Building on our
momentum
Saga plc
Annual Report and Accounts
for the year ending 31 January 2016
Welcome to Saga plc’s annual report and accounts.
Saga exists to make the lives of retired people better. In the
65 years since Saga was founded, we have become the leading
provider of services for customers aged 50 and over. We have
achieved this by listening carefully to them, and by understanding
their specific needs better than anyone else. We try to put our
customers first in everything we do.
We want to do the same in this annual report. It tells you what
we’ve been busy with in the past year, where the business is today,
and where we are going next. By listening to our customers and
meeting their needs, we believe we will grow Saga and deliver real
value to our shareholders.
In this report
02
Highlights
Achievements in the past year
08
Implementing
our clear
strategy
for growth
Group Chief Executive Officer’s
Strategic Review
33
Divisional
review
A review of how our
businesses are performing
16
Delivering
our priorities
Delivering for our customers
through strategic priorities
Financial highlights from
continuing operations
Operational highlights
Trading Profit
Available operating cash flow
Contactable people on the database
£211.0m 5.2%
Profit before tax
£178.1m 9.3%
11.2m
Debt ratio (net debt to EBITDA)
Active customers
from 10.8m
£176.2m 54.8%
Basic earnings per share
2.3x
Dividend per share
from 2.6x
2.66m
from 2.63m
Average number of products
per customer
13.3p
from 8.6p 7.2p
from 4.1p
2.51
from 2.63
22
Our culture drives
our performance
The importance of good corporate
governance in the business
Strategic Report
02 Highlights of our journey
04 Our business at a glance
06 Chairman’s Statement
08 Group Chief Executive Officer’s Strategic Review
11 Our target market overview
13 Our business model
14 Our strategy
16 Our strategic priorities
22 Our resources and relationships
28 Our principal risks and uncertainties
33 Divisional Review
38 Group Chief Financial Officer’s Review
Governance
50 Corporate Governance Statement
50 Chairman’s Statement
52 Compliance Statement
56 Leadership
60 Board of Directors
62 Effectiveness
64 Nomination Committee Report
66 Accountability
70 Audit Committee Report
74 Risk Committee Report
77 Relations with shareholders
78 Directors’ Remuneration Report
78 Annual statement
80 At a glance
82 Directors’ Remuneration Policy
92 Annual Report on Remuneration
101 Directors’ Report
106 Independent auditor’s report
Financial statements
113 Consolidated income statement
114 Consolidated statement of comprehensive income
115 Consolidated statement of financial position
116 Consolidated statement of changes in equity
117 Consolidated statement of cash flows
118 Notes to the consolidated financial statements
176 Company financial statements
178 Notes to the Company financial statements
Additional information
183 Shareholder information
184 Glossary
WWW.SAGA.CO.UK
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
01
Strategic Report HIGHLIGHTS OF OUR JOURNEY
A year of
progress
We delivered both
customer and profit
growth during the year.
14.9%
Core motor policies sold
Read more on page 34
8.5%
Core insurance policies sold
Read more on page 34
02
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
2.3%
Core home insurance policies sold
Read more on page 35
Anne Ware, Travel Sales Adviser,
Saga Holidays
9.9%
Number of holidays passengers
Read more on page 36
3.5pts
Motor combined operating ratio
Read more on page 34
339k
Ship passenger days delivered
on our award winning cruise ships
Read more on page 36
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
03
Strategic Report
OUR BUSINESS AT A GLANCE
Saga celebrates its 65th anniversary this year,
and has become the UK’s leading business
focusing purely on the over 50s.
Business areas
Insurance
Our award winning insurance
business is the largest part of
the Group, providing tailored
products and services ranging
from motor to pet insurance to
over 2m customers per year.
Operations
• Insurance
• Underwriting
Read more on page 34
Travel
Our award winning travel business is
at the heart of the Saga brand, taking
over 250,000 passengers a year all
over the world on package holidays,
escorted tours and cruises.
Operations
• Saga Cruises
• Saga Holidays
• Titan
• Destinology
Read more on page 36
Emerging businesses
Emerging businesses includes
our personal finance, homecare,
publishing and printing operations
as well as new development
areas for the long-term growth
of the business.
Operations
• Personal finance
• Saga Investment Services
• Homecare: Saga Homecare, Patricia
White’s, Country Cousins, Saga SOS
• Saga Publishing
• MetroMail
• Retirement villages
Read more on page 37
04
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
The Saga Model
What differentiates Saga and what
makes customers choose us over other
providers. The Saga Model drives our
ongoing success:
A great brand: a trusted brand with
97% recognition amongst the UK’s
over 50s, allowing us to provide added
value, fairly priced products across
multiple categories.
Investment case
Targeting a growth demographic
The over 50s are the fastest growing
demographic in the UK. In 2013
there were 22.8m over 50s1, a number
that is forecast to grow by 27.6% to
approximately 29.1m by 20331, meaning
they will represent 40% of the UK’s
population1. The 65-75 and 75+
segments are predicted to increase
at an even greater rate over the same
period, by approximately 34% and 70%
respectively1. This is important, as those
aged 65 or over are particularly strong
contributors to the success of
the Group.
Go to page 11 for more information
A strong, capital efficient
business model
Saga is focused on the development
of products and services specifically
for our customers. We then find the
best way to create those products,
be it in-house or teaming up with
a best in class partner to produce
them to our exacting standards.
Differentiated products: we listen
to our 2.7m customers and the 11.2m
people on our database to gain insight
and tailor products and services
specifically for them.
Unique route to market: direct
access to 11.2m individuals through
our database across multiple channels.
Outstanding service: our customers
know what good service looks like,
expect the best, and recognise it
when they get it.
In a majority of cases, Saga uses third
party providers, meaning we have very
little capital at risk and are afforded
some protection against the impact
of market conditions. In the year to
January 2016, 77% of all our trading
profit was generated by activities
where we had no capital at risk.
Go to page 13 for more information
Consistent financial delivery and
cash generation
Group profits have grown year-on-year
for the past five years. Our capital
efficient business model also means
we are highly cash generative, with the
majority of our profit after tax converted
into cash after tax. This gives us the
flexibility to continue to grow whilst
paying down debt and growing
long-term returns to shareholders
via our progressive dividend policy.
Go to page 40 for more information
Growth potential in the core
businesses of insurance and travel
Our award winning core businesses
of insurance and travel are well placed
to grow from relatively modest shares
of the market for the UK’s over 50s.
We have delivered growth across our
core business this year and have a clear
strategy in place for growth in the future.
Go to page 34 for more information
Growth options for the future
We are continuing to identify and
assess new development areas for
the long-term growth of the business.
Our activities include the development
of our recently launched investment
management business, Saga Investment
Services, and our ongoing pilots in
homecare and retirement villages.
Go to page 37 for more information
Profit growth, cash generation and sustainable shareholder returns
1 ONS population projections, CEBR analysis.
Our strategy
1. Unlocking growth in core
businesses of insurance and travel
Go to pages 8,19 and 20
for more information
2. Investing in future growth
Go to pages 8, and 20
for more information
3. Maintaining our simple and
efficient operating model
Go to page 8 for more information
Strategic priorities for the coming year
1. Becoming an ever more
4. Investing for future growth
customer-centric organisation
Go to page 20 for more information
Go to page 18 for more information
2. Growing our insurance businesses
5. Developing our people
Go to page 19 for more information
Go to page 21 for more information
3. Growing our travel businesses
Go to page 20 for more information
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
05
Strategic Report
CHAIRMAN’S STATEMENT
Strategic and financial
delivery leading to enhanced
shareholder returns
Andrew Goodsell
Chairman
I am delighted to present a strong
set of results in an important year
in the history of Saga. This year
marks the 65th anniversary of the
foundation of our business when
Sidney De Haan, the owner of the
Rhodesia Hotel in Folkestone, started
offering off-peak holidays to retired
people. His insight into our customers’
needs was the start of the Company
you see today.
During all of our 65 years our focus on
customer needs has been the driving
force behind the growth of the business.
They remain at the heart of everything
we do and our model is underpinned
by the provision of exceptional levels
of customer service.
We benefit from a diverse and
supportive shareholder base. I am
delighted that many of our customers
extended their affinity with the brand
through their continued ownership of
the Company. We have also been
fortunate to attract a broad range of
high-profile, long-term institutions to
our share register. This combination
supports our ability to deliver long-term
sustainable returns and I would like
to thank our shareholders for their
ongoing support.
I am very pleased to announce that we
have taken the decision to increase
shareholder distributions through our
progressive dividend policy. This is an
important decision and one that reflects
the Board’s confidence in the
sustainability of our dividend policy
given our continued strong profit and
cash performance, the evolution of our
capital efficient model, and our plans
to generate additional free cash flow.
06
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Governance
highlights
We built on the governance structure established last year
– our governance framework supports and sets the tone
for the strategic direction of the business.
Our processes ensure good stewardship whilst allowing
us to grow.
First AGM held in June 2015 – all resolutions passed
with a significant majority and all directors standing for
re-election re-appointed.
We now comply with the Corporate Governance Code
2014 ('the Code') recommendation that half of the Board
are independent Non-Executive Directors.
We conducted our first Board and Committee evaluation exercise
and agreed action plans to focus on areas of development.
Go to page 50 for more information on our governance.
Hazel Matthius, Cruise Adviser, Saga Holidays
Our proposed total dividend for the
year of 7.2p equates to a payout ratio
of 57% of net earnings1, an increase
on last year and higher than market
expectations. We are also increasing
our target payout range going forward
from 40%-60% to 50%-70% of net
earnings. The dividend will be paid
on 30 June 2016 to holders of ordinary
shares on the register at the close
of business on 13 May 2016.
The new team members we have
welcomed during the past twelve
months, both to the plc Board and our
Executive Team, have had a marked
impact on the thinking and leadership
within the business. I would like to take
this opportunity to thank them all for
their input so far and to thank the entire
plc Board for their invaluable
contribution throughout the year.
Finally, I would like to thank all of our
employees. The energy and commitment
of the whole team at Saga, led so
effectively by our Group Chief Executive
Officer, Lance Batchelor, is the driving
force behind our ongoing success and
without them we could not maintain
the exacting standards our customers
expect on a day to day basis.
Andrew Goodsell
Chairman
18 April 2016
1 57% of net earnings excluding the one-off
benefit of tax losses acquired from Acromas.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
07
Strategic Report
GROUP CHIEF EXECUTIVE
OFFICER’S STRATEGIC
REVIEW
Implementing our clear
strategy for growth
Clear strategy and delivery
Everything we have achieved this year
has been a result of the successful
implementation of the clear strategy for
growth we laid out in early 2015. Put
simply we have continued to grow our
core businesses and invest in future
growth whilst maintaining our efficient
operating model.
3. Maintaining our simple and
efficient operating model
— Our model continues to generate
strong cash flows.
— We have undertaken a review
of the capital allocated to our
underwriting business.
— We have disposed of a non-core
asset, Allied Healthcare.
Overview
In our second set of preliminary results,
I am again pleased to be able to report
that we have succeeded in delivering
on our objectives of growing customer
numbers and profits.
Growing customer numbers across
all core areas of the business is a
key element in our long-term success.
Sustainable growth of our customer
base enables us to build long-term
relationships and we know that the
longer customers spend with us, the
more they benefit from our growing
range of products and services.
Financially, we have grown Trading
Profit by 5.2% to £211.0m, profit before
tax by 54.8% to £176.2m and basic
earnings per share by 54.7% to 13.3p.
Furthermore, our available operating
cash flow is up by 9.3% to £178.1m
and our net debt to EBITDA ratio has
reduced to 2.3x.
1. Unlocking growth in our core
businesses of insurance
and travel
— We have delivered customer growth
across all of our key insurance
lines, supported by our expanded
insurance footprint through the
motor panel launch.
— We have increased passengers
in our tour operating business
and increased passenger days
on our ships.
— We have put the right team in place
to make more of our database and
deliver our multi-channel marketing
activities.
“ We have continued to grow our core
businesses and invest in future growth whilst
maintaining our efficient operating model.”
This performance, alongside our plans
to generate additional free cash flow in
the future, has enabled us to propose
a significant increase in the dividend
paid to shareholders and increased
the range for future dividends. This
is a meaningful change, and one that
signals our commitment to driving
shareholder returns through sustainable
dividends going forward.
2. Investing in future growth
— We have announced our investment
in new shipping capacity which will
significantly change the profit
trajectory of our travel business
once delivered.
— Our investment management joint
venture, Saga Investment Services,
was up and running ahead of the key
end of tax year period.
— We have successful pilots ongoing
in new product areas.
08
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Generating additional free
cash flow
During the year we carried out a full
review of our approach to pricing
underwriting risk and the deployment
of capital within our underwriter, AICL.
The review looked at pricing and capital
allocated to AICL when placed against
the Group’s ongoing aim of balancing
short-term earnings growth, investment
for future growth and generating
additional free cash flow to enable
enhanced returns to shareholders.
As a result of this, we:
— launched a panel in our motor
business to allow us to offer
competitive products to a broader
range of customers without putting
additional capital at risk;
— entered into a quota share
arrangement with NewRe, a
subsidiary of Munich Re, the world’s
biggest reinsurance group, to allow
capital to be gradually released from
the underwriter; and
— priced underwriting risk to better
reflect our excellent underwriting
performance, increasing
competitiveness in our core market
and accelerating cash and profit
generation.
As a result of these changes we will
generate additional free cash flow
Lance Batchelor
Group Chief Executive Officer
in the future, enabling us to continue
to deleverage and increase returns to
shareholders through dividends more
quickly than we had previously indicated.
Strategic priorities for the
coming year
To deliver long-term, sustainable value
for our shareholders we aim to achieve
the right balance between short-term
earnings growth, medium-term customer
growth, capital allocation and returns to
shareholders via dividends. To continue
to deliver this, our strategic objectives
for the coming year are:
1. Becoming an ever more
customer-centric organisation
Go to page 18 for more information.
2. Growing our insurance
businesses
Go to page 19 for more information.
3. Growing our travel businesses
Go to page 20 for more information.
4. Investing for future growth
Go to page 20 for more information.
5. Developing our people
Go to page 21 for more information.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
09
Strategic Report
GROUP CHIEF EXECUTIVE
OFFICER’S STRATEGIC
REVIEW CONTINUED
Strong senior team
During the year we completed a number
of new senior hires including: Jonathan
Hill, Group Chief Financial Officer;
Matt Atkinson, Group Chief Marketing
Officer; Karen Caddick, Group Human
Resources Director; and Nici Audhlam-
Gardiner, Managing Director of Saga
Investment Services.
The skills brought to the business by
these new team members, combined
with the existing talent across the
Group, have allowed us to apply new
thinking to our operating model, look
for new opportunities and attain deeper
customer understanding.
I welcome them all to the business and
I am confident that we now have in
place the right team to delever our plans
for future growth.
Conclusion
I am pleased that we have grown
customer numbers, profits and
dividends whilst continuing to delever.
With increasing insurance customer
numbers supported by the motor panel
and the ongoing growth of our travel
businesses, we expect to continue to
deliver steady growth in Group earnings
before the delivery of our new ship in
2019. Additionally, as our model evolves,
with increased free cash flow resulting
from lower capital in our underwriter,
we expect to be able to pay higher
dividends combined with ongoing
reductions in our leverage.
The continued evolution of our model
will position us to generate high quality
and more resilient earnings, further
supporting our enhanced dividend
policy going forward.
In light of the ongoing debate surrounding
the result of the UK’s forthcoming
referendum on membership of the
European Union, because of the Group’s
diverse nature, we believe the result of the
The right mix
Introducing our Executive
Management Team
1. Karen Caddick
Group HR Director
2. Jules Christmas
Group IT Director
3. Roger Ramsden
Chief Executive, Insurance
4. Andrew Button
Chief Executive, AICL
EU referendum is unlikely to have
a material impact on the business.
We are, however, continuing to monitor
the situation closely.
We have a clear strategy in place
to continue to grow our underlying
businesses and we have made a
positive start to the current year.
Lance Batchelor
Group Chief Executive Officer
18 April 2016
5. Jonathan Hill
Group Chief Financial Officer
6. Lance Batchelor
Group Chief Executive Officer
7. Matt Atkinson
Group Chief Marketing Officer
8. Nici Audhlam-Gardiner
Managing Director, Saga
Investment Services
9. Andrew Strong
Chief Executive, Travel
and Wealth Management
4
7
1
2
6
8
3
9
5
10
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
MARKET OVERVIEW
Overview of our
target market
As pointed out in the investment case
on page 5, the over 50s are the fastest
growing demographic in the UK.
The over 50s are also the most affluent
and influential individuals in the UK with
varied, complex and evolving needs
and a very clear view on what good
customer service looks like. They own
68%1 of the UK’s household wealth
and account for nearly 40%1 of the
UK’s household expenditure.
We work constantly to understand
and cater for this group and provide
products and services across multiple
categories including insurance, travel,
personal finance and publishing.
Macro conditions
While the over 50s are not immune
to macro events, they tend to be more
resilient during times of economic
stress. This is because they tend to
rely on pensions, savings and pools
of acquired assets. This is especially
true for the ABC1 households, which
form the core of Saga’s target
customer base.
Factors which further enhance this
economic resilience include:
— Low debt levels
— Fewer fixed costs
— Younger members of this group
benefiting from inheritance from
the older ones
Projected growth of the UK’s over 50s
35% of the
population
40% of the
population
1993
2003
2013
2023
2033
2013-2033
Growth
i n c r e a s e
c . 7 m
26.7m
10%
10%
29.1m
12%
73%
11%
39%
20.0m
8%
8%
22.4m
8%
9%
18.1m
7%
9%
15%
18%
18%
19%
17%
77%
40
30
20
10
0
Age group
50-65
65-75
75+
Our core businesses of insurance
and travel are, however, linked to
the economic cycle, and there is
a possibility for altered behaviour
amongst our customers depending
on the stage of the cycle.
In suppressed economic conditions for
example, the frequency and severity of
motor insurance claims have a tendency
fall as people drive less. Whilst we have
not seen this from our customer base
in the past twelve months, the opposite
can also be true, with increasing
economic activity and lower fuel prices
leading to more miles being driven and
an increase in the frequency and
severity of motor insurance claims.
During a longer downturn, as
consumers come under increasing
pressure, some may choose to
downgrade their level of insurance
cover, or withdraw from certain
insurance products entirely.
In the travel sector, consumers may
choose to travel less or purchase
cruises and holiday packages with lower
price tags. Given its entirely discretionary
nature, some consumers may cease
to take cruises or holidays altogether.
Source: CEBR (Centre for Economic and Business Research), based on the ONS wealth and assets survey
(WAS), Ipsos MORI and ONS, Cebr Analysis.
1 CEBR (Centre for Economic and Business
Research), based on the ONS wealth and
assets survey (WAS), Ipsos MORI.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
11
Strategic Report
MARKET OVERVIEW
CONTINUED
Saga however does have the advantage
of only focusing on serving the needs of
the over 50s, allowing us to differentiate
our offering from competitors who need
to provide products and services that
work for customers of all ages.
This, in combination with our focus on
growth across the Group, means we
are in a strong position to leverage
our model to continue to grow profitably
our market share throughout all our
operating divisions, and capitalise on
the new opportunities we identify.
During a period of strong economic
activity, demand for discretionary
style products, such as all our travel
products, and some insurance
products, such as private medical
and home insurance, may increase.
Consumers’ appetite for more
sophisticated products with superior
levels of cover may also increase.
Similarly, consumers will tend to opt
for more expensive holidays, or take
more holidays on an annual basis.
Regulatory and political change
The over 50s in the UK are highly
influential politically, as they tend to
form a larger proportion of the active
electorate than other segments of
the population.
We aim help our customers by engaging
on the issues that impact them most.
Where relevant, we aim to provide new
products and services that support them
following times of regulatory change,
such as Saga Investment Services.
Saga as a regulated business
Saga operates in regulated sectors,
notably in financial services and
travel. The regulatory environment
is continuously evolving and Saga
maintains excellent relationships with
its regulators in order to ensure that
we remain abreast of any changes
that could impact our operations.
We take our responsibility towards
our customers seriously and strive
to go the extra mile for them. We
recognise that some may need extra
help. This additional support ranges
from contacting those who haven’t
changed their policy details for a
number of years, in order to make sure
their insurance needs haven’t changed,
to identifying vulnerable customers and
providing them with a dedicated team to
assist with any claim they might make.
The competition for customers
Saga operates across multiple sectors,
but we have modest market shares
in all of our sectors and compete with
multiple providers. Whilst we have
a strong position and are growing
customer numbers, we do not have a
monopoly when it comes to the UK’s over
50s, whose substantial buying power
is attractive to all market participants.
12
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
OUR BUSINESS MODEL
The Saga Model
The Saga Difference
Saga exists to make the lives of retired
people better. At the heart of our
business model, therefore, is our drive
to know more about our customers’
wants and needs than anyone else
so we are best placed to serve them.
Based on our insight, we design the
products and services that our customers
want. We then decide the best way to
produce them, either in-house or through
a third party provider. This decision is
based upon a number of factors including:
the best outcome for the customer, how
best to access specialist skills and
knowledge, and the best use of capital.
Where third parties are used, our
partners sign up to provide a Saga
product, designed and tailored
specifically for our customers and
delivered to Saga specified levels
of customer service.
In a majority of cases, Saga uses third
party providers, meaning we do not
have any capital at risk.
One of our core skills is the ability to
manage our partners’ provision of
products and services to Saga customers.
We constantly monitor customer service
feedback and quality and will, where
necessary, change providers to ensure
customers receive the Saga experience
however they interact with us.
These products and services are
delivered, through The Saga Model,
the things that define our business:
A great brand: a trusted brand with
97% recognition amongst the UKs
over 50s, allowing us to provide added
value, fairly priced products across
multiple categories.
Differentiated products: we listen
to our 2.7m customers and the 11.2m
people on our database to gain insight
and tailor products and services
specifically for them.
Unique route to market: direct access
to 11.2m individuals through our
database across multiple channels.
Outstanding service: our customers
know what good service looks like,
expect the best, and recognise it when
they get it.
Saga’s flexible and capital efficient
model has a strong track record of
resilience and growth.
It allows us to access the very best
providers of products and services
in any given market, to enter new
markets very quickly and, with no
capital at risk in the majority of cases,
provides some protection against the
impact of market conditions.
The breadth of our offering also
provides protection against product
specific risks, allowing us to focus our
resources on the areas of the business
that have the most potential for growth.
Our capital efficient business model also
means we are highly cash generative,
with the majority of our profit after tax
converted into cash. This gives us the
flexibility to continue to grow whilst
paying down debt and growing long-
term returns to shareholders via
our progressive dividend policy.
Source of Trading Profit1
l Broked and other – 77%
l Manufactured – 23%
23%
77%
1 Manufactured is Trading Profit from AICL
Underwriting, Cruising, Healthcare, Media
and Central Costs, broked and other is
Trading Profit from all other operations.
Trading Profit by Division2
l Home insurance – 27%
l Motor insurance – 50%
l Other insurance – 13%
l Holidays – 5%
l Cruising – 3%
l Emerging businesses – 2%
3% 2%
5%
27%
13%
50%
2 Excluding Central Costs.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
13
Strategic Report
OUR STRATEGY
Clear strategy
KPIs
Strategic delivery
Year ending 31 January 2016
1. Unlocking
growth in our
core businesses
of insurance
and travel
2. Investing in
future growth
3. Maintaining
our simple
and efficient
operating
model
Active customers
1. Unlocking growth in our
2.66m
2.63m
core businesses of
insurance and travel
Average number of products
2.51
Trading Profit
2.63m
£211.0m 5.2%
Profit before tax
£176.2m 54.8%
— Delivered customer growth across all
of our key insurance lines, supported
by our expanded insurance footprint
through the motor panel launch.
— Increased passengers in our tour
operating business and increased
the utilisation of our ships.
— Put the right team in place to make
more of our database and deliver our
multi-channel marketing activities.
2. Investing in future growth
— Announced our investment in new
shipping capacity which will significantly
change the profit trajectory of our travel
business once delivered.
— Saga Investment Services up and running
ahead of the key end of tax year period.
— Successful pilots are ongoing in new
Earnings per share
product areas.
13.3p
from
8.6p
Dividend per share
7.2p
Available operating
cash flow
£178.1m
Debt ratio
2.3x
75.6%
9.3%
from
2.6x
3. Maintaining our simple and
efficient operating model
— Model continues to generate strong
cash flows.
— Undertaken a review of the capital
allocated to our underwriting business.
— Disposed of a non-core asset,
Allied Healthcare.
14
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Measuring
success
Strategic priorities
Year ending 31 January 2017
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
Core insurance policies sold
1. Becoming an ever more
2,908k
Holiday passenger days
189k
8.5%
9.9%
Core trading profit from insurance
and travel
£230.3m 9.1%
SIS up & running
by key tax season
Announced investment
in new shipping capacity
Motor panel launched
5 underwriters in place
Quota share signed post
year end
75% of risk in AICL reinsured
customer-centric
organisation
Read more on page 18
2. Growing our insurance
businesses
Read more on page 19
3. Growing our travel
businesses
Read more on page 20
4. Investing for future growth
Read more on page 20
Sale of Allied Healthcare
5. Developing our people
Read more on page 21
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
15
Delivering our
Our strategy has been developed
to deliver long-term shareholder
value through growth in the core
businesses and capitalising on
the long-term value identified in
our new business opportunities.
These are our strategic priorities for the coming year.
They build on our achievements so far and are the next
step in the long-term delivery of our strategy.
DELIVERING
OUR PRIORITIES
CONTINUED
1.
Becoming
an ever more
customer-
centric
organisation
Over 65 years, we have built up a very
deep understanding of our customers
and our target demographic.
Traditionally, this insight has been
used to develop products and gauge
important characteristics of the
customer, such as propensity to buy
travel products and renewal dates for
insurance policies.
With our new marketing team in place,
we have the capability to do much more
with the data we have at our disposal.
Our aim is to make Saga a truly
customer-centric organisation, allowing
us to respond even more effectively to
our customers’ wants and needs and
help them to put more of Saga in
their lives.
At the heart of these plans is an
understanding of how our customers
are changing and how we are adapting
to meet their needs. By focusing on the
way a customer’s life changes up to and
in retirement, we have an opportunity to
build on our current strong position to
ensure our relevance and appeal to our
target market in the future.
Our plan for delivery is multi-faceted
and includes:
— Customer insight: as the meaning
of retirement changes for our
customers, we need to understand
that change more than anyone else
and remain relevant to the changing
needs of our customers and
differentiate accordingly.
— The customer journey: moving
from a very successful, direct
marketing model to a multi-channel
model that simplifies the customer
journey. We can personalise the
customer experience, develop a
deeper understanding and deliver
more efficient and personalised
communications.
— Helping the customer to ‘put
more of Saga in their lives’: We
will work to create a customer view
of relationships with Saga to help
identify and reward those who
engage with Saga on multiple levels,
improving the average product
holding per customer.
— The brand: the Saga brand is a vital
part of the Saga business with 97%
recognition amongst the UK’s over
50s. We will continue to increase our
relevance to our target customers
and help shift recognition and
awareness into conversion.
Understanding the customer has always
been at the heart of what we do in order
to provide leading products and
services. Our renewed focus on the
customer’s journey towards retirement
gives us the opportunity to enhance this
approach to help ensure Saga remains
the UK’s chosen provider for customers
that are in, or thinking about, retirement,
well into the future.
18
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Ashleigh Hatton,
Performance Consultant,
Performance Support Team,
Saga Holidays
2.
Growing our
insurance
businesses
As the largest part of the business by
customer numbers and earnings, our
insurance operations play a vital role in
the delivery of growth across the Group.
Our business model provides us with
the flexibility to balance growth in
customer numbers and profit across
our insurance business, depending
on market conditions or our strategic
aims. To deliver long-term growth for
the Group, we have targeted growth in
customer numbers and have delivered
policy growth across all of our major
insurance lines in the past year.
We will continue to build our insurance
customer base and encourage loyalty
amongst these customers with the aim
of increasing the average number of
products held, both within our insurance
business and across the Group.
Much of this growth will be driven
by the development of the motor
insurance panel, allowing us to provide
competitive quotes for a broader range
of customers than we could in the past.
Additionally, we will continue to improve
our product propositions through
enhanced customer insight and
understanding, allowing us to further
differentiate our products from the
broader marketplace.
Finally, we are focusing on engaging
with our customers on a multi-channel
basis to ensure our customers receive
the same Saga experience regardless
of how we interact. We are therefore
working across the Group to ensure a
joined up, easy, personal and engaging
customer experience through whichever
channel (in person, by phone, by letter
or digitally) our customers are most
comfortable with.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
19
Strategic Report
DELIVERING
OUR PRIORITIES
CONTINUED
3.
Growing our
travel
businesses
Matt Shearman, Holiday Sales
Adviser, Saga Holidays
Our travel business lies at the heart
of our brand. It enables customers to
experience Saga levels of service and
dedication in a unique way that many
of our competitors are unable to replicate.
Growth across the travel business
will come from the delivery of more
targeted and sophisticated products,
making Saga’s travel offerings more
contemporary through the development
of new and differentiated propositions.
We will work to leverage these new
propositions through marketing
initiatives that help to attract new
customers, particularly through the
enhanced use of digital channels as
our target customers become more
digitally active.
Within our cruising business, we
will maintain the highest possible
standards of customer experience
on both the Saga Sapphire and the
Saga Pearl II.
4.
Investing for
future growth
The majority of our short-term growth will
come from continuing to unlock the potential
in our core businesses of insurance and
travel. At the same time, however, we are
putting in place the building blocks that
will support Saga’s long-term growth plans.
Some of these opportunities are well
progressed; others are potentially exciting but
may not progress beyond the pilot stage. As
always, we monitor progress extremely carefully
to ensure that we can deliver a product or
service that fits within The Saga Model and
surprises and delights our customers.
New ships: In September 2015 we
announced our decision to enhance our
excellent cruise business by updating our
shipping capacity. In the year ahead we
will be working alongside our partner Meyer
Werft to finalise the design of the ship to
ensure its delivery in 2019. The new ship
will be transformative for the operating
efficiency and profitability of our cruising
business. We expect cruises on the new
ship to be on sale from 2017.
Saga Investment Services: With high street
banks and independent financial advisers
continuing to withdraw from the advisory space
in the face of increased regulatory pressures,
we identified a significant gap in the market for
quality financial advice from a trusted provider.
In November 2015 we launched Saga
Investment Services, our investment
management joint venture with Tilney
BestInvest, to fill this gap. The business
offers everything from SIPPs to a personal
advisory relationship, with all products
transparently and fairly priced.
Our aim is to grow Saga Investment Services
to become, in time, a meaningful contributor
to our earnings.
New opportunities: We continue to
identify gaps in the market where the UK’s
over 50s could be better served through the
implementation of the Saga Model. We test
these opportunities through a series of pilots
such as the ones we are currently running in
private pay homecare and retirement villages.
This allows us to gauge their potential before
slowly scaling the business up into a meaningful
profit contributor. In the coming year we will
continue to asses our current pilots and,
subject to them proving their viability on a
larger scale, start to expand them further.
20
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
5.
Developing
our people
Our people are central to everything
we do and as such, their ongoing
development plays a key role in the
successful delivery of our strategy.
We now have a strong team in place
throughout the business and last year
we started to put in place the tools we
need to support their development and
enhance their engagement, ensuring
we maximise the talent we have.
The implementation of ‘The Saga Way’
will continue, making it a key responsibility
for every leader within the business.
We will also increase our investment in
leadership and management capability
across our Executive Team, our top team
and all senior leaders within the business.
Mackenzie Carne, Service Delivery Development Team Assistant, Saga Insurance
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
21
Strategic Report
OUR RESOURCES
AND RELATIONSHIPS
Our culture drives
our performance
Rebecca Johncock,
Cruise Adviser,
Saga Holidays
O ur values inform who we are
and how we work – they
are brought to life every
day by our people. There
are a number of key assets,
beyond the financial, which
are vital to the functioning of our business
and the delivery of our strategy.
Brand
65 years ago our founder, Sidney De
Haan, identified that retired people had
different travel needs. Ever since, Saga
has continued to focus on understanding
their wants and needs. We have used this
insight to create a range of high-quality
products and services, which have
delivered sustained growth. This is aided
by the high regard and warmth felt for
the Saga brand.
Saga is now one of the UK’s most
recognised and trusted consumer
brands and is synonymous with the over
50s market. We are known for quality
products and services, and excellence
in customer service. We achieve high
levels of repeat business and acquire
new customers without needing to rely
heavily on costly third party advertising.
Our focus on a personal, more direct
approach is appreciated by our
customers, as is the fact that people can
deal with us in the way that suits them.
22
People
Saga’s success relies upon having
highly engaged employees committed
to delivering exceptional service to
our customers. Building exceptional
engagement requires a positive high-
performing culture and at Saga we see
this as a key priority of leadership. In 2015
we were delighted to see a significant
improvement in our employee engagement
levels which are now over 80%, above the
UK norm, and we have plans to improve
this further. We made big strides forward
in 2015 in building a comprehensive
employee communication strategy. We
have a suite of two-way communication
forums to ensure we are really listening
to the views and opinions of our people
on how we can continue to improve Saga
for staff and customers. We also made
significant improvements to our employee
benefits with an issue of free shares to all
of our people in July 2015 to enable them
to share in our success and also to align
them with our continued growth and
profitability. We also launched a new
Share Incentive Plan and we are delighted
with participation levels. Strong alignment
of our employees with our business
success is really important to us.
In 2015 we also launched the ‘Saga
Way’, which crystallises the culture we
want at Saga with a strong emphasis
on exceptional customer care and giving
our people a strong voice in ensuring
that we consistently deliver. Our culture
is focused on allowing people to be
brave, challenging ourselves to deliver
the best customer service throughout
Julie Birchmore, Holiday Sales Adviser, Saga Hoidays
our business and supporting each
other to do our best work. Building this
high-performance and high-support
culture is a key part of every leader’s
responsibility at Saga.
We continue to invest in our leadership
and management capability. In 2015
we improved our approach to reviewing
talent at all levels of our business. We have
clear plans in every team to accelerate
development and allow people to fulfil
their potential. We are also focused
on enabling people to develop across
different parts of our Group, because
we know that this diversity of experience
is great for our people and our customers.
The Saga Way Academy continues to
deliver high-quality training, linked to our
business plans, for all of our employees.
Diversity and having an employee
base that brings different perspectives,
backgrounds and ways of thinking is very
important to our business and we aim to
make this easier to deliver by providing
flexible working. We help people to
grow through biannual performance
development reviews and career planning
discussions – the latter have just been
introduced this year. Our open and
supportive culture also encourages
people to speak up if they have issues
that they want to raise, and we support
this with whistleblowing arrangements
that are regularly communicated.
Our goal is to be the best employer
in the South East and beyond and we
have strong leadership commitment
with a clear plan to deliver this.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
23
Strategic Report
OUR RESOURCES
AND RELATIONSHIPS
CONTINUED
Gender diversity January 2016
Board1
Senior managers2
Employees3
Male
Female
Actual
%
Actual
7
95
1,980
78%
65%
44%
2
51
2,499
%
22%
35%
56%
Total
9
146
4,479
1 Directors of the Company including executive and non-executive.
2 All divisional Board Directors, and employees with strategic input and influence.
3 All Saga employees (including Directors and senior managers).
John Freeman, Sales Adviser,
Retirement Villages
Human rights
Saga conducts business in an ethical
and transparent way. Policies to support
recognised human rights principles
include those on non-discrimination,
health and safety and environmental
issues. Saga has a zero tolerance
approach to bribery and corruption.
Health and safety
Saga is committed to protecting the
health, safety and welfare of employees,
customers and anyone affected by
our operations. We have a positive
health and safety culture and seek
to continuously improve health and
safety performance.
We meet our obligations through the
development and implementation of
suitable policies and procedures.
Beyond this, everyone in Saga has a
personal responsibility for health and
safety and for performing the activities
they undertake in a safe manner
and this is regularly communicated.
Community and social
Saga is a major employer in Thanet,
Folkestone, Hastings and Redhill.
We recognise our responsibilities to
the communities from which we draw
potential recruits and also aim to be
a good neighbour to local residents.
We have made donations to Safer
Kent, a local crime prevention charity,
and provided raffle prizes for local
community groups. The Saga Pavilion is
used by local organisations, which this
year have included the Children’s Trust,
the MS Society, orchestral and choral
societies and sports associations. At
the weekend the Enbrook Park HQ
car park is open for those visiting
local shops, and the farmers’ market
uses the site twice a month.
The grounds and woods at our sites are
well maintained and open to the public.
A new public footpath has been created
through Enbrook Park and a local Scout
group has established various habitats
to encourage wildlife.
Saga has a strong social commentary
and campaigning aspect to its brand
reflecting and giving voice to the
concerns of the nation’s over 50s. This
is achieved through a mix of published
research, public policy campaigns and
news commentary. This builds a
reputation for being an insightful and
trusted voice with the media and policy
makers for the concerns of those
approaching or in retirement. During
the 2015 General Election, all party
leaders were interviewed in Saga
Magazine and the Prime Minister
launched his manifesto for older
people at an event for Saga
customers at our Hastings office.
The Saga Respite for Carers Trust
provides holidays for family carers,
and the Saga Charitable Trust, which
celebrated its 30th anniversary in 2015,
supports projects in countries that our
holiday customers visit.
Keely Berwick, Holiday Sales Adviser, Saga Holidays
24
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Our people and customers also donated
significant sums towards helping victims
of the Nepal Earthquake in April 2015 and
Saga Charitable Trust provided matching
funding. A £50,000 donation to the
Gurkha Welfare Trust was made by Saga
Charitable Trust at last year’s AGM.
As one of the inaugural signatories
of the Ministry of Defence’s Corporate
Covenant, Saga has shown a strong
commitment to staff who are in the
reserve forces and for service families.
We also support local air, sea and
army cadets and hold an Annual
Armed Forces Day staff BBQ that has
raised money for: the Royal British
Legion; the Soldiers, Sailors, Airmen
and Families Association; and Help
for Heroes.
Our contact centres were used for
both Comic Relief and Children in
Need – which saw teams from around
the Company manning the phones
to take donations.
Supplier partnerships
These relationships are fundamental
to our business model. We work very
closely with our suppliers to deliver the
products and services to the standard
our customers expect.
Once we have designed and tested
products and services, we decide how
best to source them for our customers
– in-house or from a third party.
We are not a commission-based
business. We design bespoke products
ourselves then look for the best possible
partners to supply them, comparing
them for service and value. Over time we
can move if more appropriate, or better,
partners become available. Our partners
work with us in this way because it is a
mutually advantageous relationship –
they benefit from our brand, customer
knowledge and access to an attractive
target market. Saga, and its customers,
benefit from our partners’ expertise and
resources. This also means that we
maintain responsibility for delivery and
continue to own the relationship with our
customers, ensuring we can manage the
customer experience at all times.
Database and technology
Our multiple customer interactions
across a broad range of products
and services over many years have
enabled us to develop a sophisticated
proprietary Group Marketing Database.
Data security and the threat of
cybercrime are key issues and these
are covered in the Principal Risks and
Uncertainties section on pages 28-32.
Ships
Our ships are subject to an ongoing
programme of refurbishment and refits
to ensure a continued safe and efficient
operation and an environment that meets
our customers’ exacting standards and
expectations. The cruise experience is
the embodiment of Saga’s focus on the
needs of our customers and gives us an
opportunity to connect with customers in
a way that none of our financial services
competitors can hope to achieve.
Environment
The Group is sensitive to its
environmental impact and aims to
operate in a manner that minimises
negative impact, such as waste sent
to landfill, and invests in activities
which have a positive impact on the
environment, such as improved energy
efficiency. We strive for continuous
improvement of our operations to reduce
any potential impact our business may
have on the environment. Saga promotes
green travel options and has a network
of Saga minibuses that take people to
and from its sites, and we also promote
a cycle to work scheme.
This database now contains highly
relevant data for 11.2m people and 9.1m
households, covering over 50% of over
50s households and over 60% of over
50s ABC1 households in the UK.
Saga has a consistent focus on
data collection and we are constantly
re-confirming the data we gather
through over 128m interactions per year.
By selling products and services directly
to customers, we capture information at
every point of contact and build a view
of the customer and changes in
behaviour over time.
Our data analysts are then able
to perform sophisticated analysis
such as customer segmentation and
propensity modelling, resulting in
targeted marketing. This allows us to
introduce appropriate products and
services to customers in a highly
efficient manner with relatively low
customer acquisition costs. Importantly,
our database is exclusive to us: we do
not share the information with third
parties for marketing purposes.
Our main IT systems are developed,
supported and maintained in-house,
as many of the systems are a key
source of our competitive advantage.
Most of our operating systems are
adapted to each business segment,
so application support is administered
by decentralised segment-specific
support functions. In contrast, most of
our IT infrastructure, such as telephony
switches, data networks and server
rooms, are maintained by centralised
support functions.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
25
Strategic Report
OUR RESOURCES
AND RELATIONSHIPS
CONTINUED
Greenhouse gas emissions report
This section has been prepared as per Section 7 of The Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013.
During the the year ending 31 January 2016, the Group emitted a total of 102,261
tCO2e from fuel combustion (Scope 1 direct) and electricity purchased for our own
use (Scope 2 indirect). This is equivalent to 106.2 tCO2e per £m revenue. We
voluntarily report Scope 3 emissions arising from business travel, which contribute
1,637 tCO2e.
The table below shows our greenhouse gas (GHG) emissions for the year ended
31 January 2016.
Greenhouse gas emissions in tonnes of carbon dioxide (tCO2) or carbon
dioxide equivalent (tCO2e)
Emissions source
Scope 1
Scope 2 (location-based)
Total Scope 1 & 2
tCO2e per £m revenue
Scope 2 (market-based)*
Scope 3
2015/16
Emissions
2014/15
Emissions
96,026 tCO2e
6,235 tCO2e
102,261 tCO2e
106.2
1,078 tCO2
1,637 tCO2e
104,734 tCO2e
7,038 tCO2e
111,772 tCO2e
124.1
n/a
1,694 tCO2e
* Employee FTE Emissions from the consumption of electricity outside the UK and emissions from
purchased electricity calculated using the market-based approach using supplier-specific mission
factors are reported in tCO2 rather than tCO2e due to the availability of emission factors.
Methodology
We quantify and report our
organisational greenhouse gas
emissions in alignment with the GHG
Protocol, which includes alignment with
the new Scope 2 Guidance.
The UK Government 2015 Conversion
Factors for Company Reporting have
been utilised in order to calculate Scope
1, Scope 2 (Location-based) and Scope
3 emissions from corresponding
activity data.
Reporting boundaries
and limitations
We consolidate our organisational
boundary according to the operational
control approach and have adopted a
materiality threshold of 5% for GHG
reporting purposes. Due to poor data
accuracy and a lack of operational
control, emissions from non-owned
buildings fall outside of the
organisational boundary and are
reasonably estimated to fall below the
5% materiality threshold. Similarly,
emissions from diesel combustion
within building generators are
reasonably estimated to be less than
5% of our total footprint and have not
been included in our disclosure.
The GHG sources that constitute our
operational boundary for the 2015-16
reporting period 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
Assumptions and estimations
During the year Bennett’s was
acquired and Allied Healthcare was
sold. Emissions have been calculated
for these entities pro rata.
In some cases, where data is missing,
values have been estimated by
extrapolation of available data from
the reporting period or data from 2014
as a proxy.
— No data was available for Allied
Healthcare’s business travel, so an
estimate has been calculated from
the previous year’s data.
— Where the fuel type information was
not available, it has been assumed
to be diesel for the purpose of
emissions calculations.
Total location-based emissions
(2015/16)
1. Scope 1 – 92%
2. Scope 2 – 6%
3. Scope 3 – 2%
2
13
6% 2%
92%
26
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Scope 2 emissions by methodolgy
7000
6000
5000
4000
3000
2000
1000
0
6,235
tCO2e
1,078
tCO2e
Location-
based
2015-2016
Market-
based
2015-2016
Dual reporting of Scope 2
emissions
The new Scope 2 Guidance in the GHG
Protocol requires that we quantify and
report Scope 2 emissions from
purchased electricity consumption for
our own use using two different
methodologies: the location-based
method, using average emissions
factors for the country in which the
reported operations take place, and the
market-based method, which uses the
actual emissions factors of the energy
procured. This is known as dual
reporting. Please see below for further
details of these methodologies.
The graph below shows the Group’s
Scope 2 emissions from purchased
electricity, which have been calculated
using the two different methodologies.
Saga purchases electricity for the
majority of their buildings from a 100%
renewable supply from Haven Power.
The remainder of the UK electricity is
supplied by SSE which has a cleaner
fuel mix than the UK average. The dual
reporting of our emissions in this way
demonstrates the impact that selecting
these suppliers has on our greenhouse
gas emissions, and that we are making
efforts to reduce our climate impact
through the purchase of electricity
generated from cleaner sources.
Improving performance
We have continued to monitor and
measure our carbon impact in 2015-16
following our first annual emissions
report last year. In 2015, Saga was
short-listed by the Carbon Disclosure
Project (CDP) in the category of ‘Best
first time responder’ and we aim to
further improve our score.
We have taken steps to improve our
energy and carbon performance: as
part of compliance with the UK Energy
Savings Opportunities Scheme (ESOS),
we have identified a number of
measures to further reduce energy use
in buildings and ships in particular and
are in the process of implementing the
next steps to realise these savings.
Total emissions for the year ending
31 January 2016 have reduced
compared with the year ending
31 January 2015 by approximately 8%.
This is largely due to an 8% reduction
in the emissions associated with Marine
Fuel, which contribute over 87% of
Saga’s Scope 1, 2 & 3 total emissions.
Within the two cruise ships that we
own and operate, Saga have been
implementing a number of fuel efficiency
measures, these include designing
itineraries at lower speeds, reducing
the use of stabilisers, and replacing
lightbulbs with LEDs.
There has also been an annual
reduction in building energy
consumption, which can partly
be attributed to the sale of Allied
Healthcare, as well as a reduction
in the use of road fuel.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
27
Strategic Report
OUR PRINCIPAL RISKS
AND UNCERTAINTIES
Strong risk management at
the heart of our approach
Risk governance
We have agreed with the Board
systems and processes to govern our
approach to risk management. These
systems specifically encompass: ensuring
an effective risk assessment and
management system is in place; agreeing
the principal risks and uncertainties the
business should accept in pursuit of its
strategic objectives and regularly reviewing
the status of these; ensuring a suitable risk
culture is embedded throughout Saga;
and frequently assessing the effectiveness
of the Group’s risk management systems,
including essential levels of internal and
external risk communication. Our
approach and these processes are set out
in more detail in the Accountability section
of our Corporate Governance Statement
on pages 66-69 of this annual report.
We believe that enhanced
sustainability and shareholder value will
come through achieving the optimum
balance between risk and reward. Our
four divisions face a range of risks and
uncertainties that could impact their
strategic objectives, some common to
the Group as a whole and others unique
to the particular business or operation.
It is therefore imperative to have a risk
management policy and framework
capable of assessing and monitoring
these risks and uncertainties individually
and in aggregate against an agreed risk
appetite to ensure management within
agreed tolerances.
Risk appetite
Our risk appetite, reviewed annually,
defines the amount and sources of
risk which we are willing to accept in
pursuit of our objectives. We express
our overall attitude to risk using the
following dimensions:
Financial strength
We aim to maintain an appropriate buffer
of capital resources within the Group
and, where relevant, within our legal
entities, to ensure that we are able to
absorb reasonable operational variation
and meet regulatory thresholds.
Earnings volatility
We have low appetite for volatile
earnings and have established limits
representing the maximum amount of
acceptable variation in earnings during
our planning cycle.
Conduct/reputation
We recognise that our continued
success depends on maintenance of
our brand, and reputation for quality
service. We therefore have zero appetite
and a very low tolerance for brand and
reputation risks and will look wherever
possible to eliminate them. We have
zero appetite and very low tolerance for
systemic unfair customer outcomes as a
result of failures in the product, marketing,
sales or service delivery systems and
processes, or cultural shortcomings.
Customer growth
Our goal is to know as many of our
target customers as possible so we
have low appetite for actions or events
which lead to a low growth or reduction
in the number of our customer contacts.
We further describe our attitude towards
the following main categories of risk
that we encounter through carrying
out our business:
Market risk
We seek some market risk through our
investment activity and seek to earn
returns commensurate with our risk
appetite. We have limited appetite for
foreign exchange risk, commodity
price movements and interest rate
movements and actively manage
these to reduce risk where possible.
Credit risk
Our practice of working with external
counterparties, such as intermediaries,
risk management activity (such as
reinsurance and hedging) and deposit
making introduce elements of credit
risk. We have a low appetite for credit
risk but are prepared to accept it to
some extent where it is necessary
to achieve our business objectives.
Liquidity risk
Through our daily operations we are
exposed to needs for liquidity and
we have a low appetite for this risk.
We will therefore accept, but actively
seek to manage, liquidity risk to ensure
a minimum financial buffer is maintained
in pursuit of our objectives.
28
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
“ Our risk appetite,
reviewed annually,
defines the amount
and sources of risk
which we are willing
to accept in pursuit
of our objectives.”
Health and safety
We have zero appetite and a low
tolerance for health and safety risks
and we will do all that is reasonably
practicable to prevent personal injury
and danger to the health of our
employees, customers, and others
who may be affected by our activities.
Cyber security
We recognise the need to utilise
technology to achieve our business
objectives. We are, however, focused
on maintaining a robust and secure IT
environment, with particular attention
being paid to avoiding loss of customer,
employee and other business
confidential data, and interruption of
customer service. We therefore have
zero appetite and very low tolerance
for risks that could breach our security
measures and threaten the security
of our systems and data.
Separate risk appetite statements
and risk tolerance thresholds have also
been created for each business in Saga,
customised to their business needs
and complementary to the Group’s
tolerances. Risk appetite statements
and risk tolerances are central to our
decision making processes and are
a point of reference for all significant
investment decisions.
Insurance risk
We actively seek measured amounts
of insurance risk in business lines where
we have appropriate expertise and
expect to be appropriately rewarded
for accepting the risk. We will accept
limited insurance risk for personal injury
risks that we feel we have the expertise
to underwrite and manage and will
accept non-life insurance risks that we
have the relevant expertise in.
Strategic risk
We operate in a dynamic business
environment and accept that we are
exposed to a number of strategic
risks. We will actively seek to grow
our business in areas which present
sustainable growth opportunities and
where we have demonstrable expertise.
Mergers and acquisitions risk
We aspire to levels of business growth
which may require us to consider
merger and acquisition opportunities
from time to time. Where these arise in
areas where we have expertise we will
consider them and establish suitable
risk tolerances in each case.
Operational risk
We actively seek some logistical risks
where we believe that we have expertise
and will be rewarded for taking them.
We have a very low appetite for risks
which threaten our reputation and will
only engage in regulated activities
where we have the expertise to manage
them effectively. We define our risk
appetite for certain specific areas of
operational risk as follows:
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
29
Strategic Report
OUR PRINCIPAL RISKS
AND UNCERTAINTIES
CONTINUED
Principal risks
and uncertainties
IT systems and
processes
Strategic priorities
linkage and
risk movement
1, 2, 3, 4
Cybercrime
1, 2, 3, 4
Specific concerns
Response/mitigation
Failure of our core
IT systems to deliver
required performance
stability and resilience
Inability to develop digital
offerings sufficient to drive
innovation and growth
Cybercrime attacks prevent
achievement of objectives
We have allocated specific investment for refreshing
our IT Infrastructure and strengthened our core IT
team and processes
We have made a significant investment in digital
innovations at Group and business levels
We have strengthened our Cybercrime team during
2015. There has been significant expenditure over
the past two years to ensure the IT network is well
protected and cyber awareness and information
security training has been rolled out to all staff
Extensive investment has been made in improving
information security countermeasures in 2015. An
external review/benchmarking of information security
plans has been undertaken, and further budget has
been allocated for continuous improvement in 2016
We have dedicated data protection resources,
processes and systems in place to ensure data is
stored securely and handled correctly. We have
contingency processes in place in the unlikely event
of a data breach. We are also preparing to make any
further improvements necessary to comply with the
new European Union data protection regulations
Database
1, 2, 3, 4
Breach/loss of sensitive
data assets
Breach of data protection
legislation
People
5
Our culture does not deliver
the Saga brand we aspire to
We have redefined our brand and cultural values
and cascaded these throughout the Group
We do not attract and/or
retain the right people to
achieve our objectives
Our people strategy has been further developed to
enhance our management of attraction and retention
issues and to develop further our pipeline for future
talent at all levels.
30
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Strategic objectives
1. Becoming an ever more customer-centric organisation (read more information on page 18)
2. Growing our insurance businesses (read more information on page 19)
3. Growing our travel businesses (read more information on page 20)
4. Investing for future growth (read more information on page 20)
5. Developing our people (read more information on page 21)
Strategic priorities
linkage and
risk movement
1, 2, 3, 4, 5
Principal risks
and uncertainties
Operational
efficiency/
change
Specific concerns
Response/mitigation
Failure to accrue expected
benefits from operational/
change initiatives
Failure to maintain shipping
fleet at a level to meet both
customer expectations
and plan
Key innovation projects do
not deliver expected results
New ship is delivered late
or outside of budget
Operational and change initiatives are reviewed at
all governance and trading meetings and mitigating
steps taken where appropriate. Specific governance
structures have been established for key change
projects such as delivery of our new ship and our
recently introduced motor panel
We have developed a ‘beyond compliance’
maintenance programme covering all aspects of our
ships overseen at Group level and reported weekly
via our governance structure. Regular refits and
overhauls ensure our ships are resilient and offer
the quality of product our customers expect
We have created a dedicated change management
function in 2015 to ensure change is managed
consistently and effectively. We are also allocating
senior management to key innovation projects to
ensure speedy delivery of essential change
We have appointed a class-leading shipyard to
complete the build and recruited an experienced
New Build Director to ensure appropriate project
control and governance
Business
interruption
1, 2, 3, 4
Reputational damage arising
from ineffective mishandling
of interruption incidents
We have fully tested and documented business
continuity plans in place to address all aspects
of potential interruption scenarios
3
Loss arising from shipping
technical failure or maritime
incident
1, 2, 3, 4
Breach of regulation
governing our operations
External
regulatory
landscape/
political change
Inability to respond to
regulatory change affecting
our business
Political changes negatively
impact our business models
We have developed a ‘beyond compliance’
maintenance programme covering all aspects of
our ships overseen at Group level and reported
weekly via our governance structure
Dedicated Compliance teams are embedded in
all regulated businesses and are responsible for
monitoring compliance performance. Teams exist
at Group level to ensure Group compliance with
key legislation such as the Health and Safety at
Work etc. Act 1974
Saga has a diversified business model to lessen the
potential impact of changes affecting one product or
service. Emerging and horizon compliance risks are
tracked by the dedicated Business Compliance teams
and raised at all governance forums
Political policy is constantly monitored for impact and
active lobbying is undertaken to influence proposed
change wherever appropriate
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
31
Strategic Report
OUR PRINCIPAL RISKS
AND UNCERTAINTIES
CONTINUED
Principal risks
and uncertainties
Strategic priorities
linkage and
risk movement
Counterparty
1, 2, 3, 4
1, 2, 3, 4
Specific concerns
Response/mitigation
Financial failure of
key partner
Inability of key partner
to provide appropriate
service leading to
reputational damage
We have agreed selection, monitoring and due
diligence processes in place for all key partners/
suppliers
Saga controls its third party supply quality through
contractual terms and agreed service level
agreements. Adherence to these documents is
monitored through internal and external audits,
customer ‘moments of truth’ surveys and customer
complaint review
We have established governance structures with
our key suppliers and joint venture partners to ensure
performance to meet our own and our customers’
expectations are achieved
Saga controls the underwriting process for both
broking and insurance operations, thereby allowing
them to compete on policy terms where appropriate
We have introduced a motor panel arrangement,
increasing competitiveness and reducing risk, and
we have also conducted a reappraisal of AICL risk
appetite to consider non-standard risks where they
are understood
1, 2, 3, 4
Key partnerships fail to
produce anticipated benefits
Insurance
landscape
1, 2
Inability to compete with
insurance competitors
Rates in the motor insurance
market do not move as
expected
Conduct/
customers
1, 2, 3, 4, 5
Macroeconomic
climate
1, 2, 3, 4
1, 2, 3, 4
Travel landscape 3
NEW
Claims experience is adverse
compared with current
best-estimate assumptions
We adopt strict underwriting criteria to price our risks,
and review our claims and reserve development
frequently. We also purchase reinsurance to reduce
claims volatility
Our behaviour results
in poor/unacceptable
outcomes for customers
Saga's governance structure is built on the premise
of customer dedication with regular consideration
of customer satisfaction throughout the organisation
Changes in the
macroeconomic climate
impact our customers'
inclination/capability to
purchase our products
and services
Investments do not yield
expected returns
Increased product
commoditisation prevents
us from both meeting
customer needs and
achieving expected margins
The impact of external economic factors on costs and
customer demand are closely monitored throughout
the Group and necessary changes are made to
products and services regularly
Saga manages its investment portfolio through an
investment committee which ensures a spread of
risk and optimal returns
Significant work has been undertaken in 2015 to
create customisable products to meet customers’
needs. A review has been undertaken to indentify
further efficiencies in our business model
Failure to create expected
customer demand for future
shipping capacity
Our ‘beyond compliance programme aims to ensure
that our existing ships meet current customer
requirements and engender future customer loyalty
32
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
DIVISIONAL REVIEW
We have continued to build
strong momentum across
all of our divisions
Insurance
34
Travel
36
Emerging
businesses
37
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
33
Strategic Report
DIVISIONAL REVIEW
CONTINUED
Insurance
At a glance
Our award winning insurance
business is the largest part of the
Group, providing tailored products
and services ranging from motor
to pet insurance to over 2m
customers per year.
Motor Insurance:
Core policies sold
1,238k
Performance
14.9%
Motor Insurance:
Trading Profit
£118.3m
Performance
17.8%
Motor Underwriting:
Combined Operating Ratio
74.4%
Performance
3.5pts
during this year. The panel will
continue to increase in efficiency
as new underwriters join. However,
we are already starting to see the
benefits with around one quarter
of net premium being underwritten
by the panel during January 2016.
Overall, we are pleased with the
balance we have achieved between
profit growth and customer growth in
the year, and, with the enhanced supply
chain provided by the panel, our retail
broker remains well placed to capitalise
on its competitive advantages.
Motor underwriting
Within our underwriter, AICL, we
continue to see a relatively stable claims
frequency and personal injury claims
cost. This claims experience has
contributed strongly to our combined
operating ratio, which has improved
by 3.5pts to 74.4% (2015: 77.9%).
Given this positive underwriting
performance, we have been able to
price risk from AICL very competitively
in a rising price environment, while
maintaining our prudent approach to
underwriting. This more competitive
approach to pricing means that in future
more profit will be realised in the current
year, while historic reserve releases will
reduce over time.
AICL remains a critical part of our
business. Its clear focus and data-driven
insight in a relatively low risk section
of the market has made a significant
contribution to the Group’s earnings
since its formation. Equally, our ongoing
ability to act as underwriter and
participate on our motor panel is a vital
element of delivering the motor panel’s
long-term success.
Following a review of the use of capital
in AICL, we entered into a quota share
arrangement with NewRe, a subsidiary
of Munich Re, the world’s biggest
reinsurance group. This covers 75%
of the risk of the motor policies within
AICL, from 1 February 2016 for a
period of three years with the option
of a further three years. The terms of
the arrangement, with a market-leading
reinsurer, are testament to the quality
of the Saga underwritten book, and
our historic performance.
Insurance
Our insurance model allows our retail
broker, Saga Services, access to the
highest quality and most cost-efficient
source of underwriting available in the
market, whether that be AICL, a panel of
providers or a solus relationship with a
third party. This flexibility provides us with
a number of levers to operate effectively
across our full portfolio of products to
capitalise on, or protect against, market
conditions. This year, this has allowed us
to deliver both profit and customer growth
across all of our major product lines.
Motor insurance
The UK motor insurance market remains
very competitive. Our experience across
the book supports the market view that
premiums continued to fall during the
first quarter of 2015 but, since then,
there have been sustainable increases
in market premiums, particularly from
the fourth quarter of 2015 onwards.
We have worked to capitalise on our
competitive advantages within the
motor insurance market to continue to
grow the business. These include: a low
cost of acquisition due to our brand and
database covering 11.2m of the UK’s
over 50s; a differentiated retailer, Saga
Services, with access to our newly
launched panel of underwriters; the
participation on the panel of our own
experienced in-house underwriter, AICL,
with a clear focus and data-driven
insight into a relatively low risk section
of the market; and an efficient and
effective claims management function.
We have grown our core motor policies
to 1,238k (2015: 1,077k), with 3.1%
underlying policy growth and 128k
policies added through our Bennetts
acquisition. We delivered a 17.8%
increase in Trading Profit to £118.3m
(2015: £100.4m).
In particular, this customer and profit
growth has been driven by two factors:
1. Our approach to pricing risk in AICL:
By better reflecting our excellent
underwriting performance in AICL’s
risk pricing our retail broker has
been able to be more competitive,
particularly in a rising premium
environment.
2. The successful launch of our motor
panel: Access to the panel has
allowed our retail broker to increase
its competitiveness outside of AICL’s
traditional target market of lower
risk drivers. The panel, launched
in late summer, has five underwriters
and we expect to add a further two
34
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Home Insurance:
Core policies sold
1,287k
Performance
2.3%
Home Insurance:
Trading Profit
£64.1m
Performance
3.2%
Other Insurance:
Core policies sold
383k
Performance
11.3%
Other Insurance:
Trading Profit
£30.7m
Performance
12%
The arrangement is with NewRe, a
subsidiary of Munich Re, the world’s
biggest reinsurance group, and will cover
75% of the risk of new policies written by
AICL, from 1 February 2016 for a period
of three years with the option of a
further three years. The terms of the
arrangement we have signed, with a
market-leading reinsurer, is testament
to the quality of the Saga underwritten
book, and our historic performance.
With the expected reduction in policies
written by AICL with the future growth in
the motor panel, our previously announced
lower risk investment policy going forward
and our quota share arrangements, we
expect the amount of capital within AICL
to reduce gradually over time.
Importantly, capital that will be gradually
released from the underwriter will
allow us to increase our free cash flow
and reduce the capital at risk, while
increasing the resilience of earnings by
increasing the percentage that comes
from broking activities.
Home insurance
The market for home insurance continues
to be highly competitive and we have
seen the same fall in average premiums
that the wider market has experienced.
The increasing competitive tension
provided by our panel and our use of
the ‘Saga Factor’, has led to a reduction
in the net rate at which we can source
underwriting for these policies, enabling us
to maintain our margin in this area despite
falling market rates. This has allowed us
to increase our competitiveness and
grow core policy numbers.
We saw a limited number of claims in
relation to the flooding that took place in
the UK this winter and our focus was on
working with our partners on the panel
to support any customers who were
affected during a difficult time. However,
it is worth reiterating that our insurance
model in home, with the use of the
panel and co-insurance/re-insurance
of the risk underwritten by AICL, means
our short-term earnings are protected
in situations such as this.
As a result, we have grown both profits
and core policy numbers within our
home insurance business. Our core
home policies have grown by 2.3%
to 1,287k (2015: 1,258k) and we have
delivered a 3.2% increase in Trading
Profit to £64.1m (2015: £62.1m).
Other insurance
Within other insurance we have
continued to deliver a strong
performance through growing
customer numbers in this segment’s
core products of private medical
insurance (‘PMI’) and travel insurance.
PMI remains an important area for
us and we continue to grow policy
numbers by evolving and enhancing
our product to ensure its relevance
to our target customer base.
Our travel insurance product has again
performed very strongly in the past year,
partly as a result of developing new
routes to market. This is an important
source of income for the Group and as
importantly, it remains a key source
of new names onto the database,
adding more than 158k names during
the period.
During the course of the year, our
external Saga Legal Services partner,
Parabis Law LLP, filed for insolvency.
While disruptive to our business, our
focus throughout has been on ensuring
that any impact on our customers was
minimised. We have established
relationships with new partners, which
will enable us to continue to develop
an offering in this area.
Investment in marketing for Saga Legal
Services at the start of the year and the
negative financial impact of the Parabis
insolvency resulted in Trading Profit in
Other Insurance reducing to £30.7m
(2015: £34.9m).
Current trading
Trading across the insurance
businesses has started well
and is line with our expectations.
Our experience suggests that recent
strong price increases in the UK motor
market appear to be sustainable and our
claims experience has continued to be
positive. With the continued development
of our motor panel and competitive
pricing from AICL, we are well placed to
grow customer numbers and profit in
the current market conditions during
the coming year. We are mindful of
the impact of Insurance Premium
Tax increases and the effect on
market churn.
While the UK home insurance market
remains highly competitive, our
proactive management of the home
insurance panel leaves us well placed
in this area despite there being limited
signs of premium increases across
the market.
Within other insurance, we have
seen continued strong performance
in private medical insurance. Recent
geopolitical turbulence in traditional
winter sun destinations has had an
impact on demand for our single trip
travel insurance policies in the early part
of the year. However, demand for our
annual travel insurance policies remains
strong and we expect a continued
robust operating performance within
our other insurance business.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
35
Strategic Report
DIVISIONAL REVIEW
CONTINUED
Travel
At a glance
Our award winning travel
businesses is at the heart of the
Saga brand, taking over 250,000
passengers a year all over the
world on package holidays,
escorted tours and cruises.
Our travel business has continued to
focus on growing profitability. We have
delivered customer and profit growth
across our tour operating and cruising
businesses with overall revenue growing
by 11.0% to £423.1m (2015: £381.3m)
and Trading Profit up by 26.5% to £17.2m
(2015: £13.6m). The business continues
to be on track to deliver its objectives.
Whilst the announcement of the
purchase of the new ship has caused
much excitement amongst our
customers, our immediate focus
is on ensuring the maintenance of the
customer experience and the high levels
of satisfaction with customers’ overall
holiday experience which we have seen
reach historic highs this year.
Holidays passengers:
189k
Performance
9.9%
Ship passenger days:
339k
Performance
0.9%
Travel:
Trading Profit
£17.2m
Performance
26.5%
During 2015, our travel businesses
were awarded 65 awards ranging from
Saga’s best specialist tour operator,
award from the Times and Sunday
Times to Destinology’s Gold award
for best medium sized luxury holiday
company, in the British Travel Awards.
Tour operating
Within our tour operating businesses
we have seen a shift in the mix of sales
to longer-haul, higher-value products
where we can provide our customers
with both security and a highly
differentiated product. The success
of this shift is attributable to our ability
to know more about our customers’
wants and needs than any other provider,
and to create affordable packages
underpinned by excellent service.
We have grown customer numbers with
a 9.9% increase in holiday passengers
to 189k (2015: 172k).
As part of this ongoing process, the
Saga Sapphire will be in wet dock
during the coming year for scheduled
maintenance. As with the refit of Saga
Pearl II last year, this will enhance our
service capability and the proposition
to customers on board. It will, however,
mean we have one ship out of service
for two months during the year, which,
whilst budgeted, will hold back the total
profit growth in the travel business for
the coming year.
Current trading
Trading in Tour Operating for the
year ending 31 January 2017 has
been positive and we are around
three quarters sold for the year. As
expected our cruise revenue is lower
than last year’s position, given the
Sapphire wet dock. As we are over
90% sold, we have good visibility
on the outturn for the year.
Trading to week ending 9 April 2016
Cruising
Cruising remains a vital part of our
travel offering through our two ships,
the Saga Sapphire and Saga Pearl II.
The business had another good year
with load factors of 84.4% (2015: 84.9%)
across both ships and a 0.9% increase
in the number of ship passenger days
to 339k (2015: 336k).
Departure
year
Tour
operating
revenue
Cruise
revenue
2016/
2017
Growth
2015/
2016
£269.4m
5.0% £256.5m
£71.2m
(2.2%) £72.8m
36
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Emerging
businesses
At a glance
Emerging businesses includes
our personal finance, homecare,
publishing and printing operations
as well as new development
areas for the long-term growth
of the business.
Saga Investment Services
We launched Saga Investment Services,
our investment management joint
venture with Tilney Bestinvest, in
November 2015 to support those
customers who have previously been
ignored by the investment management
industry. It has been quite an
achievement by the team to get the
business up and running with such a
strong proposition in less than a year.
Other personal finance
Our high quality personal finance
business also continues to make
good progress. We have 130k savings
account customers, provided 10k new
Saga Credit Cards and £227m was
spent on our cards by 167k customers.
Homecare and retirement villages
Our private homecare trial continues to
make progress in Hertfordshire. During
the year we have focused on ensuring
the offer is right for customers, as well
as testing the economics before we
expand it further. We are continuing
to assess the opportunity around
retirement villages in the UK.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
37
Strategic Report
GROUP CHIEF FINANCIAL
OFFICER’S REVIEW
Strong financial
performance
Jonathan Hill
Group Chief Financial Officer
Trading Profit
Available operating cash flow
£211.0m
£178.1m
I am pleased to be able to report
that the Group has delivered a
strong financial performance, with
a 5.0% growth in Trading EBITDA
and a 5.2% growth in Trading
Profit. Robust cash flows have
enabled us to further deleverage to
2.3x from 2.6x at the start of the year.
Based on these results and our future
expectations for the business, we have
significantly increased our dividend to
7.2p per share for the full year.
Revenue from continuing operations
increased by 7.0% to £963.2m
(2015: £900.5m), Trading EBITDA grew
by 5.0% to £238.8m (2015: £227.4m)
and Trading Profit by 5.2% to £211.0m
(2015: £200.6m).
Profit before interest, tax and IPO
costs increased by 2.2%, reflecting
several factors: amortisation of
acquired intangibles increased by
£4.1m as a result of the full year
impact of Destinology, acquired part
way through 2014, and the acquisition
of Bennetts on 1 July 2015; a £4.1m
decrease in year-on-year derivative
fair value movements taken to profit
and loss; offset by a £2.2m reduction
in non-trading costs.
The non-trading costs recognised by
the Group in the year comprised £4.7m
of costs relating to the administration
of our legal services provider (Parabis
Law LLP), £3.8m associated with the
write-down of the carrying value of the
Bel Jou hotel, £0.7m of restructuring
costs and £0.5m of costs incurred with
the acquisition of Bennetts. These were
offset by a £2.6m positive settlement of
38
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Trading Profit
£211.0m
Available operating cash flow
£178.1m
Income Statement
Group Income Statement
Revenue
Trading EBITDA
Depreciation & amortisation (excluding acquired intangibles)
Trading Profit
Non-trading costs
Amortisation of acquired intangibles
Net fair value gains / (losses) on derivatives
Profit before interest, tax and IPO costs
Finance costs
IPO expenses
Exceptional debt costs
Profit before tax from continuing operations
Tax expense
Loss after tax for the year from discontinued operations
Profit / (loss) after tax
Basic earnings per share:
12m to
Jan 2016
£963.2m
£238.8m
(£27.8m)
£211.0m
(£0.2m)
(£6.3m)
(£1.2m)
Growth
7.0%
5.0%
12m to
Jan 2015
£900.5m
£227.4m
(£26.8m)
5.2%
£200.6m
(£2.4m)
(£2.2m)
£2.9m
£203.3m
2.2%
£198.9m
(£24.0m)
(£3.1m)
–
(£23.0m)
(£50.0m)
(£12.1m)
£176.2m
54.8%
£113.8m
(£28.1m)
(£6.9m)
2.6%
(£27.4m)
(96.9%)
(£220.2m)
£141.2m
205.5%
(£133.8m)
Earnings per share from continuing operations
Earnings / (loss) per share
13.3p
12.7p
54.7%
195.5%
8.6p
(13.3p)
a legal dispute related to one of the ships and a £7.1m release of the contingent consideration associated with the acquisition
of Destinology.
While Destinology has delivered solid profits, the results for the year are below those expected at the time of acquisition, due
to significantly more competition in the Middle East market (a major destination for Destinology) and slower development of
customer growth, with new marketing initiatives yet to fully deliver. A new Managing Director and strengthened marketing
resource are in place to enhance returns from Destinology.
Profit before tax from continuing operations for the year was £176.2m, an increase of 54.8%, due in part to the material one-off
IPO and exceptional debt costs incurred in the previous year.
Finance costs
Finance costs in the year were £24.0m, which comprised £18.7m of interest costs on debt and borrowings, £3.2m of
amortisation of debt issue costs, £1.1m of finance charge associated with pension schemes and a £1.0m charge associated
with the unwinding of the discount on the deferred consideration associated with Destinology. This compares with £23.0m in
the previous year, which comprised £20.1m of interest costs on debt and borrowings, £2.4m of amortisation of debt issue
costs and £0.5m finance charge associated with pension schemes.
Tax expense
The Group’s tax expense for the year was £28.1m (2015: £27.4m) representing a tax effective rate of 15.9%. This included a
£7.6m benefit from the utilisation under the group relief rules of tax losses from Acromas, which arose when Saga was a part of
the Acromas Group. Excluding the impact of the Acromas tax losses, the underlying tax effective rate was 20.3% (2015: 24.1%).
Earnings per share
Group basic earnings per share were 12.7p (2015: loss per share of 13.3p) with Group basic earnings per share from continuing
operations for the same period of 13.3p (2015: 8.6p). The earnings performance for the previous year was impacted by the
Group’s IPO and exceptional debt costs.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
39
Strategic Report
GROUP CHIEF FINANCIAL
OFFICER’S REVIEW
CONTINUED
Dividends
The Directors have proposed a final dividend of 5.0p per share, which, combined with the interim dividend of 2.2p per share,
will deliver a total dividend for the financial year ending 31 January 2016 of 7.2p per share (2015: 4.1p). This equates to a payout
ratio of 57% compared with the Group’s basic earnings per share from continuing operations (excluding the one-off benefit of
Acromas tax losses) (2015: 49.5% pro rata for the period post IPO).
Saga offers a share alternative in the form of a dividend re-investment plan (‘DRIP’) for those shareholders who wish to elect
to use their dividend payments to purchase additional Shares in the Group, rather than receive a cash payment. The last date
for shareholders to elect to participate in the DRIP will be 5 June 2016.
Cash flow and liquidity
The Group maintained a strong cash flow performance in the year to 31 January 2016, achieving an available operating cash
flow of £178.1m, 74.6% of Trading EBITDA. This cash flow increased by £15.1m on the previous period, which was driven by
a higher payout from increased profits in the travel and AICL restricted businesses.
Available Cash Flow
Trading EBITDA
Less Trading EBITDA relating to restricted businesses
Intra-group dividends paid by restricted businesses
Working capital and non-cash items
Capital expenditure funded with available cash
Available operating cash flow
Available operating cash flow %
12m to
Jan 2016
Growth
12m to
Jan 2015
£238.8m
5.0%
£227.4m
(£95.8m)
£59.0m
21.6%
(£78.8m)
122.6%
£26.5m
(£3.7m)
(408.3%)
(£20.2m)
£178.1m
74.6%
51.9%
9.3%
2.9%
£1.2m
(£13.3m)
£163.0m
71.7%
Available operating cash flow reconciles to net cash flows from operating activities as follows:
Net cash flow from operating activities (reported)
Exclude cash impact of:
Trading of restricted divisions
Trading of discontinued operation
Cash released from restricted divisions
Non-trading costs
Interest paid
Tax paid
Debt issue costs
Include capital expenditure funded
from available cash
Available operating cash flow
12m to
Jan 2016
12m to
Jan 2015
£150.4m
£155.3m
(£61.5m)
(£53.2m)
–
£59.0m
£13.4m
£21.6m
£15.4m
–
£47.9m
(£11.4m)
£26.5m
£7.2m
£19.7m
£9.6m
£22.6m
£21.0m
(£20.2m)
(£13.3m)
£178.1m
£163.0m
40
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Financing
Continued strong cash flows have enabled the Group to reduce its debt ratio to 2.3x from 2.6x. As at 31 January 2016, net
debt was £547.7m, comprising £480.0m of gross debt and £75.0m of drawn revolving credit facility, offset by £7.3m of available
cash. This compared with net debt as at 31 January 2015 of £582.4m, comprising £700.0m of gross debt offset by £117.6m
of available cash.
As communicated at the time of the interim results, it is the Group's intention to reduce the debt ratio (net debt to Trading
EBITDA) to between 1.5x and 2.0x in the medium term. The delivery of the new ship is expected in mid-2019 and the intention
is to target the lower end of this range before any debt associated with the ship is drawn down, with the Group remaining
within this target range after the delivery of the new ship.
Pensions
Over the year, the valuation of the Group’s pension scheme has improved on an IAS19 basis by £21.6m to a deficit of £18.8m
(January 2015: deficit £40.4m):
Saga Scheme
Fair value of scheme assets
Present value of defined benefit obligation
Defined benefit scheme liability
12m to
Jan 2016
12m to
Jan 2015
£218.6m
£212.3m
(£237.4m)
(£252.7m)
(£18.8m)
(£40.4m)
The improvement has been driven by a £15.3m reduction in the present value of obligations to £237.4m (January 2015: £252.7m)
and a £6.3m increase in the fair value of the scheme assets. The significant decrease in the present value of future obligations
has been driven by an increase in the discount rate applied reflecting an increase in corporate bond yields.
Net assets
Since 31 January 2015, total assets and liabilities have reduced by £49.9m and £154.0m respectively, increasing overall net
assets by £104.1m.
Total assets have reduced as a result of a decrease in cash and short-term deposits of £92.3m, a reduction in other financial assets
(predominantly the investment portfolio) of £14.9m and the removal of £47.7m of assets held for sale as at 31 January 2015 resulting
from the sale of the Allied Healthcare business on 30 November 2015. Offsetting this is an increase in reinsurance of assets of
£43.0m due to large personal injury claims experience caused by a rise in the average cost of Periodical Payment Orders, an
increase in trade and other receivables of £24.3m driven by insurance trading, and increased goodwill and acquired intangible fixed
assets of £31.1m primarily relating to the acquisition of Bennetts.
The reduction in total liabilities reflects a £131.2m reduction in financial liabilities following the repayment of debt during
the period, the removal of £47.7m of liabilities held for sale as at 31 January 2015 resulting from the sale of the Allied
Healthcare business, and a £21.6m reduction in retirement benefit scheme obligations. Trade and other payables have
increased by £32.9m reflecting accruals for initial costs relating to the build of the new ship, insurance trading and the
acquisition of Bennetts.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
41
Strategic Report
GROUP CHIEF FINANCIAL
OFFICER’S REVIEW
CONTINUED
Segmental performance
Segmental Performance Summary
Revenue
Motor insurance
Home insurance
Other insurance
Travel
Emerging businesses and central costs
Trading Profit
Motor insurance
Home insurance
Other insurance
Travel
Emerging businesses and central costs
12m to
Jan 2016
£318.7m
£99.8m
£91.6m
£510.1m
£423.1m
£30.0m
£963.2m
£118.3m
£64.1m
£30.7m
£213.1m
£17.2m
(£19.3m)
Growth
2.1%
8.7%
6.4%
4.1%
12m to
Jan 2015
£312.0m
£91.8m
£86.1m
£489.9m
11.0%
£381.3m
2.4%
7.0%
17.8%
3.2%
(12.0%)
£29.3m
£900.5m
£100.4m
£62.1m
£34.9m
8.0%
£197.4m
26.5%
85.6%
£13.6m
(£10.4m)
£211.0m
5.2%
£200.6m
Total revenue for the insurance businesses increased by 4.1% to £510.1m (2015: £489.9m), driven by strong growth in home
insurance and the inclusion of Bennetts. Travel revenue increased by 11.0% to £423.1m, largely driven by a full year contribution
from Destinology, which contributed £32.8m.
The insurance and travel businesses saw increases in Trading Profit of 8.0% and 26.5% respectively. These were partially
offset by an additional £8.9m Trading Loss in emerging businesses and central costs, £5.5m of which reflects the increased
central administrative costs as a result of becoming a plc, with part of the balance being the Group’s ongoing investment
in the newly launched Saga Investment Services.
Motor insurance
12m to Jan 2016
12m to Jan 2015
Core
UW
Ancillary
Broking /
Other
Total
Motor
Growth
Core
UW
Ancillary
Broking /
Other
Total
Motor
Revenue
£237.7m
£35.0m
£46.0m £318.7m
2.1% £240.8m
£35.2m
£36.0m £312.0m
Gross profit
£103.7m
£31.9m
£31.6m £167.2m
18.0%
£99.5m
£31.1m
£11.1m
£141.7m
Operating
expenses
(£34.5m)
(£6.0m)
(£22.3m)
(£62.8m)
10.4%
(£40.0m)
(£8.2m)
(£8.7m)
(£56.9m)
Investment return
£13.6m
£0.3m
–
£13.9m
(10.9%)
£15.6m
–
–
£15.6m
Trading Profit
£82.8m
£26.2m
£9.3m £118.3m
17.8%
£75.1m
£22.9m
£2.4m £100.4m
Number of policies sold:
– core
– add-ons
Gross written
premiums
950k
26k
n/a
1,195k
950k
1,221k
262k
280k
542k
1,238k
14.9%
947k
22k
108k
1,077k
1,475k
2,713k
4.8%
9.2%
n/a
1,324k
83k
1,407k
947k
1,346k
191k
2,484k
£226.1m
£39.6m
£62.2m
£327.9m
7.5% £235.0m
£37.9m
£32.0m £304.9m
The prior period has been restated to reclassify certain overhead costs as cost of sales on a consistent basis with the current period. The total Trading
Profit of £100.4m is unchanged.
The motor market remained highly competitive, with average premiums continuing to fall at the start of year before increasing
from the second quarter of 2015. Against this backdrop, we have grown both customer numbers and profits by increasing our
42
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
competitiveness through capitalising on our underwriting performance and the initial impact of the new motor panel.
Underlying core policy volumes excluding Bennetts were up 3.1% in the year.
Overall motor revenue grew by 2.1% to £318.7m (2015: £312.0m). Revenue and gross written premiums from core underwritten
policies decreased during the year as a whole, reflecting the fact that premiums were falling or only starting to recover when
a number of these policies were written. This was offset by a £10m increase in revenue from Broking and Other due to the
inclusion of Bennetts from 1 July 2015 and the initial impact of the motor panel.
Overall, the positive claims experience within the core business has enabled a growth in Trading Profit of 17.8% despite
ongoing challenging market conditions.
Motor underwriting
The profitability of the core underwritten motor business has improved, as lower net earned premiums are more than offset
by improved claims experience, increases in other income streams and lower operating expenses.
Motor Core
Underwriting P&L
Net earned premium
Instalment income
Other income
Revenue
Claims costs
Reserve releases
Claims handling and regulatory fees
Total cost of sales
Gross profit
Total expenses
Investment return
Trading Profit
Reported loss ratio
Expense ratio
Reported COR
Pure COR
12m to
Jan 2016
Growth
12m to
Jan 2015
A
£226.5m
(2.7%)
£232.8m
£4.4m
£6.8m
£237.7m
(£179.8m)
£64.6m
(£18.8m)
(£134.0m)
£103.7m
(£34.5m)
£13.6m
£82.8m
50.9%
23.5%
74.4%
B
C
D
E
F
(B+C)/A
(D+F)/A
(E+F)/A
(E+F-C)/A
102.9%
22.2%
54.5%
£3.6m
£4.4m
(1.3%)
£240.8m
(3.6%)
(£186.6m)
3.2%
8.7%
(5.2%)
4.2%
(13.8%)
(12.8%)
10.3%
(2.4%)
(1.1%)
(3.5%)
(1.9%)
£62.6m
(£17.3m)
(£141.3m)
£99.5m
(£40.0m)
£15.6m
£75.1m
53.3%
24.6%
77.9%
104.8%
The prior period has been restated to reclassify £10.0m of prior year reserve releases from current year claims costs following a review during the period,
and to align the presentation of costs between claims, claims handling and total expenses on a consistent basis with the current period.
Net earned premiums were 2.7% lower due to falling or flat premiums during part of the year and a reduction in underwriting for the
AA motor business. This was partially offset by a £2.4m increase in other income from the introduction of broker arrangement fees
and a limited increase in administrative charges.
The Group has not seen the increase in claims frequency that is being reported elsewhere in the market, with frequency being
broadly flat across accidental damage, third party damage and personal injury claims. As previously reported, this is largely a result
of the characteristics of the Group's current customer base, with the majority of customers being retired, therefore lessening the
impact of recent falls in fuel costs and economic growth.
Claims severity during 2015 has also been broadly stable across accidental damage and small personal injury claims, with the Group
not currently experiencing the inflation in personal injury claims costs reported elsewhere. The Group has continued to maintain
strong levels of retention within the Ministry of Justice Portal, in addition to its significant and ongoing focus on effective management
of these types of claims.
The Group has seen a marginal increase in third party damage severity, chiefly driven by increases in at-fault repair costs that have been
seen across the market following the Coles v Hetherton judgment.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
43
Strategic Report
GROUP CHIEF FINANCIAL
OFFICER’S REVIEW
CONTINUED
The combined operating ratio, at 74.4% has improved by 3.5 percentage points, partially as a result of the £2.0m increase in reserve
releases reflecting an improvement of claims experience on large and small personal injury claims. The pure combined operating
ratio improved by 1.9 percentage points as a result of a reduction in operating expenses as a greater share of indirect costs were
allocated to the home and other insurance segments during the year to reflect the relative revenues of the businesses.
Investment return decreased by 12.8%, which was driven primarily by lower returns on mark-to-market elements of the portfolio
as a result of the recent turmoil in global markets.
Home insurance
Revenue
Gross profit
Operating expenses
Investment return
Trading Profit
Number of policies sold:
– core
– add-ons
Gross written
premiums
12m to Jan 2016
Ancillary
UW
Core Broking /
Coinsured
Total
Home
£99.8m
£94.0m
£81.6m
£80.8m
(£26.2m)
(£30.0m)
–
£0.1m
£54.6m
£64.1m
1,287k
n/a
1,287k
1,287k
546k
1,833k
£18.2m
£13.2m
(£3.8m)
£0.1m
£9.5m
n/a
546k
546k
Total
Home
£91.8m
£87.3m
12m to Jan 2015
Ancillary
UW
Core Broking /
Coinsured
£76.0m
£74.8m
£15.8m
£12.5m
(£0.8m)
£0.2m
(£24.6m)
(£25.4m)
–
£0.2m
£11.9m
£50.2m
£62.1m
n/a
587k
587k
1,258k
n/a
1,258k
1,258k
587k
1,845k
Growth
8.7%
7.7%
18.1%
(50.0%)
3.2%
2.3%
(7.0%)
(0.7%)
£21.4m
£153.8m
£175.3m
(3.7%)
£22.1m
£159.9m
£182.0m
The home insurance market has remained highly competitive over the last year, as continuing benign weather conditions have
reduced claims costs across the industry resulting in a third consecutive year of falling premiums.
Despite these market conditions, the efficiency of the home panel has allowed the Group to continue to improve the net rates
it receives from its underwriters to grow core policy numbers, increase revenue by 8.7% to £99.8m (2015: £91.8m) and
Trading Profit by 3.2% to £64.1m (2015: £62.1m).
Operating expenses were up £4.6m as improved revenues relative to motor resulted in a greater proportion of indirect costs
being allocated to home.
44
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Other insurance
Revenue
Gross profit
Operating expenses
Investment return
Joint venture
Trading Profit
Number of policies sold:
– core
– add-ons
Gross written
premiums
12m to Jan 2016
12m to Jan 2015
Core
UW
Core Broking /
Other
Total
Other
Insurance
£37.3m
£54.3m
£91.6m
£4.2m
(£2.3m)
£0.5m
£54.1m
£58.3m
(£25.9m)
(£28.2m)
–
£0.1m
–
£0.5m
£0.1m
Growth
6.4%
7.8%
28.8%
(66.7%)
(91.7%)
Core
UW
Core Broking /
Other
£39.9m
£7.9m
(£2.0m)
£1.5m
£46.2m
£46.2m
(£19.9m)
–
–
£1.2m
Total
Other
Insurance
£86.1m
£54.1m
(£21.9m)
£1.5m
£1.2m
£2.4m
£28.3m
£30.7m
(12.0%)
£7.4m
£27.5m
£34.9m
28k
n/a
28k
355k
1k
356k
383k
1k
384k
11.3%
(80.0%)
10.0%
34k
n/a
34k
310k
5k
315k
344k
5k
349k
£6.0m
£119.0m
£125.0m
3.6%
£6.6m
£114.1m
£120.7m
Revenue in other insurance lines grew by 6.4% to £91.6m (2015: £86.1m), driven by an increase in travel insurance volumes and
improved margins on private medical.
Trading Profit was down £4.2m due to an increased allocation of indirect costs in line with relative revenues across the
Insurance business, an increase in marketing investment in Legal Services and the impact of the administration of Parabis
Law LLP.
Insurance underwriting
Reserving
Reserve releases
Motor insurance:
Core UW
Ancillary
Home insurance
Other insurance
Total
12m to
Jan 2016
Growth
12m to
Jan 2015
£64.6m
3.2%
£62.6m
£2.1m
250.0%
£0.6m
£66.7m
£0.2m
£1.1m
£68.0m
5.5%
£63.2m
(87.5%)
(63.3%)
£1.6m
£3.0m
0.3%
£67.8m
The prior period has been restated to reclassify £10.0m of prior year reserve releases from current year claims costs following a review during the period.
Favourable claims development experience during the twelve months to 31 January 2016 has resulted in a reduction in the
reserves required in respect of prior year claims. This has been driven by large and small personal injury claims and by other
classes and resulted in a materially consistent level of reserve releases totalling £68.0m during the year. There has been no
deterioration in the reserve margin year-on-year.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
45
Strategic Report
GROUP CHIEF FINANCIAL
OFFICER’S REVIEW
CONTINUED
Analysis of insurance contract liabilities at 31 January 2016 and 31 January 2015 is as follows:
12m to Jan 2016
Gross
Reinsurance
Assets
Net
Gross
12m to Jan 2015
Reinsurance
Assets
Net
Reported claims
£341.5m
(£70.7m)
£270.8m
£330.6m
(£45.9m)
£284.7m
Incurred but not reported*
£209.2m
(£30.9m)
£178.3m
£211.5m
(£14.3m)
£197.2m
Claims handling provision
£10.9m
–
£10.9m
£10.3m
–
£10.3m
Total claims outstanding
£561.6m
(£101.6m)
£460.0m
£552.4m
(£60.2m)
£492.2m
Unearned premiums
£141.7m
(£4.8m)
£136.9m
£152.3m
(£3.2m)
£149.1m
Total
£703.3m
(£106.4m)
£596.9m
£704.7m
(£63.4m)
£641.3m
*
Includes amounts for reported claims that are expected to become Periodical Payment Orders.
The Group's total insurance contract liabilities net of reinsurance assets have reduced by £44.4m as at 31 January 2016
from the previous year end, driven by an £18.9m reduction in IBNR claims reserves, £13.9m less reported claims reserves
and a £12.2m reduction in unearned premium reserve.
Investment portfolio
The majority of the Group's financial assets are held by its underwriting entity and represent premium income received and
invested to settle claims and to meet regulatory capital requirements. The maturity profile of the invested financial assets
is aligned with the expected cash outflow profile associated with the settlement of claims in the future.
The amount held in invested funds decreased by £29.2m compared with the previous year, from £654.0m as at 31 January
2015 to £624.8m as at 31 January 2016. As at 31 January 2016, 92% of the financial assets held by the Group were invested
with counterparties with a risk rating of A or above, which is up 10 percentage points on the previous year and reflects the
improved credit risk rating of the Group’s counterparties.
At 31 January 2016
AAA
AA
A
120 days
£’m
7.2
3.8
1.5
1.5
1.4
1.0
0.7
0.8
4.3
3.9
154
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
157
Financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
21 Trade and other receivables (continued)
As at 31 January 2016, impairment provisions totalling £8.5m (2015: £9.0m) were made against trade receivables with an initial
value of £141.3m (2015: £136.7m). The movements in the provision for impairment of receivables are as follows:
At 1 February 2014
Charge for the year
Utilised in the year
Unused amounts reversed
Reclassification to assets held for sale
At 31 January 2015
Charge for the year
Utilised in the year
Unused amounts reversed
At 31 January 2016
Individually
impaired
£’m
Collectively
impaired
£’m
0.7
0.2
–
–
0.9
(0.6)
0.3
0.2
(0.1)
(0.1)
0.3
8.3
8.0
(4.2)
(3.4)
8.7
–
8.7
7.5
(3.5)
(4.5)
8.2
Total
£’m
9.0
8.2
(4.2)
(3.4)
9.6
(0.6)
9.0
7.7
(3.6)
(4.6)
8.5
See note 18 on credit risk of trade receivables, which explains how the Group manages and measures credit quality of trade
receivables that are neither past due nor impaired.
22 Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Cash and short-term deposits
Money markets funds
Bank overdraft
Cash held by disposal group
Cash and cash equivalents in the cash flow statement
2016
£’m
36.9
69.6
106.5
75.9
(18.0)
–
2015
£’m
66.5
132.3
198.8
40.6
(5.8)
4.3
164.4
237.9
Included within cash and short-term deposits are amounts held by the Group’s travel and insurance businesses which are subject
to contractual or regulatory restrictions. These amounts held are not readily available to be used for other purposes within the Group
and total £92.1m (2015: £85.2m).
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.
23 Trade and other payables
Trade payables
Other taxes and social security costs
Other payables
Assets in the course of construction
Accruals
All trade and other payables are current in nature.
2016
£’m
104.3
12.2
18.9
13.1
43.1
191.6
2015
£’m
84.8
9.2
24.5
–
40.2
158.7
158
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
155
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
24 Retirement benefit schemes
The Group operates retirement benefit schemes for the employees of the Group consisting of defined contribution plans and
defined benefit plans.
a. Defined contribution plans
There are a number of defined contribution schemes in the Group. The total charge for the year in respect of the defined
contribution schemes was £1.3m (2015: £1.3m).
The assets of these schemes are held separately from those of the Group in funds under the control of Trustees.
b. Defined benefit plans
The Group operates a funded defined benefit scheme, the Saga Pension Scheme (‘Saga scheme’), which is open to new members
who accrue benefits on a career average salary basis. The assets of the scheme are held separately from those of the Group in
independently administered funds.
The scheme is governed by the employment laws of the UK. The level of benefits provided depends on the member’s length of
service and salary at retirement age. 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 as 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 to the liability profile increasingly closely. The pension liability is exposed to inflation rate risks and changes in the life
expectancy for pensioners. As the plan assets include investments in quoted equities, the Group is exposed to equity market risk.
During the year, the Group operated two other funded defined benefit schemes, the Nestor Healthcare Group Retirement Benefits
Scheme and the Healthcall Group Limited Pension Scheme (‘Nestor schemes’), which provide benefits based on final salary and are
closed to new members. Both of these schemes were part of the liabilities held for sale and were disposed of when the Group
completed the sale of the local authority section of the healthcare business, Allied Healthcare, on 30 November 2015.
The fair value of the assets and present value of the obligations of the defined benefit schemes are as follows:
At 31 January 2016
Fair value of scheme assets
Present value of defined benefit obligation
Defined benefit scheme liability
At 31 January 2015
Fair value of scheme assets
Present value of defined benefit obligation
Defined benefit scheme liability
Reclassification to liabilities held for sale
Saga
scheme
£’m
218.6
(237.4)
(18.8)
Saga
scheme
£’m
212.3
(252.7)
(40.4)
–
(40.4)
Nestor
schemes
£’m
–
–
–
Nestor
schemes
£’m
54.0
(68.7)
(14.7)
14.7
–
Total
£’m
218.6
(237.4)
(18.8)
Total
£’m
266.3
(321.4)
(55.1)
14.7
(40.4)
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 method.
156
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
159
Financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
24 Retirement benefit schemes (continued)
b. Defined benefit plans (continued)
The following table summarises the components of the net benefit expense recognised in the income statement and amounts
recognised in the statement of financial position for the schemes for the year ended 31 January 2016:
Saga scheme
Nestor schemes
Fair value of
scheme
assets
£’m
Defined
benefit
obligation
£’m
Defined
benefit
scheme
liability
£’m
Fair value of
scheme
assets
£’m
Defined
benefit
obligation
£’m
Defined
benefit
scheme
liability
£’m
Total
Defined
benefit
scheme
liability
£’m
1 February 2015
212.3
(252.7)
(40.4)
Pension cost charge to income statement
Service cost
Net interest
Included in income statement
Benefits paid
Return on plan assets (excluding amounts
included in net interest expense)
Actuarial changes arising from changes
in demographic assumptions
Actuarial changes arising from changes
in financial assumptions
Experience adjustments
Sub-total included in other
comprehensive income
Contributions by employer
Movement in liabilities held for sale
31 January 2016
–
6.7
6.7
(4.5)
(7.0)
–
–
–
(11.5)
11.1
–
(8.8)
(7.8)
(16.6)
4.5
(8.8)
(1.1)
(9.9)
–
(0.3)
(0.3)
27.5
0.3
32.0
(0.1)
–
27.5
0.3
20.5
11.0
–
218.6
(237.4)
(18.8)
–
–
1.3
1.3
(1.6)
–
–
(40.4)
(0.1)
(1.7)
(1.8)
1.6
(0.1)
(0.4)
(0.5)
–
(8.9)
(1.5)
(10.4)
–
–
–
–
(3.5)
12.4
(10.2)
–
1.2
5.3
1.5
9.6
–
(7.8)
–
1.2
5.3
1.5
6.1
12.4
(18.0)
–
0.9
32.8
1.8
26.6
23.4
(18.0)
(18.8)
–
(7.0)
(1.9)
–
(1.9)
(8.9)
160
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
157
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
24 Retirement benefit schemes (continued)
b. Defined benefit plans (continued)
The following table summarises the components of the net benefit expense recognised in the income statement and amounts
recognised in the statement of financial position for the schemes for the year ended 31 January 2015:
Saga scheme
Nestor schemes
Fair value of
scheme
assets
£’m
Defined
benefit
obligation
£’m
Defined
benefit
scheme
liability
£’m
Fair value of
scheme
assets
£’m
Defined
benefit
obligation
£’m
Defined
benefit
scheme
liability
£’m
Total
Defined
benefit
scheme
liability
£’m
1 February 2014
171.2
(186.1)
(14.9)
48.3
(57.7)
(9.4)
(24.3)
–
7.6
7.6
(3.3)
(5.6)
(8.1)
(13.7)
3.3
(5.6)
(0.5)
(6.1)
–
–
2.1
2.1
(2.8)
(0.1)
(2.4)
(2.5)
2.8
(0.1)
(0.3)
(0.4)
–
(5.7)
(0.8)
(6.5)
–
29.7
–
29.7
2.9
–
2.9
32.6
Pension cost charge to income statement
Service cost
Net interest
Included in income statement
Benefits paid
Return on plan assets (excluding amounts
included in net interest expense)
Actuarial changes arising from changes
in demographic assumptions
Actuarial changes arising from changes
in financial assumptions
Experience adjustments
Sub-total included in other
comprehensive income
Contributions by employer
Reclassification to liabilities held for sale
–
–
–
26.4
7.1
–
(0.4)
(0.4)
(47.0)
(8.7)
(52.8)
(0.1)
–
(47.0)
(8.7)
(26.4)
7.0
–
31 January 2015
212.3
(252.7)
(40.4)
The major categories of assets in the Saga scheme are as follows:
Equities
Bonds
Property
Hedge funds
Cash and other
Total
–
–
–
0.1
3.5
(54.0)
–
(0.9)
(0.9)
(1.3)
(10.4)
(10.4)
–
(8.5)
–
68.7
–
–
(8.4)
3.5
14.7
–
2016
£’m
42.0
117.1
23.8
33.7
2.0
218.6
(57.4)
(8.7)
(34.8)
10.5
14.7
(40.4)
2015
£’m
62.7
117.0
20.2
–
12.4
212.3
Equities, bonds and hedge funds are all quoted in active markets whilst property is not.
The main categories of assets in the Nestor schemes at 31 January 2015 were equities (£26.9m), bonds (£23.7m), insurance
policies (£3.2m) and cash (£0.2m).
158
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
161
Financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
24 Retirement benefit schemes (continued)
b. Defined benefit plans (continued)
The principal assumptions used in determining pension benefit obligations for the Saga scheme are shown below:
Real rate of increase in salaries
Real rate of increase of pensions in payment
Real rate of increase of pensions in deferment
Discount rate – Pensioner
Discount rate – Non Pensioner
Inflation – Pensioner
Inflation – Non Pensioner
2016
0%
0%
0%
3.6%
3.8%
3.0%
3.2%
2015
0%
0%
0%
2.9%
3.2%
2.6%
2.9%
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 29 years if they
are male and on average for a further 31 year if they are female.
A quantitative sensitivity analysis for significant assumptions as at 31 January 2016 and their impact on the net defined benefit
obligation is as follows:
Assumptions
Sensitivity
Impact £m
Discount rate
+/- 0.25%
Future inflation
+/- 0.25%
Life expectancy
+/- 1 year
Future salary
+/- 0.5%
Increase Decrease
Increase Decrease
(13.6)
14.7
9.2
(9.4)
+/- 6.9
+/- 0.0
Note: a negative 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 expected contribution to the Saga scheme for the next year is £11.0m and average duration of the defined benefit plan
obligation at the end of the reporting period is 22 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.
162
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
159
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
24 Retirement benefit schemes (continued)
b. Defined benefit plans (continued)
The latest valuation of the Saga scheme was at 31 January 2014. Further to this valuation, a recovery plans is in place
for the scheme.
Under the agreed recovery plan, the Group made an additional payment of £2.0m during the year ended 31 January 2016, and will
make further payments of £2.0m in each of the next nine years, with the last payment being made by 28 February 2024. The total
expected contributions in the year ending 31 January 2017 are £11.0m.
25 Insurance contract liabilities and reinsurance assets
The analysis of gross and net insurance liabilities is as follows:
Gross
Claims outstanding
Provision for unearned premiums
Total gross liabilities
Recoverable from reinsurers
Claims outstanding
Provision for unearned premiums
Total reinsurers’ share of insurance liabilities
Net
Claims outstanding
Provision for unearned premiums
Total net insurance liabilities
2016
£’m
2015
£’m
561.6
141.7
703.3
2016
£’m
101.6
4.8
106.4
552.4
152.3
704.7
2015
£’m
60.2
3.2
63.4
2016
£’m
2015
£’m
460.0
136.9
596.9
492.2
149.1
641.3
160
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
163
Financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
25 Insurance contract liabilities and reinsurance assets (continued)
Reconciliation of movements in claims outstanding
Gross claims outstanding at 1 February
Less: reinsurance claims outstanding
Net claims outstanding at 1 February
Gross claims incurred
Less: reinsurance recoveries
Net claims incurred (note 3b)
Gross claims paid
Less: received from reinsurance
Net claims paid
Gross claims outstanding at 31 January
Less: reinsurance claims outstanding
Net claims outstanding at 31 January
Reconciliation of movements in the provision for net unearned premiums
Gross unearned premiums at 1 February
Less: unearned reinsurance premiums
Net unearned premiums at 1 February
Gross premiums written
Less: outward reinsurance premium
Net premiums written
Gross premiums earned
Less reinsurance premium earned
Net premiums earned (note 3a)
Gross unearned premiums at 31 January
Less: unearned reinsurance premiums
Net unearned premiums at 31 January
The profit on purchasing reinsurance in 2016 was £37.5m (2015: £4.0m loss).
2016
£’m
552.4
(60.2)
492.2
219.3
(44.4)
174.9
2015
£’m
566.9
(58.3)
508.6
182.9
(3.6)
179.3
(210.1)
(197.4)
3.0
1.7
(207.1)
(195.7)
561.6
(101.6)
460.0
2016
£’m
152.3
(3.2)
149.1
312.0
(8.5)
303.5
552.4
(60.2)
492.2
2015
£’m
161.4
(4.2)
157.2
324.2
(6.6)
317.6
(322.6)
(333.3)
6.9
7.6
(315.7)
(325.7)
141.7
(4.8)
136.9
152.3
(3.2)
149.1
164
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
161
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
25 Insurance contract liabilities and reinsurance assets (continued)
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% (2015: -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 £734.0m (2015: £736.1m) gross of reinsurance and £539.0m
(2015: £599.1m) net of reinsurance.
The period between the balance sheet 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 42 years (2015: 47 years) and the rate of investment return used to determine the discounted value of
claims provisions was 2.0% (2015: 2.0%).
Analysis of net claims incurred: claims development tables
The following table details the Group’s initial estimate of ultimate net claims incurred over the past five years and the re-estimation at
subsequent financial period ends. The table details the net incurred claims (net of reinsurance recoveries) on an accident year basis.
Financial Year ended 31 January
2010
£'m
2011
£'m
2012
£'m
2013
£'m
2014
£'m
2015
£'m
2016
£'m
Total
£'m
Claims
paid
£'m
Claims
outstanding
£'m
Accident Year
2009 and earlier
2010
2011
2012
2013
2014
2015
2016
(5.5)
202.1
–
–
266.0
(9.2)
(11.0)
(4.3)
(2.8)
(4.0)
(5.2)
(1.2)
(5.5)
(3.2)
(3.1)
(4.6)
(13.3)
(3.0)
(2.1)
(7.2)
302.3
(25.6)
(31.1)
(0.6)
(17.3)
315.4
(14.6)
(22.9)
(19.8)
276.8
(14.7)
(23.4)
219.1
5.3
220.9
183.1
232.9
227.7
258.1
238.7
224.4
220.9
(166.7)
(200.9)
(195.4)
(200.4)
(161.2)
(138.8)
(101.1)
Claims handling costs
9.0
10.1
15.6
17.4
17.2
18.0
21.5
205.6 276.1 301.6 287.0 237.0 179.3 174.9
196.6 266.0 286.0 269.6 219.8 161.3 153.4
The development of the associated loss ratios on the same basis is as follows:
27.8
16.4
32.0
32.3
57.7
77.5
85.6
119.8
449.1
10.9
460.0
Accident Year
2010
2011
2012
2013
2014
2015
2016
Financial Year ended 31 January
2010
2011
2012
2013
2014
2015
2016
73%
73%
78%
72%
78%
76%
70%
76%
70%
75%
68%
75%
62%
72%
75%
67%
71%
62%
66%
71%
67%
66%
69%
57%
62%
65%
69%
70%
Favourable claims development over the year has resulted in a £68.0m reduction in the net claims incurred in respect of prior years.
Against this, the insolvency of a significant legal services supplier has required an increase in prior year net claims of £0.5m to be
created; the cost of this has been included as part of the total exceptional expense (note 4b).
162
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
165
Financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
26 Provisions
Current
Non-current
At 31 January
2016
£’m
2.5
1.5
4.0
2015
£’m
4.8
1.1
5.9
Provisions primarily comprise amounts payable for the return of insurance commission in respect of policies cancelled mid-term
after the reporting date, credit hire claims handling provision, and fleet insurance at the estimated cost of settling all outstanding
incidents at the reporting date. These items are reviewed and updated annually.
27 Other liabilities
Advance receipts
Deferred revenue
Group relief payable (note 9)
Current
Non-current
2016
£’m
2015
£’m
113.0
122.3
12.7
7.6
7.0
–
133.3
129.3
133.2
0.1
133.3
129.0
0.3
129.3
Advance receipts 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.
Deferred revenue represents the unearned elements of revenue relating to the media business. The amount comprises subscriptions
for magazines to be delivered after the reporting date and revenue for advertising to be included after the reporting date.
28 Loans and borrowings
Bank loans
Revolving credit facility
Accrued interest payable
Less: deferred issue costs
2016
£’m
2015
£’m
480.0
700.0
75.0
0.6
555.6
(7.9)
547.7
–
3.4
703.4
(11.2)
692.2
In April 2014, the Group entered into a Senior Facilities Agreement and drew £1,250.0m. At the end of May 2014, it used the
receipt of £550.0m from the Group’s flotation to reduce the outstanding principal to £700.0m.
The debt matures in April 2019, and interest is incurred at a variable rate of LIBOR plus 2.25%. Interest rate caps are in place which
cap LIBOR at 3.0% on a notional debt of £510.0m through to June 2016. The Group is required to comply with a leverage covenant
on a quarterly basis and had significant headroom against this covenant at 31 January 2016.
Under the facilities, the Group has access to a multi-currency revolving credit facility of £150.0m. During the year, the Group repaid
£220.0m of its Senior Facilities Agreement, and at 31 January 2016 had drawn £75.0m of its £150.0m revolving credit facility.
The Group incurs commitment fees on undrawn facilities and interest at a rate of LIBOR plus 2.25% on drawn facilities.
During the year, the Group charged £21.8m (2015: £34.6m) to the income statement in respect of fees and interest associated
with the Senior Facilities Agreement.
166
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
163
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
29 Called up share capital
Allotted, called up and fully paid
At 1 May 2014
Issue of share capital on flotation
As at 31 January 2015
Free shares allotted – 5 June 2015
As at 31 January 2016
Ordinary shares
Nominal value
£
Number
800,000,000
310,705,405
1,110,705,405
7,300,000
1,118,005,405
0.01
0.01
0.01
0.01
0.01
Value
£’m
8.0
3.1
11.1
0.1
11.2
On 29 May 2014, Saga plc was admitted to the London Stock Exchange, and issued 297,297,297 shares, raising £550m of funds
which were utilised to repay part of the Group’s bank debt (note 28). The share premium arising on this transaction was £547.0m.
On the same date, the Group issued 13,408,108 shares into the associated Employee Benefit Trust predominantly in respect
of the share options issued to certain Directors and employees on the same date (see note 31).
a. Bonus issue – free shares
As part of the IPO, an offer was made to customers and employees of the Group under which they would receive one free share
for every twenty shares purchased in the IPO and held continuously for a period of one year following flotation. On 5 June 2015,
7,300,000 shares were issued in respect of this bonus offer.
b. Employee Benefit Trust
The Employee Benefit Trust purchased 13,408,108 shares at their nominal value of £134,000 during the year ended 31 January
2015. There were no associated transaction costs.
During the year, employees exercised options over 5,973,991 (2015: 539,320) of these shares which were transferred from the
Employee Benefit Trust into the direct ownership of the employee. The remaining 6,619,099 shares have been treated as treasury
shares at 31 January 2016.
30 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 includes issued capital, share premium and all other capital reserves
attributable to the equity holders of the parent. 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 Financial Conduct Authority (‘FCA’) in the UK; and the capital requirements of its travel businesses are regulated by the Civil
Aviation Authority (‘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.
No changes were made to the objectives, policies or processes for managing capital during the years ended 31 January 2016 or
31 January 2015, other than those driven from changes to the requirements of the various regulators, notably the European Union’s
Solvency II Directive for insurance companies.
The Group’s regulated underwriting business is based in the Gibraltar and regulated by the FSC. The underwriting business is
required to comply with various tests to ensure that it has a sufficient level of capitalisation. Under Solvency I, the FSC required the
underwriting business to hold solvency capital of at least twice the required minimum margin (‘RMM’), and at 31 January 2015, capital
was approximately 277% of the RMM. The Group has monitored its compliance with this and other tests throughout the year.
164
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
167
Financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
30 Capital management (continued)
Solvency II incorporates a fundamental change to the capital adequacy regime for the European insurance industry and establishes
a revised set of capital requirements and risk management standards with the aim of increasing protection for policyholders.
The new regime became effective on 1 January 2016.
The Group monitored its ability to comply with the requirements of Solvency II throughout the year and received approval from the
FSC for the Undertaking of Specific Parameters route prior to the effective date. Under Solvency II AICL remains well capitalised,
and at 31 January 2016, available capital was £219.6m against a Solvency Capital Requirement of £128.8m giving 170% coverage.
The Group’s regulated insurance distribution businesses are based in the UK and regulated by the FCA. Due to the nature of
these businesses, 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 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 these businesses. The Minimum Regulatory Capital requirement of these businesses
at 31 January 2016 was £6.1m.
The regulated travel businesses are required to comply with two main tests based on liquidity and leverage and are measured
against agreed covenants on the last day of each quarter in respect of these tests. The Group monitors its compliance with these
tests on a monthly basis including forward-looking compliance using budgets and forecasts. At 31 January 2016, the travel
businesses had good coverage against both covenants.
31 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, share 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 twenty shares they acquired and held continuously for one year to 29 May 2015. As these are bonus
shares, there was no exercise price and no cash settlement alternative.
b. Long-Term Incentive Plan (‘LTIP’) and Deferred Bonus Plan (‘DBP’)
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. These options are 50% linked to a non-market vesting condition,
EPS, and 50% linked to a market vesting condition, TSR.
On 30 June 2014 and 2 December 2014, options over 4,015,508 shares were issued which vest and become exercisable
on the third anniversary of the grant date.
On 30 June 2015, options over 2,879,089 shares were issued which vest and become exercisable on the third anniversary
of the grant date.
On 9 June 2015, options over 332,541 shares were issued under the DBP to the Executive Directors reflecting their deferred
bonus in respect of 2014/15, which vest and become exercisable on the third anniversary of the grant date. Following
cessation of employment of S M Howard on 30 June 2015, the options allocated to him became exercisable immediately.
c. Other share options
On 29 May 2014, share options over 2,162,162 shares were issued to the Chief Executive Officer. Vesting occurs 25% on the
third anniversary of the IPO, 25% on the fourth anniversary of the IPO and 50% on the fifth anniversary of the IPO, subject to
continuing employment. The award will be equity settled and has no cash alternative. The exercise price of the share options
is £1.85.
On 29 April 2015, options over 101,932 shares were issued to the Chief Financial Officer which vest in two equal tranches
on the first and second anniversary of his appointment, subject to continuing employment.
On 2 December 2015, options over 99,552 shares were issued to the Chief Marketing Officer which vest on the second
anniversary of his appointment, subject to continuing employment.
d. Employee free shares
On 8 July 2015, 398,774 shares were awarded to staff eligible on the anniversary of the IPO at £nil cost. These shares become
beneficially owned over a three year period from allocation subject to continuing employment.
168
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
165
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
31 Share-based payments (continued)
The table below summarises the movements in the number of share options outstanding for the Group and their weighted average
exercise price:
At 1 February 2015
12,593,090
3,884,866
–
2,162,162
–
18,640,118
IPO Options
LTIP
DBP
Other options
Employee
free shares
Total
Granted
Forfeited
Exercised
–
–
2,879,089
332,541
201,484
398,774
3,811,888
(1,259,776)
–
(5,973,991)
–
(76,448)
–
–
(21,022)
(1,280,798)
(3,542)
(6,053,981)
At 31 January 2016
6,619,099
5,504,179
256,093
2,363,646
374,210
15,117,227
Exercise price
£nil
Exercisable at 31 January 2016
6,619,099
£nil
–
£nil
£1.69
£nil
£0.25
–
–
4,209
6,623,308
Average remaining contractual life
8.3 years
1.9 years
2.4 years
2.5 years
2.3 years
5.0 years
Average fair value at grant
£1.85
£1.97
£2.10
£1.86
£2.16
£1.90
The following information is relevant in the determination of the fair value of options granted during the year under the equity- and
cash-settled share based remuneration schemes operated by the Group.
Model used
Dividend yield (%)
Risk-free interest rate (%)
Expected life of share option
Weighted average share price (£)
Share price volatility
CFO options
CMO options
Black-
Scholes
n/a
n/a
Share price
at date
of grant
n/a
n/a
0.97/1.97 years
2.81 years
£1.89
n/a
£2.02
n/a
LTIP – EPS
tranche
LTIP – TSR
tranche
Employee
free shares
Black-
Scholes Monte-Carlo
n/a
0.96%
3 years
£2.20
27.8%
n/a
0.96%
3 years
£2.20
27.8%
Black-
Scholes
n/a
n/a
3 years
£2.16
n/a
As historical data for the Group’s share price is not 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 2016 is £2.8m (2015: £41.8m). This has been
charged to administrative and selling expenses (£2.5m) and exceptional expenses (£0.3m) (note 4b).
The Group did not enter into any share-based payment transactions with parties other than employees during the current period.
166
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
169
Financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
32 Commitments and contingencies
a. Operating lease commitments — Group as lessee
The Group has entered into commercial leases on certain land and buildings and plant and machinery. There are no restrictions
placed upon the Group by entering into these leases.
Future minimum rentals payable under non-cancellable operating leases as at 31 January are as follows:
Within one year
Between one and five years
After five years
Land and buildings
Plant and machinery
2016
£’m
1.0
3.3
4.8
9.1
2015
£’m
2.1
6.2
7.2
15.5
2016
£’m
0.8
1.6
–
2.4
2015
£’m
0.3
1.8
–
2.1
b. Finance lease and hire purchase commitments
The Group has finance leases and hire purchase contracts for various items of plant and machinery. These leases have terms of
renewal and no purchase options. Renewals are at the option of the specific entity that holds the lease. Future minimum lease
payments under finance leases and hire purchase contracts together with the present values of the net minimum lease payments
are as follows:
Within one year
Between one and five years
Total minimum lease payments
Less amounts representing finance charge
Present value of minimum lease payments
2016
£’m
0.5
1.7
2.2
(0.4)
1.8
2015
£’m
0.1
0.1
0.2
–
0.2
c. Commitments
On 21 December 2015, the Group contracted with Meyer Werft GmbH & Co. KG to purchase a new cruise ship for delivery in July
2019, with an option to purchase a second similar cruise ship for delivery in 2021. The new ship will replace one of the Group’s
existing two ships.
The first stage payment for the new ship is included within trade and other payables and will be made in February 2016. Three
similar stage payments will be made during the construction period (24 months, 18 months, and 12 months prior to delivery) funded
via cash resources of the Group. The remaining element of the contract price is due on delivery of the ship, and the Group entered
into appropriate financing for this on 21 December 2015.
As at 31 January 2016, the capital amount contracted but not provided for in the financial statements in respect of the ship
amounted to £280.1m (2015: £nil).
The financing represents a 12 year fixed rate sterling loan, backed by an export credit guarantee. The loan value of approximately
£245m will be repaid in 24 broadly equal instalments, with the first payment 6 months after delivery. The effective interest rate on
the loan (including arrangement and commitment fees) is 4.29%.
On the date the finance was entered into, the Group purchased Euro currency forwards totalling £273.2m to lock the cost of the
ship. These have been designated as cash flow hedges and remain outstanding as at 31 January 2016 (note 17d).
The Group has an option to purchase a second ship for the same price within the contract; the option must be exercised by
21 December 2017. The Group may be released from this option at any time although should the option to purchase not be
exercised, a fee would become payable. The likelihood of incurring such a fee is considered extremely remote.
170
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
167
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
32 Commitments and contingencies (continued)
d. Contingent liabilities
At 31 January 2016, the Group had secured £31.8m (2015: £31.0m) of financial bonds and other guarantees on a revolving credit
facility provided to Saga Mid Co Limited. If these bonds were called, the facility would be treated as drawn and recognised as a
liability on the Group’s balance sheet. The revolving credit facility is secured by a floating charge over the Group’s assets.
The Association of British Travel Agents regulates the Group’s UK tour operating business and requires the Group to put in place
bonds to provide customer protection. These bonds are included within the financial bonds described above.
33 Discontinued operations and assets held for sale
On 30 November 2015, the Group completed the sale of the local authority section of the healthcare business, Allied Healthcare.
The impact of the discontinued operation on the profit for the year is as follows:
Loss after tax, before amortisation of acquired intangibles
Amortisation of associated acquired intangible assets
Loss on re-measurement of disposal group to fair value
Gain on disposal of discontinued operations
The impact of the discontinued operation on the reported earnings per share was as follows:
Basic and diluted earnings per share from discontinued operations
The gain on disposal of Allied Healthcare is as follows:
Cash consideration received
Fair value of other consideration receivable
Pension scheme contribution
Net assets disposed (including cash of £2.5m)
Costs of disposal not previously provided for
2016
£’m
(7.9)
–
–
1.0
(6.9)
2015
£’m
(0.3)
(10.4)
(209.5)
–
(220.2)
2016
2015
(0.6p)
(21.9p)
£’m
10.1
3.8
(9.2)
(3.1)
(0.6)
1.0
168
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
171
Financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
33 Discontinued operations and assets held for sale (continued)
The results of Allied Healthcare for the period are as follows:
Revenue
Cost of sales
Gross profit
Administrative and selling expenses
Trading EBITDA
Depreciation and amortisation
Exceptional expenses
Net finance expense on retirement benefit schemes
Loss before tax
Tax expense
Loss for the period from discontinued operations
Attributable to:
Equity holders of the parent
Non-controlling interest
The net cash flows of Allied Healthcare during the period to disposal are as follows:
Operating
Investing
Financing
Net cash (outflow)/inflow
2016
£’m
2015
£’m
206.2
283.2
(149.2)
(199.8)
57.0
(55.7)
83.4
(74.4)
1.3
(2.7)
(6.4)
(0.4)
(8.2)
0.3
(7.9)
(8.2)
0.3
(7.9)
2016
£’m
(12.2)
0.1
8.4
(3.7)
9.0
(2.8)
(8.4)
(0.3)
(2.5)
2.2
(0.3)
(0.7)
0.4
(0.3)
2015
£’m
3.6
(3.5)
–
0.1
34 Related party transactions
During the year ended 31 January 2016, the Saga Group agreed terms for the utilisation under the group relief rules of corporation
tax losses from Acromas SPC Co Limited and Acromas Mid Co Limited, indirect investees in the Group, at a cost of 50% of the
tax affected face value. Amounts payable by the Group in respect of the surrender of these tax losses of £7.6m were unpaid at
31 January 2016 (see note 9).
G Williams, an independent Non-Executive Director of Saga plc, serves on the board of WNS (Holdings) Limited, a company
which Acromas Insurance Company Limited, a subsidiary of Saga plc, traded with during the year. WNS (Holdings) Limited provides
claim handling management services to Acromas Insurance Company Limited and during the year ended 31 January 2016 earned
fees of £3.5m (2015: £5.8m); further payments to WNS (Holdings) Limited in respect of repair costs on claims handled totalled
£40.2m (2015: £41.9m). As at 31 January 2016, amounts owing to WNS (Holdings) Limited for fees and repair costs were
£1.5m (2015: £3.7m).
172
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
169
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
35 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.
Name
Country of registration
Nature of business
Acromas Financial Services Limited
Acromas Holidays Limited
Acromas Insurance Company Limited
Acromas Shipping Limited
Acromas Transport Limited
Bel Jou (St Lucia) Limited
Bennetts Biking Services Limited
CHMC Limited
Destinology Limited
Direct Choice Insurance Services Limited
Enbrook Cruises Limited
MetroMail Limited
Premium Funding Limited
Saga Cruises IV Limited
Saga Cruises Limited
Saga Healthcare Limited
Saga Mid Co Limited
Saga Property Company (St Lucia) Limited
Saga Publishing Limited
Saga Services Limited
Titan Transport Limited
Acromas Holidays (USA) Inc.
Allied Healthcare International LLC
Automobile Association Travel Limited
CHMC Holdings Limited
Saga 200 Limited
Saga 300 Limited
Saga 400 Limited
Saga Establecimientos Hoteleros, S.L.
Saga Group Limited
Saga Holdings Limited
Saga Hotels (Caribbean) Limited
Saga Leisure Limited
Saga Overseas SL
Saga Properties (Caribbean) Limited
Saga Properties Limited
Acromas Travel Limited
All Canada Limited
Canadian Connections Limited
Confident Services Limited
England
England
Gibraltar
England
England
St Lucia
England
England
England
England
England
England
England
England
England
England
England
St Lucia
England
England
England
USA
USA
England
England
England
England
England
Spain
England
England
St Lucia
England
Spain
St Lucia
England
England
England
England
England
Regulated investment products
Tour operating
Insurance underwriting
Cruising
Tour operating
Hotel operator
Insurance services
Motor accident management
Tour operating
Insurance services
Cruising
Mailing house
Insurance services
Cruising
Cruising
Provision of domiciliary care
Debt service provider
Property Investment
Publishing
Insurance services
Tour operating
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Dormant company
Dormant company
Dormant company
Dormant company
170
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
173
Financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
35 Subsidiaries (continued)
Name
Connections Worldwide Holidays Limited
Country Cousins (Horsham) Limited
Driveline Europe Limited
Driveline Travel Limited
Enbrook Services Limited
Grand Touring Club (France) Limited
Grand Touring Club Limited
Grandstand Sports Tours Limited
Grandstand Worldwide Limited
Inter-Church Travel Limited
New Zealand Connections Limited
Patricia White's Personal Home Care Limited
PEC Services Limited
Saga (International) Holidays Limited
Saga 500 Limited
Saga Coach Holidays Limited
Saga Communications Limited
Saga Cruises BDF Limited
Saga Cruises II Limited
Saga Cruises III Limited
Saga Cruises V Limited
Saga Cruises VI Limited
Saga Digital Radio Limited
Saga Financial Limited
Saga Financial Planning Limited
Saga Flights.com Limited
Saga Holidays Limited
Saga Homes Limited
Saga Independent Living Limited
Saga Investments Limited
Saga Media Limited
Saga Personal Finance Limited
Saga Property Management Limited
Saga Radio (North West) Limited
Saga Retirement Housing Limited
Saga Rose Limited
Saga Ruby Limited
Saga Shipping Company Limited
Saga Tours Limited
Saga Ventures Limited
Country of registration
Nature of business
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
174
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
171
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
35 Subsidiaries (continued)
Name
Saga Vitamins Limited
Spirit Of Adventure Cruises Limited
Spirit Of Adventure Holidays Limited
Spirit Of Adventure Limited
Tailor-Made Travel Limited
Taylor Price Insurance Services Limited
The Classic Traveller Limited
Titan Aviation Limited
Titan Connections Limited
Titan Connections To Australia Limited
Titan Connections To Italy Limited
Titan Hitours Limited
Titan Investment Property Company Limited
Titan Music Productions Limited
Titan Personal Finance Limited
Titan Specialist Tours Limited
Titan Travel Holdings Limited
Titan Travel Limited
Country of registration
Nature of business
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
36 Investment in joint ventures
During the year, the Group held an interest in two joint ventures:
a. Saga Law Limited
The Group held a 49% interest in Saga Law Limited, a company registered in England and Wales, up to 23 November 2015. This
was accounted for using the equity method in the consolidated financial statements. The joint venture contributed a share of profit
of £0.1m after tax.
b. Saga Investment Services Limited
The Group holds a 50% interest in Saga Investment Services Limited, a company registered in England and Wales. This is
accounted for using the equity method in the consolidated financial statements. The joint venture contributed a share of a loss
of £1.4m after tax. The investment has a carrying value of £1.6m as at 31 January 2016.
172
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
175
Financial statements
COMPANY FINANCIAL STATEMENTS OF SAGA PLC
COMPANY FINANCIAL STATEMENTS OF SAGA PLC
BALANCE SHEET
BALANCE SHEET
Non-current assets
Investment in subsidiaries
Current assets
Debtors
Creditors – amounts falling due within one year
Net current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss reserve
Other reserves
Total shareholders’ funds
Company number: 08804263
Signed for and on behalf of the Board on 18 April 2016 by
L H L Batchelor
Group Chief Executive Officer
J S Hill
Group Chief Financial Officer
The notes on pages 178-182 form an integral part of these financial statements.
Note
2016
£’m
2015
£’m
2
2,100.6
2,099.2
3
4
5
0.9
0.2
114.1
(113.2)
33.8
(33.6)
1,987.4
2,065.6
11.2
519.3
11.1
519.4
1,439.0
1,494.3
17.9
40.8
1,987.4
2,065.6
176
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
173
COMPANY FINANCIAL STATEMENTS OF SAGA PLC
COMPANY FINANCIAL STATEMENTS OF SAGA PLC
STATEMENT OF CHANGES IN EQUITY
STATEMENT OF CHANGES IN EQUITY
Called up
share
capital
£’m
Share
premium
account
£’m
Retained
earnings
£’m
At 2 May 2014
Issue of share capital on flotation
Costs associated with issue of share capital
Issue of treasury shares
Loss for the period
Dividends paid
Share-based payment charge
Exercise of share options
At 31 January 2015
Loss for the financial year
Bonus shares issued
Dividends
Share-based payment charge
Exercise of share options
Issue of free shares (note 5)
At 31 January 2016
Share-
based
payment
reserve
£’m
–
–
–
–
–
–
Total
equity
£’m
3,539.6
550.0
(27.6)
0.1
(768.8)
(1,269.5)
41.8
–
–
3,531.6
–
–
–
(768.8)
(1,269.5)
547.0
(27.6)
–
–
–
–
–
–
1.0
41.8
(1.0)
519.4
1,494.3
40.8
2,065.6
–
(0.1)
–
–
–
–
(8.8)
–
(70.4)
–
11.0
12.9
–
–
–
2.8
(12.8)
(12.9)
(8.8)
–
(70.4)
2.8
(1.8)
–
8.0
3.0
–
0.1
–
–
–
–
11.1
–
0.1
–
–
–
–
11.2
519.3
1,439.0
17.7
1,987.4
174
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
177
Financial statements
NOTES TO THE COMPANY
NOTES TO THE COMPANY
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
1 Accounting policies
a. Accounting convention
These financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’
(‘FRS 101’) and in accordance with applicable accounting standards. 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.
The Company’s financial statements are presented in sterling and all values are rounded to the nearest million pounds (£’m) except
when otherwise indicated.
The Company transitioned from previously extant United Kingdom Generally Accepted Accounting Practice (‘UK GAAP’) to FRS 101
for all periods presented. Transition reconciliations showing all material adjustments are disclosed in note 6. The accounting policies
which follow set out those policies which apply in preparing the financial statements for the year ended 31 January 2016.
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 £8.8m
(2015: £768.8m).
The Company has taken advantage of the following disclosure exemptions under FRS 101:
a)
b)
c)
d)
e)
f)
g)
h)
i)
The requirements of IFRS 7 ‘Financial Instruments: Disclosures’.
The requirements of paragraphs 91-99 of IFRS 13 ‘Fair Value Measurement’.
The requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information
in respect 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 Financial Statements’.
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 paragraph 17 of IAS 24 ‘Related Party Disclosures’.
The requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two
or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such
a member.
The requirements of IFRS 1.6 and IFRS 1.21 on the comparative period for first time adopters of IFRS.
Investments in subsidiaries are accounted for at the lower of cost and net realisable value and reviewed for impairment when events
or changes in circumstances indicate the carrying value may not be recoverable.
b. Investments
Investments in Group undertakings are stated at the lower of cost and net realisable value.
c. Deferred tax
Deferred tax is provided using the liability method 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.
178
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
175
NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
1 Accounting policies (continued)
c. Deferred tax (continued)
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, in which case the deferred tax is dealt with in other comprehensive income.
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.
d. 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.
176
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
179
Financial statements
NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
2 Investment in subsidiaries
Cost
At 2 May 2014
Additions
Capital contributions arising from share-based payments
At 31 January 2015
Capital contributions arising from share-based payments
At 31 January 2016
Amounts provided for
At 2 May 2014
Amounts provided in the period
At 31 January 2015
Amounts provided in the year
At 31 January 2016
Net book value
At 31 January 2016
At 31 January 2015
See note 35 to the consolidated financial statements for a list of the Company’s investments.
3 Debtors
Deferred tax asset
Other debtors
All amounts above are due in less than one year.
4 Creditors – amounts falling due in less than one year
Amounts owed to Group undertakings
Other creditors
£’m
3,539.6
544.8
41.2
4,125.6
1.4
4,127.0
–
2,026.4
2,026.4
–
2,026.4
2,100.6
2,099.2
2015
£'m
0.1
0.1
0.2
2015
£'m
31.1
2.7
33.8
2016
£'m
0.3
0.6
0.9
2016
£'m
109.7
4.4
114.1
180
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
177
NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
5 Called up share capital
Allotted, called up and fully paid
At 1 May 2014
Issue of share capital on flotation
As at 31 January 2015
Free shares allotted – 5 June 2015
As at 31 January 2016
Number
Ordinary shares
Nominal value
£
800,000,000
310,705,405
1,110,705,405
7,300,000
1,118,005,405
0.01
0.01
0.01
0.01
0.01
Value
£’m
8.0
3.1
11.1
0.1
11.2
On 29 May 2014, Saga plc was admitted to the London Stock Exchange, issuing 310,705,405 £0.01 shares, raising £550m of
funds to clear existing bank debt (note 28 to the consolidated financial statements). The share premium arising on this transaction
was £547.0m.
On 5 June 2015, the Company issued 7.3 million free shares as part of the offer during the IPO.
6 Transition to FRS 101
For all periods up to and including the year ended 31 January 2015, the Company prepared its financial statements in accordance
with previously extant UK GAAP. These statements, for the year ended 31 January 2016, are the first the Company has prepared
in accordance with FRS 101.
Accordingly, the Company has prepared individual financial statements which comply with FRS 101 applicable for periods beginning
on or after 1 February 2014 and the significant accounting policies meeting those requirements are described in the relevant notes.
In preparing these financial statements, the Company has started from an opening balance sheet as at 1 February 2014, the
Company’s date of transition to FRS 101, and made those changes in accounting policies and other restatements required for the
first-time adoption of FRS 101. As such, this note explains the principal adjustments made by the Company in restating its balance
sheet as at 1 February 2014 prepared under extant UK GAAP and its previously published UK GAAP financial statements for the
year ended 31 January 2015.
178
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
181
Financial statements
NOTES TO THE COMPANY
FINANCIAL STATEMENTS CONTINUED
6 Transition to FRS 101 (continued)
Reconciliation of equity as at 31 January 2015
Fixed assets
Investment in subsidiaries
Current assets
Debtors
Note
UK
GAAP
£’m
2,099.2
FRS 101
Re-classification/
re-measurements
£’m
FRS 101
£’m
2,099.2
0.2
0.2
Creditors – amounts falling due within one year
(a)
(33.8)
–
(33.8)
Net current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Retained earnings
Share-based payment reserve
Shareholders’ funds
(33.6)
2,065.6
11.1
519.4
(a)
1,494.3
40.8
2,065.6
(33.6)
2,065.6
11.1
519.4
–
1,494.3
40.8
2,065.6
a. Employee benefits
Holiday pay accrual – On transition to FRS 101, a holiday pay accrual has been accounted for of £15,000 at 31 January 2015
(£nil at 1 February 2014).
182
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
179
SHAREHOLDER
INFORMATION
Financial calendar
2016 Annual General Meeting –
21 June 2016
Final dividend dates
Announcement date – 19 April 2016
Ex-dividend date – 12 May 2016
Record date – 13 May 2016
Last day for DRIP elections – 5 June 2016
Payment date – 30 June 2016
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 a 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 speed of communication,
reduce our impact on the environment
and keep costs to a minimum.
You can change your communication
preference via the Saga Shareholder
Services Portal www.sagashareholder.
co.uk or by contacting Saga
Shareholder Services. In order to
register on the portal you require your
11-digit investor code (‘IVC’). You can
find your IVC on recent communications
such as your share certificate. The Saga
Shareholder Services Portal allows you
to manage your shareholding easily and
securely online. You can also change
your personal details, view your holding
and get an indicative valuation, view
dividend information, register proxy
voting instructions, reinvest your
dividends to buy additional Saga
plc shares, buy and sell shares and
register bank details so that dividends
can be paid directly to your account.
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 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 potentially lose your money.
5,000 people contact the FCA about
share fraud each year, with victims
losing an average of £20,000. 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
111 6758. If you have already paid money
to share fraudsters you should contact
Action Fraud on 0300 123 2040.
Advisers
Corporate brokers and
financial advisers
Bank of America Merrill Lynch
2 King Edward Street
London EC1A 1HO
Goldman Sachs
Peterborough Court
133 Fleet Street
London EC4A 2BB
Media relations advisers
FTI Consulting
200 Aldersgate
Aldersgate Street
London EC1A 4HD
Independent auditors
Ernst & Young LLP
1 More London Riverside
London SE1 2AF
Legal advisers
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EG4Y 1HT
Information for investors
Information for investors is provided
on the internet as part of the Group’s
corporate website which can be
found at htlp://corporate.saga.co.uk.
Registrars
Capita Asset Services
For shareholder enquiries contact:
Saga Shareholder Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Shareholder Helpline: 0800 015 5429 –
calls to Freephone numbers will vary by
provider. If you are outside the United
Kingdom call +44 203 471 2272 – calls
outside the United Kingdom will be
charged at the applicable international
rate. Lines are open are open 9am to
5.30pm, Monday to Friday, excluding
public holidays in England and Wales.
enquiries@sagashareholder.co.uk
Registered office
Saga Plc
Enbrook Park
Sandgate
Folkestone
Kent CT20 3SE
Corporate websites
Information made available on the
Group’s websites does not, and is not
intended to, form part of these Results.
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016 SAGA PLC
183
GLOSSARY
ABC1 households social grading
based on a system of demographic
classification used in the UK, as defined
by Experian Mosaic data
Accident year the financial year in
which an insurance loss occurs
Active customer a customer that has
purchased an insurance policy in the
last twelve months, or a holiday in the
last three years, or has a live personal
finance product or Saga Magazine
subscription
Add-on an insurance policy that is
actively marketed and sold as an
addition to a core policy
AGM Annual General Meeting
AICL Acromas Insurance
Company Limited
Available operating cash flow net
cash flow from operating activities after
capital expenditure but before tax and
interest paid and exceptional expenses,
which is available to be used by the
Group as it chooses and is not subject
to regulatory restriction
Average number of products held
the average number of Saga products
held by each active customer as at a
certain date. Active customers include
those customers who hold an insurance
product, have taken a holiday in the last
three years or have a live personal
finance or Saga Magazine product
Combined operating ratio the ratio of
the claims costs and expenses incurred
in selling and administering insurance
underwritten (numerator) to the net
earned premium (denominator) in
a given period. Can otherwise be
calculated as the sum of the loss
ratio and expense ratio
Companies Act the UK Companies
Act 2006, as amended from time to time
Company Saga plc
Contactable households the number
of households that are recorded on the
proprietary Group Marketing Database,
with a household being defined as a
single person or couple living at the
same address
Contactable people the number of
people that are recorded on the Group’s
proprietary marketing database that
have not opted out of all marketing
preferences
Continuing operations operations
that are not classified as discontinued
Core policy an insurance policy that
is actively marketed and sold on its own
Expense ratio the ratio of expenses
incurred in selling and administering
insurance underwritten (numerator) to
the net earned premium (denominator)
in a given period
Financial Conduct Authority (FCA)
the independent UK body that regulates
the financial services industry, which
includes general insurance
FTE (Full Time Equivalent) the
number of full-time and part-time
employees expressed as an equivalent
number of full-time employees
GHG Protocol a global standard for
how to measure, manage, and report
greenhouse gas emissions
Gross revenue statutory accounting
revenue plus any net premiums paid
to third party insurers who underwrite
insurance sold by the Group
Gross written premiums the total
premium charged to customers for an
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
DBP Deferred Bonus Plan
Group the Saga plc group
Discontinued operations operations
divested or those that have been
classified as held for sale whose trading
activities relate to a separate line of
business or geographical area
Holidays passengers the number
of passengers that have travelled on
a Saga, Titan or Destinology holiday
in a given period
Board Saga plc Board of Directors
Claims frequency the number of
claims incurred divided by the number
of policies earned in a given period
DTRs (Disclosure Rules and
Transparency Rules) rules published
by the UK Financial Conduct Authority
relating to the disclosure of information
by a company listed in the UK
Claims reserves accounting
provisions that have been set to meet
outstanding insurance claims, IBNR and
associated claims handling costs
Code the UK Corporate Governance
Code published by the UK Financial
Reporting Council from time to time
setting out guidance in the form of
principles and provisions to address
the principal aspects of corporate
governance
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 from continuing
operations (basic) profit after tax from
continuing operations attributable to
ordinary shareholders divided by the
weighted average number of ordinary
shares outstanding during the period
IASB International Accounting
Standards Board
IBNR (incurred but not reported)
a claims reserve provided to meet the
estimated cost of claims that have
occured, but have not yet been
reported to the insurer
IFRS International Financial Reporting
Standards
IPO (Initial Public Offering) the first
sale of shares by a previously unlisted
company to investors on a securities
exchange
184
SAGA PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 JANUARY 2016
Leverage ratio the ratio of net debt to
Trading EBITDA
Net interest expense finance costs
less finance income
LIBOR London inter-bank offered rate
Liquidated damages payments
received in respect of the early
termination of management and
franchise contracts, where applicable
Load factor in relation to cruise ships,
the number of passenger days travelled
divided by the maximum number of
passenger days that could be travelled,
in a given period
Loss ratio a ratio of the claims costs
(numerator) to the net earned premium
(denominator) in a given period
LR (Listing Rules) a set of mandatory
regulations set from time to time by the
UK Financial Conduct Authority and
applicable to a company listed in the UK
LTIP Long-Term Incentive Plan
Malus an arrangement that permits the
forfeiture of unvested remuneration
awards, in circumstances the Company
considers appropriate
M&A Mergers and Acquisitions
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 debt bank debt and borrowings,
excluding any overdrafts held by
restricted trading subsidiaries, net of
available cash
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
Operating profit profit before interest
payable, tax, exceptional expenses and
fair value gains and losses on derivative
financial instruments
PBT profit before tax
PMI private medical insurance
Policies sold the number of core and
add-on insurance policies sold to
customers in a given period, measured
by reference to the cover start date of
the policy
PPO (Periodical payment order)
claims payments as awarded under the
Courts Act 2003. PPOs are used to settle
large personal injury claims, and they
generally provide claimants who require
long-term care with a lump sum award
plus inflation-linked annual payments
RDR 1 and RDR 2 residence, domicile
and the remittance basis UK tax rules
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
RMM (required minimum margin) a
measure used under Solvency I to assess
the minimum level of solvency capital an
insurance underwriter must retain
Net earned premium earned premium
net of any outward earned reinsurance
premium paid
RPI Retail Price Index
Ship passenger days the total number
of days passengers have travelled on a
ship, or ships, in a given period
SIP Share Incentive Plan
SIPP self invested personal pension
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.
Solvency II came into effect on
1 January 2016
TBI Tilney Bestinvest
tCO2e tonnes of carbon dioxide
equivalent, which is a measure that
allows comparison of the emissions of
other greenhouse gases relative to one
unit of CO2
Trading EBITDA earnings before
interest payable, tax, depreciation and
amortisation, exceptional expenses and
fair value gains and losses on derivative
financial instruments
Trading profit Trading EBITDA
less depreciation and amortisation,
excluding amortisation of acquired
intangibles
TSR (total shareholder return) the
theoretical growth in value of a
shareholding over a period, by reference
to the beginning and ending share price,
and 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
UW underwriting
Designed and produced by Luminous
www.luminous.co.uk
Saga plc
Enbrook Park
Sandgate
Folkestone
Kent
CT20 3SE
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