects. TheChairman, Group CEO
andGroup Company Secretary agree
standing agenda items throughout the
year, such as the Group CEO Report,
Group CFO Report and management
accounts, trading updates for business
units, health and safety matters and
financial performance. Specific agenda
items are then added to facilitate
discussion around strategic priorities.
People and culture
stepchange
1
Data, digital and brand
transformation
2
The Board heard directly from the
Chief People Officer and discussed
how:
•
the Company’s purpose and
values (precision pace, empathy,
curiosity and collaboration) could
be embedded and how culture
should be measured;
•
results of colleague surveys should
be interpreted; for example, how
the positive colleague feedback
reconciled with the high colleague
turnover of contact centre roles.
The Board concluded that scores
would be even higher if all issues
were resolved;
•
colleague insight was helpful in
identifying focus areas such as the
need to focus on diversity, equity
and inclusion and positively
encourage retention and
recruitment of older colleagues;
and
•
the People Committee and
Colleague Forums played an
important role in providing
valuable insight into the views of
the wider workforce.
The Board also approved an award
of Free Shares to eligible colleagues
under the Share Incentive Plan (SIP).
This was approved for the seventh
year running.
Impact on stakeholders:
Ensuring we deliver the best
experiences for our colleagues
andcustomers and creating an
inclusive culture.
Delivery of long-term shareholder
value.
Our Chief Customer Officer, Brand
and Insight Director, Insight
Consultant and Data and Analytics
Director discussed the following
with the Board:
•
How the revitalised brand had
transitioned to seeing the world
from our customers’ perspective.
•
The findings of a customer
research panel, called ‘Experienced
Voices’ and how customer focus
groups provided insight into
customer preferences and ensured
that the new brand image and tone
of voice was right.
•
The plan to reinforce the brand
through brand immersion sessions
for colleagues.
The Board asked whether the
profile of the research panel
statistically matched the profile of
our customers and noted that there
were sufficient participants to
match various cohorts of
customers.
Impact on stakeholders:
Better understanding of our
customers and improved customer
experience.
Improving our shareholders’ digital
journey.
MAKING PROGRESS
AGAINST OUR STRATEGY
How governance links to our strategic priorities
Regulators
Customers
Partners and suppliers
Colleagues
Shareholders
Communities
Key stakeholder groups
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
61
Governance in action
continued
Optimising our
businesses
3
Driving simplicity
and efficiency
4
Reducing our debt
5
Our
business
CEOs, Operations Directors, Customer Proposition
and Distribution Director of
Insurance, Strategy Director and
CEO of The Big Window Consulting
Limited (
the Big Window
) attended
meetings to provide strategic
business updates, present growth
plans and discuss:
•
the Executive Leadership Team’s
consideration of ‘customer
moments’ e.g. how a solo
traveller’s journey at Saga
compared to competitors’, to
identify how we could improve;
•
opportunities to strengthen the
relationship with our customers;
•
the impact of the Financial
Conduct Authority (FCA) general
insurance pricing practices
market study and what action
would be necessary;
•
how to reinvigorate the Tour
Operations business and offer
ahigh-quality, differentiated
product portfolio with aspirational
holidays tailored specifically for
our customers; and
•
how the data insight work of the
Big Window allowed us to really
understand what our customers
want, so that this could be linked
to product and service offerings.
Impact on stakeholders:
Creating exceptional experiences
for our customers.
Compliance with regulatory
requirements.
Delivering shareholder value.
Providing exceptional service levels
and development of new products
and services.
The Board:
•
considered the most effective
operating model for the Group
todrive accountability and an
entrepreneurial mindset in the
businesses;
•
discussed the proposal to
restructure our Tour Operations
business to deliver growth and
create a lower-cost, more agile,
customer-focused business;
•
continued to adopt a cost-
conscious approach, ensuring
that costs were reduced where
possible;
•
further simplified the Group’s
structure, processes and policies;
and
•
revisited the template used for
Board reporting to ensure key
messages, decisions required, and
recommended actions were clear.
Impact on stakeholders:
Providing clarity.
Making Saga easier to do business
with.
Creating long-term value.
Compliance with law and regulation
which protects customers.
The Board approved steps to
ensure maximum financial flexibility,
including:
•
agreement of a further payment
deferral and covenant waiver until
31 March 2022 in respect of the
two ship debt facilities;
•
the issuance of a new five-year
£250m fixed-rate unsecured
bond in July 2021, with the
proceeds used to repay £100m
ofexisting bonds and the £70m
term loan in full; and
•
disposals of property, generating
£4.5m of net sales proceeds.
Impact on stakeholders:
Strengthening and protecting
Saga’s ability to adapt in
achallenging environment.
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
62
Key Board decisions and Section 172(1) considerations during the year
The following examples show how Board decisions were made after considering the matters set out in Section 172(1) of the
Companies Act 2006.
Impact of the
COVID-19
pandemic
The ongoing uncertainty around the COVID-19 pandemic affected not just our business but all of our
stakeholders. The Board played a vital role in managing the situation and called additional meetings to
consider action that was necessary to navigate through this difficult time.
Stakeholder considerations:
•
The uncertainty
customers
faced and resulting anxiety caused by confusion around travel rules. The Board thought carefully about how to protect our customers and communicate changes. The
Board heard how customer support initiatives were provided in Insurance, for example, by offering
flexible cover during changes of circumstance or financial support in cases of hardship and access
to additional services including mental wellbeing support. In addition, the Acromas Insurance
Company Limited (AICL) board authorised support for customers through providing access to the
fraud helpline and maintaining price cuts for longer. Saga also provided complimentary copies of the
Saga Magazine and gave access to a GP helpline for our vulnerable customers.
•
There was recognition that
colleagues
needed to be supported in ways of working and with their mental wellbeing.
•
Impact on
suppliers
was considered as part of the Risk Committee’s review of supplier risk management.
•
It was important to keep
regulators
informed and work with them to demonstrate how customers
would be protected.
•
Shareholders’
needs were considered when we planned our AGM. The safety of this stakeholder
group was paramount, so the Board decided to hold our 2021 AGM virtually. The Board also
recognised that the world will be a different place as we emerge from the COVID-19 pandemic,
anda proposal to change our Articles of Association to allow for hybrid meetings in the future
waspresented and approved at our 2021 AGM as a result.
Resumption
ofcruising
The Board carefully considered how Cruise operations could resume safely, in line with changing
government advice in the UK and according to local requirements in the countries which would be
visited. Initially, cruising commenced around the UK with international travel following in August 2021.
Careful monitoring of the impact of the changing situation on bookings, per diems and load factors
took place so that the long-term impact on revenue could be considered.
Stakeholder considerations:
•
The Board considered the options around vaccination requirements for our
guests
and crew members. This was a difficult decision which involved considering differing views and the resulting
reputational impact, but ultimately the Board determined that the safety of guests was paramount
and that both guests and crew should be fully vaccinated.
•
Care was taken to ensure that the steps taken to vaccinate the crew did not impact on
local
communities’
vaccination programmes.
•
The Board heard how contact centre
colleagues
were under pressure to move guests
to new itineraries and discussed the steps needed to support
colleague
wellbeing.
Environmental,
Social and
Governance
(ESG)
Our ESG Task Force continued to provide the momentum needed to develop an ESG strategy which
supported delivery of the Group’s overall strategic direction.
Stakeholder considerations:
•
The Board noted and considered how:
–
customers
were increasingly concerned with ESG matters such as climate change;
–
significant work was undertaken with local
communities
;
–
colleagues
were keen for Saga to do the right thing;
–
shareholders
expect that ESG will be at the forefront of our minds as we work to deliver our
strategy; and
–
the Financial Stability Board had created a Task Force on Climate-Related Financial Disclosures
to improve and increase reporting of climate-related financial information.
It was agreed that the ESG strategy would need to include factors such as how to make use of
emerging technologies, particularly on the ocean ships and river vessels, and the impact of
colleagues
working from home.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
63
Pension
consultation
During the year, the triennial valuation exercise with the pension scheme Trustees took place and the
Board considered and approved this. In addition, the decision was made to review the Group pension
schemes which, following consultation with colleagues, resulted in the closure of the existing schemes
and the introduction of a new defined contribution pension scheme that is operated as a Master Trust.
Stakeholder considerations:
•
The valuation exercise is carried out every three years to comply with the scheme rules and
regulatory requirements with active involvement from the pensions
regulator
. The Board
concluded that the overall valuation outcome was in line with expectations, particularly given
theimpact of COVID-19.
•
Engagement with the
pension scheme Trustees
was followed by a
colleague consultation.
Feedback from both of these stakeholder groups was then carefully considered and a
recommendation was made to the Board to move the future pension provision for all colleagues
toan Aviva Master Trust.
•
The Board heard how the review had considered the impact on
vulnerable colleagues
and asked
the Chief People Officer to summarise how colleagues had viewed the proposed changes. They
heard how the level of engagement throughout the consultation had been monitored and was good.
Some disappointment had been voiced at the start of the consultation but most colleagues
understood how the world had changed and understood the need for the move.
•
The Board decided that the decision to close the existing scheme was necessary in the interests
ofequity for all colleagues, while noting that it may have a detrimental effect for a minority of
colleagues.
Bank covenants,
ship debt holiday
and bond
refinancing
It was important that the Group maintained flexibility around its financing arrangements. The Board
considered and approved the extension of the deferral of payments in relation to the ship debt
facilities so that no capital repayments would be made from April 2021 to the end of March 2022.
In June 2021, the Board approved the steps which resulted in an issuance of a new five-year £250m
fixed-rate unsecured bond in July 2021, with the proceeds used to repay £100m of the existing bond
and repay the £70m term loan in full.
Board members recognised that this was a challenging decision as it required judgement around the
possible restart date for Travel operations. Given the uncertainties caused by the COVID-19
pandemic, this was difficult to predict. The Board concluded that it was important to have sufficient
headroom should the period of Travel suspension continue.
Stakeholder considerations:
•
It was noted that the proposed bond arrangements would provide flexibility and would mean that
refinancing would not be necessary until 2024; however, the impact to the Group, over the term
ofthe bond facility, needed careful consideration.
•
In conclusion, it was agreed that the proposed covenant package was reasonable, did not add
onerous conditions, would not affect delivery of the Company’s strategy and, taking
all
stakeholders’
views into account, would materially benefit Saga.
•
The positive impact of the transaction was noted as follows:
–
The move away from covenants that had to be tested every six months would be a significant
improvement.
–
The terms allowed for refinancing of ship debt if cruising was delayed, protecting Saga’s financial
position and therefore minimising the impact on
customers
and suppliers
.•
The downside of the arrangement was noted as being bound by fixed terms for five years and the
cost to put the arrangement in place but the Board concluded that the transaction provided more
benefit than not.
•
Throughout the negotiations, the Board recognised that any new debt position would need to
include consideration of regulatory requirements and communication.
Governance in action
continued
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
64
Key statements
Compliance
Statement
The Board is committed to high standards of corporate governance and manages Saga’s operations
in accordance with the UK Corporate Governance Code 2018 (the
Code
). A full version of the Code can be found on the Financial Reporting Council’s (FRC) website (www.frc.org.uk). The Company
applied the Principles and complied with the relevant Provisions of the Code throughout the year
(withtwo exceptions) as set out and explained on page 60.
Viability
Statement
The Viability Statement can be found in the Strategic Report on page 55.
Going concern
The going concern basis of preparation can be found in Note 2.1 of the financial statements on
pages126-127.
Fair, balanced
and
understandable
In accordance with the Code, the Board has established arrangements to evaluate whether the
information presented in the Annual Report and Accounts is fair, balanced and understandable.
Having taken advice from the Audit Committee, the Board considers that the Annual Report and
Accounts, taken as a whole, is fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s position and performance, business model
andstrategy.
Assessment
ofrisk
Through the risk management process detailed on pages 74-75, the Board can confirm that it has
carried out a robust assessment of the emerging and principal risks facing the Company, including those
which would threaten our business model, future performance, solvency or liquidity and reputation.
Statement
ofreview
The risk management process detailed on pages 74-75 was in place for the year under review and
upto the date of approval of this report.
The Board recognises the importance of appropriate systems of internal control and risk management.
The Group operates a three lines of defence risk management framework overseen andmonitored by
the Risk Committee (see pages 82-84) and Audit Committee (see pages 77-81). Work conducted by 2
nd
and 3
rd
lines, whilst identifying some areas for improvement, provided reasonable assurance that the
systems of risk management and internal control were broadly effective.
Section 172(1)
The Section 172(1) statement can be found in the Strategic Report on page 57.
Governance statements
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
65
The Board is responsible for setting Saga’s
strategy, providing overall direction for
management, and setting Saga’s purpose,
values and standards. Board members play a
key role in promoting our culture and
ensuring that actions taken are for the
benefit of all stakeholders.
Our Board
The Board reviewed the document which sets out matters
which are reserved for the Board on 20 September 2021 and
took the opportunity to strengthen the messaging around
the need to ensure strategy is aligned with the Group’s
culture and the references to our Speak Up process where
colleagues can raise any matters of concern. The governance
structure also sets our delegated authority limits clearly.
Reserved matters include:
•
the strategic direction of the Group, including objectives,
budgets and forecasts;
•
any decision which may have a material impact on the
Group including, but not limited to, financial, operational,
strategic or reputational;
•
any change to, commencement or cessation of, any of
Saga’s activities;
•
approval of Saga’s material regulatory, financial and
operational policies;
•
changes relating to Saga’s capital, corporate, management
or control structures;
•
material capital or operating expenditure outside pre-
determined tolerances or beyond the delegated
authorities;
•
major capital projects (including post-investment
reviewswhich were not considered in detail by the Audit
orRisk Committees or where the Board decides a full
review is required);
•
projects or investments that have a financial cost
greaterthan the amount set out in the relevant delegated
authority limits;
•
any contract which is material strategically, or by reason
ofsize, not in the ordinary course of business, or outside
agreed budgetary limits; and
•
joint ventures and material arrangements with customers
or suppliers.
The Board considers the balance of interests between
stakeholders including shareholders, customers, colleagues
and the communities in which Saga operates. See pages 16-17
for details of the Board’s role in stakeholder engagement,
which supports Directors’ duties under Section 172(1) of the
Companies Act 2006.
All Directors, members of the Executive Leadership Team
(ELT) and persons discharging managerial responsibilities
receive training on an ongoing basis.
Shareholder engagement
The Board actively monitors the views of our shareholders
andseeks their feedback on the Company’s performance
against strategy. Full details of how we engage with our
shareholders can be found in the Strategic Report
onpages16-17. In addition, the Board hears from our
corporatebrokers, who attend meetings to provide
feedbackdirectly and an Investor Relations report is
tabledateach Board meeting.
We are mindful that we have a significant number of retail
shareholders, a number of which are also customers and
wetake steps to engage with this group by sending them
asummary of our results. A live presentation was held in
September 2021 via the Investor Meet Company platform
which allowed all shareholders to ask our Group CEO and
Group CFO any questions they had.
During the year, a review of our share registration services
took place and the decision was made to move to Equiniti
Group who became our registrar with effect from 31 January
2022. We took the opportunity to ask those shareholders who
currently receive paper copies of shareholder communication
if they would like to receive such communication electronically.
This has a number of advantages, including increasing the
speed of communication, minimising our impact on the
environment and reducing print and distribution costs.
AGM
The AGM will be held on 5 July 2022 at 11.00am at Enbrook
Park, Sandgate, Folkestone, Kent CT20 3SE. Fulldetails and
an explanation of business to be considered at the meeting
will be provided in the Notice of AGM. Acopywill be available
on Saga’s website in due course (www.corporate.saga.co.uk).
Board leadership and Company purpose
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
66
Board Committees
Nomination Committee
Responsible for reviewing Board
composition and diversity, proposing
new Board appointments and
monitoring the Board’s succession
needs.
See pages 72-73
Audit Committee
Responsible for monitoring the integrity
of the financial statements, reviewing
the Group’s framework of internal
controls and maintaining the external
auditor relationship.
See pages 77-81
Risk Committee
Responsible for monitoring the Group’s
risk management framework and ability
to identify and manage new and
emerging risks and deal with any
material breaches of risk limits.
See pages 82-84
Remuneration Committee
Responsible for Remuneration Policy,
performance-linked pay schemes and
share-based incentive plans.
See pages 85-106
Division of responsibilities
Our governance framework
During the year, it was important that our governance framework continued to support the ongoing challenges caused by the
uncertainty of the COVID-19 pandemic and the increased regulation in the businesses in which we operate.
In order to ensure that we remained responsive to the changing situation and to cope with the increase in the frequency of
Board meetings, we assessed how we could ensure our governance was straightforward and supported our purpose.
As a result, we introduced sub-committees to our Executive Leadership Risk Committee – a Data Governance Committee
and Cyber Security Forum. Our Environmental Committee was also rebranded as an Environmental, Social and Governance
(ESG) Task Force. Our Group CEO is the ESG representative on the Board and ESG strategy is also discussed at Board
meetings.
Executive Leadership Team
(ELT) Committee
(reports to the Board via the Group CEO
and Group CFO)
•
Develop and recommend strategy
tothe Board, and then execute it.
•
Set the Group’s business principles,
and develop and implement values,
behaviours and standards.
• Ensure customers are treated fairly,
in line with the Saga brand values.
•
Review and monitor brand and
customer key performance
indicators, trading and marketing
performance.
• Review financial forecasts and
performance of the Group.
• Discuss and agree major divisional
issues and Group-wide resource
allocation decisions.
•
Review material projects and capital
expenditure proposals before
consideration by the Board.
• Review and discuss talent
management and succession
planning (prior to consideration by
the Nomination Committee).
• Review and monitor culture,
diversity, equity and inclusion and
colleague engagement metrics.
Board
Executive
Leadership
Risk
Committee
Executive
Leadership
Team
Committee
Board
Committees
Executive Leadership Risk Committee
(reports to the Risk Committee via the Chief Risk and Compliance Officer)
•
Consider the Group’s approach to risk management.
•
Manage risk and conduct, review Group Risk and Internal Audit and compliance
plans, and report potential or actual breaches of regulation or policy to the Board.
•
Link principal risks and uncertainties to strategy.
•
Oversee Cyber Security Forum, Data Governance Committee and ESG Task Force.
Cyber Security Forum
•
Drive cyber security improvements,
protect information assets whilst
limiting Saga’s exposure to cyber risk.
•
Meet industry best practices, agree
policy and embed a positive cyber
security culture.
Data Governance Committee
•
Provide clear guidance on how Saga
uses data and oversight of continued
validity and purpose of data stored
on systems.
•
Support initiatives to improve
dataquality.
ESG Task Force
•
Develop and monitor an ESG strategy
and identify priority areas.
•
Monitor the impact of agreed targets.
Disclosure Committee
•
Responsible for determining the treatment
of material information and identifying
inside information for the purpose of
maintaining the Company’s project
(insider) lists.
Board
•
Approval of strategic direction and
ensuring its successful implementation.
•
Overall leadership and management of
the Group, including setting the
Group’s values and standards.
• Approval of the Group’s Speak Up
Policy and discussing an annual report
presented by the Non-Executive
Director nominated as Speak Up
Champion.
•
Encouraging innovation to meet the
needs of our stakeholders, including
colleagues, customers and shareholders.
• Ensuring compliance with statutory
and regulatory obligations.
•
Maintaining sound systems of internal
controls and risk management.
•
Assessing potential impact of decisions.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
67
Independent Non-Executive Directors and
Boardcomposition
We continue to comply with the Code recommendation
thatat least half of our Board, excluding the Chairman, are
Non-Executive Directors whom the Board considers to be
independent. The Board considers Eva Eisenschimmel,
JulieHopes, Gareth Hoskin and Orna NiChionna to be
independent Non-Executive Directors, free from any
business or other relationships that could materially
interfere with the exercise of their independent judgement
orobjective challenge of management.
We recognised that our Non-Executive Chairman was not
considered independent on appointment and this was
carefully considered at that time. Taking into account
RogerDe Haan’s history with the Saga brand and business,
his proposed time commitment, and the terms of the
Relationship Agreement and his letter of appointment,
theDirectors supported the appointment, concluding
thatitwas in the best interests of the Company. This was
supported byshareholders, who voted to appoint
Rogeratour 2021AGM.
During the year, the Board held six scheduled meetings and
seven ad hoc meetings, for which individual attendance is set
out below. The additional meetings were necessary due to
the challenging external conditions and it was not always
possible to have all Directors in attendance. All Directors
also attended three strategy sessions. Sufficient time is
provided, periodically, for the Non-Executive Chairman to
meet privately with the Senior Independent Director and the
Independent Non-Executive Directors to discuss any matters
arising. For information on what the Board did during the
year, see pages 61-64.
Division of responsibilities
continued
Members of the ELT, senior colleagues and external advisers
are also invited to attend Board meetings, to present items
of business and provide insight into key strategic issues.
The Group Company Secretary attends each meeting,
assists the Chairman of the Board and Committee Chairs
inplanning for each meeting and ensures that Board and
Committee members receive information and papers in
atimely manner.
Composition, succession and evaluation, page 69
Board of Directors, pages 70-71
Board responsibilities – allocation of time
Strategy, including data,
digital and brand
transformation c.30%
People and culture c.15%
Optimising our
businesses c.30%
Driving simplicity
and eciency c.10%
Reducing our debt c.5%
Oversight of risk
management c.5%
Environmental, Social
and Governance c.5%
Member
Role
Maximum
possible
meetings
Attendance
Roger De Haan
Non-Executive Chairman (leadership, Board governance, sets the agenda and
facilitates open Board discussions, performance and shareholder engagement)
13 13
Euan Sutherland
Group Chief Executive Officer (Group performance and develops strategy for
Board approval)
13 13
James Quin Group Chief Financial Officer (Group financial performance, including creation
of the budget and five-year plans for recommendation to the Board)
13
12
Independent Non-Executive Directors
Role
Maximum
possible
meetings
Attendance
Orna NiChionna (Senior Independent
Director)
Participate in, assess, challenge and monitor Executive
Directors’ delivery of the strategy (within risk and
governance structures), financial controls and integrity of
financial statements, and Board diversity. Evaluate and
appraise the performance of the Non-Executive Chairman,
Executive Directors and senior management.
13 13
Eva Eisenschimmel (People Champion)
13
12
Julie Hopes
13 13
Gareth Hoskin (Speak Up Champion)
13 13
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
68
Composition, succession and evaluation
The members of the Board
The Board has considered the independence of character,
integrity, differences of approach and experience of all the
Directors and considers its overall size and composition to
be appropriate.
The skills and experience of our individual members, particularly
in the areas of insurance, financial services, customer service,
brand management, strategy and risk management, are
fundamental to the pursuit of our objectives. In addition, the
external experience of members of the Board in a variety of
sectors and markets is invaluable to Saga.
Our Non-Executive Directors provide objective, rigorous and
constructive challenge to management and met regularly
without the Executive Directors. The Senior Independent
Director acts as a sounding board for the Non-Executive
Chairman and led an appraisal of his performance.
Annual re-election
All Directors are required to stand for annual re-election at
the Company’s AGM. The Board’s view is that each of the
Directors standing for re-election should be re-appointed.
We believe that they have the skills required for the Board
todischarge its responsibilities, as outlined in each of their
biographies set out on pages 70-71. The details of the specific
reasons why each Director’s contribution continues to be
important to the Company’s long-term sustainable success
will be included in our Notice of AGM.
Diversity, equity and inclusion (DE&I)
The Group has a DE&I Policy, and, during the year, forums
were held on topics relating to DE&I which provided valuable
insight around how colleagues felt relating to matters such
asage, ethnicity and gender. The Board recognises that it
isimportant to consider, not just the skills required for the
Board, but also the need to have an inclusive approach for
allcolleagues.
Environmental, Social and Governance (ESG), pages 23-35
Nomination Committee Report, pages 72-73
Gender on the Board and in senior management
The Board recognises the need to develop a diverse pipeline in
succession planning. The Company currently has three women on
its Board (43%) and seven in total across the combined Board and
Senior Management (44%). We met the target set out in the
Hampton-Alexander review as more than 33% of Board members
identified as female. We are also committed to appointing at least
one Board member from an ethnic minority background.
(n)
Male %
(n)Female %
Total
Board
4
57%
343%
7Senior management
1
5
56%
444%
9Evaluation of the Board, Committees and Directors
The Board effectiveness and developmental review was conducted internally this year. This focused on matters of strategic
importance and areas highlighted for development in the 2020/21 evaluation. We also used the evaluation to seek views on
the effectiveness of the Board Committees and the performance of the Non-Executive Chairman.
The Senior Independent Director and the other Non-Executive Directors also appraised the Non-Executive Chairman’s
performance and the Non-Executive Directors had regular meetings with the Non-Executive Chairman at which their
performance was discussed.
Action taken as a result of the 2020/21 evaluation
The findings from last year’s evaluation were helpful in
identifying areas for development. As a result, we:
• dedicated time to ensuring we provide exceptional
experiences for our customers;
• focused on ensuring that foundations were in place for the
Group to begin to deliver sustainable growth; and
• reviewed our risk management procedures to check these
were effective and embedded sufficiently.
Process for the 2021/22 Board and Committee evaluation
•
Nomination Committee members discussed how best
toconduct the evaluation of the Board in terms
ofcomposition.
• A set of questions was drafted by the Group Company
Secretary and agreed with the Chairman with input from
the Senior Independent Director.
•
Directors and Board/Committee members and attendees
completed the questionnaire on an anonymous basis.
•
Report produced and discussed with the Chairman and
Committee Chairs.
•
Findings discussed at Board meeting.
•
Action plan prepared.
Areas of focus for 2021/22
Questions for this year’s review were focused on the following:
•
How effective we are at focusing on strategy and monitoring
the key aspects of Company operations.
•
How well we monitor performance against our strategic goals.
•
How well we understand what our customers need and their
perception of Saga.
• Whether we discuss the right things, at the right time, and
in sufficient detail.
•
How well the Board collaborates, works with precision pace,
is curious and shows empathy, in line with Saga’s values.
•
How well the Board monitors risk and ensures the Company
is not too risk averse.
Conclusions and development plan for 2022/23
The review concluded that the Board had effectively tracked
progress against the turnaround strategy and that there was
an improved focus on understanding our customers.
The development plan for 2022/23 includes how:
•
we will monitor delivery of the growth strategy in all businesses;
•
the Board will continue to actively adopt and demonstrate
the Company’s values; and
•
data will be used to provide valuable insight into our
customers and develop new products and services that truly
differentiate Saga.
1 Senior management, for this purpose, is the Executive Leadership Team or the first layer of management below Board level, including the Group Company Secretary
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
69
Board of Directors
Composition of the Board
Key
Audit Committee
Executive Leadership Team
Committee
Nomination Committee
Remuneration Committee
Risk Committee
Committee Chair
Roger De Haan
Non-Executive Chairman
Appointed
5 October 2020
Key strengths and experience
•
Experienced business
leader and board director
with extensive experience in
travel and financial services
industries.
•
Significant history with
Saga having worked here
for 39 years, including over
20 years as Chairman and
Chief Executive.
•
Instrumental in transforming
Saga from a specialist tour
operator to one that offered
its own cruises and expanded
the business to cover
publishing, insurance and
financial services, creating
the Saga brand.
•
Knighted in the 2014 New
Year Honours List for
services to education and
to charity in Kent and
overseas.
Other roles
Director of Folkestone
Harbour companies, Creative
Folkestone and Friends of
Folkestone Academy; Trustee
of Roger De Haan Charitable
Trust; and Trustee and
governor of The King’s
School, Canterbury.
Euan Sutherland
Group Chief Executive
Officer
Appointed
6 January 2020
Key strengths and experience
•
Significant experience in
leading major consumer-
facing businesses through
periods of change to deliver
a more efficient
organisation.
•
Leadership, senior
operational experience and
marketing specialist.
•
Corporate strategy
creation, branding, large
workforce direction and
motivation.
•
Implementing strategy
focused on customer
insight, digital innovation
and wholesale expansion.
•
Previous senior roles
include: CEO of Superdry
plc, the global digital brand,
and The Co-op Group;
Group COO & CEO UK at
Kingfisher plc; and
background in global
fast-moving consumer
goods (FMCG) brands
including Mars and Coca-
Cola.
Other roles
Non-Executive Director and
member of the Audit and
Nomination Committees of
Britvic plc (appointed
February 2016).
James Quin
Group Chief Financial Officer
Appointed
1 January 2019
Key strengths and experience
•
Fellow of the Institute of
Chartered Accountants in
England and Wales.
•
Seasoned insurance
executive with over 29
years of senior leadership
experience.
•
Experience in delivering
corporate strategy,
investor communications
and internal/external
analysis and reporting.
•
Extensive strategic,
investor and operational
finance experience within
the insurance industry.
•
Previous senior roles
include: UK CFO, Global Life
CFO and Head of Investor
Relations at Zurich
Insurance Group; Partner
at PwC and Managing
Director atCitigroup Global
Markets.
Non-Executive Directors
Executive Directors
Non-Executive Chairman
4
2
1
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
70
Orna NiChionna
Senior Independent Non-
Executive Director
Appointed
31 March 2017
(Senior Independent
Director) and 29 May 2014
(Non-Executive Director)
Key strengths and experience
•
Substantial experience as
advisor to retailers on
strategy and operations.
•
Significant experience in plc
governance and leadership.
•
Previous roles include:
Senior Independent
Director of Royal Mail plc,
HMV plc, Northern Foods
plc and Bupa; Non-
Executive Director of Bank
of Ireland UK Holdings plc
and Bristol & West plc;
Chair of Founders
Intelligence Limited; Deputy
Chair of the National Trust;
Trustee of Sir John Soane’s
Museum; and former
Partner at McKinsey &
Company.
Other roles
Non-Executive Director and
Chair of the Remuneration
Committee at Burberry
Group plc (appointed
January 2018); and Trustee
of the Institute of Fiscal
Studies (appointed July
2020).
Eva Eisenschimmel
Independent Non-Executive
Director and People
Champion
Appointed
1 January 2019
Key strengths and experience
•
Over 30 years of
experience as a brand and
marketing professional.
•
Extensive experience in
customer relations and all
aspects of human
resources and people
strategy.
•
Previous roles include:
Non-Executive Director
(and a member of the Audit,
Nomination, Remuneration
and Risk Committees) of
Virgin Money plc; Managing
Director of Marketing,
Brands and Culture at
Lloyds Banking Group plc;
Chief Customer Officer at
Regus plc; Chief People and
Brand Officer at EDF
Energy; and senior
positions at Allied Domecq
and British Airways.
Other roles
Group Chief Risk Officer
(appointed May 2021) at
Lowell (previously Chief of
Staff appointed February
2016).
Julie Hopes
Independent Non-Executive
Director, Chair of Saga
Services Limited and Saga
Personal Finance Limited
Appointed
1 October 2018
Key strengths and experience
•
Associate with the
Chartered Institute of
Bankers.
•
Wealth of insurance
experience coupled with
over 20 years in a variety of
roles, specialising in general
insurance and
predominantly in personal
lines.
•
Highly customer-focused,
with a breadth of functional,
membership and affinity
experience and a track
record of driving growth.
•
Previous roles include:
Chair of Police Mutual and
its Remuneration
Committee; Non-Executive
Director and Chair of the
Risk Committee of Co-
operative Insurance; a
variety of roles at RSA and
Tesco Bank; and CEO of The
Conservation Volunteers, a
UK community volunteering
charity.
Other roles
Deputy Chair, Senior
Independent Non-Executive
Director and Remuneration
Committee Chair of West
Bromwich Building Society
(appointed April 2016); and
Non-Executive Director
(appointed August 2021) and
Chair of the Risk Committee
(appointed December 2021)
of MS Amlin Underwriting
Limited.
Gareth Hoskin
Independent Non-Executive
Director, Chair of Acromas
Insurance Company Limited
and Speak Up Champion
Appointed
11 March 2019
Key strengths and experience
•
Over 20 years’ experience
in insurance, ina variety of
roles.
•
Chartered Accountant with
recent and relevant
financial experience and
competence in accounting
(Institute of Chartered
Accountants in England and
Wales).
•
Previous roles include: main
Board Director and CEO
International, and finance,
retail marketing and HR
roles in Legal & General;
accountant at PwC; and
Trustee, Non-Executive
Director and Chair of the
Audit and Risk Committee
at Diabetes UK.
Other roles
Audit Chair and Senior
Independent Director at
Leeds Building Society
(appointed November 2015).
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
71
Nomination Committee Report
The Committee’s responsibilities
•
Review the structure, size and composition
(includingthe need for a progressive review
ofmembership) of the Board.
•
Consider how to develop a diverse pipeline in
succession planning and talent development
ofExecutive Directors and senior executives.
•
Evaluate the independence, experience, diversity
andknowledge of the Board.
•
Identify and nominate candidates to fill Board
andCommittee vacancies.
•
Review Board performance evaluation results
inrelation to Board composition.
The Committee’s
Terms of Reference
were reviewed
during the year (approved by the Board on
20September 2021) and are available on our corporate
website (www.corporate.saga.co.uk/about-us/
governance).
What we did during the year
Time spent on matters
Committee composition and attendance
Members (majority are
independent Non-
Executive Directors)
Member
since
Max.
possible
meetings
Attendance
Orna NiChionna (Chair)
29 May 14 4 4
Roger De Haan 5 Oct 20 4 4
Eva Eisenschimmel
4 Apr 19 4 3
Julie Hopes
10 Sep 20 4 4
Gareth Hoskin
10 Sep 20 4 4
Committee evaluation
An evaluation of the Committee’s effectiveness took place
during the year, as part of the Board effectiveness review
(for details see page 69).
The review indicated that the Committee had rightly
focused on matters concerning diversity, equity and
inclusion during the year and had made significant progress
in these areas. Going forward, it was agreed that the
Committee should encourage greater ethnic diversity
atboth Committee and Board level.
Orna NiChionna
Chair, Nomination Committee
Dear shareholder,
This year continued to be challenging in light of the ongoing
impact of the COVID-19 pandemic. The Committee’s primary
focus was to ensure that the Board and its Committees have
the right balance of skills, experience and diversity needed
todeliver the strategy during this time.
TheCommittee continued to focus on the succession
planning and talent development of our executive and
seniorleadership teams which has involved working closely
with the Remuneration Committee.
As we look forward to the skills needed on our future Board, our
priority over the next three years will be to address thecurrent
lack of ethnic diversity on our Board while maintaining our depth
and breadth of experience in the functional and sectoral areas
of most importance to the Group.
Board composition
There were no changes to Board composition during the
year. Nevertheless, the Committee continued to assess the
skills, diversity and capacity required at both the Board and
individual Committee levels. As reported in last year’s
Committee report, the appointment of Roger De Haan
brought significant experience of the travel industry and
addressed the gap in this area on our Board.
The Committee worked to identify current or future skills
gaps and to confirm Committee membership based on the
experience and skills of each Director against each
Committee’s remit. We also considered the UK Corporate
Governance Code 2018 (the
Code
), guidance from the Financial Reporting Council (FRC) and best practice.
Towards the year end, the Committee started to discuss
what skills will be required to support the successful
execution of the Group’s evolving strategy. In this phase,
theBoard would benefit from members who bring deep
entrepreneurial expertise and experience of digital content
management and distribution in consumer-facing businesses.
Board composition c.30%
Succession planning and
talent management c.30%
Diversity, equity and
inclusion c.30%
Board evaluation c.10%
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
72
The Committee’s succession planning over the coming year
will take this thinking into account.
In last year’s report, we confirmed that Euan Sutherland had
assumed the responsibilities of Interim CEO of Insurance
until a suitable replacement was appointed.
The search for a successor (led by the Saga Services Limited
(SSL) and Acromas Insurance Company Limited (AICL)
nomination committees) resulted in the appointment of
Steve Kingshott who joined Saga on 8 November 2021.
Asthis was a key role within the Group, the Committee was
consulted throughout the process and kept fully updated
onthe progress of the search and subsequent appointment.
Independence and election ofDirectors
After the year end, but prior to publication of this Annual Report
and Accounts, the Committee considered the profiles of the
Directors, each Director’s independence, contribution and time
commitment necessary to perform their duties and
recommended to the Board that all should be put forward for
election at the 2022 Annual General Meeting (AGM). In addition,
the Committee undertook a detailed review of the proposal to
re-appoint Julie Hopes, EvaEisenschimmel and Gareth Hoskin
as Non-Executive Directors when they were proposed for
re-appointment after serving their initial three-year terms.
Individuals did not participate in the discussion when their own
re-appointment was being considered.
The Code requires that at least half of the Board, excluding
the Chairman, are considered to be independent Non-
Executive Directors. As of 31 January 2022, four out of seven
(57%) Board members were independent Non-Executive
Directors, with other members being the Non-Executive
Chairman and two Executive Directors.
Succession planning and talentdevelopment
During the year, the Committee received an update from the
Group Chief Executive Officer (CEO) and the Chief People
Officer on how talent management was approached, including
new processes and frameworks that had been put in place
toensure successful delivery of the strategy. This required
intense focus on skills and cultural change in an organisation
that is considerably more streamlined than previously.
In addition, the Committee considered an updated approach
to evaluate performance, talent and succession and how
adiverse and high-quality pipeline would be created. The
Committee is committed to oversee and seek assurance on
how management is developing its future leaders and their
commitments to driving greater female representation at
more senior levels.
I attended (with Julie Hopes and Eva Eisenschimmel as the
other female Board members) a Women in Leadership event,
the main purpose of which was to bring together colleagues
working in partnership (as mentors and mentees) with the
30% Club (for more details of this initiative see page 28), and
female senior executives to provide a forum for networking,
mentoring and support.
Diversity, equity and inclusion (DE&I)
Both the Board and Committee continued to focus on DE&I
across the Group. Saga believes diversity is wider than gender
and ethnicity and strongly supports full cognitive diversity,
which encompasses all elements of cultural differences.
Committee members considered a detailed report which
informed the strategy to achieve a diverse and equitable
environment and create a culture which was more inclusive.
We heard how colleagues had been upskilled with training on
unconscious bias, with a focus on practical steps within the
recruitment process to create a more inclusive environment
and how key event speakers being invited to present to
colleagues had led to more meaningful discussions around
how colleagues could feel a greater sense of belonging.
The Committee was pleased to receive an update regarding the
focus on ‘Age Allyship’ and how Saga had become the first major
UK firm to offer a week’s paid leave for new grandparents.
The Financial Conduct Authority (FCA) consultation on a change
to the Listing Rules which would require data to be published on
Board and Executive Committee diversity was also considered.
Simultaneously, the SSL remuneration and nomination
committees reviewed the FCA, Prudential Regulation Authority
and the Bank of England joint discussion paper on accelerating
DE&I in the regulated sector.
The Company has an Equal Opportunities Policy in place, which
includes practical steps to promote a working environment in
which all colleagues are treated equally. This policy applies to
the Group, including the Board of Directors, and is linked to
Company strategy and communicated to all colleagues. All
colleagues must report any breaches, whether actual or
perceived, to their line manager or to the People Team.
While the policy does not currently set specific targets, the
Committee concluded that the steps being taken to obtain and
measure data and the resulting insight will assist in developing
meaningful targets. Diversity is considered as part of the
appointment process, with reference to diversity of
perspective, including gender, social and ethnic backgrounds;
the need for gender balance in senior management; and the
need to develop a diverse pipeline in succession planning.
The Board currently has a 43% gender balance of women
and44% in the first layer of management below Board level.
Details of gender balance of those in the senior management
and their direct reports can be found on pages 27 and 69.
Board evaluation
Committee members discussed the proposal for the Board
evaluation and identified areas of focus. These included
whether there were sufficient levels of reporting to fully
understand the customer experience and monitor customer
satisfaction; Board dynamics as the Group emerged from
theCOVID-19 pandemic; and risk management. Committee
members also concluded that it was important to ascertain
whether the Board was setting the right cultural tone, in line
with the Group’s values.
All Directors and the Group Company Secretary were asked to
complete a questionnaire about the dynamics of the Board and
how well Board meetings supported discussion of the strategy
and its delivery. The evaluation report prepared by the Group
Company Secretary was discussed and this confirmed that
theBoard dynamics were strong and had led to high-quality
discussion and appropriate levels of challenge. It was recognised
that it was important that the Board continue to actively adopt
and demonstrate the Company’s values.
Orna NiChionna
Chair, Nomination Committee
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
73
Audit, risk and internal control
Board assessment of risk management
andinternalcontrol
Our Board has ultimate responsibility for the Group’s risk
management and internal control, and for the Company’s
riskculture. Our Board is also responsible for reviewing the
effectiveness of risk management and control systems,
ensuring that:
•
there is an ongoing systematic process for identifying,
evaluating and managing the emerging and principal risks
faced by the Company;
•
this system was in place for the year under review and up
to the date of approval of this Annual Report and Accounts;
•
the system is regularly reviewed by our Board; and
•
the system accords with the Financial Reporting Council
(FRC) guidance on risk management, internal control and
related financial and business reporting.
During 2021, risk management activity continued to focus
onprotecting our financial and operational resilience and
continuing to support the delivery of fair outcomes to
customers. Our risk framework was further refined to
support this work and to provide the foundation for delivering
our strategy. Improvements in risk culture, internal control
effectiveness, risk governance and incident management
were all made during the year supported by new roles
created within the business to improve the quality of risk
incident root cause analysis and remediation in response to
operational risk events.
Our subsidiary boards and Executive Leadership Team (ELT)
had access to more timely and comprehensive risk reporting
throughout the year, facilitated, in part, through a new risk
system launched in the second quarter of 2021. This has
encouraged risks and incidents to be captured promptly and
allowed associated mitigating actions to be more effectively
tracked to address both immediate issues arising and root
causes, with priority towards driving the right outcomes
forcustomers.
Risk strategy and plan
The Group’s risk strategy and plan is aligned with the
Company’s overarching strategy and is considered and
approved annually.
Risk framework processes
Risk governance
– The main consideration within risk
governance is the Board management of risk and subsequent
delegation to risk committees and other governance forums.
This ensures that risk is managed effectively and that there is
appropriate oversight through reporting and accountability
defined within each committee’s Terms of Reference and
through the application of the Senior Managers and
Certification Regime. Additionally, the suite of Saga risk
policies, including, but not limited to, conduct risk, incident
management and internal control, define our risk
management framework and high-level expectations of
the1
st
and 2
nd
line in respect of risk management activity.
Incident management
– The 1
st
line business areas are
responsible for raising any risk incidents identified in a timely
manner, conducting appropriate root cause analysis to
prevent recurrence, and resolving incidents promptly.
The2
nd
line oversees this activity to ensure fair customer
outcomes, and that the process is managed in line with policy.
Risk and control registers
– Each operating company and
Group function is responsible for identifying and managing its
risks and associated key controls, which are captured on risk
and control registers and scored using a risk scoring matrix
that rates risk against both likelihood and severity. Key
controls are subject to design and operational effectiveness
testing by the business and validated through periodic 2
nd
line
assurance reviews, with action taken where controls are found
to be ineffective. Our risk registers help toidentify the top
risks facing the various business units, which in turn inform
ourprincipal risks and uncertainties (PRUs).
Our governance framework
Effective risk management and control is achieved through application of the ‘three lines of defence’ model as follows:
GOVERNING BODY
Accountability to stakeholders for organisational oversight
MANAGEMENT
Actions (including managing risk) to
achieve organisational objectives
EXTERNAL ASSURANCE PROVIDERS
1
st
line roles
Provision of products/
services to clients and
managing risk
2
nd
line roles
Expertise, support,
monitoring and challenge
onrisk-related matters
INTERNAL AUDIT
Independent assurance
3
rd
line roles
Independent and objective
assurance and advice on all
matters related to the
achievement of objectives
Governing body roles:
integrity, leadership and transparency
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
74
Our risk framework
Risk appetites
– Refers to the type and amount of risk that
we are willing to take to achieve our strategic objectives.
Board-approved risk appetites exist for all primary risk types
including strategic, operational, insurance, liquidity, credit,
market and reputational risk, with a further subdivision of
operational risk to ensure our subsidiary boards and our plc
Board has visibility and oversight of all the key areas of risk
and, in particular, to ensure we promptly respond to any
risksmoving towards, or already out of, appetite. Our risk
appetites support the formation of our strategy and our
decision-making.
PRUs
– The PRUs are informed by the detailed functional/
entity risk registers and top risk assessments and are linked
back to the relevant strategic objectives. This gives visibility
to management of the most significant risks which may
impede our ability to achieve our strategic objectives.
Risk maturity
– Each operating entity is assessed
periodically against our risk maturity framework in both the
1
st
and 2
nd
lines of defence, with actions agreed for any areas
where there is a desire to move further up the risk maturity
scale, which are tracked through to completion.
Process feedback
Outputs from the risk management cycle are fed back to
ourrisk committees and boards by exception to ensure
therisk framework remains effective and supports the
strategy, business model and decision-making processes
ofthe Company.
Purpose
and vision
Conduct risk
framework
Our purpose is to deliver exceptional experiences every day, whilst being
a driver for positive change in our markets and communities
Specific conduct policy, appetite, maturity assessment, training and metrics
form part of the framework
Customers central to our behaviours and subsequent decision-making
Risk language is clear, simple and understood by all
Types of risk
STRATEGIC
INSURANCE
CREDIT
OPERATIONAL
LIQUIDITY
MARKET
REPUTATIONAL
Growth plan
priorities
Environmental,
Social and
Governance
(ESG)
Maximise our existing
businesses
Specific ESG strategy, policy, appetite, maturity assessment, training and metrics covering
eachof the three elements of Environment, Social and Governance with climate being
specificallyprominent.
Step-change our ability to
scale while reducing debt
Create ‘The Superbrand’
for older people
Saga context
Supporting frameworks
Risk framework
processes
Risk culture
Operates across all aspects of the above framework and aligns to our purpose of creating
exceptional experiences every day
Risk reporting,
monitoring, oversight
and measurement
Risk governance and accountability
Risk registers
Risk appetites
Incident management
Control assurance
Top risks
Emerging risk management
Adequacy of resources (including Threshold
Condition 2.4, Solvency II and wind-down plans)
Saga risk framework
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
75
Audit, risk and internal control
continued
Independent process assurance
Saga’s Internal Audit function provides independent
assurance of the effectiveness of the risk management
procedures at both Group and business levels.
Internal Audit acts as the 3
rd
line of defence within Saga’s risk
management framework. The objective of Internal Audit is to
help protect the assets, reputation and sustainability of the
organisation by providing independent, reliable, valued and
timely assurance to the Board and ELT. To preserve the
independence of Internal Audit, the Internal Audit Director’s
primary reporting line is to the Chair of the Audit Committee,
and the Internal Audit Team is prohibited from performing
operational duties for the business.
All activities of the Group fall within the remit of Internal
Audit, and there are no restrictions on the scope of Internal
Audit’s work. Internal Audit fulfils its role and responsibilities
by delivering the annual risk-based audit plan. Each audit
provides an opinion on the control environment and details of
any issues found. Internal Audit works with the businesses to
agree the remedial actions necessary to improve the control
environment, and these are tracked to completion. The
Internal Audit Director submits reports to, and/or attends,
board and audit committee meetings for the subsidiary Saga
businesses, as well as meetings of the plc Audit and Risk
Committees.
Financial reporting
The Group maintains a control environment that is regularly
reviewed by the Board. The principal elements of the control
environment include comprehensive management and
financial reporting systems and processes, defined operating
controls and authorisation limits, regular Board meetings,
clear subsidiary board and operating structures, and an
Internal Audit function.
Internal control and risk management systems relating to the
financial reporting process and the process for preparing
consolidated accounts ensure the accuracy and timeliness
ofinternal and external financial reporting.
The Group undertakes an annual strategy process which
updates the plan for the next five years and produces a
detailed budget for the next financial year. Detailed
reforecasts are performed by each area of the Group
regularly and are consolidated to provide an updated view
ofthe Group’s expected performance and position for the
current year. Each reforecast covers the income statement,
cash flow and balance sheet positions, phased on a monthly
basis through to the end of the financial year.
Regular weekly and monthly reporting cycles allow
management to assess performance and identify risks
andopportunities at the earliest possible time. Trading
performance is formally reviewed on a weekly basis by
themanagement of the trading subsidiaries and the ELT.
Performance is reported to the Board at each Board meeting
and is assessed against budget and the latest forecast.
The Group has a management structure with documented
levels for the authorisation of business transactions and clear
bank mandates to control the approval of payments. Control
of the Group’s cash resources is operated by a centralised
Treasury function.
Internal management reporting and external statutory
reporting timetables and delivery requirements are well-
established and documented. Control of these is maintained
centrally and communicated regularly.
The Group maintains IT systems to record and consolidate all
its financial transactions. These ledger systems are used to
produce the information for the monthly management
accounts and for the annual statutory financial statements.
The trading subsidiaries within the Group prepare their
accounts either under Financial Reporting Standard (FRS)
101 or UK-adopted International Financial Reporting
Standards (IFRS).
The accounts production process ensures that there is a
clear audit trail from the output of the Group’s financial
reporting systems, through the mapping and consolidation
processes, to the Group’s financial statements.
Statement of review
As a result of its consideration and contribution to risk
management and internal control activities, the Board is
satisfied that there is an appropriate framework for
identifying, evaluating and managing the Group’s risks and
internal controls and, up to the date of the approval of this
Annual Report and Accounts, it is regularly reviewed. The
Board’s statement of review of the effectiveness of Saga’s
risk management and internal control systems is set out
onpage 65.
Our risk management framework and systems are designed
to manage, rather than eliminate risk, and operate to
facilitate the achievement of our business objectives within
our stated risk appetites.
There has been regular reporting to the Audit and Risk
Committees throughout the year on the improvements
tothe design of the risk framework, which is now complete
aswe enter the 2022/23 financial year.
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
76
Financial statements
(including key judgements
and estimates) c.40%
Internal financial
controls c.10%
Internal audit c.25%
External audit c.20%
Speak Up c.5%
Audit Committee Report
The Committee’s responsibilities
•
Consider integrity of the financial statements.
•
Review the adequacy and effectiveness of the
Company’s internal financial controls and other
internal control systems.
•
Monitor the effectiveness of the Company’s
InternalAudit function, Finance function and the
external auditor.
•
Review the Internal Audit work plan.
•
Review the Group’s annual and half-yearly financial
statements and accounting policies.
•
Review and approve key judgements and estimates
used as a basis for preparing the Group’s financial
statements.
•
Approve the remuneration and terms of engagement,
and determine the independence of the external auditor.
•
Monitor the scope of the annual audit and the extent
of non-audit work undertaken by the external auditor.
•
Provide recommendations on the fair, balanced and
understandable assessment, going concern basis of
preparation and viability statements.
•
Ensure that whistleblowing (
Speak Up
) and anti-fraud systems are in place and are monitored.
The Committee’s Terms of Reference were reviewed
during the year (approved by the Board on
20September 2021) and are available on our corporate
website (www.corporate.saga.co.uk/about-us/
governance).
What we did during the year
Time spent on matters
Committee composition and attendance
Members (all are
independent Non-
Executive Directors)
Member
since
Max.
possible
meetings
Attendance
Gareth Hoskin (Chair) 4 Apr 19 7 7
Julie Hopes
31 Dec 20 7 6
Orna NiChionna
29 May 14 7 7
The Board is satisfied that Gareth Hoskin has recent and
relevant financial experience and competence in
accounting, reflected by his professional qualification as a
chartered accountant and relevant experience during his
career. The Board is also satisfied that the Committee
members possess an appropriate level of independence
and offer a depth of financial and commercial experience
across various industries, including the sectors in which the
Company operates. The Board of Directors’ biographies on
pages 70-71 contain details of each Committee member’s
skills and experience.
Committee evaluation
An evaluation of the Committee’s effectiveness took place
during the year, as part of the Board effectiveness review
(for details, see page 69). The review concluded that the
Committee was focused on material issues and that the
external auditor provided good challenge and helpful
external market perspectives. Respondents confirmed that
the Committee was well supported by the Internal Audit
function and that financial controls were considered to be
sound. For 2022/23, it was agreed that the planning
process should be reviewed to ensure an optimum audit
process between subsidiaries and the Company.
Gareth Hoskin
Chair, Audit Committee
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
77
Dear shareholder,
During 2021/22, we continued to demonstrate financial and
operational resilience as the uncertainty of COVID-19
continued, progressing our Group strategy to further
optimise our business and reduce debt.
The Committee continues to provide support to the Board
and independent scrutiny of the Group’s financial reporting
and internal controls in its businesses as colleagues continue
to work largely from home, maintaining colleague safety with
minimum interruption to business for customers. There was
continued focus on improving the financial flexibility of the
Group by strengthening the balance sheet and improving the
Group’s liquidity.
The Group completed the issuance of a new fixed-rate
guaranteed unsecured bond, enabling the Group to repay in
full its existing term loan and make amendments to the
covenants on its existing revolving credit facilities, which
remain undrawn and are expected to remain undrawn for the
foreseeable future. The Group also reached agreement to
amend covenants on its cruise ship debt facilities to
accommodate the eventuality of a prolonged further period
of disruption due to COVID-19.
The Committee receives regular updates on the external
regulatory landscape and continues to review and analyse
emerging uncertainties to ensure strategic alignment with
current developments.
Reporting
Interim and full year results
The interim and full year results were reviewed and
challenged, together with the appropriateness and
application of key accounting policies and areas of significant
judgement and how these were made. KPMG provided
reports throughout the year, with focus on areas identified
ashaving significant audit risk.
Letter from the Financial Reporting Council (FRC)
On 13 December 2021, the Group received a letter from
theFRC requesting further information on certain matters
covered in the Annual Report and Accounts for the financial
year ended 31 January 2021. The letter requested
information regarding:
•
the accounting for cash flow hedges in connection with
thepurchase of the ocean cruise ships;
•
river cruise lease contract modifications; and
•
the impairment review and useful economic lives of the
ocean cruise ships, with particular regard to what climate
change considerations had been made when setting these
judgements and estimates.
The letter also listed a number of minor observations around
various other aspects of the Group’s disclosure that
management has taken into consideration when drafting
theaccounts for 2021/22.
The Committee heard how management had responded to
the FRC’s information request on 21 December 2021 and has
since received a response from the FRC in January 2022,
thanking the Group for the additional information and
confirming that the matter has now been closed.
Significant issues
Consideration of the financial implications and ongoing
impact of COVID-19 on liquidity, going concern and
viability
The Committee reviewed and challenged the assessment
that management made, including the appropriateness of
theunderlying forecast assumptions used in the base and
reasonable worst-case scenarios and the mitigating actions
that management would take.
Note 2.1 of the financial statements, pages 126-127
Viability Statement, page 55
Independent Auditor’s Report to the Members of Saga plc,
pages112-120
Valuation of insurance contract liabilities
The analysis and justification prepared by management in
support of the reserves for outstanding claims, including
consideration of an independent valuation prepared by PwC
andanalysis prepared by the Group’s external auditor, was
reviewed. The analysis and justification were reviewed and
challenged initially by the Acromas Insurance Company Limited
(AICL) reserving and audit committees, following which, it was
also then reviewed and challenged by the Committee.
Note 28 of the financial statements, pages 178-181
Independent Auditor’s Report to the Members of Saga plc,
pages112-120
Valuation of goodwill
The Committee considered the recoverability of goodwill
anddiscussed with management the basis of its impairment
assessment. The key items considered were the
appropriateness of underlying forecast cash flows and potential
stresses to those cash flows, and the selection ofanappropriate
discount rate and terminal growth rate, including the sensitivity
of the assessment to changes in those rates within a reasonable
range. The review concluded that no impairment of the carrying
value of goodwill was necessary.
Note 16a of the financial statements, pages 157-158
Independent Auditor’s Report to the Members of Saga plc,
pages112-120
Valuation of the parent company’s investment in
subsidiaries
The Committee evaluated the recoverability of the carrying
value of the investment in subsidiaries held on the balance sheet
of the Company. The Committee reviewed and challenged
management’s internal valuation of the Group. The Committee
also considered alternative valuation data based on market data
provided by brokers. The review confirmed that no impairment
was required, nor was it appropriate to reverse any previous
impairments at this stage.
Notes 1.2 and 2 of the Company financial statements, pages 197-198
Independent Auditor’s Report to the Members of Saga plc,
pages112-120
Audit Committee Report
continued
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
78
Valuation of cruise ships
The Committee reviewed indicators of impairment and
resultant impairment reviews of the Group’s cruise ships.
Thekey items considered were the appropriateness of
underlying forecast cash flows and potential stresses to
those cash flows, including, in particular, the impact of
COVID-19 on the resumption of cruising, their useful
economic lives and residual values, and the appropriateness
of these in light of climate change regulations, and the
selection of an appropriate discount rate.
The Committee also considered the sensitivity of the
assessment to changes in that rate within a reasonable
range.
Note 17 of the financial statements, pages 159-161
Independent Auditor’s Report to the Members of Saga plc,
pages112-120
Carrying value of other material assets
The Committee reviewed indicators of impairment and
resultant impairment reviews of the Group’s other items of
property, plant and equipment and software intangibles. For
land and buildings, the Committee considered whether any
buildings recognised as held for sale at the balance sheet
date still met the necessary criteria as per IFRS 5, and for
those that did, challenged the basis of the updated valuations
obtained. The Committee also considered assets held in
relation to the Tour Operations business, and took the
decision to write down to nil the carrying value of those
assets no longer deemed to be recoverable as part of the
reorganisation of the Tour Operations business.
Defined benefit pension scheme
During the year, the Group’s defined benefit pension scheme
was valued in accordance with IAS 19 ‘Employee Benefits’ by
the Group’s pension scheme advisers and it was concluded
that the scheme had moved from a £4.3m deficit to a £1.1m
surplus. The Committee supported the Group’s proposal to
consult with members to propose the scheme be closed to
future accruals and in its place, launch a new defined
contribution pension scheme arrangement for all colleagues
operated by Aviva as a Master Trust. Following a consultation
process, the defined benefit pension scheme was closed to
future accruals, further reducing the risk of future deficits
developing and moving to a fairer scheme for all colleagues.
Note 27 of the financial statements, pages 174-177
The Committee considered the internal control observations
identified by the Group’s external auditor as part of the audit
and management attended Committee meetings to provide
context and assurance regarding appropriate actions. The
Committee was satisfied that the key accounting policy
choices and judgements were appropriate and provided a
true and fair view of the Company’s financial performance
and position.
Fair, balanced and understandable
We advised the Board that we supported the statement
(seepage 65) that this Annual Report and Accounts, takenas
a whole, is fair, balanced and understandable andprovides
the information necessary for shareholders toassess the
Group’s position and performance, business model and
strategy. This was following consideration of whether:
•
the report was clear and presented a balanced view
ofsuccesses, challenges, opportunities and risks;
•
key messages were prominent and an appropriate level
ofkey performance indicators (KPIs) were disclosed;
•
business segments, significant issues and key judgements
reporting was consistent with disclosures in the financial
statements; and
•
definitions provided were explained and Alternative
Performance Measures were reconciled with theclosest
IFRS measure in the financial statements.
Going concern and viability
The going concern basis of preparation disclosure note is set
out on pages 126-127 and the Viability Statement, and the
methodology for assessing the Group’s ongoing viability, are
set out on page 55.
Our review took account of the Company’s current position
and principal risks and uncertainties (PRUs) (as reviewed and
refreshed by the Risk Committee and detailed on pages
53-54) and the methodology used to provide an assessment
of ongoing viability over the five-year period of review. We
considered the relevant assessment time horizon, severe,
but plausible, potential outcomes and the appropriateness of
the scenarios modelled. In particular, weconsidered the
continued impact that the COVID-19 pandemic could have on
the Group’s financial performance and position, and how this
could affect both the viability of the Group and the going
concern basis of preparation that underpins the Group’s
financial statements. Based on this review, we confirmed to
the Board that we considered that it was reasonable for the
Directors to continue to prepare the financial statements on
a going concern basis and make the Viability Statement on
page 55.
Audit and control
Internal controls
The Committee reviewed the outcome of the audits of key
financial controls included in the Internal Audit work plan. The
Group Finance Director also provided an update on accounting
issues and key aspects of financial controls at each meeting. In
August 2021, we received an update on the work which had
been progressed by a 1
st
line Financial Control Working Forum
which had been established to improve working practices
following the results of a key financial controls audit carried out
in the first quarter. The Committee continued to receive
updates on the implications of IFRS 17, regulatory update
sessions with KPMG and to be briefed on progress made with
the Group’s preparatory work on its adoption, ahead of its
application in the financial year ending 31 January 2024.
Financial crime and Speak Up reporting
Policies covering financial crime (including anti-bribery,
anti-corruption, anti-fraud, anti-money laundering and
treasury sanctions and asset freezing) were reviewed and
approved. We reviewed existing Speak Up processes and
policy against best practice to ensure continued integrity
andeffectiveness and to encourage colleague engagement.
Iam responsible for ensuring the integrity, independence
andeffectiveness of the Company’s Speak Up Policy and
procedures. Since the year end, the Committee has reviewed
all reported incidents and concluded that these hadbeen
handled appropriately, with no material issues identified.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
79
Audit Committee Report
continued
Internal Audit
We approved the Internal Audit work plan and considered the
internal audits conducted throughout the year. Following a
tender process, and in line with the Chartered Institute
ofInternal Auditors (CIIA) Standards, PwC carried out an
External Quality Assessment (EQA). The results were
presented to the Committee during the year and concluded
that Internal Audit met the needs of its key stakeholders and
was ahead of its peers in this regard. The Committee noted
that a longer-term strategy to include the target operating
model (TOM) had been designed as a result of the EQA. The
audit plan was refreshed for the second half of the year, with
progress being appropriately reported by the Internal Audit
Director and amendments to the audit plan being approved
by the Committee. We were satisfied that the Internal Audit
function, a team of eight people with a broad range of skills,
when combined with the use of external resource for
specialised audits, had appropriate resources. The Internal
Audit Director attended Committee meetings and provided
regular reports on the progress of the Internal Audit plan.
The Committee monitored whether the Internal Audit
function was independent of management and so able to
exercise independent judgement throughout the year and
was satisfied that this was the case.
A quality assurance and improvement programme, as
required by the CIIA was considered. The Committee
concluded that the Internal Audit function complied with
theCIIA’s definition of internal auditing, the core principles
ofthe Professional Practice of Internal Auditing and the Code
of Ethics. The Committee (in co-operation with the Risk
Committee), monitored the work of the Risk, Compliance
andInternal Audit functions to ensure that their activities
complemented each other appropriately. KPIs included
whether actions were closed within agreed timeframes
andsatisfaction survey response rates. We approved the
Internal Audit Charter, which is available on our corporate
website (www.corporate.saga.co.uk/about-us/governance).
Work conducted over the year was risk-based and covered
both financial and non-financial controls. A selection is
shownbelow:
•
Pricing (AICL):
Review of the design of the revised pricing
framework, including pricing strategy and practices and
embedding of the new TOM.
•
Customer journeys (Saga Services Limited (SSL), claims
and customers in vulnerable circumstances):
Review of
the customer journey in various business areas.
•
Cloud migration (Group):
Review of readiness and
planning for cloud migration, including the logical migration
path and cost-benefit analysis.
•
Treasury and cash management (Group):
Management
ofworking capital to meet short-term debts and long-term
growth plans.
Where improvements were identified, an action plan was
agreed with management and appropriately tracked. Internal
Audit also presented their annual year end review of the
effectiveness of the risk management and controls
framework. They found it reasonable for the Committee to
conclude that, whilst areas for improvement were identified,
the internal risk and control environment is broadly effective.
The Chief Risk and Compliance Officer also presented
findings of the 2
nd
line annual review of the control framework
andreported the same conclusion.
Audit, risk and internal control, pages 74-76
Risk Committee Report, pages 82-84
Subsidiary audit committees
I have regular meetings with the independent Non-
ExecutiveDirectors who chair the SSL, SagaPersonal
Finance Limited and AICL audit, risk and compliance
committees to ensure an appropriate level ofoversight and
enable a sufficient level of transparency. Minutes from these
meetings were also noted at each Committee meeting.
External audit
KPMG was appointed as the Company’s external auditor
forthe financial year ended 31 January 2018 (following
acompetitive tender process in 2016/17) and has been
re-appointed annually since then. The current audit partner,
Stuart Crisp, has been in place since its appointment.
Theaudit partner is due to be rotated after completion
oftheJanuary 2022 year-end reporting process.
Audit planning
KPMG presented an audit plan for the financial year, together
with an outline of its risk assessments, materiality thresholds
and planned approach. The key aspects of the plan are set
out in the Independent Auditor’s Report to the Members of
Saga plc on pages 112-120.
The Committee considered the audit scope, materiality and
coverage, areas of audit focus and KPMG’s planned response
to identified significant audit risks, taking size, complexity
and susceptibility to fraud and error into account. We also
considered and approved KPMG’s engagement terms and
fee proposal for 2021/22.
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
80
Auditor independence and non-audit services
During the year, the Committee met twice with the external
auditor without members of management being present.
The challenge, independence and objectivity of KPMG was
monitored continuously by the Committee and independence
was confirmed by the auditor throughout the year in letters
addressed to the Committee.
In accordance with the Revised Ethical Standard issued
bythe FRC in 2016, the Committee has adopted a robust
Auditor Independence Policy on non-audit fees and
employment of former employees of the external auditor.
Thepolicy includes a list of non-audit services for which we
are satisfied that the external auditor can carry out those
services without affecting its independence as external
auditor. There are clear approval levels where the Committee
Chair (or the whole Committee) is required to authorise
assignments. Competitive tendering is used for substantial
work. The Auditor Independence Policy was reviewed on
20August 2021.
The audit fees payable to KPMG in respect of the year ended
31 January 2022 were £1.8m (2021: £1.7m) and non-audit
service fees incurred were £0.2m (2021: £0.8m), the latter
being incurred for work to review the Group’s interim results
and essential reporting to our banks and travel industry
regulators. This equates to a non-audit to audit fee ratio
of0.1(2021: 0.5). A summary of fees paid to the external
auditor is set out in Note 4a to the consolidated financial
statements on page 149. KPMG has discontinued the
provision of non-audit services to the current and recent
members of the FTSE 350 index that they audit, other than
those required by law or closely related to the audit.
Audit quality and effectiveness of external auditor
The following were considered when assessing the
effectiveness of KPMG:
•
Our perception of KPMG’s understanding and insight into
the Group’s business model.
•
How key areas of judgement were approached by KPMG,
the extent of challenge and the quality of reporting.
•
The content of (and management’s responsiveness to)
KPMG’s management letter.
•
Feedback from management following completion of an
evaluation survey on the audit process (including audit
scope, audit communication, independence and
objectivity).
The evaluation concluded that the external auditor had run
the audit process well, retained a high level of independence
and had challenged the key accounting judgements and
estimates rigorously and fairly. Respondents said that the
planning of the audit had improved because of feedback
provided in the previous year, particularly in the Insurance
and Travel businesses. The conclusion was that there was an
opportunity to improve communication and the efficiency
ofthe audit overall. Overall, the audit was judged to be
high-quality.
The Committee is satisfied that the audit continues to be
effective and provides independent and objective challenge
to management. A recommendation was made to the Board
for the re-appointment of KPMG as the Company’s auditor
atthe forthcoming AGM.
Gareth Hoskin
Chair, Audit Committee
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
81
Managing and reporting c.35%
Risk strategy, policy
and appetite c.20%
Compliance c.15%
In-depth reviews c.30%
Risk Committee Report
The Committee’s responsibilities
•
Review and advise the Board on the Group’s overall
risk appetite, tolerance and strategy and risk
assessment processes.
•
Oversee and advise the Board on current risk
exposure and future risk strategy.
•
Monitor the effectiveness of the Group’s risk
management and internal control systems and
conduct risk management procedures.
•
Monitor principal risks and uncertainties (PRUs).
•
Consider the Group’s capability to identify and
manage new, and emerging, risk.
•
Provide qualitative and quantitative advice to the
Remuneration Committee on risk weightings.
•
Review material breaches of risk limits and adequacy
of action.
The Committee’s Terms of Reference were reviewed
during the year (approved by the Board on
20September 2021) and are available on our corporate
website (www.corporate.saga.co.uk/about-us/
governance).
What we did during the year
Time spent on matters
Committee composition and attendance
Members (allare
independent Non-
Executive Directors)
Member
since
Max.
possible
meetings
Attendance
Julie Hopes (Chair)
4 Apr 19 4 4
Orna NiChionna
29 May 14 4 4
Gareth Hoskin
4 Apr 19 4 4
Committee evaluation
An evaluation of the Committee’s effectiveness took place
during the year, as part of the Board effectiveness review
(for details, see page 69).
The review indicated that there was a healthy level of
challenge and robust discussion around risk management
and that key regulatory developments and PRUs were
adequately discussed. The focus for 2022/23 will be on
ensuring that discussions around risk in business areas
were brought to the Committee at the appropriate time
tosupport delivery ofthe strategy.
Julie Hopes
Chair, Risk Committee
Dear shareholder,
It has been another important and challenging year for the
Risk Committee. During the year, we considered the risks
and interdependencies within the Group and reviewed and
discussed emerging and principal risks and uncertainties,
aiming to ensure that these remained aligned with the
Group’s strategy.
A significant amount of time was dedicated to oversight of
our regulated entities and regulator relationships. The
Committee held robust discussion on the expectations of our
regulators, including the Financial Conduct Authority (FCA).
We discussed readiness for regulatory developments
including the general insurance pricing practices market
study and new requirements in relation to operational
resilience and consumer duty.
We also considered the areas that should be the subject of
detailed review, taking into account the external regulatory
and macroeconomic landscape. The Committee conducted
deep-dive analyses into topics including operational
resilience and supplier risk management.
Management and reporting
The Committee considered the rationale behind the
selection of PRUs, as well as the risk and conduct risk
monitoring plans for each business. The Group’s PRUs were
reviewed and refreshed regularly during the year, ensuring
that new and emerging risks and opportunities were
captured and remained at the forefront of the Group’s
strategic planning.
The impacts of the COVID-19 pandemic on business
operations and sustainability of the balance sheet remained
akey area of focus.
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
82
The Committee also discussed emerging trends in key areas
including data protection risk and cyberrisk. Risks relevant
to our business transformation programme, including culture
and capability, were also considered. This included the
organisational design of the Group’s Risk function.
The Committee reviewed the risks relating to the
performance of each business and those arising from
incidents in relation to control failures or weaknesses.
Wediscussed these incidents in the context of the risk
framework to identify causes, necessary actions, lessons
learnt and monitoring requirements. All business Chief
Executive Officers certified compliance with the risk
management framework atthe year end.
The Committee continued to receive reports on, and provide
oversight of, risk matters including those pertaining to climate
risk, through the Committee’s oversight of the PRUs, as well
asthrough subsidiary risk governance committees, who
escalated material points for consideration to the Committee.
Risk management and internal controls
In co-ordination with the Audit Committee, we discussed the
effectiveness of the Group risk management framework and
internal control systems, including reference to all material
financial, operational and compliance controls. The
Committee concluded that the internal risk and control
environment was effective, with controls to mitigate key risks
operating effectively. The Group will continue to take action
to enhance the customer experience, strengthen supplier
risk management processes, embed management actions
and enhance capability and capacity across the businesses.
We recommended to the Board that the appropriate
statements could be made regarding robust assessment
ofemerging and principal risks facing the Group and the
review of the effectiveness of the risk management process
(see pages 74-75).
Risk strategy, policy and appetite
The risk reporting framework continued to provide a holistic
approach linked to the Company’s strategy and business
model. The Committee recognised the strength of our brand
and the economic resilience of our customer demographic
while appropriately considering opportunities and threats.
Changes and additions to the PRUs were scrutinised in line
with the agreed strategy and business model and the results
of this review are shown in the Strategic Report on pages
53-54. These formed the basis of the scenario testing used
to produce the Viability Statement (see page 55). Our risk
management processes are described on pages 74-76.
These are designed to manage, rather than eliminate, the risk
of failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material
misstatement or loss.
We reviewed and recommended approval of the Group risk
appetites and risk framework policy during the year. The
Committee oversaw the application of key risk indicators and
alert limits for risk appetites, to ensure that any breaches
ofagreed appetite would be appropriately escalated.
The Committee also reviewed the Group’s five-year plan
from a risk management perspective. We considered
conduct risk and how our decisions and behaviour could
impact our customers, or affect our reputation with
stakeholders, including shareholders and regulators.
Business actions were reviewed against risk appetite and
tolerance, and we concluded that where scenarios were
outside of risk appetite, the probability of occurrence was
low and that mitigating actions were appropriate. The
Committee remains satisfied that suitable controls are in
place, meaning that the risk of significant failure across the
business model is considered unlikely.
The Committee is focused on a continued robust response
aswe emerge from the COVID-19 pandemic and ongoing
resilient trading in our Insurance business alongside the need
for financial flexibility as uncertainty caused by the pandemic
continues in our Travel business.
We are also focused on delivery of good regulatory outcomes
in key areas such as compliance with the general insurance
pricing practices market study. Furthermore, a process of
ongoing improvement continues in supplier risk management,
with the Committee continuing to oversee and review action
outcomes in this area. As a Committee, we are acutely aware
of the need for the organisation to focus on the risks
associated with larger suppliers and those that carry
reputational risk, as well as their role in delivering robust
operational resilience. The Group has continued to refine
itsgovernance framework, including a system of delegated
authorities that allows the Committee to focus on the
material issues which are escalated to it.
In-depth reviews
During the year, the Committee conducted in-depth reviews
into key topics relevant to the Group’s strategy.
Operational resilience
The Committee considered the expectation from the
Group’s regulators for robust operational resilience,
including a focus on both preventing incidents and practising
response activities in preparation for potential failures,
should they occur. The focus of the Committee was on
readiness for implementation of new rules on operational
resilience from March 2022. We considered the various
dimensions of operational resilience readiness, including
strategy, governance, the need for a transformation
programme and implementation of an appropriate
operatingmodel.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
83
The Committee reviewed the Group’s operational resilience
readiness plans, and provided feedback on the proposed
timeline, third-party support and process map. We discussed
criteria for the screening of important business services and
considered the involvement of internal and external suppliers
in operational readiness. The Committee made
recommendations on the appropriate governance structures
for the project and on the suitable levels of adviser support.
Supplier risk management
The Committee received a detailed report on the findings of
a third-party supplier assurance review conducted by the 2
nd
and 3
rd
lines of defence, based on industry best practice. We
noted the performance of key supplier controls, including
contract governance, due diligence, data security and audits.
We also supported key actions agreed with management,
including improved oversight through a procurement forum,
alongside implementation of a procurement framework.
We supported recommendations for strengthening the
Group procurement function and requested further action,
including a gap analysis of third-party supplier management,
by the internal audit function.
COVID-19 pandemic
The Committee continued to review the Group’s ongoing
response to the COVID-19 pandemic, including the various
lockdown scenarios set out by the UK Government. Through
ongoing engagement with regulators, including the FCA, Saga
was focused on protecting our customers. More recently,
theCommittee considered the necessary steps to emerge
stronger from the impact of the COVID-19 pandemic as
theTravel business resumed operations.
Conflicts of interest management
The Committee reviewed potential conflicts of interest that
could arise from the Group’s organisational structure,
including cross-entity directorships, and noted regulatory
expectations in this area. The Committee supported ongoing
further action to ensure a robust level of protection from
conflicts, including training for the leadership team,
strengthening the policy, and an improved process for
identifying, documenting and mitigating potential conflicts.
Risk function design
The Committee discussed the increasing demands and
expectations of regulators on risk management and
supported a review of the design of the 2
nd
line function,
toensure sufficient capacity exists to facilitate strong risk
management and good business and key stakeholder
partnerships.
Julie Hopes
Chair, Risk Committee
Risk Committee Report
continued
Corporate Governance Statement
Saga plc Annual Report and Accounts 2022
84
Annual Statement
Remuneration Policy c.15%
Regulatory
developments c.10%
Senior management
remuneration c.30%
Share schemes c.25%
Colleague compensation
and benefits structure c.20%
The Committee’s responsibilities
•
Set and monitor the Remuneration Policy for senior
executives, considering relevant legal and regulatory
requirements and all relevant factors to ensure
alignment with delivery of value over the long term.
•
Determine and monitor remuneration packages
forExecutive Directors, the Chairman and
seniormanagement.
•
Work with the Nomination Committee regarding
workforce structure, reward incentives and conditions.
•
Review workforce remuneration and incentive
programmes to encourage desirable culture,
behaviour and responsible risk-taking.
•
Determine all aspects of share-based
incentivearrangements.
•
Review and administer employee share schemes.
•
Set key performance indicators (KPIs) for the
AnnualBonus Plan and long-term incentives.
•
Prepare a Directors’ Remuneration Report annually.
The Committee’s Terms of Reference were reviewed
during the year (approved by the Board on
20September 2021) and are available on our
corporatewebsite (www.corporate.saga.co.uk/
about-us/governance).
Committee evaluation
An evaluation of the Committee’s effectiveness took
place during the year as part of the Board effectiveness
review (see page 69).
The review indicated that the Committee members
hadthe right balance of skills, discharged their key
responsibilities effectively and were ably supported by
its remuneration consultants. The focus for 2022/23
will include further consideration of the impact of
policies and practices on all colleagues.
What we did during the year
Time spent on matters
Committee composition and attendance
Members (all are
independent Non-
Executive Directors)
Member
since
Max.
possible
meetings
Attendance
Eva Eisenschimmel
(Chair)
4 Apr 19 7 7
Julie Hopes
4 Apr 19 7 7
Orna NiChionna
29 May 14 7 6
Contents
Annual Statement
Pages 85-87
Remuneration at a glance
Pages 88-89
Directors’ Remuneration Policy
Pages 90-93
Annual Report on Remuneration
Pages 94-106
Single total figure of remuneration
Page 94
Annual bonus outcomes
Page 95
Scheme interests awarded
Page 98
Directors’ shareholdings
Page 99
Wider workforce pay policies
Page 100
Shareholder voting at the Annual
General Meeting (AGM)
Page 104
Service contracts and letters
ofappointments
Page 104
Compliance with UK Corporate
Governance Code
Pages 105-106
Eva Eisenschimmel
Chair, Remuneration Committee
Directors’ Remuneration Report
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
85
Dear shareholder,
I am pleased to present to you the Directors’ Remuneration
Report for the year ended 31 January 2022 which has been
approved by both the Remuneration Committee (the
Committee
) and the Board.
Rising to the challenges
As referenced in the Strategic Report, this year has
continued to be challenging for society given the continued
effects of the COVID-19 pandemic. Despite these pressures,
I am pleased to say that the Company is in a much stronger
position than a year ago.
Our Leadership Team has made significant progress,
delivering robust performance, and has worked intensively to
ensure that the execution of our strategy stayed on course.
Our Insurance Broking and Underwriting businesses, the
mainstays of our business, have performed with resilience,
meeting our expectations in all key areas.
In 2021, both our ocean ships were able to begin sailing with
fewer restrictions and achieved satisfactory levels of
occupancy. We also began a phased resumption of our Tour
Operations. While we have taken fewer customers on holiday
than in previous times, we are encouraged by the loyalty of
our guests, the signs of returning confidence in overseas
travel for next year and the continued relaxation of COVID-19
travel restrictions.
In summary, our Leadership Team has faced into a range of
competing challenges with skill and dedication, enabling us to
be agile in our response to COVID-19, while at the same time
delivering on our strategy and building the foundations for
future growth.
Company performance in 2021/22
The implementation of our strategy (as outlined on pages
18-21) has been measured against the key performance
indicators (KPIs) set out below:
•
Underlying Profit Before Tax
1
decreased by £23.8m to
aLossof (£6.7m).
•
Available Operating Cash Flow
1
increased to £75.8m.
•
Insurance Underlying Profit Before Tax
1
decreased 10%
to£120.5m.
•
Net debt improved to £729.0m.
•
Motor and home retention of 82.8%, 2.3ppts ahead
of2020/21.
•
Cruise load factor of 68% for 2021/22 and as at
30January 2022, 74% for 2022/23.
•
Cruise per diem was £299 for 2021/22 and as at
30January 2022, £317 for 2022/23.
•
Customer net promoter score (NPS) increased to 49.
•
Overall colleague engagement increased to 7.7 out of 10.
•
Colleague engagement with our values of 7.8 out of 10.
Changes to the Board
There were no changes to the Board during the year.
Salary increases for 2021/22
Euan Sutherland was awarded an inflationary salary increase
of 1.5% for the financial year 2021/22 aligned with the
all-colleague increase. In line with the disclosure in the 2021
Director’s Remuneration Report, James Quin did not receive
an inflationary increase and, instead, his salary was increased
from £370,000 to £430,000, effective 1 January 2021.
2021/22 bonus
In April 2021, targets were set for the 2021/22 annual bonus,
taking into account the turbulent trading outlook and the
Company’s business plan. The specific targets are shown
onpages 96-97, together with the degree of achievement
foreach.
The Committee considered the level of bonuses achieved in
respect of the targets set for 2021/22 and noted that the
measures and targets had been carefully selected to reflect
the challenging outlook for the business at the time. The
annual bonus measures selected were set out in last year’s
Directors’ Remuneration Report and were specifically
tailored to the key areas which required strong performance
during this period of extended uncertainty. The management
team have delivered strongly against these measures and
targets. Noting that Government support was not sought
orused, the Committee judged it was appropriate to award
abonus payout in line with the achievement of the bonus
targets which had been set.
Page 95 sets out the calculation for the 2021/22 bonus which
paid out at between 85% and 87% of maximum for
theExecutive Directors.
Euan Sutherland will receive a bonus of £909,937.
JamesQuin will receive a bonus of £465,636. In line with
ourapproved Policy, all bonus awards are paid one-third in
deferred shares and two-thirds in cash.
2019 long-term incentive plan (LTIP) vesting
James Quin was granted the 2019 LTIP on 12 August 2019 in
line with the Company’s normal LTIP cycle. Euan Sutherland
joined part-way through the Company’s normal LTIP cycle
and was therefore granted a pro-rata award on 6 January
2020.
It is currently anticipated that the return on capital employed
(ROCE) performance condition will result in no proportion of
the award vesting (25% of the award). No proportion of the
LTIP award is currently expected to vest in respect of the
total shareholder return (TSR) performance of the Company
over this performance period (25% of the award).
Performance against the remainder of the LTIP award, which
relates to operational and strategic metrics, is expected to
result in 20% of this proportion of the award vesting (50%
ofthe award). This is expected to lead to an overall vesting
of10% for the 2019 LTIP award (on 12 August 2022 for
James and on 6 January 2023 for Euan).
1 Refer to Alternative Performance Measures Glossary on page 201 for definition and explanation
Annual Statement
continued
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
86
Remuneration Policy (the Policy)
Our current Policy was approved by shareholders at the
2020 AGM with a vote of 97.98%. Changes were made at
that time to bring the Policy in line with 2018 UK Corporate
Governance Code and best practice. We have been reviewing
the appropriateness and alignment of our current Policy in
light of the evolving business strategy and, in particular, the
growth strategy, following a period where the foundations for
growth have been our focus. We are currently engaging with
major shareholders to determine whether to bring forward
anew Policy in 2022, which would be a year ahead of the
normal three-year renewal period.
What we achieved during the year – matters
discussed, decisions made and actions taken
•
Approved Executive Director and Executive Leadership
Team salary increases for 2021/22.
•
Approved the business and personal metrics for the
2021/22 annual bonus. Details of the personal objectives
for the Executive Directors can be found on pages 96-97.
•
Made grants in April 2021 under the Restricted Share Plan
(RSP) for the Executive and Senior Leadership Teams.
•
Recommended that the Board approve the award of Free
Shares to all eligible colleagues in November 2021.
•
Reviewed the governance and processes of the four Saga
Share Plans in operation and confirmed that they met the
necessary standards and were well communicated.
•
Reviewed the proposal to revisit the pension scheme
design for all colleagues, including the closure of the
defined benefit scheme.
•
Considered the Environmental, Social and Governance
agenda, reviewed progress against the actions to reduce
our gender pay gap and discussed the wider diversity,
equity and inclusion (DE&I) strategy.
•
Noted the voting results on our Remuneration Report
atthe 2021 AGM and consulted with the largest
shareholders who voted against the resolution to seek
clarity on the reasons for this.
•
Reviewed the 2021 gender pay report.
•
Conducted a mid-year review of executives’ personal
objectives and agreed the timeline and approach to setting
objectives for 2022/23.
•
Discussed how the Committee would review wider
workforce pay and ensure alignment of incentives
throughout the Company with its culture and strategy.
Wider workforce considerations
In making decisions on executive pay, the Committee
considers wider workforce remuneration and conditions,
asoutlined on pages 100-101. We continue to be as focused
on our colleagues as we are on our customers and we review
our reward, benefits and careers package to ensure we
remain competitive in the market. We continue to engage
with colleagues on executive reward matters through our
People Committee, which I attend regularly. Details of our
People Committee can be found on page 26.
As part of our commitment to fairness, this report contains
details of the pay and conditions of our wider workforce, the
cascade of incentives throughout our business and our
Group Chief Executive Officer to colleague pay ratio. Details
of Saga’s gender pay report can be found on our website
(www.saga.co.uk/gender-pay-review).
Shareholder consultation and looking ahead
The Committee consulted with shareholders at various
points throughout the year as appropriate. At the 2021 AGM,
shareholders supported the Directors’ Remuneration Report
with a voting outcome of 77.72%. Whilst I am pleased that the
majority of shareholders supported the resolution, it was
important to us to understand the reasons behind the votes
against it.
In the week after the AGM, I wrote to the largest
shareholders who voted against the resolution to understand
the reasons for their vote. The Remuneration Committee
appreciates and values time taken by shareholders who
expressed their views and understands that these were
primarily connected to the payment of formulaic bonuses in
respect of 2020/21, when taking into account the range of
challenges experienced by the Company, our customers and
shareholders during the year.
Following this valuable exchange with shareholders, the
Committee determined that the points raised were items
which had been considered when the relevant bonus
decisions were made and, where possible, had also been
taken into account in the setting of targets. In addition, the
Committee considered bonuses in the broader context of
the business and our stakeholders when determining the
level of bonus awards and will continue to do so each year.
Wedid not, therefore, consider the voting outcome to be
indicative of a structural or systemic problem with the bonus
design, nor the Policy as a whole. The Committee will
continue its constructive dialogue with shareholders and
seek to incorporate this feedback into its future
remuneration decisions.
Conclusion
I hope you find the information contained in this report
helpful, thoughtful and clear.
I welcome any feedback from the Company’s
shareholders,and you can contact me at any time at
eva.eisenschimmel@saga.co.uk if you have any questions
orcomments on this report.
Eva Eisenschimmel
Chair, Remuneration Committee
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
87
Remuneration at a glance
Remuneration in the Group
2021/22 Annual bonus and 2019 long-term incentive plan (LTIP) outcomes
For 2021/22, the Group Chief Executive Officer (CEO) and Group Chief Financial Officer (CFO) had a maximum bonus
opportunity of 150% of salary and 125% of salary respectively. The overall bonus outcome is set out in the table below.
Nodiscretion was applied to the formulaic outcome. Further details are set out on pages 96-97 in the Annual Report
onRemuneration.
Performance condition
Weighting
Threshold
(20% payout)
Target
(50% payout)
Maximum
(100% payout)
Outcome achieved
(% of award)
2021/22
Annual
bonus
outcome
Insurance Underlying
Profit Before Tax
1
21%
100%
Saga Services Limited
retention
14%
52%
2021/22 Cruise load factor
3.5%
–
2021/22 Cruise perdiem
3.5%
100%
2022/23 Cruise load factor
(at 30 January 2022)
3.5%
100%
2022/23 Cruise per diem
(at 30 January 2022)
3.5%
100%
Net debt
21%
85%
Personal objectives
30%
CEO: 96%
CFO: 100%
Total
100%
CEO: 85.4%
CFO: 86.6%
The chart below shows the outcome of the 2019 LTIP awards, for the performance period ended 31 January 2022.
2019 LTIP
outcome
Relative total shareholder
return
25%
–
Return on capital employed
25%
–
Operational and strategic
measures
50%
20%
Total
100%
CEO: 10%
CFO: 10%
Total spend
on pay
£118.3m
2020/21 – £130.3m
2019/20 – £125.6m
CEO pay ratio to the
median employee
76:1
2020/21 – 76:1
2019/20 – 41:1
General increase
for all employees
1.5%
2020/21 – 1.5%
2019/20 – 2.0%
1 Refer to Alternative Performance Measures Glossary on page 201 for definition and explanation
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
88
Euan Sutherland
Grou
p
CEO
£
2,
11
8,471
2,
38
6,
45
6
James Quin
G
rou
p
CFO
£
1,118,544
1,300,079
2021/22 Total single figure remuneration
2021 RSP awards granted
Shareholding of the Executive Directors
On 30 April 2021, the second RSP award was granted to the CEO and CFO. Details of the award are set out below.
Director
Basis of award
Date of grant
Number of
shares granted
Face value
per share
3
Total face value
of award
Group CEO
Euan Sutherland
100% of salary 30 April 2021
£3.8560184,258
£710,500
Group CFO
James Quin 85% of salary 30 April 2021
94,787
£3.8560
£365,500
The table sets out the shareholdings of the Executive Directors at 31 January 2022. Further detail is set out on page 99.
Director
Shareholding
requirement
(% of salary)
Shares owned
outright
(% of salary)
4,5
Shares subject to
continued
employment
(% of salary)
5,6
Group CEO
Euan Sutherland
250%
31%
100%
Group CFO
James Quin
200%
10%
94%
2021/22
2020/21
2021/222020/21
Salary
710,500
700,000
430,000
374,583
Benefits
12,889
13,641
13,03513,143
Pension
42,630
42,000
25,800
31,108
Bonus paid in cash
606,625
581,887
310,424
306,212
Bonus deferred in shares
2
303,312
290,943
155,212
153,106
Restricted Share Plan (RSP)
2
710,500
490,000
365,500
240,500Total
2,386,456
2,118,471
1,300,079
1,118,544
2 Deferred bonus and RSP awards both vest after three years
3 Represents the share price on the day prior to grant
4 Represents actual shares owned at 31 January 2022
5 Based on a closing share price of £2.848p at 30 January 2022 and the year-end salaries of the Executive Directors
6 Represents unvested RSP awards and annual bonus deferred share awards, as well as LTIP awards in the two-year holding period (included on a net
oftaxbasis)
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
89
Directors’ Remuneration Policy
Summary of current Remuneration Policy and implementation in 2022/23
The current Remuneration Policy (the
Policy
) was approved by shareholders at the Company’s AGM on 22 June 2020.A summary of the Policy is provided below and the full version can also be found on our corporate website
(www.corporate.saga.co.uk/about-us/governance) or from the Group Company Secretary at Saga’s registered office.
Key elements of the Policy and time horizon
The graphic below illustrates the time horizon for each of the key elements of our Policy:
Financial year
2022/23 2023/24 2024/25
2025/26 2026/27
Base salary
Benefits and pension
Annual bonus – cash
Annual bonus – deferred shares
Restricted Share Plan (RSP)
Shareholding requirement
(Ongoing)
All-colleague share plan
Chairman and Non-Executive Director fees
Details of each of these elements and their implementation are included in the table below, which provides the following
information:
•
A summary of the key elements of the Policy.
•
The operation of the Policy in 2021/22 and its proposed operation in 2022/23.
Policy element
Summary of the Policy
Operation in 2021/22 Proposed operation in 2022/23
Base salary
Provides a base level of
remuneration to support
recruitment and retention of
Executive Directors with the
necessary experience and
expertise to deliver the
Group’s strategy.
Salaries are set on
appointment and reviewed
annually. When determining
an appropriate level of salary,
the Committee considers:
•
pay increases to other
colleagues;
•
remuneration practices
within the Group;
•
any change in scope, role
orresponsibilities;
•
the general performance
ofthe Group and each
individual;
•
the experience of the
relevant Director; and
•
the economic environment.
Euan Sutherland received
asalary increase of 1.5%,
consistent with other
colleagues.
Having delayed the increase
in the previous year, James
Quin’s salary increased from
£370,000 to £430,000,
effective 1 January 2021.
Salaries for the Executive
Directors were:
•
Euan Sutherland: £710,500
•
James Quin: £430,000
Executive Directors received a
2.5% increase in salary, in line
with the wider workforce.
As a result, the salaries for the
Executive Directors are:
•
Euan Sutherland: £728,262
•
James Quin: £440,750
Benefits
Provides a market-standard
level of benefits.
Benefits may include family
private health cover, death in
service life assurance, a car
allowance, subsistence
expenses and discounts in
line with other colleagues.
Standard benefits provided.
No change.
Performance period:
Vesting period:
Holding period:
Key
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
90
Policy element
Summary of the Policy
Operation in 2021/22 Proposed operation in 2022/23
Pension
Provides a fair level of pension
provision for all colleagues.
Directors may participate in a
defined contribution scheme.
Maximum pension
contributions for Executive
Directors are aligned with
those of the wider workforce
(6% of salary).
Executive Directors received
the following:
•
Euan Sutherland: 6% of
salary
•
James Quin: 6% of salary
No change.
Bonus
The Annual Bonus Plan
provides a significant
incentive to the Executive
Directors, linked to
achievement in delivering
goals that are closely aligned
with the Company’s strategy
and the creation of value for
shareholders.
In particular, the Annual
Bonus Plan supports the
Company’s objectives,
allowing the setting of annual
targets based on the
business’ strategic objectives
at that time, meaning that a
wider range of performance
metrics can be used that are
relevant.
Awards are granted annually
with performance measured
over one financial year.
The Remuneration
Committee will determine the
maximum participation in the
Annual Bonus Plan for each
year, which will not exceed
150% of salary.
70% of awards will be linked
to financial measures.
Specific measures, targets
and weightings may vary from
year to year.
At least one-third of the
bonus will be deferred into
shares vesting after three
years.
Payout range is as follows
(%of maximum payout):
•
Threshold: up to 20%
•
Target: 50%
•
Maximum: 100%
Malus and clawback
arrangements apply.
Good/bad leaver provisions
apply.
Maximum bonus
opportunities were:
•
Euan Sutherland: 150% of
salary
•
James Quin: 125% of salary
Performance measures and
weightings for the bonus were
as follows:
•
Insurance Underlying Profit
Before Tax
1
: 21%
•
Saga Services Limited
(SSL) retention: 14%
•
2021/22 Cruise load factor
and per diem: 7%
•
2022/23 Cruise load factor
and per diem: 7%
•
Net debt: 21%
•
Personal objectives: 30%
The maximum opportunities
for Executive Directors are
unchanged and are as follows:
•
Euan Sutherland: 150% of
salary
•
James Quin: 125% of salary
The current intention is to set
performance measures and
weightings for the 2022/23
bonus as follows:
•
Group Underlying Profit
Before Tax: 17.5%
•
Net debt: 17.5%
•
SSL retention: 17.5%
•
Cruise load factor and per
diems: 17.5%
•
Personal objectives: 30%
The Committee is of the view
that targets for the 2022/23
annual bonus are currently
commercially sensitive and
these targets will be disclosed
retrospectively in the 2023
Directors’ Remuneration
Report.
Restricted Share Plan
(RSP)
Awards are designed to
incentivise the Executive
Directors over the longer
term to successfully
implement the Company’s
strategy.
Awards of nil-cost options are
granted annually up to a
maximum of 100% of salary.
RSP awards do not have any
performance conditions but
are subject to an underpin on
vesting.
Awards vest after three years
and are subject to a further
two-year holding period,
during which time shares may
not be sold other than for tax.
The RSP awards were made
at the normal levels:
•
Euan Sutherland: 100% of
salary
•
James Quin: 85% of salary
The Committee will review
share price performance on
vesting to determine whether
any windfall gains were made.
No change.
1 Refer to Alternative Performance Measures Glossary on page 201 for definition and explanation
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
91
Remuneration Policy
continued
Policy element
Summary of the Policy
Operation in 2021/22 Proposed operation in 2022/23
Shareholding requirement
To ensure Executive
Directors’ interests are
aligned with shareholders
over the long term.
The Remuneration
Committee sets formal
shareholding guidelines that
will encourage the Executive
Directors to build up over a
five-year period, and then
subsequently hold, a
shareholding equivalent to
apercentage of salary.
•
Euan Sutherland: 250% of
salary
•
James Quin: 200% of
salary
No change.
All-colleague share plan
The Company operates a
HMRevenue and Customs
Share Incentive Plan(SIP).
Shares that are kept in the
plan for five years will be
exempt from income tax
andnational insurance on
their value.
Saga continued to operate
the SIP for all colleagues in
2021, with a Free Share
award of £300 made in
November 2021 to all eligible
full-time colleagues.
Saga will continue to provide all
colleagues with the
opportunity to participate in
colleague equity arrangements.
Chairman and Non-
Executive Director fees
Monetary incentives for the
Chairman and Non-Executive
Directors.
The fees for Non-Executive
Directors are set at broadly
the median of the comparator
group. In general, the level of
fee increase for the Non-
Executive Directors will be
set, taking account of any
change in responsibility and
considering the general rise
in salaries across the UK
workforce.
Fees for 2021/22 were as
follows (Roger De Haan
waived his fee for 2021):
•
Roger De Haan: Nil
•
Board member fee:
£63,672
•
Committee Chair fee:
£10,000
•
Senior Independent
Director fee: £40,000
No change to Non-Executive
Directors or Senior
Independent Director fee.
Roger De Haan waived his fee
up to October 2022.
Illustration of application of the Policy
The chart below shows an estimate of the remuneration that could be received by Executive Directors under the Policy and is
based on the normal RSP award level, rather than the lower initial award.
52% 38% 30% 28%
Minimum Target Maximum Maximum
(with 50% share
price growth)
56% 43% 34% 32%
Minimum Target
Euan Sutherland
Group CEO
James Quin
Group CFO
Maximum Maximum
(with 50% share
price growth)
48%
27%
42%
34%
35%
28%
26%
13%
£1,513
£2,059
£2,606
£2,823
44%
24%
33%
39%
27%
31%
25%
12%
£855
£1,131
£1,406
£1,520
3,000
Fixed
Figures shown (£’000)
2,500
2,000
1,500
1,000
500
0
Bonus RSP Share price growth
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
92
Assumptions used in determining the level of payout under given scenarios are as follows:
Element
Minimum
Target
MaximumMaximum with 50%
share price growth
Fixed elements
Base salary for 2021/22.
Benefits paid for 2021/22 annualised for full year equivalent figures.
Pension in line with policy at 6% of salary.
Annual bonus
Nil.
50% of the maximum
opportunity.
100% of the maximum
opportunity.
100% of the maximum
opportunity.
Restricted Shares
100% vesting of
Restricted Shares.
100% vesting of
Restricted Shares.
100% vesting of
Restricted Shares.
100% vesting of
Restricted Shares plus
the increase in value
from 50% share price
growth.
Award levels are 100%
of salary for the CEO,
85% of salary for the
CFO.
Award levels are 100%
of salary for the CEO,
85% of salary for the
CFO.
Award levels are 100%
of salary for the CEO,
85% of salary for the
CFO.
Award levels are 100%
of salary for the CEO,
85% of salary for the
CFO.
Scenario charts show minimum, target and maximum scenarios in accordance with the regulations, as well as the impact of
a50% share price growth on the long-term incentives for the maximum scenario. All scenarios do not account for dividend
equivalents on Deferred Bonus Plan (DBP) shares or RSP shares.
Loss of office policy
The Committee will honour Executive Directors’ contractual entitlements. Service contracts do not contain liquidated
damages clauses. If a contract is to be terminated, the Committee will determine such mitigation as it considers fair and
reasonable in each case. There are no contractual arrangements that would guarantee a pension with limited, or no,
abatement on severance or early retirement. There is no agreement between the Company and its Directors or other
colleagues, providing for compensation for loss of office or employment that occurs due to a takeover bid. The Committee
reserves the right to make additional payments, where such payments are made in good faith in discharge of an existing legal
obligation (or by way of damages for breach of such an obligation); or by way of settlement or compromise of any claim arising
in connection with the termination of an Executive Director’s office or employment.
To see the full policy on loss of office, please see page 104 of the 2021 Annual Report and Accounts which is available on our corporate website
(www.corporate.saga.co.uk).
Recruitment and promotion policy
The Company’s principle is that the remuneration of any new recruit will be assessed in line with the same principles as for
theExecutive Directors. The Committee is mindful that it wishes to avoid paying more than it considers necessary to secure
apreferred candidate with the appropriate calibre and experience needed for the role. In setting the remuneration for new
recruits, the Committee will have regard to guidelines and shareholder sentiment regarding one-off or enhanced short-term
or long-term incentive payments as well as giving consideration to the appropriateness of any performance measures
associated with an award.
Where an existing colleague is promoted to the Board, the Policy would apply from the date of promotion but there would
beno retrospective application of the Policy in relation to subsisting incentive awards or remuneration arrangements.
Accordingly, prevailing elements of the remuneration package for an existing colleague would be honoured and form part of
the ongoing remuneration of the person concerned. These would be disclosed to shareholders in the Directors’ Remuneration
Report for the relevant financial year.
The Company’s policy when setting fees for the appointment of a new Chairman or Non-Executive Director is to apply the
policy which applies to current Non-Executive Directors.
To see the full policy on recruitment and promotion, please see pages 107-108 of the 2021 Annual Report and Accounts which is available on our
corporate website (www.corporate.saga.co.uk).
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
93
Annual Report on Remuneration
2021/22 Actual performance and remuneration outcomes
Single total figure of remuneration for Executive Directors for the 2021/22 financial year (audited)
The table below sets out the single total figure of remuneration and breakdown for each Director in respect of the 2021/22
financial year. Comparative figures for the 2020/21 financial year have also been provided. Figures provided have been
calculated in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008, as amended in 2013.
Period
Salary
£
Taxable
benefits
£
Pension
£
Other
£
Total
fixed
£
Bonus
1
£
RSP
2
£
LTIP
3
£
Total
variable
£
Single
figure
£
Euan Sutherland
(Group CEO)
2021/22 710,500 12,889 42,630 – 710,500 –
766,019
909,9371,620,437 2,386,456
2020/21 700,000 13,641 42,000 – 490,000 –
755,641
872,8301,362,830 2,118,471
James Quin
(Group CFO)
2021/22 430,000 13,143 25,800 – 365,500 –
468,943
465,636831,136 1,300,079
2020/21 374,583 13,035 31,108 – 240,500 –
418,726
459,318699,818 1,118,544
Roger De Haan
(Non-Executive
Chairman)
2021/22 Nil – – – – –
Nil
–Nil Nil
2020/21 Nil – – – – –
Nil
–Nil Nil
Eva Eisenschimmel
(Non-Executive Director,
Remuneration
Committee Chair)
2021/22 73,672 – – – – –
73,672
–– 73,672
2020/21 73,672 – – – – –
73,672
–– 73,672
Julie Hopes
4
(Non-Executive Director,
Risk Committee Chair,
Chair of SSL and SPF)
2021/22 176,511 – – – – –
176,511
–– 176,511
2020/21 178,216 – – – – –
178,216
–– 178,216
Gareth Hoskin
5
(Non-Executive Director,
Audit Committee Chair,
Chair of AICL)
2021/22 137,344 – – – – –
137,344
–– 137,344
2020/21 133,447 – – – – –
133,447
–– 133,447
Orna NiChionna
(Senior Independent
Non-Executive Director,
Nomination Committee
Chair)
2021/22 113,672 – – – – –
113,672
–– 113,672
2020/21 102,710 – – – – – –
102,710
–102,710
1 A third of the bonus award is deferred into shares vesting after three years
2 The face value on grant of the RSP awards is shown in the table above as there are no performance conditions other than underpins tested on vesting.
TheRSPaward vests after three years
3 In 2020/21 and 2021/22, none of the Executive Directors had an LTIP award which was eligible to vest in the year
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
94
How we performed in 2021/22
Bonus (audited in conjunction with details on page 150)
The details of the performance conditions and outcomes against the targets for the annual bonus in respect of the 2021/22
financial year are shown in the table below. No discretion was applied to the formulaic outcome.
Performance condition
Weighting
(based on 100%
max)
Threshold
performance
required
50% Target
performance
required
Maximum
performance
required
Actual
performance
Annual bonus
value for
threshold and
maximum
performance
(% of max)
Percentage
of maximum
performance
achieved
Actual annual bonus value
achieved (% of salary)
4
Euan
Sutherland James Quin
Insurance Underlying
Profit Before Tax
5
21% £108m £113m £120m £120.5m
20%
100% 100% 31.5% 26.3%
Saga Services Limited
retention 14% 82% 83% 84% 83%
20%
100% 52% 10.9% 9.1%
2021/22 Cruise
loadfactor 3.5% 75% 79% 85% 68%
20%
100% – – –
2021/22 Cruise
perdiem 3.5% £290 £292 £295 £299
20%
100% 100% 5.3% 4.4%
2022/23 Cruise
loadfactor
(at 30 January 2022)
3.5% 60% 64% 70% 74%
20%
100% 100% 5.3% 4.4%
2022/23 Cruise
perdiem
(at 30 January 2022)
3.5% £285 £287 £290 £317
20%
100% 100% 5.3% 4.4%
Net debt
21% £810m £760m £720m £729m
20%
100% 85% 26.8% 22.3%
Personal objectives
30%
0%
100% 43.1% 37.5%
Total 100% 128.1% 108.3%
Total calculated (£)
£909,937 £465,636
Total payable (£)
£909,937 £465,636
4 The annual bonus percentage achieved for each Executive Director is based on their maximum bonus potential and shown as a percentage of annual salary
5 Refer to Alternative Performance Measures (APM) Glossary on page 201 for definition and explanation
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
95
Annual Report on Remuneration
continued
Individual performance assessment
The Remuneration Committee assessed Executive Directors on their individual performance in the year against four key
areas: people, growth, risk and customer advocacy (financial resilience has been used as an alternative to customer advocacy
for the CFO). This underpins the leadership responsibility to create a risk-aware and responsible culture, and to ensure that
arobust risk framework was embedded across the Group.
Details of the individual’s achievements are set out in the table below.
Objectives overview
Committee assessment and basis of achievement for 2021/22
Euan Sutherland
– Maximum: 30% of overall bonus. Achievement: 28.75% of overall bonus.
People
•
Maintain colleague
engagement
•
Launch of Saga values
•
Working@Saga future
vision and strategy
•
Maintained strong colleague engagement across Saga: 93% participation in most recent
colleague engagement survey, scoring 7.7 out of 10, 0.4 higher than in February 2021.
•
Successful launch of the values and feedback that we are living them scored 7.8 out of 10in the
most recent colleague engagement survey.
•
The renovation of our Enbrook hub was completed on time and to budget.
•
The most recent Saga Spirit Survey showed increased colleague support for Working@ Saga
initiatives, with 94.5% of respondents preferring a form of hybrid working.
•
We are operating our hybrid model, with all colleagues enabled to work from home, with the
provision of a renovated Enbrook hub along with continued operations at satellite offices
enabling collaborative working.
•
We published our colleague technology vision and are on track with the delivery of ITto enable
Working@Saga, such as the A/V solution and Microsoft Teams integration.
•
We have delivered a reduction in our estate, moving towards a hybrid way of working.
Growth
•
Deliver the Group-wide
change priorities
•
Insurance market study
improvements and Travel
exceptional experiences
plan
•
Deliver improved and
consistent database
visibility and reporting
•
New brand identity and
tone of voice
•
The Group Change Programme has been delivered. There has been a significant step-change
in delivery of programmes across the Group in 2022.
•
Insurance market study product development was completed on time. The Financial Conduct
Authority (FCA) commented positively on Saga’s readiness versus others in the market. The
operational service requirements for launch were met and the service levels arewithin
planned parameters. The Travel team has specified and delivered the exceptional experiences
plan in Cruise and has made good progress towards completing the reset of TourOperations
to deliver exceptional experiences for 2022.
•
Full database marketing effectiveness audit completed and standardised monthly database
reporting now in place. Marketing Effectiveness Programme launched as a result, leading to a
series of initiatives completed to improve marketing investment efficiencies across the Group.
•
New identity rolled out across marketing, key service documentation, digital experience,
internal communications and buildings.
•
Strategic brand platform, Experience is Everything, launched, including full colleague launch,
media launch, and integrated marketing campaign.
Risk
•
Role model and promote
arisk culture
•
Step-change the pace at
which incidents/issues
and root causes are
identified
•
Improving trend in speed of reporting and closing incidents across Saga.
•
Effective management of top risks.
•
Timely and effective closure of audit actions.
•
Maintenance of effective risk management system.
•
Promoting a Speak Up/listening culture.
Customer advocacy
•
Vulnerable customer
group project
•
Increase net promoter
score(NPS)
•
Insurance contact centre
remuneration
•
Vulnerability policies in place.
•
System redesigned to align recording of vulnerability triggers and needs across the Group,
consistent with FCA categories.
•
Colleague training delivered.
•
Vulnerability records continued to improve steadily month on month. Customer satisfaction
and NPS for customers in vulnerable circumstances are consistently higher compared with
customers with no vulnerability flag.
•
According to an independent review by PwC, Saga has done more to alter its approach to people
in vulnerable circumstances than other companies, particularly regarding defining vulnerable
customers, customer segmentation, recording of vulnerabilities and colleague training.
•
Increased NPS of 49.
•
Completed review and implementation of new structure for base pay in our contact centre to
continue to improve alignment to customer outcomes.
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
96
Objectives overview
Committee assessment and basis of achievement for 2021/22
James Quin
– Maximum: 30% of overall bonus. Achievement: 30% of overall bonus.
People
•
Maintain colleague
engagement
•
Launch of Saga values
•
Working@Saga future
visionand strategy
•
Maintained strong colleague engagement across Saga: 93% participation in most recent
colleague engagement survey, scoring 7.7 out of 10, 0.4 higher than in February 2021.
•
Successful launch of the values and feedback that we are living them scored 7.8 out of 10 in the
most recent colleague engagement survey.
•
The renovation of our Enbrook hub was completed on time and on budget.
•
The most recent Saga Spirit Survey showed increased colleague support for Working@ Saga
initiatives, with 94.5% of respondents preferring a form of hybrid working.
•
We are operating our hybrid model, with all colleagues enabled to work from home, with the
provision of a renovated Enbrook hub along with the continued operations at satellite offices,
enabling collaborative working.
•
We published our colleague technology vision and are on track with the delivery of IT to enable
Working@Saga, such as the A/V solution and Microsoft Teams integration.
•
We have delivered a reduction in our estate, moving towards a hybrid way of working.
Growth
•
Deliver the Group-wide
change priorities
•
Performance monitoring
for strategic and
financial plans
•
Pension consultation
•
Insurance market study
improvements and Travel
exceptional experiences
plan
•
The Group Change Programme has been delivered. There has been a significant step-change
in delivery of programmes across the Group in 2021.
•
Robust forecasts throughout 2021, promptly reflecting the changing and more challenging
travel environment and enabling the right discussions around tactical and strategic changes
(e.g. costs and Travel reset).
•
Cash forecasts in line with plan despite challenges, highlighting that the right actions were
taken throughout the year.
•
Insurance on track across all KPIs, highlighting the right set of trading responses to
challenging market environment.
•
In-year finance transformation actions completed.
•
Much-improved planning process and monthly reporting.
•
Defined benefit pension scheme closed and new defined contribution scheme in place. Positive
engagement with Trustees through the process and consultation generally well-received by
colleagues with strong engagement throughout.
•
Insurance market study product development was completed on time. The FCA commented
positively on Saga’s readiness versus others in the market. The operational service
requirements for launch were met and the service levels are within planned parameters.
TheTravel team has specified and delivered the exceptional experiences plan in Cruise and
hasmade good progress towards completing the reset of the Tour Operations to deliver
exceptional experiences for 2022.
Risk
•
Role model and promote
arisk culture
•
Step-change the pace at
which incidents/issues
and root causes are
identified
•
Improving trend in speed of reporting and closing incidents across Saga.
•
Effective management of top risks.
•
Timely and effective closure of audit actions.
•
Maintenance of effective risk management system.
•
Promoting a Speak Up/listening culture.
Financial resilience
•
Financial resilience
•
Strategic management
ofstakeholders
•
Increase NPS
•
Stress tests have withstood challenging external travel environment and have operated
effectively as an early warning system, supported by robust in-year forecasts.
•
Enhanced financial flexibility that enables the Group to approach 2022/23 with much
greaterconfidence.
•
Pension valuation completed.
•
Maintained positive relationships with the banks and regulators.
•
Increased NPS of 49.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
97
Long-term incentives vesting in respect of 2021/22 performance
The following table details the 2019 LTIP that is due to vest on 9 August 2022. For more details on how we performed against
the specific conditions of the award, please see ‘Remuneration at a glance’ on page 88.
Name
Face value
of award
(% of salary)
Shares
awarded
6
Value of award
at grant
(£)
End of
performance
period
Date of
vesting
Proportion of
award vesting as
percentage of
maximum
No. of shares
vesting
Value of the
award
attributable to
share price
growth (£)
Value of award
vesting (£)
9
Euan Sutherland
100% 99,113
7
700,000
31 January
2022
6 January
2023 10% 9,911 – 28,227
James Quin
200% 121,566
8
740,000
31 January
2022
12 August
2022 10% 12,156 – 34,620
Long-term incentives (audited)
Name Award type
Basis on which
award made
Face value of
award (% of
salary) Shares awarded
Percentage of
award vesting at
threshold
performance
Maximum
percentage of
face value that
could vest (%) Performance conditions
Euan Sutherland
2019 LTIP Annual 100%
10
99,113
11
25% 100%
•
Organisational and strategic measures: 50%
•
Comparative total
shareholder return (TSR):
25%
•
Return on capital employed
(ROCE): 25%
2020 RSP Annual 70% 198,831
11
No performance conditions
2021 RSP Annual 100% 184,258
11
No performance conditions
James Quin
2019 LTIP Annual 200%
12
121,566
11
25% 100%
•
Organisational and strategic measures: 50%
•
Comparative TSR: 25%
•
ROCE: 25%
2020 RSP Annual 65% 97,589
11
No performance conditions
2021 RSP Annual 85% 94,787
11
No performance conditions
6 Number of shares awarded post consolidation
7 Share price used to calculate award for Euan Sutherland was re-calculated post consolidation exercise in 2020. The original Saga mid-market quote (MMQ) on
2 January 2020 was 0.5170, post consolidation the equivalent share price was 706.26p
8 Share price used to calculate award for James Quin was re-calculated post consolidation exercise in 2020. The original Saga MMQ on 9 August 2019 was
0.4456, post consolidation the equivalent share price was 608.72p
9 Share price used to calculate award taken as MMQ on 31 January 2022 was 284.8p
10 100% LTIP agreed on recruitment on the same terms as the 2019 LTIP scheme; the award was officially made on 6 January 2020
11 Post consolidation number of shares
12 As part of James Quin’s recruitment, it was agreed he would be awarded a 200% of salary one-off award. Following this, his LTIP returned to 150% of salary in
line with the Remuneration Policy
Annual Report on Remuneration
continued
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
98
Directors’ share interests (audited)
The following table and chart set out the equity interests held by the Executive and Non-Executive Directors:
Director
Shareholding
requirement
(% salary)
13
Current
shareholding
(% salary)
Shares
counting
towards
shareholder
requirements
15
Beneficially
owned
Unvested nil-cost options held
Vested but
unexercised
nil-cost
options
held
Unvested SIP
shares not
subject to
performance
conditions
Shareholding
requirement
met?
LTIP nil-cost
options
subject to
performance
conditions
RSP nil-cost
options not
subject to
performance
conditions
Deferred
bonus
nil-cost
options
subject to
performance
conditions
Other
awards
Executive Directors
Euan Sutherland
250% 131% 325,842 77,598 99,113 383,089 84,896 – – 212 No
James Quin
200% 104% 156,838 14,825 121,566 192,376 75,173 – – 212 No
Non-Executive Directors
14
Roger De Haan
– – – 37,196,970 – – – – – – n/a
Eva Eisenschimmel
– – – 4,288 – – – – – – n/a
Julie Hopes
– – – 4,419 – – – – – – n/a
Gareth Hoskin
– – – 19,018 – – – – – – n/a
Orna NiChionna
– – – 3,027 – – – – – – n/a
Executive Directors are required to build up their shareholdings over a reasonable amount of time, which wouldnormally be
five years, and then subsequently hold a shareholding equivalent to a percentage of base salary. The number of shares in
which current Directors had a beneficial interest, and details of long-term incentive interests at 31January 2022 are set
outbelow:
13 Shareholding requirements are those that were in existence throughout the course of the year and at 31 January 2022
14 Values not calculated for Non-Executive Directors as they are not subject to shareholding requirements
15 The number of shares counting towards the shareholding requirement is calculated by summing beneficially owned shares with unvested nil-cost options
which are not subject to performance conditions, on a net of tax basis as well as any vested but unexercised options on a net of tax basis. The MMQ share price
of 2.848p as at 31 January 2022 has been used for the purpose of calculating the current shareholding (i.e. value of beneficially owned shares and value of/gain
on interests over shares) as a percentage of salary. Unvested LTIP shares and options do not count towards satisfaction of the shareholding guidelines
E
uan Sutherland
(
% of salary)
J
a
me
s Quin(
% of salary)
6
23
,683
s
hares
30
1,
966 s
hares
3
25
,842 s
hares
15
6
,838
shares
Value of/gain on interests
ov
er shares (i.e. unvested awards subject to
performance c
on
ditions)Value of/gain on interests
ov
er sh
ares (i.e. unvested awards subject to
performance c
on
ditions)Current shareholding
15
(as per table ab
ov
e)Current shareholding
15
(as per table ab
ov
e)Shareholding
re
qu
irementShareholding
re
qu
irement52,5
30
s
hares
64,4
30
s
hares
0% 50% 1 200% 250%
00
%15
0%300
%0% 50% 200% 250%
10
0%15
0%300
%Taxable benefits
The taxable benefits for all Executive Directors are in line with our Company policies. Both Euan Sutherland and
JamesQuinreceive private medical insurance and a company car.
Pension entitlements
Pension contributions for all Executive Directors are aligned with that of the majority of colleagues (6% of salary).
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
99
Payments for loss of office (audited)
There were no payments for loss of office in 2021/22.
Payments to past directors (audited)
As previously disclosed in the 2021 Annual Report and Accounts, Cheryl Agius, the former CEO of Insurance stepped down
from the Board of Directors, due to personal reasons. Her leaving arrangements, which were fully disclosed in the 2021
Annual Report and Accounts, included buyout awards in respect of long-term incentives forfeited from her previous employer.
These awards, which were granted on 1 June 2020 and pro-rated to reflect the period from the award date to the termination
date, will vest at their normal vesting dates subject to the terms of the buyout agreement.
During the period ending 31 January 2022, element 1 of the buyout award vested on 16 April 2021. The table below sets out
the number of shares vested for the former CEO of Insurance. The second and final element of the buyout award is scheduled
to vest on 16 April 2022 and the number of shares vesting will be disclosed in next year’s Annual Report and Accounts.
Award
Pro-rated number of
Saga shares subject to
the option
Legal & General
Performance Share
Plan (PSP)
performance
Number of Saga
shares vesting
Value of Saga shares
vesting (£)
16
Buyout element 1
Awarded
11,911
24.2%
4,649
13,116
Maximum
19,212
Fees retained for external non-executive directorships
Executive Directors may hold positions in other companies as non-executive directors and retain the fees.
Euan Sutherland is a Non-Executive Director of Britvic plc for which he receives a fee of £59,825 per annum.
JamesQuindoesnot hold any external directorships.
Governance of remuneration
Wider workforce
For the Committee to review the wider workforce pay, policies and incentives, reports are regularly considered at
Remuneration Committee meetings, setting out key details of remuneration throughout the Company. Alongside its review
ofthe wider workforce remuneration, the Committee considers the approach applied to the Executive Directors and senior
management. In particular, the Committee is focused on ensuring the approach to the remuneration of the Executive
Directors and senior management is consistent with that applied to the wider workforce.
The table summarises some of the key workforce reward elements that are regularly discussed by the Committee:
Bonus
Bonus schemes contain both financial and personal measures. A universal financial
scorecard is used for all colleagues at Saga, including Executive Directors. Malus and
clawback are in place for the colleagues in our Senior Leadership Team (SLT).
Other incentive schemes
Incentive arrangements that are paid more frequently are also operated in our
contact centres. These incentive schemes are reviewed regularly to ensure best
practice and market alignment. The method of calculation and frequency of payment
varies, depending on business area and product.
Base pay
All colleagues received an increase of 1.5% of base pay in 2021.
National living wage
Saga continues to be committed to paying 20p above national living wage for all
UKcolleagues.
RSP
RSP awards are granted across senior leadership at Saga. Eligible colleagues received
an RSP grant in 2021, ranging from 20% to 50% of salary.
Free Shares and Share Incentive
Plan(SIP)
We want all colleagues at Saga to feel invested in the Company’s success, hence we
gave each full-time colleague £300 of Free Shares in 2021. We also continue to
promote our SIP, which enables colleagues to purchase shares through payroll.
Pension
Following a 90-day consultation period, Saga closed both the defined benefit scheme
and the existing defined contribution scheme on 31 October 2021. From 1 November
2021, Saga operated a single defined contribution Master Trust arrangement with
Aviva; at 31 January 2022 there were 2,220 colleagues in this scheme.
16 The value for element 1 of the buyout award is based on the Company’s share price of 2.82p being the share price on 20 January 2022
Annual Report on Remuneration
continued
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
100
The Committee Chair engages regularly with the People Committee, gaining regular feedback and sharing executive
remuneration. Feedback from this engagement is shared with the Remuneration Committee. Further details of the People
Committee can be found on page 26.
Competitive pay and cascades of incentives
Organisational level
Number of
colleagues
17
Range bonus
(% of salary)
Maximum
proportion of
bonus payable
in cash
Minimum
proportion of
bonus
deferrable in
shares
Range of RSP
award
(% of salary)
SIP
Group CEO
1 150% 67% 33% 100% Yes
Group CFO
1 125% 67% 33% 85% Yes
Executive Leadership Team
6 100% 67% 33% 50% Yes
Senior Leadership Team
37 40-80% 100% –
18
20-40% Yes
Senior Management Team
161 10-40% 100% – n/a Yes
Other bonused colleagues
1,677 2.5-7.5% 100% – n/a Yes
Other non-bonused colleagues
2,016 n/a n/a n/a n/a Yes
Pay comparisons
CEO ratio
Our CEO to average colleague pay ratio for 2021/22 is 76:1. To give context to this ratio, we included a chart below which
tracks the CEO to average colleague pay ratio since 2014/15 alongside Saga’s TSR performance since the Company was listed.
We also show this against the performance of the FTSE 250 during the same time span.
Jan-14
TSR rebased to 100 on IPO
Jan-15 Jan-16
258:1
78:1
116:1
40:1
48:1
41:1
76:1
76:1
Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
200
Saga TSR
150
100
50
0
FTSE 250 TSR CEO average employee pay ratio
The Remuneration Committee considers that the FTSE 250 is the appropriate index because the Company has been a
long-standing member of this index since the Initial Public Offering (IPO) and has strong aspirations to re-join in the future.
Thisgraph has been calculated in accordance with the Listing Rules.
It should be noted that the Company listed on 23 May 2014 and therefore only has a listed share price for the period of
23May2014 to 31 January 2022.
In summary, there has been significant volatility in Group CEO pay, and we believe that this is caused by the factors set out
below. Please note that, before 2020/21, pay for Lance Batchelor (former Group CEO) has been used for this calculation.
•
Our Group CEO’s pay is made up of a higher proportion of incentive pay than that of our colleagues, in line with the
expectations of our shareholders and accepted market practice for senior executive roles. This introduces a higher degree
of variability in pay each year, which in turn affects the ratio.
•
The value of long-term incentives which measure performance over three years is disclosed in the year they vest, which
increases the Group CEO’s pay in that year, again impacting the ratio for that year.
•
Long-term incentives are provided in shares, and therefore any movement in share price over the three years magnifies the
impact of a long-term incentive award vesting in a year.
•
We recognise that the ratio is driven by the different structure of pay for our Group CEO versus that of our colleagues, as
well as the make-up of our workforce. This ratio varies between businesses in the same sector. What is important from our
perspective is that this ratio is influenced only by the differences in structure, and not by divergence in fixed pay between
the Group CEO and wider workforce.
Where the structure of remuneration is similar, as for the Executive Leadership Team (ELT) and the Group CEO, the ratio is
much more stable over time.
17 Colleagues at 31 January 2022
18 Colleagues in the SLT within Insurance also receive one-third of their bonus in deferrable shares
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
101
Colleague and Executive Committee ratios
The table below sets out the total remuneration received by the Group CEO using the methodology applied to the single total
figure of remuneration. The Remuneration Committee believes that the remuneration payable in its earlier years, as a private
company, to the Executive Chairman does not bear comparative value to that which has been, and will be paid to, the Group
CEO and has therefore chosen only to disclose remuneration for the Group CEO:
Group Chief Executive Officer
2015/16
2016/17
2017/18
2018/19
2019/20 2020/21
2021/22
Total single figure
£1,600,287 £2,490,617 £1,025,146
19
£1,191,743 £1,062,887 £2,118,471 £2,386,456
Annual bonus payment
level achieved
(percentage of
maximum opportunity)
78.6% 67.5% – 35.1% 33.6% 83.1% 85.4%
LTIP vesting level
achieved (percentage
of maximum
opportunity)
n/a
20
65.6% 26.0% – – n/a
22
10%
Ratio of CEO single
total remuneration
figure to all
colleagues
21,22
Option used
Option B
21
Option B
21
Option B
21
Option B
21
Option B
21
25
th
percentile
n/a n/a 8:1 59:1 46:1 97:1 103:1
Median 78:1 116:1 40:1
23
48.1
24
41:1
25
76:1
26
76:1
27
75
th
percentile
n/a n/a 33:1 36.1 29:1 55:1 55:1
Ratio of single total
remuneration figure
shown to executive
members
2:1 4:1 3:1 3:1 2:1 4:1 3:1
The colleague pay figures used to calculate the ratio are as follows:
25
th
percentile
Median
75
th
percentile
2021/22
Salary
£19,978
£26,317
£36,058
Total pay
£23,094
£31,494 £43,584
19 For 2017/18, the final value of the 2015 LTIP award at vesting date is shown and has been restated from the 2017/18 Annual Report and Accounts. The share
price at vesting date of 30 June 2018 was 125.6p
20 No LTIP awards eligible to vest for the Group CEO in post during 2015/16 and 2020/21
21 For the colleague ratio, Saga has chosen to use Option B, identifying colleagues using our gender pay gap data. This was the preferred option due to the
availability of data for our many UK-based, overseas and part-time colleagues for whom single total figure data is difficult to calculate. Figures have been
completed for 2017/18, 2018/19, 2019/20, 2020/21 and 2021/22 using the April gender pay gap data for that year. In order to mitigate any anomalies,
11individuals have been identified at each percentile point from the gender pay gap data, and the median of pay in the year up to 31 January 2018, 2019, 2020,
2021 and 2022 for these colleagues calculated in line with the single total figure methodology. For colleagues who participate in a defined benefit pension
scheme, the value of the pension for the purposes of total pay has been estimated based on the individual’s accrual rate and length of service
22 The median ratios shown for 2015/16 and 2016/17 have been recalculated to allow a comparison to the 2017/18, 2018/19, 2019/20, 2020/21 and 2021/22
figures which have been calculated in line with the methodology prescribed by the regulations
23 The fall in the ratio in 2017/18 is due to the forfeiture of bonus by the Group CEO and the relatively low payout on the LTIP. This reflects the fact that
shareholders want executives to have a higher proportion of pay at risk and this is reflected in the volatility in the chart. The percentage change in Group CEO
remuneration set out in the table on page 103 shows that year-on-year, when the volatility of payouts from equity-based awards is excluded, the changes in
remuneration for the Group CEO and average colleague are broadly in line. This demonstrates that the underlying compensation ratio is not increasing year
onyear
24 The increase in ratio for 2018/19 is due to the Group CEO receiving a bonus in 2018/19. This increase has remained low due to a relatively low bonus and
LTIPpayout
25 The fall in ratio for 2019/20 is due to the rebalancing of base pay and commission in our contact centres
26 The increase in ratio in 2020/21 is due to the relatively high bonus payout in 2020/21 and RSP award granted to the Group CEO in 2020/21
27 No change in ratio in 2021/22 due to similar payout in bonus
Annual Report on Remuneration
continued
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
102
Annual percentage change in remuneration of Directors and other colleagues
The following table sets out the change in the remuneration paid to each Director from 2019/20 to 2020/21 and then to
2021/22, compared with the average percentage change for other colleagues.
The percentage change for each Directors’ remuneration in the table below is based on the figures in the single total figure
table on page 94.
Average colleague pay has been calculated using the following elements:
•
Annual salary: base salary and standard monthly allowances.
•
Taxable benefits: car allowance and private medical insurance premiums.
•
Annual bonus: company bonus, management bonus, commission and incentive payments.
% increase/(decrease) in remuneration in 2020/21
compared with previous year (2019/20)
% increase/(decrease) in remuneration in 2021/22
compared with previous year (2020/21)
Salary/fees
Taxable benefits
Annual bonus
Salary/fees
Taxable benefits
Annual bonus
Euan Sutherland
0%
9.3%
25.2%
1.5%
(5.5%)
28
4.3%
James Quin
1.2%
(48.9%)
29
48.7%
14.8%
4.7%1.4%
Roger De Haan
n/a n/a n/a n/a n/a n/a
Eva Eisenschimmel
15.7%
30
n/a n/a n/a
–
n/aJulie Hopes
41.7%
31
n/a n/a
(1.0%)
31
n/a n/a
Gareth Hoskin
9.3%
32
n/a n/a
2.9%
32
n/a n/a
Orna NiChionna
9.6%
33
n/a n/a
10.7%
33
n/a n/a
Average per colleague
3.2%
34
2.7%
67.8%
4.1%
34
6.6%
5.4%
Relative importance of the spend on pay
The table below sets out the relative importance of spend on pay in the 2021/22 and 2020/21 financial years, compared with
other disbursements. All figures provided are taken from the relevant Company accounts.
Disbursements from
profit in 2021/22
financial year £m
Disbursements from
profit in 2020/21
financial year £m
Percentage change
Profit distributed by way of dividend –
0.1
(100.0%)
Total tax contributions
35
22.9
31.1
(26.4%)
Overall spend on pay including Executive Directors
118.3
130.3
(9.2%)
Advisers to the Remuneration Committee
During the financial year, PwC advised the Remuneration Committee on all aspects of the Remuneration Policy (the
Policy
) forExecutive Directors and members of the ELT.
PwC is a member of the Remuneration Consultants Group and the voluntary code of conduct of that body is designed to
ensure objective and independent advice is given to remuneration committees. Other PwC teams provide certain non-audit
services to the Company in areas of tax and consulting. The Committee is satisfied that no conflicts of interest exist in the
provision of these services and that the advice provided is independent and objective. Fees of £83,750 (2021: £109,000) were
provided to PwC during the year in respect of remuneration advice received. The decrease from the prior year is due to the
additional support in relation to the renewal of Remuneration Policy.
The Committee receives support from Jane Storm (Chief People Officer (CPO)) and Vicki Haynes (Group Company
Secretary).
28 The decrease in taxable benefits for Euan Sutherland is due to his move to a reduced cost electric vehicle for which he also pays a capital contribution
29 The decrease in taxable benefits for James Quin is due to his move to a reduced cost electric vehicle
30 Increase in salary for Eva Eisenschimmel in 2020/21 is due to becoming Chair of the Remuneration Committee on 1 February 2020
31 Increase in salary for Julie Hopes in 2020/21 is due to becoming Chair of the Saga Personal Finance (SPF) Board on 1 February 2020 and assuming the position
ofRisk Committee Chair on 31 December 2020. Decrease in salary in 2021/22 is due to the reduction in the fee for the Chair of SPF role on 1 January 2021
following a review of the role
32 Increase in salary for Gareth Hoskin in 2020/21 and 2021/22 is due to becoming Chair of the Audit Committee on 22 June 2020
33 Increase in salary for Orna NiChionna in 2020/21 and 2021/22 is due to increasing responsibilities as Senior Independent Director on 5 October 2020
34 Average salary per colleague increased due to a combination of the annual salary increase, Company restructuring which altered our colleague base and
theimpacts of the COVID-19 pandemic
35 Total tax contributions include corporation tax, national insurance contributions, VAT and air passenger duty
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
103
Shareholder voting
The current Directors’ Remuneration Policy was approved by shareholders at the AGM held on 22 June 2020.
Outlined below are the voting outcomes for this, and in respect of, approving the Directors’ Remuneration Report.
Results of shareholder voting at the Company’s Annual General Meetings
Resolution
Votes
for
% of
votes cast
Votes
against
% of
votes cast
Votes
cast
% of issued
share capital
voted
Votes
withheld
To approve the
Directors’
Remuneration Report
36
61,831,919
7 7.72
17,725,106
22.28
79,600,002
56.81% 42,977
To approve the
Directors’
Remuneration Policy
37
609,404,573
97.98
12,534,190
2.02
647,040,963
57.67%
25,102,200
Service contracts and letters of appointments
The Remuneration Committee’s policy for setting notice periods is that normally they will be a maximum of 12 months. The
Remuneration Committee may, in exceptional circumstances arising on recruitment, allow a longer period, which would in any
event reduce to 12 months following the first year of employment. The Non-Executive Directors of the Company do not have
service contracts and are appointed by letters of appointment. Each independent Non-Executive Director’s term of office
runs for a three-year period. The Company follows the Code’s recommendation that all Directors be subject to annual
re-appointment by shareholders.
Executive Directors
Name
Date appointed
Nature of contract
Notice periods
Compensation
provisions for early
termination
From Company From Director
Euan Sutherland
6 January 2020
Rolling
12 months 12 months
None
James Quin 1 January 2019
Rolling
12 months 12 months
None
Non-Executive Directors
Name
Original appointment
Appointment of
current term
Arrangement
Notice period/unexpired
term at AGM
Orna NiChionna
29 May 2014 29 May 2020
Letter of appointment
3 months/11 months
Julie Hopes
1 October 2018 1 October 2021
Letter of appointment
3 months/28 months
Eva Eisenschimmel
1 January 2019 1 January 2022
Letter of appointment3 months/30 months
Gareth Hoskin
11 March 2019 11 March 2022
Letter of appointment
3 months/32 months
The Board allows Executive Directors to accept appropriate outside Non-Executive Director appointments provided the
aggregate commitment is compatible with their duties as Executive Directors. The Executive Directors concerned may retain
fees paid for these services, which will be subject to approval by the Board.
Consideration of employment conditions elsewhere in the Group
Each year, prior to reviewing the remuneration of the Executive Directors and the members of the ELT, the Remuneration
Committee considers a report prepared by the Chief People Officer (CPO) detailing base pay and share schemes practice
across the Company. Thereport provides an overview of how colleague pay compares to the market and any material changes
during the year and includes detailed analysis of basic pay and variable pay changes within the UK.
While the Company does not directly consult with colleagues as part of the process of reviewing executive pay and formulating
the Policy, the Company does receive an update and feedback from the broader colleague population on an annual basis using
an engagement survey which includes a number of questions relating to remuneration. The Company does not use
remuneration comparison measurements.
The Group aims to provide a remuneration package for all colleagues that is market-competitive and operates the same core
structure as for the Executive Directors. The Group operates colleague share and variable pay plans, with pension provisions
provided for all Executive Directors and colleagues. In addition, any salary increases for Executive Directors are expected to
be generally in line with those for UK-based colleagues. The Committee annually publishes a section on fairness, diversity,
equity and inclusion and wider workforce considerations as part of the Directors’ Remuneration Report.
36 The vote to approve the Director’s Remuneration Report was at the 2021 AGM
37 The vote to approve the Director’s Remuneration Policy was at the 2020 AGM, therefore the votes cast were prior to the share consolidation
Annual Report on Remuneration
continued
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
104
Consideration of shareholder views
The Remuneration Committee takes the views of the shareholders seriously and these views are taken into account in shaping
remuneration policy and practice. Shareholder views are considered when evaluating and setting remuneration strategy and
the Remuneration Committee welcomes an open dialogue with its shareholders on all aspects of remuneration. The
Committee consulted its major shareholders and the main shareholder representative bodies, Investment Association,
Institutional Shareholder Services and Glass Lewis, prior to proposing the Policy. The Committee is grateful for the time
taken to consider the proposals and provide feedback. At the end of the consultation, the majority of shareholders consulted
indicated they were supportive of the Policy.
Compliance with UK Corporate Governance Code (the Code)
The following table sets out how the Policy aligns with the Code, whose objective is to ensure that the remuneration operated
by the Company is aligned with all stakeholder interests including those of shareholders:
Key remuneration element of the Code Alignment with the Policy
Five-year period between the date of
grant and realisation for equity
incentives
The RSP meets this requirement through the implementation of the two-year
post-vesting holding period.
Phased release of equity awards The RSP meets this requirement as awards are made in an annual cycle.
Discretion to override formulaic
outcomes
Included in the terms and conditions of the Annual Bonus Plan and the RSP.
Post-cessation shareholding
requirement
The Policy contains a full in-employment requirement for two years following
cessation of employment.
Pension alignment
The pension contribution for all Executive Directors is aligned with the majority of
colleagues at 6% of salary.
Extended malus and clawback
The malus and clawback provisions align with the Financial Reporting Council’s Board
Effectiveness Guidance.
Provision 40 element
How the Policy aligns
Clarity
– remuneration arrangements
should be transparent and promote
effective engagement with
shareholders and the workforce.
The Annual Bonus Plan performance conditions are based on the core strategic
objectives and therefore, there is a clear link to all stakeholders between their
delivery and reward provided to management.
The RSP provides annual grants of shares which have to be retained for the longer-
term to ensure a focus on sustainable performance. This provides complete clarity of
the alignment of the interests of management and shareholders.
Simplicity
– remuneration structures
should avoid complexity and their
rationale and operation should be
easy to understand.
The performance conditions for the Annual Bonus Plan are based on the Company’s
strategic objectives. This alignment of reward with the delivery of key markers of the
success of the implementation of the strategy ensures simplicity.
RSPs are a simple mechanism and avoid the setting of long-term performance
conditions which tend to inherently make remuneration more complex.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
105
Provision 40 element
How the Policy aligns
Risk
– remuneration arrangements
should ensure reputational and other
risks from excessive rewards, and
behavioural risks that can arise from
target-based incentive plans, are
identified and mitigated.
The Policy includes:
•
setting defined limits on the maximum awards which can be earned;
•
requiring the deferral of a substantial proportion of the incentives in shares for a
material period of time;
•
aligning the performance conditions with the strategy of the Company;
•
ensuring a focus on long-term sustainable performance through the RSP; and
•
ensuring there is sufficient flexibility to adjust payments through malus and
clawback and an overriding discretion to depart from formulaic outcomes.
These elements mitigate against the risk of target-based incentives by:
•
limiting the maximum value that can be earned;
•
deferring the value in shares for the long term which helps ensure that the
performance earning the award was sustainable and thereby discouraging short-
term behaviours;
•
aligning any reward to the agreed strategy of the Company;
•
the use of an RSP which supports a focus on the sustainability of the performance
over the longer term;
•
reducing the awards, or cancelling them, if the behaviours giving rise to the awards
are inappropriate; and
•
reducing the awards, or cancelling them, if it appears that the criteria on which the
award was based do not reflect the underlying performance of the Company.
Predictability
– the range of possible
values of rewards to individual
Directors and any other limits or
discretions should be identified
andexplained at the time of approving
the Policy.
The Policy clearly sets out the range of values, limits and discretions in respect of the
remuneration of management.
The introduction of an RSP increased the predictability of the rewards received by
management.
Proportionality
– the link between
individual awards, the delivery of
strategy and the long-term
performance of the Company should
be clear. Outcomes should not reward
poor performance.
The Policy clearly sets out the range of values and discretions in respect of the
remuneration of management.
The introduction of an RSP increased the predictability of the rewards received by
Executive Directors, and the bonus plan, being based on annual targets, operates
over a more predictable time cycle compared with traditional LTIP schemes, thereby
allowing the Remuneration Committee to more effectively ensure desirable
remuneration outcomes. The Committee’s overriding discretion to depart from
formulaic outcomes ensures there is no reward for poor performance.
Alignment to culture
– incentive
schemes should drive behaviours
consistent with Company purpose,
values and strategy.
The bonus plan drives behaviours consistent with Saga’s strategy.
The RSP drives behaviours consistent with the Company’s purpose and values which
are focused on the long-term future of the business throughout the business cycle.
Eva Eisenschimmel
Chair, Remuneration Committee
22 March 2022
This report has been prepared in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 as amended in 2013, 2018 and 2019, the Provisions of the current Code and the
Listing Rules.
Annual Report on Remuneration
continued
Directors’ Remuneration Report
Saga plc Annual Report and Accounts 2022
106
Directors’ Report
Management Report
The Directors’ Report, together with the Strategic Report, set out on pages 1 to 57 form the Management Report for the
purposes of Disclosure Guidance and Transparency Rule (DTR) 4.1.5R (the
Management Report
).
Statutory information contained elsewhere in the Annual Report
Information required to be part of this Directors’ Report can be found elsewhere in the Annual Report and Accounts as
indicated in the table below and is incorporated into this report by reference.
Information
Location in Annual Report
Likely future developments in the business of the Company or its subsidiaries
Pages 1-57
Environmental, Social and Governance including Task Force on Climate-Related
Financial Disclosures
Pages 23-35
Greenhouse gas emissions
Pages 30-32
Suppliers, customers and others in a business relationship engagement
Pages 16-17
Colleagues (employment of disabled persons, workforce engagement and policies)
Pages 25-28 and 56
Corporate Governance Statement
Pages 58-84
Directors’ details (including changes made during the year) Pages 59 and 69-73
Related-party transactions Not applicable
Diversity
Pages 27, 28, 69 and 73
Share capital
Note 33 on page 186
Employee share schemes (including long-term incentive schemes)
Note 36 on pages 188-189
Financial instruments: information on the Group’s financial instruments and
riskmanagement objectives and policies, including our policy for hedging
Notes 2, 3, 7, 8, 19 and 20 on
pages126-148, 150 and 163-172
Statements of responsibilities
Page 111
Additional information
Pages 201-204
Disclosure table pursuant to ListingRule (LR) 9.8.4C
The following table provides references to where the information required by LR 9.8.4C R is disclosed:
Listing Rule
Listing Rule requirement
Disclosure
9.8.4(1)
Interest capitalised by the Group and any related tax relief Note 17 on pages 159-161
9.8.4(2)
Unaudited financial information (LR 9.2.18R)
Group Chief Financial Officer’s Review,
pages36-52
9.8.4(4)
Long-term incentive schemes (LR 9.4.3R)
Directors’ Remuneration Report, pages 85-106
9.8.4(5)
Directors’ waivers of emoluments
Directors’ Remuneration Report, pages 85-106
9.8.4(6)
Directors’ waivers of future emoluments
Directors’ Remuneration Report, pages
85-106
9.8.4(7)
Non-pre-emptive issues of equity for cash Directors’ Report on page 110
9.8.4(8)
Non-pre-emptive issues of equity for cash by any unlisted
major subsidiary undertaking
Not applicable
9.8.4(9)
Parent company participation in a placing by a listed
subsidiary
Not applicable
9.8.4(10)
Contract of significance in which a Director is, or was,
materially interested
Not applicable
9.8.4(11)
Contract of significance between the Company
(or one of its subsidiaries) and a controlling shareholder
Not applicable
9.8.4(12)
Waiver of dividends by a shareholder Directors’ Report on page 110 (under paragraph
‘Rights attaching to shares’)
9.8.4(13)
Waiver of future dividends by a shareholder Directors’ Report on page 110 (under paragraph
‘Rights attaching to shares’)
9.8.4(14)
Board statement in respect of relationship agreement
with a controlling shareholder
Not applicable. See Directors’ Report on page
108 (under ‘Relationship agreement with
Director shareholder’)
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
107
Directors’ Report
continued
Results and dividends
The Group made a loss after taxation of £28.0m for the
financial year ended 31 January 2022. The Board did not pay
an interim dividend. The Board of Directors is not in a
position to recommend the payment of a final dividend for
the 2021/22 financial year.
The Directors intend to resume dividend payments in the
future, when further progress has been made with
deleveraging and when current limitations, particularly in
relation to the ship debt, have been removed. Any decision to
declare and pay dividends is made at the discretion of the
Directors and depends on, among other things, applicable
law, regulation, restrictions, the Group’s financial position,
regulatory capital requirements, working capital
requirements, finance costs, general economic conditions
and other factors the Directors deem significant from time
to time.
Political donations
No political donations were made during the year.
Directors’ interests
A list of the Directors, their interests in the long-term
performance share plan, contracts and ordinary share
capital of the Company are given in the Directors’
Remuneration Report on pages 85-106.
Relationship agreement with Director shareholder
Any person who exercises or controls, on their own or
together with any person with whom they are acting in
concert, 30% or more of the votes able to be cast at general
meetings of a company are known as a ‘controlling
shareholder’ under the Listing Rules. The Listing Rules
require companies with controlling shareholders to enter
into an agreement which is intended to ensure that the
controlling shareholders comply with certain independence
provisions stated in the Listing Rules.
The Board confirms that, in accordance with the Listing
Rules, there are no controlling shareholders in the Company.
However, the Company entered into a relationship
agreement with Roger De Haan on 10 September 2020
(the
Relationship Agreement
) as Roger De Haan holds
37,196,970 shares of 15p each (constituting 26.5% of issued
share capital as of 31 January 2022). The Relationship
Agreement regulates the relationship between the
Companyand Roger De Haan and contains undertakings
thattransactions and arrangements will be conducted on
anarm’s-length basis and on normal commercial terms.
Italso provides that dilutions caused by new issuances
ofshares shall be disregarded when determining investor
rights under its terms.
Rules on appointment and replacement
ofDirectors
A Director may be appointed by ordinary resolution of the
shareholders in a general meeting following nomination by
the Board or a member (or members) entitled to vote at such
a meeting. In addition, the Directors may appoint a Director
to fill a vacancy, or as an additional Director, provided that
the individual retires at the next Annual General Meeting
(AGM). A Director may be removed by the Company in
certain circumstances set out in the Company’s Articles of
Association or by an ordinary resolution of the Company.
TheRelationship Agreement between the Company and
Roger De Haan provides for the nomination for appointment
(and removal or re-nomination) to the Board of one Non-
Executive Director for as long as he holds at least the higher
of (i) 10% or more of the issued ordinary share capital of the
Company and (ii) the percentage of the issued ordinary share
capital of the Company represented by 60% of the investor’s
holding of ordinary shares immediately following the capital
raise which took place in October 2020.
All Directors will seek re-election at the AGM in accordance
with the Company’s Articles of Association and the
recommendations of the UK Corporate Governance Code.
Directors’ indemnities
At the date of this report, indemnities are in force under
which the Company has agreed to indemnify the Directors,
to the extent permitted by law and the Company’s Articles of
Association, in respect of all losses arising out of, or in
connection with, the execution of their powers, duties and
responsibilities, as Directors of the Company or any of its
subsidiaries. No amount was paid under any of these
indemnities during the year.
Change of control – significant agreements
There are some arrangements which give rights to third
parties to terminate agreements upon a change of control
ofthe Company, including following a takeover bid, for
example insurance, commercial contracts and distribution
agreements. There are a number of contracts and
arrangements throughout the Group for which the legal risk
arising out of a change of control is managed as part of the
contractual governance process.
The Group’s corporate debt is unsecured and in place for
general purposes. It consists of a £150m seven-year public
listed bond at 3.375%, due to expire in May 2024, and a
£250m five-year public listed bond at 5.50%, due to expire in
July 2026. The Group also has available an undrawn £100m
revolving credit facility, expiring in May 2025 (expiry date
subject to repayment of the May 2024 bond).
Saga plc Annual Report and Accounts 2022
108
Twelve-year Export Credit Agency backed funding is in place
to finance 80% of the cost of the Group’s two ocean cruise
ships. The first of these facilities was drawn on completion
ofthe build of Spirit of Discovery and is secured by way of
acharge over the asset. The second facility was drawn on
completion of the build of Spirit of Adventure and is also
secured by way of a charge over the asset. The Company
hasprovided a guarantee for the ship debt. The Group also
secured a debt holiday and covenant waiver for the ship debt
up to 31 March 2022.
In the event of a change of control, the facilities would either
require repayment or renegotiation. If the ship financing is
terminated, significant break fees may be incurred. Further
details on banking facilities are shown in Note 30 to the
consolidated financial statements on pages 182-183.
The rules of the Company’s employee share plans generally
provide for the accelerated vesting and/or release of share
awards in the event of a change of control of the Company.
The Company does not have any agreements with colleagues
(including Directors) which would pay compensation in the
event of a change of control.
Conflict of interest
Each Director is obliged to disclose any potential or actual
conflict of interest in accordance with the Company’s
Conflict of Interest Policy. The policy is subject to review and
declarations are made on an annual basis. Directors are also
required to update any changes to declarations as they
occur. Internal controls are in place to ensure that any
related-party transactions are conducted on an arm’s-
lengthbasis.
Share capital and interests invoting rights
The Company’s share capital (including movements during
the year) is set out on page 186. On 12 November 2021,
235,044 ordinary shares of 15p each were issued and
transferred into an Employee Benefit Trust to satisfy
employee incentive arrangements. At the date of this report,
the Company’s issued share capital comprised a single class
of share capital which is divided into ordinary shares of 15p
each. As of 31 January 2022, 140,337,271 ordinary shares of
15p each had been issued, fully paid up and quoted on the
London Stock Exchange (LSE).
On 16 November 2021, Roger De Haan purchased 341,415
ordinary shares of 15p each, and holds a total of 37,196,970
shares, constituting 26.5% of the Company’s issued share
capital at the date of signing of this report
1
.
In accordance with Disclosure and Transparency Rule (DTR)
5.1, the Company must disclose where it has been notified of
the interests in the Company’s total voting rights. The
obligation to notify sits with the shareholder, and the
Company must report on the notifications received, as at the
end of the reporting year and also the date of signing of the
Annual Report and Accounts.
Since the date of disclosure to the Company, the interest of
any person may have increased or decreased. There is no
requirement to notify the Company of any increase or
decrease unless the holding passes a notifiable threshold in
accordance with DTR 5.1.
Information regarding other interests in voting rights
provided to the Company pursuant to the Financial Conduct
Authority DTRs is published on the Company’s corporate
website and via a Regulatory Information Service. The
following table summarises shareholders who hold over
3%of the Company’s issued share capital (based on
Section793 requests):
Name
Ordinary
shares of
15p each
Percentage
of capital
held
Nature of
holding
Chelverton Asset
Management
5,077,884
3.62%
Indirect
Roger De Haan
37,196,970
26.51%
Indirect
In accordance with DTR 5.1, the Company had been notified
of the following interests in the Company’s total voting rights
as of 31 January 2022. The Company is aware that, of the list
below, only Roger De Haan holds over 3%. The Company has
not been formally notified of a change in holdings by any other
shareholder mentioned and is obliged to disclose actual
notifications received.
Name
Ordinary
shares of
15p each
Percentage
of capital as
disclosed
to the
Company
Nature of
holding
Majedie Asset
Management Limited
3,738,311
4.99%
Indirect
Artemis Investment
Management LLP
7,440,083 9.98%
Indirect
Royal London Asset
Management Limited
3,685,489
4.93%
Direct
Pelham Capital Ltd
3,324,508
4.44%
Contract
for
Difference
BlackRock, Inc.
3,735,633
4.99%
Indirect
Pictet Asset
Management Ltd
3,737,656
4.99%
Direct
Roger De Haan
36,855,555
1
26.31%
1
Indirect
Mário Nuno dos
Santos Ferreira
2,244,000
3.00%
Direct
(0.2%)
Indirect
(2.8%)
1 Roger De Haan now holds 37,196,970 shares, constituting 26.5% of the Company’s issued share capital but was not required to notify the Company under
DTR5.1 as the share purchase did not cross a reportable threshold. The Company is aware that some shareholdings referenced above may have been diluted
as a result of the capital raise that took place on 5 October 2020 and new share issues to satisfy employee benefit schemes. The number of shares quoted are
disclosed post the consolidation which took place on 13October 2020. Where disclosures were made prior to share consolidation, the number of shares has
been restated to post-consolidation numbers
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
109
Authority to allot/purchase own shares
A shareholders’ resolution was passed at the AGM on
14June2021 which authorised the Company to make
marketpurchases within the meaning of Section 693(4)
ofthe Companies Act 2006 (the
Act
) (up to £2,101,533, representing 10% of the aggregate nominal share capital
ofthe Company following admission). This is subject to a
minimum price of 15p and a maximum price of the higher
of105% of the average mid-market quotations for five
business days prior to purchase or the price of the last
individual trade and highest current individual bid as
derivedfrom the LSE trading system.
The Company did not exercise this authority during the
year,and it will expire at the forthcoming AGM. A special
resolution to authorise the Company to make market
purchases representing 10% of current nominal share
capitalwill be proposed at the 2022 AGM. The authority
torepurchase the Company’s ordinary shares in the
marketwill be limited to £2,105,059 and will set out the
minimum and maximum price which would be paid.
The Directors of the Company were also granted authority
atthe 2021 AGM to allot relevant securities up to a nominal
amount of £7,005,111. This authority was exercised during the
year for the issue of 235,044 ordinary shares for transfer
into an employee benefit trust to satisfy employee incentive
arrangements. This authority will apply until the conclusion of
the 2022 AGM, at which shareholders will be asked to grant
the Directors authority (for the purposes of Section 551 of
the Act) to allot relevant securities: (i) up to an aggregate
nominal amount of £7,009,847; and (ii) comprising equity
securities (as defined in the Act) up to an aggregate nominal
amount of £14,019,693 (after deducting from such limit any
relevant securities issued under (i) in connection with a rights
issue). These amounts will apply until the conclusion of the
AGM to be held in 2023, or, if earlier, 31 July 2023.
Special resolutions will also be proposed to give the
Directors authority to make non-pre-emptive issues wholly
for cash in connection with rights issues and otherwise up to
an aggregate nominal amount of £1,052,529 and to make
non-pre-emptive issues wholly for cash in connection with
acquisitions or specified capital investments up to an
aggregate amount of £1,052,529.
Rights attaching to shares
The Company has a single class of ordinary shares in issue.
The rights attached to the shares are governed by applicable
law and the Company’s Articles of Association which are
available on our corporate website (www.corporate.saga.
co.uk/about-us/governance).
Ordinary shareholders have the right to receive notice,
attend and vote at general meetings; and to receive a copy of
the Company’s Annual Report and Accounts and a dividend
when approved and paid. On a show of hands, each
shareholder present in person, or by proxy (or an authorised
representative of a corporate shareholder), shall have one
vote. In the event of a poll, one vote is attached to each share
held. No shareholder owns shares with special rights as to
control. The Notice of AGM (
Notice
) states deadlines for
exercising voting rights and for appointing a proxy or proxies.
The Saga Employee Benefit Trust (the Trust) is an Employee
Benefit Trust which holds property (the Trust Fund) including
inter-alia money, and ordinary shares in the Company,
intrustin favour or for the benefit of colleagues of the Saga
Group. The Trustee of the Trust has the power to exercise
the rights and powers incidental to, and to act in relation to,
the Trust Fund in such manner as the Trustee in its absolute
discretion thinks fit. The Trustee has waived its rights to
dividends on ordinary shares held by the Trust. Details of
employee share schemes are set out in Note 36 to the
consolidated financial statements.
Restrictions on the transfer ofshares
Pursuant to the relationship agreement dated 10 September
2020, Roger De Haan was limited in the transfer of his shares
prior to 5 October 2021 (12 months from the date of
admission) without the written consent of the Company.
Other than this arrangement, or where imposed by law or
regulation, or where the Listing Rules require certain
persons to obtain clearance before dealing, there are no
restrictions regarding the transfer of shares in the Company.
The Company is not aware of any further agreement which
would result in a restriction on the transfer of shares or
voting rights.
Articles of Association
Any amendment to the Company’s Articles of Association
may only be made by passing a special resolution of the
shareholders of the Company. The Company last approved
its Articles of Association by special resolution at the AGM
held on 14 June 2021.
Research and development
The Group does not undertake any material activities in the
field of research and development.
Branches outside the UK
The Company does not have any branches outside the UK.
Post-balance sheet events
There were no post-balance sheet events.
Auditor
KPMG LLP has confirmed its willingness to continue in
officeas auditor of the Company and resolutions for its
re-appointment and for the Audit Committee to determine
its remuneration will be proposed at the forthcoming AGM.
Annual General Meeting
The AGM will be held on 5 July 2022 at 11.00am at Enbrook
Park, Sandgate, Folkestone, Kent CT20 3SE. The Notice
ofAGM will be available on our corporate website
(www.corporate.saga.co.uk) in due course.
By order of the Board
Victoria Haynes
Group Company Secretary
22 March 2022
Saga plc (Company no. 08804263)
Directors’ Report
continued
Saga plc Annual Report and Accounts 2022
110
Statements of responsibilities
Directors’ responsibilities
The Directors are responsible for preparing the Annual
Report and Accounts and the Group and parent company
financial statements in accordance with applicable laws and
regulations.
Company law requires the Directors to prepare Group and
parent company financial statements for each financial year.
Under that law, they are required to prepare the Group
financial statements in accordance with UK-adopted
international accounting standards and in conformity with
the requirements of the Companies Act 2006 (the
Act
) and have elected to prepare the parent company financial
statements in accordance with UK accounting standards,
including Financial Reporting Standard (FRS) 101 (Reduced
Disclosure Framework).
Under company law, the Directors must not approve the
financial statements unless they are satisfied that they give
atrue and fair view of the state of affairs of the Group and
parent company and of their profit or loss for that period
(see Governance statements on page 65). In preparing each
of the Group and parent company financial statements,
theDirectors are required to:
•
select suitable accounting policies and then apply them
consistently;
•
make judgements and estimates that are reasonable,
relevant, reliable and prudent;
•
for the Group financial statements, state whether they
have been prepared in accordance with UK-adopted
international accounting standards;
•
for the parent company financial statements, state
whether applicable UK accounting standards have been
followed, subject to any material departures disclosed and
explained in the parent company financial statements;
•
assess the Group and parent company’s ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern; and
•
use the going concern basis of accounting unless they
either intend to liquidate the Group or the parent company
or to cease operations or have no realistic alternative but
to do so.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the parent company’s transactions and disclose with
reasonable accuracy at any time the financial position of the
parent company and enable them to ensure that its financial
statements comply with the Act. They are also responsible
for such internal control as they determine is necessary to
enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’
Report, Directors’ Remuneration Report and Corporate
Governance Statement that comply with that law and those
regulations.
Disclosure of information to the auditor
Having made the requisite enquiries, so far as each of the
Directors is aware, there is no relevant audit information (as
defined by section 418(3) of the Act) of which the Company’s
auditor is unaware and the Directors have taken all the steps
they ought to have taken as Directors to make themselves
aware of any relevant audit information and to ensure that
the Company’s auditor is aware of that information.
Maintenance of website
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors’ responsibility statement
Each of the Directors, who were in office at the date of this
report, whose names and responsibilities are listed on pages
70-71, confirm that, to the best of their knowledge:
•
the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
•
the Management Report includes a fair review of the
development and performance of the business and the
position of the issuer, and the undertakings included in the
consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
By order of the Board
Victoria Haynes
Group Company Secretary
22 March 2022
Saga plc (Company no. 08804263)
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
111
Independent Auditor’s Report to the Members of Saga plc
1 Our opinion is unmodified
We have audited the financial statements of Saga plc
(“theCompany”) for the year ended 31 January 2022 which
comprise the Consolidated Income Statement, Consolidated
Statement of Comprehensive Income, Consolidated
Statement of Financial Position, Consolidated Statement
ofChanges in Equity and Consolidated Statement of Cash
flows, the Parent Company Balance Sheet, Parent Company
Statement of Changes in Equity, and the related notes,
including the accounting policies in note 2 to the Group
financial statements and note 1 to the Parent Company
financial statements.
In our opinion:
•
the financial statements give a true and fair view of the
state of the Group’s and of the Parent Company’s affairs
asat 31 January 2022 and of the Group’s loss for the year
then ended;
•
the Group financial statements have been properly
prepared in accordance with UK adopted international
accounting standards;
•
the Parent Company financial statements have been
properly prepared in accordance with UK accounting
standards, including FRS 101 Reduced Disclosure
Framework; and
•
the financial statements have been prepared in
accordance with the requirements of the Companies
Act2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities are described below. We believe that the
audit evidence we have obtained is a sufficient and
appropriate basis for our opinion. Our audit opinion is
consistent with our report to the Audit Committee.
We were first appointed as auditor by the shareholders on
22June 2017. The period of total uninterrupted engagement
is for the 5 financial years ended 31 January 2022. We have
fulfilled our ethical responsibilities under, and we remain
independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied
to listed public interest entities. No non-audit services
prohibited by that standard were provided.
Overview
Materiality:
Group
financial statements
as a whole
£3.5m (2021: £3.5m)
4.7% (2021: 3.7%) of normalised profit
before tax
Coverage
98% (2021: 95%) of total profits and
losses that made up the Group loss
before tax
Key audit matter
vs 2021
Recurring risks
Valuation of claims outstanding
– IBNR (gross and net)
Recoverability of Group
Goodwill and the Parent
Company’s investment in
subsidiaries
Recoverability of the carrying
value of cruise ships
2 Key audit matters: our assessment of risks
ofmaterial misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the
financial statements and include the most significant
assessed risks of material misstatement (whether or not
dueto fraud) identified by us, including those which had the
greatest effect on: the overall audit strategy; the allocation
ofresources in the audit; and directing the efforts of the
engagement team. We summarise below the key audit
matters, in decreasing order of audit significance, in arriving
at our audit opinion above, together with our key audit
procedures to address those matters and our findings from
those procedures in order that the Company’s members, as
a body, may better understand the process by which we
arrived at our audit opinion. These matters were addressed,
and our findings are based on procedures undertaken, in the
context of, and solely for the purpose of, our audit of the
financial statements as a whole, and in forming our opinion
thereon, and consequently are incidental to that opinion, and
we do not provide a separate opinion on these matters.
Saga plc Annual Report and Accounts 2022
112
Area
The risk
Our response
Valuation of claims
outstanding – IBNR
(grossand net)
Claims outstanding – IBNR
is only a portion of the
Claims outstanding (Gross
£292.8 million, 2021:
£329.5 million; Net £100.7
million, 2021: £117.2 million)
Refer to pages 77-81 (Audit
Committee Report), note
2.3.r on page 136
(accounting policies); note
2.6 on pages 140-143
(significant accounting
judgements, estimates and
assumptions), note 28 on
pages 178–181 (financial
disclosures).
Subjective valuation:
Valuation of claims outstanding – incurred but not
reported (‘IBNR’) is highly judgemental and requires
anumber of assumptions to be made that have high
estimation uncertainty and can have material impacts
onthe valuation. Further, valuation of these liabilities
involves selection of appropriate methods and involves
complex calculations.
Key assumptions include development patterns and
estimates of the frequency and severity of claims used
to value the liabilities, particularly those relating to the
amount and timing of IBNR claims.
The inherent risks of material misstatement relating to
the valuation of claims outstanding has been impacted
by the COVID-19 pandemic and current economic
conditions. We expect that recent data used to
determine the assumptions for setting reserve
estimates are affected by COVID-19 and therefore
management have to consider the extent to which this
influences the choice of the assumptions.
Certain areas of the claims outstanding – IBNR balance
contains greater uncertainty, for example, large bodily
injury (‘BI’) claims exhibit greater variability and are
more long-tailed than the damage classes.
In particular, the allowance made for the likelihood of
aclaim to settle as a Periodic Payment Order (‘PPO’)
rather than a lump sum is uncertain and has a high
reserving risk.
Similar estimates are required in establishing the
reinsurers’ share of claims outstanding, in particular
theshare of IBNR claims.
A margin is added to the actuarial best estimate (‘ABE’)
of claims outstanding to make allowance for risks and
uncertainties that are not specifically allowed for in
establishing the ABE. The appropriate margin to
recognise is a subjective judgement and estimate taken
by the directors, based on the perceived uncertainty
and potential for volatility in the underlying claims,
whichhas also been impacted by COVID-19.
Data capture:
The valuation of these reserves depends on complete
and accurate data about the volume, amount and
pattern of current and historical claims since they are
used to form expectations about future claims. If the
data used in calculating IBNR, or for forming judgements
over key assumptions, is not complete and accurate,
then material impacts on the valuation of claims
outstanding may arise.
The effect of these matters is that, as part of our risk
assessment, we determined that the valuation of claims
outstanding has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a
whole, and possibly many times that amount.
In the audit for the year ended 31 January 2021 we
included within the valuation of claims outstanding –
large BI case reserves, as part of this key audit matter.
We continue to perform procedures over case reserving
for large BI claims. However, we have re-assessed that
the estimation uncertainty in relation to this element of
the reserves for claims outstanding is lower, therefore
we have not assessed this as one of the most significant
risks in our current year audit and, therefore, it is not
separately identified in our report this year.
Our procedures included:
•
Control design, implementation and operating
effectiveness:
Testing the design, implementation and
operating effectiveness of key controls over the
completeness and accuracy of claims and premiums data
used in the calculation of the IBNR claims (including both
current and prior year case reserve data) . The controls
included reconciliations between data in the actuarial
reserving systems and data in the policy administration
systems.
We involved our actuarial specialists to perform the following
procedures:
•
Evaluate the work of the independent and internal
actuaries:
We evaluated the work of the independent and
internal actuaries by analysing the results of reserving
reports issued by them and further assessed the
competence and the appropriateness of the methodology
and the conclusions of the internal actuaries.
•
Benchmarking assumptions and methodology:
Throughcritical assessment of the actuarial reports
andsupporting documentation, including the use of
benchmarking against market data and through
discussion with the actuaries, we analysed and challenged
the reserving methodology as well as the key assumptions
used – including claims frequency, claims severity, claims
inflation, development patterns, PPO propensities,
allowances for subrogation and the impact of legislative
and process developments and considered the need for
additional allowances as a result of the ongoing effects of
COVID-19.
•
Independent re-performance in respect of the
actuarial best estimate:
We used our own modelling tools
to re-project ultimate losses for substantially all perils and
compared this to the Group’s estimates.
•
Margin evaluation:
We evaluated the appropriateness
ofthe Group recommended margin held at year end. In
order to do this, we assessed the directors’ approach, and
supporting analysis for margin to be held, having regard to
additional allowances that continue to be held this year for
what is considered ongoing uncertainty in the notification
and development of claims brought about as a result of
COVID-19 that may not yet be reflected in the data and
assumptions used in developing the ABE. We evaluated
thedirectors’ assumptions and judgement in measuring
and unwinding of an element of the additional COVID-19
margin in the current year and plan for future periods.
Wethen further considered the relative strength of the
margin held against peers and versus the prior period in
order to be satisfied that no additional prudence had been
recognised in the level of overall reserves held including
margin.
Additionally, we performed the following procedures:
•
Data comparisons:
We agreed the relevant financial and
non-financial claims and premiums data recorded in the
claims and premiums administration systems to the data
used in the actuarial reserving calculations, to assess the
integrity of the data used by the internal actuaries in their
actuarial reserving process and in our own reprojections
and assessed that the output of the actuarial re-
projections reconciled with the reported balance in the
financial statements.
•
Evaluate application of reinsurance contracts:
We also
assessed the risk transfer elements by inspecting the
reinsurance contracts, and recalculated a sample of
reinsurance recoveries recorded, including reinsurance
recoveries related to IBNR, against the terms of relevant
reinsurance contracts.
•
Assessing transparency:
We assessed whether the
Group’s disclosures about the degree of estimation
uncertainty and the sensitivity of the balance to changes
in key assumptions reflected the risks inherent in the
valuation of claims outstanding.
Our findings:
Overall we found the resulting estimate of the amount
recognised for claims outstanding – IBNR to be mildly
cautious (2021 finding: cautious). We found the disclosures
ofof the sensitivities to changes in key assumptions and
estimate as inputs to the valuation to be proportionate
(2021: proportionate).
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
113
Independent Auditor’s Report to the Members of Saga plc
continued
Area
The risk
Our response
Recoverability of Group
goodwill and the Parent
Company’s investment
insubsidiaries
(Group goodwill: £718.6
million, 2021: £718.6 million;
Parent Company’s
investment in subsidiaries:
£552.3 million, 2021:
£552.3 million)
Refer to pages 77–81 (Audit
Committee Report), note
2.3.h on pages 131-132
(accounting policies), note
2.6 on pages 140–143
(significant accounting
judgements, estimates and
assumptions), and notes 14
and 16 on pages 155 and
157-158 (financial
disclosures).
Forecast-based valuation:
Insurance goodwill in the Group and the carrying amount
of the Parent Company’s investment in subsidiaries are
significant and at risk of irrecoverability if forecast
business performance for the Group’s Insurance, Cruise
and Tour Operations businesses, in particular, were to
fall significantly short of business plans.
The estimated recoverable amount of goodwill in relation
to the Insurance business and the Parent Company’s
investment in subsidiaries are subjective due to the
inherent uncertainty involved in forecasting and
discounting future cash flows and auditor judgement
isrequired to assess whether the directors’ overall
estimate, taking into account the below assumptions,
falls within an acceptable range. Current economic
conditions and the outlook for geo-political uncertainty
and the impact that this has on the speed at which the
Group’s Travel businesses can recover also have a
significant impact on estimation uncertainty.
The assessment of the recoverability of these assets
involves a high degree of subjectivity around
assumptions due to the supporting calculations of Value
in Use (‘VIU’) being reliant on expectations of future
performance. Multiple inputs into the VIU calculations,
such as weighted average cost of capital (‘WACC’) and
terminal growth rates are at risk of manipulation in
order to demonstrate that the value of an underlying
intangible assets is not impaired.
The risk premium in relation to these assets is impacted
by uncertainty in the economic outlook as a result of
theongoing impact of COVID-19 and therefore there
isrisk of impairments to goodwill and investments in
subsidiaries at the Parent Company level if the share
price does not recover; and particularly if the Group is
not able to deliver at or ahead of plan in 2022/23, and
years to come.
The effect of these matters is that, as part of our risk
assessment, we determined that the valuation of Group
goodwill and the Parent Company’s investment in
subsidiaries has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a
whole, and possibly many times that amount.
Our procedures included:
•
Control design and implementation:
We evaluated the
design and implementation of the Group’s impairment
assessment procedures, including those controls over the
approvals of business plans.
•
Historical comparisons:
We assessed the
reasonableness of cash flow projections against historical
performance.
•
Our sector experience:
We evaluated and challenged the
assumptions used in cash flow forecasts using our sector
knowledge and experience.
•
Benchmarking assumptions:
We compared the Group’s
and the Parent Company’s assumptions to externally
derived data in relation to key inputs such as WACC and
terminal growth rates, with the support of our valuation
specialists.
•
Comparing valuations:
We compared the recoverable
amount of each significant Cash Generating Unit (‘CGU’)
by reference to VIU relative to the carrying value and
evaluated the outcome against comparator industry
multiples; and, for the Parent Company’s investment
insubsidiaries, we compared the sum of the VIUs for
allofthe Group’s CGUs to the carrying value, market
capitalisation and implied multiples of the Group’s
businesses; and corroborated reasons for any significant
differences.
•
Sensitivity analysis:
We used our analytical tools to
assess the sensitivity of the goodwill headroom and
concluded on the appropriateness of the valuation of
goodwill and the carrying value of the Parent Company’s
investment in subsidiaries. This included considering
theongoing impact of COVID-19 on key assumptions
underlying the business plans and changes therein.
•
Assessing transparency:
We assessed whether the
Group disclosures about the sensitivity of the outcome
ofthe impairment assessment to changes in key
assumptions reflects the risks inherent in the valuation
ofgoodwill and in the carrying value of the Parent
Company’s investment in subsidiaries.
We performed the tests above rather than seeking to rely
onany of the Group’s controls because the nature of the
balance is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Our findings:
We found that the resulting estimates over the recoverable
amount of Group goodwill and of the Parent Company’s
investment in subsidiaries to be balanced (2021 finding:
balanced). We found the disclosures of the sensitivities of
goodwill headroom and the carrying value of the Parent
Company’s investment in subsidiaries to changes in key
assumptions, to be proportionate (2021: proportionate).
Saga plc Annual Report and Accounts 2022
114
Area
The risk
Our response
Recoverability of the
carrying value of cruise
ships
(Cruise ships: £621.3
million, 2021: £635.0
million)
Refer to pages 77–81 (Audit
Committee Report), note
2.3h and 2.3i on pages
131-132 (accounting
policies), note 2.6 on pages
140–143 (significant
accounting judgements,
estimates and
assumptions) and note 17
on pages 159-161 (financial
disclosures).
Forecast-based valuation:
The estimated recoverable amount of the Group’s cruise
ships is subjective due to the inherent uncertainty
involved in forecasting and discounting future cash flows.
The carrying amount of the cruise ships is at risk of
irrecoverability if the trading in Cruise was to be
significantly impacted beyond that assumed in the latest
business plan forecasts approved or if the speed at
which the business is expected to recover fell short of
expectations.
Further, there are multiple inputs into the estimate of
VIU, such as the per ship cash flows, estimated useful life
and residual value of the cruise ships, WACC and the
annual growth rate, that are at risk of manipulation in
order to demonstrate that the value of cruise ships
assets is not impaired.
The effect of these matters is that we determined that
the recoverability of the carrying value of cruise ships
has a high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater than
our materiality for the financial statements as a whole,
and possibly many times that amount.
Our procedures included:
•
Control design and implementation:
We evaluated the
design and implementation of the Group’s controls over
the impairment assessment procedures, including those
over the cash flow forecasts applied to the cruise ships.
•
Valuation expertise:
We worked with our valuation
specialists to independently develop a discount rate range
considered appropriate using market data for comparable
assets, adjusted by risk factors specific to the asset.
•
Benchmarking assumptions:
We challenged the forecast
cash flow and growth assumptions for the cruise ship
assets, including comparison of the estimated useful life,
residual values and annual growth rates to external
sources.
•
Reperformance:
We considered the appropriateness of,
and assessed the integrity of, the VIU models applied by
the Group for impairment testing by performing
recalculations and validation tests of the model.
We compared the forecast cash flows and capital
expenditure contained in the VIU models to the Board
approved five-year plan.
•
Sensitivity analysis:
We assessed the sensitivity of the
recoverability of the carrying value of cruise ships and
concluded on the appropriateness of no impairment
beingrecognised by considering the ongoing impact of
COVID-19 on key assumptions including annual load
factors, discount rates, price of fuel and the speed at
which cruising is assumed to return to pre-COVID levels.
•
Assessing transparency:
We assessed whether the
Group disclosures around the valuation of cruise ships and
the sensitivity to changes in key assumptions reflects the
risks inherent in the valuation of cruise ship assets.
We performed the tests above rather than seeking to rely
onany of the Group’s controls because the nature of the
balance is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Our findings:
We found that the resulting estimates over the recoverable
amount of the cruise ships to be mildly optimistic (2021:
optimistic).
We found the disclosures of the management judgements
and the sensitivities of headroom to changes in key
assumptions, to be proportionate (2021: proportionate).
In the prior year we reported a key audit matter in respect of the going concern and disclosures due to the unprecedented
level of uncertainty as a result of COVID-19 and its impact on the Group. Following the developments during the year, the
nature of these uncertainties has changed. We continue to perform procedures over going concern that we have included
insection 5 of our report, however we no longer consider the going concern basis of preparation to be a separate key
auditmatter.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
115
3 Our application of materiality and an overview
ofthe scope of our audit
Materiality for the Group financial statements as a whole was
set at £3.5m (2021: £3.5m), determined with reference to a
benchmark of Group profit before tax, averaged over the last
four years after normalising for the fluctuations in the results
as a result of COVID-19, goodwill and other impairment
charges recognised in prior years, and other non-recurring
transactions within FY22, as disclosed in notes 3, 17, and 27b,
of £15m (2021: £65.0m), which represents 4.7% (2021: 3.7%).
Average of normalised
profit before tax
£3.5m
Whole financial statements materiality
(2021: £3.5m)
£0.17m
Misstatements reported to the
audit committee (2021: £0.14m)
£74.7m
(2021: £95.0m)
Group materiality
£3.5m
(2021: £3.5m)
Profit before tax
Group materiality
£2.3m
Performance materiality (2021: £2.3m)
£0.6m-£2.8m
(2021: £0.6m-£2.6m)
Range of materiality at 9 components
(2021: 8 components)
Materiality for the Parent Company financial statements as
awhole was set at £2.2m (2021: £2.2m), which represents
0.3% of net assets of £695.0m (2021: 0.3% of net assets
of£713m).
In line with our audit methodology, our procedures on
individual account balances and disclosures were performed
to a lower threshold, performance materiality, so as to
reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances
addup to a material amount across the financial statements
as a whole.
Performance materiality for both the Group and Parent
Company was set at 65% (2021: 65%) of materiality for the
financial statements as a whole, which equates to £2.3m
(2021: £2.3m) and £1.4m (2021: £1.4m). We applied this
percentage in our determination of performance materiality
based on the level of control deficiencies and changes in key
senior management during the prior period.
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding £0.17m
(2021: £0.14m), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
The scope of the audit work performed was predominately
substantive as we placed limited reliance upon the Group’s
internal control over financial reporting.
Of the Group’s 9 (2021: 8) reporting components, we
subjected 4 (2021: 4) to full scope audits for Group purposes
and 5 (2021: 4) to specified risk-focused audit procedures.
The latter were not individually financially significant enough
to require a full scope audit for Group purposes but did
present specific individual risks that needed to be addressed.
For the residual components, we conducted reviews of
financial information (including enquiry) at an aggregated
Group level to re-examine our assessment that there were
no significant risks of material misstatement within these.
The Group team instructed component auditors as to the
significant areas to be covered, including the relevant risks
detailed above and the information to be reported back. The
Group team approved the component materiality, which
ranged from £0.4m to £2.8m (2021: £0.6m to £2.6m), having
regard to the mix of size and risk profile of the Group across
the components. The work on 2 of the 9 components (2021: 2
of the 8 components) was performed by component auditors
and the rest, including the audit of the Parent Company, was
performed by the Group team.
The group team performed procedures on the items
excluded from normalised group profit before tax.
Whilst it would be conventional practice to visit the
component teams, the continued impact of the COVID-19
restrictions on travel resulted in a greater degree of reliance
on the use of video and telephone conference meetings with
all component auditors. During these video and telephone
conference meetings, an assessment was made of audit risk
and strategy, the findings reported to the Group audit team
were discussed in more detail, key working papers were
inspected, and any further work required by the Group audit
team was then performed by the component auditor.
These components within the scope of our work accounted
for the following percentages of the Group’s results:
Group revenue
97
%
(2021: 96%)
93%
93%
Full scope for Group audit
purposes 2022
Specified risk-focused audit
procedures 2022
Full scope for Group audit
purposes 2021
Specified risk-focused audit
procedures 2021
Residual components
Group profits and losses that
made up the Group loss before tax
98
%
(2021: 95%)
Group total assets
99
%
(2021: 99%)
3%
2%
81%
13%
15%
94%
94%
5%
5%
85%
Independent Auditor’s Report to the Members of Saga plc
continued
Saga plc Annual Report and Accounts 2022
116
4 The impact of climate change on our audit
In planning our audit, we performed a risk assessment,
including enquiries of management, to determine how the
impact of commitments made by the Group in respect of
reducing carbon emissions, as well as the physical risks of
climate change, and transition risks faced by the Group’s
customer base, could impact on the financial statements
andour audit. We held discussions with our own climate
change professionals to challenge our risk assessment.
Through the procedures we performed, we did not identify
any material impact of climate change on the Group’s
material accounting estimates and there was no significant
impact of this assessment on our key audit matters for the
year ended 31 January 2022.
The insurance business within the Group predominantly
brokers and underwrites motor and home insurance risks.
Climate change may result in an increase in the frequency
and severity of climate related events, leading to higher
insurance pay-outs. However, the short-term nature of the
Group’s insurance contracts means that the impact of losses
from such events for the year ended 31 January 2022 is
already recorded within the Group’s insurance contract
liabilities at the balance sheet date. The Group considers
thisloss experience in evaluating individual risk exposures,
and the setting of insurance premium rates for both new
policies and the periodic renewal of its existing insurance
underwriting portfolio. The Group expects any increase in
the frequency and severity of climate-related events to be
reflected in future market premium rates.
Also, in relation to the insurance business, climate risk is an
issue which is expected to evolve further over the medium
tolong term, rather than have instant incremental impacts
on the insurance outlook, and therefore we assessed no
significant impact at year-end on insurance goodwill,
particularly given the headroom in the most recent
impairment tests performed.
The cruise business within the Group owns cruise ship assets
which meet all current regulatory standards regarding
emissions and climate change targets. While there will likely
be technology advances in years to come that, when
developed, will require the Group to look to incur incremental
cost to modify the engines on these cruise ships to meet
lower emissions standards, the cost to incur such changes
would likely extend the operating life of these vessels. Given
this and the fact that this technology is yet to be developed,
we assessed the risk of climate change to the carrying
amount of the cruise ship assets at the balance sheet date
tobe not significant.
We have also read the disclosures of climate related
information in the front half of the annual report and
accounts as set out on pages 30-34 and considered
consistency with the financial statements and our audit
knowledge. We have not been engaged to provide assurance
over the accuracy of these disclosures.
5 Going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Group
or the Parent Company or to cease their operations, as they
have concluded that the Group’s and the Parent Company’s
financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could
have cast significant doubt over their ability to continue as a
going concern for at least a year from the date of approval of the
financial statements (“the going concern period”).
We used our knowledge of the Group and Parent Company, its
industry, and the general economic environment in which it
operates to identify the inherent risks to its business model and
analysed how those risks might affect the Group and Parent
Company’s financial resources or ability to continue operations
over the going concern period. The risks that were considered
most likely to adversely affect the Group’s and Parent
Company’s available financial resources over this period were:
•
the length of time that the impact of COVID-19 will
continue to disrupt the Group’s Travel operations and
constrain its ability to recover, given the current
restrictions imposed worldwide in respect of the freedom
of movement and travel;
•
the financial and operational resilience of the Group’s
Insurance business and its ability to deliver its business
plan in light of heightened levels of regulatory change and
ongoing uncertainty from the pandemic; and
•
the consequential impact on the Group’s ability to meet
the terms of its ship debt and Group bank debt covenants.
Our conclusions based on this work:
•
we consider that the directors’ use of the going concern
basis of accounting in the preparation of the financial
statements is appropriate;
•
we have not identified, and concur with the directors’
assessment that there is not, a material uncertainty
related to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s or
Parent Company’s ability to continue as a going concern
for the going concern period;
•
we have nothing material to add or draw attention to in
relation to the directors’ statement in note 2.1 to the
financial statements on the use of the going concern basis
of accounting with no material uncertainties that may cast
significant doubt over the Group and Parent Company’s
use of that basis for the going concern period, and we
found the going concern disclosure in note 2.1 to be
acceptable; and
•
the related statement under the Listing Rules set out on
page 65 is materially consistent with the financial
statements and our audit knowledge.
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time
they were made, the above conclusions are not a guarantee that
the Group or the Parent Company will continue in operation.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
117
6 Fraud and breaches of laws and regulations –
ability to detect
Identifying and responding to risks of material
misstatement due to fraud
To identify risks of material misstatement due to fraud
(“fraud risks”) we assessed events or conditions that could
indicate an incentive or pressure to commit fraud or provide
an opportunity to commit fraud. Our risk assessment
procedures included:
•
enquiring of directors, the Audit Committee, the Internal
Audit Director, the Chief Risk Officer and inspection of key
policies and papers provided to those charged with
governance as to the Group’s high-level policies and
procedures to prevent and detect fraud, including the
Group’s channel for “whistleblowing” and the process for
engaging local management to identify fraud risks specific
to their business units, as well as whether they have
knowledge of any actual, suspected, or alleged fraud;
•
reading Board, Audit and Risk Committee minutes and in
the case of Audit and Risk Committee meetings for the
Group, attendance of the external audit partner at these
meetings;
•
considering remuneration incentive schemes and
performance targets for directors and senior
management;
•
using analytical procedures to identify any usual or
unexpected relationships; and
•
reading broker reports and other public information to
identify third-party expectations and concerns.
We communicated identified fraud risks throughout the
auditteam and remained alert to any indications of fraud
throughout the audit. This included communication from the
group to component audit teams of relevant fraud risks
identified at the Group level and request to component audit
teams to report to the group audit team any instances of
fraud that could give rise to a material misstatement at
Group.
As required by auditing standards and taking into account
possible pressures to meet profit targets, we perform
procedures to address the risk of management override of
controls, in particular the risk that Group and component
management may be in a position to make inappropriate
accounting entries. On this audit we do not believe there is a
fraud risk related to revenue recognition because revenue is
not complex in nature and there is no significant management
judgement or estimation involved in recording the revenue
transactions.
We also identified fraud risks related to inappropriate
assessment of the recoverability of Group goodwill, the
recoverability of the carrying value of cruise ships and the
valuation of claims outstanding – IBNR, in response to
possible pressures to meet profit targets.
In determining the audit procedures to address the identified
fraud risks, we took into account the results of our evaluation
and testing of the operating effectiveness of the Group-wide
fraud risk management controls. Further detail in respect of
the procedures performed over the recoverability of Group
goodwill, the recoverability of the carrying value of cruise
ships and the valuation of claims outstanding – IBNR,
including how we have used specialists to assist in our
challenge of management is set out in the key audit matter
disclosures in section 2 of this report.
To address the pervasive risk as it relates to management
override, we also performed procedures including:
•
identifying journal entries to test for all in scope
components, based on risk criteria and comparing the
identified entries to supporting documentation. These
included those posted by senior management, those
including specific words based on our risk criteria, those
journals which were unbalanced, those posted to unusual
accounts, those posted at the end of the period and/or
post-closing entries with little or no description and
unusual journal entries posted to either cash or
borrowings; and
•
assessing significant accounting estimates for bias.
Identifying and responding to risks of material
misstatement due to non-compliance with laws and
regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our general commercial and sector
experience, and through discussion with the directors and
other management (as required by auditing standards), and
from inspection of the Group’s regulatory and legal
correspondence and discussed with the directors and other
members of management the policies and procedures
regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved
gaining an understanding of the control environment
including the entity’s procedures for complying with
regulatory requirements.
We communicated identified laws and regulations throughout
our team and remained alert to any indications of non-
compliance throughout the audit. This included
communication from the group to full-scope component
audit teams of relevant laws and regulations identified at the
Group level, and a request for full scope component auditors
to report to the group team any instances of non-compliance
with laws and regulations that could give rise to a material
misstatement at Group.
The potential effect of these laws and regulations on the
financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies’
legislation), distributable profits legislation, taxation
legislation and pension legislation and we assessed the extent
of compliance with these laws and regulations as part of our
procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and
regulations where the consequences of non-compliance
could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of
fines or litigation or the loss of the Group’s license to
operate. We identified the following areas as those most likely
to have such an effect: regulatory capital, regulatory
compliance and liquidity, and certain aspects of company
legislation recognising the financial and regulated nature of
Independent Auditor’s Report to the Members of Saga plc
continued
Saga plc Annual Report and Accounts 2022
118
the Group’s activities and its legal form, with the Insurance
business regulated primarily by the Financial Conduct
Authority (‘FCA’) and the Gibraltar Financial Services
Commission (‘GFSC’), with the Travel business regulated by
the Civil Aviation Authority (‘CAA’). The Travel businesses are
members of the Association of British Travel Agents (‘ABTA’),
the International Air Transport Association (‘IATA’) and the
Federation of Tour Operators (‘FTO’). These are well-
recognised UK trade bodies with codes of conduct which
members are required to adhere to. All parts of Saga
operate procedures to comply with other key regulations and
legislation including but not limited to the Data Protection
Act 2018, UK General Data Protection Regulation, the
Bribery Act 2010, the Equality Act 2010 and Health and
Safety legislation. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and
regulations to enquiry of the directors and other
management and inspection of regulatory and legal
correspondence, if any. Therefore, if a breach of operational
regulations is not disclosed to us or evident from relevant
correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or
breaches of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some
material misstatements in the financial statements, even
though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further
removed non-compliance with laws and regulations is from
the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures
required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk
ofnon-detection of fraud, as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls. Our audit procedures are
designed to detect material misstatement. We are not
responsible for preventing non-compliance or fraud and
cannot be expected to detect non-compliance with all laws
and regulations.
7 We have nothing to report on the other
information in the Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
notcover the other information and, accordingly, we do
notexpress an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and,
indoing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have not
identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
•
we have not identified material misstatements in the
strategic report and the directors’ report;
•
in our opinion the information given in those reports for the
financial year is consistent with the financial statements;
and
•
in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Disclosures of emerging and principal risks and
longer-term viability
We are required to perform procedures to identify whether
there is a material inconsistency between the directors’
disclosures in respect of emerging and principal risks and the
viability statement, and the financial statements and our
audit knowledge.
Based on those procedures, we have nothing material to add
or draw attention to in relation to:
•
the directors’ confirmation within the viability statement
on page 55 that they have carried out a robust assessment
of the emerging and principal risks facing the Group,
including those that would threaten its business model,
future performance, solvency and liquidity;
•
the Principal Risks and Uncertainties disclosures
describing these risks and how emerging risks are
identified, and explaining how they are being managed and
mitigated; and
•
the directors’ explanation in the viability statement of how
they have assessed the prospects of the Group, over what
period they have done so and why they considered that
period to be appropriate, and their statement as to
whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their
assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the viability statement, set
out on page 55 under the Listing Rules. Based on the above
procedures, we have concluded that the above disclosures
are materially consistent with the financial statements and
our audit knowledge.
Our work is limited to assessing these matters in the context
of only the knowledge acquired during our financial
statements audit. As we cannot predict all future events or
conditions and as subsequent events may result in outcomes
that are inconsistent with judgements that were reasonable
at the time they were made, the absence of anything to
report on these statements is not a guarantee as to the
Group’s and Parent Company’s longer-term viability.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
119
Corporate governance disclosures
We are required to perform procedures to identify whether
there is a material inconsistency between the directors’
corporate governance disclosures and the financial
statements and our audit knowledge.
Based on those procedures, we have concluded that each
ofthe following is materially consistent with the financial
statements and our audit knowledge:
•
the directors’ statement that they consider that the annual
report and financial statements taken as a whole is fair,
balanced and understandable, and provides the
information necessary for shareholders to assess the
Group’s position and performance, business model and
strategy;
•
the section of the annual report describing the work of the
Audit Committee, including the significant issues that the
Audit Committee considered in relation to the financial
statements, and how these issues were addressed; and
•
the section of the annual report that describes the review
of the effectiveness of the Group’s risk management and
internal control systems.
We are required to review the part of the Corporate
Governance Statement relating to the Group’s compliance
with the provisions of the UK Corporate Governance Code
specified by the Listing Rules for our review. We have nothing
to report in this respect.
8 We have nothing to report on the other matters
on which we are required to report by exception
Under the Companies Act 2006, we are required to report
to you if, in our opinion:
•
adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
•
the Parent Company financial statements and the part of
the directors’ remuneration report to be audited are not in
agreement with the accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by
law are not made; or
•
we have not received all the information and explanations
we require for our audit.
We have nothing to report in these respects.
9 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 111,
the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error; assessing the Group and Parent Company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend
to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
toissue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not guarantee
that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions
of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
10 The purpose of our audit work and to whom we
owe our responsibilities
This report is made solely to the Company’s members,
asabody, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and the terms of our engagement
bythe company. Our audit work has been undertaken so
thatwe might state to the Company’s members those
matters we are required to state to them in an auditor’s
report, and the further matters we are required to state to
them in accordance with the terms agreed with the company,
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 and the Company’s members, as a
body, for our audit work, for this report, or for the opinions
we have formed.
Stuart Crisp
(Senior Statutory Auditor) for and on
behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square, London
E14 5GL
22 March 2022
Independent Auditor’s Report to the Members of Saga plc
continued
Saga plc Annual Report and Accounts 2022
120
Consolidated income statement
for the year ended 31 January 2022
Note
2022
£m
2021
£m
Gross earned premiums
3 203.0 221.7
Earned premiums ceded to reinsurers
3
(123.8 )
(142.8 )
Net earned premiums
3 79.2 78.9
Other revenue
3 298.0 258.7
Total revenue 377.2 337.6
3
Gross claims incurred
28
(94.6 )
(117.6 )
1
Reinsurers’ share of claims incurred
28 63.3 99.4
1
Net claims incurred
28
(31.3 )
(18.2 )
Decrease in credit loss allowance
20 8.3 5.5
Other cost of sales
(120.3 )
(87.5 )
Total cost of sales 3
(143.3 )
(100.2 )
Gross profit 233.9 237.4
Administrative and selling expenses
4
(212.8 )
(224.2 )
Impairment of assets
5
(11.2 )
(65.0 )
Gain on lease modification
18 0.3 3.2
Net profit on disposal of assets held for sale and businesses 7.2 8.6
38, 13
Net (loss)/profit on disposal of property, plant and equipment, right-of-use assets
andsoftware 6.6
15, 17, 18
(0.4 )
Investment income
6 0.3 0.7
Finance costs
7
(40.8 )
(30.2 )
Finance income
8 – 1.7
Loss before tax
(23.5 )
(61.2 )
Tax expense
10
(4.5 )
(6.6 )
Loss for the year
(28.0 )
(67.8 )
Attributable to:
Equity holders of the parent
(28.0 )
(67.8 )
Loss per share:
Basic
12
(20.1
p)(67.0
p)Diluted
12
(20.1
p)(67.0
p)The Notes on pages 126-192 form an integral part of these consolidated financial statements.
1 Gross claims incurred and reinsurers’ share of claims incurred for the year ended 31 January 2021 have been restated due to an incorrect allocation between
these classifications. Gross claims incurred have decreased by £13.8 m and reinsurers’ share of claims incurred has decreased by £13.8 m
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2
022
121
Consolidated statement of comprehensive income
for the year ended 31 January 2022
Note
2022
£m
2021
£m
Loss for the year
(28.0 )
(67.8 )
Other comprehensive income
Other comprehensive income to be reclassified to income statement in subsequent years
Net gains on hedging instruments during the year
19 2.1 22.3
Recycling of previous gains to income statement on matured hedges
19
(1.2 )
(2.5 )
Total net gains on cash flow hedges 0.9 19.8
Associated tax effect 0.3
(3.5 )
Net (losses)/gains on fair value financial assets during the year 3.2
(10.3 )
Recycling of previous losses to income statement on fair value financial assets during the year 0.1 –
Total net (losses)/gains on fair value financial assets during the year 3.2
(10.2 )
Associated tax effect 2.1
(0.8 )
Total other comprehensive (losses)/gains with recycling to income statement 18.7
(6.9 )
Other comprehensive income not to be reclassified to income statement in
subsequent years
Remeasurement gains/(losses) on defined benefit plan
27 4.8
(1.2 )
Associated tax effect 0.2
(1.2 )
Total other comprehensive gains/(losses) without recycling to income statement 3.6
(1.0 )
Total other comprehensive (losses 17.7
)/
gains(3.3 )
Total comprehensive losses for the year
(31.3 )
(50.1 )
Attributable to:
Equity holders of the parent
(31.3 )
(50.1 )
The Notes on pages 126-192 form an integral part of these consolidated financial statements.
Saga plc Annual Report and Accounts 2
022
122
Consolidated statement of financial position
as at 31 January 2022
Note
2022
£m
2021
£m
Assets
Goodwill
14 718.6 718.6
Intangible assets
15 47.1 56.6
Retirement benefit scheme surplus
27 1.1 –
Property, plant and equipment
17 646.5 660.2
Right-of-use assets
18 36.0 2.8
Financial assets
19 332.1 359.8
Current tax assets 4.3 3.1
Deferred tax assets
10 12.3 12.5
Reinsurance assets
28 65.4 71.6
Inventories
22 6.3 3.5
Trade and other receivables
23 169.5 183.1
Trust accounts
24 23.4 22.4
Cash and short-term deposits
25 226.9 101.6
Assets held for sale 12.9 16.9
17, 38
Total assets 2,302.4 2,212.7
Liabilities
Retirement benefit scheme obligations
27 – 4.3
Gross insurance contract liabilities
28 386.7 426.3
Provisions
31 6.7 11.7
Financial liabilities 826.6
19 936.2
Deferred tax liabilities
10 5.6 5.8
Contract liabilities
29 114.6 82.2
Trade and other payables
26 199.7 175.1
Total liabilities 1,649.5 1,532.0
Equity
Issued capital
33 21.1 21.0
Share premium 648.3 648.3
Retained earnings 0.2
(22.4 )
Share-based payment reserve 7.4 5.8
Fair value reserve 7.3
(0.8 )
Hedging reserve
(0.7 )
(1.9 )
Total equity 652.9 680.7
Total equity and liabilities 2,302.4 2,212.7
The Notes on pages 126-192 form an integral part of these consolidated financial statements.
Signed for and on behalf of the Board on 22 March 2022 by
E A Sutherland J B Quin
Group Chief Executive Officer Group Chief Financial Officer
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2
022
123
Consolidated statement of changes in equity
for the year ended 31 January 2022
Attributable to the equity holders of the parent
Issued
capital
£m
Share
premium
£m
Retained
earnings
£m
Share-based
payment
reserve
£m
Fair value
reserve
£m
Hedging
reserve
£m
Total
£m
At 1 February 2021 21.0 648.3 0.2 5.8 7.3 680.7
(1.9 )
Loss for the year – – – – –
(28.0 )
(28.0 )
Other comprehensive income/(losses)
excluding recycling – – 3.6 – 3.3
(8.2 )
(1.3 )
Recycling of previous losses/(gains) to
income statement – – – – 0.1
(2.1 )
(2.0 )
Total comprehensive (losses)/income – – – 1.2
(24.4 )
(8.1 )
(31.3 )
Issue of share capital (Note 33) 0.1 – – – – – 0.1
Share-based payment charge (Note 36) – – – 3.4 – – 3.4
Exercise of share options – – 1.8 – – –
(1.8 )
At 31 January 2022 21.1 648.3 7.4 652.9
(22.4 )
(0.8 )
(0.7 )
At 1 February 2020 11.2 519.3 65.4 7.8 4.9 588.2
(20.4 )
Loss for the year – – – – –
(67.8 )
(67.8 )
Other comprehensive (losses)/income
excluding recycling – – – 2.4 18.4 19.8
(1.0 )
Recycling of previous gains to income
statement – – – – –
(2.1 )
(2.1 )
Total comprehensive (losses)/income – – – 2.4 16.3
(68.8 )
(50.1 )
Recognition of non-financial asset from
hedging reserve (Note 19) – – – – – 2.2 2.2
Dividends paid (Note 11) – – – – –
(0.1 )
(0.1 )
Issue of share capital (Note 33) 9.8 140.6 – – – – 150.4
Transaction costs associated with issue
of share capital – – – – –
(11.6 )
(11.6 )
Share-based payment charge (Note 36) – – – 2.4 – – 2.4
Exercise of share options – – 3.7 – –
(4.4 )
(0.7 )
At 31 January 2021 21.0 648.3 0.2 5.8 7.3 680.7
(1.9 )
The Notes on pages 126-192 form an integral part of these consolidated financial statements.
Saga plc Annual Report and Accounts 2
022
124
Consolidated statement of cash flows
for the year ended 31 January 2022
Note
2022
£m
2021
£m
Loss before tax
(23.5 )
(61.2 )
Depreciation, impairment and loss on disposal, of property, plant and equipment,
andright-of-use assets 22.2 14.9
Amortisation and impairment of intangible assets, and loss on disposal of software 20.6 72.5
Impairment of assets held for sale –
38 1.0
Gain on lease modification
(0.3 )
(3.2 )
Share-based payment transactions 3.4 2.4
Profit on disposal of assets held for sale
38
(7.2 )
(12.2 )
Loss on disposal of subsidiaries – 3.6
Finance costs
7 40.8 30.2
Finance income
8 –
(1.7 )
Interest income from investments
(0.3 )
(0.7 )
Increase in trust accounts
(1.0 )
(22.4 )
Movements in other assets and liabilities 29.3
(66.5 )
(44.3 )
Interest received 0.3 0.7
Interest paid
(34.2 )
(24.1 )
Income tax paid
(4.6 )
(10.7 )
Net cash flows from 46.5
/(
used in) operating activities(78.4 )
Investing activities
Proceeds from sale of property, plant and equipment, and right-of-use assets 0.3 8.3
Net proceeds from disposal of assets held for sale –
38 10.2
Purchase of and payments for the construction of property, plant and equipment and
intangible assets
(18.9 )
(285.1 )
Net disposal of financial assets 41.9
(18.9 )
Disposal of subsidiaries, net of cash in businesses disposed of – 23.1
13
Net cash flows used in investing activities
(27.3 )
(211.8 )
Financing activities
Payment of principal portion of lease liabilities
32
(3.6 )
(4.0 )
Proceeds from borrowings
32 250.0 330.8
Repayment of borrowings
32
(170.0 )
(130.0 )
Debt issue costs
32
(6.8 )
(17.4 )
Proceeds from issue of share capital – 150.3
33
Transaction costs associated with issue of share capital –
(11.6 )
Dividends paid –
(0.1 )
Net cash flows from financing activities 69.6 318.0
Net increase in cash and cash equivalents 88.8 27.8
Cash and cash equivalents at the start of the year 166.9 139.1
Cash and cash equivalents at the end of the year 255.7 166.9
25
The Notes on pages 126-192 form an integral part of these consolidated financial statements.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2
022
125
Notes to the financial statements
1 Corporate Information
incorporated and domiciled in the United Kingdom
theCompanies Act 2006 (registration number 08804263).
The Company is registered in England and its registered office
is located at Enbrook Park, Folkestone, Kent CT20 3SE.
amonthly subscription magazine.
2.1 Basis of preparation
The consolidated financial statements of the Group have
been prepared in accordance with UK-adopted international
accounting standards.
The consolidated financial statements have been prepared
on a going concern basis and on a historical cost basis except
as otherwise stated. The Group has reviewed the
appropriateness of the going concern basis in preparing the
financial statements, particularly in light of the COVID-19
pandemic, details of which are included below. Based on
those assumptions, the Directors have concluded that it
remains appropriate to adopt the going concern basis in
preparing the financial statements.
The Group’s consolidated financial statements are presented
in pounds sterling, which is also the parent company’s
functional currency, and all values are rounded to the nearest
hundred thousand (£m), except when otherwise indicated.
Each company in the Group determines its own functional
currency and items included in the financial statements of
each entity are measured using that functional currency.
The preparation of financial statements in compliance with
UK-adopted international accounting standards requires the
use of certain critical accounting estimates. It also requires
Group management to exercise judgement in applying the
Group’s accounting policies. The areas where significant
judgements and estimates have been made in preparing
thefinancial statements and their effect are disclosed in
Note 2.6.
The principal accounting policies adopted, which have been
applied consistently, unless otherwise stated, are set out in
Note 2.3 below.
Going concern
The Directors have considered the appropriateness of the
going concern basis of preparation for the financial
statements prepared to 31 January 2022 and in doing so
have considered a range of possible scenarios that factor in
the potential ongoing impact of the COVID-19 pandemic and
other key risks and uncertainties.
The Group’s business activities, together with the factors
likely to affect its future development and performance, its
exposure to risk and its management of these risks, details of
its financial instruments and derivative activities, and details
of other financial and non-financial liabilities, are described
throughout the annual report (see (i) Principal risks and
uncertainties (PRUs) on pages 53 and 54; (ii) Group Chief
Financial Officer’s Review on pages 36–52; (iii) Audit,
riskandinternal control on pages 74-76; (iv) Audit Committee
Report on pages 77-81; (v) Risk Committee Report on pages
82-84; and (vi) Notes on pages 126-192). TheDirectors
believe that the Group is well placed to successfully manage
its business risks.
The impact of COVID-19 over the past two years has
increased the level of uncertainty and earnings volatility
forthe Group, as it has done for many businesses, and
particularly for the Group’s Travel business. Since the start
of the pandemic in the first half of 2020, the Group has
increased the frequency and depth of its long-term financial
forecasting and scenario modelling to allow the Directors to
take appropriate action to ensure the ongoing liquidity and
solvency of the business.
Over this period, the Group has undertaken a series of
transactions to restructure its operations and capital
structure. The Group’s balance sheet has been strengthened
to allow it to withstand a further period of uncertainty that
may be faced in 2022 and beyond. The most notable of these
transactions was the raising of £138.7m of net proceeds from
the issuance of new equity shares in September 2020,
followed by the issuance of a new £250.0m unsecured
fixed-rate five-year bond in July 2021. These actions allowed
the Group to fully repay its senior secured bank debt
facilities, bolster Available Cash
2
reserves, which were
£186.6m at 31 January 2022, increase financial flexibility and
extend the maturity profile of Group debt. On its ship debt
facilities, the Group deferred a number of capital repayments
and there is a covenant testing holiday on these facilities until
31 July 2022.
The Group successfully recommenced operations in its
Travel business during 2021, with UK-only cruises and
holidays operating from July 2021, and a return to
international cruises from the end of August 2021 and
international tours from September 2021. The Travel
business has continued to operate since, despite the
increased disruption from the emergence of the Omicron
variant in November 2021.
The Group announced at the end of January 2022 its plans
to restructure the operations of its Travel business. The Saga
Holidays and Titan Travel operations are being combined to
maximise efficiency in touring, where the product offerings
are highly complementary, and to create a new hotel stay
proposition to be launched later in 2022. The river cruise
product is now being managed by the Cruise management
team, who have a demonstrable track record of operating
the ocean cruise product successfully in a COVID-safe
environment. These actions place the Travel business in a
strong position as travel restrictions ease and customer
demand continues to recover.
As in the prior year, the Insurance business’ ability to trade
continues to be largely unaffected by COVID-19, with resilient
earnings in the Retail Broking business and some positive
impacts on motor claims frequency during the first half of
2021 when the UK population was in lockdown. The Insurance
business has also successfully implemented changes to
pricing in line with the requirement of the regulations
imposed by the FCA following its market study into insurance
pricing, which came into force on 1 January 2022.
2 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
126
In the latest round of long-term financial forecasting, the
Group updated its modelling assumptions to reflect:
•
In the base case, which represents the Group’s central plan
and best estimate outlook, Cruise continues to see some
impact of COVID-19 in the first half of 2022/23, with reduced
load factors and higher return to service costs, but then largely
returns to normal operation thereafter. The Tour Operations
business is targeting to break even in 2022/23 and then return
to pre-pandemic contribution levels from 2023/24, with a
lower overhead cost base following completion of the recently
announced restructuring plans. Insurance plans include an
estimate of the impact of the FCA market study on customer
pricing, which is expected to have an adverse impact on profit
before tax for 2022/23 and 2023/24.
•
In the reasonable worst-case (RWC), which represents the
Group’s severe, but plausible, downside scenario, Cruise
assumes a layup of both ships for a further two-month
period during 2022/23 due to further potential travel
restrictions, and with suppressed load factors for the
remainder of 2022/23 and 2023/24, capped at 75% and
80% for each year respectively. Tour Operations also sees
a much slower recovery from 2023/24 onwards than in the
base case. Insurance is assumed to be impacted by a
number of downside risks, including a more conservative
outlook for the impact of the FCA market study compared
with base case assumptions.
The Group has made an initial assessment of the potential
impact that the Russia-Ukraine conflict could have on its
outlook, and potential downsides are considered to be
limited to short-term reductions to Travel bookings and
inflationary pressures that are sufficiently covered by the
assumptions within the base case and RWC.
The Group concluded discussions with its Cruise lenders to
amend the covenants on the two ship debt facilities as set out
in the table below. This is to ensure we have significant
headroom against all scenarios modelled. As part of the
modelling, the Group considered its compliance with the
maintenance covenants attached to its banking facilities,
which are summarised inthe following table at each of the
required testing dates:
Ship debt facilities
RCF
EBITDA
to debt
repayment
(minimum)
EBITDA
to cash
interest
(minimum)
Net debt
to EBITDA
‘leverage’
(maximum)
EBITDA
to cash
interest
‘interest
cover’
(minimum)
Cruise
intercompany
debt cap
(maximum)
31 July 2022 1.0x
1.7x 3.75x
2.0x
£115m
31 January 2023
1.0x
2.0x
3.75x
2.5x
£115m
31 July 2023 1.0x
2.0x 3.00x
3.5x
£115m
31 January 2024 1.0x
2.0x 3.00x
3.5x
£115m
31 July 2024 onwards
1.2x
2.0x 3.00x
3.5x
£115m
Under the terms of the ship debt facilities, dividends remain
restricted until the ship debt principal repayments that were
deferred as part of the ship debt repayment holiday are fully
repaid. Under the terms of the revolving credit facility (RCF),
dividends also remain restricted if leverage is above 3.0x
(excluding Cruise debt) and the Group remains subject to a
minimum liquidity requirement of £40.0m, which can be met
either through cash or undrawn and committed facilities (such
as the RCF itself). The terms also include a requirement to
repay the RCF on 1 March 2024 if the remaining £150.0m of
bond notes that are due to mature in May 2024 have not been
redeemed prior to this date. The RCF is expected to remain
undrawn in both scenarios for the foreseeable future, and it can
be cancelled with immediate effect at any point, which would
remove all covenants attached to it.
The new unsecured bond that is due to mature in July 2026
includes an event-based fixed charge covenant ratio, of 2.0x
EBITDA, which must be satisfied if, and when, the Group intends
to issue new debt. The Group has no current plans to issue any
new debt. The definition of this covenant is comparable to the
interest cover covenant within the RCF.
In both scenarios modelled, the Group expects to be able to
operate within all of its debt covenants and to maintain sufficient
liquidity until at least September 2023, being 18 months from the
date of signing the financial statements, which more than
accommodates the minimum 12-month assessment period for
going concern. The Directors therefore have a reasonable
expectation that the Group will continue to trade through the
continued COVID-19 disruption and will have sufficient liquidity
for at least the next 12 months, and accordingly have prepared
the financial statements on a going concern basis.
2.2 Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the
Company (its subsidiaries) made up to 31 January each year.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with an investee entity and
has the ability to affect those returns through its power over the
investee entity. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity.
Subsidiary companies are consolidated using the acquisition
method.
Subsidiaries are fully consolidated from the date of
acquisition, being the date on which the Group obtained
control, and continue to be consolidated until the date when
such control ceases.
In preparing these consolidated financial statements, any
intra-group receivables, payables, income and expenses arising
from intra-group trading are eliminated. Where accounting
policies used in individual financial statements ofa subsidiary
company differ from Group policies, adjustments are made to
bring these policies in line with Group policies.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
127
Notes to the financial statements
continued
The results of subsidiaries acquired, or disposed of, during
the year are included in the consolidated income statement
from the effective date of acquisition or up to the effective
date of disposal, as appropriate. Where a subsidiary which
constituted a separate major line of business is disposed of,
itis disclosed as a discontinued operation.
A change in the ownership interest of a subsidiary, without
aloss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises
the related assets (including goodwill), liabilities, non-
controlling interest and other components of equity while
anyresultant gain or loss is recognised in profit or loss.
Anyinvestment retained is recognised at fair value.
2.3 Summary of significant
accounting policies
a. Revenue recognition
Revenue represents amounts receivable from the sale or
supply of goods and services provided to customers in the
ordinary course of business and is recognised to the extent
that it is probable that the future economic benefits will flow
to the Group and the revenue can be reliably measured,
regardless of when payment is received. The recognition
policies for the Group’s various revenue streams by segment
are as follows:
i) Insurance
The amounts received from customers for insurance policies
comprise three main elements: the premium charged to the
customer in respect of the insurance cover (gross premium);
insurance premium tax (IPT); and an arrangement fee where
applicable (only applied to policies that are brokered via a
panel). The gross premium itself comprises two elements:
the premium charged by the underwriter of each policy (net
premium), which may be provided by the Group’s in-house
underwriter or by a third-party underwriter, plus any
adjustment to the net premium that is applied by the
Group’sbroker during the broking service (street pricing
adjustment).
In addition, where the customer pays in instalments, the
Group may charge interest on the outstanding balance. The
Group may also charge additional fee income for mid-term
cancellations and adjustments made to policies mid-term.
IPT is excluded from all revenue recognised by the Group.
For 12-month insurance policies with no option to fix the
premium at renewal (annual policies):
For insurance policies underwritten by the Group, the gross
insurance premium is recognised on a straight-line time-
apportioned basis over the period of cover. The portion of
the premium ceded to reinsurers is also recognised on a
straight-line time-apportioned basis over the period of cover
as a reduction to revenue. This recognition basis is in line with
the requirements of IFRS 4.
For insurance policies not underwritten by the Group, the
portion of the gross premium that is retained by the Group,
otherwise referred to as the street pricing adjustment, is
recognised on the cover start date of each policy. The
portion of the gross premium charged by the third-party
underwriter, otherwise referred to as the net premium,
isnotrecognised as revenue in the income statement. This
recognition basis is in line with the requirements of IFRS 15.
For 12-month insurance policies with the option to fix the
premium over three years (three-year fixed-price policies):
For three-year fixed-price policies, the option to fix the
premium at the first and second renewal points is deemed to
be a separate performance obligation as defined by IFRS 15.
The Group therefore defers a portion of the gross premium
received in the first year of cover into years two and three,
and a portion of the gross premium received in the second
year of cover into year three, to coincide with when the
option has been exercised by the customer and so deemed
tobe fulfilled by the Group. The carrying value of the revenue
deferred is recognised within contract liabilities in the
statement of financial position.
If a customer cancels a three-year fixed-price policy mid-
term or chooses not to renew in the second or third years,
any brought forward income deferral is recognised in the
income statement at the point the cover ends, being the
point that the Group is released from the obligation to fix the
price at renewal.
The Group uses a cost-plus methodology to approximate
astandalone selling price of the option to fix the customer
price at renewal, by reference to an actuarial estimate of
thepremium that it would cost the Group to transfer the
obligation to fix to a third party, plus an appropriate
profitmargin.
The gross premium that is allocated to each of the three
policy years is then measured as the gross premium charged
in each year, less any income deferred to subsequent policy
years for the option to fix, plus any brought forward income
deferred from earlier policy years. The accounting in each
policy year then follows the same principles as described
above for annual policies.
Where there is a switch of underwriter between the Group
and a third-party underwriter at either of the renewal points
within the three-year price-fix, the Group applies the relevant
accounting policy for the subsequent policy year in line with
either of the two methods as described for annual policies.
Management considers the definition of performance
obligations for three-year fixed-price policies to be a
significant area of judgement.
All insurance policies (both three-year fixed-price policies
and annual policies):
For all insurance policies, the arrangement fee that is
charged in respect of the broking service is recognised on,
orbefore, the cover start date of each policy on the date
thateach policy is arranged, being the point at which the
performance obligation to broker the policy is fulfilled. It is
measured by reference to the explicit price charged to
customers for this service. Management considers the
revenue recognition treatment of the arrangement fee to
bea significant area of judgement.
Gross premiums received in advance of the cover start date
of a policy are treated as advance receipts and included as
contract liabilities in the statement of financial position.
Premiums in respect of insurance policies underwritten
bythe Group that have a period of unexpired risk at the
reporting date, and which relate to the period after the
reporting date, are treated as unearned and included in
2.2 Basis of consolidation
continued
Saga plc Annual Report and Accounts 2022
128
gross insurance contract liabilities in the statement of
financial position. The portion of those unearned premiums
ceded to excess of loss reinsurers is recognised as a
reinsurance asset on the face of the statement of financial
position. The portion of those unearned premiums ceded to
quota share reinsurers is recognised as an asset netted off
against reinsurance premiums withheld within trade
payables, since there is a right of set-off within the contract.
Subsequent changes to premiums mid-term are recognised
on the effective date of the mid-term adjustment. For those
policies that are underwritten by the Group, these changes
are recognised on a straight-line time-apportioned basis over
the period of cover remaining on the policy. Reduction in
premiums from mid-term cancellations are recognised on
the effective date of the cancellation. Any fee income charged
for a mid-term cancellation or adjustment is recognised on
the date the adjustment is made, being the point that the
mid-term service is fulfilled.
Income from credit provided to customers to facilitate
payment of their insurance premiums by instalments over
the life of their policy is treated as part of the revenue from
insurance operations and recognised over the period of the
policy in proportion to the outstanding premium balance.
Profit commissions due under coinsurance or reinsurance
arrangements are recognised and valued in accordance with
the contractual terms to which they are subject, when it is
highly probable that a significant reversal of revenue will not
occur, and on the same basis, where appropriate, as the
related reinsured liabilities.
For revenue earned from credit hire and repair services for
non-fault claims (
credit hire
and
credit repair
), the Group
initially recognises the revenue at fair value, which is based on
a historical assessment of debt recovery and discount levels.
Credit hire revenue is recognised from the date that a vehicle
is placed on hire equally over the duration of the hire. Credit
repair revenue represents income from the recovery of the
costs of repair of customers’ vehicles. Credit repair revenue
is recognised when the work has been completed. Late
payment penalties afforded under the terms of the
Association of British Insurers General Terms of Agreement
(ABI GTA) are recognised as they become payable by the
insurance company.
ii) Travel
Revenue from Tour Operations and Cruise, where the Group
does not operate the cruise ship, is recognised in line with the
performance obligations that are included in a package
holiday, namely the provision of flights, accommodation,
transfers and travel insurance. Revenue is recognised as and
when each performance obligation is satisfied, which is
deemed to be when each service to the customer takes
place. The standalone selling price of each performance
obligation is estimated as the cost to provide each obligation
plus a profit margin appropriate to the nature of each
service. The price charged to each customer is then
apportioned to each performance obligation based on the
relative estimated standalone selling prices, in line with the
requirements of IFRS 15.
For Tour Operations, revenue in relation to flights and flight
upgrades is recognised on the date of each flight; revenue in
relation to accommodation is recognised over the duration of
the holiday; revenue in relation to transfers is recognised on
the date that the transfers occur before and after each
holiday; and revenue in respect of travel insurance (which is
underwritten by a third-party underwriter) is recognised on
the cover start date of the insurance.
Revenue in respect of Cruise holidays where the Group
operates the cruise ship is also recognised in line with the
performance obligations, being the cruise itself, flights
(where applicable), travel insurance and transfers. The
portion of revenue allocated to the cruise itself is recognised
on a per diem basis over the duration of the cruise in line with
when the performance obligation is satisfied. The portion of
revenue allocated to flights and flight upgrades (where
applicable) and transfers is recognised on the date that each
trip is fulfilled, which is consistent with the approach adopted
by the Tour Operations business. Revenue from travel
insurance for cruising holidays is recognised at the cover
start date of the policy, which is usually at the point the
customer makes a booking.
An element of revenue which represents the non-refundable
deposit received at the time of booking is recognised in the
income statement immediately in line with the prevailing rate
of cancellations.
Revenue from sales in resort, for example for optional
excursions, or on board a cruise ship operated by the Group,
for example bar sales or optional excursions, is recognised as
it is earned.
Revenue from tour operations and cruising holidays received
in advance of when each performance obligation is satisfied is
included as deferred revenue within contract liabilities in the
statement of financial position.
iii) Other Businesses and Central Costs
Personal finance
Revenue from personal finance products is recognised when
the customer contracts with the provider of the relevant
personal finance product where the revenue comprises a
one-off payment by the provider of the product.
Where the personal finance product is one that delivers a
recurring income stream, the present value of the future
expected revenue to be received is recognised when the
customer contracts with the provider of the relevant
personal finance product, and it is highly probable that a
significant reversal of revenue recognised will not occur. For
the Saga savings product, commissions are earned over the
duration of the contract in line with the contractual amount
due to the Company.
Magazine subscriptions
Magazine subscription revenue is recognised on a straight-
line basis over the period of the subscription. Revenue
generated from advertising within the magazine is recognised
when the magazine is provided to the customer.
The element of subscriptions and advertising revenue
relating to the period after the reporting date is recognised
as deferred revenue within contract liabilities in the
statement of financial position.
Printing and mailing
Revenue from printing and mailing services is recognised in
line with the performance obligations within customer
contracts.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
129
Notes to the financial statements
continued
b. Cost recognition
i) Insurance acquisition costs
Acquisition costs arising from the selling or renewing of
insurance policies underwritten by the Group are recognised
on a straight-line time-apportioned basis over the period of
the policy in which the related revenues are earned. The
proportion of acquisition costs relating to premiums treated
as unearned at the reporting date are deferred and included
as other receivables in the statement of financial position.
Incremental costs of obtaining an insurance contract not
underwritten by the Group, namely fees charged by
price-comparison websites, are recognised as an asset within
trade and other receivables on the face of the statement of
financial position. Such costs are amortised in line with the
pattern of revenue for the related insurance contract, which
incorporates the propensity for that contract to renew in
future periods based on the prevailing rate of renewal for
these types of contract. If the expected amortisation period
is one year or less, then incremental costs are expensed
when incurred.
ii) Claims costs
Claims costs incurred in respect of insurance policies
underwritten by the Group include estimates for claims made
for losses reported as occurring during the period together
with the related handling costs, any adjustments to claims
outstanding from previous periods, and an estimate for the cost
of claims incurred during the period but not reported as at the
reporting date. The portion of costs recovered from
reinsurance is recognised as a reduction to those costs in the
same period in which the costs are recognised.
Further detail is provided in Note 28.
iii) Finance costs
Finance costs comprise interest paid and payable that is
calculated using the effective interest rate (EIR) method, and
it is recognised in the income statement as it accrues.
Accrued interest is included within the carrying value of the
interest-bearing financial liability in the statement of financial
position. Finance costs also include debt issue costs that
were initially recognised in the statement of financial position
and amortised over the life of the debt, debt issue costs in
respect of renegotiating existing facilities that are
immediately recognised in the income statement and net fair
value losses on derivative financial instruments.
iv) All other expenses
All other expenses are recognised in the income statement
as they are incurred.
c. Recognition of other income statement items
i) Interest income
Investment income in the form of interest is recognised in the
income statement as it accrues and is calculated using the
EIR method. Interest income is earned by the Group on both
assets held at fair value through profit or loss, and assets
held at fair value through other comprehensive income. Fees
and commissions which are an integral part of the effective
yield of the financial asset or liability are recognised as an
adjustment to the EIR of the instrument.
ii) Dividend income
Income in the form of dividends is recognised when the right
to receive payment is established. For listed securities, this is
the date that the security is listed as ex-dividend.
iii) Gains and losses on financial investments at fair value
Realised and unrealised gains and losses on financial
investments are recorded as investment income in the
income statement, and represent net fair value gains and
losses arising from changes in fair value during the year.
d. Taxes
i) Current income tax
Income tax assets and liabilities for the current period are
measured at the amount expected to be recovered from, or
paid to, the taxation authorities. The tax rates and tax laws
used to compute the amount are those that are enacted or
substantively enacted at the reporting date. Current income
tax assets and liabilities also include adjustments in respect
of tax expected to be payable or recoverable in respect of
previous periods. Current income tax relating to items
recognised in other comprehensive income (OCI) and
directly in equity is recognised in OCI or equity and not in the
income statement.
ii) Deferred tax
Deferred tax is provided on temporary differences between
the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes at the
reportingdate.
Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable
profit will be available against which the deductible
temporary differences and the carry forward of unused tax
credits and unused tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available
to allow all, or part of, the deferred tax asset to be utilised.
Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has
become probable that future taxable profits will allow the
deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date. Deferred tax is charged or credited in the
income statement, except when it relates to items charged
or credited in other comprehensive income or equity, in
which case the deferred tax is recognised in other
comprehensive income or equity as appropriate.
Deferred tax assets and deferred tax liabilities are offset if a
legally enforceable right exists to set-off current tax assets
against current tax liabilities and the deferred taxes relate to
the same taxable entity and the same taxation authority.
2.3 Summary of significant
accounting policies
continued
Saga plc Annual Report and Accounts 2022
130
e. Foreign currencies
Transactions in foreign currencies are initially recorded by
the Group at their respective functional currency spot rate
at the date that the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are retranslated at the functional currency spot
rate of exchange prevalent at the reporting date.
f. Intangible assets
Intangible assets acquired are measured on initial
recognition at cost and subsequent to initial recognition, are
carried at cost less any accumulated amortisation and
accumulated impairment losses. The cost of intangible assets
acquired in a business combination is their fair value at the
date of acquisition. Internally generated intangibles,
excluding internally developed software, are not capitalised
and the related expenditure is reflected in the income
statement in the period in which the expenditure is incurred.
The useful lives of intangible assets and goodwill are assessed
as either finite or indefinite. Estimated useful lives are as
follows:
Goodwill Indefinite
Software 3-10 years
Intangible assets with finite lives are amortised over their
useful economic life on a basis appropriate to the
consumption of the asset and are assessed for impairment
whenever there is an indication that the intangible asset may
be impaired. The amortisation period and the amortisation
method for an intangible asset with a finite useful life are
reviewed at least at the end of each reporting period.
Changes in the expected useful life or the expected pattern
of consumption of future economic benefits embodied in the
asset are considered to modify the amortisation period or
method, as appropriate, and are treated as changes in
accounting estimates. The amortisation expense on
intangible assets with finite lives is recognised in the income
statement in the expense category that is consistent with the
function of the intangible assets.
Goodwill and intangible assets with indefinite useful lives
arenot amortised but are tested for impairment at least
annually, either individually or at the cash generating unit
(CGU) level. Where the carrying value of the asset exceeds
the recoverable amount, an impairment loss is recognised
inthe income statement immediately. The assessment of
indefinite life is reviewed annually to determine whether
theindefinite life continues to be supportable. If not, the
change in useful life from indefinite to finite is made on a
prospective basis.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and
are recognised in the income statement when the asset is
derecognised.
g. Business combinations and goodwill
Business combinations are accounted for using the
acquisition method. The cost of an acquisition is measured as
the aggregate of the consideration transferred measured at
acquisition date at fair value and the amount of any non-
controlling interests in the acquiree. For each business
combination, the Group elects whether to measure the
non-controlling interests in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable net assets.
When the Group acquires a business, it assesses the financial
and non-financial assets and liabilities assumed for
appropriate classification and designation in accordance with
the contractual terms, economic circumstances and
pertinent conditions as at the acquisition date.
Any contingent consideration to be transferred by the
acquirer will be recognised at fair value at the acquisition
date. Contingent consideration classified as an asset or
liability that is a financial instrument within the scope of IFRS
9 ‘Financial Instruments’ is measured at fair value with the
changes in fair value recognised in the income statement.
Any excess of the cost of acquisition over the fair values of
the identifiable assets and liabilities is recognised as goodwill.
If the cost of acquisition is less than the fair values of the
identifiable assets and liabilities of the acquired business, the
difference is recognised directly in the income statement in
the year of acquisition.
Acquisition-related costs are expensed as incurred and
included in administrative expenses.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill is allocated to
CGUs at the point of acquisition and is reviewed at least
annually for impairment.
h. Impairment of non-financial assets
Goodwill and intangible assets that have an indefinite useful
life are not subject to amortisation and are tested annually
for impairment, or more frequently if events or changes in
circumstances indicate that they might be impaired. If such
an indication exists, the recoverable amount is estimated and
compared with the carrying amount. If the recoverable
amount is less than the carrying amount, the asset is
considered impaired and is written down to its recoverable
amount and the impairment loss is recognised immediately in
the income statement.
Other assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount
may not be recoverable. If there is any indication that an
asset may be impaired, a recoverable amount is estimated
for the individual asset. If it is not possible to estimate the
recoverable amount of the individual asset, the recoverable
amount is determined of the CGU to which the asset belongs.
For impairment testing, assets are grouped together into the
smallest group of assets that generate cash inflows from
continuing use that are largely independent of the cash
inflows of other assets or CGUs. Goodwill arising from a
business combination is allocated to CGUs or groups of
CGUs that are expected to benefit from the synergies of the
combination.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
131
Notes to the financial statements
continued
Recoverable amount is calculated as the higher of fair value
less costs to sell, and value-in-use. In assessing value-in-use,
estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset. In determining fair value less costs of
disposal, recent market transactions are taken into account.
If no such transactions can be identified, an appropriate
valuation model is used. These calculations are corroborated
by valuation multiples, quoted share prices for publicly
traded companies or other available fair value indicators.
TheGroup bases its value-in-use calculations on detailed
budgets, plans and long-term growth assumptions, which are
prepared separately for each of the Group’s CGUs to which
individual assets are allocated.
i. Property, plant and equipment
Property, plant and equipment are stated at cost, net of
accumulated depreciation and impairment losses. Where an
item of property, plant and equipment comprises major
components having different useful lives, they are accounted
for separately.
Assets in the course of construction at the statement of
financial position date are classified separately. These assets
are transferred to other asset categories when they become
available for their intended use.
Depreciation is charged to the income statement on a
straight-line basis so as to write-off the depreciable amount
of property, plant and equipment over their estimated useful
lives. The depreciable amount is the cost of an asset less its
residual value. Land and assets in the course of construction
are not depreciated. Estimated useful lives are as follows:
Buildings, properties and related fixtures:
Buildings 50 years
Fixtures and fittings 3-20 years
Cruise ships 30 years
Computers 3-6 years
Plant, vehicles and other equipment 3-10 years
Costs relating to cruise ship mandatory dry-dockings are
capitalised and depreciated over the period up to the next
dry-docking, where appropriate. The International
Convention for the Safety of Life at Sea regulations stipulate
that ships have to be dry-docked twice in an interval of five
years, with the interval between consecutive dry-dockings
being not less than two years and not more than three years.
All other repairs and maintenance costs are recognised in
the income statement as incurred.
An item of property, plant and equipment is derecognised
upon disposal, or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising on
derecognition of an asset (calculated as the difference
between the net disposal proceeds and the carrying amount
of the asset) is included in the income statement when the
asset is derecognised.
Estimated residual values and useful lives are reviewed annually.
In relation to the annual review of estimated residual values
and useful lives of ocean cruise ships, potential environmental
regulatory changes are also considered. The shipping
industry has made a commitment to reduce CO
2
emissions
by 40% by 2030 (from a 2008 baseline), and the UK
Government has made commitments to reach net zero
emissions by 2050. The EEXI (carbon design/technical
efficiency indicator) and CII (in-service/operational carbon
intensity efficiency indicator) regulations are being
introduced internationally to enable the industry to meet the
2030 target, and the Group’s ocean cruise ships will exceed
the requirements of these regulations on implementation in
2023. The end of their useful economic lives of 30 years will
have been reached by 2049 in the case of Spirit of Discovery
and 2051 in the case of Spirit of Adventure.
j. Non-current assets held for sale
The Group classifies non-current assets as held for sale if
their carrying amount will be recovered principally through a
sale transaction rather than through continuing use. To be
classified as held for sale, an asset must be available for
immediate sale in its present condition subject only to terms
that are usual and customary for the sale of such assets, and
the sale must be highly probable. A sale is considered to be
highly probable when management is committed to a plan to
sell an asset and an active programme to locate a buyer and
complete the plan has been initiated at a price that is
reasonable in relation to its current fair value, and there is an
expectation that the sale will be completed within one year
from the date of classification. Non-current assets classified
as held for sale are carried on the Group’s statement of
financial position at the lower of their carrying amount and
fair value less costs to sell.
Property, plant and equipment and intangible assets, once
classified as held for sale, are not depreciated or amortised.
2.3 Summary of significant
accounting policies
continued
h. Impairment of non-financial assets
continued
Saga plc Annual Report and Accounts 2022
132
k. Financial instruments
i) Financial assets
On initial recognition, a financial asset is classified as either amortised cost, fair value through other comprehensive income
(FVOCI); or fair value through profit or loss (FVTPL). The classification of financial assets is based on the business model in
which a financial asset is managed, and its contractual cash flow characteristics. Derivatives embedded in contracts where
the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a
whole is assessed for classification.
Initial recognition
Subsequent measurement
Amortised cost
A financial asset is measured at amortised cost
(plus any directly attributable transaction costs)
ifitmeets both of the following conditions and is not
elected to be designated as FVTPL:
•
It is held within a business model whose objective
is to hold assets to collect contractual cash flows.
•
Its contractual terms give rise on specified dates
to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
The Group classifies trade receivables, other
receivables and deposits with financial institutions
as held at amortised cost.
These assets are subsequently measured at
amortised cost using the EIR method. The
amortised cost is reduced by any impairment
losses (see (ii) below). Interest income, foreign
exchange gains and losses and impairments are
recognised in profit or loss as they are incurred.
Any gain or loss on derecognition is recognised
in profit or loss immediately.
FVOCI
A debt investment is measured at FVOCI (plus any
directly attributable transaction costs) if it meets
both of the following conditions and is not elected
tobe designated as FVTPL:
•
It is held within a business model whose objective
is achieved by both collecting contractual cash
flows and selling financial assets.
•
Its contractual terms give rise on specified dates
to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
On initial recognition of an equity investment that is
not held for trading, the Group may irrevocably
elect to present subsequent changes in the
investment’s fair value in OCI. This election is made
on an investment-by-investment basis.
The Group classifies debt securities as FVOCI.
Debt instruments are subsequently measured at
fair value. Interest income calculated using the
EIR method, foreign exchange gains and losses
and impairments are recognised in profit or loss.
Other net gains and losses are recognised in
OCI. On derecognition, gains and losses
accumulated in OCI are recycled to profit or
loss.
Equity investments are measured at fair value.
Dividends are recognised as income in profit or
loss unless the dividend clearly represents a
recovery of part of the cost of the investment.
Other net gains and losses are recognised in OCI
and are never reclassified to profit or loss.
FVTPL
All financial assets not classified as amortised cost
or FVOCI as described above are classified as
FVTPL and held at fair value. This includes all
derivative financial assets.
On initial recognition, the Group may irrevocably
elect to designate a financial asset that otherwise
meets the requirements to be measured at
amortised cost or FVOCI as FVTPL if doing so
eliminates, or significantly reduces, an accounting
mismatch that would otherwise arise. This election
is made on an individual instrument basis.
The Group classifies loan funds, money market
funds and foreign exchange forward contracts not
designated in a hedging relationship, as FVTPL.
These assets are subsequently measured at fair
value. Net gains and losses, including any interest
or dividend income, are recognised in profit or
loss, unless such instrument is designated in a
hedging relationship (see (vi) below).
Derecognition
A financial asset is derecognised when the rights to receive cash flows from the asset have expired or when the Group has
transferred substantially all the risks and rewards relating to the asset to a third party.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
133
Notes to the financial statements
continued
2.3 Summary of significant
accounting policies
continued
k. Financial instruments
continued
ii) Impairment of financial assets
The expected credit loss (ECL) impairment model applies to
financial assets measured at amortised cost and debt
investments at FVOCI.
The Group measures loss allowances at an amount equal to
12-month ECLs, except for the following, which are measured
as lifetime ECLs:
•
Debt securities that are determined to have high credit
risk at the reporting date.
•
Other debt securities and bank balances for which credit
risk has increased significantly since initial recognition.
•
Trade receivables and contract assets that result from
transactions within the scope of IFRS 15.
When determining whether the credit risk of a financial asset
has increased significantly since initial recognition and when
estimating ECLs, the Group considers reasonable and
supportable information that is relevant and available without
undue cost or effort. This includes both quantitative and
qualitative information and analysis, based on the Group’s
historical experience and informed credit assessment and
including forward-looking information.
The Group considers a debt security to have low credit risk
when its credit risk rating is equivalent to the definition of
‘investment grade’. The Group considers this to be BBB- or
higher as per credit-rating scales.
Measurement of ECLs
ECLs are measured as a probability-weighted estimate of
credit losses. Credit losses are measured as the probability
of default in conjunction with the present value of the Group’s
exposure. Loss allowances for ECLs on financial assets
measured at amortised cost are deducted from the gross
carrying amount of the assets, with a corresponding charge
to the income statement. For debt instruments measured at
FVOCI, the loss allowance for debt investments at FVOCI is
recognised in profit or loss and reduces the fair value loss, or
increases the fair value gain, otherwise recognised in the
statement of other comprehensive income.
iii) Financial liabilities
Initial recognition and measurement
All financial liabilities are classified as financial liabilities at
amortised cost on initial recognition except for derivatives,
which are classified at FVTPL, the gains or losses for which
are recognised through OCI if the instrument is designated
as a hedging instrument in an effective cash flow hedge.
All financial liabilities are recognised initially at fair value and,
in the case of loans and borrowings, net of directly
attributable transaction costs.
The Group’s financial liabilities include trade and other
payables, loans and borrowings, derivative financial
instruments and lease liabilities.
Subsequent measurement
After initial recognition, interest-bearing loans and
borrowings and other payables are subsequently measured
at amortised cost using the EIR method. Amortised cost is
calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the
EIR. The EIR amortisation is included in finance costs in the
income statement.
Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such
an exchange or modification is treated as a derecognition of
the original liability and the recognition of a new liability. The
difference in the respective carrying amounts is recognised
in the income statement.
iv) Derivatives
Derivatives are measured at fair value both initially and
subsequently to initial recognition. All changes in fair value of
non-designated derivatives are recognised in the income
statement immediately. Changes in fair value of derivatives
designated as cash flow hedges are initially recognised in OCI
until such a point that they are recycled to profit or loss in
the same period as the hedged item is recognised in profit or
loss, or immediately if the hedged item is no longer expected
to occur.
Derivatives are presented as assets when the fair values are
positive and as liabilities when the fair values are negative.
Aderivative is presented as a non-current asset or a
non-current liability if the remaining maturity of the
instrument is more than 12 months and it is not expected
tobe realised or settled within 12 months.
v) Fair values
The Group measures all financial instruments at fair value at
each reporting date, other than those instruments measured
at amortised cost.
Fair value is the price that would be required to sell an asset
or to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes
place either in the principal market accessible by the Group
for the asset or liability or, in the absence of a principal
market, in the most advantageous market accessible by the
Group for the asset or liability.
The fair values are quoted market bid prices where there is
an active market, or are based on valuation techniques when
there is no active market or the instruments are unlisted.
Valuation techniques include the use of recent arm’s length
market transactions, discounted cash flow analysis and other
commonly used valuation techniques.
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines
whether transfers have occurred between levels in the
hierarchy by reassessing categorisation at the end of each
reporting period.
Saga plc Annual Report and Accounts 2022
134
vi) Hedge accounting
The Group designates certain derivative financial
instruments as cash flow hedges of certain forecast
transactions. These transactions are highly probable to
occur and present an exposure to variations in cash flows
that could ultimately affect amounts determined in profit
orloss.
The Group has elected to adopt the general hedge
accounting model in IFRS 9. This requires the Group to
ensure that hedge accounting relationships are aligned with
its risk management objectives and strategy and to apply a
qualitative and forward-looking approach to assessing hedge
effectiveness.
The Group uses forward foreign exchange and commodity
swap contracts to hedge the variability in cash flows arising
from changes in foreign currency rates and oil prices
respectively. For foreign exchange contracts, the Group
designates the fair value change of the full forward price as
the hedging instrument in cash flow hedging relationships.
For commodity hedging, the Group designates the fair value
change of the benchmark oil price. The effective portion of
changes in fair value of hedging instruments is accumulated
in a cash flow hedge reserve as a separate component of
equity. Any ineffective portion of the fair value gain or loss is
recognised immediately within the income statement.
When a hedging instrument no longer meets the criteria for
hedge accounting (through maturity, sale, or other
termination), hedge accounting is discontinued prospectively.
If the hedged forecast transaction is still expected to occur,
the associated cumulative gain or loss remains in the hedging
reserve and is recognised in accordance with the above
policy when the hedged forecast transaction occurs. If the
hedged forecast transaction is no longer expected to occur,
the cumulative unrealised gain or loss is recognised in the
income statement immediately.
l. Leases
The Group leases various river cruise ships, buildings,
equipment and vehicles. The contract length of the lease
varies considerably and may include extension or termination
options as described below.
At the inception of a contract, the Group assesses whether a
contract is, or contains, a lease. A contract is, or contains, a
lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the
right to control the use of an identified asset, the Group
assesses whether: the contract involves the use of an
identified asset; the Group has the right to obtain
substantially all of the economic benefits from use of the
asset throughout the period of use and the Group has the
right to direct the use of the asset.
Leases are initially recognised as a right-of-use asset and a
corresponding lease liability at the date at which the leased
asset is available for use by the Group. The lease liability is
initially measured at the present value of the lease payments
that are not paid at the commencement date. Where it is
reasonably certain that an extension option will be triggered in
a contract, lease payments to be made in respect of the option
will be included in the measurement of the lease liability.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the
Group’s incremental borrowing rate is used. This is the rate
that the Group would have to pay to borrow the funds
necessary to obtain an asset of similar value to the right-of-
use asset, in a similar economic environment, with similar
terms, security and conditions.
Lease payments are allocated between principal and finance
cost. The finance cost is charged to the income statement
over the lease period using the EIR method and the lease
liability is measured at amortised cost using the EIR method.
Right-of-use assets are initially measured at cost, comprising
the present value of future lease payments plus any initial
direct costs and restoration costs. Right-of-use assets are
depreciated over the lease term on a straight-line basis
except for the Group’s river cruise ships. The unit of
production method is used to depreciate river cruise ships in
order to accurately reflect the usage of the asset, which is
seasonal.
Payments associated with short-term leases of equipment
and all leases of low-value assets are expensed in profit or
loss as incurred in line with the exemption allowed under
paragraph 6 of IFRS 16. Short-term leases are leases with a
lease term of 12 months or less without a purchase option.
Low-value assets comprise IT equipment and small items of
office furniture.
Extension and termination options are included in a number of
property and river cruise ship leases across the Group. These
are used to maximise operational flexibility in terms of
managing the assets used in the Group’s operations. The
majority of extension and termination options held are
exercisable only by the Group and not by the respective lessor.
The Group remeasures the lease liability (and makes a
corresponding adjustment to the related right-of-use asset)
whenever:
•
the lease term has changed or there is a significant event
or change in circumstances resulting in a change in the
assessment of exercise of a purchase option, in which case
the lease liability is remeasured by discounting the revised
lease payments using a revised discount rate; or
•
a lease contract is modified and the lease modification is
not accounted for as a separate lease, in which case the
lease liability is remeasured based on the lease term of the
modified lease by discounting the revised lease payments
using a revised discount rate at the effective date of the
modification.
m. Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily takes
a substantial period of time to get ready for its intended use
or sale are capitalised as part of the cost of the respective
asset. All other borrowing costs are expensed in the period in
which they occur.
Borrowing costs consist of interest and fees that an entity
incurs in connection with the borrowing of funds.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
135
Notes to the financial statements
continued
2.3 Summary of significant
accounting policies
continued
n. Cash and short-term deposits
Cash and short-term deposits in the statement of financial
position comprise cash at bank and in hand, and short-term
deposits with a maturity of three months or less from their
inception date.
For the purpose of the consolidated statement of cash flows,
cash and cash equivalents consist of cash, short-term
deposits as defined above and short-term highly liquid
investments (including money market funds) with original
maturities of three months or less that are subject to an
insignificant risk of change in value, net of outstanding
bankoverdrafts.
o. Trust accounts
All customer monies received in advance in relation to Air
Travel Organiser’s Licence (ATOL) licensable bookings are
held in trust accounts until after the customer has travelled,
when the Group has fulfilled all its performance obligations
with customers.
The trust arrangement is governed by a deed between the
Group, the Civil Aviation Authority Air Travel Trustees and an
independent Trustee, PT Trustees Limited, which determines
the inflows and outflows from the accounts. The Group does
not use advance receipts from customers in its Tour
Operations business to fund its business operations.
p. Trade and other receivables
Trade and other receivables are initially recognised at fair
value and subsequently measured at amortised cost. Loss
allowances are measured as lifetime ECLs.
q. Inventories
Inventories are stated at the lower of cost and net realisable
value. Costs include all costs incurred in bringing each product
to its present location and condition. Net realisable value is
based on estimated selling price less any further costs
expected to be incurred prior to completion and disposal.
r. Insurance contract liabilities
Insurance contract liabilities include an outstanding claims
provision, a provision for unearned premiums and, if required,
a provision for premium deficiency.
Outstanding claims provision
The provision for outstanding claims is set on an individual
claim basis and is based on the ultimate cost of all claims
notified but not settled, less amounts already paid by the
reporting date, together with a provision for related claims
handling costs. The provision also includes the estimated
cost of claims incurred but not reported at the statement of
financial position date, which is estimated using actuarial
methods. The outstanding claims provision is not discounted
for the time value of money, with the exception of claims
settled as periodical payment orders (PPOs).
The amount of any anticipated reinsurance, salvage or
subrogation recoveries is separately identified and reported
within reinsurance assets and insurance contract liabilities
respectively.
Differences between the provisions at the reporting date and
settlements and provisions in the following year (known as
run-off deviations
) are recognised in the income statement
as they arise.
Provision for unearned premiums
The provision for unearned premiums represents the portion
of premiums received or receivable that relates to risks that
have not yet expired at the reporting date. The provision is
recognised when contracts are entered into and premiums
are charged, and is recognised in the income statement as
premium income over the term of the contract on a straight-
line basis.
Provision for premium deficiency
At each reporting date, the Group reviews its unexpired risks
and a liability adequacy test is performed to determine
whether there is any overall excess of expected claims and
deferred acquisition costs over unearned premiums. This
calculation uses current estimates of future contractual cash
flows after taking account of the investment return expected
to arise on assets relating to the relevant insurance technical
provisions. If these estimates show that the carrying amount
of the unearned premiums (less related deferred acquisition
costs) is inadequate, the deficiency is recognised in the
income statement by setting up a provision for premium
deficiency. The deferred acquisition costs are written off
before any provision is made.
s. Reinsurance assets
Contracts entered into by the Group with reinsurers under
which the Group is compensated for losses on insurance
contracts issued, are classified as reinsurance contracts.
Acontract is only accounted for as a reinsurance contract
where there is significant insurance risk transfer between
theinsurer and reinsurer.
Reinsurance assets include balances due from reinsurance
companies for ceded insurance liabilities under excess of loss
cover. Amounts recoverable from reinsurers are estimated in
a consistent manner with the outstanding claims provisions
in accordance with the relevant reinsurance contract.
The Group assesses its reinsurance assets for impairment at
each statement of financial position date. For assets that are
directly exposed to long-tail PPO liabilities, a general
provision for impairment is provided, calculated on a
wholesale basis by reference to published credit rating
default curves. For all other reinsurance assets, the carrying
value is written down to its recoverable amount only if there
is objective evidence of impairment.
For the funds-withheld quota share agreement in motor
insurance, the obligation to pay funds and the right to receive
reimbursement for incurred claims are presented on a net
basis because there is a legally enforceable right to offset
these amounts and there is an intention to settle on a net
basis or realise both the asset and settle the liability
simultaneously. The reinsurance assets recognised under
these agreements are therefore recognised as an offset
against premium ceded under the same agreement, within
trade and other payables.
Saga plc Annual Report and Accounts 2022
136
t. Share-based payments
The Group provides benefits to employees (including
Executive Directors) in the form of share-based payment
transactions, whereby employees render services as
consideration for equity instruments (equity-settled
transactions). The cost of equity-settled transactions is
measured by reference to the fair value on the grant date and
is recognised as an expense over the relevant vesting period,
ending on the date on which the employee becomes fully
entitled to the award.
Fair values of share-based payment transactions are
calculated using Black-Scholes and Monte-Carlo modelling
techniques. In valuing equity-settled transactions,
assessment is made of any vesting conditions to categorise
these into market performance conditions, non-market
performance conditions and service conditions.
Where the equity-settled transactions have market
performance conditions (that is, performance which is directly
or indirectly linked to the share price), the fair value of the award
is assessed at the time of grant and is not changed, regardless
of the actual level of vesting achieved, except where the
employee ceases to be employed prior to the vesting date.
For service conditions and non-market performance
conditions, the fair value of the award is assessed at the time
of grant and is reassessed at each reporting date to reflect
updated expectations for the level of vesting. No expense is
recognised for awards that ultimately do not vest.
At each reporting date prior to vesting, the cumulative
expense is calculated, representing the extent to which the
vesting period has expired and, in the case of non-market
conditions, the best estimate of the number of equity
instruments that will ultimately vest or, in the case of
instruments subject to market conditions, the fair value on
grant adjusted only for leavers. The movement in the
cumulative expense since the previous reporting date is
recognised in the income statement, with the corresponding
increase in share-based payments reserve.
Upon vesting of an equity instrument, the cumulative cost in
the share-based payments reserve is reclassified to retained
earnings in equity.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of diluted (loss)/
earnings per share.
u. Retirement benefit schemes
During the year, the Group operated a defined benefit
pension plan that requires contributions to be made to
separately administered funds. The cost of providing benefits
under the defined benefit plan is determined separately using
the projected unit credit valuation method.
Actuarial gains and losses arising in the year are credited/
charged to OCI and comprise the effects of changes in
actuarial assumptions and experience adjustments due to
differences between the previous actuarial assumptions and
what has actually occurred. In particular, the difference
between the interest income and the actual return on plan
assets is recognised in OCI.
Other movements in the net surplus or deficit, which include
the current service cost, any past service cost and the effect
of any curtailment or settlements, are recognised in the
income statement. Past service costs are recognised in the
income statement on the earlier of the date of plan
curtailment and the date that the Group recognises
restructuring-related costs. The interest cost, less interest
income on assets held in the plans, is also charged to the
income statement.
The defined benefit schemes are funded, with assets of the
schemes held separately from those of the Group, in
separate Trustee-administered funds. Scheme assets are
measured using market values and scheme liabilities are
measured using the projected unit actuarial method and are
discounted at the current rate of return on a high-quality
corporate bond of equivalent term and currency to the
liability. Full actuarial valuations are obtained at least
triennially and are updated at each reporting date. The
resulting defined benefit asset or liability is presented
separately on the face of the statement of financial position.
The value of a pension benefit asset is restricted to the
amount that may be recovered, either through reduced
contributions, or agreed refunds from the scheme.
For defined contribution schemes, the amounts charged
tothe income statement are the contributions payable in
theyear.
v. Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event,
and it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the
obligation. The expense relating to any provision is presented
in the income statement net of any reimbursement. If the
effect of the time value of money is material, provisions are
discounted using a current pre-tax rate that reflects the
risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is
recognised as a finance cost.
A provision is recognised for onerous contracts in which the
unavoidable costs of meeting the obligations under the
contract exceed the economic benefits expected to be
received under it. The unavoidable costs reflect the least net
cost of exiting the contract, which is the lower of the cost of
fulfilling it and any compensation or penalties arising from
failure to fulfil it.
w. Trade and other payables
Trade and other payables are initially recognised at fair value
and subsequently measured at amortised cost. They
represent liabilities to pay for goods or services that have
been received or supplied in the normal course of business,
invoiced by the supplier before the year end, but for which
payment has not yet been made.
x. Equity
The Group has ordinary shares that are classified as equity.
Incremental external costs that are directly attributable to
the issue of these shares are recognised in equity, net of tax.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
137
Notes to the financial statements
continued
2.4 Standards issued but not
yeteffective
The following is a list of standards and amendments to
standards that are in issue but are not effective or adopted
as at 31 January 2022. Except where separately disclosed,
these standards are yet to be endorsed by the UK
Endorsement Board.
a. IFRS 17 ‘Insurance Contracts’
IFRS 17 is a comprehensive new accounting standard that
applies to all insurance and reinsurance contracts covering
the principles of recognition and measurement, financial
statement presentation and disclosure. It was issued in
May2017 and establishes a principles-based accounting
approach for insurance contracts that will replace IFRS 4
‘Insurance Contracts’. ‘Amendments to IFRS 17’ was issued
inJune 2020 and amends IFRS 17 to address concerns and
implementation challenges that were identified after IFRS 17
‘Insurance Contracts’ was published. The standard is
effective for annual reporting periods beginning on or after
1January 2023, so it becomes effective for the Group from
1February 2023. It is expected to have a material impact
onthe Group’s financial statements as it represents a
significant change to current insurance and reinsurance
accounting requirements.
The Group has been undertaking a multi-year project to
prepare for the adoption of the new standard and has now
largely concluded the technical analysis required to appraise
the impact that this will have on the Group’s financial
statements. As a general insurer only, the Group is expecting to
be able to apply the simplified premium allocation approach
permitted by the standard, instead of the more complex
general measurement model. As such, the recognition and
measurement of premium income is expected to remain largely
unchanged from current accounting. The only potential
significant change to earnings that is expected is the need to
accelerate any anticipated future losses from unexpired risks
from the new onerous contract assessment required under the
new standard, although the Group does not anticipate that
there will be the need to recognise any significant level of such
onerous contract losses.
The recognition and measurement of insurance contract
liabilities in relation to coverage provided before the
statement of financial position date, now referred to as the
liability for incurred claims, is likely to change significantly
under the new standard. The Group expects to more closely
align its measurement of theactuarial best estimate of claims
liabilities for financial reporting to the principles of Solvency
II, with a change to theapplication of discounting and the
derivation of an appropriate discount rate in line with the
requirements of the new standard. The derivation of the
reserve margin held for uncertainty above the actuarial best
estimate, now referred to as the risk adjustment, will also
change, and will be based on selecting an appropriate
confidence interval using the expected loss distribution for
outstanding claims.
The Group is still assessing whether to exercise the option
toexpense acquisition costs immediately and the option to
recognise discount rate movements through OCI. The Group
intends to finalise its view of these, and the approach to all of
the key judgements and estimates, towards the end of the
calendar year 2022.
The standard is also expected to have a significant impact
onthe presentation of the Group’s financial statements,
particularly the Group’s income statement, where the
description of line items will change, and the recognition of
certain transactions will be reflected within different line items
to the ones they are now. The standard will also require new,
andchanges to existing, disclosure notes in relation to
insurance and reinsurance contracts.
b. Classification of liabilities as current or
non-current (amendments to IAS 1)
The amendments aim to promote consistency in applying the
requirements by helping companies determine whether, in the
statement of financial position, debt and other liabilities with an
uncertain settlement date should be classified as current (due
or potentially due to be settled within one year) or non-current.
The amendments are effective for annual periods beginning on
or after 1 January 2023 and are not likely to have a material
effect on the Group’s financial statements.
c. Reference to the Conceptual Framework
(amendments to IFRS 3)
The amendments update an outdated reference to the
Conceptual Framework in IFRS 3 without significantly
changing the requirements in the standard. The amendment
is effective for annual reporting periods beginning on or after
1 January 2022 and apply prospectively. The amendment will
have no effect on the Group’s financial statements.
d. Property, plant and equipment – proceeds before
intended use (amendments to IAS 16)
The amendments prohibit deducting from the cost of an item
of property, plant and equipment, any proceeds from selling
items produced while bringing that asset to the location
andcondition necessary for it to be capable of operating
inthe manner intended by management. Instead, an entity
recognises the proceeds from selling such items, and
thecost of producing those items, in profit or loss. The
amendments are effective for annual reporting periods
beginning on or after 1 January 2022. The amendments
arenot expected to have a material impact on the Group’s
financial statements.
e. Onerous contracts – cost of fulfilling a contract
(amendments to IAS 37)
The amendments specify that the “cost of fulfilling” a
contract comprises the “costs that relate directly to the
contract”. Costs that relate directly to a contract can either
be incremental costs of fulfilling that contract (examples
would be direct labour and materials) or an allocation of other
costs that relate directly to fulfilling contracts (an example
would be the allocation of the depreciation charge for an
itemof property, plant and equipment used in fulfilling
thecontract). The amendments are effective for annual
reporting periods beginning on or after 1 January 2022.
Theamendments are not expected to have a material
impacton the Group’s financial statements.
Saga plc Annual Report and Accounts 2022
138
f. Annual improvements to IFRS 2018-2020
Makes minor amendments to the following standards: IFRS 1,
IFRS 9, IFRS 16 and IAS 41. The amendments are effective for
annual reporting periods beginning on or after 1 January
2022. The amendments will have no effect on the Group’s
financial statements.
g. Disclosure of accounting policies (amendments to
IAS 1 and IFRS Practice Statement 2)
The amendments require that an entity discloses its material
accounting policies, instead of its significant accounting
policies. Further amendments explain how an entity can
identify a material accounting policy. The amendments are
effective for annual reporting periods beginning on or after
1January 2023. The amendments are not expected to have
amaterial impact on the Group’s financial statements.
h. Definition of accounting estimates (amendments
to IAS 8)
The amendments replace the definition of a change in
accounting estimates with a definition of accounting
estimates. Under the new definition, accounting estimates
are “monetary amounts in financial statements that are
subject to measurement uncertainty”. The amendments
clarify that a change in accounting estimate that results from
new information or new developments is not the correction
of an error. The amendments are effective for annual
reporting periods beginning on or after 1 January 2023. The
amendments are not expected to have a material impact on
the Group’s financial statements.
i. COVID-19-related rent concessions beyond
30June 2021 (amendment to IFRS 16)
The amendment extends, by one year, the May 2020
amendment that provides lessees with an exemption from
assessing whether a COVID-19-related rent concession is a
lease modification. The amendment is effective for annual
reporting periods beginning on or after 1 April 2021. The
amendment has been endorsed by the UK Endorsement
Board. The Group does not intend to take advantage of the
exemption available under this amendment. The amendment
will have no effect on the Group’s financial statements.
j. Deferred tax related to assets and liabilities
arising from a single transaction (amendments
toIAS 12)
The amendments clarify that the initial recognition
exemption does not apply to transactions in which equal
amounts of deductible and taxable temporary differences
arise on initial recognition. They will typically apply to
transactions such as leases of lessees and will require the
recognition of additional deferred tax assets and liabilities.
The amendments are effective for annual reporting periods
beginning on or after 1 January 2023. The amendments are
not expected to have a material impact on the Group’s
financial statements.
2.5 First time adoption of new
standards and amendments
The Group has adopted ‘Interest rate benchmark reform –
phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16)’ during the year. These amendments, issued in
August 2020, introduce a practical expedient for
modifications required by the reform, clarify that hedge
accounting is not discontinued solely because of the inter-
bank offered rate (IBOR) reform, and introduce disclosures
that allow users to understand the nature and extent of risks
arising from the IBOR reform to which the entity is exposed,
how the entity manages those risks, the entity’s progress in
transitioning from IBORs to alternative benchmark rates and
how the entity is managing this transition. The amendments
are effective for annual reporting periods beginning on or
after 1 January 2021.
In the UK, the London Interbank Offered Rate (LIBOR) was
replaced by the Sterling Overnight Index Average (SONIA)
from the end of 2021. SONIA is based on actual transactions
and reflects the average of the interest rates that banks pay
to borrow pounds sterling overnight from other financial
institutions and other institutional investors. The
amendments have not had a material impact on the Group’s
financial statements.
Subsequent to these amendments being adopted:
(a) interest payable on the Group’s RCF, if drawn down, is
incurred at a variable rate of SONIA plus a bank margin
which is linked to the Group’s leverage ratio (Note 30);
(b) interest payable on the Group’s cruise ship debt deferrals
is incurred at a variable rate of SONIA plus a bank margin
(Note 30); and
(c) interest return on floating rate investments held by the
Group’s insurance underwriting business is linked to
SONIA (Note 19).
The adoption of these amendments has had no impact on the
Group’s hedge accounting. In addition, no additional risks
have arisen from the IBOR reform which the Group would be
exposed to.
Additional information
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Strategic Report
Saga plc Annual Report and Accounts 2022
139
Notes to the financial statements
continued
2.6 Significant accounting judgements, estimates and assumptions
The preparation of financial statements requires the Group to select accounting policies and make estimates and
assumptions that affect items reported in the primary consolidated financial statements and Notes to the consolidated
financial statements.
The major areas of judgement used as part of accounting policy application are summarised below:
Significant judgements
Acc. policy
Items involving judgement
Critical accounting judgement
2.3a
Revenue recognition –
identification of
performance obligations
within insurance contracts
not underwritten by the
Group
Identification of performance obligations within insurance contracts with
customers. In particular, management has exercised judgement in defining
separate performance obligations as part of the Group’s insurance broking
services, namely:
•
the option to fix the customer’s premium at renewal for three-year fixed-
price insurance policies, which results in the deferral of a portion of revenue
from policy years one and two to policy years two and three; and
•
the arrangement of each insurance policy at the point the insurance cover is
arranged, as separate from the premium charged in respect of the insurance
cover, which occurs on, or before, the cover start date of each policy and
results in a portion of revenue being recognised a number of days in advance
of the cover start date.
Please refer to Note 2.3a for further information on the Group’s performance
obligations relating to revenue recognition.
2.3ai, 2.3r
and 2.3s
Classification of insurance
contracts
Management has exercised judgement in defining which insurance policies that
it arranges and underwrites constitute an insurance policy that is subject to
the accounting principles of IFRS 4. This assessment is based on whether
significant insurance risk is transferred under each insurance contract and also
includes the assessment of reinsurance contracts that the Group enters into.
Policies that are arranged, and not underwritten, by the Group, primarily a
portion of the motor and home insurance panels, private medical insurance and
travel insurance, are not deemed to constitute insurance policies as defined by
IFRS 4, and so they are accounted for in line with the principles of IFRS 15.
Policies that are both arranged and underwritten by the Group, primarily a
portion of the motor and home insurance panels, are deemed to constitute
insurance policies as defined by IFRS 4 and so are accounted for in line with the
requirements of that standard.
The Group’s excess of loss and funds-withheld quota share reinsurance
arrangements relating to its motor underwriting line of business are deemed
totransfer significant insurance risk to the reinsurer, and so they are also
accounted for in line with the requirements of IFRS 4.
Saga plc Annual Report and Accounts 2022
140
Acc. policy
Items involving judgement
Critical accounting judgement
2.3h
Impairment testing of
goodwill and other major
classes of assets
Following the continued impact of the COVID-19 pandemic on the Group’s
operations, particularly in Travel, management concluded that indicators of
impairment exist and conducted impairment reviews at 31 January 2022,
31July 2021 and 31 January 2021 of the Group’s two cruise ships, Spirit of
Discovery and Spirit of Adventure. Management has considered a range of
scenarios and used its judgement to conclude that no impairment was
necessary. Please refer to Note 17a for further detail.
Given the delay in taking delivery of the river cruise ship, Spirit of the Rhine,
along with the ongoing adverse impacts of the COVID-19 pandemic on the
wider travel industry, management concluded that indicators of impairment
exist and deemed it necessary to conduct an impairment review of the vessel at
31 January 2022. Management has considered a range of scenarios and used
its judgement to conclude that no impairment was necessary. Please refer to
Note 18a for further detail.
The Group determines whether goodwill needs to be impaired on an annual
basis, or more frequently as required. In the year to 31 January 2022,
management did not deem it necessary to impair goodwill. In the year to
31January 2021, management deemed it necessary to impair the goodwill
allocated to the Cruise and Tour Operations CGUs in full.
Following the continued impact of the COVID-19 pandemic on the travel
industry, management decided to restructure the Group’s Tour Operations
CGU. In light of this exercise, management has exercised its judgement in
relation to the impairment of software assets and performed an impairment
review of software assets used by the Tour Operations business.
In the year to 31 January 2021, in light of the Group’s decision to vacate most of
its properties, management exercised its judgement in relation to the
impairment of the freehold land and buildings.
In the year to 31 January 2022, in light of the Group obtaining updated freehold
property market valuation reports, management exercised its judgement in
relation to the impairment of the assets held for sale. Please refer to Note 38
for further detail.
In the year to 31 January 2021, in relation to the Destinology business,
management also exercised its judgement in relation to the impairment of
property, plant and equipment and right-of-use assets.
2.3r
Insurance contract liabilities
Judgement as to areas of uncertainty that may give rise to claims costs in
excess of the actuarial best estimate of claims incurred, and the level of
additional reserve margin to recognise in the financial statements above
thatestimate.
In the years to 31 January 2022 and 31 January 2021, the Group considered
the additional latency risk to claims cost development caused by the impact of
COVID-19 and recognised an additional claims reserve above actuarial best
estimate to cover this specific risk.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
141
Notes to the financial statements
continued
2.6 Significant accounting judgements, estimates and assumptions
continued
Significant estimates
All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that
knowledge and predictions of future events and actions. Actual results may therefore differ from those estimates.
The table below sets out those items the Group considers susceptible to changes in critical estimates and assumptions
together with the relevant accounting policy.
Acc. policy
Items involving estimation
Sources of estimation uncertainty
2.3ai
Revenue recognition –
three-year fixed-price
insurance policies
The standalone selling price of the option to fix within the Group’s three-year
fixed-price insurance policies has been estimated using the expected cost plus
a margin approach as set out in paragraph 79 (b) of IFRS 15.
An allowance has also been made for the likelihood that the option will be
exercised by factoring in the expected rate of renewal at the first and second
renewal dates. The amount of revenue deferred upon initial recognition is
therefore reduced to the extent that it is estimated that customers will not
exercise the option because they either decide not to renew, or they make a
claim that releases the Group from its obligation to fix the customer price.
2.3f and 2.3i Useful economic lives and
residual values of software,
intangible assets and ocean
cruise ships
The useful economic lives and residual values of software assets classified as
intangible assets (Note 15), and ocean cruise ship assets classified as property,
plant and equipment (Note 17) are assessed upon the capitalisation of each
asset and at each reporting date and are based upon the expected
consumption of future economic benefits of the asset.
2.3h
Goodwill impairment testing
The Group determines whether goodwill needs to be impaired on an annual
basis, or more frequently as required. This requires an estimation of the
value-in-use of the CGUs to which goodwill is allocated. The value-in-use
calculation requires the Group to estimate the future cash flows expected to
arise from the CGUs, discounted at a suitably risk-adjusted rate to calculate
present value.
In the prior year, the outcome of the impairment reviews concluded that an
impairment charge of £59.8m be recognised against the Group’s Cruise and
Tour Operations CGUs, effectively writing them down to nil. This was due to
increased estimation uncertainty in the Tour Operations and Cruise CGUs in
light of the COVID-19 pandemic.
Sensitivity analysis was undertaken to determine the effect of changing the
discount rate, the terminal value and future cash flows on the present value
calculation, which is shown in Note 16a on pages 157-158.
2.3h
Impairment of ocean and
river cruise ships
Following the continued impact of the COVID-19 pandemic on the Group’s
operations, management conducted impairment reviews at 31 January 2022,
31 July 2021 and 31 January 2021 of the Group’s two ocean cruise ships, Spirit
of Discovery and Spirit of Adventure. Based on these impairment reviews,
andlooking at the probability of a range of outcomes, the Group remains
comfortable that there is headroom over and above the carrying value of the
two ocean cruise ship assets, and therefore concluded that no impairment
charges were necessary.
Sensitivity analysis was undertaken to determine the effect of changing the
residual value, load factor and useful economic life on the present value
calculation, which is shown in Note 17a on pages 160-161.
At 31 January 2022, management conducted an impairment review of its river
cruise ship, Spirit of the Rhine. Based on this review, the Group is comfortable
that there is sufficient headroom over and above the carrying value of the river
cruise ship asset, and therefore concluded that no impairment charge was
necessary.
Saga plc Annual Report and Accounts 2022
142
Acc. policy
Items involving estimation
Sources of estimation uncertainty
2.3r
Valuation of insurance
contract liabilities
For insurance contracts, estimates have to be made for the expected cost of
claims known but not yet settled (case reserves) and for the expected cost of
claims incurred but not yet reported (IBNR), as at the reporting date. It can
take a significant period of time before the ultimate claims cost can be
established with certainty.
The ultimate cost of outstanding claims is estimated by using a range of
standard actuarial claims projection techniques, such as the Chain-Ladder
andBornhuetter-Ferguson methods. The main assumption underlying these
techniques is that past claims development experience can be used to project
future claims development and hence ultimate claims costs. As such, these
methods extrapolate the development of paid and incurred losses, average
costs per claim and claim numbers based on the observed development of
earlier years. Historical claims development is primarily analysed by accident
year, geographical area, significant business line and peril. Additional qualitative
judgement is used to assess the extent to which past trends may not apply in
the future (e.g. to reflect one-off occurrences, changes in external or market
factors such as public attitudes to claiming, economic conditions, levels of
claims inflation, judicial decisions and legislation, as well as internal factors such
as portfolio mix, policy features and claims handling procedures) in order to
arrive at the best estimate of the ultimate cost of claims.
The ultimate cost of claims is not discounted, except for those in respect of
PPOs, which have been discounted at -1.5% for the year ended 31 January
2022 (2021: -1.5%). The valuation of these claims involves making assumptions
about the rate of inflation and the expected rate of return on assets to
determine the discount rate. Due to the size of PPO claims, the ultimate cost
ishighly sensitive to changes in these assumptions. The assumptions are
reviewed at each reporting date, and the sensitivity of this assumption is shown
in Note 20d on pages 171-172.
In calculating the level of reserve margin to recognise above the actuarial best
estimate of incurred claims, the Group considered an array of risks (including
cost inflation) to future claims experience, and estimated the financial impact
that those risks could have, to derive an appropriate level of margin to hold.
This included an assessment of the magnitude of the claims latency risk due
tothe impact of the COVID-19 pandemic.
2.3u
Valuation of pension benefit
obligation
The cost of defined benefit pension plans and the present value of the pension
obligation are determined using actuarial valuations. Actuarial valuations
involve making assumptions about discount rates, expected rates of return on
assets, future salary increases, mortality rates and future pension increases.
Due to the complexity of the valuation, the underlying assumptions and its
long-term nature, a defined benefit obligation is highly sensitive to changes
inthese assumptions. All assumptions are reviewed at each reporting date.
All significant assumptions and estimates involved in arriving at the valuation
ofthe pension scheme obligation are set out in Note 27 on page 176.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
143
Notes to the 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:
comprises the provision of general insurance products. Revenue is derived primarily from insurance premiums
and broking revenues. This segment is further analysed into four product sub-segments:
–
Retail broking, consisting of:
•
Motor Broking
•
Home Broking
•
Other Broking
–
Underwriting.
The Group classifies the CGU at its lowest level to be at the Insurance segment level.
•
Travel:
comprises the operation and delivery of package tours and cruise holiday products. The Group owns and operates
two ocean cruise ships. All other holiday products are packaged together with third-party supplied accommodation, flights
and other transport arrangements.
•
Other Businesses and Central Costs:
comprises the Group’s other businesses and its central cost base. The other
businesses include the financial services product offering, a monthly subscription magazine and the Group’s mailing and
printing business.
Segment performance is evaluated using the Group’s key performance measure of Underlying (Loss)/Profit Before Tax
3
.
Items not allocated to a segment relate to transactions that do not form part of the ongoing segment performance or which
are managed at a Group level.
Transfer prices between operating segments are set on an arm’s length basis in a manner similar to transactions with third
parties. Segment income, expenses and results include transfers between business segments which are then eliminated on
consolidation.
Goodwill, corporate bonds and bank loans are not allocated to segments as they are managed on a Group basis.
3 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
144
2022
Insurance
Travel
£m
Other
Businesses
and Central
Costs
£m
Adjustments
£m
Total
£m
Motor
broking
£m
Home
broking
£m
Other
insurance
broking
£m
Under-
writing
£m
Total
£m
Revenue
85.0 60.2
35.3
84.7
265.2
94.721.5
(4.2)
377.2
Cost of sales
(2.6)
–
(143.3)0.3
–(29.9)
(32.2)
(102.9)
(8.2)Gross profit/(loss)
82.4
60.2
35.6
233.054.8
(8.2)
13.3
(4.2)
233.9Administrative and selling
expenses
(52.4)
(35.0)
(24.3)
(54.9)(4.2)
(115.9)
(46.2)
4.2
(212.8)
Impairment of assets
– – –
(1.0) (1.0)
–(9.7)
(0.5)(11.2)
Gain on lease modification – – – – – –
0.3
–0.3
Net profit on disposal of
assets held for sale – – – – – –
7.2
–7.2
Net (loss)/profit on disposal
of software and right-of-use
assets
(0.1)
– – –
(0.1)0.1
(0.4)
–
(0.4)Investment income/(loss)
– – –
3.5 3.5
–0.1
(3.3)
0.3
Finance costs
– – – – –
(22.2)
–(18.6)
(40.8)
Profit/(loss) before tax
29.9
25.2
119.511.3
53.1
(94.8)
(48.2)
–
(23.5)
Reconciliation to
Underlying Profit/(Loss)
Before Tax
4
Profit/(loss) before tax
29.9
25.2
119.511.3
53.1
(94.8)
(48.2)
–
(23.5)
Net fair value loss on
derivative financial
instruments
– – – – – –
2.7
–2.7
Impairment/loss on disposal
of assets
– – –
1.0 1.0
–9.8
0.7
11.5
Restructuring costs
– – – – –
3.9
–2.4
6.3
Net profit on disposal of
assets held for sale – – – – – –
(7.2)
–(7.2)
Foreign exchange movement
on lease liabilities
– – – – – –
(0.9)
–(0.9)
Costs incurred for cruise
ship loan holiday
– – – – – –
2.4
–2.4
Charge on closure of defined
benefit pension scheme
– – – – – –
2.0
–2.0
Underlying Profit/(Loss)
Before Tax
4
29.9
25.2
11.3
54.1
120.5
(79.3)
(47.9)
–
(6.7)
Total assets less liabilities
261.7
(63.2)
134.8
319.6
652.9
All revenue is generated solely in the UK.
4 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
145
Notes to the financial statements
continued
3 Segmental information
continued
2021
Insurance
Travel
£m
Other
Businesses
and Central
Costs
£m
Adjustments
£m
Total
£m
Motor
broking
£m
Home
broking
£m
Other
insurance
broking
£m
Under-
writing
£m
Total
£m
Revenue
92.7
60.2
40.774.4
268.0
51.6 22.6
(4.6)
337.6
Cost of sales
(2.7)
–
(4.2)
–(16.5)
(23.4)
(68.1)
(8.7)
(100.2)
Gross profit/(loss)
90.0 60.2
36.5
(16.5)57.9
244.6
13.9
(4.6)
237.4
Administrative and selling
expenses
(56.5)
(32.3)
(22.0)
(2.9)
(113.7)
(64.4)
(50.7)
4.6
(224.2)
Impairment of assets
– – – – –
(0.2) (5.0)
(59.8)
(65.0)Gain on lease modification – – – – – –
3.2
–3.2
Net (loss)/profit on disposal
of businesses
– – – – –
(1.7)
–10.3
8.6
Net profit/(loss) on disposal
of property, plant and
equipment, right-of-use
assets and software
– – – – –
6.8
–(0.2)
6.6
Investment income/(loss)
– – –
3.7 3.7
–0.2
(3.2)
0.7
Finance costs
– – – – –
(13.6) (16.6)
–(30.2)
Finance income
– – – – – –
1.7
–1.7
Profit/(loss) before tax
33.5
27.9
14.5
(87.7)58.7
134.6
(48.3)
(59.8)
(61.2)
Reconciliation to
Underlying Profit/(Loss)
Before Tax
5
Profit/(loss) before tax
33.5
27.9
14.5
(87.7)58.7
134.6
(48.3)
(59.8)
(61.2)
Net fair value gain on
derivative financial
instruments
– – – – – –
(1.7)
–(1.7)
Impairment of goodwill – – – – – – –
59.8 59.8
(Profit) on disposal/
impairment of assets
– – – – –
(3.8)
–1.8
(2.0)
Restructuring costs
– – – – –
13.0
–17.8
30.8
Net loss/(profit) on disposal
of businesses
– – – – –
1.7
–(10.3)
(8.6)
Underlying Profit/(Loss)
Before Tax
5
33.5
27.9
14.5
17.158.7
134.6
(78.5)
(39.0)
–
Total assets less liabilities
284.4
19.3
(18.0)
395.0
680.7
All revenue is generated solely in the UK.
Total assets less liabilities detailed as adjustments relates to the following unallocated items:
2022
£m
2021
£m
Goodwill (Note 14)
718.6 718.6
Group bonds and bank loans
(399.0)
(323.6)
319.6
395.0
5 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
146
a) Disaggregation of revenue
2022
Major product lines
Insurance
Travel
£m
Other
Businesses
and Central
Costs
£m
Total
£m
Earned
premium on
insurance
underwritten
by the Group
£m
Other
revenue
£m
Total
insurance
£m
Gross earned premium on insurance underwritten
by the Group
203.0 203.0 203.0
Less: ceded to reinsurers
(123.8) (123.8) (123.8)
Net revenue on:
Motor broking
26.7
58.3
85.0 85.0
Home broking
–
60.2 60.2 60.2
Other broking
1.0
34.3
35.3 35.3
Underwriting
51.5
33.2
84.7 84.7
Tour Operations
12.2 12.2
Cruise
82.5 82.5
Personal Finance
5.9 5.9
Media
9.9 9.9
Other
1.5 1.5
79.2
186.0
265.2
94.7
17.3 377.2
2021
Major product lines
Insurance
Travel
£m
Other
Businesses
and Central
Costs
£m
Total
£m
Earned
premium on
insurance
underwritten
by the Group
£m
Other
revenue
£m
Total
insurance
£m
Gross earned premium on insurance underwritten
by the Group
221.7 221.7 221.7
Less: ceded to reinsurers
(142.8) (142.8) (142.8)
Net revenue on:
Motor broking
23.2
69.5
92.7 92.7
Home broking
–
60.2 60.2 60.2
Other broking
1.1
39.6
40.7 40.7
Underwriting
54.6
19.8
74.4 74.4
Tour Operations
32.7 32.7
Cruise
18.9 18.9
Personal Finance
6.0 6.0
Healthcare
0.9 0.9
Media
9.1 9.1
Other
2.0 2.0
78.9
189.1
268.051.6
18.0337.6
Included in insurance broking other revenue is instalment interest income on premium financing of £9.8m (2021: £11.1m).
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
147
Notes to the financial statements
continued
b) Contract balances
The following table provides information about contract assets and contract liabilities from contracts with customers as
accounted for under IFRS 15 (the amounts stated here do not include amounts accounted for under IFRS 4):
2022
£m
2021
£m
Contract cost assets (Note 23)
2.6
2.9
Contract liabilities (Note 29)
114.6
82.2
The contract cost assets relate to commissions paid to price-comparison websites to acquire new business policies not
underwritten by the Group.
Management expects that incremental commission fees paid to price-comparison websites as a result of obtaining insurance
contracts are recoverable. The Group has therefore capitalised them as contract assets amounting to £1.7m for the year
ended 31 January 2022 (2021: £4.5m). These fees are amortised over the period of the expected renewal cycle. In the year to
31 January 2022, the amount of amortisation was £2.0m (2021: £4.2m) and there was no impairment loss in relation to the
costs capitalised.
Applying the practical expedient in paragraph 94 of IFRS 15, the Group recognises the incremental costs of obtaining
contracts as an expense when incurred if the amortisation period of the assets that the Group otherwise would have
recognised is one year or less.
The contract liabilities relate to the deferral of revenue for performance obligations not satisfied as at 31 January 2022 and
the advance consideration received from customers for holidays or cruises booked but not travelled, and insurance premiums
received in advance of the cover start date. There was no revenue recognised in the current reporting year that related to
performance obligations that were satisfied in a prior year.
Significant changes in the contract assets and the contract liabilities during the year are as follows:
2022
2021
Contract
cost assets
£m
Contract
liabilities
£m
Contract
cost assets
£m
Contract
liabilities
£m
Balance as at 1 February
2.9
82.2
2.6
153.2
Released to the income statement in the period
(2.0)
(66.6)
(4.2)
(86.2)
Additional contract balances incurred during the period
1.7
148.6
4.5
149.9
Amounts refunded to customers –
(49.6)
–(133.1)
Disposed of with subsidiary undertakings – – –
(1.6)
Balance as at 31 January
2.6 114.6
2.9
82.2
c) Transaction price allocated to the remaining performance obligations
The transaction price allocated to three-year fixed-price insurance policy renewal options, where the remaining performance
obligations are not expected to be satisfied within the next 12 months, is £0.7m (2021: £1.0m). This is expected to be
recognised as revenue in the subsequent one to three years.
The transaction price allocated to customer contracts within the Travel segment, where the remaining performance
obligations are not expected to be satisfied within the next 12 months, is £0.8m (2021: £14.3m). This is expected to be
recognised as revenue in the subsequent one to two years.
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less.
3 Segmental information
continued
Saga plc Annual Report and Accounts 2022
148
4 Administrative and selling expenses
2022
£m
2021
£m
Staff costs (excluding restructuring costs)
85.8
90.1
Marketing and fulfilment costs
49.6
41.4
Short-term lease rentals
0.1
0.2
Auditors’ remuneration
2.1
1.8
Other administrative costs
64.7
60.0
Amounts ceded under reinsurance contracts
(6.9)
(7.7)
Depreciation – property, plant and equipment (Note 17)
2.2
3.8
Depreciation – right-of-use assets (Note 18)
0.7
1.5
Amortisation of intangible assets (Note 15)
9.7
11.8
Restructuring costs
4.8
21.3
212.8
224.2
a. Auditors’ remuneration
2022
£m
2021
£m
Audit of the parent company and consolidated financial statements
0.8 0.6
Audit of subsidiary financial statements
1.1
1.0
Audit-related assurance services
0.2 0.2
Total auditors’ remuneration
2.1
1.8
In the prior year, in addition to the auditors’ remuneration disclosed above, a further £0.6m was paid by the Group in relation
to corporate finance services provided. These costs were expensed against the share premium reserve as part of the
transaction costs associated with the issue of share capital during the prior year.
5 Impairment of assets
a) Impairments during the year ended 31 January 2022
As explained in Note 16b, following the continued impact of the COVID-19 pandemic on the travel industry, management
decided to restructure the Group’s Tour Operations CGU. As a result of this restructuring exercise, management performed
an impairment review of software assets used by the Tour Operations business. The outcome of the impairment review
concluded that an impairment charge of £9.4m (Note 15) be recognised against the Group’s software assets as at 31 January
2022. Furthermore, the Group concluded that an impairment charge of £0.5m (Note 15) to software assets was required in
the Group’s Central Costs business unit.
In addition, following management’s decision to restructure the Group’s Tour Operations CGU, the Group impaired property,
plant and equipment in its Tour Operations CGU by £0.3m (Note 17).
In light of the Group obtaining updated freehold property market valuation reports, management impaired assets held for
sale by £1.0m (Note 38).
b) Impairments during the year ended 31 January 2021
During the year ended 31 January 2021, the Group impaired the carrying value of the goodwill balance allocated to the Tour
Operations CGU by £15.0m and the Cruise CGU by £44.8m.
During the year ended 31 January 2021, in light of the Group’s decision to vacate most of its properties, it estimated the
recoverable amount based on the fair value less costs to sell of each property the Group planned to dispose of. The outcome
of the impairment reviews concluded that an impairment charge of £4.5m be recognised against the Group’s freehold land
and buildings assets as at 31 January 2021 (Note 17). These properties were subsequently transferred to assets held for
sale(Note 38).
In addition, during the year ended 31 January 2021, the Group impaired property, plant and equipment and software in its
Central Costs division by £0.4m and £0.1m respectively, and also impaired property, plant and equipment and right-of-use
assets in its Destinology business by £0.1m and £0.1m respectively.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
149
Notes to the financial statements
continued
6 Investment income
2022
£m
2021
£m
Interest income recognised using the EIR method
4.4
5.0
Gains on assets measured at FVTPL
0.2 0.3
Amounts ceded under reinsurance contracts
(4.3) (4.6)
0.3
0.7
7 Finance costs
2022
£m
2021
£m
Interest and charges on debt and borrowings
37.4
29.4
Net fair value loss on derivative financial instruments
2.7
–Net interest and finance charges payable on lease liabilities
0.7
0.8
40.8
30.2
8 Finance income
2022
£m
2021
£m
Net fair value gain on derivative financial instruments –
1.7
–
1.7
9 Directors and employees
Amounts charged to the income statement for the year are as follows:
2022
£m
2021
(restated)
£m
Wages and salaries
97.0
107.5
6
Social security costs
9.3
11.6
Pension costs (Note 27)
12.0
11.2
Total staff costs
118.3
130.3
Staff costs (including restructuring and redundancy costs) of £27.7m (2021: £18.9m
6
) and £90.6m (2021: £111.4m) have been
allocated to cost of sales and to administrative and selling expenses respectively. Staff costs above exclude share-based
payment charges of £3.4m (2021: £2.4m). Further detail on share-based payments can be found in Note 36.
Average monthly number of employees:
2022
£m
2021
£m
Insurance
1,519
1,509
Travel
1,705
1,001
Other Businesses and Central Costs
552
697
Total employee numbers
3,776
3,207
The average employee numbers for Travel have increased due to the adverse impacts of the COVID-19 pandemic on
headcount in the prior year starting to reverse in the year ended 31 January 2022. In addition, the Group took delivery of its
second new ship, Spirit of Adventure, in September 2020, and therefore average headcount for the year prior year did not
represent a full year’s worth of crewing for this vessel.
6 Wages and salaries costs for the year ended 31 January 2021 have been restated to £107.5m (from £102.5m previously reported) to reflect the inclusion of
crew costs relating to the Group’s Cruise ships which were previously omitted in error
Saga plc Annual Report and Accounts 2022
150
Directors’ remuneration
The information required by the Companies Act 2006 and the Listing Rules of the FCA is contained on pages 85-106 in the
Directors’ Remuneration Report.
Compensation of key management personnel of the Group
Key management personnel are defined as those persons having authority and responsibility for planning, directing and
controlling the activities of the Group and comprise the Directors of the Company and the Chief Executive Officers of the
major businesses within the trading segments.
The amounts recognised as an expense during the financial year in respect of key management personnel are as follows:
2022
£m
2021
£m
Short-term benefits
6.0
6.6
Termination costs
0.3 0.4
Share-based payments
1.0
0.4
7.3
7.4
10 Tax
The major components of the income tax expense are:
2022
£m
2021
£m
Consolidated income statement
Current income tax
Current income tax charge
3.4
3.5
Adjustments in respect of previous years
(0.1)
(3.7)
3.3
(0.2)
Deferred tax
Relating to origination and reversal of temporary differences
2.7
3.2
Effect of tax rate change on opening balance
(2.6)
(1.7)
Adjustments in respect of previous years
1.1
5.3
1.2
6.8
Tax expense in the income statement
4.5
6.6
Reconciliation of tax expense to loss before tax multiplied by the UK corporation tax rate:
2022
£m
2021
£m
Loss before tax
(23.5)
(61.2)
Tax at rate of 19.0% (2021: 19.0%)
(4.5)
(11.6)
Adjustments in respect of previous years
1.0
1.6
Effect of tax rate change on opening balance
(2.6)
(1.7)
Expenses not deductible for tax purposes:
Impairment of goodwill –
11.4
Other non-deductible expenses/non-taxed income
1.5
(0.5)
Effect of Cruise business entering tonnage tax regime
9.1
7.4
Tax expense in the income statement
4.5
6.6
The Group’s tax expense for the year was £4.5m (2021: £6.6m expense) representing a tax effective rate of negative 19.1%
before the impairment of goodwill and associated deferred tax (2021: negative 471.4%). In both the current and prior years,
the difference between the Group’s tax effective rate and the standard rate of corporation tax of 19%, is mainly due to the
Group’s Cruise business entering the tonnage tax regime on 1 February 2020.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
151
Notes to the financial statements
continued
Adjustments in respect of previous years include a charge for the under-provision of tax charge in prior years of £1.0m (2021:
£1.6m under-provision charge) and the impact of the change in the tax rate on opening deferred tax balances of £2.6m credit
(2021: £1.7m credit).
No tax charge or credit arose in the prior year on the disposal of the Bennetts, Destinology and Healthcare businesses.
Deferred tax
Consolidated statement
of financial position
Consolidated
income statement
2022
£m
2021
£m
2022
£m
2021
£m
Excess of depreciation over capital allowances
4.4
3.9
(0.5)
4.6
Retirement benefit scheme liabilities
(0.3)
0.8
(0.1)0.3
Short-term temporary differences:
– Designated hedges recognised through OCI –
0.5 0.2
–– Share-based payment reserve
1.6
1.0
0.6 0.2
– General bad debt provision
1.6
2.8
1.2
1.1
– Capitalised borrowing costs
(2.8)
(2.2)
0.6
0.7
– IFRS 16 transition adjustments
1.4
1.7
0.3 0.2
– Other
0.3
(1.5)
(0.9) (0.3)
Deferred tax charge
1.2
6.8
Net deferred tax assets
6.7
6.7
Deferred tax is reflected in the statement of financial position as follows:
2022
£m
2021
£m
Deferred tax assets
12.3 12.5
Deferred tax liabilities
(5.6)
(5.8)
Net deferred tax assets
6.7
6.7
Reconciliation of net deferred tax assets
2022
£m
2021
£m
At 1 February
6.7
18.1
Tax charge recognised in the income statement
(1.2)
(6.8)
Tax charge recognised in other comprehensive income
1.2
(4.1)
Tax charge recognised directly into the hedging reserve –
(0.5)
At 31 January
6.7
6.7
On 3 March 2021, it was announced that the corporation tax rate will increase from 19% to 25% from 1 April 2023. This increase
was substantively enacted on 24 May 2021. As a result, the closing deferred tax balances at the statement of financial position date
have been reflected at 25%. Net deferred tax assets/(liabilities) are expected to be normally settled in more than 12 months.
11 Dividends
Given the restrictions on the declaration of dividends described below, the Board of Directors does not recommend the
payment of a final dividend for the 2021/22 financial year (2021: nil pence per share).
For the current and prior year, no interim or final dividends were declared or paid during the year. Dividend equivalents of £nil
have been paid during the year (2021: £0.1m). Dividend equivalents paid in the prior year relate to previously declared
dividends which only become payable when certain share options are exercised.
The distributable reserves of Saga plc are £18.1m as at 31 January 2022, which are equal to the retained earnings reserve.
Ifnecessary, its subsidiary companies hold significant reserves from which a dividend can be paid. Subsidiary distributable
reserves are available immediately, with the exception of companies within the Tour Operations and Underwriting segments,
which require regulatory approval before any dividends can be declared and paid. Under the terms of the ship debt facilities,
dividends remain restricted until the ship debt principal repayments that were deferred as part of the ship debt repayment
holiday are fully repaid (Note 30). In addition, under the terms of the RCF, dividends also remain restricted while leverage is
above 3.0x (excluding Cruise debt). The Group maintained sufficient headroom under the RCF covenant during the year.
10 Tax
continued
Saga plc Annual Report and Accounts 2022
152
12 Loss per share
Basic loss per share is calculated by dividing the loss after tax for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding during the period. Diluted loss per share is calculated by also
including the weighted average number of ordinary shares that would be issued on conversion of all potentially dilutive options.
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and
the date of authorisation of these financial statements.
The calculation of basic and diluted loss per share is as follows:
2022
£m
2021
(restated)
£m
Loss attributable to ordinary equity holders
(28.0)
(67.8)
Weighted average number of ordinary shares m m
Ordinary shares as at 1 February
139.4
1,119.4
Long-term incentive plan (LTIP) share options exercised
0.1
–
Issue of shares – 5 October 2020 (Note 33)
First Firm Placing
–
224.4
Second Firm Placing
–
124.2
Placing and Open Offer
–
623.3Share consolidation – 13 October 2020 (Note 33) –
(1,951.9)
Ordinary shares as at 31 January
139.5 139.4
7
Weighted average number of ordinary shares for basic loss per share and diluted loss per share
139.5
101.2
Basic loss per share
(20.1p)
(67.0p)
Diluted loss per share
(20.1p)
(67.0p)
The table below reconciles between basic loss per share and Underlying Basic (Loss)/Earnings Per Share
8
:
2022
2021
Basic loss per share
(20.1p)
(67.0p)
Adjusted for:
Derivative losses/(gains)
1.4p
(1.9p)
Impairment, and loss/(profit) on disposal, of assets
2.3p
(2.2p)
Impairment of goodwill and associated deferred tax
–
59.1p
Net profit on disposal of businesses –
(8.5p)
Charge on closure of defined benefit pension scheme
1.1p
–
Foreign exchange movement on lease liabilities
(0.5p)
–
Costs incurred for cruise ship loan holiday
1.3p
–Restructuring costs
3.4p
33.7p
Underlying Basic (Loss)/Earnings Per Share
8
(11.1p)
13.2p
7 Ordinary shares as at 31 January 2021 have been restated to 139.4m reflecting the incorrect inclusion of 0.5m shares issued on 18 November 2020 in the
139.9m total reported previously. Options relating to these shares had not been exercised as at 31 January 2021 and therefore should not have been included
in the total ordinary shares previously reported at this date
8 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
153
Notes to the financial statements
continued
13 Business combinations and disposals
a) Acquisitions
There were no business acquisitions in the years ended 31 January 2022 and 31 January 2021.
b) Disposals during the year ended 31 January 2022
There were no business disposals in the year ended 31 January 2022.
c) Disposals during the year ended 31 January 2021
i) Healthcare business
During the year ended 31 January 2020, the Group made the decision to exit healthcare and initiated an active programme
tolocate a buyer for its Healthcare operation. Having met the requirements of IFRS 5, the associated assets and liabilities
were consequently presented as a held for sale disposal group in the statement of financial position as at 31 January 2020.
The disposal group did not meet the requirements of IFRS 5 to be classified as a discontinued operation.
On 3 March 2020, the Group reached agreement for the sale of its Country Cousins and Patricia White’s branded healthcare
businesses to Limerston Capital LLP for an enterprise value of £14.0m. Country Cousins and Patricia White’s were introductory
care agencies, and represented two of the three divisions comprising the Group’s Healthcare business. The remaining division,
Saga Care at Home, was sold on 31 May 2020 to a third-party care provider, Care By Us, for a nominal sum of £1. This completed
the Group’s exit from healthcare.
Details of the sale of the Healthcare business operation are as follows:
2021
£m
Cash consideration received (net of transaction costs)
12.8
Cash and short-term deposits disposed of as part of the transaction
(1.4)
Carrying value of net assets disposed
(1.0)
Gain on disposal before tax
10.4
Tax expense on gain –
Gain on disposal after tax
10.4
ii) Bennetts
During the year ended 31 January 2020, the Group made the decision to initiate an active programme to locate a buyer for its
insurance biking brand within the Insurance segment, Bennetts Motorcycling Services Limited (
Bennetts
). Having met the
requirements of IFRS 5, the associated assets and liabilities were consequently presented as a held for sale disposal group in
the statement of financial position as at 31 January 2020. The disposal group did not meet the requirements of IFRS 5 to be
classified as a discontinued operation.
On 17 February 2020, the Group announced that it had reached agreement for the sale of Bennetts for an enterprise value
of£26m to Atlanta Investment Holdings C Limited (
Atlanta
). Atlanta is part of The Ardonagh Group, one of the largest
independent insurance brokers in the UK. Completion was subject to receiving regulatory approval and other closing conditions.
On 7 August 2020, the disposal of Bennetts to Atlanta was completed following the receipt of regulatory approvals,
generating net disposal proceeds of £24.0m.
Details of the sale of Bennetts are as follows:
2021
£m
Cash consideration received (net of transaction costs)
24.0
Cash and short-term deposits disposed of as part of the transaction
(9.5)
Carrying value of net assets disposed
(12.7)
Gain on disposal before tax
1.8
Tax expense on gain –
Gain on disposal after tax
1.8
Saga plc Annual Report and Accounts 2022
154
iii) Destinology
During the year ended 31 January 2021, the Group made the decision to initiate an active programme to locate a buyer for its
Travel segment business, Destinology. On 20 October 2020, the Group announced that it had sold Destinology Limited to
Brooklyn Travel Limited for a nominal sum of £1. Net transaction costs of £0.2m were incurred in relation to the disposal.
Details of the sale of Destinology are as follows:
2021
£m
Cash consideration received (net of transaction costs)
(0.2)
Cash and short-term deposits disposed of as part of the transaction
(1.6)
Expense of non-cash items relating to disposal
(1.0)
Carrying value of net liabilities disposed
0.2
Loss on disposal before tax
(2.6)
Tax expense on gain –
Loss on disposal after tax
(2.6)
(iv) Other
During the year ended 31 January 2021, transaction costs of £1.0m were incurred in relation to other business disposals that
did not complete.
14 Goodwill
Goodwill
£m
Cost
At 1 February 2020
1,471.4
At 31 January 2021 and 31 January 2022
1,471.4
Impairment
At 1 February 2020
693.0
Charge for the prior year (Note 16a)
59.8
At 31 January 2021 and 31 January 2022
752.8
Net book value
At 31 January 2022
718.6
At 31 January 2021
718.6
Goodwill deductible for tax purposes amounts to £nil (2021: £nil).
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
155
Notes to the financial statements
continued
15 Intangible assets
Brands
£m
Customer
relationships
£m
Software
£m
Total
£m
Cost
At 1 February 2020
12.7
7.4
144.4
164.5
Additions and internally developed software
– –
13.2 13.2
Disposals
– –
(1.2) (1.2)
Disposed of with subsidiary undertakings
(12.7)
(7.4)
(4.8)
(24.9)
At 31 January 2021
– –
151.6 151.6
Additions and internally developed software
– –
11.2 11.2
Disposals
– –
(53.9) (53.9)
At 31 January 2022
– –
108.9 108.9
Amortisation and impairment
At 1 February 2020
12.7
7.4 87.3 107.4
Amortisation
– –
12.4 12.4
Impairment of assets (Note 16b) – –
0.1 0.1
Disposals
– –
(1.0) (1.0)
Disposed of with subsidiary undertakings
(12.7)
(7.4)
(3.8)
(23.9)
At 31 January 2021
– –
95.0 95.0
Amortisation
– –
10.6 10.6
Impairment of assets (Note 16b)
– –
9.9 9.9
Disposals
– –
(53.7) (53.7)
At 31 January 2022
– –
61.8 61.8
Net book value
At 31 January 2022
– –
47.1 47.1
At 31 January 2021 – –
56.6 56.6
The net book value of software at 31 January 2022 includes internally generated software of £26.0m (2021: £28.7m) relating
to the Group’s Guidewire platform. Software additions in the year include internally generated software of £0.2m (2021:
£3.1m) relating to the Group’s Guidewire platform. Guidewire is the Group’s insurance broking, policy administration and
billing platform. The Guidewire platform has an expected useful economic life of 10 years, with six years of phase one
expenditure remaining at 31 January 2022. Implementation and the commencement of amortisation of the Guidewire
platform is on a phased basis, based on product re-platforming, and began in the year ended 31 January 2019.
The net book value of software at 31 January 2022 also includes internally generated software of £2.3m (2021: £10.3m)
relating to the Group’s Tigerbay platform. Software additions in the year include internally generated software of £1.6m
(2021: £3.4m) relating to the Group’s Tigerbay platform. Tigerbay is the Group’s travel booking reservation platform. The
Tigerbay platform has an expected useful economic life of 10 years, with seven years of phase one expenditure remaining at
31January 2022. Implementation and the commencement of amortisation of the Tigerbay platform is on a phased basis,
based on product re-platforming, and began in the year ended 31 January 2020.
As explained in Note 16b, following the continued impact of the COVID-19 pandemic on the travel industry, management
decided to restructure the Group’s Tour Operations business. As a result of this restructuring exercise, management
performed an impairment review of software assets used by the Tour Operations business. The outcome of the impairment
review concluded that an impairment charge of £9.4m be recognised against the Group’s software assets as at 31 January
2022, all of which related to the Tigerbay platform. In addition, the Group concluded that an impairment charge of £0.5m to
software assets was required in the Group’s Central Costs division.
Saga plc Annual Report and Accounts 2022
156
The amortisation charge for the year is analysed as follows:
2022
£m
2021
£m
Cost of sales
0.9 0.6
Administrative and selling expenses (Note 4)
9.7
11.8
10.6
12.4
During the year, the Group disposed of assets with a net book value of £0.2m (2021: £0.2m). The loss arising on disposal was
£0.1m (2021: £0.2m loss).
During the prior year, borrowing costs of £1.1m were capitalised in software within intangible assets. The capitalisation rate
used to determine the amount of borrowing costs to be capitalised was the weighted average interest rate applicable to the
Group’s general borrowings during the prior year, being 4.0%.
16 Impairment of intangible assets
a) Goodwill
Goodwill acquired through business combinations has been allocated to CGUs for the purpose of impairment testing. The
carrying value of goodwill by CGU is as follows:
2022
£m
2021
£m
Insurance
718.6 718.6
718.6
718.6
The Group tests all goodwill balances for impairment at least annually, and twice-yearly if there exist indicators of impairment
at the interim reporting date of 31 July. The Group has duly tested the Insurance CGU goodwill balance for impairment as at
31 January 2022. In the prior year, due to the impact of the COVID-19 pandemic on the Group’s earnings, the Group tested
goodwill for impairment as at 31 July 2020 and 31 January 2021. The impairment test compares the recoverable amount of
each CGU to the carrying value of its net assets including the value of the allocated goodwill. The Group now only has goodwill
allocated to its Insurance CGU, following the write-off in full of goodwill allocated to its Tour Operations and Cruise CGUs as
at 31 July 2020.
The recoverable amount of the Insurance CGU has been determined based on a value-in-use calculation using cash flow
projections from the Group’s latest five-year financial forecasts to 2026/27, which are derived using past experience of the
Group’s trading, combined with the anticipated impact of changes in macroeconomic and regulatory factors. A terminal value
has been calculated using the Gordon Growth Model based on the fifth year of those projections and an annual growth rate of
2.0% (January 2021: 2.0%) as the expected long-term average growth rate of the UK economy. The cash flows have then been
discounted to present value using a suitably risk-adjusted discount rate based on a market-participant view of the cost of
capital and debt relevant to the insurance industry.
As at 31 January 2022, the pre-tax discount rate used for the Insurance CGU was 11.5% (2021: 9.8%). The Group’s five-year
financial forecasts incorporate the modelled impact of the publication of the FCA’s findings from its market study into general
insurance pricing and the impact this will likely have on new business pricing and retention rates. As per IAS 36.44,
incremental cash flows directly attributable to growth initiatives not yet enacted at the balance sheet date have then also
been removed for the purpose of the value-in-use calculation.
Furthermore, the Group also considered an array of stress tests, both in terms of adverse impacts to the cash flow
projections and to the discount rate. For the cash flow stress tests, the impact of a more prudent outlook for the impact of
the FCA market study, further impact to travel insurance sales from COVID-19 disruption and further net rate pressures
were assumed, in combination with a more cautious terminal growth rate of 1.5% reflecting a more conservative outlook for
growth in the UK economy. For the discount rate stress test, the Group applied risk premia of c.+1.5ppt.
After considering the impact of cash flow and discount rate stresses to the recoverable amount, the Group remains
comfortable that there remains headroom over and above the carrying value of the net assets including goodwill allocated
tothe Insurance CGU. This was the case at both the 31 January 2022 and 31 January 2021 testing points.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
157
Notes to the financial statements
continued
In the prior year, as a result of the continued uncertainty and adverse impact of the COVID-19 pandemic on the travel
industry, the Group determined that the recoverable amounts of the goodwill allocated to the Tour Operations and Cruise
CGUs were below their respective carrying values and took the decision to impair in full the £59.8m goodwill allocated to Tour
Operations and Cruise in the Group’s July 2020 interim results. Whilst the outlook for the travel industry has improved since
then, characterised by an improvement in industry betas and cost of debt levels, goodwill impairments are irreversible.
The headroom for the Insurance CGU against the brought forward carrying value is as follows:
Headroom/(deficit) £m
Central scenario
Cash flow stress
test scenario
Discount rate stress
test scenario
31 January
2022
31 January
2021
31 January
2022
31 January
2021
31 January
2022
31 January
2021
Insurance
146.3
216.4
89.7
72.4
(10.2)
108.0
The headroom calculated is most sensitive to the discount rate and terminal growth rate assumed, or to changes in the
projected cash flow of the CGU. A quantitative sensitivity analysis for each of these as at 31 January 2022, and its impact on
the headroom against the brought forward goodwill carrying value, is as follows:
Pre-tax discount rate Terminal growth rate
Cash flow (annual)
+1.0ppt
£m
–1.0ppt
£m
+1.0ppt
£m
–1.0ppt
£m
+1.0ppt
£m
–1.0ppt
£m
Insurance
(136.6)
120.5
89.4
(113.1)
69.6(121.4)
Given these headroom numbers, the Directors consider that there is no reasonable possible change in the key assumptions
made in their impairment assessment that would give rise to an impairment.
b) Other intangible assets
Separately identifiable intangible assets are valued and their appropriate useful lives established at the time of acquisition.
The carrying values of these assets and their remaining useful lives are reviewed annually for indicators of impairment.
Following the continued impact of the COVID-19 pandemic on the travel industry, management decided to restructure the
Group’s Tour Operations CGU. As a result of this restructuring exercise, management performed an impairment review of
software assets used by the Tour Operations business. The outcome of the impairment review concluded that an impairment
charge of £9.4m (Note 15) be recognised against the Group’s software assets as at 31 January 2022. In addition, the Group
concluded that an impairment charge of £0.5m (Note 15) against software assets was required in the Group’s Central
Costsdivision.
In the prior year the Group concluded that an impairment charge of £0.1m to software assets was required in the Group’s
Central Costs division.
16 Impairment of intangible assets
continued
a) Goodwill
continued
Saga plc Annual Report and Accounts 2022
158
17 Property, plant and equipment
Freehold
land and
buildings
£m
Long
leasehold
land and
buildings
£m
Cruise
ships
£m
Assets in the
course of
construction
£m
Plant and
equipment
£m
Total
£m
Cost
At 1 February 2020
39.8 9.5
384.6
69.072.8
575.7
Additions
– – –
271.6
2.4
274.0
Disposals
–
(0.1)
–(80.7)
(12.0)
(92.8)
Disposed of with subsidiary undertakings – –
(0.2)
–(1.0)
(1.2)
Transfer of asset class
– –
344.4
(344.4)
3.2 3.2
Reclassification to assets held for sale (Note 38) – – –
(24.4)
–(24.4)
At 31 January 2021
15.4
9.2
648.3
–
61.6
734.5
Additions
– –
2.7
–4.4
7.1
Disposals
(0.1)
– – –
(18.9)
(19.0)
Transfer of asset class
–
0.3 (0.5)
–(0.9)
(1.1)
Reclassification from assets held for sale (Note 38)
3.8
– – – –
3.8Reclassification to assets held for sale (Note 38)
(4.0)
– – – –
(4.0)At 31 January 2022
15.1
9.5
650.5
–
46.2
721.3
Depreciation and impairment
At 1 February 2020
4.6 5.6
–80.7
59.8
150.7
Provided during the year
0.7
–0.2
8.3
4.3
13.5
Impairment of assets
4.5
0.1
– –
0.4
5.0
Disposals
(0.1) (0.1)
(75.7)
(88.0)–
(12.1)
Disposed of with subsidiary undertakings – –
(0.3)
–(0.6) (0.9)
Transfer of asset class
– – – –
1.5 1.5
Reclassification to assets held for sale (Note 38) – – –
(7.5)
–( 7.5)
At 31 January 2021
2.2
5.5
13.3
–
53.3
74.3
Provided during the year
0.2
0.1 16.1
–
2.9
19.3
Impairment of assets
0.2
– – –
0.30.1
Disposals
– – – –
(18.4) (18.4)
Transfer of asset class
–
0.3
–(0.2)
(0.6)
(0.5)
Reclassification from assets held for sale (Note 38)
0.8
– – – –
0.8Reclassification to assets held for sale (Note 38)
(1.0)
– – – –
(1.0)At 31 January 2022
2.4
5.9
29.2
–
37.3
74.8
Net book value
At 31 January 2022
12.7
3.6
621.3
–
8.9
646.5
At 31 January 2021
13.2
–3.7
635.0
8.3 660.2
The depreciation charge for the year is analysed as follows:
2022
£m
2021
£m
Cost of sales
17.1
9.7
Administrative and selling expenses (Note 4)
2.2
3.8
19.3
13.5
During the year, the Group disposed of assets with a net book value of £0.6m (2021: £4.8m). The loss arising on disposal was
£0.4m (2021: £7.2m profit).
During the prior year, borrowing costs of £2.1m were capitalised in property, plant and equipment. The capitalisation rate
used to determine the amount of borrowing costs capitalised was the weighted average interest rate applicable to the
Group’s general borrowings during the prior year, being 4.0%.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
159
Notes to the financial statements
continued
a) Impairment review of property, plant and equipment
Due to the continued impact of the COVID-19 pandemic on the Group’s operations, with the suspension of the Cruise
businesses between March 2020 and June 2021 and an ongoing impact on the level of customer demand, management
concluded that there continued to exist indicators of impairment for both of its ocean cruise ships, Spirit of Discovery and
Spirit of Adventure. Management therefore conducted impairment reviews at 31 January 2022 for both vessels, following
previous reviews conducted at 31 July 2021 and 31 January 2021.
The recoverable amount of each cruise ship was determined based on a value-in-use calculation using cash flow projections
from the Group’s five-year financial forecasts to 2026/27 and applying a constant annual growth rate of 2% thereafter for
subsequent periods until the end of the ship’s useful economic life of 30 years, at which point a residual value of 15% of original
cost has been assumed. This has then been discounted back to present value using a suitably risk-adjusted discount rate. The
underlying forecast cash flows were updated for the latest impact of the COVID-19 pandemic. In addition, a stress test of the
potential adverse medium-term impact that the pandemic may have on demand for cruises was also considered, by assuming
the need for a further two-month layup of both ships during April and May 2022, and with load factors capped at 75% for the
remainder of 2022/23 and at 80% for the duration of 2023/24. The annual growth rate beyond the fifth year of management
forecasts was also reduced to 1.5% in the stress test scenario, reflecting a more cautious outlook for long-term growth in the
UK economy.
Potential environmental regulatory changes have also been considered as part of this assessment. The shipping industry has
made a commitment to reduce CO
2
emissions by 40% by 2030 (from a 2008 baseline), and the UK Government has made
commitments to reach net zero emissions by 2050. The EEXI/CII regulations are being introduced internationally to enable
the industry to meet the 2030 target, and both of Saga’s cruise ships will exceed the requirements of these regulations on
implementation in 2023. The end of their useful economic lives of 30 years will have been reached by 2049 in the case of
Spirit of Discovery and 2051 in the case of Spirit of Adventure.
The Group has not factored in any potential fuel modifications that may occur in the future into the cash flow forecasts used
for the impairment assessment of either ship. Whilst alternative fuels may present a viable route to decarbonisation for the
Cruise business, there are significant upstream supply challenges which will need to be resolved before these become viable
for deployment. The main engines currently installed in the Group’s ocean cruise ships are capable of being modified for use
with certain alternative fuels. Being new vessels, the design and specification of the Group’s cruise ships was guided by a
desire to maximise efficiency through deployment of the most up-to-date technology. Their hull design maximises fuel
efficiency, on board technology minimises fuel consumption and catalytic converters reduce carbon emissions. Additionally,
the Group is planning to retro-fit shore power connections to both vessels, allowing them to use clean energy where available
in ports of call and has commenced a study to evaluate other emerging technologies. The capital expenditure required for the
shore power connections has been included in the forecast cash flows used in the assessment.
There is also currently no technological alternative to either oil or gas to power large vessels and it is not clear if such
technology will ever be commercially viable, or in what time-frame this might be achieved.
The cash flows were discounted to present value using a pre-tax discount rate of 9.9% (January 2021: 11.8%) for both vessels.
As at 31 January 2022, the headroom for each of the ships against the carrying value was as follows:
Headroom £m
Central scenario
RWC stress test scenario
Spirit of Discovery
119.2
83.3
Spirit of Adventure
71.0
34.5
The headroom calculated is most sensitive to the discount rate and the load factor assumed within the forecast cash flows.
Given both ships are relatively new, and so have relatively long remaining useful lives, the headroom is not sensitive to either
changes in the useful economic life or the residual value of the vessel due to the degree of discounting that is applied in the
impairment calculation. A quantitative sensitivity analysis has been set out below to illustrate the impact that changes in key
assumptions within the value-in-use calculation would bring about on the calculated headroom as at 31 January 2022:
Discount rate
Residual value
Load factor
Useful economic life
+1.0ppt
£m
–1.0ppt
£m
+5%
£m
-5%
£m
+1%
£m
-1%
£m
+5 years
£m
-5 years
£m
Spirit of Discovery
(34.8)
40.4
0.2
(0.2)
11.1
(23.9)(13.3)
16.6
Spirit of Adventure
(36.1)
42.1
0.2
(0.2)
11.5
(14.2)
15.4(22.2)
Based on these impairment tests, and looking at the likelihood of a range of outcomes, the Group is satisfied that there was
headroom over and above the carrying values of both Spirit of Discovery and Spirit of Adventure. Given the headroom in the
test for both vessels and the degree of caution already adopted in the RWC stress scenario, the Directors concluded that no
impairment of either vessel was necessary, and that there would need to be a reasonably significant change in the key
assumptions for this to be the case.
17 Property, plant and equipment
continued
Saga plc Annual Report and Accounts 2022
160
In the prior year, as a result of the Group planning to vacate most of its properties (Note 38), management concluded that this
constituted an indicator of impairment and duly conducted an impairment review of the Group’s freehold land and buildings as
at 31 January 2021, with the exception of the main Head Office building which was not intended to be vacated. In relation to
these freehold properties, value-in-use was negligible and so the Group obtained market valuations to determine the fair
value of each building. The outcome of these impairment reviews concluded that an impairment charge totalling £5.0m should
be recognised against the Group’s assets as at 31 January 2021. At 31 January 2021, the Group reclassified freehold land and
buildings with a net book value of £16.9m to assets held for sale (Note 38).
During the current year, the Group declassified one of the properties classified as held for sale at 31 January 2021, to
property, plant and equipment since it was no longer being actively marketed for disposal (Note 38). The carrying value of this
property as at 31 January 2021 was £3.0m.
18 Right-of-use assets
Long
leasehold
land and
buildings
£m
River
cruise
ships
£m
Plant and
equipment
£m
Total
£m
Cost
At 1 February 2020
13.5
29.4
8.3
51.2
Additions
– –
0.8 0.8
Disposals
(1.9)
–
(0.5)(2.4)
Disposed of with subsidiary undertakings –
(1.1)
–(1.1)
Transfer of asset class
– –
(3.2) (3.2)
Effect of modification of lease terms
(8.4) (29.4)
–(37.8)
Other movements
– –
0.5 0.5
At 31 January 2021
2.1
–
5.9
8.0
Additions
1.3 33.5
1.0
35.8
Disposals
(0.7)
–
(1.2)
(1.9)
Transfer of asset class
4.0
–
0.94.9
Effect of modification of lease terms
(5.1)
– –
(5.1)At 31 January 2022
1.6
33.5
6.641.7
Depreciation and impairment
At 1 February 2020
3.6
18.4
3.5
25.5
Provided during the year
0.7
0.9
1.5
3.1
Impairment of assets
0.1
– –
0.1Disposals
(1.5)
–
(0.4)
(1.9)
Disposed of with subsidiary undertakings –
(0.6)
–(0.6)
Transfer of asset class
– –
(1.5) (1.5)
Effect of modification of lease terms
(0.7)
–(19.3)
(20.0)
Other movements
– –
0.5 0.5
At 31 January 2021
1.6
–
3.6
5.2
Provided during the year
0.1
0.7
1.5
2.3
Disposals
(0.7)
–
(0.4)
(1.1)
Transfer of asset class
4.1
–
0.2
4.3
Effect of modification of lease terms
(5.0)
– –
(5.0)At 31 January 2022
0.1
0.7
4.9
5.7Net book value
At 31 January 2022
1.5
32.8
1.7
36.0
At 31 January 2021
0.5
–2.3
2.8
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
161
Notes to the financial statements
continued
The depreciation charge for the year is analysed as follows:
2022
£m
2021
£m
Cost of sales
1.6 1.6
Administrative and selling expenses (Note 4)
0.7
1.5
2.3
3.1
During the year, the Group disposed of assets with a net book value of £0.8m (2021: £0.5m). The profit arising on disposal was
£0.1m (2021: £0.4m loss).
The total cash outflow for leases amounted to £4.4m (2021: £5.0m).
In the year ended 31 January 2021, modification of lease terms relating to river cruise ships resulted from the impact of the
COVID-19 pandemic on the Travel business. The Group entered into multi-year agreements to lease the use of river cruise vessels
to operate its river cruise tours. As such, the Group recognised a right-of-use asset and corresponding lease liability when those
lease agreements became effective. From March 2020, the Group suspended its Travel operations, including its river cruise tours,
as a result of the restrictions placed on international travel from the impact of the COVID-19 pandemic. The Group then
subsequently curtailed its river cruise agreements during the financial year, and accordingly derecognised the right-of-use assets
held on the statement of financial position in respect of those agreements. The Group also derecognised the corresponding lease
liabilities, which contributed to a reduction in lease liabilities during the financial year ended 31 January 2021 (Note 37a). Lease
agreements that were modified in the year ended 31 January 2021, also ended within the same financial year.
River cruise ship additions in the year ended 31 January 2022 relate to the river cruise vessel, Spirit of the Rhine (Note 37a).
In the year ended 31 January 2021, modification of lease terms relating to long leasehold land and buildings resulted from
theGroup’s decision to initiate an active programme to locate buyers for a number of its freehold properties (Note 38) due
toa relationship existing between the use of one of these freehold properties and the use of one of the long leasehold land
buildings. In addition, the modification of lease terms relating to long leasehold land and buildings resulted in a gain of £3.2m
being reported in the income statement in the prior year.
In the year ended 31 January 2022, the modification of lease terms relating to long leasehold land and buildings resulted in
again of £0.3m being reported in the income statement in the prior year.
a) Impairment review of right-of-use assets
During the year, the Group took delivery of the river cruise ship, Spirit of the Rhine, under a 10-year lease. The ship’s first
cruise season was initially planned to commence on 1 April 2021, but due to the impact of the COVID-19 pandemic, the start
ofthe first season was delayed for several months. The Group did not therefore take control of the asset until the ship’s
inaugural cruise took place in September 2021, at which point a right-of-use asset was recognised and corresponding lease
liability was capitalised on the statement of financial position.
Given the carrying value of the asset is quantitatively material to the Group, combined with the ongoing adverse impacts of
the COVID-19 pandemic on the wider travel industry, which constitute an indicator of impairment, management deemed it
necessary to conduct an impairment review on Spirit of the Rhine at 31 January 2022.
The recoverable amount of the vessel was determined based on a value-in-use calculation using cash flow projections from the Group’s
five-year financial forecasts to 2026/27 and applying a constant annual growth rate of 2% thereafter for subsequent periods until the
end of the ship’s useful economic life of 10 years. This has then been discounted back to present value using a suitably risk-adjusted
discount rate. The underlying forecast cash flows were updated for the latest impact of the COVID-19 pandemic. In addition, a stress
test of the potential adverse medium-term impact that the pandemic may have on demand for river cruises was also considered, by
assuming the need for a two-month layup of the vessel in April and May 2022, and with load factors capped at 75% for the remainder
of 2022/23 and at 80% for the duration of 2023/24. The annual growth rate beyond the fifth year of management forecasts was also
reduced to 1.5% in the stress test scenario, reflecting a more cautious outlook for long-term growth in the UK economy.
The cash flows were discounted to present value using a pre-tax discount rate of 5.2%, which effectively represents a
market-participant’s view of the pre-tax cost of debt of the river cruise business. This is because by the very nature of how the
carrying value of the right-of-use asset arises as the present value of future lease payments at the inception of the lease, a
market-participant would expect to finance such an asset purely with debt. As at 31 January 2022, the headroom for the ship
against its carrying value was as follows:
Headroom £m
Central scenario
RWC stress test scenario
Spirit of the Rhine
7.9
6.5
Based on these impairment tests, and looking at the likelihood of a range of outcomes, the Group is satisfied that there was
headroom over and above the carrying value of Spirit of the Rhine. Management considered that there was no reasonable
possible change in the key assumptions made in its impairment assessment that would give rise to an impairment of the
carrying value of this vessel.
18 Right-of-use assets
continued
Saga plc Annual Report and Accounts 2022
162
19 Financial assets and financial liabilities
a) Financial assets
2022
£m
2021
£m
FVTPL
Foreign exchange forward contracts
0.4 0.6
Loan funds
6.2 6.2
Money market funds
29.2
66.8
35.8
73.6
FVTPL designated in a hedging relationship
Foreign exchange forward contracts
0.3
0.1
Fuel oil swaps
1.2
–
1.5
0.1
FVOCI
Debt securities
280.8
261.9280.8
261.9
Amortised cost
Deposits with financial institutions
14.0
24.2
14.0
24.2
Total financial assets
332.1
359.8
Current
110.0 105.2
Non-current
222.1
254.6
332.1
359.8
2022
£m
2021
£m
Total financial assets (as above and presented on the face of the statement of financial position)
332.1
359.8
Trade receivables (Note 23)
112.2
117.7
Other receivables (Note 23)
17.3
33.0
Cash and short-term deposits (Note 25)
226.9
101.6
Total financial assets (including cash and short-term deposits, trade and other receivables)
688.5
612.1
Debt securities, loan funds, money market funds and deposits with financial institutions relate to monies held by the Group’s
Insurance business, are subject to contractual restrictions and are not readily available to be used for other purposes within
the Group.
Debt securities, where the contractual cash flows are solely principal and interest, and the objective of the Group’s business
model is achieved both by collecting contractual cash flows and selling financial assets, are classified as FVOCI. On disposal
ofthese debt securities, any related balance within the fair value reserve is reclassified to other gains/(losses) within profit
orloss.
Deposits with financial institutions, where the contractual cash flows are solely principal and interest and the objective of
theGroup’s business model is achieved by holding the asset in order to collect contractual cash flows, are classified as
measured at amortised cost. The fair values of financial assets held at amortised cost are not materially different from their
carrying amounts.
Interest return on floating rate investments held by the Group’s insurance underwriting business was linked to LIBOR. The
Group adopted ‘Interest rate benchmark reform – phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)’ during
the year (Note 2.5). In the UK, LIBOR was replaced by SONIA from the end of 2021. Subsequent to these amendments being
adopted, interest return on floating rate investments held by the Group’s insurance underwriting business is linked to SONIA.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
163
Notes to the financial statements
continued
b) Financial liabilities
2022
£m
2021
£m
FVTPL
Foreign exchange forward contracts
1.3 1.3
1.3
1.3
FVTPL designated in a hedging relationship
Foreign exchange forward contracts
2.7
2.1
Fuel oil swaps
–
0.2
2.7
2.3
Amortised cost
Bonds and bank loans (Note 30)
896.5
817.1
Lease liabilities
35.3 4.4
Bank overdrafts
0.4
1.5
932.2
823.0
Total financial liabilities
936.2
826.6Current
56.1
10.4
Non-current
880.1
816.2
936.2
826.6
2022
£m
2021
£m
Total financial liabilities (as above and presented on the face of the statement of financial position)
936.2
826.6
Trade payables (Note 26)
124.8
115.5
Other payables (Note 26)
8.1 5.1
Total financial liabilities (including trade and other payables)
1,069.1
947.2
Except for the Group’s bonds, the fair values of financial liabilities held at amortised cost are not materially different from
their carrying amounts, since the interest payable on those liabilities is close to current market rates. The fair value of the
Group’s bonds (Note 30) at 31 January 2022 is £382.5m (2021: £226.8m).
All financial assets that are measured at FVTPL are mandatorily measured at FVTPL and all financial liabilities that are
measured at FVTPL meet the definition of held for trading.
c) Fair values
Financial instruments held at fair value are valued using quoted market prices or other valuation techniques.
Valuation techniques include net present value and discounted cash flow models, and comparison to similar instruments for
which market observable prices exist. Assumptions and market observable inputs used in valuation techniques include foreign
currency exchange rates and future oil prices.
The objective of using valuation techniques is to arrive at a fair value determination that reflects the price of the financial
instrument at the reporting date, which would have been determined by market participants acting at arm’s length.
Observable prices are those that have been seen either from counterparties or from market pricing sources, including
Bloomberg. The use of these depends upon the liquidity of the relevant market.
Financial instruments held at fair value have been categorised into a fair value measurement hierarchy as follows:
i) Level 1
These are valuation techniques that are based entirely on quoted market prices in an actively traded market and are the most
reliable. All money market funds, loan funds and debt securities are categorised as Level 1 as the fair value is obtained directly
from the quoted active market price.
19 Financial assets and financial liabilities
continued
Saga plc Annual Report and Accounts 2022
164
ii) Level 2
These are valuation techniques for which all significant inputs are taken from observable market data. These include valuation
models used to calculate the present value of expected future cash flows and may be employed either when no active market
exists or when there are quoted prices available for similar instruments in active markets.
The models incorporate various inputs including the credit quality of counterparties, interest rate curves and forward rate
curves of the underlying instrument.
All the derivative financial instruments are categorised as Level 2 as the fair values are obtained from the counterparty,
brokers or valued using observable inputs. Where material, credit valuation adjustment (CVA)/debit valuation adjustment
(DVA) risk adjustment is factored into the fair values of these instruments. As at 31 January 2022, the marked-to-market
values of derivative assets are net of a credit valuation adjustment attributable to derivative counterparty default risk.
The fair values are periodically reviewed by the Group’s Treasury Committees.
iii) Level 3
These are valuation techniques for which any one or more significant inputs are not based on observable market data.
The following tables provide the quantitative fair value hierarchy of the Group’s financial assets and financial liabilities that
areheld at fair value:
At 31 January 2022
At 31 January 2021
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Financial assets measured at fair value
Foreign exchange forwards
–
0.7
–0.7
–0.7
–0.7
Fuel oil swaps
– – – –
1.2
–1.2
–Loan funds
6.2 6.2
– –
6.2– –
6.2Debt securities – –
280.8
–280.8
–261.9
261.9
Money market funds
29.2
– –
29.266.8
– –
66.8Financial liabilities measured at fair value
Foreign exchange forwards
–
4.0
–4.0
–3.4
–3.4
Fuel oil swaps
– – – – –
0.2
–0.2
Financial assets for which fair values are
disclosed
Deposits with institutions
–
14.0
–14.0
–24.2
–24.2
Financial liabilities for which fair values are
disclosed
Bonds and bank loans
–
879.0
–879.0
–793.9
–793.9
Lease liabilities
–
35.3
–35.3
–4.4
–4.4
Bank overdrafts
–
0.4
–0.4
–1.5
–1.5
There have been no transfers between Level 1 and Level 2 and no non-recurring fair value measurements of assets and
liabilities during the year (2021: none). The Group’s policy is to recognise transfers into, and out of, fair value hierarchy levels
as at the end of the reporting period.
The values of the debt securities, money market funds and loan funds are based upon publicly available market prices.
Foreign exchange forwards are valued using current spot and forward rates discounted to present value. They are also
adjusted for counterparty credit risk using credit default swap (CDS) curves. Fuel oil swaps are valued with reference to the
valuations provided by third parties, which use current Platts index rates, discounted to present value.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
165
Notes to the financial statements
continued
d) Cash flow hedges
i) Forward currency risk
During the year ended 31 January 2022, the Group designated 298 foreign exchange forward currency contracts as hedges
of highly probable foreign currency cash expenses in future periods. These contracts are entered into to minimise the
Group’s exposure to foreign exchange risk.
Foreign currency cash flow hedging instruments
Designated in the year
At 31 Jan 2022
At 31 Jan 2021Volume
£m
Volume
Volume£m
£m
Euro (EUR)
78
(0.8)
133
(0.7)(2.5)
92US dollar (USD)
58
0.2
86
0.1
82
(1.2)
Other currencies
162
–
113212
–(0.1)
Total
298
(0.6)
431
(2.4)
287
(2.0)
Hedging instruments for other currencies are in respect of Australian dollars, Canadian dollars, Swiss francs, Japanese yen,
New Zealand dollars, Norwegian krone, Thai baht, Chinese yuan, Danish krona and South African rand.
ii) Commodity price risk
The Group uses derivative financial instruments to mitigate the risk of adverse changes in the price of fuel. The Group enters
into fixed price contracts (swaps) in the management of its fuel price exposures. These contracts are expected to reduce the
volatility attributable to price fluctuations of fuel and are designated as cash flow hedges. Hedging the price volatility of
forecast fuel purchases is in accordance with the risk management strategy outlined by the Board of Directors.
Commodity cash flow hedging instruments
Designated in the year
At 31 Jan 2022
At 31 Jan 2021Volume
£m
Volume
Volume£m
£m
Hedging instruments
36
1.6
36
1.2
22
(0.2)
iii) Hedge maturity profile
The table below summarises the present value of the highly probable forecast cash flows that have been designated in a
hedging relationship as at 31 January 2022. These cash flows are expected to become determined in profit or loss in the same
period in which the cash flows occur.
Determination period
EUR
£m
USD
£m
Other
currencies
£m
Currency
hedges
£m
Fuel
hedges
£m
Total
£m
1 February 2022 to 31 July 2022
22.1
17.0
2.5
41.6
0.8
42.4
1 August 2022 to 31 January 2023
15.6
16.5
3.8
35.9
0.4
36.3
1 February 2023 to 31 July 2023
12.5 1.4
–0.6
14.5
14.5
1 August 2023 to 31 January 2024
10.0
–0.7
0.2 10.9
10.9
Total
60.2
35.6
7.1
102.9
1.2
104.1
During the year, the Group recognised net gains of £2.1m (2021: £6.0m gains) on cash flow hedging instruments through OCI
into the hedging reserve. Additionally, the Group recognised net gains of £nil (2021: £16.3m gains) through OCI into the
hedging reserve, in relation to the specific hedging instrument for the acquisition of two new ships. The overall net gains were
£2.1m (2021: £22.3m gains). The Group has recognised £nil gains (2021: £nil) through the income statement in respect of the
ineffective portion of hedges measured during the year.
During the year, the Group has de-designated 96 foreign currency forward contracts, with a transaction value of £18.8m,
where forecast cash flows are no longer expected to occur with a sufficiently high degree of certainty to meet the
requirements of IFRS 9. The accumulated gains in relation to these contracts of £0.7m have been reclassified from the
hedging reserve into profit or loss during the year. The Group has not de-designated any fuel oil swaps during the year. During
the year, the Group recognised a £1.2m gain (2021: £2.5m gain) through the income statement in respect of matured hedges
which have been recycled from OCI. In the prior year the Group also recognised a £2.7m loss in property, plant and
equipment, in respect of matured hedges which have been recognised directly from the hedging reserve.
19 Financial assets and financial liabilities
continued
Saga plc Annual Report and Accounts 2022
166
20 Financial risk management objectives and policies
The Group’s principal financial liabilities comprise loans and borrowings, and trade and other payables. The main purpose of
the loans and borrowings financial liabilities is to finance the Group’s operations and to provide guarantees to support its
operations. The Group’s principal financial assets include debt securities, deposits with financial institutions, money market
funds, loan funds, and trade and other receivables, and cash and short-term deposits. The Group also enters into derivative
transactions such as foreign exchange forward contracts, fuel and gas oil swaps and interest rate swaps to manage its
exposures to various risks.
The Group is exposed to market risk, credit risk, liquidity risk, insurance risk and operational risk. The Group’s senior
management oversees these risks, supported by the Group Treasury function and Treasury Committees within the key areas
of the Group that advise on financial risks and the appropriate financial risk governance framework for the Group. These
functions and Committees ensure that the Group’s financial risks are governed by appropriate policies and procedures and
that financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives. All
derivative activities are for risk management purposes and are carried out by the Group’s Treasury function. It is the Group’s
policy that no trading in derivatives for speculative purposes may be undertaken.
The Group manages concentration risk on its financial assets through a policy of diversification that is outlined in the Group
Treasury Policy and approved by the Board. The policy defines the exposure limit by asset class and to third-party institutions
based on the credit ratings of the individual counterparties, combined with the views of the Board. On a monthly basis,
exposure to each asset class and counterparty is calculated and reported, and compliance with the policy is monitored.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.
a) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market
prices. The Group is exposed to the following market risk factors:
•
Foreign currency risk
•
Commodity price risk
•
Equity prices
•
Interest rate risk
The Group has policies and limits approved by the Board for managing the market risk exposure. These set out the principles
that the business should adhere to for managing market risk and establishing the maximum limits that the Group is willing to
accept considering strategy, risk appetite and capital resources. The Group has the ability to monitor market risk exposure
on a daily basis and has established limits for each component of market risk.
The Group uses derivatives for hedging its exposure to foreign currency and fuel oil price risks. The market risk policy
explicitly prohibits the use of derivatives for speculative purposes. For risk exposures that the Group hedges and for which
the Group applies hedge accounting, ineffectiveness may arise if the timing of the forecast transaction changes from what
was originally estimated, or if there are changes in the credit risk of the derivative counterparty. Hedge effectiveness is
determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments, to
ensure that an economic relationship exists between the hedged item and hedging instrument. The hedge ratio of the hedging
relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the
quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
Equity exposures are managed within allocation parameters agreed by the Board and with reference to agreed benchmarks.
i) Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of a financial asset or liability will fluctuate because of
changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily
tothe Group’s operating activities (when revenue or expense is denominated in a different currency from the Group’s
functional currency).
The Group uses foreign exchange forward contracts to manage the majority of its transaction exposures. The foreign
exchange forward contracts, some of which are formally designated as hedging instruments, are entered into for periods
consistent with the foreign currency exposure of the underlying transactions, generally from one to 24 months. The foreign
exchange forward contracts vary with the level of expected foreign currency sales and purchases.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
167
Notes to the financial statements
continued
20 Financial risk management objectives and policies
continued
a) Market risk
continued
i) Foreign currency risk
continued
The following table demonstrates the sensitivity of the fair value of forward exchange contracts to a 5% change in US dollar
and Euro exchange rates, with all other variables held constant. The Group’s exposure to foreign currency changes for all
other currencies is not material. The impact is shown net of tax at the current rate.
Sensitivity of +/– 5% forex
rate change in
Effect on the fair value of
forward exchange
contracts
Effect on profit after tax
and equity
2022
EUR
+/– £3.5m +/– £0.7m
USD
+/– £2.1m +/– £0.4m
2021
EUR
+/– £3.5m +/– £1.4m
USD
+/– £2.5m +/– £0.5m
To the extent that forward exchange contracts are held as part of effective hedging relationships, any change to the fair value
of the instrument will be offset by an equal and opposite change to the cost of the hedged item, resulting in no effect on profit
after tax and equity.
ii) Commodity price risk
The Group is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchase of
fuel and gas oil to sail its cruise ships and therefore require a continuous supply of fuel and gas oil. The volatility in the price of
fuel and gas oil has led to the decision to enter into commodity fuel and gas oil swap contracts. These contracts are expected
to reduce the volatility attributable to price fluctuations of fuel and gas oil. Managing the price volatility of forecast oil
purchases is in accordance with the risk management strategy outlined by the Board of Directors.
The Group manages the purchase price using forward commodity purchase contracts based on future forecast fuel oil requirements.
The following table shows the sensitivity of the fair value of fuel oil swaps to changes in the underlying fuel oil price (US dollar)
with all other variables held constant. The impact is shown net of tax at the current rate.
Sensitivity of +/– 5% rate
change in
Effect on profit after tax
and equity
2022
USD – Fuel oil price
+/– £0.0m
2021
USD – Fuel oil price
+/– £0.0m
iii) Interest rate risk
Interest rate risk arises primarily from medium and long-term investments in fixed interest securities. The market value of
these investments is affected by the movement in interest rates. This is managed by a policy of holding the majority of
investments to maturity by closely matching asset and liability duration.
It is also ensured that the investment portfolio has a diversified range of investments such that there is a combination of fixed
and floating rate securities, as well as other types of investment such as Retail Price Index (RPI) linked securities.
Interest rate risk also arises in respect of the Group’s borrowings where the interest rate attaching to those borrowings is
not fixed. Where the Group perceives there to be a significant interest rate risk, it manages its exposure to such risks by
purchasing interest rate caps to limit the risk.
The following table shows the sensitivity of financial assets and liabilities to changes in, SONIA as at 31 January 2022, and
LIBOR as at 31 January 2021 (Note 2.5). The impact is shown net of tax at the current rate.
Sensitivity of +/– 1%
rate change in
Effect on profit after tax
and equity
2022
SONIA
+/– £0.6m
2021
LIBOR
+/– £0.2m
Saga plc Annual Report and Accounts 2022
168
b) Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk in relation to its financial and reinsurance assets, outstanding
derivatives, and trade and other receivables. The Group assesses its counterparty exposure in relation to the investment of
surplus cash, fuel oil and foreign currency contracts, and undrawn credit facilities. The Group primarily uses published credit
ratings to assess counterparty strength and therefore define the credit limit for each counterparty in accordance with
approved treasury policies.
The credit risk in respect of trade and other receivables is generally limited as payment from customers is generally required
before services are provided. At 31 January 2022, the maximum exposure to credit risk for trade receivables by operating
segment was as follows:
2022
£m
2021
£m
Insurance
42.6
39.9
Travel
2.3
2.2
Other Businesses and Central Costs
2.3
5.2
47. 2
47.3
The variance between the quantum of the maximum exposure to credit risk for trade receivables (above) and total of trade
receivables presented in ‘Trade and other receivables’ (Note 23) primarily relates to insurance instalment gross premium
debtors due from customers, for which a corresponding related creditor exists with third-party insurers for the net premium.
In the event of payment obligation default by a customer no longer on risk, the impairment of the debtor balance by the Group
would lead to a corresponding reduction in the related creditor with, or refund of net premium from, the third-party insurer.
In the event of payment obligation default by a customer remaining on risk, the impairment of the debtor balance by the
Group would not lead to a corresponding reduction in the related creditor with, or refund of net premium from, the third-
party insurer, and the Group would bear the credit risk relating to the debtor balance.
The Group uses an allowance matrix to measure the ECLs of trade receivables from individual customers, which comprise a
very large number of small balances. The loss allowance required for these receivables is calculated in line with the simplified
method for trade receivables per IFRS 9, whereby lifetime ECLs are recognised irrelevant of the credit risk. The loss
allowance is based on a combination of: (i) aged debtor analysis; (ii) historical experience of write-offs for each receivable;
(iii)any specific indicators of credit deterioration observed; and (iv) management judgement. Loss rates are based on the
probability of a receivable progressing through successive stages of delinquency to write-off. Financial assets are written off
when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Group.
On that basis, the loss allowance as at 31 January 2022 and 31 January 2021 was determined as follows for trade receivables:
31 January 2022
Current
< 30
days
30-60
days
61-90
days
91-120
days
> 120
days
Total
Expected loss rate
1%
13%
4%
6%
4%39%
Gross carrying amount – trade receivables
(Note23)
£101.7m
£1.2m
£10.7m£0.5m £0.4m £0.4m
£114.9m
Loss allowance (Note 23)
£0.6m £0.2m £0.0m £0.0m £0.0m
£4.2m
£5.0m31 January 2021
Current
< 30
days
30-60
days
61-90
days
91-120
days
> 120
days
Total
Expected loss rate
0%
25%
63%38%
29%
22%
Gross carrying amount – trade receivables
(Note23)
£107.5m
£1.6m
£0.8m
£131.6m£0.7m
£0.9m£20.1m
Loss allowance (Note 23)
£0.1m
£0.4m £0.3m £0.2m £0.2m
£12.7m
£13.9m
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
169
Notes to the financial statements
continued
The loss allowance for trade receivables reconciles to the opening allowances as follows:
2022
£m
2021
£m
Opening loss allowance at 1 February
13.9
21.2
Decrease in loan loss allowance recognised in profit or loss during the year
(8.3)
(5.5)
Receivables written off during the year as uncollectable
(0.5)
(1.7)
Unused amount reversed
(0.1) (0.1)
Closing loss allowance at 31 January
5.0
13.9
The Group’s loss allowance has reduced during the current year following the outsourcing of the Insurance segment’s credit
hire business during the period.
Credit risk in relation to deposits, debt securities and derivative counterparties is managed by the Group’s Treasury function
in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within
credit limits assigned to each counterparty. Counterparty credit limits are reviewed on a regular basis and updated
throughout the year subject to approval by the Board. The limits are set to minimise the concentration of risks and therefore
mitigate financial loss through any potential counterparty failure.
The Group is exposed to the risk of default on the reinsurance arrangements in its insurance business when amounts
recoverable under those arrangements become due. The Group has entered into a funds-withheld quota share reinsurance
contract to reduce its exposure to credit risk. Credit risk in respect of reinsurance arrangements is assessed at the time of
entering into a reinsurance contract. The Group’s reinsurance programme is only placed with reinsurers which meet the
Group’s financial strength criteria.
The Group’s maximum exposure to credit risk for the components of the statement of financial position at 31 January 2022
and 31 January 2021 is the gross carrying amount except for derivative financial instruments. The Group’s maximum exposure
for financial guarantees and financial derivative instruments is noted under liquidity risk. None of the financial assets were
impaired at the reporting date.
The Group’s financial assets and reinsurance assets are analysed by Moody’s credit risk rating as follows:
Ratings analysis
31 January 2022
£m
AAA AA
A
BBB
Unrated
Total
Debt securities
20.2
94.4
280.868.0
98.2
–
Money market funds
29.2
– – – –
29.2Deposits with financial institutions
– – –
14.0
–14.0
Derivative assets
– –
1.8
–0.1
1.9
Loan funds
– – – –
6.2 6.2
49.4
94.4
83.8
98.3
6.2
332.1
Reinsurance assets
– –
36.3
–29.1
65.4
Total
49.4
130.7
112.9
98.3
6.2
397.5
31 January 2021
£m
AAA AA
A
BBB
Unrated
Total
Debt securities
23.1
261.973.9
71.5
93.4
–
Money market funds
66.8
– – – –
66.8Deposits with financial institutions
– – –
24.2
–24.2
Derivative assets
– –
0.2 0.5
–0.7
Loan funds
– – – –
6.2 6.2
89.9
98.1
359.871.7
93.9
6.2
Reinsurance assets
– –
39.7
–31.9
71.6
Total
89.9
137.8
103.6
93.9
6.2
431.4
20 Financial risk management objectives and policies
continued
b) Credit risk
continued
Saga plc Annual Report and Accounts 2022
170
c) Liquidity risk
Liquidity risk is the risk that the Group, although solvent, either does not have available sufficient financial resources to enable
it to meet its obligations as they fall due or can secure them only at excessive cost. The Group’s approach to managing
liquidity risk is to evaluate current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash
or availability on its RCF. The Group manages its obligations to pay claims to policyholders as they fall due by matching the
maturity of investments to the expected maturity of claims payments.
The table below analyses the maturity of the Group’s financial liabilities and insurance contract liabilities on contractual
payments. The analysis of non-derivative financial liabilities is based on the remaining period at the reporting date to the
contractual maturity date. The analysis of claims outstanding is based on the expected dates on which the claims will be
settled and is before discounting, gross of reinsurance.
31 January 2022
£m
On demand
Less than
1 year
1 to 2
years
2 to 5
years
Over
5 years
Total
Bonds and bank loans
–
46.4
62.2
572.0 235.0
915.6
Interest on bonds and bank loans
–
32.7
31.3
65.4
20.0
149.4
Insurance contract liabilities
–
88.0
50.1
76.8
115.9
330.8
Derivative liabilities
– –
3.7
–0.3
4.0
–
170.8
143.9 714.2
370.91,399.8
31 January 2021
£m
On demand
Less than
1 year
1 to 2
years
2 to 5
years
Over
5 years
Total
Bonds and bank loans
9
– –
46.4
500.1 289.1
835.6
Interest on bonds and bank loans
–
27.4
26.5
27.946.9
128.7
Insurance contract liabilities
–
88.9
64.3
92.7
144.8
390.7Derivative liabilities
– –
2.1
–1.5
3.6
–
118.4
138.7 639.7
461.8
1,358.6
d) Insurance risk
Insurance risk arises from the inherent uncertainties as to the occurrence, cost and timing of insured events that could lead
to significant individual or aggregated claims in terms of quantity or value. This could be for a number of reasons, including
weather-related events, large individual claims, changes in claimant behaviour patterns such as increased levels of fraudulent
activities, the use of PPOs, prospective or retrospective legislative changes, unresponsive and inaccurate pricing or reserving
methodologies and the deterioration in the Group’s ability to effectively and efficiently handle claims while delivering excellent
customer service.
The Group manages insurance risk within its risk management framework as set out by the Board. The key policies and
processes of mitigating these risks have been implemented, which include underwriting partnership arrangements,
reinsurance excess of loss contracts, pricing policies and claims management, and administration policies.
i) Underwriting and pricing risk
The Group primarily underwrites motor insurance for private cars in the UK. The book consists of a large number of individual
risks which are widely spread geographically, which helps to minimise concentration risk. The Group has controls in place to
restrict access to its products to only those risks that it wishes to underwrite.
The Group has management information to allow it to monitor underwriting performance on a continuous basis and the ability
to make pricing and underwriting changes quickly. The Group undertakes detailed statistical analysis of underwriting
experience for each rating factor and combination of rating factors, to enable it to adjust pricing for emerging trends.
ii) Reserving risk
Reserving risk is the risk that insufficient funds have been set aside to settle claims as they fall due. The Group undertakes
regular internal actuarial reviews and commissions external actuarial reviews at least once a year. These reviews estimate the
future liabilities in order to consider the adequacy of the provisions.
Claims which are subject to PPOs are a significant source of uncertainty in the claim’s reserves. Cash flow projections are
undertaken for PPO claims to estimate the gross and net of reinsurance provisions required. PPO provisions are discounted
to reflect expectations of future investment returns and cost inflation.
In the year to 31 January 2022, the Group considered the additional latency risk to claims cost development caused by the
impact of the COVID-19 pandemic and recognised an additional claims reserve above actuarial best estimate to cover this
specific risk. The latency risk provision in relation to the COVID-19 pandemic has been reduced since 31 January 2021
reflective of the improvement in the COVID-19 outlook.
9 In March 2021, the Group reached agreement of a one-year extension to the debt deferral on its cruise ship facilities (Note 30). This has resulted in the debt
repayments on the cruise ship facilities within the bonds and bank loans profile disclosed above being amended for this one-year deferral
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
171
Notes to the financial statements
continued
iii) Reinsurance
The Group purchases reinsurance to reduce the impact of individual large losses or accumulations from a single catastrophic
event. During 2018, the Group entered into a funds-withheld quota share reinsurance contract that reinsures 80% of the
Group’s motor claims risks limited by a loss ratio cap of 130%, effective from 1 February 2019. Prior to this, the Group had a
funds-withheld quota share reinsurance contract in place that reinsured 75% of the Group’s motor claims risks limited by a loss
ratio cap of 120%. The Group also purchases individual excess of loss protections for the motor portfolio to limit the impact of
asingle large claim. Similar protections are in place for all years for which the Group has underwritten motor business.
Reinsurance recoveries on individual excess of loss protections can take many years to collect, particularly if a claim is subject
to a PPO. This means that the Group has exposure to reinsurance credit risk for many years. Reinsurers are therefore
required to have strong credit ratings and their financial health is regularly monitored.
iv) Sensitivities
The following table demonstrates the impact on profit and loss and equity of a five-percentage point variation in the recorded
loss ratio at 31 January 2022 and 31 January 2021. The impact of a 5% change in claims outstanding is also shown at the same
dates. The impact is shown net of reinsurance and tax at the current rate. The impact to the statement of financial position as
at 31 January 2022 and 31 January 2021 of a 0.25% percentage point change in discount rate for PPOs is also shown.
2022
2021
Impact of a five-percentage point change in loss ratio
+/– £3.3m
+/– £3.2m
Impact of 5% change in claims outstanding
+/– £4.1m
+/– £4.6m
Impact of a 0.25 percentage point change in discount rate for PPOs
+/– £2.2m
+/– £3.2m
e) Operational risk
Effective operational risk management requires the Group to identify, assess, manage, monitor, report and mitigate all areas
of exposure. The Group operates across a range of segments and operational risk is inherent in all of the Group’s products
and services, arising from the operation of assets, from external events and dependencies, and from internal processes
andsystems.
The Group manages its operational risk through the risk management framework agreed by the Board, and through the use
ofrisk management tools which, together, ensure that operational risks are identified, managed and mitigated to the level
accepted, and that contingency processes and disaster recovery plans are in place. Regular reporting is undertaken to
segment boards and includes details of new and emerging risks, as well as monitoring of existing risks. Testing of contingency
processes and disaster recovery plans is undertaken to ensure the effectiveness of these processes. The resilience of the
Group’s disaster recovery plans was demonstrated during the COVID-19 lockdown. The Group was able to quickly move
office-based colleagues to working from home arrangements, ensuring that it was able to continue to support existing and
new customers through the contact centre and support functions.
All of the Group’s operations are dependent on: the proper functioning of its IT and communication systems; its properties and
other infrastructure assets; the need to adequately maintain and protect customer and employee data and other information;
and the ability of the Group to attract and retain colleagues. Specific areas of operational risk by segment include:
i) Insurance
The Insurance segment is required to comply with various operational regulatory requirements, primarily in the UK but also
within Gibraltar for its Underwriting business. To the extent that significant external events could increase the incidence of
claims, these would place additional strain on the claims handling function but any financial impact of such an event is
considered to be an insurance risk.
ii) Travel
The Travel segment operates two cruise ships, which are the Group’s largest trading assets. Risk to the operation of these
cruise ships arises from the impact of mechanical or other malfunction, non-compliance with regulatory requirements, and
from global weather and socio-economic events. The tour holidays operated by the segment are also affected by global
weather and socio-economic events which impact either the Group directly, or its suppliers. The Travel segment is in
operation with multiple suppliers which minimises the impact of any socio-economic events affecting its suppliers. The
COVID-19 pandemic has created an unprecedented challenge for the Group and a high level of uncertainty for all companies.
Further detail relating to this is provided within the basis of preparation and going concern sections in Note 2.1 on
pages126-127.
iii) Other Businesses and Central Costs
The financial services business is required to comply with various operational regulatory requirements in the UK.
20 Financial risk management objectives and policies
continued
d) Insurance risk
continued
Saga plc Annual Report and Accounts 2022
172
21 Interests in unconsolidated structured entities
A structured entity is defined as an entity that has been designed so that voting or similar rights are not the dominant factor
in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the relevant
activities are directed by means of contractual agreements. The Group has interests in unconsolidated structured entities in
the form of investment funds comprising:
•
bank loan funds; and
•
money market funds.
The nature and purpose of the bank loan funds are to diversify the investment portfolio and enhance the overall yield, whilst
maintaining an acceptable level of risk for the portfolio as a whole.
Bank loan funds invest in secured loans to companies rated below investment grade.
The nature and purpose of the money market funds is to provide maximum security and liquidity for the funds invested whilst
also providing an adequate return. The money market funds used by the Group are all members of the Institutional Money
Market Funds Association. They are thus required to maintain specified liquidity and diversification characteristics of their
underlying portfolios, which comprise investment grade investments in financial institutions.
The Group invests in unconsolidated structured entities as part of its investment activities. The Group does not sponsor any
of the unconsolidated structured entities.
At 31 January 2022, the Group’s total interest in unconsolidated structured entities was £35.4m analysed as follows:
Carrying
value
£m
Interest
income
£m
Fair value
gains
£m
Loan funds
6.2
0.2
–
Money market funds
29.2
– –
These investments are typically managed under credit risk management as described in Note 20. The Group’s maximum
exposure to loss on the interests presented above is the carrying amount of the Group’s investments. No further loss can be
made by the Group in relation to these investments. For this reason, the total assets of the entities are not considered
meaningful for the purposes of understanding the related risks and so have not been presented.
22 Inventories
2022
£m
2021
£m
Raw materials
0.3 0.2
Technical stocks
2.3
1.5
Finished goods
3.7
1.8
6.3
3.5
Technical stocks are spare parts for the Group’s ocean cruise ships. Finished stocks primarily relate to ocean cruise ship fuel,
food, bar and sundry stocks.
23 Trade and other receivables
2022
£m
2021
£m
Trade receivables (Note 20b)
114.9 131.6
Loss allowance (Note 20b)
(5.0) (13.9)
109.9
117.7
Other receivables
17.3
33.0
Prepayments
16.8 11.4
Contract cost assets (Note 3b)
2.6
2.9
Deferred acquisition costs
18.2
15.1
Other taxes and social security costs
4.7
3.0
169.5
183.1
An explanation of how the Group manages and measures the credit risk of trade receivables can be found in Note 20b. The
Group expects trade and other receivables to be normally settled within 12 months. Due to the short-term nature of the
current receivables, their carrying amount is considered to be the same as their fair value.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
173
Notes to the financial statements
continued
24 Trust accounts
The Civil Aviation Authority (CAA) and Association of British Travel Agents (ABTA) regulated the Travel business conducted
by the Group in the UK during the year. To comply with its regulatory obligations, the Group is required to arrange financial
security to protect customer monies, in addition to making ATOL Protection Contributions, which the Group pays into the
AirTravel Trust Fund.
From 25 September 2020, the Group changed its method of customer protection for ATOL licensable bookings from
financial security bonds to paying customer monies into trust (
Trust Accounting
). Under Trust Accounting, all monies the
Group receives from customers in respect of ATOL licensable holiday packages sold, are held in trust until such time as the
Group has fulfilled all its obligations to the customer. The trust is administered and controlled by an independent Trustee,
PTTrustees Limited. Interest arising from the funds held on trust belongs to the Group.
With the introduction of Trust Accounting during the prior year, the Group is no longer required to hold financial security
bonds in relation to ATOL bookings. In relation to ABTA bookings a bonding requirement still exists (Note 37c).
25 Cash and cash equivalents
2022
£m
2021
£m
Cash at bank and in hand
174.6
94.4
Short-term deposits
52.3
7.2
Cash and short-term deposits
226.9
101.6
Money market funds
29.2
66.8
Bank overdraft
(0.4)
(1.5)
Cash and cash equivalents in the cash flow statement
255.7
166.9
Included within cash and cash equivalents are amounts held by the Group’s Travel and Insurance businesses, which are
subject to contractual or regulatory restrictions (Note 35). These amounts held are not readily available to be used for other
purposes within the Group and total £69.1m (2021: £91.5m). Available Cash
10
excludes these amounts and any amounts held
by disposal groups.
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying
periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn
interest at the respective short-term deposit rates.
The bank overdraft is subject to a guarantee in favour of the Group’s bankers and is limited to the amount drawn. The bank
overdraft is repayable on demand.
26 Trade and other payables
2022
£m
2021
£m
Trade payables
124.8
115.5
Other payables
5.8
5.1
Other taxes and social security costs
9.4
8.4
Assets in the course of construction
3.8
4.4
Accruals
55.9
41.7
199.7
175.1
All trade and other payables are current in nature. The carrying amounts of trade and other payables are considered to be the
same as their fair values, due to their short-term nature.
27 Retirement benefit schemes
The Group operates retirement benefit schemes for the employees of the Group consisting of defined contribution plans and
a defined benefit plan.
a) Defined contribution plans
There are three defined contribution schemes in the Group at 31 January 2022 (2021: two). The total charge for the year in
respect of the defined contribution schemes was £4.5m (2021: £3.2m).
The assets of these schemes are held separately from those of the Group in funds under the control of Trustees.
10 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
174
b) Defined benefit plan
The Group operated a funded defined benefit scheme, the Saga Pension Scheme, which was closed to future accrual on
31October 2021 (see below). From 1 November 2021, members moved from active to deferred status, with future indexation
of deferred pensions before retirement measured by reference to the Consumer Price Index (CPI). During the year, a net
expense of £2.0m was recognised as a past service cost (within administrative and selling expenses) relating to the closure.
The assets of the scheme are held separately from those of the Group in independently administered funds.
The scheme is governed by the employment laws of the UK. The level of benefits provided depends on the member’s length
ofservice and average salary whilst a member of the scheme. The scheme requires contributions to be made to a separately
administered fund which is governed by a Board of Trustees and consists of an equal number of employer and employee
representatives. The Board of Trustees is responsible for the administration of the plan assets and for the definition of the
investment strategy.
The long-term investment objectives of the Trustees and the Group are to limit the risk of the assets failing to meet the
liabilities of the scheme over the long term, and to maximise returns consistent with an acceptable level of risk so to control
the long-term costs of the scheme. To meet those objectives, the scheme’s assets are invested in different categories of
assets, with different maturities designed to match liabilities as they fall due. The investment strategy will continue to evolve
over time and is expected to match the liability profile increasingly closely. The pension liability is exposed to inflation rate
risks and changes in the life expectancy of members. As the plan assets include investments in quoted equities, the Group is
exposed to equity market risk. The Group has provided super security to the Trustees of the scheme, which ranks before any
liabilities under the senior facilities agreement (as detailed in Note 30). The value of the security has been increased from
being capped at £32.5m, to being capped at £47.5m, under the latest triennial valuation of the scheme as at 31 January 2020,
which was completed early in the current year.
The fair value of the assets and present value of the obligations of the Saga defined benefit scheme are as follows:
2022
£m
2021
£m
Fair value of scheme assets
412.0 411.2
Present value of defined benefit obligation
(410.9) (415.5)
Defined benefit scheme asset/(liability)
1.1
(4.3)
The present values of the defined benefit obligation, the related current service cost and any past service costs have been
measured using the projected unit credit valuation method.
The following table summarises the components of the net benefit expense recognised in the income statement, OCI and
amounts recognised in the statement of financial position for the scheme for the year ended 31January 2022:
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
Defined
benefit
scheme
(liability)/
surplus
£m
At 1 February 2021
411.2
(415.5) (4.3)
Pension cost charge to income statement
Current service cost paid in cash during the period –
(3.9) (3.9)
Non-cash current service cost uplift
–
(1.6) (1.6)
Total current service cost
–
(5.5) (5.5)
Past service costs
–
(2.0) (2.0)
Net interest
5.9
(5.9)
–
Included in income statement
5.9
(13.4)
(7.5)
Benefits paid
(7.5) 7.5
–Return on plan assets (excluding amounts included in net interest expense)
(5.8)
–(5.8)
Actuarial changes arising from changes in demographic assumptions
–
(5.3) (5.3)
Actuarial changes arising from changes in financial assumptions
–
16.2 16.2
Experience adjustments
–
(0.3) (0.3)
Sub-total included in other comprehensive income
(13.3)
18.1
4.8
Total contributions by employer
8.2
(0.1)
8.1
At 31 January 2022
412.0
(410.9)
1.1
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
175
Notes to the financial statements
continued
27 Retirement benefit schemes
continued
b. Defined benefit plan
continued
The following table summarises the components of the net benefit expense recognised in the income statement, OCI and
amounts recognised in the statement of financial position for the scheme for the year ended 31January 2021:
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
Defined
benefit
scheme
liability
£m
At 1 February 2020
372.3
(377.8)
(5.5)
Pension cost charge to income statement
Current service cost paid in cash during the period –
(5.4) (5.4)
Non-cash current service cost uplift
–
(2.6) (2.6)
Total current service cost
–
(8.0) (8.0)
Net interest
6.3 (6.3)
–
Included in income statement
6.3
(14.3)
(8.0)
Benefits paid
(9.6)
–9.6
Return on plan assets (excluding amounts included in net interest expense)
31.5
–31.5
Actuarial changes arising from changes in demographic assumptions
–
6.2 6.2
Actuarial changes arising from changes in financial assumptions
–
(24.7) (24.7)
Experience adjustments
–
(14.2) (14.2)
Sub-total included in other comprehensive income
21.9
(23.1)
(1.2)
Total contributions by employer
10.7
(0.3)
10.4
At 31 January 2021
411.2
(415.5) (4.3)
The major categories of assets in the Saga scheme are as follows:
2022
£m
2021
£m
Equities
50.2
51.7
Bonds
159.4
203.0
Property and alternatives
58.4
39.6
Hedge funds
133.5
99.8
Insured annuities
5.3
6.1
Cash and other
5.2
11.0
Total
412.0
411.2
Equities and bonds are all quoted in active markets, whilst property and hedge funds are not. The impact of COVID-19 over
the past two years has increased the level of uncertainty and volatility in global financial markets and these continue to react
to the pandemic. The COVID-19 pandemic continues to be an unprecedented event and the eventual impact on the global
economy and markets will largely depend on the scale and duration of the outbreak and related variants. Whilst the ultimate
extent of the effect of this on the asset portfolio is not possible to quantify at this time, management has used the latest
available fund pricing data to derive the valuations of assets which are not quoted in active markets.
The principal assumptions used in determining pension benefit obligations for the Saga scheme are shown below:
2022
2021
Real rate of increase in salaries
–
2.60%
Real rate of increase of pensions in payment
3.45%
2.70%
Real rate of increase of pensions in deferment
3.30%
2.55%
Discount rate – pensioner
2.20%
1.35%
Discount rate – non-pensioner
2.15%
1.45%
Inflation – pensioner
3.80%
2.80%
Inflation – non-pensioner
3.60%
2.60%
Life expectancy of a member retiring in 20 years’ time – Male
27.8 yrs
27.2 yrs
Life expectancy of a member retiring in 20 years’ time – Female
29.5 yrs
29.0 yrs
Saga plc Annual Report and Accounts 2022
176
In the current year, management decided to take a more prudent approach to the derivation of the inflation rate assumption,
aligning this to the most recent Trustees’ valuation by removing the inflation risk premium applied previously. The impact of
this change in assumption was a £19.0m uplift in the defined benefit obligation as at 31 January 2022.
Mortality assumptions are set using standard tables based on specific experience, where available, and allow for future
mortality improvements. The Saga scheme assumption is that a member currently aged 60 will live on average for a further
26.2 years if they are male and on average for a further 28.0 years if they are female.
A quantitative sensitivity analysis for significant assumptions as at 31 January 2022 and their impact on the scheme liabilities
is as follows:
Assumptions
Discount rate
Future inflation
Life expectancy
Sensitivity
+/– 0.25% +/– 0.25%
+/– 1 year
Increase Decrease Increase Decrease Increase Decrease
Impact £m
(23.3)
25.2
(10.3)11.9
14.4
(14.0)
Note: a positive impact represents an increase in the net defined benefit liability.
The sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. When
calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method has been
applied as when calculating the pension liability recognised within the statement of financial position. The methods and types
of assumption used in preparing the sensitivity analysis did not change compared to the prior period.
The expected contribution, in respect of the accrual of benefits, payable to the Saga scheme for the next financial year is £nil
and the average duration of the defined benefit plan obligation at the end of the reporting period is 22 to 23 years. Formal
actuarial valuations take place every three years for the scheme. The assumptions adopted for actuarial valuations are
determined by the Trustees and are agreed with the Group, and are normally more prudent than the assumptions adopted
for IAS 19 purposes, which are best estimate. Where a funding deficit is identified, the Group and the Trustees may agree a
deficit recovery plan to pay additional contributions above those needed to fund the scheme.
The Group’s latest triennial valuation of the Saga Scheme defined benefit plan as at 31 January 2020 was completed during
the year. Saga plc, and certain guarantor subsidiaries in the Group, have provided a super security to the Trustees of the Saga
Scheme, which ranks before any liabilities under the Group’s bank facilities. The value of the security has been increased from
being capped at £32.5m, to being capped at £47.5m under the latest triennial valuation. Further to this valuation, a recovery
plan is in place for the scheme. Under an agreed deficit recovery plan totalling £39.0m, the Group made an additional
payment of £4.2m during the year ended 31 January 2022 and will make annual payments of £5.8m totalling a further £34.8m
over the next six financial years, with the last payment being made on 29 February 2027. The total expected contributions in
the year ending 31 January 2023 are £5.8m and entirely relate to the £5.8m additional payment.
The Group has also agreed to pay additional amounts into an Escrow account should asset returns fall below an agreed level
over set periods of time. Dependent upon the level of return on the scheme’s assets between 31 January 2020 and 31 January
2027, any amount in the Escrow account will be released to either the Group or the scheme by 30 June 2027.
The International Financial Reporting Interpretations Committee (IFRIC) has published an interpretation of IAS 19 (IFRIC 14)
which is effective for accounting years commencing on or after 1 January 2008. It concerns the treatment of surpluses and
the impact of statutory funding requirements. Having taken external legal advice with regard to the rights of the Group under
the Trust deeds and rules, management is comfortable that the Group has an unconditional right to a refund of a surplus.
c. Pension consultation
In July 2021, following the completion of a review of the Group’s pension arrangements, a consultation process with active
members was launched. The consultation process concluded during October, and with effect from 31 October 2021, the
Group closed both its existing schemes to future accrual: the Saga Pension Scheme (its defined benefit plan) and the Saga
Workplace Pension Plan (its defined contribution plan). In their place, the Group launched a new defined contribution pension
scheme arrangement, operated as a Master Trust. This move served to reduce the risk of further deficits developing in the
future on the defined benefit scheme, whilst moving to a fairer scheme for all colleagues.
As a result of the Saga Pension Scheme closure, a £2.0m net expense has crystallised in the income statement as a past
service cost. This expense was driven by a £2.5m debit from an increase in scheme liabilities due to all members becoming
deferred members upon closure. This was offset by a £0.5m credit from the removal of the ill-health benefit post closure.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
177
Notes to the financial statements
continued
28 Insurance contract liabilities and reinsurance assets
The analysis of gross and net insurance liabilities is as follows:
2022
£m
2021
£m
Gross
Claims outstanding
292.8
329.5
Provision for unearned premiums
93.9
96.8
Total gross liabilities
386.7
426.3
2022
£m
2021
£m
Recoverable from reinsurers
Claims outstanding
59.1
65.2
Provision for unearned premiums
6.3
6.4
Total reinsurers’ share of insurance liabilities (as presented on the face of the statement of
financial position)
65.4
71.6
Amounts recoverable under funds-withheld quota share agreements recognised within trade payables:
– Claims outstanding
133.0
147.1
– Provision for unearned premiums
50.7
55.9
Total reinsurers’ share of insurance liabilities after funds-withheld quota share
249.1
274.6
Analysed as:
Claims outstanding
192.1
212.3
Provision for unearned premiums
57.0
62.3
Total reinsurers’ share of insurance liabilities after funds-withheld quota share
249.1
274.6
2022
£m
2021
£m
Net
Claims outstanding
233.7
264.3
Provision for unearned premiums
87.6
90.4
Total net insurance liabilities
321.3
354.7
Amounts recoverable under funds-withheld quota share agreements recognised within trade payables:
– Claims outstanding
(133.0)
(147.1)
– Provision for unearned premiums
(50.7)
(55.9)
Total net insurance liabilities after funds-withheld quota share
137.6
151.7
Analysed as:
Claims outstanding
100.7
117.2
Provision for unearned premiums
36.9
34.5
Total net insurance liabilities after funds-withheld quota share
137.6
151.7
Saga plc Annual Report and Accounts 2022
178
Reconciliation of movements in claims outstanding
2022
£m
2021
£m
Gross claims outstanding at 1 February
329.5
352.1
11
Less: reinsurance claims outstanding
(212.3)
(203.0)
11
Net claims outstanding at 1 February
117.2
149.1
Gross claims incurred
94.6
117.6
11
Less: reinsurance recoveries
(63.3)
(99.4)
11
Net claims incurred
31.3
18.2
Gross claims paid
(131.3)
(140.2)
Less: received from reinsurance
83.5
90.1
Net claims paid
(47.8)
(50.1)
Gross claims outstanding at 31 January
292.8
329.5
Less: reinsurance claims outstanding
(192.1)
(212.3)
Net claims outstanding at 31 January
100.7
117.2
Reconciliation of movements in the provision for net unearned premiums
2022
£m
2021
£m
Gross unearned premiums at 1 February
96.8
105.3
Less: unearned reinsurance premiums
(62.3)
(70.8)
Net unearned premiums at 1 February
34.5 34.5
Gross premiums written
200.1
213.2
Less: outward reinsurance premium
(118.5)
(134.3)
Net premiums written
81.6
78.9
Gross premiums earned
(203.0)
(221.7)
Less reinsurance premium earned 123.8
142.8
Net premiums earned (Note 3a)
(79.2)
(78.9)
Gross unearned premiums at 31 January
93.9
96.8
Less: unearned reinsurance premiums
(57.0)
(62.3)
Net unearned premiums at 31 January
36.9
34.5
The net cost of purchasing reinsurance in 2022 was £7.7m (2021: £7.8m).
The insurance liabilities presented here, and on the face of the Group’s statement of financial position, are based on an Ogden
discount rate of –0.25%.
a) Discounting
Claims outstanding provisions are calculated on an undiscounted basis, with the exception of PPOs made by the courts as
part of a bodily injury claim settlement. Claims outstanding provisions for PPOs are discounted at a rate of –1.5% (2021:
–1.5%) representing the Group’s view on long-term carer wage inflation, less the expected return on holding the invested
financial assets associated with these claims.
The value of claims outstanding before discounting was £330.8m (2021: £390.7m) gross of reinsurance and £109.2m (2021:
£133.4m) net of reinsurance.
The period between the statement of financial position date and the estimated final payment date was calculated using Ogden
life expectancy tables, with appropriate adjustments where necessary for impaired life. The average life expectancy from PPO
settlement date to the final PPO payment was 38 years (2021: 37 years) and the rate of investment return used to determine
the discounted value of claims provisions was 2.0% (2021: 2.0%).
11 Gross claims incurred and reinsurers’ share of claims incurred for the year ended 31 January 2021 have been restated due to an incorrect allocation between
these classifications. Gross claims incurred have decreased by £13.8m and reinsurers’ share of claims incurred has decreased by £13.8m. As a result of these
changes, gross claims outstanding at 1 February 2020 have increased by £13.8m and reinsurance claims outstanding at 1 February 2020 have increased by
£13.8m
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
179
Notes to the financial statements
continued
28 Insurance contract liabilities and reinsurance assets
continued
b) Analysis of claims incurred: claims development tables
The following tables detail the Group’s initial estimate of ultimate gross and net claims incurred over the past 10 years and the
re-estimation at subsequent financial period ends.
The following table (re-presented) analyses the gross incurred claims (before deducting reinsurance recoveries) on an
accident year basis:
Analysis of
claims
incurred
Financial year ended 31 January
Total
£m
Claims
paid
£m
Gross
claims
out-
standing
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
2020
£m
2021
£m
2022
£m
Accident
year
2013 and
earlier
279.0
(48.7)
(51.7)
(43.5)(51.0)
(28.2)
(15.7)
(11.9)
(9.7)(1.5)
n/a n/a
35.2
2014
287.1
14.6 (15.1)
(21.6) (14.3)
(8.4)
(9.8) (3.2) (3.7)
(0.2)
210.8
(196.2)
2015 231.6
12.9
(12.2)
(14.0)
(1.2)(16.5)
(8.6) (8.5)
183.5
(178.0)
5.5
2016
250.0
2.2
(11.0)
(33.1)
(1.9)(7.3)
(9.7)
189.2
(171.6)
17.6
2017
204.2
(14.6)(1.7) (13.7)
(9.5)
(2.2)
162.5
(154.6)
7.9
2018
196.9 5.4
(10.9)
(10.8)
(7.0)
173.6
(157.3)16.3
2019
185.4
4.5
(1.5)
(9.6)
178.8
(140.0)
38.8
2020
182.4
181.69.1
(9.9)
(142.4)
39.2
2021
142.9
(15.0)
127.9
(84.8)
43.1
2022 136.6 136.6
(69.9)
66.7
279.0 238.4 164.8
197.8
128.9
133.6 101.3 80.3
284.9 102.0
135.5 Claims
handling
costs
17.5 17.2
18.0 21.4 18.0
20.6
20.8 16.7
16.3
14.3
7.9
296.5 255.6 182.8 219.2 149.5 154.4 292.8
120.0
152.2 117.6
94.6 Favourable claims development over the year has resulted in a £56.3m (2021: £41.7m (re-presented)) reduction in the gross
claims incurred in respect of prior years.
The analysis of gross incurred claims (before deducting reinsurance recoveries) on an accident year basis above has been
re-presented due to errors in the allocation of claims across accident years, gross claims incurred in respect of PPOs and
claims handling costs in the table previously reported for the year ended 31 January 2021.
Due to the value of individual PPO claims incurred, these are fully recoverable under excess of loss reinsurance and therefore
this amendment has had no impact on net assets or net claims incurred in each financial year. For the financial year ended
31January 2021, gross claims incurred have decreased by £13.8m, with a corresponding decrease to the reinsurers’ share
ofgross claims incurred.
The re-presented development of the associated loss ratios on the same basis is as follows:
Financial year ended 31 January
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
2020
£m
2021
£m
2022
£m
Accident year
2013
78%
75%
68%
55%64%
60%
57%
56%
54% 54%
2014
76%
72%
67%
63%
61%
58%
57%
56% 56%
2015
70%
73%
70%66%
61%
58%
55% 55%
2016
77%
78%
75% 65%
62% 62%
59%
2017
70%
69%
65%
61%
56% 56%
2018
76%
78%
74%
70%
67%
2019
78%
80%
79%
75%
2020
78%
82%
78%2021
64%
58%
2022
67%
Saga plc Annual Report and Accounts 2022
180
The following table (re-presented) analyses the net incurred claims (after deducting reinsurance recoveries) on an accident
year basis:
Analysis of
claims
incurred
Financial year ended 31 January
Total
£m
Claims
paid
£m
Net
claims
out-
standing
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
12
£m
2020
12
£m
2021
12
£m
2022
£m
Accident
year
2013 and
earlier
269.6
(57.0)
(43.1) (49.4)
(42.9)
(25.5)
(17.2)
(2.3)(10.4)
(7.3)n/a n/a
14.8
2014
276.8
200.6 (14.7)
(23.4)
(11.0)
(9.8)
(10.9)(2.6)
(3.8)
–
(192.7)
7.9
2015
219.1
5.3
(11.1)(9.2)
(16.4)
5.1 (5.0)
( 7.9)
(1.0)173.8
(168.7)
2016
220.9 3.2
(15.1)
(22.5)
(9.1)(5.8)
(4.6)
167.0
(159.4)
7.6
2017
94.0 1.5
(3.8)
8.6 (1.9)
(3.6)(0.5)
85.7
(77.1)
2018
78.8
(0.8)
72.0 (1.6)
(2.7) (1.7)
(67.2)
4.8 2019
72.3
(0.2) (0.1) (2.0)
70.0
(58.9)
11.1
2020
55.9 0.6
(1.4)
55.1
(48.1)
7.0
2021
41.8
(4.9)
36.9
(28.2)
8.7
2022
43.7 43.7
(26.5)
17.2
269.6 219.8 25.3 92.8
161.3
153.4 34.1
18.8 0.7
11.2 25.1
Claims
handling
costs
17.4 17.2
18.0 21.5 11.5 10.5
8.9
5.7
13
7.0
13
7.9
287.0
237.0
179.3 18.2 31.3
174.9
29.3 45.6
9.6
30.8 100.7
The re-presented development of the associated loss ratios on the same basis is as follows:
Financial year ended 31 January
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
2020
£m
2021
£m
2022
£m
Accident year
2013
76%
72%
67%
62%
58%
56%
55%
54%
53% 53%
2014
75%
71%
65%62%
55%59%
56%
54% 54%
2015
67%
69%
66%
63%
58%
56%
54%
53%
2016
70%
71%
66%
59%
56%
54%
53%
2017
56% 56%
54%
53%
51% 51%
2018
66%
65%
64%
62%
60%
2019
71% 71% 71%
69%
2020
63%
64%
62%
2021
53%
47%
2022
55%
Favourable claims development over the year has resulted in a £18.4m (2021: £30.6m) reduction in the net claims incurred in
respect of prior years.
12 Net claims incurred by financial year have been amended and re-presented due to an incorrect allocation of claims across accident years
13 Claims handling costs for financial years ended 31 January 2020 and 31 January 2021 have been amended to correctly incorporate claims handling costs
borne by companies across the Group
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
181
Notes to the financial statements
continued
29 Contract liabilities
2022
£m
2021
£m
Deferred revenue (Note 3b)
114.6
82.2
114.6
82.2
Current
113.0
66.9
Non-current
1.6
15.3
114.6
82.2
Deferred revenue comprises amounts received within the Travel segment for holidays and cruises with departure dates after
the reporting date, and insurance premiums and sales revenues received in the Insurance segment in respect of insurance
policies which commence after the reporting date, and represents the performance obligations not yet satisfied as at
31January 2022. Contract liabilities have increased on the prior year due to the partial reversal in the current year of the
adverse impact of the COVID-19 pandemic on the Travel business which occurred in the year ended 31 January 2021.
30 Loans and borrowings
2022
£m
2021
£m
Bonds
400.0
250.0
Bank loan
–
70.0
Ship loans
515.6 515.6
Revolving credit facility
– –
Accrued interest payable
5.9
8.3
921.5
843.9
Less: deferred issue costs
(25.0)
(26.8)
896.5
817.1
Term loan, RCF and bonds
As at 31 January 2021, the Group’s financing facilities consisted of a £250.0m seven-year senior unsecured bond (repayable
May 2024), a £200.0m five-year term loan facility (repayable May 2023) and a £100.0m five-year RCF (expiry in May 2023).
The bond is listed on the Irish Stock Exchange.
In March 2021, the Group reached agreement with its banks to amend covenants on the term loan and RCF. Subsequently,
these were amended again in June 2021, when the Group announced a series of financing transactions intended to improve
its financial flexibility by increasing available liquidity, extending debt maturities and providing greater headroom against
covenants. On 2 July 2021, the Group completed the offering of a new £250.0m five-year senior unsecured bond and
tendered £100.0m of the existing seven-year £250.0m senior unsecured 2024 bond. The new bond is guaranteed by Saga
Services Limited and Saga Mid Co Limited. The proceeds of the new bond offering were used by the Group to repay in full its
existing £70.0m term loan, to fund the settlement of £100.0m of its existing outstanding unsecured 2024 bond and for
general corporate purposes.
As part of the above transactions, the Group also announced that it had reached agreement with its banks to amend the
covenants on its RCF. The covenants within the Group’s RCF were amended as follows:
•
Increase in the leverage ratio (excluding Cruise debt) covenant at 31 July 2022 and 31 January 2023 from 3.00x to 3.75x.
•
Reduction in the Group interest cover covenant at 31 January 2022 from 1.5x to 1.25x, at 31 July 2022 from 3.5x to 2.0x and
at 31 January 2023 from 3.5x to 2.5x.
In addition, the following amendments were also made:
•
Dividends remain restricted while leverage (excluding Cruise debt) is above 3.0x.
•
The Group remains subject to a minimum liquidity requirement of £40.0m, which can be met either through cash or
undrawn and committed facilities.
•
The maximum amount of liquidity that can be used to fund the Cruise business was increased from £55.0m to £115.0m.
•
The RCF maturity was extended to 31 May 2025. A requirement to repay the RCF on 1 March 2024 if the existing 2024
bond has not been redeemed prior to this date.
Interest on the 2024 bond is incurred at an annual interest rate of 3.375%. Interest on the 2026 bond is incurred at an annual
interest rate of 5.5%. Interest on the term loan and RCF was incurred at a variable rate of LIBOR plus a bank margin which is
linked to the Group’s leverage ratio.
Saga plc Annual Report and Accounts 2022
182
The Group adopted ‘Interest rate benchmark reform – phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)’
during the year (Note 2.5). In the UK, LIBOR was replaced by SONIA from the end of 2021. The Group took the decision to
transition to SONIA from LIBOR at the time it reached agreement with its banks to amend the covenants on its RCF (see
above). Subsequent to these amendments being adopted, interest payable on the Group’s RCF, if drawn down, is incurred at
avariable rate of SONIA plus a bank margin which is linked to the Group’s leverage ratio.
At 31 January 2022, the Group’s financing facilities consist of a £150.0m seven-year senior unsecured bond (repayable May
2024), a £250.0m five-year senior unsecured bond (repayable July 2026) and a £100.0m five-year RCF (expiry in May 2025).
The bonds are listed on the Irish Stock Exchange.
At 31 January 2022, the Group had drawn £nil of its £100.0m RCF and since the May 2017 refinancing, the £200.0m five-year
term loan has been repaid in full.
Accrued interest payable on the Group’s term loan, RCF and bonds at 31 January 2022 is £2.8m (2021: £5.1m).
Cruise ship loans
In June 2019, the Group drew down the financing for its cruise ship, Spirit of Discovery, of £245.0m. The financing for Spirit of
Discovery represents a 12-year fixed-rate sterling loan, backed by an export credit guarantee. The initial loan was repayable in
24 broadly equal instalments, with the first payment of £10.2m paid in December 2019. This financing is secured against Spirit
of Discovery cruise ship asset.
The Board announced on 22 June 2020 that it had secured a debt holiday and covenant waiver for the Group’s ship facilities.
The Group’s lenders agreed to a deferral of £32.1m in principal payments under the ship facilities that were due up to
31March 2021. These deferred amounts were to be paid between June 2021 and December 2024 for Spirit of Discovery and
between September 2021 and March 2025 for Spirit of Adventure, and interest remains payable.
On 29 September 2020, the Group drew down the financing for its new cruise ship, Spirit of Adventure, of £280.8m. The
financing for Spirit of Adventure represents a 12-year fixed-rate sterling loan, backed by an export credit guarantee. The loan
is repayable in 24 broadly equal instalments, with the first payment originally due six months after delivery in March 2021, but
initially deferred to September 2021 as a result of the debt holiday described above. This financing is secured against Spirit of
Adventure cruise ship asset.
In March 2021, the Group reached agreement of a one-year extension to the debt deferral on its cruise ship facilities. As part
of an industry-wide package of measures to support the cruise industry, an extension of the existing debt deferral was agreed
to 31 March 2022. The key terms of this deferral are:
•
all principal payments to 31 March 2022 (£51.8m) are deferred and repaid over five years;
•
all financial covenants until 31 March 2022 are waived;
•
dividends remain restricted while the deferred principal is outstanding; and
•
the Group is now subject to a minimum liquidity requirement of £40.0 million, which can be met through either cash or
undrawn and committed facilities.
After the year end, the Group concluded discussions with its Cruise lenders to amend the covenants on the two ship debt
facilities as follows:
•
Reduction in the EBITDA to debt repayment ratio from 1.2x to 1.0x for the periods from 31 July 2022 to 31 January 2024.
•
Reduction in the EBITDA to cash interest ratio from 2.0x to 1.7x as at 31 July 2022.
Please refer to Note 2.1 for further detail.
Interest on the Spirit of Discovery ship loan is incurred at an effective annual interest rate of 4.31% (including arrangement
and commitment fees). Interest on the Spirit of Adventure ship loan is incurred at an effective annual interest rate of 3.30%
(including arrangement and commitment fees).
Interest on the Group’s cruise ship debt deferrals was incurred at a variable rate of LIBOR plus a bank margin. As noted
above, the Group adopted ‘Interest rate benchmark reform – phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS16)’ during the year (Note 2.5). In the UK, LIBOR was replaced by SONIA from the end of 2021. Subsequent to these
amendments being adopted, interest payable on the Group’s cruise ship debt deferrals is incurred at a variable rate of SONIA
plus a bank margin. Amendments to the cruise ship debt facilities were executed in December 2021.
Accrued interest payable on the Group’s Cruise ship loans at 31 January 2022 is £3.1m (2021: £3.2m).
Total debt and finance costs
At 31 January 2022, debt issue costs were £25.0m (2021: £26.8m). The movement in the year represents an increase
following the issuance of the 2026 bond in July 2021, being more than offset by expense amortisation for the period.
During the year, the Group charged £37.4m (2021: £29.4m) to the income statement in respect of fees and interest
associated with the bonds, term loan, ship loans and RCF. In addition, finance costs recognised in the income statement
include £0.7m (2021: £0.8m) relating to interest and finance charges on lease liabilities and net fair value losses on derivatives
are £2.7m (2021: £nil). The Group has complied with the financial covenants of its borrowing facilities during the current year
and prior year.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
183
Notes to the financial statements
continued
31 Provisions
PMI
£m
Other
£m
Total
£m
At 1 February 2020
3.7
4.0
7.7
Utilised during the year
(2.8)
(1.2)
(4.0)
Released unutilised during the year
–
(1.1) (1.1)
Charge for the year
4.0
5.1 9.1
At 31 January 2021
4.9
6.8
11.7
Utilised during the year
(4.8)
(8.5)
(13.3)
Released unutilised during the year
–
(0.4) (0.4)
Charge for the year
0.7
8.0
8.7At 31 January 2022
0.8
5.9
6.7
PMI
£m
Other
£m
Total
£m
Current
0.8
5.6
6.4
Non-current
–
0.3 0.3
At 31 January 2022
0.8
5.9
6.7
PMI
£m
Other
£m
Total
£m
Current
4.9
6.2
11.1
Non-current
–
0.6 0.6
At 31 January 2021
4.9
6.8
11.7
The COVID-19 pandemic continues to lead to a high level of disruption to private medical inpatient appointments, with
appointments and operations initially being delayed and rescheduled. In the current year, a provision has been recognised
relating to the underwriting performance of the private medical insurance (PMI) product due to the higher level of claims
incurred during the year and the liability to the underwriter that this gives rise to. In the prior year, delayed appointments had
a favourable impact on the underwriting performance of PMI, resulting in a profit share due from the underwriter. Due to the
Group’s public commitment to not profit from the impacts of COVID-19, a provision to offset this profit share was made
during the prior year.
Other provisions primarily comprise: provisions for the return of insurance commission in respect of policies cancelled
mid-term after the reporting date or as a result of being cancelled during the statutory cooling-off period after the reporting
date; credit hire and repair claims handling and litigation costs on income booked as at the reporting date; fleet insurance at
the estimated cost of settling all outstanding incidents at the reporting date; customer remediation relating to areas where
there is likely to be a requirement to remedy various errors that have had an adverse impact on customer outcomes; and an
employer liability provision relating to various Group-related, self-funded insurance arrangements.
All provisions are expected to be fully utilised over the next 12 months with the exception of the fleet insurance, credit hire and
repair claims handling and litigation costs, and employer liability provisions. The timing of fleet insurance costs is uncertain
and will depend upon the nature of each incident. The costs of debt recovery on credit hire and repair claims handling and
litigation costs are uncertain and will depend upon the nature and timing of each claim. The settlement cash outflows from the
employer liability provision depend on the timing of the settlement of claims.
These items are reviewed and updated annually.
Saga plc Annual Report and Accounts 2022
184
32 Reconciliation of liabilities arising from financing activities
The following tables analyse the cash and non-cash movements for liabilities arising from financing activities:
2021
£m
Cash flows
£m
Non-cash changes
2022
£m
New leases
and lease
modifications
(Note 18)
£m
Other
£m
Lease liabilities (Note 37)
4.4
–(3.6)
33.5
34.3
Bank loans (Note 30)
70.0
(70.0)
– –
–
Ship loans (Note 30) – –
515.6
–515.6
Bonds (Note 30) –
250.0
–150.0
400.0
Deferred issue costs (Note 30)
(26.8)
–(6.8)
8.6
(25.0)
2020
£m
Cash flows
£m
Non-cash changes
2021
£m
New leases
and lease
modifications
(Note 18)
£m
Other
£m
Lease liabilities (Note 37)
28.6
–(4.0)
(20.2)
4.4
Bank loans (Note 30)
140.0
(70.0)
– –
70.0
Ship loans (Note 30) –
234.8
–280.8
515.6
Revolving credit facility (Note 30) – –
10.0
–(10.0)
Bonds (Note 30) – –
250.0
–250.0
Deferred issue costs (Note 30)
(14.2)
–(17.4)
4.8
(26.8)
Included within ‘Other’ is the amortisation of deferred issue costs of £8.6m (2021: £4.8m).
Cash flows relating to bank loans comprise repayment of borrowings of £70.0m (2021: £70.0m).
In the current year, cash flows relating to bonds comprise proceeds from borrowings of £250.0m, relating to a new five-year
senior unsecured bond, less repayment of borrowings of £100.0m, relating to the existing seven-year senior unsecured
2024bond.
In the prior year, cash flows relating to ship loans comprise proceeds from borrowings of £280.8m.
In the prior year, cash flows relating to the RCF comprise proceeds from borrowings of £50.0m less repayment of borrowings
of £60.0m.
Accrued interest payable on the loans, RCF and bonds above is disclosed in Note 30.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
185
Notes to the financial statements
continued
33 Called up share capital
Ordinary shares
Number
Nominal
value
£
Value
£m
Allotted, called up and fully paid
At 1 February 2020
1,122,003,328
0.01
11.2
Issue of shares – 5 October 2020
First Firm Placing
224,400,000
0.01
2.2
Second Firm Placing
124,183,026
0.01
1.2
Placing and Open Offer
623,335,182
0.01
6.3
971,918,208 0.01
9.7
Sub-total before share consolidation
2,093,921,536
0.01
20.9
Share consolidation – 13 October 2020
(1,954,326,767)
Issue of shares – 18 November 2020
507,458
0.15 0.1
At 31 January 2021
140,102,227
0.15
21.0
Issue of shares – 12 November 2021
235,044
0.15 0.1
At 31 January 2022
140,337,271
0.15 21.1
On 30 August 2020, the Group announced that it was at the advanced stage of a prospective £150.0m equity capital raise
inorder to strengthen its statement of financial position, improve liquidity and support the execution of its strategic plan.
Theprospective £150.0m equity raise was launched on 10 September 2020, structured as a Firm Placing and Open Offer.
The Group’s Firm Placing was made up of two firm placings, both of which involved issuing shares to the Chairman, Roger
DeHaan. The First Firm Placing resulted in Roger De Haan subscribing for 224,400,000 new ordinary shares at a price of 27p
per ordinary share. The Second Firm Placing resulted in Roger De Haan subscribing for 124,183,026 new ordinary shares at
12p per ordinary share (the Offer Price as if he were participating in the Open Offer as a qualifying shareholder). The Firm
Placing was inter-conditional with the Placing and Open Offer.
Under the Placing and Open Offer, the Company invited its shareholders to subscribe to the issue of 623,335,182 ordinary
shares at an issue price of 12p per ordinary share on the basis of five new shares for every nine ordinary shares held. In
addition to the Firm Placing described above, Roger De Haan subscribed for 204,250,307 new shares in the Placing and
OpenOffer, and, as a result, from admission held 26.4% of the enlarged share capital of the Company.
Under the Firm Placing and Open Offer, on 5 October 2020 the Company issued 971,918,208 new ordinary shares, raising
£150.3m of funds which were utilised to repay part of the Group’s term loan and repay in full the drawn RCF, with the balance
of the proceeds raised increasing Available Cash
14
. The issue was fully subscribed.
The share premium arising on the issue of the new ordinary shares was £140.6m. Transaction costs associated with the issue
of the share capital of £11.6m were deducted from share premium.
On 13 October 2020, the Company undertook a consolidation of its shares, whereby for every 15 ordinary shares held of 1p
nominal value, shareholders received one new consolidated share of 15p nominal value.
On 18 November 2020, Saga plc issued 507,458 new ordinary shares of 15p each, with a value of £0.1m, for transfer into an
Employee Benefit Trust (EBT) to satisfy employee incentive arrangements.
On 12 November 2021, Saga plc issued 235,044 new ordinary shares of 15p each, with a value of £0.1m, for transfer into an
EBT to satisfy employee incentive arrangements.
14 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Saga plc Annual Report and Accounts 2022
186
34 Reserves
Share-based payment reserve
Prior to vesting, the share-based payment reserve is used to recognise the value of equity-settled share-based payments
provided to employees, including key management personnel, as part of their remuneration. More detail is provided in
Note36.
Fair value reserve
The fair value reserve comprises the unrealised gains or losses of FVOCI assets pending subsequent recognition in profit or
loss once the investment is derecognised.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments
used in cash flow hedges pending subsequent recognition in: (a) profit or loss as the hedged cash flows or items affect profit
or loss; or (b) the statement of financial position as the hedged cash flows or items affect property, plant and equipment.
35 Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
For the purposes of the Group’s capital management, capital comprises total equity of £652.9m (2021: £680.7m) as shown on
the consolidated statement of financial position. The Group operates in a number of regulated markets and includes
subsidiaries which are required to comply with specific requirements in respect of capital or other resources.
The Group’s financial services businesses are regulated primarily by the Financial Services Commission (FSC) in Gibraltar and
by the FCA in the UK; and the cash requirements of its Travel businesses are regulated by the CAA in the UK. It is the Group’s
policy to comply with the requirements of these regulators in respect of capital adequacy or other similar tests at all times.
The Group’s regulated Underwriting business is based in Gibraltar and regulated by the FSC. The Underwriting business is
required to ensure that it has a sufficient level of capitalisation in accordance with Solvency II.
The Group (and its subsidiaries) has complied with externally-imposed capital requirements during the year. (The amounts
set out in the following three paragraphs are provisional and unaudited.)
The Group monitored its ability to comply with the requirements of Solvency II throughout the year to 31 January 2022,
having previously received approval from the FSC for the Undertaking of Specific Parameters when applying the standard
formula to measure capital requirements for this business under Solvency II rules. Under Solvency II, AICL remained well
capitalised, and at 31 January 2022 available capital was £115.1m against a Solvency Capital Requirement of £54.1m, giving
213% coverage. As at 31 January 2021, available capital was £123.9m against a Solvency Capital Requirement of £77.0m,
giving 161% coverage.
The Group’s regulated Insurance distribution business is based in the UK and regulated by the FCA. Due to the nature of the
business, the capital requirements are significantly less than the Underwriting business but the Group is required to comply
with the Adequate Resources requirements of Threshold Condition 2.4 of the FCA Handbook. The Group undertakes a
rigorous assessment against the requirements of this Condition on an annual basis and, as a consequence of this, calculates
and holds an appropriate amount of capital in respect of the insurance distribution business. The Minimum Regulatory Capital
requirement of this business at 31 January 2022 was £11.7m (2021: £5.3m).
The regulated Travel businesses are required to comply with a main test based on liquidity. The CAA liquidity test is a
requirement to hold at least 70% of advanced customer receipts in cash on the last day of each month. The Group monitors
its compliance with this test on a monthly basis including forward-looking compliance using budgets and forecasts. As at
31January 2022 and 31January 2021, the Travel businesses had sufficient coverage against this covenant.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
187
Notes to the financial statements
continued
36 Share-based payments
The Group has granted a number of different equity-based awards to employees and customers which it has determined to
be share-based payments:
a. Share options and Free Shares offer granted at the time of the IPO
•
On 29 May 2014, nil cost options over 13,132,410 shares were granted to certain Directors and employees with no exercise
price and no service or performance vesting conditions. There are no cash settlement alternatives.
•
Eligible customers and employees who acquired their shares under the Customer or Employee Offers in the Prospectus
received one bonus share for every 20 shares they acquired and held continuously for one year to 29 May 2015. As these
were bonus shares, there was no exercise price and no cash settlement alternative.
b. Restricted Share Plan (RSP)
•
The RSP is a discretionary executive share plan under which the Board may grant options over shares in Saga plc.
•
On 9 April 2021, nil cost options over 713,343 shares were issued under the RSP to certain Directors and other senior
employees which vest and become exercisable on the third anniversary of the grant date, subject to continuing
employment.
c. Long-term incentive plan (LTIP)
•
The LTIP is a discretionary executive share plan under which the Board may, within certain limits and subject to applicable
performance conditions, grant options over shares in Saga plc.
•
Up to 31 January 2017, these options are 50% linked to a non-market vesting condition, earnings per share, and 50% linked
to a market vesting condition, total shareholder return (TSR).
•
From 1 February 2017 to 31 January 2018, these options were 60% linked to non-market vesting conditions (30% linked to
basic earnings per share and 30% linked to organic earnings per share) and 40% linked to a market vesting condition, TSR.
•
From 1 February 2018, these options were 60% linked to non-market vesting conditions (30% linked to organic earnings
per share and 30% linked to return on capital employed (ROCE)) and 40% linked to a market vesting condition, TSR.
•
From 1 February 2019, these options are 75% linked to non-market vesting conditions (50% linked to operational and
strategic measures and 25% linked to ROCE) and 25% linked to a market vesting condition, TSR.
d. Deferred Bonus Plan (DBP)
•
On 29 April 2021, nil cost options over 236,815 shares were issued under the DBP to the Executive Directors reflecting
their deferred bonus in respect of 2020/21, which vest and become exercisable on the third anniversary of the grant date.
Under the DBP scheme, executives receive two-thirds of the bonus award in cash and one-third in the form of rights to
shares of the Company.
e. Other share options
•
On 2 December 2015, nil cost options over 99,552 shares were issued to the Chief Marketing Officer at the time which
were to vest on the second anniversary of his appointment, subject to continuing employment. Following the cessation of his
employment, the vesting period was extended to 1 May 2020.
f. Employee Free Shares
•
On 16 November 2021, 212,326 shares were awarded to eligible employees on the seventh anniversary of the IPO and allocated
atnil cost; these shares become beneficially owned over a three-year period from allocation, subject to continuing service.
Each employee share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable
bythe recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be
exercised at any time from the date of vesting to the date of their expiry. With the exception of share options granted at the
time of the IPO, if an employee ceases to be employed by the Group, the option rights will be forfeited, except in limited
circumstances that are approved by the Board on a case-by-case basis.
Saga plc Annual Report and Accounts 2022
188
The table below summarises the movements in the number of share options outstanding for the Group and their weighted
average exercise price:
IPO options
RSP
LTIP
DBP
Other
options
Employee
Free Shares
Total
At 1 February 2021
8,437
812,967
841,235
130,740
6,636
409,929 2,209,944
Granted
– 713,343 –
212,326236,815
–1,162,484
Forfeited
–
(163,972)
(221,230)
–
(6,636)(37, 256)
(429,094)
Exercised
– –
(1,802)(2,053)
–
(24,433)(28,288)
At 31 January 2022
8,437
–1,362,338
618,203
365,502
560,566
2,915,046
Exercise price
£nil £nil £nil £nil £nil £nil £nil
Exercisable at 31 January 2022
8,437
–9,783
–3,115
71,034
92,369
Average remaining contractual life
0.0 years 1.9 years 0.7 years 1.8 years 0.0 years 1.8 years 1.4 years
Average fair value at grant
£27.75
£3.25
£6.96
£30.33£4.10
£6.09
£5.14
The average fair values at grant date have been restated to reflect the impact of the share consolidation.
The weighted average share price at the date of exercise for share options exercised during the year ended 31 January 2022
was £3.85 (2021: £2.42).
The following information is relevant in the determination of the fair value of options granted during the year under the
equity-settled and cash-settled share-based remuneration schemes operated by the Group.
RSP
DBP
Employee
Free Shares
Model used
Black-
Scholes
Black-
Scholes
Black-
Scholes
Expected life of share option 3 years 3 years 3 years
Weighted average share price (£)
£3.86
£3.71
£2.87
As at 31 January 2022, the Group did not hold any liability in relation to cash-settled share-based remuneration that had
vested by the end of the year.
As only limited historical data for the Group’s share price is available, the Group has estimated the Company’s share price
volatility as an average of the volatilities of its TSR comparator group over a historical period commensurate with the
expected life of the award immediately prior to the date of the grant.
For future valuations, at a date when sufficient Saga share price data becomes available, the Group intends to estimate the
Company volatility directly from this data.
The total amount charged to the income statement in the year ended 31 January 2022 is £3.4m (2021: £2.4m). This has been
charged to administrative and selling expenses.
The Group did not enter into any share-based payment transactions with parties other than employees during the current period.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
189
Notes to the financial statements
continued
37 Commitments and contingencies
a) Lease commitments
The Group leases various river cruise ships, offices, warehouses, equipment and vehicles. The contract lengths of the leases
vary considerably and may include extension or termination options. Where it is reasonably certain that an extension option
will be triggered in a contract, lease payments to be made in respect of the option are included in the measurement of the
lease liability. Future minimum lease payments under lease contracts, together with the present values of the net minimum
lease payments, are as follows:
2022
£m
2021
£m
Within one year
5.4
2.3
Between one and five years
19.5
2.2
After five years
18.0
0.1
Total minimum lease payments
42.9
4.6
Less amounts representing finance charges
(7.6)
(0.2)
Present value of minimum lease payments
35.3
4.4
Please refer to Note 18 for further details on modification of lease terms during the prior year.
As at 31 January 2022, the value of lease liabilities contracted for, but not provided for, in the financial statements in respect
of right-of-use assets amounted to £42.5m (2021: £92.7m). As at 31 January 2021, these lease commitments relate to the
river cruise vessels, Spirit of the Rhine and Spirit of the Danube. As at 31 January 2022, these lease commitments relate to
the river cruise vessel, Spirit of the Danube.
b) Commitments
As at 31 January 2022, the capital amount contracted for, but not provided for, in the financial statements in respect of
property, plant and equipment, amounted to £nil (2021: £nil).
c) Contingent liabilities
The CAA and ABTA regulate the Group’s UK Tour Operations business. ABTA requires the Group to put in place bonds to
provide customer protection. At 31 January 2022, the Group had £19.4m (2021: £21.0m) of tour operating-related bonds
inplace.
38 Assets held for sale
At the end of the year ended 31 January 2021, the Group made the decision to initiate an active programme to locate buyers
for a number of its freehold properties. Immediately before the classification of the properties to be held for sale, their
recoverable amounts were ascertained and this resulted in an impairment charge of £4.5m being recognised against the
Group’s freehold land and buildings assets (Note 17a). At the point of reclassification to held for sale, the carrying values
of£16.9m were considered to be equal to, or below, fair value less costs to sell, and hence no revaluation at the point of
reclassification was required. These properties are presented within the Insurance segment of the Group, and as at
31January 2021 were being actively marketed and the disposals were expected to be completed within 12 months of
theendofthe financial year. No gains or losses were recognised with respect to the properties.
During the year, the Group declassified one of the properties classified as held for sale at 31 January 2021, to property, plant
and equipment since it was no longer being actively marketed for disposal. The carrying value of this property as at 31 January
2021 was £3.0m. Other than this one property, there have been no changes in relation to the Group’s intention to sell any of
the properties classified as held for sale at 31 January 2021, and so the held for sale designation is considered to remain
appropriate for the remaining properties as at 31 January 2022.
During the year, the Group disposed of a property classified as held for sale in the period. Cash consideration received
(netoftransaction costs) was £10.2m and the carrying value of the property at the date of disposal was £3.0m. Profit arising
on disposal was £7.2m.
Management conducted an impairment review of the freehold property assets held for sale as at 31 January 2022. In relation
to these freehold properties, value-in-use continued to be negligible and so the Group obtained updated market valuations
todetermine the fair value of each building. The outcome of these impairment reviews concluded that an impairment
chargetotalling £1.0m should be recognised against the Group’s property assets held for sale as at 31 January 2022.
Asat31January 2022, the carrying values of the properties classified as held for sale, totalling £12.9m, are representative
ofeither each property’s fair value or historic cost, whichever is lower.
Saga plc Annual Report and Accounts 2022
190
39 Subsidiaries
The entities listed below are subsidiaries of the Company or Group. All of the undertakings are wholly owned and included
within the consolidated financial statements. The registered office address for all entities registered in England is Enbrook
Park, Sandgate, Folkestone, Kent CT20 3SE, United Kingdom. The registered office address of Acromas Insurance Company
Limited is 57/63 Line Wall Road, Gibraltar. The registered office address of Saga Cruises GmbH is Industriegebiet Süd, 26871,
Papenburg, Niedersachsen, Germany. The registered office address of Saffron Maritime Limited is Aspire Corporate
Services Limited, PO Box 191, Elizabeth House, Ruettes Brayes, St Peter Port, Guernsey, GY1 4HW.
Company name
Country of
registration
Nature of business
Saga Personal Finance Limited
England
Delivery of regulated investment products
Saga Services Limited
England Regulated Insurance distribution
Acromas Insurance Company Limited
Gibraltar Insurance underwriting
CHMC Limited
15
England
Motor accident management
PEC Services Limited
15
England
Repairer of automotive vehicles
ST&H Limited
England
Tour operating
Titan Transport (UK) Limited
England
Tour operating
Titan Travel (UK) Limited
England
Tour operating
Titan Travel Group Limited
England
Tour operating
Titan Transport Limited (formerly Saga Transport Limited)
England
Tour operating
Saga Cruises Limited
England
Cruising
Saga Cruises IV Limited
England
Cruising
Saga Cruises V Limited
England
Cruising
Saga Cruises VI Limited
England
Cruising
Saga Cruises GmbH
Germany
Cruising
Saga Crewing Services Limited
England
Cruising
Saffron Maritime Limited Guernsey
Cruising
MetroMail Limited
15
England
Mailing house
Saga Mid Co Limited
England
Debt service provider
Saga Publishing Limited
15
England
Publishing
Saga Membership Limited
15
England
Customer loyalty scheme
Driveline Group Limited
England
Holding company
CHMC Holdings Limited
England
Holding company
Saga Group Limited
England
Holding company
Saga Leisure Limited
England
Holding company
ST&H Group Limited
England
Holding company
Confident Services Limited
England
Dormant company
Driveline Europe Limited
England
Dormant company
Driveline Travel Limited
England
Dormant companyEnbrook Cruises Limited
England
Dormant company
Saga Cruises I Limited
England
Dormant company
Saga Flights.com Limited
England
Dormant company
Saga Healthcare Limited
England
Dormant company
Saga Holidays Limited England
Dormant company
Saga Properties Limited
England
Dormant company
Saga Radio (North West) Limited
England
Dormant company
Saga Shipping Company Limited
England
Dormant company
Spirit of Adventure Limited
England
Dormant company
ST&H Transport Limited
England
Dormant company
Titan Aviation Limited
England
Dormant company
Titan Travel Holdings Limited
England
Dormant company
Titan Travel Limited
England
Dormant company15 These subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the year ended 31 January 2022.
Asrequired, Saga plc, the ultimate parent undertaking and controlling party of the Group, guarantees all outstanding liabilities to which these subsidiary
companies are subject at the end of the financial year, until they are satisfied in full. This is in accordance with Section 479C of the Companies Act 2006.
Theguarantee is enforceable against Saga plc as the ultimate parent undertaking, by any person to whom the subsidiary companies listed above are liable
inrespect of those liabilities
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
191
Notes to the financial statements
continued
40 Related party transactions
On 6 April 2021, the Company entered into a working capital facility agreement with Roger De Haan, the Non-Executive
Chairman of Saga plc, to allow the Company to draw down up to £10.0m with 20 days’ notice to fund the short-term liquidity
needs of its Cruise business. The agreement allowed the Company to select a loan period of one, two, three or six months, or
any other period agreed with Roger De Haan. Interest on the working capital facility agreement would be incurred at a variable
rate of LIBOR plus a bank margin that is linked to the Group’s leverage ratio. Interest would accrue on the facility and be
payable on the last day of the period of the loan. The facility was set to mature on 9 May 2023, at which point any outstanding
amounts, including interest, must be repaid.
As explained in Note 30, in June 2021, the Group announced a number of financing transactions intended to improve its
financial flexibility by increasing available liquidity, extending debt maturities and providing greater headroom against
covenants. Following the completion of these transactions, the working capital facility agreement with Roger De Haan was
subsequently cancelled with effect from July 2021.
41 Events after the reporting period
After the year end, the Group concluded discussions with its Cruise lenders to amend the covenants on the two ship debt
facilities as follows:
•
Reduction in the EBITDA to debt repayment ratio from 1.2x to 1.0x for the periods from 31 July 2022 to 31 January 2024.
•
Reduction in the EBITDA to cash interest ratio from 2.0x to 1.7x as at 31 July 2022.
Please refer to Note 30 for further details relating to the Group’s cruise ship debt facilities.
Saga plc Annual Report and Accounts 2022
192
Company financial statements of Saga plc
Balance sheet
Note
2022
£m
2021
£m
Non-current assets
Investment in subsidiaries
2
552.3 552.3
Current assets
Debtors – amounts falling due after more than one year 3
501.8
412.5
Debtors – amounts falling due within one year 3
3.0
2.2
Cash and short-term deposits
38.0
0.1
542.8
414.8
Creditors – amounts falling due within one year
4
(3.9)
(4.8)
Net current assets
538.9
410.0
Creditors – amounts falling due after more than one year
5
(396.2)
(248.9)
Net assets
695.0
713.4
Capital and reserves
Called up share capital
6
21.1
21.0
Share premium account
648.3 648.3
Profit and loss reserve
18.1
38.2
Share-based payment reserve
7.5
5.9
Total shareholders’ funds
695.0
713.4
The Company has not presented its own profit and loss account as permitted by section 408(3) of the Companies Act 2006
(the
Act
). The loss included in the financial statements of the Company, determined in accordance with the Act, was £21.9m
(2021: £14.2m).
Company number: 08804263
The Notes on pages 195-200 form an integral part of these financial statements.
Signed for and on behalf of the Board on 22 March 2022 by
E A Sutherland J B Quin
Group Chief Executive Officer Group Chief Financial Officer
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
193
Company financial statements of Saga plc
Statement of changes in equity
Called up
share
capital
£m
Share
premium
account
£m
Retained
earnings
£m
Share-based
payment
reserve
£m
Total
equity
£m
At 1 February 2020
11.2
519.3
48.8
8.0
587.3
Loss for the financial year – –
(14.2)
–(14.2)
Dividends paid
– –
(0.1)
–(0.1)
Issue of share capital (Note 6) –
9.8
–140.6
150.4
Transaction costs associated with issue of share capital – –
(11.6)
–(11.6)
Share-based payment charge
– – –
2.3 2.3
Exercise of share options – –
3.7
(4.4)
(0.7)
At 31 January 2021
21.0
648.3 38.2
5.9
713.4
Loss for the financial year – –
(21.9)
–(21.9)
Issue of share capital (Note 6) – –
0.1
–0.1
Share-based payment charge
– – –
3.4 3.4
Exercise of share options – –
1.8
–(1.8)
At 31 January 2022
21.1
648.3
18.17.5
695.0
The Notes on pages 195-200 form an integral part of these financial statements.
Saga plc Annual Report and Accounts 2022
194
1.1 Accounting policies
a) Accounting convention
These financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’ (FRS 101).
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements
ofUK-adopted international accounting standards, but makes amendments where necessary in order to comply with
Companies Act 2006 (the
Act
) and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.The financial statements are prepared under the historical cost convention, as modified by derivative financial assets and
financial liabilities measured at fair value through profit or loss, and in accordance with the Companies Act 2006, and are
prepared on a going concern basis (please refer to Note 2.1 of the Saga plc consolidated accounts on pages 126-127 for an
assessment of the going concern basis for the Group and the Company).
The Company’s financial statements are presented in sterling and all values are rounded to the nearest hundred thousand
(£’m) except when otherwise indicated.
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year
ended 31 January 2022.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
•
The requirements of IFRS 7 ‘Financial Instruments: Disclosures’.
•
The requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information
inrespect of paragraph 79(a)(iv) of IAS 1.
•
The requirements of paragraphs 10(d), 10(f), 16, 38A, 38B-D, 40A-D, 111 and 134-136 of IAS 1 ‘Presentation of
FinancialStatements’.
•
The requirements of IAS 7 ‘Statement of Cash Flows’.
•
The requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’.
•
The requirements of paragraphs 17 and 18A of IAS 24 ‘Related Party Disclosures’.
•
The requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between
twoormore members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by
suchamember.
•
The requirements of paragraphs 45(b) and 46-52 of IFRS 2 ‘Share-based Payment’.
b) Investments in subsidiaries
Investments in subsidiaries are accounted for at the lower of cost less impairment and net realisable value and reviewed for
impairment when events or changes in circumstances indicate the carrying value may not be recoverable.
c) Debtors
Trade and other debtors are initially recognised at fair value and, where the time value of money is material, subsequently
measured at amortised cost using the effective interest rate (EIR) method. Provision for impairment is made using the
simplified approach set out in IFRS 9, whereby no credit loss allowance is recognised on initial recognition, and then at each
subsequent reporting date the loss allowance will be the present value of the expected cash flow shortfalls over the remaining
life of the debtors (i.e. lifetime expected credit losses (ECLs)). Balances are written off when the probability of recovery is
assessed as being remote.
Amounts due from Group undertakings are classified as debtors. They have no fixed date of payment and are payable on
demand. The amounts due from Group undertakings are disclosed at amortised cost.
d) Deferred tax
Deferred tax is provided on temporary differences between the tax bases of assets and liabilities and their carrying amounts
for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry
forward of unused tax credits and unused tax losses, can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that
future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the
reporting date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or
credited in other comprehensive income (OCI), in which case the deferred tax is dealt with in the OCI.
Notes to the Company financial statements
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
195
Notes to the Company financial statements
continued
1.1 Accounting policies
continued
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
e) Share-based payments
The Company provides benefits to employees (including Directors) of Saga plc and its subsidiary undertakings, in the form of
share-based payment transactions, whereby employees render services as consideration for equity instruments
(equity-settled transactions). The cost of equity-settled transactions is measured by reference to the fair value on the grant
date and is recognised as an expense over the relevant vesting period, ending on the date on which the employee becomes
fully entitled to the award.
Fair values of share-based payment transactions are calculated using Black-Scholes modelling techniques.
In valuing equity-settled transactions, assessment is made of any vesting conditions to categorise these into market
performance conditions, non-market performance conditions and service conditions.
Where the equity-settled transactions have market performance conditions (that is, performance which is directly or
indirectly linked to the share price), the fair value of the award is assessed at the time of grant and is not changed, regardless
of the actual level of vesting achieved, except where the employee ceases to be employed prior to the vesting date.
For service conditions and non-market performance conditions, the fair value of the award is assessed at the time of grant
and is reassessed at each reporting date to reflect updated expectations for the level of vesting. No expense is recognised for
awards that ultimately do not vest.
At each reporting date prior to vesting, the cumulative expense is calculated, representing the extent to which the vesting
period has expired and, in the case of non-market conditions, the best estimate of the number of equity instruments that will
ultimately vest or, in the case of instruments subject to market conditions, the fair value on grant adjusted only for leavers.
The movement in the cumulative expense since the previous reporting date is recognised in the income statement, with the
corresponding increase in share-based payments reserve.
Upon vesting of an equity instrument, the cumulative cost in the share-based payments reserve is reclassified to reserves.
f) Financial instruments
i) Financial assets
On initial recognition, a financial asset is classified as either amortised cost, fair value through other comprehensive income
(FVOCI) or fair value through profit and loss (FVTPL). The classification of financial assets is based on the business model in
which a financial asset is managed, and its contractual cash flow characteristics.
The Company measures all financial assets at fair value at each reporting date, other than those instruments measured at
amortised cost.
The Company’s financial assets at amortised cost include amounts due from Group undertakings. The Company does not
hold any financial assets classified as FVOCI or FVTPL.
Financial assets at amortised cost
Initial recognition and measurement
A financial asset is classified at amortised cost if it meets both of the following conditions and is not elected to be designated
as FVTPL:
•
It is held within a business model whose objective is to hold assets to collect contractual cash flows.
•
Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
Subsequent measurement
These assets are subsequently measured at amortised cost using the EIR method. The amortised cost is reduced by
impairment losses (see (ii) below). Impairment losses are recognised in profit or loss as they are incurred. Any gain or loss on
derecognition is recognised in profit or loss immediately.
Derecognition
A financial asset is derecognised when the rights to receive cash flows from the asset have expired or when the Company has
transferred substantially all the risks and rewards relating to the asset to a third party.
ii) Impairment of financial assets
The expected credit loss (ECL) impairment model applies to financial assets measured at amortised cost and debt
investments at FVOCI.
The Company measures loss allowances at an amount equal to 12-month ECLs, except for trade receivables and contract
assets that result from transactions within the scope of IFRS 15.
Saga plc Annual Report and Accounts 2022
196
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical
experience and informed credit assessment and including forward-looking information.
Measurement of ECLs
ECLs are measured as a probability-weighted estimate of credit losses. Credit losses are measured as the probability of default in
conjunction with the present value of the Group’s exposure. Loss allowances for ECLs on financial assets measured at amortised
cost are deducted from the gross carrying amount of the assets, with a corresponding charge to the income statement.
iii) Financial liabilities
Initial recognition and measurement
All financial liabilities are classified as financial liabilities at amortised cost on initial recognition.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable
transaction costs.
The Company’s financial liabilities comprise loans and borrowings.
Subsequent measurement
After initial recognition, interest-bearing loans and borrowings and other payables are subsequently measured at amortised
cost using the EIR method. Amortised cost is calculated by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the income statement.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of
anexisting liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability
and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement.
g) Audit remuneration
Amounts receivable by the Company’s auditor and its associates in respect of services to the Company and its associates,
other than the audit of the Company’s financial statements, have not been disclosed as the information is required instead to
be disclosed on a consolidated basis in the consolidated financial statements.
1.2 Significant accounting judgements, estimates and assumptions
The preparation of financial statements requires the Company to select accounting policies and make estimates and assumptions
that affect items reported in the primary Company financial statements and Notes to the Company financial statements.
Significant estimates
All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that
knowledge and predictions of future events and actions. Actual results may therefore differ from those estimates.
The table below sets out those items the Company considers susceptible to changes in critical estimates and assumptions
together with the relevant accounting policy.
Acc. policy
Items involving estimation
Sources of estimation uncertainty
1.1b
Investment in subsidiaries
impairment testing
The Company determines whether investment in subsidiaries needs to be
impaired when indicators of impairment exist. This requires an estimation of
the value-in-use of the subsidiaries owned by the Company. The value-in-use
calculation requires the Company to estimate the future cash flows expected
to arise from the subsidiaries, discounted at a suitably risk-adjusted rate in
order to calculate present value.
Sensitivity analysis has been undertaken to determine the effect of changing
the discount rate, the terminal value and future cash flows on the present value
calculation, which is shown in Note 2 on page 198.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
197
Notes to the Company financial statements
continued
2 Investment in subsidiaries
£m
Cost
At 1 February 2020
4,132.7
At 31 January 2021 and 31 January 2022
4,132.7
Amounts provided for
At 1 February 2020
3,580.4
At 31 January 2021 and 31 January 2022
3,580.4
Net book value
At 31 January 2022
552.3
At 31 January 2021
552.3
See Note 39 to the consolidated financial statements for a list of the Company’s investments.
Management has tested the investment in subsidiaries balance for impairment at 31 January 2022 due to the net assets of
the Company being in excess of its market capitalisation; thus constituting an indicator of impairment. The impairment test
compares the recoverable amount of investment to its carrying value.
The recoverable amount of the investment has been determined based on a sum-of-the-parts valuation, by deriving a value-in-
use for each of the Group’s businesses, using cash flow projections from the Group’s Board-approved five-year plan to
2026/27. Terminal values have been included using 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 derived from the Group’s weighted average cost of capital, and risk adjusted for each of the
Group’s businesses based on relative industry betas and cost of debt levels. The recoverable amount is the value-in-use, being
the sum of the value-in-use of the Group’s cash generating units and the present value of central costs less the market value
of external debt and the net assets of the Company (excluding the carrying value of the investment in subsidiaries).
In the current year, the recoverable amount when compared against the carrying value of the investment in subsidiaries
resulted in headroom of £487.7m in a central scenario. When considering an array of stress tests to the Group’s projected
cash flows in line with the reasonable worst-case (RWC) assumptions outlined in Note 2.1 of the Saga plc consolidated
accounts on pages 126-127, combined with a lower terminal growth rate of 1.5%, the level of headroom reduced to £129.1m.
Management therefore concluded that it is not necessary to impair the investment in subsidiaries, nor would it be appropriate
to reverse any impairment already recognised in previous years at this point.
The surplus calculated is most sensitive to the discount rate and terminal growth rate assumed. A quantitative sensitivity
analysis for each of these as at 31 January 2022 and its impact on the headroom against the carrying value of investment in
subsidiaries is as follows:
Pre-tax discount rate Terminal growth rate
+1.0ppt
£m
–1.0ppt
£m
+1.0ppt
£m
–1.0ppt
£m
Impact
(220.7)
286.4
221.3
(171.2)
3 Debtors
2022
£m
2021
£m
Amounts falling due after more than one year
Amounts due from Group undertakings
501.8
412.5
501.8
412.5
2022
£m
2021
£m
Amounts falling due within one year
Deferred tax asset
1.7
1.0
Other debtors
1.3
1.2
3.0
2.2
Saga plc Annual Report and Accounts 2022
198
4 Creditors – amounts falling due in less than one year
2022
£m
2021
£m
Other creditors
2.0 3.0
Accrued interest payable
1.9
1.8
3.9
4.8
5 Creditors – amounts falling due in more than one year
2022
£m
2021
£m
Bonds
400.0
250.0
Unamortised issue costs
(3.8)
(1.1)
396.2
248.9
Please refer to Note 30 of the Saga plc consolidated accounts on pages 182-183 for further details relating to the bonds.
6 Called up share capital
Ordinary shares
Number
Nominal
value
£
Value
£m
Allotted, called up and fully paid
At 1 February 2020
1,122,003,328
0.01
11.2
Issue of shares – 5 October 2020
First Firm Placing
224,400,000
0.01
2.2
Second Firm Placing
124,183,026
0.01
1.2
Placing and Open Offer
623,335,182
0.01
6.3
971,918,208 0.01
9.7
Sub-total before share consolidation
2,093,921,536
0.01
20.9
Share consolidation – 13 October 2020
(1,954,326,767)
Issue of shares – 18 November 2020
507,458
0.15 0.1
At 31 January 2021
140,102,227
0.15
21.0
Issue of shares – 12 November 2021
235,044
0.15 0.1
At 31 January 2022
140,337,271
0.15 21.1
On 30 August 2020, the Company announced that it was at the advanced stage of a prospective £150.0m equity capital raise in
order to strengthen the Group’s statement of financial position, improve liquidity and support the execution of its strategy plan.
The prospective £150.0m equity raise was launched on 10 September 2020, structured as a Firm Placing and Open Offer.
Under the Firm Placing and Open Offer, on 5 October 2020 the Company issued 971,918,208 new ordinary shares, raising
£150.3m of funds which were utilised to repay part of the Group’s term loan and repay in full the drawn revolving credit
facility, with the balance of the proceeds raised increasing Available Cash
16
. The issue was fully subscribed.
The share premium arising on the issue of the new ordinary shares was £140.6m. Transaction costs associated with the issue
of the share capital of £11.6m were deducted from share premium.
On 13 October 2020, the Company undertook a consolidation of its shares, whereby for every 15 ordinary shares held of 1p
nominal value, shareholders received one new consolidated share of 15p nominal value.
On 18 November 2020, Saga plc issued 507,458 new ordinary shares of 15p each, with a value of £0.1m, for transfer into an
Employee Benefit Trust (EBT) to satisfy employee incentive arrangements.
On 12 November 2021, Saga plc issued 235,044 new ordinary shares of 15p each, with a value of £0.1m, for transfer into an
EBT to satisfy employee incentive arrangements.
Please refer to Note 33 of the Saga plc consolidated accounts on page 186 for further details on the movements in share
capital during the prior year.
16 Refer to the Alternative Performance Measures Glossary on page 201 for definition and explanation
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
199
Notes to the Company financial statements
continued
7 Commitments
The Company has provided guarantees for the Group’s bonds, term loan, ship debt, RCF and bank overdraft (please refer to
Notes 25 and 30 of the Saga plc consolidated accounts on pages 174, and 182-183, respectively for further details).
Saga plc Annual Report and Accounts 2022
200
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
ofthe business.
Definitions for the primary APMs used in this report are set
out below. APMs are usually derived from financial statement
line items and are calculated using consistent accounting
policies to those applied in the financial statements, unless
otherwise stated.
APMs may not necessarily be defined in a consistent manner
to similar APMs used by the Group’s competitors. They
should be considered as a supplement, rather than a
substitute, for GAAP measures.
Underlying (Loss)/Profit Before Tax
Underlying (Loss)/Profit Before Tax represents the loss
before tax excluding unrealised fair value gains and losses on
derivatives, the net profit on disposal of assets, impairment
of the carrying value of assets including goodwill, charge on
closure of defined benefit pension scheme, foreign exchange
gains on river cruise ship leases, costs incurred for ship debt
holiday and restructuring costs. It is reconciled to statutory
loss before tax within the Group Chief Financial Officer’s
Review on page 36.
This measure is the Group’s key performance indicator and
isuseful for presenting the Group’s underlying trading
performance, as it excludes non-cash technical accounting
adjustments and one-off financial impacts that are not
expected to recur.
Trading EBITDA/Adjusted Trading EBITDA
Trading EBITDA is defined as earnings before interest
payable, tax, depreciation and amortisation, and excludes the
amortisation of acquired intangibles, non-trading costs and
impairments. Adjusted Trading EBITDA also excludes the
impact of IFRS 16 and the Trading EBITDA relating to the two
cruise ships, Spirit of Discovery and Spirit of Adventure in
line with the covenant on the Group’s revolving credit facility
(RCF). It is reconciled to Underlying (Loss)/Profit Before Tax
within the Group Chief Financial Officer’s Review on page 47.
Underlying (Loss)/Profit Before Tax is reconciled to statutory
loss before tax within the Group Chief Financial Officer’s
Review on page 38.
This measure is linked to the covenant on the Group’s RCF,
being the denominator in the Group’s leverage ratio calculation.
Underlying Basic (Loss)/Earnings Per Share
Underlying Basic (Loss)/Earnings Per Share represents basic
loss per share excluding the post-tax effect of unrealised fair
value gains and losses on derivatives, the net profit on
disposal of assets, impairment of the carrying value of assets
including goodwill, charge on closure of defined benefit
pension scheme, foreign exchange gains on river cruise ship
leases, costs incurred for ship debt holiday and restructuring
costs. This measure is reconciled to the statutory basic loss
per share in Note 12 to the accounts on page 153.
This measure is linked to the Group’s key performance
indicator Underlying (Loss)/Profit Before Tax and represents
what management considers to be the underlying
shareholder value generated in the year.
Available Cash
Available Cash represents cash held by subsidiaries within
the Group that is not subject to regulatory restrictions, net
of any overdrafts held by those subsidiaries. This measure is
reconciled to the statutory measure of cash in Note 25 to the
accounts on page 174.
Available Operating Cash Flow
Available Operating Cash Flow is net cash flow from
operating activities after capital expenditure but before tax,
interest paid, restructuring costs, proceeds from business
and property disposals and other non-trading items, which
isavailable 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 Group Chief
Financial Officer’s Review on page 47.
Adjusted Net Debt
Adjusted Net Debt is the sum of the carrying values of the
Group’s debt facilities less the amount of Available Cash it
holds but excludes the ship debt and the Cruise business
Available Cash. It is linked to the covenant on the Group’s
RCF, being the numerator in the Group’s leverage ratio
calculation, and is analysed further within the Group Chief
Financial Officer’s Review on page 49.
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
201
Glossary
ABTA (Association of British Travel Agents)
the trade association
for tour operators and travel agents in the UK
Accident year
the financial year in which an insurance loss occurs
Add-on
an insurance policy that is actively marketed and sold as an
addition to a core policy
AGM (Annual General Meeting)
to be held at 11.00am on 5 July
2022 at Enbrook Park, Sandgate, Folkestone, Kent CT20 3SE
AICL (Acromas Insurance Company Limited)
the Group’s
underwriting business
ATOL (Air Travel Organiser’s Licence)
government-run financial
protection scheme operated by the Civil Aviation Authority
Beta
measures the market risk of the Company excluding the
impact of debt
Board
Saga plc Board of Directors
CAA (Civil Aviation Authority)
one of the bodies that regulates the
Group’s Travel business, responsible for the management of the Air
Travel Organisers Licence (ATOL) scheme
CDP (Carbon Disclosure Project)
charity that manages
companies’ disclosure of their environmental impacts
CEO (Chief Executive Officer)
Euan Sutherland for the 2021/22
financial year
CFO (Chief Financial Officer)
James Quin for the 2021/22 financial
year
CGU (cash generating unit)
group of assets that generate cash
inflows
CIIA (Chartered Institute of Internal Auditors)
body representing
internal auditors in the UK
Claims frequency
the number of claims incurred divided by the
number of policies earned in a given period
Claims reserves
accounting provisions that have been set to meet
outstanding insurance claims, incurred but not reported and
associated claims handling costs
Code
the UK Corporate Governance Code published by the UK
Financial Reporting Council setting out guidance in the form of
principles and provisions to address the principal aspects of
corporate governance
Companies Act
the UK Companies Act 2006, as amended from
time to time
Company
Saga plc
COR (combined operating ratio)
the ratio of the claims costs and
expenses incurred to underwrite insurance (numerator), to the
revenue earned by Acromas Insurance Company Limited (AICL)
(denominator) in a given period. Can otherwise be calculated as the
sum of the loss ratio and expense ratio
Core policy
an insurance policy that is actively marketed and sold
on its own, irrespective of any add-ons purchased
Cruise passenger days
the total number of days passengers have
travelled on a ship, or ships, in a given period
Cruise passengers
the number of passengers that have travelled
on a Saga cruise in a given period
DBP (Deferred Bonus Plan)
reward scheme used to incentivise
colleagues over the longer term, ensuring alignment with Company
goals
DE&I (diversity, equity and inclusion)
the agenda under which
Saga is committed to creating an inclusive culture where all
colleagues can bring their full and authentic selves to work
Discontinued operations
operations divested or those that have
been classified as held for sale
DTRs (Disclosure and Transparency Rules)
rules published by the
UK Financial Conduct Authority (FCA) relating to the disclosure of
information by a company listed in the UK
Earned premium
insurance premiums that are recognised in the
income statement over the period of cover to which the premiums
relate, deferred on a 365ths basis
Earnings per share
represents underlying shareholder value
generated in a given period
EBITDA
earnings before interest, tax, depreciation and
amortisation of acquired intangibles, non-trading costs and
impairments
EBT (Employee Benefit Trust)
trust established to hold assets to
provide benefits for employees
ECL (expected credit loss)
impairment model applied to financial
assets
EIR (effective interest rate)
method used to calculate interest
paid and payable
ELT (Executive Leadership Team)
the first layer of management
below Board level
EQA (External Quality Assessment)
an assessment carried out by
PwC under the Chartered Institute of Internal Auditors Standards
ESG (Environmental, Social and Governance)
central factors in
measuring the sustainability and societal impact of the business
Executive Director
of Saga plc (unless otherwise stated)
Expense ratio
the ratio of expenses incurred to underwrite
insurance (numerator) to the revenue earned by Acromas
Insurance Company Limited (AICL) (denominator) in a given period
FCA (Financial Conduct Authority)
the independent UK body that
regulates the financial services industry, including general insurance
FRC (Financial Reporting Council)
the independent body that
regulates auditors, accountants and actuaries in the UK
FRS (Financial Reporting Standard)
accounting standards issued
by the International Financial Reporting Standards Foundation
FSC (Financial Services Commission)
regulator for the non-bank
financial services sector and global business
FTO (Federation of Tour Operators)
body that regulates the
Group’s Tour Operations business
FVOCI (fair value through other comprehensive income)
one of
three classification categories for financial assets under IFRS 9
FVTPL (fair value through profit and loss)
one of three
classification categories for financial assets under IFRS 9
GAAP (Generally Accepted Accounting Principles)
a common set
of accounting principles, standards and procedures issued by the
Financial Accounting Standards Board
GFSC (Gibraltar Financial Services Commission)
independent
Gibraltar body that regulates the Group’s Underwriting business
GHG (greenhouse gas)
a type of gas for which Saga provides
annual reporting on its emissions
Group
the Saga plc group
GWP (gross written premiums)
the total premium charged to
customers for a core insurance product, excluding insurance
premium tax but before the deduction of any outward reinsurance
premiums, measured with reference to the cover start date of the
policy
Holidays passengers
the number of passengers that have travelled
on a Saga or Titan holiday in a given period
IAS (International Accounting Standards)
accounting standards
issued by the International Accounting Standards Committee
Saga plc Annual Report and Accounts 2022
202
IATA (International Air Transport Associations)
trade association
of the world’s airlines
IBNR (incurred but not reported)
a claims reserve provided to
meet the estimated cost of claims that have occurred, but have not
yet been reported to the insurer
IBOR (inter-bank offered rate)
a group of widely accepted interest
rate benchmarks
IFRS (International Financial Reporting Standards)
accounting
standards issued by the International Accounting Standards Board
Interest cover
the ratio of total net cash interest to Adjusted
Trading EBITDA
IPO (Initial Public Offering)
the first sale of shares by a previously
unlisted company to investors on a securities exchange
IPT (insurance premium tax)
tax payable on general insurance
premiums in the UK
IR (Investor Relations)
team responsible for facilitating
communication between Saga plc and its shareholders
KPI (key performance indicator)
quantifiable measure used to
evaluate performance
Leverage ratio
the ratio of Adjusted Net Debt to Adjusted Trading
EBITDA
LIBOR (London inter-bank offered rate)
benchmark interest rate
estimated from London banks
Listing Rules
a set of mandatory regulations of the UK Financial
Conduct Authority applicable to a company listed on the London
Stock Exchange
Load factor
the total number of Cruise passengers booked in
proportion to the total cruise ship capacity
Loss ratio
a ratio of the claims costs (numerator) to the net earned
premium (denominator) in a given period
LSE (London Stock Exchange)
the stock exchange upon which
Saga plc is listed
LTIP (long-term incentive plan)
reward scheme used to incentivise
colleagues over the longer term, ensuring alignment with Company
goals
Malus
an arrangement that permits the forfeiture of unvested
remuneration awards in circumstances the Company considers
appropriate
MCA (Maritime and Coastguard Agency)
executive agency of the
UK working to prevent the loss of lives
Mental Health First Aider
a specialist group of first aiders within
Saga plc, focused on mental health
Net claims
the cost of claims incurred in the period less any claims
costs recovered under reinsurance contracts and after the release
of any claims reserves
Net earned premium
earned premium net of any outward earned
reinsurance premium paid
Net interest expense
finance costs less finance income
NPS (net promoter score)
represents the willingness of
customers to recommend Saga products and services to others
OCI (other comprehensive income)
revenues, expenses, gains and
losses under International Financial Reporting Standards that are
excluded from the income statement
Ogden discount rate
the discount rate set by the relevant
government bodies, the Lord Chancellor and Scottish Ministers,
and used to calculate lump sum awards in bodily injury cases
Open Offer
the offer that took place in October 2020 as part of
the capital raise, allowing qualifying shareholders to subscribe for
new shares at a ratio of five new shares for every nine existing
shares held
PBT (profit before tax)
one of the Group’s primary key
performance indicators
Per diem
the total amount of Cruise revenue earned per passenger
per day
PMI (private medical insurance)
one of the products offered
within the Groups Retail Broking business
Policies in force
the number of core insurance policies in force at
any given time
PPO (periodic payment order)
a court order prescribing
settlement of an insurance claim through regular payments
PRUs (principal risks and uncertainties)
the most significant risks
threatening Saga plc
RCF (revolving credit facility)
the facility that Saga has in place
with its lending banks, allowing draw down of funds up to £100m
Reinsurance
contractual arrangements where an insurer transfers
part, or all, of the insurance risk written to another insurer, in
exchange for a share of the customer premium
ROCE (return on capital employed)
a financial ratio used as a
performance condition under the legacy long-term incentive plan
RSP (Restricted Share Plan)
share scheme, and corresponding
share awards used to incentivise colleagues over the longer term,
ensuring alignment with Company goals
RWC (reasonable worst-case)
the Group’s severe, but plausible,
downside scenario
Shareholder Reference
a unique reference code issued to
investors of Saga plc
SIP (Share Incentive Plan)
a plan available to all colleagues allowing
them to purchase shares in Saga plc through a monthly payroll
deduction
SLT (Senior Leadership Team)
the second layer of management
below Board level
SMT (Saga Management Team)
the third layer of management
below Board level
Solvency capital/Solvency II
insurance regulations designed to
harmonise European Union insurance regulation. Primarily this
concerns the amount of capital that European insurance companies
must hold under a measure of capital and risk
SONIA (Sterling Overnight Index Average)
a replacement for the
London inter-bank offered rate, introduced in the UK in 2021
Speak Up
a policy which allows colleagues to raise any matters of
concern within the workplace
SSL (Saga Services Limited)
the Group’s Retail Broking Business
tCO
2
e
tonnes of carbon dioxide equivalent, a measure that allows
comparison of the emissions of other greenhouse gases relative to
one unit of CO
2
Tell Euan About
a communications forum allowing colleagues to
interact with the Group Chief Executive Officer
TOM (target operating model)
description of the desired
operating model for Saga plc
TSR (total shareholder return)
the theoretical growth in value of a
shareholding over a period, by reference to the beginning and
ending share price, assuming that dividends, including special
dividends, are reinvested to purchase additional units of the equity
Unearned premium
an amount of insurance premium that has
been written but not yet earned
Working@Saga
a collaborative initiative to design, refit and
repurpose our office space to support new ways of working
Additional information
Financial statements
Governance
Strategic Report
Saga plc Annual Report and Accounts 2022
203
Shareholder information
Financial calendar
2022 Annual General Meeting – 5 July 2022
Shareholder information online
The Company will publish annual reports, notices of
shareholder meetings and other documents which we are
required to send to shareholders (
shareholder information
)
on our website. Consenting shareholders will be notified
either by post or email, if preferred, each time the Company
publishes shareholder information. This allows us to increase
the speed of communication, reduce our impact on the
environment and keep costs to a minimum.
You can change your communication preference using Equiniti
(EQ)’s Shareview Portfolio (accessed via www.sagashareholder.
co.uk) or by contacting EQ. To register, you will need your
Shareholder Reference and Activation Code. You can find your
Activation Code on the introductory communications from
EQand your Shareholder Reference can be found on most
documentation, including your share certificate.
You can also manage your shareholding online via Shareview
Portfolio. It is free to use, secure, easy to administer and
allows you to update your UK bank account details, send your
voting instructions in advance of general meetings, keep your
contact details up to date and buy and sell shares easily.
Shareholder fraud
Shareholders are advised to be wary of any unsolicited advice
or offers, whether over the telephone, through the post or by
email. If any such unsolicited communication is received,
please check that the company or person contacting you is
properly authorised by the Financial Conduct Authority
(FCA) before getting involved. Fraudsters use persuasive and
high-pressure tactics to lure investors into scams. They may
offer to sell shares that turn out to be worthless or non-
existent, or to buy shares at an inflated price in return for an
upfront payment. While high profits are promised, if you buy
or sell shares in this way, you may lose your money. For more
information, or if you are approached by fraudsters, please
visit the FCA website (www.fca.org.uk/consumers/scams),
where you can report and find out more about investment
scams. You can also call the FCA Consumer Helpline on 0800
1116768. If you have already paid money to share fraudsters,
you should contact Action Fraud on 0300 123 2040.
Advisers
Joint corporate brokers
Investec Bank plc
30 Gresham Street
London EC2V 7QP
Numis Securities Ltd
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Media relations advisers
Headland Consultancy
Cannon Green
1 Suffolk Green
London EC4R 0AX
Independent auditors
KPMG LLP
15 Canada Square
Canary Wharf
London E14 5GL
Legal advisers
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London EC2A 2EG
Registrars
Equiniti Group
For shareholder enquiries, please contact:
Equiniti Group
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
+44 (0) 371 384 2640
Please use the country code when calling from outside the
UK. Lines are open 8.30am to 5.30pm (UK time), Monday
toFriday (excluding public holidays in England and Wales).
customer@equiniti.com
Information for shareholders
Information for shareholders is provided on the
internetaspartof the Group’s corporate website
(www.corporate.saga.co.uk/investors).
Registered office
Saga plc
Enbrook Park
Sandgate
Folkestone
Kent CT20 3SE
Registered in England. Company Number: 08804263
Corporate websites
Information made available on the Group’s websites does
not,and is not intended to, form part of this Annual Report
and Accounts.
Saga plc Annual Report and Accounts 2022
204
Forward-looking statements
This Annual Report and Accounts contains certain forward-
looking statements with respect to Saga’s expectations,
including strategy, management objectives, future
developments andfinancial position and performance.
Thesestatements are subject to assumptions, risks and
uncertainties, many ofwhich relate to factors that are
beyond Saga’s ability tocontrol and which could cause actual
results and performance to differ materially from those
expressed orimplied by these forward-looking statements.
Any forward-looking statements made are based upon
theknowledge and information available to Directors on
thedateof this Annual Report and Accounts and are subject
to change without notice. Shareholders are cautioned not
toplace undue reliance on the forward-looking statements.
Nothinginthis Annual Report and Accounts should be
construed asaprofitestimate or forecast.
This publication is produced by a
CarbonNeutral® company and Carbon
Balanced with World Land Trust.
Balancing is delivered by World Land
Trust, an international conservation
charity, who offset carbon emissions
through the purchase and preservation
of high conservation value land.
Through protecting standing forests,
under threat of clearance, carbon is
locked in that would otherwise be
released. These protected forests are
then able to continue absorbing carbon
from the atmosphere, referred to as
REDD (Reduced Emissions from
Deforestation and forest Degradation).
This is now recognised as one of the
most cost-effective and swiftest ways
to arrest the rise in atmospheric CO
2
and global warming effects. Additional
to the carbon benefits is the flora and
fauna this land preserves, including a
number of species identified at risk of
extinction on the IUCN Red List of
Threatened Species.
CBP00019082504183028
Designed and produced by
Friend
www.friendstudio.com
This report has been printed on
Amadeus Silk which is FSC® certified
and made from 100% Elemental
Chlorine Free (ECF) pulp.
The mill and printer are both certified
to ISO 14001 environmental
management system. The report was
printed using vegetable-based inks
byaCarbonNeutral® printer.
SAGA PLC
Enbrook Park
Sandgate
Folkestone
Kent
CT20 3SE